UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-9018
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: December 31, 2006
ITEM 1. REPORT TO STOCKHOLDERS.
G U I D A N C E | V I S I O N | E X P E R I E N C E
(AMERICAN BEACON MILEAGE FUNDS(SM) LOGO)
ANNUAL REPORT
(GRAPHIC)
DECEMBER 31, 2006
MONEY MARKET MILEAGE FUND
U.S. GOVERNMENT MONEY MARKET MILEAGE FUND
MUNICIPAL MONEY MARKET MILEAGE FUND
ABOUT AMERICAN BEACON
Since 1986, American Beacon Advisors has offered a variety of products and
investment advisory services to numerous institutional and retail clients,
including a variety of mutual funds, corporate cash management, and separate
account management.
Our clients include defined benefit plans, defined contribution plans,
foundations, endowments, corporations, financial planners, and other
institutional investors. With American Beacon Advisors, you can put the
experience of a multi-billion dollar asset management firm to work for your
company.
CONTENTS
President's Message .............................................. 1
Financial Highlights
Money Market Mileage Fund ..................................... 18
U.S. Government Money Market Mileage Fund ..................... 19
Municipal Money Market Mileage Fund ........................... 20
Schedule of Investments
Money Market Portfolio ........................................ 22
U.S. Government Money Market Portfolio ........................ 26
Municipal Money Market Portfolio .............................. 27
Additional Information ........................................... Back Cover
Any opinions herein, including forecasts, reflect our judgment as of the end of
the reporting period and are subject to change. Each advisor's strategies and
the Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
American Beacon Mileage Funds December 31, 2006
(AMERICAN BEACON ADVISORS)
(PHOTO OF WILLIAM F. QUINN)
Fellow Shareholders
Enclosed please find the Annual Report for the American Beacon Mileage Funds for
the year ended December 31, 2006.
After 17 consecutive 25-basis point (0.25%) rate hikes, the Federal
Open Market Committee ("FOMC") held interest rates steady at 5.25% at their
August 8th meeting. The Federal Reserve Board (the "Fed") will continue to weigh
the risks of accelerating inflation and decelerating economic growth. At the
final FOMC meeting in December 2006, the Fed acknowledged the cooling housing
market, but remained primarily concerned about inflation. The FOMC should hold
rates steady at least through the first half of 2007. The market is focused on
slowing housing and auto data and pricing in an ease for the next move by the
Fed (albeit in the late part of 2007). Fed officials continue to discuss that
additional firming may be needed because inflation remains on the higher-end of
their comfort range.
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 4.61% for the twelve months ended December 31, 2006,
outperforming the Lipper Money Market Average return of 4.20%. The U.S.
Government Money Market Mileage Fund-Mileage Class outpaced the Lipper U.S.
Government Money Market Average with a return of 4.44% versus 4.26% for the
Average. Additionally, the Municipal Money Market Mileage Fund-Mileage Class
posted a return of 2.75%, slightly underperforming the Lipper Tax-Exempt Money
Market Average return of 2.76%.
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
1
ECONOMIC OVERVIEW
DECEMBER 31, 2006 (UNAUDITED)
The initial estimate of the U.S. gross domestic product ("GDP") growth rate rose
3.5% in the fourth quarter, after rising a modest 2.0% in the third quarter of
2006. Consumer spending was the primary driver, up 4.4%. Consumers used credit
cards to make up for diminished mortgage borrowing power. Business fixed
investment fell 0.4%, the first decline since the first quarter of 2003.
Inventories were up only $35.3 billion, trimming 0.7% from GDP growth. Growth
rose solidly above the Fed's target after two quarters of coming in solidly
below, leaving room for debate on the implications of growth. In addition to the
up tick in growth, the labor market remains healthy as payroll gains averaged
136,000 per month during the fourth quarter and the unemployment rate remained
low at 4.5% in December.
The Federal Open Market Committee ("FOMC") ended a streak of seventeen
consecutive 25 basis point rate hikes at their August 8th meeting, leaving rates
unchanged at 5.25% through the rest of 2006. Fed officials continue to weigh the
risks of a slowing economy against the risks of higher inflation in determining
the future direction of interest rates. At the December meeting, the Fed
acknowledged the cooling housing market and its impact on economic growth, but
inflation remained their chief concern. "...participants expressed concern that
a failure of inflation to moderate as expected could entail significant costs if
an upward drift in inflation expectations ensued," the minutes said. As a
result, the Fed retained a tightening bias in its December statement maintaining
the phrase that "the extent and timing of any additional firming that may be
needed to address these risks will depend on the evolution of the outlook for
both inflation and economic growth."
The latest readings of consumer and producer prices indicate that the
easing of inflationary pressures may be slow. The core consumer price index
("CPI") rose 0.2% in December after remaining flat in November, and the core
producer price index ("PPI"), which also rose 0.2% during the month, came in
above economists' expectations. In addition, despite a decline to an annual rate
of 2.2% in November which was unchanged in December, the core personal
consumption expenditures ("CPE") price index remains above the Fed's comfort
range of 1-2%.
U.S. Treasury yields rose during the fourth quarter as the likelihood
of a Fed ease during the first quarter of 2007 began to dissipate. Though the
yield curve remained inverted, Treasury yields reached five month highs in
January 2007 on signals that the housing market is bottoming, inflation remains
stubborn, and employment is strengthening.
The FOMC should remain on hold at least through the first part of 2007
as Fed officials wait for signs that inflation is indeed moderating. If
inflation remains above the Fed's comfort level for an extended period of time,
an additional Fed tightening is possible. Despite the Fed's stated tightening
bias, the market continues to expect an ease during the second half of 2007.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET MILEAGE FUND(SM)
DECEMBER 31, 2006 (UNAUDITED)
As the economy continued to show signs of strength during the year, the
Fed continued tightening monetary policy through June 2006. Since then the Fed
has been on hold with a tightening bias, resulting in a 5.25% fed funds target
by year end. This was a move of 25 basis points (0.25%) for each of the first
four FOMC meetings after starting the year at 4.25%. In response, the American
Beacon Money Market Fund's weighted-average maturity ("WAM") was maintained
below 45 days throughout the year. The primary strategy of the Fund was to buy
variable rate securities, short-dated commercial paper and overnight
investments. Due to maintaining a short WAM in a rising to stable interest rate
environment, the Fund outperformed its Lipper peer group. This strategy will
stay in place until economic data suggest the Fed is about to enter into an
easing cycle.
For the year ended December 31, 2006, the total return of the American
Beacon Money Market Mileage Fund -- Mileage Class was 4.61%. The Fund
outperformed the Lipper Money Market Average return of 4.20% by 41 basis 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.
(PERFORMANCE GRAPH)
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
AS OF 12/31/2006
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Mileage Class (1)........ 4.61% 2.05% 3.51%
PLATINUM CLASS (1,2).... 3.98% 1.46% 2.98%
</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) A portion of the fees charged to the Platinum Class of the Fund has
been waived. Performance prior to waiving fees was lower than actual
returns shown.
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2006
<Table>
<Caption>
MILEAGE CLASS PLATINUM CLASS
------------- --------------
7-day Current Yield* 4.98% 4.36%
7-day Effective Yield* 5.10% 4.46%
30-day Yield* 4.97% 4.35%
Weighted Avg. Maturity 47 Days 47 Days
</Table>
* Annualized. You may call 1-800-967-9009 to obtain the Funds' current
seven day yields. Yield is a more accurate reflection of the Funds'
current earnings than total returns.
TOP TEN ISSUERS AS OF DECEMBER 31, 2006
<Table>
<Caption>
% OF
NET ASSETS**
------------
Wells Fargo & Co. 5.3%
US Bank, NA 5.1%
Caylon 4.7%
World Savings Bank FSB 4.5%
BNP Paribas 4.3%
Abbey National Treasury Services, PLC 4.3%
Credit Suisse USA, Inc. 4.2%
General Electric Capital Corp. 4.0%
Goldman Sachs Group, Inc. 3.9%
Royal Bank of Scotland PLC 3.4%
</Table>
** Percent of net assets of American Beacon Master Money Market Portfolio.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET MILEAGE FUND(SM)
DECEMBER 31, 2006 (UNAUDITED)
ASSET ALLOCATION AS OF DECEMBER 31, 2006
% OF
NET ASSETS**
------------
Bank CDs, TDs and Notes 44.7%
Corporate Notes 41.0%
Commercial Paper 10.2%
Repurchase Agreements 2.5%
Fund Agreements 1.2%
Net Other Assets 0.4%
</Table>
** Percent of net assets of American Beacon Master Money Market Portfolio.
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 July 1, 2006 through
December 31, 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.
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT PERIOD*
VALUE VALUE 7/1/06-
7/1/06 12/31/06 12/31/06
------------- ------------- -------------
MILEAGE CLASS
Actual .......................... $ 1,000.00 $ 1,024.80 $ 2.70
Hypothetical (5% return
before expenses) ............... $ 1,000.00 $ 1,022.53 $ 2.70
PLATINUM CLASS
Actual .......................... $ 1,000.00 $ 1,021.64 $ 7.29
Hypothetical (5% return
before expenses) ............... $ 1,000.00 $ 1,018.00 $ 7.27
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.53% and 1.43% for the Mileage and Mileage
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 (184) 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)
DECEMBER 31, 2006 (UNAUDITED)
As the economy continued to show signs of strength during the year, the
Fed continued tightening monetary policy through June 2006. Since then the Fed
has been on hold with a tightening bias, resulting in a 5.25% fed funds target
by year end. This was a move of 25 basis points (0.25%) for each of the first
four FOMC meetings after starting the year at 4.25%. In response, the American
Beacon U.S. Government Money Market Fund's weighted-average maturity was
maintained below 20 days throughout the year. The primary strategy of the Fund
was to buy short-dated and variable rate agencies along with overnight
repurchase agreements. Due to maintaining short duration in a rising to stable
interest rate environment, the Fund outperformed its Lipper peer group. This
strategy will stay in place until economic data suggest the Fed is about to
enter into an easing cycle.
