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, 2008
Date of reporting period: October 31, 2008
ITEM 1. REPORT TO STOCKHOLDERS.
GUIDANCE | VISION | EXPERIENCE
(AMERICAN BEACON FUNDS(SM) LOGO)
Annual Report
(GRAPHIC)
OCTOBER 31, 2008
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................................................... 26
Large Cap Growth Fund........................................... 35
Mid-Cap Value Fund.............................................. 40
Small Cap Value Opportunity Fund................................ 43
Emerging Markets Fund........................................... 48
High Yield Bond Fund............................................ 53
Enhanced Income Fund............................................ 61
Intermediate Bond Fund.......................................... 67
Short-Term Bond Fund............................................ 76
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 WILLIAM F. QUINN)
FELLOW SHAREHOLDERS,
Enclosed is the American Beacon Funds Annual Report for the twelve months
ended October 31, 2008 for our Balanced, Large Cap Growth, Mid-Cap Value, Small
Cap Value Opportunity, Emerging Markets, High Yield Bond, Enhanced Income,
Intermediate Bond, and Short-Term Bond Funds.
During the past twelve months, we experienced unprecedented market turmoil
in all asset classes. Initially, the sub-prime mortgage crisis and rising oil
and food prices contributed to an economic slowdown that culminated in a
market-wide credit crisis and squeeze on liquidity. The situation reached
once-in-a-lifetime crisis proportions in mid-September with the bankruptcy of
Lehman Brothers, the resulting losses incurred by investors in money market
funds, and the unprecedented government intervention in the financial system.
From September 15th to October 31st, the Dow Jones Industrial Average declined
almost 20% on the threat of a global recession.
During these times, it is important to remember that the American Beacon
Funds' investment strategy is based on long-term investing. Short-term pain can
lead to long-term gains as we saw when the positive performance by our
value-oriented Funds followed the burst of the technology bubble earlier this
decade. We believe the Funds' fundamental value investment philosophies and
lower than average expense ratios will continue to serve the Funds well over the
longer term.
Please review the enclosed market overview, portfolio listings, and
detailed financial data. As always, we welcome the opportunity to serve your
financial needs. To obtain further details about the American Beacon Funds
family or to access your account information, please visit our website at
www.americanbeaconfunds.com. Thank you for your continued.
Sincerely,
/s/ William F. Quinn
William F. Quinn
President
American Beacon Funds
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. 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 the securities of mid- and small capitalization companies involves
greater risk and the possibility of greater price volatility than investing in
larger capitalization and more established companies. 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.
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.
1
DOMESTIC EQUITY MARKET OVERVIEW
OCTOBER 31, 2008 (UNAUDITED)
The financial crisis that began in August 2007 accelerated into uncharted
territory in 2008, punctuated by the sharp decline in equity prices in October.
Earlier concerns about rising prices for oil, food and commodities were brushed
aside as the credit crisis evolved into a full-blown liquidity crisis. In early
2008, monetary policymakers were very aggressive, ultimately cutting the Fed
Funds rate to 1% as deflation concerns began to displace talk of inflation. The
Federal Reserve ("Fed") was innovative in contending with the financial crisis
by developing (or resurrecting) policy initiatives and lending facilities in
attempts to target liquidity without further pressuring the dollar or adding to
worries regarding inflation. Nevertheless, in the spring of 2008, market
interest rates had once again begun to move against the Fed, this time upward,
as global investors anticipated a pause in, if not a completion of, the Fed's
easing campaign.
Market volatility prevailed in the second and third calendar quarters of
2008. Only a few months back, investors were worried about rising inflation and
the potential for higher interest rates; however, events during the past few
months changed those discussions. The government takeovers of Fannie Mae and
Freddie Mac, the Lehman Brothers bankruptcy, the near demise of insurance giant
American International Group (AIG), government-arranged bank mergers and bank
failures turned the conversations to de-leveraging, deflation and declining
rates. Signs of a recession accelerated as third quarter 2008 Gross Domestic
Product contracted despite the massive policy response. Oil prices fell rapidly
from a high of approximately $145 per barrel during the twelve-month period to
close below $70 per barrel on October 31, 2008, while housing prices saw no
signs of a bottom. Worries of global recession were also pervasive throughout
commodities markets as major indices sold off considerably while the dollar
gained against most currencies. All of this occurred in the midst of a
presidential election with its attendant uncertainties. Investors took note,
driving prices substantially lower in every major equity market over the past
twelve months.
In spite of these events, there are many long-term positives in the U.S.
economy. The biggest one is the flexibility of our system and its ability to
adapt: both policymakers and market participants reacted quickly (and sometimes
overreacted) to changing circumstances. Other factors such as the existence of
insurance safety nets, a still relatively low (though rising) unemployment rate,
technology-driven productivity gains, solid balance sheets for non-financial
companies and improving global competitiveness all factor into a potentially
positive long-term outlook. Consequently, while households and financial firms
have limited borrowing capacity and have received most of the media attention,
non-financial companies are not overburdened by debt and are in a better
position than in past cycles to manage their businesses in a slowing economy.
While the actions taken should help to stem the current crisis, obstacles
remain. However, with the full attention of world central banks, governments and
regulators, fundamentals have the opportunity to prevail as financial markets
make their way through the current uncertainty.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON BALANCED FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
The Balanced Fund's Institutional Class returned -28.23% for the twelve
months ended October 31, 2008, lagging the 60% Russell 1000(R) Value/40% Lehman
Brothers Aggregate Index benchmark return of -23.47%, but outperforming the
Lipper Mixed-Asset Target Allocation Growth Funds Index return of -29.95%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/98 THROUGH 10/31/08
(PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF
PERIODS ENDED 10/31/08 $10,000
--------------------------- 10/31/98-
1 YEAR 5 YEARS 10 YEARS 10/31/08
------ ------- -------- ---------
Institutional Class(1, 5) ............. -28.23% 2.14% 3.34% $13,896
PlanAhead Class(1, 5) ................. -28.39% 1.84% 3.07% 13,535
Service Class(1, 2, 5) ................ -28.58% 1.62% 2.96% 13,390
AMR Class(1, 5) ....................... -28.08% 2.37% 3.62% 14,265
Balanced Composite Index(3) ........... -23.47% 2.74% 3.95% 14,736
Russell 1000 Value Index (4) .......... -36.80% 1.90% 2.79% 13,165
Lehman Bros. Aggregate Index(4) ....... 0.31% 3.48% 5.00% 16,290
Lipper Mixed-Asset Target
Allocation Growth Funds Index (4) .. -29.95% 1.36% 2.63% 12,958
(1.) Performance shown is historical and may not be indicative of future
returns. Investment returns and principal value will vary, and shares may
be worth more or less at redemption than at original purchase. Performance
shown is as of date indicated, and current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call
1-800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
(2.) Fund performance for the five-year and ten-year periods represents the
total returns achieved by the PlanAhead Class from 10/31/98 up to 5/31/05,
the inception date of the Service Class, and the returns of the Service
Class since its inception. Expenses of the Service Class are higher than
those of the PlanAhead Class. Therefore, total returns shown may be higher
than they would have been had the Service Class been in existence since
10/31/98. A portion of the fees charged to the Service Class of the Fund
was waived in 2005. Performance prior to waiving fees was lower than actual
returns shown for 2005.
(3.) 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.
(4.) The Russell 1000 Value Index is an unmanaged index of those stocks in the
Russell 1000 Index with lower price-to-book ratios and lower forecasted
growth values. Russell 1000 Value Index is a registered trade mark of Frank
Russell Company. 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.
(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 0.58%, 0.84%, 1.08% and 0.32%, respectively. The expense ratios
above may vary from the expense ratios presented in other sections of this
report that are based on expenses incurred during the period covered by
this report.
During the twelve-month period, the Fund's assets on average were invested
60% in equities (including equitized cash) and 40% in fixed-income securities,
ending the period with 61% in equities/equitized cash and 39% in fixed-income
securities.
The equity portion of the Fund (excluding equitized cash) returned -41.9%,
underperforming the Russell 1000(R) Value Index (the "Index") return of -36.8%.
The Fund's equities underperformed the Index due to both stock selection and
sector allocation. Poor stock selection in the Financials, Consumer
Discretionary, and Health Care sectors detracted the most value relative to the
Index. In the Financials sector, Washington Mutual (down 99.8% for the period
the Fund owned the security), Wachovia (down 85.2%), and Bear Stearns (down
90.7% for the period the Fund owned the security) hurt performance the most. The
Fund's holdings in the Consumer Discretionary sector that had the largest
negative impact for the period the Fund owned the securities were R.H. Donnelley
(down 98.5%), Idearc (down 93.5%), and Wyndham Worldwide (down 74.9%). Cigna
(down 68.9% for the period the Fund owned the security) and Wellpoint (down
50.9%) were the largest detractors in the Health Care sector. The aforementioned
underperformance was slightly offset by good stock selection in the Information
Technology sector where IBM (down 18.7% for the period the Fund
3
PERFORMANCE OVERVIEW
AMERICAN BEACON BALANCED FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
owned the security) and EDS (up 16.7%) were the largest contributors.
During the twelve-month period, an underweight in Energy, one of the better
performing sectors in the Index, and a more than double overweight in
Information Technology, the second-worst performing sector in the Index,
detracted value from the Fund's relative returns through sector allocation. The
negative sector allocation performance was somewhat offset by an underweight in
Financials, the worst performing sector in the Index.
The fixed-income portion of the Fund returned -2.47% for the period,
underperforming the Lehman Brothers Aggregate Index ("Lehman Index") return of
0.31%. Most of the Fund's poor performance was due to an overweight in
Corporates, the worst performing sector in the Lehman Index.
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. .................. 1.8%
AT&T, Inc. ............................. 1.5%
ConocoPhillips ......................... 1.5%
International Business Machines Corp. .. 1.4%
JPMorgan Chase & Co. ................... 1.3%
Philip Morris International, Inc. ...... 1.3%
Pfizer, Inc. ........................... 1.3%
Hewlett-Packard Co. .................... 1.2%
Citigroup, Inc. ........................ 1.1%
Verizon Communications, Inc. ........... 1.1%
EQUITY SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials ............................. 19.0%
Industrials ............................ 14.4%
Health Care ............................ 12.6%
Energy ................................. 11.2%
Information Technology ................. 11.0%
Consumer Staples ....................... 9.2%
Consumer Discretionary ................. 7.8%
Utilities .............................. 5.7%
Telecommunication Services ............. 5.2%
Materials .............................. 3.9%
FIXED-INCOME SECTOR ALLOCATION
% OF
FIXED INCOME
------------
Corporate Bonds ........................ 34.2%
Mortgage-Backed ........................ 33.9%
Agency ................................. 22.0%
U.S. Treasury .......................... 8.2%
Asset-Backed ........................... 1.7%
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.
4
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP GROWTH FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
The Institutional Class of the Large Cap Growth Fund returned -39.48% for
the twelve months ended October 31, 2008, compared to the Russell 1000(R) Growth
Index (the "Index") return of -36.95% and the Lipper Large-Cap Growth Funds
Index return of -39.10%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/31/00* THROUGH 10/31/08
(PERFORMANCE GRAPH)
* Inception of Fund
ANNUALIZED TOTAL RETURNS
PERIODS ENDED 10/31/08
------------------------------ VALUE OF
SINCE $10,000
INCEP. 7/31/00-
1 YEAR 5 YEARS (7/31/00) 10/31/08
------ ------- --------- --------
Institutional
Class(1, 3).... -39.48% -2.83% -8.61% $4,759
AMR Class(1, 3)... -39.17% -2.55% -8.40% 4,847
Russell 1000
Growth
Index(2)....... -36.95% -1.29% -7.66% 5,184
Lipper Large-Cap
Growth Funds
Index(2)....... -39.10% -1.73% -8.02% 5,018
(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 actual returns shown for periods since 2004.
(2.) 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. Russell 1000 Growth Index and Russell 1000 Index are
registered trademarks of Frank Russell Company. The Lipper Large-Cap Growth
Funds Index tracks the results of the 30 largest mutual funds in the Lipper
Large-Cap Growth Funds category. Lipper is an independent mutual fund
research and ranking service. One cannot directly invest in an index.
(3.) The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus for the Institutional and AMR Class shares was 1.06% and
0.61%, 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 in eight of the ten sectors entirely due
to stock selection, as sector allocation added modest value to the Fund's
performance. The Fund's poor security selection in the Information Technology,
Industrials, Energy, Consumer Staples, and Materials sectors resulted in most of
the poor performance. In the Information Technology sector, NVIDIA (down 64.3%
for the period the Fund owned the security), Dell (down 60.3%), and Cisco
Systems (down 46.2%) detracted the most relative value. The Fund's holdings in
the Industrials sector that had the largest negative impact for the period the
Fund owned the securities were Terex (down 58.9%), Flowserve (down 45.2%), and
Cummins Engine (down 60.9%). Positions in Nabors Industries (down 59.6% for the
period the Fund owned the security), Global Industries (down 51.5% for the
period the Fund owned the security), and National Oilwell Varco (down 59.2%)
detracted most from the Energy sector performance, while Avon (down 34.1% for
the period the Fund owned the security) and Bunge Limited (down 65.2%) hurt
performance most in the Consumer Staples sector. In the Materials sector,
Freeport-McMoRan Copper & Gold (down 74.6% for the period the Fund owned the
security) and Southern Copper (down 41.2% for the period the Fund owned the
security) were the largest detractors. The aforementioned underperformance was
slightly offset by good security selection in the Consumer Discretionary sector
where McDonald's (up 1.5%) was the largest contributor.
The Fund added relative value through underweighting Financials, the worst
performing sector in the Index. Underweightings in the Health Care, Materials,
and Utilities sectors also added value, while an underweighting in Consumer
Staples detracted from relative performance.
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, 2008 (UNAUDITED)
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
McDonald's Corp. ........ 2.4%
Gilead Sciences, Inc. ... 2.2%
Microsoft Corp. ......... 2.0%
Cisco Systems, Inc. ..... 1.7%
Accenture Ltd. .......... 1.6%
Monsanto Co. ............ 1.6%
Hewlett-Packard Co. ..... 1.5%
Emerson Electric Co. .... 1.5%
General Dynamics Corp. .. 1.4%
Wal-Mart Stores, Inc. ... 1.3%
SECTOR ALLOCATION
% OF
EQUITIES
--------
Information Technology ... 22.1%
Industrials .............. 17.8%
Health Care .............. 17.8%
Consumer Discretionary ... 14.1%
Energy ................... 10.5%
Consumer Staples ......... 9.1%
Materials ................ 4.2%
Financials ............... 3.5%
Utilities ................ 0.5%
Telecommunication
Services .............. 0.3%
Communications ........... 0.1%
6
PERFORMANCE OVERVIEW
AMERICAN BEACON MID-CAP VALUE FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
The Institutional Class of the Mid-Cap Value Fund returned -40.96% for the
twelve months ended October 31, 2008. The Fund trailed the Russell Midcap(R)
Value Index (the "Index") return of -38.83% and the Lipper Mid-Cap Value Funds
Index return of -39.81%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 6/30/04* THROUGH 10/31/08
(PERFORMANCE GRAPH)
* Inception of Fund
ANNUALIZED TOTAL RETURNS
PERIODS ENDED 10/31/08
----------------------------- VALUE OF
SINCE $10,000
INCEP. 6/30/04-
1 YEAR 3 YEARS (6/30/04) 10/31/08
------ ------- -------- --------
Institutional
Class(1, 3, 6)... -40.96% -9.69% -3.24% $ 8,670
PlanAhead Class
(1, 2, 6)........ -41.14% -9.90% -3.39% 8,611
Service Class
(1, 4, 6)........ -41.24% -9.98% -3.45% 8,589
AMR Class (1, 6).... -40.87% -9.50% -3.10% 8,725
Russell Midcap
Value Index(5)... -38.83% -6.82% 0.14% 10,062
Lipper Mid-Cap
Value Funds
Index(5)......... -39.81% -6.98% -1.89% 9,209
(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 AMR Class of the
Fund was waived through 2006. Performance 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 from 6/30/04 up to 3/1/06, the
inception date of the PlanAhead Class, and the returns of the PlanAhead
Class since its inception. Expenses of the PlanAhead Class are higher than
those of the AMR Class. As a result, total returns shown may be higher than
they would have been had the PlanAhead Class been in existence since
6/30/04. A portion of the fees charged to the PlanAhead Class of the Fund
has been waived since 2006. Performance prior to waiving fees was lower
than actual returns shown since 2006.
(3.) Fund performance represents the total returns achieved by the AMR Class
from 6/30/04 up to 11/30/05, the inception date of the Institutional Class,
and the returns of the Institutional Class since its inception. Expenses of
the Institutional Class are higher than those of the AMR Class. As a
result, total returns shown may be higher than they would have been had the
Institutional Class been in existence since 6/30/04. A portion of the fees
charged to the Institutional Class of the Fund has been waived since 2007.
Performance prior to waiving fees was lower than actual returns shown since
2007.
(4.) Performance shown prior to the 6/29/07 inception of the Service Class is
that of the AMR Class from 6/30/04 to 11/30/05, the Institutional Class
from 11/30/05 to 3/1/06 and the PlanAhead Class from 3/1/06 to 6/30/07. The
returns have not been adjusted for any difference between the fees and the
expenses of the Service Class and the historical fees and expenses of the
AMR, Institutional, and PlanAhead Classes. Because the AMR, Institutional,
and PlanAhead Clasess had lower expenses, their performance was better than
the Service Class would have realized during the same period. A portion of
the fees charged to the Service Class of the Fund has been waived since
2007. Performance prior to waiving fees was lower than the actual returns
shown since 2007.
(5.) The Russell Midcap Value Index is an unmanaged index of those stocks in the
Russell Midcap Index with lower price-to-book ratios and lower forecasted
growth values. The Russell Midcap Index measures the performance of the 800
smallest companies in the Russell 1000 Index. Russell Midcap Value Index
and Russell 1000 Index are registered trademarks of Frank Russell Company.
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.
(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 1.10%, 1.27%, 1.81%, and 0.76%, 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 primarily through sector allocation, as
stock selection detracted minimal value.
A large overweight in the Consumer Discretionary sector, the worst
performing sector in the Index, detracted value through sector allocation. An
absence from Materials, the second best performing sector of the Index, and
underweights in the Utilities and Energy sectors, also detracted value relative
to the Index. An overweight in the Health Care sector contributed to
performance, only partially offsetting the impact of the aforementioned sector
exposures.
7
PERFORMANCE OVERVIEW
AMERICAN BEACON MID-CAP VALUE FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
Holdings in the Financials and Health Care sectors detracted the most value
relative to the Index through stock selection. In the Financials sector, Freddie
Mac (down 97.0%), Protective Life (down 80.1%), and Conseco (down 88.2%) were
the largest detractors. Coventry Health Care (down 78.1%) and Cigna (down 59.8%
for the period the Fund held the security) hurt performance most in the Health
Care sector.
Good security selection in the Consumer Discretionary, Industrials,
Utilities, and Consumer Staples sectors added value, but this excess performance
was not enough to offset the negative impact of the sectors mentioned
previously. In the Consumer Discretionary sector, Family Dollar Stores (up 8.6%
for the period the Fund held the security) was the largest contributor. L-3
Communications (down 25.2%) added the most value in the Industrials sector.
Wisconsin Energy (down 7.1%) contributed the most in the Utilities sector, while
UST (up 32.3%) helped performance most in the Consumer Staples sector.
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. .. 2.4%
Omnicare, Inc. ..................... 2.0%
CA, Inc. ........................... 1.9%
People's United Financial, Inc. .... 1.8%
Alcatel-Lucent...................... 1.8%
Lorillard, Inc. .................... 1.7%
Reynolds American, Inc. ............ 1.7%
Black & Decker Corp. ............... 1.5%
Annaly Capital Management Inc. ..... 1.4%
Torchmark Corp. .................... 1.4%
SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials....................... 24.6%
Consumer Discretionary........... 24.3%
Industrials...................... 11.5%
Health Care...................... 10.0%
Information Technology........... 9.9%
Utilities........................ 8.5%
Consumer Staples................. 8.1%
Energy........................... 3.1%
8
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
The Institutional Class of the Small Cap Value Opportunity Fund returned
- -34.49% for the twelve months ended October 31, 2008. The Fund underperformed
the Russell 2000(R) Value Index (the "Index") return of -30.54% and the Lipper
Small-Cap Value Funds Index return of -34.03% for the same period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 3/31/06* THROUGH 10/31/08
(PERFORMANCE GRAPH)
* Inception of Fund
ANNUALIZED TOTAL
RETURNS PERIODS
ENDED 10/31/08 VALUE OF
---------------------- $10,000
SINCE INCEP. 3/31/06-
1 YEAR (3/31/06) 10/31/08
------ ------------ --------
Institutional Class(1, 3)... -34.49% -13.88% $6,795
PlanAhead Class(1, 3)....... -34.60% -13.98% 6,774
Russell 2000 Value
Index (2)................ -30.54% -10.85% 7,433
Lipper Small-Cap Value
Funds Index (2).......... -34.03% -12.16% 7,154
(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.) The Russell 2000 Value Index is an unmanaged index of those stocks in the
Russell 2000 Index with lower price-to-book ratios and lower forecasted
growth values. Russell 2000 Value Index is a registered trademark of Frank
Russell Company. The Lipper Small-Cap Value Funds Index tracks the results
of the 30 largest mutual funds in the Lipper Small-Cap Value Funds
category. Lipper is an independent mutual fund research and ranking
service. One cannot directly invest in an index.
(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 1.28% and 1.71%, 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 primarily due to sector allocation and to
a lesser extent through stock selection.
The Fund's holdings in the Industrials sector detracted the most value
relative to the Index, followed by the Materials and Financials sectors. In the
Industrials sector, the companies that had the largest impact during the period
the Fund owned each security were GrafTech International (down 69.8%), Deluxe
(down 57.3%), Thermadyne Holdings (down 60.0%) and Barnes Group (down 32.9%).
The largest detractors in the Materials sector were Buckeye Technologies (down
67.1%) and OM Group (down 35.3% during the period the Fund owned the security).
In the Financials sector, most of the negative impact came from Sunstone Hotel
Investors (down 74.4%), DiamondRock Hospitality (down 70.7%), Boston Private
Financial (down 68.7%) and FirstFed Financial (down 64.3% during the period the
Fund owned the security). Good stock selection in the Consumer Discretionary
sector, mostly from Warnaco and Tupperware (up 26.7% and 0.8%, respectively,
during the period the Fund owned the securities), added significant value, but
not enough to offset the impact of the aforementioned sectors.
The Fund's underweight in the Utilities sector, the best performing sector
of the Index detracted from performance, as did an underweight in the Energy
sector.
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, 2008 (UNAUDITED)
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
Navigators Group, Inc. ........... 1.6%
National Penn Bancshares, Inc. ... 1.4%
Digi International, Inc. ......... 1.3%
Ruddick Corp. .................... 1.3%
Community Bank System, Inc. ...... 1.2%
El Paso Electric Co. ............. 1.2%
Senior Housing Properties Trust... 1.1%
Stifel Financial Corp. ........... 1.1%
Res-Care, Inc. ................... 1.0%
Amerisafe, Inc. .................. 1.0%
SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials................... 40.3%
Industrials.................. 13.4%
Consumer Discretionary....... 13.0%
Information Technology....... 11.7%
Materials.................... 4.2%
Health Care.................. 5.9%
Utilities.................... 3.9%
Consumer Staples............. 3.5%
Energy....................... 2.7%
Telecommunication Services... 1.4%
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
EMERGING MARKETS OVERVIEW
OCTOBER 31, 2008 (UNAUDITED)
The MSCI Emerging Markets Index reached dizzying heights in October 2007,
ending the month with a five-year annualized return of 39.86% in U.S. dollars
before slumping 56.35% for the twelve-month period ending October 31, 2008. The
bull market traced its roots to a solid and sustained period of earnings growth
and profit-margin improvement. Valuations eventually expanded, with China and
India trading above 20x P/E, and the Index as a whole, priced at a premium to
U.S. and developed market equities. The tail-end of that bull market was
distinguished by strong price momentum and complex financial engineering that
was bolstered by unsustainably high levels of cheap credit.
But on March 17th, the Federal Reserve startled the global equity markets
with an announced bailout of Bear Stearns, the fifth largest investment bank in
the U.S. to avert a bankruptcy. For the balance of the year, market participants
witnessed a series of truly historic events: the U.S. government takeover of
Fannie Mae and Freddie Mac, the non-takeover and subsequent bankruptcy of Lehman
Brothers, the shotgun merger of Merrill Lynch with Bank of America, the bailout
of the insurance giant AIG, and the end of the independent investment bank
business model as Goldman Sachs and Morgan Stanley decided to reorganize as bank
holding companies.
Emerging markets followed the U.S. into a freefall, as the profound
magnitude of the credit crisis became a painful reality. Iceland essentially
went bankrupt, margin-calls hit Russian oligarchs, and the International
Monetary Fund stepped in to support Hungary and other Central and Eastern Europe
countries. Global growth forecasts were slashed and concern mounted that this
will be the worst recession in 30 years. Markets once viewed as comparatively
resistant to developed market problems, such as China and Brazil, could not
withstand the fear of a prolonged economic contraction. By the end of October
2008, the MSCI EM Index was in line with the worst of the 1997-98 "Asian
Crisis," which was marked by Russian and Asian economic crises and a series of
currency devaluations and sovereign debt defaults. The theory of decoupling has
been silenced for the time being as emerging markets equities continue to react
to the devastating global financial crisis that began in the U.S. in the summer
of 2007.
11
PERFORMANCE OVERVIEW
AMERICAN BEACON EMERGING MARKETS FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
The Institutional Class of the Emerging Markets Fund returned -55.59% for
the twelve months ended October 31, 2008. The Fund outperformed the MSCI
Emerging Markets Index (the "Index") return of -56.35% and the Lipper Emerging
Market Funds Index return of -56.42% for the period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/31/00* THROUGH 10/31/08
(PERFORMANCE GRAPH)
* Inception of Fund
ANNUALIZED TOTAL
RETURNS PERIODS
ENDED 10/31/08
---------------------------- VALUE OF
SINCE $10,000
INCEP. 7/31/00-
1 YEAR 5 YEARS (7/31/00) 10/31/08
------ ------- --------- --------
Institutional Class(1, 4) ....... -55.59% 8.38% 6.04% $16,230
PlanAhead Class(1, 2, 4) ........ -55.77% 8.07% 5.80% 15,930
AMR Class(1, 4) ................. -55.48% 8.66% 6.31% 16,570
MSCI Emg Mkts Index(3) .......... -56.35% 9.51% 6.19% 16,408
Lipper Emg Mkt Funds Index(3) ... -56.42% 8.74% 5.78% 15,897
(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 was waived in 2004 and 2005 and recouped in 2006. 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
1.41%, 1.77% and 1.18%, 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 by 0.77% over the twelve-month period due
to stock selection, while country allocation detracted value.
Stock selection had a significantly postive impact overall, specifically in
South Korea, India, and South Africa. In South Korea, the Fund benefited from
investment in Samsung Electronics (down 31.2%), and in India, from investment in
energy companies Bharat Petroleum (down 32.9%) and Hindustan Petroleum (down
35.8% for the period the Fund owned the security). South African companies
Arcelormittal (down 8.7% for the period the Fund owned the security) and MTN
Group (down 42.1%) also aided performance. Stock selection in Mexico detracted
from performance, mainly because of positions in Controladora Comercial Mexicana
(down 90.7%) and Gruma (down 81.3%).
Country allocation detracted from relative performance, primarily due to
underweighting Israel (down 25.0%), the third-best performing market in the
Index over the twelve-month period. The Fund also lost value through
underweighting Taiwan (down 49.9%), but benefited from underweighting China
(down 64.8% and the worst performing market in the Index for the period).
The Fund's basic philosophy remains focused on investing in attractively
valued companies with above-average earnings growth expectations.
12
PERFORMANCE OVERVIEW
AMERICAN BEACON EMERGING MARKETS FUND(SM)
OCTOBER 31, 2008(UNAUDITED)
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
Samsung Electronics Company Ltd. .................................. 3.0%
Petroleo Brasileiro S.A. .......................................... 2.6%
Gazprom OAO ....................................................... 2.3%
China Mobile Ltd. ................................................. 2.1%
PetroChina Co. Ltd. ............................................... 1.8%
LUKOIL Oil Co. .................................................... 1.6%
Companhia Vale do Rio Doce ........................................ 1.5%
America Movil, S.A.B. de C.V. ..................................... 1.4%
Taiwan Semiconductor Manufacturing Co. Ltd. ....................... 1.2%
SK Telecom Co. Ltd. ............................................... 1.0%
SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials .......................................................... 22.4%
Telecommunication Services .......................................... 15.7%
Energy .............................................................. 14.7%
Information Technology .............................................. 11.9%
Materials ........................................................... 10.9%
Consumer Discretionary .............................................. 8.4%
Industrials ......................................................... 5.5%
Utilities ........................................................... 4.9%
Consumer Staples .................................................... 4.5%
Health Care ......................................................... 1.1%
COUNTRY ALLOCATION*
(PIE CHART)
* Shown as a percentage of equities.
% OF
EQUITIES
--------
China/Hong Kong ..................................................... 17.6%
South Korea ......................................................... 13.7%
Brazil .............................................................. 12.6%
Taiwan .............................................................. 9.5%
India ............................................................... 9.0%
Other Europe, Middle East, Africa ................................... 8.7%
Other Asia .......................................................... 8.4%
South Africa ........................................................ 7.8%
Russia .............................................................. 7.1%
Mexico .............................................................. 5.2%
Other Latin America ................................................. 0.4%
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, 2008 (UNAUDITED)
Volatility rose substantially during the period as the year-old crisis
emanating from subprime mortgages infected the entire market. Investors staged
the most dramatic flight to quality since the early 1930's causing government
sector returns to substantially outperform all other asset classes.
The Finance sector witnessed unprecedented underperformance as it was
the focal point for the subprime meltdown. For most financial institutions,
liquidity was scarce and capital was not available. The casualty list of
highly-rated, industry leaders was startling. While the Agency sector provided a
safe haven from Corporate bonds, investors there could not exactly sleep well
either. Freddie Mac and Fannie Mae had to be nationalized to survive. The losses
on their mortgage portfolios were rising, but it was the unprecedented leverage
on their balance sheets that ultimately did them in.
The fact that the housing market cooled and the economy softened was
not surprising. Housing prices had a long run up and were destined to decline.
What struck the markets was the abrupt freeze in liquidity from the collapse of
the short-term funding markets (asset-backed commercial paper, securitized
investment vehicles, and auction rate securities). These sectors relied on the
purchasing power of money market funds and other short-term investors to
distribute liquidity throughout the entire economy. However, since these
short-term investors are also the most sensitive to credit issues, they were the
first to flee when the clouds darkened. The Finance sector is highly dependent
on short-term funding, and even temporary disruptions in liquidity can have
devastating ramifications. Even worse, as volatility increased and uncertainty
prevailed, fear begot fear, and rumors became reality.
The Federal Reserve (the "Fed") cut interest rates aggressively during
the period in support of the struggling credit markets. In the summer of 2007,
the Fed Funds target rate was 5.25%. At October 31, 2008, only 14 months later,
the rate was 1.00%. The myriad of government stimulus programs also added
enormous amounts of liquidity to the system and caused short-term Treasury
yields to decline rapidly. In fact, the shortest maturity Treasuries even spent
several weeks in negative territory.
Lingering fears of inflation helped the longer end of the yield curve
remain fairly stable, but by period end, the sources of inflationary pressure
had demonstrably reversed. Commodity prices were cratering, unemployment was
rising, and pricing power was non-existent. Talk of deflation even began to
appear in economic analysis.
14
HIGH YIELD BOND MARKET OVERVIEW
OCTOBER 31, 2008 (UNAUDITED)
The year ending October 31, 2008 was characterized by a general worsening
of conditions in the high yield market, punctuated by a sharp deterioration in
the final two months as the JPMorgan Global High Yield Index fell 25.77% for the
twelve-month period. High yield bonds were battered by both fundamental and
technical pressures during the period. Fundamentally, the credit crisis that
began in mid-2007 steadily worsened and began to impact the real economy as well
as credit markets. High yield spreads began the period having widened
significantly from the all-time tight level achieved in June 2007, but were
still below the long-term average level. This changed quickly, as spreads
reacted to further weakness in house prices, employment, and economic growth and
widened to above longer-term averages by the end of November 2007. Technical
pressures also weighed on the high yield market, as forced selling of leveraged
bank loans by hedge funds and CLOs (collateralized loan obligations), both of
which employed significant amounts of leverage, altered the risk/reward
relationship between the asset classes and caused the high yield sector to move
lower.
The high yield market was generally range-bound at weaker levels until
mid-September when the unexpected bankruptcy of Lehman, followed by the
government bailouts of AIG, Fannie Mae and Freddie Mac, resulted in a near
standstill of both the investment grade and non-investment grade credit markets.
With the economic outlook extremely troubled and credit markets still largely
closed for all but the highest quality issuers, the expectation is for default
levels to continue to rise going into 2009. This default expectation was getting
priced into the high yield market, as spreads over Treasuries spiked to record
high levels of 15% toward the end of October as defaults began to increase and
as market risk aversion remained elevated.
15
PERFORMANCE OVERVIEW
AMERICAN BEACON HIGH YIELD BOND FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
The Institutional Class of the High Yield Bond Fund returned -27.03% for
the twelve months ended October 31, 2008. The Fund underperformed the JP Morgan
Global High-Yield Index (the "Index") return of -25.77% and the Lipper High
Current Yield Funds Index, which fell 26.36% for the period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 12/29/00* THROUGH 10/31/08
(PERFORMANCE GRAPH)
* Inception of Fund
ANNUALIZED TOTAL
RETURNS PERIODS
ENDED 10/31/08
------------------------------ VALUE OF
SINCE $10,000
INCEP. 12/29/00-
1 YEAR 5 YEARS (12/29/00) 10/31/08
------ -------- ---------- ---------
Institutional Class(1, 5) ................... -27.03% -0.76% 3.35% $12,944
PlanAhead Class(1, 2, 5) .................... -27.24% -1.01% 3.10% 12,703
AMR Class (1, 3, 5) ......................... -26.84% -0.69% 3.39% 12,986
JPMorgan Global High-Yield Index (4) ........ -25.77% 0.68% 4.07% 13,671
Lipper High Current Yield Funds Index (4) ... -26.36% -0.07% 2.06% 11,730
(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 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
0.82%, 1.04% and 0.62%, 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 mainly due
to issue selection and sector allocation to a lesser extent.
Added value from issue selections in the Telecom and Other Corporate
sectors was not significant enough to offset selections in the Manufacturing,
Service, and Finance sectors, which contributed to the relative
underperformance.
From a sector allocation perspective, the Fund underperformed the Index
primarily due to overweighting the Cable/Media sector (down 36.9%), which was
the worst-performing sector in the Index for the period. Underweighting the
Utility and Transportation sectors (down 19.4% and 15.9%, respectively) also
contributed to the underperformance. The Fund benefited from overweighting the
second best performing sector in the Index, Other Corporate (down 16.8%).
Each sub-advisor's "bottom-up", research intensive investment process,
which focuses on a company's cash flow and fundamental credit strengths, remains
in place.
16
PERFORMANCE OVERVIEW
AMERICAN BEACON HIGH YIELD BOND FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
HCA, Inc., 9.125%, Due 11/15/2014 ................................. 1.5%
Texas Competitive Electric Holdings Co. LLC, 10.250%, Due
11/1/2015 ...................................................... 1.4%
Ford Motor Credit co. LLC, 9.875%, Due 8/10/2011 .................. 1.3%
General Motors Acceptance Corp., 6.875%, Due 9/15/2011 ............ 1.2%
AES Corp., 8.000%, Due 10/15/2017 ................................. 1.0%
Freeport-McMoRan Copper & Gold, Inc., 8.375%, Due 4/1/2017 ........ 1.0%
E*Trade Financial Corp., 12.500%, Due 11/30/2017 .................. 0.9%
Quebecor media, Inc., 7.750%, Due 3/15/2016 ....................... 0.9%
NRG Energy, Inc., 7.375%, Due 2/1/2016 ............................ 0.9%
Freescale Semiconductor, Inc., 8.875%, Due 12/15/2014 ............. 0.8%
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.
17
PERFORMANCE OVERVIEW
AMERICAN BEACON ENHANCED INCOME FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
The PlanAhead Class of the Enhanced Income Fund returned -10.02% for the
twelve months ended October 31, 2008. Its benchmark, a blend of 75% Lehman
Brothers Aggregate Index ("Lehman Index") and 25% Merrill Lynch All U.S.
Convertibles Index ("ML Index"), returned -10.72%. The Fund's peer group, the
Lipper Intermediate Investment Grade Index, returned -6.67% for the same period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/1/03* THROUGH 10/31/08
(PERFORMANCE GRAPH)
* Inception of Fund
ANNUALIZED TOTAL
RETURNS PERIODS
ENDED 10/31/08
--------------------------- VALUE OF
SINCE $10,000
INCEP. 7/1/03-
1 YEAR 5 YEARS (7/1/03) 10/31/08
------ ------- -------- --------
PlanAhead Class (1, 4) .................................... -10.02% 1.62% 1.58% $10,872
Enhanced Income Composite Index (3) ....................... -10.72% 1.75% 1.81% 11,003
Linked Lehman Bros Aggregrate Index (2) ................... 0.31% 2.96% 2.59% 11,462
Merrill Lynch All U.S. Convertibles Index (2) ............. -38.50% -2.39% -1.09% 9,433
Lipper Intermediate Investment Grade Index (2) ............ -6.67% 1.83% 1.57% 10,867
(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 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.
(3.) 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.
(4.) The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus for the PlanAhead Class shares was 0.95%. 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 -0.6% before expenses, compared to a 0.3% return for the Lehman
Index. This portion of the Fund underperformed largely due to an overweight
position in Corporates, the worst performing sector in the Lehman Index.
The remaining portion of the Fund, managed by the Fund's sub-advisor,
returned -30.2% before expenses. These results outperformed the -38.5% return of
the ML Index. This portion of the Fund was helped overall by security selection,
along with sector allocation decisions. Issue selection within the Consumer
Discretionary and Industrials sectors contributed to performance, while
individual selection detracted from returns within the Health Care sector. This
portion of the Fund benefited from underweight positions in Financials and
Materials, as these were two of the worst performing sectors within the ML Index
for the period.
The Manager and the Fund's sub-advisor remain focused on the Fund's
investment objectives of generating income and capital appreciation.
18
PERFORMANCE OVERVIEW
AMERICAN BEACON ENHANCED INCOME FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
U.S. Treasury Note, 4.250%, Due 11/15/2017 ........................ 3.7%
Federal Home Loan Bank, 4.500%, Due 9/16/2013 ..................... 2.4%
Federal Home Loan Mortgage Corporation, Pool#G08079,
5.000%, Due 9/1/2035 ........................................... 2.2%
Federal National Mortgage Association, Pool #257043,
6.000%, Due 1/1/2038 ........................................... 2.0%
Federal Home Loan Mortgage Corporation, Pool #G08273,
5.500%, Due 6/1/2038 ........................................... 1.9%
Federal National Mortgage Association, Pool #889572,
5.500%, Due 6/1/2038 ........................................... 1.9%
Federal National Mortgage Association, Pool #889260,
5.000%, Due 4/1/2038 ........................................... 1.8%
U.S. Treasury Note, 7.875%, Due 2/15/2021 ......................... 1.8%
Federal Home Loan Mortgage Corporation, Pool #G08269,
5.500%, Due 5/1/2038 ........................................... 1.6%
Federal Home Loan Mortgage Corporation, Pool #G08255,
5.000%, Due 3/1/2038 ........................................... 1.6%
FIXED-INCOME SECTOR ALLOCATION
% OF
FIXED INCOME
------------
Mortgage-Backed ................................................. 39.2%
Corporate Bonds ................................................. 29.4%
Convertible Bonds ............................................... 12.2%
U.S. Treasury ................................................... 9.9%
U.S. Agency ..................................................... 5.1%
Asset-Backed .................................................... 4.2%
EQUITY SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials .......................................................... 38.5%
Information Technology .............................................. 20.2%
Health Care ......................................................... 13.0%
Consumer Staples .................................................... 8.0%
Industrials ......................................................... 7.5%
Consumer Discretionary .............................................. 5.7%
Energy .............................................................. 5.2%
Materials ........................................................... 1.9%
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.
19
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERMEDIATE BOND FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
The Institutional Class of the Intermediate Bond Fund returned -0.26% for
the twelve months ended October 31, 2008, trailing the Lehman Brothers Aggregate
Index (the "Index") return of 0.31% but ahead of the Lipper Intermediate
Investment Grade Index return of -6.67% for the same period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/98 THROUGH 10/31/08
(PERFORMANCE GRAPH)
ANNUALIZED TOTAL
RETURNS PERIODS
ENDED 10/31/08
--------------------------- VALUE OF
$10,000
10/31/98-
1 YEAR 5 YEARS 10 YEARS 10/31/08
------ ------- -------- ---------
Institutional Class (1, 3) ........................ -0.26% 3.40% 4.59% $15,665
Lehman Bros. Agg. Index (2) ....................... 0.31% 3.48% 5.00% 16,290
Lipper Intermediate Inv. Grade Index (2) .......... -6.67% 1.83% 3.97% 14,756
(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 0.35%. 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.
Prior to the deduction of expenses, the Fund was only slightly behind the
Index. However, the Fund did not generate enough excess performance to offset
its expenses. The Fund underperformed the Index mostly due to its sector
allocation, as individual security selection contributed positively towards
performance. The Fund's large overweight in Corporates, the worst performing
sector of the Index, accounted for most of the underperformance relative to the
Index. The Fund enjoyed good security selection among its Corporate securities,
in part due to class action settlement proceeds that the Fund received in March
2008 related to investment activity in 2002. Good selection also was attained in
the Commercial Mortgage Backed Securities (CMBS) sector, but not enough to
offset the impact of the large position in Corporates.
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
----------
Federal Home Loan Mortgage Corp., 5.125%, Due 4/18/2011 ........... 3.1%
U.S. Treasury Note, 4.000%, Due 8/15/2018 ......................... 2.6%
Federal Home Loan Bank, 4.500%, Due 9/16/2013 ..................... 2.3%
U.S. Treasury Note, 4.125%, Due 5/15/2015 ......................... 2.1%
U.S. Treasury Note, 4.750%, Due 5/15/2014 ......................... 1.7%
U.S. Treasury Note, 4.250%, Due 11/15/2017 ........................ 1.7%
U.S. Treasury Note, 3.125%, Due 8/31/2013 ......................... 1.6%
U.S. Treasury Note, 4.375%, Due 2/15/2038 ......................... 1.6%
Federal Home Loan Mortgage Corp., Pool #A73703, 5.000%,
Due 3/01/2038 .................................................. 1.4%
Federal National Mortgage Association, 5.375%, Due 6/12/2017 ...... 1.4%
SECTOR ALLOCATION
% OF
FIXED INCOME
------------
Mortgage-Backed ................................................. 43.5%
Corporates ...................................................... 25.7%
U.S. Treasury ................................................... 16.0%
U.S. Agency ..................................................... 12.7%
Asset-Backed .................................................... 2.1%
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 SHORT-TERM BOND FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
The Institutional Class of the Short-Term Bond Fund returned 2.21% for the
twelve months ended October 31, 2008, which underperformed the Merrill Lynch 1-3
Year Gov/Corp Index (the "Index") return of 3.97% but substantially outperformed
the Lipper Short Investment Grade Bond Funds Index return of -3.58%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/98 THROUGH 10/31/08
(PERFORMANCE GRAPH)
ANNUALIZED TOTAL
RETURNS PERIODS
ENDED 10/31/08
--------------------------- VALUE OF
$10,000
10/31/98-
1 YEAR 5 YEARS 10 YEARS 10/31/08
------ ------- -------- ---------
Institutional Class(1, 3)................................ 2.21% 3.14% 4.30% $15,238
PlanAhead Class(1, 3).................................... 1.54% 2.57% 3.78% 14,488
Merrill Lynch 1-3 Yr. Gov./Corp .Index(2)................ 3.97% 3.37% 4.52% 15,565
Lipper Short Inv. Grade Index (2)........................ -3.58% 1.66% 3.31% 13,849
(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 0.38%
and 0.99%, 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's return during the period reflects its overweight position in the
Corporate and Asset-Backed sectors relative to the Index. Both of these sectors
underperformed Treasuries and Agencies as credit spreads widened in response to
the continuing credit crisis. The Fund generally maintains an overweight
position in these sectors to generate incremental yield-to-maturity compared to
the Index. However, during periods of significant market disruptions, the
holdings in these sectors can underperform. To protect against these events, the
Fund's holdings are diversified among investment-grade issuers that we believe
are likely to weather such volatility.
Duration did not play a significant role during the period. The Fund began
and ended the period with a neutral duration, relative to the Index, and made
only minor changes throughout. The primary attribute of the Fund's performance
was its sector allocation.
This period was one of the most challenging in recent history, but we
remain confident in the long-term success of the Fund's investment strategy.
Market volatility is likely to remain high for several more months, and we will
remain conservative in our approach to credit risk as we look to take advantage
of opportunities to generate attractive long-term results.
21
PERFORMANCE OVERVIEW
AMERICAN BEACON SHORT-TERM BOND FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
U.S. Treasury Note, 4.875%, Due 4/30/2011 ......................... 8.2%
U.S. Treasury Note, 4.500%, Due 2/28/2011 ......................... 8.2%
U.S. Treasury Note, 4.375%, Due 12/15/2010 ........................ 8.1%
U.S. Treasury Note, 4.250%, Due 10/15/2010 ........................ 8.1%
U.S. Treasury Note, 4.125%, Due 8/15/2010 ......................... 8.0%
U.S. Treasury Note, 2.875%, Due 6/30/2010 ......................... 7.8%
U.S. Treasury Note, 2.175%, Due 4/30/2010 ......................... 7.7%
U.S. Treasury Note, 2.000%, Due 2/28/2010 ......................... 7.7%
U.S. Treasury Note, 3.125%, Due 11/30/2009 ........................ 4.0%
U.S. Treasury Note, 5.125%, Due 6/30/2011 ......................... 3.7%
SECTOR ALLOCATION
% OF
FIXED INCOME
------------
Treasury ........................................................ 72.9%
Corporate ....................................................... 17.0%
Asset-Backed .................................................... 5.8%
Agency .......................................................... 2.8%
Mortgage-Backed ................................................. 1.5%
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.
22
FUND EXPENSES -- ACTUAL
OCTOBER 31, 2008 (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, 2008 through October 31,
2008.
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 5/1/08 .... $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 10/31/08 ..... $ 763.65 $ 677.76 $ 661.83 $ 761.69 $ 501.67 $ 734.71 $ 956.52 $ 996.50
Expenses Paid During Period 5/1/08-
10/31/08*....................... $ 2.48 $ 3.75 $ 4.93 $ 4.65 $ 4.91 $ 3.49 $ 1.43 $ 1.46
Annualized Expense Ratio .......... 0.56% 0.89% 1.18% 1.05% 1.30% 0.80% 0.29% 0.29%
SMALL CAP
VALUE EMERGING ENHANCED
BALANCED MID-CAP OPPORTUNITY MARKETS HIGH YIELD INCOME SHORT-TERM
PLANAHEAD CLASS FUND VALUE FUND FUND FUND BOND FUND FUND BOND FUND
- --------------- --------- ---------- ----------- --------- ---------- --------- ----------
Beginning Account Value 5/1/08 .... $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value 10/31/08 ..... $ 762.89 $ 661.07 $ 761.74 $ 500.57 $ 732.78 $ 887.37 $ 992.77
Expenses Paid During Period 5/1/08-
10/31/08* ...................... $ 3.59 $ 5.14 $ 5.80 $ 6.64 $ 4.75 $ 4.32 $ 4.16
Annualized Expense Ratio .......... 0.81% 1.23% 1.31% 1.76% 1.09% 0.91% 0.83%
BALANCED MID-CAP
SERVICE CLASS FUND VALUE FUND
- ------------- --------- ----------
Beginning Account Value 5/1/08 ................. $1,000.00 $1,000.00
Ending Account Value 10/31/08 .................. $ 762.27 $ 660.67
Expenses Paid During Period 5/1/08-10/31/08* ... $ 4.78 $ 6.22
Annualized Expense Ratio ....................... 1.08% 1.49%
BALANCED LARGE CAP MID-CAP EMERGING HIGH YIELD
AMR CLASS FUND GROWTH FUND VALUE FUND MARKETS FUND BOND FUND
- --------- --------- ----------- ---------- ------------ ----------
Beginning Account Value 5/1/08 ................. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value 10/31/2008 ................ $ 764.44 $ 679.70 $ 662.60 $ 502.22 $ 734.98
Expenses Paid During Period 5/1/08-10/31/08* ... $ 1.37 $ 2.45 $ 3.59 $ 4.04 $ 2.31
Annualized Expense Ratio ....................... 0.31% 0.58% 0.86% 1.07% 0.53%
* 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 (366) to reflect the
half-year period.
See accompanying notes
23
FUND EXPENSES -- HYPOTHETICAL
OCTOBER 31, 2008 (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 5/1/08 .... $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 10/31/08 ..... $1,022.32 $1,020.66 $1,019.20 $1,019.86 $1,018.60 $1,021.11 $1,023.68 $1,023.68
Expenses Paid During Period 5/1/08-
10/31/08* ...................... $ 2.85 $ 4.52 $ 5.99 $ 5.33 $ 6.60 $ 4.06 $ 1.48 $ 1.48
Annualized Expense Ratio .......... 0.56% 0.89% 1.18% 1.05% 1.30% 0.80% 0.29% 0.29%
SMALL CAP
VALUE EMERGING ENHANCED
BALANCED MID-CAP OPPORTUNITY MARKETS HIGH YIELD INCOME SHORT-TERM
PLANAHEAD CLASS FUND VALUE FUND FUND FUND BOND FUND FUND BOND FUND
- --------------- --------- ---------- ----------- --------- ---------- --------- ----------
Beginning Account Value 5/1/08 .... $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value 10/31/08 ..... $1,021.06 $1,018.95 $1,018.55 $1,016.29 $1,019.66 $1,020.56 $1,020.96
Expenses Paid During Period 5/1/08-
10/31/08* ...................... $ 4.12 $ 6.24 $ 6.65 $ 8.92 $ 5.53 $ 4.62 $ 4.22
Annualized Expense Ratio .......... 0.81% 1.23% 1.31% 1.76% 1.09% 0.91% 0.83%
BALANCED MID-CAP
SERVICE CLASS FUND VALUE FUND
- ------------- --------- ----------
Beginning Account Value 5/1/08 ................. $1,000.00 $1,000.00
Ending Account Value 10/31/08 .................. $1,019.71 $1,017.65
Expenses Paid During Period 5/1/08-10/31/08* ... $ 5.48 $ 7.56
Annualized Expense Ratio ....................... 0.81% 1.23%
BALANCED LARGE CAP MID-CAP EMERGING HIGH YIELD
AMR CLASS FUND GROWTH FUND VALUE FUND MARKETS FUND BOND FUND
- --------- --------- ----------- ---------- ------------ ----------
Beginning Account Value 5/1/08 ................. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Account Value 10/31/08 .................. $1,023.58 $1,022.22 $1,020.81 $1,019.76 $1,022.47
Expenses Paid During Period 5/1/08-10/31/08* ... $ 1.58 $ 2.95 $ 4.37 $ 5.43 $ 2.69
Annualized Expense Ratio ....................... 0.31% 0.58% 0.86% 1.07% 0.53%
* 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 (366) to reflect the
half-year period.
See accompanying notes
24
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, and American
Beacon Short-Term Bond Fund) (collectively the "Funds"), including the schedules
of investments, as of October 31, 2008, 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, 2008, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Beacon Funds at October 31, 2008, 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 23, 2008
See accompanying notes
25
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 50.42%
CONSUMER DISCRETIONARY - 3.96%
HOTELS, RESTAURANTS & LEISURE - 0.66%
Carnival Corp. + ..................................... 155,300 $ 3,944
Wyndham Worldwide Corp. .............................. 127,200 1,042
---------
4,986
---------
HOUSEHOLD DURABLES - 0.48%
Fortune Brands, Inc. + ............................... 67,600 2,578
Newell Rubbermaid, Inc. .............................. 75,100 1,033
---------
3,611
---------
INTERNET & CATALOG RETAIL - 0.18%
eBay, Inc. ## ........................................ 88,700 1,354
---------
MEDIA - 0.78%
CBS Corp. + .......................................... 196,100 1,904
Interpublic Group of Cos., Inc. ## + ................. 256,100 1,329
Walt Disney Co. Ltd. ................................. 103,000 2,668
---------
5,901
---------
MULTILINE RETAIL - 0.78%
J.C. Penney Company, Inc. ............................ 57,800 1,383
Macy's, Inc. + ....................................... 50,854 625
Target Corp. ......................................... 61,200 2,455
Wal-Mart Stores, Inc. ................................ 26,000 1,451
---------
5,914
---------
SPECIALTY RETAIL - 1.08%
Gap, Inc. ............................................ 61,700 798
The Home Depot, Inc. + ............................... 291,250 6,871
Limited Brands, Inc. + ............................... 36,100 433
---------
8,102
---------
TOTAL CONSUMER DISCRETIONARY 29,868
---------
CONSUMER STAPLES - 4.62%
BEVERAGES - 0.77%
Coca-Cola Co. ........................................ 35,700 1,573
Diageo plc, ADR ...................................... 68,200 4,241
---------
5,814
---------
FOOD & DRUG RETAILING - 0.25%
Safeway, Inc. ........................................ 87,600 1,863
---------
FOOD PRODUCTS - 0.53%
Kraft Foods, Inc. .................................... 120,645 3,516
Unilever plc, ADR ## + ............................... 21,700 489
---------
4,005
---------
TOBACCO - 3.07%
Altria Group, Inc. ................................... 166,800 3,201
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Imperial Tobacco Group plc, ADR + .................... 121,900 $ 6,497
Philip Morris International, Inc. .................... 223,500 9,716
UST, Inc. ............................................ 54,900 3,711
---------
23,125
---------
TOTAL CONSUMER STAPLES 34,807
---------
ENERGY - 5.66%
OIL & GAS - 5.66%
Chevron Corp. ........................................ 101,428 7,566
ConocoPhillips ....................................... 216,276 11,251
Devon Energy Corp. ................................... 87,900 7,108
Duke Energy Corp. .................................... 178,000 2,916
Exxon Mobil Corp. .................................... 17,000 1,260
Occidental Petroleum Corp. ........................... 115,900 6,437
Royal Dutch Shell plc, ADR + ......................... 97,800 5,407
Sunoco, Inc. + ....................................... 23,200 708
---------
TOTAL ENERGY 42,653
---------
FINANCIALS - 9.59%
BANKS - 3.43%
Bank of America Corp. ................................ 575,196 13,902
Comerica, Inc. + ..................................... 17,100 472
KeyCorp + ............................................ 111,157 1,359
National City Corp. + ................................ 1,175,400 3,174
U.S. Bancorp ......................................... 56,260 1,677
Wachovia Corp. + ..................................... 404,300 2,592
Washington Mutual, Inc. .............................. 468,800 29
Wells Fargo & Co. + .................................. 78,300 2,666
---------
25,871
---------
DIVERSIFIED FINANCIALS - 3.76%
American Express Co. ................................. 152,900 4,205
Capital One Financial Corp. + ........................ 69,700 2,727
Citigroup, Inc. + .................................... 619,142 8,451
JP Morgan Chase & Co. ................................ 240,834 9,934
Merrill Lynch & Co., Inc. ............................ 66,300 1,232
SLM Corp. ## + ....................................... 165,200 1,763
---------
28,312
---------
INSURANCE - 2.40%
ACE Ltd. ............................................. 92,000 5,277
American International Group, Inc. + ................. 88,000 168
Conseco, Inc. ## + ................................... 95,500 178
Genworth Financial, Inc. ............................. 177,400 859
Hartford Financial Services Group, Inc. .............. 29,800 308
Lincoln National Corp. ## ............................ 15,900 274
MetLife, Inc. ........................................ 118,888 3,949
Prudential Financial, Inc. ........................... 9,500 285
See accompanying notes
26
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Travelers Cos., Inc. ................................. 95,100 $ 4,046
UnumProvident Corp. .................................. 8,100 128
XL Capital Ltd. + .................................... 273,300 2,651
---------
18,123
---------
TOTAL FINANCIALS 72,306
---------
HEALTH CARE - 6.34%
HEALTH CARE EQUIPMENT & SUPPLIES - 0.53%
Baxter International, Inc. ........................... 66,100 3,999
---------
HEALTH CARE PROVIDERS & SERVICES - 0.79%
Cigna Corp. .......................................... 119,500 1,948
UnitedHealth Group, Inc. ............................. 58,800 1,395
WellPoint, Inc. ## ................................... 68,300 2,655
---------
5,998
---------
PHARMACEUTICALS - 5.02%
Amgen, Inc. ## ....................................... 13,000 779
Bristol-Myers Squibb Co. ............................. 373,100 7,667
Eli Lilly & Co. ...................................... 97,900 3,311
Johnson & Johnson .................................... 45,000 2,760
Merck & Co., Inc. .................................... 114,300 3,538
Pfizer, Inc. ......................................... 534,700 9,469
Schering-Plough Corp. ................................ 228,300 3,308
Wyeth Corp. .......................................... 217,800 7,009
---------
37,841
---------
TOTAL HEALTH CARE 47,838
---------
INDUSTRIALS - 7.24%
AEROSPACE & DEFENSE - 1.88%
Boeing Co. ........................................... 72,600 3,795
Northrop Grumman Corp. ............................... 46,700 2,190
Raytheon Co. ......................................... 90,600 4,631
United Technologies Corp. ............................ 64,400 3,539
---------
14,155
---------
AIR FREIGHT & COURIERS - 0.24%
FedEx Corp. .......................................... 28,200 1,843
---------
INDUSTRIAL CONGLOMERATES - 2.49%
3M Co. ............................................... 63,200 4,064
General Electric Co. ................................. 196,200 3,828
Honeywell International, Inc. ........................ 237,400 7,229
Textron, Inc. + ...................................... 82,900 1,467
Tyco International Ltd. .............................. 85,725 2,167
---------
18,755
---------
MACHINERY - 1.88%
Caterpillar, Inc. .................................... 76,100 2,905
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Eaton Corp. + ........................................ 36,400 $ 1,623
Illinois Tool Works, Inc. ............................ 143,900 4,805
ITT Industries, Inc. ................................. 77,000 3,427
PACCAR, Inc. + ....................................... 49,600 1,450
---------
14,210
---------
TRANSPORTATION INFRASTRUCTURE - 0.75%
Burlington Northern Santa Fe Corp. ................... 63,500 5,655
---------
TOTAL INDUSTRIALS ....................................... 54,618
---------
INFORMATION TECHNOLOGY - 5.54%
COMMUNICATIONS EQUIPMENT - 0.36%
Alcatel-Lucent, ADR .................................. 402,000 1,033
Nokia Corp., ADR + ................................... 107,700 1,635
---------
2,668
---------
COMPUTERS & PERIPHERALS - 2.67%
Hewlett-Packard Co. .................................. 240,700 9,214
International Business Machines Corp. ................ 117,200 10,896
---------
20,110
---------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.83%
Intel Corp. .......................................... 272,000 4,352
Tyco Electronics Ltd. ................................ 97,825 1,902
---------
6,254
---------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.14%
Texas Instruments, Inc. .............................. 55,400 1,084
---------
SOFTWARE - 1.54%
CA, Inc. ............................................. 285,674 5,085
Microsoft Corp. ...................................... 179,500 4,008
Oracle Corp. ## ...................................... 139,000 2,542
---------
11,635
---------
TOTAL INFORMATION TECHNOLOGY 41,751
---------
MATERIALS - 1.96%
CHEMICALS - 1.91%
Air Products & Chemicals, Inc. ....................... 35,800 2,081
Dow Chemical Co. ..................................... 172,600 4,603
E. I. du Pont de Nemours & Co. ....................... 116,800 3,738
Eastman Chemical Co. + ............................... 47,300 1,911
PPG Industries, Inc. ................................. 42,100 2,087
---------
14,420
---------
METALS & MINING - 0.05%
Alcoa, Inc. ## ....................................... 28,000 322
---------
TOTAL MATERIALS 14,742
---------
See accompanying notes
27
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
TELECOMMUNICATION SERVICES - 2.64%
DIVERSIFIED TELECOMMUNICATION - 2.64%
AT&T, Inc. ........................................... 429,477 $ 11,497
Fairpoint Communications, Inc. + ..................... 3,428 14
Verizon Communications, Inc. ......................... 282,628 8,385
---------
TOTAL TELECOMMUNICATION SERVICES 19,896
---------
UTILITIES - 2.87%
ELECTRIC UTILITIES - 2.26%
CenterPoint Energy, Inc. ............................. 143,000 1,647
Constellation Energy Group, Inc. + ................... 24,000 581
Dominion Resources, Inc. ............................. 105,300 3,820
Entergy Corp. ........................................ 58,200 4,543
Exelon Corp. ......................................... 67,000 3,634
FPL Group, Inc. ...................................... 35,400 1,672
Public Service Enterprise Group, Inc. + .............. 41,200 1,160
---------
17,057
---------
GAS UTILITIES - 0.61%
Spectra Energy Corp. ................................. 236,100 4,564
---------
TOTAL UTILITIES 21,621
---------
TOTAL COMMON STOCKS 380,100
---------
PAR
AMOUNT
-----------
CORPORATE OBLIGATIONS - 13.15%
AEROSPACE & DEFENSE - 0.07%
Raytheon Co.,
5.375%, Due 4/1/2013 .............................. $ 550 519
---------
BANKS - 1.75%
Bank of America Corp.,
7.80%, Due 9/15/2016 .............................. 900 844
6.00%, Due 9/1/2017 ............................... 400 350
5.75%, Due 12/1/2017 .............................. 875 754
Bank of New York Mellon Corp.,
4.95%, Due 11/1/2012 .............................. 355 343
5.125%, Due 8/27/2013 ............................. 400 381
Bank One Corp.,
5.90%, Due 11/15/2011 ............................. 1,225 1,200
4.90%, Due 4/30/2015 + ............................ 550 481
Citigroup, Inc.,
5.125%, Due 2/14/2011 + ........................... 2,175 2,061
6.125%, Due 11/21/2017 ............................ 1,055 907
Fifth Third Bancorp,
8.25%, Due 3/1/2038 ............................... 1,500 1,065
ING Bank, NV,
5.125%, Due 5/1/2015 ++ ........................... 450 434
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
JP Morgan Chase & Co.,
6.75%, Due 2/1/2011 .............................. $ 1,075 $ 1,067
6.00%, Due 1/15/2018 ............................. 1,090 978
Wachovia Corp.,
5.70%, Due 8/1/2013 .............................. 180 162
5.75%, Due 6/15/2017 ............................. 275 237
Washington Mutual Finance Corp.,
6.875%, Due 5/15/2011 ............................ 660 628
Wells Fargo & Co.,
5.25%, Due 10/23/2012 ............................ 840 804
5.625%, Due 12/11/2017 ........................... 525 463
---------
13,159
---------
BASIC MATERIALS - 0.10%
International Paper Co.,
7.40%, Due 6/15/2014 .............................. 515 433
Weyerhaeuser Co.,
5.95%, Due 11/1/2008 .............................. 340 340
---------
773
---------
COMMUNICATIONS - 1.17%
Comcast Cable Communications Holdings, Inc.,
8.375%, Due 3/15/2013 ............................. 1,050 1,019
Comcast Corp.,
5.30%, Due 1/15/2014 .............................. 415 359
5.875%, Due 2/15/2018 ............................. 305 255
6.45%, Due 3/15/2037 .............................. 2,630 2,020
Rogers Communications, Inc.,
6.80%, Due 8/15/2018 .............................. 425 372
Time Warner Cable, Inc.,
5.85%, Due 5/1/2017 ............................... 1,055 864
7.30%, Due 7/1/2038 ............................... 1,920 1,606
Verizon Communications, Inc.,
6.90%, Due 4/15/2038 .............................. 425 356
Viacom, Inc.,
6.875%, Due 4/30/2036 ............................. 2,880 2,010
---------
8,861
---------
CONSUMER DISCRETIONARY - 0.38%
Best Buy Co., Inc.,
6.75%, Due 7/15/2013 ++ ........................... 415 391
Target Corp.,
6.50%, Due 10/15/2037 ............................. 445 320
Wal-Mart Stores, Inc.,
7.55%, Due 2/15/2030 .............................. 425 413
6.50%, Due 8/15/2037 .............................. 1,340 1,203
6.20%, Due 4/15/2038 .............................. 656 566
---------
2,893
---------
See accompanying notes
28
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
CONSUMER STAPLES - 0.45%
Archer-Daniels-Midland Co.,
6.45%, Due 1/15/2038 .............................. $ 350 $ 280
Coca-Cola Enterprises, Inc.,
7.375%, Due 3/3/2014 .............................. 175 178
Diageo Capital plc,
5.75%, Due 10/23/2017 ............................. 240 206
Dr Pepper Snapple Group, Inc.,
6.82%, Due 5/1/2018 ++ ............................ 250 219
Kellogg Co.,
4.25%, Due 3/6/2013 ............................... 500 462
Kraft Foods, Inc.,
6.50%, Due 8/11/2017 .............................. 655 576
7.00%, Due 8/11/2037 .............................. 1,580 1,275
PepsiCo, Inc.,
7.90%, Due 11/1/2018 .............................. 225 237
---------
3,433
---------
ENERGY - 0.85%
Cameron International Corp.,
6.375%, Due 7/15/2018 ............................. 215 178
Canadian Natural Resources Ltd.,
6.70%, Due 7/15/2011 .............................. 410 398
6.25%, Due 3/15/2038 .............................. 425 296
ConocoPhillips,
5.20%, Due 5/15/2018 .............................. 425 356
Consolidated Natural Gas Co.,
6.00%, Due 10/15/2010 ............................. 495 495
EOG Resources, Inc.,
4.75%, Due 3/15/2014 ++ ........................... 550 578
Marathon Oil Corp.,
6.00%, Due 10/1/2017 .............................. 545 434
Suncor Energy, Inc.,
6.10%, Due 6/1/2018 ............................... 545 432
Transocean, Inc.,
6.00%, Due 3/15/2018 .............................. 500 428
6.80%, Due 3/15/2038 .............................. 3,170 2,462
Weatherford International, Inc.,
5.95%, Due 6/15/2012 .............................. 385 347
---------
6,404
---------
FINANCE - 1.39%
American Express Co.,
8.15%, Due 3/19/2038 .............................. 325 255
American Express Credit Corp.,
5.875%, Due 5/2/2013 .............................. 475 397
American General Finance Corp.,
4.875%, Due 5/15/2010 ............................. 500 239
4.00%, Due 3/15/2011 .............................. 1,245 482
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Ameriprise Financial, Inc.,
5.35%, Due 11/15/2010 ............................. $ 975 $ 897
Bear Stearns Cos., Inc.,
7.25%, Due 2/1/2018 ............................... 340 320
Capital One Financial Corp.,
5.70%, Due 9/15/2011 .............................. 490 431
CIT Group, Inc.,
4.75%, Due 12/15/2010 + ........................... 270 165
CME Group, Inc.,
5.40%, Due 8/1/2013 ............................... 475 448
Countrywide Home Loans, Inc.,
4.00%, Due 3/22/2011 .............................. 140 129
General Electric Capital Corp.,
4.375%, Due 3/3/2012 .............................. 700 639
5.65%, Due 6/9/2014 ............................... 1,050 934
5.625%, Due 5/1/2018 + ............................ 500 412
Goldman Sachs Group, Inc.,
4.75%, Due 7/15/2013 .............................. 450 380
6.25%, Due 9/1/2017 ............................... 550 460
5.95%, Due 1/18/2018 .............................. 280 228
6.75%, Due 10/1/2037 .............................. 1,402 913
HSBC Finance Corp.,
5.25%, Due 1/14/2011 .............................. 1,700 1,564
International Lease Finance Corp.,
5.75%, Due 6/15/2011 .............................. 475 326
Merrill Lynch & Co., Inc.,
5.45%, Due 2/5/2013 ............................... 340 307
6.875%, Due 4/25/2018 ............................. 330 293
6.11%, Due 1/29/2037 .............................. 425 281
---------
10,500
---------
HEALTH CARE - 0.43%
Covidien International Finance SA,
5.45%, Due 10/15/2012 ............................. 360 347
6.55%, Due 10/15/2037 ............................. 1,000 791
UnitedHealth Group, Inc.,
5.25%, Due 3/15/2011 .............................. 735 710
6.625%, Due 11/15/2037 ............................ 2,000 1,381
---------
3,229
---------
INDUSTRIALS - 1.96%
American Honda Finance Corp.,
4.625%, Due 4/2/2013 ++ ........................... 425 386
Amgen, Inc.,
6.90%, Due 6/1/2038 ............................... 1,480 1,266
ArcelorMittal South Africa Ltd.,
6.125%, Due 6/1/2018 ++ ........................... 595 410
Burlington Northern Santa Fe Corp.,
5.75%, Due 3/15/2018 .............................. 425 372
See accompanying notes
29
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Canadian National Railway Co.,
5.55%, Due 5/15/2018 .............................. $ 500 $ 435
Caterpillar Financial Services Corp.,
4.85%, Due 12/7/2012 .............................. 505 469
4.25%, Due 2/8/2013 ............................... 500 454
Con-way, Inc.,
8.875%, Due 5/1/2010 .............................. 1,850 1,859
CRH America, Inc.,
6.00%, Due 9/30/2016 .............................. 985 711
Daimler Finance NA LLC,
7.75%, Due 1/18/2011 .............................. 1,000 838
5.875%, Due 3/15/2011 ............................. 450 367
5.75%, Due 9/8/2011 ............................... 550 440
Eaton Corp.,
5.60%, Due 5/15/2018 .............................. 340 297
Honeywell International, Inc.,
4.25%, Due 3/1/2013 ............................... 500 460
Koninklijke Philips Electronics NV,
5.75%, Due 3/11/2018 .............................. 335 277
Masco Corp.,
6.125%, Due 10/3/2016 ............................. 430 304
Nissan Motor Acceptance Corp.,
5.625%, Due 3/14/2011 ++ .......................... 500 511
Norfolk Southern Corp.,
5.75%, Due 4/1/2018 ++ ............................ 425 366
Tyco Electronics Group SA,
6.55%, Due 10/1/2017 .............................. 1,455 1,211
7.125%, Due 10/1/2037 ............................. 750 544
Unilever Capital Corp.,
7.125%, Due 11/1/2010 ............................. 2,000 2,067
Union Pacific Corp.,
6.50%, Due 4/15/2012 .............................. 550 535
United Technologies Corp.,
6.125%, Due 7/15/2038 ............................. 210 181
---------
14,760
---------
INSURANCE - 1.08%
Aegon Funding Corp.,
5.75%, Due 12/15/2020 ............................. 450 334
American International Group, Inc.,
5.85%, Due 1/16/2018 .............................. 550 200
6.25%, Due 5/1/2036 ............................... 425 145
Hartford Financial Services Group, Inc.,
5.25%, Due 10/15/2011 ............................. 975 826
5.375%, Due 3/15/2017 ............................. 685 479
John Hancock Global Funding II,
7.90%, Due 7/2/2010 ++ ............................ 1,125 1,147
Liberty Mutual Insurance Co.,
7.875%, Due 10/15/2026 ++ ......................... 1,500 1,248
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Lincoln National Corp.,
4.75%, Due 2/15/2014 .............................. $ 275 $ 245
MetLife, Inc.,
5.375%, Due 12/15/2012 ............................ 660 597
6.817%, Due 8/15/2018 ............................. 625 538
6.375%, Due 6/15/2034 ............................. 450 330
Metropolitan Life Global Funding I,
4.625%, Due 8/19/2010 ++ .......................... 900 848
Prudential Financial, Inc.,
4.50%, Due 7/15/2013 .............................. 550 452
5.10%, Due 9/20/2014 .............................. 690 522
Willis North America, Inc.,
6.20%, Due 3/28/2017 .............................. 360 262
---------
8,173
---------
PHARMACEUTICALS - 0.94%
Abbott Laboratories,
6.15%, Due 11/30/2037 ............................. 447 384
AstraZeneca plc,
6.45%, Due 9/15/2037 .............................. 1,880 1,610
Biogen Idec, Inc.,
6.875%, Due 3/1/2018 .............................. 1,500 1,440
Bristol-Myers Squibb Co.,
5.45%, Due 5/1/2018 ............................... 250 218
6.125%, Due 5/1/2038 .............................. 875 727
GlaxoSmithKline Capital, Inc.,
5.65%, Due 5/15/2018 .............................. 250 222
6.375%, Due 5/15/2038 ............................. 1,370 1,158
Hospira, Inc.,
6.05%, Due 3/30/2017 .............................. 360 302
Schering-Plough Corp.,
6.75%, Due 12/1/2033 .............................. 600 497
Wyeth Corp.,
5.50%, Due 2/1/2014 ............................... 535 501
---------
7,059
---------
REAL ESTATE - 0.25%
Equity Residential,
5.125%, Due 3/15/2016 ............................. 895 609
ProLogis Trust,
5.50%, Due 4/1/2012 ............................... 450 292
5.625%, Due 11/15/2016 ............................ 550 300
Simon Property Group LP,
5.30%, Due 5/30/2013 .............................. 425 351
5.75%, Due 12/1/2015 .............................. 460 342
---------
1,894
---------
TECHNOLOGY - 0.49%
Cisco Systems, Inc.,
5.25%, Due 2/22/2011 .............................. 550 551
See accompanying notes
30
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Computer Sciences Corp.,
5.50%, Due 3/15/2013 + ++ ......................... $ 140 $ 121
6.50%, Due 3/15/2018 ++ ........................... 495 384
Hewlett-Packard Co.,
4.50%, Due 3/1/2013 + ............................. 885 823
International Business Machines Corp.,
7.625%, Due 10/15/2018 ............................ 770 797
Oracle Corp.,
6.50%, Due 4/15/2038 .............................. 970 807
Xerox Corp.,
5.65%, Due 5/15/2013 .............................. 250 197
---------
3,680
---------
TELEPHONE - 0.89%
America Movil, S.A.B. de C.V.,
6.375%, Due 3/1/2035 .............................. 425 296
AT&T, Inc.,
5.10%, Due 9/15/2014 .............................. 1,085 948
5.625%, Due 6/15/2016 ............................. 550 483
5.50%, Due 2/1/2018 ............................... 300 255
6.80%, Due 5/15/2036 .............................. 250 212
6.40%, Due 5/15/2038 .............................. 1,840 1,473
Cingular Wireless Services, Inc.,
7.875%, Due 3/1/2011 .............................. 550 549
8.75%, Due 3/1/2031 ............................... 445 414
Deutsche Telekom AG,
8.00%, Due 6/15/2010 .............................. 380 374
Telecom Italia S.p.A.,
4.00%, Due 11/15/2008 ............................. 580 579
Telefonica Emisiones SAU,
5.984%, Due 6/20/2011 ............................. 380 363
Verizon Communications, Inc.,
5.50%, Due 4/1/2017 ............................... 500 426
Vodafone Group plc,
6.15%, Due 2/27/2037 .............................. 425 318
---------
6,690
---------
UTILITIES - 0.95%
American Water Capital Corp.,
6.593%, Due 10/15/2037 ............................ 1,492 988
Columbus Southern Power Co.,
5.50%, Due 3/1/2013 ............................... 880 808
Dominion Resources, Inc.,
Series A, 5.60%, Due 11/15/2016 ................... 500 412
Duke Energy Carolinas LLC,
5.10%, Due 4/15/2018 .............................. 500 436
Duke Energy Indiana, Inc.,
6.05%, Due 6/15/2016 .............................. 520 430
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
MidAmerican Energy Holdings Co.,
5.875%, Due 10/1/2012 ............................. $ 1,070 $ 1,013
6.125%, Due 4/1/2036 .............................. 425 313
Public Service Enterprise Group, Inc.,
6.95%, Due 6/1/2012 ............................... 675 638
Southern Power Co.,
6.25%, Due 7/15/2012 .............................. 755 747
Union Electric Co.,
6.70%, Due 2/1/2019 ............................... 265 220
Virginia Electric and Power Co.,
5.40%, Due 4/30/2018 .............................. 500 409
Xcel Energy, Inc.,
5.613%, Due 4/1/2017 .............................. 869 733
---------
7,147
---------
TOTAL CORPORATE OBLIGATIONS 99,174
---------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 2.42%
COMMERCIAL MORTGAGE-BACKED SECURITY - 1.32%
Banc of America Commercial Mortgage, Inc.,
2005-6 A1, 5.001%, Due 9/10/2047 .................. 593 570
2007-2 A2, 5.634%, Due 4/10/2049 .................. 1,100 958
Bear Stearns Commercial Mortgage
Securities, Inc.,
2006-T22 A2, 5.464%, Due 4/12/2038 ................ 905 842
2004-PWR5 A4, 4.831%, Due 7/11/2042 ............... 2,010 1,747
2005-T20 A2, 5.127%, Due 10/12/2042 ............... 875 827
Citigroup Commercial Mortgage Trust,
2004-C2 A3, 4.38%, Due 10/15/2041 ................. 995 913
General Electric Capital Commercial
Mortgage Corp.,
2003-C2 A2, 4.17%, Due 7/10/2037 .................. 146 140
JP Morgan Chase Commercial Mortgage
Securities Corp.,
2004-CBX A4, 4.529%, Due 1/12/2037 ................ 555 507
2005-LDP3 A1, 4.655%, Due 8/15/2042 ............... 186 180
2005-LDP1 A2, 4.625%, Due 3/15/2046 ............... 1,035 995
2007-CB19 A4, 5.747%, Due 2/12/2049 ............... 800 600
2007-CB20 A2, 5.629%, Due 2/12/2051 ............... 850 747
LB-UBS Commercial Mortgage Trust,
2004-C1 A4, 5.424%, Due 2/15/2040 ................. 650 482
Wachovia Bank Commercial Mortgage Trust,
2007-C32 A2, 5.736%, Due 6/15/2049 ................ 530 462
---------
9,970
---------
WHOLE LOAN COLLATERALIZED MORTGAGE OBLIGATIONS - 1.10%
Banc of America Mortgage Securities, Inc.,
2004-8 3A1, 5.25%, Due 10/25/2019 ................. 940 889
See accompanying notes
31
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Chase Mortgage Finance Corp.,
2006-A1 A1, 6.04%, Due 9/25/2036 # ................ $ 1,371 $ 1,113
Citicorp Mortgage Securities, Inc.,
2006-3 2A1, 5.50%, Due 6/25/2021 .................. 1,224 1,024
Countrywide Home Loan Mortgage Pass Through Trust,
2007-18 A1, 6.00%, Due 9/25/2037 .................. 1,493 1,164
JP Morgan Mortgage Trust,
7.00%, Due 8/25/2037 .............................. 804 654
Prime Mortgage Trust,
2005-2, 5.25%, Due 7/25/2020 ...................... 1,676 1,596
Wells Fargo Mortgage Backed Securities Trust,
2006-11 A8, 6.00%, Due 9/25/2036 .................. 860 645
2007-7 A1, 6.00%, Due 6/25/2037 ................... 1,477 1,151
---------
8,236
---------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS 18,206
---------
ASSET-BACKED SECURITIES - 0.63%
American Express Credit Account Master Trust,
2006-2 A, 5.35%, Due 1/15/2014 .................... 1,700 1,592
Capital Auto Receivables Asset Trust,
2006-SN1A A4A, 5.32%, Due 3/20/2010 ++ ............ 1,500 1,491
Capital One Multi-Asset Execution Trust,
2006-A10 A10, 5.15%, Due 6/15/2014 ................ 1,250 1,149
Volkswagen Auto Loan Enhanced Trust,
2005-1 A4, 4.86%, Due 4/20/2012 ................... 547 545
---------
TOTAL ASSET-BACKED SECURITIES 4,777
---------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 10.64%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 4.25%
5.50%, Due 8/1/2017 ............................... 59 59
5.50%, Due 9/1/2017 ............................... 260 260
5.50%, Due 6/1/2018 ............................... 120 120
5.50%, Due 10/1/2018 .............................. 1,066 1,068
4.50%, Due 3/1/2019 ............................... 795 761
5.00%, Due 10/1/2020 .............................. 1,093 1,069
5.50%, Due 5/1/2021 ............................... 633 631
5.50%, Due 9/1/2021 ............................... 297 295
5.00%, Due 11/1/2021 .............................. 565 552
5.50%, Due 4/1/2022 ............................... 334 333
5.00%, Due 5/1/2022 ............................... 524 512
5.00%, Due 4/1/2023 ............................... 1,588 1,551
6.50%, Due 5/1/2029 ............................... 54 55
6.50%, Due 6/1/2029 ............................... 9 10
6.50%, Due 7/1/2029 ............................... 166 170
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
6.00%, Due 8/1/2029 ............................... $ 93 $ 94
5.00%, Due 8/1/2033 ............................... 1,571 1,490
5.50%, Due 2/1/2034 ............................... 1,522 1,487
5.00%, Due 3/1/2034 ............................... 1,228 1,164
6.00%, Due 6/1/2034 ............................... 906 907
6.00%, Due 8/1/2034 ............................... 811 812
5.00%, Due 8/1/2035 ............................... 1,109 1,051
5.00%, Due 9/1/2035 ............................... 1,418 1,343
5.00%, Due 9/1/2035 ............................... 1,575 1,492
6.00%, Due 8/1/2036 ............................... 1,631 1,629
5.50%, Due 11/1/2036 .............................. 1,497 1,461
5.50%, Due 4/1/2037 ............................... 1,691 1,650
5.50%, Due 5/1/2037 ............................... 1,013 989
5.50%, Due 6/1/2037 ............................... 1,404 1,345
6.00%, Due 7/1/2037 ............................... 1,526 1,524
6.50%, Due 8/1/2037 ............................... 489 495
6.00%, Due 9/1/2037 ............................... 555 554
5.00%, Due 3/1/2038 ............................... 1,615 1,529
6.00%, Due 3/1/2038 ............................... 2,232 2,230
6.50%, Due 5/1/2038 ............................... 1,317 1,336
---------
32,028
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 5.70%
5.50%, Due 2/1/2014 ............................... 343 345
6.00%, Due 4/1/2016 ............................... 285 288
5.00%, Due 12/1/2017 .............................. 774 763
5.00%, Due 6/1/2018 ............................... 1,671 1,647
4.50%, Due 9/1/2018 ............................... 1,285 1,235
5.50%, Due 12/1/2018 .............................. 80 80
4.00%, Due 8/1/2020 ............................... 958 889
5.50%, Due 4/1/2021 ............................... 1,022 1,021
6.00%, Due 1/1/2029 ............................... 499 502
5.50%, Due 11/1/2033 .............................. 2,050 2,008
5.00%, Due 3/1/2034 ............................... 1,621 1,540
4.50%, Due 9/1/2034 ............................... 728 662
6.50%, Due 3/1/2035 ............................... 263 267
5.50%, Due 12/1/2035 .............................. 1,286 1,258
5.50%, Due 12/1/2035 .............................. 403 394
5.50%, Due 1/1/2036 ............................... 1,340 1,310
5.50%, Due 2/1/2036 ............................... 923 903
5.00%, Due 2/1/2036 ............................... 801 760
5.00%, Due 3/1/2036 ............................... 1,458 1,383
5.50%, Due 3/1/2036 ............................... 329 322
5.50%, Due 4/1/2036 ............................... 2,287 2,237
6.00%, Due 8/1/2036 ............................... 558 558
6.00%, Due 9/1/2036 ............................... 1,027 1,027
6.50%, Due 9/1/2036 ............................... 2,096 2,126
6.00%, Due 9/1/2036 ............................... 185 185
6.00%, Due 10/1/2036 .............................. 1,192 1,192
See accompanying notes
32
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
5.50%, Due 12/1/2036 .............................. $ 1,743 $ 1,704
6.50%, Due 12/1/2036 .............................. 1,802 1,828
5.50%, Due 2/1/2037 ............................... 1,679 1,641
6.00%, Due 8/1/2037 ............................... 1,343 1,343
6.50%, Due 8/1/2037 ............................... 818 830
6.50%, Due 9/1/2037 ............................... 523 531
6.00%, Due 11/1/2037 .............................. 706 706
6.50%, Due 11/1/2037 .............................. 912 925
5.00%, Due 3/1/2038 ............................... 7,026 6,658
5.00%, Due 6/1/2038 ............................... 2,021 1,915
---------
42,983
---------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.69%
7.00%, Due 12/15/2025 ............................. 298 308
4.201%, Due 8/16/2026 ............................. 755 751
6.50%, Due 8/15/2027 .............................. 344 349
6.50%, Due 11/15/2027 ............................. 352 358
7.50%, Due 12/15/2028 ............................. 260 275
5.50%, Due 7/15/2033 .............................. 938 923
6.00%, Due 12/15/2033 ............................. 989 993
5.50%, Due 2/20/2034 .............................. 1,264 1,242
---------
5,199
---------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS 80,210
---------
U.S. AGENCY OBLIGATIONS - 8.48%
FEDERAL HOME LOAN BANK - 0.18%
5.25%, Due 11/3/2009 + ............................ 1,360 1,360
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 5.35%
5.25%, Due 2/24/2011 .............................. 2,360 2,378
4.50%, Due 1/15/2015 + ............................ 34,290 34,153
6.00%, Due 12/15/2031 ............................. 2,195 2,210
6.25%, Due 7/15/2032 + ............................ 1,500 1,628
---------
40,369
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.95%
5.125%, Due 1/2/2014 .............................. 645 630
4.625%, Due 10/15/2014 + .......................... 1,000 1,008
5.375%, Due 6/12/2017 + ........................... 2,650 2,679
6.25%, Due 5/15/2029 + ............................ 12,200 13,097
6.00%, Due 4/18/2036 + ............................ 5,065 4,802
---------
22,216
---------
TOTAL U.S. AGENCY OBLIGATIONS 63,945
---------
U.S. TREASURY OBLIGATIONS - 2.44%
3.125%, Due 8/31/2013 + ........................... 3,200 3,256
4.00%, Due 8/15/2018 + ............................ 5,260 5,267
7.875%, Due 2/15/2021 + ........................... 1,200 1,536
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
6.25%, Due 8/15/2023 + ............................ $ 1,400 $ 1,603
6.875%, Due 8/15/2025 + ........................... 1,580 1,968
5.25%, Due 11/15/2028 + ........................... 750 798
4.75%, Due 2/15/2037 + ............................ 800 848
4.375%, Due 2/15/2038 + ........................... 3,110 3,119
---------
TOTAL U.S. TREASURY OBLIGATIONS 18,395
---------
SHARES
-----------
SHORT TERM INVESTMENTS - 11.47%
American Beacon Money Market Select Fund * ........... 34,005,921 34,006
State Street Institutional Treasury Plus Fund ........ 47,057,064 47,057
PAR
AMOUNT
-----------
U.S. Treasury,
0.41%, Due 12/11/2008 [ ] ......................... $ 5,400 5,393
---------
TOTAL SHORT TERM INVESTMENTS 86,456
---------
SHARES
-----------
SECURITIES LENDING COLLATERAL - 13.12%
American Beacon Money Market Select Fund * ........... 14,519,607 14,520
Securities Liquidating AB Trust ...................... 49,651,323 48,982
State Street Navigator Securities Lending Prime
Portfolio ......................................... 35,421,833 35,422
---------
TOTAL SECURITIES LENDING COLLATERAL 98,924
---------
TOTAL INVESTMENTS 112.77% - (COST $974,580) 850,187
LIABILITIES, NET OF OTHER ASSETS - (12.77%) (96,274)
---------
TOTAL NET ASSETS - 100.00% $ 753,913
=========
See accompanying notes
33
AMERICAN BEACON BALANCED FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
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, 2008.
++ Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $8,534 or 1.13% 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 is affiliated by having the same investment advisor.
[ ] At October 31, 2008, 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 .... 762 Dec 2008 $36,854 $(9,763)
======= =======
See accompanying notes
34
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 81.81%
COMMUNICATIONS - 0.06%
MEDIA - 0.06%
Brocade Communications Systems, Inc. ## .............. 9,940 $ 37
---------
CONSUMER DISCRETIONARY - 11.51%
HOTELS, RESTAURANTS & LEISURE - 3.48%
McDonald's Corp. ..................................... 23,683 1,372
Panera Bread Co. ## + ................................ 1,232 56
Yum! Brands, Inc. + .................................. 19,286 559
---------
1,987
---------
HOUSEHOLD DURABLES - 0.07%
The Toro Co. + ....................................... 1,182 40
---------
INTERNET & CATALOG RETAIL - 0.26%
eBay, Inc. ## ........................................ 9,672 148
---------
MEDIA - 1.08%
The DIRECTV Group, Inc. ## + ......................... 13,923 305
DISH Network Corp. ## ................................ 700 11
NetFlix, Inc. ## + ................................... 2,848 71
Time Warner, Inc. .................................... 20,739 209
Virgin Media, Inc. ................................... 3,469 20
---------
616
---------
MULTILINE RETAIL - 2.67%
BJ's Wholesale Club, Inc. ## + ....................... 8,664 305
Costco Wholesale Corp. + ............................. 8,442 481
Wal-Mart Stores, Inc. + .............................. 13,245 739
---------
1,525
---------
SPECIALTY RETAIL - 3.20%
Aeropostale, Inc. ## + ............................... 12,775 309
AutoZone, Inc. ## .................................... 3,784 482
Best Buy Company, Inc. + ............................. 14,953 401
Dollar Tree, Inc. ## + ............................... 3,262 124
Nike, Inc. ........................................... 7,568 436
Ross Stores, Inc. + .................................. 1,854 60
Urban Outfitters, Inc. ## + .......................... 447 10
---------
1,822
---------
TEXTILES & APPAREL - 0.75%
Coach, Inc. ## ....................................... 20,766 428
---------
TOTAL CONSUMER DISCRETIONARY 6,566
---------
CONSUMER STAPLES - 7.46%
BEVERAGES - 0.68%
Anheuser-Busch Companies, Inc. + ..................... 1,370 85
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Hansen Natural Corp. ## + ............................ 2,061 $ 52
PepsiCo, Inc. ........................................ 4,405 251
---------
388
---------
FOOD & DRUG RETAILING - 1.11%
The Kroger Co. + ..................................... 23,172 636
---------
FOOD PRODUCTS - 1.71%
Bunge Ltd. + ......................................... 5,154 198
Corn Products International, Inc. .................... 1,066 26
H.J. Heinz Co. + ..................................... 11,221 492
Herbalife Ltd. + ..................................... 5,728 140
Hormel Foods Corp. + ................................. 600 17
Tyson Foods, Inc. .................................... 11,678 102
---------
975
---------
HOUSEHOLD PRODUCTS - 1.21%
Colgate-Palmolive Co. ................................ 10,313 648
The Procter & Gamble Co. ............................. 700 45
---------
693
---------
PERSONAL PRODUCTS - 0.91%
Avon Products, Inc. .................................. 20,860 518
---------
TOBACCO - 1.84%
Altria Group, Inc. ................................... 11,542 222
Lorillard, Inc. ...................................... 5,412 356
Philip Morris International, Inc. .................... 10,815 470
---------
1,048
---------
TOTAL CONSUMER STAPLES 4,258
---------
ENERGY - 8.55%
ENERGY EQUIPMENT & SERVICES - 2.92%
Baker Hughes, Inc. ................................... 2,470 86
Cameron International Corp. ## + ..................... 14,159 343
FMC Technologies, Inc. ## + .......................... 3,732 131
Halliburton Co. ...................................... 31,082 615
National Oilwell Varco, Inc. ## ...................... 8,588 257
Schlumberger Ltd. .................................... 3,583 185
SEACOR Holdings, Inc. ## + ........................... 699 47
---------
1,664
---------
OIL & GAS - 5.63%
Apache Corp. ......................................... 7,338 604
Chevron Corp. ........................................ 131 10
Devon Energy Corp. ................................... 1,361 110
Exxon Mobil Corp. .................................... 1,582 117
Hess Corp. ........................................... 2,859 172
Murphy Oil Corp. ..................................... 11,793 597
Occidental Petroleum Corp. ........................... 5,126 285
See accompanying notes
35
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
St. Mary Land & Exploration Co. ...................... 425 $ 11
Sunoco, Inc. + ....................................... 816 25
Tesoro Corp. ## + .................................... 9,179 89
Transocean, Inc. + ................................... 5,497 452
Ultra Petroleum Corp. ## + ........................... 1,132 53
Valero Energy Corp. .................................. 10,498 216
W&T Offshore, Inc. + ................................. 2,243 43
XTO Energy, Inc. ..................................... 12,003 431
---------
3,215
---------
TOTAL ENERGY 4,879
---------
FINANCIALS - 2.83%
BANKS - 0.15%
Bank of New York Mellon Corp. ........................ 1,882 61
Hudson City Bancorp, Inc. + .......................... 1,302 25
---------
86
---------
DIVERSIFIED FINANCIALS - 1.88%
American Express Co. ................................. 879 24
BlackRock, Inc. + .................................... 481 63
Broadridge Financial Solutions, Inc. ................. 5,227 63
CME Group, Inc. + .................................... 368 104
Eaton Vance Corp. + .................................. 5,136 113
Moody's Corp. + ...................................... 3,500 90
Morgan Stanley Dean Witter & Co. + ................... 1,663 29
SEI Investments Co. + ................................ 1,407 25
State Street Corp. ................................... 8,825 383
T Rowe Price Group, Inc. + ........................... 2,254 89
The Western Union Co. ................................ 6,047 92
---------
1,075
---------
INSURANCE - 0.14%
Fidelity National Financial, Inc. + .................. 2,296 21
First American Corp. ................................. 1,570 32
Reinsurance Group of America, Inc. + ................. 643 24
---------
77
---------
REAL ESTATE - 0.66%
AvalonBay Communities, Inc. + ........................ 298 21
Jones Lang LaSalle, Inc. + ........................... 924 30
Kilroy Realty Corp. + ................................ 480 15
Macerich Co. ......................................... 627 19
Nationwide Health Properties, Inc. + ................. 5,065 151
Simon Property Group, Inc. + ......................... 2,096 141
---------
377
---------
TOTAL FINANCIALS 1,615
---------
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
HEALTH CARE - 14.59%
BIOTECHNOLOGY - 3.14%
Biogen Idec, Inc. ## + ............................... 5,229 $ 223
Celgene Corp. ## + ................................... 2,261 145
Genentech, Inc. ## ................................... 1,561 130
Gilead Sciences, Inc. ## + ........................... 26,650 1,222
Idexx Laboratories, Inc. ## + ........................ 1,006 35
PDL BioPharma, Inc. + ................................ 3,625 35
---------
1,790
---------
HEALTH CARE EQUIPMENT & SUPPLIES - 4.59%
Baxter International, Inc. ........................... 8,176 495
Becton, Dickinson & Co. .............................. 8,887 617
Boston Scientific Corp. ## ........................... 8,754 79
C.R. Bard, Inc. + .................................... 222 20
Covidien Ltd. ........................................ 2,289 101
Dentsply International, Inc. ......................... 2,569 78
Medtronic, Inc. ...................................... 3,607 145
St. Jude Medical, Inc. ## ............................ 13,967 531
Varian Medical Systems, Inc. ## + .................... 12,164 554
---------
2,620
---------
HEALTH CARE PROVIDERS & SERVICES - 1.00%
Cardinal Health, Inc. ## ............................. 315 12
Express Scripts, Inc. ## + ........................... 8,728 529
McKesson Corp. ....................................... 746 27
---------
568
---------
PHARMACEUTICALS - 5.86%
Abbott Laboratories .................................. 9,065 500
Amgen, Inc. ## ....................................... 6,767 405
Bristol-Myers Squibb Co. ............................. 7,600 156
Eli Lilly & Co. + .................................... 21,282 720
Johnson & Johnson .................................... 7,392 453
King Pharmaceuticals, Inc. ## + ...................... 3,102 27
Medco Health Solutions, Inc. ## ...................... 7,032 267
Merck & Co., Inc. + .................................. 9,267 287
Pfizer, Inc. ......................................... 22,313 395
Schering-Plough Corp. + .............................. 3,840 56
Wyeth Corp. .......................................... 2,446 79
---------
3,345
---------
TOTAL HEALTH CARE 8,323
---------
INDUSTRIALS - 14.57%
AEROSPACE & DEFENSE - 5.25%
Boeing Co. + ......................................... 9,655 505
General Dynamics Corp. ............................... 13,630 822
Goodrich Corp. ....................................... 11,208 410
Lockheed Martin Corp. ................................ 8,390 713
See accompanying notes
36
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
United Technologies Corp. ............................ 9,881 $ 543
---------
2,993
---------
AIR FREIGHT & COURIERS - 0.89%
Expeditors International of Washington, Inc. + ....... 3,455 113
FedEx Corp. + ........................................ 6,040 395
---------
508
---------
BUILDING PRODUCTS - 0.05%
Armstrong World Industries, Inc. + ................... 1,605 32
---------
COMMERCIAL SERVICES & SUPPLIES - 1.31%
Apollo Group, Inc. ## + .............................. 8,997 625
CH Robinson Worldwide, Inc. ## ....................... 679 35
Genpact Ltd. ## ...................................... 1,728 14
Global Payments, Inc. + .............................. 226 9
Manpower, Inc. ....................................... 1,331 41
Total System Services, Inc. .......................... 1,503 21
---------
745
---------
CONSTRUCTION & ENGINEERING - 0.06%
Fluor Corp. + ........................................ 800 32
---------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.44%
Emerson Electric Co. ................................. 25,182 824
---------
INDUSTRIAL CONGLOMERATES - 1.69%
3M Co. + ............................................. 8,668 557
Honeywell International, Inc. ........................ 12,496 381
Tyco International Ltd. .............................. 1,064 27
---------
965
---------
MACHINERY - 1.70%
AGCO Corp. ## + ...................................... 4,976 157
Caterpillar, Inc. + .................................. 2,500 95
Cummins, Inc. + ...................................... 9,852 254
Deere & Co. .......................................... 956 37
Flowserve Corp. ...................................... 5,777 329
Graco, Inc. + ........................................ 1,096 27
Joy Global, Inc. + ................................... 2,511 73
---------
972
---------
ROAD & RAIL - 2.18%
JB Hunt Transport Services, Inc. + ................... 12,435 354
Landstar System, Inc. + .............................. 2,129 82
Norfolk Southern Corp. ............................... 7,930 475
Union Pacific Corp. .................................. 1,693 113
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Werner Enterprises, Inc. + ........................... 11,312 $ 222
---------
1,246
---------
TOTAL INDUSTRIALS 8,317
---------
INFORMATION TECHNOLOGY - 18.10%
COMMUNICATIONS EQUIPMENT - 2.16%
Cisco Systems, Inc. ## ............................... 54,400 966
Qualcomm, Inc. ....................................... 6,920 265
---------
1,231
---------
COMPUTERS & PERIPHERALS - 5.70%
Apple Computer, Inc. ## ++ ........................... 4,929 530
Dell, Inc. ## + ...................................... 36,834 448
EMC Corp. ## + ....................................... 14,565 172
Hewlett-Packard Co. .................................. 22,375 856
Ingram Micro, Inc. ## ................................ 4,790 64
International Business Machines Corp. + .............. 7,377 686
NetApp, Inc. ## + .................................... 6,388 86
Seagate Technology ................................... 39,267 266
Teradata Corp. ## .................................... 5,422 83
Western Digital Corp. ## ............................. 3,609 60
---------
3,251
---------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.95%
Broadcom Corp. ## .................................... 6,506 111
Intel Corp. .......................................... 26,981 432
---------
543
---------
INTERNET SOFTWARE & SERVICES - 1.17%
Google, Inc. ## ...................................... 1,372 493
Sohu.com, Inc. ## .................................... 892 49
VeriSign, Inc. ## + .................................. 3,610 77
Yahoo! Inc. ## ....................................... 3,975 51
---------
670
---------
IT CONSULTING & SERVICES - 2.49%
Accenture Ltd. + ..................................... 27,887 922
Affiliated Computer Services, Inc. ## ................ 10,057 412
MPS Group, Inc. ## + ................................. 1,100 9
SRA International, Inc. ## + ......................... 851 16
Sun Microsystems, Inc. ## + .......................... 3,782 17
Tech Data Corp. ## + ................................. 2,061 44
---------
1,420
---------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.56%
LSI Corp. ## ......................................... 11,111 43
QLogic Corp. ## + .................................... 1,586 19
Texas Instruments, Inc. + ............................ 13,152 257
---------
319
---------
See accompanying notes
37
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
SOFTWARE - 5.07%
Activision Blizzard, Inc. ## + ....................... 40,406 $ 503
Adobe Systems, Inc. ## ............................... 12,322 328
Advent Software, Inc. ## + ........................... 936 17
Autodesk, Inc. ## + .................................. 2,847 61
Cadence Design Systems, Inc. ## + .................... 6,965 28
Cerner Corp. ## ...................................... 691 26
Mentor Graphics Corp. ## + ........................... 1,054 8
Microsoft Corp. ...................................... 49,987 1,116
Oracle Corp. ## ...................................... 39,618 725
Salesforce.com, Inc. ## + ............................ 1,670 52
VMware, Inc. ## ...................................... 897 28
---------
2,892
---------
TOTAL INFORMATION TECHNOLOGY 10,326
---------
MATERIALS - 3.47%
CHEMICALS - 2.49%
Airgas, Inc. ......................................... 284 11
CF Industries Holdings, Inc. ......................... 142 9
FMC Corp. ............................................ 500 22
Monsanto Co. + ....................................... 9,943 885
Praxair, Inc. ........................................ 7,601 495
---------
1,422
---------
METALS & MINING - 0.98%
Alpha Natural Resources, Inc. ## + ................... 4,061 145
Nucor Corp. + ........................................ 10,215 414
---------
559
---------
TOTAL MATERIALS 1,981
---------
TELECOMMUNICATION SERVICES - 0.27%
DIVERSIFIED TELECOMMUNICATION - 0.27%
AT&T, Inc. ++ ........................................ 3,346 89
Sprint Nextel Corp. + ................................ 20,439 64
---------
TOTAL TELECOMMUNICATION SERVICES 153
---------
UTILITIES - 0.40%
ELECTRIC UTILITIES - 0.40%
Exelon Corp. ......................................... 3,855 209
PPL Corp. ............................................ 559 18
---------
TOTAL UTILITIES 227
---------
TOTAL COMMON STOCKS 46,682
---------
SHORT TERM INVESTMENTS - 18.00%
American Beacon Money Market Select Fund # ........... 3,451,349 3,451
State Street Institutional Treasury Plus Fund ........ 6,191,411 6,191
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
U.S. Treasury,
0.28%, Due 12/11/2008 ............................. $ 629 $ 629
---------
TOTAL SHORT TERM INVESTMENTS 10,271
---------
SHARES
-----------
SECURITIES LENDING
COLLATERAL - 23.45%
American Beacon Money Market Select Fund # ........... 1,963,639 1,964
Securities Liquidating AB Trust ...................... 6,714,871 6,624
State Street Navigator Securities Lending
Prime Portfolio ................................... 4,790,468 4,791
---------
TOTAL SECURITIES LENDING COLLATERAL ..................... 13,379
---------
TOTAL INVESTMENTS 123.26% - (COST $82,377) 70,332
LIABILITIES, NET OF OTHER ASSETS - (23.26%) (13,273)
---------
TOTAL NET ASSETS - 100.00% $ 57,059
=========
See accompanying notes
38
AMERICAN BEACON LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
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, 2008.
++ At October 31, 2008, security pledged as collateral for open futures
contracts.
# The Fund is affiliated by having the same investment advisor.
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
UNREALIZED
NUMBER OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- ------ --------------
Emini S&P 500 Index ...... 87 Dec 2008 $4,208 $(774)
====== =====
See accompanying notes
39
AMERICAN BEACON MID-CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 74.18%
CONSUMER DISCRETIONARY - 17.99%
AUDIO/VIDEO PRODUCTS - 0.72%
Harman International Industries, Inc. + .............. 20,750 $ 381
---------
AUTO COMPONENTS - 2.20%
Advance Auto Parts, Inc. ............................. 17,200 537
Lear Corp. ## + ...................................... 59,200 119
Magna International, Inc. ............................ 15,175 513
---------
1,169
---------
HOTELS, RESTAURANTS & LEISURE - 2.03%
International Game Technology + ...................... 49,700 696
Royal Caribbean Cruises Ltd. + ....................... 28,300 384
---------
1,080
---------
HOUSEHOLD DURABLES - 3.57%
Black & Decker Corp. + ............................... 15,800 800
Stanley Works ........................................ 20,200 662
Whirlpool Corp. + .................................... 9,225 430
---------
1,892
---------
MEDIA - 0.38%
Omnicom Group, Inc. .................................. 6,775 200
---------
MULTILINE RETAIL - 2.12%
J.C. Penney Company, Inc. + .......................... 23,300 557
Kohl's Corp. ## + .................................... 16,200 569
---------
1,126
---------
SPECIALTY RETAIL - 6.48%
Family Dollar Stores, Inc. + ......................... 26,400 710
GameStop Corp. ## .................................... 23,300 638
Hanesbrands, Inc. ## + ............................... 26,700 467
Regis Corp. .......................................... 39,625 490
Rent-A-Center, Inc. ## ............................... 46,300 676
Sherwin-Williams Co. + ............................... 8,000 455
---------
3,436
---------
TEXTILES & APPAREL - 0.49%
Sealy Corp. + ........................................ 80,525 260
---------
TOTAL CONSUMER DISCRETIONARY 9,544
---------
CONSUMER STAPLES - 6.02%
FOOD PRODUCTS - 1.93%
Del Monte Foods Co. .................................. 102,950 650
Sara Lee Corp. ....................................... 33,675 376
---------
1,026
---------
TOBACCO - 4.09%
Lorillard, Inc. ...................................... 13,700 902
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Reynolds American, Inc. + ............................ 18,400 $ 901
UST, Inc. ............................................ 5,400 365
---------
2,168
---------
TOTAL CONSUMER STAPLES 3,194
---------
ENERGY - 2.30%
OIL & GAS - 2.30%
El Paso Corp. + ...................................... 62,100 602
Murphy Oil Corp. + ................................... 12,200 618
---------
TOTAL ENERGY 1,220
---------
FINANCIALS - 18.28%
BANKS - 5.30%
Comerica, Inc. + ..................................... 16,900 466
National City Corp. .................................. 199,078 538
New York Community Bancorp, Inc. + ................... 20,300 318
People's United Financial, Inc. ...................... 55,654 974
Popular, Inc. + ...................................... 68,025 517
---------
2,813
---------
DIVERSIFIED FINANCIALS - 2.18%
CIT Group, Inc. + .................................... 48,600 201
Federal Home Loan Mortgage Corp. + ................... 109,625 113
Moody's Corp. + ...................................... 11,275 289
SLM Corp. ## + ....................................... 52,100 556
---------
1,159
---------
INSURANCE - 9.38%
Axis Capital Holdings Ltd. ........................... 18,700 533
Conseco, Inc. ## + ................................... 92,050 171
Delphi Financial Group, Inc. ......................... 39,900 628
First American Corp. + ............................... 16,975 346
IPC Holdings Ltd. + .................................. 15,125 418
Old Republic International Corp. + ................... 46,462 428
Protective Life Corp. + .............................. 39,450 329
RenaissanceRe Holdings Ltd. .......................... 14,975 687
Torchmark Corp. + .................................... 17,975 751
Willis Group Holdings Ltd. + ......................... 25,100 659
XL Capital Ltd. + .................................... 2,600 25
---------
4,975
---------
REAL ESTATE - 1.42%
Annaly Capital Management, Inc. ...................... 54,100 752
---------
TOTAL FINANCIALS 9,699
---------
HEALTH CARE - 7.40%
HEALTH CARE EQUIPMENT & SUPPLIES - 1.95%
Hill-Rom Holdings, Inc. + ............................ 17,775 405
See accompanying notes
40
AMERICAN BEACON MID-CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
IMS Health, Inc. + ................................... 43,950 $ 630
---------
1,035
---------
HEALTH CARE PROVIDERS & SERVICES - 5.45%
AmerisourceBergen Corp. + ............................ 20,950 655
Cigna Corp. + ........................................ 15,200 248
Coventry Health Care, Inc. ## ........................ 21,500 284
Omnicare, Inc. + ..................................... 38,700 1,067
Quest Diagnostics, Inc. .............................. 13,700 641
---------
2,895
---------
TOTAL HEALTH CARE ....................................... 3,930
---------
INDUSTRIALS - 8.52%
AEROSPACE & DEFENSE - 3.16%
Goodrich Corp. ....................................... 11,200 410
L-3 Communications Holdings, Inc. .................... 15,600 1,266
---------
1,676
---------
COMMERCIAL SERVICES & SUPPLIES - 1.77%
Avery Dennison Corp. + ............................... 20,800 729
Pitney Bowes, Inc. ................................... 8,600 213
---------
942
---------
FREIGHT TRANSPORTATION - 0.92%
Ryder System, Inc. ................................... 12,300 487
---------
MACHINERY - 2.67%
Brady Corp. .......................................... 13,525 419
Eaton Corp. + ........................................ 11,200 500
ITT Industries, Inc. ................................. 11,200 498
---------
1,417
---------
TOTAL INDUSTRIALS 4,522
---------
INFORMATION TECHNOLOGY - 7.35%
COMMUNICATIONS EQUIPMENT - 2.58%
Alcatel-Lucent, ADR .................................. 377,698 970
Motorola, Inc. ....................................... 74,250 399
---------
1,369
---------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.48%
Avnet, Inc. ## ....................................... 7,250 121
Tyco Electronics Ltd. ................................ 6,975 136
---------
257
---------
IT CONSULTING & SERVICES - 2.44%
Affiliated Computer Services, Inc. ## ................ 10,025 411
Computer Sciences Corp. ## ........................... 19,500 588
Tech Data Corp. ## ................................... 13,650 293
---------
1,292
---------
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
SOFTWARE - 1.85%
CA, Inc. ............................................. 55,150 $ 982
---------
TOTAL INFORMATION TECHNOLOGY ............................ 3,900
---------
UTILITIES - 6.32%
ELECTRIC UTILITIES - 4.11%
CenterPoint Energy, Inc. ............................. 43,400 500
Pinnacle West Capital Corp. .......................... 19,000 601
Wisconsin Energy Corp. + ............................. 8,550 372
Xcel Energy, Inc. + .................................. 40,600 707
---------
2,180
---------
GAS UTILITIES - 2.21%
MDU Resources Group, Inc. ............................ 23,650 431
Sempra Energy ........................................ 17,450 743
---------
1,174
---------
TOTAL UTILITIES ......................................... 3,354
---------
TOTAL COMMON STOCKS .................................... 39,363
---------
SHORT TERM INVESTMENTS - 24.90%
American Beacon Money Market Select Fund ++ .......... 4,196,401 4,196
State Street Institutional Treasury Plus Fund ........ 8,575,322 8,575
PAR
AMOUNT
-----------
U.S. Treasury,
0.34%, Due 12/11/2008 # ........................... $ 439 439
---------
TOTAL SHORT TERM INVESTMENTS 13,210
---------
SHARES
-----------
SECURITIES LENDING COLLATERAL - 16.14%
American Beacon Money Market Select Fund ++ .......... 1,256,883 1,257
Securities Liquidating AB Trust ...................... 4,298,044 4,240
State Street Navigator Securities Lending Prime
Portfolio ......................................... 3,066,275 3,066
---------
TOTAL SECURITIES LENDING COLLATERAL 8,563
---------
TOTAL INVESTMENTS 115.22% - (COST $88,777) 61,136
LIABILITIES, NET OF OTHER ASSETS - (15.22%) (8,076)
---------
TOTAL NET ASSETS - 100.00% $ 53,060
=========
See accompanying notes
41
AMERICAN BEACON MID-CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
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, 2008.
++ The Fund is affiliated by having the same investment advisor.
# At October 31, 2008, 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 ... 77 Dec 2008 $4,377 $(1,389)
====== =======
See accompanying notes
42
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 91.44%
CONSUMER DISCRETIONARY - 11.93%
AUTO COMPONENTS - 0.47%
ATC Technology Corp. ## .............................. 941 $ 21
---------
HOTELS, RESTAURANTS & LEISURE - 1.70%
Einstein Noah Restaurant Group, Inc. ## + ............ 1,790 14
Jack in the Box, Inc. ## + ........................... 1,902 38
Papa John's International, Inc. ## ................... 957 22
---------
74
---------
INTERNET & CATALOG RETAIL - 0.90%
Insight Enterprises, Inc. ## + ....................... 2,809 27
PC Mall, Inc. ## + ................................... 2,684 12
---------
39
---------
LEISURE EQUIPMENT & PRODUCTS - 1.07%
Callaway Golf Co. .................................... 2,157 23
Polaris Industries, Inc. + ........................... 720 24
---------
47
---------
MULTILINE RETAIL - 0.93%
Fred's, Inc. + ....................................... 3,310 41
---------
SPECIALTY RETAIL - 5.25%
American Greetings Corp. ............................. 1,035 12
Cache, Inc. ## + ..................................... 2,529 9
Cato Corp. ........................................... 1,750 27
Charlotte Russe Holding, Inc. ## + ................... 1,453 12
Gymboree Corp. ## .................................... 1,028 27
HOT Topic, Inc. ## ................................... 5,735 37
Jo-Ann Stores, Inc. ## + ............................. 1,801 35
Pacific Sunwear of California ## + ................... 2,316 8
PC Connection, Inc. ## ............................... 5,525 33
Rex Stores Corp. ## + ................................ 413 4
Rush Enterprises, Inc. ## ............................ 413 4
Wet Seal, Inc. ## + .................................. 7,454 22
---------
230
---------
TEXTILES & APPAREL - 1.61%
Movado Group, Inc. + ................................. 1,207 18
New York & Co., Inc. ## + ............................ 2,830 8
Perry Ellis International, Inc. ## + ................. 1,616 16
Wolverine World Wide, Inc. + ......................... 1,206 28
---------
70
---------
TOTAL CONSUMER DISCRETIONARY 522
---------
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
CONSUMER STAPLES - 3.20%
FOOD & DRUG RETAILING - 2.42%
Casey's General Stores, Inc. + ....................... 819 $ 25
Flowers Foods, Inc. + ................................ 864 25
Ruddick Corp. + ...................................... 1,947 56
---------
106
---------
FOOD PRODUCTS - 0.47%
Fresh Del Monte Produce, Inc. ## ..................... 717 15
Omega Protein Corp. ## ............................... 718 5
---------
20
---------
TOBACCO - 0.31%
Alliance One International, Inc. ## + ................ 4,064 14
---------
TOTAL CONSUMER STAPLES 140
---------
ENERGY - 2.48%
ENERGY EQUIPMENT & SERVICES - 0.70%
Oil States International, Inc. ## .................... 1,133 26
Union Drilling, Inc. ## + ............................ 762 4
---------
30
---------
OIL & GAS - 1.78%
Comstock Resources, Inc. ## .......................... 285 14
Petroquest Energy, Inc. ## + ......................... 1,158 12
Rosetta Resources, Inc. ## + ......................... 534 6
Stone Energy Corp. ## ................................ 537 16
Swift Energy Co. ## + ................................ 668 21
Vaalco Energy, Inc. ## ............................... 1,697 9
---------
78
---------
TOTAL ENERGY 108
---------
FINANCIALS - 36.88%
BANKS - 17.93%
Abington Bancorp, Inc. + ............................. 982 10
Arrow Financial Corp. + .............................. 463 12
Boston Private Financial Holdings, Inc. + ............ 2,191 19
Brookline Bancorp, Inc. + ............................ 3,151 37
Bryn Mawr Bank Corp. + ............................... 937 20
Cardinal Financial Corp. ............................. 4,575 28
Columbia Banking System, Inc. ........................ 1,298 21
Community Bank System, Inc. .......................... 2,164 54
CVB Financial Corp. + ................................ 2,901 37
Dime Community Bancshares, Inc. + .................... 1,675 28
ESSA Bancorp, Inc. + ................................. 2,351 32
Financial Institutions, Inc. + ....................... 2,049 33
First Bancorp/Troy NC + .............................. 1,068 19
First Niagara Financial Group, Inc. .................. 2,207 35
Lakeland Bancorp, Inc. ............................... 1,956 21
See accompanying notes
43
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
National Penn Bancshares, Inc. + ..................... 3,565 $ 60
NewAlliance Bancshares, Inc. + ....................... 1,637 23
Pennsylvania Commerce Bancorp, Inc. ## + ............. 397 12
SCBT Financial Corp. + ............................... 1,199 41
Shore Bancshares, Inc. ............................... 905 22
Simmons First National Corp. + ....................... 687 21
Smithtown Bancorp, Inc. + ............................ 809 16
Southwest Bancorp, Inc. .............................. 481 7
Sterling Bancshares, Inc. ............................ 3,331 26
SVB Financial Group ## + ............................. 597 31
United Financial Bancorp, Inc. ....................... 2,334 33
Univest Corp. of Pennsylvania ........................ 587 18
Washington Trust Bancorp, Inc. + ..................... 664 14
Westfield Financial, Inc. + .......................... 1,713 18
Wilshire Bancorp, Inc. + ............................. 3,237 36
---------
784
---------
DIVERSIFIED FINANCIALS - 2.98%
Cash America International, Inc. ..................... 900 32
GAMCO Investors, Inc. + .............................. 656 25
Knight Capital Group, Inc. ## + ...................... 1,424 20
Ocwen Financial Corp. ## + ........................... 812 5
Stifel Financial Corp. ## + .......................... 1,092 48
---------
130
---------
INSURANCE - 6.08%
American Physicians Capital, Inc. .................... 623 25
Amerisafe, Inc. ## ................................... 2,494 43
AmTrust Financial Services, Inc. + ................... 1,298 13
Aspen Insurance Holdings Ltd. ........................ 1,190 27
Delphi Financial Group, Inc. ......................... 380 6
Max Capital Group Ltd. + ............................. 419 7
Navigators Group, Inc. ## + .......................... 1,351 68
Platinum Underwriters Holdings Ltd. .................. 607 19
SeaBright Insurance Holdings, Inc. ## ................ 3,313 35
Universal American Corp. ## + ........................ 1,659 15
Validus Holdings Ltd. ................................ 438 8
---------
266
---------
REAL ESTATE - 9.89%
Agree Realty Corp. ................................... 391 8
Associated Estates Realty Corp. + .................... 2,582 21
DiamondRock Hospitality Co. .......................... 2,718 14
EastGroup Properties, Inc. ........................... 1,144 38
Entertainment Properties Trust + ..................... 671 25
Getty Realty Corp. ................................... 260 5
Home Properties, Inc. + .............................. 965 39
LTC Properties, Inc. + ............................... 1,477 36
Meruelo Maddux Properties, Inc. ## ................... 4,125 4
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Mid-America Apartment Communities, Inc. .............. 982 $ 35
National Retail Properties, Inc. ..................... 2,410 43
Nationwide Health Properties, Inc. + ................. 768 23
PS Business Parks, Inc. + ............................ 696 32
Saul Centers, Inc. ................................... 821 30
Senior Housing Properties Trust ...................... 2,577 49
Sunstone Hotel Investors, Inc. ....................... 2,320 15
Urstadt Biddle Properties, Inc. ...................... 954 16
---------
433
---------
TOTAL FINANCIALS 1,613
---------
HEALTH CARE - 5.41%
BIOTECHNOLOGY - 0.43%
Albany Molecular Research, Inc. ## + ................. 1,481 19
---------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.10%
Caliper Life Sciences, Inc. ## + ..................... 1,747 2
Cardiac Science Corp. ## ............................. 2,178 20
STERIS Corp. ......................................... 748 26
---------
48
---------
HEALTH CARE PROVIDERS & SERVICES - 3.55%
AMN Healthcare Services, Inc. ## ..................... 695 6
Assisted Living Concepts, Inc. ## + .................. 2,277 12
Cantel Medical Corp. ## + ............................ 2,923 28
Centene Corp. ## ..................................... 1,820 34
Cross Country Healthcare, Inc. ## + .................. 1,351 15
RehabCare Group, Inc. ## + ........................... 870 15
Res-Care, Inc. ## .................................... 2,931 45
---------
155
---------
PHARMACEUTICALS - 0.33%
Obagi Medical Products, Inc. ## ...................... 1,743 15
---------
TOTAL HEALTH CARE 237
---------
INDUSTRIALS - 12.21%
AEROSPACE & DEFENSE - 0.99%
Cubic Corp. .......................................... 1,071 24
Ducommun, Inc. ....................................... 973 19
---------
43
---------
BUILDING PRODUCTS - 1.02%
Apogee Enterprises, Inc. + ........................... 943 10
Lennox International, Inc. ........................... 1,180 35
---------
45
---------
COMMERCIAL SERVICES & SUPPLIES - 2.51%
Administaff, Inc. .................................... 705 14
Bowne & Co., Inc. + .................................. 1,903 15
See accompanying notes
44
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
CSG Systems International, Inc. ## + ................. 638 $ 11
Global Cash Access Holdings, Inc. ## + ............... 4,861 14
Kenexa Corp. ## + .................................... 1,239 11
Kforce, Inc. ## ...................................... 318 2
Korn/Ferry International ## + ........................ 2,178 30
On Assignment, Inc. ## ............................... 1,956 13
---------
110
---------
CONSTRUCTION & ENGINEERING - 1.25%
Comfort Systems USA, Inc. ............................ 2,519 24
EMCOR Group, Inc. ## ................................. 1,755 31
---------
55
---------
DIVERSIFIED MANUFACTURING - 1.16%
Acuity Brands, Inc. + ................................ 727 26
Kennametal, Inc. ..................................... 1,187 25
---------
51
---------
ELECTRICAL EQUIPMENT - 0.33%
Woodward Governor Co. + .............................. 451 14
---------
INDUSTRIAL CONGLOMERATES - 0.50%
Chemed Corp. ......................................... 243 11
Lydall, Inc. ......................................... 1,676 11
---------
22
---------
MACHINERY - 4.19%
Actuant Corp. + ...................................... 1,754 31
Applied Industrial Technologies, Inc. + .............. 1,325 27
Cascade Corp. + ...................................... 881 29
CIRCOR International, Inc. ........................... 721 22
Columbus McKinnon Corp. ## ........................... 1,484 21
EnPro Industries, Inc. ## + .......................... 1,077 24
Robbins & Myers, Inc. ................................ 609 12
Thermadyne Holdings Corp. ## + ....................... 1,873 17
---------
183
---------
ROAD & RAIL - 0.26%
Saia, Inc. ## ........................................ 1,055 11
---------
TOTAL INDUSTRIALS 534
---------
INFORMATION TECHNOLOGY - 10.66%
COMMUNICATIONS EQUIPMENT - 2.75%
Ceva, Inc. ## + ...................................... 1,587 14
Digi International, Inc. ## + ........................ 5,636 58
Emulex Corp. ## ...................................... 2,034 19
Extreme Networks ## .................................. 3,347 6
Opnext, Inc. ## + .................................... 1,348 6
Plantronics, Inc. .................................... 1,262 18
---------
121
---------
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.53%
Sanmina-SCI Corp. ## ................................. 31,020 $ 23
---------
INTERNET SOFTWARE & SERVICES - 1.58%
Perficient, Inc. ## + ................................ 3,366 19
S1 Corp. ## .......................................... 4,985 31
SonicWALL, Inc. ## + ................................. 4,309 19
---------
69
---------
IT CONSULTING & SERVICES - 1.56%
Ciber, Inc. ## + ..................................... 6,176 33
MPS Group, Inc. ## + ................................. 4,462 35
---------
68
---------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 1.31%
Skyworks Solutions, Inc. ## + ........................ 4,085 29
TriQuint Semiconductor, Inc. ## ...................... 6,326 29
---------
58
---------
SOFTWARE - 2.93%
American Software, Inc. ## + ......................... 1,848 8
JDA Software Group, Inc. ## .......................... 1,933 28
Netscout Systems, Inc. ## ............................ 732 7
Quest Software, Inc. ## .............................. 2,670 35
Sybase, Inc. ## ...................................... 747 20
TIBCO Software, Inc. ## + ............................ 5,804 30
---------
128
---------
TOTAL INFORMATION TECHNOLOGY 467
---------
MATERIALS - 3.83%
CHEMICALS - 1.27%
Ferro Corp. ## ....................................... 1,315 20
Innospec, Inc. + ..................................... 1,892 16
Quaker Chemical Corp. ................................ 513 10
Rockwood Holdings, Inc. ## + ......................... 695 9
---------
55
---------
CONTAINERS & PACKAGING - 1.29%
AptarGroup, Inc. ..................................... 1,234 38
Greif, Inc. .......................................... 473 19
---------
57
---------
METALS & MINING - 0.92%
GrafTech Int'l Ltd. ## ............................... 2,610 21
Worthington Industries, Inc. + ....................... 1,582 19
---------
40
---------
PAPER & FOREST PRODUCTS - 0.35%
Buckeye Technologies, Inc. ## + ...................... 2,606 16
---------
TOTAL MATERIALS 168
---------
See accompanying notes
45
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
TELECOMMUNICATION SERVICES - 1.31%
DIVERSIFIED TELECOMMUNICATION - 1.10%
Premiere Global Services, Inc. ## .................... 1,595 $ 16
Syniverse Holdings, Inc. ## + ........................ 1,725 32
---------
48
---------
WIRELESS TELECOMMUNICATION SERVICES - 0.21%
Centennial Communications Corp. ## + ................. 2,523 9
---------
TOTAL TELECOMMUNICATION SERVICES 57
---------
UTILITIES - 3.53%
ELECTRIC UTILITIES - 1.65%
Black Hills Corp. .................................... 765 19
El Paso Electric Co. ## .............................. 2,847 53
---------
72
---------
GAS UTILITIES - 1.88%
Atmos Energy Corp. ................................... 1,077 26
Nicor, Inc. + ........................................ 658 30
Southwest Gas Corp. .................................. 986 26
---------
82
---------
TOTAL UTILITIES 154
---------
TOTAL COMMON STOCKS 4,000
---------
SHORT TERM INVESTMENTS - 9.36%
American Beacon Money Market Select Fund ++ .......... 89,539 90
iShares Russell 2000 Index Fund + .................... 1,436 77
iShares Russell 2000 Value Index Fund + .............. 3,671 193
State Street Institutional Treasury Plus Fund ........ 49,413 49
---------
TOTAL SHORT TERM INVESTMENTS 409
---------
SECURITIES LENDING
COLLATERAL - 23.78%
American Beacon Money Market Select Fund ++ .......... 152,660 153
Securities Liquidating AB Trust ...................... 522,036 515
State Street Navigator Securities Lending
Prime Portfolio ................................... 372,427 372
---------
TOTAL SECURITIES LENDING COLLATERAL 1,040
---------
TOTAL INVESTMENTS 124.58% - (COST $6,865) 5,449
LIABILITIES, NET OF OTHER ASSETS - (24.58%) (1,075)
---------
TOTAL NET ASSETS - 100.00% $ 4,374
=========
Percentages are stated as a percent of net assets.
## Non-income producing security.
See accompanying notes
46
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
+ All or a portion of this security is on loan at October 31, 2008.
++ The Fund is affiliated by having the same investment advisor.
See accompanying notes
47
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
AUSTRIA - 0.13%
COMMON STOCKS - 0.13%
Raiffeisen International Bank-Holding AG + ........... 3,436 $ 109
---------
BRAZIL - 9.54%
COMMON STOCKS - 7.00%
Banco Bradesco S.A., ADR ............................. 1,700 20
Banco do Brasil S.A. ................................. 33,297 227
Banco Itau Holding Financeira S.A., ADR + ............ 38,762 429
Centrais Eletricas Brasileiras S.A. .................. 22,466 272
Cia de Saneamento Basico do Estado de Sao Paulo ...... 4,270 49
Cia de Saneamento Basico do Estado de Sao Paulo,
ADR + ............................................. 1,730 40
Cia de Saneamento de Minas Gerais-COPASA ............. 21,600 135
Cia Energetica de Minas Gerais, ADR + ................ 1,964 30
Cia Vale do Rio Doce, ADR + .......................... 50,100 657
Cyrela Brazil Realty S.A. ............................ 25,424 124
Empresa Brasileira de Aeronautica S.A. (Embraer),
ADR + ............................................. 4,780 100
Gafisa S.A. .......................................... 13,953 98
Gafisa S.A., ADR + ................................... 895 13
Grendene S.A. ........................................ 39,700 207
Medial Saude S.A. .................................... 22,100 68
PDG Realty SA Empreendimentos e Participacoes ........ 10,000 52
Perdigao S.A. ........................................ 16,005 233
Petroleo Brasileiro S.A., ADR ........................ 6,210 167
Petroleo Brasileiro S.A., A Shares, ADR .............. 90,669 2,001
Unibanco - Uniao de Bancos Brasileiros S.A. .......... 15,378 98
Unibanco - Uniao de Bancos Brasileiros S.A., GDR ..... 8,890 561
Votorantim Celulose e Papel S.A., ADR + .............. 23,480 237
---------
TOTAL COMMON STOCKS 5,818
---------
PREFERRED STOCKS - 2.54%
Braskem S.A. ......................................... 55,100 239
Centrais Eletricas Brasileiras S.A. .................. 5,840 63
Cia de Tecidos Norte de Minas ## ..................... 48,662 79
Cia Energetica de Minas Gerais ....................... 19,200 293
Cia Vale do Rio Doce, ADR + .......................... 39,486 462
Cia Vale do Rio Doce, A Shares ....................... 7,504 88
Net Servicos de Comunicacao S.A. ## .................. 30,556 194
Tele Norte Leste Participacoes S.A., ADR ............. 39,420 535
Telemig Celular Participacoes S.A. ................... 3,973 62
Ultrapar Participacoes S.A. .......................... 5,500 101
---------
TOTAL PREFERRED STOCKS 2,116
---------
TOTAL BRAZIL 7,934
---------
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
CHILE - 0.03%
COMMON STOCKS - 0.03%
Banco Santander-Chile, ADR ........................... 790 $ 28
---------
COLOMBIA - 0.27%
COMMON STOCKS - 0.27%
Bancolombia S.A., ADR ................................ 11,541 225
---------
CZECH REPUBLIC - 0.89%
COMMON STOCKS - 0.89%
Central European Media Enterprises Ltd. ## + ......... 1,276 34
CEZ .................................................. 9,758 424
Komercni Banka, a.s. ................................. 1,064 159
Telefonica O2 ........................................ 5,682 121
---------
TOTAL CZECH REPUBLIC 738
---------
EGYPT - 0.09%
COMMON STOCKS - 0.09%
Telecom Egypt ........................................ 29,430 71
---------
HONG KONG/CHINA - 13.29%
COMMON STOCKS - 13.29%
Aluminum Corp of China Ltd. + ........................ 189,300 71
Anhui Conch Cement Co. Ltd. ## + ..................... 76,000 245
Anhui Expressway Co. Ltd. + .......................... 476,000 180
Bank of China Ltd. + ................................. 1,114,000 331
Bosideng International Holdings Ltd. + ............... 1,456,000 150
Brilliance China Automotive Holdings Ltd. ## + ....... 1,634,000 68
BYD Electronic International Co. Ltd. ................ 152,000 46
China Coal Energy Ltd. ............................... 442,000 260
China Communications Services Corp. Ltd. + ........... 192,000 100
China Construction Bank Corp. + ...................... 866,000 421
China Life Insurance Co. Ltd. + ...................... 193,000 516
China Mobile Ltd. .................................... 167,500 1,470
China Mobile Ltd., ADR + ............................. 6,720 295
China Molybdenum Co. Ltd. + .......................... 214,000 66
China Power International Development Ltd. + ......... 1,903,800 347
China Resources Power Holdings Co. Ltd. + ............ 92,000 180
China Telecom Corp. Ltd. ............................. 387,100 136
China Unicom Hong Kong Ltd. .......................... 338,744 488
CNOOC Ltd. ........................................... 88,000 72
CNOOC Ltd., ADR + .................................... 2,380 194
COSCO Pacific Ltd. ................................... 370,000 267
Datang International Power Generation Co. Ltd. ....... 220,000 82
Denway Motors Ltd. + ................................. 642,700 157
Dongfang Electric Corp. Ltd. + ....................... 92,000 178
Dongfeng Motor Group Co. Ltd. ........................ 740,000 205
See accompanying notes
48
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Focus Media Holding Ltd., ADR ## + ................... 14,400 $ 267
Global Bio-chem Technology Group Co. Ltd. + .......... 667,800 91
GOME Electrical Appliances Holdings Ltd. ............. 1,857,000 363
Hopson Development Holdings Ltd. + ................... 182,100 60
Huaneng Power International, Inc. + .................. 585,900 290
Industrial & Commercial Bank of China + .............. 784,000 365
Maanshan Iron & Steel + .............................. 519,000 95
Nine Dragons Paper Holdings Ltd. + ................... 375,000 66
NWS Holdings Ltd. .................................... 59,421 62
PetroChina Co. Ltd. .................................. 1,872,000 1,459
Ping'an Insurance Co. Ltd. + ......................... 55,500 240
Shanghai Industrial Holdings Ltd. .................... 173,000 275
Sinopec Shanghai Petrochemical Co. Ltd. + ............ 732,000 136
Sinotrans Ltd. ....................................... 921,000 203
Texwinca Holdings Ltd. ............................... 196,000 92
TPV Technology Ltd. .................................. 768,000 151
Weiqiao Textile Co. .................................. 583,600 119
Yanzhou Coal Mining Co. Ltd. ......................... 166,000 104
Yanzhou Coal Mining Co. Ltd., ADR + .................. 15,200 94
---------
TOTAL HONG KONG/CHINA 11,057
---------
HUNGARY - 0.56%
COMMON STOCKS - 0.56%
Gedeon Richter Rt. ................................... 2,889 397
Magyar Telekom Telecommunications plc ................ 22,430 71
---------
TOTAL HUNGARY 468
---------
INDIA - 6.78%
COMMON STOCKS - 6.78%
Andhra Bank .......................................... 78,060 69
Bharat Heavy Electricals Ltd. ........................ 11,655 316
Bharat Petroleum Corp. Ltd. .......................... 26,943 157
Bharti Airtel Ltd. ## ................................ 18,880 258
Deccan Chronicle Holdings Ltd. ....................... 51,879 46
Glenmark Pharmaceuticals Ltd. ........................ 16,700 98
HDFC Bank Ltd. ....................................... 18,980 405
Hindalco Industries Ltd. ............................. 81,820 102
Hindustan Petroleum Corp. Ltd. ....................... 67,630 262
Hindustan Unilever Ltd. .............................. 60,300 275
Housing Development Finance Corp. .................... 10,240 378
ICICI Bank Ltd., ADR + ............................... 8,930 153
India Cements Ltd. ................................... 158,380 284
Infosys Technologies Ltd. ............................ 14,780 420
Mahanagar Telephone Nigam Ltd. ....................... 136,370 190
Mahindra & Mahindra Ltd. ............................. 27,755 215
Maruti Suzuki India Ltd. ............................. 17,173 200
Oil & Natural Gas Corp. Ltd. ......................... 9,271 129
Reliance Communications Ltd. ......................... 13,160 60
Reliance Industries Ltd. ............................. 19,440 543
Satyam Computer Services Ltd. ........................ 19,100 120
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
State Bank of India Ltd. ............................. 8,800 $ 203
State Bank of India Ltd., GDR ++ ..................... 7,920 364
Steel Authority of India Ltd. ........................ 34,496 62
Sterlite Industries (India) Ltd. ..................... 6,590 39
Sterlite Industries (India) Ltd., ADR ................ 14,020 87
Tata Consultancy Services Ltd. ....................... 12,730 140
Tata Motors Ltd. # ................................... 6,086 21
Television Eighteen India Ltd. ....................... 22,300 39
---------
TOTAL INDIA 5,635
---------
INDONESIA - 1.57%
COMMON STOCKS - 1.57%
PT Astra International Tbk ........................... 147,900 129
PT Bank Central Asia Tbk ............................. 634,500 160
PT Bank Mandiri (Persero) Tbk ........................ 414,000 61
PT Bank Rakyat Indonesia Tbk ......................... 293,000 95
PT Bumi Resources Tbk # .............................. 551,500 110
PT Gudang Garam Tbk .................................. 327,300 131
PT Kalbe Farma Tbk ................................... 2,903,100 99
PT Perusahaan Gas Negara Persero Tbk ................. 261,500 34
PT Telekomunikasi Indonesia Tbk ...................... 969,800 488
---------
TOTAL INDONESIA 1,307
---------
ISRAEL - 0.36%
COMMON STOCKS - 0.36%
Bank Hapoalim B.M. ................................... 45,400 103
Israel Discount Bank Ltd. ............................ 199,355 197
---------
TOTAL ISRAEL 300
---------
LUXEMBOURG - 0.24%
COMMON STOCKS - 0.24%
Millicom International Cellular S.A. + ............... 4,907 196
---------
MALAYSIA - 2.22%
COMMON STOCKS - 2.22%
AMMB Holdings Bhd .................................... 134,850 82
Digi.Com BHD ......................................... 8,000 42
Gamuda Bhd ........................................... 480,800 204
Genting Bhd .......................................... 63,900 82
Malayan Banking Bhd .................................. 364,000 553
Resorts World Bhd .................................... 139,600 98
Sime Darby Bhd ....................................... 249,200 438
Tenaga Nasional Bhd .................................. 206,700 349
---------
TOTAL MALAYSIA 1,848
---------
MEXICO - 3.93%
COMMON STOCKS - 3.93%
America Movil, S.A.B. de C.V., ADR ................... 38,147 1,180
Consorcio ARA, S.A.B. de C.V. + ...................... 285,700 118
See accompanying notes
49
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Controladora Commercial Mexicana, S.A.B. de C.V. + ... 93,000 $ 26
Corp GEO, S.A.B. de C.V. ## .......................... 38,799 53
Embotelladoras Arca, S.A.B. de C.V.................... 85,630 186
Empresas ICA, S.A.B. de C.V. ## + .................... 43,057 60
Fomento Economico Mexicano, S.A. de C.V., ADR ........ 10,000 253
Gruma, S.A.B. de C.V. ## + # ......................... 110,790 72
Grupo Continential, S.A.B. de C.V..................... 178,750 278
Grupo Financiero Banorte, S.A.B. de C.V............... 115,789 222
Grupo Modelo, S.A.B. de C.V. + ....................... 46,600 141
Grupo Televisa, S.A., ADR + .......................... 16,700 295
Urbi Desarrollos Urbanos, S.A.B. de C.V. ## + ........ 38,084 53
Wal-Mart de Mexico, S.A.B. de C.V. + ................. 122,913 328
---------
TOTAL MEXICO 3,265
---------
PHILIPPINES - 0.41%
COMMON STOCKS - 0.41%
ABS-CBN Broadcasting Corp. ........................... 104,400 32
Bank of the Philippine Islands ....................... 169,927 140
Manila Electric Co. .................................. 63,120 76
Metropolitan Bank & Trust ............................ 50,700 27
Union Bank of the Philippines ........................ 136,400 67
---------
TOTAL PHILIPPINES 342
---------
POLAND - 1.94%
COMMON STOCKS - 1.94%
Bank Pekao S.A ....................................... 11,825 538
Bank Zachodni WBK S.A................................. 3,236 142
Budimex S.A. ## ...................................... 1,810 41
KGHM Polska Miedz S.A................................. 2,688 30
PBG S.A. ## .......................................... 1,496 105
Polimex Mostostal S.A................................. 33,411 37
Polski Koncern Naftowy Orlen S.A...................... 18,320 186
Powszechna Kasa Oszczednosci Bank Polski SA .......... 33,027 373
Telekomunikacja Polska S.A............................ 21,742 164
---------
TOTAL POLAND 1,616
---------
QATAR - 0.04%
COMMON STOCKS - 0.04%
Commercial Bank of Qatar, GDR ## ..................... 11,580 35
---------
RUSSIA - 5.39%
COMMON STOCKS - 5.39%
Gazprom OAO, ADR ..................................... 30,350 612
Gazprom OAO, ADR + ................................... 63,698 1,266
LUKOIL Oil Co., ADR + ................................ 34,192 1,306
Mobile TeleSystems OJSC, ADR ......................... 3,760 147
OAO Severstal, GDR + ++ .............................. 10,460 36
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
OJSC MMC Norilsk Nickel, ADR + ....................... 34,060 $ 341
OJSC Rosneft Oil Co. ## .............................. 67,056 308
OJSC Surgutneftegaz, ADR + ........................... 13,050 84
TMK OAO, GDR ......................................... 10,717 115
Vimpel-Communications, ADR ........................... 13,354 194
VTB Bank OJSC, GDR ++ ................................ 24,380 77
---------
TOTAL RUSSIA 4,486
---------
SOUTH AFRICA - 5.92%
COMMON STOCKS - 5.92%
AngloGold Ashanti Ltd. ............................... 5,140 96
AngloGold Ashanti Ltd., ADR + ........................ 29,004 529
FirstRand Ltd. ....................................... 254,230 368
Gold Fields Ltd., ADR + .............................. 24,710 164
Harmony Gold Mining Co. Ltd. ## ...................... 9,800 73
Harmony Gold Mining Co. Ltd., ADR ## + ............... 3,100 23
JD Group Ltd. ........................................ 38,570 111
Massmart Holdings Ltd. ............................... 26,614 238
Mr Price Group Ltd. .................................. 60,200 149
MTN Group Ltd. ....................................... 51,685 583
Murray & Roberts Holdings Ltd. ....................... 11,437 78
Nampak Ltd. .......................................... 177,760 243
Naspers Ltd. ......................................... 18,900 317
Nedbank Group Ltd. ................................... 36,164 350
Raubex Group Ltd. .................................... 34,350 90
SABMiller plc ........................................ 9,972 160
Sanlam Ltd. .......................................... 72,300 119
Sappi Ltd. ........................................... 33,310 204
Sasol Ltd. ........................................... 13,735 411
Standard Bank Group Ltd. ............................. 4,876 39
Steinhoff International Holdings Ltd. ................ 87,509 129
Telkom South Africa Ltd. ............................. 22,780 247
Tiger Brands Ltd. .................................... 14,100 206
---------
TOTAL SOUTH AFRICA 4,927
---------
SOUTH KOREA - 10.41%
COMMON STOCKS - 10.21%
Amorepacific Corp. ................................... 248 109
Cheil Industries, Inc. ............................... 4,808 155
Cheil Worldwide, Inc. ................................ 871 112
Hana Financial Group, Inc. ........................... 7,120 112
Hanwha Chemical Corp. ................................ 24,811 107
Hyundai Development Co. .............................. 5,020 135
Hyundai Motor Co. .................................... 13,468 619
Kangwon Land, Inc. ................................... 13,580 134
KB Financial Group, Inc. ## .......................... 22,627 561
Korea Electric Power Corp. ........................... 21,495 430
KT Corp. ............................................. 3,640 92
KT Corp., ADR ........................................ 19,290 242
Kumho Tire Co., Inc. ................................. 29,460 105
See accompanying notes
50
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
LG Chemical Ltd. ..................................... 4,032 $ 243
LG Electronics, Inc. ................................. 3,102 229
LG Telecom Ltd. ...................................... 2,000 14
Lotte Shopping Co. Ltd. .............................. 1,825 252
NHN Corp. ## ......................................... 2,297 243
POSCO ................................................ 1,759 478
Samsung Electronics Co. Ltd. ......................... 5,482 2,291
Samsung Fire & Marine Insurance Co. Ltd. ............. 1,438 191
Shinhan Financial Group Co. Ltd. ..................... 17,670 444
SK Telecom Co. Ltd. .................................. 906 143
SK Telecom Co. Ltd., ADR ............................. 40,230 692
SSCP Co. Ltd. ## ..................................... 6,524 30
STX Pan Ocean Co. Ltd. + ............................. 104,000 56
Woongjin Coway Co. Ltd. .............................. 13,056 270
---------
TOTAL COMMON STOCKS 8,489
---------
PREFERRED STOCKS - 0.20%
Samsung Electronics Co. Ltd. ......................... 631 165
---------
TOTAL SOUTH KOREA 8,654
---------
TAIWAN - 7.17%
COMMON STOCKS - 7.17%
Acer, Inc. ........................................... 145,680 193
Asustek Computer, Inc. ............................... 178,672 262
Cathay Financial Holding Co. Ltd. .................... 151,400 164
China Motor Corp. .................................... 261,245 89
China Steel Corp. .................................... 116,880 86
Chinatrust Financial Holding Co. Ltd. ................ 1,135,795 329
Chunghwa Telecom Co. Ltd. ............................ 75,590 125
Compal Electronics, Inc. ............................. 729,379 525
First Financial Holding Co. Ltd. ..................... 402,873 192
HON HAI Precision Industry Co. Ltd. .................. 233,750 566
HTC Corp. ............................................ 22,400 267
Mega Financial Holding Co. Ltd. ...................... 589,000 166
Nan Ya Printed Circuit Board Corp. ................... 64,480 155
Nien Hsing Textile Co. Ltd. .......................... 155,000 41
Powerchip Semiconductor Corp. ## ..................... 608,444 72
Quanta Computer, Inc. ................................ 387,875 411
SinoPac Financial Holdings Co. Ltd. .................. 1,557,987 334
Taiwan Cement Corp. .................................. 66,010 34
Taiwan Fertilizer Co. Ltd. ........................... 40,000 50
Taiwan Semiconductor Manufacturing Co. Ltd. .......... 690,503 1,022
United Microelectronics Corp. ........................ 1,808,226 511
Yaego Corp. .......................................... 873,000 136
Yang Ming Marine Transport Corp. ..................... 47,700 13
Yuanta Financial Holding Co. Ltd. .................... 561,000 223
---------
TOTAL TAIWAN 5,966
---------
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
THAILAND - 2.14%
COMMON STOCKS - 2.14%
Advanced Info Service PCL ............................ 35,000 $ 70
Bangkok Bank PCL ..................................... 94,200 192
Charoen Pokphand Foods PCL ........................... 2,873,800 249
Kasikornbank PCL ..................................... 296,500 432
Krung Thai Bank PCL .................................. 1,840,000 206
PTT Exploration & Production PCL ..................... 26,700 65
PTT PCL .............................................. 28,700 130
Siam Cement PCL ...................................... 72,700 221
Siam Commercial Bank PCL ............................. 53,900 81
Thai Union Frozen Products PCL ....................... 288,300 136
---------
TOTAL THAILAND 1,782
---------
TURKEY - 2.28%
COMMON STOCKS - 2.28%
Akbank TAS ........................................... 83,486 288
Anadolu Efes Biracilik Ve Malt Sanayii A.S. .......... 18,336 156
Haci Omer Sabanci Holding A.S. ....................... 41,935 102
Tekfen Holding A.S. .................................. 44,475 122
Turkcell Iletisim Hizmetleri A.S. .................... 60,249 296
Turkcell Iletisim Hizmetleri A.S., ADR + ............. 5,550 68
Turkiye Garanti Bankasi A.S. ## ...................... 250,530 418
Turkiye Halk Bankasi A.S ............................. 27,000 75
Turkiye Is Bankasi (Isbank) .......................... 67,159 189
Turkiye Sise ve Cam Fabrikalari A.S. ## .............. 218,617 179
---------
TOTAL TURKEY 1,893
---------
UNITED KINGDOM - 0.09%
COMMON STOCKS - 0.09%
JKX Oil & Gas plc .................................... 31,160 77
---------
SHORT TERM INVESTMENTS - 22.71%
American Beacon Money Market Select Fund * ........... 5,303,912 5,304
State Street Institutional Treasury Plus Fund ........ 12,849,480 12,850
PAR
AMOUNT
-----------
U.S. Treasury,
0.33%, Due 12/11/2008 [ ]........................... $ 735 734
---------
TOTAL SHORT TERM INVESTMENTS 18,888
---------
SHARES
-----------
SECURITIES LENDING
COLLATERAL - 13.24%
American Beacon Money Market Select Fund * ........... 1,615,761 1,615
Securities Liquidating AB Trust ...................... 5,525,264 5,451
See accompanying notes
51
AMERICAN BEACON EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
State Street Navigator Securities Lending
Prime Portfolio ................................... $ 3,941,788 $ 3,942
---------
TOTAL SECURITIES LENDING COLLATERAL 11,008
---------
TOTAL INVESTMENTS 111.64% - (COST $133,564) 92,855
LIABILITIES, NET OF OTHER ASSETS - (11.64%) (9,678)
---------
TOTAL NET ASSETS - 100.00% $ 83,177
=========
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, 2008.
