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, 2007
Date of reporting period: October 31, 2007
ITEM 1. REPORT TO STOCKHOLDERS.
GUIDANCE | VISION | EXPERIENCE
(AMERICAN BEACON FUNDS(SM) LOGO)
ANNUAL REPORT
(GPAPHIC)
OCTOBER 31, 2007
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
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........................................... 36
Mid-Cap Value Fund.............................................. 41
Small Cap Value Opportunity Fund................................ 44
Emerging Markets Fund........................................... 48
High Yield Bond Fund............................................ 54
Enhanced Income Fund............................................ 62
Intermediate Bond Fund.......................................... 68
Short-Term Bond Fund............................................ 77
Additional Information.......................................... Back Cover
Any opinions herein, including forecasts, reflect our judgment as of the end of
the reporting period and are subject to change. Each advisor's strategies and
each Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
(PHOTO OF DOUGLAS G. HERRING)
FELLOW SHAREHOLDERS,
I am pleased to present to you the American Beacon Funds Annual Report for
the twelve months ended October 31, 2007. Please review the enclosed material
carefully, as it includes important information about the Funds.
For the year ended October 31, 2007, the world's equity markets continued
to post impressive -- albeit more volatile -- numbers. Here at home, the S&P 500
Index reported a return of 14.56%. Most sectors continued to see strong
corporate profits, dampened by a meltdown in homebuilding and financial stocks.
Abroad, the MSCI Emerging Markets Index reported an extraordinary return of
67.85%, reflecting continued strong global growth and a weak U.S. Dollar.
Against this backdrop, the Institutional Class of the five American Beacon
equity funds included herein all posted positive returns for the fiscal year
ended October 31, 2007. The American Beacon Small Cap Value Opportunity, Mid-Cap
Value and Balanced Funds reported one-year returns of 1.08%, 4.87% and 9.31%,
respectively. Our Large Cap Growth Fund and our Emerging Markets Fund recorded
double-digit returns of 11.84% and 60.83%, respectively.
In the credit markets, bonds saw a widening in credit spreads as investors
fled to quality due to the crisis in the U.S. housing and financial sectors. The
bond market, as defined by the Lehman Brothers Aggregate Index, returned 5.38%
for the year ended October 31, 2007. In comparison, the American Beacon Enhanced
Income Fund - PlanAhead Class, and Intermediate Bond and Short-Term Bond Funds -
Institutional Class, all reported one-year returns above 5.5% for the period.
The American Beacon High Yield Bond Fund - Institutional Class gained 6.85%.
Despite the return of volatility this year, coupled with the re-pricing of
credit risk, we believe the Funds' focus on long-term performance and
below-average expenses will - in the long run - serve our investors well.
As always, we appreciate 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/ Douglas G. Herring
----------------------------------------
Douglas G. Herring
President
American Beacon Funds
1
DOMESTIC EQUITY MARKET OVERVIEW
OCTOBER 31, 2007 (UNAUDITED)
After increasing short-term rates 17 times from 1.00% in June 2004 to 5.25%
in June 2006, the Federal Reserve (the "Fed"), led by new chairman Ben Bernanke,
left rates unchanged over the remainder of 2006. This "inaction," combined with
a sharp decline in oil prices, and further declines in long-term interest rates,
led to a strong stock market rally that carried through the end of 2006.
This was followed by a brief mid-quarter correction in the first quarter of
2007, ignited by subprime mortgage concerns and a sharp fall in the global
markets. However, equity prices rallied near the end of the quarter as the Fed
voiced some concerns over economic growth while continuing to emphasize
inflation risk, leading to a positive-shaped yield curve for the first time in
seven months. As measured by the various Russell indices, value and growth
stocks performed in line with each other in the first quarter, with larger
companies underperforming both mid-cap and smaller companies. Seven of the ten
sectors in the broad-market S&P 500 Index advanced in the quarter with Utilities
and Materials leading the way. The worst performing sector, Financials, declined
as the market reacted to the subprime mortgage news.
During the second quarter of 2007, U.S. equity markets absorbed the news of
a slowing housing market, higher energy prices, rising long-term interest rates,
and diminished expectations for a cut in short-term rates. Equity prices were
fueled by private investors' attraction to strong corporate cash flows, liquid
balance sheets, and the low cost of buyout financing. All of the major stock
indices gained during the quarter, with the S&P 500 Index finally reaching a new
high, breaking the one set in March 2000. Reversing the trend of the prior 18
months, growth stocks outperformed their value counterparts while large cap
stocks outperformed mid-cap and small cap equities. With the exception of the
Utilities sector, each of the remaining nine sectors in the broad-market S&P 500
Index advanced during the quarter. The performance disparity between the sectors
was pronounced, reinforcing the importance of portfolio diversification.
Investors favored the Energy and Information Technology sectors, both of which
gained more than 10% during the quarter. Consumer Staples and Financials, along
with the aforementioned Utilities sector, were the laggards.
The economic events of the third quarter made for jittery financial
markets. However, even in the face of a slowing housing industry, the subprime
mortgage spillover, a falling dollar, and a world-wide credit squeeze, most
equity markets in the U.S. maintained their solid performance through the third
quarter of 2007. After continuing to drive down stock prices in July, investors
returned to the stock market in force in late August. The rally continued in
September, spurred by the Fed's decision to cut interest rates for the first
time in more than four years. The lower cost of borrowed funds, a strong
worldwide economy and solid corporate performance were significant drivers of
the market upturn. The quarter was characterized by high variability, market
capitalization, and investment style, as the Russell 1000(R) Value Index
declined while the NASDAQ Composite Index advanced. During the third quarter,
growth stocks continued to outperform their value counterparts in the Russell
indices and remained ahead. Large companies clearly were in favor during the
quarter, with the Russell 1000 Index showing positive returns while mid-cap and
small cap issues declined. As was the case in the previous quarter, the Energy,
Information Technology and Industrials sectors led the way in performance during
the third quarter. Reflecting the unease in the housing and credit markets, both
the Financials and Consumer Discretionary sectors declined during the quarter.
The month of October lived up to its volatile history. While worries over
housing weakness, the credit crunch, and decreases in earnings expectations
provided powerful ammunition for the "bears," monetary policy and continued
economic gains enabled the "bulls" to propel markets higher. Market gains were
broad based with all of the major markets advancing during the month. Even with
the U.S. economy continuing to display very impressive resilience, "to forestall
some of the adverse effects on the broader economy," the Fed cut interest rates
by 25 basis points (0.25%) to 4.50% at its October 31st meeting.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON BALANCED FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
The Balanced Fund's Institutional Class returned 9.31% for the twelve
months ended October 31, 2007, lagging both the 60% S&P 500 Citigroup Value/40%
Lehman Brothers Aggregate Index benchmark return of 10.33% and the Lipper
Mixed-Asset Target Allocation Growth Funds Index return of 13.58%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/97 THROUGH 10/31/07
(PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF
PERIODS ENDED 10/31/07 $10,000
--------------------------- 10/31/97-
1 YEAR 5 YEARS 10 YEARS 10/31/07
------ ------- -------- ---------
Institutional Class(1,6).... 9.31% 13.16% 7.76% $21,111
PlanAhead Class(1,6)........ 9.06% 12.80% 7.47% 20,552
Service Class(1,2,6)........ 8.76% 12.62% 7.38% 20,385
AMR Class(1,6).............. 9.59% 13.42% 8.05% 21,687
Balanced Composite
Index(3)................. 10.33% 11.77% 7.52% 20,648
Balanced Composite
Index(4)New.............. 8.74% 11.59% 8.11% 21,817
Linked S&P 500/
Citigroup Value Index
(5)...................... 13.55% 16.67% 8.03% 21,659
Russell 1000 Value Index
(5)......................
Lehman Bros. Aggregate
Index(5)................. 5.38% 4.41% 5.91% 17,754
Lipper Mixed-Asset Target
Allocation Growth Funds
Index (5)................ 13.58% 12.36% 7.32% 20,267
(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 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 through the periods
or for the entirety of each period. A portion of the fees charged to the
Service Class of the Fund was waived through 2005. Performance prior to
waiving fees was lower than actual returns shown for periods through 2005.
(3.) 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.
(4.) To reflect the Fund's allocation of its assets between investment grade
fixed-income securities and equity securities, the returns of the Russell
1000 Value Index and the Lehman Brothers Aggregate Index have been combined
in a 60%/40% proportion. Effective November 1, 2007, the benchmark for the
Fund's equity securities will change from the Linked S&P 500/Citigroup
Value Index to the Russell 1000 Value Index, as it is a more widely
accepted benchmark for large cap value stocks.
(5.) 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. Russell 1000(R) Value Index is a registered trademark of Frank
Russell Company. The Russell 1000 Value Index is an unmanaged index of
those stocks in the Russell 1000 Index with lower price-to-book ratios and
lower forecasted growth values. 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 Growth
Funds category. Lipper is an independent mutual fund research and ranking
service. One cannot directly invest in an index
(6.) The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus for the Institutional, PlanAhead, Service and AMR Class
shares was 0.62%, 0.88%, 1.25% and 0.36%, respectively. After expense
reimbursements, the net expense ratio disclosed in the most recent
prospectus for the Service Class was 1.10%. The expense ratios above may
vary from the expense ratios presented in other sections of this report
that are based on expenses incurred during the period covered by this
report.
During the twelve-month period, the Fund's assets on average were invested
65% in equities (including equitized cash) and 35% in fixed-income securities,
ending the period with 63% in equities/equitized cash and 37% in fixed-income
securities.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON BALANCED FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
The equity portion of the Fund (excluding equitized cash) returned 11.9%,
underperforming the S&P 500/Citigroup Value Index (the "Index") return of 13.6%.
The Fund's equities underperformed the Index due to both stock selection and
sector allocation. Poor stock selection in the Consumer Discretionary, Health
Care, and Financials sectors contributed most to the Fund's underperformance. In
the Consumer Discretionary sector, Centex (down 51.9% for the period the Fund
owned the security), Pulte Homes (down 51.8%) and Lennar (down 45.4% for the
period the Fund owned the security) detracted from Fund performance. The Fund's
holdings in the Health Care sector that had the largest negative impact for the
period the Fund owned the securities were Pfizer (down 3.7%) and Tenet
HealthCare (down 52.0%), while Washington Mutual (down 30.1%) and Citigroup
(down 13.0%) accounted for a large portion of the Financials sector's
underperformance.
Equity sector allocation detracted modestly from the Fund's relative
returns during the twelve-month period, mainly due to an overweight in the
Consumer Discretionary sector, one of the poorer performing sectors in the
Index, and a slight underweight in the Information Technology sector, one of the
better performing sectors in the Index. The negative sector allocation
performance was somewhat offset by an underweighting in Financials, the worst
performing sector in the Index.
The fixed-income portion of the Fund returned 5.6% for the period,
outperforming the Lehman Brothers Aggregate Index ("Lehman Index") return of
5.4%. Most of the Fund's excess performance was due to good issuer selection in
the Corporate and Collateralized Mortgage Obligations sectors. The Fund also
benefited from its duration positioning, as its duration was longer than that of
the Lehman Index in the first half of the period when interest rates fluctuated
in a narrow range. The Fund's duration was fairly neutral relative to the Lehman
Index early in the third quarter when interest rates peaked, and it maintained a
longer duration in the latter part of the period as the flight to quality rally
led to a decline in interest rates.
The sub-advisors continue to focus on the disciplined selection of
attractive securities that should allow the Fund to benefit long term.
TOP TEN EQUITY HOLDINGS
% OF
EQUITIES
--------
Bank of America Corp. 1.9%
ConocoPhillips 1.8%
Citigroup, Inc. 1.6%
AT&T, Inc. 1.4%
Pfizer, Inc. 1.3%
International Business Machines Corp. 1.3%
Verizon Communications, Inc. 1.3%
JPMorgan Chase & Co. 1.2%
Honeywell International, Inc. 1.2%
Imperial Tobacco Group plc 1.1%
EQUITY SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials 27.4%
Industrials 12.9%
Consumer Discretionary 10.7%
Information Technology 10.2%
Health Care 10.1%
Energy 9.0%
Consumer Staples 6.6%
Utilities 5.7%
Telecommunication Services 4.7%
Materials 2.7%
FIXED-INCOME SECTOR ALLOCATION
% OF
EQUITIES
--------
U.S. Treasury 30.0%
Corporate Bonds 26.4%
Mortgage-Backed 25.5%
Agency 16.3%
Asset-Backed 1.8%
Investing in debt securities entails interest rate risk which is the risk
that debt securities will decrease in value with increases in market interest
4
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP GROWTH FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
The Institutional Class of the Large Cap Growth Fund returned 11.84% for
the twelve months ended October 31, 2007, compared to the Russell 1000(R) Growth
Index (the "Index") return of 19.22% and the Lipper Large-Cap Growth Funds Index
return of 23.14%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/31/00* THROUGH 10/31/07
(PERFORMANCE GRAPH)
* Inception of Fund
ANNUALIZED TOTAL RETURNS
PERIODS ENDED 10/31/07 VALUE OF
------------------------------- $10,000
SINCE INCEP. 7/31/00-
1 YEAR 5 YEARS (7/31/00) 10/31/07
------ ------- ------------ --------
Institutional
Class(1,3)......... 11.84% 11.64% -3.26% $7,864
AMR Class(1,3)........ 12.07% 11.84% -3.08% 7,968
Russell 1000
Growth Index(2).... 19.22% 12.61% -2.66% 8,222
Lipper Large-Cap
Growth Funds
Index(2)........... 23.14% 12.26% -2.64% 8,240
(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 since 2004. Performance prior to waiving
the fees was lower than the actual returns shown for periods since 2004.
(2.) Russell 1000 Growth Index is a registered trademark of Frank Russell
Company. The Russell 1000 Growth Index is an unmanaged index of those
stocks in the Russell 1000 Index with higher price-to-book ratios and
higher forecasted growth values. 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.
(3.) The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus for the Institutional and AMR Class shares was 1.00% and
0.59%, respectively. After expense reimbursements, the net expense ratio
disclosed in the most recent prospectus for the Institutional Class was
0.90%. The expense ratios above may vary from the expense ratios presented
in other sections of this report that are based on expenses incurred during
the period covered by this report.
The Fund underperformed the Index primarily through stock selection, as
sector allocation detracted modestly from the Fund's performance. The Fund had
poor stock selection in the Consumer Discretionary, Information Technology,
Health Care, and Financials sectors. Positions in Harley Davidson (down 31.5%
for the period the Fund held the security) and Circuit City Stores (down 24.2%
for the period the Fund held the security) detracted most from the Consumer
Discretionary sector's relative performance. In the Information Technology
sector, the largest detractors were Lexmark International (down 34.0%) and
Symantec (down 9.9% for the period the Fund held the security), while Amgen
(down 21.2% for the period the Fund held the security) hurt the Fund's Health
Care sector returns. Moody's (down 36.8% for the period the Fund held the
security) and CB Richard Ellis (down 33.2% for the period the Fund held the
security) detracted value relative to the Index in the Financials sector. The
underperformance was slightly offset by good stock selection in the
Telecommunication Services sector, where AT&T (up 26.6%) was the largest
contributor.
The Fund's underweighting in the Information Technology sector, one of the
better performing sectors of the Index, detracted value from relative
performance, as did an overweighting in Consumer Discretionary, the second worst
performing sector of the Index.
Looking forward, the Fund's sub-advisors will continue to maintain a
disciplined, long-term approach to equity investing in larger stocks with
above-average growth potential.
5
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP GROWTH FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
Microsoft Corporation 4.3%
Cisco Systems, Inc. 2.3%
Dell, Inc. 2.0%
Gilead Sciences, Inc. 1.8%
Manpower, Inc. 1.5%
Exxon Mobil Corp. 1.5%
NVIDIA Corp. 1.5%
Honeywell International Inc. 1.5%
Medco Health Solutions, Inc. 1.4%
Hewlett-Packard Co. 1.4%
SECTOR ALLOCATION
% OF
EQUITIES
--------
Information Technology 24.2%
Industrials 15.5%
Consumer Discretionary 14.2%
Health Care 13.9%
Energy 9.9%
Financials 8.5%
Consumer Staples 6.9%
Materials 3.6%
Telecommunication Services 1.9%
Utilities 1.4%
6
PERFORMANCE OVERVIEW
AMERICAN BEACON MID-CAP VALUE FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
The Institutional Class of the Mid-Cap Value Fund returned 4.87% for the
twelve months ended October 31, 2007. The Fund trailed the Russell Midcap(R)
Value Index (the "Index") return of 9.73% and the Lipper Mid-Cap Value Funds
Index return of 14.26%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 6/30/04* THROUGH 10/31/07
(PERFORMANCE GRAPH)
* Inception of Fund
ANNUALIZED TOTAL RETURNS
PERIODS ENDED 10/31/07 VALUE OF
------------------------------- $10,000
SINCE INCEP. 6/30/04-
1 YEAR 3 YEARS (6/30/04) 10/31/07
------ ------- ------------ --------
Institutional Class(1,3,5).. 4.87% 12.66% 12.20% $14,684
PlanAhead Class (1,2,5)..... 4.68% 12.52% 12.08% 14,630
Service Class (1,5,6)....... 4.58% 12.49% 12.05% 14,616
AMR Class (1,5)............. 5.19% 12.84% 12.37% 14,756
Russell Midcap Value
Index(4)................. 9.73% 16.48% 16.10% 16,448
Lipper Mid-Cap Value Funds
Index(4)................. 14.26% 15.01% 13.60% 15,300
(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 for the three-year and since inception periods represents
the total returns achieved by the AMR Class 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 through the periods for
the entirety of each period.
(3.) Fund performance for the three-year and since inception periods 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 through the periods for the entirety of each period.
(4.) Russell Midcap Value Index and Russell 1000 Index are registered trademarks
of Frank Russell Company. The Russell Midcap Value Index is an unmanaged
index of those stocks in the Russell Midcap Index with lower price-to-book
ratios and lower forecasted growth values. The Russell Midcap Index
measures the performance of the 800 smallest companies in the Russell 1000
Index. 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
directly invest in an index.
(5.) The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus for the Institutional, PlanAhead, Service, and AMR Class
shares was 1.22%, 1.64%, 1.56%, and 0.95%, respectively. After expense
reimbursements, the net expense ratio disclosed in the most recent
prospectus for the Institutional and PlanAhead Class was 0.90% and 1.23%,
respectively. The expense ratios above may vary from the expense ratios
presented in other sections of this report that are based on expenses
incurred during the period covered by this report.
(6.) Fund performance represents the total returns achieved by the AMR class
from 6/30/04 up to 11/30/05, the returns of the Institutional Class from
11/30/05 up to 3/1/06, the returns of the PlanAhead Class from 3/1/06 up to
6/30/07, 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 AMR, 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 (through the periods or for the entirety of each
period).
The Fund underperformed the Index through both stock selection and sector
allocation. Holdings in the Utilities, Financials, and Industrials sectors
detracted the most value from stock selection. In the Utilities sector, holdings
in Pinnacle West Capital (down 11.4%) and Wisconsin Energy (up 6.5%) were the
largest detractors. American Home Mortgage (down 99.1%) followed by Radian Group
(down 56.2% for the period the Fund owned the security) hurt performance most in
the Financials sector, while Kelly Services (down 26.3%) and Ryder Systems (down
7.7%) were the largest detractors in the Industrials sector.
Large underweightings in the Materials and Energy sectors, the two best
performing sectors in the Index, were two of the largest detractors
7
PERFORMANCE OVERVIEW
AMERICAN BEACON MID-CAP VALUE FUND(SM)
APRIL 30, 2007 (UNAUDITED)
through sector allocation. A significant overweight in Consumer Discretionary,
one of the poorer performing sectors in the Index, also hurt relative
performance. An underweight in Financials, the worst performing sector in the
Index, added value to the Fund's performance relative to the Index.
The sub-advisors' philosophy of investing in undervalued companies that
exhibit improving profitability and earnings growth potential should allow the
Fund to benefit longer term.
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
L-3 Communications Holdings, Inc. 3.7%
Whirlpool Corp. 2.2%
Murphy Oil Corp. 2.2%
Computer Sciences Corp. 2.1%
Rent-A-Center, Inc. 2.0%
Black & Decker Corp. 1.9%
Regis Corp. 1.9%
XL Capital Ltd. 1.9%
Coventry Health Care, Inc. 1.8%
Torchmark Corp. 1.8%
SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials 26.3%
Consumer Discretionary 23.7%
Industrials 13.4%
Health Care 10.8%
Utilities 8.5%
Information Technology 8.0%
Consumer Staples 5.4%
Energy 3.9%
Investing in the securities of mid-capitalization companies involves
greater risk and the possibility of greater price volatility than investing in
larger capitalization and more established companies.
8
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
The Institutional Class of the Small Cap Value Opportunity Fund returned
1.08% for the twelve months ended October 31, 2007. The Fund underperformed the
Russell 2000 Value Index (the "Index") return of 2.05% and the Lipper Small-Cap
Value Funds Index return of 7.17% for the same period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 3/31/06* THROUGH 10/31/07
(PERFORMANCE GRAPH)
* Inception of Fund
ANNUALIZED TOTAL RETURNS
PERIODS ENDED 10/31/07 VALUE OF
------------------------ $10,000
SINCE INCEP. 3/31/06-
1 YEAR (3/31/06) 10/31/07
------ ------------ --------
Institutional Class(1,3).... 1.08% 2.32% $10,371
PlanAhead Class(1,3)........ 0.96% 2.24% 10,358
Russell 2000 Value
Index (2) ............... 2.05% 4.37% 10,701
Lipper Small-Cap
Value Funds Index (2).... 7.17% 5.25% 10,845
(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 prior to
waiving fees was lower than the actual returns shown.
(2.) Russell 2000 Value Index is a registered trademark of Frank Russell
Company. The Russell 2000 Value Index is an unmanaged index of those stocks
in the Russell 2000 Index with lower price-to-book ratios and lower
forecasted growth values. 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.
(3.) The total annual Fund operating expense ratio, gross of fee waivers, set
forth in the most recent Fund prospectus for the Institutional and
PlanAhead Class shares was 6.14% and 20.07%, respectively. After expense
reimbursements, the net expense ratio set forth in the most recent Fund
prospectus was 1.05% and 1.30%, respectively. The expense ratios above may
vary from the expense ratios presented in other sections of this report
that are based on expenses incurred during the period covered by this
report.
Prior to the deduction of expenses, the Fund slightly outperformed the
Index. However, the Fund did not generate enough excess performance to offset
its expenses. Gross of Fund expenses, the Fund added value entirely through
stock selection, as sector allocation was a modest detractor.
The Fund's holdings in the Information Technology sector added the most
value relative to the Index, followed by the Telecommunication Services and
Consumer Discretionary sectors. In the Information Technology sector, the
companies that had the largest impact were Commscope (up 47.8%) and ON
Semiconductor (up 64.0% for the period the Fund owned the security). The largest
contributors in the Telecommunication Services sector were Golden Telecom (up
181.1%) and Premiere Global Services (up 98.1%). In the Consumer Discretionary
sector, most of the excess performance, for the period the Fund owned the
securities, came from Warnaco (up 55.8%) and Tupperware (up 58.5%). Poor stock
selection in Industrials, mostly in Saia (down 47.4%) and Griffon (down 36.3%
for the period the Fund owned the security), and in Materials, primarily in
Spartech (down 40.9% for the period the Fund owned the security) and NN, Inc.
(down 2.8% for the period the Fund owned the security), detracted value versus
the Index.
Small overweightings in the Financials and Consumer Discretionary sectors,
the two worst performing sectors in the Index, detracted value relative to the
Index.
The sub-advisor's disciplined approach of investing in a diversified
portfolio of small cap value companies should allow the Fund to generate
competitive performance over longer periods of time.
9
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
Tupperware Corp. 1.2%
Warnaco Group, Inc. 1.1%
Premiere Global Services, Inc. 1.1%
ProAssurance Corp. 1.1%
JDA Software Group, Inc. 1.1%
Potlatch Corp. 1.1%
Golden Telecom, Inc. 1.1%
Navigators Group, Inc. 1.1%
Sciele Pharma, Inc. 1.0%
Insight Enterprises, Inc. 1.0%
SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials 30.4%
Industrials 15.7%
Consumer Discretionary 12.6%
Information Technology 11.9%
Materials 7.8%
Health Care 5.9%
Utilities 5.3%
Energy 4.8%
Consumer Staples 3.2%
Telecommunication Services 2.4%
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.
10
PERFORMANCE OVERVIEW
AMERICAN BEACON EMERGING MARKETS FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
Thus far in 2007, emerging markets have been on par to deliver their fifth
year of consecutive double-digit returns. This has been the longest winning
streak since the inception of the MSCI Emerging Markets ("MSCI EM") Index in
1988. For the past several years, there has been a persistent trend of large cap
companies (stocks over $10 billion in market cap) outperforming most of the MSCI
EM. Elevated liquidity created by extended monetary easing has fueled gains in
emerging markets, especially those stocks that are relatively easy to trade.
This has contributed to a significant valuation premium for larger stocks in the
MSCI EM, regardless of fundamentals or long-term growth prospects. During the
first half of 2007, the liquidity premium trade had begun to moderate, implying
broader participation in market returns.
This trend was short-lived, however. Market volatility surged during the
third quarter as the U.S. subprime lending crisis reverberated to global credit
markets. Heavy selling triggered by margin calls and losses across several
quantitative hedge funds reversed when the Federal Reserve Board (the "Fed")
lowered the discount rate to 5.75% on August 16th. The liquidity injection
boosted stock markets around the world, particularly emerging markets. Since
then, the Fed made a larger than expected 50-basis-point cut (0.50%) to the Fed
Funds rate to 4.75%, and global equities surged further. Indeed, there was a
euphoric response from investors who flocked back to emerging markets. But not
just any emerging equities - the most dramatic price movement was in the biggest
and most expensive securities in the MSCI EM. The liquidity trade had returned.
In September alone, just 2% of the companies in the MSCI EM (or 15 of the 842
stocks in the MSCI EM, representing nearly 20% of the market cap) contributed
40% of the return.
11
PERFORMANCE OVERVIEW
AMERICAN BEACON EMERGING MARKETS FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
The Institutional Class of the Emerging Markets Fund returned 60.83% for
the twelve months ended October 31, 2007. The Fund underperformed the MSCI
Emerging Markets Index (the "Index") return of 67.85%, but outperformed the
Lipper Emerging Market Funds Index return of 60.31% for the period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/31/00* THROUGH 10/31/07
(PERFORMANCE GRAPH)
* Inception of Fund
ANNUALIZED TOTAL RETURNS
PERIODS ENDED 10/31/07
---------------------------- VALUE OF
SINCE $10,000
INCEP. 7/31/00-
1 YEAR 5 YEARS (7/31/00) 10/31/07
------ ------- --------- --------
Institutional Class(1,4).... 60.83% 37.97% 19.57% $36,542
PlanAhead Class(1,2,4) ..... 60.17% 37.61% 19.33% 36,014
AMR Class(1,4).............. 61.19% 38.33% 19.87% 37,220
MSCI Emg Mkts Index(3)...... 67.85% 39.86% 20.04% 37,590
Lipper Emg Mkt Funds
Index(3)................. 60.31% 38.93% 19.54% 36,478
(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 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.
(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.
(4.) The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus for the Institutional, PlanAhead and AMR Class shares was
1.57%, 1.92% and 1.31%, respectively. The expense ratios above may vary
from the expense ratios presented in other sections of this report that are
based on expenses incurred during the period covered by this report.
The Fund underperformed the Index by 7.02% over the twelve-month period due
to stock selection, sub-Index returns on the Fund's cash balances, and Fund
expenses. Although the average cash balance was a fairly modest 5.5%, it created
a drag on Fund performance, given the strength of the emerging markets asset
class during the period.
Poor stock selection during the twelve-month period in Brazil, Taiwan, and
India contributed to the Fund's underperformance, overcoming good selections in
Russia. In Russia, Materials companies Evraz Group, MMC Norilsk Nickel, and
Mechel each exceeded 110% appreciation for the one-year period, and were among
the country's main contributors. All but two of the Fund's Brazilian holdings
appreciated over the one-year period, but most lagged their home market, leading
to underperformance relative to the Index. Significant detractors included Grupo
Pao de Acucar (up 8.0%), Braskem (up 33.7%), Embraer (up 19.1%), and Tele Norte
Leste Participacoes (up 54.8%). In Taiwan, the Fund was negatively impacted by
investments in Financial companies SinoPac Financial Holdings Co. (down 6.7%)
and Chinatrust Financial Holding Co. (up 0.3%), and Information Technology
companies United Microelectronics Corp. (up 0.5%) and Qisda Corp. (down 23.6%).
Indian holdings Infosys Technologies (up 1.2%), Hindustan Petroleum Corp. (down
9.1%), and Bharat Petroleum Corp. (up 3.7%) also hindered the Fund's
performance.
12
PERFORMANCE OVERVIEW
AMERICAN BEACON EMERGING MARKETS FUND(SM)
OCTOBER 31, (UNAUDITED)
Country allocation added value for the period. Underweighting Russia (up
33.6%), overweighting Brazil (up 110.2%), and underweighting Taiwan (up 38.6%)
benefited the Fund, while underweighting China (up 155.7%) and overweighting
Mexico (up 32.9%) detracted from performance.
The Fund's basic philosophy remains focused on investing in attractively
valued companies with above-average earnings growth expectation.
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
RAO Gazprom 2.7%
Companhia Vale do Rio Doce 2.2%
Petroleo Brasileiro S.A. 2.1%
China Mobile Ltd. 1.7%
Samsung Electronics Company Ltd. 1.5%
Unibanco - Uniao de Bancos
Brasileiros S.A. 1.2%
America Movil, S.A.B. de C.V. 1.1%
LUKOIL Oil Co. 1.0%
Sberbank RF 1.0%
Kookmin Bank 0.9%
SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials 23.0%
Telecommunication Services 13.4%
Materials 13.8%
Industrials 13.1%
Energy 10.2%
Information Technology 9.5%
Consumer Discretionary 9.1%
Utilities 3.3%
Consumer Staples 3.3%
Health Care 1.3%
COUNTRY ALLOCATION*
(PIE CHART)
% OF
EQUITIES
--------
China/Hong Kong 15.9%
South Korea 14.7%
Brazil 12.7%
Other Europe, Middle East, Africa 9.7%
Taiwan 9.5%
Russia 8.8%
India 8.6%
South Africa 7.3%
Other Asia 6.7%
Mexico 5.3%
Other Latin America 0.8%
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, 2007 (UNAUDITED)
For the twelve-month period ended October 31, 2007, the investment grade
fixed income market, as defined by the Lehman Brothers Aggregate Index (the
"Index"), produced a 5.38% total return. Volatility rose substantially during
the period as uncertainty surrounding subprime mortgages and related complex
securities sent investors fleeing to quality. As a result, for the first time in
several years, government securities posted the highest returns among the major
Index sectors.
TOTAL RETURNS
PERIODS ENDED 10/31/07
----------------------
6 MONTH 12 MONTH
------- --------
Lehman Aggregate 2.68 5.38
Lehman Gov/Credit 2.83 5.37
SECTOR
U.S. Treasury 3.64 5.91
U.S. Agency 3.23 5.81
Mortgage-Backed 2.65 5.68
Commercial MBS 1.44 3.88
Asset-Backed 1.64 4.12
U.S. Credit 1.78 4.62
CREDIT RATING
Aaa 2.95 5.62
Aa 1.72 4.28
A 1.52 4.11
Baa 1.55 4.91
U.S.TREASURY YIELD 6 MONTH 12 MONTH
- ------------------ ------- --------
2 Year 3.36 5.76
3 Year 3.81 6.27
5 Year 3.78 6.25
10 Year 3.43 5.33
30 Year 3.40 3.88
The yield curve steepened substantially during the period as the Federal
Reserve Bank (the "Fed") lowered the Fed Funds rate in response to the events
that shook the bond market in mid-August. Subprime mortgages took center stage
in what became an historic disruption in the residential mortgage market. The
Fed responded aggressively by reducing the Fed Funds rate 50 basis points
(0.50%) in September and another 25 basis points (0.25%) in late October leaving
the Fed Funds rate at 4.50% at period end. Through much of 2007, the Fed's
primary concern was that inflationary pressures from the tight labor market and
rising commodity prices would threaten economic stability. However, the subprime
disruption was so large and rapid that the Fed had to change course. While the
Fed did make progress in calming the markets, additional rate cuts were expected
by investors at period end.
(PERFORMANCE GRAPH)
All credit sectors were adversely affected by the subprime mortgage
disruption, but the Finance sector was at ground zero. The Finance sector,
through its normal business operations, held a significant amount of exposure to
subprime borrowers in the form of residential mortgages, asset-backed
securities, and derivatives. While some entities fared better than others, the
nature of the credit freeze was that entire sectors were pulled down - even
those issuers with no subprime exposure at all. The element of uncertainty
during market crises tends to broaden the scope of damage.
Another disturbing aspect of this credit crunch was the speed with which it
spread throughout the system. Subprime mortgages have been in existence for a
long time, and the Fed had been raising interest rates for a long time (June
2004 - June 2006). However, the weak link was the fact that long-term assets
(mortgages) were being financed by short-term investments (commercial paper),
and when credit losses began to mount, short-term investors fled. In a sense,
this disruption was caused by a classic mismatch of assets and liabilities. The
credit losses initiated the problem, but the flight of capital substantially
exacerbated it. Additionally, many of the structures in which subprime mortgages
resided had capital requirements and other safeguards that required the sale of
assets if credit losses rose. Unfortunately, selling assets into an illiquid
market only makes things worse
14
DOMESTIC BOND MARKET OVERVIEW
OCTOBER 31, 2007 (UNAUDITED)
Credit spreads moved out substantially during the period with 'A' and 'Aa'
rated issuers performing the worst. These ratings primarily include the Finance
sector issuers.
(PERFORMANCE GRAPH)
Source: Lehman Brothers
One positive outcome for investment grade fixed-income investors was that
leveraged buyout ("LBO") activity came to a halt. With cheap capital no longer
available, equity-activist investors were forced to the sidelines. Furthermore,
given the toll on bank balance sheets, several of the LBO deals that were in the
pipeline were cancelled or restructured as the banks no longer had capacity to
provide liquidity or bridge financing. Nearly every transaction that required
financing from non-government sources was strained. Fortunately, Freddie Mac's
and Fannie Mae's balance sheets were cleaned up over the past several years, and
they had ample capacity during the crisis to fund agency-eligible prime
mortgages.
The markets were undoubtedly tested during the period, and the challenges
will likely continue into 2008. The banks and brokerage companies that
engineered this new-era capital are on the mend, and only small amounts of
capital have been trickling into the affected markets. Unfortunately, housing is
a large part of the economy, and the challenges run deep. The recovery from this
disruption may take longer than many anticipate.
15
HIGH YIELD BOND MARKET OVERVIEW
OCTOBER 31, 2007 (UNAUDITED)
The year ended October 2007 was characterized by two rather divergent
periods. For the seven-month period through May 2007, high yield corporate bond
valuations continued to tighten, with the JPMorgan Global High-Yield Index's
yield spread (the difference in yield between the Index and Treasuries)
narrowing from approximately 3.5% over Treasuries to an all-time range of just
over 2.5%, as default rates remained very low and financial market liquidity was
abundant. However, beginning in June 2007, the difficulties in the housing
market, which had become evident in subprime mortgage securities, began to
filter into the broader financial markets. As a result, investors became more
risk averse and pending high yield supply (which was dominated by lower-rated
leveraged buyout transactions) began to have difficulty getting done.
Consequently, from June through the end of October 2007, yield spreads rose to
approximately 4.5%.
At period end, concerns regarding the expected slowdown in domestic
economic growth and corporate earnings weighed on the corporate market.
Moreover, the lower quality of recent high yield issuance was expected to put
upward pressure on high yield default rates beginning in 2008. Nonetheless,
actual defaults remained near 25-year lows at the end of October - consequently,
the market appeared to already be pricing in a meaningful rise in
intermediate-term default rates into the current level of yield spreads.
16
PERFORMANCE OVERVIEW
AMERICAN BEACON HIGH YIELD BOND FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
The Institutional Class of the High Yield Bond Fund returned 6.85% for the
twelve months ended October 31, 2007. The Fund underperformed the JP Morgan
Global High-Yield Index (the "Index") return of 7.62% and the Lipper High
Current Yield Funds Index, which gained 7.11% for the period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 12/29/00* THROUGH 10/31/07
(PERFORMANCE GRAPH)
* Inception of Fund
ANNUALIZED TOTAL RETURNS
PERIODS ENDED 10/31/07
----------------------------- VALUE OF
SINCE $10,000
INCEP. 12/29/00-
1 YEAR 5 YEARS (12/29/00) 10/31/07
------ ------- ---------- ---------
Institutional Class(1,5) ...... 6.85% 9.65% 8.75% $17,742
PlanAhead Class(1,2,5) ........ 6.52% 9.33% 8.49% 17,458
AMR Class (1,3,5) ............. 6.90% 9.66% 8.75% 17,750
JPMorgan Global High-Yield
Index (4) ................. 7.62% 12.71% 9.44% 18,527
Lipper High Current Yield
Funds Index (4) ............ 7.11% 11.98% 7.05% 15,929
(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 through 2004.
(2.) Fund performance for the since inception period represents the total
returns achieved by the Institutional Class from 12/29/00 up to 3/1/02, the
inception date of the PlanAhead Class, and the returns of the PlanAhead
Class since its inception. Expenses of the PlanAhead Class are higher than
those of the Institutional Class. As a result, total returns shown may be
higher than they would have been had the PlanAhead Class been in existence
since 12/29/00.
(3.) Fund performance for the one-year, five-year and since inception periods
represents the total returns achieved by the Institutional Class from
12/29/00 up to 9/4/07, the inception date of the AMR Class, and the returns
of the AMR Class since its inception. 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 12/29/00.
(4.) The JPMorgan Global High-Yield Index ("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 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.
(5.) The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus for the Institutional, PlanAhead and AMR Class shares was
0.86%, 1.09% and 0.60%, respectively. The expense ratios above may vary
from the expense ratios presented in other sections of this report that are
based on expenses incurred during the period covered by this report.
The Fund underperformed the Index over the twelve-month period due to
sub-Index returns on the Fund's cash balances and Fund expenses. Although the
average cash balance over the period was a fairly modest 4.8%, it created a drag
on Fund performance. These factors more than offset strong issue selection and
sector allocation achieved by the Fund during the period.
Issue selection in the Manufacturing sector added value, while selections
in the Other Corporate and Cable/Media sectors detracted from performance for
the period. From a sector allocation perspective, underweighting the Finance
sector (up 1.8%) helped the Fund's relative performance, as it was the
worst-performing sector for the period. The Fund's overweight position in the
Cable/Media sector (up 9.1%) also added value, as the sector finished the
twelve-month period as the third-best performing sector in the Index.
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)
OCTOBER 31, 2007 (UNAUDITED)
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
General Motors Acceptance Corp., 6.875%, Due 9/15/2011 1.4%
Ford Motor Credit Co. LLC, 9.875%, Due 8/10/2011 1.0%
United Components, Inc., 9.375%, Due 6/15/2013 1.0%
Umbrella Acquisition, Inc., 9.750%, Due 3/15/2015 1.0%
Penske Auto Group, Inc., 7.750%, Due 12/15/2016 1.0%
Sheridan Group, Inc., 10.250%, Due 8/15/2011 1.0%
Newark Group, Inc., 9.750%, Due 3/15/2014 1.0%
Edison Mission Energy, 7.000%, Due 5/15/2017 1.0%
Prestige Brands, Inc., 9.250%, Due 4/15/2012 0.9%
E*Trade Financial Corp., 8.000%, Due 6/15/2011 0.9%
SECTOR ALLOCATION
% OF
FIXED INCOME
------------
Corporate 100.0%
Investing in debt securities entails interest rate risk which is the risk that
debt securities will decrease in value with increases in market interest rates.
Investing in high yield securities involves additional risks when compared to
investing in investment grade securities. These include a greater risk of
default or bankruptcy and an increased sensitivity to financial difficulties or
changes in interest rates.
18
PERFORMANCE OVERVIEW
AMERICAN BEACON ENHANCED INCOME FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
The PlanAhead Class of the Enhanced Income Fund returned 6.76% for the
twelve months ended October 31, 2007. Its benchmark, a blend of 75% Lehman
Brothers Aggregate and 25% Merrill Lynch All U.S. Convertibles Index, returned
7.21%. The Fund's peer group, the Lipper Intermediate Investment Grade Index,
returned 4.67% for the same period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/1/03* THROUGH 10/31/07
(PERFORMANCE GRAPH)
* Inception of Fund
ANNUALIZED TOTAL RETURNS
PERIODS ENDED 10/31/07
--------------------------- VALUE OF
SINCE $10,000
INCEP. 7/1/03-
1 YEAR 3 YEARS (7/1/03) 10/31/07
------ ------- -------- --------
PlanAhead Class(1,4) ........ 6.75% 4.78% 4.46% $12,083
Enhanced Income
Composite Index(2) ....... 7.21% 5.08% 4.94% 12,324
Linked Lehman Bros
Aggregrate Index (3) ..... 5.38% 3.88% 6.11% 11,427
Merrill Lynch All U.S.
Convertibles Index (3) ... 12.72% 10.04% 10.38% 15,339
Lipper Intermediate
Investment Grade Index
(3) ...................... 4.67% 3.70% 3.58% 11,643
(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.) To reflect the Fund's allocation of its assets between investment grade
fixed-income securities and convertible securities, the returns of the
Linked Lehman Brothers Aggregate Index and the Merrill Lynch All U.S.
Convertibles Index have been combined in a 75%/25% proportion.
(3.) The Linked Lehman Brothers Aggregate Index represents returns of the Lehman
Bros. Gov./Credit Intermediate Index ("Intermediate Index") up to October
31, 2006 and the Lehman Bros. Aggregate Index ("Aggregate Index")
thereafter. The Intermediate Index is an unmanaged index of investment
grade corporate and government debt issues with maturities between one and
ten years. The Aggregate Index is a market value weighted index of
government, corporate, mortgage-backed and asset-backed fixed-rate debt
securities of all maturities. 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.
(4.) The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus for the PlanAhead Class shares was 0.96%. The expense ratio
above may vary from the expense ratio presented in other sections of this
report that is based on expenses incurred during the period covered by this
report.
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
which invests in convertible bonds, convertible preferreds, high yield bonds,
and equities in order to enhance the potential return of the Fund.
During the twelve-month period, the investment grade bond portion of the
Fund returned 5.3% before expenses, compared to a 5.4% return for the Lehman
Brothers Aggregate Index. This portion of the Fund benefited from security
selection in the Asset-Backed sector, from an underweight position in
Collateralized Mortgage-Backed Securities, the worst performing sector in the
Lehman Brothers Aggregate, and from security selection in the U.S. Treasuries
sector. This positive performance was offset by both security selection and an
overweight position in Corporates, the second worst performing sector in the
Index.
The remaining portion of the Fund, managed by the Fund's sub-advisor,
returned 15.2% before expenses. These results outperformed the 12.7% return of
the Merrill Lynch All U.S. Convertibles Index ("ML Index"). This portion of the
Fund was helped by having greater equity sensitivity relative to the ML Index.
Convertible issues with higher equity sensitivity performed well, reflecting the
positive returns within the equity markets for the period. However, this portion
of the Fund also held common stocks and corporate bonds, in an effort to manage
the risk/reward potential of the portfolio. While the common stocks outperformed
the convertible market and the stock market as well, the higher-quality
19
PERFORMANCE OVERVIEW
AMERICAN BEACON ENHANCED INCOME FUND(SM)
OCTOBER 31, 2007
straight corporate debt detracted slightly from performance.
The Manager and the Fund's sub-advisor remain focused on the Fund's
investment objectives of generating income and capital appreciation.
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
U.S. Treasury Note, 4.500%, Due 3/31/2012 3.8%
Federal Home Loan Mortgage Corp., Pool #08079, 5.000%, Due
9/1/2035 2.5%
U.S. Treasury Note, 4.875%, Due 4/30/2011 2.2%
Federal Home Loan Mortgage Corp., 5.125%, Due 4/18/2011 1.9%
U.S. Treasury Bond, 7.875%, Due 2/15/2021 1.8%
U.S. Treasury Note, 4.750%, Due 5/15/2014 1.8%
Federal National Mortgage Association, Pool #897820, 6.000%,
Due 9/1/2036 1.7%
Federal National Mortgage Association, Pool #745418, 5.500%,
Due 4/1/2036 1.7%
Federal National Mortgage Association, Pool #745275, 5.000%,
Due 2/1/2036 1.7%
Federal National Mortgage Association, 5.375%, Due 6/12/2017 1.4%
FIXED-INCOME SECTOR ALLOCATION
% OF
FIXED INCOME
------------
Corporate Bonds 31.4%
Mortgage-Backed 27.2%
U.S. Treasury 17.5%
Convertible Bonds 15.0%
U.S. Agency 4.6%
Asset-Backed 4.3%
EQUITY SECTOR ALLOCATION
% OF
EQUITIES
--------
Industrials 27.4%
Information Technology 21.0%
Financials 19.1%
Health Care 18.7%
Consumer Staples 6.1%
Consumer Discretionary 4.0%
Materials 3.7%
Investing in debt securities entails interest rate risk which is the risk that
debt securities will decrease in value with increases in market interest rates.
20
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERMEDIATE BOND FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
The Institutional Class of the Intermediate Bond Fund returned 5.83% for
the twelve months ended October 31, 2007, outperforming the Lehman Brothers
Aggregate Index (the "Index") return of 5.38% and the Lipper Intermediate
Investment Grade Index return of 4.67% for the same period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/97 THROUGH 10/31/07
(PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF
PERIODS ENDED 10/31/07 $10,000
--------------------------- 10/31/97-
1 YEAR 5 YEARS 10 YEARS 10/31/07
------ ------- -------- ---------
Institutional Class(1,3) ... 5.83% 4.40% 5.57% $17,611
Lehman Bros. Agg.
Index (2) ............... 5.38% 4.41% 5.91% 17,754
Lipper Intermediate Inv.
Grade Index (2) ......... 4.67% 4.59% 5.51% 17,102
(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.) 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.
(3.) The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus for the Institutional Class shares was 0.38%. The expense
ratio above may vary from the expense ratio presented in other sections of
this report that is based on expenses incurred during the period covered by
this report.
A portion of the Fund's excess performance during the period was due to
class action settlement proceeds that the Fund received in December 2006 related
to investment activities in 2002. The remainder of the Fund's excess performance
relative to the Index was primarily due to good security selection in the
Corporate sector, where many of the Fund's holdings experienced upgrades in
their quality ratings, and in the Collateralized Mortgage Obligations (CMO)
sector. Although the Fund's average duration was similar to that of the Index
over the course of the twelve-month period, it was overweighted in intermediate
maturities (2 to 4 years), which was beneficial as the yield curve steepened.
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
% OF
NET ASSETS
----------
U.S. Treasury Note, 4.750%, Due 5/15/2014 5.3%
U.S. Treasury Note, 4.500%, Due 3/31/2012 2.3%
U.S. Treasury Note, 4.875%, Due 4/30/2011 2.2%
U.S. Treasury Bond, 4.125%, Due 8/31/2012 2.0%
U.S. Treasury Note, 4.750%, Due 8/15/2017 1.6%
U.S. Treasury Note, 4.125%, Due 5/15/2015 1.3%
Federal Home Loan Mortgage Corp., 5.125%,
Due 4/18/2011 1.3%
Federal Home Loan Mortgage Corp., 5.250%,
Due 2/24/2011 1.2%
U.S. Treasury Bond, 4.750%, Due 2/15/2037 1.1%
Federal National Mortgage Association, TBA
Nov 30, 6.500%, Due 12/1/2099 1.1%
SECTOR ALLOCATION
% OF
FIXED
INCOME
------
Mortgage-Backed 36.9%
Corporates 28.8%
U.S. Treasury 22.6%
U.S. Agency 8.9%
Asset-Backed 2.8%
Investing in debt securities entails interest rate risk which is the risk that
debt securities will decrease in value with increases in market interest rates.
21
PERFORMANCE OVERVIEW
AMERICAN BEACON SHORT-TERM BOND FUND(SM)
OCTOBER 31, 2007
The Institutional Class of the Short-Term Bond Fund returned 5.61% for the
twelve months ended October 31, 2007, which slightly underperformed the Merrill
Lynch 1-3 Year Gov/Corp Index (the "Index") return of 5.67% but substantially
outperformed the Lipper Short Investment Grade Bond Funds Index ("Lipper")
return of 4.50%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/97 THROUGH 10/31/07
(PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF
PERIODS ENDED 10/31/07 $10,000
--------------------------- 10/31/97-
1 YEAR 5 YEARS 10 YEARS 10/31/07
------ ------- -------- ---------
Institutional Class(1,3 .... 5.61% 3.46% 4.76% $15,914
PlanAhead Class(1,3 ........ 5.08% 2.94% 4.25% 15,167
Merrill Lynch 1-3 Yr.
Gov./Corp. Index(2) ..... 5.67% 3.20% 4.88% 16,106
Lipper Short Inv. Grade
Index (2 ................ 4.50% 3.05% 4.29% 15,215
(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.
(3.) The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus for the Institutional and PlanAhead Class shares was 0.36%
and 0.91%, respectively. The expense ratios above may vary from the expense
ratios presented in other sections of this report that are based on
expenses incurred during the period covered by this report.
A portion of the Fund's return during the period was attributable to class
action settlement proceeds that the Fund received in December 2006 that were
related to investment activity in 2002.
The Fund's relative return during the period reflects a combination of an
overweight position in the credit sectors, which underperformed, and a slightly
longer duration than the Index, which resulted in outperformance. As compared to
Lipper, the Fund outperformed due to Lipper's exposure to high-yield corporates,
subprime mortgages and home-equity mortgages - all of which underperformed
significantly. The Fund had no exposure to these asset classes.
During the period, the Fund held an overweight position in investment-grade
corporates, which underperformed as credit spreads widened during the credit
market turmoil. The Fund generally maintains an overweight position in this
sector to generate incremental yield to maturity; however, periodic market
disruptions can cause corporates to underperform. To protect against these
events, the Fund's holdings are limited to investment-grade issuers that we
believe are likely to weather such unexpected volatility.
The Fund benefited from its slightly longer duration, relative to the
Index, as interest rates declined during the period. Treasuries and agencies saw
the most significant decline during the flight-to-quality, but corporate and
asset-backed yields declined as well. The Fund will likely maintain a slightly
longer duration until the economic situation begins to stabilize.
Overall, the period was challenging, but we continue to be confident in the
long-term success of the Fund's investment strategy. As market conditions begin
to stabilize in upcoming periods, we will look to take advantage of
opportunities to generate attractive long-term returns.
22
PERFORMANCE OVERVIEW
AMERICAN BEACON SHORT-TERM BOND FUND(SM)
OCTOBER 31, 2007
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
General Electric Capital Corp., 5.875%, Due 2/15/2012 3.3%
USAA Auto Owner Trust, 5.550%, Due 2/15/2013 3.3%
Banc of America Securities Auto Trust, 4.080%, Due 4/18/2010 3.2%
HSBC Automotive Trust, 4.350%, Due 6/18/2012 3.2%
Merrill Lynch & Co., Inc., 6.00%, Due 2/17/2009 2.7%
John Deere Capital Corp., 4.125%, Due 1/15/2010 2.7%
Comerica Bank, 6.000%, Due 10/1/2008 2.4%
MBNA Corp., 7.500% , Due 3/15/2012 2.3%
John Hancock Global Funding II, 7.900%, Due 7/2/2010 2.3%
National Westminster Bank plc, 7.375%, Due 10/1/2009 2.3%
SECTOR ALLOCATION
% OF
FIXED INCOME
------------
Corporate 68.9%
Asset-Backed 25.2%
Mortgage-Backed 5.9%
Investing in debt securities entails interest rate risk which is the risk that
debt securities will decrease in value with increases in market interest rates.
23
FUND EXPENSES - HYPOTHETICAL
OCTOBER 31, 2007 (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, 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 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, 2007 through October 31,
2007.
ACTUAL EXPENSES
The following tables provide information about actual account values and
actual expenses. You may use the information on this page, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the "Expenses Paid During
Period" for the applicable Fund to estimate the expenses you paid on your
account during this period. Shareholders of the 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.
SMALL CAP
LARGE CAP VALUE EMERGING
BALANCED GROWTH MID-CAP OPPORTUNITY MARKETS HIGH YIELD INTERMEDIATE SHORT-TERM
INSTITUTIONAL CLASS FUND FUND VALUE FUND FUND FUND BOND FUND BOND FUND BOND FUND
- ------------------- --------- --------- ---------- ----------- --------- ---------- ------------ ----------
Beginning Account Value
5/1/07 ................. $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
10/31/07 ............... $1,014.51 $1,055.02 $ 949.95 $ 939.09 $1,354.23 $1,005.02 $1,026.96 $1,024.25
Expenses Paid During Period
5/1/07-10/31/07 * ...... $ 2.89 $ 4.66 $ 4.47 $ 5.13 $ 10.15 $ 4.35 $ 1.79 $ 1.94
Annualized Expense Ratio .. 0.57% 0.90% 0.91% 1.05% 1.71% 0.86% 0.35% 0.38%
SMALL CAP
MID-CAP VALUE EMERGING ENHANCED
BALANCED VALUE OPPORTUNITY MARKETS HIGH YIELD INCOME SHORT-TERM
PLANAHEAD CLASS FUND FUND FUND FUND BOND FUND FUND BOND FUND
- --------------- --------- --------- ----------- --------- ---------- --------- ----------
Beginning Account Value
5/1/07 ................. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value
10/31/07 ............... $1,013.43 $ 949.74 $ 939.67 $1,351.41 $1,002.99 $1,033.69 $1,022.85
Expenses Paid During Period
5/1/07-10/31/07 * ...... $ 4.21 $ 6.09 $ 6.40 $ 12.09 $ 5.45 $ 4.87 $ 4.49
Annualized Expense Ratio .. 0.83% 1.24% 1.31% 2.04% 1.08% 0.95% 0.88%
MID-CAP
BALANCED VALUE
SERVICE CLASS FUND FUND**
- ------------- --------- ---------
Beginning Account Value
5/1/07 ................. $1,000.00 $1,000.00
Ending Account Value
10/31/07 ............... $1,012.19 $ 933.50
Expenses Paid During Period
5/1/07-10/31/07 * ...... $ 5.38 $ 4.93
Annualized Expense Ratio .. 1.06% 1.50%
LARGE CAP EMERGING
BALANCED GROWTH MID-CAP MARKETS HIGH YIELD
AMR CLASS FUND FUND VALUE FUND FUND BOND FUND**
- --------- --------- --------- ---------- --------- -----------
Beginning Account Value
5/1/07 ................. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value
10/31/2007 ............. $1,016.41 $1,056.09 $ 952.71 $1,356.14 $1,029.41
Expenses Paid During Period
5/1/07-10/31/07 * ...... $ 1.58 $ 3.16 $ 3.49 $ 8.73 $ 0.97
Annualized Expense Ratio .. 0.31% 0.61% 0.71% 1.47% 0.61%
- ----------
* 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.
** Beginning Account Value for the Mid-Cap Value Fund - Service Class is as of
6/29/07 and for the High-Yield Bond Fund - AMR Class is as of 9/4/07
(inception dates of the Classes). Expenses are equal to the Class'
annualized ratios for the period multiplied by the average account value
for the period multiplied by the number derived by dividing the number of
days in the period (125) and (58), respectively by days in the year (365).
See accompanying notes
24
FUND EXPENSES - ACTUAL
OCTOBER 31, 2007 (UNAUDITED
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The following tables 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, such as redemption fees as applicable. Similarly, the expense examples for
other funds do not reflect any transaction costs charged by those funds, such as
sales charges (loads), redemption fees or exchange fees. Therefore, the
following tables are useful in comparing ongoing costs only and will not help
you determine the relative total costs of owning different funds. If you were
subject to any transaction costs during the period, your costs would have been
higher.
SMALL CAP
LARGE CAP VALUE EMERGING
BALANCED GROWTH MID-CAP OPPORTUNITY MARKETS HIGH YIELD INTERMEDIATE SHORT-TERM
INSTITUTIONAL CLASS FUND FUND VALUE FUND FUND FUND BOND FUND BOND FUND BOND FUND
- ------------------- --------- --------- ---------- ----------- --------- ---------- ------------ ----------
Beginning Account Value
5/1/07 ................. $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
10/31/07 ............... $1,022.33 $1,020.67 $1,020.62 $1,019.91 $1,016.59 $1,020.87 $1,023.44 $1,023.29
Expenses Paid During Period
5/1/07-10/31/07 * ...... $ 2.91 $ 4.58 $ 4.63 $ 5.35 $ 8.69 $ 4.38 $ 1.79 $ 1.94
Annualized Expense Ratio .. 0.57% 0.90% 0.91% 1.05% 1.71% 0.86% 0.35% 0.38%
SMALL CAP
MID-CAP VALUE EMERGING ENHANCED
BALANCED VALUE OPPORTUNITY MARKETS HIGH YIELD INCOME SHORT-TERM
PLANAHEAD CLASS FUND FUND FUND FUND BOND FUND FUND BOND FUND
- --------------- --------- --------- ----------- --------- ---------- --------- ----------
Beginning Account Value
5/1/07 ................. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value
10/31/07 ............... $1,021.02 $1,018.95 $1,018.60 $1,014.92 $1,019.76 $1,020.42 $1,020.77
Expenses Paid During Period
5/1/07-10/31/07 * ...... $ 4.23 $ 6.31 $ 6.67 $ 10.36 $ 5.50 $ 4.84 $ 4.48
Annualized Expense Ratio .. 0.83% 1.24% 1.31% 2.04% 1.08% 0.95% 0.88%
MID-CAP
BALANCED VALUE
SERVICE CLASS FUND FUND**
- ------------- --------- ---------
Beginning Account Value
5/1/07 $1,000.00 $1,000.00
Ending Account Value
10/31/07 $1,019.86 $1,017.64
Expenses Paid During Period
5/1/07-10/31/07 * $ 5.40 $ 7.63
Annualized Expense Ratio 0.83% 1.24%
LARGE CAP EMERGING
BALANCED GROWTH MID-CAP MARKETS HIGH YIELD
AMR CLASS FUND FUND VALUE FUND FUND BOND FUND**
- --------- --------- --------- ---------- --------- -----------
Beginning Account Value
5/1/07 ................. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value
10/31/07 ............... $1,023.64 $1,022.13 $1,021.63 $1,017.80 $1,022.13
Expenses Paid During Period
5/1/07-10/31/07 * ...... $ 1.58 $ 3.11 $ 3.62 $ 7.48 $ 3.11
Annualized Expense Ratio .. 0.31% 0.61% 0.71% 1.47% 0.61%
* 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.
** Beginning Account Value for the Mid-Cap Value Fund - Service Class is as of
6/29/07 and for the High-Yield Bond Fund - AMR Class is as of 9/4/07
(inception dates of the Classes). Expenses are equal to the Class'
annualized ratios for the period multiplied by the average account value
for the period multiplied by the number derived by dividing the number of
days in the period (125) and (58), respectively by days in the year (365).
