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)
4151 Amon Carter Boulevard, MD 2450
Fort Worth, Texas 76155
(Address of principal executive offices)-(Zip code)
WILLIAM F. QUINN, PRESIDENT
4151 Amon Carter Boulevard, MD 2450
Fort Worth, Texas 76155
(Name and address of agent for service)
Registrant's telephone number, including area code: (817) 967-3509
Date of fiscal year end: October 31, 2005
Date of reporting period: October 31, 2005
ITEM 1. REPORT TO STOCKHOLDERS.
G U I D A N C E | V I S I O N | E X P E R I E N C E
[AMERICAN BEACON FUNDS LOGO]
ANNUAL REPORT
[PHOTO]
OCTOBER 31, 2005
EQUITY FUNDS
Balanced Fund
Large Cap Value Fund
Large Cap Growth Fund
Mid-Cap Value Fund
Emerging Markets Fund
BOND FUNDS
High Yield Bond Fund
Enhanced Income Fund
Intermediate Bond Fund
Short-Term Bond Fund
Formerly known as the
American AAdvantage Funds
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.
<Table>
<Caption>
Contents
-----------------------------------------------
President's Message........... 1
American Beacon Funds'
Performance ............... 2
Market and Performance
Overviews.................. 3-28
American Beacon Schedules of Investments
Balanced Fund.............. 30
Large Cap Value Fund....... 39
Large Cap Growth Fund...... 43
Mid-Cap Value Fund......... 48
Emerging Markets Fund...... 51
High Yield Bond Fund....... 58
Enhanced Income Fund....... 66
Intermediate Bond Fund..... 72
Short-Term Bond Fund....... 78
Additional Information........ Back Cover
</Table>
Any opinions herein, including forecasts, reflect our judgement 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.
Investing in foreign equities entails additional risk not associated with
domestic equities, such as currency fluctuations, economic and political
instability and differences in accounting standards.
American Beacon Funds October 31, 2005
(BILL QUINN PICTURE)
FELLOW SHAREHOLDERS,
Iam pleased to present you
with the Annual Report for
the American Beacon Funds
for the year ended October
31, 2005. As investors
faced increasing oil
prices, rising interest
rates and devastating
hurricane damage, most
financial markets
experienced modest growth.
The Dow Jones Industrial
Average posted gains of
6.5%, the S&P 500 Index
increased by 8.7% and the
MSCI EAFE Index returned
18.1%. As of October 31,
2005, the 10-Year Treasury
interest rate was 4.6%,
resulting in a 1.13% total
return for the bond market, as defined by the Lehman Brothers Aggregate Index.
Additionally, the Federal Reserve increased the Fed Funds Rate to 3.75%, up 200
basis points (2.0%) from a year ago.
The American Beacon equity funds posted strong returns in both absolute and
relative terms for the fiscal year as many funds reported positive double digit
returns. The Balanced and Large Cap Value Funds posted gains of 10.5% and 16.6%,
respectively, for the period and surpassed their respective Lipper benchmarks
for the one-year period ended October 31, 2005. Our Mid-Cap Value
Fund-Institutional Class outperformed its respective Lipper peer group with a
return of 14.6% for the year. The Institutional Class of the Emerging Markets
Fund posted a positive return of 30.1% for the twelve months.
On the fixed-income front, we saw rising rates offset our coupons to some
extent resulting in modest but positive returns. The Enhanced Income, High Yield
Bond, Intermediate Bond and Short-Term Bond Funds all posted positive returns
for the twelve month period.
Please review the enclosed market overviews, portfolio listings and
detailed financial data. As always, we welcome the opportunity to serve your
financial needs. To obtain further details about the American Beacon Funds
family or access your account information, please visit our web site at
www.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Funds.
Sincerely,
/s/ WILLIAM F. QUINN
William F. Quinn
President, American Beacon Funds
Performance shown is historical and may not be 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 as of date
indicated and may differ from current performance. To obtain performance as of
the most recent month end, please visit www.americanbeaconfunds.com or call
1-800-967-9009.
1
AMERICAN BEACON FUNDS
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUALIZED TOTAL RETURN AS OF
OCTOBER 31, 2005
---------------------------------------
INCEPTION TICKER 10 YEAR/
DATE SYMBOL 1 YEAR 3 YEAR 5 YEAR SINCE INCEP.
--------- ------ ------ ------ ------ ------------
Balanced Fund -- Institutional 7/17/87 AADBX 10.53% 14.32% 8.09% 9.04%
Balanced Fund -- PlanAhead 8/1/94 AABPX 10.12% 13.91% 7.79% 8.74%
Balanced Fund -- Service 5/31/05 ABLSX 9.81% 13.80% 7.73% 8.70%
Balanced Fund -- AMR 8/1/94 AABNX 10.63% 14.54% 8.37% 9.33%
Lipper Balanced Funds Index 7.16% 10.45% 2.58% 7.72%
Large Cap Value Fund -- Institutional 7/17/87 AADEX 16.64% 20.76% 8.96% 10.64%
Large Cap Value Fund -- PlanAhead 8/1/94 AAGPX 16.33% 20.44% 8.65% 10.32%
Large Cap Value Fund -- Service 5/31/05 AVASX 16.16% 20.38% 8.62% 10.30%
Large Cap Value Fund -- AMR 8/1/94 AAGAX 16.95% 21.07% 9.23% 10.92%
Lipper Multi-Cap Value Funds Index 11.13% 16.90% 5.78% 10.08%
Large Cap Growth Fund -- Institutional 7/31/00 ALCGX 7.06% 11.44% -8.04% -8.49%
Large Cap Growth Fund -- AMR 7/31/00 ALFIX 7.22% 11.54% -7.93% -8.37%
Lipper Large-Cap Growth Funds Index 12.09% 10.88% -7.90% -8.43%
Mid-Cap Value Fund -- Institutional 6/30/04 AMDIX 14.63% N/A N/A 13.01%
Lipper Mid-Cap Value Funds Index 13.73% N/A N/A 10.60%
Emerging Markets Fund -- Institutional 7/31/00 AEMFX 30.11% 32.22% 15.64% 10.50%
Emerging Markets Fund -- PlanAhead 10/1/02 AAEPX 29.95% 31.92% 15.45% 10.34%
Emerging Markets Fund -- AMR 7/31/00 AAMRX 30.43% 32.56% 15.92% 10.79%
Lipper Emerging Markets Funds Index 32.97% 33.86% 14.86% 10.51%
High Yield Bond Fund -- Institutional 12/29/00 AYBFX 3.03% 10.89% N/A 9.13%
High Yield Bond Fund -- PlanAhead 3/1/02 AHYPX 2.69% 10.52% N/A 8.71%
High Yield Bond Fund -- Service 5/1/03 AAHSX 2.33% 9.97% N/A 8.37%
Lipper High Current Yield Funds Index 4.12% 14.62% N/A 6.60%
Enhanced Income Fund -- PlanAhead 7/1/03 AANPX 1.32% N/A N/A 2.71%
Lipper Interm. Investment Grade Index 1.40% N/A N/A 2.47%
Intermediate Bond Fund -- Institutional 9/15/97 AABDX 1.26% 3.74% 5.99% 5.78%
Intermediate Bond Fund -- PlanAhead 3/2/98 AAPAX 0.54% 3.20% 5.44% 5.34%
Lipper Interm. Investment Grade Index 1.40% 4.40% 6.16% 5.85%
Short-Term Bond Fund -- Institutional 12/3/87 AASBX 1.00% 2.40% 4.32% 4.93%
Short-Term Bond Fund -- PlanAhead 8/1/94 AALPX 0.46% 1.89% 3.85% 4.43%
Lipper Short Investment Grade Index 1.12% 2.13% 3.79% 4.61%
</Table>
Performance shown is historical and may not be 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 as of date
indicated and may differ from current performance. To obtain performance as of
the most recent month end, please visit www.americanbeaconfunds.com or call
1-800-967-9009.
Performance shown for the PlanAhead and AMR Classes prior to their inception
dates is that of the Institutional Class. Performance shown for the Service
Class prior to its inception date is that of the Institutional and PlanAhead
Classes since their inception dates. Fund performance does not reflect the
deduction of taxes a shareholder would pay on distributions or the redemption of
shares.
2
DOMESTIC EQUITY MARKET OVERVIEW
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Toward the end of 2004, the U.S. equity markets rallied, posting particularly
strong results. The broad market surged in the final quarter of 2004, as many
indicators pointed to a respectable expansion and election uncertainty was
removed. Strong Gross Domestic Product (GDP) growth, a gradually improving labor
market and easing of oil prices from prior highs were all factors that
contributed to the rally.
Stocks got off to a weak start in the first quarter of 2005. Though
productivity and economic growth remained strong, equities faced dual headwinds
of rising oil prices and interest rates. While both styles struggled, value
stocks in the Russell indices outperformed their growth counterparts in the
first quarter. With regard to size, mid-cap stocks held up the best, followed by
large caps. Small cap issues trailed in the quarter, likely on pressure from
profit taking after several quarters of outperformance. Sector performance
varied widely in the S&P 500 Index, with more than 25 percentage points
separating the top performer from the bottom. Four of the ten sectors advanced
in the first quarter. Energy was by far the strongest performer in the quarter,
posting a total return of +17.58%. Telecommunication Services, Information
Technology, Financials and Consumer Discretionary were the worst-performing
sectors in the first quarter, all declining more than 5%.
Despite record oil prices and decelerating growth in U.S. operating
earnings, most major domestic equity indices managed to reverse course from the
prior quarter and eke out low single-digit gains in the second quarter of 2005.
Overall, growth stocks in the Russell indices outperformed their value
counterparts in the second quarter. With regard to size, small cap stocks
performed the best, followed by midcaps, with large cap issues bringing up the
rear. Sector performance varied widely in the S&P 500 Index, with more than 18
percentage points separating the leader from the laggard, and six of the ten
sectors advanced. The defensive Utilities sector was the strongest performer,
rising 9.31%. Materials was the worst-performing sector, posting a total return
of -9.46%.
During the third quarter of 2005, stocks posted solid gains across the
board. Overall, growth stocks in the Russell indices outperformed their value
counterparts in the third quarter. With regard to size, midcap stocks performed
the best, followed by small caps, with large cap issues bringing up the rear.
Sector performance again varied widely in the S&P 500 Index, with more than 19
percentage points separating the leader from the laggard, with all but two of
the ten sectors advancing during the quarter. Sky-rocketing oil prices made
Energy the big winner, rising 18.25%. The Telecommunication Services and
Consumer Discretionary sectors were both in negative territory, posting total
returns of -1.05% and -0.88%, respectively. Some investors were disappointed
that the Fed didn't decide to hold off on its rate hike in the wake of Hurricane
Katrina. While both Katrina and Rita were tragic events with significant human
as well as economic loss, the Federal Open Market Committee (FOMC) stated that
it believes the impact on the economy will be transitory. As largely expected,
the FOMC raised the Federal Funds target 25 basis points (.25%) at both its
August and September meetings to stand at 3.75%.
The U.S. stock market pulled back slightly in October, with the major
equity indices posting low-single digit losses. Contrary to recent trends,
growth stocks outperformed their value counterparts for the month. With respect
to size, large cap issues led, followed by mid-caps, with small cap stocks
trailing the pack. Most international equity markets reported low- to mid-single
digit loses for the month. Only two of the ten sectors in the S&P 500 Index
posted gains in October. The best-performing sectors were Financials and
Materials, returning 3.16% and 0.51%, respectively. Energy was the
worst-performing sector with a return of -9.35%.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON BALANCED FUND(SM)
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The Balanced Fund's Institutional Class returned 10.53% for the twelve
months ended October 31, 2005, outperforming the 60% S&P 500 Barra Value/40%
Lehman Brothers Aggregate Index benchmark return of 6.58% and the Lipper
Balanced Funds Index return of 7.16%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/95 THROUGH 10/31/05
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER S&P 500 /
INSTITUTIONAL BALANCED S&P 500 BARRA VALUE LEHMAN BROS
CLASS FUNDS INDEX INDEX INDEX AGG INDEX
------------- ----------- ------- ----------- -----------
10/95 10000 10000 10000 10000 10000
10/96 11646 11450 12409 12461 10583
10/97 13980 13769 16394 16162 11527
10/98 15244 15250 19998 18059 12601
10/99 15324 17167 25132 21492 12668
10/00 16111 18525 26663 23573 13593
10/01 16766 16904 20024 19231 15572
10/02 15904 15616 16998 16196 16489
10/03 19049 18147 20534 20216 17299
10/04 21500 19635 22468 23139 18255
10/05 23764 21041 24427 25493 18462
<Caption>
BALANCED
COMPOSITE
INDEX
---------
10/95 10000
10/96 11684
10/97 14162
10/98 15791
10/99 17605
10/00 19191
10/01 18021
10/02 16763
10/03 19598
10/04 21720
10/05 23149
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
--------------------------- VALUE OF
PERIODS ENDED 10/31/05 $10,000
--------------------------- 10/31/95-
1 YEAR 5 YEARS 10 YEARS 10/31/05
------ ------- -------- ---------
Institutional Class(1).... 10.53% 8.09% 9.04% $23,764
PlanAhead Class(1)........ 10.12% 7.79% 8.74% $23,104
Service Class(1).......... 9.81% 7.73% 8.70% $23,038
AMR Class(1).............. 10.63% 8.37% 9.33% $24,401
Lipper Balanced Funds
Index.................... 7.16% 2.58% 7.72% $21,041
S&P 500 Index(2).......... 8.72% -1.74% 9.34% $24,427
S&P 500/Barra Value
Index(2)................. 10.17% 1.58% 9.81% $25,493
Lehman Bros. Aggregate
Index(2)................. 1.13% 6.31% 6.32% $18,462
Balanced Composite
Index(3)................. 6.58% 3.82% 8.76% $23,149
</Table>
1. Performance shown is historical and may not be 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 as of date indicated and may differ from current
performance. To obtain performance as of the most recent month end,
please visit www.americanbeaconfunds.com or call
1-800-967-9009. Fund performance in the table above does
not reflect the deduction of taxes a shareholder would pay on distributions
or the redemption of shares.
2. The S&P 500 Index is an unmanaged index of common
stocks publicly traded in the United States. The S&P 500/ Barra Value Index
is a market value weighted index of stocks with book-to-price ratios in the
top 50% of the S&P 500 Index. The Lehman Brothers Aggregate Index is a
market value weighted index of government, corporate, mortgage-backed and
asset-backed fixed-rate debt securities of all maturities.
3. 60% S&P 500/Barra Value, 40% LB Aggregate Index
During the twelve-month period, the Fund's assets on average were invested
66% in equities (including equitized cash) and 34% in fixed-income securities,
ending the period with 65% in equities/equitized cash and 35% in fixed-income
securities.
The equity portion of the Fund excluding equitized cash returned 18.8%,
outperforming the S&P 500/Barra Value Index ("Barra Value Index") return of
10.2%. The Fund's stock holdings added value relative to the Barra Value Index
mostly through stock selection although sector allocation also was positive.
Stock selection in the Consumer Discretionary and Financials sectors contributed
most to the Fund's excess performance. In the Consumer Discretionary sector, the
Fund's positions in Sears Holdings Corp. (up 44.2%), Centex Corp. (up 24.3%) and
MGM Mirage, Inc. (up 38.9%) had the largest impact, while MetLife, Inc. (up
30.4%), Prudential Financial Inc. (up 58.7%) and The St. Paul Travelers
Companies, Inc. (up 35.7%) were the largest contributors to the positive
performance of the Financials sector. Selection in the Consumers Staples and
Industrials sectors was also a source of significant added value. Strong
performers included Altria Group (up 62.0%) and Dean Foods Co. (up 42.6%) in the
Consumer Staples sector and Boeing Co. (up 31.7%) and Burlington Northern Santa
Fe Corp. (up 50.5%) in the Industrials sector.
Equity sector allocation also had an impact on the Fund's relative returns
during the twelve-month period. The Fund was underweight in the Energy sector in
November 2004 but benefited from an overweight in this best performing sector of
the Barra Value Index over the rest of the twelve months. Underweighting the
Telecommunications Services and Consumer Discretionary sectors, the two poorest
performing sectors of the Barra Value Index, also added value.
4
PERFORMANCE OVERVIEW
AMERICAN BEACON BALANCED FUND(SM) -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The fixed-income portion of the Fund returned 0.5% for the twelve-month
period, lagging the Lehman Brothers Aggregate Index ("Lehman Index") return of
1.1%. The Fund's fixed-income underperformance was due mostly to its
significantly longer duration relative to the Lehman Index during February and
the early part of March as interest rates were rising. The Fund's duration has
been significantly shorter than the Lehman Index since the latter part of March,
which has generally been positive for the Fund's performance during the last few
months of the Fund's fiscal year.
The sub-advisors continue to focus on the disciplined selection of
attractive securities with a goal of long-term added value.
TOP TEN EQUITY HOLDINGS
<Table>
<Caption>
% OF
EQUITIES
--------
ConocoPhillips 3.4%
Citigroup, Incorporated 2.5%
Altria Group, Incorporated 2.5%
Tyco International Limited 1.9%
Bank of American Corporation 1.9%
MetLife, Incorporated 1.8%
The St. Paul Travelers Companies, Incorporated 1.8%
Electronic Data Systems Corporation 1.8%
Washington Mutual, Incorporated 1.7%
Computer Associates International, Incorporated 1.6%
-----
Total 20.9%
Top Ten Equity Holdings as % of Total Net Assets 12.2%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 30.4%
Industrials 12.2%
Energy 10.9%
Consumer Staples 9.3%
Consumer Discretionary 8.5%
Health Care 7.8%
Information Technology 7.1%
Utilities 5.6%
Materials 5.5%
Telecommunication Services 2.8%
</Table>
FIXED-INCOME SECTOR ALLOCATION
<Table>
<Caption>
% OF
FIXED INCOME
------------
U.S. Treasury 30.2%
Mortgage-Backed 29.3%
Corporates 23.4%
Agency 16.5%
Asset-Backed 0.6%
</Table>
5
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the Large Cap Value Fund returned 16.64% for the
twelve months ended October 31, 2005, well ahead of the S&P 500/Barra Value
Index ("Index") return of 10.17% and the Lipper Multi-Cap Value Funds Index
return of 11.13%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/95 THROUGH 10/31/05
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER MULTI-CAP S&P 500/BARRA
INSTITUTIONAL CLASS VALUE FUNDS INDEX S&P 500 INDEX VALUE INDEX
------------------- ----------------- ------------- -------------
10/95 10000 10000 10000 10000
10/96 12337 12055 12409 12461
10/97 15798 15583 16394 16162
10/98 16790 16333 19998 18059
10/99 17078 17948 25132 21492
10/00 17900 19718 26663 23573
10/01 17504 18470 20024 19231
10/02 15609 16350 16998 16196
10/03 19870 20810 20534 20216
10/04 23563 23500 22468 23139
10/05 27484 26116 24427 25493
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
--------------------------- VALUE OF
PERIODS ENDED 10/31/05 $10,000
--------------------------- 10/31/95-
1 YEAR 5 YEARS 10 YEARS 10/31/05
------ ------- -------- ---------
Institutional
Class(1).............. 16.64% 8.96% 10.64% $27,484
PlanAhead Class(1)..... 16.33% 8.65% 10.32% $26,701
Service Class(1)....... 16.16% 8.62% 10.30% $26,662
AMR Class(1)........... 16.95% 9.23% 10.92% $28,188
Lipper Multi-Cap Value
Funds Index........... 11.13% 5.78% 10.08% $26,116
S&P 500 Index(2)....... 8.72% -1.74% 9.34% $24,427
S&P 500/Barra Value
Index(2).............. 10.17% 1.58% 9.81% $25,493
</Table>
1. Performance shown is historical and may not be 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 as of date indicated and may differ from current
performance. To obtain performance as of the most recent month end, please
visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance
in the table above does not reflect the deduction of taxes a shareholder
would pay on distributions or the redemption of shares.
2. The S&P 500 Index is an unmanaged index of common stocks
publicly traded in the United States. The S&P 500/Barra Value Index is a
market value weighted index of stocks with book-to-price ratios in the top
50% of the S&P 500 Index.
The Fund outperformed the Index primarily through strong stock selection,
although sector allocation also added to the excess performance.
From a stock selection standpoint, the largest contributors were in the
Consumer Discretionary and Financials sectors. The companies with the most
impact in the Consumer Discretionary sector were Sears Holdings Corp. (up
44.2%), J.C. Penney Company, Inc. (up 49.6%) and Centex Corp. (up 24.3%). In the
Financials sector, MetLife, Inc. (up 30.4%) and Prudential Financial, Inc. (up
58.7%) were the largest contributors. Positive stock selection in Consumer
Staples, mostly through Altria Group (up 62.0%) and in Industrials, primarily
through Boeing (up 31.7%) also added meaningful value versus the Index.
Sector weightings also added value during the period. For most of its
fiscal year, the Fund overweighted Energy, the best performing sector of the
Index. An underweight in the Telecommunications Services and Consumer
Discretionary sectors, which were the only sectors of the Index that produced
negative returns, also contributed to the Fund's added value.
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 long-term.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF NET
ASSETS
----------
ConocoPhillips 3.0%
Tyco International Limited 1.9%
Altria Group, Incorporated 1.7%
JP Morgan Chase & Company 1.6%
Citigroup, Incorporated 1.6%
Washington Mutual, Incorporated 1.3%
Electronic Data Systems Corporation 1.2%
MetLife, Incorporated 1.2%
Bank of America Corporation 1.2%
The St. Paul Travelers Companies, Incorporated 1.2%
</Table>
6
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP VALUE FUND(SM) -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 29.7%
Industrials 12.1%
Energy 10.2%
Consumer Discretionary 9.6%
Consumer Staples 9.5%
Information Technology 8.4%
Health Care 7.1%
Materials 5.0%
Utilities 4.2%
Telecommunication Services 4.2%
</Table>
7
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP GROWTH FUND(SM)
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the Large Cap Growth Fund returned 7.06% for the
twelve months ended October 31, 2005, compared to the Russell 1000 Growth Index
("Index") return of 8.81% and the Lipper Large-Cap Growth Funds Index return of
12.09%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/31/00* THROUGH 10/31/05
(LINE GRAPH)
<Table>
<Caption>
LIPPER LARGE-CAP RUSSELL 1000 GROWTH
INSTITUTIONAL CLASS GROWTH FUNDS INDEX INDEX
------------------- ------------------ -------------------
7/00 10000 10000 10000
10/00 9540 9505 9407
10/01 5665 5678 5649
10/02 4534 4620 4541
10/03 5493 5476 5531
10/04 5862 5620 5718
10/05 6276 6299 6222
</Table>
* Inception of Fund
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
------------------------------- VALUE OF
PERIODS ENDED 10/31/05 $10,000
------------------------------- 7/31/00-
1 YEAR 5 YEARS SINCE INCEP. 10/31/05
------ ------- ------------ --------
Institutional
Class(1)............ 7.06% -8.04% -8.49% $6,276
AMR Class(1)......... 7.22% -7.93% -8.37% $6,319
Lipper Large-Cap
Growth Funds
Index............... 12.09% -7.90% -8.43% $6,299
Russell 1000 Growth
Index(2)............ 8.81% -7.93% -8.64% $6,222
</Table>
Russell 1000(R) Growth Index is a service mark of the Frank Russell Company.
1. Performance shown is historical and may not be 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 as of date indicated and may differ from current
performance. To obtain performance as of the most recent month end, please
visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance
in the table above does not reflect the deduction of taxes a shareholder
would pay on distributions or the redemption of shares.
2. Russell 1000(R) Growth Index is a service mark of the Frank
Russell Company. The Russell 1000 Growth Index is an unmanaged index of
those stocks in the Russell 1000 Index with above-average price-to-book
ratios and above-average forecasted growth values.
This has been a positive period for U.S. growth stocks overall. During the
Fund's fiscal year, nine out of ten sectors in the Index posted positive
returns. While sector weighting decisions were additive in six out of ten
sectors and mildly beneficial overall for the Fund, stock selection hurt
relative performance during the period.
The largest value-added sectors for the Fund relative to the Index were
Consumer Staples and Financials. Positions in Altria Group, Inc., 7-Eleven,
Inc., and Gillette Company contributed most to the Consumer Staples sector's
relative performance. In Financials, positions in Loews Corp., Prudential
Financial, Inc. and Moody's Corp. were the largest contributors relative to the
Index. The sectors which detracted most from relative performance were the
Consumer Discretionary and Health Care sectors. The Fund was hurt by Harman
International Industries, Inc., Gannett Co., Inc., and Ebay, Inc. in the
Consumer Discretionary sector while positions in Biogen Idec, Inc., UnitedHealth
Group, Inc., OSI Pharmaceuticals, Inc., and Genentech, Inc. in the Health Care
sector hurt relative performance most.
Looking forward, the Fund's sub-advisors will continue to maintain a
disciplined, long-term approach to equity investing in larger stocks with above
average growth potential.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF NET
ASSETS
----------
General Electric Company 4.7%
Johnson & Johnson 3.3%
Microsoft Corporation 3.0%
Amgen, Incorporated 2.7%
Altria Group, Incorporated 2.6%
Intel Corporation 2.4%
The Boeing Company 2.2%
Procter & Gamble Company 2.0%
Google, Incorporated 1.9%
Qualcomm, Incorporated 1.7%
</Table>
8
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP GROWTH FUND(SM) -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Information Technology 23.8%
Health Care 19.6%
Consumer Discretionary 16.1%
Industrials 14.4%
Financials 9.3%
Consumer Staples 9.0%
Energy 3.4%
Materials 2.3%
Utilities 1.5%
Telecommunication Services 0.6%
</Table>
9
PERFORMANCE OVERVIEW
AMERICAN BEACON MID-CAP VALUE FUND(SM)
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the Mid-Cap Value Fund returned 14.63% for the
twelve month period ended October 31, 2005. The Fund trailed the Russell Midcap
Value Index ("Index") return of 19.50% but outperformed the Lipper Mid-Cap Value
Funds Index return of 13.73%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 6/30/04* THROUGH 10/31/05
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER MID-CAP VALUE RUSSELL MIDCAP VALUE
INSTITUTIONAL CLASS FUNDS INDEX INDEX
------------------- -------------------- --------------------
6/04 10000 10000 10000
10/04 10270 10058 10409
10/05 11773 11439 12439
</Table>
<Table>
<Caption>
TOTAL RETURNS
---------------------
PERIODS ENDED VALUE OF
10/31/05 $10,000
--------------------- 6/30/04-
1 YEAR SINCE INCEP. 10/31/05
------ ------------ ----------
Institutional
Class(1)............. 14.63% 13.01% $11,773
Lipper Mid-Cap Value
Funds Index.......... 13.73% 10.60% $11,439
Russell Midcap Value
Index(2)............. 19.50% 17.78% $12,439
</Table>
Russell Midcap(TM) Value Index is a trademark of the Frank Russell Company.
1. Performance shown is historical and may not be 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 as of date indicated and may differ from current
performance. To obtain performance as of the most recent month end, please
visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance
in the table above does not reflect the deduction of taxes a shareholder
would pay on distributions or the redemption of shares.
2. Russell Midcap(TM) Value Index is a trademark of the Frank
Russell Company. The Russell Midcap Value Index is an unmanaged index of
those stocks in the Russell Midcap Index with below-average price-to-book
ratios and below-average forecasted growth values.
The Fund underperformed the Index due to stock selection, as sector
allocation added value. The Fund's investments in the Financials and Consumer
Discretionary sectors detracted most from performance. In the Financials sector,
large positions in XL Capital Ltd. (down 9.2%) and IPC Holdings Ltd. (down
33.4%) accounted for the bulk of the underperformance. In the Consumer
Discretionary sector, the Fund's investment in Lear Corp. (down 42.3%) and
Rent-A-Center, Inc. (down 24.9%) detracted most from performance. Stock
selection in the Health Care sector also hurt the Fund's performance, where
Valeant Pharmaceuticals Intl. (down 27.7%) and Hillenbrand Industries, Inc.
(down 5.5%) were the largest detractors.
Sector weightings added to the Fund's performance relative to the Index. A
large overweight in Health Care, which was the second best performing sector of
the Index was responsible for most of the excess performance attributable to
sector allocation, but was partially offset by overweighting Consumer
Discretionary (one of the poorer performing sectors of the Index) and
underweighting Energy which was the best performing sector of the Index.
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.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
Whirlpool Corporation 3.6%
Loews Corporation 3.3%
AmerisourceBergen Corporation 2.5%
Torchmark, Incorporated 2.2%
XL Capital Limited 2.2%
Johnson Controls, Incorporated 2.0%
The TJX Companies, Incorporated 2.0%
WellChoice, Incorporated + 2.0%
Sempra Energy 2.0%
Marathon Oil Corporation 2.0%
</Table>
10
PERFORMANCE OVERVIEW
AMERICAN BEACON MID-CAP VALUE FUND(SM) -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 32.1%
Consumer Discretionary 27.6%
Industrials 15.6%
Utilities 8.4%
Health Care 6.2%
Consumer Staples 4.6%
Energy 2.1%
Information Technology 1.9%
Materials 1.6%
</Table>
11
EMERGING MARKETS OVERVIEW
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
During the twelve months ending October 31, 2005, the Emerging Markets as
measured by the MSCI Emerging Markets index gained 33.8%. Emerging Markets
continued to shine despite the prospects of a global slowdown and rising
interest rates. Favorable valuations relative to the developed world and
stronger underlying economies continued to entice investors. Latin America
(+61.2%) was the best performing region, with Mexico and Brazil outperforming
major markets. Mexico rallied on the back of positive domestic demand data and
reduced political concerns. In Brazil, investors ignored political concerns and
instead focused on the country's strong economic fundamentals including an
improved balance of payments position. Emerging Europe, the Middle East and
South Africa (EMEA), led by a surge in Middle East markets, followed returning
39.3%. Asia despite returning a solid 23.6% lagged other regions given the poor
performance from index heavy-weight Taiwan.
Latin America (+61.2%) outperformed given the strong economic outlook for
the region as higher commodity prices, low interest rates and emerging local
consumer continued to fuel growth. Brazil was particularly strong as country and
company fundamentals remained supportive. Investors continued to expect prudent
policies and solid economic fundamentals to support the equity market and help
the country weather any external shocks. In addition, monetary easing is
expected to continue and for local investor participation to increase as rates
decline. Mexico followed returning 52.6% given positive domestic demand trends
in the country and attractive valuations. The operating environment for Mexican
consumer companies remained solid as domestic consumption remains healthy with
select companies increasing market share and generating strong free cash flow.
In Mexico, the increased reliance on domestic financing, high oil prices, and
overall orthodox monetary and fiscal policies proved to be supportive of the
market as political noise increased during the year.
Egypt was the best performing market in EMEA region returning +160%. The
country benefited from increased foreign inflows as attractive valuations,
prospects for continued reform-led growth and stable political outlook enticed
investors. Turkey was the second best performer in the region returning 53.2%.
The country entered 2005 with the best prospects in its history for political
and economic stability. Recent structural and political reforms, a new $10
billion IMF agreement and lower political risk improved the outlook that tight
fiscal policy continues in the coming years, and allay concerns regarding the
current account.
Asia, despite solid returns from South Korea (+47.0%) and India (+34.7%)
underperformed given weakness in Taiwan (+6.0%) and South East Asian markets.
South Korea was the top regional performer once again. Local investors continued
to increase their equity holdings, preferring equities to property in light of
government attempts to curb property price gains. News that North Korea would
halt its nuclear program provided another boost for Korean equities. In Taiwan,
the underperforming technology sector hampered the market's performance for much
of the year. Thailand (+5.4%) and Indonesia (+3.7%), two of the largest South
East Asian markets, were the worst performing markets in Asia. Economic growth
for both countries continued to disappoint while rising oil prices raised
investor concern over the outlook for inflation and current account positions.
The long-term outlook for Emerging Markets remains positive given
attractive valuations, a much improved structural backdrop and enhanced
corporate profitability. Near-term, we will continue to monitor developments
regarding global economic growth, US interest rates, events in China and
political developments in Mexico, Brazil, Russia, Turkey, Poland and Asia.
Sentiment towards the asset class has been relatively high this year and any
change in risk appetite continues to leave it vulnerable to near-term
corrections. However, given structural improvements in Emerging Markets we
believe any selling pressure will be short lived.
12
PERFORMANCE OVERVIEW
AMERICAN BEACON EMERGING MARKETS FUND(SM)
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the Emerging Markets Fund returned 30.11% for
the twelve months ended October 31, 2005. The Fund underperformed the MSCI
Emerging Markets Index ("Index") return of 33.80% and the Lipper Emerging Market
Funds Index return of 32.97%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/31/00* THROUGH 10/31/05
(PERFORMANCE GRAPH)
<Table>
<Caption>
MSCI EMG MKTS FREE LIPPER EMG MKT FUNDS
INSTITUTIONAL CLASS INDEX INDEX
------------------- ------------------ --------------------
7/00 10000 10000 10000
10/00 8170 8499 8455
10/01 6657 6488 6578
10/02 7309 7023 7047
10/03 10851 10417 10456
10/04 12983 12398 12713
10/05 16892 16589 16904
</Table>
* Inception of Institutional Class of Fund
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
PERIODS ENDED 10/31/05 VALUE OF
--------------------------- $10,000
SINCE 7/31/00-
1 YEAR 5 YEARS INCEP. 10/31/05
------ ------- ------ ---------
Institutional Class(1)... 30.11% 15.64% 10.50% $16,892
PlanAhead Class(1,2)..... 29.95% 15.45% 10.34% $16,760
AMR Class(1)............. 30.43% 15.92% 10.79% $17,120
Lipper Funds Index....... 32.97% 14.86% 10.51% $16,904
MSCI Emg Mkts Index(3)... 33.80% 14.31% 10.12% $16,589
</Table>
1. Performance shown is historical and may not be 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 as of date indicated and may differ from current
performance. To obtain performance as of the most recent month end, please
visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance
in the table above does not reflect the deduction of taxes a shareholder
would pay on distributions or the redemption of shares.
2. Fund performance for the five-year and since inception
periods represents the total returns achieved by the Institutional Class
from 7/31/00 up to 10/1/02, the inception date of the PlanAhead Class, and
the returns of the PlanAhead Class since its inception. Expenses of the
PlanAhead Class are higher than those of the Institutional Class. Therefore,
total returns shown may be higher than they would have been had the
PlanAhead Class been in existence since 7/31/00.
3. The MSCI Emerging Markets Index is a market
capitalization weighted index composed of companies that are representative of
the market structure of developing countries in Latin America, Asia, Eastern
Europe, the Middle East and Africa.
The Fund returned less than the Index over the twelve-month time period due
to Fund expenses, unfavorable stock selection and lower than Index returns in
the cash equitization account. These factors more than offset favorable country
allocation achieved by the Fund during the period.
Despite very strong relative stock selection in South Korea, poor
selections in Mexico, Egypt and China negatively impacted the Fund's performance
during its fiscal year. In South Korea, Korea Electric Power Corporation gained
64.6%, while Orion Corporation returned nearly 150%. In Mexico, despite
Telefonos de Mexico and Kimberly-Clark de Mexico gaining 22.0% and 17.1%,
respectively, these stocks underperformed the country return of 53%. In
addition, although the Fund's Egyptian holdings returned 110%, they were unable
to keep pace with the 158% gains of the Egyptian stocks in the Index. However in
China, an investment in Huadian Power detracted from the Fund's performance as
the stock dropped 21.0%.
Country allocation added value as the Fund overweighted Egypt, which was
the top-performing market for the twelve-month period with a return of nearly
158%, and overweighted Mexico, which climbed over 52%. Additionally, the Fund
generated value by underweighting the four worst performing markets during the
period which were Venezuela (down 34.0%), Taiwan (up 4.7%), Malaysia (up 9.2%)
and the Philippines (up 10.6%).
The Fund's basic philosophy remains focused on investing in undervalued
companies with above-average earnings growth expectations.
13
PERFORMANCE OVERVIEW
AMERICAN BEACON EMERGING MARKETS FUND(SM) -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
LUKOIL Oil Company, ADR 3.4%
Samsung Electronics Company Limited 2.1%
Petroleo Brasileiro S.A., ADR 2.1%
America Movil, S.A. de C.V., ADR 1.5%
Wal-Mart de Mexico, S.A. de C.V. 1.4%
Grupo Televisa, S.A., ADR 1.4%
Telefonos de Mexico, S.A. de C.V., ADR 1.2%
United Microelectronics Corporation 1.1%
Companhia Vale do Rio Doce, ADR 1.1%
Petroleo Brasileiro S.A., ADR 1.0%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 16.6%
Consumer Discretionary 14.0%
Telecommunications Services 13.4%
Energy 11.7%
Information Technology 11.0%
Industrials 10.5%
Materials 8.3%
Consumer Staples 7.8%
Utilities 4.7%
Health Care 2.0%
</Table>
COUNTRY ALLOCATION
(PIE CHART)
<Table>
<Caption>
OTHER
EUROPE,
MIDDLE OTHER
SOUTH EAST, SOUTH OTHER LATIN
KOREA AFRICA BRAZIL AFRICA TAIWAN MEXICO INDIA CHINA ASIA MALAYSIA AMERICA ISRAEL
- ----- ------- ------ ------ ------ ------ ----- ----- ----- -------- ------- ------
16 14.40 13.10 11.80 11.60 9.40 8.00 7.60 4.20 3.00 0.50 0.40
</Table>
Investing in foreign equities entails additional risk not associated with
domestic equities, such as currency fluctuations, economic and political
instability and differences in accounting standards. The risks of investing in
foreign equities are heightened when investing in emerging markets.
14
DOMESTIC BOND MARKET OVERVIEW
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT GRADE
For the twelve-month period ended October 31, 2005, the investment grade fixed
income market, as defined by the Lehman Aggregate Index (the "Index"), produced
a 1.13% total return, which was an accomplishment considering that the Federal
Reserve Bank raised short-term interest rates 2.00% during this same period. The
market's performance was also impressive given that oil prices, which began
period at a high $45/barrel, rose to $60/barrel by period end. Fortunately,
energy price inflation did not manifest itself in the bond market and fixed
income returns were salvaged. See total returns from each of the asset class
below:
<Table>
<Caption>
TOTAL RETURNS
----------------------
PERIODS ENDED 10/31/05
----------------------
6 MONTH 12 MONTH
------- --------
Lehman Aggregate 0.15% 1.13%
Lehman Gov/Credit 0.07% 0.83%
- -----------------------------------------------------
SECTOR
U.S. Treasury -0.09% 0.88%
U.S. Agency 0.46% 1.07%
Mortgage-Backed 0.30% 1.75%
Commercial MBS -0.09% 0.34%
Asset-Backed 0.65% 1.08%
U.S. Credit 0.08% 0.65%
- -----------------------------------------------------
CREDIT RATING
Aaa 0.18% 1.23%
Aa -0.03% 0.69%
A -0.22% 0.87%
Baa 0.31% 0.33%
</Table>
(source: Lehman Brothers)
The highest total returns in twelve month period came from the mortgage
sector where a combination of reduced issuance, flat refinancing activity, and
low relative duration helped this sector outperform. The reduction in mortgage
issuance resulted from Fannie Mae and Freddie Mac remaining on the sidelines as
they repaired their financial statements and rebuilt capital reserves. With
fewer new bonds hitting the market, the outstanding mortgages benefited from
relative scarcity. The moderation in prepayment activity reflected the
flattening yield curve as short rates rose and long rates remained range bound.
Mortgages also benefited from their relatively low duration, which further
helped this sector as short rates rose. See changes in yield curve below:
(PERFORMANCE GRAPH)
<Table>
1.89 3.88
2.12 4.21
2.19 4.24
2.26 4.27
2.33 4.29
2.41 4.32
2.48 4.35
2.55 4.37
2 Yr. 2.61 4.38
2.67 4.39
2.73 4.39
2.79 4.40
2.85 4.40
2.92 4.41
2.98 4.41
3.04 4.42
3.10 4.42
3.16 4.43
3.22 4.44
5 Yr. 3.28 4.44
3.32 4.45
3.36 4.45
3.39 4.46
3.43 4.46
3.47 4.47
3.50 4.47
3.54 4.48
3.58 4.49
3.62 4.49
3.65 4.50
3.69 4.50
3.73 4.51
3.76 4.51
3.80 4.52
3.84 4.52
3.87 4.53
3.91 4.53
3.95 4.54
3.99 4.55
10 Yr. 4.02 4.55
4.03 4.55
4.04 4.56
4.05 4.56
4.06 4.56
4.07 4.56
4.08 4.57
4.09 4.57
4.10 4.57
4.11 4.57
4.12 4.58
4.13 4.58
4.14 4.58
4.15 4.58
4.16 4.59
4.17 4.59
4.18 4.59
4.19 4.59
4.20 4.60
4.20 4.60
4.21 4.60
4.22 4.60
4.23 4.61
4.24 4.61
4.25 4.61
4.26 4.61
4.27 4.62
4.28 4.62
4.29 4.62
4.30 4.62
4.31 4.63
4.32 4.63
4.33 4.63
4.34 4.63
4.35 4.64
4.36 4.64
4.37 4.64
4.38 4.64
4.39 4.65
4.40 4.65
4.41 4.65
4.42 4.66
4.43 4.66
4.43 4.66
4.44 4.66
4.45 4.67
4.46 4.67
4.47 4.67
4.48 4.67
4.49 4.68
4.50 4.68
4.51 4.68
4.52 4.68
4.53 4.69
4.54 4.69
4.55 4.69
4.56 4.69
4.57 4.70
4.58 4.70
4.59 4.70
4.60 4.70
4.61 4.71
4.62 4.71
4.63 4.71
4.64 4.71
4.65 4.72
4.65 4.72
4.66 4.72
4.67 4.72
4.68 4.73
4.69 4.73
4.70 4.73
4.71 4.73
4.72 4.74
4.73 4.74
4.74 4.74
4.75 4.74
4.76 4.75
4.77 4.75
4.78 4.75
30 Yr. 4.79 4.75
</Table>
15
BOND MARKET OVERVIEW
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The U.S. credit sector produced relatively low returns during the twelve month
period as credit market volatility increased and issuer-specific risk increased.
The primary driver of credit sector returns was the auto manufacturers, Ford and
GM. In the first quarter of 2005, the financial condition of these two companies
began to deteriorate dramatically as incentive-driven sales took their toll on
profitability and as they lost market share to overseas manufacturers. Credit
spreads widened and ratings downgrades followed. Since these were two of the
largest issuers in the credit markets, their impact was widely felt. (See credit
spread chart below.) Ultimately, GM was removed from the investment grade index
following its downgrade to junk-bond rating status, and Ford was left at the
precipice. Any further deterioration in Ford's credit metrics will pull it out
of the investment grade index as well. These two issuers were largely
responsible for the negative total returns in the Industrial sector during the
period.
(PERFORMANCE GRAPH)
<Table>
<Caption>
INDEX AAA CREDIT AA CREDIT A CREDIT BAA CREDIT
----- ---------- --------- -------- ----------
Oct-03 115.00 48.00 57.00 89.00 167.00
114.00 44.00 57.00 90.00 165.00
109.00 44.00 56.00 85.00 157.00
112.00 47.00 56.00 86.00 164.00
108.00 45.00 54.00 83.00 156.00
109.00 47.00 55.00 84.00 158.00
102.00 41.00 49.00 78.00 149.00
103.00 41.00 50.00 80.00 151.00
100.00 39.00 48.00 79.00 146.00
101.00 40.00 49.00 80.00 144.00
100.00 39.00 48.00 81.00 143.00
99.00 39.00 50.00 80.00 141.00
98.00 38.00 49.00 79.00 139.00
Jan-04 97.00 39.00 50.00 79.00 136.00
95.00 38.00 49.00 78.00 134.00
95.00 38.00 49.00 78.00 134.00
96.00 40.00 49.00 79.00 134.00
97.00 40.00 49.00 79.00 136.00
100.00 41.00 53.00 82.00 141.00
95.00 36.00 48.00 77.00 135.00
96.00 35.00 48.00 79.00 136.00
96.00 37.00 49.00 78.00 137.00
97.00 38.00 48.00 78.00 138.00
99.00 38.00 48.00 78.00 143.00
99.00 39.00 48.00 79.00 142.00
99.00 39.00 48.00 79.00 142.00
Apr-04 98.00 40.00 48.00 80.00 140.00
97.00 40.00 48.00 80.00 137.00
98.00 40.00 50.00 80.00 138.00
96.00 41.00 50.00 80.00 133.00
97.00 40.00 51.00 80.00 137.00
103.00 45.00 55.00 86.00 144.00
103.00 42.00 53.00 85.00 147.00
103.00 42.00 53.00 86.00 145.00
102.00 40.00 54.00 85.00 144.00
103.00 41.00 56.00 85.00 145.00
102.00 42.00 56.00 86.00 144.00
102.00 42.00 56.00 86.00 143.00
101.00 41.00 55.00 85.00 141.00
Jul-04 103.00 42.00 57.00 87.00 145.00
103.00 42.00 56.00 87.00 145.00
102.00 41.00 56.00 87.00 142.00
101.00 42.00 56.00 86.00 141.00
99.00 41.00 54.00 85.00 137.00
101.00 42.00 54.00 87.00 141.00
99.00 38.00 52.00 84.00 140.00
99.00 39.00 53.00 85.00 138.00
97.00 38.00 53.00 83.00 136.00
96.00 38.00 53.00 82.00 134.00
96.00 39.00 52.00 82.00 135.00
94.00 40.00 51.00 81.00 132.00
94.00 38.00 51.00 79.00 132.00
Oct-04 94.00 40.00 54.00 80.00 131.00
93.00 40.00 53.00 79.00 130.00
93.00 39.00 52.00 79.00 131.00
95.00 39.00 52.00 78.00 135.00
93.00 38.00 51.00 77.00 131.00
89.00 37.00 48.00 75.00 127.00
87.00 35.00 48.00 73.00 124.00
87.00 35.00 48.00 73.00 122.00
85.00 34.00 45.00 70.00 122.00
86.00 35.00 47.00 71.00 123.00
83.00 32.00 46.00 68.00 120.00
84.00 34.00 48.00 69.00 120.00
83.00 34.00 47.00 68.00 118.00
83.00 34.00 48.00 69.00 119.00
Jan-05 82.00 34.00 46.00 68.00 118.00
84.00 34.00 46.00 68.00 121.00
84.00 34.00 46.00 68.00 123.00
81.00 33.00 44.00 65.00 119.00
80.00 32.00 45.00 66.00 117.00
79.00 30.00 43.00 64.00 116.00
79.00 31.00 43.00 64.00 115.00
77.00 31.00 42.00 63.00 113.00
78.00 32.00 44.00 64.00 113.00
77.00 32.00 42.00 63.00 112.00
84.00 34.00 46.00 67.00 124.00
86.00 36.00 47.00 67.00 129.00
Apr-05 94.00 38.00 50.00 74.00 141.00
94.00 38.00 51.00 73.00 142.00
106.00 40.00 54.00 79.00 167.00
99.00 39.00 53.00 75.00 153.00
102.00 39.00 53.00 77.00 158.00
85.00 39.00 52.00 76.00 120.00
90.00 39.00 54.00 82.00 127.00
88.00 38.00 53.00 79.00 125.00
85.00 36.00 52.00 77.00 120.00
91.00 36.00 60.00 80.00 136.00
91.00 37.00 60.00 80.00 136.00
91.00 37.00 60.00 81.00 136.00
92.00 37.00 59.00 80.00 141.00
Jul-05 90.00 35.00 58.00 79.00 136.00
89.00 36.00 57.00 78.00 136.00
87.00 35.00 56.00 77.00 131.00
85.00 34.00 56.00 75.00 129.00
83.00 35.00 54.00 74.00 124.00
84.00 36.00 56.00 75.00 126.00
84.00 36.00 56.00 73.00 126.00
85.00 36.00 57.00 74.00 126.00
82.00 35.00 56.00 72.00 120.00
87.00 38.00 59.00 77.00 129.00
85.00 37.00 58.00 76.00 126.00
87.00 37.00 59.00 78.00 127.00
86.00 37.00 58.00 77.00 128.00
Oct-05 86.00 36.00 58.00 78.00 127.00
</Table>
Excluding the auto sector, the credit markets suffered from issuer-specific
risk. Issuers essentially became the victims of their own success. Over the past
few years, companies have produced very healthy balance sheets reflecting their
strong earnings, low capital expenditures, and growing cash balances. While this
was an ideal environment for bond holders, equity holders were not impressed.
With stock prices relatively flat for many of these companies, equity investors
demanded greater returns. As a result, dividend payments have been increasing,
stock buy-backs have been enlarged, and companies are beginning to lever up
their balance sheets again. The risks have been issuer-specific because some
companies responded more aggressively to equity investors than others did. In
addition, certain companies attracted the attention of (in)famous corporate
raiders who accumulated large equity positions and demanded substantial
equity-friendly initiatives. As a result, while the corporate bond market in
general is still healthy (strong earnings, low issuance, high cash balances)
certain issuers' balance sheets may be a little too healthy.
Within the non-corporate sector, the unusually strong performance came from
two issuers, Pemex (Mexico's state oil producer) and United Mexican States
(Mexico's government bonds). During this period, these bonds rallied along with
emerging markets in general, which performed very well. High oil prices also
helped Pemex bonds.
Utilities and Financials, also performed well during the period. The
utility sector benefited from the natural gas distributors as gas prices rose.
Additionally, utilities benefited from their relatively long maturities, which
helped since the longest end of the treasury curve was essentially flat during
the period.
The Finance sector returns reflected their strong credit quality. In
particular, the insurance sector performed well due to its strong pricing power
and diminishing regulatory headline risk (i.e. AIG and Marsh & McLennan). The
REIT sector performed well due to the healthy real estate markets. Offsetting
some of the Finance sectors returns was its position on the yield curve,
primarily 5 to 10 year maturities, which were the most adversely affected among
the curve segments.
Given the nature of the credit markets during this period, credit quality
played a mixed role in relative total returns. In general, credit spreads
widened during the twelve month period, which led to outperformance from the
highest-rated issuers.
Within the government sectors, Agencies outperformed Treasuries due to a
combination of spread improvement in the agencies and a slightly
16
BOND MARKET OVERVIEW -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
shorter duration than treasuries. The spread improvement in agencies continued
despite the saga surrounding Fannie Mae's accounting problems and the more
stringent operating rules imposed by Congress. In general, the new operating
mandate is more bond-holder friendly since it increases reserve capital
requirements and moderates the allowable growth rate. Equity holders were much
more adversely affected by the changes. Additionally, investors appear to have
grown accustom to the accounting revisions to Fannie Mae's financial statements
and are patiently awaiting completion of the review process.
Finally, the asset-backed and commercial mortgage-backed sectors produced
returns that were in line with their credit quality and yield curve placement.
Both are very highly rated sectors and performed well as the credit markets
became volatile. The asset-backed sector has a relatively short average maturity
and performed reasonably well as interest rates rose. The commercial
mortgage-backed sector has a longer average maturity, closer to the five-year
treasury, and produced lower total returns as this was the hardest hit segment
of the treasury curve.
In total, the fixed income markets continued to offer relatively attractive
total returns given the rising interest rates and flattening yield curve.
17
HIGH YIELD BOND MARKET OVERVIEW
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The last twelve months have been a 'real world' example of the dynamics that can
exist in the high yield market. With global issues (e.g., the war in Iraq and
the tsunami), skyrocketing oil prices, domestic troubles (two hurricanes, two
major airline bankruptcies and the auto industry's woes, among other things) and
rising interest rates to deal with, the high yield market seems to have taken
everything in stride.
By the end of October, the Lehman Brothers Corporate High Yield Index
spread over Treasuries had shrunk to +373 basis points, the tightest since July
1998. BB rated bonds had contracted to +219 basis points and BB-B spread was 122
basis points, the tightest since the first half of 1998. The overall index
spread would have been lower were it not for CCC's, which were averaging 306
basis points over B's, still above the 242 basis points spread reached in
January 2004. In that environment, several BB's were trading as tight as 150
basis points, which hardly met the traditional standard for high yield. For
example, the $2 billion Nextel 7 3/8% 2015, which traded at 261 basis points as
recently as September 1, was 150 basis points over based on speculation that
their credit rating might have risen to investment grade.
At 12/31/2004, the Lehman Brothers Index was down to 319 basis points over
the Treasuries. These spreads touched levels not reached since 1997 and 1986.
Due to investors' thirst for yield, quality spreads compressed. The most
striking was the difference between B's and BB's. In July 2002 it was 402 basis
points. A year ago it was 147 basis points. At this year-end, it was at an
all-time low of 103 basis points. Part of the reason was a low occurrence of
company distress, creating a better chance that today's B could be tomorrow's BB
and today's BB could reach investment grade. These possibilities were mirrored
in rating agency upgrades and downgrades, which reached their best ratio in
seven years.
For only the second time since 1990, the high yield market had a negative
January total return, albeit a slim -0.13% for the Lehman Brothers U.S.
Corporate High Yield Index. One possible cause of the market's performance was a
$1.1 billion January outflow from mutual funds, the largest since May 2004.
(While mutual funds aren't really as big a market factor as they once were, they
still account for the trades of market timers). The best explanation for
January's return was that "it happened in December".
While there were worries that rising gasoline prices and higher interest
rates would cause pressure on the auto and housing sectors, the overall credit
environment remained fairly benign in the first quarter of 2005. The supply of
new issues was low. March issuance was an anemic $9.5 billion, the lowest total
since last August and only slightly more than one half versus a year ago. During
the March decline, it was not easy to buy decent quantity.
When the high yield index outperforms Treasuries by approximately 4% in one
month, as in July, that can only mean that spreads tightened. Indeed, the Lehman
index aggregate spread dipped to 337 basis points from 395 basis points the
month before. With higher yielding GM bonds rated BB, the BB-to-B spread hit an
all-time record low of only 74 basis points. Exactly three years before (think
corporate scandals, heavy downgrades, bankruptcies) the BB-to-B differential was
402 basis points. While B's tightened last month versus BB's, there was still
some caution in the distressed end of the market where a 337 basis points spread
between B and CCC remained well above this year's low.
Tight spreads have been the result of good market technicals
(supply/demand) and positive event risk. Market size (supply) shrank slightly as
a modest $8 billion of new issues was not enough to offset maturities and
tenders. Many would-be issuers found terms in the second lien bank market more
attractive. Event risk was positive: a) zero defaults for the second month in a
row, b) an excellent ratio of upgrades to downgrades of 1.38 to 1 (in July 2002,
the ratio was .28 to 1), and c) occasional tender offers to refinance high
coupon but not-yet-callable debt.
Neither $70 oil, hurricanes nor automobile industry downgrades were able to
rattle the high yield market during August. The above factors have led many to
forecast that the Federal Reserve may stop
18
HIGH YIELD BOND MARKET OVERVIEW -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
tightening, resulting in lower U.S. Treasury yields (26 basis points on 5 year
and 10 year). While the high yield market did not follow suit, it was able to
hold its own. Yield spreads widened modestly from 337 basis points at 7/31 to
376 basis points at 8/31 (source: Lehman Brothers High Yield Index).
On August 24, Moody's downgraded General Motors (Ba2), GMAC (Ba1), Ford
Motor (Ba1) and Ford Motor Credit (Baa3). The ratings actions had surprisingly
little market impact as most of the damage to GM took place in July and most of
Ford debt is still investment grade. Though the Fund had taken positions in GM
and Delphi for a time, our sell discipline took effect as we exited these
positions well before Delphi's bankruptcy and the precipitous slide that
preceded it.
Some negative factors that caused the Lehman Brothers High Yield Index to
fall 1% in September were a 31 basis point increase in long-term Treasury yields
(as the Fed kept tightening), the worst month of mutual fund outflows since
April, the twin bankruptcies of Delta Air Lines and Northwest Airlines and the
looming potential bankruptcy of Delphi Corporation. Whether the October 17
change in the bankruptcy law causes more companies to file sooner rather than
later remains to be seen.
Despite the disparate treatment of GM/GMAC and Ford/Ford Motor Credit in
the major indices, the spread between the five major High Yield indexes for the
quarter ending September 30 was a mere .03%! (That is something that won't
last.) For the quarter, the Lehman Brothers High Yield Index outperformed the
Lehman Brothers U.S. Treasury Index by 2.05% and the Lehman U.S. Corporate Index
(high grade bonds) by 2.02%, both very respectable showings.
19
PERFORMANCE OVERVIEW
AMERICAN BEACON HIGH YIELD BOND FUND(SM)
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the High Yield Bond Fund returned 3.03% for the
twelve months ended October 31, 2005. The Fund trailed its main indices for the
period as the Lipper High Current Yield Funds Index returned 4.12%, the
Citigroup High Yield Market Index gained 3.55% and the Lehman Brothers Corporate
High Yield Index ("Lehman Index") posted a return of 4.09% for the twelve-month
period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 12/29/00* THROUGH 10/31/05
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER HIGH
LEHMAN BROS CORP CITIGROUP HIGH CURRENT YIELD
INSTITUTIONAL CLASS HIGH YIELD INDEX YIELD MARKET INDEX FUNDS INDEX
------------------- ---------------- ------------------ -------------
12/00 10000 10000 10000 10000
10/01 10533 10199 10224 9618
10/02 11194 9640 9531 9045
10/03 13446 12896 13042 11773
10/04 14816 14484 14664 13081
10/05 15265 15077 15163 13620
</Table>
* Inception of Institutional Class of Fund
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
--------------------------
PERIODS ENDED 10/31/05 VALUE OF
-------------------------- $10,000
SINCE 12/29/00-
1 YEARS 3 YEARS INCEP. 10/31/05
------- ------- ------ ---------
Institutional
Class(1).............. 3.03% 10.89% 9.13% $15,265
PlanAhead Class(1,2).... 2.69% 10.52% 8.71% $14,982
Service Class(1,3)...... 2.33% 9.97% 8.37% $14,758
Lehman Bros. High Yield
Index(4).............. 4.09% 16.08% 8.87% $15,077
Citigroup High Yield
Market Index.......... 3.55% 16.74% 9.00% $15,163
Lipper High Current
Yield Funds Index..... 4.12% 14.62% 6.60% $13,620
</Table>
1. Performance shown is historical and may not be 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 as of date indicated and may differ from current
performance. To obtain performance as of the most recent month end, please
visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance
in the table above does not reflect the deduction of taxes a shareholder
would pay on distributions or the redemption of shares.
2. Fund performance for the since inception period represents
the total returns achieved by the Institutional Class from 12/29/00 up to
3/1/02, the inception date of the PlanAhead Class, and the returns of the
PlanAhead Class since its inception. Expenses of the PlanAhead 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 PlanAhead Class been
in existence since 12/29/00.
3. Fund performance for the since inception period represents
the total returns achieved by the Institutional Class from 12/29/00 up to
3/1/02, the returns of the PlanAhead Class from 3/1/02 up to 5/1/03 (the
inception date of the Service Class), and the returns of the Service Class
since its inception. Expenses of the Service Class are higher than those of
the Institutional and PlanAhead Classes. As a result, total returns shown
may be higher than they would have been had the Service Class been in
existence since 12/29/00.
4. The Lehman Brothers U.S. Corporate High Yield Index is an
unmanaged index of fixed income securities with a maximum credit rating of
Ba1, a minimum amount outstanding of $100 million, and at least on year to
maturity.
5. The Citigroup High Yield Market Index is an unmanaged
index of fixed income securities with a maximum credit rating of BB+, a
minimum amount outstanding of $100 million, and at least 1 year to maturity.
The Fund, relative to the Lehman Index, was underweighted in three
(Communications, Energy and Transportation) of the four best performing sectors.
While underweightings in Energy and Transportation were minor, the
underweighting in Communications, over 7%, had a more significant impact on the
performance of the Fund as the Communications sector gained 5.9%. The Fund was
also impacted by an overweighting in the Consumer Cyclical sector, the worst and
only sector to post a negative return, as it dropped 0.1%.
The Fund overweighted the Financial (the best sector for the period with a
return of 7.2%), Technology (up 3.7%) and Consumer Non-Cyclical (up 3.4%)
sectors which outperformed the Lehman Index and benefited the Fund.
The sub-advisor's "bottom up," security-by-security investment process,
with a focus on companies with strong cash flow and fundamental credit strength,
began to come back into favor as the period came to a close. It is important to
note that any sector over or underweighting is a residual of the investment
process and not an active part of the strategy.
Higher-rated securities reversed course from 2004 and outperformed
lower-rated securities in the first ten months of 2005. The sub-advisor believes
20
PERFORMANCE OVERVIEW
AMERICAN BEACON HIGH YIELD BOND FUND(SM) -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
that its comprehensive research approach, which has generated outperformance for
the Fund in the past, will continue to deliver strong performance over the long
term.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
Echostar DBS Corporation, 6.625%,
Due 10/1/2014(+) 1.4%
UNOVA, Incorporated, 7.00%, Due 3/15/2008 1.3%
Kabel Deutschland GMBH, 10.625%, Due 7/1/2014,
144A (Note A)(+) 1.2%
Turning Stone Casino Resort, 9.125%, Due
12/15/2010, 144A (Note A) 1.1%
Alpharma, Incorporated, 8.625%, Due 5/1/2011 1.1%
NDCHealth Corporation, 10.50%, Due 12/1/2012 1.1%
MCI, Incorporated, 7.688%, Due 5/1/2009 1.1%
The Interpublic Group of Companies,
Incorporated, 6.25%, Due 11/15/2014 1.0%
Transdigm, Incorporated, 8.375%, Due 7/15/2011 1.0%
PetroQuest Energy, Incorporated, 10.375%, Due
5/15/2012 0.9%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
FIXED INCOME
------------
Corporate 100.0%
</Table>
Investing in high yield securities involves additional risks when compared
to investing in investment grade securities. These include a greater risk of
default or bankruptcy and an increased sensitivity to financial difficulties or
changes in interest rates.
21
PERFORMANCE OVERVIEW
AMERICAN BEACON ENHANCED INCOME FUND(SM)
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The PlanAhead Class of the Enhanced Income Fund returned 1.55% for the
twelve months ended October 31, 2005. Its benchmark, a blend of 75% Lehman
Brothers Gov/Credit Intermediate Index and 25% Merrill Lynch All U.S.
Convertibles Index ("Benchmark"), returned 1.38%. The Fund's peer group, the
Lipper Intermediate Investment Grade Index, returned 1.40% over the period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/1/03* THROUGH 10/31/05
(LINE GRAPH)
<Table>
<Caption>
LIPPER INTERMEDIATE ENHANCED INCOME
PLANAHEAD CLASS INVESTMENT GRADE INDEX COMPOSITE INDEX
--------------- ---------------------- ---------------
7/03 10000 10000 10000
10/03 10032 9924 10088
10/04 10504 10440 10622
10/05 10642 10586 10768
</Table>
* Inception of Fund
<Table>
<Caption>
ANNUALIZED TOTAL
RETURNS
-------------------
PERIODS ENDED
10/31/05 VALUE OF
------------------- $10,000
SINCE 7/01/03-
1 YEAR INCEPTION 10/31/05
------ --------- --------
PlanAhead Class(1)........... 1.32% 2.71% $10,642
Lipper Intermediate
Investment Grade Index..... 1.40% 2.47% $10,586
Enhanced Income Composite
Index(2)................... 1.55% 2.80% $10,768
</Table>
1. Performance shown is historical and may not be 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 as of date indicated and may differ from current
performance. To obtain performance as of the most recent month end, please
visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance
shown in the table above does not reflect the deduction of taxes a
shareholder would pay on distributions or the redemption of shares.
2. 75% Lehman Bros. Gov/Credit Intermediate Index, 25%
Merrill Lynch All U.S. Convertibles Index. The Lehman Bros. Gov./Credit
Intermediate Index is an unmanaged index of investment grade corporate and
government debt issues with maturities between one and ten years. The
Merrill Lynch All U.S. Convertibles Index is an unmanaged index of domestic
securities convertible into U.S. dollar-denominated common stock, ADRs or
cash equivalents with greater than $50 million aggregate market value at
issuance. The Merrill Lynch Index includes securities of all quality grades.
The Fund's assets have been allocated approximately 75% to American Beacon
Advisors, Inc. (the "Manager") which invests primarily in income producing,
short- and intermediate-term investment grade bonds and 25% to a sub-advisor
that invests in securities including convertible bonds, convertible preferreds,
high yield bonds and equities in order to try to enhance the return of the
overall Fund.
For the twelve-month period, the investment grade bond portion of the Fund
returned 1.1% on a gross basis compared to a 0.3% return for its portion of the
Benchmark. The Manager's security selection within Corporates added the most
relative value during the year, followed by security selection in the Mortgage
Pass-through sector.
The remaining portion of the Fund managed by the Fund's sub-advisor
generated a gross return of 5.5%. These results not only beat the 4.5% return of
its portion of the Benchmark but also enhanced the Fund's overall return. As
issues with greater equity sensitivity (low conversion premiums) performed well
for the period, reflecting the positive performance of equities, this portion of
the Fund benefited from maintaining greater equity sensitivity relative to its
portion of the Benchmark.
The Manager and the Fund's sub-advisor remain focused on the Fund's
investment objectives of generating income and capital appreciation.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF NET
ASSETS
----------
U.S. Treasury Notes, 4.75%, Due 5/15/2014 4.8%
U.S. Treasury Notes, 4.00%, Due 2/15/2014 4.3%
U.S. Treasury Notes, 5.00%, Due 8/15/2011 3.7%
U.S. Treasury Notes, 5.00%, Due 2/15/2011 3.1%
Prudential Insurance Company of America, 6.375%,
Due 7/23/2006 1.8%
General Electric Capital Corporation, 4.125%,
Due 3/4/2008 1.8%
U.S. Treasury Notes, 3.875%, Due 5/15/2010(+) 1.7%
Household Finance Corporation, 5.75%, Due
1/30/2007 1.6%
Wachovia Corporation, 6.40%, Due 4/1/2008 1.4%
Credit Suisse First Boston, Incorporated,
5.875%, Due 8/1/2006 1.3%
</Table>
22
PERFORMANCE OVERVIEW
AMERICAN BEACON ENHANCED INCOME FUND(SM) -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
FIXED-INCOME SECTOR ALLOCATION
<Table>
<Caption>
% OF
FIXED INCOME
------------
Corporates 50.1%
U.S. Treasury 21.1%
Corporate Convertibles 15.7%
Mortgage-Backed 9.2%
Asset-Backed 2.9%
U.S. Agency 1.0%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 52.1%
Energy 16.2%
Information Technology 13.7%
Telecommunication Services 7.5%
Industrials 5.5%
Consumer Discretionary 5.0%
</Table>
23
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERMEDIATE BOND FUND(SM)
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the Intermediate Bond Fund returned 1.26% for
the twelve months ended October 31, 2005, ahead of the Lehman Brothers Aggregate
Index ("Index") return of 1.13% but below the Lipper Intermediate Investment
Grade Index return of 1.40%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 9/15/97* THROUGH 10/31/05
(LINE GRAPH)
<Table>
<Caption>
LIPPER INTERMEDIATE LEHMAN BROS.
INSTITUTIONAL CLASS INVESTMENT GRADE INDEX AGGREGATE INDEX
------------------- ---------------------- ---------------
9/97 10000 10000 10000
10/97 10241 10211 10295
10/98 11215 11045 11254
10/99 11097 11074 11314
10/00 11806 11775 12140
10/01 13528 13462 13908
10/02 14146 13952 14727
10/03 14799 14884 15450
10/04 15596 15658 16304
10/05 15792 15878 16489
</Table>
* Inception of Institutional Class of Fund
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
-------------------------
PERIODS ENDED 10/31/05 VALUE OF
------------------------- $10,000
SINCE 9/15/97-
1 YEAR 5 YEARS INCEP. 10/31/05
------ ------- ------ --------
Institutional Class(1)... 1.26% 5.99% 5.78% $15,792
PlanAhead Class(1,2)..... 0.54% 5.44% 5.34% $15,265
Lipper Intermediate Inv.
