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, 2006
Date of reporting period: October 31, 2006
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, 2006
EQUITY FUNDS
BALANCED FUND
LARGE CAP GROWTH FUND
MID-CAP VALUE FUND
SMALL CAP VALUE OPPORTUNITY FUND
EMERGING MARKETS FUND
BOND FUNDS
HIGH YIELD BOND FUND
ENHANCED INCOME FUND
INTERMEDIATE BOND FUND
SHORT-TERM BOND FUND
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
Contents
- --------------------------------------------------------------------------------
<Table>
President's Message........................... 1
American Beacon Funds' Performance............ 2
Market and Performance Overviews.............. 3-23
American Beacon Schedules of Investments
Balanced Fund............................... 27
Large Cap Growth Fund....................... 35
Mid-Cap Value Fund.......................... 39
Small Cap Value Opportunity Fund............ 42
Emerging Markets Fund....................... 46
High Yield Bond Fund........................ 52
Enhanced Income Fund........................ 60
Intermediate Bond Fund...................... 65
Short-Term Bond Fund........................ 72
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.
American Beacon Funds October 31, 2006
(BILL QUINN PICTURE)
FELLOW SHAREHOLDERS,
Iam pleased to present to you the American Beacon Funds Annual Report for the
twelve months ended October 31, 2006. The U.S. equity markets finished the
period on a positive note due to the continuing strong performance of the
economy, lower oil prices, and the Federal Reserve ("Fed") taking a neutral
policy on interest rates. The S&P 500(R) and Dow Jones Industrial Average
indices reported one-year returns of 16.34% and 18.47%, respectively.
The American Beacon equity funds posted strong returns in both absolute and
relative terms for the fiscal year as many funds reported double-digit returns.
The American Beacon Mid-Cap Value and Balanced Funds reported one-year returns
of 18.94%(1) and 13.60%, respectively, surpassing their Lipper peer groups. Our
Large Cap Growth Fund beat the Lipper Large-Cap Growth Funds Index with a total
return of 12.04%, and our Emerging Markets Fund recorded a double-digit one-year
total return of 34.49%. All fund returns are for the Institutional Class for the
one-year period ended October 31, 2006.
The bond market, as defined by the Lehman Brothers Aggregate Index, ended
October 31, 2006 with a one-year return of 5.19%. A pause in the raising of
interest rates by the Fed helped to create positive returns for the Index as
well as our Enhanced Income, High Yield Bond, Intermediate Bond, and Short-Term
Bond Funds for the one-year 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 to access your account information, please visit our website 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
(1) The Mid-Cap Value Fund's one-year return represents the total return
achieved by the AMR Class of the Fund from 10/31/05 up to 11/30/05, the
inception date of the Institutional Class, and the returns of the
Institutional Class since its inception. Expenses of the Institutional Class
are higher than those of the AMR Class. As a result, the return shown may be
higher then it would have been had the Institutional Class been in existence
for the one-year period.
1
AMERICAN BEACON FUNDS
OCTOBER 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUALIZED TOTAL RETURN AS OF
OCTOBER 31, 2006
---------------------------------------
INCEPTION TICKER 1 3 5 10 YEAR/
DATE SYMBOL YEAR YEAR YEAR SINCE INCEP.
--------- ------ ------ ------ ------ ------------
Balanced Fund -- Institutional 7/17/87 AADBX 13.60% 12.33% 10.00% 8.77%
Balanced Fund -- PlanAhead 8/1/94 AABPX 13.31% 11.95% 9.69% 8.48%
Balanced Fund -- Service 5/31/05 ABLSX 13.01% 11.75% 9.57% 8.42%
Balanced Fund -- AMR 8/1/94 AABNX 13.98% 12.57% 10.29% 9.07%
Lipper Mixed-Asset Tgt Alloc Gr Funds
Index 7/15/87 13.59% 10.37% 8.27% 8.11%
Large Cap Value Fund -- Institutional 7/17/87 AADEX 18.69% 17.97% 13.26% 10.21%
Large Cap Value Fund -- PlanAhead 8/1/94 AAGPX 18.44% 17.67% 12.96% 9.91%
Large Cap Value Fund -- Service 5/31/05 AVASX 18.18% 17.53% 12.87% 9.86%
Large Cap Value Fund -- AMR 8/1/94 AAGAX 19.08% 18.30% 13.56% 10.50%
Lipper Large-Cap Value Funds Index 7/31/87 18.41% 13.32% 8.51% 8.69%
Large Cap Growth Fund -- Institutional 7/31/00 ALCGX 12.04% 8.57% 4.41% -5.48%
Large Cap Growth Fund -- AMR 7/31/00 ALFIX 12.52% 8.84% 4.59% -5.31%
Lipper Large-Cap Growth Funds Index 7/31/00 6.23% 6.91% 3.34% -6.23%
Mid-Cap Value Fund -- Institutional 11/30/05 AACIX 18.94% N/A N/A 15.51%
Mid-Cap Value Fund -- PlanAhead 2/28/06 AMPAX 18.72% N/A N/A 15.42%
Mid-Cap Value Fund -- AMR 6/30/04 AMDIX 19.16% N/A N/A 15.60%
Lipper Mid-Cap Value Funds Index 6/30/04 17.06% N/A N/A 13.32%
Small Cap Value Fund -- Institutional 12/31/98 AVFIX 15.80% 16.15% 19.00% 14.86%
Small Cap Value Fund -- PlanAhead 3/1/99 AVPAX 15.56% 15.88% 18.71% 14.57%
Small Cap Value Fund -- Service 5/1/03 AASSX 15.23% 15.57% 18.48% 14.43%
Small Cap Value Fund -- AMR 3/1/99 AASVX 16.12% 16.46% 19.32% 15.17%
Lipper Small-Cap Value Funds Index 12/31/98 17.83% 16.56% 16.81% 13.21%
Small Cap Value Opportunity
Fund -- Institutional 3/31/06 ASOIX N/A N/A N/A 2.60%
Small Cap Value Opportunity Fund -- PlanAhead 3/31/06 ASOPX N/A N/A N/A 2.60%
Lipper Small-Cap Value Funds Index 3/31/06 N/A N/A N/A 1.19%
International Equity Fund -- Institutional 8/7/91 AAIEX 27.49% 21.57% 16.17% 10.40%
International Equity Fund -- PlanAhead 8/1/94 AAIPX 27.20% 21.25% 15.98% 10.16%
International Equity Fund -- Service 5/1/03 AAISX 26.89% 20.96% 15.75% 10.05%
International Equity Fund -- AMR 8/1/94 AAIAX 27.88% 21.90% 16.46% 10.68%
Lipper International Funds Index 8/7/91 27.27% 20.83% 14.90% 9.21%
Emerging Markets Fund -- Institutional 7/31/00 AEMFX 34.49% 27.93% 27.83% 14.03%
Emerging Markets Fund -- PlanAhead 10/1/02 AAEPX 34.16% 27.66% 27.56% 13.84%
Emerging Markets Fund -- AMR 7/31/00 AAMRX 34.87% 28.28% 28.17% 14.33%
Lipper Emerging Markets Funds Index 7/31/00 34.61% 29.59% 28.17% 14.06%
High Yield Bond Fund -- Institutional 12/29/00 AYBFX 8.78% 7.29% 9.53% 9.07%
High Yield Bond Fund -- PlanAhead 3/1/02 AHYPX 8.63% 7.04% 9.25% 8.83%
Lipper High Current Yield Funds Index 12/31/00 9.19% 8.10% 9.11% 7.04%
Enhanced Income Fund -- PlanAhead 7/1/03 AANPX 6.36% 4.11% N/A 3.79%
Lipper Interm. Investment Grade Index 6/30/03 5.08% 3.88% N/A 3.25%
Intermediate Bond Fund -- Institutional 9/15/97 AABDX 4.96% 3.85% 4.14% 5.74%
Intermediate Bond Fund -- PlanAhead 3/2/98 AAPAX 4.33% 3.23% 3.60% 5.28%
Lipper Interm. Investment Grade Index 9/15/97 5.08% 3.88% 4.38% 5.77%
Short-Term Bond Fund -- Institutional 12/3/87 AASBX 4.56% 2.64% 3.07% 4.85%
Short-Term Bond Fund -- PlanAhead 8/1/94 AALPX 4.01% 2.09% 2.56% 4.35%
Lipper Short Investment Gr Bond Funds
Index 12/1/87 4.39% 2.53% 2.69% 4.49%
</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 current performance may be lower or higher than the performance
data quoted. To obtain performance as of the most recent month end, please visit
www.americanbeaconfunds.com or call 1-800-967-9009.
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. A portion of fees have been waived and/or expenses reimbursed for
certain Funds. Returns prior to fee waivers and expense reimbursements were
lower than the actual returns shown. Please see each Fund's Financial Highlights
for waiver and reimbursement information.
2
DOMESTIC EQUITY MARKET OVERVIEW
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The U.S. stock market proved resilient in the final two months of 2005, posting
mid-single digit total returns despite events in early 2005 of geopolitical
tensions, rising interest rates, soaring oil prices, and a devastating
hurricane. Continued expansion in the manufacturing sector, heightened
productivity, and employment gains contributed to solid results and helped the
year end on a positive note.
The stock market continued its fourth quarter 2005 rally into the first
quarter of 2006, even in the face of more rate increases by the Federal Reserve.
The gains were due in large part to continued growth in the industrial economy,
modest unemployment, and minimal inflation. Furthermore, value stocks in the
Russell indices outpaced their growth counterparts in the first quarter, as they
have over the past few years. With regard to size, small cap stocks performed
the best, followed by mid-caps, with large cap issues bringing up the rear for
the first quarter as well as the trailing one-, three- and five-year periods.
While nine of the ten economic sectors in the S&P 500(R) Index advanced, sector
performance varied widely in the first quarter, with more than 15 percentage
points separating the leader from the laggard. Telecommunication Services and
Energy posted the largest gains, with total returns of 14.5% and 9.1%,
respectively. At the opposite end of the spectrum was the Utilities sector at -
1.2%.
During the second quarter of 2006, several key U.S. stock market indices,
including the S&P 500 Index and the Nasdaq Composite, declined. While economic
and earnings growth remained strong, concerns about inflation and the direction
of monetary policy under the leadership of new Federal Reserve Chairman Ben
Bernanke pressured equity prices. The Federal Reserve raised short-term interest
rates in May and again in June, but stocks rallied late in the quarter on
expectations that the end of the tightening cycle was near. As measured by
various Russell indices, value stocks again outperformed growth stocks in the
second quarter, while large cap equities outpaced their midcap and small cap
counterparts, as is often the case in a down market. Investors also preferred
defensive stocks in the weak market environment, and Utilities, Energy, and
Consumer Staples were the only sectors in the S&P 500 Index to advance during
the second quarter. Negative market sentiment took its toll on the more volatile
Information Technology sector, which was the S&P 500 Index's worst performer.
In the third quarter of 2006, the U.S. stock market indices rebounded.
Equity investors set aside concerns about the effects of a slowing housing
market, auto industry turmoil, and a heightened homeland security alert. After
17 increases in interest rates over the past two-plus years, the Federal Reserve
held interest rates steady at both of its rate-setting meetings during the
quarter. This pause, combined with moderate economic growth and strong corporate
earnings, contributed to a stock market rally. As had been the case in recent
quarters, value stocks outperformed their growth counterparts within the Russell
universe during the third quarter. Large cap issues outperformed smaller and
mid-cap companies, but continue to lag over the three-, five- and ten-year
periods. In a reversal of the second quarter, seven of the ten sectors in the
S&P 500 Index provided a positive total return during the third quarter. After
performing well over the previous quarter, the Energy sector declined,
reflecting the sharp decline in commodity energy prices in September.
Telecommunication Services and Health Care rebounded sharply during the third
quarter, as both sectors advanced more than 10%.
The U.S. stock market posted low- to mid-single-digit gains in October
2006. Overall, growth stocks narrowly outperformed their value counterparts
during the month. In general, stock performance was inversely related to size,
as small cap stocks were the strongest performers, followed by mid-caps, with
large cap issues trailing the pack. All ten economic sectors in the S&P 500
Index advanced in October. Both the Consumer Discretionary and Materials sectors
posted total returns in excess of 6%, while Health Care was the laggard, gaining
just 0.5% for the month.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON BALANCED FUND(SM)
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The Balanced Fund's Institutional Class returned 13.60% for the twelve
months ended October 31, 2006, trailing the 60% S&P 500 Citigroup Value/40%
Lehman Brothers Aggregate Index benchmark return of 14.44% and slightly ahead of
the Lipper Mixed-Asset Target Allocation Growth Funds Index return of 13.59%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/96 THROUGH 10/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER MIXED
ASSET TARGET LINKED S&P 500/ BALANCED
INSTITUTIONAL ALLOCATION GROWTH S&P 500 CITIGROUP BARRA LEHMAN BROS. COMPOSITE
CLASS FUNDS INDEX INDEX VALUE INDEX AGG INDEX INDEX
------------- ----------------- ------- --------------- ------------ ---------
10/96 10000 10000 10000 10000 10000 10000
10/97 12004 12025 13211 12970 10892 12120
10/98 13089 13319 16116 14493 11907 13515
10/99 13159 14993 20253 17248 11970 15068
10/00 13834 16179 21487 18917 12844 16247
10/01 14397 14763 16136 15433 14714 15425
10/02 13657 13638 13698 12997 15581 14348
10/03 16357 15849 16547 16223 16346 16775
10/04 18462 17149 18106 18569 17250 18596
10/05 20406 18377 19685 20458 17445 19820
10/06 23181 20637 22902 24740 18350 22682
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
------------------------- VALUE OF
PERIODS ENDED 10/31/06 $10,000
------------------------- 10/31/96-
1 YEAR 5 YEARS 10 YEARS 10/31/06
------ ------- -------- ---------
Institutional Class(1).................. 13.60% 10.00% 8.77% $23,181
PlanAhead Class(1)...................... 13.31% 9.69% 8.48% $22,566
Service Class(1,2)...................... 13.01% 9.57% 8.42% $22,443
AMR Class(1)............................ 13.98% 10.29% 9.07% $23,818
Lipper Mixed-Asset Target Allocation
Growth Funds(3)....................... 13.59% 8.27% 8.11% $21,798
S&P 500 Index(3)........................ 16.34% 7.26% 8.64% $22,902
Linked S&P 500/ Citigroup Value
Index(3).............................. 20.93% 9.90% 9.48% $24,740
Lehman Bros. Aggregate Index(3)......... 5.19% 4.51% 6.26% $18,350
Balanced Composite Index(4)............. 14.44% 8.02% 8.53% $22,682
</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 current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2. Fund performance for the one-year, five-year and ten-year periods
represents the total returns achieved by the PlanAhead Class from 10/31/96
up to 5/31/05, 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. Therefore, total returns shown
may be higher than they would have been had the Service Class been in
existence since 10/31/96. A portion of the fees charged to the Service
Class of the Fund has been waived. Performance prior to waiving fees was
lower than the actual returns shown.
3. The S&P 500 Index is an unmanaged index of common stocks publicly traded
in the United States. The Linked S&P 500/Citigroup Value Index represents
returns of the S&P 500/Barra Value Index ("Barra Value") up to October 31,
2005 and the S&P 500/Citigroup Value Style Index ("Citigroup Index")
thereafter. The Barra 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
Citigroup Index is a market value weighted index of stocks in the S&P 500
that score highest based on an average book-to-price ratio, cash flow-to-
price ratio, sales to price ratio, and dividend yield, representing 50% of
the total market value of the S&P 500. 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. The Lipper
Mixed-Asset Target Allocation Growth Funds Index tracks the results of the
30 largest mutual funds in the Lipper Mixed-Asset Target Allocation Funds
category. Lipper is an independent mutual fund research and ranking
service. One cannot directly invest in an index.
4. To reflect the Fund's allocation of its assets between investment grade
fixed-income securities and equity securities, the returns of the Linked
S&P 500/Citigroup Value Index and the Lehman Brothers Aggregate Index have
been combined in a 60%/40% proportion.
During the twelve-month period, the Fund's assets on average were invested
65% in equities (including equitized cash) and 35% in fixed-income securities,
ending the period with 64% in equities/equitized cash and 36% in fixed-income
securities.
The equity portion of the Fund (excluding equitized cash) returned 18.7%,
underperforming the Linked S&P 500/Citigroup Value Index ("Linked Index") return
of 20.9%. The Fund's equities outperformed the Linked Index in six out of ten
sectors. However, poor stock selection mainly in the Consumer Discretionary and
Financials sectors contributed to the Fund's underperformance. In the Consumer
Discretionary sector, Centex (down 18.5%), Pulte Homes (down 17.6%) and Home
Depot (down 11.0%) detracted from Fund performance while the Fund's positions in
SLM (down 10.8%) and Citigroup (up 14.1%) accounted for a large portion of the
Financial sector's underperformance. The Fund's Energy sector holdings also had
a negative impact on performance where ConocoPhillips (down 5.7%), BP (up 2.0%)
and Devon Energy (up 11.5%) were the largest detractors.
Equity sector allocation detracted modestly from the Fund's relative
returns during the twelve-month period, mainly due to a large underweight in the
4
PERFORMANCE OVERVIEW
AMERICAN BEACON BALANCED FUND(SM) -- CONTINUED
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
Telecommunication Services sector, the best performing sector of the Linked
Index.
The fixed-income portion of the Fund returned 6.1% for the period,
outperforming the Lehman Brothers Aggregate Index ("Lehman Index") return of
5.2%. The Fund's average duration was shorter than the Lehman Index during the
first half of the twelve-month period (3.3 years versus the Lehman Index average
duration of 4.6 years) and longer during the latter half (5.0 years versus the
Lehman Index average duration of 4.7 years), which helped performance as
interest rates rose during the first half of the period and declined in the
latter half.
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
--------
Bank of America Corporation 3.6%
Citigroup, Incorporated 2.5%
ConocoPhillips 2.4%
JP Morgan Chase & Co. 2.3%
Exelon Corporation 2.2%
Altria Group, Incorporated 1.8%
Pfizer, Incorporated 1.7%
Verizon Communications, Inc. 1.7%
CA, Incorporated 1.7%
The St. Paul Travelers Companies,
Incorporated 1.7%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 29.2%
Industrials 14.0%
Consumer Discretionary 11.0%
Information Technology 9.4%
Health Care 8.0%
Consumer Staples 7.3%
Energy 7.0%
Utilities 5.8%
Materials 4.7%
Telecommunication Services 3.6%
</Table>
FIXED-INCOME SECTOR ALLOCATION
<Table>
<Caption>
% OF FIXED
INCOME
----------
U.S. Treasury 31.4%
Mortgage-Backed 28.9%
Corporates 20.5%
Agency 18.0%
Asset-Backed 1.2%
</Table>
5
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP GROWTH FUND(SM)
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The Institutional Class of the Large Cap Growth Fund returned 12.04% for
the twelve months ended October 31, 2006, outpacing the Russell 1000 Growth
Index ("Index") return of 10.84% and the Lipper Large-Cap Growth Funds Index
return of 6.23%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/31/00* THROUGH 10/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER LARGE-CAP
GROWTH FUNDS RUSSELL 1000
INSTITUTIONAL CLASS INDEX GROWTH INDEX
------------------- ---------------- ------------
7/00 10000.00 10000.00 10000.00
10/00 9540.00 9505.00 9407.00
10/01 5665.00 5678.00 5649.00
10/02 4534.00 4620.00 4541.00
10/03 5493.00 5476.00 5531.00
10/04 5862.00 5620.00 5718.00
10/05 6276.00 6299.00 6222.00
10/06 7031.00 6692.00 6897.00
</Table>
* Inception of Fund
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
----------------------------- VALUE OF
PERIODS ENDED 10/31/06 $10,000
----------------------------- 7/31/00-
1 YEAR 5 YEARS SINCE INCEP. 10/31/06
------ ------- ------------ --------
Institutional Class(1)................ 12.04% 4.41% -5.48% $7,031
AMR Class(1).......................... 12.52% 4.59% -5.31% $7,110
Lipper Large-Cap Growth Funds
Index(2)............................ 6.23% 3.34% -6.23% $6,692
Russell 1000(R) Growth Index(2)....... 10.84% 4.07% -5.77% $6,897
</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 current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares. A portion of the fees charged to the Institutional
Class of the Fund has been waived. Performance prior to waiving fees was
lower than the actual returns shown.
2. 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. Russell 1000(R) Growth Index is a
service mark of the Frank Russell Company. The Lipper Large-Cap Growth
Funds Index tracks the results of the 30 largest mutual funds in the
Lipper Large-Cap Growth Funds category. Lipper is an independent mutual
fund research and ranking service. One cannot directly invest in an index.
This has been a positive period for U.S. growth stocks overall. During the
Fund's fiscal year, all ten sectors in the Index posted positive returns. While
sector weighting decisions were additive in seven out of ten sectors and mildly
beneficial overall for the Fund, stock selection had by far the largest impact
on relative returns.
In terms of stock selection, the largest value-added sectors for the Fund
relative to the Index were Consumer Discretionary and Information Technology.
Positions in Circuit City (up 52.2%), Choice Hotels International (up 28.2%) and
News Corp. (up 38.8% during the time the Fund owned the security) had the
largest positive impact in the Consumer Discretionary sector. In the Information
Technology sector, overweighting Corning (up 21.5% during the time the Fund
owned the security), Cisco Systems (up 38.3%), and Western Digital (up 51.1%)
was very positive for the Fund. The sectors that detracted most from relative
performance were Health Care and Energy. The Fund was hurt by positions in
Express Scripts and St. Jude Medical (down 29.7% and 26.6%, respectively, during
the time the Fund owned the security) in the Health Care sector and Sunoco and
Diamond Offshore (down 10.2% and 4.2%, respectively, during the time the Fund
owned the security) in the Energy sector.
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
--------
Cisco Systems, Incorporated 2.9%
Johnson & Johnson 2.7%
Amgen, Incorporated 2.1%
General Electric Company 2.1%
Texas Instruments, Incorporated 2.0%
The Boeing Company 2.0%
Merck & Company, Incorporated 1.9%
Microsoft Corporation 1.7%
Google, Incorporated 1.5%
CVS Corporation 1.5%
</Table>
6
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP GROWTH FUND(SM) -- CONTINUED
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Information Technology 22.5%
Health Care 18.4%
Consumer Discretionary 16.2%
Industrials 15.7%
Financials 9.5%
Consumer Staples 6.9%
Materials 4.9%
Energy 3.5%
Utilities 1.2%
Telecommunication Services 1.2%
</Table>
7
PERFORMANCE OVERVIEW
AMERICAN BEACON MID-CAP VALUE FUND(SM)
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The Institutional Class of the Mid-Cap Value Fund returned 18.94% for the
twelve-month period ended October 31, 2006. The Fund trailed the Russell Midcap
Value Index ("Index") return of 20.51% but outperformed the Lipper Mid-Cap Value
Funds Index return of 17.06%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 6/30/04* THROUGH 10/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER MID-CAP
VALUE FUNDS RUSSELL MIDCAP
INSTITUTIONAL CLASS INDEX VALUE INDEX
------------------- -------------- --------------
6/04 10000.00 10000.00 10000.00
10/04 10270.00 10058.00 10409.00
10/05 11773.00 11439.00 12439.00
10/06 14002.00 13390.00 14990.00
</Table>
* Inception of AMR Class of Fund
<Table>
<Caption>
TOTAL RETURNS
--------------
PERIODS ENDED
10/31/06 VALUE OF
-------------- $10,000
SINCE 6/30/04-
1 YEAR INCEP. 10/31/06
------ ------ --------
Institutional Class(1,3).............................. 18.94% 15.51% $14,002
PlanAhead Class (1,2)................................. 18.72% 15.42% $13,976
AMR Class(1).......................................... 19.16% 15.60% $14,028
Lipper Mid-Cap Value Funds Index(4)................... 17.06% 13.32% $13,390
Russell Midcap(R) Value Index(4)...................... 20.51% 18.95% $14,990
</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 current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares. A portion of the fees charged to the PlanAhead and
AMR Classes of the Fund has been waived. Performance of each class prior
to waiving fees was lower than the actual returns shown.
2. Fund performance represents the total returns achieved by the AMR Class
from 6/30/04 up to 3/1/06, 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 AMR Class. As a result, total
returns shown may be higher than they would have been had the PlanAhead
Class been in existence since 6/30/04.
3. Fund performance represents the total returns achieved by the AMR Class
from 6/30/04 up to 11/30/05, the inception date of the Institutional
Class, and the returns of the Institutional Class since its inception.
Expenses of the Institutional Class are higher than those of the AMR
Class. As a result, total returns shown may be higher than they would have
been had the Institutional Class been in existence since 6/30/04.
4. The Lipper Mid-Cap Value Funds Index tracks the results of the 30 largest
mutual funds in the Lipper Mid-Cap Value Funds category. Lipper is an
independent mutual fund research and ranking service. One cannot invest in
an index. 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 Russell Midcap Index
measures the performance of the 800 smallest companies in the Russell
1000(R) Index. Russell Midcap(R) Value Index is a service mark, and
Russell 1000 Index is a service mark, of the Frank Russell Company.
The Fund underperformed the Index due to sector allocation, as stock
selection was positive. A large overweight in the Consumer Discretionary sector,
one of the poorer performing sectors in the Index, and an underweight in
Materials, the second best performing sector in the Index, were the largest
detractors through sector allocation. The Fund's absence of Telecommunication
Services stocks, the best performing sector of the Index, also hurt relative
performance.
The Fund outperformed the Index in every sector except Financials. Stock
selection in the Consumer Staples sector contributed most. In this sector,
holdings in Carolina Group (up 46.0%), NBTY (up 39.0%) and Reynolds American (up
56.0% during the time the Fund owned the security) accounted for most of the
sector's excess performance. The Fund's holdings in the Materials sector also
added value relative to the Index. Lafarge provided most of the added value in
the Materials sector, as it was up 51.1% over the period the Fund owned it. The
Fund's investments in the Financials sector hurt performance most. The largest
detractor was First American Financial (down 5.2%), followed by Willis Group
Holdings (up 5.1%), Radian Group (up 2.4%) and AON (up 4.5%).
The sub-advisors' philosophy of investing in undervalued companies that
exhibit improving profitability and earnings growth potential should allow the
Fund to benefit longer-term.
8
PERFORMANCE OVERVIEW
AMERICAN BEACON MID-CAP VALUE FUND(SM) -- CONTINUED
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF NET
ASSETS
--------
Whirlpool Corporation 2.8%
XL Capital Limited 1.9%
Carolina Group 1.8%
American Power Conversion Corp. 1.8%
Wisconsin Energy Corp. 1.8%
CA, Inc. 1.7%
Lucent Technologies, Inc. 1.7%
Torchmark Corp. 1.6%
The First American Corp. 1.6%
Advance Auto Parts, Inc. 1.6%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 28.7%
Consumer Discretionary 22.9%
Industrials 12.2%
Health Care 11.7%
Utilities 9.1%
Information Technology 7.6%
Consumer Staples 5.0%
Energy 2.1%
Materials 0.7%
</Table>
9
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND(SM)
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The Institutional Class of the Small Cap Value Opportunity Fund returned
2.60% for the seven-month period from its inception on March 31 through October
31, 2006. The Fund underperformed the Russell 2000 Value Index ("Index") return
of 4.86% but outperformed the Lipper Small-Cap Value Funds Index return of 1.19%
for the same period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 3/31/06* THROUGH 10/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER SMALL-CAP
VALUE FUNDS RUSSELL 2000
INSTITUTIONAL CLASS INDEX VALUE INDEX
------------------- ---------------- ------------
3/06 10000.00 10000.00 10000.00
10/06 10260.00 10119.00 10486.00
</Table>
* Inception of Fund
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
------------------------
PERIODS ENDED 10/31/06
------------------------
VALUE OF
SINCE $10,000
INCEP. 3/31/06-10/31/06
------ ----------------
Institutional Class(1)................ 2.60% $10,260
PlanAhead Class(1).................... 2.60% $10,260
Lipper Small-Cap Value Funds
Index(2)............................ 1.19% $10,119
Russell 2000(R) Value Index(2)........ 4.86% $10,486
</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 current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares. A portion of the fees charged to the Institutional
and PlanAhead Classes of the Fund has been waived. Performance of each
class prior to waiving fees was lower than the actual returns shown.
2. 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. Russell 2000(R) Value Index is a service
mark of the Frank Russell Company. The Lipper Small-Cap Value Funds Index
tracks the results of the 30 largest mutual funds in the Lipper Small-Cap
Value Funds category. Lipper is an independent mutual fund research and
ranking service. One cannot directly invest in an index.
The Fund trailed the Index mostly due to stock selection, as sector
allocation detracted only a minimal amount. Stock selection in the Materials
sector detracted the most value relative to the Index, followed by the
Financials and Industrials sectors. The Fund's holdings in the Materials sector
that had the largest impact for the period that the Fund held the securities
were Eagle Materials (down 41.9%) and Quanex (down 31.1%). The largest
detractors in the Financials sector were Accredited Home Lenders (down 40.2%),
Corus Bankshares (down 29.6%), and Stewart Information (down 21.3%). In the
Industrials sector, most of the underperformance came from United Rentals (down
31.3% during the time the Fund owned the security) and Universal Forest Products
(down 28.5%).
Sector weightings detracted a small amount from performance relative to the
Index. An overweight in the Industrials sector, which was one of the poorer
performing sectors of the Index during the seven-month period, accounted for the
majority of the underperformance.
The sub-advisor's disciplined approach of investing in a diversified
portfolio of small cap value companies should position the Fund to generate
competitive performance over longer periods of time.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF NET
ASSETS
--------
FirstFed Financial Corp. 1.1%
Argonaut Group, Inc. 1.0%
Kennametal, Inc. 1.0%
Payless Shoesource, Inc. 1.0%
Greif, Inc. 1.0%
First Community Bancorp, Inc. 1.0%
Innkeepers USA Trust 1.0%
Delphi Financial Group, Inc. 1.0%
Irwin Financial Corp. 0.9%
FelCor Lodging Trust, Inc. 0.9%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 35.4%
Consumer Discretionary 15.8%
Industrials 13.4%
Information Technology 10.9%
Materials 5.8%
Utilities 4.9%
Health Care 4.8%
Energy 3.9%
Consumer Staples 3.5%
Telecommunication Services 1.6%
</Table>
10
EMERGING MARKETS OVERVIEW
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
Emerging markets have delivered solid returns over the twelve months ended
October 31, 2006 driven by strength in China and the Materials and Industrials
sectors. The fourth quarter of 2005 marked a strong finish to the year for
emerging market equities as the MSCI Emerging Markets Index gained 7.2%. First
quarter 2006 returns surged over 12%, most of which was captured in January
alone with a record amount of inflows into the asset class. A material
correction occurred in the second quarter during the May to mid-June time
period, which was triggered by U.S. inflation fears and tighter monetary policy.
This 25% correction was "sandwiched" by strong momentum in April and the latter
part of June, which minimized the quarterly loss to just over 5%. Third quarter
returns were up modestly with a key driver being the sharp sell-off in oil, down
20% from its August peak. Premium valuations and strong relative performance
continue to be key attributes for the large and mega-capitalization securities
(stocks over $10 billion and $50 billion in market cap respectively) in the MSCI
Emerging Markets Index.
11
PERFORMANCE OVERVIEW
AMERICAN BEACON EMERGING MARKETS FUND(SM)
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The Institutional Class of the Emerging Markets Fund returned 34.49% for
the twelve months ended October 31, 2006. The Fund underperformed the MSCI
Emerging Markets Index ("Index") return of 35.00% and the Lipper Emerging Market
Funds Index return of 34.61%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/31/00* THROUGH 10/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER EMG MSCI EMG
MKT FUNDS MKTS FREE
INSTITUTIONAL CLASS INDEX INDEX
------------------- ---------- ---------
7/00 10000.00 10000.00 10000.00
10/00 8170.00 8455.00 8499.00
10/01 6657.00 6578.00 6488.00
10/02 7309.00 7047.00 7023.00
10/03 10851.00 10456.00 10417.00
10/04 12983.00 12713.00 12398.00
10/05 16892.00 16904.00 16589.00
10/06 22718.00 22755.00 22395.00
</Table>
* Inception of Institutional Class of Fund
<Table>
<Caption>
ANNUALIZED TOTAL
RETURNS
-----------------------
PERIODS ENDED 10/31/06 VALUE OF
----------------------- $10,000
SINCE 7/31/00-
1 YEAR 5 YEARS INCEP. 10/31/06
------ ------- ------ --------
Institutional Class(1)................................ 34.49% 27.83% 14.03% $22,718
PlanAhead Class(1,2).................................. 34.16% 27.56% 13.84% $22,485
AMR Class(1).......................................... 34.87% 28.17% 14.33% $23,090
Lipper Emg Mkt Funds Index(3)......................... 34.61% 28.17% 14.06% $22,755
MSCI Emg Mkts Index(3)................................ 35.00% 28.11% 13.77% $22,395
</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 current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2. Fund performance for the 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. A portion of the fees charged to the PlanAhead
Class of the Fund has been waived and recouped. Performance prior to fee
waivers and fee recoupment is different than the actual returns shown. See
the Financial Highlight tables for more information.
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 Lipper Emerging Market Funds Index tracks the results
of the 30 largest mutual funds in the Lipper Emerging Market Funds
category. Lipper is an independent research and ranking service. One
cannot directly invest in an index.
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 Turkey and Russia, poor
selections in China, Taiwan and Brazil negatively impacted the Fund's
performance during its fiscal year. In Turkey, BIM Birlesik Magazalar gained
86.9%, while Dogan Yayin Holding returned just over 50%. Also returning just
over 50% were Russian companies, Savings Bank of the Russian Federation
(Sberbank Rossii) and Novatek. In China, Global Bio-chem Technology Group fell
25.5%, while Benq Corp dropped 45.4% in Taiwan. Finally in Brazil, Brasil
Telecom lost 16.9%, and Empresa Brasileira de Aeronautica (Embraer) gained less
than 10%.
Country allocation added value as the Fund underweighted Israel, which was
the second worst performing market for the twelve-month period with a gain of
4.0%, and overweighted India, which was the fourth best performing market for
the period with a return of 63.7%.
The Fund's basic philosophy remains focused on investing in undervalued
companies with above-average earnings growth expectations.
12
PERFORMANCE OVERVIEW
AMERICAN BEACON EMERGING MARKETS FUND(SM) -- CONTINUED
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF NET
ASSETS
--------
Petroleo Brasileiro S.A., ADR 2.9%
Samsung Electronics Company Limited 2.1%
LUKOIL Oil Company, ADR 2.0%
RAO Gazprom 1.9%
America Movil, S.A. de C.V., ADR 1.7%
Wal-Mart de Mexico, S.A. de C.V. 1.6%
Grupo Televisa, S.A. 1.4%
United Microelectronics Corporation 1.3%
Kookmin Bank 1.1%
Unibanco -- Uniao de Bancos
Brasileiros S.A. 1.1%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 21.8%
Consumer Discretionary 14.4%
Energy 12.0%
Telecommunications Services 10.9%
Information Technology 10.8%
Industrials 10.1%
Materials 7.7%
Utilities 5.5%
Consumer Staples 4.9%
Health Care 1.9%
</Table>
COUNTRY ALLOCATION*
(PIE CHART)
* Shown as a percentage of equities.
<Table>
<Caption>
SOUTH SOUTH HONG
KOREA BRAZIL TAIWAN AFRICA MEXICO INDIA RUSSIA KONG CHINA MALAYSIA TURKEY POLAND THAILAND
----- ------ ------ ------ ------ ----- ------ ---- ----- -------- ------ ------ --------
15.5% 13.1 12.6% 11.0% 8.4% 8.1% 7.5% 3.7% 3.5% 2.8% 2.7% 2.5% 2.3%
<Caption>
CZECH
INDONESIA HUNGARY ISRAEL MOROCCO PHILIPPINES AUSTRIA CHILE COLOMBIA REPUBLIC PERU ARGENTINA
--------- ------- ------ ------- ----------- ------- ----- -------- -------- ---- ---------
1.9% 1.0% 0.9% 0.6% 0.6% 0.4% 0.4% 0.2% 0.2% 0.1% 0.0%
</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.
13
DOMESTIC BOND MARKET OVERVIEW
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
For the twelve-month period ended October 31, 2006, the investment grade fixed
income market, as defined by the Lehman Brothers Aggregate Index (the "Index"),
produced a 5.19% total return. Although short-term interest rates rose
significantly during the period as the Federal Reserve Bank (the "Fed") raised
rates, longer-term rates were up only modestly, which allowed for reasonably
attractive total returns from the broad fixed income market.
<Table>
<Caption>
TOTAL RETURNS
---------------------
PERIODS ENDED
10/31/06
---------------------
6 MONTH 12 MONTH
------- --------
Lehman Aggregate 4.60% 5.19%
Lehman Gov/Credit 4.75% 4.88%
- ------------------------------------------------------
SECTOR
U.S. Treasury 4.57% 4.43%
U.S. Agency 4.02% 4.93%
Mortgage-Backed 4.38% 5.68%
Commercial MBS 4.73% 5.53%
Asset-Backed 3.55% 4.96%
U.S. Credit 5.32% 5.36%
- ------------------------------------------------------
CREDIT RATING
Aaa 4.39% 5.12%
Aa 5.13% 5.36%
A 5.53% 5.36%
Baa 5.46% 5.60%
- ------------------------------------------------------
U.S. TREASURY YIELD
2 Year 2.59 3.88
3 Year 3.04 4.16
5 Year 3.73 3.46
10 Year 5.76 3.30
30 Year 9.91 3.31
</Table>
(source: Lehman Brothers)
During the period, the Fed raised the Federal Funds Rate by 1.50%, from
3.75% to a final rate of 5.25%, which marked the end of their monetary policy
tightening campaign. The yield curve began the period very flat and ended the
period inverted with every point along the Treasury curve below the target
Federal Funds Rate. While the inversion was only mild, many economists saw it as
a presage of slower economic growth.
Following in Alan Greenspan's footsteps, Ben Bernanke, the first new Fed
Chairman in 18 years, oversaw the final 75 basis points (.75%) of interest rate
hikes before pausing to monitor the incoming economic data. The transition to a
new Fed governor was smooth, but it led to renewed speculation about the Fed's
approach towards monetary policy and the path of interest rates.
(PERFORMANCE GRAPH)
<Table>
3.88 5.04
4.21 5.11
4.24 5.04
4.27 4.97
4.29 4.90
4.32 4.83
4.35 4.76
2 Yr. 4.37 4.69
4.38 4.68
4.39 4.67
4.39 4.66
4.40 4.65
4.40 4.64
4.41 4.63
4.41 4.62
4.42 4.61
4.42 4.59
4.43 4.58
5 Yr. 4.44 4.57
4.44 4.56
4.45 4.56
4.45 4.56
4.46 4.57
4.46 4.57
4.47 4.57
4.47 4.57
4.48 4.57
4.49 4.58
4.49 4.58
4.50 4.58
4.50 4.58
4.51 4.58
4.51 4.59
4.52 4.59
4.52 4.59
4.53 4.59
4.53 4.59
4.54 4.59
10 Yr. 4.55 4.60
4.55 4.60
4.55 4.60
4.56 4.60
4.56 4.60
4.56 4.60
4.56 4.61
4.57 4.61
4.57 4.61
4.57 4.61
4.57 4.61
4.58 4.61
4.58 4.61
4.58 4.62
4.58 4.62
4.59 4.62
4.59 4.62
4.59 4.62
4.59 4.62
4.60 4.62
4.60 4.63
4.60 4.63
4.60 4.63
4.61 4.63
4.61 4.63
4.61 4.63
4.61 4.63
4.62 4.64
4.62 4.64
4.62 4.64
4.62 4.64
4.63 4.64
4.63 4.64
4.63 4.64
4.63 4.65
4.64 4.65
4.64 4.65
4.64 4.65
4.64 4.65
4.65 4.65
4.65 4.66
4.65 4.66
4.66 4.66
4.66 4.66
4.66 4.66
4.66 4.66
4.67 4.66
4.67 4.67
4.67 4.67
4.67 4.67
4.68 4.67
4.68 4.67
4.68 4.67
4.68 4.67
4.69 4.68
4.69 4.68
4.69 4.68
4.69 4.68
4.70 4.68
4.70 4.68
4.70 4.68
4.70 4.69
4.71 4.69
4.71 4.69
4.71 4.69
4.71 4.69
4.72 4.69
4.72 4.69
4.72 4.70
4.72 4.70
4.73 4.70
4.73 4.70
4.73 4.70
4.73 4.70
4.74 4.70
4.74 4.71
4.74 4.71
4.74 4.71
30 Yr. 4.75 4.71
4.75 4.71
4.75 4.71
4.75 4.72
</Table>
Within the investment grade fixed income markets, yield played the largest
role in determining relative total returns. The impact of duration was minor
during the period as longer-term interest rates were largely unchanged. Longer-
term rates were volatile in the interim, rising sharply in early '06 and
declining in late '06, but they ended nearly where they began. Likewise, credit
spreads were also largely unchanged during the period, although their path was
range-bound throughout the year. With stability in the spread sectors, investors
benefited from the incremental yield available from those securities.
The highest total return among the major asset classes during the twelve
months ended October 31, 2006 came from mortgages, which returned 5.68%. A
combination of moderating refinancing activity and spread improvement helped
this sector to outperform. The rise in interest rates during the middle of this
period and the flattening yield curve slowed refinancing activity and reduced
the amount of new mortgage issuance entering the market -- both of which
contributed to this sector's outperformance.
The credit markets experienced a period of relative calm during the past
year. With the auto manufacturers firmly planted in the high yield sector in
late 2005, their impact on the broader investment grade market was minimal.
There were still periods of uncertainty prompted by private equity and leveraged
buyout investors, but these stories were issuer-specific and did not affect the
broad market averages. To be fair, the Lehman Credit sector spread averages are
market-weighted averages, and smaller issuers are generally more prone to
leveraged transactions than
14
DOMESTIC BOND MARKET OVERVIEW -- CONTINUED
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
are large issuers. In other words, the spread markets felt more volatile than
they actually were.
Credit fundamentals were solid during the period -- debt levels were up
only modestly, balance sheets were strong, and profitability remained strong.
Companies with flat stock prices were the primary targets of takeover
speculation, but other than issuer-specific stories, the broad credit technicals
were positive. As a result, the highest-yielding, or triple-B rated, issuers
outperformed during the period.
(PERFORMANCE GRAPH)
<Table>
<Caption>
INDEX AAA CREDIT AA CREDIT A CREDIT BAA CREDIT
----- ---------- --------- -------- ----------
10/1/04 84 34 43 70 121
10/8/04 84 34 43 70 121
10/15/04 84 33 42 69 122
10/22/04 86 33 42 69 126
10/29/04 84 33 42 68 123
11/5/04 80 31 39 65 117
11/12/04 79 30 39 64 115
11/19/04 78 29 39 64 115
11/26/04 76 28 37 61 113
12/3/04 77 29 39 63 113
12/10/04 76 28 38 60 112
12/17/04 76 28 38 61 112
12/24/04 76 28 38 61 111
12/31/04 75 28 38 61 110
1/7/05 74 28 37 59 109
1/14/05 76 28 38 61 113
1/21/05 77 28 37 61 115
1/28/05 74 28 37 59 111
2/4/05 74 28 38 60 110
2/11/05 74 28 38 59 110
2/18/05 73 28 38 58 108
2/25/05 71 28 36 57 106
3/4/05 71 28 37 57 106
3/11/05 70 27 36 56 105
3/18/05 76 29 39 59 116
3/25/05 78 29 40 59 120
4/1/05 86 32 44 67 132
4/8/05 86 31 44 65 133
4/15/05 98 34 47 72 158
4/22/05 93 34 47 69 145
4/29/05 96 34 47 72 151
5/6/05 80 35 47 71 115
5/13/05 85 35 49 77 121
5/20/05 83 35 48 75 120
5/27/05 80 33 47 72 115
6/3/05 87 33 57 76 132
6/10/05 87 34 56 76 132
6/17/05 86 34 55 76 131
6/24/05 88 33 54 76 136
7/1/05 85 32 54 74 131
7/8/05 84 32 53 73 130
7/15/05 82 31 52 71 125
7/22/05 80 31 51 70 123
7/29/05 79 32 51 69 119
8/5/05 79 32 51 69 120
8/12/05 80 33 52 69 120
8/19/05 80 33 53 69 121
8/26/05 77 32 53 68 115
9/2/05 83 34 55 72 123
9/9/05 81 34 54 71 120
9/16/05 81 34 54 72 120
9/23/05 81 33 54 71 122
9/30/05 81 32 53 72 120
10/7/05 82 33 55 73 122
10/14/05 86 32 55 75 131
10/21/05 83 32 55 74 125
10/28/05 84 33 56 75 126
11/4/05 84 34 57 75 126
11/10/05 85 34 57 76 127
11/18/05 87 35 58 77 131
11/25/05 88 35 57 77 132
12/2/05 88 36 58 78 133
12/9/05 89 37 59 78 134
12/16/05 89 37 59 79 134
12/23/05 82 36 59 78 116
12/30/05 83 37 60 80 116
1/6/06 84 37 60 80 117
1/13/06 84 37 60 80 117
1/20/06 83 36 59 79 116
1/27/06 81 36 59 78 113
2/3/06 80 36 59 77 113
2/10/06 80 36 58 77 113
2/17/06 79 36 57 76 111
2/24/06 78 35 57 76 109
3/3/06 78 35 56 76 109
3/10/06 79 35 57 77 111
3/17/06 80 37 58 78 111
3/24/06 81 36 58 78 113
3/31/06 81 37 59 79 113
4/7/06 82 38 59 79 114
4/14/06 82 37 60 80 113
4/21/06 81 38 59 79 112
4/28/06 80 37 58 77 109
5/5/06 79 37 58 77 108
5/12/06 79 37 59 78 109
5/19/06 82 38 61 80 114
5/26/06 83 39 61 81 116
6/2/06 85 39 61 82 118
6/9/06 86 39 61 82 121
6/16/06 87 40 62 85 123
6/23/06 89 41 62 86 125
6/30/06 88 41 63 86 122
7/7/06 87 41 63 86 121
7/14/06 89 40 63 87 124
7/21/06 88 40 63 87 123
7/28/06 88 40 62 86 122
8/4/06 89 40 63 87 124
8/11/06 88 39 62 86 123
8/18/06 87 38 61 86 123
8/25/06 87 38 61 85 122
9/1/06 87 37 62 85 123
9/8/06 87 38 61 85 123
9/15/06 86 38 61 84 121
9/22/06 88 37 61 84 124
9/29/06 87 37 61 84 124
10/6/06 86 37 60 83 123
10/13/06 86 37 60 83 121
10/20/06 85 37 61 81 120
10/27/06 85 36 61 81 120
</Table>
Within the government sectors, Agencies outperformed Treasuries due to
their incremental yield and modest spread tightening. Headlines were relatively
quiet for the government agencies during this period, and the regulatory bodies
appear to have finished their investigative work. The challenges now lie ahead
of the agencies rather than behind them. New issuance remained low since their
balance sheet growth is restricted, and spreads improved slightly.
The Asset-Backed and Commercial Mortgage-Backed sectors produced returns
similar to high quality Credit securities on a duration-adjusted basis. While
these sectors posted reasonably attractive returns, they were a relatively small
portion of the Index.
Overall, the domestic bond markets continued to post positive total returns
despite the Fed's impact on the short end of the curve. Going forward, with the
yield curve inverted and the Fed on hold, bond market returns will likely be
dictated by the fluctuations in longer-term interest rates.
15
HIGH YIELD BOND MARKET OVERVIEW
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The past year has seen two major factors emerge as the key drivers in the high
yield market: the significant amounts of capital that private equity sponsors
and, to a lesser degree, hedge funds have available for leveraged buyout (LBO)
activity, and the performance of General Motors Corp. (GM) and Ford Motor Co.
(Ford). Additionally, the significant outperformance of lower-quality credits
has re-emerged.
After GM and Ford were downgraded and their large amounts of debt moved
into the high yield universe, developments at both companies promised to have a
major impact on the market's performance this year. In fact, the most dominant
concern for investors (in both the high yield and investment grade markets) over
the first six months of the year had been the state of the auto market in
general and the potential for problems at GM and Ford specifically.
On April 3, GM announced plans to sell a 51% interest in GMAC Financial
Services (GMAC) to a consortium led by Cerberus Capital. While GMAC bonds
improved modestly, this may not have been the best possible outcome, as
bondholders were apparently hoping for a sale of GMAC to an investment grade
company.
The voracious appetite for leveraged buyouts was made apparent in July when
a group led by Bain Capital and Kohlberg Kravis Roberts & Co. (KKR) agreed to
take HCA private in a transaction valued at $33 billion, the largest ever of its
kind. The repercussions for the high yield market were distinctly negative.
First, all of HCA's $8.2 billion of debt has "high grade" covenants, even the
bonds issued after the company was downgraded to high yield.
These bonds represent 1.2% of the Lehman Brothers Corporate High Yield
Index and 3.0% of the BB segment of that index. Most HCA bonds dropped in value
as investors anticipated a levering up of the company and a downgrade from BB to
B or lower. In addition, the deal will require about $20 billion of additional
bank and bond financing which could put further pressure on HCA, healthcare and
all high yield securities.
By August, most of the auto news was positive. The planned GMAC sale to a
Cerberus consortium moved forward. GM agreed to consider an alliance with
Renault and Nissan. Ford, feeling the pressure to do something, hinted that its
luxury brands (Aston-Martin, Jaguar, Land Rover and Volvo) or a piece of Ford
Motor Credit might be sold. Meanwhile, Ford continued to downsize its North
American operations amidst slumping sales.
GM and Ford are certainly two of the most prominent "fallen angels" to
enter the high yield market, but they won't be the last. With economic
conditions strong, downgrades due to slumping profitability have subsided.
However, downgrades from levering LBO transactions are picking up. Since these
transactions take time to consummate, the impact on the high yield market will
be seen in the coming months.
16
PERFORMANCE OVERVIEW
AMERICAN BEACON HIGH YIELD BOND FUND(SM)
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The Institutional Class of the High Yield Bond Fund returned 8.78% for the
twelve months ended October 31, 2006. The Fund trailed its main indices for the
period as the Lipper High Current Yield Funds Index returned 9.19%, the
Citigroup High Yield Market Capped Index ("Citigroup Index") gained 9.30%, and
the JP Morgan Global High-Yield Index posted a return of 10.11% for the twelve-
month period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 12/29/00* THROUGH 10/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER HIGH JP MORGAN CITIGROUP HIGH
CURRENT YIELD HIGH YIELD YIELD MARKET
INSTITUTIONAL CLASS FUNDS INDEX INDEX INDEX
------------------- ------------- ---------- --------------
12/00 10000 10000 10000 10000
10/01 10533 9618 10262 10224
10/02 11194 9045 10185 9531
10/03 13446 11773 13290 13042
10/04 14816 13081 15008 14644
10/05 15265 13620 15635 15163
10/06 16605 14871 17216 16672
</Table>
* Inception of Institutional Class of Fund
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
----------------------------------
PERIODS ENDED 10/31/06
----------------------------------
VALUE OF
$10,000
SINCE 12/29/00-
1 YEAR 5 YEARS INCEP. 10/31/06
------ ------- ------ ---------
Institutional Class(1)................ 8.78% 9.53% 9.07% $16,605
PlanAhead Class(1,2).................. 8.63% 9.25% 8.83% $16,275
Lipper High Current Yield Funds
Index(3)............................ 9.19% 9.11% 7.04% $14,871
Citigroup High-Yield Market Index(3).. 9.95% 10.28% 9.16% $16,672
Citigroup High-Yield Market Capped
Index(3)............................ 9.30% N/A N/A N/A
JP Morgan Global
High-Yield Index(3)................. 10.11% 10.90% 9.76% $17,216
</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 current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares. A portion of the fees charged to the Institutional
Class of the Fund was waived through 2004. Performance prior to waiving
fees was lower than the actual returns shown for periods prior to 2004.
2. Fund performance for the five-year and since inception periods 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. The JPMorgan Global High-Yield Index ("JPMorgan Index") has replaced the
Citigroup High-Yield Market Index as the Fund's broad-based market index,
because the Manager has access to better statistical and performance
information for the JP Morgan Index. The JPMorgan Index is an unmanaged
index of fixed income securities with a maximum credit rating of BB+ or
Ba1. Issues must be publicly registered or issued under Rule 144A under
the Securities Act of 1933, with a minimum issue size of $75 million (par
amount). A maximum of two issues per issuer are included in the JPMorgan
Index. Convertible bonds, preferred stock, and floating-rate bonds are
excluded from the JPMorgan Index. 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 one
year to maturity. The Citigroup High-Yield Market Capped Index ("Citigroup
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 one year to maturity. The total par amount outstanding for each
issuer in the Citigroup Index is capped at $5 billion, which results in a
more diversified index of securities that more closely reflects the Fund's
issuer diversification. The Citigroup Index has an inception date of
1/2/02. The Lipper High Current Yield Funds Index tracks the results of
the 30 largest mutual funds in the Lipper High Current Yield Funds
category. Lipper is an independent mutual fund research and ranking
service. One cannot directly invest in an index.
The Fund underperformed the Citigroup Index over the twelve-month period
due to sector allocation, fund expenses and the Fund's cash component return.
These factors more than offset strong issue selection achieved by the Fund
during the period.
Issue selection was strong in the Manufacturing and Consumer sectors, and
more than offset poor issue selection in the Service and Cable/Media sectors.
From a sector allocation perspective, the Fund was negatively impacted by
underweighting the two best performing sectors for the period. Transportation
was the top performing sector for the period with a gain of 18.1%, while
Telecommunications ranked second with a return of 14.6%. However, the Fund added
value by underweighting the two worst performing sectors, Energy and Other
Corporate, as both sectors gained 6.8%.
The sub-advisors' bottom-up, research intensive investment process, which
focuses on companies with strong cash flow and fundamental credit strength,
remains in place.
17
PERFORMANCE OVERVIEW
AMERICAN BEACON HIGH YIELD BOND FUND(SM) -- CONTINUED
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF NET
ASSETS
--------
Encore Medical IHC, Inc., 9,750% Due
10/1/2012 1.3%
Turning Stone Resort & Casino, 9.125%,
Due 12/15/2010 1.2%
General Motors Acceptance Corp.,
6.875%, Due 9/15/2011 1.1%
Chesapeake Energy Corp., 7.625%, Due
7/15/2013 1.1%
Crystal US Holdings 3LLC/Crystal US
Sub 3 Corp, 10.500%, Due 10/1/2014 1.1%
E*Trade Financial Corp., 8.000%, Due
6/15/2011 1.0%
PetroQuest Energy, Inc., 10.375%, Due
5/15/2012 1.0%
Insight Communications, Inc., 12.250%,
Due 2/15/2011 1.0%
TRW Automotive, Inc., 9.375%, Due
2/15/2013 1.0%
Kinetek Inc., 10.750%, Due 11/15/2006 1.0%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF FIXED
INCOME
----------
Corporate 100.0%
</Table>
18
PERFORMANCE OVERVIEW
AMERICAN BEACON ENHANCED INCOME FUND(SM)
OCTOBER 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
The PlanAhead Class of the Enhanced Income Fund returned 6.36% for the
twelve months ended October 31, 2006. Its benchmark, a blend of 75% Lehman
Brothers Gov/Credit Intermediate Index and 25% Merrill Lynch All U.S.
Convertibles Index ("Benchmark"), returned 6.75%. The Fund's peer group, the
Lipper Intermediate Investment Grade Index, returned 5.08% over the period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/1/03* THROUGH 10/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER INTERMEDIATE LEHMAN BROTHERS MERRILL LYNCH
INVESTMENT GRADE GOV./CREDIT INTERMEDIATE ALL U.S.
PLANAHEAD CLASS INDEX GRADE INDEX CONVERTIBLES INDEX
--------------- ------------------- ------------------------ ------------------
7/03 10000 10000 10000 10000
10/03 10032 9924 9904 10647
10/04 10504 10440 10333 11512
10/05 10642 10586 10360 12028
10/06 11319 11124 10844 13608
<Caption>
ENHANCED INCOME
COMPOSITE INDEX
---------------
7/03 10000
10/03 10088
10/04 10622
10/05 10768
10/06 11495
</Table>
* Inception of Fund.
<Table>
<Caption>
ANNUALIZED TOTAL
RETURNS
-----------------------
PERIODS ENDED 10/31/06 VALUE OF
----------------------- $10,000
SINCE 12/29/00-
1 YEAR 3 YEARS INCEP. 10/31/06
------ ------- ------ ---------
PlanAhead Class(1).................... 6.36% 4.11% 3.79% $11,319
Lipper Intermediate Investment Grade
Index(2)............................ 5.08% 3.88% 3.25% $11,124
Lehman Bros. Gov/Credit Intermediate
Index(2)............................ 4.67% 3.06% 2.46% $10,844
Merrill Lynch All U.S. Convertibles
Index(2)............................ 13.13% 8.52% 9.68% $13,608
Enhanced Income Composite Index(3).... 6.75% 4.45% 4.27% $11,495
</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 current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance shown in the table above does not reflect
the deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2. 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 of all quality grades that
are convertible into U.S. dollar-denominated common stock, ADRs or cash
equivalents. The Lipper Intermediate Investment Grade Index tracks the
results of the 30 largest mutual funds in the Lipper Intermediate
Investment Grade Funds category. Lipper is an independent mutual fund
research and ranking service. One cannot directly invest in an index.
3. To reflect the Fund's allocation of its assets between investment grade
fixed-income securities and convertible securities, the returns of the
Lehman Brothers Gov./Credit Intermediate Index and the Merrill Lynch
Convertibles Index have been combined in a 75%/25% proportion. Effective
November 1, 2006, the benchmark for the portion of Fund assets invested in
investment grade fixed-income securities will change from the Lehman
Brothers Gov./Credit Intermediate Index to the Lehman Brothers Aggregate
Index.
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 with the intent of enhancing the return of the
overall Fund.
For the twelve-month period, the investment grade bond portion of the Fund
returned 5.0% on a gross basis compared to a 4.7% return for its portion of the
Benchmark. The Manager added value through security selection in the Asset-
Backed and Corporate sectors and by being substantially overweighted in
Corporates, the best performing sector for the period.
The remaining portion of the Fund managed by the Fund's sub-advisor
generated a gross return of 14.7%. This return not only beat the 13.1% return of
the relevant portion of the Benchmark but also enhanced the return of the
investment grade bond portion of the Fund. Lower quality speculative grade
issues outperformed investment grade for the period, so the higher credit
quality of the sub-advisor's portion of the Fund somewhat limited its return.
The sub-advisor favored securities with good equity sensitivity, which benefited
the Fund. Issues with greater equity sensitivity (low conversion premiums)
performed well, reflecting the positive equity markets for the one-year period.
The Manager and the Fund's sub-advisor remain focused on the Fund's
investment objectives of generating income and capital appreciation.
19
PERFORMANCE OVERVIEW
AMERICAN BEACON ENHANCED INCOME FUND(SM) -- CONTINUED
OCTOBER 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF NET
ASSETS
--------
U.S. Treasury Note, 4.375%, Due
8/15/2012 5.5%
U.S. Treasury Note, 4.000%, Due
2/15/2014 3.8%
U.S. Treasury Note, 4.875%, Due
4/30/2011 3.5%
U.S. Treasury Notes, 4.750%, Due
5/15/2014 2.8%
U.S. Treasury Notes, 4.875%, Due
8/15/2016 2.3%
HSBC Finance Corp., 5.250%, Due
1/14/2011 1.8%
Federal Home Loan Mortgage Corp.,
5.500%, Due 7/18/2016 1.7%
American Express Credit Account Master
Trust, 5.350%, Due 1/15/2014 1.6%
John Deere Owner Trust, 5.390%, Due
6/17/2013 1.6%
Chase Manhattan Auto Owner Trust,
5.360%, Due 1/15/2013 1.6%
</Table>
FIXED-INCOME SECTOR ALLOCATION
<Table>
<Caption>
% OF FIXED
INCOME
----------
Corporate Bonds 41.7%
Treasury 24.9%
Corporate Convertibles 15.6%
Asset-Backed 11.7%
Mortgage-Backed 3.6%
U.S. Agency 2.5%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 45.7%
Information Technology 32.4%
Industrials 10.8%
Consumer Discretionary 8.0%
Health Care 3.1%
</Table>
20
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERMEDIATE BOND FUND(SM)
OCTOBER 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the Intermediate Bond Fund returned 4.96% for
the twelve months ended October 31, 2006, trailing the Lehman Brothers Aggregate
Index ("Index") return of 5.19% and the Lipper Intermediate Investment Grade
Index return of 5.08%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 9/15/97* THROUGH 10/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER INTERMEDIATE
INVESTMENT GRADE LEHMAN BROTHERS
INSTITUTIONAL CLASS INDEX AGGREGATE INDEX
------------------- ------------------- ---------------
9/97 10000 10000 10000
10/97 10241 10211 10295
10/98 11215 11045 11254
10/99 11143 11074 11314
10/00 11855 11775 12140
10/01 13584 13462 13908
10/02 14204 13952 14727
10/03 14861 14884 15450
10/04 15660 15658 16304
10/05 15858 15878 16489
10/06 16644 16684 17344
</Table>
* Inception of Institutional Class of Fund
<Table>
<Caption>
ANNUALIZED TOTAL
RETURNS
-----------------------
PERIODS ENDED 10/31/06 VALUE OF
----------------------- $10,000
SINCE 9/15/97-
1 YEAR 5 YEARS INCEP. 10/31/06
------ ------- ------ --------
Institutional Class(1)................ 4.96% 4.14% 5.74% $16,644
PlanAhead Class(1,2).................. 4.33% 3.60% 5.28% $15,988
Lipper Intermediate Inv. Grade
Index(3)............................ 5.08% 4.38% 5.77% $16,684
Lehman Bros. Agg. Index(3)............ 5.19% 4.51% 6.19% $17,344
</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 current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2. Fund performance for the 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. A portion of the fees charged to the PlanAhead Class of the
Fund has been waived. Performance prior to waiving fees was lower than the
actual returns shown.
3. Since inception return for the Lehman Brothers Aggregate Index is from
8/31/97. 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. The Lipper Intermediate Investment
Grade Index tracks the results of the 30 largest mutual funds in the
Lipper Intermediate Investment Grade Funds category. Lipper is an
independent research and ranking service. One cannot directly invest in an
index.
Prior to the deduction of expenses, the Fund slightly outperformed the
Index. However, the Fund did not generate enough excess performance to offset
its expenses. The Fund added value through positive security selection in
Collateralized Mortgage Obligations (CMOs), and in the Corporate and Asset-
Backed sectors. The Fund's duration was similar to that of the Index over the
course of the twelve-month period and, therefore, had minimal impact on the
Fund's relative performance.
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, 4.875%, Due
8/15/2016 3.3%
U.S. Treasury Note, 3.875%, Due
5/15/2010 3.0%
Federal National Mortgage
Association, Pool #886371, 6.00%,
Due 8/1/2036 2.8%
U.S. Treasury Note, 4.750%, Due
5/15/2014 2.1%
U.S. Treasury Bond, 4.500%, Due
2/15/2036 1.8%
U.S. Treasury Note, 4.375%, Due
8/15/2012 1.5%
Federal National Mortgage
Association, Pool #735224, 5.50%,
Due 2/1/2035 1.4%
U.S. Treasury Note, 4.875%, Due
7/31/2011 1.3%
Chase Mortgage Finance Corp., 6.072%,
Due 9/25/2036 1.3%
Federal Home Loan Mortgage Corp.,
5.250%, Due 2/24/2011 1.3%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF FIXED
INCOME
----------
Mortgage-Backed 43.1%
Corporates 29.4%
U.S. Treasury 21.0%
U.S. Agency 4.5%
Asset-Backed 2.0%
</Table>
21
PERFORMANCE OVERVIEW
AMERICAN BEACON SHORT-TERM BOND FUND(SM)
OCTOBER 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the Short-Term Bond Fund returned 4.56% for the
twelve months ended October 31, 2006, which outperformed the Merrill Lynch 1-3
Year Gov/Corp Index (the "Index") return of 4.36% and the Lipper Short
Investment Grade Bond Funds Index ("Lipper") return of 4.39%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/96 THROUGH 10/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER SHORT
INV. GRADE MERRILL LYNCH
BOND FUNDS 1-3 YR.
INSTITUTIONAL CLASS INDEX GOV./CORP. INDEX
------------------- ------------ ----------------
10/96 10000.00 10000.00 10000.00
10/97 10657.00 10657.00 10655.00
10/98 11396.00 11289.00 11464.00
10/99 11718.00 11659.00 11834.00
10/00 12432.00 12345.00 12564.00
10/01 13808.00 13592.00 13985.00
10/02 14305.00 13955.00 14662.00
10/03 14851.00 14397.00 15119.00
10/04 15206.00 14699.00 15435.00
10/05 15358.00 14864.00 15562.00
10/06 16059.00 15516.00 16241.00
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
------------------------- VALUE OF
PERIODS ENDED 10/31/06 $10,000
------------------------- 10/31/96-
1 YEAR 5 YEARS 10 YEARS 10/31/06
------ ------- -------- ---------
Institutional Class(1)................ 4.56% 3.07% 4.85% $16,059
PlanAhead Class(1).................... 4.01% 2.56% 4.35% $15,301
Lipper Short Inv. Grade Index(2)...... 4.39% 2.69% 4.49% $15,516
Merrill Lynch 1-3 Yr. Gov./Corp.
Index(2)............................ 4.36% 3.04% 4.97% $16,241
</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 current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares. A portion of the fees charged to the PlanAhead Class
of the Fund has been waived. Performance prior to waiving fees was lower
than the actual returns shown.
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 Lipper Short
Investment Grade Bond Funds Index tracks the results of the 30 largest
mutual funds in the Lipper Short Investment Grade Bond Funds category.
Lipper is an independent mutual fund research and ranking service. One
cannot directly invest in an index.
The Fund's outperformance during the period was due to its short duration
and its overweight positions in the Corporate and Asset-Backed sectors. With the
Federal Reserve Bank (the "Fed") raising interest rates during much of the
period, the Fund's duration averaged approximately 1.6 years versus 1.8 years
for the Index, or around 90% of benchmark duration. Longer-term interest rates
were largely unchanged during the period, but short-term rates rose markedly.
The Fund also maintained its overweight position in the Corporate and Asset-
Backed sectors as the credit environment was stable and economic growth was
reasonably good.
Duration played the largest role in the Fund's outperformance as the Fed
raised short-term rates by 1.50% (from 3.75% to 5.25%) before pausing to monitor
incoming economic data. Longer-term rates ended the period unchanged resulting
in an inverted yield curve. Since the Fed began raising rates in mid-2004, the
Fund's short duration was the primary contributor to its outperformance;
however, with the Fed on hold and economic growth moderating, a new approach
towards duration became appropriate. Near period end, we moved the Fund's
duration to neutral in anticipation of range-bound short-term rates and will
hold that position until the economic situation develops further.
The Fund also benefited from its overweight position in the Corporate
sector which produced the highest returns of the major sectors. Credit spreads
improved slightly during the period, but the primary advantage of this sector
was its incremental yield to maturity over Treasuries and Agencies. Returns
across the credit spectrum were mixed, but in general, lower quality
outperformed higher quality due to strong demand for yield.
Likewise, the Fund's overweight position in the Asset-Backed sector (autos
and credit cards) also performed well due primarily to its incremental yield
over government equivalents.
The Fund was invested in high-quality corporate and asset-backed
securities, and we will monitor the credit markets for signs of moderation as
the economic situation develops. These sectors were strong both fundamentally
and technically throughout the period, but with spreads reaching relatively
tight levels and the economy potentially leveling off, the risk/reward ratio
rose slightly near period end. In general, however, these sectors have played a
major role in generating incremental yield for the Fund through the interest
rate cycles.
