UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-09018
AMERICAN BEACON MILEAGE FUNDS
(Exact name of registrant as specified in charter)
4151 Amon Carter Boulevard, MD 2450
Fort Worth, Texas 76155
(Address of principal executive offices)-(Zip code)
William F. Quinn, PRESIDENT
4151 Amon Carter Boulevard, MD 2450
Fort Worth, Texas 76155
(Name and address of agent for service)
Registrant's telephone number, including area code: (817) 967-3509
Date of fiscal year end: December 31, 2008
Date of reporting period: June 30, 2008
ITEM 1. REPORT TO STOCKHOLDERS.
GUIDANCE | VISION | EXPERIENCE
(AMERICAN BEACON MILEAGE FUNDS(SM) LOGO)
Semi-Annual Report
(GRAPHIC)
June 30, 2008
MONEY MARKET MILEAGE FUND
ABOUT AMERICAN BEACON ADVISORS
Since 1986, American Beacon Advisors has offered a variety of products and
investment advisory services to numerous institutional and retail clients,
including a variety of mutual funds, corporate cash management, and separate
account management.
Our clients include defined benefit plans, defined contribution plans,
foundations, endowments, corporations, financial planners, and other
institutional investors. With American Beacon Advisors, you can put the
experience of a multi-billion dollar asset management firm to work for you.
CONTENTS
President's Message................................................ 1
Financial Highlights
Money Market Mileage Fund....................................... 13
Schedule of Investments
Money Market Portfolio.......................................... 14
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 Money Market Mileage Fund June 30, 2008
(PHOTO OF WILLIAM F. QUINN)
Fellow Shareholders,
I am pleased to present to you the Semi-Annual Report for the American
Beacon Money Market Mileage Fund for the six months ended June 30, 2008.
The American Beacon Money Market Mileage Fund reported a total return of
1.36% for this six-month period with an expense ratio of 76 basis points (0.76%)
for its most recent fiscal year.
During the period, the sub-prime mortgage crisis continued to cause
uncertainties surrounding banks, investment banks and the entire financial
system, resulting in an extraordinary amount of volatility. The Federal Reserve
("Fed") was challenged to fulfill its dual mandate of balancing the risks to
both growth and inflation. Inflation concerns were mounting, but weak economic
growth and turmoil in the financial markets limited the Fed's ability to raise
interest rates in the near term to strengthen the U.S. dollar and counter
inflation. We feel the Fund's strategy of investing in high credit quality
securities combined with lower than average expense ratios will continue to
benefit the Fund's yield while protecting the Fund's liquidity for the long
term.
Please review the enclosed market overview, portfolio listings and detailed
financial data. As always, we welcome the opportunity to serve your financial
needs. To obtain further details about the American Beacon Funds family or to
access your account information, please visit our website at
www.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Money Market Mileage Fund.
Sincerely,
/s/ William F. Quinn
William F. Quinn
President
American Beacon Mileage Funds
1
ECONOMIC OVERVIEW
JUNE 30, 2008 (UNAUDITED)
The Federal Open Market Committee ("Fed") left the rates unchanged at 2.00%
at the June 25th meeting, ending a 225 basis point (2.25%) easing cycle that
began in September 2007. In addition, the Fed shifted its bias toward inflation
risk, opening the door to the possibility that the next move could be a rate
hike. However, inflation was not the Fed's only concern. They have also had to
contend with a softening labor market, declining house prices, and continued
strain in the financial markets.
Headline producer and consumer prices both surprised to the upside in June.
Thus far, waning consumer demand limited companies' ability to pass on higher
raw materials costs, but this trend began to reverse as corporate profits
eroded. Although inflation was on the rise, sluggish economic growth remained a
chief concern for the Fed. Nonfarm payrolls declined by 438,000 for the first
half of 2008, resulting in a rise in the unemployment rate to 5.5%. This
combined with continued declines in home prices caused consumer confidence to
drop to the lowest levels on record. Although the fiscal stimulus package is
expected to buoy second quarter gross domestic product, the economic slowdown
may deepen in the second half of 2008 as the impact of federal tax rebates fade.
The Fed continued to address financial market instability. Although
measures taken by the Fed to increase liquidity have eased short-term funding
pressures somewhat, financial markets remained volatile. In response to renewed
concerns over the health of the nation's financial system, Fed Chairman Ben
Bernanke recently announced that the central bank may extend its emergency loan
program for investment banks into 2009. The program was created in March and was
set to potentially expire in mid-September. Bernanke stated that the Fed is
"currently monitoring developments in financial markets closely and considering
several options, including extending the duration of our facilities for primary
dealers beyond year-end, should the current unusual and exigent circumstances
continue in dealer funding markets."