Grade Index............ 1.40% 6.16% 5.85% $15,878
Lehman Bros. Agg.
Index(3)............... 1.13% 6.31% 7.72% $16,489
</Table>
1. Performance shown is historical and may not be 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 as of date indicated and may differ from current performance. To
obtain performance as of the most recent month end, please visit
www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance in the
table above does not reflect the deduction of taxes a shareholder would pay
on distributions or the redemption of shares.
2. Fund performance for the since inception period represents the total
returns achieved by the Institutional Class from 9/15/97 up to 3/2/98, the
inception date of the PlanAhead Class, and the returns of the PlanAhead
Class since its inception. Expenses of the PlanAhead 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 PlanAhead Class been in existence
since 9/15/97.
3. Since inception return is from 8/31/97. The Lehman Brothers Aggre
gate Index is a market value weighted index of government, corporate,
mortgage-backed and asset-backed fixed-rate debt securities of all
maturities.
The Fund added value relative to the Index due to security selection
primarily in the Corporate and U.S. Treasury sectors. Within the Corporate
sector, Industrials accounted for the bulk of the excess performance. However,
the Fund's overweight in Corporates, which was the poorest performing sector
within the Index, offset some of the gains achieved through security selection.
In the U.S. Treasury sector, outperformance was primarily the result of
underweighting shorter duration Treasury securities that underperformed.
Overall, the Fund's duration was somewhat longer than the Index early in the
period, which was beneficial, but became generally neutral in the second half of
the period.
The Fund's investment managers remain focused on a conservative approach
toward investing in the bond market, focusing on issuer-specific opportunities.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
U.S. Treasury Note, 4.75%, Due 5/15/2014 2.4%
Federal National Mortgage Association, Pool #255364,
6.00%, Due 9/1/2034 2.1%
Federal Home Loan Mortgage Corporation, 4.25%, Due
7/15/2009 2.1%
United States Treasury Bond, 5.375%, Due 2/15/2031 2.0%
United States Treasury Bond, 9.125%, Due 5/15/2018 1.8%
Federal National Mortgage Association, Pool #735224,
5.50%, Due 2/1/2035 1.8%
Countrywide Alternative Loan Trust, Incorporated,
6.00%, Due 11/25/2035 1.6%
United States Treasury Note, 2.00%, Due 1/15/2014 1.5%
Federal National Mortgage Association, Pool #254545,
5.00%, Due 12/1/2017 1.5%
Federal National Mortgage Association, Pool #555880,
5.50%, Due 11/1/2033 1.4%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
FIXED INCOME
------------
Mortgage-Backed 42.4%
Corporates 31.9%
U.S. Treasury 19.2%
U.S. Agency 3.8%
Asset-Backed 2.7%
</Table>
24
PERFORMANCE OVERVIEW
AMERICAN BEACON SHORT-TERM BOND FUND(SM)
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the Short-Term Bond Fund returned 1.00% for the
twelve months ended October 31, 2005, ahead of the Merrill Lynch 1-3 Year
Gov/Corp Index (the "Index") return of 0.82% but slightly below the Lipper Short
Investment Grade Bond Funds Index ("Lipper") return of 1.12%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/95 THROUGH 10/31/05
(LINE GRAPH)
<Table>
<Caption>
LIPPER SHORT INV.
GRADE BOND FUNDS LINKED LIPPER INV. ML 1-3 YR.
INSTITUTIONAL CLASS INDEX GRADE AVERAGE GOV./CORP. INDEX
------------------- ----------------- ------------------ ----------------
10/95 10000 10000 10000 10000
10/96 10538 10552 10454 10600
10/97 11230 11245 11086 11294
10/98 12009 11912 11744 12152
10/99 12348 12303 12087 12544
10/00 13100 13026 12775 13318
10/01 14551 14342 14042 14824
10/02 15075 14725 14417 15542
10/03 15650 15192 14851 16027
10/04 16024 15511 15137 19376
10/05 16185 15684 15283 19535
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
--------------------------- VALUE OF
PERIODS ENDED 10/31/05 $10,000
--------------------------- 10/31/95-
1 YEAR 5 YEARS 10 YEARS 10/31/05
------ ------- -------- ---------
Institutional
Class(1).............. 1.00% 4.32% 4.93% $16,185
PlanAhead Class(1)...... 0.46% 3.85% 4.43% $15,422
Lipper Short Inv. Grade
Index................. 1.12% 3.79% 4.61% $15,684
Linked Lipper Inv. Grade
Average............... 0.96% 3.65% 4.33% $15,283
Merrill Lynch 1-3 Yr.
Gov./Corp. Index...... 0.82% 4.37% 1.21% $19,535
</Table>
1. Performance shown is historical and may not be 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 as of date indicated and may differ from current
performance. To obtain performance as of the most recent month end, please
visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance
in the table above does not reflect the deduction of taxes a shareholder
would pay on distributions or the redemption of shares.
2. The Merrill Lynch 1-3 Yr. Gov./Corp. Index is a market value
weighted performance benchmark for government and corporate fixed-rate debt
securities with maturities between one and three years.
The Fund's total returns reflect its overweight positions in the spread
sectors, including corporates, asset-backeds and mortgages -- all of which
outperformed treasuries and agencies during the period. Additionally, the Fund's
duration was slightly short of the Index during the period, which led to
outperformance as interest rates rose.
The Fund's largest position during the period was in the corporate sector,
which was the best performing sector in the Index. While the broader corporate
market underperformed government securities during this period due to spread
widening, the shortest maturity corporates (0 to 3 years) outperformed due to
their incremental yield to maturity.
The Fund also held an overweight position in the asset-backed sector (autos
and credit cards), which outperformed their government equivalents during the
period due to their incremental yield to maturity.
Finally, the Fund also held a small position in the mortgage sector, which
contributed to the outperformance relative to the Index as this sector
outperformed all of the Index sectors. (Note: the Merrill Lynch 1-3 Gov/Corp
Index does not include mortgages.) Mortgages benefited from their relatively
short duration in a rising interest rate environment and from a decline in
prepayment activity during the period. The Fund's position, however, was
underweight relative to Lipper and accounted for some of the Fund's
underperformance relative to Lipper.
25
PERFORMANCE OVERVIEW
AMERICAN BEACON SHORT-TERM BOND FUND(SM) -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
Prudential Insurance Company of America, 6.375%,
Due 7/23/2006, 144A (Note A) 3.4%
General Electric Capital Corporation, 4.125%,
Due 3/4/2008 3.4%
Banc of America Securities Auto Trust 2005-WF1
A4, 4.08%, Due 4/18/2010 3.3%
MetLife Global Funding I, 3.375%, Due 10/5/2007,
144A (Note A) 3.3%
Citibank Credit Card Issuance Trust 2004-A4 A4,
3.20%, Due 8/24/2009 3.3%
DaimlerChrysler Auto Trust 2004-C A4, 3.28%, Due
12/8/2009 3.3%
Wachovia Corporation, 6.40%, Due 4/1/2008 2.9%
Wells Fargo Financial Auto Owner Trust 2004-A
A4, 2.67%, Due 8/16/2010 2.9%
Synovus Financial Corporation, 7.25%, Due
12/15/2005 2.8%
FleetBoston Financial Corporation, 3.85%, Due
2/15/2008 2.8%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
FIXED INCOME
------------
Corporates 69.8%
Asset-Backed 22.5%
Mortgage-Backed 3.7%
Treasury 2.3%
Agency 1.7%
</Table>
26
FUND EXPENSES
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
FUND EXPENSE EXAMPLE
As a shareholder of a Fund, you incur two types of costs: (1) transaction
costs, including redemption fees if applicable, and (2) ongoing costs, including
management fees, administrative service fees, and other Fund expenses. The
examples below are intended to help you understand the ongoing cost (in dollars)
of investing in a particular 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, 2005
through October 31, 2005.
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 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period. Shareholders of the
PlanAhead and Institutional Classes that invest in a Fund through an IRA may be
subject to a custodial IRA fee of $12 that is typically deducted each December.
If your account was subject to a custodial IRA fee during the period, your costs
would have been $12 higher.
<Table>
<Caption>
LARGE CAP LARGE CAP MID-CAP EMERGING HIGH YIELD INTERMEDIATE SHORT-TERM
INSTITUTIONAL CLASS BALANCED VALUE GROWTH VALUE MARKETS BOND BOND BOND
- ------------------- ---------- ---------- ---------- --------- ---------- ---------- ------------ ----------
Beginning Account Value
5/1/05.................... $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value
10/31/05.................. $1,040.94 $1,072.52 $1,067.36 $1,075.23 $1,163.20 $1,033.29 $1,001.56 $1,009.05
Expenses Paid During Period*
5/1/05-10/31/05........... $ 3.03 $ 3.09 $ 4.70 $ 5.25 $ 8.17 $ 4.24 $ 1.51 $ 1.70
Annualized Expense Ratio.... 0.59% 0.59% 0.90% 1.00% 1.50% 0.83% 0.30% 0.34%
</Table>
<Table>
<Caption>
LARGE CAP EMERGING HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM
PLANAHEAD CLASS BALANCED VALUE MARKETS BOND INCOME BOND BOND
- --------------- ---------- ---------- ---------- ---------- ---------- ------------ ----------
Beginning Account Value 5/1/05... $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value 10/31/05.... $1,039.53 $1,071.20 $1,162.92 $1,032.05 $1,013.93 $ 998.47 $1,006.45
Expenses Paid During Period*
5/1/05-10/31/05................ $ 4.41 $ 4.47 $ 8.78 $ 5.47 $ 4.30 $ 4.75 $ 4.32
Annualized Expense Ratio......... 0.86% 0.86% 1.61% 1.07% 0.85% 0.94% 0.85%
</Table>
<Table>
<Caption>
LARGE CAP HIGH YIELD
SERVICE CLASS BALANCED VALUE BOND
- ------------- ---------- ---------- ----------
Beginning Account Value
5/1/05....................... $1,000.00 $1,000.00 $1,000.00
Ending Account Value 10/31/05.. $1,036.60 $1,069.61 $1,030.09
Expenses Paid During Period*
5/1/05-10/31/05.............. $ 5.59 $ 5.29 $ 7.39
Annualized Expense Ratio....... 1.30% 1.21% 1.45%
</Table>
<Table>
<Caption>
LARGE CAP LARGE CAP EMERGING
AMR CLASS BALANCED VALUE GROWTH MARKETS
- --------- ---------- ---------- ---------- ---------
Beginning Account Value
5/1/05....................... $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value 10/31/05.. $1,041.70 $1,073.90 $1,068.85 $1,165.00
Expenses Paid During Period*
5/1/05-10/31/05.............. $ 1.67 $ 1.78 $ 3.14 $ 6.72
Annualized Expense Ratio....... 0.33% 0.34% 0.60% 1.23%
</Table>
- ---------------
* Expenses are equal to the Fund's annualized expense ratios for the six-month
period 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.
27
FUND EXPENSES
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about
hypothetical account values and hypothetical expenses based on a 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 a
particular 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 PlanAhead and Institutional Classes that invest in a Fund
through an IRA may be subject to a custodial IRA fee of $12 that is typically
deducted each December. If your account was subject to a custodial IRA fee
during the period, your costs would have been $12 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 a
Fund. 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.
<Table>
<Caption>
LARGE CAP LARGE CAP MID-CAP EMERGING HIGH YIELD INTERMEDIATE SHORT-TERM
INSTITUTIONAL CLASS BALANCED VALUE GROWTH VALUE MARKETS BOND BOND BOND
- ------------------- --------- ---------- ---------- --------- ---------- ---------- ------------ ----------
Beginning Account Value
5/1/05 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value
10/31/05 $1,022.24 $1,022.22 $1,020.66 $1,020.15 $1,017.65 $1,021.03 $1,023.69 $1,023.51
Expenses Paid During
Period* 5/1/05-10/31/05 $ 3.00 $ 3.02 $ 4.60 $ 5.11 $ 7.62 $ 4.22 $ 1.53 $ 1.71
Annualized Expense Ratio 0.59% 0.59% 0.90% 1.00% 1.50% 0.83% 0.30% 0.34%
</Table>
<Table>
<Caption>
LARGE CAP EMERGING HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM
PLANAHEAD CLASS BALANCED VALUE MARKETS BOND INCOME BOND BOND
- --------------- ---------- ---------- ---------- ---------- ---------- ------------ ----------
Beginning Account Value 5/1/05 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value 10/31/05 $1,020.88 $1,020.89 $1,017.09 $1,019.82 $1,020.93 $1,020.45 $1,020.90
Expenses Paid During Period*
5/1/05-10/31/05 $ 4.37 $ 4.36 $ 8.19 $ 5.43 $ 4.32 $ 4.80 $ 4.35
Annualized Expense Ratio 0.86% 0.86% 1.61% 1.07% 0.85% 0.94% 0.85%
</Table>
<Table>
<Caption>
LARGE CAP HIGH YIELD
SERVICE CLASS BALANCED VALUE BOND
- ------------- ---------- ---------- ----------
Beginning Account Value 5/1/05 $1,000.00 $1,000.00 $1,000.00
Ending Account Value 10/31/05 $1,015.61 $1,015.99 $1,017.92
Expenses Paid During Period*
5/1/05-10/31/05 $ 5.53 $ 5.15 $ 7.35
Annualized Expense Ratio 1.30% 1.21% 1.45%
</Table>
<Table>
<Caption>
LARGE CAP LARGE CAP EMERGING
AMR CLASS BALANCED VALUE GROWTH MARKETS
- --------- ---------- ---------- ---------- ---------
Beginning Account Value 5/1/05 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value 10/31/05 $1,023.57 $1,023.49 $1,022.17 $1,019.00
Expenses Paid During Period*
5/1/05-10/31/05 $ 1.66 $ 1.74 $ 3.07 $ 6.27
Annualized Expense Ratio 0.33% 0.34% 0.60% 1.23%
</Table>
- ---------------
* Expenses are equal to the Fund's annualized expense ratios for the six-month
period 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.
28
AMERICAN BEACON FUNDS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
American Beacon Funds:
We have audited the accompanying statements of assets and liabilities of
American Beacon Funds (formerly known as the American AAdvantage Funds),
comprised of the American Beacon Balanced Fund, American Beacon Large Cap Value
Fund, American Beacon Large Cap Growth Fund, American Beacon Mid-Cap Value Fund,
American Beacon Emerging Markets Fund, American Beacon High Yield Bond Fund,
American Beacon Enhanced Income Fund, American Beacon Intermediate Bond Fund,
and American Beacon Short-Term Bond Fund (each a "Fund" and collectively the
"Funds") (formerly known as the American AAdvantage Balanced Fund, American
AAdvantage Large Cap Value Fund, American AAdvantage Large Cap Growth Fund,
American AAdvantage Mid-Cap Value Fund, American AAdvantage Emerging Markets
Fund, American AAdvantage High Yield Bond Fund, American AAdvantage Enhanced
Income Fund, American AAdvantage Intermediate Bond Fund, and American AAdvantage
Short-Term Bond Fund, respectfully), including the schedules of investments, as
of October 31, 2005, and the related statements of operations and the statements
of changes in net assets and financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of each Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
American Beacon Funds at October 31, 2005, the results of their operations for
the year then ended and the changes in their net assets and financial highlights
for each of the periods indicated therein, in conformity with U.S. generally
accepted accounting principles.
(ERNST & YOUNG LLP)
Chicago, Illinois
December 21, 2005
- --------------------------------------------------------------------------------
29
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
U.S. TREASURY OBLIGATIONS - 8.43%
U.S. TREASURY BONDS - 1.71%
7.50%, Due 11/15/2016(+)..... $ 1,100 $ 1,365
9.125%, Due 5/15/2018........ 2,750 3,884
7.875%, Due 2/15/2021(+)..... 500 665
6.875%, Due 8/15/2025(+)..... 1,580 1,986
6.25%, Due 5/15/2030(+)...... 2,210 2,670
5.375%, Due 2/15/2031(+)..... 3,025 3,299
---------
TOTAL U.S. TREASURY
BONDS.................. 13,869
---------
U.S. TREASURY NOTES - 6.72%
1.50%, Due 3/31/2006(+)...... 19,420 19,212
4.00%, Due 9/30/2007(+)...... 395 392
3.375%, Due 2/15/2008(+)..... 1,645 1,608
3.375%, Due 11/15/2008(+).... 6,000 5,820
3.875%, Due 5/15/2009........ 500 491
3.375%, Due 9/15/2009(+)..... 4,115 3,960
3.50%, Due 11/15/2009........ 850 820
3.875%, Due 5/15/2010(+)..... 2,000 1,951
5.75%, Due 8/15/2010(+)...... 900 876
3.875%, Due 9/15/2010(+)..... 1,700 1,793
4.25%, Due 10/15/2010(+)..... 925 917
5.00%, Due 2/15/2011(+)...... 2,350 2,408
4.375%, Due 8/15/2012(+)..... 2,000 1,984
2.00%, Due 1/15/2014......... 3,002 3,011
4.75%, Due 5/15/2014(+)...... 2,900 2,936
4.125%, Due 5/15/2015(+)..... 6,730 6,495
---------
TOTAL U.S. TREASURY
NOTES.................. 54,674
---------
TOTAL U.S. TREASURY
OBLIGATIONS............ 68,543
---------
U.S. AGENCY OBLIGATIONS - 5.60%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.69%
3.625%, Due 9/15/2006........ 15,000 14,884
5.875%, Due 3/21/2011(+)..... 495 515
4.50%, Due 1/15/2015(+)...... 15,080 14,601
---------
TOTAL FEDERAL HOME LOAN
MORTGAGE CORPORATION... 30,000
---------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 1.91%
4.375%, Due 9/7/2007......... 15,000 14,900
5.125%, Due 1/2/2014......... 595 591
---------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION......................... 15,491
---------
TOTAL U.S. AGENCY
OBLIGATIONS............ 45,491
---------
</Table>
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 8.67%
FEDERAL HOME LOAN MORTGAGE
CORPORATION - 3.08%
Pool #G10084, 6.50%,
Due 3/1/2008............... $ 528 $ 536
Pool #E90777, 5.50%,
Due 8/1/2017............... 94 95
Pool #G11295, 5.50%,
Due 9/1/2017............... 497 501
Pool #E96536, 5.00%,
Due 3/1/2018............... 1,112 1,098
Pool #E01386, 5.00%,
Due 6/1/2018............... 604 596
Pool #E97381, 5.50%,
Due 6/1/2018............... 208 210
Pool #E01492, 5.50%,
Due 10/1/2018.............. 894 900
Pool #B12563, 5.00%,
Due 2/1/2019............... 607 600
Pool #E01602, 4.50%,
Due 3/1/2019............... 1,235 1,197
Pool #C26472, 6.50%,
Due 5/1/2029............... 109 112
Pool #C27089, 6.50%,
Due 6/1/2029............... 16 16
Pool #C00835, 6.50%,
Due 7/1/2029............... 315 324
Pool #G01457, 6.00%,
Due 8/1/2029............... 158 160
Pool #G01533, 6.00%,
Due 3/1/2033............... 844 853
Pool #C01598, 5.00%,
Due 8/1/2033............... 1,357 1,311
Pool #A12149, 6.00%,
Due 8/1/2033............... 723 730
Pool #C01786, 5.50%,
Due 2/1/2034............... 2,595 2,563
Pool #C01796, 5.00%,
Due 3/1/2034............... 1,679 1,619
Pool #C01848, 6.00%,
Due 6/1/2034............... 1,420 1,434
Pool #G08006, 6.00%,
Due 8/1/2034............... 1,256 1,269
Pool #A28109, 5.50%,
Due 10/1/2034.............. 1,226 1,211
Pool #A27483, 6.00%,
Due 10/1/2034.............. 997 1,008
Pool #A30948, 5.50%,
Due 1/1/2035............... 1,072 1,059
Pool #A45500, 5.50%,
Due 6/1/2035............... 4,319 4,266
Pool #G08072, 5.00%,
Due 8/1/2035............... 1,394 1,341
---------
TOTAL FEDERAL HOME LOAN
MORTGAGE CORPORATION... 25,009
---------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
30
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 4.26%
Pool #488099, 5.50%,
Due 2/1/2014............... $ 329 $ 332
Pool #323789, 6.00%,
Due 6/1/2014............... 260 266
Pool #535846, 6.00%,
Due 4/1/2016............... 629 644
Pool #254545, 5.00%,
Due 12/1/2017.............. 1,394 1,377
Pool #555549, 5.00%,
Due 6/1/2018............... 1,693 1,671
Pool #254865, 4.50%,
Due 9/1/2018............... 2,076 2,011
Pool #100292, 10.00%,
Due 9/1/2018............... 168 187
Pool #747844, 5.50%,
Due 12/1/2018.............. 123 124
Pool #761337, 5.00%,
Due 4/1/2019............... 341 336
Pool #811328, 5.00%,
Due 2/1/2020............... 4,049 3,995
Pool #252211, 6.00%,
Due 1/1/2029............... 785 794
Pool #725706, 6.00%,
Due 8/1/2032............... 353 360
Pool #555531, 5.50%,
Due 6/1/2033............... 655 648
Pool #713999, 5.50%,
Due 7/1/2033............... 724 715
Pool #727223, 5.50%,
Due 9/1/2033............... 1,242 1,227
Pool #749219, 5.50%,
Due 10/1/2033.............. 718 710
Pool #555880, 5.50%,
Due 11/1/2033.............. 1,720 1,699
Pool #758322, 5.50%,
Due 12/1/2033.............. 1,571 1,553
Pool #725238, 5.00%,
Due 3/1/2034............... 1,627 1,572
Pool #765304, 5.50%,
Due 3/1/2034............... 624 616
Pool #255225, 5.50%,
Due 6/1/2034............... 759 750
Pool #725866, 4.50%,
Due 9/1/2034............... 1,194 1,117
Pool #255364, 6.00%,
Due 9/1/2034............... 2,796 2,821
Pool #796229, 6.00%,
Due 11/1/2034.............. 806 813
Pool #781822, 6.00%,
Due 12/1/2034.............. 1,503 1,516
Pool #815762, 6.50%,
Due 3/1/2035............... 441 452
Pool #828377, 5.50%,
Due 6/1/2035............... 2,133 2,105
</Table>
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Pool #834769, 6.00%,
Due 7/1/2035............... $ 2,110 $ 2,128
Pool #830989, 6.00%,
Due 8/1/2035............... 2,107 2,126
---------
TOTAL FEDERAL NATIONAL
MORTGAGE ASSOCIATION 34,665
---------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 1.33%
Pool #780085, 11.50%,
Due 8/15/2018.............. 129 142
Pool #781200, 8.00%,
Due 12/15/2025............. 146 156
Pool #780509, 6.50%,
Due 2/15/2027.............. 211 219
Pool #780615, 6.50%,
Due 8/15/2027.............. 249 259
Pool #780651, 7.00%,
Due 10/15/2027............. 278 293
Pool #780680, 6.50%,
Due 11/15/2027............. 640 666
Pool #780747, 6.50%,
Due 3/15/2028.............. 238 247
Pool #780788, 6.50%,
Due 4/15/2028.............. 239 249
Pool #780842, 8.50%,
Due 8/20/2028.............. 119 128
Pool #780936, 7.50%,
Due 12/15/2028............. 289 306
Pool #781035, 6.50%,
Due 5/15/2029.............. 232 241
Pool #781273, 6.00%,
Due 4/15/2031.............. 369 376
Pool #781288, 6.50%,
Due 5/15/2031.............. 415 430
Pool #781564, 6.00%,
Due 2/15/2033.............. 722 735
Pool #781589, 5.50%,
Due 4/15/2033.............. 1,926 1,925
Pool #781603, 5.00%,
Due 5/15/2033.............. 858 838
Pool #781636, 5.50%,
Due 7/15/2033.............. 1,634 1,633
Pool #781690, 6.00%,
Due 12/15/2033............. 825 840
Pool #003515, 5.50%,
Due 2/20/2034.............. 1,098 1,095
---------
TOTAL GOVERNMENT
NATIONAL MORTGAGE
ASSOCIATION............ 10,778
---------
TOTAL U.S. AGENCY
MORTGAGE-BACKED
OBLIGATIONS............ 70,452
---------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
31
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
ASSET-BACKED SECURITIES - 0.21%
Household Automotive Trust
2004-1 A3,
3.30%, Due 5/18/2009....... $ 1,300 $ 1,286
TXU Electric Delivery
Transition, LLC 2004-1 A2,
4.81%, Due 11/15/2012...... 390 385
---------
TOTAL ASSET-BACKED
SECURITIES............. 1,671
---------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 1.28%
Banc of America Commercial
Mortgage, Incorporated
2003-2 A3,
4.342%, Due 3/11/2041...... 560 544
Banc of America Mortgage
Securities, Incorporated
2004-8 3A1,
5.25%, Due 10/25/2019...... 1,217 1,200
Bear Stearns Commercial
Mortgage Securities,
Incorporated,
2004-PWR5 A4,
4.831%, Due 7/11/2042.... 870 846
2005-T20 A2,
5.217%, Due 10/12/2042... 630 630
Chase Mortgage Finance
Corporation 2004-S1 A3,
5.50%, Due 2/25/2019....... 93 93
Citigroup Commercial Mortgage
Trust 2004-C2 A3,
4.38%, Due 10/15/2041...... 760 729
Countrywide Alternative Loan
Trust, Incorporated
2005-53T2 2A1,
6.00%, Due 11/25/2035...... 1,438 1,453
Countrywide Home Loan,
Incorporated 2004-18 A1,
6.00%, Due 10/25/2034...... 543 547
General Electric Capital
Commercial Mortgage
Corporation 2003-C2 A2,
4.17%, Due 7/10/2037....... 430 420
J P Morgan Chase Commercial
Mortgage Securities
Corporation,
2004-CBX A4,
4.529%, Due 11/12/2039... 555 537
2005-LDP3 A1,
4.655%, Due 8/15/2042.... 440 437
2005-LDP1 A2,
4.625%, Due 3/15/2046.... 845 830
Prime Mortgage Trust 2005-2
1A3, 5.25%,
Due 7/25/2020.............. 2,165 2,153
---------
TOTAL NON-AGENCY
MORTGAGE-BACKED
OBLIGATIONS............ 10,419
---------
</Table>
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
CORPORATE BONDS - 7.97%
BANKS - 0.76%
Banco Popular North America,
Incorporated,
4.25%, Due 4/1/2008........ $ 500 $ 491
Bank One Corporation,
5.90%, Due 11/15/2011...... 700 725
4.90%, Due 4/30/2015....... 300 288
Capital One Bank,
6.875%, Due 2/1/2006....... 800 804
6.70%, Due 5/15/2008....... 450 467
4.80%, Due 2/21/2012....... 360 344
5.125%, Due 2/15/2014...... 450 436
Credit Suisse First Boston,
6.50%, Due 5/1/2008........ 750 777
Fleet Norstar Financial
Group, Incorporated,
8.625%, Due 1/15/2007...... 600 625
ING Bank, NV,
5.125%, Due 5/1/2015,
144A (Note A).............. 450 444
Synovus Financial
Corporation,
4.875%, Due 2/15/2013...... 300 292
Washington Mutual Financial
Corporation,
6.875%, Due 5/15/2011...... 425 461
---------
TOTAL BANKS.............. 6,154
---------
FINANCE - 2.40%
AEGON, NV,
8.00%, Due 8/15/2006....... 300 307
American General Finance
Corporation,
5.375%, Due 9/1/2009(+).... 325 328
4.875%, Due 5/15/2010...... 500 494
The Bear Stearns Companies,
Incorporated,
2.875%, Due 7/2/2008....... 800 760
BHP Finance (USA) Limited,
4.80%, Due 4/15/2013....... 300 294
Bunge Limited Finance
Corporation,
7.80%, Due 10/15/2012...... 400 456
The Chubb Corporation,
4.934%, Due 11/16/2007..... 775 775
Equity Residential,
5.125%, Due 3/15/2016...... 385 373
General Electric Capital
Corporation,
6.875%, Due 11/15/2010..... 635 685
The Goldman Sachs Group,
Incorporated,
4.75%, Due 7/15/2013....... 400 384
Household Finance
Corporation,
5.75%, Due 1/30/2007....... 1,500 1,517
HSBC Finance Corporation,
4.75%, Due 4/15/2010(+).... 470 464
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
32
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
International Lease Finance
Corporation,
6.375%, Due 3/15/2009(+)... $ 1,025 $ 1,064
Liberty Mutual Corporation,
7.875%, Due 10/15/2026,
144A (Note A)(+)........... 1,500 1,641
Lincoln National Corporation,
4.75%, Due 2/15/2014....... 200 192
Merrill Lynch & Company,
Incorporated,
6.00%, Due 2/17/2009....... 1,000 1,032
4.25%, Due 2/8/2010(+)..... 615 595
MetLife, Incorporated,
5.00%, Due 6/15/2015....... 385 374
MetLife Global Funding I,
3.375%, Due 10/5/2007, 144A
(Note A)................... 650 632
PHH Corporation,
6.00%, Due 3/1/2008........ 500 507
PNC Funding Corporation,
4.20%, Due 3/10/2008....... 545 537
Prudential Financial,
Incorporated,
3.75%, Due 5/1/2008(+)..... 185 182
4.50%, Due 7/15/2013(+).... 400 382
5.10%, Due 9/20/2014....... 315 310
Regions Financial
Corporation,
4.50%, Due 8/8/2008(+)..... 775 765
Simon Property Group LP,
6.375%, Due 11/15/2007..... 400 410
SLM Corporation,
4.00%, Due 1/15/2009....... 1,500 1,456
4.00%, Due 1/15/2010....... 515 496
4.50%, Due 7/26/2010....... 520 507
Washington Mutual Financial
Corporation,
4.625%, Due 4/1/2014....... 850 799
WellPoint, Incorporated,
3.75%, Due 12/14/2007...... 380 371
5.00%, Due 12/15/2014...... 430 419
---------
TOTAL FINANCE............ 19,508
---------
FOREIGN - 0.35%
America Movil S.A. de C.V.,
6.375%, Due 3/1/2035(+).... 1,020 957
Deutsche Telekom AG,
8.50%, Due 6/15/2010(+).... 280 312
France Telecom SA,
8.50%, Due 3/1/2011........ 550 613
Telecom Italia S.p.A.,
4.00%, Due 11/15/2008...... 470 455
Telefonos de Mexico, S.A. de
C.V.,
5.50%, Due 1/27/2015....... 500 482
---------
TOTAL FOREIGN............ 2,819
---------
</Table>
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
INDUSTRIALS - 2.77%
Amgen, Incorporated,
4.00%, Due 11/18/2009...... $ 415 $ 402
Anheuser-Busch Companies,
Incorporated,
6.50%, Due 1/1/2028........ 872 967
Atlantic Richfield Company,
9.125%, Due 3/1/2011....... 480 570
8.50%, Due 4/1/2012........ 90 107
Baxter International,
Incorporated,
5.25%, Due 5/1/2007(+)..... 455 460
Carnival Corporation,
3.75%, Due 11/15/2007(+)... 715 699
Cendant Corporation,
6.875%, Due 8/15/2006...... 990 1,003
Comcast Cable Communications,
7.625%, Due 2/15/2008(+)... 300 315
5.30%, Due 1/15/2014(+).... 710 690
ConAgra Foods, Incorporated,
7.00%, Due 10/1/2028....... 600 642
DaimlerChrysler North
America,
4.75%, Due 1/15/2008....... 820 812
7.75%, Due 1/18/2011(+).... 1,000 1,093
John Deere Capital
Corporation,
3.375%, Due 10/1/2007...... 650 634
4.375%, Due 3/14/2008...... 355 351
4.40%, Due 7/15/2009....... 275 270
Dell Computer Corporation,
6.55%, Due 4/15/2008....... 400 414
EOG Resources, Incorporated,
4.75%, Due 3/15/2014, 144A
(Note A)................... 425 409
EOP Operating Limited
Partnership,
4.75%, Due 3/15/2014....... 350 331
Hewlett-Packard Company,
5.75%, Due 12/15/2006(+)... 570 576
Kinder Morgan, Incorporated,
6.50%, Due 9/1/2012(+)..... 290 307
Lockheed Martin Corporation,
7.20%, Due 5/1/2036........ 700 828
Martin Marietta Material,
Incorporated,
6.90%, Due 8/15/2007....... 200 206
Nissan Motor Company Limited,
4.625%, Due 3/8/2010....... 410 399
Northrop Grumman Corporation,
4.079%, Due 11/16/2006..... 850 843
7.125%, Due 2/15/2011...... 505 551
Occidental Petroleum
Corporation,
6.75%, Due 1/15/2012....... 400 439
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
33
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
The Pepsi Bottling Group,
Incorporated,
7.00%, Due 3/1/2029........ $ 650 $ 766
Pulte Homes, Incorporated,
4.875%, Due 7/15/2009...... 300 294
5.25%, Due 1/15/2014....... 275 258
Quest Diagnostics,
Incorporated,
5.125%, Due 11/1/2010...... 335 334
Reed Elsevier Capital,
Incorporated,
6.125%, Due 8/1/2006....... 765 770
Sprint Capital Corporation,
6.00%, Due 1/15/2007....... 800 810
8.375%, Due 3/15/2012...... 175 202
Time Warner, Incorporated,
6.75%, Due 4/15/2011....... 450 475
7.625%, Due 4/15/2031...... 340 383
Unilever Capital Corporation,
7.125%, Due 11/1/2010...... 2,000 2,188
Univision Communications,
Incorporated,
3.875%, Due 10/15/2008..... 555 532
Wal-Mart Stores,
Incorporated,
7.55%, Due 2/15/2030....... 650 809
Weyerhaeuser Company, 5.95%,
Due 11/1/2008.............. 340 348
---------
TOTAL INDUSTRIALS........ 22,487
---------
PHARMACEUTICAL - 0.11%
Schering-Plough Corporation,
6.75%, Due 12/1/2033....... 400 450
Wyeth,
5.50%, Due 2/1/2014........ 465 469
---------
TOTAL PHARMACEUTICAL..... 919
---------
TELECOMMUNICATION - 0.69%
Alltel Corporation, 4.656%,
Due 5/17/2007.............. 520 518
AT&T Broadband Corporation,
8.375%, Due 3/15/2013...... 848 977
AT&T Wireless Services,
Incorporated,
7.35%, Due 3/1/2006........ 855 862
8.125%, Due 5/1/2012....... 900 1,035
8.75%, Due 3/1/2031........ 340 443
Motorola, Incorporated,
8.00%, Due 11/1/2011(+).... 480 554
Nextel Communications,
Incorporated,
6.875%, Due
10/31/2013(+).............. 615 643
Verizon Wireless Capital,
LLC,
5.375%, Due 12/15/2006..... 570 573
---------
TOTAL TELECOMMUNICATION.. 5,605
---------
</Table>
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
TRANSPORTATION - 0.31%
CNF Transportation,
Incorporated,
8.875%, Due 5/1/2010....... $ 1,850 $ 2,068
Union Pacific Corporation,
6.50%, Due 4/15/2012....... 450 481
---------
TOTAL TRANSPORTATION..... 2,549
---------
UTILITY - 0.58%
Consolidated Natural Gas
Company,
6.875%, Due 10/15/2026..... 695 751
FPL Group, Incorporated,
4.086%, Due 2/16/2007...... 310 307
Georgia Power Company,
4.875%, Due 7/15/2007...... 450 450
Marathon Oil Corporation,
5.375%, Due 6/1/2007....... 460 463
MidAmerican Energy Holdings
Company,
3.50%, Due 5/15/2008....... 495 476
5.875%, Due 10/1/2012...... 405 415
Public Service Enterprise
Group, Incorporated,
6.95%, Due 6/1/2012(+)..... 800 859
Southern Company Capital
Funding, Incorporated,
5.30%, Due 2/1/2007........ 325 326
Union Oil Company of
California,
7.90%, Due 4/18/2008....... 100 106
Xcel Energy, Incorporated,
7.00%, Due 12/1/2010....... 500 538
---------
TOTAL UTILITY............ 4,691
---------
TOTAL CORPORATE BONDS.... 64,732
---------
</Table>
<Table>
<Caption>
SHARES
-----------
COMMON STOCK - 58.51%
CONSUMER DISCRETIONARY - 4.95%
AUTO COMPONENTS - 0.19%
Magna International,
Incorporated............... 22,000 1,534
---------
TOTAL AUTO COMPONENTS.... 1,534
---------
HOTELS, RESTAURANTS & LEISURE - 0.97%
Carnival Corporation......... 26,300 1,306
McDonald's Corporation....... 36,200 1,144
MGM MIRAGE+.................. 105,000 3,924
Yum! Brands, Incorporated.... 30,000 1,526
---------
TOTAL HOTELS, RESTAURANTS
& LEISURE.............. 7,900
---------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
34
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
HOUSEHOLD DURABLES - 1.96%
Centex Corporation(+)........ 100,700 $ 6,480
Fortune Brands,
Incorporated............... 25,800 1,960
Koninklijke (Royal) Philips
Electronics NV............. 140,031 3,663
Newell Rubbermaid,
Incorporated(+)............ 68,800 1,582
Pulte Homes, Incorporated.... 60,500 2,286
---------
TOTAL HOUSEHOLD
DURABLES............... 15,971
---------
LEISURE EQUIPMENT & PRODUCTS - 0.52%
Eastman Kodak Company(+)..... 98,000 2,146
Mattel, Incorporated......... 142,400 2,101
---------
TOTAL LEISURE EQUIPMENT &
PRODUCTS............... 4,247
---------
MEDIA - 0.32%
The Walt Disney Company...... 53,900 1,314
The Interpublic Group
Companies, Incorporated+... 127,700 1,319
---------
TOTAL MEDIA.............. 2,633
---------
MULTILINE RETAIL - 0.80%
Federated Department Stores,
Incorporated............... 76,377 4,688
Target Corporation........... 33,100 1,843
---------
TOTAL MULTILINE RETAIL... 6,531
---------
TEXTILES & APPAREL - 0.19%
Liz Claiborne,
Incorporated............... 43,400 1,528
---------
TOTAL TEXTILES &
APPAREL................ 1,528
---------
TOTAL CONSUMER
DISCRETIONARY.......... 40,344
---------
CONSUMER STAPLES - 5.42%
FOOD & DRUG RETAILING - 0.48%
Albertson's,
Incorporated(+)............ 78,900 1,981
Safeway, Incorporated........ 81,000 1,884
---------
TOTAL FOOD & DRUG
RETAILING.............. 3,865
---------
FOOD PRODUCTS - 2.03%
Anheuser-Busch Companies,
Incorporated............... 34,300 1,415
ConAgra Foods, Incorporated.. 148,500 3,455
Dean Foods Company+.......... 42,400 1,533
General Mills,
Incorporated............... 33,300 1,607
Kraft Foods, Incorporated.... 101,400 2,870
Sara Lee Corporation......... 143,374 2,559
Unilever plc, ADR(+)......... 76,000 3,086
---------
TOTAL FOOD PRODUCTS...... 16,525
---------
TOBACCO - 2.91%
Altria Group, Incorporated... 156,000 11,708
Gallaher Group plc, ADR...... 41,600 2,580
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Imperial Tobacco Group plc,
ADR........................ 94,800 $ 5,472
UST, Incorporated............ 94,500 3,911
---------
TOTAL TOBACCO............ 23,671
---------
TOTAL CONSUMER STAPLES... 44,061
---------
ENERGY - 6.38%
ENERGY EQUIPMENT & SERVICES - 0.21%
American Power Conversion
Corporation................ 81,400 1,741
---------
TOTAL ENERGY EQUIPMENT &
SERVICES............... 1,741
---------
OIL & GAS - 6.17%
Anadarko Petroleum
Corporation................ 17,500 1,588
BP plc, ADR.................. 80,380 5,337
Chevron Corporation.......... 118,828 6,782
ConocoPhillips............... 247,376 16,173
Devon Energy Corporation..... 88,000 5,313
Duke Energy Corporation...... 169,900 4,499
Kerr-McGee Corporation(+).... 20,476 1,741
Occidental Petroleum
Corporation................ 93,300 7,360
Petro-Canada................. 40,200 1,397
---------
TOTAL OIL & GAS.......... 50,190
---------
TOTAL ENERGY............. 51,931
---------
FINANCIALS - 17.82%
BANKS - 4.19%
Bank of America
Corporation................ 209,296 9,155
Comerica, Incorporated....... 26,900 1,554
KeyCorp Limited.............. 92,800 2,992
PNC Financial Services Group,
Incorporated............... 9,600 583
U.S. Bancorp................. 111,260 3,291
UnionBanCal Corporation(+)... 11,700 801
Wachovia Corporation......... 66,900 3,380
Washington Mutual,
Incorporated............... 202,700 8,027
Wells Fargo & Company........ 71,600 4,310
---------
TOTAL BANKS.............. 34,093
---------
DIVERSIFIED FINANCIALS - 6.90%
The Bear Stearns Companies,
Incorporated............... 26,300 2,783
Capital One Financial
Corporation................ 30,900 2,359
CIT Group, Incorporated...... 17,600 805
Citigroup, Incorporated...... 259,642 11,886
Federal Home Loan Mortgage
Corporation................ 86,300 5,294
Federal National Mortgage
Association................ 42,300 2,010
The Goldman Sachs Group,
Incorporated............... 24,300 3,071
MBNA Corporation............. 280,300 7,167
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
35
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Merrill Lynch & Company,
Incorporated............... 43,500 $ 2,816
J P Morgan Chase & Company... 186,534 6,831
Morgan Stanley & Company,
Incorporated............... 58,400 3,178
Principal Financial Group,
Incorporated............... 54,700 2,715
SLM Corporation.............. 92,500 5,137
---------
TOTAL DIVERSIFIED
FINANCIALS............. 56,052
---------
INSURANCE - 6.04%
Ace Limited.................. 73,700 3,840
The Allstate Corporation..... 110,400 5,828
American International Group,
Incorporated............... 33,600 2,177
AON Corporation.............. 46,800 1,584
Assurant, Incorporated(+).... 42,200 1,612
Conseco, Incorporated+(+).... 71,400 1,449
Genworth Financial,
Incorporated............... 100,900 3,198
The Hartford Financial
Services Group,
Incorporated............... 19,600 1,563
Loews Corporation............ 30,600 2,845
MetLife, Incorporated........ 172,180 8,507
MGIC Investments
Corporation................ 42,600 2,524
Prudential Financial,
Incorporated............... 48,300 3,516
The St. Paul Travelers
Companies, Incorporated.... 187,000 8,421
XL Capital Limited........... 31,800 2,037
---------
TOTAL INSURANCE.......... 49,101
---------
REAL ESTATE - 0.69%
Equity Office Properties
Trust...................... 143,500 4,420
The St. Joe Company.......... 17,900 1,180
---------
TOTAL REAL ESTATE........ 5,600
---------
TOTAL FINANCIALS......... 144,846
---------
HEALTH CARE - 4.54%
HEALTH CARE EQUIPMENT & SUPPLIES - 0.41%
Baxter International,
Incorporated............... 88,200 3,372
---------
TOTAL HEALTH CARE
EQUIPMENT & SUPPLIES... 3,372
---------
HEALTH CARE PROVIDERS & SERVICES - 1.57.%
Cigna Corporation............ 30,400 3,522
HCA, Incorporated............ 59,200 2,853
WellPoint, Incorporated+..... 68,200 5,093
Tenet Healthcare
Corporation+............... 157,600 1,327
---------
TOTAL HEALTH CARE
PROVIDERS & SERVICES... 12,795
---------
PHARMACEUTICALS - 2.56%
Bristol-Myers Squibb
Company.................... 243,100 5,146
Merck & Company,
Incorporated............... 144,100 4,067
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Pfizer, Incorporated......... 270,200 $ 5,874
Schering-Plough
Corporation................ 164,000 3,336
Wyeth........................ 54,100 2,411
---------
TOTAL PHARMACEUTICALS.... 20,834
---------
TOTAL HEALTH CARE........ 37,001
---------
INDUSTRIALS - 7.12%
AEROSPACE & DEFENSE - 2.63%
The Boeing Company........... 59,400 3,840
Honeywell International,
Incorporated............... 78,800 2,695
Lockheed Martin Corporation.. 65,300 3,955
Northrop Grumman
Corporation................ 28,900 1,550
Raytheon Company............. 109,100 4,031
Textron, Incorporated........ 41,800 3,011
United Technologies
Corporation................ 45,400 2,328
---------
TOTAL AEROSPACE &
DEFENSE................ 21,410
---------
AIR FREIGHT & COURIERS - 0.07%
FedEx Corporation............ 5,900 542
---------
TOTAL AIR FREIGHT &
COURIERS............... 542
---------
COMMERCIAL SERVICES & SUPPLIES - 0.70%
Cendant Corporation.......... 183,300 3,193
PHH Corporation+............. 6,675 188
Waste Management,
Incorporated............... 77,407 2,284
---------
TOTAL COMMERCIAL SERVICES
& SUPPLIES............. 5,665
---------
ELECTRICAL EQUIPMENT - 0.53%
Emerson Electric Company..... 62,500 4,347
---------
TOTAL ELECTRICAL
EQUIPMENT.............. 4,347
---------
INDUSTRIAL CONGLOMERATES - 1.45%
General Electric Company..... 77,500 2,628
Tyco International Limited... 347,901 9,181
---------
TOTAL INDUSTRIAL
CONGLOMERATES.......... 11,809
---------
MACHINERY - 0.70%
Caterpillar, Incorporated.... 52,800 2,777
ITT Industries,
Incorporated............... 28,400 2,885
---------
TOTAL MACHINERY.......... 5,662
---------
TRANSPORTATION - 1.04%
Burlington Northern Santa Fe
Corporation................ 59,200 3,674
CSX Corporation.............. 103,300 4,732
---------
TOTAL TRANSPORTATION..... 8,406
---------
TOTAL INDUSTRIALS........ 57,841
---------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
36
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
INFORMATION TECHNOLOGY - 4.15%
COMPUTERS & PERIPHERALS - 1.39%
Hewlett-Packard Company...... 205,600 $ 5,765
International Business
Machines Corporation....... 67,700 5,543
---------
TOTAL COMPUTERS &
PERIPHERALS............ 11,308
---------
IT CONSULTING & SERVICES - 1.28%
Computer Sciences
Corporation+............... 39,700 2,035
Electronic Data Systems
Corporation................ 357,700 8,338
---------
TOTAL IT CONSULTING &
SERVICES............... 10,373
---------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.29%
Freescale Semiconductor,
Incorporated+(+)........... 85,500 2,026
Intel Corporation............ 15,800 371
---------
TOTAL SEMICONDUCTOR
EQUIPMENT & PRODUCTS... 2,397
---------
SOFTWARE - 1.19%
Computer Associates
International,
Incorporated............... 272,003 7,608
Microsoft Corporation........ 81,900 2,105
---------
TOTAL SOFTWARE........... 9,713
---------
TOTAL INFORMATION
TECHNOLOGY............. 33,791
---------
MATERIALS - 3.23%
CHEMICALS - 1.70%
Air Products & Chemicals,
Incorporated............... 26,300 1,505
E. I. du Pont de Nemours &
Company.................... 58,800 2,451
Eastman Chemical Company..... 30,000 1,583
Hercules, Incorporated+(+)... 63,600 709
Lyondell Chemical Company.... 132,500 3,551
The Mosaic Company+(+)....... 168,700 2,227
PPG Industries,
Incorporated............... 30,400 1,823
---------
TOTAL CHEMICALS.......... 13,849
---------
METALS & MINING - 0.89%
Alcan, Incorporated.......... 53,200 1,686
Alcoa, Incorporated.......... 229,596 5,577
---------
TOTAL METALS & MINING.... 7,263
---------
PAPER & FOREST PRODUCTS - 0.64%
International Paper Company.. 40,800 1,191
Sappi Limited, ADR(+)........ 201,900 1,975
Weyerhaeuser Company......... 31,900 2,020
---------
TOTAL PAPER & FOREST
PRODUCTS............... 5,186
---------
TOTAL MATERIALS.......... 26,298
---------
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
TELECOMMUNICATION SERVICES - 1.64%
DIVERSIFIED TELECOMMUNICATION - 0.98%
Alltel Corporation........... 12,700 $ 786
BellSouth Corporation........ 52,000 1,353
SBC Communications,
Incorporated............... 97,000 2,313
Verizon Communications,
Incorporated............... 112,428 3,543
---------
TOTAL DIVERSIFIED
TELECOMMUNICATION...... 7,995
---------
WIRELESS TELECOMMUNICATION - 0.66%
Nokia Corporation, ADR....... 318,700 5,361
---------
TOTAL WIRELESS
TELECOMMUNICATION...... 5,361
---------
TOTAL TELECOMMUNICATION
SERVICES............... 13,356
---------
UTILITIES - 3.26%
American Electric Power
Company, Incorporated...... 116,200 4,411
CenterPoint Energy,
Incorporated(+)............ 132,600 1,756
DTE Energy Company........... 44,600 1,927
Entergy Corporation.......... 74,500 5,268
Exelon Corporation........... 78,300 4,074
FirstEnergy Corporation...... 32,800 1,558
FPL Group, Incorporated(+)... 105,600 4,547
Public Service Enterprise
Group, Incorporated(+)..... 39,400 2,478
TECO Energy,
Incorporated(+)............ 28,800 498
---------
TOTAL UTILITIES.......... 26,517
---------
TOTAL COMMON STOCK....... 475,986
---------
</Table>
<Table>
<Caption>
PAR
AMOUNT
-------
SHORT-TERM INVESTMENTS - 23.98%
UNITED STATES TREASURY BILLS - 1.84% (Note B)
Discount Note, Due
11/17/2005(+)..................... $9,500 9,487
Discount Note, Due 12/8/2005...... 5,490 5,471
------
TOTAL UNITED STATES TREASURY
BILLS......................... 14,958
------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
37
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ---------
(DOLLARS IN THOUSANDS)
OTHER SHORT-TERM INVESTMENTS - 22.14%
American Beacon Enhanced Cash
Trust (Notes C and D)........ 90,322,100 $ 90,322
American Beacon Money Market
Select Fund (Notes C and D).. 89,605,513 89,606
---------
TOTAL OTHER SHORT-TERM
INVESTMENTS.............. 179,928
---------
TOTAL SHORT-TERM
INVESTMENTS.............. 194,886
---------
TOTAL INVESTMENTS - 114.65%
(COST $832,277).............. 932,180
---------
LIABILITIES, NET OF OTHER
ASSETS - (14.65%)............ (119,109)
---------
TOTAL NET ASSETS - 100%........ $ 813,071
=========
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At period end, the
value of these securities amounted to $3,126 or 0.38% of net assets.
(B) At October 31, 2005, security held as collateral for open futures contracts.
(C) The Fund/Trust is affiliated by having the same investment advisor. See Note
2.
(D) All or a portion of this security is purchased with cash collateral for
securities loaned.
(+)-All or a portion of this security is on loan at October 31, 2005. See Note
5.
+- Non-income producing security.
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
UNREALIZED
NO. OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- ------- --------------
Emini S&P 500 Index......................................... 1,096 Dec-05 $66,297 $(964)
------- -----
$66,297 $(964)
======= =====
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
38
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCK - 87.71%
CONSUMER DISCRETIONARY - 8.44%
AUTO COMPONENTS - 0.23%
Magna International,
Incorporated............... 51,800 $ 3,611
----------
TOTAL AUTO COMPONENTS.... 3,611
----------
HOTELS, RESTAURANTS & LEISURE - 1.23%
Carnival Corporation......... 84,600 4,202
McDonald's Corporation....... 81,600 2,578
MGM MIRAGE+(+)............... 239,200 8,939
Yum! Brands, Incorporated.... 73,300 3,729
----------
TOTAL HOTELS, RESTAURANTS &
LEISURE..................... 19,448
----------
HOUSEHOLD DURABLES - 2.69%
Centex Corporation(+)........ 238,500 15,347
Fortune Brands,
Incorporated................ 50,700 3,852
Koninklijke (Royal) Philips
Electronics NV.............. 270,166 7,067
Matsushita Electric
Industrial Company Limited,
ADR......................... 432,000 7,949
Newell Rubbermaid,
Incorporated(+)............. 135,700 3,120
Pulte Homes, Incorporated.... 142,900 5,400
----------
TOTAL HOUSEHOLD DURABLES.... 42,735
----------
LEISURE EQUIPMENT & PRODUCTS - 0.59%
Eastman Kodak Company(+)..... 213,400 4,674
Mattel, Incorporated......... 317,300 4,680
----------
TOTAL LEISURE EQUIPMENT &
PRODUCTS.................... 9,354
----------
MEDIA - 2.05%
Clear Channel Communications,
Incorporated................ 262,000 7,970
The Walt Disney Company
Limited..................... 454,100 11,066
The Interpublic Group of
Companies, Incorporated+.... 316,800 3,273
Liberty Global,
Incorporated+............... 153,000 3,629
Warner Music Group
Corporation(+).............. 423,000 6,552
----------
TOTAL MEDIA................. 32,490
----------
MULTILINE RETAIL - 1.46%
Federated Department Stores,
Incorporated................ 139,956 8,589
J.C. Penney Company,
Incorporated................ 212,000 10,855
Target Corporation........... 66,100 3,681
----------
TOTAL MULTILINE RETAIL...... 23,125
----------
TEXTILES & APPAREL - 0.19%
Liz Claiborne, Incorporated.. 85,200 2,999
----------
TOTAL TEXTILES & APPAREL.... 2,999
----------
TOTAL CONSUMER
DISCRETIONARY............... 133,762
----------
CONSUMER STAPLES - 8.37%
FOOD & DRUG RETAILING - 0.54%
Albertson's,
Incorporated(+)............ 173,000 4,344
Safeway, Incorporated........ 179,500 4,175
----------
TOTAL FOOD & DRUG
RETAILING.............. 8,519
----------
FOOD PRODUCTS - 4.04%
Anheuser-Busch Companies,
Incorporated............... 70,700 2,917
Archer-Daniels-Midland
Company.................... 425,000 10,357
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
ConAgra Foods,
Incorporated(+)............ 332,300 $ 7,733
Dean Foods Company+.......... 92,900 3,358
Diageo plc, ADR(+)........... 144,000 8,558
General Mills, Incorporated.. 78,000 3,764
Kellogg Company.............. 199,000 8,790
Kraft Foods, Incorporated.... 234,900 6,648
Sara Lee Corporation......... 287,028 5,123
Unilever plc, ADR(+)......... 167,600 6,805
----------
TOTAL FOOD PRODUCTS......... 64,053
----------
HOUSEHOLD PRODUCTS - 0.52%
The Clorox Company........... 153,000 8,280
----------
TOTAL HOUSEHOLD PRODUCTS.... 8,280
----------
TOBACCO - 3.27%
Altria Group, Incorporated... 359,200 26,958
Gallaher Group plc, ADR...... 82,600 5,123
Imperial Tobacco Group plc,
ADR(+)...................... 206,200 11,902
UST, Incorporated(+)......... 191,300 7,918
----------
TOTAL TOBACCO............... 51,901
----------
TOTAL CONSUMER STAPLES...... 132,753
----------
ENERGY - 8.95%
ENERGY EQUIPMENT & SERVICES - 0.88%
American Power Conversion
Corporation(+)............. 185,300 3,964
Weatherford International
Limited+................... 160,000 10,016
----------
TOTAL ENERGY EQUIPMENT &
SERVICES............... 13,980
----------
OIL & GAS - 8.07%
Anadarko Petroleum
Corporation................ 63,000 5,715
BP plc, ADR.................. 179,536 11,921
Chevron Corporation.......... 309,362 17,655
ConocoPhillips............... 728,996 47,662
Devon Energy Corporation..... 181,200 10,941
Duke Energy Corporation...... 427,400 11,318
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
39
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
Kerr-McGee Corporation....... 46,089 $ 3,919
Occidental Petroleum
Corporation................. 199,100 15,705
Petro-Canada................. 96,000 3,336
----------
TOTAL OIL & GAS............. 128,172
----------
TOTAL ENERGY................ 142,152
----------
FINANCIALS - 26.06%
BANKS - 5.73%
Bank of America Corporation.. 430,836 18,845
Comerica, Incorporated....... 62,300 3,599
East West Bancorp,
Incorporated(+)............. 203,000 7,773
KeyCorp...................... 204,000 6,577
PNC Financial Services Group,
Incorporated................ 22,200 1,348
TCF Financial
Corporation(+).............. 195,000 5,284
U.S. Bancorp................. 221,260 6,545
UnionBanCal Corporation...... 25,900 1,774
Wachovia Corporation......... 132,700 6,704
Washington Mutual,
Incorporated................ 524,900 20,786
Wells Fargo & Company........ 194,100 11,685
----------
TOTAL BANKS................. 90,920
----------
DIVERSIFIED FINANCIALS - 10.89%
The Bear Stearns Companies,
Incorporated................ 53,900 5,703
Capital One Financial
Corporation................. 70,400 5,375
The Charles Schwab
Corporation................. 758,000 11,522
CIT Group, Incorporated...... 40,100 1,834
Citigroup, Incorporated...... 544,838 24,943
Federal Home Loan Mortgage
Corporation................. 190,000 11,656
Federal National Mortgage
Association................. 86,900 4,129
The Goldman Sachs Group,
Incorporated................ 46,200 5,838
ING Groep NV, ADR............ 329,000 9,495
MBNA Corporation............. 567,700 14,516
Merrill Lynch & Company,
Incorporated................ 101,000 6,539
Mitsubishi UFJ Financial
Group, Incorporated,
ADR(+)...................... 921,000 11,687
JP Morgan Chase & Company.... 693,598 25,399
Morgan Stanley & Company,
Incorporated................ 302,700 16,470
Principal Financial Group,
Incorporated................ 124,800 6,194
SLM Corporation.............. 208,300 11,567
----------
TOTAL DIVERSIFIED
FINANCIALS.................. 172,867
----------
INSURANCE - 8.73%
Ace Limited.................. 150,300 7,831
The Allstate Corporation..... 251,528 13,278
American International Group,
Incorporated................ 205,800 13,336
AON Corporation.............. 90,700 3,070
Assurant, Incorporated....... 96,400 3,682
The Chubb Corporation........ 116,000 10,785
Conseco, Incorporated+(+).... 174,700 3,546
Genworth Financial,
Incorporated................ 226,100 7,165
The Hartford Financial
Services Group,
Incorporated................ 46,000 3,668
Loews Corporation............ 62,600 5,821
MetLife, Incorporated........ 381,600 18,855
MGIC Investment Corporation.. 76,500 4,532
Prudential Financial,
Incorporated................ 107,100 7,796
The St. Paul Travelers
Companies, Incorporated..... 416,200 18,741
WellPoint, Incorporated+..... 161,000 12,023
XL Capital Limited........... 69,600 4,459
----------
TOTAL INSURANCE............. 138,588
----------
REAL ESTATE - 0.71%
Equity Office Properties
Trust....................... 276,300 8,510
The St. Joe Company.......... 40,900 2,697
----------
TOTAL REAL ESTATE........... 11,207
----------
TOTAL FINANCIALS............ 413,582
----------
HEALTH CARE - 6.22%
HEALTH CARE EQUIPMENT & SUPPLIES - 1.61%
C. R. Bard, Incorporated..... 141,000 8,796
Baxter International,
Incorporated............... 437,700 16,733
----------
TOTAL HEALTH CARE
EQUIPMENT & SUPPLIES... 25,529
----------
HEALTH CARE PROVIDERS & SERVICES - 1.10%
Cigna Corporation............ 61,900 7,172
HCA, Incorporated(+)......... 137,200 6,612
Tenet Healthcare
Corporation+(+)............ 441,700 3,719
----------
TOTAL HEALTH CARE
PROVIDERS & SERVICES... 17,503
----------
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
PHARMACEUTICALS - 3.51%
Astrazeneca plc, ADR......... 203,000 $ 9,115
Bristol-Myers Squibb
Company..................... 576,800 12,211
Merck & Company,
Incorporated................ 319,700 9,022
Pfizer, Incorporated......... 588,200 12,787
Schering-Plough Corporation.. 361,500 7,353
Wyeth........................ 118,600 5,285
----------
TOTAL PHARMACEUTICALS....... 55,773
----------
TOTAL HEALTH CARE........... 98,805
----------
INDUSTRIALS - 10.61%
AEROSPACE & DEFENSE - 4.04%
The Boeing Company........... 273,600 17,685
Honeywell International,
Incorporated............... 137,800 4,713
L-3 Communications Holding
Corporation................ 130,000 10,117
Lockheed Martin Corporation.. 146,900 8,896
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
40
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
Northrop Grumman
Corporation................ 65,300 $ 3,503
Raytheon Company............. 227,000 8,388
Textron, Incorporated........ 83,200 5,994
United Technologies
Corporation................ 92,800 4,759
----------
TOTAL AEROSPACE &
DEFENSE................ 64,055
----------
AIR FREIGHT & COURIERS - 0.07%
FedEx Corporation............ 11,600 1,066
----------
TOTAL AIR FREIGHT &
COURIERS............... 1,066
----------
COMMERCIAL SERVICES & SUPPLIES - 0.87%
Cendant Corporation.......... 479,400 8,351
PHH Corporation+............. 8,300 233
Waste Management,
Incorporated............... 176,265 5,202
----------
TOTAL COMMERCIAL SERVICES
& SUPPLIES............. 13,786
----------
ELECTRICAL EQUIPMENT - 1.00%
Emerson Electric Company..... 147,200 10,238
Molex, Incorporated.......... 238,800 5,705
----------
TOTAL ELECTRICAL
EQUIPMENT.............. 15,943
----------
INDUSTRIAL CONGLOMERATES - 2.22%
General Electric Company..... 156,200 5,297
Tyco International Limited... 1,133,400 29,910
----------
TOTAL INDUSTRIAL
CONGLOMERATES.......... 35,207
----------
MACHINERY - 1.25%
Caterpillar, Incorporated.... 109,200 5,743
Deere & Company.............. 122,000 7,403
ITT Industries,
Incorporated............... 65,600 6,665
----------
TOTAL MACHINERY.......... 19,811
----------
TRANSPORTATION - 1.16%
Burlington Northern Santa Fe
Corporation................ 122,100 7,577
CSX Corporation.............. 241,600 11,068
----------
TOTAL TRANSPORTATION..... 18,645
----------
TOTAL INDUSTRIALS........ 168,513
----------
INFORMATION TECHNOLOGY - 7.34%
COMPUTERS & PERIPHERALS - 2.84%
Apple Computer,
Incorporated+.............. 233,000 13,418
Hewlett-Packard Company...... 417,500 11,707
International Business
Machines Corporation....... 228,600 18,718
NCR Corporation+............. 40,000 1,209
----------
TOTAL COMPUTERS &
PERIPHERALS............ 45,052
----------
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.10%
Molex, Incorporated.......... 65,200 $ 1,650
----------
TOTAL ELECTRONIC
EQUIPMENT &
INSTRUMENTS............ 1,650
----------
IT CONSULTING & SERVICES - 1.45%
Computer Sciences
Corporation+(+)............ 78,500 4,023
Electronic Data Systems
Corporation................ 814,200 18,979
----------
TOTAL IT CONSULTING &
SERVICES............... 23,002
----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.90%
Freescale Semiconductor,
Incorporated+(+)........... 194,800 4,615
Intel Corporation............ 31,100 731
Texas Instruments,
Incorporated............... 316,000 9,022
----------
TOTAL SEMICONDUCTOR
EQUIPMENT & PRODUCTS... 14,368
----------
SOFTWARE - 2.05%
Autodesk, Incorporated+...... 230,000 10,380
Computer Associates
International,
Incorporated(+)............ 619,660 17,332
Microsoft Corporation........ 185,200 4,760
----------
TOTAL SOFTWARE........... 32,472
----------
TOTAL INFORMATION
TECHNOLOGY............. 116,544
----------
MATERIALS - 4.38%
CHEMICALS - 2.13%
Air Products & Chemicals,
Incorporated............... 202,700 11,603
E. I. du Pont de Nemours &
Company.................... 116,100 4,840
Hercules, Incorporated+(+)... 121,200 1,350
Lyondell Chemical
Company(+)................. 270,900 7,260
The Mosaic Company+(+)....... 392,500 5,181
PPG Industries,
Incorporated............... 60,400 3,622
----------
TOTAL CHEMICALS.......... 33,856
----------
METALS & MINING - 1.02%
Alcan, Incorporated.......... 118,200 3,746
Alcoa, Incorporated.......... 513,368 12,469
----------
TOTAL METALS & MINING.... 16,215
----------
PAPER & FOREST PRODUCTS - 1.23%
International Paper Company.. 97,000 2,831
Sappi Limited, ADR(+)........ 325,300 3,182
Weyerhaeuser Company......... 214,200 13,567
----------
TOTAL PAPER & FOREST
PRODUCTS............... 19,580
----------
TOTAL MATERIALS.......... 69,651
----------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
41
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
TELECOMMUNICATION SERVICES - 3.64%
DIVERSIFIED TELECOMMUNICATION - 1.91%
Alltel Corporation........... 29,100 $ 1,800
AT&T Corporation............. 439,000 8,683
BellSouth Corporation........ 109,100 2,839
Liberty Global,
Incorporated+.............. 210,000 5,202
SBC Communications,
Incorporated............... 190,600 4,546
Verizon Communications,
Incorporated............... 229,546 7,233
----------
TOTAL DIVERSIFIED
TELECOMMUNICATION...... 30,303
----------
WIRELESS TELECOMMUNICATION - 1.73%
Lucent Technologies,
Incorporated+(+)........... 2,239,000 6,381
Nokia Corporation, ADR....... 707,200 11,895
Vodafone Group plc, ADR(+)... 348,000 9,139
----------
TOTAL WIRELESS
TELECOMMUNICATION...... 27,415
----------
TOTAL TELECOMMUNICATION
SERVICES............... 57,718
----------
UTILITIES - 3.70%
American Electric Power
Company, Incorporated...... 247,800 9,407
CenterPoint Energy,
Incorporated(+)............ 310,000 4,104
DTE Energy Company........... 87,600 3,784
Entergy Corporation.......... 165,800 11,725
Exelon Corporation........... 185,200 9,636
FirstEnergy Corporation...... 74,700 3,548
FPL Group, Incorporated...... 238,400 10,266
Public Service Enterprise
Group, Incorporated........ 82,100 5,163
TECO Energy, Incorporated.... 60,400 1,045
----------
TOTAL UTILITIES.......... 58,678
----------
TOTAL COMMON STOCK....... 1,392,158
----------
</Table>
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ----------
SHORT-TERM INVESTMENTS - 18.18%
U.S. TREASURY BILLS - 0.58%
3.454%, Due 12/8/2005 (Note
A)......................... $ 9,320 $ 9,288
----------
TOTAL U.S. TREASURY
BILLS.................. 9,288
----------
</Table>
<Table>
<Caption>
SHARES
-----------
OTHER SHORT-TERM INVESTMENTS - 17.60%
American Beacon Enhanced Cash
Trust (Notes B and C)...... 84,891,584 84,892
American Beacon Money Market
Select Fund (Notes B and
C)......................... 194,502,129 194,502
----------
TOTAL OTHER SHORT-TERM
INVESTMENTS............ 279,394
----------
TOTAL SHORT-TERM
INVESTMENTS............ 288,682
----------
TOTAL INVESTMENTS - 105.89%
(COST $1,468,590).......... 1,680,840
----------
LIABILITIES, NET OF OTHER
ASSETS - (5.89%)........... (93,549)
----------
TOTAL NET ASSETS - 100%...... $1,587,291
==========
</Table>
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
UNREALIZED
NO. OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- -------- --------------
Emini S&P 500 Index......................................... 2,890 Dec 2005 $174,816 $(1,171)
-------- -------
$174,816 $(1,171)
======== =======
</Table>
- ---------------
(A) At October 31, 2005, security held as collateral for open futures contracts.