See accompanying notes
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, 2007, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the 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 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, 2007, 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, 2007, the results of their operations
for the year then ended, the changes in their net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Dallas, Texas
December 21, 2007
See accompanying notes
26
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 57.50%
CONSUMER DISCRETIONARY - 6.17%
HOTELS, RESTAURANTS & LEISURE - 1.00%
Carnival Corp. + .................................. 155,300 $ 7,451
Wyndham Worldwide Corp. ........................... 127,200 4,176
----------
11,627
----------
HOUSEHOLD DURABLES - 1.53%
Centex Corp. + .................................... 168,200 4,215
Fortune Brands, Inc. .............................. 54,200 4,541
Koninklijke (Royal) Philips Electronics NV ........ 31,931 1,320
Lennar Corp. + .................................... 107,000 2,445
Newell Rubbermaid, Inc. ........................... 60,400 1,761
Pulte Homes, Inc. + ............................... 234,100 3,474
----------
17,756
----------
MEDIA - 1.16%
CBS Corp. ......................................... 83,900 2,408
Citadel Broadcasting Corp. + ...................... 6,427 28
Idearc, Inc. + .................................... 54,600 1,473
Interpublic Group of Cos., Inc. ## + .............. 361,700 3,744
R.H. Donnelley Corp. ## + ......................... 49,700 2,726
Walt Disney Co. Ltd. .............................. 89,400 3,096
----------
13,475
----------
MULTILINE RETAIL - 1.34%
Macy's, Inc. ...................................... 121,154 3,880
Target Corp. ...................................... 65,500 4,019
Wal-Mart Stores, Inc. ............................. 170,000 7,686
----------
15,585
----------
SPECIALTY RETAIL - 1.14%
Gap, Inc. ......................................... 202,300 3,824
Home Depot, Inc. .................................. 278,750 8,783
Liz Claiborne, Inc. + ............................. 23,600 672
----------
13,279
----------
TOTAL CONSUMER DISCRETIONARY ......................... 71,722
----------
CONSUMER STAPLES - 3.81%
BEVERAGES - 0.54%
Diageo plc, ADR ................................... 68,200 6,257
----------
FOOD & DRUG RETAILING - 0.18%
Safeway, Inc. ..................................... 60,100 2,043
----------
FOOD PRODUCTS - 0.60%
General Mills, Inc. ............................... 24,200 1,397
Kraft Foods, Inc. ................................. 168,045 5,615
----------
7,012
----------
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
TOBACCO - 2.49%
Altria Group, Inc. ................................ 164,700 $ 12,012
Imperial Tobacco Group plc, ADR ................... 121,900 12,390
UST, Inc. + ....................................... 85,100 4,537
----------
28,939
----------
TOTAL CONSUMER STAPLES ............................... 44,251
----------
ENERGY - 5.19%
OIL & GAS - 5.19%
Chevron Corp. ..................................... 92,028 8,421
ConocoPhillips .................................... 240,976 20,473
Devon Energy Corp. ................................ 111,100 10,377
Duke Energy Corp. ................................. 224,700 4,308
Occidental Petroleum Corp. ........................ 158,200 10,924
Royal Dutch Shell plc, ADR ........................ 46,900 4,092
Sunoco, Inc. ...................................... 23,700 1,744
----------
TOTAL ENERGY ......................................... 60,339
----------
FINANCIALS - 15.72%
BANKS - 4.68%
Bank of America Corp. ............................. 454,996 21,967
Bank of New York Mellon Corp. ..................... 77 4
Comerica, Inc. .................................... 33,500 1,564
First Horizon National Corp. + .................... 29,500 769
KeyCorp + ......................................... 29,200 831
National City Corp. ............................... 75,300 1,826
SunTrust Banks, Inc. .............................. 18,500 1,343
U.S. Bancorp ...................................... 126,360 4,190
UnionBanCal Corp. ................................. 15,900 859
Wachovia Corp. .................................... 164,100 7,504
Washington Mutual, Inc. + ......................... 317,000 8,838
Wells Fargo & Co. ................................. 138,000 4,693
----------
54,388
----------
DIVERSIFIED FINANCIALS - 6.24%
Bear Stearns Cos., Inc. + ......................... 80,600 9,156
Capital One Financial Corp. ....................... 31,000 2,033
Citigroup, Inc. ................................... 450,042 18,857
Discover Financial Services ....................... 30,600 591
Federal Home Loan Mortgage Corp. .................. 89,700 4,685
Federal National Mortgage Association ............. 46,700 2,664
Goldman Sachs Group, Inc. ......................... 21,100 5,231
JP Morgan Chase & Co. ............................. 299,534 14,078
Merrill Lynch & Co., Inc. ......................... 49,400 3,261
Morgan Stanley Dean Witter & Co. .................. 62,600 4,211
SLM Corp. ......................................... 165,200 7,791
----------
72,558
----------
See accompanying notes
27
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
INSURANCE - 4.61%
ACE Ltd. .......................................... 87,300 $ 5,291
Allstate Corp. .................................... 28,800 1,509
American International Group, Inc. ................ 145,400 9,178
Conseco, Inc. ## .................................. 100,900 1,593
Genworth Financial, Inc. .......................... 178,500 4,873
Hartford Financial Services Group, Inc. ........... 16,800 1,630
MetLife, Inc. ..................................... 136,080 9,369
Travelers Companies, Inc. ......................... 161,800 8,448
UnumProvident Corp. + ............................. 106,300 2,481
XL Capital Ltd. ................................... 128,100 9,217
----------
53,589
----------
REAL ESTATE - 0.19%
St. Joe Co. + ..................................... 63,400 2,147
----------
TOTAL FINANCIALS ..................................... 182,682
----------
HEALTH CARE - 5.82%
HEALTH CARE EQUIPMENT & SUPPLIES - 0.87%
Baxter International, Inc. ........................ 119,300 7,159
Covidien Ltd. ..................................... 71,525 2,976
----------
10,135
----------
HEALTH CARE PROVIDERS & SERVICES - 1.19%
Cigna Corp. ....................................... 104,100 5,464
Omnicare, Inc. + .................................. 6,800 201
UnitedHealth Group, Inc. .......................... 56,600 2,782
WellPoint, Inc. ## ................................ 68,300 5,411
----------
13,858
----------
PHARMACEUTICALS - 3.76%
Amgen, Inc. ## .................................... 11,400 662
AstraZeneca plc, ADR .............................. 53,900 2,646
Bristol-Myers Squibb Co. .......................... 342,900 10,284
Eli Lilly & Co. ................................... 108,200 5,859
Johnson & Johnson ................................. 54,400 3,545
Merck & Co., Inc. ................................. 28,900 1,684
Pfizer, Inc. ...................................... 629,400 15,490
Wyeth Corp. ....................................... 72,100 3,506
----------
43,676
----------
TOTAL HEALTH CARE .................................... 67,669
----------
INDUSTRIALS - 7.38%
AEROSPACE & DEFENSE - 1.69%
Boeing Co. ........................................ 60,700 5,984
Northrop Grumman Corp. ............................ 52,500 4,390
Raytheon Co. ...................................... 78,900 5,019
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
United Technologies Corp. ......................... 56,100 $ 4,297
----------
19,690
----------
AIR FREIGHT & COURIERS - 0.22%
FedEx Corp. ....................................... 24,500 2,532
----------
INDUSTRIAL CONGLOMERATES - 3.20%
3M Co. ............................................ 54,900 4,741
General Electric Co. .............................. 237,700 9,784
Honeywell International, Inc. ..................... 221,500 13,381
Textron, Inc. ..................................... 72,200 4,997
Tyco International Ltd. ........................... 104,025 4,282
----------
37,185
----------
MACHINERY - 1.76%
Caterpillar, Inc. ................................. 75,900 5,663
Flowserve Corp. ................................... 17,600 1,389
Illinois Tool Works, Inc. + ....................... 143,900 8,240
ITT Industries, Inc. .............................. 77,000 5,153
----------
20,445
----------
TRANSPORTATION INFRASTRUCTURE - 0.51%
Burlington Northern Santa Fe Corp. ................ 68,900 6,005
----------
TOTAL INDUSTRIALS .................................... 85,857
----------
INFORMATION TECHNOLOGY - 5.87%
COMMUNICATIONS EQUIPMENT - 0.32%
Nokia Corp., ADR .................................. 93,500 3,714
----------
COMPUTERS & PERIPHERALS - 2.30%
Hewlett-Packard Co. ............................... 230,800 11,928
International Business Machines Corp. ............. 126,900 14,735
----------
26,663
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.72%
Intel Corp. ....................................... 124,300 3,343
Tyco Electronics Ltd. ............................. 141,625 5,052
----------
8,395
----------
IT CONSULTING & SERVICES - 0.70%
Electronic Data Systems Corp. ..................... 378,000 8,161
----------
SOFTWARE - 1.83%
CA, Inc. .......................................... 371,274 9,820
Microsoft Corp. ................................... 235,700 8,676
Oracle Corp. ## ................................... 125,100 2,774
----------
21,270
----------
TOTAL INFORMATION TECHNOLOGY ......................... 68,203
----------
See accompanying notes
28
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
MATERIALS - 1.56%
CHEMICALS - 1.56%
Air Products & Chemicals, Inc. .................... 31,200 $ 3,053
Dow Chemical Co. .................................. 50,100 2,256
E. I. du Pont de Nemours & Co. .................... 154,700 7,659
Eastman Chemical Co. + ............................ 40,600 2,704
PPG Industries, Inc. .............................. 32,600 2,437
----------
TOTAL MATERIALS ...................................... 18,109
----------
TELECOMMUNICATION SERVICES - 2.70%
DIVERSIFIED TELECOMMUNICATION - 2.70%
AT&T, Inc. ........................................ 400,277 16,728
Verizon Communications, Inc. ...................... 318,028 14,651
----------
TOTAL TELECOMMUNICATION SERVICES ..................... 31,379
----------
UTILITIES - 3.28%
ELECTRIC UTILITIES - 2.75%
CenterPoint Energy, Inc. + ........................ 143,000 2,397
Dominion Resources, Inc. .......................... 56,800 5,205
Entergy Corp. ..................................... 76,800 9,206
Exelon Corp. ...................................... 137,100 11,349
FPL Group, Inc. ................................... 31,600 2,162
Public Service Enterprise Group, Inc. ............. 17,600 1,682
----------
32,001
----------
GAS UTILITIES - 0.53%
Spectra Energy Corp. .............................. 236,100 6,134
----------
TOTAL UTILITIES ...................................... 38,135
----------
TOTAL COMMON STOCKS .................................. 668,346
----------
PAR
AMOUNT
----------
CORPORATE OBLIGATIONS - 9.85%
AEROSPACE & DEFENSE - 0.05%
Raytheon Co.,
5.375%, Due 4/1/2013 ........................... $ 550 551
----------
BANKS - 1.32%
Banco Popular North America, Inc.,
4.25%, Due 4/1/2008 ............................ 500 498
Bank of America Corp.,
5.375%, Due 8/15/2011 .......................... 570 575
5.375%, Due 6/15/2014 .......................... 595 593
7.80%, Due 9/15/2016 ........................... 1,000 1,118
6.00%, Due 9/1/2017 ............................ 600 612
Bank One Corp.,
5.90%, Due 11/15/2011 .......................... 1,225 1,253
4.90%, Due 4/30/2015 ........................... 450 428
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Citigroup, Inc.,
5.125%, Due 2/14/2011 .......................... $ 2,700 $ 2,702
Credit Suisse First Boston,
6.50%, Due 5/1/2008 + ++ ....................... 750 755
ING Bank, NV,
5.125%, Due 5/1/2015 ++ ........................ 450 434
JP Morgan Chase & Co.,
6.75%, Due 2/1/2011 ............................ 1,350 1,413
National City Bank,
4.50%, Due 3/15/2010 ........................... 1,500 1,484
Synovus Financial Corp.,
4.875%, Due 2/15/2013 .......................... 450 443
Wachovia Corp.,
5.30%, Due 10/15/2011 .......................... 500 500
5.70%, Due 8/1/2013 ............................ 405 408
Washington Mutual Finance Corp.,
6.875%, Due 5/15/2011 .......................... 660 696
Washington Mutual, Inc.,
8.25%, Due 4/1/2010 ............................ 500 525
4.625%, Due 4/1/2014 ........................... 1,050 911
----------
15,348
----------
BASIC MATERIALS - 0.03%
Weyerhaeuser Co.,
5.95%, Due 11/1/2008 ........................... 340 342
----------
COMMUNICATIONS - 0.77%
Comcast Cable Communications Holdings, Inc.,
8.375%, Due 3/15/2013 .......................... 1,050 1,185
Comcast Corp.,
5.30%, Due 1/15/2014 ........................... 710 698
5.875%, Due 2/15/2018 .......................... 500 499
6.45%, Due 3/15/2037 ........................... 2,630 2,651
Time Warner Cable, Inc.,
5.85%, Due 5/1/2017 ............................ 1,180 1,170
Viacom, Inc.,
6.875%, Due 4/30/2036 .......................... 2,685 2,724
----------
8,927
----------
CONSUMER DISCRETIONARY - 0.16%
Costco Wholesale Corp.,
5.50%, Due 3/15/2017 ........................... 415 408
Wal-Mart Stores, Inc.,
4.55%, Due 5/1/2013 ............................ 790 772
7.55%, Due 2/15/2030 ........................... 550 642
----------
1,822
----------
See accompanying notes
29
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
CONSUMER STAPLES - 0.09%
Diageo Capital PLC,
5.75%, Due 10/23/2017 ............................. $ 440 $ 438
PepsiCo, Inc.,
5.15%, Due 5/15/2012 .............................. 670 679
----------
1,117
----------
ELECTRIC/GAS - 0.06%
Kraft Foods, Inc.,
6.50%, Due 8/11/2017 .............................. 655 687
----------
ELECTRONIC COMPONENTS - 0.12%
Tyco Electronics Group SA,
6.55%, Due 10/1/2017 ++ ........................... 845 862
7.125%, Due 10/1/2037 ++ .......................... 500 523
----------
1,385
----------
ENERGY - 0.36%
Apache Corp.,
5.25%, Due 4/15/2013 .............................. 1,055 1,057
Canadian Natural Resources Ltd.,
6.70%, Due 7/15/2011 .............................. 410 430
5.70%, Due 5/15/2017 .............................. 520 515
6.25%, Due 3/15/2038 .............................. 500 494
EOG Resources, Inc.,
4.75%, Due 3/15/2014 ++ ........................... 550 539
5.875%, Due 9/15/2017 ............................. 375 383
Marathon Oil Corp.,
6.60%, Due 10/1/2037 .............................. 240 250
Weatherford International, Inc.,
5.95%, Due 6/15/2012 ++ ........................... 510 520
----------
4,188
----------
FINANCE - 1.97%
American General Finance Corp.,
4.875%, Due 5/15/2010 ............................. 500 497
4.00%, Due 3/15/2011 .............................. 1,245 1,189
Ameriprise Financial, Inc.,
5.35%, Due 11/15/2010 ............................. 975 983
Capital One Financial Corp.,
5.70%, Due 9/15/2011 .............................. 490 485
Federal National Mortgage Association,
6.00%, Due 4/18/2036 + ............................ 6,680 6,872
General Electric Capital Corp.,
4.375%, Due 3/3/2012 .............................. 995 966
5.65%, Due 6/9/2014 ............................... 1,050 1,070
Goldman Sachs Group, Inc.,
4.75%, Due 7/15/2013 .............................. 550 527
6.25%, Due 9/1/2017 ............................... 550 559
6.75%, Due 10/1/2037 .............................. 1,237 1,242
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
HSBC Finance Corp.,
5.25%, Due 1/14/2011 .............................. $ 2,150 $ 2,139
International Lease Finance Corp.,
6.375%, Due 3/15/2009 ............................. 1,025 1,042
5.75%, Due 6/15/2011 .............................. 475 480
Lehman Brothers Holdings, Inc.,
4.25%, Due 1/27/2010 .............................. 450 436
6.20%, Due 9/26/2014 .............................. 150 151
6.875%, Due 7/17/2037 ............................. 2,695 2,670
Merrill Lynch & Co., Inc.,
6.11%, Due 1/29/2037 .............................. 560 515
Wells Fargo & Co.,
5.25%, Due 10/23/2012 ............................. 1,040 1,042
----------
22,865
----------
HEALTH CARE - 0.03%
Covidien International Finance SA,
5.45%, Due 10/15/2012 ++ .......................... 360 361
----------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.01%
6.00%, Due 10/15/2017 ++ .......................... 180 182
----------
INDUSTRIALS - 1.49%
Caterpillar Financial Services Corp.,
4.15%, Due 1/15/2010 .............................. 500 493
Con-way, Inc.,
8.875%, Due 5/1/2010 .............................. 1,850 1,999
Covidien International Finance SA,
6.55%, Due 10/15/2037 ++ .......................... 578 589
CRH America, Inc.,
6.00%, Due 9/30/2016 .............................. 985 970
Daimler Finance NA LLC,
7.75%, Due 1/18/2011 .............................. 1,000 1,076
5.875%, Due 3/15/2011 ............................. 450 460
5.75%, Due 9/8/2011 ............................... 550 560
John Deere Capital Corp.,
4.125%, Due 1/15/2010 ............................. 1,250 1,231
5.40%, Due 10/17/2011 ............................. 655 662
Kraft Foods, Inc.,
7.00%, Due 8/11/2037 .............................. 1,990 2,162
Masco Corp.,
6.125%, Due 10/3/2016 ............................. 430 427
Nissan Motor Acceptance Corp.,
5.625%, Due 3/14/2011 ++ .......................... 500 508
Norfolk Southern Corp.,
8.625%, Due 5/15/2010 ............................. 500 541
Starbucks Corp.,
6.25%, Due 8/15/2017 .............................. 400 408
See accompanying notes
30
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Target Corp.,
6.50%, Due 10/15/2037 ............................. $ 445 $ 451
Unilever Capital Corp.,
7.125%, Due 11/1/2010 ............................. 2,000 2,133
Union Pacific Corp.,
3.875%, Due 2/15/2009 ............................. 775 763
6.50%, Due 4/15/2012 .............................. 450 470
Wal-Mart Stores, Inc.,
6.50%, Due 8/15/2037 .............................. 1,340 1,409
----------
17,312
----------
INSURANCE - 0.98%
Aegon Funding Corp.,
5.75%, Due 12/15/2020 ............................. 450 451
American International Group, Inc.,
6.25%, Due 5/1/2036 ............................... 550 562
ASIF Global Financing,
3.90%, Due 10/22/2008 ++ .......................... 700 691
Hartford Financial Services Group, Inc.,
5.25%, Due 10/15/2011 ............................. 1,150 1,144
5.375%, Due 3/15/2017 ............................. 685 669
John Hancock Global Funding II,
7.90%, Due 7/2/2010 ++ ............................ 1,500 1,609
Liberty Mutual Insurance Co.,
7.875%, Due 10/15/2026 + ++ ....................... 1,500 1,693
Lincoln National Corp.,
4.75%, Due 2/15/2014 .............................. 200 192
MetLife, Inc.,
5.375%, Due 12/15/2012 ............................ 660 665
5.00%, Due 6/15/2015 .............................. 485 463
6.375%, Due 6/15/2034 ............................. 525 531
Metropolitan Life Global Funding I,
4.625%, Due 8/19/2010 ++ .......................... 1,200 1,197
Prudential Financial, Inc.,
4.50%, Due 7/15/2013 .............................. 550 524
5.10%, Due 9/20/2014 .............................. 690 666
Willis North America, Inc.,
6.20%, Due 3/28/2017 .............................. 360 363
----------
11,420
----------
PHARMACEUTICALS - 0.55%
Abbott Laboratories,
5.60%, Due 5/15/2011 .............................. 305 312
Amgen, Inc.,
4.00%, Due 11/18/2009 ............................. 540 531
AstraZeneca plc,
5.40%, Due 9/15/2012 .............................. 980 989
6.45%, Due 9/15/2037 .............................. 2,480 2,613
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Hospira, Inc.,
6.05%, Due 3/30/2017 .............................. $ 360 $ 359
Schering-Plough Corp.,
6.75%, Due 12/1/2033 .............................. 600 642
Wyeth Corp.,
5.50%, Due 2/1/2014 ............................... 935 938
----------
6,384
----------
REAL ESTATE - 0.38%
Equity Residential,
5.125%, Due 3/15/2016 ............................. 895 839
iStar Financial, Inc.,
5.85%, Due 3/15/2017 + ............................ 750 669
ProLogis Trust,
7.10%, Due 4/15/2008 .............................. 470 472
5.50%, Due 4/1/2012 ............................... 450 445
5.625%, Due 11/15/2016 ............................ 450 432
Simon Property Group LP,
6.375%, Due 11/15/2007 ............................ 400 400
5.375%, Due 6/1/2011 .............................. 450 449
5.75%, Due 12/1/2015 .............................. 710 696
----------
4,402
----------
TECHNOLOGY - 0.10%
Cisco Systems, Inc.,
5.25%, Due 2/22/2011 .............................. 450 455
5.50%, Due 2/22/2016 .............................. 725 728
----------
1,183
----------
TELEPHONE - 0.58%
America Movil, S.A. de C.V.,
6.375%, Due 3/1/2035 .............................. 550 565
AT&T Wireless Services, Inc.,
7.875%, Due 3/1/2011 .............................. 550 596
AT&T, Inc.,
5.10%, Due 9/15/2014 .............................. 625 614
5.625%, Due 6/15/2016 ............................. 1,140 1,151
6.80%, Due 5/15/2036 .............................. 225 246
Cingular Wireless Services, Inc.,
8.75%, Due 3/1/2031 ............................... 445 575
Deutsche Telekom AG,
8.00%, Due 6/15/2010 .............................. 380 407
Nextel Communications, Inc.,
6.875%, Due 10/31/2013 ............................ 615 617
Telecom Italia S.p.A.,
4.00%, Due 11/15/2008 ............................. 580 573
Telefonica Emisiones SAU,
5.984%, Due 6/20/2011 ............................. 380 390
Verizon Communications, Inc.,
5.50%, Due 4/1/2017 + ............................. 500 500
See accompanying notes
31
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Vodafone Group plc,
6.15%, Due 2/27/2037 .............................. $ 500 $ 491
----------
6,725
----------
UTILITIES - 0.80%
American Water Capital Corp.,
6.593%, Due 10/15/2037 ++ ......................... 1,492 1,516
Columbus Southern Power Co.,
5.50%, Due 3/1/2013 ............................... 830 827
Dominion Resources, Inc.,
Series A, 5.60%, Due 11/15/2016 ...................... 500 491
Duke Energy Indiana, Inc.,
6.05%, Due 6/15/2016 .............................. 520 530
FPL Group Capital, Inc.,
5.625%, Due 9/1/2011 .............................. 1,175 1,195
MidAmerican Energy Holdings Co.,
5.875%, Due 10/1/2012 ............................. 1,070 1,096
6.125%, Due 4/1/2036 .............................. 550 544
Public Service Enterprise Group, Inc.,
6.95%, Due 6/1/2012 ............................... 925 984
Southern Power Co.,
6.25%, Due 7/15/2012 .............................. 690 712
Virginia Electric and Power Co.,
6.00%, Due 5/15/2037 .............................. 360 354
Xcel Energy, Inc.,
5.613%, Due 4/1/2017 ++ ........................... 1,089 1,073
----------
9,322
----------
TOTAL CORPORATE OBLIGATIONS .......................... 114,523
----------
NON-AGENCY MORTGAGE-BACKED
OBLIGATIONS - 2.01%
COMMERCIAL MORTGAGE-BACKED SECURITY - 1.12%
Banc of America Commercial Mortgage, Inc.,
2005-6, 5.001%, Due 9/10/2047 ..................... 758 757
2007-2 A2, 5.634%, Due 4/10/2049 .................. 1,100 1,109
Bear Stearns Commercial Mortgage
Securities, Inc.,
2006-T22 A2, 5.465%, Due 4/12/2038 ................ 590 595
2006-PW13 A4, 5.54%, Due 9/11/2041 ................ 1,260 1,253
2004-PWR5 A4, 4.831%, Due 7/11/2042 ............... 2,010 1,954
2005-T20 A2, 5.127%, Due 10/12/2042 ............... 875 873
Citigroup Commercial Mortgage Trust,
2004-C2 A3, 4.38%, Due 10/15/2041 ................. 995 967
General Electric Capital Commercial
Mortgage Corp.,
2003-C2 A2, 4.17%, Due 7/10/2037 .................. 430 425
JP Morgan Chase Commercial Mortgage
Securities Corp.,
2004-CBX A4, 4.529%, Due 1/12/2037 ................ 555 543
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
2005-LDP3 A1, 4.655%, Due 8/15/2042 ............... $ 285 $ 283
2005-LDP4 A1, 4.613%, Due 10/15/2042 .............. 113 112
2005-LDP1 A2, 4.625%, Due 3/15/2046 ............... 1,035 1,023
2007-CB19 A4, 5.747%, Due 2/12/2049 ............... 800 806
2007-CB20 A2, 5.629%, Due 2/12/2051 ............... 1,050 1,056
LB-UBS Commercial Mortgage Trust,
2004-C1 A4, 5.424%, Due 2/15/2040 ................. 750 737
Wachovia Bank Commercial Mortgage Trust,
2007-C32 A2, 5.736%, Due 6/15/2049 ................ 530 536
----------
13,029
----------
WHOLE LOAN COLLATERALIZED MORTGAGE
OBLIGATIONS - 0.89%
Banc of America Mortgage Securities, Inc.,
2004-8 3A1, 5.25%, Due 10/25/2019 ................. 1,158 1,142
Chase Mortgage Finance Corp.,
2006-A1 A1, 6.045%, Due 9/25/2036 # ............... 1,612 1,619
Citicorp Mortgage Securities, Inc.,
2006-3 2A1, 5.50%, Due 6/25/2021 .................. 1,515 1,502
Countrywide Home Loan Mortgage Pass
Through Trust,
2007-18 A1, 6.00%, Due 9/25/2037 .................. 1,613 1,603
Prime Mortgage Trust,
2005-2, 5.25%, Due 7/25/2020 ...................... 1,938 1,915
Wells Fargo Mortgage Backed Securities Trust,
2006-11 A8, 6.00%, Due 9/25/2036 .................. 956 948
2007-7 A1, 6.00%, Due 6/25/2037 ................... 1,578 1,565
----------
10,294
----------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS ......... 23,323
----------
ASSET-BACKED SECURITIES - 0.67%
American Express Credit Account Master Trust,
2006-2 A, 5.35%, Due 1/15/2014 .................... 2,150 2,182
Capital Auto Receivables Asset Trust,
2006-SN1A A4A, 5.32%, Due 3/20/2010 ++ ............ 1,500 1,506
Capital One Multi-Asset Execution Trust,
2006-A10 A10, 5.15%, Due 6/15/2014 ................ 1,600 1,613
Chase Issuance Trust,
2007-15 A, 4.96%, Due 9/17/2012 ................... 1,515 1,518
Volkswagen Auto Loan Enhanced Trust,
2005-1 A4, 4.86%, Due 4/20/2012 ................... 1,000 1,000
----------
TOTAL ASSET-BACKED SECURITIES ........................ 7,819
----------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 7.52%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.64%
5.50%, Due 8/1/2017 .................................. 71 71
See accompanying notes
32
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
5.50%, Due 9/1/2017 ............................... $ 324 $ 326
5.50%, Due 6/1/2018 ............................... 148 149
5.50%, Due 10/1/2018 .............................. 1,246 1,252
4.50%, Due 3/1/2019 ............................... 925 896
5.00%, Due 10/1/2020 .............................. 1,301 1,283
5.50%, Due 5/1/2021 ............................... 785 786
5.00%, Due 7/1/2021 ............................... 1,864 1,837
5.50%, Due 9/1/2021 ............................... 400 401
5.00%, Due 11/1/2021 .............................. 694 684
5.50%, Due 4/1/2022 ............................... 425 426
5.00%, Due 5/1/2022 ............................... 631 622
6.50%, Due 5/1/2029 ............................... 64 66
6.50%, Due 6/1/2029 ............................... 12 12
6.50%, Due 7/1/2029 ............................... 205 211
6.00%, Due 8/1/2029 ............................... 110 112
5.00%, Due 8/1/2033 ............................... 1,713 1,648
5.50%, Due 2/1/2034 ............................... 1,703 1,680
5.00%, Due 3/1/2034 ............................... 1,344 1,293
6.00%, Due 6/1/2034 ............................... 1,027 1,036
6.00%, Due 8/1/2034 ............................... 933 941
5.00%, Due 8/1/2035 ............................... 1,200 1,153
5.00%, Due 9/1/2035 ............................... 1,713 1,646
5.50%, Due 11/1/2036 .............................. 1,737 1,710
5.897%, Due 12/1/2036 # ........................... 2,088 2,108
5.851%, Due 1/1/2037 # ............................ 2,676 2,705
5.783%, Due 3/1/2037 # ............................ 1,489 1,502
5.267%, Due 4/1/2037 # ............................ 1,789 1,781
5.50%, Due 4/1/2037 ............................... 1,965 1,934
5.50%, Due 5/1/2037 ............................... 6,423 6,324
6.00%, Due 7/1/2037 ............................... 4,422 4,451
6.50%, Due 8/1/2037 ............................... 576 590
6.00%, Due 8/1/2037 ............................... 619 623
----------
42,259
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.36%
5.50%, Due 2/1/2014 ............................... 490 492
6.00%, Due 4/1/2016 ............................... 375 382
5.00%, Due 12/1/2017 .............................. 954 944
5.00%, Due 6/1/2018 ............................... 2,001 1,976
4.50%, Due 9/1/2018 ............................... 1,514 1,468
5.50%, Due 12/1/2018 .............................. 97 97
4.00%, Due 8/1/2020 ............................... 1,121 1,057
5.50%, Due 4/1/2021 ............................... 1,211 1,214
6.00%, Due 1/1/2029 ............................... 582 591
5.50%, Due 11/1/2033 .............................. 2,291 2,264
5.00%, Due 3/1/2034 ............................... 1,774 1,707
4.50%, Due 9/1/2034 ............................... 779 727
6.50%, Due 3/1/2035 ............................... 290 298
5.00%, Due 11/1/2035 .............................. 874 840
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
5.50%, Due 12/1/2035 .............................. $ 1,439 $ 1,420
5.50%, Due 12/1/2035 .............................. 438 432
5.50%, Due 1/1/2036 ............................... 1,557 1,536
5.50%, Due 1/1/2036 ............................... 3,244 3,200
5.50%, Due 2/1/2036 ............................... 1,058 1,043
5.00%, Due 2/1/2036 ............................... 873 839
5.50%, Due 3/1/2036 ............................... 377 372
5.50%, Due 4/1/2036 ............................... 2,558 2,523
6.00%, Due 8/1/2036 ............................... 679 684
6.00%, Due 9/1/2036 ............................... 1,212 1,221
6.00%, Due 9/1/2036 ............................... 234 236
6.00%, Due 10/1/2036 .............................. 1,461 1,472
6.00%, Due 11/1/2036 .............................. 2,446 2,464
5.50%, Due 12/1/2036 .............................. 1,979 1,950
6.00%, Due 2/1/2037 ............................... 763 769
5.00%, Due 5/1/2037 ............................... 641 616
6.50%, Due 10/1/2037 .............................. 1,584 1,611
6.50%, Due TBA .................................... 2,570 2,630
----------
39,075
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.52%
7.00%, Due 12/15/2025 ............................. 345 363
4.201%, Due 8/16/2026 ............................. 831 818
6.50%, Due 8/15/2027 .............................. 415 429
6.50%, Due 11/15/2027 ............................. 412 425
7.50%, Due 12/15/2028 ............................. 308 326
5.50%, Due 7/15/2033 .............................. 1,085 1,080
6.00%, Due 12/15/2033 ............................. 1,149 1,166
5.50%, Due 2/20/2034 .............................. 1,442 1,426
----------
6,033
----------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS ........ 87,367
----------
U.S. AGENCY OBLIGATIONS - 6.07%
FEDERAL HOME LOAN BANK - 0.45%
5.00%, Due 10/16/2009 + ........................... 2,280 2,290
5.25%, Due 11/3/2009 .............................. 1,360 1,370
4.50%, Due 9/16/2013 + ............................ 1,600 1,580
----------
5,240
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.91%
5.25%, Due 2/24/2011 + ............................ 2,860 2,886
5.875%, Due 3/21/2011 + ........................... 610 637
5.125%, Due 4/18/2011 + ........................... 3,700 3,780
4.50%, Due 1/15/2015 + ............................ 34,290 33,609
5.40%, Due 3/17/2021 .............................. 2,740 2,779
6.00%, Due 12/15/2031 ............................. 1,665 1,684
----------
45,375
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.71%
4.704%, Due 11/13/2007 + .......................... 2,570 2,566
See accompanying notes
33
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
5.125%, Due 1/2/2014 + ............................ $ 820 $ 828
5.375%, Due 6/12/2017 + ........................... 2,650 2,736
6.25%, Due 5/15/2029 + ............................ 12,200 13,762
----------
19,892
----------
TOTAL U.S. AGENCY OBLIGATIONS ........................ 70,507
----------
U.S. TREASURY OBLIGATIONS - 10.75%
9.125%, Due 5/15/2018 ............................. 1,750 2,411
7.875%, Due 2/15/2021 + ........................... 1,200 1,570
6.25%, Due 8/15/2023 + ............................ 1,400 1,625
6.875%, Due 8/15/2025 ............................. 1,580 1,969
5.25%, Due 11/15/2028 + ........................... 1,750 1,856
5.25%, Due 2/15/2029 + ............................ 25,630 27,180
5.375%, Due 2/15/2031 + ........................... 1,675 1,815
4.75%, Due 2/15/2037 + ............................ 3,355 3,353
4.625%, Due 3/31/2008 + ........................... 25,325 25,378
4.875%, Due 8/15/2009 + ........................... 3,560 3,615
3.50%, Due 11/15/2009 + ........................... 5,850 5,804
4.875%, Due 4/30/2011 + ........................... 6,550 6,731
4.50%, Due 3/31/2012 + ............................ 4,760 4,833
4.125%, Due 8/31/2012 + ........................... 14,265 14,251
4.75%, Due 5/15/2014 + ............................ 10,740 11,038
4.125%, Due 5/15/2015 + ........................... 4,150 4,091
4.75%, Due 8/15/2017 + ............................ 7,220 7,379
----------
TOTAL U.S. TREASURY OBLIGATIONS ...................... 124,899
----------
SHARES
----------
SHORT TERM INVESTMENTS - 5.38%
American Beacon Money Market Select Fund ** ....... 57,101,907 57,102
PAR
AMOUNT
----------
United States Treasury Bill,
3.873%, Due 12/6/2007 * ........................... $ 5,490 5,467
----------
TOTAL SHORT TERM INVESTMENTS ......................... 62,569
----------
SHARES
-----------
SECURITIES LENDING
COLLATERAL - 20.67%
American Beacon Cash Plus Trust ** ................ 173,236,788 173,237
American Beacon Money Market Select Fund ** ....... 66,952,904 66,953
----------
TOTAL SECURITIES LENDING COLLATERAL .................. 240,190
----------
TOTAL INVESTMENTS 120.42% - (COST $1,258,229) ........ 1,399,543
LIABILITIES, NET OF OTHER ASSETS - (20.42%) .......... (237,306)
----------
TOTAL NET ASSETS - 100.00% ........................... $1,162,237
==========
See accompanying notes
34
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
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, 2007.
++ 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 $14,558 or 1.25% 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.
** The Fund/Trust is affiliated by having the same investment advisor.
* At October 31, 2007, 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 .... 773 Dec 2007 $60,097 $2,014
======= ======
See accompanying notes
35
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 94.93%
CONSUMER DISCRETIONARY - 13.51%
AUTO COMPONENTS - 0.93%
Johnson Controls, Inc. + .......................... 21,609 $ 945
----------
HOTELS, RESTAURANTS & LEISURE - 1.70%
Carnival Corp. + .................................. 100 5
Marriott International, Inc. ...................... 1,950 80
McDonald's Corp. .................................. 16,684 996
Wynn Resorts Ltd. + ............................... 1,400 226
Yum! Brands, Inc. + ............................... 10,500 423
----------
1,730
----------
HOUSEHOLD DURABLES - 0.60%
Garmin Ltd. + ..................................... 5,100 548
The Toro Co. + .................................... 1,100 61
----------
609
----------
INTERNET & CATALOG RETAIL - 1.06%
Amazon.com, Inc. ## + ............................. 7,800 695
eBay, Inc. ## ..................................... 1,900 69
Expedia, Inc. ## + ................................ 9,800 320
----------
1,084
----------
MEDIA - 3.52%
CBS Corp. + ....................................... 41,245 1,184
The DIRECTV Group, Inc. ## + ...................... 396 10
Liberty Media Holding Corp. ## .................... 200 25
Omnicom Group, Inc. ............................... 16,708 852
Time Warner, Inc. ................................. 59,900 1,094
Walt Disney Co. Ltd. .............................. 12,200 422
----------
3,587
----------
MULTILINE RETAIL - 2.14%
Big Lots, Inc. ## + ............................... 1,800 43
BJ's Wholesale Club, Inc. ## + .................... 800 29
J.C. Penney Company, Inc. + ....................... 10,552 593
Kohl's Corp. ## + ................................. 14,872 818
Nordstrom, Inc. + ................................. 15,938 629
Wal-Mart Stores, Inc. ............................. 1,400 63
----------
2,175
----------
SPECIALTY RETAIL - 3.56%
American Eagle Outfitters, Inc. + ................. 31,205 742
AutoNation, Inc. ## + ............................. 6,501 115
Best Buy Company, Inc. + .......................... 18,065 876
GameStop Corp. ## ................................. 5,600 332
Home Depot, Inc. .................................. 2,200 69
Nike, Inc. ........................................ 15,485 1,026
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
RadioShack Corp. + ................................ 22,700 $ 468
----------
3,628
----------
TOTAL CONSUMER DISCRETIONARY ......................... 13,758
----------
CONSUMER STAPLES - 6.53%
BEVERAGES - 2.44%
Coca-Cola Co. ..................................... 22,207 1,372
Hansen Natural Corp. ## + ......................... 3,200 218
PepsiCo, Inc. ..................................... 12,200 899
----------
2,489
----------
FOOD & DRUG RETAILING - 1.81%
The Kroger Co. .................................... 31,230 918
Sysco Corp. ....................................... 4,900 168
Walgreen Co. + .................................... 19,118 758
----------
1,844
----------
FOOD PRODUCTS - 0.49%
General Mills, Inc. ............................... 2,000 115
Tyson Foods, Inc. ................................. 24,100 381
----------
496
----------
HOUSEHOLD PRODUCTS - 0.96%
Colgate-Palmolive Co. ............................. 12,880 982
----------
TOBACCO - 0.83%
Altria Group, Inc. ................................ 200 15
UST, Inc. + ....................................... 15,500 826
----------
841
----------
TOTAL CONSUMER STAPLES ............................... 6,652
----------
ENERGY - 9.37%
ENERGY EQUIPMENT & SERVICES - 5.96%
Cameron International Corp. ## + .................. 10,147 988
Dresser-Rand Group, Inc. ## ....................... 8,100 313
Global Industries Ltd. ## ......................... 7,700 190
GlobalSantaFe Corp. + ............................. 10,000 810
Grant Prideco, Inc. ## + .......................... 14,661 721
Halliburton Co. ................................... 28,913 1,140
National Oilwell Varco, Inc. ## ................... 13,252 971
Patterson-UTI Energy, Inc. ## + ................... 4,200 84
Smith International, Inc. ......................... 12,750 842
Tidewater, Inc. + ................................. 100 5
----------
6,064
----------
OIL & GAS - 3.41%
Devon Energy Corp. ................................ 5,100 476
Exxon Mobil Corp. ................................. 16,800 1,546
Frontier Oil Corp. ................................ 800 37
See accompanying notes
36
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Holly Corp. + ..................................... 3,700 $ 232
Murphy Oil Corp. + ................................ 12,878 948
Western Refining, Inc. + .......................... 6,500 238
----------
3,477
----------
TOTAL ENERGY ......................................... 9,541
----------
FINANCIALS - 8.11%
BANKS - 0.21%
Bank of New York Mellon Corp. ........................ 4,400 215
----------
DIVERSIFIED FINANCIALS - 4.90%
Discover Financial Services ....................... 7,400 143
Federated Investors, Inc. + ....................... 900 39
Franklin Resources, Inc. .......................... 6,554 850
JP Morgan Chase & Co. ............................. 7,300 343
Mastercard, Inc. + ................................ 2,600 493
Merrill Lynch & Co., Inc. ......................... 10,942 722
Moody's Corp. + ................................... 15,400 673
Morgan Stanley Dean Witter & Co. .................. 11,886 800
State Street Corp. ................................ 11,674 931
----------
4,994
----------
INSURANCE - 1.53%
American International Group, Inc. ................ 11,735 741
Prudential Financial, Inc. ........................ 8,485 820
----------
1,561
----------
REAL ESTATE - 1.47%
CB Richard Ellis Group, Inc. ## + ................. 14,600 356
General Growth Properties, Inc. ................... 4,200 228
iStar Financial, Inc. + ........................... 2,200 67
Jones Lang LaSalle, Inc. + ........................ 2,200 210
ProLogis .......................................... 7,100 510
Ventas, Inc. ...................................... 1,000 43
Vornado Realty Trust .............................. 700 78
----------
1,492
----------
TOTAL FINANCIALS ..................................... 8,262
----------
HEALTH CARE - 13.21%
BIOTECHNOLOGY - 3.09%
Biogen Idec, Inc. ## .............................. 15,100 1,124
Gen-Probe, Inc. ## ................................ 1,200 84
Gilead Sciences, Inc. ## .......................... 39,456 1,823
Invitrogen Corp. ## ............................... 1,300 118
----------
3,149
----------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.15%
Becton, Dickinson and Co. ......................... 11,107 927
Kinetic Concepts, Inc. ## + ....................... 1,900 114
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Medtronic, Inc. ................................... 200 $ 9
St. Jude Medical, Inc. ## ......................... 2,500 102
Zimmer Holdings, Inc. ## .......................... 200 14
----------
1,166
----------
HEALTH CARE PROVIDERS & SERVICES - 2.98%
AmerisourceBergen Corp. ........................... 18,600 876
Cigna Corp. ....................................... 7,500 394
Express Scripts, Inc. ## .......................... 15,628 986
Health Net, Inc. ## ............................... 200 11
UnitedHealth Group, Inc. .......................... 15,698 771
----------
3,038
----------
PHARMACEUTICALS - 5.99%
Abbott Laboratories ............................... 2,000 109
Amgen, Inc. ## .................................... 3,400 197
Eli Lilly & Co. ................................... 18,405 997
Johnson & Johnson ................................. 13,596 886
Medco Health Solutions, Inc. ## ................... 15,300 1,444
Merck & Co., Inc. ................................. 7,600 443
Pfizer, Inc. ...................................... 43,200 1,063
Schering-Plough Corp. ............................. 5,500 168
Watson Pharmaceuticals, Inc. ## + ................. 2,100 64
Wyeth Corp. ....................................... 14,881 724
----------
6,095
----------
TOTAL HEALTH CARE .................................... 13,448
----------
INDUSTRIALS - 14.69%
AEROSPACE & DEFENSE - 4.59%
Boeing Co. ........................................ 7,743 763
Lockheed Martin Corp. ............................. 8,793 968
Northrop Grumman Corp. ............................ 11,200 937
Precision Castparts Corp. ......................... 1,600 240
Raytheon Co. ...................................... 12,500 795
Rockwell Collins Inc. ............................. 1,700 127
United Technologies Corp. ......................... 10,972 840
----------
4,670
----------
BUILDING PRODUCTS - 0.08%
Masco Corp. + ..................................... 3,400 82
----------
COMMERCIAL SERVICES & SUPPLIES - 2.29%
Apollo Group, Inc. ## ............................. 800 63
ITT Educational Services, Inc. ## ................. 4,700 598
Manpower, Inc. + .................................. 20,718 1,549
Sotheby's + ....................................... 2,200 119
----------
2,329
----------
See accompanying notes
37
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
CONSTRUCTION & ENGINEERING - 0.11%
McDermott International, Inc. ## .................. 1,800 $ 110
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.10%
Emerson Electric Co. .............................. 17,806 931
Energizer Holdings, Inc. ## + ..................... 6,400 667
PerkinElmer, Inc. ................................. 1,500 41
Rockwell Automation, Inc. + ....................... 7,300 503
----------
2,142
----------
INDUSTRIAL CONGLOMERATES - 2.56%
3M Co. ............................................ 12,768 1,103
Honeywell International, Inc. ..................... 24,854 1,501
----------
2,604
----------
MACHINERY - 2.52%
AGCO Corp. ## + ................................... 13,800 824
Illinois Tool Works, Inc. + ....................... 14,480 829
SPX Corp. ......................................... 1,600 162
Terex Corp. ## + .................................. 10,186 756
----------
2,571
----------
RENTAL AUTO/EQUIPMENT - 0.24%
Avis Budget Group, Inc. ## + ...................... 11,700 244
----------
ROAD & RAIL - 0.14%
JB Hunt Transport Services, Inc. + ................ 5,100 141
----------
TRADING COMPANIES & DISTRIBUTORS - 0.06%
Genuine Parts Co. ................................. 1,200 59
----------
TOTAL INDUSTRIALS .................................... 14,952
----------
INFORMATION TECHNOLOGY - 23.01%
COMMUNICATIONS EQUIPMENT - 3.56%
Cisco Systems, Inc. ## ............................ 71,157 2,353
Juniper Networks, Inc. ## ......................... 35,200 1,267
----------
3,620
----------
COMPUTERS & PERIPHERALS - 7.11%
Apple Computer, Inc. ## ........................... 3,800 722
Dell, Inc. ## + ................................... 67,918 2,078
Hewlett-Packard Co. ............................... 26,959 1,393
International Business Machines Corp. ............. 11,754 1,365
Lexmark International, Inc. ## + .................. 2,200 92
NCR Corp. ## + .................................... 2,500 69
NVIDIA Corp. ## ................................... 42,807 1,515
----------
7,234
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.87%
Avnet, Inc. ## .................................... 7,700 321
Intel Corp. ....................................... 37,800 1,017
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Riverbed Technology, Inc. ## + .................... 1,500 $ 51
Tyco Electronics Ltd. ............................. 13,700 488
Waters Corp. ## ................................... 400 31
----------
1,908
----------
INTERNET SOFTWARE & SERVICES - 0.36%
Google, Inc. ## ................................... 200 141
VeriSign, Inc. ## + ............................... 6,700 229
----------
370
----------
IT CONSULTING & SERVICES - 1.29%
Accenture Ltd. + .................................. 31,324 1,223
Tech Data Corp. ## ................................ 2,300 91
----------
1,314
----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 2.72%
Analog Devices, Inc. .............................. 16,400 549
Lam Research Corp. ## + ........................... 14,020 704
MEMC Electronic Materials, Inc. ## + .............. 13,195 966
National Semiconductor Corp. ## + ................. 2,500 63
Novellus Systems, Inc. ## + ....................... 2,200 63
RF Micro Devices, Inc. ## + ....................... 6,500 40
Texas Instruments, Inc. ........................... 11,700 381
----------
2,766
----------
SOFTWARE - 6.10%
Cadence Design Systems, Inc. ## ................... 5,800 114
Fair Isaac Corp. + ................................ 1,200 46
Microsoft Corp. ................................... 118,229 4,352
Oracle Corp. ## ................................... 40,027 887
Symantec Corp. ## ................................. 34,100 640
Synopsys, Inc. ## ................................. 6,100 172
----------
6,211
----------
TOTAL INFORMATION TECHNOLOGY ......................... 23,423
----------
MATERIALS - 3.45%
CHEMICALS - 1.04%
Celanese Corp. .................................... 700 29
Monsanto Co. ...................................... 1,400 137
Praxair, Inc. ..................................... 10,490 897
----------
1,063
----------
METALS & MINING - 2.41%
AK Steel Holding Corp. ## + ....................... 800 40
Cleveland-Cliffs, Inc. + .......................... 1,600 153
Freeport-McMoRan Copper & Gold, Inc. .............. 8,751 1,030
Newmont Mining Corp. .............................. 100 5
Nucor Corp. ....................................... 12,928 802
See accompanying notes
38
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Southern Copper Corp. + ........................... 3,000 $ 419
----------
2,449
----------
TOTAL MATERIALS ...................................... 3,512
----------
TELECOMMUNICATION SERVICES - 1.76%
DIVERSIFIED TELECOMMUNICATION - 1.64%
AT&T, Inc. ........................................ 21,195 886
Embarq Corp. ...................................... 2,800 148
Sprint Nextel Corp. ............................... 37,000 632
----------
1,666
----------
WIRELESS TELECOMMUNICATION SERVICES - 0.12%
Telephone and Data Systems, Inc. .................. 1,800 126
----------
TOTAL TELECOMMUNICATION SERVICES ..................... 1,792
----------
UTILITIES - 1.29%
ELECTRIC UTILITIES - 1.29%
NRG Energy, Inc. ## + ............................. 1,000 46
PG&E Corp. + ...................................... 100 5
Reliant Energy, Inc. ## ........................... 45,825 1,261
----------
TOTAL UTILITIES ...................................... 1,312
----------
TOTAL COMMON STOCKS .................................. 96,652
----------
SHORT TERM INVESTMENTS - 4.89%
American Beacon Money Market Select Fund++ ........ 4,534,228 4,534
PAR
AMOUNT
----------
United States Treasury Bill,
3.873%, Due 12/6/2007 # ........................... $ 450 448
----------
TOTAL SHORT TERM INVESTMENTS ......................... 4,982
----------
SHARES
----------
SECURITIES LENDING
COLLATERAL - 20.51%
American Beacon Cash Plus Trust ++ 15,058,709 15,059
American Beacon Money Market Select Fund ++ 5,819,920 5,820
----------
TOTAL SECURITIES LENDING COLLATERAL 20,879
----------
TOTAL INVESTMENTS 120.33% - (COST $111,028) 122,513
LIABILITIES, NET OF OTHER ASSETS - (20.33%) (20,696)
----------
TOTAL NET ASSETS - 100.00% $ 101,817
==========
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, 2007.
See accompanying notes
39
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
++ The Fund/Trust is affiliated by having the same investment advisor.
# At October 31, 2007, 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 .... 65 Dec 2007 $5,053 $34
====== ===
See accompanying notes
40
AMERICAN BEACON MID-CAP VALUE FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 97.62%
CONSUMER DISCRETIONARY - 23.14%
AUTO COMPONENTS - 3.95%
Advance Auto Parts, Inc. .......................... 46,300 $ 1,580
Lear Corp. ## ..................................... 59,200 2,103
Magna International, Inc. ......................... 14,550 1,379
----------
5,062
----------
HOTELS, RESTAURANTS & LEISURE - 1.67%
Royal Caribbean Cruises Ltd. + .................... 50,000 2,144
----------
HOUSEHOLD DURABLES - 5.78%
Black & Decker Corp. + ............................ 27,600 2,482
Stanley Works ..................................... 35,600 2,049
Whirlpool Corp. + ................................. 36,150 2,862
----------
7,393
----------
LEISURE EQUIPMENT & PRODUCTS - 0.77%
Hasbro, Inc. + .................................... 32,975 984
----------
MEDIA - 1.06%
Idearc, Inc. + .................................... 50,100 1,352
----------
MULTILINE RETAIL - 1.04%
Family Dollar Stores, Inc. + ...................... 52,300 1,326
----------
SPECIALTY RETAIL - 8.04%
Hanesbrands, Inc. ## + ............................ 46,900 1,456
Office Depot, Inc. ## + ........................... 38,400 720
Regis Corp. + ..................................... 73,425 2,467
Rent-A-Center, Inc. ## + .......................... 156,825 2,509
Sherwin-Williams Co. + ............................ 19,800 1,266
TJX Cos., Inc. + .................................. 64,675 1,871
----------
10,289
----------
TEXTILES & APPAREL - 0.83%
Sealy Corp. + ..................................... 80,525 1,064
----------
TOTAL CONSUMER DISCRETIONARY ......................... 29,614
----------
CONSUMER STAPLES - 5.27%
FOOD PRODUCTS - 1.43%
Del Monte Foods Co. + ............................. 176,100 1,821
----------
TOBACCO - 3.84%
Loews Corp. ....................................... 24,300 2,084
Reynolds American, Inc. + ......................... 32,300 2,081
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
UST, Inc. + ....................................... 14,100 $ 752
----------
4,917
----------
TOTAL CONSUMER STAPLES ............................... 6,738
----------
ENERGY - 3.82%
OIL & GAS - 3.82%
El Paso Corp. + ................................... 115,600 2,042
Murphy Oil Corp. .................................. 38,700 2,849
----------
TOTAL ENERGY ......................................... 4,891
----------
FINANCIALS - 25.66%
BANKS - 5.53%
Comerica, Inc. + .................................. 34,425 1,607
New York Community Bancorp, Inc. + ................ 51,600 960
People's United Financial, Inc. + ................. 108,654 1,932
Popular, Inc. + ................................... 41,750 441
South Financial Group, Inc. + ..................... 43,800 905
UnionBanCal Corp. ................................. 22,725 1,227
----------
7,072
----------
DIVERSIFIED FINANCIALS - 1.97%
CIT Group, Inc. + ................................. 25,400 895
Countrywide Financial Corp. + ..................... 63,600 987
Mastercard, Inc. + ................................ 3,400 644
----------
2,526
----------
INSURANCE - 14.31%
AON Corp. + ....................................... 28,650 1,298
Axis Capital Holdings Ltd. + ...................... 33,100 1,315
Conseco, Inc. ## + ................................ 57,300 905
Delphi Financial Group, Inc. + .................... 18,800 728
First American Corp. .............................. 31,600 951
IPC Holdings Ltd. + ............................... 41,950 1,255
Old Republic International Corp. .................. 80,387 1,232
Protective Life Corp. ............................. 45,975 1,971
RenaissanceRe Holdings Ltd. ....................... 39,675 2,315
Torchmark Corp. ................................... 35,875 2,338
Willis Group Holdings Ltd. ........................ 37,200 1,575
XL Capital Ltd. ................................... 33,850 2,436
----------
18,319
----------
REAL ESTATE - 3.85%
American Financial Realty Trust + ................. 84,400 569
Annaly Capital Management, Inc. + ................. 136,300 2,329
First Industrial Realty Trust, Inc. + ............. 49,900 2,034
----------
4,932
----------
TOTAL FINANCIALS ..................................... 32,849
----------
See accompanying notes
41
AMERICAN BEACON MID-CAP VALUE FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
HEALTH CARE - 10.50%
HEALTH CARE EQUIPMENT & SUPPLIES - 2.90%
Hillenbrand Industries, Inc. + .................... 30,175 $ 1,666
IMS Health, Inc. .................................. 81,025 2,043
----------
3,709
----------
HEALTH CARE PROVIDERS & SERVICES - 6.93%
AmerisourceBergen Corp. + ......................... 35,875 1,690
Coventry Health Care, Inc. ## + ................... 39,200 2,364
McKesson Corp. .................................... 23,575 1,559
Omnicare, Inc. + .................................. 61,600 1,817
Quest Diagnostics, Inc. + ......................... 27,100 1,441
----------
8,871
----------
PHARMACEUTICALS - 0.67%
Valeant Pharmaceuticals International + ........... 59,400 864
----------
TOTAL HEALTH CARE .................................... 13,444
----------
INDUSTRIALS - 13.06%
AEROSPACE & DEFENSE - 5.27%
Goodrich Corp. + .................................. 28,800 2,006
L-3 Communications Holdings, Inc. ................. 43,150 4,731
----------
6,737
----------
COMMERCIAL SERVICES & SUPPLIES - 4.40%
Avery Dennison Corp. .............................. 28,300 1,638
Con-way, Inc. ..................................... 27,200 1,159
Kelly Services, Inc. + ............................ 32,375 681
Pitney Bowes, Inc. ................................ 21,700 869
Spherion Corp. ## + ............................... 50,850 443
United Stationers, Inc. ## + ...................... 14,550 843
----------
5,633
----------
ELECTRICAL EQUIPMENT - 0.54%
Brady Corp. + ..................................... 18,850 696
----------
FREIGHT TRANSPORTATION - 1.19%
Ryder System, Inc. + .............................. 31,900 1,527
----------
MACHINERY - 1.66%
Briggs & Stratton Corp. + ......................... 35,000 788
ITT Industries, Inc. .............................. 20,000 1,338
----------
2,126
----------
TOTAL INDUSTRIALS .................................... 16,719
----------
INFORMATION TECHNOLOGY - 7.83%
COMMUNICATIONS EQUIPMENT - 1.13%
Alcatel-Lucent, ADR ............................... 149,898 1,453
----------
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
IT CONSULTING & SERVICES - 5.13%
Affiliated Computer Services, Inc. ## ............. 44,500 $ 2,254
Computer Sciences Corp. ## + ...................... 46,700 2,727
Tech Data Corp. ## ................................ 40,150 1,579
----------
6,560
----------
SOFTWARE - 1.57%
CA, Inc. + ........................................ 76,000 2,010
----------
TOTAL INFORMATION TECHNOLOGY ......................... 10,023
----------
UTILITIES - 8.34%
ELECTRIC UTILITIES - 5.61%
CenterPoint Energy, Inc. + ........................ 76,700 1,286
Pinnacle West Capital Corp. + ..................... 40,800 1,648
Wisconsin Energy Corp. ............................ 47,325 2,266
Xcel Energy, Inc. + ............................... 87,500 1,973
----------
7,173
----------
GAS UTILITIES - 2.73%
MDU Resources Group, Inc. + ....................... 66,650 1,877
Sempra Energy ..................................... 26,375 1,622
----------
3,499
----------
TOTAL UTILITIES ...................................... 10,672
----------
TOTAL COMMON STOCKS .................................. 124,950
----------
SHORT TERM INVESTMENTS - 2.76%
American Beacon Money Market Select Fund ++ ....... 2,298,053 2,298
PAR
AMOUNT
----------
United States Treasury Bill,
3.873%, Due 12/6/2007 # ........................ $ 1,235 1,230
----------
TOTAL SHORT TERM INVESTMENTS ......................... 3,528
----------
SHARES
----------
SECURITIES LENDING COLLATERAL - 15.22%
American Beacon Cash Plus Trust ++ ................ 14,053,384 14,054
American Beacon Money Market Select Fund ++ ....... 5,431,380 5,431
----------
TOTAL SECURITIES LENDING COLLATERAL .................. 19,485
----------
TOTAL INVESTMENTS 115.60% - (COST $146,069) .......... 147,963
LIABILITIES, NET OF OTHER ASSETS - (15.60%) .......... (19,963)
----------
TOTAL NET ASSETS - 100.00% ........................... $ 128,000
==========
See accompanying notes
42
AMERICAN BEACON MID-CAP VALUE FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
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, 2007.
++ The Fund/Trust is affiliated by having the same investment advisor.
# At October 31, 2007, 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 40 Dec 2007 $3,648 $100
====== ====
See accompanying notes
43
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 99.12%
CONSUMER DISCRETIONARY - 12.53%
HOTELS, RESTAURANTS & LEISURE - 1.91%
Bob Evans Farms, Inc. + ........................... 5,675 $ 160
Domino's Pizza, Inc. + ............................ 7,010 108
Jack in the Box, Inc. ## + ........................ 7,270 228
Ruby Tuesday, Inc. + .............................. 4,420 71
----------
567
----------
HOUSEHOLD DURABLES - 1.53%
Ethan Allen Interiors, Inc. + ..................... 3,510 108
Tupperware Corp. + ................................ 9,560 345
----------
453
----------
INTERNET & CATALOG RETAIL - 1.00%
Insight Enterprises, Inc. ## + .................... 10,735 297
----------
LEISURE EQUIPMENT & PRODUCTS - 0.53%
Polaris Industries, Inc. + ........................ 3,230 159
----------
SPECIALTY RETAIL - 2.85%
Asbury Automotive Group, Inc. + ................... 4,755 87
Charming Shoppes, Inc. ## + ....................... 17,265 128
Collective Brands, Inc. ## + ...................... 9,390 174
Men's Wearhouse, Inc. + ........................... 2,255 95
Regis Corp. ....................................... 5,860 197
Sonic Automotive, Inc., A Shares + ................ 6,505 164
----------
845
----------
TEXTILES & APPAREL - 4.71%
Brown Shoe Company, Inc. + ........................ 7,490 153
Hartmarx Corp. ## + ............................... 17,360 89
Maidenform Brands, Inc. ## + ...................... 7,255 108
Movado Group, Inc. + .............................. 5,650 170
Perry Ellis International, Inc. ## + .............. 9,294 216
Phillips-Van Heusen Corp. ......................... 2,870 137
Unifirst Corp. .................................... 5,090 192
Warnaco Group, Inc. ## ............................ 8,240 335
----------
1,400
----------
TOTAL CONSUMER DISCRETIONARY ......................... 3,721
----------
CONSUMER STAPLES - 3.17%
FOOD & DRUG RETAILING - 2.46%
Casey's General Stores, Inc. + .................... 6,330 180
Longs Drug Stores Corp. + ......................... 2,385 125
Ruddick Corp. + ................................... 7,440 253
Spartan Stores, Inc. + ............................ 7,700 171
----------
729
----------
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
PERSONAL PRODUCTS - 0.71%
Elizabeth Arden, Inc. ## + ........................ 8,505 $ 212
----------
TOTAL CONSUMER STAPLES ............................... 941
----------
ENERGY - 4.72%
ENERGY EQUIPMENT & SERVICES - 3.46%
Grey Wolf, Inc. ## + .............................. 23,705 134
Gulfmark Offshore, Inc. ## ........................ 2,815 131
Oil States International, Inc. ## + ............... 5,955 257
Parker Drilling Co. ## + .......................... 33,335 281
Trico Marine Services, Inc. ## + .................. 6,905 224
----------
1,027
----------
OIL & GAS - 1.26%
Comstock Resources, Inc. ## ....................... 4,740 173
Swift Energy Co. ## ............................... 4,205 200
----------
373
----------
TOTAL ENERGY ......................................... 1,400
----------
FINANCIALS - 30.11%
BANKS - 10.10%
Banco Latinoamericano de Exportaciones SA ......... 6,030 117
BankUnited Financial Corp. + ...................... 7,425 64
Boston Private Financial Holdings, Inc. + ......... 8,375 241
Central Pacific Financial Corp. + ................. 6,675 150
F.N.B. Corp. + .................................... 8,860 147
First Community Bancorp, Inc. + ................... 5,100 248
First Niagara Financial Group, Inc. + ............. 12,265 162
FirstFed Financial Corp. ## + ..................... 5,170 221
FirstMerit Corp. + ................................ 6,865 146
Franklin Bank Corp. ## + .......................... 9,640 75
Hanmi Financial Corp. + ........................... 4,395 49
Irwin Financial Corp. + ........................... 12,780 123
Pacific Capital Bancorp NA + ...................... 5,650 117
Preferred Bank/Los Angeles CA ## .................. 3,510 104
Prosperity Bancshares, Inc. + ..................... 4,675 151
South Financial Group, Inc. + ..................... 6,475 134
Sterling Bancshares, Inc. + ....................... 7,842 96
Sterling Financial Corp. .......................... 7,690 173
SVB Financial Group ## + .......................... 4,070 211
UMB Financial Corp. + ............................. 6,410 269
----------
2,998
----------
DIVERSIFIED FINANCIALS - 2.96%
Advanta Corp., Class A Shares ..................... 570 8
Advanta Corp., Class B Shares + ................... 7,732 122
Cash America International, Inc. + ................ 4,580 178
CompuCredit Corp. ## + ............................ 6,010 120
See accompanying notes
44
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
MCG Capital Corp. + ............................... 10,470 $ 147
Ocwen Financial Corp. ## + ........................ 4,395 33
SWS Group, Inc. ................................... 8,680 165
World Acceptance Corp. ## + ....................... 3,260 105
----------
878
----------
INSURANCE - 8.13%
Argo Group International Holdings Ltd. ## ......... 5,851 249
Aspen Insurance Holdings Ltd. + ................... 4,550 124
Delphi Financial Group, Inc. + .................... 7,425 288
FPIC Insurance Group, Inc. ## ..................... 1,865 78
Harleysville Group, Inc. + ........................ 7,160 223
LandAmerica Financial Group, Inc. + ............... 2,255 63
Navigators Group, Inc. ## ......................... 5,170 312
Phoenix Cos., Inc. + .............................. 5,844 81
Platinum Underwriters Holdings Ltd. ............... 3,620 130
ProAssurance Corp. ## + ........................... 5,900 325
SeaBright Insurance Holdings, Inc. ## ............. 12,660 211
Selective Insurance Group, Inc. + ................. 8,505 207
Stewart Information Services Corp. + .............. 4,205 122
----------
2,413
----------
REAL ESTATE - 8.92%
Arbor Realty Trust, Inc. + ........................ 4,580 87
Ashford Hospitality Trust, Inc. + ................. 19,055 188
Capital Trust, Inc. + ............................. 2,940 99
DiamondRock Hospitality Co. + ..................... 14,220 272
Entertainment Properties Trust + .................. 1,720 94
Equity Lifestyle Properties, Inc. + ............... 1,870 94
FelCor Lodging Trust, Inc. ........................ 7,320 153
Gramercy Capital Corp. + .......................... 9,480 250
LaSalle Hotel Properties + ........................ 6,835 282
Lexington Realty Trust + .......................... 9,960 197
Nationwide Health Properties, Inc. ................ 4,395 137
PS Business Parks, Inc. ........................... 1,720 100
Senior Housing Properties Trust + ................. 5,740 129
Strategic Hotel Capital, Inc. + ................... 10,335 226
Sunstone Hotel Investors, Inc. + .................. 8,865 247
Tanger Factory Outlet Centers, Inc. + ............. 2,255 95
----------
2,650
----------
TOTAL FINANCIALS ..................................... 8,939
----------
HEALTH CARE - 5.82%
HEALTH CARE EQUIPMENT & SUPPLIES - 0.74%
STERIS Corp. + .................................... 7,610 221
----------
HEALTH CARE PROVIDERS & SERVICES - 4.05%
Centene Corp. ## .................................. 6,955 162
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Gentiva Health Services, Inc. ## .................. 10,080 $ 191
Owens & Minor, Inc. + ............................. 5,395 219
PSS World Medical, Inc. ## + ...................... 8,120 164
Res-Care, Inc. ## ................................. 11,205 275
Stewart Enterprises, Inc. + ....................... 20,930 190
----------
1,201
----------
PHARMACEUTICALS - 1.03%
Sciele Pharma, Inc. ## + .......................... 11,965 305
----------
TOTAL HEALTH CARE .................................... 1,727
----------
INDUSTRIALS - 15.58%
BUILDING PRODUCTS - 2.27%
Goodman Global, Inc. ## ........................... 7,760 191
Lennox International, Inc. ........................ 6,010 215
NCI Building Systems, Inc. ## + ................... 3,860 151
Universal Forest Products, Inc. + ................. 3,260 117
----------
674
----------
COMMERCIAL SERVICES & SUPPLIES - 4.68%
ABM Industries, Inc. + ............................ 5,005 118
Atlas Air Worldwide Holdings, Inc. ## + ........... 2,645 155
Bowne & Co., Inc. + ............................... 3,440 60
Consolidated Graphics, Inc. ## .................... 3,110 199
Deluxe Corp. + .................................... 5,440 219
Ennis, Inc. ....................................... 11,605 237
Kelly Services, Inc. + ............................ 4,420 93
Korn/Ferry International ## + ..................... 8,330 160
United Stationers, Inc. ## + ...................... 2,565 148
----------
1,389
----------
CONSTRUCTION & ENGINEERING - 0.67%
EMCOR Group, Inc. ## .............................. 5,775 199
----------
DIVERSIFIED MANUFACTURING - 2.77%
Acuity Brands, Inc. ............................... 3,720 178
Andersons, Inc. + ................................. 2,144 106
Barnes Group, Inc. + .............................. 6,635 244
Kennametal, Inc. .................................. 3,245 296
----------
824
----------
ELECTRICAL EQUIPMENT - 2.11%
A.O. Smith Corp. .................................. 4,140 155
Anixter International, Inc. ## + .................. 2,910 209
Belden, Inc. + .................................... 3,125 182
Regal-Beloit Corp. + .............................. 1,630 80
----------
626
----------
MACHINERY - 1.36%
Applied Industrial Technologies, Inc. + ........... 6,665 236
See accompanying notes
45
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
EnPro Industries, Inc. ## ......................... 4,115 $ 169
----------
405
----------
RENTAL AUTO/EQUIPMENT - 0.49%
Dollar Thrifty Automotive Group, Inc. ## .......... 4,180 144
----------
ROAD & RAIL - 0.43%
Saia, Inc. ## ..................................... 9,025 127
----------
TRANSPORT-SERVICES - 0.80%
Bristow Group, Inc. ## + .......................... 4,740 237
----------
TOTAL INDUSTRIALS .................................... 4,625
----------
INFORMATION TECHNOLOGY - 11.84%
COMMUNICATIONS EQUIPMENT - 0.66%
Black Box Corp. ................................... 3,580 143
CommScope, Inc. ## + .............................. 1,125 53
----------
196
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 3.44%
Benchmark Electronics, Inc. ## .................... 6,865 141
Checkpoint Systems, Inc. ## + ..................... 7,770 235
CTS Corp. + ....................................... 7,690 95
MTS Systems Corp. ................................. 3,750 167
Park Electrochemical Corp. + ...................... 5,515 173
Technitrol, Inc. + ................................ 7,130 209
----------
1,020
----------
IT CONSULTING & SERVICES - 3.10%
Agilysys, Inc. + .................................. 2,425 42
CACI International, Inc. ## + ..................... 3,045 164
MPS Group, Inc. ## + .............................. 17,055 208
Ness Technologies, Inc. ## + ...................... 16,455 193
Perot Systems Corp. ## + .......................... 12,475 182
SYKES Enterprises, Inc. ## + ...................... 7,490 132
----------
921
----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 2.67%
Advanced Energy Industries, Inc. ## ............... 6,355 102
Brooks Automation, Inc. ## + ...................... 7,190 93
ON Semiconductor Corp. ## + ....................... 19,330 197
Photronics, Inc. ## + ............................. 14,705 161
Standard Microsystems Corp. ## .................... 6,130 239
----------
792
----------
SOFTWARE - 1.97%
JDA Software Group, Inc. ## ....................... 12,900 322
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
TIBCO Software, Inc. ## + ......................... 28,795 $ 265
----------
587
----------
TOTAL INFORMATION TECHNOLOGY ......................... 3,516
----------
MATERIALS - 7.73%
CHEMICALS - 1.75%
H.B. Fuller Co. + ................................. 8,295 244
Rockwood Holdings, Inc. ## + ...................... 5,225 204
Spartech Corp. + .................................. 4,620 71
----------
519
----------
CONTAINERS & PACKAGING - 2.70%
AptarGroup, Inc. + ................................ 5,810 260
Greif, Inc. + ..................................... 3,115 198
Rock-Tenn Co. ..................................... 5,730 167
Silgan Holdings, Inc. + ........................... 3,220 176
----------
801
----------
METALS & MINING - 1.62%
AMCOL International Corp. + ....................... 2,810 113
Commercial Metals Co. + ........................... 1,715 54
Compass Minerals International, Inc. + ............ 4,860 179
NN, Inc. .......................................... 12,525 134
----------
480
----------
PAPER & FOREST PRODUCTS - 1.66%
Buckeye Technologies, Inc. ## + ................... 9,960 179
Potlatch Corp. + .................................. 6,615 315
----------
494
----------
TOTAL MATERIALS ...................................... 2,294
----------
TELECOMMUNICATION SERVICES - 2.41%
DIVERSIFIED TELECOMMUNICATION - 2.41%
General Communication, Inc. ## .................... 5,860 68
Golden Telecom, Inc. .............................. 3,025 313
Premiere Global Services, Inc. ## ................. 20,260 334
----------
TOTAL TELECOMMUNICATION SERVICES ..................... 715
----------
UTILITIES - 5.21%
ELECTRIC UTILITIES - 3.62%
Black Hills Corp. + ............................... 6,475 288
El Paso Electric Co. ## + ......................... 10,885 265
Empire District Electric Co. ...................... 9,160 220
PNM Resources, Inc. + ............................. 6,195 155
Portland General Electric Co. ..................... 5,275 148
----------
1,076
----------
GAS UTILITIES - 1.59%
Atmos Energy Corp. ................................ 4,115 116
See accompanying notes
46
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Southwest Gas Corp. + ............................. 3,910 $ 116
WGL Holdings, Inc. ................................ 7,050 239
----------
471
----------
TOTAL UTILITIES ...................................... 1,547
----------
TOTAL COMMON STOCKS .................................. 29,425
----------
SHORT TERM INVESTMENTS - 1.10%
American Beacon Money Market Select Fund ++ ....... 29,480 29
iShares Russell 2000 Value Index Fund + ............ 3,858 299
----------
TOTAL SHORT TERM INVESTMENTS ......................... 328
----------
SECURITIES LENDING
COLLATERAL - 25.32%
American Beacon Cash Plus Trust ++ ................ 5,421,079 5,421
American Beacon Money Market Select Fund ++ ....... 2,095,150 2,095
----------
TOTAL SECURITIES LENDING COLLATERAL .................. 7,516
----------
TOTAL INVESTMENTS 125.54% - (COST $38,997) ........... 37,269
LIABILITIES, NET OF OTHER ASSETS - (25.54%) .......... (7,582)
----------
TOTAL NET ASSETS - 100.00% ........................... $ 29,687
==========
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, 2007.
++ The Fund/Trust is affiliated by having the same investment advisor.