22
PERFORMANCE OVERVIEW
AMERICAN BEACON SHORT-TERM BOND FUND(SM) -- CONTINUED
OCTOBER 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF NET
ASSETS
--------
General Electric Capital Corp.,
4.125%, Due 3/4/2008 3.7%
Banc of America Securities Auto Trust
2005, 4.080%, Due 4/18/2010 3.7%
Citibank Credit Card Issuance Trust
2004-A4 A4, 3.20%, Due 8/24/2009 3.7%
DaimlerChrysler Auto Trust, 3.28%, Due
12/8/2009 3.6%
Wachovia Corp., 6.40%, Due 4/1/2008 3.2%
FleetBoston Financial Corp., 3.850%,
Due 2/15/2008 3.0%
Wells Fargo Financial Auto Owner
Trust, 2.670%, Due 8/16/2010 3.0%
Comerica Bank, 6.000%, Due 10/1/2008 2.8%
Washington Mutual, Inc., 8.250%, Due
4/1/2010 2.7%
SLM Corp., 4.000%, Due 1/15/2009 2.7%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF FIXED
INCOME
----------
Corporate Bonds 67.3%
Asset-Backed 25.1%
Mortgage-Backed 7.6%
</Table>
23
FUND EXPENSES
ACTUAL EXPENSES
OCTOBER 31, 2006 (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, 2006 through October 31, 2006.
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 MID-CAP SMALL CAP VALUE EMERGING HIGH YIELD INTERMEDIATE SHORT-TERM
INSTITUTIONAL CLASS BALANCED GROWTH VALUE OPPORTUNITY MARKETS BOND BOND BOND
- ------------------- --------- --------- ----------- --------------- ---------- ---------- ------------ ----------
Beginning Account Value
5/1/06.................. $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
10/31/06................ $1,059.57 $1,034.53 $1,070.23 $1,005.88 $ 989.21 $1,035.68 $1,045.20 $1,028.49
Expenses Paid During
Period*
5/1/06-10/31/06......... $ 3.04 $ 4.73 $ 6.70 $ 5.19 $ 7.94 $ 4.39 $ 1.91 $ 1.82
Annualized Expense Ratio.. 0.58% 0.92% 1.28% 1.03% 1.58% 0.86% 0.37% 0.36%
<Caption>
MID-CAP SMALL CAP EMERGING HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM
PLANAHEAD CLASS BALANCED VALUE OPPORTUNITY MARKETS BOND INCOME BOND BOND
- --------------- --------- --------- ----------- --------------- ---------- ---------- ------------ ----------
Beginning Account Value
5/1/06.................. $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
10/31/06................ $1,057.45 $1,068.25 $1,006.87 $ 987.97 $1,034.53 $1,032.91 $1,042.02 $1,026.97
Expenses Paid During
Period*
5/1/06-10/31/06......... $ 4.40 $ 7.76 $ 6.49 $ 10.36 $ 5.52 $ 4.96 $ 4.89 $ 4.45
Annualized Expense Ratio.. 0.85% 1.49% 1.28% 2.07% 1.08% 0.97% 0.95% 0.87%
<Caption>
SERVICE CLASS BALANCED
- ------------- ---------
Beginning Account Value
5/1/06.................. $1,000.00
Ending Account Value
10/31/06................ $1,056.98
Expenses Paid During
Period*
5/1/06-10/31/06......... $ 6.34
Annualized Expense Ratio.. 1.22%
<Caption>
LARGE CAP EMERGING MID-CAP
AMR CLASS BALANCED GROWTH MARKETS VALUE
- --------- --------- --------- ----------- ---------------
Beginning Account Value
5/1/06.................. $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value
10/31/06................ $1,061.15 $1,037.31 $ 990.96 $ 1070.94
Expenses Paid During
Period*
5/1/06-10/31/06......... $ 1.69 $ 3.12 $ 6.72 $ 5.50
Annualized Expense Ratio.. 0.33% 0.61% 1.34% 1.05%
</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.
24
FUND EXPENSES
HYPOTHETICAL EXPENSES
OCTOBER 31, 2006 (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 MID-CAP SMALL CAP EMERGING HIGH YIELD INTERMEDIATE SHORT-TERM
INSTITUTIONAL CLASS BALANCED GROWTH VALUE VALUE OPP. MARKETS BOND BOND BOND
- ------------------- --------- --------- --------- ---------- ---------- ---------- ------------ ----------
Beginning Account Value
5/1/06................. $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
10/31/06............... $1,022.26 $1,020.56 $1,018.73 $1,020.03 $1,017.22 $1,020.89 $1,023.34 $1,023.42
Expenses Paid During
Period*
5/1/06-10/31/06........ $ 2.98 $ 4.70 $ 6.53 $ 5.23 $ 8.05 $ 4.36 $ 1.89 $ 1.81
Annualized Expense
Ratio.................. 0.58% 0.92% 1.28% 1.03% 1.58% 0.86% 0.37% 0.36%
<Caption>
MID-CAP SMALL CAP EMERGING HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM
PLANAHEAD CLASS BALANCED VALUE VALUE OPP MARKETS BOND INCOME BOND BOND
- --------------- --------- --------- --------- ---------- ---------- ---------- ------------ ----------
Beginning Account Value
5/1/06................. $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
10/31/06............... $1,020.93 $1,017.70 $1,018.74 $1,018.74 $1,019.78 $1,020.32 $1,020.42 $1,020.82
Expenses Paid During
Period*
5/1/06-10/31/06........ $ 4.32 $ 7.57 $ 5.36 $ 6.53 $ 5.48 $ 4.93 $ 4.84 $ 4.43
Annualized Expense
Ratio.................. 0.85% 1.49% 1.05% 1.28% 1.08% 0.97% 0.95% 0.87%
<Caption>
SERVICE CLASS BALANCED
- ------------- ---------
Beginning Account Value
5/1/06................. $1,000.00
Ending Account Value
10/31/06............... $1,019.04
Expenses Paid During
Period*
5/1/06-10/31/06........ $ 6.22
Annualized Expense
Ratio.................. 1.22%
<Caption>
LARGE CAP MID-CAP EMERGING
AMR CLASS BALANCED GROWTH VALUE MARKETS
- --------- --------- --------- --------- ----------
Beginning Account Value
5/1/06................. $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value
10/31/06............... $1,023.57 $1,022.15 $1,019.89 $1,018.45
Expenses Paid During
Period*
5/1/06-10/31/06........ $ 1.66 $ 3.09 $ 5.37 $ 6.81
Annualized Expense
Ratio.................. 0.33% 0.61% 1.05% 1.34%
</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.
25
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 (comprised of American Beacon Balanced Fund, American
Beacon Emerging Markets Fund, American Beacon Enhanced Income Fund, American
Beacon High Yield Bond Fund, American Beacon Intermediate Bond Fund, American
Beacon Large Cap Growth Fund, American Beacon Mid-Cap Value Fund, American
Beacon Short-Term Bond Fund, and American Beacon Small Cap Value Opportunity
Fund) (collectively the "Funds"), including the schedules of investments, as of
October 31, 2006, and the related statements of operations, 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 Funds' internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of each Funds' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2006, 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 as of October 31, 2006, 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.
-s- Ernst & Young LLP
Dallas, Texas
December 28, 2006
See accompanying notes
- --------------------------------------------------------------------------------
26
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
------- -------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 58.27%
CONSUMER DISCRETIONARY - 6.41%
AUTO COMPONENTS - 0.17%
Magna International, Inc. ............................. 22,000 $ 1,646
-------
HOTELS, RESTAURANTS & LEISURE - 1.24%
Carnival Corp. ........................................ 90,000 4,394
Harrah's Entertainment, Inc. .......................... 42,000 3,122
McDonald's Corp. ...................................... 24,600 1,031
Wyndham Worldwide Corp. ^ ............................. 49,260 1,453
Yum! Brands, Inc. ..................................... 30,200 1,796
-------
11,796
-------
HOUSEHOLD DURABLES - 1.83%
Centex Corp. + ........................................ 141,900 7,421
Fortune Brands, Inc. .................................. 43,900 3,378
Koninklijke (Royal) Philips Electronics NV ............ 40,531 1,412
Newell Rubbermaid, Inc. + ............................. 50,900 1,465
Pulte Homes, Inc. + ................................... 121,700 3,772
-------
17,448
-------
LEISURE EQUIPMENT & PRODUCTS - 0.27%
Mattel, Inc. .......................................... 113,200 2,562
-------
MEDIA - 0.85%
CBS Corp. ............................................. 67,800 1,962
The Interpublic Group of Companies, Inc. ^ + .......... 348,500 3,802
The Walt Disney Company Ltd. .......................... 75,500 2,375
-------
8,139
-------
MULTILINE RETAIL - 1.01%
Federated Department Stores, Inc. ..................... 102,254 4,490
Target Corp. .......................................... 54,200 3,208
Wal-Mart Stores, Inc. ................................. 38,400 1,892
-------
9,590
-------
SPECIALTY RETAIL - 0.85%
The Home Depot, Inc. .................................. 217,800 8,130
-------
TEXTILES & APPAREL - 0.19%
Liz Claiborne, Inc. ................................... 43,400 1,830
-------
TOTAL CONSUMER DISCRETIONARY 61,141
-------
CONSUMER STAPLES - 4.27%
BEVERAGES - 0.48%
Constellation Brands, Inc. ^ .......................... 12,800 352
Diageo plc, ADR ....................................... 56,100 4,178
-------
4,530
-------
FOOD & DRUG RETAILING - 0.27%
Safeway, Inc. ......................................... 87,300 2,563
-------
SHARES VALUE
------- -------
(DOLLARS IN THOUSANDS)
FOOD PRODUCTS - 1.13%
ConAgra Foods, Inc. ................................... 176,200 $ 4,607
General Mills, Inc. ................................... 33,300 1,892
Sara Lee Corp. ........................................ 39,300 672
Unilever plc, ADR + ................................... 149,580 3,632
-------
10,803
-------
TOBACCO - 2.39%
Altria Group, Inc. .................................... 119,600 9,727
Gallaher Group plc, ADR + ............................. 33,400 2,275
Imperial Tobacco Group plc, ADR + ..................... 98,600 7,034
UST, Inc. + ........................................... 70,100 3,755
-------
22,791
-------
TOTAL CONSUMER STAPLES 40,687
-------
ENERGY - 4.08%
OIL & GAS - 4.08%
Chevron Corp. ......................................... 77,728 5,223
ConocoPhillips ........................................ 217,976 13,131
Devon Energy Corp. .................................... 91,800 6,136
Duke Energy Corp. ..................................... 196,600 6,221
Occidental Petroleum Corp. ............................ 130,300 6,116
Petro-Canada + ........................................ 39,400 1,678
Sunoco, Inc. .......................................... 6,100 403
-------
TOTAL ENERGY 38,908
-------
FINANCIALS - 17.00%
BANKS - 4.87%
Bank of America Corp. ................................. 368,296 19,840
Comerica, Inc. ........................................ 31,100 1,810
First Horizon National Corp. + ........................ 21,800 857
KeyCorp ............................................... 63,000 2,340
SunTrust Banks, Inc. .................................. 10,000 790
U.S. Bancorp .......................................... 111,260 3,765
UnionBanCal Corp. ..................................... 14,800 852
Wachovia Corp. ........................................ 66,900 3,713
Washington Mutual, Inc. + ............................. 159,000 6,726
Wells Fargo & Co. ..................................... 159,500 5,788
-------
46,481
-------
DIVERSIFIED FINANCIALS - 6.07%
The Bear Stearns Cos, Inc. ............................ 21,500 3,254
Capital One Financial Corp. ........................... 37,400 2,967
Citigroup, Inc. ....................................... 274,042 13,746
Federal Home Loan Mortgage Corp. ...................... 83,900 5,788
Federal National Mortgage Association ................. 45,000 2,667
The Goldman Sachs Group, Inc. ......................... 18,500 3,511
JP Morgan Chase & Co. ................................. 269,334 12,777
Merrill Lynch & Co., Inc. ............................. 43,500 3,803
Morgan Stanley Dean Witter & Co. ...................... 52,800 4,035
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
------- -------
(DOLLARS IN THOUSANDS)
SLM Corp. ............................................ 108,400 $ 5,277
-------
57,825
-------
INSURANCE - 5.62%
ACE Ltd. ............................................. 73,700 4,219
The Allstate Corp. ................................... 83,800 5,142
American International Group, Inc. ................... 63,100 4,239
AON Corp. ............................................ 29,000 1,009
Assurant, Inc. + ..................................... 31,700 1,669
Conseco, Inc. ^ + .................................... 90,000 1,831
Genworth Financial, Inc. ............................. 143,300 4,792
The Hartford Financial Services Group, Inc. .......... 10,200 889
MetLife, Inc. ........................................ 145,180 8,294
MGIC Investment Corp. ................................ 47,500 2,791
Prudential Financial, Inc. ........................... 17,500 1,346
The St. Paul Travelers Companies, Inc. ............... 181,300 9,270
UnumProvident Corp. .................................. 126,800 2,508
XL Capital Ltd. ...................................... 79,700 5,623
-------
53,622
-------
REAL ESTATE - 0.44%
Realogy Corp. ^ ...................................... 70,775 1,825
The St. Joe Co. + .................................... 43,500 2,339
-------
4,164
-------
TOTAL FINANCIALS 162,092
-------
HEALTH CARE - 4.67%
HEALTH CARE EQUIPMENT & SUPPLIES - 0.47%
Baxter International, Inc. ........................... 98,200 4,514
-------
HEALTH CARE PROVIDERS & SERVICES - 1.53%
Cigna Corp. .......................................... 29,200 3,416
HCA, Inc. + .......................................... 45,300 2,289
Tenet Healthcare Corp. ^ ............................. 231,700 1,636
UnitedHealth Group, Inc. ............................. 26,600 1,297
WellPoint, Inc. ^ .................................... 78,100 5,961
-------
14,599
-------
PHARMACEUTICALS - 2.67%
Bristol-Myers Squibb Co. ............................. 240,100 5,943
Eli Lilly & Co. ...................................... 9,500 532
Johnson & Johnson .................................... 21,000 1,415
Merck & Co., Inc. .................................... 27,800 1,263
Pfizer, Inc. ......................................... 364,200 9,706
Schering-Plough Corp. ................................ 168,800 3,737
Wyeth ................................................ 55,600 2,837
-------
25,433
-------
TOTAL HEALTH CARE 44,546
-------
SHARES VALUE
------- -------
(DOLLARS IN THOUSANDS)
INDUSTRIALS - 8.14%
AEROSPACE & DEFENSE - 1.84%
The Boeing Co. ....................................... 51,200 $ 4,089
Lockheed Martin Corp. ................................ 29,200 2,538
Northrop Grumman Corp. ............................... 70,900 4,707
Raytheon Co. ......................................... 66,600 3,327
United Technologies Corp. ............................ 44,300 2,911
-------
17,572
-------
AIR FREIGHT & COURIERS - 0.15%
FedEx Corp. .......................................... 12,100 1,386
-------
COMMERCIAL SERVICES & SUPPLIES - 0.63%
Mastercard, Inc. + ................................... 44,000 3,260
Waste Management, Inc. ............................... 74,407 2,789
-------
6,049
-------
ELECTRICAL EQUIPMENT - 0.45%
American Power Conversion Corp. ...................... 141,500 4,278
-------
INDUSTRIAL CONGLOMERATES - 2.90%
3M Co. ............................................... 31,300 2,468
General Electric Co. ................................. 192,900 6,773
Honeywell International, Inc. ........................ 178,900 7,535
Textron, Inc. ........................................ 30,500 2,773
Tyco International Ltd. .............................. 274,900 8,090
-------
27,639
-------
MACHINERY - 1.65%
Caterpillar, Inc. .................................... 57,100 3,467
Flowserve Corp. ^ .................................... 63,500 3,365
Illinois Tool Works, Inc. ............................ 113,600 5,445
ITT Industries, Inc. ................................. 63,300 3,443
-------
15,720
-------
RENTAL AUTO/EQUIPMENT - 0.05%
Avis Budget Group, Inc. .............................. 24,630 488
-------
TRANSPORTATION INFRASTRUCTURE - 0.47%
Burlington Northern Santa Fe Corp. ................... 58,200 4,512
-------
TOTAL INDUSTRIALS 77,644
-------
INFORMATION TECHNOLOGY - 5.47%
COMMUNICATIONS EQUIPMENT - 0.80%
Nokia Corp., ADR ..................................... 382,700 7,608
-------
COMPUTERS & PERIPHERALS - 1.48%
Hewlett-Packard Co. .................................. 193,000 7,477
International Business Machines Corp. ................ 71,700 6,620
-------
14,097
-------
IT CONSULTING & SERVICES - 1.13%
Computer Sciences Corp. ^ + .......................... 28,900 1,527
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
------- --------
(DOLLARS IN THOUSANDS)
Electronic Data Systems Corp. ...................... 365,500 $ 9,258
--------
10,785
--------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.18%
Intel Corp. ........................................ 81,600 1,741
--------
SOFTWARE - 1.88%
BMC Software, Inc. ^ ............................... 61,500 1,864
CA, Inc. ........................................... 375,474 9,297
Microsoft Corp. .................................... 234,100 6,721
--------
17,882
--------
TOTAL INFORMATION TECHNOLOGY 52,113
--------
MATERIALS - 2.75%
CHEMICALS - 1.79%
Air Products & Chemicals, Inc. ..................... 26,300 1,832
Dow Chemical Co. ................................... 38,500 1,570
E. I. du Pont de Nemours & Co. ..................... 45,300 2,075
Eastman Chemical Co. + ............................. 33,500 2,041
Lyondell Chemical Co. .............................. 147,600 3,789
The Mosaic Co. ^ + ................................. 206,700 3,870
PPG Industries, Inc. + ............................. 26,100 1,785
Tronox, Inc. + ..................................... 4,128 54
--------
17,016
--------
METALS & MINING - 0.65%
Alcoa, Inc. ........................................ 215,496 6,230
--------
PAPER & FOREST PRODUCTS - 0.31%
Sappi Ltd., ADR + .................................. 60,000 849
Weyerhaeuser Co. ................................... 32,800 2,086
--------
2,935
--------
TOTAL MATERIALS 26,181
--------
TELECOMMUNICATION SERVICES - 2.09%
DIVERSIFIED TELECOMMUNICATION - 2.09%
AT&T, Inc. ......................................... 97,000 3,322
BellSouth Corp. .................................... 154,700 6,977
Verizon Communications, Inc. ....................... 259,228 9,592
--------
TOTAL TELECOMMUNICATION SERVICES 19,891
--------
UTILITIES - 3.39%
ELECTRIC UTILITIES - 3.39%
CenterPoint Energy, Inc. + ......................... 137,300 2,125
Dominion Resources, Inc. ........................... 24,600 1,992
DTE Energy Co. + ................................... 54,800 2,490
Entergy Corp. ...................................... 65,300 5,605
Exelon Corp. ....................................... 197,800 12,260
FPL Group, Inc. .................................... 131,500 6,706
SHARES VALUE
------- --------
(DOLLARS IN THOUSANDS)
Public Service Enterprise Group, Inc. .............. 19,100 $ 1,166
--------
TOTAL UTILITIES 32,344
--------
TOTAL COMMON STOCKS 555,547
--------
PAR
AMOUNT
-------
CORPORATE OBLIGATIONS - 7.34%
BANKS - 1.03%
Banco Popular North America, Inc., 4.25%,
Due 4/1/2008 ..................................... $ 500 490
Bank of America Corp.,
3.375%, Due 2/17/2009 + .......................... 450 434
5.375%, Due 8/15/2011 ............................ 1,015 1,026
Bank One Corp.,
5.90%, Due 11/15/2011 ............................ 700 718
4.90%, Due 4/30/2015 ............................. 450 433
Capital One Bank,
6.70%, Due 5/15/2008 ............................. 450 459
5.125%, Due 2/15/2014 + .......................... 450 443
Credit Suisse First Boston, 6.50%, Due
5/1/2008++ ....................................... 750 763
ING Bank, NV, 5.125%, Due 5/1/2015++ ............... 450 442
National City Bank, 4.50%, Due 3/15/2010 ........... 1,000 976
PNC Funding Corp., 4.20%, Due 3/10/2008 + .......... 745 732
Synovus Financial Corp., 4.875%, Due
2/15/2013 ........................................ 450 441
Wachovia Corp., 5.70%, Due 8/1/2013 ................ 585 599
Washington Mutual Finance Corp., 6.875%,
Due 5/15/2011 .................................... 535 571
Washington Mutual, Inc.,
8.25%, Due 4/1/2010 .............................. 350 379
4.625%, Due 4/1/2014 ............................. 950 890
--------
9,796
--------
COMMUNICATIONS - 0.28%
Comcast Cable Communications Holdings,
Inc., 8.375%, Due 3/15/2013 ...................... 950 1,085
Comcast Corp.,
7.625%, Due 2/15/2008 ............................ 300 308
5.30%, Due 1/15/2014 ............................. 710 694
Time Warner, Inc., 7.70%, Due 5/1/2032 ............. 550 627
--------
2,714
--------
CONSUMER DISCRETIONARY - 0.22%
Carnival Corp., 3.75%, Due 11/15/2007 .............. 715 702
Wal-Mart Stores, Inc.,
4.55%, Due 5/1/2013 .............................. 635 615
7.55%, Due 2/15/2030 ............................. 650 802
--------
2,119
--------
ELECTRIC/GAS - 0.68%
Canadian Natural Resources Ltd., 6.00%,
Due 8/15/2016 .................................... 505 512
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
------- --------
(DOLLARS IN THOUSANDS)
Columbus Southern Power Co., 5.50%, Due
3/1/2013 .............................................. $ 710 $ 712
FPL Group Capital, Inc.,
5.551%, Due 2/16/2008 ................................. 550 551
5.625%, Due 9/1/2011 .................................. 615 623
MidAmerican Energy Holdings Co.,
5.875%, Due 10/1/2012 ................................. 940 962
6.125%, Due 4/1/2036 .................................. 700 720
PSI Energy, Inc., 6.05%, Due 6/15/2016 .................. 520 533
Public Service Enterprise Group,
Inc., 6.95%, Due 6/1/2012 ............................ 800 850
Puget Sound Energy, Inc., 6.274%, Due
3/15/2037 ............................................. 370 382
Xcel Energy, Inc., 7.00%, Due 12/1/2010 ................. 600 637
------
6,482
------
FINANCE - 1.02%
American General Finance Corp.,
5.375%, Due 9/1/2009 + ................................ 840 844
4.875%, Due 5/15/2010 ................................. 500 493
Ameriprise Financial, Inc., 5.35%, Due
11/15/2010 ............................................ 850 854
The Bear Stearns Cos., Inc., 2.875%, Due
7/2/2008 .............................................. 800 771
General Electric Capital Corp., 4.375%, Due
3/3/2012 .............................................. 865 832
The Goldman Sachs Group, Inc., 4.75%, Due
7/15/2013 ............................................. 400 386
HSBC Finance Corp.,
4.75%, Due 4/15/2010 .................................. 570 563
5.25%, Due 1/14/2011 .................................. 2,000 2,004
International Lease Finance Corp., 6.375%,
Due 3/15/2009 + ....................................... 1,025 1,051
Merrill Lynch & Co., Inc.,
6.00%, Due 2/17/2009 .................................. 1,000 1,017
5.45%, Due 7/15/2014 .................................. 400 402
SLM Corp., 5.45%, Due 4/25/2011 ......................... 520 523
------
9,740
------
INDUSTRIALS - 2.09%
Abbott Laboratories, 5.60%, Due 5/15/2011 ............... 395 403
Amgen, Inc., 4.00%, Due 11/18/2009 + .................... 415 403
Baxter International, Inc., 5.90%, Due
9/1/2016 .............................................. 620 639
BHP Billiton Finance USA Ltd., 4.80%, Due
4/15/2013 ............................................. 450 437
Bunge Ltd Finance Corp.,
7.80%, Due 10/15/2012 ................................. 400 438
5.35%, Due 4/15/2014 .................................. 150 145
Caterpillar, Inc., 6.05%, Due 8/15/2036 ................. 350 367
Cisco Systems, Inc.,
5.25%, Due 2/22/2011 .................................. 950 956
PAR
AMOUNT VALUE
------- --------
(DOLLARS IN THOUSANDS)
5.50%, Due 2/22/2016 .................................. $ 600 $ 607
Con-way, Inc., 8.875%, Due 5/1/2010 ..................... 1,850 2,031
CRH America, Inc., 6.00%, Due 9/30/2016 ................. 315 317
DaimlerChrysler NA Holding Corp.,
4.75%, Due 1/15/2008 .................................. 720 713
DaimlerChrysler NA Holding Corp.,
7.75%, Due 1/18/2011 .................................. 1,000 1,076
5.875%, Due 3/15/2011 ................................. 450 453
EOG Resources, Inc., 4.75%, Due 3/15/2014 ++ ............ 425 410
John Deere Capital Corp., 5.40%, Due
4/7/2010 .............................................. 525 529
Lockheed Martin Corp., 7.20%, Due 5/1/2036 .............. 385 462
Martin Marietta Materials, Inc., 6.90%, Due
8/15/2007 ............................................. 200 201
Masco Corp., 6.125%, Due 10/3/2016 ...................... 310 311
Motorola, Inc., 8.00%, Due 11/1/2011 .................... 580 647
Nissan Motor Acceptance Corp., 5.625%,
Due 3/14/2011 ++ ........................................ 700 704
Northrop Grumman Corp., 4.079%, Due
11/16/2006 ............................................ 850 850
Pemex Project Funding Master
Trust, 8.50%, Due 2/15/2008 ............................. 610 633
Schering-Plough Corp., 6.75%, Due
12/1/2033 ............................................. 790 880
Unilever Capital Corp., 7.125%, Due
11/1/2010 + ........................................... 2,000 2,138
Union Pacific Corp.,
3.875%, Due 2/15/2009 ................................. 775 753
6.50%, Due 4/15/2012 .................................. 450 475
Weatherford International Ltd., 6.50%, Due
8/1/2036 .............................................. 310 318
WellPoint, Inc., 3.75%, Due 12/14/2007 .................. 490 481
Weyerhaeuser Co., 5.95%, Due 11/1/2008 .................. 340 343
Wyeth Corp., 5.50%, Due 2/1/2014 ........................ 780 785
------
19,905
------
INSURANCE - 0.87%
Aegon Funding Corp., 5.75%, Due 12/15/2020 .............. 450 457
American International Group, Inc., 6.25%,
Due 5/1/2036 + ........................................ 700 749
ASIF Global Financing, 3.90%, Due
10/22/2008 ++ ......................................... 700 683
The Chubb Corp., 4.934%, Due 11/16/2007 ................. 880 877
Hartford Financial Services Group,
Inc., 5.663%, Due 11/16/2008 .......................... 730 735
Liberty Mutual Insurance Co., 7.875%, Due
10/15/2026 +++ ........................................ 1,500 1,747
Lincoln National Corp., 4.75%, Due
2/15/2014 ............................................. 200 191
MetLife, Inc.,
5.375%, Due 12/15/2012 ................................ 540 545
5.00%, Due 6/15/2015 ................................... 485 470
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
------- --------
(DOLLARS IN THOUSANDS)
Metropolitan Life Global Funding I, 4.625%,
Due 8/19/2010 ++ ................................... $ 700 $ 686
Prudential Financial, Inc.,
3.75%, Due 5/1/2008 ................................. 335 328
Prudential Financial, Inc.,
4.50%, Due 7/15/2013 ................................ 400 380
5.10%, Due 9/20/2014 ................................ 410 402
-------
8,250
-------
REAL ESTATE - 0.34%
EOP Operating Limited Partnership, 4.75%,
Due 3/15/2014 ...................................... 450 428
Equity Residential, 5.125%, Due 3/15/2016 ............. 385 374
iStar Financial, Inc., 5.875%, Due 3/15/2016 .......... 700 698
ProLogis Trust, 7.10%, Due 4/15/2008 .................. 470 480
ProLogis, 5.50%, Due 4/1/2012 ......................... 450 450
Simon Property Group LP,
6.375%, Due 11/15/2007 .............................. 400 403
5.375%, Due 6/1/2011 ................................ 450 451
-------
3,284
-------
TELEPHONE - 0.81%
America Movil S.A. de C.V., 6.375%, Due
3/1/2035 ........................................... 895 876
AT&T, Inc.,
5.10%, Due 9/15/2014 ................................ 485 473
AT&T, Inc.,
5.625%, Due 6/15/2016 ............................... 450 450
6.80%, Due 5/15/2036 + .............................. 360 388
Cingular Wireless Services, Inc., 8.75%, Due
3/1/2031 ........................................... 445 583
Deutsche Telekom AG, 8.00%, Due 6/15/2010 ............. 380 415
France Telecom SA, 7.75%, Due 3/1/2011 ................ 550 604
Nextel Communications, Inc., 6.875%, Due
10/31/2013 ......................................... 615 629
Sprint Capital Corp.,
6.00%, Due 1/15/2007 ................................ 800 800
8.375%, Due 3/15/2012 ............................... 450 506
Telecom Italia S.p.A., 4.00%, Due
11/15/2008 ......................................... 580 564
Telefonica Emisiones SAU, 5.984%, Due
6/20/2011 .......................................... 380 388
Telefonos de Mexico, S.A. de C.V., 5.50%,
Due 1/27/2015 ...................................... 500 487
Verizon Global Funding Corp., 4.00%, Due
1/15/2008 .......................................... 545 537
-------
7,700
-------
TOTAL CORPORATE OBLIGATIONS 69,990
-------
PAR
AMOUNT VALUE
------- --------
(DOLLARS IN THOUSANDS)
NON-AGENCY MORTGAGE-BACKED
OBLIGATIONS - 1.68%
COMMERCIAL MORTGAGE-BACKED SECURITY - 0.57%
Banc of America Commercial Mortgage,
Inc., 2005-6, 5.001%, Due 9/10/2047 ................ $ 896 $ 894
Bear Stearns Commercial Mortgage
Securities, Inc.,
2004-PWR5, 4.831%, Due 7/11/2042 ................... 1,015 992
2005, 5.127%, Due 10/12/2042 ....................... 630 630
Citigroup Commercial Mortgage
Trust, 2004-C2, 4.38%, Due 10/15/2041 .............. 760 734
General Electric Capital Commercial
Mortgage Corp., 2003-C2, 4.17%, Due
7/10/2037 .......................................... 430 422
JP Morgan Chase Commercial Mortgage
Securities Corp.,
2004-CBX, 4.529%, Due 11/12/2039 ................... 555 540
JP Morgan Chase Commercial Mortgage
Securities Corp.,
4.655%, Due 8/15/2042 .............................. 369 366
4.625%, Due 3/15/2046 .............................. 845 833
-------
5,411
-------
WHOLE LOAN COLLATERALIZED MORTGAGE
OBLIGATIONS - 1.11%
Banc of America Mortgage
Securities, 5.25%, Due 10/25/2019 .................. 1,086 1,077
Bear Stearns Adjustable Rate Mortgage
Trust, 2005-11, 4.509%, Due 12/25/2035 # ........... 857 848
Bear Stearns Commercial Mortgage
Securities, Inc., 5.467%, Due 4/12/2038 ............ 590 598
Bear Stearns Commercial Mortgage
Securities, 2006-PW A4, 5.54%, Due
9/11/2041 .......................................... 1,160 1,181
Capital One Multi-Asset Execution
Trust, 2006 A, 5.15%, Due 6/15/2014 ................ 1,450 1,462
Chase Mortgage Finance Corp., 2006A1 A1,
6.072%, Due 9/25/2036 # ............................ 1,244 1,247
Chase Mortgage Financial Trust, 2004-S1
A3, 5.50%, Due 2/25/2019 ........................... 78 78
Countrywide Home Loan, Inc., 2005-HYB8,
5.414%, Due 12/20/2035 ............................. 838 838
JP Morgan Chase Commercial Mortgage
Securities Corp., 4.613%, Due 10/15/2042 ........... 302 300
Prime Mortgage Trust, 2005-2, 5.25%, Due
7/25/2020 .......................................... 1,892 1,881
Wells Fargo Mortgage Backed Securities
Trust, 2006-11 A8, 6.00%, Due 9/25/2036 ............ 1,081 1,080
-------
10,590
-------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS 16,001
-------
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
------- --------
(DOLLARS IN THOUSANDS)
ASSET-BACKED SECURITIES - 0.44%
OTHER ASSET-BACKED - 0.44%
American Express Credit Account Master
Trust, 2006-2 A, 5.35%, Due 1/15/2014 ................ $ 1,450 $ 1,474
Capital Auto Receivables Asset
Trust, 2006-1A, 5.32%, Due 3/20/2010++ ............... 700 702
CarMax Auto Owner Trust, 2005-3, 4.91%,
Due 1/18/2011 ........................................ 1,000 996
Volkswagen Auto Loan Enhanced
Trust, 2005-1, 4.86%, Due 4/20/2012 .................. 1,000 996
-------
TOTAL ASSET-BACKED SECURITIES ........................... 4,168
-------
U.S. AGENCY MORTGAGE-BACKED
OBLIGATIONS - 8.64%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.05%
6.50%, Due 3/1/2008 .................................. 237 237
5.50%, Due 8/1/2017 .................................. 78 78
5.50%, Due 9/1/2017 .................................. 401 402
5.00%, Due 3/1/2018 .................................. 945 932
5.00%, Due 6/1/2018 .................................. 511 504
5.50%, Due 6/1/2018 .................................. 169 170
5.50%, Due 10/1/2018 ................................. 1,468 1,472
5.00%, Due 2/1/2019 .................................. 560 552
4.50%, Due 3/1/2019 .................................. 1,070 1,036
5.00%, Due 10/1/2020 ................................. 1,530 1,506
5.50%, Due 5/1/2021 .................................. 919 920
5.00%, Due 9/1/2021 .................................. 392 386
5.50%, Due 9/1/2021 .................................. 493 494
6.50%, Due 5/1/2029 .................................. 72 74
6.50%, Due 6/1/2029 .................................. 14 14
6.50%, Due 7/1/2029 .................................. 246 253
6.00%, Due 8/1/2029 .................................. 127 128
5.00%, Due 8/1/2033 .................................. 1,901 1,841
5.50%, Due 2/1/2034 .................................. 3,207 3,178
5.00%, Due 3/1/2034 .................................. 1,492 1,445
6.00%, Due 6/1/2034 .................................. 1,187 1,196
6.00%, Due 8/1/2034 .................................. 1,069 1,077
5.50%, Due 10/1/2034 ................................. 1,085 1,075
5.50%, Due 1/1/2035 .................................. 934 926
5.50%, Due 6/1/2035 .................................. 3,869 3,829
5.00%, Due 8/1/2035 .................................. 1,310 1,266
5.00%, Due 9/1/2035 .................................. 1,871 1,808
6.00%, Due 9/1/2036 .................................. 2,283 2,298
-------
29,097
-------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 4.44%
Pool # 488099, 5.50%, Due 2/1/2014 ................... 266 268
Pool # 323789, 6.00%, Due 6/1/2014 ................... 196 199
Pool # 535846, 6.00%, Due 4/1/2016 ................... 477 485
Pool # 254545, 5.00%, Due 12/1/2017 .................. 1,153 1,138
Pool # 555549, 5.00%, Due 6/1/2018 ................... 2,384 2,353
PAR
AMOUNT VALUE
------- --------
(DOLLARS IN THOUSANDS)
Pool # 254865, 4.50%, Due 9/1/2018 .................... $ 1,775 $ 1,721
Pool # 747844, 5.50%, Due 12/1/2018 ................... 107 108
Pool # 761337, 5.00%, Due 4/1/2019 .................... 305 301
Pool # 811328, 5.00%, Due 2/1/2020 .................... 3,417 3,366
Pool # 837219, 4.00%, Due 8/1/2020 .................... 1,264 1,197
Pool # 745562, 5.50%, Due 4/1/2021 .................... 1,457 1,460
Pool # 252211, 6.00%, Due 1/1/2029 .................... 651 659
Pool # 555531, 5.50%, Due 6/1/2033 .................... 561 556
Pool # 555880, 5.50%, Due 11/1/2033 ................... 1,464 1,451
Pool # 725238, 5.00%, Due 3/1/2034 .................... 1,974 1,911
Pool # 255225, 5.50%, Due 6/1/2034 .................... 627 621
Pool # 793062, 5.00%, Due 8/1/2034 # .................. 229 228
Pool # 800422, 5.023%, Due 8/1/2034 # ................. 743 731
Pool # 725866, 4.50%, Due 9/1/2034 .................... 1,098 1,032
Pool # 815762, 6.50%, Due 3/1/2035 .................... 329 336
Pool # 828377, 5.50%, Due 6/1/2035 .................... 1,937 1,915
Pool # 835760, 4.50%, Due 9/1/2035 .................... 971 911
Pool # 844809, 5.00%, Due 11/1/2035 ................... 955 922
Pool # 849299, 5.50%, Due 1/1/2036 .................... 1,824 1,804
Pool # 866593, 5.50%, Due 1/1/2036 .................... 2,479 2,451
Pool # 256101, 5.50%, Due 2/1/2036 .................... 1,179 1,166
Pool # 745418, 5.50%, Due 4/1/2036 .................... 1,912 1,891
Pool # 872306, 6.50%, Due 5/1/2036 .................... 890 907
Pool # 872317, 6.50%, Due 5/1/2036 .................... 1,616 1,647
Pool # 884032, 6.50%, Due 5/1/2036 .................... 697 710
Pool # 256369, 6.00%, Due 8/1/2036 .................... 1,056 1,063
Pool # 886371, 6.00%, Due 8/1/2036 .................... 3,876 3,900
Pool # 886395, 6.00%, Due 8/1/2036 .................... 687 691
Pool # 893523, 6.00%, Due 9/1/2036 .................... 273 274
Pool # 893688, 6.00%, Due 10/1/2036 ................... 1,686 1,696
Pool # 831806, 6.50%, Due 10/1/2036 ................... 260 265
-------
42,334
-------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.15%
Pool # 780400, 7.00%, Due 12/15/2025 .................. 411 426
2006-9 A, 4.201%, Due 8/16/2026 ....................... 858 839
Pool # 780615, 6.50%, Due 8/15/2027 ................... 192 198
Pool # 780651, 7.00%, Due 10/15/2027 .................. 206 213
Pool # 780680, 6.50%, Due 11/15/2027 .................. 505 520
Pool # 780747, 6.50%, Due 3/15/2028 ................... 188 194
Pool # 780788, 6.50%, Due 4/15/2028 ................... 177 183
Pool # 780936, 7.50%, Due 12/15/2028 .................. 389 407
Pool # 781035, 6.50%, Due 5/15/2029 ................... 176 182
Pool # 781273, 6.00%, Due 4/15/2031 ................... 289 293
Pool # 781288, 6.50%, Due 5/15/2031 ................... 305 314
Pool # 781564, 6.00%, Due 2/15/2033 ................... 845 858
Pool # 781589, 5.50%, Due 4/15/2033 ................... 1,549 1,544
Pool # 781603, 5.00%, Due 5/15/2033 ................... 712 696
Pool # 781636, 5.50%, Due 7/15/2033 ................... 1,291 1,287
Pool # 781690, 6.00%, Due 12/15/2033 .................. 1,055 1,071
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
------------- ---------
(DOLLARS IN THOUSANDS)
Pool # 003515, 5.50%, Due 2/20/2034 ................ $ 1,696 $ 1,685
---------
10,910
---------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS 82,341
---------
U.S. AGENCY OBLIGATIONS - 6.42%
FEDERAL HOME LOAN BANK - 0.24%
5.00%, Due 10/16/2009 .............................. 2,280 2,277
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.96%
5.25%, Due 2/24/2011 ............................... 2,860 2,867
5.625%, Due 3/15/2011 + ............................ 1,000 1,029
5.875%, Due 3/21/2011 + ............................ 610 629
4.50%, Due 1/15/2015 + ............................. 34,290 33,253
---------
37,778
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.22%
4.375%, Due 9/7/2007 ............................... 5,000 4,964
4.375%, Due 9/15/2012 + ............................ 1,450 1,412
5.125%, Due 1/2/2014 + ............................. 820 818
6.25%, Due 5/15/2029 + ............................. 12,200 13,987
---------
21,181
---------
TOTAL U.S. AGENCY OBLIGATIONS 61,236
---------
U.S. TREASURY OBLIGATIONS - 10.65%
U.S. TREASURY BONDS - 5.41%
9.125%, Due 5/15/2018 + ............................ 1,750 2,434
7.875%, Due 2/15/2021 + ............................ 500 658
6.25%, Due 8/15/2023 + ............................. 650 757
6.875%, Due 8/15/2025 + ............................ 1,580 1,979
6.50%, Due 11/15/2026 + ............................ 4,615 5,611
5.25%, Due 11/15/2028 + ............................ 1,000 1,063
5.25%, Due 2/15/2029 + ............................. 30,585 32,492
6.25%, Due 5/15/2030 + ............................. 2,050 2,475
4.50%, Due 2/15/2036 + ............................. 4,210 4,063
---------
51,532
---------
U.S. TREASURY NOTES - 5.24%
4.875%, Due 5/31/2008 + ............................ 6,080 6,090
4.875%, Due 8/15/2009 + ............................ 2,115 2,129
3.50%, Due 11/15/2009 + ............................ 5,850 5,668
3.875%, Due 5/15/2010 + ............................ 5,000 4,886
4.25%, Due 1/15/2011 + ............................. 4,500 4,443
4.875%, Due 4/30/2011 + ............................ 1,000 1,012
4.875%, Due 7/31/2011 + ............................ 5,930 6,004
4.375%, Due 8/15/2012 + ............................ 3,500 3,468
4.75%, Due 5/15/2014 + ............................. 3,350 3,383
4.125%, Due 5/15/2015 + ............................ 3,000 2,901
PAR
AMOUNT VALUE
------------- ---------
(DOLLARS IN THOUSANDS)
4.875%, Due 8/15/2016 + ............................ $ 9,775 $ 9,978
---------
49,962
---------
TOTAL U.S. TREASURY OBLIGATIONS 101,494
---------
SHARES
-------------
SHORT TERM INVESTMENTS - 7.33%
American Beacon Money Market Select
Fund ss ............................................ 64,378,562 64,379
PAR
AMOUNT
-------------
U.S. Treasury Bill,
4.90%, Due 12/7/2006 * ............................. $ 5,490 5,463
---------
TOTAL SHORT TERM INVESTMENTS 69,842
---------
SHARES
-------------
SECURITIES LENDING COLLATERAL - 19.95%
American Beacon Cash Plus Trust ss ................... 130,889,021 130,889
American Beacon Money Market Select
Fund ss ............................................ 59,321,564 59,322
---------
TOTAL SECURITIES LENDING COLLATERAL 190,211
---------
TOTAL INVESTMENTS 120.72% - (COST $1,012,151) 1,150,830
LIABILITIES, NET OF OTHER ASSETS - (20.72%) (197,511)
---------
TOTAL NET ASSETS - 100.00% $ 953,319
=========
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
Percentages are stated as a percent of net assets.
^ Non-income producing security.
+ All or a portion of this security is on loan at October 31, 2006.
++ 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 $6,137 or 0.64% of net assets. The
Fund has no right to demand registration of these securities.
# The coupon rate shown on floating or adjustable rate securities represents
the rate at period end. The due date on these types of securities reflects
the final maturity date.
ss. The Fund/Trust is affiliated by having the same investment advisor.
* At October 31, 2006, security pledged as collateral for open futures
contracts.
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
UNREALIZED
NUMBER OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- --------- --------------
Emini S&P 500 Index ..... 979 Dec 2006 $ 67,708 $ 2,643
========= =========
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 93.55%
CONSUMER DISCRETIONARY - 15.18%
AUTOMOBILES - 0.97%
Harley-Davidson, Inc. + ........................... 11,600 $ 796
---------
HOTELS, RESTAURANTS & LEISURE - 2.66%
Choice Hotels International, Inc. ................. 6,600 277
Marriott International, Inc. ...................... 1,900 79
McDonald's Corp. .................................. 18,383 771
Starbucks Corp. ^ ................................. 14,100 532
Wyndham Worldwide Corp. ^ ......................... 17,800 525
---------
2,184
---------
HOUSEHOLD DURABLES - 0.10%
American Greetings Corp. .......................... 2,300 55
Furniture Brands International, Inc. + ............ 1,400 26
---------
81
---------
MEDIA - 3.99%
CBS Corp. ......................................... 25,345 734
The DIRECTV Group, Inc. ^ ......................... 6,900 154
Liberty Media Holding Corp. ^ ..................... 800 71
The McGraw-Hill Companies, Inc. ................... 5,500 353
Omnicom Group, Inc. ............................... 7,900 801
Time Warner, Inc. ................................. 42,300 846
The Walt Disney Company Ltd. ...................... 10,300 324
---------
3,283
---------
MULTILINE RETAIL - 3.19%
Costco Wholesale Corp. ............................ 5,500 294
Kohl's Corp. ^ .................................... 10,800 762
Nordstrom, Inc. ................................... 16,700 791
Wal-Mart Stores, Inc. ............................. 15,750 776
---------
2,623
---------
SPECIALTY RETAIL - 3.10%
American Eagle Outfitters, Inc. ................... 1,700 78
AnnTaylor Stores Corp. ^ .......................... 18,235 803
AutoNation, Inc. ^ + .............................. 7,601 152
Circuit City Stores, Inc. + ....................... 29,160 787
Office Depot, Inc. ^ .............................. 17,300 726
---------
2,546
---------
TEXTILES & APPAREL - 1.17%
Jones Apparel Group, Inc. + ....................... 6,200 207
Nike, Inc. ........................................ 8,200 754
---------
961
---------
TOTAL CONSUMER DISCRETIONARY 12,474
---------
CONSUMER STAPLES - 6.44%
BEVERAGES - 1.93%
The Coca-Cola Co. ................................. 17,400 813
SHARES VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
PepsiCo, Inc. ..................................... 12,200 $ 774
---------
1,587
---------
FOOD & DRUG RETAILING - 1.55%
CVS Corp. ......................................... 39,361 1,235
The Kroger Co. ^ .................................. 1,600 36
---------
1,271
---------
FOOD PRODUCTS - 1.10%
Archer-Daniels-Midland Co. ........................ 21,600 832
Corn Products Internatiional, Inc. ................ 2,000 72
---------
904
---------
HOUSEHOLD PRODUCTS - 0.99%
Colgate-Palmolive Co. ............................. 12,750 816
---------
TOBACCO - 0.87%
UST, Inc. + ....................................... 13,300 712
---------
TOTAL CONSUMER STAPLES 5,290
---------
ENERGY - 3.24%
ENERGY EQUIPMENT & SERVICES - 0.95%
Dresser-Rand Group, Inc. ^ ........................ 1,800 39
Halliburton Co. ................................... 22,903 741
---------
780
---------
OIL & GAS - 2.29%
EOG Resources, Inc. ............................... 500 33
Exxon Mobil Corp. ................................. 5,800 414
Holly Corp. ....................................... 4,700 223
Sunoco, Inc. + .................................... 5,500 364
XTO Energy, Inc. .................................. 18,100 845
---------
1,879
---------
TOTAL ENERGY 2,659
---------
FINANCIALS - 8.85%
BANKS - 1.05%
Hudson City Bancorp, Inc. + ....................... 6,900 95
Wells Fargo & Co. ................................. 21,100 766
---------
861
---------
DIVERSIFIED FINANCIALS - 3.13%
AmeriCredit Corp. ^ + ............................. 5,600 143
Franklin Resources, Inc. .......................... 6,900 786
JP Morgan Chase & Co. ............................. 900 43
Merrill Lynch & Co., Inc. ......................... 2,800 245
SEI Investments Co. ............................... 3,700 208
T Rowe Price Group, Inc. .......................... 19,500 923
The Western Union Co. ^ ........................... 10,200 225
---------
2,573
---------
INSURANCE - 3.62%
American International Group, Inc. ................ 10,900 732
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
Loews Corp. ....................................... 20,100 $ 782
MBIA, Inc. + ...................................... 10,995 682
The Progressive Corp. ............................. 29,100 704
Radian Group, Inc. ................................ 700 37
W. R. Berkley Corp. ............................... 1,000 37
---------
2,974
---------
REAL ESTATE - 1.05%
Jones Lang LaSalle, Inc. .......................... 5,800 533
SL Green Realty Corp. ............................. 2,700 327
---------
860
---------
TOTAL FINANCIALS ................................... 7,268
---------
HEALTH CARE - 17.25%
BIOTECHNOLOGY - 3.37%
Amgen, Inc. ^ ..................................... 23,100 1,753
Celgene Corp. ^ + ................................. 6,600 353
Genentech, Inc. ^ ................................. 5,200 433
Idexx Laboratories, Inc. ^ ........................ 2,700 225
---------
2,764
---------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.77%
Applera Corp - Applied Biosystems Group ........... 9,200 343
Becton, Dickinson and Co. ......................... 14,500 1,015
Boston Scientific Corp. ^ ......................... 3,700 59
Dade Behring Holdings, Inc. ....................... 900 33
---------
1,450
---------
HEALTH CARE PROVIDERS & SERVICES - 4.82%
AmerisourceBergen Corp. ........................... 16,500 779
Express Scripts, Inc. ^ ........................... 4,000 255
Humana, Inc. ^ .................................... 10,300 618
McKesson Corp. .................................... 15,100 756
UnitedHealth Group, Inc. .......................... 16,300 795
WellPoint, Inc. ^ ................................. 9,950 760
---------
3,963
---------
PHARMACEUTICALS - 7.29%
Eli Lilly & Co. ................................... 12,700 711
Johnson & Johnson ................................. 32,900 2,217
Merck & Co., Inc. ................................. 34,400 1,562
Pfizer, Inc. ...................................... 29,100 776
Wyeth ............................................. 14,200 725
---------
5,991
---------
TOTAL HEALTH CARE 14,168
---------
INDUSTRIALS - 14.72%
AEROSPACE & DEFENSE - 3.95%
The Boeing Co. .................................... 20,700 1,653
Northrop Grumman Corp. ............................ 11,400 757
Raytheon Co. ...................................... 1,700 85
SHARES VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
United Technologies Corp. ......................... 11,400 $ 749
---------
3,244
---------
AIR FREIGHT & COURIERS - 0.93%
FedEx Corp. + ..................................... 6,700 767
---------
BUILDING PRODUCTS - 0.04%
Crane Co. ^ ....................................... 900 35
---------
COMMERCIAL SERVICES & SUPPLIES - 1.72%
Manpower, Inc. .................................... 9,200 623
Waste Management, Inc. ............................ 21,100 791
---------
1,414
---------
ELECTRICAL EQUIPMENT - 0.91%
Emerson Electric Co. .............................. 8,900 751
---------
INDUSTRIAL CONGLOMERATES - 3.02%
3M Co. ............................................ 9,700 765
General Electric Co. .............................. 48,800 1,713
---------
2,478
---------
MACHINERY - 2.49%
AGCO Corp. ^ ...................................... 7,700 206
Caterpillar, Inc. ................................. 14,100 856
Illinois Tool Works, Inc. ......................... 16,100 772
SPX Corp. ......................................... 3,700 213
---------
2,047
---------
MARINE - 0.53%
Overseas Shipholding Group, Inc. .................. 6,900 432
---------
ROAD & RAIL - 1.13%
CSX Corp. ......................................... 11,500 410
Norfolk Southern Corp. ............................ 6,900 363
Union Pacific Corp. ............................... 1,700 154
---------
927
---------
TOTAL INDUSTRIALS 12,095
---------
INFORMATION TECHNOLOGY - 21.08%
COMMERCIAL SERVICES & SUPPLIES - 0.30%
First Data Corp. .................................. 10,200 247
---------
COMMUNICATIONS EQUIPMENT - 4.62%
Cisco Systems, Inc. ^ ............................. 97,902 2,362
Motorola, Inc. .................................... 32,500 750
Qualcomm, Inc. .................................... 18,800 684
---------
3,796
---------
COMPUTERS & PERIPHERALS - 4.73%
Hewlett-Packard Co. ............................... 30,100 1,166
International Business Machines Corp. ............. 8,800 813
Lexmark International, Inc. ^ ..................... 13,600 865
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
NVIDIA Corp. ^ .................................... 23,900 $ 833
Western Digital Corp. ^ ........................... 11,400 208
---------
3,885
---------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.09%
Waters Corp. ^ .................................... 1,400 70
---------
INTERNET SOFTWARE & SERVICES - 1.54%
Google, Inc. ^ .................................... 2,650 1,262
---------
IT CONSULTING & SERVICES - 0.65%
Computer Sciences Corp. ^ + ....................... 10,100 534
---------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 5.06%
Applied Materials, Inc. ........................... 42,200 734
Atmel Corp. ^ ..................................... 18,800 108
Freescale Semiconductor, Inc. ^ ................... 1,000 39
Lam Research Corp. ^ .............................. 17,200 851
Micron Technology, Inc. ^ ......................... 52,600 760
Texas Instruments, Inc. ........................... 55,300 1,669
---------
4,161
---------
SOFTWARE - 4.09%
Cadence Design Systems, Inc. ^ .................... 32,800 586
Intuit, Inc. ^ .................................... 1,100 39
Microsoft Corp. ................................... 49,200 1,412
Oracle Corp. ^ .................................... 42,600 787
Synopsys, Inc. ^ .................................. 23,800 536
---------
3,360
---------
TOTAL INFORMATION TECHNOLOGY 17,315
---------
MATERIALS - 4.54%
CHEMICALS - 2.01%
Monsanto Co. ...................................... 19,700 871
Praxair, Inc. ..................................... 12,950 780
---------
1,651
---------
METALS & MINING - 2.53%
Freeport-McMoRan Copper & Gold, Inc. .............. 14,000 847
Newmont Mining Corp. .............................. 1,300 59
Nucor Corp. ....................................... 15,100 882
Southern Copper Corp. ^ + ......................... 5,700 293
---------
2,081
---------
TOTAL MATERIALS 3,732
---------
TELECOMMUNICATION SERVICES - 1.12%
DIVERSIFIED TELECOMMUNICATION - 0.99%
AT&T, Inc. ........................................ 22,000 754
Sprint Nextel Corp. ............................... 3,500 65
---------
819
---------
SHARES VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
WIRELESS TELECOMMUNICATION SERVICES - 0.13%
Leap Wireless International, Inc. ^ + ............. 1,900 $ 105
---------
TOTAL TELECOMMUNICATION SERVICES 924
---------
UTILITIES - 1.13%
ELECTRIC UTILITIES - 1.13%
TXU Corp. ......................................... 14,700 928
---------
TOTAL COMMON STOCKS 76,853
---------
SHORT TERM INVESTMENTS - 6.08%
American Beacon Money Market Select
Fund ++ .......................................... 4,782,480 4,783
PAR
AMOUNT
----------
U.S. Treasury Bill,
4.90%, Due 12/7/2006 # ........................... $ 215 214
---------
TOTAL SHORT TERM INVESTMENTS 4,997
---------
SHARES
----------
SECURITIES LENDING COLLATERAL -
6.68%
American Beacon Cash Plus Trust ++ ................ 3,777,772 3,778
American Beacon Money Market Select
Fund ++ ........................................... 1,712,163 1,712
---------
TOTAL SECURITIES LENDING COLLATERAL 5,490
---------
TOTAL INVESTMENTS 106.31% - (COST $79,959) 87,340
LIABILITIES, NET OF OTHER ASSETS - (6.31%) (5,188)
---------
TOTAL NET ASSETS - 100.00% $ 82,152
=========
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
Percentages are stated as a percent of net assets.
^ Non-income producing security.
+ All or a portion of this security is on loan at October 31, 2006.
++ The Fund/Trust is affiliated by having the same investment advisor.
# At October 31, 2006, security pledged as collateral for open futures
contracts.
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
UNREALIZED
NUMBER OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- ------ --------------
Emini S&P 500 Index ...... 72 Dec 2006 $ 4,980 $ 54
======== =======
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON MID-CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 82.17%
CONSUMER DISCRETIONARY - 18.83%
AUTO COMPONENTS - 4.09%
Advance Auto Parts, Inc. ................. 43,800 $ 1,534
Lear Corp. + ............................. 39,250 1,186
Magna International, Inc. ................ 16,675 1,247
------------
3,967
------------
AUTOMOBILES - 0.63%
Winnebago Industries, Inc. + .............. 18,200 606
------------
HOTELS, RESTAURANTS & LEISURE - 1.33%
Royal Caribbean Cruises Ltd. + ............ 31,700 1,284
------------
HOUSEHOLD DURABLES - 4.23%
The Stanley Works ......................... 28,100 1,339
Whirlpool Corp. + ......................... 31,775 2,762
------------
4,101
------------
LEISURE EQUIPMENT & PRODUCTS - 1.96%
Hasbro, Inc. + ............................ 53,500 1,387
Mattel, Inc. .............................. 22,600 511
------------
1,898
------------
MULTILINE RETAIL - 1.50%
Family Dollar Stores, Inc. ................ 49,500 1,458
------------
SPECIALTY RETAIL - 5.09%
AutoZone Inc. ^ ........................... 11,775 1,319
Rent-A-Center, Inc. ^ ..................... 41,550 1,195
The Sherwin-Williams Co. .................. 19,700 1,167
The TJX Companies, Inc. ................... 43,425 1,257
------------
4,938
------------
TOTAL CONSUMER DISCRETIONARY 18,252
------------
CONSUMER STAPLES - 4.11%
FOOD PRODUCTS - 1.30%
Del Monte Foods Co. ....................... 116,475 1,256
------------
PERSONAL PRODUCTS - 0.42%
NBTY, Inc. ^ .............................. 14,550 405
------------
TOBACCO - 2.39%
Loews Corp. - Carolina Group .............. 30,900 1,787
UST, Inc. + ............................... 9,900 530
------------
2,317
------------
TOTAL CONSUMER STAPLES 3,978
------------
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
ENERGY - 1.69%
OIL & GAS - 1.69%
El Paso Corp. + .......................... 32,000 $ 438
Murphy Oil Corp. ......................... 25,500 1,203
------------
TOTAL ENERGY 1,641
------------
FINANCIALS - 23.58%
BANKS - 4.75%
Comerica, Inc. ............................ 21,375 1,244
New York Community Bancorp, Inc. + ........ 41,400 677
Peoples Bank + ............................ 27,250 1,109
Popular, Inc. + ........................... 41,750 760
The South Financial Group, Inc. + ......... 30,800 817
------------
4,607
------------
FINANCIAL - 0.84%
The First Marblehead Corp + ............... 12,100 816
------------
INSURANCE - 14.56%
AON Corp. ................................. 17,275 601
Axis Capital Holdings Ltd. ................ 30,500 1,002
Delphi Financial Group, Inc. .............. 11,225 441
The First American Corp. .................. 38,325 1,565
IPC Holdings Ltd. + ....................... 26,675 801
Old Republic International Corp. .......... 54,962 1,238
Protective Life Corp. ..................... 29,900 1,323
Radian Group, Inc. ........................ 21,000 1,119
RenaissanceRe Holdings Ltd. ............... 21,900 1,191
Torchmark Corp. + ......................... 25,725 1,587
Willis Group Holdings Ltd. + .............. 37,000 1,407
XL Capital Ltd. ........................... 25,975 1,833
------------
14,108
------------
REAL ESTATE - 3.43%
American Financial Realty Trust + ......... 81,800 955
American Home Mortgage Investment Corp. + .. 34,900 1,192
Annaly Capital Management, Inc. ........... 32,600 428
First Industrial Realty Trust, Inc. + ..... 16,300 749
------------
3,324
------------
TOTAL FINANCIALS 22,855
------------
HEALTH CARE - 9.60%
BIOTECHNOLOGY - 0.75%
Charles River Laboratories International,
Inc. ^ + ............................... 16,975 729
------------
HEALTH CARE EQUIPMENT & SUPPLIES - 2.40%
Hillenbrand Industries, Inc. .............. 25,275 1,483
IMS Health, Inc. + ........................ 30,175 840
------------
2,323
------------
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON MID-CAP VALUE FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
HEALTH CARE PROVIDERS & SERVIC - 0.96%
HealthSouth Corp. ^ + ..................... 38,480 $ 933
------------
HEALTH CARE PROVIDERS & SERVICES - 4.71%
AmerisourceBergen Corp. ................... 26,925 1,271
Coventry Health Care, Inc. ^ .............. 25,900 1,216
Omnicare, Inc. + .......................... 24,000 909
Triad Hospitals, Inc. ^ ................... 31,600 1,170
------------
4,566
------------
PHARMACEUTICALS - 0.78%
Valeant Pharmaceuticals International + ... 40,200 751
------------
TOTAL HEALTH CARE .......................... 9,302
------------
INDUSTRIALS - 10.02%
AEROSPACE & DEFENSE - 1.33%
Goodrich Corp. ............................ 29,200 1,288
------------
AIR FREIGHT & COURIERS - 1.22%
Ryder System, Inc. ........................ 22,400 1,179
------------
COMMERCIAL SERVICES & SUPPLIES - 1.54%
Mastercard, Inc. + ........................ 8,900 660
United Stationers, Inc. ^ ................. 17,450 833
------------
1,493
------------
ELECTRICAL EQUIPMENT - 1.79%
American Power Conversion Corp. ........... 57,400 1,735
------------
INDUSTRIAL CONGLOMERATES - 1.49%
Reynolds American, Inc. + ................. 22,900 1,446
------------
MACHINERY - 1.90%
ITT Industries, Inc. ...................... 17,700 963
Kennametal, Inc. .......................... 14,325 884
------------
1,847
------------
TRADING COMPANIES & DISTRIBUTORS - 0.75%
Genuine Parts Co. ......................... 16,000 728
------------
TOTAL INDUSTRIALS 9,716
------------
INFORMATION TECHNOLOGY - 6.30%
COMMUNICATIONS EQUIPMENT - 1.74%
Lucent Technologies, Inc. ^ + ............. 693,525 1,685
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.47%
Tech Data Corp. ^ ......................... 36,135 1,422
------------
IT CONSULTING & SERVICES - 1.34%
Affiliated Computer Services, Inc. ^ ...... 16,425 878
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Computer Sciences Corp. ^ + ............... 8,075 $ 427
------------
1,305
------------
SOFTWARE - 1.75%
CA, Inc. + ................................ 68,500 1,696
------------
TOTAL INFORMATION TECHNOLOGY ............... 6,108
------------
MATERIALS - 0.57%
CHEMICALS - 0.57%
FMC Corp. ................................. 8,050 552
------------
UTILITIES - 7.47%
ELECTRIC UTILITIES - 5.28%
CenterPoint Energy, Inc. + ................ 42,400 656
Pinnacle West Capital Corp. + ............. 28,700 1,372
Wisconsin Energy Corp. .................... 37,625 1,729
Xcel Energy, Inc. ......................... 61,800 1,364
------------
5,121
------------
GAS UTILITIES - 2.19%
MDU Resources Group, Inc. ................. 41,850 1,075
Sempra Energy ............................. 19,750 1,047
------------
2,122
------------
TOTAL UTILITIES 7,243
------------
TOTAL COMMON STOCKS 79,647
------------
SHORT TERM INVESTMENTS - 17.38%
American Beacon Money Market Select
Fund++ ................................... 15,620,227 15,621
PAR
AMOUNT
------------
U.S. Treasury Bill,
4.815%, Due 12/7/2006 # .................. $ 1,235 1,229
------------
TOTAL SHORT TERM INVESTMENTS 16,850
------------
SHARES
------------
SECURITIES LENDING COLLATERAL - 17.25%
American Beacon Cash Plus Trust++ ......... 11,502,802 11,503
American Beacon Money Market Select
Fund++ ................................... 5,213,304 5,213
------------
TOTAL SECURITIES LENDING COLLATERAL ........ 16,716
------------
TOTAL INVESTMENTS 116.80% - (COST $107,753) . 113,213
------------
LIABILITIES, NET OF OTHER ASSETS - (16.80%) . (16,287)
------------
TOTAL NET ASSETS - 100.00% .................. $ 96,926
============
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON MID-CAP VALUE FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
Percentages are stated as a percent of net assets.
^ Non-income producing security.
+ All or a portion of this security is on loan at October 31, 2006.
++ The Fund/Trust is affiliated by having the same investment advisor.
# At October 31, 2006, security pledged as collateral for open futures
contracts.