For the year ended December 31, 2006, the total return of the American
Beacon U.S. Government Money Market Mileage Fund -- Mileage Class was 4.44%. The
Fund outperformed the Lipper U.S. Government Money Market Average return of
4.26% by 18 basis points (0.18%). 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.
(PERFORMANCE GRAPH)
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
AS OF 12/31/2006
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Mileage Class (1,3)........ 4.44% 1.84% 3.34%
Platinum Class (1,2,3)..... 3.92% 1.41% 3.02%
</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 its 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.
(3) A portion of the fees charged to the Mileage Class and the Platinum
Class of the Fund has been waived. Performance prior to waiving fees
was lower than the actual returns
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2006
<Table>
<Caption>
MILEAGE CLASS PLATINUM CLASS
7-day Current Yield* 4.68% 4.18%
7-day Effective Yield* 4.79% 4.27%
30-day Yield* 4.66% 4.16%
Weighted Avg. Maturity 5 Days 5 Days
</Table>
* Annualized. You may call 1-800-967-9009 to obtain the Funds' current
seven day yields. Yield is a more accurate reflection of the Funds'
current earnings than total returns.
ASSET ALLOCATION AS OF DECEMBER 31, 2006
<Table>
<Caption>
% OF
NET ASSETS**
------------
Repurchase Agreements 94.8%
Government Securities 5.1%
Net Other Assets 0.1%
</Table>
** Percent of net assets of the American Beacon Master U.S. Government
Money Market Portfolio.
5
PERFORMANCE OVERVIEW
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET MILEAGE FUND(SM)
DECEMBER 31, 2006 (UNAUDITED)
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1)
transaction costs and (2) ongoing costs, including management fees,
administrative service fees, 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 July 1, 2006 through
December 31, 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.
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT PERIOD*
VALUE VALUE 7/1/06-
7/1/2006 12/31/2006 12/31/2006
---------- ---------- -----------
MILEAGE CLASS
Actual .................................... $ 1,000.00 $ 1,023.68 $ 3.47
Hypothetical (5% return before expenses) .. $ 1,000.00 $ 1,021.78 $ 3.47
PLATINUM CLASS
Actual .................................... $ 1,000.00 $ 1,021.11 $ 4.33
Hypothetical (5% return before expenses)... $ 1,000.00 $ 1,020.92 $ 4.33
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.68% and 0.85% for the Mileage and Mileage
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 (184) by days in the
year (365) to reflect the half-year period.
6
PERFORMANCE OVERVIEW
AMERICAN BEACON MUNICIPAL MONEY MARKET MILEAGE FUND(SM)
DECEMBER 31, 2006 (UNAUDITED)
The American Beacon Municipal Money Market Fund maintained a relatively
short average maturity during 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
increased 100 (1.00%) basis points during the year. The investment manager 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 year ended December 31, 2006, the total return of the American
Beacon Municipal Money Market Mileage Fund -- Mileage Class was 2.75%. The Fund
underperformed the Lipper Tax-Exempt Money Market Average return of 2.76%. 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.
(PERFORMANCE GRAPH)
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
AS OF 12/31/2006
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
MILEAGE CLASS (1,3)......... 2.75% 1.31% 2.14%
PLATINUM CLASS (1,2,3)...... 2.29% 0.83% 1.79%
</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 its 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. A portion of the fees charged to the
Platinum Class of the Fund has been waived. Performance prior to
waiving fees was lower than actual returns shown.
(3) A portion of the fees charged to the Mileage Class of the Fund was
waived through 2002. Performance prior to waiving fees was lower than
the actual returns shown for periods prior to 2002.
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2006
<Table>
<Caption>
MILEAGE CLASS PLATINUM CLASS
------------- --------------
7-day Current Yield* 3.17% 2.75%
7-day Effective Yield* 3.22% 2.78%
30-day Yield* 2.92% 2.50%
Weighted Avg. Maturity 4 Days 4 Days
</Table>
* Annualized. You may call 1-800-967-9009 to obtain the Funds' current
seven day yields. Yield is a more accurate reflection of the Funds'
current earnings than total returns.
TOP TEN HOLDINGS AS OF DECEMBER 31, 2006
<Table>
<Caption>
% OF
NET ASSETS**
------------
Alachua County, Florida Housing Financial Authority 5.7%
Michigan State Housing Development Authority 5.5%
Ohio Water Development Authority 5.3%
Montgomery Cnty, Maryland Variable Rate Housing 5.2%
University Athletic Association, Inc. 5.0%
New York State Housing Finance Agency 5.0%
Illinois Finance Authority 5.0%
Sweetwater County, Wyoming Pollution Control 4.7%
Indiana County Industrial Development Authority 4.7%
University of Colorado Hospital System 4.0%
</Table>
ASSET ALLOCATION AS OF DECEMBER 31, 2006
<Table>
<Caption>
% OF
NET ASSETS**
------------
Municipal Obligations 96.8%
Other Investments 3.0%
Net Other Assets 0.2%
</Table>
** Percent of net assets of American Beacon Master Municipal Money Market
Portfolio.
7
PERFORMANCE OVERVIEW
AMERICAN BEACON MUNICIPAL MONEY MARKET MILEAGE FUND(SM)
DECEMBER 31, 2006 (UNAUDITED)
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1)
transaction costs and (2) ongoing costs, including management fees,
administrative service fees, and other Fund expenses. The examples are based on
an investment of $1,000 invested at the beginning of the period and held for the
entire period from July 1, 2006 through December 31, 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.
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT PERIOD*
VALUE VALUE 7/1/06-
7/1/2006 12/31/2006 12/31/2006
---------- ---------- -----------
MILEAGE CLASS
Actual ................................... $ 1,000.00 $ 1,014.41 $ 3.71
Hypothetical (5% return before expenses).. $ 1,000.00 $ 1,021.53 $ 3.72
PLATINUM CLASS
Actual ................................... $ 1,000.00 $ 1,012.20 $ 8.57
Hypothetical (5% return before expenses).. $ 1,000.00 $ 1,016.69 $ 8.59
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.73% and 1.69% for the Mileage and Mileage
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 (184) by days in the
year (365) to reflect the half-year period.
8
AMERICAN BEACON MILEAGE FUNDS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders of
American Beacon Mileage Funds
We have audited the accompanying statements of assets and liabilities of
American Beacon Mileage Funds, comprised of the American Beacon Money Market
Mileage Fund, the American Beacon U.S. Government Money Market Mileage Fund, and
the American Beacon Municipal Money Market Mileage Fund, (collectively, the
"Funds") as of December 31, 2006, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Beacon Mileage Funds at December 31, 2006, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, TX
February 27, 2007
9
AMERICAN BEACON MILEAGE FUNDS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL MONEY
MONEY MARKET MONEY MARKET MARKET
------------- --------------- ---------------
ASSETS:
Investment in Portfolio, at Value .................................. $ 386,985 $ 17,067 $ 27,107
Receivable from Manager for expense reimbursement (Note 2) ......... -- 1 --
Prepaid expenses ................................................... 40 12 14
------------- ------------- -------------
TOTAL ASSETS .................................................... 387,025 17,080 27,121
------------- ------------- -------------
LIABILITIES:
Payable for fund shares redeemed ................................... 26 -- 14
Distribution fees payable (Note 2) ................................. 81 4 6
Dividends payable .................................................. 2 -- --
Administrative service and service fees payable (Note 2) ........... 215 5 4
Other Liabilities .................................................. 162 21 16
------------- ------------- -------------
TOTAL LIABILITIES ............................................... 486 30 40
------------- ------------- -------------
NET ASSETS ......................................................... $ 386,539 $ 17,050 $ 27,081
============= ============= =============
ANALYSIS OF NET ASSETS:
Paid-in-capital .................................................... 386,539 17,050 27,081
------------- ------------- -------------
NET ASSETS ........................................................... $ 386,539 $ 17,050 $ 27,081
============= ============= =============
SHARES OUTSTANDING (NO PAR VALUE):
Mileage Class ...................................................... 47,959,538 11,946,842 23,382,610
============= ============= =============
Platinum Class ..................................................... 338,579,315 5,103,017 3,698,418
============= ============= =============
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
============= ============= =============
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolios
10
AMERICAN BEACON MILEAGE FUNDS
STATEMENT OF OPERATIONS
DECEMBER 31, 2006 (IN THOUSANDS)
U.S.