See accompanying notes
47
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
ARGENTINA - 0.58%
COMMON STOCKS - 0.58%
Petrobras Energia Participaciones S.A., ADR + ..... 35,700 $ 427
Tenaris S.A., ADR ................................. 24,034 1,293
----------
TOTAL ARGENTINA ...................................... 1,720
----------
AUSTRIA - 0.37%
COMMON STOCKS - 0.37%
Raiffeisen International Bank-Holding AG + ........ 6,648 1,105
----------
BRAZIL - 11.81%
COMMON STOCKS - 6.95%
Aracruz Celulose S.A., ADR + ...................... 5,900 454
Banco Bradesco S.A., ADR .......................... 10,677 365
Banco Itau Holding Financeira S.A., ADR ## + ...... 58,740 1,677
Banco Nossa Caixa S.A ............................. 32,300 572
Braskem S.A., ADR + ............................... 3,300 62
Centrais Eletricas Brasileiras S.A ................ 29,466 457
Companhia Brasileira de Distribuicao (Pao
de Acucar), ADR + ................................. 33,630 1,082
Companhia de Saneamento Basico do
Estado de Sao Paulo, ADR + ..................... 2,330 121
Companhia Energetica de Minas Gerais, ADR + ....... 53,980 1,166
CPFL Energia S.A .................................. 15,800 347
Cyrela Brazil Realty S.A .......................... 48,396 842
Empresa Brasileira de Aeronautica S.A
(Embraer), ADR + ............................... 13,810 674
Gerdau S.A., ADR + ................................ 15,768 490
Grendene S.A ...................................... 63,100 860
Petroleo Brasileiro S.A., ADR ..................... 31,464 3,009
Petroleo Brasileiro S.A., A Shares, ADR ........... 40,030 3,330
TIM Participacoes S.A ............................. 9,100 63
TIM Participacoes S.A., ADR + ..................... 9,173 426
Unibanco - Uniao de Bancos Brasileiros S.A ........ 15,378 244
Unibanco - Uniao de Bancos Brasileiros S.A., GDR .. 21,782 3,442
Usinas Siderurgicas de Minas Gerais S.A ........... 5,126 432
Votorantim Celulose e Papel S.A., ADR ............. 17,330 543
----------
TOTAL COMMON STOCKS .................................. 20,658
----------
PREFERRED STOCKS - 4.86%
All America Latina Logistica S.A .................. 46,827 744
Banco Itau Holding Financeira S.A. ## ............. 17,048 487
Braskem S.A ....................................... 112,100 1,056
Centrais Eletricas Brasileiras S.A ................ 37,040 559
Companhia de Tecidos Norte de Minas ............... 94,762 750
Companhia Energetica de Minas Gerais .............. 24,529 526
Companhia Energetica de Sao Paulo ## .............. 12,695 241
Companhia Vale do Rio Doce, ADR ## ................ 203,196 6,415
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Companhia Vale do Rio Doce, A Shares .............. 7,504 $ 237
Gerdau S.A ........................................ 9,650 301
Itausa - Investimentos Itau S.A ................... 83,922 638
Net Servicos de Comunicacao S.A. ## ............... 3,238 52
Tele Norte Leste Participacoes S.A., ADR .......... 69,710 1,520
Telemig Celular Participacoes S.A ................. 14,454 451
Usinas Siderurgicas de Minas Gerais S.A ........... 5,823 457
----------
TOTAL PREFERRED STOCKS ............................... 14,434
----------
TOTAL BRAZIL ......................................... 35,092
----------
CHILE - 0.16%
COMMON STOCKS - 0.16%
United Breweries Co., Inc., ADR ................... 11,210 471
----------
CZECH REPUBLIC - 0.80%
COMMON STOCKS - 0.80%
Central European Media Enterprises Ltd. ## + ...... 16,184 1,857
Komercni Banka, a.s ............................... 2,200 510
----------
TOTAL CZECH REPUBLIC ................................. 2,367
----------
EGYPT - 0.44%
COMMON STOCKS - 0.44%
El Ezz Steel Rebars Co. ........................... 53,601 528
El Sewedy Cables Holding Co. ## ................... 39,595 782
----------
TOTAL EGYPT .......................................... 1,310
----------
HONG KONG/CHINA - 14.77%
COMMON STOCKS - 14.77%
Anhui Expressway Co. Ltd. ......................... 202,000 166
Bank of China Ltd. + .............................. 2,580,000 1,733
Brilliance China Automotive Holdings Ltd. ## + .... 1,296,000 351
Chaoda Modern Agriculture (Holdings) Ltd. + ....... 202,000 184
China Coal Energy Ltd. ## + ....................... 723,000 2,454
China Communications Construction Co. Ltd. ........ 444,000 1,412
China Construction Bank Corp. + ................... 2,399,000 2,729
China COSCO Holdings Co. Ltd. ..................... 611,500 2,758
China Merchants Bank Co. Ltd. ..................... 189,500 990
China Mobile Ltd. ................................. 237,000 4,985
China Netcom Group Corp. (Hong Kong) Ltd. + ....... 338,000 1,049
China Petroleum & Chemical Corp. .................. 676,000 1,028
China Ping'an Insurance Co. Ltd. + ................ 93,500 1,307
China Power International Development Ltd. ## + ... 2,535,800 1,375
China Resources Power Holdings Co. ................ 308,000 1,168
China Shenhua Energy Company Ltd. + ............... 99,000 651
China Telecom Corp. Ltd. + ........................ 827,100 733
CNOOC Ltd. ........................................ 994,400 2,170
COSCO Pacific Ltd. + .............................. 224,000 694
See accompanying notes
48
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Datang International Power Generation Co. Ltd. .... 54,000 $ 61
Denway Motors Ltd. + .............................. 1,524,700 1,075
Dongfeng Motor Group Co. Ltd. + ................... 1,196,000 1,101
Global Bio-chem Technology Group Co. Ltd. ......... 1,723,800 638
GOME Electrical Appliances Holdings Ltd. + ........ 591,000 1,352
Harbin Power Equipment Co. Ltd. ................... 438,000 1,457
Hopson Development Holdings Ltd. .................. 102,000 396
Huaneng Power International, Inc. + ............... 371,900 446
Industrial & Commercial Bank of China + ........... 2,746,000 2,617
Maanshan Iron & Steel Co. Ltd. + .................. 1,005,000 896
Moulin Global Eyecare Holdings Ltd. ## ++ ......... 96,000 --
NWS Holdings Ltd. ................................. 61,000 238
PetroChina Co. Ltd. ............................... 652,000 1,692
Shanghai Industrial Holdings Ltd. + ............... 190,000 1,133
Sino-Ocean Land Holdings Ltd. ## .................. 15,000 27
Sinotrans Ltd. + .................................. 553,000 356
Texwinca Holdings Ltd. ............................ 764,000 674
TPV Technology Ltd. ............................... 1,100,000 740
Weiqiao Textile Co. Ltd. + ........................ 567,100 1,065
----------
TOTAL HONG KONG/CHINA ................................ 43,901
----------
HUNGARY - 0.54%
COMMON STOCKS - 0.54%
Magyar Telekom Telecommunications plc ............. 106,350 574
OTP Bank .......................................... 18,943 1,030
----------
TOTAL HUNGARY ........................................ 1,604
----------
INDIA - 8.03%
COMMON STOCKS - 8.03%
Aban Offshore Ltd. ................................ 6,600 796
Andhra Bank ....................................... 79,870 181
Asea Brown Boveri India Ltd. ...................... 30,000 1,212
Axis Bank Ltd. .................................... 46,100 1,093
Bharat Heavy Electricals Ltd. ..................... 21,700 1,452
Bharat Petroleum Corp. Ltd. ....................... 120,203 1,064
Bharti Airtel Ltd. ## ............................. 50,100 1,313
Deccan Chronicle Holdings Ltd. .................... 88,779 436
Glenmark Pharmaceuticals Ltd. ..................... 55,800 697
GVK Power & Infrastructure Ltd. ................... 23,000 418
HCL Technologies Ltd. ............................. 71,100 570
HDFC Bank Ltd. .................................... 23,000 989
HDFC Bank Ltd., ADR + ............................. 7,300 1,015
Hero Honda Motors Ltd. ............................ 10,878 202
Hindalco Industries Ltd. .......................... 153,740 781
Hindalco Industries Ltd., GDR # ................... 162,100 794
Hindustan Petroleum Corporation Ltd. .............. 135,560 831
India Cements Ltd. ................................ 63,400 459
Infosys Technologies Ltd. ......................... 20,500 970
Infosys Technologies Ltd., ADR + .................. 1,300 66
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Mahanagar Telephone Nigam Ltd. .................... 126,680 $ 582
Maruti Udyog Ltd. ................................. 21,300 590
Oil & Natural Gas Corp. Ltd. ...................... 53,271 1,715
Praj Industries Ltd. ## ........................... 45,500 239
Reliance Communications Ltd. ...................... 34,400 685
Reliance Industries Ltd. .......................... 20,300 1,441
Satyam Computer Services Ltd. ..................... 8,470 103
State Bank of India Ltd., GDR ..................... 15,530 1,926
Tata Motors Ltd. .................................. 27,706 537
Television Eighteen India Ltd. ## ................. 14,000 182
Zee Entertainment Enterprises Ltd. ................ 62,500 529
----------
TOTAL INDIA .......................................... 23,868
----------
INDONESIA - 1.84%
COMMON STOCKS - 1.84%
PT Astra International Tbk ........................ 232,900 662
PT Bank Central Asia Tbk .......................... 523,000 424
PT Bank Mandiri (Persero) Tbk ..................... 445,000 187
PT Bank Rakyat Indonesia Tbk ...................... 490,500 422
PT Bumi Resources Tbk ............................. 1,896,000 1,015
PT Gudang Garam Tbk ............................... 559,800 619
PT Indosat Tbk .................................... 405,800 392
PT International Nickel Indonesia Tbk ............. 60,000 600
PT Perusahaan Gas Negara .......................... 115,500 180
PT Tambang Batubara Bukit Asam Tbk ................ 352,000 355
PT Telekomunikasi Indonesia Tbk ................... 511,500 617
----------
TOTAL INDONESIA ...................................... 5,473
----------
ISRAEL - 1.04%
COMMON STOCKS - 1.04%
Bank Leumi le-Israel B.M .......................... 165,200 794
Israel Discount Bank Ltd. ## ...................... 355,255 906
Teva Pharmaceutical Industries Ltd., ADR .......... 31,530 1,388
----------
TOTAL ISRAEL ......................................... 3,088
----------
MALAYSIA - 2.24%
COMMON STOCKS - 2.24%
AMMB Holdings Bhd ................................. 294,000 375
Gamuda Bhd ........................................ 118,700 167
Hap Seng Plantations Holdings Bhd ## .............. 21,000 19
IOI Corp Bhd ...................................... 324,350 741
Malayan Banking Bhd ............................... 562,000 1,896
Proton Holdings Bhd ## ............................ 40,300 64
Resorts World Bhd ................................. 645,000 747
Sime Darby Bhd .................................... 372,400 1,250
Telekom Malaysia Bhd .............................. 194,200 596
Tenaga Nasional Bhd ............................... 280,800 791
----------
TOTAL MALAYSIA ....................................... 6,646
----------
See accompanying notes
49
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
MEXICO - 4.95%
COMMON STOCKS - 4.95%
America Movil, S.A.B. de C.V., ADR ................ 50,541 $ 3,305
Cemex, S.A.B. de C.V. + ........................... 251,775 765
Cemex, S.A.B. de C.V., ADR + ...................... 11,710 359
Coca-Cola Femsa, S.A. de C.V., ADR + .............. 16,085 745
Consorcio ARA, S.A. de C.V ........................ 75,900 84
Controladora Commercial Mexicana, S.A. de C.V ..... 285,700 890
Corp GEO, S.A. de C.V. ## + ....................... 96,099 355
Embotelladoras Arca, S.A. + ....................... 119,130 472
Gruma, S.A. de C.V. + ............................. 99,200 356
Grupo Continential, S.A.B ......................... 391,250 917
Grupo Financiero Banorte, S.A. de C.V ............. 174,200 789
Grupo Mexico, S.A.B de C.V ........................ 44,100 401
Grupo Modelo, S.A.B de C.V ........................ 102,900 480
Grupo Televisa, S.A., ADR ......................... 43,733 1,087
Kimberly-Clark de Mexico, S.A. de C.V. + .......... 93,200 398
Telefonos de Mexico, S.A. de C.V., ADR ............ 26,580 972
Urbi Desarrollos Urbanos, S.A. de C.V ## + ........ 102,484 398
Wal-Mart de Mexico, S.A.B. de C.V. + .............. 394,148 1,601
Wal-Mart de Mexico, S.A.B. de C.V., ADR + ......... 8,448 342
----------
TOTAL MEXICO ......................................... 14,716
----------
MOROCCO - 0.14%
COMMON STOCKS - 0.14%
Douja Promotion Groupe Addoha S.A. ................ 1,000 414
----------
PHILIPPINES - 0.72%
COMMON STOCKS - 0.72%
ABS-CBN Broadcasting Corp. ........................ 211,200 171
Ayala Corp. ....................................... 23,006 332
Bank of the Philippine Islands .................... 307,623 465
Manila Electric Co. ............................... 127,720 245
Philippine Long Distance Telephone Co. ............ 4,110 282
PNOC Energy Development Corp. ..................... 2,214,000 389
Union Bank of the Philippines ..................... 232,300 268
----------
TOTAL PHILIPPINES .................................... 2,152
----------
POLAND - 2.54%
COMMON STOCKS - 2.54%
Bank Handlowy W Warszawie S.A. .................... 12,048 565
Bank Millennium S.A. .............................. 155,725 848
Bank Pekao S.A. ................................... 13,506 1,445
Bank Zachodni WBK S.A. ............................ 6,034 671
Budimex S.A. ## ................................... 5,184 154
KGHM Polska Miedz S.A. ............................ 13,463 730
PBG S.A. ## ....................................... 1,269 173
Polimex Mostostal S.A. ............................ 76,800 321
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Polski Koncern Naftowy Orlen S.A. ## .............. 27,350 $ 633
Telekomunikacja Polska S.A. ....................... 121,370 1,152
TVN S.A. .......................................... 85,637 857
----------
TOTAL POLAND ......................................... 7,549
----------
RUSSIA - 8.16%
COMMON STOCKS - 8.16%
Cherepovets MK Severstal, GDR # ................... 11,810 281
CTC Media, Inc. ## + .............................. 31,794 798
Evraz Group S.A., GDR ## .......................... 14,525 1,097
Golden Telecom, Inc. ## ........................... 11,729 1,213
JSC Surgutneftegaz, ADR ## + ...................... 5,000 327
LUKOIL Oil Co., ADR ............................... 34,300 3,104
Mechel OAO, ADR ## + .............................. 9,729 819
Mobile TeleSystems OJSC, ADR ## ................... 12,646 1,050
OJSC MMC Norilsk Nickel, ADR ...................... 5,782 1,821
RAO Gazprom, ADR ## ............................... 36,049 1,802
RAO Gazprom, ADR ## + ............................. 124,908 6,220
Sberbank RF, GDR ## ............................... 5,929 2,912
Severstal OAO, GDR ## ............................. 31,237 743
TMK OAO, GDR ## + ................................. 4,302 191
TMK OAO, GDR ## # ................................. 16,028 713
VTB Bank OJSC, GDR ## # ........................... 47,360 455
Wimm-Bill-Dann Foods OJSC, ADR + .................. 6,002 719
----------
TOTAL RUSSIA ......................................... 24,265
----------
SOUTH AFRICA - 6.80%
COMMON STOCKS - 6.67%
AngloGold Ashanti Ltd., ADR ....................... 29,430 1,367
ArcelorMittal South Africa Ltd. ................... 53,009 1,203
Aspen Pharmacare Holdings Ltd. .................... 136,350 798
Barloworld Ltd. ................................... 17,122 334
Bidvest Group Ltd. ................................ 19,654 416
Ellerine Holdings Ltd. ............................ 51,150 689
Exxaro Resources Ltd. ............................. 52,000 845
Gold Fields Ltd., ADR ............................. 18,250 330
Group Five Ltd. ................................... 69,696 693
JD Group Ltd. ..................................... 62,620 606
Mr Price Group Ltd. ............................... 106,600 436
MTN Group Ltd. .................................... 140,200 2,737
Murray & Roberts Holdings Ltd. .................... 51,397 788
Nampak Ltd. ....................................... 320,820 1,076
Nedbank Group Ltd. ................................ 101,190 2,229
Raubex Group Ltd. ## .............................. 63,413 350
Sanlam Ltd. ....................................... 262,940 964
Sappi Ltd. ........................................ 75,830 1,160
Sasol Ltd. ........................................ 22,650 1,171
Standard Bank Group Ltd. .......................... 48,240 876
See accompanying notes
50
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Steinhoff International Holdings Ltd. ............. 239,359 $ 745
----------
TOTAL COMMON STOCKS .................................. 19,813
----------
PREFERRED STOCKS - 0.13%
Allied Electronics Corp. Ltd. ..................... 53,370 386
----------
TOTAL SOUTH AFRICA ................................... 20,199
----------
SOUTH KOREA - 13.63%
COMMON STOCKS - 13.41%
Amorepacific Corp. ................................ 561 536
Cheil Communications, Inc. ........................ 1,596 462
Cheil Industries, Inc. ............................ 6,790 450
Doosan Infracore Co. Ltd. ......................... 13,722 597
GS Engineering & Construction Corp. ............... 4,464 943
Hana Financial Group, Inc. ........................ 17,111 872
Hanwha Chemical Corp. ............................. 7,400 221
Hite Brewery Co. Ltd. ............................. 2,489 377
Hynix Semiconductor, Inc. ## ...................... 12,102 342
Hyundai Heavy Industries .......................... 2,857 1,618
Hyundai Mipo Dockyard Co. Ltd. .................... 3,156 1,413
Hyundai Mobis ..................................... 13,159 1,337
Hyundai Motor Co. Ltd. ............................ 21,746 1,729
Kookmin Bank ...................................... 27,813 2,297
Kookmin Bank, ADR ## .............................. 6,160 503
Korea Electric Power Corp. ........................ 22,295 994
Korea Electric Power Corp., ADR ## ................ 7,200 160
Korea Exchange Bank ............................... 22,290 371
Korea Line Corp. .................................. 1,600 476
KT Corp. .......................................... 11,820 560
KT Corp., ADR ..................................... 44,440 1,045
Kumho Tire Co., Inc. .............................. 57,050 908
LG Chem Ltd. ...................................... 6,450 806
LG Electronics, Inc. .............................. 7,704 810
LG Philips LCD Co. Ltd. ## ........................ 21,620 1,209
Lotte Shopping Co. Ltd. ........................... 3,412 1,605
NHN Corp. ## ...................................... 4,637 1,505
Nong Shim Holdings Co. Ltd. ....................... 2,401 532
Orion Corp. ....................................... 1,452 465
POSCO ............................................. 3,598 2,627
Samsung Electronics Co. Ltd. ...................... 6,205 3,853
Samsung Fire & Marine Insurance Co. Ltd. .......... 2,924 812
Samsung SDI Co. Ltd. .............................. 3,559 287
Shinhan Financial Group Co. Ltd. .................. 30,590 1,994
SK Energy Co. Ltd. ## ............................. 1,476 344
SK Telecom Co. Ltd. ............................... 2,336 550
SK Telecom Co. Ltd., ADR ## + ..................... 35,670 1,099
S-Oil Corp. ....................................... 7,099 651
SSCP Co. Ltd. ## .................................. 10,230 422
STX Pan Ocean Co. Ltd. ## ......................... 333,880 1,159
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Woongjin Coway Co. Ltd. ........................... 23,466 $ 897
----------
TOTAL COMMON STOCKS .................................. 39,838
----------
PREFERRED STOCKS - 0.22%
Samsung Electronics Co. Ltd. ...................... 1,384 665
----------
TOTAL SOUTH KOREA .................................... 40,503
----------
TAIWAN - 8.83%
COMMON STOCKS - 8.83%
Asustek Computer, Inc. ............................ 200,655 718
AU Optronics Corp. ................................ 1,016,946 2,200
AU Optronics Corp., ADR + ......................... 13,680 297
Chi Mei Optoelectronics Corp. ..................... 69,000 101
China Motor Corp. ................................. 603,245 560
China Steel Corp. ................................. 197,000 281
Chinatrust Financial Holding Co. Ltd. ## .......... 1,647,149 1,218
Chunghwa Telecom Co. Ltd., ADR .................... 84,601 1,624
Compal Electronics, Inc. .......................... 1,540,885 1,981
First Financial Holding Co. Ltd. .................. 1,768,496 1,468
Formosa Plastics Corp. ............................ 411,000 1,284
Foxconn Technology Co. Ltd. ....................... 71,550 877
HON HAI Precision Industry Co. Ltd. ............... 41,600 320
InnoLux Display Corp. ............................. 14,000 67
MediaTek, Inc. .................................... 49,715 986
Mega Financial Holding Co. Ltd. ................... 706,000 464
Nan Ya Printed Circuit Board Corp. ................ 61,480 408
Nien Hsing Textile Co. Ltd. ....................... 317,000 218
Powerchip Semiconductor Corp. ..................... 1,159,444 540
Quanta Computer, Inc. ............................. 1,124,675 1,900
Radiant Opto-Electronics Corp. .................... 336,329 539
Siliconware Precision Industries Co. Ltd. ......... 341,000 736
SinoPac Financial Holdings Co. Ltd. ............... 2,872,987 1,341
Taiwan Cement Corp. ............................... 448,000 776
Taiwan Semiconductor Manufacturing Co. Ltd ........ 158,474 316
Taiwan Semiconductor Manufacturing Co. Ltd., ADR .. 48,305 514
Tatung Co. Ltd. ## ................................ 994,000 551
Tripod Technology Corp. ........................... 67,034 275
TXC Corp. ......................................... 79,059 165
United Microelectronics Corp. ..................... 3,618,542 2,402
United Microelectronics Corp., ADR + .............. 16,051 61
Yaego Corp. ....................................... 1,524,000 603
Yang Ming Marine Transport Corp. ## ............... 535,823 444
----------
TOTAL TAIWAN ......................................... 26,235
----------
THAILAND - 1.42%
COMMON STOCKS - 1.42%
Bangkok Bank PCL .................................. 218,400 825
Charoen Pokphand Foods PCL ........................ 4,347,400 588
See accompanying notes
51
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Delta Electronics PCL ............................. 189,800 $ 121
Italian -Thai Development PCL ## .................. 1,031,200 250
Kasikornbank PCL .................................. 299,800 799
Krung Thai Bank PCL ............................... 1,851,700 642
Siam Cement PCL ................................... 78,800 612
Siam Makro PCL ++ ................................. 42,000 122
Thai Union Frozen Products PCL .................... 371,200 262
----------
TOTAL THAILAND ....................................... 4,221
----------
TURKEY - 3.13%
COMMON STOCKS - 3.13%
Akcansa Cimento A.S. .............................. 44,937 329
Aksigorta A.S. .................................... 79,460 590
KOC Holding A.S. ## ............................... 117,788 647
Petrol Ofisi A.S. ## .............................. 12,315 64
TURK Sise ve Cam Fabrikalari A.S. (Sisecam) ....... 214,207 474
Turkcell Iletisim Hizmetleri A.S. ................. 199,717 1,921
Turkcell Iletisim Hizmetleri A.S., ADR ............ 1,600 38
Turkiye Garanti Bankasi A.S. ...................... 173,813 1,610
Turkiye Halk Bankasi A.S. ## ...................... 63,527 541
Turkiye Is Bankasi (Isbank) ....................... 261,109 1,797
Yapi ve Kredi Bankasi A.S. ## ..................... 330,501 1,296
----------
TOTAL TURKEY ......................................... 9,307
----------
SHORT TERM INVESTMENTS - 6.07%
American Beacon Money Market Select Fund ** ....... 17,218,023 17,218
PAR
AMOUNT
----------
United States Treasury Bill,
3.873%, Due 12/6/2007 * $ 840 837
----------
TOTAL SHORT TERM INVESTMENTS 18,055
----------
SHARES
----------
SECURITIES LENDING COLLATERAL - 10.36%
American Beacon Cash Plus Trust ** ................ 22,207,419 22,207
American Beacon Money Market Select Fund ** ....... 8,582,768 8,583
----------
TOTAL SECURITIES LENDING COLLATERAL .................. 30,790
----------
TOTAL INVESTMENTS 109.37% - (COST $233,306) .......... 325,051
LIABILITIES, NET OF OTHER ASSETS - (9.37%) ........... (27,858)
----------
TOTAL NET ASSETS - 100.00% ........................... $ 297,193
==========
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, 2007.
++ Valued at fair value pursuant to procedures approved by the Board of
Trustees.
See accompanying notes
52
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
# 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 $2,243 or 0.75% 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.
* At October 31, 2007, 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 .. 261 Dec 2007 $20,291 $192
======= ====
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
(DOLLARS IN THOUSANDS)
SETTLEMENT MARKET UNREALIZED
DATE VALUE GAIN/(LOSS)
---------- ------ -----------
CONTRACTS TO DELIVER
12,518 South African Rand 11/16/2007 $1,921 $(221)
------ -----
TOTAL CONTRACTS TO DELIVER
(RECEIVABLE AMOUNT $1,700) $1,921 $(221)
------ -----
NET CURRENCY FLUCTUATION $(221)
=====
SECTOR DIVERSIFICATION
Percent of
Net Assets
----------
Communications .................... 1.52%
Consumer Discretionary ............ 8.50%
Consumer Staples .................. 3.10%
Energy ............................ 9.50%
Financials ........................ 21.35%
Health Care ....................... 1.18%
Industrials ....................... 12.16%
Information Technology ............ 8.79%
Materials ......................... 12.84%
Telecommunication Services ........ 10.92%
Utilities ......................... 3.07%
Short Term Investments ............ 16.44%
Liabilities, Net of Other Assets .. (9.37)%
------
100.00%
======
See accompanying notes
53
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
CORPORATE OBLIGATIONS - 95.54%
AUTO COMPONENTS - 2.82%
Pep Boys, Inc., 7.50%, Due 12/15/2014 ............. $ 1,135 $ 1,092
Stanadyne Corp., 10.00%, Due 8/15/2014 ............ 1,000 1,015
TriMas Corp., 9.875%, Due 6/15/2012 ............... 965 992
TRW Automotive, Inc., 7.25%, Due 3/15/2017 ++ ..... 1,000 974
United Components, Inc., 9.375%, Due 6/15/2013 .... 2,250 2,295
----------
6,368
----------
AUTO LOAN - 3.17%
Ford Motor Credit Co. LLC,
9.75%, Due 9/15/2010 ........................... 1,700 1,693
9.875%, Due 8/10/2011 .......................... 2,300 2,296
General Motors Acceptance Corp., 6.875%,
Due 9/15/2011 + ................................ 3,450 3,180
----------
7,169
----------
AUTOMOBILES - 1.40%
Ford Motor Co.,
8.875%, Due 1/15/2022 .......................... 200 172
7.45%, Due 7/16/2031 ........................... 725 573
General Motors Corp.,
7.70%, Due 4/15/2016 + ......................... 1,400 1,288
8.25%, Due 7/15/2023 ........................... 800 722
7.40%, Due 9/1/2025 ............................ 500 415
----------
3,170
----------
CASINO/GAMING - 0.29%
Fontainebleau Las Vegas Holdings LLC, 10.25%,
Due 6/15/2015 ++ ............................... 600 561
Pinnacle Entertainment, Inc., 8.75%,
Due 10/1/2013 .................................. 100 104
----------
665
----------
COMMERCIAL SERVICES - 1.80%
Harland Clarke Holdings, 10.308%, Due 5/15/2015 ... 1,500 1,350
Iron Mountain, Inc.,
6.625%, Due 1/1/2016 ........................... 750 713
8.75%, Due 7/15/2018 + ......................... 1,000 1,050
RSC Equipment Rental, Inc., 9.50%,
Due 12/1/2014 .................................. 1,000 961
----------
4,074
----------
COMMUNICATIONS - 12.70%
American Tower Corp., 7.00%, Due 10/15/2017 ++ .... 1,000 1,023
Cadmus Communications Corp., 8.375%,
Due 6/15/2014 .................................. 1,700 1,573
CanWest Media, Inc., 8.00%, Due 9/15/2012 ......... 1,000 975
Charter Communications Holdings LLC,
10.25%, Due 9/15/2010 .......................... 1,900 1,936
11.00%, Due 10/1/2015 .......................... 1,700 1,647
CSC Holdings, Inc.,
7.625%, Due 4/1/2011 ........................... 200 200
7.625%, Due 7/15/2018 .......................... 800 768
See accompanying notes
54
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Dex Media, Inc.,
9.875%, Due 8/15/2013 .......................... $ 200 $ 213
Zero Coupon, Due 11/15/2013 ## # ............... 945 895
Digicel Group Ltd., 8.875%, Due 1/15/2015 + ++ .... 900 840
Echostar DBS Corp.,
6.375%, Due 10/1/2011 .......................... 100 101
7.125%, Due 2/1/2016 ........................... 700 732
FTD, Inc., 7.75%, Due 2/15/2014 ................... 923 879
Insight Communications Co., Inc., 12.25%,
Due 2/15/2011 .................................. 1,000 1,033
Intelsat Intermediate Holding Co. Ltd.,
Zero Coupon, Due 2/1/2015 ## # ................. 800 658
Intelsat Subsidiary Holding Co. Ltd., 8.25%,
Due 1/15/2013 .................................. 800 806
L-3 Communications Corp., 6.125%,
Due 7/15/2013 .................................. 800 794
Lamar Media Corp., 7.25%, Due 1/1/2013 ............ 1,000 1,003
Liberty Media LLC, 5.70%, Due 5/15/2013 ........... 1,000 937
LIN Television Corp., 6.50%, Due 5/15/2013 ........ 800 776
MasTec, Inc., 7.625%, Due 2/1/2017 ................ 1,000 970
MetroPCS Wireless, Inc., 9.25%,
Due 11/1/2014 ++ ............................... 1,000 992
Network Communications, Inc., 10.75%,
Due 12/1/2013 .................................. 1,000 1,006
Quebecor Media, Inc.,
7.75%, Due 3/15/2016 ........................... 900 871
7.75%, Due 3/15/2016 ++ ........................ 100 97
Qwest Communications International, Inc.,
7.50%, Due 2/15/2014 ........................... 1,200 1,215
Radio One, Inc., 6.375%, Due 2/15/2013 ............ 800 704
Reader's Digest Association, Inc.,
9.00%, Due 2/15/2017 ++ ........................ 2,000 1,782
Umbrella Acquisition, Inc., 9.75%,
Due 3/15/2015 ++ ............................... 2,300 2,254
West Corp., 9.50%, Due 10/15/2014 ................. 1,000 1,027
----------
28,707
----------
CONSTRUCTION & ENGINEERING - 0.90%
Beazer Homes USA, Inc.,
8.125%, Due 6/15/2016 + ........................ 200 159
KB Home,
7.75%, Due 2/1/2010 ............................ 1,000 965
6.25%, Due 6/15/2015 + ......................... 600 540
7.25%, Due 6/15/2018 ........................... 400 371
----------
2,035
----------
CONSUMER DISCRETIONARY - 3.82%
Commercial Vehicle Group, Inc.,
8.00%, Due 7/1/2013 ............................ 400 384
Dollar General Corp., 10.625%,
Due 7/15/2015 + ++ ............................. 900 864
Fresenius Medical Care Capital Trust IV,
7.875%, Due 6/15/2011 .......................... 900 941
Michaels Stores, Inc.,
10.00%, Due 11/1/2014 + ........................ 1,000 1,007
OSI Restaurant Partners, Inc.,
10.00%, Due 6/15/2015 + ++ ..................... 600 516
Penske Auto Group, Inc., 7.75%, Due 12/15/2016 .... 2,250 2,188
Simmons Co., 7.875%, Due 1/15/2014 ................ 1,750 1,676
Travelport LLC, 10.246%, Due 9/1/2014 # ........... 1,050 1,055
----------
8,631
----------
See accompanying notes
55
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
CONSUMER STAPLES - 5.15%
Blyth, Inc., 5.50%, Due 11/1/2013 ................. $ 1,500 $ 1,297
Collective Brands, Inc., 8.25%, Due 8/1/2013 ...... 1,500 1,483
Cott Beverages USA, Inc.,
8.00%, Due 12/15/2011 .......................... 1,600 1,548
Jarden Corp., 7.50%, Due 5/1/2017 ................. 1,900 1,805
Prestige Brands, Inc., 9.25%, Due 4/15/2012 ....... 2,000 2,020
Rafaella Apparel Group, Inc.,
11.25%, Due 6/15/2011 .......................... 1,079 1,047
Reynolds American, Inc., 7.625%, Due 6/1/2016 ..... 1,200 1,298
Smithfield Foods, Inc., 7.75%, Due 5/15/2013 ...... 1,100 1,128
----------
11,626
----------
ENERGY - 12.96%
AmeriGas Partners LP, 7.125%, Due 5/20/2016 ....... 1,150 1,124
Aquila, Inc., 9.95%, Due 2/1/2011 ................. 1,000 1,082
Chesapeake Energy Corp.,
7.625%, Due 7/15/2013 .......................... 1,805 1,886
6.625%, Due 1/15/2016 .......................... 1,200 1,176
Cie Generale de Geophysique-Veritas,
7.50%, Due 5/15/2015 ........................... 700 714
7.75%, Due 5/15/2017 ........................... 300 309
Copano Energy LLC, 8.125%, Due 3/1/2016 ........... 1,000 1,027
Dynegy Holdings, Inc., 8.375%, Due 5/1/2016 ....... 1,100 1,103
Edison Mission Energy, 7.00%, Due 5/15/2017 ++ .... 2,200 2,150
El Paso Corp., 6.875%, Due 6/15/2014 .............. 1,200 1,202
Energy Future Holdings, 5.55%, Due 11/15/2014 ..... 300 234
Inergy L.P./Inergy Finance Corp.,
6.875%, Due 12/15/2014 ......................... 1,474 1,445
Intergen NV, 9.00%, Due 6/30/2017 ++ .............. 900 952
Mariner Energy, Inc., 7.50%, Due 4/15/2013 ........ 900 875
MarkWest Energy Partners LP,
6.875%, Due 11/1/2014 .......................... 900 842
Massey Energy Co., 6.875%, Due 12/15/2013 ......... 525 496
Mirant Americas Generation LLC,
8.30%, Due 5/1/2011 ............................ 700 708
Mirant North America LLC,
7.375%, Due 12/31/2013 ......................... 1,000 1,014
NRG Energy, Inc.,
7.25%, Due 2/1/2014 ............................ 700 700
7.375%, Due 2/1/2016 ........................... 1,900 1,895
Peabody Energy Corp.,
6.875%, Due 3/15/2013 .......................... 300 302
7.375%, Due 11/1/2016 .......................... 700 728
PetroQuest Energy, Inc.,
10.375%, Due 5/15/2012 ......................... 1,115 1,143
Pogo Producing Co., 6.875%, Due 10/1/2017 ......... 500 506
Regency Energy Partners LP,
8.375%, Due 12/15/2013 ......................... 877 923
Swift Energy Co., 7.625%, Due 7/15/2011 ........... 900 909
Tenaska, Inc., 6.528%, Due 12/30/2014 ++ .......... 1,195 1,203
Tesoro Corp., 6.50%, Due 6/1/2017 ++ .............. 900 889
VeraSun Energy Corp., 9.375%, Due 6/1/2017 ++ ..... 500 411
See accompanying notes
56
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Williams Cos., Inc.,
7.625%, Due 7/15/2019 .......................... $ 500 $ 542
7.875%, Due 9/1/2021 ........................... 300 330
8.75%, Due 3/15/2032 ........................... 400 466
----------
29,286
----------
FINANCE - 4.45%
ARAMARK Corp., 8.50%, Due 2/1/2015 ................ 1,100 1,114
CPI International, Inc.,
11.063%, Due 2/1/2015 # ........................ 920 950
E*Trade Financial Corp., 8.00%, Due 6/15/2011 ..... 2,125 2,019
Forest City Enterprises, Inc.,
7.625%, Due 6/1/2015 ........................... 600 589
Icahn Enterprises LP, 7.125%, Due 2/15/2013 ++ .... 1,697 1,654
Leucadia National Corp., 7.125%, Due 3/15/2017 .... 1,750 1,645
Petroplus Finance Ltd., 6.75%, Due 5/1/2014 ++ .... 800 760
Pinnacle Foods Finance LLC/Pinnacle Foods
Finance Corp., 9.25%, Due 4/1/2015 ++ .......... 1,400 1,330
----------
10,061
----------
HEALTH CARE - 6.29%
Angiotech Pharmaceuticals, Inc.,
9.371%, Due 12/1/2013 # ........................ 1,750 1,733
DaVita, Inc., 7.25%, Due 3/15/2015 ................ 1,000 1,011
Elan Finance PLC/Elan Finance Corp.,
8.875%, Due 12/1/2013 .......................... 1,250 1,253
9.705%, Due 12/1/2013 # ........................ 1,075 1,064
FMC Finance III S.A., 6.875%, Due 7/15/2017 ++ .... 200 200
HCA, Inc.,
9.125%, Due 11/15/2014 ......................... 900 932
6.50%, Due 2/15/2016 ........................... 1,100 939
Interactive Health, 7.25%, Due 4/1/2011 ++ ........ 1,259 1,058
Omnicare, Inc.,
6.75%, Due 12/15/2013 .......................... 500 482
6.875%, Due 12/15/2015 ......................... 500 480
Skilled Healthcare Group, Inc.,
11.00%, Due 1/15/2014 .......................... 845 919
Tenet Healthcare Corp.,
6.375%, Due 12/1/2011 .......................... 100 88
9.875%, Due 7/1/2014 + ......................... 1,200 1,092
US Oncology Holdings, Inc.,
10.759%, Due 3/15/2012 ++ # .................... 900 792
US Oncology, Inc.,
9.00%, Due 8/15/2012 ........................... 500 501
10.75%, Due 8/15/2014 .......................... 760 790
Vanguard Health Holding Co. II LLC,
9.00%, Due 10/1/2014 ........................... 900 878
----------
14,212
----------
HOTELS, RESTAURANTS & LEISURE - 4.34%
Host Hotels & Resorts LP,
6.875%, Due 11/1/2014 .......................... 800 806
Host Marriott LP, 7.125%, Due 11/1/2013 ........... 500 507
Majestic Star Casino LLC,
9.50%, Due 10/15/2010 .......................... 500 492
MGM Mirage,
6.75%, Due 4/1/2013 + .......................... 1,250 1,219
See accompanying notes
57
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
6.625%, Due 7/15/2015 .......................... $ 1,600 $ 1,512
Pinnacle Entertainment, Inc.,
8.25%, Due 3/15/2012 ........................... 100 103
Royal Caribbean Cruises Ltd.,
7.25%, Due 3/15/2018 ........................... 1,200 1,173
San Pasqual Casino Development Group,
8.00%, Due 9/15/2013 ++ ........................ 1,550 1,565
Station Casinos, Inc.,
6.875%, Due 3/1/2016 ........................... 900 745
7.75%, Due 8/15/2016 ........................... 200 196
Turning Stone Casino Resort,
9.125%, Due 12/15/2010 ++ ...................... 1,460 1,489
----------
9,807
----------
INDUSTRIALS - 15.80%
Allied Waste North America, Inc.,
6.875%, Due 6/1/2017 ........................... 800 800
Altra Industrial Motion, Inc.,
9.00%, Due 12/1/2011 ........................... 1,600 1,608
Berry Plastics Holding Corp.,
8.875%, Due 9/15/2014 .......................... 850 871
Bristow Group, Inc., 7.50%, Due 9/15/2017 ++ ...... 300 309
Case New Holland, Inc., 7.125%, Due 3/1/2014 ...... 800 828
CEVA Group plc, 10.00%, Due 9/1/2014 ++ ........... 800 833
Clean Harbors, Inc., 11.25%, Due 7/15/2012 ........ 650 700
Coleman Cable, Inc., 9.875%, Due 10/1/2012 ........ 1,000 985
Communications & Power Industries, Inc.,
8.00%, Due 2/1/2012 ............................ 750 754
Crown Americas LLC, 7.75%, Due 11/15/2015 ......... 1,000 1,030
DRS Technologies, Inc.,
6.875%, Due 11/1/2013 .......................... 800 800
7.625%, Due 2/1/2018 ........................... 200 205
Dycom Industries, Inc., 8.125%, Due 10/15/2015 .... 1,000 1,018
Equistar Chemicals LP, 10.625%, Due 5/1/2011 ...... 714 746
Ford Motor Credit Co. LLC,
5.80%, Due 1/12/2009 ........................... 400 386
Freescale Semiconductor, Inc.,
8.875%, Due 12/15/2014 ......................... 800 757
GenCorp, Inc., 9.50%, Due 8/15/2013 ............... 1,500 1,567
Greenbrier Cos., Inc., 8.375%, Due 5/15/2015 ...... 800 791
Impress Holdings BV,
8.368%, Due 9/15/2013 ++ # ..................... 1,400 1,395
Intertape Polymer US, Inc.,
8.50%, Due 8/1/2014 ............................ 1,300 1,209
Nortek, Inc., 8.50%, Due 9/1/2014 ................. 1,000 885
Nova Chemicals Corp., 8.484%, Due 11/15/2013 # .... 1,070 1,051
Novelis, Inc., 7.25%, Due 2/15/2015 1,000 960
Owens-Brockway Glass Containers, Inc.,
8.25%, Due 5/15/2013 ........................... 1,750 1,820
6.75%, Due 12/1/2014 ........................... 1,100 1,103
Plastipak Holdings, Inc.,
8.50%, Due 12/15/2015 ++ ....................... 1,050 1,082
RBS Global, Inc., 9.50%, Due 8/1/2014 ............. 1,000 1,032
Sanmina-SCI Corp.,
8.444%, Due 6/15/2014 ++ # ..................... 100 97
8.125%, Due 3/1/2016 + ......................... 900 790
Smurfit Kappa Funding plc, 7.75%, Due 4/1/2015 .... 1,000 985
Stewart & Stevenson LLC, 10.00%, Due 7/15/2014 .... 1,000 1,027
Superior Essex Communications,
9.00%, Due 4/15/2012 ........................... 1,400 1,382
See accompanying notes
58
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
TransDigm, Inc., 7.75%, Due 7/15/2014 $ 1,000 $ 1,017
United Rentals North America, Inc.,
6.50%, Due 2/15/2012 1,800 1,863
7.75%, Due 11/15/2013 400 426
United Surgical Partners International, Inc.,
9.25%, Due 5/1/2017 500 500
Valassis Communications, Inc.,
8.25%, Due 3/1/2015 1,250 1,053
WCA Waste Corp., 9.25%, Due 6/15/2014 1,000 1,035
----------
35,700
----------
MATERIALS - 6.88%
Compass Minerals International, Inc.,
Zero Coupon, Due 6/1/2013 ## # 1,825 1,839
Freeport-McMoRan Copper & Gold, Inc.,
8.375%, Due 4/1/2017 900 985
Hercules, Inc., 6.75%, Due 10/15/2029 1,750 1,702
Huntsman International LLC,
7.875%, Due 11/15/2014 700 752
Ineos Group Holdings plc,
8.50%, Due 2/15/2016 + ++ 1,100 1,045
Lyondell Chemical Co., 8.00%, Due 9/15/2014 1,200 1,329
MacDermid, Inc., 9.50%, Due 4/15/2017 ++ 900 859
Nalco Co., 8.875%, Due 11/15/2013 1,000 1,053
Neenah Paper, Inc., 7.375%, Due 11/15/2014 1,500 1,448
Newark Group, Inc., 9.75%, Due 3/15/2014 2,200 2,156
Phibro Animal Health Corp.,
10.00%, Due 8/1/2013 ++ 1,250 1,284
PNA Group, Inc., 10.75%, Due 9/1/2016 1,075 1,099
----------
15,551
----------
MEDIA - 3.59%
Allbritton Communications Co.,
7.75%, Due 12/15/2012 600 609
IESY Repository GmbH,
10.375%, Due 2/15/2015 ++ 1,500 1,575
Kabel Deutschland GmbH, 10.625%, Due 7/1/2014 1,156 1,254
R.H. Donnelley Corp.,
8.875%, Due 1/15/2016 1,400 1,400
8.875%, Due 10/15/2017 ++ 200 200
Sheridan Group, Inc., 10.25%, Due 8/15/2011 2,125 2,178
WMG Acquisition Corp., 7.375%, Due 4/15/2014 1,000 888
----------
8,104
----------
RETAIL - 1.35%
Jostens Holding Corp., 10.25%, Due 12/1/2013 # 1,900 1,777
Jostens IH Corp., 7.625%, Due 10/1/2012 500 514
Susser Holdings LLC, 10.625%, Due 12/15/2013 736 765
----------
3,056
----------
SERVICES - 0.74%
Knowledge Learning Corp, Inc.,
7.75%, Due 2/1/2015 ++ 1,700 1,662
----------
TECHNOLOGY - 2.29%
Alion Science and Technology Corp.,
10.25%, Due 2/1/2015 600 561
Amkor Technology, Inc., 7.75%, Due 5/15/2013 850 822
First Data Corp., 9.875%, Due 9/24/2015 ++ 900 862
Freescale Semiconductor, Inc.,
9.569%, Due 12/15/2014 # 650 597
See accompanying notes
59
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ---------
(DOLLARS IN THOUSANDS)
NXP BV/NXP Funding LLC, 7.875%, Due 10/15/2014 $ 800 $ 781
Sungard Data Systems, Inc.,
9.125%, Due 8/15/2013 100 102
10.25%, Due 8/15/2015 + 1,400 1,460
---------
5,185
---------
TELECOMMUNICATION SERVICES - 3.48%
Block Communications, Inc.,
8.25%, Due 12/15/2015 ++ 2,000 2,010
Inmarsat Finance plc, Zero Coupon,
Due 11/15/2012 ## # 900 868
Intelsat Bermuda Ltd., 9.25%, Due 6/15/2016 1,600 1,660
Millicom International Cellular S.A.,
10.00%, Due 12/1/2013 800 861
Rural Cellular Corp., 8.25%, Due 3/15/2012 750 782
Stratos Global Corp., 9.875%, Due 2/15/2013 750 788
Wind Acquisition Finance S.A.,
10.75%, Due 12/1/2015 ++ 800 890
---------
7,859
---------
TELEPHONE - 0.43%
iPCS, Inc., 7.481%, Due 5/1/2013 # 1,000 975
---------
UTILITIES - 0.89%
The AES Corp., 8.00%, Due 10/15/2017 ++ 1,000 1,009
Texas Competitive Electric Holdings Co LLC,
10.25%, Due 11/1/2015 ++ 1,000 1,005
---------
2,014
---------
TOTAL CORPORATE OBLIGATIONS 215,917
---------
SHARES
----------
SHORT TERM INVESTMENTS - 3.13%
American Beacon Money Market Select Fund
** 7,084,982 7,085
---------
PAR
AMOUNT
----------
SECURITIES LENDING COLLATERAL - 4.59%
AIM Short-Term Investment Company Liquid Asset
Fund $ 363 363
Banc of America Securities LLC Repo * 10,000 10,000
---------
TOTAL SECURITIES LENDING COLLATERAL 10,363
---------
TOTAL INVESTMENTS - 103.26% (COST $236,116) $ 233,365
LIABILITIES, NET OF OTHER ASSETS - (3.26%) (7,374)
---------
TOTAL NET ASSETS - 100.00% $ 225,991
=========
See accompanying notes
60
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
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, 2007.
++ 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 $40,473 or 17.91% 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.
** The Fund/Trust is affiliated by having the same investment advisor.
* Held at Bank of New York, Collateralized by Corporate Obligations
valued at $10,200, 8.25%, 6/15/2030
See accompanying notes
61
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 4.91%
CONSUMER DISCRETIONARY - 0.28%
INTERNET & CATALOG RETAIL - 0.02%
Expedia, Inc., Warrant ## ......................... 4,000 $ 24
----------
SPECIALTY RETAIL - 0.26%
Nike, Inc. + ...................................... 3,890 258
----------
TOTAL CONSUMER DISCRETIONARY ......................... 282
----------
CONSUMER STAPLES - 0.44%
BEVERAGES - 0.44%
Coca-Cola Co. + ................................... 7,060 436
----------
FINANCIALS - 0.57%
DIVERSIFIED FINANCIALS - 0.32%
Franklin Resources, Inc. + ........................ 2,450 318
----------
INSURANCE - 0.25%
AON Corp. + ....................................... 5,555 252
----------
TOTAL FINANCIALS ..................................... 570
----------
HEALTH CARE - 0.85%
BIOTECHNOLOGY - 0.28%
Biogen Idec, Inc. ## + ............................ 3,825 285
----------
OPTICAL SUPPLIES - 0.25%
Alcon, Inc. ....................................... 1,630 248
----------
PHARMACEUTICALS - 0.32%
Merck & Co., Inc. ................................. 5,425 316
----------
TOTAL HEALTH CARE .................................... 849
----------
INDUSTRIALS - 1.28%
COMMERCIAL SERVICES & SUPPLIES - 0.80%
Apollo Group, Inc. ## + ........................... 3,735 296
ITT Educational Services, Inc. ## + ............... 3,920 498
----------
794
----------
INDUSTRIAL CONGLOMERATES - 0.23%
Honeywell International, Inc. + ................... 3,890 235
----------
MACHINERY - 0.25%
Illinois Tool Works, Inc. + ....................... 4,310 247
----------
TOTAL INDUSTRIALS .................................... 1,276
----------
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
INFORMATION TECHNOLOGY - 1.49%
COMMUNICATIONS EQUIPMENT - 0.40%
Cisco Systems, Inc. ## ............................ 12,180 $ 403
----------
IT CONSULTING & SERVICES - 0.50%
Accenture Ltd. + .................................. 7,470 292
Cognizant Technology Solutions Corp. ## + ......... 5,000 207
----------
499
----------
SOFTWARE - 0.59%
Microsoft Corp. ................................... 7,500 276
Oracle Corp. ## ................................... 14,000 310
----------
586
----------
TOTAL INFORMATION TECHNOLOGY ......................... 1,488
----------
TOTAL COMMON STOCKS .................................. 4,901
----------
CONVERTIBLE PREFERRED
STOCKS - 2.20%
FINANCIALS - 0.79%
DIVERSIFIED FINANCIALS - 0.32%
Lazard Ltd. ....................................... 7,420 313
----------
INSURANCE - 0.47%
MetLife, Inc. ..................................... 14,100 473
----------
TOTAL FINANCIALS ..................................... 786
----------
HEALTH CARE - 0.47%
PHARMACEUTICALS - 0.47%
Schering-Plough Corp. ............................. 1,785 475
----------
INDUSTRIALS - 0.67%
AUTOMOBILES - 0.40%
General Motors Corp. .............................. 15,500 399
----------
HOUSEHOLD DURABLES - 0.27%
Stanley Works ..................................... 255 270
----------
TOTAL INDUSTRIALS .................................... 669
----------
MATERIALS - 0.27%
METALS & MINING - 0.27%
Freeport-McMoRan Copper & Gold, Inc. .............. 1,560 266
----------
TOTAL CONVERTIBLE PREFERRED STOCKS ................... 2,196
----------
See accompanying notes
62
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
CORPORATE OBLIGATIONS - 27.88%
AEROSPACE & DEFENSE - 0.25%
Raytheon Co.,
5.375%, Due 4/1/2013 .............................. $ 250 $ 251
----------
BANKS - 6.62%
Banco Popular North America, Inc.,
4.25%, Due 4/1/2008 ............................... 300 299
Bank of America Corp.,
7.80%, Due 9/15/2016 .............................. 600 671
6.00%, Due 9/1/2017 + ............................. 200 204
Bank One Corp.,
4.90%, Due 4/30/2015 .............................. 350 333
Citigroup, Inc.,
5.125%, Due 2/14/2011 ............................. 1,300 1,301
Credit Suisse First Boston,
6.50%, Due 5/1/2008 + ++ .......................... 500 503
ING Bank, NV,
5.125%, Due 5/1/2015 ++ ........................... 300 290
JP Morgan Chase & Co.,
6.75%, Due 2/1/2011 ............................... 650 681
National City Bank,
4.50%, Due 3/15/2010 .............................. 900 890
Synovus Financial Corp.,
4.875%, Due 2/15/2013 ............................. 350 344
Wachovia Corp.,
5.30%, Due 10/15/2011 ............................. 300 300
Washington Mutual, Inc.,
8.25%, Due 4/1/2010 ............................... 300 315
4.625%, Due 4/1/2014 .............................. 550 477
----------
6,608
----------
BEVERAGES - 0.30%
Constellation Brands, Inc.,
7.25%, Due 9/1/2016 ............................... 300 302
----------
COMMUNICATIONS - 1.52%
Comcast Cable Communications Holdings, Inc.,
8.375%, Due 3/15/2013 ............................. 550 621
DirecTV Holdings LLC/DirecTV Financing Co.,
8.375%, Due 3/15/2013 ............................. 300 313
Idearc, Inc.,
8.00%, Due 11/15/2016 ............................. 285 286
Time Warner Cable, Inc.,
5.85%, Due 5/1/2017 ............................... 300 297
----------
1,517
----------
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
CONSUMER DISCRETIONARY - 0.77%
Supervalu, Inc.,
7.50%, Due 11/15/2014 ............................. $ 325 $ 334
Wal-Mart Stores, Inc.,
7.55%, Due 2/15/2030 .............................. 250 292
Wesco Distribution, Inc.,
7.50%, Due 10/15/2017 ............................. 150 140
----------
766
----------
CONSUMER STAPLES - 0.28%
Dole Food Co., Inc.,
8.875%, Due 3/15/2011 ............................. 142 139
Hanesbrands, Inc.,
8.784%, Due 12/15/2014 # .......................... 140 141
----------
280
----------
ENERGY - 0.54%
Canadian Natural Resources Ltd.,
6.25%, Due 3/15/2038 .............................. 300 296
EOG Resources, Inc.,
4.75%, Due 3/15/2014 ++ ........................... 250 245
----------
541
----------
FINANCE - 4.87%
American General Finance Corp.,
4.875%, Due 5/15/2010 ............................. 300 298
Capital One Financial Corp.,
5.70%, Due 9/15/2011 .............................. 310 307
E*Trade Financial Corp.,
7.875%, Due 12/1/2015 + ........................... 300 285
General Electric Capital Corp.,
5.65%, Due 6/9/2014 ............................... 550 560
Goldman Sachs Group, Inc.,
4.75%, Due 7/15/2013 .............................. 250 240
6.25%, Due 9/1/2017 ............................... 250 254
HSBC Finance Corp.,
5.25%, Due 1/14/2011 + ............................ 1,050 1,045
International Lease Finance Corp.,
6.375%, Due 3/15/2009 ............................. 725 737
Lehman Brothers Holdings, Inc.,
4.25%, Due 1/27/2010 + ............................ 350 339
Merrill Lynch & Co., Inc.,
6.11%, Due 1/29/2037 .............................. 250 230
Wells Fargo & Co.,
5.25%, Due 10/23/2012 ............................. 560 561
----------
4,856
----------
HEALTH CARE - 0.37%
Psychiatric Solutions, Inc.,
7.75%, Due 7/15/2015 .............................. 125 127
See accompanying notes
63
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Tenet Healthcare Corp.,
9.25%, Due 2/1/2015 + ............................. $ 275 $ 242
----------
369
----------
INDUSTRIALS - 3.70%
Caterpillar Financial Services Corp.,
4.15%, Due 1/15/2010 .............................. 300 296
Daimler Finance NA LLC,
5.875%, Due 3/15/2011 ............................. 350 357
5.75%, Due 9/8/2011 ............................... 250 255
Ford Motor Credit Co. LLC,
8.625%, Due 11/1/2010 ............................. 285 277
Gardner Denver, Inc.,
8.00%, Due 5/1/2013 ............................... 300 306
Goodyear Tire & Rubber Co.,
7.857%, Due 8/15/2011 ............................. 300 310
John Deere Capital Corp.,
4.125%, Due 1/15/2010 + ........................... 750 739
NBTY, Inc.,
7.125%, Due 10/1/2015 ............................. 150 148
Nissan Motor Acceptance Corp.,
5.625%, Due 3/14/2011 ++ .......................... 300 305
Norfolk Southern Corp.,
8.625%, Due 5/15/2010 ............................. 310 336
Union Pacific Corp.,
6.50%, Due 4/15/2012 .............................. 350 366
----------
3,695
----------
INSURANCE - 3.73%
Aegon Funding Corp.,
5.75%, Due 12/15/2020 ............................. 350 351
American International Group, Inc.,
6.25%, Due 5/1/2036 ............................... 250 255
ASIF Global Financing,
3.90%, Due 10/22/2008 ++ .......................... 500 494
Hartford Financial Services Group, Inc.,
5.25%, Due 10/15/2011 ............................. 700 696
John Hancock Global Funding II,
7.90%, Due 7/2/2010 ++ ............................ 675 724
Lincoln National Corp.,
4.75%, Due 2/15/2014 .............................. 200 192
MetLife, Inc.,
6.375%, Due 6/15/2034 + ........................... 275 278
Metropolitan Life Global Funding I,
4.625%, Due 8/19/2010 ++ .......................... 500 499
Prudential Financial, Inc.,
4.50%, Due 7/15/2013 .............................. 250 238
----------
3,727
----------
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
INTERNET & CATALOG RETAIL - 0.31%
Expedia, Inc.,
7.456%, Due 8/15/2018 ............................. $ 300 $ 309
----------
REAL ESTATE - 1.84%
iStar Financial, Inc.,
5.85%, Due 3/15/2017 + ............................ 450 402
ProLogis Trust,
5.50%, Due 4/1/2012 ............................... 350 346
5.625%, Due 11/15/2016 ............................ 350 336
Simon Property Group LP,
6.375%, Due 11/15/2007 ............................ 400 400
5.375%, Due 6/1/2011 .............................. 350 349
----------
1,833
----------
TECHNOLOGY - 0.86%
Cisco Systems, Inc.,
5.25%, Due 2/22/2011 .............................. 350 354
Sungard Data Systems, Inc.,
9.125%, Due 8/15/2013 ............................. 300 306
Syniverse Technologies, Inc.,
7.75%, Due 8/15/2013 .............................. 200 197
----------
857
----------
TELEPHONE - 1.67%
America Movil, S.A. de C.V.,
6.375%, Due 3/1/2035 + ............................ 250 257
AT&T Wireless Services, Inc.,
7.875%, Due 3/1/2011 + ............................ 250 271
AT&T, Inc.,
5.625%, Due 6/15/2016 ............................. 350 353
6.80%, Due 5/15/2036 + ............................ 175 192
Verizon Communications, Inc.,
5.50%, Due 4/1/2017 + ............................. 300 300
Vodafone Group plc,
6.15%, Due 2/27/2037 .............................. 300 294
----------
1,667
----------
UTILITIES - 0.25%
MidAmerican Energy Holdings Co.,
6.125%, Due 4/1/2036 .............................. 250 247
----------
TOTAL CORPORATE OBLIGATIONS .......................... 27,825
----------
CONVERTIBLE OBLIGATIONS - 13.29%
BANKS - 0.28%
Bank of America Corp.,
0.25%, Due 2/15/2012 .............................. 270 278
----------
See accompanying notes
64
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
COMMUNICATIONS - 1.89%
Juniper Networks, Inc.,
Zero Coupon, Due 6/15/2008 ## ..................... $ 292 $ 524
Liberty Media LLC,
0.75%, Due 3/30/2023 .............................. 320 350
Omnicom Group, Inc.,
Zero Coupon, Due 7/1/2038 ## + .................... 270 297
VeriSign, Inc.,
3.25%, Due 8/15/2037 ++ ........................... 410 489
Walt Disney Co.,
2.125%, Due 4/15/2023 + ........................... 185 224
----------
1,884
----------
CONSUMER DISCRETIONARY - 0.42%
Carnival Corp.,
2.00%, Due 4/15/2021 .............................. 335 417
----------
ELECTRIC UTILITIES - 0.17%
CenterPoint Energy, Inc.,
3.75%, Due 5/15/2023 .............................. 110 166
----------
ENERGY - 1.51%
Cameron International Corp.,
2.50%, Due 6/15/2026 .............................. 275 431
Nabors Industries, Inc.,
Zero Coupon, Due 6/15/2023 ## + ................... 280 283
Schlumberger Ltd.,
2.125%, Due 6/1/2023 .............................. 145 350
SESI LLC,
1.50%, Due 12/15/2026 ++ .......................... 270 283
Transocean, Inc.,
1.50%, Due 5/15/2021 + ............................ 100 165
----------
1,512
----------
FINANCE - 0.32%
Lehman Brothers Holdings, Inc.,
0.25%, Due 2/16/2012 .............................. 270 323
----------
HEALTH CARE - 0.29%
Medtronic, Inc.,
1.50%, Due 4/15/2011 + ............................ 280 289
----------
INDUSTRIALS - 1.66%
Alliant Techsystems, Inc.,
2.75%, Due 9/15/2011 ++ ........................... 320 407
Danaher Corp.,
Zero Coupon, Due 1/22/2021 ## ..................... 205 255
Fisher Scientific International, Inc.,
3.25%, Due 3/1/2024 + ............................. 400 635
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Lockheed Martin Corp.,
5.308%, Due 8/15/2033 # ........................... $ 83 $ 127
Tektronix, Inc.,
1.625%, Due 7/15/2012 ++ .......................... 225 237
----------
1,661
----------
INSURANCE - 0.45%
Prudential Financial, Inc.,
3.304%, Due 12/12/2036 + # ........................ 435 445
----------
PHARMACEUTICALS - 2.26%
Beckman Coulter, Inc.,
2.50%, Due 12/15/2036 + ........................... 203 231
2.50%, Due 12/15/2036 ++ .......................... 210 238
Charles River Laboratories International, Inc.,
2.25%, Due 6/15/2013 .............................. 273 359
Gilead Sciences, Inc.,
0.50%, Due 5/1/2011 ++ ............................ 360 468
Invitrogen Corp.,
1.50%, Due 2/15/2024 .............................. 246 257
Sciele Pharma, Inc.,
2.625%, Due 5/15/2027 ............................. 430 470
Watson Pharmaceuticals, Inc.,
1.75%, Due 3/15/2023 .............................. 236 228
----------
2,251
----------
REAL ESTATE - 0.24%
GSC Holdings Corp.,
8.00%, Due 10/1/2012 .............................. 225 235
----------
SERVICES - 0.95%
priceline.com, Inc.,
0.50%, Due 9/30/2011 ++ ........................... 160 374
2.25%, Due 1/15/2025 + ............................ 140 339
Quanta Services, Inc.,
3.75%, Due 4/30/2026 ++ ........................... 150 237
----------
950
----------
TECHNOLOGY - 2.85%
Cadence Design Systems, Inc.,
1.375%, Due 12/15/2011 ++ ......................... 305 330
Cypress Semiconductor Corp.,
1.00%, Due 9/15/2009 + ............................ 210 334
DRS Technologies, Inc.,
2.00%, Due 2/1/2026 ++ ............................ 310 342
Electronics for Imaging, Inc.,
1.50%, Due 6/1/2023 ............................... 212 219
EMC Corp.,
1.75%, Due 12/1/2011 .............................. 280 471
See accompanying notes
65
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Intel Corp.,
2.95%, Due 12/15/2035 ............................. $ 486 $ 519
Linear Technology Corp.,
3.00%, Due 5/1/2027 ............................... 90 86
3.00%, Due 5/1/2027 ++ ............................ 138 131
ON Semiconductor Corp.,
2.625%, Due 12/15/2026 ++ ......................... 140 168
Tech Data Corp.,
2.75%, Due 12/15/2026 ............................. 250 248
----------
2,848
----------
TOTAL CONVERTIBLE OBLIGATIONS ........................ 13,259
----------
NON-AGENCY MORTGAGE-BACKED
OBLIGATIONS - 3.24%
COMMERCIAL MORTGAGE-BACKED SECURITY - 3.24%
Banc of America Commercial Mortgage, Inc.,
2005-6, 5.001%, Due 9/10/2047 ..................... 607 605
2007-2 A2, 5.634%, Due 4/10/2049 .................. 650 655
JP Morgan Chase Commercial Mortgage Securities Corp.,
2005-LDP3 A1, 4.655%, Due 8/15/2042 ............... 221 220
2005-LDP4 A1, 4.613%, Due 10/15/2042 .............. 88 88
2007-CB19 A4, 5.747%, Due 2/12/2049 ............... 400 403
2007-CB20 A2, 5.629%, Due 2/12/2051 ............... 550 553
LB-UBS Commercial Mortgage Trust,
2004-C1 A4, 5.424%, Due 2/15/2040 ................. 450 442
Wachovia Bank Commercial Mortgage Trust,
2007-C32 A2, 5.736%, Due 6/15/2049 ................ 260 263
----------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS ......... 3,229
----------
ASSET-BACKED SECURITIES - 3.78%
American Express Credit Account Master Trust,
2006-2 A, 5.35%, Due 1/15/2014 .................... 1,050 1,066
Capital Auto Receivables Asset Trust,
2006-SN1A A4A, 5.32%, Due 3/20/2010 ++ ............ 900 904
Capital One Multi-Asset Execution Trust,
2006-A10 A10, 5.15%, Due 6/15/2014 ................ 800 806
Volkswagen Auto Loan Enhanced Trust,
2005-1 A4, 4.86%, Due 4/20/2012 ................... 1,000 1,000
----------
TOTAL ASSET-BACKED SECURITIES ........................ 3,776
----------
U.S. AGENCY MORTGAGE-BACKED
OBLIGATIONS - 20.92%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 8.33%
5.00%, Due 2/1/2021 ............................... 1,369 1,349
4.50%, Due 4/1/2021 ............................... 1,258 1,217
5.00%, Due 5/1/2021 ............................... 1,286 1,268
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
5.50%, Due 11/1/2021 .............................. $ 1,041 $ 1,043
5.00%, Due 9/1/2035 ............................... 2,570 2,469
5.50%, Due 4/1/2037 ............................... 982 967
----------
8,313
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 8.71%
6.50%, Due 7/1/2032 ............................... 493 508
5.50%, Due 6/1/2033 ............................... 1,069 1,056
5.50%, Due 6/1/2034 ............................... 544 537
4.50%, Due 9/1/2034 ............................... 467 436
5.50%, Due 12/1/2035 .............................. 1,100 1,086
5.00%, Due 2/1/2036 ............................... 1,745 1,677
5.50%, Due 4/1/2036 ............................... 1,705 1,682
6.00%, Due 9/1/2036 ............................... 1,696 1,709
----------
8,691
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.88%
4.201%, Due 8/16/2026 ............................. 646 636
6.00%, Due 2/15/2033 .............................. 1,026 1,042
5.50%, Due 4/15/2033 .............................. 1,316 1,309
5.00%, Due 5/15/2033 .............................. 908 883
----------
3,870
----------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS ........ 20,874
----------
U.S. AGENCY OBLIGATIONS - 4.13%
FEDERAL HOME LOAN BANK - 0.79%
4.50%, Due 9/16/2013 + ............................ 800 790
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.94%
5.125%, Due 4/18/2011 + ........................... 1,900 1,941
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.40%
5.375%, Due 6/12/2017 + ........................... 1,350 1,393
----------
TOTAL U.S. AGENCY OBLIGATIONS ........................ 4,124
----------
U.S. TREASURY OBLIGATIONS - 15.50%
7.875%, Due 2/15/2021 + ........................... 1,400 1,831
6.25%, Due 8/15/2023 + ............................ 650 754
6.875%, Due 8/15/2025 + ........................... 800 997
5.25%, Due 11/15/2028 + ........................... 900 955
5.375%, Due 2/15/2031 + ........................... 825 894
3.875%, Due 5/15/2010 + ........................... 1,000 999
4.875%, Due 4/30/2011 + ........................... 2,100 2,158
4.50%, Due 3/31/2012 + ............................ 3,740 3,797
4.75%, Due 5/15/2014 + ............................ 1,700 1,747
4.125%, Due 5/15/2015 + ........................... 1,350 1,331
----------
TOTAL U.S. TREASURY OBLIGATIONS ...................... 15,463
----------
See accompanying notes
66
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
SHORT TERM INVESTMENTS - 3.30%
American Beacon Money Market Select Fund **........ 3,296,718 $ 3,297
----------
SECURITIES LENDING
COLLATERAL - 24.80%
American Beacon Cash Plus Trust **....... ......... 17,847,800 17,848
American Beacon Money Market Select Fund **........ 6,897,854 6,898
----------
TOTAL SECURITIES LENDING COLLATERAL .................. 24,746
----------
TOTAL INVESTMENTS 123.95% - (COST $120,208) .......... 123,690
LIABILITIES, NET OF OTHER ASSETS - (23.95%) .......... (23,901)
----------
TOTAL NET ASSETS - 100.00% ........................... $ 99,789
==========
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, 2007.
++ 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 $7,668 or 7.68% 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.
** The Fund/Trust is affiliated by having the same investment advisor.
See accompanying notes
67
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
CORPORATE OBLIGATIONS - 27.93%
AEROSPACE & DEFENSE - 0.18%
Raytheon Co., 5.375%, Due 4/1/2013 ................ $ 200 $ 200
----------
BANKS - 5.40%
Banco Popular North America, Inc., 4.25%,
Due 4/1/2008 ................................... 200 199
Bank of America Corp.,
5.375%, Due 8/15/2011 + ........................ 185 187
5.375%, Due 6/15/2014 + ........................ 200 199
7.80%, Due 9/15/2016 ........................... 400 447
6.00%, Due 9/1/2017 ............................ 200 204
Bank One Corp.,
5.90%, Due 11/15/2011 .......................... 440 450
4.90%, Due 4/30/2015 ........................... 200 190
Citigroup, Inc., 5.125%, Due 2/14/2011 ........... 1,000 1,001
Credit Suisse First Boston, 6.50%, Due
5/1/2008 + ++ .................................. 350 352
ING Bank, NV, 5.125%, Due 5/1/2015 ++ ............. 250 241
JP Morgan Chase & Co., 6.75%, Due 2/1/2011 ........ 500 524
National City Bank, 4.50%, Due 3/15/2010 .......... 600 594
Synovus Financial Corp., 4.875%, Due 2/15/2013 .... 200 197
Wachovia Corp.,
5.30%, Due 10/15/2011 .......................... 200 200
5.70%, Due 8/1/2013 ............................ 135 136
Washington Mutual Finance Corp.,
6.875%, Due 5/15/2011 .......................... 230 242
Washington Mutual, Inc.,
8.25%, Due 4/1/2010 ............................ 200 210
4.625%, Due 4/1/2014 ........................... 400 347
----------
5,920
----------
BASIC MATERIALS - 0.19%
Weyerhaeuser Co., 5.95%, Due 11/1/2008 ............ 210 211
----------
COMMUNICATIONS - 1.12%
Comcast Cable Communications Holdings, Inc.,
8.375%, Due 3/15/2013 .......................... 400 452
Comcast Corp.,
5.30%, Due 1/15/2014 ........................... 220 216
5.875%, Due 2/15/2018 .......................... 135 135
Time Warner Cable, Inc., 5.85%, Due 5/1/2017 ...... 435 431
----------
1,234
----------
CONSUMER DISCRETIONARY - 0.58%
Costco Wholesale Corp., 5.50%, Due 3/15/2017 ...... 135 133
Wal-Mart Stores, Inc.,
4.55%, Due 5/1/2013 ............................ 280 273
7.55%, Due 2/15/2030 ........................... 200 234
----------
640
----------
CONSUMER STAPLES - 0.35%
Diageo Capital PLC, 5.75%, Due 10/23/2017 ......... 145 144
See accompanying notes
68
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
PepsiCo, Inc., 5.15%, Due 5/15/2012 + ............. $ 235 $ 238
----------
382
----------
ELECTRIC/GAS - 0.21%
Kraft Foods, Inc., 6.50%, Due 8/11/2017 ........... 215 226
----------
ELECTRONIC COMPONENTS - 0.14%
Tyco Electronics Group SA, 6.55%,
Due 10/1/2017 ++ ............................... 150 153
----------
ENERGY - 1.30%
Apache Corp., 5.25%, Due 4/15/2013 ................ 360 361
Canadian Natural Resources Ltd.,
6.70%, Due 7/15/2011 ........................... 135 142
5.70%, Due 5/15/2017 ........................... 140 139
6.25%, Due 3/15/2038 ........................... 200 198
EOG Resources, Inc.,
4.75%, Due 3/15/2014 ++ ........................ 200 196
5.875%, Due 9/15/2017 .......................... 125 127
Marathon Oil Corp., 6.60%, Due 10/1/2037 .......... 80 83
Weatherford International, Inc., 5.95%, Due
6/15/2012 ++ ................................... 180 183
----------
1,429
----------
FINANCE - 3.96%
American General Finance Corp.,
4.875%, Due 5/15/2010 .......................... 200 199
4.00%, Due 3/15/2011 ........................... 385 367
Ameriprise Financial, Inc., 5.35%,
Due 11/15/2010 ................................. 335 338
Capital One Financial Corp., 5.70%,
Due 9/15/2011 + ................................ 200 198
General Electric Capital Corp.,
4.375%, Due 3/3/2012 + ......................... 350 340
5.65%, Due 6/9/2014 + .......................... 400 407
Goldman Sachs Group, Inc.,
4.75%, Due 7/15/2013 ........................... 200 192
6.25%, Due 9/1/2017 ............................ 200 203
6.75%, Due 10/1/2037 ........................... 60 60
HSBC Finance Corp., 5.25%, Due 1/14/2011 + ........ 800 796
International Lease Finance Corp.,
6.375%, Due 3/15/2009 .......................... 250 254
5.75%, Due 6/15/2011 + ......................... 165 167
Lehman Brothers Holdings, Inc.,
4.25%, Due 1/27/2010 ........................... 200 194
6.20%, Due 9/26/2014 ........................... 50 50
Merrill Lynch & Co., Inc., 6.11%, Due 1/29/2037 ... 190 175
Wells Fargo & Co., 5.25%, Due 10/23/2012 .......... 400 401
----------
4,341
----------
See accompanying notes
69
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
HEALTH CARE - 0.11%
Covidien International Finance SA,
5.45%, Due 10/15/2012 ++ ....................... $ 120 $ 120
----------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.06%
Covidien International Finance SA, 6.00%,
Due 10/15/2017 ++ .............................. 60 61
----------
INDUSTRIALS - 2.75%
Caterpillar Financial Services Corp., 4.15%,
Due 1/15/2010 .................................. 200 197
CRH America, Inc., 6.00%, Due 9/30/2016 ........... 315 310
Daimler Finance NA LLC,
5.875%, Due 3/15/2011 .......................... 200 204
5.75%, Due 9/8/2011 + .......................... 200 204
John Deere Capital Corp.,
4.125%, Due 1/15/2010 + ........................ 500 492
5.40%, Due 10/17/2011 .......................... 235 238
Kraft Foods, Inc., 7.00%, Due 8/11/2037 ........... 135 147
Masco Corp., 6.125%, Due 10/3/2016 + .............. 135 134
Nissan Motor Acceptance Corp., 5.625%,
Due 3/14/2011 ++ ............................... 200 203
Norfolk Southern Corp., 8.625%, Due 5/15/2010 ..... 190 206
Starbucks Corp., 6.25%, Due 8/15/2017 ............. 135 138
Union Pacific Corp.,
3.875%, Due 2/15/2009 .......................... 335 330
6.50%, Due 4/15/2012 ........................... 200 209
----------
3,012
----------
INSURANCE - 3.24%
Aegon Funding Corp., 5.75%, Due 12/15/2020 ........ 200 200
American International Group, Inc., 6.25%,
Due 5/1/2036 ................................... 200 204
ASIF Global Financing, 3.90%, Due 10/22/2008 ++ ... 300 296
Hartford Financial Services Group, Inc.,
5.25%, Due 10/15/2011 + ........................ 450 448
5.375%, Due 3/15/2017 .......................... 195 190
John Hancock Global Funding II, 7.90%,
Due 7/2/2010 ++ ................................ 550 590
Lincoln National Corp., 4.75%, Due 2/15/2014 ...... 100 96
MetLife, Inc.,
5.375%, Due 12/15/2012 + ....................... 240 242
5.00%, Due 6/15/2015 ........................... 170 162
6.375%, Due 6/15/2034 .......................... 200 203
Metropolitan Life Global Funding I, 4.625%,
Due 8/19/2010 ++ ............................... 400 399
Prudential Financial, Inc.,
4.50%, Due 7/15/2013 + ......................... 200 191
5.10%, Due 9/20/2014 ........................... 210 203
Willis North America, Inc., 6.20%,
Due 3/28/2017 .................................. 130 131
----------
3,555
----------
See accompanying notes
70
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
PHARMACEUTICALS - 1.30%
Abbott Laboratories, 5.60%, Due 5/15/2011 ........ $ 100 $ 102
Amgen, Inc., 4.00%, Due 11/18/2009 ............... 210 206
AstraZeneca plc,
5.40%, Due 9/15/2012 .......................... 320 323
6.45%, Due 9/15/2037 .......................... 125 132
Hospira, Inc., 6.05%, Due 3/30/2017 .............. 130 130
Schering-Plough Corp., 6.75%, Due 12/1/2033 ...... 185 198
Wyeth Corp., 5.50%, Due 2/1/2014 ................. 335 336
----------
1,427
----------
REAL ESTATE - 1.62%
Equity Residential, 5.125%, Due 3/15/2016 ........ 355 333
iStar Financial, Inc., 5.85%, Due 3/15/2017 + .... 300 268
ProLogis Trust,
7.10%, Due 4/15/2008 .......................... 220 221
5.50%, Due 4/1/2012 ........................... 200 197
5.625%, Due 11/15/2016 + ...................... 200 192
Simon Property Group LP,
6.375%, Due 11/15/2007 ........................ 200 200
5.375%, Due 6/1/2011 .......................... 200 199
5.75%, Due 12/1/2015 .......................... 170 167
----------
1,777
----------
TECHNOLOGY - 0.43%
Cisco Systems, Inc.,
5.25%, Due 2/22/2011 .......................... 200 202
5.50%, Due 2/22/2016 + ........................ 270 271
----------
473
----------
TELEPHONE - 2.37%
America Movil, S.A. de C.V., 6.375%,
Due 3/1/2035 + ................................ 200 206
AT&T Wireless Services, Inc., 7.875%,
Due 3/1/2011 .................................. 200 217
AT&T, Inc.,
5.10%, Due 9/15/2014 .......................... 220 216
5.625%, Due 6/15/2016 + ....................... 395 399
6.80%, Due 5/15/2036 + ........................ 100 109
Cingular Wireless Services, Inc., 8.75%,
Due 3/1/2031 .................................. 170 220
Deutsche Telekom AG, 8.00%, Due 6/15/2010 ........ 150 161
Nextel Communications, Inc., 6.875%,
Due 10/31/2013 + .............................. 290 291
Telecom Italia S.p.A., 4.00%, Due 11/15/2008 ..... 220 217
Telefonica Emisiones SAU, 5.984%,
Due 6/20/2011 + ............................... 160 164
Verizon Communications, Inc., 5.50%,
Due 4/1/2017 + ................................ 200 200
Vodafone Group plc, 6.15%, Due 2/27/2037 ......... 200 196
----------
2,596
----------
UTILITIES - 2.62%
Columbus Southern Power Co., 5.50%,
Due 3/1/2013 + ................................ 320 319
Dominion Resources, Inc., Series A, 5.60%,
Due 11/15/2016 ................................ 135 132
See accompanying notes
71
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
Duke Energy Indiana, Inc., 6.05%,
Due 6/15/2016 + ............................... $ 205 $ 209
FPL Group Capital, Inc., 5.625%, Due 9/1/2011 .... 390 397
MidAmerican Energy Holdings Co.,
5.875%, Due 10/1/2012 ......................... 405 415
6.125%, Due 4/1/2036 .......................... 200 198
Public Service Enterprise Group, Inc., 6.95%,
Due 6/1/2012 .................................. 355 377
Southern Power Co., 6.25%, Due 7/15/2012 ......... 270 279
Virginia Electric and Power Co., 6.00%,
Due 5/15/2037 ................................. 125 123
Xcel Energy, Inc., 5.613%, Due 4/1/2017 ++ ....... 431 424
----------
2,873
----------
TOTAL CORPORATE OBLIGATIONS ...................... 30,630
----------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 8.16%
Banc of America Commercial Mortgage, Inc.,
2005-6, 5.001%, Due 9/10/2047 ................. 303 303
2007-2 A2, 5.634%, Due 4/10/2049 .............. 450 453
Banc of America Mortgage Securities, Inc., 2004-8
3A1, 5.25%, Due 10/25/2019 .................... 618 609
Bear Stearns Commercial Mortgage Securities, Inc.,
2006-T22 A2, 5.465%, Due 4/12/2038 ............ 265 267
2006-PW13 A4, 5.54%, Due 9/11/2041 ............ 95 94
2004-PWR5 A4, 4.831%, Due 7/11/2042 ........... 535 520
2005-T20 A2, 5.127%, Due 10/12/2042 ........... 430 429
Chase Mortgage Finance Corp., 2006-A1 A1, 6.045%,
Due 9/25/2036 # ............................... 1,134 1,138
Citicorp Mortgage Securities, Inc., 2006-3 2A1,
5.50%, Due 6/25/2021 .......................... 494 490
Citigroup Commercial Mortgage Trust, 2004-C2 A3,
4.38%, Due 10/15/2041 ......................... 470 457
Countrywide Home Loan Mortgage Pass Through Trust,
2007-18 A1, 6.00%, Due 9/25/2037 .............. 372 370
General Electric Capital Commercial Mortgage
Corp., 2003-C2 A2, 4.17%, Due 7/10/2037 ....... 312 309
JP Morgan Chase Commercial Mortgage
Securities Corp.,
2004-CBX A4, 4.529%, Due 1/12/2037 ............ 255 249
2005-LDP3 A1, 4.655%, Due 8/15/2042 ........... 127 126
2005-LDP4 A1, 4.613%, Due 10/15/2042 .......... 50 50
2005-LDP1 A2, 4.625%, Due 3/15/2046 ........... 505 499
2007-CB19 A4, 5.747%, Due 2/12/2049 ........... 300 302
2007-CB20 A2, 5.629%, Due 2/12/2051 ........... 400 402
LB-UBS Commercial Mortgage Trust, 2004-C1 A4,
5.424%, Due 2/15/2040 ......................... 300 295
Prime Mortgage Trust, 2005-2, 5.25%,
Due 7/25/2020 ................................. 474 468
Wachovia Bank Commercial Mortgage Trust, 2007-C32
A2, 5.736%, Due 6/15/2049 ..................... 210 213
Wells Fargo Mortgage Backed Securities Trust,
2006-11 A8, 6.00%, Due 9/25/2036 .............. 389 386
2007-7 A1, 6.00%, Due 6/25/2037 ............... 519 515
----------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS ..... 8,944
----------
ASSET-BACKED SECURITIES - 2.75%
American Express Credit Account Master Trust,
2006-2 A, 5.35%, Due 1/15/2014 ................ 800 812
Capital Auto Receivables Asset Trust, 2006-SN1A
A4A, 5.32%, Due 3/20/2010 ++ .................. 600 602
See accompanying notes
72
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
Capital One Multi-Asset Execution Trust, 2006-A10
A10, 5.15%, Due 6/15/2014 ..................... $ 600 $ 605
Chase Issuance Trust, 2007-15 A, 4.96%,
Due 9/17/2012 ................................. 500 501
Volkswagen Auto Loan Enhanced Trust, 2005-1 A4,
4.86%, Due 4/20/2012 .......................... 500 500
----------
TOTAL ASSET-BACKED SECURITIES .................... 3,020
----------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 27.62%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 11.36%
5.50%, Due 9/1/2017 ........................... 216 217
4.50%, Due 3/1/2019 ........................... 616 598
5.00%, Due 10/1/2020 .......................... 612 604
5.00%, Due 7/1/2021 ........................... 538 530
5.50%, Due 11/1/2021 .......................... 434 434
5.00%, Due 11/1/2021 .......................... 96 94
5.50%, Due 4/1/2022 ........................... 46 46
5.00%, Due 5/1/2022 ........................... 184 182
6.50%, Due 9/1/2028 ........................... 89 92
6.00%, Due 8/1/2029 ........................... 314 319
5.00%, Due 8/1/2033 ........................... 779 749
5.50%, Due 2/1/2034 ........................... 1,135 1,120
6.00%, Due 8/1/2034 ........................... 549 554
6.50%, Due 4/1/2035 ........................... 47 48
5.00%, Due 8/1/2035 ........................... 514 494
5.00%, Due 9/1/2035 ........................... 428 411
5.50%, Due 11/1/2036 .......................... 866 853
5.897%, Due 12/1/2036 # ....................... 611 617
5.851%, Due 1/1/2037 # ........................ 756 764
5.783%, Due 3/1/2037 # ........................ 543 547
5.267%, Due 4/1/2037 # ........................ 591 589
5.50%, Due 4/1/2037 ........................... 982 967
5.50%, Due 5/1/2037 ........................... 1,117 1,100
6.00%, Due 7/1/2037 ........................... 485 488
6.50%, Due 8/1/2037 ........................... 40 41
----------
12,458
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 14.36%
6.50%, Due 2/1/2017 ........................... 277 285
5.50%, Due 8/1/2017 ........................... 369 371
5.00%, Due 12/1/2017 .......................... 954 943
4.50%, Due 9/1/2018 ........................... 649 629
5.50%, Due 11/1/2018 .......................... 180 180
5.50%, Due 12/1/2018 .......................... 167 167
5.00%, Due 3/1/2020 ........................... 216 213
4.00%, Due 8/1/2020 ........................... 480 453
5.50%, Due 4/1/2021 ........................... 20 20
5.50%, Due 11/1/2021 .......................... 51 51
See accompanying notes
73
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
5.00%, Due 3/1/2034 ........................... $ 979 $ 942
4.50%, Due 9/1/2034 ........................... 312 291
5.50%, Due 2/1/2035 ........................... 1,223 1,209
5.00%, Due 11/1/2035 .......................... 874 840
5.50%, Due 12/1/2035 .......................... 442 436
5.50%, Due 1/1/2036 ........................... 799 788
5.50%, Due 1/1/2036 ........................... 788 777
5.50%, Due 3/1/2036 ........................... 679 670
5.50%, Due 4/1/2036 ........................... 853 841
6.00%, Due 9/1/2036 ........................... 520 523
6.00%, Due 10/1/2036 .......................... 9 9
5.50%, Due 11/1/2036 .......................... 760 749
6.00%, Due 11/1/2036 .......................... 853 859
6.00%, Due 11/1/2036 .......................... 411 415
6.00%, Due 12/1/2036 .......................... 809 815
6.00%, Due 2/1/2037 ........................... 266 268
5.00%, Due 5/1/2037 ........................... 252 241
6.50%, Due 10/1/2037 .......................... 525 533
6.50%, Due TBA ................................ 1,200 1,228
----------
15,746
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.90%
4.201%, Due 8/16/2026 ......................... 369 364
6.50%, Due 3/15/2028 .......................... 492 509
6.00%, Due 4/15/2031 .......................... 591 601
5.50%, Due 2/20/2034 .......................... 618 611
----------
2,085
----------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS ....... 30,289
----------
U.S. AGENCY OBLIGATIONS - 8.60%
FEDERAL HOME LOAN BANK - 1.69%
5.00%, Due 10/16/2009 + ....................... 1,005 1,009
5.25%, Due 11/3/2009 .......................... 250 252
4.50%, Due 9/16/2013 .......................... 600 593
----------
1,854
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 4.37%
5.25%, Due 2/24/2011 .......................... 1,260 1,271
5.875%, Due 3/21/2011 + ....................... 380 397
5.125%, Due 4/18/2011 + ....................... 1,400 1,430
5.40%, Due 3/17/2021 .......................... 965 979
6.00%, Due 12/15/2031 ......................... 710 718
----------
4,795
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.54%
4.704%, Due 11/13/2007 ........................ 1,200 1,198
5.125%, Due 1/2/2014 .......................... 545 550
See accompanying notes
74
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
5.375%, Due 6/12/2017 + ....................... $ 1,000 $ 1,033
----------
2,781
----------
TOTAL U.S. AGENCY OBLIGATIONS ....................... 9,430
----------
U.S. TREASURY OBLIGATIONS - 21.89%
9.125%, Due 5/15/2018 ......................... 400 551
7.875%, Due 2/15/2021 + ....................... 750 981
6.25%, Due 8/15/2023 + ........................ 650 754
6.875%, Due 8/15/2025 + ....................... 470 586
5.25%, Due 11/15/2028 + ....................... 650 690
5.375%, Due 2/15/2031 + ....................... 650 704
4.75%, Due 2/15/2037 + ........................ 1,240 1,239
4.875%, Due 8/15/2009 + ....................... 135 137
3.50%, Due 11/15/2009 + ....................... 1,000 992
3.875%, Due 5/15/2010 + ....................... 1,200 1,199
4.875%, Due 4/30/2011 + ....................... 2,300 2,364
4.50%, Due 3/31/2012 + ........................ 2,500 2,538
4.125%, Due 8/31/2012 + ....................... 2,165 2,163
4.75%, Due 5/15/2014 + ........................ 5,670 5,827
4.125%, Due 5/15/2015 + ....................... 1,500 1,479
4.75%, Due 8/15/2017 + ........................ 1,770 1,809
----------
TOTAL U.S. TREASURY OBLIGATIONS .................. 24,013
----------
SHARES
-----------
SHORT TERM INVESTMENTS - 3.06%
American Beacon Money Market Select
Fund ** .................................. 3,358,978 3,359
----------
SECURITIES LENDING COLLATERAL - 25.27%
American Beacon Cash Plus Trust ** .......... 19,986,281 19,986
American Beacon Money Market Select
Fund ** .................................. 7,724,339 7,725
----------
TOTAL SECURITIES LENDING COLLATERAL .............. 27,711
----------
TOTAL INVESTMENTS - 125.28% (COST $137,187) ......... $ 137,396
LIABILITIES, NET OF OTHER ASSETS - (25.28%) ......... (27,722)
----------
TOTAL NET ASSETS - 100.00% .......................... $ 109,674
==========
See accompanying notes
75
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
Percentages are stated as a percent of net assets.