(B) The Fund/Trust is affiliated by having the same investment advisor. See Note
2.
(C) All or a portion of this security is purchased with cash collateral for
securities loaned.
(+)-All or a portion of this security is on loan at October 31, 2005. See Note
5.
+- Non-income producing security.
See accompanying notes
- --------------------------------------------------------------------------------
42
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ---------
(DOLLARS IN THOUSANDS)
COMMON STOCK - 94.12%
CONSUMER DISCRETIONARY - 15.19%
AUTO COMPONENTS - 0.20%
Johnson Controls, Incorporated... 1,600 $ 109
Lear Corporation................. 600 18
--------
TOTAL AUTO COMPONENTS........ 127
--------
AUTOMOBILES - 0.12%
Harley-Davidson, Incorporated.... 1,500 74
--------
TOTAL AUTOMOBILES............ 74
--------
HOTELS, RESTAURANTS & LEISURE - 1.67%
Carnival Corporation............. 2,800 139
Choice Hotels International,
Incorporated................... 5,000 166
Hilton Hotels Corporation........ 1,600 31
International Game Technology,
Incorporated................... 3,800 101
Marriott International,
Incorporated................... 3,000 179
McDonald's Corporation........... 4,900 155
MGM MIRAGE+...................... 2,500 93
Starwood Hotels & Resorts
Worldwide, Incorporated........ 1,600 93
Yum! Brands, Incorporated........ 2,000 102
--------
TOTAL HOTELS, RESTAURANTS &
LEISURE.................... 1,059
--------
HOUSEHOLD DURABLES - 0.44%
Centex Corporation(+)............ 600 39
Lennar Corporation............... 2,500 139
NVR, Incorporated+............... 150 103
--------
TOTAL HOUSEHOLD DURABLES..... 281
--------
INTERNET & CATALOG RETAIL - 0.56%
eBay, Incorporated+.............. 9,000 356
--------
TOTAL INTERNET & CATALOG
RETAIL..................... 356
--------
LEISURE EQUIPMENT & PRODUCTS - 0.02%
Mattel, Incorporated............. 700 10
--------
TOTAL LEISURE EQUIPMENT &
PRODUCTS................... 10
--------
MEDIA - 5.28%
Comcast Corporation+............. 13,000 362
EchoStar Communications
Corporation+................... 2,000 54
Gannett Company, Incorporated.... 5,000 313
Liberty Media Corporation+....... 79,300 632
The McGraw-Hill Companies,
Incorporated................... 1,500 73
News Corporation................. 18,500 264
Regal Entertainment Group(+)..... 3,500 65
The E. W. Scripps Company........ 6,500 298
Time Warner, Incorporated........ 37,400 667
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ---------
(DOLLARS IN THOUSANDS)
Viacom, Incorporated............. 16,388 $ 508
John Wiley & Sons, Incorporated.. 2,700 106
--------
TOTAL MEDIA.................. 3,342
--------
MULTILINE RETAIL - 2.02%
Dollar General Corporation....... 2,800 54
J. C. Penney Company,
Incorporated................... 1,400 72
Kohl's Corporation+.............. 4,300 207
Nordstrom, Incorporated.......... 5,000 173
Target Corporation............... 7,200 401
Wal-Mart Stores, Incorporated.... 7,900 374
--------
TOTAL MULTILINE RETAIL....... 1,281
--------
SPECIALTY RETAIL - 2.93%
Abercrombie and Fitch Company.... 2,800 146
Bed Bath & Beyond,
Incorporated+.................. 300 12
Circuit City Stores,
Incorporated................... 35,160 625
The Home Depot, Incorporated..... 13,100 538
Lowe's Companies, Incorporated... 6,500 395
The Men's Wearhouse,
Incorporated+.................. 4,300 106
Ross Stores, Incorporated........ 1,100 30
--------
TOTAL SPECIALTY RETAIL....... 1,852
--------
TEXTILES & APPAREL - 1.95%
Coach, Incorporated+............. 24,800 798
Nike, Incorporated............... 5,200 437
--------
TOTAL TEXTILES & APPAREL..... 1,235
--------
TOTAL CONSUMER
DISCRETIONARY.............. 9,617
--------
CONSUMER STAPLES - 8.51%
BEVERAGES - 1.41%
The Coca-Cola Company............ 15,600 667
Coca-Cola Enterprises,
Incorporated................... 3,100 59
PepsiCo, Incorporated............ 2,800 165
--------
TOTAL BEVERAGES.............. 891
--------
FOOD & DRUG RETAILING - 1.23%
7-Eleven, Incorporated+.......... 6,400 240
SUPERVALU, Incorporated.......... 1,500 47
Sysco Corporation................ 6,400 204
Walgreen Company................. 6,300 286
--------
TOTAL FOOD & DRUG
RETAILING.................. 777
--------
FOOD PRODUCTS - 1.18%
Archer-Daniels-Midland Company... 13,300 324
Campbell Soup Company............ 300 9
Hershey Foods Corporation........ 5,300 301
Kellogg Company.................. 2,500 110
--------
TOTAL FOOD PRODUCTS.......... 744
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
43
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ---------
(DOLLARS IN THOUSANDS)
HOUSEHOLD PRODUCTS - 2.13%
Colgate-Palmolive Company........ 1,800 $ 95
The Procter & Gamble Company..... 22,372 1,253
--------
TOTAL HOUSEHOLD PRODUCTS..... 1,348
--------
TOBACCO - 2.56%
Altria Group, Incorporated....... 21,600 1,621
--------
TOTAL TOBACCO................ 1,621
--------
TOTAL CONSUMER STAPLES....... 5,381
--------
ENERGY - 3.20%
ENERGY EQUIPMENT & SERVICES - 0.69%
Baker Hughes, Incorporated....... 1,900 105
Halliburton Company.............. 2,600 154
Rowan Companies, Incorporated+... 2,400 79
TransOcean, Incorporated+........ 1,600 92
Weatherford International,
Limited+....................... 100 6
--------
TOTAL ENERGY EQUIPMENT &
SERVICES................... 436
--------
OIL & GAS - 2.51%
Anadarko Petroleum Corporation... 100 9
Burlington Resources,
Incorporated................... 4,400 318
EOG Resources, Incorporated...... 3,500 237
Occidental Petroleum
Corporation.................... 2,500 197
Sunoco, Incorporated............. 9,800 730
XTO Energy, Incorporated......... 2,200 96
--------
TOTAL OIL & GAS.............. 1,587
--------
TOTAL ENERGY................. 2,023
--------
FINANCIALS - 8.75%
BANKS - 1.72%
Bank of America Corporation...... 17,300 757
Bank of Hawaii Corporation....... 600 31
U.S. Bancorp..................... 10,100 299
--------
TOTAL BANKS.................. 1,087
--------
DIVERSIFIED FINANCIALS - 2.84%
AmeriCredit Corporation+......... 5,600 125
Ameritrade Holding
Corporation+(+)................ 4,700 99
The Charles Schwab Corporation... 400 6
CIT Group, Incorporated.......... 1,700 78
Citigroup, Incorporated.......... 4,900 224
Countrywide Financial
Corporation.................... 3,800 121
The Goldman Sachs Group,
Incorporated................... 2,100 265
MBNA Corporation................. 5,000 128
Moody's Corporation.............. 12,400 660
State Street Corporation......... 1,700 94
--------
TOTAL DIVERSIFIED
FINANCIALS................. 1,800
--------
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ---------
(DOLLARS IN THOUSANDS)
INSURANCE - 3.93%
Alleghany Corporation+........... 156 $ 47
Ambac Financial Group,
Incorporated................... 3,000 213
Assurant, Incorporated........... 800 31
W. R. Berkley Corporation........ 2,400 105
Fremont General Corporation(+)... 2,200 48
Genworth Financial,
Incorporated................... 4,100 130
The Hartford Financial Services
Group, Incorporated............ 1,100 88
Lincoln National Corporation..... 1,000 51
Loews Corporation................ 6,900 642
MBIA, Incorporated............... 11,100 647
The Progressive Corporation...... 600 69
WellPoint, Incorporated+......... 5,600 418
--------
TOTAL INSURANCE.............. 2,489
--------
REAL ESTATE - 0.26%
Host Marriott Corporation........ 3,500 59
Mack-Cali Realty Corporation..... 300 13
ProLogis......................... 2,200 95
--------
TOTAL REAL ESTATE............ 167
--------
TOTAL FINANCIALS............. 5,543
--------
HEALTH CARE - 18.49%
BIOTECHNOLOGY - 4.49%
Amgen, Incorporated+............. 22,300 1,690
Genentech, Incorporated+......... 4,100 371
Genzyme Corporation+............. 3,200 231
Gilead Sciences, Incorporated+... 3,600 170
Kos Pharmaceuticals,
Incorporated+.................. 4,800 288
MedImmune, Incorporated+......... 2,600 91
--------
TOTAL BIOTECHNOLOGY.......... 2,841
--------
HEALTH CARE EQUIPMENT & SUPPLIES - 3.23%
Bausch & Lomb, Incorporated...... 3,100 230
Baxter International,
Incorporated................... 13,400 511
The Cooper Companies,
Incorporated................... 1,000 69
St. Jude Medical,
Incorporated+.................. 12,100 582
Boston Scientific Corporation+... 1,900 48
Guidant Corporation.............. 1,600 101
Medtronic, Incorporated.......... 4,200 238
Zimmer Holdings, Incorporated+... 4,200 268
--------
TOTAL HEALTH CARE EQUIPMENT &
SUPPLIES................... 2,047
--------
HEALTH CARE PROVIDERS & SERVICES - 3.32%
Aetna, Incorporated.............. 4,500 399
AmerisourceBergen Corporation.... 8,300 633
Becton, Dickinson and Company.... 2,000 102
HCA, Incorporated................ 3,600 173
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
44
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ---------
(DOLLARS IN THOUSANDS)
Humana, Incorporated+............ 10,800 $ 479
UnitedHealth Group,
Incorporated+.................. 5,400 313
--------
TOTAL HEALTH CARE PROVIDERS &
SERVICES................... 2,099
--------
PHARMACEUTICALS - 7.45%
Allergan, Incorporated........... 5,300 473
Bristol-Myers Squibb Company..... 23,800 504
Johnson & Johnson................ 33,800 2,116
Eli Lilly & Company.............. 8,500 423
McKesson Corporation............. 100 5
Medco Health Solutions,
Incorporated+.................. 800 45
Sepracor, Incorporated+.......... 8,700 489
Wyeth............................ 14,800 660
--------
TOTAL PHARMACEUTICALS........ 4,715
--------
TOTAL HEALTH CARE............ 11,702
--------
INDUSTRIALS - 13.51%
AEROSPACE & DEFENSE - 3.62%
The Boeing Company............... 21,200 1,370
Lockheed Martin Corporation...... 11,100 672
Northrop Grumman Corporation..... 1,600 86
United Technologies Corporation.. 3,200 164
--------
TOTAL AEROSPACE & DEFENSE.... 2,292
--------
COMMERCIAL SERVICES & SUPPLIES - 2.22%
Automatic Data Processing,
Incorporated................... 800 37
CheckFree Corporation+........... 5,400 229
FedEx Corporation................ 3,000 276
Global Payments, Incorporated.... 2,400 103
Herman Miller, Incorporated...... 12,700 348
Republic Services,
Incorporated................... 2,400 85
Staples, Incorporated............ 13,100 298
West Corporation+................ 800 32
--------
TOTAL COMMERCIAL SERVICES &
SUPPLIES................... 1,408
--------
CONSTRUCTION & ENGINEERING - 0.07%
USG Corporation+................. 700 41
--------
TOTAL CONSTRUCTION &
ENGINEERING................ 41
--------
ELECTRICAL EQUIPMENT - 0.85%
Energizer Holdings,
Incorporated+.................. 10,600 535
--------
TOTAL ELECTRICAL EQUIPMENT... 535
--------
INDUSTRIAL CONGLOMERATES - 5.43%
3M Company....................... 2,400 182
General Electric Company......... 87,800 2,978
Tyco International Limited....... 10,500 277
--------
TOTAL INDUSTRIAL
CONGLOMERATES.............. 3,437
--------
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ---------
(DOLLARS IN THOUSANDS)
MACHINERY - 0.75%
Deere & Company.................. 2,000 $ 121
Eaton Corporation................ 4,000 236
Kennametal, Incorporated......... 1,000 51
PACCAR, Incorporated............. 1,000 70
--------
TOTAL MACHINERY.............. 478
--------
TRANSPORTATION - 0.57%
CSX Corporation.................. 7,900 362
--------
TOTAL TRANSPORTATION......... 362
--------
TOTAL INDUSTRIALS............ 8,553
--------
INFORMATION TECHNOLOGY - 22.40%
COMMUNICATIONS EQUIPMENT - 4.28%
Cisco Systems, Incorporated+..... 22,800 398
Corning, Incorporated+........... 25,100 504
Juniper Networks,
Incorporated+.................. 11,800 275
Motorola, Incorporated........... 17,600 390
QUALCOMM, Incorporated........... 27,400 1,089
Tellabs, Incorporated+........... 5,100 49
--------
TOTAL COMMUNICATIONS
EQUIPMENT.................. 2,705
--------
COMPUTERS & PERIPHERALS - 3.46%
Apple Computer, Incorporated+.... 2,600 150
Dell, Incorporated+.............. 8,800 281
EMC Corporation+................. 11,400 159
Hewlett-Packard Company.......... 22,600 634
International Business Machines
Corporation.................... 6,600 540
NCR Corporation+................. 1,800 54
Western Digital Corporation+..... 30,900 374
--------
TOTAL COMPUTERS &
PERIPHERALS................ 2,192
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.49%
Agilent Technologies,
Incorporated+.................. 4,900 157
Avnet, Incorporated+............. 6,000 138
Broadcom Corporation+............ 4,000 170
Ingram Micro, Incorporated+...... 26,400 478
--------
TOTAL ELECTRONIC EQUIPMENT &
INSTRUMENTS................ 943
--------
INTERNET SOFTWARE & SERVICES - 2.21%
Electronic Arts, Incorporated+... 1,500 85
Google, Incorporated+............ 3,250 1,210
Mercury Interactive
Corporation+................... 400 14
Symantec Corporation+............ 3,700 88
--------
TOTAL INTERNET SOFTWARE &
SERVICES................... 1,397
--------
IT CONSULTING & SERVICES - 0.58%
Affiliated Computer Services,
Incorporated+.................. 3,700 200
Computer Sciences Corporation+... 3,200 164
--------
TOTAL IT CONSULTING &
SERVICES................... 364
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
45
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- ---------
(DOLLARS IN THOUSANDS)
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 4.99%
Altera Corporation+.............. 8,300 $ 138
Analog Devices, Incorporated..... 2,800 97
Freescale Semiconductor,
Incorporated, B Shares+........ 18,681 446
Intel Corporation................ 64,100 1,507
KLA-Tencor Corporation........... 1,800 83
Linear Technology Corporation.... 5,300 176
Maxim Integrated Products,
Incorporated................... 2,000 69
Novellus Systems,
Incorporated+.................. 3,800 83
Texas Instruments,
Incorporated................... 16,900 482
Xilinx, Incorporated............. 3,200 77
--------
TOTAL SEMICONDUCTOR EQUIPMENT
& PRODUCTS................. 3,158
--------
SOFTWARE - 5.39%
Autodesk, Incorporated+.......... 14,800 668
Cadence Design Systems,
Incorporated+.................. 3,800 61
Microsoft Corporation............ 73,900 1,898
Oracle Corporation+.............. 43,700 554
Synopsys, Incorporated+.......... 11,900 226
--------
TOTAL SOFTWARE............... 3,407
--------
TOTAL INFORMATION
TECHNOLOGY................. 14,166
--------
MATERIALS - 2.12%
CHEMICALS - 1.85%
Air Products and Chemicals,
Incorporated................... 2,400 137
Monsanto Company................. 11,600 731
Praxair, Incorporated............ 5,200 257
Rohm and Haas Company............ 1,100 48
--------
TOTAL CHEMICALS.............. 1,173
--------
METALS & MINING - 0.27%
Alcoa, Incorporated.............. 3,200 78
United States Steel
Corporation.................... 2,500 91
--------
TOTAL METALS & MINING........ 169
--------
TOTAL MATERIALS.............. 1,342
--------
TELECOMMUNICATION SERVICES - 0.54%
DIVERSIFIED TELECOMMUNICATION - 0.14%
Verizon Communications,
Incorporated................... 2,900 91
--------
TOTAL DIVERSIFIED
TELECOMMUNICATION.......... 91
--------
WIRELESS TELECOMMUNICATION SERVICE - 0.40%
American Tower Corporation+...... 6,300 150
Sprint Nextel Corporation........ 4,354 101
--------
TOTAL WIRELESS
TELECOMMUNICATION
SERVICE.................... 251
--------
TOTAL TELECOMMUNICATION
SERVICES................... 342
--------
</Table>
<Table>
<Caption>
SHARES VALUE
---------- ---------
(DOLLARS IN THOUSANDS)
UTILITIES - 1.41%
ELECTRIC UTILITIES - 1.31%
The AES Corporation+............. 8,100 $ 129
CMS Energy Corporation+.......... 4,000 60
Dominion Resources,
Incorporated................... 300 23
Constellation Energy Group,
Incorporated................... 700 38
PG&E Corporation................. 13,800 501
TXU Corporation.................. 800 81
--------
TOTAL ELECTRIC UTILITIES..... 832
--------
WATER UTILITIES - 0.10%
Nalco Holding Company+........... 3,900 66
--------
TOTAL WATER UTILITIES........ 66
--------
TOTAL UTILITIES.............. 898
--------
TOTAL COMMON STOCK........... 59,567
--------
<Caption>
PAR
AMOUNT
----------
SHORT-TERM INVESTMENTS - 5.81%
U.S. TREASURY - 0.35%
US Treasury Bill, 3.38%, Due
12/8/2005 (Note A)............. $ 215 214
US Treasury Note, 1.625%, Due
2/28/2006 (Note A)............. 10 10
--------
TOTAL U.S. TREASURY.......... 224
--------
<Caption>
SHARES
----------
OTHER SHORT-TERM INVESTMENTS - 5.46%
American Beacon Enhanced Cash
Trust (Notes B and C).......... 184,668 185
American Beacon Money Market
Select Fund (Notes B and C).... 3,264,745 3,264
--------
TOTAL OTHER SHORT-TERM
INVESTMENTS................ 3,449
--------
TOTAL SHORT-TERM
INVESTMENTS................ 3,673
--------
TOTAL INVESTMENTS - 99.93% (COST
$59,766)....................... 63,240
--------
OTHER ASSETS, NET OF
LIABILITIES - 0.07%............ 48
--------
TOTAL NET ASSETS - 100%.......... $ 63,288
========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
46
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
UNREALIZED
NO. OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- ------ --------------
Emini S&P 500 Index......................................... 56 Dec 2005 $3,387 $(39)
------ ----
$3,387 $(39)
====== ====
</Table>
- ---------------
(A) At October 31, 2005, security held as collateral for open futures contracts.
(B) The Fund/Trust is affiliated by having the same investment advisor. See Note
2.
(C) All or a portion of this security is purchased with cash collateral for
securities loaned.
(+)-All or a portion of this security is on loan at October 31, 2005. See Note
5.
+- Non-income producing security.
See accompanying notes
- --------------------------------------------------------------------------------
47
AMERICAN BEACON MID-CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
COMMON STOCK - 95.05%
CONSUMER DISCRETIONARY - 26.19%
AUTO COMPONENTS - 5.99%
Genuine Parts Company........... 9,300 $ 413
Goodrich Corporation............ 15,800 570
Johnson Controls,
Incorporated.................. 13,125 893
Lear Corporation(+)............. 25,625 781
--------
TOTAL AUTO COMPONENTS....... 2,657
--------
AUTOMOBILES - 0.62%
Winnebago Industries,
Incorporated(+)............... 9,400 276
--------
TOTAL AUTOMOBILES........... 276
--------
HOTELS RESTAURANTS & LEISURE - 4.87%
GTECH Holdings Corporation...... 20,400 650
Hasbro, Incorporated............ 31,950 602
Mattel, Incorporated............ 16,600 245
Royal Caribbean Cruises,
Limited(+).................... 16,000 663
--------
TOTAL HOTELS RESTAURANTS &
LEISURE................... 2,160
--------
HOUSEHOLD DURABLES - 5.05%
The Stanley Works............... 13,700 657
Whirlpool Corporation........... 20,175 1,584
--------
TOTAL HOUSEHOLD DURABLES.... 2,241
--------
LEISURE EQUIPMENT & PRODUCTS - 0.57%
Brunswick Corporation........... 6,600 252
--------
TOTAL LEISURE EQUIPMENT &
PRODUCTS.................. 252
--------
MEDIA - 0.24%
Dex Media, Incorporated......... 3,950 107
--------
TOTAL MEDIA................. 107
--------
MULTILINE RETAIL - 2.40%
Dollar General Corporation...... 29,000 564
Family Dollar Stores,
Incorporated(+)............... 22,600 500
--------
TOTAL MULTILINE RETAIL...... 1,064
--------
SPECIALTY RETAIL - 6.45%
AutoZone, Incorporated+......... 5,325 431
RadioShack Corporation(+)....... 28,925 639
Rent-A-Center, Incorporated+.... 34,650 624
The Sherwin-Williams Company.... 6,400 272
The TJX Companies,
Incorporated.................. 41,450 892
--------
TOTAL SPECIALTY RETAIL...... 2,858
--------
TOTAL CONSUMER
DISCRETIONARY............. 11,615
--------
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
CONSUMER STAPLES - 4.36%
FOOD PRODUCTS - 1.55%
Del Monte Foods Company+(+)..... 65,000 $ 688
--------
TOTAL FOOD PRODUCTS......... 688
--------
PERSONAL PRODUCTS - 1.61%
NBTY, Incorporated+(+).......... 35,725 715
--------
TOTAL PERSONAL PRODUCTS..... 715
--------
TOBACCO - 1.20%
UST, Incorporated............... 12,800 530
--------
TOTAL TOBACCO............... 530
--------
TOTAL CONSUMER STAPLES...... 1,933
--------
ENERGY - 1.95%
Marathon Oil Corporation........ 14,400 866
--------
TOTAL ENERGY................ 866
--------
FINANCIALS - 30.54%
BANKS - 5.81%
Comerica, Incorporated.......... 7,975 461
New York Community Bancorp,
Incorporated(+)............... 37,900 613
People's Bank(+)................ 20,450 658
The South Financial Group,
Incorporated.................. 13,600 375
TCF Financial Corporation(+).... 17,300 469
--------
TOTAL BANKS................. 2,576
--------
DIVERSIFIED FINANCIALS - 2.01%
CIT Group, Incorporated......... 7,025 321
Janus Capital Group,
Incorporated.................. 32,425 569
--------
TOTAL DIVERSIFIED
FINANCIALS................ 890
--------
INSURANCE - 20.49%
AON Corporation................. 17,275 585
Axis Capital Holdings Limited... 15,100 392
First American Corporation...... 16,625 729
IPC Holdings Limited(+)......... 12,800 337
Loews Corporation(+)............ 35,175 1,447
Old Republic International
Corporation................... 18,550 481
Protective Life Corporation..... 11,175 490
Radian Group, Incorporated...... 12,500 651
RenaissanceRe Holdings Limited.. 12,250 464
Torchmark, Incorporated......... 18,650 985
WellChoice, Incorporated+....... 11,600 878
Willis Group Holdings
Limited(+).................... 18,200 676
XL Capital Limited.............. 15,175 972
--------
TOTAL INSURANCE............. 9,087
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
48
AMERICAN BEACON MID-CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
REAL ESTATE - 2.23%
American Financial Realty
Trust(+)...................... 41,700 $ 513
Equity Office Properties
Trust......................... 15,500 477
--------
TOTAL REAL ESTATE........... 990
--------
TOTAL FINANCIALS............ 13,543
--------
HEALTH CARE - 5.93%
HEALTH CARE PROVIDERS & SERVICES - 5.23%
AmerisourceBergen Corporation... 14,675 1,119
Health Net, Incorporated+....... 4,925 231
HealthSouth Corporation+........ 24,800 101
Triad Hospitals,
Incorporated+................. 11,900 489
Universal Health Services,
Incorporated(+)............... 8,000 377
--------
TOTAL HEALTH CARE PROVIDERS
& SERVICES................ 2,317
--------
PHARMACEUTICALS - 0.70%
McKesson Corporation............ 4,475 203
Valeant Pharmaceuticals
International(+).............. 6,100 105
--------
TOTAL PHARMACEUTICALS....... 308
--------
TOTAL HEALTH CARE........... 2,625
--------
INDUSTRIALS - 14.81%
BUILDING PRODUCTS - 0.54%
York International
Corporation................... 4,225 237
--------
TOTAL BUILDING PRODUCTS..... 237
--------
COMMERCIAL SERVICES & SUPPLIES - 6.20%
Hillenbrand Industries,
Incorporated.................. 8,300 382
MoneyGram International,
Incorporated.................. 25,325 615
United Stationers,
Incorporated+................. 12,700 576
Valassis Communications,
Incorporated+(+).............. 18,475 577
Weight Watchers International,
Incorporated+(+).............. 11,400 599
--------
TOTAL COMMERCIAL SERVICES &
SUPPLIES.................. 2,749
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.48%
American Power Conversion
Corporation................... 27,400 586
Tech Data Corporation+.......... 14,835 514
--------
TOTAL ELECTRONIC EQUIPMENT &
INSTRUMENTS............... 1,100
--------
INDUSTRIAL CONGLOMERATES - 1.53%
Reynolds American,
Incorporated(+)............... 8,000 680
--------
TOTAL INDUSTRIAL
CONGLOMERATES............. 680
--------
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
MACHINERY - 2.62%
ITT Industries, Incorporated.... 3,800 $ 386
Kennametal, Incorporated........ 15,175 776
--------
TOTAL MACHINERY............. 1,162
--------
TRANSPORTATION - 1.44%
Ryder Systems, Incorporated..... 16,100 639
--------
TOTAL TRANSPORTATION........ 639
--------
TOTAL INDUSTRIALS........... 6,567
--------
INFORMATION TECHNOLOGY - 1.84%
Computer Sciences Corporation+.. 15,950 817
--------
TOTAL INFORMATION
TECHNOLOGY................ 817
--------
MATERIALS - 1.48%
Ashland, Incorporated........... 4,075 218
FMC Corporation+................ 8,050 438
--------
TOTAL MATERIALS............. 656
--------
UTILITIES - 7.95%
ELECTRIC UTILITIES - 5.42%
CenterPoint Energy,
Incorporated(+)............... 20,800 275
FirstEnergy Corporation......... 9,900 470
Pinnacle West Capital
Corporation................... 14,100 589
Wisconsin Energy Corporation.... 16,875 638
Xcel Energy, Incorporated(+).... 23,500 431
--------
TOTAL ELECTRIC UTILITIES.... 2,403
--------
GAS UTILITIES - 2.53%
MDU Resources Group,
Incorporated.................. 7,500 247
Sempra Energy................... 19,750 875
--------
TOTAL GAS UTILITIES......... 1,122
--------
TOTAL UTILITIES............. 3,525
--------
TOTAL COMMON STOCK.......... 42,147
--------
</Table>
<Table>
<Caption>
PAR
AMOUNT
----------
SHORT-TERM INVESTMENTS - 27.26%
U.S. TREASURY BILLS - 0.47%
3.375%, Due 12/8/2005 (Note
A).......................... $ 210 209
--------
TOTAL U.S. TREASURY BILLS... 209
--------
</Table>
<Table>
<Caption>
SHARES
----------
OTHER SHORT-TERM INVESTMENTS - 26.79%
American Beacon Enhanced Cash
Trust (Notes B and C)......... 6,900,714 6,901
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
49
AMERICAN BEACON MID-CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
American Beacon Money Market
Select Fund (Notes B and C)... 4,979,750 $ 4,980
--------
TOTAL OTHER SHORT-TERM
INVESTMENTS............... 11,881
--------
TOTAL SHORT-TERM
INVESTMENTS............... 12,090
--------
TOTAL INVESTMENTS - 122.31%
(COST $54,877)................ 54,237
--------
LIABILITIES, NET OF OTHER
ASSETS - (22.31%)............. (9,895)
--------
TOTAL NET ASSETS - 100%......... $ 44,342
========
</Table>
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
UNREALIZED
NO. OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- ------ --------------
Emini S&P MidCap 400 Index.................................. 39 Dec 05 $2,742 $78
------ ---
$2,742 $78
====== ===
</Table>
- ---------------
(A) At October 31, 2005, security held as collateral for open futures contracts.
(B) The Fund/Trust is affiliated by having the same investment advisor. See Note
2.
(C) All or a portion of this security is purchased with cash collateral for
securities loaned.
(+)-All or a portion of this security is on loan at October 31, 2005. See Note
5.
+- Non-income producing security.
See accompanying notes
- --------------------------------------------------------------------------------
50
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
STOCKS - 95.25%
AUSTRIA COMMON STOCK - 0.21%
Raiffeisen International
Bank-Holding AG+............. 3,521 $ 222
--------
TOTAL AUSTRIA COMMON
STOCK.................... 222
--------
BRAZIL - 12.50%
BRAZIL PREFERRED STOCK - 8.57%
All America Latina Logistica
S.A. ........................ 5,180 200
Banco Itau Holding Financeira
S.A. ........................ 15,000 359
Banco Itau Holding Financeira
S.A., ADR+(+)................ 35,950 861
Brasil Telecom Participacoes
S.A., ADR+(+)................ 9,000 374
Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar, ADR+(+).............. 6,000 165
Companhia de Tecidos Norte de
Minas+....................... 3,631,700 371
Companhia Energetica de Minas
Gerais+...................... 12,020,370 438
Companhia Paranaense de
Energia+..................... 51,233,300 375
Companhia Paranaense de
Energia, ADR+(+)............. 22,300 165
Companhia Vale do Rio Doce+.... 1,876 69
Companhia Vale do Rio Doce,
ADR+(+)...................... 31,064 1,146
Centrais Eletricas Brasileiras
S.A.+........................ 18,805,530 325
Duratex S.A.+.................. 15,908 177
Embratel Participacoes S.A.+... 118,091,670 284
Empresa Brasileira de
Aeronautica S.A. (Embraer),
ADR+(+)...................... 26,270 1,019
Gerdau S.A.+................... 14,100 191
Itausa - Investimentos Itau
S.A.+........................ 40,460 121
Klabin S.A.+................... 57,600 110
Petrol Brasileiro S.A.,+....... 3,460 49
Petroleo Brasileiro S.A.,
ADR+......................... 18,016 1,034
Tele Norte Leste Participacoes
S.A.+(+)..................... 6,800 120
Telecomunicacoes Brasileiras
S.A., ADR+................... 7,610 254
Telemar Norte Leste S.A.+...... 6,200 168
Telemig Celular Participacoes
S.A.+........................ 141,861,789 233
Telesp Celular Participacoes
S.A.+........................ 35,668 127
Telesp - Telecommunicacoes de
Sao Paulo S.A.+.............. 16,792 334
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Unibanco - Uniao de Bancos
Brasileiros S.A.+............ 7,689 $ 80
--------
TOTAL BRAZIL PREFERRED
STOCK.................... 9,149
--------
BRAZIL COMMON STOCK - 3.93%
Centrais Eletricas Brasileiras
S.A.+........................ 3,576,500 63
Companhia de Saneamento Basico
do Estado de Sao Paulo+...... 4,879,400 312
Companhia de Saneamento Basico
do Estado de Sao Paulo,
ADR+(+)...................... 8,600 138
Companhia Energetica de Minas
Gerais, ADR+(+).............. 800 29
CPFL Energia S.A. ............. 20,100 210
Gerdau S.A., ADR+(+)........... 7,150 97
Grendene S.A. ................. 31,300 246
Petroleo Brasileiro S.A.,
ADR+......................... 35,292 2,255
Telesp Celular Participacoes
S.A.+........................ 1,923 6
Unibanco - Uniao de Bancos
Brasileiros S.A.+............ 15,075 788
Votorantim Celulose e Papel
S.A.+........................ 4,400 53
--------
TOTAL BRAZIL COMMON
STOCK.................... 4,197
--------
TOTAL BRAZIL............... 13,346
--------
CHILE COMMON STOCK - 0.50%
Banco Santander-Chile S.A.,
ADR+......................... 4,000 156
Grupo Enersis S.A., ADR+(+).... 34,200 374
--------
TOTAL CHILE COMMON STOCK... 530
--------
CHINA COMMON STOCK - 4.98%
Beijing Capital International
Airport Company Limited+..... 700 --
Brilliance China Automotive
Holdings Limited............. 646,000 86
BYD Company Limited............ 53,000 75
China Life Insurance Company
Limited+..................... 260,000 192
China Mobile (Hong Kong)
Limited...................... 196,600 880
China Petroleum & Chemical
Corporation.................. 891,200 358
China Petroleum & Chemical
Corporation, ADR+(+)......... 1,250 50
China Ping'an Insurance Company
Limited...................... 112,000 180
China Resources Enterprises
Limited...................... 191,900 284
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
51
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
China Shenhua Energy Company
Limited+..................... 213,000 $ 234
China Telecom Corporation
Limited...................... 1,376,600 449
China Unicom Limited........... 200,000 154
CNOOC Limited.................. 354,000 230
Denway Motors Limited.......... 1,348,600 406
Hainan Meilan Airport Company
Limited+..................... 89,000 43
Hopewell Highway Infrastructure
Limited...................... 169,000 109
Huandian Power International
Corporation.................. 1,659,800 415
Huaneng Power International,
Incorporated................. 239,900 161
Lianhua Supermarket Holdings
Company Limited+............. 80,000 87
Shanghai Industrial Holdings
Limited...................... 168,500 300
Sinopec Shanghai Petrochemical
Company Limited.............. 118,000 36
Sinopec Yizheng Chemical Fibre
Company Limited.............. 1,067,500 161
Sinotrans Limited+............. 620,000 216
Weiqiao Textile Company
Limited...................... 113,000 137
Wumart Stores, Incorporated.... 37,000 77
--------
TOTAL CHINA COMMON STOCK... 5,320
--------
EGYPT COMMON STOCK - 0.27%
Eastern Tobacco Company........ 7,226 288
--------
TOTAL EGYPT COMMON STOCK... 288
--------
HONG KONG COMMON STOCK - 2.27%
Asia Aluminum Holdings
Limited+..................... 978,000 80
China Construction Bank+....... 954,000 289
China Resource Power Holdings
Company Limited.............. 266,000 160
Fountain Set (Holdings)
Limited...................... 183,000 71
Global Bio-chem Technology
Group Company Limited........ 763,000 303
Gome Electrical Appliances
Holdings Limited............. 487,000 283
Kingboard Chemical Holdings
Limited...................... 66,000 140
Moulin Global Eyecare Holdings
Limited*..................... 96,000 --
Panva Gas Holdings Limited+.... 110,000 51
PetroChina Company Limited+.... 912,000 698
Shougang Concord Century
Holdings Limited............. 537,000 27
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
The Grande Holdings Limited.... 91,000 $ 72
TPV Technology Limited......... 272,000 208
Victory City International
Holdings Limited............. 169,000 43
--------
TOTAL HONG KONG COMMON
STOCK.................... 2,425
--------
HUNGARY COMMON STOCK - 1.05%
Gedeon Richter Rt.............. 3,587 593
Magyar Tavkozlesi Rt........... 110,400 526
--------
TOTAL HUNGARY COMMON STOCK... 1,119
--------
INDIA COMMON STOCK - 7.59%
ABB Limited.................... 5,500 209
Aventis Pharma Limited......... 4,000 124
Bharat Electronics Limited+.... 21,000 536
Bharat Petroleum Corporation
Limited...................... 52,533 426
CIPLA.......................... 17,750 142
Container Corporation.......... 5,900 172
Doctor Reddy's Laboratories
Limited...................... 7,100 128
Doctor Reddy's Laboratories
Limited, ADR+(+)............. 23,100 434
GAIL (India) Limited........... 21,900 114
GAIL (India) Limited, GDR, 144A
(Note A)+.................... 7,600 236
Glenmark Pharmaceuticals
Limited...................... 17,000 105
Gujarat Ambuja Cements
Limited...................... 22,500 34
Gujarat Ambuja Cements Limited,
GDR+......................... 79,750 121
HDFC Bank Limited.............. 13,000 177
Hero Honda Motors Limited...... 14,200 224
Hindalco Industries Limited.... 40,000 102
Hindalco Industries Limited,
GDR, 144A (Note A)+.......... 177,000 446
Hindustan Lever Limited........ 38,500 138
Hindustan Petroleum Corporation
Limited...................... 73,800 485
Housing Development Finance
Corporation Limited.......... 8,700 188
Infosys Technologies Limited... 7,700 432
ITC Limited.................... 39,000 104
ITC Limited, GDR+.............. 22,500 58
Mahanagar Telephone Nigam
Limited...................... 252,570 617
Mahindra & Mahindra Limited.... 21,500 169
Oil and Natural Gas Corporation
Limited...................... 14,224 292
Punjab National Bank Limited... 15,000 133
Reliance Industries Limited.... 56,400 958
Siemens India Limited.......... 1,800 95
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
52
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
State Bank of India, GDR, 144A
(Note A)+.................... 10,400 $ 449
UTI Bank Limited............... 10,000 53
UTI Bank Limited, GDR, 144A
(Note A)+.................... 14,000 72
Wipro Limited.................. 16,500 134
--------
TOTAL INDIA COMMON STOCK... 8,107
--------
INDONESIA COMMON STOCK - 0.91%
PT Bank Mandiri................ 951,000 124
PT Gudang Garam Tbk............ 249,000 251
PT Indofood Sukses Makmur
Tbk.......................... 2,725,700 221
PT Telekomunikasi Indonesia
Tbk.......................... 742,000 372
--------
TOTAL INDONESIA COMMON
STOCK.................... 968
--------
ISRAEL COMMON STOCK - 0.41%
Bank Hapoalim Limited.......... 35,580 136
Bank Leumi le-Israel B.M....... 39,500 129
Supersol Limited............... 68,500 174
--------
TOTAL ISRAEL COMMON
STOCK.................... 439
--------
MALAYSIA COMMON STOCK - 2.86%
AMMB Holdings Berhad........... 146,100 92
Bandar Raya Developments
Berhad....................... 77,000 20
Commerce Asset-Holding
Berhad....................... 262,900 383
Gamuda Berhad.................. 298,500 302
Genting Berhad................. 81,100 443
IOI Corporation Berhad......... 28,000 97
Kuala Lumpur Kepong Berhad..... 84,700 176
Magnum Corporation Berhad...... 139,000 73
MK Land Holdings Berhad........ 295,300 58
Resorts World Berhad........... 157,300 437
Road Builder(M) Holdings
Berhad....................... 64,000 32
Sime Darby Berhad.............. 351,700 578
Tenaga Nasional Berhad......... 82,000 217
YTL Corporation Berhad......... 104,600 151
--------
TOTAL MALAYSIA COMMON
STOCK.................... 3,059
--------
MEXICO COMMON STOCK - 8.98%
America Movil, S.A. de C.V.,
ADR+......................... 61,165 1,605
Cemex, S.A. de C.V. ........... 42,336 220
Coca-Cola Femsa, S.A. de C.V.,
ADR+(+)...................... 28,335 728
Controladora Commercial
Mexicana, S.A. de C.V.+...... 349,300 524
Desc, S.A. de C.V. ............ 505,000 125
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Embotelladoras Arca S.A. ...... 35,000 $ 77
Empresas ICA Sociedad
Controladora, S.A. de
C.V.+........................ 189,500 73
Empresas ICA Sociedad
Controladora, S.A. de C.V.,
ADR+......................... 10,800 25
Fomento Economico Mexicano,
S.A. de C.V., ADR+........... 8,280 563
Grupo Aeroportuario del Sureste
S.A. de C.V., ADR+........... 3,600 117
Grupo Continential, S.A. ...... 161,450 266
Grupo Financiero Banorte, S.A.
de C.V. ..................... 29,300 250
Grupo Televisa, S.A., ADR+..... 19,800 1,447
Kimberly-Clark de Mexico, S.A.
de C.V. ..................... 178,720 592
Telefonos de Mexico, S.A. de
C.V., ADR+................... 63,580 1,283
Wal-Mart de Mexico, S.A. de
C.V.+........................ 307,029 1,495
Wal-Mart de Mexico, S.A. de
C.V., ADR+(+)................ 4,126 201
--------
TOTAL MEXICO COMMON
STOCK.................... 9,591
--------
MOROCCO COMMON STOCK - 0.48%
Attijariwafa Bank+............. 399 52
Banque Marocaine du Commerce
Exterieur+................... 2,300 185
Maroc Telecom+................. 3,100 33
ONA (Omnium Nord Africain)+.... 2,300 248
--------
TOTAL MOROCCO COMMON
STOCK.................... 518
--------
PHILIPPINES COMMON STOCK - 0.47%
ABS-CBN Broadcasting
Corporation+................. 261,800 64
Bank of the Philippine
Islands...................... 244,936 232
Manila Electric Company+....... 279,400 102
SM Prime Holdings.............. 695,000 100
--------
TOTAL PHILIPPINES COMMON
STOCK.................... 498
--------
POLAND COMMON STOCK - 2.35%
Agora SA....................... 11,286 214
Bank Pekao SA.................. 5,961 282
Central European Distribution
Corporation+(+).............. 5,700 227
Polski Koncern Naftowy Orlen
S.A. ........................ 7,343 130
Powszechna Kasa Oszczednosci
Bank Polski.................. 66,621 560
Telekomunikacja Polska SA...... 68,473 492
Telekomunikacja Polska SA,
GDR+......................... 35,900 257
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
53
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
TVN SA+........................ 20,412 $ 348
--------
TOTAL POLAND COMMON
STOCK.................... 2,510
--------
RUSSIA - 6.51%
RUSSIA PREFERRED STOCK - 0.14%
Vimpel Communications, ADR+.... 3,800 152
--------
TOTAL RUSSIA PREFERRED
STOCK.................... 152
--------
RUSSIA COMMON STOCK - 6.37%
Efes Breweries International
NV, GDR+..................... 7,582 240
Highland Gold Mining Limited... 59,700 237
LUKOIL Oil Company, ADR+....... 66,388 3,661
Mobile Telesystems, ADR+....... 21,500 795
Mobile Telesystems, GDR, 144A
(Note A)+.................... 7,200 266
NovaTek OAO, GDR, 144A (Note
A)+.......................... 3,480 77
Pyaterochka Holding NV, GDR+... 5,504 108
Pyaterochka Holding NV, GDR,
144A (Note A)+*.............. 14,799 290
RAO Gazprom+................... 3,500 207
RAO Gazprom, ADR+(+)........... 11,500 680
Wimm-Bill-Dann Foods,
ADR+(+)...................... 13,500 244
--------
TOTAL RUSSIA COMMON
STOCK.................... 6,805
--------
TOTAL RUSSIA............... 6,957
--------
SOUTH AFRICA COMMON STOCK - 11.20%
African Bank Investments
Limited...................... 138,000 412
Alexander Forbes Limited....... 100,787 213
Aveng Limited.................. 326,700 821
Barloworld Limited............. 17,900 280
Bidvest Group Limited.......... 29,504 395
Edgars Consolidated Stores
Limited...................... 81,500 362
Harmony Gold Mining Company
Limited+..................... 22,329 235
Harmony Gold Mining Company
Limited, ADR+................ 15,087 158
Illovo Sugar Limited........... 121,100 188
Impala Platinum Holdings
Limited...................... 7,357 803
JD Group Limited............... 19,740 211
Massmart Holdings Limited...... 51,900 401
MTN Group Limited.............. 103,540 771
Murray & Roberts............... 3,100 9
Nampak Limited................. 200,700 465
Naspers Limited................ 40,500 584
Nedcor Limited................. 70,367 896
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Network Healthcare Holdings
Limited...................... 165,600 $ 159
Old Mutual..................... 180,275 421
Pretoria Portland Cement
Company Limited.............. 6,300 282
Sanlam Limited................. 237,960 438
Sappi Limited.................. 66,700 647
Sasol Limited.................. 20,000 638
Shoprite Holdings Limited...... 135,000 316
Standard Bank Group Limited.... 81,191 837
Steinhoff International
Holdings Limited............. 238,179 624
Tiger Brands Limited........... 19,987 399
--------
TOTAL SOUTH AFRICA COMMON
STOCK.................... 11,965
--------
SOUTH KOREA - 15.19%
SOUTH KOREA PREFERRED STOCK - 0.50%
Hyundai Motor Company.......... 3,150 160
Samsung Electronics Company
Limited+..................... 920 377
--------
TOTAL SOUTH KOREA PREFERRED
STOCK.................... 537
--------
SOUTH KOREA COMMON STOCK - 14.69%
Cheil Industries,
Incorporated................. 9,840 240
CJ Corporation................. 3,650 259
Daelim Industrial Company
Limited...................... 5,490 321
Daewoo Heavy Industries and
Machinery Limited............ 7,630 95
Doosan Heavy Industries and
Construction Limited......... 12,550 273
Hankook Tire Company Limited... 22,190 267
Hanmi Pharmaceutical Company
Limited...................... 950 97
Hyundai Department Store
Company Limited.............. 1,560 104
Hyundai Mobis.................. 4,230 338
Hyundai Motor Company
Limited...................... 10,650 786
Industrial Bank of Korea....... 21,310 255
Kangwon Land Incorporated...... 24,021 404
Kia Motors Corporation......... 21,910 396
Kookmin Bank................... 11,771 675
Kookmin Bank, ADR+(+).......... 6,000 351
Korea Electric Power
Corporation.................. 25,530 833
Korea Electric Power
Corporation, ADR+(+)......... 4,400 72
Korea Zinc Company Limited..... 3,450 118
KT Corporation, ADR+........... 36,100 778
KT&G Corporation............... 8,330 341
Kumho Tire Company,
Incorporated................. 3,300 49
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
54
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Kumho Tire Company,
Incorporated, GDR+, 144A
(Note A)+.................... 9,900 $ 80
LG Chemical.................... 10,930 482
LG Construction Company........ 7,040 302
LG Electronics, Incorporated... 10,550 690
NCsoft Corporation+............ 570 53
NHN Corporation+............... 300 50
Orion Corporation.............. 2,095 408
POSCO.......................... 2,780 567
POSCO, ADR+.................... 1,100 56
Pusan Bank..................... 9,950 104
Samsung Electro Mechanics
Company Limited.............. 15,570 391
Samsung Electronics Company
Limited...................... 4,280 2,282
Samsung Fire & Marine Insurance
Company Limited.............. 4,354 415
Samsung SDI Company Limited.... 6,280 622
Shinhan Financial Group Company
Limited...................... 12,100 404
SK Corporation................. 10,830 557
SK Telecom Company Limited..... 1,668 300
SK Telecom Company Limited,
ADR+(+)...................... 29,100 588
S-Oil Corporation.............. 1,700 127
Woori Finance Holdings Company
Limited...................... 10,320 160
--------
TOTAL SOUTH KOREA COMMON
STOCK.................... 15,690
--------
TOTAL SOUTH KOREA.......... 16,227
--------
TAIWAN COMMON STOCK - 11.08%
Accton Technology
Corporation+................. 275,396 84
Acer, Incorporated............. 78,000 159
Advanced Semiconductor
Engineering, Incorporated.... 516,119 316
Asia Optical Company,
Incorporated................. 25,469 147
Asustek Computer,
Incorporated................. 60,110 158
AU Optronics Corp.............. 486,630 619
Benq Corporation............... 368,550 338
Cathay Financial Holding
Company Limited.............. 147,000 259
Cheng Shin Industries.......... 82,694 60
China Motor Company............ 366,860 343
China Steel Corporation........ 292,000 231
Chinatrust Financial Holding
Company Limited.............. 580,572 452
Chunghwa Telecom Company
Limited, ADR+................ 17,200 298
Compal Electronics,
Incorporated................. 1,097,346 978
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
CTCI Corporation............... 79,197 $ 30
CyberLink Corporation.......... 20,709 45
Delta Electronics Group........ 317,682 537
Elan Microelectronics
Corporation.................. 193,873 72
Far EasTone Telecommunication
Company Limited.............. 87,000 101
First Financial Holding Company
Limited...................... 549,250 369
High Tech Computer
Corporation.................. 15,000 162
Hon Hai Precision Industry
Company Limited.............. 74,172 322
Infortrend Technology,
Incorporated................. 70,079 110
Kaulin Manufacturing Company
Limited...................... 51,397 49
Largan Precision Company
Limited...................... 14,158 129
Media Tek, Incorporated........ 34,878 303
Nien Hsing Textile Company
Limited...................... 235,000 145
Optimax Technology
Corporation.................. 219,090 281
Phoenixtec Power Company
Limited...................... 81,355 73
Polaris Securities Company
Limited...................... 145,234 48
Powerchip Semiconductor
Corporation.................. 414,000 199
Quanta Computer, Incorporated.. 446,712 620
Radiant Opto-Electronics
Corporation.................. 33,178 73
Shin Kong Financial Holding
Company Limited.............. 497,743 359
SinoPac Holdings............... 1,231,987 486
Springsoft Systems Limited..... 68,017 100
Sunplus Technology Company
Limited+..................... 235,007 206
Taishin Financial Holdings
Company Limited.............. 310,976 159
Taiwan Cellular Corporation.... 537,635 449
Tsann Keun Enterprise Company
Limited...................... 95,720 157
Uni-President Enterprises
Corporation.................. 144,000 55
United Microelectronics
Corporation.................. 2,130,366 1,149
United Microelectronics
Corporation, ADR+............ 3,200 9
Vanguard International
Semiconductor Corporation.... 197,788 130
Yaego Corporation+............. 1,438,000 439
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
55
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Yang Ming Marine Transport..... 50,000 $ 29
--------
TOTAL TAIWAN COMMON
STOCK.................... 11,837
--------
THAILAND COMMON STOCK - 2.57%
Advanced Info Services PCL*.... 84,400 205
Asian Property Development
Company Limited*............. 541,600 45
Bangkok Bank PCL............... 81,500 202
CH. Karnchang Public Company
Limited+*.................... 188,900 56
Charoen Pokphand Foods PCL*.... 1,194,900 148
CP Seven Eleven PCL+*.......... 1,010,300 147
Delta Electronics PCL+*........ 118,000 40
Italian-Thai Development PCL... 627,500 128
Kasikornbank PCL............... 249,300 367
Krung Thai Bank PCL*........... 1,554,700 374
Lalin Property PCL+*........... 148,400 20
Land & Houses PCL.............. 378,700 77
MBK Public Company Limited+*... 29,000 31
PTT Public Company Limited+*... 43,600 224
Siam Commercial Bank PCL....... 281,600 311
Siam Makro PCL+*............... 88,200 114
Sino Thai Engineering &
Construction PCL+*........... 136,900 38
Sino Thai Engineering &
Construction PCL, rights+*... 22,816 4
Thai Oil PCL*.................. 40,700 68
Total Access Communications+... 45,000 142
--------
TOTAL THAILAND COMMON
STOCK.................... 2,741
--------
TURKEY COMMON STOCK - 2.87%
Akcansa Cimento A.S............ 48,610 229
BIM Birlesik Magazalar A.S.+... 12,680 307
Dogan Yayin Holding+........... 93,729 237
Enka Insaat ve Sanayi A.S...... 71,408 788
Haci Omer Sabanci Holding A.S.. 45,000 210
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Hurriyet Gazetecilik ve
Matbaacilik A.S.............. 92,663 $ 261
Tupras-Turkiye Petrol
Rafinerileri A.S............. 18,203 311
Turkiye Garanti Bankasi
A.S.+........................ 120,892 360
Yapi ve Kredi Bankasi A.S.+.... 96,473 361
--------
TOTAL TURKEY COMMON
STOCK.................... 3,064
--------
TOTAL STOCKS............... 101,731
--------
<Caption>
PAR
AMOUNT
-----------
SHORT TERM INVESTMENTS - 10.20%
U.S. TREASURY BILLS - 0.28%
3.405%, Due 12/8/2005 (Note
C)........................... $ 300 299
--------
TOTAL U.S. TREASURY
BILLS.................... 299
--------
<Caption>
SHARES
-----------
OTHER SHORT TERM INVESTMENTS - 9.92%
American Beacon Enhanced Cash
Trust (Notes B and D)........ 5,062,985 5,063
American Beacon Money Market
Select Fund (Notes B and D).. 5,527,852 5,528
--------
TOTAL OTHER SHORT TERM
INVESTMENTS.............. 10,591
--------
TOTAL SHORT TERM
INVESTMENTS.............. 10,890
--------
TOTAL INVESTMENTS - 105.45%
(COST $91,191)............... 112,621
--------
LIABILITIES, NET OF OTHER
ASSETS - (5.45%)............. (5,817)
--------
TOTAL NET ASSETS - 100%........ $106,804
========
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At period end, the
value of these securities amounted to $1,916 or 1.79% of net assets.
(B) The Fund/Trust is affiliated by having the same investment advisor. See Note
2.
(C) At October 31, 2005, security held as collateral for open futures contracts.
(D) All or a portion of this security is purchased with cash collateral for
securities loaned.
(+)-All or a portion of this security is on loan at October 31, 2005. See Note
5.
+- Non-income producing security.
*- Valued at fair value pursuant to procedures approved by the Board of
Trustees.
See accompanying notes
- --------------------------------------------------------------------------------
56
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
(dollars in thousands)
<Table>
<Caption>
UNREALIZED
NUMBER OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- ------ --------------
Emini S&P 500 Index........................................ 80 Dec-05 $4,839 $77
------ ---
$4,839 $77
====== ===
</Table>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<Table>
CONTRACTS TO DELIVER SETTLEMENT MARKET UNREALIZED
(amounts in thousands) DATE VALUE GAIN/(LOSS)
---------- ------ ----
1,357 Euro Currency............................................... 11/14/2005 $1,628 $138
22,183 South African Rand.......................................... 11/14/2005 3,303 170
------ ----
TOTAL CONTRACTS TO DELIVER (RECEIVABLE AMOUNT $5,239).................. $4,931 $308
====== ====
</Table>
<Table>
CONTRACTS TO RECEIVE SETTLEMENT MARKET UNREALIZED
(amounts in thousands) DATE VALUE GAIN/(LOSS)
-------- ------ -----
1,350 Euro Currency............................................... 11/14/2005 $1,619 $(119)
11,092 South African Rand.......................................... 11/14/2005 1,651 (114)
------ -----
TOTAL CONTRACTS TO RECEIVE (PAYABLE AMOUNT $3,503)..................... $3,270 $(233)
====== =====
NET CURRENCY FLUX...................................................... $ 75
=====
</Table>
SECTOR DIVERSIFICATION
<Table>
PERCENT OF
NET ASSETS
----------
Consumer Discretionary...................................... 13.32%
Consumer Staples............................................ 7.46%
Energy...................................................... 11.13%
Financials.................................................. 15.81%
Health Care................................................. 1.95%
Industrials................................................. 10.03%
Information Technology...................................... 10.44%
Materials................................................... 7.95%
Short-Term Investments...................................... 10.20%
Telecommunications Services................................. 12.79%
Utilities................................................... 4.45%
Liabilities, Net of Other Assets............................ (5.53%)
----------
100.00%
==========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
57
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
CORPORATE BONDS - 95.32%
CONSUMER DISCRETIONARY - 28.75%
AUTO COMPONENTS - 4.97%
ArvinMeritor, Incorporated, 8.75%, Due 3/1/2012(+).......... $ 1,000 $ 938
Asbury Automotive Group, Incorporated,
9.00%, Due 6/15/2012...................................... 1,575 1,555
8.00%, Due 3/15/2014...................................... 800 736
GenCorp, Incorporated, 9.50%, Due 8/15/2013................. 1,174 1,282
General Motors Corporation, 7.70%, Due 4/15/2016............ 1,850 1,309
The Goodyear Tire & Rubber Company, 12.50%, Due 3/1/2011.... 2,050 2,265
Navistar International Transportation Corporation,
7.50%, Due 6/15/2011(+)................................... 1,650 1,567
6.25%, Due 3/1/2012....................................... 775 696
Stanadyne Corporation, 10.00%, Due 8/15/2014................ 1,000 975
Tenneco Automotive, Incorporated, 8.625%, Due
11/15/2014(+)............................................. 1,000 955
TriMas Corporation, 9.875%, Due 6/15/2012................... 2,750 2,228
United Components, Incorporated, 9.375%, Due 6/15/2013...... 2,250 2,250
--------
TOTAL AUTO COMPONENTS................................... 16,756
--------
HOTELS, RESTAURANTS & LEISURE - 4.53%
AMC Entertainment, Incorporated, 9.875%, Due 2/1/2012....... 1,000 955
AMF Bowling Worldwide Incorporated, 10.00%, Due 3/1/2010.... 2,950 2,943
Chumash Casino & Resort Enterprises, 9.52%, Due 7/15/2010... 1,250 1,328
Landry's Restaurants, Incorporated, 7.50%, Due 12/15/2014... 825 759
Mandalay Resort Group, 6.50%, Due 7/31/2009................. 1,550 1,546
San Pasqual Casino Development Group, 8.00%, Due 9/15/2013,
144A (Note A)............................................. 1,800 1,791
Station Casinos, Incorporated, 6.875%, Due 3/1/2016(+)...... 1,000 1,008
Turning Stone Casino Resort, 9.125%, Due 12/15/2010, 144A
(Note A).................................................. 3,710 3,821
Warner Music Group, 7.375%, Due 4/15/2014................... 1,145 1,116
--------
TOTAL HOTELS, RESTAURANTS & LEISURE..................... 15,267
--------
MEDIA - 10.06%
Advanstar Communications, Incorporated,
10.75%, Due 8/15/2010..................................... 1,500 1,661
12.00%, Due 2/15/2011..................................... 1,375 1,459
Allbritton Communications Company, 7.75%, Due 12/15/2012.... 2,590 2,558
American Media Operations, Incorporated, 10.25%, Due
5/1/2009.................................................. 2,415 2,294
Charter Communications Holdings,
10.25%, Due 9/15/2010..................................... 1,925 1,930
11.00%, Due 10/1/2015, 144A (Note A)...................... 518 469
Charter Communications Operations, 8.375%, Due 4/30/2014,
144A (Note A)............................................. 1,150 1,153
CSC Holdings, Incorporated, 7.25%, Due 7/15/2008............ 2,750 2,778
Dex Media, Incorporated,
9.875%, Due 8/15/2013..................................... 500 551
0.00%, Due 11/15/2013+.................................... 700 543
0.00%, Due 11/15/2013+.................................... 1,000 775
Echostar DBS Corporation, 6.625%, Due 10/1/2014(+).......... 4,700 4,559
Houghton Mifflin Company, 8.25%, Due 2/1/2011............... 1,350 1,380
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
58
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
The Interpublic Group of Companies, Incorporated, 6.25%, Due
11/15/2014................................................ $ 4,000 $ 3,535
Kabel Deutschland GMBH, 10.625%, Due 7/1/2014, 144A (Note
A)(+)..................................................... 3,825 4,117
LBI Media, Incorporated, 10.125%, Due 7/15/2012............. 1,000 1,062
Movie Gallery, Incorporated, 11.00%, Due 5/1/2012, 144A
(Note A)(+)............................................... 1,200 960
WDAC Subsidiary Corporation, 8.375%, Due 12/1/2014, 144A
(Note A)(+)............................................... 900 848
WMG Holdings Corporation, 0.00%, Due 12/15/2014+............ 1,800 1,237
--------
TOTAL MEDIA............................................. 33,869
--------
RETAIL - 6.52%
CSK Auto Corporation, 7.00%, Due 1/15/2014.................. 2,045 1,912
FTD, Incorporated, 7.75%, Due 2/15/2014..................... 923 914
Group 1 Automotive, Incorporated, 8.25%, Due 8/15/2013...... 1,000 962
Jostens, Incorporated,
7.625%, Due 10/1/2012..................................... 950 936
0.00%, Due 12/1/2013+..................................... 1,900 1,373
NBTY, Incorporated, 7.1250%, Due 10/1/2015, 144A (Note A)... 1,800 1,755
Pep Boys, Incorporated, 7.50%, Due 12/15/2014(+)............ 2,650 2,478
Rite Aid Corporation,
8.125%, Due 5/1/2010...................................... 2,000 2,000
9.50%, Due 2/15/2011...................................... 710 745
Samsonite Corporation, 8.875%, Due 6/1/2011................. 2,500 2,575
Toys R Us, Incorporated, 7.625%, Due 8/1/2011............... 1,400 1,155
United Rentals North America, Incorporated, 6.50%, Due
2/15/2012(+).............................................. 2,500 2,397
Woolworth Corporation, 8.50%, Due 1/15/2022................. 2,550 2,757
--------
TOTAL RETAIL............................................ 21,959
--------
SERVICES - 0.83%
Knowledge Learning Corporation, 7.75%, Due 2/1/2015, 144A
(Note A).................................................. 3,000 2,790
--------
TOTAL SERVICES.......................................... 2,790
--------
TEXTILES & APPAREL - 1.84%
Day International Group, Incorporated, 9.50%, Due
3/15/2008................................................. 1,555 1,555
Rafaella Apparel Group, Incorporated, 11.25%, Due 6/15/2011,
144A (Note A)............................................. 1,000 950
Phillips-Van Heusen Corporation,
8.125%, Due 5/1/2013...................................... 1,250 1,309
7.75%, Due 11/15/2023..................................... 2,300 2,404
--------
TOTAL TEXTILES & APPAREL................................ 6,218
--------
TOTAL CONSUMER DISCRETIONARY............................ 96,859
--------
CONSUMER STAPLES - 1.61%
FOOD/RESTAURANT - 1.12%
Borden, Incorporated, 9.20%, Due 3/15/2021.................. 1,715 1,526
Cott Beverages, Incorporated, 8.00%, Due 12/15/2011......... 1,000 1,023
Pilgrims Pride Corporation, 9.625%, Due 9/15/2011........... 1,148 1,228
--------
TOTAL FOOD/RESTAURANT................................... 3,777
--------
HOUSEHOLD DURABLES - 0.09%
H.H. Gregg Appliances, Incorporated, 9.00%, Due 2/1/2013.... 350 315
--------
TOTAL HOUSEHOLD DURABLES................................ 315
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
59
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
TOBACCO - 0.40%
R J Reynolds Tobacco Holdings, Incorporated, 7.30%, Due
7/15/2015, 144A (Note A)(+)............................... $ 1,350 $ 1,343
--------
TOTAL TOBACCO........................................... 1,343
--------
TOTAL CONSUMER STAPLES.................................. 5,435
--------
ENERGY - 9.67%
Alpha Natural Resources, LLC, 10.25%, Due 6/1/2012.......... 2,725 2,998
AmeriGas Partners, L.P., 7.25%, Due 5/20/2015, 144A (Note
A)........................................................ 1,500 1,552
CITGO Petroleum Corporation, 6.00%, Due 10/15/2011, 144A
(Note A).................................................. 1,000 1,050
Delta Petroleum Corporation, 7.00%, Due 4/1/2015............ 1,000 945
El Paso Corporation, 7.625%, Due 8/16/2007(+)............... 1,400 1,421
Energy Partners Limited, 8.75%, Due 8/1/2010................ 2,000 2,080
Ferrellgas Partners, L.P., 6.75%, Due 5/1/2014.............. 500 480
Holly Energy Partners, L.P., 6.25%, 3/1/2015................ 1,450 1,407
Inergy L.P./Inergy Finance Corporation, 6.875%, Due
12/15/2014................................................ 1,000 948
Key Energy Service, Incorporated, 8.375%, Due 3/1/2008...... 2,450 2,554
Newfield Exploration Company, 8.375%, Due 8/15/2012......... 1,425 1,528
Paramount Resources Limited, 8.50%, Due 1/31/2013........... 2,374 2,433
PetroQuest Energy, Incorporated, 10.375%, Due 5/15/2012..... 3,000 3,173
Reliant Energy, Incorporated, 6.75%, Due 12/15/2014......... 1,680 1,562
Swift Energy Company,
7.625%, Due 7/15/2011..................................... 900 916
9.375%, Due 5/1/2012...................................... 1,000 1,070
Tenaska, Incorporated, 6.528%, Due 12/30/2014, 144A (Note
A)........................................................ 1,433 1,404
Tenaska Alabama Partners, L.P., 7.00%, Due 6/30/2021, 144A
(Note A).................................................. 747 759
Terex Corporation,
9.25%, Due 7/15/2011...................................... 1,250 1,334
7.375%, Due 1/15/2014..................................... 2,260 2,249
Clayton Williams Energy, Incorporated, 7.75%, Due 8/1/2013,
144A (Note A)............................................. 750 724
--------
TOTAL ENERGY............................................ 32,587
--------
FINANCIALS - 4.96%
DIVERSIFIED FINANCIALS - 4.53%
Borden US Financial Corporation, 8.90%, Due 7/15/2010, 144A
(Note A).................................................. 250 248
E*Trade Financial Corporation,
8.00%, Due 6/15/2011, 144A (Note A)....................... 700 710
8.00%, Due 6/15/2011...................................... 2,375 2,411
General Motors Acceptance Corporation,
6.875%, Due 9/15/2011..................................... 1,500 1,454
6.75%, Due 12/1/2014(+)................................... 1,100 1,052
Glencore Funding, LLC, 6.00%, Due 4/15/2014, 144A (Note
A)........................................................ 1,400 1,290
Nell AF SARL, 8.375%, Due 8/15/2015, 144A (Note A)(+)....... 2,250 2,160
Noble Group Limited, 6.625%, Due 3/17/2015, 144A (Note
A)(+)..................................................... 3,500 3,169
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
60
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Thornburg Mortgage, Incorporated, 8.00%, Due 5/15/2013...... $ 2,850 $ 2,772
--------
TOTAL DIVERSIFIED FINANCIALS............................ 15,266
--------
REAL ESTATE - 0.43%
American Real Estate Partners, L.P. 7.125%, Due 2/15/2013,
144A (Note A)............................................. 1,500 1,459
--------
TOTAL REAL ESTATE....................................... 1,459
--------
TOTAL FINANCIALS........................................ 16,725
--------
HEALTH CARE - 8.81%
EQUIPMENT & SUPPLIES - 0.31%
Sybron Dental Specialties, Incorporated, 8.125%, Due
6/15/2012................................................. 1,000 1,053
--------
TOTAL EQUIPMENT & SUPPLIES.............................. 1,053
--------
HEALTHCARE PROVIDERS & SERVICES - 7.84%
ACIH, Incorporated, 0.00%, Due 12/15/2012, 144A (Note A)+... 3,575 2,431
DaVita, Incorporated, 7.25%, Due 3/15/2015.................. 2,750 2,778
HCA, Incorporated,
6.30%, Due 10/1/2012...................................... 2,000 1,968
8.36%, Due 4/15/2024...................................... 1,935 2,029
Interactive Health, LLC, 8.00%, Due 4/1/2011, 144A (Note
A)........................................................ 1,800 1,512
National Health Investors, 7.30%, Due 7/16/2007............. 1,000 1,021
NDCHealth Corporation, 10.50%, Due 12/1/2012................ 3,250 3,701
Pacificare Health Systems, Incorporated, 10.75%, Due
6/1/2009.................................................. 2,625 2,828
Quintiles Transnational Corporation, 10.00%, Due
10/1/2013................................................. 1,600 1,766
Select Medical Corporation, 7.625%, Due 2/1/2015............ 2,725 2,527
Service Corporation International, 7.00%, Due 6/15/2017,
144A (Note A)............................................. 1,180 1,171
US Oncology, Incorporated
9.00%, Due 8/15/2012...................................... 1,500 1,583
10.75%, Due 8/15/2014..................................... 1,000 1,103
--------
TOTAL HEALTHCARE PROVIDERS & SERVICES................... 26,418
--------
PHARMACEUTICALS - 0.66%
Athena Neurosciences Financial LLC, 7.25%, Due
2/21/2008(+).............................................. 2,300 2,219
--------
TOTAL PHARMACEUTICALS................................... 2,219
--------
TOTAL HEALTH CARE....................................... 29,690
--------
INFORMATION TECHNOLOGY - 2.27%
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 1.42%
Amkor Technology, Incorporated, 9.25%, Due 2/15/2008........ 2,000 1,910
Flextronics International Limited, 6.50%, Due
5/15/2013(+).............................................. 1,000 1,003
MagnaChip Semiconductor Limited, 6.875%, Due 12/15/2011..... 2,000 1,880
--------
TOTAL SEMICONDUCTOR EQUIPMENT & PRODUCTS................ 4,793
--------
SOFTWARE - 0.85%
Peregrine Systems, Incorporated, 6.50%, Due 8/15/2007....... 87 91
SunGard Data Systems, Incorporated, 10.25%, Due 8/15/2015,
144A (Note A)(+).......................................... 2,800 2,775
--------
TOTAL SOFTWARE.......................................... 2,866
--------
TOTAL INFORMATION TECHNOLOGY............................ 7,659
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
61
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
INDUSTRIALS - 24.10%
AEROSPACE & ENGINEERING - 1.43%
L3 Communications Corporation, 6.375%, Due 10/15/2015, 144A
(Note A).................................................. $ 1,500 $ 1,481
Transdigm, Incorporated, 8.375%, Due 7/15/2011.............. 3,250 3,380
--------
TOTAL AEROSPACE & ENGINEERING........................... 4,861
--------
CONSTRUCTION & ENGINEERING - 4.30%
AMH Holdings, Incorporated, 0.00%, Due 3/1/2014+............ 3,000 1,410
Beazer Homes USA, Incorporated, 8.375%, Due 4/15/2012....... 2,000 2,042
Dycom Industries, Incorporated, 8.125%, Due 10/15/2015, 144A
(Note A).................................................. 1,500 1,504
Interline Brands, Incorporated, 11.50%, Due 5/15/2011....... 2,275 2,525
KB Home, 7.75%, Due 2/1/2010................................ 1,000 1,024
K. Hovnanian Enterprises, Incorporated, 8.875%, Due
4/1/2012(+)............................................... 2,700 2,808
Technical Olympic USA, Incorporated, 9.00%, Due 7/1/2010.... 1,250 1,244
Wolverine Tube, Incorporated, 7.375%, Due 8/1/2008, 144A
(Note A).................................................. 2,250 1,935
--------
TOTAL CONSTRUCTION & ENGINEERING........................ 14,492
--------
COMMERCIAL SERVICES & SUPPLIES - 17.90%
Allied Waste North American, Incorporated, 8.50%, Due
12/1/2008................................................. 2,500 2,600
Alpharma, Incorporated, 8.625%, Due 5/1/2011................ 3,550 3,799
Altra Industrial Motion, Incorporated, 9.50%, Due 12/1/2011,
144A (Note A)............................................. 1,575 1,528
Asia Aluminum Holdings Limited, 8.00%, Due 12/23/2011, 144A
(Note A).................................................. 3,000 2,933
Browning-Ferris Industries, Incorporated, 9.25%, Due
5/1/2021.................................................. 1,500 1,509
Cadmus Communications Corporation, 8.375%, Due 6/15/2014.... 1,700 1,738
Celestica, Incorporated, 7.875%, Due 7/1/2011(+)............ 2,500 2,475
CHC Helicopter Corporation,
7.375%, Due 5/1/2014...................................... 1,860 1,865
7.375%, Due 5/1/2014, 144A (Note A)....................... 750 752
Clean Harbors, Incorporated, 11.25%, Due 7/15/2012, 144A
(Note A).................................................. 1,000 1,120
Columbus McKinnon Corporation, 10.00%, Due 8/1/2010......... 2,000 2,200
Communications and Power Industries, Incorporated, 8.00%,
Due 2/1/2012.............................................. 1,250 1,272
Compass Minerals Group, Incorporated, 10.00%, Due
8/15/2011................................................. 1,000 1,078
Compass Minerals International, Incorporated, 0.00%, Due
6/1/2013+................................................. 1,825 1,551
Corrections Corporation of America,
7.50%, Due 5/1/2011(+).................................... 1,000 1,034
6.25%, Due 3/15/2013...................................... 1,000 984
Da-Lite Screen Company, Incorporated, 9.50%, Due
5/15/2011................................................. 750 791
Freeport-McMoRan Copper & Gold, Incorporated, 6.875%, Due
2/1/2014(+)............................................... 1,500 1,477
The Greenbrier Companies, Incorporated, 8.375%, Due
5/15/2015................................................. 1,200 1,233
HMH Properties, Incorporated, 7.875%, Due 8/1/2008.......... 1,000 1,011
Invensys, plc, 9.875%, Due 3/15/2011, 144A (Note A)(+)...... 1,050 1,008
Iron Mountain, Incorporated, 6.625%, Due 1/1/2016........... 2,000 1,840
Earle M. Jorgensen Company, 9.75%, Due 6/1/2012............. 1,000 1,070
Medical Device Manufacturing, Incorporated, 10.00%, Due
7/15/2012................................................. 2,000 2,340
NationsRent Companies, Incorporated, 9.50%, Due 5/1/2015.... 2,600 2,697
Phibro Animal Health Corporation, 13.00%, Due 12/1/2007..... 500 525
J.B. Poindexter, Incorporated, 8.75%, Due 3/15/2014......... 2,000 1,770
Polypore, Incorporated, 8.75%, Due 5/15/2012................ 1,450 1,276
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
62
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Polypore International, Incorporated, 0.00%, Due
10/1/2012+................................................ $ 1,500 $ 772
Sea Containers, Limited, 10.75%, Due 10/15/2006............. 1,000 997
Sheridan Group, Incorporated, 10.25%, Due 8/15/2011......... 2,125 2,210
Solectron Corporation, 7.97%, Due 11/15/2006................ 1,500 1,530
Superior Essex Communications, 9.00%, Due 4/15/2012......... 2,400 2,364
UAP Holding Corporation, 0.00%, Due 7/15/2012+.............. 2,000 1,740
UNOVA, Incorporated, 7.00%, Due 3/15/2008................... 4,250 4,229
WH Holdings (Cayman Islands) Limited, 9.50%, Due 4/1/2011... 950 1,031
--------
TOTAL COMMERCIAL SERVICES & SUPPLIES.................... 60,349
--------
MACHINERY - 0.47%
Case New Holland, Incorporated, 9.25%, Due 8/1/2011......... 1,500 1,579
--------
TOTAL MACHINERY......................................... 1,579
--------
TOTAL INDUSTRIALS....................................... 81,281
--------
MATERIALS - 10.79%
CHEMICALS - 5.76%
Casella Waste System, Incorporated, 9.75%, Due 2/1/2013..... 2,020 2,169
CPI Holding Company, Incorporated, 9.672%, Due 2/1/2015..... 1,750 1,716
Crystal US Holdings 3 LLC/Crystal US Sub 3 Corp, 0.00%, Due
10/1/2014, Series A+...................................... 3,990 2,763
Crystal US Holdings 3 LLC/Crystal US Sub 3 Corp, 0.00%, Due
10/1/2014, Series B+...................................... 1,463 1,028
Hercules, Incorporated, 6.75%, Due 10/15/2029............... 1,750 1,689
Lyondell Chemical Company, 10.875%, Due 5/1/2009............ 2,500 2,584
Nalco Company, 8.875%, Due 11/15/2013....................... 1,000 1,021
OM Group, Incorporated, 9.25%, Due 12/15/2011............... 1,750 1,684
Rhodia, 10.25%, Due 6/1/2010(+)............................. 2,000 2,130
Resolution Performance Products, 8.00%, Due 12/15/2009...... 500 509
Westlake Chemical Corporation, 8.75%, Due 7/15/2011......... 2,000 2,140
--------
TOTAL CHEMICALS......................................... 19,433
--------
CONTAINERS & PACKAGING - 3.27%
Crown Holdings, Incorporated, 9.50%, Due 3/1/2011........... 2,000 2,200
Intertape Polymer, Incorporated, 8.50%, Due 8/1/2014........ 1,300 1,248
Jefferson Smurfit Corporation,
8.25%, Due 10/1/2012...................................... 2,250 2,121
7.50%, Due 6/1/2013....................................... 500 450
Owens-Brockway Glass Containers, Incorporated,
8.875%, Due 2/15/2009..................................... 1,500 1,567
8.75%, Due 11/15/2012..................................... 2,250 2,413
8.25%, Due 5/15/2013...................................... 1,000 1,020
--------
TOTAL CONTAINERS & PACKAGING............................ 11,019
--------
PAPER & FOREST PRODUCTS - 1.76%
Abitibi Consolidated Company, 8.375%, Due 4/1/2015(+)....... 1,000 920
Ainsworth Lumber Company Limited, 6.75%, Due 3/15/2014...... 1,000 855
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
63
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Neenah Paper, Incorporated, 7.375%, Due 11/15/2014.......... $ 2,450 $ 2,279
The Newark Group, Incorporated, 9.75%, Due 3/15/2014........ 2,200 1,892
--------
TOTAL PAPER & FOREST PRODUCTS........................... 5,946
--------
TOTAL MATERIALS......................................... 36,398
--------
TELECOMMUNICATION SERVICES - 4.36%
Insight Communications, Incorporated, 0.00%, Due
2/15/2011+................................................ 2,375 2,440
GST Equipment Funding, Incorporated, 13.25%, Due
5/1/2007+*................................................ 2,500 --
Intelsat, Limited,
5.25%, Due 11/1/2008...................................... 1,900 1,738
7.625%, Due 4/15/2012(+).................................. 1,900 1,530
8.625%, Due 1/15/2015, 144A (Note A)...................... 500 506
MCI, Incorporated, 7.688%, Due 5/1/2009..................... 3,500 3,627
PanAmSat Holding Corporation, 0.00%, Due 11/1/2014+......... 1,850 1,263
Qwest Communications International, Incorporated,
13.50%, Due 12/15/2010.................................... 2,250 2,571
US Unwired, Incorporated, 7.26%, Due 6/15/2010.............. 1,000 1,020
--------
TOTAL TELECOMMUNICATION SERVICES........................ 14,695
--------
TOTAL CORPORATE BONDS................................... 321,329
--------
<Caption>
SHARES
-----------
SHORT TERM INVESTMENTS - 13.16%
AIM Short-Term Investment Company Liquid Asset Fund (Note
E)........................................................ 1,101,259 1,101
American Beacon Money Market Select Fund (Note B)........... 8,266,990 8,267
<Caption>
PAR
AMOUNT
-----------
Altius I Funding Corporation, Due 11/1/2005 (Note E)........ $ 7,000 7,000
Merrill Lynch Pierce Fenner & Smith, Inc. Tri Party Repo,
4.113%, Due 11/1/2005 (Notes C and E)..................... 15,000 15,000
Morgan Stanley & Co., Inc. Tri Party Repo, 4.113%, Due
11/1/2005 (Notes D and E)................................. 13,000 13,000
--------
TOTAL SHORT TERM INVESTMENTS............................ 44,368
--------
TOTAL INVESTMENTS - 108.48% (COST $371,513)................. 365,697
--------
LIABILITIES, NET OF OTHER ASSETS - (8.48%).................. (28,592)
--------
TOTAL NET ASSETS - 100%..................................... $337,105
========
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $55,178 or 16.37% of net assets.
