UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-09018
AMERICAN BEACON MILEAGE 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: December 31, 2006
Date of reporting period: June 30, 2006
ITEM 1. REPORT TO STOCKHOLDERS.
G U I D A N C E | V I S I O N | E X P E R I E N C E
[AMERICAN BEACON MILEAGE FUNDS LOGO]
SEMI-ANNUAL REPORT
[PHOTO]
JUNE 30, 2006
MONEY MARKET MILEAGE FUND
U.S. GOVERNMENT MONEY MARKET MILEAGE FUND
MUNICIPAL MONEY MARKET MILEAGE FUND
About American Beacon Advisors
- --------------------------------------------------------------------------------
Since 1986, American Beacon Advisors has offered a variety of products and
investment advisory services to numerous institutional and retail clients,
including a variety of mutual funds, corporate cash management, and separate
account management.
Our clients include defined benefit plans, defined contribution plans,
foundations, endowments, corporations, financial planners, and other
institutional investors. With American Beacon Advisors, you can put the
experience of a multi-billion dollar asset management firm to work for your
company.
Contents
- --------------------------------------------------------------------------------
<Table>
President's Message........................... 1
Financial Highlights
Money Market Mileage Fund................... 17
U.S. Government
Money Market Mileage Fund................... 18
Municipal Money Market Mileage Fund......... 19
Schedule of Investments
Money Market Portfolio...................... 20
U.S. Government Money Market Portfolio...... 23
Municipal Money Market Portfolio............ 24
Additional Information...................Back Cover
</Table>
Any opinions herein, including forecasts, reflect our judgement as of the end of
the reporting period and are subject to change. Each advisor's strategies and
each Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
American Beacon Mileage Funds June 30, 2006
FELLOW SHAREHOLDERS,
Enclosed please find the Semi-Annual Report for the American Beacon Mileage
Funds for the six months ended June 30, 2006. During this time, the Mileage
Funds outperformed their respective peer groups.
The Federal Reserve (the "Fed") raised overnight rates four times during
the period, resulting in a Fed Funds target rate of 5.25% as of June 30, 2006.
In its June statement, the Fed acknowledged that economic growth is moderating
but remained concerned that "the high levels of resource utilization and the
prices of energy and other commodities have the potential to sustain inflation
pressures."
Despite rising interest rates, the American Beacon Money Market Mileage
Funds produced strong relative returns for the period. The Money Market Mileage
Fund-Mileage Class returned 2.08% for the six months, outperforming the Lipper
Money Market Average return of 1.89%. The U.S. Government Money Market Mileage
Fund-Mileage Class outpaced the Lipper U.S. Government Money Market Average with
a return of 2.02% versus 1.93% for the Average. Additionally, the Municipal
Money Market Mileage Fund-Mileage Class posted a gain of 1.29%, outperforming
the Lipper Tax-Exempt Money Market Average return of 1.27%.
Please review the enclosed portfolio listings and detailed financial data.
As always, we welcome the opportunity to serve your financial needs. Should you
have any questions about the enclosed information, please do not hesitate to
contact us at 800-967-9009. You may also access Fund and account information at
www.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Mileage Funds.
Sincerely,
/s/ WILLIAM F. QUINN
William F. Quinn
President, American Beacon Mileage Funds
(BILL QUINN PICTURE)
1
ECONOMIC OVERVIEW
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
TThe U.S. economy expanded at an annual rate of 5.6% in the first quarter of
2006 thanks to strong consumer spending and business investment. However,
soaring gasoline prices and a slowdown in the housing market caused the second
quarter gross domestic product ("GDP") growth to slow to an estimated 2.5%. It
also appeared that the labor market was cooling as payroll gains came in below
consensus, rising 325,000 during the second quarter versus a revised 629,000 in
the first quarter of 2006. Despite the slowdown in payroll growth, the
unemployment rate continued to decline during the second quarter, coming in at a
low 4.6% for the month of June. In addition, June average hourly earnings
climbed 3.9% from the prior year, fueling concerns that the low unemployment
rate was putting upward pressure on inflation.
The Federal Reserve Board raised overnight rates by 25 percentage points at
each of the first four meetings in 2006, resulting in a Fed Funds target rate of
5.25% as of June 30, 2006. In its June statement, the Fed acknowledged that
economic growth was moderating but remained concerned that "the high levels of
resource utilization and the prices of energy and other commodities have the
potential to sustain inflation pressures." They did remove the phrase "some
further policy firming may yet be needed" and stated that the extent and timing
of any additional firming "will depend on the evolution of the outlook for both
inflation and economic growth." The Fed remains data dependent, leaving the door
open for either a pause or another rate hike at their next several meetings.
As expected, we began to see higher energy and commodity prices being
passed on to the consumer in the form of higher goods prices during the period.
The core Consumer Price Index ("CPI") rose more than forecast in June, up 0.3%
for the month and 2.6% year over year. This was the fourth consecutive month of
core inflation rising 0.3%, which according to Bloomberg, is the longest such
stretch since January to April 1995. Bernanke called the recent increases in
core prices "unwelcome developments" and said central bankers "will be vigilant"
to ensure inflation doesn't become entrenched. As a result, if core inflation
numbers continue to rise in the coming months, the Fed may prolong its
tightening cycle. At the end of the second quarter, the Fed Funds future market
was indicating a chance of another 0.25% rate increase by the end of the third
quarter.
The yield curve shifted up as the Fed Funds rate rose during the second
quarter 2006. However, the curve continued to invert as yields on the 6-month
Treasury bill ended the quarter at 5.23% versus 5.15% for the 2-year note and
5.14% for the 10-year note.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET MILEAGE FUND(SM)
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The Money Market Mileage Fund maintained the strategy of purchasing 3-month
variable rate securities based on the London Interbank Offered Rate (LIBOR) in
addition to short-dated commercial paper during the period in response to the
rising interest rate environment.
With the Fed Funds futures market indicating a chance of another 25
percentage point rate increase by the end of the third quarter, the Money Market
Mileage Fund continued to keep its weighted-average maturity relatively short.
However, we will continue to monitor economic trends and adjust our weighted-
average maturity. In addition, we remain conservative on credit risk given the
tight credit spread environment.
For the six months ended June 30, 2006, the total return of the American
Beacon Money Market Mileage Fund -- Mileage Class was 2.08%. The Fund
outperformed the Lipper Money Market Average return of 1.89% by 19 percentage
points. The Lipper Money Market Average is calculated by taking an arithmetic
average of the returns of the mutual funds in the Lipper Money Market Funds
category. Lipper is an independent mutual fund research and ranking service that
ranks mutual funds in various categories by making comparative calculations
using total returns.
<Table>
<Caption>
MILEAGE CLASS TOTAL RETURNS
-------------------------------------
AS OF JUNE 30, 2006
-------------------------------------
1 YEAR 3 YEARS* 5 YEARS* 10 YEARS*
------ -------- -------- ---------
American Beacon Money
Market Mileage Fund 3.74% 2.02% 1.82% 3.51%
Lipper Money Market
Average 3.35% 1.68% 1.52% 3.26%
</Table>
* Annualized
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
AS OF 6/30/2006
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Mileage Class(1).............. 3.74% 1.82% 3.51%
Platinum Class(1)............. 3.12% 1.26% 2.99%
</Table>
1 Performance shown is historical and may not be indicative of future
returns. Investment returns will vary, and share may be worth more or less
at redemption than at original purchase. An investment in this Fund is
neither insured nor guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Although the Fund seeks to
preserve the value of an investment at $1.00 per share it is possible to
lose money by investing in the Fund. Fund performance in the table above
does not reflect the deduction of taxes a shareholder would pay on
distributions or the redemption of shares.
PORTFOLIO STATISTICS AS OF JUNE 30, 2006
<Table>
<Caption>
MILEAGE CLASS PLATINUM CLASS
------------- --------------
7-day Current Yield* 4.59% 3.98%
7-day Effective Yield* 4.70% 4.06%
30-day Yield* 4.52% 3.91%
Weighted Avg. Maturity 36 36
</Table>
* Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven
day yield. Yield is a more accurate reflection of the Fund's current
earnings than total returns.
TOP TEN HOLDINGS AS OF JUNE 30, 2006
<Table>
<Caption>
% OF
NET ASSETS
----------
Royal Bank of Scotland 5.1%
US Bank, NA 4.2%
ASIF Global Financing 4.1%
Wells Fargo & Co. 4.1%
FCAR Owner Trust 3.9%
American Honda Finance Corp. 3.6%
Citigroup Global Markets Holdings,
Inc. 3.4%
Goldman Sachs Group, Inc. 3.3%
Barclays US Funding LLC 3.3%
General Electric Capital Corp. 3.1%
</Table>
ASSET ALLOCATION AS OF JUNE 30, 2006
<Table>
<Caption>
% OF
NET ASSETS
----------
Bank CDs, TDs, and Notes 48.0%
Corporate Notes 37.0%
Commercial Paper 11.4%
Funding Agreements 1.7%
Repurchase Agreements 1.6%
Net Other Assets 0.3%
</Table>
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, 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 and held for the entire period from January 1, 2006 through June
30, 2006.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET MILEAGE FUND(SM) -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
ACTUAL EXPENSES
The "Actual" line of the table provides 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 "Actual" line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period.
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.
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.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 1/1/06-
1/1/06 6/30/06 6/30/06
--------- --------- --------------
MILEAGE CLASS
Actual $1,000.00 $1,020.82 $3.08
Hypothetical (5% return
before expenses) $1,000.00 $1,021.74 $3.09
PLATINUM CLASS
Actual $1,000.00 $1,017.75 $6.12
Hypothetical (5% return
before expenses) $1,000.00 $1,018.72 $6.13
</Table>
* Expenses are equal to the Fund's annualized expense ratio for the six-
month period of 0.62% and 1.22% for the Mileage and Platinum 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 (181) by days in the year (365) to reflect
the half-year period.
4
PERFORMANCE OVERVIEW
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET MILEAGE FUND(SM)
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The U.S. Government Money Market Mileage Fund maintained the strategy of
purchasing 3-month variable rate securities based on the London Interbank
Offered Rate (LIBOR) in addition to short-dated commercial paper during the
period in response to the rising interest rate environment.
With the Fed Funds futures market indicating a chance of another 25
percentage point rate increase by the end of the third quarter, the U.S.
Government Money Market Mileage Fund continued to keep its weighted-average
maturity relatively short. However, we will continue to monitor economic trends
and adjust our duration posture. In addition, we remain conservative on credit
risk given the tight credit spread environment.
For the six months ended June 30, 2006, the total return of the American
Beacon U.S. Government Money Market Mileage Fund -- Mileage Class was 2.02%. The
Fund outperformed the Lipper U.S. Government Money Market Average return of
1.93% by 9 percentage points. The Lipper U.S. Government Money Market Average is
calculated by taking an arithmetic average of the returns of the mutual funds in
the Lipper U.S. Government Money Market Funds category. Lipper is an independent
mutual fund research and ranking service that ranks mutual funds in various
categories by making comparative calculations using total returns.
<Table>
<Caption>
MILEAGE CLASS TOTAL RETURNS
-------------------------------------
AS OF JUNE 30, 2006
-------------------------------------
1 YEAR 3 YEARS* 5 YEARS* 10 YEARS*
------ -------- -------- ---------
American Beacon U.S.