GOVERNMENT MUNICIPAL
MONEY MONEY MONEY
MARKET MARKET MARKET
------------ ------------ ------------
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest Income ......................................... $ 19,556 $ 830 $ 930
Portfolio expenses ...................................... (421) (20) (47)
------------ ------------ ------------
NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO ..... 19,135 810 883
------------ ------------ ------------
FUND EXPENSES:
Administrative service fees (Note 2) .................... 385 17 27
Administrative service fees - Platinum Class (Note 2) ... 2,184 36 25
Transfer agent fees - Mileage Class ..................... 30 7 11
Transfer agent fees - Platinum Class .................... 93 3 3
Professional fees ....................................... 16 11 9
Registration fees and expenses .......................... 50 32 33
Distribution fees - Mileage Class (Note 2) .............. 123 27 57
Distribution fees - Platinum Class (Note 2) ............. 840 14 10
Prospectus and shareholder reports ...................... 75 3 4
Other expenses .......................................... 50 6 2
------------ ------------ ------------
TOTAL FUND EXPENSES ................................ 3,846 156 181
------------ ------------ ------------
Less reimbursement of fund expense (Note 2) ............. 17 34 9
------------ ------------ ------------
NET FUND EXPENSES .................................. 3,829 122 172
------------ ------------ ------------
NET INVESTMENT INCOME ...................................... 15,306 688 711
------------ ------------ ------------
REALIZED GAIN ALLOCATED FROM PORTFOLIO:
Net realized gain on investments ........................ -- -- --
------------ ------------ ------------
NET GAIN ON INVESTMENTS ............................ -- -- --
------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... $ 15,306 $ 688 $ 711
============ ============ ============
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolios
11
AMERICAN BEACON MILEAGE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET MUNICIPAL MONEY MARKET
----------------------- ------------------------ -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ------------------------ -----------------------
2006 2005 2006 2005 2006 2005
---------- ---------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ........................ $ 15,306 $ 9,201 $ 688 $ 337 $ 711 $ 494
Net realized gain on investments ............. -- 1 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets resulting
from operations .......................... 15,306 9,202 688 337 711 494
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Mileage class .............................. (2,226) (1,317) (471) (241) (624) (437)
Platinum class ............................. (13,080) (7,884) (217) (96) (87) (57)
Net realized gain on investments:
Mileage Class .............................. -- -- -- -- -- --
Platinum Class ............................. -- (1) -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Distributions to shareholders ............ (15,306) (9,202) (688) (337) (711) (494)
---------- ---------- ---------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares ................ 160,635 156,658 15,131 14,486 18,643 41,408
Reinvestment of dividends and distributions .. 15,219 9,141 686 333 711 494
Cost of shares redeemed ...................... (189,487) (208,563) (12,632) (16,302) (18,352) (45,930)
Redemption fees .............................. -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets .... (13,633) (42,764) 3,185 (1,483) 1,002 (4,028)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets .......... (13,633) (42,764) 3,185 (1,483) 1,002 (4,028)
---------- ---------- ---------- ---------- ---------- ----------
Net Assets:
Beginning of period .......................... 400,172 442,936 13,865 15,348 26,079 30,107
---------- ---------- ---------- ---------- ---------- ----------
End of Period ................................ $ 386,539 $ 400,172 $ 17,050 $ 13,865 $ 27,081 $ 26,079
========== ========== ========== ========== ========== ==========
</Table>
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolios
12
AMERICAN BEACON MILEAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Mileage Funds (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940 (the "Act"), as amended, as a 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:
AMERICAN BEACON: --> INVESTS ASSETS IN --> AMERICAN BEACON MASTER TRUST:
- ---------------- ----------------- -----------------------------
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
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 (3.04%, 3.03% and 84.31% at December 31, 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") 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:
<Table>
<Caption>
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 institutions Administrative Service Fee - 0.65%
(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
13
AMERICAN BEACON MILEAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
Funds generally declare dividends daily from net investment income and net
short-term capital gain, if any, payable monthly.
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. 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.
Recently Issued Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 provides guidance on how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing each Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. At this time, the
Manager is evaluating the implications of FIN 48 and its potential impact on the
financial statements. The Fund's net asset value per share will reflect FIN 48
adjustments no later than June 29, 2007, and any adjustments will be reflected
in the Fund's semi-annual report to shareholders.
In September 2006, the FASB issued Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The Manager is evaluating the impact of FAS 157;
however, it is not expected to have a material impact on the Funds' net assets
or results of operations.
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
14
AMERICAN BEACON MILEAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
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 Trust's Board of 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 following Funds for
distribution and other expenses through February 28, 2007 to the extent total
annual fund operating expenses exceed the following amounts:
<Table>
<Caption>
FUND CLASS EXPENSE CAP AMOUNT
- ---- ----- ----------- ------
U.S. Government Money Market Mileage Fund................................. Mileage 0.70% $17,021
U.S. Government Money Market Mileage Fund................................. Platinum 1.20% 16,995
Municipal Money Market Mileage Fund....................................... Platinum 1.20% 8,521
</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
year ended December 31, 2006.
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:
15
AMERICAN BEACON MILEAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
YEAR MONEY MARKET MONEY MARKET MONEY MARKET
- ---- ------------ ------------ ------------
2007............................................................. $239,870 $11,563 $11,600
2008............................................................. 25,380 21,889 5,739
2009............................................................. 0 34,016 8,521
</Table>
The Funds have not recorded a liability for this potential
reimbursement due to the current assessment that a reimbursement is unlikely.
3. FEDERAL INCOME 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 categorized in accordance with federal income tax
regulations which may treat certain transactions differently than U.S. generally
accepted accounting principles. Accordingly, the character of distributions and
composition of net assets for tax purposes may differ from those reflected in
the accompanying financial statements.
The tax character of distributions paid for the year ended December 31,
2006 and the year ended December 31, 2005 were as follows (in thousands):
<Table>
<Caption>
MONEY MARKET U.S. GOVERNMENT MONEY MARKET MUNICIPAL MONEY MARKET
------------------------------ ------------------------------ -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2006 2005 2006 2005 2006 2005
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS PAID FROM
ORDINARY INCOME:*
Mileage Class ......... $ 2,226 $ 1,317 $ 471 $ 241 -- --
Platinum Class ........ 13,080 7,885 217 96 -- --
TAX-EXEMPT INCOME:**
Mileage Class ......... -- -- -- -- $ 624 $ 437
Platinum Class ........ -- -- -- -- 87 57
------------- ------------- ------------- ------------- ------------- -------------
TOTAL DISTRIBUTIONS ........ $ 15,306 $ 9,202 $ 688 $ 337 $ 711 $ 494
============= ============= ============= ============= ============= =============
</Table>
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
** Approximately 17% of interest earned was derived from investments in
certain private activity bonds for purposes of the federal alternative
minimum tax calculation. (unaudited)
As of December 31, 2006, the components of distributable earnings on a
tax basis were the same as book. The cost basis of investments for federal
income tax purposes was also the same as the book basis.
The Funds do not have capital loss carryforwards as of December 31,
2006.
16
AMERICAN BEACON MILEAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
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:
Year Ended December 31, 2006
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL MONEY
MONEY MARKET MONEY MARKET MARKET MILEAGE
MILEAGE FUND MILEAGE FUND FUND
---------------------- ---------------------- ----------------------
MILEAGE PLATINUM MILEAGE PLATINUM MILEAGE PLATINUM
CLASS CLASS CLASS CLASS CLASS CLASS
-------- -------- -------- -------- -------- --------
Shares sold ...................................... 31,006 129,629 4,653 10,478 8,466 10,177
Reinvestment of dividends ........................ 2,139 13,080 469 217 624 87
Shares redeemed .................................. (35,869) (153,618) (3,079) (9,553) (7,530) (10,822)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in shares outstanding .... (2,724) (10,909) 2,043 1,142 1,560 (558)
======== ======== ======== ======== ======== ========
</Table>
Year Ended December 31, 2005
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL MONEY
MONEY MARKET MONEY MARKET MARKET MILEAGE
MILEAGE FUND MILEAGE FUND 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 increase (decrease) in shares outstanding .. 5,209 (47,973) (1,075) (408) (3,338) (690)
======== ======== ======== ======== ======== ========
17
AMERICAN BEACON MONEY MARKET MILEAGE FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
MILEAGE CLASS
-----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------
2006 2005 2004 2003 2002
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING
OF PERIOD ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(A) . 0.05 0.03 0.01 0.01 0.01
Net realized gain on
investments ........... --(B) --(B) --(B) --(B) --(B)
----------- ----------- ----------- ----------- -----------
Total income from
investment operations .... 0.05 0.03 0.01 0.01 0.01
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net
investment income ..... (0.05) (0.03) (0.01) (0.01) (0.01)
Distributions from net
realized gains on
securities ............ --(B) --(B) --(B) --(B) --(B)
----------- ----------- ----------- ----------- -----------
Total distributions ........ (0.05) (0.03) (0.01) (0.01) (0.01)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ===========
Total return ............... 4.61% 2.75% 0.93% 0.73% 1.29%
=========== =========== =========== =========== ===========
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands) . $ 47,960 $ 50,684 $ 45,475 $ 49,053 $ 63,884
Ratios to average net
assets (annualized):(A)
Expenses, net of waivers . 0.57% 0.58% 0.51% 0.51% 0.63%
Expenses before waivers .. 0.57% 0.58% 0.51% 0.51% 0.63%
Net investment income,
net of waivers ........ 4.52% 2.73% 0.91% 0.74% 1.29%
Net investment income
(loss), before waivers 4.52% 2.73% 0.91% 0.74% 1.29%
PLATINUM CLASS
-----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------
2006 2005 2004 2003 2002
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING
OF PERIOD ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(A) . 0.04 0.02 --(B) --(B) 0.01
Net realized gain on
investments ........... --(B) --(B) --(B) --(B) --(B)
----------- ----------- ----------- ----------- -----------
Total income from
investment operations .... 0.04 0.02 -- -- 0.01
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net
investment income ..... (0.04) (0.02) --(B) --(B) (0.01)
Distributions from net
realized gains on
securities ............ --(B) --(B) --(B) --(B) --(B)
----------- ----------- ----------- ----------- -----------
Total distributions ........ (0.04) (0.02) -- -- (0.01)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ===========
Total return ............... 3.98% 2.14% 0.32% 0.12% 0.81%
=========== =========== =========== =========== ===========
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands) . $ 338,579 $ 349,488 $ 397,461 $ 431,524 $ 554,242
Ratios to average net
assets (annualized):(A)
Expenses, net of waivers . 1.18% 1.18% 1.12% 1.12% 1.10%
Expenses before waivers .. 1.19% 1.19% 1.18% 1.16% 1.10%
Net investment income,
net of waivers ........ 3.89% 2.09% 0.30% 0.13% 0.82%
Net investment income
(loss), before waivers 3.89% 2.08% 0.24% 0.09% 0.82%
- ----------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of each Fund's proportionate share of income and expenses of
the American Beacon Master Money Market Portfolio.