Given all of the above, the Fed was challenged to fulfill its dual mandate
of balancing the risks to both growth and inflation. Inflation concerns mounted,
but weak economic growth and turmoil in the financial markets limited the Fed's
ability to raise interest rates in the near term. Bernanke stated, "Given the
high degree of uncertainty, monetary policy makers will need to carefully assess
incoming information bearing on the outlook for both inflation and growth."
2
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET MILEAGE FUND(SM)
JUNE 30, 2008 (UNAUDITED)
As the economy continued to show signs of weakening during the first half
of the year, the Federal Reserve ("Fed") continued its series of easing monetary
policy. The year began with an overnight target rate of 4.25% before the Fed
eased by 75 basis points (0.75%) inter-meeting on January 22nd. The Fed
continued to cut rates at the following three Federal Open Market Committee
("FOMC") meetings, resulting in a 2.00% fed funds target by the April 30th FOMC
meeting. The Fed has remained on hold the last two meetings, expressing concern
for both inflation and slow growth. In response to the events that caused the
Fed to ease, the American Beacon Money Market Fund's weighted-average maturity
was maintained around 40 days. With credit quality a priority, the primary
strategy of the Fund for the first half of the year was to buy high-quality,
short-dated, fixed-rate securities and overnight investments. The strategies
implemented during the year enabled the Fund to outperform its Lipper peer
group.
For the six months ended June 30, 2008, the total return of the American
Beacon Money Market Mileage Fund - Mileage Class was 1.36%. The Fund
outperformed the Lipper Money Market Instrument Average return of 1.25% by 11
basis points (0.11%). Based on annualized total returns, Lipper, Inc. ranked the
Mileage Class of the Fund 147 among 337, 64 among 293, and 47 among 192
Institutional Money Market Funds for the one-year, five-year, and ten-year
periods ended June 30, 2008, respectively.
The Lipper Money Market Instrument 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.
(BAR CHART)
ANNUALIZED TOTAL RETURNS
AS OF 06/30/2008
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Mileage Class (1, 2)................. 3.63% 2.92% 3.34%
(1) Performance shown is historical and may not be indicative of future
returns. Investment returns will vary, and shares 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 total annual Fund operating expense ratio set forth in the most recent
prospectus for the Fund was 0.76%. The expense ratio above may vary from
the expense ratio presented in other sections of this report, which is
based on expenses incurred during the period covered by this report.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET MILEAGE FUND(SM)
JUNE 30, 2008 (UNAUDITED)
PORTFOLIO STATISTICS AS OF JUNE 30, 2008
7-day Current Yield* ............................................... 2.21%
7-day Effective Yield* ............................................. 2.23%
30-day Yield* ...................................................... 2.19%
Weighted Avg. Maturity ............................................. 34 Days
* Annualized. You may call 1-800-967-9009 to obtain the Fund's current 7-day
yields. Yield is a more accurate reflection of the Fund's current earnings
than total returns.
TOP TEN ISSUERS AS OF JUNE 30, 2008
% OF NET
ASSETS**
--------
General Electric Capital Corp. ..................................... 5.3%
Rabobank Nederland N.Y. ............................................ 5.1%
Westpac Banking Corp. .............................................. 4.7%
Nordea Bank Finland N.Y. ........................................... 4.3%
Toronto Dominion Bank N.Y. ......................................... 4.3%
U.S. Bank, NA ...................................................... 4.3%
BNP Paribas N.Y. ................................................... 4.1%
Barclays Bank plc .................................................. 3.9%
Toyota Motor Credit Corp. .......................................... 3.6%
Bank of Nova Scotia N.Y. ........................................... 3.5%
** Percent of net assets of American Beacon Master Money Market Portfolio.
ASSET ALLOCATION AS OF JUNE 30, 2008
% OF NET
ASSETS**
--------
Bank CDs, TDs and Notes............................................. 49.1%
Commercial Paper.................................................... 25.9%
Corporate Notes..................................................... 10.2%
Short-Term Investments.............................................. 9.0%
Repurchase Agreements............................................... 7.1%
Liabilities, Net of Other Assets.................................... -1.3%
** Percent of net assets of American Beacon Master Money Market Portfolio.
4
FUND EXPENSES
AMERICAN BEACON MONEY MARKET MILEAGE FUND(SM)
JUNE 30, 2008 (UNAUDITED)
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual funds. The
examples are based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from January 1, 2008 through June 30,
2008.