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
UNREALIZED
NUMBER OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- ------- --------------
Emini S&P 400 Index ......................... 213 Dec 2006 $16,799 $512
======= ====
- --------------------------------------------------------------------------------
See accompanying notes
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 97.82%
CONSUMER DISCRETIONARY - 15.49%
HOTELS, RESTAURANTS & LEISURE - 1.83%
Domino's Pizza, Inc. ........................ 1,120 $ 30
Jack in the Box, Inc. ^ ..................... 730 41
Landry's Restaurants, Inc. + ................ 545 16
---------
87
---------
HOUSEHOLD DURABLES - 0.80%
Ethan Allen Interiors, Inc. + ............... 565 20
Stanley Furniture Co., Inc. + ............... 390 9
Technical Olympic USA, Inc. + ............... 835 9
---------
38
---------
INTERNET & CATALOG RETAIL - 0.77%
Insight Enterprises, Inc. ^ ................. 1,715 37
---------
LEISURE EQUIPMENT & PRODUCTS - 0.55%
MarineMax, Inc. ^ + ......................... 915 26
---------
SPECIALTY RETAIL - 7.93%
Charming Shoppes, Inc. ^ + .................. 2,750 41
Genesco, Inc. ^ + ........................... 860 32
Group 1 Automotive, Inc. + .................. 585 34
Haverty Furniture Companies, Inc. + ......... 2,480 39
The Men's Wearhouse, Inc. ................... 955 38
Payless Shoesource, Inc. ^ .................. 1,795 48
Regis Corp. ................................. 940 35
Rent-A-Center, Inc. ^ ....................... 1,535 44
Tween Brands, Inc. ^ ........................ 620 26
United Auto Group, Inc. + ................... 1,760 41
---------
378
---------
TEXTILES & APPAREL - 3.61%
Brown Shoe Company, Inc. .................... 955 37
Hartmarx Corp. ^ + .......................... 2,770 20
Movado Group, Inc. + ........................ 1,240 32
Perry Ellis International, Inc. ^ + ......... 1,185 43
Phillips-Van Heusen Corp. ................... 520 24
Unifirst Corp. .............................. 445 16
---------
172
---------
TOTAL CONSUMER DISCRETIONARY ................. 738
---------
CONSUMER STAPLES - 3.40%
FOOD & DRUG RETAILING - 1.77%
Casey's General Stores, Inc. + .............. 1,010 24
Ruddick Corp. ............................... 750 21
Spartan Stores, Inc. ........................ 1,870 39
---------
84
---------
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
FOOD PRODUCTS - 0.73%
Central Garden and Pet Co. ^ + .............. 695 $ 35
---------
PERSONAL PRODUCTS - 0.90%
NBTY, Inc. ^ ................................ 1,535 43
---------
TOTAL CONSUMER STAPLES ....................... 162
---------
ENERGY - 3.78%
ENERGY EQUIPMENT & SERVICES - 1.87%
Oil States International, Inc. ^ + .......... 600 17
Parker Drilling Co. ^ ....................... 5,305 44
Trico Marine Services, Inc. ^ ............... 825 28
---------
89
---------
OIL & GAS - 1.91%
Comstock Resources, Inc. ^ .................. 760 21
The Houston Exploration Co. ^ ............... 705 38
Swift Energy Co. ^ .......................... 675 32
---------
91
---------
TOTAL ENERGY ................................. 180
---------
FINANCIALS - 34.62%
BANKS - 12.55%
Accredited Home Lenders Holding Co. ^ + ..... 750 23
Bankunited Financial Corp. + ................ 1,185 32
Central Pacific Financial Corp. + ........... 1,070 39
Corus Bankshares, Inc. + .................... 1,500 31
Cybertel Capital Corp. + .................... 725 34
First Community Bancorp, Inc. ............... 885 47
First Niagara Financial Group, Inc. + ....... 1,591 23
First Republic Bank + ....................... 935 37
FirstFed Financial Corp. ^ + ................ 825 51
Franklin Bank Corp. ^ + ..................... 1,535 31
Hanmi Financial Corp. + ..................... 1,325 28
Irwin Financial Corp. + ..................... 2,035 45
Pacific Capital Bancorp + ................... 445 14
Provident Bankshares Corp. + ................ 785 28
Sterling Bancshares, Inc. ................... 835 15
Sterling Financial Corp. + .................. 1,225 41
TierOne Corp. ............................... 915 29
Trustmark Corp. ............................. 675 22
Umpqua Holdings Corporation + ............... 990 28
---------
598
---------
DIVERSIFIED FINANCIALS - 3.68%
Advanta Corp., Class A Shares ............... 380 14
Advanta Corp., Class B Shares ............... 525 20
Cash America International, Inc. ............ 730 30
CompuCredit Corp. ^ + ....................... 955 33
Investment Technology Group, Inc. ^ ......... 620 29
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
MCG Capital Corp. ........................... 685 $ 12
Ocwen Financial Corp. ^ + ................... 705 11
World Acceptance Corp. ^ .................... 520 26
---------
175
---------
INSURANCE - 7.47%
Argonaut Group, Inc. ^ ...................... 1,440 49
Delphi Financial Group, Inc. ................ 1,185 47
FPIC Insurance Group, Inc. ^ ................ 980 35
Harleysville Group, Inc. .................... 1,140 41
LandAmerica Financial Group, Inc. + ......... 360 23
The Navigators Group, Inc. ^ ................ 825 39
Ohio Casualty Corp. ......................... 880 24
SeaBright Insurance Holdings, Inc. ^ ........ 915 15
Stewart Information Services Corp. .......... 675 25
Triad Guaranty, Inc. ^ + .................... 370 19
Universal American Financial Corp. ^ + ...... 2,115 39
---------
356
---------
REAL ESTATE - 10.92%
Arbor Realty Trust, Inc. .................... 730 20
Ashford Hospitality Trust, Inc. ............. 3,035 39
Capital Trust, Inc. ......................... 565 25
Entertainment Properties Trust + ............ 280 15
Equity Inns, Inc. + ......................... 2,260 38
Equity Lifestyle Properties, Inc. ........... 600 30
FelCor Lodging Trust, Inc. .................. 2,130 44
Gramercy Capital Corp. ...................... 695 19
Highland Hospitality Corp. .................. 3,135 43
Innkeepers USA Trust + ...................... 2,740 47
Nationwide Health Properties, Inc. .......... 705 20
NorthStar Realty Finance Corp. .............. 2,510 38
PS Business Parks, Inc. ..................... 280 19
RAIT Investment Trust + ..................... 1,215 37
Redwood Trust, Inc. ......................... 700 39
Sunstone Hotel Investors, Inc. .............. 1,140 34
Tanger Factory Outlet Centers, Inc. + ....... 360 13
---------
520
---------
TOTAL FINANCIALS 1,649
---------
HEALTH CARE - 4.74%
HEALTH CARE EQUIPMENT & SUPPLIES - 0.54%
STERIS Corp. ................................ 1,055 26
---------
HEALTH CARE PROVIDERS & SERVICES - 3.32%
Centene Corp. ^ + ........................... 1,110 26
Gentiva Health Services, Inc. ^ + ........... 2,105 39
Owens & Minor, Inc. ......................... 860 27
PSS World Medical, Inc. ^ ................... 1,555 31
Res-Care, Inc. ^ ............................ 1,785 35
---------
158
---------
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
PHARMACEUTICALS - 0.88%
Sciele Pharma, Inc. ^ + ..................... 1,910 $ 41
---------
TOTAL HEALTH CARE 225
---------
INDUSTRIALS - 13.05%
BUILDING PRODUCTS - 2.81%
Griffon Corp. ^ + ........................... 1,510 37
Lennox International, Inc. .................. 955 26
NCI Building Systems, Inc. ^ + .............. 620 37
Universal Forest Products, Inc. + ........... 520 24
Watsco, Inc. + .............................. 205 10
---------
134
---------
COMMERCIAL SERVICES & SUPPLIES - 2.26%
Consolidated Graphics, Inc. ^ ............... 500 31
eFunds Corp. ^ .............................. 575 14
Ennis, Inc. + ............................... 1,855 43
United Stationers, Inc. ^ ................... 415 20
---------
108
---------
COMMUNICATIONS - 0.68%
Aeroflex, Inc. ^ ............................ 2,985 32
---------
ELECTRICAL EQUIPMENT - 1.94%
AO Smith Corp. + ............................ 665 23
Belden CDT, Inc. ............................ 990 36
Paxar Corp. ^ ............................... 1,445 29
Regal-Beloit Corp. .......................... 91 5
---------
93
---------
MACHINERY - 2.41%
Albany International Corp. .................. 44 2
Applied Industrial Technologies, Inc. ....... 1,065 31
The Greenbrier Companies, Inc. + ............ 910 34
Kennametal, Inc. ............................ 785 48
---------
115
---------
RENTAL AUTO/EQUIPMENT - 1.20%
Dollar Thrifty Automotive Group, Inc. ^ ..... 805 32
United Rentals, Inc. ^ + .................... 1,055 25
---------
57
---------
ROAD & RAIL - 1.22%
Celadon Group, Inc. ^ ....................... 1,030 19
Saia, Inc. ^ ................................ 1,440 39
---------
58
---------
TRANSPORT-SERVICES - 0.53%
Bristow Group, Inc. ^ + ..................... 760 25
---------
TOTAL INDUSTRIALS 622
---------
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
INFORMATION TECHNOLOGY - 10.64%
COMMUNICATIONS EQUIPMENT - 1.41%
Black Box Corp. ............................. 575 $ 26
CommScope, Inc. ^ + ......................... 1,295 41
---------
67
---------
COMPUTERS & PERIPHERALS - 0.44%
Komag, Inc. ^ + ............................. 545 21
---------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 4.88%
Anixter International, Inc. ^ + ............. 705 42
Benchmark Electronics, Inc. ^ ............... 1,095 29
Checkpoint Systems, Inc. ^ .................. 1,240 23
CTS Corp. + ................................. 1,640 23
Global Imaging Systems, Inc. ^ .............. 1,835 40
MTS Systems Corp. ........................... 600 20
Park Electrochemical Corp. .................. 880 27
Technitrol, Inc. ............................ 1,135 29
---------
233
---------
IT CONSULTING & SERVICES - 2.04%
Agilysys, Inc. .............................. 1,370 20
Keane, Inc. ^ ............................... 1,220 14
Ness Technologies, Inc. ^ + ................. 2,620 39
SYKES Enterprises, Inc. ^ ................... 1,195 24
---------
97
---------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 1.87%
Advanced Energy Industries, Inc. ^ .......... 1,780 28
ON Semiconductor Corp. ^ + .................. 6,260 39
Photronics, Inc. ^ .......................... 1,585 22
---------
89
---------
TOTAL INFORMATION TECHNOLOGY 507
---------
MATERIALS - 5.72%
BASIC MATERIALS - 0.60%
AMCOL International Corp. + ................. 1,085 28
---------
CHEMICALS - 0.69%
H.B. Fuller Co. ............................. 1,325 33
---------
CONTAINERS & PACKAGING - 2.15%
Greif, Inc. ................................. 505 47
Jarden Corp. ^ + ............................ 545 20
Silgan Holdings, Inc. ....................... 860 35
---------
102
---------
METALS & MINING - 2.28%
Carpenter Technology Corp. + ................ 130 14
Commercial Metals Co. ....................... 1,270 34
Gibraltar Industries, Inc. .................. 1,815 38
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
NN, Inc. .................................... 2,000 $ 23
---------
109
---------
TOTAL MATERIALS 272
---------
TELECOMMUNICATION SERVICES - 1.58%
DIVERSIFIED TELECOMMUNICATION - 1.58%
General Communication, Inc. ^ ............... 1,270 16
Golden Telecom, Inc. + ...................... 860 32
Premiere Global Services, Inc. ^ ............ 3,230 27
---------
TOTAL TELECOMMUNICATION SERVICES 75
---------
UTILITIES - 4.80%
ELECTRIC UTILITIES - 3.73%
Black Hills Corp. + ......................... 630 22
Cleco Corp. + ............................... 860 22
CMS Energy Corp. ^ + ........................ 1,055 16
El Paso Electric Co. ^ ...................... 1,425 33
Empire District Electric Co. ................ 1,760 42
PNM Resources, Inc. + ....................... 1,530 43
---------
178
---------
GAS UTILITIES - 1.07%
Atmos Energy Corp. + ........................ 785 24
Southwest Gas Corp. ......................... 750 27
---------
51
---------
TOTAL UTILITIES 229
---------
TOTAL COMMON STOCKS 4,659
---------
SHORT TERM INVESTMENTS - 3.23%
American Beacon Money Market Select
Fund ++ ................................... 48,688 49
iShares Russell 2000 Value Index Fund + ..... 1,360 105
---------
TOTAL SHORT TERM INVESTMENTS 154
---------
SECURITIES LENDING COLLATERAL - 25.44%
American Beacon Cash Plus Trust ++ .......... 833,612 834
American Beacon Money Market Select
Fund ++ ................................... 377,810 378
---------
TOTAL SECURITIES LENDING COLLATERAL 1,212
---------
TOTAL INVESTMENTS 126.49% - (COST $5,875) 6,025
LIABILITIES, NET OF OTHER ASSETS - (26.49%) (1,262)
---------
TOTAL NET ASSETS - 100.00% $ 4,763
=========
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
Percentages are stated as a percent of net assets.
^ Non-income producing security.
+ All or a portion of this security is on loan at October 31, 2006.
++ The Fund/Trust is affiliated by having the same investment advisor.
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
ARGENTINA - 0.10%
COMMON STOCKS - 0.10%
Petrobras Energia Participaciones SA,
ADR ^ + ................................... 14,100 $ 161
----------
AUSTRIA - 0.44%
COMMON STOCKS - 0.44%
Raiffeisen International Bank-Holding AG .... 6,095 697
----------
BRAZIL - 11.41%
COMMON STOCKS - 8.04%
Banco Itau Holding Financeira S.A., ADR ..... 36,080 1,198
Brasil Telecom Participacoes S.A., ADR + .... 24,800 830
Braskem SA, ADR + ........................... 9,000 128
Centrais Eletricas Brasileiras S.A. ......... 5,474,000 115
Companhia Brasileira de Distribuicao Group,
ADR + ..................................... 8,900 266
Companhia de Saneamento Basico do
Estado de Sao Paulo, ADR + ................ 7,800 236
Companhia Energetica de Minas Gerais,
ADR ^ + ................................... 7,100 307
Companhia Vale do Rio Doce, ADR ............. 56,828 1,270
Cyrela Brazil Realty S/A ^ .................. 13,000 265
Empresa Brasileira de Aeronautica S.A. ......
(Embraer), ADR ............................ 10,640 443
Gerdau S.A., ADR + .......................... 17,825 263
Grendene S.A. ............................... 40,600 341
Natura Cosmeticos S.A. ...................... 22,475 310
Petroleo Brasileiro S.A., ADR ............... 34,842 3,092
Petroleo Brasileiro S.A., A Shares, ADR ..... 18,316 1,483
Unibanco - Uniao de Bancos Brasileiros S.A. . 15,378 122
Unibanco - Uniao de Bancos Brasileiros S.A.,
ADR ....................................... 20,855 1,642
Votorantim Celulose e Papel S.A, ADR + ...... 19,500 356
----------
TOTAL COMMON STOCKS .......................... 12,667
----------
PREFERRED STOCKS - 3.37%
All America Latina Logistica S.A. ........... 34,800 304
Banco Itau Holding Financeira S.A. .......... 7,824 257
Braskem SA .................................. 67,600 478
Centrais Eletricas Brasileiras S.A. ......... 16,046,400 321
Companhia de Tecidos Norte de Minas ......... 4,530,300 427
Companhia Energetica de Minas Gerais ........ 10,421,913 450
Companhia Paranaense de Energia ............. 32,469,700 370
Companhia Vale do Rio Doce, A Shares ........ 3,752 81
Gerdau S.A. ................................. 11,150 163
Itausa - Investimentos Itau S.A. ............ 79,928 363
Klabin S.A. ................................. 78,400 169
Lojas Americanas SA ......................... 11,476,200 520
Petrol Brasileiro S.A. ...................... 7,160 144
Tele Norte Leste Participacoes S.A., ADR + .. 40,500 586
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Telemar Norte Leste S.A. .................... 7,800 $ 174
Telemig Celular Participacoes S.A. .......... 161,711,789 275
Telesp - Telecommunicacoes de Sao Paulo
S.A ....................................... 9,592 225
---------
TOTAL PREFERRED STOCKS ....................... 5,307
---------
TOTAL BRAZIL ................................. 17,974
---------
CHILE - 0.59%
COMMON STOCKS - 0.59%
Grupo Enersis SA, ADR ....................... 35,020 483
MASISA S.A., ADR ............................ 8,400 75
United Breweries Co, Inc., ADR .............. 13,300 366
---------
TOTAL CHILE .................................. 924
---------
COLOMBIA - 0.25%
COMMON STOCKS - 0.25%
BanColombia SA, ADR ......................... 13,100 400
---------
CZECH REPUBLIC - 1.40%
COMMON STOCKS - 1.40%
Central European Media Enterprises
Ltd. ^ + .................................. 10,100 746
CEZ, a.s. ^ ................................. 21,900 867
Komercni Banka, A S ^ ....................... 3,800 591
---------
TOTAL CZECH REPUBLIC ......................... 2,204
---------
HONG KONG/CHINA - 8.30%
COMMON STOCKS - 8.30%
Brilliance China Automotive Holdings
Ltd. + .................................... 1,130,000 176
BYD Company Ltd. ............................ 6,900 19
China Construction Bank + ++ ................ 1,290,000 582
China Life Insurance Company Ltd. + ......... 264,000 556
China Mobile Ltd. + ......................... 163,000 1,331
China Petroleum & Chemical Corp. + .......... 1,178,800 815
China Ping'an Insurance Company Ltd. ........ 85,000 296
China Resources Power Holdings Co. .......... 294,000 372
China Shipping Development Co Ltd. .......... 336,000 365
China Telecom Corp. Ltd. + .................. 2,901,100 1,093
CNOOC Ltd. + ................................ 1,171,400 985
Denway Motors Ltd. + ........................ 1,720,700 637
Global Bio-chem Technology Group Co. Ltd. ... 1,506,800 442
GOME Electrical Appliances Holdings Ltd. + .. 507,000 437
Huandian Power International Corp. .......... 2,861,800 960
Huaneng Power International, Inc. + ......... 569,900 448
Industrial & Commercial Bank of China ^ ..... 662,000 296
Moulin Global Eyecare Holdings Ltd. ^ # ..... 96,000 --
Panva Gas Holdings Ltd. ^ ................... 337,000 160
PetroChina Company Ltd. + ................... 507,000 558
PICC Property and Casualty Company
Ltd. ^ + .................................. 898,000 321
Shanghai Industrial Holdings Ltd. ........... 232,900 453
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Shenzhen Investment Ltd. + .................. 701,000 $ 276
Sinotrans Ltd. .............................. 1,130,000 386
Texwinca Holdings Ltd. ...................... 302,000 198
Weiqiao Textile Co. Ltd. .................... 421,600 579
Yanzhou Coal Mining Co Ltd. + ............... 519,800 341
---------
TOTAL HONG KONG/CHINA ........................ 13,082
---------
HUNGARY - 0.64%
COMMON STOCKS - 0.64%
Gedeon Richter Rt. .......................... 2,371 497
Magyar Telekom Telecommunications PLC ^ ..... 109,100 508
---------
TOTAL HUNGARY ................................ 1,005
---------
INDIA - 7.72%
COMMON STOCKS - 7.72%
ABB Ltd. .................................... 6,200 493
Andhra Bank ^ ............................... 52,010 108
Bharat Electronics Ltd. ..................... 22,100 1,186
Bharat Petroleum Corporation Ltd. ^ ......... 67,633 605
Bharti Airtel Ltd. ^ ........................ 24,700 291
Cipla, Ltd. ................................. 41,375 241
Container Corp. ^ ........................... 5,900 266
GAIL (India) Ltd. ^ ......................... 32,000 181
GAIL India Ltd., GDR ++ ..................... 6,700 225
Glenmark Pharmaceuticals Ltd. ............... 22,300 206
Gujarat Ambuja Cements Ltd. ................. 68,750 180
HCL Technologies Ltd. ^ ..................... 19,000 263
HDFC Bank Ltd. .............................. 19,700 439
Hindalco Industries Ltd. ^ .................. 19,080 80
Hindalco Industries Ltd., GDR ++ ............ 162,100 673
Hindalco Industries Ltd., Sponsored GDR ++ .. 19,250 45
Hindustan Lever Ltd. ........................ 84,900 446
Hindustan Petroleum Corporation Ltd. ^ ...... 83,900 605
Housing Development Finance Corp. ........... 8,700 283
ICICI Bank Ltd., ADR ........................ 6,100 214
Infosys Technologies Ltd. ^ ................. 16,800 781
ITC Ltd. .................................... 39,000 165
ITC Ltd., GDR ^ ............................. 22,500 94
Mahanagar Telephone Nigam Ltd. .............. 133,680 417
Mahanagar Telephone Nigam Ltd., ADR ......... 4,500 29
Mahindra & Mahindra Ltd. .................... 25,600 445
Oil & Natural Gas Corp. Ltd. ................ 38,091 689
Punjab National Bank Ltd. ................... 20,000 230
Reliance Energy Ltd. ^ ...................... 11,295 121
Reliance Industries Ltd. ^ .................. 17,560 478
Siemens India Ltd. ^ ........................ 17,300 467
State Bank of India Ltd., GDR ++ ............ 15,000 945
Union Bank of India ^ ....................... 4,241 12
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
UTI Bank Ltd. ............................... 26,000 $ 252
---------
TOTAL INDIA .................................. 12,155
---------
INDONESIA - 2.07%
COMMON STOCKS - 2.07%
Bank Central Asia ........................... 508,500 260
Indosat Tbk PT .............................. 386,900 221
PT Astra International Tbk .................. 225,400 331
PT Bank Mandiri ............................. 868,500 260
PT Bank Rakyat Indonesia .................... 472,500 254
PT Gudang Garam Tbk ......................... 347,800 376
PT Indofood Sukses Makmur Tbk ............... 1,236,100 180
PT Perusahaan Gas Negara .................... 151,500 190
PT Telekomunikasi Indonesia Tbk ............. 1,038,000 957
United Tractors Tbk PT ...................... 322,000 231
---------
TOTAL INDONESIA .............................. 3,260
---------
ISRAEL - 1.34%
COMMON STOCKS - 1.34%
Bank Hapoalim BM ............................ 55,680 277
Bank Leumi le-Israel B.M. ................... 53,300 220
Check Point Software Technologies Ltd. ^ .... 23,000 477
Super-Sol Ltd. ^ ............................ 42,590 160
Taro Pharmaceuticals Industries ^ + ......... 16,800 175
Teva Pharmaceutical Industries Ltd., ADR .... 24,100 795
---------
TOTAL ISRAEL ................................. 2,104
---------
LUXEMBOURG - 0.25%
COMMON STOCKS - 0.25%
Tenaris SA, ADR ............................. 10,100 390
---------
MALAYSIA - 2.38%
COMMON STOCKS - 2.38%
AMMB Holdings Berhad ........................ 453,000 331
Bandar Raya Developments Berhad ............. 77,000 24
Commerce Asset-Holding Berhad ............... 47,300 89
Gamuda Berhad ............................... 334,600 363
Genting Berhad .............................. 68,200 500
Malayan Banking Berhad ...................... 252,500 774
MK Land Holdings Berhad ..................... 103,300 14
Proton Holdings Berhad ...................... 85,100 111
Resorts World Berhad ........................ 145,800 475
Sime Darby Berhad ........................... 559,100 941
Tenaga Nasional Berhad ...................... 44,500 122
---------
TOTAL MALAYSIA ............................... 3,744
---------
MEXICO - 8.18%
COMMON STOCKS - 8.18%
America Movil S.A. de C.V., ADR ............. 63,865 2,738
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Cemex SAB de CV ^ + ......................... 115,368 $ 355
Coca-Cola Femsa, S.A. de C.V., ADR .......... 25,135 873
Consorcio Ara, S.A. de C.V. ................. 14,400 82
Controladora Commercial Mexicana S.A. de
C.V. ...................................... 314,500 639
Corp GEO SA de CV ^ + ....................... 82,000 376
Desc S.A. de C.V. ^ + ....................... 23,700 29
Embotelladoras Arca S.A. + .................. 73,400 225
Grupo Aeroportuario del Sureste SAB de CV,
ADR ....................................... 11,780 447
Grupo Continential, S.A. .................... 224,450 459
Grupo Financiero Banorte, S.A. de C.V. ...... 156,900 569
Grupo Televisa, S.A., ADR ................... 90,900 2,243
Kimberly-Clark de Mexico, S.A. de C.V. + .... 67,400 282
Organizacion Soriana SAB de CV .............. 17,000 98
Telefonos de Mexico, S.A. de C.V., ADR ...... 36,980 976
Wal-Mart de Mexico, S.A. de C.V. ............ 634,284 2,206
Wal-Mart de Mexico, S.A. de C.V., ADR ....... 8,355 290
---------
TOTAL MEXICO ................................. 12,887
---------
MOROCCO - 0.42%
COMMON STOCKS - 0.42%
Banque Maroc du Commerce Exterieur .......... 2,790 354
ONA (Omnium Nord Africain) .................. 1,940 308
---------
TOTAL MOROCCO ................................ 662
---------
PERU - 0.25%
COMMON STOCKS - 0.25%
Credicorp Ltd. .............................. 9,300 392
---------
PHILIPPINES - 0.93%
COMMON STOCKS - 0.93%
ABS-CBN Broadcasting Corp. ^ ................ 271,500 116
Ayala Corp. ................................. 16,980 167
Banco De Oro Universal Bank ^ ............... 130,600 113
Banco De Oro Universal Bank, GDR ^ ++ ....... 5,500 93
Bank of the Philippine Islands .............. 347,723 432
Manila Electric Co. ^ ....................... 218,000 138
Philippine Long Distance Telephone Co. ^ .... 3,800 180
SM Prime Holdings, Inc. ..................... 1,208,000 221
---------
TOTAL PHILIPPINES ............................ 1,460
---------
POLAND - 1.93%
COMMON STOCKS - 1.93%
Bank Millennium SA .......................... 119,093 272
Bank Pekao SA ............................... 11,083 748
Polski Koncern Naftowy Orlen S.A. ........... 12,087 192
Powszechna Kasa Oszczednosci Bank Polski .... 48,015 606
Telekomunikacja Polska SA ................... 67,600 497
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
TVN SA ^ .................................... 19,321 $ 733
---------
TOTAL POLAND ................................. 3,048
---------
RUSSIA - 8.30%
COMMON STOCKS - 8.30%
CTC Media, Inc. ^ ........................... 24,100 585
Efes Breweries International NV ^ + ......... 6,282 192
JSC Surgutneftegaz, ADR + ................... 6,770 428
LUKOIL Oil Co., ADR ......................... 39,588 3,203
Mining and Metallurgical Company Norilsk
Nickel, ADR ............................... 2,900 428
NovaTek OAO, GDR + .......................... 21,407 1,246
Novolipetsk Steel, GDR ++ ................... 11,700 236
RAO Gazprom, ADR ............................ 72,349 3,065
Sberbank RF, GDR + .......................... 7,600 1,710
Trubnaya Metallurgicheskaya Kompaniya Oao,
GDR ^ ++ .................................. 17,623 395
Unified Energy System, GDR .................. 12,558 946
Wimm-Bill-Dann Foods, ADR + ................. 15,200 641
---------
TOTAL RUSSIA ................................. 13,075
---------
SOUTH AFRICA - 7.14%
COMMON STOCKS - 7.14%
African Oxygen Ltd. ......................... 62,100 260
Alexander Forbes Ltd. ....................... 144,087 295
Aspen Pharmacare Holdings Ltd. .............. 101,620 462
Aveng Ltd. .................................. 129,570 549
Bidvest Group Ltd. .......................... 30,704 509
Edgars Consolidated Stores Ltd. ............. 77,000 384
Gold Fields Ltd. ............................ 19,000 315
Gold Fields Ltd., ADR + ..................... 20,870 350
Group Five Ltd. ............................. 52,511 269
Harmony Gold Mining Company Ltd. ^ .......... 9,729 147
Harmony Gold Mining Company Ltd., ADR ^ + ... 4,787 74
Impala Platinum Holdings Ltd. ............... 1,619 285
Massmart Holdings Ltd. ...................... 51,000 411
Murray & Roberts Holdings Ltd. .............. 68,050 351
Nampak Ltd. ................................. 262,600 688
Naspers Ltd. ................................ 47,950 868
Nedbank Group Ltd. .......................... 76,372 1,264
Reunert Ltd. ................................ 39,190 420
Sanlam Ltd. ................................. 361,980 860
Sappi Ltd. .................................. 74,420 1,062
Sasol Ltd. .................................. 21,430 735
Steinhoff International Holdings Ltd. ....... 65,659 214
Tiger Brands Ltd. ........................... 22,657 471
---------
TOTAL SOUTH AFRICA ........................... 11,243
---------
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
SOUTH KOREA - 14.88%
COMMON STOCKS - 14.49%
Amorepacific Corp. ^ ........................ 500 $ 259
CDNetworks Co. Ltd. ^ ....................... 2,310 77
Cheil Communications, Inc. .................. 915 201
Cheil Industries, Inc. ...................... 6,200 258
Daelim Industrial Company Ltd. .............. 4,322 331
Daewoo Heavy Industries and Machinery Ltd. .. 7,630 147
GS Holdings Corp. ........................... 5,470 191
Hanwha Chemical Corp. ....................... 44,390 499
The Hite Co., Ltd. .......................... 2,115 251
Hynix Semiconductor, Inc. ^ ................. 11,910 432
Hyundai Department Store Co. Ltd. ........... 6,076 509
Hyundai Engineering & Construction Co. Ltd. . 1,982 263
Hyundai Heavy Industries .................... 470 69
Hyundai Mobis ............................... 3,530 345
Hyundai Motor Company Ltd. .................. 9,160 745
Industrial Bank of Korea .................... 11,070 194
Kookmin Bank ................................ 18,071 1,436
Kookmin Bank, ADR ........................... 4,350 345
Korea Electric Power Corp. .................. 33,295 1,286
Korea Electric Power Corp., ADR ............. 7,000 138
Korea Exchange Bank Credit ^ ................ 9,410 125
Korea Zinc Co. Ltd. ......................... 2,740 302
KT Corp. .................................... 2,790 127
KT Corp., ADR ............................... 38,600 864
Kumho Tire Co., Inc. ........................ 43,380 525
Kumho Tire Company, Inc., GDR++ ............. 9,900 56
LG Chemical ................................. 17,520 715
LG Construction Co. ......................... 5,850 455
LG Electronics, Inc. ........................ 13,670 827
LG Telecom Ltd. ^ ........................... 23,816 276
LG.Philips LCD Co. Ltd. ^ ................... 11,610 370
LG.Philips LCD Co. Ltd., ADR ^ + ............ 1,500 24
Lotte Shopping Co. Ltd. ..................... 2,299 871
NHN Corp. ................................... 2,710 269
Orion Corp. ................................. 1,455 394
POSCO ....................................... 2,420 672
POSCO, ADR .................................. 3,170 224
Samsung Electronics Co. Ltd. ................ 4,592 2,978
Samsung Fire & Marine Insurance Co. Ltd. .... 2,900 449
Samsung SDI Co. Ltd. ........................ 3,336 241
Shinhan Financial Group Company Ltd. ........ 25,930 1,196
Shinsegae Co. Ltd. .......................... 482 278
SK Corp. .................................... 9,636 707
SK Telecom Co. Ltd., ADR .................... 39,430 949
SK Telecom Company Ltd. ..................... 3,097 672
Woongjin Coway Co. Ltd. ..................... 11,230 295
---------
TOTAL COMMON STOCKS 22,837
---------
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
PREFERRED STOCKS - 0.39%
Hyundai Motor Co. ........................... 4,750 $ 224
Samsung Electronics Co. Ltd. ................ 798 387
---------
TOTAL PREFERRED STOCKS 611
---------
TOTAL SOUTH KOREA 23,448
---------
TAIWAN - 10.29%
COMMON STOCKS - 10.29%
Accton Technology Corp. ^ ................... 9,000 5
Acer, Inc. .................................. 131,000 237
Advanced Semiconductor Engineering, Inc. .... 92,118 85
Asustek Computer, Inc. ...................... 36,000 87
Benq Corp. .................................. 603,550 299
Catcher Technology Co. Ltd. ................. 30,734 265
Cathay Financial Holding Co. Ltd. ........... 84,910 165
Chang Hwa Commercial Bank ^ ................. 240,000 149
China Motor Corp. ........................... 432,707 371
Chinatrust Financial Holding Co. Ltd. ....... 996,149 723
Chunghwa Telecom Co. Ltd., ADR .............. 50,470 923
Compal Electronics, Inc. .................... 1,149,065 962
Delta Electronics, Inc. ..................... 282,966 800
Everlight Electronics Co. Ltd. .............. 109,140 287
Far Eastern Textile Co. Ltd. ................ 405,900 308
First Financial Holding Co. Ltd. ............ 1,201,506 824
Fubon Financial Holding Co. Ltd. ............ 463,000 377
High Tech Computer Corp. .................... 19,200 476
HON HAI Precision Industry Co. Ltd. ......... 10,006 65
InnoLux Display Corp. ^ ..................... 10,000 16
King Slide Works Co., Ltd ................... 13,200 69
Largan Precision Co. Ltd. ................... 16,965 338
MediaTek, Inc. .............................. 58,300 569
Nien Hsing Textile Co. Ltd. ................. 296,000 164
Nien Made Enterprise Company Ltd. ........... 211,380 180
Optimax Technology Corp. .................... 284,090 190
Powerchip Semiconductor Corp. ............... 346,617 214
Quanta Computer, Inc. ....................... 717,113 1,063
Radiant Opto-Electronics Corp. .............. 124,650 170
Shin Kong Financial Holding Company Ltd. .... 246,391 218
SinoPac Financial Holdings Co. Ltd. ......... 1,894,987 957
Sunplus Technology Co. Ltd. ................. 347,662 344
Taishin Financial Holdings Co. Ltd. ......... 102,758 53
Taiwan Cement Corp. ......................... 364,827 288
Taiwan Mobile Co. Ltd. ...................... 98,662 98
Taiwan Semiconductor Manufacturing Co.
Ltd. ...................................... 339,000 622
Transcend Information, Inc. ................. 94,485 217
Tripod Technology Corp. ..................... 68,820 214
Tsann Keun Enterprise Co. Ltd. .............. 96,677 81
United Microelectronics Corp. ............... 3,558,106 1,984
United Microelectronics Corp., ADR + ........ 22,124 67
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Wistron Corp. ............................... 154,422 $ 179
Yaego Corp. ^ ............................... 1,402,000 514
---------
TOTAL TAIWAN 16,217
---------
THAILAND - 2.02%
COMMON STOCKS - 2.02%
Advanced Info Services PCL .................. 23,000 57
Bangkok Bank PCL ............................ 50,400 165
Charoen Pokphand Foods PCL # ................ 2,160,400 292
CP Seven Eleven PCL # ....................... 1,424,800 250
Delta Electronics PCL ....................... 289,200 143
Kasikornbank PCL ............................ 367,200 721
Krung Thai Bank PCL ......................... 1,607,700 574
PTT Exploration & Production PCL ............ 30,600 89
PTT Public Company Ltd. ..................... 32,800 197
Siam Commercial Bank PCL .................... 320,500 568
Siam Makro PCL # ............................ 59,000 126
---------
TOTAL THAILAND 3,182
---------
TURKEY - 2.00%
COMMON STOCKS - 2.00%
BIM Birlesik Magazalar A.S. ................. 9,880 437
Dogan Yayin Holding ^ ....................... 133,163 512
Turkiye Garanti Bankasi A.S. ................ 171,042 628
Turkiye Is Bankasi (Isbank) ................. 142,370 923
Turkiye Vakiflar Bankasi T.A.O. ............. 63,400 333
Yapi ve Kredi Bankasi A.S. ^ ................ 163,856 315
---------
TOTAL TURKEY 3,148
---------
SHORT TERM INVESTMENTS - 5.51%
American Beacon Money Market Select
Fund ss ................................... 8,171,897 8,172
PAR
AMOUNT
---------
U.S. Treasury Bill,
4.71%, Due 12/7/2006 * .................... $ 515 512
---------
TOTAL SHORT TERM INVESTMENTS 8,684
---------
SHARES
------------
SECURITIES LENDING COLLATERAL - 7.53%
American Beacon Cash Plus Trust ss .......... 8,164,059 8,164
American Beacon Money Market Select
Fund ss ................................... 3,700,117 3,700
---------
TOTAL SECURITIES LENDING COLLATERAL 11,864
---------
TOTAL INVESTMENTS 106.27% - (COST $131,367) 167,410
LIABILITIES, NET OF OTHER ASSETS - (6.27%) (9,871)
---------
TOTAL NET ASSETS - 100.00% $ 157,539
=========
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
Percentages are stated as a percent of net assets.
^ Non-income producing security.
+ All or a portion of this security is on loan at October 31, 2006.
++ 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 $3,250 or 2.06% of net assets. The
Fund has no right to demand registration of these securities.
# Valued at fair value pursuant to procedures approved by the Board of
Trustees.
ss. The Fund/Trust is affiliated by having the same investment advisor.
* At October 31, 2006, security pledged as collateral for open futures
contracts.
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
UNREALIZED
NUMBER OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------------- -------------- -------------- --------------
Emini S&P 500 Index .... 148 Dec 2006 $ 10,236 $ 362
============== ==============
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
(DOLLARS IN THOUSANDS)
SETTLEMENT MARKET UNREALIZED
DATE VALUE GAIN/(LOSS)
---------- ---------- -----------
CONTRACTS TO DELIVER
4,518 Brazilian Real ....... 12/13/2006 $ 2,092 $ (54)
15,642 South African Rand ... 11/14/2006 2,121 165
TOTAL CONTRACTS TO DELIVER
---------- -----------
(RECEIVABLE AMOUNT $4,324) $ 4,213 $ 111
---------- -----------
NET CURRENCY FLUCTUATION $ 111
===========
SECTOR DIVERSIFICATION
Percent of
Net Assets
----------
Consumer Discretionary .............. 13.39%
Consumer Staples .................... 4.63%
Energy .............................. 11.23%
Financials .......................... 20.31%
Health Care ......................... 1.79%
Industrials ......................... 9.41%
Information Technology .............. 10.05%
Materials ........................... 7.14%
Telecommunication Services .......... 10.17%
Utilities ........................... 5.11%
Short Term Investments .............. 13.04%
Liabilities, Net of Other Assets .... (6.27)%
-----------
100.00%
===========
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
----------- -----------
(DOLLARS IN THOUSANDS)
CORPORATE OBLIGATIONS - 93.98%
AUTO COMPONENTS - 3.78%
Asbury Automotive Group, Inc., 9.00%, Due 6/15/2012 ............. $ 2,075 $ 2,148
The Goodyear Tire & Rubber Co., 11.25%, Due 3/1/2011 ............ 1,000 1,100
Pep Boys, Inc., 7.50%, Due 12/15/2014 ........................... 1,700 1,522
Stanadyne Corp., 10.00%, Due 8/15/2014 .......................... 1,000 1,020
Tenneco, Inc.,
10.25%, Due 7/15/2013 ......................................... 1,400 1,533
8.625%, Due 11/15/2014 + ...................................... 1,000 1,007
TriMas Corp., 9.875%, Due 6/15/2012 ............................. 1,250 1,178
United Components, Inc., 9.375%, Due 6/15/2013 .................. 2,250 2,272
-----------
11,780
-----------
BASIC MATERIALS - 1.38%
Huntsman International LLC, 7.875%, Due 11/13/2014 ++ ........... 100 100
Johnson Diversey, Inc., 9.625%, Due 5/15/2012 ................... 200 204
Lyondell Chemical Co.,
8.00%, Due 9/15/2014 .......................................... 300 307
8.25%, Due 9/15/2016 .......................................... 1,250 1,287
NewMarket Corp., 8.875%, Due 5/1/2010 ........................... 1,000 1,040
PNA Group, Inc., 10.75%, Due 9/1/2016 ++ ........................ 1,025 1,056
Verso Paper Holdings LLC, 9.125%, Due 8/1/2014 ++ ............... 300 305
-----------
4,299
-----------
COMMERCIAL SERVICES - 1.04%
Iron Mountain, Inc.,
6.625%, Due 1/1/2016 .......................................... 2,000 1,900
8.75%, Due 7/15/2018 .......................................... 300 317
Mobile Services Group, Inc., 9.75%, Due 8/1/2014 ++ ............. 1,000 1,036
-----------
3,253
-----------
COMMUNICATIONS - 11.64%
Cadmus Communications Corp., 8.375%, Due 6/15/2014 .............. 1,700 1,645
CanWest Media, Inc., 8.00%, Due 9/15/2012 ....................... 2,325 2,351
Cch I LLC, 11.00%, Due 10/1/2015 ................................ 100 96
Charter Communications Holdings, 10.25%, Due 9/15/2010 .......... 2,725 2,814
CSC Holdings, Inc.,
7.25%, Due 7/15/2008 .......................................... 2,150 2,174
7.625%, Due 4/1/2011 .......................................... 200 202
Dex Media, Inc.,
9.875%, Due 11/15/2009 ........................................ 500 526
9.875%, Due 8/15/2013 ......................................... 100 109
Zero Coupon, Due 11/15/2013 ^ # ............................... 2,250 1,960
Echostar DBS Corp.,
6.375%, Due 10/1/2011 ......................................... 100 99
7.00%, Due 10/1/2013 ++ ....................................... 2,000 1,982
6.625%, Due 10/1/2014 ......................................... 1,500 1,447
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
----------- -----------
(DOLLARS IN THOUSANDS)
7.125%, Due 2/1/2016 ++ ....................................... $ 200 $ 196
FTD, Inc., 7.75%, Due 2/15/2014 ................................. 923 918
Houghton Mifflin Co., 8.25%, Due 2/1/2011 ....................... 2,405 2,477
Insight Communications Co., Inc., 12.25%, Due 2/15/2011 ......... 2,875 3,033
Intelsat Bermuda Ltd., 9.25%, Due 6/15/2016 ++ .................. 1,600 1,708
Intelsat Subsidiary Holding Co Ltd., 8.25%, Due 1/15/2013 ....... 800 815
Kabel Deutschland GMBH, 10.625%, Due 7/1/2014 ++ ................ 2,125 2,298
L-3 Communications Corp., 6.125%, Due 7/15/2013 ................. 400 394
Lamar Media Corp., 7.25%, Due 1/1/2013 .......................... 300 301
Level 3 Communications, Inc., 11.00%, Due 3/15/2008 ............. 1,400 1,438
Liberty Media LLC, 5.70%, Due 5/15/2013 ......................... 300 283
LIN Television Corp., 6.50%, Due 5/15/2013 ...................... 300 285
Mastec, Inc., 7.75%, Due 2/1/2008 ............................... 1,500 1,500
Network Communications, Inc., 10.75%, Due 12/1/2013 ............. 1,000 1,006
Nortel Networks Ltd., 9.624%, Due 7/15/2011 ++ # ................ 1,750 1,807
Quebecor Media, Inc., 7.75%, Due 3/15/2016 ...................... 100 101
Qwest Communications International, Inc., 7.50%, Due 2/15/2014 .. 300 306
Radio One, Inc., 6.375%, Due 2/15/2013 .......................... 200 186
Rogers Wireless, Inc., 7.25%, Due 12/15/2012 .................... 200 210
West Corp., 9.50%, Due 10/15/2014 ++ ............................ 1,650 1,646
-----------
36,313
-----------
CONSTRUCTION & ENGINEERING - 1.29%
Beazer Homes USA, Inc.,
8.375%, Due 4/15/2012 ......................................... 1,250 1,278
8.125%, Due 6/15/2016 + ....................................... 300 305
KB Home,
7.75%, Due 2/1/2010 ........................................... 1,000 1,013
9.50%, Due 2/15/2011 .......................................... 1,200 1,242
6.25%, Due 6/15/2015 .......................................... 200 188
-----------
4,026
-----------
CONSUMER DISCRETIONARY - 2.38%
Commercial Vehicle Group, Inc., 8.00%, Due 7/1/2013 ............. 300 291
Fresenius Medical Care Capital Trust IV, 7.875%, Due 6/15/2011 .. 300 309
Levi Strauss & Co., 12.25%, Due 12/15/2012 ...................... 1,500 1,673
Simmons Bedding Co., 7.875%, Due 1/15/2014 + .................... 2,000 1,975
Spectrum Brands, Inc., 7.375%, Due 2/1/2015 ..................... 200 162
TRW Automotive, Inc., 9.375%, Due 2/15/2013 ..................... 2,825 3,026
-----------
7,436
-----------
CONSUMER STAPLES - 2.88%
Avis Budget Car Rental LLC, 7.625%, Due 5/15/2014 ++ ............ 1,000 977
Blyth, Inc., 5.50%, Due 11/1/2013 ............................... 1,500 1,230
Dole Food Co., Inc., 7.25%, Due 6/15/2010 ....................... 100 93
Encore Medical Corp., 9.75%, Due 10/1/2012 ...................... 3,500 3,929
Prestige Brands, Inc., 9.25%, Due 4/15/2012 ..................... 2,000 2,035
Royal Caribbean Cruises Ltd., 7.25%, Due 3/15/2018 .............. 400 398
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
----------- -----------
(DOLLARS IN THOUSANDS)
Smithfield Foods, Inc., 7.75%, Due 5/15/2013 .................... $ 300 $ 310
-----------
8,972
-----------
ELECTRIC/GAS - 0.40%
Allegheny Energy Supply Co., LLC, 8.25%, Due 4/15/2012 ++ ....... 100 109
Aquila, Inc., 9.95%, Due 2/1/2011 ............................... 300 331
Hanover Compressor Co., 7.50%, Due 4/15/2013 .................... 200 200
Midwest Generation LLC, 8.75%, Due 5/1/2034 ..................... 300 324
TXU Corp., 5.55%, Due 11/15/2014 ................................ 300 286
-----------
1,250
-----------
ENERGY - 9.39%
AmeriGas Partners LP/AmeriGas Eagle Finance Corp.,
7.125%, Due 5/20/2016 ......................................... 1,400 1,383
AmeriGas Partners, L.P., 7.25%, Due 5/20/2015 + ................. 1,225 1,222
Browning-Ferris Industries, Inc., 9.25%, Due 5/1/2021 ........... 1,250 1,313
Chesapeake Energy Corp., 7.625%, Due 7/15/2013 .................. 3,400 3,523
Copano Energy LLC, 8.125%, Due 3/1/2016 ......................... 300 305
Dynegy Holdings, Inc., 8.375%, Due 5/1/2016 ..................... 300 308
El Paso Corp., 7.875%, Due 6/15/2012 ............................ 200 208
El Paso Natural Gas Co., 7.625%, Due 8/1/2010 ................... 200 207
Energy Partners Ltd., 8.75%, Due 8/1/2010 ....................... 1,300 1,352
Holly Energy Partners, 6.25%, Due 3/1/2015 ...................... 1,450 1,352
Inergy L.P./Inergy Finance Corp., 6.875%, Due 12/15/2014 ........ 2,224 2,152
Mariner Energy, Inc., 7.50%, Due 4/15/2013 ++ ................... 300 288
MarkWest Energy Partners LP / MarkWest Energy Finance Corp.,
6.875%, Due 11/1/2014 ......................................... 300 282
Massey Energy Co., 6.875%, Due 12/15/2013 ....................... 2,700 2,531
Mirant Americas Generation LLC, 8.30%, Due 5/1/2011 ............. 2,000 2,025
Mirant North America LLC, 7.375%, Due 12/31/2013 ................ 100 101
Mission Energy Holding Co., 13.50%, Due 7/15/2008 ............... 1,145 1,277
NRG Energy, Inc.,
7.25%, Due 2/1/2014 ........................................... 200 202
7.375%, Due 2/1/2016 .......................................... 1,200 1,214
Peabody Energy Corp.,
6.875%, Due 3/15/2013 ......................................... 100 102
7.375%, Due 11/1/2016 ......................................... 100 104
PetroHawk Energy Corp., 9.125%, Due 7/15/2013 ++ ................ 1,125 1,147
PetroQuest Energy, Inc., 10.375%, Due 5/15/2012 ................. 3,000 3,120
Pogo Producing Co., 7.875%, Due 5/1/2013 ++ ..................... 300 305
Swift Energy Co.,
7.625%, Due 7/15/2011 ......................................... 900 902
9.375%, Due 5/1/2012 .......................................... 1,000 1,053
Tenaska, Inc., 6.528%, Due 12/30/2014 ++ ........................ 1,322 1,303
-----------
29,281
-----------
FINANCE - 4.84%
American Real Estate Partners, L.P., 7.125%, Due 2/15/2013 ...... 1,000 997
CPI International, Inc., 11.298%, Due 2/1/2015 # ................ 1,750 1,820
Crum & Forster Holdings Corp., 10.375%, Due 6/15/2013 + ......... 1,600 1,660
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
----------- -----------
(DOLLARS IN THOUSANDS)
E*Trade Financial Corp., 8.00%, Due 6/15/2011 ................... $ 3,075 $ 3,190
National Health Investors, Inc., 7.30%, Due 7/16/2007 ........... 1,000 999
Rainbow National Services LLC, 10.375%, Due 9/1/2014 ++ ......... 950 1,057
Residential Capital Corp., 7.204%, Due 4/17/2009 ++ # ........... 1,900 1,904
Stripes Acquisition LLC, 10.625%, Due 12/15/2013 ++ ............. 1,750 1,899
Thornburg Mortgage, Inc., 8.00%, Due 5/15/2013 .................. 1,610 1,586
-----------
15,112
-----------
FOOD & DRUG RETAILING - 0.98%
Rite Aid Corp.,
8.125%, Due 5/1/2010 .......................................... 2,000 2,020
9.50%, Due 2/15/2011 .......................................... 1,000 1,040
-----------
3,060
-----------
FOOD/RESTAURANT - 1.35%
Cott Beverages USA, Inc., 8.00%, Due 12/15/2011 ................. 1,700 1,738
Pilgrim's Pride Corp., 9.625%, Due 9/15/2011 .................... 2,348 2,460
-----------
4,198
-----------
HEALTH CARE - 4.96%
Athena Neurosciences Financial LLC, 7.25%, Due 2/21/2008 ........ 2,450 2,450
DaVita, Inc., 7.25%, Due 3/15/2015 .............................. 2,400 2,388
HCA, Inc., 6.50%, Due 2/15/2016 ................................. 200 159
Interactive Health, 8.00%, Due 4/1/2011 ++ ...................... 1,259 969
Omnicare, Inc., 6.875%, Due 12/15/2015 .......................... 2,050 2,009
Select Medical Corp., 7.625%, Due 2/1/2015 ...................... 850 712
Skilled Healthcare Group, Inc., 11.00%, Due 1/15/2014 ++ ........ 1,300 1,430
Tenet Healthcare Corp.,
6.375%, Due 12/1/2011 ......................................... 100 88
9.875%, Due 7/1/2014 .......................................... 100 98
Triad Hospitals, Inc., 7.00%, Due 11/15/2013 .................... 1,250 1,216
US Oncology Holdings, Inc., 10.675%, Due 3/15/2015 # ............ 1,000 1,022
US Oncology, Inc.,
9.00%, Due 8/15/2012 .......................................... 1,500 1,554
10.75%, Due 8/15/2014 ......................................... 1,000 1,100
Vanguard Health Holding Co. II LLC, 9.00%, Due 10/1/2014 ........ 300 290
-----------
15,485
-----------
HOTELS, RESTAURANTS & LEISURE - 6.58%
AMC Entertainment, Inc.,
9.655%, Due 8/15/2010 # ....................................... 1,275 1,316
9.875%, Due 2/1/2012 .......................................... 1,300 1,344
AMF Bowling Worldwide, Inc., 10.00%, Due 3/1/2010 ............... 1,950 2,028
Cinemark, Inc., Zero Coupon, Due 3/15/2014 ^ # .................. 1,350 1,099
Host Hotels & Resorts LP, 6.875%, Due 11/1/2014 ++ .............. 100 100
Host Marriott LP, 7.125%, Due 11/1/2013 ......................... 400 405
Majestic Star Casino LLC, 9.50%, Due 10/15/2010 ................. 1,500 1,515
MGM Mirage,
6.75%, Due 4/1/2013 ........................................... 500 485
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
----------- -----------
(DOLLARS IN THOUSANDS)
6.875%, Due 4/1/2016 .......................................... $ 2,750 $ 2,612
San Pasqual Casino Development Group, 8.00%, Due 9/15/2013 ++ ... 1,800 1,836
Station Casinos, Inc.,
6.875%, Due 3/1/2016 .......................................... 400 367
7.75%, Due 8/15/2016 + ........................................ 2,100 2,158
Travelport, Inc.,
9.875%, Due 9/1/2014 ++ ....................................... 500 493
11.875%, Due 9/1/2016 ++ ...................................... 1,000 985
Turning Stone Casino Resort, 9.125%, Due 12/15/2010 ++ .......... 3,710 3,784
-----------
20,527
-----------
INDUSTRIALS - 21.80%
ACIH, Inc., Zero Coupon, Due 12/15/2012 ^ + ++ # ................ 1,500 1,020
Ahern Rentals, Inc., 9.25%, Due 8/15/2013 ....................... 1,500 1,541
Ainsworth Lumber Company Ltd., 6.75%, Due 3/15/2014 ............. 1,000 705
Allied Waste North America, Inc., 5.75%, Due 2/15/2011 .......... 300 289
Alpha Natural Resources, LLC, 10.00%, Due 6/1/2012 .............. 2,000 2,150
Altra Industrial Motion, Inc., 9.00%, Due 12/1/2011 ............. 1,575 1,606
BCP Crystal US Holdings Corp., 9.625%, Due 6/15/2014 ............ 200 219
Buckeye Technologies, Inc., 8.00%, Due 10/15/2010 ............... 100 98
Case New Holland, Inc.,
9.25%, Due 8/1/2011 ........................................... 2,725 2,892
7.125%, Due 3/1/2014 .......................................... 100 101
Casella Waste Systems, Inc., 9.75%, Due 2/1/2013 ................ 1,545 1,622
CHC Helicopter Corp., 7.375%, Due 5/1/2014 ...................... 1,787 1,707
Clean Harbors, Inc., 11.25%, Due 7/15/2012 ...................... 650 731
Communications & Power Industries, Inc., 8.00%, Due 2/1/2012 .... 1,500 1,508
Crown Americas LLC, 7.75%, Due 11/15/2015 ....................... 300 308
Crystal US Holdings 3 LLC / Crystal US Sub 3 Corp,
10.50%, Due 10/1/2014 # ....................................... 3,990 3,352
DRS Technologies, Inc., 6.875%, Due 11/1/2013 ................... 300 300
Dycom Industries, Inc., 8.125%, Due 10/15/2015 .................. 1,500 1,553
Ford Motor Co., 8.875%, Due 1/15/2022 ........................... 200 173
Ford Motor Credit Co.,
5.625%, Due 10/1/2008 ......................................... 400 385
5.80%, Due 1/12/2009 .......................................... 1,700 1,624
7.375%, Due 10/28/2009 ........................................ 1,000 973
9.875%, Due 8/10/2011 ......................................... 250 258
GenCorp, Inc., 9.50%, Due 8/15/2013 ............................. 1,500 1,560
General Motors Acceptance Corp.,
6.875%, Due 9/15/2011 ......................................... 3,525 3,549
6.75%, Due 12/1/2014 + ........................................ 600 595
General Motors Corp., 7.70%, Due 4/15/2016 + .................... 1,300 1,159
Graphic Packaging International Corp.,
8.50%, Due 8/15/2011 .......................................... 100 103
9.50%, Due 8/15/2013 .......................................... 200 205
The Greenbrier Companies, Inc., 8.375%, Due 5/15/2015 ........... 1,625 1,645
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
----------- -----------
(DOLLARS IN THOUSANDS)
GSC Holdings Corp., 8.00%, Due 10/1/2012 ........................ $ 200 $ 207
GST Equipment Funding, Inc., 13.25%, Due 5/1/2007 ^ ss. * ....... 2,500 --
Intertape Polymer US, Inc., 8.50%, Due 8/1/2014 ................. 1,300 1,170
Jacuzzi Brands, Inc., 9.625%, Due 7/1/2010 ...................... 1,060 1,136
Jefferson Smurfit Corp., 8.25%, Due 10/1/2012 + ................. 1,000 970
Kinetek, Inc., 10.75%, Due 11/15/2006 ........................... 3,000 3,000
MGM Mirage, 6.625%, Due 7/15/2015 ............................... 500 473
NBTY, Inc., 7.125%, Due 10/1/2015 ............................... 1,800 1,751
Nell AF SARL, 8.375%, Due 8/15/2015 + ++ ........................ 1,800 1,827
Nortek, Inc., 8.50%, Due 9/1/2014 ............................... 200 191
Owens-Brockway Glass Containers, Inc.,
8.75%, Due 11/15/2012 ......................................... 1,500 1,583
8.25%, Due 5/15/2013 .......................................... 1,000 1,030
6.75%, Due 12/1/2014 .......................................... 1,050 1,008
Pinnacle Entertainment, Inc., 8.25%, Due 3/15/2012 .............. 100 101
Pipe Acquisition Finance PLC, 11.67%, Due 12/15/2010 ++ # ....... 1,100 1,111
Plastipak Holdings, Inc., 8.50%, Due 12/15/2015 ++ .............. 1,475 1,527
Polypore, Inc., 8.75%, Due 5/15/2012 + .......................... 725 709
RBS Global, Inc., 9.50%, Due 8/1/2014 ++ ........................ 200 207
Reynolds American, Inc., 7.625%, Due 6/1/2016 ++ ................ 400 425
Samsonite Corp., 8.875%, Due 6/1/2011 ........................... 2,500 2,619
Sanmina-SCI Corp., 8.125%, Due 3/1/2016 ......................... 300 295
Smurfit Kappa Funding PLC, 7.75%, Due 4/1/2015 .................. 200 188
Solectron Corp.,
7.97%, Due 11/15/2006 ......................................... 1,500 1,507
8.00%, Due 3/15/2016 .......................................... 300 302
Stewart & Stevenson LLC, 10.00%, Due 7/15/2014 ++ ............... 1,000 1,012
Superior Essex Communications, 9.00%, Due 4/15/2012 ............. 2,400 2,454
Terex Corp.,
9.25%, Due 7/15/2011 .......................................... 1,000 1,050
7.375%, Due 1/15/2014 + ....................................... 1,760 1,786
United Rentals North America, Inc.,
6.50%, Due 2/15/2012 .......................................... 1,650 1,609
7.75%, Due 11/15/2013 + ....................................... 1,800 1,795
WCA Waste Corp., 9.25%, Due 6/15/2014 ++ ........................ 1,000 1,035
-----------
68,009
-----------
MATERIALS - 8.67%
Abitibi-Consolidated, Inc.,
6.00%, Due 6/20/2013 .......................................... 1,000 795
8.375%, Due 4/1/2015 .......................................... 300 261
BCI US Finance Corp., 10.874%, Due 7/15/2010 ++ # ............... 2,000 2,040
Compass Minerals International, Inc., Zero Coupon,
Due 6/1/2013 ^ # .............................................. 1,825 1,729
Earle M. Jorgensen Co., 9.75%, Due 6/1/2012 ..................... 2,155 2,303
Freeport-McMoRan Copper & Gold, Inc., 6.875%, Due 2/1/2014 ...... 1,500 1,493
Hercules, Inc., 6.75%, Due 10/15/2029 ........................... 1,750 1,693
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
----------- -----------
(DOLLARS IN THOUSANDS)
Hexion US Finance Corp/Hexion Nova Scotia Finance ULC,
9.75%, Due 11/15/2014 ++ ...................................... $ 1,000 $ 997
Ineos Group Holdings Plc, 8.50%, Due 2/15/2016 + ++ ............. 2,000 1,925
Lyondell Chemical Co., 10.875%, Due 5/1/2009 + .................. 2,500 2,550
Nalco Co., 8.875%, Due 11/15/2013 ............................... 400 421
Neenah Paper, Inc., 7.375%, Due 11/15/2014 + .................... 2,450 2,328
The Newark Group, Inc., 9.75%, Due 3/15/2014 .................... 2,200 2,156
Novelis, Inc., 8.25%, Due 2/15/2015 ++ .......................... 400 382
OM Group, Inc., 9.25%, Due 12/15/2011 ........................... 1,750 1,824
Phibro Animal Health Corp., 10.00%, Due 8/1/2013 ++ ............. 1,250 1,288
Rhodia SA, 10.25%, Due 6/1/2010 ................................. 2,525 2,860
-----------
27,045
-----------
MEDIA - 3.48%
Advanstar Communications, Inc.,
10.75%, Due 8/15/2010 ......................................... 1,500 1,614
12.00%, Due 2/15/2011 ......................................... 1,375 1,442
Allbritton Communications Co., 7.75%, Due 12/15/2012 ............ 1,608 1,616
American Media Operations, Inc., 10.25%, Due 5/1/2009 ........... 1,750 1,662
LBI Media, Inc., 10.125%, Due 7/15/2012 ......................... 1,000 1,064
R.H. Donnelley Corp., 8.875%, Due 1/15/2016 ..................... 300 309
The Sheridan Group, Inc., 10.25%, Due 8/15/2011 ................. 2,125 2,168
WMG Acquisition Corp., 7.375%, Due 4/15/2014 .................... 1,000 978
-----------
10,853
-----------
REAL ESTATE - 0.07%
Forest City Enterprises, Inc., 7.625%, Due 6/1/2015 ............. 200 203
-----------
RETAIL - 2.23%
Jostens Holding, 10.25%, Due 12/1/2013 # ........................ 1,900 1,606
Jostens IH Corp., 7.625%, Due 10/1/2012 ......................... 1,050 1,061
Michaels Stores, Inc., 10.00%, Due 11/1/2014 ++ ................. 200 200
Phillips-Van Heusen Corp.,
8.125%, Due 5/1/2013 .......................................... 735 766
7.75%, Due 11/15/2023 ......................................... 1,800 1,836
Rafaella Apparel Group, Inc., 11.25%, Due 6/15/2011 ++ .......... 1,500 1,500
-----------
6,969
-----------
SERVICES - 0.91%
Knowledge Learning Corp, Inc., 7.75%, Due 2/1/2015 ++ ........... 3,000 2,843
-----------
TECHNOLOGY - 1.53%
Celestica, Inc., 7.875%, Due 7/1/2011 + ......................... 2,000 2,020
NXP b.v., 7.875%, Due 10/15/2014 ++ ............................. 400 406
Sungard Data Systems, Inc.,
9.125%, Due 8/15/2013 ......................................... 1,950 2,023
10.25%, Due 8/15/2015 ......................................... 300 314
-----------
4,763
-----------
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
----------- -----------
(DOLLARS IN THOUSANDS)
TELECOMMUNICATION SERVICES - 2.33%
Block Communications, Inc., 8.25%, Due 12/15/2015 ++ ............ $ 2,000 $ 1,970
Cablevision Systems Corp., 8.00%, Due 4/15/2012 ................. 100 97
Dobson Cellular Systems, Inc.,
8.375%, Due 11/1/2011 ++ ...................................... 1,800 1,870
9.875%, Due 11/1/2012 ......................................... 300 324
Inmarsat Finance PLC, Zero Coupon, Due 11/15/2012 ............... 300 268
Millicom International Cellular SA, 10.00%, Due 12/1/2013 ....... 300 323
Rural Cellular Corp., 8.25%, Due 3/15/2012 ...................... 1,000 1,029
Stratos Global Corp., 9.875%, Due 2/15/2013 ++ .................. 1,200 1,080
Windstream Corp., 8.625%, Due 8/1/2016 ++ ....................... 300 324
-----------
7,285
-----------
TELEPHONE - 0.07%
Wind Acquisition Finance SA, 10.75%, Due 12/1/2015 ++ ........... 200 222
-----------
TOTAL CORPORATE OBLIGATIONS 293,184
-----------
SHARES
-----------
SHORT TERM INVESTMENTS - 4.19%
American Beacon Money Market Select Fund @ ...................... 13,082,422 13,082
-----------
SECURITIES LENDING COLLATERAL - 6.49%
AIM Short-Term Investment Company Liquid Asset Fund ............. 333,623 334
PAR
AMOUNT
-----------
Citigroup Global Markets, Inc. Master Note ...................... $ 10,000 10,000
Merrill Lynch Pierce Fenner & Smith, Inc. Tri Party Repo ........ 9,900 9,900
-----------
TOTAL SECURITIES LENDING COLLATERAL 20,234
-----------
TOTAL INVESTMENTS - 104.66% (COST $325,701) $ 326,500
LIABILITIES, NET OF OTHER ASSETS - (4.66%) (14,523)
-----------
TOTAL NET ASSETS - 100.00% $ 311,977
===========
Percentages are stated as a percent of net assets.
^ Non-income producing security.
+ All or a portion of this security is on loan at October 31, 2006.
++ 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 $55,931 or 17.93% of net
assets. The Fund has no right to demand registration of these securities.
# The coupon rate shown on floating or adjustable rate securities represents
the rate at period end. The due date on these types of securities reflects
the final maturity date.
ss. In Default
* Valued at fair value pursuant to procedures approved by the Board of
Trustees.
@ The Fund/Trust is affiliated by having the same investment advisor.
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 4.55%
CONSUMER DISCRETIONARY - 0.62%
AUTOMOBILES - 0.28%
Harley-Davidson, Inc. + ....................... 5,180 $ 356
------------
SPECIALTY RETAIL - 0.34%
The Home Depot, Inc. .......................... 11,500 429
------------
TOTAL CONSUMER DISCRETIONARY 785
------------
FINANCIALS - 0.89%
DIVERSIFIED FINANCIALS - 0.68%
The Goldman Sachs Group, Inc. + ............... 4,500 854
------------
INSURANCE - 0.21%
Manulife Financial Corp. + .................... 8,250 268
------------
TOTAL FINANCIALS 1,122
------------
HEALTH CARE - 0.25%
PHARMACEUTICALS - 0.25%
Pfizer, Inc. .................................. 11,500 306
------------
INDUSTRIALS - 0.27%
COMMERCIAL SERVICES & SUPPLIES - 0.27%
Manpower, Inc. ................................ 5,000 339
------------
INFORMATION TECHNOLOGY - 2.52%
COMMUNICATIONS EQUIPMENT - 0.80%
Cisco Systems, Inc. ^ ......................... 21,180 511
Nokia Corp., ADR .............................. 25,000 497
------------
1,008
------------
IT CONSULTING & SERVICES - 0.74%
Cognizant Technology Solutions Corp. ^ ........ 4,000 301
Infosys Technologies Ltd., ADR + .............. 12,200 636
------------
937
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.40%
Atmel Corp. ^ ................................. 86,500 497
------------
SOFTWARE - 0.29%
Oracle Corp. ^ ................................ 20,000 369
------------
TECHNOLOGY - 0.29%
BEA Systems, Inc. ^ ........................... 22,000 358
------------
TOTAL INFORMATION TECHNOLOGY 3,169
------------
TOTAL COMMON STOCKS 5,721
------------
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
CONVERTIBLE PREFERRED STOCKS -
3.22%
FINANCIALS - 2.65%
BANKS - 0.31%
Washington Mutual, Inc. + ..................... 7,200 $ 389
------------
DIVERSIFIED FINANCIALS - 1.03%
Lazard Ltd. ................................... 10,250 376
Lehman Brothers Holdings, Inc. + .............. 15,300 421
Morgan Stanley Group, Inc. .................... 11,500 499
------------
1,296
------------
INSURANCE - 1.31%
Genworth Financial, Inc. ...................... 16,300 588
MetLife, Inc. ................................. 21,000 622
Travelers Property Casualty Corp. + ........... 17,250 448
------------
1,658
------------
TOTAL FINANCIALS 3,343
------------
INDUSTRIALS - 0.57%
General Motors Corp. .......................... 30,000 712
------------
TOTAL CONVERTIBLE PREFERRED STOCKS 4,055
------------
PAR
AMOUNT
------------
CORPORATE OBLIGATIONS - 33.72%
BANKS - 6.83%
Banco Popular North America, Inc., 4.25%,
Due 4/1/2008 ................................. $ 300 294
Bank of America Corp., 3.375%, Due
2/17/2009 .................................... 350 337
Bank One Corp., 4.90%, Due 4/30/2015 .......... 350 337
Capital One Bank,
4.25%, Due 12/1/2008 ......................... 1,000 980
5.125%, Due 2/15/2014 ........................ 330 325
Citigroup, Inc., 5.125%, Due 2/14/2011 + ...... 1,000 1,000
Credit Suisse First Boston, 6.50%, Due
5/1/2008 ++ .................................. 500 509
ING Bank, NV, 5.125%, Due 5/1/2015 ++ ......... 300 294
National City Bank, 4.50%, Due 3/15/2010 ...... 1,500 1,464
Synovus Financial Corp., 4.875%, Due
2/15/2013 .................................... 350 343
Wachovia Corp., 6.40%, Due 4/1/2008 ........... 1,500 1,525
Washington Mutual, Inc.,
8.25%, Due 4/1/2010 .......................... 500 542
4.625%, Due 4/1/2014 ......................... 700 656
------------
8,606
------------
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
BEVERAGES - 0.24%
Constellation Brands, Inc., 7.25%, Due
9/1/2016 ..................................... $ 300 $ 305
------------
COMMUNICATIONS - 0.63%
Comcast Cable Communications Holdings,
Inc., 8.375%, Due 3/15/2013 .................. 700 800
------------
CONSUMER DISCRETIONARY - 0.38%
Supervalu, Inc., 7.50%, Due 11/15/2014 ........ 325 331
Wesco Distribution, Inc., 7.50%, Due
10/15/2017 ................................... 150 151
------------
482
------------
ELECTRIC/GAS - 0.62%
MidAmerican Energy Holdings Co., 3.50%,
Due 5/15/2008 ................................ 800 779
------------
FINANCE - 8.76%
American General Finance Corp., 4.875%,
Due 5/15/2010 ................................ 300 296
The Bear Stearns Cos., Inc., 2.875%, Due
7/2/2008 ..................................... 800 771
Countrywide Home Loans, Inc., 3.25%, Due
5/21/2008 + .................................. 1,000 971
E*Trade Financial Corp.,
7.375%, Due 9/15/2013 ........................ 150 154
7.875%, Due 12/1/2015 ........................ 300 317
General Electric Capital Corp., 4.125%, Due
3/4/2008 ..................................... 2,000 1,973
The Goldman Sachs Group, Inc., 4.75%, Due
7/15/2013 .................................... 350 338
HSBC Finance Corp., 5.25%, Due 1/14/2011 ...... 2,200 2,204
International Lease Finance Corp., 6.375%,
Due 3/15/2009 ................................ 725 743
Lehman Brothers Holdings, Inc., 4.25%, Due
1/27/2010 .................................... 1,000 972
Merrill Lynch & Co., Inc., 6.00%, Due
2/17/2009 .................................... 1,000 1,017
SLM Corp., 4.00%, Due 1/15/2009 ............... 1,300 1,268
------------
11,024
------------
HEALTH CARE - 0.21%
Tenet Healthcare Corp., 9.25%, Due
2/1/2015 ..................................... 275 261
------------
INDUSTRIALS - 6.58%
AmeriPath, Inc., 10.50%, Due 4/1/2013 ......... 400 430
BHP Billiton Finance USA Ltd., 4.80%, Due
4/15/2013 .................................... 350 340
Bunge Ltd Finance Corp.,
7.80%, Due 10/15/2012 ........................ 200 219
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
5.35%, Due 4/15/2014 ....................... $ 250 $ 242
Caterpillar Financial Services Corp., 4.15%,
Due 1/15/2010 ................................ 1,000 970
Cisco Systems, Inc., 5.25%, Due 2/22/2011 ..... 350 352
DaimlerChrysler NA Holding Corp.,
4.75%, Due 1/15/2008 ......................... 325 322
5.875%, Due 3/15/2011 ........................ 350 353
DirecTV Holdings LLC/DirecTV Financing Co.