(B) The Fund/Trust is affiliated by having the same investment advisor. See Note
2.
(C) Collateral held at J.P. Morgan Chase consists of the following: Telephone
and Data Systems, Incorporated, 7.00%, Due 8/1/2006, Market Value - $2,230,
BorgWarner, Incorporated, 7.00%, Due 11/1/2006, Market Value - $9,213,
DaimlerChrysler AG, 7.45%, Due 3/1/2027, Market Value - $637, R.R. Donnelley
& Sons Company, 6.625%, Due 4/15/2029, Market Value - $551, Coloumbus
Southern Power Company, 6.60%, Due 3/1/2033, Market Value - $770, Ohio Power
Company, 6.375%, Due 7/15/2033, Market Value - $7, Zurich Capital Trust I,
8.376%, Due 6/1/2037, Market Value - $1,894
(D) Collateral held at the Bank of New York consists of the following: Conoco
Funding Company, 5.45%, Due 10/15/2006, Market Value - $10,936, Rockwell
International Corporation, 6.15%, Due 1/15/2008, Market Value - $2,113, UFJ
Fi-
See accompanying notes
- --------------------------------------------------------------------------------
64
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
nance Aruba AE, 6.75%, Due 7/15/2013, Market Value - $286, Clorox Company,
5.00%, Due 1/15/2015, Market Value - $60
(E) All or a portion of this security is purchased with cash collateral for
securities loaned.
(+)-All or a portion of this security is on loan October 31, 2005. See note 5.
+- Non-income producing security.
*- Valued at fair value pursuant to procedures approved by the Board of
Trustees.
See accompanying notes
- --------------------------------------------------------------------------------
65
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
U.S. TREASURY OBLIGATIONS - 19.13%
U.S. TREASURY BONDS - 0.94%
8.75%, Due 8/15/2020(+)..................................... $ 750 $ 1,061
--------
TOTAL U.S. TREASURY BONDS............................... 1,061
--------
U.S. TREASURY NOTES - 18.19%
3.50%, Due 11/15/2009....................................... 700 675
3.875%, Due 5/15/2010(+).................................... 2,000 1,951
5.00%, Due 2/15/2011(+)..................................... 3,350 3,433
5.00%, Due 8/15/2011(+)..................................... 4,100 4,206
4.00%, Due 2/15/2014(+)..................................... 5,000 4,805
4.75%, Due 5/15/2014(+)..................................... 5,300 5,367
--------
TOTAL U.S. TREASURY NOTES............................... 20,437
--------
TOTAL U.S. TREASURY OBLIGATIONS......................... 21,498
--------
U.S. AGENCY OBLIGATIONS - 0.93%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.45%
Federal Home Loan Mortgage Corporation, 5.125%, Due
10/15/2008................................................ 500 506
--------
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION............ 506
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.48%
Federal National Mortgage Association, 6.625%, Due
11/15/2010(+)............................................. 500 539
--------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION............. 539
--------
TOTAL U.S. AGENCY OBLIGATIONS........................... 1,045
--------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 7.13%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.45%
Pool #E01492, 5.50%, Due 10/1/2018.......................... 894 900
Pool #C01598, 5.00%, Due 8/1/2033........................... 776 749
Pool #C01786, 5.50%, Due 2/1/2034........................... 1,112 1,099
--------
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION............ 2,748
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.25%
Pool #555549, 5.00%, Due 6/1/2018........................... 1,167 1,152
Pool #545759, 6.50%, Due 7/1/2032........................... 757 778
Pool #725238, 5.00%, Due 3/1/2034........................... 620 599
--------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION............. 2,529
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 2.43%
Pool #780921, 7.00%, Due 11/15/2013......................... 298 312
Pool #780454, 7.00%, Due 10/15/2026......................... 283 298
Pool #002379, 8.00%, Due 2/20/2027.......................... 186 198
Pool #781564, 6.00%, Due 2/15/2033.......................... 387 394
Pool #781690, 6.00%, Due 12/15/2033......................... 565 575
Pool #003515, 5.50%, Due 2/20/2034.......................... 952 949
--------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION.......... 2,726
--------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS........... 8,003
--------
ASSET-BACKED SECURITIES - 2.63%
Bank of America Securities Auto Trust 2005-WF1 A4, 4.08%,
Due 4/18/2010............................................. 1,000 982
Household Automotive Trust 2004-1 A3, 3.30%, Due
5/18/2009................................................. 1,000 989
HSBC Automotive Trust 2005-1 A4, 4.35%, Due 6/18/2012....... 1,000 982
--------
TOTAL ASSET-BACKED SECURITIES........................... 2,953
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
66
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
COMMERCIAL MORTGAGE-BACKED OBLIGATIONS - 1.18%
JP Morgan Chase Commercial Mortgage Securities Corp
2005-LDP3 A1, 4.655%, Due 8/15/2042....................... $ 342 $ 340
2005-LDP4 A1, 4.613%, Due 10/15/2042...................... 990 981
--------
TOTAL COMMERCIAL MORTGAGE-BACKED OBLIGATIONS............ 1,321
--------
CORPORATE BONDS - 45.37%
BANKS - 3.43%
Banco Popular North America, Incorporated,
6.125%, Due 10/15/2006.................................... 500 504
4.25%, Due 4/1/2008....................................... 300 295
Bank One Corporation, 4.90%, Due 4/30/2015(+)............... 500 480
Credit Suisse First Boston, 6.50%, Due 5/1/2008............. 500 518
FleetBoston Financial Corporation, 8.625%, Due 1/15/2007.... 200 208
ING Bank, NV, 5.125%, Due 5/1/2015, 144A (Note A)........... 300 296
Wachovia Corporation, 6.40%, Due 4/1/2008................... 1,500 1,553
--------
TOTAL BANKS............................................. 3,854
--------
FINANCE - 22.90%
AEGON, N.V., 8.00%, Due 8/15/2006........................... 225 230
American Honda Finance Corporation,
2.875%, Due 4/3/2006, 144A (Note A)....................... 650 645
4.875%, Due 5/15/2010..................................... 300 297
The Bear Stearns Companies, Incorporated, 2.875%, Due
7/2/2008.................................................. 800 760
Capital One Bank,
4.25%, Due 12/1/2008...................................... 1,000 975
5.125%, Due 2/15/2014..................................... 330 320
Caterpillar Financial Services, 4.15%, Due 1/15/2010(+)..... 1,000 971
Citigroup, Incorporated, 4.125%, Due 2/22/2010.............. 1,000 966
Countrywide Home Loans, Incorporated, 3.25%, Due
5/21/2008................................................. 1,000 958
Credit Suisse First Boston, Incorporated, 5.875%, Due
8/1/2006.................................................. 1,500 1,513
E*Trade Financial Federal Corporation, 7.375%, Due
9/15/2013, 144A (Note A).................................. 150 148
Ford Motor Credit, 8.625%, Due 11/1/2010.................... 285 279
General Electric Capital Corporation, 4.125%, Due
3/4/2008.................................................. 2,000 1,969
The Goldman Sachs Group, Incorporated, 4.75%, Due
7/15/2013................................................. 350 336
John Hancock Global Funding,
5.625%, Due 6/27/2006..................................... 1,400 1,408
3.75%, Due 9/30/2008...................................... 1,000 968
Household Finance Corporation, 5.75%, Due 1/30/2007......... 1,750 1,770
Lehman Brothers Holdings, Incorporated, 3.50%, Due
8/7/2008.................................................. 1,000 964
Lincoln National Corporation, 4.75%, Due 2/15/2014(+)....... 200 192
MassMutual Global Funding II, 3.80%, Due 4/15/2009, 144A
(Note A).................................................. 1,000 966
Merrill Lynch & Company, Incorporated, 6.00%, Due
2/17/2009................................................. 1,000 1,031
PHH Corporation, 6.00%, Due 3/1/2008........................ 300 304
Prudential Financial, Incorporated, 4.50%, Due
7/15/2013(+).............................................. 375 358
Prudential Insurance Company of America, 6.375%, Due
7/23/2006, 144A (Note A).................................. 2,000 2,022
Simon Property Group LP, 6.375%, Due 11/15/2007............. 400 410
SLM Corporation, 4.00%, Due 1/15/2009....................... 1,300 1,262
Synovus Financial Corporation,
7.25%, Due 12/15/2005..................................... 1,500 1,504
4.875%, Due 2/15/2013..................................... 500 486
Transamerica Corporation, 6.75%, Due 11/15/2006............. 1,000 1,008
Washington Mutual Financial Corporation, 4.625%, Due
4/1/2014.................................................. 750 705
--------
TOTAL FINANCE........................................... 25,725
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
67
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
INDUSTRIALS - 13.37%
Accuride Corporation, 8.50%, Due 2/1/2015................... $ 150 $ 142
AmeriPath, Incorporated, 10.50%, Due 4/1/2013............... 400 416
BHP Finance (USA) Limited, 4.80%, Due 4/15/2013(+).......... 550 539
Bunge Limited Finance Corporation,
7.80%, Due 10/15/2012..................................... 200 228
5.35%, Due 4/15/2014...................................... 500 492
Celestica, Incorporated, 7.875%, Due 7/1/2011............... 260 257
Cendant Corporation, 6.875%, Due 8/15/2006.................. 1,100 1,115
DaimlerChrysler North America, 4.75%, Due 1/15/2008......... 700 693
John Deere Capital Corporation, 4.125%, Due 1/15/2010....... 1,000 970
Dell Computer Corporation, 6.55%, Due 4/15/2008............. 200 207
Dole Food Company, Incorporated, 8.875%, Due 3/15/2011...... 142 147
DST Systems, Incorporated, 3.625%, Due 8/15/2023............ 485 600
EOG Resources, Incorporated, 4.75%, Due 3/15/2014, 144A
(Note A).................................................. 350 336
EOP Operating Limited Partnership, 4.75%, Due 3/15/2014..... 350 330
Equistar Chemicals, LP, 10.625%, Due 5/1/2011............... 400 436
First Data Corporation, 3.375%, Due 8/1/2008................ 1,000 962
Freeport-McMoRan Copper & Gold, Incorporated, 10.125%, Due
2/1/2010(+)............................................... 400 440
Gardner Denver, Incorporated, 8.00%, Due 5/1/2013........... 300 312
International Lease Finance Corporation, 6.375%, Due
3/15/2009................................................. 725 753
Kroger Company, 8.15%, Due 7/15/2006........................ 1,000 1,022
Leucadia National Corporation, 7.00%, Due 8/15/2013......... 400 402
Liberty Media Corporation, 0.75%, Due 3/30/2023(+).......... 150 164
NBTY, Incorporated, 7.125%, Due 10/1/2015, 144A (Note A).... 150 146
Nissan Motor Company Limited, 4.625%, Due 3/8/2010.......... 400 389
Northrop Grumman Corporation,
4.079%, Due 11/16/2006.................................... 700 694
7.125%, Due 2/15/2011..................................... 510 557
Occidental Petroleum Corporation, 6.75%, Due 1/15/2012...... 450 494
Pulte Homes, Incorporated,
4.875%, Due 7/15/2009..................................... 100 98
5.25%, Due 1/15/2014...................................... 125 117
SunGard Data Systems, Incorporated, 9.125%, Due 8/15/2013,
144A (Note A)............................................. 150 152
Tenent Healthcare Corporation, 9.25%, Due 2/1/2015, 144A
(Note A).................................................. 275 261
Time Warner, Incorporated, 6.75%, Due 4/15/2011............. 350 370
Union Pacific Corporation, 6.50%, Due 4/15/2012............. 350 374
Wesco Distributing, Incorporated, 7.50%, Due 10/15/2017,
144A (Note A)............................................. 150 150
WH Holdings (Cayman Islands) Limited, 9.50%, Due 4/1/2011... 240 260
--------
TOTAL INDUSTRIALS....................................... 15,025
--------
TELECOMMUNICATION - 5.26%
AT&T Broadband Corporation, 8.375%, Due 3/15/2013........... 700 806
AT&T Wireless Services, Incorporated,
7.35%, Due 3/1/2006....................................... 900 908
8.125%, Due 5/1/2012...................................... 250 288
Deutsche Telekom International, 3.875%, Due 7/22/2008....... 500 487
France Telecom SA, 8.00%, Due 3/1/2011...................... 680 757
Sprint Capital Corporation,
6.00%, Due 1/15/2007...................................... 1,200 1,214
8.375%, Due 3/15/2012..................................... 675 779
SyniverseTechnologies, Incorporated, 7.75%, Due 8/15/2013,
144A (Note A)............................................. 200 202
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
68
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Telcordia Technologies, Incorporated, 10.00%, Due 3/15/2013,
144A (Note A)............................................. $ 200 $ 176
Telefonos de Mexico, S.A. de C.V., 5.50%, Due 1/27/2015..... 300 289
--------
TOTAL TELECOMMUNICATION................................. 5,906
--------
UTILITY - 0.41%
SEACOR Holdings, Incorporated, 2.875%, Due 12/15/2024....... 400 461
--------
TOTAL UTILITY........................................... 461
--------
TOTAL CORPORATE BONDS................................... 50,971
--------
CONVERTIBLE BONDS - 14.00%
AEROSPACE & DEFENSE - 1.10%
Armor Holdings, Incorporated, 2.00%, Due 11/1/2024.......... 275 282
L3 Communications Holdings, Incorporated, 3.00%, Due
8/1/2035, 144A (Note A)................................... 415 417
Lockheed Martin Corporation, 3.54%, Due 8/15/2033........... 515 541
--------
TOTAL AEROSPACE & DEFENSE............................... 1,240
--------
CONSUMER DISCRETIONARY - 1.37%
Best Buy, Incorporated, 2.25%, Due 1/15/2022................ 120 133
Caesars Entertainment, Incorporated, 4.15%, Due 4/15/2024... 110 128
Carnival Corporation, 0.00%, Due 10/24/2021+................ 715 589
Flextronics International Limited, 1.00%, Due 8/1/2010(+)... 250 217
Goodyear Tire and Rubber Company, 2.25%, Due 6/15/2034, 144A
(Note A).................................................. 225 324
Lowe's Companies, Incorporated, 0.861%, Due 10/19/2021...... 135 146
--------
TOTAL CONSUMER DISCRETIONARY............................ 1,537
--------
ENERGY - 0.96%
CenterPoint Energy, Incorporated, 3.75%, Due 5/15/2023...... 390 474
Grey Wolf, Incorporated, 4.04%, Due 4/1/2024................ 215 291
Nabors Industries Limited, 0.00%, Due 6/15/2023+............ 280 310
--------
TOTAL ENERGY............................................ 1,075
--------
FINANCIALS - 1.48%
American Financial Group, Incorporated, 1.486%, Due
6/2/2033.................................................. 625 270
Bank America Corporation, 0.25%, Due 1/26/2010.............. 265 265
Financial Federal Corporation, 2.00%, Due 4/15/2034, 144A
(Note A).................................................. 285 282
LandAmerica Financial Group, Incorporated, 3.125%, Due
11/15/2033................................................ 265 289
Morgan Stanley and Company, Incorporated, 0.25%, Due
12/30/2011................................................ 150 196
Silicon Valley Bancshares, 0.00%, Due 6/15/2008+............ 240 356
--------
TOTAL FINANCIALS........................................ 1,658
--------
HEALTH CARE - 0.98%
Cephalon, Incorporated, 0.00%, Due 6/15/2033+............... 320 292
Invitrogen Corporation, 3.25%, Due 6/15/2025, 144A (Note
A)........................................................ 265 249
Medtronic, Incorporated, 1.25%, Due 9/15/2021............... 555 564
--------
TOTAL HEALTH CARE....................................... 1,105
--------
INDUSTRIALS - 5.50%
Advanced Micro Devices, Incorporated, 4.75%, Due 2/1/2015... 265 290
Amgen, Incorporated, 0.00%, Due 3/1/2032+................... 900 697
Cadence Design Systems, Incorporated, 0.00%, Due
8/15/2023+................................................ 260 284
Commscope, Incorporated, 1.00%, Due 3/15/2024............... 140 142
CSX Corporation, 0.00%, Due 10/30/2021+..................... 315 285
Fisher Scientific International, Incorporated, 3.25%, Due
3/1/2024(+)............................................... 560 543
Halliburton Company, 3.125%, Due 7/15/2023, 144A (Note A)... 210 347
Juniper Networks, Incorporated, 0.00%, Due 6/15/2008, 144A
(Note A)+................................................. 215 265
Liberty Media Corporation, 0.75%, Due 3/30/2023, 144A (Note
A)........................................................ 355 389
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
69
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
NCI Building Systems, Incorporated, 2.125%, Due 11/15/2024,
144A (Note A)............................................. $ 285 $ 324
NII Holdings, Incorporated, 2.75%, Due 8/15/2025, 144A (Note
A)........................................................ 700 740
Omnicom Group, Incorporated, 0.00%, Due 6/15/2033+.......... 520 510
Powerwave Technologies, Incorporated, 1.875%, Due
11/15/2024................................................ 240 280
Quanta Services, Incorporated, 4.50%, Due 10/1/2023......... 255 306
Regal-Beloit Corporation, 2.75%, Due 3/15/2024.............. 210 271
Schlumberger Limited, 2.125%, Due 6/1/2023(+)............... 400 502
--------
TOTAL INDUSTRIALS....................................... 6,175
--------
INFORMATION TECHNOLOGY - 1.03%
CSG Systems International, Incorporated, 2.50%, Due
6/15/2024................................................. 275 288
Electronics for Imaging, Incorporated, 1.50%, Due
6/1/2023.................................................. 235 251
The Fair Issac Corporation, 1.50%, Due 8/15/2023............ 325 351
WebMD Health Corporation, 3.125%, Due 9/1/2025, 144A (Note
A)........................................................ 300 263
--------
TOTAL INFORMATION TECHNOLOGY............................ 1,153
--------
PHARMACEUTICAL - 1.58%
Genzyme Corporation, 1.25%, Due 12/1/2023................... 550 637
Teva Pharmaceuticals,
0.25%, Due 2/1/2024....................................... 120 135
0.50%, Due 2/1/2024(+).................................... 170 186
Watson Pharmaceuticals, Incorporated, 1.75%, Due
3/15/2023................................................. 285 283
Wyeth, 3.32%, Due 1/15/2024................................. 525 538
--------
TOTAL PHARMACEUTICAL.................................... 1,779
--------
TOTAL CONVERTIBLE BONDS................................. 15,722
--------
CONVERTIBLE PREFERRED BONDS - 0.27%
Fortis Insurance NV, 7.75%, Due 1/26/2008, 144A (Note A).... 275 304
--------
TOTAL CONVERTIBLE PREFERRED BONDS....................... 304
--------
<Caption>
SHARES
-----------
CONVERTIBLE PREFERRED STOCK - 3.44%
ENERGY - 0.46%
Amerada Hess Corporation.................................... 4,900 522
--------
TOTAL ENERGY............................................ 522
--------
FINANCIALS - 2.61%
Genworth Financial, Incorporated(+)......................... 9,300 326
Hartford Financial Services Group, Incorporated(+).......... 4,000 286
Lazard, Limited(+).......................................... 10,250 261
Lehman Brothers Holdings, Incorporated...................... 15,300 400
MetLife, Incorporated....................................... 16,000 438
Morgan Stanley.............................................. 11,500 431
Travelers Property and Casualty Corporation(+).............. 17,250 430
Washington Mutual, Incorporated(+).......................... 7,200 364
--------
TOTAL FINANCIALS........................................ 2,936
--------
TELECOMMUNICATION SERVICES - 0.37%
Nokia Corporation, ADR...................................... 25,000 421
--------
TOTAL TELECOMMUNICATION SERVICES........................ 421
--------
TOTAL CONVERTIBLE PREFERRED STOCK....................... 3,879
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
70
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
COMMON STOCK - 1.56%
CONSUMER DISCRETIONARY - 0.25%
Starbucks Corporation+...................................... 10,000 $ 283
--------
TOTAL CONSUMER DISCRETIONARY............................ 283
--------
ENERGY - 0.34%
Devon Energy Corporation.................................... 6,406 387
--------
TOTAL ENERGY............................................ 387
--------
INFORMATION TECHNOLOGY - 0.69%
AutoDesk, Incorporated+..................................... 7,900 357
Infosys Technologies Limited, ADR........................... 6,100 414
--------
TOTAL INFORMATION TECHNOLOGY............................ 771
--------
TRANSPORTATION - 0.28%
Burlington Northern Santa Fe Corporation.................... 5,000 310
--------
TOTAL TRANSPORTATION.................................... 310
--------
TOTAL COMMON STOCK...................................... 1,751
--------
SHORT-TERM INVESTMENTS - 28.78%
American Beacon Enhanced Cash Trust (Notes B and C)......... 20,670,297 20,671
American Beacon Money Market Select Fund (Notes B and C).... 11,652,257 11,652
--------
TOTAL OTHER SHORT-TERM INVESTMENTS...................... 32,323
--------
TOTAL SHORT-TERM INVESTMENTS............................ 32,323
--------
TOTAL INVESTMENTS - 124.42% (COST $139,911)................. 139,770
--------
LIABILITIES, NET OF OTHER ASSETS - (24.42%)................. (27,429)
--------
TOTAL NET ASSETS - 100%..................................... $112,341
========
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of the securities amounted to $9,404 or 8.37% of net assets.
(B) The Fund/Trust is affiliated by having the same investment advisor. See Note
2.
(C) All or a portion of this security is purchased with cash collateral for
securities loaned.
(+)-All or a portion of the security is on loan at October 31, 2005. See Note 5.
+- Non-income producing security.
See accompanying notes
- --------------------------------------------------------------------------------
71
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
U.S. TREASURY OBLIGATIONS - 18.26%
U.S. TREASURY BONDS - 7.59%
7.50%, Due 11/15/2016(+).................................... $ 655 $ 813
9.125%, Due 5/15/2018(+).................................... 1,200 1,695
7.875%, Due 2/15/2021(+).................................... 750 997
6.875%, Due 8/15/2025(+).................................... 370 465
6.25%, Due 5/15/2030(+)..................................... 1,090 1,317
5.375%, Due 2/15/2031(+).................................... 1,720 1,876
--------
TOTAL U.S. TREASURY BONDS............................... 7,163
--------
U.S. TREASURY NOTES - 10.67%
4.00%, Due 9/30/2007(+)..................................... 230 228
3.375%, Due 2/15/2008(+).................................... 890 870
3.50%, Due 11/15/2009....................................... 450 434
3.875%, Due 5/15/2010(+).................................... 1,000 976
3.875%, Due 9/15/2010(+).................................... 500 487
4.25%, Due 10/15/2010(+).................................... 540 535
5.00%, Due 2/15/2011(+)..................................... 1,000 1,025
5.00%, Due 8/15/2011(+)..................................... 700 718
2.00%, Due 1/15/2014........................................ 1,403 1,407
4.75%, Due 5/15/2014(+)..................................... 2,200 2,228
4.125%, Due 5/15/2015(+).................................... 1,200 1,158
--------
TOTAL U.S. TREASURY NOTES............................... 10,066
--------
TOTAL U.S. TREASURY OBLIGATIONS......................... 17,229
--------
U.S. AGENCY OBLIGATIONS - 3.62%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.05%
4.25%, Due 7/15/2009(+)..................................... 2,000 1,966
5.625%, Due 3/15/2011....................................... 500 519
5.875%, Due 3/21/2011(+).................................... 380 395
--------
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION............ 2,880
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.57%
5.125%, Due 1/2/2014(+)..................................... 545 542
--------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION............. 542
--------
TOTAL U.S. AGENCY OBLIGATIONS........................... 3,422
--------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 34.50%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 9.39%
Pool #G11295, 5.50%, Due 9/1/2017........................... 331 334
Pool #E96536, 5.00%, Due 3/1/2018........................... 695 686
Pool #B12563, 5.00%, Due 2/1/2019........................... 549 542
Pool #E01602, 4.50%, Due 3/1/2019........................... 823 798
Pool #G00738, 8.00%, Due 7/1/2027........................... 184 197
Pool #C00647, 6.50%, Due 9/1/2028........................... 134 137
Pool #G01457, 6.00%, Due 8/1/2029........................... 452 458
Pool #G01533, 6.00%, Due 3/1/2033........................... 499 505
Pool #C01598, 5.00%, Due 8/1/2033........................... 970 936
Pool #A12149, 6.00%, Due 8/1/2033........................... 628 635
Pool #G08006, 6.00%, Due 8/1/2034........................... 739 746
Pool #A30948, 5.50%, Due 1/1/2035........................... 1,158 1,144
Pool #G01824, 6.50%, Due 4/1/2035........................... 84 86
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
72
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Pool #A45500, 5.50%, Due 6/1/2035........................... $ 1,092 $ 1,078
Pool #G08072, 5.00%, Due 8/1/2035........................... 597 575
--------
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION............ 8,857
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 20.19%
Pool #323309, 6.00%, Due 9/1/2013........................... 178 182
Pool #488099, 5.50%, Due 2/1/2014........................... 455 459
Pool #323789, 6.00%, Due 6/1/2014........................... 195 199
Pool #545449, 6.50%, Due 2/1/2017........................... 477 492
Pool #545823, 5.50%, Due 8/1/2017........................... 573 577
Pool #254545, 5.00%, Due 12/1/2017.......................... 1,394 1,377
Pool #254865, 4.50%, Due 9/1/2018........................... 890 862
Pool #747844, 5.50%, Due 12/1/2018.......................... 212 213
Pool #761337, 5.00%, Due 4/1/2019........................... 404 399
Pool #811499, 5.00%, Due 9/1/2020........................... 402 397
Pool #100293, 9.50%, Due 8/1/2029........................... 164 181
Pool #555531, 5.50%, Due 6/1/2033........................... 765 756
Pool #727223, 5.50%, Due 9/1/2033........................... 582 575
Pool #749219, 5.50%, Due 10/1/2033.......................... 115 114
Pool #555880, 5.50%, Due 11/1/2033.......................... 1,351 1,335
Pool #758322, 5.50%, Due 12/1/2033.......................... 715 707
Pool #725238, 5.00%, Due 3/1/2034........................... 1,240 1,197
Pool #765304, 5.50%, Due 3/1/2034........................... 251 248
Pool #725866, 4.50%, Due 9/1/2034........................... 643 602
Pool #255364, 6.00%, Due 9/1/2034........................... 1,983 2,000
Pool #255412, 6.00%, Due 10/1/2034.......................... 34 34
Pool #796229, 6.00%, Due 11/1/2034.......................... 836 843
Pool #781822, 6.00%, Due 12/1/2034.......................... 1,051 1,061
Pool #735224, 5.50%, Due 2/1/2035........................... 1,667 1,647
Pool #828377, 5.50%, Due 6/1/2035........................... 541 533
Pool #834769, 6.00%, Due 7/1/2035........................... 1,004 1,013
Pool #830989, 6.00%, Due 8/1/2035........................... 1,029 1,038
--------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION............. 19,041
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 4.92%
Pool #780400, 7.00%, Due 12/15/2025......................... 514 542
Pool #780615, 6.50%, Due 8/15/2027.......................... 400 416
Pool #780747, 6.50%, Due 3/15/2028.......................... 554 577
Pool #780936, 7.50%, Due 12/15/2028......................... 240 255
Pool #781273, 6.00%, Due 4/15/2031.......................... 543 553
Pool #781564, 6.00%, Due 2/15/2033.......................... 568 578
Pool #781603, 5.00%, Due 5/15/2033.......................... 413 404
Pool #781690, 6.00%, Due 12/15/2033......................... 434 442
Pool #003515, 5.50%, Due 2/20/2034.......................... 879 876
--------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION.......... 4,643
--------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS........... 32,541
--------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 5.97%
Banc of America Commercial Mortgage, Incorporated,
2005-1 1CBL, 5.25%, Due 10/25/2019........................ 1,300 1,283
2003-2 A2, 4.342%, Due 3/11/2041.......................... 265 258
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
73
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Bear Stearns Commercial Mortgage Securities, Incorporated,
2004-PWR5 A4, 4.831%, Due 7/11/2042....................... $ 535 $ 520
2005-SD2, 5.127%, Due 10/12/2042.......................... 430 430
Chase Mortgage Financial Trust, 2004-S1 A3, 5.50%, Due
2/25/2019................................................. 343 343
Countrywide Alternative Loan Trust, Incorporated, 2005-53T2
2A1, 6.00%, Due 11/25/2035................................ 1,488 1,503
Countrywide Home Loan, Incorporated 2004-18 A1, 6.00%, Due
10/25/2034................................................ 442 445
General Electric Capital Commercial Mortgage Corporation
2003-C2 A2, 4.17%, Due 7/10/2037.......................... 312 305
Prime Mortgage Trust, 2005-2 1A3, 5.25%, Due 7/25/2020...... 549 545
--------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS............ 5,632
--------
CORPORATE OBLIGATIONS - 30.46%
FINANCIAL - 11.48%
AEGON, NV, 8.00%, Due 8/15/2006............................. 300 307
American General Finance Corporation,
5.375%, Due 9/1/2009(+)................................... 180 181
4.875%, Due 5/15/2010..................................... 200 198
Banco Popular North America, Incorporated, 4.25%, Due
4/1/2008.................................................. 200 197
Bank One Corporation,
5.90%, Due 11/15/2011..................................... 440 456
4.90%, Due 4/30/2015(+)................................... 200 192
The Bear Stearns Companies, Incorporated, 2.875%, Due
7/2/2008.................................................. 400 380
BHP Finance (USA) Limited, 4.80%, Due 4/15/2013(+).......... 150 147
Capital One Bank,
6.70%, Due 5/15/2008...................................... 350 363
4.80%, Due 2/21/2012...................................... 235 225
5.125%, Due 2/15/2014..................................... 220 213
The Chubb Corporation, 4.934%, Due 11/16/2007............... 355 355
Credit Suisse First Boston, 6.50%, Due 5/1/2008............. 350 362
Equity Residential, 5.125%, Due 3/15/2016................... 185 179
Fleet Boston Financial Group, Incorporated,
8.625%, Due 1/15/2007..................................... 200 208
General Electric Capital Corporation, 6.875%, Due
11/15/2010................................................ 380 410
The Goldman Sachs Group, Incorporated, 4.75%, Due
7/15/2013................................................. 250 240
HSBC Finance Corporation, 4.75%, Due 4/15/2010.............. 250 247
ING Bank, NV, 5.125%, Due 5/1/2015, 144A (Note A)........... 250 247
International Lease Finance Corporation, 6.375%, Due
3/15/2009................................................. 250 260
Lincoln National Corporation, 4.75%, Due 2/15/2014(+)....... 100 96
Merrill Lynch & Company, Incorporated,
6.00%, Due 2/17/2009...................................... 500 516
4.25%, Due 2/8/2010....................................... 345 334
MetLife, Incorporated, 5.00%, Due 6/15/2015................. 170 165
MetLife Global Funding I, 3.375%, Due 10/5/2007, 144A (Note
A)........................................................ 350 341
PHH Corporation, 6.00%, Due 3/1/2008........................ 200 203
PNC Funding Corporation, 4.20%, Due 3/10/2008............... 355 350
Prudential Financial, Incorporated,
3.75%, Due 5/1/2008(+).................................... 130 128
4.50%, Due 7/15/2013(+)................................... 225 215
5.10%, Due 9/20/2014...................................... 210 206
Regions Financial Corporation, 4.50%, Due 8/8/2008.......... 355 351
Simon Property Group LP, 6.375%, Due 11/15/2007............. 200 205
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
74
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
SLM Corporation,
4.00%, Due 1/15/2009...................................... $ 700 $ 679
4.00%, Due 1/15/2010...................................... 235 226
4.50%, Due 7/26/2010...................................... 240 234
Synovus Financial Corporation, 4.875%, Due 2/15/2013........ 200 194
Washington Mutual Corporation, 4.625%, Due 4/1/2014......... 400 376
Washington Mutual Financial Corporation, 6.875%, Due
5/15/2011................................................. 190 206
WellPoint, Incorporated,
3.75%, Due 12/14/2007..................................... 235 229
5.00%, Due 12/15/2014..................................... 210 204
--------
TOTAL FINANCIAL......................................... 10,825
--------
INDUSTRIALS - 12.20%
Amgen, Incorporated, 4.00%, Due 11/18/2009.................. 210 203
Anheuser-Busch Companies, Incorporated, 6.50%, Due
1/1/2028.................................................. 350 388
AT&T Broadband Corporation, 8.375%, Due 3/15/2013........... 448 516
Atlantic Richfield Company, 8.50%, Due 4/1/2012............. 255 302
Baxter International, Incorporated, 5.25%, Due 5/1/2007..... 315 318
Bunge Limited Finance Corporation, 7.80%, Due 10/15/2012.... 150 171
Carnival Corporation, 3.75%, Due 11/15/2007................. 380 372
Cendant Corporation, 6.875%, Due 8/15/2006.................. 450 456
Comcast Cable Communications, 7.625%, Due 2/15/2008(+)...... 230 242
Comcast Corporation, 5.30%, Due 1/15/2014................... 220 214
ConAgra Foods, Incorporated, 7.00%, Due 10/1/2028(+)........ 400 428
DaimlerChrysler North America, 4.75%, Due 1/15/2008......... 390 386
Dell Computer Corporation, 6.55%, Due 4/15/2008............. 400 414
EOG Resources, Incorporated, 4.75%, Due 3/15/2014, 144A
(Note A).................................................. 225 216
EOP Operating Limited Partnership, 4.75%, Due 3/15/2014..... 300 283
John Deere Capital Corporation,
3.375%, Due 10/1/2007..................................... 350 341
4.375%, Due 3/14/2008..................................... 170 168
4.40%, Due 7/15/2009...................................... 130 128
Hewlett-Packard Company, 5.75%, Due 12/15/2006(+)........... 325 328
Kinder Morgan, Incorporated, 6.50%, Due 9/1/2012............ 130 138
Lockheed Martin Corporation, 7.20%, Due 5/1/2036............ 470 556
Martin Marietta Material, Incorporated, 6.90%, Due
8/15/2007................................................. 300 309
Motorola, Incorporated, 8.00%, Due 11/1/2011(+)............. 245 283
Nissan Motor Company Limited, 4.625%, Due 3/8/2010.......... 190 185
Northrop Grumman Corporation,
4.079%, Due 11/16/2006.................................... 450 446
7.125%, Due 2/15/2011..................................... 250 273
Occidental Petroleum Corporation, 6.75%, Due 1/15/2012...... 150 165
The Pepsi Bottling Group, Incorporated, 7.00%, Due
3/1/2029.................................................. 350 412
Pulte Homes, Incorporated,
4.875%, Due 7/15/2009..................................... 100 98
5.25%, Due 1/15/2014...................................... 100 94
Quest Diagnostics, Incorporated, 5.125%, Due 11/1/2010...... 155 155
Reed Elsevier Capital, Incorporated, 6.125%, Due 8/1/2006... 500 503
Schering-Plough Corporation, 6.75%, Due 12/1/2033........... 200 225
Time Warner, Incorporated,
6.75%, Due 4/15/2011...................................... 200 211
7.90%, Due 4/15/2031...................................... 100 106
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
75
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Union Pacific Corporation, 6.50%, Due 4/15/2012............. $ 200 $ 214
Univision Communications, Incorporated, 3.875%, Due
10/15/2008................................................ 390 374
Wal-Mart Stores, Incorporated, 7.55%, Due 2/15/2030......... 350 436
Weyerhaeuser Company, 5.95%, Due 11/1/2008.................. 210 215
Wyeth Corporation, 5.50%, Due 2/1/2014...................... 230 232
--------
TOTAL INDUSTRIALS....................................... 11,504
--------
TELECOMMUNICATIONS - 4.02%
Alltel Corporation, 4.656%, Due 5/17/2007................... 245 244
America Movil S.A. de C.V., 6.375%, Due 3/1/2035............ 540 506
AT&T Wireless Services, Incorporated,
7.35%, Due 3/1/2006....................................... 500 504
8.125%, Due 5/1/2012...................................... 390 448
8.75%, Due 3/1/2031....................................... 170 222
Deutsche Telekom AG, 8.50%, Due 6/15/2010................... 150 167
France Telecom SA, 8.00%, Due 3/1/2011...................... 270 301
Nextel Communications, Incorporated, 6.875%, Due
10/31/2013................................................ 290 303
Sprint Capital Corporation,
6.00%, Due 1/15/2007...................................... 200 203
8.375%, Due 3/15/2012..................................... 150 173
Telecom Italia S.p.A., 4.00%, Due 11/15/2008................ 220 213
Telefonos de Mexico, S.A. de C.V., 5.50%, Due 1/27/2015..... 200 193
Verizon Wireless Capital, LLC, 5.375%, Due 12/15/2006....... 310 312
--------
TOTAL TELECOMMUNICATIONS................................ 3,789
--------
UTILITIES - 2.76%
Consolidated Natural Gas Company, 6.875%, Due 10/15/2026.... 335 362
FPL Group, Incorporated, 4.086%, Due 2/16/2007.............. 210 208
Georgia Power Company, 4.875%, Due 7/15/2007................ 270 270
Marathon Oil Corporation, 5.375%, Due 6/1/2007.............. 255 257
MidAmerican Energy Holdings Company,
3.50%, Due 5/15/2008...................................... 270 259
5.875%, Due 10/1/2012..................................... 200 205
Public Service Enterprise Group, Incorporated, 6.95%, Due
6/1/2012(+)............................................... 355 381
Southern Company Capital Funding, Incorporated, 7.625%, Due
2/1/2007.................................................. 155 175
Union Oil Company of California, 5.30%, Due 4/18/2008....... 220 221
Xcel Energy, Incorporated, 7.00%, Due 12/1/2010............. 250 269
--------
TOTAL UTILITIES......................................... 2,607
--------
TOTAL CORPORATE OBLIGATIONS............................. 28,725
--------
ASSET-BACKED SECURITIES - 2.57%
Citigroup Commercial Mortgage Trust 2004-C2 A3, 4.38%, Due
10/15/2041................................................ 470 451
Household Automotive Trust 2004-1 A3, 4.625%, Due
5/18/2009................................................. 505 496
JP Morgan Chase Commercial Mortgage Securities Corp,
2004-CBX A4, 4.529%, Due 11/12/2039....................... 255 247
2005-LDP3 A1, 4.655%, Due 8/15/2042....................... 195 194
2005-LDP1 A2, 3.33%, Due 3/15/2046........................ 700 692
Residential Asset Mortgage Products, Incorporated 2004-RS12
AI2, 3.767%, Due 2/25/2027................................ 110 108
TXU Electric Delivery Transition, LLC 2004-1 A2, 4.81%, Due
11/15/2012................................................ 243 240
--------
TOTAL ASSET-BACKED SECURITIES........................... 2,428
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
76
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
---------- --------
SHORT-TERM INVESTMENTS - 24.66%
American Beacon Enhanced Cash Trust (Notes B and C)......... 14,649,300 $ 14,649
American Beacon Money Market Select Fund (Notes B and C).... 8,601,456 8,602
--------
TOTAL SHORT-TERM INVESTMENTS............................ 23,251
--------
TOTAL INVESTMENTS - 120.04% (COST $114,862)................. 113,228
--------
LIABILITIES, NET OF OTHER ASSETS - (20.04%)................. (18,904)
--------
TOTAL NET ASSETS - 100%..................................... $ 94,324
========
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $804 or 0.85% of net assets.
(B) The Fund/Trust is affiliated by having the same investment advisor. See Note
2.
(C) All or a portion of this security is purchased with cash collateral for
securities loaned.
(+)-All or a portion of this security is on loan at October 31, 2005. See Note
5.
See accompanying notes
- --------------------------------------------------------------------------------
77
AMERICAN BEACON SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
U.S. TREASURY NOTE - 2.24%
3.375%, Due 2/28/2007(+).................................... $ 2,000 $ 1,974
--------
TOTAL U.S. TREASURY NOTE................................ 1,974
--------
U.S. AGENCY OBLIGATIONS - 1.65%
Federal National Mortgage Association, 3.625%, Due
9/15/2008................................................. 1,500 1,457
--------
TOTAL U.S. AGENCY OBLIGATIONS........................... 1,457
--------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 3.58%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.21%
Pool #E00228, 6.50%, Due 7/1/2008........................... 183 187
--------
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION............ 187
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.53%
Pool #050952, 6.50%, Due 12/1/2008.......................... 223 228
Pool #252448, 5.50%, Due 4/1/2009........................... 206 207
Pool #313430, 6.50%, Due 3/1/2012........................... 248 256
Pool #313522, 7.00%, Due 5/1/2012........................... 464 486
Pool #323223, 6.50%, Due 7/1/2013........................... 204 211
Pool #323980, 6.00%, Due 4/1/2014........................... 447 457
Pool #545038, 6.00%, Due 9/1/2014........................... 382 391
--------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION............. 2,236
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.84%
Pool #780286, 7.00%, Due 6/15/2008.......................... 214 218
Pool #351992, 6.00%, Due 12/15/2008......................... 512 522
--------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION.......... 740
--------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS........... 3,163
--------
CORPORATE OBLIGATIONS - 67.50%
FINANCE - 44.97%
American Honda Finance Corporation, 2.875%, Due 4/3/2006,
144A (Note A)............................................. 1,150 1,142
Bank One Corporation, 6.00%, Due 8/1/2008................... 2,000 2,056
The Bear Stearns Companies, Incorporated, 2.875%, Due
7/2/2008.................................................. 2,000 1,899
Boeing Capital Corporation, 5.65%, Due 5/15/2006(+)......... 626 630
Capital One Bank,
6.875%, Due 2/1/2006...................................... 200 201
6.70%, Due 5/15/2008...................................... 1,100 1,141
Caterpillar Financial Services,
2.35%, Due 9/15/2006(+)................................... 1,500 1,469
4.15%, Due 1/15/2010(+)................................... 1,000 971
Comerica Bank, 6.00%, Due 10/1/2008......................... 2,200 2,258
Countrywide Home Loans, Incorporated, 3.25%, Due
5/21/2008................................................. 2,000 1,916
Credit Suisse First Boston, Incorporated, 5.875%, Due
8/1/2006.................................................. 2,000 2,017
FleetBoston Financial Corporation, 3.85%, Due 2/15/2008..... 2,500 2,454
General Electric Capital Corporation, 4.125%, Due
3/4/2008.................................................. 3,000 2,953
John Hancock Global Funding, 5.625%, Due 6/27/2006.......... 1,000 1,006
Household Finance Corporation, 5.75%, Due 1/30/2007......... 2,250 2,275
MetLife Global Funding I, 3.375%, Due 10/5/2007, 144A (Note
A)........................................................ 3,000 2,919
Monumental Global Funding, 5.20%, Due 1/30/2007, 144A (Note
A)........................................................ 1,200 1,202
Morgan Stanley Group, Incorporated, 6.10%, Due 4/15/2006.... 1,000 1,006
Prudential Insurance Company of America, 6.375%, Due
7/23/2006, 144A (Note A).................................. 3,000 3,033
Simon Property Group LP, 6.375%, Due 11/15/2007............. 2,000 2,050
Synovus Financial Corporation, 7.25%, Due 12/15/2005........ 2,500 2,508
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
78
AMERICAN BEACON SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Wachovia Corporation, 6.40%, Due 4/1/2008................... $ 2,500 $ 2,589
--------
TOTAL FINANCE........................................... 39,695
--------
INDUSTRIALS - 22.53%
AT&T Wireless Services, Incorporated, 7.35%, Due 3/1/2006... 1,400 1,412
Bunge Limited, 4.375%, Due 12/15/2008....................... 1,000 981
Cendant Corporation, 6.875%, Due 8/15/2006.................. 2,140 2,168
Comcast Cable Communications, 6.20%, Due 11/15/2008......... 2,000 2,059
ConAgra Foods, Incorporated, 9.875%, Due 11/15/2005......... 1,000 1,002
DaimlerChrysler North America, 4.75%, Due 1/15/2008......... 1,500 1,484
John Deere Capital Corporation, 3.375%, Due 10/1/2007....... 2,000 1,949
International Lease Finance Corporation, 2.95%, Due
5/23/2006(+).............................................. 2,000 1,982
Northrop Grumman Corporation, 7.00%, Due 3/1/2006........... 2,000 2,017
Sprint Capital Corporation, 6.00%, Due 1/15/2007............ 1,800 1,823
Unilever Capital Corporation, 6.875%, Due 11/1/2005......... 1,000 1,000
Verizon Wireless Capital, LLC, 5.375%, Due 12/15/2006....... 2,000 2,011
--------
TOTAL INDUSTRIALS....................................... 19,888
--------
TOTAL CORPORATE OBLIGATIONS............................. 59,583
--------
ASSET-BACKED SECURITIES - 21.73%
Banc of America Securities Auto Trust 2005-WF1 A4, 4.08%,
Due 4/18/2010............................................. 3,000 2,945
Chase Manhattan Auto Owner Trust 2004-A A4, 2.83%, Due
9/15/2010................................................. 2,000 1,933
Citibank Credit Card Issuance Trust 2004-A4 A4, 3.20%, Due
8/24/2009................................................. 3,000 2,918
DaimlerChrysler Auto Trust 2004-C A4, 3.28%, Due
12/8/2009................................................. 3,000 2,911
Household Automotive Trust 2004-1 A3, 3.30%, Due
5/18/2009................................................. 1,600 1,582
HSBC Automotive Trust 2005-1 A4, 4.35%, Due 6/18/2012....... 2,000 1,964
Nissan Auto Receivables Owner Trust 2004-A A3, 2.01%, Due
11/15/2007................................................ 884 874
USAA Auto Owner Trust 2004-1 A3, 2.06%, Due 4/15/2008....... 1,547 1,528
Wells Fargo Financial Auto Owner Trust 2004-A A4, 2.67%, Due
8/16/2010................................................. 2,600 2,529
--------
TOTAL ASSET-BACKED SECURITIES........................... 19,184
--------
<Caption>
SHARES
-----------
SHORT-TERM INVESTMENTS - 7.60%
American Beacon Enhanced Cash Trust (Notes B and C)......... 3,390,792 3,391
American Beacon Money Market Select Fund (Notes B and C).... 3,305,372 3,305
--------
TOTAL SHORT-TERM INVESTMENTS............................ 6,696
--------
TOTAL INVESTMENTS - 104.30% (COST $93,494).................. 92,057
--------
LIABILITIES, NET OF OTHER ASSETS - (4.30%).................. (3,792)
--------
TOTAL NET ASSETS - 100%..................................... $ 88,265
========
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $8,296 or 9.40% of net assets.
(B) The Fund/Trust is affiliated by having the same investment advisor. See Note
2.
(C) All or a portion of this security is purchased with cash collateral for
securities loaned.
(+)-All or a portion of this security is on loan at October 31, 2005. See Note
5.