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" line of the table provides 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" line of the
table is 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 Paid
Beginning Ending During
Account Account Period*
Value Value 1/1/08-
1/1/2008 6/30/08 6/30/08
--------- --------- -------------
MILEAGE CLASS
Actual .......................................... $1,000.00 $1,013.62 $3.50
Hypothetical (5% return before expenses) ........ $1,000.00 $1,021.38 $3.51
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.70%, 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 (182) by days in the year (366) to reflect
the half-year period.
5
AMERICAN BEACON MONEY MARKET MILEAGE FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS:
Investment in Portfolio, at value ............................. $ 47,205
Receivable for fund share sold ................................ 2
Receivable from Manager for expense reimbursement (Note 2) .... 1
Prepaid expenses .............................................. 10
-----------
TOTAL ASSETS ............................................... 47,218
-----------
LIABILITIES:
Payable for fund shares redeemed .............................. 83
Distribution fees payable (Note 2) ............................ 10
Dividends payable ............................................. 1
Administrative service and service fees payable (Note 2) ...... 4
Other liabilities ............................................. 23
-----------
TOTAL LIABILITIES .......................................... 121
-----------
NET ASSETS .................................................... $ 47,097
===========
ANALYSIS OF NET ASSETS:
Paid-in-capital ............................................ 47,097
-----------
NET ASSETS ....................................................... $ 47,097
===========
SHARES OUTSTANDING (NO PAR VALUE):
Mileage Class ................................................. 47,097,094
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Mileage Class ................................................. $ 1.00
===========
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolio
6
AMERICAN BEACON MONEY MARKET MILEAGE FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) (IN THOUSANDS)
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest income ............................................... $ 806
Portfolio expenses ............................................ (25)
-----------
NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO ............. 781
-----------
FUND EXPENSES:
Administrative service fees - Mileage Class (Note 2) .......... 24
Transfer agent fees - Mileage Class ........................... 21
Professional fees ............................................. 6
Registration fees and expenses ................................ 25
Distribution fees - Mileage Class (Note 2) .................... 59
Prospectus and shareholder reports ............................ 5
Other expenses ................................................ 1
-----------
TOTAL FUND EXPENSES ........................................ 141
-----------
Less reimbursement of fund expense (Note 2) ................... (2)
-----------
NET FUND EXPENSES .......................................... 139
-----------
NET INVESTMENT INCOME ............................................ 642
-----------
REALIZED GAIN ALLOCATED FROM PORTFOLIO
Net realized gain on investments .............................. --
-----------
NET GAIN ON INVESTMENTS .................................... --
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............. $ 642
===========
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolio
7
AMERICAN BEACON MONEY MARKET MILEAGE FUND
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six Months Year ended
ended June 30, December 31,
2008 2007
-------------- ------------
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .......................................... $ 642 $ 7,579
Net realized gain on investments ............................... -- 3
-------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........ 642 7,582
-------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Mileage class ............................................... (642) (2,276)
Platinum class .............................................. -- (5,303)
Net realized gain on investments:
Platinum class (Note 1) ..................................... -- (3)
-------- ---------
DISTRIBUTIONS TO SHAREHOLDERS ............................... (642) (7,582)
-------- ---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares .................................. 4,288 102,145
Reinvestment of dividends and distributions .................... 633 7,133
Cost of shares redeemed ........................................ (5,641) (448,000)
-------- ---------
NET INCREASE (DECREASE) IN NET ASSETS ....................... (720) (338,722)
-------- ---------
NET INCREASE (DECREASE) IN NET ASSETS ............................. (720) (338,722)
-------- ---------
NET ASSETS:
Beginning of period ............................................ 47,817 386,539
-------- ---------
END OF PERIOD .................................................. $ 47,097 $ 47,817
======== =========
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolio
8
AMERICAN BEACON MONEY MARKET MILEAGE FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The American Beacon Money Market Mileage Fund (the "Fund") 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.
American Beacon Advisors, Inc. (the "Manager") is a wholly-owned subsidiary
of AMR Corporation ("AMR") and was organized in 1986 to provide business
management, advisory, administrative and asset management consulting services to
the Trust and other investors.
On April 16, 2008, AMR, the parent company of the Manager, announced that
it had reached a definitive agreement to sell all of its interests in the
Manager to Lighthouse Holdings, Inc., which is owned by investment funds
affiliated with Pharos Capital Group, LLC and TPG Capital, L.P. AMR will acquire
a minority equity stake in the parent corporation of Lighthouse Holdings, Inc.