(B) Amount is less than $.01 per share.
18
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET MILEAGE FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
MILEAGE CLASS
------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------
2006 2005 2004 2003 2002
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING
OF PERIOD ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(A) . 0.04 0.03 0.01 0.01 0.01
Net realized gain on
investments ............ --(B) --(B) --(B) --(B) --(B)
---------- ---------- ---------- ---------- ----------
Total income from investment
operations ............... 0.04 0.03 0.01 0.01 0.01
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net
investment income ..... (0.04) (0.03) (0.01) (0.01) (0.01)
Distributions from net
realized gains on
securities ............ --(B) --(B) --(B) --(B) --(B)
---------- ---------- ---------- ---------- ----------
Total distributions ........ (0.04) (0.03) (0.01) (0.01) (0.01)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total return ............... 4.44% 2.53% 0.76% 0.47% 1.06%
========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands) . $ 11,947 $ 9,904 $ 10,979 $ 12,126 $ 19,636
Ratios to average net
assets (annualized):(A)
Expenses, net of waivers ... 0.70% 0.77% 0.65% 0.77% 0.79%
Expenses before waivers .... 0.86% 0.86% 0.65% 0.77% 0.80%
Net investment income,
net of waivers .......... 4.37% 2.49% 0.75% 0.46% 1.06%
Net investment income
(loss), before waivers .. 4.21% 2.40% 0.75% 0.46% 1.05%
PLATINUM CLASS
-----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------
2006 2005 2004 2003 2002
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING
OF PERIOD ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(A) .. 0.04 0.02 --(B) --(B) 0.01
Net realized gain on
investments ............. --(B) --(B) --(B) --(B) --(B)
---------- ---------- ---------- ---------- ----------
Total income from investment
operations ................ 0.04 0.02 -- -- 0.01
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net
investment income ...... (0.04) (0.02) --(B) --(B) (0.01)
Distributions from net
realized gains on
securities ............. --(B) --(B) --(B) --(B) --(B)
---------- ---------- ---------- ---------- ----------
Total distributions ......... (0.04) (0.02) -- -- (0.01)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total return ................ 3.92% 2.09% 0.29% 0.09% 0.69%
========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands) .. $ 5,103 $ 3,961 $ 4,369 $ 4,681 $ 7,405
Ratios to average net
assets (annualized):(A).
Expenses, net of waivers .. 1.20% 1.20% 1.12% 1.14% 1.15%
Expenses before waivers ... 1.50% 1.48% 1.30% 1.31% 1.21%
Net investment income,
net of waivers ......... 3.89% 2.04% 0.26% 0.09% 0.74%
Net investment income
(loss), before waivers . 3.58% 1.76% 0.08% (0.08)% 0.68%
- ----------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of each Fund's proportionate share of income and expenses of
the American Beacon Master U.S. Government Money Market Portfolio.
(B) Amount is less than $.01 per share.
19
AMERICAN BEACON MUNICIPAL MONEY MARKET MILEAGE FUND
FINANCIAL HIGHLIGHTS
DECEMBER 31, 2006
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
MILEAGE CLASS
-------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------
2006 2005 2004 2003 2002
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING
OF PERIOD..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(A) 0.03 0.02 0.01 0.01 0.01
Net realized gain on
investments.............. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total income from
investment operations....... 0.03 0.02 0.01 0.01 0.01
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net
investment income........ (0.03) (0.02) (0.01) (0.01) (0.01)
Distributions from net
realized gains on
securities............... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions........... (0.03) (0.02) (0.01) (0.01) (0.01)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END
OF PERIOD..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
TOTAL RETURN.................. 2.75% 1.80% 0.67% 0.57% 0.77%
========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands) $ 23,383 $ 21,822 $ 25,161 $ 25,532 $ 24,911
Ratios to average net
assets (annualized):(A)
Expenses, net of waivers 0.75% 0.68% 0.61% 0.59% 0.74%
Expenses before waivers 0.75% 0.68% 0.61% 0.59% 0.79%
Net investment income,
net of waivers 2.72% 1.78% 0.65% 0.57% 0.77%
Net investment income
(loss), before waivers... 2.72% 1.78% 0.65% 0.57% 0.72%
PLATINUM CLASS
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------
2006 2005 2004 2003 2002
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING
OF PERIOD....................... $ 1.00 $1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (A) 0.02 0.01 --(B) --(B) --(B)
Net realized gain on
investments................ -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total income from
investment operations 0.02 0.01 -- -- --
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net
investment income.......... (0.02) (0.01) --(B) --(B) --(B)
Distributions from net
realized gains on
securities................. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions............. (0.02) (0.01) -- --
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END
OF PERIOD....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
TOTAL RETURN.................... 2.29% 1.28% 0.19% 0.07% 0.35%
========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands) $ 3,698 $ 4,257 $ 4,946 $ 7,898 $ 7,517
Ratios to average net
assets (annualized):(A)
Expenses, net of waivers 1.20% 1.20% 1.08% 1.09% 1.16%
Expenses before waivers 1.42% 1.32% 1.25% 1.22% 1.23%
Net investment income,
net of waivers.............. 2.25% 1.23% 0.17% 0.07% 0.34%
Net investment income
(loss), before waivers 2.03% 1.11% 0.00% (0.06)% 0.27%
- ----------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of each Fund's proportionate share of income and expenses of
the American Beacon Master Municipal Money Market Portfolio.
(B) Amount is less than $.01 per share.
20
AMERICAN BEACON MASTER TRUST
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders of
American Beacon Master Trust
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of American Beacon Master Trust, comprised of the
American Beacon Money Market Portfolio, the American Beacon U.S. Government
Money Market Portfolio, and the American Beacon Municipal Money Market
Portfolio, (collectively, the "Portfolios") as of December 31, 2006, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Portfolios' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Portfolios' internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Portfolios' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2006, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Beacon Master Trust at December 31, 2006, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, TX
February 27, 2007
21
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
PAR
AMOUNT VALUE
------------- ------------
(DOLLARS IN THOUSANDS)
FUNDING AGREEMENTS - 1.18%
Metropolitan Life Insurance Co., 5.419%, Due 11/21/2007 ++ .......... $ 150,000 $ 150,000
------------
MEDIUM-TERM NOTES - 38.59%
Abbey National Treasury Services, PLC, 5.374%, Due 6/29/2007 ++ ..... 491,615 491,737
American Honda Finance Corp.,
5.514%, Due 1/16/2007 ++# ......................................... 25,000 25,002
5.34%, Due 1/26/2007 ++# .......................................... 50,000 50,000
5.505%, Due 2/20/2007 ++# ......................................... 10,000 10,002
5.328%, Due 7/10/2007 ++# ......................................... 33,040 33,042
5.404%, Due 7/23/2007 ++# ......................................... 10,000 10,005
5.39%, Due 8/23/2007 ++# .......................................... 20,000 20,007
5.48%, Due 8/23/2007 ++# .......................................... 5,500 5,505
5.385%, Due 9/19/2007 ++# ......................................... 10,000 10,004
5.484%, Due 10/22/2007 ++# ........................................ 10,000 10,011
ASIF Global Financing,
5.37%, Due 2/23/2007 ++# .......................................... 238,250 238,251
5.41%, Due 5/3/2007 ++# ........................................... 107,200 107,234
Citigroup Global Markets Holdings, Inc., 5.431%, Due 3/16/2007 ++ ... 149,300 149,330
Citigroup, Inc.,
5.43%, Due 6/4/2007 ++ ............................................ 208,830 208,901
5.431%, Due 11/1/2007 ++ .......................................... 103,500 103,594
Credit Suisse USA, Inc.,
5.874%, Due 2/15/2007 ++ .......................................... 32,604 32,624
6.063%, Due 3/28/2007 ++ .......................................... 10,000 10,018
5.47%, Due 4/5/2007 ++ ............................................ 215,443 215,503
General Electric Capital Corp.,
5.443%, Due 3/9/2007 ++ ........................................... 37,500 37,509
5.425%, Due 6/22/2007 ++ .......................................... 225,904 226,009
5.475%, Due 10/17/2007 ++ ......................................... 180,000 180,000