See accompanying notes
- --------------------------------------------------------------------------------
79
AMERICAN BEACON FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 2005 (in thousands except share and per share amounts)
- --------------------------------------------------------------------------------
<Table>
<Caption>
LARGE CAP LARGE CAP MID-CAP
BALANCED VALUE GROWTH VALUE
----------- ----------- ---------- ----------
ASSETS:
Investments in unaffiliated securities, at value(A D)... $ 752,252 $ 1,401,446 $ 59,791 $ 42,356
Investments in affiliated securities, at value(B)....... 179,928 279,394 3,449 11,881
Foreign currency, at value(C)........................... -- -- -- --
Cash.................................................... -- -- 6 4
Net unrealized appreciation on foreign currency
contracts............................................. -- -- -- --
Receivable for investments sold......................... 2,676 5,420 68 --
Dividends and interest receivable....................... 3,268 2,191 30 40
Receivable for fund shares sold......................... 1,034 20,837 347 145
Receivable for tax reclaims............................. -- -- -- --
Receivable for expense reimbursement.................... -- 1 -- --
Receivable for variation margin on open futures
contracts............................................. 556 1,414 28 51
Other assets............................................ -- -- -- --
----------- ----------- ---------- ----------
TOTAL ASSETS........................................ 939,714 1,710,703 63,719 54,477
----------- ----------- ---------- ----------
LIABILITIES:
Payable for investments purchased....................... 2,750 6,003 66 79
Payable upon return of securities loaned................ 122,937 115,545 251 9,393
Payable for fund shares redeemed........................ 274 418 -- 484
Dividends payable....................................... -- -- -- --
Management and investment advisory fees payable (Note
2).................................................... 568 1,017 102 158
Administrative service and service fees payable......... 40 240 -- 9
Other liabilities....................................... 74 189 12 12
----------- ----------- ---------- ----------
TOTAL LIABILITIES................................... 126,643 123,412 431 10,135
----------- ----------- ---------- ----------
NET ASSETS.................................................. $ 813,071 $ 1,587,291 $ 63,288 $ 44,342
=========== =========== ========== ==========
ANALYSIS OF NET ASSETS:
Paid-in-capital......................................... 662,190 1,303,440 67,315 35,975
Undistributed net investment income..................... 15,755 14,208 231 336
Accumulated net realized gain (loss).................... 36,187 58,564 (7,695) 8,593
Unrealized appreciation (depreciation) of investments,
futures contracts and foreign currency................ 98,939 211,079 3,437 (562)
----------- ----------- ---------- ----------
NET ASSETS.................................................. $ 813,071 $ 1,587,291 $ 63,288 $ 44,342
=========== =========== ========== ==========
Shares outstanding (no par value):
Institutional Class..................................... 941,655 9,578,448 16,964 3,782,090
=========== =========== ========== ==========
PlanAhead Class......................................... 6,117,229 26,109,291 N/A N/A
=========== =========== ========== ==========
Service Class........................................... 77 576,363 N/A N/A
=========== =========== ========== ==========
AMR Class............................................... 49,129,419 40,814,156 10,177,995 N/A
=========== =========== ========== ==========
Net asset value, offering and redemption price per share:
Institutional Class..................................... $ 15.00 $ 21.00 $ 6.18 $ 11.72
=========== =========== ========== ==========
PlanAhead Class......................................... $ 14.20 $ 20.16 N/A N/A
=========== =========== ========== ==========
Service Class........................................... $ 14.16 $ 20.13 N/A N/A
=========== =========== ========== ==========
AMR Class............................................... $ 14.49 $ 20.78 $ 6.21 N/A
=========== =========== ========== ==========
- ---------------
(A) Cost of investments in unaffiliated securities.......... $ 652,349 $ 1,189,196 $ 56,317 $ 42,996
(B) Cost of investments in affiliated securities............ $ 179,928 $ 279,394 $ 3,449 $ 11,881
(C) Cost of foreign currency................................ $ -- $ -- $ -- $ --
(D) Market value of securities on loan...................... $ 120,757 $ 113,406 $ 250 $ 9,237
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
80
- --------------------------------------------------------------------------------
<Table>
<Caption>
EMERGING HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM
MARKETS BOND INCOME BOND BOND
---------- ----------- ----------- ------------ -----------
$ 102,030 $ 357,430 $ 107,447 $ 89,977 $ 85,361
10,591 8,267 32,323 23,251 6,696
854 -- -- -- --
-- 3 -- -- --
75 -- -- -- --
27 712 236 251 --
180 7,426 1,145 927 941
292 511 61 132 18
6 -- -- -- --
-- -- -- -- --
41 -- -- -- --
-- -- -- -- 3
---------- ----------- ----------- ----------- -----------
114,096 374,349 141,212 114,538 93,019
---------- ----------- ----------- ----------- -----------
49 -- 568 246 --
6,891 36,110 28,134 19,939 4,615
-- 196 -- 1 110
-- 261 -- -- 7
303 537 103 21 20
3 88 45 1 2
46 52 21 6 --
---------- ----------- ----------- ----------- -----------
7,292 37,244 28,871 20,214 4,754
---------- ----------- ----------- ----------- -----------
$ 106,804 $ 337,105 $ 112,341 $ 94,324 $ 88,265
========== =========== =========== =========== ===========
68,754 339,688 112,937 103,973 98,516
1,524 -- (470) 1 (1,843)
14,946 3,233 14 (8,016) (6,778)
21,580 (5,816) (140) (1,634) (1,630)
---------- ----------- ----------- ----------- -----------
$ 106,804 $ 337,105 $ 112,341 $ 94,324 $ 88,265
========== =========== =========== =========== ===========
619,134 21,214,011 N/A 9,320,730 9,101,890
========== =========== =========== =========== ===========
173,037 11,774,542 11,256,246 104,527 978,397
========== =========== =========== =========== ===========
N/A 120 N/A N/A N/A
========== =========== =========== =========== ===========
6,255,050 N/A N/A N/A N/A
========== =========== =========== =========== ===========
$ 15.10 $ 10.22 N/A $ 10.01 $ 8.75
========== =========== =========== =========== ===========
$ 14.98 $ 10.22 $ 9.98 $ 10.08 $ 8.77
========== =========== =========== =========== ===========
N/A $ 10.41 N/A N/A N/A
========== =========== =========== =========== ===========
$ 15.17 N/A N/A $ N/A $ N/A
========== =========== =========== =========== ===========
$ 80,600 $ 363,246 $ 107,588 $ 91,611 $ 86,798
$ 10,591 $ 8,267 $ 32,323 $ 23,251 $ 6,696
$ 861 $ -- $ -- $ -- $ --
$ 6,769 $ 35,253 $ 27,603 $ 19,548 $ 4,521
</Table>
- --------------------------------------------------------------------------------
81
AMERICAN BEACON FUNDS
STATEMENTS OF OPERATIONS
Year Ended October 31, 2005 (in thousands)
- --------------------------------------------------------------------------------
<Table>
<Caption>
LARGE CAP LARGE CAP MID-CAP
BALANCED VALUE GROWTH VALUE
-------- --------- --------- -------
INVESTMENT INCOME:
Dividend income from unaffiliated securities (net of
foreign taxes)(A)..................................... $10,557 $ 23,009 $ 910 $ 664
Dividend income from affiliated securities.............. 1,380 2,598 54 214
Interest income......................................... 11,039 191 6 21
Income derived from securities lending, net............. 173 125 1 3
------- -------- ------- ------
TOTAL INVESTMENT INCOME............................. 23,149 25,923 971 902
------- -------- ------- ------
EXPENSES:
Management and investment advisory fees (Note 2)........ 2,162 3,466 347 318
Administrative service fees (Note 2):
Institutional Class................................... 26 275 -- 117
PlanAhead Class....................................... 132 597 -- --
Service Class......................................... -- 1 -- --
Transfer agent fees:
Institutional Class................................... -- 11 -- 9
PlanAhead Class....................................... 23 41 -- --
Service Class......................................... 2 2 -- --
AMR Class............................................. 13 19 3 --
Fund accounting fees.................................... 159 281 16 15
Professional fees....................................... 34 59 5 5
Registration fees and expenses.......................... 45 97 1 4
Service fees:
PlanAhead Class (Note 2).............................. 132 597 -- --
Service Class (Note 2)................................ -- 1 -- --
Distribution plan -- Service Class (Note 2)............. -- 1 -- --
Prospectus and shareholder reports...................... 110 156 10 10
Other expenses.......................................... 13 20 1 --
------- -------- ------- ------
TOTAL EXPENSES...................................... 2,851 5,624 383 478
------- -------- ------- ------
Less fees waived (Note 2)............................... 2 2 -- 7
------- -------- ------- ------
NET EXPENSES........................................ 2,849 5,622 383 471
------- -------- ------- ------
NET INVESTMENT INCOME....................................... 20,300 20,301 588 431
------- -------- ------- ------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from:(B)
Investments........................................... 39,420 70,407 3,592 5,598
Commission recapture.................................. 32 154 6 105
Foreign currency transactions......................... -- -- -- --
Futures contracts..................................... 4,894 2,933 108 2,913
Change in net unrealized appreciation or depreciation
of:(C)
Investments........................................... 10,890 62,940 (165) (1,156)
Foreign currency translations......................... -- -- -- --
Futures contracts..................................... (1,337) (1,509) (42) 32
------- -------- ------- ------
NET GAIN (LOSS) ON INVESTMENTS...................... 53,899 134,925 3,499 7,492
------- -------- ------- ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $74,199 $155,226 $ 4,087 $7,923
======= ======== ======= ======
(A) Foreign taxes....................................... $ 100 $ 293 $ -- $ --
(B) Net of foreign withholding taxes on capital gains... $ -- $ -- $ -- $ --
(C) Net of unrealized appreciation of foreign
withholding taxes on capital gains.................. $ -- $ -- $ -- $ --
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
82
- --------------------------------------------------------------------------------
<Table>
<Caption>
EMERGING HIGH YIELD ENHANCED
MARKETS BOND INCOME
-------- ---------- --------
$ 2,885 $ -- $ 251
63 428 107
109 30,083 3,798
20 164 39
-------- ------- ------
3,077 30,675 4,195
-------- ------- ------
912 1,960 387
20 586 --
5 364 283
-- -- --
2 43 --
6 15 17
-- -- --
4 -- --
374 70 20
10 25 8
30 37 19
5 364 283
-- -- --
-- -- --
21 66 21
3 4 1
-------- ------- ------
1,392 3,534 1,039
-------- ------- ------
5 1 --
-------- ------- ------
1,387 3,533 1,039
-------- ------- ------
1,690 27,142 3,156
-------- ------- ------
14,122 3,293 570
-- -- --
1,620 -- --
438 -- --
8,617 (19,461) (2,306)
(17) -- --
792 -- --
-------- ------- ------
25,572 (16,168) (1,736)
-------- ------- ------
$ 27,262 $10,974 $1,420
======== ======= ======
$ 339 $ -- $ --
$ 67 $ -- $ --
$ 84 $ -- $ --
</Table>
- --------------------------------------------------------------------------------
83
AMERICAN BEACON FUNDS
STATEMENTS OF OPERATIONS -- CONTINUED
Year Ended October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
INTERMEDIATE SHORT-TERM
BOND BOND
------------ ----------
(IN THOUSANDS)
INVESTMENT INCOME:
Dividend income from affiliated securities.............. $ 115 $ 63
Interest income......................................... 4,115 2,899
Income derived from securities lending, net............. 24 3
------ ------
TOTAL INVESTMENT INCOME............................. 4,254 2,965
------ ------
EXPENSES:
Management and investment advisory fees (Note 2)........ 240 221
Administrative service fees (Note 2):
Institutional Class (terminated 3/1/05) (Note 1)...... 1 2
PlanAhead Class....................................... 3 19
Transfer agent fees:
Institutional Class (terminated 3/1/05) (Note 1)...... (1) 1
PlanAhead Class....................................... 4 9
Institutional Class (known as AMR Class prior to
3/1/05) (Note 1)..................................... 5 4
Fund accounting fees.................................... 17 15
Professional fees....................................... 2 5
Registration fees and expenses.......................... 24 26
Service fees -- PlanAhead Class (Note 2)................ 2 19
Prospectus and shareholder reports...................... 7 18
Other expenses.......................................... 3 2
------ ------
TOTAL EXPENSES...................................... 307 341
------ ------
Less fees waived (Note 2)............................... 3 5
------ ------
NET EXPENSES........................................ 304 336
------ ------
NET INVESTMENT INCOME....................................... 3,950 2,629
------ ------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on:
Investments........................................... 61 (140)
Change in net unrealized appreciation or depreciation
of:
Investments........................................... (2,958) (1,625)
------ ------
NET GAIN (LOSS) ON INVESTMENTS...................... (2,897) (1,765)
------ ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $1,053 $ 864
====== ======
* Foreign taxes......................................... -- --
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
84
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
85
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
BALANCED LARGE CAP VALUE LARGE CAP GROWTH MID-CAP VALUE(1)
-------------------- ---------------------- ------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, YEAR ENDED JUNE 30 TO
-------------------- ---------------------- ------------------- OCTOBER 31, OCTOBER 31,
2005 2004 2005 2004 2005 2004 2005 2004
--------- -------- ---------- --------- -------- -------- ----------- -----------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income....... $ 20,300 $ 15,049 $ 20,301 $ 12,568 $ 588 $ 184 $ 431 $ 43
Net realized gain (loss) on
investments, futures
contracts, and foreign
currency transactions..... 44,346 27,633 73,494 39,844 3,706 4,414 8,616 (43)
Change in net unrealized
appreciation or
depreciation of
investments, futures
contracts, and foreign
currency translations..... 9,553 33,329 61,431 69,573 (207) (1,298) (1,124) 562
--------- -------- ---------- --------- -------- -------- --------- -------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............ 74,199 76,011 155,226 121,985 4,087 3,300 7,923 562
--------- -------- ---------- --------- -------- -------- --------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class....... (183) (211) (909) (414) -- -- (115) --
PlanAhead Class........... (584) (354) (1,111) (344) -- -- -- --
AMR Class................. (16,172) (15,797) (11,555) (11,675) (474) (151) -- --
Net realized gain on
investments:
Institutional Class....... (277) -- -- -- -- -- (3) --
PlanAhead Class........... (930) -- -- -- -- -- -- --
AMR Class................. (21,970) -- -- -- -- -- -- --
--------- -------- ---------- --------- -------- -------- --------- -------
NET DISTRIBUTIONS TO
SHAREHOLDERS.......... (40,116) (16,362) (13,575) (12,433) (474) (151) (118) --
--------- -------- ---------- --------- -------- -------- --------- -------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of
shares.................... 247,623 71,533 936,214 148,293 39,712 25,454 164,231 26,544
Reinvestment of dividends
and distributions......... 40,085 16,359 13,156 12,206 474 151 118 --
Cost of shares redeemed..... (175,089) (61,146) (299,876) (117,617) (35,633) (22,559) (153,362) (1,560)
Redemption fees............. -- -- -- -- -- -- 4 --
--------- -------- ---------- --------- -------- -------- --------- -------
NET INCREASE (DECREASE)
IN NET ASSETS FROM
CAPITAL SHARE
TRANSACTIONS.......... 112,619 26,746 649,494 42,882 4,553 3,046 10,991 24,984
--------- -------- ---------- --------- -------- -------- --------- -------
NET INCREASE (DECREASE) IN NET
ASSETS........................ 146,702 86,395 791,145 152,434 8,166 6,195 18,796 25,546
--------- -------- ---------- --------- -------- -------- --------- -------
NET ASSETS:
Beginning of period......... 666,369 579,974 796,146 643,712 55,122 48,927 25,546 --
--------- -------- ---------- --------- -------- -------- --------- -------
END OF PERIOD*.............. $ 813,071 $666,369 $1,587,291 $ 796,146 $ 63,288 $ 55,122 $ 44,342 $25,546
========= ======== ========== ========= ======== ======== ========= =======
* Includes undistributed net
investment income (loss)
of........................ $ 14,888 $ 11,527 $ 14,341 $ 7,615 $ 234 $ 120 $ 359 $ 43
========= ======== ========== ========= ======== ======== ========= =======
</Table>
- ---------------
(1) Commencement of Operations
See accompanying notes
- --------------------------------------------------------------------------------
86
- --------------------------------------------------------------------------------
<Table>
<Caption>
EMERGING MARKETS HIGH YIELD BOND ENHANCED INCOME
------------------- --------------------- -------------------
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
------------------- --------------------- -------------------
2005 2004 2005 2004 2005 2004
-------- -------- --------- --------- -------- --------
$ 1,690 $ 676 $ 27,142 $ 22,814 $ 3,156 $ 2,525
16,180 10,395 3,293 6,934 570 320
9,392 (243) (19,461) 2,292 (2,306) 1,851
-------- -------- --------- --------- -------- --------
27,262 10,828 10,974 32,040 1,420 4,696
-------- -------- --------- --------- -------- --------
(39) (20) (16,952) (13,226) -- --
(3) (3) (10,190) (9,588) (3,495) (2,672)
(577) (415) -- -- -- --
(673) -- (4,274) (2,082) -- --
(86) -- (2,693) (1,646) -- --
(6,885) -- -- -- -- --
-------- -------- --------- --------- -------- --------
(8,263) (438) (34,109) (26,542) (3,495) (2,672)
-------- -------- --------- --------- -------- --------
41,933 43,769 164,045 214,560 31,229 21,940
8,256 438 30,574 21,423 3,496 2,192
(45,081) (27,453) (224,426) (138,469) (24,206) (23,331)
2 4 -- -- -- --
-------- -------- --------- --------- -------- --------
5,110 16,758 (29,807) 97,514 10,519 801
-------- -------- --------- --------- -------- --------
24,109 27,148 (52,942) 103,012 8,444 2,825
-------- -------- --------- --------- -------- --------
82,695 55,547 390,047 287,035 103,897 101,072
-------- -------- --------- --------- -------- --------
$106,804 $ 82,695 $ 337,105 $ 390,047 $112,341 $103,897
======== ======== ========= ========= ======== ========
$ 1,557 $ 486 $ -- $ -- $ (483) $ (144)
======== ======== ========= ========= ======== ========
</Table>
- --------------------------------------------------------------------------------
87
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
INTERMEDIATE BOND SHORT-TERM BOND
----------------------- -----------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
----------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................... $ 3,950 $ 4,681 $ 2,629 $ 2,816
Net realized gain (loss) on investments, futures
contracts, and foreign currency transactions.......... 61 1,148 (140) 432
Change in net unrealized appreciation or depreciation of
investments, futures contracts, and foreign currency
translations.......................................... (2,958) (67) (1,625) (991)
-------- -------- -------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................ 1,053 5,762 864 2,257
-------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class (terminated 3/1/05) (Note 1)...... (13) (36) (48) (162)
PlanAhead Class....................................... (39) (43) (304) (345)
Institutional Class (known as AMR Class prior to
3/1/05) (Note 1).................................... (4,163) (5,071) (3,662) (4,192)
-------- -------- -------- --------
NET DISTRIBUTIONS TO SHAREHOLDERS................... (4,215) (5,150) (4,014) (4,699)
-------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares........................... 47,062 31,565 32,831 19,631
Reinvestment of dividends and distributions............. 4,212 5,146 3,994 4,626
Cost of shares redeemed................................. (52,033) (73,424) (37,019) (31,645)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS................................ (759) (36,713) (194) (7,388)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS....................... (3,921) (36,101) (3,344) (9,830)
-------- -------- -------- --------
NET ASSETS:
Beginning of period..................................... 98,245 134,346 91,609 101,439
-------- -------- -------- --------
END OF PERIOD*.......................................... $ 94,324 $ 98,245 $ 88,265 $ 91,609
======== ======== ======== ========
* Includes undistributed net investment income (loss)
of.................................................... $ (265) $ -- $ (2,961) $ (1,576)
======== ======== ======== ========
</Table>
- --------------------------------------------------------------------------------
88
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust"), formerly known as the American
AAdvantage Funds, is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940 (the "Act"), as amended, as
a no load, open-end management investment company. These financial statements
and notes to the financial statements relate to the American Beacon Balanced
Fund, the American Beacon Large Cap Value Fund, the American Beacon Large Cap
Growth Fund, the American Beacon Mid-Cap Value Fund, the American Beacon
Emerging Markets Fund, the American Beacon High Yield Bond Fund, the American
Beacon Enhanced Income Fund, the American Beacon Intermediate Bond Fund and the
American Beacon Short-Term Bond Fund (each a "Fund" and collectively, the
"Funds"), each a series of the Trust.
On March 1, 2005, the American AAdvantage Funds were renamed American
Beacon Funds. The chart below depicts the new names of each Fund and its former
name prior to March 1, 2005.
<Table>
<Caption>
FUND NAMES EFFECTIVE MARCH 1, 2005 ABBREVIATED NAME FORMERLY KNOWN AS:
- ---------------------------------- ---------------- ------------------
American Beacon Balanced Fund Balanced Fund American AAdvantage Balanced Fund
American Beacon Large Cap Value Fund Large Cap Value Fund American AAdvantage Large Cap Value Fund
American Beacon Large Cap Growth Fund Large Cap Growth Fund American AAdvantage Large Cap Growth Fund
American Beacon Mid-Cap Value Fund Mid-Cap Value Fund American AAdvantage Mid-Cap Value Fund
American Beacon Emerging Markets Fund Emerging Markets Fund American AAdvantage Emerging Markets Fund
American Beacon High Yield Bond Fund High Yield Bond Fund American AAdvantage High Yield Bond Fund
American Beacon Enhanced Income Fund Enhanced Income Fund American AAdvantage Enhanced Income Fund
American Beacon Intermediate Bond Fund Intermediate Bond American AAdvantage Intermediate Bond
Fund Fund
American Beacon Short-Term Bond Fund Short-Term Bond Fund American AAdvantage Short-Term Bond Fund
</Table>
American Beacon Advisors, Inc. (the "Manager"), formerly known as AMR
Investment Services, Inc., is a wholly-owned subsidiary of AMR Corporation, the
parent company of American Airlines, Inc. ("American"), and was organized in
1986 to provide business management, advisory, administrative and asset
management consulting services to the Trust and other investors.
Class Disclosure
Each Fund, except the Mid-Cap Value and Enhanced Income Fund, has multiple
classes of shares designed to meet the needs of different groups of investors.
Please note that not all Funds offer all classes. The following table sets forth
the differences amongst the classes:
<Table>
<Caption>
CLASS: OFFERED TO: SERVICE AND DISTRIBUTION FEES:
- ------ ----------- ------------------------------
INSTITUTIONAL CLASS Investors making an initial investment of $2 million Administrative Service 0.25%
Fee --
PLANAHEAD CLASS General public and investors investing through an Administrative Service 0.25%
intermediary Fee -- 0.25%
Service Fee --
SERVICE CLASS Investors investing through an intermediary Administrative Service 0.25%
Fee -- 0.25%
Service Fee -- 0.25%
Distribution Fee --
AMR CLASS Investors in the tax-exempt retirement and benefit plans of N/A
AMR Corporation and its affiliates
</Table>
- --------------------------------------------------------------------------------
89
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
Investment income, net capital gains (losses) and all expenses incurred by
the Funds are allocated based on the relative net assets of each class, except
for service fees and certain other fees and expenses related solely to one class
of shares.
Reorganization Intermediate Bond and Short-Term Bond Funds
Effective March 1, 2005, the existing Institutional Class of the
Intermediate Bond and Short-Term Bond Funds was terminated, and Institutional
Class shares were exchanged for AMR Class shares of each Fund. Following the
exchange, the former AMR Class of shares for these Funds was renamed
Institutional Class.
Security Valuation
Investments are valued at the close of the New York Stock Exchange (the
"Exchange"), normally 4 p.m. ET, each day that the Exchange is open for
business. Equity securities 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 (other than short-term 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. When a price is unavailable from a
pricing service or when the price provided by the pricing service is deemed not
to represent fair value, the prices of debt securities may be determined using
quotes obtained from brokers.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation. Investment grade short-term
obligations with 60 days or less to maturity are valued using the amortized cost
method which approximates market value.
Securities for which the market prices are not readily available or are not
reflective of the fair value of the security, the security will be priced at a
fair value following procedures approved by the Board of Trustees (the "Board").
In light of the judgement involved in fair value decisions, there can be no
assurance that a fair value assigned to a particular security is accurate.
Most foreign markets close before the Exchange. Developments that could
affect the values of securities that occur between the close of a foreign market
and the close of the Exchange normally will not be reflected in security
valuations. If such developments are so significant such that they will, in the
judgement of the pricing committee of the Funds, clearly and materially affect
the value of securities, the previous closing prices may be adjusted to reflect
the fair value of the securities as of the close of the Exchange, as determined
in good faith and pursuant to procedures approved by the Board. Adjustments to
closing prices to reflect fair value on affected foreign securities may be
provided by an independent pricing service.
- --------------------------------------------------------------------------------
90
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale.
Dividend income is recorded on the ex-dividend date except certain
dividends from foreign securities which are recorded as soon as the information
is available to the Funds. Interest income is earned from settlement date,
recorded on the accrual basis, and adjusted, if necessary, for accretion of
discounts and amortization of premiums. For financial and tax reporting
purposes, realized gains and losses are determined on the basis of specific lot
identification.
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 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 in the Fund's Statement of Operations.
Forward Foreign Currency Contracts
The Emerging Markets Fund may enter into forward foreign currency contracts
to hedge the exchange rate risk on investment transactions or to hedge the value
of fund securities denominated in foreign currencies. Forward foreign currency
contracts are valued at the forward exchange rate prevailing on the day of
valuation.
Repurchase Agreements
Under the terms of a repurchase agreement, securities are acquired by a
Fund from a securities dealer or a bank which are subject to resale at a later
date. Repurchase agreements are fully collateralized. The collateral is
monitored daily by each Fund so that the collateral's market value equals or
exceeds the carrying value of the repurchase agreement, including accrued
interest.
Futures Contracts
Futures contracts are contracts to buy or sell a standard quantity of
securities at a specified price on a future date. The Balanced, Large Cap Value,
Large Cap Growth, Mid-Cap Value, Emerging Markets, High Yield Bond and Enhanced
Income 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 Fund is required to set aside or
deposit with a broker an amount, termed the initial margin, which typically
represents 5% of the face value of the futures contract. The Funds reflect this
amount on the Schedules of Investments as a U.S. Treasury Bill held as
collateral for futures contracts. Payments to and from the broker, known as
variation margin, are
- --------------------------------------------------------------------------------
91
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
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.
Dividends to Shareholders
Dividends from net investment income of the Balanced, Large Cap Value,
Large Cap Growth, Mid-Cap Value, and Emerging Markets Funds normally will be
declared and paid annually. The High Yield Bond, Enhanced Income, Intermediate
Bond and Short-Term Bond Funds generally declare dividends from net investment
income daily, payable monthly. Distributions, if any, of net realized capital
gains are generally paid annually and recorded on the ex-dividend date.
Commission Recapture
The Funds have established brokerage commission recapture arrangements with
certain brokers or dealers. If a Fund's investment advisor chooses to execute a
transaction through a participating broker, the broker rebates a portion of the
commission back to the Fund. Any collateral benefit received through
participation in the commission recapture program is directed exclusively to the
Fund.
Allocation of Income, Expenses, Gains and Losses
Income, expenses (other than those attributable to a specific class), gains
and losses are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses directly
attributable to a specific class are charged against the operations of that
class.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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.
Redemption Fees
The Institutional, PlanAhead and AMR Classes of the Emerging Markets Fund
and the Mid-Cap Value Fund imposes a 2% redemption fee on certain shares held
for less than 90 days. The fee is deducted from the redemption proceeds and is
intended to offset the trading costs, market impact and other costs associated
with short-term trading activity in the Fund. The "first-in, first-out" method
is used to determine the holding period.
Other
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability 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
- --------------------------------------------------------------------------------
92
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
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 Agreement
The Trust and the Manager are parties to a Management Agreement that
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory, fund management and securities lending services. Investment
assets of the Balanced, Large Cap Value, Large Cap Growth, Mid-Cap Value,
Emerging Markets, High Yield Bond, Enhanced Income and Intermediate Bond Funds
are managed by multiple investment advisors which have entered into separate
investment advisory agreements with the Manager. As compensation for performing
the duties required under the Management Agreement, the Manager receives from
the Balanced Fund, Large Cap Value Fund, Large Cap Growth Fund, Mid-Cap Value
Fund, Emerging Markets Fund, High Yield Bond Fund and Enhanced Income Fund an
annualized fee equal to .10% of the average daily net assets plus amounts paid
by the Manager to the investment advisors hired by the Manager to direct
investment activities of the Funds. The Manager receives an annualized fee of
..25% of the average daily net assets of the Intermediate Bond Fund and pays a
portion of their fee to an investment advisor hired by the Manager to direct
investment activities of a portion of the Fund. The Manager serves as the sole
investment advisor to the Short-Term Bond Fund. Pursuant to the Management
Agreement, the Manager receives from the Fund an annualized fee equal to .25% of
the average daily net assets of the Short-Term Bond Fund. Management fees paid
during the year ended October 31, 2005 were as follows (dollars in thousands):
<Table>
<Caption>
AMOUNTS PAID TO NET AMOUNTS
MANAGEMENT MANAGEMENT INVESTMENT RETAINED BY
FEE RATE FEE ADVISORS MANAGER
----------- ---------- --------------- -----------
Balanced Fund...................................... .225%-.70% $2,162 $1,397 $ 765
Large Cap Value Fund............................... .225%-.70% 3,466 2,293 1,173
Large Cap Growth Fund.............................. .35%-.55% 347 287 60
Mid-Cap Value Fund................................. .40%-.90% 318 271 47
Emerging Markets Fund.............................. .80%-1.20% 912 804 108
High Yield Bond Fund............................... .52% 1,960 1,580 380
Enhanced Income Fund............................... .25%-.85% 387 274 113
Intermediate Bond Fund............................. .25% 240 89 151
</Table>
As compensation for services provided by the Manager in connection with
securities lending activities, the lending Fund pays to the Manager, with
respect to cash collateral posted by borrowers, a fee up to 25% 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 when a borrower
posts collateral other than cash, a fee up to 25% of such loan fees. This fee is
netted against securities lending income in
- --------------------------------------------------------------------------------
93
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
the Statement of Operations. During the year ended October 31, 2005, securities
lending fees paid to the Manager were as follows (in thousands):
<Table>
Balanced Fund............................................... $29
Large Cap Value Fund........................................ 20
Emerging Markets Fund....................................... 3
High Yield Bond Fund........................................ 23
Enhanced Income Fund........................................ 6
Intermediate Bond Fund...................................... 4
</Table>
Administrative Services Agreement
The Manager and the Trust entered into an Administrative Services Agreement
which obligates the Manager to provide or oversee administrative and management
services to the Funds. As compensation for performing the duties required under
the Administrative Services Agreement, the Manager receives an annualized fee of
..25% of the average daily net assets of the Institutional, PlanAhead and Service
Classes of each of the Funds.
Distribution Plans
The Trust, except for the Service Class of the Funds, has adopted a
"defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under
the Investment Company Act of 1940, pursuant to which no fees may be charged to
the Funds for distribution purposes. However, the Plan authorizes the management
fees received by the Manager and the investment advisors hired by the Manager to
be used for distribution purposes. Under this Plan, the Trust does not intend to
compensate the Manager or any other party, either directly or indirectly, for
the distribution of Trust shares.
A separate Distribution Plan (the "Distribution Plan") has been adopted
pursuant to Rule 12b-1 under the Act for the Service Class of the Funds. Under
the Distribution Plan, as compensation for distribution assistance, the Manager
receives an annual fee of 0.25% of the average daily net assets of the Service
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 PlanAhead and Service
Classes. As compensation for performing the duties required under the Service
Plans, the Manager receives 0.25% of the average daily net assets of the
PlanAhead and Service Classes of each Fund.
Brokerage Commissions
Affiliated entities of a subadvisor to the Large Cap Growth Fund and the
Emerging Markets Fund received net commissions on purchases and sales of the
Fund's portfolio securities totaling $1,827 and $610, respectively for the year
ended October 31, 2005.
- --------------------------------------------------------------------------------
94
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
Investment in Affiliated Funds
The Funds are permitted, pursuant to an exemptive order by the Securities
and Exchange Commission ("SEC") and approved procedures by the Board, to invest
up to 25% of its total assets in the American Beacon Money Market Select Fund
(the "Select Fund"), an affiliated fund. The Funds and the Select Fund have the
same investment advisor and therefore, are considered to be affiliated. Cash
collateral received by certain Funds in connection with securities lending may
be invested in the Select Fund and the American Beacon Enhanced Cash Trust (the
"Business Trust") (collectively, the "Affiliated Funds"). The Manager serves as
Trustee and investment advisor to the Affiliated Funds and receives from the
Affiliated Funds an annualized fee equal to 0.10% of the average daily net
assets. During the period, fees earned by the Manager from the Affiliated Funds
were as follows:
<Table>
<Caption>
SECURITIES LENDING
DIRECT INVESTMENT COLLATERAL INVESTED
IN FUNDS IN FUNDS TOTAL
----------------- ------------------- --------
Balanced.................................................... $48,510 $115,322 $163,832
Large Cap Value............................................. 90,583 73,463 164,046
Large Cap Growth............................................ 927 129 1,056
Mid-Cap Value............................................... 7,246 3,849 11,095
Emerging Markets............................................ 6,308 4,525 10,833
High Yield Bond............................................. 15,816 -- 15,816
Enhanced Income............................................. 3,666 22,629 26,295
Intermediate Bond........................................... 3,971 17,184 21,155
Short-Term Bond............................................. 2,047 2,248 4,295
</Table>
Other
Certain officers or Trustees of the Trust are also current or former
officers or employees of the Manager or American. The Trust makes no direct
payments to its officers. Mr. Feld and the non-interested Trustees (other than
Mr. O'Sullivan) and their spouses are provided free unlimited air transportation
on American. Retired Trustees and their spouses are provided free transportation
on American, up to a maximum annual value of $40,000. The Trust compensates each
Trustee with payments in an amount equal to the Trustee's income tax on the
value of this free airline travel. Mr. O'Sullivan, as a retiree of American,
already receives flight benefits. This Trustee receives an annual retainer of
$40,000 plus $1,250 for each Board meeting attended.
At October 31, 2005, AMR Corporation and subsidiary companies and Employee
Benefit Trusts thereof owned 100% of AMR Class shares of the Funds, 98% of the
Institutional Class of the Mid-Cap Value Fund, 18% of the Institutional Class of
the High Yield Bond Fund, 99% of the Institutional Class of the Intermediate
Bond Fund and 94% of the Institutional Class of the Short-Term Bond Fund.
Interfund Lending Program
Pursuant to an exemptive order by the SEC, the Funds, along with other
registered investment companies having management contracts with the Manager,
may participate in an interfund lending program as a borrower. This program
provides an alternative credit facility allowing the Funds to
- --------------------------------------------------------------------------------
95
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
borrow from, or lend money to, other participating Funds. For the period ended
October 31, 2005, the following Funds had borrowings:
<Table>
<Caption>
WEIGHTED
AVERAGE AVERAGE
DAYS INTEREST DEBT INTEREST
OUTSTANDING CHARGES UTILIZED RATE
---------------- -------- ---------- --------
Large Cap Growth............................................ 12 $1,201 $1,542,803 2.37%
Mid-Cap Value............................................... 8 2,164 2,989,329 3.30%
Emerging Markets............................................ 9 1,349 1,461,092 3.75%
High Yield Bond............................................. 10 1,236 1,252,924 3.60%
</Table>
Reimbursement of Expenses
The Manager contractually agreed to reimburse the following Funds for other
expenses through February 28, 2006 to the extent that total annual fund
operating expenses exceed the following amounts:
<Table>
<Caption>
FUND CLASS EXPENSE CAP
- ---- ----- -----------
Large Cap Growth............................................ Institutional 0.90%
Mid-Cap Value............................................... Institutional 1.14%
Emerging Markets............................................ PlanAhead 2.00%
High Yield Bond............................................. Service 1.50%
Intermediate................................................ PlanAhead 0.95%
</Table>
During the year ended October 31, 2005, the Manager contractually waived or
reimbursed expenses as follows:
<Table>
<Caption>
FUND CLASS AMOUNT
- ---- ----- ------
Large Cap Growth............................................ Institutional $ 184
Mid-Cap Value............................................... Institutional 7,258
Emerging Markets............................................ PlanAhead 5,148
High Yield Bond............................................. Service 127
Intermediate Bond........................................... PlanAhead 2,541
</Table>
During the year ended October 31, 2005, the Manager voluntarily waived or
reimbursed expenses as follows in order to maintain expense ratios at or below
the levels noted below:
<Table>
<Caption>
EXPENSE
FUND CLASS RATIO LIMIT AMOUNT
- ---- ----- ----------- ------
Balanced.................................................... Service 1.09% $1,650
Large Cap Value............................................. Service 1.14% 1,600
High Yield Bond............................................. Institutional 1.46% 507
Short-Term Bond............................................. PlanAhead 0.87% 5,000
</Table>
Expense Reimbursement Plan
The Funds have adopted an Expense Reimbursement Plan whereby the Manager
may seek repayment of fees waived or expenses reimbursed for a period of up to
three years. However, reimbursement will occur only if the Class' average net
assets have grown or expenses have declined sufficiently to allow reimbursement
without causing its expense ratio to exceed the previously
- --------------------------------------------------------------------------------
96
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
agreed upon contractual expense limit. The following waived fees or reimbursed
expenses are subject to potential recovery expiring in:
<Table>
<Caption>
YEAR MID-CAP VALUE EMERGING MARKETS
- ---- ------------- ----------------
2008........................................................ $7,258 $2,831
</Table>
3. FEDERAL INCOME AND EXCISE TAXES
It is the policy of each of the Funds to comply with the requirements of
Subchapter M of the Internal Revenue Code and to distribute substantially all
net investment income as well as any net realized capital gains on the sale of
investments. Therefore, no federal income or excise tax provision is required.
Dividends are determined in accordance with income tax regulations which
may treat certain transactions differently than U.S. generally accepted
accounting principles. 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 during the years ended October 31, 2005
and October 31, 2004 were as follows (in thousands):
<Table>
<Caption>
BALANCED LARGE CAP VALUE LARGE-CAP GROWTH MID CAP VALUE
------------------------- ------------------------- ------------------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2005 2004 2005 2004 2005 2004 2005
----------- ----------- ----------- ----------- ----------- ----------- -------------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class..... $ 207 $ 211 $ 909 $ 414 $ -- $ -- $118
PlanAhead Class......... 665 354 1,111 344 -- -- --
AMR Class............... 18,088 15,797 11,555 11,675 474 151 --
LONG-TERM CAPITAL GAIN
Institutional Class..... 253 -- -- -- -- -- --
PlanAhead Class......... 849 -- -- -- -- -- --
AMR Class............... 20,054 -- -- -- -- -- --
------- ------- ------- ------- ---- ---- ----
TOTAL DISTRIBUTIONS
PAID.............. $40,116 $16,362 $13,575 $12,433 $474 $151 $118
------- ------- ------- ------- ---- ---- ----
</Table>
<Table>
<Caption>
EMERGING MARKETS HIGH-YIELD BOND ENHANCED INCOME
------------------------- ------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2005 2004 2005 2004 2005 2004
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class.................. $ 39 $ 20 $17,772 $14,823 $ -- $ --
PlanAhead Class...................... 3 3 10,707 10,851 3,495 2,672
Service Class........................ -- -- -- -- -- --
AMR Class............................ 577 415 -- -- -- --
LONG-TERM CAPITAL GAIN
Institutional Class.................. 673 -- 3,454 485 -- --
PlanAhead Class...................... 86 -- 2,176 383 -- --
Service Class........................ -- -- -- -- -- --
AMR Class............................ 6,885 -- -- -- -- --
------ ---- ------- ------- ------ ------
TOTAL DISTRIBUTIONS PAID......... $8,263 $438 $34,109 $26,542 $3,495 $2,672
------ ---- ------- ------- ------ ------
</Table>
- --------------------------------------------------------------------------------
97
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
INTERMEDIATE BOND SHORT-TERM BOND
------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Institutional Class (terminated 3/1/05)..................... $ 13 $ 36 $ 48 $ 162
PlanAhead Class............................................. 39 43 304 345
Institutional Class (formerly known as AMR Class prior to
3/1/05).................................................... 4,163 5,071 3,662 4,192
------ ------ ------ ------
$4,215 $5,150 $4,014 $4,699
------ ------ ------ ------
</Table>
As of October 31, 2005, the components of distributable earnings were as
follows (in thousands):
<Table>
<Caption>
BALANCED LARGE CAP LARGE CAP MID-CAP
FUND VALUE FUND GROWTH FUND VALUE FUND
-------- ---------- ------------- ----------
Cost basis of investments for federal income tax purposes... $838,716 $1,480,256 $60,956 $55,466
Unrealized appreciation..................................... 113,583 236,363 4,723 1,811
Unrealized depreciation..................................... (20,119) (35,779) (2,439) (3,040)
-------- ---------- ------- -------
Net unrealized appreciation/(depreciation).................. 93,464 200,584 2,284 (1,229)
Undistributed ordinary income............................... 19,535 20,025 231 7,508
Undistributed long-term gain/(loss)......................... 37,770 63,115 (6,541) 2,088
-------- ---------- ------- -------
Distributable earnings...................................... $150,769 $ 283,724 $(4,026) $ 8,367
======== ========== ======= =======
</Table>
<Table>
<Caption>
ENHANCED
EMERGING HIGH YIELD INCOME INTERMEDIATE SHORT-TERM
MARKETS FUND BOND FUND FUND BOND FUND BOND FUND
------------ ---------- ------------- ------------- ----------
Cost basis of investments for federal income tax
purposes........................................... $92,298 $371,622 $139,911 $114,865 $95,640
Unrealized appreciation............................. 24,300 4,068 2,279 238 5
Unrealized depreciation............................. (3,977) (9,993) (2,420) (1,875) (3,588)
------- -------- -------- -------- -------
Net unrealized appreciation/(depreciation).......... 20,323 (5,925) (141) (1,637) (3,583)
Undistributed ordinary income....................... 3,968 794 231 500 543
Undistributed long-term gain/(loss)................. 13,704 3,347 13 (8,013) (6,776)
------- -------- -------- -------- -------
Distributable earnings.............................. $37,995 $ (1,784) $ 103 $ (9,150) $(9,816)
======= ======== ======== ======== =======
</Table>
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, book
amortization for premiums, and the realization for tax purposes of unrealized
gains/(losses) on investments in passive foreign investment companies.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under U.S. generally accepted accounting principles and
federal income tax purposes, permanent differences between book and tax
reporting have been identified and appropriately reclassified on the Statement
of Assets and Liabilities.
- --------------------------------------------------------------------------------
98
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
Accordingly, the following amounts represent current year permanent
differences that have been reclassified as of October 31, 2005 (in thousands):
<Table>
<Caption>
LARGE CAP LARGE CAP MID-CAP EMERGING HIGH YIELD ENHANCED
BALANCED VALUE GROWTH VALUE MARKETS BOND INCOME
FUND FUND FUND FUND FUND FUND FUND
-------- --------- --------- ------- -------- ---------- --------
Paid-in-capital....................... $(763) $ 15 $-- $ -- $ -- $ (5) $ 204
Undistributed net investment income... 867 (133) (3) (23) (33) -- 13
Accumulated net realized gain
(loss)............................... (104) 118 3 23 33 5 (217)
Unrealized appreciation (depreciation)
of investments, futures contracts and
foreign currency..................... -- -- -- -- -- -- --
<Caption>
INTERMEDIATE SHORT-TERM
BOND BOND
FUND FUND
------------ ----------
Paid-in-capital....................... $ -- $ (432)
Undistributed net investment income... 266 1,116
Accumulated net realized gain
(loss)............................... (266) (684)
Unrealized appreciation (depreciation)
of investments, futures contracts and
foreign currency..................... -- --
</Table>
At October 31, 2005, capital loss carryforward positions for federal income
tax purposes were as follows (in thousands):
<Table>
<Caption>
FUND 2006 2007 2008 2009 2010 2011 2012 2013 TOTAL
- ---- ---- ----- ----- ---- ----- ---- ---- ----- -----
Large Cap Growth...................................... -- -- -- -- 5,867 674 -- -- 6,541
Intermediate Bond..................................... -- -- 7,367 -- 328 -- -- 318 8,013
Short-Term Bond....................................... 437 1,991 1,218 -- 913 161 800 1,256 6,776
</Table>
Net capital loss carryovers utilized for the year ended October 31, 2005
are as follows: Large Cap Value Fund $4,106, Large Cap Growth Fund $3,296, and
Enhanced Income Fund $340. The Short-Term Bond Fund had $433 of expired capital
loss carryovers.
4. INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales and maturities of long-term
investments during the year ended October 31, 2005 were as follows (in
thousands):
<Table>
<Caption>
LARGE CAP LARGE CAP MID-CAP EMERGING HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM
BALANCED VALUE GROWTH VALUE MKT BOND INCOME BOND BOND
-------- --------- --------- -------- -------- ---------- -------- ------------ ----------
Purchases (excluding
U.S. government
securities)........ $354,979 $773,472 $94,944 $124,462 $69,379 $454,865 $40,918 $75,745 $28,775
Sales and maturities
(excluding U.S.
government
securities)........ 303,036 269,075 94,284 106,916 62,389 473,533 44,119 84,423 33,148
Purchases of U.S.
government
securities......... 159,388 -- -- -- -- -- 11,502 35,681 3,965
Sales and maturities
of U.S. government
securities......... 110,237 -- -- -- -- -- 501 29,893 --
</Table>
- --------------------------------------------------------------------------------
99
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
A summary of the Funds' direct transactions in Affiliated Funds for the
year ended October 31, 2005 is set forth below (in thousands):
<Table>
<Caption>
OCTOBER 31, 2004 OCTOBER 31, 2005
FUND AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
- ---- ----------- ------------------- ---------- ---------- -------------------
Balanced....................... Select Fund $45,118 $ 522,992 $ 511,120 $ 56,990
Large Cap Value................ Select Fund 37,721 1,364,599 1,238,472 163,848
Large Cap Growth............... Select Fund 4,309 42,238 43,348 3,199
Mid-Cap Value.................. Select Fund 5,810 302,839 306,162 2,487
Emerging Markets............... Select Fund 11,076 74,200 81,577 3,699
High Yield Bond................ Select Fund 23,672 253,931 269,336 8,267
Enhanced Income................ Select Fund 442 57,705 53,959 4,188
Intermediate Bond.............. Select Fund 2,767 78,390 77,845 3,312
Short Term Bond................ Select Fund 1,683 41,267 40,870 2,080
</Table>
5. SECURITIES LENDING
Each 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 or 105% of the
fair value of international securities loaned. Collateral is marked to market
and monitored daily. To the extent that a loan is collateralized by cash, such
collateral shall be invested by the securities lending agent (the "Agent") in
short-term instruments, money market mutual funds, and such other short-term
investments, provided the investments meet certain quality and diversification
requirements.
Income generated from the investment of cash collateral, less negotiated
rebate fees paid to participating brokers and transaction costs, is divided
between the Fund and the Agent and is recorded as income for the Fund. To the
extent that a loan is secured by non-cash collateral, brokers pay the Fund
negotiated lenders' fees, which are divided between the Fund and the Agent and
are recorded as securities lending income for the Fund. The Fund also continues
to receive income on the securities loaned, and any gain or loss in the market
price of securities loaned that may occur during the term of the loan.
Risks to the Fund in securities lending transactions are that the borrower
may not provide additional collateral when required or return the securities
when due, and that the value of the short-term investments will be less than the
amount of cash collateral required to be returned to the borrower.
- --------------------------------------------------------------------------------
100
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
At October 31, 2005, the value of outstanding securities on loan and the
value of collateral was as follows (in thousands):
<Table>
<Caption>
MARKET VALUE OF
FUND SECURITIES ON LOAN CASH COLLATERAL
- ---- ------------------ ---------------
Balanced.................................................... $120,757 $122,937
Large Cap Value............................................. 113,406 115,545
Large Cap Growth............................................ 250 251
Mid-Cap Value............................................... 9,237 9,393
Emerging Markets............................................ 6,769 6,891
High Yield Bond............................................. 35,253 36,110
Enhanced Income............................................. 27,603 28,134
Intermediate Bond........................................... 19,548 19,939
Short Term Bond............................................. 4,521 4,615
</Table>
Cash collateral for each Fund, other than High Yield Bond, was invested in
the Business Trust and the Select Fund. These amounts have been included as
investments in each Fund's Schedule of Investments and Statements of Assets and
Liabilities. Income earned on these investments is reported as Income derived
from securities lending in the Statements of Operations.
Non-Cash collateral received by the Funds may not be sold or repledged;
therefore, non-cash collateral is not included on the Funds' Schedule of
Investments or Statement of Assets and Liabilities.
6. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares for each Class of
the Funds (shares and dollars in thousands):
Period Ended October 31, 2005
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
-------------------- ------------------- ------------------ -------------------
BALANCED FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------- -------- -------- ------ --------- ------ --------- ------- ---------
Shares sold.............. 404 $6,028 5,096 $ 71,560 -- $ 1 11,920 $ 170,034
Reinvestment of
dividends.............. 32 459 108 1,484 -- -- 2,736 38,142
Shares redeemed.......... (80) (1,192) (671) (9,463) -- -- (11,427) (164,434)
------ ------ ------ --------- ------ --------- ------- ---------
Net increase in shares
outstanding............ 356 $5,295 4,533 $ 63,581 -- $ 1 3,229 $ 43,742
====== ====== ====== ========= ====== ========= ======= =========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
-------------------- ------------------ ------------------- -------------------
LARGE CAP VALUE FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------ -------- ------ --------- ------- ---------
Shares sold.............. 8,194 $167,141 25,447 $500,989 589 $ 11,617 12,849 $ 256,467
Reinvestment of
dividends.............. 25 496 58 1,105 -- -- 592 11,555
Shares redeemed.......... (1,299) (26,180) (2,332) (45,952) (13) (261) (11,251) (227,483)
------ -------- ------ -------- ------ --------- ------- ---------
Net increase in shares
outstanding............ 6,920 $141,457 23,173 $456,142 576 11,356 2,190 $ 40,539
====== ======== ====== ======== ====== ========= ======= =========
</Table>
- --------------------------------------------------------------------------------
101
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS AMR CLASS
-------------------- ------------------
LARGE CAP GROWTH FUND SHARES AMOUNT SHARES AMOUNT
- --------------------- ------- --------- ------ --------
Shares sold.................................... 17 $ 102 6,502 $ 39,610
Reinvestment of dividends...................... -- -- 76 474
Shares redeemed................................ -- -- (5,843) (35,633)
------- --------- ------ --------
Net decrease in shares outstanding............. 17 $ 102 735 $ 4,451
======= ========= ====== ========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------
MID CAP VALUE FUND SHARES AMOUNT
- ------------------ ------- ---------
Shares sold.................................... 14,157 $ 164,231
Reinvestment of dividends...................... 11 118
Shares redeemed*............................... (12,873) (153,358)
------- ---------
Net increase (decrease) in shares
outstanding.................................. 1,295 $ 10,991
======= =========
</Table>
* Net of redemption fees
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- ---------------- ------------------
EMERGING MARKETS FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- --------------------- ------- --------- ------ ------ ------- --------
Shares sold.................................... 164 $ 2,342 187 $2,602 2,688 $ 36,989
Reinvestment of dividends...................... 54 706 7 88 575 7,462
Shares redeemed*............................... (176) (2,291) (118) (1,644) (2,858) (41,144)
------- --------- ------ ------ ------- --------
Net increase (decrease) in shares
outstanding.................................. 42 $ 757 76 $1,046 405 $ 3,307
======= ========= ====== ====== ======= ========
</Table>
* Net of redemption fees
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS
-------------------- ------------------ ----------------
HIGH YIELD BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------ -------- ------- ------
Shares sold.................................... 9,936 $ 104,727 5,626 $ 59,314 -- $ 4
Reinvestment of dividends...................... 1,682 17,740 1,216 12,834 -- --
Shares redeemed................................ (12,669) (133,918) (8,714) (90,501) (1) (7)
------- --------- ------ -------- ------- ------
Net increase (decrease) in shares
outstanding.................................. (1,051) $ (11,451) (1,872) $(18,353) (1) $ (3)
======= ========= ====== ======== ======= ======
</Table>
<Table>
<Caption>
PLANAHEAD CLASS
--------------------
ENHANCED INCOME FUND SHARES AMOUNT
- -------------------- ------- ---------
Shares sold.................................... 3,082 $ 31,229
Reinvestment of dividends...................... 346 3,496
Shares redeemed................................ (2,400) (24,206)
------- ---------
Net increase in shares outstanding............. 1,028 $ 10,519
======= =========
</Table>
<Table>
<Caption>
INSTITUTIONAL
INSTITUTIONAL CLASS CLASS (FORMERLY
(TERMINATED AMR CLASS
3/1/05)* PLANAHEAD CLASS THROUGH 3/1/05)
-------------------- ---------------- ------------------
INTERMEDIATE BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------- ------- --------- ------ ------ ------- --------
Shares sold.................................... -- $ -- 18 $ 181 4,580 $ 46,881
Reinvestment of dividends...................... 1 11 4 38 408 4,163
Shares redeemed................................ (88) (912) (22) (222) (4,980) (50,899)
------- --------- ------ ------ ------- --------
Net increase (decrease) in shares
outstanding.................................. (87) $ (901) -- $ (3) 8 $ 145
======= ========= ====== ====== ======= ========
</Table>
* Activity is for the period from November 1, 2004 through February 28, 2005
- --------------------------------------------------------------------------------
102
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL
INSTITUTIONAL CLASS CLASS (FORMERLY
(TERMINATED AMR CLASS
3/1/05)* PLANAHEAD CLASS THROUGH 3/1/05)
------------------- ----------------- ------------------
SHORT-TERM BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- -------- ------ ------- ------- --------
Shares sold....................................... 110 $ 982 581 $ 5,167 3,008 $ 26,682
Reinvestment of dividends......................... 5 46 32 288 412 3,660
Shares redeemed................................... (481) (4,291) (491) (4,384) (3,193) (28,344)
------ ------- ------ ------- ------- --------
Net increase (decrease) in shares outstanding..... (366) $(3,263) 122 $ 1,071 227 $ 1,998
====== ======= ====== ======= ======= ========
</Table>
* Activity is for the period from November 1, 2004 through February 28, 2005
Period Ended October 31, 2004
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
------------------- ------------------- ------------------
BALANCED FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------- ------- -------- ------ --------- ------- --------
Shares sold....................................... 120 $ 1,646 943 $ 12,438 4,313 $ 57,449
Reinvestment of dividends......................... 16 211 28 351 1,225 15,797
Shares redeemed................................... (246) (3,383) (461) (6,099) (3,888) (51,664)
------ ------- ------ --------- ------- --------
Net increase (decrease) in shares outstanding..... (110) $(1,526) 510 $ 6,690 1,650 $ 21,582
====== ======= ====== ========= ======= ========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
------------------- ------------------- ------------------
LARGE CAP VALUE FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- -------- ------ --------- ------- --------
Shares sold...................................... 1,678 $29,357 2,166 $ 36,511 4,775 $ 82,425
Reinvestment of dividends........................ 12 190 21 341 717 11,675
Shares redeemed.................................. (537) (9,282) (669) (11,207) (5,644) (97,128)
------ ------- ------ --------- ------- --------
Net increase (decrease) in shares outstanding.... 1,153 $20,265 1,518 $ 25,645 (152) $ (3,028)
====== ======= ====== ========= ======= ========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS AMR CLASS
-------------------- ------------------
LARGE CAP GROWTH FUND SHARES AMOUNT SHARES AMOUNT
- --------------------- -------- -------- ------ --------
Shares sold..................................... -- $ -- 4,375 $ 25,454
Reinvestment of dividends....................... -- -- 27 151
Shares redeemed................................. -- -- (3,880) (22,559)
------ ------ ------ --------
Net increase in shares outstanding.............. -- $ -- 522 $ 3,046
====== ====== ====== ========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
MID-CAP VALUE FUND SHARES AMOUNT
- ------------------ ------- --------
Shares sold..................................... 2,646 $26,544
Reinvestment of dividends....................... -- --
Shares redeemed................................. (158) (1,560)
------ -------
Net increase in shares outstanding.............. 2,488 $24,984
====== =======
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- ----------------- -----------------
EMERGING MARKETS FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- --------------------- -------- -------- ------ ------- ------- -------
Shares sold....................................... 254 $3,097 158 $ 1,907 3,200 $38,765
Reinvestment of dividends......................... 2 20 -- 3 37 415
Shares redeemed*.................................. (15) (170) (108) (1,304) (2,219) (25,975)
------ ------ ------ ------- ------- -------
Net increase in shares outstanding................ 241 $2,947 50 $ 606 1,018 $13,205
====== ====== ====== ======= ======= =======
</Table>
* Net of Redemption Fees
- --------------------------------------------------------------------------------
103
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS
-------------------- ------------------ ----------------
HIGH YIELD BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------ -------- ------- ------
Shares sold....................................... 13,551 $144,793 6,516 $ 69,764 --* $ 3
Reinvestment of dividends......................... 1,211 12,997 786 8,426 -- --
Shares redeemed................................... (7,537) (80,955) (5,361) (57,514) -- --
------ -------- ------ -------- ------- ------
Net increase in shares outstanding................ 7,225 $ 76,835 1,941 $ 20,676 -- $ 3
====== ======== ====== ======== ======= ======
</Table>
* Rounded shares less than 1,000
<Table>
<Caption>
PLANAHEAD CLASS
------------------
ENHANCED INCOME FUND SHARES AMOUNT
- -------------------- ------ --------
Shares sold...................................... 2,177 $ 21,940
Reinvestment of dividends........................ 217 2,192
Shares redeemed.................................. (2,316) (23,331)
------ --------
Net increase in shares outstanding............... 78 $ 801
====== ========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- ---------------- ------------------
INTERMEDIATE BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------- -------- -------- ------ ------ ------- --------
Shares sold....................................... 1 $ 13 13 $ 134 3,058 $ 31,418
Reinvestment of dividends......................... 3 33 4 42 494 5,071
Shares redeemed................................... (16) (168) (48) (491) (7,119) (72,765)
------ ------ ------ ------ ------- --------
Net decrease in shares outstanding................ (12) $ (122) (31) $ (315) (3,567) $(36,276)
====== ====== ====== ====== ======= ========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- ----------------- ------------------
SHORT-TERM BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- -------- -------- ------ ------- ------- --------
Shares sold....................................... 31 $ 282 1,029 $ 9,534 1,071 $ 9,815
Reinvestment of dividends......................... 15 140 32 293 456 4,193
Shares redeemed................................... (82) (755) (825) (7,622) (2,527) (23,268)
------ ------ ------ ------- ------- --------
Net increase (decrease) in shares outstanding..... (36) $ (333) 236 $ 2,205 (1,000) $ (9,260)
====== ====== ====== ======= ======= ========
</Table>
- --------------------------------------------------------------------------------
104
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
105
AMERICAN BEACON BALANCED FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------
2005 2004 2003 2002 2001(C D F)
------- ------- ------- ------ -----------
Net asset value, beginning of period........................ $ 14.31 $ 12.99 $ 10.97 $12.07 $ 12.27
------- ------- ------- ------ --------
Income from investment operations:
Net investment income(A) (B)............................ 0.36 0.29 0.31(G) 0.11 0.51
Net gains (losses) on securities (both realized and
unrealized)(B)........................................ 1.11 1.36 1.84(G) (0.69) (0.03)
------- ------- ------- ------ --------
Total income (loss) from investment operations.............. 1.47 1.65 2.15 (0.58) 0.48
------- ------- ------- ------ --------
Less distributions:
Dividends from net investment income.................... (0.31) (0.33) (0.13) (0.44) (0.68)
Distributions from net realized gains on securities..... (0.47) -- -- (0.08) --
------- ------- ------- ------ --------
Total distributions......................................... (0.78) (0.33) (0.13) (0.52) (0.68)
------- ------- ------- ------ --------
Net asset value, end of period.............................. $ 15.00 $ 14.31 $ 12.99 $10.97 $ 12.07
======= ======= ======= ====== ========
Total return................................................ 10.53% 10.53% 19.77% (5.14)% 4.07%
======= ======= ======= ====== ========
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $14,122 $ 8,378 $ 9,041 $8,994 $157,775
Ratios to average net assets (annualized):
Expenses, net of waivers(B)........................... 0.56% 0.63% 0.63% 0.62% 0.62%
Expenses before waivers(B)............................ 0.56% 0.63% 0.63% 0.62% 0.62%
Net investment income, net of waivers(B).............. 2.45% 2.15% 2.74% 3.12% 3.56%
Net investment income (loss), before waivers(B)....... 2.45% 2.15% 2.74% 3.12% 3.56%
Portfolio turnover rate(E).............................. 58% 62% 69% 84% 122%
</Table>
- ---------------
(A) Class expenses per share were subtracted from net investment income per
share for the Fund before class expenses to determine net investment income
per share.
(B) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the AMR Investment Services Balanced Portfolio through February 28, 2002.
(C) On September 7, 2001, American Beacon Advisors, Inc. assumed management of
the fixed income portion of the Balanced Fund's assets previously managed
by Merrill Lynch Investment Managers, L.P.
(D) On October 9, 2001, Hotchkis and Wiley Capital Management, LLC assumed
management of the equity portion of the Balanced Fund's assets previously
managed by Merrill Lynch Investment Managers, L.P.
(E) The Balanced Fund invested all of its investable assets in its
corresponding Portfolio through February 28, 2002. Portfolio turnover rate
through February 28, 2002 was that of the Portfolio.
(F) Independence Investment LLC was removed as an investment advisor to the
Balanced Fund on November 30, 2000.
(G) For the year ended October 31, 2003, the net investment income and net
gains (losses) on securities (both realized and unrealized) has been
restated from 0.30 and 1.85, respectively for Institutional Class and 0.36
and 1.66, respectively for PlanAhead Class.
(H) Not annualized.
(I) Annualized.
(J) Portfolio turnover rate is for the period from November 1, 2004 through
October 31, 2005.
- --------------------------------------------------------------------------------
106
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS SERVICE CLASS AMR CLASS
--------------------------------------------------------------- ------------- -------------------------
YEAR ENDED OCTOBER 31, MAY 31 TO YEAR ENDED OCTOBER 31,
--------------------------------------------------------------- OCTOBER 31, -------------------------
2005 2004 2003 2002 2001(C D F) 2005 2005 2004
------- ------- ------- ------- ----------- ------------- -------- --------
$ 13.62 $ 12.40 $ 10.81 $ 11.88 $ 12.08 $ 13.96 $ 13.87 $ 12.60
------- ------- ------- ------- ------- ------------- -------- --------
0.34 0.27 0.28(G) 0.41 0.51 0.09 0. 39 0.32
1.01 1.25 1.74(G) (0.99) (0.06) 0.11 1.05 1.31
------- ------- ------- ------- ------- ------------- -------- --------
1.35 1.52 2.02 (0.58) 0.45 0.20 1.44 1.63
------- ------- ------- ------- ------- ------------- -------- --------
(0.30) (0.30) (0.43) (0.41) (0.65) -- (0.35) (0.36)
(0.47) -- -- (0.08) -- -- (0.47) --
------- ------- ------- ------- ------- ------------- -------- --------
(0.77) (0.30) (0.43) (0.49) (0.65) -- (0.82) (0.36)
------- ------- ------- ------- ------- ------------- -------- --------
$ 14.20 $ 13.62 $ 12.40 $ 10.81 11.88 $ 14.16 $ 14.49 $ 13.87
======= ======= ======= ======= ======= ============= ======== ========
10.12% 12.44% 19.36% (5.18)% 3.84% 1.43%(H) 10.63% 13.13%
======= ======= ======= ======= ======= ============= ======== ========
$86,875 $21,571 $13,321 $10,561 $12,176 $ 1 $712,073 $636,420
0.86% 0.93% 0.94% 0.90% 0.84% 1.09%(I) 0.33% 0.37%
0.86% 0.93% 0.94% 0.90% 0.84% 360.24%(I) 0.33% 0.37%
2.14% 1.84% 2.40% 2.83% 3.29% 1.52%(I) 2.70% 2.40%
2.14% 1.84% 2.40% 2.83% 3.29% (357.63)%(I) 2.70% 2.40%
58% 62% 69% 84% 122% 58%(J) 58% 62%
<Caption>
AMR CLASS
---------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------
2003 2002 2001(C D F)
-------- -------- -----------
$ 10.98 $ 12.06 $ 12.27
-------- -------- --------
0.34 0.48 0.56
1.78 (1.01) (0.05)
-------- -------- --------
2.12 (0.53) 0.51
-------- -------- --------
(0.50) (0.47) (0.72)
-- (0.08) --
-------- -------- --------
(0.50) (0.55) (0.72)
-------- -------- --------
$ 12.60 $ 10.98 $ 12.06
======== ======== ========
20.06% (4.71)% 4.38%
======== ======== ========
$557,612 $487,526 $526,405
0.38% 0.35% 0.36%
0.38% 0.35% 0.36%
2.98% 3.39% 3.77%
2.98% 3.39% 3.77%
69% 84% 122%
</Table>
- --------------------------------------------------------------------------------
107
AMERICAN BEACON LARGE CAP VALUE FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------
2005 2004 2003 2002 2001(B D)
-------- ------- ------- ------- ---------
Net asset value, beginning of period.............. $ 18.23 $ 15.62 $ 12.55 $ 14.51 $ 15.83
-------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss)(A C)............. 0.28 0.26 0.25(F) 0.27 0.28
Net gains (losses) on securities (both
realized and unrealized)(C)................. 2.74 2.62 3.11(F) (1.76) (0.61)
-------- ------- ------- ------- -------
Total income (loss) from investment operations.... 3.02 2.88 3.36 (1.49) (0.33)
-------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income.......... (0.25) (0.27) (0.29) (0.30) (0.50)
Distributions from net realized gains on
securities.................................. -- -- -- (0.17) (0.49)
-------- ------- ------- ------- -------
Total distributions............................... (0.25) (0.27) (0.29) (0.47) (0.99)
-------- ------- ------- ------- -------
Net asset value, end of period.................... $ 21.00 $ 18.23 $ 15.62 $ 12.55 $ 14.51
======== ======= ======= ======= =======
Total return...................................... 16.64% 18.59% 27.30% (10.83)% (2.21)%
======== ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)...... $201,111 $48,451 $23,512 $21,589 $10,081
Ratios to average net assets (annualized):
Expenses, net of waivers(C)................. 0.60% 0.66% 0.66% 0.61% 0.64%
Expenses, before waivers(C)................. 0.60% 0.66% 0.66% 0.61% 0.64%
Net investment income, net of waivers(C).... 1.58% 1.49% 1.88% 1.82% 1.76%
Net investment income, before waivers(C).... 1.58% 1.49% 1.88% 1.82% 1.76%
Portfolio turnover rate(E).................... 25% 29% 27% 34% 60%
</Table>
- ---------------
(A) Class expenses per share were subtracted from net investment income per
share for the Fund before class expenses to determine net investment income
per share.
(B) On October 9, 2001, Hotchkis and Wiley Capital Management, LLC assumed
management of the Large Cap Value Fund's assets previously managed by
Merrill Lynch Investment Managers, L.P.
(C) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the AMR Investment Services Large Cap Value Portfolio through February 28,
2002.
(D) Metropolitan West Capital Management, LLC replaced Independence Investment
LLC as investment advisor to the Large Cap Value Fund on December 1, 2000.
(E) The Large Cap Value Fund invested all of its investable assets in its
corresponding Portfolio through February 28, 2002. Portfolio turnover rate
through February 28, 2002 was that of the Portfolio.
(F) For the year ended October 31, 2003, the net investment income and net
gains (losses) on securities (both realized and unrealized) has been
restated from 0.20 and 3.16, respectively for Institutional Class and 0.10
and 3.11, respectively for PlanAhead Class.
(G) Not annualized.
(H) Annualized.
(I) Portfolio turnover rate is for the period from November 1, 2004 through
October 31, 2005.
- --------------------------------------------------------------------------------
108
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS SERVICE CLASS
-------------------------------------------------- --------------
YEAR ENDED OCTOBER 31, MAY 31 TO
- ------------------------------------------------------ OCTOBER 31,
2005 2004 2003 2002 2001(B D) 2005
-------- ------- ------- ------- --------- --------------
$ 17.54 $ 15.05 $ 12.09 $ 14.00 $ 15.40 $ 19.33
-------- ------- ------- ------- -------- --------
0.27 0.23 0.22(F) 0.25 0.26 0.01
2.58 2.49 2.99(F) (1.74) (0.62) 0.79
-------- ------- ------- ------- -------- --------
2.85 2.72 3.21 (1.49) (0.36) 0.80
-------- ------- ------- ------- -------- --------
(0.23) (0.23) (0.25) (0.25) (0.55) --
-- -- -- (0.17) (0.49) --
-------- ------- ------- ------- -------- --------
(0.23) (0.23) (0.25) (0.42) (1.04) --
-------- ------- ------- ------- -------- --------
$ 20.16 $ 17.54 $ 15.05 $ 12.09 $ 14.00 $ 20.13
======== ======= ======= ======= ======== ========
16.33% 18.26% 26.99% (11.13)% (2.47)% 4.14%(G)
======== ======= ======= ======= ======== ========
$526,357 $51,489 $21,331 $15,941 $ 12,280 $ 11,604
0.86% 0.94% 0.95% 0.93% 0.89% 1.14%(H)
0.86% 0.94% 0.95% 0.93% 0.89% 1.77%(H)
1.30% 1.21% 1.57% 1.53% 1.54% 1.72%(H)
1.30% 1.21% 1.57% 1.53% 1.54% 1.09%(H)
25% 29% 27% 34% 60% 25%(I)
<Caption>
AMR CLASS
-----------------------------------------------------
YEAR ENDED OCTOBER 31,
- --- -----------------------------------------------------
2005 2004 2003 2002 2001(B D)
-------- -------- -------- -------- ---------
$ 18.02 $ 15.44 $ 12.40 $ 14.34 $ 15.75
-------- -------- -------- -------- --------
0.31 0.30 0.29 0.31 0.34
2.73 2.58 3.06 (1.75) (0.63)
-------- -------- -------- -------- --------
3.04 2.88 3.35 (1.44) (0.29)
-------- -------- -------- -------- --------
(0.28) (0.30) (0.31) (0.33) (0.63)
-- -- -- (0.17) (0.49)
-------- -------- -------- -------- --------
(0.28) (0.30) (0.31) (0.50) (1.12)
-------- -------- -------- -------- --------
$ 20.78 $ 18.02 $ 15.44 $ 12.40 $ 14.34
======== ======== ======== ======== ========
16.95% 18.89% 27.64% (10.62)% (1.98)%
======== ======== ======== ======== ========
$848,219 $696,206 $598,869 $511,287 $654,239
0.35% 0.39% 0.36% 0.36% 0.36%
0.35% 0.39% 0.36% 0.36% 0.36%
1.87% 1.79% 2.13% 2.06% 2.09%
1.87% 1.79% 2.13% 2.06% 2.09%
25% 29% 27% 34% 60%
</Table>
- --------------------------------------------------------------------------------
109
AMERICAN BEACON LARGE CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------
2005 2004 2003 2002 2001
-------- --------- ------- -------- --------
Net asset value, beginning of period.................. $ 5.82 $ 5.47 $ 4.53 $ 5.66 $ 9.54
-------- --------- ------- -------- --------
Income from investment operations:
Net investment income (loss)(A)................... 0.04 0.02 0.02 0.03 (0.01)
Net gains (losses) on securities (both realized
and unrealized)(A).............................. 0.37 0.35 0.94 (1.16) (3.86)
-------- --------- ------- -------- --------
Total income (loss) from investment operations........ 0.41 0.37 0.96 (1.13) (3.87)
-------- --------- ------- -------- --------
Less distributions:
Dividends from net investment income.............. (0.05) (0.02) (0.02) -- (0.01)
-------- --------- ------- -------- --------
Total distributions................................... (0.05) (0.02) (0.02) -- (0.01)
-------- --------- ------- -------- --------
Net asset value, end of period........................ $ 6.18 $ 5.82 $ 5.47 $ 4.53 $ 5.66
======== ========= ======= ======== ========
Total return.......................................... 7.06% 6.71% 21.15% (19.96)% (40.62)%
======== ========= ======= ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands).......... $ 105 $ 1 $ 1 $ 1 $ 1
Ratios to average net assets (annualized)(A):
Expenses, net of waivers........................ 0.89% 0.84% 0.87% 0.87% 0.99%
Expenses, before waivers........................ 4.64% 13.22% 0.87% 0.87% 101%
Net investment income (loss), net of waivers.... (0.18)% 0.18% 0.18% 0.06% (0.26)%
Net investment income (loss), before waivers.... (3.93)% (12.20)% 0.18% 0.06% (0.28)%
Portfolio turnover rate(B)........................ 164% 131% 138% 135% 85%
</Table>
- ---------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the AMR Investment Services Large Cap Growth Portfolio through February 28,
2001.
(B) The Large Cap Growth Fund invested all of its investable assets in its
corresponding Portfolio through February 28, 2001. Portfolio turnover rate
through February 28, 2001 was that of the Portfolio.
- --------------------------------------------------------------------------------
110
- --------------------------------------------------------------------------------
<Table>
<Caption>
AMR CLASS
---------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
2005 2004 2003 2002 2001
------- ------- ------- ------- -------
$ 5.84 $ 5.48 $ 4.54 $ 5.67 $ 9.55
------- ------- ------- ------- -------
0.06 0.02 0.02 0.02 0.01
0.36 0.36 0.93 (1.14) (3.87)
------- ------- ------- ------- -------
0.42 0.38 0.95 (1.12) (3.86)
------- ------- ------- ------- -------
(0.05) (0.02) (0.01) (0.01) (0.02)
------- ------- ------- ------- -------
(0.05) (0.02) (0.01) (0.01) (0.02)
------- ------- ------- ------- -------
$ 6.21 $ 5.84 $ 5.48 $ 4.54 $ 5.67
======= ======= ======= ======= =======
7.22% 6.88% 21.09% (19.85)% (40.51)%
======= ======= ======= ======= =======
$63,183 $55,121 $48,926 $28,017 $23,804
0.64% 0.71% 0.68% 0.67% 0.70%
0.64% 0.71% 0.68% 0.67% 0.72%
0.98% 0.34% 0.40% 0.30% 0.08%
0.98% 0.34% 0.40% 0.30% 0.06%
164% 131% 138% 135% 85%
</Table>
- --------------------------------------------------------------------------------
111
AMERICAN BEACON MID-CAP VALUE FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------
YEAR ENDED JUNE 30 TO
OCTOBER 31, OCTOBER 31,
2005 2004
----------- -----------
Net asset value, beginning of period........................ $ 10.27 $ 10.00
------- -------
Income from investment operations:
Net investment income................................... 0.13 0.02(B)
Net gains on securities (both realized and
unrealized)............................................ 1.37 0.25
------- -------
Total income from investment operations..................... 1.50 0.27
------- -------
Less distributions:
Dividends from net investment income.................... (0.05) --
Distributions from net realized gains on securities..... -- --
------- -------
Total distributions......................................... (0.05) --
------- -------
Net asset value, end of period.............................. $ 11.72 $ 10.27
======= =======
Total return................................................ 14.63% 2.70%(A)
======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $44,342 $25,546
Ratios to average net assets (annualized):
Expenses, net of waivers.............................. 1.01% 1.14%(C)
Expenses, before waivers.............................. 1.02% 1.34%(C)
Net investment income, net of waivers................. 0.92% 0.73%(C)
Net investment income, before waivers................. 0.91% 0.53%(C)
Portfolio turnover rate................................. 298% 6%(A)
</Table>
- ---------------
(A) Not annualized.
(B) Based on average shares outstanding.
(C) Annualized.
- --------------------------------------------------------------------------------
112
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
113
AMERICAN BEACON EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------
2005 2004 2003 2002 2001
------- ------- ------- ------ --------
Net asset value, beginning of period........................ $ 12.64 $ 10.62 $ 7.20 $ 6.64 $ 8.17
------- ------- ------- ------ --------
Income from investment operations:
Net investment income(A)................................ 0.15 0.07 0.04 0.09 0.11
Net gains (losses) on securities (both realized and
unrealized)(A)........................................ 3.45 2.01 3.43 0.56 (1.62)
------- ------- ------- ------ --------
Total income (loss) from investment operations.............. 3.60 2.08 3.47 0.65 (1.51)
------- ------- ------- ------ --------
Less distributions:
Dividends from net investment income.................... (0.06) (0.06) (0.05) (0.09) (0.01)
Distributions from net realized gains on securities..... (1.08) -- -- -- (0.01)
------- ------- ------- ------ --------
Total distributions......................................... (1.14) (0.06) (0.05) (0.09) (0.02)
------- ------- ------- ------ --------
Redemption fees added to beneficial interests --(E) --(E) -- -- --
------- ------- ------- ------ --------
Net asset value, end of period.............................. $ 15.10 $ 12.64 $ 10.62 $ 7.20 $ 6.64
======= ======= ======= ====== ========
Total return................................................ 30.11% 19.65% 48.45% 9.80% (18.52)%
======= ======= ======= ====== ========
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $ 9,348 $ 7,282 $ 3,557 $1,769 $ 1,495
Ratios to average net assets (annualized):
Expenses, net of waivers(A)........................... 1.52% 1.85% 1.76% 1.51% 1.43%
Expenses, before waivers(A)........................... 1.52% 1.85% 1.76% 1.51% 1.43%
Net investment income (loss), net of waivers(A)....... 1.22% 0.74% 0.62% 1.11% 2.07%
Net investment income (loss), before waivers(A)....... 1.22% 0.74% 0.62% 1.11% 2.07%
Portfolio turnover rate(B).............................. 63% 76% 80% 94% 95%
</Table>
- ---------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the AMR Investment Services Emerging Markets Portfolio through February 28,
2002.