Government Money
Market Mileage Fund 3.58% 1.84% 1.64% 3.35%
Lipper U.S. Government
Money Market Average 3.43% 1.72% 1.55% 3.30%
</Table>
* Annualized
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
-----------------------------
PERIODS ENDED 06/30/2006
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Mileage Class(1)........... 3.58% 1.64% 3.35%
Platinum Class(1,2)........ 3.09% 1.21% 3.05%
</Table>
1 Performance shown is historical and may not be indicative of future
returns. Investment returns will vary, and share may be worth more or less
at redemption than at original purchase. An investment in this Fund is
neither insured nor guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Although the Fund seeks to
preserve the value of an investment at $1.00 per share it is possible to
lose money by investing in the Fund. 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 Platinum Class of the Fund began offering it s shares on November 1,
1999. Performance results prior to that date are for the Mileage Class of
Fund shares. Because the Mileage Class had lower expenses, its performance
was better than the Platinum Class of the Fund would have realized in the
same period.
PORTFOLIO STATISTICS AS OF JUNE 30, 2006
<Table>
<Caption>
MILEAGE CLASS PLATINUM CLASS
------------- --------------
7-day Current Yield* 4.47% 3.97%
7-day Effective Yield* 4.57% 4.05%
30-day Yield* 4.39% 3.89%
Weighted Average Maturity 11 11
</Table>
* Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven
day yield. Yield is a more accurate reflection of the Fund's current
earnings than total returns.
ASSET ALLOCATION AS OF JUNE 30, 2006
<Table>
<Caption>
% OF
NET ASSETS
----------
Repurchase Agreements 84.7%
Variable Rate Agency 15.3%
</Table>
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, 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 and held for the entire period from January 1, 2006 through June
30, 2006.
ACTUAL EXPENSES
The "Actual" line of the table provides 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 "Actual" line under the
5
PERFORMANCE OVERVIEW
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET MILEAGE FUND(SM) -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
heading "Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
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.
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.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 1/1/06-
1/1/06 6/30/06 6/30/06
--------- --------- --------------
MILEAGE CLASS
Actual $1,000.00 $1,020.23 $3.51
Hypothetical (5% return
before expenses) $1,000.00 $1,021.32 $3.51
PLATINUM CLASS
Actual $1,000.00 $1,017.71 $6.00
Hypothetical (5% return
before expenses) $1,000.00 $1,018.84 $6.01
</Table>
* Expenses are equal to the Fund's annualized expense ratio for the six-
month period of 0.70% and 1.20% for the Mileage and Platinum 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 (181) by days in the year (365) to reflect
the half-year period.
6
PERFORMANCE OVERVIEW
AMERICAN BEACON MUNICIPAL MONEY MARKET MILEAGE FUND(SM)
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The Municipal Money Market Mileage Fund maintained a relatively short
average maturity in the first half of 2006. The variable rate demand note (VRDN)
market provided the most attractive investment option throughout the period.
Rates on these securities remained appealing, as short-term interest rates were
increased at seventeen consecutive Fed meetings since June 2004.
We will continue to focus purchases on attractively priced VRDNs backed by
letters of credit or bond insurance and may buy selective fixed rate instruments
when evidence emerges that the Fed has completed its current tightening cycle.
For the six months ended June 30, 2006, the total return of the American
Beacon Municipal Money Market Mileage Fund -- Mileage Class was 1.29%. The Fund
outperformed the Lipper Tax-Exempt Money Market Average return of 1.27% by 2
percentage points. The Lipper Tax-Exempt Money Market Average is calculated by
taking an arithmetic average of the returns of the mutual funds in the Lipper
Tax-Exempt Money Market Funds category. Lipper is an independent mutual fund
research and ranking service that ranks mutual funds in various categories by
making comparative calculations using total returns.
<Table>
<Caption>
MILEAGE CLASS TOTAL RETURNS
-------------------------------------
AS OF JUNE 30, 2006
-------------------------------------
1 YEAR 3 YEARS* 5 YEARS* 10 YEARS*
------ -------- -------- ---------
American Beacon
Municipal Money Market
Mileage Fund 2.28% 1.33% 1.17% 2.15%
Lipper Tax Exempt Money
Mkt Avg 2.26% 1.24% 1.15% 2.12%
</Table>
* Annualized
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
PERIODS ENDED 06/30/2006
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Mileage Class(1)............ 2.28% 1.17% 2.15%
Platinum Class(1,2)......... 1.81% 0.70% 1.82%
</Table>
1 Performance shown is historical and may not be indicative of future
returns. Investment returns will vary, and share may be worth more or less
at redemption than at original purchase. An investment in this Fund is
neither insured nor guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Although the Fund seeks to
preserve the value of an investment at $1.00 per share it is possible to
lose money by investing in the Fund. 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 Platinum Class of the Fund began offering it s shares on November 1,
1999. Performance results prior to that date are for the Mileage Class of
Fund shares. Because the Mileage Class had lower expenses, its performance
was better than the Platinum Class of the Fund would have realized in the
same period.
PORTFOLIO STATISTICS AS OF JUNE 30, 2006
<Table>
<Caption>
MILEAGE CLASS PLATINUM CLASS
------------- --------------
7-day Current Yield* 3.24% 2.80%
7-day Effective Yield* 3.29% 2.84%
30-day Yield* 2.96% 2.52%
Weighted Average Maturity 4 4
</Table>
* Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven
day yield. Yield is a more accurate reflection of the Fund's current
earnings than total returns.
TOP TEN HOLDINGS AS OF JUNE 30, 2006
<Table>
<Caption>
% OF
NET ASSETS
----------
Alachua County, Florida Housing
Financial Authority 5.3%
Village of Richton Park, Illinois-
Industrial Development Revenue
Bonds 5.2%
Michigan State Housing Development
Authority 5.1%
Ohio Water Development Authority 4.9%
Montgomery County, Maryland Variable
Rate Housing Revenue Bonds 4.9%
New York State Housing Finance Agency 4.6%
Sweetwater County, Wyoming Pollution
Control Revenue Refunding Bonds 4.3%
Indiana County Industrial Development
Authority Refunding Bonds 4.3%
City of Farmington Pollution Control
Revenue Bonds 4.3%
University Athletic Association, Inc.
Revenue Bonds 4.1%
</Table>
ASSET ALLOCATION AS OF JUNE 30, 2006
<Table>
<Caption>
% OF
NET ASSETS
----------
Municipal Obligations 98.3%
Other Investments 1.7%
</Table>
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, 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.
7
PERFORMANCE OVERVIEW
AMERICAN BEACON MUNICIPAL MONEY MARKET MILEAGE FUND(SM) -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The examples are based on an investment of $1,000 invested at the beginning
of the period and held for the entire period from January 1, 2006 through June
30, 2006.
ACTUAL EXPENSES
The "Actual" line of the table provides 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 "Actual" line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period.
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.
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.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 1/1/06-
1/1/06 6/30/06 6/30/06
--------- --------- --------------
MILEAGE CLASS
Actual $1,000.00 $1,012.92 $3.67
Hypothetical (5%
return before
expenses) $1,000.00 $1,021.14 $3.69
PLATINUM CLASS
Actual $1,000.00 $1,010.59 $5.98
Hypothetical (5%
return before
expenses) $1,000.00 $1,018.84 $6.01
</Table>
* Expenses are equal to the Fund's annualized expense ratio for the six-
month period of 0.74% and 1.20% for the Mileage and Platinum 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 (181) by days in the year (365) to reflect
the half-year period.
8
AMERICAN BEACON MILEAGE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2006 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
ASSETS:
Investment in Portfolio, at value............... $ 383,344 $ 17,033 $ 26,349
Receivable from Manager for expense
reimbursement (Note 2)........................ -- 3 --
Prepaid expenses................................ 15 11 12
------------ ----------- -----------
TOTAL ASSETS............................... 383,359 17,047 26,361
------------ ----------- -----------
LIABILITIES:
Payable for fund shares redeemed................ 11 1 18
Distribution fees payable (Note 2).............. 79 3 5
Dividends payable............................... 8 -- --
Administrative services fees payable (Note 2)... 211 3 4
Other liabilities............................... 176 20 14
------------ ----------- -----------
TOTAL LIABILITIES.......................... 485 27 41
------------ ----------- -----------
NET ASSETS........................................... $ 382,874 $ 17,020 $ 26,320
============ =========== ===========
ANALYSIS OF NET ASSETS:
Paid-in-capital................................. 382,874 17,020 26,320
------------ ----------- -----------
NET ASSETS........................................... $ 382,874 $ 17,020 $ 26,320
============ =========== ===========
SHARES OUTSTANDING (NO PAR VALUE):
Mileage Class................................... 50,875,689 11,005,758 23,152,613
============ =========== ===========
Platinum Class.................................. 331,998,756 6,013,997 3,167,473
============ =========== ===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE:
Mileage Class................................... $ 1.00 $ 1.00 $ 1.00
============ =========== ===========
Platinum Class.................................. $ 1.00 $ 1.00 $ 1.00
============ =========== ===========
</Table>
See accompanying notes
9
AMERICAN BEACON MILEAGE FUNDS
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED) (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest income................................. $9,339 $365 $440
Portfolio expenses.............................. (215) (9) (20)
------ ---- ----
NET INVESTMENT INCOME ALLOCATED FROM
PORTFOLIO................................ 9,124 356 420
------ ---- ----
FUND EXPENSES:
Administrative service fees (Note 2)............ 196 8 13
Administrative service fees -- Platinum Class
(Note 2)...................................... 1,115 16 13
Transfer agent fees -- Mileage Class............ 16 3 5
Transfer agent fees -- Platinum Class........... 61 2 1
Professional fees............................... 9 4 3
Registration fees and expenses.................. 45 18 18
Distribution fees -- Mileage Class (Note 2)..... 60 13 28
Distribution fees -- Platinum Class (Note 2).... 429 6 5
Other expenses.................................. 120 8 5
------ ---- ----
TOTAL FUND EXPENSES........................ 2,051 78 91
------ ---- ----
Less reimbursement of fund expenses (Note 2).... 17 21 4
------ ---- ----
NET FUND EXPENSES.......................... 2,034 57 87
------ ---- ----
NET INVESTMENT INCOME................................ 7,090 299 333
------ ---- ----
REALIZED GAIN ALLOCATED FROM PORTFOLIO
Net realized gain on investments................ -- -- --
------ ---- ----
NET GAIN ON INVESTMENTS.................... -- -- --
------ ---- ----
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS......................................... $7,090 $299 $333
====== ==== ====
</Table>
See accompanying notes
10
AMERICAN BEACON MILEAGE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------------------- ------------------------- -------------------------
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2006 2005 2006 2005 2006 2005
----------- ------------ ----------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income......... $ 7,090 $ 9,201 $ 299 $ 337 $ 333 $ 494
Net realized gain on
investments................. -- -- -- -- -- --
--------- --------- ------- -------- -------- --------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............. 7,090 9,202 299 337 333 494
--------- --------- ------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment
income -- Mileage Class..... (1,007) (1,317) (208) (241) (291) (437)
Net investment
income -- Platinum Class.... (6,083) (7,884) (91) (96) (42) (57)
Net realized gain on
investments -- Mileage
Class....................... -- -- -- -- -- --
Net realized gain on
investments -- Platinum
Class....................... -- (1) -- -- -- --
--------- --------- ------- -------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS........... (7,090) (9,202) (299) (337) (333) (494)
--------- --------- ------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of
shares...................... 80,212 156,658 9,282 14,486 11,323 41,408
Reinvestment of dividends and
distributions............... 7,044 9,141 298 333 332 494
Cost of shares redeemed....... (104,554) (208,563) (6,425) (16,302) (11,414) (45,930)
--------- --------- ------- -------- -------- --------
NET INCREASE (DECREASE)
IN NET ASSETS FROM
CAPITAL SHARE
TRANSACTIONS........... (17,298) (42,764) 3,155 (1,483) 241 (4,028)
--------- --------- ------- -------- -------- --------
NET INCREASE (DECREASE) IN NET
ASSETS........................... (17,298) (42,764) 3,155 (1,483) 241 (4,028)
NET ASSETS:
Beginning of period........... 400,172 442,936 13,865 15,348 26,079 30,107
--------- --------- ------- -------- -------- --------
END OF PERIOD................. $ 382,874 $ 400,172 $17,020 $ 13,865 $ 26,320 $ 26,079
========= ========= ======= ======== ======== ========
</Table>
See accompanying notes
11
AMERICAN BEACON MILEAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Mileage Funds (the "Trust"), formerly known as the American
AAdvantage Mileage Funds, is organized as a Massachusetts business trust under a
Declaration of Trust dated February 14, 1995 and is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as a diversified, no
load, open-end management investment company with separate series. The following
series are included in this report: American Beacon Money Market Mileage Fund,
American Beacon U.S. Government Money Market Mileage Fund and American Beacon
Municipal Money Market Mileage Fund (each a "Fund" and collectively the
"Funds").