++ 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 $477 or 0.57% of net assets.
The Fund has no right to demand registration of these securities.
# Valued at fair value pursuant to procedures approved by the Board of
Trustees.
* The Fund is affiliated by having the same investment advisor.
[ ] At October 31, 2008, 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 .... 119 Dec 2008 $5,755 $(1,315)
====== =======
SECTOR DIVERSIFICATION
Percent of
Net Assets
----------
Communications ..................... 1.05%
Consumer Discretionary ............. 6.37%
Consumer Staples ................... 3.40%
Energy ............................. 11.12%
Financials ......................... 16.98%
Health Care ........................ 0.83%
Industrials ........................ 4.14%
Information Technology ............. 9.00%
Materials .......................... 8.28%
Telecommunication Services ......... 10.86%
Utilities .......................... 3.67%
Short Term Investments ............. 35.94%
Liabilities, Net of Other Assets ... (11.64)%
------
100.00%
======
See accompanying notes
52
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
PREFERRED STOCKS - 0.01%
PREFERRED STOCK - 0.01%
Federal Home Loan Mortgage Corp. ..................... 10,000 $ 15
---------
PAR
AMOUNT
-----------
CORPORATE OBLIGATIONS - 90.32%
AUTO COMPONENTS - 1.12%
Allison Transmission, 11.00%, Due 11/1/2015 ++ ....... $ 800 500
Cooper-Standard Automotive, Inc., 8.375%, Due
12/15/2014 ........................................ 920 386
TRW Automotive, Inc., 7.25%, Due 3/15/2017 ++ ........ 800 460
---------
1,346
---------
AUTO LOAN - 3.34%
Ford Motor Credit Co. LLC,
9.75%, Due 9/15/2010 .............................. 1,200 816
9.875%, Due 8/10/2011 ............................. 2,480 1,563
General Motors Acceptance Corp.,
6.875%, Due 9/15/2011 ............................. 2,400 1,405
8.00%, Due 11/1/2031 .............................. 500 227
---------
4,011
---------
AUTOMOBILES - 0.68%
Ford Motor Co.,
8.875%, Due 1/15/2022 ............................. 200 62
7.45%, Due 7/16/2031 .............................. 1,000 315
General Motors Corp.,
7.40%, Due 9/1/2025 ............................... 500 130
8.375%, Due 7/15/2033 ............................. 970 315
---------
822
---------
CASINO/GAMING - 3.05%
Fontainebleau Las Vegas Holdings LLC, 10.25%, Due
6/15/2015 ++ ...................................... 1,700 230
Harrah's Operating Co., Inc., 10.75%, Due 2/1/2016 ... 975 317
Las Vegas Sands Corp., 6.375%, Due 2/15/2015 ......... 750 358
Mandalay Resort Group, 9.375%, Due 2/15/2010 ......... 820 541
MGM Mirage, 6.625%, Due 7/15/2015 .................... 1,400 819
Pinnacle Entertainment, Inc.,
8.25%, Due 3/15/2012 .............................. 700 485
8.75%, Due 10/1/2013 .............................. 100 76
Pokagon Gaming Authority, 10.375%, Due 6/15/2014 ++ .. 295 268
Station Casinos, Inc.,
6.00%, Due 4/1/2012 ............................... 1,100 404
6.875%, Due 3/1/2016 .............................. 700 63
7.75%, Due 8/15/2016 .............................. 300 100
---------
3,661
---------
COMMERCIAL SERVICES - 0.59%
Iron Mountain, Inc., 8.75%, Due 7/15/2018 ............ 200 171
RSC Equipment Rental, Inc., 9.50%, Due 12/1/2014 ..... 900 540
---------
711
---------
See accompanying notes
53
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
COMMUNICATIONS - 16.12%
American Tower Corp.,
7.50%, Due 5/1/2012 ............................... $ 175 $ 164
7.00%, Due 10/15/2017 ++ .......................... 800 696
CanWest Media, Inc., 8.00%, Due 9/15/2012 ............ 900 576
CCH I Holdings LLC, 13.50%, Due 1/15/2014 ............ 1,100 341
Centennial Communications Corp., 9.633%, Due
1/1/2013 # ........................................ 770 585
Charter Communications Holdings LLC,
10.25%, Due 9/15/2010 ............................. 1,000 695
13.50%, Due 1/15/2011 ............................. 1,100 517
11.00%, Due 10/1/2015 ............................. 800 360
Cricket Communications, Inc., 9.375%, Due 11/1/2014 .. 925 752
CSC Holdings, Inc.,
8.125%, Due 7/15/2009 ............................. 125 120
7.625%, Due 7/15/2018 ............................. 400 287
Dex Media, Inc., Zero Coupon, Due 11/15/2013 # ....... 1,000 225
Digicel Group Ltd., 8.875%, Due 1/15/2015 ++ ......... 1,200 672
DirecTV Holdings LLC/DirecTV Financing Co., 7.625%,
Due 5/15/2016 ++ .................................. 1,100 924
Echostar DBS Corp., 7.125%, Due 2/1/2016 ............. 1,200 963
HSN, Inc., 11.25%, Due 8/1/2016 ...................... 650 539
Idearc, Inc., 8.00%, Due 11/15/2016 .................. 2,300 319
Intelsat Corp., 9.25%, Due 8/15/2014 ................. 535 460
Intelsat Jackson Holdings Ltd., 11.25%, Due
6/15/2016 ++ ...................................... 200 171
Intelsat Subsidiary Holding Co. Ltd., 8.50%, Due
4/15/2013 ......................................... 600 522
iPCS, Inc., 4.926%, Due 5/1/2013 # ................... 315 243
L-3 Communications Corp., 6.125%, Due 7/15/2013 ...... 200 173
Lamar Media Corp., 7.25%, Due 1/1/2013 ............... 800 628
Liberty Media LLC, 5.70%, Due 5/15/2013 .............. 900 626
Mediacom LLC, 9.50%, Due 1/15/2013 ................... 865 681
MetroPCS Wireless, Inc., 9.25%, Due 11/1/2014 ........ 800 666
Nortel Networks Ltd., 10.75%, Due 7/15/2016 .......... 800 422
Quebecor Media, Inc., 7.75%, Due 3/15/2016 ........... 1,550 1,073
Qwest Communications International, Inc., 7.50%, Due
2/15/2014 ......................................... 800 544
Qwest Corp.,
6.069%, Due 6/15/2013 # ........................... 750 544
6.875%, Due 9/15/2033 ............................. 590 366
Radio One, Inc., 6.375%, Due 2/15/2013 ............... 700 315
Sprint Capital Corp.,
7.625%, Due 1/30/2011 ............................. 250 207
8.75%, Due 3/15/2032 .............................. 1,125 737
Telesat Canada, 12.50%, Due 11/1/2017 ................ 800 496
Tim Hellas Telecommunications, 10.503%, Due
1/15/2015 ++ # .................................... 500 145
Time Warner Telecom Holdings, Inc., 9.25%,
Due 2/15/2014 ..................................... 500 405
Univision Communications, Inc., 9.75%, Due
3/15/2015 ++ ...................................... 1,900 389
VIP Finance Ireland Ltd., 9.125%, Due 4/30/2018 ++ ... 185 96
See accompanying notes
54
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Virgin Media Finance PLC, 9.125%, Due 8/15/2016 ...... $ 1,100 $ 726
---------
19,370
---------
CONSTRUCTION & ENGINEERING - 0.44%
KB Home,
6.25%, Due 6/15/2015 .............................. 700 466
7.25%, Due 6/15/2018 .............................. 100 66
---------
532
---------
CONSUMER DISCRETIONARY - 2.78%
Carrols Corp., 9.00%, Due 1/15/2013 .................. 1,050 677
Easton-Bell Sports, Inc., 8.375%, Due 10/1/2012 ...... 250 181
Education Management LLC, 10.25%, Due 6/1/2016 ....... 1,235 852
Lear Corp., 8.75%, Due 12/1/2016 ..................... 1,050 389
Michaels Stores, Inc., 10.00%, Due 11/1/2014 ......... 1,445 650
Neiman Marcus Group, Inc., 9.00%, Due 10/15/2015 ..... 310 213
Ticketmaster Entertainment, Inc., 10.75%, Due
8/1/2016 .......................................... 445 374
---------
3,336
---------
CONSUMER STAPLES - 3.41%
Biomet, Inc.,
10.00%, Due 10/15/2017 ............................ 50 46
11.625%, Due 10/15/2017 ........................... 500 435
CRC Health Corp., 10.75%, Due 2/1/2016 ............... 1,285 655
Dean Foods Co., 7.00%, Due 6/1/2016 .................. 600 456
Jarden Corp., 7.50%, Due 5/1/2017 .................... 800 596
Prestige Brands, Inc., 9.25%, Due 4/15/2012 .......... 280 261
Reable Therapeutics, 11.75%, Due 11/15/2014 .......... 525 373
Reynolds American, Inc., 7.625%, Due 6/1/2016 ........ 900 738
Smithfield Foods, Inc., 7.75%, Due 5/15/2013 ......... 800 536
---------
4,096
---------
ENERGY - 12.84%
Chesapeake Energy Corp., 6.625%, Due 1/15/2016 ....... 1,200 938
Cie Generale de Geophysique-Veritas, 7.50%, Due
5/15/2015 ......................................... 800 536
Compton Petroleum Finance Corp., 7.625%, Due
12/1/2013 ......................................... 750 435
Copano Energy LLC,
8.125%, Due 3/1/2016 .............................. 800 588
7.75%, Due 6/1/2018 ............................... 100 69
Dynegy Holdings, Inc., 8.375%, Due 5/1/2016 .......... 800 592
Energy Partners Ltd., 9.75%, Due 4/15/2014 ........... 515 277
Helix Energy Solutions Group, Inc., 9.50%, Due
1/15/2016 ......................................... 500 320
Intergen NV, 9.00%, Due 6/30/2017 ++ ................. 800 640
International Coal Group, Inc., 10.25%, Due
7/15/2014 ......................................... 430 361
Linn Energy LLC, 9.875%, Due 7/1/2018 ................ 460 311
Mariner Energy, Inc., 7.50%, Due 4/15/2013 ........... 700 483
MarkWest Energy Partners LP,
6.875%, Due 11/1/2014 ............................. 700 506
8.75%, Due 4/15/2018 .............................. 500 360
See accompanying notes
55
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Mirant Americas Generation LLC, 8.30%, Due 5/1/2011 .. $ 700 $ 642
Mirant North America LLC, 7.375%, Due 12/31/2013 ..... 900 786
NRG Energy, Inc.,
7.25%, Due 2/1/2014 ............................... 700 612
7.375%, Due 2/1/2016 .............................. 1,200 1,035
OPTI Canada, Inc., 8.25%, Due 12/15/2014 ............. 750 446
Peabody Energy Corp., 7.375%, Due 11/1/2016 .......... 300 253
PetroHawk Energy Corp., 9.125%, Due 7/15/2013 ........ 1,200 924
Plains Exploration & Production Co., 7.625%, Due
6/1/2018 .......................................... 1,000 655
Quicksilver Resources, Inc., 8.25%, Due 8/1/2015 ..... 900 625
Regency Energy Partners LP, 8.375%, Due 12/15/2013 ... 577 439
SandRidge Energy, Inc., 8.00%, Due 6/1/2018 ++ ....... 500 332
Seitel, Inc., 9.75%, Due 2/15/2014 ................... 750 473
Tesoro Corp., 6.50%, Due 6/1/2017 .................... 1,200 804
Williams Cos., Inc.,
7.625%, Due 7/15/2019 ............................. 500 413
7.875%, Due 9/1/2021 .............................. 400 330
8.75%, Due 3/15/2032 .............................. 300 245
---------
15,430
---------
FINANCE - 9.66%
American Real Estate Partners, L.P., 8.125%, Due
6/1/2012 .......................................... 975 663
BF Saul Reit, 7.50%, Due 3/1/2014 .................... 815 497
E*Trade Financial Corp., 12.50%, Due 11/30/2017 ...... 1,250 1,125
FMC Finance III S.A., 6.875%, Due 7/15/2017 .......... 300 238
Forest City Enterprises, Inc., 7.625%, Due 6/1/2015 .. 600 420
Galaxy Entertainment Finance Co. Ltd., 9.875%, Due
12/15/2012 ++ ..................................... 1,000 380
General Motors Acceptance Corp., 7.25%, Due
3/2/2011 .......................................... 625 385
Hexion US Finance Corp., 9.75%, Due 11/15/2014 ....... 460 292
HUB International Holdings, Inc., 10.25%, Due
6/15/2015 ++ ...................................... 1,100 693
Hughes Network Systems LLC, 9.50%, Due 4/15/2014 ..... 900 765
JP Morgan Chase & Co., 7.90%, Due 12/31/2049 ......... 900 729
KAR Holdings, Inc., 10.00%, Due 5/1/2015 ............. 925 523
LaBranche & Co., Inc., 11.00%, Due 5/15/2012 ......... 850 756
Lehman Brothers Holdings, Inc., 6.20%, Due
9/26/2014 ......................................... 900 117
Liberty Mutual Group, Inc., 10.75%, Due
6/15/2058 ++ ...................................... 500 263
Merrill Lynch & Co., Inc., 6.875%, Due 4/25/2018 ..... 500 444
National City Bank, 4.529%, Due 1/21/2010 # .......... 250 230
Nuveen Investments, Inc., 5.00%, Due 9/15/2010 ....... 625 213
Petroplus Finance Ltd., 6.75%, Due 5/1/2014 ++ ....... 1,000 670
Pinnacle Foods Finance LLC, 10.625%, Due 4/1/2017 .... 1,125 698
Realogy Corp., 10.50%, Due 4/15/2014 ................. 900 288
USI Holdings Corp., 9.75%, Due 5/15/2015 ++ .......... 615 387
Wachovia Capital Trust III, 5.80%, Due 3/15/2042 ..... 500 267
Washington Mutual, Inc., 7.25%, Due 11/1/2017 ........ 485 113
See accompanying notes
56
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Wells Fargo Capital XIII, 7.70%, Due 12/29/2049 ...... $ 200 $ 164
Wells Fargo Capital XV, 9.75%, Due 12/29/2049 ........ 300 291
---------
11,611
---------
HEALTH CARE - 6.98%
Community Health Systems, Inc., 8.875%, Due
7/15/2015 ......................................... 175 147
DaVita, Inc., 7.25%, Due 3/15/2015 ................... 1,150 983
Fresenius Medical Care Capital Trust IV, 7.875%, Due
6/15/2011 ......................................... 700 644
HCA, Inc.,
9.125%, Due 11/15/2014 ............................ 2,050 1,763
6.50%, Due 2/15/2016 .............................. 700 411
HealthSouth Corp., 9.133%, Due 6/15/2014 # ........... 735 625
Tenet Healthcare Corp., 9.875%, Due 7/1/2014 ......... 800 654
United Surgical Partners International, Inc., 9.25%,
Due 5/1/2017 ...................................... 900 578
Universal Hospital Services, Inc., 6.303%, Due
6/1/2015 # ........................................ 500 340
US Oncology, Inc.,
8.334%, Due 3/15/2012 # ........................... 966 676
10.75%, Due 8/15/2014 ............................. 700 546
Vanguard Health Holding Co. I LLC, Zero Coupon, Due
10/1/2015 # ....................................... 550 432
Vanguard Health Holding Co. II LLC, 9.00%, Due
10/1/2014 ......................................... 700 581
---------
8,380
---------
HOTELS, RESTAURANTS & LEISURE - 2.38%
Denny's Holdings, Inc., 10.00%, Due 10/1/2012 ........ 475 361
Gaylord Entertainment Co., 8.00%, Due 11/15/2013 ..... 750 512
Host Hotels & Resorts LP, 6.875%, Due 11/1/2014 ...... 400 298
Host Marriott LP, 7.125%, Due 11/1/2013 .............. 600 471
O'Charley's, Inc., 9.00%, Due 11/1/2013 .............. 600 355
OSI Restaurant Partners, Inc., 10.00%, Due
6/15/2015 ......................................... 400 94
Royal Caribbean Cruises Ltd., 7.25%, Due 3/15/2018 ... 1,200 768
---------
2,859
---------
INDUSTRIALS - 10.83%
Allied Waste North America, Inc., 6.875%, Due
6/1/2017 .......................................... 300 261
Bowater, Inc., 9.00%, Due 8/1/2009 ................... 625 344
Casella Waste Systems, Inc., 9.75%, Due 2/1/2013 ..... 920 810
Celestica, Inc., 7.625%, Due 7/1/2013 ................ 200 162
CEVA Group plc, 10.00%, Due 9/1/2014 ++ .............. 800 576
Crown Americas LLC, 7.75%, Due 11/15/2015 ............ 800 698
DRS Technologies, Inc.,
6.875%, Due 11/1/2013 ............................. 200 198
7.625%, Due 2/1/2018 .............................. 100 99
Freescale Semiconductor, Inc., 8.875%, Due
12/15/2014 ........................................ 2,250 1,001
Hovnanian Enterprises, Inc., 11.50%, Due 5/1/2013 .... 500 405
Interface, Inc., 10.375%, Due 2/1/2010 ............... 819 799
Intertape Polymer US, Inc., 8.50%, Due 8/1/2014 ...... 1,100 880
NewPage Corp., 10.00%, Due 5/1/2012 .................. 800 544
Nortek, Inc., 10.00%, Due 12/1/2013 .................. 500 367
See accompanying notes
57
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Novelis, Inc., 7.25%, Due 2/15/2015 .................. $ 800 $ 536
Owens-Brockway Glass Containers, Inc., 6.75%, Due
12/1/2014 ......................................... 800 692
RBS Global, Inc., 9.50%, Due 8/1/2014 ................ 1,205 831
Sanmina-SCI Corp.,
5.569%, Due 6/15/2014 ++ # ........................ 100 77
8.125%, Due 3/1/2016 .............................. 700 441
Service Corp International, 1.00%, Due 6/15/2017 ..... 245 187
Smurfit Kappa Funding plc, 7.75%, Due 4/1/2015 ....... 200 142
Smurfit-Stone Container Enterprises, Inc., 8.375%,
Due 7/1/2012 ...................................... 750 382
Solo Cup Co., 8.50%, Due 2/15/2014 ................... 575 385
Stallion Oilfield Services, 9.75%, Due 2/1/2015 ++ ... 500 235
Terex Corp., 8.00%, Due 11/15/2017 ................... 700 518
TFM S.A.B. de C.V., 9.375%, Due 5/1/2012 ............. 500 423
TransDigm, Inc., 7.75%, Due 7/15/2014 ................ 400 320
WCA Waste Corp., 9.25%, Due 6/15/2014 ................ 850 697
---------
13,010
---------
MATERIALS - 5.89%
Freeport-McMoRan Copper & Gold, Inc., 8.375%, Due
4/1/2017 .......................................... 1,495 1,174
Huntsman International LLC, 7.875%, Due 11/15/2014 ... 700 623
Ineos Group Holdings plc, 8.50%, Due 2/15/2016 ++ .... 1,000 370
MacDermid, Inc., 9.50%, Due 4/15/2017 ++ ............. 1,885 999
Momentive Performance Materials, Inc., 9.75%, Due
12/1/2014 ......................................... 620 347
Nalco Co., 8.875%, Due 11/15/2013 .................... 800 688
Newark Group, Inc., 9.75%, Due 3/15/2014 ............. 2,200 638
Norske Skogindustrier ASA,
8.625%, Due 6/15/2011 ............................. 1,100 649
6.125%, Due 10/15/2015 ++ ......................... 750 322
Sappi Papier Holding AG, 7.50%, Due 6/15/2032 ++ ..... 825 480
Steel Dynamics, Inc., 7.75%, Due 4/15/2016 ........... 750 497
Tube City IMS Corp., 9.75%, Due 2/1/2015 ............. 500 290
---------
7,077
---------
MEDIA - 0.64%
R.H. Donnelley Corp.,
6.875%, Due 1/15/2013 ............................. 200 46
8.875%, Due 1/15/2016 ............................. 1,400 294
WMG Holdings Corp., Zero Coupon, Due 12/15/2014 # .... 1,000 430
---------
770
---------
RETAIL - 1.14%
Dollar General Corp., 10.625%, Due 7/15/2015 ......... 800 736
Jostens IH Corp., 7.625%, Due 10/1/2012 .............. 800 632
---------
1,368
---------
SERVICES - 0.74%
ARAMARK Corp., 8.50%, Due 2/1/2015 ................... 800 684
Iron Mountain, Inc., 8.00%, Due 6/15/2020 ............ 265 209
---------
893
---------
See accompanying notes
58
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
TECHNOLOGY - 2.08%
Celestica, Inc., 7.875%, Due 7/1/2011 ................ $ 500 $ 450
First Data Corp., 9.875%, Due 9/24/2015 ++ ........... 750 480
Jabil Circuit, Inc., 8.25%, Due 3/15/2018 ............ 650 494
SunGard Data Systems, Inc.,
9.125%, Due 8/15/2013 ............................. 200 166
10.25%, Due 8/15/2015 ............................. 1,300 910
---------
2,500
---------
TELECOMMUNICATION SERVICES - 1.57%
Inmarsat Finance plc, Zero Coupon, Due 11/15/2012 # .. 1,200 954
Millicom International Cellular S.A., 10.00%, Due
12/1/2013 ......................................... 400 312
Wind Acquisition Finance S.A., 10.75%, Due
12/1/2015 ++ ...................................... 800 616
---------
1,882
---------
UTILITIES - 4.04%
AES Corp., 8.00%, Due 10/15/2017 ..................... 1,600 1,232
Edison Mission Energy, 7.00%, Due 5/15/2017 .......... 1,100 870
Elwood Energy LLC, 8.159%, Due 7/5/2026 .............. 529 462
Energy Future Holdings Corp., 10.875%, Due
11/1/2017 ......................................... 160 123
Orion Power Holdings, Inc., 12.00%, Due 5/1/2010 ..... 235 227
PNM Resources, Inc., 9.25%, Due 5/15/2015 ............ 300 246
Texas Competitive Electric Holdings Co. LLC, 10.25%,
Due 11/1/2015 ..................................... 2,215 1,689
---------
4,849
---------
TOTAL CORPORATE OBLIGATIONS 108,514
---------
CONVERTIBLE OBLIGATIONS - 0.25%
INDUSTRIALS - 0.25%
Horizon Lines, Inc., 4.25%, Due 8/15/2012 ............ 550 293
---------
SHARES
-----------
SHORT TERM INVESTMENTS - 8.48%
American Beacon Money Market Select Fund * ........... 5,761,805 5,762
State Street Institutional Treasury Plus Fund ........ 4,428,790 4,429
---------
TOTAL SHORT TERM INVESTMENTS 10,191
---------
TOTAL INVESTMENTS - 99.06% (COST $170,137) $ 119,013
OTHER ASSETS, NET OF LIABILITIES - 0.94% 1,134
---------
TOTAL NET ASSETS - 100.00% $ 120,147
=========
See accompanying notes
59
AMERICAN BEACON HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
Percentages are stated as a percent of net assets.
++ 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 $12,071 or 10.05% 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 is affiliated by having the same investment advisor.
See accompanying notes
60
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 2.60%
CONSUMER DISCRETIONARY - 0.22%
SPECIALTY RETAIL - 0.22%
Nike, Inc. + ......................................... 3,890 $ 224
---------
CONSUMER STAPLES - 0.31%
BEVERAGES - 0.31%
Coca-Cola Co. + ...................................... 7,060 311
---------
ENERGY - 0.20%
ENERGY EQUIPMENT & SERVICES - 0.20%
Noble Corp. + ........................................ 6,350 205
---------
FINANCIALS - 0.58%
DIVERSIFIED FINANCIALS - 0.34%
BlackRock, Inc. + .................................... 625 82
T Rowe Price Group, Inc. + ........................... 6,500 257
---------
339
---------
INSURANCE - 0.24%
AON Corp. + .......................................... 5,675 240
---------
TOTAL FINANCIALS 579
---------
HEALTH CARE - 0.51%
HEALTH CARE PROVIDERS & SERVICES - 0.36%
Express Scripts, Inc. ## + ........................... 6,000 364
---------
OPTICAL SUPPLIES - 0.15%
Alcon, Inc. .......................................... 1,630 143
---------
TOTAL HEALTH CARE 507
---------
INFORMATION TECHNOLOGY - 0.78%
COMMUNICATIONS EQUIPMENT - 0.42%
Cisco Systems, Inc. ## ............................... 9,280 165
Qualcomm, Inc. ....................................... 6,775 259
---------
424
---------
IT CONSULTING & SERVICES - 0.36%
Accenture Ltd. + ..................................... 10,970 363
---------
TOTAL INFORMATION TECHNOLOGY 787
---------
TOTAL COMMON STOCKS 2,613
---------
CONVERTIBLE PREFERRED STOCKS - 0.72%
FINANCIALS - 0.51%
DIVERSIFIED FINANCIALS - 0.33%
Bank of America Corp. ................................ 475 332
---------
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
FINANCE - 0.18%
SLM Corp. ............................................ 360 $ 184
---------
TOTAL FINANCIALS 516
---------
INDUSTRIALS - 0.13%
HOUSEHOLD DURABLES - 0.13%
Stanley Works ........................................ 255 135
---------
MATERIALS - 0.08%
METALS & MINING - 0.08%
Freeport-McMoRan Copper & Gold, Inc. ................. 1,560 76
---------
TOTAL CONVERTIBLE PREFERRED STOCKS 727
---------
PREFERRED STOCKS - 0.56%
FINANCIALS - 0.40%
DIVERSIFIED FINANCIALS - 0.37%
Citigroup, Inc. + .................................... 11,500 370
---------
INSURANCE - 0.03%
American International Group, Inc. ................... 8,100 36
---------
TOTAL FINANCIALS 406
---------
INDUSTRIALS - 0.16%
CHEMICALS - 0.16%
Avery Dennison Corp. + ............................... 4,600 157
---------
TOTAL PREFERRED STOCKS 563
---------
PAR
AMOUNT
-----------
CORPORATE OBLIGATIONS - 26.53%
AEROSPACE & DEFENSE - 0.23%
Raytheon Co.,
5.375%, Due 4/1/2013 + ............................ $ 250 236
---------
BANKS - 5.40%
Bank of America Corp.,
7.80%, Due 9/15/2016 .............................. 600 563
6.00%, Due 9/1/2017 ............................... 400 350
Bank of New York Mellon Corp.,
5.125%, Due 8/27/2013 ............................. 350 334
Bank One Corp.,
4.90%, Due 4/30/2015 .............................. 250 219
Citigroup, Inc.,
5.125%, Due 2/14/2011 + ........................... 1,625 1,540
6.125%, Due 11/21/2017 ............................ 275 236
ING Bank, NV,
5.125%, Due 5/1/2015 ++ ........................... 300 289
See accompanying notes
61
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
JP Morgan Chase & Co.,
6.75%, Due 2/1/2011 ............................... $ 800 $ 794
6.00%, Due 1/15/2018 .............................. 250 224
Wells Fargo & Co.,
5.25%, Due 10/23/2012 ............................. 660 631
5.625%, Due 12/11/2017 ............................ 275 243
---------
5,423
---------
BEVERAGES - 0.35%
Constellation Brands, Inc.,
7.25%, Due 9/1/2016 ............................... 425 353
---------
COMMUNICATIONS - 1.28%
Comcast Cable Communications Holdings, Inc.,
8.375%, Due 3/15/2013 ............................. 500 485
DirecTV Holdings LLC/DirecTV Financing Co.,
8.375%, Due 3/15/2013 ............................. 300 281
Time Warner Cable, Inc.,
5.85%, Due 5/1/2017 ............................... 300 246
Verizon Communications, Inc.,
6.90%, Due 4/15/2038 + ............................ 325 272
---------
1,284
---------
CONSUMER DISCRETIONARY - 0.95%
Royal Caribbean Cruises Ltd.,
7.50%, Due 10/15/2027 ............................. 500 310
Wal-Mart Stores, Inc.,
7.55%, Due 2/15/2030 .............................. 325 315
Wesco Distribution, Inc.,
7.50%, Due 10/15/2017 ............................. 450 324
---------
949
---------
CONSUMER STAPLES - 0.68%
Coca-Cola Enterprises, Inc.,
7.375%, Due 3/3/2014 .............................. 150 152
Hanesbrands, Inc.,
6.508%, Due 12/15/2014 # .......................... 440 299
Kellogg Co.,
4.25%, Due 3/6/2013 ............................... 250 231
---------
682
---------
ENERGY - 0.76%
Canadian Natural Resources Ltd.,
6.25%, Due 3/15/2038 .............................. 325 227
ConocoPhillips,
5.20%, Due 5/15/2018 .............................. 325 272
EOG Resources, Inc.,
4.75%, Due 3/15/2014 ++ ........................... 250 263
---------
762
---------
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
FINANCE - 2.88%
American General Finance Corp.,
4.875%, Due 5/15/2010 ............................. $ 300 $ 143
Capital One Financial Corp.,
5.70%, Due 9/15/2011 .............................. 310 273
General Electric Capital Corp.,
5.65%, Due 6/9/2014 ............................... 500 445
5.625%, Due 5/1/2018 .............................. 250 206
Goldman Sachs Group, Inc.,
4.75%, Due 7/15/2013 .............................. 250 211
6.25%, Due 9/1/2017 ............................... 250 209
HSBC Finance Corp.,
5.25%, Due 1/14/2011 .............................. 1,300 1,196
Merrill Lynch & Co., Inc.,
6.11%, Due 1/29/2037 .............................. 325 215
---------
2,898
---------
HEALTH CARE - 0.10%
Psychiatric Solutions, Inc.,
7.75%, Due 7/15/2015 .............................. 125 103
---------
INDUSTRIALS - 4.73%
American Honda Finance Corp.,
4.625%, Due 4/2/2013 ++ ........................... 325 295
BE Aerospace, Inc.,
8.50%, Due 7/1/2018 ............................... 325 279
Burlington Northern Santa Fe Corp.,
5.75%, Due 3/15/2018 .............................. 325 285
Canadian National Railway Co.,
5.55%, Due 5/15/2018 .............................. 250 217
Caterpillar Financial Services Corp.,
4.15%, Due 1/15/2010 .............................. 300 293
4.25%, Due 2/8/2013 ............................... 250 227
Daimler Finance NA LLC,
5.875%, Due 3/15/2011 ............................. 250 204
5.75%, Due 9/8/2011 ............................... 250 200
Gardner Denver, Inc.,
8.00%, Due 5/1/2013 ............................... 300 273
Goodyear Tire & Rubber Co.,
7.857%, Due 8/15/2011 ............................. 300 257
Honeywell International, Inc.,
4.25%, Due 3/1/2013 + ............................. 250 230
John Deere Capital Corp.,
4.125%, Due 1/15/2010 + ........................... 825 813
NBTY, Inc.,
7.125%, Due 10/1/2015 ............................. 150 112
Nissan Motor Acceptance Corp.,
5.625%, Due 3/14/2011 ++ .......................... 300 307
See accompanying notes
62
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Norfolk Southern Corp.,
5.75%, Due 4/1/2018 ++ ............................ $ 325 $ 280
Terex Corp.,
8.00%, Due 11/15/2017 + ........................... 125 93
Union Pacific Corp.,
6.50%, Due 4/15/2012 .............................. 250 243
United Technologies Corp.,
6.125%, Due 7/15/2038 ............................. 165 142
---------
4,750
---------
INSURANCE - 3.23%
Aegon Funding Corp.,
5.75%, Due 12/15/2020 ............................. 350 260
American International Group, Inc.,
5.85%, Due 1/16/2018 + ............................ 250 91
6.25%, Due 5/1/2036 + ............................. 325 111
Hartford Financial Services Group, Inc.,
5.25%, Due 10/15/2011 ............................. 750 635
John Hancock Global Funding II,
7.90%, Due 7/2/2010 ++ ............................ 900 917
Lincoln National Corp.,
4.75%, Due 2/15/2014 .............................. 125 111
MetLife, Inc.,
6.375%, Due 6/15/2034 ............................. 350 257
Metropolitan Life Global Funding I,
4.625%, Due 8/19/2010 ++ .......................... 700 660
Prudential Financial, Inc.,
4.50%, Due 7/15/2013 .............................. 250 205
---------
3,247
---------
INTERNET & CATALOG RETAIL - 0.22%
Expedia, Inc.,
7.456%, Due 8/15/2018 ............................. 300 225
---------
PHARMACEUTICALS - 0.22%
Bristol-Myers Squibb Co.,
5.45%, Due 5/1/2018 ............................... 125 109
GlaxoSmithKline Capital, Inc.,
5.65%, Due 5/15/2018 .............................. 125 111
---------
220
---------
REAL ESTATE - 0.56%
ProLogis Trust,
5.50%, Due 4/1/2012 ............................... 250 162
5.625%, Due 11/15/2016 ............................ 250 137
Simon Property Group LP,
5.30%, Due 5/30/2013 .............................. 325 268
---------
567
---------
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
TECHNOLOGY - 2.53%
CA, Inc.,
1.625%, Due 12/15/2009 ............................ $ 450 $ 454
Cisco Systems, Inc.,
5.25%, Due 2/22/2011 .............................. 250 250
Hewlett-Packard Co.,
4.50%, Due 3/1/2013 + ............................. 325 302
International Business Machines Corp.,
7.625%, Due 10/15/2018 ............................ 150 155
Jabil Circuit, Inc.,
8.25%, Due 3/15/2018 .............................. 325 247
Lender Processing Services, Inc.,
8.125%, Due 7/1/2016 ++ ........................... 325 278
Seagate Technology,
6.80%, Due 10/1/2016 .............................. 350 245
SunGard Data Systems, Inc.,
9.125%, Due 8/15/2013 ............................. 300 249
Syniverse Technologies, Inc.,
7.75%, Due 8/15/2013 .............................. 325 260
Xerox Corp.,
5.65%, Due 5/15/2013 .............................. 125 99
---------
2,539
---------
TELEPHONE - 1.75%
America Movil, S.A.B. de C.V.,
6.375%, Due 3/1/2035 + ............................ 325 227
AT&T, Inc.,
5.625%, Due 6/15/2016 ............................. 250 219
5.50%, Due 2/1/2018 ............................... 400 340
6.80%, Due 5/15/2036 .............................. 125 106
6.40%, Due 5/15/2038 .............................. 200 160
Cingular Wireless Services, Inc.,
7.875%, Due 3/1/2011 .............................. 250 250
Verizon Communications, Inc.,
5.50%, Due 4/1/2017 + ............................. 250 213
Vodafone Group plc,
6.15%, Due 2/27/2037 .............................. 325 243
---------
1,758
---------
UTILITIES - 0.66%
Duke Energy Carolinas LLC,
5.10%, Due 4/15/2018 + ............................ 250 218
MidAmerican Energy Holdings Co.,
6.125%, Due 4/1/2036 .............................. 325 239
Virginia Electric and Power Co.,
5.40%, Due 4/30/2018 .............................. 250 205
---------
662
---------
TOTAL CORPORATE OBLIGATIONS 26,658
---------
See accompanying notes
63
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
CONVERTIBLE OBLIGATIONS - 10.99%
COMMUNICATIONS - 1.24%
Anixter International, Inc.,
1.00%, Due 2/15/2013 + ............................ $ 400 $ 264
Interpublic Group of Cos., Inc.,
4.25%, Due 3/15/2023 .............................. 240 165
Liberty Media LLC,
3.125%, Due 3/30/2023 ............................. 320 219
Symantec Corp.,
1.00%, Due 6/15/2013 + ............................ 750 599
---------
1,247
---------
CONSUMER DISCRETIONARY - 1.15%
Archer-Daniels-Midland Co.,
0.875%, Due 2/15/2014 ............................. 280 213
Best Buy Co., Inc.,
2.25%, Due 1/15/2022 .............................. 200 157
Carnival Corp.,
2.00%, Due 4/15/2021 .............................. 416 348
GameStop Corp.,
8.00%, Due 10/1/2012 .............................. 225 209
RadioShack Corp.,
2.50%, Due 8/1/2013 ............................... 328 225
---------
1,152
---------
CONSUMER STAPLES - 0.59%
Amgen, Inc.,
0.375%, Due 2/1/2013 .............................. 675 596
---------
ENERGY - 1.28%
Chesapeake Energy Corp.,
2.25%, Due 12/15/2038 ............................. 315 156
Pioneer Natural Resources Co.,
2.875%, Due 1/15/2038 ............................. 485 338
SESI LLC,
1.50%, Due 12/15/2026 ++ .......................... 270 182
Transocean, Inc.,
1.625%, Due 12/15/2037 ............................ 690 607
---------
1,283
---------
FINANCE - 0.76%
Affiliated Managers Group, Inc.,
3.95%, Due 8/15/2038 ++ ........................... 370 229
SVB Financial Group,
3.875%, Due 4/15/2011 ++ .......................... 525 535
---------
764
---------
HEALTH CARE - 1.26%
Gilead Sciences, Inc.,
0.50%, Due 5/1/2011 ++ ............................ 360 436
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
0.625%, Due 5/1/2013 + ............................ $ 130 $ 161
Medtronic, Inc.,
1.50%, Due 4/15/2011 .............................. 280 258
1.625%, Due 4/15/2013 ............................. 475 410
---------
1,265
---------
INDUSTRIALS - 0.92%
Alliant Techsystems, Inc.,
2.75%, Due 9/15/2011 ++ ........................... 320 313
Fisher Scientific International, Inc.,
3.25%, Due 3/1/2024 + ............................. 230 262
ON Semiconductor Corp.,
Zero Coupon, Due 4/15/2024 ........................ 300 223
Trinity Industries, Inc.,
3.875%, Due 6/1/2036 .............................. 250 127
---------
925
---------
PHARMACEUTICALS - 1.62%
Beckman Coulter, Inc.,
2.50%, Due 12/15/2036 + ++ ........................ 413 356
Genzyme Corp.,
1.25%, Due 12/1/2023 .............................. 200 209
Invitrogen Corp.,
1.50%, Due 2/15/2024 .............................. 486 357
Teva Pharmaceutical Finance LLC,
0.25%, Due 2/1/2026 ............................... 755 707
---------
1,629
---------
TECHNOLOGY - 2.17%
Alliance Data Systems Corp.,
1.75%, Due 8/1/2013 ++ ............................ 320 237
DST Systems, Inc.,
4.125%, Due 8/15/2023 ............................. 140 132
EMC Corp.,
1.75%, Due 12/1/2011 + ............................ 620 590
Intel Corp.,
2.95%, Due 12/15/2035 ............................. 535 382
NetApp, Inc.,
1.75%, Due 6/1/2013 ++ ............................ 575 379
Sybase, Inc.,
1.75%, Due 2/22/2025 .............................. 405 456
---------
2,176
---------
TOTAL CONVERTIBLE OBLIGATIONS 11,037
---------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 2.58%
COMMERCIAL MORTGAGE-BACKED SECURITY - 2.58%
Banc of America Commercial Mortgage, Inc.,
2005-6 A1, 5.001%, Due 9/10/2047 .................. 475 456
2007-2 A2, 5.634%, Due 4/10/2049 .................. 650 566
See accompanying notes
64
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
JP Morgan Chase Commercial Mortgage Securities Corp.,
2005-LDP3 A1, 4.655%, Due 8/15/2042 ............... $ 144 $ 140
2007-CB19 A4, 5.747%, Due 2/12/2049 ............... 400 300
2007-CB20 A2, 5.629%, Due 2/12/2051 ............... 650 571
LB-UBS Commercial Mortgage Trust,
2004-C1 A4, 5.424%, Due 2/15/2040 ................. 450 333
Wachovia Bank Commercial Mortgage Trust,
2007-C32 A2, 5.736%, Due 6/15/2049 ................ 260 227
---------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS 2,593
---------
ASSET-BACKED SECURITIES - 3.79%
American Express Credit Account Master Trust,
2006-2 A, 5.35%, Due 1/15/2014 .................... 1,300 1,218
Capital Auto Receivables Asset Trust,
2006-SN1A A4A, 5.32%, Due 3/20/2010 ++ ............ 900 894
Capital One Multi-Asset Execution Trust,
2006-A10 A10, 5.15%, Due 6/15/2014 ................ 1,000 919
Volkswagen Auto Loan Enhanced Trust,
2005-1 A4, 4.86%, Due 4/20/2012 ................... 781 779
---------
TOTAL ASSET-BACKED SECURITIES 3,810
---------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 32.76%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 13.50%
5.00%, Due 2/1/2021 ............................... 1,146 1,121
4.50%, Due 4/1/2021 ............................... 1,073 1,022
5.00%, Due 5/1/2021 ............................... 1,087 1,064
5.50%, Due 11/1/2021 .............................. 798 796
4.50%, Due 4/1/2023 ............................... 1,428 1,357
5.00%, Due 9/1/2035 ............................... 2,362 2,237
5.50%, Due 4/1/2037 ............................... 846 825
5.00%, Due 3/1/2038 ............................... 1,670 1,581
5.50%, Due 5/1/2038 ............................... 1,675 1,635
5.50%, Due 6/1/2038 ............................... 1,978 1,930
---------
13,568
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 15.88%
6.50%, Due 7/1/2032 ............................... 417 425
5.50%, Due 6/1/2033 ............................... 956 936
4.50%, Due 9/1/2034 ............................... 437 397
5.50%, Due 12/1/2035 .............................. 984 962
5.00%, Due 2/1/2036 ............................... 1,603 1,520
5.50%, Due 4/1/2036 ............................... 1,525 1,491
6.00%, Due 9/1/2036 ............................... 1,277 1,277
6.50%, Due 12/1/2036 .............................. 1,081 1,097
5.50%, Due 2/1/2037 ............................... 1,259 1,231
6.00%, Due 9/1/2037 ............................... 855 855
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
6.00%, Due 1/1/2038 ............................... $ 2,010 $ 2,010
5.00%, Due 4/1/2038 ............................... 1,956 1,854
5.50%, Due 6/1/2038 ............................... 1,945 1,901
---------
15,956
---------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.38%
4.201%, Due 8/16/2026 ............................. 587 584
6.00%, Due 2/15/2033 .............................. 890 894
5.50%, Due 4/15/2033 .............................. 1,153 1,134
5.00%, Due 5/15/2033 .............................. 811 780
---------
3,392
---------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS 32,916
---------
U.S. AGENCY OBLIGATIONS - 4.62%
FEDERAL HOME LOAN BANK - 2.40%
4.50%, Due 9/16/2013 + ............................ 2,400 2,410
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.86%
6.25%, Due 7/15/2032 + ............................ 800 868
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.36%
5.375%, Due 6/12/2017 + ........................... 1,350 1,365
---------
TOTAL U.S. AGENCY OBLIGATIONS 4,643
---------
U.S. TREASURY OBLIGATIONS - 8.94%
4.25%, Due 11/15/2017 + ........................... 3,600 3,703
7.875%, Due 2/15/2021 + ........................... 1,400 1,792
6.25%, Due 8/15/2023 + ............................ 650 744
6.875%, Due 8/15/2025 + ........................... 1,050 1,308
5.25%, Due 11/15/2028 + ........................... 800 851
4.75%, Due 2/15/2037 + ............................ 550 583
---------
TOTAL U.S. TREASURY OBLIGATIONS 8,981
---------
SHARES
-----------
SHORT TERM INVESTMENTS - 5.56%
American Beacon Money Market Select Fund * ........... 3,057,483 3,057
State Street Institutional Treasury Plus Fund ........ 2,527,877 2,528
---------
TOTAL SHORT TERM INVESTMENTS 5,585
---------
SECURITIES LENDING COLLATERAL - 18.46%
American Beacon Money Market Select Fund * ........... 2,721,619 2,722
Securities Liquidating AB Trust ...................... 9,306,861 9,181
See accompanying notes
65
AMERICAN BEACON ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
State Street Navigator Securities Lending
Prime Portfolio ................................... $ 6,639,623 $ 6,640
---------
TOTAL SECURITIES LENDING COLLATERAL 18,543
---------
TOTAL INVESTMENTS 118.11% - (COST $129,446) 118,669
LIABILITIES, NET OF OTHER ASSETS - (18.11%) (18,200)
---------
TOTAL NET ASSETS - 100.00% $ 100,469
=========
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, 2008.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $6,850 or 6.82% 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 is affiliated by having the same investment advisor.
See accompanying notes
66
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
CORPORATE OBLIGATIONS - 23.75%
AEROSPACE & DEFENSE - 0.13%
Raytheon Co., 5.375%, Due 4/1/2013 ................... $ 200 $ 189
---------
BANKS - 4.17%
Bank of America Corp.,
7.80%, Due 9/15/2016 .............................. 500 469
6.00%, Due 9/1/2017 ............................... 200 175
5.75%, Due 12/1/2017 .............................. 585 504
Bank of New York Mellon Corp.,
4.95%, Due 11/1/2012 .............................. 140 135
5.125%, Due 8/27/2013 ............................. 250 238
Bank One Corp.,
5.90%, Due 11/15/2011 ............................. 440 431
4.90%, Due 4/30/2015 + ............................ 200 175
Citigroup, Inc.,
5.125%, Due 2/14/2011 ............................. 1,200 1,137
6.125%, Due 11/21/2017 ............................ 455 391
ING Bank, NV, 5.125%, Due 5/1/2015 ++ ................ 250 241
JP Morgan Chase & Co.,
6.75%, Due 2/1/2011 ............................... 625 621
6.00%, Due 1/15/2018 .............................. 610 547
Wachovia Corp.,
5.70%, Due 8/1/2013 + ............................. 100 90
5.75%, Due 6/15/2017 .............................. 145 125
Washington Mutual Finance Corp., 6.875%, Due
5/15/2011 ......................................... 230 219
Wells Fargo & Co.,
5.25%, Due 10/23/2012 ............................. 500 479
5.625%, Due 12/11/2017 ............................ 200 176
---------
6,153
---------
BASIC MATERIALS - 0.31%
International Paper Co., 7.40%, Due 6/15/2014 ........ 290 244
Weyerhaeuser Co., 5.95%, Due 11/1/2008 ............... 210 210
---------
454
---------
COMMUNICATIONS - 1.07%
Comcast Cable Communications Holdings, Inc., 8.375%,
Due 3/15/2013 ..................................... 450 436
Comcast Corp.,
5.30%, Due 1/15/2014 .............................. 220 190
5.875%, Due 2/15/2018 ............................. 135 113
Rogers Communications, Inc., 6.80%, Due 8/15/2018 .... 250 219
Time Warner Cable, Inc., 5.85%, Due 5/1/2017 ......... 505 414
Verizon Communications, Inc., 6.90%, Due
4/15/2038 + ....................................... 250 209
---------
1,581
---------
CONSUMER DISCRETIONARY - 0.47%
Best Buy Co., Inc., 6.75%, Due 7/15/2013 ++ .......... 240 226
See accompanying notes
67
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Wal-Mart Stores, Inc.,
7.55%, Due 2/15/2030 .............................. $ 250 $ 242
6.20%, Due 4/15/2038 + ............................ 265 229
---------
697
---------
CONSUMER STAPLES - 0.80%
Archer-Daniels-Midland Co., 6.45%, Due 1/15/2038 ..... 140 112
Coca-Cola Enterprises, Inc., 7.375%, Due 3/3/2014 .... 175 178
Diageo Capital plc, 5.75%, Due 10/23/2017 + .......... 145 125
Dr Pepper Snapple Group, Inc., 6.82%, Due
5/1/2018 ++ ....................................... 140 123
Kellogg Co., 4.25%, Due 3/6/2013 ..................... 250 231
Kraft Foods, Inc., 6.50%, Due 8/11/2017 .............. 285 250
PepsiCo, Inc., 7.90%, Due 11/1/2018 .................. 150 158
---------
1,177
---------
ENERGY - 1.27%
Cameron International Corp., 6.375%, Due 7/15/2018 ... 125 104
Canadian Natural Resources Ltd.,
6.70%, Due 7/15/2011 .............................. 135 131
6.25%, Due 3/15/2038 .............................. 250 175
ConocoPhillips, 5.20%, Due 5/15/2018 ................. 250 209
Consolidated Natural Gas Co., 6.00%, Due 10/15/2010 .. 175 175
EOG Resources, Inc., 4.75%, Due 3/15/2014 ++ ......... 200 210
Marathon Oil Corp., 6.00%, Due 10/1/2017 ............. 275 219
Suncor Energy, Inc., 6.10%, Due 6/1/2018 ............. 310 246
Transocean, Inc., 6.00%, Due 3/15/2018 ............... 290 248
Weatherford International, Inc., 5.95%, Due
6/15/2012 ......................................... 180 162
---------
1,879
---------
FINANCE - 3.38%
American Express Co., 8.15%, Due 3/19/2038 ........... 165 129
American Express Credit Corp., 5.875%, Due 5/2/2013 .. 270 226
American General Finance Corp.,
4.875%, Due 5/15/2010 ............................. 200 96
4.00%, Due 3/15/2011 .............................. 535 207
Ameriprise Financial, Inc., 5.35%, Due 11/15/2010 .... 480 442
Bear Stearns Cos., Inc., 7.25%, Due 2/1/2018 ......... 145 136
Capital One Financial Corp., 5.70%, Due 9/15/2011 .... 200 176
CIT Group, Inc., 4.75%, Due 12/15/2010 + ............. 160 98
CME Group, Inc., 5.40%, Due 8/1/2013 ................. 270 255
Countrywide Home Loans, Inc., 4.00%, Due 3/22/2011 ... 70 65
General Electric Capital Corp.,
4.375%, Due 3/3/2012 + ............................ 350 319
5.65%, Due 6/9/2014 ............................... 450 400
5.625%, Due 5/1/2018 + ............................ 250 206
Goldman Sachs Group, Inc.,
4.75%, Due 7/15/2013 .............................. 300 254
6.25%, Due 9/1/2017 ............................... 200 167
See accompanying notes
68
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Goldman Sachs Group, Inc.,
5.95%, Due 1/18/2018 .............................. $ 215 $ 175
6.75%, Due 10/1/2037 .............................. 145 94
HSBC Finance Corp., 5.25%, Due 1/14/2011 ............. 1,000 920
International Lease Finance Corp., 5.75%, Due
6/15/2011 ......................................... 240 164
Merrill Lynch & Co., Inc.,
5.45%, Due 2/5/2013 ............................... 145 131
6.875%, Due 4/25/2018 ............................. 180 160
6.11%, Due 1/29/2037 .............................. 250 165
---------
4,985
---------
HEALTH CARE - 0.44%
Covidien International Finance SA, 5.45%, Due
10/15/2012 ........................................ 120 116
UnitedHealth Group, Inc., 5.25%, Due 3/15/2011 ....... 560 541
---------
657
---------
INDUSTRIALS - 2.93%
American Honda Finance Corp., 4.625%, Due
4/2/2013 ++ ....................................... 250 227
ArcelorMittal South Africa Ltd., 6.125%, Due
6/1/2018 + ++ ..................................... 340 234
Burlington Northern Santa Fe Corp., 5.75%, Due
3/15/2018 ......................................... 250 219
Canadian National Railway Co., 5.55%, Due 5/15/2018 .. 250 218
Caterpillar Financial Services Corp.,
4.15%, Due 1/15/2010 .............................. 200 195
4.85%, Due 12/7/2012 .............................. 185 172
4.25%, Due 2/8/2013 ............................... 250 227
CRH America, Inc., 6.00%, Due 9/30/2016 .............. 315 227
Daimler Finance NA LLC,
5.875%, Due 3/15/2011 ............................. 300 245
5.75%, Due 9/8/2011 ............................... 200 160
Eaton Corp., 5.60%, Due 5/15/2018 + .................. 195 170
Honeywell International, Inc., 4.25%, Due 3/1/2013 ... 250 230
John Deere Capital Corp., 4.125%, Due 1/15/2010 ...... 675 666
Koninklijke Philips Electronics NV, 5.75%, Due
3/11/2018 ......................................... 165 136
Masco Corp., 6.125%, Due 10/3/2016 ................... 135 96
Nissan Motor Acceptance Corp., 5.625%, Due
3/14/2011 ++ ...................................... 200 205
Norfolk Southern Corp., 5.75%, Due 4/1/2018 .......... 250 215
Tyco Electronics Group SA, 6.55%, Due 10/1/2017 ...... 225 187
Union Pacific Corp., 6.50%, Due 4/15/2012 ............ 200 194
United Technologies Corp., 6.125%, Due 7/15/2038 ..... 125 108
---------
4,331
---------
INSURANCE - 2.34%
Aegon Funding Corp., 5.75%, Due 12/15/2020 ........... 200 149
American International Group, Inc.,
5.85%, Due 1/16/2018 .............................. 200 73
6.25%, Due 5/1/2036 ............................... 250 85
Hartford Financial Services Group, Inc.,
5.25%, Due 10/15/2011 ............................. 575 487
See accompanying notes
69
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
5.375%, Due 3/15/2017 ............................. $ 345 $ 241
John Hancock Global Funding II, 7.90%, Due
7/2/2010 ++ ....................................... 700 714
Lincoln National Corp., 4.75%, Due 2/15/2014 ......... 100 89
MetLife, Inc.,
5.375%, Due 12/15/2012 ............................ 240 217
6.817%, Due 8/15/2018 + ........................... 370 318
6.375%, Due 6/15/2034 ............................. 200 147
Metropolitan Life Global Funding I, 4.625%, Due
8/19/2010 ++ ...................................... 500 471
Prudential Financial, Inc.,
4.50%, Due 7/15/2013 .............................. 200 164
5.10%, Due 9/20/2014 .............................. 280 212
Willis North America, Inc., 6.20%, Due 3/28/2017 ..... 130 95
---------
3,462
---------
PHARMACEUTICALS - 0.70%
Bristol-Myers Squibb Co., 5.45%, Due 5/1/2018 ........ 125 109
GlaxoSmithKline Capital, Inc.,
5.65%, Due 5/15/2018 .............................. 125 111
6.375%, Due 5/15/2038 ............................. 200 169
Hospira, Inc., 6.05%, Due 3/30/2017 .................. 205 172
Schering-Plough Corp., 6.75%, Due 12/1/2033 .......... 185 153
Wyeth Corp., 5.50%, Due 2/1/2014 ..................... 335 314
---------
1,028
---------
REAL ESTATE - 0.59%
Equity Residential, 5.125%, Due 3/15/2016 ............ 355 242
ProLogis Trust,
5.50%, Due 4/1/2012 ............................... 300 195
5.625%, Due 11/15/2016 ............................ 200 109
Simon Property Group LP,
5.30%, Due 5/30/2013 .............................. 250 206
5.75%, Due 12/1/2015 .............................. 170 126
---------
878
---------
TECHNOLOGY - 1.10%
Cisco Systems, Inc., 5.25%, Due 2/22/2011 ............ 200 200
Computer Sciences Corp.,
5.50%, Due 3/15/2013 ++ ........................... 70 61
6.50%, Due 3/15/2018 ++ ........................... 240 186
Hewlett-Packard Co., 4.50%, Due 3/1/2013 + ........... 535 498
International Business Machines Corp., 7.625%, Due
10/15/2018 ........................................ 555 574
Xerox Corp., 5.65%, Due 5/15/2013 .................... 125 99
---------
1,618
---------
TELEPHONE - 1.80%
America Movil, S.A.B. de C.V., 6.375%, Due 3/1/2035 .. 250 174
AT&T, Inc.,
5.10%, Due 9/15/2014 .............................. 655 572
5.625%, Due 6/15/2016 ............................. 200 175
See accompanying notes
70
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
AT&T, Inc.,
5.50%, Due 2/1/2018 ............................... $ 300 $ 255
6.80%, Due 5/15/2036 .............................. 125 106
6.40%, Due 5/15/2038 .............................. 125 100
Cingular Wireless Services, Inc.,
7.875%, Due 3/1/2011 .............................. 200 200
8.75%, Due 3/1/2031 ............................... 170 158
Deutsche Telekom AG, 8.00%, Due 6/15/2010 ............ 150 148
Telecom Italia S.p.A., 4.00%, Due 11/15/2008 ......... 220 220
Telefonica Emisiones SAU, 5.984%, Due 6/20/2011 ...... 160 153
Verizon Communications, Inc., 5.50%, Due 4/1/2017 + .. 250 213
Vodafone Group plc, 6.15%, Due 2/27/2037 ............. 250 187
---------
2,661
---------
UTILITIES - 2.25%
Columbus Southern Power Co., 5.50%, Due 3/1/2013 ..... 495 454
Dominion Resources, Inc., Series A, 5.60%, Due
11/15/2016 + ...................................... 135 111
Duke Energy Carolinas LLC, 5.10%, Due 4/15/2018 + .... 250 218
Duke Energy Indiana, Inc., 6.05%, Due 6/15/2016 + .... 355 293
MidAmerican Energy Holdings Co.,
5.875%, Due 10/1/2012 ............................. 405 384
6.125%, Due 4/1/2036 .............................. 250 184
Public Service Enterprise Group, Inc., 6.95%, Due
6/1/2012 .......................................... 430 406
Southern Power Co., 6.25%, Due 7/15/2012 ............. 450 445
Union Electric Co., 6.70%, Due 2/1/2019 .............. 150 125
Virginia Electric and Power Co., 5.40%, Due
4/30/2018 ......................................... 250 205
Xcel Energy, Inc., 5.613%, Due 4/1/2017 .............. 581 490
---------
3,315
---------
TOTAL CORPORATE OBLIGATIONS ............................. 35,065
---------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 6.57%
Banc of America Commercial Mortgage, Inc.,
2005-6 A1, 5.001%, Due 9/10/2047 .................. 237 228
2007-2 A2, 5.634%, Due 4/10/2049 .................. 450 392
Banc of America Mortgage Securities, Inc., 2004-8 3A1,
5.25%, Due 10/25/2019 ............................. 633 600
Bear Stearns Commercial Mortgage Securities, Inc.,
2006-T22 A2, 5.464%, Due 4/12/2038 ................ 830 772
2004-PWR5 A4, 4.831%, Due 7/11/2042 ............... 835 726
2005-T20 A2, 5.127%, Due 10/12/2042 ............... 430 406
Chase Mortgage Finance Corp., 2006-A1 A1, 6.04%, Due
9/25/2036 # ....................................... 964 782
Citicorp Mortgage Securities, Inc., 2006-3 2A1, 5.50%,
Due 6/25/2021 ..................................... 459 385
Citigroup Commercial Mortgage Trust, 2004-C2 A3,
4.38%, Due 10/15/2041 ............................. 770 706
Countrywide Home Loan Mortgage Pass Through Trust,
2007-18 A1, 6.00%, Due 9/25/2037 .................. 809 630
General Electric Capital Commercial Mortgage Corp.,
2003-C2 A2, 4.17%, Due 7/10/2037 .................. 159 152
JP Morgan Chase Commercial Mortgage Securities Corp.,
2004-CBX A4, 4.529%, Due 1/12/2037 ................ 255 233
See accompanying notes
71
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
JP Morgan Chase Commercial Mortgage Securities Corp.,
2005-LDP3 A1, 4.655%, Due 8/15/2042 ............... $ 82 $ 80
2005-LDP1 A2, 4.625%, Due 3/15/2046 ............... 785 755
2007-CB19 A4, 5.747%, Due 2/12/2049 ............... 300 225
2007-CB20 A2, 5.629%, Due 2/12/2051 ............... 500 439
JP Morgan Mortgage Trust, 7.00%, Due 8/25/2037 ....... 470 382
LB-UBS Commercial Mortgage Trust, 2004-C1 A4, 5.424%,
Due 2/15/2040 ..................................... 400 296
Prime Mortgage Trust, 2005-2, 5.25%, Due 7/25/2020 ... 573 546
Wachovia Bank Commercial Mortgage Trust, 2007-C32 A2,
5.736%, Due 6/15/2049 ............................. 210 183
Wells Fargo Mortgage Backed Securities Trust,
2006-11 A8, 6.00%, Due 9/25/2036 .................. 544 408
2007-7 A1, 6.00%, Due 6/25/2037 ................... 486 379
---------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS ............ 9,705
---------
ASSET-BACKED SECURITIES - 1.93%
American Express Credit Account Master Trust, 2006-2
A, 5.35%, Due 1/15/2014 ........................... 1,000 937
Capital Auto Receivables Asset Trust, 2006-SN1A A4A,
5.32%, Due 3/20/2010 ++ ........................... 600 596
Capital One Multi-Asset Execution Trust, 2006-A10 A10,
5.15%, Due 6/15/2014 .............................. 750 689
Volkswagen Auto Loan Enhanced Trust, 2005-1 A4, 4.86%,
Due 4/20/2012 ..................................... 625 623
---------
TOTAL ASSET-BACKED SECURITIES ........................ 2,845
---------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 33.66%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 12.42%
5.50%, Due 9/1/2017 ............................... 173 173
4.50%, Due 3/1/2019 ............................... 530 508
5.00%, Due 10/1/2020 .............................. 514 503
5.50%, Due 11/1/2021 .............................. 333 332
5.00%, Due 11/1/2021 .............................. 78 76
5.50%, Due 4/1/2022 ............................... 36 36
5.00%, Due 5/1/2022 ............................... 540 528
5.50%, Due 12/1/2022 .............................. 185 184
5.00%, Due 4/1/2023 ............................... 458 448
6.50%, Due 9/1/2028 ............................... 76 78
6.00%, Due 8/1/2029 ............................... 266 267
5.00%, Due 8/1/2033 ............................... 714 677
5.50%, Due 2/1/2034 ............................... 1,015 991
6.00%, Due 8/1/2034 ............................... 477 477
6.50%, Due 4/1/2035 ............................... 39 40
5.00%, Due 8/1/2035 ............................... 475 450
5.00%, Due 9/1/2035 ............................... 690 654
5.00%, Due 9/1/2035 ............................... 394 373
6.00%, Due 8/1/2036 ............................... 890 889
5.50%, Due 11/1/2036 .............................. 747 729
5.50%, Due 4/1/2037 ............................... 846 825
5.50%, Due 5/1/2037 ............................... 172 168
See accompanying notes
72
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
5.50%, Due 6/1/2037 ............................... $ 837 $ 802
6.00%, Due 7/1/2037 ............................... 406 406
6.50%, Due 8/1/2037 ............................... 34 34
6.00%, Due 12/1/2037 .............................. 385 385
5.00%, Due 3/1/2038 ............................... 2,234 2,115
6.00%, Due 3/1/2038 ............................... 827 826
5.00%, Due 3/1/2038 ............................... 1,228 1,162
6.50%, Due 5/1/2038 ............................... 1,024 1,039
5.50%, Due 5/1/2038 ............................... 1,232 1,202
5.50%, Due 6/1/2038 ............................... 989 965
---------
18,342
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 20.04%
6.50%, Due 2/1/2017 ............................... 218 223
5.50%, Due 8/1/2017 ............................... 297 298
5.00%, Due 12/1/2017 .............................. 774 763
4.50%, Due 9/1/2018 ............................... 551 529
5.50%, Due 11/1/2018 .............................. 152 152
5.50%, Due 12/1/2018 .............................. 167 168
5.00%, Due 3/1/2020 ............................... 186 182
4.00%, Due 8/1/2020 ............................... 411 381
5.50%, Due 4/1/2021 ............................... 450 449
5.50%, Due 11/1/2021 .............................. 38 38
5.00%, Due 3/1/2034 ............................... 895 849
5.50%, Due 6/1/2034 ............................... 486 475
4.50%, Due 9/1/2034 ............................... 291 265
5.50%, Due 2/1/2035 ............................... 1,092 1,069
5.00%, Due 11/1/2035 .............................. 1,605 1,522
5.50%, Due 12/1/2035 .............................. 406 398
5.50%, Due 1/1/2036 ............................... 687 672
5.50%, Due 1/1/2036 ............................... 715 700
5.50%, Due 2/1/2036 ............................... 856 837
5.00%, Due 3/1/2036 ............................... 743 705
5.50%, Due 3/1/2036 ............................... 592 579
5.50%, Due 4/1/2036 ............................... 762 746
6.00%, Due 9/1/2036 ............................... 440 440
6.50%, Due 9/1/2036 ............................... 1,564 1,587
6.00%, Due 10/1/2036 .............................. 7 7
5.50%, Due 11/1/2036 .............................. 672 657
6.00%, Due 11/1/2036 .............................. 790 790
6.50%, Due 12/1/2036 .............................. 721 731
6.00%, Due 12/1/2036 .............................. 695 695
5.50%, Due 1/1/2037 ............................... 1,781 1,741
5.50%, Due 2/1/2037 ............................... 1,259 1,231
6.00%, Due 8/1/2037 ............................... 788 788
See accompanying notes
73
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
6.50%, Due 8/1/2037 ............................... $ 1,081 $ 1,096
6.00%, Due 9/1/2037 ............................... 1,282 1,282
6.00%, Due 11/1/2037 .............................. 1,642 1,642
6.50%, Due 11/1/2037 .............................. 373 379
6.00%, Due 1/1/2038 ............................... 893 893
5.00%, Due 3/1/2038 ............................... 69 66
5.00%, Due 4/1/2038 ............................... 978 927
5.00%, Due 4/1/2038 ............................... 276 262
5.00%, Due 5/1/2038 ............................... 283 268
5.50%, Due 6/1/2038 ............................... 972 951
5.00%, Due 6/1/2038 ............................... 1,212 1,149
---------
29,582
---------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.20%
4.201%, Due 8/16/2026 ............................. 335 334
6.50%, Due 3/15/2028 .............................. 406 412
6.00%, Due 4/15/2031 .............................. 491 495
5.50%, Due 2/20/2034 .............................. 542 532
---------
1,773
---------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS 49,697
---------
U.S. AGENCY OBLIGATIONS - 11.76%
FEDERAL HOME LOAN BANK - 2.48%
5.25%, Due 11/3/2009 .............................. 250 250
4.50%, Due 9/16/2013 + ............................ 3,400 3,414
---------
3,664
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 6.25%
5.25%, Due 2/24/2011 .............................. 1,860 1,874
5.125%, Due 4/18/2011 + ........................... 4,400 4,573
6.00%, Due 12/15/2031 ............................. 1,470 1,480
6.25%, Due 7/15/2032 + ............................ 1,200 1,303
---------
9,230
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.03%
7.25%, Due 1/15/2010 .............................. 1,500 1,572
5.125%, Due 1/2/2014 .............................. 385 376
4.625%, Due 10/15/2014 + .......................... 500 504
5.375%, Due 6/12/2017 + ........................... 2,000 2,022
---------
4,474
---------
TOTAL U.S. AGENCY OBLIGATIONS ........................... 17,368
---------
U.S. TREASURY OBLIGATIONS - 14.74%
3.125%, Due 8/31/2013 + ........................... 2,350 2,391
4.75%, Due 5/15/2014 + ............................ 2,345 2,573
4.125%, Due 5/15/2015 + ........................... 3,000 3,126
4.25%, Due 11/15/2017 + ........................... 2,400 2,469
9.125%, Due 5/15/2018 + ........................... 650 887
See accompanying notes
74
AMERICAN BEACON INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
4.00%, Due 8/15/2018 + ............................ $ 3,885 $ 3,890
7.875%, Due 2/15/2021 + ........................... 1,050 1,344
6.25%, Due 8/15/2023 + ............................ 900 1,030
6.875%, Due 8/15/2025 + ........................... 770 959
5.25%, Due 11/15/2028 + ........................... 750 798
4.375%, Due 2/15/2038 + ........................... 2,285 2,292
---------
TOTAL U.S. TREASURY OBLIGATIONS 21,759
---------
SHARES
-----------
SHORT TERM INVESTMENTS - 6.11%
American Beacon Money Market Select Fund * ........... 7,367,975 7,368
State Street Institutional Treasury Plus Fund ........ 1,650,784 1,651
---------
TOTAL SHORT TERM INVESTMENTS 9,019
---------
SECURITIES LENDING COLLATERAL - 23.33%
American Beacon Money Market Select Fund * ........... 5,054,274 5,054
Securities Liquidating AB Trust ...................... 17,283,620 17,051
State Street Navigator Securities Lending Prime
Portfolio ......................................... 12,330,336 12,330
---------
TOTAL SECURITIES LENDING COLLATERAL 34,435
---------
TOTAL INVESTMENTS - 121.85% (COST $188,640) $ 179,893
LIABILITIES, NET OF OTHER ASSETS - (21.85%) (32,259)
---------
TOTAL NET ASSETS - 100.00% $ 147,634
=========
Percentages are stated as a percent of net assets.