+ All or a portion of this security is on loan at October 31, 2007.
++ 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 $3,820 or 3.48% 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.
** The Fund/Trust is affiliated by having the same investment advisor.
See accompanying notes
76
AMERICAN BEACON SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
CORPORATE OBLIGATIONS - 62.63%
BANKS - 17.78%
Citigroup, Inc.,
4.125%, Due 2/22/2010 ......................... $ 1,000 $ 983
4.625%, Due 8/3/2010 + ........................ 1,000 994
Comerica Bank, 6.00%, Due 10/1/2008 .............. 2,200 2,216
HSBC Bank USA NA, 3.875%, Due 9/15/2009 .......... 2,000 1,960
JP Morgan Chase & Co., 6.75%, Due 2/1/2011 ....... 2,000 2,094
National City Bank, 4.50%, Due 3/15/2010 ......... 2,000 1,979
National Westminster Bank plc, 7.375%,
Due 10/1/2009 ................................. 2,000 2,103
Wachovia Corp., 5.30%, Due 10/15/2011 ............ 2,000 1,999
Washington Mutual, Inc., 8.25%, Due 4/1/2010 ..... 2,000 2,100
----------
16,428
----------
COMMUNICATIONS - 2.18%
Comcast Cable Communications, Inc., 6.20%,
Due 11/15/2008 ................................ 2,000 2,018
----------
FINANCE - 16.47%
Capital One Financial Corp., 5.70%,
Due 9/15/2011 ................................. 1,000 989
Countrywide Home Loans, Inc., 3.25%,
Due 5/21/2008 + ............................... 2,000 1,901
Credit Suisse USA, Inc., 4.70%,
Due 6/1/2009 + ................................ 2,000 1,994
General Electric Capital Corp., 5.875%,
Due 2/15/2012 ................................. 3,000 3,089
Goldman Sachs Group, Inc., 6.65%, Due 5/15/2009 .. 1,000 1,021
Lehman Brothers Holdings, Inc., 4.25%,
Due 1/27/2010 + ............................... 1,600 1,551
MBNA Corp., 7.50%, Due 3/15/2012 ................. 2,000 2,168
Merrill Lynch & Co., Inc., 6.00%, Due 2/17/2009 .. 2,500 2,503
----------
15,216
----------
INDUSTRIALS - 8.05%
Bunge Limited Finance Corp., 4.375%,
Due 12/15/2008 ................................ 1,000 992
Caterpillar Financial Services Corp., 4.15%,
Due 1/15/2010 ................................. 2,000 1,971
Daimler Finance NA LLC, 5.75%, Due 9/8/2011 ...... 1,000 1,019
John Deere Capital Corp., 4.125%, Due 1/15/2010 .. 2,500 2,463
Nissan Motor Acceptance Corp., 4.625%,
Due 3/8/2010 ++ ............................... 1,000 991
----------
7,436
----------
INSURANCE - 9.52%
ASIF Global Financing, 3.90%, Due 10/22/2008 ++ .. 2,000 1,974
Hartford Financial Services Group, Inc., 5.25%,
Due 10/15/2011 ................................ 700 696
ING Security Life Institutional Funding, 4.25%,
Due 1/15/2010 ++ .............................. 1,500 1,491
John Hancock Global Funding II, 7.90%,
Due 7/2/2010 ++ ............................... 2,000 2,145
Metropolitan Life Global Funding I, 4.625%,
Due 8/19/2010 ++ .............................. 1,500 1,496
Monumental Global Funding II, 4.625%,
Due 3/15/2010 ++ .............................. 1,000 993
----------
8,795
----------
REAL ESTATE - 3.21%
iStar Financial, Inc., 5.375%, Due 4/15/2010 ..... 1,000 964
Simon Property Group LP, 6.375%, Due 11/15/2007 .. 2,000 2,000
----------
2,964
----------
See accompanying notes
77
AMERICAN BEACON SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
PAR
AMOUNT VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
TELEPHONE - 3.28%
AT&T Corp., 6.00%, Due 3/15/2009 ................. $ 2,000 $ 2,027
Vodafone Group plc, 5.50%, Due 6/15/2011 ......... 1,000 1,009
----------
3,036
----------
UTILITIES - 2.14%
MidAmerican Energy Holdings Co., 3.50%,
Due 5/15/2008 ................................. 2,000 1,983
----------
TOTAL CORPORATE OBLIGATIONS ...................... 57,876
----------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 2.35%
Banc of America Commercial Mortgage, Inc.,
2005-6, 5.001%, Due 9/10/2047 ................. 607 605
2007-2 A2, 5.634%, Due 4/10/2049 .............. 800 806
Wachovia Bank Commercial Mortgage Trust, 2006-C23
A1, 5.203%, Due 1/15/2045 ..................... 762 762
----------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS ..... 2,173
----------
ASSET-BACKED SECURITIES - 22.90%
Banc of America Securities Auto Trust, 2005-WF1
A4, 4.08%, Due 4/18/2010 ...................... 3,000 2,981
Capital Auto Receivables Asset Trust,
2006-SN1A A4A, 5.32%, Due 3/20/2010 ++ ........ 2,000 2,008
2006-1 A4, 5.04%, Due 5/17/2010 ............... 250 251
CarMax Auto Owner Trust, 2005-3 A4, 4.91%,
Due 1/18/2011 ................................. 1,200 1,201
Chase Manhattan Auto Owner Trust, 2006-A A4,
5.36%, Due 1/15/2013 .......................... 2,000 2,018
DaimlerChrysler Auto Trust, 2004-C A4, 3.28%,
Due 12/8/2009 ................................. 2,041 2,023
Harley-Davidson Motorcycle Trust, 5.52%,
Due 11/15/2013 ................................ 2,000 2,019
HSBC Automotive Trust, 2005-1 A4, 4.35%,
Due 6/18/2012 ................................. 3,000 2,979
USAA Auto Owner Trust, 5.55%, Due 2/15/2013 ...... 3,000 3,051
Volkswagen Auto Loan Enhanced Trust, 2005-1 A4,
4.86%, Due 4/20/2012 .......................... 1,500 1,500
Wells Fargo Financial Auto Owner Trust, 2004-A A4,
2.67%, Due 8/16/2010 .......................... 1,130 1,129
----------
TOTAL ASSET-BACKED SECURITIES .................... 21,160
----------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 2.98%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 2.98%
4.968%, Due 9/15/2008 ......................... 936 933
4.201%, Due 8/16/2026 ......................... 1,846 1,817
----------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS .... 2,750
----------
SHARES
-----------
SHORT TERM INVESTMENTS - 8.22%
American Beacon Money Market Select Fund # ....... 7,599,385 7,599
----------
SECURITIES LENDING COLLATERAL - 4.89%
American Beacon Cash Plus Trust # ................ 3,257,727 3,258
See accompanying notes
77
AMERICAN BEACON SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2007
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
American Beacon Money Market Select Fund # ....... $ 1,259,053 $ 1,259
----------
TOTAL SECURITIES LENDING COLLATERAL .............. 4,517
----------
TOTAL INVESTMENTS - 103.97% (COST $95,935) .......... $ 96,075
LIABILITIES, NET OF OTHER ASSETS - (3.97%) .......... (3,672)
----------
TOTAL NET ASSETS - 100.00% .......................... $ 92,403
==========
Percentages are stated as a percent of net assets.
+ All or a portion of this security is on loan at October 31, 2007.
++ 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 $11,098 or 12.01% 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
79
AMERICAN BEACON FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 2007 (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
BALANCED LARGE CAP MID-CAP
FUND GROWTH FUND VALUE FUND
----------- ----------- ----------
ASSETS:
Investments in unaffiliated
securities, at value (A D) ...... $ 1,102,251 $ 97,100 $ 126,180
Investments in affiliated
securities, at value (B) ........ 297,292 25,413 21,783
Foreign currency, at value (C) ..... -- -- --
Cash ............................... -- -- --
Receivable for investments sold .... 740 131 461
Dividends and interest receivable .. 5,429 71 102
Receivable for fund shares sold .... 1,095 135 105
Receivable for tax reclaims ........ 7 -- --
Receivable for expense
reimbursement ................... -- -- --
Receivable for variation margin on
open futures contracts .......... 727 57 58
Prepaid Expenses ................... 16 -- 16
----------- ----------- ----------
TOTAL ASSETS .................... 1,407,557 122,907 148,705
----------- ----------- ----------
LIABILITIES:
Payable for investments purchased .. 3,723 -- 252
Payable upon return of securities
loaned .......................... 240,190 20,879 19,485
Payable for fund shares redeemed ... 370 20 629
Dividends payable .................. -- -- --
Payable under excess expense
reimbursement plan .............. 1 -- 8
Management and investment advisory
fees payable (Note 2) ........... 766 149 271
Administrative service and service
fees payable .................... 100 -- 19
Net unrealized depreciation on
foreign currency contracts ...... -- -- --
Other liabilities .................. 170 42 41
----------- ----------- ----------
TOTAL LIABILITIES ............... 245,320 21,090 20,705
----------- ----------- ----------
NET ASSETS ............................ $ 1,162,237 $ 101,817 $ 128,000
=========== =========== ==========
ANALYSIS OF NET ASSETS:
Paid-in-capital ....................... 938,715 87,335 117,684
Undistributed net investment income ... 26,249 552 1,243
Accumulated net realized gain (loss) .. 53,946 2,411 7,079
Unrealized appreciation (depreciation)
of investments, futures contracts,
and foreign currency ............... 143,327 11,519 1,994
----------- ----------- ----------
NET ASSETS ............................ $ 1,162,237 $ 101,817 $ 128,000
=========== =========== ==========
Shares outstanding (no par value):
Institutional Class ................ 3,194,857 15,475 549,062
=========== =========== ==========
PlanAhead Class .................... 13,437,427 N/A 3,939,042
=========== =========== ==========
Service Class ...................... 635,889 N/A 84
=========== =========== ==========
AMR Class .......................... 58,024,587 13,164,840 7,116,449
=========== =========== ==========
Net asset value, offering and
redemption price per share:
Institutional Class ................ $ 16.09 $ 7.67 $ 11.01
=========== =========== ==========
PlanAhead Class .................... $ 15.09 N/A $ 10.96
=========== =========== ==========
Service Class ...................... $ 14.95 N/A $ 10.94
=========== =========== ==========
AMR Class .......................... $ 15.49 $ 7.72 $ 11.07
=========== =========== ==========
A Cost of investments in unaffiliated
securities ......................... $ 960,937 $ 85,615 $ 124,286
B Cost of investments in affiliated
securities ......................... $ 297,292 $ 25,413 $ 21,783
C Cost of foreign currency ............ $ -- $ -- $ --
D Market value of securities on
loan ............................... $ 250,817 $ 23,775 $ 19,957
See accompanying notes
80
SMALL CAP
VALUE EMERGING ENHANCED
OPPORTUNITY MARKETS HIGH YIELD INCOME INTERMEDIATE SHORT-TERM
FUND FUND BOND FUND FUND BOND FUND BOND FUND
----------- ----------- ----------- ---------- ------------ -----------
ASSETS:
Investments in unaffiliated
securities, at value (A D) ...... $ 29,724 $ 277,043 $ 226,280 $ 95,648 $ 106,326 $ 83,959
Investments in affiliated
securities, at value (B) ........ 7,545 48,008 7,085 28,042 31,070 12,116
Foreign currency, at value (C) ..... -- 1,980 -- -- -- --
Cash ............................... -- -- 16 -- -- --
Receivable for investments sold .... -- 1,002 -- 213 114 --
Dividends and interest receivable .. 21 345 4,817 817 1,016 796
Receivable for fund shares sold .... -- 1,034 198 8 325 116
Receivable for tax reclaims ........ -- 7 9 1 1 --
Receivable for expense
reimbursement ................... 5 -- -- -- -- --
Receivable for variation margin on
open futures contracts .......... -- 240 -- -- -- --
Prepaid Expenses ................... -- 10 11 3 8 12
---------- ----------- ----------- ---------- ----------- -----------
TOTAL ASSETS .................... 37,295 329,669 238,416 124,732 138,860 96,999
---------- ----------- ----------- ---------- ----------- -----------
LIABILITIES:
Payable for investments purchased .. -- 699 -- -- 1,327 --
Payable upon return of securities
loaned .......................... 7,516 30,790 10,390 24,746 27,711 4,517
Payable for fund shares redeemed ... 5 -- 1,417 30 89 24
Dividends payable .................. -- -- 149 -- -- --
Payable under excess expense
reimbursement plan .............. -- 8 -- -- -- --
Management and investment advisory
fees payable (Note 2) ........... 47 602 366 89 23 20
Administrative service and service
fees payable .................... 6 7 32 39 -- 3
Net unrealized depreciation on
foreign currency contracts ...... -- 221 -- -- -- --
Other liabilities .................. 34 149 71 39 36 32
---------- ----------- ----------- ---------- ----------- -----------
TOTAL LIABILITIES ............... 7,608 32,476 12,425 24,943 29,186 4,596
---------- ----------- ----------- ---------- ----------- -----------
NET ASSETS ............................ $ 29,687 $ 297,193 $ 225,991 $ 99,789 $ 109,674 $ 92,403
========== =========== =========== ========== =========== ===========
ANALYSIS OF NET ASSETS:
Paid-in-capital ....................... 31,648 160,956 230,153 93,725 117,822 99,446
Undistributed net investment income ... 126 2,180 503 575 502 19
Accumulated net realized gain (loss) .. (359) 42,193 (1,914) 2,007 (8,859) (7,202)
Unrealized appreciation (depreciation)
of investments, futures contracts,
and foreign currency ............... (1,728) 91,864 (2,751) 3,482 209 140
---------- ----------- ----------- ---------- ----------- -----------
NET ASSETS ............................ $ 29,687 $ 297,193 $ 225,991 $ 99,789 $ 109,674 $ 92,403
========== =========== =========== ========== =========== ===========
Shares outstanding (no par value):
Institutional Class ................ 2,864,987 569,015 11,369,985 N/A 10,862,137 10,170,069
========== =========== =========== ========== =========== ===========
PlanAhead Class .................... 8,891 489,048 2,843,594 9,501,527 N/A 337,989
========== =========== =========== ========== =========== ===========
Service Class ...................... N/A N/A N/A N/A N/A N/A
========== =========== =========== ========== =========== ===========
AMR Class .......................... N/A 11,147,877 8,143,965 N/A N/A N/A
========== =========== =========== ========== =========== ===========
Net asset value, offering and
redemption price per share:
Institutional Class ................ $ 10.33 $ 24.20 $ 10.11 N/A $ 10.10 $ 8.79
========== =========== =========== ========== =========== ===========
PlanAhead Class .................... $ 10.28 $ 23.91 $ 10.11 $ 10.50 N/A $ 8.81
========== =========== =========== ========== =========== ===========
Service Class ...................... N/A N/A N/A N/A N/A N/A
========== =========== =========== ========== =========== ===========
AMR Class .......................... N/A $ 24.37 $ 10.11 N/A N/A N/A
========== =========== =========== ========== =========== ===========
A Cost of investments in unaffiliated
securities .......................... $ 31,452 $ 185,298 $ 229,031 $ 92,166 $ 106,117 $ 83,819
B Cost of investments in affiliated
securities .......................... $ 7,545 $ 48,008 $ 7,085 $ 28,042 $ 31,070 $ 12,116
C Cost of foreign currency ............ $ -- $ 1,951 $ -- $ -- $ -- $ --
D Market value of securities on
loan ............................... $ 7,414 $ 30,083 $ 10,105 $ 24,308 $ 27,031 $ 4,419
See accompanying notes
81
AMERICAN BEACON FUNDS
STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007 (IN THOUSANDS)
LARGE CAP MID-CAP
BALANCED GROWTH VALUE
FUND FUND FUND
-------- --------- -------
INVESTMENT INCOME:
Dividend income from unaffiliated
securities (net of foreign
taxes) (A) ...................... $14,285 $ 1,098 $ 2,174
Dividend income from affiliated
securities ...................... 3,585 257 604
Interest income .................... 19,756 21 59
Income derived from securities
lending, net .................... 366 16 38
------- ------- -------
TOTAL INVESTMENT INCOME ...... 37,992 1,392 2,875
------- ------- -------
EXPENSES:
Management and investment advisory
fees (Note 2) ................... 2,937 513 890
Administrative service fees
(Note 2):
Institutional Class ............. 117 -- 13
PlanAhead Class ................. 405 -- 87
Service Class ................... 12 -- --
Transfer agent fees:
Institutional Class ............. 6 -- 5
PlanAhead Class ................. 43 -- 5
AMR Class .......................... 48 8 4
Custody and fund accounting fees ... 94 10 11
Professional fees .................. 47 26 25
Registration fees and expenses ..... 60 2 37
Service fees:
PlanAhead Class ................. 405 -- 87
Service Class ................... 12 -- --
Distribution fees- Service Class
(Note 2) ........................ 12 -- --
Prospectus and shareholder
reports ......................... 52 4 12
Other expenses ..................... 117 14 22
------- ------- -------
TOTAL EXPENSES ............... 4,367 577 1,198
------- ------- -------
Net (fees waived and expenses
reimbursed)/recouped by Manager
(Note 2) ........................ -- -- (24)
------- ------- -------
NET EXPENSES ................. 4,367 577 1,174
------- ------- -------
NET INVESTMENT INCOME ................. 33,625 815 1,701
------- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain from: (B)
Investments ..................... 53,118 5,793 5,476
Commission recapture ............ 27 18 30
Foreign currency transactions ... -- -- --
Futures contracts ............... 7,668 462 2,397
Change in net unrealized
appreciation or depreciation
of: (C)
Investments ..................... 2,634 4,104 (3,566)
Foreign currency translations ... -- -- --
Futures contracts ............... (628) (19) (413)
------- ------- -------
NET GAIN (LOSS) ON INVESTMENTS 62,819 10,358 3,924
------- ------- -------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .......... $96,444 $11,173 $ 5,625
======= ======= =======
A Foreign taxes ....................... $ 28 $ -- $ 11
B Net of foreign withholding taxes on
capital gains ...................... $ -- $ -- $ --
C Net of unrealized appreciation of
foreign withholding taxes on capital
gains .............................. $ -- $ -- $ --
See accompanying notes
82
SMALL CAP HIGH
VALUE EMERGING YIELD ENHANCED
OPPORTUNITY MARKETS BOND INCOME INTERMEDIATE SHORT-TERM
FUND FUND FUND FUND BOND FUND BOND FUND
----------- -------- ------- -------- ------------ ----------
INVESTMENT INCOME:
Dividend income from unaffiliated
securities (net of foreign
taxes) (A) ...................... $ 280 $ 4,648 $ -- $ 204 $ -- $ --
Dividend income from affiliated
securities ...................... 20 502 751 203 194 330
Interest income .................... -- 33 24,627 4,304 5,046 3,908
Income derived from securities
lending, net .................... 10 81 50 29 44 2
------- -------- -------- ------ ------- -------
TOTAL INVESTMENT INCOME ...... 310 5,264 25,428 4,740 5,284 4,240
------- -------- -------- ------ ------- -------
EXPENSES:
Management and investment advisory
fees (Note 2) ................... 85 1,638 1,572 366 254 219
Administrative service fees
(Note 2):
Institutional Class ............. 38 44 560 -- -- --
PlanAhead Class ................. -- 20 168 256 1 13
Service Class ................... -- -- -- -- -- --
Transfer agent fees:
Institutional Class ............. 1 2 71 -- 6 2
PlanAhead Class ................. -- 8 1 4 1 6
AMR Class .......................... -- 13 5 -- -- --
Custody and fund accounting fees ... 2 1,011 41 14 13 11
Professional fees .................. 25 36 39 26 30 25
Registration fees and expenses ..... 38 30 36 17 29 27
Service fees:
PlanAhead Class ................. -- 20 168 256 1 13
Service Class ................... -- -- -- -- -- --
Distribution fees- Service Class
(Note 2) ........................ -- -- -- -- -- --
Prospectus and shareholder
reports ......................... 2 9 30 9 10 12
Other expenses ..................... 6 19 21 18 8 24
------- -------- -------- ------ ------- -------
TOTAL EXPENSES ............... 197 2,850 2,712 966 353 352
------- -------- -------- ------ ------- -------
Net (fees waived and expenses
reimbursed)/recouped by Manager
(Note 2) ........................ (35) -- (23) -- (1) (5)
------- -------- -------- ------ ------- -------
NET EXPENSES ................. 162 2,850 2,689 966 352 347
------- -------- -------- ------ ------- -------
NET INVESTMENT INCOME ................. 148 2,414 22,739 3,774 4,932 3,893
------- -------- -------- ------ ------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain from: (B)
Investments ..................... (372) 41,112 1,834 2,870 280 237
Commission recapture ............ 1 -- -- -- -- --
Foreign currency transactions ... -- 1,410 -- -- -- --
Futures contracts ............... -- 985 -- -- -- --
Change in net unrealized
appreciation or depreciation
of: (C)
Investments ..................... (1,878) 48,633 (3,549) 212 560 624
Foreign currency translations ... -- 6,877 -- -- -- --
Futures contracts ............... -- (170) -- -- -- --
------- -------- -------- ------ ------- -------
NET GAIN (LOSS) ON INVESTMENTS (2,249) 98,847 (1,715) 3,082 840 861
------- -------- -------- ------ ------- -------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .......... $(2,101) $101,261 $21,024 $6,856 $5,772 $4,754
======= ======== ======= ====== ====== ======
A Foreign taxes ....................... $ -- $ 494 $ -- $ -- $ -- $ --
B Net of foreign withholding taxes on
capital gains ...................... $ -- $ 108 $ -- $ -- $ -- $ --
C Net of unrealized appreciation of
foreign withholding taxes on capital
gains .............................. $ -- $ (122) $ -- $ -- $ -- $ --
See accompanying notes
83
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
BALANCED FUND LARGE CAP GROWTH FUND MID-CAP VALUE FUND
---------------------- ---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER OCTOBER OCTOBER OCTOBER OCTOBER OCTOBER
31, 2007 31, 2006 31, 2007 31, 2006 31, 2007 31, 2006
---------- ---------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ........................ $ 33,625 $ 26,125 $ 815 $ 628 $ 1,701 $ 647
Net realized gain (loss) on investments,
futures contracts, and foreign currency
transactions .............................. 60,813 44,566 6,273 3,826 7,903 2,249
Change in net unrealized appreciation or
depreciation of investments, futures
contracts, and foreign currency
translations .............................. 2,006 42,383 4,085 3,999 (3,979) 6,534
---------- -------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .............. 96,444 113,074 11,173 8,453 5,625 9,430
---------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class ....................... (762) (359) (1) (1) (22) (9)
PlanAhead Class ........................... (3,106) (2,286) -- -- (206) --
Service Class ............................. (43) -- -- -- -- --
AMR Class ................................. (23,927) (20,180) (737) (376) (563) (481)
Net realized gain on investments:
Institutional Class ....................... (1,300) (674) -- -- (86) (136)
PlanAhead Class ........................... (5,825) (4,591) -- -- (706) --
Service Class ............................. (77) -- -- -- -- --
AMR Class ................................. (38,430) (35,228) -- -- (1,766) (9,132)
---------- -------- -------- -------- -------- --------
NET DISTRIBUTIONS TO SHAREHOLDERS ...... (73,470) (63,318) (738) (377) (3,349) (9,758)
---------- -------- -------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares ................ 239,343 118,740 44,637 24,244 85,804 59,595
Reinvestment of dividends and distributions .. 72,959 62,858 738 376 3,346 9,756
Cost of shares redeemed ...................... (126,358) (91,106) (36,145) (13,832) (60,513) (16,516)
Redemption fees .............................. -- -- -- -- 161 77
---------- -------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET
ASSETS FROM CAPITAL SHARE
TRANSACTIONS ........................ 185,944 90,492 9,230 10,788 28,798 52,912
---------- -------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS ........... 208,918 140,248 19,665 18,864 31,074 52,584
---------- -------- -------- -------- -------- --------
NET ASSETS:
Beginning of period .......................... 953,319 813,071 82,152 63,288 96,926 44,342
---------- -------- -------- -------- -------- --------
END OF PERIOD * .............................. $1,162,237 $953,319 $101,817 $ 82,152 $128,000 $ 96,926
========== ======== ======== ======== ======== ========
*Includes undistributed net investment
income (loss) of ............................. $ 26,249 $ 19,982 $ 552 $ 479 $ 1,243 $ 479
========== ======== ======== ======== ======== ========
See accompanying notes
84
SMALL CAP VALUE EMERGING ENHANCED
OPPORTUNITY FUND MARKETS FUND HIGH YIELD BOND FUND INCOME FUND
------------------ ------------------ -------------------- ------------------
FROM
YEAR MARCH YEAR YEAR YEAR YEAR YEAR YEAR
ENDED 31 TO ENDED ENDED ENDED ENDED ENDED ENDED
OCTOBER OCTOBER OCTOBER OCTOBER OCTOBER OCTOBER OCTOBER OCTOBER
31, 2007 31, 2006 31, 2007 31, 2006 31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- -------- --------- -------- -------- --------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ........................ $ 148 $ 4 $ 2,414 $ 1,361 $ 22,739 $ 23,832 $ 3,774 $ 3,578
Net realized gain (loss) on investments,
futures contracts, and foreign currency
transactions .............................. (371) 8 43,507 22,344 1,834 (3,640) 2,870 335
Change in net unrealized appreciation or
depreciation of investments, futures
contracts, and foreign currency
translations .............................. (1,878) 150 55,340 14,943 (3,549) 6,614 212 3,410
------- ------ -------- -------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .............. (2,101) 162 101,261 38,648 21,024 26,806 6,856 7,323
------- ------ -------- -------- --------- --------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class ....................... (17) -- (101) (163) (16,871) (16,799) -- --
PlanAhead Class ........................... -- -- (15) (36) (4,915) (7,065) (4,171) (3,905)
Service Class ............................. -- -- -- -- -- -- -- --
AMR Class ................................. -- -- (1,130) (1,551) (949) (1) -- --
Net realized gain on investments:
Institutional Class ....................... (9) -- (2,407) (1,683) -- (2,254) -- --
PlanAhead Class ........................... -- -- (922) (425) -- (1,092) (74) (14)
Service Class ............................. -- -- -- -- -- -- -- --
AMR Class ................................. -- -- (19,268) (14,022) -- -- -- --
------- ------ -------- -------- --------- --------- -------- --------
NET DISTRIBUTIONS TO SHAREHOLDERS ...... (26) -- (23,843) (17,880) (22,735) (27,211) (4,245) (3,919)
------- ------ -------- -------- --------- --------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares ................ 29,224 4,644 87,824 34,209 209,900 161,075 15,667 30,206
Reinvestment of dividends and distributions .. 26 -- 23,764 17,795 19,203 23,167 4,245 3,919
Cost of shares redeemed ...................... (2,199) (43) (49,405) (22,127) (313,378) (208,965) (48,649) (23,955)
Redemption fees .............................. -- -- 53 90 -- -- -- --
------- ------ -------- -------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN NET
ASSETS FROM CAPITAL SHARE
TRANSACTIONS ........................ 27,051 4,601 62,236 29,967 (84,275) (24,723) (28,737) 10,170
------- ------ -------- -------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS ........... 24,924 4,763 139,654 50,735 (85,986) (25,128) (26,126) 13,574
------- ------ -------- -------- --------- --------- -------- --------
NET ASSETS:
Beginning of period .......................... 4,763 -- 157,539 106,804 311,977 337,105 125,915 112,341
------- ------ -------- -------- --------- --------- -------- --------
END OF PERIOD * .............................. $29,687 $4,763 $297,193 $157,539 $ 225,991 $ 311,977 $ 99,789 $125,915
======= ====== ======== ======== ========= ========= ======== ========
*Includes undistributed net investment
income (loss) of ............................. $ 126 $ 7 $ 2,180 $ 1,129 $ 503 $ 499 $ 575 $ (1,012)
======= ====== ======== ======== ========= ========= ======== ========
See accompanying notes
85
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
INTERMEDIATE SHORT-TERM
BOND FUND BOND FUND
--------------------- -------------------
YEAR YEAR YEAR
YEAR ENDED ENDED ENDED ENDED
OCTOBER OCTOBER OCTOBER OCTOBER
31, 2007 31, 2006 31, 2007 31, 2006
---------- -------- -------- --------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .................................. $ 4,932 $ 4,299 $ 3,893 $ 2,997
Net realized gain (loss) on investments, futures
contracts, and foreign currency transactions ........ 280 (987) 237 (294)
Change in net unrealized appreciation or depreciation of
investments, futures contracts, and foreign
currency translations ............................... 560 1,283 624 952
--------- -------- -------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ....................................... 5,772 4,595 4,754 3,655
--------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class ................................. (4,946) (4,367) (4,046) (3,409)
PlanAhead Class ..................................... (13) (41) (227) (375)
--------- -------- -------- --------
NET DISTRIBUTIONS TO SHAREHOLDERS ................ (4,959) (4,408) (4,273) (3,784)
--------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares .......................... 26,882 18,558 22,984 13,507
Reinvestment of dividends and distributions ............ 4,957 4,405 4,264 3,775
Cost of shares redeemed ................................ (21,223) (19,229) (15,932) (24,812)
--------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS ............................ 10,616 3,734 11,316 (7,530)
--------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS ..................... 11,429 3,921 11,797 (7,659)
--------- -------- -------- --------
NET ASSETS:
Beginning of period .................................... 98,245 94,324 80,606 88,265
--------- -------- -------- --------
END OF PERIOD * ........................................ $ 109,674 $ 98,245 $ 92,403 $ 80,606
========= ======== ======== ========
*Includes undistributed net investment income (loss) of ... $ 502 $ 502 $ 19 $ (304)
========= ======== ======== ========
See accompanying notes
86
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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, as
amended (the "Act"), 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 Administrative Service Fee - 0.25%
investment of $2 million
PLANAHEAD CLASS General public and investors Administrative Service Fee - 0.25%
investing through an intermediary Service Fee - 0.25%
SERVICE CLASS Investors investing through an Administrative Service Fee - 0.25%
intermediary Service Fee - 0.25%
Distribution Fee - 0.25%
AMR CLASS Investors in the tax-exempt N/A
retirement and benefit 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.
Effective February 28, 2007, the PlanAhead Class of the Intermediate
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.
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 independent brokers.
87
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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
Trust's 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, net of foreign taxes, is recorded on the ex-dividend
date except certain dividends from foreign securities which are recorded as soon
as the information is available to the Funds. Interest income is earned from
settlement date, recorded on the accrual basis, and adjusted, if necessary, for
accretion of discounts and amortization of premiums. For financial and tax
reporting purposes, realized gains and losses are determined on the basis of
specific lot identification.
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. The Fund bears the market risk that arises from changes in foreign
exchange rates, and accordingly, the unrealized gain (loss) on these contracts
is reflected in the accompanying financial statements. The Fund also bears the
credit risk if the counterparty fails to perform under the contract.
88
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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 at least 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 at least 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.
89
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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, the
Manager does not anticipate the adoption of FIN 48 to have a material impact on
the financial statements.
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, 2007, the Manager does not believe
the adoption of FAS 157 will materially impact the amounts represented in the
financial statements; however, additional disclosures will be required about the
inputs used to develop the measurements of fair value.
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.
90
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Trust and the Manager are parties to a Management Agreement that
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory, fund management, and securities lending services.
Investment assets of the Balanced, Large Cap 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 that 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 its 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
Short-Term Bond Fund an annualized fee equal to 0.25% of the average daily net
assets of the Fund. Management fees paid during the year ended October 31, 2007
were as follows (dollars in thousands):
AMOUNTS PAID TO NET AMOUNTS
MANAGEMENT FEE RATE MANAGEMENT FEE INVESTMENT ADVISORS RETAINED BY MANAGER
------------------- -------------- ------------------- -------------------
Balanced...................... 0.225%-0.70% $2,937 $1,855 $1,082
Large Cap Growth.............. 0.35%-0.55% 513 417 96
Mid-Cap Value................. 0.40%-1.10% 890 756 134
Small Cap Value Opportunity... 0.45%-0.55% 85 69 16
Emerging Markets.............. 0.79%-1.20% 1,638 1,436 202
High Yield Bond............... 0.35%-0.52% 1,572 1,268 304
Enhanced Income............... 0.25%-0.85% 366 264 102
Intermediate Bond............. 0.25% 254 82 172
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 Statements of Operations. During
the year ended October 31, 2007, securities lending fees paid to the Manager
were as follows (in thousands):
Balanced ................................................................. $64
Large Cap Growth ......................................................... 3
Mid-Cap Value ............................................................ 7
Small Cap Value Opportunity .............................................. 2
Emerging Markets ......................................................... 14
High Yield Bond .......................................................... 8
Enhanced Income .......................................................... 5
Intermediate Bond ........................................................ 8
Short-Term Bond .......................................................... 1
Administrative Services Agreement
The Manager and the Trust entered into an Administrative Services
Agreement which obligates the Manager to provide or oversee administrative
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.
91
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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 and administrative service
fees received by the Manager and the investment advisors hired by the Manager to
be used for distribution purposes. Under this Plan, the Trust does not intend to
compensate the Manager or any other party, either directly or indirectly, for
the distribution of Trust shares.
A separate Distribution Plan (the "Distribution Plan") has been
adopted pursuant to Rule 12b-1 under the Act for the Service Class of the Funds.
Under the Distribution Plan, as compensation for distribution assistance, the
Manager receives an annual fee of 0.25% of the average daily net assets of the
Service Class. The fee will be payable without regard to whether the amount of
the fee is more or less than the actual expenses incurred in a particular month
by the Manager for distribution assistance.
Service Plans
The Manager and the Trust entered into Service Plans that obligate the
Manager to oversee additional shareholder servicing of the PlanAhead and Service
Classes. As compensation for performing the duties required under the Service
Plans, the Manager receives 0.25% of the average daily net assets of the
PlanAhead and Service Classes of each Fund.
Brokerage Commissions
Affiliated entities of a sub-advisor to the Large Cap Growth Fund and
the Emerging Markets Fund received net commissions on purchases and sales of the
Fund's portfolio securities totaling $1,020 and $326, respectively for the year
ended October 31, 2007.
Investment in Affiliated Funds
The Fund is permitted, pursuant to an exemptive order issued 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 (the "Cash Trust") (collectively, the
"Affiliated Funds"). The Funds and 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, 2007, fees earned by the Manager from the Affiliated
Funds were as follows:
SECURITIES LENDING
DIRECT INVESTMENT IN COLLATERAL INVESTED IN
AFFILIATED FUNDS AFFILIATED FUNDS TOTAL
-------------------- ---------------------- --------
Balanced...................... $68,111 $213,913 $282,024
Large Cap Growth.............. 1,620 12,319 13,939
Mid-Cap Value................. 11,464 22,713 34,177
Small Cap Value Opportunity... 379 3,538 3,917
Emerging Markets.............. 9,546 20,032 29,578
High Yield Bond............... 14,258 -- 14,258
Enhanced Income............... 3,856 24,447 28,303
Intermediate Bond............. 3,673 24,493 28,166
Short-Term Bond............... 6,272 3,072 9,344
92
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Funds, along
with other registered investment companies having management contracts with the
Manager, may participate in 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 year ended October 31, 2007, the
following Funds had borrowings:
DAYS INTEREST AVERAGE DEBT WEIGHTED AVERAGE
OUTSTANDING CHARGES UTILIZED INTEREST RATE
----------- -------- ------------ ----------------
Large Cap Growth ... 4 $ 837 $1,409,316 5.42%
High Yield Bond .... 5 2,022 2,719,130 5.43%
Enhanced Income .... 16 8,912 3,762,586 5.40%
Reimbursement of Expenses
The Manager agreed to reimburse the following Funds to the extent that
total annual fund operating expenses exceeded the Fund's expense cap. For the
period ended October 31, 2007, the Manager waived or reimbursed expenses as
follows:
Expense Cap
------------------
11/1/06 3/1/07 WAIVED OR
TO TO REIMBURSED
FUND CLASS 2/28/07 10/31/07 EXPENSES
- ---- ----- ------- -------- ----------
Balanced ..................... Service 1.09% 1.10% --
Large Cap Growth ............. Institutional 0.90% 0.90% $ 178
Mid-Cap Value ................ Institutional 1.01% 0.90% 8,634
Mid-Cap Value ................ PlanAhead 1.23% 1.23% 10,507
Mid-Cap Value ................ Service N/A 1.50% --
Small Cap Value Opportunity .. Institutional 1.06% 1.05% 33,886
Small Cap Value Opportunity .. PlanAhead 1.31% 1.30% 803
Emerging Markets ............. PlanAhead 2.00% N/A --
Intermediate Bond ............ PlanAhead 0.95% N/A 783
Short-Term Bond .............. PlanAhead 0.87% 0.87% 5,426
Expense Reimbursement Plan
The Funds have adopted an Expense Reimbursement Plan whereby the
Manager may seek repayment of fees waived or expenses reimbursed for a period of
up to three years. However, reimbursement will occur only if the Class' average
net assets have grown or expenses have declined sufficiently to allow
reimbursement without causing its expense ratio to exceed the previously agreed
upon contractual expense limit.
The activity related to repayment of prior year fee waivers and
expense reimbursements during the year ended October 31, 2007 was as follows:
Balanced- Service Class.
EXPIRATION LIABILITY AT LIABILITY AT
YEAR 10/31/06 ACCRUED EXPIRED RECOUPED 10/31/07
- ---------- ------------ ------- ------- -------- ------------
2007 $ -- $-- $-- $ -- $ --
2008 1,650 -- -- 634 1,016
2009 13 -- -- -- 13
------ --- --- ---- ------
$1,663 $-- $-- $634 $1,029
====== === === ==== ======
93
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
Emerging Markets- PlanAhead Class
EXPIRATION LIABILITY AT LIABILITY AT
YEAR 10/31/06 ACCRUED EXPIRED RECOUPED 10/31/07
- ---------- ------------ ------- ------- -------- ------------
2007 $ 399 $-- $-- $399 $ --
2008 5,148 -- -- 415 4,734
2009 2,926 -- -- -- 2,926
------ --- --- ---- ------
$8,473 $-- $-- $814 $7,660
====== === === ==== ======
Mid-Cap Value- AMR Class
EXPIRATION LIABILITY AT LIABILITY AT
YEAR 10/31/06 ACCRUED EXPIRED RECOUPED 10/31/07
- ---------- ------------ ------- ------- -------- ------------
2007 $11,997 $-- $2,784 $9,213 $ --
2008 7,258 -- 1,662 -- 5,596
2009 2,537 -- -- -- 2,537
------- --- ------ ------ ------
$21,792 $-- $4,446 $9,213 $8,133
======= === ====== ====== ======
High Yield Bond-Institutional Class
EXPIRATION LIABILITY AT LIABILITY AT
YEAR 10/31/06 ACCRUED EXPIRED RECOUPED 10/31/07
- ---------- ------------ ------- ------- -------- ------------
2007 $34,513 $-- $22,697 $11,816 $--
2008 62 -- -- 62 --
2009 -- -- -- -- --
------- --- ------- ------- ---
$34,575 $-- $22,697 $11,878 $--
======= === ======= ======= ===
The remaining Funds have not recorded a liability for potential
reimbursement, due to the current assessment that a reimbursement is unlikely.
Other
At October 31, 2007, AMR Corporation and subsidiary companies and
employee benefit trusts thereof owned the following percentage of each Fund:
% OWNERSHIP
-----------
Balanced ......................................................... 77%
Large Cap Growth ................................................. 100%
Mid-Cap Value .................................................... 61%
Small Cap Value Opportunity ...................................... 7%
Emerging Markets ................................................. 91%
High Yield Bond .................................................. 36%
Intermediate Bond ................................................ 98%
Short-Term Bond .................................................. 93%
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 during the fiscal years ended
October 31, 2007 and October 31, 2006 were as follows (in thousands):
94
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
BALANCED LARGE CAP GROWTH MID-CAP VALUE
------------------------- ------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2007 2006 2007 2006 2007 2006
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME*
Institutional Class .......... $ 906 $ 405 $ 1 $ 1 $ 84 $ 114
PlanAhead Class .............. 3,751 2,594 -- -- 714 --
Service Class ................ 52 -- -- -- -- --
AMR Class .................... 28,183 22,546 737 376 1,835 7,556
LONG-TERM CAPITAL GAIN
Institutional Class .......... 1,156 629 -- -- 24 31
PlanAhead Class .............. 5,180 4,282 -- -- 198 --
Service Class ................ 68 -- -- -- -- --
AMR Class .................... 34,174 32,862 -- -- 494 2,057
------- ------- ---- ---- ------ ------
TOTAL DISTRIBUTIONS PAID .. $73,470 $63,318 $738 $377 $3,349 $9,758
======= ======= ==== ==== ====== ======
* For tax purposes, short-term capital gains are considered ordinary income
distributions.
SMALL CAP
VALUE OPPORTUNITY EMERGING MARKETS HIGH YIELD BOND
------------------------- ------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2007 2006 2007 2006 2007 2006
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME*
Institutional Class .......... $25 $-- $ 412 $ 416 $16,871 $16,799
PlanAhead Class .............. 1 -- 135 100 4,915 7,065
Service Class ................ -- -- -- -- -- 1
AMR Class .................... -- -- 3,613 3,660 949 --
LONG-TERM CAPITAL GAIN
Institutional Class .......... -- -- 2,096 1,430 -- 2,254
PlanAhead Class .............. -- -- 802 361 -- 1,092
Service Class ................ -- -- -- -- -- --
AMR Class .................... -- -- 16,785 11,913 -- --
--- --- ------- ------- ------- -------
TOTAL DISTRIBUTIONS PAID .. $26 $-- $23,843 $17,880 $22,735 $27,211
=== === ======= ======= ======= =======
* For tax purposes, short-term capital gains are considered ordinary income
distributions.
ENHANCED INCOME INTERMEDIATE BOND SHORT-TERM BOND
------------------------- ------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2007 2006 2007 2006 2007 2006
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME*
Institutional Class .......... $ -- $ -- $4,946 $4,367 $4,046 $3,409
PlanAhead Class .............. 4,171 3,905 13 41 227 375
AMR Class .................... -- -- -- -- -- --
LONG-TERM CAPITAL GAIN
Institutional Class .......... -- -- -- -- -- --
PlanAhead Class .............. 74 14 -- -- -- --
AMR Class .................... -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS PAID .. $4,245 $3,919 $4,959 $4,408 $4,273 $3,784
====== ====== ====== ====== ====== ======
* For tax purposes, short-term capital gains are considered ordinary income
distributions.
95
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
As of October 31, 2007, the components of distributable earnings on a tax basis
were as follows (in thousands):
LARGE SMALL CAP
CAP MID-CAP VALUE EMERGING
BALANCED GROWTH VALUE OPPORTUNITY MARKETS
---------- -------- -------- ----------- --------
Cost basis of investments for federal
income tax purposes $1,262,386 $111,333 $146,408 $39,028 $234,726
Unrealized appreciation 160,785 13,661 9,858 1,576 92,225
Unrealized depreciation (23,628) (2,481) (8,303) (3,335) (1,900)
---------- -------- -------- ------- --------
Net unrealized appreciation/(depreciation) 137,157 11,180 1,555 (1,759) 90,325
Undistributed ordinary income 40,288 551 2,208 110 12,607
Undistributed long-term gain/(loss) 46,054 2,751 6,553 (313) 33,156
---------- -------- -------- ------- --------
Distributable earnings $ 223,499 $ 14,482 $ 10,316 $(1,962) $136,088
========== ======== ======== ======= ========
HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM
BOND INCOME BOND BOND
---------- -------- ------------ ----------
Cost basis of investments for federal
income tax purposes $236,258 $120,605 $137,196 $96,452
Unrealized appreciation 2,060 3,800 869 343
Unrealized depreciation (4,953) (715) (669) (720)
-------- -------- -------- -------
Net unrealized appreciation/(depreciation) (2,893) 3,085 200 (377)
Undistributed ordinary income 652 1,518 500 537
Undistributed long-term gain/(loss) (1,772) 1,461 (8,850) (7,202)
-------- -------- -------- -------
Distributable earnings $ (4,013) $ 6,064 $ (8,150) $(7,042)
======== ======== ======== =======
Financial reporting records are adjusted for permanent book/tax
differences to reflect tax character. Financial records are not adjusted for
temporary differences. The temporary differences between financial reporting and
tax-basis reporting of unrealized appreciation/(depreciation) are attributable
primarily to the tax deferral of losses from wash sales, the realization for tax
purposes of unrealized gains/(losses) on certain derivative instruments, book
amortization for premiums, 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 Statements
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, 2007 (in
thousands):
SMALL CAP HIGH SHORT-
LARGE CAP MID-CAP VALUE EMERGING YIELD ENHANCED INTERMEDIATE TERM
BALANCED GROWTH VALUE OPPORTUNITY MARKETS BOND INCOME BOND BOND
-------- --------- ------- ----------- -------- ----- -------- ------------ -------
Paid-in-capital ................. $ 6 $ 1 $ (1) $ (1) $ (1) $-- $(1,120) $ -- $(1,991)
Undistributed net investment
income ....................... 480 (4) (146) (12) (117) -- 1,984 27 703
Accumulated net realized gain
(loss) ....................... (485) 5 146 13 117 -- (864) (27) 1,287
Unrealized appreciation
(depreciation) of investments,
futures contracts and foreign
currency ..................... (1) (2) 1 -- 1 -- -- -- 1
96
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
At October 31, 2007, capital loss carry forward positions for federal
income tax purposes were as follows (in thousands):
FUND 2008 2009 2010 2011 2012 2013 2014 2015 TOTAL
- ---- ------ ---- ---- ---- ---- ------ ------ ---- ------
Small Cap Value Opportunity .. $ -- $-- $ -- $ -- $ -- $ -- $ -- $313 $ 313
High Yield Bond .............. -- -- -- -- -- -- 1,772 -- 1,772
Intermediate Bond ............ 7,108 -- 328 -- -- 318 1,097 -- 8,851
Short-Term Bond .............. 1,218 -- 913 161 800 1,256 2,387 467 7,202
The Large Cap Growth Fund, High Yield Bond Fund and Intermediate Bond
Fund utilized $3,602, $1,844 and $259 respectively, of net capital loss
carryovers, and the Short-Term Bond Fund had $1,991 of expired capital loss
carryovers for the year ended October 31, 2007.
4. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales and maturities
of long-term investments during the year ended October 31, 2007 were as follows
(in thousands):
SMALL CAP HIGH SHORT-
LARGE CAP MID-CAP VALUE EMERGING YIELD ENHANCED INTERMEDIATE TERM
BALANCED GROWTH VALUE OPPORTUNITY MARKETS BOND INCOME BOND BOND
-------- --------- ------- ----------- -------- -------- -------- ------------ -------
Purchases (excluding U.S.
government securities) ....... $454,008 $124,906 $84,740 $35,638 $186,405 $261,565 $68,993 $55,508 $37,967
Sales and maturities (excluding
U.S. government securities) .. 308,009 114,917 41,348 8,429 155,508 337,493 78,964 47,729 32,046
Purchases of U.S. government
securities ................... 202,180 -- -- -- -- -- 32,924 40,065 --
Sales and maturities of U.S.
government securities ........ 197,372 -- -- -- -- -- 43,238 36,016 --
A summary of the Funds' direct transactions in Affiliated Funds for
the year ended October 31, 2007 is set forth below (in thousands):
OCTOBER 31, 2006 OCTOBER 31, 2007
AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
----------- ------------------- --------- -------- -------------------
Balanced......................... Select Fund $64,379 $497,667 $504,944 $57,102
Large Cap Growth................. Select Fund 4,783 84,525 84,774 4,534
Mid-Cap Value.................... Select Fund 15,621 153,748 167,070 2,299
Small Cap Value Opportunity...... Select Fund 49 29,142 29,161 30
Emerging Markets................. Select Fund 8,172 149,634 140,588 17,218
High Yield Bond.................. Select Fund 13,082 237,999 243,997 7,084
Enhanced Income.................. Select Fund 11,924 53,529 62,156 3,297
Intermediate Bond................ Select Fund 2,890 44,156 43,687 3,359
Short-Term Bond.................. Select Fund 2,054 31,621 26,076 7,599
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.
97
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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 borrowers and transaction
costs. To the extent that a loan is secured by non-cash collateral, borrowers
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, 2007, the value of outstanding securities on loan and
the value of collateral was as follows (in thousands):
MARKET VALUE OF NON-CASH
FUND SECURITIES ON LOAN COLLATERAL CASH COLLATERAL
- ---- ------------------ ---------- ---------------
Balanced ..................... $250,817 $17,286 $240,190
Large Cap Growth ............. 23,775 3,142 20,879
Mid-Cap Value ................ 19,957 856 19,485
Small Cap Value Opportunity .. 7,414 -- 7,516
Emerging Markets ............. 30,083 721 30,790
High Yield Bond .............. 10,105 -- 10,390
Enhanced Income .............. 24,308 63 24,746
Intermediate Bond ............ 27,031 -- 27,711
Short-Term Bond .............. 4,419 -- 4,517
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 Affiliated Funds. 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 a 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 Funds (shares and dollars in thousands):
YEAR ENDED OCTOBER 31, 2007
INSTITUTIONAL
CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
----------------- ----------------- ---------------- -----------------
BALANCED FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ -------- ------ -------- ------ ------- ------ --------
Shares sold ......................... 2,632 $ 40,892 9,160 $133,607 637 $ 9,354 3,668 $ 55,490
Reinvestment of dividends ........... 133 2,010 596 8,472 9 120 4,292 62,357
Shares redeemed ..................... (997) (15,809) (3,818) (56,412) (115) (1,681) (3,474) (52,456)
----- -------- ------ -------- ---- ------- ------ --------
Net increase in shares outstanding .. 1,768 $ 27,093 5,938 $ 85,667 531 7,793 4,486 $ 65,391
===== ======== ====== ======== ==== ======= ====== ========
98
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
INSTITUTIONAL CLASS AMR CLASS
------------------- ------------------
LARGE CAP GROWTH FUND SHARES AMOUNT SHARES AMOUNT
- --------------------- ------ ------ ------ ---------
Shares sold ......................... 6 $ 42 6,219 $ 44,595
Reinvestment of dividends ........... -- 1 106 737
Shares redeemed ..................... (6) (47) (4,970) (36,098)
--- ---- ------ --------
Net increase (decrease) in shares
outstanding ...................... -- $ (4) 1,355 $ 9,234
=== ==== ====== ========
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
------------------- ---------------- --------------- -----------------
MID-CAP VALUE FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------ ------ ------- ------ ------- ------ ------ ------ --------
Shares sold ......................... 306 $ 3,462 2,186 $24,108 -- $1 5,200 $ 58,233
Reinvestment of dividends ........... 10 106 85 911 -- - 215 2,329
Shares redeemed ..................... (81) (899)* (854) (9,358)* -- - (4,398) (50,095)*
--- ------- ----- ------- --- -- ------ --------
Net increase in shares outstanding .. 235 $ 2,669 1,417 $15,661 -- $1 1,017 $ 10,467
=== ======= ===== ======= === == ====== ========
* Net of Redemption Fees
INSTITUTIONAL CLASS PLANAHEAD CLASS
------------------- ---------------
SMALL CAP VALUE OPPORTUNITY FUND SHARES AMOUNT SHARES AMOUNT
- -------------------------------- ------ ------- ------ ------
Shares sold ......................... 2,568 $28,729 46 $ 495
Reinvestment of dividends ........... 3 25 -- 1
Shares redeemed ..................... (163) (1,721) (44) (478)
----- ------- --- -----
Net increase in shares outstanding .. 2,408 $27,033 2 $ 18
===== ======= === =====
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
------------------- ---------------- -----------------
EMERGING MARKETS FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- --------------------- ------ -------- ------ ------- ------ --------
Shares sold ......................... 158 $ 2,910 276 $ 5,295 3,940 $ 79,619
Reinvestment of dividends ........... 150 2,456 56 910 1,236 20,398
Shares redeemed ..................... (689) (13,376)* (182) (3,347)* (1,740) (32,629)*
---- -------- ---- ------- ------ --------
Net increase (decrease) in shares
outstanding ...................... (381) $ (8,010) 150 $ 2,858 3,436 $ 67,388
==== ======== ==== ======= ====== ========
* Net of Redemption Fees
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
------------------- ----------------- ----------------
HIGH YIELD BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------ -------- ------ -------
Shares sold ......................... 8,987 $ 92,399 2,989 $ 30,489 8,737 $87,012
Reinvestment of dividends ........... 1,310 13,435 470 4,820 94 948
Shares redeemed ..................... (21,641) (219,761) (8,481) (86,687) (687) (6,930)
------- --------- ------ -------- ----- -------
Net increase (decrease) in shares
outstanding ...................... (11,344) $(113,927) (5,022) $(51,378) 8,144 $81,030
======= ========= ====== ======== ===== =======
PLANAHEAD CLASS
-----------------
ENHANCED INCOME FUND SHARES AMOUNT
- -------------------- ------ --------
Shares sold ......................... 1,524 $ 15,667
Reinvestment of dividends ........... 412 4,245
Shares redeemed ..................... (4,716) (48,649)
====== ========
Net (decrease) in shares
outstanding ...................... (2,780) $(28,737)
------ --------
99
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
INSTITUTIONAL CLASS PLANAHEAD CLASS
------------------- ----------------
INTERMEDIATE BOND FUND SHARES AMOUNT SHARES AMOUNT
- ---------------------- ------ -------- ------ -------
Shares sold ......................... 2,676 $ 26,814 7 $ 68
Reinvestment of dividends ........... 493 4,945 1 12
Shares redeemed ..................... (2,019) (20,209) (100) (1,014)
------ -------- ---- -------
Net increase (decrease) in shares
outstanding ...................... 1,150 $ 11,550 (92) $ (934)
====== ======== ==== =======
INSTITUTIONAL CLASS PLANAHEAD CLASS
------------------- ----------------
SHORT-TERM BOND FUND SHARES AMOUNT SHARES AMOUNT
- -------------------- ------ ------- ------ -------
Shares sold ......................... 2,310 $20,272 309 $2,712
Reinvestment of dividends ........... 461 4,044 25 220
Shares redeemed ..................... (999) (8,754) (817) (7,178)
----- ------- ---- -------
Net increase (decrease) in shares
outstanding ...................... 1,772 $15,562 (483) $(4,246)
===== ======= ==== =======
100
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
PERIOD ENDED OCTOBER 31, 2006
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
==== ======= ====== ======== === ====== ====== ========
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
=== ==== ====== ========
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
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
=== ====== === ====
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
101
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007 (UNAUDITED)
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)
======= ========= ====== ======== === ====
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
====== ========
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)
====== ======== === =====
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)
====== ======== ====== =======
7. SUBSEQUENT EVENT
On November 1, 2007, a shareholder of the Small Cap Value Opportunity Fund -
Institutional Class redeemed 1,766,785 shares totaling $17,385,164.
102
(This page intentionally left blank)
AMERICAN BEACON BALANCED FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class
---------------------------------------------
Year Ended October 31
---------------------------------------------
2007 2006 2005 2004 2003
------- ------- ------- ------ ------
Net asset value, beginning of period ....................... $ 15.83 $ 15.00 $ 14.31 $12.99 $10.97
------- ------- ------- ------ ------
Income from investment operations:
Net investment income(A) ................................ 0.50 0.39 0.36 0.29 0.31(B)
Net gains on securities (both realized and unrealized) .. 0.90 1.54 1.11 1.36 1.84(B)
------- ------- ------- ------ ------
Total income from investment operations .................... 1.40 1.93 1.47 1.65 2.15
------- ------- ------- ------ ------
Less distributions:
Dividends from net investment income .................... (0.42) (0.38) (0.31) (0.33) (0.13)
Distributions from net realized gains on securities ..... (0.72) (0.72) (0.47) -- --
------- ------- ------- ------ ------
Total distributions ........................................ (1.14) (1.10) (0.78) (0.33) (0.13)
------- ------- ------- ------ ------
Net asset value, end of period ............................. $ 16.09 $ 15.83 $ 15.00 $14.31 $12.99
======= ======= ======= ====== ======
Total return ............................................... 9.31% 13.60% 10.53% 10.53% 19.77%
======= ======= ======= ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands) ................ $51,399 $22,587 $14,122 $8,378 $9,041
Ratios to average net assets (annualized):
Expenses, net of waivers ................................ 0.57% 0.59% 0.56% 0.63% 0.63%
Expenses, before waivers ................................ 0.57% 0.59% 0.56% 0.63% 0.63%
Net investment income, net of waivers ................... 2.91% 2.81% 2.45% 2.15% 2.74%
Net investment income (loss), before waivers ............ 2.91% 2.81% 2.45% 2.15% 2.74%
Portfolio turnover rate ................................. 50% 59% 58% 62% 69%
PlanAhead Class
------------------------------------------------
Year Ended October 31
------------------------------------------------
2007 2006 2005 2004 2003
-------- -------- ------- ------- ------
Net asset value, beginning of period ....................... $ 14.91 $ 14.20 $ 13.62 $ 12.40 $10.81
-------- -------- ------- ------- ------
Income from investment operations:
Net investment income(A) ................................ 0.41 0.35 0.34 0.27 0.28(B)
Net gains on securities (both realized and unrealized) .. 0.87 1.44 1.01 1.25 1.74(B)
-------- -------- ------- ------- ------
Total income from investment operations .................... 1.28 1.79 1.35 1.52 2.02
-------- -------- ------- ------- ------
Less distributions:
Dividends from net investment income .................... (0.38) (0.36) (0.30) (0.30) (0.43)
Distributions from net realized gains on securities ..... (0.72) (0.72) (0.47) -- --
-------- -------- ------- ------- ------
Total distributions ........................................ (1.10) (1.08) (0.77) (0.30) (0.43)
-------- -------- ------- ------- ------
Net asset value, end of period ............................. $ 15.09 $ 14.91 $ 14.20 $ 13.62 $12.40
======== ======== ======= ======= ======
Total return ............................................... 9.06% 13.31% 10.12% 12.44% 19.36%
======== ======== ======= ======= ======
Ratios and supplemental data:
Net assets, end of period (in thousands) ................ $202,750 $111,837 $86,875 $21,571 $3,321
Ratios to average net assets (annualized):
Expenses, net of waivers ................................ 0.83% 0.85% 0.86% 0.93% 0.94%
Expenses, before waivers ................................ 0.83% 0.85% 0.86% 0.93% 0.94%
Net investment income, net of waivers ................... 2.65% 2.55% 2.14% 1.84% 2.40%
Net investment income (loss), before waivers ............ 2.65% 2.55% 2.14% 1.84% 2.40%
Portfolio turnover rate ................................. 50% 59% 58% 62% 69%
104
Service Class
---------------------------
Year Ended May 31 to
October 31 October
--------------- 31,
2007 2006 2005
------ ------ ---------
Net asset value, beginning of period ....................... $14.83 $14.16 $ 13.96
------ ------ ---------
Income from investment operations:
Net investment income(A) ................................ 0.41 0.38 0.09
Net gains on securities (both realized and unrealized) .. 0.83 1.35 0.11
------ ------ ---------
Total income from investment operations .................... 1.24 1.73 0.20
------ ------ ---------
Less distributions:
Dividends from net investment income .................... (0.40) (0.34) --
Distributions from net realized gains on securities ..... (0.72) (0.72) --
------ ------ ---------
Total distributions ........................................ (1.12) (1.06) --
------ ------ ---------
Net asset value, end of period ............................. $14.95 $14.83 $ 14.16
====== ====== =========
Total return ............................................... 8.76% 13.01% 1.43%(C)
====== ====== =========
Ratios and supplemental data:
Net assets, end of period (in thousands) ................ $9,504 $1,562 $ 1
Ratios to average net assets (annualized):
Expenses, net of waivers ................................ 1.07% 1.22% 1.09%(D)
Expenses, before waivers ................................ 1.07% 1.22% 360.24%(D)
Net investment income, net of waivers ................... 2.34% 2.18% 1.52%(D)
Net investment income (loss), before waivers ............ 2.34% 2.17% (357.63)%(D)
Portfolio turnover rate ................................. 50% 59% 58%(E)
AMR Class
----------------------------------------------------
Year Ended October 31
----------------------------------------------------
2007 2006 2005 2004 2003
-------- -------- -------- -------- --------
Net asset value, beginning of period ....................... $ 15.27 $ 14.49 $ 13.87 $ 12.60 $ 10.98
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income(A) ................................ 0.50 0.45 0.39 0.32 0.34
Net gains on securities (both realized and unrealized) .. 0.89 1.46 1.05 1.31 1.78
-------- -------- -------- -------- --------
Total income from investment operations .................... 1.39 1.91 1.44 1.63 2.12
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income .................... (0.45) (0.41) (0.35) (0.36) (0.50)
Distributions from net realized gains on securities ..... (0.72) (0.72) (0.47) -- --
-------- -------- -------- -------- --------
Total distributions ........................................ (1.17) (1.13) (0.82) (0.36) (0.50)
-------- -------- -------- -------- --------
Net asset value, end of period ............................. $ 15.49 $ 15.27 $ 14.49 $ 13.87 $ 12.60
======== ======== ======== ======== ========
Total return ............................................... 9.59% 13.98% 10.63% 13.13% 20.06%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) ................ $898,584 $817,333 $712,073 $636,420 $557,612
Ratios to average net assets (annualized):
Expenses, net of waivers ................................ 0.31% 0.33% 0.33% 0.37% 0.38%
Expenses, before waivers ................................ 0.31% 0.33% 0.33% 0.37% 0.38%
Net investment income, net of waivers ................... 3.21% 3.08% 2.70% 2.40% 2.98%
Net investment income (loss), before waivers ............ 3.21% 3.08% 2.70% 2.40% 2.98%
Portfolio turnover rate ................................. 50% 59% 58% 62% 69%
(A) Class expenses per share were subtracted from net investment income per
share for the Fund before class expenses to determine n et investment
income per share through October 31, 2005.
(B) For the year ended October 31, 2003, the net investment income and net
gains (losses) on securities (both realized and unrealiz ed) has been
restated from 0.30 and 1.85, respectively for Institutional Class and 0.36
and 1.66, respectively for PlanAhead Class.
(C) Not annualized.
(D) Annualized.
(E) Portfolio turnover rate is for the period from November 1, 2004 through
October 31, 2005.
105
AMERICAN BEACON LARGE CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class
----------------------------------------------
Year Ended October 31
----------------------------------------------
2007 2006(A) 2005 2004 2003
------ ------- ------ ------- ------
Net asset value, beginning of period ....................... $ 6.89 $ 6.18 $ 5.82 $ 5.47 $ 4.53
------ ------ ------ ------- ------
Income from investment operations:
Net investment income ................................... 0.04 0.04 0.04 0.02 0.02
Net gains on securities (both realized and unrealized) .. 0.77 0.70 0.37 0.35 0.94
------ ------ ------ ------- ------
Total income from investment operations .................... 0.81 0.74 0.41 0.37 0.96
------ ------ ------ ------- ------
Less distributions:
Dividends from net investment income .................... (0.03) (0.03) (0.05) (0.02) (0.02)
Distributions from net realized gains on securities ..... -- -- -- -- --
------ ------ ------ ------- ------
Total distributions ........................................ (0.03) (0.03) (0.05) (0.02) (0.02)
------ ------ ------ ------- ------
Net asset value, end of period ............................. $ 7.67 $ 6.89 $ 6.18 $ 5.82 $ 5.47
====== ====== ====== ======= ======
Total return ............................................... 11.84% 12.04% 7.06% 6.71% 21.15%
====== ====== ====== ======= ======
Ratios and supplemental data:
Net assets, end of period (in thousands) ................ $ 119 $ 110 $ 105 $ 1 $ 1
Ratios to average net assets (annualized):
Expenses, net of waivers ................................ 0.90% 0.90% 0.89% 0.84% 0.87%
Expenses, before waivers ................................ 1.06% 0.99% 4.64% 13.22% 0.87%
Net investment income (loss), net of waivers ............ 0.58% 0.56% (0.18)% 0.18% 0.18%
Net investment income (loss), before waivers ............ 0.42% 0.48% (3.93)% (12.20)% 0.18%
Portfolio turnover rate ................................. 128% 181% 164% 131% 138%
106
AMR Class
------------------------------------------------
Year Ended October 31
------------------------------------------------
2007 2006(A) 2005 2004 2003
-------- ------- ------- ------- -------
Net asset value, beginning of period ....................... $ 6.95 $ 6.21 $ 5.84 $ 5.48 $ 4.54
-------- ------- ------- ------- -------
Income from investment operations:
Net investment income ................................... 0.06 0.05 0.06 0.02 0.02
Net gains on securities (both realized and unrealized) .. 0.77 0.73 0.36 0.36 0.93
-------- ------- ------- ------- -------
Total income from investment operations .................... 0.83 0.78 0.42 0.38 0.95
-------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income .................... (0.06) (0.04) (0.05) (0.02) (0.01)
Distributions from net realized gains on securities ..... -- -- -- -- --
-------- ------- ------- ------- -------
Total distributions ........................................ (0.06) (0.04) (0.05) (0.02) (0.01)
-------- ------- ------- ------- -------
Net asset value, end of period ............................. $ 7.72 $ 6.95 $ 6.21 $ 5.84 $ 5.48
======== ======= ======= ======= =======
Total return ............................................... 12.07% 12.52% 7.22% 6.88% 21.09%
======== ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands) ................ $101,698 $82,042 $63,183 $55,121 $48,926
Ratios to average net assets (annualized):
Expenses, net of waivers ................................ 0.60% 0.59% 0.64% 0.71% 0.68%
Expenses, before waivers ................................ 0.60% 0.59% 0.64% 0.71% 0.68%
Net investment income (loss), net of waivers ............ 0.85% 0.88% 0.98% 0.34% 0.40%
Net investment income (loss), before waivers ............ 0.85% 0.88% 0.98% 0.34% 0.40%
Portfolio turnover rate ................................. 128% 181% 164% 131% 138%
(A) 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.