Each Fund invests all of its investable assets in the corresponding
portfolio of the American Beacon Master Trust, an open-end diversified
management investment company, as follows:
<Table>
<Caption>
AMERICAN BEACON: AMERICAN BEACON MASTER TRUST:
- ---------------- INVESTS ASSETS IN -----------------------------
Money Market Mileage Fund Money Market Portfolio
U.S. Government Money Market Mileage Fund U.S. Government Money Market Portfolio
Municipal Money Market Mileage Fund Municipal Money Market Portfolio
</Table>
Each Fund has the same investment objectives as its corresponding American
Beacon Master Trust Portfolio. The value of such investment reflects each Fund's
proportionate interest in the net assets of the corresponding portfolio (4.43%,
5.70% and 75.41% at June 30, 2006 of the American Beacon Master Trust Money
Market, U.S. Government Money Market and Municipal Money Market Portfolios,
respectively) (each a "Portfolio" and collectively the "Portfolios"). The
financial statements of the Portfolios are included elsewhere in this report and
should be read in conjunction with the Funds' financial statements.
American Beacon Advisors, Inc. (the "Manager"), formerly known as AMR
Investment Services, Inc., is a wholly-owned subsidiary of AMR Corporation, the
parent company of American Airlines, Inc. ("American"), and was organized in
1986 to provide business management, advisory, administrative and asset
management consulting services to the Trust and other investors.
The following is a summary of the significant accounting policies followed
by the Funds.
Class Disclosure
Each Fund has multiple classes of shares designed to meet the needs of
different groups of investors. Please note that not all Funds offer all classes.
The following table sets forth the differences amongst the classes:
CLASS OFFERED TO: SERVICE AND DISTRIBUTION FEES:
- ----- ----------- ------------------------------
MILEAGE CLASS Individuals and certain grantor trusts Distribution Fee -- 0.25%
PLATINUM CLASS Investors investing through selected financial Administrative Service Fee -- 0.65%
institutions (such as banks and broker-dealers) Distribution Fee -- 0.25%
Valuation of Investments
The Funds record their investment in the Portfolios at fair value.
Valuation of securities by the Portfolios is discussed in Note 1 of the
Portfolios' Notes to Financial Statements, which are included elsewhere in this
report.
Investment Income and Dividends to Shareholders
Each Fund records its share of net investment income (loss) and realized
gain (loss) in the Portfolio each day. All net investment income (loss) and
realized gain (loss) of each Portfolio are allocated pro rata among the
corresponding Fund and other investors in each Portfolio at the time of such
determination. The Funds generally declare dividends daily from net investment
income and net short-term capital gain, if any, payable monthly.
12
AMERICAN BEACON MILEAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
Dividends to shareholders are determined in accordance with federal income
tax principles that may treat certain transactions differently than U.S.
generally accepted accounting principles.
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.
Valuation of Shares
The price per share is calculated separately for each class of each Fund on
each day on which shares are offered for sale and orders accepted or upon
receipt of a redemption request. With respect to a class of a Fund, price per
share is computed by dividing the value of the class' pro rata allocation of the
Fund's investments and other assets, less liabilities, by the number of class
shares outstanding.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimated.
Other
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Trust. In the normal course of business, the Trust enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Manager and the Trust entered into a Management Agreement that
obligates the Manager to provide or oversee administrative and management
services to the Funds. As compensation for performing administrative duties
required under the Management Agreement, the Manager receives an annualized fee
of 0.10% of the average daily net assets of each of the Funds.
Administrative Services Plan
The Trust has adopted an Administrative Services Plan with respect to the
Platinum Class of the Funds. As compensation for providing administrative
services, the Manager receives an annualized fee of 0.65% of the average daily
net assets of the Platinum Class of each Fund.
Distribution Plan
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the Act. A separate plan has been adopted by the Mileage Class and
Platinum Class of the Funds. Under each Plan, as compensation for distribution
assistance, the Manager receives an annualized fee of 0.25% of the average daily
net assets of each 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. In adopting the
Plan, the
13
AMERICAN BEACON MILEAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
Trustees determined that there was a reasonable likelihood that the Plan would
benefit the Funds and the shareholders of the respective Classes.
Reimbursement and Waiver of Expenses
The Manager contractually agreed to reimburse the Platinum Class of the
Municipal Money Market and U.S. Government Money Market Mileage Funds for
distribution fees and other expenses through February 28, 2007 to the extent
that total annual fund operating expenses exceed 1.20%. During the six months
ended June 30, 2006, the Manager waived or reimbursed expenses as follows:
<Table>
<Caption>
FUND AMOUNT
- ---- ------
U.S. Government Money Market Mileage Fund Platinum Class..................... $9,470
Municipal Money Market Mileage Fund Platinum Class........................... $4,079
</Table>
The Manager voluntarily waived distribution fees totaling $17,390 for the
Platinum Class of the Money Market Mileage Fund so that distribution fees
received from the Fund were equal to the cost incurred by the Manager during the
six months ended June 30, 2006.
During the six months ended June 30, 2006, the Manager voluntarily waived
or reimbursed expenses for the Mileage Class of the U.S. Government Money Market
Mileage Fund to the extent that total annual fund operating expenses exceed
0.70%. The Manager waived or reimbursed distribution fees totaling $11,562
during the period.
Expense Reimbursement Plan
The Funds have adopted an Expense Reimbursement Plan whereby the Manager
may seek recoupment of fees waived or expenses reimbursed for a period of up to
three years. However, recoupment will occur only if the Class' average net
assets have grown or expenses have declined sufficiently to allow recoupment
without causing its expense ratio to exceed the previously agreed upon
contractual expense limit. The following waived fees or reimbursed expenses are
subject to potential recovery expiring in:
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
YEAR MONEY MARKET MONEY MARKET MONEY MARKET
- ---- ------------ --------------- ------------
2006................................................. $200,654 $ 7,709 $ 9,134
2007................................................. 239,870 11,563 11,600
2008................................................. 25,380 21,889 5,739
2009................................................. 17,390 21,032 4,079
</Table>
The Funds have not recorded a liability for this potential reimbursement
due to the current assessment that a reimbursement is unlikely.
Other
Certain officers or Trustees of the Trust are also current or former
officers or employees of the Manager or American. The Trust makes no direct
payments to its officers. Mr. Feld and the non-interested Trustees (other than
Mr. O'Sullivan) and their spouses are provided free unlimited air transportation
on American. Retired Trustees and their spouses are provided free transportation
on American, up to a maximum annual value of $40,000. The Trust compensates each
Trustee with payments in an amount equal to the Trustee's income tax on the
value of this free airline travel. Mr. O'Sullivan, as a retiree of American,
already receives flight benefits. This Trustee receives an annual retainer of
plus a fee for each Board meeting attended.
14
AMERICAN BEACON MILEAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
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 tax provision is required.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes because of temporary or permanent book-to-
tax differences. To the extent these differences are permanent,
reclassifications are made to the appropriate equity accounts in the period that
the differences arise. Temporary differences are not reflected in the financial
records.
Dividends are determined in accordance with federal income tax regulations
which may treat certain transactions differently than United States generally
accepted accounting principles. Accordingly, the character of distributions and
composition of net assets for tax purposes may differ from those reflected in
the accompanying financial statements.
The tax character of distributions during the six months ended June 30,
2006 and the year ended December 30, 2005 were as follows (in thousands):
<Table>
<Caption>
MUNICIPAL MONEY
MONEY MARKET U.S. GOVERNMENT MONEY MARKET MARKET
-------------------------------- -------------------------------- ----------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
2006 2005 2006 2005 2006
---------------- ------------ ---------------- ------------ ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME:*
Mileage Class......... 1,007 1,317 208 241 --
Platinum Class........ 6,083 7,885 91 96 --
TAX-EXEMPT INCOME:
Mileage Class......... -- -- -- -- 291
Platinum Class........ -- -- -- -- 42
----- ----- --- --- ---
TOTAL
DISTRIBUTIONS.. 7,090 9,202 299 337 333
===== ===== === === ===
<Caption>
MUNICIPAL
MONEY MARKET
------------
YEAR ENDED
DECEMBER 31,
2005
------------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME:*
Mileage Class......... --
Platinum Class........ --
TAX-EXEMPT INCOME:
Mileage Class......... 437
Platinum Class........ 57
---
TOTAL
DISTRIBUTIONS.. 494
===
</Table>
- --------
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
As of June 30, 2006, the components of taxable distributable earnings were
the same as book. The cost basis of investments for federal income tax purposes
was also the same as the book basis.
4. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares for each class of
the Funds (in thousands). Each share is valued at $1.00:
Six Months Ended June 30, 2006 (unaudited)
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MILEAGE MONEY MARKET MILEAGE MONEY MARKET
FUND FUND MILEAGE FUND
-------------------- -------------------- --------------------
MILEAGE PLATINUM MILEAGE PLATINUM MILEAGE PLATINUM
CLASS CLASS CLASS CLASS CLASS CLASS
------- -------- ------- -------- ------- --------
Shares sold................................ 18,460 61,752 2,945 6,337 6,594 4,729
Reinvestment of dividends.................. 961 6,083 207 91 290 42
Shares redeemed............................ (19,229) (85,326) (2,050) (4,375) (5,554) (5,860)
------- ------- ------ ------ ------ ------
Net increase (decrease) in capital shares
outstanding.............................. 192 (17,490) 1,102 2,053 1,330 (1,089)
======= ======= ====== ====== ====== ======
</Table>
15
AMERICAN BEACON MILEAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
Year Ended December 31, 2005
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MILEAGE MONEY MARKET MILEAGE MONEY MARKET
FUND FUND MILEAGE FUND
-------------------- -------------------- --------------------
MILEAGE PLATINUM MILEAGE PLATINUM MILEAGE PLATINUM
CLASS CLASS CLASS CLASS CLASS CLASS
------- -------- ------- -------- ------- --------
Shares sold................................ 34,921 121,737 4,361 10,125 31,332 10,076
Reinvestment of dividends.................. 1,257 7,884 237 96 437 57
Shares redeemed............................ (30,969) (177,594) (5,673) (10,629) (35,107) (10,823)
------- -------- ------ ------- ------- -------
Net decrease in capital shares
outstanding.............................. 5,209 (47,973) (1,075) (408) (3,338) (690)
======= ======== ====== ======= ======= =======
</Table>
16
AMERICAN BEACON MONEY MARKET MILEAGE FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
MILEAGE CLASS PLATINUM CLASS
--------------------------------------------------------- -----------------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------- JUNE 30, ----------------------------
2006 2005 2004 2003 2002 2001 2006 2005 2004 2003
----------- ------- ------- ------- ------- ------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
NET ASSET VALUE,
BEGINNING OF PERIOD.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income(A)....... 0.02 0.03 0.01 0.01 0.01 0.04 0.02 0.02 --(B) --(B)
Net realized gain
on investments.. --(B) --(B) --(B) --(B) --(B) --(B) --(B) --(B) --(B) --(B)
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total income from
investment
operations........... 0.02 0.03 0.01 0.01 0.01 0.04 0.02 0.02 -- --
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment
income.......... (0.02) (0.03) (0.01) (0.01) (0.01) (0.04) (0.02) (0.02) --(B) --(B)
Distributions from
net realized
gain on
investments..... --(B) --(B) --(B) --(B) --(B) --(B) --(B) --(B) --(B) --(B)
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total distributions.... (0.02) (0.03) (0.01) (0.01) (0.01) (0.04) (0.02) (0.02) -- --
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======== ======== ======== ========
TOTAL RETURN........... 2.08%(C) 2.75% 0.93% 0.73% 1.29% 3.76% 1.77%(C) 2.14% 0.32% 0.12%
======= ======= ======= ======= ======= ======= ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period
(in thousands).. $50,875 $50,684 $45,475 $49,053 $63,884 $86,910 $331,999 $349,488 $397,461 $431,524
Ratios to average
net assets
(annualized)(A):
Expenses, net of
waivers...... 0.62% 0.58% 0.51% 0.51% 0.63% 0.63% 1.22% 1.18% 1.12% 1.12%
Expenses, before
waivers...... 0.62% 0.58% 0.51% 0.51% 0.63% 0.63% 1.23% 1.19% 1.18% 1.16%
Net investment
income, net
of waivers... 4.17% 2.73% 0.91% 0.74% 1.29% 3.74% 3.55% 2.09% 0.30% 0.13%
Net investment
income,
before
waivers...... 4.17% 2.73% 0.91% 0.74% 1.29% 3.74% 3.54% 2.08% 0.24% 0.09%
<Caption>
PLATINUM CLASS
------------------
YEAR ENDED
DECEMBER 31,
------------------
2002 2001
-------- --------
NET ASSET VALUE,
BEGINNING OF PERIOD.. $ 1.00 $ 1.00
-------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income(A)....... 0.01 0.03
Net realized gain
on investments.. --(B) --(B)
-------- --------
Total income from
investment
operations........... 0.01 0.03
-------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment
income.......... (0.01) (0.03)
Distributions from
net realized
gain on
investments..... --(B) --(B)
-------- --------
Total distributions.... (0.01) (0.03)
-------- --------
NET ASSET VALUE, END OF
PERIOD............... $ 1.00 $ 1.00
======== ========
TOTAL RETURN........... 0.81% 3.32%
======== ========
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period
(in thousands).. $554,242 $678,026
Ratios to average
net assets
(annualized)(A):
Expenses, net of
waivers...... 1.10% 1.06%
Expenses, before
waivers...... 1.10% 1.06%
Net investment
income, net
of waivers... 0.82% 3.26%
Net investment
income,
before
waivers...... 0.82% 3.26%
</Table>
- --------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of each Fund's proportionate share of the income and expenses of
the American Beacon Master Money Market Portfolio.
(B) Amount is less than $0.01 per share.
(C) Not annualized.
17
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET MILEAGE FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
MILEAGE CLASS PLATINUM CLASS
-------------------------------------------------------- --------------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------- JUNE 30, -------------------------
2006 2005 2004 2003 2002 2001 2006 2005 2004 2003
----------- ------ ------- ------- ------- ------- ----------- ------ ------ ---------
(UNAUDITED) (UNAUDITED)
NET ASSET VALUE, BEGINNING
OF PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------ ------- ------- ------- ------- ------ ------ ------ ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income(A).......... 0.02 0.03 0.01 0.01 0.01 0.04 0.02 0.02 --(B) --(B)
Net realized gain on
investments........ --(B) --(B) --(B) --(B) --(B) --(B) --(B) --(B) --(B) --(B)
------- ------ ------- ------- ------- ------- ------ ------ ------ ---------
Total income from
investment operations... 0.02 0.03 0.01 0.01 0.01 0.04 0.02 0.02 -- --
------- ------ ------- ------- ------- ------- ------ ------ ------ ---------
LESS DISTRIBUTIONS:
Dividends from net
investment income.. (0.02) (0.03) (0.01) (0.01) (0.01) (0.04) (0.02) (0.02) --(B) --(B)
Distributions from
net realized gain
on investments..... --(B) --(B) --(B) --(B) --(B) --(B) --(B) --(B) --(B) --(B)
------- ------ ------- ------- ------- ------- ------ ------ ------ ---------
Total distribution........ (0.02) (0.03) (0.01) (0.01) (0.01) (0.04) (0.02) (0.02) -- --
------- ------ ------- ------- ------- ------- ------ ------ ------ ---------
NET ASSET VALUE, END OF
PERIOD.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ====== ======= ======= ======= ======= ====== ====== ====== =========
TOTAL RETURN.............. 2.02%(C) 2.53% 0.76% 0.47% 1.06% 3.72% 1.77%(C) 2.09% 0.29% 0.09%
======= ====== ======= ======= ======= ======= ====== ====== ====== =========
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period
(in thousands)..... $11,006 $9,904 $10,979 $12,126 $19,636 $17,798 $6,014 $3,961 $4,369 $ 4,681
Ratios to average net
assets
(annualized)(A):
Expenses, net of
waivers......... 0.70% 0.77% 0.65% 0.77% 0.79% 0.62% 1.20% 1.20% 1.12% 1.14%
Expenses, before
waivers......... 0.93% 0.86% 0.65% 0.77% 0.80% 0.70% 1.57% 1.48% 1.30% 1.31%
Net investment
income, net
of waivers...... 4.06% 2.49% 0.75% 0.46% 1.06% 3.66% 3.57% 2.04% 0.26% 0.09%
Net investment
income (loss),
before waivers.. 3.83% 2.40% 0.75% 0.46% 1.05% 3.58% 3.20% 1.76% 0.08% (0.08)%
<Caption>
PLATINUM CLASS
---------------
YEAR ENDED
DECEMBER 31,
---------------
2002 2001
------ -------
NET ASSET VALUE, BEGINNING
OF PERIOD............... $ 1.00 $ 1.00
------ -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income(A).......... 0.01 0.03
Net realized gain on
investments........ --(B) --(B)
------ -------
Total income from
investment operations... 0.01 0.03
------ -------
LESS DISTRIBUTIONS:
Dividends from net
investment income.. (0.01) (0.03)
Distributions from
net realized gain
on investments..... --(B) --(B)
------ -------
Total distribution........ (0.01) (0.03)
------ -------
NET ASSET VALUE, END OF
PERIOD.................. $ 1.00 $ 1.00
====== =======
TOTAL RETURN.............. 0.69% 3.22%
====== =======
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period
(in thousands)..... $7,405 $16,903
Ratios to average net
assets
(annualized)(A):
Expenses, net of
waivers......... 1.15% 1.10%
Expenses, before
waivers......... 1.21% 1.18%
Net investment
income, net
of waivers...... 0.74% 3.11%
Net investment
income (loss),
before waivers.. 0.68% 3.03%
</Table>
- --------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of each Fund's proportionate share of the income and expenses of
the American Beacon Master U.S. Government Money Market Portfolio.
(B) Amount is less than $0.01 per share.
(C) Not annualized.
18
AMERICAN BEACON MUNICIPAL MONEY MARKET MILEAGE FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
MILEAGE CLASS PLATINUM CLASS
-------------------------------------------------------- -------------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------- JUNE 30, ------------------------
2006 2005 2004 2003 2002 2001 2006 2005 2004 2003
----------- ------- ------- ------- ------- ------- ----------- ------ ------ --------
(UNAUDITED) (UNAUDITED)
NET ASSET VALUE, BEGINNING OF
PERIOD..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------ ------ ------ --------
INCOME FROM INVESTMENT
OPERATION:
Net investment
income(A)............. 0.01 0.02 0.01 0.01 0.01 0.02 0.01 0.01 --(B) --(B)
Dividends from net
investment income..... (0.01) (0.02) (0.01) (0.01) (0.01) (0.02) (0.01) (0.01) --(B) --(B)
------- ------- ------- ------- ------- ------- ------ ------ ------ --------
NET ASSET VALUE, END OF
PERIOD..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ====== ====== ====== ========
TOTAL RETURN................. 1.29%(C) 1.80% 0.67% 0.57% 0.77% 2.17% 1.06%(C) 1.28% 0.19% 0.07%
======= ======= ======= ======= ======= ======= ====== ====== ====== ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of
period (in
thousands)............ $23,153 $21,822 $25,161 $25,532 $24,911 $25,792 $3,167 $4,257 $4,946 $ 7,898
Ratios to average net
assets
(annualized)(A):
Expenses, net of
waivers............ 0.74% 0.68% 0.61% 0.59% 0.74% 0.65% 1.20% 1.20% 1.08% 1.09%
Expenses, before
waivers............ 0.74% 0.68% 0.61% 0.59% 0.79% 0.78% 1.40% 1.32% 1.25% 1.22%
Net investment income,
net of waivers..... 2.60% 1.78% 0.65% 0.57% 0.77% 2.15% 2.10% 1.23% 0.17% 0.07%
Net investment income
(loss), before
waivers............ 2.60% 1.78% 0.65% 0.57% 0.72% 2.02% 1.90% 1.11% 0.00% (0.06)%
<Caption>
PLATINUM CLASS
--------------
YEAR ENDED
DECEMBER 31,
--------------
2002 2001
------ ------
NET ASSET VALUE, BEGINNING OF
PERIOD..................... $ 1.00 $ 1.00
------ ------
INCOME FROM INVESTMENT
OPERATION:
Net investment
income(A)............. --(B) 0.02
Dividends from net
investment income..... --(B)(0.02)
------ ------
NET ASSET VALUE, END OF
PERIOD..................... $ 1.00 $ 1.00
====== ======
TOTAL RETURN................. 0.35% 1.72%
====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of
period (in
thousands)............ $7,517 $8,464
Ratios to average net
assets
(annualized)(A):
Expenses, net of
waivers............ 1.16% 1.10%
Expenses, before
waivers............ 1.23% 1.23%
Net investment income,
net of waivers..... 0.34% 1.72%
Net investment income
(loss), before
waivers............ 0.27% 1.59%
</Table>
- --------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of each Fund's proportionate share of the income and expenses of
the American Beacon Master Municipal Money Market Portfolio.
(B) Amount is less than $0.01 per share.
(C) Not annualized.