Completion of the sale would result in a change of control of the Manager, but
there are no anticipated material changes in the services to be provided by the
Manager or in the fee rate charged by the Manager to the Fund. The target
closing date for the proposed acquisition is expected to be no later than
September 30, 2008. Based in Dallas and Nashville, Pharos Capital Group, LLP
invests through private equity funds, primarily in companies seeking later stage
equity funding for internal growth, acquisitions, management buyouts or
recapitalizations across industry sectors. TPG Capital, L.P. is the global
buyout group of TPG, a leading private investment firm with more than $50
billion of assets under management. TPG Capital, L.P. has extensive experience
with global public and private investments executed through leveraged buyouts,
recapitalizations, spinouts, joint ventures and restructurings.
The Fund invests all of its investable assets in the Money Market Portfolio
of the American Beacon Master Trust (the "Portfolio"), an open-end diversified
management investment company.
AMERICAN BEACON: (ARROW) invests assets in (ARROW) AMERICAN BEACON MASTER TRUST:
- ---------------- -----------------------------
Money Market Mileage Fund Money Market Portfolio
The Fund has the same investment objectives as the Portfolio, and the value
of such investment reflects the Fund's proportionate interest in the net assets
of the portfolio (0.37% at June 30, 2008). The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The following is a summary of the significant accounting policies followed
by the Fund.
Class Disclosure
The Platinum Class was fully liquidated effective May 31, 2007.
CLASS: OFFERED TO: SERVICE AND DISTRIBUTION FEES:
- ------ -------------------------------------- ------------------------------
Mileage Class Individuals and certain grantor trusts Distribution Fee- 0.25%
Platinum Class - Closed
Valuation of Investments
The Fund records its investment in the Portfolio at fair value. Valuation
of securities by the Portfolio is discussed in Note 1 of the Portfolio's Notes
to Financial Statements, which are included elsewhere in this report.
The Portfolio adopted the provisions of Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"), effective with the
beginning of the Portfolio's fiscal year. This standard
9
AMERICAN BEACON MONEY MARKET MILEAGE FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
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. The three levels of the hierarchy under FAS
157 are described below:
Level 1 - Quoted prices in active markets for identical securities.
Level 2 - Prices determined using other significant observable inputs.
These may include quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, and others.
Level 3 - Prices determined using significant unobservable inputs.
Unobservable inputs reflect the Portfolio's own assumptions about the
factors market participants would use in pricing an investment, and would
be based on the best information available.
The summary of inputs used to value the Portfolios' net assets as of June
30, 2008 is discussed in the Portfolios' Notes to Financial Statements, which
are included elsewhere in this report.
Investment Income and Dividends to Shareholders
The 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 the Portfolio are allocated pro rata among the
corresponding Fund and other investors in the Portfolio at the time of such
determination. The Fund generally declares 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.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimated.
Other
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Fund. In the normal course of business, the Fund enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Fund's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Fund has had no prior claims or losses
pursuant to any such agreement.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Manager and the Fund entered into a Management Agreement that obligates
the Manager to provide or oversee administrative and management services to the
Fund. 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 the Fund.
10
AMERICAN BEACON MONEY MARKET MILEAGE FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
Distribution Plan
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the Act. Under the Plan, as compensation for distribution
assistance, the Manager receives an annualized fee of 0.25% of the average daily
net assets. 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 Fund's Board
of Trustees determined that there was a reasonable likelihood that the Plan
would benefit the Fund and the shareholders.
Reimbursement and Waiver of Expenses
The Manager voluntarily waived distribution and other expenses totaling
$1,466 for the six months ended June 30, 2008.
Expense Reimbursement Plan
The Fund has 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. For the six months ended June 30, 2008, there are no fees subject
to recoupment.
3. FEDERAL INCOME AND EXCISE TAXES
It is the policy of the Fund to comply with the requirements of Subchapter
M of the Internal Revenue Code and to distribute substantially all net
investment income as well as any net realized capital gains on the sale of
investments. Therefore, no federal income or excise tax provision is required.
The Fund adopted the provisions of FASB Interpretation No. 48, "Accounting
for Uncertainties in Income Taxes" ("FIN 48"), on January 1, 2007. FIN 48 sets
forth a minimum threshold for financial statement recognition of the benefit of
a tax position taken or expected to be taken in a tax return. The implementation
of FIN 48 did not result in any unrecognized tax benefits in the accompanying
financial statements. Each of the tax years in the three year period ended
December 31, 2007, remains subject to examination by the Internal Revenue
Service. If applicable, the Fund recognizes interest accrued related to
unrecognized tax benefits in interest expense and penalties in "Other expenses"
on the Statement of Operations.