+ All or a portion of this security is on loan at October 31, 2008.
++ 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 $3,494 or 2.37% 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 is affiliated by having the same investment advisor.
See accompanying notes
75
AMERICAN BEACON SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
CORPORATE OBLIGATIONS - 16.57%
BANKS - 2.96%
Citigroup, Inc.,
4.125%, Due 2/22/2010 ............................. $ 1,000 $ 961
4.625%, Due 8/3/2010 .............................. 1,000 963
HSBC Bank USA, 3.875%, Due 9/15/2009 + ............... 2,000 1,958
JP Morgan Chase & Co., 6.75%, Due 2/1/2011 ........... 2,000 1,986
National Westminster Bank plc, 7.375%, Due
10/1/2009 ......................................... 2,000 1,931
---------
7,799
---------
COMMUNICATIONS - 0.76%
Comcast Cable Communications LLC, 6.20%, Due
11/15/2008 ........................................ 2,000 1,999
---------
FINANCE - 4.24%
Capital One Financial Corp., 5.70%, Due
9/15/2011 + ....................................... 1,000 880
Credit Suisse USA, Inc., 4.70%, Due 6/1/2009 ......... 2,000 1,981
General Electric Capital Corp., 5.875%, Due
2/15/2012 + ....................................... 3,000 2,857
Goldman Sachs Group, Inc., 6.65%, Due 5/15/2009 ...... 1,000 990
MBNA Corp., 7.50%, Due 3/15/2012 ..................... 2,000 1,981
Merrill Lynch & Co., Inc., 6.00%, Due 2/17/2009 ...... 2,500 2,483
---------
11,172
---------
INDUSTRIALS - 4.30%
Bunge Limited Finance Corp., 4.375%, Due 12/15/2008 .. 1,000 997
Burlington Northern Santa Fe Corp., 6.75%, Due
7/15/2011 ......................................... 1,000 1,002
Caterpillar Financial Services Corp., 4.15%, Due
1/15/2010 ......................................... 2,000 1,952
Daimler Finance NA LLC, 5.75%, Due 9/8/2011 .......... 1,000 801
John Deere Capital Corp., 4.125%, Due 1/15/2010 ...... 2,500 2,465
Lockheed Martin Corp., 8.20%, Due 12/1/2009 .......... 1,000 1,036
Nissan Motor Acceptance Corp., 4.625%, Due
3/8/2010 ++ ....................................... 1,000 1,005
Norfolk Southern Corp., 8.625%, Due 5/15/2010 ........ 1,000 1,060
Northrop Grumman Corp., 7.125%, Due 2/15/2011 ........ 1,000 1,009
---------
11,327
---------
INSURANCE - 2.85%
Hartford Financial Services Group, Inc., 5.25%, Due
10/15/2011 ........................................ 700 593
ING Security Life Institutional Funding, 4.25%, Due
1/15/2010 ++ ...................................... 1,500 1,493
John Hancock Global Funding II, 7.90%, Due
7/2/2010 ++ ....................................... 2,000 2,039
Metropolitan Life Global Funding I, 4.625%, Due
8/19/2010 ++ ...................................... 1,500 1,413
Monumental Global Funding II, 4.625%, Due
3/15/2010 ++ ...................................... 1,000 983
Pricoa Global Funding 1, 4.20%, Due 1/15/2010 ++ ..... 1,000 985
---------
7,506
---------
REAL ESTATE - 0.34%
Simon Property Group LP, 5.375%, Due 6/1/2011 ........ 1,000 896
---------
TELEPHONE - 1.12%
AT&T Corp., 6.00%, Due 3/15/2009 + ................... 2,000 2,001
See accompanying notes
76
AMERICAN BEACON SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Vodafone Group plc, 5.50%, Due 6/15/2011 + ........... $ 1,000 $ 955
---------
2,956
---------
TOTAL CORPORATE OBLIGATIONS 43,655
---------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 0.64%
Banc of America Commercial Mortgage, Inc.,
2005-6 A1, 5.001%, Due 9/10/2047 .................. 475 456
2007-2 A2, 5.634%, Due 4/10/2049 .................. 800 697
Wachovia Bank Commercial Mortgage Trust, 2006-C23 A1,
5.203%, Due 1/15/2045 ............................. 548 528
---------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS 1,681
---------
ASSET-BACKED SECURITIES - 5.67%
Banc of America Securities Auto Trust, 2005-WF1 A4,
4.08%, Due 4/18/2010 .............................. 1,102 1,102
Capital Auto Receivables Asset Trust,
2006-SN1A A4A, 5.32%, Due 3/20/2010 ++ ............ 2,000 1,988
2006-1 A4, 5.04%, Due 5/17/2010 ................... 250 248
CarMax Auto Owner Trust, 2005-3 A4, 4.91%, Due
1/18/2011 ......................................... 1,200 1,197
Chase Manhattan Auto Owner Trust, 2006-A A4, 5.36%,
Due 1/15/2013 ..................................... 2,000 1,979
Harley-Davidson Motorcycle Trust, 2007-3 A4, 5.52%,
Due 11/15/2013 .................................... 2,000 1,910
Household Automotive Trust, 2005-1 A4, 4.35%, Due
6/18/2012 ......................................... 2,474 2,414
USAA Auto Owner Trust, 2007-1 A4, 5.55%, Due
2/15/2013 ......................................... 3,000 2,929
Volkswagen Auto Loan Enhanced Trust, 2005-1 A4, 4.86%,
Due 4/20/2012 ..................................... 1,172 1,168
---------
TOTAL ASSET-BACKED SECURITIES 14,935
---------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 0.87%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.87%
4.968%, Due 12/16/2021 ............................ 628 630
4.201%, Due 8/16/2026 ............................. 1,677 1,669
---------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS 2,299
---------
U.S. AGENCY OBLIGATIONS - 2.73%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.93%
4.75%, Due 11/3/2009 + ............................ 5,000 5,084
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.80%
7.25%, Due 1/15/2010 .............................. 2,000 2,096
---------
TOTAL U.S. AGENCY OBLIGATIONS 7,180
---------
U.S. TREASURY OBLIGATIONS - 71.17%
3.125%, Due 11/30/2009 + .......................... 10,400 10,580
2.00%, Due 2/28/2010 + ............................ 20,000 20,131
2.125%, Due 4/30/2010 + ........................... 20,000 20,222
2.875%, Due 6/30/2010 + ........................... 20,000 20,458
4.125%, Due 8/15/2010 + ........................... 20,000 20,967
4.25%, Due 10/15/2010 + ........................... 20,000 21,110
See accompanying notes
77
AMERICAN BEACON SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
4.375%, Due 12/15/2010 + ............................. $ 20,000 $ 21,219
4.50%, Due 2/28/2011 + ............................... 20,000 21,409
4.875%, Due 4/30/2011 + .............................. 20,000 21,622
5.125%, Due 6/30/2011 ................................ 9,000 9,799
---------
TOTAL U.S. TREASURY OBLIGATIONS 187,517
---------
SHARES
-----------
SHORT TERM INVESTMENTS - 1.38%
American Beacon Money Market Select Fund # ........... 1,241,025 1,241
State Street Institutional Treasury Plus Fund ........ 2,385,021 2,385
---------
TOTAL SHORT TERM INVESTMENTS 3,626
---------
SECURITIES LENDING COLLATERAL - 25.14%
American Beacon Money Market Select Fund # ........... 9,720,888 9,721
Securities Liquidating AB Trust ...................... 33,241,599 32,794
State Street Navigator Securities Lending Prime
Portfolio ......................................... 23,714,944 23,715
---------
TOTAL SECURITIES LENDING COLLATERAL 66,230
---------
TOTAL INVESTMENTS - 124.17% (COST $326,675) $ 327,123
LIABILITIES, NET OF OTHER ASSETS - (24.17%) (63,665)
---------
TOTAL NET ASSETS - 100.00% $ 263,458
=========
Percentages are stated as a percent of net assets.
+ All or a portion of this security is on loan at October 31, 2008.
++ 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 $9,906 or 3.76% of net
assets. The Fund has no right to demand registration of these securities.
# The Fund is affiliated by having the same investment advisor.
See accompanying notes
78
THIS PAGE INTENTIONALLY LEFT BLANK.
79
AMERICAN BEACON FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 2008 (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) ..... $ 801,661 $ 64,917 $ 55,683
Investments in affiliated securities, at value (B) .......... 48,526 5,415 5,453
Foreign currency, at value (C) .............................. -- -- --
Cash ........................................................ -- -- --
Receivable for investments sold ............................. 1,352 -- 490
Dividends and interest receivable ........................... 4,307 66 42
Receivable for fund shares sold ............................. 556 256 163
Receivable for tax reclaims ................................. 4 -- --
Receivable for expense reimbursement ........................ -- -- 9
Receivable for variation margin on open futures contracts ... 221 25 66
Prepaid expenses ............................................ 25 1 8
----------- ----------- ----------
TOTAL ASSETS ............................................. 856,652 70,680 61,914
----------- ----------- ----------
LIABILITIES:
Payable for investments purchased ........................... 2,225 -- --
Payable upon return of securities loaned .................... 99,593 13,469 8,621
Payable for fund shares redeemed ............................ 115 -- 34
Dividends payable ........................................... -- -- --
Management and investment advisory fees payable (Note 2) .... 563 112 153
Administrative service and service fees payable ............. 87 2 9
Other liabilities ........................................... 156 38 37
----------- ----------- ----------
TOTAL LIABILITIES ........................................ 102,739 13,621 8,854
----------- ----------- ----------
NET ASSETS ..................................................... $ 753,913 $ 57,059 $ 53,060
=========== =========== ==========
ANALYSIS OF NET ASSETS:
Paid-in-capital ................................................ 934,568 84,302 93,582
Undistributed net investment income ............................ 27,287 610 937
Accumulated net realized gain (loss) ........................... (73,786) (15,034) (12,429)
Unrealized appreciation (depreciation) of investments, futures
contracts, and foreign currency ............................. (134,156) (12,819) (29,030)
----------- ----------- ----------
NET ASSETS. .................................................... $ 753,913 $ 57,059 $ 53,060
=========== =========== ==========
Shares outstanding (no par value):
Institutional Class ......................................... 3,439,883 18,522 379,982
=========== =========== ==========
PlanAhead Class ............................................. 10,648,019 N/A 2,799,908
=========== =========== ==========
Service Class ............................................... 785,124 N/A 92
=========== =========== ==========
AMR Class ................................................... 59,287,606 12,611,199 5,741,395
=========== =========== ==========
Net asset value, offering and redemption price per share:
Institutional Class ......................................... $ 10.63 $ 4.49 $ 5.94
=========== =========== ==========
PlanAhead Class ............................................. $ 9.91 N/A $ 5.91
=========== =========== ==========
Service Class ............................................... $ 9.77 N/A $ 5.87
=========== =========== ==========
AMR Class ................................................... $ 10.19 $ 4.52 $ 5.97
=========== =========== ==========
(A) Cost of investments in unaffiliated securities ............. $ 926,054 $ 76,962 $ 83,324
(B) Cost of investments in affiliated securities ............... $ 48,526 $ 5,415 $ 5,453
(C) Cost of foreign currency ................................... $ -- $ -- $ 0
(D) Market value of securities on loan ......................... $ 97,848 $ 13,436 $ 8,536
See accompanying notes
80
SMALL CAP
VALUE EMERGING
OPPORTUNITY MARKETS HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM
FUND FUND BOND FUND INCOME FUND BOND FUND BOND FUND
----------- ---------- ---------- ----------- ------------ -----------
ASSETS:
Investments in unaffiliated securities,
at value (A, D) ........................ $ 5,206 $ 85,935 $ 113,251 $ 112,890 $ 167,471 $ 316,161
Investments in affiliated securities,
at value (B) ........................... 243 6,920 5,762 5,779 12,422 10,962
Foreign currency, at value (C) ............ -- 1,166 -- -- -- --
Cash ...................................... -- -- -- -- -- 209
Receivable for investments sold ........... -- 530 -- -- 1,079 --
Dividends and interest receivable ......... 6 173 4,181 899 1,365 2,313
Receivable for fund shares sold ........... 3 157 285 53 195 573
Receivable for tax reclaims ............... -- 20 -- 1 1 --
Receivable for expense reimbursement ...... 11 -- -- -- -- 1
Receivable for variation margin on open
futures contracts ...................... -- 35 -- -- -- --
Prepaid expenses .......................... -- 11 17 6 7 16
-------- ---------- ---------- ----------- ----------- -----------
TOTAL ASSETS ........................... 5,469 94,947 123,496 119,628 182,540 330,235
-------- ---------- ---------- ----------- ----------- -----------
LIABILITIES:
Payable for investments purchased ......... -- 241 1,461 281 175 --
Payable upon return of securities loaned .. 1,047 11,083 -- 18,668 34,668 66,677
Payable for fund shares redeemed .......... -- 10 1,372 10 2 4
Dividends payable ......................... -- -- 178 1 -- 8
Management and investment advisory fees
payable (Note 2) ....................... 12 323 221 109 26 41
Administrative service and service fees
payable ................................ 1 7 21 45 6 14
Other liabilities ......................... 35 106 96 45 29 33
-------- ---------- ---------- ----------- ----------- -----------
TOTAL LIABILITIES ...................... 1,095 11,770 3,349 19,159 34,906 66,777
-------- ---------- ---------- ----------- ----------- -----------
NET ASSETS ................................... $ 4,374 $ 83,177 $ 120,147 $ 100,469 $ 147,634 $ 263,458
======== ========== ========== =========== =========== ===========
ANALYSIS OF NET ASSETS:
Paid-in-capital .............................. 10,321 122,359 187,390 113,431 157,626 274,756
Undistributed net investment income .......... 65 2,109 503 (96) 501 (563)
Accumulated net realized gain (loss). ........ (4,596) 723 (16,622) (2,089) (1,746) (11,183)
Unrealized appreciation (depreciation) of
investments, futures contracts, and
foreign currency .......................... (1,416) (42,014) (51,124) (10,777) (8,747) 448
-------- ---------- ---------- ----------- ----------- -----------
NET ASSETS ................................... $ 4,374 $ 83,177 $ 120,147 $ 100,469 $ 147,634 $ 263,458
======== ========== ========== =========== =========== ===========
Shares outstanding (no par value):
Institutional Class ....................... 638,241 608,518 9,177,217 N/A 15,354,658 29,816,006
======== ========== ========== =========== =========== ===========
PlanAhead Class ........................... 15,967 585,719 2,059,161 11,414,600 N/A 900,441
======== ========== ========== =========== =========== ===========
Service Class ............................. N/A N/A N/A N/A N/A N/A
======== ========== ========== =========== =========== ===========
AMR Class ................................. N/A 8,006,730 6,506,314 N/A N/A N/A
======== ========== ========== =========== =========== ===========
Net asset value, offering and redemption
price per share:
Institutional Class ....................... $ 6.69 $ 9.00 $ 6.77 N/A $ 9.61 $ 8.58
======== ========== ========== =========== =========== ===========
PlanAhead Class ........................... $ 6.65 $ 8.85 $ 6.77 $ 8.80 N/A $ 8.59
======== ========== ========== =========== =========== ===========
Service Class ............................. N/A N/A N/A N/A N/A N/A
======== ========== ========== =========== =========== ===========
AMR Class ................................. N/A $ 9.06 $ 6.77 N/A N/A N/A
======== ========== ========== =========== =========== ===========
(A) Cost of investments in unaffiliated
securities ................................ $ 6,622 $ 126,644 $ 164,375 $ 123,667 $ 176,218 $ 315,713
(B) Cost of investments in affiliated
securities ................................ $ 243 $ 6,920 $ 5,762 $ 5,779 $ 12,422 $ 10,962
(C) Cost of foreign currency ................. $ -- $ 1,161 $ -- $ -- $ -- $ --
(D) Market value of securities on loan ....... $ 1,072 $ 10,569 $ -- $ 18,205 $ 33,921 $ 65,307
See accompanying notes
81
AMERICAN BEACON FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2008 (IN THOUSANDS)
LARGE CAP
BALANCED GROWTH MID-CAP
FUND FUND VALUE FUND
--------- --------- ----------
INVESTMENT INCOME:
Dividend income from unaffiliated
securities (net of foreign taxes) (A) ..... $ 16,185 $ 1,105 $ 1,943
Dividend income from affiliated securities ... 1,366 141 172
Interest income .............................. 20,626 5 18
Income derived from securities lending, net .. 1,276 102 113
--------- -------- --------
TOTAL INVESTMENT INCOME ................ 39,453 1,353 2,246
--------- -------- --------
EXPENSES:
Management and investment advisory fees
(Note 2) .................................. 2,726 439 631
Administrative service fees (Note 2):
Institutional Class ....................... 119 -- 12
PlanAhead Class ........................... 408 -- 74
Service Class ............................. 25 -- --
AMR Class ................................. 42 4 2
Transfer agent fees:
Institutional Class ....................... 3 -- 5
PlanAhead Class ........................... 15 -- --
Service Class ............................. 1 -- --
AMR Class ................................. 30 -- 2
Custody and fund accounting fees ............. 83 8 8
Professional fees ............................ 43 25 30
Registration fees and expenses ............... 45 -- 45
Service fees (Note 2):
PlanAhead Class ........................... 401 -- 72
Service Class ............................. 24 -- --
Distribution fees- Service Class (Note 2) .... 24 -- --
Prospectus and shareholder reports ........... 59 1 6
Other expenses ............................... 69 8 12
--------- -------- --------
TOTAL EXPENSES ......................... 4,117 485 899
--------- -------- --------
Net (fees waived and expenses reimbursed)/
recouped by Manager (Note 2) .............. -- -- (35)
--------- -------- --------
NET EXPENSES ........................... 4,117 485 864
--------- -------- --------
NET INVESTMENT INCOME ........................... 35,336 868 1,382
--------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) from: (B)
Investments ............................... (52,659) (11,739) (10,492)
Commission recapture (Note 1) ............. 8 4 19
Foreign currency transactions ............. -- -- --
Futures contracts ......................... (15,022) (2,978) (1,570)
Change in net unrealized appreciation or
depreciation of:
Investments ............................... (265,706) (23,530) (29,534)
Foreign currency translations ............. -- -- --
Futures contracts ......................... (11,777) (808) (1,490)
--------- -------- --------
NET (LOSS) ON INVESTMENTS .............. (345,156) (39,051) (43,067)
--------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................... $(309,820) $(38,183) $(41,685)
========= ======== ========
(A) Foreign taxes ............................... $ 12 $ -- $ 6
(B) Net of foreign withholding taxes on capital
gains ........................................ $ -- $ -- $ --
See accompanying notes
82
SMALL CAP
VALUE EMERGING ENHANCED
OPPORTUNITY MARKETS HIGH YIELD INCOME INTERMEDIATE SHORT-TERM
FUND FUND BOND FUND FUND BOND FUND BOND FUND
----------- --------- ---------- --------- ------------ ----------
INVESTMENT INCOME:
Dividend income from unaffiliated
securities (net of foreign taxes) (A) ..... $ 173 $ 4,700 $ 7 $ 226 $ 1 $ 1
Dividend income from affiliated securities ... 3 352 236 123 258 251
Interest income .............................. -- 18 16,482 4,414 6,974 5,407
Income derived from securities lending, net .. 18 168 45 149 267 169
------- --------- -------- -------- ------- -------
TOTAL INVESTMENT INCOME ................ 194 5,238 16,770 4,912 7,500 5,828
------- --------- -------- -------- ------- -------
EXPENSES:
Management and investment advisory fees
(Note 2) .................................. 48 1,573 872 369 365 342
Administrative service fees (Note 2):
Institutional Class ....................... 22 27 236 -- 10 16
PlanAhead Class ........................... -- 26 58 276 -- 14
Service Class ............................. -- -- -- -- -- --
AMR Class ................................. -- 6 3 -- -- --
Transfer agent fees:
Institutional Class ....................... 1 1 24 -- 4 --
PlanAhead Class ........................... -- 7 6 4 -- 4
Service Class ............................. -- -- -- -- -- --
AMR Class ................................. -- 7 3 -- -- --
Custody and fund accounting fees ............. 1 644 25 14 17 16
Professional fees ............................ 23 28 34 27 25 27
Registration fees and expenses ............... 32 26 32 14 19 27
Service fees (Note 2):
PlanAhead Class ........................... -- 26 57 269 -- 14
Service Class ............................. -- -- -- -- -- --
Distribution fees- Service Class (Note 2) .... -- -- -- -- -- --
Prospectus and shareholder reports ........... -- 8 60 7 3 6
Other expenses ............................... 6 22 17 9 7 9
------- --------- -------- -------- ------- -------
TOTAL EXPENSES ......................... 133 2,401 1,427 989 450 475
------- --------- -------- -------- ------- -------
Net (fees waived and expenses reimbursed)/
recouped by Manager (Note 2) .............. (43) -- -- -- -- (2)
------- --------- -------- -------- ------- -------
NET EXPENSES ........................... 90 2,401 1,427 989 450 473
------- --------- -------- -------- ------- -------
NET INVESTMENT INCOME ........................... 104 2,837 15,343 3,923 7,050 5,355
------- --------- -------- -------- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) from: (B)
Investments ............................... (4,268) 8,689 (14,708) (1,148) 70 (4,833)
Commission recapture (Note 1) ............. 2 -- -- -- -- --
Foreign currency transactions ............. -- (1,639) -- -- -- --
Futures contracts ......................... -- (5,377) -- -- -- --
Change in net unrealized appreciation or
depreciation of:
Investments ............................... 312 (116,165) (48,374) (14,259) (8,956) 309
Foreign currency translations ............. -- (16,205) -- -- -- --
Futures contracts ......................... -- (1,507) -- -- -- --
------- --------- -------- -------- ------- -------
NET (LOSS) ON INVESTMENTS .............. (3,954) (132,204) (63,082) (15,407) (8,886) (4,524)
------- --------- -------- -------- ------- -------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................... $(3,850) $(129,367) $(47,739) $(11,484) $(1,836) $ 831
======= ========= ======== ======== ======= =======
(A) Foreign taxes ............................... $ -- $ 528 $ -- $ 1 $ -- $ --
(B) Net of foreign withholding taxes on capital
gains ........................................ $ -- $ 68 $ -- $ -- $ -- $ --
See accompanying notes
83
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
Large Cap
Balanced Fund Growth Fund Mid-Cap Value Fund
----------------------- ------------------- -------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
October October October October October October
31, 2008 31, 2007 31, 2008 31, 2007 31, 2008 31, 2007
---------- ---------- -------- -------- -------- --------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............ $ 35,336 $ 33,625 $ 868 $ 815 $ 1,382 $ 1,701
Net realized gain (loss) on
investments, futures
contracts, and foreign
currency transactions ......... (67,673) 60,813 (14,713) 6,273 (12,043) 7,903
Change in net unrealized
appreciation or depreciation
of investments, futures
contracts, and foreign
currency translations ......... (277,483) 2,006 (24,338) 4,085 (31,024) (3,979)
---------- ---------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .............. (309,820) 96,444 (38,183) 11,173 (41,685) 5,625
---------- ---------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class ........... (1,424) (762) (1) (1) (84) (22)
PlanAhead Class ............... (5,471) (3,106) -- -- (326) (206)
Service Class ................. (318) (43) -- -- -- --
AMR Class ..................... (27,782) (23,927) (791) (737) (1,140) (563)
Net realized gain on
investments:
Institutional Class ........... (2,559) (1,300) (3) -- (405) (86)
PlanAhead Class ............... (10,490) (5,825) -- -- (2,179) (706)
Service Class ................. (602) (77) -- -- -- --
AMR Class ..................... (45,704) (38,430) (2,748) -- (4,985) (1,766)
---------- ---------- -------- -------- -------- --------
NET DISTRIBUTIONS TO
SHAREHOLDERS ............ (94,350) (73,470) (3,543) (738) (9,119) (3,349)
---------- ---------- -------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of
shares 83,795 239,343 34,857 44,637 30,505 85,804
Reinvestment of dividends and
distributions 93,808 72,959 3,543 738 9,098 3,346
Cost of shares redeemed (181,757) (126,358) (41,432) (36,145) (63,782) (60,513)
Redemption fees -- -- -- -- 43 161
---------- ---------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN
NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS ...... (4,154) 185,944 (3,032) 9,230 (24,136) 28,798
---------- ---------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET
ASSETS ........................... (408,324) 208,918 (44,758) 19,665 (74,940) 31,074
---------- ---------- -------- -------- -------- --------
NET ASSETS:
Beginning of period .............. 1,162,237 953,319 101,817 82,152 128,000 96,926
---------- ---------- -------- -------- -------- --------
END OF PERIOD * .................. $ 753,913 $1,162,237 $ 57,059 $101,817 $ 53,060 $128,000
========== ========== ======== ======== ======== ========
* Includes undistributed net
investment income (loss) of ...... $ 27,287 $ 26,249 $ 610 $ 552 $ 937 $ 1,243
========== ========== ======== ======== ======== ========
See accompanying notes
84
Small Cap Value Emerging Enhanced
Opportunity Fund Markets Fund High Yield Bond Fund Income Fund
------------------- -------------------- --------------------- -------------------
Year Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended Ended
October October October October October October October October
31, 2008 31, 2007 31, 2008 31, 2007 31, 2008 31, 2007 31, 2008 31, 2007
-------- -------- --------- -------- --------- --------- -------- --------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............ $ 104 $ 148 $ 2,837 $ 2,414 $ 15,343 $ 22,739 $ 3,923 $ 3,774
Net realized gain (loss) on
investments, futures
contracts, and foreign
currency transactions ......... (4,266) (371) 1,673 43,507 (14,708) 1,834 (1,148) 2,870
Change in net unrealized
appreciation or depreciation
of investments, futures
contracts, and foreign
currency translations ......... 312 (1,878) (133,877) 55,340 (48,374) (3,549) (14,259) 212
-------- ------- --------- -------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .............. (3,850) (2,101) (129,367) 101,261 (47,739) 21,024 (11,484) 6,856
-------- ------- --------- -------- --------- --------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class ........... (134) (17) (58) (101) (7,731) (16,871) -- --
PlanAhead Class ............... (1) -- (43) (15) (1,837) (4,915) (5,038) (4,171)
Service Class ................. -- -- -- -- -- -- -- --
AMR Class ..................... -- -- (2,023) (1,130) (5,774) (949) -- --
Net realized gain on
investments:
Institutional Class ........... -- (9) (2,019) (2,407) -- -- -- --
PlanAhead Class ............... -- -- (1,876) (922) -- -- (2,097) (74)
Service Class ................. -- -- -- -- -- -- -- --
AMR Class ..................... -- -- (39,911) (19,268) -- -- -- --
-------- ------- --------- -------- --------- --------- -------- --------
NET DISTRIBUTIONS TO
SHAREHOLDERS ............ (135) (26) (45,930) (23,843) (15,342) (22,735) (7,135) (4,245)
-------- ------- --------- -------- --------- --------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of
shares 1,610 29,224 28,155 87,824 72,610 209,900 79,277 15,667
Reinvestment of dividends and
distributions 135 26 45,849 23,764 13,364 19,203 7,127 4,245
Cost of shares redeemed (23,073) (2,199) (112,884) (49,405) (128,737) (313,378) (67,105) (48,649)
Redemption fees -- -- 161 53 -- -- -- --
-------- ------- --------- -------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN
NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS ...... (21,328) 27,051 (38,719) 62,236 (42,763) (84,275) 19,299 (28,737)
-------- ------- --------- -------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN NET
ASSETS ........................... (25,313) 24,924 (214,016) 139,654 (105,844) (85,986) 680 (26,126)
-------- ------- --------- -------- --------- --------- -------- --------
NET ASSETS:
Beginning of period .............. 29,687 4,763 297,193 157,539 225,991 311,977 99,789 125,915
-------- ------- --------- -------- --------- --------- -------- --------
END OF PERIOD * .................. $ 4,374 $29,687 $ 83,177 $297,193 $ 120,147 $ 225,991 $100,469 $ 99,789
======== ======= ========= ======== ========= ========= ======== ========
* Includes undistributed net
investment income (loss) of ...... $ 65 $ 126 $ 2,109 $ 2,180 $ 503 $ 503 $ (96) $ 575
======== ======= ========= ======== ========= ========= ======== ========
See accompanying notes
85
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
Intermediate Bond Fund Short-Term Bond Fund
------------------------- -------------------------
Year Ended Year Ended Year Ended Year Ended
October 31, October 31, October 31, October 31,
2008 2007 2008 2007
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ........................................ $ 7,050 $ 4,932 $ 5,355 $ 3,893
Net realized gain (loss) on investments, futures contracts,
and foreign currency transactions ......................... 70 280 (4,833) 237
Change in net unrealized appreciation or depreciation
of investments, futures contracts, and foreign currency
translations .............................................. (8,956) 560 309 624
-------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. (1,836) 5,772 831 4,754
-------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class ....................................... (7,053) (4,946) (6,084) (4,046)
PlanAhead Class ........................................... -- (13) (220) (227)
Net realized gain on investments:
-------- -------- -------- --------
NET DISTRIBUTIONS TO SHAREHOLDERS ......................... (7,053) (4,959) (6,304) (4,273)
-------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares 103,092 26,882 200,633 22,984
Reinvestment of dividends and distributions 7,052 4,957 6,236 4,264
Cost of shares redeemed (63,295) (21,223) (30,341) (15,932)
-------- -------- -------- --------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS ........................................... 46,849 10,616 176,528 11,316
-------- -------- -------- --------
NET INCREASE IN NET ASSETS ...................................... 37,960 11,429 171,055 11,797
-------- -------- -------- --------
NET ASSETS:
Beginning of period .......................................... 109,674 98,245 92,403 80,606
-------- -------- -------- --------
END OF PERIOD * .............................................. $147,634 $109,674 $263,458 $ 92,403
======== ======== ======== ========
* Includes undistributed net investment income (loss) of ........ $ 501 $ 502 $ (563) $ 19
======== ======== ======== ========
See accompanying notes
86
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940 (the
"Act"), as amended, as a no load, diversified, open-end management investment
company. These financial statements and notes to the financial statements relate
to the American Beacon Balanced Fund, the American Beacon Large Cap Growth Fund,
the American Beacon Mid-Cap Value Fund, the American Beacon Small Cap Value
Opportunity Fund, the American Beacon Emerging Markets Fund, the American Beacon
High Yield Bond Fund, the American Beacon Enhanced Income Fund, the American
Beacon Intermediate Bond Fund and the American Beacon Short-Term Bond Fund (each
a "Fund" and collectively, the "Funds"), each a series of the Trust.
Effective September 12, 2008 American Beacon Advisors, Inc. (the
"Manager") became a wholly-owned subsidiary of Lighthouse Holdings, Inc., which
is indirectly owned by investment funds affiliated with Pharos Capital Group,
LLC and TPG Capital, L.P., two leading private equity firms. Prior to September
12 the Manager was a wholly-owned subsidiary of AMR Corporation ("AMR"), the
parent company of American Airlines, Inc. ("American").
Class Disclosure
Each Fund, except the Enhanced Income Fund and Intermediate Bond 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:
- ------ --------------------------------------------------------
INSTITUTIONAL CLASS Investors making an initial investment of $2 million
PLANAHEAD CLASS General public and investors investing through an
intermediary
SERVICE CLASS Investors investing through an intermediary
AMR CLASS Investors in the tax-exempt retirement and benefit plans
of AMR Corporation and its affiliates
Administrative service fees, service fees and distribution fees vary
amongst the classes as described more fully in footnote 2.
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 brokers.
87
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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 market prices are not readily available or are
not reflective of the fair value of the security, as determined by the Manager,
will be priced at fair value following procedures approved by the Board of
Trustees (the "Board").
Most foreign markets close before the Exchange. Developments that
could affect the values of securities that occur between the close of a foreign
market and the close of the Exchange normally will not be reflected in security
valuations. If such developments are so significant such that they will, in the
judgment of the pricing committee of the Funds, clearly and materially affect
the value of securities, the previous closing prices may be adjusted to reflect
the fair value of the securities as of the close of the Exchange, as determined
in good faith and pursuant to procedures approved by the Board. Adjustments to
closing prices to reflect fair value on affected foreign securities may be
provided by an independent pricing service.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale.
The Funds may purchase securities with delivery or payment to occur at
a later date. At the time the Funds enter into a commitment to purchase a
security, the transaction is recorded, and the value of the security is
reflected in the net asset value. The value of the security may vary with market
fluctuations.
Dividend income, 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 Funds' 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.
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,
88
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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.
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. The fee is
allocated to all classes of each Fund pro-rata based on their respective net
assets.
89
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
Recently Issued Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board ("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, 2008, 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.
In March 2008, FASB issued Statement on Financial Accounting Standards
No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("FAS
161"), which is effective for fiscal years and interim periods beginning after
November 15, 2008. FAS 161 requires enhanced disclosures about derivative and
hedging activities, including how such activities are accounted for and their
effect on financial position, performance and cash flows. The Manager is
currently evaluating the impact the adoption of FAS 161 will have on the Funds'
financial statements and related disclosures.
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 Balanced, Large Cap Growth, Mid-Cap Value, Small Cap Value
Opportunity, Emerging Markets, High Yield Bond, Enhanced Income, and
Intermediate Bond Funds are managed by one or more investment advisors which
have entered into separate investment advisory agreements with the Manager. As
compensation for performing the duties required under the Management Agreement,
the Manager received 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 amounts paid by
the Manager to the sub-advisors hired by the Manager plus, through September 11,
2008, 0.10% of the Funds' average daily net assets, and from September 12, 2008,
0.05% of the Funds' average daily net assets. The Manager received an annualized
fee from the Intermediate Bond Fund of, through September 11, 2008, 0.25% of the
average daily net assets, and from September 12, 2008, 0.20% of the average
daily net assets. The Manager pays a portion of its fee from the Intermediate
Bond Fund to a sub-advisor hired by the Manager to direct investment activities
of a portion of the Fund. The Manager is one of the investment advisors of the
Balanced and Enhanced Income Funds and receives an annualized fee of 0.15% on
the portion of assets managed by the Manager. The Manager serves as the sole
investment advisor to the Short-Term Bond Fund, and through September 11, 2008,
the Manager received an annualized fee equal to 0.25% of the average daily net
assets of the Fund, and from September 12, 2008, the Manager received an
annualized fee equal to 0.20% of average daily net assets. Management fees paid
during the year ended October 31, 2008 were as follows (dollars in thousands):
90
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
AMOUNTS PAID NET AMOUNTS
MANAGEMENT MANAGEMENT TO INVESTMENT RETAINED BY
FEE RATE FEE ADVISORS MANAGER
----------- ---------- ------------- -----------
Balanced ...................... 0.175%-0.70% $2,726 $1,774 $952
Large Cap Growth .............. 0.30%-0.55% 439 361 78
Mid-Cap Value ................. 0.35%-1.10% 631 544 87
Small Cap Value Opportunity ... 0.40%-0.55% 48 40 8
Emerging Markets .............. 0.60%-1.20% 1,573 1,324 249
High Yield Bond ............... 0.30%-0.52% 872 699 173
Enhanced Income ............... 0.20%-0.85% 369 267 102
Intermediate Bond ............. 0.20%-0.25% 365 122 243
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, 2008, securities lending fees paid to the Manager
were as follows (in thousands):
Balanced ................................................................ $208
Large Cap Growth ........................................................ 16
Mid-Cap Value ........................................................... 18
Small Cap Value Opportunity ............................................. 2
Emerging Markets ........................................................ 26
High Yield Bond ......................................................... 5
Enhanced Income ......................................................... 25
Intermediate Bond ....................................................... 48
Short-Term Bond ......................................................... 39
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 received, through September
11, 2008, an annualized fee of 0.25% of the average daily net assets of the
Institutional, PlanAhead, and Service Classes of each of the Funds, except for
the Institutional Class of the Intermediate Bond and Short-Term Bond Funds from
which the Manager did not receive a fee. From September 12, 2008, the Manager
received an annualized fee of 0.05% of the average daily net assets of the AMR
Class and 0.30% of the average daily net assets of the Institutional, PlanAhead,
and Service Classes of each Fund except for the Institutional Class of the
Intermediate Bond and Short-Term Bond Funds from which the Manager received a
fee of 0.05% of average daily net assets.
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.
91
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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 $576 and $1,777, respectively for the year
ended October 31, 2008.
Investment in Affiliated Funds
The Fund is permitted, pursuant to an exemptive order by the
Securities and Exchange Commission ("SEC") and procedures approved by the Board,
to invest up to 25% of its total assets in the American Beacon Money Market
Select Fund (the "Select Fund"). Cash collateral received by 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 up to 0.10% of its average daily net assets. During the
year ended October 31, 2008, fees earned by the Manager from the Affiliated
Funds were as follows (in thousands):
SECURITIES LENDING
DIRECT INVESTMENT IN COLLATERAL INVESTED
AFFILIATED FUNDS IN AFFILIATED FUNDS TOTAL
-------------------- ------------------- -----
Balanced ...................... $40 $192 $232
Large Cap Growth .............. 1 18 19
Mid-Cap Value ................. 5 13 18
Small Cap Value Opportunity ... -- 2 2
Emerging Markets .............. 10 18 28
High Yield Bond ............... 6 -- 6
Enhanced Income ............... 4 23 27
Intermediate Bond ............. 8 34 42
Short-Term Bond ............... 7 24 31
Interfund Lending Program
Pursuant to an exemptive order by the SEC, the Funds, along with other
registered investment companies having management contracts with the Manager,
may participate in an interfund lending program as a borrower. This program
provides an alternative credit facility allowing the Funds to borrow from other
participating Funds. For the year ended October 31, 2008, the Fund did not
utilize the credit facility.
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, 2008, the Manager waived or reimbursed expenses as
follows:
92
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
Expense Cap
-----------------------------------------------
11/1/07 3/1/08 WAIVED OR
TO TO REIMBURSED
FUND CLASS 2/28/08 10/31/08 EXPENSES
- ---- ------------- ------- -------- ----------
Large Cap Growth .............. Institutional 0.90% 0.90% $ 63
Mid-Cap Value ................. Institutional 0.90% 0.98% 8,564
Mid-Cap Value ................. PlanAhead 1.23% 1.23% 26,275
Mid-Cap Value ................. Service N/A 1.50% 4
Small Cap Value Opportunity ... Institutional 1.05% 1.05% 42,833
Small Cap Value Opportunity ... PlanAhead 1.30% 1.30% 580
Short-Term Bond ............... PlanAhead 0.87% N/A 1,657
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, 2008 was as follows:
Balanced- Service Class
EXPIRATION LIABILITY AT LIABILITY AT
YEAR 10/31/07 ACCRUED EXPIRED RECOUPED 10/31/08
- ---------- ------------ ------- ------- -------- ------------
2008 1,016 -- -- 1,016 --
2009 13 -- -- 13 --
------ --- --- ------ ---
$1,029 $-- $-- $1,029 $--
====== === === ====== ===
Emerging Markets- PlanAhead Class
EXPIRATION LIABILITY AT LIABILITY AT
YEAR 10/31/07 ACCRUED EXPIRED RECOUPED 10/31/08
- ---------- ------------ ------- ------- -------- ------------
2008 4,734 -- -- 4,734 --
2009 2,926 -- -- 2,926 --
------ --- --- ------ ---
$7,660 $-- $-- $7,660 $--
====== === === ====== ===
Mid-Cap Value- AMR Class
EXPIRATION LIABILITY AT LIABILITY AT
YEAR 10/31/07 REVERSED EXPIRED RECOUPED 10/31/08
- ---------- ------------ -------- ------- -------- ------------
2008 5,596 -- -- 5,596 --
2009 2,537 2,537 -- -- --
------ ------ --- ------ ---
$8,133 $2,537 $-- $5,596 $--
====== ====== === ====== ===
The remaining Funds have not recorded a liability for potential
reimbursement, due to the current assessment that a reimbursement is unlikely.
3. FEDERAL INCOME AND EXCISE TAXES
It is the policy of each of the Funds to comply with the requirements
of Subchapter M of the Internal Revenue Code and to distribute substantially all
net investment income as well as any net realized capital gains on the sale of
investments. Therefore, no federal income or excise tax provision is required.
The Funds adopted the provisions of FASB Interpretation No. 48,
"Accounting for Uncertainties in Income Taxes" ("FIN 48"), on November 1, 2007.
FIN 48 sets forth a minimum threshold for financial statement recognition of the
benefit of a tax position taken or expected to be taken in a tax return. The
implementation of FIN 48 did not result in any unrecognized tax benefits in the
accompanying financial statements. Each of the tax years in the three year
period ended October 31, 2008 remains subject to
93
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
examination by the Internal Revenue Service. If applicable, the Funds recognize
interest accrued related to unrecognized tax benefits in interest expense and
penalties in "Other expenses" on the Statements of Operations.
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, 2008 and October 31, 2007 were as follows (in thousands)
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,
2008 2007 2008 2007 2008 2007
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME*
Institutional Class .......... $ 1,997 $ 906 $ 1 $ 1 $ 139 $ 84
PlanAhead Class .............. 7,821 3,751 -- -- 618 714
Service Class ................ 453 52 -- -- -- --
AMR Class .................... 38,025 28,183 791 737 1,809 1,835
LONG-TERM CAPITAL GAIN
Institutional Class .......... 1,986 1,156 3 -- 350 24
PlanAhead Class .............. 8,140 5,180 -- -- 1,887 198
Service Class ................ 467 68 -- -- -- --
AMR Class .................... 35,461 34,174 2,748 -- 4,316 494
------- ------- ------ ---- ------ ------
TOTAL DISTRIBUTIONS PAID .. $94,350 $73,470 $3,543 $738 $9,119 $3,349
======= ======= ====== ==== ====== ======
* 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,
2008 2007 2008 2007 2008 2007
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME*
Institutional Class .......... $134 $25 $ 550 $ 412 $ 7,731 $16,871
PlanAhead Class .............. 1 1 499 135 1,837 4,915
Service Class ................ -- -- -- -- -- --
AMR Class .................... -- -- 11,725 3,613 5,774 949
LONG-TERM CAPITAL GAIN
Institutional Class .......... -- -- 1,527 2,096 -- --
PlanAhead Class .............. -- -- 1,420 802 -- --
Service Class ................ -- -- -- -- -- --
AMR Class .................... -- -- 30,209 16,785 -- --
---- --- ------- ------- ------- -------
TOTAL DISTRIBUTIONS PAID .. $135 $26 $45,930 $23,843 $15,342 $22,735
==== === ======= ======= ======= =======
* For tax purposes, short-term capital gains are considered ordinary income
distributions.
94
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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,
2008 2007 2008 2007 2008 2007
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME*
Institutional Class .......... $ -- $ -- $7,053 $4,946 $6,084 $4,046
PlanAhead Class .............. 5,674 4,171 -- 13 220 227
AMR Class .................... -- -- -- -- -- --
LONG-TERM CAPITAL GAIN -- -- -- -- -- --
Institutional Class .......... -- -- -- -- -- --
PlanAhead Class .............. 1,461 74 -- -- -- --
AMR Class .................... -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS PAID .. $7,135 $4,245 $7,053 $4,959 $6,304 $4,273
====== ====== ====== ====== ====== ======
* For tax purposes, short-term capital gains are considered ordinary income
distributions.
As of October 31, 2008, the components of distributable earnings on a tax basis
were as follows (in thousands):
SMALL CAP
VALUE EMERGING
BALANCED LARGE CAP GROWTH MID-CAP VALUE OPPORTUNITY MARKETS
--------- ---------------- ------------- ----------- ---------
Cost basis of investments for federal income tax purposes $ 990,253 $ 83,133 $ 89,217 $ 6,873 $146,978
Unrealized appreciation 35,914 1,198 202 85 486
Unrealized depreciation (175,980) (13,999) (28,283) (1,509) (54,609)
--------- ------- -------- ------- --------
Net unrealized appreciation/(depreciation) (140,066) (12,801) (28,081) (1,424) (54,123)
Undistributed ordinary income 27,937 611 937 64 2,109
Undistributed long-term gain/(loss) (68,541) (15,053) (13,378) (4,586) 12,822
--------- -------- -------- ------- --------
Distributable earnings $(180,670) $(27,243) $(40,522) $(5,946) $(39,192)
========= ======== ======== ======= ========
HIGH YIELD BOND ENHANCED INCOME INTERMEDIATE BOND SHORT-TERM BOND
--------------- --------------- ----------------- ---------------
Cost basis of investments for federal income tax purposes $170,655 $ 129,681 $188,642 $327,774
Unrealized appreciation 89 189 179 2,414
Unrealized depreciation (51,731) (11,201) (8,928) (3,065)
-------- -------- ------- --------
Net unrealized appreciation/(depreciation) (51,642) (11,012) (8,749) (651)
Undistributed ordinary income 325 107 502 528
Undistributed long-term gain/(loss) (16,104) (2,058) (1,744) (11,183)
-------- -------- ------- --------
Distributable earnings $(67,421) $(12,963) $(9,991) $(11,306)
======== ======== ======= ========
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.
95
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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, 2008 (in
thousands):
LARGE CAP MID-CAP SMALL CAP VALUE EMERGING HIGH ENHANCED INTERMEDIATE SHORT-TERM
BALANCED GROWTH VALUE OPPORTUNITY MARKETS YIELD BOND INCOME BOND BOND
-------- --------- -------- --------------- -------- ---------- -------- ------------ ----------
Paid-in-capital .................. $ 7 $(1) $ 34 $ 1 $ 122 $-- $ 407 $(7,045) $(1,218)
Undistributed net investment
income ........................ 697 (18) (138) (30) (784) (1) 444 2 367
Accumulated net realized gain
(loss) ........................ (704) 19 104 29 663 -- (851) 7,043 852
Unrealized appreciation
(depreciation) of investments,
futures contracts and
foreign currency .............. -- -- -- -- (1) 1 -- -- (1)
At October 31, 2008, capital loss carry forward positions for federal
income tax purposes were as follows (in thousands):
FUND 2009 2010 2011 2012 2013 2014 2015 2016 TOTAL
- ---- ---- ---- ---- ---- ------ ------ ---- ------- -------
Balanced ........................ $-- $ -- $ -- $ -- $ -- $ -- $ -- $68,541 $68,541
Large Cap Growth ................ -- -- -- -- -- -- -- 15,053 15,053
Mid-Cap Value ................... -- -- -- -- -- -- -- 13,378 13,378
Small Cap Value Opportunity ..... -- -- -- -- -- -- 313 $ 4,273 4,586
High Yield Bond ................. -- -- -- -- -- 1,772 -- 14,332 16,104
Enhanced Income ................. -- -- -- -- -- -- -- 2,058 2,058
Intermediate Bond ............... -- 328 -- -- 318 1,098 -- -- 1,744
Short-Term Bond ................. -- 913 161 800 1,256 2,387 467 5,199 11,183
The Intermediate Bond Fund utilized $61 of net capital loss
carryovers, and the Intermediate Bond and Short-Term Bond Fund had $7,046 and
$1,218, respectively of expired capital loss carryovers for the year ended
October 31, 2008.
4. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales and maturities
of long-term investments during the year ended October 31, 2008 were as follows
(in thousands):
LARGE CAP MID-CAP SMALL CAP VALUE EMERGING HIGH ENHANCED INTERMEDIATE SHORT-TERM
BALANCED GROWTH VALUE OPPORTUNITY MARKETS YIELD BOND INCOME BOND BOND
-------- --------- -------- --------------- -------- ---------- -------- ------------ ----------
Purchases (excluding U.S.
government securities) ........ $399,609 $ 86,822 $23,984 $ 7,400 $152,065 $269,436 $61,730 $ 88,468 $ 37,475
Sales and maturities (excluding
U.S. government
securities) ................... 429,255 101,604 69,603 28,905 240,711 313,927 42,041 47,523 23,016
Purchases of U.S. government
securities .................... 109,870 -- -- -- -- -- 32,328 99,298 169,278
Sales and maturities of U.S.
government securities ......... 194,476 -- -- -- -- -- 37,548 101,058 5,687
A summary of the Funds' direct transactions in Affiliated Funds for
the year ended October 31, 2008 is set forth below (in thousands):
96
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
OCTOBER 31, 2007 OCTOBER 31, 2008
AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
----------- ------------------- --------- -------- -------------------
Balanced ..................... Select Fund $57,102 $416,472 $439,568 $34,006
Large Cap Growth ............. Select Fund 4,534 52,331 53,414 3,451
Mid-Cap Value ................ Select Fund 2,299 82,118 80,220 4,196
Small Cap Value Opportunity .. Select Fund 30 1,809 1,749 90
Emerging Markets ............. Select Fund 17,218 138,745 150,659 5,304
High Yield Bond .............. Select Fund 7,084 109,507 110,829 5,762
Enhanced Income .............. Select Fund 3,297 106,499 106,739 3,057
Intermediate Bond ............ Select Fund 3,359 105,703 101,694 7,368
Short-Term Bond .............. Select Fund 7,599 112,346 118,704 1,241
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. It is the Funds' policy to obtain additional
collateral from or return excess collateral to the borrower by the end of the
next business day, following the valuation date of the securities loaned.
Therefore, the value of the collateral held may be temporarily less than the
value of the securities on loan. The amount of this temporary difference at
October 31, 2008 is disclosed as the calculated mark in the table below.
Prior to June 1, 2008, 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. From June 1, 2008, the Funds, 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, borrowers pay the Fund negotiated lenders' fees, which are
divided between the Fund, the Agent, and the Manager using the same percentages
as above. 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.
Securities lending transactions pose certain risks to the Funds,
including that the borrower may not provide additional collateral when required
or return the securities when due, that the value of the short-term investments
will be less than the amount of cash collateral required to be returned to the
borrower, and that the cash collateral investments could become illiquid and
unable to be used to return collateral to the borrower. The Funds could also
experience delays and costs in gaining access to the collateral. The Funds bear
the risk of any deficiency in the amount of the collateral available for return
to the borrower due to any loss on the collateral invested.
At October 31, 2008, the value of outstanding securities on loan and
the value of collateral was as follows (in thousands):
97
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
CASH COLLATERAL UNREALIZED LOSS
MARKET VALUE OF NON-CASH POSTED BY ON CASH TOTAL VALUE
FUND SECURITIES ON LOAN COLLATERAL BORROWER COLLATERAL CALCULATED MARK OF COLLATERAL
- ---- ------------------ ---------- --------------- --------------- --------------- -------------
Balanced $97,848 $-- $99,593 669 638 100,900
Large Cap Growth 13,436 20 13,469 90 260 13,839
Mid-Cap Value 8,536 10 8,621 58 161 8,850
Small Cap Value Opportunity 1,072 -- 1,047 7 57 1,111
Emerging Markets 10,569 -- 11,083 74 48 11,205
Enhanced Income 18,205 -- 18,668 125 (83) 18,710
Intermediate Bond 33,921 -- 34,668 233 (54) 34,847
Short-Term Bond 65,307 -- 66,677 448 (35) 67,090
Cash collateral for each Fund, was invested in a joint investment
account, which is comprised of an investment in the Select Fund and other
short-term investments. The underlying securities allocated to the Funds are
stated at market value and have been included as investments on each Fund's
Schedule of Investments and Statements of Assets and Liabilities. Income earned
on these investments is reported as Income derived from securities lending and
unrealized losses are included in the Change in unrealized appreciation and
depreciation of investments on the Fund's 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.
At the close of business on October 9, 2008, the joint investment
account in which the Fund's invest redeemed for cash and securities on behalf of
the Funds its shares in the Cash Trust as follows (in thousands):
FUND CASH SECURITIES
- ---- -------- ----------
Balanced ..................................... $74,101 $69,036
Large Cap Growth.............................. 7,173 6,683
Mid-Cap Value ................................ 5,390 5,021
Small Cap Value Opportunity .................. 607 566
Emerging Markets.............................. 6,931 6,457
Enhanced Income .............................. 10,989 10,238
Intermediate Bond............................. 21,085 19,644
Short-Term Bond .............................. 36,829 34,312
The cash proceeds were invested in other money market funds and the
securities were invested in the Securities Liquidating AB Trust.
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, 2008
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
------------------- ------------------ ---------------- -----------------
BALANCED FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------- ------- --------- ------- -------- ------ ------- ------ --------
Shares sold ..................... 1,198 $ 16,083 2,230 $ 28,546 297 $ 3,951 2,713 $ 35,215
Reinvestment of dividends ....... 272 3,895 1,160 15,508 70 920 5,368 73,485
Shares redeemed ................. (1,225) (16,311) (6,179) (76,210) (218) (2,729) (6,818) (86,507)
------ -------- ------ -------- ---- ------- ------ --------
Net increase (decrease) in shares
outstanding .................. 245 $ 3,667 (2,789) $(32,156) 149 $ 2,142 1,263 $ 22,193
====== ======== ====== ======== ==== ======= ====== ========
98
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
INSTITUTIONAL CLASS AMR CLASS
------------------- ------------------
LARGE CAP GROWTH FUND SHARES AMOUNT SHARES AMOUNT
- --------------------- ------- --------- ------- --------
Shares sold ..................... 4 $ 22 5,386 $ 34,835
Reinvestment of dividends ....... --- 4 492 3,539
Shares redeemed ................. (1) (8) (6,432) (41,424)
--- ---- ------ --------
Net increase (decrease) in shares
outstanding .................. 3 $(18) (554) $ (3,050)
=== ==== ====== ========
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
------------------- ------------------ ---------------- -----------------
MID-CAP VALUE FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------ ------- --------- ------- -------- ------ ------- ------ --------
Shares sold ..................... 322 $ 2,868 1,423 $ 12,385 -- $-- 1,756 $ 15,252
Reinvestment of dividends ....... 50 469 263 2,504 -- -- 641 6,125
Shares redeemed ................. (541) (4,589)* (2,825) (25,705)* -- -- * (3,772) (33,445)*
---- ------- ------ -------- --- --- ------ --------
Net (decrease) in shares
outstanding .................. (169) $(1,252) (1,139) $(10,816) -- $-- (1,375) $(12,068)
==== ======= ====== ======== === === ====== ========
* Net of Redemption Fees
INSTITUTIONAL CLASS PLANAHEAD CLASS
------------------- ------------------
SMALL CAP VALUE OPPORTUNITY FUND SHARES AMOUNT SHARES AMOUNT
- -------------------------------- ------- --------- ------- --------
Shares sold ..................... 164 $ 1,406 24 $ 204
Reinvestment of dividends ....... 14 134 -- 1
Shares redeemed ................. (2,405) (22,928) (17) (145)
------ -------- --- -----
Net increase (decrease) in shares
outstanding .................. (2,227) $(21,388) 7 $ 60
====== ======== === =====
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
------------------- ------------------ ------------------
EMERGING MARKETS FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- --------------------- ------- --------- ------- -------- ------ ---------
Shares sold ..................... 7 $ 117 540 $ 9,707 1,030 $ 18,331
Reinvestment of dividends ....... 109 2,039 101 1,876 2,222 41,934
Shares redeemed ................. (76) (1,074)* (544) (9,254)* (6,393) (102,395)*
--- ------- ---- ------- ------ ---------
Net increase (decrease) in shares
outstanding .................. 40 $ 1,082 97 $ 2,329 (3,141) $ (42,130)
=== ======= ==== ======= ====== =========
* Net of Redemption Fees
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
------------------- ------------------ ------------------
HIGH YIELD BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------- -------- ------ ---------
Shares sold ..................... 3,029 $ 28,128 2,332 $ 21,959 2,416 $ 22,523
Reinvestment of dividends ....... 645 5,835 193 1,751 639 5,778
Shares redeemed ................. (5,867) (54,359) (3,309) (31,075) (4,693) (43,303)
------ -------- ------ -------- ------ --------
Net (decrease) in shares
outstanding .................. (2,193) $(20,396) (784) $ (7,365) (1,638) $(15,002)
====== ======== ====== ======== ====== ========
PLANAHEAD CLASS
-------------------
ENHANCED INCOME FUND SHARES AMOUNT
- -------------------- ------- ---------
Shares sold ..................... 8,011 $ 79,277
Reinvestment of dividends ....... 714 7,127
Shares redeemed ................. (6,812) (67,105)
------ ---------
Net increase in shares
outstanding .................. 1,913 $ 19,299
====== =========
99
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 2008
INSTITUTIONAL CLASS
-------------------
INTERMEDIATE BOND FUND SHARES AMOUNT
- ---------------------- ------- ---------
Shares sold ..................... 10,030 $103,092
Reinvestment of dividends ....... 695 7,052
Shares redeemed ................. (6,232) (63,295)
------ --------
Net increase in shares
outstanding .................. 4,493 $ 46,849
====== ========
INSTITUTIONAL CLASS PLANAHEAD CLASS
------------------- -----------------
SHORT-TERM BOND FUND SHARES AMOUNT SHARES AMOUNT
- --------------------- ------- --------- ------- -------
Shares sold ..................... 22,147 $193,487 816 $ 7,146
Reinvestment of dividends ....... 696 6,082 17 154
Shares redeemed ................. (3,197) (27,969) (271) (2,372)
------ -------- ---- -------
Net increase in shares
outstanding .................. 19,646 $171,600 562 $ 4,928
====== ======== ==== =======
PERIOD 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
===== ======== ====== ========= ==== ======= ====== ========
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 ....... 2 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
100
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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)
====== ========
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 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)
===== ======= ==== =======
101
AMERICAN BEACON BALANCED FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class PlanAhead Class
------------------------------------------- -----------------------------------------------
Year Ended October 31, Year Ended October 31,
------------------------------------------- -----------------------------------------------
2008 2007 2006 2005 2004 2008 2007 2006 2005 2004
------- ------- ------- ------- ------ -------- -------- -------- ------- -------
Net asset value, beginning
of period ....................... $ 16.09 $ 15.83 $ 15.00 $ 14.31 $12.99 $ 15.09 $ 14.91 $ 14.20 $ 13.62 $ 12.40
------- ------- ------- ------- ------ -------- -------- -------- ------- -------
Income from investment operations:
Net investment income(A)......... 0.47 0.50 0.39 0.36 0.29 0.41 0.41 0.35 0.34 0.27
Net gains (losses) on securities
(both realized
and unrealized) .............. (4.70) 0.90 1.54 1.11 1.36 (4.39) 0.87 1.44 1.01 1.25
------- ------- ------- ------- ------ -------- -------- -------- ------- -------
Total income (loss) from investment
operations ...................... (4.23) 1.40 1.93 1.47 1.65 (3.98) 1.28 1.79 1.35 1.52
------- ------- ------- ------- ------ -------- -------- -------- ------- -------
Less distributions:
Dividends from net investment
income ....................... (0.44) (0.42) (0.38) (0.31) (0.33) (0.41) (0.38) (0.36) (0.30) (0.30)
Distributions from net realized
gains on securities .......... (0.79) (0.72) (0.72) (0.47) -- (0.79) (0.72) (0.72) (0.47) --
------- ------- ------- ------- ------ -------- -------- -------- ------- -------
Total distributions ................ (1.23) (1.14) (1.10) (0.78) (0.33) (1.20) (1.10) (1.08) (0.77) (0.30)
------- ------- ------- ------- ------ -------- -------- -------- ------- -------
Net asset value, end of period ..... $ 10.63 $ 16.09 $ 15.83 $ 15.00 $14.31 $ 9.91 $ 15.09 $ 14.91 $ 14.20 $ 13.62
======= ======= ======= ======= ====== ======== ======== ======== ======= =======
Total return ....................... (28.23)% 9.31% 13.60% 12.78% 10.53% (28.39)% 9.06% 13.31% 10.12% 12.44%
======= ======= ======= ======= ====== ======== ======== ======== ======= =======
Ratios and supplemental data:
Net assets, end of period (in
thousands) ................... $36,557 $51,399 $22,587 $14,122 $8,378 $105,473 $202,750 $111,837 $86,875 $21,571
Ratios to average net assets
(annualized):
Expenses, net of waivers ........ 0.56% 0.57% 0.59% 0.56% 0.63% 0.82% 0.83% 0.85% 0.86% 0.93%
Expenses, before waivers ........ 0.56% 0.57% 0.59% 0.56% 0.63% 0.82% 0.83% 0.85% 0.86% 0.93%
Net investment income, net of
waivers ...................... 3.37% 2.91% 2.81% 2.45% 2.15% 3.12% 2.65% 2.55% 2.14% 1.84%
Net investment income (loss),
before waivers ............... 3.37% 2.91% 2.81% 2.45% 2.15% 3.12% 2.65% 2.55% 2.14% 1.84%
Portfolio turnover rate ......... 53% 50% 59% 58% 62% 53% 50% 59% 58% 62%
(A) Through October 31, 2005, net investment income was calculated by
subtracting class expenses per share from the Fund's net investment income
per share before class expenses.
(B) Not annualized.
(C) Annualized.
(D) Portfolio turnover rate is for the period from November 1, 2004 through
October 31, 2005.
102
Service Class AMR Class
------------------------------------ -------------------------------------------------
May 31
to
Year Ended October 31, October Year Ended October 31,
------------------------- 31, -------------------------------------------------
2008 2007 2006 2005 2008 2007 2006 2005 2004
------- ------ ------- --------- -------- -------- -------- -------- --------
Net asset value, beginning
of period ....................... $ 14.95 $14.83 $ 14.16 $ 13.96 $ 15.49 $ 15.27 $ 14.49 $ 13.87 $ 12.60
------- ------ ------- --------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(A)......... 0.34 0.41 0.38 0.09 0.49 0.50 0.45 0.39 0.32
Net gains (losses) on securities
(both realized
and unrealized) .............. (4.31) 0.83 1.35 0.11 (4.52) 0.89 1.46 1.05 1.31
------- ------ ------- --------- -------- -------- -------- -------- --------
Total income (loss) from investment
operations ...................... (3.97) 1.24 1.73 0.20 (4.03) 1.39 1.91 1.44 1.63
------- ------ ------- --------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income ....................... (0.42) (0.40) (0.34) -- (0.48) (0.45) (0.41) (0.35) (0.36)
Distributions from net realized
gains on securities .......... (0.79) (0.72) (0.72) -- (0.79) (0.72) (0.72) (0.47) --
------- ------ ------- --------- -------- -------- -------- -------- --------
Total distributions ................ (1.21) (1.12) (1.06) -- (1.27) (1.17) (1.13) (0.82) (0.36)
------- ------ ------- --------- -------- -------- -------- -------- --------
Net asset value, end of period ..... $ 9.77 $14.95 $ 14.83 $ 14.16 $ 10.19 $ 15.49 $ 15.27 $ 14.49 $ 13.87
======= ====== ======= ========= ======== ======== ======== ======== ========
Total return ....................... (28.58)% 8.76% 13.01% 1.43%(B) (28.08)% 9.59% 13.98% 10.63% 13.13%
======= ====== ======= ========= ======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in
thousands) ................... $ 7,674 $9,504 $ 1,562 $ 1 $604,209 $898,584 $817,333 $712,073 $636,420
Ratios to average net assets
(annualized):
Expenses, net of waivers ........ 1.07% 1.07% 1.22% 1.09%(C) 0.31% 0.31% 0.33% 0.33% 0.37%
Expenses, before waivers ........ 1.07% 1.07% 1.22% 360.24%(C) 0.31% 0.31% 0.33% 0.33% 0.37%
Net investment income, net of
waivers ...................... 2.86% 2.34% 2.18% 1.52%(C) 3.62% 3.21% 3.08% 2.70% 2.40%
Net investment income (loss),
before waivers ............... 2.86% 2.34% 2.17% (357.63)%(C) 3.62% 3.21% 3.08% 2.70% 2.40%
Portfolio turnover rate ......... 53% 50% 59% 58%(D) 53% 50% 59% 58% 62%
103
AMERICAN BEACON LARGE CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class
----------------------------------------------
Year Ended October 31,
----------------------------------------------
2008 2007 2006(A) 2005 2004
------- ------ ------- ------ -------
Net asset value, beginning of period ................................. $ 7.67 $ 6.89 $ 6.18 $ 5.82 $ 5.47
------- ------ ------ ------ -------
Income from investment operations:
Net investment income ............................................. 0.05 0.04 0.04 0.04 0.02
Net gains (losses) on securities (both realized and unrealized) ... (2.97) 0.77 0.70 0.37 0.35
------- ------ ------ ------ -------
Total income (loss) from investment operations ....................... (2.92) 0.81 0.74 0.41 0.37
------- ------ ------ ------ -------
Less distributions:
Dividends from net investment income .............................. (0.04) (0.03) (0.03) (0.05) (0.02)
Distributions from net realized gains on securities ............... (0.22) -- -- --
------- ------ ------ ------ -------
Total distributions .................................................. (0.26) (0.03) (0.03) (0.05) (0.02)
------- ------ ------ ------ -------
Net asset value, end of period ....................................... $ 4.49 $ 7.67 $ 6.89 $ 6.18 $ 5.82
======= ====== ====== ====== =======
Total return ......................................................... (39.48)% 11.84% 12.04% 7.06% 6.71%
======= ====== ====== ====== =======
Ratios and supplemental data:
Net assets, end of period (in thousands) .......................... $ 83 $ 119 $ 110 $ 105 $ 1
Ratios to average net assets (annualized):
Expenses, net of waivers .......................................... 0.89% 0.90% 0.90% 0.89% 0.84%
Expenses, before waivers .......................................... 0.95% 1.06% 0.99% 4.64% 13.22%
Net investment income (loss), net of waivers ...................... 0.74% 0.58% 0.56% (0.18)% 0.18%
Net investment income (loss), before waivers ...................... 0.68% 0.42% 0.48% (3.93)% (12.20)%
Portfolio turnover rate ........................................... 112% 128% 181% 164% 131%
(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.
104
AMR Class
-------------------------------------------------
Year Ended October 31,
-------------------------------------------------
2008 2007 2006(A) 2005 2004
------- -------- ------- ------- -------
Net asset value, beginning of period ................................. $ 7.72 $ 6.95 $ 6.21 $ 5.84 $ 5.48
------- -------- ------- ------- -------
Income from investment operations:
Net investment income ............................................. 0.07 0.06 0.05 0.06 0.02
Net gains (losses) on securities (both realized and unrealized) ... (2.99) 0.77 0.73 0.36 0.36
------- -------- ------- ------- -------
Total income (loss) from investment operations ....................... (2.92) 0.83 0.78 0.42 0.38
------- -------- ------- ------- -------
Less distributions:
Dividends from net investment income .............................. (0.06) (0.06) (0.04) (0.05) (0.02)
Distributions from net realized gains on securities ............... (0.22) -- -- --
------- -------- ------- ------- -------
Total distributions .................................................. (0.28) (0.06) (0.04) (0.05) (0.02)
------- -------- ------- ------- -------
Net asset value, end of period ....................................... $ 4.52 $ 7.72 $ 6.95 $ 6.21 $ 5.84
======= ======== ======= ======= =======
Total return ......................................................... (39.17)% 12.07% 12.52% 7.22% 6.88%
======= ======== ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands) .......................... $56,976 $101,698 $82,042 $63,183 $55,121
Ratios to average net assets (annualized):
Expenses, net of waivers .......................................... 0.59% 0.60% 0.59% 0.64% 0.71%
Expenses, before waivers .......................................... 0.59% 0.60% 0.59% 0.64% 0.71%
Net investment income (loss), net of waivers ...................... 1.05% 0.85% 0.88% 0.98% 0.34%
Net investment income (loss), before waivers ...................... 1.05% 0.85% 0.88% 0.98% 0.34%
Portfolio turnover rate ........................................... 112% 128% 181% 164% 131%
105
AMERICAN BEACON MID-CAP VALUE FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class PlanAhead Class Service Class
--------------------------- ---------------------------- -------------------
Year Ended November Year Ended February Year June
October 31, 30 to October 31, 28 to Ended 29 to
---------------- October ----------------- October October October
2008 2007 31, 2006 2008 2007 31, 2006 31, 2008 31, 2007
------- ------ --------- ------- ------- --------- -------- --------
Net asset value, beginning of period .......... $ 11.01 $10.81 $12.09 $ 10.96 $ 10.80 $ 9.80 $ 10.94 $11.73
------- ------ ------ ------- ------- ------- ------- ------
Income from investment operations:
Net investment income ...................... 0.16 0.12 0.21 0.14 0.10 0.01 0.10 0.01
Net gains (losses) on securities (both
realized and unrealized) ................ (4.31) 0.41 1.25 (4.31) 0.40 0.99 (4.27) (0.80)
------- ------ ------ ------- ------- ------- ------- ------
Total income (loss) from investment
operations ................................. (4.15) 0.53 1.46 (4.17) 0.50 1.00 (4.17) (0.79)
------- ------ ------ ------- ------- ------- ------- ------
Less distributions:
Dividends from net investment income ....... (0.16) (0.07) (0.16) (0.11) (0.08) -- (0.14) --
Distributions from net realized gains on
securities .............................. (0.76) (0.26) (2.58) (0.76) (0.26) -- (0.76) --
------- ------ ------ ------- ------- ------- ------- ------
Total distributions ........................... (0.92) (0.33) (2.74) (0.87) (0.34) -- (0.90) --
------- ------ ------ ------- ------- ------- ------- ------
Redemption fees added to beneficial
interests(G) ............................... -- -- -- -- -- -- -- --
Net asset value, end of period ................ $ 5.94 $11.01 $10.81 $5.92 $ 10.96 $ 10.80 $ 5.87 $10.94
======= ====== ====== ======= ======= ======= ======= ======
Total return .................................. (40.96)% 4.87% 15.30%(C) (41.14)% 4.68% 10.20%(C) (41.24)% (6.65)%(C)
======= ====== ====== ======= ======= ======= ======= ======
Ratios and supplemental data:
Net assets, end of period (in thousands) ... $ 2,256 $6,047 $3,396 $16,550 $43,158 $27,240 $ 1 $ 1
Ratios to average net assets (annualized):
Expenses, net of waivers ................... 0.98% 0.92% 1.19%(D) 1.23% 1.23% 1.49%(D) 1.50% 1.50%(D)
Expenses, before waivers ................... 1.16% 1.09% 1.19%(D) 1.32% 1.26% 1.61%(D) 2.04% 1.80%(D)
Net investment income, net of waivers ...... 1.51% 1.22% 1.11%(D) 1.27% 0.93% 0.57%(D) 1.02% 0.32%(D)
Net investment income, before waivers ...... 1.33% 1.05% 1.11%(D) 1.18% 0.90% 0.44%(D) 0.48% 0.02%(D)
Portfolio turnover rate .................... 28% 35% 42%(E) 28% 35% 42%(E) 28% 35%(F)
(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.
(G) Amounts represent less than $0.01 per share.