(B) The Emerging Markets Fund invested all of its investable assets in its
corresponding Portfolio through February 28, 2002. Portfolio turnover rate
through February 28, 2002 was that of the Portfolio.
(C) Not annualized.
(D) Portfolio turnover rate is for the period from November 1, 2001 through
October 31, 2002.
(E) Amounts represent less than $0.01 per share.
(F) Annualized.
- --------------------------------------------------------------------------------
114
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS AMR CLASS
- ----------------------------------------------- ---------------------------------------------------
YEAR ENDED
OCTOBER 31, OCTOBER 1 TO YEAR ENDED OCTOBER 31,
--------------------------- OCTOBER 31, ---------------------------------------------------
2005 2004 2003 2002 2005 2004 2003 2002 2001
------- ------- ------- ------------ ----------- ------- ------- ------- -------
$ 12.53 $ 10.55 $ 7.19 $ 6.86 $ 12.68 $ 10.66 $ 7.22 $ 6.65 $ 8.18
------- ------- ------- -------- ------- ------- ------- ------- -------
0.15 0.04 0.09 -- 0.24 0.10 0.07 0.09 0.13
3.41 1.99 3.34 0.33 3.42 2.00 3.44 0.59 (1.63)
------- ------- ------- -------- ------- ------- ------- ------- -------
3.56 2.03 3.43 0.33 3.66 2.10 3.51 0.68 (1.50)
------- ------- ------- -------- ------- ------- ------- ------- -------
(0.03) (0.05) (0.07) -- (0.09) (0.08) (0.07) (0.11) (0.02)
(1.08) -- -- -- (1.08) -- -- -- (0.01)
------- ------- ------- -------- ------- ------- ------- ------- -------
(1.11) (0.05) (0.07) -- (1.17) (0.08) (0.07) (0.11) (0.03)
------- ------- ------- -------- ------- ------- ------- ------- -------
--(E) --(E) --(E) -- -- -- -- -- --
------- ------- ------- -------- ------- ------- ------- ------- -------
$ 14.98 $ 12.53 $ 10.55 $ 7.19 $ 15.17 $ 12.68 $ 10.66 $ 7.22 $ 6.65
======= ======= ======= ======== ======= ======= ======= ======= =======
29.95% 19.33% 48.07% 4.81%(C) 30.43% 20.00% 48.84% 10.10% (18.40)%
======= ======= ======= ======== ======= ======= ======= ======= =======
$ 2,592 $ 1,214 $ 492 $ 1 $94,864 $74,199 $51,498 $32,731 $20,660
1.75% 2.14% 2.08% 1.87%(F) 1.25% 1.59% 1.50% 1.26% 1.30%
2.01% 2.20% 2.08% 1.87%(F) 1.25% 1.59% 1.50% 1.26% 1.30%
1.16% 0.37% 0.57% (0.25)%(F) 1.60% 1.01% 0.92% 1.35% 1.76%
0.90% 0.31% 0.57% (0.25)%(F) 1.60% 1.01% 0.92% 1.35% 1.76%
63% 76% 80% 94%(D) 63% 76% 80%(C) 94% 95%
</Table>
- --------------------------------------------------------------------------------
115
AMERICAN BEACON HIGH YIELD BOND FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------------------
YEAR ENDED OCTOBER 31, DECEMBER 29, 2000
------------------------------------------ TO OCTOBER 31,
2005 2004 2003 2002 2001
-------- -------- -------- -------- -----------------
Net asset value, beginning of period................. $ 10.86 $ 10.73 $ 9.63 $ 9.82 $ 10.00
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income............................ 0.76 0.78 0.78 0.80 0.71
Net gains (losses) on securities (both realized
and unrealized)................................ (0.84) 0.27 1.10 (0.19) (0.18)
-------- -------- -------- -------- -------
Total income from investment operations.............. (0.08) 1.05 1.88 0.61 0.53
-------- -------- -------- -------- -------
Less distributions:
Dividends from net investment income............. (0.76) (0.78) (0.78) (0.80) (0.71)
Distributions from net realized gains on
securities..................................... 0.20 (0.14) -- -- --
-------- -------- -------- -------- -------
Total distributions.................................. (0.56) (0.92) (0.78) (0.80) (0.71)
-------- -------- -------- -------- -------
Net asset value, end of period....................... $ 10.22 $ 10.86 $ 10.73 $ 9.63 $ 9.82
======== ======== ======== ======== =======
Total return......................................... 3.03%(A) 10.19% 20.11% 6.28% 5.33%(A)
======== ======== ======== ======== =======
Ratios and supplemental data:
Net assets, end of period (in thousands)......... $216,744 $241,777 $161,380 $104,813 $53,275
Ratios to average net assets (annualized):
Expenses, net of waivers....................... 0.84% 0.88% 0.90% 0.90% 0.90%(D)
Expenses, before waivers....................... 0.84% 0.92% 1.00% 0.98% 1.07%(D)
Net investment income, net of waivers.......... 7.24% 7.27% 7.51% 8.02% 8.48%(D)
Net investment income (loss), before waivers... 7.24% 7.23% 7.41% 7.94% 8.31%(D)
Portfolio turnover rate.......................... 128% 138% 114% 163% 145%(A)
</Table>
- ---------------
(A) Not annualized.
(B) Portfolio turnover rate is for the period from November 1, 2001 through
October 31, 2002.
(C) Portfolio turnover rate is for the period from November 1, 2002 through
October 31, 2003.
(D) Annualized.
- --------------------------------------------------------------------------------
116
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS SERVICE CLASS
------------------------------------------------ ---------------------------------------
YEAR ENDED OCTOBER 31, MARCH 1 TO YEAR ENDED OCTOBER 31, MAY 1 TO
---------------------------------- OCTOBER 31, ------------------------- OCTOBER 31,
2005 2004 2003 2002 2005 2004 2003
----------- -------- -------- ----------- ----------- ----------- -----------
$ 10.87 $ 10.73 $ 9.63 $10.10 $ 10.87 $ 10.73 $ 10.47
-------- -------- -------- ------ ------- ---------- ---------
0.74 0.74 0.75 0.50 0.70 0.71 0.29
(0.85) 0.28 1.10 (0.47) (0.45) 0.27 0.26
-------- -------- -------- ------ ------- ---------- ---------
(0.11) 1.02 1.85 0.03 0.25 0.98 0.55
-------- -------- -------- ------ ------- ---------- ---------
(0.74) (0.74) (0.75) (0.50) (0.71) (0.70) (0.29)
0.20 (0.14) -- -- -- (0.14) --
-------- -------- -------- ------ ------- ---------- ---------
(0.54) (0.88) (0.75) (0.50) (0.71) (0.84) (0.29)
-------- -------- -------- ------ ------- ---------- ---------
$ 10.22 $ 10.87 $ 10.73 $ 9.63 $ 10.41 $ 10.87 $ 10.73
======== ======== ======== ====== ======= ========== =========
2.69% 9.94% 19.57% (0.26)%(A) 2.33% 9.41% 5.46%(A)
======== ======== ======== ====== ======= ========== =========
$120,360 $148,266 $125,654 $4,029 $ 1 $ 4 $ 1
1.08% 1.20% 1.24% 1.27%(D) 1.46% 1.57% 1.71%(D)
1.08% 1.20% 1.24% 1.27%(D) 4.01% 440.81% 806.83%(D)
7.00% 6.95% 7.11% 7.20%(D) 6.59% 6.57% 6.51%(D)
7.00% 6.95% 7.11% 7.20%(D) 4.04% (432.67)% (798.61)%(D)
128% 138% 114% 163%(B) 128% 138% 114%(C)
</Table>
- --------------------------------------------------------------------------------
117
AMERICAN BEACON ENHANCED INCOME FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS
---------------------------------------
YEAR ENDED OCTOBER 31, JUNE 30 TO
------------------------- OCTOBER 31,
2005 2004 2003
----------- ----------- -----------
Net asset value, beginning of period........................ $ 10.16 $ 9.96 $ 10.00
-------- -------- --------
Income from investment operations:
Net investment income................................... 0.29 0.26 0.07(B)
Net gains (losses) on securities (both realized and
unrealized)........................................... (0.16) 0.20 (0.04)
-------- -------- --------
Total income from investment operations..................... 0.13 0.46 0.03
-------- -------- --------
Less distributions:
Dividends from net investment income.................... (0.31) (0.26) (0.07)
Distributions from net realized gains on securities..... -- -- --
-------- -------- --------
Total distributions......................................... (0.31) (0.26) (0.07)
-------- -------- --------
Net asset value, end of period.............................. $ 9.98 $ 10.16 $ 9.96
======== ======== ========
Total return................................................ 1.32% 4.70% 0.32%(A)
======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $112,341 $103,897 $101,072
Ratios to average net assets (annualized):
Expenses.............................................. 0.92% 1.00% 0.93%(C)
Net investment income................................. 2.79% 2.54% 2.20%(C)
Portfolio turnover rate................................. 41% 72% 57%(A)
</Table>
- ---------------
(A) Not annualized.
(B) Based on average shares outstanding.
(C) Annualized.
- --------------------------------------------------------------------------------
118
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
119
AMERICAN BEACON INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS (TERMINATED 3/1/05)
----------------------------------------------------
FROM
NOVEMBER 1,
2004 TO YEAR ENDED OCTOBER 31,
FEBRUARY 28, -------------------------------------
2005(D) 2004 2003 2002 2001
------------ ------- ------- ------- -------
Net asset value, beginning of period........................ $ 10.54 $ 10.45 $ 10.42 $ 10.51 $ 9.72
------- ------- ------- ------- -------
Income from investment operations:
Net investment income(A)................................ 0.13 0.37 0.41 0.51 0.57
Net gains (losses) on securities (both realized and
unrealized)(A)........................................ (0.11) 0.14 0.03 (0.09) 0.79
------- ------- ------- ------- -------
Total income from investment operations..................... 0.02 0.51 0.44 0.42 1.36
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income.................... (0.15) (0.42) (0.41) (0.51) (0.57)
Distributions from net realized gains on securities..... -- -- -- -- --
------- ------- ------- ------- -------
Total distributions......................................... (0.15) (0.42) (0.41) (0.51) (0.57)
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 10.41 $ 10.54 $ 10.45 $ 10.42 $ 10.51
======= ======= ======= ======= =======
Total return................................................ 0.17%(C) 4.90% 4.31% 4.21% 14.36%
======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ N/A $ 912 $ 1,024 $74,919 $60,842
Ratios to average net assets (annualized):
Expenses, net of waivers(A)........................... 0.37% 0.80% 0.58% 0.56% 0.54%
Expenses, before waivers(A)........................... 0.37% 0.80% 0.58% 0.56% 0.54%
Net investment income, net of waivers(A).............. 3.82% 3.51% 4.02% 4.99% 5.55%
Net investment income, before waivers(A).............. 3.82% 3.51% 4.02% 4.99% 5.55%
Portfolio turnover rate(B).............................. 119%(E) 106% 187% 185% 164%
</Table>
- ---------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the AMR Investment Services Intermediate Bond Portfolio through February
28, 2002.
(B) The Intermediate Bond Fund invested all of its investable assets in its
corresponding Portfolio through February 28, 2002. Portfolio turnover rate
through February 28, 2002 was that of the Portfolio.
(C) Not annualized.
(D) On March 1, 2005, the existing Institutional Class shares were terminated
and exchanged for AMR Class shares at a conversion rate of 1.0202.
Following this exchange, the former AMR Class Shares were re-named
Institutional Class.
(E) Portfolio turnover rate is for the period November 1, 2004 through October
31, 2005.
- --------------------------------------------------------------------------------
120
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLAN AHEAD CLASS INSTITUTIONAL CLASS (FORMERLY AMR CLASS PRIOR TO 3/1/05)
-------------------------------------------- --------------------------------------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
-------------------------------------------- --------------------------------------------------------
2005 2004 2003 2002 2001 2005(D) 2004 2003 2002 2001
------ ------- ------ ------ ------- --------- --------- --------- --------- --------
$10.41 $ 10.31 $10.27 $10.34 $ 9.57 $ 10.33 $ 10.24 $ 10.22 $ 10.30 $ 9.53
------ ------- ------ ------ ------- -------- -------- -------- -------- -------
0.36 0.35 0.39 0.48 0.53 0.42 0.40 0.45 0.53 0.58
(0.30) 0.14 0.04 (0.07) 0.77 (0.29) 0.14 0.02 (0.08) 0.77
------ ------- ------ ------ ------- -------- -------- -------- -------- -------
0.06 0.49 0.43 0.41 1.30 0.13 0.54 0.47 0.45 1.35
------ ------- ------ ------ ------- -------- -------- -------- -------- -------
(0.39) (0.39) (0.39) (0.48) (0.53) (0.45) (0.45) (0.45) (0.53) (0.58)
-- -- -- -- -- -- -- -- -- --
------ ------- ------ ------ ------- -------- -------- -------- -------- -------
(0.39) (0.39) (0.39) (0.48) (0.53) (0.45) (0.45) (0.45) (0.53) (0.58)
------ ------- ------ ------ ------- -------- -------- -------- -------- -------
$10.08 $ 10.41 $10.31 $10.27 $ 10.34 $ 10.01 $ 10.33 $ 10.24 $ 10.22 $ 10.30
====== ======= ====== ====== ======= ======== ======== ======== ======== =======
0.54% 4.86% 4.25% 4.10% 13.91% 1.26% 5.38% 4.62% 4.57% 14.58%
====== ======= ====== ====== ======= ======== ======== ======== ======== =======
$1,054 $ 1,091 $1,395 $1,691 $ 300 $ 93,270 $ 96,242 $131,927 $144,098 $95,820
0.95% 0.92% 0.86% 0.86% 0.83% 0.31% 0.34% 0.32% 0.30% 0.30%
1.19% 0.93% 0.86% 0.86% 0.83% 0.31% 0.34% 0.32% 0.30% 0.30%
3.48% 3.39% 3.70% 4.60% 5.04% 4.12% 3.97% 4.32% 5.23% 5.84%
3.24% 3.38% 3.70% 4.60% 5.04% 4.12% 3.97% 4.32% 5.23% 5.84%
119% 106% 187% 185% 164% 119% 106% 187% 185% 164%
</Table>
- --------------------------------------------------------------------------------
121
AMERICAN BEACON SHORT-TERM BOND FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS (TERMINATED 3/1/05)
----------------------------------------------------------------------
FROM NOVEMBER 1,
2004 YEAR ENDED OCTOBER 31,
TO FEBRUARY 28, -------------------------------------------
2005(D) 2004 2003 2002 2001
---------------- ------ ------ ------ -------
Net asset value, beginning of period........... $ 9.09 $ 9.32 $ 9.45 $ 9.62 $ 9.21
------ ------ ------ ------ -------
Income from investment operations:
Net investment income(B)................... 0.11 0.24 0.37 0.42 0.57
Net gains (losses) on securities (both
realized and unrealized)(B).............. (0.15) (0.03) (0.04) (0.11) 0.41
------ ------ ------ ------ -------
Total income from investment operations........ (0.04) 0.21 0.33 0.31 0.98
------ ------ ------ ------ -------
Less distributions:
Dividends from net investment income....... (0.13) (0.44) (0.46) (0.48) (0.57)
------ ------ ------ ------ -------
Total distributions............................ (0.13) (0.44) (0.46) (0.48) (0.57)
------ ------ ------ ------ -------
Net asset value, end of period................. $ 8.92 $ 9.09 $ 9.32 $ 9.45 $ 9.62
====== ====== ====== ====== =======
Total return................................... (0.44)%(C) 2.21% 3.58% 3.37% 10.98%
====== ====== ====== ====== =======
Ratios and supplemental data:
Net assets, end of period (in thousands)... N/A $3,324 $3,745 $8,396 $ 4,226
Ratios to average net assets (annualized):
Expenses, net of waivers(B).............. 0.61% 0.62% 0.54% 0.44% 0.51%
Expenses, before waivers(B).............. 0.61% 0.62% 0.54% 0.44% 0.51%
Net investment income, net of waivers
(B).................................... 1.82% 2.72% 4.30% 4.47% 6.06%
Net investment income, before
waivers(B)............................. 1.82% 2.72% 4.30% 4.47% 6.06%
Portfolio turnover rate(A)................. 38%(E) 41% 81% 63% 104%
</Table>
- ---------------
(A) The Short-Term Bond Fund invested all of its investable assets in its
corresponding Portfolio through February 28, 2002. Portfolio turnover rate
through February 28, 2002 was that of the Portfolio.
(B) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the AMR Investment Services Short-Term Bond Portfolio through February 28,
2002.
(C) Not annualized.
(D) On March 1, 2005, the existing Institutional Class shares were terminated
and exchanged for AMR Class shares at a conversion rate of 1.0014.
Following this exchange, the former AMR Class Shares were re-named
Institutional Class.
(E) Portfolio turnover rate is for the period November 1, 2004 through October
31, 2005.
- --------------------------------------------------------------------------------
122
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS INSTITUTIONAL (FORMERLY AMR CLASS PRIOR TO 3/1/05)
--------------------------------------------------- ---------------------------------------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
--------------------------------------------------- ---------------------------------------------------------
2005 2004 2003 2002 2001 2005 2004 2003 2002 2001
------ ------- ------ ------ ------- ------- ----------- ------- ------- -------
$ 9.09 $ 9.33 $ 9.45 $ 9.62 $ 9.21 $ 9.07 $ 9.31 $ 9.44 $ 9.60 $ 9.20
------ ------- ------ ------ ------- ------- ------- ------- ------- -------
0.28 0.25 0.39 0.43 0.55 0.29 0.27 0.42 0.44 0.59
(0.24) (0.07) (0.08) (0.14) 0.41 (0.20) (0.05) (0.07) (0.11) 0.40
------ ------- ------ ------ ------- ------- ------- ------- ------- -------
0.04 0.18 0.31 0.29 0.96 0.09 0.22 0.35 0.33 0.99
------ ------- ------ ------ ------- ------- ------- ------- ------- -------
(0.36) (0.42) (0.43) (0.46) (0.55) (0.41) (0.46) (0.48) (0.49) (0.59)
------ ------- ------ ------ ------- ------- ------- ------- ------- -------
(0.36) (0.42) (0.43) (0.46) (0.55) (0.41) (0.46) (0.48) (0.49) (0.59)
------ ------- ------ ------ ------- ------- ------- ------- ------- -------
$ 8.77 $ 9.09 $ 9.33 $ 9.45 $ 9.62 $ 8.75 $ 9.07 $ 9.31 $ 9.44 $ 9.60
====== ======= ====== ====== ======= ======= ======= ======= ======= =======
0.46% 1.84% 3.38% 3.16% 10.69% 1.00% 2.39% 3.82% 3.60% 11.07%
====== ======= ====== ====== ======= ======= ======= ======= ======= =======
$8,582 $ 7,781 $5,783 $3,520 $ 1,257 $79,683 $80,504 $91,911 $89,932 $81,370
0.87% 0.87% 0.86% 0.73% 0.75% 0.33% 0.33% 0.33% 0.30% 0.33%
0.94% 0.87% 0.86% 0.77% 0.75% 0.33% 0.33% 0.33% 0.30% 0.33%
2.59% 2.44% 4.00% 4.16% 5.76% 3.15% 3.00% 4.54% 4.63% 6.26%
2.52% 2.44% 4.00% 4.12% 5.76% 3.15% 3.00% 4.54% 4.63% 6.26%
38% 41% 81% 63% 104% 38% 41% 81% 63% 104%
</Table>
- --------------------------------------------------------------------------------
123
AMERICAN BEACON FUNDS
FEDERAL TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
For corporate shareholders in the Funds, the percentage of ordinary
dividend income distributed for the year ended October 31, 2005, which is
designated as qualifying for the dividends-received deduction, is as follows
(unaudited):
<Table>
Balanced Fund 41.7%
Large Cap Value Fund 82.1%
Large Cap Growth Fund 94.2%
Mid-Cap Value Fund 69.1%
Emerging Markets Fund 0.1%
Enhanced Income Fund 6.5%
</Table>
For shareholders in the Funds, the percentage of dividend income
distributed for the year ended October 31, 2005, which is designated as
qualified dividend income under the Jobs and Growth Tax Relief Act of 2003, is
as follows (unaudited):
<Table>
Balanced Fund 41.3%
Large Cap Value Fund 100.0%
Large Cap Growth Fund 100.0%
Mid-Cap Value Fund 97.0%
Emerging Markets Fund 100.0%
</Table>
- --------------------------------------------------------------------------------
124
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
(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. Unless otherwise indicated, the address of each person listed below is
4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee
oversees twenty-seven funds in the fund complex that includes the Trust, the
American Beacon Master Trust, the American Beacon Mileage Funds, and the
American Beacon Select Funds. The Trust's Statement of Additional Information
contains additional information about the Trustees and is available without
charge by calling 1-800-658-5811.
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (57) Trustee and President, American Beacon Advisors, Inc. (1986-Present);
President of Chairman (1989-2003) and Director (1979-1986, 2003-Present),
Trust since 1987 American Airlines Federal Credit Union; Director, Crescent
Real Estate Equities, Inc. (1994-Present); Director,
Pritchard, Hubble & Herr, LLC (investment advisor)
(2001-Present); Advisory Director, Southern Methodist
University Endowment Fund (1996-Present); Member, Southern
Methodist University Cox School of Business Advisory Board
(1999-2002); Member, New York Stock Exchange Pension Manager
Committee (1997-1998, 2000-2002); Chairman, Committee for
the Investment of Employee Benefits Defined Benefit
Sub-Committee (1982-Present); Director, United Way of
Tarrant County (1988-2000, 2004-Present); Trustee, American
Beacon Mileage Funds (1995-Present); Trustee, American
Beacon Select Funds (1999-Present); Trustee, American Beacon
Master Trust (1995-Present).
Alan D. Feld** (68) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm)
(1960-Present); Director, Clear Channel Communications
(1984-Present); Trustee, CenterPoint Properties
(1994-Present); Trustee, American Beacon Mileage Funds
(1996-Present); Trustee, American Beacon Select Funds
(1999-Present); Trustee, American Beacon Master Trust
(1996-Present).
NON-INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (61) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund servicing
company) (1998-2003); Board Member, Baylor University
Medical Center Foundation (1992-Present); Trustee, American
Beacon Mileage Funds (2004-Present); Trustee, American
Beacon Select Funds (2004-Present); Trustee, American Beacon
Master Trust (2004-Present).
</Table>
- --------------------------------------------------------------------------------
125
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
NON-INTERESTED TRUSTEES (CONT.)
Brenda A. Cline (44) Trustee since 2004 Vice President, Chief Financial Officer, Treasurer and
301 Commerce Street Secretary, Kimbell Art Foundation (1993-Present); Trustee,
Suite 2240 Texas Christian University (1999-Present); Trustee, W.I.
Fort Worth, Texas 76102 Cook Foundation, Inc. (d/b/a Cook Children's Health
Foundation) (2001-Present); Trustee, American Beacon Mileage
Funds (2004-Present); Trustee, American Beacon Select Funds
(2004-Present); Trustee, American Beacon Master Trust
(2004-Present).
Richard A. Massman (62) Trustee since 2004 Senior Vice President and General Counsel, Hunt
Consolidated, Inc. (holding company engaged in energy, real
estate, farming, ranching and venture capital activities)
(1994-Present); Trustee, American Beacon Mileage Funds
(2004-Present); Trustee, American Beacon Select Funds
(2004-Present); Trustee, American Beacon Master Trust
(2004-Present).
Stephen D. O'Sullivan (70) Trustee of Trust Consultant (1994-Present); Trustee, American Beacon Mileage
since 1987 Funds (1995- Present); Trustee, American Beacon Select Funds
(1999-Present); Trustee, American Beacon Master Trust
(1995-Present).
R. Gerald Turner (59) Trustee since 2001 President, Southern Methodist University (1995-Present);
225 Perkins Admin. Bldg. Director, ChemFirst (1986-2002); Director, J.C. Penney
Southern Methodist Univ. Company, Inc. (1996-Present); Director, California Federal
Dallas, Texas 75275 Preferred Capital Corp. (2001-2003); Director, Kronus
Worldwide Inc. (chemical manufacturing) (2003-Present);
Director, First Broadcasting Investment Partners, LLC
(2003-Present); Member, United Way of Dallas Board of
Directors; Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory Board;
Member, Knight Commission on Intercollegiate Athletics;
Trustee, American Beacon Mileage Funds (2001-Present);
Trustee, American Beacon Select Funds (2001-Present);
Trustee, American Beacon Master Trust (2001-Present).
Kneeland Youngblood (49) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court equity firm) (1998- Present); Trustee, The Hockaday School
Suite 1740 (1997-Present); Director, Starwood Hotels and Resorts
Dallas, Texas 75201 (2001-Present); Member, Council on Foreign Relations (1995-
Present); Director, Just For the Kids (1995-2001); Director,
L&B Realty Advisors (1998-2000); Trustee, Teachers
Retirement System of Texas (1993-1999); Director, Starwood
Financial Trust (1998-2001); Trustee, St. Mark's School of
Texas (2002-Present); Trustee, American Beacon Mileage Funds
(1996-Present); Trustee, American Beacon Select Funds
(1999-Present); Trustee, American Beacon Master Trust
(1996-Present).
</Table>
- --------------------------------------------------------------------------------
126
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
OFFICERS
TERM
------------------
One Year
Brian E. Brett (45) VP since 2004 Vice President, Director of Sales, American Beacon Advisors,
Inc. (2004-Present); Regional Vice President, Neuberger
Berman, LLC (investment advisor) (1996-2004).
Nancy A. Eckl (43) VP of Trust since Vice President, Trust Investments, American Beacon Advisors,
1990 Inc. (1990-Present).
Michael W. Fields (51) VP of Trust since Vice President, Fixed Income Investments, American Beacon
1989 Advisors, Inc. (1988- Present).
Rebecca L. Harris (38) Treasurer since Vice President, Finance, American Beacon Advisors, Inc.
1995 (1995-Present).
John B. Roberson (47) VP of Trust since Vice President, Client Relations & Special Projects,
1989 American Beacon Advisors, Inc. (2004-Present); Vice
President, Director of Sales, American Beacon Advisors, Inc.
(1991-2004); Director, Pritchard, Hubble & Herr, LLC
(investment advisor) (2001-Present).
Christina E. Sears (34) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc.
Officer since (2004-Present); Senior Compliance Analyst, American Beacon
2004 and Advisors, Inc. (1998-2004).
Secretary since
2005
</Table>
- ---------------
* The Board has adopted a retirement plan that requires Trustees to retire no
later than the last day of the calendar year in which they reach the age of
70, with the exception of Messrs. Quinn and O'Sullivan.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the Trust, as
defined by the 1940 Act. Mr. Quinn is President of the Manager. Mr. Feld's
law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services
within the past two years to one or more of the Trust's investment advisors.
- --------------------------------------------------------------------------------
127
AMERICAN BEACON FUNDS
PRIVACY POLICY
(Unaudited)
- --------------------------------------------------------------------------------
The American Beacon Funds recognizes and respects 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.
- --------------------------------------------------------------------------------
128
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
129
(AMERICAN BEACON FUNDS LOGO)
- --------------------------------------------------------------------------------
DELIVERY OF DOCUMENTS
To reduce expenses, your financial institution may mail only one copy of the
Prospectus, Annual Report and Semi-Annual Report to those addresses shared by
two or more accounts. If you wish to receive individual copies of these
documents, please contact your financial institution. Delivery of individual
copies will commence thirty days after receiving your request.
If you invest in the Funds 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 FUNDS:
<Table>
(KEYBOARD GRAPHIC) (MOUSE GRAPHIC)
BY E-MAIL: ON THE INTERNET:
american-beacon.funds@ambeacon.com Visit our website at www.americanbeaconfunds.com
</Table>
- --------------------------------------------------------------------------------
<Table>
(TELEPHONE GRAPHIC) (MAILBOX GRAPHIC)
BY TELEPHONE: BY MAIL:
Institutional Class American Beacon Funds
Call (800) 658-5811 4151 Amon Carter Blvd., MD 2450
AMR Class(SM) Fort Worth, TX 76155
Call (800) 345-2345
PlanAhead Class(R) and Service Class
Call (800) 388-3344
</Table>
- --------------------------------------------------------------------------------
<Table>
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES AVAILABILITY OF PROXY VOTING POLICY AND RECORDS
In addition to the Schedule of Investments provided in each A description of the policies and procedures that the Funds
semi-annual and annual report, each Fund files a complete use to determine how to vote proxies relating to portfolio
schedule of its portfolio holdings with the Securities and securities is available in each Fund's Statement of
Exchange Commission ("SEC") on Form N-Q as of the first and Additional Information, which may be obtained free of charge
third fiscal quarters. The Funds' Forms N-Q are available on by calling 1-800-967-9009 or by accessing the SEC's website
the SEC's website at www.sec.gov. The Forms N-Q may also be at www.sec.gov. Each Fund's proxy voting record for the most
reviewed and copied at the SEC's Public Reference Room, 450 recent year ended June 30 is filed annually with the SEC on
Fifth Street, NW, Washington, DC 20549. Information Form N-PX. The Funds' Forms N-PX are available on the SEC's
regarding the operation of the SEC's Public Reference Room website at www.sec.gov. Each Fund's proxy voting record may
may be obtained by calling 1-800-SEC-0330. A complete also be obtained by calling 1-800-967-9009.
schedule of each Fund's portfolio holdings is also available
on the Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of each fiscal
quarter.
</Table>
FUND SERVICE PROVIDERS:
<Table>
CUSTODIAN TRANSFER AGENT INDEPENDENT DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES REGISTERED PUBLIC FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri ACCOUNTING FIRM Portland, Maine
ERNST & YOUNG LLP
Chicago, Illinois
</Table>
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.
- --------------------------------------------------------------------------------
American Airlines, Inc. is not responsible for investments made in the American
Beacon Funds. American Beacon Funds is a service mark of AMR Corporation.
American Beacon Balanced Fund, American Beacon Large Cap Value Fund, American
Beacon Large Cap Growth Fund, American Beacon Mid-Cap Value Fund, American
Beacon Emerging Markets Fund, American Beacon High Yield Bond Fund, American
Beacon Enhanced Income Fund, American Beacon Intermediate Bond Fund and American
Beacon Short-Term Bond Fund are service marks of American Beacon Advisors, Inc.
AR 10/05
535724
G U I D A N C E | V I S I O N | E X P E R I E N C E
[AMERICAN BEACON FUNDS LOGO]
ANNUAL REPORT
[PHOTO]
OCTOBER 31, 2005
INTERNATIONAL EQUITY FUND
Formerly known as the
American AAdvantage Funds
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.
<Table>
<Caption>
Contents
-----------------------------------------------
President's Message........... 1
Market and Performance
Overview................... 2
Schedule of Investments....... 20
Additional Information...............Back Cover
</Table>
Any opinions herein, including forecasts, reflect our judgement 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.
Investing in foreign equities entails additional risk not associated with
domestic equities, such as currency fluctuations, economic and political
instability and differences in accounting standards.
American Beacon Funds October 31, 2005
(BILL QUINN PICTURE)
FELLOW SHAREHOLDERS,
I am pleased to present
you with the Annual Report
for the American Beacon
International Equity Fund
for the twelve months
ended October 31, 2005. As
investors faced increasing
oil prices, rising
interest rates and
devastating natural
disasters internationally,
most financial markets
experienced modest growth.
The exception to this rule
was the strong performance
of international markets.
The Dow Jones Industrial
Average posted gains of
6.5%, the S&P 500 Index
increased by 8.7% and the
MSCI EAFE Index returned 18.1%. The American Beacon International Equity Fund
posted strong performance as the Institutional Class recorded a gain of 15.0%
for the year.
Please review the enclosed market overviews, portfolio listings and
detailed financial data. As always, we welcome the opportunity to serve your
financial needs. To obtain further details about the American Beacon Funds
family or access your account information, please visit our web site at
www.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon International Equity Fund.
Sincerely,
/s/ WILLIAM F. QUINN
William F. Quinn
President, American Beacon Funds
Performance shown is historical and may not be 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 as of date
indicated and may differ from current performance. To obtain performance as of
the most recent month end, please visit www.americanbeaconfunds.com or call
1-800-967-9009.
1
INTERNATIONAL EQUITY MARKET OVERVIEW
- --------------------------------------------------------------------------------
International equities continued to outperform U.S. equities in the
twelve-months ending October 31, 2005 with the MSCI EAFE index up +18.1 percent
in U.S. dollar terms vs. +8.7 percent for the S&P 500. Returns were even greater
for international equities in local currency terms as the dollar appreciated
considerably against most major currencies during this period. The dollar gained
approximately 9.1 percent vs. the Japanese Yen, 6.3 percent vs. the Euro and 3.7
percent vs. the British Pound. The main driver for the dollar's performance was
the widening interest rate differential between the U.S. and other regions as
the Federal Reserve continued to raise the short-term Fed Funds rate to 4
percent, while the European Central Bank kept short-term rates at a six-decade
low of 2 percent. Japan kept rates at essentially zero and the Bank of England
actually lowered rates once.
Stocks rose sharply at the end of 2004 as oil prices eased, alleviating
concerns that higher energy costs would restrain earnings and economic growth.
The rally started right after the U.S. presidential election, as uncertainty
over the election's outcome was lifted. On a regional basis, markets in the 12-
country euro region, were among the index's best performers for the quarter, led
by Austria, France, and Germany. U.K. stocks trailed other euro regions due to
declines in energy shares, as oil prices fell, and to losses experienced by drug
makers after Merck & Co. recalled its Vioxx painkiller. Japanese stocks also
lagged, as Japan's economy stalled and the yen reached a four-year high late in
2004.
After concerns regarding global growth emerged in the first half of 2005,
international stocks later rebounded as investors became more confident that
companies' profit forecasts could withstand record energy prices. Energy stocks
outpaced the market as the price of oil briefly topped $70 per barrel after
hurricanes Katrina and Rita devastated the Gulf shores, crippling U.S. oil
production and refining in the area. Growth in the European economies appeared
to be improving. In Germany, business confidence rose to a new high in
September. Unemployment in Italy reached a new low, and consumer spending in
France was strong. European multi-national corporations have benefited from a
weak euro in 2005, making their goods more attractive abroad.
Japanese stocks were among the best performers, as investors cheered the
reelection of Prime Minister Koizumi and the reshuffling of his cabinet. Many
feel that Koizumi's strong showing in the polls has given him a clear mandate to
continue the restructuring of the Japanese economy, including privatization of
the postal savings system. There is also increasing optimism that deflation is
near an end with land prices in Tokyo rising for the first time in fifteen years
and speculation that the Bank of Japan will soon end its zero interest rate
policy. Japanese banks would be one of the biggest beneficiaries of higher
interest rates, as well as lower delinquencies and greater loan volumes as a
result of the improving economy. Investors have also been encouraged that
consumer and capital spending are fueling an economic rebound in Japan, rather
than exports and government outlays.
The combination of a global economic recovery and extremely accommodative
monetary policy around the world has led to significant outperformance of the
riskier parts of the global equity markets, such as small stocks, deeply
cyclical companies, and emerging markets stocks. As the economic recovery
matures, and central banks in many parts of the world tighten monetary policy,
we will watch for investors to rotate into larger, more consistently profitable
companies. The outperformance of smaller stocks has already begun to moderate in
the United States and this trend may spread internationally going forward.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the International Equity Fund returned 15.04%
for the twelve months ended October 31, 2005. The Fund underperformed the MSCI
EAFE Index (the "Index") return of 18.09% and the Lipper International Funds
Index return of 18.91%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/95 THROUGH 10/31/05
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER INTERNATIONAL
INSTITUTIONAL CLASS FUNDS INDEX MSCI EAFE INDEX
------------------- -------------------- ---------------
10/95 10000 10000 10000
10/96 11727 11262 11047
10/97 13965 12768 11558
10/98 14550 13360 12674
10/99 17457 16438 15593
10/00 17869 17005 15140
10/01 14913 12907 11366
10/02 13346 11582 9865
10/03 17564 14655 12532
10/04 21515 17082 14893
10/05 24750 20313 17587
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
--------------------------- VALUE OF
PERIODS ENDED 10/31/05 $10,000
--------------------------- 10/31/95-
1 YEAR 5 YEARS 10 YEARS 10/31/05
------ ------- -------- ---------
Institutional Class(1).... 15.04% 6.73% 9.49% $24,750
PlanAhead Class(1)........ 14.73% 6.54% 9.24% $24,200
AMR Class(1).............. 15.32% 6.98% 9.77% $24,024
Service Class(1,2)........ 14.45% 6.38% 9.16% $25,403
Lipper Int'l. Funds
Index.................... 18.91% 3.62% 7.37% $20,313
MSCI EAFE Index........... 18.09% 3.04% 5.81% $17,587
</Table>
1. Performance shown is historical and may not be 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 as of date indicated and may differ from current
performance. To obtain performance as of the most recent month end, please
visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance
in the table above does not reflect the deduction of taxes a shareholder
would pay on distributions or the redemption of shares.
2. Fund performance for the five-year and ten-year periods
represents the total returns achieved by the PlanAhead Class from 4/30/95 up
to 5/1/03, the inception date of the Service Class, and the returns of the
Service Class since its inception. Expenses of the Service Class are higher
than those of the PlanAhead Class. As a result, total returns shown may be
higher than they would have been had the Service Class been in existence
since 4/30/95.
The Fund underperformed the Index over the past fiscal year primarily due
to unfavorable country allocation and stock selection. However, timing
differences in currency pricing between the Fund (4 p.m. Eastern time) and the
Index (4 p.m. London time), and Fund expenses also negatively impacted the Fund
relative to the Index.
From a country perspective, poor stock selections, particularly in Finland
and Japan, more than offset strong selections in countries including the United
Kingdom. In Finland, Stora Enso dropped 6.5% while UPM-Kymmene only gained 2.5%
for the time period. Investments in Seiko Epson Corporation (down 40.1%), Konica
Minolta Holdings (down 37.4%) and Sony Corporation (down 6.8%) hampered the
Fund's performance in Japan. The poor stock selection was somewhat offset by
owning UK stocks British American Tobacco Industries (up 52.9%), BAE Systems (up
38.8%) and GlaxoSmithKline (up 27.9%). In addition, underweighting Australia (up
25.0%) and overweighting the two worst performing EAFE markets, Portugal (down
0.3%) and Ireland (up 2.3%), detracted value during the time period.
Unlike country attribution, all of the value detracted from a sector
perspective was due to stock selection as sector allocation was slightly
positive. Stock selection was particularly weak in Materials, Financials and
Information Technology. Within the Materials sector, in addition to weak
performance by Stora Enso and Upm-Kymmene, Alcan also performed poorly.
Financial firms Royal Bank of Scotland Group and HSBC Holdings detracted from
results while investments in Konica Minolta Holdings and Celestica hurt
performance in the Information Technology sector. On a more positive note, the
Fund did add value by underweighting Information Technology, the worst sector
for the period, which gained just 3.5%.
Although economic and market conditions vary from period to period, the
Fund's primary strategy remains consistent as it focuses on investing in
undervalued companies with above-average earnings growth expectations.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM) -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
GlaxoSmithKline plc 2.4%
Royal Bank of Scotland Group plc 2.1%
Sanofi-Synthelabo 1.9%
Total S.A. 1.8%
Vodafone Group plc 1.6%
BAE Systems plc 1.4%
BNP Paribas S.A. 1.4%
France Telecom S.A. 1.4%
Koninklijke (Royal) Philips Electronics N.V. 1.3%
Nestle SA 1.3%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 26.0%
Consumer Discretionary 12.9%
Industrials 11.7%
Telecommunication Services 9.6%
Health Care 8.7%
Energy 8.4%
Consumer Staples 8.2%
Information Technology 5.5%
Materials 5.4%
Utilities 3.7%
</Table>
REGIONAL ALLOCATION*
(PIE CHART)
<Table>
<Caption>
EUROPE PACIFIC RIM NORTH AMERICA CENTRAL AMERICA
- ------ ----------- ------------- ---------------
71 27.1 1.7 0.2
</Table>
* Allocation based upon gross investments in American Beacon
Master Services International Equity Portfolio.
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, such as redemption fees, and (2) ongoing costs, including management
fees, administrative service fees, distribution (12b-1) fees, and other Fund
expenses. The examples below 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, 2005
through October 31, 2005.
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 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period. Shareholders of the
PlanAhead and Institutional Classes that invest in the Fund through an IRA may
be subject to a custodial IRA fee of $12 that is typically deducted each
December. If your account was subject to a custodial IRA fee during the period,
your costs would have been $12 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
4
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM) -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. Shareholders of the PlanAhead and
Institutional Classes that invest in the Fund through an IRA may be subject to a
custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 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 redemption fees. 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.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 5/1/05-
5/1/05 10/31/05 10/31/05
--------- --------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $1,066.57 $3.58
Hypothetical $1,000.00 $1,021.74 $3.50
(5% return before expenses)
PLANAHEAD CLASS
Actual $1,000.00 $1,065.06 $4.92
Hypothetical $1,000.00 $1,020.44 $4.81
(5% return before expenses)
AMR CLASS
Actual $1,000.00 $1,067.21 $2.22
Hypothetical $1,000.00 $1,023.06 $2.17
(5% return before expenses)
SERVICE CLASS
Actual $1,000.00 $1,063.47 $6.18
Hypothetical $1,000.00 $1,019.21 $6.05
(5% return before expenses)
</Table>
* Expense amounts are inclusive of the Fund's proportionate
share of expenses of the American Beacon Master Trust International Equity
Portfolio. Expenses are equal to the Fund's annualized expense ratios for
the six-month period of 0.69%, 0.94%, 0.43%, 1.19%, for the Institutional,
PlanAhead, AMR, and Service 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
AMERICAN BEACON INTERNATIONAL EQUITY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
October 31, 2005
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
American Beacon International Equity Fund:
We have audited the accompanying statement of assets and liabilities of
American Beacon International Equity Fund (the "Fund"), a fund comprising the
American Beacon Funds (formerly known as the American AAdvantage International
Equity Fund and the American AAdvantage Funds, respectively) as of October 31,
2005, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
American Beacon International Equity Fund at October 31, 2005, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the periods indicated therein, in conformity with U.S. generally accepted
accounting principles.
(ERNST & YOUNG LLP)
Chicago, Illinois
December 21, 2005
- --------------------------------------------------------------------------------
6
AMERICAN BEACON INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005 (in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in Portfolio, at value...................... $ 2,296,913
Receivable for fund shares sold......................... 2,819
-----------
TOTAL ASSETS........................................ 2,299,732
-----------
LIABILITIES:
Payable for fund shares redeemed........................ 691
Administrative service and service fees payable......... 388
Other liabilities....................................... 359
-----------
TOTAL LIABILITIES................................... 1,438
-----------
NET ASSETS.................................................. $ 2,298,294
===========
ANALYSIS OF NET ASSETS:
Paid-in-capital......................................... $ 1,775,769
Undistributed net investment income..................... 38,005
Accumulated net realized gain (loss).................... 132,556
Unrealized appreciation (depreciation) of investments,
futures contracts and foreign currency................. 351,964
-----------
NET ASSETS.................................................. $ 2,298,294
===========
Shares outstanding (no par value):
Institutional Class..................................... 61,305,014
===========
PlanAhead Class......................................... 26,977,017
===========
Service Class........................................... 144,951
===========
AMR Class............................................... 21,214,486
===========
Net asset value, offering and redemption price per share:
Institutional Class..................................... $ 20.98
===========
PlanAhead Class......................................... $ 20.79
===========
Service Class........................................... $ 20.61
===========
AMR Class............................................... $ 21.12
===========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
7
AMERICAN BEACON INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
Year Ended October 31, 2005 (in thousands)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME ALLOCATED FROM THE PORTFOLIO:
Investment income (net of foreign taxes of $8,849)...... $ 62,469
Expenses................................................ (8,756)
--------
NET INVESTMENT INCOME ALLOCATED FROM THE
PORTFOLIO........................................... 53,713
--------
FUND EXPENSES:
Administrative service fees (Note 2):
Institutional Class................................... 2,960
PlanAhead Class....................................... 1,163
Service Class......................................... 6
Transfer agent fees:
Institutional Class................................... 186
PlanAhead Class....................................... 97
Service Class......................................... 1
AMR Class............................................. 14
Professional fees....................................... 47
Registration fees and expenses.......................... 120
Service fees:
PlanAhead Class (Note 2).............................. 1,163
Service Class (Note 2)................................ 6
Distribution fees -- Service Class (Note 2)............. 6
Prospectus and shareholder reports...................... 405
Other expenses.......................................... 16
--------
TOTAL FUND EXPENSES................................. 6,190
--------
NET INVESTMENT INCOME....................................... 47,523
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED
FROM THE PORTFOLIO:
Net increase from payments by affiliates (Note 2)....... 902
Net realized gain....................................... 185,926
Change in net unrealized gain........................... 44,556
--------
NET GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM THE
PORTFOLIO........................................... 231,384
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $278,907
========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
8
AMERICAN BEACON INTERNATIONAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
----------------------------
2005 2004
-------------- ----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................... $ 47,523 $ 25,715
Net realized gain (loss) on investments, futures
contracts, and foreign currency transactions........... 186,828** 111,748
Change in unrealized gain allocated from the
Portfolio.............................................. 44,556 153,263
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... 278,907 290,726
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class................................... (13,529) (19,224)
PlanAhead Class....................................... (4,004) (4,201)
Service Class......................................... (22) --
AMR Class............................................. (7,644) (9,135)
---------- ----------
NET DISTRIBUTIONS TO SHAREHOLDERS................... (25,199) (32,560)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares........................... 766,799 670,346
Reinvestment of dividends and distributions............. 22,373 28,865
Cost of shares redeemed................................. (545,309) (379,293)
Redemption fees......................................... 58 21
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS.................................. 243,921 319,939
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS....................... 497,629 578,105
---------- ----------
NET ASSETS:
Beginning of period..................................... 1,800,665 1,222,560
---------- ----------
END OF PERIOD*.......................................... $2,298,294 $1,800,665
========== ==========
* Includes undistributed net investment income (loss)
of..................................................... $ 33,121 $ 10,007
========== ==========
** Includes $902 payment by affiliate (Note 2).
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
9
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust"), formerly known as the American
AAdvantage Funds, is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940 (the "Act"), as amended, as
a no load, open-end management investment company. These financial statements
and notes to the financial statements relate to the American Beacon
International Equity Fund, a series of the Trust.
American Beacon Advisors, Inc. (the "Manager"), formerly known as AMR
Investment Services, Inc., is a wholly-owned subsidiary of AMR Corporation, the
parent company of American Airlines, Inc. ("American"), and was organized in
1986 to provide business management, advisory, administrative and asset
management consulting services to the Trust and other investors.
The American Beacon International Equity Fund (the "Fund"), formerly known
as the American AAdvantage International Equity Fund, invests all of its
investable assets in the International Equity Portfolio (the "Portfolio") of the
American Beacon Master Trust, formerly known as the AMR Investment Services
Trust International Equity Portfolio, which has the same investment objectives
as the Fund. The Portfolio is an open-end management investment company
registered under the Act. The value of the investment in the Portfolio reflects
the Fund's proportionate interest in the net assets of the Portfolio. At October
31, 2005 the Fund's investment was 96.0% of the Portfolio.
The financial statements of the Portfolio, including Notes to Financial
Statements, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements. The Notes to Financial
Statements of the Portfolio include a discussion of investment valuation,
security transactions and investment income, the management agreement and
securities lending.
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:
<Table>
<Caption>
CLASS: OFFERED TO: SERVICE AND DISTRIBUTION FEES:
- ------ ----------- ------------------------------
INSTITUTIONAL CLASS Investors making an initial investment of $2 million Administrative Service 0.25%
Fee --
PLANAHEAD CLASS General public and investors investing through an Administrative Service 0.25%
intermediary Fee -- 0.25%
Service Fee --
SERVICE CLASS Investors investing through an intermediary Administrative Service 0.25%
Fee -- 0.25%
Service Fee -- 0.25%
Distribution Fee --
AMR CLASS Investors in the tax-exempt retirement and benefit plans of N/A
AMR Corporation and its affiliates
</Table>
Investment income, net capital gains (losses) and all expenses incurred by
the Fund are allocated based on the relative net assets of each class, except
for service fees and certain other fees and expenses related solely to one class
of shares.
Security Valuation
The Fund records its investment in the Portfolio at fair value. Valuation
of securities by the Portfolio is discussed in Note 1 of the Portfolio's Notes
to Financial Statements which are included elsewhere in this report.
- --------------------------------------------------------------------------------
10
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
Redemption Fees
The Fund imposes a 2% redemption fee on certain Institutional, PlanAhead
and Service Class shares held for less than 30 days. The fee is deducted from
the redemption proceeds and is intended to offset the trading costs, market
impact and other costs associated with short-term trading activity in the Fund.
The "first-in, first-out" method is used to determine the holding period.
Investment Income
The Fund records its share of net investment income and realized and
unrealized gain (loss) in the Portfolio each day. All net investment income and
realized and unrealized gain (loss) of the Portfolio is allocated pro rata among
the Fund and other investors in the Portfolio at the time of such determination.
Dividends to Shareholders
Dividends from net investment income of the Fund normally will be declared
and paid annually. Distributions, if any, of net realized capital gains are
generally paid annually and recorded on the ex-dividend date.
Allocation of Income, Expenses, Gains and Losses
Income, expenses (other than those attributable to a specific class), gains
and losses are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses directly
attributable to a specific class are charged against the operations of that
class.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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 directors are
indemnified against certain liability 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
Administrative Services Agreement
The Manager and the Trust entered into an Administrative Services Agreement
that obligates the Manager to provide or oversee administrative and management
services to the Fund. As compensation for performing the duties required under
the Administrative Services Agreement, the Manager
- --------------------------------------------------------------------------------
11
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
receives an annualized fee of .25% of the average daily net assets of the
Institutional, PlanAhead and Service Classes of the Fund.
Distribution Plans
The Trust, except for the Service Class of the Funds, has adopted a
"defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under
the Investment Company Act of 1940, pursuant to which no fees may be charged to
the Funds for distribution purposes. However, the Plan authorizes the management
fees received by the Manager and the investment advisors hired by the Manager to
be used for distribution purposes. Under this Plan, the Trust does not intend to
compensate the Manager or any other party, either directly or indirectly, for
the distribution of Trust shares.
A separate Distribution Plan (the "Distribution Plan") has been adopted
pursuant to Rule 12b-1 under the Act for the Service Class of the Fund. Under
the Distribution Plan, as compensation for distribution assistance, the Manager
receives an annual fee of 0.25% of the average daily net assets of the Service
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 PlanAhead and Service
Classes. As compensation for performing the duties required under the Service
Plans, the Manager receives 0.25% of the average daily net assets of the
PlanAhead and Service Classes of the Fund.
Other
Certain officers or Trustees of the Trust are also current or former
officers or employees of the Manager or American. The Trust makes no direct
payments to its officers. Mr. Feld and the non-interested Trustees (other than
Mr. O'Sullivan) and their spouses are provided free unlimited air transportation
on American. Retired Trustees and their spouses are provided free air
transportation on American, up to a maximum annual value of $40,000. The Trust
compensates each Trustee with payments in an amount equal to the Trustee's
income tax on the value of this free airline travel. Mr. O'Sullivan, as a
retiree of American, already receives flight benefits. Mr. O'Sullivan receives
an annual retainer of $40,000 plus $1,250 for each Board meeting attended. At
October 31, 2005, AMR Corporation and subsidiary companies and Employee Benefit
Trusts thereof owned 100% of AMR Class shares of the Fund.
During the period ended October 31, 2005, subadvisors voluntarily
reimbursed the Portfolio for certain losses totaling $941,000. A $383,000
reimbursement was made to compensate the Portfolio for a loss associated with a
rights offering that expired. The shares that would have been acquired through a
full exercise of the rights were subsequently purchased on the open market. The
subadvisor reimbursed the Portfolio for the appreciation of the shares over the
exercise price, transaction costs and foreign exchange costs incurred in making
this purchase in the open market. A $558,000 reimbursement was made to
compensate the Portfolio for a loss associated with a security
- --------------------------------------------------------------------------------
12
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
that violated investment restrictions. The reimbursement amount allocated to the
Fund totaled $902,000 for the period and is reflected in the gain/loss section
of the Statement of Operations.
Interfund Lending Program
Pursuant to an exemptive order by the SEC, the Fund, along with other
registered investment companies having management contracts with the Manager,
may participate in an interfund lending program as a borrower. This program
provides an alternative credit facility allowing the Fund to borrow from, or
lend money to, other participating Funds. At October 31, 2005, the Fund had not
utilized the credit facility.
3. FEDERAL INCOME AND EXCISE TAXES
It is the policy of the Fund to comply with the requirements of Subchapter
M of the Internal Revenue Code and to distribute substantially all net
investment income as well as any net realized capital gains on the sale of
investments. Therefore, no federal income or excise tax provision is required.
Dividends are determined in accordance with income tax regulations which
may treat certain transactions differently than U.S. generally accepted
accounting principles. 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 during the fiscal years ended October
31, 2005 and October 31, 2004 were as follows (in thousands):
<Table>
<Caption>
YEAR ENDED YEAR ENDED
OCTOBER 31, 2005 OCTOBER 31, 2004
---------------- ----------------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class..................................... $13,529 $19,224
PlanAhead Class......................................... 4,004 4,201
Service Class........................................... 22 --
AMR Class............................................... 7,644 9,135
LONG-TERM CAPITAL GAIN
Institutional Class..................................... -- --
PlanAhead Class......................................... -- --
Service Class........................................... -- --
AMR Class............................................... -- --
------- -------
TOTAL DISTRIBUTIONS PAID............................ $25,199 $32,560
------- -------
</Table>
- --------------------------------------------------------------------------------
13
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
As of October 31, 2005, the components of distributable earnings were as
follows (in thousands):
<Table>
Cost basis of investments for federal income tax purposes... $2,100,685
Unrealized appreciation..................................... 382,401
Unrealized depreciation..................................... (38,421)
----------
Net unrealized appreciation/(depreciation).................. 343,980
Undistributed ordinary income............................... 70,438
Undistributed long-term gain/(loss)......................... 116,200
----------
Distributable earnings...................................... $ 530,618
==========
</Table>
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, book
amortization for premiums, and the realization for tax purposes of unrealized
gains/(losses) on investments in passive foreign investment companies.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under U.S. generally accepted accounting principles and
federal income tax purposes, 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 that have been reclassified as of October 31, 2005 (in thousands):
<Table>
Paid-in-capital............................................. $ --
Undistributed net investment income......................... 4,884
Accumulated net realized gain (loss)........................ (4,884)
Unrealized appreciation (depreciation) of investments,
futures contracts and foreign currency.................... --
</Table>
The Fund intends to retain realized gains to the extent of available
capital loss carryforwards for federal income tax purposes. During the year
ended October 31, 2005, the fund utilized $33,901,000 of capital loss
carryforwards.
- --------------------------------------------------------------------------------
14
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares for each Class of
the Fund
(shares and dollars in thousands):
Year Ended October 31, 2005
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
-------------------- ------------------- ---------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- --------- ------ --------- ------ ------ ------- ---------
Shares sold............ 16,308 $ 330,188 14,933 $ 299,953 162 $3,261 6,624 $ 133,397
Reinvestment of
dividends............ 543 10,788 199 3,920 1 22 383 7,643
Shares redeemed*....... (11,284) (228,220) (5,111) (103,087) (59) (1,188) (10,557) (212,756)
------- --------- ------ --------- ------ ------ ------- ---------
Net increase in shares
outstanding.......... 5,567 $ 112,756 10,021 $ 200,786 104 $2,095 (3,550) $ (71,716)
======= ========= ====== ========= ====== ====== ======= =========
</Table>
* Net of Redemption Fees
Year Ended October 31, 2004
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
------------------- ------------------- ---------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ --------- ------ --------- ------ ------ ------- ---------
Shares sold............. 15,750 $ 270,812 12,974 $ 218,345 43 $ 744 10,345 $ 180,445
Reinvestment of
dividends............. 975 15,613 258 4,117 -- -- 568 9,135
Shares redeemed*........ (7,712) (131,052) (7,839) (128,653) (3) (54) (6,917) (119,513)
------ --------- ------ --------- ------ ------ ------- ---------
Net increase in shares
outstanding........... 9,013 $ 155,373 5,393 $ 93,809 40 $ 690 3,996 $ 70,067
====== ========= ====== ========= ====== ====== ======= =========
</Table>
* Net of Redemption Fees
- --------------------------------------------------------------------------------
15
AMERICAN BEACON INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2005 2004(B) 2003(F) 2002 2001(E)
---------- ---------- -------- -------- --------
Net asset value, beginning of period........................ $ 18.47 $ 15.46 $ 12.10 $ 13.77 $ 17.95
---------- ---------- -------- -------- --------
Income from investment operations:
Net investment income(A D).................................. 0.44 0.30 0.25 0.21 0.24
Net gains (losses) on securities (both realized and
unrealized)(D).......................................... 2.31 3.12 3.47 (1.62) (2.96)
---------- ---------- -------- -------- --------
Total income (loss) from investment operations.............. 2.75 3.42 3.72 (1.41) (2.72)
---------- ---------- -------- -------- --------
Less distributions:
Dividends from net investment income...................... (0.24) (0.41) (0.36) (0.26) (0.22)
Distributions from net realized gains on securities....... -- -- -- -- (1.24)
---------- ---------- -------- -------- --------
Total distributions......................................... (0.24) (0.41) (0.36) (0.26) (1.46)
---------- ---------- -------- -------- --------
Redemption fees added to beneficial interest................ --(I) --(I) --(I) -- --
---------- ---------- -------- -------- --------
Net asset value, end of period.............................. $ 20.98 $ 18.47 $ 15.46 $ 12.10 $ 13.77
========== ========== ======== ======== ========
Total return................................................ 15.04% 22.49% 31.61% (10.51)% (16.54)%
========== ========== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands).................. $1,286,441 $1,029,272 $722,333 $537,476 $519,151
Ratios to average net assets (annualized):
Expenses, net of waivers(D)............................. 0.70% 0.76% 0.79% 0.75% 0.78%
Expenses, before waivers(D)............................. 0.70% 0.76% 0.79% 0.75% 0.78%
Net investment income, net of waivers(D)................ 2.17% 1.69% 1.97% 1.56% 1.54%
Net investment income (losses), before waivers(D)....... 2.17% 1.69% 1.97% 1.56% 1.54%
Portfolio turnover rate(C)................................ 37% 36% 44% 43% 36%
</Table>
- ---------------
(A) Class expenses per share were subtracted from net investment income per
share for the Fund before class expenses to determine net investment income
per share.
(B) The Boston Company was added as an investment advisor to the International
Equity Fund on September 27, 2004.
(C) The International Equity Fund invests all of its investable assets in its
corresponding Portfolio. Portfolio turnover rate is that of the Portfolio.
(D) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the American Beacon Master Trust International Equity Portfolio.
(E) Causeway Capital Management, LLC replaced Merrill Lynch Investment
Managers, L.P. as investment advisor to the International Equity Fund on
August 31, 2001.
(F) Independence Investment LLC was removed as an investment advisor to the
International Equity Fund on October 24, 2003.
(G) Not annualized
(H) Portfolio turnover rate is for the period November 1, 2002 through October
31, 2003.
(I) Amounts represent less than $0.01 per share.
(J) Annualized.
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
<Table>
<Caption>
SERVICE CLASS
PLANAHEAD CLASS ------------------------------
- ------------------------------------------------------ YEAR ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31, MAY 1 TO
- ------------------------------------------------------ ---------------- OCTOBER 31,
2005 2004(B) 2003(F) 2002 2001(E) 2005 2004(B) 2003(F)
-------- -------- -------- ------- ------- ------ ------- -----------
$ 18.31 $ 15.34 $ 11.95 $ 13.58 $ 17.72 $18.24 $15.31 $ 12.18
-------- -------- -------- ------- ------- ------ ------ ----------
0.41 0.26 0.22 0.15 0.19 0.37 0.30 0.09
2.29 3.08 3.46 (1.56) (2.92) 2.26 2.99 3.04
-------- -------- -------- ------- ------- ------ ------ ----------
2.70 3.34 3.68 (1.41) (2.73) 2.63 3.29 3.13
-------- -------- -------- ------- ------- ------ ------ ----------
(0.22) (0.37) (0.29) (0.22) (0.17) (0.26) (0.36) --
-- -- -- -- (1.24) -- -- --
-------- -------- -------- ------- ------- ------ ------ ----------
(0.22) (0.37) (0.29) (0.22) (1.41) (0.26) (0.36) --
-------- -------- -------- ------- ------- ------ ------ ----------
--(I) --(I) --(I) -- -- --(I) --(I) --(I)
-------- -------- -------- ------- ------- ------ ------ ----------
$ 20.79 $ 18.31 $ 15.34 $ 11.95 $ 13.58 $20.61 $18.24 $ 15.31
======== ======== ======== ======= ======= ====== ====== ==========
14.73% 22.16% 31.62% (10.57)% (16.79)% 14.45% 21.88% 25.70%(G)
======== ======== ======== ======= ======= ====== ====== ==========
$560,770 $310,540 $177,425 $99,636 $113,948 $2,987 $ 739 $ 1
0.95% 1.02% 1.10% 1.04% 1.10% 1.21% 1.27% 1.50%(J)
0.95% 1.02% 1.10% 1.04% 1.10% 1.21% 6.26% 1,139.08%(J)
1.96% 1.46% 1.68% 1.35% 1.22% 1.70% 0.81% 1.33%(J)
1.96% 1.46% 1.68% 1.35% 1.22% 1.70% (4.18)% (1,136.25)%(J)
37% 36% 44% 43% 36% 37% 36% 44%(H)
<Caption>
AMR CLASS
----------------------------------------------------
- ---
YEAR ENDED OCTOBER 31,
- --- ----------------------------------------------------
2005 2004(B) 2003(F) 2002 2001(E)
-------- -------- -------- -------- --------
$ 18.58 $ 15.54 $ 12.18 $ 13.86 $ 18.07
-------- -------- -------- -------- --------
0.50 0.34 0.29 0.24 0.28
2.33 3.14 3.46 (1.62) (2.98)
-------- -------- -------- -------- --------
2.83 3.48 3.75 (1.38) (2.70)
-------- -------- -------- -------- --------
(0.29) (0.44) (0.39) (0.30) (0.27)
-- -- -- -- (1.24)
-------- -------- -------- -------- --------
(0.29) (0.44) (0.39) (0.30) (1.51)
-------- -------- -------- -------- --------
--(I) --(I) --(I) -- --
-------- -------- -------- -------- --------
$ 21.12 $ 18.58 $ 15.54 $ 12.18 $ 13.86
======== ======== ======== ======== ========
15.32% 22.84% 31.77% (10.26)% (16.35)%
======== ======== ======== ======== ========
$448,096 $460,114 $322,801 $264,579 $301,762
0.44% 0.49% 0.52% 0.49% 0.52%
0.44% 0.49% 0.52% 0.49% 0.52%
2.49% 1.97% 2.22% 1.81% 1.78%
2.49% 1.97% 2.22% 1.81% 1.78%
37% 36% 44% 43% 36%
</Table>
- --------------------------------------------------------------------------------
17
AMERICAN BEACON INTERNATIONAL EQUITY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
October 31, 2005
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
American Beacon Master Trust International Equity Portfolio:
We have audited the accompanying statement of assets and liabilities of
American Beacon Master Trust International Equity Portfolio (the "Portfolio"), a
portfolio of the American Beacon Master Trust (formerly known as the AMR
Investment Services International Equity Portfolio and the AMR Investment
Services Trust, respectively), including the schedule of investments, as of
October 31, 2005, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Portfolio's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Portfolio's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
American Beacon Master Trust International Equity Portfolio at October 31, 2005,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
(ERNST & YOUNG LLP)
Chicago, Illinois
December 21, 2005
- --------------------------------------------------------------------------------
18
AMERICAN BEACON INTERNATIONAL EQUITY FUND
FEDERAL TAX INFORMATION
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
For corporate shareholders in the Fund, the percentage of ordinary dividend
income distributed for the year ended October 31, 2005, which is designated as
qualifying for the dividends-received deduction, is 0.3%.
For shareholders in the Fund, the percentage of dividend income distributed
for the year ended October 31, 2005, which is designated as qualified dividend
income under the Jobs and Growth Tax Relief Act of 2003, is 55.5%.
The Fund designates a foreign tax credit of $6,171,000 and recognizes
foreign source income of $67,784,000.