5.43%, Due 1/3/2008 ++ ............................................ 67,000 67,068
Goldman Sachs Group, Inc.,
5.464%, Due 3/30/2007 ++ .......................................... 64,000 64,019
5.476%, Due 5/11/2007 ++ .......................................... 70,820 70,846
5.497%, Due 7/2/2007 ++ ........................................... 64,350 64,399
HBOS Treasury Services PLC, 5.452%, Due 1/12/2007 ++# ............... 20,000 20,001
HSBC Finance Corp.,
5.525%, Due 2/9/2007 ++ ........................................... 20,715 20,720
5.41%, Due 2/28/2007 ++ ........................................... 23,500 23,502
5.414%, Due 5/10/2007 ++ .......................................... 39,000 39,009
5.53%, Due 7/27/2007 ++ ........................................... 86,525 86,615
5.41%, Due 10/4/2007 ++ ........................................... 115,000 115,064
MBNA Europe Funding PLC, 5.45%, Due 9/7/2007 ++# .................... 140,525 140,643
Merrill Lynch & Co, Inc.,
5.48%, Due 8/27/2007 ++ ........................................... 45,000 45,040
</Table>
See accompanying notes
22
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2006
PAR
AMOUNT VALUE
------------- ------------
(DOLLARS IN THOUSANDS)
5.499%, Due 10/19/2007 ++ .......................................... $ 83,000 $ 83,098
Merrill Lynch & Co., Inc.,
5.335%, Due 5/29/2007 ++ ........................................... 52,000 51,996
5.40%, Due 8/24/2007 ++ ............................................ 39,830 39,845
Morgan Stanley,
5.512%, Due 1/12/2007 ++ ........................................... 21,700 21,701
5.505%, Due 7/27/2007 ++ ........................................... 58,595 58,653
Royal Bank of Scotland PLC,
5.364%, Due 3/30/2007 ++# .......................................... 278,000 278,017
5.34%, Due 1/18/2008 ++# ........................................... 150,000 150,000
Toyota Motor Credit Corp.,
5.335%, Due 3/22/2007 ++ ........................................... 30,000 30,002
5.33%, Due 6/28/2007 ++ ............................................ 100,000 100,011
5.344%, Due 8/10/2007 ++ ........................................... 60,000 60,012
5.33%, Due 9/14/2007 ++ ............................................ 95,000 95,016
Wachovia Corp.,
5.428%, Due 2/6/2007 ++ ............................................ 153,925 153,938
5.454%, Due 7/20/2007 ++ ........................................... 179,152 179,266
Wells Fargo & Co.,
5.426%, Due 3/23/2007 ++ ........................................... 273,500 273,560
5.423%, Due 9/28/2007 ++ ........................................... 254,641 254,841
5.36%, Due 1/15/2008 ++# ........................................... 150,000 150,000
------------
TOTAL MEDIUM-TERM NOTES .............................................. 4,911,170
------------
PROMISSORY NOTES - 2.36%
Goldman Sachs Group, Inc., 5.435%, Due 2/9/2007 ++# .................. 300,000 300,000
------------
CERTIFICATES OF DEPOSIT AND BANK NOTES - 35.58%
Abbey National Treasury Services, PLC, 5.464%, Due 1/16/2007 ++ ...... 54,000 54,004
ABN Amro Bank NV, 5.436%, Due 5/11/2007 ++ ........................... 23,170 23,177
Allied Irish Banks PLC, 5.318%, Due 5/3/2007 ++ ...................... 50,000 49,993
Bank of Nova Scotia,
5.305%, Due 6/20/2007 ++ ........................................... 200,000 199,979
5.356%, Due 10/31/2007 ++ .......................................... 64,860 64,868
BB&T Corp.,
5.323%, Due 1/24/2007 ++ ........................................... 150,000 150,000
5.44%, Due 6/4/2007 ++ ............................................. 91,380 91,421
5.324%, Due 8/10/2007 ++ ........................................... 50,000 49,997
BNP Paribas,
5.305%, Due 6/20/2007 ++ ........................................... 450,000 449,959
5.31%, Due 10/3/2007 ++ ............................................ 100,000 99,982
Branch Banking & Trust Co., 5.37%, Due 11/16/2007 ++ ................. 100,000 100,038
Canadian Imperial Bank of Commerce, 5.432%, Due 4/2/2007 ++ .......... 39,000 39,010
Caylon,
5.344%, Due 8/10/2007 ++ ........................................... 342,000 341,993
5.30%, Due 9/13/2007 ++ ............................................ 185,700 185,666
</Table>
See accompanying notes
23
PAR
AMOUNT VALUE
------------- ------------
(DOLLARS IN THOUSANDS)
5.31%, Due 10/3/2007 ++ ........................................... $ 67,500 $ 67,490
Credit Suisse USA, Inc.,
5.336%, Due 6/12/2007 ++ .......................................... 150,000 150,000
5.356%, Due 8/13/2007 ++ .......................................... 125,000 125,003
HSBC Bank USA, 5.435%, Due 9/21/2007 ++ ............................. 203,550 203,709
JP Morgan Chase Bank, NA, 5.422%, Due 1/12/2007 ++ .................. 63,000 63,001
M&I Marshall & Ilsley Bank, 5.356%, Due 8/1/2007 ++ ................. 50,000 50,000
National City Bank,
5.40%, Due 6/4/2007 ++ ............................................ 38,000 38,009
5.32%, Due 10/4/2007 ++ ........................................... 135,000 134,984
Natixis S.A., 5.35%, Due 6/20/2007 ++ ............................... 25,000 25,002
Royal Bank of Canada, 5.392%, Due 1/12/2007 ++ ...................... 10,000 10,000
SouthTrust Bank,
5.425%, Due 3/19/2007 ++ .......................................... 46,000 46,009
5.42%, Due 6/14/2007 ++ ........................................... 16,170 16,177
State Street Bank & Trust Co., 5.343%, Due 1/16/2007 ++ ............. 59,500 59,500
SunTrust Banks, Inc., 5.433%, Due 5/17/2007 ++ ...................... 167,000 167,047
US Bank, NA,
5.337%, Due 1/25/2007 ++ .......................................... 233,000 233,001
5.361%, Due 3/16/2007 ++ .......................................... 50,000 50,004
5.383%, Due 9/10/2007 ++ .......................................... 250,000 250,130
5.402%, Due 10/1/2007 ++ .......................................... 110,750 110,808
Wachovia Bank, NA, 5.324%, Due 3/30/2007 ++ ......................... 200,000 199,999
Wachovia Corp., 5.353%, Due 9/28/2007 ++ ............................ 50,000 50,010
World Savings Bank FSB,
5.429%, Due 6/1/2007 ++ ........................................... 178,460 178,517
5.374%, Due 10/19/2007 ++ ......................................... 400,000 400,133
------------
TOTAL CERTIFICATES OF DEPOSIT AND BANK NOTES ........................ 4,528,620
------------
COMMERCIAL PAPER - 10.22%
Citigroup Funding, Inc., 5.26%, Due 2/7/2007 ........................ 150,000 149,189
FCAR Owner Trust, Series I, 5.27%, Due 3/15/2007 .................... 100,000 98,931
Fountain Square Commercial Funding,
5.25%, Due 2/1/2007 # ............................................. 32,377 32,230
5.24%, Due 4/19/2007 # ............................................ 51,485 50,676
Long Lane Master Trust IV,
5.30%, Due 2/26/2007 # ............................................ 158,000 156,697
5.27%, Due 3/8/2007 # ............................................. 118,704 117,557
Park Avenue Receivables Co. LLC, 5.26%, Due 2/12/2007 ............... 83,000 82,491
Scaldis Capital LLC, 5.30%, Due 1/25/2007 # ......................... 55,262 55,067
Sheffield Receivables Corp., 5.24%, Due 3/28/2007 # ................. 30,000 29,624
Stanfield Victoria,
5.27%, Due 1/30/2007 # ............................................ 30,000 29,873
5.26%, Due 3/12/2007 # ............................................ 45,000 44,540
Three Rivers Funding Corp.,
5.34%, Due 1/4/2007 # ............................................. 75,929 75,895
</Table>
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
PAR
AMOUNT VALUE
------------- ------------
(DOLLARS IN THOUSANDS)
5.33%, Due 1/16/2007 # ................................................................. $ 42,224 $ 42,130
Yorktown Capital LLC,
5.305%, Due 2/1/2007 ................................................................... 240,000 238,904
5.285%, Due 2/15/2007 .................................................................. 98,273 97,624
------------
TOTAL COMMERCIAL PAPER 1,301,428
------------
TIME DEPOSITS - 9.11%
Deutsche Bank AG, 5.25%, Due 1/2/2007 ................................................... 110,000 110,000
ING Bank, NV, 5.26%, Due 1/2/2007 ....................................................... 425,000 425,000
Societe Generate, 5.313%, Due 1/2/2007 .................................................. 625,000 625,000
------------
TOTAL TIME DEPOSITS 1,160,000
------------
REPURCHASE AGREEMENTS - 2.52%
Barclays Capital, Inc., 5.31%, Due 1 /2/2007 (Collateral held at
Bank of New York, FHLMC 4.478% - 5.632%, Due 10/1/2024 - 3/1/2036;
and FNMA 3.517% - 7.376%, Due 1/1/2028 - 11/1/2036, Total Value $76,169) 75,000 75,000
Goldman Sachs, 5.34%, Due 1/2/2007 (Collateral held at Bank of New York, FNMA 5.0% - 6.5%,
Due 3/1/2019 - 12/1/2036, Total Value $250,069) ....................................... 246,267 246,267
------------
TOTAL REPURCHASE AGREEMENTS 321,267
------------
TOTAL INVESTMENTS - 99.56% (Cost $12,672,485) $ 12,672,485
OTHER ASSETS, NET OF LIABILITIES - 0.44% 55,684
------------
TOTAL NET ASSETS - 100.00% $ 12,728,169
============
</Table>
Percentages are stated as a percent of net assets.