106
AMR Class (formerly Institutional Class prior to
December 1, 2005)(A)
-------------------------------------------------
June
Year Ended October 31, 30 to
-------------------------------------- October
2008 2007 2006 2005 31, 2004
------- ------- ------- ------- --------
Net asset value, beginning of period ................................. $ 11.07 $ 10.87 $ 11.72 $ 10.27 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income ............................................. 0.18 0.18 0.12 0.13 0.02(B)
Net gains (losses) on securities (both realized and unrealized) ... (4.35) 0.36 1.75 1.37 0.25
------- ------- ------- ------- -------
Total income (loss) from investment operations ....................... (4.17) 0.54 1.87 1.50 0.27
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income .............................. (0.17) (0.08) (0.14) (0.05) --
Distributions from net realized gains on securities ............... (0.76) (0.26) (2.58) -- --
------- ------- ------- ------- -------
Total distributions .................................................. (0.93) (0.34) (2.72) (0.05) --
------- ------- ------- ------- -------
Redemption fees added to beneficial interests(G) ..................... -- -- -- -- --
Net asset value, end of period ....................................... $ 5.97 $ 11.07 $ 10.87 $ 11.72 $ 10.27
======= ======= ======= ======= =======
Total return ......................................................... (40.87)% 5.19% 19.16% 14.63% 2.70%(C)
======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands) .......................... $34,253 $78,794 $66,290 $44,342 $25,546
Ratios to average net assets (annualized):
Expenses, net of waivers .......................................... 0.82% 0.75% 0.97% 1.01% 1.14%(D)
Expenses, before waivers .......................................... 0.82% 0.75% 0.92% 1.02% 1.34%(D)
Net investment income, net of waivers ............................. 1.68% 1.41% 1.38% 0.92% 0.73%(D)
Net investment income, before waivers ............................. 1.68% 1.40% 1.42% 0.91% 0.53%(D)
Portfolio turnover rate ........................................... 28% 35% 42% 298% 6%(C)
107
AMERICAN BEACON SMALL CAP VALUE OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class
----------------------------------------
Year Ended October 31,
---------------------- March 31 to
2008 2007 October 31, 2006
------ ------- ----------------
Net asset value, beginning of period ................................. $10.33 $ 10.26 $10.00
------ ------- ------
Income from investment operations:
Net investment income ............................................. 0.09 0.11(A) 0.01
Net gains (losses) on securities (both realized and unrealized) ... (3.61) --(A) 0.25
------ ------- ------
Total income (loss) from investment operations ....................... (3.52) 0.11 0.26
------ ------- ------
Less distributions:
Dividends from net investment income .............................. (0.12) (0.03) --
Distributions from net realized gains on securities ............... -- (0.01) --
------ ------- ------
Total distributions .................................................. (0.12) (0.04) --
------ ------- ------
Net asset value, end of period ....................................... $ 6.69 $ 10.33 $10.26
====== ======= ======
Total return ......................................................... (34.49)% 1.08% 2.60%(B)
====== ======= ======
Ratios and supplemental data:
Net assets, end of period (in thousands) .......................... $4,268 $29,596 $4,693
Ratios to average net assets (annualized):
Expenses, net of waivers .......................................... 1.05% 1.05% 1.03%
Expenses, before waivers .......................................... 1.56% 1.27% 6.12%
Net investment income, net of waivers ............................. 1.22% 0.96% 0.30%
Net investment income (loss), before waivers ...................... 0.71% 0.73% (4.80)%
Portfolio turnover rate ........................................... 75% 58% 32%(B)
(A) Based upon average shares outstanding.
(B) Not annualized.
108
PlanAhead Class
----------------------------------------
Year Ended October 31,
---------------------- March 31 to
2008 2007 October 31, 2006
------ ------- ----------------
Net asset value, beginning of period ................................. $ 10.28 $10.26 $10.00
------- ------ ------
Income from investment operations:
Net investment income ............................................. 0.10 0.14(A) 0.01
Net gains (losses) on securities (both realized and unrealized) ... (3.63) (0.05)(A) 0.25
------- ------ ------
Total income (loss) from investment operations ....................... (3.53) 0.09 0.26
------- ------ ------
Less distributions:
Dividends from net investment income .............................. (0.10) (0.06) --
Distributions from net realized gains on securities ............... -- (0.01) --
------- ------ ------
Total distributions .................................................. (0.10) (0.07) --
------- ------ ------
Net asset value, end of period ....................................... $ 6.65 $10.28 $10.26
======= ====== ======
Total return ......................................................... (34.60)% 0.96% 2.60%(B)
======= ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands) .......................... $ 106 $ 91 $ 70
Ratios to average net assets (annualized):
Expenses, net of waivers .......................................... 1.26% 1.30% 1.28%
Expenses, before waivers .......................................... 1.82% 1.70% 20.05%
Net investment income, net of waivers ............................. 0.93% 0.97% 0.21%
Net investment income (loss), before waivers ...................... 0.37% 0.57% (18.56)%
Portfolio turnover rate ........................................... 75% 58% 32%(B)
109
AMERICAN BEACON EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGH THE PRIOD)
Institutional Class
-------------------------------------------------
Year Ended October 31,
-------------------------------------------------
2008 2007 2006 2005 2004
------- ------- ------- ------ ------
Net asset value, beginning of period ................................ $ 24.20 $ 17.42 $ 15.10 $12.64 $10.62
------- ------- ------- ------ ------
Income from investment operations:
Net investment income ............................................ 0.23 0.26 0.11 0.15 0.07
Net gains (losses) on securities (both realized and unrealized) .. (11.78) 9.11 4.63 3.45 2.01
------- ------- ------- ------ ------
Total income (loss) from investment operations ...................... (11.55) 9.37 4.74 3.60 2.08
------- ------- ------- ------ ------
Less distributions:
Dividends from net investment income ............................. (0.10) (0.10) (0.21) (0.06) (0.06)
Distributions from net realized gains on securities .............. (3.55) (2.49) (2.21) (1.08) --
------- ------- ------- ------ ------
Total distributions ................................................. (3.65) (2.59) (2.42) (1.14) (0.06)
------- ------- ------- ------ ------
Redemption fees added to beneficial interests ....................... --(A) --(A) --(A) --(A) --(A)
Net asset value, end of period ...................................... $ 9.00 $ 24.20 $ 17.42 $15.10 $12.64
======= ======= ======= ====== ======
Total return ........................................................ (55.59)% 60.83% 34.49% 30.11% 19.65%
======= ======= ======= ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands) ......................... $ 5,478 $13,773 $16,552 $9,348 $7,282
Ratios to average net assets (annualized):
Expenses, net of waivers ......................................... 1.38% 1.60% 1.56% 1.52% 1.85%
Expenses, before waivers ......................................... 1.38% 1.60% 1.56% 1.52% 1.85%
Net investment income, net of waivers ............................ 1.35% 0.93% 0.80% 1.22% 0.74%
Net investment income, before waivers ............................ 1.35% 0.93% 0.80% 1.22% 0.74%
Portfolio turnover rate .......................................... 82% 81% 67% 63% 76%
(A) Amounts represent less than 50.01 per share.
110
PlanAhead Class
------------------------------------------------
Year Ended October 31,
------------------------------------------------
2008 2007 2006 2005 2004
------- ------- ------ ------ ------
Net asset value, beginning of period ................................ $ 23.91 $ 17.22 $14.98 $12.53 $10.55
------- ------- ------ ------ ------
Income from investment operations:
Net investment income ............................................ 0.17 0.11 0.09 0.15 0.04
Net gains (losses) on securities (both realized and unrealized) .. (11.60) 9.11 4.55 3.41 1.99
------- ------- ------ ------ ------
Total income (loss) from investment operations ...................... (11.43) 9.22 4.64 3.56 2.03
------- ------- ------ ------ ------
Less distributions:
Dividends from net investment income ............................. (0.08) (0.04) (0.19) (0.03) (0.05)
Distributions from net realized gains on securities .............. (3.55) (2.49) (2.21) (1.08) --
------- ------- ------ ------ ------
Total distributions ................................................. (3.63) (2.53) (2.40) (1.11) (0.05)
------- ------- ------ ------ ------
Redemption fees added to beneficial interests ....................... --(A) --(A) --(A) --(A) --(A)
Net asset value, end of period ...................................... $ 8.85 $ 23.91 $17.22 $14.98 $12.53
======= ======= ====== ====== ======
Total return ........................................................ (55.77)% 60.17% 34.16% 29.95% 19.33%
======= ======= ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands) ......................... $ 5,183 $11,694 $5,841 $2,592 $1,214
Ratios to average net assets (annualized):
Expenses, net of waivers ......................................... 1.72% 1.96% 2.04% 1.75% 2.14%
Expenses, before waivers ......................................... 1.72% 1.96% 1.91% 2.01% 2.20%
Net investment income, net of waivers ............................ 1.00% 0.65% 0.49% 1.16% 0.37%
Net investment income, before waivers ............................ 1.00% 0.65% 0.62% 0.90% 0.31%
Portfolio turnover rate .......................................... 82% 81% 67% 63% 76%
AMR Class
--------------------------------------------------
Year Ended October 31,
--------------------------------------------------
2008 2007 2006 2005 2004
------- -------- -------- ------- -------
Net asset value, beginning of period ................................ $ 24.37 $ 17.52 $ 15.17 $ 12.68 $ 10.66
------- -------- -------- ------- -------
Income from investment operations:
Net investment income ............................................ 0.33 0.19 0.15 0.24 0.10
Net gains (losses) on securities (both realized and unrealized) .. (11.91) 9.30 4.65 3.42 2.00
------- -------- -------- ------- -------
Total income (loss) from investment operations ...................... (11.58) 9.49 4.80 3.66 2.10
------- -------- -------- ------- -------
Less distributions:
Dividends from net investment income ............................. (0.18) (0.15) (0.24) (0.09) (0.08)
Distributions from net realized gains on securities .............. (3.55) (2.49) (2.21) (1.08) --
------- -------- -------- ------- -------
Total distributions ................................................. (3.73) (2.64) (2.45) (1.17) (0.08)
------- -------- -------- ------- -------
Redemption fees added to beneficial interests ....................... --(A) --(A) -- -- --
Net asset value, end of period ...................................... $ 9.06 $ 24.37 $ 17.52 $ 15.17 $ 12.68
======= ======== ======== ======= =======
Total return ........................................................ (55.48)% 61.19% 34.87% 30.43% 20.00%
======= ======== ======== ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands) ......................... $72,516 $271,726 $135,146 $94,864 $74,199
Ratios to average net assets (annualized):
Expenses, net of waivers ......................................... 1.17% 1.37% 1.30% 1.25% 1.59%
Expenses, before waivers ......................................... 1.17% 1.37% 1.30% 1.25% 1.59%
Net investment income, net of waivers ............................ 1.46% 1.25% 1.01% 1.60% 1.01%
Net investment income, before waivers ............................ 1.46% 1.25% 1.01% 1.60% 1.01%
Portfolio turnover rate .......................................... 82% 81% 67% 63% 76%
111
AMERICAN BEACON HIGH YIELD BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class
---------------------------------------------------
Year Ended October 31,
---------------------------------------------------
2008(E) 2007 2006(A) 2005 2004
------- -------- -------- -------- --------
Net asset value, beginning of period ............................... $ 10.11 $ 10.20 $ 10.22 $ 10.86 $ 10.73
------- -------- -------- -------- --------
Income from investment operations:
Net investment income ........................................... 0.78 0.77 0.88 0.76 0.78
Net gains (losses) on securities (both realized and
unrealized) .................................................. (3.34) (0.09) 0.09 (0.84) 0.27
------- -------- -------- -------- --------
Total income (loss) from investment operations ..................... (2.56) 0.68 0.97 (0.08) 1.05
------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income ............................ (0.78) (0.77) (0.88) (0.76) (0.78)
Distributions from net realized gains on securities ............. -- -- (0.11) 0.20 (0.14)
------- -------- -------- -------- --------
Total distributions ................................................ (0.78) (0.77) (0.99) (0.56) (0.92)
------- -------- -------- -------- --------
Net asset value, end of period ..................................... $ 6.77 $ 10.11 $ 10.20 $ 10.22 $ 10.86
======= ======== ======== ======== ========
Total return ....................................................... (27.03)% 6.85% 8.78% 3.03% 10.19%
======= ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) ........................ $62,138 $114,911 $231,693 $216,744 $241,777
Ratios to average net assets (annualized):
Expenses, net of waivers ........................................ 0.85% 0.85% 0.85% 0.84% 0.88%
Expenses, before waivers ........................................ 0.85% 0.86% 0.85% 0.84% 0.92%
Net investment income, net of waivers ........................... 8.38% 7.55% 7.55% 7.24% 7.27%
Net investment income, before waivers ........................... 8.38% 7.54% 7.55% 7.24% 7.23%
Portfolio turnover rate ......................................... 157% 92% 88% 128% 138%
(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.
(E) On May 21, 2008, Post Advisory Group, LLC ceased managing a portion of the
High Yield Bond Fund and on May 22, 2008 Logan Circle Partners, L.P. began
managing a portion of the High Yield Bond Fund.
112
PlanAhead Class
-------------------------------------------------
Year Ended October 31,
-------------------------------------------------
2008(E) 2007 2006(A) 2005 2004
------- ------- ------- -------- --------
Net asset value, beginning of period ............................... $ 10.11 $ 10.21 $ 10.22 $ 10.87 $ 10.73
------- ------- ------- -------- --------
Income from investment operations:
Net investment income ........................................... 0.75 0.75 0.85 0.74 0.74
Net gains (losses) on securities (both realized and
unrealized) .................................................. (3.34) (0.10) 0.10 (0.85) 0.28
------- ------- ------- -------- --------
Total income (loss) from investment operations ..................... (2.59) 0.65 0.95 (0.11) 1.02
------- ------- ------- -------- --------
Less distributions:
Dividends from net investment income ............................ (0.75) (0.75) (0.85) (0.74) (0.74)
Distributions from net realized gains on securities ............. -- -- (0.11) 0.20 (0.14)
------- ------- ------- -------- --------
Total distributions ................................................ (0.75) (0.75) (0.96) (0.54) (0.88)
------- ------- ------- -------- --------
Net asset value, end of period ..................................... $ 6.77 $ 10.11 $ 10.21 $ 10.22 $ 10.87
======= ======= ======= ======== ========
Total return ....................................................... (27.24)% 6.52% 8.63% 2.69% 9.94%
======= ======= ======= ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) ........................ $13,949 $28,758 $80,284 $120,360 $148,266
Ratios to average net assets (annualized):
Expenses, net of waivers ........................................ 1.10% 1.08% 1.08% 1.08% 1.20%
Expenses, before waivers ........................................ 1.10% 1.08% 1.08% 1.08% 1.20%
Net investment income, net of waivers ........................... 8.06% 7.32% 7.33% 7.00% 6.95%
Net investment income, before waivers ........................... 8.06% 7.32% 7.33% 7.00% 6.95%
Portfolio turnover rate ......................................... 157% 92% 88% 128% 138%
AMR Class
-----------------------
Year September
Ended 04 to
October October
31, 2008(E) 31, 2007
----------- ---------
Net asset value, beginning of period ............................... $ 10.11 $ 9.94
------- -------
Income from investment operations:
Net investment income ........................................... 0.80 0.12
Net gains (losses) on securities (both realized and
unrealized) .................................................. (3.34) 0.17
------- -------
Total income (loss) from investment operations ..................... (2.54) 0.29
------- -------
Less distributions:
Dividends from net investment income ............................ (0.80) (0.12)
Distributions from net realized gains on securities ............. -- --
------- -------
Total distributions ................................................ (0.80) (0.12)
------- -------
Net asset value, end of period ..................................... $ 6.77 $ 10.11
======= =======
Total return ....................................................... (26.84)% 2.94%(B)
======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands) ........................ $44,060 $82,322
Ratios to average net assets (annualized):
Expenses, net of waivers ........................................ 0.58% 0.61%(C)
Expenses, before waivers ........................................ 0.58% 0.61%(C)
Net investment income, net of waivers ........................... 8.64% 7.54%(C)
Net investment income, before waivers ........................... 8.64% 7.54%(C)
Portfolio turnover rate ......................................... 157% 92%(D)
113
AMERICAN BEACON ENHANCED INCOME FUND
FINANCIAL HIGHLIGHTS
PlanAhead Class
---------------------------------------------------
Year Ended October 31,
---------------------------------------------------
2008 2007 2006 2005 2004
-------- ------- -------- -------- --------
Net asset value, beginning of period .................................... $ 10.50 $ 10.25 $ 9.98 $ 10.16 $ 9.96
-------- ------- -------- -------- --------
Income from investment operations:
Net investment income ................................................ 0.41 0.36 0.33 0.29 0.26
Net gains (losses) on securities (both realized and unrealized) ...... (1.39) 0.32 0.29 (0.16) 0.20
-------- ------- -------- -------- --------
Total income (loss) from investment operations .......................... (0.98) 0.68 0.62 0.13 0.46
-------- ------- -------- -------- --------
Less distributions:
Dividends from net investment income ................................. (0.49) (0.42) (0.35) (0.31) (0.26)
Distributions from net realized gains on securities .................. (0.23) (0.01) -- -- --
-------- ------- -------- -------- --------
Total distributions ..................................................... (0.72) (0.43) (0.35) (0.31) (0.26)
-------- ------- -------- -------- --------
Net asset value, end of period .......................................... $ 8.80 $ 10.50 $ 10.25 $ 9.98 $ 10.16
======== ======= ======== ======== ========
Total return ............................................................ (10.02)% 6.75% 6.36% 1.32% 4.70%
======== ======= ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) ............................. $100,469 $99,789 $125,915 $112,341 $103,897
Ratios to average net assets (annualized):
Expenses ............................................................. 0.92% 0.94% 0.93% 0.92% 1.00%
Net investment income ................................................ 3.64% 3.69% 3.21% 2.79% 2.54%
Portfolio turnover rate .............................................. 76% 103% 65% 41% 72%
114
AMERICAN BEACON INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
Institutional Class
(formerly AMR Class prior to 3/1/05)
-------------------------------------------------
Year Ended October 31,
-------------------------------------------------
2008 2007 2006 2005(A) 2004
-------- -------- ------- ------- -------
Net asset value, beginning of period .................................... 10.10 10.02 10.01 10.33 10.24
-------- -------- ------- ------- -------
Income from investment operations:
Net investment income(B) ............................................. 0.50 0.50 0.46 0.42 0.40
Net gains (losses) on securities (both realized and unrealized) ...... (0.51) 0.07 0.02 (0.29) 0.14
-------- -------- ------- ------- -------
Total income from investment operations ................................. (0.01) 0.57 0.48 0.13 0.54
-------- -------- ------- ------- -------
Less distributions:
Dividends from net investment income ................................. (0.48) (0.49) (0.47) (0.45) (0.45)
Distributions from net realized gains on securities .................. -- -- -- -- --
-------- -------- ------- ------- -------
Total distributions ..................................................... (0.48) (0.49) (0.47) (0.45) (0.45)
-------- -------- ------- ------- -------
Net asset value, end of period .......................................... $ 9.61 $ 10.10 $ 10.02 $ 10.01 $ 10.33
======== ======== ======= ======= =======
Total return ............................................................ (0.26)% 5.83% 4.96% 1.26% 5.38%
======== ======== ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands) ............................. $147,634 $109,674 $97,319 $93,270 $96,242
Ratios to average net assets (annualized):
Expenses, net of waivers ............................................. 0.30% 0.34% 0.35% 0.31% 0.34%
Expenses, before waivers ............................................. 0.30% 0.34% 0.35% 0.31% 0.34%
Net investment income, net of waivers ................................ 4.70% 4.86% 4.64% 4.12% 3.97%
Net investment income, before waivers ................................ 4.70% 4.86% 4.64% 4.12% 3.97%
Portfolio turnover rate .............................................. 105% 85% 122% 119% 106%
(A) On March 1, 2005, the existing Institutional Class shares were terminated
and exchanged for a AMR Class shares at a conversion rate of 1.0202.
Following this exchange, the former AMR Class Shares were re-named
Institutional Class.
115
AMERICAN BEACON SHORT-TERM BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class
---------------------------------------------------
Year Ended October 31,
---------------------------------------------------
2008 2007 2006 2005(A) 2004
-------- ------- ------- ------- -------
Net asset value, beginning of period ................................ $ 8.79 $ 8.74 $ 8.75 $ 9.07 $ 9.31
-------- ------- ------- ------- -------
Income from investment operations:
Net investment income ............................................ 0.35(B) 0.39(B) 0.32(B) 0.29 0.27
Net gains (losses) on securities (both realized and unrealized) .. (0.15) 0.09 0.07 (0.20) (0.05)
-------- ------- ------- ------- -------
Total income from investment operations ............................. 0.20 0.48 0.39 0.09 0.22
-------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income ............................. (0.41) (0.43) (0.40) (0.41) (0.46)
Distributions from net realized gains on securities .............. -- -- --
-------- ------- ------- ------- -------
Total distributions ................................................. (0.41) (0.43) (0.40) (0.41) (0.46)
-------- ------- ------- ------- -------
Net asset value, end of period ...................................... $ 8.58 $ 8.79 $ 8.74 $ 8.75 $ 9.07
======== ======= ======= ======= =======
Total return ........................................................ 2.21% 5.61% 4.56% 1.00% 2.39%
======== ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands) ......................... $255,725 $89,427 $73,417 $79,683 $80,504
Ratios to average net assets (annualized):
Expenses, net of waivers ......................................... 0.31% 0.37% 0.35% 0.33% 0.33%
Expenses, before waivers ......................................... 0.31% 0.37% 0.35% 0.33% 0.33%
Net investment income, net of waivers ............................ 3.75% 4.48% 3.64% 3.15% 3.00%
Net investment income, before waivers ............................ 3.75% 4.48% 3.64% 3.15% 3.00%
Portfolio turnover rate .......................................... 21% 40% 48% 38% 41%
(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.
116
PlanAhead Class
--------------------------------------------
Year Ended October 31,
--------------------------------------------
2008 2007 2006 2005 2004
------ ------ ------ ------ ------
Net asset value, beginning of period ................................ $ 8.81 $ 8.76 $ 8.77 $ 9.09 $ 9.33
------ ------ ------ ------ ------
Income from investment operations:
Net investment income ............................................ 0.29 0.35(B) 0.27(B) 0.28 0.25
Net gains (losses) on securities (both realized and unrealized) .. (0.15) 0.09 0.07 (0.24) (0.07)
------ ------ ------ ------ ------
Total income from investment operations ............................. 0.14 0.44 0.34 0.04 0.18
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income ............................. (0.36) (0.39) (0.35) (0.36) (0.42)
Distributions from net realized gains on securities .............. -- -- -- --
------ ------ ------ ------ ------
Total distributions ................................................. (0.36) (0.39) (0.35) (0.36) (0.42)
------ ------ ------ ------ ------
Net asset value, end of period ...................................... $ 8.59 $ 8.81 $ 8.76 $ 8.77 $ 9.09
====== ====== ====== ====== ======
Total return ........................................................ 1.54% 5.08% 4.01% 0.46% 1.84%
====== ====== ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands) ......................... $7,733 $2,976 $7,189 $8,582 $7,781
Ratios to average net assets (annualized):
Expenses, net of waivers ......................................... 0.85% 0.87% 0.88% 0.87% 0.87%
Expenses, before waivers ......................................... 0.88% 0.98% 0.90% 0.94% 0.87%
Net investment income, net of waivers ............................ 3.19% 3.91% 3.10% 2.59% 2.44%
Net investment income, before waivers ............................ 3.16% 3.81% 3.08% 2.52% 2.44%
Portfolio turnover rate .......................................... 21% 40% 48% 38% 41%
117
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.
118
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, 2008, which is
designated as qualifying for the dividends-received deduction, is as follows:
Balanced Fund 22.15%
Large Cap Growth Fund 19.22%
Mid-Cap Value Fund 30.11%
Small Cap Value Opportunity Fund 40.88%
Enhanced Income Fund 2.37%
For shareholders in the Funds, the percentage of dividend income
distributed for the year ended October 31, 2008, which is designated as
qualified dividends income under the Jobs and Growth Tax Relief Act of 2003, is
as follows:
Balanced Fund 25.48%
Large Cap Growth Fund 100.00%
Mid-Cap Value Fund 46.16%
Small Cap Value Opportunity Fund 89.59%
Emerging Markets Fund 19.05%
Enhanced Income Fund 2.15%
Shareholders will receive notification in January 2009 of the percentage
applicable to the preparation of their 2008 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, 2008.
Balanced Fund $46,053,838
Large Cap Growth 2,751,162
Mid-Cap Value Fund 6,553,236
Emerging Markets Fund 33,156,178
Enhanced Income Fund 1,461,366
119
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUNDS
(Unaudited)
At its May 21, 2008 meeting, the Board of Trustees ("Board" or "Trustees")
considered the renewal of each existing Management Agreement (each, a "Current
Agreement" and collectively, the "Current Agreements") between the Manager and
the American Beacon Funds ("Beacon Trust") (collectively, the "Funds") and each
Investment Advisory Agreement between the Manager and a subadvisor ("Current
Investment Advisory Agreement"). In preparation for the Board's consideration to
renew these Current 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 9, 2008 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.
On May 21, May 22 and June 4, 2008, the Board met to determine, among other
matters, whether to approve a new investment management agreement ("New
Agreement") between the Manager and the Funds. The New Agreement was necessary
because, on April 16, 2008, AMR Corporation ("AMR"), the parent company of the
Manager, entered into an agreement with Lighthouse Holdings, Inc. ("Lighthouse")
pursuant to which Lighthouse would acquire all of the capital stock of the
Manager ("Transaction") in exchange for cash and 10% of the capital stock of the
parent corporation of Lighthouse. Upon the closing of the Transaction on
September 12, 2008 ("Closing"), the Manager ceased to be a wholly owned
subsidiary of AMR and became a subsidiary of Lighthouse. This change in control
was deemed to be an "assignment" under the Investment Company Act of 1940 ("1940
Act") of each Fund's Current Agreement with the Manager. As required by the 1940
Act, each Fund's Current Agreement provided for its automatic termination in the
event of an assignment, and each, therefore, terminated upon the Closing.
To provide for the continuity of management for the Funds, the Board met to
consider the New Agreement with the Manager. The New Agreement for each Fund
reflects substantially the same terms as the Current Agreement for each Fund. In
addition, the Current Agreements have been updated and modernized. As part of
this process, the primary administrative services provided by the Manager to the
Funds have been transferred to one single administrative services agreement
("New Administrative Services Agreement"). The Manager previously provided
administrative services to the Funds pursuant to its Current Agreement and an
Administrative Services Agreement ("Current Administrative Services Agreement").
The aggregate fee rates for each Fund under the New Agreement and the New
Administrative Services Agreement are the same as the fee rates imposed under
the existing agreements which they replaced.
In preparation for the Board's consideration to approve the New Agreement
and New Investment Advisory Agreements, the Board considered the impact to the
Funds once Lighthouse directly controlled the Manager. Lighthouse indicated that
it did not anticipate making any changes to the organization or structure of the
Funds, to the service providers or to the aggregate fee rates under the Current
Agreement. In addition, the portfolio managers at the Manager that manage the
Funds were expected to continue to manage the Funds after the Closing. In that
regard, the Manager and Lighthouse anticipated entering into employment
contracts with certain key personnel performing or overseeing the Funds'
investment programs. The Board considered that there could be no assurance that
these personnel would choose to remain employed by the Manager before or after
the Closing. The Board noted that the Manager and the Funds would continue to
operate under their existing names. Potential benefits to the Funds as a result
of the Transaction included Lighthouse's intention to devote additional
resources to product development and distribution of Fund shares. The Board also
considered that any resulting growth of Fund assets would potentially produce
economies of scale that would benefit shareholders of the Funds.
120
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY
AGREEMENTS
With respect to certain Funds, the Manager had entered into Current
Investment Advisory Agreements with various subadvisors on behalf of those
Funds. Upon the Closing, these Current Investment Advisory Agreements terminated
automatically upon the termination of each Current Agreement. Pursuant to an
exemptive order issued by the Securities and Exchange Commission ("SEC"), the
Manager was permitted to enter into new or modified investment advisory
agreements with existing or new subadvisors ("New Investment Advisory
Agreements") without approval of a Fund's shareholders, but subject to the
approval of a Fund's Board. Each New Investment Advisory Agreement reflected
substantially the same terms as the Current Investment Advisory Agreement for
each applicable Fund.
In preparation for the Board's consideration to approve the New Agreement
and New Investment Advisory Agreements, the Board held preliminary conference
call meetings on April 15, 16 and 21, 2008, to discuss the New Agreement and New
Investment Advisory Agreements and the effect that approving the New Agreement
and New Investment Advisory Agreements would have on the Funds. The Board
received a memorandum and related advice from their independent legal counsel
detailing the Board's responsibilities in considering the New Agreement and New
Investment Advisory Agreements.
In connection with Board's consideration of the Current Agreement, Current
Investment Advisory Agreements, New Agreement and New Investment Advisory
Agreements, the Trustees considered, among other materials, responses by the
Manager and the subadvisors to inquiries requesting:
- a description of the Transaction, the effects of the Transaction on
the Beacon Trust and the Board, and any proposed changes to the Beacon
Trust, their service providers or fee structure and other information;
- 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 Form ADV registration statement with the SEC;
- 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 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;
121
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY
AGREEMENTS
- 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 regard
to the services provided to the Funds.
In addition to the foregoing, the Manager provided the following
information specific to the renewal of each Fund's Current Agreement and the
approval of each Fund's New 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.
In connection with the Current Agreements, Current Investment Advisory
Agreements, New Agreement and New Investment Advisory Agreements, 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 with more than one class of shares, the class of shares used for
comparative purposes was the class with the longest performance history, which
in most cases was 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 Current Agreements, Current Investment Advisory
Agreements, New Agreement and New Investment Advisory Agreements are each
referenced to herein as an "Agreement" and collectively, the "Agreements."
The Trustees also received memoranda from their legal counsel detailing the
Board's responsibilities pertaining to the approval of each Agreement. These
memoranda explained the regulatory requirements surrounding the Trustees'
process for evaluating investment advisors and the terms of the contracts.
In connection with the Board's consideration of the New Agreement and each New
Investment Advisory Agreement, the Trustees considered, among other information,
the following factors:
1. The manner in which each Fund's assets are managed will not change as a
result of the Transaction, and the same people who manage the Fund's assets
are expected to continue to do so after the Transaction;
2. The aggregate fee rates payable by each Fund under the New Agreement and
the New Administrative Services Agreement are the same as the fee rates
payable under the Current Agreement and the Current Administrative Services
Agreement;
122
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY
AGREEMENTS
3. The material terms regarding advisory services pursuant to the New
Agreement are substantially the same as the terms of the Current
Agreements;
4. The qualifications of the Manager's personnel who will provide advisory and
administrative services to the Funds are not expected to change;
5. The Manager's financial condition and the post-Closing capitalization of
Lighthouse;
6. The impact of the Transaction on the Manager's day-to-day operations;
7. The capabilities, experience, corporate structure and capital resources of
Lighthouse;
8. The long-term business goals of Lighthouse with regard to the Manager and
the Beacon Trust;
9. Fund shareholders will not bear any costs in connection with the
Transaction, inasmuch as AMR and Lighthouse plan to bear equally the costs,
fees and expenses incurred by the Funds in connection with obtaining
shareholder approval of the New Agreement, the fees and expenses of
accountants and attorneys relating to the Transaction and obtaining
shareholder approval of the New Agreement, the fees and expenses incurred
by the Funds in connection with the Transaction, and the meeting fees of
the Boards for meetings held in connection with the Transaction;
10. The Funds may realize benefits as a result of the Transaction, including
long-term economies of scale;
11. The potential for increased costs to the Beacon Trust in order to satisfy
existing obligations under the current Trustees' retirement plan; and
12. The advisory relationship with each subadvisor would continue in the same
manner as before the Transaction and that each New Investment Advisory
Agreement would be substantially the same as each Current Investment
Advisory Agreement.
Provided below is an overview of the other primary factors the Board
considered at its May 21, May 22 and June 4, 2008 meetings. The Board did not
identify any particular information that was most relevant to its consideration
to renew the Current Agreement and Current Investment Advisory Agreements and
approve the New Agreement and New Investment Advisory Agreements, and each
Trustee may have afforded different weight to the various factors. Legal counsel
to the Non-interested Trustees provided the Board with memoranda regarding its
responsibilities pertaining to the renewal of the Current Agreement and Current
Investment Advisory Agreements and approve the New Agreement and New Investment
Advisory Agreements. Based on its evaluation, the Board unanimously concluded
that the terms of each Current Agreement and Current Investment Advisory
Agreement were reasonable and fair and that the renewal of each Current
Agreement and Current Investment Advisory Agreement was in the best interests of
the Fund and its shareholders. The Board also unanimously concluded that the
terms of the New Agreement and New Investment Advisory Agreements were
reasonable and fair and that the approval of the New Agreement and New
Investment Advisory Agreements was in the best interests of the Fund and its
shareholders.
CONSIDERATIONS WITH RESPECT TO ALL FUNDS
In determining whether to renew the Current Agreement and the Current
Investment Advisory Agreements and approve the New Agreement and New Investment
Advisory Agreements, the Trustees considered the best interests of each Fund
separately. While the Current Agreement and Current Investment Advisory
Agreements for all of the Funds were considered at the Board meetings on May 21,
2008, and the New Agreement and New Investment Advisory Agreement for all of the
Funds were considered at the meetings on May 21, May 22 and June 4, 2008, 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 a Fund and, as applicable, each subadvisor for a Fund;
(3) the costs incurred by the Manager and (to the extent provided) the
subadvisors in rendering their services and their resulting profits or losses;
(4) the extent to which economies of scale have been taken into account in
setting each 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
123
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY
AGREEMENTS
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 and Lighthouse regarding certain key aspects
of the materials submitted in support of the renewal.
Nature, Extent and Quality of Services. With respect to the renewal of each
Fund's Current Agreement and the approval of each Fund's New 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.
With respect to the renewal of the Current Investment Advisory Agreements
and the approval of the New 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, determined
to renew the Current Agreement and Current Investment Advisory Agreements, and
approve each New Agreement and New Investment Advisory Agreements for each Fund.
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. 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." 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, Inc.
Costs of the Services to be Provided to the Funds and the Projected Profits
to be Realized by the Manager from its Relationship with the Funds. 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. The profits or losses were noted at both an individual Fund level and
at an aggregate level for all Funds. The Board also considered that the Current
and New Agreements for the Beacon Trust stipulate that, to the extent that a
Fund invests all of its investable assets in another registered investment
company (i.e., is a Feeder Fund), the Fund will not pay the Manager a management
fee. With respect to the Short-Term Bond Fund, the Board also considered the
Manager's advisory fees for services provided by the Manager to institutional
separate accounts with similar investment strategies. 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 subadvised
Fund pays the Manager the amounts due to its subadvisors, and the Manager remits
these
124
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY
AGREEMENTS
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 Board considered that the Manager receives management fees for
overseeing the securities lending relationships on behalf of various Funds. The
Board also noted that certain classes of the Funds maintain higher expense
ratios in order to compensate third-party distributors.
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. A discussion regarding the Board's considerations
with respect to each Fund's fee rates is set forth below under "Additional
Considerations and Conclusions with Respect to Each Fund."
Economies of Scale. In considering the reasonableness of the management and
investment advisory fees, 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 many subadvisory fee rates. The
Board also noted that, for purposes of determining the fee rates chargeable to
the Funds, many subadvisors have agreed to take into account other assets of AMR
and its pension plans that are managed by the subadvisors. Thus, the Funds are
able to receive lower effective fee rates. The Board also noted that certain
Funds have grown their shareholder base, which has spread fixed costs over a
larger shareholder and asset base. 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 for each Fund provides 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 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 Manager's relationship with the Funds 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 Beacon Trust at a relatively low
cost. In this regard, the Board considered that the benefit plans of AMR have
invested substantial assets in the Funds, which helps reduce costs for other
Fund shareholders, just as the investment of other Fund shareholders helps to
reduce costs for AMR's benefit plans. In addition, the Board considered that
certain of the subadvisors reimburse the Manager for certain of its costs
relating to distribution activities for the Funds. The Board also considered
that Funds did not pay commissions to any affiliated broker-dealer of the
Manager during the most recent fiscal year ended October 31, 2007, though during
that period certain Funds did pay commissions to affiliated broker-dealers of
the relevant subadvisor, as set forth in the following table.
FUND BROKER AFFILIATED WITH COMMISSION
- ------------------------------------- ------------------------------------ ----------------------------------------- ----------
American Beacon Large Cap Growth Fund Goldman, Sachs & Co. Goldman Sachs Asset Management, L.P. $1,020
American Beacon Emerging Markets Fund JM Morgan Stanley Securities Limited Morgan Stanley Investment Management Inc. $ 326
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DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY
AGREEMENTS
The percentage of total commissions of the American Beacon Large Cap Growth
Fund and Emerging Markets Fund paid to affiliated broker-dealers in 2007 was
4.13% and 0.07%, respectively.
Based on the foregoing information, the Board concluded that the potential
benefits accruing to the Manager and the subadvisors by virtue of its
relationships with the Funds appear to be fair and reasonable.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE BALANCED FUND
In considering the renewal of the Current Agreement and the approval of the
New Agreement with respect to the Balanced Fund, the Trustees considered the
following additional factors: (1) the Balanced Fund outperformed the peer
universe median for the five- and ten-year periods ended March 31, 2008, but
underperformed for the one- and three-year periods; (2) the Manager outperformed
its market index with respect to its portion of the Fund's fixed income assets
for the one-, three- and five-year periods ended March 31, 2008; and (3) the
expense ratio of the Institutional Class of Fund shares was lower than its
Lipper expense group median.
In considering the renewal of the Current Investment Advisory Agreements
and the approval of the New 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
outperformed the peer universe median for the five- and ten-year periods ended
March 31, 2008 but underperformed for the one- and three- year period; (2)
Brandywine outperformed the peer universe median for the one-, three-, five- and
ten-year periods ended March 31, 2008; (3) Hotchkis outperformed its market
benchmark index with respect to its allocated portion of the Fund's equity
assets for the five- and ten-year periods ended March 31, 2008 but
underperformed for the one- and three- year periods; (4) 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 impact to the Fund; and (5) the
Manager's recommendation to continue to retain each subadvisor.
Based on these and other considerations, the Trustees concluded that the
fees paid to the Manager and the subadvisors under the Agreements are fair and
reasonable, determined that the Balanced Fund and its shareholders would benefit
from the Manager's and subadvisors' continued management of the Fund, approved
the renewal of the Current Agreement and Current Investment Advisory Agreements
and approved the New Agreement and New Investment Advisory Agreements with
respect to the Balanced Fund.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE EMERGING MARKETS
FUND
In considering the renewal of the Current Agreement and the approval of the
New Agreement, the Trustees considered the following additional factors: (1) the
Emerging Markets Fund underperformed the peer universe median for the one-,
three-, and five-year periods ended March 31, 2008 and (2) the current expense
ratio of the Institutional Class of the Fund was lower than its Lipper expense
group median.
In considering the renewal of the Current Investment Advisory Agreements
and the approval of the New Investment Advisory Agreements with The Boston
Company Asset Management, LLC ("TBC") 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 ended March 31, 2008; (2) TBC underperformed the peer universe median
for the one-, three- and five-year periods ended March 31, 2008; (3) 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 and (4) the Manager's recommendation to continue to
retain each subadvisor.
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DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY
AGREEMENTS
Based on these and other considerations, the Trustees concluded that the
fees paid to the Manager and the subadvisors under the Agreements are fair and
reasonable, determined that the Emerging Markets Fund and its shareholders would
benefit from the Manager's and subadvisors' continued management of the Fund,
approved the renewal of the Current Agreement and Current Investment Advisory
Agreements and approved the New Agreement and New Investment Advisory Agreements
with respect to the Emerging Markets Fund.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE ENHANCED INCOME
FUND
In considering the renewal of the Current Agreement and the approval of the
New Agreement, the Trustees considered the following additional factors: (1) the
Enhanced Income Fund outperformed the peer universe median for the one- and
three-year periods ended March 31, 2008; (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; and (3) the expense ratio of the Fund was lower
than its Lipper expense group median.
In considering the renewal of the Current Investment Advisory Agreement and
the approval of the New Investment Advisory Agreement with Calamos Advisors LLC
("Calamos"), the Trustees considered the following additional factors: (1)
Calamos outperformed the Merrill Lynch All U.S. Convertibles Index for the one-
and three-year periods ended March 31, 2008; (2) 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 (3) the
Manager's recommendation to continue to retain Calamos.
Based on these and other considerations, the Trustees concluded that the
fees paid to the Manager and the subadvisor under the Agreements are fair and
reasonable, determined that the Enhanced Income Fund and its shareholders would
benefit from the Manager's and subadvisor's continued management of the Fund,
approved the renewal of the Current Agreement and Current Investment Advisory
Agreement and approved the New Agreement and New Investment Advisory Agreement
with respect to the Enhanced Income Fund.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE HIGH YIELD BOND
FUND
In considering the renewal of the Current Agreement and the approval of the
New Agreement, the Trustees considered the following additional factors: (1) the
High Yield Bond Fund outperformed the peer universe median for the one- and
three-year periods ended March 31, 2008, but underperformed its peer universe
median for the five-year period and (2) the current expense ratio of the
Institutional Class was lower than its Lipper expense group median.
In considering the renewal of the Current Investment Advisory Agreement and
the approval of the New Investment Advisory Agreement with Franklin Advisors,
Inc. ("Franklin"), the Trustees considered the following additional factors: (1)
Franklin outperformed the peer universe median for the one-year period ended
March 31, 2008 and (2) the Manager's recommendation to continue to retain
Franklin.
Based on these and other considerations, the Trustees concluded that the
fees paid to the Manager and the subadvisor under the Agreements are fair and
reasonable, determined that the High Yield Bond Fund and its shareholders would
benefit from the Manager's and subadvisor's continued management of the Fund,
approved the renewal of the Current Agreement and Current Investment Advisory
Agreement, and approved the New Agreement and New Investment Advisory Agreement
with respect to the High Yield Bond Fund.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE INTERMEDIATE BOND
FUND
In considering the renewal of the Current Agreement and the approval of the
New Agreement, the Trustees considered the following additional factors: (1) the
Intermediate Bond Fund outperformed the peer universe median for the one-,
three- five- and ten-year periods ended March 31, 2008; (2) the Manager
outperformed the universe peer median with respect to its allocated portion of
the Fund's assets for the one-,
127
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY
AGREEMENTS
three-, five- and ten-year periods ended March 31, 2008; and (3) the expense
ratio of the Institutional Class of Fund shares was the lowest of its Lipper
expense group.
In considering the renewal of the Current Investment Advisory Agreement and
the approval of the New 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-, five- and ten-year periods ended March 31, 2008; and (2) the
Manager's recommendation to continue to retain Barrow.
Based on these and other considerations, the Trustees concluded that the
fees paid to the Manager and subadvisor under the Agreements are fair and
reasonable, determined that the Intermediate Bond Fund and its shareholders
would benefit from the Manager's and subadvisor's continued management of the
Fund, approved the renewal of the Current Agreement and Current Investment
Advisory Agreement and approved the New Agreement and New Investment Advisory
Agreement with respect to the Intermediate Bond Fund.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE LARGE CAP GROWTH
FUND
In considering the renewal of the Current Agreement and the approval of the
New Agreement, the Trustees considered the following additional factors: (1) the
Large Cap Growth Fund underperformed the peer universe median for the one-,
three- and five-year periods ended March 31, 2008 and (2) the expense ratio of
the Institutional Class of Fund shares was lower than the Lipper expense group
median.
In considering the renewal of the Current Investment Advisory Agreements
and the approval of the New 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-, three-
and five-year period ended March 31, 2008; (2) RIM underperformed the peer
universe median for the one-year period ended March 31, 2008; (4) 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;
and (5) the Manager's recommendation to continue to retain each subadvisor.
Based on these and other considerations, the Trustees concluded that the
fees paid to the Manager and the subadvisors under the Agreements are fair and
reasonable, determined that the Large Cap Growth Fund and its shareholders would
benefit from the Manager's and subadvisors' continued management of the Fund,
approved the renewal of the Current Agreement and Current Investment Advisory
Agreements and approved the New Agreement and New Investment Advisory Agreements
with respect to the Large Cap Growth Fund.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE MID-CAP VALUE FUND
In considering the renewal of the Current Agreement and the approval of the
New Agreement, the Trustees considered the following additional factors: (1) the
Mid-Cap Value Fund underperformed its peer universe median for the one- and
three-year periods ended March 31, 2008 and (2) the expense ratio of the
Institutional Class of Fund shares was lower than its Lipper expense group
median (after consideration of the Manager's waiver).
In considering the renewal of the Current Investment Advisory Agreements
and the approval of the New Investment Advisory Agreements with Barrow and Pzena
Investment Management, LLC ("Pzena"), the Trustees considered the following
additional factors: (1) Barrow and Pzena underperformed the peer universe median
for the one- and three-year periods ended March 31, 2008; (2) 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;
and (3) the Manager's recommendation to continue to retain each subadvisor.
128
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY
AGREEMENTS
Based on these and other considerations, the Trustees concluded that the
fees paid to the Manager and the subadvisors under the Agreements are fair and
reasonable, determined that the Mid-Cap Value Fund and its shareholders would
benefit from the Manager's and subadvisors' continued management of the Fund,
approved the renewal of the Current Agreement and Current Investment Advisory
Agreements and approved the New Agreement and New Investment Advisory Agreements
with respect to the Mid-Cap Value Fund.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE SHORT-TERM BOND
FUND
In considering the renewal of the Current Agreement and the approval of the
New Agreement, the Trustees considered the following additional factors: (1) the
Short-Term Bond Fund outperformed its benchmark index for the one-, three-,
five- and ten-year periods for the period ended March 31, 2008; (2) the
Short-Term Bond Fund outperformed the Lipper Index for all reported periods
ended March 31, 2008; and (3) the expense ratio of the Institutional Class of
Fund shares was the lowest of its Lipper expense group average.
Based on these and other considerations, the Trustees (1) concluded that
the fees paid to the Manager under the Agreement are fair and reasonable, (2)
determined that the Short-Term Bond Fund and its shareholders would benefit from
the Manager's continued management of the Fund, (3) approved the renewal of the
Current Agreement and (4) approved the New Agreement with respect to the
Short-Term Bond Fund.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE SMALL CAP VALUE
OPPORTUNITY FUND
In considering the renewal of the Current Agreement and the approval of the
New Agreement, the Trustees considered the following additional factors: (1) the
Small Cap Value Opportunity Fund underperformed the peer universe median for the
one- and two-year periods ended March 31, 2008 and (2) the expense ratio of the
Institutional Class of Fund shares was lower than its Lipper expense group
median.
In considering the renewal of the Current Investment Advisory Agreement and
the approval of the New Investment Advisory Agreement with PanAgora Asset
Management ("PanAgora"), the Trustees considered the following additional
factors: (1) PanAgora underperformed the peer universe median for the one- and
two-year periods ended March 31, 2008; (2) the Fund only has two years of
performance data and it is reasonable to permit the subadvisor to continue to
manage the Fund to appropriately assess performance; and (3) the Manager's
recommendation to continue to retain the subadvisor.
Based on these and other considerations, the Trustees concluded that the
fees paid to the Manager and the subadvisor under the Agreements are fair and
reasonable, determined that the Small Cap Value Opportunity Fund and its
shareholders would benefit from the Manager's and subadvisor's continued
management of the Fund, approved the renewal of the Current Agreement and
Current Investment Advisory Agreement and approved the New Agreement and New
Investment Advisory Agreement with respect to the Small Cap Value Opportunity
Fund.
129
RESULTS OF SHAREHOLDER MEETING
(Unaudited)
A special meeting of shareholders of each of the portfolios of the American
Beacon Funds (the "Trust") was held on August 22, 2008. The shareholders of the
Balanced, Emerging Markets, Enhanced Income, High Yield Bond, Intermediate Bond,
Short-Term Bond, Large Cap Growth, Small Cap Value Opportunity and Mid-Cap Value
Funds (the "Funds") approved a new investment management agreement between
American Beacon Advisors, Inc. and the Funds. This proposal required a majority
of shareholders of each Fund to achieve a quorum. The following are the results
of the shareholder votes for this proposal:
FUND FOR AGAINST ABSTAIN NON-VOTING
---- ---------------- ------------ ------------ -------------
Mid-Cap Value 54,196,976.73 39,547.38 66,994.80 7,753,931.46
Balanced 817,348,398.34 318,946.97 714,168.19 58,089,239.09
Emerging Markets 173,546,497.25 9,350.50 329,446.10 6,351,160.92
Enhanced Income 131,472,046.68 -- -- 1,117,281.25
High Yield Bond 121,620,671.08 1,059,361.20 1,312,096.58 22,276,310.46
Intermediate Bond 153,203,480.55 -- 11,648.24 5,760,779.16
Large Cap Growth 84,026,829.46 -- -- --
Short-Term Bond 92,926,803.91 17,283.48 25,143.41 4,447,423.65
Small Cap Value Opportunity 5,258,529.22 -- -- 61,636.92
A special meeting of the shareholders of the American Beacon Funds (the
"Trust") was held on August 22, 2008. The shareholders of the Trust approved the
re-election of five of the current Trustees to the Board of the American Beacon
Trust and to elect three additional Trustees to the Board. This proposal
required a majority of the shareholders of the Trust to vote to achieve a
quorum. The following are the results of the election of each Trustee:
ALAN D. FELD
Affirmative....... 12,634,553,751.62
Withhold.......... 519,818,259.90
W. HUMPHREY BOGART
Affirmative....... 12,999,746,162.82
Withhold.......... 154,625,848.70
BRENDA A. CLINE
Affirmative....... 13,009,050,779.42
Withhold.......... 145,321,232.10
RICHARD A. MASSMAN
Affirmative....... 13,004,756,096.42
Withhold.......... 149,615,915.10
R. GERALD TURNER
Affirmative....... 13,004,259,224.92
Withhold.......... 150,112,786.60
THOMAS M. DUNNING
Affirmative....... 13,003,350,236.48
Withhold.......... 151,021,775.04
EUGENE J. DUFFY
Affirmative....... 12,985,296,316.39
Withhold.......... 169,075,695.13
PAUL J. ZUCCONI
Affirmative....... 12,985,296,316.39
Withhold.......... 169,075,695.13
130
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*
Alan D. Feld** (71) Trustee since 1996 Sole Shareholder of a professional corporation which is a Partner in the law firm
of Akin, Gump, Strauss, Hauer & Feld, LLP (1960-Present); Director, Clear Channel
Communications (1984-Present); Trustee, CenterPoint Properties (1994-2006); Member,
Board of Trustees, Southern Methodist University; Member, Board of Visitors, M.D.
Anderson Hospital; Board of Visitors, Zale/Lipshy Hospital.
NON-INTERESTED TRUSTEES Term
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (64) Trustee since 2004 Board Member, Baylor University Medical Center Foundation (1992-2004); Consultant,
New River Canada Ltd. (mutual fund servicing company) (1998-2003); 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).
Brenda A. Cline (47) 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 (1999-2007).
Eugene J. Duffy (54) Trustee since 2008 Principal and Executive Vice President, Paradigm Asset Management (1994-Present);
Director, Sunrise Bank of Atlanta (2008-Present); Chairman, Special Contributions
Fund Board of Trustees, National Association for the Advancement of Colored People
(2007-Present); Trustee, National Association for the Advancement of Colored People
(2000-Present); Board of Visitors, Emory University (2006-Present); Trustee,
Atlanta Botanical Garden (2006-Present); Board Member, Willie L. Brown Jr.
Institute on Politics and Public Service (2001-Present); Chair, National
Association of Securities Professionals (2000-2002); Deputy Chief Administrative
Officer, City of Atlanta (1985-1990).
Thomas M. Dunning (65) Trustee since 2008 Consultant, (2008-Present); Chairman (2003-2008) and Chief Executive Officer
(2003-2007), Lockton Dunning Benefits (consulting firm in employee benefits);
Director, Oncor Electric Delivery Company LLC; Advisory Director, Comerica Texas;
Immediate Past Chairman and Board Member, Dallas Citizens Council; Director, Baylor
Health Care System Foundation; State Vice Chair, State Fair of Texas; Board Member,
Southwestern Medical Foundation.
131
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
- ------------------------ ------------------- ------------------------------------------------------------------------------------
Richard A. Massman (65) Trustee since 2004 Senior Vice President and General Counsel, Hunt Consolidated, Inc. (holding company
Chairman since 2008 engaged in oil and gas exploration and production, refining, real estate, farming,
ranching and venture capital activities) (1994-Present). Chairman (2007-Present)
and Director (2005-Present), The Dallas Opera Foundation; Chairman (2006-Present)
and Director (2005-Present), Temple Emanu-El Foundation; Trustee, Presbyterian
Hospital Foundation (2006-Present).
R. Gerald Turner (62) 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 Worldwide
Dallas, Texas 75275 Inc. (chemical manufacturing) (2003-Present); Director, First Broadcasting
Investment Partners, LLC (2003-2007); Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory Board; Co-Chair, Knight Commission
on Intercollegiate Athletics.
Paul J. Zucconi,CPA (67) Trustee since 2008 Director, Affirmative Insurance Holdings, Inc. (producer of nonstandard automobile
insurance) (2004-present); Director, Titanium Metals Corporation (producer of
titanium melted and mill products and sponge) (2002- present); Director, Torchmark
Corporation (life and health insurance products) (2002-present); Director, National
Kidney Foundation of North Texas (2003-Present); Director, Dallas Chapter of
National Association of Corporate Directors (2004-Present); Partner, KPMG
(1976-2001).
OFFICERS
Term
One Year
William F. Quinn** (60) President from Chairman (2006-Present) and CEO (2006-2007), President (1986-2006) and Director
1987 to 2007 (2003-Present), American Beacon Advisors, Inc.; Chairman (1989-2003) and Director
and 2008 to Present (1979-1989, 2003-Present), American Airlines Federal Credit Union; Director,
Executive Vice Crescent Real Estate Equities, Inc.(1994-2007); Director, Pritchard, Hubble & Herr,
President from LLC (investment advisor) (2001-2006); Director of Investment Committee, Southern
2007 to 2008 Methodist University Endowment Fund (1996-Present); Member, Southern Methodist
Trustee from University Cox School of Business Advisory Board (1999-2002); Member, New York
1987 to 2008 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 (1995-2008);
Trustee, American Beacon Select Funds (1999-2008); Trustee, American Beacon Master
Trust (1995-2008).
Rosemary K. Behan (49) VP, Secretary and Vice President, Legal and Compliance, American Beacon Advisors, Inc.
Chief Legal (2006-Present); Assistant General Counsel, First Command Financial Planning, Inc.
Officer since 2006 (2004-2006); Enforcement Attorney (2002-2004) and Branch Chief (2000-2002),
Securities and Exchange Commission.
Brian E. Brett (48) 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 (42) 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 (54) VP since 1989 Vice President, Fixed Income Investments, American Beacon Advisors, Inc.
(1988-Present).
132
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
- ------------------------ ------------------- ------------------------------------------------------------------------------------
Rebecca L. Harris (41) Treasurer since Vice President, Finance, American Beacon Advisors, Inc. (1995-Present).
1995
Christina E. Sears (37) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc. (2004-Present); Senior
Officer since 2004 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, provided, however, that the Board may determine to grant one or more
annual exemptions to this requirement.
** Mr. Feld is deemed to be an "interested person" of the Trusts, as defined
by the 1940 Act. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld
LLP has provided legal services within the past two fiscal years to the
Manager and one or more of the Trust's and Master Trust's sub-advisors.
133
(AMERICAN BEACON FUNDS(SM) 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 Class(SM) 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 A description of the policies and procedures
provided in each semi-annual and annual the Fund uses to determine how to vote
report, the Fund files a complete schedule of proxies relating to portfolio securities is
its portfolio holdings with the Securities available in the Fund's Statement of
and Exchange Commission ("SEC") on Form N-Q Additional Information, is available free of
as of the first and third fiscal quarters. charge on the Fund's website
The Fund's Forms N-Q are available on the (www.americanbeaconfunds.com) and by calling
SEC's website at www.sec.gov. The Forms N-Q 1-800-967-9009 or by accessing the SEC's
may also be reviewed and copied at the SEC's website at www.sec.gov. The Fund's proxy
Public Reference Room, 450 Fifth Street, NW, voting record for the most recent year ended
Washington, DC 20549. Information regarding June 30 is filed annually with the SEC on
the operation of the SEC's Public Reference Form N-PX. The Fund's Forms N-PX are
Room may be obtained by calling available on the SEC's website at www.sec.gov.
1-800-SEC-0330. A complete schedule of the The Fund's proxy voting record may also
Fund's portfolio holdings is also available be obtained by calling 1-800-967-9009.
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 TRUST BOSTON FINANCIAL DATA PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES
Boston, Massachusetts SERVICES ERNST & YOUNG LLP Portland, Maine
Kansas City, Missouri 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, 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.
AR 10/08
64674
GUIDANCE | VISION | EXPERIENCE
(AMERICAN BEACON FUNDS(SM) LOGO)
ANNUAL REPORT
(GRAPHIC)
October 31, 2008
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 ................................... 21
Schedule of Investments ........................................... 71
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, 2008
(PHOTO OF WILLIAM F. QUINN)
FELLOW SHAREHOLDERS,
Enclosed is the American Beacon International Equity Fund Annual Report for
the twelve months ended October 31, 2008.
During the past twelve months, we experienced unprecedented market turmoil
in all asset classes. Initially, the sub-prime mortgage crisis and rising oil
and food prices contributed to an economic slowdown that culminated in a
market-wide credit crisis and squeeze on liquidity. The situation reached
once-in-a-lifetime crisis proportions in mid-September with the bankruptcy of
Lehman Brothers, the resulting losses incurred by investors in money market
funds, and the unprecedented government intervention in the financial system.
From September 15th to October 31st, the Dow Jones Industrial Average declined
almost 20% on the threat of a global recession.
The International Equity Fund-Institutional Class reported a total return
of -44.81% for the one-year period. The MSCI EAFE Index reported a return of
- -46.62% for the same period.
During these times, it is important to remember that the American Beacon
International Equity Fund's investment strategy is based on long-term investing.
Short-term pain can lead to long-term gains as we saw when the positive
performance by our value-oriented Funds followed the burst of the technology
bubble earlier this decade. We believe the Funds' fundamental value investment
philosophies and lower than average expense ratios will continue to serve the
Funds well over the longer term.
Please review the enclosed market overview, portfolio listings, and
detailed financial data. As always, we welcome the opportunity to serve your
financial needs. To obtain further details about the American Beacon Funds
family or to access your account information, please visit our website at
www.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Funds.
Sincerely,
/s/ William F. Quinn
William F. Quinn
President
American Beacon Funds
1
INTERNATIONAL EQUITY MARKET OVERVIEW
OCTOBER 31, 2008 (UNAUDITED)
During the last quarter of 2007, global equity markets bid farewell to a
five-year bull market resulting from recessionary concerns in the U.S. and a
significant slowdown across the developed market economies as the MSCI EAFE
Index fell 46.6% for the twelve-month period ending October 31, 2008. In fact,
global stock markets started 2008 with their worst quarterly performance in
nearly five years. The credit crisis deepened on March 17th of this year when
the Federal Reserve ("Fed") startled the global equity markets with an announced
bailout of Bear Stearns, the fifth largest investment bank in the U.S. to avert
a bankruptcy. For the balance of the year, market participants witnessed a
series of truly historic events: the U.S. government takeover of Fannie Mae and
Freddie Mac, the non-takeover and subsequent bankruptcy of Lehman Brothers, the
shotgun merger of Merrill Lynch with Bank of America, the bailout of the
insurance giant AIG, and the end of the independent investment bank business
model as Goldman Sachs and Morgan Stanley decided to reorganize as bank holding
companies. In three short months toward the end of the period, we witnessed the
vaporization of most of what was the U.S. financial sector. It was not only a
U.S. phenomenon; we are only beginning to see the early cracks in the U.K. and
European financials.
International markets remained under pressure for the balance of the year
from the financial meltdown hitting the U.S., U.K., and most of continental
Europe. Inter-bank lending froze, cutting off critical funding to the corporate
commercial paper market. Europe followed the U.S. in launching an unprecedented
bank bailout and coordinated rate cut. U.K. banks were heavily hit, forcing the
government to inject capital and guarantee bank debt. Spain and Germany also
stepped in to support the financial sector. The spectacle sent most commodities
reeling, aside from gold, which was viewed as a safe haven. However, the
correction was more severe than anticipated as the credit crisis caused
economists to slash world growth forecasts. Japan's banks remained the more
solvent and stepped in to pick up distressed U.S. assets. The yen also attracted
investors leery of the U.S. dollar testing new lows. Japan's ongoing reliance on
external demand, however, has not helped equity markets.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
The Institutional Class of the International Equity Fund returned -44.81%
for the twelve months ended October 31, 2008. The Fund outperformed the MSCI
EAFE Index (the "Index") return of -46.62% and the Lipper International Funds
Index return of -46.77% for the period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/98 THROUGH 10/31/08
(PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF
PERIODS ENDED 10/31/08 $10,000
--------------------------- 10/31/98-
1 YEAR 5 YEARS 10 YEARS 10/31/08
------ ------- -------- ---------
Institutional Class(1, 4)............... -44.81% 3.80% 3.82% $14,547
PlanAhead Class(1, 4)................... -44.96% 3.53% 3.59% 14,232
Service Class(1, 2, 4).................. -45.10% 3.26% 3.43% 14,013
AMR Class(1, 4) ........................ -44.65% 4.09% 4.09% 14,928
Lipper Int'l. Funds Index(3)............ -46.77% 3.94% 2.90% 13,306
MSCI EAFE Index (3)..................... -46.62% 3.60% 1.69% 11,799
(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 ten-year period represents the total returns
achieved by the PlanAhead Class from 10/31/98 up to 5/1/03, the inception
date of the Service Class, and the returns of the Service Class since its
inception. Expenses of the Service Class are higher than those of the
PlanAhead Class. As a result, total returns shown may be higher than they
would have been had the Service Class been in existence since 10/31/98. 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. One cannot directly
invest in an index. The MSCI EAFE Index is a market capitalization weighted
index of international stock performance composed of equities from
developed markets excluding the U.S. and Canada.
(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 0.68%, 0.93%, 1.15% and 0.42%, 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 by 1.81% over the twelve-month period due
to stock selection, while country allocation detracted value.
Stock selection had a significantly positive impact overall, specifically
in France, the United Kingdom, and Switzerland, while stock selections in
Norway, Germany, and Italy detracted from performance. The Fund benefited from
French companies Sanofi-Aventis (down 25.3%), France Telecom (down 25.4%), and
Total (down 30.0%). In the United Kingdom, GlaxoSmithKline (down 21.0%), BP
(down 34.0%), British American Tobacco (down 25.0%) and Unilever (down 31.1%)
contributed to the relative outperformance, as did Swiss health care company
Novartis (down 3.0%). Investments in Aker Solutions (down 84.0%) in Norway,
Deutsche Post (down 62.1%) in Germany and Unicredit (down 70.4%) in Italy hurt
performance.
Country allocation detracted from relative performance, primarily due to
underweighting Japan (down 37.5%), overweighting Ireland (down 68.9%), and
investing in South Korea (down 60.0%). Ireland was the second-worst performing
market in the Index, while Japan was the second-best performing market in the
Index over the twelve-month period. Underweighting Australia (down 55.2%) aided
performance for the period.
Although economic and market conditions vary from period to period, the
Fund's primary strategy of investing in undervalued companies with above average
earnings growth expectations remains consistent.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
TOP TEN HOLDINGS
% OF
NET ASSETS
----------
Vodafone Group plc.................. 2.7%
Sanofi-Aventis...................... 2.6%
BP plc.............................. 2.1%
Total S.A........................... 2.1%
Royal Dutch Shell plc............... 1.9%
GlaxoSmithKline plc................. 1.8%
HSBC Holdings plc................... 1.8%
BAE Systems plc..................... 1.7%
Siemens AG.......................... 1.7%
E.ON AG............................. 1.7%
SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials.......................... 19.6%
Consumer Discretionary.............. 13.0%
Industrials......................... 12.9%
Energy.............................. 11.0%
Telecommunications Services......... 10.2%
Health Care......................... 9.5%
Consumer Staples.................... 9.3%
Information Technology.............. 5.4%
Materials........................... 4.6%
Utilities........................... 4.5%
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, 2008 (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, 2008
through October 31, 2008.