107
AMERICAN BEACON MID-CAP VALUE FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class PlanAhead Class
------------------------ ------------------------
Year Ended November 30 Year Ended February 28
October to October October to October
31, 2007 31, 2006 31, 2007 31, 2006
---------- ----------- ---------- -----------
Net asset value, beginning of period .......... $10.81 $12.09 $ 10.80 $ 9.80
------ ------ ------- -------
Income from investment operations:
Net investment income ...................... 0.12 0.21 0.10 0.01
Net gains (losses) on securities (both
realized and unrealized) ................ 0.41 1.25 0.40 0.99
------ ------ ------- -------
Total income (loss) from investment
operations ................................. 0.53 1.46 0.50 1.00
------ ------ ------- -------
Less distributions:
Dividends from net investment income ....... (0.07) (0.16) (0.08) --
Distributions from net realized gains on
securities .............................. (0.26) (2.58) (0.26) --
------ ------ ------- -------
Total distributions ........................... (0.33) (2.74) (0.34) --
------ ------ ------- -------
Redemption fees added to beneficial
interests .................................. -- -- -- --
Net asset value, end of period ................ $11.01 $10.81 $ 10.96 $ 10.80
====== ====== ======= =======
Total return .................................. 4.87% 15.30%(C) 4.68% 10.20%(C)
====== ====== ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands) ... $6,047 $3,396 $43,158 $27,240
Ratios to average net assets (annualized):
Expenses, net of waivers ................... 0.92% 1.19%(D) 1.23% 1.49%(D)
Expenses, before waivers ................... 1.09% 1.19%(D) 1.26% 1.61%(D)
Net investment income, net of waivers ...... 1.22% 1.11%(D) 0.93% 0.57%(D)
Net investment income, before waivers ...... 1.05% 1.11%(D) 0.90% 0.44%(D)
Portfolio turnover rate .................... 35% 42%(E) 35% 42%(E)
(A) 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.
(B) Based on average shares outstanding.
(C) Not annualized.
(D) Annualized.
(E) Portfolio turnover rate is for the period from November 1, 2005 through
October 31, 2006.
(F) Portfolio turnover rate is for the period from November 1, 2006 through
October 31, 2007.
108
AMR Class (formerly Institutional Class
Service prior to December 1, 2005)(A)
Class ----------------------------------------
June 29 Year Ended October 31 June 30 to
to October --------------------------- October
31, 2007 2007 2006 2005 31, 2004
---------- ------- ------- ------- ----------
Net asset value, beginning of period ....... $11.73 $ 10.87 $ 11.72 $ 10.27 $ 10.00
------ ------- ------- ------- -------
Income from investment operations:
Net investment income ................... 0.01 0.18 0.12 0.13 0.02(B)
Net gains (losses) on securities (both
realized and unrealized) ............. 0.80 0.36 1.75 1.37 0.25
------ ------- ------- ------- -------
Total income (loss) from investment
operations .............................. 0.79 0.54 1.87 1.50 0.27
------ ------- ------- ------- -------
Less distributions:
Dividends from net investment income .... -- (0.08) (0.14) (0.05) --
Distributions from net realized
gains on securities .................. -- (0.26) (2.58) -- --
------ ------- ------- ------- -------
Total distributions ........................ -- (0.34) (2.72) (0.05) --
------ ------- ------- ------- -------
Redemption fees added to beneficial
interests ............................... -- -- -- -- --
Net asset value, end of period ............. $10.94 $ 11.07 $ 10.87 $ 11.72 $ 10.27
====== ======= ======= ======= =======
Total return ............................... 6.65%(C) 5.19% 19.16% 14.63% 2.70%(C)
====== ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period
(in thousands) ....................... $ 1 $78,794 $66,290 $44,342 $25,546
Ratios to average net assets
(annualized):
Expenses, net of waivers ................ 1.50%(D) 0.75% 0.97% 1.01% 1.14%(D)
Expenses, before waivers ................ 1.80%(D) 0.75% 0.92% 1.02% 1.34%(D)
Net investment income, net of waivers ... 0.32%(D) 1.41% 1.38% 0.92% 0.73%(D)
Net investment income, before waivers ... 0.02%(D) 1.40% 1.42% 0.91% 0.53%(D)
Portfolio turnover rate ................. 35%(F) 35% 42% 298% 6%(C)
109
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class PlanAhead Class
------------------------ ------------------------
Year Ended March 31 to Year Ended March 31
October October October to October
31, 2007 31, 2006 31, 2007 31, 2006
---------- ----------- ---------- ----------
Net asset value, beginning of period ...... $ 10.26 $10.00 $10.26 $ 10.00
------- ------ ------ - -----
Income from investment operations:
Net investment income .................. 0.11(A) 0.01 0.14(A) 0.01
Net gains (losses) on securities .......
(both realized and unrealized) ...... --(A) 0.25 (0.05)(A) 0.25
------- ------ ------ -------
Total income from investment operations ... 0.11 0.26 0.09 0.26
------- ------ ------ -------
Less distributions:
Dividends from net investment income ... (0.03) -- (0.06) --
Distributions from net realized gains
on securities ....................... (0.01) -- (0.01) --
------- ------ ------ -------
Total distributions ....................... (0.04) -- (0.07) --
------- ------ ------ -------
Net asset value, end of period ............ $ 10.33 $10.26 $10.28 $ 10.26
======= ====== ====== =======
Total return .............................. 1.08% 2.60%(B) 0.96% 2.60%(B)
======= ====== ====== =======
Ratios and supplemental data:
Net assets, end of period
(in thousands) ...................... $29,596 $4,693 $ 91 $ 70
Ratios to average net assets
(annualized):
Expenses, net of waivers ............... 1.05% 1.03% 1.30% 1.28%
Expenses, before waivers ............... 1.27% 6.12% 1.70% 20.05%
Net investment income, net
of waivers .......................... 0.96% 0.30% 0.97% 0.21%
Net investment income (loss),
before waivers ...................... 0.73% (4.80)% 0.57% (18.56)%
Portfolio turnover rate ................ 58% 32%(B) 58% 32%(B)
(A) Based upon average shares outstanding.
(B) Not annualized.
110
(This page intentionally left blank)
AMERICAN BEACON EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class
--------------------------------------------------
Year Ended October 31
--------------------------------------------------
2007 2006 2005 2004 2003
------- ------- ------ ------ ------
Net asset value, beginning of period .................... $ 17.42 $ 15.10 $12.64 $10.62 $ 7.20
------- ------- ------ ------ ------
Income from investment operations:
Net investment income ................................ 0.26 0.11 0.15 0.07 0.04
Net gains on securities (both realized and
unrealized) ....................................... 9.11 4.63 3.45 2.01 3.43
------- ------- ------ ------ ------
Total income from investment operations ................. 9.37 4.74 3.60 2.08 3.47
------- ------- ------ ------ ------
Less distributions:
Dividends from net investment income ................. (0.10) (0.21) (0.06) (0.06) (0.05)
Distributions from net realized gains on Securities .. (2.49) (2.21) (1.08) -- --
------- ------- ------ ------ ------
Total distributions ..................................... (2.59) (2.42) (1.14) (0.06) (0.05)
------- ------- ------ ------ ------
Redemption fees added to beneficial Interests ........... --(A) -- --(A) --(A) --
Net asset value, end of period .......................... $ 24.20 $ 17.42 $15.10 $12.64 $10.62
======= ======= ====== ====== ======
Total return ............................................ 60.83% 34.49% 30.11% 19.65% 48.45%
======= ======= ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands) ............. $13,773 $16,552 $9,348 $7,282 $3,557
Ratios to average net assets (annualized):
Expenses, net of waivers ............................. 1.60% 1.56% 1.52% 1.85% 1.76%
Expenses, before waivers ............................. 1.60% 1.56% 1.52% 1.85% 1.76%
Net investment income, net of waivers ................ 0.93% 0.80% 1.22% 0.74% 0.62%
Net investment income, before waivers ................ 0.93% 0.80% 1.22% 0.74% 0.62%
Portfolio turnover rate .............................. 81% 67% 63% 76% 80%
112
PlanAhead Class
-------------------------------------------------
Year Ended October 31
-------------------------------------------------
2007 2006 2005 2004 2003
------- ------ ------ ------ ------
Net asset value, beginning of period .................... $ 17.22 $14.98 $12.53 $10.55 $ 7.19
------- ------ ------ ------ ------
Income from investment operations:
Net investment income ................................ 0.11 0.09 0.15 0.04 0.09
Net gains on securities (both realized and
unrealized) ....................................... 9.11 4.55 3.41 1.99 3.34
------- ------ ------ ------ ------
Total income from investment operations ................. 9.22 4.64 3.56 2.03 3.43
------- ------ ------ ------ ------
Less distributions:
Dividends from net investment income ................. (0.04) (0.19) (0.03) (0.05) (0.07)
Distributions from net realized gains on Securities .. (2.49) (2.21) (1.08) -- --
------- ------ ------ ------ ------
Total distributions ..................................... (2.53) (2.40) (1.11) (0.05) (0.07)
------- ------ ------ ------ ------
Redemption fees added to beneficial Interests ........... --(A) -- --(A) --(A) --(A)
Net asset value, end of period .......................... $ 23.91 $17.22 $14.98 $12.53 $10.55
======= ====== ====== ====== ======
Total return ............................................ 60.17% 34.16% 29.95% 19.33% 48.07%
======= ====== ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands) ............. $11,694 $5,841 $2,592 $1,214 $ 492
Ratios to average net assets (annualized):
Expenses, net of waivers ............................. 1.96% 2.04% 1.75% 2.14% 2.08%
Expenses, before waivers ............................. 1.96% 1.91% 2.01% 2.20% 2.08%
Net investment income, net of waivers ................ 0.65% 0.49% 1.16% 0.37% 0.57%
Net investment income, before waivers ................ 0.65% 0.62% 0.90% 0.31% 0.57%
Portfolio turnover rate .............................. 81% 67% 63% 76% 80%
AMR Class
---------------------------------------------------
Year Ended October 31
---------------------------------------------------
2007 2006 2005 2004 2003
-------- -------- ------- ------- -------
Net asset value, beginning of period .................... $ 17.52 $ 15.17 $ 12.68 $ 10.66 $ 7.22
-------- -------- ------- ------- -------
Income from investment operations:
Net investment income ................................ 0.19 0.15 0.24 0.10 0.07
Net gains on securities (both realized and
unrealized) ....................................... 9.30 4.65 3.42 2.00 3.44
-------- -------- ------- ------- -------
Total income from investment operations ................. 9.49 4.80 3.66 2.10 3.51
-------- -------- ------- ------- -------
Less distributions:
Dividends from net investment income ................. (0.15) (0.24) (0.09) (0.08) (0.07)
Distributions from net realized gains on Securities .. (2.49) (2.21) (1.08) -- --
-------- -------- ------- ------- -------
Total distributions ..................................... (2.64) (2.45) (1.17) (0.08) (0.07)
-------- -------- ------- ------- -------
Redemption fees added to beneficial Interests ........... --(A) -- -- -- --
Net asset value, end of period .......................... $ 24.37 $ 17.52 $ 15.17 $ 12.68 $ 10.66
======== ======== ======= ======= =======
Total return ............................................ 61.19% 34.87% 30.43% 20.00% 48.84%
======== ======== ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands) ............. $271,726 $135,146 $94,864 $74,199 $51,498
Ratios to average net assets (annualized):
Expenses, net of waivers ............................. 1.37% 1.30% 1.25% 1.59% 1.50%
Expenses, before waivers ............................. 1.37% 1.30% 1.25% 1.59% 1.50%
Net investment income, net of waivers ................ 1.25% 1.01% 1.60% 1.01% 0.92%
Net investment income, before waivers ................ 1.25% 1.01% 1.60% 1.01% 0.92%
Portfolio turnover rate .............................. 81% 67% 63% 76% 80%
(A) Amounts represent less than $0.01 per share.
113
AMERICAN BEACON HIGH YIELD BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class
----------------------------------------------------
Year Ended October 31
----------------------------------------------------
2007 2006(A) 2005 2004 2003
-------- -------- -------- -------- --------
Net asset value, beginning of period .................... $ 10.20 $ 10.22 $ 10.86 $ 10.73 $ 9.63
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ................................ 0.77 0.88 0.76 0.78 0.78
Net gains (losses) on securities (both realized and
unrealized) ....................................... (0.09) 0.09 (0.84) 0.27 1.10
-------- -------- -------- -------- --------
Total income (loss) from investment operations .......... 0.68 0.97 (0.08) 1.05 1.88
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income ................. (0.77) (0.88) (0.76) (0.78) (0.78)
Distributions from net realized gains on securities .. -- (0.11) 0.20 (0.14) --
-------- -------- -------- -------- --------
Total distributions ..................................... (0.77) (0.99) (0.56) (0.92) (0.78)
-------- -------- -------- -------- --------
Net asset value, end of period .......................... $ 10.11 $ 10.20 $ 10.22 $ 10.86 $ 10.73
======== ======== ======== ======== ========
Total return ............................................ 6.85% 8.78% 3.03% 10.19% 20.11%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) ............. $114,911 $231,693 $216,744 $241,777 $161,380
Ratios to average net assets (annualized):
Expenses, net of waivers ............................. 0.85% 0.85% 0.84% 0.88% 0.90%
Expenses, before waivers ............................. 0.86% 0.85% 0.84% 0.92% 1.00%
Net investment income, net of waivers ................ 7.55% 7.55% 7.24% 7.27% 7.51%
Net investment income, before waivers ................ 7.54% 7.55% 7.24% 7.23% 7.41%
Portfolio turnover rate .............................. 92% 88% 128% 138% 114%
114
AMR Class
PlanAhead Class ---------
-------------------------------------------------- September
Year Ended October 31 4 to
-------------------------------------------------- October
2007 2006(A) 2005 2004 2003 31, 2007
------- ------- -------- -------- -------- ---------
Net asset value, beginning of period .................... $ 10.21 $ 10.22 $ 10.87 $ 10.73 $ 9.63 $ 9.94
------- ------- -------- -------- -------- -------
Income from investment operations:
Net investment income ................................ 0.75 0.85 0.74 0.74 0.75 0.12
Net gains (losses) on securities (both realized and
unrealized) ....................................... (0.10) 0.10 (0.85) 0.28 1.10 0.17
------- ------- -------- -------- -------- -------
Total income (loss) from investment operations .......... 0.65 0.95 (0.11) 1.02 1.85 0.29
------- ------- -------- -------- -------- -------
Less distributions:
Dividends from net investment income ................. (0.75) (0.85) (0.74) (0.74) (0.75) (0.12)
Distributions from net realized gains on securities .. -- (0.11) 0.20 (0.14) -- --
------- ------- -------- -------- -------- -------
Total distributions ..................................... (0.75) (0.96) (0.54) (0.88) (0.75) (0.12)
------- ------- -------- -------- -------- -------
Net asset value, end of period .......................... $ 10.11 $ 10.21 $ 10.22 $ 10.87 $ 10.73 $ 10.11
======= ======= ======== ======== ======== =======
Total return ............................................ 6.52% 8.63% 2.69% 9.94% 19.57%(B) 2.94%(B)
======= ======= ======== ======== ======== =======
Ratios and supplemental data:
Net assets, end of period (in thousands) ............. $28,758 $80,284 $120,360 $148,266 $125,654 $82,322
Ratios to average net assets (annualized):
Expenses, net of waivers ............................. 1.08% 1.08% 1.08% 1.20% 1.24% 0.61%(C)
Expenses, before waivers ............................. 1.08% 1.08% 1.08% 1.20% 1.24% 0.61%(C)
Net investment income, net of waivers ................ 7.32% 7.33% 7.00% 6.95% 7.11% 7.54%(C)
Net investment income, before waivers ................ 7.32% 7.33% 7.00% 6.95% 7.11% 7.54%(C)
Portfolio turnover rate .............................. 92% 88% 128% 138% 114% 92%(D)
(A) Franklin Advisers, Inc. was added as an investment advisor to the High
Yield Bond Fund on September 12, 2006.
(B) Not annualized.
(C) Annualized.
(D) Portfolio turnover rate is for the period from November 1, 2006 through
October 31, 2007.
115
AMERICAN BEACON ENHANCED INCOME FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
PlanAhead Class
---------------------------------------------------
June
Year Ended October 31 30 to
---------------------------------------- October
2007 2006 2005 2004 31, 2003
------- -------- -------- -------- --------
Net asset value, beginning of period ..................... $ 10.25 $ 9.98 $ 10.16 $ 9.96 $ 10.00
------- -------- -------- -------- --------
Income from investment operations:
Net investment income ................................. 0.36 0.33 0.29 0.26 0.07(A)
Net gains (losses) on securities (both realized
and unrealized) .................................... 0.32 0.29 (0.16) 0.20 (0.04)
------- -------- -------- -------- --------
Total income from investment operations .................. 0.68 0.62 0.13 0.46 0.03
------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income .................. (0.42) (0.35) (0.31) (0.26) (0.07)
Distributions from net realized gains on securities ... (0.01) -- -- -- --
------- -------- -------- -------- --------
Total distributions ...................................... (0.43) (0.35) (0.31) (0.26) (0.07)
------- -------- -------- -------- --------
Net asset value, end of period ........................... $ 10.50 $ 10.25 $ 9.98 $ 10.16 $ 9.96
======= ======== ======== ======== ========
Total return ............................................. 6.75% 6.36% 1.32% 4.70% 0.32%(B)
======= ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) .............. $99,789 $125,915 $112,341 $103,897 $101,072
Ratios to average net assets (annualized):
Expenses .............................................. 0.94% 0.93% 0.92% 1.00% 0.93%
Net investment income ................................. 3.69% 3.21% 2.79% 2.54% 2.20%
Portfolio turnover rate ............................... 103% 65% 41% 72% 57%(B)
(A) Based on average shares outstanding.
(B) Not annualized.
116
AMERICAN BEACON INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class
(formerly AMR Class prior to 3/1/05)
-------------------------------------------------
Year Ended October 31
-------------------------------------------------
2007 2006 2005(A) 2004 2003
-------- ------- ------- ------- --------
Net asset value, beginning of period ........ $ 10.02 $ 10.01 $ 10.33 $ 10.24 $ 10.22
-------- ------- ------- ------- --------
Income from investment operations:
Net investment income .................... 0.50 0.46 0.42 0.40 0.45
Net gains (losses) on securities (both
realized and unrealized) .............. 0.07 0.02 (0.29) 0.14 0.02
-------- ------- ------- ------- --------
Total income from investment operations ..... 0.57 0.48 0.13 0.54 0.47
-------- ------- ------- ------- --------
Less distributions:
Dividends from net investment income ..... (0.49) (0.47) (0.45) (0.45) (0.45)
Distributions from net realized gains
on securities ......................... -- -- -- -- --
-------- ------- ------- ------- --------
Total distributions ......................... (0.49) (0.47) (0.45) (0.45) (0.45)
-------- ------- ------- ------- --------
Net asset value, end of period .............. $ 10.10 $ 10.02 $ 10.01 $ 10.33 $ 10.24
======== ======= ======= ======= ========
Total return ................................ 5.83% 4.96% 1.26% 5.38% 4.62%
======== ======= ======= ======= ========
Ratios and supplemental data:
Net assets, end of period
(in thousands) ........................ $109,674 $97,319 $93,270 $96,242 $131,927
Ratios to average net assets
(annualized):
Expenses, net of waivers ................. 0.34% 0.35% 0.31% 0.34% 0.32%
Expenses, before waivers ................. 0.34% 0.35% 0.31% 0.34% 0.32%
Net investment income, net of waivers .... 4.86% 4.64% 4.12% 3.97% 4.32%
Net investment income, before waivers .... 4.86% 4.64% 4.12% 3.97% 4.32%
Portfolio turnover rate .................. 85% 122% 119% 106% 187%
(A) 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.
117
AMERICAN BEACON SHORT-TERM BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class PlanAhead Class
-------------------------------------- ---------------------------------------------------
Year Ended October 31, Year Ended October 31,
-------------------------------------- ---------------------------------------------------
2007 2006 2005(A) 2004 2003 2007 2006 2005 2004 2003
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Net asset value, beginning of
period .................... $ 8.74 $ 8.75 $ 9.07 $ 9.31 $ 9.44 $ 8.76 $ 8.77 $ 9.09 $ 9.33 $ 9.45
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income
(loss) ................. 0.39(B) 0.32(B) 0.29 0.27 0.42 0.35(B) 0.27(B) 0.28 0.25 0.39
Net gains (losses) on
securities (both
realized and
unrealized) ............ 0.09 0.07 (0.20) (0.05) (0.07) 0.09 0.07 (0.24) (0.07) (0.08)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Total income from investment
operations ..... 0.48 0.39 0.09 0.22 0.35 0.44 0.34 0.04 0.18 0.31
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income ..... (0.43) (0.40) (0.41) (0.46) (0.48) (0.39) (0.35) (0.36) (0.42) (0.43)
Distributions from net
realized gains on
securities ............. -- -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Total distributions ........... (0.43) (0.40) (0.41) (0.46) (0.48) (0.39) (0.35) (0.36) (0.42) (0.43)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Net asset value, end
of period ................. $ 8.79 $ 8.74 $ 8.75 $ 9.07 $ 9.31 $ 8.81 $ 8.76 $ 8.77 $ 9.09 $ 9.33
======= ======= ======= ======= ======= ====== ====== ====== ====== ======
Total return ................. 5.61% 4.56% 1.00% 2.39% 3.82% 5.08% 4.01% 0.46% 1.84% 3.38%
======= ======= ======= ======= ======= ====== ====== ====== ====== ======
Ratios and supplemental data:
Net assets, end of period
(in thousands) ......... $89,427 $73,417 $79,683 $80,504 $91,911 $2,976 $7,189 $8,582 $7,781 $5,783
Ratios to average net
assets (annualized):
Expenses, net of waivers .. 0.37% 0.35% 0.33% 0.33% 0.33% 0.87% 0.88% 0.87% 0.87% 0.86%
Expenses, before waivers .. 0.37% 0.35% 0.33% 0.33% 0.33% 0.98% 0.90% 0.94% 0.87% 0.86%
Net investment income,
net of waivers ......... 4.48% 3.64% 3.15% 3.00% 4.54% 3.91% 3.10% 2.59% 2.44% 4.00%
Net investment income,
before waivers ......... 4.48% 3.64% 3.15% 3.00% 4.54% 3.81% 3.08% 2.52% 2.44% 4.00%
Portfolio turnover rate ... 40% 48% 38% 41% 81% 40% 48% 38% 41% 81%
(A) 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.
(B) 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.
118
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.
119
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, 2007, which is
designated as qualifying for the dividends-received deduction, is as follows:
Balanced Fund 26.32%
Large Cap Growth Fund 68.15%
Mid-Cap Value Fund 9.51%
Small Cap Value Opportunity Fund 17.15%
Emerging Markets Fund 0.10%
Enhanced Income Fund 2.86%
For shareholders in the Funds, the percentage of dividend income
distributed for the year ended October 31, 2007, which is designated as
qualified dividends income under the Jobs and Growth Tax Relief Act of 2003, is
as follows:
Balanced Fund 30.25%
Large Cap Growth Fund 100.00%
Mid-Cap Value Fund 12.96%
Small Cap Value Opportunity Fund 33.65%
Emerging Markets Fund 33.33%
Enhanced Income Fund 4.23%
Shareholders will receive notification in January 2008 of the percentage
applicable to the preparation of their 2007 income tax returns.
Pursuant to Section 852 of the Internal Revenue Code, the Funds
designated the following amounts as long-term capital gain dividends for their
taxable year ended October 31, 2007.
Balanced Fund $40,578,148
Mid-Cap Value Fund 716,015
Emerging Markets Fund 19,682,948
Enhanced Income Fund 74,500
120
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
At its May 25, 2007 meeting, the Board of Trustees ("Board" or
"Trustees") considered the renewal of the existing Management Agreement between
the Manager and the American Beacon Funds (the "Funds") and each Investment
Advisory Agreement between the Manager and a subadvisor. In preparation for the
Board's consideration to renew these Agreements, the Board and its Investment
Committee undertook steps to gather and consider information furnished by the
Manager, the subadvisors and Lipper, Inc. ("Lipper"). The Board, with the
assistance of independent legal counsel, requested and received certain relevant
information from the Manager and each subadvisor.
In addition, the Board's Investment Committee worked with Lipper to
obtain relevant comparative information regarding the performance, fees and
expenses of the Funds. The Investment Committee held a separate meeting on May
4, 2007 to consider the information provided by Lipper. Further, the Board took
into consideration information furnished for the Board's review and
consideration throughout the year at regular Board and Investment Committee
meetings, as well as information specifically prepared in connection with the
renewal process.
The Trustees considered, among other materials, responses by the
Manager and the subadvisors to inquiries requesting:
- a description of any significant changes (actual or anticipated) to
principal activities, personnel, services provided to the Funds, or
any other area, including how these changes might affect the Funds;
- a copy of the firm's most recent audited or unaudited financial
statements as well as its SEC Form ADV registration statement;
- a summary of any material past, pending or anticipated litigation or
regulatory proceedings involving the firm or its personnel, including
the results of any recent regulatory examination or independent audit;
- a comparison of the performance of that portion of Fund assets managed
by each firm with performance of other similar accounts managed by the
firm, including a discussion of relative performance versus a peer
group average and any remedial measures if the firm's performance was
materially below that of the peer group;
- a profit/loss analysis of the firm and any actual or anticipated
economies of scale in relation to the services it provides to each
Fund;
- a description of any payments by the firm to support the Funds'
marketing efforts;
- an analysis of compensation, including a comparison with fees charged
to other clients for which similar services are provided, any proposed
changes to the fee schedule and the effect of any fee waivers;
- an evaluation of other benefits to the firm or Funds as a result of
their relationship, if any;
- confirmation that the firm's financial condition does not raise
concerns that the firm would be unable to continue providing the same
scope and quality of services to the Funds;
- a description of the scope of portfolio management services provided
to the Funds and the firm's other clients, including other registered
investment companies, whether such services differ, and any advantages
or disadvantages that might accrue to the Funds due to the firm's
involvement in other activities;
- a description of the personnel who are assigned primary responsibility
for managing the Funds, including any changes during the past year,
and a discussion of the adequacy of current and projected staffing
levels to service the Funds;
- a description of the basis upon which portfolio managers are
compensated, including any "incentive" arrangements;
- a discussion regarding the firm's participation in "soft dollar"
arrangements, if any, or other brokerage allocation policies with
respect to Fund transactions, including the firm's methodology for
obtaining the most favorable execution and the use of any affiliated
broker-dealers;
- a discussion of whether the firm receives, with respect to the Funds,
other compensation, including any payment for order flow or ECN
liquidity rebates;
- a description of any actual or potential conflicts of interest
anticipated in managing Fund assets;
- a description of trade allocation procedures among accounts managed by
the firm;
121
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
- a summary of any material changes to the firm's compliance program
with regard to federal, state, corporate and Fund requirements and a
certification regarding the reasonable design of the compliance
program;
- a discussion of any material compliance problems and remedial actions;
- information regarding the firm's code of ethics, insider trading
policy and disaster recovery plan, including a description of any
material changes thereto;
- a description of the firm's affiliation with any broker-dealer;
- a discussion of any anticipated change in the firm's controlling
persons; and
- verification of the firm's insurance coverage with regards to the
services provided to the Funds.
In addition to the foregoing, the Manager provided the following
information specific to the renewal of each Management Agreement:
- a comparison of the performance of each Fund to comparable investment
companies and appropriate indices, including comments on the relative
performance of each subadvisor and each Fund versus the respective
peer group average;
- a discussion, if applicable, of any underperformance by a subadvisor
relative to its peer group and what, if any, remedial measures the
Manager has or intends to take;
- a comparison of advisory fees and expense ratios for comparable mutual
funds;
- an analysis of any material complaints received from Fund
shareholders;
- a description of the Manager's securities lending practices and the
fees received from such practices;
- a description of any revenue sharing activities with respect to the
Funds;
- a discussion of any rebate arrangements between the Manager and a
service provider to the Funds pursuant to which the Manager receives
direct or indirect benefits from the service provider;
- a description of the portfolio turnover rate and average execution
costs for each Fund and each subadvisor to a Fund; and
- a description of how expenses that are not readily identifiable to a
particular Fund are allocated.
The Board also obtained an analysis provided by Lipper that compared:
(i) investment performance of each Fund versus comparable investment companies
and appropriate indices; (ii) total Fund expenses of each Fund versus comparable
mutual funds, and (iii) each Fund's investment advisory fees versus comparable
mutual funds. For each Fund, the class used for comparative purposes was the
class with the longest performance history, which in most cases is the
Institutional Class. References below to each Fund's Lipper peer group are to
the group of comparable mutual funds included in the analysis provided by
Lipper.
The Trustees also received a memorandum from their legal counsel
detailing the Board's responsibilities pertaining to the renewal of the
Management and Investment Advisory Agreements. This memorandum explained the
regulatory requirements surrounding the Trustees' process for evaluating
investment advisors and the terms of the contracts.
Provided below is an overview of the primary factors the Board
considered at its May 25, 2007 meeting. The Board did not identify any
particular information that was most relevant to its consideration to renew the
Management and Investment Advisory Agreements, and each Trustee may have
afforded different weight to the various factors.
CONSIDERATIONS WITH RESPECT TO ALL FUNDS
In determining whether to approve the continuance of each Management
Agreement and each Investment Advisory Agreement, the Trustees considered the
best interests of each Fund separately. In addition, while the Management and
Investment Advisory Agreements for all of the Funds were considered at the same
Board meeting, the Board considered each Fund's investment management and
subadvisory relationships separately. In each instance, the Board considered,
among other things, the following factors: (1) the nature and quality of the
services provided; (2) the investment performance of the Fund and the
122
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
investment advisor; (3) the Manager's or subadvisor's cost for providing the
services and the profitability of the advisory business to the Manager or
subadvisor; (4) the extent to which economies of scale have been taken into
account in setting the fee schedule; (5) whether fee levels reflect these
economies of scale for the benefit of Fund investors; (6) comparisons of
services and fees with contracts entered into by the Manager or a subadvisor or
their affiliates with other clients (such as pension funds and other
institutional funds); and (7) any other benefits derived or anticipated to be
derived by the Manager or a subadvisor from their relationship with a Fund. The
Trustees posed questions to various management personnel of the Manager
regarding certain key aspects of the material submitted in support of the
renewal.
Nature, Extent and Quality of Services. With respect to the renewal of
each Management Agreement, the Board considered: the background and experience
of key investment personnel and the Manager's ability to retain them; the
Manager's disciplined investment approach and goal to provide consistent above
average long-term performance at a low cost; the Manager's continuing efforts to
add new series and share classes to enhance the Funds' product line; the
Manager's record in building improved compliance, control and credit functions
that reduce risks to the Funds; the addition of personnel to manage the Funds,
promote sales and improve services, including the addition of a separate new
information technology (IT) department at the Manager; the high rankings
received by the Funds in service surveys; and the active role played by the
Manager in monitoring and, as appropriate, recommending replacements for the
investment subadvisors and master portfolios.
With respect to the renewal of the Investment Advisory Agreements, the
Trustees considered the background and experience of each subadvisor's
investment personnel responsible for managing the Funds, the size of the
subadvisor and their ability to continue to attract and retain qualified
investment personnel.
Based on the foregoing information, the Board concluded that the
nature, extent and quality of the management and advisory services provided by
the Manager and each subadvisor were appropriate for each Fund and, thus,
supported a decision to renew the Management and each Investment Advisory
Agreement.
Investment Performance. The Board evaluated the comparative
information provided by Lipper and the Manager regarding each Fund's investment
performance relative to its benchmark index(es) and peer group. With respect to
Lipper data, the Board considered the information provided by Lipper regarding
its independent peer selection methodology to select all peer groups and
universes. The Board also considered the performance reports and discussions
with management at Board and Committee meetings throughout the year. The Manager
also noted that it generally was satisfied with the performance of the
subadvisors. A discussion regarding the Board's considerations with respect to
each Fund's performance appears below under "Additional Considerations and
Conclusions with Respect to Each Fund."
Cost of Services and Profits Realized. In analyzing the cost of
services and profitability of the Manager and a subadvisor by Fund, the Board
considered the revenues earned and the expenses incurred by the Manager and
those subadvisors that provided such data. The profitability levels were noted
at both an individual Fund level and at an aggregate level for all Funds. The
Board also considered that the Management Agreements for the American Beacon
Funds, American Beacon Mileage Funds, and American Beacon Select Funds stipulate
that to the extent that a Fund invests all of its investable assets in another
registered investment company, the Fund will not pay the Manager a management
fee. Although the Board noted that, in certain cases, the fee rates paid by
other clients is lower than the fee rates paid by the Funds, the difference
reflects the greater level of responsibility and regulatory requirements
associated with managing the Funds.
The Board also noted that the Manager proposed to continue the expense
waivers and reimbursements for certain Funds and Classes that were in place
during the last fiscal year. The Board further considered that each sub-advised
Fund pays the Manager the amounts due to its subadvisors, and the Manager remits
these amounts directly to the applicable subadvisors. The Board considered that
the Manager receives service and administrative fees to compensate the Manager
for providing administrative services to the Funds and to compensate third-party
administrators and broker-dealers for services to Fund shareholders. In
addition, the
123
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
Board considered that the Manager receives management fees for overseeing the
securities lending relationships on behalf of various Funds. The Board also
noted that the non-Institutional Classes of the Funds maintain higher expense
ratios in order to compensate third party distributors but the net fee to the
Manager is the same for all Classes.
In analyzing the cost of services and profitability of each subadvisor
in connection with its investment advisory services to a Fund, the Board
considered that, in many cases, the Manager has negotiated the lowest
subadvisory fee a subadvisor charges for any comparable client accounts. The
Board gave less weight to profitability considerations or did not view this data
as imperative to its deliberations given the arm's-length nature of the
relationship between the Manager and the subadvisors with respect to the
negotiation of subadvisory fees.
Based on the foregoing information, the Board concluded that the
profitability levels were reasonable in light of the services performed by the
Manager and the subadvisors.
Economies of Scale. In considering the reasonableness of the
management and investment advisory fees, the Board considered whether economies
of scale will be realized as the Funds grow and whether fee levels reflect these
economies of scale for the benefit of Fund shareholders. In this regard, the
Board considered that the Manager has negotiated breakpoints in the subadvisory
fee rates. The Board also noted, for purposes of determining the fee rates
chargeable to the Funds, many subadvisors have agreed to take into account other
assets of AMR Corporation and its pension plans that are managed by the
subadvisors. Thus, the Funds are able to receive lower effective fee rates. This
fee arrangement also benefits AMR Corporation and its pension plans. The Board
also noted that the Funds have experienced substantial recent asset growth.
The Board also considered the Manager's representations that its costs
have increased due primarily to greater service provider and regulatory costs.
The Manager also represented that it anticipates further economies of scale
would be largely offset by higher costs of adding and retaining qualified
personnel, improving technology and increasing demands on its advisory business.
Based on the foregoing information, the Board concluded that the
Manager and subadvisor fee schedules provide for a reasonable sharing of
benefits from any economies of scale with each Fund.
Benefits Derived from the Relationship with the Funds. The Board
considered the "fall-out" or ancillary benefits that accrue to the Manager
and/or the subadvisors as a result of the advisory relationships with the Funds,
including greater exposure in the marketplace with respect to the Manager's or
subadvisor's investment process and expanding the level of assets under
management by the Manager and the subadvisors. The Board also considered that
the money market portfolios permit institutional investors access to such
investments at a more favorable cost and that the Manager's relationship with
the Funds and, in particular the money market portfolios, continues to be a
significant factor in attracting separate account assets for the Manager. In
addition, the Board noted that the Manager provides services to the Trust at a
relatively low cost and the benefit plans of AMR Corporation have invested a
substantial number of assets in the Funds, which helps reduce costs. The Board
also considered that certain of the subadvisors reimburse the Manager for
certain of its costs relating to distribution activities for the Funds.
Based on the foregoing information, the Board concluded that the
potential benefits accruing to the Manager and the subadvisors by virtue of
their relationships with the Funds appear to be fair and reasonable.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO EACH FUND
Except for the Short-Term Bond Fund, the performance comparisons below
were made versus each Fund's Lipper peer universe median. References to the
Lipper expense group below are to the group of comparable mutual funds included
in the analysis provided to the Trustees by Lipper. All performance comparisons
are for periods ended March 31, 2007, unless otherwise noted.
124
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
Balanced Fund. In considering the renewal of the Management Agreement
with respect to the Balanced Fund (the "Fund"), the Trustees considered the
following additional factors: (1) the Fund outperformed its peer universe median
for the one-, three-, five-, and ten-year periods; (2) the Manager outperformed
its market index with respect to its portion of the Fund's fixed income assets
for the one- and three-year periods but underperformed for the five-year period;
(3) the actual management fees (including administrative fees) and the total
expense ratio of the Institutional Class of Fund shares was lower than its
Lipper expense group median; and (4) the Manager contractually agreed to
continue to waive fees and/or reimburse expenses to the extent necessary to
maintain a competitive total expense ratio for the Fund's Service Class of
shares.
In considering the renewal of the Investment Advisory Agreements with
Barrow, Hanley, Mewhinney & Strauss, Inc. ("Barrow"), Brandywine Global
Investment Management, LLC ("Brandywine") and Hotchkis and Wiley Capital
Management, LLC ("Hotchkis"), the Trustees considered the following additional
factors: (1) Barrow and Brandywine outperformed the peer universe median for the
one-, three-, five- and ten-year periods; (2) Hotchkis outperformed the peer
universe median for the one-, three- and five-year periods; (3) Barrow
underperformed its market benchmark index with respect to its allocated portion
of the Fund's assets for the one-year period ended December 31, 2006; (4)
Brandywine outperformed its market benchmark index with respect to its allocated
portion of the Fund's assets for all relevant periods ended December 31, 2006;
(5) Hotchkis outperformed its market benchmark index with respect to its
allocated portion of the Fund's equity assets for the three-, five- and ten-year
periods but underperformed for the one-year period ended December 31, 2006; (6)
Hotchkis' explanation that its underperformance was primarily due to negative
security selection as well as an underweight position in a few strong sectors in
2006; (7) Barrow, Hotchkis and Brandywine have informed the Manager that they
use Fund commissions to obtain proprietary research, the application of which
benefits the Fund, and Hotchkis has further informed the Manager that it also
uses Fund commissions for third-party research, but there is little or no cost
impact to the Fund; (8) the fee schedules of each subadvisor include
breakpoints, which reduce fee rates as the assets of the Fund increase; and (9)
the Manager's recommendation to continue to retain each subadvisor.
Based on the foregoing considerations and those noted above with
respect to all Funds, the Trustees (1) concluded that the fees paid to the
Manager and the subadvisors under the Management and Investment Advisory
Agreements are fair and reasonable, (2) determined that the Fund and its
shareholders would benefit from the continued management of the Fund by the
Manager and subadvisors and (3) approved the renewal of the Management and
Investment Advisory Agreements with respect to the Fund.
Emerging Markets Fund. In considering the renewal of the Management
Agreement with respect to the Emerging Markets Fund (the "Fund"), the Trustees
considered the following additional factors: (1) the Fund underperformed its
peer universe median for the one-, three-, and five-year periods; (2) the
Manager's explanation as to the Fund's performance; (3) the actual management
fee (including administrative fees) and the total expense ratio of the
Institutional Class of the Fund was higher than its Lipper expense group median;
and (4) the Manager's explanation as to why the Fund has higher expenses.
In considering the renewal of the Investment Advisory Agreements with
The Boston Company Asset Management, LLC ("TBCAM") and Morgan Stanley Investment
Management Inc. ("MSIM"), the Trustees considered the following additional
factors: (1) MSIM outperformed the peer universe median for the one-, three-,
and five-year periods; (2) TBCAM underperformed the peer universe median for the
one-, three- and five-year periods; (3) MSIM outperformed its market benchmark
index with respect to its allocated portion of the Fund's assets for all
relevant periods ended December 31, 2006; (4) each of the Fund's subadvisors has
informed the Manager that it uses Fund commissions to obtain proprietary
research, the application of which benefits the Fund and each subadvisor's other
clients; (5) the fee schedules of each subadvisor include breakpoints, which
reduce fee rates as the assets of the Fund increase; (6) TBCAM also represented
that it does not charge a lower advisory fee to any other comparable clients;
and (7) the Manager's recommendation to continue to retain each subadvisor.
125
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
Based on the foregoing considerations and those noted above with
respect to all Funds, the Trustees (1) concluded that the fees paid to the
Manager and the subadvisors under the Management and Investment Advisory
Agreements are fair and reasonable, (2) determined that the Fund and its
shareholders would benefit from the continued management of the Fund by the
Manager and the subadvisors and (3) approved the renewal of the Management and
Investment Advisory Agreements with respect to the Fund.
Enhanced Income Fund. In considering the renewal of the Management
Agreement with respect to the Enhanced Income Fund (the "Fund"), the Trustees
considered the following additional factors: (1) the Fund underperformed its
peer universe median for the one-year period but outperformed the peer universe
median for the three-year period; (2) the Manager outperformed the peer universe
median with respect to its allocated portion of the Fund's assets for the one-
and three-year periods; (3) the Manager's explanation regarding the limitations
of Lipper's methodology on the selection of a particular peer group for the
Fund; (4) the actual management fee (including administrative fees) and the
total expense ratio of the Fund was higher than its Lipper expense group median;
and (5) the Manager's explanation that the Fund's higher expenses were due to
higher subadvisor fee rates for the convertible/equity portion of the Fund.
In considering the renewal of the Investment Advisory Agreement with
Calamos Advisors LLC ("Calamos"), the Trustees considered the following
additional factors: (1) Calamos outperformed the peer universe median with
respect to its allocated portion of the Fund's assets for the one- and
three-year periods; (2) Calamos underperformed its market benchmark index with
respect to its allocated portion of the Fund's assets for the one-year period
but outperformed for the three-year and since inception periods; (3) Calamos has
informed the Manager that it uses Fund commissions to obtain proprietary
research, the application of which benefits the Fund and Calamos' other clients;
and (4) the Manager's recommendation to continue to retain Calamos.
Based on these considerations and those noted above with respect to
all Funds, the Trustees (1) concluded that the fees paid to the Manager and
Calamos under the Management and Investment Advisory Agreements are fair and
reasonable, (2) determined that the Fund and its shareholders would benefit from
the continued management of the Fund by the Manager and Calamos and (3) approved
the renewal of the Management and Investment Advisory Agreements with respect to
the Fund.
High Yield Bond Fund. In considering the renewal of the Management
Agreement with respect to the High Yield Bond Fund (the "Fund"), the Trustees
considered the following additional factors: (1) the Fund underperformed its
peer universe median for the one- and three-year periods but outperformed its
peer universe median for the five-year period; and (2) the actual management fee
(including administrative fees) and the total expense ratio of the Institutional
Class was higher than its Lipper expense group median.
In considering the renewal of the Investment Advisory Agreement with
Post Advisory Group, LLC ("Post") and Franklin Advisors, Inc. ("Franklin"), the
Trustees considered the following additional factors: (1) Post outperformed the
peer universe median for the one- and five-year periods but underperformed for
the three-year period; (2) Post underperformed its market benchmark index with
respect to its allocated portion of the Fund's assets for the one-year period
ended December 31, 2006; (3) Franklin has not yet achieved a one-year track
record to provide any meaningful comparison; (4) Post's explanation that its
underperformance was due primarily as a result of underweight positions in
certain securities and certain restrictions placed on low rated securities; (5)
Post represented that its fees are among the lowest for the types of services
provided to the Fund; (6) Franklin's fee schedule includes breakpoints, which
reduce fee rates as the assets of the Fund increases; (7) Franklin represented
that it does not charge a lower advisory fee to any other client for comparable
services; (8) the Manager's efforts to obtain a lower fee from the subadvisers;
and (9) the Manager's recommendation to continue to retain each subadvisor.
Based on these considerations and those noted above with respect to
all Funds, the Trustees (1) concluded that the fees paid to the Manager and
subadvisors under the Management and Investment Advisory
126
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
Agreements are fair and reasonable, (2) determined that the Fund and its
shareholders would benefit from the continued management of the Fund by the
Manager and the subadvisors and (3) approved the renewal of the Management and
Investment Advisory Agreements with respect to the Fund.
Intermediate Bond Fund. In considering the renewal of the Management
Agreement with respect to the Intermediate Bond Fund (the "Fund"), the Trustees
considered the following additional factors: (1) the Fund outperformed its peer
universe median for the one-, three- and five-year periods; (2) the Manager
outperformed the peer universe median with respect to its allocated portion of
the Fund's assets for the one-, three-, and five-year periods; and (3) the
actual management fee (including administrative fees) and the total expense
ratio of the Insitutional Class of Fund shares was lower than its Lipper expense
group median.
In considering the renewal of the Investment Advisory Agreement with
Barrow, the Trustees considered the following additional factors: (1) Barrow
outperformed the peer universe median with respect to its allocated portion of
the Fund's assets for the one-, three-, and five-year periods; (2) Barrow
outperformed its market benchmark index with respect to its allocated portion of
the Fund's assets for the one-year period ended December 31, 2006; (3) Barrow's
fee schedule includes breakpoints, which reduce fee rates as the assets of the
Fund increase; and (4) the Manager's recommendation to continue to retain
Barrow.
Based on these considerations and those noted above with respect to
all Funds, the Trustees (1) concluded that the fees paid to the Manager and
Barrow under the Management and Investment Advisory Agreements are fair and
reasonable, (2) determined that the Fund and its shareholders would benefit from
the continued management of the Fund by the Manager and Barrow and (3) approved
the renewal of the Management and Investment Advisory Agreements with respect to
the Fund.
Large Cap Growth Fund. In considering the renewal of the Management
Agreement with respect to the Large Cap Growth Fund (the "Fund"), the Trustees
considered the following additional factors: (1) the Fund outperformed its peer
universe median for the one-, three- and five-year periods; (2) the Manager's
explanation that it replaced a subadvisor to the Fund to improve overall
performance; (3) the actual management fee (including administrative fees) and
the total expense ratio of the Institutional Class of Fund shares was higher
than the Lipper expense group median; (4) the Manager's explanation that the
Lipper data does not reflect the imposition of a more recent fee waiver for the
Fund; (5) the Manager's explanation that the relatively low asset levels of the
Fund result in higher non-management fees than other Funds; and (6) the Manager
contractually agreed to continue to waive fees and/or reimburse expenses to the
extent necessary to maintain a competitive total expense ratio for the Fund's
Institutional Class.
In considering the renewal of the Investment Advisory Agreements with
Goldman Sachs Asset Management, L.P. ("GSAM") and Renaissance Group LLC, dba
Renaissance Investment Management ("RIM"), the Trustees considered the following
additional factors: (1) GSAM underperformed the peer universe median for the
one-year period but outperformed for the three- and five-year periods; (2) RIM
has not yet achieved a one-year track record to provide any meaningful
comparison; (3) GSAM has informed the Manager that it uses Fund commissions to
obtain proprietary research, the application of which benefits the Fund and
GSAM's other clients; (4) the fee schedules of each subadvisor include
breakpoints, which reduce fee rates as the assets of the Fund increase; and (5)
the Manager's recommendation to continue to retain each subadvisor.
Based on these considerations and those noted above with respect to
all Funds, the Trustees (1) concluded that the fees paid to the Manager and the
subadvisors under the Management and Investment Advisory Agreements are fair and
reasonable, (2) determined that the Fund and its shareholders would benefit from
the continued management of the Fund by the Manager and the subadvisors and (3)
approved the renewal of the Management and Investment Advisory Agreements with
respect to the Fund.
Mid-Cap Value Fund. In considering the renewal of the Management
Agreement with respect to the Mid-Cap Value Fund (the "Fund"), the Trustees
considered the following additional factors: (1) the Fund
127
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
outperformed its peer universe median for the one- and two-year periods; (2) the
actual management fee (including administrative fees) and the total expense
ratio of the Institutional Class of Fund shares was lower than its Lipper
expense group median (after consideration of the Manager's waiver); and (3) the
Manager contractually agreed to continue to waive fees and/or reimburse expenses
to the extent necessary to maintain a competitive total expense ratio for the
Fund's Institutional and PlanAhead Classes of shares.
In considering the renewal of the Investment Advisory Agreements with
Barrow and Pzena Investment Management, LLC ("Pzena"), the Trustees considered
the following additional factors: (1) Barrow outperformed the peer universe
median for the one-year period ended but underperformed for the two-year period;
(2) Pzena underperformed for the one- and two-year periods; (3) Barrow
underperformed its market benchmark index with respect to its allocated portion
of the Fund's assets for the one-year period ended December 31, 2006 (4) Barrow
has informed the Manager that it uses Fund commissions to obtain proprietary
research, the application of which benefits the Fund and Barrow's other clients;
(5) the fee schedules of each subadvisor include breakpoints, which reduce fee
rates as the assets of the Fund increase; (6) Pzena represented that the blended
fee charged will not exceed the blended fee charged to new comparable accounts;
and (7) the Manager's recommendation to continue to retain each subadvisor.
Based on these considerations and those noted above with respect to
all Funds, the Trustees (1) concluded that the fees paid to the Manager and the
subadvisors under the Management and Investment Advisory Agreements are fair and
reasonable, (2) determined that the Mid-Cap Value Fund and its shareholders
would benefit from the continued management of the Fund by the Manager and
subadvisors and (3) approved the renewal of the Management and Investment
Advisory Agreements with respect to the Fund.
Short-Term Bond Fund. In considering the renewal of the Management
Agreement with respect to the Short-Term Bond Fund (the "Fund"), the Trustees
considered the following additional factors: (1) the Fund outperformed its
benchmark index for the one-, three- and five-year periods, and only slightly
underperformed its benchmark index for the ten-year period; (2) the Fund
outperformed the Lipper Index for all reported periods; (3) the actual
management fee (including administrative fees) and the total expense ratio of
the Institutional Class of Fund shares was the lowest of its Lipper expense
group; and (4) the Manager has contractually agreed to waive fees and/or
reimburse Fund expenses to the extent necessary to maintain a competitive total
expense ratio for the PlanAhead Class of the Fund.
Based on these considerations and those noted above with respect to
all Funds, the Trustees (1) concluded that the fees paid to the Manager under
the Management Agreement are fair and reasonable, (2) determined that the Fund
and its shareholders would benefit from the Manager's continued management of
the Fund and (3) approved the renewal of the Management Agreement with respect
to the Fund.
Small Cap Value Opportunity Fund. In considering the renewal of the Management
Agreement with respect to the Small Cap Value Opportunity Fund (the "Fund"), the
Trustees considered the following additional factors: (1) the Fund outperformed
its peer universe median for the one-year period; (2) the actual management fees
(including administrative fees) and the total expense ratio of the Institutional
Class of Fund shares was lower than its Lipper expense group median; (3) the
Manager's explanation that the relatively low asset levels of the Fund result in
higher non-management fees that other Funds; and (4) the Manager contractually
agreed to continue to waive fees and/or reimburse expenses to the extent
necessary to maintain a competitive total expense ratio for the Fund's
Institutional and PlanAhead Classes.
In considering the renewal of the Investment Advisory Agreement with
PanAgora Asset Management ("PanAgora"), the Trustees considered the following
additional factors: (1) PanAgora outperformed the peer universe median for the
one-year period; (2) PanAgora's small cap composite of similar accounts
outperformed its market benchmark index for the three-year and since inception
periods ended March 31, 2007 but underperformed for the one-year period; (3)
PanAgora's fee schedule includes breakpoints, which reduce fee rates as the
assets of the Fund increase; (4) PanAgora also represented that it does not
charge a lower advisory
128
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
fee to other clients for comparable services; and (5) the Manager's
recommendation to continue to retain the subadvisor.
Based on these considerations and those noted above with respect to
all Funds, the Trustees (1) concluded that the fees paid to the Manager and the
subadvisor under the Management and Investment Advisory Agreements are fair and
reasonable, (2) determined that the Small Cap Value Opportunity Fund and its
shareholders would benefit from the continued management of the Fund by the
Manager and subadvisor and (3) approved the renewal of the Management and
Investment Advisory Agreements with respect to the Fund.
129
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.
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** (59) Trustee Chairman and CEO (2006-Present), President (1986-2006) and
since 1987 Director (2003-Present), American Beacon Advisors, Inc.;
President from Chairman (1989-2003) and Director (1979-1989, 2003-Present),
1987 to 2007 American Airlines Federal Credit Union; Director, Crescent
Executive Vice Real Estate Equities, Inc.(1994-2007); Director, Pritchard,
President Hubble & Herr, LLC (investment advisor) (2001-2006);
since 2007 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); Chairman
(2007-Present) and Vice Chairman (2004-2007), Committee for
the Investment of Employee Benefits; 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).
Douglas G. Herring** (50) Trustee since 2006 President, American Beacon Advisors, Inc. (2006-Present);
Executive Vice President Vice President and Controller, American Airlines, Inc.
from 2006 to 2007 (1998-2006); Chairman (2003-Present) and Director
President since 2007 (1995-Present), American Airlines Federal Credit Union;
Trustee, American Beacon Mileage Funds (2006-Present);
Trustee American Beacon Select Funds (2006-Present); Trustee
American Beacon Master Trust (2006-Present).
Alan D. Feld** (70) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm)
(1960-Present); Director, Clear Channel Communications
(1984-Present); Trustee, CenterPoint Properties (1994-2006);
Member Board of Trustees, Southern Methodist University;
Member, Board of Visitors, The University of Texas M.D.
Anderson Cancer Center; Member, Board of Visitors, Zale
Lipshy Hospital; 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 (63) 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).
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
(UNAUDITED)
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 (46) 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) (2001-2006); 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 (64) Trustee since 2004 Senior Vice President and General Counsel, Hunt
Consolidated, Inc. (holding company engaged in oil and gas
exploration and production, refining, 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 (72) 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 (61) Trustee since 2001 President, Southern Methodist University (1995-Present);
225 Perkins Admin. Bldg. Director, ChemFirst (1986-2002); Director, J.C. Penney
Southern Methodist Univ. Company, Inc. (1996-Present); Director, California Federal
Dallas, Texas 75275 Preferred Capital Corp. (2001-2003); Director, Kronus
Worldwide Inc. (chemical manufacturing) (2003-Present);
Director, First Broadcasting Investment Partners, LLC
(2003-Present); Member, United Way of Dallas Board of
Directors; Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory Board;
Member, Knight Commission on Intercollegiate Athletics;
Trustee, American Beacon Mileage Funds (2001-Present);
Trustee, American Beacon Select Funds (2001-Present);
Trustee, American Beacon Master Trust (2001-Present).
Kneeland Youngblood (51) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court Chairman since equity firm) (1998-Present); Director, Burger King
Suite 1740 2005 Corporation (2004-Present); Director, Gap, Inc.
Dallas, Texas 75201 (2006-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).
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
(UNAUDITED)
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 (48) VP, Secretary and Vice President, Legal and Compliance, American Beacon
Chief Legal Advisors, Inc. (2006-Present); Assistant General Counsel,
Officer since 2006 First Command Financial Planning, Inc. (2004-2006);
Enforcement Attorney (2002-2004) and Branch Chief
(2000-2002), Securities and Exchange Commission.
Brian E. Brett (47) VP since 2004 Vice President, Director of Sales and Marketing, American
Beacon Advisors, Inc. (2004-Present); Regional Vice
President, Neuberger Berman, LLC (investment advisor)
(1996-2004).
Wyatt Crumpler (41) VP since 2007 Vice President, Trust Investments, American Beacon Advisors,
Inc. (2007-Present); Managing Director of Corporate
Accounting (2004-2007), Director of IT Strategy and Finance
(2002-2004), American Airlines, Inc.
Michael W. Fields (53) VP since 1989 Vice President, Fixed Income Investments, American Beacon
Advisors, Inc. (1988-Present).
Rebecca L. Harris (40) Treasurer since Vice President, Finance, American Beacon Advisors, Inc.
1995 (1995-Present).
Christina E. Sears (36) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc.
Officer since 2004 (2004-Present); Senior Compliance Analyst, American Beacon
and Asst. Advisors, Inc. (1998-2004).
Secretary since
1999
* 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, Feld and Herring are deemed to be "interested persons" of
the Trust, as defined by the 1940 Act. Mr. Quinn is Chairman and CEO 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. Mr. Herring is President of the Manager.
(This page intentionally left blank)
(AMERICAN BEACON LOGO)
DELIVERY OF DOCUMENTS
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 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.
TO OBTAIN MORE INFORMATION ABOUT THE FUND:
(GRAPHIC) (GRAPHIC)
BY E-MAIL: ON THE INTERNET:
american_beacon.funds@ambeacon.com Visit our website at www.americanbeaconfunds.com
(GRAPHIC) (GRAPHIC)
BY TELEPHONE: BY MAIL:
Institutional Class American Beacon Funds
Call (800) 658-5811 P.O. Box 219643
AMR ClassSM Kansas City, MO 64121-9643
Call (800) 345-2345
PlanAhead Class(R) and Service Class
Call (800) 388-3344
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES AVAILABILITY OF PROXY VOTING POLICY AND RECORDS
In addition to the Schedule of Investments provided in each A description of the policies and procedures the Fund uses to
semi-annual and annual report, the Fund files a complete determine how to vote proxies relating to portfolio securities
schedule of its portfolio holdings with the Securities and is available in the Fund's Statement of Additional Information,
Exchange Commission ("SEC") on Form N-Q as of the first and is available free of charge on the Fund's website
third fiscal quarters. The Fund's Forms N-Q are available (www.americanbeaconfunds.com) and by calling 1-800-967-9009 or
on the SEC's website at www.sec.gov. The Forms N-Q may also be by accessing the SEC's website at www.sec.gov. The Fund's proxy
reviewed and copied at the SEC's Public Reference Room, 450 Fifth voting record for the most recent year ended June 30 is filed
Street, NW, Washington, DC 20549. Information regarding the annually with the SEC on Form N-PX. The Fund's Forms N-PX are
operation of the SEC's Public Reference Room may be obtained by available on the SEC's website at www.sec.gov. The FUND SERVICE
calling 1-800-SEC-0330. A complete schedule of the Fund's PROVIDERS: Fund's proxy voting record may also be obtained by
portfolio holdings is also available on the Funds' website calling 1-800-967-9009.
(www.americanbeaconfunds.com) approximately thirty days after
the end of each month.
FUND SERVICE PROVIDERS:
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
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.
GUIDANCE | VISION | EXPERIENCE
(AMERICAN BEACON FUNDS(SM) LOGO)
Annual Report
(GRAPHIC)
October 31, 2007
INTERNATIONAL EQUITY 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
President's Message ............................................... 1
Market and Performance Overview ................................... 2
Schedule of Investments ........................................... 7
Additional Information ............................................ Back Cover
Any opinions herein, including forecasts, reflect our judgment as of the end of
the reporting period and are subject to change. Each advisor's strategies and
the Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and,
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
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, 2007
FELLOW SHAREHOLDERS,
(PHOTO OF DOUGLAS G. HERRING)
I am pleased to present to you the American Beacon International
Equity Fund Annual Report for the twelve months ended October 31, 2007. Please
review the enclosed material carefully, as it includes important information
about the Fund.
During the year ended October 31, 2007, the developed foreign equity
markets continued to post very impressive performance. The MSCI EAFE Index
reported a 24.91% return, handily beating the S&P 500 Index return of 14.56%.
Continued strong global growth and a weak U.S. Dollar drove the extraordinary
dollar-denominated performance of these markets.
The Fund's Institutional Class reported a total annualized return of
21.54% for the one-year period ended October 31, 2007. True to the Fund's
long-term investment approach, the Fund's five- and ten-year performance
exceeded the MSCI EAFE Index's performance.
Toward the end of the fiscal year, volatility returned to
international equity markets after a number of years of steady returns. The
change in the investment environment was led by a crisis in the U.S. housing and
financial sectors that began to impact foreign markets during the summer months.
The increased volatility continued after the close of the Fund's fiscal year and
is likely to continue over the shorter term. However, we believe the Fund's
fundamental value investment philosophy and lower than average expense ratio
will continue to serve the Fund well over the longer term.
As always, we appreciate 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/ Douglas G. Herring
Douglas G. Herring
President
American Beacon Funds
1
INTERNATIONAL EQUITY MARKET OVERVIEW
OCTOBER 31, 2007 (UNAUDITED)
In spite of elevated energy prices and a deteriorating U.S. housing
sector that negatively affected U.S. economic growth, the global economy
remained resilient throughout the 12-month reporting period. The strength of
consumer and corporate demand, reasonably low inflation, generally favorable
labor markets, and moderate, though higher, global interest rates have supported
the economic recovery which began in 2002.
These factors also contributed to the strength of global equity
markets during the 12 months under review. In addition, narrow corporate credit
spreads and strong cash flows from the corporate sector in the world's capital
markets contributed to very strong global merger and acquisition activity during
most of the reporting period. In particular, the private equity industry, which
has grown substantially in recent years, played a pivotal role in a number of
large and high-profile acquisitions.
However, concerns about slower growth and declining asset quality
surfaced during the first quarter of 2007. These were initially centered on the
U.S. subprime mortgage market but spread in August 2007 to global capital
markets. In particular, the difficulties of assessing risk and the value of
collateral in the structured finance industry contributed to a decline in risk
appetite among both lenders and investors. The private equity industry, which is
reliant on the availability of cheap credit, was particularly affected and deal
activity slowed toward the end of the period.
Accommodative actions by several central banks, including a
larger-than-expected target interest rate cut of half of a percent (0.5%) by the
U.S. Federal Reserve Board, helped restore investor confidence after a sharp,
but short-lived, sell-off in the summer. Most global equity markets ended the
12-month period with double-digit total returns. Many stock market indexes in
the U.S. and most European countries reached six-year highs and certain markets
in Asia reached all-time highs. Currency diversification benefited investors
during the period as the U.S. dollar declined versus the currencies of many
major trading partners, and equity returns for U.S.-based investors that
invested in stocks denominated in other currencies generally became stronger
when translated into the weaker greenback.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
The Institutional Class of the International Equity Fund returned
21.54% for the twelve months ended October 31, 2007. The Fund underperformed the
MSCI EAFE Index (the "Index") return of 24.91% and the Lipper International
Funds Index return of 29.19% for the period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/97 THROUGH 10/31/07
(PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF
PERIODS ENDED 10/31/07 $10,000
--------------------------- 10/31/97-
1 YEAR 5 YEARS 10 YEARS 10/31/07
------ ------- -------- ----------
Institutional Class(1,4)....... 21.54% 23.51% 10.63% $27,460
PlanAhead Class(1,4)........... 21.23% 23.25% 10.39% 26,877
Service Class(1,2,4)........... 20.85% 22.93% 10.25% 26,531
AMR Class(1,4)................. 21.86% 23.81% 10.91% 28,167
Lipper Int'l. Funds Index(3)... 29.19% 23.59% 10.10% 26,158
MSCI EAFE Index (3)............ 24.91% 23.21% 9.26% 24,236
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 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 through these
periods or for the entirety of those periods.. A portion of the fees
changed 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. The MSCI EAFE Index
is a market capitalization weighted index of international stock
performance composed of equities from developed markets excluding the U.S.
and Canada. One cannot directly invest in an index.
4. The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus for the Institutional, PlanAhead, Service and AMR Class
shares was 0.72%, 0.97%, 1.20% and 0.46%, respectively. The expense ratios
above may vary from the expense ratios presented in other sections of this
report that are based on expenses incurred during the period covered by
this report.
The Fund underperformed the Index by 3.37% over the twelve-month
period due to stock selection, as the Fund added value from country allocation.
Stock selections in Japan, South Korea, and Germany significantly
impacted the Fund's relative performance. Financials in Japan and South Korea
detracted from performance, including Sumitomo Mitsui Financial Group (down
24.9%), Mitsubishi UFJ Financial Group (down 20.4%), Chuo Mitsui Trust Holdings
(down 32.2%), and Sumitomo Trust & Banking Co. (down 30.0%) in Japan, and
Kookmin Bank (up 2.9%) in South Korea. Samsung Electronics (down 5.1%) also hurt
performance in South Korea, while in Germany, Deutsche Post (up 12.6%),
Bayerische Motoren Werke (up 18.1%), and Celesio (up 11.4%) detracted from
returns versus the strongly performing German market.
Country allocation benefited the Fund, primarily through an
underweight position in Japan. The Japanese market gained only 4.8% and was the
second worst-performing market in the Index for the period. Value was also added
by the Fund's allocation to South Korea and overweighting Germany (up 55.8% and
46.7%, respectively).
Although economic and market conditions vary from period to period,
the Fund's primary strategy of investing in undervalued companies with
above-average earnings growth expectations remains consistent.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
Siemens AG 2.4%
Sanofi-Aventis 2.4%
Vodafone Group plc 2.3%
BP plc 2.3%
BAE Systems plc 2.1%
Deutsche Post AG 2.0%
Telefonica S.A. 1.9%
GlaxoSmithKline plc 1.8%
E.ON AG 1.8%
France Telecom S.A. 1.7%
SECTOR ALLOCATION
% OF
EQUITIES
----------
Financials 25.4%
Consumer Discretionary 15.0%
Industrials 12.4%
Telecommunications Services 9.6%
Energy 8.4%
Consumer Staples 7.9%
Health Care 7.6%
Materials 4.9%
Information Technology 4.6%
Utilities 4.2%
REGIONAL ALLOCATION*
(PIE CHART)
Europe 77.2%
Pacific Rim 21.2%
North America 1.6%
* shown as a percentage of equities
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
FUND EXPENSES
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
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,
2007 through October 31, 2007.
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, 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.