- --------------------------------------------------------------------------------
19
AMERICAN BEACON MASTER TRUST INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
STOCKS - 94.07%
AUSTRALIA - 1.86%
AUSTRALIA PREFERRED STOCK - 0.16%
AMP Limited.................. 697,790 $ 3,814
----------
TOTAL AUSTRALIA PREFERRED
STOCK.................. 3,814
----------
AUSTRALIA COMMON STOCK - 1.70%
Alumina Limited.............. 1,946,800 8,436
Commonwealth Bank of
Australia.................. 216,840 6,313
Macquarie Airports Management
Limited+................... 2,332,513 5,249
Macquarie Infrastructure
Group+..................... 1,991,299 5,120
Multiplex Group+............. 1,580,886 3,919
National Australia Bank...... 356,430 8,818
The News Corporation
Limited+................... 189,580 2,701
----------
TOTAL AUSTRALIA COMMON
STOCK.................. 40,556
----------
TOTAL AUSTRALIA.......... 44,370
----------
BELGIUM COMMON STOCK - 0.23%
Belgacom SA.................. 166,900 5,596
----------
TOTAL BELGIUM COMMON
STOCK.................. 5,596
----------
CANADA COMMON STOCK - 1.56%
Alcan, Incorporated.......... 138,171 4,353
BCE, Incorporated............ 318,360 7,860
Celestica, Incorporated+..... 757,200 7,187
Husky Energy,
Incorporated(+)............ 141,880 6,547
Manulife Financial
Corporation................ 219,028 11,414
----------
TOTAL CANADA COMMON
STOCK.................. 37,361
----------
DENMARK COMMON STOCK - 0.13%
Vestas Wind Systems+......... 147,226 3,188
----------
TOTAL DENMARK COMMON
STOCK.................. 3,188
----------
FINLAND COMMON STOCK - 1.28%
KCI Konecranes Oyj(+)........ 112,450 4,884
M-real Oyj................... 459,670 2,187
Nokia Oyj.................... 329,500 5,529
Stora Enso Oyj............... 241,700 3,094
UPM-Kymmene Oyj.............. 775,600 14,977
----------
TOTAL FINLAND COMMON
STOCK.................. 30,671
----------
FRANCE COMMON STOCK - 11.03%
Accor S.A.................... 109,880 5,484
AXA.......................... 951,681 27,553
BNP Paribas S.A. ............ 444,278 33,677
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Carrefour S.A. .............. 368,137 $ 16,357
Compagnie Generale des
Etablissements Michelin.... 103,230 5,570
France Telecom S.A.+......... 1,240,630 32,244
Lafarge S.A. ................ 68,700 5,650
Lagardere S.C.A. ............ 122,500 8,416
Sanofi-Synthelabo............ 555,517 44,470
Schneider Electric S.A. ..... 150,370 12,347
Suez S.A. ................... 596,573 16,146
Total S.A. .................. 173,850 43,774
Vinci S.A. .................. 155,072 12,105
----------
TOTAL FRANCE COMMON
STOCK.................. 263,793
----------
GERMANY - 6.24%
GERMANY PREFERRED STOCK - 1.14%
Depfa Bank plc............... 571,319 8,895
Deutsche Bank AG............. 140,800 13,187
Heidelberger Druck(+)........ 146,000 4,636
Schering AG.................. 9,100 562
----------
TOTAL GERMANY PREFERRED
STOCK.................. 27,280
----------
GERMANY COMMON STOCK - 5.10%
BASF AG+(+).................. 60,610 4,369
Bayer AG(+).................. 118,010 4,097
Bayerische Motoren Werke
(BMW) AG................... 261,882 11,360
Celesio AG(+)................ 135,245 11,689
Deutsche Post AG............. 1,249,012 27,832
E.ON AG+(+).................. 150,032 13,593
Merck KGaA(+)................ 44,840 3,710
Muenchener Rueckversicherung-
Gesellschaft AG+(+)........ 23,787 2,794
Siemens AG................... 287,750 21,399
Volkswagen AG(+)............. 389,300 21,209
----------
TOTAL GERMANY
COMMON STOCK........... 122,052
----------
TOTAL GERMANY............ 149,332
----------
HONG KONG COMMON STOCK - 2.16%
Cheung Kong Holdings
Limited.................... 869,000 9,072
Denway Motors Limited........ 6,500,000 1,956
HBSC Holdings plc+........... 297,600 4,662
Henderson Land Development
Company Limited............ 2,045,000 9,135
Hutchison Whampoa Limited.... 207,000 1,965
PetroChina Company
Limited+................... 20,910,000 16,000
Swire Pacific Limited+....... 995,500 8,934
----------
TOTAL HONG KONG COMMON
STOCK.................. 51,724
----------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
20
AMERICAN BEACON MASTER TRUST INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
IRELAND COMMON STOCK - 1.53%
Allied Irish Banks plc....... 280,490 $ 5,870
Bank of Ireland.............. 1,012,300 15,377
CRH plc...................... 616,495 15,409
----------
TOTAL IRELAND COMMON
STOCK.................. 36,656
----------
ITALY COMMON STOCK - 2.58%
Banco Popolare di Verona e
Novara Scrl................ 326,908 6,033
Eni S.p.A.(+)................ 829,291 22,181
Finmeccanica SpA............. 228,260 4,151
Telecom Italia S.p.A. ....... 5,317,389 15,383
UniCredito Italiano
S.p.A.(+).................. 2,514,353 14,040
----------
TOTAL ITALY COMMON
STOCK.................. 61,788
----------
JAPAN COMMON STOCK - 17.12%
Acom Company Limited......... 125,550 8,176
Alps Electric Company
Limited(+)................. 186,300 2,959
Canon, Incorporated.......... 224,300 11,870
DENSO Corporation............ 105,500 3,011
East Japan Railway Company... 2,282 13,603
Fujitsu Limited.............. 1,138,000 7,543
Hitachi Limited+............. 713,000 4,384
Honda Motor Company
Limited.................... 245,700 13,647
Hoya Corporation+(+)......... 334,800 11,635
Fuji Photo Film Company
Limited.................... 119,000 3,800
Japan Tobacco, Incorporated.. 250 3,957
The Joyo Bank Limited........ 583,000 3,910
Kao Corporation.............. 270,000 6,448
KDDI Corporation............. 1,782 10,171
Konica Minolta Holdings,
Inc. ...................... 1,291,840 10,690
Mabuchi Motor Company
Limited(+)................. 71,800 3,494
Minebea Company Limited...... 1,098,000 4,286
Mitsubishi Tokyo Financial
Group, Incorporated........ 1,642 20,705
Murata Manufacturing Company
Limited.................... 265,600 13,329
NEC Corporation.............. 434,000 2,158
Nidec Corporation............ 106,100 6,210
Nintendo Company Limited..... 53,200 5,972
Nippon Express Company....... 1,845,500 10,135
Nippon Telegraph & Telephone
Corporation+............... 1,294 6,166
Nomura Holdings,
Incorporated............... 1,193,100 18,372
NTT DoCoMo, Incorporated..... 3,725 6,448
Promise Company Limited...... 197,050 12,522
Ricoh Company Limited........ 328,000 5,196
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
ROHM Company Limited......... 103,000 $ 8,351
Sekisui House Limited........ 560,000 6,969
Seiko Epson Corporation...... 143,200 3,529
Shinsei Bank, Limited(+)..... 984,000 5,736
Shin-Etsu Chemical Company
Limited.................... 267,800 12,889
Sompo Japan Insurance,
Incorporated............... 628,000 9,444
Sony Corporation............. 391,300 12,760
Sumitomo Chemical Company
Limited.................... 1,169,600 6,905
Sumitomo Mitsui Financial
Group, Incorporated+....... 1,086 10,113
Sumitomo Trust and Banking
Company Limited............ 863,000 7,332
Takeda Chemical Industries
Limited.................... 475,800 26,163
Takefuji Corporation......... 343,370 24,131
Tokyo Gas Company
Limited(+)................. 2,408,000 9,486
Toyoda Gosei Company
Limited(+)................. 225,988 4,234
Toyota Motor Corporation..... 432,400 20,075
Yamanouchi Pharmaceutical
Company Limited............ 296,100 10,588
----------
TOTAL JAPAN COMMON
STOCK.................. 409,502
----------
MEXICO COMMON STOCK - 0.19%
Telefonos de Mexico, S.A. de
C.V., ADR+................. 223,400 4,508
----------
TOTAL MEXICO COMMON
STOCK.................. 4,508
----------
NETHERLANDS COMMON STOCK - 7.08%
ABN AMRO Holding N.V. ....... 368,276 8,701
Heineken N.V. ............... 179,600 5,688
IHC Caland N.V. ............. 78,300 6,052
ING Groep N.V. .............. 859,014 24,766
Koninklijke (Royal) Philips
Electronics N.V. .......... 1,184,167 30,952
Reed Elsevier N.V. .......... 200,230 2,695
Royal Dutch Shell plc, A
shares..................... 893,330 27,543
Royal Dutch Shell plc, A
shares, ADR+............... 13,600 844
Royal Dutch Shell plc, B
shares..................... 801,629 26,155
TPG N.V.+.................... 791,081 18,667
Unilever N.V. ............... 78,447 5,518
VNU N.V. .................... 196,600 6,250
Wolters Kluwer N.V. ......... 300,910 5,581
----------
TOTAL NETHERLANDS COMMON
STOCK.................. 169,412
----------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
21
AMERICAN BEACON MASTER TRUST INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
NEW ZEALAND COMMON STOCK - 0.34%
Telecom Corporation of New
Zealand Limited(+)......... 1,985,869 $ 8,126
----------
TOTAL NEW ZEALAND COMMON
STOCK.................. 8,126
----------
NORWAY COMMON STOCK - 1.60%
Frontline Limited+(+)........ 220,200 8,770
DnB Nor ASA.................. 287,500 2,940
Statoil ASA.................. 392,200 8,708
Telenor ASA.................. 1,828,790 17,874
----------
TOTAL NORWAY
COMMON STOCK........... 38,292
----------
PORTUGAL COMMON STOCK - 0.97%
Energias de Portugal,
S.A. ...................... 2,433,100 6,884
Portugal Telecom, SGPS,
S.A. ...................... 1,795,103 16,217
----------
TOTAL PORTUGAL COMMON
STOCK.................. 23,101
----------
SINGAPORE COMMON STOCK - 1.24%
Creative Technology Limited.. 659,320 4,836
Development Bank of Singapore
Group Holdings Limited..... 1,652,095 14,950
Oversea-Chinese Banking
Corporation Limited........ 2,655,960 9,895
----------
TOTAL SINGAPORE COMMON
STOCK.................. 29,681
----------
SOUTH KOREA COMMON STOCK - 2.75%
Kookmin Bank, ADR+(+)........ 262,210 15,318
Korea Electric Power
Corporation................ 86,860 2,833
KT Corporation+.............. 134,110 5,414
LG Electronics,
Incorporated............... 76,760 5,019
POSCO........................ 26,221 5,364
Samsung Electronics Company
Limited.................... 36,645 19,609
Samsung Electronics Company
Limited, GDR, 144A (Note
A)+........................ 22,500 6,008
SK Telecom Company Limited... 34,976 6,325
----------
TOTAL SOUTH KOREA COMMON
STOCK.................. 65,890
----------
SPAIN COMMON STOCK - 2.17%
Banco Popular Espanol SA..... 526,400 6,392
Banco Santander Central
Hispano SA................. 36,150 461
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Banco Santander Central
Hispano SA GDR............. 583,044 $ 7,390
Iberdrola S.A. .............. 227,197 6,080
Repsol YPF S.A.+............. 284,340 8,475
Telefonica S.A.+............. 1,440,047 22,968
----------
TOTAL SPAIN COMMON
STOCK.................. 51,766
----------
SWEDEN COMMON STOCK - 2.24%
Atlas Copco AB(+)............ 491,430 8,975
Autoliv, Incorporated+(+).... 156,650 6,729
Electrolux AB(+)............. 256,480 5,973
ForeningsSparbanken AB(+).... 144,600 3,567
Nordea AB+................... 641,720 6,291
Securitas AB(+).............. 397,230 6,037
Stora Enso Oyj, Series A..... 70,802 912
Stora Enso Oyj, Series
R(+)....................... 222,142 2,846
TDC A/S+..................... 116,000 6,494
Volvo AB(+).................. 140,410 5,776
----------
TOTAL SWEDEN COMMON
STOCK.................. 53,600
----------
SWITZERLAND COMMON STOCK - 6.98%
Adecco SA.................... 143,820 6,133
Ciba Specialty Chemicals
Holding, Incorporated...... 143,000 8,215
Compagnie Financiere
Richemont AG............... 191,300 7,280
Credit Suisse Group.......... 589,085 26,043
Geberit AG................... 7,131 4,931
Lonza Group AG............... 132,493 7,632
Nestle SA+................... 101,010 30,066
Novartis AG.................. 552,530 29,708
Swiss Reinsurance............ 232,040 15,668
Syngenta AG.................. 71,951 7,702
UBS AG....................... 68,050 5,776
Zurich Financial Services
AG+........................ 104,100 17,741
----------
TOTAL SWITZERLAND COMMON
STOCK.................. 166,895
----------
UNITED KINGDOM COMMON STOCK - 22.79%
Alliance Unichem plc......... 409,450 5,586
AMVESCAP plc................. 353,530 2,223
Anglo American plc........... 221,595 6,546
Aviva plc.................... 902,640 10,659
BAA plc...................... 950,007 10,318
BAE Systems plc+............. 5,886,740 34,422
Barclays plc................. 1,461,500 14,480
Barratt Development plc...... 567,300 7,593
Boots Group plc.............. 589,500 6,423
BP plc....................... 2,700,520 29,890
British American Tobacco
Industries plc............. 783,545 17,246
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
22
AMERICAN BEACON MASTER TRUST INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
British Sky Broadcasting
Group plc.................. 786,860 $ 7,104
BT Group plc+................ 1,602,643 6,050
Cadbury Schweppes plc........ 1,838,870 18,099
Centrica plc................. 3,788,395 16,004
Cobham plc................... 922,800 2,514
Compass Group plc............ 3,539,535 11,906
Diageo plc................... 1,475,147 21,805
GKN plc...................... 1,597,018 7,867
GlaxoSmithKline plc+......... 2,228,806 57,987
HBOS plc..................... 438,600 6,476
HSBC Holdings plc............ 575,500 9,056
Imperial Tobacco Group plc... 344,340 9,875
Kingfisher plc............... 2,189,968 8,215
Marks and Spencer Group
plc+....................... 1,358,500 10,035
National Grid plc............ 1,356,178 12,400
Pearson plc.................. 476,710 5,300
Prudential plc............... 1,036,550 8,698
Reed Elsevier plc+........... 887,360 8,101
Rentokil Initial plc......... 1,495,670 4,064
Reuters Group plc+........... 1,421,272 9,034
Rolls-Royce plc.............. 1,128,050 7,289
Rolls-Royce Group plc+....... 37,676,870 67
Royal Bank of Scotland Group
plc........................ 1,770,732 49,026
J. Sainsbury plc............. 1,368,008 6,756
Shire Pharmaceuticals Group
plc........................ 378,040 4,466
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Smiths Group plc............. 455,630 $ 7,356
Standard Chartered plc....... 184,450 3,873
Tate & Lyle plc.............. 967,877 7,938
TI Automotive+*.............. 681,500 --
Unilever plc................. 2,804,221 28,432
Vodafone Group plc........... 14,260,347 37,427
Yell Group plc............... 843,830 6,606
----------
TOTAL UNITED KINGDOM
COMMON STOCK........... 545,212
----------
TOTAL STOCKS............. 2,250,464
----------
SHORT TERM INVESTMENTS - 12.37%
American Beacon Enhanced Cash
Trust (Notes B and C)...... 107,179,722 107,180
American Beacon Money Market
Select Fund (Notes B and
C)......................... 188,616,031 188,616
----------
TOTAL SHORT TERM
INVESTMENTS............ 295,796
----------
TOTAL INVESTMENTS - 106.44%
(COST $2,174,367).......... 2,546,260
----------
LIABILITIES, NET OF OTHER
ASSETS - (6.44%)........... (154,013)
----------
TOTAL NET ASSETS - 100%...... $2,392,247
==========
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At period end, the
value of these securities amounted to $6,008 or 0.25% of net assets.
(B) The Fund/Trust is affiliated by having the same investment advisor. See Note
2.
(C) All or a portion of this security is purchased with cash collateral for
securities loaned.
(+) - All or a portion of the security is on loan at October 31, 2005. See Note
5.
+ - Non-income producing security.
* - Valued at fair value pursuant to procedures approved by the Board of
Trustees.
See accompanying notes
- --------------------------------------------------------------------------------
23
AMERICAN BEACON MASTER TRUST INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
UNREALIZED
NO. OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- -------- --------------
France CAC 40 Index............................... 281 Dec 2005 $ 14,935 $ (223)
Germany DAX Index................................. 73 Dec 2005 10,770 (235)
UK FTSE 100 Index................................. 423 Dec 2005 39,856 (470)
Hang Seng Index................................... 28 Nov 2005 2,598 (1)
Italy MIB 30 Index................................ 30 Dec 2005 5,887 (234)
Tokyo FE TOPIX Index.............................. 309 Dec 2005 38,491 3,171
Spain IBEX 35 Index............................... 50 Nov 2005 6,271 41
Sweden OMX Index.................................. 335 Nov 2005 3,715 38
Canada S&PCDA 60 Index............................ 118 Dec 2005 11,726 (471)
Australia SPI Index............................... 100 Dec 2005 8,327 (83)
Netherlands 200 AEX Index......................... 55 Nov 2005 5,188 78
-------- ------
$147,764 $1,611
======== ======
</Table>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
SETTLEMENT MARKET UNREALIZED
CONTRACTS TO RECEIVE DATE VALUE GAIN/(LOSS)
- -------------------- ---------- -------- -----------
7,849 Australian Dollar..................................... 12/16/2005 $ 5,859 $ (187)
9,376 Canadian Dollar....................................... 12/16/2005 7,949 (33)
24,854 Euro Currency........................................ 12/16/2005 29,861 (1,099)
2,700,730 Japanese Yen...................................... 12/16/2005 23,326 (1,516)
16,881 Pound Sterling....................................... 12/16/2005 29,866 (1,123)
18,531 Swedish Krona........................................ 11/16/2005 2,335 (149)
11,140 Swiss Franc.......................................... 12/16/2005 8,677 (354)
-------- -------
TOTAL CONTRACTS TO RECEIVE
(PAYABLE AMOUNT $112,334)................................. $107,873 $(4,461)
======== =======
NET CURRENCY FLUX........................................... $(4,461)
=======
</Table>
INDUSTRY DIVERSIFICATION
<Table>
<Caption>
PERCENT OF
NET ASSETS
----------
Consumer Discretionary...................................... 12.12%
Consumer Staples............................................ 7.72%
Energy...................................................... 7.95%
Financials.................................................. 24.42%
Health Care................................................. 8.15%
Industrials................................................. 10.96%
Information Technology...................................... 5.18%
Materials................................................... 5.08%
Short-Term Investments...................................... 12.37%
Telecommunications Services................................. 9.00%
Utilities................................................... 3.49%
Liabilities, Net of Other Assets............................ (6.44)%
-------
100.00%
=======
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
24
AMERICAN BEACON MASTER TRUST INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005 (in thousands)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value(A C)... $2,250,464
Investments in affiliated securities, at value(B)....... 295,796
Cash denominated in foreign currency (cost $5,006)...... 5,010
Deposit with broker for futures contracts............... 20,087
Dividends and interest receivable....................... 3,943
Reclaims receivable..................................... 150
Receivable for investments sold......................... 41
Receivable for variation margin on open futures
contracts.............................................. 2,619
----------
TOTAL ASSETS........................................ 2,578,110
----------
LIABILITIES:
Payable for investments purchased....................... 2,687
Payable upon return of securities loaned................ 176,304
Management and investment advisory fees payable (Note
2)..................................................... 2,222
Unrealized depreciation on foreign currency contracts... 4,461
Other liabilities....................................... 189
----------
TOTAL LIABILITIES................................... 185,863
----------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS.... $2,392,247
==========
- ---------------
(A) Cost of unaffiliated securities......................... $1,878,571
(B) Cost of affiliated securities........................... $ 295,796
(C) Market value of securities on loan...................... $ 167,603
</Table>
STATEMENT OF OPERATIONS
Year ended October 31, 2005 (in thousands)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest income......................................... $ 212
Dividend income from unaffiliated securities (net of
foreign taxes of $9,235)............................... 58,505
Dividend income from affiliated securities.............. 3,350
Income derived from securities lending, net (Note 4).... 3,130
--------
TOTAL INVESTMENT INCOME............................. 65,197
--------
EXPENSES:
Management and investment advisory fees (Note 2)........ 7,905
Custodian fees.......................................... 1,034
Professional fees....................................... 105
Other expenses.......................................... 98
--------
TOTAL EXPENSES...................................... 9,142
--------
NET INVESTMENT INCOME....................................... 56,055
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from:
Investments........................................... 121,488
Commission recapture (Note 5)......................... 363
Foreign currency transactions......................... 45,711
Futures contracts..................................... 26,614
Change in net unrealized appreciation or depreciation
of:
Investments........................................... 155,367
Foreign currency contracts and translations........... 1,799
Futures contracts..................................... (109,826)
Net increase from payments by affiliates................ 941
--------
NET GAIN ON INVESTMENTS............................. 242,457
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $298,512
========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
25
AMERICAN BEACON MASTER TRUST INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
-----------------------
2005 2004
---------- ----------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income................................... $ 56,055 $ 31,238
Net realized gain (loss) on investments, futures
contracts and foreign currency transactions............ 194,176 117,757
Net increase from payments by affiliates (Note 2)....... 941 --
Change in net unrealized appreciation or depreciation of
investments, futures contracts and foreign currency
translations........................................... 47,340 162,138
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... 298,512 311,133
---------- ----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions........................................... 770,101 676,161
Withdrawals............................................. (559,367) (387,228)
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS..... 210,734 288,933
---------- ----------
NET INCREASE IN NET ASSETS.................................. 509,246 600,066
---------- ----------
NET ASSETS:
Beginning of period..................................... 1,883,001 1,282,935
---------- ----------
END OF PERIOD........................................... $2,392,247 $1,883,001
========== ==========
- -------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS:
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
2005 2004 2003 2002 2001 2000
----------- ------ ------ ------- ----- -----
TOTAL RETURN........................................... 15.38%(A) 22.85% 31.97% (10.25%) N/A N/A
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................... 0.41% 0.46% 0.49% 0.47% 0.49% 0.44%
Net investment income.............................. 2.49% 1.99% 2.26% 1.86% 1.82% 1.93%
PORTFOLIO TURNOVER RATE................................ 37% 36% 44% 43% 36% 45%
</Table>
- ---------------
(A) Total return prior to reimbursements by subadvisors was 15.34% (Note 2)
See accompanying notes
- --------------------------------------------------------------------------------
26
AMERICAN BEACON MASTER TRUST INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Master Trust (the "Trust"), formerly known as AMR
Investment Services Trust, is registered under the Investment Company Act of
1940, as amended, as a no-load, open-end management investment company that was
organized as a trust under the laws of the Commonwealth of Massachusetts
pursuant to a Declaration of Trust dated as of November 1, 2004. Prior to
November 1, 2004, the Trust was organized as a trust under the laws of the State
of New York. The American Beacon Master Trust International Equity Portfolio
(the "Portfolio") is one of the portfolios of the Trust. The Portfolio commenced
active operations on November 1, 1995. The Declaration of Trust permits the
Board of Trustees (the "Board") to issue beneficial interests in the Portfolio.
American Beacon Advisors, Inc. (the "Manager"), formerly known as AMR
Investment Services, Inc., is a wholly-owned subsidiary of AMR Corporation, the
parent company of American Airlines, Inc. ("American"), and was organized in
1986 to provide business management, advisory, administrative and asset
management consulting services.
The following is a summary of the significant accounting policies followed
by the Portfolio.
Security Valuation
Investments are valued at the close of the New York Stock Exchange (the
"Exchange"), normally 4 p.m. ET, each day that the Exchange is open for
business. Equity securities 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 (other than short-term 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. When a price is unavailable from a
pricing service or when the price provided by the pricing service is deemed not
to represent fair value, the prices of debt securities may be determined using
quotes obtained from brokers.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation. Investment grade short-term
obligations with 60 days or less to maturity are valued using the amortized cost
method which approximates market value.
Securities for which the market prices are not readily available or are not
reflective of the fair value of the security, the security will be priced at a
fair value following procedures approved by the Board. In light of the judgement
involved in fair value decisions, there can be no assurance that a fair value
assigned to a particular security is accurate.
Most foreign markets close before the Exchange. Developments that could
affect the values of securities that occur between the close of a foreign market
and the close of the Exchange normally will not be reflected in security
valuations. If such developments are so significant such that they will, in the
judgement of the pricing committee of the Portfolio, clearly and materially
affect the value of securities, the previous closing prices may be adjusted to
reflect the fair value of the securities as of the close of the Exchange, as
determined in good faith and pursuant to procedures
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27
AMERICAN BEACON MASTER TRUST INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
approved by the Board. Adjustments to closing prices to reflect fair value on
affected foreign securities may be provided by an independent pricing service.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale.
The Portfolio may purchase securities with delivery or payment to occur at
a later date. At the time the Portfolio enters into a commitment to purchase a
security, the transaction is recorded and the value of the security is reflected
in the net asset value. The value of the security may vary with market
fluctuations.
Dividend income, net of foreign taxes, is recorded on the ex-dividend date
except certain dividends from foreign securities which are recorded as soon as
the information is available to the Portfolio. Interest income is earned from
settlement date, recorded on the accrual basis, and adjusted, if necessary, for
accretion of discounts and amortization of premiums. For financial and tax
reporting purposes, realized gains and losses are determined on the basis of
specific lot identification.
There is uncertainty regarding the collectibility of tax reclaims by the
Portfolio due to its partnership status for federal income tax purposes. As
such, the Portfolio did not accrue tax reclaims totaling $897,336 during the
period. Upon determination of the Portfolio's entitlement to benefits under
foreign tax treaties, if any, tax reclaim income will be accrued.
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 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 in the Portfolio's Statement of Operations.
Forward Foreign Currency Contracts
The Portfolio may enter into forward foreign currency contracts to hedge
the exchange rate risk on investment transactions or to hedge the value of
portfolio securities denominated in foreign currencies. Forward foreign currency
contracts are valued at the forward exchange rate prevailing on the day of
valuation. The Portfolio 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 Portfolio
also bears the credit risk if the counterparty fails to perform under the
contract.
Futures Contracts
The Portfolio may enter into financial futures contracts which are
contracts to buy a standard quantity of securities at a specified price on a
future date. The Portfolio may purchase or sell futures contracts and options on
futures contracts as a method for keeping assets readily convertible to cash
- --------------------------------------------------------------------------------
28
AMERICAN BEACON MASTER TRUST INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
if needed to meet shareholder redemptions or for other needs while maintaining
exposure to the stock market. 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 Portfolio is required to set
aside or deposit with a broker an amount, termed the initial margin, which
typically represents 5% of the face value of the futures contract. The initial
margin amount is reflected as Deposit with broker for futures contracts 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.
Federal Income and Excise Taxes
The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor will be taxed on its share of the Portfolio's
ordinary income and capital gains. It is intended that the Portfolio's assets
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of subchapter M of the Internal Revenue Code.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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 directors are
indemnified against certain liability 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 Agreement
The Trust and the Manager are parties to a Management Agreement that
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory, portfolio management and securities lending services.
Investment assets of the Portfolio are managed by multiple investment advisors
which have entered into separate investment advisory agreements with the
Manager. As compensation for performing the duties required under the Management
Agreement, the Manager receives from the Portfolio an annualized fee equal to
..10% of the average daily net assets plus amounts paid by the Manager to the
investment advisors hired by the Manager to direct
- --------------------------------------------------------------------------------
29
AMERICAN BEACON MASTER TRUST INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
investment activities of the Portfolio. Management fees paid during the period
were as follows (dollars in thousands):
<Table>
<Caption>
AMOUNTS PAID TO NET AMOUNTS
MANAGEMENT MANAGEMENT INVESTMENT RETAINED BY
FEE RATE FEE ADVISORS MANAGER
- ---------- ---------- --------------- -----------
..25%-.60% $7,905 $5,652 $2,253
</Table>
As compensation for services provided by the Manager in connection with
securities lending activities, the Portfolio pays to the Manager, with respect
to cash collateral posted by borrowers, a fee up to 25% 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 when a borrower
posts collateral other than cash, a fee up to 25% of such loan fees. During the
year ended October 31, 2005, the Portfolio paid securities lending fees of
$431,846 to the Manager. This fee is netted against securities lending income in
the Statement of Operations.
Investment in Affiliated Funds
The Portfolio is permitted, pursuant to an exemptive order by the
Securities and Exchange Commission ("SEC") and approved procedures by the Board,
to invest up to 25% of its total assets in the American Beacon Money Market
Select Fund (the "Select Fund"), an affiliated fund. The Portfolio and the
Select Fund have the same investment advisor and therefore, are considered to be
affiliated. Cash collateral received by the Portfolio in connection with
securities lending may be invested in the Select Fund and the American Beacon
Enhanced Cash Trust (collectively, the "Affiliated Funds"). The Manager serves
as Trustee and investment advisor to the Affiliated Funds and receives an
annualized fee equal to 0.10% of the average daily net assets of the Affiliated
Funds. During the period, the Manager earned fees from the Affiliated Funds
totaling $121,825 on the Portfolio's direct investment in the Affiliated Funds,
and $440,321 from securities lending collateral invested in the Affiliated
Funds.
During the period, the Fund had purchases of $1,089,485,000 and sales of
$1,100,723,000, for an ending balance of $119,493,000, excluding balances held
in the securities lending collateral account.
Interfund Lending Program
Pursuant to an exemptive order by the SEC, the Portfolio, along with other
registered investment companies having management contracts with the Manager,
may participate in an interfund lending program as a borrower. This program
provides an alternative credit facility allowing the Portfolio to borrow from,
or lend money to, other participating series managed by the Manager. At October
31, 2005, the Portfolio had not utilized the credit facility.
Other
Certain officers or Trustees of the Trust are also current or former
officers or employees of the Manager or American. The Trust makes no direct
payments to its officers. Mr. Feld and the non-interested Trustees (other than
Mr. O'Sullivan) and their spouses are provided free unlimited air transportation
on American. Retired Trustees and their spouses are provided free air
transportation
- --------------------------------------------------------------------------------
30
AMERICAN BEACON MASTER TRUST INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
on American, up to a maximum annual value of $40,000. The Trust compensates each
Trustee with payments in an amount equal to the Trustee's income tax on the
value of this free airline travel. Mr. O'Sullivan, as a retiree of American,
already receives flight benefits. Mr. O'Sullivan receives an annual retainer of
$40,000 plus $1,250 for each Board meeting attended.
During the year ended October 31, 2005, subadvisors voluntarily reimbursed
the Portfolio for certain losses totaling $941,000. A $383,000 reimbursement was
made to compensate the Portfolio for a loss associated with a rights offering
that expired. The shares that would have been acquired through a full exercise
of the rights were subsequently purchased on the open markets. The subadvisor
reimbursed the Portfolio for the appreciation of the shares over the exercise
price, transaction costs and foreign exchange costs incurred in making this
purchase in the open market. A $558,000 reimbursement was made to compensate the
Portfolio for a loss associated with a security that violated investment
restrictions. These reimbursements are reflected in the gain/loss section of the
Statement of Operations.
3. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of investments,
other than short-term obligations, (in thousands), for the year ended October
31, 2005 were $1,087,075 and $778,783, respectively.
4. SECURITIES LENDING
The Portfolio 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 marked to
market and monitored daily. To the extent that a loan is collateralized by cash,
such collateral shall be invested by the securities lending agent (the "Agent")
in short-term instruments, money market mutual funds, and such other short-term
investments, provided the investments meet certain quality and diversification
requirements.
Income generated from the investment of cash collateral, less negotiated
rebate fees paid to participating brokers and transaction costs, is divided
between the Portfolio and the Agent and is recorded as income for the Portfolio.
To the extent that a loan is secured by non-cash collateral, brokers pay the
Portfolio negotiated lenders' fees, which are divided between the Portfolio and
the Agent and are recorded as securities lending income for the Portfolio. The
Portfolio also continues to receive income on the securities loaned, and any
gain or loss in the market prices of securities loaned that may occur during the
term of the loan.
Risks to the Portfolio in securities lending transactions are that the
borrower may not provide additional collateral when required or return the
securities when due, and that the value of the short-term investments will be
less than the amount of cash collateral required to be returned to the borrower.
At October 31, 2005, securities with a market value of approximately
$167,603,000 were loaned by the Portfolio. Cash collateral held by the custodian
for the Portfolio in an investment in the Affiliated Funds totaled $176,304,000.
- --------------------------------------------------------------------------------
31
AMERICAN BEACON MASTER TRUST INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
5. COMMISSION RECAPTURE
The Portfolio has established brokerage commission recapture arrangements
with certain brokers or dealers. If a Portfolio investment advisor chooses to
execute a transaction through a participating broker, the broker rebates a
portion of the commission back to the Portfolio. Any collateral benefit received
through participation in the commission recapture program is directed
exclusively to the Portfolio.
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32
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
AND THE AMERICAN BEACON MASTER TRUST
(Unaudited)
- --------------------------------------------------------------------------------
The Trustees and officers of the American Beacon Funds (the "Trust") and
the American Beacon Master Trust (the "Master Trust") are listed below, together
with their principal occupations during the past five years. Unless otherwise
indicated, the address of each person listed below is 4151 Amon Carter
Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees twenty-seven
funds in the fund complex that includes the Trust, the Master Trust, the
American Beacon Mileage Funds, and the American Beacon Select Funds. The Trust's
Statement of Additional Information contains additional information about the
Trustees and is available without charge by calling 1-800-658-5811.
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (57) Trustee and President, American Beacon Advisors, Inc. (1986-Present);
President of Chairman (1989-2003) and Director (1979-1986, 2003-Present),
Trust since 1987 American Airlines Federal Credit Union; Director, Crescent
and AMR Trust Real Estate Equities, Inc. (1994-Present); Director,
since 1995 Pritchard, Hubble & Herr, LLC (investment advisor)
(2001-Present); Advisory Director, Southern Methodist
University Endowment Fund (1996-Present); Member, Southern
Methodist University Cox School of Business Advisory Board
(1999-2002); Member, New York Stock Exchange Pension Manager
Committee (1997-1998, 2000-2002); Chairman, Committee for
the Investment of Employee Benefits Defined Benefit
Sub-Committee (1982-Present); Director, United Way of
Tarrant County (1988-2000, 2004-Present); Trustee, American
Beacon Mileage Funds (1995-Present); Trustee, American
Beacon Select Funds (1999-Present).
Alan D. Feld** (68) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm)
(1960-Present); Director, Clear Channel Communications
(1984-Present); Trustee, CenterPoint Properties
(1994-Present); Trustee, American Beacon Mileage Funds
(1996-Present); Trustee, American Beacon Select Funds
(1999-Present).
NON-INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (61) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund servicing
company) (1998-2003); Board Member, Baylor University
Medical Center Foundation (1992-Present); Trustee, American
Beacon Mileage Funds (2004-Present); Trustee, American
Beacon Select Funds (2004-Present).
</Table>
- --------------------------------------------------------------------------------
33
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
AND THE AMERICAN BEACON MASTER TRUST -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
NON-INTERESTED TRUSTEES (CONT.)
Brenda A. Cline (44) Trustee since 2004 Vice President, Chief Financial Officer, Treasurer and
301 Commerce Street Secretary, Kimbell Art Foundation (1993-Present); Trustee,
Suite 2240 Texas Christian University (1999-Present); Trustee, W.I.
Fort Worth, Texas 76102 Cook Foundation, Inc. (d/b/a Cook Children's Health
Foundation) (2001-Present); Trustee, American Beacon Mileage
Funds (2004-Present); Trustee, American Beacon Select Funds
(2004-Present).
Richard A. Massman (62) Trustee since 2004 Senior Vice President and General Counsel, Hunt
Consolidated, Inc. (holding company engaged in energy, real
estate, farming, ranching and venture capital activities)
(1994-Present); Trustee, American Beacon Mileage Funds
(2004-Present); Trustee, American Beacon Select Funds
(2004-Present).
Stephen D. O'Sullivan (70) Trustee of Trust Consultant (1994-Present); Trustee, American Beacon Mileage
since 1987 and Funds (1995-Present); Trustee, American Beacon Select Funds
AMR Trust since (1999- Present).
1995
R. Gerald Turner (59) Trustee since 2001 President, Southern Methodist University (1995-Present);
225 Perkins Admin. Bldg. Director, ChemFirst (1986-2002); Director, J.C. Penney
Southern Methodist Univ. Company, Inc. (1996- Present); Director, California Federal
Dallas, Texas 75275 Preferred Capital Corp. (2001- 2003); Director, Kronus
Worldwide Inc. (chemical manufacturing) (2003-Present);
Director, First Broadcasting Investment Partners, LLC
(2003-Present); Member, United Way of Dallas Board of
Directors; Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory Board;
Member, Knight Commission on Intercollegiate Athletics;
Trustee, American Beacon Mileage Funds (2001-Present);
Trustee, American Beacon Select Funds (2001-Present).
Kneeland Youngblood (49) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court equity firm) (1998-Present); Trustee, The Hockaday School
Suite 1740 (1997-Present); Director, Starwood Hotels and Resorts
Dallas, Texas 75201 (2001-Present); Member, Council on Foreign Relations
(1995-Present); Director, Just For the Kids (1995-2001);
Director, L&B Realty Advisors (1998-2000); Trustee, Teachers
Retirement System of Texas (1993-1999); Director, Starwood
Financial Trust (1998-2001); Trustee, St. Mark's School of
Texas (2002-Present); Trustee, American Beacon Mileage Funds
(1996-Present); Trustee, American Beacon Select Funds (1999-
Present).
OFFICERS
TERM
------------------
One Year
Brian E. Brett (45) VP since 2004 Vice President, Director of Sales, American Beacon Advisors,
Inc. (2004-Present); Regional Vice President, Neuberger
Berman, LLC (investment advisor) (1996-2004).
Nancy A. Eckl (43) VP of Trust since Vice President, Trust Investments, American Beacon Advisors,
1990 and AMR Inc. (1990-Present).
Trust since 1995
</Table>
- --------------------------------------------------------------------------------
34
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
AND THE AMERICAN BEACON MASTER TRUST -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
OFFICERS (CONT.)
Michael W. Fields (51) VP of Trust since Vice President, Fixed Income Investments, American Beacon
1989 and AMR Advisors, Inc. (1988-Present).
Trust since 1995
Rebecca L. Harris (38) Treasurer since Vice President, Finance, American Beacon Advisors, Inc.
1995 (1995- Present).
John B. Roberson (47) VP of Trust since Vice President, Client Relations & Special Projects,
1989 and AMR American Beacon Advisors, Inc. (2004-Present); Vice
Trust since 1995 President, Director of Sales, American Beacon Advisors, Inc.
(1991-2004); Director, Pritchard, Hubble & Herr, LLC
(investment advisor) (2001-Present).
Christina E. Sears (34) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc.
Officer since (2004- Present); Senior Compliance Analyst, American Beacon
2004 and Advisors, Inc. (1998-2004).
Secretary since
2005
</Table>
- ---------------
* The Board has adopted a retirement plan that requires Trustees to retire no
later than the last day of the calendar year in which they reach the age of
70, with the exception of Messrs. Quinn and O'Sullivan.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the Trust and
AMR Trust, as defined by the 1940 Act. Mr. Quinn is President of the Manager.
Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided
legal services within the past two years to one or more of the Trust's and
AMR Trust's investment advisors.
- --------------------------------------------------------------------------------
35
AMERICAN BEACON FUNDS
PRIVACY POLICY
(Unaudited)
- --------------------------------------------------------------------------------
The American Beacon Funds recognizes and respects 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.
- --------------------------------------------------------------------------------
36
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
37
(AMERICAN BEACON FUNDS LOGO)
- --------------------------------------------------------------------------------
DELIVERY OF DOCUMENTS
To reduce expenses, your financial institution may mail only one copy of the
Prospectus, Annual Report and Semi-Annual Report to those addresses shared by
two or more accounts. If you wish to receive individual copies of these
documents, please contact your financial institution. Delivery of individual
copies will commence thirty days after receiving your request.
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:
<Table>
(KEYBOARD GRAPHIC) (MOUSE GRAPHIC)
BY E-MAIL: ON THE INTERNET:
American-Beacon.Funds@ambeacon.com Visit our website at www.americanbeaconfunds.com
</Table>
- --------------------------------------------------------------------------------
<Table>
(TELEPHONE GRAPHIC) (MAILBOX GRAPHIC)
BY TELEPHONE: BY MAIL:
Institutional Class American Beacon Funds
Call (800) 658-5811 4151 Amon Carter Blvd., MD 2450
AMR Class(SM) Fort Worth, TX 76155
Call (800) 345-2345
PlanAhead Class(R) and Service Class
Call (800) 388-3344
</Table>
- --------------------------------------------------------------------------------
<Table>
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES AVAILABILITY OF PROXY VOTING POLICY AND RECORDS
In addition to the Schedule of Investments provided in each A description of the policies and procedures that the Funds
semi-annual and annual report, each Fund files a complete use to determine how to vote proxies relating to portfolio
schedule of its portfolio holdings with the Securities and securities is available in each Fund's Statement of
Exchange Commission ("SEC") on Form N-Q as of the first and Additional Information, which may be obtained free of charge
third fiscal quarters. The Funds' Forms N-Q are available on by calling 1-800-967-9009 or by accessing the SEC's website
the SEC's website at www.sec.gov. The Forms N-Q may also be at www.sec.gov. Each Fund's proxy voting record for the most
reviewed and copied at the SEC's Public Reference Room, 450 recent year ended June 30 is filed annually with the SEC on
Fifth Street, NW, Washington, DC 20549. Information Form N-PX. The Funds' Forms N-PX are available on the SEC's
regarding the operation of the SEC's Public Reference Room website at www.sec.gov. Each Fund's proxy voting record may
may be obtained by calling 1-800-SEC-0330. A complete also be obtained by calling 1-800-967-9009.
schedule of each Fund's portfolio holdings is also available
on the Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of each fiscal
quarter.
</Table>
FUND SERVICE PROVIDERS:
<Table>
CUSTODIAN TRANSFER AGENT INDEPENDENT DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES REGISTERED PUBLIC FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri ACCOUNTING FIRM Portland, Maine
ERNST & YOUNG LLP
Chicago, Illinois
</Table>
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.
- --------------------------------------------------------------------------------
American Airlines, Inc. is not responsible for investments made in the American
Beacon Funds. American Beacon Funds is a service mark of AMR Corporation.
American Beacon International Equity Fund is a service mark of American Beacon
Advisors, Inc.
AR 10/05
535723
G U I D A N C E | V I S I O N | E X P E R I E N C E
[AMERICAN BEACON FUNDS LOGO]
ANNUAL REPORT
[PHOTO]
OCTOBER 31, 2005
SMALL CAP VALUE FUND
Formerly known as the
American AAdvantage Funds
About American Beacon
- --------------------------------
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.
<Table>
<Caption>
Contents
----------------------------------------------
President's Message........... 1
Market and Performance Overview... 2
Schedule of Investments....... 7
Additional Information..............Back Cover
</Table>
Any opinions herein, including forecasts, reflect our judgement 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.
Investing in the securities of small capitalization companies involves greater
risk and the possibility of greater price volatility than investing in larger
capitalization and more established companies.
American Beacon Funds October 31, 2005
(BILL QUINN PICTURE)
FELLOW SHAREHOLDERS,
I am pleased to present
you with the Annual
Report for the American
Beacon Small Cap Value
Fund for the twelve
months ended October 31,
2005. As investors faced
increasing oil prices,
rising interest rates and
devastating hurricane
damage, most financial
markets experienced modest
growth. The Dow Jones
Industrial Average posted
gains of 6.5%, the S&P 500
Index increased by 8.7%
and the Russell 2000 Index
returned 12.1%. The
American Beacon Small Cap
Value Fund-Institutional
Class posted strong returns of 12.9% for the fiscal year.
Earlier in 2005, the Fund was closed to new investors in an effort to
protect the interests of existing shareholders. Despite this, the Fund grew to
$2.9 billion at October 31, 2005. Additionally, as of August 31, 2005, Dreman
Value Management, LLC, Metropolitan West Capital Management, LLC and SSgA Funds
Management, Inc. joined the fund's five existing sub-advisors, bringing the
total number to eight. These managers were added to ensure existing shareholders
could continue to invest in the Fund. Our greatest priority is striving to
deliver exceptional investment results to shareholders; we believe these steps
allow us to preserve the integrity of our successful investment philosophy.
Please review the enclosed market overviews, portfolio listings and
detailed financial data. As always, we welcome the opportunity to serve your
financial needs. To obtain further details about the American Beacon Funds
family or access your account information, please visit our web site at
www.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Small Cap Value Fund.
Sincerely,
/s/ WILLIAM F. QUINN
William F. Quinn
President, American Beacon Funds
Performance shown is historical and may not be 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 as of date
indicated and may differ from current performance. To obtain performance as of
the most recent month end, please visit www.americanbeaconfunds.com or call
1-800-967-9009.
1
DOMESTIC EQUITY MARKET OVERVIEW
- --------------------------------------------------------------------------------
Toward the end of 2004, the U.S. equity markets rallied, posting
particularly strong results. The broad market surged in the final quarter of
2004, as many indicators pointed to a respectable expansion and election
uncertainty was removed. Strong Gross Domestic Product (GDP) growth, a
gradually improving labor market and easing of oil prices from prior highs
were all factors that contributed to the rally.
Stocks got off to a weak start in the first quarter of 2005. Though
productivity and economic growth remained strong, equities faced dual headwinds
of rising oil prices and interest rates. While both styles struggled, value
stocks in the Russell indices outperformed their growth counterparts in the
first quarter. With regard to size, midcap stocks held up the best, followed by
large caps. Small cap issues trailed in the quarter, likely on pressure from
profit taking after several quarters of outperformance. Sector performance
varied widely in the S&P 500 Index, with more than 25 percentage points
separating the top performer from the bottom. Four of the ten sectors advanced
in the first quarter. Energy was by far the strongest performer in the quarter,
posting a total return of +17.58%. Telecommunication Services, Information
Technology, Financials and Consumer Discretionary were the worst-performing
sectors in the first quarter, all declining more than 5%.
Despite record oil prices and decelerating growth in U.S. operating
earnings, most major domestic equity indices managed to reverse course from the
prior quarter and eke out low single-digit gains in the second quarter of 2005.
Overall, growth stocks in the Russell indices outperformed their value
counterparts in the second quarter. With regard to size, small cap stocks
performed the best, followed by midcaps, with large cap issues bringing up the
rear. Sector performance varied widely in the S&P 500 Index, with more than 18
percentage points separating the leader from the laggard, and six of the ten
sectors advanced. The defensive Utilities sector was the strongest performer,
rising 9.31%. Materials was the worst-performing sector, posting a total return
of -9.46%.
During the third quarter of 2005, stocks posted solid gains across the
board. Overall, growth stocks in the Russell indices outperformed their value
counterparts in the third quarter. With regard to size, midcap stocks performed
the best, followed by small caps, with large cap issues bringing up the rear.
Sector performance again varied widely in the S&P 500 Index, with more than 19
percentage points separating the leader from the laggard, with all but two of
the ten sectors advancing during the quarter. Sky-rocketing oil prices made
Energy the big winner, rising 18.25%. The Telecommunication Services and
Consumer Discretionary sectors were both in negative territory, posting total
returns of -1.05% and -0.88%, respectively. Some investors were disappointed
that the Fed didn't decide to hold off on its rate hike in the wake of Hurricane
Katrina. While both Katrina and Rita were tragic events with significant human
as well as economic loss, the Federal Open Market Committee (FOMC) stated that
it believes the impact on the economy will be transitory. As largely expected,
the FOMC raised the Federal Funds target 25 basis points at both its August and
September meetings to stand at 3.75%.
The U.S. stock market pulled back slightly in October, with the major
equity indices posting low-single digit losses. Contrary to recent trends,
growth stocks outperformed their value counterparts for the month. With respect
to size, large cap issues led, followed by mid caps, with small cap stocks
trailing the pack. Most international equity markets reported low- to mid-single
digit loses for the month. Only two of the ten sectors in the S&P 500 Index
posted gains in October. The best-performing sectors were Financials and
Materials, returning 3.16% and 0.51%, respectively. Energy was the
worst-performing sector with a return of -9.35%.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the Small Cap Value Fund returned 12.90% for the
twelve months ended October 31, 2005, lagging the Russell 2000 Value Index
("Index") return of 13.04% and the Lipper Small-Cap Value Funds Index return of
14.74% for the same period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 12/31/98* THROUGH 10/31/05
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER SMALL-CAP VALUE RUSSELL 2000 VALUE
INSTITUTIONAL CLASS FUNDS INDEX INDEX
------------------- ---------------------- ------------------
12/98 10000.00 10000.00 10000.00
10/99 9070.00 9513.00 9508.00
10/00 10320.00 11261.00 11153.00
10/01 12400.00 12151.00 12129.00
10/02 12808.00 11799.00 11822.00
10/03 18886.00 16693.00 16584.00
10/04 22637.00 19551.00 19567.00
10/05 25557.00 22433.00 22119.00
</Table>
* Inception of Institutional Class of Fund
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
PERIODS ENDED 10/31/05 VALUE OF
--------------------------- $10,000
SINCE 12/31/98-
1 YEAR 5 YEARS INCEP. 10/31/05
------ ------- -------- ---------
Institutional Class(1)..... 12.90% 19.89% 14.72% $22,557
PlanAhead Class(1,2)....... 12.63% 19.53% 14.43% $25,119
AMR Class(1,2)............. 13.23% 20.21% 15.03% $26,032
Service Class(1,3)......... 12.32% 19.36% 14.31% $24,935
Lipper Small-Cap Value
Funds Index............... 14.74% 14.78% 12.55% $22,433
Russell 2000 Value Index... 13.04% 14.68% 12.32% $22,119
</Table>
Russell 2000 (R) Value Index is a service mark of the Frank Russell Company. The
Russell 2000 Value Index is an unmanaged index of those stocks in the Russell
2000 Index with below-average price-to-book ratios and below-average forecasted
growth values.
1. Performance shown is historical and may not be 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 as of date indicated and may differ from current
performance. To obtain performance as of the most recent month end, please
visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance
in the table above does not reflect the deduction of taxes a shareholder
would pay on distributions or the redemption of shares.
2. Fund performance for the since inception period represents the
total returns achieved by the Institutional Class from 12/31/98 up to
3/1/99, the inception date of the PlanAhead and AMR Classes, and the returns
of the PlanAhead and AMR Classes since inception of these Classes. Expenses
of the PlanAhead 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 PlanAhead Class been in existence since 12/31/98. Expenses of the AMR
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 AMR Class been
in existence since 12/31/98.
3. Fund performance for the five-year and since inception periods
represents the total returns achieved by the Institutional Class from
12/31/98 up to 3/1/99, the returns of the PlanAhead Class from 3/1/99 up to
5/1/03 (the inception date of the Service Class), and the returns of the
Service Class since its inception. Expenses of the Service Class are higher
than those of the Institutional and PlanAhead Classes. As a result, total
returns shown may be higher than they would have been had the Service Class
been in existence since 12/31/98.
Prior to the deduction of expenses, the Fund outperformed the Index.
Unfortunately, the Fund did not generate enough excess performance to offset its
expenses. The Fund added value relative to the Index through sector allocation
and, to a lesser extent stock selection. Strong stock selection in the Health
Care and Information Technology sectors had the greatest positive impact, but
was largely offset by poor selection in the Industrials and Utilities sectors.
Positions in Health Net, Inc. (up 95.1%) and Sola International, Inc. (up 45.9%)
were the major contributors to the Health Care sector's positive impact on the
Fund's performance. Holdings such as MEMC Electronic Materials, Inc. (up 90.9%)
and Western Digital Corp. (up 45.3%) in the Information Technology sector
contributed significantly. The Industrials sector detracted from performance,
mostly due to the Fund's investments in AGCO Corp. (which declined in value for
the partial period it was owned by the Fund), Insituform Technologies, Inc.
(down 9.4%) and Deluxe Corp. (down 8.9%). Utilities holding Northeast Utilities
(down 2.6%) was also a drag on Fund performance.
The Fund's large underweighting in the Financials sector, which was one of
the poorer performing sectors of the Index, contributed to the Fund's excess
performance relative to the Index. However, its impact was somewhat muted by the
Fund's large overweighting in the Consumer Discretionary sector, which was also
a poor performing sector of the Index.
The sub-advisors continue to focus on stock selection, to uncover
investment opportunities that should benefit the Fund's performance over the
longer term.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP VALUE FUND(SM) -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
American Financial Group, Incorporated 1.1%
Protective Life Corporation 0.9%
Reinsurance Group of America, Incorporated 0.9%
Flowserve Corporation 0.8%
Ingram Micro, Incorporated 0.8%
Arrow Electronics, Incorporated 0.8%
Del Monte Foods Company 0.8%
Avnet, Incorporated 0.8%
Lear Corporation 0.7%
Worthington Industries, Incorporated 0.7%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 24.2%
Industrials 19.1%
Consumer Discretionary 18.7%
Information Technology 11.0%
Utilities 8.6%
Materials 6.5%
Energy 4.4%
Health Care 4.0%
Consumer Staples 3.4%
Telecommunication Services 0.1%
</Table>
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, distribution (12b-1) fees, and other Fund expenses. The examples below 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, 2005
through October 31, 2005.
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 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period. Shareholders of the
PlanAhead and Institutional Classes that invest in the Fund through an IRA may
be subject to a custodial IRA fee of $12 that is typically deducted each
December. If your account was subject to a custodial IRA fee during the period,
your costs would have been $12 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 PlanAhead and Institutional Classes that invest in the Fund through an
IRA may be subject to a custodial IRA fee of $12 that is typically deducted each
December. If your account was subject to a custodial IRA fee during the period,
your costs would have been $12 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. 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.
4
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP VALUE FUND(SM) -- CONTINUED
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
5/1/05 10/31/05 5/1/05-10/31/05
--------- -------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $1,090.18 $4.65
Hypothetical $1,000.00 $1,020.75 $4.50
(5% return before expenses)
PLANAHEAD CLASS
Actual $1,000.00 $1,088.54 $5.87
Hypothetical $1,000.00 $1,019.58 $5.68
(5% return before expenses)
AMR CLASS
Actual $1,000.00 $1,090.59 $3.14
Hypothetical $1,000.00 $1,022.20 $3.04
(5% return before expenses)
SERVICE CLASS
Actual $1,000.00 $1,087.24 $7.57
Hypothetical $1,000.00 $1,017.95 $7.32
(5% return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratios
for the six-month period of 0.88%, 1.12%, 0.60%, 1.44%, for the
Institutional, PlanAhead, AMR, and Service 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
AMERICAN BEACON SMALL CAP VALUE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
October 31, 2005
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
American Beacon Small Cap Value Fund:
We have audited the accompanying statement of assets and liabilities of
American Beacon Small Cap Value Fund (the "Fund"), a fund comprising the
American Beacon Funds (formerly known as the American AAdvantage Small Cap Value
Fund and the American AAdvantage Funds, respectively), including the schedule of
investments, as of October 31, 2005, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
American Beacon Small Cap Value Fund at October 31, 2005, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods indicated therein, in conformity with U.S. generally accepted
accounting principles.