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
Value Value During Period*
5/1/08 10/31/08 5/1/08-10/31/08
--------- --------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $598.99 $2.69
Hypothetical $1,000.00 $1,021.77 $3.40
(5% return before expenses)
PLANAHEAD CLASS
Actual $1,000.00 $598.15 $3.70
Hypothetical $1,000.00 $1,020.51 $4.67
(5% return before expenses)
SERVICE CLASS
Actual $1,000.00 $597.03 $4.98
Hypothetical $1,000.00 $1,018.90 $6.29
(5% return before expenses)
AMR CLASS
Actual $1,000.00 $599.81 $ 9.49
Hypothetical $1,000.00 $1,013.27 $11.94
(5% return before expenses)
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.67%, 0.92%, 1.24% and 2.36% 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 (366) 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, 2008, 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, 2008, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Beacon International Equity Fund at October 31, 2008, 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 23, 2008
6
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
AUSTRALIA - 0.78%
COMMON STOCKS - 0.78%
Insurance Australia Group Ltd. ................ 2,000,831 $ 5,074
National Australia Bank Ltd. + ................ 323,483 5,249
-----------
TOTAL AUSTRALIA 10,323
-----------
AUSTRIA - 0.19%
COMMON STOCKS - 0.19%
Telekom Austria AG ............................ 202,700 2,516
-----------
BELGIUM - 0.53%
COMMON STOCKS - 0.53%
Delhaize Group ................................ 125,190 7,001
-----------
CANADA - 1.48%
COMMON STOCKS - 1.48%
Jean Coutu Group PJC, Inc. .................... 350,300 2,119
Precision Drilling Trust + .................... 282,880 3,051
TELUS Corp. ................................... 424,093 14,394
-----------
TOTAL CANADA 19,564
-----------
FINLAND - 1.21%
COMMON STOCKS - 1.21%
Nokia Oyj ..................................... 728,185 11,107
UPM-Kymmene Oyj ............................... 348,330 4,935
-----------
TOTAL FINLAND 16,042
-----------
FRANCE - 12.93%
COMMON STOCKS - 12.93%
Accor S.A. .................................... 50,500 1,968
AXA S.A. ...................................... 580,943 11,195
BNP Paribas ................................... 117,268 8,513
Bouygues S.A. ................................. 72,700 3,097
Carrefour S.A. ................................ 192,060 8,116
Compagnie Generale des Etablissements
Michelin ................................... 90,220 4,647
Credit Agricole S.A. .......................... 530,773 7,739
EDF ........................................... 149,208 8,940
France Telecom S.A. ++ ........................ 724,571 18,284
GDF Suez ...................................... 169,100 7,530
Groupe Danone ................................. 46,900 2,601
Sanofi-Aventis S.A. ++ ........................ 549,422 34,582
Technip S.A. .................................. 289,013 8,641
Thomson ## .................................... 341,240 480
Total S.A. + .................................. 505,976 27,791
VINCI S.A. + .................................. 291,935 10,502
Vivendi S.A. .................................. 246,510 6,448
-----------
TOTAL FRANCE 171,074
-----------
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
GERMANY - 8.24%
COMMON STOCKS - 7.85%
adidas AG ..................................... 55,200 $ 1,931
Allianz SE .................................... 29,702 2,224
Bayer AG ...................................... 77,972 4,279
Bayerische Motoren Werke AG ................... 178,770 4,628
Celesio AG .................................... 245,480 7,288
Daimler AG .................................... 78,100 2,697
Deutsche Post AG .............................. 1,157,137 12,874
E.ON AG ....................................... 595,443 22,726
Infineon Technologies AG ## ................... 646,190 2,047
Linde AG ...................................... 54,335 4,499
Merck KGAA .................................... 57,150 5,060
Muenchener Rueckversicherungs-Gesellschaft
AG ......................................... 45,297 5,926
SAP AG ........................................ 140,910 5,010
Siemens AG .................................... 380,292 22,753
-----------
TOTAL COMMON STOCKS 103,942
-----------
PREFERRED STOCKS - 0.39%
Henkel AG & Co. KGaA .......................... 177,139 5,127
-----------
TOTAL GERMANY 109,069
-----------
GREECE - 1.18%
COMMON STOCKS - 1.18%
National Bank of Greece S.A. .................. 99,244 2,211
OPAP S.A. ..................................... 319,870 7,009
Public Power Corp. S.A. ....................... 509,620 6,341
-----------
TOTAL GREECE 15,561
-----------
HONG KONG/CHINA - 1.29%
COMMON STOCKS - 1.29%
Cheung Kong Holdings Ltd. ..................... 472,500 4,601
Hutchison Whampoa Ltd. ........................ 187,000 1,024
Swire Pacific Ltd. ............................ 622,100 4,341
Yue Yuen Industrial Holdings Ltd. ++ .......... 3,597,167 7,123
-----------
TOTAL HONG KONG/CHINA 17,089
-----------
IRELAND - 1.45%
COMMON STOCKS - 1.45%
Allied Irish Banks plc ........................ 723,256 3,982
C&C Group plc ................................. 1,173,494 1,666
CRH plc ....................................... 376,689 8,305
CRH plc, ADR .................................. 179,025 3,993
Smurfit Kappa Group plc ++ .................... 688,413 1,232
-----------
TOTAL IRELAND 19,178
-----------
See accompanying notes
7
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
ITALY - 3.00%
COMMON STOCKS - 3.00%
Eni S.p.A. .................................... 577,716 $ 13,766
Intesa Sanpaolo S.p.A ......................... 588,622 2,154
Mediaset S.p.A. + ............................. 1,491,676 8,098
Telecom Italia S.p.A. ......................... 3,044,870 3,505
UniCredit S.p.A. .............................. 4,990,079 12,198
-----------
TOTAL ITALY 39,721
-----------
JAPAN - 12.84%
COMMON STOCKS - 12.84%
Aeon Co. Ltd. + ............................... 769,200 7,340
Canon, Inc. ................................... 194,200 6,683
Canon, Inc., ADR .............................. 4,812 165
Chiyoda Corp. + ............................... 513,000 2,927
Chuo Mitsui Trust Holdings, Inc. .............. 1,093,400 4,301
Daito Trust Construction Co. Ltd. ............. 143,200 6,016
East Japan Railway Co. ........................ 582 4,136
Fanuc Ltd. .................................... 110,500 7,500
FUJIFILM Holdings Corp. ....................... 107,900 2,390
Haseko Corp. + ................................ 4,297,018 3,840
Honda Motor Co. Ltd. .......................... 359,000 8,916
HOYA Corp. .................................... 139,300 2,582
INPEX Corp. ................................... 378 2,198
Japan Tobacco, Inc. ........................... 1,490 5,291
JS Group Corp. ................................ 345,400 4,597
KDDI Corp. .................................... 676 4,039
Konica Minolta Holdings, Inc. + ............... 471,000 3,066
Mitsubishi Corp. .............................. 145,200 2,410
Mitsubishi Gas Chemical Co., Inc. ............. 902,000 3,388
Mitsubishi UFJ Financial Group, Inc. + ........ 1,198,900 7,383
NGK Spark Plug Co. Ltd. + ..................... 809,000 7,712
Nidec Corp. + ................................. 49,000 2,521
Nintendo Co. Ltd. ............................. 11,400 3,595
Olympus Corp. + ............................... 126,800 2,422
Sankyo Co. Ltd. ............................... 131,500 5,941
Secom Co. Ltd. ................................ 67,900 2,628
SMC Corp. ..................................... 9,700 926
Sony Corp. .................................... 102,302 2,340
Sony Financial Holdings, Inc. ++ .............. 1,915 6,310
Sumitomo Mitsui Financial Group, Inc. ......... 1,191 4,835
T&D Holdings, Inc. ............................ 56,000 2,155
Takeda Pharmaceutical Co. Ltd. ................ 186,800 9,414
THK Co. Ltd. + ................................ 579,600 7,888
Tokyo Electron Ltd. ........................... 103,100 3,408
Tokyo Gas Co. Ltd. ............................ 914,000 3,981
Toyota Motor Corp. ............................ 211,700 8,346
Yamaha Motor Co. Ltd. ......................... 574,300 6,307
-----------
TOTAL JAPAN 169,897
-----------
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
NETHERLANDS - 5.48%
COMMON STOCKS - 5.48%
Akzo Nobel N.V. + ............................. 212,509 $ 8,843
ASML Holding N.V. ............................. 283,200 4,942
Heineken N.V. ................................. 67,790 2,288
ING Groep N.V. ................................ 814,855 7,534
Koninklijke Philips Electronics NV ............ 741,901 13,697
Randstad Holding N.V. + ....................... 55,060 1,070
Reed Elsevier N.V. ............................ 546,545 7,313
SBM Offshore N.V. + ........................... 258,280 4,540
TNT N.V. ...................................... 432,526 9,055
Unilever N.V. + ............................... 550,154 13,263
-----------
TOTAL NETHERLANDS 72,545
-----------
NORWAY - 0.70%
COMMON STOCKS - 0.70%
Aker Solutions ASA ............................ 474,650 2,587
Stolt-Nielsen S.A. + .......................... 120,384 1,248
Telenor ASA ................................... 918,940 5,473
-----------
TOTAL NORWAY 9,308
-----------
PORTUGAL - 0.37%
COMMON STOCKS - 0.37%
Portugal Telecom, SGPS, S.A. .................. 747,760 4,946
-----------
SINGAPORE - 1.87%
COMMON STOCKS - 1.87%
DBS Group Holdings Ltd. ....................... 1,565,455 11,985
Flextronics International Ltd. ## ............. 848,510 3,547
Singapore Telecommunications Ltd. ............. 5,502,000 9,257
-----------
TOTAL SINGAPORE 24,789
-----------
SOUTH KOREA - 1.57%
COMMON STOCKS - 1.57%
Hyundai Heavy Industries ...................... 53,884 7,048
KB Financial Group, Inc., ADR ## + ............ 132,710 3,266
Korea Electric Power Corp. .................... 81,980 1,640
Samsung Electronics Co. Ltd. .................. 15,525 6,488
Samsung Electronics Co. Ltd., GDR ++ .......... 11,100 2,284
-----------
TOTAL SOUTH KOREA 20,726
-----------
SPAIN - 2.34%
COMMON STOCKS - 2.34%
Banco Popular Espanol S.A. .................... 387,311 3,540
Banco Santander S.A. .......................... 329,542 3,564
Banco Santander S.A., GDR ..................... 400,828 4,332
Repsol YPF S.A. ............................... 257,990 4,920
See accompanying notes
8
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
Telefonica S.A. ............................... 791,496 $ 14,640
-----------
TOTAL SPAIN 30,996
-----------
SWEDEN - 2.29%
COMMON STOCKS - 2.29%
Atlas Copco AB + .............................. 1,330,037 11,117
Nordea Bank AB + .............................. 582,370 4,812
Securitas AB .................................. 193,530 1,863
Telefonaktiebolaget LM Ericsson ............... 1,774,560 12,514
-----------
TOTAL SWEDEN 30,306
-----------
SWITZERLAND - 7.30%
COMMON STOCKS - 7.30%
Adecco S.A. ................................... 130,550 4,564
Credit Suisse Group AG ........................ 95,611 3,649
Lonza Group AG ................................ 63,420 5,279
Nestle S.A. ................................... 385,700 15,034
Novartis AG ................................... 380,220 19,235
Roche Holding AG .............................. 56,100 8,587
Swiss Reinsurance ............................. 276,678 11,527
Swisscom AG ................................... 11,000 3,364
UBS AG ## ..................................... 942,989 16,091
Zurich Financial Services AG .................. 45,729 9,250
-----------
TOTAL SWITZERLAND 96,580
-----------
UNITED KINGDOM - 20.72%
COMMON STOCKS - 20.72%
Anglo American plc ............................ 70,380 1,738
Aviva plc ..................................... 1,667,106 9,997
BAE Systems plc ............................... 4,059,043 22,804
BG Group plc .................................. 163,700 2,408
BP plc ........................................ 3,377,386 27,911
British American Tobacco plc .................. 432,455 11,876
British Sky Broadcasting Group plc + .......... 863,040 5,262
Cadbury plc ................................... 499,764 4,592
Centrica plc .................................. 1,242,280 6,107
Compass Group plc ............................. 735,520 3,441
Debenhams plc + ............................... 364,089 224
Diageo plc + .................................. 242,543 3,715
GlaxoSmithKline plc ........................... 1,254,048 24,173
HSBC Holdings plc ............................. 1,941,321 23,481
Imperial Tobacco Group plc .................... 229,110 6,161
Kingfisher plc + .............................. 1,256,400 2,308
Lloyds TSB Group plc .......................... 53,510 174
National Grid plc ............................. 258,281 2,933
Old Mutual plc ................................ 2,510,769 2,042
Pearson plc + ................................. 534,980 5,244
Prudential plc ................................ 634,200 3,256
Reckitt Benckiser Group plc ................... 65,800 2,766
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
Rio Tinto plc 93,300 $ 4,351
Rolls-Royce Group plc C Shares Entitlement
Jan. 09 ## # ............................... 58,552,208 94
Rolls-Royce Group plc ## ...................... 1,023,640 5,429
Royal Bank of Scotland Group plc .............. 3,968,239 4,377
Royal Dutch Shell plc, A Shares ............... 325,118 8,959
Royal Dutch Shell plc, B Shares ............... 608,913 16,275
Smiths Group plc + ............................ 275,620 3,545
Standard Chartered plc + ...................... 167,390 2,779
Tesco plc + ................................... 411,700 2,250
Unilever plc .................................. 773,756 17,445
Vodafone Group plc ............................ 18,357,390 35,359
Yell Group plc + .............................. 765,760 759
-----------
TOTAL UNITED KINGDOM 274,235
-----------
UNITED STATES - 0.32%
COMMON STOCKS - 0.32%
Invesco Ltd. .................................. 160,415 2,392
News Corp. .................................... 172,040 1,830
-----------
TOTAL UNITED STATES 4,222
-----------
SHORT TERM INVESTMENTS - 11.21%
American Beacon Money Market Select
Fund * .................................... 26,918,283 26,918
Columbia Treasury Reserves Fund ............... 121,503,771 121,504
-----------
TOTAL SHORT TERM INVESTMENTS 148,422
-----------
SECURITIES LENDING COLLATERAL - 8.78%
JP Morgan U.S. Government Money Market
Fund ....................................... 24,295,960 24,296
Securities Liquidating AB Trust ............... 67,595,680 67,596
Wells Fargo Advantage Government Money
Market Fund ................................ 24,295,960 24,296
-----------
TOTAL SECURITIES LENDING COLLATERAL 116,188
-----------
TOTAL INVESTMENTS 108.07% - (COST $1,804,483) 1,430,298
LIABILITIES, NET OF OTHER ASSETS - (8.07%) (106,782)
-----------
TOTAL NET ASSETS - 100.00% $ 1,323,516
===========
See accompanying notes
9
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
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, 2008.
++ 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 $69,815 or 5.27% of net
assets. The Fund has no right to demand registration of these securities.
# Valued at fair value pursuant to procedures approved by the Board of
Trustees.
* The Fund 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 ........ 73 Dec 2008 $ 4,860 $ (1,083)
Canada S&PCDA 60 Index ..... 85 Dec 2008 8,265 (2,200)
France CAC 40 Index ........ 217 Dec 2008 9,539 (1,925)
Germany DAX Index .......... 50 Dec 2008 8,028 (1,566)
Hang Seng Index ............ 19 Nov 2008 1,707 221
Italy MIB 30 Index ......... 23 Dec 2008 3,094 (888)
Netherlands 200 AEX Index .. 33 Nov 2008 2,230 (62)
Spain IBEX 35 Index ........ 31 Nov 2008 3,538 (412)
Sweden OMX Index ........... 207 Nov 2008 1,684 (142)
Tokyo FE TOPIX Index ....... 226 Dec 2008 19,624 (5,228)
UK FTSE 100 Index .......... 278 Dec 2008 19,667 (3,508)
------- --------
$82,236 $(16,793)
======= ========
See accompanying notes
10
AMERICAN BEACON INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
(DOLLARS IN THOUSANDS)
SETTLEMENT MARKET UNREALIZED
DATE VALUE GAIN/(LOSS)
---------- -------- --------------
CONTRACTS TO DELIVER
7,750 Australian Dollar ......... 12/12/2008 $ 5,129 $ 823
10,309 Canadian Dollar ........... 12/12/2008 8,552 977
22,309 Euro Currency ............. 12/12/2008 28,396 2,755
2,235,028 Japanese Yen .............. 12/12/2008 22,733 (1,264)
13,248 Pound Sterling ............ 12/12/2008 21,266 2,043
16,627 Swedish Krona ............. 12/12/2008 2,140 260
7,159 Swiss Franc ............... 12/12/2008 6,178 194
TOTAL CONTRACTS TO DELIVER
-------- --------
(RECEIVABLE AMOUNT $100,182) $ 94,394 $ 5,788
-------- --------
CONTRACTS TO RECEIVE
14,749 Australian Dollar ......... 12/12/2008 $ 9,761 $ (2,428)
18,731 Canadian Dollar ........... 12/12/2008 15,539 (2,369)
39,869 Euro Currency ............. 12/12/2008 50,747 (7,168)
4,278,677 Japanese Yen .............. 12/12/2008 43,519 2,820
23,401 Pound Sterling ............ 12/12/2008 37,563 (4,886)
28,859 Swedish Krona ............. 12/12/2008 3,715 (667)
15,804 Swiss Franc ............... 12/12/2008 13,637 (883)
TOTAL CONTRACTS TO RECEIVE
-------- --------
(PAYABLE AMOUNT $190,062) $174,481 $(15,581)
-------- --------
NET CURRENCY FLUCTUATION $ (9,793)
========
SECTOR DIVERSIFICATION
Percent of
Net Assets
----------
Consumer Discretionary ..................................... 11.40%
Consumer Staples ........................................... 8.20%
Energy ..................................................... 9.67%
Financials ................................................. 17.26%
Health Care ................................................ 8.37%
Industrials ................................................ 11.37%
Information Technology ..................................... 4.78%
Materials .................................................. 4.06%
Telecommunication Services ................................. 8.98%
Utilities .................................................. 3.98%
Short Term Investments ..................................... 20.00%
Liabilities, Net of Other Assets ........................... (8.07)%
------
100.00%
======
See accompanying notes
11
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2008 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS:
Investments in unaffiliated securities, at value (A C) ........ $ 1,403,380
Investments in affiliated securities, at value (B) ............ 26,918
Foreign currency, at value (D) ................................ 1,805
Deposit with brokers for futures contracts .................... 18,055
Receivable for investments sold ............................... 7,383
Dividends and interest receivable ............................. 3,786
Receivable for fund shares sold ............................... 2,551
Receivable for tax reclaims ................................... 350
Prepaid expenses .............................................. 66
-----------
TOTAL ASSETS ............................................... 1,464,294
-----------
LIABILITIES:
Payable for investments purchased ............................. 2,382
Payable upon return of securities loaned ...................... 116,188
Payable for fund shares redeemed .............................. 9,595
Payable for variation margin on open futures contracts ........ 376
Management and investment advisory fees payable (Note 2) ...... 1,696
Administrative service and service fees payable ............... 393
Net unrealized depreciation on foreign currency contracts ..... 9,793
Other liabilities ............................................. 355
-----------
TOTAL LIABILITIES .......................................... 140,778
-----------
NET ASSETS ....................................................... $1,323,516
===========
ANALYSIS OF NET ASSETS:
Paid-in-capital ............................................... 1,639,461
Undistributed net investment income ........................... 70,764
Accumulated net realized gain ................................. 16,087
Unrealized depreciation of investments, futures contracts,
and foreign currency ....................................... (402,796)
-----------
NET ASSETS ....................................................... $1,323,516
===========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class ........................................... 43,205,488
===========
PlanAhead Class ............................................... 32,922,805
===========
Service Class ................................................. 120,172
===========
AMR Class ..................................................... 24,768,412
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class ........................................... $ 13.13
===========
PlanAhead Class ............................................... $ 12.95
===========
Service Class ................................................. $ 12.86
===========
AMR Class ..................................................... $ 13.25
===========
- ----------
(A) Cost of investments in unaffiliated securities ............... $ 1,777,565
(B) Cost of investments in affiliated securities ................. $ 26,918
(C) Market value of securities on loan ........................... $ 109,821
(D) Cost of foreign currency ..................................... $ 1,800
See accompanying notes
12
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2008 (IN THOUSANDS)
INVESTMENT INCOME:
Dividend income from unaffiliated securities
(net of foreign taxes)* .................................... $ 82,911
Dividend income from affiliated securities .................... 833
Interest income ............................................... 1,084
Income derived from securities lending, net ................... 3,481
-----------
TOTAL INVESTMENT INCOME ................................. 88,309
-----------
EXPENSES:
Management and investment advisory fees (Note 2) .............. 8,364
Administrative service fees (Note 2):
Institutional Class ........................................ 2,862
PlanAhead Class ............................................ 1,940
Service Class .............................................. 8
AMR Class .................................................. 25
Transfer agent fees:
Institutional Class ........................................ 63
PlanAhead Class ............................................ 70
Service Class .............................................. 1
AMR Class .................................................. 20
Custody and fund accounting fees .............................. 892
Professional fees ............................................. 59
Registration fees and expenses ................................ 74
Service fees:
PlanAhead Class (Note 2) ................................... 1,907
Service Class (Note 2) ..................................... 8
Distribution fees - Service Class (Note 2) .................... 8
Prospectus and shareholder reports ............................ 172
Other expenses ................................................ 237
-----------
TOTAL EXPENSES .......................................... 16,710
-----------
NET INVESTMENT INCOME ............................................ 71,599
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments ................................................ (72,684)
Commission recapture (Note 1) .............................. 60
Foreign currency transactions .............................. 126,900
Futures contracts .......................................... (21,213)
Change in net unrealized appreciation or depreciation of:
Investments ................................................ (987,972)
Foreign currency translations .............................. (322,358)
Futures contracts .......................................... (19,451)
-----------
NET LOSS ON INVESTMENTS ................................. (1,296,718)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............. $(1,225,119)
===========
* Foreign taxes ............................................... $ 8,817
See accompanying notes
13
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
STATEMENT OF CHANGES OF NET ASSETS (IN THOUSANDS)
Year Ended Year Ended
October 31, October 31,
2008 2007
----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................... $ 71,599 $ 78,060
Net realized gain on investments, futures contracts,
and foreign currency transactions .................... 33,063 314,273
Change in net unrealized appreciation or (depreciation)
of investments, futures contracts, and foreign
currency translations ................................ (1,329,781) 217,790
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ (1,225,119) 610,123
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class .................................. (40,937) (31,129)
PlanAhead Class ...................................... (20,913) (14,581)
Service Class ........................................ (105) (64)
AMR Class ............................................ (18,454) (12,610)
Net realized gain on investments:
Institutional Class .................................. (155,609) (114,385)
PlanAhead Class ...................................... (87,859) (59,491)
Service Class ........................................ (482) (327)
AMR Class ............................................ (63,681) (41,178)
----------- -----------
NET DISTRIBUTIONS TO SHAREHOLDERS ................. (388,040) (273,765)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares ........................... 443,828 572,603
Reinvestment of dividends and distributions ............. 366,395 259,288
Cost of shares redeemed ................................. (1,148,081) (783,879)
Redemption fees ......................................... 868 505
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS ................................ (336,990) 48,517
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ...................... (1,950,149) 384,875
----------- -----------
NET ASSETS:
Beginning of period ..................................... 3,273,665 2,888,790
----------- -----------
END OF PERIOD * ......................................... $ 1,323,516 $3,273,665
=========== ===========
*Includes undistributed net investment income of ........... $ 70,764 $ 81,197
=========== ===========
See accompanying notes
14
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, (the
"Act"), as amended as a no load, diversified, open-end management investment
company. These financial statements and notes to the financial statements relate
to the American Beacon International Equity Fund (the "Fund"), a series of the
Trust.
Effective September 12, 2008, American Beacon Advisors, Inc. (the
"Manager") became a wholly-owned subsidiary of Lighthouse Holdings, Inc., which
is indirectly owned by investment funds affiliated with Pharos Capital Group,
LLC and TPG Capital, L.P., two leading private equity firms. Prior to September
12, the Manager was a wholly-owned subsidiary of AMR Corporation ("AMR"), the
parent company of American Airlines, Inc. ("American").
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:
- ------ -----------
INSTITUTIONAL CLASS Investors making an initial investment of $2 million
PLANAHEAD CLASS General public and investors investing through an
intermediary
SERVICE CLASS Investors investing through an intermediary
AMR CLASS Investors in the tax-exempt retirement and benefit plans
of AMR Corporation and its affiliates
Administrative service fees, service fees and distribution fees vary
amongst the classes as described more fully in footnote 2.
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 Board
of Trustees (the "Board").
15
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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.
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
16
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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.
Recently Issued Accounting Pronouncements
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, 2008, 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.
In March 2008, FASB issued Statement on Financial Accounting Standards
No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("FAS
161"), which is effective for fiscal years and interim
17
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures
about derivative and hedging activities, including how such activities are
accounted for and their effect on financial position, performance and cash
flows. The Manager is currently evaluating the impact the adoption of FAS 161
will have on the Fund's financial statements and related disclosures.
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 amounts paid by
the Manager to sub-advisors hired by the Manager plus, through September 11,
2008, 0.10% of the average daily net assets and from September 12, 2008, 0.05%
of the average daily net assets. Management fees paid during the year ended
October 31, 2008 were as follows (dollars in thousands):
AMOUNTS PAID NET AMOUNTS
MANAGEMENT MANAGEMENT TO INVESTMENT RETAINED BY
FEE RATE FEE ADVISORS MANAGER
- ---------- ---------- ------------- -----------
0.20%-0.60% $8,364 $6,041 $2,323
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, 2008, securities lending fees paid to the Manager
were $459,900.
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 received, through September
11, 2008, an annualized fee of 0.25% of the average daily net assets of the
Institutional, PlanAhead and Service Classes of the Fund. From September 12,
2008, the Manager received an annualized fee of 0.30% of the average daily net
assets of the Institutional, PlanAhead, and Service Classes of the Fund and
0.05% of the average daily net assets of the AMR Class 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
18
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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.
Brokerage Commissions
Affiliated entities of a sub-advisor to the Fund received net
commissions on purchases and sales of the Fund's portfolio securities totaling
$1,171 for the year ended October 31, 2008.
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 up to to 0.10% of its average daily net assets. During the year
ended October 31, 2008, the Manager earned fees from the Affiliated Funds
totaling $53,239 on the Fund's direct investment in the Affiliated Funds and
$53,239 from the Fund's securities lending collateral invested in the Affiliated
Funds.
Interfund Lending Program
Pursuant to an exemptive order by the SEC, the Fund, along with other
registered investment companies having management contracts with the Manager,
may participate in an interfund lending program as a borrower. This program
provides an alternative credit facility allowing the Fund to borrow from other
participating Funds. The Fund did not utilize the credit facility during the
year ended October 31, 2008.
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, 2008, there were no
waived fees or reimbursed expenses subject to potential recovery.
19
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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.
The Fund adopted the provisions of FASB Interpretation No. 48,
"Accounting for Uncertainties in Income Taxes" ("FIN 48), on November 1, 2007.
FIN 48 sets forth a minimum threshold for financial statement recognition of the
benefit of a tax position taken or expected to be taken in a tax return. The
implementation of FIN 48 did not result in any unrecognized tax benefits in the
accompanying financial statements. Each of the tax years in the three year
period ended October 31, 2008 remains subject to examination by the Internal
Revenue Service. If applicable, the Fund recognizes interest accrued related to
unrecognized tax benefits in interest expense and penalties in "Other expenses"
on the Statement of Operations.
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, 2008 and October 31, 2007 were as follows (in thousands):
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2008 2007
----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME*
Institutional Class.. $ 69,221 $ 55,466
PlanAhead Class...... 36,886 27,239
Service Class........ 193 133
AMR Class............ 30,031 21,371
LONG-TERM CAPITAL GAIN
Institutional Class.. 127,324 90,048
PlanAhead Class...... 71,886 46,834
Service Class........ 395 257
AMR Class............ 52,104 32,417
-------- --------
TOTAL DISTRIBUTIONS PAID... $388,040 $273,765
======== ========
* For tax purposes, short-term capital gains are considered ordinary income
distributions.
As of October 31, 2008, the components of distributable earnings on a
tax basis were as follows (in thousands):
Cost basis of investments for federal income tax
purposes ............................................. $1,839,421
Unrealized appreciation ................................. 92,628
Unrealized depreciation ................................. (501,751)
----------
Net unrealized appreciation/(depreciation) .............. (409,123)
Undistributed ordinary income ........................... 61,209
Undistributed long-term gain/(loss) ..................... 27,587
----------
Distributable earnings .................................. $ (320,327)
==========
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
20
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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, 2008 (in thousands):
Paid-in-capital ............................... $ 5,158
Undistributed net investment income ........... (1,623)
Accumulated net realized loss ................. (3,535)
Unrealized 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,
2008 were (in thousands) $719,857 and $1,496,031, respectively.
A summary of the Fund's direct transactions in Affiliated Funds for
the year ended October 31, 2008 is set forth below (in thousands):
OCTOBER 31, 2007 OCTOBER 31, 2008
AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
- --------- ------------------- ---------- ---------- -------------------
Select Fund $71,709 $1,189,401 $1,234,192 $26,918
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. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of the
next business day, following the valuation date of the securities loaned.
Therefore, the value of the collateral held may be temporarily less than the
value of the securities on loan.
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.
Securities lending transactions pose certain risks to the Fund
including that the borrower may not provide additional collateral when required
or return the securities when due, that the value of the short-term investments
will be less than the amount of cash collateral required to be returned to the
borrower, and that the cash collateral investments could become illiquid and
unable to be used to return collateral to the
21
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
borrower. The Fund could also experience delays and costs in gaining access to
the collateral. The Fund bears the risk of any deficiency in the amount of the
collateral available for return to the borrower due to any loss on the
collateral invested.
At October 31, 2008, securities with a market value of approximately
$109,820,708 were loaned by the Fund. Cash collateral held by the custodian for
the Fund in an investment in the Select and other short-term investments totaled
$116,187,599.
At the close of business on October 3, 2008, the Fund redeemed for
cash and securities its shares in the Cash Trust as follows (in thousands):
Cash................................. $33,425
Securities (at market value)......... $31,120
The cash proceeds were invested in other money market funds and the
securities were invested in the Securities Liquidating AB Trust.
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, 2008
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
--------------------- --------------------- ----------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ---------- -------- ---------- ------ -------- ------- ----------
Shares sold ......................... 6,925 $ 137,615 12,711 $ 257,961 40 $ 790 2,312 $ 47,462
Reinvestment of dividends ........... 7,822 177,012 4,768 106,664 26 585 3,605 82,134
Shares redeemed ..................... (33,276) (680,261)* (18,249) (352,680)* (130) (2,617)* (5,574) (111,655)*
------- --------- ------- --------- ---- ------- ------ ---------
Net increase (decrease) in shares
outstanding ...................... (18,529) $(365,634) (770) $ 11,945 (64) $(1,242) 343 $ 17,941
======= ========= ======= ========= ==== ======= ====== =========
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
======= ========= ======= ========= ==== ======= ====== =========
- ----------
* Net of Redemption Fees
22
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Institutional Class
------------------------------------------------------------
Year Ended October 31,
------------------------------------------------------------
2008 2007 2006 2005 2004(A)
-------- ---------- ---------- ---------- ----------
Net asset value, beginning of
period ........................... $ 27.32 $ 24.68 $ 20.98 $ 18.47 $ 15.46
-------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income(B, C) ...... 0.77 0.65 0.60 0.44 0.30
Net gains (losses) on securities
(both realized and
unrealized)(B) ................ (11.60) 4.31 4.86 2.31 3.12
-------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations ....................... (10.83) 4.96 5.46 2.75 3.42
-------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment
income ........................ (0.70) (0.50) (0.43) (0.24) (0.41)
Distributions from net realized
gains on securities ........... (2.66) (1.82) (1.33) -- --
-------- ---------- ---------- ---------- ----------
Total distributions ................. (3.36) (2.32) (1.76) (0.24) (0.41)
-------- ---------- ---------- ---------- ----------
Redemption fees added to
beneficial interest(D) ........... 0.00 0.00 0.00 0.00 0.00
-------- ---------- ---------- ---------- ----------
Net asset value, end of period ...... $ 13.13 $ 27.32 $ 24.68 $ 20.98 $ 18.47
======== ========== ========== ========== ==========
Total return ........................ (44.81)% 21.54% 27.49% 15.04% 22.49%
======== ========== ========== ========== ==========
Ratios and supplemental data:
Net assets, end of period
(in thousands) ................ $567,414 $1,686,668 $1,549,521 $1,286,441 $1,029,272
Ratios to average net assets
(annualized):
Expenses, net of waivers(B) ... 0.66% 0.67% 0.71% 0.70% 0.76%
Expenses, before waivers(B) ... 0.66% 0.67% 0.71% 0.70% 0.76%
Net investment income, net
of waivers(B) .............. 2.91% 2.46% 2.52% 2.17% 1.69%
Net investment income (loss),
before waivers(B) .......... 2.91% 2.46% 2.52% 2.17% 1.69%
Portfolio turnover rate(E)........ 31% 38% 40% 37% 36%
- ----------
(A) The Boston Company Asset Management, LLC was added as an investment advisor
to the International Equity Fund on September 27, 2004.
(B) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the American Beacon International Equity Portfolio through February 28,
2006.
(C) Through October 31, 2005, net investment income per share was calculated by
subtracting class expenses per share from the Fund's net investment income
per share before class expenses.
(D) Amounts represent less than $0.01 per share.
(E) 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 American
Beacon International Equity Portfolio.
23
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
PlanAhead Class
---------------------------------------------------
Year Ended October 31,
---------------------------------------------------
2008 2007 2006 2005 2004(A)
-------- -------- ------- -------- --------
Net asset value, beginning of
period ........................... $ 26.99 $ 24.42 $ 20.79 $ 18.31 $ 15.34
-------- -------- ------- -------- --------
Income from investment operations:
Net investment income(B, C) ...... 0.66 0.58 0.50 0.41 0.26
Net gains (losses) on securities
(both realized and
unrealized)(B) ............... (11.41) 4.26 4.84 2.29 3.08
-------- -------- ------- -------- --------
Total income (loss) from investment
operations ....................... (10.75) 4.84 5.34 2.70 3.34
-------- -------- ------- -------- --------
Less distributions:
Dividends from net investment
income ........................ (0.63) (0.45) (0.38) (0.22) (0.37)
Distributions from net realized
gains on securities ........... (2.66) (1.82) (1.33) -- --
-------- -------- ------- -------- --------
Total distributions ................. (3.29) (2.27) (1.71) (0.22) (0.37)
-------- -------- ------- -------- --------
Redemption fees added to beneficial
interest(D) ...................... 0.00 0.00 0.00 0.00 0.00
-------- -------- ------- -------- --------
Net asset value, end of period ...... $ 12.95 $ 26.99 $ 24.42 $ 20.79 $ 18.31
======== ======== ======= ======== ========
Total return ........................ (44.96)% 21.22% 27.20% 14.73% 22.16%
======== ======== ======= ======== ========
Ratios and supplemental data:
Net assets, end of period
(in thousands) ................ $426,473 $909,385 $771,298 $560,770 $310,540
Ratios to average net assets
(annualized):
Expenses, net of waivers(B) ... 0.92% 0.93% 0.96% 0.95% 1.02%
Expenses, before waivers(B) ... 0.92% 0.93% 0.96% 0.95% 1.02%
Net investment income, net
of waivers(B) .............. 2.82% 2.26% 2.25% 1.96% 1.46%
Net investment income (loss),
before waivers(B) .......... 2.82% 2.26% 2.25% 1.96% 1.46%
Portfolio turnover rate(E) ....... 31% 38% 40% 37% 36%
- ----------
(A) The Boston Company Asset Management, LLC was added as an investment advisor
to the International Equity Fund on September 27, 2004.
(B) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the American Beacon International Equity Portfolio through February 28,
2006.
(C) Through October 31, 2005, net investment income per share was calculated by
subtracting class expenses per share from the Fund's net investment income
per share before class expenses.
(D) Amounts represent less than $0.01 per share.
(E) 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 American
Beacon International Equity Portfolio.
24
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Service Class
----------------------------------------------------
Year Ended October 31,
----------------------------------------------------
2008 2007 2006 2005 2004(A)
------- ------- ------- ------- -------
Net asset value, beginning of period ................. $ 26.83 $ 24.24 $ 20.61 $ 18.24 $ 15.31
------- ------- ------- ------- -------
Income from investment operations:
Net investment income(B, C) ....................... 0.62 0.56 0.46 0.37 0.30
Net gains (losses) on securities (both realized and
unrealized)(B) ................................. (11.35) 4.20 4.76 2.26 2.99
------- ------- ------- ------- -------
Total income (loss) from investment operations ....... (10.73) 4.76 5.22 2.63 3.29
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income .............. (0.58) (0.35) (0.26) (0.26) (0.36)
Distributions from net realized gains on
securities ..................................... (2.66) (1.82) (1.33) -- --
------- ------- ------- ------- -------
Total distributions .................................. (3.24) (2.17) (1.59) (0.26) (0.36)
------- ------- ------- ------- -------
Redemption fees added to beneficial interest(D) ...... 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- -------
Net asset value, end of period ....................... $ 12.86 $ 26.83 $ 24.24 $ 20.61 $ 18.24
======= ======= ======= ======= =======
Total return ......................................... (45.10)% 20.85% 26.89% 14.45% 21.88%
======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands) .......... $ 1,546 $ 4,932 $ 4,740 $ 2,987 $ 739
Ratios to average net assets (annualized):
Expenses, net of waivers(B) .................... 1.19% 1.12% 1.16% 1.21% 1.27%
Expenses, before waivers(B) .................... 1.19% 1.15% 1.19% 1.21% 6.26%
Net investment income, net of waivers(B) ....... 2.36% 2.04% 2.09% 1.70% 0.81%
Net investment income (loss), before
waivers(B) .................................. 2.36% 2.01% 2.05% 1.70% (4.18)%
Portfolio turnover rate(E) ........................ 31% 38% 40% 37% 36%
- ----------
(A) The Boston Company Asset Management, LLC was added as an investment advisor
to the International Equity Fund on September 27, 2004.
(B) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the American Beacon International Equity Portfolio through February 28,
2006.
(C) Through October 31, 2005, net investment income per share was calculated by
subtracting class expenses per share from the Fund's net investment income
per share before class expenses.
(D) Amounts represent less than $0.01 per share.
(E) 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 American
Beacon International Equity Portfolio.
25
AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM)
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
AMR Class
--------------------------------------------------------
Year Ended October 31,
--------------------------------------------------------
2008 2007 2006 2005 2004(A)
-------- -------- -------- -------- --------
Net asset value, beginning of period ................. $ 27.54 $ 24.86 $ 21.12 $ 18.58 $ 15.54
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income(B, C) ....................... 0.72 0.73 0.63 0.50 0.34
Net gains (losses) on securities (both realized and
unrealized)(B) ................................. (11.58) 4.33 4.92 2.33 3.14
-------- -------- -------- -------- --------
Total income (loss) from investment operations........ (10.86) 5.06 5.55 2.83 3.48
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income .............. (0.77) (0.56) (0.48) (0.29) (0.44)
Distributions from net realized gains on
securities ..................................... (2.66) (1.82) (1.33) -- --
-------- -------- -------- -------- --------
Total distributions .................................. (3.43) (2.38) (1.81) (0.29) (0.44)
-------- -------- -------- -------- --------
Redemption fees added to beneficial interest(D) ...... 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Net asset value, end of period ....................... $ 13.25 $ 27.54 $ 24.86 $ 21.12 $ 18.58
======== ======== ======== ======== ========
Total return ......................................... (44.65)% 21.86% 27.88% 15.32% 22.84%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) .......... $328,083 $672,680 $563,231 $448,096 $460,114
Ratios to average net assets (annualized):
Expenses, net of waivers(B) .................... 0.41% 0.42% 0.45% 0.44% 0.49%
Expenses, before waivers(B) .................... 0.41% 0.42% 0.45% 0.44% 0.49%
Net investment income, net of waivers(B) ....... 3.24% 2.77% 2.76% 2.49% 1.97%
Net investment income (loss), before
waivers(B) .................................. 3.24% 2.77% 2.76% 2.49% 1.97%
Portfolio turnover rate(E) ........................ 31% 38% 40% 37% 36%
- ----------
(A) The Boston Company Asset Management, LLC was added as an investment advisor
to the International Equity Fund on September 27, 2004.
(B) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the American Beacon International Equity Portfolio through February 28,
2006.
(C) Through October 31, 2005, net investment income per share was calculated by
subtracting class expenses per share from the Fund's net investment income
per share before class expenses.
(D) Amounts represent less than $0.01 per share.
(E) 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 American
Beacon International Equity Portfolio.
26
AMERICAN BEACON FUNDS
PRIVACY POLICY & FEDERAL TAX INFORMATION
OCTOBER 31, 2008 (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, 2008, which is
designated as qualifying for the dividends-received deduction, was 0.33%.
For shareholders in the Fund, the percentage of dividend income
distributed for the year ended October 31, 2008, which is designated as
qualified dividend income under the Jobs Growth Tax Relief Act of 2003, was
40.06%. Shareholders will receive notification in January 2009 of the percentage
applicable to the preparation of their 2008 income tax returns.
The Fund designated a foreign tax credit of $8,733,025 and recognized
foreign source income of $92,609,303.
Pursuant to Section 852 of the Internal Revenue Code, the Fund
designated $251,708,449 as long-term capital gain dividends for the tax year
ended October 31, 2008.
27
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
At its May 21, 2008 meeting, the Board of Trustees ("Board" or
"Trustees") considered the renewal of the existing Management Agreement
("Current Agreement") between the Manager and the American Beacon Funds ("Beacon
Trust") on behalf of its International Equity Fund (the "Fund") and each
Investment Advisory Agreement between the Manager and a subadvisor ("Current
Investment Advisory Agreement"). In preparation for the Board's consideration to
renew these Current 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 9,
2008 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.
On May 21, May 22 and June 4, 2008, the Board met to determine, among
other matters, whether to approve a new investment management agreement ("New
Agreement") between the Manager and the Fund. The New Agreement was necessary
because, on April 16, 2008, AMR Corporation ("AMR"), the parent company of the
Manager, entered into an agreement with Lighthouse Holdings, Inc. ("Lighthouse")
pursuant to which Lighthouse would acquire all of the capital stock of the
Manager ("Transaction") in exchange for cash and 10% of the capital stock of the
parent corporation of Lighthouse. Upon the closing of the Transaction on
September 12, 2008 ("Closing"), the Manager ceased to be a wholly owned
subsidiary of AMR and became a subsidiary of Lighthouse. This change in control
was deemed to be an "assignment" under the Investment Company Act of 1940 ("1940
Act") of the Fund's Current Agreement with the Manager. As required by the 1940
Act, the Fund's Current Agreement provided for its automatic termination in the
event of an assignment and therefore terminated upon the Closing.
To provide for the continuity of management for the Fund, the Board
met to consider the New Agreement with the Manager. The New Agreement for the
Fund reflects substantially the same terms as the Current Agreement for the
Fund. In addition, the Current Agreement has been updated and modernized. As
part of this process, the primary administrative services provided by the
Manager to the Fund have been transferred to one single administrative services
agreement ("New Administrative Services Agreement"). The Manager previously
provided administrative services to the Fund pursuant to its Current Agreement
and an Administrative Services Agreement ("Current Administrative Services
Agreement"). The aggregate fee rates for the Fund under the New Agreement and
the New Administrative Services Agreement are the same as the fee rates imposed
under the existing agreements which they replaced.
In preparation for the Board's consideration to approve the New
Agreement and New Investment Advisory Agreements, the Board considered the
impact to the Fund once Lighthouse directly controlled the Manager. Lighthouse
indicated that it did not anticipate making any changes to the organization or
structure of the Fund, to the service providers or to the aggregate fee rates
under the Current Agreement. In addition, the portfolio managers at the Manager
that manage the Fund were expected to continue to manage the Fund after the
Closing. In that regard, the Manager and Lighthouse anticipated entering into
employment contracts with certain key personnel performing or overseeing the
Fund's investment program. The Board considered that there could be no assurance
that these personnel would choose to remain employed by the Manager before or
after the Closing. The Board noted that the Manager and the Fund would continue
to operate under their existing names. Potential benefits to the Fund as a
result of the Transaction included Lighthouse's intention to devote additional
resources to product development and distribution of Fund shares. The Board also
considered that any resulting growth of Fund assets would potentially produce
economies of scale that would benefit shareholders of the Fund.
With respect to the Fund, the Manager had entered into Current
Investment Advisory Agreements with various subadvisors on behalf of the Fund.
Upon the Closing, these Current Investment Advisory Agreements terminated
automatically upon the termination of the Current Agreement. Pursuant to an
exemptive order
28
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
issued by the Securities and Exchange Commission ("SEC"), the Manager was
permitted to enter into new or modified investment advisory agreements with the
subadvisors ("New Investment Advisory Agreements") without approval of the
Fund's shareholders, but subject to the approval of the Fund's Board. Each New
Investment Advisory Agreement reflected substantially the same terms as the
Current Investment Advisory Agreement for the Fund.
In preparation for the Board's consideration to approve the New
Agreement and New Investment Advisory Agreements, the Board held preliminary
conference call meetings on April 15, 16 and 21, 2008, to discuss the New
Agreement and New Investment Advisory Agreements and the effect that approving
the New Agreement and New Investment Advisory Agreements would have on the Fund.
The Board received a memorandum and related advice from their independent legal
counsel detailing the Board's responsibilities in considering the New Agreement
and New Investment Advisory Agreements.
In connection with Board's consideration of the Current Agreement,
Current Investment Advisory Agreements, New Agreement and New Investment
Advisory Agreements, the Trustees considered, among other materials, responses
by the Manager and the subadvisors to inquiries requesting:
- a description of the Transaction, the effects of the Transaction on
the Beacon Trust and the Board, and any proposed changes to the Beacon
Trust, its service providers or fee structure and other information;
- 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 Form ADV registration statement with the SEC;
- 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 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 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 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;
29
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
- 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 regard
to the services provided to the Fund.
In addition to the foregoing, the Manager provided the following
information specific to the renewal of the Fund's Current Agreement and the
approval of the Fund's New 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 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
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.
In connection with the Current Agreement, Current Investment Advisory
Agreements, New Agreement and New Investment Advisory Agreements, 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 of shares used for comparative purposes was the class with the longest
performance history, which was 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 Current Agreement, Current Investment
Advisory Agreements, New Agreement and New Investment Advisory Agreements are
each referenced to herein as an "Agreement" and collectively, the "Agreements."
The Trustees also received memoranda from their legal counsel
detailing the Board's responsibilities pertaining to the approval of each
Agreement. These memoranda explained the regulatory requirements surrounding the
Trustees' process for evaluating investment advisors and the terms of the
contracts.
In connection with the Board's consideration of the New Agreement and
each New Investment Advisory Agreement, the Trustees considered, among other
information, the following factors:
(1) The manner in which the Fund's assets are managed will not change as a
result of the Transaction, and the same people who manage the Fund's assets
are expected to continue to do so after the Transaction;
(2) The aggregate fee rates payable by the Fund under the New Agreement and the
New Administrative Services Agreement are the same as the fee rates payable
under the Current Agreement and the Current Administrative Services
Agreement;
(3) The material terms regarding advisory services pursuant to the New
Agreement are substantially the same as the terms of the Current Agreement;
(4) The qualifications of the Manager's personnel who will provide advisory and
administrative services to the Fund are not expected to change;
30
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
(5) The Manager's financial condition and the post-Closing capitalization of
Lighthouse;
(6) The impact of the Transaction on the Manager's day-to-day operations;
(7) The capabilities, experience, corporate structure and capital resources of
Lighthouse;
(8) The long-term business goals of Lighthouse with regard to the Manager and
the Beacon Trust;
(9) Fund shareholders will not bear any costs in connection with the
Transaction, inasmuch as AMR and Lighthouse plan to bear equally the costs,
fees and expenses incurred by the Fund in connection with obtaining
shareholder approval of the New Agreement, the fees and expenses of
accountants and attorneys relating to the Transaction and obtaining
shareholder approval of the New Agreement, the fees and expenses incurred
by the Fund in connection with the Transaction, and the meeting fees of the
Boards for meetings held in connection with the Transaction;
(10) The Fund may realize benefits as a result of the Transaction, including
long-term economies of scale;
(11) The potential for increased costs to the Beacon Trust in order to satisfy
existing obligations under the current Trustees' retirement plan; and
(12) The advisory relationship with each subadvisor would continue in the same
manner as before the Transaction and that each New Investment Advisory
Agreement would be substantially the same as each Current Investment
Advisory Agreement.
Provided below is an overview of the other primary factors the Board
considered at its May 21, May 22 and June 4, 2008 meetings. The Board did not
identify any particular information that was most relevant to its consideration
to renew the Current Agreement and Current Investment Advisory Agreements and
approve the New Agreement and New Investment Advisory Agreements, and each
Trustee may have afforded different weight to the various factors. Legal counsel
to the Non-interested Trustees provided the Board with memoranda regarding its
responsibilities pertaining to the renewal of the Current Agreement and Current
Investment Advisory Agreements and approve the New Agreement and New Investment
Advisory Agreements. Based on its evaluation, the Board unanimously concluded
that the terms of each Current Agreement and Current Investment Advisory
Agreement were reasonable and fair and that the renewal of each Current
Agreement and Current Investment Advisory Agreement was in the best interests of
the Fund and its shareholders. The Board also unanimously concluded that the
terms of the New Agreement and New Investment Advisory Agreements were
reasonable and fair and that the approval of the New Agreement and New
Investment Advisory Contracts was in the best interests of the Fund and its
shareholders.
In determining whether to renew the Current Agreement and the Current
Investment Advisory Agreements and approve the New Agreement and New Investment
Advisory Agreements, the Trustees considered the best interests of the Fund.
While the Current Agreement and Current Investment Advisory Agreements for the
Fund was considered at the Board meetings on May 21, 2008, and the New Agreement
and New Investment Advisory Agreement for the Fund was considered at the
meetings on May 21, May 22 and June 4, 2008, 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 each subadvisor for the Fund; (3) the costs incurred by the
Manager and (to the extent provided) the subadvisors in rendering their services
and their resulting profits or losses; (4) the extent to which economies of
scale have been taken into account in setting each 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 and
Lighthouse regarding certain key aspects of the materials submitted in support
of the renewal.
Nature, Extent and Quality of Services. With respect to the renewal of
the Fund's Current Agreement and the approval of the Fund's New Agreement, the
Board considered: the background and experience of key
31
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
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.
With respect to the renewal of the Current Investment Advisory
Agreements and the approval of the New 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,
determined to renew the Current Agreement and Current Investment Advisory
Agreements, and approve each New Agreement and New Investment Advisory
Agreements for the Fund.
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(es) and peer group. 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.
In considering the renewal of the Current Agreement and the approval
of the New Agreement, the Trustees considered the following additional factors:
(1) the Fund underperformed the peer universe median for the one- and three-year
periods ended March 31, 2008, but outperformed for the five- and ten-year
periods and (2) the expense ratio of the Institutional Class of Fund shares was
lower than its Lipper expense group median.
In considering the renewal of the Current Investment Advisory
Agreements and the approval of the New 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 ("TBC"), the Trustees considered the following
additional factors: (1) Templeton outperformed the peer universe median for the
one-, three-, and five-year periods ended March 31, 2008; (2) Causeway
outperformed the peer universe median for the one-, and five-year periods ended
March 31, 2008 but underperformed for the three-year period; (3) Lazard
underperformed the peer universe median for the one-, three- and five-year
periods ended March 31, 2008; (4) TBC underperformed the peer universe median
for the one-, and three-year periods; (5) 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; and (6) the Manager's recommendation to continue to retain each
subadvisor.
Costs of the Services to be Provided to the Fund and the Projected
Profits to be Realized by the Manager from its Relationship with the Fund. 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. The profits or losses were noted at both an individual Fund level
and at an aggregate level for all Funds. The Board also considered that the
Current and New Agreements for the Beacon Trust stipulate that, to the extent
that a Fund invests all of its investable assets in another registered
investment company (i.e., is a Feeder Fund), 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 Fund, the
difference reflects the greater level of responsibility and regulatory
requirements associated with managing the Fund.
32
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
The Board also noted that the Manager proposed to continue any expense
waivers and reimbursements for the Fund and classes that were in place during
the last fiscal year. 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 certain classes of the Fund may maintain higher expense ratios in order to
compensate third-party distributors.
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 many subadvisory
fee rates. The Board also noted that, for purposes of determining the fee rates
chargeable to the Fund, many subadvisors have agreed to take into account other
assets of AMR and its pension plans that are managed by the subadvisors. Thus,
the Funds are able to receive lower effective fee rates.
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 for the Fund provides for a reasonable
sharing of benefits from any economies of scale with the Fund.
Benefits Derived from the Relationship with the Fund. The Board
considered the "fall-out" or ancillary benefits that accrue to the Manager
and/or the subadvisors as a result of the advisory relationships with the Fund,
including greater exposure in the marketplace with respect to the Manager's or
subadvisor's investment process and expanding the level of assets under
management by the Manager and the subadvisors. The Board also considered that
the Manager's relationship with the Fund 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 Beacon Trust at a relatively low cost.
In this regard, the Board considered that the benefit plans of AMR have invested
substantial assets in the Fund, which helps reduce costs for other Fund
shareholders, just as the investment of other Fund shareholders helps to reduce
costs for AMR's benefit plans. In addition, the Board considered that certain of
the subadvisors reimburse the Manager for certain of its costs relating to
distribution activities for the Fund. The Board also considered that the Fund
did not pay commissions to any affiliated broker-dealer of the Manager during
the most recent fiscal year ended October 31, 2007. Based on the foregoing
information, the Board concluded that the potential benefits accruing to the
Manager and the subadvisors by virtue of its relationships with the Fund appears
to be fair and reasonable.
Conclusion. Based on these and other considerations, the Trustees
concluded that the fees paid to the Manager and the subadvisors under the
Agreements are fair and reasonable, determined that the International Equity
Fund and its shareholders would benefit from the Manager's and subadvisors'
continued management of the Fund, approved the renewal of the Current Agreement
and Current Investment Advisory Agreements and approved the New Agreement and
New Investment Advisory Agreements with respect to the International Equity
Fund.
33
RESULTS OF SHAREHOLDER MEETING
(UNAUDITED)
A special meeting of shareholders of the American Beacon International
Equity Fund (the "Fund") was held on August 22, 2008. The shareholders of the
Fund approved a new investment management agreement between American Beacon
Advisors, Inc. ("ABA") and the Fund. This proposal required a majority of
shareholders of the Fund to achieve a quorum. The following are the results of
the shareholder votes for this proposal:
FOR AGAINST ABSTAIN NON-VOTING
- ---------------- ------------ ------------- --------------
1,191,954,203.59 4,623,609.87 14,131,612.74 637,689,199.77
A special meeting of the shareholders of the American Beacon Funds
(the "Trust") was held on August 22, 2008. The shareholders of the Trust
approved the re-election of five of the current Trustees to the Board of the
American Beacon Trust and to elect three additional Trustees to the Board. This
proposal required a majority of the shareholders of the Trust to vote to achieve
a quorum. The following are the results of the election of each Trustee:
ALAN D. FELD
Affirmative.......... 12,634,553,751.62
Withhold............. 519,818,259.90
W. HUMPHREY BOGART
Affirmative.......... 12,999,746,162.82
Withhold............. 154,625,848.70
BRENDA A. CLINE
Affirmative.......... 13,009,050,779.42
Withhold............. 145,321,232.10
RICHARD A. MASSMAN
Affirmative.......... 13,004,756,096.42
Withhold............. 149,615,915.10
R. GERALD TURNER
Affirmative.......... 13,004,259,224.92
Withhold............. 150,112,786.60
THOMAS M. DUNNING
Affirmative.......... 13,003,350,236.48
Withhold............. 151,021,775.04
EUGENE J. DUFFY
Affirmative.......... 12,985,296,316.39
Withhold............. 169,075,695.13
PAUL J. ZUCCONI
Affirmative.......... 12,985,296,316.39
Withhold............. 169,075,695.13
34
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*
Alan D. Feld** (71) Trustee since 1996 Sole Shareholder of a professional corporation which is a
Partner in the law firm of Akin, Gump, Strauss, Hauer &
Feld, LLP (1960-Present); Director, Clear Channel
Communications (1984-Present); Trustee, CenterPoint
Properties (1994-2006); Member, Board of Trustees, Southern
Methodist University ; Member, Board of Visitors, M.D.
Anderson Hospital; Board of Visitors, Zale/Lipshy Hospital.
NON-INTERESTED TRUSTEES
Term
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (64) Trustee since 2004 Board Member, Baylor University Medical Center Foundation
(1992-2004); Consultant, New River Canada Ltd. (mutual fund
servicing company) (1998-2003); 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).
Brenda A. Cline (47) 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 (1999-2007).
Eugene J. Duffy (54) Trustee since 2008 Principal and Executive Vice President, Paradigm Asset
Management (1994-Present); Director, Sunrise Bank of Atlanta
(2008-Present); Chairman, Special Contributions Fund Board
of Trustees, National Association for the Advancement of
Colored People (2007-Present); Trustee, National Association
for the Advancement of Colored People (2000-Present); Board
of Visitors, Emory University (2006-Present); Trustee,
Atlanta Botanical Garden (2006-Present); Board Member,
Willie L. Brown Jr. Institute on Politics and Public Service
(2001-Present); Chair, National Association of Securities
Professionals (2000-2002); Deputy Chief Administrative
Officer, City of Atlanta (1985-1990).
Thomas M. Dunning (65) Trustee since 2008 Consultant, (2008-Present); Chairman (2003-2008) and Chief
Executive Officer (2003-2007), Lockton Dunning Benefits
(consulting firm in employee benefits); Director, Oncor
Electric Delivery Company LLC; Advisory Director, Comerica
Texas; Immediate Past Chairman and Board Member, Dallas
Citizens Council; Director, Baylor Health Care System
Foundation; State Vice Chair, State Fair of Texas; Board
Member, Southwestern Medical Foundation.
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
- ------------------------ ------------------- ------------------------------------------------------------
Richard A. Massman (65) Trustee since 2004 Senior Vice President and General Counsel, Hunt
Chairman since 2008 Consolidated, Inc. (holding company engaged in oil and gas
exploration and production, refining, real estate, farming,
ranching and venture capital activities) (1994-Present).
Chairman (2007-Present) and Director (2005-Present), The
Dallas Opera Foundation; Chairman (2006-Present) and
Director (2005-Present), Temple Emanu-El Foundation;
Trustee, Presbyterian Hospital Foundation (2006-Present).
R. Gerald Turner (62) 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
(2003-2007); Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory Board;
Co-Chair, Knight Commission on Intercollegiate Athletics.
Paul J. Zucconi,CPA (67) Trustee since 2008 Director, Affirmative Insurance Holdings, Inc. (producer of
nonstandard automobile insurance) (2004-present); Director,
Titanium Metals Corporation (producer of titanium melted and
mill products and sponge) (2002- present); Director,
Torchmark Corporation (life and health insurance products)
(2002-present); Director, National Kidney Foundation of
North Texas (2003-Present); Director, Dallas Chapter of
National Association of Corporate Directors (2004-Present);
Partner, KPMG (1976-2001).
OFFICERS
Term
One Year
William F. Quinn** (60) President from Chairman (2006-Present) and CEO (2006-2007), President
1987 to 2007 (1986-2006) and Director (2003-Present), American Beacon
and 2008 to Present Advisors, Inc.; Chairman (1989-2003) and Director
Executive Vice (1979-1989, 2003-Present), American Airlines Federal Credit
President from Union; Director, Crescent Real Estate Equities,
2007 to 2008 Inc.(1994-2007); Director, Pritchard, Hubble & Herr, LLC
Trustee from (investment advisor) (2001-2006); Director of Investment
1987 to 2008 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 (1995-2008); Trustee, American Beacon
Select Funds (1999-2008); Trustee, American Beacon Master
Trust (1995-2008).
Rosemary K. Behan (49) 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 (48) 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 (42) 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.
36
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
- ------------------------ ------------------- ------------------------------------------------------------
Michael W. Fields (54) VP since 1989 Vice President, Fixed Income Investments, American Beacon
Advisors, Inc. (1988-Present).
Rebecca L. Harris (41) Treasurer since Vice President, Finance, American Beacon Advisors, Inc.
1995 (1995-Present).
Christina E. Sears (37) 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, provided, however, that the Board may determine to grant one or more
annual exemptions to this requirement.
** Mr. Feld is deemed to be an "interested person" of the Trusts, as defined
by the 1940 Act. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld
LLP has provided legal services within the past two fiscal years to the
Manager and one or more of the Trust's and Master Trust's sub-advisors.
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 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
portfolio holdings with the Securities the Fund's Statement of Additional
and Exchange Commission ("SEC") on Information, is available free of
Form N-Q as of the first and third charge on the Fund's website
fiscal quarters. The Fund's Forms N-Q (www.americanbeaconfunds.com) and by
are available on the SEC's website at calling 1-800-967-9009 or by accessing
www.sec.gov. The Forms N-Q may also be the SEC's website at www.sec.gov. The
reviewed and copied at the SEC's Fund's proxy voting record for the most
Public Reference Room, 450 Fifth recent year ended June 30 is filed
Street, NW, Washington, DC 20549. annually with the SEC on Form N-PX. The
Information regarding the operation of Fund's Forms N-PX are available on the
the SEC's Public Reference Room may be SEC's website at www.sec.gov. The
obtained by calling 1-800-SEC-0330. A Fund's proxy voting record may also be
complete schedule of the Fund's obtained by calling 1-800-967-9009.
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 DISTRIBUTOR
STATE STREET BANK BOSTON FINANCIAL REGISTERED PUBLIC FORESIDE FUND
AND TRUST DATA SERVICES ACCOUNTING FIRM SERVICES
Boston, Kansas City, ERNST & YOUNG LLP Portland, Maine
Massachusetts Missouri 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 and American Beacon International Equity
Fund are service marks of American Beacon Advisors, Inc.
AR 10/08
64673
GUIDANCE | VISION | EXPERIENCE
(GRAPHIC)
(AMERICAN BEACON FUNDS(SM) LOGO)
ANNUAL REPORT
OCTOBER 31, 2008
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, 2008
(PHOTO OF WILLIAM F. QUINN)
FELLOW SHAREHOLDERS,
Enclosed is the American Beacon Large Cap Value Fund Annual Report for the
twelve months ended October 31, 2008.
During the past twelve months, we experienced unprecedented market turmoil
in all asset classes. Initially, the sub-prime mortgage crisis and rising oil
and food prices contributed to an economic slowdown that culminated in a
market-wide credit crisis and squeeze on liquidity. The situation reached
once-in-a-lifetime crisis proportions in mid-September with the bankruptcy of
Lehman Brothers, the resulting losses incurred by investors in money market
funds, and the unprecedented government intervention in the financial system.
From September 15th to October 31st, the Dow Jones Industrial Average declined
almost 20% on the threat of a global recession.
The American Beacon Large Cap Value Fund - Institutional Class reported a
return of -39.59% for the one-year period ended October 31, 2008. The S&P 500
and Dow Jones Industrial Average indices reported negative returns of -36.10%
and -31.13%, respectively, for this period.
During these times, it is important to remember that the American Beacon
Large Cap Value Fund's investment strategy is based on long-term investing.
Short-term pain can lead to long-term gains as we saw when positive performance
by our value-oriented Funds followed the burst of the technology bubble earlier
this decade. We believe the Funds' fundamental value investment philosophies and
lower than average expense ratios will continue to serve the Funds well over the
longer term.
Please review the enclosed market overview, portfolio listings, and
detailed financial data. As always, we welcome the opportunity to serve your
financial needs. To obtain further details about the American Beacon Funds
family or to access your account information, please visit our website at
www.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Funds.
Sincerely,
/s/ William F. Quinn
William F. Quinn
President
American Beacon Funds
1
DOMESTIC EQUITY MARKET OVERVIEW
OCTOBER 31, 2008 (UNAUDITED)
The financial crisis that began in August 2007 accelerated into uncharted
territory in 2008, punctuated by the sharp decline in equity prices in October.
Earlier concerns about rising prices for oil, food and commodities were brushed
aside as the credit crisis evolved into a full-blown liquidity crisis. In early
2008, monetary policymakers were very aggressive, ultimately cutting the Fed
Funds rate to 1% as deflation concerns began to displace talk of inflation. The
Federal Reserve ("Fed") was innovative in contending with the financial crisis
by developing (or resurrecting) policy initiatives and lending facilities in
attempts to target liquidity without further pressuring the dollar or adding to
worries regarding inflation. Nevertheless, in the spring of 2008, market
interest rates had once again begun to move against the Fed, this time upward,
as global investors anticipated a pause in, if not a completion of, the Fed's
easing campaign.
Market volatility prevailed in the second and third calendar quarters of
2008. Only a few months back, investors were worried about rising inflation and
the potential for higher interest rates; however, events during the past few
months changed those discussions. The government takeovers of Fannie Mae and
Freddie Mac, the Lehman Brothers bankruptcy, the near demise of insurance giant
American International Group (AIG), government-arranged bank mergers and bank
failures turned the conversations to de-leveraging, deflation and declining
rates. Signs of a recession accelerated as third quarter 2008 Gross Domestic
Product contracted despite the massive policy response. Oil prices fell rapidly
from a high of approximately $145 per barrel during the twelve-month period to
close below $70 per barrel on October 31, 2008, while housing prices saw no
signs of a bottom. Worries of global recession were also pervasive throughout
commodities markets as major indices sold off considerably while the dollar
gained against most currencies. All of this occurred in the midst of a
presidential election with its attendant uncertainties. Investors took note,
driving prices substantially lower in every major equity market over the past
twelve months.
In spite of these events, there are many long-term positives in the U.S.
economy. The biggest one is the flexibility of our system and its ability to
adapt: both policymakers and market participants reacted quickly (and sometimes
overreacted) to changing circumstances. Other factors such as the existence of
insurance safety nets, a still relatively low (though rising) unemployment rate,
technology-driven productivity gains, solid balance sheets for non-financial
companies and improving global competitiveness all factor into a potentially
positive long-term outlook. Consequently, while households and financial firms
have limited borrowing capacity and have received most of the media attention,
non-financial companies are not overburdened by debt and are in a better
position than in past cycles to manage their businesses in a slowing economy.
While the actions taken should help to stem the current crisis, obstacles
remain. However, with the full attention of world central banks, governments and
regulators, fundamentals have the opportunity to prevail as financial markets
make their way through the current uncertainty.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
The Institutional Class of the Large Cap Value Fund returned -39.59% for
the twelve months ended October 31, 2008. The Fund underperformed the Russell
1000(R) Value Index (the "Index") return of -36.80% and the Lipper Large-Cap
Value Funds Index return of -37.16%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/98 THROUGH 10/31/08
(PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF
PERIODS ENDED 10/31/08 $10,000
---------------------------- 10/31/98-
1 YEAR 5 YEARS 10 YEARS 10/31/08
------- ------- -------- ---------
Institutional
Class(1, 4)............. -39.59% 2.44% 2.93% $13,352
PlanAhead Class(1, 4)...... -39.72% 2.19% 2.66% 13,006
Service Class(1, 2, 4)..... -39.87% 2.01% 2.57% 12,891
AMR Class(1, 4)............ -39.43% 2.72% 3.20% 13,703
Lipper Large-Cap
Value Funds
Index(3)................ -37.16% 0.58% 1.05% 11,105
Russell 1000 Value
Index (3)............... -36.80% 1.90% 2.79% 13,165
(1.) Performance shown is historical and may not be indicative of future
returns. Investment returns and principal value will vary, and shares may
be worth more or less at redemption than at original purchase. Performance
shown is as of date indicated, and current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call
1-800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
(2.) Fund performance for the five-year and ten-year periods represents the
total returns achieved by the PlanAhead Class from 10/31/98 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. As a result, total returns shown may be
higher than they would have been had the Service Class been in existence
since 10/31/98. A portion of the fees charged to the Service Class of the
Fund was waived in 2005. Performance prior to waiving fees was lower than
the actual returns shown for 2005.
(3.) The Russell 1000 Value Index is an unmanaged index of those stocks in the
Russell 1000 Index with lower price-to-book ratios and lower forecasted
growth values. Russell 1000 Value Index is a registered trademark of the
Frank Russell Company. 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.
(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 0.60%, 0.84%, 1.08% and 0.33%, 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 primarily through stock selection, and to
a lesser extent through sector allocation.
From a stock selection standpoint, the Fund's holdings in the Financials,
Consumer Staples, Consumer Discretionary, Health Care, Energy, and Industrials
sectors detracted the most value relative to the Index. The companies with the
greatest impact in the Financials sector were American International Group (down
96.9%), Washington Mutual (down 99.8% for the period the Fund owned the
security), and Bear Stearns (down 90.7% for the period the Fund owned the
security). In the Consumer Staples sector, Imperial Tobacco (down 39.4%), Diageo
(down 29.9%), and L'Oreal (down 42.4%) were the largest detractors, as were
Wyndham Worldwide (down 74.9%), CBS (down 64.5%), and JC Penney (down 56.5% for
the period the Fund owned the security) in the Consumer Discretionary sector. In
the Health Care sector, Cigna (down 68.9% for the period the Fund owned the
security), Bristol Myers Squibb (down 27.5% for the period the Fund owned the
security), and Wellpoint (down 50.9%) detracted the most value relative to the
benchmark. ConocoPhillips (down 37.2%), Weatherford International (down 48.0%),
and Sunoco (down 57.6% for the period the Fund owned the security) detracted the
most value in the Energy sector, while Textron (down 74.0%), General Electric
(down 50.6%), and Honeywell
3
PERFORMANCE OVERVIEW
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
International (down 48.6% for the period the Fund owned the security) hurt
performance most in the Industrials sector. Good stock selection in the
Information Technology sector, mostly in IBM (down 18.7% for the period the Fund
owned the security) and Oracle Systems (down 17.5%), added value relative to the
Index but not enough to offset the poor performance from the aforementioned
sectors.
An underweight in Energy, one of the better performing sectors of the
Index, and an overweight in Information Technology, the second-worst performing
sector in the Index, detracted value through sector allocation. This was
somewhat offset by an underweight in Financials, the worst performing sector in
the Index, and an overweight in Consumer Staples, the best performing sector in
the Index, which were positive contributors to the Fund's performance.
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..................................................... 2.9%
International Business Machines Corp............................... 2.8%
JPMorgan Chase & Co................................................ 2.4%
AT&T, Inc.......................................................... 2.1%
Bank of America Corp............................................... 1.8%
Verizon Communications, Inc........................................ 1.8%
Baxter International, Inc.......................................... 1.7%
Dominion Resources, Inc............................................ 1.6%
Hewlett-Packard Co................................................. 1.6%
Diageo plc......................................................... 1.6%
SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials......................................................... 17.5%
Industrials........................................................ 13.3%
Information Technology............................................. 12.9%
Consumer Staples................................................... 12.3%
Health Care........................................................ 11.8%
Energy............................................................. 10.0%
Consumer Discretionary............................................. 7.9%
Utilities.......................................................... 6.1%
Telecommunication Services......................................... 5.0%
Materials.......................................................... 3.2%
4
FUND EXPENSES
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
OCTOBER 31, 2008 (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, 2008
through October 31, 2008.
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.
Ending
Beginning Account Expenses Paid
Account Value Value During Period*
5/1/08 10/31/08 5/1/08-10/31/08
------------- --------- -----------------
INSTITUTIONAL CLASS
Actual $1,000.00 $ 674.31 $2.44
Hypothetical $1,000.00 $1,022.22 $2.95
(5% return before expenses)
PLANAHEAD CLASS
Actual $1,000.00 $ 673.42 $3.49
Hypothetical $1,000.00 $1,020.96 $4.22
(5% return before expenses)
SERVICE CLASS
Actual $1,000.00 $ 672.51 $4.54
Hypothetical $1,000.00 $1,019.71 $5.48
(5% return before expenses)
AMR CLASS
Actual $1,000.00 $ 675.14 $1.39
Hypothetical $1,000.00 $1,023.48 $1.68
(5% return before expenses)
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.58%, 0.83%, 1.08% 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 (366) 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, 2008, 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, 2008, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Beacon Large Cap Value Fund at October 31, 2008, 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 23, 2008
6
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 86.90%
CONSUMER DISCRETIONARY - 6.85%
AUTO COMPONENTS - 0.36%
Gentex Corp. + ................................ 2,365,000 $ 22,680
----------
HOTELS, RESTAURANTS & LEISURE - 0.98%
Carnival Corp. + .............................. 1,941,200 49,306
Wyndham Worldwide Corp. ....................... 1,475,780 12,087
----------
61,393
----------
HOUSEHOLD DURABLES - 0.60%
Fortune Brands, Inc. .......................... 600,500 22,903
Newell Rubbermaid, Inc. ....................... 1,066,400 14,663
----------
37,566
----------
INTERNET & CATALOG RETAIL - 0.08%
eBay, Inc. ## ................................. 317,500 4,848
----------
MEDIA - 2.00%
CBS Corp. + ................................... 2,966,500 28,805
Interpublic Group of Cos., Inc. ## + .......... 966,000 5,014
Time Warner, Inc. ............................. 5,000,000 50,450
Walt Disney Co. Ltd. .......................... 1,183,100 30,642
Warner Music Group Corp. + .................... 2,322,000 9,613
----------
124,524
----------
MULTILINE RETAIL - 1.22%
J.C. Penney Company, Inc. ..................... 1,466,000 35,067
Macy's, Inc. .................................. 741,312 9,111
Target Corp. .................................. 653,800 26,230
Wal-Mart Stores, Inc. ......................... 98,900 5,519
----------
75,927
----------
SPECIALTY RETAIL - 1.61%
Gap, Inc. ..................................... 232,800 3,012
The Home Depot, Inc. .......................... 4,044,367 95,407
Limited Brands, Inc. .......................... 136,100 1,631
----------
100,050
----------
TOTAL CONSUMER DISCRETIONARY 426,988
----------
CONSUMER STAPLES - 10.72%
BEVERAGES - 1.72%
Coca-Cola Co. ................................. 134,900 5,944
Diageo plc, ADR ............................... 1,626,200 101,133
----------
107,077
----------
FOOD & DRUG RETAILING - 1.53%
Safeway, Inc. ................................. 2,161,600 45,977
Sysco Corp. ................................... 1,878,400 49,214
----------
95,191
----------
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
FOOD PRODUCTS - 2.90%
Archer-Daniels-Midland Co. .................... 2,500,000 $ 51,825
ConAgra Foods, Inc. ........................... 2,450,000 42,679
Kellogg Co. ................................... 885,000 44,622
Kraft Foods, Inc. ............................. 1,369,713 39,914
Unilever plc, ADR + ........................... 73,900 1,667
----------
180,707
----------
PERSONAL PRODUCTS - 0.67%
L'Oreal SA .................................... 2,800,000 41,720
----------
TOBACCO - 3.90%
Altria Group, Inc. ............................ 2,256,000 43,293
Imperial Tobacco Group plc, ADR + ............. 1,394,100 74,305
Philip Morris International, Inc. ............. 1,821,000 79,159
UST, Inc. ..................................... 683,500 46,198
----------
242,955
----------
TOTAL CONSUMER STAPLES 667,650
----------
ENERGY - 8.76%
ENERGY EQUIPMENT & SERVICES - 0.71%
Weatherford International Ltd. ## ............. 2,600,000 43,888
----------
OIL & GAS - 8.05%
Chevron Corp. ................................. 1,094,562 81,654
ConocoPhillips ................................ 3,478,296 180,941
Devon Energy Corp. ............................ 1,132,000 91,534
Duke Energy Corp. ............................. 2,260,900 37,034
Exxon Mobil Corp. ............................. 64,100 4,751
Occidental Petroleum Corp. .................... 1,514,700 84,126
Royal Dutch Shell plc, ADR + .................. 342,600 18,942
Sunoco, Inc. + ................................ 90,000 2,745
----------
501,727
----------
TOTAL ENERGY 545,615
----------
FINANCIALS - 15.07%
BANKS - 4.80%
Bank of America Corp. ......................... 4,667,778 112,820
Comerica, Inc. + .............................. 64,300 1,774
East West Bancorp, Inc. + ..................... 2,068,000 35,880
KeyCorp + ..................................... 425,674 5,206
National City Corp. ........................... 3,072,700 8,296
Synovus Financial Corp. + ..................... 4,516,000 46,650
U.S. Bancorp .................................. 744,560 22,195
Wachovia Corp. + .............................. 1,537,800 9,857
Washington Mutual, Inc. + ..................... 1,765,000 110
Wells Fargo & Co. ............................. 695,900 23,696
See accompanying notes
7
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
Zions Bancorporation + ........................ 852,797 $ 32,500
----------
298,984
----------
DIVERSIFIED FINANCIALS - 7.36%
American Express Co. .......................... 1,748,300 48,078
Capital One Financial Corp. + ................. 1,207,400 47,233
Charles Schwab Corp. .......................... 247,620 4,734
Citigroup, Inc. ............................... 5,134,138 70,081
Discover Financial Services ................... 278,050 3,406
JP Morgan Chase & Co. ......................... 3,598,898 148,455
Merrill Lynch & Co., Inc. ..................... 2,281,900 42,421
Mitsubishi UFJ Financial Group, Inc., ADR + ... 8,256,000 51,765
Morgan Stanley Dean Witter & Co. + ............ 949,000 16,579
SLM Corp. ## + ................................ 2,435,500 25,987
----------
458,739
----------
INSURANCE - 2.91%
ACE Ltd. ...................................... 1,025,600 58,829
Aflac, Inc. ................................... 779,000 34,494
American International Group, Inc. + .......... 2,397,100 4,579
Conseco, Inc. ## + ............................ 330,700 615
Genworth Financial, Inc. ...................... 669,400 3,240
Hartford Financial Services Group, Inc. ....... 655,450 6,764
Lincoln National Corp. ## ..................... 60,400 1,041
MetLife, Inc. ................................. 630,159 20,934
Prudential Financial, Inc. .................... 36,000 1,080
Travelers Cos., Inc. .......................... 731,800 31,138
UnumProvident Corp. ........................... 32,600 514
XL Capital Ltd. + ............................. 1,845,400 17,900
----------
181,128
----------
TOTAL FINANCIALS 938,851
----------
HEALTH CARE - 10.25%
HEALTH CARE EQUIPMENT & SUPPLIES - 1.68%
Baxter International, Inc. .................... 1,735,800 104,998
----------
HEALTH CARE PROVIDERS & SERVICES - 1.48%
Cigna Corp. ................................... 1,167,300 19,027
UnitedHealth Group, Inc. ...................... 684,700 16,248
Universal Health Services, Inc. + ............. 624,130 26,238
WellPoint, Inc. ## ............................ 788,800 30,661
----------
92,174
----------
PHARMACEUTICALS - 7.09%
Amgen, Inc. ## ................................ 343,200 20,554
Bristol-Myers Squibb Co. ...................... 3,901,000 80,166
Eli Lilly & Co. ............................... 1,616,500 54,670
Hospira, Inc. ## .............................. 1,143,000 31,798
Johnson & Johnson ............................. 535,700 32,860
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
Merck & Co., Inc. ............................. 822,600 $ 25,460
Pfizer, Inc. .................................. 5,664,000 100,309
Schering-Plough Corp. ......................... 869,700 12,602
Wyeth Corp. ................................... 2,579,800 83,018
----------
441,437
----------
TOTAL HEALTH CARE 638,609
----------
INDUSTRIALS - 11.56%
AEROSPACE & DEFENSE - 3.77%
Boeing Co. .................................... 1,770,400 92,539
Northrop Grumman Corp. ........................ 1,049,900 49,230
Raytheon Co. .................................. 1,097,100 56,072
United Technologies Corp. ..................... 678,400 37,285
----------
235,126
----------
AIR FREIGHT & COURIERS - 0.42%
FedEx Corp. ................................... 402,800 26,331
----------
INDUSTRIAL CONGLOMERATES - 3.54%
3M Co. ........................................ 639,900 41,146
General Electric Co. .......................... 4,195,600 81,856
Honeywell International, Inc. ................. 2,418,825 73,653
Textron, Inc. ................................. 881,200 15,597
Tyco International Ltd. ....................... 326,200 8,247
----------
220,499
----------
MACHINERY - 3.12%
Caterpillar, Inc. ............................. 796,500 30,402
Deere & Co. ................................... 1,039,000 40,064
Eaton Corp. ................................... 430,400 19,196
Illinois Tool Works, Inc. ..................... 1,727,900 57,695
ITT Industries, Inc. .......................... 930,300 41,398
PACCAR, Inc. .................................. 183,000 5,351
----------
194,106
----------
TRANSPORTATION INFRASTRUCTURE - 0.71%
Burlington Northern Santa Fe Corp. ............ 499,000 44,441
----------
TOTAL INDUSTRIALS 720,503
----------
INFORMATION TECHNOLOGY - 11.22%
COMMUNICATIONS EQUIPMENT - 0.38%
Alcatel-Lucent, ADR ........................... 1,511,200 3,884
Nokia Corp., ADR + ............................ 1,317,200 19,995
----------
23,879
----------
COMPUTERS & PERIPHERALS - 6.48%
Apple Computer, Inc. ## + ++ .................. 640,000 68,857
EMC Corp. ## .................................. 4,765,000 56,132
Hewlett-Packard Co. ........................... 2,647,200 101,335
See accompanying notes
8
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
International Business Machines Corp. ......... 1,907,300 $ 177,322
----------
403,646
----------
ELECTRICAL EQUIPMENT - 0.43%
Molex, Inc. ................................... 339,000 4,885
Molex, Inc. ................................... 1,688,000 21,674
----------
26,559
----------
ELECTRONIC COMPONENTS - 0.49%
Thomas & Betts Corp. ## ....................... 1,285,000 30,519
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.95%
Intel Corp. ................................... 3,196,300 51,141
Tyco Electronics Ltd. ......................... 419,500 8,155
----------
59,296
----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.70%
Texas Instruments, Inc. ....................... 2,231,000 43,638
----------
SOFTWARE - 1.79%
CA, Inc. ...................................... 1,087,903 19,365
Microsoft Corp. ............................... 683,400 15,260
Oracle Corp. ## ............................... 4,198,700 76,794
----------
111,419
----------
TOTAL INFORMATION TECHNOLOGY 698,956
----------
MATERIALS - 2.78%
CHEMICALS - 2.76%
Air Products & Chemicals, Inc. ................ 1,269,200 73,779
Dow Chemical Co. .............................. 1,150,300 30,678
E. I. du Pont de Nemours & Co. ................ 1,243,600 39,795
Eastman Chemical Co. + ........................ 23,800 961
PPG Industries, Inc. .......................... 536,700 26,610
----------
171,823
----------
METALS & MINING - 0.02%
Alcoa, Inc. ## ................................ 105,500 1,214
----------
TOTAL MATERIALS 173,037
----------
TELECOMMUNICATION SERVICES - 4.38%
DIVERSIFIED TELECOMMUNICATION - 4.38%
AT&T, Inc. ++ ................................. 4,989,152 133,560
Fairpoint Communications, Inc. + .............. 42,246 168
Verizon Communications, Inc. .................. 3,683,746 109,297
Vodafone Group plc, ADR ....................... 1,550,000 29,868
----------
TOTAL TELECOMMUNICATION SERVICES 272,893
----------
SHARES VALUE
----------- ----------
(DOLLARS IN THOUSANDS)
UTILITIES - 5.31%
ELECTRIC UTILITIES - 4.44%
CenterPoint Energy, Inc. ...................... 1,906,600 $ 21,964
Constellation Energy Group, Inc. + ............ 319,400 7,733
Dominion Resources, Inc. + .................... 2,813,900 102,088
Entergy Corp. ................................. 542,400 42,334
Exelon Corp. .................................. 590,600 32,034
FPL Group, Inc. ............................... 1,182,000 55,838
Public Service Enterprise Group, Inc. ......... 513,500 14,455
----------
276,446
----------
GAS UTILITIES - 0.87%
Spectra Energy Corp. .......................... 2,813,500 54,385
----------
TOTAL UTILITIES 330,831
----------
TOTAL COMMON STOCKS 5,413,933
----------
CONVERTIBLE PREFERRED STOCKS - 0.16%
FINANCIALS - 0.16%
BANKS - 0.16%
East West Bancorp, Inc. ....................... 8,763 9,862
----------
SHORT TERM INVESTMENTS - 13.14%
American Beacon Money Market Select Fund # .... 362,064,360 362,064
Columbia Treasury Reserves Fund ............... 396,524,533 396,525
PAR
AMOUNT
-----------
U.S. Treasury,
0.41%, Due 12/11/2008 ++ ................... $ 60,038 59,973
----------
TOTAL SHORT TERM INVESTMENTS 818,562
----------
SHARES
-----------
SECURITIES LENDING COLLATERAL - 5.63%
American Beacon Money Market Select Fund # .... 51,465,149 51,465
Securities Liquidating AB Trust ............... 175,990,482 173,619
State Street Navigator Securities Lending
Prime Portfolio ............................ 125,553,664 125,554
----------
TOTAL SECURITIES LENDING COLLATERAL 350,638
----------
TOTAL INVESTMENTS 105.83% - (COST $8,513,783) 6,592,995
LIABILITIES, NET OF OTHER ASSETS - (5.83%) (363,348)
----------
TOTAL NET ASSETS - 100.00% $6,229,647
==========
See accompanying notes
9
AMERICAN BEACON LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
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, 2008.