19
<Page>
AMERICAN BEACON MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
June 30, 2006 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
FUNDING AGREEMENTS - 1.66%
------------
Metropolitan Life Insurance Co., 5.281%, Due 3/1/2007 ............................. $ 150,000 $ 150,000
------------
MEDIUM-TERM NOTES - 33.72%
ABN Amro Bank NV, 5.222%, Due 5/11/2007 ++ ......................................... 18,200 18,214
American Honda Finance Corp.,
5.198%, Due 7/11/2006 ++# ....................................................... 37,100 37,102
5.34%, Due 8/15/2006 ++# ........................................................ 10,000 10,002
5.053%, Due 10/10/2006 ++# ...................................................... 30,000 30,003
5.068%, Due 10/18/2006 ++# ...................................................... 47,000 47,000
5.12%, Due 11/7/2006 ++# ........................................................ 55,000 55,000
5.26%, Due 12/12/2006 ++# ....................................................... 63,000 62,997
5.208%, Due 1/16/2007 ++# ....................................................... 25,000 25,021
5.068%, Due 1/26/2007 ++# ....................................................... 50,000 49,999
5.319%, Due 2/20/2007 ++# ....................................................... 10,000 10,009
ASIF Global Financing,
5.172%, Due 8/11/2006 ++# ....................................................... 135,000 135,004
5.38%, Due 12/11/2006 ++# ....................................................... 30,000 30,013
5.194%, Due 2/23/2007 ++# ....................................................... 209,250 209,260
Bank of America Corp., 5.481%, Due 9/1/2006 ++ .................................... 9,500 9,504
Bank One Corp., 5.284%, Due 8/11/2006 ++ .......................................... 30,000 30,005
Citigroup Global Markets Holdings, Inc.,
5.225%, Due 7/25/2006 ++ ........................................................ 129,750 129,763
5.41%, Due 12/12/2006 ++ ........................................................ 28,933 28,950
5.411%, Due 3/16/2007 ++ ........................................................ 149,300 149,405
Credit Suisse First Boston USA, Inc.,
5.67%, Due 2/15/2007 ++ ......................................................... 21,904 21,974
5.10%, Due 4/5/2007 ++ .......................................................... 215,443 215,620
General Electric Capital Corp.,
5.373%, Due 3/9/2007 ++ ......................................................... 32,500 32,530
5.497%, Due 6/22/2007 ++ ........................................................ 68,268 68,334
5.352%, Due 8/17/2007 ++ ........................................................ 180,000 180,000
Goldman Sachs Group, Inc.,
5.28%, Due 10/27/2006 ++ ........................................................ 50,000 50,028
5.599%, Due 3/30/2007 ++ ........................................................ 34,000 34,026
HBOS Treasury Services Plc, 5.214%, Due 8/28/2006 ++# ............................. 40,000 40,003
HSBC Finance Corp.,
5.16%, Due 10/27/2006 ++ ........................................................ 40,000 40,008
5.26%, Due 2/28/2007 ++ ......................................................... 23,500 23,510
JP Morgan Chase & Co., 5.43%, Due 12/12/2006 ++ ................................... 24,500 24,517
Merrill Lynch & Company, Inc.,
5.137%, Due 10/19/2006 ++ ....................................................... 153,000 153,029
5.28%, Due 10/27/2006 ++ ........................................................ 48,100 48,127
Metropolitan Life Global Funding I, 5.37%, Due 8/28/2006 ++# ...................... 32,620 32,628
Monumental Global Funding II, 5.49%, Due 12/27/2006 ++# ........................... 40,000 40,005
Morgan Stanley, 5.226%, Due 11/9/2006 ++ .......................................... 40,000 40,011
</Table>
See accompanying notes
20
AMERICAN BEACON MONEY MARKET FUND
SCHEDULE OF INVESTMENTS - CONTINUED
June 30, 2006 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
PACCAR Financial Corp.,
5.334%, Due 9/20/2006 ++ ........................................................ $ 33,000 $ 32,995
5.191%, Due 12/4/2006 ++ ........................................................ 125,000 124,973
Toyota Motor Credit Corp.,
5.038%, Due 7/14/2006 ++ ........................................................ 175,000 175,001
5.274%, Due 9/15/2006 ++ ........................................................ 84,200 84,201
Wachovia Corp., 5.22%, Due 2/6/2007 ++ ............................................ 153,925 154,007
Wells Fargo & Co.,
5.419%, Due 9/15/2006 ++ ........................................................ 42,975 42,986
5.509%, Due 3/23/2007 ++ ........................................................ 174,100 174,230
5.189%, Due 7/17/2007 ++# ....................................................... 150,000 150,000
------------
TOTAL MEDIUM-TERM NOTES ........................................................... 3,049,994
------------
PROMISSORY NOTES - 3.32%
------------
Goldman Sachs Group, Inc., 5.226%, Due 8/9/2006 ++# ............................... 300,000 300,000
------------
CERTIFICATES OF DEPOSIT AND BANK NOTES - 24.55%
BB&T Corp., 5.038%, Due 1/24/2007 ++ .............................................. 150,000 149,998
Credit Suisse, 5.28%, Due 6/12/2007 ++ ............................................ 150,000 150,000
Fifth Third Bancorp, 5.06%, Due 8/3/2006 ++ ....................................... 35,000 34,999
HSBC Bank USA, 5.339%, Due 12/14/2006 ++ .......................................... 268,700 268,757
JP Morgan Chase Bank, NA, 5.095%, Due 1/12/2007 ++ ................................ 63,000 63,024
Royal Bank of Canada,
5.367%, Due 12/22/2006 .......................................................... 30,000 29,993
5.065%, Due 1/12/2007 ........................................................... 10,000 10,002
Royal Bank of Scotland Plc,
5.269%, Due 11/21/2006 ++# ...................................................... 150,000 150,000
5.218%, Due 11/24/2006 ++# ...................................................... 30,200 30,205
5.499%, Due 3/30/2007 ++# ....................................................... 278,000 278,051
SouthTrust Bank, 5.456%, Due 3/19/2007 ++ ......................................... 46,000 46,029
State Street Bank & Trust Co.,
5.299%, Due 12/15/2006 ++ ....................................................... 16,950 16,949
5.02%, Due 1/16/2007 ++ ......................................................... 59,500 59,505
SunTrust Banks, Inc., 5.231%, Due 5/17/2007 ++ .................................... 167,000 167,109
US Bank, NA,
5.126%, Due 7/28/2006 ++ ........................................................ 135,845 135,848
5.06%, Due 1/25/2007 ++ ......................................................... 190,000 190,004
5.341%, Due 3/16/2007 ++ ........................................................ 50,000 50,014
Wachovia Bank, NA,
5.221%, Due 12/4/2006 ++ ........................................................ 27,000 27,000
5.459%, Due 3/30/2007 ++ ........................................................ 200,000 199,998
World Savings Bank FSB, 5.291%, Due 6/1/2007 ++ ................................... 162,460 162,571
------------
TOTAL CERTIFICATES OF DEPOSIT AND BANK NOTES ...................................... 2,220,056
------------
COMMERCIAL PAPER - 11.36%
Barclays US Funding LLC, 5.135%, Due 8/22/2006 .................................... 300,000 297,775
FCAR Owner Trust,
Series II, 5.30%, Due 8/4/2006 .................................................. 100,000 99,499
</Table>
See accompanying notes
21
AMERICAN BEACON MONEY MARKET FUND
SCHEDULE OF INVESTMENTS - CONTINUED
June 30, 2006 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Series I, 5.31%, Due 8/4/2006 ................................................... $ 250,000 $ 248,746
HSBC Finance Corp., 5.31%, Due 8/4/2006 ........................................... 100,000 99,499
Long Lane Master Trust IV, 5.32%, Due 7/28/2006 # ................................. 200,000 199,202
Stanfield Victoria,
5.05%, Due 7/20/2006 # .......................................................... 26,000 25,931
5.07%, Due 7/31/2006 # .......................................................... 57,000 56,759
------------
TOTAL COMMERCIAL PAPER ............................................................ 1,027,411
------------
TIME DEPOSITS - 23.49%
Allied Irish Banks Plc, 5.28%, Due 7/3/2006 ....................................... 400,000 400,000
BNP Paribas, 5.28%, Due 7/3/2006 .................................................. 425,000 425,000
Deutsche Bank AG, 5.313%, Due 7/3/2006 ............................................ 250,000 250,000
Fifth Third Bank, 5.25%, Due 7/3/2006 ............................................. 200,000 200,000
Lloyds TSB Bank Plc, 5.31%, Due 7/3/2006 .......................................... 425,000 425,000
Societe Generale, 5.29%, Due 7/3/2006 ............................................. 425,000 425,000
------------
TOTAL TIME DEPOSITS ............................................................... 2,125,000
------------
REPURCHASE AGREEMENTS - 1.56%
------------
Goldman Sachs, 5.28%, Due 7/3/2006 (Collateral held at the Bank of New York for
Goldman Sachs, FNMA, 5.00% - 7.50%, Due 10/1/2025 - 6/1/2036,
Total Value - $143,148.) ......................................................... 141,015 141,015
------------
TOTAL INVESTMENTS - 99.66% (COST $9,013,476) ........................................ $ 9,013,476
OTHER ASSETS, NET OF LIABILITIES - 0.34% ............................................ 31,139
------------
TOTAL NET ASSETS - 100.00% .......................................................... $ 9,044,615
============
</Table>
Percentages are stated as a percent of net assets.
Based on cost of investments of $9,013,476 for federal income tax purposes
at June 30, 2006, there was no unrealized appreciation or depreciation of
investments.
++ 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.
# Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $2,004,194 or 22.16% of net
assets.
See accompanying notes
22
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
June 30, 2006 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
U.S. AGENCY OBLIGATIONS - 12.33%
FEDERAL HOME LOAN BANK - 4.11%
------------
4.86%, Due 4/4/2007 ++ .......................................................... $ 10,000 $ 9,997
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 4.11%
------------
5.35%, Due 12/27/2006 ++ ........................................................ 10,000 9,997
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 4.11%
------------
5.307%, Due 12/22/2006 ++ ....................................................... 10,000 9,997
------------
TOTAL U.S. AGENCY OBLIGATIONS ..................................................... 29,991
------------
U.S. TREASURY OBLIGATIONS - 2.93%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.58%
Discount Note, Due 8/1/2006 ..................................................... 2,305 2,295
Discount Note, Due 8/4/2006 ..................................................... 4,000 3,981
------------
6,276
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.35%
------------
Discount Note, Due 10/25/2006 ................................................... 850 836
------------
TOTAL U.S. TREASURY OBLIGATIONS ................................................... 7,112
------------
REPURCHASE AGREEMENTS - 84.69%
Banc of America Securities, LLC, 5.313%, Due 7/3/2006 (Collateral held at the
Bank of New York for Banc of America Securities, LLC, FNMA, 5.00%,
Due 3/1/2035, Total Value - $86,328.) ............................................ 85,000 85,000
Barclays Capital, Inc., 5.25%, Due 7/3/2006 (Collateral held at the Bank of
New York for Barclays Capital, Incorporated, FHLMC, 5.50%, Due 5/1/2033,
Total Value - $2,032 and FNMA, 5.00% - 5.385%, Due 4/1/2036 - 5/1/2036,
Total Value - $48,745.) .......................................................... 50,000 50,000
Goldman Sachs, 5.28%, Due 7/3/2006 (Collateral held at the Bank of New York
for Goldman Sachs, FNMA, 5.00% - 7.50%, Due 11/1/2029 - 9/1/2035,
Total Value - $72,067.) .......................................................... 70,990 70,990
------------
TOTAL REPURCHASE AGREEMENTS ......................................................... 205,990
------------
TOTAL INVESTMENTS - 99.95% (COST $243,093) .......................................... $ 243,093
OTHER ASSETS, NET OF LIABILITIES - 0.05% ............................................ 131
------------
TOTAL NET ASSETS - 100.00% .......................................................... $ 243,224
============
</Table>
Percentages are stated as a percent of net assets.