8.375%, Due 3/15/2013 ........................ 300 311
Dole Food Co., Inc., 8.875%, Due
3/15/2011 + .................................. 142 135
DST Systems, Inc., 3.625%, Due 8/15/2023 ...... 485 644
EOG Resources, Inc., 4.75%, Due 3/15/2014 ++ .. 350 337
Equistar Chemicals, LP, 10.625%, Due
5/1/2011 ..................................... 400 428
Expedia, Inc., 7.456%, Due 8/15/2018 .......... 300 313
Ford Motor Credit Co., 8.625%, Due
11/1/2010 .................................... 285 284
Gardner Denver, Inc., 8.00%, Due 5/1/2013 ..... 300 313
GSC Holdings Corp., 8.00%, Due 10/1/2012 + .... 225 233
John Deere Capital Corp., 4.125%, Due
1/15/2010 .................................... 1,000 969
NBTY, Inc., 7.125%, Due 10/1/2015 ............. 150 146
Nissan Motor Acceptance Corp., 4.625%,
Due 3/8/2010 ++ .............................. 590 575
Union Pacific Corp., 6.50%, Due 4/15/2012 + ... 350 370
-----------
8,286
-----------
INSURANCE - 4.61%
Aegon Funding Corp., 5.75%, Due 12/15/2020 .... 350 356
ASIF Global Financing, 3.90%, Due
10/22/2008 ++ ................................ 500 488
Genworth Global Funding Trusts, 5.125%,
Due 3/15/2011 ................................ 1,000 999
John Hancock Global FDG II, 3.75%, Due
9/30/2008 ++ ................................. 1,000 973
Lincoln National Corp., 4.75%, Due
2/15/2014 .................................... 200 190
MassMutual Global Funding II, 3.80%, Due
4/15/2009 ++ ................................. 1,000 970
Metropolitan Life Global Funding I, 4.625%,
Due 8/19/2010 ++ ............................. 1,500 1,471
Prudential Financial, Inc., 4.50%, Due
7/15/2013 .................................... 375 357
-----------
5,804
-----------
MATERIALS - 0.34%
Freeport-McMoRan Copper & Gold,
Inc., 10.125%, Due 2/1/2010 .................. 400 423
-----------
REAL ESTATE - 1.54%
EOP Operating Limited Partnership, 4.75%,
Due 3/15/2014 ................................ 350 333
- --------------------------------------------------------------------------------
See accompanying notes
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
iStar Financial, Inc., 5.875%, Due
3/15/2016 + .................................. $ 500 $ 498
ProLogis, 5.50%, Due 4/1/2012 ................. 350 350
Simon Property Group LP,
6.375%, Due 11/15/2007 ....................... 400 404
5.375%, Due 6/1/2011 ......................... 350 351
-----------
1,936
-----------
TECHNOLOGY - 0.46%
Celestica, Inc., 7.875%, Due 7/1/2011 + ....... 260 263
Sungard Data Systems, Inc., 9.125%, Due
8/15/2013 .................................... 300 311
-----------
574
-----------
TELEPHONE - 2.52%
AT&T, Inc., 5.625%, Due 6/15/2016 + ........... 350 350
France Telecom SA, 7.75%, Due 3/1/2011 ........ 680 747
Sprint Capital Corp.,
6.00%, Due 1/15/2007 ......................... 1,200 1,200
8.375%, Due 3/15/2012 ........................ 350 394
Syniverse Technologies, Inc., 7.75%, Due
8/15/2013 .................................... 200 192
Telefonos de Mexico, S.A. de C.V., 5.50%,
Due 1/27/2015 ................................ 300 292
-----------
3,175
-----------
TOTAL CORPORATE OBLIGATIONS 42,455
-----------
CONVERTIBLE OBLIGATIONS - 13.27%
BANKS - 0.54%
Bank of America Corp., 0.25%, Due
1/26/2010 .................................... 265 279
Deutsche Bank Luxembourg SA, 5.689%, Due
5/1/2012 ++ # ................................ 110 132
Wachovia Corp., 0.25%, Due 12/15/2010 ......... 280 266
-----------
677
-----------
COMMUNICATIONS - 1.07%
Liberty Media LLC, 0.75%, Due 3/30/2023 ....... 505 597
Omnicom Group, Inc., Zero Coupon, Due
7/1/2038 ^ ................................... 700 745
-----------
1,342
-----------
CONSUMER DISCRETIONARY - 1.17%
Alza Corp., Zero Coupon, Due 7/28/2020 ^ ...... 350 324
Carnival Corp., 2.00%, Due 4/15/2021 .......... 510 650
Laboratory Corp of America Holdings, Zero
Coupon, Due 9/11/2021 ^ ....................... 375 346
United Auto Group, Inc., 3.50%, Due
4/1/2026 ++ .................................. 135 154
-----------
1,474
-----------
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
ELECTRIC UTILITIES - 0.42%
CenterPoint Energy, Inc., 3.75%, Due
5/15/2023 .................................... $ 390 $ 533
-----------
ENERGY - 0.52%
Schlumberger Ltd., 2.125%, Due 6/1/2023 ....... 400 660
-----------
FINANCE - 0.57%
American Financial Group, Inc., 1.486%,
Due 6/2/2033 ................................. 625 350
Fortis Insurance NV, 7.75%, Due 1/26/2008 ++ .. 275 374
-----------
724
-----------
HEALTH CARE - 0.44%
Advanced Medical Optics, Inc.,
2.50%, Due 7/15/2024 ......................... 300 311
3.25%, Due 8/1/2026 ++ ....................... 250 243
-----------
554
-----------
HOTELS, RESTAURANTS & LEISURE - 0.13%
International Game Technology, Inc., Zero
Coupon, Due 1/29/2033 ^ ...................... 175 158
-----------
INDUSTRIALS - 4.72%
Alliant Techsystems, Inc., 2.75%, Due
9/15/2011 ++ ................................. 320 322
Armor Holdings, Inc., 2.00%, Due 11/1/2024 .... 275 318
Best Buy Co., Inc., 2.25%, Due 1/15/2022 + .... 120 149
CSG Systems International, Inc., 2.50%, Due
6/15/2024 .................................... 275 314
CSX Corp., Zero Coupon, Due 10/30/2021 ^ ...... 315 404
Danaher Corp., Zero Coupon, Due
1/22/2021 ^ .................................. 320 337
Fisher Scientific International, Inc., 3.25%,
Due 3/1/2024 + ............................... 700 867
Grey Wolf, Inc., 5.322%, Due 4/1/2024 # ....... 215 278
Kaydon Corp., 4.00%, Due 5/23/2023 ............ 115 170
Lockheed Martin Corp., 5.155%, Due
8/15/2033 + # ................................ 515 654
Nabors Industries, Inc., Zero Coupon, Due
6/15/2023 ^ .................................. 280 298
Regal-Beloit Corp., 2.75%, Due 3/15/2024 ...... 210 406
SEACOR Holdings, Inc., 2.875%, Due
12/15/2024 ................................... 400 541
Vishay Intertechnology, Inc., 3.625%, Due
8/1/2023 ..................................... 150 149
The Walt Disney Co., 2.125%, Due
4/15/2023 + .................................. 650 739
-----------
5,946
-----------
INFORMATION TECHNOLOGY - 1.30%
Amdocs Ltd., 0.50%, Due 3/15/2024 + ........... 285 301
- --------------------------------------------------------------------------------
See accompanying notes
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Cadence Design Systems, Inc., Zero
Coupon, Due 8/15/2023 ^ ...................... $ 260 $ 309
CommScope, Inc., 1.00%, Due 3/15/2024 ......... 140 216
Electronic Data Systems Corp., 3.875%, Due
7/15/2023 .................................... 250 255
Symantec Corp., 0.75%, Due 6/15/2011 ++ ....... 480 555
------------
1,636
------------
PHARMACEUTICALS - 0.86%
Allergan, Inc., 1.50%, Due 4/1/2026 ++ ........ 260 276
Gilead Sciences, Inc., 0.50%,
Due 5/1/2011 ++ .............................. 550 579
Valeant Pharmaceuticals
International, 4.00%, Due 11/15/2013 + ....... 240 230
------------
1,085
------------
SERVICES - 0.49%
priceline.com, Inc.,
0.50%, Due 9/30/2011 ++ ...................... 160 180
2.25%, Due 1/15/2025 ......................... 140 171
Quanta Services, Inc.,
4.50%, Due 10/1/2023 ......................... 55 96
3.75%, Due 4/30/2026++ ....................... 150 163
------------
610
------------
TECHNOLOGY - 0.23%
SanDisk Corp., 1.00%, Due 5/15/2013 + ......... 320 290
------------
TELEPHONE - 0.81%
NII Holdings, Inc., 2.75%, Due 8/15/2025++ .... 700 1,024
------------
TOTAL CONVERTIBLE OBLIGATIONS 16,713
------------
NON-AGENCY MORTGAGE-BACKED
OBLIGATIONS - 1.78%
COMMERCIAL MORTGAGE-BACKED SECURITY - 0.79%
Banc of America Commercial Mortgage,
Inc., 2005-6, 5.001%, Due 9/10/2047 .......... 717 715
JP Morgan Chase Commercial Mortgage
Securities Corp., 4.655%, Due 8/15/2042 ...... 287 285
------------
1,000
------------
WHOLE LOAN COLLATERALIZED MORTGAGE
OBLIGATIONS - 0.99%
Capital One Multi-Asset Execution
Trust, 2006 A, 5.15%, Due 6/15/2014 .......... 1,000 1,008
JP Morgan Chase Commercial Mortgage
Securities Corp., 4.613%, Due 10/15/2042 ..... 235 233
------------
1,241
------------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS 2,241
------------
ASSET-BACKED SECURITIES - 9.55%
AUTO LOAN - 2.38%
Banc of America Securities Auto
Trust, 2005-WF1, 4.08%, Due 4/18/2010 ........ 1,000 984
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Chase Manhattan Auto Owner Trust, 2006-A
A4, 5.36%, Due 1/15/2013 ..................... $ 2,000 $ 2,016
------------
3,000
------------
OTHER ASSET-BACKED - 7.17%
American Express Credit Account Master
Trust, 2006-2 A, 5.35%, Due 1/15/2014 ........ 2,000 2,033
Capital Auto Receivables Asset
Trust, 2006-1A, 5.32%, Due 3/20/2010 ++ ...... 2,000 2,007
Harley-Davidson Motorcycle Trust, 2005-1,
3.76%, Due 12/17/2012 ........................ 1,000 982
HSBC Automotive Trust, 2005-1, 4.35%, Due
6/18/2012 .................................... 1,000 984
John Deere Owner Trust, 2006-A Class A4,
5.39%, Due 6/17/2013 ......................... 2,000 2,024
Volkswagen Auto Loan Enhanced
Trust, 2005-1, 4.86%, Due 4/20/2012 .......... 1,000 996
------------
9,026
------------
TOTAL ASSET-BACKED SECURITIES 12,026
------------
U.S. AGENCY MORTGAGE-BACKED
OBLIGATIONS - 1.18%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.48%
Pool # 545759, 6.50%, Due 7/1/2032 ........... 593 608
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.70%
Pool # 780921, 7.00%, Due 11/15/2013 ......... 220 227
2006-9 A, 4.201%, Due 8/16/2026 .............. 668 652
------------
879
------------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS 1,487
------------
U.S. AGENCY OBLIGATIONS - 2.08%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.66%
5.50%, Due 7/18/2016 + ....................... 2,000 2,081
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.42%
6.625%, Due 11/15/2010 ....................... 500 532
------------
TOTAL U.S. AGENCY OBLIGATIONS .................. 2,613
------------
U.S. TREASURY OBLIGATIONS - 20.37%
U.S. TREASURY BONDS - 0.83%
8.75%, Due 8/15/2020 + ....................... 750 1,049
------------
U.S. TREASURY NOTES - 19.54%
3.875%, Due 5/15/2010 + ...................... 2,000 1,954
4.875%, Due 4/30/2011 + ...................... 4,350 4,402
4.375%, Due 8/15/2012 + ...................... 7,000 6,936
4.00%, Due 2/15/2014 ......................... 5,000 4,817
4.75%, Due 5/15/2014 + ....................... 3,550 3,586
- --------------------------------------------------------------------------------
See accompanying notes
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
4.875%, Due 8/15/2016 + ...................... $ 2,850 $ 2,909
------------
24,604
------------
TOTAL U.S. TREASURY OBLIGATIONS 25,653
------------
SHARES
------------
SHORT TERM INVESTMENTS - 9.47%
American Beacon Money Market Select
Fund ss. .................................... 11,924,150 11,924
------------
SECURITIES LENDING COLLATERAL -
21.41%
American Beacon Cash Plus Trust ss. .......... 18,552,806 18,553
American Beacon Money Market Select
Fund ss. .................................... 8,408,509 8,408
------------
TOTAL SECURITIES LENDING COLLATERAL 26,961
------------
TOTAL INVESTMENTS 120.60% - (COST $148,579) 151,849
LIABILITIES, NET OF OTHER ASSETS - (20.60%) (25,934)
------------
TOTAL NET ASSETS - 100.00% $ 125,915
============
Percentages are stated as a percent of net assets.
^ Non-income producing security.
+ All or a portion of this security is on loan at October 31, 2006.
++ 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 $11,626 or 9.23% of net
assets. The Fund has no right to demand registration of these securities.
# The coupon rate shown on floating or adjustable rate securities represents
the rate at period end. The due date on these types of securities reflects
the final maturity date.
ss. The Fund/Trust is affiliated by having the same investment advisor.
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
CORPORATE OBLIGATIONS - 28.24%
BANKS - 4.70%
Banco Popular North America, Inc., 4.25%, Due 4/1/2008 ............................. $ 200 $ 196
Bank of America Corp.,
3.375%, Due 2/17/2009 + .......................................................... 200 193
5.375%, Due 8/15/2011 ............................................................ 385 389
Bank One Corp.,
5.90%, Due 11/15/2011 ............................................................ 440 452
4.90%, Due 4/30/2015 ............................................................. 200 192
Capital One Bank,
6.70%, Due 5/15/2008 ............................................................. 350 357
5.125%, Due 2/15/2014 + .......................................................... 220 216
Credit Suisse First Boston, 6.50%, Due 5/1/2008 ++ ................................. 350 356
ING Bank, NV, 5.125%, Due 5/1/2015 ++ .............................................. 250 245
National City Bank, 4.50%, Due 3/15/2010 ........................................... 500 488
PNC Funding Corp., 4.20%, Due 3/10/2008 ............................................ 355 349
Synovus Financial Corp., 4.875%, Due 2/15/2013 ..................................... 200 196
Wachovia Corp., 5.70%, Due 8/1/2013 ................................................ 245 251
Washington Mutual Finance Corp., 6.875%, Due 5/15/2011 ............................. 230 246
Washington Mutual, Inc.,
8.25%, Due 4/1/2010 .............................................................. 150 163
4.625%, Due 4/1/2014 + ........................................................... 350 328
----------
4,617
----------
COMMUNICATIONS - 1.16%
Comcast Cable Communications Holdings, Inc., 8.375%, Due 3/15/2013 ................. 350 400
Comcast Corp.,
7.625%, Due 2/15/2008 ............................................................ 230 236
5.30%, Due 1/15/2014 ............................................................. 220 215
Time Warner, Inc., 7.70%, Due 5/1/2032 ............................................. 250 285
----------
1,136
----------
CONSUMER DISCRETIONARY - 1.10%
Carnival Corp., 3.75%, Due 11/15/2007 .............................................. 380 373
Wal-Mart Stores, Inc.,
4.55%, Due 5/1/2013 .............................................................. 280 271
7.55%, Due 2/15/2030 ............................................................. 350 432
----------
1,076
----------
ELECTRIC/GAS - 2.80%
Canadian Natural Resources Ltd., 6.00%, Due 8/15/2016 .............................. 215 218
Columbus Southern Power Co., 5.50%, Due 3/1/2013 ................................... 320 321
FPL Group Capital, Inc.,
5.551%, Due 2/16/2008 ............................................................ 230 231
5.625%, Due 9/1/2011 ............................................................. 240 243
MidAmerican Energy Holdings Co.,
5.875%, Due 10/1/2012 ............................................................ 405 414
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
6.125%, Due 4/1/2036 ............................................................. $ 300 $ 309
PSI Energy, Inc., 6.05%, Due 6/15/2016 ............................................. 205 210
Public Service Enterprise Group, Inc., 6.95%, Due 6/1/2012 ......................... 355 377
Puget Sound Energy, Inc., 6.274%, Due 3/15/2037 .................................... 160 165
Xcel Energy, Inc., 7.00%, Due 12/1/2010 ............................................ 250 265
----------
2,753
----------
FINANCE - 4.17%
American General Finance Corp.,
5.375%, Due 9/1/2009 + ........................................................... 385 387
4.875%, Due 5/15/2010 ............................................................ 200 197
Ameriprise Financial, Inc., 5.35%, Due 11/15/2010 .................................. 335 337
The Bear Stearns Cos., Inc., 2.875%, Due 7/2/2008 .................................. 400 386
General Electric Capital Corp., 4.375%, Due 3/3/2012 ............................... 350 337
The Goldman Sachs Group, Inc., 4.75%, Due 7/15/2013 ................................ 250 241
HSBC Finance Corp.,
4.75%, Due 4/15/2010 + ........................................................... 250 247
5.25%, Due 1/14/2011 ............................................................. 800 802
International Lease Finance Corp., 6.375%, Due 3/15/2009 ........................... 250 256
Merrill Lynch & Co., Inc.,
6.00%, Due 2/17/2009 ............................................................. 500 508
5.45%, Due 7/15/2014 + ........................................................... 160 161
SLM Corp., 5.45%, Due 4/25/2011 .................................................... 240 241
----------
4,100
----------
INDUSTRIALS - 6.65%
Abbott Laboratories, 5.60%, Due 5/15/2011 .......................................... 170 173
Amgen, Inc., 4.00%, Due 11/18/2009 + ............................................... 210 204
Baxter International, Inc., 5.90%, Due 9/1/2016 .................................... 265 273
BHP Billiton Finance USA Ltd., 4.80%, Due 4/15/2013 ................................ 200 194
Bunge Ltd Finance Corp.,
7.80%, Due 10/15/2012 ............................................................ 150 164
5.35%, Due 4/15/2014 ............................................................. 100 97
Caterpillar, Inc., 6.05%, Due 8/15/2036 ............................................ 145 152
Cisco Systems, Inc.,
5.25%, Due 2/22/2011 ............................................................. 425 428
5.50%, Due 2/22/2016 ............................................................. 270 273
CRH America, Inc., 6.00%, Due 9/30/2016 ............................................ 135 136
DaimlerChrysler NA Holding Corp.,
4.75%, Due 1/15/2008 ............................................................. 315 312
5.875%, Due 3/15/2011 ............................................................ 200 201
EOG Resources, Inc., 4.75%, Due 3/15/2014 ++ ....................................... 225 217
John Deere Capital Corp., 5.40%, Due 4/7/2010 ...................................... 235 237
Lockheed Martin Corp., 7.20%, Due 5/1/2036 ......................................... 165 198
Martin Marietta Materials, Inc., 6.90%, Due 8/15/2007 .............................. 300 302
Masco Corp., 6.125%, Due 10/3/2016 ................................................. 135 136
Motorola, Inc., 8.00%, Due 11/1/2011 ............................................... 245 273
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Nissan Motor Acceptance Corp., 5.625%, Due 3/14/2011 ++ ............................ $ 300 $ 302
Northrop Grumman Corp., 4.079%, Due 11/16/2006 ..................................... 150 150
Pemex Project Funding Master Trust, 8.50%, Due 2/15/2008 ........................... 275 285
Schering-Plough Corp., 6.75%, Due 12/1/2033 + ...................................... 340 379
Union Pacific Corp.,
3.875%, Due 2/15/2009 ............................................................ 335 325
6.50%, Due 4/15/2012 + ........................................................... 200 211
Weatherford International Ltd., 6.50%, Due 8/1/2036 ................................ 130 133
WellPoint, Inc., 3.75%, Due 12/14/2007 ............................................. 235 231
Weyerhaeuser Co., 5.95%, Due 11/1/2008 ............................................. 210 212
Wyeth Corp., 5.50%, Due 2/1/2014 ................................................... 335 337
----------
6,535
----------
INSURANCE - 2.88%
Aegon Funding Corp., 5.75%, Due 12/15/2020 ......................................... 200 203
American International Group, Inc., 6.25%, Due 5/1/2036 ............................ 300 321
ASIF Global Financing, 3.90%, Due 10/22/2008 ++ .................................... 300 293
The Chubb Corp., 4.934%, Due 11/16/2007 ............................................ 355 354
Hartford Financial Services Group, Inc., 5.663%, Due 11/16/2008 .................... 310 312
Lincoln National Corp., 4.75%, Due 2/15/2014 ....................................... 100 95
MetLife, Inc.,
5.375%, Due 12/15/2012 ........................................................... 240 242
5.00%, Due 6/15/2015 ............................................................. 170 165
Metropolitan Life Global Funding I, 4.625%, Due 8/19/2010 ++ ....................... 300 294
Prudential Financial, Inc.,
3.75%, Due 5/1/2008 .............................................................. 130 127
4.50%, Due 7/15/2013 ............................................................. 225 214
5.10%, Due 9/20/2014 ............................................................. 210 206
----------
2,826
----------
REAL ESTATE - 1.52%
EOP Operating Limited Partnership, 4.75%, Due 3/15/2014 ............................ 200 190
Equity Residential, 5.125%, Due 3/15/2016 .......................................... 185 180
iStar Financial, Inc., 5.875%, Due 3/15/2016 + ..................................... 300 299
ProLogis, 5.50%, Due 4/1/2012 ...................................................... 200 200
ProLogis Trust, 7.10%, Due 4/15/2008 ............................................... 220 225
Simon Property Group LP,
6.375%, Due 11/15/2007 ........................................................... 200 202
5.375%, Due 6/1/2011 ............................................................. 200 200
----------
1,496
----------
TELEPHONE - 3.26%
America Movil S.A. de C.V., 6.375%, Due 3/1/2035 ................................... 425 416
AT&T, Inc.,
5.10%, Due 9/15/2014 ............................................................. 220 214
5.625%, Due 6/15/2016 + .......................................................... 200 200
6.80%, Due 5/15/2036 + ........................................................... 140 151
Cingular Wireless Services, Inc., 8.75%, Due 3/1/2031 .............................. 170 223
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Deutsche Telekom AG, 8.00%, Due 6/15/2010 .......................................... $ 150 $ 164
France Telecom SA, 7.75%, Due 3/1/2011 ............................................. 270 297
Nextel Communications, Inc., 6.875%, Due 10/31/2013 ................................ 290 296
Sprint Capital Corp.,
6.00%, Due 1/15/2007 ............................................................. 200 200
8.375%, Due 3/15/2012 ............................................................ 200 225
Telecom Italia S.p.A., 4.00%, Due 11/15/2008 ....................................... 220 214
Telefonica Emisiones SAU, 5.984%, Due 6/20/2011 + .................................. 160 163
Telefonos de Mexico, S.A. de C.V., 5.50%, Due 1/27/2015 ............................ 200 195
Verizon Global Funding Corp., 4.00%, Due 1/15/2008 ................................. 250 246
----------
3,204
----------
TOTAL CORPORATE OBLIGATIONS ........................................................ 27,743
----------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 8.21%
Banc of America Commercial Mortgage, Inc., 2005-6, 5.001%, Due 9/10/2047 ........... 359 358
Banc of America Mortgage Securities, 5.25%, Due 10/25/2019 ......................... 726 720
Bear Stearns Adjustable Rate Mortgage Trust, 2005-11, 4.509%, Due 12/25/2035 # ..... 361 357
Bear Stearns Commercial Mortgage Securities, 2006-PW A4, 5.54%, Due 9/11/2041 ...... 95 97
Bear Stearns Commercial Mortgage Securities, Inc.,
5.467%, Due 4/12/2038 ............................................................ 265 269
2004-PWR5, 4.831%, Due 7/11/2042 ................................................. 535 522
2005, 5.127%, Due 10/12/2042 ..................................................... 430 430
Capital One Multi-Asset Execution Trust, 2006 A, 5.15%, Due 6/15/2014 .............. 550 554
Chase Mortgage Finance Corp., 2006A1 A1, 6.072%, Due 9/25/2036 # ................... 1,284 1,287
Chase Mortgage Financial Trust, 2004-S1 A3, 5.50%, Due 2/25/2019 ................... 287 286
Citigroup Commercial Mortgage Trust, 2004-C2, 4.38%, Due 10/15/2041 ................ 470 454
Countrywide Home Loan, Inc., 2005-HYB8, 5.414%, Due 12/20/2035 ..................... 390 390
General Electric Capital Commercial Mortgage Corp., 2003-C2, 4.17%, Due 7/10/20 .... 312 306
JP Morgan Chase Commercial Mortgage Securities Corp.,
2004-CBX, 4.529%, Due 11/12/2039 ................................................. 255 248
4.655%, Due 8/15/2042 ............................................................ 164 163
4.613%, Due 10/15/2042 ........................................................... 134 133
4.625%, Due 3/15/2046 ............................................................ 505 498
Prime Mortgage Trust, 2005-2, 5.25%, Due 7/25/2020 ................................. 479 477
Residential Asset Mortgage Products, Inc., 2004-RS12, 3.767%, Due 2/25/2027 ........ 52 51
Wells Fargo Mortgage Backed Securities Trust, 2006-11 A8, 6.00%, Due 9/25/2036 ..... 464 464
----------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS ....................................... 8,064
----------
ASSET-BACKED SECURITIES - 1.89%
American Express Credit Account Master Trust, 2006-2 A, 5.35%, Due 1/15/2014 ....... 550 559
Capital Auto Receivables Asset Trust, 2006-1A, 5.32%, Due 3/20/2010 ++ ............. 300 301
CarMax Auto Owner Trust, 2005-3, 4.91%, Due 1/18/2011 .............................. 500 498
Volkswagen Auto Loan Enhanced Trust, 2005-1, 4.86%, Due 4/20/2012 .................. 500 498
----------
TOTAL ASSET-BACKED SECURITIES ...................................................... 1,856
----------
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 33.17%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 9.61%
5.50%, Due 9/1/2017 .............................................................. 267 268
5.00%, Due 3/1/2018 .............................................................. 590 582
5.00%, Due 2/1/2019 .............................................................. 506 499
4.50%, Due 3/1/2019 .............................................................. 713 690
5.00%, Due 10/1/2020 ............................................................. 720 709
5.00%, Due 9/1/2021 .............................................................. 608 599
8.00%, Due 7/1/2027 .............................................................. 131 139
6.50%, Due 9/1/2028 .............................................................. 107 109
6.00%, Due 8/1/2029 .............................................................. 362 366
5.00%, Due 8/1/2033 .............................................................. 864 837
6.00%, Due 8/1/2034 .............................................................. 629 634
5.50%, Due 1/1/2035 .............................................................. 1,010 1,000
6.50%, Due 4/1/2035 .............................................................. 58 60
5.50%, Due 6/1/2035 .............................................................. 978 968
5.00%, Due 8/1/2035 .............................................................. 561 543
5.00%, Due 9/1/2035 .............................................................. 468 452
6.00%, Due 9/1/2036 .............................................................. 982 989
----------
9,444
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 20.09%
Pool # 323309, 6.00%, Due 9/1/2013 ............................................... 129 131
Pool # 488099, 5.50%, Due 2/1/2014 ............................................... 368 370
Pool # 323789, 6.00%, Due 6/1/2014 ............................................... 147 149
Pool # 545449, 6.50%, Due 2/1/2017 ............................................... 358 366
Pool # 545823, 5.50%, Due 8/1/2017 ............................................... 463 464
Pool # 254545, 5.00%, Due 12/1/2017 .............................................. 1,153 1,139
Pool # 254865, 4.50%, Due 9/1/2018 ............................................... 761 738
Pool # 747824, 5.50%, Due 11/1/2018 .............................................. 215 215
Pool # 747844, 5.50%, Due 12/1/2018 .............................................. 184 185
Pool # 761337, 5.00%, Due 4/1/2019 ............................................... 361 356
Pool # 837219, 4.00%, Due 8/1/2020 ............................................... 542 513
Pool # 811499, 5.00%, Due 9/1/2020 ............................................... 361 356
Pool # 745562, 5.50%, Due 4/1/2021 ............................................... 24 24
Pool # 100293, 9.50%, Due 8/1/2029 ............................................... 132 143
Pool # 555531, 5.50%, Due 6/1/2033 ............................................... 654 648
Pool # 555880, 5.50%, Due 11/1/2033 .............................................. 1,151 1,140
Pool # 725238, 5.00%, Due 3/1/2034 ............................................... 1,089 1,054
Pool # 725866, 4.50%, Due 9/1/2034 ............................................... 591 556
Pool # 793600, 4.988%, Due 9/1/2034 .............................................. 379 375
Pool # 735224, 5.50%, Due 2/1/2035 ............................................... 1,404 1,391
Pool # 835760, 4.50%, Due 9/1/2035 ............................................... 434 407
Pool # 844809, 5.00%, Due 11/1/2035 .............................................. 955 922
Pool # 850280, 5.50%, Due 12/1/2035 .............................................. 500 494
Pool # 849299, 5.50%, Due 1/1/2036 ............................................... 935 925
Pool # 866593, 5.50%, Due 1/1/2036 ............................................... 934 924
Pool # 745418, 5.50%, Due 4/1/2036 ............................................... 956 945
Pool # 872306, 6.50%, Due 5/1/2036 ............................................... 396 404
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Pool # 884032, 6.50%, Due 5/1/2036 ............................................... $ 1,207 $ 1,230
Pool # 256369, 6.00%, Due 8/1/2036 ............................................... 454 457
Pool # 886371, 6.00%, Due 8/1/2036 ............................................... 2,691 2,708
Pool # 893688, 6.00%, Due 10/1/2036 .............................................. 10 10
----------
19,739
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.47%
2006-9 A, 4.201%, Due 8/16/2026 .................................................. 381 373
Pool # 780615, 6.50%, Due 8/15/2027 .............................................. 309 319
Pool # 780747, 6.50%, Due 3/15/2028 .............................................. 438 451
Pool # 781273, 6.00%, Due 4/15/2031 .............................................. 424 431
Pool # 781564, 6.00%, Due 2/15/2033 .............................................. 432 439
Pool # 781603, 5.00%, Due 5/15/2033 .............................................. 343 335
Pool # 781690, 6.00%, Due 12/15/2033 ............................................. 330 335
Pool # 003515, 5.50%, Due 2/20/2034 .............................................. 727 722
----------
3,405
----------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS 32,588
----------
U.S. AGENCY OBLIGATIONS - 4.33%
FEDERAL HOME LOAN BANK - 1.02%
5.00%, Due 10/16/2009 ............................................................ 1,005 1,003
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.21%
5.25%, Due 2/24/2011 ............................................................. 1,260 1,263
5.625%, Due 3/15/2011 + .......................................................... 500 515
5.875%, Due 3/21/2011 + .......................................................... 380 392
----------
2,170
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.10%
4.375%, Due 9/15/2012 + .......................................................... 550 536
5.125%, Due 1/2/2014 + ........................................................... 545 544
----------
1,080
----------
TOTAL U.S. AGENCY OBLIGATIONS 4,253
----------
U.S. TREASURY OBLIGATIONS - 20.10%
U.S. TREASURY BONDS - 5.68%
9.125%, Due 5/15/2018 + .......................................................... 300 417
7.875%, Due 2/15/2021 + .......................................................... 750 987
6.25%, Due 8/15/2023 + ........................................................... 650 757
6.875%, Due 8/15/2025 + .......................................................... 370 463
6.25%, Due 5/15/2030 + ........................................................... 950 1,147
4.50%, Due 2/15/2036 + ........................................................... 1,875 1,810
----------
5,581
----------
U.S. TREASURY NOTES - 14.42%
4.875%, Due 5/31/2008 + .......................................................... 845 846
4.875%, Due 8/15/2009 + .......................................................... 685 690
3.50%, Due 11/15/2009 + .......................................................... 1,000 969
3.875%, Due 5/15/2010 + .......................................................... 3,000 2,932
4.875%, Due 4/30/2011 + .......................................................... 650 658
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
4.875%, Due 7/31/2011 + .......................................................... $ 1,295 $ 1,311
4.375%, Due 8/15/2012 + .......................................................... 1,500 1,486
4.75%, Due 5/15/2014 + ........................................................... 2,000 2,020
4.875%, Due 8/15/2016 + .......................................................... 3,195 3,261
----------
14,173
----------
TOTAL U.S. TREASURY OBLIGATIONS 19,754
----------
SHARES
----------
SHORT TERM INVESTMENTS - 2.94%
American Beacon Money Market Select Fund ss ........................................ 2,889,649 2,890
----------
SECURITIES LENDING COLLATERAL - 24.97%
American Beacon Cash Plus Trust ss ................................................. 16,881,552 16,882
American Beacon Money Market Select Fund ss ........................................ 7,651,062 7,651
----------
TOTAL SECURITIES LENDING COLLATERAL 24,533
----------
TOTAL INVESTMENTS - 123.85% (COST $122,032) $ 121,681
LIABILITIES, NET OF OTHER ASSETS - (23.85%) (23,436)
----------
TOTAL NET ASSETS - 100.00% $ 98,245
==========
Percentages are stated as a percent of net assets.
+ All or a portion of this security is on loan at October 31, 2006.
++ 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 $2,008 or 2.04% of net assets. The
Fund has no right to demand registration of these securities.
# The coupon rate shown on floating or adjustable rate securities represents
the rate at period end. The due date on these types of securities reflects
the final maturity date.
ss The Fund/Trust is affiliated by having the same investment advisor.
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
CORPORATE OBLIGATIONS - 64.93%
BANKS - 25.44%
Bank One Corp., 6.00%, Due 8/1/2008 ............................. $ 2,000 $ 2,031
Capital One Bank,
6.70%, Due 5/15/2008 .......................................... 1,100 1,122
4.25%, Due 12/1/2008 .......................................... 1,000 980
Citigroup, Inc., 4.125%, Due 2/22/2010 .......................... 1,000 972
Comerica Bank, 6.00%, Due 10/1/2008 ............................. 2,200 2,223
FleetBoston Financial Corp., 3.85%, Due 2/15/2008 ............... 2,500 2,456
HSBC Bank USA NA, 3.875%, Due 9/15/2009 ......................... 2,000 1,938
National City Bank, 4.50%, Due 3/15/2010 ........................ 2,000 1,953
National Westminster Bank PLC, 7.375%, Due 10/1/2009 ............ 2,000 2,124
Wachovia Corp., 6.40%, Due 4/1/2008 ............................. 2,500 2,541
Washington Mutual, Inc., 8.25%, Due 4/1/2010 .................... 2,000 2,169
----------
20,509
----------
COMMUNICATIONS - 2.53%
Comcast Cable Communications, Inc., 6.20%, Due 11/15/2008 ....... 2,000 2,038
----------
ELECTRIC/GAS - 1.45%
MidAmerican Energy Holdings Co., 3.50%, Due 5/15/2008 ........... 1,200 1,169
----------
FINANCE - 17.35%
The Bear Stearns Cos., Inc., 2.875%, Due 7/2/2008 ............... 2,000 1,928
Countrywide Home Loans, Inc., 3.25%, Due 5/21/2008 .............. 2,000 1,942
Credit Suisse USA, Inc., 4.70%, Due 6/1/2009 + .................. 2,000 1,983
EOP Operating LP, 7.75%, Due 11/15/2007 ......................... 1,000 1,022
General Electric Capital Corp., 4.125%, Due 3/4/2008 ............ 3,000 2,959
Goldman Sachs Group, Inc., 6.65%, Due 5/15/2009 ................. 1,000 1,036
Lehman Brothers Holdings, Inc., 4.25%, Due 1/27/2010 + .......... 1,000 972
SLM Corp., 4.00%, Due 1/15/2009 ................................. 2,200 2,145
----------
13,987
----------
INDUSTRIALS - 6.65%
Bunge Limited Finance Corp., 4.375%, Due 12/15/2008 ............. 1,000 977
Caterpillar Financial Services Corp., 4.15%, Due 1/15/2010 ...... 1,000 970
DaimlerChrysler NA Holding Corp., 4.75%, Due 1/15/2008 .......... 2,050 2,031
John Deere Capital Corp., 3.375%, Due 10/1/2007 ................. 1,000 981
Nissan Motor Acceptance Corp., 4.625%, Due 3/8/2010 ++ .......... 410 400
----------
5,359
----------
INSURANCE - 4.25%
ASIF Global Financing, 3.90%, Due 10/22/2008 ++ ................. 2,000 1,953
Metropolitan Life Global Funding I, 4.625%, Due 8/19/2010 ++ .... 1,500 1,471
----------
3,424
----------
REAL ESTATE - 2.50%
Simon Property Group LP, 6.375%, Due 11/15/2007 ................. 2,000 2,017
----------
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
TELEPHONE - 4.76%
AT&T Corp., 6.00%, Due 3/15/2009 + ............................................ $ 2,000 $ 2,035
Sprint Capital Corp., 6.00%, Due 1/15/2007 .................................... 1,800 1,801
----------
3,836
----------
TOTAL CORPORATE OBLIGATIONS 52,339
----------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 2.03%
Banc of America Commercial Mortgage, Inc., 2005-6, 5.001%, Due 9/10/2047 ...... 717 715
Wachovia Bank Commercial Mortgage Trust, 2006-C23 A1, 5.203%, Due 1/15/2045 ... 918 919
----------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS 1,634
----------
ASSET-BACKED SECURITIES - 24.26%
Banc of America Securities Auto Trust, 2005-WF1, 4.08%, Due 4/18/2010 ......... 3,000 2,951
Capital Auto Receivables Asset Trust,
2006-1A, 5.32%, Due 3/20/2010 ++ ............................................ 2,000 2,007
2006-1 A4, 5.04%, Due 5/17/2010 ............................................. 550 549
Chase Manhattan Auto Owner Trust, 2006-A A4, 5.36%, Due 1/15/2013 ............. 2,000 2,017
Citibank Credit Card Issuance Trust, 2004-A4, 3.20%, Due 8/24/2009 ............ 3,000 2,950
DaimlerChrysler Auto Trust, 2004-C, 3.28%, Due 12/8/2009 ...................... 3,000 2,935
HSBC Automotive Trust, 2005-1, 4.35%, Due 6/18/2012 ........................... 2,000 1,969
Nissan Auto Receivables Owner Trust, 2004-A, 2.01%, Due 11/15/2007 ............ 44 44
USAA Auto Owner Trust, 2004-1, 2.06%, Due 4/15/2008 ........................... 188 187
Volkswagen Auto Loan Enhanced Trust, 2005-1, 4.86%, Due 4/20/2012 ............. 1,500 1,494
Wells Fargo Financial Auto Owner Trust, 2004-A, 2.67%, Due 8/16/2010 .......... 2,492 2,454
----------
TOTAL ASSET-BACKED SECURITIES 19,557
----------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 5.28%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.42%
Pool # 313430, 6.50%, Due 3/1/2012 .......................................... 176 179
Pool # 313522, 7.00%, Due 5/1/2012 .......................................... 326 335
Pool # 323980, 6.00%, Due 4/1/2014 .......................................... 336 342
Pool # 545038, 6.00%, Due 9/1/2014 .......................................... 281 285
----------
1,141
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.86%
2006-18 A, 4.968%, Due 9/15/2008 ............................................ 979 974
Pool # 351992, 6.00%, Due 12/15/2008 ........................................ 278 278
2006-9 A, 4.201%, Due 8/16/2026 ............................................. 1,907 1,863
----------
3,115
----------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS 4,256
----------
SHARES
----------
SHORT TERM INVESTMENTS - 2.55%
American Beacon Money Market Select Fund # ................................... 2,054,175 2,054
----------
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
SECURITIES LENDING COLLATERAL - 1.47%
American Beacon Cash Plus Trust # ............ $ 814,321 $ 814
American Beacon Money Market Select Fund # ... 369,067 369
----------
TOTAL SECURITIES LENDING COLLATERAL 1,183
----------
TOTAL INVESTMENTS - 100.52% (COST $81,508) $ 81,023
LIABILITIES, NET OF OTHER ASSETS - (0.52%) (417)
----------
TOTAL NET ASSETS - 100.00% $ 80,606
==========
Percentages are stated as a percent of net assets.
+ All or a portion of this security is on loan at October 31, 2006.
++ 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 $5,831 or 7.23% of net assets. The
Fund has no right to demand registration of these securities.
# The Fund/Trust is affiliated by having the same investment advisor.
See accompanying notes
- --------------------------------------------------------------------------------
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
See accompanying notes
- --------------------------------------------------------------------------------
75
AMERICAN BEACON FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 2006 (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
LARGE CAP MID-CAP
BALANCED GROWTH VALUE
----------- ----------- ----------
ASSETS:
Investments in unaffiliated securities, at value(A
D).................................................. $ 896,240 $ 77,067 $ 80,876
Investments in affiliated securities, at value(B)..... 254,590 10,273 32,337
Foreign currency, at value(C)......................... -- -- --
Cash.................................................. -- 6 --
Receivable for investments sold....................... 233 733 --
Dividends and interest receivable..................... 4,773 47 113
Receivable for fund shares sold....................... 671 379 775
Receivable for tax reclaims........................... -- -- --
Receivable for expense reimbursement.................. -- -- 4
Net unrealized appreciation on foreign currency
contracts........................................... -- -- --
Prepaid expenses...................................... 24 -- 12
----------- ----------- ----------
TOTAL ASSETS..................................... 1,156,531 88,505 114,117
----------- ----------- ----------
LIABILITIES:
Payable for investments purchased..................... 12,186 731 178
Payable upon return of securities loaned.............. 190,211 5,490 16,716
Payable for fund shares redeemed...................... 43 -- 28
Dividends payable..................................... -- -- --
Payable under excess expense reimbursement plan....... 1 -- 22
Payable for variation margin on open futures
contracts........................................... -- -- 75
Management and investment advisory fees payable (Note
2).................................................. 608 109 141
Administrative service and service fees payable....... 51 -- 10
Other liabilities..................................... 112 23 21
----------- ----------- ----------
TOTAL LIABILITIES................................ 203,212 6,353 17,191
----------- ----------- ----------
NET ASSETS................................................. $ 953,319 $ 82,152 $ 96,926
=========== =========== ==========
ANALYSIS OF NET ASSETS:
Paid-in-capital....................................... 752,765 78,104 88,887
Undistributed net investment income................... 19,982 479 479
Accumulated net realized gain (loss).................. 39,250 (3,867) 1,588
Unrealized appreciation (depreciation) of investments,
futures contracts and foreign currency.............. 141,322 7,436 5,972
----------- ----------- ----------
NET ASSETS................................................. $ 953,319 $ 82,152 $ 96,926
=========== =========== ==========
Shares outstanding (no par value):
Institutional Class................................... 1,427,067 15,969 314,005
=========== =========== ==========
PlanAhead Class....................................... 7,499,198 N/A 2,521,851
=========== =========== ==========
Service Class......................................... 105,342 N/A N/A
=========== =========== ==========
AMR Class............................................. 53,538,306 11,809,810 6,099,165
=========== =========== ==========
Net asset value, offering and redemption price per share:
Institutional Class................................... $ 15.83 $ 6.89 $ 10.81
=========== =========== ==========
PlanAhead Class....................................... $ 14.91 N/A $ 10.80
=========== =========== ==========
Service Class......................................... $ 14.83 N/A N/A
=========== =========== ==========
AMR Class............................................. $ 15.27 $ 6.95 $ 10.87
=========== =========== ==========
- --------
(A) Cost of investments in unaffiliated securities........ $ 757,561 $ 69,686 $ 75,416
(B) Cost of investments in affiliated securities.......... $ 254,590 $ 10,273 $ 32,337
(C) Cost of foreign currency.............................. $ -- $ -- $ --
(D) Market value of securities on loan.................... $ 187,301 $ 5,409 $ 16,276
</Table>
- --------------------------------------------------------------------------------
76
- --------------------------------------------------------------------------------
<Table>
<Caption>
SMALL CAP VALUE EMERGING HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM
OPPORTUNITY MARKETS BOND INCOME BOND BOND
--------------- ---------- ----------- ----------- ------------ ----------
$ 4,764 $ 147,374 $ 313,418 $ 112,964 $ 94,258 $ 77,786
1,261 20,036 13,082 38,885 27,423 3,237
-- 1,538 -- -- -- --
-- -- 11 -- -- --
24 1,277 1,158 -- -- --
3 74 6,869 990 920 735
-- 378 600 565 213 75
-- 6 -- -- -- --
3 -- -- -- -- --
-- 111 -- -- -- --
-- 9 25 7 8 22
-------- ---------- ----------- ----------- ---------- ----------
6,055 170,803 335,163 153,411 122,822 81,855
-------- ---------- ----------- ----------- ---------- ----------
54 931 1,700 341 -- --
1,211 11,864 20,296 26,961 24,532 1,183
-- 25 228 -- 2 23
-- -- 313 -- -- 1
-- 8 35 -- -- --
-- -- -- -- -- --
4 367 465 109 21 18
1 5 73 49 1 4
22 64 76 36 21 20
-------- ---------- ----------- ----------- ---------- ----------
1,292 13,264 23,186 27,496 24,577 1,249
-------- ---------- ----------- ----------- ---------- ----------
$ 4,763 $ 157,539 $ 311,977 $ 125,915 $ 98,245 $ 80,606
======== ========== =========== =========== ========== ==========
4,598 98,721 314,428 123,582 107,206 90,121
7 1,129 499 (1,012) 502 (304)
8 21,166 (3,748) 75 (9,112) (8,726)
150 36,523 798 3,270 (351) (485)
-------- ---------- ----------- ----------- ---------- ----------
$ 4,763 $ 157,539 $ 311,977 $ 125,915 $ 98,245 $ 80,606
======== ========== =========== =========== ========== ==========
457,373 950,318 22,713,520 N/A 9,711,884 8,397,951
======== ========== =========== =========== ========== ==========
6,829 339,207 7,865,974 12,281,118 91,721 820,988
======== ========== =========== =========== ========== ==========
N/A N/A N/A N/A N/A N/A
======== ========== =========== =========== ========== ==========
N/A 7,711,900 N/A N/A N/A N/A
======== ========== =========== =========== ========== ==========
$ 10.26 $ 17.42 $ 10.20 N/A $ 10.02 $ 8.74
======== ========== =========== =========== ========== ==========
$ 10.26 $ 17.22 $ 10.21 $ 10.25 $ 10.09 $ 8.76
======== ========== =========== =========== ========== ==========
N/A N/A N/A N/A N/A N/A
======== ========== =========== =========== ========== ==========
N/A $ 17.52 N/A N/A N/A N/A
======== ========== =========== =========== ========== ==========
$ 4,614 $ 111,331 $ 312,619 $ 109,694 $ 94,609 $ 78,271
$ 1,261 $ 20,036 $ 13,082 $ 38,885 $ 27,423 $ 3,237
$ -- $ 1,536 $ -- $ -- $ -- $ --
$ 1,177 $ 11,315 $ 19,770 $ 26,456 $ 24,179 $ 1,161
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
77
AMERICAN BEACON FUNDS
STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 2006 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
LARGE CAP MID-CAP
BALANCED GROWTH VALUE
-------- --------- -------
INVESTMENT INCOME:
Dividend income from unaffiliated securities (net of
foreign taxes)(A)....................................... $ 11,952 $ 864 $ 923
Dividend income from affiliated securities................ 2,765 174 175
Interest income........................................... 14,590 10 13
Income derived from securities lending, net............... 195 1 22
-------- ------ ------
TOTAL INVESTMENT INCOME.............................. 29,502 1,049 1,133
-------- ------ ------
EXPENSES:
Management and investment advisory fees (Note 2).......... 2,393 357 357
Administrative service fees (Note 2):
Institutional Class..................................... 41 -- 5
PlanAhead Class......................................... 238 -- 5
Service Class........................................... 2 -- --
AMR Class (formerly Institutional Class prior to
11/30/05)............................................ -- -- 10
Transfer agent fees:
Institutional Class..................................... 3 -- --
PlanAhead Class......................................... 26 -- 1
Service Class........................................... -- -- --
AMR Class............................................... 28 5 3
Custody and fund accounting fees.......................... 134 11 7
Professional fees......................................... 38 26 33
Registration fees and expenses............................ 55 -- 24
Service fees:
PlanAhead Class (Note 2)................................ 238 -- 5
Service Class (Note 2).................................. 2 -- --
Distribution plan -- Service Class (Note 2)............... 2 -- --
Prospectus and shareholder reports........................ 64 12 10
Other expenses............................................ 112 10 10
-------- ------ ------
TOTAL EXPENSES....................................... 3,376 421 470
-------- ------ ------
Net (fees waived and expenses reimbursed)/recouped by
Manager (Note 2)........................................ 1 -- 16
-------- ------ ------
NET EXPENSES......................................... 3,377 421 486
-------- ------ ------
NET INVESTMENT INCOME.......................................... 26,125 628 647
-------- ------ ------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from:(B)
Investments............................................. 42,115 3,495 1,471
Commission recapture (Note 1)........................... 18 3 11
Foreign currency transactions........................... -- -- --
Futures contracts....................................... 2,433 328 767
Change in net unrealized appreciation or depreciation
of:(C)
Investments............................................. 38,776 3,907 6,100
Foreign currency translations........................... -- -- --
Futures contracts....................................... 3,607 92 434
-------- ------ ------
NET GAIN (LOSS) ON INVESTMENTS....................... 86,949 7,825 8,783
-------- ------ ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $113,074 $8,453 $9,430
======== ====== ======
(A) Foreign taxes......................................... $ 39 $ -- $ 2
(B) Net of foreign withholding taxes on capital gains..... $ -- $ -- $ --
(C) Net of unrealized appreciation of foreign withholding
taxes on capital gains............................... $ -- $ -- $ --
</Table>
- --------
(1) Commencement of Operations March 31, 2006.
- --------------------------------------------------------------------------------
78
- --------------------------------------------------------------------------------
<Table>
<Caption>
SMALL CAP VALUE EMERGING HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM
OPPORTUNITY(1) MARKETS BOND INCOME BOND BOND
- --------------- -------- ---------- -------- ------------ ----------
$ 17 $ 2,906 $ -- $ 191 $ -- $ --
2 290 841 207 143 121
-- 19 25,895 4,191 4,452 3,216
-- 39 64 29 36 2
---- ------- ------- ------ ------ ------
19 3,254 26,800 4,618 4,631 3,339
---- ------- ------- ------ ------ ------
8 1,158 1,643 397 232 209
3 37 555 -- -- --
-- 12 241 279 2 23
-- -- -- -- -- --
-- -- -- -- -- --
2 2 53 -- 10 9
2 5 3 8 4 5
-- -- -- -- -- --
-- 8 -- -- -- --
-- 545 54 18 15 14
24 31 29 20 19 18
40 25 51 17 29 26
-- 12 241 279 3 23
-- -- -- -- -- --
-- -- -- -- -- --
8 27 32 9 17 13
1 25 31 13 4 4
---- ------- ------- ------ ------ ------
88 1,887 2,933 1,040 335 344
---- ------- ------- ------ ------ ------
(73) 6 35 -- (3) (2)
---- ------- ------- ------ ------ ------
15 1,893 2,968 1,040 332 342
---- ------- ------- ------ ------ ------
4 1,361 23,832 3,578 4,299 2,997
---- ------- ------- ------ ------ ------
8 21,238 (3,640) 335 (987) (294)
-- -- -- -- -- --
-- 570 -- -- -- --
-- 536 -- -- -- --
150 15,976 6,614 3,410 1,283 952
-- (1,318) -- -- -- --
-- 285 -- -- -- --
---- ------- ------- ------ ------ ------
158 37,287 2,974 3,745 296 658
---- ------- ------- ------ ------ ------
$162 $38,648 $26,806 $7,323 $4,595 $3,655
==== ======= ======= ====== ====== ======
$ -- $ 313 $ -- $ -- $ -- $ --
$ -- $ 53 $ -- $ -- $ -- $ --
$ -- $ 122 $ -- $ -- $ -- $ --
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
79
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
BALANCED LARGE CAP GROWTH MID-CAP VALUE
------------------- ------------------ -------------------
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
------------------- ------------------ -------------------
2006 2005 2006 2005 2006 2005
-------- --------- -------- -------- -------- ---------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income...................... $ 26,125 $ 20,300 $ 628 $ 588 $ 647 $ 431
Net realized gain (loss) on investments,
futures contracts, and foreign currency
transactions............................. 44,566 44,346 3,826 3,706 2,249 8,616
Change in net unrealized appreciation or
depreciation of investments, futures
contracts, and foreign currency
translations............................. 42,383 9,553 3,999 (207) 6,534 (1,124)
-------- --------- -------- -------- -------- ---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS..................... 113,074 74,199 8,453 4,087 9,430 7,923
-------- --------- -------- -------- -------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class...................... (359) (183) (1) -- (9) --
PlanAhead Class.......................... (2,286) (584) -- -- -- --
Service Class............................ -- -- -- -- -- --
AMR Class*............................... (20,180) (16,172) (376) (474) (481) (115)
Net realized gain on investments:
Institutional Class...................... (674) (277) -- -- (136) --
PlanAhead Class.......................... (4,591) (930) -- -- -- --
AMR Class*............................... (35,228) (21,970) -- -- (9,132) (3)
-------- --------- -------- -------- -------- ---------
NET DISTRIBUTIONS TO SHAREHOLDERS..... (63,318) (40,116) (377) (474) (9,758) (118)
-------- --------- -------- -------- -------- ---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares.............. 118,740 247,623 24,244 39,712 59,595 164,231
Reinvestment of dividends and
distributions............................ 62,858 40,085 376 474 9,756 118
Cost of shares redeemed.................... (91,106) (175,089) (13,832) (35,633) (16,516) (153,362)
Redemption fees............................ -- -- -- -- 77 4
-------- --------- -------- -------- -------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL SHARE TRANSACTIONS..... 90,492 112,619 10,788 4,553 52,912 10,991
-------- --------- -------- -------- -------- ---------
NET INCREASE (DECREASE) IN NET ASSETS........... 140,248 146,702 18,864 8,166 52,584 18,796
-------- --------- -------- -------- -------- ---------
NET ASSETS:
Beginning of period........................ 813,071 666,369 63,288 55,122 44,342 25,546
-------- --------- -------- -------- -------- ---------
END OF PERIOD*............................. $953,319 $ 813,071 $ 82,152 $ 63,288 $ 96,926 $ 44,342
======== ========= ======== ======== ======== =========
* Includes undistributed net investment
income (loss) of......................... $ 19,982 $ 15,755 $ 479 $ 231 $ 479 $ 336
======== ========= ======== ======== ======== =========
</Table>
- --------
(1) Commencement of Operations
* Formerly Institutional Class prior to 11/30/05 for Mid-Cap Value Fund
- --------------------------------------------------------------------------------
80
- --------------------------------------------------------------------------------
<Table>
<Caption>
SMALL CAP VALUE
OPPORTUNITY(1) EMERGING MARKETS HIGH YIELD BOND ENHANCED INCOME
- --------------- -------------------- ---------------------- --------------------
FROM MARCH 31 YEAR ENDED YEAR ENDED YEAR ENDED
TO OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
- --------------- -------------------- ---------------------- --------------------
2006 2006 2005 2006 2005 2006 2005
- --------------- -------- -------- --------- --------- -------- --------
$ 4 $ 1,361 $ 1,690 $ 23,832 $ 27,142 $ 3,578 $ 3,156
8 22,344 16,180 (3,640) 3,293 335 570
150 14,943 9,392 6,614 (19,461) 3,410 (2,306)
------ -------- -------- --------- --------- -------- --------
162 38,648 27,262 26,806 10,974 7,323 1,420
------ -------- -------- --------- --------- -------- --------
-- (163) (39) (16,799) (16,952) -- --
-- (36) (3) (7,065) (10,190) (3,905) (3,495)
-- -- -- (1) -- -- --
-- (1,551) (577) -- -- -- --
-- (1,683) (673) (2,254) (4,274) -- --
-- (425) (86) (1,092) (2,693) (14) --
-- (14,022) (6,885) -- -- -- --
------ -------- -------- --------- --------- -------- --------
-- (17,880) (8,263) (27,211) (34,109) (3,919) (3,495)
------ -------- -------- --------- --------- -------- --------
4,644 34,209 41,933 161,075 164,045 30,206 31,229
-- 17,795 8,256 23,167 30,574 3,919 3,496
(43) (22,127) (45,081) (208,965) (224,426) (23,955) (24,206)
-- 90 2 -- -- -- --
------ -------- -------- --------- --------- -------- --------
4,601 29,967 5,110 (24,723) (29,807) 10,170 10,519
------ -------- -------- --------- --------- -------- --------
4,763 50,735 24,109 (25,128) (52,942) 13,574 8,444
------ -------- -------- --------- --------- -------- --------
-- 106,804 82,695 337,105 390,047 112,341 103,897
------ -------- -------- --------- --------- -------- --------
$4,763 $157,539 $106,804 $ 311,977 $ 337,105 $125,915 $112,341
====== ======== ======== ========= ========= ======== ========
$ 7 $ 1,129 $ 1,524 $ 499 $ -- $ (1,012) $ (470)
====== ======== ======== ========= ========= ======== ========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
81
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
INTERMEDIATE BOND SHORT-TERM BOND
-------------------- --------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
-------------------- --------------------
2006 2005 2006 2005
-------- -------- -------- --------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 4,299 $ 3,950 $ 2,997 $ 2,629
Net realized gain (loss) on investments, futures
contracts, and foreign currency transactions....... (987) 61 (294) (140)
Change in net unrealized appreciation or depreciation
of investments, futures contracts, and foreign
currency translations.............................. 1,283 (2,958) 952 (1,625)
-------- -------- -------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... 4,595 1,053 3,655 864
-------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class (terminated 3/1/05) (Note 1)... -- (13) -- (48)
PlanAhead Class.................................... (41) (39) (375) (304)
Institutional Class (known as AMR Class prior to
3/1/05) (Note 1)................................ (4,367) (4,163) (3,409) (3,662)
-------- -------- -------- --------
NET DISTRIBUTIONS TO SHAREHOLDERS............... (4,408) (4,215) (3,784) (4,014)
-------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares........................ 18,558 47,062 13,507 32,831
Reinvestment of dividends and distributions.......... 4,405 4,212 3,775 3,994
Cost of shares redeemed.............................. (19,229) (52,033) (24,812) (37,019)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS.................... 3,734 (759) (7,530) (194)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS..................... 3,921 (3,921) (7,659) (3,344)
-------- -------- -------- --------
NET ASSETS:
Beginning of period.................................. 94,324 98,245 88,265 91,609
-------- -------- -------- --------
END OF PERIOD*....................................... $ 98,245 $ 94,324 $ 80,606 $ 88,265
======== ======== ======== ========
* Includes undistributed net investment income (loss)
of................................................. $ 502 $ 1 $ (304) $ (1,843)
======== ======== ======== ========
</Table>
- --------------------------------------------------------------------------------
82
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust") 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, diversified, 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 Growth Fund,
the American Beacon Mid-Cap Value Fund, the American Beacon Small Cap Value
Opportunity 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.
American Beacon Advisors, Inc. (the "Manager"), 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 Enhanced Income Fund, has multiple classes of shares
designed to meet the needs of different groups of investors; however, not all
Funds offer all classes. The following table sets forth the differences amongst
the classes:
CLASS: OFFERED TO: SERVICE AND DISTRIBUTION FEES:
- ------ ----------- ------------------------------
INSTITUTIONAL CLASS Investors making an initial investment of $2 million Administrative Service Fee -- 0.25%
PLANAHEAD CLASS General public and investors investing through an Administrative Service Fee -- 0.25%
intermediary Service Fee -- 0.25%
SERVICE CLASS Investors investing through an intermediary Administrative Service Fee -- 0.25%
Service Fee -- 0.25%
Distribution Fee -- 0.25%
AMR CLASS Investors in the tax-exempt retirement and benefit N/A
plans of AMR Corporation and its affiliates
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
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.
Effective November 30, 2005, the existing Institutional Class of the Mid-
Cap Value Fund was renamed AMR Class, and the Fund began offering a new
Institutional Class of shares.
Effective February 28, 2006, the Service Class of the High Yield Bond Fund
was closed.
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.
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AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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, as determined by the Manager, will
be priced at fair value following procedures approved by the Board of Trustees
(the "Board").
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
judgment 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.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale.
The Funds may purchase securities with delivery or payment to occur at a
later date. At the time the Funds enter into a commitment to purchase a
security, the transaction is recorded and the value of the security is reflected
in the net asset value. The value of the security may vary with market
fluctuations.
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.
- --------------------------------------------------------------------------------
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AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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
Growth, Mid-Cap Value, Small Cap Value Opportunity, 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 or as a 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.
Dividends to Shareholders
Dividends from net investment income of the Balanced, Large Cap Growth,
Mid-Cap Value, Small Cap Value Opportunity 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. These amounts are reported with the net realized gains in the Fund's
Statement of Operations.
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.
- --------------------------------------------------------------------------------
85
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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
impose a 2% redemption fee on certain shares held for less than 90 days, and the
AMR Class of the Mid-Cap Value Fund imposes a 2% redemption fee on certain
shares held for less than 180 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 Funds. The "first-in,
first-out" method is used to determine the holding period. Through April 30,
2006, the fee was retained by the class that imposed the fee. Effective May 1,
2006, the fee is allocated to all classes of each Fund pro-rata based on their
respective net assets.
Recently Issued Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing each Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and is to
be applied to all open tax years as of the effective date. At this time,
management is evaluating the implications of FIN 48 and its impact on the
financial statements has not yet been determined.
In September 2006, the FASB issued Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. As of October 31, 2006, the Funds do not believe the
adoption of FAS 157 will impact the amounts reported in the financial
statements, however, additional disclosures will be required about the inputs
used to develop the measurements of fair value and the effect of certain of the
measurements reported in the statement of operations for a fiscal 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 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.
- --------------------------------------------------------------------------------
86
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
Investment assets of the Balanced, Large Cap Growth, Mid-Cap Value, Small Cap
Value Opportunity, Emerging Markets, High Yield Bond, Enhanced Income and
Intermediate Bond Funds are managed by one or more 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 Growth Fund, Mid-Cap
Value Fund, Small Cap Value Opportunity Fund, Emerging Markets Fund, High Yield
Bond Fund and Enhanced Income Fund an annualized fee equal to 0.10% 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 0.25% 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 0.25% of the average daily net assets of the Short-
Term Bond Fund. Management fees paid during the year ended October 31, 2006 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................................... 0.225%-0.70% $2,393 $1,526 $867
Large Cap Growth Fund........................... 0.35%-0.55% 357 285 72
Mid-Cap Value Fund.............................. 0.40%-1.10% 357 308 49
Small Cap Value Opportunity Fund................ 0.45%-0.55% 8 6 2
Emerging Markets Fund........................... 0.79%-1.20% 1,158 1,019 139
High Yield Bond Fund............................ 0.52% 1,643 1,323 320
Enhanced Income Fund............................ 0.25%-0.85% 397 285 112
Intermediate Bond Fund.......................... 0.25% 232 77 155
</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 the Statement of Operations. During
the year ended October 31, 2006, securities lending fees paid to the Manager
were as follows (in thousands):
<Table>
Balanced Fund................................................................... $30
Mid-Cap Value Fund.............................................................. 4
Emerging Markets Fund........................................................... 6
High Yield Bond Fund............................................................ 11
Enhanced Income Fund............................................................ 4
Intermediate Bond Fund.......................................................... 5
</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
0.25% 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 Act, 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
- --------------------------------------------------------------------------------
87
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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 $262 and $50, respectively for the year
ended October 31, 2006.
Investment in Affiliated Funds
The Funds are permitted, pursuant to an exemptive order by the Securities
and Exchange Commission ("SEC") and procedures approved by the Board, to invest
up to 25% of its total assets in the American Beacon Money Market Select Fund
(the "Select Fund"). Cash collateral received by certain Funds in connection
with securities lending may be invested in the Select Fund and the American
Beacon Cash Plus Trust formerly the American Beacon Enhanced Cash Trust (the
"Cash Trust"). The Funds, the Select Fund and the Cash Trust (collectively, the
"Affiliated Funds") have the same investment advisor and therefore, are
considered to be affiliated. The Manager serves as investment advisor to the
Affiliated Funds and receives from each Affiliated Fund an annualized fee equal
to 0.10% of its 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 AFFILIATED FUNDS IN AFFILIATED FUNDS TOTAL
------------------- ------------------- --------
Balanced.............................................. $57,978 $149,007 $206,985
Large Cap Growth...................................... 522 2,380 2,902
Mid-Cap Value......................................... 3,484 9,568 13,052
Emerging Markets...................................... 6,121 10,648 16,769
High Yield Bond....................................... 17,249 -- 17,249
Enhanced Income....................................... 4,234 26,525 30,759
Intermediate Bond..................................... 2,947 20,524 23,471
Short-Term Bond....................................... 2,576 3,074 5,650
</Table>
Other
At October 31, 2006, AMR Corporation and subsidiary companies and Employee
Benefit Trusts thereof owned 100% of AMR Class shares of the Funds, 19% of the
Institutional Class of the High Yield Bond Fund, 98% of the Institutional Class
of the Intermediate Bond Fund and 87% of the Institutional Class of the Short-
Term Bond Fund.