++ 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 $2,192,013 or 17.22% of
net assets. The Fund has no right to demand registration of these
securities.
See accompanying notes
25
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
PAR
AMOUNT VALUE
------------- -------------
(DOLLARS IN THOUSANDS)
U.S. AGENCY OBLIGATIONS - 5.14%
FEDERAL HOME LOAN BANK - 3.19%
5.23%, Due 4/4/2007 ++ ............................................................. $ 10,000 $ 9,999
3.875%, Due 6/8/2007 ............................................................... 5,000 4,970
3,000 2,999
-------------
5.21%, Due 6/8/2007 ++ ............................................................. 17,968
-------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.63%
5.18%, Due 1/2/2007 # .............................................................. 9,210 9,209
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.32%
5.11%, Due 5/31/2007 # ............................................................. 566 554
5.105%, Due 6/1/2007 # ............................................................. 1,250 1,223
-------------
1,777
-------------
TOTAL U.S. AGENCY OBLIGATIONS 28,954
-------------
REPURCHASE AGREEMENTS - 94.81%
Banc of America Securities, LLC, 5.313%, Due 1/2/2007 (Collateral held at Bank
of New York, FHLMC 5.0%, Due 5/1/2035, Total Value - $152,386) .................... 150,000 150,000
Barclays Capital, Inc., 5.31%, Due 1/2/2007 (Collateral held at Bank of New York,
FHLMC 4.442% - 7.329%, Due 1/1/2028 - 12/1/2036; and FNMA 5.0% - 6.995%,
Due 1/1/2028 - 11/1/2036, Total Value - $203,219) ................................. 200,000 200,000
Goldman Sachs, 5.34%, Due 1/2/2007 (Collateral held at Bank of New York,
FNMA 5.0%, Due 2/1/2036, Total Value - $187,072) ................................... 184,142 184,143
-------------
TOTAL REPURCHASE AGREEMENTS 534,143
-------------
TOTAL INVESTMENTS - 99.95% (COST $563,097) $ 563,097
OTHER ASSETS, NET OF LIABILITIES - 0.05% 299
-------------
TOTAL NET ASSETS - 100.00% $ 563,396
=============
</Table>
Percentages are stated as a percent of net assets.
++ 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.
# Rates represent discount rate.
See accompanying notes
26
AMERICAN BEACON MASTER MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
PAR
AMOUNT VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
ALABAMA - 6.22%
Infirmary Health System Special Care Facilities Financial Authority of
Mobile Revenue Bonds, Series 2006A, 3.91%, Due 2/1/2040, LOC Bank of Nova Scotia ............... $ 1,000 $ 1,000
Mobile Industrial Development Board, Series 1999A (Holnam, Inc. Project),
Variable Rate Demand Dock and Wharf Revenue Refunding Bonds, 3.89%, Due 6/1/2032,
LOC Bayerische Landesbank ...................................................................... 1,000 1,000
----------
TOTAL ALABAMA .................................................................................... 2,000
----------
COLORADO - 7.08%
Colorado Educational and Cultural Facilities Variable Rate Demand Revenue Bonds,
Series A7, (National Jewish Federation Bond Program), 4.00%, Due 7/1/2029,
LOC Bank of America, NA ........................................................................ 975 975
University of Colorado Hospital System Revenue Bonds, Series 2004B, 3.90%,
Due 11/15/2035, LOC Citibank, NA ............................................................... 1,300 1,300
----------
TOTAL COLORADO ................................................................................... 2,275
----------
FLORIDA - 16.59%
Alachua County, Florida Housing Financial Authority, Multi-family Housing Revenue Bonds,
Series 2001, (University Cove Apartment Project), 3.95%, Due 6/15/2034, LOC
Federal National Mortgage Association .......................................................... 1,830 1,830
Florida Gulf Coast University Financing Corp. Revenue Bonds, Series 2003, 4.03%,
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.), 3.98%, Due 11/15/2014, LOC Suntrust Bank .............. 900 900
University Athletic Association, Inc. Revenue Bonds, Series 2001 Bonds, 4.00%,
Due 10/1/2031, LOC Suntrust Bank ............................................................... 1,605 1,605
----------
TOTAL FLORIDA .................................................................................... 5,335
----------
ILLINOIS - 4.98%
Illinois Finance Authority Variable Rate Revenue Bonds, Series 2005B, 4.05%, Due 5/15/2035,
LOC JP Morgan Chase ............................................................................ 1,600 1,600
----------
INDIANA - 3.11%
Fort Wayne, Indiana Industrial Economic Development Revenue Bonds, Series 1989, (ND-Tech
Corporation Project), 4.02%, Due 7/1/2009, LOC Comerica Bank ................................... 1,000 1,000
----------
KENTUCKY - 6.95%
Breckinridge County, Kentucky Lease Program Revenue Bonds, Series A, 4.00%, Due 2/1/2032,
LOC US Bank, NA ................................................................................ 1,136 1,136
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 ................................................................................... 2,236
----------
MARYLAND - 5.22%
Montgomery County, Maryland Variable Rate Housing Revenue Bonds, Series 1997, Issue I (The Grand),
3.94%, Due 6/1/2030, LOC Federal National Mortgage Association ................................. 1,680 1,680
----------
MICHIGAN - 5.52%
Michigan State Housing Development Authority, Series 2000 (River Place Plaza Apartments), Variable
Rate Limited Obligation Multi-family Housing Revenue Refunding Bonds, 3.95%, Due 6/1/2018,
LOC Bank of New York ........................................................................... 1,775 1,775
----------
NEVADA - 3.11%
Nevada Housing Divison-Variable Rate Demand Multi-Unit Housing Revenue Bonds, Series 2004,
(Sundance Village Apartments), 3.95%, Due 10/1/2035, LOC Citibank, NA .......................... 1,000 1,000
----------
</Table>
See accompanying notes
27
AMERICAN BEACON MASTER MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
PAR
AMOUNT VALUE
------------- -------------
(DOLLARS IN THOUSANDS)
NEW YORK - 10.51%
Dutchess County Industrial Development Agency Variable Rate Demand Civic
Facility Revenue Bonds, Series 2002, 3.88%, Due 10/1/2032,
LOC Allied Irish Bank, PLC ...................................................... $ 980 $ 980
New York City Housing Development Corporation, Multi-Family Mortgage Revenue Bonds,
Series 2002A, (First Avenue Development), 3.93%, Due 10/15/2035,
LOC Federal National Mortgage Association ....................................... 800 800
New York State Housing Finance Agency, 66 West 38th Street Housing Revenue Bonds,
Series 2000A, 3.91%, Due 5/15/2033, LOC Federal National Mortgage Association ... 1,600 1,600
-------------
TOTAL NEW YORK .................................................................... 3,380
-------------
OHIO - 5.29%
Ohio Water Development Authority, Environmental Improvement Revenue Bonds,
Series 2000B, (Waste Management, Incorporated Project), 4.05%, Due 7/1/2020,
LOC Fleet National Bank ......................................................... 1,700 1,700
-------------
PENNSYLVANIA - 7.15%
Delaware County, Pennsylvania Pollution Control, Series 1999A, 4.00%,
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 - 3.73%
City of Midlothian, Texas Industrial Development Corporation,
Environmental Facilities Revenue Bonds, Series 1999, (Holnam Texas Limited
Partnership Project), 3.96%, Due 9/1/2031, LOC Bank One, NA ..................... 1,200 1,200
-------------
UTAH - 3.58%
Morgan County, Utah Solid Waste Disposal Revenue Bonds, Series 1996,
(Holman, Inc. Project), 3.95%, Due 8/1/2031, LOC Wachovia Bank, NA .............. 1,150 1,150
-------------
WASHINGTON - 3.11%
Washington State Housing Finance Commission Variable Rate
Demand Non-Profit Revenue Bonds, Series 2005, (Seattle Art Museum Project),
3.91%, Due 7/1/2033, LOC Allied Irish Bank, PLC .................................. 1,000 1,000
-------------
WYOMING - 4.67%
Sweetwater County, Wyoming Pollution Control Revenue Refunding Bonds,
Series 1990A, (Pacificorp Project), 3.91%, Due 7/1/2015,
LOC Barclays Bank, PLC ........................................................... 1,500 1,500
-------------
SHARES
-------------
SHORT TERM INVESTMENTS - 2.29%
BlackRock Provident MuniCash Fund ................................................ 106,013 106
Federated Municipal Obligations Fund ............................................. 843,108 843
-------------
TOTAL SHORT TERM INVESTMENTS ..................................................... 949
-------------
TOTAL INVESTMENTS - 99.77% (COST $32,080) ........................................... $ 32,080
OTHER ASSETS, NET OF LIABILITIES - 0.23% ............................................ 74
-------------
TOTAL NET ASSETS - 100.00% .......................................................... $ 32,154
=============
</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.