Based on cost of investments of $243,093 for federal income tax purposes at
June 30, 2006, there was no unrealized appreciation or depreciation of
investments.
++ 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.
See accompanying notes
23
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
June 30, 2006 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
ALABAMA - 2.89%
------------
Infirmary Health System Special Care Facilities Financial Authority of Mobile
Revenue Bonds, Series 2006A, 3.97%, Due 2/1/2040, LOC Bank of Nova Scotia ........ $ 1,000 $ 1,000
------------
COLORADO - 9.83%
Colorado Educational & Cultural Facilities Authority Revenue Bonds, Series
C-3, 4.03%, Due 1/1/2031, LOC US Bank, NA ........................................ 500 500
Colorado Educational and Cultural Facilities Variable Rate Demand Revenue
Bonds, Series A7, (National Jewish Federation Bond Program), 4.03%,
Due 7/1/2029, LOC Bank Of America, NA ............................................ 1,000 1,000
Colorado Health Facilities Authority Revenue Bonds, Series 2002B, 3.92%,
Due 1/1/2033, LOC US Bank, NA .................................................... 900 900
University of Colorado Hospital System Revenue Bonds, Series 2004B, 3.97%,
Due 11/15/2035, LOC Citibank, NA ................................................. 1,000 1,000
------------
TOTAL COLORADO .................................................................... 3,400
------------
FLORIDA - 18.60%
Alachua County, Florida Housing Financial Authority, Multifamily Housing
Revenue Bonds, Series 2001, (University Cove Apartment Project), 4.01%,
Due 6/15/2034, LOC Fannie Mae .................................................... 1,830 1,830
Collier County Health Facilities Authority Revenue Bonds, Series 2003 C,
4.00%, Due 1/1/2035, LOC JP Morgan Chase ......................................... 1,300 1,300
Florida Gulf Coast University Financing Corp. Revenue Bonds, Series 2003,
4.01%, Due 12/1/2033, LOC Wachovia Bank, NA ...................................... 1,000 1,000
Orange County Health Facilities Authority, Variable Rate Demand Revenue Bonds,
Series 1992, (Adventist Health System/Sunbelt, Inc.), 4.05%, Due 11/15/2014,
LOC Suntrust Bank ................................................................ 900 900
University Athletic Association, Inc. Revenue Bonds, Series 2001 Bonds, 4.05%,
Due 10/1/2031, LOC Suntrust Bank ................................................. 1,405 1,405
------------
TOTAL FLORIDA ..................................................................... 6,435
------------
ILLINOIS - 7.49%
Illinois Finance Authority Variable Rate Revenue Bonds, Series 2005B, 4.03%,
Due 5/15/2035, LOC JP Morgan Chase ............................................... 790 790
Village of Richton Park, Illinois-Industrial Development Revenue Bonds,
Series 1997, (Avatar Corporation Project), 4.07%, Due 4/1/2027, LOC
Fifth Third Bank ................................................................. 1,800 1,800
------------
TOTAL ILLINOIS .................................................................... 2,590
------------
INDIANA - 2.89%
------------
Fort Wayne, Indiana Industrial Economic Development Revenue Bonds,
Series 1989, (ND-Tech Corporation Project), 4.08%, Due 7/1/2009, LOC
Comerica Bank .................................................................... 1,000 1,000
------------
KENTUCKY - 6.64%
Breckinridge County, Kentucky Lease Program Revenue Bonds, Series A, 4.03%,
Due 2/1/2032, LOC US Bank, NA .................................................... 1,196 1,196
Carroll County, Kentucky Solid Waste Disposal Revenue Bonds, Series 2001,
(North American Stainless, L.P.), 3.99%, Due 5/1/2031, LOC Fifth Third Bank ...... 1,100 1,100
------------
TOTAL KENTUCKY ...................................................................... 2,296
------------
MARYLAND - 4.86%
------------
Montgomery County, Maryland Variable Rate Housing Revenue Bonds, Series 1997,
Issue I (The Grand), 4.02%, Due 6/1/2030, LOC Federal National
Mortgage Association ............................................................. 1,680 1,680
------------
</Table>
See accompanying notes
24
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND
SCHEDULE OF INVESTMENTS - CONTINUED
June 30, 2006 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
MICHIGAN - 5.13%
------------
Michigan State Housing Development Authority, Variable Rate Limited Obligation
Multifamily Housing Revenue Refunding Bonds, 4.03%, Due 6/1/2018, LOC
Bank of New York ................................................................. $ 1,775 $ 1,775
------------
NEVADA - 2.89%
------------
Nevada Housing Division-Variable Rate Demand Multi-Unit Housing Revenue Bonds,
Series 2004, (Sundance Village Apartments), 4.03%, Due 10/1/2035,
LOC Citibank, NA ................................................................. 1,000 1,000
------------
NEW MEXICO - 4.34%
------------
City of Farmington Pollution Control Revenue Bonds, Series 1994B, (Arizona
Public Service Company), 3.99%, Due 9/1/2024, LOC Barclays Bank PLC .............. 1,500 1,500
------------
NEW YORK - 9.83%
Dutchess County Industrial Development Agency Variable Rate Demand Civic
Facility Revenue Bonds, Series 2002, 3.98%, Due 10/1/2032, LOC Allied
Irish Bank, PLC .................................................................. 1,000 1,000
New York City Housing Development Corporation, Multi-Family Mortgage Revenue
Bonds, Series 2002A, (First Avenue Development), 4.00%, Due 10/15/2035, LOC
Fannie Mae ....................................................................... 800 800
New York State Housing Finance Agency, 66 West 38th Street Housing Revenue
Bonds, Series 2000A, 4.00%, Due 5/15/2033, LOC Fannie Mae ........................ 1,600 1,600
------------
TOTAL NEW YORK .................................................................... 3,400
------------
OHIO - 4.91%
------------
Ohio Water Development Authority, Environmental Improvement Revenue Bonds,
Series 2000B, (Waste Management, Incorporated Project), 4.06%, Due 7/1/2020,
LOC Fleet National Bank .......................................................... 1,700 1,700
------------
PENNSYLVANIA - 6.65%
Delaware County Pennsylvania Pollution Control, Series 1999A, 4.05%,
Due 4/1/2021, LOC Wachovia Bank, NA .............................................. 800 800
Indiana County Industrial Development Authority Refunding Bonds, Series 2003A
(Exelon Generation), 4.07%, Due 6/1/2027, LOC BNP Paribas ........................ 1,500 1,500
------------
TOTAL PENNSYLVANIA ................................................................ 2,300
------------
TEXAS - 3.47%
------------
City of Midlothian, Texas Industrial Development Corporation, Environmental
Facilities Revenue Bonds, Series 1999, (Holnam Texas Limited Partnership
Project), 4.05%, Due 9/1/2031, LOC Bank One ...................................... 1,200 1,200
------------
UTAH - 3.32%
------------
Morgan County UT Solid Waste Disposal Revenue Bonds, Series 1996,
(Holman, Inc. Project), 4.03%, Due 8/1/2031, LOC Wachovia Bank, NA ............... 1,150 1,150
------------
WYOMING - 4.34%
------------
Sweetwater County, Wyoming Pollution Control Revenue Refunding Bonds,
Series 1990A, (Pacificorp Project), 3.97%, Due 7/1/2015,
LOC Barclays Bank PLC ............................................................ 1,500 1,500
------------
</Table>
<Table>
<Caption>
SHARES
------------
SHORT TERM INVESTMENTS - 1.67%
BlackRock Provident MuniCash Fund ................................................. 32,554 33
</Table>
See accompanying notes
25
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND
SCHEDULE OF INVESTMENTS - CONTINUED
June 30, 2006 (Unaudited)
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Federated Municipal Obligations Fund,
------------
TOTAL SHORT TERM INVESTMENTS 585
------------
TOTAL INVESTMENTS - 99.75% (COST $34,511) $ 34,511
OTHER ASSETS, NET OF LIABILITIES - 0.25% 86
------------
TOTAL NET ASSETS - 100.00% $ 34,597
============
</Table>
Percentages are stated as a percent of net assets.
For municipal obligations, rates associated with money market securities
represent yield to maturity or yield to next reset date.
Based on cost of investments of $34,511 for federal income tax purposes at
June 30, 2006, there was no unrealized appreciation or depreciation of
investments.
See accompanying notes
26
<Page>
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2006 (UNAUDITED) (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
ASSETS:
Investments in securities at value (cost -
$8,872,461, $37,103 and $34,511,
respectively)................................. $8,872,461 $ 37,103 $34,511
Repurchase agreements (cost - $141,015, $205,990
and $0 respectively) 141,015 205,990 --
Dividends and interest receivable............... 31,847 168 99
Prepaid expenses................................ 105 2 --
---------- -------- -------
TOTAL ASSETS............................... 9,045,428 243,263 34,610
---------- -------- -------
LIABILITIES:
Management and investment advisory fees payable
(Note 2)...................................... 760 24 3
Other liabilities............................... 53 15 10
---------- -------- -------
TOTAL LIABILITIES.......................... 813 39 13
---------- -------- -------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL
INTERESTS.......................................... $9,044,615 $243,224 $34,597
========== ======== =======
</Table>
See accompanying notes
27
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED) (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
INVESTMENT INCOME:
Interest income................................. $204,069 $6,635 $516
-------- ------ ----
TOTAL INVESTMENT INCOME.................... 204,069 6,635 516
-------- ------ ----
EXPENSES:
Management and investment advisory fees (Note
2)............................................ 4,274 140 15
Custodian fees.................................. 191 6 1
Professional fees............................... 47 8 6
Other expenses.................................. 161 18 1
-------- ------ ----
TOTAL EXPENSES............................. 4,673 172 23
-------- ------ ----
NET INVESTMENT INCOME................................ 199,396 6,463 493
-------- ------ ----
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................ 3 1 --
-------- ------ ----
NET GAIN ON INVESTMENTS.................... 3 1 --
-------- ------ ----
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS......................................... $199,399 $6,464 $493
======== ====== ====
</Table>
See accompanying notes
28
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET MUNICIPAL MONEY MARKET
------------------------------ ------------------------------ ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2006 2005 2006 2005 2006 2005
---------------- ------------ ---------------- ------------ ---------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income..... $ 199,396 $ 218,128 $ 6,463 $ 7,700 $ 493 $ 837
Net realized gain on
investments............. 3 18 1 6 -- --
------------ ------------ ----------- ----------- -------- --------
TOTAL INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS.... 199,399 218,146 6,464 7,706 493 837
------------ ------------ ----------- ----------- -------- --------
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS:
Contributions............. 55,472,099 98,275,830 1,322,006 1,782,252 24,379 56,703
Withdrawals............... (53,412,924) (97,114,356) (1,324,806) (1,799,917) (20,771) (62,338)
------------ ------------ ----------- ----------- -------- --------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM TRANSACTIONS
IN INVESTORS'
BENEFICIAL
INTERESTS.......... 2,059,175 1,161,474 (2,800) (17,665) 3,608 (5,635)
------------ ------------ ----------- ----------- -------- --------
NET INCREASE
(DECREASE) IN NET
ASSETS............. 2,258,574 1,379,620 3,664 (9,959) 4,101 (4,798)
------------ ------------ ----------- ----------- -------- --------
NET ASSETS:
Beginning of period....... 6,786,041 5,406,421 239,560 249,519 30,496 35,294
------------ ------------ ----------- ----------- -------- --------
END OF PERIOD............. $ 9,044,615 $ 6,786,041 $ 243,224 $ 239,560 $ 34,597 $ 30,496
============ ============ =========== =========== ======== ========
</Table>
See accompanying notes
29
AMERICAN BEACON MASTER TRUST PORTFOLIOS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
MONEY MARKET
-------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------
2006 2005 2004 2003 2002 2001
---------------- ----- ----- ----- ----- -----
(UNAUDITED)
Total return........................................ 2.34%(A) 3.25% 1.34% 1.13% 1.81% 4.30%
Ratios to average net assets (annualized):
Expenses....................................... 0.11% 0.11% 0.11% 0.11% 0.11% 0.11%
Net investment income.......................... 4.66% 3.20% 1.30% 1.14% 1.81% 3.95%
</Table>
<Table>
<Caption>
U.S. GOVERNMENT MONEY MARKET
-------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------
2006 2005 2004 2003 2002 2001
---------------- ----- ----- ----- ----- -----
(UNAUDITED)
Total return........................................ 2.32%(A) 3.19% 1.30% 1.11% 1.74% 4.24%
Ratios to average net assets (annualized):
Expenses....................................... 0.12% 0.12% 0.11% 0.12% 0.12% 0.11%
Net investment income.......................... 4.61% 3.15% 1.30% 1.13% 1.71% 3.99%
</Table>
<Table>
<Caption>
MUNICIPAL MONEY MARKET
-------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------
2006 2005 2004 2003 2002 2001
---------------- ----- ----- ----- ----- -----
(UNAUDITED)
Total return........................................ 1.58%(A) 2.38% 1.18% 1.08% 1.39% 2.71%
Ratios to average net assets (annualized):
Expenses....................................... 0.15% 0.11% 0.11% 0.12% 0.12% 0.13%
Net investment income.......................... 3.18% 2.35% 1.14% 1.05% 1.39% 2.71%
</Table>
- --------
(A) Not annualized.