(ERNST & YOUNG LLP)
Chicago, Illinois
December 21, 2005
- --------------------------------------------------------------------------------
6
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCK - 95.69%
CONSUMER DISCRETIONARY - 17.87%
AUTO COMPONENTS - 2.83%
American Axle & Manufacturing
Holdings, Incorporated(+)... 468,100 $ 10,204
ArvinMeritor,
Incorporated(+).............. 566,100 9,075
Bandag, Incorporated(+)....... 85,100 3,617
Bandag, Incorporated, A
Shares....................... 3,600 131
BorgWarner, Incorporated(+)... 250,300 14,515
Cooper Tire & Rubber
Company(+)................... 143,400 1,959
Group 1 Automotive,
Incorporated+(+)............. 253,600 7,009
Hayes Lemmerz International,
Incorporated+(+)............. 93,000 364
Keystone Automotive
Industries,
Incorporated+(+)............. 79,500 2,274
Lear Corporation(+)........... 704,400 21,456
Sonic Automotive,
Incorporated................. 236,600 5,231
Superior Industries
International,
Incorporated(+).............. 22,200 452
TRW Automotive Holdings
Corporation+................. 88,400 2,391
Westinghouse Air Brake
Technologies Corporation..... 88,700 2,413
----------
TOTAL AUTO COMPONENTS........ 81,091
----------
AUTOMOBILES - 0.15%
Winnebago Industries,
Incorporated(+).............. 145,800 4,275
----------
TOTAL AUTOMOBILES............ 4,275
----------
DISTRIBUTORS - 0.09%
Spectrum Brands,
Incorporated+(+)............. 124,700 2,581
----------
TOTAL DISTRIBUTORS........... 2,581
----------
HOTELS RESTAURANTS & LEISURE - 2.04%
Aztar Corporation+(+)......... 184,500 5,548
CBRL Group, Incorporated(+)... 48,900 1,697
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
CEC Entertainment,
Incorporated+................ 215,000 $ 7,269
Intrawest Corporation......... 330,200 8,034
Jack in the Box,
Incorporated+(+)............. 121,400 3,606
Jameson Inns,
Incorporated(+).............. 787,100 1,637
Kerzner International
Limited+(+).................. 182,700 10,660
Landry's Restaurants,
Incorporated(+).............. 103,300 2,841
Lodgian, Incorporated+........ 357,700 3,641
Magna Entertainment
Corporation+(+).............. 411,200 2,747
Papa John's International,
Incorporated+(+)............. 15,400 800
Ruby Tuesday,
Incorporated(+).............. 77,500 1,698
Ryans Restaurant Group,
Incorporated+................ 30,700 327
Steiner Leisure Limited+...... 163,700 5,581
Sunterra Corporation+(+)...... 195,600 2,349
----------
TOTAL HOTELS RESTAURANTS &
LEISURE...................... 58,435
----------
HOUSEHOLD DURABLES - 4.60%
American Greetings
Corporation(+)............... 533,900 13,481
Beazer Homes USA,
Incorporated(+).............. 217,600 12,610
Champion Enterprises,
Incorporated+(+)............. 259,300 3,599
Ethan Allen Interiors,
Incorporated(+).............. 329,600 11,147
Furniture Brands
International,
Incorporated(+).............. 763,500 13,857
Helen of Troy Limited+(+)..... 289,800 5,202
HNI Corporation............... 30,700 1,501
La-Z-Boy, Incorporated(+)..... 311,000 3,682
M.D.C. Holdings,
Incorporated(+).............. 153,873 10,556
Matthews International
Corporation.................. 56,000 2,013
Standard Pacific Corporation.. 337,800 13,032
Tempur-Pedic International,
Incorporated+(+)............. 222,300 2,459
The Toro Company.............. 87,400 3,191
Tupperware Corporation(+)..... 810,900 18,594
WCI Communities,
Incorporated+(+)............. 675,400 16,899
----------
TOTAL HOUSEHOLD DURABLES..... 131,823
----------
INTERNET & CATALOG RETAIL - 0.01%
School Specialty,
Incorporated+................ 8,418 285
----------
TOTAL INTERNET & CATALOG
RETAIL....................... 285
----------
LEISURE EQUIPMENT & PRODUCTS - 0.53%
Brunswick Corporation(+)...... 277,800 10,593
Callaway Golf Company......... 240,300 3,424
Hasbro, Incorporated.......... 36,200 682
Polaris Industries,
Incorporated................. 13,200 595
----------
TOTAL LEISURE EQUIPMENT &
PRODUCTS..................... 15,294
----------
MEDIA - 0.97%
Courier Corporation(+)........ 69,899 2,289
R.H. Donnelley Corporation+... 45,000 2,778
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
7
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
Dow Jones & Company,
Incorporated(+).............. 34,300 $ 1,163
Entercom Communications
Corporation+................. 51,300 1,481
Gemstar TV-Guide
International,
Incorporated+................ 1,384,300 3,599
Gray Television,
Incorporated................. 309,900 2,789
Hearst-Argyle Television,
Incorporated................. 67,400 1,615
Journal Communications,
Incorporated................. 54,700 774
Journal Register Company(+)... 274,150 4,395
The Reader's Digest
Association, Incorporated.... 262,700 4,024
Source Interlink Companies,
Incorporated+(+)............. 281,300 2,864
----------
TOTAL MEDIA.................. 27,771
----------
MULTILINE RETAIL - 0.78%
BJ's Wholesale Club,
Incorporated+................ 356,800 10,162
Burlington Coat Factory
Warehouse Corporation(+)..... 195,200 7,527
Dollar Tree Stores,
Incorporated+(+)............. 92,900 2,003
Tuesday Morning
Corporation(+)............... 69,000 1,655
ShopKo Stores,
Incorporated+(+)............. 32,800 940
----------
TOTAL MULTILINE RETAIL....... 22,287
----------
SPECIALTY RETAIL - 4.67%
Aeropostale, Incorporated+.... 52,200 1,020
Big 5 Sporting Goods
Corporation(+)............... 158,000 3,505
Borders Group,
Incorporated(+).............. 602,500 11,828
Cash America International,
Incorporated................. 223,800 4,892
Charming Shoppes,
Incorporated+(+)............. 417,900 4,680
Claire's Stores,
Incorporated................. 656,900 17,112
Cost Plus, Incorporated+(+)... 324,400 4,983
Foot Locker, Incorporated..... 131,400 2,554
Genesco, Incorporated+(+)..... 16,700 615
Global Imaging Systems,
Incorporated+(+)............. 94,900 3,379
The Men's Wearhouse,
Incorporated+................ 687,300 16,976
OfficeMax, Incorporated....... 67,800 1,900
PETCO Animal Supplies,
Incorporated+(+)............. 199,700 3,796
Regis Corporation(+).......... 303,600 11,647
Rent-A-Center,
Incorporated+(+)............. 320,650 5,778
Stage Stores,
Incorporated(+).............. 221,680 6,145
Too, Inc.+(+)................. 132,500 3,764
United Auto Group,
Incorporated(+).............. 29,900 1,009
United Rentals,
Incorporated+(+)............. 427,400 8,364
Wabash National
Corporation(+)............... 238,900 4,398
Zale Corporation+............. 551,100 15,447
----------
TOTAL SPECIALTY RETAIL....... 133,792
----------
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
TEXTILES & APPAREL - 1.20%
Brown Shoe Company,
Incorporated................. 4,300 $ 140
Columbia Sportswear
Company+(+).................. 33,700 1,430
Tommy Hilfiger
Corporation+(+).............. 78,200 1,259
Jones Apparel Group,
Incorporated................. 94,000 2,564
Kellwood Company(+)........... 198,800 4,356
K-Swiss, Incorporated(+)...... 72,300 2,202
Steven Madden Limited+........ 93,100 2,387
Reebok International
Limited(+)................... 47,900 2,733
The Timberland Company+....... 173,800 4,892
The Warnaco Group,
Incorporated+................ 549,800 12,469
----------
TOTAL TEXTILES & APPAREL..... 34,432
----------
TOTAL CONSUMER
DISCRETIONARY................ 512,066
----------
CONSUMER STAPLES - 3.28%
BEVERAGES - 0.07%
The Boston Beer Company,
Incorporated+(+)............. 75,500 1,933
----------
TOTAL BEVERAGES.............. 1,933
----------
FOOD & DRUG RETAILING - 0.41%
Pathmark Stores,
Incorporated+(+)............. 298,400 2,909
Performance Food Group
Company+(+).................. 139,100 3,838
Ruddick Corporation(+)........ 231,600 5,098
----------
TOTAL FOOD & DRUG RETAILING.. 11,845
----------
FOOD PRODUCTS - 2.07%
Chiquita Brands International,
Incorporated(+).............. 227,600 6,284
Del Monte Foods Company+(+)... 2,157,700 22,829
J&J Snack Foods Corporation... 26,900 1,517
Lance, Incorporated(+)........ 100,110 1,755
Ralcorp Holdings,
Incorporated+(+)............. 223,400 8,690
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
8
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
Sensient Technologies
Corporation(+)............... 435,850 $ 7,710
Smithfield Foods,
Incorporated+(+)............. 357,100 10,563
----------
TOTAL FOOD PRODUCTS.......... 59,348
----------
HOUSEHOLD PRODUCTS - 0.21%
Blyth, Incorporated(+)........ 326,300 5,952
----------
TOTAL HOUSEHOLD PRODUCTS..... 5,952
----------
PERSONAL PRODUCTS - 0.21%
NBTY, Incorporated+(+)........ 304,000 6,083
----------
TOTAL PERSONAL PRODUCTS...... 6,083
----------
TOBACCO - 0.31%
Universal Corporation(+)...... 236,800 8,866
----------
TOTAL TOBACCO................ 8,866
----------
TOTAL CONSUMER STAPLES....... 94,027
----------
ENERGY - 4.19%
ENERGY EQUIPMENT & SERVICES - 2.54%
Cooper Cameron Corporation+... 20,700 1,526
Dril-Quip, Incorporated+(+)... 48,200 1,971
FMC Technologies,
Incorporated+................ 152,100 5,546
MDU Resources Group,
Incorporated(+).............. 215,500 7,105
Offshore Logistics,
Incorporated+................ 40,300 1,370
Oil States International,
Incorporated+(+)............. 343,200 11,360
TETRA Technologies,
Incorporated+(+)............. 186,550 5,218
Tidewater, Incorporated(+).... 315,500 14,501
Unit Corporation+............. 281,800 14,766
Universal Compression
Holdings, Incorporated+...... 126,800 4,520
Veritas DGC, Incorporated+.... 154,900 4,989
----------
TOTAL ENERGY EQUIPMENT &
SERVICES..................... 72,872
----------
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
OIL & GAS - 1.65%
Berry Petroleum Company....... 2,900 $ 174
Cimarex Energy Company+....... 117,400 4,609
Encore Acquisition
Company+(+).................. 406,549 13,949
Forest Oil Corporation+(+).... 9,300 406
Giant Industries,
Incorporated+(+)............. 77,100 4,409
The Houston Exploration
Company+(+).................. 141,800 7,310
Pogo Producing Company(+)..... 126,000 6,363
Stone Energy Corporation+(+).. 221,500 10,167
----------
TOTAL OIL & GAS.............. 47,387
----------
TOTAL ENERGY................. 120,259
----------
FINANCIALS - 23.15%
BANKS - 6.38%
Ace Cash Express,
Incorporated+(+)............. 197,900 4,059
Alabama National
BanCorporation(+)............ 32,700 2,115
Amegy Bancorporation,
Incorporated................. 25,510 590
AmeriCredit Corporation+...... 70,300 1,571
Anchor BanCorp Wisconsin,
Incorporated(+).............. 51,138 1,619
Astoria Financial
Corporation.................. 107,900 3,016
BancorpSouth,
Incorporated(+).............. 354,200 7,853
Bank of Hawaii Corporation.... 193,600 9,947
BankAtlantic Bancorp,
Incorporated................. 200,900 2,791
Chemical Financial
Corporation(+)............... 165,531 5,328
Chittenden Corporation(+)..... 214,125 6,160
City National Corporation..... 30,700 2,253
The Colonial BancGroup,
Incorporated................. 454,700 11,072
Community Bank System,
Incorporated(+).............. 225,800 5,363
Corus Bankshares,
Incorporated(+).............. 6,787 373
Cullen/Frost Bankers,
Incorporated(+).............. 208,200 10,997
Downey Financial
Corporation(+)............... 43,800 2,670
First Commonwealth Financial
Corporation(+)............... 156,600 2,062
First Republic Bank........... 87,100 3,302
FirstFed Financial
Corporation+(+).............. 13,000 695
F.N.B. Corporation(+)......... 201,800 3,616
Frontier Financial
Corporation(+)............... 5,003 161
Fulton Financial
Corporation(+)............... 87,499 1,471
Great American Financial
Resources, Incorporated(+)... 80,800 1,650
Greater Bay Bancorp........... 79,000 1,982
Hudson United Bancorp(+)...... 298,200 12,366
Independence Community Bank
Corporation.................. 26,400 1,044
International Bancshares
Corporation.................. 231,128 6,920
Investors Financial Services
Corporation(+)............... 86,800 3,314
Irwin Financial
Corporation(+)............... 176,800 3,690
MAF Bancorp, Incorporated(+).. 12,200 507
NBT Bancorp, Incorporated..... 130,369 3,095
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
9
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
Pacific Capital Bancorp(+).... 22,900 $ 826
PFF Bancorp, Incorporated..... 8,400 252
Provident Bankshares
Corporation(+)............... 113,720 3,964
Republic Bancorp,
Incorporated(+).............. 333,817 4,557
S&T Bancorp, Incorporated(+).. 9,364 348
Santander BanCorp(+).......... 56,100 1,428
Sky Financial Group,
Incorporated(+).............. 215,194 6,043
Sterling Bancshares,
Incorporated(+).............. 170,900 2,528
Sterling Financial
Corporation.................. 79,499 1,991
Susquehanna Bancshares,
Incorporated................. 215,000 4,964
Timberland Bancorp,
Incorporated................. 14,800 343
Trustmark Corporation(+)...... 340,960 9,561
United Bankshares,
Incorporated(+).............. 77,571 2,831
Washington Federal,
Incorporated(+).............. 356,994 8,207
Webster Financial
Corporation.................. 242,000 11,173
Westcorp, Incorporated........ 3,500 221
----------
TOTAL BANKS.................. 182,889
----------
DIVERSIFIED FINANCIALS - 2.60%
Affiliated Managers Group,
Incorporated+(+)............. 88,000 6,754
American Capital Strategies
Limited(+)................... 194,100 7,290
Asset Acceptance Capital
Corporation+(+).............. 175,200 4,641
Assured Guaranty Limited...... 166,900 3,735
Asta Funding,
Incorporated(+).............. 169,500 4,599
CapitalSource, Incorporated+.. 35,100 772
Financial Federal
Corporation(+)............... 157,200 6,002
First Cash Financial Services,
Incorporated+(+)............. 244,200 6,405
IndyMac Bancorp,
Incorporated(+).............. 68,300 2,550
Raymond James Financial,
Incorporated................. 418,000 14,225
Knight Capital Group,
Incorporated+(+)............. 944,100 9,035
Metris Companies,
Incorporated+(+)............. 259,400 3,811
Piper Jaffray Companies+...... 139,600 4,795
----------
TOTAL DIVERSIFIED
FINANCIALS................... 74,614
----------
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
INSURANCE - 10.98%
21st Century Insurance Group.. 321,600 $ 5,130
Alfa Corporation(+)........... 78,403 1,316
Allmerica Financial
Corporation.................. 459,700 17,514
American Financial Group,
Incorporated(+).............. 907,500 31,018
American National Insurance
Company...................... 24,717 2,915
AmerUs Group Company(+)....... 244,800 14,472
Arch Capital Group Limited+... 139,000 6,881
Argonaut Group,
Incorporated+................ 15,007 438
Aspen Insurance Holdings
Limited...................... 257,400 6,227
Bristol West Holdings,
Incorporated(+).............. 334,500 6,449
The Commerce Group,
Incorporated................. 76,100 4,324
Conseco, Incorporated+(+)..... 673,800 13,678
Delphi Financial Group,
Incorporated(+).............. 225,200 10,548
FBL Financial Group,
Incorporated(+).............. 235,600 7,346
The First American
Corporation.................. 178,000 7,800
Fremont General
Corporation(+)............... 31,700 688
Arthur J. Gallagher &
Company(+)................... 582,600 17,140
HCC Insurance Holdings,
Incorporated(+).............. 248,800 7,464
Hilb Rogal & Hobbs
Company(+)................... 191,300 7,164
Horace Mann Educators
Corporation.................. 174,800 3,393
Infinity Property and Casualty
Corporation(+)............... 156,098 5,810
KMG America Corporation+...... 267,200 2,298
LandAmerica Financial Group,
Incorporated(+).............. 30,500 1,926
Max Re Capital Limited(+)..... 288,200 6,891
Mercury General
Corporation(+)............... 91,800 5,549
National Western Life
Insurance Company+........... 2,500 506
The Navigators Group,
Incorporated+................ 179,700 6,972
Odyssey Re Holdings
Corporation(+)............... 364,800 9,368
Ohio Casualty Corporation(+).. 360,840 9,844
PartnerRe Limited(+).......... 87,600 5,582
The Phoenix Companies,
Incorporated(+).............. 233,600 3,025
Platinum Underwriters Holdings
Limited...................... 170,900 4,869
PMA Capital Corporation+(+)... 20,200 179
Protective Life Corporation... 564,800 24,761
Reinsurance Group of America,
Incorporated(+).............. 541,000 24,751
Scottish Re Group Limited(+).. 137,400 3,373
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
10
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
StanCorp Financial Group,
Incorporated(+).............. 110,400 $ 10,168
Stewart Information Services
Corporation(+)............... 12,900 657
Triad Guaranty,
Incorporated+(+)............. 202,800 8,530
UICI.......................... 56,700 2,048
United America Indemnity
Limited+(+).................. 300,997 5,788
----------
TOTAL INSURANCE.............. 314,800
----------
REAL ESTATE - 3.19%
Aames Investment
Corporation(+)............... 480,800 2,880
Alexandria Real Estate
Equities, Incorporated....... 65,500 5,296
American Financial Realty
Trust........................ 226,500 2,788
Bluegreen Corporation+(+)..... 172,400 2,615
Brookfield Homes
Corporation(+)............... 61,000 3,055
Capital Automotive REIT....... 143,100 5,527
Capital Lease Funding,
Incorporated(+).............. 134,900 1,325
Capital Trust,
Incorporated(+).............. 87,900 2,691
Equity Inns, Incorporated(+).. 521,300 6,798
First Potomac Realty Trust.... 100,500 2,547
Fieldstone Investment
Corporation(+)............... 408,900 4,175
Government Properties Trust,
Incorporated(+).............. 22,900 208
Health Care Property
Investors, Incorporated...... 28,500 725
Health Care Real Estate
Investment Trust,
Incorporated(+).............. 46,700 1,646
Innkeepers USA Trust.......... 230,000 3,588
Jones Lang LaSalle,
Incorporated................. 116,900 5,878
LaSalle Hotel Properties(+)... 278,500 9,856
Lexington Corporate Properties
Trust(+)..................... 212,900 4,637
MI Developments,
Incorporated................. 401,800 12,532
MortgageIT Holdings,
Incorporated(+).............. 165,800 2,102
Mission West Properties,
Incorporated(+).............. 222,200 2,271
Redwood Trust,
Incorporated(+).............. 46,400 2,160
Strategic Hotel Capital,
Incorporated................. 185,300 3,148
Thomas Properties Group,
Incorporated................. 108,500 1,304
Ventas, Incorporated.......... 59,800 1,832
----------
TOTAL REAL ESTATE............ 91,584
----------
TOTAL FINANCIALS............. 663,887
----------
HEALTH CARE - 3.80%
HEALTH CARE EQUIPMENT & SUPPLIES - 0.24%
CONMED Corporation+........... 34,728 833
Cooper Companies,
Incorporated................. 23,600 1,624
Haemonetics Corporation+(+)... 91,600 4,438
----------
TOTAL HEALTH CARE EQUIPMENT &
SUPPLIES..................... 6,895
----------
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
HEALTH CARE PROVIDERS & SERVICES - 2.46%
Amedisys, Incorporated+(+).... 181,700 $ 6,943
AMERIGROUP Corporation+....... 68,000 1,137
Apria Healthcare Group,
Incorporated+................ 321,400 7,415
Hooper Holmes, Incorporated... 85,450 247
Kindred Healthcare,
Incorporated+(+)............. 367,900 10,301
LifePoint Hospitals,
Incorporated+................ 29,100 1,138
Magellan Health Services,
Incorporated+................ 391,700 11,645
Omnicell, Incorporated+(+).... 186,400 1,976
Option Care, Incorporated(+).. 271,600 3,387
Orchid Cellmark,
Incorporated+(+)............. 214,800 1,263
Pediatrix Medical Group,
Incorporated+(+)............. 75,200 5,795
Res-Care, Incorporated+(+).... 233,400 3,767
Sierra Health Services,
Incorporated+(+)............. 54,500 4,087
Triad Hospitals,
Incorporated+................ 159,400 6,556
Universal Health Services,
Incorporated(+).............. 104,700 4,936
----------
TOTAL HEALTH CARE PROVIDERS &
SERVICES..................... 70,593
----------
PHARMACEUTICALS - 1.10%
Andrx Corporation+(+)......... 265,700 4,110
Endo Pharmaceuticals Holdings,
Incorporated+(+)............. 54,000 1,454
ISTA Pharmaceuticals,
Incorporated+(+)............. 333,200 2,059
King Pharmaceuticals,
Incorporated+................ 695,700 10,735
Watson Pharmaceuticals,
Incorporated+(+)............. 384,000 13,271
----------
TOTAL PHARMACEUTICALS........ 31,629
----------
TOTAL HEALTH CARE............ 109,117
----------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
11
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
INDUSTRIALS - 18.32%
AEROSPACE & DEFENSE - 0.49%
Alliant Techsystems,
Incorporated+................ 28,200 $ 1,980
Armor Holdings,
Incorporated+................ 142,200 6,358
EDO Corporation(+)............ 94,200 2,722
Herley Industries,
Incorporated+(+)............. 180,800 3,057
----------
TOTAL AEROSPACE & DEFENSE.... 14,117
----------
AIR FREIGHT & COURIERS - 0.44%
Covenant Transportation,
Incorporated+(+)............. 182,300 1,941
Ryder System, Incorporated.... 266,400 10,568
----------
TOTAL AIR FREIGHT &
COURIERS..................... 12,509
----------
BUILDING PRODUCTS - 0.49%
The Genlyte Group,
Incorporated+(+)............. 75,900 3,869
Lennox International,
Incorporated(+).............. 194,800 5,433
NCI Building Systems,
Incorporated+(+)............. 72,200 2,969
Universal Forest Products,
Incorporated(+).............. 31,500 1,743
----------
TOTAL BUILDING PRODUCTS...... 14,014
----------
COMMERCIAL SERVICES & SUPPLIES - 7.01%
Allied Waste Industries,
Incorporated+(+)............. 134,400 1,094
AptarGroup, Incorporated(+)... 140,100 7,172
Benchmark Electronics,
Incorporated+(+)............. 240,100 6,744
Bowne & Company,
Incorporated(+).............. 758,000 10,779
The Brinks Company............ 339,500 13,332
Casella Waste Systems,
Incorporated+(+)............. 179,300 2,281
Central Parking
Corporation(+)............... 144,300 2,162
Ceridian Corporation+......... 125,000 2,739
Consolidated Graphics,
Incorporated+................ 57,500 2,242
Convergys Corporation+........ 841,300 13,671
Corinthian Colleges,
Incorporated+(+)............. 507,300 6,311
CSG Systems International,
Incorporated+(+)............. 263,300 6,190
Deluxe Corporation(+)......... 430,100 14,335
Duratek, Incorporated+(+)..... 195,250 2,786
Global Cash Access,
Incorporated+................ 19,800 278
The Greenbrier Companies,
Incorporated(+).............. 201,500 5,551
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
John H. Harland Company(+).... 112,500 $ 4,679
IDEX Corporation.............. 243,800 9,757
Kelly Services, Incorporated.. 293,200 8,116
Labor Ready,
Incorporated+(+)............. 150,100 3,505
LECG Corporation+(+).......... 134,700 2,975
McGrath Rentcorp(+)........... 127,700 3,646
Maverick Tube
Corporation+(+).............. 225,800 6,991
NCO Group, Incorporated+(+)... 227,542 4,089
PHH Corporation+.............. 372,300 10,473
Pope & Talbot,
Incorporated(+).............. 236,500 2,067
Sabre Holdings
Corporation(+)............... 834,498 16,298
Spherion Corporation+......... 915,500 8,148
Valassis Communications,
Incorporated+(+)............. 500,800 15,650
Waste Connections,
Incorporated+................ 207,100 6,911
----------
TOTAL COMMERCIAL SERVICES &
SUPPLIES..................... 200,972
----------
CONSTRUCTION & ENGINEERING - 1.25%
Comfort Systems USA,
Incorporated+(+)............. 213,000 1,811
Granite Construction,
Incorporated................. 141,800 4,837
Hovnanian Enterprises,
Incorporated+(+)............. 154,000 6,928
Meritage Homes
Corporation+(+).............. 94,900 5,909
Orleans Homebuilders,
Incorporated(+).............. 130,500 2,600
The Shaw Group,
Incorporated+(+)............. 321,900 8,627
Technical Olympic USA,
Incorporated(+).............. 248,800 5,260
----------
TOTAL CONSTRUCTION &
ENGINEERING.................. 35,972
----------
ELECTRICAL EQUIPMENT - 0.38%
Brady Corporation(+).......... 314,900 9,060
Thomas & Betts Corporation+... 45,900 1,786
----------
TOTAL ELECTRICAL EQUIPMENT... 10,846
----------
INDUSTRIAL CONGLOMERATES - 0.13%
Pioneer Companies,
Incorporated+(+)............. 155,500 3,653
----------
TOTAL INDUSTRIAL
CONGLOMERATES................ 3,653
----------
MACHINERY - 5.13%
AGCO Corporation+............. 1,079,480 17,261
Briggs & Stratton
Corporation.................. 523,600 16,745
CIRCOR International,
Incorporated(+).............. 94,200 2,654
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
12
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
Esterline Technologies
Corporation+(+).............. 168,100 $ 6,329
Flowserve Corporation+(+)..... 680,300 23,811
GSI Group, Incorporated+...... 385,400 3,330
Harsco Corporation............ 163,300 10,492
Hughes Supply,
Incorporated(+).............. 236,000 7,894
Kaydon Corporation(+)......... 326,400 9,645
Kennametal, Incorporated(+)... 36,700 1,876
MSC Industrial Direct Company,
Incorporated................. 120,500 4,601
Navistar International
Corporation+................. 310,400 8,542
Reliance Steel & Aluminum
Company(+)................... 105,400 6,010
SPX Corporation(+)............ 45,900 1,975
Tennant Company(+)............ 58,800 2,561
Terex Corporation+(+)......... 241,700 13,286
The Timken Company(+)......... 358,500 10,167
----------
TOTAL MACHINERY.............. 147,179
----------
MARINE - 1.35%
Alexander & Baldwin,
Incorporated................. 175,000 8,565
Kirby Corporation+(+)......... 258,900 13,377
OMI Corporation(+)............ 387,000 6,997
Overseas Shipholding Group,
Incorporated................. 79,300 3,775
Tsakos Energy Navigation
Limited(+)................... 172,400 5,918
----------
TOTAL MARINE................. 38,632
----------
TRANSPORTATION - 1.65%
Arkansas Best Corporation(+).. 162,900 6,314
Central Freight Lines,
Incorporated+(+)............. 263,400 561
CNF, Incorporated............. 203,000 11,423
Laidlaw International,
Incorporated................. 417,600 9,496
SCS Transportation,
Incorporated+(+)............. 379,600 7,584
Swift Transportation Company,
Incorporated+(+)............. 202,253 3,691
Werner Enterprises,
Incorporated(+).............. 63,000 1,129
Yellow Roadway
Corporation+(+).............. 157,900 7,177
----------
TOTAL TRANSPORTATION......... 47,375
----------
TOTAL INDUSTRIALS............ 525,269
----------
INFORMATION TECHNOLOGY - 10.49%
COMMUNICATIONS EQUIPMENT - 0.91%
Andrew Corporation+........... 120,200 1,277
Carrier Access
Corporation+(+).............. 328,300 1,415
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
Digi International,
Incorporated+(+)............. 275,000 $ 2,918
Foundry Networks,
Incorporated+(+)............. 345,500 4,122
Kanbay International,
Incorporated+(+)............. 89,500 1,305
McDATA Corporation+(+)........ 473,800 2,279
MEMC Electronic Materials,
Incorporated+(+)............. 511,400 9,175
Plantronics, Incorporated..... 18,700 558
Symmetricom,
Incorporated+(+)............. 386,600 3,081
----------
TOTAL COMMUNICATIONS
EQUIPMENT.................... 26,130
----------
COMPUTERS & PERIPHERALS - 0.84%
Avid Technology,
Incorporated+................ 111,500 5,489
Electronics for Imaging,
Incorporated+(+)............. 253,900 6,375
Western Digital
Corporation+(+).............. 1,012,600 12,252
----------
TOTAL COMPUTERS &
PERIPHERALS.................. 24,116
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 4.35%
Arrow Electronics,
Incorporated+(+)............. 796,200 23,496
Avnet, Incorporated+(+)....... 955,200 22,017
CyberOptics Corporation+...... 100,000 1,324
IKON Office Solutions,
Incorporated(+).............. 739,100 7,376
Ingram Micro,
Incorporated+(+)............. 1,302,500 23,575
Littlefuse, Incorporated+(+).. 337,200 8,265
Mettler-Toledo International,
Incorporated+................ 35,200 1,816
Newport Corporation+.......... 20,800 271
PerkinElmer, Incorporated..... 86,800 1,916
Photon Dynamics,
Incorporated+(+)............. 116,500 2,028
Plexus Corporation+(+)........ 541,100 9,561
Tech Data Corporation+(+)..... 302,794 10,489
Tektronix, Incorporated....... 75,900 1,744
Vishay Intertechnology,
Incorporated+................ 955,600 10,837
----------
TOTAL ELECTRONIC EQUIPMENT &
INSTRUMENTS.................. 124,715
----------
INTERNET SOFTWARE & SERVICES - 0.81%
EarthLink, Incorporated+(+)... 1,171,200 12,895
InfoSpace, Incorporated+(+)... 124,600 3,130
NIC, Inc+(+).................. 435,700 2,636
United Online,
Incorporated(+).............. 329,900 4,424
----------
TOTAL INTERNET SOFTWARE &
SERVICES..................... 23,085
----------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
13
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
IT CONSULTING & SERVICES - 0.99%
Anteon International
Corporation+(+).............. 25,100 $ 1,135
BearingPoint,
Incorporated+(+)............. 812,200 5,702
Perot Systems
Corporation+(+).............. 321,300 4,453
Phase Forward
Incorporated+(+)............. 357,600 3,905
The Reynolds and Reynolds
Company(+)................... 432,200 11,471
SI International,
Incorporated+(+)............. 60,900 1,758
----------
TOTAL IT CONSULTING &
SERVICES..................... 28,424
----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 1.07%
Adaptec, Incorporated+........ 528,100 2,170
Axcelis Technologies,
Incorporated+(+)............. 595,552 2,591
Cabot Microelectronics
Corporation+(+).............. 122,900 3,613
FEI Company+(+)............... 201,700 3,812
Integrated Device
Technology+.................. 427,300 4,222
OmniVision Technologies,
Incorporated+(+)............. 517,785 6,674
MKS Instruments,
Incorporated+................ 100,000 1,887
QLogic Corporation+........... 48,000 1,448
SigmaTel, Incorporated+(+).... 201,700 2,745
Teradyne, Incorporated+....... 117,700 1,594
----------
TOTAL SEMICONDUCTOR EQUIPMENT
& PRODUCTS................... 30,756
----------
SOFTWARE - 1.52%
Epicor Software
Corporation+(+).............. 287,700 3,533
EPIQ Systems,
Incorporated+(+)............. 134,000 2,553
Mentor Graphics
Corporation+(+).............. 1,048,700 8,673
Novell, Incorporated+(+)...... 469,200 3,575
PLATO Learning,
Incorporated+(+)............. 262,714 1,860
Progress Software
Corporation+(+).............. 164,000 5,107
RSA Security, Incorporated+... 253,300 2,888
SafeNet, Incorporated+(+)..... 131,400 4,358
SERENA Software,
Incorporated+(+)............. 306,729 6,714
Sybase, Incorporated+(+)...... 190,200 4,232
----------
TOTAL SOFTWARE............... 43,493
----------
TOTAL INFORMATION
TECHNOLOGY................... 300,719
----------
MATERIALS - 6.20%
CHEMICALS - 2.94%
Agrium, Incorporated.......... 638,100 13,534
Cabot Corporation(+).......... 49,500 1,688
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
CF Industries Holdings,
Incorporated(+).............. 530,000 $ 7,325
Cytec Industries,
Incorporated(+).............. 57,800 2,387
Engelhard Corporation......... 95,300 2,592
FMC Corporation+.............. 120,600 6,565
H.B. Fuller Company(+)........ 336,600 10,088
Hercules, Incorporated+....... 791,600 8,818
International Flavors &
Fragrances, Incorporated..... 47,900 1,580
LESCO, Incorporated+(+)....... 66,000 1,082
Lubrizol Corporation.......... 410,300 17,064
Olin Corporation(+)........... 224,600 4,016
OM Group, Incorporated+....... 21,700 347
PolyOne Corporation+(+)....... 1,234,000 7,120
----------
TOTAL CHEMICALS.............. 84,206
----------
CONSTRUCTION MATERIALS - 0.33%
Insituform Technologies,
Incorporated+(+)............. 532,200 9,558
----------
TOTAL CONSTRUCTION
MATERIALS.................... 9,558
----------
CONTAINERS & PACKAGING - 0.43%
Longview Fibre Company........ 596,500 11,214
Silgan Holdings,
Incorporated................. 38,958 1,253
----------
TOTAL CONTAINERS &
PACKAGING.................... 12,467
----------
METALS & MINING - 2.23%
Allegheny Technologies,
Incorporated................. 70,500 2,024
Arch Coal, Incorporated(+).... 26,700 2,058
Century Aluminum Company+(+).. 420,200 7,639
Compass Minerals
International, Incorporated.. 103,200 2,311
Foundation Coal Holdings,
Incorporated(+).............. 339,600 12,735
Gibraltar Industries,
Incorporated(+).............. 167,000 3,382
NN, Incorporated(+)........... 163,900 1,719
Quanex Corporation(+)......... 120,200 6,961
RTI International Metals,
Incorporated+................ 120,900 4,053
Worthington Industries,
Incorporated(+).............. 1,052,900 21,184
----------
TOTAL METALS & MINING........ 64,066
----------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
14
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
PAPER & FOREST PRODUCTS - 0.27%
Chesapeake Corporation(+)..... 294,600 $ 5,933
Glatfelter.................... 100,400 1,364
Wausau Paper Corporation...... 29,800 326
----------
TOTAL PAPER & FOREST
PRODUCTS..................... 7,623
----------
TOTAL MATERIALS.............. 177,920
----------
TELECOMMUNICATION SERVICES - 0.11%
Commonwealth Telephone
Enterprises,
Incorporated(+).............. 90,103 3,234
----------
TOTAL TELECOMMUNICATION
SERVICES..................... 3,234
----------
UTILITIES - 8.28%
ELECTRIC UTILITIES - 4.87%
Alliant Energy Corporation.... 265,800 7,030
Black Hills Corporation(+).... 37,700 1,567
Cleco Corporation............. 236,900 5,022
DPL Inc.(+)................... 349,100 8,996
Duquesne Light Holdings,
Incorporated(+).............. 711,300 11,872
Great Plains Energy,
Incorporated(+).............. 614,300 17,637
Hawaiian Electric Industries,
Incorporated(+).............. 188,000 4,954
IDACORP, Incorporated(+)...... 130,800 3,776
Northeast Utilities........... 1,113,500 20,255
NSTAR(+)...................... 571,600 15,548
OGE Energy Corporation(+)..... 437,800 11,278
PNM Resources, Incorporated... 232,500 5,894
Puget Energy, Incorporated.... 342,800 7,350
WPS Resources Corporation(+).. 336,500 18,359
----------
TOTAL ELECTRIC UTILITIES..... 139,538
----------
GAS UTILITIES - 3.41%
AGL Resources, Incorporated... 406,600 14,308
Atmos Energy Corporation(+)... 384,500 10,112
Edge Petroleum
Corporation+(+).............. 245,900 5,958
Energen Corporation(+)........ 28,900 1,087
Energy Partners Limited+(+)... 244,200 6,195
National Fuel Gas Company(+).. 522,800 15,757
New Jersey Resources
Corporation(+)............... 128,500 5,546
Nicor, Incorporated(+)........ 26,500 1,039
ONEOK, Incorporated........... 279,800 8,041
Peoples Energy
Corporation(+)............... 157,800 5,870
Remington Oil and Gas
Corporation+(+).............. 126,000 4,410
Southern Union Company+....... 224,548 5,281
South Jersey Industries,
Incorporated(+).............. 26,000 727
UGI Corporation............... 207,200 4,890
Vectren Corporation(+)........ 59,000 1,602
WGL Holdings,
Incorporated(+).............. 225,200 6,999
----------
TOTAL GAS UTILITIES.......... 97,822
----------
TOTAL UTILITIES.............. 237,360
----------
TOTAL COMMON STOCK........... 2,743,858
----------
<Caption>
PAR
AMOUNT
-----------
SHORT-TERM INVESTMENTS - 26.42%
U.S. TREASURY BILLS - 0.49%
3.38%, Due 12/8/2005 (Note
A)........................... $ 14,055 14,006
----------
TOTAL U.S. TREASURY BILLS.... 14,006
----------
<Caption>
SHARES
-----------
OTHER SHORT-TERM INVESTMENTS - 25.93%
American Beacon Enhanced Cash
Trust (Notes B and C)........ 454,790,683 454,791
American Beacon Money Market
Select Fund (Notes B and C).. 288,853,036 288,853
----------
TOTAL OTHER SHORT-TERM
INVESTMENTS.................. 743,644
----------
TOTAL SHORT-TERM
INVESTMENTS.................. 757,650
----------
TOTAL INVESTMENTS - 122.11%
(COST $3,316,064)............ 3,501,508
----------
LIABILITIES, NET OF OTHER
ASSETS - (22.11%)............ (634,072)
----------
TOTAL NET ASSETS - 100%....... $2,867,436
==========
</Table>
- ---------------
(A) At October 31, 2005, security held as collateral for open futures contracts.
(B) The Fund/Trust is affiliated by having the same investment advisor. See Note
2.
(C) All or a portion of this security is purchased with cash collateral for
securities loaned.
(+)-All or a portion of this security is on loan at October 31, 2005. See Note
5.
+- Non-income producing security.
See accompanying notes
- --------------------------------------------------------------------------------
15
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
(dollars in thousands)
<Table>
<Caption>
UNREALIZED
NO. OF MARKET APPRECIATION/
CONTRACTS EXPIRATION DATE VALUE (DEPRECIATION)
--------- --------------- -------- --------------
Emini Mini Russell..................................... 2,185 December 2005 $141,850 $(4,317)
-------- -------
$141,850 $(4,317)
======== =======
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
16
AMERICAN BEACON SMALL CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005 (in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value(A C)... $ 2,757,864
Investments in affiliated securities, at value(B)....... 743,644
Cash.................................................... 28
Receivable for investments sold......................... 4,175
Dividends and interest receivable....................... 2,150
Receivable for fund shares sold......................... 2,967
Receivable for variation margin on open futures
contracts.............................................. 3,041
-----------
TOTAL ASSETS........................................ 3,513,869
-----------
LIABILITIES:
Payable for investments purchased....................... 18,345
Payable upon return of securities loaned................ 619,012
Payable for fund shares redeemed........................ 3,294
Management and investment advisory fees payable (Note
2)..................................................... 4,381
Administrative service and service fees payable......... 799
Other liabilities....................................... 602
-----------
TOTAL LIABILITIES................................... 646,433
-----------
NET ASSETS.................................................. $ 2,867,436
===========
ANALYSIS OF NET ASSETS:
Paid-in-capital......................................... 2,546,908
Undistributed net investment income..................... 12,280
Accumulated net realized gain (loss).................... 127,121
Unrealized appreciation (depreciation) of investments,
futures contracts and foreign currency................. 181,127
-----------
NET ASSETS.................................................. $ 2,867,436
===========
Shares outstanding (no par value):
Institutional Class..................................... 52,712,353
===========
PlanAhead Class......................................... 65,910,831
===========
Service Class........................................... 2,242,566
===========
AMR Class............................................... 20,851,753
===========
Net asset value, offering and redemption price per share:
Institutional Class..................................... $ 20.43
===========
PlanAhead Class......................................... $ 20.04
===========
Service Class........................................... $ 19.94
===========
AMR Class............................................... $ 20.38
===========
- ---------------
(A) Cost of investments in unaffiliated securities.......... $ 2,572,420
(B) Cost of investments in affiliated securities............ 743,644
(C) Market value of securities on loan...................... 612,572
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
17
AMERICAN BEACON SMALL CAP VALUE FUND
STATEMENT OF OPERATIONS
Year Ended October 31, 2005 (in thousands)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividend income from unaffiliated securities (net of
foreign taxes)*........................................ $ 30,480
Dividend income from affiliated securities.............. 5,335
Interest income......................................... 476
Income derived from securities lending, net............. 668
--------
TOTAL INVESTMENT INCOME............................. 36,959
--------
EXPENSES:
Management and investment advisory fees (Note 2)........ 12,268
Administrative service fees (Note 2):
Institutional Class................................... 2,085
PlanAhead Class....................................... 2,717
Service Class......................................... 81
Transfer agent fees:
Institutional Class................................... 270
PlanAhead Class....................................... 205
Service Class......................................... 24
AMR Class............................................. 15
Fund accounting fees.................................... 498
Professional fees....................................... 157
Registration fees and expenses.......................... 336
Service fees:
PlanAhead Class (Note 2).............................. 2,717
Service Class (Note 2)................................ 81
Distribution fees -- Service Class (Note 2)............. 81
Prospectus and shareholder reports...................... 875
Other expenses.......................................... 8
--------
TOTAL EXPENSES...................................... 22,418
--------
NET INVESTMENT INCOME....................................... 14,541
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from:
Investments........................................... 108,028
Commission recapture.................................. 313
Futures contracts..................................... 19,697
Change in net unrealized appreciation or depreciation
of:
Investments........................................... 72,999
Futures contracts..................................... (4,356)
--------
NET GAIN (LOSS) ON INVESTMENTS...................... 196,681
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $211,222
========
* Foreign taxes......................................... $ 63
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
18
AMERICAN BEACON SMALL CAP VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
----------------------
2005 2004
---------- ---------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................... $ 14,541 $ 5,180
Net realized gain (loss) on investments, futures
contracts, and foreign currency transactions........... 128,038 69,211
Change in net unrealized appreciation or depreciation of
investments, futures contracts, and foreign currency
translations........................................... 68,643 50,600
---------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... 211,222 124,991
---------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class................................... (1,734) (522)
PlanAhead Class....................................... (1,962) (156)
Service Class......................................... (37) --
AMR Class............................................. (2,456) (1,911)
Net realized gain on investments:
Institutional Class................................... (20,489) (3,082)
PlanAhead Class....................................... (27,260) (2,162)
Service Class......................................... (632) --
AMR Class............................................. (20,024) (9,583)
---------- ---------
NET DISTRIBUTIONS TO SHAREHOLDERS................... (74,594) (17,416)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares........................... 2,144,506 969,153
Reinvestment of dividends and distributions............. 70,239 16,178
Cost of shares redeemed................................. (830,022) (230,849)
---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS.................................. 1,384,723 754,482
---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS....................... 1,521,351 862,057
---------- ---------
NET ASSETS:
Beginning of period..................................... 1,346,085 484,028
---------- ---------
END OF PERIOD*.......................................... $2,867,436 $1,346,085
========== ==========
* Includes undistributed net investment income (loss)
of..................................................... $ 12,628 $ 4,276
========== ==========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
19
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust"), formerly known as the American
AAdvantage Funds, is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940 (the "Act"), as amended, as
a no load, open-end management investment company. These financial statements
and notes to the financial statements relate to the American Beacon Small Cap
Value Fund (the "Fund"), formerly known as the American AAdvantage Small Cap
Value Fund, a series of the Trust.
American Beacon Advisors, Inc. (the "Manager"), formerly known as AMR
Investment Services, Inc., is a wholly-owned subsidiary of AMR Corporation, the
parent company of American Airlines, Inc. ("American"), and was organized in
1986 to provide business management, advisory, administrative and asset
management consulting services to the Trust and other investors.
Class Disclosure
The Fund has multiple classes of shares designed to meet the needs of
different groups of investors. The following table sets forth the differences
amongst the classes:
<Table>
<Caption>
CLASS: OFFERED TO: SERVICE AND DISTRIBUTION FEES:
- ------ ----------- ------------------------------
INSTITUTIONAL CLASS Investors making an initial investment of $2 million Administrative Service 0.25%
Fee --
PLANAHEAD CLASS General public and investors investing through an Administrative Service 0.25%
intermediary Fee -- 0.25%
Service Fee --
SERVICE CLASS Investors investing through an intermediary Administrative Service 0.25%
Fee -- 0.25%
Service Fee -- 0.25%
Distribution Fee --
AMR CLASS Investors in the tax-exempt retirement and benefit N/A
plans of AMR Corporation and its affiliates
</Table>
Security Valuation
Investments are valued at the close of the New York Stock Exchange (the
"Exchange"), normally 4 p.m. ET, each day that the Exchange is open for
business. Equity securities for which market quotations are available are valued
at the last sale price or official 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 (other than short-term 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. When a price is unavailable from a
pricing service or when the price provided by the pricing service is deemed not
to represent fair value, the prices of debt securities may be determined using
quotes obtained from brokers.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation. Investment grade short-term
obligations with 60 days or less to maturity are valued using the amortized cost
method, which approximates market value.
Securities for which the market prices are not readily available or are not
reflective of the fair value of the security, the security will be priced at a
fair value following procedures approved by the
- --------------------------------------------------------------------------------
20
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
Board of Trustees (the "Board"). In light of the judgement involved in fair
value decisions, there can be no assurance that a fair value assigned to a
particular security is accurate.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale.
Dividend income, net of foreign taxes, is recorded on the ex-dividend date
except certain dividends from foreign securities which are recorded as soon as
the information is available to the Fund. Interest income is earned from
settlement date, recorded on the accrual basis, and adjusted, if necessary, for
accretion of discounts and amortization of premiums. For financial and tax
reporting purposes, realized gains and losses are determined on the basis of
specific lot identification.
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 5% of the face value of the futures contract. The Fund reflects this
amount on the Schedule of Investments as a U.S. Treasury Bill held as collateral
for futures contracts. 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.
Dividends to Shareholders
Dividends from net investment income of the Fund normally will be declared
and paid annually. Distributions, if any, of net realized capital gains are
generally paid annually and recorded on the ex-dividend date.
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.
- --------------------------------------------------------------------------------
21
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses
Income, expenses (other than those attributable to a specific class), gains
and losses are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses directly
attributable to a specific class are charged against the operations of that
class.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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 directors are
indemnified against certain liability 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 Agreement
The Trust and the Manager are parties to a Management Agreement that
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory, fund management and securities lending services. Investment
assets of the Fund are managed by multiple investment advisors which have
entered into separate investment advisory agreements with the Manager. As
compensation for performing the duties required under the Management Agreement,
the Manager receives from the Fund an annualized fee equal to .10% of the
average daily net assets plus amounts paid by the Manager to the investment
advisors hired by the Manager to direct investment activities of the Funds.
Management fees paid during the year ended October 31, 2005 were as follows
(dollars in thousands):
<Table>
<Caption>
AMOUNTS PAID TO NET AMOUNTS
MANAGEMENT MANAGEMENT INVESTMENT RETAINED BY
FEE RATE FEE ADVISORS MANAGER
- ----------- ---------- --------------- -----------
.35%-.60% $12,268 $9,834 $2,434
</Table>
As compensation for services provided by the Manager in connection with
securities lending activities, the lending Fund pays to the Manager, with
respect to cash collateral posted by borrowers, a fee up to 25% 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 when a borrower
posts collateral other than cash, a fee up to 25% of such loan fees. During the
year ended October 31, 2005, securities lending fees totaling $133,000 were paid
to the Manager by the Fund. This fee is netted against securities lending income
in the Statement of Operations.
- --------------------------------------------------------------------------------
22
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
Administrative Services Agreement
The Manager and the Trust entered into an Administrative Services Agreement
which obligates the Manager to provide or oversee administrative and management
services to the Fund. As compensation for performing the duties required under
the Administrative Services Agreement, the Manager receives an annualized fee of
..25% of the average daily net assets of the Institutional, PlanAhead and Service
Classes of the Fund.
Distribution Plans
The Trust, except for the Service Class of the Funds, has adopted a
"defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under
the Investment Company Act of 1940, pursuant to which no fees may be charged to
the Fund for distribution purposes. However, the Plan authorizes the management
fees received by the Manager and the investment advisors hired by the Manager to
be used for distribution purposes. Under this Plan, the Trust does not intend to
compensate the Manager or any other party, either directly or indirectly, for
the distribution of Trust shares.
A separate Distribution Plan (the "Distribution Plan") has been adopted
pursuant to Rule 12b-1 under the Act for the Service Class of the Fund. Under
the Distribution Plan, as compensation for distribution assistance, the Manager
receives an annual fee of 0.25% of the average daily net assets of the Service
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 PlanAhead and Service
Classes. As compensation for performing the duties required under the Service
Plans, the Manager receives 0.25% of the average daily net assets of the
PlanAhead and Service Classes of the Fund.
Brokerage Commissions
Affiliated entities of the Fund received net commissions on purchases and
sales of the Fund's portfolio securities for the year ended October 31, 2005 of
$22,000.
Investment in Affiliated Funds
The Fund is permitted, pursuant to an exemptive order by the Securities and
Exchange Commission ("SEC") and approved procedures by the Board, to invest up
to 25% of its total assets in the American Beacon Money Market Select Fund (the
"Select Fund"), an affiliated fund. The Fund and the Select Fund have the same
investment advisor and therefore, are considered to be affiliated. Cash
collateral received by the Fund in connection with securities lending may be
invested in the Select Fund and the American Beacon Enhanced Cash Trust (the
"Cash Trust") (collectively, the "Affiliated Funds"). The Manager serves as
Trustee and investment advisor to the Affiliated Funds and receives from the
Affiliated Funds an annualized fee equal to 0.10% of the
- --------------------------------------------------------------------------------
23
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
average daily net assets. During the year ended October 31, 2005, fees earned by
the Manager from the Affiliated Funds were as follows:
<Table>
<Caption>
SECURITIES LENDING
DIRECT INVESTMENT COLLATERAL INVESTED
IN FUNDS IN FUNDS TOTAL
- ----------------- ------------------- --------
$188,595 $395,967 $584,562
</Table>
Other
Certain officers or Trustees of the Trust are also current or former
officers or employees of the Manager or American. The Trust makes no direct
payments to its officers. Mr. Feld and the non-interested Trustees (other than
Mr. O'Sullivan) and their spouses are provided free unlimited air transportation
on American. Retired Trustees and their spouses are provided free air
transportation on American, up to a maximum annual value of $40,000. The Trust
compensates each Trustee with payments in an amount equal to the Trustee's
income tax on the value of this free airline travel. Mr. O'Sullivan, as a
retiree of American, already receives flight benefits. Mr. O'Sullivan receives
an annual retainer of $40,000 plus $1,250 for each Board meeting attended.
At October 31, 2005, AMR Corporation and subsidiary companies and Employee
Benefit Trusts thereof owned 100% of AMR Class shares of the Fund.
Interfund Lending Program
Pursuant to an exemptive order by the SEC, the Fund, along with other
registered investment companies having management contracts with the Manager,
may participate in an interfund lending program as a borrower. This program
provides an alternative credit facility allowing the Fund to borrow from, or
lend money to, other participating Funds. At October 31, 2005, the Fund had not
utilized the credit facility.
Reimbursement of Expenses
The Manager reimbursed expenses of the Service Class totaling $121 for the
Fund during the year ended October 31, 2005.
3. FEDERAL INCOME AND EXCISE TAXES
It is the policy of the Fund to comply with the requirements of Subchapter
M of the Internal Revenue Code and to distribute substantially all net
investment income as well as any net realized capital gains on the sale of
investments. Therefore, no federal income or excise tax provision is required.
Dividends are determined in accordance with income tax regulations which
may treat certain transactions differently than U.S. generally accepted
accounting principles. Accordingly, the character of distributions and
composition of net assets for tax purposes may differ from those reflected in
the accompanying financial statements.
- --------------------------------------------------------------------------------
24
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
The tax character of distributions during the fiscal years ended October
31, 2005 and October 31, 2004 were as follows (in thousands):
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
---------------------------
2005 2004
----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class................................... $12,463 $ 2,878
PlanAhead Class....................................... 16,237 1,809
Service Class......................................... 368 --
AMR Class............................................. 12,942 9,236
LONG-TERM CAPITAL GAIN
Institutional Class................................... 9,760 726
PlanAhead Class....................................... 12,985 509
Service Class......................................... 301 --
AMR Class............................................. 9,538 2,258
------- -------
TOTAL DISTRIBUTIONS PAID.......................... $74,594 $17,416
------- -------
</Table>
As of October 31, 2005, the components of distributable earnings were as
follows (in thousands):
<Table>
Cost basis of investments for federal income tax purposes... $3,318,120
Unrealized appreciation..................................... 310,005
Unrealized depreciation..................................... (126,617)
----------
Net unrealized appreciation/(depreciation).................. 183,388
Undistributed ordinary income............................... 49,140
Undistributed long-term gain/(loss)......................... 87,999
----------
Distributable earnings...................................... $ 320,527
==========
</Table>
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, book
amortization for premiums, and the realization for tax purposes of unrealized
gains/(losses) on investments in passive foreign investment companies.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under U.S. generally accepted accounting principles and
federal income tax purposes, 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 that have been reclassified as of October 31, 2005 (in thousands):
<Table>
Paid-in-capital............................................. $ --
Undistributed net investment income......................... (348)
Accumulated net realized gain (loss)........................ 348
Unrealized appreciation (depreciation) of investments,
futures contracts and foreign currency.................... --
</Table>
- --------------------------------------------------------------------------------
25
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
Investment transactions for the year ended October 31, 2005 (excluding
short-term investments) are as follows (in thousands):
<Table>
Purchases................................................... $2,387,648
Proceeds from sales......................................... $1,031,967
</Table>
A summary of the Fund's direct transactions in Affiliated Funds for the
year ended October 31, 2005 is set forth below (in thousands):
<Table>
<Caption>
OCTOBER 31, 2004 OCTOBER 31, 2005
AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
- --------- ------------------- ---------- ---------- -------------------
Select Fund........................... $139,782 $2,906,368 $2,921,518 $124,632
</Table>
5. 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 marked to market
and monitored daily. To the extent that a loan is collateralized by cash, such
collateral shall be invested by the securities lending agent (the "Agent") in
short-term instruments, money market mutual funds, and such other short-term
investments, provided the investments meet certain quality and diversification
requirements.
Income generated from the investment of cash collateral, less negotiated
rebate fees paid to participating brokers and transaction costs, is divided
between the Fund and the Agent and is recorded as income for the Fund. To the
extent that a loan is secured by non-cash collateral, brokers pay the Fund
negotiated lenders' fees, which are divided between the Fund and the Agent and
are recorded as securities lending income for the Fund. The Fund also continues
to receive income on the securities loaned, and any gain or loss in the market
price of securities loaned that may occur during the term of the loan.
Risks to the Fund in securities lending transactions are that the borrower
may not provide additional collateral when required or return the securities
when due, and that the value of the short-term investments will be less than the
amount of cash collateral required to be returned to the borrower.
At October 31, 2005, the value of outstanding securities on loan and the
value of collateral was as follows (in thousands):
<Table>
<Caption>
MARKET VALUE OF
SECURITIES ON LOAN NON-CASH COLLATERAL CASH COLLATERAL
- ------------------ ------------------- ---------------
$612,572 $ -- $619,012
</Table>
Cash collateral is invested in the Cash Trust and the Select Fund. These
amounts have been included as investments in the Schedule of Investments and
Statement of Assets and Liabilities. Income earned on these investments is
reported as Income derived from securities lending in the Statement of
Operations.
- --------------------------------------------------------------------------------
26
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2005
- --------------------------------------------------------------------------------
Non-Cash collateral received by the Fund may not be sold or repledged;
therefore, non-cash collateral is not included on the Fund's Schedule of
Investments or Statement of Assets and Liabilities.
6. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares for each Class of
the Fund (dollars and shares in thousands):
Year Ended October 31, 2005
- ---------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
------------------- --------------------- ----------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ --------- ------- ---------- ------ ------- ------- ---------
Shares sold........... 38,008 $ 759,658 52,534 $1,035,304 2,036 $40,048 15,182 $ 309,496
Reinvestment of
dividends........... 923 18,570 1,443 28,520 34 669 1,123 22,480
Shares redeemed....... (9,004) (182,580) (13,220) (262,130) (467) (9,230) (18,790) (376,082)
------ --------- ------- ---------- ------ ------- ------- ---------
Net increase
(decrease) in shares
outstanding......... 29,927 $ 595,648 40,757 $ 801,694 1,603 $31,487 (2,485) $ (44,106)
====== ========= ======= ========== ====== ======= ======= =========
</Table>
Year Ended October 31, 2004
- ---------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
-------------------- ------------------ ----------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- --------- ------ -------- ------ ------- ------- ---------
Shares sold............... 21,166 $380,848 23,536 $422,446 685 $12,179 8,593 $ 153,680
Reinvestment of
dividends............... 143 2,425 136 2,259 -- -- 683 11,494
Shares redeemed........... (4,049) (72,693) (2,711) (47,684) (46) (819) (6,247) (109,653)
------ -------- ------ -------- ------ ------- ------- ---------
Net increase in shares
outstanding............. 17,260 $310,580 20,961 $377,021 639 $11,360 3,029 $ 55,521
====== ======== ====== ======== ====== ======= ======= =========
</Table>
- --------------------------------------------------------------------------------
27
AMERICAN BEACON SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS
---------------------------------------------------- -------------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
---------------------------------------------------- -------------------------------
2005(H) 2004(G) 2003(D) 2002 2001(C) 2005(H) 2004(G) 2003(D)
---------- -------- -------- ------- ------- ---------- -------- -------
Net asset value, beginning of period..... $ 18.85 $ 16.21 $ 11.28 $ 11.69 $ 10.08 $ 18.54 $ 15.95 $ 11.22
---------- -------- -------- ------- ------- ---------- -------- -------
Income from investment operations:
Net investment income (loss)(A)....... 0.11 0.07 (0.01) (0.01) 0.16 0.09 0.08 0.05
Net gains on securities (both realized
and unrealized)(A).................. 2.31 3.09 5.24 0.47 1.81 2.24 2.98 5.08
---------- -------- -------- ------- ------- ---------- -------- -------
Total income from investment
operations.............................. 2.42 3.16 5.23 0.46 1.97 2.33 3.06 5.13
---------- -------- -------- ------- ------- ---------- -------- -------
Less distributions:
Dividends from net investment
income.............................. (0.07) (0.08) (0.02) (0.11) (0.19) (0.06) (0.03) (0.12)
Distributions from net realized gains
on securities....................... (0.77) (0.44) (0.28) (0.76) (0.17) (0.77) (0.44) (0.28)
---------- -------- -------- ------- ------- ---------- -------- -------
Total distributions...................... (0.84) (0.52) (0.30) (0.87) (0.36) (0.83) (0.47) (0.40)
---------- -------- -------- ------- ------- ---------- -------- -------
Net asset value, end of period........... $ 20.43 $ 18.85 $ 16.21 $ 11.28 $ 11.69 $ 20.04 $ 18.54 $ 15.95
========== ======== ======== ======= ======= ========== ======== =======
Total return............................. 12.90% 19.86% 47.45% 3.29% 20.16% 12.63% 19.56% 47.12%
========== ======== ======== ======= ======= ========== ======== =======
Ratios and supplemental data:
Net assets, end of period (in
thousands).......................... $1,076,909 $429,540 $ 89,579 $21,936 $ 2,364 $1,320,853 $466,364 $66,906
Ratios to average net assets
(annualized):
Expenses net of waivers(A).......... 0.87% 0.89% 0.89% 0.82% 0.89% 1.10% 1.15% 1.16%
Expenses before waivers(A).......... 0.87% 0.89% 0.89% 0.82% 0.89% 1.10% 1.15% 1.16%
Net investment income (loss) net of
waivers(A)........................ 0.66% 0.57% 0.60% 0.81% 1.38% 0.42% 0.33% 0.39%
Net investment income (loss) before
waivers(A)........................ 0.66% 0.57% 0.60% 0.81% 1.38% 0.42% 0.33% 0.39%
Portfolio turnover rate(B)............ 47% 35% 75% 81% 93% 47% 35% 75%
</Table>
- ---------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the AMR Investment Services Small Cap Value Portfolio through February 28,
2002.
(B) The Small Cap Value Fund invested all of its investable assets in its
corresponding Portfolio through February 28, 2002. Portfolio turnover rate
through February 28, 2002 was that of the Portfolio.
(C) On October 9, 2001, Hotchkis and Wiley Capital Management, LLC assumed
management of the Small Cap Value Fund's assets previously managed by
Merrill Lynch Investment Managers, L.P.
(D) Barrow, Hanley, Mewhinney & Strauss, Inc. was added as an investment
advisor to the Small Cap Value Fund on September 18, 2003.
(E) Not annualized.
(F) Portfolio turnover rate is for the period November 1, 2002 through October
31, 2003.
(G) The Boston Company was added as an investment advisor to the Small Cap
Value Fund on September 27, 2004.
(H) Opus Capital Management, Inc. was added as an investment advisor on
February 1, 2005 and Metropolitan West Capital Management, LLC, SSgA Funds
Management, Inc. and Dreman Value Management, LLC were added as investment
advisors on August 12, 2005.
(I) Annualized.
- --------------------------------------------------------------------------------
28
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS SERVICE CLASS AMR CLASS
----------------- -------------------------------- ----------------------------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, MAY 1 TO YEAR ENDED OCTOBER 31,
----------------- ------------------ OCTOBER 31, ----------------------------------------------------
2002 2001(C) 2005(H) 2004(G) 2003(D) 2005(H) 2004(G) 2003(D) 2002 2001(C)
------- ------- ------- -------- ----------- -------- -------- -------- -------- --------
$ 11.64 $ 10.08 $ 18.49 $ 15.92 $ 11.88 $ 18.78 $ 16.13 $ 11.30 $ 11.71 $ 10.10
------- ------- ------- -------- --------- -------- -------- -------- -------- --------
0.06 0.15 0.04 0.01 -- 0.21 0.14 0.10 0.15 0.15
0.36 1.76 2.23 3.00 4.04 2.26 3.04 5.15 0.34 1.85
------- ------- ------- -------- --------- -------- -------- -------- -------- --------
0.42 1.91 2.27 3.01 4.04 2.47 3.18 5.25 0.49 2.00
------- ------- ------- -------- --------- -------- -------- -------- -------- --------
(0.08) (0.18) (0.05) -- -- (0.10) (0.09) (0.14) (0.14) (0.22)
(0.76) (0.17) (0.77) (0.44) -- (0.77) (0.44) (0.28) (0.76) (0.17)
------- ------- ------- -------- --------- -------- -------- -------- -------- --------
(0.84) (0.35) (0.82) (0.44) -- (0.87) (0.53) (0.42) (0.90) (0.39)
------- ------- ------- -------- --------- -------- -------- -------- -------- --------
$ 11.22 $ 11.64 $ 19.94 $ 18.49 $ 15.92 $ 20.38 $ 18.78 $ 16.13 $ 11.30 $ 11.71
======= ======= ======= ======== ========= ======== ======== ======== ======== ========
2.99% 19.58% 12.32% 19.24% 34.01%(E) 13.23% 20.12% 47.93% 3.54% 20.52%
======= ======= ======= ======== ========= ======== ======== ======== ======== ========
$16,190 $ 1,197 $44,709 $ 11,828 $ 1 $424,965 $438,353 $327,542 $181,180 $137,811
1.11% 1.17% 1.40% 1.38% 1.49%(I) 0.58% 0.60% 0.61% 0.56% 0.64%
1.11% 1.17% 1.40% 1.69% 1,089.04%(I) 0.58% 0.60% 0.61% 0.56% 0.64%
0.52% 1.06% 0.12% 0.17% (0.05)%(I) 0.94% 0.84% 0.95% 1.09% 1.55%
0.52% 1.06% 0.12% (0.14)% (1,087.60)%(I) 0.94% 0.84% 0.95% 1.09% 1.55%
81% 93% 47% 35% 75%(F) 47% 35% 75% 81% 93%
</Table>
- --------------------------------------------------------------------------------
29
AMERICAN BEACON SMALL CAP VALUE FUND
FEDERAL TAX INFORMATION
October 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
For corporate shareholders in the Fund, the percentage of ordinary dividend
income distributed for the year ended October 31, 2005, which is designated as
qualifying for the dividend-received deduction, is 78.8%.
For shareholders in the Fund, the percentage of dividend income distributed
for the year ended October 31, 2005, which is designated as qualified dividend
income under the Jobs and Growth Tax Relief Act of 2003, is 19.4%.
- --------------------------------------------------------------------------------
30
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT
AND INVESTMENT ADVISORY AGREEMENT OF THE FUND
(Unaudited)
- --------------------------------------------------------------------------------
Approval of Investment Advisory Agreements with Dreman Value Management, LLC,
Metropolitan West Capital Management, LLC and SSgA Funds Management, Inc.
At their August 12, 2005 meeting, the Trustees considered the approval of
Investment Advisory Agreements between the Manager and Dreman Value Management,
LLC ("Dreman"), Metropolitan West Capital Management, LLC ("MetWest Capital")
and SSgA to add each firm as a sub-advisor to the Small Cap Value Fund. As part
of the approval process, legal counsel to the Trusts and the independent
Trustees sent an information request letter to Dreman, MetWest Capital and SSgA
seeking certain relevant information. Each sub-advisor's response was provided
to the Trustees for their review prior to their meeting, and the Trustees were
provided with the opportunity to request any additional materials.
The Trustees considered, among other materials, responses by the
sub-advisors to inquiries requesting:
- a description of the advisory and related services proposed to be
provided to the Fund;
- identification of the professional personnel to perform services for the
Fund and their education, experience and responsibilities;
- a comparison of the performance of accounts similar to the Fund managed
by the sub-advisor with the performance of applicable indices;
- an analysis of the proposed advisory fee, a comparison to the fees
charged to other comparable clients and an explanation of any differences
between the fee schedules;
- whether the sub-advisor charges a lower advisory fee to other clients for
which it provides services comparable to the services proposed for the
Fund and if so, an explanation of the rationale for charging the other
client(s) a lower fee;
- a description of the portfolio managers' compensation, including any
incentive arrangements, and if compensation is tied to performance, a
description of the oversight mechanisms to prevent a manager with lagging
performance from taking undue risks;
- a description of the sub-advisor's proposed trading activities on behalf
of the Fund
- a summary of the sub-advisor's compliance program, a certification
regarding the program, a discussion of material compliance issues, and a
discussion of the chief compliance officer's experience;
- a copy of the sub-advisor's code of ethics, report on any material
violations and the required certification;
- a description of conflicts of interest in managing the Fund; and
- any other information the sub-advisor believed would be material to the
Trustees' consideration of the agreement.
- --------------------------------------------------------------------------------
31
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT
AND INVESTMENT ADVISORY AGREEMENT OF THE FUND -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
In addition, representatives from each sub-advisor met with the Board's
Investment Committee to provide an overview of the sub-advisor's operations,
investment team, investment philosophy, investment process and performance.
In considering the approval of each Investment Advisory Agreement with the
applicable sub-advisor, the Trustees considered the following factors.
First, the Trustees considered that the Manager had screened the universe
of available small capitalization equity managers to identify those that would
have added value to the Fund's performance over the short-term. In this regard,
the Trustees considered that SSgA's small cap value accounts outperformed the
Russell 2000 Value Index for the most recent quarter and for the 2004 and 2002
calendar years, with the 2003 calendar year being slightly behind the index but
having absolute returns of 43.26%. In addition, the Trustees considered that
Dreman's small cap value accounts and another investment company managed by
Dreman outperformed the Russell 2000 Value Index for the most recent quarter and
one-year and three-year periods. The Trustees also considered that MetWest
Capital's small cap value accounts outperformed the Russell 2000 Value Index for
the most recent quarter and for the 2004 and 2003 calendar years.
Second, the Trustees considered that the proposed fee to be charged by each
sub-advisor to the Fund was highly competitive with fees of comparable advisers
and represented a discount from the sub-advisor's standard fee schedule for such
services. With respect to potential economies of scale and potential profits to
be earned by the sub-advisors, the Trustees considered the start-up nature of
the Fund's relationship with each sub-advisor (except for MetWest Capital) and
the fact that the sub-advisors' fee schedules are highly competitive and
discounted from their standard fee schedules.
Third, the Trustees considered the experience and knowledge of the
investment team identified by each sub-advisor that would make investment
decisions for the Fund. They also considered each sub-advisor's investment
strategy and process. Fourth, the Trustees considered that each sub-advisor was
prepared to reserve a material amount of investment capacity for the benefit of
the Fund. Fifth, the Trustees considered that each sub-advisor represented that
it would not engage in soft dollar arrangements in connection with executing
Fund transactions. Finally, the Trustees considered the Manager's strong
recommendation to retain each sub-advisor.
Based on these considerations, the Trustees (1) concluded that the fees
proposed to be paid to each sub-advisor under the applicable Investment Advisory
Agreements are fair and reasonable, (2) determined that the Fund and its
shareholders would benefit from each sub-advisor's addition as a sub-advisor to
the Fund and (3) approved the Investment Advisory Agreement with each sub-
advisor.
- --------------------------------------------------------------------------------
32
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
(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. Unless otherwise indicated, the address of each person listed below is
4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee
oversees twenty-seven funds in the fund complex that includes the Trust, the
American Beacon Master Trust, the American Beacon Mileage Funds, and the
American Beacon Select Funds. The Trust's Statement of Additional Information
contains additional information about the Trustees and is available without
charge by calling 1-800-658-5811.
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (57) Trustee and President, American Beacon Advisors, Inc. (1986-Present);
President of Chairman (1989-2003) and Director (1979-1986, 2003-Present),
Trust since 1987 American Airlines Federal Credit Union; Director, Crescent
Real Estate Equities, Inc. (1994-Present); Director,
Pritchard, Hubble & Herr, LLC (investment advisor)
(2001-Present); Advisory Director, Southern Methodist
University Endowment Fund (1996-Present); Member, Southern
Methodist University Cox School of Business Advisory Board
(1999-2002); Member, New York Stock Exchange Pension Manager
Committee (1997-1998, 2000-2002); Chairman, Committee for
the Investment of Employee Benefits Defined Benefit
Sub-Committee (1982-Present); Director, United Way of
Tarrant County (1988-2000, 2004-Present); Trustee, American
Beacon Mileage Funds (1995-Present); Trustee, American
Beacon Select Funds (1999-Present); Trustee, American Beacon
Master Trust (1995-Present).
Alan D. Feld** (68) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm)
(1960-Present); Director, Clear Channel Communications
(1984-Present); Trustee, CenterPoint Properties
(1994-Present); Trustee, American Beacon Mileage Funds
(1996-Present); Trustee, American Beacon Select Funds
(1999-Present); Trustee, American Beacon Master Trust
(1996-Present).
NON-INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (61) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund servicing
company) (1998-2003); Board Member, Baylor University
Medical Center Foundation (1992-Present); Trustee, American
Beacon Mileage Funds (2004-Present); Trustee, American
Beacon Select Funds (2004-Present); Trustee, American Beacon
Master Trust (2004-Present).
</Table>
- --------------------------------------------------------------------------------
33
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
NON-INTERESTED TRUSTEES (CONT.)
Brenda A. Cline (44) Trustee since 2004 Vice President, Chief Financial Officer, Treasurer and
301 Commerce Street Secretary, Kimbell Art Foundation (1993-Present); Trustee,
Suite 2240 Texas Christian University (1999-Present); Trustee, W.I.
Fort Worth, Texas 76102 Cook Foundation, Inc. (d/b/a Cook Children's Health
Foundation) (2001-Present); Trustee, American Beacon Mileage
Funds (2004-Present); Trustee, American Beacon Select Funds
(2004-Present); Trustee, American Beacon Master Trust
(2004-Present).
Richard A. Massman (62) Trustee since 2004 Senior Vice President and General Counsel, Hunt
Consolidated, Inc. (holding company engaged in energy, real
estate, farming, ranching and venture capital activities)
(1994-Present); Trustee, American Beacon Mileage Funds
(2004-Present); Trustee, American Beacon Select Funds
(2004-Present); Trustee, American Beacon Master Trust
(2004-Present).
Stephen D. O'Sullivan (70) Trustee of Trust Consultant (1994-Present); Trustee, American Beacon Mileage
since 1987 Funds (1995-Present); Trustee, American Beacon Select Funds
(1999-Present); Trustee, American Beacon Master Trust
(1995-Present).
R. Gerald Turner (59) Trustee since 2001 President, Southern Methodist University (1995-Present);
225 Perkins Admin. Bldg. Director, ChemFirst (1986-2002); Director, J.C. Penney
Southern Methodist Univ. Company, Inc. (1996- Present); Director, California Federal
Dallas, Texas 75275 Preferred Capital Corp. (2001- 2003); Director, Kronus
Worldwide Inc. (chemical manufacturing) (2003-Present);
Director, First Broadcasting Investment Partners, LLC
(2003-Present); Member, United Way of Dallas Board of
Directors; Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory Board;
Member, Knight Commission on Intercollegiate Athletics;
Trustee, American Beacon Mileage Funds (2001-Present);
Trustee, American Beacon Select Funds (2001-Present);
Trustee, American Beacon Master Trust (2001-Present).
Kneeland Youngblood (49) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court Suite equity firm) (1998-Present); Trustee, The Hockaday School
1740 Dallas, Texas 75201 (1997-Present); Director, Starwood Hotels and Resorts
(2001-Present); Member, Council on Foreign Relations
(1995-Present); Director, Just For the Kids (1995-2001);
Director, L&B Realty Advisors (1998-2000); Trustee, Teachers
Retirement System of Texas (1993-1999); Director, Starwood
Financial Trust (1998-2001); Trustee, St. Mark's School of
Texas (2002-Present); Trustee, American Beacon Mileage Funds
(1996-Present); Trustee, American Beacon Select Funds (1999-
Present); Trustee, American Beacon Master Trust
(1996-Present).
OFFICERS
TERM
------------------
One Year
Brian E. Brett (45) VP since 2004 Vice President, Director of Sales, American Beacon Advisors,
Inc. (2004-Present); Regional Vice President, Neuberger
Berman, LLC (investment advisor) (1996-2004).
Nancy A. Eckl (43) VP of Trust since Vice President, Trust Investments, American Beacon Advisors,
1990 Inc. (1990-Present).
Michael W. Fields (51) VP of Trust since Vice President, Fixed Income Investments, American Beacon
1989 Advisors, Inc. (1988-Present).
</Table>
- --------------------------------------------------------------------------------
34
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
OFFICERS (CONT.)
Rebecca L. Harris (38) Treasurer since Vice President, Finance, American Beacon Advisors, Inc.
1995 (1995- Present).
John B. Roberson (47) VP of Trust since Vice President, Client Relations & Special Projects,
1989 American Beacon Advisors, Inc. (2004-Present); Vice
President, Director of Sales, American Beacon Advisors, Inc.
(1991-2004); Director, Pritchard, Hubble & Herr, LLC
(investment advisor) (2001-Present).
Christina E. Sears (34) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc.
Officer since (2004- Present); Senior Compliance Analyst, American Beacon
2004 and Advisors, Inc. (1998-2004).
Secretary since
2005
</Table>
- ---------------
* The Board has adopted a retirement plan that requires Trustees to retire no
later than the last day of the calendar year in which they reach the age of
70, with the exception of Messrs. Quinn and O'Sullivan.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the Trust, as
defined by the 1940 Act. Mr. Quinn is President of the Manager. Mr. Feld's
law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services
within the past two years to one or more of the Trust's investment advisors.
- --------------------------------------------------------------------------------
35
AMERICAN BEACON FUNDS
PRIVACY POLICY
(Unaudited)
- --------------------------------------------------------------------------------
The American Beacon Funds recognizes and respects 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.
- --------------------------------------------------------------------------------
36
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
37
(AMERICAN AADVANTAGE FUNDS LOGO)
- --------------------------------------------------------------------------------
DELIVERY OF DOCUMENTS
To reduce expenses, your financial institution may mail only one copy of the
Prospectus, Annual Report and Semi-Annual Report to those addresses shared by
two or more accounts, if you wish to receive individual copies of these
documents, please contact your financial institution. Delivery of individual
copies will commence thirty days after receiving your request.
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:
<Table>
(KEYBOARD GRAPHIC) (MOUSE GRAPHIC)
BY E-MAIL: ON THE INTERNET:
american_beacon.funds@ambeacon.com Visit our website at www.americanbeaconfunds.com
</Table>
- --------------------------------------------------------------------------------
<Table>
(TELEPHONE GRAPHIC) (MAILBOX GRAPHIC)
BY TELEPHONE: BY MAIL:
Institutional Class American Beacon Funds
------------------- 4151 Amon Carter Blvd., MD 2450
Call (800) 658-5811 Fort Worth, TX 76155
AMR Class(SM)
-------------
Call (800) 345-2345
PlanAhead Class(R) and Service Class
------------------------------------
Call (800) 388-3344
</Table>
- --------------------------------------------------------------------------------
<Table>
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES AVAILABILITY OF PROXY VOTING POLICY AND RECORDS
In addition to the Schedule of Investments provided in each A description of the policies and procedures the Fund uses
semi-annual and annual report, the Fund files a complete to determine how to vote proxies relating to portfolio
schedule of its portfolio holdings with the Securities and securities is available in the Fund's Statement of
Exchange Commission ("SEC") on Form N-Q as of the first and Additional Information, which may be obtained free of charge
third fiscal quarters. The Fund's Forms N-Q are available on by calling 1-800-967-9009 or by accessing the SEC's website
the SEC's website at www.sec.gov. The Forms N-Q may also be at www.sec.gov. The Fund's proxy voting record for the most
reviewed and copied at the SEC's Public Reference Room, 450 recent year ended June 30 is filed annually with the SEC on
Fifth Street, NW, Washington, DC 20549. Information Form N-PX. The Fund's Forms N-PX are available on the SEC's
regarding the operation of the SEC's Public Reference Room website at www.sec.gov. The Fund's proxy voting record may
may be obtained by calling 1-800-SEC-0330. A complete also be obtained by calling 1-800-967-9009.
schedule of the Fund's portfolio holdings is also available
on the Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of each fiscal
quarter.
</Table>
FUND SERVICE PROVIDERS:
<Table>
CUSTODIAN TRANSFER AGENT INDEPENDENT AUDITORS DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES ERNST & YOUNG LLP FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri Chicago, Illinois Portland, Maine
</Table>
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.
- --------------------------------------------------------------------------------
American Airlines, Inc. is not responsible for investments made in the American
Beacon Funds. American Beacon Funds is a service mark of AMR Corporation.
American Beacon Small Cap Value Fund is a service mark of American Beacon
Advisors, Inc.
AR 10/05
535726
ITEM 2. CODE OF ETHICS.
The Trust has adopted a code of ethics that applies to its principal executive
and financial officers (the "Code"). The Trust did not amend the Code nor did
it grant any waivers to the provisions of the Code during the period covered by
the shareholder report 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 Stephen O'Sullivan, a member
of the Trust's Audit and Compliance Committee, is an "audit committee financial
expert" as defined in Form N-CSR. Mr. O'Sullivan is "independent" as defined
in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a)
<Table>
<Caption>
Audit Fees Fiscal Year Ended
- ---------- -----------------
$19,903 12/31/2003
$178,109* 10/31/2004
$41,994* 12/31/2004
$212,628 10/31/2005
</Table>
<FN>
* Revised to include additional audit fees assessed in 2005 relating
to 2004 audit
</FN>
(b)
<Table>
<Caption>
Audit-Related Fees Fiscal Year Ended
- ------------------ -----------------
$0 12/31/2003
$0 10/31/2004
$0 12/31/2004
$26,460* 10/31/2005
</Table>
<FN>
* Attestation services related to Interfund Lending Program
</FN>
(c)
<Table>
<Caption>
Tax Fees Fiscal Year Ended
- -------- -----------------
$4,500* 12/31/2003
$0 10/31/2004
$0 12/31/2004
$28,847** 10/31/2005
</Table>
<FN>
* For review of 2002 tax returns
** For review of 2003 and 2004 tax returns
</FN>
(d)
<Table>
<Caption>
All Other Fees Fiscal Year Ended
- -------------- -----------------
$0 12/31/2003
$0 10/31/2004
$0 12/31/2004
$0 10/31/2005
</Table>
(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)
<Table>
<Caption>
Aggregate Non-Audit Fees for Services Rendered to the:
- ------------------------------------------------------
Adviser's Affiliates Providing
Registrant Adviser Ongoing Services to Registrant Fiscal Year Ended
- ---------- ------- ------------------------------ -----------------
$4,500 $0 N/A 12/31/2003
$0 $0 N/A 10/31/2004
$0 $0 N/A 12/31/2004
$55,307 $0 N/A 10/31/2005
</Table>
(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 report 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/ William F. Quinn
--------------------
William F. Quinn
President
Date: January 6, 2006
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/ William F. Quinn
--------------------
William F. Quinn
President
Date: January 6, 2006
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: January 6, 2006