Beginning Ending
Account Account Expenses Paid During
Value Value Period*
5/1/07 10/31/07 5/1/07-10/31/07
--------- --------- --------------------
INSTITUTIONAL CLASS
Actual $1,000.00 $1,069.28 $3.49
Hypothetical $1,000.00 $1,021.83 $3.41
(5% return before expenses)
PLANAHEAD CLASS
Actual $1,000.00 $1,067.64 $4.85
Hypothetical $1,000.00 $1,020.52 $4.74
(5% return before expenses)
SERVICE CLASS
Actual $1,000.00 $1,065.96 $5.62
Hypothetical $1,000.00 $1,019.76 $5.50
(5% return before expenses)
AMR CLASS
Actual $1,000.00 $1,070.34 $2.14
Hypothetical $1,000.00 $1,023.14 $2.09
(5% return before expenses)
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.67%, 0.93%, 1.16% 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(SM)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of American Beacon International Equity Fund
and the Board of Trustees of American Beacon Funds:
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, 2007, 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, 2007, 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, 2007, 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 21, 2007
6
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
AUSTRALIA - 1.41%
COMMON STOCKS - 1.41%
Commonwealth Bank of Australia ................. 208,440 $ 12,028
National Australia Bank Ltd. ................... 342,730 13,869
News Corp. ..................................... 182,280 3,950
Suncorp-Metway Ltd. ............................ 860,170 16,342
----------
TOTAL AUSTRALIA ................................... 46,189
----------
AUSTRIA - 0.19%
COMMON STOCKS - 0.19%
Telekom Austria AG ............................. 214,770 6,175
----------
CANADA - 1.37%
COMMON STOCKS - 1.37%
Celestica, Inc. ## ............................. 556,300 3,710
Husky Energy, Inc. + ........................... 138,160 6,440
Jean Coutu Group, Inc. + ....................... 371,200 5,485
Manulife Financial Corp. + ..................... 436,196 20,405
Precision Drilling Trust ....................... 486,852 8,875
----------
TOTAL CANADA ...................................... 44,915
----------
DENMARK - 0.39%
COMMON STOCKS - 0.39%
Vestas Wind Systems ## ......................... 141,526 12,748
----------
FINLAND - 1.51%
COMMON STOCKS - 1.51%
Nokia Oyj ...................................... 452,300 17,964
Stora Enso Oyj ................................. 213,542 3,928
Stora Enso Oyj, A Shares ....................... 68,102 1,247
Stora Enso Oyj, R Shares ....................... 232,400 4,279
UPM-Kymmene Oyj ................................ 980,364 22,009
----------
TOTAL FINLAND ..................................... 49,427
----------
FRANCE - 12.10%
COMMON STOCKS - 12.10%
Accor S.A. ..................................... 170,000 16,279
AXA S.A. ....................................... 901,838 40,490
BNP Paribas .................................... 228,008 25,257
Compagnie Generale des Etablissements
Michelin .................................... 116,670 15,697
Credit Agricole S.A. ........................... 400,100 15,873
France Telecom S.A. ............................ 1,546,504 57,203
Groupe Danone .................................. 81,700 7,018
Lafarge S.A. ................................... 41,762 6,819
Publicis Groupe S.A. ........................... 364,719 14,857
Sanofi-Aventis ................................. 875,355 77,017
Suez S.A. ...................................... 177,280 11,568
Technip ........................................ 261,046 23,487
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Thomson S.A. ................................... 361,550 $ 6,325
Total S.A. ..................................... 661,376 53,376
VINCI S.A. ..................................... 300,902 24,774
----------
TOTAL FRANCE ...................................... 396,040
----------
GERMANY - 11.36%
COMMON STOCKS - 10.92%
adidas AG ...................................... 339,800 22,731
Allianz AG ..................................... 43,702 9,859
BASF AG ........................................ 39,970 5,534
Bayer AG ....................................... 223,812 18,739
Bayerische Motoren Werke AG .................... 263,681 17,695
Celesio AG ..................................... 260,090 14,757
Continental AG ................................. 78,700 11,923
DaimlerChrysler AG ............................. 208,900 23,097
Deutsche Post AG ............................... 2,162,731 65,654
Deutsche Telekom ............................... 616,040 12,649
E.ON AG ........................................ 303,284 59,300
Infineon Technologies AG ## .................... 527,250 7,763
Muenchener Rueckversicherung-Gesellschaft AG ... 47,997 9,233
Siemens AG ..................................... 576,121 78,496
----------
TOTAL COMMON STOCKS ............................... 357,430
----------
PREFERRED STOCKS - 0.44%
Henkel KGaA .................................... 282,010 14,440
----------
TOTAL GERMANY ..................................... 371,870
----------
GREECE - 0.68%
COMMON STOCKS - 0.68%
National Bank of Greece S.A. ................... 107,500 7,507
Public Power Corp. S.A. ........................ 359,480 14,613
----------
TOTAL GREECE ...................................... 22,120
----------
HONG KONG/CHINA - 1.68%
COMMON STOCKS - 1.68%
Cheung Kong Holdings Ltd. ...................... 835,500 16,447
Hang Lung Group Ltd. ........................... 2,451,000 14,590
Hutchison Whampoa Ltd. ......................... 199,000 2,509
Swire Pacific Ltd. ............................. 957,100 13,594
Yue Yuen Industrial (Holdings) Ltd. ............ 2,551,167 7,932
----------
TOTAL HONG KONG/CHINA ............................. 55,072
----------
IRELAND - 1.83%
COMMON STOCKS - 1.83%
Allied Irish Banks ............................. 548,932 13,820
Bank of Ireland ................................ 613,930 11,392
CRH plc ........................................ 437,423 16,820
CRH plc, ADR ................................... 171,625 6,582
See accompanying notes
7
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Smurfit Kappa Group plc ## ...................... 564,913 $ 11,405
----------
TOTAL IRELAND ..................................... 60,019
----------
ITALY - 2.98%
COMMON STOCKS - 2.98%
Eni S.p.A. + ................................... 626,391 22,891
Mediaset S.p.A. ................................ 1,786,680 18,529
Telecom Italia S.p.A. .......................... 1,392,689 4,374
UniCredito Italiano S.p.A. ..................... 6,008,908 51,669
----------
TOTAL ITALY ....................................... 97,463
----------
JAPAN - 12.68%
COMMON STOCKS - 12.68%
Aeon Co. Ltd. .................................. 1,017,600 15,949
Astellas Pharma, Inc. .......................... 319,400 14,117
Canon, Inc. .................................... 110,600 5,588
Chuo Mitsui Trust Holdings, Inc. ............... 1,138,400 9,093
Daito Trust Construction Co. Ltd. .............. 228,800 10,598
East Japan Railway Co. ......................... 992 8,166
FUJIFILM Holdings Corp. ........................ 114,400 5,466
Haseko Corp. ## ................................ 4,812,407 11,560
Hitachi Ltd. ................................... 685,500 4,651
Honda Motor Co. Ltd. ........................... 580,000 21,735
HOYA Corp. ..................................... 193,900 7,047
Japan Tobacco, Inc. ............................ 1,868 10,872
JS Group Corp. ................................. 366,100 5,915
JSR Corp. ...................................... 256,300 6,633
Konica Minolta Holdings, Inc. .................. 499,500 8,808
Mitsubishi UFJ Financial Group, Inc. ........... 2,338,000 23,290
NEC Corp. ...................................... 417,300 2,074
Nidec Corp. .................................... 110,700 8,336
Nintendo Co. Ltd. .............................. 20,500 12,918
Nippon Express Co. Ltd. ## ..................... 1,933,700 9,673
Nippon Paper Group, Inc. ....................... 2,312 6,941
Nissan Motor Co. Ltd. .......................... 1,817,400 20,940
NOK Corp. ...................................... 615,600 13,691
Nomura Holdings, Inc. .......................... 573,900 10,225
ROHM Co. Ltd. .................................. 155,400 13,583
Sankyo Co. Ltd. + .............................. 190,600 8,124
Sekisui House Ltd. ............................. 899,600 11,501
Sompo Japan Insurance, Inc. .................... 376,900 4,399
Sony Corp. ..................................... 108,402 5,356
Sony Financial Holdings, Inc. ## ............... 1,770 6,367
Sumitomo Mitsui Financial Group, Inc. .......... 3,196 26,079
Sumitomo Trust and Banking Co. Ltd. ............ 914,400 6,791
Takeda Pharmaceutical Co. Ltd. ................. 388,700 24,261
THK Co. Ltd. ................................... 919,400 20,221
Tokyo Gas Co. Ltd. ............................. 2,260,200 10,102
Yamada Denki Co. Ltd. .......................... 73,900 7,606
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Yamaha Motor Co. Ltd. .......................... 574,300 $ 16,347
----------
TOTAL JAPAN ....................................... 415,023
----------
MEXICO - 0.24%
COMMON STOCKS - 0.24%
Telefonos de Mexico, S.A. de C.V., ADR ......... 214,800 7,855
----------
NETHERLANDS - 5.75%
COMMON STOCKS - 5.75%
Akzo Nobel N.V. ................................ 159,597 12,874
Heineken N.V. .................................. 111,300 7,805
ING Groep N.V. ................................. 865,429 39,061
Koninklijke (Royal) Philips Electronics N.V. ... 848,316 35,222
Reed Elsevier N.V. ............................. 729,708 14,163
SBM Offshore N.V. .............................. 273,650 10,555
TNT N.V. ....................................... 748,231 30,763
Unilever N.V. .................................. 1,018,547 33,174
Vedior N.V. .................................... 209,690 4,794
----------
TOTAL NETHERLANDS ................................. 188,411
----------
NEW ZEALAND - 0.18%
COMMON STOCKS - 0.18%
Telecom Corporation of New Zealand Ltd. + ...... 1,766,323 5,937
----------
NORWAY - 1.55%
COMMON STOCKS - 1.55%
Aker Kvaener ASA ............................... 408,650 14,331
Stolt-Nielsen S.A. ............................. 273,134 8,059
Telenor ASA .................................... 1,202,289 28,363
----------
TOTAL NORWAY ...................................... 50,753
----------
PORTUGAL - 0.37%
COMMON STOCKS - 0.37%
Portugal Telecom, SGPS, S.A. ................... 792,250 10,641
PT Multimedia .................................. 111,591 1,519
----------
TOTAL PORTUGAL .................................... 12,160
----------
SINGAPORE - 2.28%
COMMON STOCKS - 2.28%
Development Bank of Singapore Group
Holdings Ltd. ............................... 2,490,455 38,909
Flextronics International Ltd. ## .............. 899,000 11,067
Singapore Telecommunications Ltd. .............. 8,645,000 24,558
----------
TOTAL SINGAPORE ................................... 74,534
----------
SOUTH KOREA - 2.46%
COMMON STOCKS - 2.46%
Kookmin Bank, ADR ## ........................... 200,810 16,404
Korea Electric Power Corp. ..................... 86,860 3,873
See accompanying notes
8
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
LG Electronics, Inc. ........................... 76,760 $ 8,073
LG Telecom Ltd. ## ............................. 868,507 9,473
Samsung Electronics Co. Ltd. ................... 40,044 24,862
Samsung Electronics Co. Ltd., GDR ## ++ ........ 16,800 5,124
Shinhan Financial Group Co. Ltd. ............... 193,352 12,606
----------
TOTAL SOUTH KOREA ................................. 80,415
----------
SPAIN - 3.61%
COMMON STOCKS - 3.61%
Banco Popular Espanol S.A. ..................... 506,100 8,873
Banco Santander Central Hispano S.A. ........... 749,550 16,384
Banco Santander Central Hispano S.A., GDR ...... 560,544 12,151
Enagas S.A. .................................... 293,628 8,358
Repsol YPF S.A. ................................ 273,340 10,847
Telefonica S.A. ................................ 1,864,332 61,729
----------
TOTAL SPAIN ....................................... 118,342
----------
SWEDEN - 2.06%
COMMON STOCKS - 2.06%
Atlas Copco AB ................................. 683,640 11,456
Nordea Bank AB ................................. 617,020 11,060
Securitas AB ................................... 381,930 4,831
Securitas Direct AB ## ......................... 381,930 1,143
Securitas Systems AB ........................... 381,930 1,536
Swedbank AB .................................... 139,000 4,367
Telefonaktiebolaget LM Ericsson ................ 10,995,500 33,033
----------
TOTAL SWEDEN ...................................... 67,426
----------
SWITZERLAND - 6.31%
COMMON STOCKS - 6.31%
Adecco S.A. .................................... 138,320 8,347
Ciba Specialty Chemicals Holding, Inc. ......... 228,630 11,388
Credit Suisse Group ............................ 387,632 26,170
Lonza Group AG ................................. 67,200 7,849
Nestle S.A. .................................... 81,004 37,445
Novartis AG .................................... 929,991 49,546
Swiss Reinsurance .............................. 301,328 28,376
UBS AG ......................................... 160,280 8,602
Zurich Financial Services AG ................... 95,218 28,774
----------
TOTAL SWITZERLAND ................................. 206,497
----------
UNITED KINGDOM - 24.17%
COMMON STOCKS - 24.17%
Anglo American plc ............................. 94,610 6,532
Aviva plc ...................................... 1,797,707 28,345
BAE Systems plc ................................ 6,741,946 70,047
BP plc ......................................... 5,674,229 73,781
British American Tobacco Industries plc ........ 1,230,564 46,900
British Sky Broadcasting Group plc ............. 914,390 12,960
SHARES VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
Cadbury Schweppes plc .......................... 827,350 $ 10,977
Centrica plc ................................... 1,556,990 11,972
Compass Group plc .............................. 3,587,135 25,900
Debenhams plc .................................. 5,038,636 11,908
Diageo plc ..................................... 580,243 13,302
GlaxoSmithKline plc ............................ 2,336,748 60,270
HBOS plc ....................................... 814,124 14,842
HSBC Holdings plc .............................. 2,454,909 48,525
Imperial Tobacco Group plc ..................... 216,240 10,966
Invesco plc .................................... 339,930 5,232
Kingfisher plc ................................. 2,981,685 12,266
Lloyds TSB Group plc ........................... 852,100 9,695
National Grid plc .............................. 886,578 14,811
Old Mutual plc ................................. 3,130,299 12,018
Pearson plc .................................... 566,810 9,423
Prudential plc ................................. 659,300 10,766
Reckitt Benckiser Group plc .................... 170,400 9,902
Rolls-Royce Group plc ## ....................... 44,900,370 12,273
Royal Bank of Scotland Group plc ............... 3,860,902 41,657
Royal Dutch Shell plc, ADR ..................... 31,660 2,771
Royal Dutch Shell plc, A Shares ................ 529,148 23,164
Royal Dutch Shell plc, B Shares ................ 672,912 29,339
Smiths Group plc ............................... 292,020 6,887
Standard Chartered plc ......................... 177,350 6,913
Tate & Lyle plc ................................ 1,249,325 11,348
Unilever plc ................................... 1,257,315 42,595
Vodafone Group plc ............................. 19,096,530 75,324
Yell Group plc ................................. 811,330 7,701
----------
TOTAL UNITED KINGDOM .............................. 791,312
----------
SHORT TERM INVESTMENTS - 2.19%
American Beacon Money Market Select Fund # ..... 71,709,522 71,709
----------
SECURITIES LENDING
COLLATERAL - 1.45%
American Beacon Cash Plus Trust # .............. 31,000,000 31,000
American Beacon Money Market Select Fund # ..... 16,392,990 16,393
----------
TOTAL SECURITIES LENDING COLLATERAL ............... 47,393
----------
TOTAL INVESTMENTS 100.80% - (COST $2,378,845) ........ 3,299,805
LIABILITIES, NET OF OTHER ASSETS - (0.80%) ........... (26,140)
----------
TOTAL NET ASSETS - 100.00% ........................... $3,273,665
==========
See accompanying notes
9
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
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, 2007.
++ 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 $5,124 or 0.16% 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.
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
UNREALIZED
NUMBER OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- ------- --------------
Australia SPI Index ............................................ 42 Dec 2007 $ 6,611 $ 246
Canada S&PCDA 60 Index ......................................... 45 Dec 2007 8,078 341
France CAC 40 Index ............................................ 115 Dec 2007 9,757 301
Germany DAX Index .............................................. 28 Dec 2007 8,162 243
Hang Seng Index ................................................ 11 Nov 2007 2,219 83
Italy MIB 30 Index ............................................. 12 Dec 2007 3,531 81
Netherlands 200 AEX Index ...................................... 17 Nov 2007 2,696 (4)
Spain IBEX 35 Index ............................................ 17 Nov 2007 3,901 144
Sweden OMX Index ............................................... 123 Nov 2007 2,292 11
Tokyo FE TOPIX Index ........................................... 134 Dec 2007 18,789 355
UK FTSE 100 Index .............................................. 155 Dec 2007 21,729 857
------- ------
$87,765 $2,658
======= ======
See accompanying notes
10
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
(DOLLARS IN THOUSANDS)
SETTLEMENT MARKET UNREALIZED
DATE VALUE GAIN/(LOSS)
---------- -------- -----------
CONTRACTS TO DELIVER
4,375 Australian Dollar .................................. 12/14/2007 $ 4,065 $ (193)
4,896 Canadian Dollar .................................... 12/14/2007 5,184 (249)
14,720 Euro Currency ...................................... 12/14/2007 21,336 (473)
1,624,913 Japanese Yen ....................................... 12/14/2007 14,158 (65)
7,458 Pound Sterling ..................................... 12/14/2007 15,486 (403)
9,918 Swedish Krona ...................................... 12/14/2007 1,563 (31)
4,237 Swiss Franc ........................................ 12/14/2007 3,668 (50)
-------- -------
TOTAL CONTRACTS TO DELIVER
(RECEIVABLE AMOUNT $63,996) ................................. $ 65,460 $(1,464)
-------- -------
CONTRACTS TO RECEIVE
11,002 Australian Dollar .................................. 12/14/2007 $ 10,222 $ 924
12,129 Canadian Dollar .................................... 12/14/2007 12,842 1,085
32,763 Euro Currency ...................................... 12/14/2007 47,488 1,922
1,129,302 Japanese Yen ....................................... 12/14/2007 32,581 (551)
17,386 Pound Sterling ..................................... 12/14/2007 36,100 831
24,518 Swedish Krona ...................................... 12/14/2007 3,863 204
11,221 Swiss Franc ........................................ 12/14/2007 9,715 190
-------- -------
TOTAL CONTRACTS TO RECEIVE
(PAYABLE AMOUNT $148,206) ................................... $152,811 $ 4,605
-------- -------
NET CURRENCY FLUCTUATION ....................................... $ 3,141
=======
SECTOR DIVERSIFICATION
Percent of
Net Assets
----------
Consumer Discretionary ......................................... 14.57%
Consumer Staples ............................................... 7.71%
Energy ......................................................... 8.11%
Financials ..................................................... 24.69%
Health Care .................................................... 7.33%
Industrials .................................................... 12.04%
Information Technology ......................................... 4.51%
Materials ...................................................... 4.75%
Telecommunication Services ..................................... 9.34%
Utilities ...................................................... 4.11%
Short Term Investments ......................................... 3.64%
Liabilities, Net of Other Assets ............................... (0.80)%
------
100.00%
======
See accompanying notes
11
AMERICAN BEACON INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS:
Investments in unaffiliated securities, at value (A,C) ...... $ 3,180,703
Investments in affiliated securities, at value (B) .......... 119,102
Foreign currency, at value (D) .............................. 6,769
Deposit with brokers for futures contracts .................. 8,015
Receivable for investments sold ............................. 7,044
Dividends and interest receivable ........................... 8,257
Receivable for fund shares sold ............................. 1,350
Receivable for tax reclaims ................................. 265
Receivable for variation margin on open futures contracts ... 608
Net unrealized appreciation on foreign currency contracts ... 3,141
Prepaid expenses ............................................ 39
-----------
TOTAL ASSETS ............................................. 3,335,293
-----------
LIABILITIES:
Payable for investments purchased ........................... 6,442
Payable upon return of securities loaned .................... 47,393
Payable for fund shares redeemed ............................ 3,769
Management and investment advisory fees payable (Note 2) .... 2,825
Administrative service and service fees payable ............. 731
Other liabilities ........................................... 468
-----------
TOTAL LIABILITIES ........................................ 61,628
-----------
NET ASSETS ..................................................... $ 3,273,665
===========
ANALYSIS OF NET ASSETS:
Paid-in-capital ............................................. 1,971,293
Undistributed net investment income ......................... 81,197
Accumulated net realized gain ............................... 294,190
Unrealized appreciation of investments, futures contracts,
and foreign currency ..................................... 926,985
-----------
NET ASSETS ..................................................... $ 3,273,665
===========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class ......................................... 61,734,598
===========
PlanAhead Class ............................................. 33,693,070
===========
Service Class ............................................... 183,814
===========
AMR Class ................................................... 24,425,060
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class ......................................... $ 27.32
===========
PlanAhead Class ............................................. $ 26.99
===========
Service Class ............................................... $ 26.83
===========
AMR Class ................................................... $ 27.54
===========
- -----------
(A) Cost of investments in unaffiliated securities ............ $ 2,259,743
(B) Cost of investments in affiliated securities .............. $ 119,102
(C) Market value of securities on loan ........................ $ 45,112
(D) Cost of foreign currency .................................. $ 6,693
SEE ACCOMPANYING NOTES
12
AMERICAN BEACON INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
Year Ended October 31, 2007 (in thousands)
INVESTMENT INCOME:
Dividend income from unaffiliated securities
(net of foreign taxes)* .................................. $ 91,145
Dividend income from affiliated securities .................. 5,477
Interest income ............................................. 343
Income derived from securities lending, net ................. 3,001
---------
TOTAL INVESTMENT INCOME .................................. 99,966
---------
EXPENSES:
Management and investment advisory fees (Note 2) ............ 10,688
Administrative service fees (Note 2):
Institutional Class ...................................... 4,099
PlanAhead Class .......................................... 2,215
Service Class ............................................ 12
Transfer agent fees:
Institutional Class ....................................... 175
PlanAhead Class .......................................... 126
AMR Class ................................................ 38
Custody and fund accounting fees ............................ 1,651
Professional fees ........................................... 114
Registration fees and expenses .............................. 78
Service fees:
PlanAhead Class (Note 2) ................................. 2,214
Service Class (Note 2) ................................... 12
Distribution fees - Service Class (Note 2) .................. 12
Prospectus and shareholder reports .......................... 171
Other expenses .............................................. 302
---------
TOTAL EXPENSES ........................................... 21,907
---------
Net fees waived and expenses reimbursed by Manager
(Note 2) ................................................. (1)
---------
NET EXPENSES ............................................. 21,906
---------
NET INVESTMENT INCOME .......................................... 78,060
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments .............................................. 248,300
Commission recapture (Note 1) ............................ 121
Foreign currency transactions ............................ 50,621
Futures contracts ........................................ 15,231
Change in net unrealized appreciation or depreciation of:
Investments .............................................. 39,879
Foreign currency translations ............................ 177,264
Futures contracts ........................................ 647
---------
NET GAIN ON INVESTMENTS ............................... 532,063
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $ 610,123
=========
* Foreign taxes ............................................. $ 7,342
SEE ACCOMPANYING NOTES
13
AMERICAN BEACON INTERNATIONAL EQUITY FUND
STATEMENT OF CHANGES OF NET ASSETS (IN THOUSANDS)
Year Ended Year Ended
October 31, October 31,
2007 2006
----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ....................................... $ 78,060 $ 66,358
Net realized gain on investments, futures contracts, and
foreign currency transactions ............................ 314,273 206,379
Change in net unrealized appreciation or (depreciation) of
investments, futures contracts, and foreign currency
translations ............................................. 217,790 358,875
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... 610,123 631,612
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class ...................................... (31,129) (25,841)
PlanAhead Class .......................................... (14,581) (10,419)
Service Class ............................................ (64) (39)
AMR Class ................................................ (12,610) (10,085)
Net realized gain on investments:
Institutional Class ...................................... (114,385) (80,744)
PlanAhead Class .......................................... (59,491) (36,241)
Service Class ............................................ (327) (195)
AMR Class ................................................ (41,178) (28,011)
---------- ----------
NET DISTRIBUTIONS TO SHAREHOLDERS ........................ (273,765) (191,575)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares ............................... 572,603 548,466
Reinvestment of dividends and distributions ................. 259,288 176,178
Cost of shares redeemed ..................................... (783,879) (574,493)
Redemption fees ............................................. 505 308
---------- ----------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS .......................................... 48,517 150,459
---------- ----------
NET INCREASE IN NET ASSETS ..................................... 384,875 590,496
---------- ----------
NET ASSETS:
Beginning of period ......................................... 2,888,790 2,298,294
---------- ----------
END OF PERIOD * ............................................. $3,273,665 $2,888,790
========== ==========
*Includes undistributed net investment income of ............... $ 81,197 $ 49,187
========== ==========
SEE ACCOMPANYING NOTES
14
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2007
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, as
amended (the "Act"), 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 (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.
Reorganization
Prior to March 1, 2006, the Fund invested all of its investable assets
in the International Equity Portfolio (the "Portfolio") of the American Beacon
Master Trust.
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.
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 Administrative Service Fee - 0.25%
of $2 million
PLANAHEAD CLASS General public and investors investing Administrative Service Fee - 0.25%
through an intermediary Service Fee - 0.25%
SERVICE CLASS Investors investing through an Administrative Service Fee - 0.25%
intermediary Service Fee - 0.25%
Distribution Fee - 0.25%
AMR CLASS Investors in the tax-exempt retirement
and benefit plans of AMR Corporation
and its affiliates N/A
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.
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
15
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2007
provided by the pricing service is deemed not to represent fair value, the
prices of debt securities may be determined using quotes obtained from
independent 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
Trust's 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 reflected in
the accompanying financial statements. The Fund also bears the credit risk if
the counterparty fails to perform under the contract.
16
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2007
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 initial
margin amount is reflected 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 Fund normally will be
declared and paid at least annually. Distributions, if any, of net realized
capital gains are generally paid at least annually and recorded on the
ex-dividend date.
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.
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 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.
17
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2007
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, the
Manager does not anticipate the adoption of FIN 48 to have a material impact on
the financial statements.
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, 2007, the Manager does not believe
the adoption of FAS 157 will materially 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.
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 that
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 year ended October 31, 2007 were as follows
(dollars in thousands):
AMOUNTS PAID TO NET AMOUNTS
INVESTMENT RETAINED BY
MANAGEMENT FEE RATE MANAGEMENT FEE ADVISORS MANAGER
- ------------------- -------------- --------------- -----------
0.25%-0.60% $10,688 $7,514 $3,174
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
18
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2007
netted against securities lending income in the Statement of Operations. During
the year ended October 31, 2007, securities lending fees paid to the Manager
were $399,537.
Administrative Services Agreement
The Manager and the Trust entered into an Administrative Services
Agreement which obligates the Manager to provide or oversee administrative
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 Fund, 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 and administrative service
fees received by the Manager and the investment advisors hired by the Manager to
be used for distribution purposes. Under this Plan, the Fund does not intend to
compensate the Manager or any other party, either directly or indirectly, for
the distribution of Fund shares.
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 issued 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")(collectively, the "Affiliated
Funds"). The Fund and 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, 2007, the Manager earned fees from the Affiliated Funds
totaling $104,029 on the Fund's direct investment in the Affiliated Funds and
$147,297 from the Fund's securities lending collateral invested in the
Affiliated Funds.
Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with
other registered investment companies having management contracts with the
Manager, may participate in an interfund lending program as a borrower. This
program provides an alternative credit facility allowing the Fund to borrow from
other participating Funds. The Fund did not utilize the credit facility during
the year ended October 31, 2007.
19
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2007
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's average net
assets have grown or expenses have declined sufficiently to allow reimbursement
without causing its expense ratio to exceed the previously agreed upon
contractual expense limit. During the year ended October 31, 2007, there were no
additional waived fees or reimbursed expenses for the Service Class. The
activity related to repayment of prior year fee waivers and expense
reimbursements during the year ended October 31, 2007 was as follows:
Expiration Liability at Liability at
Year 10/31/06 Accrued Expired Recouped 10/31/07
- ---------- ------------ ------- ------- -------- ------------
2007 2,934 $-- $1,116 $1,818 $--
2008 9 -- -- 9 --
2009 1,956 -- -- 1,956 --
------ --- ------ ------ ---
$4,899 $-- $1,116 $3,783 $--
====== === ====== ====== ===
Other
At October 31, 2007, AMR Corporation and subsidiary companies and
employee benefit trusts thereof owned 20% 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 fiscal years ended
October 31, 2007 and October 31, 2006 were as follows (in thousands):
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2007 2006
----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME*
Institutional Class .. $ 55,466 $ 42,005
PlanAhead Class ...... 27,239 17,674
Service Class ........ 133 78
AMR Class ............ 21,371 15,693
LONG-TERM CAPITAL GAIN
Institutional Class .. 90,048 64,579
PlanAhead Class ...... 46,834 28,986
Service Class ........ 257 156
AMR Class ............ 32,417 22,404
-------- --------
TOTAL DISTRIBUTIONS PAID ... $273,765 $191,575
======== ========
* For tax purposes, short-term capital gains are considered ordinary income
distributions
As of October 31, 2007, the components of distributable earnings on a
tax basis were as follows (in thousands):
20
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2007
Cost basis of investments for federal income tax purposes .. $2,397,843
Unrealized appreciation .................................... 968,138
Unrealized depreciation .................................... (66,176)
----------
Net unrealized appreciation/(depreciation) ................. 901,962
Undistributed ordinary income .............................. 140,108
Undistributed long-term gain/(loss) ........................ 248,510
----------
Distributable earnings ..................................... $1,290,580
==========
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 gain/(losses) on certain derivative instruments, the
realization for tax purposes of unrealized gain/(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.
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, 2007 (in thousands):
Paid-in-capital ............................ $(11,027)
Undistributed net investment income ........ 12,334
Accumulated net realized loss .............. (1,308)
Unrealized depreciation of investments,
futures contracts and foreign currency .. 1
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,
2007 were (in thousands) $1,157,710 and $1,263,769, respectively.
A summary of the Fund's direct transactions in Affiliated Funds for
the year ended October 31, 2007 is set forth below (in thousands):
OCTOBER 31, 2006 OCTOBER 31, 2007
AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
- --------- ------------------- ---------- ---------- -------------------
Select Fund $87,487 $1,079,041 $1,094,819 $71,709
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 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.
21
AMERICAN BEACON INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2007
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 borrowers 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, 2007, securities with a market value of approximately
$45,112,000 were loaned by the Fund. Cash collateral held by the custodian for
the Fund in an investment in the Affiliated Funds totaled $47,393,000.
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, 2007
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
------------------- ------------------- ---------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- --------- ------- --------- ------ ------- ------ ---------
Shares sold ................ 9,309 $ 233,941 10,042 $ 248,361 22 $ 548 3,615 $ 89,753
Reinvestment of dividends .. 5,632 133,085 3,079 72,025 17 390 2,264 53,788
Shares redeemed ............ (15,989) (400,672)* (11,014) (276,108)* (51) (1,254)* (4,109) (105,340)*
------- --------- ------- --------- --- ------- ------ ---------
Net increase (decrease) in
shares outstanding ...... (1,048) $ (33,646) 2,107 $ 44,278 (12) $ (316) 1,770 $ 38,201
======= ========= ======= ========= === ======= ====== =========
Year Ended October 31, 2006
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
22
AMERICAN BEACON INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Institutional Class
------------------------------------------------------------
Year Ended October 31
------------------------------------------------------------
2007 2006 2005 2004(A) 2003(B)
---------- ---------- ---------- ---------- --------
Net asset value, beginning of period .... $ 24.68 $ 20.98 $ 18.47 $ 15.46 $ 12.10
---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income(C,D) ........... 0.65 0.60 0.44 0.30 0.25
Net gains (losses) on securities (both
realized and unrealized)(C) ....... 4.31 4.86 2.31 3.12 3.47
---------- ---------- ---------- ---------- --------
Total income (loss) from investment
operations ........................... 4.96 5.46 2.75 3.42 3.72
---------- ---------- ---------- ---------- --------
Less distributions:
Dividends from net investment
income ............................ (0.50) (0.43) (0.24) (0.41) (0.36)
Distributions from net realized
gains on securities ............... (1.82) (1.33) -- -- --
---------- ---------- ---------- ---------- --------
Total distributions ..................... (2.32) (1.76) (0.24) (0.41) (0.36)
---------- ---------- ---------- ---------- --------
Redemption fees added to beneficial
interest(E) .......................... 0.00 0.00 0.00 0.00 0.00
---------- ---------- ---------- ---------- --------
Net asset value, end of period .......... $ 27.32 $ 24.68 $ 20.98 $ 18.47 $ 15.46
========== ========== ========== ========== ========
Total return ............................ 21.54% 27.49% 15.04% 22.49% 31.61%
========== ========== ========== ========== ========
Ratios and supplemental data:
Net assets, end of period (in
thousands) ........................ $1,686,668 $1,549,521 $1,286,441 $1,029,272 $722,333
Ratios to average net assets
(annualized):
Expenses, net of waivers(C) ....... 0.67% 0.71% 0.70% 0.76% 0.79%
Expenses, before waivers(C) ....... 0.67% 0.71% 0.70% 0.76% 0.79%
Net investment income, net of
waivers(C) ..................... 2.46% 2.52% 2.17% 1.69% 1.97%
Net investment income (loss),
before waivers(C) .............. 2.46% 2.52% 2.17% 1.69% 1.97%
Portfolio turnover rate(F) ........... 38% 40% 37% 36% 44%
- ----------
(A) The Boston Company Asset Management, LLC was added as an investment advisor
to the International Equity Fund on September 27, 2004.
(B) Independence Investment LLC was removed as an investment advisor to the
International Equity Fund on October 24, 2003.
(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 American Beacon International Equity Portfolio through February 28,
2006.
(D) 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.
(E) Amounts represent less than $0.01 per share.
(F) The International Equity Fund invested all of its investable assets in the
American Beacon International Equity Portfolio through February 28, 2006.
Portfolio turnover rate through February 28, 2006 is that of the Portfolio.
23
AMERICAN BEACON INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
PlanAhead Class
----------------------------------------------------
Year Ended October 31
----------------------------------------------------
2007 2006 2005 2004(A) 2003(B)
-------- -------- -------- -------- --------
Net asset value, beginning of period .................................... $ 24.42 $ 20.79 $ 18.31 $ 15.34 $ 11.95
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income(C,D) .......................................... 0.58 0.50 0.41 0.26 0.22
Net gains (losses) on securities (both realized and unrealized)(C) ... 4.26 4.84 2.29 3.08 3.46
-------- -------- -------- -------- --------
Total income (loss) from investment operations .......................... 4.84 5.34 2.70 3.34 3.68
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income ................................. (0.45) (0.38) (0.22) (0.37) (0.29)
Distributions from net realized gains on securities .................. (1.82) (1.33) -- -- --
-------- -------- -------- -------- --------
Total distributions ..................................................... (2.27) (1.71) (0.22) (0.37) (0.29)
-------- -------- -------- -------- --------
Redemption fees added to beneficial interest(E) ......................... 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Net asset value, end of period .......................................... $ 26.99 $ 24.42 $ 20.79 $ 18.31 $ 15.34
======== ======== ======== ======== ========
Total return ............................................................ 21.22% 27.20% 14.73% 22.16% 31.62%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) ............................. $909,385 $771,298 $560,770 $310,540 $177,425
Ratios to average net assets (annualized):
Expenses, net of waivers(C) ....................................... 0.93% 0.96% 0.95% 1.02% 1.10%
Expenses, before waivers(C) ....................................... 0.93% 0.96% 0.95% 1.02% 1.10%
Net investment income, net of waivers(C) .......................... 2.26% 2.25% 1.96% 1.46% 1.68%
Net investment income (loss), before waivers(C) ................... 2.26% 2.25% 1.96% 1.46% 1.68%
Portfolio turnover rate(F) ........................................... 38% 40% 37% 36% 44%
- ----------
(A) The Boston Company Asset Management, LLC was added as an investment advisor
to the International Equity Fund on September 27, 2004.
(B) Independence Investment LLC was removed as an investment advisor to the
International Equity Fund on October 24, 2003.
(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 American Beacon International Equity Portfolio through February 28,
2006.
(D) 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.
(E) Amounts represent less than $0.01 per share.
(F) The International Equity Fund invested all of its investable assets in the
American Beacon International Equity Portfolio through February 28, 2006.
Portfolio turnover rate through February 28, 2006 is that of the Portfolio.
24
AMERICAN BEACON INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Service Class
---------------------------------------------------
Year Ended October 31 May 1 to
------------------------------------- October 31,
2007 2006 2005 2004(B) 2003(A)
------- ------- ------- ------- -----------
Net asset value, beginning of period .................................... $ 24.24 $ 20.61 $ 18.24 $ 15.31 $ 12.18
------- ------- ------- ------- ----------
Income from investment operations:
Net investment income(C,D) .......................................... 0.56 0.46 0.37 0.30 0.09
Net gains (losses) on securities (both realized and unrealized)(C) ... 4.20 4.76 2.26 2.99 3.04
------- ------- ------- ------- ----------
Total income (loss) from investment operations .......................... 4.76 5.22 2.63 3.29 3.13
------- ------- ------- ------- ----------
Less distributions:
Dividends from net investment income ................................. (0.35) (0.26) (0.26) (0.36) --
Distributions from net realized gains on securities .................. (1.82) (1.33) -- -- --
------- ------- ------- ------- ----------
Total distributions ..................................................... (2.17) (1.59) (0.26) (0.36) --
------- ------- ------- ------- ----------
Redemption fees added to beneficial interest(E) ......................... 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ----------
Net asset value, end of period .......................................... $ 26.83 $ 24.24 $ 20.61 $ 18.24 $ 15.31
======= ======= ======= ======= ==========
Total return ............................................................ 20.85% 26.89% 14.45% 21.88% 25.70%
======= ======= ======= ======= ==========
Ratios and supplemental data:
Net assets, end of period (in thousands) ............................. $ 4,932 $ 4,740 $ 2,987 $ 739 $ 1
Ratios to average net assets (annualized):
Expenses, net of waivers(C) ....................................... 1.12% 1.16% 1.21% 1.27% 1.50%
Expenses, before waivers(C) ....................................... 1.15% 1.19% 1.21% 6.26% 1,139.08%
Net investment income, net of waivers(C) .......................... 2.04% 2.09% 1.70% 0.81% 1.33%
Net investment income (loss), before waivers(C) ................... 2.01% 2.05% 1.70% (4.18)% (1,136.25)%
Portfolio turnover rate(F) ........................................... 38% 40% 37% 36% 44%(G)
- ----------
(A) Independence Investment LLC was removed as an investment advisor to the
International Equity Fund on October 24, 2003.
(B) The Boston Company Asset Management, LLC was added as an investment advisor
to the International Equity Fund on September 27, 2004.
(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 American Beacon International Equity Portfolio through February 28,
2006.
(D) 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.
(E) Amounts represent less than $0.01 per share.
(F) The International Equity Fund invested all of its investable assets in the
American Beacon International Equity Portfolio through February 28, 2006.
Portfolio turnover rate through February 28, 2006 is that of the Portfolio.
(G) Portfolio turnover rate is for the period from November 1, 2002 through
October 31, 2003.
25
AMERICAN BEACON INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
AMR Class
----------------------------------------------------
Year Ended October 31
----------------------------------------------------
2007 2006 2005 2004(A) 2003(B)
-------- -------- -------- -------- --------
Net asset value, beginning of period .................................... $ 24.86 $ 21.12 $ 18.58 $ 15.54 $ 12.18
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income(C,D) .......................................... 0.73 0.63 0.50 0.34 0.29
Net gains (losses) on securities (both realized and unrealized)(C) ... 4.33 4.92 2.33 3.14 3.46
-------- -------- -------- -------- --------
Total income (loss) from investment operations .......................... 5.06 5.55 2.83 3.48 3.75
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income ................................. (0.56) (0.48) (0.29) (0.44) (0.39)
Distributions from net realized gains on securities .................. (1.82) (1.33) -- -- --
-------- -------- -------- -------- --------
Total distributions ..................................................... (2.38) (1.81) (0.29) (0.44) (0.39)
-------- -------- -------- -------- --------
Redemption fees added to beneficial interest(E) ......................... 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Net asset value, end of period .......................................... $ 27.54 $ 24.86 $ 21.12 $ 18.58 $ 15.54
======== ======== ======== ======== ========
Total return ............................................................ 21.86% 27.88% 15.32% 22.84% 31.77%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) ............................. $672,680 $563,231 $448,096 $460,114 $322,801
Ratios to average net assets (annualized):
Expenses, net of waivers(C) ....................................... 0.42% 0.45% 0.44% 0.49% 0.52%
Expenses, before waivers(C) ....................................... 0.42% 0.45% 0.44% 0.49% 0.52%
Net investment income, net of waivers(C) .......................... 2.77% 2.76% 2.49% 1.97% 2.22%
Net investment income (loss), before waivers(C) ................... 2.77% 2.76% 2.49% 1.97% 2.22%
Portfolio turnover rate(F) ........................................... 38% 40% 37% 36% 44%
- ----------
(A) The Boston Company Asset Management, LLC was added as an investment advisor
to the International Equity Fund on September 27, 2004.
(B) Independence Investment LLC was removed as an investment advisor to the
International Equity Fund on October 24, 2003.
(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 American Beacon International Equity Portfolio through February 28,
2006.
(D) 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.
(E) Amounts represent less than $0.01 per share.
(F) The International Equity Fund invested all of its investable assets in the
American Beacon International Equity Portfolio through February 28, 2006.
Portfolio turnover rate through February 28, 2006 is that of the Portfolio.
26
AMERICAN BEACON FUNDS
PRIVACY POLICY & FEDERAL TAX INFORMATION
OCTOBER 31, 2007 (UNAUDITED)
PRIVACY POLICY
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.
FEDERAL TAX INFORMATION
For corporate shareholders in the Fund, the percentage of ordinary
dividend income distributed for the year ended October 31, 2007, which is
designated as qualifying for the dividends-received deduction, was 0.31%.
For shareholders in the Fund, the percentage of dividend income
distributed for the year ended October 31, 2007, which is designated as
qualified dividend income under the Jobs Growth Tax Relief Act of 2003, was
55.54%. Shareholders will receive notification in January 2008 of the percentage
applicable to the preparation of their 2007 income tax returns.
The Fund designated a foreign tax credit of $7,109,738 and recognized
foreign source income of $98,206,194.
Pursuant to Section 852 of the Internal Revenue Code, the Fund
designated $169,555,431 as long-term capital gain dividends for the tax year
ended October 31, 2007.
27
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
At its May 25, 2007 meeting, the Board of Trustees ("Board" or
"Trustees") considered the renewal of the existing Management Agreement between
the Manager and the American Beacon Funds on behalf of its International Equity
Fund (the "Fund") and each Investment Advisory Agreement between the Manager and
a subadvisor. In preparation for the Board's consideration to renew these
Agreements, the Board and its Investment Committee undertook steps to gather and
consider information furnished by the Manager, the subadvisors and Lipper, Inc.
("Lipper"). The Board, with the assistance of independent legal counsel,
requested and received certain relevant information from the Manager and each
subadvisor.
In addition, the Board's Investment Committee worked with Lipper to
obtain relevant comparative information regarding the performance, fees and
expenses of the Fund. The Investment Committee held a separate meeting on May 4,
2007 to consider the information provided by Lipper. Further, the Board took
into consideration information furnished for the Board's review and
consideration throughout the year at regular Board and Investment Committee
meetings, as well as information specifically prepared in connection with the
renewal process.
The Trustees considered, among other materials, responses by the
Manager and the subadvisors to inquiries requesting:
- a description of any significant changes (actual or anticipated) to
principal activities, personnel, services provided to the Fund, or any
other area, including how these changes might affect the Fund;
- a copy of the firm's most recent audited or unaudited financial
statements as well as its SEC Form ADV registration statement;
- a summary of any material past, pending or anticipated litigation or
regulatory proceedings involving the firm or its personnel, including
the results of any recent regulatory examination or independent audit;
- a comparison of the performance of that portion of Fund assets managed
by each firm with performance of other similar accounts managed by the
firm, including a discussion of relative performance versus a peer
group average and any remedial measures if the firm's performance was
materially below that of the peer group;
- a profit/loss analysis of the firm and any actual or anticipated
economies of scale in relation to the services it provides to the
Fund;
- a description of any payments by the firm to support the Fund's
marketing efforts;
- an analysis of compensation, including a comparison with fees charged
to other clients for which similar services are provided, any proposed
changes to the fee schedule and the effect of any fee waivers;
- an evaluation of other benefits to the firm or the Fund as a result of
their relationship, if any;
- confirmation that the firm's financial condition does not raise
concerns that the firm would be unable to continue providing the same
scope and quality of services to the Fund;
- a description of the scope of portfolio management services provided
to the Fund and the firm's other clients, including other registered
investment companies, whether such services differ, and any advantages
or disadvantages that might accrue to the Fund due to the firm's
involvement in other activities;
- a description of the personnel who are assigned primary responsibility
for managing the Fund, including any changes during the past year, and
a discussion of the adequacy of current and projected staffing levels
to service the Fund;
- a description of the basis upon which portfolio managers are
compensated, including any "incentive" arrangements;
- a discussion regarding the firm's participation in "soft dollar"
arrangements, if any, or other brokerage allocation policies with
respect to Fund transactions, including the firm's methodology for
obtaining the most favorable execution and the use of any affiliated
broker-dealers;
- a discussion of whether the firm receives, with respect to the Fund,
other compensation, including any payment for order flow or ECN
liquidity rebates;
- a description of any actual or potential conflicts of interest
anticipated in managing Fund assets;
28
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
- a description of trade allocation procedures among accounts managed by
the firm;
- a summary of any material changes to the firm's compliance program
with regard to federal, state, corporate and Fund requirements and a
certification regarding the reasonable design of the compliance
program;
- a discussion of any material compliance problems and remedial actions;
- information regarding the firm's code of ethics, insider trading
policy and disaster recovery plan, including a description of any
material changes thereto;
- a description of the firm's affiliation with any broker-dealer;
- a discussion of any anticipated change in the firm's controlling
persons; and
- verification of the firm's insurance coverage with regards to the
services provided to the Fund.
In addition to the foregoing, the Manager provided the following
information specific to the renewal of the Management Agreement:
- a comparison of the performance of the Fund to comparable investment
companies and appropriate indices, including comments on the relative
performance of each subadvisor and the Fund versus its peer group
average;
- a discussion, if applicable, of any underperformance by a subadvisor
relative to its peer group and what, if any, remedial measures the
Manager has or intends to take;
- a comparison of advisory fees and expense ratios for comparable mutual
funds;
- an analysis of any material complaints received from Fund
shareholders;
- a description of the Manager's securities lending practices and the
fees received from such practices;
- a description of any revenue sharing activities with respect to the
Fund;
- a discussion of any rebate arrangements between the Manager and a
service provider to the Fund pursuant to which the Manager receives
direct or indirect benefits from the service provider;
- a description of the portfolio turnover rate and average execution
costs for the Fund and each subadvisor to the Fund; and
- a description of how expenses that are not readily identifiable to the
Fund are allocated.
The Board also obtained an analysis provided by Lipper that compared:
(i) investment performance of the Fund versus comparable investment companies
and appropriate indices; (ii) total Fund expenses of the Fund versus comparable
mutual funds, and (iii) the Fund's investment advisory fees versus comparable
mutual funds. The class used for comparative purposes was the class with the
longest performance history, which in most cases is the Institutional Class.
References below to the Fund's Lipper peer group are to the group of comparable
mutual funds included in the analysis provided by Lipper.
The Trustees also received a memorandum from their legal counsel
detailing the Board's responsibilities pertaining to the renewal of the
Management and Investment Advisory Agreements. This memorandum explained the
regulatory requirements surrounding the Trustees' process for evaluating
investment advisors and the terms of the contracts.
Provided below is an overview of the primary factors the Board
considered at its May 25, 2007 meeting. The Board did not identify any
particular information that was most relevant to its consideration to renew the
Management and Investment Advisory Agreements, and each Trustee may have
afforded different weight to the various factors.
In determining whether to approve the continuance of the Management
Agreement and the Investment Advisory Agreement, the Trustees considered the
best interests of the Fund. In addition, while the Management and Investment
Advisory Agreements for all of the Funds were considered at the same Board
meeting, the Board considered each Fund's investment management and subadvisory
relationships separately. The Board considered, among other things, the
following factors: (1) the nature and quality of the services provided; (2) the
investment performance of the Fund and the investment advisor; (3) the Manager's
or
29
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
subadvisor's cost for providing the services and the profitability of the
advisory business to the Manager or subadvisor; (4) the extent to which
economies of scale have been taken into account in setting the fee schedule; (5)
whether fee levels reflect these economies of scale for the benefit of Fund
investors; (6) comparisons of services and fees with contracts entered into by
the Manager or a subadvisor or their affiliates with other clients (such as
pension funds and other institutional funds); and (7) any other benefits derived
or anticipated to be derived by the Manager or a subadvisor from their
relationship with the Fund. The Trustees posed questions to various management
personnel of the Manager regarding certain key aspects of the material submitted
in support of the renewal.
Nature, Extent and Quality of Services. With respect to the renewal of
the Management Agreement, the Board considered: the background and experience of
key investment personnel and the Manager's ability to retain them; the Manager's
disciplined investment approach and goal to provide consistent above average
long-term performance at a low cost; the Manager's continuing efforts to add new
series and share classes to enhance the Fund's product line; the Manager's
record in building improved compliance, control and credit functions that reduce
risks to the Fund; the addition of personnel to manage the Fund, promote sales
and improve services, including the addition of a separate new information
technology (IT) department at the Manager; the high rankings received by the
Fund in service surveys; and the active role played by the Manager in monitoring
and, as appropriate, recommending replacements for the investment subadvisors
and master portfolios.
With respect to the renewal of the Investment Advisory Agreements, the
Trustees considered the background and experience of each subadvisor's
investment personnel responsible for managing the Fund, the size of the
subadvisor and their ability to continue to attract and retain qualified
investment personnel.
Based on the foregoing information, the Board concluded that the
nature, extent and quality of the management and advisory services provided by
the Manager and each subadvisor were appropriate for the Fund and, thus,
supported a decision to renew the Management and each Investment Advisory
Agreement.
Investment Performance. The Board evaluated the comparative
information provided by Lipper and the Manager regarding the Fund's investment
performance relative to its benchmark index and peer group. With respect to
Lipper data, the Board considered the information provided by Lipper regarding
its independent peer selection methodology to select all peer groups and
universes. The Board also considered the performance reports and discussions
with management at Board and Committee meetings throughout the year. The Manager
also noted that it generally was satisfied with the performance of the
subadvisors.
Cost of Services and Profits Realized. In analyzing the cost of
services and profitability of the Manager and a subadvisor, the Board considered
the revenues earned and the expenses incurred by the Manager and those
subadvisors that provided such data. The profitability levels were noted at both
an individual Fund level and at an aggregate level for all Funds in the complex.
The Board also considered that the Management Agreements for the American Beacon
Funds stipulate that to the extent that the Fund invests all of its investable
assets in another registered investment company, the Fund will not pay the
Manager a management fee.
The Board further considered that the Fund pays the Manager the
amounts due to its subadvisors, and the Manager remits these amounts directly to
the applicable subadvisors. The Board considered that the Manager receives
service and administrative fees to compensate the Manager for providing
administrative services to the Fund and to compensate third-party administrators
and broker-dealers for services to Fund shareholders. In addition, the Board
considered that the Manager receives management fees for overseeing the
securities lending relationships on behalf of the Fund. The Board also noted
that the non-Institutional Classes of the Fund maintains higher expense ratios
in order to compensate third party distributors but the net fee to the Manager
is the same for all Classes.
30
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
In analyzing the cost of services and profitability of each subadvisor
in connection with its investment advisory services to the Fund, the Board
considered that, in many cases, the Manager has negotiated the lowest
subadvisory fee a subadvisor charges for any comparable client accounts. The
Board gave less weight to profitability considerations or did not view this data
as imperative to its deliberations given the arm's-length nature of the
relationship between the Manager and the subadvisors with respect to the
negotiation of subadvisory fees.
Based on the foregoing information, the Board concluded that the
profitability levels were reasonable in light of the services performed by the
Manager and the subadvisors.
Economies of Scale. In considering the reasonableness of the
management and investment advisory fees, the Board considered whether economies
of scale will be realized as the Fund grows and whether fee levels reflect these
economies of scale for the benefit of Fund shareholders. In this regard, the
Board considered that the Manager has negotiated breakpoints in the subadvisory
fee rates. The Board also noted, for purposes of determining the fee rates
chargeable to the Fund, many subadvisors have agreed to take into account other
assets of AMR Corporation and its pension plans that are managed by the
subadvisors. Thus, the Fund is able to receive lower effective fee rates. This
fee arrangement also benefits AMR Corporation and its pension plans. The Board
also noted that the Fund has experienced substantial recent asset growth.
The Board also considered the Manager's representations that its costs
have increased due primarily to greater service provider and regulatory costs.
The Manager also represented that it anticipates further economies of scale
would be largely offset by higher costs of adding and retaining qualified
personnel, improving technology and increasing demands on its advisory business.
Based on the foregoing information, the Board concluded that the
Manager and subadvisor fee schedules provide for a reasonable sharing of
benefits from any economies of scale with the Fund.
Benefits Derived from the Relationship with the Funds. The Board
considered the "fall-out" or ancillary benefits that accrue to the Manager
and/or the subadvisors as a result of the advisory relationships with the Fund,
including greater exposure in the marketplace with respect to the Manager's or
subadvisor's investment process and expanding the level of assets under
management by the Manager and the subadvisors. The Board also considered that
the money market portfolios permit institutional investors access to such
investments at a more favorable cost and that the Manager's relationship with
the Fund and, in particular the money market portfolios, continues to be a
significant factor in attracting separate account assets for the Manager. In
addition, the Board noted that the Manager provides services to the Trust at a
relatively low cost and the benefit plans of AMR Corporation have invested a
substantial number of assets in the Fund, which helps reduce costs. The Board
also considered that certain of the subadvisors reimburse the Manager for
certain of its costs relating to distribution activities for the Fund.
Based on the foregoing information, the Board concluded that the
potential benefits accruing to the Manager and the subadvisors by virtue of
their relationship with the Fund appears to be fair and reasonable.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS
The performance comparisons below were made versus the Fund's Lipper
peer universe median. References to the Lipper expense group below are to the
group of comparable mutual funds included in the analysis provided to the
Trustees by Lipper. All performance comparisons are for periods ended March 31,
2007, unless otherwise noted.
In considering the renewal of the Management Agreement with respect to
the Fund, the Trustees considered the following additional factors: (1) the Fund
underperformed its peer universe median for the one-, three-, five- and ten-year
periods; (2) the Manager's explanation that some of the underperformance of the
Fund is due in part to that fact that the Fund does not invest in emerging
market country issuers (except South
31
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
Korea), whereas many peer funds do invest in such issuers, which has resulted in
peer fund over performance in recent years; and (3) the actual management fee
(including administrative fees) and the total expense ratio of the Institutional
Class of Fund shares was lower than its Lipper expense group median.
In considering the renewal of the Investment Advisory Agreements with
Causeway Capital Management LLC ("Causeway"), Lazard Asset Management LLC
("Lazard"), Templeton Investment Counsel, LLC ("Templeton"), and The Boston
Company Asset Management, LLC ("TBCAM"), the Trustees considered the following
additional factors: (1) Templeton outperformed the peer universe median for the
one-, three-, five-, and ten-year periods; (2) Causeway outperformed the peer
universe median for the one-, five-, and ten-year periods but underperformed for
the three-year period; (3) Lazard underperformed the peer universe median for
the one-, three- and five-year periods; (4) TBCAM underperformed the peer
universe median for the one-year period; (5) Lazard underperformed its market
benchmark index with respect to its allocated portion of the Fund's assets for
all relevant periods ended December 31, 2006; (6) Templeton outperformed its
market benchmark index with respect to its allocated portion of the Fund's
assets for all relevant periods; (7) the Manager's remedial actions with respect
to Lazard due to its underperformance; (8) each of the Fund's subadvisors has
informed the Manager that it uses Fund commissions to obtain proprietary
research, the application of which benefits the Fund and each subadvisor's other
clients; (9) the fee schedules of each subadvisor include breakpoints, which
reduce fee rates as the assets of the Fund increase; (10) TBCAM also represented
that it does not charge a lower advisory fee to any other comparable clients;
(11) Templeton also represented that the fees charged are substantially less
than the fees currently charged to new relationships; and (12) the Manager's
recommendation to continue to retain each subadvisor.
Based on these considerations and those noted above with respect to
all Funds, the Trustees (1) concluded that the fees paid to the Manager and the
subadvisors under the Management and Investment Advisory Agreements are fair and
reasonable, (2) determined that the International Equity Fund and its
shareholders would benefit from the continued management of the Fund by the
Manager and subadvisors and (3) approved the renewal of the Management and
Investment Advisory Agreements with respect to the Fund.
32
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
(UNAUDITED)
The Trustees and officers of the American Beacon Funds (the "Trust")
are listed below, together with their principal occupations during the past five
years. Unless otherwise indicated, the address of each person listed below is
4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee
oversees twenty-seven funds in the fund complex that includes the Trust, the
American Beacon Master Trust, the American Beacon Mileage Funds, and the
American Beacon Select Funds. The Trust's Statement of Additional Information
contains additional information about the Trustees and is available without
charge by calling 1-800-658-5811.
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED
NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND CURRENT DIRECTORSHIPS
- --------------------- -------------------- -----------------------------------------------------------------------------
INTERESTED TRUSTEES Term
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (59) Trustee Chairman and CEO (2006-Present), President (1986-2006) and Director (2003-
since 1987 Present), American Beacon Advisors, Inc.; Chairman (1989-2003) and Director
President from (1979-1989, 2003-Present), American Airlines Federal Credit Union; Director,
1987 to 2007 Crescent Real Estate Equities, Inc.(1994-2007); Director, Pritchard, Hubble &
Executive Vice Herr, LLC (investment advisor) (2001-2006); Director of Investment Committee,
President Southern Methodist University Endowment Fund (1996-Present); Member,
since 2007 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); Chairman (2007-Present) and Vice Chairman
(2004-2007), Committee for the Investment of Employee Benefits; 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).
Douglas G. Herring** (50) Trustee since 2006 President, American Beacon Advisors, Inc. (2006-Present); Vice President and
Executive Vice Controller, American Airlines, Inc. (1998-2006); Chairman (2003-Present) and
President from 2006 Director (1995-Present), American Airlines Federal Credit Union; Trustee,
to 2007 American Beacon Mileage Funds (2006-Present); Trustee American Beacon
President since 2007 Select Funds (2006-Present); Trustee American Beacon Master Trust (2006-
Present).
Alan D. Feld** (70) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm) (1960-Present);
Director, Clear Channel Communications (1984-Present); Trustee, CenterPoint
Properties (1994-2006); Member Board of Trustees, Southern Methodist
University; Member, Board of Visitors, The University of Texas M.D. Anderson
Cancer Center; Member, Board of Visitors, Zale Lipshy Hospital; 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 (63) 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).
33
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
(UNAUDITED)
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED
NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND CURRENT DIRECTORSHIPS
- --------------------- -------------------- -----------------------------------------------------------------------------
NON-INTERESTED TRUSTEES
(CONT.)
Brenda A. Cline (46) 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) (2001-2006); 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 (64) Trustee since 2004 Senior Vice President and General Counsel, Hunt Consolidated, Inc. (holding
company engaged in oil and gas exploration and production, refining, 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 Mileage Funds (1995-
(72) Present); Trustee, American Beacon Select Funds (1999-Present); Trustee,
American Beacon Master Trust (1995-Present).
R. Gerald Turner (61) Trustee since 2001 President, Southern Methodist University (1995-Present); Director, ChemFirst
225 Perkins Admin. Bldg. (1986-2002); Director, J.C. Penney Company, Inc. (1996-Present); Director,
Southern Methodist Univ. California Federal Preferred Capital Corp. (2001-2003); Director, Kronus
Dallas, Texas 75275 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 (51) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private equity firm) (1998-
100 Crescent Court Chairman since Present); Director, Burger King Corporation (2004-Present); Director, Gap, Inc.
Suite 1740 2005 (2006-Present); Trustee, City of Dallas, Texas Employee Retirement Fund (2004-
Dallas, Texas 75201 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).
34
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
(UNAUDITED)
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED
NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND CURRENT DIRECTORSHIPS
- --------------------- -------------------- -----------------------------------------------------------------------------
OFFICERS Term
One Year
Rosemary K. Behan (48) VP, Secretary and Vice President, Legal and Compliance, American Beacon Advisors, Inc. (2006-
Chief Legal Officer Present); Assistant General Counsel, First Command Financial Planning, Inc.
since 2006 (2004-2006); Enforcement Attorney (2002-2004) and Branch Chief (2000-2002),
Securities and Exchange Commission.
Brian E. Brett (47) VP since 2004 Vice President, Director of Sales and Marketing, American Beacon Advisors,
Inc. (2004-Present); Regional Vice President, Neuberger Berman, LLC
(investment advisor) (1996-2004).
Wyatt Crumpler (41) VP since 2007 Vice President, Trust Investments, American Beacon Advisors, Inc. (2007-
Present); Managing Director of Corporate Accounting (2004-2007), Director of IT
Strategy and Finance (2002-2004), American Airlines, Inc.
Michael W. Fields (53) VP since 1989 Vice President, Fixed Income Investments, American Beacon Advisors, Inc.
(1988-Present).
Rebecca L. Harris (40) Treasurer since Vice President, Finance, American Beacon Advisors, Inc. (1995-Present).
1995
Christina E. Sears (36) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc. (2004-Present);
Officer since 2004 Senior Compliance Analyst, American Beacon Advisors, Inc. (1998-2004).
and Asst.
Secretary since
1999
* 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, Feld and Herring are deemed to be "interested persons" of
the Trust, as defined by the 1940 Act. Mr. Quinn is Chairman and CEO 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. Mr. Herring is President of the Manager.
35
(This page intentionally left blank)
(This page intentionally left blank)
(AMERICAN BEACON FUNDS(SM) 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:
(GRAPHIC) (GRAPHIC)
BY E-MAIL: ON THE INTERNET:
american_beacon.funds@ambeacon.com Visit our
website at www.americanbeaconfunds.com
(GRAPHIC) (GRAPHIC)
BY TELEPHONE: BY MAIL:
Institutional Class American Beacon Funds
Call (800) 658-5811 P.O. Box 219643
AMR Class(SM) Kansas City, MO 64121-9643
Call (800) 345-2345
PlanAhead Class(R) and Service Class
Call (800) 388-3344
AVAILABILITY OF AVAILABILITY OF
QUARTERLY PORTFOLIO SCHEDULES PROXY VOTING POLICY AND RECORDS
In addition to the Schedule of A description of the policies and
Investments provided in each procedures the Fund uses to determine
semi-annual and annual report, the how to vote proxies relating to
Fund files a complete schedule of its portfolio securities is available in the
portfolio holdings with the Fund's Statement of Additional
Securities and Exchange Commission Information, is available free of charge
("SEC") on Form N-Q as of the first on the Fund's website
and third fiscal quarters. The Fund's (www.americanbeaconfunds.com) and by
Forms N-Q are available on the SEC's calling 1-800-967-9009 or by accessing
website at www.sec.gov. The Forms N-Q the SEC's website at www.sec.gov. The
may also be reviewed and copied at Fund's proxy voting record for the most
the SEC's Public Reference Room, 450 recent year ended June 30 is filed
Fifth Street, NW, Washington, DC annually with the SEC on Form N-PX. The
20549. Information regarding the Fund's Forms N-PX are available on the
operation of the SEC's Public SEC's website at www.sec.gov. The Fund's
Reference Room may be obtained by proxy voting record may also be obtained
calling 1-800-SEC-0330. A complete by calling 1-800-967- 9009.
schedule of the Fund's portfolio
holdings is also available on the
Funds' website
(www.americanbeaconfunds.com)
approximately thirty days after the
end of each month.
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BANK AND BOSTON FINANCIAL DATA PUBLIC ACCOUNTING FORESIDE FUND SERVICES
TRUST SERVICES FIRM Portland, Maine
Boston, Massachusetts Kansas City, Missouri ERNST & YOUNG LLP
Dallas, Texas
This report is prepared for shareholders of the American Beacon Funds and may be
distributed to others only if preceded or accompanied by a current prospectus.
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//07
541120
GUIDANCE | VISION | EXPERIENCE
(AMERICAN BEACON FUNDS(SM) LOGO)
ANNUAL REPORT
(GRAPHIC)
October 31, 2007
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
President's Message................................................ 1
Market and Performance Overview.................................... 2
Schedule of Investments............................................ 7
Additional Information............................................. Back Cover
Any opinions herein, including forecasts, reflect our judgment as of the end of
the reporting period and are subject to change. Each advisor's strategies and
the Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
AMERICAN BEACON FUNDS October 31, 2007
(PHOTO OF DOUGLAS G. HERRING)
FELLOW SHAREHOLDERS,
I am pleased to present to you the American Beacon Large Cap Value Fund
Annual Report for the twelve months ended October 31, 2007. Please review the
enclosed material carefully, as it includes important information about the
Fund.
After a number of years of steady returns, volatility returned to the U.S.
equity markets toward the end of the fiscal year. The change in the investment
environment was led by a crisis in the housing sector, due to several years of
lax lending standards, and then began to spill over into the financial sector
during the summer months. Despite the increased volatility, U.S. large cap
stocks continued to perform well for the period, with the S&P 500 Index and Dow
Jones Industrial Average reporting one-year returns of 14.56% and 17.96%,
respectively, as of October 31, 2007.
The Fund's Institutional Class reported an impressive annualized return of
13.76% for the one-year period ended October 31, 2007. The Fund's performance
continued to exceed that of the Lipper Large-Cap Value Funds Index.
The turmoil in the U.S. equity markets continued after the close of the
Fund's fiscal year and is likely to continue over the shorter term. However, we
believe the Fund's fundamental value investment philosophy and lower than
average expense ratio will continue to serve the Fund well over the longer term.
As always, we appreciate 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/ Douglas G. Herring
Douglas G. Herring
President
American Beacon Funds
1
DOMESTIC EQUITY MARKET OVERVIEW
OCTOBER 31, 2007 (UNAUDITED)
After increasing short-term rates 17 times from 1.00% in June 2004 to 5.25%
in June 2006, the Federal Reserve (the "Fed"), led by new chairman Ben Bernanke,
left rates unchanged over the remainder of 2006. This "inaction," combined with
a sharp decline in oil prices, and further declines in long-term interest rates,
led to a strong stock market rally that carried through the end of 2006.
This was followed by a brief mid-quarter correction in the first quarter of
2007, ignited by subprime mortgage concerns and a sharp fall in the global
markets. However, equity prices rallied near the end of the quarter as the Fed
voiced some concerns over economic growth while continuing to emphasize
inflation risk, leading to a positive-shaped yield curve for the first time in
seven months. As measured by the various Russell indices, value and growth
stocks performed in line with each other in the first quarter, with larger
companies underperforming both mid-cap and smaller companies. Seven of the ten
sectors in the broad-market S&P 500 Index advanced in the quarter with Utilities
and Materials leading the way. The worst performing sector, Financials, declined
as the market reacted to the subprime mortgage news.
During the second quarter of 2007, U.S. equity markets absorbed the news of
a slowing housing market, higher energy prices, rising long-term interest rates,
and diminished expectations for a cut in short-term rates. Equity prices were
fueled by private investors' attraction to strong corporate cash flows, liquid
balance sheets, and the low cost of buyout financing. All of the major stock
indices gained during the quarter, with the S&P 500 Index finally reaching a new
high, breaking the one set in March 2000. Reversing the trend of the prior 18
months, growth stocks outperformed their value counterparts while large cap
stocks outperformed mid-cap and small cap equities. With the exception of the
Utilities sector, each of the remaining nine sectors in the broad-market S&P 500
Index advanced during the quarter. The performance disparity between the sectors
was pronounced, reinforcing the importance of portfolio diversification.
Investors favored the Energy and Information Technology sectors, both of which
gained more than 10% during the quarter. Consumer Staples and Financials, along
with the aforementioned Utilities sector, were the laggards.
The economic events of the third quarter made for jittery financial
markets. However, even in the face of a slowing housing industry, the subprime
mortgage spillover, a falling dollar, and a world-wide credit squeeze, most
equity markets in the U.S. maintained their solid performance through the third
quarter of 2007. After continuing to drive down stock prices in July, investors
returned to the stock market in force in late August. The rally continued in
September, spurred by the Fed's decision to cut interest rates for the first
time in more than four years. The lower cost of borrowed funds, a strong
worldwide economy and solid corporate performance were significant drivers of
the market upturn. The quarter was characterized by high variability, market
capitalization, and investment style, as the Russell 1000(R) Value Index
declined while the NASDAQ Composite Index advanced. During the third quarter,
growth stocks continued to outperform their value counterparts in the Russell
indices and remained ahead. Large companies clearly were in favor during the
quarter, with the Russell 1000 Index showing positive returns while mid-cap and
small cap issues declined. As was the case in the previous quarter, the Energy,
Information Technology and Industrials sectors led the way in performance during
the third quarter. Reflecting the unease in the housing and credit markets, both
the Financials and Consumer Discretionary sectors declined during the quarter.
The month of October lived up to its volatile history. While worries over
housing weakness, the credit crunch, and decreases in earnings expectations
provided powerful ammunition for the "bears," monetary policy and continued
economic gains enabled the "bulls" to propel markets higher. Market gains were
broad based with all of the major markets advancing during the month. Even with
the U.S. economy continuing to display very impressive resilience, "to forestall
some of the adverse effects on the broader economy," the Fed cut interest rates
by 25 basis points (0.25%) to 4.50% at its October 31st meeting.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
The Institutional Class of the Large Cap Value Fund returned 13.76% for the
twelve months ended October 31, 2007. The Fund outperformed the S&P
500/Citigroup Value Index (the "Index") return of 13.55% and the Lipper
Large-Cap Value Funds Index return of 12.58%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/97 THROUGH 10/31/07
(PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF
PERIODS ENDED 10/31/07 $10,000
--------------------------- 10/31/97-
1 YEAR 5 YEARS 10 YEARS 10/31/07
------ ------- -------- ---------
Institutional Class(1,4) ............ 13.76% 18.91% 8.92% $23,492
PlanAhead Class(1,4) ................ 13.46% 18.61% 8.62% 22,587
Service Class(1,2,4) ............... 13.16% 18.46% 8.55% 22,713
AMR Class(1,4)....................... 14.03% 19.23% 9.20% 24,107
Lipper Large-Cap Value Funds
Index(3)........................... 12.58% 14.59% 7.17% 19,996
Linked S&P 500/Citigroup Value
Index(3)........................... 13.55% 16.67% 8.03% 21,659
Russell 1000 Value Index (3).......... 10.83% 16.39% 9.11% 23,920
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 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 through the periods
for the entirety of the periods.
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. Russell 1000 Value Index is a registered trademark of the
Frank Russell Company. The Russell 1000 Value Index is an unmanaged index
of those stocks in the Russell 1000 Index with lower price-to-book ratios
and lower forecasted growth values. 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. Effective November
1, 2007, the Fund's benchmark will change from the Linked S&P 500/Citigroup
Value Index to the Russell 1000 Value Index, as it is a more widely
accepted benchmark for large cap value stocks.
4. The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus for the Institutional, PlanAhead, Service and AMR Class
shares was 0.62%, 0.87%, 1.11% and 0.36%, respectively. The expense ratios
above may vary from the expense ratios presented in other sections of this
report that are based on expenses incurred during the period covered by
this report.
The Fund outperformed the Index primarily through sector allocation, and to
a lesser extent through stock selection. During the course of the year the Fund
was, on average, underweight in the Financials sector, which was the worst
performing sector in the Index. This underweight was responsible for most of the
Fund's excess performance.
From a stock selection standpoint, the Fund had good stock selection in the
Information Technology, Industrials, and Telecommunication Services sectors. The
companies with the greatest impact in the Information Technology sector were
Apple Computer (up 134.3%) and Nokia (up 103.0%). In the Industrials sector,
Deere (up 84.8%), Honeywell International (up 46.2%), and Textron
3
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
(up 54.7%) were the largest contributors. In the Telecommunication Services
sector, Verizon Communications (up 34.7%) and Vodafone (up 58.8%) were
responsible for most of the excess performance. Positive stock selection in the
Utilities, Materials, and Energy sectors also added value to the Fund's relative
performance. Poor stock selection in the Health Care sector, mostly in Pfizer
(down 3.7% for the period the Fund owned the security) and Astrazeneca (down
13.7%), and in the Consumer Discretionary sector, primarily in Warner Music
(down 59.4%), JC Penney (down 24.5%), and Centex (down 51.9% for the period the
Fund owned the security), detracted value relative to the Index but not enough
to offset the positive impact from the afore-mentioned sectors.
The sub-advisors continue to invest in a broadly diversified portfolio of
companies that they believe have attractive valuations and above average
earnings growth potential. This approach should allow the Fund to benefit over
the longer term.
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
ConocoPhillips 3.3%
AT&T, Inc. 2.9%
International Business Machines Corp. 2.5%
Bank of America Corp. 2.3%
JPMorgan Chase & Co. 2.2%
Citigroup, Inc. 2.0%
American International Group, Inc. 1.8%
Verizon Communications, Inc. 1.8%
Baxter International, Inc. 1.6%
Imperial Tobacco Group plc 1.6%
SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials 23.9%
Industrials 13.3%
Health Care 10.8%
Consumer Staples 10.8%
Information Technology 10.4%
Consumer Discretionary 8.9%
Energy 8.8%
Telecommunication Services 5.6%
Utilities 4.7%
Materials 2.8%
4
FUND EXPENSES
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
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, 2007
through October 31, 2007.
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.