++ At October 31, 2008, security pledged as collateral for open futures
contracts.
# The Fund is affiliated by having the same investment advisor.
FUTURES CONTRACTS
(DOLLARS IN THOUSANDS)
UNREALIZED
NUMBER OF EXPIRATION MARKET APPRECIATION/
CONTRACTS DATE VALUE (DEPRECIATION)
--------- ---------- -------- --------------
Emini S&P 500 Index .... 8,111 Dec 2008 $392,289 $(102,034)
======== =========
See accompanying notes
10
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2008 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS:
Investments in unaffiliated securities, at value (A C) ...... $ 6,179,466
Investments in affiliated securities, at value B ............ 413,529
Receivable for investments sold ............................. 8,277
Dividends and interest receivable ........................... 11,982
Receivable for fund shares sold ............................. 10,723
Receivable for tax reclaims ................................. 119
Receivable for variation margin on open futures contracts ... 2,352
Prepaid expenses ............................................ 179
------------
TOTAL ASSETS ............................................. 6,626,627
------------
LIABILITIES:
Payable for investments purchased ........................... 26,022
Payable upon return of securities loaned .................... 353,010
Payable for fund shares redeemed ............................ 9,497
Management and investment advisory fees payable (Note 2) .... 5,206
Administrative service and service fees payable ............. 2,297
Other liabilities ........................................... 948
------------
TOTAL LIABILITIES ........................................ 396,980
------------
NET ASSETS ..................................................... $ 6,229,647
============
ANALYSIS OF NET ASSETS:
Paid-in-capital ............................................. 9,288,234
Undistributed net investment income ......................... 133,193
Accumulated net realized loss ............................... (1,168,958)
Unrealized depreciation of investments, futures contracts,
and foreign currency ..................................... (2,022,822)
------------
NET ASSETS ..................................................... $ 6,229,647
============
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class ......................................... 135,804,760
============
PlanAhead Class ............................................. 251,609,451
============
Service Class ............................................... 7,007,430
============
AMR Class ................................................... 33,419,432
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class ......................................... $ 15.01
============
PlanAhead Class ............................................. $ 14.29
============
Service Class ............................................... $ 14.19
============
AMR Class ................................................... $ 14.88
============
- ----------
(A) Cost of investments in unaffiliated securities ............. $ 8,100,254
(B) Cost of investments in affiliated securities ............... $ 413,529
(C) Market value of securities on loan ......................... $ 355,140
See accompanying notes
11
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2008 (IN THOUSANDS)
INVESTMENT INCOME:
Dividend income from unaffiliated securities (net of foreign
taxes)* .................................................. $ 209,773
Dividend income from affiliated securities .................. 16,677
Interest income ............................................. 822
Income derived from securities lending, net ................. 2,806
------------
TOTAL INVESTMENT INCOME ............................... 230,078
------------
EXPENSES:
Management and investment advisory fees (Note 2) ............ 23,405
Administrative service fees (Note 2):
Institutional Class ...................................... 6,624
PlanAhead Class .......................................... 12,471
Service Class ............................................ 274
AMR Class ................................................ 35
Transfer agent fees:
Institutional Class ...................................... 148
PlanAhead Class .......................................... 246
Service Class ............................................ 5
AMR Class ................................................ 26
Custody and fund accounting fees ............................ 692
Professional fees ........................................... 132
Registration fees and expenses .............................. 123
Service fees:
PlanAhead Class (Note 2) ................................. 12,209
Service Class (Note 2) ................................... 268
Distribution fees - Service Class (Note 2) .................. 268
Prospectus and shareholder reports .......................... 1,144
Other expenses .............................................. 619
------------
TOTAL EXPENSES ........................................ 58,689
------------
NET INVESTMENT INCOME .......................................... 171,389
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments .............................................. (923,625)
Commission recapture (Note 1) ............................ 245
Futures contracts ........................................ (225,334)
Change in net unrealized appreciation or depreciation of:
Investments .............................................. (2,925,482)
Futures contracts ........................................ (106,413)
------------
NET LOSS ON INVESTMENTS ............................... (4,180,609)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $ (4,009,220)
============
* Foreign taxes ............................................. $ 345
See accompanying notes
12
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
STATEMENT OF CHANGES OF NET ASSETS (IN THOUSANDS)
Year Ended Year Ended
October 31, October 31,
2008 2007
------------ -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ....................................... $ 171,389 $ 120,501
Net realized gain (loss) on investments, futures contracts,
and foreign currency transactions ........................ (1,148,714) 254,832
Change in net unrealized appreciation or (depreciation) of
investments, futures contracts, and foreign currency
translations ............................................. (3,031,895) 458,866
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ......................................... (4,009,220) 834,199
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class ...................................... (41,356) (14,678)
PlanAhead Class .......................................... (76,907) (35,816)
Service Class ............................................ (1,578) (422)
AMR Class ................................................ (16,885) (13,818)
Net realized gain on investments:
Institutional Class ...................................... (71,604) (28,455)
PlanAhead Class .......................................... (153,834) (78,015)
Service Class ............................................ (3,382) (1,093)
AMR Class ................................................ (26,071) (23,934)
----------- -----------
NET DISTRIBUTIONS TO SHAREHOLDERS ..................... (391,617) (196,231)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares ............................... 3,966,783 4,667,772
Reinvestment of dividends and distributions ................. 370,495 185,535
Cost of shares redeemed ..................................... (2,471,194) (1,336,091)
----------- -----------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS ....................................... 1,866,084 3,517,216
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS .......................... (2,534,753) 4,155,184
----------- -----------
NET ASSETS:
Beginning of period ......................................... 8,764,400 4,609,216
----------- -----------
END OF PERIOD * ............................................. $ 6,229,647 $ 8,764,400
=========== ===========
* Includes undistributed net investment income of .............. $ 133,193 $ 98,502
=========== ===========
See accompanying notes
13
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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.
Effective September 12, 2008, American Beacon Advisors, Inc. (the
"Manager") became a wholly-owned subsidiary of Lighthouse Holdings, Inc., which
is indirectly owned by investment funds affiliated with Pharos Capital Group,
LLC and TPG Capital, L.P., two leading private equity firms. Prior to September
12, the Manager was a wholly-owned subsidiary of AMR Corporation ("AMR"), the
parent company of American Airlines, Inc. ("American").
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:
- ------ ---------------------------------------------------------------------------
INSTITUTIONAL CLASS Investors making an initial investment of $2 million
PLANAHEAD CLASS General public and investors investing through an intermediary
SERVICE CLASS Investors investing through an intermediary
AMR CLASS Investors in the tax-exempt retirement and benefit plans of AMR Corporation
and its affiliates
Administrative service fees, service fees and distribution fees vary
amongst the classes as described more fully in footnote 2.
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 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(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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
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, 2008, 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.
In March 2008, FASB issued Statement on Financial Accounting Standards
No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("FAS
161"), which is effective for fiscal years and interim periods beginning after
November 15, 2008. FAS 161 requires enhanced disclosures about derivative and
hedging activities, including how such activities are accounted for and their
effect on financial position, performance and cash flows. The Manager is
currently evaluating the impact the adoption of FAS 161 will have on the Fund's
financial statements and related disclosures.
Other
Under the Trust's organizational documents, its officers and directors
are indemnified against certain liability arising out of the performance of
their duties to the Trust. In the normal course of business, the Trust enters
into contracts that provide indemnification to the other party or parties
against potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Trust and the Manager are parties to a Management Agreement that
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory, fund management, and securities lending services.
Investment assets of the Fund are managed by multiple investment advisors which
have entered into separate investment advisory agreements with the Manager. As
compensation for performing the duties required under the Management Agreement,
the Manager receives from the Fund an annualized fee equal to amounts paid by
the Manager to sub-advisors hired by the Manager plus, through September 11,
2008, 0.10% of the average daily net assets, and from September 12, 2008, 0.05%
of the average daily net assets. Management fees paid during the year ended
October 31, 2008 were as follows (dollars in thousands):
AMOUNTS PAID TO NET AMOUNTS
MANAGEMENT MANAGEMENT INVESTMENT RETAINED BY
FEE RATE FEE ADVISORS MANAGER
- ------------ ---------- --------------- -----------
0.175%-0.70% $23,405 $15,533 $7,872
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
16
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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, 2008, securities lending fees paid to the Manager were $481,098.
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 received, through September
11, 2008, an annualized fee of 0.25% of the average daily net assets of the
Institutional, PlanAhead and Service Classes of the Fund. From September 12,
2008, the Manager received an annualized fee of 0.30% of the average daily net
assets of the Institutional, PlanAhead, and Service Classes of the Fund and
0.05% of the average daily net assets of the AMR Class 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, 2008, the Manager earned fees from the Affiliated
Funds totaling $505,759 on the Fund's direct investment in the Affiliated Funds
and $377,768 from the Fund's securities lending collateral invested in the
Affiliated Funds.
17
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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. During the year ended October 31, 2008, 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, 2008, there were no
waived fees or reimbursed expenses subject to potential recovery.
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.
The Fund adopted the provisions of FASB Interpretation No. 48,
"Accounting for Uncertainties in Income Taxes" ("FIN 48"), on November 1, 2007.
FIN 48 sets forth a minimum threshold for financial statement recognition of the
benefit of a tax position taken or expected to be taken in a tax return. The
implementation of FIN 48 did not result in any unrecognized tax benefits in the
accompanying financial statements. Each of the tax years in the three year
period ended October 31, 2008 remains subject to examination by the Internal
Revenue Service. If applicable, the Fund recognizes interest accrued related to
unrecognized tax benefits in interest expense and penalties in "Other expenses"
on the Statement of Operations.
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, 2008 and October 31, 2007 were as follows (in thousands):
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2008 2007
----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME*
Institutional Class ................... $ 65,641 $ 20,725
PlanAhead Class ....................... 129,081 52,395
Service Class ......................... 2,725 18,904
AMR Class ............................. 25,728 654
LONG-TERM CAPITAL GAIN
Institutional Class ................... 47,318 22,407
PlanAhead Class ....................... 101,660 61,436
Service Class ......................... 2,235 18,849
AMR Class ............................. 17,229 861
-------- --------
TOTAL DISTRIBUTIONS PAID .................... $391,617 $196,231
======== ========
* For tax purposes, short-term capital gains are considered ordinary income
distributions.
As of October 31, 2008, the components of distributable earnings on a
tax basis were as follows (in thousands):
18
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
Cost basis of investments for federal income tax purposes $ 8,740,142
Unrealized appreciation ................................. 147,690
Unrealized depreciation ................................. (2,294,837)
-----------
Net unrealized appreciation/(depreciation) .............. (2,147,147)
Undistributed ordinary income ........................... 133,193
Undistributed long-term gain/(loss) ..................... (1,044,692)
-----------
Distributable earnings .................................. $(3,058,646)
===========
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, 2008 (in thousands):
Paid-in-capital.................................................................................... $ 13
Undistributed net investment income................................................................ 28
Accumulated net realized gain (loss)............................................................... (41)
Unrealized appreciation (depreciation) of investments, futures contracts and foreign currency...... --
At October 31, 2008 the capital loss carry forward position for
federal income tax purposes was $1,044,692 expiring in 2016. (in thousands)
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, 2008 were (in
thousands) $3,108,204 and $2,167,143, respectively.
A summary of the Fund's direct ownership and transactions in
Affiliated Funds for the year ended October 31, 2008 is set forth below (in
thousands):
OCTOBER 31, 2007 OCTOBER 31, 2008
AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
- --------- ------------------- ---------- ---------- -------------------
Select Fund $389,578 $4,566,345 $4,593,859 $362,064
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
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 money market mutual funds, and other short-term
investments, provided the investments meet certain quality and diversification
requirements. It is the Fund's policy to obtain additional collateral from or
return excess collateral to the borrower by the end of the next business day,
following the valuation of the collateral held may be temporarily less than the
19
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
value of the securities on loan. The amount of this temporary difference at
October 31, 2008 is disclosed as the calculated mark in the table below.
Prior to June 1, 2008, 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. From June 1, 2008, 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, borrowers pay the Fund negotiated lenders' fees, which are
divided between the Fund, the Agent, and the Manager using the same percentages
as above. 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.
Securities lending transactions pose certain risks to the Fund,
including that the borrower may not provide additional collateral when required
or return the securities when due, that the value of the short-term investments
will be less than the amount of cash collateral required to be returned to the
borrower, and that the cash collateral investments could become illiquid and
unable to be used to return collateral to the borrower. The Fund could also
experience delays and costs in gaining access to the collateral. The Fund bears
the risk of any deficiency in the amount of the collateral available for return
to the borrower due to any loss on the collateral invested.
At October 31, 2008, the value of outstanding securities on loan and
the value of collateral was as follows (in thousands):
MARKET VALUE OF NON-CASH CASH COLLATERAL UNREALIZED LOSS ON CALCULATED TOTAL VALUE OF
SECURITIES ON LOAN COLLATERAL POSTED BY BORROWER CASH COLLATERAL MARK COLLATERAL
- ------------------ ---------- ------------------ ------------------ ---------- --------------
$355,140 $-- $353,009 $(2,371) $12,754 $363,392
Cash collateral was invested in a joint investment account, which is
comprised of an investment in the Select Fund and other short-term investments.
The underlying securities allocated to the Fund are stated at market value and
have been included as investments on the Schedule of Investments and Statement
of Assets and Liabilities. Income earned on these investments is reported as
Income derived from securities lending and unrealized losses are included in the
Change in unrealized appreciation and depreciation of investments on the Fund's
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.
At the close of business on October 9, 2008, the joint investment
account in which the Fund invests redeemed for cash and securities on behalf of
the Fund its shares in the Cash Trust. Cash in the amount of $167,670 and
securities (at market value) of $156,209 were received (in thousands). The cash
proceeds were invested in other money market funds and the securities were
invested in the Securities Liquidating AB Trust.
20
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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, 2008
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
-------------------- --------------------- ----------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ----------- ------- ----------- ------ -------- ------- ---------
Shares sold ...................... 72,124 $1,522,430 113,619 $ 2,297,576 5,559 $111,669 1,693 $ 35,108
Reinvestment of dividends ........ 4,204 99,590 9,867 222,989 220 4,960 1,833 42,956
Shares redeemed .................. (36,318) (729,713) (81,231) (1,524,704) (2,814) (55,162) (7,797) (161,615)
------- ---------- ------- ----------- ------ -------- ------ ---------
Net increase (decrease) in
shares outstanding ............ 40,010 $ 892,307 42,255 $ 995,861 2,965 $ 61,467 (4,271) $ (83,551)
======= ========== ======= =========== ====== ======== ====== =========
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)
====== ========== ======= ========== ===== ======== ======= =========
21
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class PlanAhead Class
---------------------------------------------------- -----------------------------------
Year Ended October 31, Year Ended October 31,
---------------------------------------------------- -----------------------------------
2008 2007 2006 2005 2004 2008 2007 2006
---------- ---------- -------- -------- ------- ---------- ---------- ----------
Net asset value,
beginning of period .................. $ 26.03 $ 23.77 $ 21.00 $ 18.23 $ 15.62 $ 24.83 $ 22.74 $ 20.16
---------- ---------- -------- -------- ------- ---------- ---------- ----------
Income from investment operations:
Net investment income(A E) ........... 0.51 0.40 0.31 0.28 0.26 0.41 0.35 0.28
Net gains (losses) on securities (both
realized and unrealized) .......... (10.41) 2.78 3.48 2.74 2.62 (9.88) 2.63 3.31
---------- ---------- -------- -------- ------- ---------- ---------- ----------
Total income (loss) from investment
operations ........................... (9.90) 3.18 3.79 3.02 2.88 (9.47) 2.98 3.59
---------- ---------- -------- -------- ------- ---------- ---------- ----------
Less distributions:
Dividends from net investment
income ............................ (0.41) (0.31) (0.26) (0.25) (0.27) (0.36) (0.28) (0.25)
Distributions from net realized gains
on securities ..................... (0.71) (0.61) (0.76) -- -- (0.71) (0.61) (0.76)
---------- ---------- -------- -------- ------- ---------- ---------- ----------
Total distributions ..................... (1.12) (0.92) (1.02) (0.25) (0.27) (1.07) (0.89) (1.01)
---------- ---------- -------- -------- ------- ---------- ---------- ----------
Net asset value, end of period .......... $ 15.01 $ 26.03 $ 23.77 $ 21.00 $ 18.23 $ 14.29 $ 24.83 $ 22.74
========== ========== ======== ======== ======= ========== ========== ==========
Total return ............................ (39.59)% 13.76% 18.69% 16.64% 18.59% (39.72)% 13.46% 18.44%
========== ========== ======== ======== ======= ========== ========== ==========
Ratios and supplemental data:
Net assets, end of period
(in thousands) .................... $2,038,539 $2,493,451 $958,830 $201,111 $48,451 $3,594,565 $5,198,835 $2,586,410
Ratios to average net assets
(annualized):
Expenses, net of waivers .......... 0.58% 0.59% 0.60% 0.60% 0.66% 0.83% 0.83% 0.85%
Expenses, before waivers .......... 0.58% 0.59% 0.60% 0.60% 0.66% 0.83% 0.83% 0.85%
Net investment income, net of
waivers ........................ 2.19% 1.82% 1.86% 1.58% 1.49% 1.94% 1.59% 1.61%
Net investment income (loss),
before waivers ................. 2.19% 1.82% 1.86% 1.58% 1.49% 1.94% 1.59% 1.61%
Portfolio turnover rate .............. 28% 20% 26% 25% 29% 28% 20% 26%
(A) Through October 31, 2005, net investment income was calculated by
subtracting class expenses per share from the Fund's net investment income
per share before class expenses.
(B) Not annualized.
(C) Annualized.
(D) Portfolio turnover rate is for the period from November 1, 2004 through
October 31, 2005.
(E) For purposes of this calculation, through October 31, 2007, the change in
undistributed net investment income per share was derived by dividing the
change in undistributed net investment income by average shares
outstanding.
22
PlanAhead Class Service Class
---------------------- ------------------------------------
May
Year Ended October 31, Year Ended October 31, 31 to
---------------------- -------------------------- October
2005 2004 2008 2007 2006 31, 2005
-------- ------- ------- ------- ------- --------
Net asset value,
beginning of period .................. $ 17.54 $ 15.05 $ 24.70 $ 22.64 $ 20.13 $ 19.33
-------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income(A E) ........... 0.27 0.23 0.32 0.28 0.26 0.01
Net gains (losses) on securities (both
realized and unrealized) .......... 2.58 2.49 (9.79) 2.62 3.27 0.79
-------- ------- ------- ------- ------- -------
Total income (loss) from investment
operations ........................... 2.85 2.72 (9.47) 2.90 3.53 0.80
-------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment
income ............................ (0.23) (0.23) (0.33) (0.23) (0.26) --
Distributions from net realized gains
on securities ..................... -- -- (0.71) (0.61) (0.76) --
-------- ------- ------- ------- ------- -------
Total distributions ..................... (0.23) (0.23) (1.04) (0.84) (1.02) --
-------- ------- ------- ------- ------- -------
Net asset value, end of period .......... $ 20.16 $ 17.54 $ 14.19 $ 24.70 $ 22.64 $ 20.13
======== ======= ======= ======= ======= =======
Total return ............................ 16.33% 18.26% (39.87)% 13.16% 18.18% 4.14%(B)
======== ======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period
(in thousands) .................... $526,357 $51,489 $99,416 $99,854 $39,077 $11,604
Ratios to average net assets
(annualized):
Expenses, net of waivers .......... 0.86% 0.94% 1.08% 1.08% 1.09% 1.14%(C)
Expenses, before waivers .......... 0.86% 0.94% 1.08% 1.08% 1.09% 1.77%(C)
Net investment income, net of
waivers ........................ 1.30% 1.21% 1.69% 1.32% 1.39% 1.72%(C)
Net investment income (loss),
before waivers ................. 1.30% 1.21% 1.69% 1.32% 1.39% 1.09%(C)
Portfolio turnover rate .............. 25% 29% 28% 20% 26% 25%(D)
AMR Class
---------------------------------------------------
Year Ended October 31,
---------------------------------------------------
2008 2007 2006 2005 2004
-------- -------- ---------- -------- --------
Net asset value,
beginning of period .................. $ 25.80 $ 23.55 $ 20.78 $ 18.02 $ 15.44
-------- -------- ---------- -------- --------
Income from investment operations:
Net investment income(A E) ........... 0.51 0.45 0.35 0.31 0.30
Net gains (losses) on securities (both
realized and unrealized) .......... (10.26) 2.76 3.47 2.73 2.58
-------- -------- ---------- -------- --------
Total income (loss) from investment
operations ........................... (9.75) 3.21 3.82 3.04 2.88
-------- -------- ---------- -------- --------
Less distributions:
Dividends from net investment
income ............................ (0.46) (0.35) (0.29) (0.28) (0.30)
Distributions from net realized gains
on securities ..................... (0.71) (0.61) (0.76) -- --
-------- -------- ---------- -------- --------
Total distributions ..................... (1.17) (0.96) (1.05) (0.28) (0.30)
-------- -------- ---------- -------- --------
Net asset value, end of period .......... $ 14.88 $ 25.80 $ 23.55 $ 20.78 $ 18.02
======== ======== ========== ======== ========
Total return ............................ (39.43)% 14.03% 19.08% 16.95% 18.89%
======== ======== ========== ======== ========
Ratios and supplemental data:
Net assets, end of period
(in thousands) .................... $497,127 $972,260 $1,024,899 $848,219 $696,206
Ratios to average net assets
(annualized):
Expenses, net of waivers .......... 0.32% 0.32% 0.34% 0.35% 0.39%
Expenses, before waivers .......... 0.32% 0.32% 0.34% 0.35% 0.39%
Net investment income, net of
waivers ........................ 2.44% 2.13% 2.18% 1.87% 1.79%
Net investment income (loss),
before waivers ................. 2.44% 2.13% 2.18% 1.87% 1.79%
Portfolio turnover rate .............. 28% 20% 26% 25% 29%
23
AMERICAN BEACON LARGE CAP VALUE FUND(SM)
PRIVACY POLICY & FEDERAL TAX INFORMATION
OCTOBER 31, 2008 (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, 2008, which is
designated as qualifying for the dividends-received deduction, was 47.52%.
For shareholders in the Fund, the percentage of dividend income
distributed for the year ended October 31, 2008, which is designated as
qualified dividend income under the Jobs Growth Tax Relief Act of 2003 was
64.50%. Shareholders will receive notification in January 2009 of the percentage
applicable to the preparation of their 2008 income tax returns.
Pursuant to Section 852 of the Internal Revenue Code, the Fund
designated $168,442,426 as long-term capital gain dividends for the tax year
ended October 31, 2008.
24
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS
(UNAUDITED)
At its May 21, 2008 meeting, the Board of Trustees ("Board" or
"Trustees") considered the renewal of the existing Management Agreement
("Current Agreement") between the Manager and the American Beacon Funds ("Beacon
Trust") on behalf of its Large Cap Value Fund (the "Fund") and each Investment
Advisory Agreement between the Manager and a subadvisor ("Current Investment
Advisory Agreement"). In preparation for the Board's consideration to renew
these Current 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 9,
2008 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.
On May 21, May 22 and June 4, 2008, the Board met to determine, among
other matters, whether to approve a new investment management agreement ("New
Agreement") between the Manager and the Fund. The New Agreement was necessary
because, on April 16, 2008, AMR Corporation ("AMR"), the parent company of the
Manager, entered into an agreement with Lighthouse Holdings, Inc. ("Lighthouse")
pursuant to which Lighthouse would acquire all of the capital stock of the
Manager ("Transaction") in exchange for cash and 10% of the capital stock of the
parent corporation of Lighthouse. Upon the closing of the Transaction on
September 12, 2008 ("Closing"), the Manager ceased to be a wholly owned
subsidiary of AMR and became a subsidiary of Lighthouse. This change in control
was deemed to be an "assignment" under the Investment Company Act of 1940 ("1940
Act") of the Fund's Current Agreement with the Manager. As required by the 1940
Act, the Fund's Current Agreement provided for its automatic termination in the
event of an assignment and therefore terminated upon the Closing.
To provide for the continuity of management for the Fund, the Board
met to consider the New Agreement with the Manager. The New Agreement for the
Fund reflects substantially the same terms as the Current Agreement for the
Fund. In addition, the Current Agreement had been updated and modernized. As
part of this process, the primary administrative services provided by the
Manager to the Fund have been transferred to one single administrative services
agreement ("New Administrative Services Agreement"). The Manager previously
provided administrative services to the Fund pursuant to its Current Agreement
and an Administrative Services Agreement ("Current Administrative Services
Agreement"). The aggregate fee rates for the Fund under the New Agreement and
the New Administrative Services Agreement are the same as the fee rates imposed
under the existing agreements which they replaced.
In preparation for the Board's consideration to approve the New
Agreement and New Investment Advisory Agreements, the Board considered the
impact to the Fund once Lighthouse directly controlled the Manager. Lighthouse
indicated that it did not anticipate making any changes to the organization or
structure of the Fund, to the service providers or to the aggregate fee rates
under the Current Agreement. In addition, the portfolio managers at the Manager
that manage the Fund were expected to continue to manage the Fund after the
Closing. In that regard, the Manager and Lighthouse anticipated entering into
employment contracts with certain key personnel performing or overseeing the
Fund's investment program. The Board considered that there could be no assurance
that these personnel would choose to remain employed by the Manager before or
after the Closing. The Board noted that the Manager and the Fund would continue
to operate under their existing names. Potential benefits to the Fund as a
result of the Transaction included Lighthouse's intention to devote additional
resources to product development and distribution of Fund shares. The Board also
considered that any resulting growth of Fund assets would potentially produce
economies of scale that would benefit shareholders of the Fund.
With respect to the Fund, the Manager had entered into Current
Investment Advisory Agreements with various subadvisors on behalf of the Fund.
Upon the Closing, these Current Investment Advisory Agreements terminated
automatically upon the termination of the Current Agreement. Pursuant to an
exemptive order issued by the Securities and Exchange Commission ("SEC"), the
Manager was permitted to enter into new or modified investment advisory
25
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS
(UNAUDITED)
agreements with the subadvisors ("New Investment Advisory Agreements") without
approval of the Fund's shareholders, but subject to the approval of the Fund's
Board. Each New Investment Advisory Agreement reflected substantially the same
terms as the Current Investment Advisory Agreement for the Fund.
In preparation for the Board's consideration to approve the New
Agreement and New Investment Advisory Agreements, the Board held preliminary
conference call meetings on April 15, 16 and 21, 2008, to discuss the New
Agreement and New Investment Advisory Agreements and the effect that approving
the New Agreement and New Investment Advisory Agreements would have on the Fund.
The Board received a memorandum and related advice from their independent legal
counsel detailing the Board's responsibilities in considering the New Agreement
and New Investment Advisory Agreements.
In connection with Board's consideration of the Current Agreement,
Current Investment Advisory Agreements, New Agreement and New Investment
Advisory Agreements, the Trustees considered, among other materials, responses
by the Manager and the subadvisors to inquiries requesting:
- a description of the Transaction, the effects of the Transaction on
the Beacon Trust and the Board, and any proposed changes to the Beacon
Trust, its service providers or fee structure and other information;
- 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 Form ADV registration statement with the SEC;
- 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 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 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 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 regard
to the services provided to the Fund.
26
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS
(UNAUDITED)
In addition to the foregoing, the Manager provided the following
information specific to the renewal of the Fund's Current Agreement and the
approval of the Fund's New 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 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
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.
In connection with the Current Agreement, Current Investment Advisory
Agreements, New Agreement and New Investment Advisory Agreements, 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 of shares used for comparative purposes was the class with the longest
performance history, which was 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 Current Agreement, Current Investment
Advisory Agreements, New Agreement and New Investment Advisory Agreements are
each referenced to herein as an "Agreement" and collectively, the "Agreements."
The Trustees also received memoranda from their legal counsel
detailing the Board's responsibilities pertaining to the approval of each
Agreement. These memoranda explained the regulatory requirements surrounding the
Trustees' process for evaluating investment advisors and the terms of the
contracts.
In connection with the Board's consideration of the New Agreement and
each New Investment Advisory Agreement, the Trustees considered, among other
information, the following factors:
1. The manner in which the Fund's assets are managed will not change as a
result of the Transaction, and the same people who manage the Fund's assets
are expected to continue to do so after the Transaction;
2. The aggregate fee rates payable by the Fund under the New Agreement and the
New Administrative Services Agreement are the same as the fee rates payable
under the Current Agreement and the Current Administrative Services
Agreement;
3. The material terms regarding advisory services pursuant to the New
Agreement are substantially the same as the terms of the Current Agreement;
4. The qualifications of the Manager's personnel who will provide advisory and
administrative services to the Fund are not expected to change;
5. The Manager's financial condition and the post-Closing capitalization of
Lighthouse;
6. The impact of the Transaction on the Manager's day-to-day operations;
7. The capabilities, experience, corporate structure and capital resources of
Lighthouse;
8. The long-term business goals of Lighthouse with regard to the Manager and
the Beacon Trust;
27
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS
(UNAUDITED)
9. Fund shareholders will not bear any costs in connection with the
Transaction, inasmuch as AMR and Lighthouse plan to bear equally the costs,
fees and expenses incurred by the Fund in connection with obtaining
shareholder approval of the New Agreement, the fees and expenses of
accountants and attorneys relating to the Transaction and obtaining
shareholder approval of the New Agreement, the fees and expenses incurred
by the Fund in connection with the Transaction, and the meeting fees of the
Boards for meetings held in connection with the Transaction;
10. The Fund may realize benefits as a result of the Transaction, including
long-term economies of scale;
11. The potential for increased costs to the Beacon Trust in order to satisfy
existing obligations under the current Trustees' retirement plan; and
12. The advisory relationship with each subadvisor would continue in the same
manner as before the Transaction and that each New Investment Advisory
Agreement would be substantially the same as each Current Investment
Advisory Agreement.
Provided below is an overview of the other primary factors the Board
considered at its May 21, May 22 and June 4, 2008 meetings. The Board did not
identify any particular information that was most relevant to its consideration
to renew the Current Agreement and Current Investment Advisory Agreements and
approve the New Agreement and New Investment Advisory Agreements, and each
Trustee may have afforded different weight to the various factors. Legal counsel
to the Non-interested Trustees provided the Board with memoranda regarding its
responsibilities pertaining to the renewal of the Current Agreement and Current
Investment Advisory Agreements and approve the New Agreement and New Investment
Advisory Agreements. Based on its evaluation, the Board unanimously concluded
that the terms of each Current Agreement and Current Investment Advisory
Agreement were reasonable and fair and that the renewal of each Current
Agreement and Current Investment Advisory Agreement was in the best interests of
the Fund and its shareholders. The Board also unanimously concluded that the
terms of the New Agreement and New Investment Advisory Agreements were
reasonable and fair and that the approval of the New Agreement and New
Investment Advisory Contracts was in the best interests of the Fund and its
shareholders.
In determining whether to renew the Current Agreement and the Current
Investment Advisory Agreements and approve the New Agreement and New Investment
Advisory Agreements, the Trustees considered the best interests of the Fund.
While the Current Agreement and Current Investment Advisory Agreements for the
Fund was considered at the Board meetings on May 21, 2008, and the New Agreement
and New Investment Advisory Agreement for the Fund was considered at the
meetings on May 21, May 22 and June 4, 2008, 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 each subadvisor for the Fund; (3) the costs incurred by the
Manager and (to the extent provided) the subadvisors in rendering their services
and their resulting profits or losses; (4) the extent to which economies of
scale have been taken into account in setting each 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 and
Lighthouse regarding certain key aspects of the materials submitted in support
of the renewal.
Nature, Extent and Quality of Services. With respect to the renewal of
the Fund's Current Agreement and the approval of the Fund's New 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
28
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS
(UNAUDITED)
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.
With respect to the renewal of the Current Investment Advisory
Agreements and the approval of the New 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,
determined to renew the Current Agreement and Current Investment Advisory
Agreements, and approve each New Agreement and New Investment Advisory
Agreements for the Fund.
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(es) and peer group. 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.
In considering the renewal of the Current Agreement and the approval
of the New Agreement, the Trustees considered the following additional factors:
(1) the Large Cap Value Fund outperformed the peer universe median for the
three-, five-, and ten-year periods ended March 31, 2008 and (2) the expense
ratio of the Institutional Class of Fund shares was lower than its Lipper
expense group median.
In considering the renewal of the Current Investment Advisory
Agreements and the approval of the New Investment Advisory Agreements with
Barrow, Hanley, Mewhinney & 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 the following additional factors: (1)
Barrow outperformed the peer universe median for the five- and ten-year periods
ended March 31, 2008 but underperformed for the one- and three- year periods;
(2) Brandywine outperformed the peer universe median for the one-, three-, five-
and ten-year periods ended March 31, 2008; (3) Hotchkis outperformed the peer
universe median for the five- and ten-year periods ended March 31, 2008 but
underperformed for the one- and three- year periods; (4) MetWest outperformed
the peer universe median for the one-; three- and five-year periods ended March
31, 2008; (5) 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; and (6) the Manager's
recommendation to continue to retain each subadvisor.
Costs of the Services to be Provided to the Fund and the Projected
Profits to be Realized by the Manager from its Relationship with the Fund. 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. The profits or losses were noted at both an individual Fund level
and at an aggregate level for all Funds. The Board also considered that the
Current and New Agreements for the Beacon Trust stipulate that, to the extent
that a Fund invests all of its investable assets in another registered
investment company (i.e., is a Feeder Fund), 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 Fund, the
difference reflects the greater level of responsibility and regulatory
requirements associated with managing the Fund.
The Board also noted that the Manager proposed to continue any expense
waivers and reimbursements for the Fund and classes that were in place during
the last fiscal year. 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
29
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS
(UNAUDITED)
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 certain classes of the Fund may maintain higher expense ratios
in order to compensate third-party distributors.
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 many subadvisory
fee rates. The Board also noted that, for purposes of determining the fee rates
chargeable to the Fund, many subadvisors have agreed to take into account other
assets of AMR and its pension plans that are managed by the subadvisors. Thus,
the Funds are able to receive lower effective fee rates. The Board also noted
that the Fund has grown its shareholder base, which has spread fixed costs over
a larger shareholder and asset base.
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 for the Fund provides for a reasonable
sharing of benefits from any economies of scale with the Fund.
Benefits Derived from the Relationship with the Fund. The Board
considered the "fall-out" or ancillary benefits that accrue to the Manager
and/or the subadvisors as a result of the advisory relationships with the Fund,
including greater exposure in the marketplace with respect to the Manager's or
subadvisor's investment process and expanding the level of assets under
management by the Manager and the subadvisors. The Board also considered that
the Manager's relationship with the Fund 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 Beacon Trust at a relatively low cost.
In this regard, the Board considered that the benefit plans of AMR have invested
substantial assets in the Fund, which helps reduce costs for other Fund
shareholders, just as the investment of other Fund shareholders helps to reduce
costs for AMR's benefit plans. In addition, the Board considered that certain of
the subadvisors reimburse the Manager for certain of its costs relating to
distribution activities for the Fund. The Board also considered that the Fund
did not pay commissions to any affiliated broker-dealer of the Manager during
the most recent fiscal year ended October 31, 2007. Based on the foregoing
information, the Board concluded that the potential benefits accruing to the
Manager and the subadvisors by virtue of its relationships with the Fund appears
to be fair and reasonable.
Conclusion. Based on these and other considerations, the Trustees
concluded that the fees paid to the Manager and the subadvisors under the
Agreements are fair and reasonable, determined that the Large Cap Value Fund and
its shareholders would benefit from the Manager's and subadvisors' continued
management of the Fund, approved the renewal of the Current Agreement and
Current Investment Advisory Agreements and approved the New Agreement and New
Investment Advisory Agreements with respect to the Large Cap Value Fund.
30
RESULTS FROM SHAREHOLDER MEETING
(UNAUDITED)
A special meeting of shareholders of the American Beacon Funds (the
"Trust") was held on August 22, 2008. The shareholders of the Large Cap Value
Fund (the "Fund"), a portfolio of the Trust, approved a new investment
management agreement between American Beacon Advisors, Inc. and the Fund. This
proposal required a majority of shareholders of the Fund to achieve a quorum;
however, a quorum was not present for the Fund and therefore not enough votes in
favor of the proposal for shareholder approval for the Fund. The meeting was
adjourned to a second special shareholder meeting on August 27, 2008 where a
quorum was present, but there were not enough votes in favor of the proposal for
shareholder approval. The meeting adjourned for a third special meeting of
shareholders on September 9, 2008, where a quorum was present for the Fund and
the proposal was approved by shareholders. The following are the results of the
shareholder votes for this proposal:
FOR AGAINST ABSTAIN NON-VOTING
- ---------------- ------------- ------------- -------------
3,437,073,149.94 53,020,222.65 90,146,785.36 1,505,291,140.29
A special meeting of the shareholders of the American Beacon Funds
(the "Trust") was held on August 22, 2008. The shareholders of the Trust
approved the re-election of five of the current Trustees to the Board of the
American Beacon Trust and to elect three additional Trustees to the Board. This
proposal required a majority of the shareholders of the Trust to vote to achieve
a quorum. The following are the results of the election of each Trustee:
Alan D. Feld
Affirmative................................................. 12,634,553,751.62
Withhold.................................................... 519,818,259.90
W. Humphrey Bogart
Affirmative................................................. 12,999,746,162.82
Withhold.................................................... 154,625,848.70
Brenda A. Cline
Affirmative................................................. 13,009,050,779.42
Withhold.................................................... 145,321,232.10
Richard A. Massman
Affirmative................................................. 13,004,756,096.42
Withhold.................................................... 149,615,915.10
R. Gerald Turner
Affirmative................................................. 13,004,259,224.92
Withhold.................................................... 150,112,786.60
Thomas M. Dunning
Affirmative................................................. 13,003,350,236.48
Withhold.................................................... 151,021,775.04
Eugene J. Duffy
Affirmative................................................. 12,985,296,316.39
Withhold.................................................... 169,075,695.13
Paul J. Zucconi
Affirmative................................................. 12,985,296,316.39
Withhold.................................................... 169,075,695.13
31
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*
Alan D. Feld** (71) Trustee since 1996 Sole Shareholder of a professional corporation which is a
Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld,
LLP (1960-Present); Director, Clear Channel Communications
(1984-Present); Trustee, CenterPoint Properties (1994-2006);
Member, Board of Trustees, Southern Methodist University ;
Member, Board of Visitors, M.D. Anderson Hospital; Board of
Visitors, Zale/Lipshy Hospital.
NON-INTERESTED TRUSTEES
Term
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (64) Trustee since 2004 Board Member, Baylor University Medical Center Foundation
(1992-2004); Consultant, New River Canada Ltd. (mutual fund
servicing company) (1998-2003); 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).
Brenda A. Cline (47) 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
(1999-2007).
Eugene J. Duffy (54) Trustee since 2008 Principal and Executive Vice President, Paradigm Asset
Management (1994-Present); Director, Sunrise Bank of Atlanta
(2008-Present); Chairman, Special Contributions Fund Board of
Trustees, National Association for the Advancement of Colored
People (2007-Present); Trustee, National Association for the
Advancement of Colored People (2000-Present); Board of
Visitors, Emory University (2006-Present); Trustee, Atlanta
Botanical Garden (2006-Present); Board Member, Willie L. Brown
Jr. Institute on Politics and Public Service (2001-Present);
Chair, National Association of Securities Professionals
(2000-2002); Deputy Chief Administrative Officer, City of
Atlanta (1985-1990).
Thomas M. Dunning (65) Trustee since 2008 Consultant, (2008-Present); Chairman (2003-2008) and Chief
Executive Officer (2003-2007), Lockton Dunning Benefits
(consulting firm in employee benefits); Director, Oncor
Electric Delivery Company LLC; Advisory Director, Comerica
Texas; Immediate Past Chairman and Board Member, Dallas
Citizens Council; Director, Baylor Health Care System
Foundation; State Vice Chair, State Fair of Texas; Board
Member, Southwestern Medical Foundation.
32
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
- ------------------------ ------------------- --------------------------------------------------------------
Richard A. Massman (65) Trustee since 2004 Senior Vice President and General Counsel, Hunt Consolidated,
Chairman since 2008 Inc. (holding company engaged in oil and gas exploration and
production, refining, real estate, farming, ranching and
venture capital activities) (1994-Present). Chairman
(2007-Present) and Director (2005-Present), The Dallas Opera
Foundation; Chairman (2006-Present) and Director
(2005-Present), Temple Emanu-El Foundation; Trustee,
Presbyterian Hospital Foundation (2006-Present).
R. Gerald Turner (62) 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
(2003-2007); Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory Board;
Co-Chair, Knight Commission on Intercollegiate Athletics.
Paul J. Zucconi, CPA (67) Trustee since 2008 Director, Affirmative Insurance Holdings, Inc. (producer of
nonstandard automobile insurance) (2004-present); Director,
Titanium Metals Corporation (producer of titanium melted and
mill products and sponge) (2002- present); Director, Torchmark
Corporation (life and health insurance products)
(2002-present); Director, National Kidney Foundation of North
Texas (2003-Present); Director, Dallas Chapter of National
Association of Corporate Directors (2004-Present); Partner,
KPMG (1976-2001).
Term
OFFICERS One Year
William F. Quinn** (60) President from Chairman (2006-Present) and CEO (2006-2007), President
1987 to 2007 (1986-2006) and Director (2003-Present), American Beacon
and 2008 to Present Advisors, Inc.; Chairman (1989-2003) and Director (1979-1989,
Executive Vice 2003-Present), American Airlines Federal Credit Union;
President from Director, Crescent Real Estate Equities, Inc.(1994-2007);
2007 to 2008 Director, Pritchard, Hubble & Herr, LLC (investment advisor)
Trustee from (2001-2006); Director of Investment Committee, Southern
1987 to 2008 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
(1995-2008); Trustee, American Beacon Select Funds
(1999-2008); Trustee, American Beacon Master Trust
(1995-2008).
Rosemary K. Behan (49) 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.
33
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
- ------------------------ ------------------- --------------------------------------------------------------
Brian E. Brett (48) 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 (42) 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 (54) VP since 1989 Vice President, Fixed Income Investments, American Beacon
Advisors, Inc. (1988-Present).
Rebecca L. Harris (41) Treasurer since Vice President, Finance, American Beacon Advisors, Inc.
1995 (1995-Present).
Christina E. Sears (37) 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, provided, however, that the Board may determine to grant one or more
annual exemptions to this requirement.
** Mr. Feld is deemed to be an "interested person" of the Trusts, as defined
by the 1940 Act. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld
LLP has provided legal services within the past two fiscal years to the
Manager and one or more of the Trust's and Master Trust's sub-advisors.
34
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35
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36
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37
(AMERICAN BEACAN 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:
Visit our
american_beacon.funds@ambeacon.com 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 PORTFOLIO AVAILABILITY OF PROXY VOTING POLICY
SCHEDULES 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 DISTRIBUTOR
STATE STREET BOSTON FINANCIAL REGISTERED PUBLIC FORESIDE FUND
BANK AND TRUST DATA SERVICES ACCOUNTING FIRM SERVICES
Boston, Kansas City, ERNST & YOUNG LLP Portland, Maine
Massachusetts Missouri 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 and American Beacon Large Cap Value Fund are
service marks of American Beacon Advisors, Inc.
AR 10/08
64672
GUIDANCE | VISION | EXPERIENCE
(AMERICAN BEACON FUNDS(SM) LOGO)
ANNUAL REPORT
(GRAPHIC)
October 31, 2008
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............................................ 74
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, 2008
(PHOTO OF WILLIAM F. QUINN)
FELLOW SHAREHOLDERS,
Enclosed is the American Beacon Small Cap Value Fund Annual Report for
the twelve months ended October 31, 2008.
During the past twelve months, we experienced unprecedented market
turmoil in all asset classes. Initially, the sub-prime mortgage crisis and
rising oil and food prices contributed to an economic slowdown that culminated
in a market-wide credit crisis and squeeze in liquidity. The situation reached
once-in-a-lifetime crisis proportions in mid-September with the bankruptcy of
Lehman Brothers, the resulting losses incurred by investors in money market
funds, and the unprecedented government intervention in the financial system.
From September 15th to October 31st, the Dow Jones Industrial Average declined
almost 20% on the threat of a global recession.
The American Beacon Small Cap Value Fund - Institutional Class
reported a return of -34.84% for the one-year period ended October 31, 2008. The
S&P 500 and Dow Jones Industrial Average indices reported negative returns of
- -36.10% and -31.13%, respectively, for this period.
During these times, it is important to remember that the American
Beacon Small Cap Value Fund's investment strategy is based on long-term
investing. Short-term pain can lead to long-term gains as we saw when the
positive performance by our value-oriented Funds followed the burst of the
technology bubble earlier this decade. We believe the Fund's fundamental value
investment philosophy and lower than average expense ratio will continue to
serve it well over the longer term.
Please review the enclosed market overview, portfolio listings, and
detailed financial data. As always, we welcome the opportunity to serve your
financial needs. To obtain further details about the American Beacon Funds
family or to access your account information, please visit our website at
www.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Funds.
Sincerely,
/s/ William F. Quinn
William F. Quinn
President
American Beacon Funds
1
DOMESTIC EQUITY MARKET OVERVIEW
OCTOBER 31, 2008 (UNAUDITED)
The financial crisis that began in August 2007 accelerated into
uncharted territory in 2008, punctuated by the sharp decline in equity prices in
October. Earlier concerns about rising prices for oil, food and commodities were
brushed aside as the credit crisis evolved into a full-blown liquidity crisis.
In early 2008, monetary policymakers were very aggressive, ultimately cutting
the Fed Funds rate to 1% as deflation concerns began to displace talk of
inflation. The Federal Reserve ("Fed") was innovative in contending with the
financial crisis by developing (or resurrecting) policy initiatives and lending
facilities in attempts to target liquidity without further pressuring the dollar
or adding to worries regarding inflation. Nevertheless, in the spring of 2008,
market interest rates had once again begun to move against the Fed, this time
upward, as global investors anticipated a pause in, if not a completion of, the
Fed's easing campaign.
Market volatility prevailed in the second and third calendar quarters
of 2008. Only a few months back, investors were worried about rising inflation
and the potential for higher interest rates; however, events during the past few
months changed those discussions. The government takeovers of Fannie Mae and
Freddie Mac, the Lehman Brothers bankruptcy, the near demise of insurance giant
American International Group (AIG), government-arranged bank mergers and bank
failures turned the conversations to de-leveraging, deflation and declining
rates. Signs of a recession accelerated as third quarter 2008 Gross Domestic
Product contracted despite the massive policy response. Oil prices fell rapidly
from a high of approximately $145 per barrel during the twelve-month period to
close below $70 per barrel on October 31, 2008, while housing prices saw no
signs of a bottom. Worries of global recession were also pervasive throughout
commodities markets as major indices sold off considerably while the dollar
gained against most currencies. All of this occurred in the midst of a
presidential election with its attendant uncertainties. Investors took note,
driving prices substantially lower in every major equity market over the past
twelve months.
In spite of these events, there are many long-term positives in the
U.S. economy. The biggest one is the flexibility of our system and its ability
to adapt: both policymakers and market participants reacted quickly (and
sometimes overreacted) to changing circumstances. Other factors such as the
existence of insurance safety nets, a still relatively low (though rising)
unemployment rate, technology-driven productivity gains, solid balance sheets
for non-financial companies and improving global competitiveness all factor into
a potentially positive long-term outlook. Consequently, while households and
financial firms have limited borrowing capacity and have received most of the
media attention, non-financial companies are not overburdened by debt and are in
a better position than in past cycles to manage their businesses in a slowing
economy. While the actions taken should help to stem the current crisis,
obstacles remain. However, with the full attention of world central banks,
governments and regulators, fundamentals have the opportunity to prevail as
financial markets make their way through the current uncertainty.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
The Institutional Class of the Small Cap Value Fund returned -34.84%
for the twelve months ended October 31, 2008, trailing the Russell 2000(R) Value
Index (the "Index") return of -30.54% and the Lipper Small-Cap Value Funds Index
return of -34.03% for the same period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 12/31/98* THROUGH 10/31/08
* Inception of Fund
(PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS
PERIODS ENDED 10/31/08
----------------------------------------
VALUE OF
$10,000
SINCE 12/31/98-
1 YEAR 5 YEARS INCEPTION 10/31/08
------ ------- --------- ---------
Institutional Class(1, 5)............ -34.84% 1.61% 7.55% $19,284
PlanAhead Class(1, 2, 5)............. -35.04% 1.36% 7.28% 18,859
Service Class(1, 3, 5)............... -35.19% 1.09% 7.12% 18,622
AMR Class(1, 2, 5)................... -34.71% 1.87% 7.84% 19,736
Lipper Small-Cap
Value Funds Index(4).............. -34.03% 2.28% 6.56% 17,437
Russell 2000 Value
Index(4).......................... -30.54% 3.05% 6.90% 18,882
(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 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 0.81%, 1.06%, 1.32% and 0.55%, 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 through both stock selection and
sector allocation. Most of the Fund's poor performance in stock selection
resulted primarily from its holdings in the Industrials, Financials, Utilities,
and Materials sectors. Individual holdings that had the largest impact on
performance in the Industrials sector were Crane (down 64.9%), United Rentals
(down 70.0%), and Timken (down 51.2%). Conseco (down 88.2%), Protective Life
(down 80.1%), and MI Developments (down 63.8%) detracted the most relative value
in the Financials sector. In the Utilities sector, Great Plains Energy (down
30.6%), PNM Resources (down 51.8% for the period the Fund owned the security),
and Black Hills Power & Light (down 41.0%) were the largest detractors, while
Georgia Gulf (down 64.0% for the period the Fund owned the security), Westlake
Chemical (down 40.7% for the period the Fund owned the security), and Tronox
(down 98.3% for the period the Fund owned the security) hurt performance most in
the Materials sector.
The Fund's overweight in the Consumer Discretionary sector, the second
worst performing sector in the Index, and an underweight in the Financials
3
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
OCTOBER 31, 2008 (UNAUDITED)
sector detracted from the Fund's performance relative to 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
----------
Hanover Insurance Group, Inc. ........................ 1.0%
Regal-Beloit Corp. ................................... 0.9%
Atmos Energy Corp. ................................... 0.9%
Great Plains Energy, Inc. ............................ 0.8%
Korn/Ferry International ............................. 0.8%
Tidewater, Inc. ...................................... 0.8%
Ingram Micro, Inc. ................................... 0.7%
Portland General Electric Co. ........................ 0.7%
Citi National Corp. .................................. 0.7%
Odyssey Re Holdings Corp. ............................ 0.6%
SECTOR ALLOCATION
% OF
EQUITIES
--------
Financials ........................................... 25.6%
Industrials .......................................... 21.6%
Consumer Discretionary ............................... 13.8%
Information Technology ............................... 12.7%
Utilities ............................................ 7.1%
Health Care .......................................... 6.2%
Energy ............................................... 5.8%
Materials ............................................ 3.4%
Consumer Staples ..................................... 2.7%
Telecommunication Services ........................... 1.1%
4
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
FUND EXPENSES
OCTOBER 31, 2008 (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,
2008 through October 31, 2008.
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.