- --------------------------------------------------------------------------------
88
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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 borrow from other
participating Funds. For the period ended October 31, 2006, the following Funds
had borrowings:
<Table>
<Caption>
WEIGHTED
AVERAGE
DAYS INTEREST AVERAGE DEBT INTEREST
OUTSTANDING CHARGES UTILIZED RATE
----------- -------- ------------ --------
Emerging Markets..................................... 4 $318 $565,077 5.13%
High Yield Bond...................................... 2 207 700,341 5.39%
</Table>
Reimbursement of Expenses
The Manager contractually agreed to reimburse the following Funds for other
expenses through February 28, 2007 to the extent that total annual fund
operating expenses exceed the following amounts:
<Table>
<Caption>
FUND CLASS EXPENSE CAP
- ---- ----- -----------
Balanced.......................................................... Service 1.09%
Large Cap Growth.................................................. Institutional 0.90%
Mid-Cap Value..................................................... Institutional 1.01%
Emerging Markets.................................................. PlanAhead 2.00%
Intermediate Bond................................................. PlanAhead 0.95%
Short-Term Bond................................................... PlanAhead 0.87%
</Table>
During the year ended October 31, 2006, the Manager contractually waived or
reimbursed expenses as follows:
<Table>
<Caption>
FUND CLASS AMOUNT
- ---- ----- ------
Balanced............................................................. Service $ 13
Large Cap Growth..................................................... Institutional 87
Mid-Cap Value........................................................ Institutional 2,537
Emerging Markets Fund................................................ PlanAhead 2,926
Intermediate Bond.................................................... PlanAhead 3,303
Short-Term Bond...................................................... PlanAhead 1,925
</Table>
During the year ended October 31, 2006, 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
- ---- ----- ----------- -------
Mid-Cap Value................................................ PlanAhead 1.23% $ 2,797
Small Cap Value Opportunity.................................. Institutional 1.06% 70,387
Small Cap Value Opportunity.................................. PlanAhead 1.31% 2,785
</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
- --------------------------------------------------------------------------------
89
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
causing its expense ratio to exceed the previously agreed upon contractual
expense limit. The following waived fees or reimbursed expenses are subject to
potential recovery:
<Table>
<Caption>
EXPIRATION YEAR
---------------------------
FUND CLASS 2007 2008 2009
- ---- ----- ------- ------ ------
Balanced................................................... Service $ -- $1,650 $ 13
Large Cap Growth........................................... Institutional 78 184 87
Emerging Markets........................................... PlanAhead 399 5,148 2,926
Mid-Cap Value.............................................. Institutional 11,997 7,258 2,537
Mid-Cap Value.............................................. PlanAhead -- -- 2,797
High Yield Bond............................................ Institutional 34,513 62 --
Intermediate Bond.......................................... PlanAhead 172 2,421 3,303
Short-Term Bond............................................ PlanAhead -- -- 1,925
</Table>
During the year ended October 31, 2006, the Funds recorded the following
liabilities for expected repayment of prior fees waived and expenses reimbursed
by the Manager:
<Table>
<Caption>
FUND CLASS AMOUNT
- ---- ----- -------
Balanced............................................................. Service $ 938
Emerging Markets..................................................... PlanAhead 8,473
High Yield Bond...................................................... Institutional 34,575
Mid-Cap Value........................................................ Institutional 21,792
</Table>
The remaining Funds have not recorded a liability for this potential
reimbursement due to the current assessment that a reimbursement is unlikely.
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 categorized 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 paid for the years ended October 31,
2006 and 2005 were as follows (in thousands):
<Table>
<Caption>
SMALL CAP
LARGE CAP MID-CAP VALUE
BALANCED GROWTH VALUE OPPORTUNITY
---------------- ------------ ------------ -----------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD
OCTOBER 31, OCTOBER 31, OCTOBER 31, ENDED
---------------- ------------ ------------ OCTOBER 31,
2006 2005 2006 2005 2006 2005 2006
------- ------- ---- ---- ------ ---- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class.................... $ 405 $ 207 $ 1 $ -- $ 114 $118 $--
PlanAhead Class........................ 2,594 665 -- -- -- -- --
AMR Class.............................. 22,546 18,088 376 474 7,556 -- --
LONG-TERM CAPITAL GAIN
Institutional Class.................... 629 253 -- -- 31 -- --
PlanAhead Class........................ 4,282 849 -- -- -- -- --
AMR Class.............................. 32,862 20,054 -- -- 2,057 -- --
------- ------- ---- ---- ------ ---- ---
TOTAL DISTRIBUTIONS PAID.......... $63,318 $40,116 $377 $474 $9,758 $118 $--
------- ------- ---- ---- ------ ---- ---
</Table>
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AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
EMERGING MARKETS HIGH YIELD BOND ENHANCED INCOME
----------------- ------------------ ----------------
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
----------------- ------------------ ----------------
2006 2005 2006 2005 2006 2005
------- ------ ------- ------- ------ ------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class....................... $ 416 $ 39 $16,799 $17,772 $ -- $ --
PlanAhead Class........................... 100 3 7,065 10,707 3,905 3,495
Service Class............................. -- -- 1 -- -- --
AMR Class................................. 3,660 577 -- -- -- --
LONG-TERM CAPITAL GAIN
Institutional Class....................... 1,430 673 2,254 3,454 -- --
PlanAhead Class........................... 361 86 1,092 2,176 14 --
Service Class............................. -- -- -- -- -- --
AMR Class................................. 11,913 6,885 -- -- -- --
------- ------ ------- ------- ------ ------
TOTAL DISTRIBUTIONS PAID............. $17,880 $8,263 $27,211 $34,109 $3,919 $3,495
------- ------ ------- ------- ------ ------
</Table>
<Table>
<Caption>
INTERMEDIATE
BOND SHORT-TERM BOND
--------------- ---------------
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
--------------- ---------------
2006 2005 2006 2005
------ ------ ------ ------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class (terminated 3/1/05).................. $ -- $ 13 $ -- $ 48
PlanAhead Class.......................................... 41 39 375 304
Institutional Class (formerly known as AMR Class
prior to 3/1/05)....................................... 4,367 4,163 3,409 3,662
------ ------ ------ ------
TOTAL DISTRIBUTIONS PAID............................ $4,408 $4,215 $3,784 $4,014
------ ------ ------ ------
</Table>
As of October 31, 2006, the components of distributable earnings on a tax
basis were as follows (in thousands):
<Table>
<Caption>
SMALL CAP
BALANCED LARGE CAP MID-CAP VALUE EMERGING
FUND GROWTH FUND VALUE FUND OPPORTUNITY MARKETS FUND
---------- ----------- ---------- ----------- ------------
Cost basis of investments for federal income
tax purposes................................. $1,016,690 $80,169 $108,192 $5,874 $132,435
Unrealized appreciation........................ 141,857 7,739 6,294 261 38,173
Unrealized depreciation........................ (7,717) (568) (1,273) (110) (3,197)
---------- ------- -------- ------ --------
Net unrealized appreciation/(depreciation)..... 134,140 7,171 5,021 151 34,976
Undistributed ordinary income.................. 25,875 480 2,490 15 4,223
Undistributed long-term gain/(loss)............ 40,510 (3,602) 716 -- 19,610
---------- ------- -------- ------ --------
Distributable earnings......................... $ 200,525 $ 4,049 $ 8,227 $ 166 $ 58,809
========== ======= ======== ====== ========
</Table>
<Table>
<Caption>
HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM
BOND FUND INCOME FUND BOND FUND BOND FUND
---------- ----------- ------------ ----------
Cost basis of investments for federal income tax
purposes........................................... $325,833 $149,750 $122,035 $82,348
Unrealized appreciation.............................. 4,235 3,801 627 163
Unrealized depreciation.............................. (3,568) (1,702) (981) (1,488)
-------- -------- -------- -------
Net unrealized appreciation/(depreciation)........... 667 2,099 (354) (1,325)
Undistributed ordinary income........................ 811 159 500 536
Undistributed long-term gain/(loss).................. (3,616) 74 (9,110) (8,726)
-------- -------- -------- -------
Distributable earnings............................... $ (2,138) $ 2,332 $ (8,964) $(9,515)
======== ======== ======== =======
</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
- --------------------------------------------------------------------------------
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AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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, the realization for tax purposes of
unrealized gains/(losses) on investments in passive foreign investment
companies, reclassifications of income from real estate investment securities,
and income adjustments associated with contingent payment debt instruments.
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 regulations, permanent differences between book and tax
reporting have been identified and appropriately reclassified on the Statement
of Assets and Liabilities.
Accordingly, the following amounts represent current year permanent
differences derived from reclassifications of income from real estate investment
securities, foreign currency, book amortization of premium, pay down reclasses,
income adjustments associated with contingent payment debt instruments, and
dividend reclasses that have been reclassified as of October 31, 2006 (in
thousands):
<Table>
<Caption>
LARGE CAP MID-CAP SMALL CAP EMERGING HIGH ENHANCED INTERMEDIATE
BALANCED GROWTH VALUE VALUE MARKETS YIELD BOND INCOME BOND
FUND FUND FUND OPPORTUNITY FUND FUND FUND FUND
-------- --------- ------- ----------- -------- ---------- -------- ------------
Paid-in-capital.... $ 83 $ 1 $ -- $(3) $-- $(537) $ 475 $(501)
Undistributed net
investment
income........... 927 (3) (14) 3 (6) 532 (215) 610
Accumulated net
realized gain
(loss)........... (1,010) 2 14 -- 6 5 (260) (109)
Unrealized
appreciation
(depreciation) of
investments,
futures contracts
and foreign
currency......... -- -- -- -- -- -- -- --
<Caption>
SHORT-TERM
BOND
FUND
----------
Paid-in-capital.... $ (865)
Undistributed net
investment
income........... 2,328
Accumulated net
realized gain
(loss)........... (1,655)
Unrealized
appreciation
(depreciation) of
investments,
futures contracts
and foreign
currency......... 192
</Table>
At October 31, 2006 capital loss carryforward positions for federal income
tax purposes were as follows (in thousands):
<Table>
<Caption>
FUND 2007 2008 2009 2010 2011 2012 2013 2014 TOTAL
- ---- ------ ------ ---- ------ ---- ---- ------ ------ ------
Large Cap Growth....................... $ -- $ -- $-- $2,928 $674 $ -- $ -- $ -- $3,602
High Yield Bond........................ -- -- -- -- -- -- -- 3,616 3,616
Intermediate Bond...................... -- 7,367 -- 328 -- -- 318 1,097 9,110
Short-Term Bond........................ 1,991 1,218 -- 913 161 800 1,256 2,387 8,726
</Table>
The Large Cap Growth Fund utilized 2,940 of net capital loss carryovers and
the Short-Term Bond Fund had $437 of expired capital loss carryovers for the
year ended October 31, 2006.
- --------------------------------------------------------------------------------
92
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales and maturities of long-term
investments during the year ended October 31, 2006 were as follows (in
thousands):
<Table>
<Caption>
SMALL CAP
LARGE CAP MID-CAP VALUE EMERGING HIGH YIELD ENHANCED INTERMEDIATE
BALANCED GROWTH VALUE OPPORTUNITY MKT BOND INCOME BOND
-------- --------- ------- ----------- -------- ---------- -------- ------------
Purchases (excluding U.S.
government securities)...... $360,932 $132,627 $49,108 $5,368 $96,479 $264,791 $53,065 $78,039
Sales and maturities
(excluding U.S. government
securities)................. 344,782 122,732 19,178 761 87,826 296,892 54,267 80,232
Purchases of U.S. government
securities.................. 183,873 -- -- -- -- -- 18,436 38,133
Sales and maturities of U.S.
government securities....... 126,531 -- -- -- -- -- 14,904 31,736
<Caption>
SHORT-TERM
BOND
----------
Purchases (excluding U.S.
government securities)...... $36,277
Sales and maturities
(excluding U.S. government
securities)................. 41,921
Purchases of U.S. government
securities.................. 2,933
Sales and maturities of U.S.
government securities....... 4,904
</Table>
A summary of the Funds' direct transactions in Affiliated Funds for the
year ended October 31, 2006 is set forth below (in thousands):
<Table>
<Caption>
OCTOBER 31, 2005 OCTOBER 31, 2006
FUND AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
- ---- ----------- ------------------- --------- -------- -------------------
Balanced.............................. Select Fund $56,990 $340,952 $333,563 $64,379
Large Cap Growth...................... Select Fund 3,199 35,003 33,419 4,783
Mid-Cap Value......................... Select Fund 2,487 69,783 56,649 15,621
Small Cap Value Opportunity........... Select Fund -- 2,527 2,478 49
Emerging Markets...................... Select Fund 3,699 79,285 74,812 8,172
High Yield Bond....................... Select Fund 8,267 263,774 258,959 13,082
Enhanced Income....................... Select Fund 4,188 67,694 59,958 11,924
Intermediate Bond..................... Select Fund 3,312 48,946 49,368 2,890
Short-Term Bond....................... Select Fund 2,080 41,240 41,266 2,054
</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 and initially in an amount at least
equal to 102% of the fair value of domestic securities loaned 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.
The Funds, the Agent and the Manager retain 65%, 25% and 10%, respectively,
of the income generated from the investment of cash collateral, less negotiated
rebate fees paid to participating brokers and transaction costs. 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, the Agent and the Manager
65%, 25% and 10%, respectively. 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.
- --------------------------------------------------------------------------------
93
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
At October 31, 2006, 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..................................................... $187,301 $190,211
Large Cap Growth............................................. 5,409 5,490
Mid-Cap Value................................................ 16,276 16,716
Small Cap Value Opportunity.................................. 1,177 1,212
Emerging Markets............................................. 11,315 11,864
High Yield Bond.............................................. 19,770 20,296
Enhanced Income.............................................. 26,456 26,961
Intermediate Bond............................................ 24,179 24,533
Short-Term Bond.............................................. 1,161 1,183
</Table>
Cash collateral for each Fund, other than High Yield Bond, was invested in
a joint investment account, which is comprised of an investment in the Cash
Trust and the Select Fund. The allocated amounts have been included as
investments in each Fund's Schedule of Investments and Statement 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, 2006
<Table>
<Caption>
INSTITUTIONAL
CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
----------------- ------------------ ------------------ ------------------
BALANCED FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------- ------ ------- ------ -------- ------ -------- ------ --------
Shares sold.......................... 557 $ 8,501 3,407 $ 48,140 110 $ 1,538 4,199 $ 60,561
Reinvestment of dividends............ 68 982 474 6,468 -- -- 3,986 55,408
Shares redeemed...................... (139) (2,075) (2,500) (34,990) (5) (72) (3,776) (53,969)
---- ------- ------ -------- ------ -------- ------ --------
Net increase in shares outstanding... 486 $ 7,408 1,381 $ 19,618 105 $ 1,466 4,409 $ 62,000
==== ======= ====== ======== ====== ======== ====== ========
<Caption>
INSTITUTIONAL
CLASS AMR CLASS
----------------- ------------------
LARGE CAP GROWTH FUND SHARES AMOUNT SHARES AMOUNT
- --------------------- ------ ------- ------ --------
Shares sold.......................... 3 $ 17 3,677 $ 24,227
Reinvestment of dividends............ -- 1 57 375
Shares redeemed...................... (4) (25) (2,103) (13,807)
---- ------- ------ --------
Net increase (decrease) in shares
outstanding........................ (1) $ (7) 1,631 $ 10,795
==== ======= ====== ========
<Caption>
INSTITUTIONAL
CLASS PLANAHEAD CLASS AMR CLASS
----------------- ------------------ ------------------
MID-CAP VALUE FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------ ------ ------- ------ -------- ------ --------
Shares sold.......................... 379 $ 3,963 2,542 $ 26,510 2,787 $ 29,122
Reinvestment of dividends............ 15 142 -- -- 1,008 9,614
Shares redeemed*..................... (80) (910) (20) (213) (1,477) (15,316)
---- ------- ------ -------- ------ --------
Net increase in shares outstanding... 314 $ 3,195 2,522 $ 26,297 2,318 $ 23,420
==== ======= ====== ======== ====== ========
* Net of Redemption Fees
</Table>
- --------------------------------------------------------------------------------
94
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS
-------------------- ------------------
SMALL CAP VALUE OPPORTUNITY FUND SHARES AMOUNT SHARES AMOUNT
- -------------------------------- ------- --------- ------ --------
Shares sold.......................... 460 $ 4,562 8 $ 82
Reinvestment of dividends............ -- -- -- --
Shares redeemed...................... (3) (28) (2) (15)
------- --------- ------ --------
Net increase in shares outstanding... 457 $ 4,534 6 $ 67
======= ========= ====== ========
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- ------------------ -----------------------
EMERGING MARKETS FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- --------------------- ------- --------- ------ -------- ------ -------------
Shares sold.......................... 385 $ 6,392 304 $ 4,929 1,407 $ 22,888
Reinvestment of dividends............ 123 1,788 30 434 1,066 15,573
Shares redeemed*..................... (176) (2,856) (168) (2,645) (1,016) (16,536)
------- --------- ------ -------- ------ --------
Net increase in shares outstanding... 332 $ 5,324 166 $ 2,718 1,457 $ 21,925
======= ========= ====== ======== ====== ========
* Net of Redemption Fees
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS
-------------------- ------------------ -----------------------
HIGH YIELD BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------ -------- ------ -------------
Shares sold.......................... 12,050 $ 121,776 3,864 $ 39,258 4 $ 41
Reinvestment of dividends............ 1,484 15,060 798 8,106 -- 1
Shares redeemed...................... (12,034) (121,828) (8,570) (87,093) (4) (44)
------- --------- ------ -------- ------ --------
Net increase (decrease) in shares
outstanding........................ 1,500 $ 15,008 (3,908) $(39,729) -- $ (2)
======= ========= ====== ======== ====== ========
<Caption>
PLANAHEAD CLASS
--------------------
ENHANCED INCOME FUND SHARES AMOUNT
- -------------------- ------- ---------
Shares sold.......................... 3,012 $ 30,206
Reinvestment of dividends............ 389 3,919
Shares redeemed...................... (2,376) (23,955)
------- ---------
Net increase in shares outstanding... 1,025 $ 10,170
======= =========
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS
-------------------- ------------------
INTERMEDIATE BOND FUND SHARES AMOUNT SHARES AMOUNT
- ---------------------- ------- --------- ------ --------
Shares sold.......................... 1,863 $ 18,474 8 $ 84
Reinvestment of dividends............ 440 4,367 4 38
Shares redeemed...................... (1,912) (18,979) (25) (250)
------- --------- ------ --------
Net increase (decrease) in shares
outstanding........................ 391 $ 3,862 (13) $ (128)
======= ========= ====== ========
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS
-------------------- ------------------
SHORT-TERM BOND FUND SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------ --------
Shares sold.......................... 724 $ 6,305 825 $ 7,202
Reinvestment of dividends............ 391 3,407 42 368
Shares redeemed...................... (1,819) (15,869) (1,024) (8,943)
------- --------- ------ --------
Net decrease in shares outstanding... (704) $ (6,157) (157) $ (1,373)
======= ========= ====== ========
</Table>
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>
- --------------------------------------------------------------------------------
95
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
<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 increase (decrease) in shares
outstanding........................ 17 $ 102 735 $ 4,451
======= ========= ====== ========
<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
======= =========
* Net of redemption fees
<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
======= ========= ====== ======== ====== ========
* Net of redemption fees
<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)
======= ========= ====== ======== ====== ========
<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 (FORMERLY
CLASS (TERMINATED AMR CLASS THROUGH
3/1/05)* PLANAHEAD CLASS 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
<Table>
<Caption>
INSTITUTIONAL
INSTITUTIONAL CLASS (FORMERLY
CLASS (TERMINATED AMR CLASS THROUGH
3/1/05)* PLANAHEAD CLASS 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
- --------------------------------------------------------------------------------
96
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
97
AMERICAN BEACON BALANCED FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS
------------------------------------------- --------------------------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
------------------------------------------- --------------------------------------------
2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
------- ------- ------- ------- ------ -------- ------- ------- ------- -------
Net asset value, beginning of period.. $ 15.00 $ 14.31 $ 12.99 $ 10.97 $12.07 $ 14.20 $ 13.62 $ 12.40 $ 10.81 $ 11.88
------- ------- ------- ------- ------ -------- ------- ------- ------- -------
Income from investment operations:
Net investment income(A B)....... 0.39 0.36 0.29 0.31(D) 0.11 0.35 0.34 0.27 0.28(D) 0.41
Net gains (losses) on securities
(both realized and
unrealized)(B)................. 1.54 1.11 1.36 1.84(D)(0.69) 1.44 1.01 1.25 1.74(D) (0.99)
------- ------- ------- ------- ------ -------- ------- ------- ------- -------
Total income (loss) from investment
operations.......................... 1.93 1.47 1.65 2.15 (0.58) 1.79 1.35 1.52 2.02 (0.58)
------- ------- ------- ------- ------ -------- ------- ------- ------- -------
Less distributions:
Dividends from net investment
income......................... (0.38) (0.31) (0.33) (0.13) (0.44) (0.36) (0.30) (0.30) (0.43) (0.41)
Distributions from net realized
gains on securities............ (0.72) (0.47) -- -- (0.08) (0.72) (0.47) -- -- (0.08)
------- ------- ------- ------- ------ -------- ------- ------- ------- -------
Total distributions................... (1.10) (0.78) (0.33) (0.13) (0.52) (1.08) (0.77) (0.30) (0.43) (0.49)
------- ------- ------- ------- ------ -------- ------- ------- ------- -------
Net asset value, end of period........ $ 15.83 $ 15.00 $ 14.31 $ 12.99 $10.97 $ 14.91 $ 14.20 $ 13.62 $ 12.40 $ 10.81
======= ======= ======= ======= ====== ======== ======= ======= ======= =======
Total return.......................... 13.60 % 10.53% 10.53% 19.77% (5.14)% 13.31% 10.12% 12.44% 19.36% (5.18)%
======= ======= ======= ======= ====== ======== ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in
thousands)..................... $22,587 $14,122 $ 8,378 $ 9,041 $8,994 $111,837 $86,875 $21,571 $13,321 $10,561
Ratios to average net assets
(annualized):
Expenses, after expense
reimbursements
(recoupments)(B)............ 0.59 % 0.56% 0.63% 0.63% 0.62% 0.85% 0.86% 0.93% 0.94% 0.90%
Expenses before expense
reimbursements
(recoupments)(B)............ 0.59 % 0.56% 0.63% 0.63% 0.62% 0.85% 0.86% 0.93% 0.94% 0.90%
Net investment income, after
expense reimbursements
(recoupments)(B)............ 2.81 % 2.45% 2.15% 2.74% 3.12% 2.55% 2.14% 1.84% 2.40% 2.83%
Net investment income (loss),
before expense
reimbursements
(recoupments)(B)............ 2.81 % 2.45% 2.15% 2.74% 3.12% 2.55% 2.14% 1.84% 2.40% 2.83%
Portfolio turnover rate(C)....... 59 % 58% 62% 69% 84% 59% 58% 62% 69% 84%
</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 through October 31, 2005.
(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) 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.
(D) 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.
(E) Not annualized.
(F) Annualized.
(G) Portfolio turnover rate is for the period from November 1, 2004 through
October 31, 2005.
- --------------------------------------------------------------------------------
98
- --------------------------------------------------------------------------------
<Table>
<Caption>
SERVICE CLASS AMR CLASS
- ------------- -------------------------------------------------
YEAR ENDED MAY 31 TO YEAR ENDED OCTOBER 31,
OCTOBER 31, OCTOBER 31, -------------------------------------------------
2006 2005 2006 2005 2004 2003 2002
- ------------- ----------- -------- --------- -------- -------- --------
$ 14.16 $ 13.96 $ 14.49 $ 13.87 $ 12.60 $ 10.98 $ 12.06
------- -------- -------- --------- -------- -------- --------
0.38 0.09 0.45 0. 39 0.32 0.34 0.48
1.35 0.11 1.46 1.05 1.31 1.78 (1.01)
------- -------- -------- --------- -------- -------- --------
1.73 0.20 1.91 1.44 1.63 2.12 (0.53)
-------- -------- --------- -------- -------- --------
(0.34) -- (0.41) (0.35) (0.36) (0.50) (0.47)
(0.72) -- (0.72) (0.47) -- -- (0.08)
------- -------- -------- --------- -------- -------- --------
(1.06) -- (1.13) (0.82) (0.36) (0.50) (0.55)
------- -------- -------- --------- -------- -------- --------
$ 14.83 $ 14.16 $ 15.27 $ 14.49 $ 13.87 $ 12.60 $ 10.98
======= ======== ======== ========= ======== ======== ========
13.01% 1.43%(E) 13.98% 10.63% 13.13% 20.06% (4.71)%
======= ======== ======== ========= ======== ======== ========
$ 1,562 $ 1 $817,333 $ 712,073 $636,420 $557,612 $487,526
1.22% 1.09%(F) 0.33% 0.33% 0.37% 0.38% 0.35%
1.22% 360.24%(F) 0.33% 0.33% 0.37% 0.38% 0.35%
2.18% 1.52%(F) 3.08% 2.70% 2.40% 2.98% 3.39%
2.17% (357.63)%(F) 3.08% 2.70% 2.40% 2.98% 3.39%
59% 58%(G) 59% 58% 62% 69% 84%
</Table>
- --------------------------------------------------------------------------------
99
AMERICAN BEACON LARGE CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
2006(C) 2005 2004 2003 2002
------- ------- -------- ------- --------
Net asset value, beginning of period................. $ 6.18 $ 5.82 $ 5.47 $ 4.53 $ 5.66
------- ------ ------- ------- ------
Income from investment operations:
Net investment income (loss)(A)................. 0.04 0.04 0.02 0.02 0.03
Net gains (losses) on securities (both realized
and unrealized)(A)............................ 0.70 0.37 0.35 0.94 (1.16)
------- ------ ------- ------- ------
Total income (loss) from investment operations....... 0.74 0.41 0.37 0.96 (1.13)
------- ------ ------- ------- ------
Less distributions:
Dividends from net investment income............ (0.03) (0.05) (0.02) (0.02) --
------- ------ ------- ------- ------
Total distributions.................................. (0.03) (0.05) (0.02) (0.02) --
------- ------ ------- ------- ------
Net asset value, end of period....................... $ 6.89 $ 6.18 $ 5.82 $ 5.47 $ 4.53
======= ====== ======= ======= ======
Total return......................................... 12.04% 7.06% 6.71% 21.15% (19.96)%
======= ====== ======= ======= ======
Ratios and supplemental data:
Net assets, end of period (in thousands)........ $ 110 $ 105 $ 1 $ 1 $ 1
Ratios to average net assets (annualized)(A):
Expenses, net of waivers...................... 0.90% 0.89% 0.84% 0.87% 0.87%
Expenses, before waivers...................... 0.99% 4.64% 13.22% 0.87% 0.87%
Net investment income (loss), net of waivers.. 0.56% (0.18)% 0.18% 0.18% 0.06%
Net investment income (loss), before waivers.. 0.48% (3.93)% (12.20)% 0.18% 0.06%
Portfolio turnover rate(B)...................... 181% 164% 131% 138% 135%
</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.
(C) On September 12, 2006, The Renaissance Group, LLC assumed management of
the Large Cap Growth Fund's assets previously managed by J.P. Morgan
Investment Management, Inc.
- --------------------------------------------------------------------------------
100
- --------------------------------------------------------------------------------
<Table>
<Caption>
AMR CLASS
- ---------------------------------------------------
YEAR ENDED OCTOBER 31,
- ---------------------------------------------------
2006(C) 2005 2004 2003 2002
- ------- ------- ------- ------- -------
$ 6.21 $ 5.84 $ 5.48 $ 4.54 $ 5.67
- ------- ------- ------- ------- -------
0.05 0.06 0.02 0.02 0.02
0.73 0.36 0.36 0.93 (1.14)
- ------- ------- ------- ------- -------
0.78 0.42 0.38 0.95 (1.12)
- ------- ------- ------- ------- -------
(0.04) (0.05) (0.02) (0.01) (0.01)
- ------- ------- ------- ------- -------
(0.04) (0.05) (0.02) (0.01) (0.01)
- ------- ------- ------- ------- -------
$ 6.95 $ 6.21 $ 5.84 $ 5.48 $ 4.54
======= ======= ======= ======= =======
12.52% 7.22% 6.88% 21.09% (19.85)%
======= ======= ======= ======= =======
$82,042 $63,183 $55,121 $48,926 $28,017
0.59% 0.64% 0.71% 0.68% 0.67%
0.59% 0.64% 0.71% 0.68% 0.67%
0.88% 0.98% 0.34% 0.40% 0.30%
0.88% 0.98% 0.34% 0.40% 0.30%
181% 164% 131% 138% 135%
</Table>
- --------------------------------------------------------------------------------
101
AMERICAN BEACON MID-CAP VALUE FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS AMR CLASS (FORMERLY INSTITUTIONAL
--------------- CLASS PRIOR TO DECEMBER 1,
INSTITUTIONAL CLASS 2005)(D)
------------------- ---------------------------------
NOVEMBER 30, YEAR ENDED
2005 TO FEBRUARY 28 OCTOBER 31, JUNE 30 TO
OCTOBER 31, TO OCTOBER 31, ------------------ OCTOBER 31,
2006 2006 2006 2005 2004
------------------- --------------- ------- ------- -----------
Net asset value, beginning of period..... $ 12.09 $ 9.80 $ 11.72 $ 10.27 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income............... 0.21 0.01 0.12 0.13 0.02(B)
Net gains on securities (both
realized and unrealized).......... 1.25 0.99 1.75 1.37 0.25
------- ------- ------- ------- -------
Total income from investment operations.. 1.46 1.00 1.87 1.50 0.27
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment
income............................ (0.16) -- (0.14) (0.05) --
Distributions from net realized
gains on securities............... (2.58) -- (2.58) -- --
------- ------- ------- ------- -------
Total distributions...................... (2.74) -- (2.72) (0.05) --
------- ------- ------- ------- -------
Net asset value, end of period........... $ 10.81 $ 10.80 $ 10.87 $ 11.72 $ 10.27
======= ======= ======= ======= =======
Total return............................. 15.30%(A) 10.20%(A) 19.16%() 14.63% 2.70%(A)
======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in
thousands)........................ $ 3,396 $27,240 $66,290 $44,342 $25,546
Ratios to average net assets
(annualized):
Expenses, after expense
reimbursements (recoupments)... 1.19% 1.49% 0.97% 1.01% 1.14%(C)
Expenses, before expense
reimbursements (recoupments)... 1.19% 1.61% 0.92% 1.02% 1.34%(C)
Net investment income, after
expense reimbursements
(recoupments).................. 1.11% 0.57% 1.38% 0.92% 0.73%(C)
Net investment income, before
expense reimbursements
(recoupments).................. 1.11% 0.44% 1.42% 0.91% 0.53%(C)
Portfolio turnover rate............. 42%(E) 42%(E) 42%() 298% 6%(A)
</Table>
- --------
(A) Not annualized.
(B) Based on average shares outstanding.
(C) Annualized.
(D) On November 30, 2005, the Mid-Cap Value Fund's Institutional Class of
shares was renamed the AMR Class and the Fund began offering a new class
of shares known as the Institutional Class.
(E) Portfolio turnover rate is for the period November 1, 2005 through October
31, 2006.
- --------------------------------------------------------------------------------
102
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS
------------------- ---------------
MARCH 31 TO MARCH 31 TO
OCTOBER 31, OCTOBER 31,
2006(A) 2006(A)
------------------- ---------------
Net asset value, beginning of period........................... $ 10.00 $ 10.00
------- --------
Income from investment operations:
Net investment income (loss).............................. 0.01 0.01
Net gains (losses) on securities (both realized and
unrealized)............................................. 0.25 0.25
------- --------
Total income from investment operations........................ 0.26 0.26
------- --------
Less distributions:
Dividends from net investment income...................... -- --
Distributions from net realized gains on securities....... -- --
------- --------
Total distributions............................................ -- --
------- --------
Net asset value, end of period................................. $ 10.26 $ 10.26
======= ========
Total return................................................... 2.60%(B) 2.60%(B)
======= ========
Ratios and supplemental data:
Net assets, end of period (in thousands).................. $ 4,693 $ 70
Ratios to average net assets (annualized):
Expenses net of waivers................................. 1.03% 1.28%
Expenses before waivers................................. 6.12% 20.05%
Net investment income, net of waivers................... 0.30% 0.21%
Net investment income, before waivers................... (4.80%) (18.56%)
Portfolio turnover rate................................... 32%(B) 32%(B)
</Table>
- --------
(A) March 31, 2006 is the inception date of the Small Cap Value Opportunity
Fund.
(B) Not annualized.
- --------------------------------------------------------------------------------
103
AMERICAN BEACON EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------
2006 2005 2004 2003 2002
------- ------- ------- ------- ------
Net asset value, beginning of period................ $ 15.10 $ 12.64 $ 10.62 $ 7.20 $ 6.64
------- ------- ------- ------- ------
Income from investment operations:
Net investment income(A)....................... 0.11 0.15 0.07 0.04 0.09
Net gains (losses) on securities (both realized
and unrealized)(A).......................... 4.63 3.45 2.01 3.43 0.56
------- ------- ------- ------- ------
Total income (loss) from investment operations...... 4.74 3.60 2.08 3.47 0.65
------- ------- ------- ------- ------
Less distributions:
Dividends from net investment income........... (0.21) (0.06) (0.06) (0.05) (0.09)
Distributions from net realized gains on
securities................................... (2.21) (1.08) -- -- --
------- ------- ------- ------- ------
Total distributions................................. (2.42) (1.14) (0.06) (0.05) (0.09)
------- ------- ------- ------- ------
Redemption fees added to beneficial interests....... --(E) --(E) --(E) -- --
------- ------- ------- ------- ------
Net asset value, end of period...................... $ 17.42 $ 15.10 $ 12.64 $ 10.62 $ 7.20
======= ======= ======= ======= ======
Total return........................................ 34.49% 30.11% 19.65% 48.45% 9.80%
======= ======= ======= ======= ======
Ratios and supplemental data:
Net assets, end of period (in thousands)....... $16,552 $ 9,348 $ 7,282 $ 3,557 $1,769
Ratios to average net assets (annualized):
Expenses, after expense reimbursements
(recoupments)(A).......................... 1.56% 1.52% 1.85% 1.76% 1.51%
Expenses, before expense reimbursements
(recoupments)(A).......................... 1.56% 1.52% 1.85% 1.76% 1.51%
Net investment income (loss), after expense
reimbursements (recoupments)(A)........... 0.80% 1.22% 0.74% 0.62% 1.11%
Net investment income (loss), before expense
reimbursements (recoupments)(A)........... 0.80% 1.22% 0.74% 0.62% 1.11%
Portfolio turnover rate(B)..................... 67%() 63% 76% 80% 94%
</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.
- --------------------------------------------------------------------------------
104
- --------------------------------------------------------------------------------
<Table>
<Caption>
AMR CLASS
----------------------------------------------------
PLANAHEAD CLASS
- --------------------------------------------------------
YEAR ENDED OCTOBER 31, OCTOBER 1 TO YEAR ENDED OCTOBER 31,
- ---------------------------------------- OCTOBER 31, ----------------------------------------------------
2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
- ------- ------- ------- ------- ------------ -------- ------- ------- ------- -------
$ 14.98 $ 12.53 $ 10.55 $ 7.19 $ 6.86 $ 15.17 $ 12.68 $ 10.66 $ 7.22 $ 6.65
- ------- ------- ------- ------- ------ -------- ------- ------- ------- -------
0.09 0.15 0.04 0.09 -- 0.15 0.24 0.10 0.07 0.09
4.55 3.41 1.99 3.34 0.33 4.65 3.42 2.00 3.44 0.59
- ------- ------- ------- ------- ------ -------- ------- ------- ------- -------
4.64 3.56 2.03 3.43 0.33 4.80 3.66 2.10 3.51 0.68
- ------- ------- ------- ------- ------ -------- ------- ------- ------- -------
(0.19) (0.03) (0.05) (0.07) -- (0.24) (0.09) (0.08) (0.07) (0.11)
(2.21) (1.08) -- -- -- (2.21) (1.08) -- -- --
- ------- ------- ------- ------- ------ -------- ------- ------- ------- -------
(2.40) (1.11) (0.05) (0.07) -- (2.45) (1.17) (0.08) (0.07) (0.11)
- ------- ------- ------- ------- ------ -------- ------- ------- ------- -------
--(E) --(E) --(E) --(E) -- -- -- -- -- --
- ------- ------- ------- ------- ------ -------- ------- ------- ------- -------
$ 17.22 $ 14.98 $ 12.53 $ 10.55 $ 7.19 $ 17.52 $ 15.17 $ 12.68 $ 10.66 $ 7.22
======= ======= ======= ======= ====== ======== ======= ======= ======= =======
34.16% 29.95% 19.33% 48.07% 4.81%(C) 34.87% 30.43% 20.00% 48.84% 10.10%
======= ======= ======= ======= ====== ======== ======= ======= ======= =======
$ 5,841 $ 2,592 $ 1,214 $ 492 $ 1 $135,146 $94,864 $74,199 $51,498 $32,731
2.04% 1.75% 2.14% 2.08% 1.87%(F) 1.30% 1.25% 1.59% 1.50% 1.26%
1.91% 2.01% 2.20% 2.08% 1.87%(F) 1.30% 1.25% 1.59% 1.50% 1.26%
0.49% 1.16% 0.37% 0.57% (0.25)%(F) 1.01% 1.60% 1.01% 0.92% 1.35%
0.62% 0.90% 0.31% 0.57% (0.25)%(F) 1.01% 1.60% 1.01% 0.92% 1.35%
67% 63% 76% 80% 94%(D) 67% 63% 76% 80%(C) 94%
</Table>
- --------------------------------------------------------------------------------
105
AMERICAN BEACON HIGH YIELD BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2006(F) 2005 2004 2003 2002
-------- -------- -------- -------- --------
Net asset value, beginning of period............... $ 10.22 $ 10.86 $ 10.73 $ 9.63 $ 9.82
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income......................... 0.88 0.76 0.78 0.78 0.80
Net gains (losses) on securities (both
realized and unrealized).................... 0.09 (0.84) 0.27 1.10 (0.19)
-------- -------- -------- -------- --------
Total income from investment operations............ 0.97 (0.08) 1.05 1.88 0.61
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income.......... (0.88) (0.76) (0.78) (0.78) (0.80)
Distributions from net realized gains on
securities.................................. (0.11) 0.20 (0.14) -- --
-------- -------- -------- -------- --------
Total distributions................................ (0.99) (0.56) (0.92) (0.78) (0.80)
-------- -------- -------- -------- --------
Net asset value, end of period..................... $ 10.20 $ 10.22 $ 10.86 $ 10.73 $ 9.63
======== ======== ======== ======== ========
Total return....................................... 8.78% 3.03% 10.19% 20.11% 6.28%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands)...... $231,693 $216,744 $241,777 $161,380 $104,813
Ratios to average net assets (annualized):
Expenses, after expense reimbursements
(recoupments)............................ 0.85% 0.84% 0.88% 0.90% 0.90%
Expenses, before expense reimbursements
(recoupments)............................ 0.85% 0.84% 0.92% 1.00% 0.98%
Net investment income, after expense
reimbursements (recoupments)............. 7.55% 7.24% 7.27% 7.51% 8.02%
Net investment income (loss), before expense
reimbursements (recoupments)............. 7.55% 7.24% 7.23% 7.41% 7.94%
Portfolio turnover rate....................... 88% 128% 138% 114% 163%
</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.
(E) Portfolio turnover rate is for the period from November 1, 2005 through
October 31, 2006.
(F) Franklin Advisers, Inc. was added as an investment advisor to the High
Yield Bond Fund on September 12, 2006.
- --------------------------------------------------------------------------------
106
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS SERVICE CLASS
- ---------------------------------------------------------- -------------------------------------------------
FOUR MONTHS YEAR ENDED OCTOBER MAY 1
YEAR ENDED OCTOBER 31, MARCH 1 TO ENDED 31, TO
- ------------------------------------------- OCTOBER 31, FEBRUARY 28, ------------------ OCTOBER 31,
2006(F) 2005 2004 2003 2002 2006 2005 2004 2003
- ------- -------- -------- -------- ----------- ------------ ------ -------- -----------
$ 10.22 $ 10.87 $ 10.73 $ 9.63 $10.10 $10.41 $10.87 $ 10.73 $ 10.47
- ------- -------- -------- -------- ------ ------ ------ -------- --------
0.85 0.74 0.74 0.75 0.50 0.36 0.70 0.71 0.29
0.10 (0.85) 0.28 1.10 (0.47) 0.13 (0.45) 0.27 0.26
- ------- -------- -------- -------- ------ ------ ------ -------- --------
0.95 (0.11) 1.02 1.85 0.03 0.49 0.25 0.98 0.55
- ------- -------- -------- -------- ------ ------ ------ -------- --------
(0.85) (0.74) (0.74) (0.75) (0.50) (0.35) (0.71) (0.70) (0.29)
(0.11) 0.20 (0.14) -- -- (0.11) -- (0.14) --
- ------- -------- -------- -------- ------ ------ ------ -------- --------
(0.96) (0.54) (0.88) (0.75) (0.50) (0.46) (0.71) (0.84) (0.29)
- ------- -------- -------- -------- ------ ------ ------ -------- --------
$ 10.21 $ 10.22 $ 10.87 $ 10.73 $ 9.63 $10.44 $10.41 $ 10.87 $ 10.73
======= ======== ======== ======== ====== ====== ====== ======== ========
8.63% 2.69% 9.94% 19.57% (0.26)%(A) 3.72%(A) 2.33% 9.41% 5.46%(A)
======= ======== ======== ======== ====== ====== ====== ======== ========
$80,284 $120,360 $148,266 $125,654 $4,029 NA $ 1 $ 4 $ 1
1.08% 1.08% 1.20% 1.24% 1.27%(D) 1.33%(D) 1.46% 1.57% 1.71%(D)
1.08% 1.08% 1.20% 1.24% 1.27%(D) 1.33%(D) 4.01% 440.81% 806.83%(D)
7.33% 7.00% 6.95% 7.11% 7.20%(D) 7.04%(D) 6.59% 6.57% 6.51%(D)
7.33% 7.00% 6.95% 7.11% 7.20%(D) 7.04%(D) 4.04% (432.67)% (798.61)%(D)
88% 128% 138% 114% 163%(B) 88%(E) 128% 138% 114%(C)
</Table>
- --------------------------------------------------------------------------------
107
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,
2006 2005 2004 2003
-------- -------- -------- -----------
Net asset value, beginning of period................... $ 9.98 $ 10.16 $ 9.96 $ 10.00
-------- -------- -------- --------
Income from investment operations:
Net investment income............................. 0.33 0.29 0.26 0.07(B)
Net gains (losses) on securities (both realized
and unrealized)................................. 0.29 (0.16) 0.20 (0.04)
-------- -------- -------- --------
Total income from investment operations................ 0.62 0.13 0.46 0.03
-------- -------- -------- --------
Less distributions:
Dividends from net investment income.............. (0.35) (0.31) (0.26) (0.07)
Distributions from net realized gains on
securities...................................... -- -- -- --
-------- -------- -------- --------
Total distributions.................................... (0.35) (0.31) (0.26) (0.07)
-------- -------- -------- --------
Net asset value, end of period......................... $ 10.25 $ 9.98 $ 10.16 $ 9.96
======== ======== ======== ========
Total return........................................... 6.36% 1.32% 4.70% 0.32%(A)
======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands).......... $125,915 $112,341 $103,897 $101,072
Ratios to average net assets (annualized):
Expenses........................................ 0.93% 0.92% 1.00% 0.93%(C)
Net investment income........................... 3.21% 2.79% 2.54% 2.20%(C)
Portfolio turnover rate........................... 65% 41% 72% 57%(A)
</Table>
- --------
(A) Not annualized.
(B) Based on average shares outstanding.
(C) Annualized.
- --------------------------------------------------------------------------------
108
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
109
AMERICAN BEACON INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS (FORMERLY AMR CLASS PRIOR TO
3/1/05)
-----------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
2006 2005(C) 2004 2003 2002
------- ------- ------- -------- --------
Net asset value, beginning of period................. $ 10.01 $ 10.33 $ 10.24 $ 10.22 $ 10.30
------- ------- ------- -------- --------
Income from investment operations:
Net investment income(A)........................ 0.46 0.42 0.40 0.45 0.53
Net gains (losses) on securities (both realized
and unrealized)(A)............................ 0.02 (0.29) 0.14 0.02 (0.08)
------- ------- ------- -------- --------
Total income from investment operations.............. 0.48 0.13 0.54 0.47 0.45
------- ------- ------- -------- --------
Less distributions:
Dividends from net investment income............ (0.47) (0.45) (0.45) (0.45) (0.53)
Distributions from net realized gains on
securities.................................... -- -- -- -- --
------- ------- ------- -------- --------
Total distributions.................................. (0.47) (0.45) (0.45) (0.45) (0.53)
------- ------- ------- -------- --------
Net asset value, end of period....................... $ 10.02 $ 10.01 $ 10.33 $ 10.24 $ 10.22
======= ======= ======= ======== ========
Total return......................................... 4.96% 1.26% 5.38% 4.62% 4.57%
======= ======= ======= ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands)........ $97,319 $93,270 $96,242 $131,927 $144,098
Ratios to average net assets (annualized):
Expenses, net of waivers(A)................... 0.35% 0.31% 0.34% 0.32% 0.30%
Expenses, before waivers(A)................... 0.35% 0.31% 0.34% 0.32% 0.30%
Net investment income, net of waivers(A)...... 4.64% 4.12% 3.97% 4.32% 5.23%
Net investment income, before waivers(A)...... 4.64% 4.12% 3.97% 4.32% 5.23%
Portfolio turnover rate(B)...................... 122% 119% 106% 187% 185%
</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) 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.
- --------------------------------------------------------------------------------
110
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLAN AHEAD CLASS
- --------------------------------------
YEAR ENDED OCTOBER 31,
- --------------------------------------
2006 2005 2004 2003 2002
- ------ ------ ------ ------ ------
$10.08 $10.41 $10.31 $10.27 $10.34
- ------ ------ ------ ------ ------
0.39 0.36 0.35 0.39 0.48
0.04 (0.30) 0.14 0.04 (0.07)
- ------ ------ ------ ------ ------
0.43 0.06 0.49 0.43 0.41
- ------ ------ ------ ------ ------
(0.42) (0.39) (0.39) (0.39) (0.48)
-- -- -- -- --
- ------ ------ ------ ------ ------
(0.42) (0.39) (0.39) (0.39) (0.48)
- ------ ------ ------ ------ ------
$10.09 $10.08 $10.41 $10.31 $10.27
====== ====== ====== ====== ======
4.33% 0.54% 4.86% 4.25% 4.10%
====== ====== ====== ====== ======
$ 926 $1,054 $1,091 $1,395 $1,691
0.95% 0.95% 0.92% 0.86% 0.86%
1.29% 1.19% 0.93% 0.86% 0.86%
4.03% 3.48% 3.39% 3.70% 4.60%
3.70% 3.24% 3.38% 3.70% 4.60%
122% 119% 106% 187% 185%
</Table>
- --------------------------------------------------------------------------------
111
AMERICAN BEACON SHORT-TERM BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL (FORMERLY AMR CLASS PRIOR TO 3/1/05)
---------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------
2006 2005(C) 2004 2003 2002
------- ------- ------- ------- -------
Net asset value, beginning of period.................. $ 8.75 $ 9.07 $ 9.31 $ 9.44 $ 9.60
------- ------- ------- ------- -------
Income from investment operations:
Net investment income(B)......................... 0.32(D) 0.29 0.27 0.42 0.44
Net gains (losses) on securities (both realized
and unrealized)(B)............................. 0.07 (0.20) (0.05) (0.07) (0.11)
------- ------- ------- ------- -------
Total income from investment operations............... 0.39 0.09 0.22 0.35 0.33
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income............. (0.40) (0.41) (0.46) (0.48) (0.49)
------- ------- ------- ------- -------
Total distributions................................... (0.40) (0.41) (0.46) (0.48) (0.49)
------- ------- ------- ------- -------
Net asset value, end of period........................ $ 8.74 $ 8.75 $ 9.07 $ 9.31 $ 9.44
======= ======= ======= ======= =======
Total return.......................................... 4.56% 1.00% 2.39% 3.82% 3.60%
======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)......... $73,417 $79,683 $80,504 $91,911 $89,932
Ratios to average net assets (annualized):
Expenses, net of waivers(B).................... 0.35% 0.33% 0.33% 0.33% 0.30%
Expenses, before waivers(B).................... 0.35% 0.33% 0.33% 0.33% 0.30%
Net investment income, net of waivers (B)...... 3.64% 3.15% 3.00% 4.54% 4.63%
Net investment income, before waivers(B)....... 3.64% 3.15% 3.00% 4.54% 4.63%
Portfolio turnover rate(A)....................... 48% 38% 41% 81% 63%
</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) 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.
(D) For purposes of this calculation, the change in undistributed net
investment income per share was derived by dividing the change in
undistributed net investment income by average shares outstanding for the
period.
- --------------------------------------------------------------------------------
112
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS
- --------------------------------------
YEAR ENDED OCTOBER 31,
- --------------------------------------
2006 2005 2004 2003 2002
- ------ ------ ------ ------ ------
$ 8.77 $ 9.09 $ 9.33 $ 9.45 $ 9.62
- ------ ------ ------ ------ ------
0.27(D) 0.28 0.25 0.39 0.43
0.07 (0.24) (0.07) (0.08) (0.14)
- ------ ------ ------ ------ ------
0.34 0.04 0.18 0.31 0.29
- ------ ------ ------ ------ ------
(0.35) (0.36) (0.42) (0.43) (0.46)
- ------ ------ ------ ------ ------
(0.35) (0.36) (0.42) (0.43) (0.46)
- ------ ------ ------ ------ ------
$ 8.76 $ 8.77 $ 9.09 $ 9.33 $ 9.45
====== ====== ====== ====== ======
4.01% 0.46% 1.84% 3.38% 3.16%
====== ====== ====== ====== ======
$7,189 $8,582 $7,781 $5,783 $3,520
0.88% 0.87% 0.87% 0.86% 0.73%
0.90% 0.94% 0.87% 0.86% 0.77%
3.10% 2.59% 2.44% 4.00% 4.16%
3.08% 2.52% 2.44% 4.00% 4.12%
48% 38% 41% 81% 63%
</Table>
- --------------------------------------------------------------------------------
113
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.
- --------------------------------------------------------------------------------
114
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, 2006, which is
designated as qualifying for the dividends-received deduction, is as follows
(unaudited):
<Table>
Balanced Fund 37.0%
Large Cap Growth Fund 86.3%
Mid-Cap Value Fund 63.6%
Emerging Markets Fund 0.3%
Enhanced Income Fund 4.2%
</Table>
For shareholders in the Funds, the percentage of dividend income
distributed for the year ended October 31, 2006, which is designated as
qualified dividend income under the Jobs and Growth Tax Relief Act of 2003, is
as follows (unaudited):
<Table>
Balanced Fund 35.6%
Large Cap Growth Fund 100.0%
Mid-Cap Value Fund 6.9%
Emerging Markets Fund 44.0%
Enhanced Income 3.9%
</Table>
Shareholders will receive notification in January 2007 of the percentage
applicable to the preparation of their 2006 income tax returns.
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate
the following amounts as long-term capital gain dividends for their taxable year
ended October 31, 2006:
<Table>
Balanced Fund $37,772,772
Mid-Cap Value Fund 2,088,076
Emerging Markets Fund 13,704,660
High Yield Bond Fund 3,347,075
Enhanced Income Fund 13,577
</Table>
- --------------------------------------------------------------------------------
115
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
1. APPROVAL OF APPOINTMENT OF FRANKLIN ADVISERS, INC.
At the May 11, 2006 meeting of the Board of Trustees (the "Board"),
American Beacon Advisors, Inc. (the "Manager") proposed that the Board approve
Franklin Advisers, Inc. ("Franklin") as an additional investment advisor to the
American Beacon High Yield Bond Fund (the "High Yield Bond Fund"). The Board
also considered certain supplemental information at its August 2, 2006 meeting.
Prior to the meetings, the Board requested and reviewed information provided by
Franklin in connection with its consideration of Franklin as an investment
advisor to the High Yield Bond Fund and the Investment Committee of the Board
met with representatives from Franklin. The Board considered, among other
materials, responses by Franklin to inquiries requesting:
- a description of the advisory and related services proposed to be
provided to the High Yield Bond Fund;
- identification of the professional personnel to perform services for the
High Yield Bond Fund and their education, experience and
responsibilities;
- a comparison of the performance of accounts similar to the High Yield
Bond Fund managed by Franklin 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 Franklin charges a lower advisory fee to other clients for which
it provides services comparable to the services proposed for the High
Yield Bond Fund and, if so, an explanation of the rationale for charging
the other clients 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 Franklin's compliance program and matters, as well as
its trading activities; and
- any other information Franklin believed would be material to the Board's
consideration of the Investment Advisory Agreement (the "Agreement").
The Board considered several factors when evaluating Franklin and in
approving the Investment Advisory Agreement between Franklin and the Manager
(the "Franklin Agreement"), including the process by which the Manager screened
the universe of available high yield managers to identify those that would have
added value to the High Yield Bond Fund's performance over the most recent
three- and five-year periods. The Board also considered Franklin's experience in
managing high yield fixed income securities, its reputation, the past
performance of similar accounts managed by Franklin, its overall capabilities to
perform the services under the Franklin Agreement and its willingness to perform
those services for the High Yield Bond Fund. A discussion of the factors
relating to the Board's selection of Franklin and approval of the Franklin
Agreement follows.
Nature, extent and quality of the services to be provided by Franklin.
The Board considered Franklin's investment philosophy and investment
process, as well as the background and experience of the members of the high
yield fixed income portfolio management team. The Board also considered
Franklin's investment resources, infrastructure and the adequacy of its
compliance program. In reviewing information regarding various recent litigation
matters involving Franklin or its affiliated companies, the Board concluded that
Franklin appears to have implemented sufficient remedial actions and compliance
upgrades. In addition, the Board took into consideration the Manager's
conclusion that the investment process to be employed by Franklin would be
highly consistent with the High Yield Bond Fund's investment objectives and
policies, as well as the Manager's strong recommendation on behalf of Franklin.
Further, the Board considered that Franklin was prepared to reserve a material
amount of investment capacity for the benefit of the High Yield Bond Fund. Based
on
- --------------------------------------------------------------------------------
116
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENTS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
this information, the Board concluded that the nature, extent and quality of the
advisory services to be provided by Franklin were appropriate for the High Yield
Bond Fund in light of its investment objective, and, thus, supported a decision
to approve the Franklin Agreement.
Performance of Franklin.
The Board evaluated Franklin's historical investment performance record in
managing assets utilizing a high yield mandate. In particular, the Board
evaluated the performance of the Franklin Templeton U.S. High Yield Composite
for the one-, two-, three-, and four-year periods ended March 31, 2006 versus a
relevant benchmark and a peer group of U.S. high yield fixed income managers in
the Mercer investment universe. The Board noted that the performance of the
Franklin Templeton U.S. High Yield Composite for all of the time periods
presented was (1) better than the performance of the Credit Suisse First Boston
High Yield (Developed Countries) Index and (2) above average compared to the
Mercer U.S. high yield fixed income universe. The Board concluded that the
historical investment performance record of Franklin supported approval of the
Franklin Agreement.
Comparisons of the amounts to be paid under the Franklin Agreement with those
under contracts between Franklin and its other clients.
In evaluating the Franklin Agreement, the Board reviewed Franklin's
advisory fee schedule and breakpoints for the High Yield Bond Fund. The Board
considered comparisons of the advisory fees to be charged by Franklin under the
Franklin Agreement versus the fees charged by Franklin to other clients with a
similar investment mandate. The Board noted that Franklin's fees for advising
the High Yield Bond Fund, at current asset levels, under the Franklin Agreement
will be lower than the fees charged by Franklin for new relationships. The Board
also noted that the Manager has negotiated the lowest advisory fee Franklin
charges for any comparable client account except for two existing accounts. The
comparative data regarding the fees Franklin charges to other clients with a
similar investment mandate assisted the Board in concluding that Franklin's
advisory fees under the Franklin Agreement appeared to be within a reasonable
range for the services to be provided to the High Yield Bond Fund.
Costs of the services to be provided and profits to be realized by Franklin
and its affiliates from the relationship with the High Yield Bond Fund.
Since the advisory relationship with Franklin is new, the Board did not
consider the costs of the services to be provided and profits to be realized by
Franklin and its affiliates from the relationship with the High Yield Bond Fund.
However, the Board noted that Franklin will not charge a lower advisory fee to
other clients for comparable services.
Extent to which economies of scale would be realized as the High Yield Bond
Fund grows and whether fee levels reflect these economies of scale for the
benefit of High Yield Bond Fund investors.
The Board considered that Franklin's fee rate in combination with Post's
fee rate likely would result in a modest reduction of expenses for High Yield
Bond Fund shareholders in the longer term if High Yield Bond Fund assets
increase. The Board also considered that the fees paid to Franklin are passed
through the Manager by the High Yield Bond Fund and that the Manager would not
benefit economically from the proposed fee agreement. The Board noted that the
Manager negotiated "breakpoints" in Franklin's fees based on the levels of
assets in the High Yield Bond Fund as well as assets managed by Franklin on
behalf of AMR Corporation and its pension plans. Thus, the High Yield Bond Fund
is able to receive the lowest possible fee due to economies of scale resulting
from Franklin's management of a larger pool of assets.
- --------------------------------------------------------------------------------
117
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENTS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
Benefits to be derived by Franklin from the relationship with the High Yield
Bond Fund.
The Board considered the "fall-out" or ancillary benefits that may accrue
to Franklin as a result of the advisory relationship with the High Yield Bond
Fund, including greater exposure in the marketplace with respect to Franklin's
investment process and expanding the level of assets under management by
Franklin. The Board noted that Franklin may not direct the High Yield Bond
Fund's brokerage transactions to certain brokers to obtain research and other
services and that the High Yield Bond Fund participates in a brokerage recapture
program, which requests that Franklin select participating brokers. After
consideration of this information, the Board concluded that the potential
benefits accruing to Franklin by virtue of its relationship with the High Yield
Bond Fund appear to be fair and reasonable.
Board's Conclusion.
The Board did not identify any single factor as being of paramount
importance and different Trustees may have given different weight to different
factors. However, based on the various considerations described above, the
Board, including a majority of Trustees who are not "interested persons" of the
High Yield Bond Fund, the Manager or Franklin, as that term is defined in the
Investment Company Act of 1940 concluded that the proposed investment advisory
fee is reasonable and that the approval of the Franklin Agreement is in the best
interests of the High Yield Bond Fund and its shareholders and, as a result,
approved the Franklin Agreement.
2. APPROVAL OF SUB-ADVISORY AGREEMENT BETWEEN MORGAN STANLEY INVESTMENT
MANAGEMENT, INC. AND MORGAN STANLEY INVESTMENT MANAGEMENT COMPANY
At the August 2, 2006 Board meeting, the Manager proposed that the Board
approve a Sub-Advisory Agreement between Morgan Stanley Investment Management,
Inc. ("Morgan Stanley"), one of the investment advisers to the American Beacon
Emerging Markets Fund (the "Emerging Markets Fund"), and Morgan Stanley
Investment Management Company ("MSIM Company"), an affiliate of Morgan Stanley.
Under the Sub-Advisory Agreement, Morgan Stanley may delegate to MSIM Company
investment advisory responsibility that it is required to perform by under its
investment advisory agreement with the Manager. Morgan Stanley requested the
Manager and the Board to approve the Sub-Advisory Agreement.
The Board considered materials prepared by Morgan Stanley discussing the
proposed delegation of investment advisory responsibilities under its agreement
with the Manager to MSIM Company. In this regard, the Board considered
representations from Morgan Stanley regarding the impact of the delegation to
its affiliate on the Emerging Markets Fund, MSIM Company's experience and
expertise in emerging markets, its reputation, its overall capabilities to
perform the services under the Sub-Advisory Agreement and its willingness to
perform those services for the Emerging Markets Fund. A discussion of the
factors relating to the Board's approval of MSIM Company and the Sub-Advisory
Agreement follows.
Nature, extent and quality of the services to be provided by MSIM Company.
Based on representations made by Morgan Stanley, the Board considered that
the nature, extent and quality of services to be provided by MSIM Company would
not decrease as a result of the delegation to MSIM Company. The Board noted that
Morgan Stanley has proposed the Sub-Advisory Agreement in order to continue to
utilize the services of certain members of the Emerging Markets Fund's portfolio
management team. In this regard, the Board considered that members of the
portfolio management team who are responsible for the day-to-day management of
the Emerging Markets Fund are located outside the United States and are employed
by MSIM Company. The Board also considered that MSIM Company's investment
philosophy and investment process would not change how the Emerging Markets Fund
is managed currently.
- --------------------------------------------------------------------------------
118
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENTS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
The Board also noted that the investment advisory agreement with Morgan
Stanley would remain in place, and that Morgan Stanley is responsible for
overseeing the services to be provided by MSIM Company, Inc. In addition, the
Board took into consideration the Manager's recommendation to approve the
proposed arrangement. Based on this information, the Board concluded that the
nature, extent and quality of the investment advisory services to be provided by
MSIM Company were appropriate for the Emerging Markets Fund in light of its
investment objective, and, thus, supported a decision to approve the Sub-
Advisory Agreement.
Performance of MSIM Company.
The Board noted that it had evaluated the performance of Morgan Stanley at
its annual contract renewal meeting in February 2006. The Board noted that the
portion of Emerging Markets Fund assets allocated to Morgan Stanley outperformed
or matched the Emerging Markets Fund's benchmark index for all relevant periods
except the since inception period ended December 31, 2005. In this regard, the
Board considered that MSIM Company likely would have had similar performance if
it had managed the Emerging Markets Fund during these periods because the
portfolio management team and processes would have been similar. Thus, the Board
concluded that the performance record supported approval of the Sub-Advisory
Agreement.
Comparisons of the amounts to be paid under the Sub-Advisory Agreement with
those under contracts between MSIM Company and its other clients.
The Board did not consider comparisons of amounts to be paid under the Sub-
Advisory Agreement because the fees to be paid to MSIM Company will be paid by
Morgan Stanley. In addition, the Board considered that there is no change to the
investment advisory fee to be paid by the Manager. Morgan Stanley previously
represented that its fee rates are lower than the standard fee schedules for
similarly managed mutual funds.
Costs of the services to be provided and profits to be realized by MSIM
Company and its affiliates from the relationship with the Emerging Markets
Fund.
Because Morgan Stanley pays MSIM Company, the Board did not consider the
costs of the services to be provided and profits to be realized by MSIM Company
and its affiliates from the relationship with the Emerging Markets Fund.
Extent to which economies of scale would be realized as the Emerging Markets
Fund grows and whether fee levels reflect these economies of scale for the
benefit of Emerging Markets Fund investors.
The Board considered that there are no changes to the fees paid for the
investment advisory services provided to the Emerging Markets Fund. The only
difference is that Morgan Stanley will pay a portion of the fee it receives from
the Manager to MSIM Company, as determined by Morgan Stanley and MSIM Company
from time to time, for its services in connection with the management of the
Emerging Markets Fund.
Benefits to be derived by MSIM Company from the relationship with the Emerging
Markets Fund.
The Board considered the "fall-out" or ancillary benefits that may accrue
to MSIM Company as a result of its management of the Emerging Markets Fund. In
this regard, the Board noted that MSIM Company may have greater exposure in the
marketplace with respect to its investment process and expanding the level of
assets under management by MSIM Company. The Board noted that MSIM Company may
not direct the Emerging Markets Fund's brokerage transactions to certain brokers
to obtain research and other services and that the Emerging Markets Fund
participates in a brokerage recapture program, which requests that MSIM Company
select participating brokers. After consideration of this information, the Board
concluded that the potential benefits accruing to MSIM Company by virtue of its
relationship with the Emerging Markets Fund appear to be fair and reasonable.
- --------------------------------------------------------------------------------
119
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENTS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
Board's Conclusion.
The Board did not identify any single factor as being of paramount
importance and different Trustees may have given different weight to different
factors. However, based on the various considerations described above, the
Trustees, including a majority of the Independent Trustees, concluded that the
fees to be paid under the Sub-Advisory Agreement are reasonable and that the
approval of the Sub-Advisory Agreement is in the best interests of the Emerging
Markets Fund and its shareholders and, as a result, approved the Sub-Advisory
Agreement.
3. APPROVAL OF APPOINTMENT OF RENAISSANCE INVESTMENT MANAGEMENT
At the August 3, 2006 Board meeting, the Manager proposed that the Board
approve Renaissance Investment Management ("Renaissance") as an investment
advisor to the American Beacon Large Cap Growth Fund (the "Large Cap Growth
Fund"). Prior to the meeting, the Board requested and reviewed information
provided by Renaissance in connection with its consideration of Renaissance as
an investment advisor to the Large Cap Growth Fund and the Investment Committee
of the Board met with representatives from Renaissance. The Board considered,
among other materials, responses by Renaissance to inquiries requesting:
- a description of the advisory and related services proposed to be
provided to the Large Cap Growth Fund;
- identification of the professional personnel to perform services for the
Large Cap Growth Fund and their education, experience and
responsibilities;
- a comparison of the performance of accounts similar to the Large Cap
Growth Fund managed by Renaissance 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 Renaissance charges a lower advisory fee to other clients for
which it provides services comparable to the services proposed for the
Large Cap Growth Fund and, if so, an explanation of the rationale for
charging the other clients 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 Renaissance's compliance program and matters, as well as
its trading activities; and
- any other information Renaissance believed would be material to the
Board's consideration of the Agreement.
The Board considered multiple factors when evaluating Renaissance and in
approving the Investment Advisory Agreement between Renaissance and the Manager
(the "Renaissance Agreement"), including that the Manager had screened a number
of available large cap growth advisors to identify Renaissance. The Board
considered Renaissance's experience in managing large cap growth assets, its
reputation and financial condition, the past performance of similar accounts
managed by Renaissance, its overall capabilities to perform the services under
the Renaissance Agreement and its willingness to perform those services for the
Large Cap Growth Fund. A discussion of the factors relating to the Board's
selection of Renaissance and approval of the Renaissance Agreement follows.
Nature, extent and quality of the services to be provided by Renaissance.
The Board considered Renaissance's investment philosophy and investment
process, as well as the background and experience of its portfolio manager. The
Board also considered Renaissance's investment resources, infrastructure and the
adequacy of its compliance program. In addition, the Board took into
consideration the Manager's
- --------------------------------------------------------------------------------
120
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENTS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
conclusion that the investment process to be employed by Renaissance would be
consistent with the Large Cap Growth Fund's investment objective and policies,
as well as the Manager's recommendation on behalf of Renaissance. The Board also
noted that the transition to Renaissance likely would not result in a style
shift from the previous investment advisor. Renaissance also represented that it
planned on adding additional staff in the large cap growth research area. Based
on this information, the Board concluded that the nature, extent and quality of
the advisory services to be provided by Renaissance were appropriate for the
Large Cap Growth Fund in light of its investment objective, and, thus, supported
a decision to approve the Renaissance Agreement.
Performance of Renaissance.
The Board evaluated Renaissance's historical investment performance record
in managing assets utilizing a large cap growth mandate. In particular, the
Board evaluated the short-term performance of two comparable mutual funds
managed by Renaissance relative to the Russell 1000 Growth Index (the "Index").
The Board noted that one fund outperformed the Index during the last calendar
year but that both funds underperformed in 2006. The Board also compared the
performance of a composite of large cap growth accounts relative to the Index.
The composite outperformed the Index for all relevant periods except for the
year to date return ended June 30, 2006. Thus, the Board concluded that the
historical investment performance record of Renaissance supported approval of
the Renaissance Agreement.
Comparisons of the amounts to be paid under the Renaissance Agreement with
those under contracts between Renaissance and its other clients.
In evaluating the Renaissance Agreement, the Board reviewed Renaissance's
proposed advisory fee schedule and breakpoints for the Large Cap Growth Fund.
The Board considered comparisons of the advisory fees to be charged by
Renaissance under the Renaissance Agreement versus the fees charged by
Renaissance to other clients with a similar investment mandate. The Board noted
that Renaissance's fee rate for advising the Large Cap Growth Fund under the
Renaissance Agreement is lower than the standard fee rate charged by
Renaissance. The Board also noted that the fee Renaissance charges will not
exceed the blended fee charged to any other client of Renaissance with a large
cap growth account of the same or smaller size (excluding existing relationships
and wrap programs). In addition, the Board considered that the blended fee rate
is slightly higher up to $100 million in managed assets when compared to the
blended fee rate of the prior investment advisor. However, the proposed fee
schedule also includes an additional breakpoint with a lower fee applicable
after $100 million in assets in the Large Cap Growth Fund. This information
assisted the Board in concluding that Renaissance's advisory fees under the
Renaissance Agreement appeared to be within a reasonable range for the services
to be provided to the Large Cap Growth Fund.