See accompanying notes
28
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006 (IN THOUSANDS)
U.S. GOVERNMENT MUNICIPAL MONEY
MONEY MARKET MONEY MARKET MARKET
------------- --------------- -------------
ASSETS:
Investment in securities at value (cost - $12,351,218,
$28,954 and $32,080, respectively) ............................... $ 12,351,218 $ 28,954 $ 32,080
Repurchase agreement (cost - $321,267, $534,143 and $0,
respectively) .................................................... 321,267 534,143 --
Dividends and interest receivable ................................ 57,056 389 93
Prepaid expenses ................................................. 7 -- --
------------- ------------- -------------
TOTAL ASSETS ................................................ 12,729,548 563,486 32,173
------------- ------------- -------------
LIABILITIES:
Management and investment advisory fees payable (Note 2) ......... 1,140 48 4
Other Liabilities ................................................ 239 42 15
------------- ------------- -------------
TOTAL LIABILITIES ........................................... 1,379 90 19
------------- ------------- -------------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS ............. $ 12,728,169 $ 563,396 $ 32,154
============= ============= =============
See accompanying notes
29
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006 (IN THOUSANDS)
U.S. GOVERNMENT MUNICIPAL MONEY
MONEY MARKET MONEY MARKET MARKET
------------- --------------- --------------
INVESTMENT INCOME:
Interest Income ........................................ $ 542,409 $ 17,620 $ 1,102
Other Income ........................................... -- -- --
------------- -------------- --------------
TOTAL INVESTMENT INCOME ................................ 542,409 17,620 1,102
------------- -------------- --------------
EXPENSES:
Management and investment advisory fees (Note 2) ....... 10,562 346 32
Custodian fees ......................................... 437 14 1
Professional fees ...................................... 86 23 21
Other expenses ......................................... 431 40 1
------------- -------------- --------------
TOTAL EXPENSES ............................................. 11,516 423 55
------------- -------------- --------------
NET INVESTMENT INCOME ...................................... 530,893 17,197 1,047
------------- -------------- --------------
REALIZED GAIN ALLOCATED FROM PORTFOLIO
Net realized gain on investments ...................... 12 1 --
------------- -------------- --------------
NET GAIN ON INVESTMENTS .................................... 12 1 --
------------- -------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... $ 530,905 $ 17,198 $ 1,047
============= ============== ==============
See accompanying notes
30
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
MONEY MARKET U.S. GOVERNMENT MONEY MARKET MUNICIPAL MONEY MARKET
---------------------------- ------------------------------ ------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- ------------------------------ ------------------------
2006 2005 2006 2005 2006 2005
------------- ------------ ------------- ----------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ......... $ 530,893 $ 218,128 $ 17,197 $ 7,700 $ 1,047 $ 837
Net realized gain (loss) on
investments ................. 12 18 1 6 -- --
------------- ------------ ------------- ----------- ---------- ----------
TOTAL INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS ............... 530,905 218,146 17,198 7,706 1,047 837
------------- ------------ ------------- ----------- ---------- ----------
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS:
Contributions ................ 131,682,048 98,275,830 3,002,184 1,782,252 39,850 56,703
Withdrawals .................. (126,270,825) (97,144,356) (2,695,546) (1,799,917) (39,239) (62,338)
------------- ------------ ------------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS ..... 5,411,223 1,161,474 306,638 (17,665) 611 (5,635)
------------- ------------ ------------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN
NET ASSETS ............... 5,942,128 1,379,620 323,836 (9,929) 1,658 (4,798)
------------- ------------ ------------- ----------- ---------- ----------
NET ASSETS:
Beginning of period .......... 6,786,041 5,406,421 239,560 249,519 30,496 35,294
------------- ------------ ------------- ----------- ---------- ----------
END OF PERIOD ................ $ 12,728,169 $ 6,786,041 $ 563,396 $ 239,560 $ 32,154 $ 30,496
============= ============ ============= =========== ========== ==========
See accompanying notes
31
AMERICAN BEACON MASTER TRUST PORTFOLIOS
FINANCIAL HIGHLIGHTS
MONEY MARKET
----------------------------------------------------------------------
YEAR END DECEMBER 31, 2006
----------------------------------------------------------------------
2006 2005 2004 2003 2002
------ ------ ------ ------ ------
Total return ................................ 5.09% 3.25% 1.34% 1.13% 1.81%
Ratios to average net assets (annualized):
Expenses ................................. 0.11% 0.11% 0.11% 0.11% 0.11%
Net investment income .................... 5.03% 3.20% 1.30% 1.14% 1.81%
U.S. GOVERNMENT MONEY MARKET
----------------------------------------------------------------------
YEAR END DECEMBER 31, 2006
----------------------------------------------------------------------
2006 2005 2004 2003 2002
------ ------ ------ ------ ------
Total return ................................ 5.04% 3.19% 1.30% 1.11% 1.74%
Ratios to average net assets (annualized):
Expenses ................................. 0.12% 0.12% 0.11% 0.12% 0.12%
Net investment income .................... 4.97% 3.15% 1.30% 1.13% 1.71%
MUNICIPAL MONEY MARKET
----------------------------------------------------------------------
YEAR END DECEMBER 31, 2006
----------------------------------------------------------------------
2006 2005 2004 2003 2002
------ ------ ------ ------ ------
Total return ................................ 3.34% 2.38% 1.18% 1.08% 1.39%
Ratios to average net assets (annualized):
Expenses ................................. 0.17% 0.11% 0.11% 0.12% 0.12%
Net investment income .................... 3.30% 2.35% 1.14% 1.05% 1.39%
32
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Master Trust (the "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"), 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 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 custodian bank. 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.
33
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimated.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 provides guidance on how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing each Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. At this time, the
Manager is evaluating the implications of FIN 48 and its potential impact on the
financial statements. The Fund's net asset value per share will reflect FIN 48
adjustments no later than June 29, 2007, and any adjustments will be reflected
in the Fund's semi-annual report to shareholders.
In September 2006, the FASB issued Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The Manager is evaluating the impact of FAS 157;
however, it is not expected to have a material impact on the Funds' net assets
or results of operations.
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.
34
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
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 twelve months ended December 31, 2006, the Money Market
Portfolio earned $2,108 under the credit facility. This amount is included in
interest income on the financial statements.
35
AMERICAN BEACON MILEAGE FUNDS
TAX INFORMATION FOR THE TAX YEAR ENDED DECEMBER 31, 2006
(UNAUDITED)
We are providing this information as required by the Internal Revenue
Code. The amounts shown may differ from those elsewhere in this report because
of differences between tax and financial reporting requirements.
The distributions to shareholders during the tax year ended December
31, 2006 include short-term capital gains as follows:
<Table>
Money Market Mileage Fund $ 372
U.S. Government Money Market Mileage Fund 29
Municipal Money Market Mileage Fund --
</Table>
We are required by Internal Revenue Code to advise you within 60 days
of the Funds' fiscal year end as to the federal tax status of dividends paid by
the Funds during its fiscal year ended December 31, 2006. For purposes of
preparing your annual federal income tax returns, you should report the amounts
reflected on your Form 1099-INT. Of the ordinary dividends paid, the percentage
of income exempt from federal income taxes is as follows:
<Table>
Money Market Mileage Fund 0.0%
U.S. Government Money Market Mileage Fund 0.0%
Municipal Money Market Mileage Fund 100.0%
</Table>
Of ordinary dividends paid to shareholders during the tax year ended
December 31, 2006, the percentage of income derived from U.S. Treasury
obligations is as follows:
<Table>
Money Market Mileage Fund 0.0%
U.S. Government Money Market Mileage Fund 0.0%
Municipal Money Market Mileage Fund 0.0%
</Table>
36
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON MILEAGE FUNDS AND THE
AMERICAN BEACON MASTER TRUST
(UNAUDITED)
The Trustees and officers of the American Mileage Beacon Funds (the
"Trust") and the American Beacon Master Trust (the "Master Trust") are listed
below, together with their principal occupations during the past five years.
Unless otherwise indicated, the address of each person listed below is 4151 Amon
Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees
twenty-seven funds in the fund complex that includes the Trust, the American
Beacon Master Trust, the American Beacon Funds, and the American Beacon Select
Funds. The Trust's Statement of Additional Information contains additional
information about the Trustees and is available without charge by calling
1-800-658-5811.
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- -------------- -------------------------
INTERESTED TRUSTEES
TERM
Lifetime of Trust
until removal,
resignation or
retirement*
Trustee and Chairman and CEO (2006-Present) and President
President since (1986-2006), American BeaconAdvisors, Inc.; Chairman
William F. Quinn** (58) 1987 (1989-2003) and Director (1979-1989, 2003-Present),
American Airlines Federal Credit Union; Director,
Crescent Real Estate Equities, Inc. (1994-Present);
Director, Pritchard, Hubble & Herr, LLC (investment
advisor) (2001-2006); Director of Investment
Committee, Southern Methodist University Endowment
Fund (1996-Present); Member, Southern Methodist
University Cox School of Business Advisory Board
(1999-2002); Member, New York Stock Exchange Pension
Manager Committee (1997-1998, 2000-2002,
2006-Present); Chairman (2007-Present) and Vice
Chairman (2004-2006), Committee for the Investment of
Employee Benefits; Chairman, Committee for the
Investment of Employee Benefits Defined Benefit
Sub-Committee (2002-2004); Director, United Way of
Metropolitan Tarrant County (1988-2000,
2004-Present); Trustee, American Beacon Mileage Funds
(1995-Present); Trustee, American Beacon Select Funds
(1999-Present); Trustee, American Beacon Master Trust
(1995-Present).
Alan D. Feld** (69) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law
firm) (1960-Present); Director, Clear Channel
Communications (1984-Present); Trustee, CenterPoint
Properties (1994-Present); Trustee, American Beacon
Mileage Funds (1996-Present); Trustee, American
Beacon Select Funds (1999-Present); Trustee, American
Beacon Master Trust (1996-Present).