30
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Master Trust (the "Trust"), formerly known as AMR
Investment Services Trust, is registered under the Investment Company Act of
1940, as amended, as a no load, open-end management investment company that was
organized as a trust under the laws of the Commonwealth of Massachusetts
pursuant to a Declaration of Trust dated as of November 1, 2004. Prior to
November 1, 2004, the Trust was organized as a trust under the laws of the State
of New York. Beneficial interests in the Trust are divided into separate series,
each having distinct investment objectives and policies. These financial
statements relate to the American Beacon Master Money Market Portfolio, American
Beacon Master U.S. Government Money Market Portfolio and American Beacon Master
Municipal Money Market Portfolio (each a "Portfolio" and collectively the
"Portfolios"). The objective of each Portfolio is current income, liquidity and
the maintenance of a stable price of $1.00 per share. The assets of each
Portfolio belong only to that Portfolio, and the liabilities of each Portfolio
are borne solely by that Portfolio and no other.
American Beacon Advisors, Inc. (the "Manager"), formerly known as AMR
Investment Services, Inc., is a wholly-owned subsidiary of AMR Corporation, the
parent company of American Airlines, Inc. ("American"), and was organized in
1986 to provide business management, advisory, administrative and asset
management consulting services.
The following is a summary of the significant accounting policies followed
by the Portfolios.
Security Valuation
Securities of the Portfolios are valued at amortized cost, which
approximates fair value. In the event that a deviation of 1/2 of 1% or more
exists between the $1.00 per share price of the Portfolios, calculated at
amortized cost, and the price per share calculated by reference to market
quotations, or if there is any other deviation that the Trust's Board of
Trustees (the "Board") believes would result in a material dilution to
shareholders or purchasers, the Board will promptly consider the appropriate
action that should be initiated.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale. Interest income is earned from settlement date, recorded on
the accrual basis, and adjusted, if necessary, for amortization of premiums or
accretion of discounts on investment grade short-term securities and zero coupon
instruments. For financial and tax reporting purposes, realized gains and losses
are determined on the basis of specific lot identification.
Federal Income and Excise Taxes
The Portfolios will be treated as partnerships for federal income tax
purposes. As such, each investor in a Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that each
Portfolio's assets will be managed in such a way that an investor in the
Portfolio will be able to satisfy the requirements of subchapter M of the
Internal Revenue Code.
Repurchase Agreements
Under the terms of a repurchase agreement, securities are acquired by a
Portfolio from a securities dealer or a bank that are subject to resale at a
later date. Repurchase agreements are fully collateralized by U.S. Treasury or
U.S. Government agency securities and are valued at cost, which approximates
market value. All collateral is held at the Portfolio's custodian bank, State
Street Bank and Trust Company, or at subcustodian banks. The collateral is
monitored daily by the Manager so that the collateral's market value exceeds the
carrying value of the repurchase agreement plus accrued interest.
31
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimated.
Other
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Trust. In the normal course of business, the Trust enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Trust and the Manager are parties to a Management Agreement that
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory and portfolio management services. The Manager serves as the
sole investment advisor to each of the Portfolios. As compensation for
performing the duties required under the Management Agreement, the Manager
receives from the Portfolios 0.10% of the average daily net assets of each of
the Portfolios.
Interfund Lending Program
Pursuant to an exemptive order by the Securities and Exchange Commission,
the Portfolios, along with other registered investment companies having
management contracts with the Manager, may participate in an interfund lending
program. This program provides an alternative credit facility allowing the Money
Market Portfolio to lend money to other participating series managed by the
Manager. For the six months ended June 30, 2006, the Money Market Portfolio
earned $79 under the credit facility. This amount is included in interest income
on the financial statements.
Other
Certain officers or Trustees of the Trust are also current or former
officers or employees of the Manager or American. The Trust makes no direct
payments to its officers. Mr. Feld and the non-interested Trustees (other than
Mr. O'Sullivan) and their spouses are provided free unlimited air transportation
on American. Retired Trustees and their spouses are provided free air
transportation on American, up to a maximum annual value of $40,000. The Trust
compensates each Trustee with payments in an amount equal to the Trustee's
income tax on the value of this free airline travel. Mr. O'Sullivan as a retiree
of American, already receives flight benefits. Mr. O'Sullivan receives an annual
retainer plus a fee for each Board meeting attended.
32
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS
(UNAUDITED)
- --------------------------------------------------------------------------------
At its February 17, 2006 meeting, the Board of Trustees (the "Board")
considered the renewal of the existing Management Agreements (the "Agreements")
between the Manager and the American Beacon Mileage Funds, on behalf of the
American Beacon Money Market Mileage Fund, American Beacon Municipal Money
Market Mileage Fund, and the American Beacon U.S. Government Money Market
Mileage Fund (collectively, the "Funds"), and between the Manager and the
American Beacon Master Trust, on behalf of the American Beacon Master Money
Market Portfolio, American Beacon Master Municipal Money Market Portfolio, and
the American Beacon Master U.S. Government Money Market Portfolio (collectively,
the "Portfolios"). The term "Funds" is used throughout this section to refer to
both the Funds and the Portfolios. In preparation for the Board's consideration
to renew the Agreements, the Board and its Investment Committee undertook steps
to gather and consider information furnished by the Manager and Lipper, Inc.
("Lipper"). The Board, with the assistance of independent legal counsel,
requested and received certain relevant information from the Manager. 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 separate meetings on December 8, 2005,
February 8, 2006 and February 17, 2006 to consider the information provided by
Lipper. Further, the Board took into consideration information furnished for the
Board's review and consideration throughout the year at regular Board and
Investment Committee meetings, as well as information specifically prepared in
connection with the renewal process.
The Board considered, among other materials, responses by the Manager to
inquiries requesting:
- a description of any significant changes (actual or anticipated) to
principal activities, personnel, services provided to the Funds, or any
other area, including how these changes might affect the Funds;
- a copy of the Manager's most recent audited or unaudited financial
statements as well as Parts I and II of its Form ADV;
- a summary of any material past, pending or anticipated litigation or
regulatory proceedings involving the Manager or its personnel, including
the results of any recent regulatory examination or independent audit;
- a cost/profitability analysis of the Manager and any actual or
anticipated economies of scale in relation to the services it provides to
the Funds, if available;
- 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 any other benefits to the Manager or Funds as a result
of their relationship, if any;
- confirmation that the Manager's financial condition does not raise
concerns that it 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, including whether such services differ from the services
provided to other clients, including other registered investment
companies;
- a description of the personnel who are assigned primary responsibility
for managing the Funds, including any changes during the past year;
- a description of the basis upon which portfolio managers are compensated,
including any "incentive" arrangements;
- a discussion regarding the Manager's participation in "soft dollar"
arrangements, if any;
- a description of any actual or potential conflicts of interest
anticipated in managing Fund assets;
- a description of trade allocation procedures among accounts managed by
the firm;
- a summary of any material changes to the Manager's compliance program
with regard to federal, state, corporate and Fund requirements;
33
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
- a discussion of any material compliance problems and remedial actions;
- information regarding the Manager's code of ethics, insider trading
policy and disaster recovery plan, including a description of any
material changes thereto;
- a description of the Manager's affiliation with any broker-dealer;
- a discussion of any anticipated change in the Manager's controlling
persons;
- verification of the Manager's insurance coverage with regards to the
services provided to the Funds;
- a comparison of the performance of each Fund to appropriate indices,
including comments on the relative performance of each Fund versus
comparable indices;
- a discussion, if applicable, of any underperformance by a Fund relative
to its peer group;
- 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 the portfolio turnover rate and average execution costs
for each Fund;
- a discussion of whether the Manager receives, with respect to trade
execution for the Funds, other special compensation, including any
payment for order flow; and
- a description of how expenses that are not readily identifiable to a
particular Fund are allocated.
The Board also obtained an analysis provided by Lipper that compared: (i)
investment performance of each Fund versus comparable investment companies and
appropriate indices; (ii) total Fund expenses of each Fund versus comparable
mutual funds, and (iii) each Fund's investment advisory fees versus comparable
mutual funds. For each Fund, the class used for comparative purposes was the
class with the longest performance history, which in most cases is the
Institutional Class. References below to each Fund's Lipper peer group are to
the group of comparable mutual funds included in the analysis provided by
Lipper.
The Trustees also received a memorandum from their legal counsel detailing
the Board's responsibilities pertaining to the renewal of the Agreements. This
memorandum explained the regulatory requirements surrounding the Board's process
for evaluating investment advisors and the terms of the contracts.
Provided below is an overview of the primary factors the Board considered
at its February 2006 meeting. The Board did not identify any particular
information that was most relevant to its consideration to renew the Agreements,
and each Trustee may have afforded different weight to the various factors.
CONSIDERATIONS WITH RESPECT TO ALL FUNDS
In determining whether to approve the continuance of the Agreements, the
Board considered the best interests of each Fund separately. In addition, while
the Agreements for all of the Funds were considered at the same Board meeting,
the Board considered each Fund's investment management relationship 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; (3) the Manager's cost for providing the services and
the profitability of the advisory business to the Manager; (4) the extent to
which economies of scale have been taken into account in setting the fee
schedule; and (5) whether fee levels reflect these economies of scale for the
benefit of Fund investors. The Trustees posed questions to various management
personnel of the Manager regarding certain key aspects of the material submitted
in support of the renewal.