Beginning Ending
Account Account Expenses Paid
Value Value During Period*
5/1/07 10/31/07 5/1/07-10/31/07
--------- --------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $1,033.34 $3.08
Hypothetical $1,000.00 $1,022.18 $3.06
(5% return before expenses)
PLANAHEAD CLASS
Actual $1,000.00 $1,032.01 $4.30
Hypothetical $1,000.00 $1,020.97 $4.28
(5% return before expenses)
SERVICE CLASS
Actual $1,000.00 $1,030.46 $5.58
Hypothetical $1,000.00 $1,019.71 $5.55
(5% return before expenses)
AMR CLASS
Actual $1,000.00 $1,034.89 $1.69
Hypothetical $1,000.00 $1,023.54 $1.68
(5% return before expenses)
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.60%, 0.84%, 1.09% and 0.33% 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(SM)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of American Beacon Large Cap Value Fund
and the Board of Trustees of American Beacon Funds:
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, 2007, 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, 2007, 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, 2007, 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 21, 2007
6
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 95.05%
CONSUMER DISCRETIONARY - 8.43%
HOTELS, RESTAURANTS & LEISURE - 1.49%
Carnival Corp. .................................. 1,727,900 $ 82,904
Wyndham Worldwide Corp. ......................... 1,454,580 47,754
----------
130,658
----------
HOUSEHOLD DURABLES - 1.52%
Centex Corp. + .................................. 603,300 15,119
Fortune Brands, Inc. ............................ 431,800 36,172
Koninklijke (Royal) Philips Electronics NV ...... 75,366 3,116
Lennar Corp. + .................................. 382,300 8,735
Matsushita Electric Industrial Co. Ltd., ADR .... 2,579,000 49,388
Newell Rubbermaid, Inc. ......................... 227,800 6,643
Pulte Homes, Inc. + ............................. 915,000 13,578
----------
132,751
----------
MEDIA - 1.99%
CBS Corp. + ..................................... 819,800 23,528
Idearc, Inc. + .................................. 191,500 5,167
Interpublic Group of Cos., Inc. ## + ............ 1,340,900 13,878
R.H. Donnelley Corp. ## + ....................... 186,400 10,224
Time Warner, Inc. + ............................. 3,502,000 63,947
Walt Disney Co. Ltd. ............................ 978,600 33,889
Warner Music Group Corp. + ...................... 2,322,000 23,638
----------
174,271
----------
MULTILINE RETAIL - 1.98%
J.C. Penney Company, Inc. + ..................... 1,261,000 70,919
Macy's, Inc. .................................... 1,118,012 35,810
Target Corp. .................................... 632,200 38,792
Wal-Mart Stores, Inc. ........................... 614,900 27,799
----------
173,320
----------
SPECIALTY RETAIL - 1.45%
Gap, Inc. ....................................... 731,500 13,825
Home Depot, Inc. + .............................. 3,330,867 104,956
Liz Claiborne, Inc. + ........................... 302,500 8,612
----------
127,393
----------
TOTAL CONSUMER DISCRETIONARY ....................... 738,393
----------
CONSUMER STAPLES - 10.28%
BEVERAGES - 1.56%
Diageo plc, ADR ................................. 1,490,500 136,753
----------
FOOD & DRUG RETAILING - 1.65%
Safeway, Inc. + ................................. 2,267,400 77,091
Sysco Corp. + ................................... 1,968,000 67,483
----------
144,574
----------
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
FOOD PRODUCTS - 2.25%
Archer-Daniels-Midland Co. ...................... 1,918,000 $ 68,626
General Mills, Inc. ............................. 136,400 7,874
Kellogg Co. + ................................... 1,129,000 59,600
Kraft Foods, Inc. ............................... 1,822,013 60,874
----------
196,974
----------
PERSONAL PRODUCTS - 0.75%
L'Oreal SA ...................................... 2,520,000 65,923
----------
TOBACCO - 4.07%
Altria Group, Inc. .............................. 1,470,400 107,236
Imperial Tobacco Group plc, ADR ................. 1,374,000 139,654
UST, Inc. + ..................................... 2,062,000 109,946
----------
356,836
----------
TOTAL CONSUMER STAPLES ............................. 901,060
----------
ENERGY - 8.37%
ENERGY EQUIPMENT & SERVICES - 0.94%
Weatherford International Ltd. ## + ............. 1,265,000 82,111
----------
OIL & GAS - 7.43%
Chevron Corp. ................................... 943,062 86,300
ConocoPhillips .................................. 3,452,396 293,315
Devon Energy Corp. .............................. 1,070,500 99,985
Duke Energy Corp. ............................... 2,365,600 45,348
Occidental Petroleum Corp. ...................... 1,527,400 105,467
Royal Dutch Shell plc, ADR ...................... 169,500 14,789
Sunoco, Inc. .................................... 85,800 6,315
----------
651,519
----------
TOTAL ENERGY ....................................... 733,630
----------
FINANCIALS - 22.68%
BANKS - 5.88%
Bank of America Corp. ........................... 4,252,078 205,290
Comerica, Inc. + ................................ 120,500 5,625
First Horizon National Corp. + .................. 254,600 6,640
KeyCorp ......................................... 105,700 3,007
National City Corp. + ........................... 272,200 6,601
SunTrust Banks, Inc. ............................ 231,500 16,807
U.S. Bancorp .................................... 1,405,160 46,595
UnionBanCal Corp. ............................... 56,100 3,030
Wachovia Corp. .................................. 1,218,700 55,731
Washington Mutual, Inc. + ....................... 2,073,400 57,806
Wells Fargo & Co. + ............................. 3,182,550 108,239
----------
515,371
----------
See accompanying notes
7
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
DIVERSIFIED FINANCIALS - 10.54%
Bear Stearns Cos., Inc. + ....................... 862,450 $ 97,974
Capital One Financial Corp. ..................... 260,500 17,086
Charles Schwab Corp. ............................ 3,426,000 79,620
Citigroup, Inc. ................................. 4,168,338 174,653
Discover Financial Services + ................... 642,150 12,394
Federal Home Loan Mortgage Corp. ................ 324,300 16,938
Federal National Mortgage Association ........... 378,700 21,601
Goldman Sachs Group, Inc. ....................... 190,100 47,130
JP Morgan Chase & Co. ........................... 4,023,998 189,128
Merrill Lynch & Co., Inc. ....................... 473,300 31,247
Mitsubishi UFJ Financial Group, Inc., ADR ....... 5,000,000 49,800
Morgan Stanley Dean Witter & Co. ................ 1,539,200 103,527
SLM Corp. ....................................... 1,751,600 82,606
----------
923,704
----------
INSURANCE - 6.17%
ACE Ltd. ........................................ 960,100 58,192
Aflac, Inc. + ................................... 1,189,000 74,645
Allstate Corp. .................................. 332,128 17,403
American International Group, Inc. .............. 2,553,300 161,164
Conseco, Inc. ## + .............................. 364,800 5,760
Genworth Financial, Inc. ........................ 644,000 17,581
Hartford Financial Services Group, Inc. ......... 189,350 18,373
MetLife, Inc. ................................... 768,900 52,939
Travelers Companies, Inc. ....................... 914,300 47,736
UnumProvident Corp. ............................. 384,600 8,977
XL Capital Ltd. ................................. 1,086,900 78,202
----------
540,972
----------
REAL ESTATE - 0.09%
St. Joe Co. + ................................... 229,400 7,768
----------
TOTAL FINANCIALS ................................... 1,987,815
----------
HEALTH CARE - 10.32%
HEALTH CARE EQUIPMENT & SUPPLIES - 1.76%
Baxter International, Inc. ...................... 2,393,000 143,604
Covidien Ltd. ................................... 258,600 10,758
----------
154,362
----------
HEALTH CARE PROVIDERS & SERVICES - 2.21%
Cigna Corp. ..................................... 1,092,200 57,330
Omnicare, Inc. + ................................ 57,600 1,699
UnitedHealth Group, Inc. ........................ 526,400 25,872
Universal Health Services, Inc. ................. 961,000 46,849
WellPoint, Inc. ## .............................. 777,500 61,601
----------
193,351
----------
PHARMACEUTICALS - 6.35%
Amgen, Inc. ## .................................. 296,500 17,230
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
AstraZeneca plc, ADR + .......................... 869,900 $ 42,712
Bristol-Myers Squibb Co. ........................ 3,332,800 99,951
Eli Lilly & Co. ................................. 1,669,700 90,414
Hospira, Inc. ## ................................ 1,078,000 44,554
Johnson & Johnson ............................... 418,400 27,267
Merck & Co., Inc. ............................... 268,300 15,631
Pfizer, Inc. .................................... 5,447,000 134,051
Wyeth Corp. ..................................... 1,751,400 85,170
----------
556,980
----------
TOTAL HEALTH CARE .................................. 904,693
----------
INDUSTRIALS - 12.63%
AEROSPACE & DEFENSE - 3.71%
Boeing Co. ...................................... 1,413,300 139,337
Northrop Grumman Corp. + ........................ 1,014,700 84,849
Raytheon Co. .................................... 915,100 58,210
United Technologies Corp. ....................... 561,500 43,005
----------
325,401
----------
AIR FREIGHT & COURIERS - 0.32%
FedEx Corp. ..................................... 267,900 27,685
----------
ELECTRICAL EQUIPMENT - 0.65%
Thomas & Betts Corp. ## + ....................... 1,013,000 56,738
----------
INDUSTRIAL CONGLOMERATES - 3.80%
3M Co. .......................................... 517,700 44,709
General Electric Co. ............................ 2,214,900 91,165
Honeywell International, Inc. ................... 2,279,725 137,718
Textron, Inc. ................................... 635,900 44,011
Tyco International Ltd. ......................... 376,200 15,488
----------
333,091
----------
MACHINERY - 3.39%
Caterpillar, Inc. ............................... 718,300 53,592
Deere & Co. ..................................... 624,000 96,658
Flowserve Corp. ................................. 63,500 5,014
Illinois Tool Works, Inc. + ..................... 1,517,600 86,898
ITT Industries, Inc. ............................ 824,300 55,162
----------
297,324
----------
TRANSPORTATION INFRASTRUCTURE - 0.76%
Burlington Northern Santa Fe Corp. .............. 759,900 66,225
----------
TOTAL INDUSTRIALS .................................. 1,106,464
----------
INFORMATION TECHNOLOGY - 9.85%
COMMUNICATIONS EQUIPMENT - 0.48%
Nokia Corp., ADR + .............................. 1,064,300 42,274
----------
See accompanying notes
8
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
COMPUTERS & PERIPHERALS - 5.41%
Apple Computer, Inc. ## ......................... 700,000 $ 132,965
Hewlett-Packard Co. ............................. 2,332,400 120,538
International Business Machines Corp. ........... 1,899,000 220,512
----------
474,015
----------
ELECTRICAL EQUIPMENT - 0.57%
Molex, Inc. + ................................... 1,827,000 50,052
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.57%
Intel Corp. ..................................... 1,172,900 31,551
Tyco Electronics Ltd. ........................... 512,100 18,267
----------
49,818
----------
IT CONSULTING & SERVICES - 0.34%
Electronic Data Systems Corp. ................... 1,366,900 29,511
----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.63%
Texas Instruments, Inc. ......................... 1,690,000 55,094
----------
SOFTWARE - 1.85%
CA, Inc. + ...................................... 1,341,303 35,478
Microsoft Corp. ................................. 852,400 31,377
Oracle Corp. ## ................................. 4,308,400 95,517
----------
162,372
----------
TOTAL INFORMATION TECHNOLOGY ....................... 863,136
----------
MATERIALS - 2.67%
CHEMICALS - 2.67%
Air Products & Chemicals, Inc. + ................ 1,128,700 110,443
Dow Chemical Co. + .............................. 501,000 22,565
E. I. du Pont de Nemours & Co. + ................ 1,557,100 77,092
PPG Industries, Inc. ............................ 319,900 23,910
----------
234,010
----------
PAPER & FOREST PRODUCTS - 0.00%
Sappi Ltd., ADR + ............................... 25,500 390
----------
TOTAL MATERIALS .................................... 234,400
----------
TELECOMMUNICATION SERVICES - 5.35%
DIVERSIFIED TELECOMMUNICATION - 5.35%
AT&T, Inc. ...................................... 6,010,152 251,164
Verizon Communications, Inc. .................... 3,433,146 158,165
Vodafone Group plc, ADR ......................... 1,509,949 59,296
----------
TOTAL TELECOMMUNICATION SERVICES ................... 468,625
----------
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
UTILITIES - 4.47%
ELECTRIC UTILITIES - 3.70%
CenterPoint Energy, Inc. + ...................... 1,230,300 $ 20,620
Dominion Resources, Inc. + ...................... 1,432,600 131,269
Entergy Corp. ................................... 597,700 71,646
Exelon Corp. .................................... 960,900 79,544
FPL Group, Inc. ................................. 114,400 7,827
Public Service Enterprise Group, Inc. ........... 146,400 13,996
----------
324,902
----------
GAS UTILITIES - 0.77%
Spectra Energy Corp. ............................ 2,587,700 67,228
----------
TOTAL UTILITIES .................................... 392,130
----------
TOTAL COMMON STOCKS ................................ 8,330,346
----------
SHORT TERM INVESTMENTS - 4.81%
American Beacon Money Market Select Fund ++ ..... 389,577,626 389,578
PAR
AMOUNT
------------
United States Treasury Bill,
3.873%, Due 12/6/2007 # ...................... $ 32,145 32,014
----------
TOTAL SHORT TERM INVESTMENTS ....................... 421,592
----------
SHARES
------------
SECURITIES LENDING COLLATERAL - 4.92%
American Beacon Cash Plus Trust ++ .............. 310,862,713 310,863
American Beacon Money Market Select Fund ++ ..... 120,142,850 120,143
----------
TOTAL SECURITIES LENDING COLLATERAL ................ 431,006
----------
TOTAL INVESTMENTS 104.78% - (COST $8,178,249) ...... 9,182,944
LIABILITIES, NET OF OTHER ASSETS - (4.78%) ......... (418,544)
----------
TOTAL NET ASSETS - 100.00% ......................... $8,764,400
==========
See accompanying notes
9
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
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, 2007.
++ The Fund/Trust is affiliated by having the same investment advisor.
# At October 31, 2007, 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 ........ 5,498 Dec 2007 $427,442 $4,378
======== ======
See accompanying notes
10
AMERICAN BEACON LARGE CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS:
Investments in unaffiliated securities, at value (A,C) ............................ $ 8,362,361
Investments in affiliated securities, at value (B) ................................ 820,583
Receivable for investments sold ................................................... 2,881
Dividends and interest receivable ................................................. 11,900
Receivable for fund shares sold ................................................... 9,339
Receivable for tax reclaims ....................................................... 75
Receivable for variation margin on open futures contracts ......................... 5,119
Prepaid expenses .................................................................. 69
------------
TOTAL ASSETS ................................................................... 9,212,327
------------
LIABILITIES:
Payable for investments purchased ................................................. 2,438
Payable upon return of securities loaned .......................................... 431,005
Payable for fund shares redeemed .................................................. 4,814
Management and investment advisory fees payable (Note 2) .......................... 5,883
Administrative service and service fees payable ................................... 2,768
Other liabilities ................................................................. 1,019
------------
TOTAL LIABILITIES .............................................................. 447,927
------------
NET ASSETS ........................................................................... $ 8,764,400
============
ANALYSIS OF NET ASSETS:
Paid-in-capital ...................................................................... 7,422,137
Undistributed net investment income ............................................... 98,502
Accumulated net realized gain ..................................................... 234,688
Unrealized appreciation of investments, futures contracts, and foreign currency ... 1,009,073
------------
NET ASSETS ........................................................................... $ 8,764,400
============
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class ............................................................... 95,795,067
============
PlanAhead Class ................................................................... 209,354,868
============
Service Class ..................................................................... 4,042,239
============
AMR Class ......................................................................... 37,689,968
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class ............................................................... $ 26.03
============
PlanAhead Class ................................................................... $ 24.83
============
Service Class ..................................................................... $ 24.70
============
AMR Class ......................................................................... $ 25.80
============
- ----------
(A) Cost of investments in unaffiliated securities .................................. $ 7,357,665
(B) Cost of investments in affiliated securities .................................... $ 820,583
(C) Market value of securities on loan .............................................. $ 521,220
See accompanying notes
11
AMERICAN BEACON LARGE CAP VALUE FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007 (IN THOUSANDS)
INVESTMENT INCOME:
Dividend income from unaffiliated securities (net of foreign taxes)* .. $ 145,941
Dividend income from affiliated securities ............................ 21,288
Interest income ....................................................... 1,275
Income derived from securities lending, net ........................... 969
---------
TOTAL INVESTMENT INCOME ......................................... 169,473
---------
EXPENSES:
Management and investment advisory fees (Note 2) ...................... 19,983
Administrative service fees (Note 2):
Institutional Class ................................................ 4,348
PlanAhead Class .................................................... 10,497
Service Class ...................................................... 179
Transfer agent fees:
Institutional Class ................................................ 234
PlanAhead Class .................................................... 237
Service Class ...................................................... 5
AMR Class ............................................................. 52
Custody and fund accounting fees ...................................... 583
Professional fees ..................................................... 151
Registration fees and expenses ........................................ 298
Service fees:
PlanAhead Class (Note 2) ........................................... 10,497
Service Class (Note 2) ............................................. 179
Distribution fees - Service Class (Note 2) ............................ 179
Prospectus and shareholder reports .................................... 920
Other expenses ........................................................ 628
---------
TOTAL EXPENSES .................................................. 48,970
---------
Net fees recouped by Manager (Note 2) ................................. 2
---------
NET EXPENSES .................................................... 48,972
---------
NET INVESTMENT INCOME .................................................... 120,501
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments ........................................................ 216,206
Commission recapture (Note 1) ...................................... 570
Futures contracts .................................................. 38,056
Change in net unrealized appreciation or depreciation of:
Investments ........................................................ 460,106
Futures contracts .................................................. (1,240)
---------
NET GAIN ON INVESTMENTS ......................................... 713,698
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................... $ 834,199
=========
* Foreign taxes ....................................................... $ 358
See accompanying notes
12
AMERICAN BEACON LARGE CAP VALUE FUND
STATEMENT OF CHANGES OF NET ASSETS (IN THOUSANDS)
Year Ended Year Ended
October 31, October 31,
2007 2006
----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .............................................. $ 120,501 $ 52,939
Net realized gain on investments, futures contracts, and foreign
currency transactions ........................................... 254,832 121,664
Change in net unrealized appreciation or (depreciation) of
investments, futures contracts, and foreign currency
translations .................................................... 458,866 339,128
----------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................. 834,199 513,731
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class ............................................. (14,678) (2,811)
PlanAhead Class ................................................. (35,816) (9,026)
Service Class ................................................... (422) (183)
AMR Class ....................................................... (13,818) (12,219)
Net realized gain on investments:
Institutional Class ............................................. (28,455) (8,282)
PlanAhead Class ................................................. (78,015) (28,149)
Service Class ................................................... (1,093) (544)
AMR Class ....................................................... (23,934) (32,018)
----------- ----------
NET DISTRIBUTIONS TO SHAREHOLDERS ............................ (196,231) (93,232)
----------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares ...................................... 4,667,772 3,041,055
Reinvestment of dividends and distributions ........................ 185,535 88,860
Cost of shares redeemed ............................................ (1,336,091) (528,489)
----------- ----------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ... 3,517,216 2,601,426
----------- ----------
NET INCREASE IN NET ASSETS ............................................ 4,155,184 3,021,925
----------- ----------
NET ASSETS:
Beginning of period ................................................ 4,609,216 1,587,291
----------- ----------
END OF PERIOD * .................................................... $ 8,764,400 $4,609,216
=========== ==========
*Includes undistributed net investment income of ...................... $ 98,502 $ 42,693
=========== ==========
See accompanying notes
13
AMERICAN BEACON LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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, as
amended (the "Act"), as a no load, diversified, 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 DISTRIBUTIONS 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 intermediary Administrative Service Fee - 0.25%
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 plans of AMR
Corporation and its affiliates N/A
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.
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 independent 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 Trust's Board of
Trustees (the "Board").
14
AMERICAN BEACON LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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.
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 at least annually. Distributions, if any, of net realized capital gains
are generally paid at least 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
OCTOBER 31, 2007
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, the
Manager does not anticipate the adoption of FIN 48 to have a material impact on
the financial statements.
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, 2007, the Manager does not believe
the adoption of FAS 157 will materially 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.
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 that
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, 2007 were as follows
(dollars in thousands):
AMOUNTS PAID TO NET AMOUNTS
MANAGEMENT MANAGEMENT INVESTMENT RETAINED BY
FEE RATE FEE ADVISORS MANAGER
- ------------ ---------- --------------- -----------
0.225%-0.70% $19,983 $12,958 $7,025
16
AMERICAN BEACON LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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, 2007, securities lending fees paid to the Manager
were $159,036.
Administrative Services Agreement
The Manager and the Trust entered into an Administrative Services Agreement
which obligates the Manager to provide or oversee administrative 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 Fund, 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 and administrative service
fees received by the Manager and the investment advisors hired by the Manager to
be used for distribution purposes. Under this Plan, the Fund does not intend to
compensate the Manager or any other party, either directly or indirectly, for
the distribution of Fund shares.
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 issued 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") (collectively, the
"Affiliated Funds"). The Fund and 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, 2007, the Manager earned fees from the Affiliated
Funds totaling $407,791 on the Fund's direct investment in the Affiliated Funds
and $380,346 from the Fund's securities lending collateral invested in the
Affiliated Funds.
17
AMERICAN BEACON LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with
other registered investment companies having management contracts with the
Manager, may participate in an interfund lending program as a borrower. This
program provides an alternative credit facility allowing the Fund to borrow from
other participating Funds. For the year ended October 31, 2007, the Fund did not
utilize the credit facility.
Expense Reimbursement Plan
The Fund has adopted an Expense Reimbursement Plan whereby the Manager may
seek repayment of fees waived or expenses reimbursed for a period of up to three
years. However, reimbursement will occur only if the Class's average net assets
have grown or expenses have declined sufficiently to allow reimbursement without
causing its expense ratio to exceed the previously agreed upon contractual
expense limit. During the year ended October 31, 2007, the Manager recouped
prior fee waivers totaling $1,617. There are no further fee waivers or
reimbursed expenses with respect to the Fund that are subject to potential
recovery.
Other
At October 31, 2007, AMR Corporation and subsidiary companies and employee
benefit trusts thereof owned 11% 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 fiscal years ended
October 31, 2007 and October 31, 2006 were as follows (in thousands):
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2007 2006
----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME*
Institutional Class ..... $ 20,725 $ 3,517
PlanAhead Class ......... 52,395 11,427
Service Class ........... 18,904 229
AMR Class ............... 654 14,949
LONG-TERM CAPITAL GAIN
Institutional Class ..... 22,407 7,576
PlanAhead Class ......... 61,436 25,749
Service Class ........... 18,849 497
AMR Class ............... 861 29,288
-------- -------
TOTAL DISTRIBUTIONS PAID ...... $196,231 $93,232
======== =======
* For tax purposes, short-term capital gains are considered ordinary income
distributions
18
AMERICAN BEACON LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
As of October 31, 2007, the components of distributable earnings on a tax
basis were as follows (in thousands):
Cost basis of investments for federal income tax purposes ... $8,194,174
Unrealized appreciation ..................................... 1,258,619
Unrealized depreciation ..................................... (269,849)
----------
Net unrealized appreciation/(depreciation) .................. 988,770
Undistributed ordinary income ............................... 184,979
Undistributed long-term gain/(loss) ......................... 168,442
----------
Distributable earnings ...................................... $1,342,191
==========
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, 2007 (in thousands):
Paid-in-capital ................................................................................ $ (7)
Undistributed net investment income ............................................................ 42
Accumulated net realized gain (loss) ........................................................... (35)
Unrealized appreciation (depreciation) of investments, futures contracts and foreign currency .. --
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, 2007 were (in
thousands) $4,638,671 and $1,304,003, respectively.
A summary of the Fund's direct ownership and transactions in Affiliated
Funds for the year ended October 31, 2007 is set forth below (in thousands):
OCTOBER 31, 2006 OCTOBER 31, 2007
AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
- --------- ------------------- ---------- ---------- -------------------
Select Fund $293,666 $7,029,256 $6,933,344 $389,578
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.
19
AMERICAN BEACON LARGE CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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 borrowers and transaction
costs. To the extent that a loan is secured by non-cash collateral, borrowers
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, 2007, the value of outstanding securities on loan and the
value of collateral was as follows (in thousands):
MARKET VALUE OF
SECURITIES ON LOAN NON-CASH COLLATERAL CASH COLLATERAL
- ------------------ ------------------- ---------------
$521,220 $101,628 $431,006
Cash collateral is invested in a joint investment account, which is
comprised of an investment in the Affiliated Funds. 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, 2007
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
-------------------- --------------------- ----------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ----------- ------- ----------- ------ -------- ------- ---------
Shares sold ................. 63,236 $ 1,576,896 121,583 $ 2,853,467 3,247 $ 76,601 6,477 $ 160,808
Reinvestment of dividends ... 1,548 36,661 4,843 109,645 65 1,477 1,612 37,752
Shares redeemed ............. (9,321) (233,002) (30,797) (739,817) (996) (23,714) (13,926) (339,558)
------ ----------- ------- ----------- ----- -------- ------- ---------
Net increase (decrease) in
shares outstanding ....... 55,463 $ 1,380,555 95,629 $ 2,223,295 2,316 $ 54,364 (5,837) $(140,998)
====== =========== ======= =========== ===== ======== ======= =========
Year Ended October 31, 2006
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
====== ========== ======= =========== ===== ======= ====== =========
20
(This page intentionally left blank)
21
AMERICAN BEACON LARGE CAP VALUE FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class PlanAhead Class
Year Ended October 31 Year Ended October 31
----------------------------------------------- --------------------------------------------------
2007 2006 2005 2004 2003 2007 2006 2005 2004 2003
--------- -------- -------- ------- ------- --------- ---------- -------- ------- -------
Net asset value, beginning
of period .............. $ 23.77 $ 21.00 $ 18.23 $ 15.62 $ 12.55 $ 22.74 $ 20.16 $ 17.54 $ 15.05 $ 12.09
--------- -------- -------- ------- ------- --------- ---------- -------- -------- -------
Income from investment
operations:
Net investment
income(A) ........... 0.40 0.31 0.28 0.26 0.25(B) 0.35 0.28 0.27 0.23 0.22(B)
Net gains (losses) on
securities
(both realized and
unrealized) ......... 2.78 3.48 2.74 2.62 3.11(B) 2.63 3.31 2.58 2.49 2.99(B)
--------- -------- -------- ------- ------- --------- ---------- -------- -------- -------
Total income (loss) from
investment operations .. 3.18 3.79 3.02 2.88 3.36 2.98 3.59 2.85 2.72 3.21
--------- -------- -------- ------- ------- --------- ---------- -------- -------- -------
Less distributions:
Dividends from net
investment income ... (0.31) (0.26) (0.25) (0.27) (0.29) (0.28) (0.25) (0.23) (0.23) (0.25)
Distributions from net
realized gains on
securities .......... (0.61) (0.76) -- -- -- (0.61) (0.76) -- -- --
--------- -------- -------- ------- ------- --------- ---------- -------- -------- -------
Total distributions ....... (0.92) (1.02) (0.25) (0.27) (0.29) (0.89) (1.01) (0.23) (0.23) (0.25)
--------- -------- -------- ------- ------- --------- ---------- -------- -------- -------
Net asset value, end of
period ................. $ 26.03 $ 23.77 $ 21.00 $ 18.23 $ 15.62 $ 24.83 $ 22.74 $ 20.16 $ 17.54 $ 15.05
========= ======== ======== ======= ======= ========= ========== ======== ======== =======
Total return .............. 13.76% 18.69% 16.64% 18.59% 27.30% 13.46% 18.44% 16.33% 18.26% 26.99%
========= ======== ======== ======= ======= ========= ========== ======== ======== =======
Ratios and supplemental
data:
Net assets, end of
period
(in thousands) ...... $2,493,451 $958,830 $201,111 $48,451 $23,512 $5,198,835 $2,586,410 $526,357 $51,489 $21,331
Ratios to average net
assets (annualized):
Expenses, net of
waivers .......... 0.59% 0.60% 0.60% 0.66% 0.66% 0.83% 0.85% 0.86% 0.94% 0.95%
Expenses, before
waivers .......... 0.59% 0.60% 0.60% 0.66% 0.66% 0.83% 0.85% 0.86% 0.94% 0.95%
Net investment
income, net of
waivers .......... 1.82% 1.86% 1.58% 1.49% 1.88% 1.59% 1.61% 1.30% 1.21% 1.57%
Net investment income
(loss), before
waivers ........... 1.82% 1.86% 1.58% 1.49% 1.88% 1.59% 1.61% 1.30% 1.21% 1.57%
Portfolio turnover
rate ................ 20% 26% 25% 29% 27% 20% 26% 25% 29% 27%
(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) 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.
(C) Not annualized.
(D) Annualized.
(E) Portfolio turnover rate is for the period from November 1, 2004 through
October 31, 2005.
22
Service Class AMR Class
----------------------------- -------------------------------------------------
Year Ended May
October 31 31 to Year Ended October 31
---------------- October 31, -------------------------------------------------
2007 2006 2005 2007 2006 2005 2004 2003
------- ------- ------- -------- --------- -------- -------- --------
Net asset value, beginning
of period .............. $ 22.64 $ 20.13 $ 19.33 $ 23.55 $ 20.78 $ 18.02 $ 15.44 $ 12.40
------- ------- ------- -------- --------- -------- -------- --------
Income from investment
operations:
Net investment
income(A) ........... 0.28 0.26 0.01 0.45 0.35 0.31 0.30 0.29
Net gains (losses) on
securities
(both realized and
unrealized) ......... 2.62 3.27 0.79 2.76 3.47 2.73 2.58 3.06
------- ------- ------- -------- --------- -------- -------- --------
Total income (loss) from
investment operations .. 2.90 3.53 0.80 3.21 3.82 3.04 2.88 3.35
------- ------- ------- -------- --------- -------- -------- --------
Less distributions:
Dividends from net
investment income ... (0.23) (0.26) -- (0.35) (0.29) (0.28) (0.30) (0.31)
Distributions from net
realized gains on
securities .......... (0.61) (0.76) -- (0.61) (0.76) -- -- --
------- ------- ------- -------- --------- -------- -------- --------
Total distributions ....... (0.84) (1.02) -- (0.96) (1.05) (0.28) (0.30) (0.31)
------- ------- ------- -------- --------- -------- -------- --------
Net asset value, end of
period ................. $ 24.70 $ 22.64 $ 20.13 $ 25.80 $ 23.55 $ 20.78 $ 18.02 $ 15.44
======= ======= ======= ======== ========= ======== ======== ========
Total return .............. 13.16% 18.18% 4.14%(C) 14.03% 19.08% 16.95% 18.89% 27.64%
======= ======= ======= ======== ========= ======== ======== ========
Ratios and supplemental
data:
Net assets, end of
period
(in thousands) ...... $99,854 $39,077 $11,604 $972,260 $1,024,899 $848,219 $696,206 $598,869
Ratios to average net
assets (annualized):
Expenses, net of
waivers .......... 1.08% 1.09% 1.14%(D) 0.32% 0.34% 0.35% 0.39% 0.36%
Expenses, before
waivers .......... 1.08% 1.09% 1.77%(D) 0.32% 0.34% 0.35% 0.39% 0.36%
Net investment
income, net of
waivers .......... 1.32% 1.39% 1.72%(D) 2.13% 2.18% 1.87% 1.79% 2.13%
Net investment income
(loss), before
waivers ........... 1.32% 1.39% 1.09%(D) 2.13% 2.18% 1.87% 1.79% 2.13%
Portfolio turnover
rate ................ 20% 26% 25%(E) 20% 26% 25% 29% 27%
23
AMERICAN BEACON LARGE CAP VALUE FUND
PRIVACY POLICY & FEDERAL TAX INFORMATION
OCTOBER 31, 2007 (UNAUDITED)
PRIVACY POLICY
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.
FEDERAL TAX INFORMATION
For corporate shareholders in the Fund, the percentage of ordinary
dividend income distributed for the year ended October 31, 2007, which is
designated as qualifying for the dividends-received deduction, was 46.1%.
For shareholders in the Fund, the percentage of dividend income
distributed for the year ended October 31, 2007, which is designated as
qualified dividend income under the Jobs Growth Tax Relief Act of 2003 was
66.73%. Shareholders will receive notification in January 2008 of the percentage
applicable to the preparation of their 2007 income tax returns.
Pursuant to Section 852 of the Internal Revenue Code, the Fund
designated $103,553,763 as long-term capital gain dividends for the tax year
ended October 31, 2007.
24
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS
(UNAUDITED)
At its May 25, 2007 meeting, the Board of Trustees ("Board" or
"Trustees") considered the renewal of the existing Management Agreement between
the Manager and the American Beacon Funds on behalf of its Large Cap Value Fund
(the "Fund") and each Investment Advisory Agreement between the Manager and a
subadvisor. In preparation for the Board's consideration to renew these
Agreements, the Board and its Investment Committee undertook steps to gather and
consider information furnished by the Manager, the subadvisors and Lipper, Inc.
("Lipper"). The Board, with the assistance of independent legal counsel,
requested and received certain relevant information from the Manager and each
subadvisor.
In addition, the Board's Investment Committee worked with Lipper to
obtain relevant comparative information regarding the performance, fees and
expenses of the Fund. The Investment Committee held a separate meeting on May 4,
2007 to consider the information provided by Lipper. Further, the Board took
into consideration information furnished for the Board's review and
consideration throughout the year at regular Board and Investment Committee
meetings, as well as information specifically prepared in connection with the
renewal process.
THE TRUSTEES CONSIDERED, AMONG OTHER MATERIALS, RESPONSES BY THE
MANAGER AND THE SUBADVISORS TO INQUIRIES REQUESTING:
- a description of any significant changes (actual or anticipated) to
principal activities, personnel, services provided to the Fund, or any
other area, including how these changes might affect the Fund;
- a copy of the firm's most recent audited or unaudited financial
statements as well as its SEC Form ADV registration statement;
- a summary of any material past, pending or anticipated litigation or
regulatory proceedings involving the firm or its personnel, including
the results of any recent regulatory examination or independent audit;
- a comparison of the performance of that portion of Fund assets managed
by each firm with performance of other similar accounts managed by the
firm, including a discussion of relative performance versus a peer
group average and any remedial measures if the firm's performance was
materially below that of the peer group;
- a profit/loss analysis of the firm and any actual or anticipated
economies of scale in relation to the services it provides to the
Fund;
- a description of any payments by the firm to support the Fund's
marketing efforts;
- an analysis of compensation, including a comparison with fees charged
to other clients for which similar services are provided, any proposed
changes to the fee schedule and the effect of any fee waivers;
- an evaluation of other benefits to the firm or the Fund as a result of
their relationship, if any;
- confirmation that the firm's financial condition does not raise
concerns that the firm would be unable to continue providing the same
scope and quality of services to the Fund;
- a description of the scope of portfolio management services provided
to the Fund and the firm's other clients, including other registered
investment companies, whether such services differ, and any advantages
or disadvantages that might accrue to the Fund due to the firm's
involvement in other activities;
- a description of the personnel who are assigned primary responsibility
for managing the Fund, including any changes during the past year, and
a discussion of the adequacy of current and projected staffing levels
to service the Fund;
- a description of the basis upon which portfolio managers are
compensated, including any "incentive" arrangements;
- a discussion regarding the firm's participation in "soft dollar"
arrangements, if any, or other brokerage allocation policies with
respect to Fund transactions, including the firm's methodology for
obtaining the most favorable execution and the use of any affiliated
broker-dealers;
- a discussion of whether the firm receives, with respect to the Fund,
other compensation, including any payment for order flow or ECN
liquidity rebates;
- a description of any actual or potential conflicts of interest
anticipated in managing Fund assets;
- a description of trade allocation procedures among accounts managed by
the firm;
- a summary of any material changes to the firm's compliance program
with regard to federal, state, corporate and Fund requirements and a
certification regarding the reasonable design of the compliance
program;
25
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS
(UNAUDITED)
- a discussion of any material compliance problems and remedial actions;
- information regarding the firm's code of ethics, insider trading
policy and disaster recovery plan, including a description of any
material changes thereto;
- a description of the firm's affiliation with any broker-dealer;
- a discussion of any anticipated change in the firm's controlling
persons; and
- verification of the firm's insurance coverage with regards to the
services provided to the Fund.
In addition to the foregoing, the Manager provided the following
information specific to the renewal of the Management Agreement:
- a comparison of the performance of the Fund to comparable investment
companies and appropriate indices, including comments on the relative
performance of each subadvisor and the Fund versus its peer group
average;
- a discussion, if applicable, of any underperformance by a subadvisor
relative to its peer group and what, if any, remedial measures the
Manager has or intends to take;
- a comparison of advisory fees and expense ratios for comparable mutual
funds;
- an analysis of any material complaints received from Fund
shareholders;
- a description of the Manager's securities lending practices and the
fees received from such practices;
- a description of any revenue sharing activities with respect to the
Fund;
- a discussion of any rebate arrangements between the Manager and a
service provider to the Fund pursuant to which the Manager receives
direct or indirect benefits from the service provider;
- a description of the portfolio turnover rate and average execution
costs for the Fund and each subadvisor to the Fund; and
- a description of how expenses that are not readily identifiable to the
Fund are allocated.
The Board also obtained an analysis provided by Lipper that compared:
(i) investment performance of the Fund versus comparable investment companies
and appropriate indices; (ii) total Fund expenses of the Fund versus comparable
mutual funds, and (iii) the Fund's investment advisory fees versus comparable
mutual funds. The class used for comparative purposes was the class with the
longest performance history, which in most cases is the Institutional Class.
References below to the Fund's Lipper peer group are to the group of comparable
mutual funds included in the analysis provided by Lipper.
The Trustees also received a memorandum from their legal counsel
detailing the Board's responsibilities pertaining to the renewal of the
Management and Investment Advisory Agreements. This memorandum explained the
regulatory requirements surrounding the Trustees' process for evaluating
investment advisors and the terms of the contracts.
Provided below is an overview of the primary factors the Board
considered at its May 25, 2007 meeting. The Board did not identify any
particular information that was most relevant to its consideration to renew the
Management and Investment Advisory Agreements, and each Trustee may have
afforded different weight to the various factors.
In determining whether to approve the continuance of the Management
Agreement and the Investment Advisory Agreement, the Trustees considered the
best interests of the Fund. In addition, while the Management and Investment
Advisory Agreements for all of the Funds were considered at the same Board
meeting, the Board considered each Fund's investment management and subadvisory
relationships separately. The Board considered, among other things, the
following factors: (1) the nature and quality of the services provided; (2) the
investment performance of the Fund and the investment advisor; (3) the Manager's
or subadvisor's cost for providing the services and the profitability of the
advisory business to the Manager or subadvisor; (4) the extent to which
economies of scale have been taken into account in setting the fee schedule; (5)
whether fee levels reflect these economies of scale for the benefit of Fund
investors; (6) comparisons of services and fees with contracts entered into by
the Manager or a
26
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS
(UNAUDITED)
subadvisor or their affiliates with other clients (such as pension funds and
other institutional funds); and (7) any other benefits derived or anticipated to
be derived by the Manager or a subadvisor from their relationship with the Fund.
The Trustees posed questions to various management personnel of the Manager
regarding certain key aspects of the material submitted in support of the
renewal.
Nature, Extent and Quality of Services. With respect to the renewal of
the Management Agreement, the Board considered: the background and experience of
key investment personnel and the Manager's ability to retain them; the Manager's
disciplined investment approach and goal to provide consistent above average
long-term performance at a low cost; the Manager's continuing efforts to add new
series and share classes to enhance the Fund's product line; the Manager's
record in building improved compliance, control and credit functions that reduce
risks to the Fund; the addition of personnel to manage the Fund, promote sales
and improve services, including the addition of a separate new information
technology (IT) department at the Manager; the high rankings received by the
Fund in service surveys; and the active role played by the Manager in monitoring
and, as appropriate, recommending replacements for the investment subadvisors
and master portfolios.
With respect to the renewal of the Investment Advisory Agreements, the
Trustees considered the background and experience of each subadvisor's
investment personnel responsible for managing the Fund, the size of the
subadvisor and their ability to continue to attract and retain qualified
investment personnel.
Based on the foregoing information, the Board concluded that the
nature, extent and quality of the management and advisory services provided by
the Manager and each subadvisor were appropriate for the Fund and, thus,
supported a decision to renew the Management and each Investment Advisory
Agreement.
Investment Performance. The Board evaluated the comparative
information provided by Lipper and the Manager regarding the Fund's investment
performance relative to its benchmark indices and peer group. With respect to
Lipper data, the Board considered the information provided by Lipper regarding
its independent peer selection methodology to select all peer groups and
universes. The Board also considered the performance reports and discussions
with management at Board and Committee meetings throughout the year. The Manager
also noted that it generally was satisfied with the performance of the
subadvisors.
Cost of Services and Profits Realized. In analyzing the cost of
services and profitability of the Manager and a subadvisor, the Board considered
the revenues earned and the expenses incurred by the Manager and those
subadvisors that provided such data. The profitability levels were noted at both
an individual Fund level and at an aggregate level for all Funds in the complex.
The Board also considered that the Management Agreements for the American Beacon
Funds stipulate that to the extent that the Fund invests all of its investable
assets in another registered investment company, the Fund will not pay the
Manager a management fee.
The Board further considered that the Fund pays the Manager the
amounts due to its subadvisors, and the Manager remits these amounts directly to
the applicable subadvisors. The Board considered that the Manager receives
service and administrative fees to compensate the Manager for providing
administrative services to the Fund and to compensate third-party administrators
and broker-dealers for services to Fund shareholders. In addition, the Board
considered that the Manager receives management fees for overseeing the
securities lending relationships on behalf of the Fund. The Board also noted
that the non-Institutional Classes of the Fund maintains higher expense ratios
in order to compensate third party distributors but the net fee to the Manager
is the same for all Classes.
In analyzing the cost of services and profitability of each subadvisor
in connection with its investment advisory services to the Fund, the Board
considered that, in many cases, the Manager has negotiated the lowest
subadvisory fee a subadvisor charges for any comparable client accounts. The
Board gave less weight to profitability considerations or
27
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS
(UNAUDITED)
did not view this data as imperative to its deliberations given the arm's-length
nature of the relationship between the Manager and the subadvisors with respect
to the negotiation of subadvisory fees.
Based on the foregoing information, the Board concluded that the
profitability levels were reasonable in light of the services performed by the
Manager and the subadvisors.
Economies of Scale. In considering the reasonableness of the
management and investment advisory fees, the Board considered whether economies
of scale will be realized as the Fund grows and whether fee levels reflect these
economies of scale for the benefit of Fund shareholders. In this regard, the
Board considered that the Manager has negotiated breakpoints in the subadvisory
fee rates. The Board also noted, for purposes of determining the fee rates
chargeable to the Fund, many subadvisors have agreed to take into account other
assets of AMR Corporation and its pension plans that are managed by the
subadvisors. Thus, the Fund is able to receive lower effective fee rates. This
fee arrangement also benefits AMR Corporation and its pension plans. The Board
also noted that the Fund has experienced substantial recent asset growth.
The Board also considered the Manager's representations that its costs
have increased due primarily to greater service provider and regulatory costs.
The Manager also represented that it anticipates further economies of scale
would be largely offset by higher costs of adding and retaining qualified
personnel, improving technology and increasing demands on its advisory business.
Based on the foregoing information, the Board concluded that the
Manager and subadvisor fee schedules provide for a reasonable sharing of
benefits from any economies of scale with the Fund.
Benefits Derived from the Relationship with the Funds. The Board
considered the "fall-out" or ancillary benefits that accrue to the Manager
and/or the subadvisors as a result of the advisory relationships with the Fund,
including greater exposure in the marketplace with respect to the Manager's or
subadvisor's investment process and expanding the level of assets under
management by the Manager and the subadvisors. The Board also considered that
the money market portfolios permit institutional investors access to such
investments at a more favorable cost and that the Manager's relationship with
the Fund and, in particular the money market portfolios, continues to be a
significant factor in attracting separate account assets for the Manager. In
addition, the Board noted that the Manager provides services to the Trust at a
relatively low cost and the benefit plans of AMR Corporation have invested a
substantial number of assets in the Fund, which helps reduce costs. The Board
also considered that certain of the subadvisors reimburse the Manager for
certain of its costs relating to distribution activities for the Fund.
Based on the foregoing information, the Board concluded that the
potential benefits accruing to the Manager and the subadvisors by virtue of
their relationship with the Fund appears to be fair and reasonable.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS
The performance comparisons below were made versus the Fund's Lipper
peer universe median. References to the Lipper expense group below are to the
group of comparable mutual funds included in the analysis provided to the
Trustees by Lipper. All performance comparisons are for periods ended March 31,
2007, unless otherwise noted.
In considering the renewal of the Management Agreement with respect to the Fund,
the Trustees considered the following additional factors: (1) the Fund
outperformed its peer universe median for the one-, three-, five-, and ten-year
periods; and (2) the actual management fee (including administrative fees) and
the total expense ratio of the Institutional Class of Fund shares was lower than
its Lipper expense group median.
In considering the renewal of the Investment Advisory Agreements with
Barrow, Hanley, Mewhinney and Strauss, Inc. ("Barrow"), Brandywine Global
Investment Management, LLC ("Brandywine"), Hotchkis and Wiley Capital
Management, LLC ("Hotchkis") and Metropolitan West Capital Management, LLC
("MetWest"), the Trustees considered
28
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS
(UNAUDITED)
the following additional factors: (1) each subadvisor outperformed the peer
universe median for the one-, three- and five year periods; (2) Barrow,
Brandywine and Hotchkis outperformed the peer universe median for the ten-year
period; (3) Barrow underperformed one of its market benchmark indexes and
outperformed the other index with respect to its allocated portion of the Fund's
assets for the one-year period ended December 31, 2006; (4) Brandywine
outperformed its market benchmark indexes with respect to its allocated portion
of the Fund's assets for all relevant periods ended December 31, 2006; (5)
Hotchkis underperformed one of its market benchmark indexes with respect to its
allocated portion of the Fund's assets for the one-year period ended December
31, 2006 but outperformed both indexes for the three-, five- and since-inception
periods; (6) MetWest outperformed its primary benchmark index with respect to
its allocated portion of the Fund's assets for the one-year period; (7)
Hotchkis' explanation that its underperformance was primarily due to negative
security selection as well as an underweight position in a few strong sectors in
2006; (8) each of the Fund's subadvisors has informed the Manager that it uses
Fund commissions to obtain proprietary research, the application of which
benefits the Fund and each of the subadvisor's clients, and Hotchkis has further
informed the Manager that it uses Fund commissions to obtain third-party
research, but there is little or no impact to the Fund; (9) the fee schedules of
each subadvisor include breakpoints, which reduce fee rates as the assets of the
Fund increase; (10) MetWest also represented that it does not charge a lower
advisory fee to any other comparable clients; and (11) the Manager's
recommendation to continue to retain each subadvisor.
Based on these considerations and those noted above with respect to
all Funds, the Trustees (1) concluded that the fees paid to the Manager and the
subadvisors under the Management and Investment Advisory Agreements are fair and
reasonable, (2) determined that the Fund and its shareholders would benefit from
the continued management of the Fund by the Manager and subadvisors and (3)
approved the renewal of the Management and Investment Advisory Agreements with
respect to the Fund.
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.
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED
NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND CURRENT DIRECTORSHIPS
- --------------------- -------------------- --------------------------------------------------------------------------
INTERESTED TRUSTEES Term
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (59) Trustee Chairman and CEO (2006-Present), President (1986-2006) and Director
since 1987 (2003-Present), American Beacon Advisors, Inc.; Chairman (1989-2003) and
President from Director (1979-1989, 2003- Present), American Airlines Federal Credit
1987 to 2007 Union; Director, Crescent Real Estate Equities, Inc.(1994-2007); Director,
Executive Vice Pritchard, Hubble & Herr, LLC (investment advisor) (2001-2006); Director
President of Investment Committee, Southern Methodist University Endowment Fund
since 2007 (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); Chairman
(2007-Present) and Vice Chairman (2004-2007), Committee for the Investment
of Employee Benefits; 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).
Douglas G. Herring** (50) Trustee since 2006 President, American Beacon Advisors, Inc. (2006-Present); Vice President
Executive Vice and Controller, American Airlines, Inc. (1998-2006); Chairman
President from 2006 (2003-Present) and Director (1995-Present), American Airlines Federal
to 2007 Credit Union; Trustee, American Beacon Mileage Funds (2006-Present);
President since 2007 Trustee American Beacon Select Funds (2006-Present); Trustee American
Beacon Master Trust (2006-Present).
Alan D. Feld** (70) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm) (1960-Present);
Director, Clear Channel Communications (1984-Present); Trustee,
CenterPoint Properties (1994- 2006); Member Board of Trustees, Southern
Methodist University; Member, Board of Visitors, The University of Texas
M.D. Anderson Cancer Center; Member, Board of Visitors, Zale Lipshy
Hospital; 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 (63) 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).
30
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
(UNAUDITED)
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED
NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND CURRENT DIRECTORSHIPS
- --------------------- -------------------- --------------------------------------------------------------------------
NON-INTERESTED TRUSTEES
(CONT.)
Brenda A. Cline (46) 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- 2006); 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 (64) Trustee since 2004 Senior Vice President and General Counsel, Hunt Consolidated, Inc.
(holding company engaged in oil and gas exploration and production,
refining, 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 (72) 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 (61) Trustee since 2001 President, Southern Methodist University (1995-Present); Director,
225 Perkins Admin. Bldg. ChemFirst (1986- 2002); Director, J.C. Penney Company, Inc.
Southern Methodist Univ. (1996-Present); Director, California Federal Preferred Capital Corp.
Dallas, Texas 75275 (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 (51) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private equity firm)
100 Crescent Court Chairman since (1998-Present); Director, Burger King Corporation (2004-Present);
Suite 1740 2005 Director, Gap, Inc. (2006-Present); Trustee, City of Dallas, Texas
Dallas, Texas 75201 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).
31
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
(UNAUDITED)
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED
NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND CURRENT DIRECTORSHIPS
- --------------------- -------------------- --------------------------------------------------------------------------
OFFICERS Term
One Year
Rosemary K. Behan (48) VP, Secretary and Vice President, Legal and Compliance, American Beacon Advisors, Inc.
Chief Legal Officer (2006- Present); Assistant General Counsel, First Command Financial
since 2006 Planning, Inc. (2004-2006); Enforcement Attorney (2002-2004) and Branch
Chief (2000-2002), Securities and Exchange Commission.
Brian E. Brett (47) VP since 2004 Vice President, Director of Sales and Marketing, American Beacon Advisors,
Inc. (2004-Present); Regional Vice President, Neuberger Berman, LLC
(investment advisor) (1996-2004).
Wyatt Crumpler (41) VP since 2007 Vice President, Trust Investments, American Beacon Advisors, Inc. (2007-
Present); Managing Director of Corporate Accounting (2004-2007), Director
of IT Strategy and Finance (2002-2004), American Airlines, Inc.
Michael W. Fields (53) VP since 1989 Vice President, Fixed Income Investments, American Beacon Advisors, Inc.
(1988-Present).
Rebecca L. Harris (40) Treasurer since 1995 Vice President, Finance, American Beacon Advisors, Inc. (1995-Present).
Christina E. Sears (36) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc. (2004-Present);
Officer since 2004 Senior Compliance Analyst, American Beacon Advisors, Inc. (1998-2004).
and Asst. Secretary
since 1999
* 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, Feld and Herring are deemed to be "interested persons" of
the Trust, as defined by the 1940 Act. Mr. Quinn is Chairman and CEO 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. Mr. Herring is President of the Manager.
32
(This page intentionally left blank)
33
(AMERICAN BEACON FUNDS(SM) 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:
(GRAPHIC) (GRAPHIC)
BY E-MAIL: ON THE INTERNET:
american_beacon.funds@ambeacon.com Visit our
website at www.americanbeaconfunds.com
(GRAPHIC) (GRAPHIC)
BY TELEPHONE: BY MAIL:
Institutional Class American Beacon Funds
Call (800) 658-5811 P.O. Box 219643
AMR Class(SM) Kansas City, MO 64121-9643
Call (800) 345-2345
PlanAhead Class(R) and Service Class
Call (800) 388-3344
AVAILABILITY OF AVAILABILITY OF
QUARTERLY PORTFOLIO SCHEDULES PROXY VOTING POLICY AND RECORDS
In addition to the Schedule of A description of the policies and
Investments provided in each procedures the Fund uses to determine
semi-annual and annual report, the how to vote proxies relating to
Fund files a complete schedule of its portfolio securities is available in the
portfolio holdings with the Fund's Statement of Additional
Securities and Exchange Commission Information, is available free of charge
("SEC") on Form N-Q as of the first on the Fund's website
and third fiscal quarters. The Fund's (www.americanbeaconfunds.com) and by
Forms N-Q are available on the SEC's calling 1-800-967-9009 or by accessing
website at www.sec.gov. The Forms N-Q the SEC's website at www.sec.gov. The
may also be reviewed and copied at Fund's proxy voting record for the most
the SEC's Public Reference Room, 450 recent year ended June 30 is filed
Fifth Street, NW, Washington, DC annually with the SEC on Form N-PX. The
20549. Information regarding the Fund's Forms N-PX are available on the
operation of the SEC's Public SEC's website at www.sec.gov. The Fund's
Reference Room may be obtained by proxy voting record may also be obtained
calling 1-800-SEC-0330. A complete by calling 1-800-967-9009.
schedule of the Fund's portfolio
holdings is also available on the
Funds' website
(www.americanbeaconfunds.com)
approximately thirty days after the
end of each month.
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BANK AND BOSTON FINANCIAL DATA PUBLIC ACCOUNTING FORESIDE FUND SERVICES
TRUST SERVICES FIRM Portland, Maine
Boston, Massachusetts Kansas City, Missouri ERNST & YOUNG LLP
Dallas, Texas
This report is prepared for shareholders of the American Beacon Funds and may be
distributed to others only if preceded or accompanied by a current prospectus.
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 10/07
541121
GUIDANCE | VISION | EXPERIENCE
(AMERICAN BEACON FUNDS(SM) LOGO)
Annual Report
(GRAPHIC)
October 31, 2007
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
President's Message................................................ 1
Market and Performance Overview.................................... 2
Schedule of Investments............................................ 7
Additional Information............................................. Back Cover
Any opinions herein, including forecasts, reflect our judgment as of the end of
the reporting period and are subject to change. Each advisor's strategies and
the Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
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, 2007
(PHOTO OF DOUGLAS G. HERRING)
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, 2007. Please review the
enclosed material carefully, as it includes important information about the
Fund.
After a number of years of steady returns, volatility returned to the U.S.
equity markets toward the end of the fiscal year. The change in the investment
environment was led by a crisis in the housing sector, due to several years of
lax lending standards, and then began to spill over into the financial sector
during the summer months. Despite the increased volatility, the U.S. equity
markets continued to perform well for the period with the S&P 500 and the
Russell 2000 Indices reporting one-year returns of 14.56% and 9.28%,
respectively, as of October 31, 2007.
The Fund's Institutional Class reported a total annualized return of 6.10% for
the one-year period ended October 31, 2007. For the five-year period, the Fund's
performance exceeded the Lipper Small-Cap Value Funds Index.
The turmoil in the U.S. equity markets continued after the close of the Fund's
fiscal year and is likely to continue over the shorter term. However, we believe
the Fund's fundamental value investment philosophy and lower than average
expense ratio will continue to serve the Fund well over the longer term.
As always, we appreciate 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 Small Cap Value
Fund.
Sincerely,
/s/ Douglas G. Herring
----------------------------------------
Douglas G. Herring
President
American Beacon Funds
1
DOMESTIC EQUITY MARKET OVERVIEW
OCTOBER 31, 2007 (UNAUDITED)
After increasing short-term rates 17 times from 1.00% in June 2004 to 5.25% in
June 2006, the Federal Reserve (the "Fed"), led by new chairman Ben Bernanke,
left rates unchanged over the remainder of 2006. This "inaction," combined with
a sharp decline in oil prices, and further declines in long-term interest rates,
led to a strong stock market rally that carried through the end of 2006.
This was followed by a brief mid-quarter correction in the first quarter of
2007, ignited by subprime mortgage concerns and a sharp fall in the global
markets. However, equity prices rallied near the end of the quarter as the Fed
voiced some concerns over economic growth while continuing to emphasize
inflation risk, leading to a positive-shaped yield curve for the first time in
seven months. As measured by the various Russell indices, value and growth
stocks performed in line with each other in the first quarter, with larger
companies underperforming both mid-cap and smaller companies. Seven of the ten
sectors in the broad-market S&P 500 Index advanced in the quarter with Utilities
and Materials leading the way. The worst performing sector, Financials, declined
as the market reacted to the subprime mortgage news.
During the second quarter of 2007, U.S. equity markets absorbed the news of
a slowing housing market, higher energy prices, rising long-term interest rates,
and diminished expectations for a cut in short-term rates. Equity prices were
fueled by private investors' attraction to strong corporate cash flows, liquid
balance sheets, and the low cost of buyout financing. All of the major stock
indices gained during the quarter, with the S&P 500 Index finally reaching a new
high, breaking the one set in March 2000. Reversing the trend of the prior 18
months, growth stocks outperformed their value counterparts while large cap
stocks outperformed mid-cap and small cap equities. With the exception of the
Utilities sector, each of the remaining nine sectors in the broad-market S&P 500
Index advanced during the quarter. The performance disparity between the sectors
was pronounced, reinforcing the importance of portfolio diversification.
Investors favored the Energy and Information Technology sectors, both of which
gained more than 10% during the quarter. Consumer Staples and Financials, along
with the aforementioned Utilities sector, were the laggards.
The economic events of the third quarter made for jittery financial
markets. However, even in the face of a slowing housing industry, the subprime
mortgage spillover, a falling dollar, and a world-wide credit squeeze, most
equity markets in the U.S. maintained their solid performance through the third
quarter of 2007. After continuing to drive down stock prices in July, investors
returned to the stock market in force in late August. The rally continued in
September, spurred by the Fed's decision to cut interest rates for the first
time in more than four years. The lower cost of borrowed funds, a strong
worldwide economy and solid corporate performance were significant drivers of
the market upturn. The quarter was characterized by high variability, market
capitalization, and investment style, as the Russell 1000(R) Value Index
declined while the NASDAQ Composite Index advanced. During the third quarter,
growth stocks continued to outperform their value counterparts in the Russell
indices and remained ahead. Large companies clearly were in favor during the
quarter, with the Russell 1000 Index showing positive returns while mid-cap and
small cap issues declined. As was the case in the previous quarter, the Energy,
Information Technology and Industrials sectors led the way in performance during
the third quarter. Reflecting the unease in the housing and credit markets, both
the Financials and Consumer Discretionary sectors declined during the quarter.
The month of October lived up to its volatile history. While worries over
housing weakness, the credit crunch, and decreases in earnings expectations
provided powerful ammunition for the "bears," monetary policy and continued
economic gains enabled the "bulls" to propel markets higher. Market gains were
broad based with all of the major markets advancing during the month. Even with
the U.S. economy continuing to display very impressive resilience, "to forestall
some of the adverse effects on the broader economy," the Fed cut interest rates
by 25 basis points (0.25%) to 4.50% at its October 31st meeting.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
The Institutional Class of the Small Cap Value Fund returned 6.10% for the
twelve months ended October 31, 2007, outperforming the Russell 2000(R) Value
Index (the "Index") return of 2.05%, but lagging the Lipper Small-Cap Value
Funds Index return of 7.17% for the same period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 12/31/98* THROUGH 10/31/07
(PERFORMANCE GRAPH)
* Inception of Fund
ANNUALIZED TOTAL RETURNS
PERIODS ENDED 10/31/07
VALUE OF
$10,000
SINCE 12/31/98-
1 YEAR 5 YEARS INCEPTION 10/31/07
------ ------- --------- ---------
Institutional Class(1,5).................... 6.10% 19.64% 13.83% $31,402
PlanAhead Class(1,2,5)...................... 5.83% 19.36% 13.55% 30,718
Service Class(1,3,5)........................ 5.55% 19.06% 13.39% 30,331
AMR Class(1,2,5)............................ 6.39% 19.97% 14.14% 32,160
Lipper Small-Cap Value Funds Index(4)....... 7.17% 19.14% 12.51% 28,328
Russell 2000 Value Index(4)................. 2.05% 18.60% 12.25% 27,741
(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 11/1/02 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 was waived through
2004. Performance prior to waiving fees was lower than the actual returns
shown for periods through 2004.
(4). Russell 2000 Value Index is a registered trademark of Frank Russell
Company. The Russell 2000 Value Index is an unmanaged index of those stocks
in the Russell 2000 Index with lower price-to-book ratios and lower
forecasted growth values. 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.
(5). The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus for the Institutional, PlanAhead, Service and AMR Class
shares was 0.85%, 1.09%, 1.37% and 0.58%, respectively. The expense ratios
above may vary from the expense ratios presented in other sections of this
report that are based on expenses incurred during the period covered by
this report.
The Fund outperformed the Index in eight of the ten sectors, generating
excess performance through both stock selection and sector allocation. Stock
selection excess performance resulted primarily from its holdings in the
Financials, Information Technology, Consumer Discretionary, and Industrials
sectors. Individual holdings that had the largest positive impact on performance
in the Financials sector were StanCorp Financial (up 22.4%), Ohio Casualty (up
62.0%), and Highland Hospitality (up 45.0%). Avnet (up 52.6%) and Maximus (up
73.7%) were the largest contributors in the Information Technology sector, while
Warnaco (up 91.6%), American Axle & Manufacturing (up 50.3%), and Tupperware (up
76.0%) helped performance most in the Consumer Discretionary sector. In the
Industrials sector, Shaw (up 180.9%), AGCO (up 89.8%), and Graftech
International (up 212.4%) added the most value. Poor stock selection in the
Materials sector detracted from
3
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
OCTOBER 31, 2007 (UNAUDITED)
performance, where Georgia Gulf (down 42.4%) and Polyone (down 2.6%) were the
largest detractors.
The Fund's underweighting in the Financials sector, the worst performing
sector in the Index, and an overweighting in the Industrials sector were
positive contributors to the Fund's performance relative to the Index. However,
this was somewhat offset by the Fund's large overweighting in the Consumer
Discretionary sector, which was a poor performing sector in the Index.
The sub-advisors continue to focus on uncovering investment opportunities
through stock selection that should benefit the Fund's performance over the
longer term.
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
Ingram Micro, Inc. 1.0%
Regal-Beloit Corp. 0.9%
FMC Corp. 0.8%
Flowserve Corp. 0.8%
Hanover Insurance Group, Inc. 0.8%
StanCorp Financial Group, Inc. 0.8%
Men's Wearhouse, Inc. 0.7%
Plexus Corp. 0.7%
LifePoint Hospitals, Inc. 0.6%
Brunswick Corp. 0.6%
SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials 25.1%
Consumer Discretionary 18.8%
Industrials 17.4%
Information Technology 12.7%
Utilities 6.5%
Energy 5.6%
Materials 5.5%
Health Care 5.1%
Consumer Staples 2.6%
Telecommunication Services 0.7%
4
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
FUND EXPENSES
OCTOBER 31, 2007 (UNAUDITED)
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, 2007
through October 31, 2007.
ACTUAL EXPENSE
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.