NON-INTERESTED TRUSTEES TERM
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (62) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund
servicing company) (1998-2003); Board Member, Baylor
University Medical Center Foundation (1992-2004);
President and CEO, Allmerica Trust Company, NA
(1996-1997); President and CEO, Fidelity Investments
Southwest Company (1983-1995); Senior Vice President
of Regional Centers, Fidelity Investments
(1988-1995); Trustee, American Beacon Mileage Funds
(2004-Present); Trustee, American Beacon Select Funds
(2004-Present); Trustee, American Beacon Master Trust
(2004-Present).
37
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON MILEAGE FUNDS AND THE
AMERICAN BEACON MASTER TRUST
(UNAUDITED)
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
WITH THE TRUST AND CURRENT DIRECTORSHIPS
-------------- -------------------------
NON-INTERESTED TRUSTEES
(CONT.)
Brenda A. Cline (45) Trustee since 2004 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary, Kimbell Art Foundation
(1993-Present); Trustee, Texas Christian University
(1998-Present); Trustee, W.I. Cook Foundation, Inc.
(d/b/a Cook Children's Health Foundation)
(2001-Present); Director, Christian Church Foundation
(1999-Present); Trustee, American Beacon Mileage
Funds (2004-Present); Trustee, American Beacon Select
Funds (2004-Present); Trustee, American Beacon Master
Trust (2004-Present).
Richard A. Massman (63) Trustee since 2004 Senior Vice President and General Counsel, Hunt
Consolidated, Inc. (holding company engaged in
energy, real estate, farming, ranching and venture
capital activities) (1994-Present); Trustee, American
Beacon Mileage Funds (2004-Present); Trustee,
American Beacon Select Funds (2004-Present); Trustee,
American Beacon Master Trust (2004-Present).
Stephen D. O'Sullivan (71) Trustee since 1987 Consultant (1994-Present); Trustee, American Beacon
Mileage Funds (1995-Present); Trustee, American Beacon
Select Funds (1999-Present); Trustee, American Beacon
Master Trust (1995-Present).
R. Gerald Turner (60) Trustee since 2001 President, Southern Methodist University (1995-Present); Director,
225 Perkins Admin. Bldg. ChemFirst (1986-2002); Director, J.C. Penney Company, Inc.
Southern Methodist Univ. (1996-Present); Director, California Federal Preferred Capital Corp.
Dallas, Texas 75275 (2001-2003); Director, Kronus Worldwide Inc. (chemical manufacturing)
(2003-Present); Director, First Broadcasting Investment Partners, LLC
(2003-Present); Member, United Way of Dallas Board of Directors;
Member, Salvation Army of Dallas Board of Directors; Member, Methodist
Hospital Advisory Board; Member, Knight Commission on Intercollegiate
Athletics; Trustee, American Beacon Mileage Funds (2001-Present);
Trustee, American Beacon Select Funds (2001-Present); Trustee,
American Beacon Master Trust (2001-Present).
Kneeland Youngblood (50) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a
100 Crescent Court Chairman since private equity firm) (1998-Present); Director, Burger
Suite 1740 2005 King Corporation (2004-Present); Trustee, City of
Dallas, Texas 75201 Dallas, Texas Employee Retirement Fund
(2004-Present); Trustee, The Hockaday School
(1997-2005); Director, Starwood Hotels and Resorts
(2001-Present); Member, Council on Foreign Relations
(1995-Present); Director, Just For the Kids
(1995-2001); Director, L&B Realty Advisors
(1998-2000); Trustee, Teachers Retirement System of
Texas (1993-1999); Director, Starwood Financial Trust
(1998-2001); Trustee, St. Mark's School of Texas
(2002-Present); Trustee, American Beacon Mileage
Funds (1996-Present); Trustee, American Beacon
Select Funds (1999-Present); Trustee, American Beacon
Master Trust (1996-Present).
38
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON MILEAGE FUNDS AND THE
AMERICAN BEACON MASTER TRUST
(UNAUDITED)
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- -------------- -------------------------
OFFICERS
TERM
One Year
Rosemary K. Behan (47) VP, Secretary and Vice President, Legal and Compliance, American Beacon Advisors, Inc.
Chief Legal (2006-Present); Assistant General Counsel, First Command Financial
Officer since 2006 Planning, Inc. (2004-2006); Enforcement Attorney (2002-2004) and
Branch Chief (2000-2002); Securities and Exchange Commission.
Brian E. Brett (46) VP since 2004 Vice President, Director of Sales, American Beacon Advisors, Inc.
(2004-Present); Regional Vice President, Neuberger Berman, LLC
(investment advisor) (1996-2004).
Michael W. Fields (52) VP since 1989 Vice President, Fixed Income Investments, American Beacon Advisors,
Inc. (1988-Present).
Treasurer since Vice President, Finance, American Beacon Advisors, Inc.
Rebecca L. Harris (40) 1995 (1995-Present).
Christina E. Sears (35) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc.
Officer since 2004 (2004-Present); Senior Compliance Analyst, American Beacon Advisors,
and Asst. Inc. (1998-2004).
Secretary since
1999
- ----------
* The Board has adopted a retirement plan that requires Trustees to
retire no later than the last day of the calendar year in which they
reach the age of 72, with the exception of Messrs. Quinn and
O'Sullivan.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the
Trust, as defined by the 1940 Act. Mr. Quinn is Chairman of the
Manager. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP
has provided legal services within the past two years to one or more of
the Trust's Investment advisors.
39
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40
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41
(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 Dallas, Texas
</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.
AR 12/06
539333
ITEM 2. CODE OF ETHICS.
The Trust has adopted a code of ethics that applies to its principal
executive and financial officers (the "Code"). The Trust did not amend the
Code nor did it grant any waivers to the provisions of the Code during the
period covered by the shareholder report presented in Item 1. The Code is
filed herewith as Exhibit 99.CODE ETH.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Trust's Board of Trustees has determined that Stephen O'Sullivan, a member
of the Trust's Audit and Compliance Committee, is an "audit committee financial
expert" as defined in Form N-CSR. Mr. O'Sullivan is "independent" as defined
in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a)
<Table>
<Caption>
Audit Fees Fiscal Year Ended
- ---------- -----------------
$20,185 12/31/2005
$30,062 12/31/2006
</Table>
(b)
<Table>
<Caption>
Audit-Related Fees Fiscal Year Ended
- ------------------ -----------------
$0 12/31/2005
$0 12/31/2006
</Table>
(c)
<Table>
<Caption>
Tax Fees Fiscal Year Ended
- -------- -----------------
$4,503* 12/31/2005
$0 12/31/2006
</Table>
<FN>
* For review of 2003 and 2004 tax returns
</FN>
(d)
<Table>
<Caption>
All Other Fees Fiscal Year Ended
- -------------- -----------------
$0 12/31/2005
$0 12/31/2006
</Table>
(e)(1) Pursuant to its charter, the Trust's Audit and Compliance Committee
shall have the following duties and powers pertaining to pre-approval
of audit and non-audit services provided by the Trust's principal
accountant:
- to approve, prior to appointment, the engagement of auditors to
annually audit and provide their opinion on the Trusts' financial
statements, and, in connection therewith, reviewing and evaluating
matters potentially affecting the independence and capabilities of
the auditors;
- to approve, prior to appointment, the engagement of the auditors to
provide non-audit services to the Trusts, an investment adviser to
any series of the Trusts or any entity controlling, controlled by,
or under common control with an investment adviser ("adviser
affiliate") that provides ongoing services to the Trusts, if the
engagement relates directly to the operations and financial
reporting of the Trusts;
- to consider whether the non-audit services provided by a Trust's
auditor to an investment adviser or any adviser affiliate that
provides ongoing services to a series of the Trusts, which services
were not pre-approved by the Committee, are compatible with
maintaining the auditor's independence;
- to review the arrangements for and scope of the annual audit and
any special audits; and
- to review and approving the fees proposed to be charged to the
Trusts by the auditors for each audit and non-audit service.
The Audit and Compliance Committee may delegate any portion of its authority,
including the authority to grant pre-approvals of audit and permitted
non-audit services, to a subcommittee of one or more members. Any decisions
of the subcommittee to grant pre-approvals shall be presented to the full
committee at its next regularly scheduled meeting.
(e)(2) None of the fees disclosed in paragraphs (b) through (d) above were
approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X.
(f) Not Applicable.
(g)
<Table>
<Caption>
Aggregate Non-Audit Fees for Services Rendered to the:
- ------------------------------------------------------
Adviser's Affiliates Providing
Registrant Adviser Ongoing Services to Registrant Fiscal Year Ended
- ---------- ------- ------------------------------ -----------------
$4,503 $0 N/A 12/31/2005
$0 $0 N/A 12/31/2006
</Table>
(h) Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedules of investments for each series of the Trust are included in the
shareholder report presented in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 9. PUCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Trust has made no material changes to the procedures by which shareholders
may recommend nominees to the Trust's Board of Trustees since the Trust last
disclosed such procedures in Schedule 14A.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon an evaluation within 90 days of the filing date of this
report, the principal executive and financial officers concluded that
the disclosure controls and procedures of the Trust are effective.
(b) There were no changes in the Trust's internal control over financial
reporting during the second fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to
materially affect, the Trust's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Filed herewith as EX-99.CODE ETH.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the Trust as required by Rule 30a-2(a)
under the Investment Company Act of 1940 is attached hereto as EX-
99.CERT.
(a)(3) Not Applicable.
(b) The certifications required by Rule 30a-2(b) under the Investment
Company Act of 1940 are attached hereto as EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): American Beacon Mileage Funds
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: March 9, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: March 9, 2007
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: March 9, 2007