Costs of the services to be provided and profits to be realized by Renaissance
and its affiliates from the relationship with the Large Cap Growth Fund.
Since the advisory relationship with Renaissance is new, the Board did not
consider the costs of the services to be provided and profits to be realized by
Renaissance and its affiliates from the relationship with the Large Cap Growth
Fund. However, the Board noted that Renaissance's fee will not exceed the
blended fee for similar accounts as noted above.
Extent to which economies of scale would be realized as the Large Cap Growth
Fund grows and whether fee levels reflect these economies of scale for the
benefit of Large Cap Growth Fund investors.
The Board considered that Renaissance's fee rate represents a significant
discount from its standard fee rate for similar accounts. The Board considered
that the fees to be paid to Renaissance are passed through the Manager by the
Large Cap Growth Fund and that the Manager would not benefit economically from
the proposed fee agreement. The Board also considered that the Manager
negotiated "breakpoints" in Renaissance's fees based on
- --------------------------------------------------------------------------------
121
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENTS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
the levels of assets in the Large Cap Growth Fund. Thus, the Board concluded
that the Large Cap Growth Fund is receiving economies of scale due to the
relatively low fees and breakpoints incorporated into the fee schedule.
Benefits to be derived by Renaissance from the relationship with the Large Cap
Growth Fund.
The Board considered the "fall-out" or ancillary benefits that may accrue
to Renaissance as a result of the advisory relationship with the Large Cap
Growth Fund, including greater exposure in the marketplace with respect to
Renaissance's investment process and expanding the level of assets under
management by Renaissance. The Board noted that Renaissance may not direct the
Large Cap Growth Fund's brokerage transactions to certain brokers to obtain
research and other services and that the Large Cap Growth Fund participates in a
brokerage recapture program. After consideration of this information, the Board
concluded that the potential benefits accruing to Renaissance by virtue of its
relationship with the Large Cap Growth Fund appear to be fair and reasonable.
Board's Conclusion.
The Board did not identify any single factor as being of paramount
importance, and different Trustees may have given different weight to different
factors. However, based on the various considerations described above, the
Board, including a majority of Trustees who are not "interested persons" of the
Large Cap Growth Funds, the Manager or Renaissance, as that term is defined in
the 1940 Act, concluded that the proposed investment advisory fee is reasonable
and that the approval of the Renaissance Agreement is in the best interests of
the Large Cap Growth Fund and its shareholders and, as a result, approved the
Renaissance Agreement.
- --------------------------------------------------------------------------------
122
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** (58) Trustee and President since Chairman and CEO (2006-Present) and President
1987 (1986-2006), American Beacon Advisors, Inc.;
Chairman (1989-2003) and Director (1979-1989,
2003-Present), American Airlines Federal Credit
Union; Director, Crescent Real Estate Equities,
Inc. (1994-Present); Director, Pritchard, Hubble &
Herr, LLC (investment advisor) (2001-2006);
Director of Investment Committee, 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, 2006-Present);
Vice Chairman, Committee for the Investment of
Employee Benefits (2004-Present); Chairman,
Committee for the Investment of Employee Benefits
Defined Benefit Sub-Committee (2002-2004);
Director, United Way of Metropolitan 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** (69) 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 (62) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund
servicing company) (1998-2003); Board Member,
Baylor University Medical Center Foundation (1992-
2004); President and CEO, Allmerica Trust Company,
NA (1996-1997); President and CEO, Fidelity
Investments Southwest Company (1983-1995); Senior
Vice President of Regional Centers, Fidelity
Investments (1988-1995); Trustee, American Beacon
Mileage Funds (2004-Present); Trustee, American
Beacon Select Funds (2004-Present); Trustee,
American Beacon Master Trust (2004-Present).
</Table>
- --------------------------------------------------------------------------------
123
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 (45) Trustee since 2004 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary, Kimbell Art Foundation
(1993-Present); Trustee, Texas Christian
University (1998-Present); Trustee, W.I. Cook
Foundation, Inc. (d/b/a Cook Children's Health
Foundation) (2001-Present); Director, Christian
Church Foundation (1999-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 (63) 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 (71) Trustee since 1987 Consultant (1994-Present); Trustee, American
Beacon Mileage Funds (1995-Present); Trustee,
American Beacon Select Funds (1999-Present);
Trustee, American Beacon Master Trust (1995-
Present).
R. Gerald Turner (60) Trustee since 2001 President, Southern Methodist University (1995-
225 Perkins Admin. Bldg. Present); Director, ChemFirst (1986-2002);
Southern Methodist Univ. Director, J.C. Penney Company, Inc. (1996-
Dallas, Texas 75275 Present); Director, California Federal 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 (50) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a
100 Crescent Court Suite 1740 Chairman since 2005 private equity firm) (1998-Present); Director,
Dallas, Texas 75201 Burger King Corporation (2004-Present); Trustee,
City of Dallas, Texas Employee Retirement Fund
(2004-Present); Trustee, The Hockaday School
(1997-2005); 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
Rosemary K. Behan (47) VP, Secretary and Chief Legal Vice President, Legal and Compliance, American
Officer since 2006 Beacon Advisors, Inc. (2006-Present); Assistant
General Counsel, First Command Financial Planning,
Inc. (2004-2006); Enforcement Attorney (2002-2004)
and Branch Chief (2000-2002); Securities and
Exchange Commission.
Brian E. Brett (46) VP since 2004 Vice President, Director of Sales, American Beacon
Advisors, Inc. (2004-Present); Regional Vice
President, Neuberger Berman, LLC (investment
advisor)
(1996-2004).
Michael W. Fields (52) VP since 1989 Vice President, Fixed Income Investments, American
Beacon Advisors, Inc. (1988-Present).
</Table>
- --------------------------------------------------------------------------------
124
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 (39) Treasurer since 1995 Vice President, Finance, American Beacon Advisors,
Inc. (1995-Present).
Christina E. Sears (35) Chief Compliance Officer since Chief Compliance Officer, American Beacon
2004 and Asst. Secretary since Advisors, Inc. (2004-Present); Senior Compliance
1999 Analyst, American Beacon Advisors, Inc. (1998-
2004).
</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
72, 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 Chairman 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.
- --------------------------------------------------------------------------------
125
(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 A description of the policies and procedures
provided in each semi-annual and annual that the Funds use to determine how to vote
report, each Fund files a complete schedule proxies relating to portfolio securities is
of its portfolio holdings with the Securities available in each Fund's Statement of Additional
and Exchange Commission ("SEC") on Form N-Q Information, is available free of charge on the
as of the first and third fiscal quarters. Funds' website (www.americanbeaconfunds.com) and
The Funds' Forms N-Q are available on the by calling 1-800-967-9009 or by accessing the
SEC's website at www.sec.gov. The Forms N-Q SEC's website at www.sec.gov. Each Fund's proxy
may also be reviewed and copied at the SEC's voting record for the most recent year ended
Public Reference Room, 450 Fifth Street, NW, June 30 is filed annually with the SEC on Form
Washington, DC 20549. Information regarding N-PX. The Funds' Forms N-PX are available on the
the operation of the SEC's Public Reference SEC's website at www.sec.gov. Each Fund's proxy
Room may be obtained by calling 1-800-SEC- voting record may also be obtained by calling 1-
0330. A complete schedule of each Fund's 800-967-9009.
portfolio holdings is also available on the
Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of
each month.
</Table>
FUND SERVICE PROVIDERS:
<Table>
<Caption>
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BANK AND BOSTON FINANCIAL DATA PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES
TRUST SERVICES ERNST & YOUNG LLP Portland, Maine
Boston, Massachusetts Kansas City, Missouri Dallas, Texas
</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 Growth Fund, American
Beacon Mid-Cap Value Fund, American Beacon Small Cap Value Opportunity 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.
AR10/06
538852
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, 2006
INTERNATIONAL EQUITY FUND
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.
Contents
- --------------------------------------------------------------------------------
<Table>
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
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, 2006
(BILL QUINN PICTURE)
FELLOW SHAREHOLDERS,
I am pleased to present to you the American Beacon International Equity Fund
Annual Report for the twelve months ended October 31, 2006. It was a positive
year for the developed foreign markets due in part to lower global oil prices.
European markets outperformed Asian markets for the year by over 17%. The MSCI
EAFE Index reported a one-year total return of 27.52%, beating the S&P 500(R)
and Dow Jones Industrial Average indices' returns of 16.34% and 18.47%,
respectively. The weak dollar had the effect of allowing the EAFE return in
dollar terms to exceed the return in local currency terms by almost 5% for the
one-year period.
The American Beacon International Equity Fund-Institutional Class recorded
annualized total returns of 27.49%, 21.57%, 16.17%, and 10.40% for the one-,
three-, five-, and ten-year periods, beating the MSCI EAFE Index's returns for
the three-, five- and ten-year periods and trailing the one-year number by just
three basis points (0.03%). Given the strength of the overall markets, the
Fund's performance in this environment exceeded the expectations we have for a
value fund. All returns are as of October 31, 2006.
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 to access your account information, please visit our website 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 current performance may be lower or higher than the performance
data quoted. To obtain performance as of the most recent month end, please visit
www.americanbeaconfunds.com or call 800-967-9009.
1
INTERNATIONAL EQUITY MARKET OVERVIEW
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
After rebounding in the fourth quarter of 2005, international stocks moved
higher over the first quarter of 2006, as a continuation of strong profit
growth, coupled with robust merger and acquisition activity, aided the overall
rally in the international markets. However, a sharp selloff was witnessed in
May and early June, due to concerns about accelerating inflation and fears that
the Federal Reserve (the "Fed") would continue its course of tight monetary
policy. Over the final four months of the period, global stocks rebounded as the
Fed left the benchmark interest rate unchanged at 5.25% for a third time and
downplayed concerns that the housing slump will jeopardize the country's five-
year economic expansion.
Further alleviating fears of tighter monetary policy was news of more
benign inflation in Europe and Japan. Inflation in the Eurozone slowed to its
lowest level in two and a half years. Japan's key inflation rate also slowed
unexpectedly, and the Bank of Japan kept rates at 0.25%. Another important
factor spurring equities higher was the sharp retreat in oil prices, as
geopolitical tensions affecting the oil market eased. After reaching record
levels in July, the price of oil fell below $57 a barrel in mid-October. A
stronger-than-expected earnings season also contributed to the rebound.
Economic growth remained robust in all principal regions of the world, with
the Eurozone achieving the fastest rate of growth in six years. In Europe,
stocks ended October at close to a five-year high, boosted by robust mergers and
acquisitions activity. A record $1.2 trillion had been spent on European
takeovers through September, compared with $750 billion for the same period last
year. Japanese stocks lagged near the end of the period, as economic reports
were weaker than expected, calling into question the sustainability of the long-
awaited economic recovery. In addition, Japan's election of a new prime minister
created uncertainty about the future pace of economic reform. All sectors of the
MSCI EAFE Index posted positive returns with Utilities and Materials
outperforming the broad market. However, the Energy and Telecom Services sectors
significantly underperformed. From a regional perspective, Europe showed the
largest gains, with particularly good stock performance in France, Germany and
Spain. The United Kingdom performed roughly in line with the MSCI EAFE Index
while Japan lagged.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The Institutional Class of the International Equity Fund returned 27.49%
for the twelve months ended October 31, 2006. The Fund underperformed the MSCI
EAFE Index (the "Index") return of 27.52% but outperformed the Lipper
International Funds Index return of 27.27%.
<Table>
<Caption>
COMPARISON OF CHANGE IN VALUE OF A $10,000
INVESTMENT FOR THE PERIOD FROM 10/31/96 THROUGH 10/31/06
(PERFORMANCE GRAPH)
LIPPER INT'L MSCI
INSTITUTIONAL FUNDS EAFE
CLASS INDEX INDEX
------------- ------------ -------
10/96 $10,000 $10,000 $10,000
10/97 $11,908 $11,337 $10,463
10/98 $12,407 $11,863 $11,473
10/99 $14,886 $14,596 $14,115
10/00 $15,237 $15,100 $13,706
10/01 $12,717 $11,461 $10,289
10/02 $11,380 $10,284 $ 8,930
10/03 $14,978 $13,013 $11,344
10/04 $18,346 $15,168 $13,481
10/05 $21,105 $18,036 $15,920
10/06 $26,907 $22,955 $20,301
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
------------------------------------
PERIODS ENDED 10/31/06
------------------------------------
VALUE OF
$10,000
10/31/96-
1 YEAR 5 YEARS 10 YEARS 10/31/06
------ ------- -------- ---------
Institutional
Class(1)............. 27.49% 16.17% 10.40% $26,907
PlanAhead Class(1)..... 27.20% 15.98% 10.16% $26,321
AMR Class(1)........... 27.88% 16.46% 10.68% $27,595
Service Class(1,2)..... 26.89% 15.75% 10.05% $26,065
Lipper Int'l. Funds
Index(3)............. 27.27% 14.90% 8.67% $22,955
MSCI EAFE Index(3)..... 27.52% 14.56% 7.34% $20,301
</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 current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2. Fund performance for the five-year and ten-year periods
represents the total returns achieved by the PlanAhead Class from 10/31/96
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 10/31/96. A portion of the fees charged to the Service
Class of the Fund has been waived. Performance prior to waiving fees was
lower than the actual returns shown.
3. The Lipper International Funds Index tracks the results of the 30 largest
mutual funds in the Lipper International Funds category. Lipper is an
independent mutual fund research and ranking service. One cannot directly
invest in an index. The MSCI EAFE Index is a market capitalization
weighted index of international stock performance composed of equities
from developed markets excluding the U.S. and Canada.
The Fund underperformed the Index by 0.03% over the past fiscal year
primarily due to Fund expenses. Although stock selection was negative, it was
more than offset by positive country allocation.
Country allocation added value as the Fund had an underweight in Japan,
which was the second worst performing EAFE market for the period with a gain of
16.6%. Additional value was added by overweighting the Netherlands, France and
Ireland as each market gained over 30%.
Although stock selection had a positive impact in the Netherlands, Finland
and Canada, it was more than offset by negative stock selections in Japan and
France. Japanese Finance companies, Takefuji (down 46.1%), Promise (down 41.3%),
Acom (down 39.1%) and Aiful (35.0%), contributed to the Fund's underperformance
in Japan. In France, despite positive performance, the Fund's positions in
Sanofi-Synthelabo (up 8.5%), Total (up 13.5%) and France Telecom (up 5.5%)
lagged the Index. In the Netherlands, significant positions in TNT (up 67.1%)
and ING Groep (up 59.7%) added value. Kci Konecranes gained just over 100% in
Finland, while Canadian-based Rogers Communication returned over 50%.
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, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
Sanofi-Synthelabo 2.3%
France Telecom S.A. 2.1%
GlaxoSmithKline plc 1.9%
Vodafone Group plc 1.9%
Total S.A. 1.8%
Royal Dutch Shell plc 1.8%
BAE Systems plc 1.7%
Royal Bank of Scotland Group plc 1.6%
Deutsche Post AG 1.5%
BNP Paribas 1.5%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 27.7%
Consumer Discretionary 15.8%
Industrials 10.8%
Telecommunication Services 8.5%
Energy 8.2%
Consumer Staples 7.8%
Health Care 7.3%
Materials 4.8%
Information Technology 4.7%
Utilities 4.4%
</Table>
REGIONAL ALLOCATION*
(PIE CHART)
<Table>
<Caption>
% OF
EQUITIES
--------
Europe 76.6 %
Pacific Rim 21.5 %
North America 1.7 %
Central America 0.2 %
</Table>
* shown as a percentage of equities.
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, 2006
through October 31, 2006.
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.
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.
4
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM) -- CONTINUED
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
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, 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
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
5/1/06 10/31/06 5/1/06-10/31/06
--------- --------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $1,038.28 $ 3.48
Hypothetical $1,000.00 $1,021.79 $ 3.46
(5% return before expenses)
PLANAHEAD CLASS
Actual $1,000.00 $1,036.94 $ 4.79
Hypothetical $1,000.00 $1,020.51 $ 4.75
(5% return before expenses)
SERVICE CLASS
Actual $1,000.00 $1,035.85 $ 6.00
Hypothetical $1,000.00 $1,019.32 $5.95
(5% return before expenses)
AMR CLASS
Actual $1,000.00 $1,039.30 $ 2.18
Hypothetical $1,000.00 $1,023.07 $ 2.16
(5% return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratios for the six-
month period of 0.68%, 0.93%, 1.17%, and 0.42% for the Institutional,
PlanAhead, Service, and AMR 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
- --------------------------------------------------------------------------------
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 (a portfolio of American Beacon Funds)
(the "Fund"), including the schedule of investments, as of October 31, 2006, 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, 2006, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
American Beacon International Equity Fund as of October 31, 2006, 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.
-s- Ernst & Young LLP
Dallas, Texas
December 28, 2006
See accompanying notes
- --------------------------------------------------------------------------------
6
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------- -------------
(DOLLARS IN THOUSANDS)
AUSTRALIA - 1.10%
COMMON STOCKS - 1.10%
Alumina Ltd. + ................................................. 732,248 $ 3,816
Commonwealth Bank of Australia ................................. 208,440 7,699
Macquarie Airports Management Ltd. ............................. 2,528,369 6,285
National Australia Bank Ltd. ................................... 342,730 10,133
News Corp. ..................................................... 182,280 3,800
-------------
TOTAL AUSTRALIA ................................................. 31,733
-------------
BERMUDA - 0.20%
COMMON STOCKS - 0.20%
Yue Yuen Industrial (Holdings) Ltd. ............................ 1,894,500 5,737
-------------
CANADA - 1.62%
COMMON STOCKS - 1.62%
Alcan, Inc. /\ ................................................. 78,471 3,681
BCE, Inc. ...................................................... 280,044 7,905
Celestica, Inc. /\ ............................................. 556,300 5,459
Husky Energy, Inc. + ........................................... 69,080 4,400
Jean Coutu Group, Inc. ......................................... 371,200 3,858
Manulife Financial Corp. ....................................... 436,196 14,178
Rogers Communications, Inc. .................................... 123,551 7,392
-------------
TOTAL CANADA .................................................... 46,873
-------------
DENMARK - 0.14%
COMMON STOCKS - 0.14%
Vestas Wind Systems /\ + ....................................... 141,526 3,986
-------------
FINLAND - 1.55%
COMMON STOCKS - 1.55%
KCI Konecranes Oyj ............................................. 432,600 9,320
Nokia Oyj /\ ................................................... 293,400 5,823
Stora Enso Oyj ................................................. 213,542 3,459
Stora Enso Oyj, A Shares ....................................... 68,102 1,106
Stora Enso Oyj, R Shares ....................................... 232,400 3,761
UPM-Kymmene Oyj ................................................ 835,200 21,202
-------------
TOTAL FINLAND ................................................... 44,671
-------------
FRANCE - 13.96%
COMMON STOCKS - 13.96%
Accor S.A. ..................................................... 199,750 13,869
AXA SA ......................................................... 1,013,618 38,616
BNP Paribas .................................................... 400,575 44,045
Carrefour S.A. ................................................. 122,683 7,475
Compagnie Generale des Etablissements Michelin ................. 116,670 9,515
Electricite de France .......................................... 143,361 8,693
France Telecom S.A. ............................................ 2,291,944 59,528
Lafarge S.A. ................................................... 55,862 7,508
</Table>
<Table>
<Caption>
SHARES VALUE
------------- -------------
(DOLLARS IN THOUSANDS)
Lagardere S.C.A. .............................................. 117,800 $ 8,472
Publicis Groupe SA /\ ......................................... 258,418 10,000
Sanofi-Synthelabo ............................................. 791,885 67,312
Schneider Electric S.A. ....................................... 71,531 7,431
Suez S.A. ..................................................... 311,998 13,961
Technip ....................................................... 200,193 12,057
Thomson S.A. /\ ............................................... 283,700 4,892
Total S.A. .................................................... 765,239 51,813
Vinci S.A. .................................................... 159,529 17,968
Vivendi SA /\ ................................................. 534,500 20,240
-------------
TOTAL FRANCE ................................................... 403,395
-------------
GERMANY - 8.26%
COMMON STOCKS - 8.26%
adidas AG /\ .................................................. 132,100 6,619
Allianz AG /\ ................................................. 57,102 10,598
BASF AG ....................................................... 58,310 5,139
Bayerische Motoren Werke Akitengesellshaft .................... 563,681 32,374
Celesio AG .................................................... 260,090 13,411
Deutsche Bank AG .............................................. 72,270 9,096
Deutsche Post AG + ............................................ 1,611,949 44,644
Deutsche Telekom /\ ........................................... 532,900 9,223
E.ON AG ....................................................... 205,630 24,670
Infineon Technologies AG /\ ................................... 527,250 6,420
Karstadt Quelle AG /\ + ....................................... 256,902 6,033
METRO AG /\ ................................................... 165,600 9,838
Muenchener
Rueckversicherung-Gesellschaft AG ............................. 47,997 7,791
Siemens AG .................................................... 391,807 35,254
Volkswagen AG + ............................................... 176,100 17,374
-------------
TOTAL GERMANY .................................................. 238,484
-------------
GIBRALTAR - 0.11%
COMMON STOCKS - 0.11%
PartyGaming, Ltd. ............................................. 5,549,831 3,229
-------------
HONG KONG/CHINA - 1.96%
COMMON STOCKS - 1.96%
Cheung Kong Holdings Ltd. ..................................... 835,500 9,110
Hang Lung Group Ltd. .......................................... 2,451,000 6,234
Henderson Land Development Company Ltd. ....................... 2,078,200 11,490
Hutchison Whampoa Ltd. ........................................ 199,000 1,767
PetroChina Company Ltd. ....................................... 16,203,048 17,834
Swire Pacific Ltd. ............................................ 957,100 10,116
-------------
TOTAL HONG KONG/CHINA .......................................... 56,551
-------------
IRELAND - 2.36%
COMMON STOCKS - 2.36%
Allied Irish Banks ............................................ 445,132 12,158
</Table>
See accompanying notes
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------- -------------
(DOLLARS IN THOUSANDS)
Bank of Ireland .................................... 1,284,680 $ 25,872
CRH plc ........................................... 566,948 20,006
Depfa Bank plc .................................... 607,152 10,198
-------------
TOTAL IRELAND ...................................... 68,234
-------------
ITALY - 3.82%
COMMON STOCKS - 3.82%
Banco Popolare di Verona e Novara Scrl + .......... 314,308 8,460
Capitalia S.p.A. .................................. 668,599 5,909
Enel S.p.A. /\ .................................... 1,432,700 13,751
Eni S.p.A. + ...................................... 677,591 20,435
Mediaset SpA /\ ................................... 1,969,911 22,100
Telecom Italia S.p.A. ............................. 1,392,689 4,222
UniCredito Italiano S.p.A. ........................ 4,297,003 35,620
-------------
TOTAL ITALY ........................................ 110,497
-------------
JAPAN - 12.63%
COMMON STOCKS - 12.63%
Aiful Corporation Kyoto /\ ........................ 213,000 7,358
Daito Trust Construction Co., Ltd. /\ ............. 139,900 7,380
East Japan Railway Co. ............................ 934 6,533
Fuji Photo Film Company Ltd. ...................... 114,400 4,245
Hitachi Ltd. ...................................... 685,500 3,956
Honda Motor Company Ltd. .......................... 499,300 17,674
Hoya Corp. ........................................ 231,700 8,955
Japan Tobacco, Inc. ............................... 3,027 13,200
JS Group Corp. .................................... 315,500 6,474
Kao Corp. ......................................... 285,600 7,497
Keyence Corp. ..................................... 28,200 6,245
Konica Minolta Holdings, Inc. ..................... 499,500 6,654
LAWSON, Inc. ...................................... 141,000 4,786
Mabuchi Motor Co. Ltd. + .......................... 15,800 921
Minebea Company Ltd. .............................. 967,700 5,899
Mitsubishi Tokyo Financial Group, Inc. ............ 822 10,332
Mitsui Trust Holdings, Inc. /\ .................... 951,400 11,202
NEC Corp. ......................................... 417,300 2,148
Nidec Corp. ....................................... 148,800 11,387
Nintendo Company Ltd. ............................. 20,500 4,193
Nippon Express Co. Ltd. + ......................... 2,023,700 10,953
Nissan Motor Company Ltd. ......................... 2,620,500 31,391
Nomura Holdings, Inc. ............................. 848,000 14,973
Ricoh Co. Ltd. .................................... 386,500 7,634
ROHM Co. Ltd. ..................................... 119,400 10,985
Sankyo Co. Ltd. ................................... 184,300 9,408
Sekisui House Ltd. ................................ 672,600 10,633
SFCG Co Ltd. + .................................... 24,345 4,502
Sompo Japan Insurance, Inc. ....................... 376,900 5,014
Sony Corp. ........................................ 108,402 4,495
Sumitomo Mitsui Financial Group, Inc. ............. 2,502 27,383
Sumitomo Trust and Banking Company Ltd. ........... 1,075,700 11,570
</Table>
<Table>
<Caption>
SHARES VALUE
------------- -------------
(DOLLARS IN THOUSANDS)
Takeda Pharmaceutical Co. Ltd. ................................. 415,700 $ 26,693
TDK Corp. ...................................................... 90,300 7,065
THK Co Ltd. .................................................... 242,000 6,156
Tokyo Gas Co. Ltd. ............................................. 2,315,200 11,818
Toyoda Gosei Co. Ltd. .......................................... 249,188 5,785
Yamada Denki Co. Ltd. /\ ....................................... 94,300 9,385
Yamaha Motor Co. Ltd. /\ ....................................... 75,100 2,055
-------------
TOTAL JAPAN ..................................................... 364,937
-------------
LUXEMBOURG - 0.25%
COMMON STOCKS - 0.25%
Stolt-Nielsen SA /\ ............................................ 250,784 7,212
-------------
MEXICO - 0.20%
COMMON STOCKS - 0.20%
Telefonos de Mexico, S.A. de C.V., ADR ......................... 214,800 5,669
-------------
NETHERLANDS - 5.29%
COMMON STOCKS - 5.29%
ABN AMRO Holding N.V. .......................................... 848,753 24,753
ING Groep N.V. ................................................. 816,512 36,172
Koninklijke (Royal) Philips Electronics N.V. /\ ................ 1,136,946 39,716
SBM Offshore N.V. /\ ........................................... 273,650 8,099
TNT N.V. ....................................................... 718,625 27,662
Unilever N.V. /\ ............................................... 670,312 16,529
-------------
TOTAL NETHERLANDS ............................................... 152,931
-------------
NEW ZEALAND - 0.28%
COMMON STOCKS - 0.28%
Telecom Corporation of New Zealand Ltd.+ ....................... 2,577,400 8,063
-------------
NORWAY - 1.24%
COMMON STOCKS - 1.24%
Frontline Ltd. + ............................................... 100,877 3,816
Statoil ASA .................................................... 292,350 7,390
Telenor ASA .................................................... 1,556,889 24,591
-------------
TOTAL NORWAY .................................................... 35,797
-------------
PORTUGAL - 0.34%
COMMON STOCKS - 0.34%
Portugal Telecom, SGPS, S.A. ................................... 792,250 9,869
-------------
SINGAPORE - 1.52%
COMMON STOCKS - 1.52%
Development Bank of Singapore Group
Holdings Ltd. .................................................. 1,889,455 24,759
Flextronics International Ltd. /\ .............................. 899,000 10,428
Singapore Telecommunications Ltd. .............................. 297,000 506
</Table>
See accompanying notes
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------- -------------
(DOLLARS IN THOUSANDS)
United Overseas Bank Ltd. ......................................... 712,000 $ 8,095
-------------
TOTAL SINGAPORE .................................................... 43,788
-------------
SOUTH KOREA - 3.24%
COMMON STOCKS - 3.24%
Hyundai Motor Co. Ltd., GDR /\ .................................... 112,700 2,620
Kookmin Bank, ADR ................................................. 213,510 16,944
Korea Electric Power Corp. ........................................ 86,860 3,356
LG Electronics, Inc. .............................................. 76,760 4,643
LG Telecom Ltd. /\ ................................................ 331,281 3,832
POSCO ............................................................. 45,345 12,584
Samsung Electronics Co. Ltd. ...................................... 38,723 25,110
Samsung Electronics Co. Ltd., GDR ++ .............................. 21,600 7,004
Shinhan Financial Group Company Ltd. .............................. 186,970 8,622
SK Telecom Company Ltd. ........................................... 40,632 8,819
-------------
TOTAL SOUTH KOREA .................................................. 93,534
-------------
SPAIN - 3.28%
COMMON STOCKS - 3.28%
Banco Bilbao Vizcaya Argentaria, S.A. /\ .......................... 691,815 16,706
Banco Popular Espanol SA .......................................... 506,100 8,772
Banco Santander Central Hispano SA ................................ 34,750 601
Banco Santander Central Hispano SA, GDR ........................... 560,544 9,709
Enagas S.A. ....................................................... 298,328 7,234
Iberdrola S.A. .................................................... 87,345 4,008
Repsol YPF S.A. ................................................... 281,480 9,341
Repsol YPF SA, ADR ................................................ 153,200 5,124
Telefonica S.A. ................................................... 1,721,528 33,177
-------------
TOTAL SPAIN ........................................................ 94,672
-------------
SWEDEN - 1.42%
COMMON STOCKS - 1.42%
Atlas Copco AB .................................................... 444,100 12,974
Nordea AB ......................................................... 617,020 8,497
Securitas AB ...................................................... 381,930 5,024
Securitas Direct AB /\ ............................................ 381,930 1,163
Securitas Systems AB /\ ........................................... 381,930 1,275
Swedbank AB ....................................................... 139,000 4,552
Telefonaktiebolaget LM Ericsson ................................... 2,006,000 7,610
-------------
TOTAL SWEDEN ....................................................... 41,095
-------------
SWITZERLAND - 6.73%
COMMON STOCKS - 6.73%
Adecco SA ......................................................... 138,320 8,545
Ciba Specialty Chemicals Holding, Inc. ............................ 202,450 12,392
Compagnie Financiere Richemont AG ................................. 183,900 9,098
Credit Suisse Group ............................................... 535,357 32,275
Lonza Group AG .................................................... 53,670 4,141
Nestle SA ......................................................... 68,404 23,369
</Table>
<Table>
<Caption>
SHARES VALUE
------------- -------------
(DOLLARS IN THOUSANDS)
Novartis AG ............................................................ 581,848 $ 35,312
Swiss Reinsurance ...................................................... 282,478 23,160
Syngenta AG ............................................................ 73,428 11,858
UBS AG ................................................................. 144,340 8,621
Zurich Financial Services AG ........................................... 103,962 25,697
-------------
TOTAL SWITZERLAND ....................................................... 194,468
-------------
UNITED KINGDOM - 24.67%
COMMON STOCKS - 24.67%
AMVESCAP plc ........................................................... 339,930 3,887
Anglo American plc ..................................................... 193,910 8,744
Aviva plc .............................................................. 916,850 13,554
BAE Systems plc ........................................................ 6,138,557 49,122
Barratt Development plc ................................................ 204,176 4,218
Boots Group PLC ........................................................ 906,780 14,011
BP plc ................................................................. 3,554,436 39,529
British American Tobacco Industries plc ................................ 901,964 24,587
British Sky Broadcasting Group plc ..................................... 914,390 9,463
Cadbury Schweppes plc .................................................. 1,845,247 18,567
Centrica plc ........................................................... 1,760,610 11,125
Compass Group plc ...................................................... 3,671,135 19,643
Debenhams plc /\ ....................................................... 2,334,586 8,372
Diageo plc ............................................................. 1,022,543 18,920
Gallaher Group plc ..................................................... 839,872 14,259
GKN plc ................................................................ 462,766 2,697
GlaxoSmithKline plc .................................................... 2,050,553 54,761
HBOS plc ............................................................... 653,354 13,547
HSBC Holdings plc ...................................................... 1,736,309 32,828
Imperial Tobacco Group plc ............................................. 403,040 14,277
Kingfisher plc ......................................................... 3,605,755 18,107
Lloyds TSB Group plc ................................................... 927,400 9,898
Marks and Spencer Group plc ............................................ 634,279 7,943
National Grid plc ...................................................... 1,917,378 24,505
Northern Rock plc /\ ................................................... 340,100 7,766
Old Mutual ............................................................. 2,372,399 7,671
Pearson plc ............................................................ 512,020 7,555
Reckitt Benckiser plc .................................................. 275,700 11,996
Rentokil Initial plc ................................................... 1,438,070 4,156
Reuters Group plc ...................................................... 1,030,072 8,788
Rio Tinto plc .......................................................... 264,493 14,591
Rolls-Royce Group PLC, B Shares /\ # ................................... 39,802,985 76
Rolls-Royce plc ........................................................ 1,084,550 9,718
Royal Bank of Scotland Group plc ....................................... 1,271,205 45,297
Royal Dutch Shell plc, ADR ............................................. 31,660 2,204
Royal Dutch Shell plc, A Shares ........................................ 726,464 25,173
Royal Dutch Shell plc, B Shares ........................................ 655,174 23,471
Shire plc .............................................................. 363,440 6,631
Smiths Group plc ....................................................... 438,030 7,904
Standard Chartered plc ................................................. 177,350 4,990
TI Automotive Ltd. /\ # ................................................ 655,200 --
</Table>
See accompanying notes
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------- -------------
(DOLLARS IN THOUSANDS)
Unilever plc ..................................................... 970,350 $ 24,081
Vodafone Group plc /\ ............................................ 21,136,939 54,432
Yell Group plc ................................................... 811,330 9,642
-------------
TOTAL UNITED KINGDOM .............................................. 712,706
-------------
SHORT TERM INVESTMENTS - 3.03%
American Beacon Money Market Select
Fund SS ........................................................ 87,487,208 87,487
-------------
SECURITIES LENDING COLLATERAL - 2.17%
American Beacon Cash Plus Trust SS ............................... 40,880,768 40,881
American Beacon Money Market Select Fund ......................... 21,867,813 21,868
-------------
TOTAL SECURITIES LENDING COLLATERAL ............................... 62,749
-------------
TOTAL INVESTMENTS 101.37% - (COST $2,222,097) ..................... 2,928,367
LIABILITIES, NET OF OTHER ASSETS - (1.37%) ........................ (39,577)
-------------
TOTAL NET ASSETS - 100.00% ........................................ $ 2,888,790
=============
</Table>
Percentages are stated as a percent of net assets.
/\ Non-income producing security.
+ All or a portion of this security is on loan at October 31, 2006.
++ 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 $7,004 or 0.24% of net
assets. The Fund has no right to demand registration of these securities.
# Valued at fair value pursuant to procedures approved by the Board of
Trustees.
SS The Fund/Trust is affiliated by having the same investment advisor.
See accompanying notes
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
UNREALIZED
NUMBER OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
----------- ----------- ------------ ------------
Australia SPI Index ..... 58 Dec 2006 $ 6,015 $ 265
Canada S&PCDA 60 Index .. 68 Dec 2006 8,557 437
France CAC 40 Index ..... 161 Dec 2006 11,013 294
Germany DAX Index ....... 40 Dec 2006 8,033 340
Hang Seng Index ......... 16 Nov 2006 1,886 17
Italy MIB 30 Index ...... 17 Dec 2006 4,296 119
Netherlands 200 AEX Index 31 Nov 2006 3,851 (24)
Spain IBEX 35 Index ..... 27 Nov 2006 4,727 111
Sweden OMX Index ........ 182 Nov 2006 2,741 (49)
Tokyo FE TOPIX Index .... 190 Dec 2006 26,167 (202)
UK FTSE 100 Index ....... 231 Dec 2006 27,053 705
----------- -----------
$ 104,339 $ 2,013
=========== ===========
</Table>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
(DOLLARS IN THOUSANDS)
SETTLEMENT MARKET UNREALIZED
DATE VALUE GAIN/(LOSS)
---------- ----------- ----------
CONTRACTS TO DELIVER
4,818 Australian Dollar 12/15/2006 $ 3,727 $ (57)
6,233 Canadian Dollar 12/15/2006 5,558 27
15,538 Euro Currency 12/15/2006 19,879 (37)
1,894,023 Japanese Yen 12/15/2006 16,299 (87)
8,610 Pound Sterling 12/15/2006 16,430 (116)
12,279 Swedish Krona 12/15/2006 1,705 (9)
5,506 Swiss Franc 12/15/2006 4,446 (11)
TOTAL CONTRACTS TO DELIVER
----------- ----------
(RECEIVABLE AMOUNT $67,754) $ 68,044 $ (290)
----------- ----------
CONTRACTS TO RECEIVE
10,871 Australian
Dollar 12/15/2006 $ 8,408 $ 226
14,369 Canadian Dollar 12/15/2006 12,813 (42)
34,180 Euro Currency 12/15/2006 43,729 220
4,709,176 Japanese Yen 12/15/2006 40,525 (201)
20,793 Pound Sterling 12/15/2006 39,678 808
27,468 Swedish Krona 12/15/2006 3,815 56
14,461 Swiss Franc 12/15/2006 11,677 (8)
TOTAL CONTRACTS TO RECEIVE
----------- ----------
(PAYABLE AMOUNT $159,586) $ 160,645 $ 1,059
----------- ----------
NET CURRENCY FLUCTUATION $ 769
==========
</Table>
See accompanying notes
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SECTOR DIVERSIFICATION
Percent of
Net Assets
----------
Consumer Discretionary ........................... 15.17%
Consumer Staples ................................. 7.53%
Energy ........................................... 7.85%
Financials ....................................... 26.55%
Health Care ...................................... 7.06%
Industrials ...................................... 10.35%
Information Technology ........................... 4.55%
Materials ........................................ 4.64%
Telecommunication Services ....................... 8.21%
Utilities ........................................ 4.26%
Short Term Investments ........................... 5.20%
Liabilities, Net of Other Assets ................. (1.37)%
----------
100.00%
==========
</Table>
See accompanying notes
AMERICAN BEACON INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2006 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value(A C)................. $ 2,778,131
Investments in affiliated securities, at value(B)..................... 150,236
Foreign currency, at value(D)......................................... 3,517
Deposit with brokers for futures contracts............................ 14,693
Receivable for investments sold....................................... 121
Dividends and interest receivable..................................... 4,641
Receivable for fund shares sold....................................... 4,557
Receivable for tax reclaims........................................... 726
Unrealized appreciation on foreign currency contracts................. 769
Prepaid expenses...................................................... 44
-----------
TOTAL ASSETS..................................................... 2,957,435
-----------
LIABILITIES:
Payable for investments purchased..................................... 572
Payable upon return of securities loaned.............................. 62,749
Payable for fund shares redeemed...................................... 1,704
Payable for variation margin on open futures contracts................ 84
Payable under excess expense reimbursement plan....................... 5
Management and investment advisory fees payable (Note 2).............. 2,489
Administrative service and service fees payable....................... 635
Other liabilities..................................................... 407
-----------
TOTAL LIABILITIES................................................ 68,645
-----------
NET ASSETS................................................................. $ 2,888,790
===========
ANALYSIS OF NET ASSETS:
Paid-in-capital....................................................... 1,933,803
Undistributed net investment income................................... 49,187
Accumulated net realized gain (loss).................................. 196,606
Unrealized appreciation (depreciation) of investments, futures
contracts and foreign currency...................................... 709,194
-----------
NET ASSETS................................................................. $ 2,888,790
===========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class................................................... 62,783,054
===========
PlanAhead Class....................................................... 31,585,878
===========
Service Class......................................................... 195,529
===========
AMR Class............................................................. 22,654,809
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class................................................... $ 24.68
===========
PlanAhead Class....................................................... $ 24.42
===========
Service Class......................................................... $ 24.24
===========
AMR Class............................................................. $ 24.86
===========
- --------
(A) Cost of investments in unaffiliated securities......................... $ 2,071,861
(B) Cost of investments in affiliated securities........................... 150,236
(C) Market value of securities on loan..................................... 56,179
(D) Cost of foreign currency............................................... 3,462
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
13
AMERICAN BEACON INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2006 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividend income from unaffiliated securities (net of foreign taxes)*... $ 64,370
Dividend income from affiliated securities............................. 3,745
Interest income........................................................ 263
Income derived from securities lending, net............................ 2,192
Investment income allocated from the Portfolio (net of foreign
taxes)**............................................................. 14,190
Expenses allocated from the Portfolio.................................. (3,209)
Other income........................................................... 31
--------
TOTAL INVESTMENT INCOME........................................... 81,582
--------
EXPENSES:
Management and investment advisory fees (Note 2)....................... 6,301
Administrative service fees (Note 2):
Institutional Class.................................................. 3,663
PlanAhead Class...................................................... 1,684
Service Class........................................................ 10
Transfer agent fees:
Institutional Class.................................................. 177
PlanAhead Class...................................................... 109
Service Class........................................................ --
AMR Class............................................................ 20
Custody and fund accounting fees....................................... 937
Professional fees...................................................... 64
Registration fees and expenses......................................... 100
Service fees:
PlanAhead Class (Note 2)............................................. 1,681
Service Class (Note 2)............................................... 10
Distribution fees -- Service Class (Note 2)............................ 10
Prospectus and shareholder reports..................................... 231
Other expenses......................................................... 223
--------
TOTAL EXPENSES.................................................... 15,220
--------
Net (fees waived and expenses reimbursed)/recouped by Manager (Note
2)................................................................... 4
--------
NET EXPENSES...................................................... 15,224
--------
NET INVESTMENT INCOME....................................................... 66,358
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from:
Investments.......................................................... 125,805
Commission recapture (Note 1)........................................ 217
Foreign currency translations........................................ 7,592
Futures contracts.................................................... 10,559
Net realized gain (loss) allocated from Portfolio.................... 62,206
Change in net unrealized appreciation or depreciation of:
Investments.......................................................... 27,496
Futures contracts.................................................... (2,021)
Foreign currency translations........................................ 99,635
Net change in unrealized gain/loss allocated from Portfolio.......... 233,765
--------
NET GAIN (LOSS) ON INVESTMENTS.................................... 565,254
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $631,612
========
* Foreign taxes....................................................... $ 5,626
** Foreign taxes....................................................... $ 841
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
14
AMERICAN BEACON INTERNATIONAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2006 2005
----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income......................................... $ 66,358 $ 47,523
Net realized gain (loss) on investments, futures contracts,
and foreign currency transactions........................... 206,379 186,828**
Change in net unrealized appreciation or depreciation of
investments, futures contracts, and foreign currency
translations................................................ 358,875 44,556
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... 631,612 278,907
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class......................................... (25,841) (13,529)
PlanAhead Class............................................. (10,419) (4,004)
Service Class............................................... (39) (22)
AMR Class................................................... (10,085) (7,644)
Net realized gain on investments:
Institutional Class......................................... (80,744) --
PlanAhead Class............................................. (36,241) --
Service Class............................................... (195) --
AMR Class................................................... (28,011) --
---------- ----------
NET DISTRIBUTIONS TO SHAREHOLDERS........................ (191,575) (25,199)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares................................. 548,466 766,799
Reinvestment of dividends and distributions................... 176,178 22,373
Cost of shares redeemed....................................... (574,493) (545,309)
Redemption fees............................................... 308 58
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS........................................... 150,459 243,921
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS.............................. 590,496 497,629
---------- ----------
NET ASSETS:
Beginning of period........................................... 2,298,294 1,800,665
---------- ----------
END OF PERIOD*................................................ $2,888,790 $2,298,294
========== ==========
* Includes undistributed net investment income (loss) of..... $ 49,187 $ 38,005
========== ==========
** Includes $902 payment by affiliate (Note 2).
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
15
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust") 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, diversified, 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") 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.
Reorganization
Prior to March 1, 2006, the American Beacon International Equity Fund (the
"Fund") invested all of its investable assets in the International Equity
Portfolio (the "Portfolio") of the American Beacon Master Trust.
At the close of business on February 28, 2006, the Portfolio redeemed for
cash and securities the investment of the American Independence International
Multi-Manager Stock Fund as follows (in thousands):
<Table>
Cash......................................................................... $ 9,583
Securities at market value................................................... $94,585
</Table>
Upon completion of this transaction, the Fund was the sole shareholder in the
Portfolio. Accordingly, on February 28, 2006 the Fund withdrew its interest in
the Portfolio. The Fund received a distribution of cash and securities from the
Portfolio with a market value equal to the Fund's investment in the Portfolio in
the amount of $2,598,672,000 at the close of business. The Portfolio then ceased
operations.
The following is a summary of the significant accounting policies followed by
the Fund.
Class Disclosure
The Fund has multiple classes of shares designed to meet the needs of
different groups of investors. The following table sets forth the differences
amongst the classes:
CLASS: OFFERED TO: SERVICE AND DISTRIBUTION FEES:
- ------ ----------- ------------------------------
INSTITUTIONAL CLASS Investors making an initial investment of $2 million Administrative Service Fee -- 0.25%
PLANAHEAD CLASS General public and investors investing through an Administrative Service Fee -- 0.25%
intermediary Service Fee -- 0.25%
SERVICE CLASS Investors investing through an intermediary Administrative Service Fee -- 0.25%
Service Fee -- 0.25%
Distribution Fee -- 0.25%
AMR CLASS Investors in the tax-exempt retirement and benefit N/A
plans of AMR Corporation and its affiliates
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
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.
- --------------------------------------------------------------------------------
16
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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, as determined by the Manager, will
be priced at fair value following procedures approved by the Board of Trustees
(the "Board").
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 that they will, in the
judgment of the pricing committee of the Fund, clearly and materially affect the
value of securities, the foreign market 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.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale.
The Fund may purchase securities with delivery or payment to occur at a
later date. At the time the Fund enters into a commitment to purchase a
security, the transaction is recorded and the value of the security is reflected
in the net asset value. The value of the security may vary with market
fluctuations.
Dividend income, net of foreign taxes, is recorded on the ex-dividend date
except certain dividends from foreign securities which are recorded as soon as
the information is available to the Fund. Interest income is earned from
settlement date, recorded on the accrual basis, and adjusted, if necessary, for
accretion of discounts and amortization of premiums. For financial and tax
reporting purposes, realized gains and losses are determined on the basis of
specific lot identification.
Currency Translation
All assets and liabilities initially expressed in foreign currency values
are converted into U.S. dollar values at the mean of the bid and ask prices of
such currencies against U.S. dollars as last quoted by a recognized dealer.
Income, expenses and purchases and sales of investments are translated into U.S.
dollars at the rate of 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 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. The
Fund bears the market risk that arises from changes in foreign exchange rates,
and accordingly, the unrealized gain (loss) on these contracts is
- --------------------------------------------------------------------------------
17
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
reflected in the accompanying financial statements. The Fund also bears the
credit risk if the counterparty fails to perform under the contract.
Futures Contracts
The Fund 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
Fund may purchase or sell futures contracts and options on 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 market. The primary risks associated with the use of futures contracts are
the possibility of illiquid markets or imperfect correlation between the value
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 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 the 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.
Commission Recapture
The Fund has established brokerage commission recapture arrangements with
certain brokers or dealers. If a Fund investment advisor chooses to execute a
transaction through a participating broker, the broker rebates a portion of the
commission back to the Fund. Any collateral benefit received through
participation in the commission recapture program is directed exclusively to the
Fund. This amount is reported with the net realized gain in the Fund's Statement
of Operations.
Redemption Fees
The Fund imposes a 2% redemption fee on 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. Through April 30, 2006, the fee was retained by the class that
imposed the fee. Effective May 1, 2006, the fee is allocated to all classes of
the Fund pro-rata based on their respective net assets.
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.
- --------------------------------------------------------------------------------
18
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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.
Recently Issued Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and is to
be applied to all open tax years as of the effective date. At this time,
management is evaluating the implications of FIN 48 and its impact on the
financial statements has not yet been determined.
In September 2006, the FASB issued Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements' ("FAS 157"). This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. As of October 31, 2006, the Fund does not believe the
adoption of FAS 157 will impact the amounts reported in the financial
statements, however, additional disclosures will be required about the inputs
used to develop the measurements of fair value and the effect of certain of the
measurements reported in the statement of operations for a fiscal 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 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 0.10% 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 Fund.
Management fees paid during the period were as follows:
<Table>
<Caption>
AMOUNT PAID TO NET AMOUNT
MANAGEMENT MANAGEMENT INVESTMENT RETAINED BY
PERIOD PAYOR FEE RATE FEE ADVISORS MANAGER
------ --------- ----------- ---------- --------------- -----------
11/1/05-2/28/06 Portfolio 0.25%-0.60% $2,849,000 $1,996,000 $ 853,000
3/1/06-10/31/06 Fund 0.25%-0.60% $6,301,000 $4,453,000 $1,848,000
</Table>
- --------------------------------------------------------------------------------
19
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
As compensation for services provided by the Manager in connection with
securities lending activities, the 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 period
from March 1 through October 31, 2006, the Fund paid securities lending fees of
$293,273 to the Manager. This fee is netted against securities lending income in
the Statement of Operations. Through February 28, 2006, the Portfolio paid
securities lending fees of $44,443 to the Manager.
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 receives an annualized fee of
0.25% 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 Fund, has adopted a
"defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under
the Act, 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.
Reimbursement of Expenses
The Manager voluntarily waived or reimbursed expenses of the Service Class
of the Fund totaling $1,956 in order to maintain an expense ratio at or below
1.16%.
Expense Reimbursement Plan
The Fund has 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
- --------------------------------------------------------------------------------
20
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
causing its expense ratio to exceed the previously agreed upon contractual
expense limit. The following waived fees or reimbursed expenses are subject to
potential recovery:
<Table>
<Caption>
YEAR AMOUNT
- ---- ------
2007.......................................................................... $2,934
2008.......................................................................... 9
2009.......................................................................... 1,956
</Table>
During the year ended October 31, 2006, the Fund recorded a liability
totaling $4,899 for expected repayment of prior fees waived and expenses
reimbursed by the Manager.
Investment in Affiliated Funds
The Fund is permitted, pursuant to an exemptive order by the Securities and
Exchange Commission ("SEC") and procedures approved by the Board, to invest up
to 25% of its total assets in the American Beacon Money Market Select Fund (the
"Select Fund"). Cash collateral received by the Fund in connection with
securities lending may be invested in the Select Fund and the American Beacon
Cash Plus Trust. The Fund, the Select Fund and the Cash Trust (collectively, the
"Affiliated Funds") have the same investment advisor and therefore, are
considered to be affiliated. The Manager serves as investment advisor to the
Affiliated Funds and receives an annualized fee equal to 0.10% of the average
daily net assets of each Affiliated Fund. During the period from March 1 through
October 31, 2006, the Manager earned fees from the Affiliated Funds totaling
$74,360 on the Fund's direct investment in the Affiliated Funds, and $89,527
from securities lending collateral invested in the Affiliated Funds. During the
period from November 1, 2005 through February 28, 2006, the Manager earned fees
from the Affiliated Funds totaling $43,188 on the Portfolio's direct investment
in the Affiliated Funds, and $36,245 from securities lending collateral invested
in the Affiliated Funds.
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 other
participating series managed by the Manager. At October 31, 2006, the Fund had
not utilized the credit facility.
Other
At October 31, 2006, 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 the Manager's direction to
sell a security that the subadvisor purchased in a country not approved for
investment by the Manager. 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 Changes in Net Assets.
- --------------------------------------------------------------------------------
21
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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 categorized 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 paid during the years ended October 31,
2006 and October 31, 2005 (in thousands):
<Table>
<Caption>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2006 2005
----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class............................................. $ 42,005 $13,529
PlanAhead Class................................................. 17,674 4,004
Service Class................................................... 78 22
AMR Class....................................................... 15,693 7,644
LONG-TERM CAPITAL GAIN
Institutional Class............................................. 64,579 --
PlanAhead Class................................................. 28,986 --
Service Class................................................... 156 --
AMR Class....................................................... 22,404 --
-------- -------
TOTAL DISTRIBUTIONS PAID................................... $191,575 $25,199
-------- -------
</Table>
As of October 31, 2006, the components of distributable earnings on a tax
basis were as follows (in thousands):
<Table>
Cost basis of investments for federal income tax purposes................... $2,244,128
Unrealized appreciation..................................................... 710,124
Unrealized depreciation..................................................... (25,885)
----------
Net unrealized appreciation/(depreciation).................................. 684,239
Undistributed ordinary income............................................... 104,355
Undistributed long-term gain/(loss)......................................... 156,310
----------
Distributable earnings...................................................... $ 944,904
==========
</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, the realization
for tax purposes of unrealized gains/(losses) on investments in passive foreign
investment companies, and Section 732 basis adjustments.
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 regulations, permanent differences between book and tax
reporting have been identified and appropriately reclassified on the Statement
of Assets and Liabilities.
- --------------------------------------------------------------------------------
22
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
Accordingly, the following amounts represent current year permanent
differences derived from foreign currency gains/losses from sales of investments
in passive foreign investment companies, and Section 732 basis adjustments that
have been reclassified as of October 31, 2006 (in thousands):
<Table>
Paid-in-capital.............................................................. $ 7,575
Undistributed net investment income.......................................... (8,792)
Accumulated net realized gain (loss)......................................... 2,862
Unrealized appreciation (depreciation) of investments, futures contracts and
foreign currency........................................................... (1,645)
</Table>
4. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of investments,
other than short-term obligations, for the year ended October 31, 2006 were
$1,029,125,000 and $1,051,960,000, respectively. These amounts include
investment transactions of the Portfolio during the period from November 1, 2005
through February 28, 2006.
A summary of the Fund's direct ownership and transactions in Affiliated
Funds for the year ended October 31, 2006 is set forth below. These amounts
include investment transactions of the Portfolio during the period from November
1, 2005 through February 28, 2006. (amounts shown in thousands):
<Table>
<Caption>
OCTOBER 31, OCTOBER 31,
2005 2006
SHARES/MARKET SHARES/MARKET
AFFILIATED FUND VALUE PURCHASES SALES VALUE
- ---------------------------- ------------- ------------- ------------- -------------
Select Fund................. $119,493 $871,497 $903,503 $87,487
</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.
The Fund, the Agent and the Manager retain 75%, 15% and 10%, respectively,
of the income generated from the investment of cash collateral, less negotiated
rebate fees paid to participating brokers and transaction costs. 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, the Agent, and the Manager
75%, 15% and 10%, respectively. The Fund 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 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, 2006, securities with a market value of approximately
$56,179,000 were loaned by the Fund. Cash collateral held by the custodian for
the Fund in an investment in the Affiliated Funds totaled $62,749,000.
- --------------------------------------------------------------------------------
23
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
6. 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, 2006
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
--------------------- -------------------- ----------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- --------- ------ --------- ------ ------ ------ --------
Shares sold...................... 12,683 $ 284,628 9,650 $ 216,325 69 $1,512 1,997 $ 46,001
Reinvestment of dividends........ 4,440 92,342 2,207 45,506 11 234 1,823 38,096
Shares redeemed*................. (15,645) (356,972) (7,248) (162,210) (29) (657) (2,379) (54,346)
------- --------- ------ --------- --- ------ ------ --------
Net increase in shares
outstanding.................... 1,478 $ 19,998 4,609 $ 99,621 51 $1,089 1,441 $ 29,751
======= ========= ====== ========= === ====== ====== ========
* Net of Redemption Fees
</Table>
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)
======= ========= ====== ========= === ======= ======= =========
* Net of Redemption Fees
</Table>
- --------------------------------------------------------------------------------
24
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(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
25
AMERICAN BEACON INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2006 2005 2004(B) 2003(F) 2002
---------- ---------- ---------- -------- --------
Net asset value, beginning of
period........................... $ 20.98 $ 18.47 $ 15.46 $ 12.10 $ 13.77
---------- ---------- ---------- -------- --------
Income from investment operations:
Net investment income(A) (D).. 0.60 0.44 0.30 0.25 0.21
Net gains (losses) on
securities (both realized
and unrealized)(D).......... 4.86 2.31 3.12 3.47 (1.62)
---------- ---------- ---------- -------- --------
Total income (loss) from investment
operations....................... 5.46 2.75 3.42 3.72 (1.41)
---------- ---------- ---------- -------- --------
Less distributions:
Dividends from net investment
income...................... (0.43) (0.24) (0.41) (0.36) (0.26)
Distributions from net
realized gains on
securities.................. (1.33) -- -- -- --
---------- ---------- ---------- -------- --------
Total distributions................ (1.76) (0.24) (0.41) (0.36) (0.26)
---------- ---------- ---------- -------- --------
Redemption fees added to beneficial
interest......................... --(I) --(I) --(I) --(I) --
---------- ---------- ---------- -------- --------
Net asset value, end of period..... $ 24.68 $ 20.98 $ 18.47 $ 15.46 $ 12.10
========== ========== ========== ======== ========
Total return....................... 27.49% 15.04% 22.49% 31.61% (10.51%)
========== ========== ========== ======== ========
Ratios and supplemental data:
Net assets, end of period (in
thousands).................. $1,549,521 $1,286,441 $1,029,272 $722,333 $537,476
Ratios to average net assets
(annualized):
Expenses, net of
waivers(D)............... 0.71% 0.70% 0.76% 0.79% 0.75%
Expenses, before
waivers(D)............... 0.71% 0.70% 0.76% 0.79% 0.75%
Net investment income, net
of waivers(D)............ 2.52% 2.17% 1.69% 1.97% 1.56%
Net investment income
(losses), before
waivers(D)............... 2.52% 2.17% 1.69% 1.97% 1.56%
Portfolio turnover rate(C).... 40% 37% 36% 44% 43%
<Caption>
PLANAHEAD CLASS
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
2006 2005 2004(B) 2003(F) 2002
-------- ---------- ---------- ---------- ----------
Net asset value, beginning of
period........................... $ 20.79 $ 18.31 $ 15.34 $ 11.95 $ 13.58
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income(A) (D).. 0.50 0.41 0.26 0.22 0.15
Net gains (losses) on
securities (both realized
and unrealized)(D).......... 4.84 2.29 3.08 3.46 (1.56)
-------- -------- -------- -------- --------
Total income (loss) from investment
operations....................... 5.34 2.70 3.34 3.68 (1.41)
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income...................... (0.38) (0.22) (0.37) (0.29) (0.22)
Distributions from net
realized gains on
securities.................. (1.33) -- -- -- --
-------- -------- -------- -------- --------
Total distributions................ (1.71) (0.22) (0.37) (0.29) (0.22)
-------- -------- -------- -------- --------
Redemption fees added to beneficial
interest......................... --(I) --(I) --(I) --(I) --
-------- -------- -------- -------- --------
Net asset value, end of period..... $ 24.42 $ 20.79 $ 18.31 $ 15.34 $ 11.95
======== ======== ======== ======== ========
Total return....................... 27.20% 14.73% 22.16% 31.62% (10.57%)
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in
thousands).................. $771,298 $560,770 $310,540 $177,425 $ 99,636
Ratios to average net assets
(annualized):
Expenses, net of
waivers(D)............... 0.96% 0.95% 1.02% 1.10% 1.04%
Expenses, before
waivers(D)............... 0.96% 0.95% 1.02% 1.10% 1.04%
Net investment income, net
of waivers(D)............ 2.25% 1.96% 1.46% 1.68% 1.35%
Net investment income
(losses), before
waivers(D)............... 2.25% 1.96% 1.46% 1.68% 1.35%
Portfolio turnover rate(C).... 40% 37% 36% 44% 43%
</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 Asset Management, LLC was added as an investment advisor
to the International Equity Fund on September 27, 2004.
(C) The International Equity Fund invested all of its investable assets in the
Portfolio through February 28, 2006. Portfolio turnover rate through
February 28, 2006 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 Portfolio through February 28, 2006.
(E) Annualized.
(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.
- --------------------------------------------------------------------------------
26
- --------------------------------------------------------------------------------
<Table>
<Caption>
SERVICE CLASS AMR CLASS
- --------------------------------------------- --------------------------------------------------------
YEAR ENDED OCTOBER 31, MAY 1 TO YEAR ENDED OCTOBER 31,
- ------------------------------ OCTOBER 31, --------------------------------------------------------
2006 2005 2004(B) 2003(F) 2006 2005 2004(B) 2003(F) 2002
- ------- ------- ------- ----------- -------- -------- -------- -------- --------
$ 20.61 $ 18.24 $ 15.31 $ 12.18 $ 21.12 $ 18.58 $ 15.54 $ 12.18 $ 13.86
- ------- ------- ------- ----------- -------- -------- -------- -------- --------
0.46 0.37 0.30 0.09 0.63 0.50 0.34 0.29 0.24
4.76 2.26 2.99 3.04 4.92 2.33 3.14 3.46 (1.62)
- ------- ------- ------- ----------- -------- -------- -------- -------- --------
5.22 2.63 3.29 3.13 5.55 2.83 3.48 3.75 (1.38)
- ------- ------- ------- ----------- -------- -------- -------- -------- --------
(0.26) (0.26) (0.36) -- (0.48) (0.29) (0.44) (0.39) (0.30)
(1.33) -- -- -- (1.33) -- -- -- --
- ------- ------- ------- ----------- -------- -------- -------- -------- --------
(1.59) (0.26) (0.36) -- (1.81) (0.29) (0.44) (0.39) (0.30)
- ------- ------- ------- ----------- -------- -------- -------- -------- --------
--(I) --(I) --(I) --(I) --(I) --(I) --(I) --(I) --
- ------- ------- ------- ----------- -------- -------- -------- -------- --------
$ 24.24 $ 20.61 $ 18.24 $ 15.31 $ 24.86 $ 21.12 $ 18.58 $ 15.54 $ 12.18
======= ======= ======= =========== ======== ======== ======== ======== ========
26.89% 14.45% 21.88% 25.70%(G) 27.88% 15.32% 22.84% 31.77% (10.26%)
======= ======= ======= =========== ======== ======== ======== ======== ========
$ 4,740 $ 2,987 $ 739 $ 1 $563,231 $448,096 $460,114 $322,801 $264,579
1.16% 1.21% 1.27% 1.50%(E) 0.45% 0.44% 0.49% 0.52% 0.49%
1.19% 1.21% 6.26% 1,139.08%(E) 0.45% 0.44% 0.49% 0.52% 0.49%
2.09% 1.70% 0.81% 1.33%(E) 2.76% 2.49% 1.97% 2.22% 1.81%
2.05% 1.70% (4.18%) (1,136.25%)(E) 2.76% 2.49% 1.97% 2.22% 1.81%
40% 37% 36% 44%(H) 40% 37% 36% 44% 43%
</Table>
- --------------------------------------------------------------------------------
27
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.
- --------------------------------------------------------------------------------
28
AMERICAN BEACON INTERNATIONAL EQUITY FUND
FEDERAL TAX INFORMATION
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
For corporate shareholders in the Fund, the percentage of ordinary dividend
income distributed for the year ended October 31, 2006, which is designated as
qualifying for the dividends-received deduction was 1.1%.
For shareholders in the Fund, the percentage of dividend income distributed
for the year ended October 31, 2006, which is designated as qualified dividend
income under the Jobs and Growth Tax Relief Act of 2003 was 71.8%. Shareholders
will receive notification in January 2007 of the percentage applicable to the
preparation of their 2006 income tax returns.
The Fund designated a foreign tax credit of $6,806,816 and recognized
foreign source income of $64,910,162.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$116,196,133 as long-term capital gain dividends for the tax year ended October
31, 2006.
- --------------------------------------------------------------------------------
29
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** (58) Trustee and Chairman and CEO (2006-Present) and President (1986-
President since 2006), American Beacon Advisors, Inc.; Chairman
1987 (1989-2003) and Director (1979-1989, 2003-Present),
American Airlines Federal Credit Union; Director,
Crescent Real Estate Equities, Inc. (1994-Present);
Director, Pritchard, Hubble & Herr, LLC (investment
advisor) (2001-2006); Director of Investment
Committee, 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, 2006-
Present); Vice Chairman, Committee for the
Investment of Employee Benefits (2004-Present);
Chairman, Committee for the Investment of Employee
Benefits Defined Benefit Sub-Committee (2002-2004);
Director, United Way of Metropolitan 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** (69) 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 (62) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund
servicing company) (1998-2003); Board Member, Baylor
University Medical Center Foundation (1992-2004);
President and CEO, Allmerica Trust Company, NA
(1996-1997); President and CEO, Fidelity Investments
Southwest Company (1983-1995); Senior Vice President
of Regional Centers, Fidelity Investments (1988-
1995); Trustee, American Beacon Mileage Funds (2004-
Present); Trustee, American Beacon Select Funds
(2004-Present); Trustee, American Beacon Master
Trust (2004-Present).
</Table>
- --------------------------------------------------------------------------------
30
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 (45) Trustee since 2004 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary, Kimbell Art Foundation
(1993-Present); Trustee, Texas Christian University
(1998-Present); Trustee, W.I. Cook Foundation, Inc.
(d/b/a Cook Children's Health Foundation) (2001-
Present); Director, Christian Church Foundation
(1999-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 (63) 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 (71) Trustee since 1987 Consultant (1994-Present); Trustee, American Beacon
Mileage Funds (1995-Present); Trustee, American
Beacon Select Funds (1999-Present); Trustee,
American Beacon Master Trust (1995-Present).
R. Gerald Turner (60) Trustee since 2001 President, Southern Methodist University (1995-
225 Perkins Admin. Bldg. Present); Director, ChemFirst (1986-2002); Director,
Southern Methodist Univ. J.C. Penney Company, Inc. (1996-Present); Director,
Dallas, Texas 75275 California Federal 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 (50) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a
100 Crescent Court Chairman since private equity firm) (1998-Present); Director,
Suite 1740 2005 Burger King Corporation (2004-Present); Trustee,
Dallas, Texas 75201 City of Dallas, Texas Employee Retirement Fund
(2004-Present); Trustee, The Hockaday School (1997-
2005); 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).
</Table>
- --------------------------------------------------------------------------------
31
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
Rosemary K. Behan (47) VP, Secretary and Vice President, Legal and Compliance, American
Chief Legal Beacon Advisors, Inc. (2006-Present); Assistant
Officer since 2006 General Counsel, First Command Financial Planning,
Inc. (2004-2006); Enforcement Attorney (2002-2004)
and Branch Chief (2000-2002); Securities and
Exchange Commission.
Brian E. Brett (46) VP since 2004 Vice President, Director of Sales, American Beacon
Advisors, Inc. (2004-Present); Regional Vice
President, Neuberger Berman, LLC (investment
advisor) (1996-2004).
Michael W. Fields (52) VP since 1989 Vice President, Fixed Income Investments, American
Beacon Advisors, Inc. (1988-Present).
Rebecca L. Harris (39) Treasurer since Vice President, Finance, American Beacon Advisors,
1995 Inc. (1995-Present).
Christina E. Sears (35) Chief Compliance Chief Compliance Officer, American Beacon Advisors,
Officer since 2004 Inc. (2004-Present); Senior Compliance Analyst,
and Asst. American Beacon Advisors, Inc. (1998-2004).
Secretary since
1999
</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
72, 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 Chairman 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.
- --------------------------------------------------------------------------------
32
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
33
(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 A description of the policies and procedures
provided in each semi-annual and annual that the Funds use to determine how to vote
report, each Fund files a complete schedule proxies relating to portfolio securities is
of its portfolio holdings with the Securities available in each Fund's Statement of Additional
and Exchange Commission ("SEC") on Form N-Q Information, is available free of charge on the
as of the first and third fiscal quarters. Fund's website (www.americanbeaconfunds.com) and
The Funds' Forms N-Q are available on the by calling 1-800-967-9009 or by accessing the
SEC's website at www.sec.gov. The Forms N-Q SEC's website at www.sec.gov. Each Fund's proxy
may also be reviewed and copied at the SEC's voting record for the most recent year ended
Public Reference Room, 450 Fifth Street, NW, June 30 is filed annually with the SEC on Form
Washington, DC 20549. Information regarding N-PX. The Funds' Forms N-PX are available on the
the operation of the SEC's Public Reference SEC's website at www.sec.gov. Each Fund's proxy
Room may be obtained by calling 1-800-SEC- voting record may also be obtained by calling 1-
0330. A complete schedule of each Fund's 800-967-9009.
portfolio holdings is also available on the
Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of
each month.