Ending
Beginning Account Expenses Paid
Account Value Value During Period*
5/1/07 10/31/07 5/1/07-10/31/07
------------- --------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $ 961.70 $4.01
Hypothetical $1,000.00 $1,021.12 $4.13
(5% return before expenses)
PLANAHEAD CLASS
Actual $1,000.00 $ 960.47 $5.19
Hypothetical $1,000.00 $1,019.91 $5.35
(5% return before expenses)
SERVICE CLASS
Actual $1,000.00 $ 959.33 $6.57
Hypothetical $1,000.00 $1,018.50 $6.77
(5% return before expenses)
AMR CLASS
Actual $1,000.00 $ 962.88 $2.67
Hypothetical $1,000.00 $1,022.48 $2.75
(5% return before expenses)
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.80%, 1.05%, 1.32% and 0.54% 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(SM)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of American Beacon Small Cap Value Fund and the Board of
Trustees of American Beacon Funds:
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, 2007, 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, 2007, 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, 2007, 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 21, 2007
6
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 96.53%
COMMUNICATIONS - 0.16%
MEDIA - 0.16%
Entravision Communications Corp. ## ................. 387,870 $ 3,530
McClatchy Co. + ..................................... 97,800 1,622
----------
TOTAL COMMUNICATIONS ................................ 5,152
----------
CONSUMER DISCRETIONARY - 18.10%
AUTO COMPONENTS - 2.15%
Aftermarket Technology Corp. ## ..................... 25,000 863
American Axle & Manufacturing Holdings, Inc. +....... 712,200 19,557
ArvinMeritor, Inc. + ................................ 181,000 2,684
Gentex Corp. ........................................ 386,750 8,037
Lear Corp. ## ....................................... 563,300 20,014
Modine Manufacturing Co. ............................ 27,100 630
Tenneco, Inc. ## .................................... 242,640 7,427
TRW Automotive Holdings Corp. ## .................... 327,300 9,718
----------
68,930
----------
HOTELS, RESTAURANTS & LEISURE - 1.42%
CBRL Group, Inc. + .................................. 126,511 5,048
CEC Entertainment, Inc. ## .......................... 88,500 2,637
JAKKS Pacific, Inc. ## + ............................ 150,600 3,991
Landry's Restaurants, Inc. + ........................ 59,200 1,700
Live Nation, Inc. ## + .............................. 534,790 10,931
Lodgian, Inc. ## .................................... 495,000 6,024
Morton's Restaurant Group, Inc. ## + ................ 150,710 2,089
Panera Bread Co. ## ................................. 29,600 1,213
Ruby Tuesday, Inc. + ................................ 467,900 7,472
Speedway Motorsports, Inc. + ........................ 121,500 4,411
----------
45,516
----------
HOUSEHOLD DURABLES - 2.83%
Beazer Homes USA, Inc. + ............................ 482,500 5,418
Blyth, Inc. ......................................... 118,500 2,262
Cavco Industries, Inc. ## ........................... 56,660 2,227
Champion Enterprises, Inc. ## + ..................... 1,306,340 15,493
Ethan Allen Interiors, Inc. + ....................... 283,970 8,763
Furniture Brands International, Inc. + .............. 494,300 5,956
Helen of Troy Ltd. ## + ............................. 346,700 6,241
Knoll, Inc. ......................................... 137,500 2,611
Leggett & Platt, Inc. ............................... 51,700 1,005
M.D.C. Holdings, Inc. + ............................. 491,693 19,919
Russ Berrie and Company, Inc. ## + .................. 94,500 1,654
Ryland Group, Inc. + ................................ 52,200 1,484
Standard Pacific Corp. + ............................ 19,100 92
Tempur-Pedic International, Inc. + .................. 100,400 3,614
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Tupperware Corp. + .................................. 316,200 $ 11,415
WCI Communities, Inc. ## + .......................... 526,300 2,874
----------
91,028
----------
INTERNET & CATALOG RETAIL - 0.23%
Insight Enterprises, Inc. ## + ...................... 180,499 4,989
School Specialty, Inc. ## + ......................... 69,970 2,362
----------
7,351
----------
LEISURE EQUIPMENT & PRODUCTS - 0.71%
Brunswick Corp. + ................................... 921,000 20,547
Polaris Industries, Inc. + .......................... 47,800 2,351
----------
22,898
----------
MEDIA - 1.72%
Belo Corp. .......................................... 621,600 11,500
Brocade Communications Systems, Inc. ## ............. 221,500 2,106
Courier Corp. + ..................................... 84,159 3,180
Cox Radio, Inc. ## + ................................ 265,100 3,202
Getty Images, Inc. ## ............................... 162,800 4,599
Hearst-Argyle Television, Inc. ...................... 23,800 531
Journal Communications, Inc. ........................ 257,943 2,298
Media General, Inc. ................................. 15,700 439
Meredith Corp. ...................................... 144,270 8,981
New York Times Co. + ................................ 113,400 2,218
Scholastic Corp. ## + ............................... 312,320 12,362
Westwood One, Inc. + ................................ 1,742,300 3,729
----------
55,145
----------
MULTILINE RETAIL - 0.63%
BJ's Wholesale Club, Inc. ## ........................ 386,280 13,859
Fred's, Inc. + ...................................... 452,900 4,801
Tuesday Morning Corp. + ............................. 221,100 1,685
----------
20,345
----------
SPECIALTY RETAIL - 6.36%
Aaron Rents, Inc. ................................... 46,900 993
Aeropostale, Inc. ## ................................ 212,000 4,855
American Greetings Corp. + .......................... 106,800 2,813
AnnTaylor Stores Corp. ## ........................... 249,360 7,728
Asbury Automotive Group, Inc. + ..................... 408,600 7,490
Big 5 Sporting Goods Corp. + ........................ 321,509 5,739
Buckle, Inc. + ...................................... 45,700 1,970
Cabela's, Inc. ## + ................................. 320,500 6,256
Cache, Inc. ## + .................................... 177,820 2,785
Cato Corp. .......................................... 164,500 3,303
Charlotte Russe Holding, Inc. ## + .................. 294,600 4,269
Charming Shoppes, Inc. ## + ......................... 962,960 7,145
The Childrens Place Retail Stores, Inc. ## + ........ 59,800 1,531
Collective Brands, Inc. ## + ........................ 180,100 3,330
Conn's, Inc. ## + ................................... 86,500 2,212
See accompanying notes
7
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Dress Barn, Inc. ## + ............................... 693,800 $ 11,371
Foot Locker, Inc. ................................... 222,700 3,316
Genesco, Inc. ## + .................................. 75,000 3,465
Group 1 Automotive, Inc. + .......................... 401,000 12,451
Gymboree Corp. ## ................................... 187,750 6,389
Jos. A. Bank Clothiers, Inc. ## + ................... 192,810 5,632
Lithia Motors, Inc. + ............................... 67,400 1,144
Liz Claiborne, Inc. + ............................... 16,700 475
MarineMax, Inc. ## + ................................ 378,800 5,394
Men's Wearhouse, Inc. + ............................. 560,500 23,687
OfficeMax, Inc. ..................................... 67,800 2,146
Pacific Sunwear of California ## + .................. 428,200 7,160
Penske Auto Group, Inc. + ........................... 491,650 10,954
Regis Corp. ......................................... 239,600 8,051
Rent-A-Center, Inc. ## + ............................ 601,050 9,617
Sonic Automotive, Inc., A Shares + .................. 543,800 13,736
Stage Stores, Inc. + ................................ 96,320 1,807
Williams-Sonoma, Inc. + ............................. 84,200 2,647
Zale Corp. ## + ..................................... 578,900 12,203
----------
204,064
----------
TEXTILES & APPAREL - 2.05%
Brown Shoe Company, Inc. ............................ 154,700 3,156
Columbia Sportswear Co. + ........................... 32,456 1,582
Jones Apparel Group, Inc. + ......................... 583,200 12,212
Kenneth Cole Productions, Inc. + .................... 177,230 3,309
K-Swiss, Inc. + ..................................... 142,539 3,336
New York & Co., Inc. ## + ........................... 519,562 3,673
Skechers U.S.A., Inc. ## ............................ 90,200 2,218
Steven Madden Ltd. .................................. 68,000 1,516
Timberland Co. ## + ................................. 482,960 9,423
Warnaco Group, Inc. ## .............................. 280,200 11,401
Wolverine World Wide, Inc. .......................... 546,500 14,012
----------
65,838
----------
TOTAL CONSUMER DISCRETIONARY ........................... 581,115
----------
CONSUMER STAPLES - 2.56%
FOOD & DRUG RETAILING - 1.35%
Casey's General Stores, Inc. ........................ 239,660 6,831
Longs Drug Stores Corp. ............................. 285,640 14,999
Pathmark Stores, Inc. ## + .......................... 349,400 4,577
Performance Food Group Co. ## ....................... 98,650 2,663
Spartan Stores, Inc. + .............................. 455,700 10,130
Winn-Dixie Stores, Inc. ## + ........................ 168,200 3,976
----------
43,176
----------
FOOD PRODUCTS - 1.07%
Del Monte Foods Co. ................................. 1,081,300 11,181
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
JM Smucker Co. ...................................... 39,410 $ 2,106
Lance, Inc. ......................................... 147,880 3,132
Ralcorp Holdings, Inc. ## ........................... 263,130 14,814
Sensient Technologies Corp. ......................... 95,850 2,865
Smithfield Foods, Inc. ## ........................... 5,200 149
----------
34,247
----------
HOUSEHOLD PRODUCTS - 0.03%
Central Garden and Pet Co. ## + ..................... 114,700 954
----------
TOBACCO - 0.11%
Universal Corp. + ................................... 75,300 3,670
----------
TOTAL CONSUMER STAPLES ................................. 82,047
----------
ENERGY - 5.42%
ENERGY EQUIPMENT & SERVICES - 2.26%
Basic Energy Services, Inc. ## + .................... 112,400 2,224
CARBO Ceramics, Inc. + .............................. 160,480 7,209
Dril-Quip, Inc. ## .................................. 72,260 3,854
Grey Wolf, Inc. ## .................................. 511,200 2,878
Gulfmark Offshore, Inc. ## + ........................ 62,900 2,930
Helmerich & Payne, Inc. + ........................... 313,500 9,913
Oil States International, Inc. ## + ................. 356,770 15,409
Patterson-UTI Energy, Inc. ## ....................... 43,200 861
Superior Well Services, Inc. ## + ................... 242,620 4,949
Tetra Technologies, Inc. ## + ....................... 155,600 3,064
Tidewater, Inc. + ................................... 185,700 10,152
Unit Corp. ## ....................................... 193,950 9,265
----------
72,708
----------
OIL & GAS - 3.16%
Alon USA Energy, Inc. + ............................. 70,766 2,602
Berry Petroleum Co. + ............................... 98,000 4,775
Cabot Oil & Gas Corp. ............................... 37,120 1,473
Cimarex Energy Co. + ................................ 411,300 16,662
Edge Petroleum Corp. ## + ........................... 360,300 3,271
Encore Acquisition Co. ## + ......................... 342,800 12,581
EXCO Resources, Inc. ## + ........................... 948,800 16,016
Penn Virginia Corp. ................................. 207,640 10,050
Pioneer Drilling Co. ## + ........................... 514,900 6,271
St Mary Land & Exploration Co. ...................... 238,900 10,120
Stone Energy Corp. ## ............................... 149,500 6,665
W&T Offshore, Inc. + ................................ 406,900 10,913
----------
101,399
----------
TOTAL ENERGY ........................................... 174,107
----------
See accompanying notes
8
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
FINANCIALS - 24.25%
BANKS - 7.38%
1st Source Corp. + .................................. 20,300 $ 391
Alabama National Bancorp + .......................... 14,680 1,157
Anchor BanCorp Wisconsin, Inc. + .................... 49,838 1,226
Astoria Financial Corp. ............................. 368,200 9,570
BancorpSouth, Inc. .................................. 184,900 4,486
Bank of Hawaii Corp. + .............................. 193,600 10,292
BankAtlantic Bancorp, Inc. + ........................ 335,070 1,377
Cathay General Bancorp + ............................ 179,200 5,550
Chemical Financial Corp. + .......................... 129,731 3,243
Citizens Republic Bancorp, Inc. + ................... 540,460 8,226
City National Corp. ................................. 65,980 4,460
The Colonial BancGroup, Inc. + ...................... 49,700 953
Columbia Banking System, Inc. ....................... 91,100 2,830
Community Bank System, Inc. + ....................... 159,100 3,327
Community Trust Bancorp, Inc. + ..................... 30,400 886
Corus Bankshares, Inc. + ............................ 279,874 3,084
Cullen/Frost Bankers, Inc. + ........................ 162,524 8,643
CVB Financial Corp. + ............................... 450,147 5,276
Downey Financial Corp. + ............................ 135,800 5,531
F.N.B. Corp. + ...................................... 323,100 5,370
First Commonwealth Financial Corp. + ................ 203,500 2,338
First Horizon National Corp. + ...................... 39,800 1,038
First Indiana Corp. + ............................... 90,910 2,891
First Midwest Bancorp, Inc. + ....................... 99,400 3,348
FirstFed Financial Corp. ## + ....................... 12,700 543
FirstMerit Corp. + .................................. 286,940 6,083
Flagstar Bancorp, Inc. + ............................ 322,000 2,605
Flushing Financial Corp. + .......................... 112,840 1,918
Fulton Financial Corp. + ............................ 791,478 10,376
Hancock Holding Co. + ............................... 72,900 2,772
Harleysville National Corp. + ....................... 18,677 281
IBERIABANK Corp. + .................................. 64,200 3,182
International Bancshares Corp. + .................... 346,250 7,569
Intervest Bancshares Corp. .......................... 95,340 1,992
National Penn Bancshares, Inc. + .................... 210,525 3,549
NBT Bancorp, Inc. + ................................. 169,106 4,172
Old National Bancorp + .............................. 254,500 4,253
Pacific Capital Bancorp NA + ........................ 438,320 9,086
Park National Corp. + ............................... 72,700 5,762
PFF Bancorp, Inc. + ................................. 74,800 797
Provident Bankshares Corp. + ........................ 198,300 4,892
S&T Bancorp, Inc. + ................................. 9,164 304
Southwest Bancorp, Inc. ............................. 101,970 1,930
Sterling Bancshares, Inc. + ......................... 936,230 11,422
Susquehanna Bancshares, Inc. + ...................... 278,700 5,621
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
TierOne Corp. + ..................................... 23,900 $ 546
TrustCo Bank Corp N.Y. + ............................ 50,900 537
Trustmark Corp. + ................................... 305,960 8,258
Umpqua Holdings Corp. + ............................. 56,700 960
United Bankshares, Inc. + ........................... 152,571 4,623
Washington Federal, Inc. ............................ 690,744 16,688
Washington Trust Bancorp, Inc. + .................... 24,370 608
Webster Financial Corp. ............................. 291,000 10,546
WesBanco, Inc. + .................................... 65,100 1,502
Whitney Holding Corp. + ............................. 236,545 6,070
Wilmington Trust Corp. .............................. 53,080 1,931
----------
236,871
----------
DIVERSIFIED FINANCIALS - 3.29%
AmeriCredit Corp. ## + .............................. 306,275 4,321
Apollo Investment Corp. + ........................... 450,900 9,379
Ares Capital Corp. + ................................ 457,800 7,618
Asta Funding, Inc. + ................................ 183,800 6,532
CompuCredit Corp. ## + .............................. 261,300 5,208
Credit Acceptance Corp. ## + ........................ 47,734 1,069
Ezcorp, Inc. ## + ................................... 525,550 6,916
Financial Federal Corp. + ........................... 256,100 6,920
IndyMac Bancorp, Inc. + ............................. 268,006 3,597
Investment Technology Group, Inc. ## + .............. 269,000 11,271
Jackson Hewitt Tax Service, Inc. .................... 64,600 2,019
Knight Capital Group, Inc. ## ....................... 489,600 6,565
MCG Capital Corp. + ................................. 744,300 10,428
Nelnet, Inc. + ...................................... 202,900 3,770
Piper Jaffray Co. ## + .............................. 162,213 8,338
Raymond James Financial, Inc. ....................... 58,200 2,168
Texas Capital Bancshares, Inc. ## + ................. 99,430 2,200
World Acceptance Corp. ## + ......................... 229,850 7,415
----------
105,734
----------
INSURANCE - 10.08%
Alfa Corp. + ........................................ 186,067 3,386
American Equity Investment Life Holding Co. + .. .... 303,800 2,968
American Financial Group, Inc. ...................... 160,900 4,811
American National Insurance Co. ..................... 11,600 1,500
Argo Group International Holdings Ltd. ## ........... 160,607 6,844
Aspen Insurance Holdings Ltd. ....................... 594,920 16,277
Assured Guaranty Ltd. ............................... 544,360 12,558
CNA Surety Corp. ## ................................. 194,700 3,853
Commerce Group, Inc. + .............................. 337,000 12,297
Conseco, Inc. ## .................................... 1,012,999 15,995
Delphi Financial Group, Inc. + ...................... 446,850 17,315
Employers Holdings, Inc. + .......................... 455,600 8,729
FBL Financial Group, Inc. ........................... 153,748 6,224
See accompanying notes
9
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Hanover Insurance Group, Inc. ....................... 563,800 $ 25,974
Harleysville Group, Inc. ............................ 162,904 5,078
HCC Insurance Holdings, Inc. ........................ 265,750 7,943
Horace Mann Educators Corp. ......................... 373,000 7,717
Infinity Property and Casualty Corp. ................ 103,098 4,147
KMG America Corp. ## ................................ 360,000 2,185
LandAmerica Financial Group, Inc. + ................. 70,700 1,965
Mercury General Corp. ............................... 273,200 14,018
Midland Co. + ....................................... 96,165 6,118
National Western Life Insurance Co. + ............... 2,400 522
Navigators Group, Inc. ## ........................... 222,900 13,441
Odyssey Re Holdings Corp. + ......................... 384,000 14,277
Philadelphia Consolidated Holding Co. ## ............ 160,410 6,545
Phoenix Cos., Inc. .................................. 365,400 5,035
PMA Capital Corp. ## + .............................. 224,300 2,221
Presidential Life Corp. ............................. 153,800 2,708
Protective Life Corp. ............................... 289,980 12,431
Reinsurance Group of America, Inc. + ................ 253,300 14,471
RLI Corp. + ......................................... 46,400 2,699
Safety Insurance Group, Inc. ........................ 86,500 3,111
Security Capital Assurance Ltd. + ................... 285,450 3,745
Selective Insurance Group, Inc. ..................... 199,200 4,843
StanCorp Financial Group, Inc. ...................... 450,250 24,822
State Auto Financial Corp. .......................... 117,400 3,231
Stewart Information Services Corp. .................. 279,600 8,108
United America Indemnity Ltd. ## .................... 281,297 6,203
United Fire & Casualty, Co. ......................... 81,700 2,618
Unitrin, Inc. ....................................... 103,300 4,784
----------
323,717
----------
REAL ESTATE - 3.50%
Alexandria Real Estate Equities, Inc. ............... 19,570 2,018
American Financial Realty Trust ..................... 285,750 1,926
Anthracite Capital, Inc. ............................ 327,500 2,725
Bluegreen Corp. ## + ................................ 359,900 2,710
Brookfield Homes Corp. + ............................ 76,870 1,155
California Coastal Communities, Inc. ## + ........... 198,500 1,921
CapLease, Inc. + .................................... 912,900 8,545
Care Investment Trust, Inc. ## + .................... 203,940 2,345
Corrections Corp of America ## ...................... 86,460 2,446
DiamondRock Hospitality Co. ......................... 612,600 11,737
Education Realty Trust, Inc. + ...................... 261,580 3,385
Entertainment Properties Trust ...................... 89,950 4,936
First Potomac Realty Trust + ........................ 141,610 2,960
Health Care Real Estate Investment Trust, Inc. ...... 52,520 2,326
LaSalle Hotel Properties + .......................... 251,780 10,404
Lexington Realty Trust .............................. 638,920 12,644
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
MI Developments, Inc. ............................... 425,100 $ 13,633
Mission West Properties, Inc. + ..................... 179,380 2,151
Redwood Trust, Inc. + ............................... 199,140 5,247
St. Joe Co. + ....................................... 42,100 1,425
Strategic Hotel Capital, Inc. + ..................... 199,750 4,363
Sunstone Hotel Investors, Inc. ...................... 407,250 11,326
----------
112,328
----------
TOTAL FINANCIALS ....................................... 778,650
----------
HEALTH CARE - 4.96%
BIOTECHNOLOGY - 0.29%
Charles River Laboratories International, Inc. ## ... 65,430 3,795
Invitrogen Corp. ## ................................. 58,810 5,344
----------
9,139
----------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.18%
Hillenbrand Industries, Inc. ........................ 20,300 1,121
Kensey Nash Corp. ## ................................ 63,950 1,750
Medical Action Industries, Inc. ## .................. 135,440 2,784
----------
5,655
----------
HEALTH CARE PROVIDERS & SERVICES - 3.15%
Air Methods Corp. ## + .............................. 104,810 5,657
Amedisys, Inc. ## + ................................. 89,250 3,789
AMERIGROUP Corp. ## ................................. 182,200 6,377
Apria Healthcare Group, Inc. ## ..................... 185,700 4,488
Gentiva Health Services, Inc. ## .................... 119,450 2,267
HealthSouth Corp. ## + .............................. 165,480 3,318
Healthspring, Inc. ## ............................... 157,500 3,308
LifePoint Hospitals, Inc. ## + ...................... 682,740 20,837
Lincare Holdings, Inc. ## + ......................... 27,500 956
Magellan Health Services, Inc. ## ................... 188,700 7,944
MAXIMUS, Inc. ....................................... 376,900 18,061
MDS, Inc. ........................................... 88,700 1,995
Odyssey HealthCare, Inc. ## ......................... 311,980 3,198
Pediatrix Medical Group, Inc. ## .................... 163,350 10,699
Res-Care, Inc. ## ................................... 225,960 5,550
Universal Health Services, Inc. ..................... 56,400 2,749
----------
101,193
----------
PHARMACEUTICALS - 1.34%
Aspreva Pharmaceuticals Corp. ## + .................. 350,300 8,926
Endo Pharmaceuticals Holdings, Inc. ## .............. 30,800 902
King Pharmaceuticals, Inc. ## ....................... 396,900 4,207
KV Pharmaceutical Co. ## + .......................... 119,290 3,739
Medicines Co. ## + .................................. 178,770 3,423
NBTY, Inc. ## ....................................... 337,600 12,019
See accompanying notes
10
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Sciele Pharma, Inc. ## + ............................ 389,000 $ 9,896
----------
43,112
----------
TOTAL HEALTH CARE ...................................... 159,099
----------
INDUSTRIALS - 16.80%
AEROSPACE & DEFENSE - 0.97%
Alliant Techsystems, Inc. ## + ...................... 19,810 2,187
BE Aerospace, Inc. ## ............................... 190,900 9,490
Curtiss-Wright Corp. ................................ 126,690 7,131
Esterline Technologies Corp. ## ..................... 119,610 6,552
Moog, Inc. ## + ..................................... 122,230 5,641
----------
31,001
----------
BUILDING PRODUCTS - 1.32%
Builders FirstSource, Inc. ## + ..................... 166,300 1,206
Crane Co. ........................................... 128,300 6,087
Drew Industries, Inc. ## + .......................... 86,610 3,428
Griffon Corp. ## + .................................. 159,700 2,464
Insituform Technologies, Inc. ## + .................. 503,570 7,080
Lennox International, Inc. .......................... 283,300 10,114
NCI Building Systems, Inc. ## + ..................... 106,800 4,184
Simpson Manufacturing Co., Inc. + ................... 171,100 5,131
Universal Forest Products, Inc. + ................... 75,392 2,700
----------
42,394
----------
COMMERCIAL SERVICES & SUPPLIES - 5.84%
American Ecology Corp. + ............................ 158,050 3,784
Bowne & Co., Inc. + ................................. 294,680 5,122
Brink's Co. + ....................................... 40,220 2,520
Casella Waste Systems, Inc. ## ...................... 327,930 4,830
Clean Harbors, Inc. ## + ............................ 198,850 9,789
Consolidated Graphics, Inc. ## ...................... 102,150 6,536
Con-way, Inc. ....................................... 428,600 18,263
Deluxe Corp. ........................................ 278,700 11,243
Ennis, Inc. + ....................................... 137,200 2,804
Headwaters, Inc. ## + ............................... 226,400 3,249
Heidrick & Struggles International, Inc. ............ 50,000 2,161
Herman Miller, Inc. ................................. 146,400 3,985
Hewitt Associates, Inc. ## .......................... 50,200 1,771
Hudson Highland Group, Inc. ## ...................... 510,400 5,859
Kelly Services, Inc. ................................ 488,800 10,279
Kforce, Inc. ## ..................................... 427,700 5,150
Korn/Ferry International ## ......................... 133,100 2,550
Labor Ready, Inc. ## + .............................. 246,700 4,337
LECG Corp. ## + ..................................... 609,710 10,676
McGrath Rentcorp + .................................. 130,488 4,473
Mobile Mini, Inc. ## + .............................. 335,450 6,015
Navigant Consulting, Inc. ## + ...................... 317,300 4,182
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
PHH Corp. ## + ...................................... 318,600 $ 7,124
Pre-Paid Legal Services, Inc. ## .................... 89,370 5,326
Providence Service Corp. ## + ....................... 171,360 5,448
Spherion Corp. ## ................................... 371,900 3,243
Steelcase, Inc., A Shares ........................... 136,270 2,435
TAL International Group, Inc. ## + .................. 33,900 800
Tetra Tech, Inc. ## ................................. 137,040 3,200
United Stationers, Inc. ## .......................... 81,050 4,694
Valassis Communications, Inc. ## + .................. 1,831,200 18,037
Waste Connections, Inc. ## + ........................ 228,050 7,710
----------
187,595
----------
CONSTRUCTION & ENGINEERING - 0.14%
Comfort Systems USA, Inc. ........................... 124,892 1,826
Granite Construction, Inc. .......................... 29,210 1,251
Quanta Services, Inc. ## + .......................... 42,400 1,399
----------
4,476
----------
DIVERSIFIED MANUFACTURING - 0.62%
Barnes Group, Inc. + ................................ 143,050 5,254
Kennametal, Inc. .................................... 160,450 14,635
----------
19,889
----------
ELECTRICAL EQUIPMENT - 1.43%
A.O. Smith Corp. + .................................. 120,200 4,494
Anixter International, Inc. ## + .................... 63,959 4,596
Brady Corp. + ....................................... 203,200 7,498
Regal-Beloit Corp. + ................................ 570,000 27,953
Thomas & Betts Corp. ## ............................. 26,090 1,461
----------
46,002
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.47%
Diebold, Inc. ....................................... 310,000 12,970
PerkinElmer, Inc. ................................... 76,640 2,109
----------
15,079
----------
FREIGHT TRANSPORTATION - 0.56%
Pacer International, Inc. + ......................... 191,300 2,820
Ryder System, Inc. .................................. 319,200 15,273
----------
18,093
----------
INDUSTRIAL CONGLOMERATES - 0.23%
Carlisle Cos., Inc. ................................. 184,150 7,265
----------
MACHINERY - 3.04%
Actuant Corp. + ..................................... 27,400 1,890
Blount International, Inc. ## ....................... 35,700 437
Flowserve Corp. ..................................... 338,200 26,704
Harsco Corp. ........................................ 255,000 15,458
Kaydon Corp. + ...................................... 326,400 17,557
Lincoln Electric Holdings, Inc. ..................... 10,700 773
Miller Industries, Inc. ## .......................... 231,100 3,353
See accompanying notes
11
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Mueller Industries, Inc. ............................ 223,810 $ 8,048
NACCO Industries, Inc. ## ........................... 9,200 953
Reliance Steel & Aluminum Co. + ..................... 42,200 2,463
Timken Co. .......................................... 604,400 20,102
----------
97,738
----------
MARINE - 0.65%
Alexander & Baldwin, Inc. + ......................... 34,100 1,786
Hornbeck Offshore Services, Inc. ## + ............... 42,700 1,670
Kirby Corp. ## ...................................... 293,400 13,402
Overseas Shipholding Group, Inc. + .................. 54,000 4,018
----------
20,876
----------
RENTAL AUTO/EQUIPMENT - 0.46%
Avis Budget Group, Inc. ## .......................... 134,400 2,805
United Rentals, Inc. ## ............................. 347,200 11,871
----------
14,676
----------
ROAD & RAIL - 0.80%
Arkansas Best Corp. + ............................... 134,000 3,678
Covenant Transport Group, Inc. ## + ................. 170,500 1,292
GATX Corp. .......................................... 17,000 697
Werner Enterprises, Inc. + .......................... 378,500 7,199
YRC Worldwide, Inc. ## + ............................ 525,400 12,914
----------
25,780
----------
TRADING COMPANIES & DISTRIBUTORS - 0.07%
MSC Industrial Direct Co., Inc. ..................... 42,570 2,074
----------
TRANSPORT-SERVICES - 0.20%
Bristow Group, Inc. ## + ............................ 126,600 6,316
----------
TOTAL INDUSTRIALS ...................................... 539,254
----------
INFORMATION TECHNOLOGY - 12.27%
COMMUNICATIONS EQUIPMENT - 1.15%
ADC Telecommunications, Inc. ## ..................... 23,300 436
Avocent Corp. ## + .................................. 245,600 6,638
Comtech Telecommunications Corp. ## + ............... 134,120 7,276
Emulex Corp. ## ..................................... 364,260 7,890
Foundry Networks, Inc. ## ........................... 321,030 6,786
Plantronics, Inc. + ................................. 100,900 2,760
Powerwave Technologies, Inc. ## + ................... 926,780 5,153
----------
36,939
----------
COMPUTERS & PERIPHERALS - 1.91%
Avid Technology, Inc. ## + .......................... 177,910 5,229
Cray, Inc. ## + ..................................... 312,960 1,900
Electronics for Imaging, Inc. ## .................... 372,050 8,483
Hutchinson Technology, Inc. ## + .................... 99,970 2,372
Ingram Micro, Inc. ## ............................... 1,566,450 33,271
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Mercury Computer Systems, Inc. ## + .................... 631,650 $ 9,879
----------
61,134
----------
ELECTRONIC COMPONENTS - 0.79%
II-VI, Inc. ## + .................................... 117,730 4,090
Plexus Corp. ## + ................................... 829,500 21,401
----------
25,491
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.75%
Benchmark Electronics, Inc. ## ...................... 892,350 18,302
IKON Office Solutions, Inc. ......................... 874,600 11,545
Littelfuse, Inc. ## ................................. 337,200 10,733
Methode Electronics, Inc. + ......................... 746,000 9,355
MTS Systems Corp. ................................... 108,630 4,833
Rogers Corp. ## + ................................... 85,920 4,213
TTM Technologies, Inc. ## ........................... 858,970 11,020
Vishay Intertechnology, Inc. ## ..................... 1,447,900 18,229
----------
88,230
----------
INTERNET SOFTWARE & SERVICES - 0.53%
Netgear, Inc. ## + .................................. 214,875 7,594
NIC, Inc. + ......................................... 426,380 3,104
United Online, Inc. + ............................... 360,480 6,344
----------
17,042
----------
IT CONSULTING & SERVICES - 1.09%
BearingPoint, Inc. ## + ............................. 429,000 2,055
ManTech International Corp. ## ...................... 177,250 7,047
MPS Group, Inc. ## .................................. 587,900 7,178
Perot Systems Corp. ## .............................. 191,480 2,796
Phase Forward, Inc. ## .............................. 229,480 5,459
SRA International, Inc. ## .......................... 224,720 6,171
SYNNEX Corp. ## + ................................... 168,200 3,763
Unisys Corp. ## + ................................... 83,100 505
----------
34,974
----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 2.32%
Advanced Energy Industries, Inc. ## ................. 167,216 2,676
Brooks Automation, Inc. ## + ........................ 832,100 10,801
Cirrus Logic, Inc. ## ............................... 490,770 3,018
Cymer, Inc. ## + .................................... 93,630 3,979
FEI Co. ## + ........................................ 215,020 6,238
Integrated Device Technology, Inc. ## ............... 125,250 1,682
Micrel, Inc. ........................................ 396,730 3,590
Microsemi Corp. ## + ................................ 310,150 8,253
MKS Instruments, Inc. ## ............................ 840,360 16,874
Novellus Systems, Inc. ## ........................... 34,000 966
Photronics, Inc. ## ................................. 121,200 1,326
RF Micro Devices, Inc. ## + ......................... 730,500 4,544
Rudolph Technologies, Inc. ## + ..................... 173,120 2,256
Semtech Corp. ## .................................... 291,990 4,996
See accompanying notes
12
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Teradyne, Inc. ## ................................... 271,960 $ 3,356
----------
74,555
----------
SOFTWARE - 1.73%
Aspen Technology, Inc. ## ........................... 316,480 5,520
Computer Programs and Systems, Inc. + ............... 67,460 1,671
Epicor Software Corp. ## + .......................... 252,380 2,948
EPIQ Systems, Inc. ## + ............................. 164,019 3,180
Fair Isaac Corp. + .................................. 130,830 4,961
Mentor Graphics Corp. ## + .......................... 1,185,500 18,992
Novell, Inc. ## ..................................... 618,000 4,672
Parametric Technology Corp. ## ...................... 319,050 6,094
Sybase, Inc. ## ..................................... 264,340 7,560
----------
55,598
----------
TOTAL INFORMATION TECHNOLOGY ........................... 393,963
----------
MATERIALS - 5.28%
CHEMICALS - 2.59%
Cytec Industries, Inc. .............................. 28,700 1,914
FMC Corp. ........................................... 467,840 26,901
Georgia Gulf Corp. + ................................ 599,400 7,253
H.B. Fuller Co. ..................................... 213,000 6,269
Hercules, Inc. ...................................... 126,900 2,387
International Flavors & Fragrances, Inc. ............ 21,700 1,133
Olin Corp. + ........................................ 395,200 9,003
PolyOne Corp. ## .................................... 1,502,200 12,003
RPM International, Inc. ............................. 116,700 2,501
Spartech Corp. ...................................... 53,700 825
Tronox, Inc. + ...................................... 397,900 3,321
UAP Holding Corp. ................................... 37,800 1,203
Westlake Chemical Corp. + ........................... 349,800 8,584
----------
83,297
----------
CONSTRUCTION MATERIALS - 0.24%
Ameron International Corp. + ........................ 48,600 5,243
U.S. Concrete, Inc. ## + ............................ 467,000 2,316
----------
7,559
----------
CONTAINERS & PACKAGING - 0.06%
Silgan Holdings, Inc. ............................... 37,958 2,071
----------
METALS & MINING - 2.13%
AMCOL International Corp. + ......................... 95,610 3,857
Century Aluminum Co. ## + ........................... 245,500 14,286
Compass Minerals International, Inc. + .............. 100,990 3,728
Foundation Coal Holdings, Inc. ...................... 177,300 7,574
Gibraltar Industries, Inc. + ........................ 511,150 9,211
GrafTech Int'l Ltd. ## .............................. 557,000 10,527
Metal Management, Inc. .............................. 124,580 6,549
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Quanex Corp. + ...................................... 7,475 $ 308
USEC, Inc. ## + ..................................... 329,000 2,895
Worthington Industries, Inc. + ...................... 379,300 9,482
----------
68,417
----------
PAPER & FOREST PRODUCTS - 0.26%
Glatfelter + ........................................ 194,440 3,125
Neenah Paper, Inc. + ................................ 97,370 3,311
Wausau Paper Corp. + ................................ 185,730 1,859
----------
8,295
----------
TOTAL MATERIALS ........................................ 169,639
----------
TELECOMMUNICATION SERVICES - 0.48%
DIVERSIFIED TELECOMMUNICATION - 0.48%
Cincinnati Bell, Inc. ## ............................ 2,028,510 10,994
EMS Technologies, Inc. ## ........................... 31,320 878
Harris Stratex Networks, Inc. ## + .................. 185,440 3,546
----------
TOTAL TELECOMMUNICATION SERVICES ....................... 15,418
----------
UTILITIES - 6.25%
ELECTRIC UTILITIES - 4.18%
ALLETE, Inc. ........................................ 84,400 3,687
Black Hills Corp. + ................................. 286,160 12,711
El Paso Electric Co. ## ............................. 160,890 3,918
Great Plains Energy, Inc. + ......................... 666,400 19,885
Hawaiian Electric Industries, Inc. + ................ 71,070 1,649
Idacorp, Inc. + ..................................... 235,800 8,227
NSTAR ............................................... 444,300 15,622
OGE Energy Corp. .................................... 389,200 14,906
PNM Resources, Inc. ................................. 547,010 13,681
Portland General Electric Co. ....................... 489,870 13,790
Puget Energy, Inc. .................................. 402,800 11,379
TECO Energy, Inc. ................................... 97,600 1,643
Westar Energy, Inc. + ............................... 488,600 13,006
----------
134,104
----------
GAS UTILITIES - 2.05%
AGL Resources, Inc. ................................. 477,640 18,881
Atmos Energy Corp. .................................. 454,330 12,744
Integrys Energy Group, Inc. + ....................... 166,800 8,976
Laclede Group, Inc. + ............................... 115,300 4,011
New Jersey Resources Corp. + ........................ 41,600 2,049
Nicor, Inc. + ....................................... 135,300 5,854
Southwest Gas Corp. ................................. 56,100 1,670
UGI Corp. ........................................... 46,330 1,233
Vectren Corp. + ..................................... 111,500 3,127
WGL Holdings, Inc. .................................. 212,500 7,208
----------
65,753
----------
See accompanying notes
13
AMERICAN BEACON SMALL CAP VALUE FUND SCHEDULE OF INVESTMENTS
October 31, 2007
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
WATER UTILITIES - 0.02%
SJW Corp. + ......................................... 18,900 $ 660
----------
TOTAL UTILITIES ..................................... 200,517
----------
TOTAL COMMON STOCKS ................................. 3,098,961
----------
SHORT TERM INVESTMENTS - 2.90%
American Beacon Money Market Select Fund ++ ......... 87,216,028 87,216
PAR
AMOUNT
------------
United States Treasury Bill, 3.873%,
Due 12/6/2007 # .................................. $ 6,055 6,030
----------
TOTAL SHORT TERM INVESTMENTS 93,246
----------
SHARES
------------
SECURITIES LENDING COLLATERAL - 24.47%
American Beacon Cash Plus Trust ++ .................. 566,652,604 566,653
American Beacon Money Market Select Fund ++ ......... 219,001,045 219,001
----------
TOTAL SECURITIES LENDING COLLATERAL 785,654
----------
TOTAL INVESTMENTS 123.90% - (COST $3,769,167) 3,977,861
LIABILITIES, NET OF OTHER ASSETS - (23.90%) (767,421)
----------
TOTAL NET ASSETS - 100.00% $3,210,440
==========
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, 2007.
++ The Fund/Trust is affiliated by having the same investment advisor.
# At October 31, 2007, security pledged as collateral for open futures
contracts.
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
UNREALIZED
NUMBER OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- ------- --------------
Emini Mini Russell ......... 1,139 Dec 2007 $93,250 $ 1,694
======= ==============
See accompanying notes
14
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2007 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS:
Investments in unaffiliated securities, at value (A C) ........ $ 3,104,991
Investments in affiliated securities, at value (B) ............ 872,870
Cash .......................................................... 25
Receivable for investments sold ............................... 25,746
Dividends and interest receivable ............................. 2,194
Receivable for fund shares sold ............................... 3,177
Receivable for variation margin on open futures contracts ..... 1,569
Prepaid expenses .............................................. 28
-----------
TOTAL ASSETS ............................................... 4,010,600
-----------
LIABILITIES:
Payable for investments purchased ............................. 1,582
Payable upon return of securities loaned ...................... 785,678
Payable for fund shares redeemed .............................. 6,631
Management and investment advisory fees payable (Note 2) ...... 4,889
Administrative service and service fees payable ............... 920
Other liabilities ............................................. 460
-----------
TOTAL LIABILITIES .......................................... 800,160
-----------
NET ASSETS ....................................................... $ 3,210,440
===========
ANALYSIS OF NET ASSETS:
Paid-in-capital ............................................... 2,645,713
Undistributed net investment income ........................... 20,863
Accumulated net realized gain ................................. 333,477
Unrealized appreciation of investments, futures contracts,
and foreign currency ....................................... 210,387
-----------
NET ASSETS ....................................................... $ 3,210,440
===========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class ........................................... 63,963,406
===========
PlanAhead Class ............................................... 60,884,412
===========
Service Class ................................................. 3,221,051
===========
AMR Class ..................................................... 18,661,122
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class ........................................... $ 22.10
===========
PlanAhead Class ............................................... $ 21.62
===========
Service Class ................................................. $ 21.46
===========
AMR Class ..................................................... $ 22.05
===========
- ----------
A Cost of investments in unaffiliated securities ................. $ 2,896,297
B Cost of investments in affiliated securities ................... $ 872,870
C Market value of securities on loan ............................. $ 785,719
See accompanying notes
15
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2007 (IN THOUSANDS)
INVESTMENT INCOME:
Dividend income from unaffiliated securities (net of foreign
taxes)* ..................................................... $ 47,945
Dividend income from affiliated securities ..................... 8,530
Interest income ................................................ 652
Income derived from securities lending, net .................... 2,449
---------
TOTAL INVESTMENT INCOME ..................................... 59,576
---------
EXPENSES:
Management and investment advisory fees (Note 2) ............... 17,225
Administrative service fees (Note 2):
Institutional Class ......................................... 3,665
PlanAhead Class ............................................. 3,533
Service Class ............................................... 186
Transfer agent fees:
Institutional Class ......................................... 199
PlanAhead Class ............................................. 110
Service Class ............................................... 23
AMR Class ................................................... 15
Custody and fund accounting fees ............................... 290
Professional fees .............................................. 84
Registration fees and expenses ................................. 79
Service fees:
PlanAhead Class (Note 2) .................................... 3,533
Service Class (Note 2) ...................................... 186
Distribution fees - Service Class (Note 2) ..................... 186
Prospectus and shareholder reports ............................. 383
Other expenses ................................................. 327
---------
TOTAL EXPENSES .............................................. 30,024
---------
Net fees recouped by Manager (Note 2) .......................... 2
---------
NET EXPENSES ................................................ 30,026
---------
NET INVESTMENT INCOME ............................................. 29,550
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments ................................................. 335,707
Commission recapture (Note 1) ............................... 215
Futures contracts ........................................... 8,773
Change in net unrealized appreciation or depreciation of:
Investments ................................................. (180,299)
Futures contracts ........................................... (2,575)
---------
NET GAIN ON INVESTMENTS .................................. 161,821
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............. $ 191,371
=========
* Foreign taxes ................................................ $ 40
See accompanying notes
16
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
STATEMENT OF CHANGES OF NET ASSETS (IN THOUSANDS)
Year Ended Year Ended
October 31, October 31,
2007 2006
----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .......................................... $ 29,550 $ 23,105
Net realized gain on investments, futures contracts, and foreign
currency transactions ....................................... 344,695 202,671
Change in net unrealized appreciation or (depreciation) of
investments, futures contracts, and foreign currency
translations ................................................ (182,874) 212,133
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........ 191,371 437,909
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class ......................................... (10,903) (7,101)
PlanAhead Class ............................................. (8,142) (6,167)
Service Class ............................................... (295) (139)
AMR Class ................................................... (4,490) (3,772)
Net realized gain on investments:
Institutional Class ......................................... (90,742) (46,081)
PlanAhead Class ............................................. (94,401) (59,088)
Service Class ............................................... (5,063) (2,120)
AMR Class ................................................... (28,623) (17,954)
---------- ----------
NET DISTRIBUTIONS TO SHAREHOLDERS ........................ (242,659) (142,422)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares .................................. 808,393 721,048
Reinvestment of dividends and distributions .................... 237,930 138,617
Cost of shares redeemed ........................................ (920,892) (886,291)
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS .......................................... 125,431 (26,626)
---------- ----------
NET INCREASE IN NET ASSETS ........................................ 74,143 268,861
---------- ----------
NET ASSETS:
Beginning of period ............................................ 3,136,297 2,867,436
---------- ----------
END OF PERIOD * ................................................ $3,210,440 $3,136,297
========== ==========
* Includes undistributed net investment income of ................. $ 20,863 $ 17,578
========== ==========
See accompanying notes
17
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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, as
amended (the "Act"), as a no load, diversified, 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 Administrative Service Fee - 0.25%
investment of $2 million
PLANAHEAD CLASS General public and investors Administrative Service Fee - 0.25%
investing through an 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 N/A
benefit 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.
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 independent 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
Trust's Board of Trustees (the "Board").
18
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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.
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 at least annually. Distributions, if any, of net realized
capital gains are generally paid at least 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.
19
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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, the
Manager does not anticipate the adoption of FIN 48 to have a material impact on
the financial statements.
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, 2007, the Manager does not believe
the adoption of FAS 157 will materially 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.
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 that
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, 2007 were as follows
(dollars in thousands):
AMOUNTS PAID TO NET AMOUNTS
MANAGEMENT FEE RATE MANAGEMENT FEE INVESTMENT ADVISORS RETAINED BY MANAGER
- ------------------- -------------- ------------------- -------------------
0.35%-0.60% $17,225 $13,810 $3,415
20
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
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, 2007, securities lending fees paid to the Manager
were $421,111.
Administrative Services Agreement
The Manager and the Trust entered into an Administrative Services
Agreement which obligates the Manager to provide or oversee administrative
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 Fund, 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 and administrative service
fees received by the Manager and the investment advisors hired by the Manager to
be used for distribution purposes. Under this Plan, the Fund does not intend to
compensate the Manager or any other party, either directly or indirectly, for
the distribution of Fund shares.
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 issued 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") (collectively, the
"Affiliated Funds"). The Fund and 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, 2007, the Manager earned fees from the Affiliated
Funds totaling $161,994 on the Fund's direct investment in the Affiliated Funds
and $821,430 from the Fund's securities lending collateral invested in the
Affiliated Funds.
21
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with
other registered investment companies having management contracts with the
Manager, may participate in an interfund lending program as a borrower. This
program provides an alternative credit facility allowing the Fund to borrow from
other participating Funds. For the year ended October 31, 2007, the Fund did not
utilize the credit facility.
Expense Reimbursement Plan
The Fund has adopted an Expense Reimbursement Plan whereby the Manager
may seek repayment of fees waived or expenses reimbursed for a period of up to
three years. However, reimbursement will occur only if the Class's average net
assets have grown or expenses have declined sufficiently to allow reimbursement
without causing its expense ratio to exceed the previously agreed upon
contractual expense limit.
During the year ended October 31, 2007, the Manager recouped prior fee
waivers totaling $1,801. There are no further fee waivers or reimbursed expenses
with respect to the Fund that are subject to potential recovery.
Other
At October 31, 2007, AMR Corporation and subsidiary companies and
employee benefit trusts thereof owned 13% 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 fiscal years ended
October 31, 2007 and October 31, 2006 were as follows (in thousands):
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2007 2006
----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME*
Institutional Class .......................... $ 36,981 $ 20,806
PlanAhead Class .............................. 35,272 23,742
Service Class ................................ 1,750 770
AMR Class .................................... 12,717 9,112
LONG-TERM CAPITAL GAIN
Institutional Class .......................... 64,664 32,376
PlanAhead Class .............................. 67,270 41,513
Service Class ................................ 3,608 1,489
AMR Class .................................... 20,397 12,614
-------- --------
TOTAL DISTRIBUTIONS PAID ........................... $242,659 $142,422
======== ========
* For tax purposes, short-term capital gains are considered ordinary income
distributions.
22
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
As of October 31, 2007, the components of distributable earnings on a
tax basis were as follows (in thousands):
Cost basis of investments for federal income tax purposes ......... $3,781,909
Unrealized appreciation ........................................... 484,995
Unrealized depreciation ........................................... (289,043)
----------
Net unrealized appreciation/(depreciation) ........................ 195,952
Undistributed ordinary income ..................................... 74,954
Undistributed long-term gain/(loss) ............................... 293,822
----------
Distributable earnings ............................................ $ 564,728
==========
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, 2007 (in thousands):
Paid-in-capital ...................................................... $ --
Undistributed net investment income .................................. (2,435)
Accumulated net realized gain (loss) ................................. 2,434
Unrealized appreciation (depreciation) of investments,
futures contracts and foreign currency ............................ 1
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,
2007 were (in thousands) $1,679,480 and $1,731,448, respectively.
A summary of the Fund's direct transactions in Affiliated Funds for
the year ended October 31, 2007 is set forth below (in thousands):
OCTOBER 31, 2006 OCTOBER 31, 2007
AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
- --------- ------------------- ---------- ---------- -------------------
Select Fund $114,617 $1,335,450 $1,362,851 $87,216
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 borrowers and transaction
costs. To
23
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
the extent that a loan is secured by non-cash collateral, borrowers 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, 2007, the value of outstanding securities on loan and
the value of collateral was as follows (in thousands):
MARKET VALUE OF
SECURITIES ON LOAN NON-CASH COLLATERAL CASH COLLATERAL
- ------------------ ------------------- ---------------
$785,719 $10,375 $785,678
Cash collateral is invested in a joint investment account, which is
comprised of an investment in the Affiliated Funds. 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, 2007
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
------------------- ------------------- ----------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- --------- ------- --------- ------ -------- ------ ---------
Shares sold ................. 16,091 $ 361,583 12,210 $ 271,462 1,200 $ 26,348 6,699 $ 149,000
Reinvestment of dividends ... 4,613 98,950 4,782 100,509 256 5,358 1,551 33,113
Shares redeemed ............. (15,274) (343,946) (16,524) (363,461) (1,453) (31,825) (7,953) (181,660)
------- --------- ------- --------- ------ -------- ------ ---------
Net increase (decrease) in
shares outstanding ....... 5,430 $ 116,587 468 $ 8,510 3 $ (119) 297 $ 453
======= ========= ======= ========= ====== ======== ====== =========
Year Ended October 31, 2006
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)
======= ========= ======= ========= ====== ======== ====== ========
24
(This page intentionally left blank)
25
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class
---------------------------------------------------------
Year Ended October 31
---------------------------------------------------------
2007 2006 2005(B) 2004(C) 2003(A)
---------- ---------- ---------- -------- -------
Net asset value, beginning of period .................... $ 22.53 $ 20.43 $ 18.85 $ 16.21 $ 11.28
---------- ---------- ---------- -------- -------
Income from investment operations:
Net investment income (loss) ......................... 0.22 0.19 0.11 0.07 (0.01)
Net gains (losses) on securities
(both realized and unrealized) .................... 1.10 2.94 2.31 3.09 5.24
---------- ---------- ---------- -------- -------
Total income (loss) from investment operations .......... 1.32 3.13 2.42 3.16 5.23
---------- ---------- ---------- -------- -------
Less distributions:
Dividends from net investment income ................. (0.19) (0.14) (0.07) (0.08) (0.02)
Distributions from net realized gains on Securities .. (1.56) (0.89) (0.77) (0.44) (0.28)
---------- ---------- ---------- -------- -------
Total distributions ..................................... (1.75) (1.03) (0.84) (0.52) (0.30)
---------- ---------- ---------- -------- -------
Net asset value, end of period .......................... $ 22.10 $ 22.53 $ 20.43 $ 18.85 $ 16.21
========== ========== ========== ======== =======
Total return ............................................ 6.10% 15.80% 12.90% 19.86% 47.45%
========== ========== ========== ======== =======
Ratios and supplemental data:
Net assets, end of period (in thousands) ............. $1,413,734 $1,319,024 $1,076,909 $429,540 $89,579
Ratios to average net assets (annualized):
Expenses, net of waivers .......................... 0.80% 0.82% 0.87% 0.89% 0.89%
Expenses before waivers ........................... 0.80% 0.82% 0.87% 0.89% 0.89%
Net investment income, net of waivers ............. 0.94% 0.83% 0.66% 0.57% 0.60%
Net investment income (loss), before Waivers ...... 0.94% 0.83% 0.66% 0.57% 0.60%
Portfolio turnover rate .............................. 52% 48% 47% 35% 75%
PlanAhead Class
---------------------------------------------------------
Year Ended October 31
---------------------------------------------------------
2007 2006 2005(B) 2004(C) 2003(A)
---------- ---------- ---------- -------- -------
Net asset value, beginning of period .................... $ 22.08 $ 20.04 $ 18.54 $ 15.95 $ 11.22
---------- ---------- ---------- -------- -------
Income from investment operations:
Net investment income (loss) ......................... 0.16 0.13 0.09 0.08 0.05
Net gains (losses) on securities
(both realized and unrealized) .................... 1.07 2.89 2.24 2.98 5.08
---------- ---------- ---------- -------- -------
Total income (loss) from investment operations .......... 1.23 3.02 2.33 3.06 5.13
---------- ---------- ---------- -------- -------
Less distributions:
Dividends from net investment income ................. (0.13) (0.09) (0.06) (0.03) (0.12)
Distributions from net realized gains on Securities .. (1.56) (0.89) (0.77) (0.44) (0.28)
---------- ---------- ---------- -------- -------
Total distributions ..................................... (1.69) (0.98) (0.83) (0.47) (0.40)
---------- ---------- ---------- -------- -------
Net asset value, end of period .......................... $ 21.62 $ 22.08 $ 20.04 $ 18.54 $ 15.95
========== ========== ========== ======== =======
Total return ............................................ 5.83% 15.56% 12.63% 19.56% 47.12%
========== ========== ========== ======== =======
Ratios and supplemental data:
Net assets, end of period (in thousands) ............. $1,316,188 $1,333,814 $1,320,853 $466,364 $66,906
Ratios to average net assets (annualized):
Expenses, net of waivers .......................... 1.05% 1.06% 1.10% 1.15% 1.16%
Expenses before waivers ........................... 1.05% 1.06% 1.10% 1.15% 1.16%
Net investment income, net of waivers ............. 0.70% 0.59% 0.42% 0.33% 0.39%
Net investment income (loss), before Waivers ...... 0.70% 0.59% 0.42% 0.33% 0.39%
Portfolio turnover rate .............................. 52% 48% 47% 35% 75%
(A) Barrow, Hanley, Mewhinney & Strauss, Inc. was added as an investment
advisor to the Small Cap Value Fund on September 18, 2003.
(B) 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.
(C) The Boston Company Asset Management, LLC was added as an investment advisor
to the Small Cap Value Fund on September 27, 2004.
(D) Not annualized.
(E) Annualized.
(F) Portfolio turnover rate is for the period from November 1, 2002 through
October 31, 2003.
26
Service Class
-------------------------------------
Year Ended October 31 May 1 to
------------------------------------- October 31,
2007 2006 2005(B) 2004(C) 2003(A)
------- ------- ------- ------- -----------
Net asset value, beginning of period .................... $ 21.94 $ 19.94 $ 18.49 $ 15.92 $ 11.88
------- ------- ------- ------- ---------
Income from investment operations:
Net investment income (loss) ......................... 0.10 0.07 0.04 0.01 --
Net gains (losses) on securities
(both realized and unrealized) .................... 1.07 2.88 2.23 3.00 4.04
------- ------- ------- ------- ---------
Total income (loss) from investment operations .......... 1.17 2.95 2.27 3.01 4.04
------- ------- ------- ------- ---------
Less distributions:
Dividends from net investment income ................. (0.09) (0.06) (0.05) -- --
Distributions from net realized gains on Securities .. (1.56) (0.89) (0.77) (0.44) --
------- ------- ------- ------- ---------
Total distributions ..................................... (1.65) (0.95) (0.82) (0.44) --
------- ------- ------- ------- ---------
Net asset value, end of period .......................... $ 21.46 $ 21.94 $ 19.94 $ 18.49 $ 15.92
======= ======= ======= ======= =========
Total return ............................................ 5.55% 15.23% 12.32% 19.24% 34.01%(D)
======= ======= ======= ======= =========
Ratios and supplemental data:
Net assets, end of period (in thousands) ............. $69,112 $70,602 $44,709 $11,828 $ 1
Ratios to average net assets (annualized):
Expenses, net of waivers .......................... 1.32% 1.34% 1.40% 1.38% 1.49%(E)
Expenses before waivers ........................... 1.32% 1.34% 1.40% 1.69% 1089.04%
Net investment income, net of waivers ............. 0.43% 0.31% 0.12% 0.17% (0.05)%
Net investment income (loss), before Waivers ...... 0.43% 0.31% 0.12% (0.14)% (1087.60)%
Portfolio turnover rate .............................. 52% 48% 47% 35% 75%(F)
AMR Class
----------------------------------------------------
Year Ended October 31
----------------------------------------------------
2007 2006 2005(B) 2004(C) 2003(A)
-------- -------- -------- -------- --------
Net asset value, beginning of period .................... $ 22.48 $ 20.38 $ 18.78 $ 16.13 $ 11.30
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income (loss) ......................... 0.30 0.27 0.21 0.14 0.10
Net gains (losses) on securities
(both realized and unrealized) .................... 1.08 2.91 2.26 3.04 5.15
-------- -------- -------- -------- --------
Total income (loss) from investment operations .......... 1.38 3.18 2.47 3.18 5.25
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income ................. (0.25) (0.19) (0.10) (0.09) (0.14)
Distributions from net realized gains on Securities .. (1.56) (0.89) (0.77) (0.44) (0.28)
-------- -------- -------- -------- --------
Total distributions ..................................... (1.81) (1.08) (0.87) (0.53) (0.42)
-------- -------- -------- -------- --------
Net asset value, end of period .......................... $ 22.05 $ 22.48 $ 20.38 $ 18.78 $ 16.13
======== ======== ======== ======== ========
Total return ............................................ 6.39% 16.12% 13.23% 20.12% 47.93%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) ............. $411,406 $412,857 $424,965 $438,353 $327,542
Ratios to average net assets (annualized):
Expenses, net of waivers .......................... 0.54% 0.55% 0.58% 0.60% 0.61%
Expenses before waivers ........................... 0.54% 0.55% 0.58% 0.60% 0.61%
Net investment income, net of waivers ............. 1.21% 1.10% 0.94% 0.84% 0.95%
Net investment income (loss), before Waivers ...... 1.21% 1.10% 0.94% 0.84% 0.95%
Portfolio turnover rate .............................. 52% 48% 47% 35% 75%
27
AMERICAN BEACON FUNDS
PRIVACY POLICY & FEDERAL TAX INFORMATION
(UNAUDITED)
PRIVACY POLICY
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.
FEDERAL TAX INFORMATION
For corporate shareholders in the Fund, the percentage of ordinary
dividend income distributed for the year ended October 31, 2007, which is
designated as qualifying for the dividends-received deduction, was 16.70%.
For shareholders in the Fund, the percentage of dividend income
distributed for the year ended October 31, 2007, which is designated as
qualified dividend income under the Jobs Growth Tax Relief Act of 2003, was
22.55%. Shareholders will receive notification in January 2008 of the percentage
applicable to the preparation of their 2007 income tax returns.
Pursuant to Section 852 of the Internal Revenue Code, the Fund
designated $155,938,753 as long-term capital gain dividends for the tax year
ended October 31, 2007.
28
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT
AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
At its May 25, 2007 meeting, the Board of Trustees ("Board" or
"Trustees") considered the renewal of the existing Management Agreement between
the Manager and the American Beacon Funds on behalf of its Small Cap Value Fund
(the "Fund") and each Investment Advisory Agreement between the Manager and a
subadvisor. In preparation for the Board's consideration to renew these
Agreements, the Board and its Investment Committee undertook steps to gather and
consider information furnished by the Manager, the subadvisors and Lipper, Inc.
("Lipper"). The Board, with the assistance of independent legal counsel,
requested and received certain relevant information from the Manager and each
subadvisor.
In addition, the Board's Investment Committee worked with Lipper to
obtain relevant comparative information regarding the performance, fees and
expenses of the Fund. The Investment Committee held a separate meeting on May 4,
2007 to consider the information provided by Lipper. Further, the Board took
into consideration information furnished for the Board's review and
consideration throughout the year at regular Board and Investment Committee
meetings, as well as information specifically prepared in connection with the
renewal process.
The Trustees considered, among other materials, responses by the
Manager and the subadvisors to inquiries requesting:
- a description of any significant changes (actual or anticipated) to
principal activities, personnel, services provided to the Fund, or any
other area, including how these changes might affect the Fund;
- a copy of the firm's most recent audited or unaudited financial
statements as well as its SEC Form ADV registration statement;
- a summary of any material past, pending or anticipated litigation or
regulatory proceedings involving the firm or its personnel, including
the results of any recent regulatory examination or independent audit;
- a comparison of the performance of that portion of Fund assets managed
by each firm with performance of other similar accounts managed by the
firm, including a discussion of relative performance versus a peer
group average and any remedial measures if the firm's performance was
materially below that of the peer group;
- a profit/loss analysis of the firm and any actual or anticipated
economies of scale in relation to the services it provides to the
Fund;
- a description of any payments by the firm to support the Fund's
marketing efforts;
- an analysis of compensation, including a comparison with fees charged
to other clients for which similar services are provided, any proposed
changes to the fee schedule and the effect of any fee waivers;
- an evaluation of other benefits to the firm or the Fund as a result of
their relationship, if any;
- confirmation that the firm's financial condition does not raise
concerns that the firm would be unable to continue providing the same
scope and quality of services to the Fund;
- a description of the scope of portfolio management services provided
to the Fund and the firm's other clients, including other registered
investment companies, whether such services differ, and any advantages
or disadvantages that might accrue to the Fund due to the firm's
involvement in other activities;
- a description of the personnel who are assigned primary responsibility
for managing the Fund, including any changes during the past year, and
a discussion of the adequacy of current and projected staffing levels
to service the Fund;
- a description of the basis upon which portfolio managers are
compensated, including any "incentive" arrangements;
- a discussion regarding the firm's participation in "soft dollar"
arrangements, if any, or other brokerage allocation policies with
respect to Fund transactions, including the firm's methodology for
obtaining the most favorable execution and the use of any affiliated
broker-dealers;
- a discussion of whether the firm receives, with respect to the Fund,
other compensation, including any payment for order flow or ECN
liquidity rebates;
- a description of any actual or potential conflicts of interest
anticipated in managing Fund assets;
- a description of trade allocation procedures among accounts managed by
the firm;
29
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT
AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
- a summary of any material changes to the firm's compliance program
with regard to federal, state, corporate and Fund requirements and a
certification regarding the reasonable design of the compliance
program;
- a discussion of any material compliance problems and remedial actions;
- information regarding the firm's code of ethics, insider trading
policy and disaster recovery plan, including a description of any
material changes thereto;
- a description of the firm's affiliation with any broker-dealer;
- a discussion of any anticipated change in the firm's controlling
persons; and
- verification of the firm's insurance coverage with regards to the
services provided to the Fund.
In addition to the foregoing, the Manager provided the following
information specific to the renewal of the Management Agreement:
- a comparison of the performance of the Fund to comparable investment
companies and appropriate indices, including comments on the relative
performance of each subadvisor and the Fund versus its peer group
average;
- a discussion, if applicable, of any underperformance by a subadvisor
relative to its peer group and what, if any, remedial measures the
Manager has or intends to take;
- a comparison of advisory fees and expense ratios for comparable mutual
funds;
- an analysis of any material complaints received from Fund
shareholders;
- a description of the Manager's securities lending practices and the
fees received from such practices;
- a description of any revenue sharing activities with respect to the
Fund;
- a discussion of any rebate arrangements between the Manager and a
service provider to the Fund pursuant to which the Manager receives
direct or indirect benefits from the service provider;
- a description of the portfolio turnover rate and average execution
costs for the Fund and each subadvisor to the Fund; and
- a description of how expenses that are not readily identifiable to the
Fund are allocated.
The Board also obtained an analysis provided by Lipper that compared:
(i) investment performance of the Fund versus comparable investment companies
and appropriate indices; (ii) total Fund expenses of the Fund versus comparable
mutual funds, and (iii) the Fund's investment advisory fees versus comparable
mutual funds. The class used for comparative purposes was the class with the
longest performance history, which in most cases is the Institutional Class.
References below to the Fund's Lipper peer group are to the group of comparable
mutual funds included in the analysis provided by Lipper.
The Trustees also received a memorandum from their legal counsel
detailing the Board's responsibilities pertaining to the renewal of the
Management and Investment Advisory Agreements. This memorandum explained the
regulatory requirements surrounding the Trustees' process for evaluating
investment advisors and the terms of the contracts.
Provided below is an overview of the primary factors the Board
considered at its May 25, 2007 meeting. The Board did not identify any
particular information that was most relevant to its consideration to renew the
Management and Investment Advisory Agreements, and each Trustee may have
afforded different weight to the various factors.
In determining whether to approve the continuance of the Management
Agreement and the Investment Advisory Agreement, the Trustees considered the
best interests of the Fund. In addition, while the Management and Investment
Advisory Agreements for all of the Funds were considered at the same Board
meeting, the Board considered each Fund's investment management and subadvisory
relationships separately. The Board considered, among other things, the
following factors: (1) the nature and quality of the services provided; (2) the
investment performance of the Fund and the investment advisor; (3) the Manager's
or subadvisor's cost for providing the services and the profitability of the
advisory business to the Manager or subadvisor; (4) the extent to which
economies of scale have been taken into account in setting the fee schedule; (5)
whether fee levels
30
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT
AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
reflect these economies of scale for the benefit of Fund investors; (6)
comparisons of services and fees with contracts entered into by the Manager or a
subadvisor or their affiliates with other clients (such as pension funds and
other institutional funds); and (7) any other benefits derived or anticipated to
be derived by the Manager or a subadvisor from their relationship with the Fund.
The Trustees posed questions to various management personnel of the Manager
regarding certain key aspects of the material submitted in support of the
renewal.
Nature, Extent and Quality of Services. With respect to the renewal of
the Management Agreement, the Board considered: the background and experience of
key investment personnel and the Manager's ability to retain them; the Manager's
disciplined investment approach and goal to provide consistent above average
long-term performance at a low cost; the Manager's continuing efforts to add new
series and share classes to enhance the Fund's product line; the Manager's
record in building improved compliance, control and credit functions that reduce
risks to the Fund; the addition of personnel to manage the Fund, promote sales
and improve services, including the addition of a separate new information
technology (IT) department at the Manager; the high rankings received by the
Fund in service surveys; and the active role played by the Manager in monitoring
and, as appropriate, recommending replacements for the investment subadvisors
and master portfolios.
With respect to the renewal of the Investment Advisory Agreements, the
Trustees considered the background and experience of each subadvisor's
investment personnel responsible for managing the Fund, the size of the
subadvisor and their ability to continue to attract and retain qualified
investment personnel.
Based on the foregoing information, the Board concluded that the
nature, extent and quality of the management and advisory services provided by
the Manager and each subadvisor were appropriate for the Fund and, thus,
supported a decision to renew the Management and each Investment Advisory
Agreement.
Investment Performance. The Board evaluated the comparative
information provided by Lipper and the Manager regarding the Fund's investment
performance relative to its benchmark index and peer group. With respect to
Lipper data, the Board considered the information provided by Lipper regarding
its independent peer selection methodology to select all peer groups and
universes. The Board also considered the performance reports and discussions
with management at Board and Committee meetings throughout the year. The Manager
also noted that it generally was satisfied with the performance of the
subadvisors.
Cost of Services and Profits Realized. In analyzing the cost of
services and profitability of the Manager and a subadvisor, the Board considered
the revenues earned and the expenses incurred by the Manager and those
subadvisors that provided such data. The profitability levels were noted at both
an individual Fund level and at an aggregate level for all Funds in the complex.
The Board also considered that the Management Agreements for the American Beacon
Funds stipulate that to the extent that the Fund invests all of its investable
assets in another registered investment company, the Fund will not pay the
Manager a management fee.
The Board further considered that the Fund pays the Manager the
amounts due to its subadvisors, and the Manager remits these amounts directly to
the applicable subadvisors. The Board considered that the Manager receives
service and administrative fees to compensate the Manager for providing
administrative services to the Fund and to compensate third-party administrators
and broker-dealers for services to Fund shareholders. In addition, the Board
considered that the Manager receives management fees for overseeing the
securities lending relationships on behalf of the Fund. The Board also noted
that the non-Institutional Classes of the Fund maintains higher expense ratios
in order to compensate third party distributors but the net fee to the Manager
is the same for all Classes.
In analyzing the cost of services and profitability of each subadvisor
in connection with its investment advisory services to the Fund, the Board
considered that, in many cases, the Manager has negotiated the lowest
subadvisory fee a subadvisor charges for any comparable client accounts. The
Board gave less weight to profitability considerations or did not view this data
as imperative to its deliberations given the arm's-length nature of the
relationship between the Manager and the subadvisors with respect to the
negotiation of subadvisory fees.
31
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT
AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
Based on the foregoing information, the Board concluded that the
profitability levels were reasonable in light of the services performed by the
Manager and the subadvisors.
Economies of Scale. In considering the reasonableness of the
management and investment advisory fees, the Board considered whether economies
of scale will be realized as the Fund grows and whether fee levels reflect these
economies of scale for the benefit of Fund shareholders. In this regard, the
Board considered that the Manager has negotiated breakpoints in the subadvisory
fee rates. The Board also noted, for purposes of determining the fee rates
chargeable to the Fund, many subadvisors have agreed to take into account other
assets of AMR Corporation and its pension plans that are managed by the
subadvisors. Thus, the Fund is able to receive lower effective fee rates. This
fee arrangement also benefits AMR Corporation and its pension plans. The Board
also noted that the Fund has experienced substantial recent asset growth.
The Board also considered the Manager's representations that its costs
have increased due primarily to greater service provider and regulatory costs.
The Manager also represented that it anticipates further economies of scale
would be largely offset by higher costs of adding and retaining qualified
personnel, improving technology and increasing demands on its advisory business.
Based on the foregoing information, the Board concluded that the
Manager and subadvisor fee schedules provide for a reasonable sharing of
benefits from any economies of scale with the Fund.
Benefits Derived from the Relationship with the Funds. The Board
considered the "fall-out" or ancillary benefits that accrue to the Manager
and/or the subadvisors as a result of the advisory relationships with the Fund,
including greater exposure in the marketplace with respect to the Manager's or
subadvisor's investment process and expanding the level of assets under
management by the Manager and the subadvisors. The Board also considered that
the money market portfolios permit institutional investors access to such
investments at a more favorable cost and that the Manager's relationship with
the Fund and, in particular the money market portfolios, continues to be a
significant factor in attracting separate account assets for the Manager. In
addition, the Board noted that the Manager provides services to the Trust at a
relatively low cost and the benefit plans of AMR Corporation have invested a
substantial number of assets in the Fund, which helps reduce costs. The Board
also considered that certain of the subadvisors reimburse the Manager for
certain of its costs relating to distribution activities for the Fund.
Based on the foregoing information, the Board concluded that the
potential benefits accruing to the Manager and the subadvisors by virtue of
their relationship with the Fund appears to be fair and reasonable.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS
The performance comparisons below were made versus the Fund's Lipper
peer universe median. References to the Lipper expense group below are to the
group of comparable mutual funds included in the analysis provided to the
Trustees by Lipper. All performance comparisons are for periods ended March 31,
2007, unless otherwise noted.
In considering the renewal of the Management Agreement with respect to
the Fund, the Trustees considered the following additional factors: (1) the Fund
outperformed its peer universe median for the one- and five-year periods but
underperformed for the three-year period; and (2) the actual management fees
(including administrative fees) and the total expense ratio of the Institutional
Class of Fund shares was lower than its Lipper expense group median.
In considering the renewal of the Investment Advisory Agreements with
Barrow, Hanley, Mewhinney and Strauss, Inc. ("Barrow"), Brandywine Global
Investment Management, LLC ("Brandywine"), Dreman Value Management, LLC
("Dreman"), Hotchkis and Wiley Capital Management, LLC ("Hotchkis"),
Metropolitan West Capital Management, LLC ("MetWest"), SSgA Funds Management,
Inc. ("SSgA"), The Boston Company Asset Management, LLC ("TBCAM"), and Opus
Capital Group, LLC ("Opus"), the Trustees considered the following
32
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT
AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
additional factors: (1) Hotchkis outperformed the peer universe median for the
five-year period but underperformed for the one- and three-year periods; (2)
Brandywine outperformed the peer universe median for the one-year period but
underperformed for the three- and five-year periods; (3) Barrow outperformed the
peer universe median for the one- and three-year period; (4) TBCAM outperformed
the peer universe median for the one-year period; (5) Opus underperformed the
peer universe median for the one-year period; (6) Dreman, MetWest and SSgA have
not been allocated a portion of Fund assets to date; (7) Barrow underperformed
its market benchmark index with respect to its allocated portion of the Fund's
assets for the one-year period ended December 31, 2006; (8) Brandywine
underperformed its market benchmark index with respect to its allocated portion
of the Fund's assets for all relevant periods except the since inception period
ended December 31, 2006; (9) Hotchkis underperformed its market benchmark index
with respect to its allocated portion of the Fund's assets for the one- and
three-year periods but outperformed for the five-year and since inception
periods ended December 31, 2006; (10) Opus underperformed its market benchmark
index with respect to its allocated portion of the Fund's assets for all
relevant periods ended December 31, 2006; (11) the Manager's explanation that
some subadvisors had over weighted their portion of the Fund's assets in the
homebuilder sector that caused the Fund to underperform its benchmark; (12)
Barrow, Brandywine, Hotchkis, and MetWest informed the Manager that they use
Fund commissions to obtain proprietary research, the application of which
benefits the Fund and each of those subadvisors' clients, and Hotchkis further
informed the Manager that it uses Fund commissions to obtain third-party
research, but that there is little or no impact to the Fund; (13) the fee
schedules of each subadvisor include breakpoints, which reduce fee rates as the
assets of the Fund increase; (14) TBCAM represented that it does not charge a
lower advisory fee to any other comparable clients; and (15) the Manager's
recommendation to continue to retain each subadvisor.
Based on these considerations and those noted above with respect to
all Funds, the Trustees (1) concluded that the fees paid to the Manager and the
subadvisors under the Management and Investment Advisory Agreements are fair and
reasonable, (2) determined that the Small Cap Value Fund and its shareholders
would benefit from the continued management of the Fund by the Manager and
subadvisors and (3) approved the renewal of the Management and Investment
Advisory Agreements with respect to the Fund.
33
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.
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** (59) Trustee Chairman and CEO (2006-Present), President (1986-2006) and
since 1987 Director (2003-Present), American Beacon Advisors, Inc.;
President from Chairman (1989-2003) and Director (1979-1989, 2003-Present),
1987 to 2007 American Airlines Federal Credit Union; Director, Crescent
Executive Vice Real Estate Equities, Inc.(1994-2007); Director, Pritchard,
President Hubble & Herr, LLC (investment advisor) (2001-2006);
since 2007 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); Chairman
(2007-Present) and Vice Chairman (2004-2007), Committee for
the Investment of Employee Benefits; 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).
Douglas G. Herring** (50) Trustee since 2006 President, American Beacon Advisors, Inc. (2006-Present);
Executive Vice President Vice President and Controller, American Airlines, Inc.
from 2006 to 2007 (1998-2006); Chairman (2003-Present) and Director
President since 2007 (1995-Present), American Airlines Federal Credit Union;
Trustee, American Beacon Mileage Funds (2006-Present);
Trustee American Beacon Select Funds (2006-Present); Trustee
American Beacon Master Trust (2006-Present).
Alan D. Feld** (70) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm)
(1960-Present); Director, Clear Channel Communications
(1984-Present); Trustee, CenterPoint Properties (1994-2006);
Member Board of Trustees, Southern Methodist University;
Member, Board of Visitors, The University of Texas M.D.
Anderson Cancer Center; Member, Board of Visitors, Zale
Lipshy Hospital; 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 (63) 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).
34
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
(UNAUDITED)
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 (46) 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) (2001-2006); 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 (64) Trustee since 2004 Senior Vice President and General Counsel, Hunt
Consolidated, Inc. (holding company engaged in oil and gas
exploration and production, refining, 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 (72) 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 (61) Trustee since 2001 President, Southern Methodist University (1995-Present);
225 Perkins Admin. Bldg. Director, ChemFirst (1986-2002); Director, J.C. Penney
Southern Methodist Univ. Company, Inc. (1996-Present); Director, California Federal
Dallas, Texas 75275 Preferred Capital Corp. (2001-2003); Director, Kronus
Worldwide Inc. (chemical manufacturing) (2003-Present);
Director, First Broadcasting Investment Partners, LLC
(2003-Present); Member, United Way of Dallas Board of
Directors; Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory Board;
Member, Knight Commission on Intercollegiate Athletics;
Trustee, American Beacon Mileage Funds (2001-Present);
Trustee, American Beacon Select Funds (2001-Present);
Trustee, American Beacon Master Trust (2001-Present).
Kneeland Youngblood (51) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court Chairman since equity firm) (1998-Present); Director, Burger King
Suite 1740 2005 Corporation (2004-Present); Director, Gap, Inc.
Dallas, Texas 75201 (2006-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).
35
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
(UNAUDITED)
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 (48) VP, Secretary and Vice President, Legal and Compliance, American Beacon
Chief Legal Advisors, Inc. (2006-Present); Assistant General Counsel,
Officer since 2006 First Command Financial Planning, Inc. (2004-2006);
Enforcement Attorney (2002-2004) and Branch Chief
(2000-2002), Securities and Exchange Commission.
Brian E. Brett (47) VP since 2004 Vice President, Director of Sales and Marketing, American
Beacon Advisors, Inc. (2004-Present); Regional Vice
President, Neuberger Berman, LLC (investment advisor)
(1996-2004).
Wyatt Crumpler (41) VP since 2007 Vice President, Trust Investments, American Beacon Advisors,
Inc. (2007-Present); Managing Director of Corporate
Accounting (2004-2007), Director of IT Strategy and Finance
(2002-2004), American Airlines, Inc.
Michael W. Fields (53) VP since 1989 Vice President, Fixed Income Investments, American Beacon
Advisors, Inc. (1988-Present).
Rebecca L. Harris (40) Treasurer since Vice President, Finance, American Beacon Advisors, Inc.
1995 (1995-Present).
Christina E. Sears (36) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc.
Officer since 2004 (2004-Present); Senior Compliance Analyst, American Beacon
and Asst. Advisors, Inc. (1998-2004).
Secretary since
1999
* 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, Feld and Herring are deemed to be "interested persons" of
the Trust, as defined by the 1940 Act. Mr. Quinn is Chairman and CEO 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. Mr. Herring is President of the Manager.
36
(This page intentionally left blank)
37
(AMERICAN BEACON FUNDS(SM) 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:
(GRAPHIC) (GRAPHIC)
BY E-MAIL: ON THE INTERNET:
american_beacon.funds@ambeacon.com Visit our website at
www.americanbeaconfunds.com
(GRAPHIC) (GRAPHIC)
BY TELEPHONE: BY MAIL:
Institutional Class American Beacon Funds
Call (800) 658-5811 P.O. Box 219643
AMR Class(SM) Kansas City, MO 64121-9643
Call (800) 345-2345
PlanAhead Class(R) and Service Class
Call (800) 388-3344
AVAILABILITY OF QUARTERLY AVAILABILITY OF PROXY VOTING
PORTFOLIO SCHEDULES POLICY AND RECORDS
In addition to the Schedule of A description of the policies and
Investments provided in each procedures the Fund uses to determine
semi-annual and annual report, the how to vote proxies relating to
Fund files a complete schedule of its portfolio securities is available in the
portfolio holdings with the Fund's Statement of Additional
Securities and Exchange Commission Information, is available free of charge
("SEC") on Form N-Q as of the first on the Fund's website
and third fiscal quarters. The Fund's (www.americanbeaconfunds.com) and by
Forms N-Q are available on the SEC's calling 1-800-967-9009 or by accessing
website at www.sec.gov. The Forms N-Q the SEC's website at www.sec.gov. The
may also be reviewed and copied at Fund's proxy voting record for the most
the SEC's Public Reference Room, 450 recent year ended June 30 is filed
Fifth Street, NW, Washington, DC annually with the SEC on Form N-PX. The
20549. Information regarding the Fund's Forms N-PX are available on the
operation of the SEC's Public SEC's website at www.sec.gov. The Fund's
Reference Room may be obtained by proxy voting record may also be obtained
calling 1-800-SEC-0330. A complete by calling 1-800-967-9009.
schedule of the Fund's portfolio
holdings is also available on the
Funds' website
(www.americanbeaconfunds.com)
approximately thirty days after the
end of each month.
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BOSTON FINANCIAL PUBLIC ACCOUNTING FIRM FORESIDE FUND
BANK AND TRUST DATA SERVICES ERNST & YOUNG LLP SERVICES
Boston, Kansas City, Dallas, Texas Portland, Maine
Massachusetts Missouri
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 10/07
541122
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 Mrs. Brenda A. Cline, a
member of the Trust's Audit and Compliance Committee, is an "audit committee
financial expert" as defined in Form N-CSR. Mrs. Brenda A. Cline is
"independent" as defined
in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a)
<Table>
<Caption>
Audit Fees Fiscal Year Ended
- ---------- -----------------
$48,010 12/31/2005
$249,625 10/31/2006
$92,179 12/31/2006
$280,229 10/31/2007
</Table>
(b)
<Table>
<Caption>
Audit-Related Fees Fiscal Year Ended
- ------------------ -----------------
$0 12/31/2005
$35,164* 10/31/2006 (revised)
$0 12/31/2006
$8,750** 10/31/2007
</Table>
<FN>
* Attestation services related to Interfund Lending Program, review of N-1A and
assistance with disclosure related to International Equity Fund reorganization
**Review of N-1A filings
</FN>
(c)
<Table>
<Caption>
Tax Fees Fiscal Year Ended
- -------- -----------------
$10,695* 12/31/2005
$0 10/31/2006
$0 12/31/2006
$29,199** 10/31/2007
</Table>
<FN>
* For review of 2004 tax returns
**2005 and 2006 tax compliance and tax advice related to International Equity
Fund reorganization
</FN>
(d)
<Table>
<Caption>
All Other Fees Fiscal Year Ended
- -------------- -----------------
$0 12/31/2005
$0 10/31/2006
$0 12/31/2006
$0 10/31/2007
</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
- ---------- ------- ------------------------------ -----------------
$10,695 $0 N/A 12/31/2005
$35,164 $0 N/A 10/31/2006 R
$0 $0 N/A 12/31/2006
$37,949 $0 N/A 10/31/2007
</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/ Douglas G. Herring
----------------------
Douglas G. Herring
President
Date: January 4, 2008
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/ Douglas G. Herring
----------------------
Douglas G. Herring
President
Date: January 4, 2008
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: January 4, 2008