Beginning Ending Expenses Paid
Account Account During
Value Value Period*
5/1/08 10/31/08 5/1/08-10/31/08
--------- --------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $ 712.33 $3.44
Hypothetical $1,000.00 $1,021.11 $4.06
(5% return before expenses)
PLANAHEAD CLASS
Actual $1,000.00 $ 711.29 $4.52
Hypothetical $1,000.00 $1,019.86 $5.33
(5% return before expenses)
SERVICE CLASS
Actual $1,000.00 $ 710.60 $5.55
Hypothetical $1,000.00 $1,018.65 $6.55
(5% return before expenses)
AMR CLASS
Actual $1,000.00 $ 713.14 $2.41
Hypothetical $1,000.00 $1,022.32 $2.85
(5% return before expenses)
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.80%, 1.05%, 1.29% and 0.56% 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 (366) 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, 2008, 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, 2008, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Beacon Small Cap Value Fund at October 31, 2008, 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 23, 2008
6
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 87.87%
COMMUNICATIONS - 0.56%
MEDIA - 0.56%
AH Belo Corp. + ............................... 85,440 $ 283
Courier Corp. + ............................... 53,379 929
Cox Radio, Inc. ## + .......................... 150,000 817
Hearst-Argyle Television, Inc. + .............. 36,100 541
Meredith Corp. + .............................. 193,090 3,740
New York Times Co. + .......................... 313,519 3,135
Westwood One, Inc. ## ......................... 2,022,000 526
-----------
TOTAL COMMUNICATIONS 9,971
-----------
CONSUMER DISCRETIONARY - 12.11%
AUDIO/VIDEO PRODUCTS - 0.04%
Harman International Industries, Inc. + ....... 38,560 708
-----------
AUTO COMPONENTS - 1.04%
American Axle & Manufacturing Holdings,
Inc. + ..................................... 1,015,600 3,646
ArvinMeritor, Inc. + .......................... 127,000 752
ATC Technology Corp. ## ....................... 22,200 487
Autoliv, Inc. ## .............................. 16,000 342
BorgWarner, Inc. .............................. 21,863 491
Gentex Corp. + ................................ 770,170 7,386
Lear Corp. ## + ............................... 779,700 1,567
Modine Manufacturing Co. + .................... 99,950 740
Superior Industries International, Inc. + ..... 59,900 856
TRW Automotive Holdings Corp. ## .............. 323,600 2,045
-----------
18,312
-----------
DISTRIBUTORS - 0.14%
WESCO International, Inc. ## .................. 125,300 2,491
-----------
HOTELS, RESTAURANTS & LEISURE - 1.53%
Ameristar Casinos, Inc. + ..................... 654,300 6,026
CBRL Group, Inc. + ............................ 97,911 1,951
CEC Entertainment, Inc. ## .................... 15,000 385
Darden Restaurants, Inc. ...................... 45,000 998
Domino's Pizza, Inc. ## + ..................... 154,900 922
Jack in the Box, Inc. ## + .................... 202,000 4,060
JAKKS Pacific, Inc. ## + ...................... 134,300 3,004
Lodgian, Inc. ## .............................. 492,700 2,513
Panera Bread Co. ## + ......................... 96,760 4,366
PF Chang's China Bistro, Inc. ## + ............ 57,340 1,173
Speedway Motorsports, Inc. .................... 108,600 1,732
-----------
27,130
-----------
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
HOUSEHOLD DURABLES - 1.27%
Black & Decker Corp. + ........................ 14,300 $ 724
Blyth, Inc. ................................... 52,000 447
Cavco Industries, Inc. ## + ................... 35,930 1,223
Ethan Allen Interiors, Inc. + ................. 197,990 3,542
Furniture Brands International, Inc. + ........ 190,800 1,086
Knoll, Inc. ................................... 194,600 2,814
Lancaster Colony Corp. + ...................... 27,597 870
M.D.C. Holdings, Inc. + ....................... 127,320 4,282
NVR, Inc. ## + ................................ 3,720 1,823
Russ Berrie & Co., Inc. ## .................... 35,800 97
Ryland Group, Inc. + .......................... 150,280 2,824
Stanley Works ................................. 64,800 2,121
Universal Electronics, Inc. ## ................ 26,202 554
-----------
22,407
-----------
INTERNET & CATALOG RETAIL - 0.31%
Insight Enterprises, Inc. ## .................. 258,400 2,514
NutriSystem, Inc. + ........................... 34,300 486
School Specialty, Inc. ## + ................... 34,300 720
Systemax, Inc. + .............................. 128,400 1,818
-----------
5,538
-----------
LEISURE EQUIPMENT & PRODUCTS - 0.30%
Brunswick Corp. + ............................. 350,624 1,217
Polaris Industries, Inc. + .................... 42,600 1,434
Scholastic Corp. + ............................ 147,300 2,735
-----------
5,386
-----------
MULTILINE RETAIL - 0.28%
BJ's Wholesale Club, Inc. ## + ................ 141,080 4,966
-----------
SPECIALTY RETAIL - 5.59%
Aaron Rents, Inc. + ........................... 156,100 3,870
American Greetings Corp. + .................... 95,300 1,113
AnnTaylor Stores Corp. ## ..................... 158,390 1,991
Asbury Automotive Group, Inc. + ............... 119,320 388
AutoNation, Inc. ## + ......................... 393,300 2,702
Bebe Stores, Inc. + ........................... 160,180 1,419
Cabela's, Inc. ## + ........................... 571,700 4,545
Charming Shoppes, Inc. ## + ................... 167,200 184
Childrens Place Retail Stores, Inc. ## + ...... 66,070 2,209
Conn's, Inc. ## + ............................. 27,800 377
Dick's Sporting Goods, Inc. ## + .............. 179,661 2,752
Dress Barn, Inc. ## + ......................... 250,500 2,395
Family Dollar Stores, Inc. .................... 392,000 10,549
Finish Line, Inc., Class A Shares ............. 4,555 43
Foot Locker, Inc. ............................. 712,270 10,413
Group 1 Automotive, Inc. + .................... 307,100 3,086
See accompanying notes
7
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
Gymboree Corp. ## ............................. 165,700 $ 4,285
Hibbett Sports, Inc. ## + ..................... 43,840 781
Interline Brands, Inc. ## ..................... 16,600 177
J Crew Group, Inc. ## ......................... 69,800 1,413
Jos. A. Bank Clothiers, Inc. ## + ............. 137,980 3,514
Lululemon Athletica, Inc. ## .................. 20,650 293
MarineMax, Inc. ## + .......................... 303,400 704
Men's Wearhouse, Inc. + ....................... 567,800 8,682
OfficeMax, Inc. ............................... 394,243 3,174
O'Reilly Automotive, Inc. ## .................. 54,160 1,468
Penske Auto Group, Inc. + ..................... 320,300 2,623
RadioShack Corp. .............................. 232,700 2,946
Regis Corp. ................................... 88,010 1,089
Rent-A-Center, Inc. ## ........................ 541,350 7,904
Sonic Automotive, Inc., A Shares + ............ 491,930 2,524
Stage Stores, Inc. + .......................... 132,420 1,021
Tractor Supply Co. ## + ....................... 82,520 3,429
Williams-Sonoma, Inc. + ....................... 258,984 2,144
Zale Corp. ## + ............................... 152,600 2,603
-----------
98,810
-----------
TEXTILES & APPAREL - 1.61%
Brown Shoe Company, Inc. + .................... 138,200 1,457
Columbia Sportswear Co. + ..................... 67,256 2,480
Jones Apparel Group, Inc. + ................... 499,300 5,547
Kenneth Cole Productions, Inc. + .............. 66,281 880
K-Swiss, Inc. + ............................... 82,339 1,246
Phillips-Van Heusen Corp. ..................... 97,100 2,380
Quiksilver, Inc. ## ........................... 1,014,400 2,627
Skechers U.S.A., Inc. ## ...................... 406,650 5,522
Timberland Co. ## ............................. 110,330 1,335
Warnaco Group, Inc. ## ........................ 72,700 2,167
Wolverine World Wide, Inc. .................... 122,345 2,875
-----------
28,516
-----------
TOTAL CONSUMER DISCRETIONARY 214,264
-----------
CONSUMER STAPLES - 2.40%
FOOD & DRUG RETAILING - 1.01%
Casey's General Stores, Inc. + ................ 153,173 4,626
Ingles Markets, Inc. .......................... 55,000 1,026
Spartan Stores, Inc. + ........................ 228,800 6,175
United Natural Foods, Inc. ## + ............... 50,174 1,121
Whole Foods Market, Inc. + .................... 215,329 2,309
Winn-Dixie Stores, Inc. ## + .................. 171,170 2,571
-----------
17,828
-----------
FOOD PRODUCTS - 1.17%
Cal-Maine Foods, Inc. + ....................... 82,800 2,433
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
Chiquita Brands International, Inc. ## + ...... 178,900 $ 2,442
Del Monte Foods Co. ........................... 837,600 5,285
Herbalife Ltd. ................................ 44,500 1,087
Lance, Inc. + ................................. 54,357 1,125
Ralcorp Holdings, Inc. ## ..................... 112,050 7,584
Sanderson Farms, Inc. + ....................... 2,300 72
Smithfield Foods, Inc. ## + ................... 4,800 50
TreeHouse Foods, Inc. ## + .................... 23,400 708
-----------
20,786
-----------
TOBACCO - 0.22%
Universal Corp. + ............................. 97,500 3,860
-----------
TOTAL CONSUMER STAPLES 42,474
-----------
ENERGY - 5.05%
ENERGY EQUIPMENT & SERVICES - 2.88%
Basic Energy Services, Inc. ## ................ 112,600 1,540
CARBO Ceramics, Inc. + ........................ 42,056 1,820
Complete Production Services, Inc. ## ......... 284,800 3,529
Dril-Quip, Inc. ## ............................ 74,050 1,829
Grey Wolf, Inc. + ............................. 265,544 1,705
Gulf Island Fabrication, Inc. ................. 23,200 457
Gulfmark Offshore, Inc. ## .................... 112,100 4,148
Helmerich & Payne, Inc. ....................... 36,800 1,263
Key Energy Services, Inc. ## .................. 189,730 1,176
Oil States International, Inc. ## ............. 229,500 5,308
Parker Drilling Co. ## + ...................... 215,100 1,101
Patterson-UTI Energy, Inc. .................... 78,300 1,039
SEACOR Holdings, Inc. ## ...................... 61,500 4,131
Tidewater, Inc. ............................... 311,570 13,588
Unit Corp. ## ................................. 222,275 8,344
-----------
50,978
-----------
OIL & GAS - 2.17%
Arena Resources, Inc. ## ...................... 66,650 2,032
Cabot Oil & Gas Corp. ......................... 65,232 1,831
Callon Petroleum Co. ## ....................... 163,050 1,683
Cimarex Energy Co. ............................ 27,000 1,092
CNX Gas Corp. ## + ............................ 61,005 1,543
Encore Acquisition Co. ## ..................... 93,500 2,913
EXCO Resources, Inc. ## + ..................... 430,400 3,955
Holly Corp. + ................................. 170,650 3,350
Mariner Energy, Inc. ## ....................... 56,300 810
Parallel Petroleum Corp. ## ................... 415,800 1,667
Penn Virginia Corp. ........................... 55,120 2,049
Pioneer Drilling Co. ## ....................... 69,700 540
St. Mary Land & Exploration Co. ............... 175,471 4,367
Stone Energy Corp. ## ......................... 105,900 3,213
See accompanying notes
8
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
Swift Energy Co. ## + ......................... 200,250 $ 6,424
W&T Offshore, Inc. ............................ 43,100 826
-----------
38,295
-----------
TOTAL ENERGY 89,273
-----------
FINANCIALS - 22.44%
BANKS - 8.56%
1st Source Corp. .............................. 18,000 386
Associated Banc-Corp + ........................ 273,100 6,025
BancorpSouth, Inc. + .......................... 261,560 6,348
BOK Financial Corp. ## ........................ 10,155 486
Cathay General Bancorp ........................ 49,400 1,209
Chemical Financial Corp. + .................... 25,531 671
City National Corp. + ......................... 215,433 11,532
Colonial BancGroup, Inc. + .................... 237,441 964
Commerce Bancshares, Inc. ..................... 58,040 2,744
Community Trust Bancorp, Inc. ................. 7,300 244
Cullen/Frost Bankers, Inc. .................... 135,948 7,609
F.N.B. Corp. + ................................ 127,100 1,665
First Horizon National Corp. + ................ 651,709 7,762
First Midwest Bancorp, Inc. + ................. 140,700 3,125
First Niagara Financial Group, Inc. ........... 367,400 5,794
FirstMerit Corp. + ............................ 281,420 6,563
Flushing Financial Corp. + .................... 80,910 1,258
Frontier Financial Corp. + .................... 29,000 193
Fulton Financial Corp. + ...................... 464,523 4,877
Home Federal Bancorp Inc. ..................... 189,700 2,199
Huntington Bancshares, Inc. + ................. 90,267 853
IBERIABANK Corp. + ............................ 24,500 1,248
International Bancshares Corp. ................ 144,654 3,757
Intervest Bancshares Corp. .................... 60,460 362
MB Financial, Inc. + .......................... 53,900 1,601
National Penn Bancshares, Inc. + .............. 319,325 5,409
NewAlliance Bancshares, Inc. + ................ 584,388 8,065
Old National Bancorp + ........................ 130,777 2,477
Pacific Capital Bancorp NA + .................. 257,302 5,053
Park National Corp. + ......................... 20,600 1,499
Popular, Inc. + ............................... 280,600 2,133
Prosperity Bancshares, Inc. + ................. 111,100 3,690
Provident Financial Services, Inc. ............ 241,900 3,546
Southwest Bancorp, Inc. ....................... 86,070 1,246
Sterling Bancshares, Inc. ..................... 168,450 1,341
Susquehanna Bancshares, Inc. + ................ 278,400 4,312
Synovus Financial Corp. + ..................... 87,832 907
Umpqua Holdings Corp. + ....................... 50,500 859
United Bankshares, Inc. + ..................... 64,571 2,060
Washington Federal, Inc. + .................... 516,754 9,105
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
Washington Trust Bancorp, Inc. + .............. 32,410 $ 691
Webster Financial Corp. + ..................... 396,500 7,351
WesBanco, Inc. + .............................. 101,000 2,745
Whitney Holding Corp. + ....................... 462,795 8,793
Wintrust Financial Corp. + .................... 28,500 730
-----------
151,487
-----------
DIVERSIFIED FINANCIALS - 2.64%
Cash America International, Inc. .............. 93,038 3,291
Credit Acceptance Corp. ## + .................. 65,400 1,003
Ezcorp, Inc. ## ............................... 331,850 5,257
Financial Federal Corp. + ..................... 210,340 4,869
First Cash Financial Services, Inc. ## + ...... 196,100 3,014
Investment Technology Group, Inc. ## .......... 396,945 8,102
Jefferies Group, Inc. + ....................... 349,790 5,537
Knight Capital Group, Inc. ## ................. 186,650 2,699
Lazard Ltd. ## ................................ 61,232 1,847
Nelnet, Inc. + ................................ 94,400 1,381
Piper Jaffray Co. ## + ........................ 115,263 4,547
Raymond James Financial, Inc. + ............... 56,380 1,313
World Acceptance Corp. ## + ................... 204,100 3,772
-----------
46,632
-----------
INSURANCE - 8.95%
Allied World Assurance Co. Holdings Ltd. ...... 27,200 872
Ambac Financial Group, Inc. + ................. 216,633 581
American Equity Investment Life Holding
Co. + ...................................... 215,000 972
American Financial Group, Inc. ................ 195,800 4,451
American National Insurance Co. ............... 10,900 744
AmTrust Financial Services, Inc. .............. 42,600 418
Argo Group International Holdings
Ltd. ## + .................................. 115,457 3,683
Aspen Insurance Holdings Ltd. ................. 445,370 10,226
Assured Guaranty Ltd. + ....................... 47,000 528
CNA Surety Corp. ## ........................... 166,200 2,302
Conseco, Inc. ## + ............................ 119,400 222
Delphi Financial Group, Inc. .................. 336,700 5,303
Employers Holdings, Inc. ...................... 391,700 4,998
Endurance Specialty Holdings Ltd. ............. 42,900 1,297
FBL Financial Group, Inc. + ................... 73,508 1,284
Fidelity National Financial, Inc. ............. 265,963 2,396
First American Corp. + ........................ 136,110 2,778
Hanover Insurance Group, Inc. ................. 439,620 17,255
Harleysville Group, Inc. ...................... 121,104 3,825
HCC Insurance Holdings, Inc. .................. 228,570 5,042
Horace Mann Educators Corp. ................... 58,200 463
Infinity Property and Casualty Corp. .......... 65,798 2,620
IPC Holdings Ltd. + ........................... 40,400 1,115
Max Capital Group Ltd. ........................ 39,800 635
See accompanying notes
9
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
MBIA, Inc. + .................................. 38,174 $ 375
Mercury General Corp. + ....................... 135,100 6,940
Montpelier Re Holdings Ltd. + ................. 69,000 987
National Western Life Insurance Co. ........... 2,200 415
Navigators Group, Inc. ## ..................... 141,300 7,137
Odyssey Re Holdings Corp. + ................... 276,894 10,921
Old Republic International Corp. .............. 119,200 1,098
OneBeacon Insurance Group Ltd. ................ 20,000 276
Phoenix Cos., Inc. + .......................... 326,200 2,111
Platinum Underwriters Holdings Ltd. ........... 17,400 552
PMA Capital Corp. ## + ........................ 98,600 456
Presidential Life Corp. ....................... 111,300 1,044
ProAssurance Corp. ## ......................... 48,630 2,672
Protective Life Corp. ......................... 219,500 1,833
Reinsurance Group of America, Inc. + .......... 226,300 8,450
RLI Corp. + ................................... 41,300 2,370
Safety Insurance Group, Inc. .................. 61,200 2,325
Selective Insurance Group, Inc. ............... 189,000 4,489
StanCorp Financial Group, Inc. ................ 315,050 10,737
State Auto Financial Corp. + .................. 26,800 706
Stewart Information Services Corp. + .......... 199,900 3,318
Torchmark Corp. ............................... 89,300 3,730
Tower Group, Inc. + ........................... 17,000 358
United America Indemnity Ltd. ## + ............ 593,497 7,110
United Fire & Casualty, Co. ................... 77,400 1,793
Unitrin, Inc. + ............................... 52,700 1,107
Zenith National Insurance Corp. ............... 34,200 1,124
-----------
158,444
-----------
REAL ESTATE - 2.29%
Acadia Realty Trust ........................... 41,480 749
Alexandria Real Estate Equities, Inc. + ....... 19,660 1,367
BioMed Realty Trust, Inc. ..................... 315,870 4,438
CapLease, Inc. + .............................. 912,900 6,162
Care Investment Trust, Inc. + ................. 30,644 343
Cohen & Steers, Inc. + ........................ 102,778 1,867
Corrections Corp. of America ## ............... 86,820 1,659
DiamondRock Hospitality Co. ................... 432,450 2,240
Entertainment Properties Trust + .............. 63,150 2,365
Health Care Real Estate Investment Trust,
Inc. ....................................... 45,940 2,045
Hilltop Holdings, Inc. ## ..................... 16,700 157
Jones Lang LaSalle, Inc. + .................... 12,110 399
LaSalle Hotel Properties + .................... 219,160 3,086
Lexington Realty Trust + ...................... 287,300 2,307
MI Developments, Inc. ......................... 425,100 4,821
Mission West Properties, Inc. + ............... 113,800 985
Redwood Trust, Inc. + ......................... 99,655 1,519
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
Urstadt Biddle Properties, Inc. ............... 18,890 $ 309
U-Store-It Trust + ............................ 546,200 3,747
-----------
40,565
-----------
TOTAL FINANCIALS 397,128
-----------
HEALTH CARE - 5.45%
BIOTECHNOLOGY - 0.21%
Charles River Laboratories International,
Inc. ## .................................... 17,928 642
Invitrogen Corp. ## + ......................... 41,870 1,206
Viropharma, Inc. ## + ......................... 152,600 1,914
-----------
3,762
-----------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.57%
Advanced Medical Optics, Inc. ## + ............ 410,200 2,531
Bio-Rad Laboratories, Inc. ## ................. 9,780 835
Hillenbrand, Inc. ............................. 51,677 982
Hill-Rom Holdings, Inc. + ..................... 38,070 866
IMS Health, Inc. .............................. 87,800 1,259
Invacare Corp. + .............................. 111,800 2,034
Kensey Nash Corp. ## + ........................ 63,740 1,618
-----------
10,125
-----------
HEALTH CARE PROVIDERS & SERVICES - 3.35%
Air Methods Corp. ## + ........................ 89,500 1,502
AMERIGROUP Corp. ## + ......................... 330,350 8,259
Healthspring, Inc. ## ......................... 628,460 10,382
LifePoint Hospitals, Inc. ## + ................ 359,900 8,627
Lincare Holdings, Inc. ## + ................... 240,000 6,324
Magellan Health Services, Inc. ## ............. 113,410 4,189
MAXIMUS, Inc. ................................. 309,625 9,889
Odyssey HealthCare, Inc. ## + ................. 197,900 1,898
Pediatrix Medical Group, Inc. ## .............. 101,230 3,913
Res-Care, Inc. ## ............................. 275,350 4,243
-----------
59,226
-----------
PHARMACEUTICALS - 1.32%
King Pharmaceuticals, Inc. ## ................. 775,600 6,817
KV Pharmaceutical Co. ## + .................... 210,820 3,584
Medicis Pharmaceutical Corp. + ................ 145,380 2,075
NBTY, Inc. ## ................................. 386,750 9,038
Sepracor, Inc. ## ............................. 131,375 1,750
-----------
23,264
-----------
TOTAL HEALTH CARE 96,377
-----------
INDUSTRIALS - 19.01%
AEROSPACE & DEFENSE - 1.49%
BE Aerospace, Inc. ## ......................... 274,940 3,538
Ceradyne, Inc. ## ............................. 129,270 3,038
See accompanying notes
10
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
Curtiss-Wright Corp. + ........................ 163,470 $ 6,032
Esterline Technologies Corp. ## ............... 83,280 3,002
Moog, Inc. ## ................................. 77,520 2,723
Spirit Aerosystems Holdings, Inc. ## .......... 22,070 358
Triumph Group, Inc. + ......................... 122,290 5,364
World Fuel Services Corp. ..................... 106,700 2,287
-----------
26,342
-----------
BUILDING PRODUCTS - 1.81%
Apogee Enterprises, Inc. + .................... 291,900 2,878
Armstrong World Industries, Inc. .............. 135,700 2,664
Crane Co. ..................................... 244,450 4,002
Drew Industries, Inc. ## + .................... 121,680 1,472
Insituform Technologies, Inc. ## + ............ 384,000 5,157
Lennox International, Inc. .................... 228,400 6,811
NCI Building Systems, Inc. ## + ............... 74,300 1,383
Simpson Manufacturing Co., Inc. + ............. 251,000 5,783
Universal Forest Products, Inc. + ............. 82,792 1,958
-----------
32,108
-----------
COMMERCIAL SERVICES & SUPPLIES - 5.06%
American Ecology Corp. + ...................... 47,400 831
Bowne & Co., Inc. ............................. 29,600 231
Brink's Co. ................................... 84,190 4,082
Casella Waste Systems, Inc. ## ................ 207,990 1,048
Clean Harbors, Inc. ## ........................ 68,618 4,499
Consolidated Graphics, Inc. ## ................ 83,000 1,080
Convergys Corp. ## ............................ 223,500 1,719
Con-way, Inc. + ............................... 199,400 6,788
Corinthian Colleges, Inc. ## + ................ 74,700 1,067
CSG Systems International, Inc. ## ............ 112,500 1,871
Dollar Financial Corp. ## + ................... 17,000 198
Ennis, Inc. ................................... 97,000 1,142
G&K Services, Inc. ............................ 38,820 877
Headwaters, Inc. ## + ......................... 179,600 1,904
Heidrick & Struggles International, Inc. + .... 126,200 3,045
Herman Miller, Inc. + ......................... 215,800 4,748
Hewitt Associates, Inc. ## .................... 48,630 1,356
Hudson Highland Group, Inc. ## ................ 510,500 2,675
Kelly Services, Inc. + ........................ 290,300 4,134
Korn/Ferry International ## ................... 1,003,350 13,936
McGrath Rentcorp + ............................ 68,108 1,549
PHH Corp. ## + ................................ 309,000 2,490
Pre-Paid Legal Services, Inc. ## + ............ 51,770 2,044
Sotheby's + ................................... 304,400 2,834
Spherion Corp. ## ............................. 1,082,100 3,441
TAL International Group, Inc. + ............... 70,100 1,161
Tetra Tech, Inc. ## ........................... 62,024 1,364
TrueBlue, Inc. ## ............................. 166,200 1,384
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
United Stationers, Inc. ## .................... 27,600 $ 1,032
Valassis Communications, Inc. ## + ............ 2,001,900 8,888
Waste Connections, Inc. ## + .................. 178,920 6,056
-----------
89,474
-----------
CONSTRUCTION & ENGINEERING - 1.20%
EMCOR Group, Inc. ## .......................... 296,400 5,267
Granite Construction, Inc. + .................. 241,540 8,616
KBR, Inc. ..................................... 27,329 406
Perini Corp. ## + ............................. 277,200 5,272
Shaw Group, Inc. ## ........................... 95,157 1,702
-----------
21,263
-----------
DIVERSIFIED MANUFACTURING - 0.95%
Acuity Brands, Inc. + ......................... 101,594 3,552
Andersons, Inc. + ............................. 72,800 1,939
Barnes Group, Inc. + .......................... 167,000 2,423
Kennametal, Inc. .............................. 421,700 8,948
-----------
16,862
-----------
ELECTRICAL EQUIPMENT - 1.68%
A.O. Smith Corp. .............................. 90,400 2,852
Anixter International, Inc. ## + .............. 151,259 5,084
Belden, Inc. .................................. 57,100 1,190
Hubbell, Inc. ................................. 107,600 3,860
Regal-Beloit Corp. + .......................... 513,150 16,708
-----------
29,694
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.60%
Diebold, Inc. ................................. 311,500 9,258
PerkinElmer, Inc. ............................. 76,970 1,381
-----------
10,639
-----------
ENGINEERING/R&D SERVICES - 0.11%
URS Corp. ## .................................. 65,630 1,929
-----------
FREIGHT TRANSPORTATION - 0.11%
Pacer International, Inc. ..................... 152,077 1,717
TBS International Ltd. ## + ................... 22,200 190
-----------
1,907
-----------
INDUSTRIAL CONGLOMERATES - 0.32%
Carlisle Cos., Inc. + ......................... 247,650 5,758
-----------
MACHINERY - 3.65%
Actuant Corp. ................................. 90,800 1,628
Applied Industrial Technologies, Inc. + ....... 376,900 7,610
Astec Industries, Inc. ## + ................... 44,700 1,136
Brady Corp. ................................... 148,800 4,613
Dynamic Materials Corp. + ..................... 33,495 636
Flowserve Corp. ............................... 91,300 5,197
Gardner Denver, Inc. ## ....................... 153,000 3,920
See accompanying notes
11
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
Harsco Corp. .................................. 217,900 $ 5,158
Kaydon Corp. + ................................ 97,300 3,251
Miller Industries, Inc. ## .................... 231,100 1,410
Mueller Industries, Inc. ...................... 182,210 4,167
NACCO Industries, Inc. ........................ 26,790 1,650
Oshkosh Corp. + ............................... 579,700 4,440
Reliance Steel & Aluminum Co. ................. 36,580 916
RSC Holdings, Inc. ## + ....................... 211,700 1,554
Terex Corp. ## + .............................. 336,500 5,616
Timken Co. .................................... 479,950 7,621
Trinity Industries, Inc. + .................... 46,900 792
Watts Water Technologies, Inc. + .............. 120,800 3,193
-----------
64,508
-----------
MARINE - 0.77%
Cal Dive International, Inc. ## + ............. 134,800 1,147
Genco Shipping & Trading Ltd. + ............... 171,000 3,565
Hornbeck Offshore Services, Inc. ## + ......... 68,600 1,633
Kirby Corp. ## + .............................. 105,300 3,614
Overseas Shipholding Group, Inc. + ............ 96,500 3,626
-----------
13,585
-----------
RENTAL AUTO/EQUIPMENT - 0.12%
United Rentals, Inc. ## + ..................... 204,926 2,100
-----------
ROAD & RAIL - 1.06%
Arkansas Best Corp. + ......................... 55,600 1,623
Bristow Group, Inc. ## + ...................... 16,400 406
Celadon Group, Inc. ## ........................ 91,440 978
GATX Corp. .................................... 119,100 3,400
Heartland Express, Inc. + ..................... 379,080 5,815
Landstar System, Inc. ......................... 78,560 3,032
Werner Enterprises, Inc. + .................... 159,297 3,125
YRC Worldwide, Inc. ## + ...................... 81,160 372
-----------
18,751
-----------
TRADING COMPANIES & DISTRIBUTORS - 0.08%
MSC Industrial Direct Co., Inc. + ............. 39,440 1,414
-----------
TOTAL INDUSTRIALS 336,334
-----------
INFORMATION TECHNOLOGY - 11.15%
COMMUNICATIONS - 0.05%
ModusLink Global Solutions, Inc. ## ........... 159,100 885
-----------
COMMUNICATIONS EQUIPMENT - 0.87%
Avocent Corp. ## + ............................ 131,350 1,973
Black Box Corp. ............................... 38,600 1,174
Ciena Corp. ## + .............................. 107,840 1,036
Comtech Telecommunications Corp. ## + ......... 87,480 4,236
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
F5 Networks, Inc. ## + ........................ 39,970 $ 992
Harmonic, Inc. ## ............................. 89,260 635
Sonus Networks, Inc. ## + ..................... 590,757 1,305
Sycamore Networks, Inc. ## .................... 1,204,400 4,023
-----------
15,374
-----------
COMPUTERS & PERIPHERALS - 1.24%
Cray, Inc. ## + ............................... 266,460 837
Electronics for Imaging, Inc. ## .............. 243,006 2,576
Imation Corp. + ............................... 168,200 2,072
Ingram Micro, Inc. ## ......................... 976,700 13,019
Lexmark International, Inc. ## ................ 35,100 907
Mercury Computer Systems, Inc. ## + ........... 355,200 2,550
-----------
21,961
-----------
ELECTRONIC COMPONENTS - 0.54%
Plexus Corp. ## + ............................. 476,100 8,884
Thomas & Betts Corp. ## ....................... 26,210 622
-----------
9,506
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.18%
Analogic Corp. ................................ 17,750 784
Arrow Electronics, Inc. ## .................... 113,650 1,983
AVX Corp. ..................................... 150,900 1,361
Benchmark Electronics, Inc. ## ................ 677,550 8,124
Coherent, Inc. ## ............................. 10,000 253
IKON Office Solutions, Inc. ................... 153,800 2,650
Littelfuse, Inc. ## + ......................... 303,700 5,667
Methode Electronics, Inc. ..................... 792,663 6,016
MTS Systems Corp. ............................. 68,920 2,239
OSI Systems, Inc. ## .......................... 58,530 673
Vishay Intertechnology, Inc. ## ............... 2,052,400 8,846
-----------
38,596
-----------
INTERNET SOFTWARE & SERVICES - 0.42%
Akamai Technologies, Inc. ## + ................ 30,540 439
DealerTrack Holdings, Inc. ## + ............... 113,469 1,218
Interwoven, Inc. ## ........................... 142,600 1,798
Netgear, Inc. ## .............................. 106,985 1,182
NIC, Inc. + ................................... 139,200 748
United Online, Inc. ........................... 277,880 2,056
-----------
7,441
-----------
IT CONSULTING & SERVICES - 1.54%
CACI International, Inc. ## ................... 137,000 5,642
Ciber, Inc. ## ................................ 73,500 397
First Advantage Corp. ## ...................... 86,912 950
ManTech International Corp. ## ................ 72,300 3,900
MPS Group, Inc. ## ............................ 399,900 3,115
Ness Technologies, Inc. ## .................... 222,400 1,643
Patni Computer Systems Ltd., ADR + ............ 355,400 2,061
See accompanying notes
12
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
SRA International, Inc. ## .................... 191,670 $ 3,542
SYNNEX Corp. ## + ............................. 139,400 2,151
Tech Data Corp. ## ............................ 175,600 3,767
Unisys Corp. ## ............................... 51,500 78
-----------
27,246
-----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 2.30%
Amkor Technology, Inc. ## ..................... 736,500 2,990
Applied Micro Circuits Corp. ## ............... 69,200 354
Brooks Automation, Inc. ## + .................. 991,300 6,791
Cymer, Inc. ## + .............................. 130,100 3,184
Entegris, Inc. ## ............................. 467,300 1,257
FEI Co. ## + .................................. 102,770 2,159
Formfactor, Inc. ## + ......................... 63,560 1,107
Integrated Device Technology, Inc. ## ......... 318,500 2,026
MKS Instruments, Inc. ## ...................... 351,790 6,526
Novellus Systems, Inc. ## ..................... 81,840 1,293
ON Semiconductor Corp. ## + ................... 1,876,000 9,586
Rudolph Technologies, Inc. ## ................. 122,410 410
Teradyne, Inc. ## ............................. 308,270 1,572
Ultra Clean Holdings ## ....................... 136,400 412
Varian Semiconductor Equipment
Associates, Inc. ## ........................ 55,830 1,095
-----------
40,762
-----------
SOFTWARE - 2.01%
American Reprographics Co. ## ................. 88,400 941
Aspen Technology, Inc. ## ..................... 174,610 1,367
Cerner Corp. ## + ............................. 18,110 674
EPIQ Systems, Inc. ## + ....................... 164,593 2,237
infoGROUP, Inc. ............................... 16,300 73
Informatica Corp. ## .......................... 70,330 988
JDA Software Group, Inc. ## ................... 377,000 5,383
Lawson Software, Inc. ## ...................... 375,800 1,999
Manhattan Associates, Inc. ## + ............... 245,900 4,134
Mentor Graphics Corp. ## ...................... 746,800 5,481
Novell, Inc. ## ............................... 655,400 3,054
Omnicell, Inc. ## + ........................... 159,190 1,748
Parametric Technology Corp. ## ................ 131,013 1,702
RealNetworks, Inc. ## ......................... 574,000 2,457
Sybase, Inc. ## + ............................. 81,251 2,164
Synopsys, Inc. ## ............................. 36,778 672
THQ, Inc. ## .................................. 59,180 441
-----------
35,515
-----------
TOTAL INFORMATION TECHNOLOGY 197,286
-----------
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
MATERIALS - 3.02%
CHEMICALS - 1.84%
Ashland, Inc. ................................. 161,200 $ 3,641
Cytec Industries, Inc. ........................ 21,000 595
H.B. Fuller Co. ............................... 25,750 455
Hercules, Inc. ................................ 411,900 6,924
NewMarket Corp. ## ............................ 24,700 931
Olin Corp. .................................... 267,600 4,860
PolyOne Corp. ## + ............................ 1,813,500 8,614
RPM International, Inc. ....................... 363,600 5,163
Tronox, Inc. Class A + ........................ 167,200 23
Tronox, Inc. Class B + ........................ 230,700 32
Westlake Chemical Corp. + ..................... 77,100 1,405
-----------
32,643
-----------
CONTAINERS & PACKAGING - 0.37%
Packaging Corp. of America .................... 214,520 3,610
Sonoco Products Co. ........................... 28,700 723
Temple-Inland, Inc. + ......................... 360,850 2,140
-----------
6,473
-----------
METALS & MINING - 0.63%
A.M. Castle & Co. ............................. 10,600 129
AMCOL International Corp. + ................... 50,730 1,244
Foundation Coal Holdings, Inc. ................ 180,600 3,749
Gibraltar Industries, Inc. + .................. 51,500 682
GrafTech Int'l Ltd. ## ........................ 317,700 2,577
Schnitzer Steel Industries, Inc. + ............ 14,800 399
Worthington Industries, Inc. + ................ 189,100 2,283
-----------
11,063
-----------
PAPER & FOREST PRODUCTS - 0.18%
Glatfelter .................................... 123,340 1,272
Louisiana-Pacific Corp. + ..................... 176,290 846
Wausau Paper Corp. + .......................... 117,800 1,091
-----------
3,209
-----------
TOTAL MATERIALS 53,388
-----------
TELECOMMUNICATION SERVICES - 0.43%
DIVERSIFIED TELECOMMUNICATION - 0.39%
Cincinnati Bell, Inc. ## ...................... 1,137,710 2,719
Harris Stratex Networks, Inc. ## .............. 117,610 780
NeuStar, Inc. ## .............................. 172,600 3,400
-----------
6,899
-----------
WIRELESS TELECOMMUNICATION SERVICES - 0.04%
Telephone and Data Systems, Inc. .............. 27,420 736
-----------
TOTAL TELECOMMUNICATION SERVICES 7,635
-----------
See accompanying notes
13
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
UTILITIES - 6.25%
ELECTRIC UTILITIES - 4.19%
Avista Corp. .................................. 105,200 $ 2,089
Black Hills Corp. ............................. 188,670 4,764
CH Energy Group, Inc. + ....................... 47,800 1,971
El Paso Electric Co. ## ....................... 141,960 2,629
Great Plains Energy, Inc. ..................... 728,700 14,166
Hawaiian Electric Industries, Inc. + .......... 142,310 3,788
Idacorp, Inc. + ............................... 287,350 7,661
OGE Energy Corp. .............................. 371,500 10,142
Pike Electric Corp. ## ........................ 60,290 528
Pinnacle West Capital Corp. ................... 234,100 7,409
Portland General Electric Co. ................. 565,150 11,597
Westar Energy, Inc. + ......................... 377,900 7,365
-----------
74,109
-----------
GAS UTILITIES - 2.06%
AGL Resources, Inc. ........................... 310,400 9,436
Atmos Energy Corp. ............................ 670,550 16,274
Energen Corp. ## .............................. 62,922 2,112
Nicor, Inc. + ................................. 42,240 1,952
Southwest Gas Corp. ........................... 53,100 1,387
UGI Corp. ..................................... 78,990 1,886
WGL Holdings, Inc. ............................ 108,600 3,496
-----------
36,543
-----------
TOTAL UTILITIES 110,652
-----------
TOTAL COMMON STOCKS 1,554,782
-----------
SHORT TERM INVESTMENTS - 12.02%
American Beacon Money Market Select Fund ++ ... 93,828,958 93,829
Columbia Treasury Reserves Fund ............ 99,125,305 99,125
PAR
AMOUNT
------------
U.S. Treasury,
0.41%, Due 12/11/2008 # ....................... $ 19,745 19,731
-----------
TOTAL SHORT TERM INVESTMENTS 212,685
-----------
SHARES
------------
SECURITIES LENDING COLLATERAL - 23.28%
American Beacon Money Market Select Fund ++ ... 60,443,710 60,444
Securities Liquidating AB Trust ............... 206,693,614 203,909
SHARES VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
State Street Navigator Securities Lending
Prime Portfolio ............................... $147,457,637 $ 147,458
-----------
TOTAL SECURITIES LENDING COLLATERAL 411,811
-----------
TOTAL INVESTMENTS 123.17% - (COST $2,720,310) 2,179,278
LIABILITIES, NET OF OTHER ASSETS - (23.17%) (409,970)
-----------
TOTAL NET ASSETS - 100.00% $ 1,769,308
===========
See accompanying notes
14
AMERICAN BEACON SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2008
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, 2008.
++ The Fund is affiliated by having the same investment advisor.
# At October 31, 2008, 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 ......... 1,810 Dec 2008 $97,107 $(33,913)
======= ========
See accompanying notes
15
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2008 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS:
Investments in unaffiliated securities, at value (A) (C) .... $ 2,025,005
Investments in affiliated securities, at value (B) .......... 154,273
Receivable for investments sold ............................. 13,629
Dividends and interest receivable ........................... 1,216
Receivable for fund shares sold ............................. 2,982
Receivable for variation margin on open futures contracts ... 3,620
Prepaid expenses ............................................ 50
-----------
TOTAL ASSETS ............................................. 2,200,775
-----------
LIABILITIES:
Payable for investments purchased ........................... 8,565
Payable upon return of securities loaned .................... 414,595
Payable for fund shares redeemed ............................ 4,026
Management and investment advisory fees payable (Note 2) .... 3,293
Administrative service and service fees payable ............. 579
Other liabilities ........................................... 409
-----------
TOTAL LIABILITIES ........................................ 431,467
-----------
NET ASSETS ..................................................... $ 1,769,308
===========
ANALYSIS OF NET ASSETS:
Paid-in-capital ............................................. 2,601,452
Undistributed net investment income ......................... 23,220
Accumulated net realized loss ............................... (280,419)
Unrealized depreciation of investments, futures contracts,
and foreign currency ..................................... (574,945)
-----------
NET ASSETS ..................................................... $ 1,769,308
===========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class ......................................... 65,946,807
===========
PlanAhead Class ............................................. 57,246,214
===========
Service Class ............................................... 2,760,048
===========
AMR Class ................................................... 16,819,409
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class ......................................... $ 12.53
===========
PlanAhead Class ............................................. $ 12.22
===========
Service Class ............................................... $ 12.13
===========
AMR Class ................................................... $ 12.48
===========
- ----------
A Cost of investments in unaffiliated securities ............... $ 2,566,037
B Cost of investments in affiliated securities ................. $ 154,273
C Market value of securities on loan ........................... $ 425,608
16
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
STATEMENT OF OPERATIONS
OCTOBER 31, 2008 (IN THOUSANDS)
INVESTMENT INCOME:
Dividend income from unaffiliated securities
(net of foreign taxes)* .................................. $ 45,151
Dividend income from affiliated securities .................. 3,708
Interest income ............................................. 110
Income derived from securities lending, net ................. 6,182
-----------
TOTAL INVESTMENT INCOME ............................... 55,151
-----------
EXPENSES:
Management and investment advisory fees (Note 2) ............ 12,974
Administrative service fees (Note 2):
Institutional Class ...................................... 2,948
PlanAhead Class .......................................... 2,619
Service Class ............................................ 138
AMR Class ................................................ 16
Transfer agent fees:
Institutional Class ...................................... 52
PlanAhead Class .......................................... 65
Service Class ............................................ 4
AMR Class ................................................ 17
Custody and fund accounting fees ............................ 208
Professional fees ........................................... 54
Registration fees and expenses .............................. 60
Service fees:
PlanAhead Class (Note 2) ................................. 2,565
Service Class (Note 2) ................................... 135
Distribution fees - Service Class (Note 2) .................. 135
Prospectus and shareholder reports .......................... 366
Other expenses .............................................. 189
-----------
TOTAL EXPENSES ........................................ 22,545
-----------
NET INVESTMENT INCOME .......................................... 32,606
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments .............................................. (237,057)
Commission recapture (Note 1) ............................ 298
Futures contracts ........................................ (29,528)
Change in net unrealized appreciation or depreciation of:
Investments .............................................. (749,725)
Futures contracts ........................................ (35,608)
-----------
NET LOSS ON INVESTMENTS ............................... (1,051,620)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $(1,019,014)
===========
* Foreign taxes ............................................. $ 46
See accompanying notes
17
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Year Ended Year Ended
October 31, October 31,
2008 2007
----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ......................................... $ 32,606 $ 29,550
Net realized gain (loss) on investments, futures contracts, and
foreign currency transactions .............................. (266,287) 344,695
Change in net unrealized depreciation of investments, futures
contracts, and foreign currency translations ............... (785,333) (182,874)
----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................... (1,019,014) 191,371
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class ........................................ (13,291) (10,903)
PlanAhead Class ............................................ (9,332) (8,142)
Service Class .............................................. (298) (295)
AMR Class .................................................. (4,903) (4,490)
Net realized gain on investments:
Institutional Class ........................................ (152,714) (90,742)
PlanAhead Class ............................................ (145,952) (94,401)
Service Class .............................................. (7,763) (5,063)
AMR Class .................................................. (43,605) (28,623)
----------- ----------
NET DISTRIBUTIONS TO SHAREHOLDERS ....................... (377,858) (242,659)
----------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares ................................. 463,771 808,393
Reinvestment of dividends and distributions ................... 371,165 237,930
Cost of shares redeemed ....................................... (879,196) (920,892)
----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS ......................................... (44,260) 125,431
----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS ............................ (1,441,132) 74,143
----------- ----------
NET ASSETS:
Beginning of period ........................................... 3,210,440 3,136,297
----------- ----------
END OF PERIOD * ............................................... $ 1,769,308 $3,210,440
=========== ==========
*Includes undistributed net investment income of ................. $ 23,220 $ 20,863
=========== ==========
See accompanying notes
18
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, (the
"Act"), as amended as a no load, diversified, open-end management investment
company. These financial statements and notes to the financial statements relate
to the American Beacon Small Cap Value Fund (the "Fund"), a series of the Trust.
Effective September 12, 2008, American Beacon Advisors, Inc. (the
"Manager") became a wholly-owned subsidiary of Lighthouse Holdings, Inc., which
is indirectly owned by investment funds affiliated with Pharos Capital Group,
LLC and TPG Capital, L.P., two leading private equity firms. Prior to September
12, the Manager was a wholly-owned subsidiary of AMR Corporation ("AMR"),the
parent company of American Airlines, Inc. ("American").
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:
- ------ -----------
INSTITUTIONAL CLASS Investors making an initial investment of $2 million
PLANAHEAD CLASS General public and investors investing through an
intermediary
SERVICE CLASS Investors investing through an intermediary
AMR CLASS Investors in the tax-exempt retirement and benefit plans
of AMR Corporation and its affiliates
Administrative service fees, service fees and distribution fees vary
amongst the classes as described more fully in footnote 2.
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 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 market prices are not readily available or are
not reflective of the fair value of the security, as determined by the Manager,
will be priced at fair value following procedures approved by the Board of
Trustees (the "Board").
19
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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.
20
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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
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, 2008, 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.
In March 2008, FASB issued Statement on Financial Accounting Standards
No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("FAS
161"), which is effective for fiscal years and interim periods beginning after
November 15, 2008. FAS 161 requires enhanced disclosures about derivative and
hedging activities, including how such activities are accounted for and their
effect on financial position, performance and cash flows. The Manager is
currently evaluating the impact the adoption of FAS 161 will have on the Fund's
financial statements and related disclosures.
Other
Under the Trust's organizational documents, its officers and directors
are indemnified against certain liability arising out of the performance of
their duties to the Trust. In the normal course of business, the Trust enters
into contracts that provide indemnification to the other party or parties
against potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Trust and the Manager are parties to a Management Agreement that
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory, fund management, and securities lending services.
Investment assets of the Fund are managed by multiple investment advisors which
have entered into separate investment advisory agreements with the Manager. As
compensation for performing the duties required under the Management Agreement,
the Manager receives from the Fund an annualized fee equal to amounts paid by
the Manager to sub-advisors hired by the Manager plus, through September 11,
2008, 0.10% of the average daily net assets, and from September 12, 2008, 0.05%
of the average daily net assets. Management fees paid during the year ended
October 31, 2008 were as follows (dollars in thousands):
AMOUNTS PAID TO NET AMOUNTS
MANAGEMENT FEE RATE MANAGEMENT FEE INVESTMENT ADVISORS RETAINED BY MANAGER
- ------------------- -------------- ------------------- -------------------
0.30%-0.60% $12,974 $10,564 $2,410
21
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
October 31, 2008
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, 2008, securities lending fees paid to the Manager
were $991,637.
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 received, through September
11, 2008, an annualized fee of 0.25% of the average daily net assets of the
Institutional, PlanAhead and Service Classes of the Fund. From September 12,
2008, the Manager received an annualized fee of 0.30% of the average daily net
assets of the Institutional, PlanAhead, and Service Classes of the Fund and
0.05% of the average daily net assets of the AMR Class 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.
Brokerage Commissions
Affiliated entities of a sub-advisor to the Fund received net
commissions on purchases and sales of the Fund's portfolio securities totaling
$12,095 for the year ended October 31, 2008.
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 up to 0.10% of its average daily net assets. During the
year ended October 31, 2008,
22
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
October 31, 2008
the Manager earned fees from the Affiliated Funds totaling $112,814 on the
Fund's direct investment in the Affiliated Funds and $586,901 from the Fund's
securities lending collateral invested in the Affiliated Funds.
Interfund Lending Program
Pursuant to an exemptive order by the SEC, the Fund, along with other
registered investment companies having management contracts with the Manager,
may participate in an interfund lending program as a borrower. This program
provides an alternative credit facility allowing the Fund to borrow from other
participating Funds. During the year ended October 31, 2008, 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, 2008, there were no
waived fees or reimbursed expenses subject to potential recovery.
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.
The Fund adopted the provisions of FASB Interpretation No. 48,
"Accounting for Uncertainties in Income Taxes" ("FIN 48"), on November 1, 2007.
FIN 48 sets forth a minimum threshold for financial statement recognition of the
benefit of a tax position taken or expected to be taken in a tax return. The
implementation of FIN 48 did not result in any unrecognized tax benefits in the
accompanying financial statements. Each of the tax years in the three year
period ended October 31, 2008 remains subject to examination by the Internal
Revenue Service. If applicable, the Fund recognizes interest accrued related to
unrecognized tax benefits in interest expense and penalties in "Other expenses"
on the Statement of Operations.
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, 2008 and October 31, 2007 were as follows (in thousands):
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2008 2007
----------- -----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME*
Institutional Class .. $ 37,816 $ 36,981
PlanAhead Class ...... 32,770 35,272
Service Class ........ 1,545 1,750
AMR Class ............ 11,905 12,717
LONG-TERM CAPITAL GAIN
Institutional Class... 128,189 64,664
PlanAhead Class ...... 122,514 67,270
Service Class ........ 6,516 3,608
AMR Class ............ 36,603 20,397
-------- --------
TOTAL DISTRIBUTIONS PAID ... $377,858 $242,659
======== ========
* For tax purposes, short-term capital gains are considered ordinary income
distributions.
23
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
October 31, 2008
As of October 31, 2008, the components of distributable earnings on a tax basis
were as follows (in thousands):
Cost basis of investments for federal income tax purposes ... $ 2,772,633
Unrealized appreciation ..................................... 66,121
Unrealized depreciation ..................................... (659,476)
-----------
Net unrealized appreciation/(depreciation) .................. (593,355)
Undistributed ordinary income ............................... 21,179
Undistributed long-term gain/(loss) ......................... (259,968)
-----------
Distributable earnings ...................................... $ (832,144)
===========
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, 2008 (in thousands):
Paid-in-capital ...................................... $ (1)
Undistributed net investment income (loss) ........... (2,425)
Accumulated net realized gain (loss) ................. 2,425
Unrealized appreciation (depreciation) of investments,
futures contracts and foreign currency ............ 1
At October 31, 2008 the capital loss carry forward position for
federal income tax purposes was $259,968 expiring in 2016. (in thousands)
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,
2008 were (in thousands) $1,511,341 and $2,072,369, respectively.
A summary of the Fund's direct transactions in Affiliated Funds for
the year ended October 31, 2008 is set forth below (in thousands):
OCTOBER 31, 2007 OCTOBER 31, 2008
AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
--------- ------------------- ---------- ---------- -------------------
Select Fund $87,216 $1,306,161 $1,299,548 $93,829
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 money market mutual funds, and other short-term investments,
provided the investments meet certain quality and diversification requirements.
It is the Fund's policy to obtain additional
24
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
October 31, 2008
collateral from or return excess collateral to the borrower by the end of the
next business day, following the valuation date of the securities loaned.
Therefore, the value of the collateral held may be temporarily less than the
value of the securities on loan. The amount of this temporary difference at
October 31, 2008 is disclosed as the calculated mark in the table below.
Prior to June 1, 2008, the Fund, the Agent, and the Manager retained
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. From June 1, 2008, 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,
borrowers pay the Fund negotiated lenders' fees, which are divided between the
Fund, the Agent, and the Manager using the same percentages as above. 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.
Securities lending transactions pose certain risks to the Fund,
including that the borrower may not provide additional collateral when required
or return the securities when due, that the value of the short-term investments
will be less than the amount of cash collateral required to be returned to the
borrower, and that the cash collateral investments could become illiquid and
unable to be used to return collateral to the borrower. The Fund could also
experience delays and costs in gaining access to the collateral. The Fund bears
the risk of any deficiency in the amount of the collateral available for return
to the borrower due to any loss on the collateral invested.
At October 31, 2008, the value of outstanding securities on loan and
the value of collateral was as follows (in thousands):
MARKET VALUE OF NON-CASH CASH COLLATERAL UNREALIZED LOSS ON CALCULATED TOTAL VALUE OF
SECURITIES ON LOAN COLLATERAL POSTED BY BORROWER CASH COLLATERAL MARK COLLATERAL
- ------------------ ---------- ------------------ ------------------ ---------- --------------
$425,608 $917 $414,595 $(2,784) $22,562 $435,290
Cash collateral was invested in a joint investment account, which is
comprised of an investment in the Select Fund and other short-term investments.
The underlying securities allocated to the Fund are stated at market value and
have been included as investments on the Schedule of Investments and Statement
of Assets and Liabilities. Income earned on these investments is reported as
Income derived from securities lending and unrealized losses are included in the
Change in unrealized appreciation and depreciation of investments on the Fund's
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.
At the close of business on October 9, 2008, the joint investment
account in which the Fund invests redeemed for cash and securities on behalf of
the Fund its shares in the Cash Trust as follows (in thousands):
Cash ............................ $260,093
Securitites (at market value) ... $242,315
The cash proceeds were invested in other money market funds and the
securities were invested in the Securities Liquidating AB Trust.
25
AMERICAN BEACON SMALL CAP VALUE FUND(SM)
NOTES TO FINANCIAL STATEMENTS
October 31, 2008
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, 2008
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
------------------- ------------------- ----------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- --------- ------- --------- ------ -------- ------ ---------
Shares sold ..................... 14,496 $ 244,453 10,422 $ 172,430 888 $ 14,694 1,925 $ 32,194
Reinvestment of dividends ....... 8,983 161,791 8,677 152,805 460 8,061 2,708 48,508
Shares redeemed ................. (21,496) (364,982) (22,737) (376,472) (1,809) (29,610) (6,475) (108,132)
------- --------- ------- --------- ------ -------- ------ ---------
Net increase (decrease) in shares
outstanding .................. 1,983 $ 41,262 (3,638) $ (51,237) (461) $ (6,855) (1,842) $ (27,430)
======= ========= ======= ========= ====== ======== ====== =========
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
======= ========= ======= ========= ====== ======== ====== =========
26
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27
AMERICAN BEACON SMALL CAP VALUE FUND (SM)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class
Year Ended October 31,
-----------------------------------------------------------
2008 2007 2006 2005(A) 2004(B)
-------- ---------- ---------- ---------- --------
Net asset value, beginning
of period ................... $ 22.10 $ 22.53 $ 20.43 $ 18.85 $ 16.21
-------- ---------- ---------- ---------- --------
Income from investment
operations:
Net investment income ....... 0.25 0.22 0.19 0.11 0.07
Net gains (losses) on
securities (both realized
and unrealized) .......... (7.13) 1.10 2.94 2.31 3.09
-------- ---------- ---------- ---------- --------
Total income (loss) from
investment operations ....... (6.88) 1.32 3.13 2.42 3.16
-------- ---------- ---------- ---------- --------
Less distributions:
Dividends from net investment
income ................... (0.22) (0.19) (0.14) (0.07) (0.08)
Distributions from net
realized gains on
securities ............... (2.47) (1.56) (0.89) (0.77) (0.44)
-------- ---------- ---------- ---------- --------
Total distributions ............ (2.69) (1.75) (1.03) (0.84) (0.52)
-------- ---------- ---------- ---------- --------
Net asset value, end of
period ...................... $ 12.53 $ 22.10 $ 22.53 $ 20.43 $ 18.85
======== ========== ========== ========== ========
Total return ................... (34.84)% 6.10% 15.80% 12.90% 19.86%
======== ========== ========== ========== ========
Ratios and supplemental data:
Net assets, end of period
(in thousands) ........... $826,232 $1,413,734 $1,319,024 $1,076,909 $429,540
Ratios to average net assets
(annualized):
Expenses, net of
waivers ............... 0.81% 0.80% 0.82% 0.87% 0.89%
Expenses before waivers .. 0.81% 0.80% 0.82% 0.87% 0.89%
Net investment income
(loss), net of
waivers ............... 1.36% 0.94% 0.83% 0.66% 0.57%
Net investment income
(loss), before
waivers ............... 1.36% 0.94% 0.83% 0.66% 0.57%
Portfolio turnover rate ..... 62% 52% 48% 47% 35%
PlanAhead Class
Year Ended October 31,
-----------------------------------------------------------
2008 2007 2006 2005(A) 2004(B)
-------- ---------- ----------- ---------- ---------
Net asset value, beginning
of period ................... $ 21.62 $ 22.08 $ 20.04 $ 18.54 $ 15.95
-------- ---------- ---------- ---------- --------
Income from investment
operations:
Net investment income ....... 0.20 0.16 0.13 0.09 0.08
Net gains (losses) on
securities (both realized
and unrealized) .......... (6.97) 1.07 2.89 2.24 2.98
-------- ---------- ---------- ---------- --------
Total income (loss) from
investment operations ....... (6.77) 1.23 3.02 2.33 3.06
-------- ---------- ---------- ---------- --------
Less distributions:
Dividends from net investment
income ................... (0.16) (0.13) (0.09) (0.06) (0.03)
Distributions from net
realized gains on
securities ............... (2.47) (1.56) (0.89) (0.77) (0.44)
-------- ---------- ---------- ---------- --------
Total distributions ............ (2.63) (1.69) (0.98) (0.83) (0.47)
-------- ---------- ---------- ---------- --------
Net asset value, end of
period ...................... $ 12.22 $ 21.62 $ 22.08 $ 20.04 $ 18.54
======== ========== ========== ========== ========
Total return ................... (35.04)% 5.83% 15.56% 12.63% 19.56%
======== ========== ========== ========== ========
Ratios and supplemental data:
Net assets, end of period
(in thousands) ........... $699,670 $1,316,188 $1,333,814 $1,320,853 $466,364
Ratios to average net assets
(annualized):
Expenses, net of
waivers ............... 1.06% 1.05% 1.06% 1.10% 1.15%
Expenses before waivers .. 1.06% 1.05% 1.06% 1.10% 1.15%
Net investment income
(loss), net
of waivers ........... 1.12% 0.70% 0.59% 0.42% 0.33%
Net investment income
(loss), before
waivers ............... 1.12% 0.70% 0.59% 0.42% 0.33%
Portfolio turnover rate ..... 62% 52% 48% 47% 35%
(A) Opus Capital Group, LLC was added as an investment advisor on February 1,
2005 and Metropolitan West Capital Management, LLC and Dreman Value
Management, LLC were added as investment advisors on August 31, 2005.
(B) The Boston Company Asset Management, LLC was added as an investment advisor
to the Small Cap Value Fund on September 27, 2004.
28
Service Class
Year Ended October 31,
------------------------------------------------
2008 2007 2006 2005(A) 2004(B)
------- ------- ------- ------- -------
Net asset value, beginning
of period ................... $ 21.46 $ 21.94 $ 19.94 $ 18.49 $ 15.92
------- ------- ------- ------- -------
Income from investment
operations:
Net investment income ....... 0.16 0.10 0.07 0.04 0.01
Net gains (losses) on
securities (both realized
and unrealized) .......... (6.93) 1.07 2.88 2.23 3.00
------- ------- ------- ------- -------
Total income (loss) from
investment operations ....... (6.77) 1.17 2.95 2.27 3.01
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment
income ................... (0.09) (0.09) (0.06) (0.05) --
Distributions from net
realized gains on
securities ............... (2.47) (1.56) (0.89) (0.77) (0.44)
------- ------- ------- ------- -------
Total distributions ............ (2.56) (1.65) (0.95) (0.82) (0.44)
------- ------- ------- ------- -------
Net asset value, end of
period ...................... $ 12.13 $ 21.46 $ 21.94 $ 19.94 $ 18.49
======= ======= ======= ======= =======
Total return ................... (35.19)% 5.55% 15.23% 12.32% 19.24%
======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period
(in thousands) ........... $33,479 $69,112 $70,602 $44,709 $11,828
Ratios to average net assets
(annualized):
Expenses, net of
waivers ............... 1.31% 1.32% 1.34% 1.40% 1.38%
Expenses before waivers .. 1.31% 1.32% 1.34% 1.40% 1.69%
Net investment income
(loss), net of
waivers ............... 0.86% 0.43% 0.31% 0.12% 0.17%
Net investment income
(loss), before
waivers ............... 0.86% 0.43% 0.31% 0.12% (0.14)%
Portfolio turnover rate ..... 62% 52% 48% 47% 35%
AMR Class
Year Ended October 31,
-----------------------------------------------------
2008 2007 2006 2005(A) 2004(B)
-------- -------- -------- -------- --------
Net asset value, beginning
of period ................... $ 22.05 $ 22.48 $ 20.38 $ 18.78 $ 16.13
-------- -------- -------- -------- --------
Income from investment
operations:
Net investment income ....... 0.33 0.30 0.27 0.21 0.14
Net gains (losses) on
securities (both realized
and unrealized) .......... (7.15) 1.08 2.91 2.26 3.04
-------- -------- -------- -------- --------
Total income (loss) from
investment operations ....... (6.82) 1.38 3.18 2.47 3.18
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income ................... (0.28) (0.25) (0.19) (0.10) (0.09)
Distributions from net
realized gains on
securities ............... (2.47) (1.56) (0.89) (0.77) (0.44)
-------- -------- -------- -------- --------
Total distributions ............ (2.75) (1.81) (1.08) (0.87) (0.53)
-------- -------- -------- -------- --------
Net asset value, end of
period ...................... $ 12.48 $ 22.05 $ 22.48 $ 20.38 $ 18.78
======== ======== ======== ======== ========
Total return ................... (34.71)% 6.39% 16.12% 13.23% 20.12%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period
(in thousands) ........... $209,927 $411,406 $412,857 $424,965 $438,353
Ratios to average net assets
(annualized):
Expenses, net of
waivers ............... 0.56% 0.54% 0.55% 0.58% 0.60%
Expenses before waivers .. 0.56% 0.54% 0.55% 0.58% 0.60%
Net investment income
(loss), net
of waivers ........... 1.62% 1.21% 1.10% 0.94% 0.84%
Net investment income
(loss), before
waivers .............. 1.62% 1.21% 1.10% 0.94% 0.84%
Portfolio turnover rate ..... 62% 52% 48% 47% 35%
29
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, 2008, which is
designated as qualifying for the dividends-received deduction, was 21.74%.
For shareholders in the Fund, the percentage of dividend income
distributed for the year ended October 31, 2008, which is designated as
qualified dividend income under the Jobs Growth Tax Relief Act of 2003, was
27.78%. Shareholders will receive notification in January 2009 of the percentage
applicable to the preparation of their 2008 income tax returns.
Pursuant to Section 852 of the Internal Revenue Code, the Fund
designated $293,821,907 as long-term capital gain dividends for the tax year
ended October 31, 2008.
30
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
At its May 21, 2008 meeting, the Board of Trustees ("Board" or
"Trustees") considered the renewal of the existing Management Agreement
("Current Agreement") between the Manager and the American Beacon Funds ("Beacon
Trust") on behalf of its Small Cap Value Fund (the "Fund") and each Investment
Advisory Agreement between the Manager and a subadvisor ("Current Investment
Advisory Agreement"). In preparation for the Board's consideration to renew
these Current 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 9,
2008 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.
On May 21, May 22 and June 4, 2008, the Board met to determine, among
other matters, whether to approve a new investment management agreement ("New
Agreement") between the Manager and the Fund. The New Agreement was necessary
because, on April 16, 2008, AMR Corporation ("AMR"), the parent company of the
Manager, entered into an agreement with Lighthouse Holdings, Inc. ("Lighthouse")
pursuant to which Lighthouse would acquire all of the capital stock of the
Manager ("Transaction") in exchange for cash and 10% of the capital stock of the
parent corporation of Lighthouse. Upon the closing of the Transaction on
September 12, 2008 ("Closing"), the Manager ceased to be a wholly owned
subsidiary of AMR and became a subsidiary of Lighthouse. This change in control
was deemed to be an "assignment" under the Investment Company Act of 1940 ("1940
Act") of the Fund's Current Agreement with the Manager. As required by the 1940
Act, the Fund's Current Agreement provided for its automatic termination in the
event of an assignment and therefore terminated upon the Closing.
To provide for the continuity of management for the Fund, the Board
met to consider the New Agreement with the Manager. The New Agreement for the
Fund reflects substantially the same terms as the Current Agreement for the
Fund. In addition, the Current Agreement had been updated and modernized. As
part of this process, the primary administrative services provided by the
Manager to the Fund have been transferred to one single administrative services
agreement ("New Administrative Services Agreement"). The Manager previously
provided administrative services to the Fund pursuant to its Current Agreement
and an Administrative Services Agreement ("Current Administrative Services
Agreement"). The aggregate fee rates for the Fund under the New Agreement and
the New Administrative Services Agreement are the same as the fee rates imposed
under the existing agreements which they replaced.
In preparation for the Board's consideration to approve the New
Agreement and New Investment Advisory Agreements, the Board considered the
impact to the Fund once Lighthouse directly controlled the Manager. Lighthouse
indicated that it did not anticipate making any changes to the organization or
structure of the Fund, to the service providers or to the aggregate fee rates
under the Current Agreement. In addition, the portfolio managers at the Manager
that manage the Fund were expected to continue to manage the Fund after the
Closing. In that regard, the Manager and Lighthouse anticipated entering into
employment contracts with certain key personnel performing or overseeing the
Fund's investment program. The Board considered that there could be no assurance
that these personnel would choose to remain employed by the Manager before or
after the Closing. The Board noted that the Manager and the Fund would continue
to operate under their existing names. Potential benefits to the Fund as a
result of the Transaction included Lighthouse's intention to devote additional
resources to product development and distribution of Fund shares. The Board also
considered that any resulting growth of Fund assets would potentially produce
economies of scale that would benefit shareholders of the Fund.
With respect to the Fund, the Manager had entered into Current
Investment Advisory Agreements with various subadvisors on behalf of the Fund.
Upon the Closing, these Current Investment Advisory Agreements terminated
automatically upon the termination of the Current Agreement. Pursuant to an
exemptive order
31
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
issued by the Securities and Exchange Commission ("SEC"), the Manager was
permitted to enter into new or modified investment advisory agreements with the
subadvisors ("New Investment Advisory Agreements") without approval of the
Fund's shareholders, but subject to the approval of the Fund's Board. Each New
Investment Advisory Agreement reflected substantially the same terms as the
Current Investment Advisory Agreement for the Fund.
In preparation for the Board's consideration to approve the New
Agreement and New Investment Advisory Agreements, the Board held preliminary
conference call meetings on April 15, 16 and 21, 2008, to discuss the New
Agreement and New Investment Advisory Agreements and the effect that approving
the New Agreement and New Investment Advisory Agreements would have on the Fund.
The Board received a memorandum and related advice from their legal counsel
detailing the Board's responsibilities in considering the New Agreement and New
Investment Advisory Agreements.
In connection with Board's consideration of the Current Agreement,
Current Investment Advisory Agreements, New Agreement and New Investment
Advisory Agreements, the Trustees considered, among other materials, responses
by the Manager and the subadvisors to inquiries requesting:
- a description of the Transaction, the effects of the Transaction on
the Beacon Trust and the Board, and any proposed changes to the Beacon
Trust, its service providers or fee structure and other information;
- 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 Form ADV registration statement with the SEC;
- 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 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 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 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;
32
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
- 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 regard
to the services provided to the Fund.
In addition to the foregoing, the Manager provided the following
information specific to the renewal of the Fund's Current Agreement and the
approval of the Fund's New 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 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
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.
In connection with the Current Agreement, Current Investment Advisory
Agreements, New Agreement and New Investment Advisory Agreements, 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 of shares used for comparative purposes was the class with the longest
performance history, which was 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 Current Agreement, Current Investment
Advisory Agreements, New Agreement and New Investment Advisory Agreements are
each referenced to herein as an "Agreement" and collectively, the "Agreements."
The Trustees also received memoranda from their legal counsel
detailing the Board's responsibilities pertaining to the approval of each
Agreement. These memoranda explained the regulatory requirements surrounding the
Trustees' process for evaluating investment advisors and the terms of the
contracts.
In connection with the Board's consideration of the New Agreement and
each New Investment Advisory Agreement, the Trustees considered, among other
information, the following factors:
1. The manner in which the Fund's assets are managed will not change as a
result of the Transaction, and the same people who manage the Fund's assets
are expected to continue to do so after the Transaction;
2. The aggregate fee rates payable by the Fund under the New Agreement and the
New Administrative Services Agreement are the same as the fee rates payable
under the Current Agreement and the Current Administrative Services
Agreement;
3. The material terms regarding advisory services pursuant to the New
Agreement are substantially the same as the terms of the Current Agreement;
4. The qualifications of the Manager's personnel who will provide advisory and
administrative services to the Fund are not expected to change;
5. The Manager's financial condition and the post-Closing capitalization of
Lighthouse;
6. The impact of the Transaction on the Manager's day-to-day operations;
7. The capabilities, experience, corporate structure and capital resources of
Lighthouse;
33
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
8. The long-term business goals of Lighthouse with regard to the Manager and
the Beacon Trust;
9. Fund shareholders will not bear any costs in connection with the
Transaction, inasmuch as AMR and Lighthouse plan to bear equally the costs,
fees and expenses incurred by the Fund in connection with obtaining
shareholder approval of the New Agreement, the fees and expenses of
accountants and attorneys relating to the Transaction and obtaining
shareholder approval of the New Agreement, the fees and expenses incurred
by the Fund in connection with the Transaction, and the meeting fees of the
Boards for meetings held in connection with the Transaction;
10. The Fund may realize benefits as a result of the Transaction, including
long-term economies of scale;
11. The potential for increased costs to the Beacon Trust in order to satisfy
existing obligations under the current Trustees' retirement plan; and
12. The advisory relationship with each subadvisor would continue in the same
manner as before the Transaction and that each New Investment Advisory
Agreement would be substantially the same as each Current Investment
Advisory Agreement.
Provided below is an overview of the other primary factors the Board
considered at its May 21, May 22 and June 4, 2008 meetings. The Board did not
identify any particular information that was most relevant to its consideration
to renew the Current Agreement and Current Investment Advisory Agreements and
approve the New Agreement and New Investment Advisory Agreements, and each
Trustee may have afforded different weight to the various factors. Legal counsel
to the Non-interested Trustees provided the Board with memoranda regarding its
responsibilities pertaining to the renewal of the Current Agreement and Current
Investment Advisory Agreements and approve the New Agreement and New Investment
Advisory Agreements. Based on its evaluation, the Board unanimously concluded
that the terms of each Current Agreement and Current Investment Advisory
Agreement were reasonable and fair and that the renewal of each Current
Agreement and Current Investment Advisory Agreement was in the best interests of
the Fund and its shareholders. The Board also unanimously concluded that the
terms of the New Agreement and New Investment Advisory Agreements were
reasonable and fair and that the approval of the New Agreement and New
Investment Advisory Contracts was in the best interests of the Fund and its
shareholders.
In determining whether to renew the Current Agreement and the Current
Investment Advisory Agreements and approve the New Agreement and New Investment
Advisory Agreements, the Trustees considered the best interests of the Fund.
While the Current Agreement and Current Investment Advisory Agreements for the
Fund was considered at the Board meetings on May 21, 2008, and the New Agreement
and New Investment Advisory Agreement for the Fund was considered at the
meetings on May 21, May 22 and June 4, 2008, 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 each subadvisor for the Fund; (3) the costs incurred by the
Manager and (to the extent provided) the subadvisors in rendering their services
and their resulting profits or losses; (4) the extent to which economies of
scale have been taken into account in setting each 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 and
Lighthouse regarding certain key aspects of the materials submitted in support
of the renewal.
Nature, Extent and Quality of Services. With respect to the renewal of
the Fund's Current Agreement and the approval of the Fund's New 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
34
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
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.
With respect to the renewal of the Current Investment Advisory
Agreements and the approval of the New 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,
determined to renew the Current Agreement and Current Investment Advisory
Agreements, and approve each New Agreement and New Investment Advisory
Agreements for the Fund.
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(es) and peer group. 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.
In considering the renewal of the Current Agreement and the approval
of the New Agreement, the Trustees considered the following additional factors:
(1) the Small Cap Value Fund outperformed the peer universe median for the one-
and five-year periods ended March 31, 2008 but underperformed for the three-year
period; and (2) the expense ratio of the Institutional Class of Fund shares was
the lowest of its Lipper expense group.
In considering the renewal of the Current Investment Advisory
Agreements and the approval of the New Investment Advisory Agreements with
Barrow Hanley, Mewhinney & 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"), The Boston Company Asset
Management, LLC ("TBC"), and Opus Capital Group, LLC ("Opus"), the Trustees
considered the following additional factors: (1) Hotchkis outperformed the peer
universe median for the five-year period ended March 31, 2008 but underperformed
for the one- and three-year periods; (2) Brandywine outperformed the peer
universe median for the one- and five-year periods ended March 31, 2008 but
underperformed for the three-year period; (3) Barrow and TBC outperformed the
peer universe median for the one- and three-year periods ended March 31, 2008;
(4) Opus outperformed the peer universe median for the one-year period ended
March 31, 2008 but underperformed for the three-year period; (5) Dreman and
MetWest have not been allocated a portion of Fund assets to date; (6) Barrow,
Brandywine, Hotchkis, and TBC 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; and (7) the Manager's
recommendation to continue to retain each subadvisor.
Costs of the Services to be Provided to the Fund and the Projected
Profits to be Realized by the Manager from its Relationship with the Fund. 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. The profits or losses were noted at both an individual Fund level
and at an aggregate level for all Funds. The Board also considered that the
Current and New Agreements for the Beacon Trust stipulate that, to the extent
that a Fund invests all of its investable assets in another registered
investment company (i.e., is a Feeder Fund), 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 Fund, the
difference reflects the greater level of responsibility and regulatory
requirements associated with managing the Fund.
The Board also noted that the Manager proposed to continue any expense
waivers and reimbursements for the Fund and classes that were in place during
the last fiscal year. The Board further considered that the
35
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
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 certain classes of the Fund may maintain higher expense ratios
in order to compensate third-party distributors.
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 many subadvisory
fee rates. The Board also noted that, for purposes of determining the fee rates
chargeable to the Fund, many subadvisors have agreed to take into account other
assets of AMR and its pension plans that are managed by the subadvisors. Thus,
the Funds are able to receive lower effective fee rates.
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 for the Fund provides for a reasonable
sharing of benefits from any economies of scale with the Fund.
Benefits Derived from the Relationship with the Fund. The Board
considered the "fall-out" or ancillary benefits that accrue to the Manager
and/or the subadvisors as a result of the advisory relationships with the Fund,
including greater exposure in the marketplace with respect to the Manager's or
subadvisor's investment process and expanding the level of assets under
management by the Manager and the subadvisors. The Board also considered that
the Manager's relationship with the Fund 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 Beacon Trust at a relatively low cost.
In this regard, the Board considered that the benefit plans of AMR have invested
substantial assets in the Fund, which helps reduce costs for other Fund
shareholders, just as the investment of other Fund shareholders helps to reduce
costs for AMR's benefit plans. In addition, the Board considered that certain of
the subadvisors reimburse the Manager for certain of its costs relating to
distribution activities for the Fund. The Board also considered that the Fund
did not pay commissions to any affiliated broker-dealer of the Manager during
the most recent fiscal year ended October 31, 2007. Based on the foregoing
information, the Board concluded that the potential benefits accruing to the
Manager and the subadvisors by virtue of its relationships with the Fund appears
to be fair and reasonable.
Conclusion. Based on these and other considerations, the Trustees
concluded that the fees paid to the Manager and the subadvisors under the
Agreements are fair and reasonable, determined that the Small Cap Value Fund and
its shareholders would benefit from the Manager's and subadvisors' continued
management of the Fund, approved the renewal of the Current Agreement and
Current Investment Advisory Agreements, and approved the New Agreement and New
Investment Advisory Agreements with respect to the Small Cap Value Fund.
36
VOTING RESULTS OF SHAREHOLDER MEETING
(UNAUDITED)
A special meeting of shareholders of the American Beacon Funds (the
"Trust") was held on August 22, 2008. The shareholders of the Small Cap Value
Fund (the "Fund"), a portfolio of the Trust, approved a new investment
management agreement between American Beacon Advisors, Inc. and the Fund. This
proposal required a majority of shareholders of the Fund to achieve a quorum;
however, a quorum was not present for the Fund and therefore not enough votes in
favor of the proposal for shareholder approval for the Fund. The meeting was
adjourned to a second special shareholder meeting on August 27, 2008 where a
quorum was present, but there were not enough votes in favor of the proposal for
shareholder approval. The meeting adjourned for a third special meeting of
shareholders on September 9, 2008, where a quorum was present for the Fund and
the proposal was approved by shareholders. The following are the results of the
shareholder votes for this proposal:
FOR AGAINST ABSTAIN NON-VOTING
- ---------------- ------------ ------------- --------------
1,054,957,475.04 7,669,964.83 38,832,166.28 205,680,782.85
A special meeting of the shareholders of the American Beacon Funds
(the "Trust") was held on August 22, 2008. The shareholders of the Trust
approved the re-election of five of the current Trustees to the Board of the
American Beacon Trust and to elect three additional Trustees to the Board. This
proposal required a majority of the shareholders of the Trust to vote to achieve
a quorum. The following are the results of the election of each Trustee:
ALAN D. FELD
Affirmative ........................ 12,634,553,751.62
Withhold ........................... 519,818,259.90
W. HUMPHREY BOGART
Affirmative ........................ 12,999,746,162.82
Withhold ........................... 154,625,848.70
BRENDA A. CLINE
Affirmative ........................ 13,009,050,779.42
Withhold ........................... 145,321,232.10
RICHARD A. MASSMAN
Affirmative ........................ 13,004,756,096.42
Withhold ........................... 149,615,915.10
R. GERALD TURNER
Affirmative ........................ 13,004,259,224.92
Withhold ........................... 150,112,786.60
THOMAS M. DUNNING
Affirmative ........................ 13,003,350,236.48
Withhold ........................... 151,021,775.04
EUGENE J. DUFFY
Affirmative ........................ 12,985,296,316.39
Withhold ........................... 169,075,695.13
PAUL J. ZUCCONI
Affirmative ........................ 12,985,296,316.39
Withhold ........................... 169,075,695.13
37
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*
Alan D. Feld** (71) Trustee since 1996 Sole Shareholder of a professional corporation which is a Partner in the law firm
of Akin, Gump, Strauss, Hauer & Feld, LLP (1960-Present); Director, Clear Channel
Communications (1984-Present); Trustee, CenterPoint Properties (1994-2006); Member,
Board of Trustees, Southern Methodist University; Member, Board of Visitors, M.D.
Anderson Hospital; Board of Visitors, Zale/Lipshy Hospital.
NON-INTERESTED TRUSTEES
Term
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (64) Trustee since 2004 Board Member, Baylor University Medical Center Foundation (1992-2004); Consultant,
New River Canada Ltd. (mutual fund servicing company) (1998-2003); 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).
Brenda A. Cline (47) 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 (1999-2007).
Eugene J. Duffy (54) Trustee since 2008 Principal and Executive Vice President, Paradigm Asset Management (1994-Present);
Director, Sunrise Bank of Atlanta (2008-Present); Chairman, Special Contributions
Fund Board of Trustees, National Association for the Advancement of Colored People
(2007-Present); Trustee, National Association for the Advancement of Colored People
(2000-Present); Board of Visitors, Emory University (2006-Present); Trustee,
Atlanta Botanical Garden (2006-Present); Board Member, Willie L. Brown Jr.
Institute on Politics and Public Service (2001-Present); Chair, National
Association of Securities Professionals (2000-2002); Deputy Chief Administrative
Officer, City of Atlanta (1985-1990).
Thomas M. Dunning (65) Trustee since 2008 Consultant, (2008-Present); Chairman (2003-2008) and Chief Executive Officer
(2003-2007), Lockton Dunning Benefits (consulting firm in employee benefits);
Director, Oncor Electric Delivery Company LLC; Advisory Director, Comerica Texas;
Immediate Past Chairman and Board Member, Dallas Citizens Council; Director, Baylor
Health Care System Foundation; State Vice Chair, State Fair of Texas; Board Member,
Southwestern Medical Foundation.
38
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
- ------------------------ ------------------- -----------------------------------------------------------------------------------
Richard A. Massman (65) Trustee since 2004 Senior Vice President and General Counsel, Hunt Consolidated, Inc. (holding company
Chairman since 2008 engaged in oil and gas exploration and production, refining, real estate, farming,
ranching and venture capital activities) (1994-Present). Chairman (2007-Present)
and Director (2005-Present), The Dallas Opera Foundation; Chairman (2006-Present)
and Director (2005-Present), Temple Emanu-El Foundation; Trustee, Presbyterian
Hospital Foundation (2006-Present).
R. Gerald Turner (62) 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 Worldwide
Dallas, Texas 75275 Inc. (chemical manufacturing) (2003-Present); Director, First Broadcasting
Investment Partners, LLC (2003-2007); Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory Board; Co-Chair, Knight Commission
on Intercollegiate Athletics.
Paul J. Zucconi,CPA (67) Trustee since 2008 Director, Affirmative Insurance Holdings, Inc. (producer of nonstandard automobile
insurance) (2004-present); Director, Titanium Metals Corporation (producer of
titanium melted and mill products and sponge) (2002- present); Director, Torchmark
Corporation (life and health insurance products) (2002-present); Director, National
Kidney Foundation of North Texas (2003-Present); Director, Dallas Chapter of
National Association of Corporate Directors (2004-Present); Partner, KPMG
(1976-2001).
OFFICERS
Term
One Year
William F. Quinn** (60) President from Chairman (2006-Present) and CEO (2006-2007), President (1986-2006) and Director
1987 to 2007 (2003-Present), American Beacon Advisors, Inc.; Chairman (1989-2003) and Director
and 2008 to Present (1979-1989, 2003-Present), American Airlines Federal Credit Union; Director,
Executive Vice Crescent Real Estate Equities, Inc.(1994-2007); Director, Pritchard, Hubble & Herr,
President from LLC (investment advisor) (2001-2006); Director of Investment Committee, Southern
2007 to 2008 Methodist University Endowment Fund (1996-Present); Member, Southern Methodist
Trustee from University Cox School of Business Advisory Board (1999-2002); Member, New York
1987 to 2008 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 (1995-2008);
Trustee, American Beacon Select Funds (1999-2008); Trustee, American Beacon Master
Trust (1995-2008).
Rosemary K. Behan (49) VP, Secretary and Vice President, Legal and Compliance, American Beacon Advisors, Inc.
Chief Legal (2006-Present); Assistant General Counsel, First Command Financial Planning, Inc.
Officer (2004-2006); Enforcement Attorney (2002-2004) and Branch Chief (2000-2002),
since 2006 Securities and Exchange Commission.
Brian E. Brett (48) 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 (42) 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.
39
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
- ------------------------ ------------------- -----------------------------------------------------------------------------------
Michael W. Fields (54) VP since 1989 Vice President, Fixed Income Investments, American Beacon Advisors, Inc.
(1988-Present).
Rebecca L. Harris (41) Treasurer since Vice President, Finance, American Beacon Advisors, Inc. (1995-Present).
1995
Christina E. Sears (37) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc. (2004-Present); Senior
Officer since 2004 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, provided, however, that the Board may determine to grant one or more
annual exemptions to this requirement.
** Mr. Feld is deemed to be an "interested person" of the Trusts, as defined
by the 1940 Act. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld
LLP has provided legal services within the past two fiscal years to the
Manager and one or more of the Trust's and Master Trust's sub-advisors.
40
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41
(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 PUBLIC ACCOUNTING FIRM FORESIDE FUND
TRUST DATA SERVICES ERNST & YOUNG LLP SERVICES
Boston, Massachusetts Kansas City, Dallas, Texas Portland, Maine
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 and American Beacon Small Cap Value Fund are
service marks of American Beacon Advisors, Inc.
AR 10/08
64671
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, nor 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
- ---------- -----------------
$265,722 10/31/2006 (revised)
$92,179 12/31/2006
$280,229 10/31/2007
$85,006 12/31/2007
$294,836 10/31/2008
</Table>
(b)
<Table>
<Caption>
Audit-Related Fees Fiscal Year Ended
- ------------------ -----------------
$23,164* 10/31/2006 (revised)
$0 12/31/2006
$8,750** 10/31/2007
$6,250** 12/31/2007 (revised)
$0 10/31/2008
</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
- -------- -----------------
$0 10/31/2006
$0 12/31/2006
$29,199** 10/31/2007
$11,141 12/31/2007
$12,698* 10/31/2008
</Table>
<FN>
* For review of 2007 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 10/31/2006
$0 12/31/2006
$0 10/31/2007
$0 12/31/2007
$0 10/31/2008
</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
$11,141 $0 N/A 12/31/2007
$12,698 $0 N/A 10/31/2008
</Table>
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedules of investments for each series of the Trust are included in the
shareholder report presented in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Trust has made no material changes to the procedures by which shareholders
may recommend nominees to the Trust's Board of Trustees since the Trust last
disclosed such procedures in Schedule 14A.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon an evaluation within 90 days of the filing date of this
report, the principal executive and financial officers concluded that
the disclosure controls and procedures of the Trust are effective.
(b) There were no changes in the Trust's internal control over financial
reporting during the second fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to
materially affect, the Trust's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Filed herewith as EX-99.CODE ETH.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the Trust as required by Rule
30a-2(a) under the Investment Company Act of 1940 is attached hereto
as EX-99.CERT.
(a)(3) Not applicable.
(b) The certifications required by Rule 30a-2(b) under the Investment
Company Act of 1940 are attached hereto as EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): American Beacon Funds
By /s/ William F. Quinn
----------------------
William F. Quinn
President
Date: January 8, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ William F. Quinn
----------------------
William F. Quinn
President
Date: January 8, 2009
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: January 8, 2009