</Table>
FUND SERVICE PROVIDERS:
<Table>
<Caption>
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED PUBLIC DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES ACCOUNTING FIRM FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri ERNST & YOUNG LLP Portland, Maine
Dallas, Texas
</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 10/06
538853
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, 2006
LARGE CAP VALUE FUND
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.
Contents
- --------------------------------------------------------------------------------
<Table>
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.
American Beacon Funds October 31, 2006
(BILL QUINN PICTURE)
FELLOW SHAREHOLDERS,
Iam pleased to present to you the American Beacon Large Cap Value Fund Annual
Report for the twelve months ended October 31, 2006. The U.S. equity markets
finished the period on a positive note due to the continued strong performance
of the economy, lower oil prices, and the Federal Reserve taking a neutral
policy on interest rates. The S&P 500(R) and Dow Jones Industrial Average
indices reported one-year returns of 16.34% and 18.47%, respectively, as of
October 31, 2006.
During very strong markets, value investors often have a hard time
competing against the broad market benchmarks. However, the American Beacon
Large Cap Value Fund-Institutional Class recorded a total return of 18.69% for
its fiscal year, beating its peer group, the Lipper Large-Cap Value Funds Index,
and the S&P 500 Index. More importantly, the Fund's performance exceeded that of
its peer group for the three, five, and ten years ended October 31, 2006.
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 to access your account information, please visit our website at
www.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Large Cap Value Fund.
Sincerely,
-s- William F. Quinn
William F. Quinn
President, American Beacon Funds
1
DOMESTIC EQUITY MARKET OVERVIEW
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The U.S. stock market proved resilient in the final two months of 2005, posting
mid-single digit total returns despite events in early 2005 of geopolitical
tensions, rising interest rates, soaring oil prices, and a devastating
hurricane. Continued expansion in the manufacturing sector, heightened
productivity, and employment gains contributed to solid results and helped the
year end on a positive note.
The stock market continued its fourth quarter 2005 rally into the first
quarter of 2006, even in the face of more rate increases by the Federal Reserve.
The gains were due in large part to continued growth in the industrial economy,
modest unemployment, and minimal inflation. Furthermore, value stocks in the
Russell indices outpaced their growth counterparts in the first quarter, as they
have over the past few years. With regard to size, small cap stocks performed
the best, followed by mid-caps, with large cap issues bringing up the rear for
the first quarter as well as the trailing one-, three- and five-year periods.
While nine of the ten economic sectors in the S&P 500 Index advanced, sector
performance varied widely in the first quarter, with more than 15 percentage
points separating the leader from the laggard. Telecommunication Services and
Energy posted the largest gains, with total returns of 14.5% and 9.1%,
respectively. At the opposite end of the spectrum was the Utilities sector at -
1.2%.
During the second quarter of 2006, several key U.S. stock market indices,
including the S&P 500 Index and the Nasdaq Composite, declined. While economic
and earnings growth remained strong, concerns about inflation and the direction
of monetary policy under the leadership of new Federal Reserve Chairman Ben
Bernanke pressured equity prices. The Federal Reserve raised short-term interest
rates in May and again in June, but stocks rallied late in the quarter on
expectations that the end of the tightening cycle was near. As measured by
various Russell indices, value stocks again outperformed growth stocks in the
second quarter, while large cap equities outpaced their midcap and small cap
counterparts, as is often the case in a down market. Investors also preferred
defensive stocks in the weak market environment, and Utilities, Energy, and
Consumer Staples were the only sectors in the S&P 500 Index to advance during
the second quarter. Negative market sentiment took its toll on the more volatile
Information Technology sector, which was the S&P 500 Index's worst performer.
In the third quarter of 2006, the U.S. stock market indices rebounded.
Equity investors set aside concerns about the effects of a slowing housing
market, auto industry turmoil, and a heightened homeland security alert. After
17 increases in interest rates over the past two-plus years, the Federal Reserve
held interest rates steady at both of its rate-setting meetings during the
quarter. This pause, combined with moderate economic growth and strong corporate
earnings, contributed to a stock market rally. As had been the case in recent
quarters, value stocks outperformed their growth counterparts within the Russell
universe during the third quarter. Large cap issues outperformed smaller and
mid-cap companies, but continue to lag over the three-, five- and ten-year
periods. In a reversal of the second quarter, seven of the ten sectors in the
S&P 500 Index provided a positive total return during the third quarter. After
performing well over the previous quarter, the Energy sector declined,
reflecting the sharp decline in commodity energy prices in September.
Telecommunication Services and Health Care rebounded sharply during the third
quarter, as both sectors advanced more than 10%.
The U.S. stock market posted low- to mid-single-digit gains in October
2006. Overall, growth stocks narrowly outperformed their value counterparts
during the month. In general, stock performance was inversely related to size,
as small cap stocks were the strongest performers, followed by mid-caps, with
large cap issues trailing the pack. All ten economic sectors in the S&P 500
Index advanced in October. Both the Consumer Discretionary and Materials sectors
posted total returns in excess of 6%, while Health Care was the laggard, gaining
just 0.5% for the month.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP VALUE FUNDSM
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The Institutional Class of the Large Cap Value Fund returned 18.69% for the
twelve months ended October 31, 2006. The Fund trailed the Linked S&P
500/Citigroup Value Index ("Index") return of 20.93%, but outperformed the
Lipper Large-Cap Value Funds Index return of 18.41%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/96 THROUGH 10/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER LARGE-CAP S&P 500 500/CITIGROUP VALUE
INSTITUTIONAL CLASS VALUE FUNDS INDEX INDEX
------------------- ---------------- ------- -------------------
10/96 10000 10000 10000 10000
10/97 12805 12956 13211 12970
10/98 13609 14660 16116 14493
10/99 13843 17139 20253 17248
10/00 14509 18153 21487 18917
10/01 14188 15300 16136 15433
10/02 12652 13115 13698 12997
10/03 16106 15815 16547 16223
10/04 19100 17675 18106 18569
10/05 22278 19434 19685 20458
10/06 26442 23011 22902 24740
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
------------------------------------
VALUE OF
PERIODS ENDED 10/31/06 $10,000
------------------------------------ 10/31/96-
1 YEAR 5 YEARS 10 YEARS 10/31/06
---------- ---------- ---------- -----------
Institutional Class(1)................................. 18.69% 13.26% 10.21% $26,442
PlanAhead Class(1)..................................... 18.44% 12.96% 9.91% $25,715
Service Class(1,2)..................................... 18.18% 12.87% 9.86% $25,621
AMR Class(1)........................................... 19.08% 13.56% 10.50% $27,144
Lipper Large-Cap Value Funds Index(3).................. 18.41% 8.51% 8.69% $23,011
S&P 500 Index(3)....................................... 16.34% 7.26% 8.64% $22,902
Linked S&P 500/Citigroup Value Index(3)................ 20.93% 9.90% 9.48% $24,740
</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 current performance may be higher or
lower than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2. Fund performance for the five-year and ten-year periods represents the
total returns achieved by the PlanAhead Class from 10/31/96 up to 6/1/05,
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. Therefore, total returns shown may be higher
than they would have been had the Service Class been in existence since
10/31/96.
3. The S&P 500 Index is an unmanaged index of common stocks publicly traded
in the United States. The Linked S&P 500/Citigroup Value Index represents
returns of the S&P 500/Barra Value Index ("Barra Index") up to 10/31/05
and the S&P 500/Citigroup Value Style Index ("Citigroup Index")
thereafter. The Barra 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
Citigroup Index is a market value weighted index of stocks in the S&P 500
that score highest based on an average of book-to-price ratio, cash flow-
to-price ratio, sales-to-price ratio, and dividend yield, representing 50%
of the total market value of the S&P 500. The Lipper Large-Cap Value Funds
Index tracks the results of the 30 largest mutual funds in the Lipper
Large-Cap Value Funds category. Lipper is an independent mutual fund
research and ranking service. One cannot directly invest in an index.
The Fund underperformed the Index primarily through stock selection and to
a lesser extent through sector allocation.
From a stock selection standpoint, the Fund had poor stock selection in the
Financials, Consumer Discretionary and Energy sectors. The companies with the
greatest impact in the Financials sector were SLM (down 10.8%) and Mitsubishi
UFJ Financial (up 0.9%). In the Consumer Discretionary sector, Centex (down
18.5%), Pulte Homes (down 17.6%) and Home Depot (down 11.0%) were the largest
detractors. In the Energy sector, ConocoPhillips (down 5.7%), BP (up 2.0%) and
Devon Energy (up 11.5%) were responsible for all of the underperformance.
Positive stock selection in Consumer Staples, mostly in Archer Daniels Midland
(up 59.8%) and UST (up 36.3%), and in Information Technology, primarily through
Oracle Systems (up 46.9%) and Apple Computer (up 40.8%), added relative value
versus the Index but not enough to offset the negative impact from the
Financials, Consumer Discretionary, and Energy sectors.
Sector weightings detracted modest value during the period. The Fund's
underweight in the Telecommunication Services sector, the best performing sector
of the Index, was responsible for most of the Fund's underperformance through
sector allocation.
The sub-advisors continue to invest in a broadly diversified portfolio of
companies that they believe have attractive valuations and above-average
earnings growth potential. This approach should allow the Fund to benefit over
the long-term.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP VALUE FUND(SM) -- CONTINUED
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
ConocoPhillips 2.8%
Bank of America Corp. 2.1%
JP Morgan Chase & Co. 2.1%
Citigroup, Inc. 1.9%
International Business Machines
Corp. 1.6%
Verizon Communications, Inc. 1.5%
Pfizer, Inc. 1.4%
Altria Group, Inc. 1.4%
Exelon Corp. 1.4%
Diageo plc 1.3%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 25.8%
Industrials 12.1%
Consumer Discretionary 11.1%
Consumer Staples 10.3%
Information Technology 10.0%
Health Care 10.0%
Energy 7.6%
Telecommunication Services 4.5%
Utilities 4.5%
Materials 4.1%
</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, 2006
through October 31, 2006.
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 LARGE CAP VALUE FUND(SM) -- CONTINUED
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
5/1/06 10/31/06 5/1/06-10/31/06
--------- --------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $1,058.80 $3.13
Hypothetical $1,000.00 $1,022.17 $3.07
(5% return before expenses)
PLANAHEAD CLASS
Actual $1,000.00 $1,057.67 $4.39
Hypothetical $1,000.00 $1,020.94 $4.31
(5% return before expenses)
SERVICE CLASS
Actual $1,000.00 $1,056.46 $5.65
Hypothetical $1,000.00 $1,019.71 $5.55
(5% return before expenses)
AMR CLASS
Actual $1,000.00 $1,060.81 $1.76
Hypothetical $1,000.00 $1,023.50 $1.73
(5% return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratios for the six-
month period of 0.60%, 0.85%, 1.09% and 0.34% for the Institutional,
PlanAhead, Service, and AMR 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 LARGE CAP VALUE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
American Beacon Large Cap Value Fund:
We have audited the accompanying statement of assets and liabilities of
American Beacon Large Cap Value Fund (a portfolio of American Beacon Funds) (the
"Fund"), including the schedule of investments, as of October 31, 2006, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2006, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
American Beacon Large Cap Value Fund as of October 31, 2006, 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.
-s- Ernst & Young LLP
Dallas, TX
December 28, 2006
See accompanying notes
- --------------------------------------------------------------------------------
6
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 93.72%
CONSUMER DISCRETIONARY - 10.37%
AUTO COMPONENTS - 0.13%
Magna International, Inc. .......................... 79,900 $ 5,976
------------
HOTELS, RESTAURANTS & LEISURE - 1.24%
Carnival Corp. ..................................... 630,700 30,791
Harrah's Entertainment, Inc. ....................... 147,100 10,934
McDonald's Corp. ................................... 84,400 3,538
Wyndham Worldwide Corp. /\ ......................... 191,660 5,654
Yum! Brands, Inc. .................................. 105,700 6,285
------------
57,202
------------
HOUSEHOLD DURABLES - 2.17%
Centex Corp. + ..................................... 496,700 25,978
Fortune Brands, Inc. ............................... 272,700 20,984
Koninklijke (Royal) Philips Electronics NV ......... 232,966 8,114
Matsushita Electric Industrial Co. Ltd., ADR ....... 1,200,000 24,960
Newell Rubbermaid, Inc. + .......................... 231,700 6,668
Pulte Homes, Inc. .................................. 426,200 13,208
------------
99,912
------------
LEISURE EQUIPMENT & PRODUCTS - 0.28%
Mattel, Inc. ....................................... 573,700 12,983
------------
MEDIA - 3.54%
CBS Corp. .......................................... 426,800 12,352
Clear Channel Communications, Inc. ................. 735,000 25,615
The Interpublic Group of Companies, Inc. /\ + ...... 1,220,200 13,312
Time Warner, Inc. .................................. 1,607,000 32,156
The Walt Disney Company Ltd. ....................... 1,647,500 51,830
Warner Music Group Corp. ........................... 1,080,000 28,004
------------
163,269
------------
MULTILINE RETAIL - 1.96%
Federated Department Stores, Inc. .................. 590,112 25,912
J.C. Penney Company, Inc. + ........................ 510,000 38,367
Target Corp. ....................................... 330,400 19,553
Wal-Mart Stores, Inc. .............................. 134,400 6,623
------------
90,455
------------
SPECIALTY RETAIL - 0.73%
The Home Depot, Inc. ............................... 903,900 33,743
------------
TEXTILES & APPAREL - 0.32%
Liz Claiborne, Inc. ................................ 345,000 14,549
------------
TOTAL CONSUMER DISCRETIONARY 478,089
------------
CONSUMER STAPLES - 9.62%
BEVERAGES - 1.44%
Constellation Brands, Inc. /\ ...................... 155,800 4,283
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Diageo plc, ADR .................................... 833,300 $ 62,056
------------
66,339
------------
FOOD & DRUG RETAILING - 1.00%
Safeway, Inc. ...................................... 305,500 8,969
Sysco Corp. ........................................ 1,060,000 37,079
------------
46,048
------------
FOOD PRODUCTS - 2.82%
Archer-Daniels-Midland Co. ......................... 1,082,700 41,684
ConAgra Foods, Inc. ................................ 1,201,300 31,414
General Mills, Inc. ................................ 219,100 12,449
Kellogg Co. ........................................ 590,000 29,683
Sara Lee Corp. ..................................... 153,200 2,620
Unilever plc, ADR + ................................ 508,500 12,346
------------
130,196
------------
PERSONAL PRODUCTS - 0.43%
L'Oreal SA, ADR .................................... 1,026,000 19,853
------------
TOBACCO - 3.93%
Altria Group, Inc. ................................. 774,800 63,014
Gallaher Group plc, ADR + .......................... 107,500 7,322
Imperial Tobacco Group plc, ADR + .................. 741,500 52,899
UST, Inc. + ........................................ 1,080,100 57,850
------------
181,085
------------
TOTAL CONSUMER STAPLES 443,521
------------
ENERGY - 7.13%
ENERGY EQUIPMENT & SERVICES - 0.71%
Weatherford International Ltd. /\ .................. 792,000 32,536
------------
OIL & GAS - 6.42%
Chevron Corp. ...................................... 532,462 35,782
ConocoPhillips ..................................... 2,143,696 129,136
Devon Energy Corp. ................................. 614,100 41,046
Duke Energy Corp. .................................. 1,421,800 44,986
Occidental Petroleum Corp. ......................... 816,700 38,336
Petro-Canada + ..................................... 124,700 5,311
Sunoco, Inc. ....................................... 21,600 1,428
------------
296,025
------------
TOTAL ENERGY 328,561
------------
FINANCIALS - 24.23%
BANKS - 6.04%
Bank of America Corp. .............................. 1,832,278 98,705
Comerica, Inc. ..................................... 109,500 6,372
First Horizon National Corp. + ..................... 312,900 12,303
KeyCorp ............................................. 271,600 10,087
SunTrust Banks, Inc. ................................ 112,200 8,863
U.S. Bancorp ........................................ 704,660 23,846
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
UnionBanCal Corp. .................................. 51,800 $ 2,983
Wachovia Corp. ..................................... 440,100 24,425
Washington Mutual, Inc. + .......................... 824,900 34,893
Wells Fargo & Co. .................................. 1,537,100 55,781
------------
278,258
------------
DIVERSIFIED FINANCIALS - 10.03%
The Bear Stearns Cos, Inc. ......................... 117,600 17,799
Capital One Financial Corp. ........................ 264,400 20,975
The Charles Schwab Corp. ........................... 2,163,000 39,410
Citigroup, Inc. .................................... 1,737,538 87,155
Federal Home Loan Mortgage Corp. ................... 293,600 20,255
Federal National Mortgage Association .............. 218,200 12,931
The Goldman Sachs Group, Inc. ...................... 77,500 14,709
JP Morgan Chase & Co. .............................. 2,072,798 98,334
Merrill Lynch & Co., Inc. .......................... 263,200 23,009
Mitsubishi UFJ Financial Group, Inc., ADR .......... 2,520,000 32,130
Morgan Stanley Dean Witter & Co. ................... 748,900 57,238
SLM Corp. .......................................... 783,700 38,150
------------
462,095
------------
INSURANCE - 7.83%
ACE Ltd. ........................................... 475,900 27,245
Aflac, Inc. ........................................ 670,000 30,096
The Allstate Corp. ................................. 568,728 34,897
American International Group, Inc. ................. 891,200 59,862
AON Corp. .......................................... 155,600 5,413
Assurant, Inc. ..................................... 111,000 5,845
The Chubb Corp. .................................... 610,000 32,422
Conseco, Inc. /\ ................................... 315,000 6,407
Genworth Financial, Inc. ........................... 501,500 16,770
The Hartford Financial Services Group, Inc. ........ 35,700 3,112
MetLife, Inc. ...................................... 597,500 34,135
MGIC Investment Corp. .............................. 284,300 16,706
Prudential Financial, Inc. ......................... 61,400 4,724
The St. Paul Travelers Companies, Inc. ............. 720,400 36,834
UnumProvident Corp. ................................ 443,900 8,780
XL Capital Ltd. .................................... 537,100 37,893
------------
361,141
------------
REAL ESTATE - 0.33%
Realogy Corp. /\ + ................................. 271,625 7,002
The St. Joe Co. + .................................. 152,000 8,175
------------
15,177
------------
TOTAL FINANCIALS 1,116,671
------------
HEALTH CARE - 9.39%
HEALTH CARE EQUIPMENT & SUPPLIES - 2.09%
Baxter International, Inc. ......................... 1,324,700 60,896
C.R. Bard, Inc. .................................... 430,000 35,243
------------
96,139
------------
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
HEALTH CARE PROVIDERS & SERVICES - 2.46%
Cigna Corp. ........................................ 191,900 $ 22,449
Community Health Systems, Inc. /\ .................. 830,000 26,934
HCA, Inc. + ........................................ 202,600 10,235
Tenet Healthcare Corp. /\ + ........................ 815,200 5,755
UnitedHealth Group, Inc. ........................... 174,300 8,502
WellPoint, Inc. /\ ................................. 520,300 39,709
------------
113,584
------------
PHARMACEUTICALS - 4.84%
AstraZeneca PLC, ADR ............................... 576,900 33,864
Bristol-Myers Squibb Co. ........................... 1,682,500 41,642
Eli Lilly & Co. .................................... 62,100 3,478
Johnson & Johnson .................................. 134,200 9,045
Merck & Co., Inc. .................................. 194,500 8,834
Pfizer, Inc. ....................................... 2,457,700 65,498
Schering-Plough Corp. .............................. 590,800 13,081
Wyeth .............................................. 935,000 47,713
------------
223,155
------------
TOTAL HEALTH CARE 432,878
------------
INDUSTRIALS - 11.33%
AEROSPACE & DEFENSE - 3.19%
The Boeing Co. ..................................... 751,300 59,999
Lockheed Martin Corp. .............................. 101,900 8,858
Northrop Grumman Corp. ............................. 531,200 35,266
Raytheon Co. ....................................... 473,800 23,666
United Technologies Corp. .......................... 292,200 19,204
------------
146,993
------------
AIR FREIGHT & COURIERS - 0.18%
FedEx Corp. ........................................ 71,200 8,155
------------
COMMERCIAL SERVICES & SUPPLIES - 0.46%
Mastercard, Inc. + ................................. 154,000 11,412
Waste Management, Inc. ............................. 260,465 9,762
------------
21,174
------------
ELECTRICAL EQUIPMENT - 0.67%
American Power Conversion Corp. + .................. 1,018,300 30,783
------------
INDUSTRIAL CONGLOMERATES - 3.41%
3M Co. ............................................. 186,200 14,680
General Electric Co. ............................... 1,378,900 48,413
Honeywell International, Inc. ...................... 1,174,100 49,453
Textron, Inc. ...................................... 178,400 16,222
Tyco International Ltd. ............................ 962,600 28,330
------------
157,098
------------
MACHINERY - 2.71%
Caterpillar, Inc. .................................. 326,500 19,822
Deere & Co. ........................................ 370,000 31,498
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Flowserve Corp. /\ ................................. 222,300 $ 11,782
Illinois Tool Works, Inc. .......................... 791,800 37,951
ITT Industries, Inc. ............................... 440,500 23,959
------------
125,012
------------
RENTAL AUTO/EQUIPMENT - 0.04%
Avis Budget Group, Inc. ............................ 95,830 1,896
------------
TRANSPORTATION INFRASTRUCTURE - 0.67%
Burlington Northern Santa Fe Corp. ................. 401,200 31,105
------------
TOTAL INDUSTRIALS 522,216
------------
INFORMATION TECHNOLOGY - 9.42%
COMMUNICATIONS EQUIPMENT - 1.19%
Lucent Technologies, Inc. /\ ....................... 1,955,000 4,751
Nokia Corp., ADR ................................... 2,520,400 50,105
------------
54,856
------------
COMPUTERS & PERIPHERALS - 3.66%
Apple Computer, Inc. /\ ............................ 574,000 46,540
Hewlett-Packard Co. ................................ 1,228,500 47,592
International Business Machines Corp. .............. 806,500 74,464
------------
168,596
------------
ELECTRICAL EQUIPMENT - 0.58%
Molex, Inc. ........................................ 139,000 4,851
Molex, Inc., Class A Shares ........................ 745,100 22,018
------------
26,869
------------
IT CONSULTING & SERVICES - 0.85%
Computer Sciences Corp. /\ + ....................... 122,900 6,495
Electronic Data Systems Corp. ...................... 1,279,500 32,410
------------
38,905
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.88%
Intel Corp. ........................................ 551,000 11,758
Texas Instruments, Inc. ............................ 947,000 28,581
------------
40,339
------------
SOFTWARE - 2.26%
Autodesk, Inc. ..................................... 174,000 6,394
BMC Software, Inc. /\ .............................. 215,400 6,529
CA, Inc. ........................................... 1,314,503 32,547
Microsoft Corp. .................................... 819,700 23,534
Oracle Corp. /\ .................................... 1,911,000 35,296
------------
104,300
------------
TOTAL INFORMATION TECHNOLOGY 433,865
------------
MATERIALS - 3.83%
CHEMICALS - 2.53%
Air Products & Chemicals, Inc. ..................... 630,600 43,934
Dow Chemical Co. ................................... 234,900 9,582
E. I. du Pont de Nemours & Co. ..................... 258,200 11,825
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Lyondell Chemical Co. .............................. 1,019,300 $ 26,165
The Mosaic Co. /\ + ................................ 723,800 13,549
PPG Industries, Inc. ............................... 166,500 11,389
Tronox, Inc. + ..................................... 16,572 217
------------
116,661
------------
METALS & MINING - 0.47%
Alcoa, Inc. ........................................ 754,568 21,815
------------
PAPER & FOREST PRODUCTS - 0.83%
Sappi Ltd., ADR + .................................. 355,400 5,032
Weyerhaeuser Co. ................................... 519,100 33,010
------------
38,042
------------
TOTAL MATERIALS 176,518
------------
TELECOMMUNICATION SERVICES - 4.20%
DIVERSIFIED TELECOMMUNICATION - 4.20%
AT&T, Inc. ......................................... 1,656,500 56,735
BellSouth Corp. .................................... 1,044,200 47,093
Verizon Communications, Inc. ....................... 1,833,146 67,826
Vodafone Group plc, ADR + .......................... 852,749 22,044
------------
TOTAL TELECOMMUNICATION SERVICES 193,698
------------
UTILITIES - 4.20%
ELECTRIC UTILITIES - 4.20%
CenterPoint Energy, Inc. + ......................... 938,900 14,534
Dominion Resources, Inc. ........................... 170,700 13,825
DTE Energy Co. ..................................... 314,000 14,265
Entergy Corp. ...................................... 473,800 40,666
Exelon Corp. ....................................... 1,009,400 62,563
FPL Group, Inc. + .................................. 826,500 42,152
Public Service Enterprise Group, Inc. .............. 91,400 5,580
------------
TOTAL UTILITIES 193,585
------------
TOTAL COMMON STOCKS 4,319,602
------------
SHORT TERM INVESTMENTS - 6.79%
American Beacon Money Market Select
Fund ++ .......................................... 293,665,902 293,666
PAR
AMOUNT
------------
U.S. Treasury Bill,
4.90%, Due 12/7/2006 # ........................... $ 19,420 19,326
------------
TOTAL SHORT TERM INVESTMENTS 312,992
------------
SHARES
------------
SECURITIES LENDING COLLATERAL - 4.62%
American Beacon Cash Plus Trust ++ ................. 146,601,118 146,601
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
American Beacon Money Market Select
Fund ++ .......................................... $ 66,442,606 $ 66,443
------------
TOTAL SECURITIES LENDING COLLATERAL 213,044
------------
TOTAL INVESTMENTS 105.13% - (COST $4,301,049) 4,845,638
LIABILITIES, NET OF OTHER ASSETS - (5.13%) (236,422)
------------
TOTAL NET ASSETS - 100.00% $ 4,609,216
============
</Table>
Percentages are stated as a percent of net assets.
/\ Non-income producing security.
+ All or a portion of this security is on loan at October 31, 2006.
++ The Fund/Trust is affiliated by having the same investment advisor.
# At October 31, 2006, security pledged as collateral for open futures
contracts.
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
UNREALIZED
NUMBER OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- ----------- --------------
Emini S&P 500 Index ........................ 4,536 Dec 2006 $ 313,710 $ 5,618
=========== ==============
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
AMERICAN BEACON LARGE CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2006 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value(A C)................ $ 4,338,928
Investments in affiliated securities, at value(B).................... 506,710
Receivable for investments sold...................................... 896
Dividends and interest receivable.................................... 6,010
Receivable for fund shares sold...................................... 50,993
Prepaid expenses..................................................... 83
------------
TOTAL ASSETS.................................................... 4,903,620
------------
LIABILITIES:
Payable for investments purchased.................................... 75,175
Payable upon return of securities loaned............................. 213,044
Payable for fund shares redeemed..................................... 1,611
Payable for variation margin on open futures contracts............... 8
Management and investment advisory fees payable (Note 2)............. 2,745
Administrative service and service fees payable...................... 1,223
Other liabilities.................................................... 598
------------
TOTAL LIABILITIES............................................... 294,404
------------
NET ASSETS................................................................ $ 4,609,216
============
ANALYSIS OF NET ASSETS:
Paid-in-capital...................................................... 3,904,928
Undistributed net investment income.................................. 42,693
Accumulated net realized gain (loss)................................. 111,388
Unrealized appreciation (depreciation) of investments, futures
contracts and foreign currency..................................... 550,207
------------
NET ASSETS................................................................ $ 4,609,216
============
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class.................................................. 40,331,788
============
PlanAhead Class...................................................... 113,725,498
============
Service Class........................................................ 1,726,022
============
AMR Class............................................................ 43,526,964
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class.................................................. $ 23.77
============
PlanAhead Class...................................................... $ 22.74
============
Service Class........................................................ $ 22.64
============
AMR Class............................................................ $ 23.55
============
- --------
(A) Cost of investments in unaffiliated securities........................ $ 3,794,339
(B) Cost of investments in affiliated securities.......................... 506,710
(C) Market value of securities on loan.................................... 207,695
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
11
AMERICAN BEACON LARGE CAP VALUE FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2006 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividend income from unaffiliated securities (net of foreign taxes)*... $ 60,042
Dividend income from affiliated securities............................. 10,860
Interest income........................................................ 748
Income derived from securities lending, net............................ 210
--------
TOTAL INVESTMENT INCOME........................................... 71,860
--------
EXPENSES:
Management and investment advisory fees (Note 2)....................... 8,281
Administrative service fees (Note 2):
Institutional Class.................................................. 1,352
PlanAhead Class...................................................... 3,675
Service Class........................................................ 59
Transfer agent fees:
Institutional Class.................................................. 77
PlanAhead Class...................................................... 132
Service Class........................................................ 1
AMR Class............................................................ 29
Custody and fund accounting fees....................................... 437
Professional fees...................................................... 83
Registration fees and expenses......................................... 338
Service fees:
PlanAhead Class (Note 2)............................................. 3,675
Service Class (Note 2)............................................... 59
Distribution fees -- Service Class (Note 2)............................ 59
Prospectus and shareholder reports..................................... 286
Other expenses......................................................... 378
--------
TOTAL EXPENSES.................................................... 18,921
--------
NET INVESTMENT INCOME....................................................... 52,939
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from:
Investments.......................................................... 107,323
Commission recapture (Note 1)........................................ 368
Futures contracts.................................................... 13,973
Change in net unrealized appreciation or depreciation of:
Investments.......................................................... 332,339
Futures contracts.................................................... 6,789
--------
NET GAIN (LOSS) ON INVESTMENTS.................................... 460,792
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $513,731
========
* Foreign taxes........................................................ $ 182
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
12
AMERICAN BEACON LARGE CAP VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2006 2005
----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................ $ 52,939 $ 20,301
Net realized gain (loss) on investments,
futures contracts, and foreign currency
transactions............................... 121,664 73,494
Change in net unrealized appreciation or
depreciation of investments, futures
contracts, and foreign currency
translations............................... 339,128 61,431
---------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS....................... 513,731 155,226
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class........................ (2,811) (909)
PlanAhead Class............................ (9,026) (1,111)
Service Class.............................. (183) --
AMR Class.................................. (12,219) (11,555)
Net realized gain on investments:
Institutional Class........................ (8,282) --
PlanAhead Class............................ (28,149) --
Service Class.............................. (544) --
AMR Class.................................. (32,018) --
---------- ----------
NET DISTRIBUTIONS TO SHAREHOLDERS....... (93,232) (13,575)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares................ 3,041,055 936,214
Reinvestment of dividends and distributions.. 88,860 13,156
Cost of shares redeemed...................... (528,489) (299,876)
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL SHARE TRANSACTIONS....... 2,601,426 649,494
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS............. 3,021,925 791,145
---------- ----------
NET ASSETS:
Beginning of period.......................... 1,587,291 796,146
---------- ----------
END OF PERIOD*............................... $4,609,216 $1,587,291
========== ==========
* Includes undistributed net investment
income (loss) of........................... $ 42,693 $ 14,208
========== ==========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
13
AMERICAN BEACON LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust") 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 Large Cap Value Fund (the "Fund"), a series of the Trust.
American Beacon Advisors, Inc. (the "Manager") 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:
CLASS: OFFERED TO: SERVICE AND DISTRIBUTION FEES:
- ------ ----------- ------------------------------
INSTITUTIONAL CLASS Investors making an initial investment of $2 million Administrative Service Fee -- 0.25%
PLANAHEAD CLASS General public and investors investing through an Administrative Service Fee -- 0.25%
intermediary Service Fee -- 0.25%
SERVICE CLASS Investors investing through an intermediary Administrative Service Fee -- 0.25%
Service Fee -- 0.25%
Distribution Fee -- 0.25%
AMR CLASS Investors in the tax-exempt retirement and benefit N/A
plans of AMR Corporation and its affiliates
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, as determined by the Manager, will
be priced at fair value following procedures approved by the Board of Trustees
(the "Board").
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale.
- --------------------------------------------------------------------------------
14
AMERICAN BEACON LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
The Fund may purchase securities with delivery or payment to occur at a
later date. At the time the Fund enters into a commitment to purchase a
security, the transaction is recorded and the value of the security is reflected
in the net asset value. The value of the security may vary with market
fluctuations.
Dividend income, net of foreign taxes, is recorded on the ex-dividend date
except certain dividends from foreign securities which are recorded as soon as
the information is available to the Fund. Interest income is earned from
settlement date, recorded on the accrual basis, and adjusted, if necessary, for
accretion of discounts and amortization of premiums. For financial and tax
reporting purposes, realized gains and losses are determined on the basis of
specific lot identification.
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. This amount is reported with the net realized gain in the Fund's Statement
of Operations.
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.
- --------------------------------------------------------------------------------
15
AMERICAN BEACON LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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.
Recently Issued Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and is to
be applied to all open tax years as of the effective date. At this time,
management is evaluating the implications of FIN 48 and its impact on the
financial statements has not yet been determined.
In September 2006, the FASB issued Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. As of October 31, 2006, the Fund does not believe the
adoption of FAS 157 will impact the amounts reported in the financial
statements, however, additional disclosures will be required about the inputs
used to develop the measurements of fair value and the effect of certain of the
measurements reported in the statement of operations for a fiscal 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 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 0.10% 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, 2006 were as follows
(dollars in thousands):
<Table>
<Caption>
AMOUNTS PAID NET AMOUNTS
MANAGEMENT MANAGEMENT TO INVESTMENT RETAINED BY
FEE RATE FEE ADVISORS MANAGER
- ------------ ---------- ------------- -----------
0.225%-0.70% $8,281 $5,377 $2,904
</Table>
- --------------------------------------------------------------------------------
16
AMERICAN BEACON LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
As compensation for services provided by the Manager in connection with
securities lending activities, the 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, 2006, securities lending fees totaling $31,495 were paid to
the Manager by the Fund. This fee is netted against securities lending income in
the Statement of Operations.
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
0.25% 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 Fund, has adopted a
"defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under
the Act, 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.
Investment in Affiliated Funds
The Fund is permitted, pursuant to an exemptive order by the Securities and
Exchange Commission ("SEC") and procedures approved by the Board, to invest up
to 25% of its total assets in the American Beacon Money Market Select Fund (the
"Select Fund"). Cash collateral received by the Fund in connection with
securities lending may be invested in the Select Fund and the American Beacon
Cash Plus Trust (the "Cash Trust"). The Fund, the Select Fund and the Cash Trust
(collectively, the "Affiliated Funds") have the same investment advisor and
therefore, are considered to be affiliated. The Manager serves as investment
advisor to the Affiliated Funds and receives from each Affiliated Fund an
annualized fee equal to 0.10% of its average daily net assets. During the year
ended October 31, 2006, fees earned by the Manager from the Affiliated Funds
were as follows:
<Table>
<Caption>
SECURITIES LENDING
DIRECT INVESTMENT COLLATERAL INVESTED
IN AFFILIATED FUNDS IN AFFILIATED FUNDS TOTAL
- ------------------- ------------------- --------
$225,852 $171,450 $397,302
</Table>
- --------------------------------------------------------------------------------
17
AMERICAN BEACON LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
Other
At October 31, 2006, 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 other
participating Funds. At October 31, 2006, the Fund had not utilized the credit
facility.
Reimbursement of Expenses
The Manager reimbursed expenses totaling $17 to the Service Class of the
Fund during the year ended October 31, 2006.
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 categorized 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 paid during the years ended October 31,
2006 and October 31, 2005 were as follows (in thousands):
<Table>
<Caption>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2006 2005
----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class......................................... $ 3,517 $ 909
PlanAhead Class............................................. 11,427 1,111
Service Class............................................... 229 --
AMR Class................................................... 14,949 11,555
LONG-TERM CAPITAL GAIN
Institutional Class......................................... 7,576 --
PlanAhead Class............................................. 25,749 --
Service Class............................................... 497 --
AMR Class................................................... 29,288 --
------- -------
TOTAL DISTRIBUTIONS PAID............................... $93,232 $13,575
------- -------
</Table>
- --------------------------------------------------------------------------------
18
AMERICAN BEACON LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
As of October 31, 2006, the components of distributable earnings on a tax
basis were as follows (in thousands):
<Table>
Cost basis of investments for federal income tax purposes................... $4,315,647
Unrealized appreciation..................................................... 549,391
Unrealized depreciation..................................................... (19,400)
----------
Net unrealized appreciation/(depreciation).................................. 529,991
Undistributed ordinary income............................................... 70,648
Undistributed long-term gain/(loss)......................................... 103,554
----------
Distributable earnings...................................................... $ 704,193
==========
</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, and
reclassifications of income from real estate investment securities.
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 regulations, permanent differences between book and tax
reporting have been identified and appropriately reclassified on the Statement
of Assets and Liabilities.
Accordingly, the following amounts represent current year permanent
differences derived from reclassifications of income from real estate investment
securities, foreign currency, and dividend reclasses that have been reclassified
as of October 31, 2006 (in thousands):
<Table>
Paid-in-capital................................................................ $ 62
Undistributed net investment income............................................ (215)
Accumulated net realized gain (loss)........................................... 153
Unrealized appreciation (depreciation) of investments, futures contracts and
foreign currency............................................................. --
</Table>
4. INVESTMENT TRANSACTIONS
Investment transactions for the year ended October 31, 2006 (excluding
short-term investments) are as follows (in thousands):
<Table>
Purchases................................................................... $3,196,760
Proceeds from sales......................................................... $ 707,842
</Table>
A summary of the Fund's direct ownership and transactions in Affiliated
Funds for the year ended October 31, 2006 is set forth below (in thousands):
<Table>
<Caption>
OCTOBER 31, 2005 OCTOBER 31, 2006
AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
- --------- ------------------- ---------- ---------- -------------------
Select Fund............................... $163,848 $4,527,744 $4,397,926 $293,666
</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
- --------------------------------------------------------------------------------
19
AMERICAN BEACON LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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.
The Fund, the Agent and the Manager retain 65%, 25% and 10%, respectively
of the income generated from the investment of cash collateral, less negotiated
rebate fees paid to participating brokers and transaction costs. 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, the Agent and the Manager
65%, 25% and 10%, respectively. 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, 2006, 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
- ------------------ ------------------- ---------------
$207,695 $-- $213,044
</Table>
Cash collateral is invested in a joint investment account, which is
comprised of an investment in the Cash Trust and the Select Fund. The allocated
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.
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, 2006
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
------------------- ---------------------- ------------------ --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ -------- ------- ---------- ------ ------- ------ ---------
Shares sold.................... 34,068 $746,193 98,689 $2,075,973 1,451 $30,595 8,618 $ 188,294
Reinvestment of dividends...... 439 9,253 1,715 34,642 36 727 2,125 44,238
Shares redeemed................ (3,753) (81,987) (12,788) (269,180) (338) (7,086) (8,030) (170,236)
------ -------- ------- ---------- ----- ------- ------ ---------
Net increase in shares
outstanding.................. 30,754 $673,459 87,616 $1,841,435 1,149 $24,236 2,713 $ 62,296
====== ======== ======= ========== ===== ======= ====== =========
</Table>
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...................... 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>
- --------------------------------------------------------------------------------
20
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(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
21
AMERICAN BEACON LARGE 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,
------------------------------------------------- ---------------------------------
2006 2005 2004 2003 2002 2006 2005 2004
-------- -------- ------- ------- ------- ---------- -------- -------
Net asset value, beginning of period...... $ 21.00 $ 18.23 $ 15.62 $ 12.55 $ 14.51 $ 20.16 $ 17.54 $ 15.05
-------- -------- ------- ------- ------- ---------- -------- -------
Income from investment operations:
Net investment income (loss)(A C).... 0.31 0.28 0.26 0.25(F) 0.27 0.28 0.27 0.23
Net gains (losses) on securities
(both realized and unrealized)(C).. 3.48 2.74 2.62 3.11(F) (1.76) 3.31 2.58 2.49
-------- -------- ------- ------- ------- ---------- -------- -------
Total income (loss) from investment
operations.............................. 3.79 3.02 2.88 3.36 (1.49) 3.59 2.85 2.72
-------- -------- ------- ------- ------- ---------- -------- -------
Less distributions:
Dividends from net investment
income............................. (0.26) (0.25) (0.27) (0.29) (0.30) (0.25) (0.23) (0.23)
Distributions from net realized gains
on securities...................... (0.76) -- -- -- (0.17) (0.76) -- --
-------- -------- ------- ------- ------- ---------- -------- -------
Total distributions....................... (1.02) (0.25) (0.27) (0.29) (0.47) (1.01) (0.23) (0.23)
-------- -------- ------- ------- ------- ---------- -------- -------
Net asset value, end of period............ $ 23.77 $ 21.00 $ 18.23 $ 15.62 $ 12.55 $ 22.74 $ 20.16 $ 17.54
======== ======== ======= ======= ======= ========== ======== =======
Total return.............................. 18.69% 16.64% 18.59% 27.30% (10.83)% 18.44% 16.33% 18.26%
======== ======== ======= ======= ======= ========== ======== =======
Ratios and supplemental data:
Net assets, end of period (in
thousands)......................... $958,830 $201,111 $48,451 $23,512 $21,589 $2,586,410 $526,357 $51,489
Ratios to average net assets
(annualized):
Expenses, net of waivers(C)........ 0.60% 0.60% 0.66% 0.66% 0.61% 0.85% 0.86% 0.94%
Expenses, before waivers(C)........ 0.60% 0.60% 0.66% 0.66% 0.61% 0.85% 0.86% 0.94%
Net investment income, net of
waivers(C)...................... 1.86% 1.58% 1.49% 1.88% 1.82% 1.61% 1.30% 1.21%
Net investment income, before
waivers(C)...................... 1.86% 1.58% 1.49% 1.88% 1.82% 1.61% 1.30% 1.21%
Portfolio turnover rate(E) .......... 26% 25% 29% 27% 34% 26% 25% 29%
</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 for the Institutional, PlanAhead and AMR Classes.
(B) Not annualized.
(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) Portfolio turnover rate is for the period from November 1, 2004 through
October 31, 2005.
(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.
(H) Annualized.
- --------------------------------------------------------------------------------
22
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS SERVICE CLASS AMR CLASS
- ------------------------- -------------------------- ----------------------------------------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
- ------------------------- YEAR ENDED MAY 31 TO ----------------------------------------------------------
OCTOBER 31, OCTOBER 31,
2003 2002 2006 2005 2006 2005 2004 2003 2002
- ---------- ---------- ----------- ----------- ---------- -------- -------- -------- --------
$ 12.09 $ 14.00 $ 20.13 $ 19.33 $ 20.78 $ 18.02 $ 15.44 $ 12.40 $ 14.34
------- ------- ------- -------- ---------- -------- -------- -------- --------
0.22(F) 0.25 0.26 0.01 0.35 0.31 0.30 0.29 0.31
2.99(F) (1.74) 3.27 0.79 3.47 2.73 2.58 3.06 (1.75)
------- ------- ------- -------- ---------- -------- -------- -------- --------
3.21 (1.49) 3.53 0.80 3.82 3.04 2.88 3.35 (1.44)
------- ------- ------- -------- ---------- -------- -------- -------- --------
(0.25) (0.25) (0.26) -- (0.29) (0.28) (0.30) (0.31) (0.33)
-- (0.17) (0.76) -- (0.76) -- -- -- (0.17)
------- ------- ------- -------- ---------- -------- -------- -------- --------
(0.25) (0.42) (1.02) -- (1.05) (0.28) (0.30) (0.31) (0.50)
------- ------- ------- -------- ---------- -------- -------- -------- --------
$ 15.05 $ 12.09 $ 22.64 $ 20.13 $ 23.55 $ 20.78 $ 18.02 $ 15.44 $ 12.40
======= ======= ======= ======== ========== ======== ======== ======== ========
26.99% (11.13)% 18.18% 4.14%(B) 19.08% 16.95% 18.89% 27.64% (10.62)%
======= ======= ======= ======== ========== ======== ======== ======== ========
$21,331 $15,941 $39,077 $ 11,604 $1,024,899 $848,219 $696,206 $598,869 $511,287
0.95% 0.93% 1.09% 1.14%(H) 0.34% 0.35% 0.39% 0.36% 0.36%
0.95% 0.93% 1.09% 1.77%(H) 0.34% 0.35% 0.39% 0.36% 0.36%
1.57% 1.53% 1.39% 1.72%(H) 2.18% 1.87% 1.79% 2.13% 2.06%
1.57% 1.53% 1.39% 1.09%(H) 2.18% 1.87% 1.79% 2.13% 2.06%
27% 34% 26% 25%(D) 26% 25% 29% 27% 34%
</Table>
- --------------------------------------------------------------------------------
23
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.
AMERICAN BEACON LARGE CAP VALUE FUND
FEDERAL TAX INFORMATION
OCTOBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
For corporate shareholders in the Fund, the percentage of ordinary dividend
income distributed for the year ended October 31, 2006, which is designated as
qualifying for the dividend-received deduction, was 73.7%.
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, was 69.8%. Shareholders
will receive notification in January 2007 of the percentage applicable to their
preparation of their 2006 income tax returns.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$63,110,499 as long-term capital gain dividends for the tax year ended October
31, 2006.
- --------------------------------------------------------------------------------
24
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE RE-APPOINTMENT OF
METROPOLITAN WEST CAPITAL MANAGEMENT, LLC
(UNAUDITED)
- --------------------------------------------------------------------------------
At the May 11, 2006 meeting of the Board of Trustees (the "Board"),
American Beacon Advisors, Inc. (the "Manager") proposed that the Board approve
the re-appointment of Metropolitan West Capital Management, LLC ("MetWest
Capital") and the approval of a new Investment Advisory Agreement between
MetWest Capital and the Manager ("Agreement") following Evergreen Investment
Company, Inc.'s ("Evergreen") acquisition of a controlling interest of MetWest
Capital. Prior to the meeting, the Board requested and reviewed information
provided by MetWest Capital in connection with its consideration to re-appoint
MetWest Capital. The Board considered, among other materials, responses by
MetWest Capital discussing:
- whether there would be changes in fee rate schedule to be paid by the
American Beacon Large Cap Value Fund and American Beacon Small Cap Value
Fund (collectively, the "Funds") under the Agreement;
- whether the level of services provided to the Funds by MetWest will be
affected by the change of control;
- the effects of the change of control on portfolio management personnel
and the adequacy of staffing levels to provide quality services to the
Funds;
- whether MetWest Capital's trading activities would change as a result of
the change of control;
- information regarding MetWest Capital's new affiliates, including
Evergreen;
- material changes to MetWest Capital's compliance program and code of
ethics; and
- potential benefits to the Funds resulting from the change of control.
The Board considered several factors when evaluating MetWest Capital and in
approving the Agreement. In addition, the Board took into consideration its
evaluation of MetWest Capital at its February 2006 Board meeting in connection
with the annual renewal of the prior Agreement with MetWest Capital. A
discussion of the factors relating to the Board's approval of the Agreement
follows.
Nature, extent and quality of the services provided by MetWest
Capital. The Board considered the services provided by MetWest Capital under
the prior Agreement and those to be provided following MetWest Capital's change
of control. In this connection, the Board noted that the Manager and MetWest
Capital would enter into a new Agreement that is substantially identical to the
existing agreement except for a different effective date. In addition, the Board
considered that MetWest Capital represented that the level of services to be
provided to the Funds following the change of control would not change, but may
be enhanced as noted below. In considering that the Funds' portfolio manager and
other senior executives at MetWest Capital have signed long-term contracts with
Evergreen, the Board concluded that these actions would provide continuity of
portfolio management for the Funds. Additionally, the Board considered that: (1)
MetWest Capital's trading activities would not be affected by the change of
control, but MetWest Capital may execute Fund trades through a new affiliated
broker-dealer; (2) the regulatory actions and litigation reported by MetWest
Capital related to newly affiliated entities that would not provide investment
advisory services to the Funds; and (3) MetWest Capital would adopt Evergreen's
compliance program and code of ethics. Based on this information, the Board
concluded that the nature, extent and quality of the advisory services to be
provided by MetWest Capital were appropriate for the Funds, and, thus, supported
a decision to approve the Agreement.
Performance of MetWest Capital. The Board relied upon its February 2006
evaluation of MetWest Capital's performance and determined that the historical
investment performance of MetWest Capital supported the Board's decision to re-
appoint MetWest as an investment adviser to the Funds.
Investment advisory fees, costs of services, profitability and economies of
scale. The Board considered the investment advisory fees paid to MetWest for
its services to the Funds. In this connection, the Board noted that the
investment advisory fee rates would not change under the Agreement. The Board
relied upon its February 2006 evaluation of comparative data on investment
advisory fees because MetWest Capital had represented previously that it does
not charge other comparable clients a fee rate lower than that charged to the
Funds. The Board
- --------------------------------------------------------------------------------
25
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE RE-APPOINTMENT OF
METROPOLITAN WEST CAPITAL MANAGEMENT, LLC -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
concluded that MetWest Capital's fees under the Agreement are reasonable based
on the services provided to the Funds. The Board also relied upon its February
2006 evaluation of the costs of the services provided by MetWest Capital,
MetWest Capital's profitability and whether the fee schedule reflected economies
of scale for the benefit of the Funds' investors. The Board noted that such
reliance was reasonable because MetWest Capital proposed to maintain the same
fee rate schedule.
Other Benefits. The Board considered certain other benefits to the Funds
as a result of the change of control. In this regard, the Board considered that:
(1) Evergreen maintains a large compliance staff who will augment its compliance
oversight and resources; (2) MetWest Capital will have access to the substantial
technology team at Evergreen; and (3) MetWest Capital will have potential for
better employee retention due to Evergreen's enhanced benefit programs. After
consideration of this information, the Board concluded that the Funds could
receive additional benefits due to the enhanced services provided by MetWest
Capital.
Board's Conclusions. The Board did not identify any single factor as being
of paramount importance and different Trustees may have given different weight
to different factors. However, based on the various considerations described
above, the Trustees, including a majority of the Independent Trustees, concluded
that the proposed investment advisory fee is reasonable and the approval of the
Agreement is in the best interests of the Funds and their shareholders and, as a
result, approved the Agreement.
- --------------------------------------------------------------------------------
26
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** (58) Trustee and Chairman and CEO (2006-Present) and President (1986-
President since 2006), American Beacon Advisors, Inc.; Chairman
1987 (1989-2003) and Director (1979-1989, 2003-Present),
American Airlines Federal Credit Union; Director,
Crescent Real Estate Equities, Inc. (1994-Present);
Director, Pritchard, Hubble & Herr, LLC (investment
advisor) (2001-2006); Director of Investment
Committee, 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, 2006-
Present); Vice Chairman, Committee for the
Investment of Employee Benefits (2004-Present);
Chairman, Committee for the Investment of Employee
Benefits Defined Benefit Sub-Committee (2002-2004);
Director, United Way of Metropolitan 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** (69) 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 (62) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund
servicing company) (1998-2003); Board Member, Baylor
University Medical Center Foundation (1992-2004);
President and CEO, Allmerica Trust Company, NA
(1996-1997); President and CEO, Fidelity Investments
Southwest Company (1983-1995); Senior Vice President
of Regional Centers, Fidelity Investments (1988-
1995); Trustee, American Beacon Mileage Funds (2004-
Present); Trustee, American Beacon Select Funds
(2004-Present); Trustee, American Beacon Master
Trust (2004-Present).
</Table>
- --------------------------------------------------------------------------------
27
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 (45) Trustee since 2004 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary, Kimbell Art Foundation
(1993-Present); Trustee, Texas Christian University
(1998-Present); Trustee, W.I. Cook Foundation, Inc.
(d/b/a Cook Children's Health Foundation) (2001-
Present); Director, Christian Church Foundation
(1999-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 (63) 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 (71) Trustee since 1987 Consultant (1994-Present); Trustee, American Beacon
Mileage Funds (1995-Present); Trustee, American
Beacon Select Funds (1999-Present); Trustee,
American Beacon Master Trust (1995-Present).
R. Gerald Turner (60) Trustee since 2001 President, Southern Methodist University (1995-
225 Perkins Admin. Bldg. Present); Director, ChemFirst (1986-2002); Director,
Southern Methodist Univ. J.C. Penney Company, Inc. (1996-Present); Director,
Dallas, Texas 75275 California Federal 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 (50) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a
100 Crescent Court Chairman since private equity firm) (1998-Present); Director,
Suite 1740 2005 Burger King Corporation (2004-Present); Trustee,
Dallas, Texas 75201 City of Dallas, Texas Employee Retirement Fund
(2004-Present); Trustee, The Hockaday School (1997-
2005); 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).
</Table>
- --------------------------------------------------------------------------------
28
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
Rosemary K. Behan (47) VP, Secretary and Vice President, Legal and Compliance, American
Chief Legal Beacon Advisors, Inc. (2006-Present); Assistant
Officer since 2006 General Counsel, First Command Financial Planning,
Inc. (2004-2006); Enforcement Attorney (2002-2004)
and Branch Chief (2000-2002); Securities and
Exchange Commission.
Brian E. Brett (46) VP since 2004 Vice President, Director of Sales, American Beacon
Advisors, Inc. (2004-Present); Regional Vice
President, Neuberger Berman, LLC (investment
advisor) (1996-2004).
Michael W. Fields (52) VP since 1989 Vice President, Fixed Income Investments, American
Beacon Advisors, Inc. (1988-Present).
Rebecca L. Harris (39) Treasurer since Vice President, Finance, American Beacon Advisors,
1995 Inc. (1995-Present).
Christina E. Sears (35) Chief Compliance Chief Compliance Officer, American Beacon Advisors,
Officer since 2004 Inc. (2004-Present); Senior Compliance Analyst,
and Asst. American Beacon Advisors, Inc. (1998-2004).
Secretary since
1999
</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
72, 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 Chairman 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.
- --------------------------------------------------------------------------------
29
(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 A description of the policies and procedures the
provided in each semi-annual and annual Fund uses to determine how to vote proxies
report, the Fund files a complete schedule of relating to portfolio securities is available in
its portfolio holdings with the Securities the Fund's Statement of Additional Information,
and Exchange Commission ("SEC") on Form N-Q is available free of charge on the Fund's
as of the first and third fiscal quarters. website (www.americanbeaconfunds.com) and by
The Fund's Forms N-Q are available on the calling 1-800-967-9009 or by accessing the SEC's
SEC's website at www.sec.gov. The Forms N-Q website at www.sec.gov. The Fund's proxy voting
may also be reviewed and copied at the SEC's record for the most recent year ended June 30 is
Public Reference Room, 450 Fifth Street, NW, filed annually with the SEC on Form N-PX. The
Washington, DC 20549. Information regarding Fund's Forms N-PX are available on the SEC's
the operation of the SEC's Public Reference website at www.sec.gov. The Fund's proxy voting
Room may be obtained by calling 1-800-SEC- record may also be obtained by calling 1-800-
0330. A complete schedule of the Fund's 967-9009.
portfolio holdings is also available on the
Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of
each month.
</Table>
FUND SERVICE PROVIDERS:
<Table>
<Caption>
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 Dallas, Texas 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 Large Cap Value Fund is a service mark of American Beacon
Advisors, Inc.
AR 10/06
538854
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, 2006
SMALL CAP VALUE FUND
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.
Contents
- --------------------------------------------------------------------------------
<Table>
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, 2006
(BILL QUINN PICTURE)
FELLOW SHAREHOLDERS,
I am pleased to present to you the American Beacon Small Cap Value Fund Annual
Report for the twelve months ended October 31, 2006. The U.S. equity markets
finished the fiscal year on a positive note due to the continued strong
performance of the economy, lower oil prices, and the Federal Reserve taking a
neutral policy on interest rates. The S&P 500(R) and Dow Jones Industrial
Average indices reported one-year returns of 16.34% and 18.47%, respectively.
The American Beacon Small Cap Value Fund-Institutional Class recorded
annualized total returns of 15.80%, 16.15%, 19.00%, and 14.86% for the one-year,
three-year, five-year, and since-inception (December 31, 1998) periods ended
October 31, 2006, respectively, beating the Lipper Small-Cap Value Funds Index's
return for the five-year period by 2.19%. While companies with little or no
earnings performed well in the short term, the American Beacon Small Cap Value
Fund has not wavered from its long-term disciplined process. The Fund's long-
term focus is on companies with above-average earnings growth potential, below-
average price to earnings ratios, and below-average price to book-value ratios.
We believe these characteristics will benefit our shareholders over the long
term.
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 to access your account information, please visit our website 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 current performance may be lower or higher than the performance
data quoted. To obtain performance as of the most recent month end, please visit
www.americanbeaconfunds.com or call 800-967-9009.
1
DOMESTIC EQUITY MARKET OVERVIEW
OCTOBER 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
The U.S. stock market proved resilient in the final two months of 2005, posting
mid-single digit total returns despite events in early 2005 of geopolitical
tensions, rising interest rates, soaring oil prices, and a devastating
hurricane. Continued expansion in the manufacturing sector, heightened
productivity, and employment gains contributed to solid results and helped the
year end on a positive note.
The stock market continued its fourth quarter 2005 rally into the first
quarter of 2006, even in the face of more rate increases by the Federal Reserve.
The gains were due in large part to continued growth in the industrial economy,
modest unemployment, and minimal inflation. Furthermore, value stocks in the
Russell indices outpaced their growth counterparts in the first quarter, as they
have over the past few years. With regard to size, small cap stocks performed
the best, followed by mid-caps, with large cap issues bringing up the rear for
the first quarter as well as the trailing one-, three- and five-year periods.
While nine of the ten economic sectors in the S&P 500(R) Index advanced, sector
performance varied widely in the first quarter, with more than 15 percentage
points separating the leader from the laggard. Telecommunication Services and
Energy posted the largest gains, with total returns of 14.5% and 9.1%,
respectively. At the opposite end of the spectrum was the Utilities sector at -
1.2%.
During the second quarter of 2006, several key U.S. stock market indices,
including the S&P 500 Index and the Nasdaq Composite, declined. While economic
and earnings growth remained strong, concerns about inflation and the direction
of monetary policy under the leadership of new Federal Reserve Chairman Ben
Bernanke pressured equity prices. The Federal Reserve raised short-term interest
rates in May and again in June, but stocks rallied late in the quarter on
expectations that the end of the tightening cycle was near. As measured by
various Russell indices, value stocks again outperformed growth stocks in the
second quarter, while large cap equities outpaced their midcap and small cap
counterparts, as is often the case in a down market. Investors also preferred
defensive stocks in the weak market environment, and Utilities, Energy, and
Consumer Staples were the only sectors in the S&P 500 Index to advance during
the second quarter. Negative market sentiment took its toll on the more volatile
Information Technology sector, which was the S&P 500 Index's worst performer.
In the third quarter of 2006, the U.S. stock market indices rebounded.
Equity investors set aside concerns about the effects of a slowing housing
market, auto industry turmoil, and a heightened homeland security alert. After
17 increases in interest rates over the past two-plus years, the Federal Reserve
held interest rates steady at both of its rate-setting meetings during the
quarter. This pause, combined with moderate economic growth and strong corporate
earnings, contributed to a stock market rally. As had been the case in recent
quarters, value stocks outperformed their growth counterparts within the Russell
universe during the third quarter. Large cap issues outperformed smaller and
mid-cap companies, but continued to lag over the three-, five- and ten-year
periods. In a reversal of the second quarter, seven of the ten sectors in the
S&P 500 Index provided a positive total return during the third quarter. After
performing well over the previous quarter, the Energy sector declined,
reflecting the sharp decline in commodity energy prices in September.
Telecommunications Services and Health Care rebounded sharply during the third
quarter, as both sectors advanced more than 10%.
The U.S. stock market posted low- to mid-single-digit gains in October
2006. Overall, growth stocks narrowly outperformed their value counterparts
during the month. In general, stock performance was inversely related to size,
as small cap stocks were the strongest performers, followed by mid-caps, with
large cap issues trailing the pack. All ten economic sectors in the S&P 500
Index advanced in October. Both the Consumer Discretionary and Materials sectors
posted total returns in excess of 6%, while Health Care was the laggard, gaining
just 0.5% for the month.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
OCTOBER 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the Small Cap Value Fund returned 15.80% for the
twelve months ended October 31, 2006, lagging the Russell 2000(R) Value Index
("Index") return of 22.90% and the Lipper Small-Cap Value Funds Index return of
17.83% for the same period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 12/31/98* THROUGH 10/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER SMALL-
INSTITUTIONAL CAP VALUE RUSSELL 2000
CLASS FUNDS INDEX VALUE INDEX
------------- ------------- ------------
12/98.................. $10,000 $10,000 $10,000
10/99.................. $ 9,070 $ 9,513 $ 9,508
10/00.................. $10,320 $11,261 $11,153
10/01.................. $12,400 $12,151 $12,129
10/02.................. $12,808 $11,799 $11,822
10/03.................. $18,886 $16,493 $16,584
10/04.................. $22,637 $19,551 $19,567
10/05.................. $25,557 $22,433 $22,119
10/06.................. $29,595 $26,432 $27,184
</Table>
* Inception of Institutional Class
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
--------------------------
PERIODS ENDED 10/31/06 VALUE OF
-------------------------- $10,000
SINCE 12/31/98-
1 YEAR 5 YEARS INCEPTION 10/31/06
------ ------- --------- ---------
Institutional Class(1).. 15.80% 19.00% 14.86% $29,595
PlanAhead Class(1,2).... 15.56% 18.71% 14.57% $29,028
Service Class(1,3)...... 15.23% 18.48% 14.43% $28,733
AMR Class(1,2).......... 16.12% 19.32% 15.17% $30,229
Lipper Small-Cap Value
Funds Index(4)........ 17.83% 16.81% 13.21% $26,432
Russell 2000 Value
Index(4).............. 22.90% 17.52% 13.62% $27,184
</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 current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2. Fund performance for the 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 period represents the total returns
achieved by the PlanAhead Class from 11/1/01 up to 5/1/03 (the inception
date of the Service Class), and the returns of the Service Class since
5/1/03. 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 returns of the PlanAhead Class from 3/1/99 up to 5/1/03 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. A
portion of the fees charged to the Service Class of the Fund has been
waived. Performance prior to waiving fees was lower than the actual
returns shown.
4. 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. The Lipper Small-Cap Value
Funds Index tracks the results of the 30 largest mutual funds in the
Lipper Small-Cap Value Funds category. Lipper is an independent mutual
fund research and ranking service. One cannot directly invest in an index.
The Fund underperformed the Index almost entirely due to stock selection,
as sector allocation detracted only modestly. More than half of the Fund's
underperformance resulted from its holdings in the Consumer Discretionary and
Materials sectors. In the Consumer Discretionary sector, Valassis Communications
(down 52.0%), WCI Communities (down 35.6%) and Standard Pacific (down 36.9%)
were the largest individual detractors. In the Materials sector, the largest
negative impact was made by Worthington Industries (down 10.9%) and Lubrizol (up
10.9%). Poor stock selection also resulted from the Fund's positions in the
Industrials and Financials sectors. The individual holdings that had the largest
negative impact on performance in the Industrials sector were Deluxe (down 27.8%
during the time the Fund owned the security) and Briggs & Stratton (down 18.1%).
In the Financials sector, Scottish Re Group (down 62.8%) and Asset Acceptance
Capital (down 32.8% during the time the Fund owned the security) were
responsible for most of the poor relative performance.
The Fund's large underweighting in the Financials sector, which was one of
the poorer performing sectors of the Index, was a positive contributor to the
Fund's performance relative to the Index. However, its impact was offset by the
Fund's large overweighting in the Consumer Discretionary sector, which was also
a poor performing sector of the Index.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP VALUE FUND(SM) -- CONTINUED
OCTOBER 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
The sub-advisors continue to focus on stock selection to uncover investment
opportunities that have the potential to benefit the Fund's performance over the
long term.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
American Financial Group, Inc. ...... 1.2 %
AGCO Corp. .......................... 0.8 %
Avnet, Inc. ......................... 0.8 %
Great Plains Energy, Inc. ........... 0.8 %
Ingram Micro, Inc. .................. 0.8 %
Delphi Financial Group, Inc. ........ 0.7 %
Flowserve Corp. ..................... 0.7 %
The Hanover Insurance Group, Inc. ... 0.7 %
The Men's Wearhouse, Inc. ........... 0.7 %
Atmos Energy Corp. .................. 0.6 %
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials............................ 24.7 %
Consumer Discretionary................ 19.8 %
Industrials........................... 18.7 %
Information Technology................ 10.9 %
Utilities............................. 7.0%
Materials............................. 6.7%
Energy................................ 4.6%
Health Care........................... 3.7%
Consumer Staples...................... 3.3%
Telecommunication Services............ 0.6%
</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, 2006
through October 31, 2006.
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, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
5/1/06 10/31/06 5/1/06-10/31/06
--------- --------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $ 999.56 $4.09
Hypothetical $1,000.00 $1,021.12 $4.13
(5% return before expenses)
PLANAHEAD CLASS
Actual $1,000.00 $ 998.64 $5.31
Hypothetical $1,000.00 $1,019.89 $5.36
(5% return before expenses)
SERVICE CLASS
Actual $1,000.00 $ 997.27 $6.68
Hypothetical $1,000.00 $1,018.51 $6.76
(5% return before expenses)
AMR CLASS
Actual $1,000.00 $1,000.89 $2.78
Hypothetical $1,000.00 $1,022.43 $2.81
(5% return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratios for the six-
month period of 0.81%, 1.05%, 1.35%, and 0.55% for the Institutional,
PlanAhead, Service, and AMR 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
- --------------------------------------------------------------------------------
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 (a portfolio of American Beacon Funds) (the
"Fund"), including the schedule of investments, as of October 31, 2006, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2006, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
American Beacon Small Cap Value Fund as of October 31, 2006, 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.