34
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
Nature, Extent and Quality of Services
With respect to the renewal of the Agreements, the Board considered: the
Manager's ability to retain key investment personnel and to provide consistent
performance and an active client service program; the Manager's goal to provide
consistent above average long-term performance at low cost; the continuing
efforts by the Manager to add new Funds so as to enhance the Trusts' product
line; the Manager's record in building improved compliance, control and credit
functions that reduce risks to the Funds; and the addition of personnel to
manage the Funds, promote sales and improve services. Based on this information,
the Board concluded that the nature, extent and quality of the management
services provided by the Manager were appropriate for each Fund and, thus,
supported a decision to renew the Agreements.
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 also considered the performance reports and
discussions with management at Board and Committee meetings throughout the year.
Discussions regarding the Board's considerations with respect to each Fund's
performance are below under "Additional Considerations and Conclusions with
Respect to each Fund."
Cost of Services and Profits Realized
In analyzing the cost of services and profitability of the Manager in
connection with its investment advisory services to a Fund, the Board considered
the Manager's operations and low cost structure. 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. Discussions
regarding the Board's considerations with respect to each Fund's fee rates are
set forth below under "Additional Considerations and Conclusions with Respect to
each Fund."
Economies of Scale
In considering the reasonableness of the management 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. With respect to the management fee, the Board acknowledged the
Manager's low cost structure and the increasing costs of personnel, technology
and operations. Based on these considerations, the Board concluded that the
Funds' fee structures are reasonably designed to pass on economies of scale to
Fund shareholders.
Benefits to be Derived from the Relationship with the Funds
The Board considered the "fall-out" or ancillary benefits that accrue to
the Manager as a result of the advisory relationships with the Funds, including
greater exposure in the marketplace with respect to the Manager's investment
process and expanding the level of assets under management by the Manager. After
consideration of this information, the Board concluded that the potential
benefits accruing to the Manager by virtue of its relationships with the Funds
appear to be fair and reasonable.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO EACH FUND
The Board considered the relative performance of each Fund versus the
respective Lipper Average, which includes all comparable funds in the Lipper
category, and the Lipper Index, which includes up to the 30 largest funds in the
respective Lipper category where the Fund is classified by Lipper.
35
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
Additional Considerations and Conclusions with Respect to the Money Market
Mileage Fund
In considering the renewal of the Agreements with the Fund, the Board
considered performance data for various periods ended December 31, 2005. In this
regard, they considered that: (1) the Mileage Class total return performance was
in the 1st quintile for all relevant periods except the ten-year period where
its performance was in the 2nd quintile compared to the returns of a peer group
of mutual funds identified by Lipper as having an investment objective similar
to the Fund ("Lipper Universe"), and (2) the Mileage Class outperformed the
Lipper Money Market Average and the Lipper Money Market Index for all relevant
periods.
In addition, the Board considered the fees payable under the Agreements. In
this regard, they considered that: (1) the Mileage Class total expenses were in
the 2nd quintile and actual management fees (including administrative fees) were
in the 1st quintile compared to the expenses and fees of a peer group of similar
funds classified by Lipper ("Fee Universe") where the 1st quintile represents
the lowest fees or expenses among the group, and (2) the Manager's explanation
that fee schedule "breakpoints" were not warranted due to, among other factors,
the low, base management fee charged to the Fund.
Based on these considerations and those noted above with respect to all
Funds, the Board: (1) concluded that the fees paid to the Manager under the
Agreements are fair and reasonable; (2) concluded that the profits to the
Manager are reasonable in light of the quality of services provided to the Fund,
including direct management of the Fund's assets; (3) determined that the Fund
and its shareholders would benefit from the Manager's continued management of
the Fund; and (4) approved the renewal of the Agreements with respect to the
Fund.
Additional Considerations and Conclusions with Respect to the Municipal Money
Market Mileage Fund
In considering the renewal of the Agreements with the Fund, the Board
considered performance data for various periods ended December 31, 2005. In this
regard, they considered that: (1) the Mileage Class total return performance was
in the 2nd quintile for the two-, three- and ten-year periods and 3rd quintile
for the one-, four- and five-year periods compared to the Lipper Universe, and
(2) the Mileage Class outperformed the Lipper Tax Exempt Money Market Average
and underperformed the Lipper Tax Exempt Money Market Index for all relevant
periods.
In addition, the Board considered the fees payable under the Agreements. In
this regard, they considered that: (1) the Mileage Class actual management fees
(including administrative fees) were in the 1st quintile and total expenses were
in the 4th quintile compared to the Fee Universe where the 1st quintile
represents the lowest fees or expenses among the group; (2) the Manager's
explanation that fee schedule "breakpoints" were not warranted due to, among
other factors, the low, base management fee charged to the Fund; (3) the Manager
has contractually agreed to waive fees and/or reimburse expenses to the extent
necessary to maintain a competitive total expense ratio for the Platinum Class
of the Fund; and (4) the Manager's profitability analysis indicated that it
incurred a loss on the services it provided to the Fund.
Based on these considerations and those noted above with respect to all
Funds, the Board: (1) concluded that the fees paid to the Manager under the
Agreements are fair and reasonable; (2) concluded that the profits to the
Manager are reasonable in light of the quality of services provided to the Fund,
including direct management of the Fund's assets; (3) determined that the Fund
and its shareholders would benefit from the Manager's continued management of
the Fund; and (4) approved the renewal of the Agreements with respect to the
Fund.
Additional Considerations and Conclusions with Respect to the U.S. Government
Money Market Mileage Fund
In considering the renewal of the Agreements with the Fund, the Board
considered performance data for various periods ended December 31, 2005. In this
regard, they considered that: (1) the Mileage Class total return performance was
in the 3rd quintile for all relevant periods compared to the Lipper Universe,
and (2) the Mileage Class outperformed the Lipper U.S. Government Money Market
Average for all relevant periods and underperformed
36
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
the Lipper U.S. Government Money Market Index for all relevant periods except
the two-and ten-year periods where it outperformed and matched the Index,
respectively.
In addition, the Board considered the fees payable under the Agreements. In
this regard, they considered that: (1) the Mileage Class actual management fees
(including administrative fees) were in the 1st quintile and total expenses were
in the 4th quintile compared to the Fee Universe where the 1st quintile
represents the lowest fees or expenses among the group; (2) the Manager's
explanation that fee schedule "breakpoints" were not warranted due to, among
other factors, the low, base management fee charged to the Fund; (3) the Manager
has contractually agreed to waive fees and/or reimburse expenses to the extent
necessary to maintain a competitive total expense ratio for the Mileage and
Platinum Classes of the Fund; and (4) the Manager's profitability analysis
indicated that it incurred a loss on the services it provided to the Fund.
Based on these considerations and those noted above with respect to all
Funds, the Board: (1) concluded that the fees paid to the Manager under the
Agreements are fair and reasonable; (2) concluded that the profits to the
Manager are reasonable in light of the quality of services provided to the Fund,
including direct management of the Fund's assets; (3) determined that the Fund
and its shareholders would benefit from the Manager's continued management of
the Fund; and (4) approved the renewal of the Agreements with respect to the
Fund.
37
(AMERICAN BEACON FUNDS LOGO)
- --------------------------------------------------------------------------------
DELIVERY OF DOCUMENTS
To reduce expenses, your financial institution may mail only one copy of the
Prospectus, Annual Report and Semi-Annual Report to those addresses shared by
two or more accounts. If you wish to receive individual copies of these
documents, please contact your financial institution. Delivery of individual
copies will commence thirty days after receiving your request.
If you invest in the Funds through a financial institution, you may be able to
receive the Funds' regulatory mailings, such as the Prospectus, Annual Report
and Semi-Annual Report, by e-mail. If you are interested in this option, please
go to www.icsdelivery.com and search for your financial institution's name or
contact your financial institution directly.
TO OBTAIN MORE INFORMATION ABOUT THE FUNDS:
<Table>
(KEYBOARD GRAPHIC) (MOUSE GRAPHIC)
BY E-MAIL: ON THE INTERNET:
American-Beacon.Funds@ambeacon.com Visit our website at
www.americanbeaconfunds.com
</Table>
- -------------------------------------------------------------------------------
<Table>
(TELEPHONE GRAPHIC) (MAILBOX GRAPHIC)
BY TELEPHONE: BY MAIL:
</Table>
<Table>
Mileage Class(R) Platinum Class(SM) Mileage Class(R) Platinum Class(SM)
------------------ ------------------- ------------------ -------------------
Call (800) 388-3344 Call (800) 967-9009 American Beacon Funds American Beacon Funds
P.O. Box 219643 4151 Amon Carter Blvd., MD
Kansas City, MO 64121-9643 2450
Fort Worth, TX 76155
</Table>
- -------------------------------------------------------------------------------
<Table>
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES Availability of Proxy Voting Policy and
Records
In addition to the Schedule of Investments A description of the policies and procedures
provided in each semi-annual and annual that the Funds use to determine how to vote
report, each Fund files a complete schedule of proxies relating to portfolio securities is
its portfolio holdings with the Securities and available in each Fund's Statement of
Exchange Commission ("SEC") on Form N-Q as of Additional Information, which may be obtained
the first and third fiscal quarters. The free of charge by calling 1-800-967-9009 or by
Funds' Forms N-Q are available on the SEC's accessing the SEC's website at www.sec.gov.
website at www.sec.gov. The Forms N-Q may also Each Fund's proxy voting record for the most
be reviewed and copied at the SEC's Public recent year ended June 30 is filed annually
Reference Room, 450 Fifth Street, NW, with the SEC on Form N-PX. The Funds' Forms N-
Washington, DC 20549. Information regarding PX are available on the SEC's website at
the operation of the SEC's Public Reference www.sec.gov. Each Fund's proxy voting record
Room may be obtained by calling 1-800-SEC- may also be obtained by calling 1-800-967-
0330. A complete schedule of each Fund's 9009.
portfolio holdings is also available on the
Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of
each fiscal quarter.
</Table>
FUND SERVICE PROVIDERS:
<Table>
<Caption>
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BANK AND BOSTON FINANCIAL DATA PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES
TRUST SERVICES ERNST & YOUNG LLP Portland, Maine
Boston, Massachusetts Kansas City, Missouri Chicago, Illinois
</Table>
This report is prepared for shareholders of the American Beacon Mileage 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 Mileage Funds. American Beacon Mileage Funds is a service mark of AMR
Corporation. Mileage Class is a registered service mark of American Beacon
Advisors, Inc. Platinum Class, American Beacon Money Market Mileage Fund,
American Beacon U.S. Government Money Market Mileage Fund, and American Beacon
Municipal Money Market Mileage Fund are service marks of American Beacon
Advisors, Inc.
SAR 06/06
537883
ITEM 2. CODE OF ETHICS.
The Trust did not amend the code of ethics that applies to its principal
executive and financial officers (the "Code") nor did it grant any waivers to
the provisions of the Code during the period covered by the shareholder reports
presented in Item 1.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedules of investments for each series of the Trust are included in the
shareholder reports presented in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Trust has made no material changes to the procedures by which shareholders
may recommend nominees to the Trust's Board of Trustees since the Trust last
disclosed such procedures in Schedule 14A.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon an evaluation within 90 days of the filing date of this
report, the principal executive and financial officers concluded that
the disclosure controls and procedures of the Trust are effective.
(b) There were no changes in the Trust's internal control over financial
reporting during the second fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to
materially affect, the Trust's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Not Applicable.
(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 Mileage Funds
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: September 8, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: September 8, 2006
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: September 8, 2006