-s- Ernst & Young LLP
Dallas, Texas
December 28, 2006
See accompanying notes
- --------------------------------------------------------------------------------
6
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 95.51%
CONSUMER DISCRETIONARY - 18.90%
AUTO COMPONENTS - 2.62%
Aftermarket Technology Corp. /\ .................... 148,800 $ 2,796
American Axle & Manufacturing Holdings, Inc + ...... 759,900 14,248
ArvinMeritor, Inc. + ............................... 523,600 7,865
Bandag, Inc. + ..................................... 43,900 1,927
Bandag, Inc., A Shares ............................. 3,500 132
BorgWarner, Inc. + ................................. 119,500 6,871
Gentex Corp. + ..................................... 330,300 5,255
The Goodyear Tire & Rubber Co. /\ + ................ 399,900 6,130
Keystone Automotive Industries, Inc. /\ + .......... 99,400 3,823
Lear Corp. + ....................................... 615,400 18,591
Modine Manufacturing Co. ........................... 222,400 5,295
Tenneco, Inc. /\ + ................................. 125,500 2,849
TRW Automotive Holdings Corp. /\ ................... 254,500 6,528
------------
82,310
------------
DISTRIBUTORS - 0.09%
Spectrum Brands, Inc. /\ + ......................... 277,900 2,701
------------
HOTELS, RESTAURANTS & LEISURE - 1.88%
Brinker International, Inc. + ...................... 88,900 4,128
CBRL Group, Inc. + ................................. 193,497 8,496
CEC Entertainment, Inc. /\ ......................... 175,200 6,039
Jack in the Box, Inc. /\ ........................... 43,400 2,435
JAKKS Pacific, Inc. /\ + ........................... 197,400 4,282
Landry's Restaurants, Inc. + ....................... 313,700 9,191
Live Nation, Inc. /\ ............................... 164,800 3,504
Lodgian, Inc. /\ + ................................. 495,000 7,054
Magna Entertainment Corp. /\ + ..................... 736,100 3,864
Morton's Restaurant Group, Inc. /\ ................. 13,600 220
Red Lion Hotels Corp. /\ ........................... 79,800 954
Ruby Tuesday, Inc. ................................. 28,400 788
Speedway Motorsports, Inc. ......................... 121,500 4,577
Sunterra Corp. /\ + ................................ 299,100 3,305
------------
58,837
------------
HOUSEHOLD DURABLES - 3.78%
American Greetings Corp. + ......................... 413,100 9,877
Beazer Homes USA, Inc. + ........................... 172,100 7,459
Blyth, Inc. ........................................ 335,700 8,030
Champion Enterprises, Inc. /\ + .................... 1,117,000 10,343
Ethan Allen Interiors, Inc. + ...................... 235,100 8,374
Furniture Brands International, Inc. + ............. 550,100 10,232
Helen of Troy Ltd. /\ + ............................ 382,500 9,413
HNI Corp. + ........................................ 17,200 773
M.D.C. Holdings, Inc. + ............................ 110,173 5,493
Matthews International Corp. ....................... 68,000 2,613
The Ryland Group, Inc. + ........................... 47,500 2,182
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Standard Pacific Corp. + ............................ 19,100 $ 463
Tempur-Pedic International, Inc. /\ + ............... 577,000 11,390
The Toro Co. ........................................ 156,900 6,772
Tupperware Corp. + .................................. 450,200 9,558
WCI Communities, Inc. /\ + .......................... 752,300 12,127
The Yankee Candle Company, Inc. ..................... 106,700 3,612
------------
118,711
------------
INTERNET & CATALOG RETAIL - 0.37%
Insight Enterprises, Inc. /\ ........................ 301,200 6,473
School Specialty, Inc. /\ + ......................... 133,000 5,208
------------
11,681
------------
LEISURE EQUIPMENT & PRODUCTS - 1.04%
Brunswick Corp. + ................................... 574,600 18,100
MarineMax, Inc. /\ + ................................ 311,600 8,884
Polaris Industries, Inc. + .......................... 129,600 5,549
------------
32,533
------------
MEDIA - 1.42%
Belo Corp. .......................................... 102,800 1,801
Courier Corp. + ..................................... 70,999 2,785
Cox Radio, Inc. /\ + ................................ 270,900 4,562
Dow Jones & Co., Inc. + ............................. 59,100 2,074
Entercom Communications Corp. + ..................... 225,300 6,234
Getty Images, Inc. /\ + ............................. 17,000 736
Gray Television, Inc. ............................... 67,400 435
Hearst-Argyle Television, Inc. + .................... 67,400 1,698
Journal Communications, Inc. ........................ 341,900 4,000
Lin TV Corp. /\ + ................................... 322,775 2,653
Meredith Corp. ...................................... 37,000 1,942
R.H. Donnelley Corp. + .............................. 45,000 2,710
Scholastic Corp. /\ ................................. 103,900 3,265
Westwood One, Inc. .................................. 1,210,600 9,576
------------
44,471
------------
MULTILINE RETAIL - 0.95%
BJ's Wholesale Club, Inc. /\ ........................ 591,600 16,949
Dollar Tree Stores, Inc. /\ + ....................... 10,900 339
Fred's, Inc. + ...................................... 578,100 7,562
Tuesday Morning Corp. + ............................. 307,100 5,067
------------
29,917
------------
SPECIALTY RETAIL - 5.54%
Aeropostale, Inc. /\ ................................ 53,900 1,580
Asbury Automotive Group, Inc. ....................... 243,100 5,834
Big 5 Sporting Goods Corp. + ........................ 387,800 9,323
Borders Group, Inc. + ............................... 459,900 9,469
The Buckle, Inc. + .................................. 74,400 2,945
The Cato Corp. ...................................... 30,600 700
Charming Shoppes, Inc. /\ + ......................... 523,500 7,748
Claire's Stores, Inc. ............................... 360,200 10,212
Conn's, Inc. /\ + ................................... 44,700 1,074
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
7
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
The Finish Line, Inc., Class A Shares .............. 169,700 $ 2,199
Foot Locker, Inc. .................................. 98,400 2,282
Genesco, Inc. /\ + ................................. 96,300 3,618
Group 1 Automotive, Inc. + ......................... 178,000 10,201
HOT Topic, Inc. /\ + ............................... 211,300 2,136
Jos. A. Bank Clothiers, Inc. /\ + .................. 172,500 5,121
Lithia Motors, Inc. + .............................. 46,500 1,186
The Men's Wearhouse, Inc. + ........................ 653,800 26,054
OfficeMax, Inc. .................................... 67,800 3,226
Pacific Sunwear of California /\ + ................. 321,100 5,658
Regis Corp. + ...................................... 236,600 8,884
Rent-A-Center, Inc. /\ ............................. 458,850 13,197
Sonic Automotive, Inc., A Shares + ................. 584,500 15,372
Stage Stores, Inc. ................................. 198,080 6,420
Talbots, Inc. + .................................... 78,600 2,204
United Auto Group, Inc. + .......................... 22,500 517
Williams-Sonoma, Inc. + ............................ 28,900 983
Zale Corp. /\ + .................................... 537,000 15,487
------------
173,630
------------
TEXTILES & APPAREL - 1.21%
Brown Shoe Company, Inc. ........................... 2,350 92
Columbia Sportswear Co. /\ + ....................... 87,168 4,867
Jones Apparel Group, Inc. .......................... 72,500 2,422
Kenneth Cole Productions, Inc. ..................... 116,900 2,973
K-Swiss, Inc. + .................................... 139,539 4,929
New York & Co, Inc. /\ + ........................... 157,600 2,049
The Timberland Co. /\ .............................. 271,200 7,824
The Warnaco Group, Inc. /\ + ....................... 601,200 12,769
------------
37,925
------------
TOTAL CONSUMER DISCRETIONARY 592,716
------------
CONSUMER STAPLES - 3.15%
FOOD & DRUG RETAILING - 1.01%
Agrium, Inc. ....................................... 294,600 8,254
Casey's General Stores, Inc. ....................... 244,900 5,944
Longs Drug Stores Corp. + .......................... 189,800 8,169
Pathmark Stores, Inc. /\ + ......................... 298,400 3,023
Ruddick Corp. ...................................... 225,900 6,370
------------
31,760
------------
FOOD PRODUCTS - 1.93%
Chiquita Brands International, Inc. + .............. 222,000 3,041
Del Monte Foods Co. ................................ 1,416,900 15,288
J&J Snack Foods Corp. + ............................ 53,800 1,798
The JM Smucker Co. ................................. 54,700 2,680
Lance, Inc. + ...................................... 100,110 1,954
Pilgrim's Pride Corp. + ............................ 57,500 1,436
Ralcorp Holdings, Inc. /\ + ........................ 268,300 13,268
Sanderson Farms, Inc. + ............................ 147,200 3,905
Sensient Technologies Corp. + ...................... 344,150 7,933
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Smithfield Foods, Inc. /\ .......................... 345,700 $ 9,293
------------
60,596
------------
TOBACCO - 0.21%
Schweitzer-Mauduit International, Inc. ............. 102,800 2,371
Universal Corp. + .................................. 115,000 4,234
------------
6,605
------------
TOTAL CONSUMER STAPLES 98,961
------------
ENERGY - 4.37%
ENERGY EQUIPMENT & SERVICES - 1.81%
CARBO Ceramics, Inc. + ............................. 76,500 2,578
Dril-Quip, Inc. /\ + ............................... 59,040 2,325
FMC Technologies, Inc. /\ + ........................ 19,100 1,155
Gulfmark Offshore, Inc. /\ + ....................... 20,900 722
Helmerich & Payne, Inc. /\ ......................... 296,100 7,092
NS Group, Inc. /\ .................................. 65,500 4,281
Oil States International, Inc. /\ + ................ 461,100 13,390
Tetra Technologies, Inc. /\ ........................ 124,700 3,230
Tidewater, Inc. + .................................. 155,800 7,748
Unit Corp. /\ ...................................... 92,700 4,300
Universal Compression Holdings, Inc. /\ ............ 166,600 10,039
------------
56,860
------------
OIL & GAS - 2.56%
Alon USA Energy, Inc. + ............................ 29,500 828
Berry Petroleum Co. + .............................. 248,700 7,424
Bronco Drilling Co., Inc. /\ + ..................... 329,400 5,613
Cabot Oil & Gas Corp. /\ ........................... 16,500 873
Cimarex Energy Co. + ............................... 114,500 4,124
Encore Acquisition Co. /\ + ........................ 404,949 10,140
Energy Partners Ltd. /\ + .......................... 18,400 449
EXCO Resources, Inc. /\ + .......................... 948,800 13,739
Forest Oil Corp. /\ ................................ 106,000 3,460
The Houston Exploration Co. /\ ..................... 5,200 282
Hydril Company LP /\ ............................... 65,300 3,921
Pioneer Drilling Co. /\ + .......................... 437,900 5,750
Pogo Producing Co. + ............................... 185,700 8,310
Stone Energy Corp. /\ + ............................ 206,200 8,035
Tsakos Energy Navigation Ltd. + .................... 166,900 7,400
------------
80,348
------------
TOTAL ENERGY 137,208
------------
FINANCIALS - 23.60%
BANKS - 7.30%
Accredited Home Lenders Holding Co. /\ + ........... 25,907 793
Alabama National Bancorp + ......................... 43,500 2,952
Anchor BanCorp Wisconsin, Inc. ..................... 49,838 1,447
Astoria Financial Corp. ............................ 243,100 7,052
BancorpSouth, Inc. + ............................... 154,800 3,955
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
8
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Bank of Hawaii Corp. ................................. 193,600 $ 10,100
BankAtlantic Bancorp, Inc. + ......................... 673,900 8,828
Chemical Financial Corp. + ........................... 161,431 4,828
Chittenden Corp. ..................................... 208,925 6,161
Citizens Banking Corp. + ............................. 326,735 8,485
City National Corp. + ................................ 48,200 3,208
Columbia Banking System, Inc. ........................ 91,600 2,902
Community Bank System, Inc. + ........................ 220,300 5,475
Corus Bankshares, Inc. + ............................. 13,274 273
Cullen/Frost Bankers, Inc. + ......................... 153,354 8,306
Downey Financial Corp. + ............................. 136,100 9,375
F.N.B. Corp. + ....................................... 392,600 6,647
First Republic Bank .................................. 111,800 4,354
FirstFed Financial Corp. /\ + ........................ 12,700 785
FirstMerit Corp. + ................................... 228,500 5,306
Flagstar Bancorp, Inc. + ............................. 355,700 5,346
Flushing Financial Corp. ............................. 114,900 2,021
Fulton Financial Corp. + ............................. 117,178 1,876
Greater Bay Bancorp .................................. 77,100 1,985
Harleysville National Corp. + ........................ 98,509 2,104
IBERIABANK Corp. ..................................... 44,300 2,607
Independent Bank Corp. ............................... 21,900 523
International Bancshares Corp. ....................... 241,128 7,398
Investors Financial Services Corp. + ................. 32,300 1,270
Irwin Financial Corp. + .............................. 51,600 1,144
MAF Bancorp, Inc. .................................... 128,670 5,544
National Penn Bancshares, Inc. + ..................... 53,084 1,088
NBT Bancorp, Inc. + .................................. 150,606 3,743
Pacific Capital Bancorp .............................. 129,300 3,977
Park National Corp. + ................................ 25,900 2,626
PFF Bancorp, Inc. + .................................. 8,200 254
Placer Sierra Bancshares /\ .......................... 23,900 567
Provident Bankshares Corp. + ......................... 112,820 4,077
Provident Financial Services, Inc. ................... 98,300 1,803
Republic Bancorp, Inc. + ............................. 551,498 7,379
S&T Bancorp, Inc. + .................................. 9,164 310
Sky Financial Group, Inc. ............................ 340,594 8,532
The South Financial Group, Inc. + .................... 186,000 4,935
Sterling Bancshares, Inc. ............................ 166,700 3,052
Sterling Financial Corp. ............................. 84,799 2,820
Susquehanna Bancshares, Inc. + ....................... 263,600 6,587
TrustCo Bank Corp NY + ............................... 128,000 1,414
Trustmark Corp. + .................................... 332,560 10,529
United Bankshares, Inc. + ............................ 75,671 2,890
Washington Federal, Inc. ............................. 504,094 11,715
Webster Financial Corp. .............................. 281,900 13,621
WesBanco, Inc. + ..................................... 64,845 2,124
Wilmington Trust Corp. ............................... 44,800 1,863
------------
228,956
------------
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
DIVERSIFIED FINANCIALS - 2.75%
Affiliated Managers Group, Inc. /\ + ................ 88,000 $ 8,812
Ares Capital Corp. .................................. 263,900 4,890
Asset Acceptance Capital Corp. /\ + ................. 476,122 8,480
Assured Guaranty Ltd. ............................... 166,900 4,201
Asta Funding, Inc. + ................................ 197,500 6,723
CBRE Realty Finance, Inc. + ......................... 106,460 1,633
CompuCredit Corp. /\ + .............................. 248,200 8,627
Cowen Group, Inc. /\ ................................ 81,000 1,170
Financial Federal Corp. + ........................... 177,150 4,875
IndyMac Bancorp, Inc. + ............................. 159,100 7,231
MCG Capital Corp. + ................................. 561,100 10,055
MortgageIT Holdings, Inc. + ......................... 280,500 3,978
Nelnet, Inc. /\ + ................................... 42,800 1,260
Piper Jaffray Co. /\ ................................ 133,113 9,205
Raymond James Financial, Inc. ....................... 58,200 1,854
Texas Capital Bancshares, Inc. /\ ................... 54,700 1,096
World Acceptance Corp. /\ ........................... 42,281 2,114
------------
86,204
------------
INSURANCE - 9.30%
21st Century Insurance Group + ...................... 551,900 8,709
Alfa Corp. + ........................................ 76,503 1,413
American Equity Investment Life Holding Co. + ....... 379,700 4,845
American Financial Group, Inc. + .................... 540,500 25,868
American National Insurance Co. ..................... 11,600 1,346
AmerUs Group Co. .................................... 203,000 13,901
Arch Capital Group Ltd. /\ .......................... 139,000 8,936
Argonaut Group, Inc. /\ ............................. 14,607 497
Aspen Insurance Holdings Ltd. ....................... 235,800 5,853
The Commerce Group, Inc. ............................ 197,500 5,846
Conseco, Inc. /\ + .................................. 544,600 11,077
Delphi Financial Group, Inc. ........................ 521,150 20,455
FBL Financial Group, Inc. ........................... 218,448 7,722
Fremont General Corp. + ............................. 30,900 449
Great American Financial Resources, Inc. ............ 78,800 1,821
The Hanover Insurance Group, Inc. ................... 453,800 20,580
Harleysville Group, Inc. ............................ 63,628 2,296
HCC Insurance Holdings, Inc. ........................ 248,800 8,375
Horace Mann Educators Corp. ......................... 449,000 9,043
Infinity Property and Casualty Corp. ................ 150,598 6,479
KMG America Corp. /\ ................................ 276,700 2,103
LandAmerica Financial Group, Inc. + ................. 51,100 3,224
Mercury General Corp. ............................... 152,300 7,885
The Midland Co. ..................................... 57,800 2,702
National Western Life Insurance Co. ................. 2,400 576
The Navigators Group, Inc. /\ ....................... 179,700 8,458
Odyssey Re Holdings Corp. + ......................... 384,500 13,630
Ohio Casualty Corp. + ............................... 352,040 9,656
The Phoenix Companies, Inc. ......................... 206,900 3,277
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
9
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
PMA Capital Corp. /\ ................................ 169,400 $ 1,606
Presidential Life Corp. ............................. 90,400 2,133
Protective Life Corp. ............................... 310,500 13,740
Quanta Capital Holdings Ltd. /\ ..................... 265,200 520
Reinsurance Group of America, Inc. + ................ 253,300 14,286
Safety Insurance Group, Inc. + ...................... 113,400 5,671
Security Capital Assurance Ltd. /\ .................. 112,560 2,836
StanCorp Financial Group, Inc. ...................... 239,000 10,920
Stewart Information Services Corp. + ................ 43,500 1,612
Triad Guaranty, Inc. /\ + ........................... 212,600 10,951
United America Indemnity Ltd. /\ .................... 245,297 5,632
United Fire & Casualty, Co. ......................... 35,700 1,263
Unitrin, Inc. ....................................... 82,300 3,533
------------
291,725
------------
REAL ESTATE - 4.25%
Alexandria Real Estate Equities, Inc. ............... 17,400 1,735
American Financial Realty Trust ..................... 477,700 5,575
Annaly Capital Management, Inc. ..................... 531,000 6,967
Bluegreen Corp. /\ + ................................ 321,300 4,029
Brookfield Homes Corp. + ............................ 134,870 4,377
Capital Lease Funding, Inc. + ....................... 453,100 5,338
Capital Trust, Inc. + ............................... 70,600 3,142
Comstock Homebuilding Companies, Inc. /\ + .......... 147,700 799
Corrections Corp of America /\ ...................... 106,759 4,878
Crystal River Capital, Inc. + ....................... 67,600 1,489
DiamondRock Hospitality Co. ......................... 145,800 2,460
Eagle Hospitality Properties Trust, Inc. ............ 196,000 1,838
Education Realty Trust, Inc. + ...................... 267,300 4,135
Equity Inns, Inc. ................................... 521,300 8,747
Fieldstone Investment Corp. + ....................... 408,900 3,324
First Potomac Realty Trust + ........................ 100,500 3,109
Government Properties Trust, Inc. ................... 22,900 242
Health Care Real Estate Investment
Trust, Inc. + ...................................... 46,700 1,928
Highland Hospitality Corp. .......................... 487,500 6,737
Innkeepers USA Trust ................................ 230,000 3,945
Jones Lang LaSalle, Inc. ............................ 78,400 7,213
LaSalle Hotel Properties + .......................... 278,500 11,767
Lexington Corporate Properties Trust + .............. 415,000 8,840
MI Developments, Inc. ............................... 401,800 14,545
Mission West Properties, Inc. + ..................... 183,300 2,284
Redwood Trust, Inc. ................................. 117,800 6,475
Strategic Hotel Capital, Inc. ....................... 195,400 4,156
Thomas Properties Group, Inc. ....................... 108,500 1,468
Ventas, Inc. ........................................ 44,300 1,727
------------
133,269
------------
TOTAL FINANCIALS 740,154
------------
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
HEALTH CARE - 3.50%
BIOTECHNOLOGY - 0.08%
Charles River Laboratories International,
Inc. /\ ........................................... 29,800 $ 1,279
Invitrogen Corp. /\ ................................ 18,900 1,097
------------
2,376
------------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.06%
Medical Action Industries, Inc. /\ ................. 75,200 1,998
------------
HEALTH CARE PROVIDERS & SERVICES - 2.81%
Amedisys, Inc. /\ + ................................ 149,100 6,049
Apria Healthcare Group, Inc. /\ .................... 314,500 7,325
Kindred Healthcare, Inc. /\ + ...................... 295,900 7,989
LifePoint Hospitals, Inc. /\ + ..................... 335,600 11,914
Magellan Health Services, Inc. /\ .................. 416,353 18,170
MAXIMUS, Inc. ...................................... 376,900 10,519
Option Care, Inc. + ................................ 460,763 5,838
Pediatrix Medical Group, Inc. /\ ................... 150,400 6,757
RehabCare Group, Inc. /\ + ......................... 140,500 1,807
Res-Care, Inc. /\ + ................................ 207,400 4,011
Triad Hospitals, Inc. /\ + ......................... 164,300 6,084
Universal Health Services, Inc. .................... 31,900 1,689
------------
88,152
------------
PHARMACEUTICALS - 0.55%
Aspreva Pharmaceuticals Corp. /\ ................... 332,100 6,041
Endo Pharmaceuticals Holdings, Inc. /\ ............. 30,800 879
KV Pharmaceutical Co. /\ + ......................... 101,300 2,261
Sciele Pharma, Inc. /\ + ........................... 369,200 8,052
------------
17,233
------------
TOTAL HEALTH CARE 109,759
------------
INDUSTRIALS - 17.81%
AEROSPACE & DEFENSE - 1.02%
Alliant Techsystems, Inc. /\ + ..................... 28,200 2,177
Armor Holdings, Inc. /\ ............................ 171,500 8,825
BE Aerospace, Inc. /\ .............................. 250,400 6,330
EDO Corp. + ........................................ 115,800 2,769
Esterline Technologies Corp. /\ + .................. 278,700 10,507
United Industrial Corp. + .......................... 32,500 1,463
------------
32,071
------------
AIR FREIGHT & COURIERS - 0.44%
Ryder System, Inc. ................................. 259,900 13,684
------------
BUILDING PRODUCTS - 0.86%
ElkCorp + .......................................... 152,000 3,818
Griffon Corp. /\ + ................................. 48,600 1,195
Insituform Technologies, Inc. /\ + ................. 492,800 11,517
Lennox International, Inc. ......................... 283,300 7,638
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
10
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Simpson Manufacturing Co., Inc. + ................... 75,200 $ 2,135
Universal Forest Products, Inc. + ................... 13,200 599
------------
26,902
------------
CHEMICALS - 0.14%
Pioneer Companies, Inc. /\ .......................... 172,100 4,414
------------
COMMERCIAL SERVICES & SUPPLIES - 6.15%
Adesa, Inc. + ....................................... 239,500 6,021
Allied Waste Industries, Inc. /\ .................... 156,700 1,904
Bowne & Co., Inc. + ................................. 417,800 6,530
The Brink's Co. + ................................... 101,230 5,314
Career Education Corp. /\ ........................... 259,300 5,777
Casella Waste Systems, Inc. /\ + .................... 185,200 2,100
Central Parking Corp. + ............................. 213,800 3,667
Ceridian Corp. /\ ................................... 102,000 2,404
CheckFree Corp. /\ .................................. 5,800 229
Clean Harbors, Inc. /\ + ............................ 133,200 5,700
Convergys Corp. /\ .................................. 256,500 5,440
Con-way, Inc. ....................................... 294,900 13,910
CSG Systems International, Inc. /\ + ................ 234,000 6,313
Deluxe Corp. + ...................................... 381,200 8,642
Electro Rent Corp. /\ + ............................. 83,006 1,372
Ennis, Inc. ......................................... 68,000 1,562
Headwaters, Inc. /\ + ............................... 196,000 4,851
John H. Harland Co. ................................. 160,000 6,542
Kelly Services, Inc. + .............................. 397,300 11,434
Kforce, Inc. /\ ..................................... 404,600 6,057
Labor Ready, Inc. /\ ................................ 274,000 4,798
LECG Corp. /\ + ..................................... 580,600 11,432
McGrath Rentcorp .................................... 133,338 3,600
Navigant Consulting, Inc. /\ + ...................... 350,900 6,250
PHH Corp. /\ + ...................................... 279,800 7,723
Pre-Paid Legal Services, Inc. + ..................... 107,500 4,563
The Providence Service Corp /\ + .................... 109,600 3,013
Sabre Holdings Corp. ................................ 638,498 16,231
Spherion Corp. /\ + ................................. 451,100 3,270
Steelcase, Inc., A Shares ........................... 95,300 1,579
United Stationers, Inc. /\ .......................... 82,500 3,939
Valassis Communications, Inc. /\ .................... 1,027,300 15,420
Waste Connections, Inc. /\ + ........................ 129,700 5,278
------------
192,865
------------
CONSTRUCTION & ENGINEERING - 0.45%
Comfort Systems USA, Inc. ........................... 99,822 1,159
Infrasource Services, Inc. /\ + ..................... 180,000 3,523
The Shaw Group, Inc. /\ + ........................... 362,400 9,625
------------
14,307
------------
ELECTRICAL EQUIPMENT - 0.94%
Brady Corp. + ....................................... 314,900 11,651
EnerSys /\ + ........................................ 80,300 1,416
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
II-VI, Inc. /\ ..................................... 120,300 $ 2,945
Regal-Beloit Corp. + ............................... 247,400 12,234
Thomas & Betts Corp. /\ ............................ 23,200 1,195
------------
29,441
------------
MACHINERY - 5.05%
AGCO Corp. /\ ...................................... 1,042,780 27,894
Albany International Corp. ......................... 14,600 491
Barnes Group, Inc. + ............................... 568,400 11,396
Briggs & Stratton Corp. + .......................... 379,800 9,681
Flowserve Corp. /\ ................................. 434,600 23,034
The Greenbrier Companies, Inc. + ................... 115,300 4,324
Harsco Corp. ....................................... 149,900 12,236
IDEX Corp. ......................................... 243,800 11,434
Kaydon Corp. + ..................................... 326,400 13,644
Kennametal, Inc. ................................... 57,000 3,518
Navistar International Corp. /\ .................... 323,600 8,973
Reliance Steel & Aluminum Co. ...................... 40,000 1,374
Terex Corp. /\ ..................................... 268,200 13,882
The Timken Co. ..................................... 442,000 13,282
Wabash National Corp. + ............................ 222,000 3,115
------------
158,278
------------
MARINE - 0.67%
Alexander & Baldwin, Inc. .......................... 175,000 8,055
Kirby Corp. /\ + ................................... 293,400 10,278
Overseas Shipholding Group, Inc. ................... 41,400 2,590
------------
20,923
------------
RENTAL AUTO/EQUIPMENT - 0.32%
Avis Budget Group, Inc. ............................ 136,650 2,704
United Rentals, Inc. /\ + .......................... 311,300 7,375
------------
10,079
------------
ROAD & RAIL - 1.54%
Arkansas Best Corp. + .............................. 162,900 6,676
Covenant Transport, Inc. /\ + ...................... 182,300 2,277
Laidlaw International, Inc. ........................ 243,300 7,058
Swift Transportation Co., Inc. /\ + ................ 643,753 16,191
Werner Enterprises, Inc. + ......................... 162,800 2,987
YRC Worldwide, Inc. /\ + ........................... 337,900 13,090
------------
48,279
------------
TRADING COMPANIES & DISTRIBUTORS - 0.05%
MSC Industrial Direct Co., Inc. .................... 36,100 1,477
------------
TRANSPORT-SERVICES - 0.18%
Bristow Group, Inc. /\ + ........................... 173,600 5,764
------------
TOTAL INDUSTRIALS 558,484
------------
INFORMATION TECHNOLOGY - 10.44%
COMMUNICATIONS EQUIPMENT - 1.51%
Andrew Corp. /\ + .................................. 174,900 1,620
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
11
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Avocent Corp. /\ + .................................. 233,800 $ 8,583
Brocade Communications Systems, Inc. /\ + ........... 541,000 4,387
Comtech Telecommunications Corp. /\ + ............... 183,900 6,556
DSP Group, Inc. /\ .................................. 43,900 953
Emulex Corp. /\ ..................................... 329,300 6,191
Foundry Networks, Inc. /\ ........................... 495,600 6,274
Plantronics, Inc. + ................................. 219,600 4,636
Powerwave Technologies, Inc. /\ + ................... 258,300 1,682
Symmetricom, Inc. /\ + .............................. 294,500 2,494
Tekelec, Inc. /\ + .................................. 260,800 3,847
------------
47,223
------------
COMPUTERS & PERIPHERALS - 0.67%
Avid Technology, Inc. /\ + .......................... 135,100 4,880
Electronics for Imaging, Inc. /\ .................... 223,500 5,283
Hutchinson Technology, Inc. /\ + .................... 108,500 2,512
Mercury Computer Systems, Inc. /\ + ................. 464,600 5,724
Palm, Inc. /\ + ..................................... 177,500 2,725
------------
21,124
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 4.36%
Arrow Electronics, Inc. /\ .......................... 264,600 7,898
Avnet, Inc. /\ ...................................... 994,500 23,550
Benchmark Electronics, Inc. /\ + .................... 413,399 10,976
Celestica, Inc. /\ + ................................ 501,900 4,934
Diebold, Inc. + ..................................... 310,000 13,541
Global Imaging Systems, Inc. /\ ..................... 17,000 370
IKON Office Solutions, Inc. + ....................... 659,600 9,835
Ingram Micro, Inc. /\ ............................... 1,478,300 30,468
Littelfuse, Inc. /\ + ............................... 337,200 11,418
Mettler-Toledo International, Inc. /\ ............... 35,200 2,416
MTS Systems Corp. ................................... 34,200 1,138
PerkinElmer, Inc. ................................... 102,300 2,185
Plexus Corp. /\ + ................................... 312,600 6,852
Vishay Intertechnology, Inc. /\ + ................... 820,100 11,063
------------
136,644
------------
INTERNET SOFTWARE & SERVICES - 0.87%
EarthLink, Inc. /\ + ................................ 970,100 6,810
Netgear, Inc. /\ + .................................. 212,195 5,687
NIC, Inc. /\ + ...................................... 435,700 2,104
United Online, Inc. + ............................... 482,080 6,518
WebEx Communications, Inc. /\ + ..................... 163,100 6,271
------------
27,390
------------
IT CONSULTING & SERVICES - 0.61%
BearingPoint, Inc. /\ + ............................. 332,000 2,765
Perot Systems Corp. /\ .............................. 360,700 5,320
Phase Forward, Inc. /\ .............................. 295,300 4,099
SI International, Inc. /\ + ......................... 138,900 4,606
SYNNEX Corp. /\ + ................................... 51,500 1,156
Unisys Corp. /\ + ................................... 183,600 1,201
------------
19,147
------------
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 1.25%
Actel Corp. /\ + ................................... 170,200 $ 2,790
Cirrus Logic, Inc. /\ .............................. 296,500 2,093
Fairchild Semiconductor International, Inc. /\ ..... 48,700 785
FEI Co. /\ + ....................................... 201,700 4,611
Integrated Device Technology, Inc. /\ .............. 104,800 1,661
Kulicke and Soffa Industries, Inc. /\ + ............ 162,500 1,459
Micrel, Inc. /\ .................................... 227,100 2,535
MKS Instruments, Inc. /\ ........................... 438,200 9,487
Omnivision Technologies, Inc. /\ + ................. 183,985 3,021
Photronics, Inc. /\ ................................ 121,200 1,696
Rudolph Technologies, Inc. /\ ...................... 87,100 1,538
Teradyne, Inc. /\ + ................................ 110,500 1,549
Zoran Corp. /\ ..................................... 422,300 5,878
------------
39,103
------------
SOFTWARE - 1.17%
Agile Software Corp. /\ + .......................... 245,700 1,656
Computer Programs and Systems, Inc. /\ + ........... 26,000 889
Epicor Software Corp. /\ + ......................... 218,200 3,061
EPIQ Systems, Inc. /\ + ............................ 147,100 2,248
Mentor Graphics Corp. /\ + ......................... 1,185,500 19,999
Novell, Inc. /\ .................................... 458,000 2,748
Sybase, Inc. /\ + .................................. 207,000 5,041
TIBCO Software, Inc. /\ ............................ 116,700 1,080
------------
36,722
------------
TOTAL INFORMATION TECHNOLOGY 327,353
------------
MATERIALS - 6.41%
BASIC MATERIALS - 0.08%
AMCOL International Corp. + ........................ 97,700 2,571
------------
CHEMICALS - 2.99%
Celanese Corp. ..................................... 172,500 3,555
CF Industries Holdings, Inc. + ..................... 469,000 9,296
Cytec Industries, Inc. ............................. 100,400 5,561
FMC Corp. .......................................... 226,300 15,513
Georgia Gulf Corp. ................................. 216,100 4,622
H.B. Fuller Co. .................................... 213,000 5,280
International Flavors & Fragrances, Inc. + ......... 72,400 3,076
Lubrizol Corp. ..................................... 435,700 19,606
Olin Corp. ......................................... 504,600 8,730
PolyOne Corp. /\ + ................................. 1,837,700 15,069
Tronox, Inc. + ..................................... 154,300 2,021
UAP Holding Corp. /\ + ............................. 37,800 946
Westlake Chemical Corp. ............................ 14,600 461
------------
93,736
------------
CONSTRUCTION MATERIALS - 0.20%
Ameron International Corp. ......................... 66,000 4,834
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
12
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Florida Rock Industries, Inc. + .................... 33,300 $ 1,429
------------
6,263
------------
CONTAINERS & PACKAGING - 0.30%
AptarGroup, Inc. + ................................. 140,100 7,693
Silgan Holdings, Inc. .............................. 37,958 1,570
------------
9,263
------------
METALS & MINING - 2.42%
Century Aluminum Co. /\ + .......................... 420,200 16,354
Compass Minerals International, Inc. + ............. 103,200 3,194
Foundation Coal Holdings, Inc. ..................... 344,400 12,643
Gibraltar Industries, Inc. + ....................... 510,900 10,785
GrafTech Int'l, Ltd. /\ ............................ 749,100 4,532
Metal Management, Inc. ............................. 153,700 4,224
Quanex Corp. + ..................................... 90,150 3,021
RTI International Metals, Inc. /\ + ................ 117,800 7,223
USEC, Inc. + ....................................... 123,800 1,382
Worthington Industries, Inc. + ..................... 719,100 12,426
------------
75,784
------------
PAPER & FOREST PRODUCTS - 0.42%
Glatfelter ......................................... 198,700 2,909
Louisiana-Pacific Corp. ............................ 209,600 4,146
Neenah Paper, Inc. + ............................... 99,500 3,664
Wausau Paper Corp. + ............................... 189,800 2,574
------------
13,293
------------
TOTAL MATERIALS 200,910
------------
TELECOMMUNICATION SERVICES - 0.60%
DIVERSIFIED TELECOMMUNICATION - 0.60%
Cincinnati Bell, Inc. /\ + ......................... 1,139,900 5,346
Commonwealth Telephone Enterprises, Inc. ........... 145,700 6,099
Iowa Telecommunications Services, Inc. ............. 233,600 4,658
Premiere Global Services, Inc. /\ .................. 335,000 2,787
------------
TOTAL TELECOMMUNICATION SERVICES 18,890
------------
UTILITIES - 6.73%
ELECTRIC UTILITIES - 3.76%
Black Hills Corp. + ................................ 37,700 1,301
Cleco Corp. + ...................................... 171,500 4,408
Duquesne Light Holdings, Inc. + .................... 438,800 8,701
El Paso Electric Co. /\ ............................ 164,400 3,840
Great Plains Energy, Inc. + ........................ 740,900 24,109
Hawaiian Electric Industries, Inc. + ............... 63,200 1,771
NSTAR .............................................. 557,600 19,399
OGE Energy Corp. ................................... 389,200 15,015
Otter Tail Corp. + ................................. 38,100 1,141
Pike Electric Corp. /\ ............................. 192,100 3,544
PNM Resources, Inc. ................................ 227,800 6,415
Puget Energy, Inc. ................................. 402,800 9,619
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
TECO Energy, Inc. .................................. 97,600 $ 1,610
WPS Resources Corp. + .............................. 319,700 17,011
------------
117,884
------------
GAS UTILITIES - 2.65%
AGL Resources, Inc. + .............................. 479,900 17,996
Atmos Energy Corp. + ............................... 651,900 20,033
Energen Corp. ...................................... 70,900 3,036
The Laclede Group, Inc. ............................ 145,400 5,181
National Fuel Gas Co. + ............................ 244,800 9,155
New Jersey Resources Corp. + ....................... 157,100 8,147
Peoples Energy Corp. + ............................. 45,200 1,975
Southern Union Co. ................................. 160,348 4,438
UGI Corp. .......................................... 233,600 6,190
WGL Holdings, Inc. + ............................... 212,500 6,896
------------
83,047
------------
MULTI-UTILITIES - 0.32%
Vectren Corp. ...................................... 111,500 3,240
Westar Energy, Inc. ................................ 275,500 6,976
------------
10,216
------------
TOTAL UTILITIES 211,147
------------
TOTAL COMMON STOCKS 2,995,582
------------
SHORT TERM INVESTMENTS - 4.10%
American Beacon Money Market Select
Fund ++ ........................................... 114,617,466 114,617
PAR
AMOUNT
------------
U.S. Treasury Bill,
4.90%, Due 12/7/2006 # ............................ $ 14,055 13,987
------------
TOTAL SHORT TERM INVESTMENTS 128,604
------------
SHARES
------------
SECURITIES LENDING COLLATERAL 25.15%
American Beacon Cash Plus Trust ++ ................. 542,647,134 542,647
American Beacon Money Market Select
Fund ++ ........................................... 245,938,709 245,939
------------
TOTAL SECURITIES LENDING COLLATERAL 788,586
------------
TOTAL INVESTMENTS 124.76% - (COST $3,523,780) 3,912,772
LIABILITIES, NET OF OTHER ASSETS - (24.76%) (776,475)
------------
TOTAL NET ASSETS - 100.00% $ 3,136,297
============
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
13
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS - CONTINUED
October 31, 2006
- --------------------------------------------------------------------------------
Percentages are stated as a percent of net assets.
/\ Non-income producing security.
+ All or a portion of this security is on loan at October 31, 2006.
++ The Fund/Trust is affiliated by having the same investment advisor.
# At October 31, 2006, security pledged as collateral for open futures
contracts.
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
UNREALIZED
NUMBER OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- --------- --------------
Emini Mini Russell 1,663 Dec 2006 $ 128,217 $ 4,268
========= ==============
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
14
AMERICAN BEACON SMALL CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2006 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value(A C)................. $ 3,009,569
Investments in affiliated securities, at value(B)..................... 903,203
Receivable for investments sold....................................... 24,765
Dividends and interest receivable..................................... 2,314
Receivable for fund shares sold....................................... 1,574
Prepaid expenses...................................................... 37
-----------
TOTAL ASSETS..................................................... 3,941,462
-----------
LIABILITIES:
Payable for investments purchased..................................... 6,827
Payable upon return of securities loaned.............................. 788,586
Payable for fund shares redeemed...................................... 3,444
Payable for variation margin on open futures contracts................ 439
Management and investment advisory fees payable (Note 2).............. 4,410
Administrative service and service fees payable....................... 857
Other liabilities..................................................... 602
-----------
TOTAL LIABILITIES................................................ 805,165
-----------
NET ASSETS................................................................. $ 3,136,297
===========
ANALYSIS OF NET ASSETS:
Paid-in-capital....................................................... 2,520,282
Undistributed net investment income................................... 17,578
Accumulated net realized gain (loss).................................. 205,177
Unrealized appreciation (depreciation) of investments, futures
contracts and foreign currency...................................... 393,260
-----------
NET ASSETS................................................................. $ 3,136,297
===========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class................................................... 58,533,659
===========
PlanAhead Class....................................................... 60,416,409
===========
Service Class......................................................... 3,218,303
===========
AMR Class............................................................. 18,364,004
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class................................................... $ 22.53
===========
PlanAhead Class....................................................... $ 22.08
===========
Service Class......................................................... $ 21.94
===========
AMR Class............................................................. $ 22.48
===========
- --------
(A) Cost of investments in unaffiliated securities......................... $ 2,620,577
(B) Cost of investments in affiliated securities........................... 903,203
(C) Market value of securities on loan..................................... 765,935
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
15
AMERICAN BEACON SMALL CAP VALUE FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2006 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividend income from unaffiliated securities (net of foreign taxes)*... $ 42,521
Dividend income from affiliated securities............................. 5,868
Interest income........................................................ 614
Income derived from securities lending, net............................ 1,684
--------
TOTAL INVESTMENT INCOME........................................... 50,687
--------
EXPENSES:
Management and investment advisory fees (Note 2)....................... 15,499
Administrative service fees (Note 2):
Institutional Class.................................................. 3,128
PlanAhead Class...................................................... 3,331
Service Class........................................................ 150
Transfer agent fees:
Institutional Class.................................................. 226
PlanAhead Class...................................................... 164
Service Class........................................................ 23
AMR Class............................................................ 12
Custody and fund accounting fees....................................... 479
Professional fees...................................................... 86
Registration fees and expenses......................................... 46
Service fees:
PlanAhead Class (Note 2)............................................. 3,331
Service Class (Note 2)............................................... 150
Distribution fees -- Service Class (Note 2)............................ 150
Prospectus and shareholder reports..................................... 486
Other expenses......................................................... 321
--------
TOTAL EXPENSES.................................................... 27,582
--------
NET INVESTMENT INCOME....................................................... 23,105
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments.......................................................... 202,647
Commission recapture (Note 1)........................................ 448
Futures contracts.................................................... (424)
Change in net unrealized appreciation or depreciation of:
Investments.......................................................... 203,548
Futures contracts.................................................... 8,585
--------
NET GAIN (LOSS) ON INVESTMENTS.................................... 414,804
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $437,909
========
* Foreign taxes........................................................ $ 42
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
16
AMERICAN BEACON SMALL CAP VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2006 2005
----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income......................................... $ 23,105 $ 14,541
Net realized gain (loss) on investments, futures contracts,
and foreign currency transactions........................... 202,671 128,038
Change in net unrealized appreciation or depreciation of
investments, futures contracts, and foreign currency
translations................................................ 212,133 68,643
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... 437,909 211,222
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class......................................... (7,101) (1,734)
PlanAhead Class............................................. (6,167) (1,962)
Service Class............................................... (139) (37)
AMR Class................................................... (3,772) (2,456)
Net realized gain on investments:
Institutional Class......................................... (46,081) (20,489)
PlanAhead Class............................................. (59,088) (27,260)
Service Class............................................... (2,120) (632)
AMR Class................................................... (17,954) (20,024)
---------- ----------
NET DISTRIBUTIONS TO SHAREHOLDERS........................ (142,422) (74,594)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares................................. 721,048 2,144,506
Reinvestment of dividends and distributions................... 138,617 70,239
Cost of shares redeemed....................................... (886,291) (830,022)
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS........................................... (26,626) 1,384,723
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS.............................. 268,861 1,521,351
---------- ----------
NET ASSETS:
Beginning of period........................................... 2,867,436 1,346,085
---------- ----------
END OF PERIOD*................................................ $3,136,297 $2,867,436
========== ==========
* Includes undistributed net investment income (loss) of...... $ 17,578 $ 12,280
========== ==========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
17
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust") 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"), a series of the Trust.
American Beacon Advisors, Inc. (the "Manager") 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:
CLASS: OFFERED TO: SERVICE AND DISTRIBUTION FEES:
- ------ ----------- ------------------------------
INSTITUTIONAL CLASS Investors making an initial investment of $2 million Administrative Service Fee -- 0.25%
PLANAHEAD CLASS General public and investors investing through an Administrative Service Fee -- 0.25%
intermediary Service Fee -- 0.25%
SERVICE CLASS Investors investing through an intermediary Administrative Service Fee -- 0.25%
Service Fee -- 0.25%
Distribution Fee -- 0.25%
AMR CLASS Investors in the tax-exempt retirement and benefit N/A
plans of AMR Corporation and its affiliates
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, as determined by the Manager, will
be priced at a fair value following procedures approved by the Board of Trustees
(the "Board").
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale.
- --------------------------------------------------------------------------------
18
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
The Fund may purchase securities with delivery or payment to occur at a
later date. At the time the Fund enters into a commitment to purchase a
security, the transaction is recorded and the value of the security is reflected
in the net asset value. The value of the security may vary with market
fluctuations.
Dividend income, net of foreign taxes, is recorded on the ex-dividend date
except certain dividends from foreign securities which are recorded as soon as
the information is available to the Fund. Interest income is earned from
settlement date, recorded on the accrual basis, and adjusted, if necessary, for
accretion of discounts and amortization of premiums. For financial and tax
reporting purposes, realized gains and losses are determined on the basis of
specific lot identification.
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. This amount is reported with the net realized gains of the Fund's
Statement of Operations.
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.
- --------------------------------------------------------------------------------
19
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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.
Recently Issued Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and is to
be applied to all open tax years as of the effective date. At this time,
management is evaluating the implications of FIN 48 and its impact on the
financial statements has not yet been determined.
In September 2006, the FASB issued Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. As of October 31, 2006, the Fund does not believe the
adoption of FAS 157 will impact the amounts reported in the financial
statements, however, additional disclosures will be required about the inputs
used to develop the measurements of fair value and the effect of certain of the
measurements reported in the statement of operations for a fiscal 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 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 0.10% 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, 2006 were as follows
(dollars in thousands):
<Table>
<Caption>
AMOUNTS PAID TO NET AMOUNTS
MANAGEMENT MANAGEMENT INVESTMENT RETAINED BY
FEE RATE FEE ADVISORS MANAGER
- ----------- ---------- --------------- -----------
0.35%-0.60% $15,499 $12,430 $3,069
</Table>
- --------------------------------------------------------------------------------
20
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
As compensation for services provided by the Manager in connection with
securities lending activities, the 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, 2006, securities lending fees totaling $243,871 were paid to
the Manager by the Fund. This fee is netted against securities lending income in
the Statement of Operations.
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
0.25% 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 Fund, has adopted a
"defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under
the Act, 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.
Investment in Affiliated Funds
The Fund is permitted, pursuant to an exemptive order by the Securities and
Exchange Commission ("SEC") and procedures approved by the Board, to invest up
to 25% of its total assets in the American Beacon Money Market Select Fund (the
"Select Fund"). Cash collateral received by the Fund in connection with
securities lending may be invested in the Select Fund and the American Beacon
Cash Plus Trust (the "Cash Trust"). The Fund, the Select Fund and the Cash Trust
(collectively, the "Affiliated Funds") have the same investment advisor and
therefore, are considered to be affiliated. The Manager serves as investment
advisor to the Affiliated Funds and receives from each Affiliated Fund an
annualized fee equal to 0.10% of its average daily net assets. During the year
ended October 31, 2006, fees earned by the Manager from the Affiliated Funds
were as follows:
<Table>
<Caption>
SECURITIES LENDING
DIRECT INVESTMENT COLLATERAL INVESTED
IN AFFILIATED FUNDS IN AFFILIATED FUNDS TOTAL
- ------------------- ------------------- --------
$123,023 $731,641 $854,664
</Table>
- --------------------------------------------------------------------------------
21
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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 other
participating series managed by the Manager. At October 31, 2006, the Fund had
not utilized the credit facility.
Other
At October 31, 2006, AMR Corporation and subsidiary companies and employee
benefit trusts thereof owned 100% of AMR Class shares of the Fund.
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 categorized 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 paid during the years ended October 31,
2006 and October 31, 2005 were as follows (in thousands):
<Table>
<Caption>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2006 2005
----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class............................................. $ 20,806 $12,463
PlanAhead Class................................................. 23,742 16,237
Service Class................................................... 770 368
AMR Class....................................................... 9,112 12,942
LONG-TERM CAPITAL GAIN
Institutional Class............................................. 32,376 9,760
PlanAhead Class................................................. 41,513 12,985
Service Class................................................... 1,489 301
AMR Class....................................................... 12,614 9,538
-------- -------
TOTAL DISTRIBUTIONS PAID................................... $142,422 $74,594
-------- -------
</Table>
As of October 31, 2006, the components of distributable earnings on a tax
basis were as follows (in thousands):
<Table>
Cost basis of investments for federal income tax purposes................... $3,532,964
Unrealized appreciation..................................................... 478,896
Unrealized depreciation..................................................... (99,088)
----------
Net unrealized appreciation (depreciation).................................. 379,808
Undistributed ordinary income............................................... 80,274
Undistributed long-term gain (loss)......................................... 155,934
----------
Distributable earnings...................................................... $ 616,016
==========
</Table>
- --------------------------------------------------------------------------------
22
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
Financial reporting records are adjusted for permanent book/tax differences
to reflect tax character. Financial records are not adjusted for temporary
differences. The temporary differences between financial reporting and tax-basis
reporting of unrealized appreciation/(depreciation) are attributable primarily
to the tax deferral of losses from wash sales, the realization for tax purposes
of unrealized gains/(losses) on certain derivative instruments, and
reclassifications of income from real estate investment securities.
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 regulations, permanent differences between book and tax
reporting have been identified and appropriately reclassified on the Statement
of Assets and Liabilities.
Accordingly, the following amounts represent current year permanent
differences derived from reclassifications of income from real estate investment
securities, foreign currency, and dividend reclasses that have been reclassified
as of October 31, 2006 (in thousands):
<Table>
Paid-in-capital................................................................ $ --
Undistributed net investment income............................................ (628)
Accumulated net realized gain (loss)........................................... 628
Unrealized appreciation (depreciation) of investments, futures contracts and
foreign currency............................................................. --
</Table>
4. INVESTMENT TRANSACTIONS
Investment transactions for the year ended October 31, 2006 (excluding
short-term investments) are as follows (in thousands):
<Table>
Purchases........... $1,409,528
Proceeds from
sales............. $1,563,952
</Table>
A summary of the Fund's direct ownership and transactions in Affiliated
Funds for the year ended October 31, 2006 is set forth below (in thousands):
<Table>
<Caption>
OCTOBER 31, 2005 OCTOBER 31, 2006
AFFILIATED FUND SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
- --------------- ------------------- ---------- ---------- -------------------
Select Fund............................... $124,632 $1,109,433 $1,119,448 $114,617
</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.
The Fund, the Agent and the Manager retain 65%, 25% and 10%, respectively,
of the income generated from the investment of cash collateral, less negotiated
rebate fees paid to participating brokers and transaction costs. 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, the Agent and the Manager
65%, 25% and 10%, respectively. 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.
- --------------------------------------------------------------------------------
23
AMERICAN BEACON SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2006
- --------------------------------------------------------------------------------
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, 2006, 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
- ------------------ ------------------- ---------------
$765,935 $5 $788,586
</Table>
Cash collateral is invested in a joint investment account, which is
comprised of an investment in the Cash Trust and the Select Fund. The allocated
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.
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, 2006
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
--------------------- --------------------- ------------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- --------- ------- --------- ------ -------- ------ --------
Shares sold..................... 18,285 $ 389,424 12,755 $ 269,509 1,941 $ 40,521 1,002 $ 21,594
Reinvestment of dividends....... 2,467 50,759 3,162 63,873 112 2,259 1,061 21,726
Shares redeemed................. (14,930) (320,285) (21,412) (446,771) (1,078) (22,608) (4,550) (96,627)
------- --------- ------- --------- ------ -------- ------ --------
Net increase (decrease) in
shares outstanding............ 5,822 $ 119,898 (5,495) $(113,389) 975 $ 20,172 (2,487) $(53,307)
======= ========= ======= ========= ====== ======== ====== ========
</Table>
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>
- --------------------------------------------------------------------------------
24
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
25
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,
-------------------------------------------------- -----------------------------------------
2006 2005(C) 2004(G) 2003(D) 2002 2006 2005(C) 2004(G) 2003(D)
---------- ---------- -------- ------- ------- ---------- ---------- -------- -------
Net asset value, beginning of
period........................... $ 20.43 $ 18.85 $ 16.21 $ 11.28 $ 11.69 $ 20.04 $ 18.54 $ 15.95 $ 11.22
---------- ---------- -------- ------- ------- ---------- ---------- -------- -------
Income from investment operations:
Net investment income
(loss)(A)................... 0.19 0.11 0.07 (0.01) (0.01) 0.13 0.09 0.08 0.05
Net gains on securities (both
realized and
unrealized)(A).............. 2.94 2.31 3.09 5.24 0.47 2.89 2.24 2.98 5.08
---------- ---------- -------- ------- ------- ---------- ---------- -------- -------
Total income from investment
operations....................... 3.13 2.42 3.16 5.23 0.46 3.02 2.33 3.06 5.13
---------- ---------- -------- ------- ------- ---------- ---------- -------- -------
Less distributions:
Dividends from net investment
income...................... (0.14) (0.07) (0.08) (0.02) (0.11) (0.09) (0.06) (0.03) (0.12)
Distributions from net
realized gains on
securities.................. (0.89) (0.77) (0.44) (0.28) (0.76) (0.89) (0.77) (0.44) (0.28)
---------- ---------- -------- ------- ------- ---------- ---------- -------- -------
Total distributions................ (1.03) (0.84) (0.52) (0.30) (0.87) (0.98) (0.83) (0.47) (0.40)
---------- ---------- -------- ------- ------- ---------- ---------- -------- -------
Net asset value, end of period..... $ 22.53 $ 20.43 $ 18.85 $ 16.21 $ 11.28 $ 22.08 $ 20.04 $ 18.54 $ 15.95
========== ========== ======== ======= ======= ========== ========== ======== =======
Total return....................... 15.80% 12.90% 19.86% 47.45% 3.29% 15.56% 12.63% 19.56% 47.12%
========== ========== ======== ======= ======= ========== ========== ======== =======
Ratios and supplemental data:
Net assets, end of period (in
thousands).................. $1,319,024 $1,076,909 $429,540 $89,579 $21,936 $1,333,814 $1,320,853 $466,364 $66,906
Ratios to average net assets
(annualized):
Expenses net of waivers(A).. 0.82% 0.87% 0.89% 0.89% 0.82% 1.06% 1.10% 1.15% 1.16%
Expenses before waivers(A).. 0.82% 0.87% 0.89% 0.89% 0.82% 1.06% 1.10% 1.15% 1.16%
Net investment income (loss)
net of waivers(A)........ 0.83% 0.66% 0.57% 0.60% 0.81% 0.59% 0.42% 0.33% 0.39%
Net investment income (loss)
before waivers(A)........ 0.83% 0.66% 0.57% 0.60% 0.81% 0.59% 0.42% 0.33% 0.39%
Portfolio turnover rate(B).... 48% 47% 35% 75% 81% 48% 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) Opus Capital Group, LLC 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.
(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 Asset Management, LLC was added as an investment
advisor to the Small Cap Value Fund on September 27, 2004.
(H) Annualized.
- --------------------------------------------------------------------------------
26
- --------------------------------------------------------------------------------
<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 2006 2005(C) 2004(G) 2003(D) 2006 2005(C) 2004(G) 2003(D) 2002
- --------------- ------- ------- ------- ----------- -------- -------- -------- -------- --------
$ 11.64 $ 19.94 $ 18.49 $ 15.92 $ 11.88 $ 20.38 $ 18.78 $ 16.13 $ 11.30 $ 11.71
------- ------- ------- ------- ----------- -------- -------- -------- -------- --------
0.06 0.07 0.04 0.01 -- 0.27 0.21 0.14 0.10 0.15
0.36 2.88 2.23 3.00 4.04 2.91 2.26 3.04 5.15 0.34
------- ------- ------- ------- ----------- -------- -------- -------- -------- --------
0.42 2.95 2.27 3.01 4.04 3.18 2.47 3.18 5.25 0.49
------- ------- ------- ------- ----------- -------- -------- -------- -------- --------
(0.08) (0.06) (0.05) -- -- (0.19) (0.10) (0.09) (0.14) (0.14)
(0.76) (0.89) (0.77) (0.44) -- (0.89) (0.77) (0.44) (0.28) (0.76)
------- ------- ------- ------- ----------- -------- -------- -------- -------- --------
(0.84) (0.95) (0.82) (0.44) -- (1.08) (0.87) (0.53) (0.42) (0.90)
------- ------- ------- ------- ----------- -------- -------- -------- -------- --------
$ 11.22 $ 21.94 $ 19.94 $ 18.49 $ 15.92 $ 22.48 $ 20.38 $ 18.78 $ 16.13 $ 11.30
======= ======= ======= ======= =========== ======== ======== ======== ======== ========
2.99% 15.23% 12.32% 19.24% 34.01%(E) 16.12% 13.23% 20.12% 47.93% 3.54%
======= ======= ======= ======= =========== ======== ======== ======== ======== ========
$16,190 $70,602 $44,709 $11,828 $ 1 $412,857 $424,965 $438,353 $327,542 $181,180
1.11% 1.34% 1.40% 1.38% 1.49%(H) 0.55% 0.58% 0.60% 0.61% 0.56%
1.11% 1.34% 1.40% 1.69% 1,089.04%(H) 0.55% 0.58% 0.60% 0.61% 0.56%
0.52% 0.31% 0.12% 0.17% (0.05%)(H) 1.10% 0.94% 0.84% 0.95% 1.09%
0.52% 0.31% 0.12% (0.14%) (1,087.60%)(H) 1.10% 0.94% 0.84% 0.95% 1.09%
81% 48% 47% 35% 75%(F) 48% 47% 35% 75% 81%
</Table>
- --------------------------------------------------------------------------------
27
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.
AMERICAN BEACON SMALL CAP VALUE FUND
FEDERAL TAX INFORMATION
October 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
For corporate shareholders in the Fund, the percentage of ordinary dividend
income distributed for the year ended October 31, 2006, which is designated as
qualifying for the dividend-received deduction, was 74.4%.
For shareholders in the Fund, the percentage of dividend income distributed
for the year ended October 31, 2006, which is designated as qualified dividend
income under the Jobs and Growth Tax Relief Act of 2003, was 31.8%. Shareholders
will receive notification in January 2007 of the percentage applicable to the
preparation of their 2006 income tax returns.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$87,992,068 as long-term capital gain dividends for the tax year ended October
31, 2006.
- --------------------------------------------------------------------------------
28
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE RE-APPOINTMENT OF
METROPOLITAN WEST CAPITAL MANAGEMENT, LLC
(Unaudited)
- --------------------------------------------------------------------------------
At the May 11, 2006 meeting of the Board of Trustees (the "Board"),
American Beacon Advisors, Inc. (the "Manager") proposed that the Board approve
the re-appointment of Metropolitan West Capital Management, LLC ("MetWest
Capital") and the approval of a new Investment Advisory Agreement between
MetWest Capital and the Manager ("Agreement") following Evergreen Investment
Company, Inc.'s ("Evergreen") acquisition of a controlling interest of MetWest
Capital. Prior to the meeting, the Board requested and reviewed information
provided by MetWest Capital in connection with its consideration to re-appoint
MetWest Capital. The Board considered, among other materials, responses by
MetWest Capital discussing:
- whether there would be changes in fee rate schedule to be paid by the
American Beacon Large Cap Value Fund and American Beacon Small Cap Value
Fund (collectively, the "Funds") under the Agreement;
- whether the level of services provided to the Funds by MetWest will be
affected by the change of control;
- the effects of the change of control on portfolio management personnel
and the adequacy of staffing levels to provide quality services to the
Funds;
- whether MetWest Capital's trading activities would change as a result of
the change of control;
- information regarding MetWest Capital's new affiliates, including
Evergreen;
- material changes to MetWest Capital's compliance program and code of
ethics; and
- potential benefits to the Funds resulting from the change of control.
The Board considered several factors when evaluating MetWest Capital and in
approving the Agreement. In addition, the Board took into consideration its
evaluation of MetWest Capital at its February 2006 Board meeting in connection
with the annual renewal of the prior Agreement with MetWest Capital. A
discussion of the factors relating to the Board's approval of the Agreement
follows.
Nature, extent and quality of the services provided by MetWest Capital. The
Board considered the services provided by MetWest Capital under the prior
Agreement and those to be provided following MetWest Capital's change of
control. In this connection, the Board noted that the Manager and MetWest
Capital would enter into a new Agreement that is substantially identical to the
existing agreement except for a different effective date. In addition, the Board
considered that MetWest Capital represented that the level of services to be
provided to the Funds following the change of control would not change, but may
be enhanced as noted below. In considering that the Funds' portfolio manager and
other senior executives at MetWest Capital have signed long-term contracts with
Evergreen, the Board concluded that these actions would provide continuity of
portfolio management for the Funds. Additionally, the Board considered that: (1)
MetWest Capital's trading activities would not be affected by the change of
control, but MetWest Capital may execute Fund trades through a new affiliated
broker-dealer; (2) the regulatory actions and litigation reported by MetWest
Capital related to newly affiliated entities that would not provide investment
advisory services to the Funds; and (3) MetWest Capital would adopt Evergreen's
compliance program and code of ethics. Based on this information, the Board
concluded that the nature, extent and quality of the advisory services to be
provided by MetWest Capital were appropriate for the Funds, and, thus, supported
a decision to approve the Agreement.
Performance of MetWest Capital. The Board relied upon its February 2006
evaluation of MetWest Capital's performance and determined that the historical
investment performance of MetWest Capital supported the Board's decision to re-
appoint MetWest as an investment adviser to the Funds.
Investment advisory fees, costs of services, profitability and economies of
scale. The Board considered the investment advisory fees paid to MetWest for its
services to the Funds. In this connection, the Board noted that the investment
advisory fee rates would not change under the Agreement. The Board relied upon
its February 2006 evaluation of comparative data on investment advisory fees
because MetWest Capital had represented previously that it does not charge other
comparable clients a fee rate lower than that charged to the Funds. The Board
- --------------------------------------------------------------------------------
29
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE RE-APPOINTMENT OF
METROPOLITAN WEST CAPITAL MANAGEMENT, LLC -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
concluded that MetWest Capital's fees under the Agreement are reasonable based
on the services provided to the Funds. The Board also relied upon its February
2006 evaluation of the costs of the services provided by MetWest Capital,
MetWest Capital's profitability and whether the fee schedule reflected economies
of scale for the benefit of the Funds' investors. The Board noted that such
reliance was reasonable because MetWest Capital proposed to maintain the same
fee rate schedule.
Other Benefits. The Board considered certain other benefits to the Funds as
a result of the change of control. In this regard, the Board considered that:
(1) Evergreen maintains a large compliance staff who will augment its compliance
oversight and resources; (2) MetWest Capital will have access to the substantial
technology team at Evergreen; and (3) MetWest Capital will have potential for
better employee retention due to Evergreen's enhanced benefit programs. After
consideration of this information, the Board concluded that the Funds could
receive additional benefits due to the enhanced services provided by MetWest
Capital.
Board's Conclusions. The Board did not identify any single factor as being
of paramount importance and different Trustees may have given different weight
to different factors. However, based on the various considerations described
above, the Trustees, including a majority of the Independent Trustees, concluded
that the proposed investment advisory fee is reasonable and the approval of the
Agreement is in the best interests of the Funds and their shareholders and, as a
result, approved the Agreement.
- --------------------------------------------------------------------------------
30
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** (58) Trustee and Chairman and CEO (2006-Present) and President (1986-
President since 1987 2006), American Beacon Advisors, Inc.; Chairman
(1989-2003) and Director (1979-1989, 2003-Present),
American Airlines Federal Credit Union; Director,
Crescent Real Estate Equities, Inc. (1994-Present);
Director, Pritchard, Hubble & Herr, LLC (investment
advisor) (2001-2006); Director of Investment
Committee, 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, 2006-
Present); Vice Chairman, Committee for the
Investment of Employee Benefits (2004-Present);
Chairman, Committee for the Investment of Employee
Benefits Defined Benefit Sub-Committee (2002-2004);
Director, United Way of Metropolitan 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** (69) 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).
</Table>
- --------------------------------------------------------------------------------
31
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
Term
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (62) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund
servicing company) (1998-2003); Board Member, Baylor
University Medical Center Foundation (1992-2004);
President and CEO, Allmerica Trust Company, NA
(1996-1997); President and CEO, Fidelity Investments
Southwest Company (1983-1995); Senior Vice President
of Regional Centers, Fidelity Investments (1988-
1995); Trustee, American Beacon Mileage Funds (2004-
Present); Trustee, American Beacon Select Funds
(2004-Present); Trustee, American Beacon Master
Trust (2004-Present).
Brenda A. Cline (45) Trustee since 2004 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary, Kimbell Art Foundation
(1993-Present); Trustee, Texas Christian University
(1998-Present); Trustee, W.I. Cook Foundation, Inc.
(d/b/a Cook Children's Health Foundation) (2001-
Present); Director, Christian Church Foundation
(1999-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 (63) 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 Trustee since 1987 Consultant (1994-Present); Trustee, American Beacon
(71) Mileage Funds (1995-Present); Trustee, American
Beacon Select Funds (1999-Present); Trustee,
American Beacon Master Trust (1995-Present).
R. Gerald Turner (60) Trustee since 2001 President, Southern Methodist University (1995-
225 Perkins Admin. Bldg. Present); Director, ChemFirst (1986-2002); Director,
Southern Methodist Univ. J.C. Penney Company, Inc. (1996-Present); Director,
Dallas, Texas 75275 California Federal 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 (50) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a
100 Crescent Court Suite Chairman since 2005 private equity firm) (1998-Present); Director,
1740 Burger King Corporation (2004-Present); Trustee,
Dallas, Texas 75201 City of Dallas, Texas Employee Retirement Fund
(2004-Present); Trustee, The Hockaday School (1997-
2005); 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).
</Table>
- --------------------------------------------------------------------------------
32
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
Rosemary K. Behan (47) VP, Secretary and Vice President, Legal and Compliance, American
Chief Legal Officer Beacon Advisors, Inc. (2006-Present); Assistant
since 2006 General Counsel, First Command Financial Planning,
Inc. (2004-2006); Enforcement Attorney (2002-2004)
and Branch Chief (2000-2002); Securities and
Exchange Commission.
Brian E. Brett (46) VP since 2004 Vice President, Director of Sales, American Beacon
Advisors, Inc. (2004-Present); Regional Vice
President, Neuberger Berman, LLC (investment
advisor) (1996-2004).
Michael W. Fields (52) VP since 1989 Vice President, Fixed Income Investments, American
Beacon Advisors, Inc. (1988-Present).
Rebecca L. Harris (39) Treasurer since 1995 Vice President, Finance, American Beacon Advisors,
Inc. (1995-Present).
Christina E. Sears (35) Chief Compliance Chief Compliance Officer, American Beacon Advisors,
Officer since 2004 Inc. (2004-Present); Senior Compliance Analyst,
and Asst. Secretary American Beacon Advisors, Inc. (1998-2004).
since 1999
</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
72, 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 Chairman 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.
- --------------------------------------------------------------------------------
33
(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 A description of the policies and procedures the
provided in each semi-annual and annual Fund uses to determine how to vote proxies
report, the Fund files a complete schedule of relating to portfolio securities is available in
its portfolio holdings with the Securities the Fund's Statement of Additional Information,
and Exchange Commission ("SEC") on Form N-Q is available free of charge on the Fund's
as of the first and third fiscal quarters. website (www.americanbeaconfunds.com) and by
The Fund's Forms N-Q are available on the calling 1-800-967-9009 or by accessing the SEC's
SEC's website at www.sec.gov. The Forms N-Q website at www.sec.gov. The Fund's proxy voting
may also be reviewed and copied at the SEC's record for the most recent year ended June 30 is
Public Reference Room, 450 Fifth Street, NW, filed annually with the SEC on Form N-PX. The
Washington, DC 20549. Information regarding Fund's Forms N-PX are available on the SEC's
the operation of the SEC's Public Reference website at www.sec.gov. The Fund's proxy voting
Room may be obtained by calling 1-800-SEC- record may also be obtained by calling 1-800-
0330. A complete schedule of the Fund's 967-9009.
portfolio holdings is also available on the
Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of
each month.
</Table>
FUND SERVICE PROVIDERS:
<Table>
<Caption>
CUSTODIAN TRANSFER AGENT INDEPENDENT AUDITORS DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA ERNST & YOUNG LLP FORESIDE FUND SERVICES
Boston, Massachusetts SERVICES Dallas, Texas Portland, Maine
Kansas City, Missouri
</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 10/06
538855
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
- ---------- -----------------
$41,994* 12/31/2004
$212,628 10/31/2005
$48,010 12/31/2005
$249,625 10/31/2006
</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 12/31/2004
$26,460* 10/31/2005
$0 12/31/2005
$23,164** 10/31/2006
</Table>
<FN>
* Attestation services related to Interfund Lending Program
** Attestation services related to Interfund Lending Program and review of N-1A
</FN>
(c)
<Table>
<Caption>
Tax Fees Fiscal Year Ended
- -------- -----------------
$0 12/31/2004
$28,847* 10/31/2005
$10,695* 12/31/2005
$0 10/31/2006
</Table>
<FN>
* For review of 2003 and 2004 tax returns
</FN>
(d)
<Table>
<Caption>
All Other Fees Fiscal Year Ended
- -------------- -----------------
$0 12/31/2004
$0 10/31/2005
$0 12/31/2005
$0 10/31/2006
</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
- ---------- ------- ------------------------------ -----------------
$0 $0 N/A 12/31/2004
$55,307 $0 N/A 10/31/2005
$10,695 $0 N/A 12/31/2005
$23,164 $0 N/A 10/31/2006
</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 8, 2007
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 8, 2007
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: January 8, 2007