Dividends are categorized in accordance with income tax regulations which
may treat certain transactions differently than U.S. generally accepted
accounting principles. Accordingly, the character of distributions and
composition of net assets for tax purposes may differ from those reflected in
the accompanying financial statements.
The tax character of distributions paid during the six months ended June
30, 2008 and the fiscal year ended December 31, 2007 were as follows (in
thousands):
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2008 2007
---------------- ------------
(Unaudited)
DISTRIBUTIONS PAID FROM ORDINARY INCOME:
Mileage Class........................ $642 $2,276
Platinum Class....................... -- 5,306
---- ------
TOTAL DISTRIBUTIONS..................... $642 $7,582
==== ======
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
11
AMERICAN BEACON MONEY MARKET MILEAGE FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
As of June 30, 2008, 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 Fund does not have capital loss carryforwards as of June 30, 2008.
4. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares for the Fund (in
thousands). Each share is valued at $1.00:
Six Months Ended June 30, 2008
Money Market
Mileage Fund
--------------
Mileage Class
--------------
Shares sold............................. 4,288
Reinvestment of dividends............... 633
Shares redeemed......................... (5,641)
------
Net (decrease) in shares outstanding.... (720)
======
Year Ended December 31, 2007
Money Market
Mileage Fund
------------------
Mileage Platinum
Class Class
------- --------
Shares sold ............................ 48,438 53,707
Reinvestment of dividends .............. 2,220 4,913
Shares redeemed ........................ (50,801) (397,199)
------- --------
Net (decrease) in shares outstanding ... (143) (338,579)
======= ========
12
AMERICAN BEACON MONEY MARKET MILEAGE FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Mileage Class
---------------------------------------------------------------------
Six Months Year Ended December 31
Ended June -------------------------------------------------------
30, 2008 2007 2006 2005 2004 2003
----------- ------- ------- ------- ------- -------
(unaudited)
Net asset value, beginning of period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (A) ......................... 0.01 0.05 0.05 0.03 0.01 0.01
Net realized gain on investments .................. --(B) --(B) --(B) --(B) --(B) --(B)
------- ------- ------- ------- ------- -------
Total income from investment operations .............. 0.01 0.05 0.05 0.03 0.01 0.01
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income .............. (0.01) (0.05) (0.05) (0.03) (0.01) (0.01)
Distributions from net realized gains on
securities ..................................... --(B) --(B) --(B) --(B) --(B) --(B)
------- ------- ------- ------- ------- -------
Total distributions .................................. (0.01) (0.05) (0.05) (0.03) (0.01) (0.01)
------- ------- ------- ------- ------- -------
Net asset value, end of period ....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total return ......................................... 1.36%(C) 4.68% 4.61% 2.75% 0.93% 0.73%
======= ======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands) .......... $47,097 $47,817 $47,960 $50,684 $45,475 $49,053
Ratios to average net assets (annualized):(A)
Expenses, net of waivers ....................... 0.70% 0.72% 0.57% 0.58% 0.51% 0.51%
Expenses before waivers ........................ 0.70% 0.75% 0.57% 0.58% 0.51% 0.51%
Net investment income, net of waivers .......... 2.72% 4.59% 4.52% 2.73% 0.91% 0.74%
Net investment income (loss), before waivers ... 2.71% 4.56% 4.52% 2.73% 0.91% 0.74%
- ----------
(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.
(C) Not annualized.
13
AMERICAN BEACON MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 2008 (UNAUDITED)
PAR
AMOUNT VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
MEDIUM-TERM NOTES - 10.12%
American Honda Finance Corp., 3.013%, Due 9/18/2008 ++ # .. $ 20,900 $ 20,905
Bank of Scotland plc, 2.716%, Due 7/17/2008 ++ # .......... 125,800 125,801
Goldman Sachs Group, Inc., 3.013%, Due 7/29/2008 ++ ....... 178,775 178,781
Royal Bank of Scotland plc,
2.868%, Due 7/21/2008 ++ # ............................. 50,000 50,000
2.511%, Due 8/20/2008 ++ # ............................. 150,000 150,000
Toyota Motor Credit Corp., 2.698%, Due 7/7/2008 ++ ........ 60,500 60,500
US Bank, NA,
2.65%, Due 9/16/2008 ................................... 250,000 250,000
2.83%, Due 10/20/2008 .................................. 100,000 100,000
2.70%, Due 11/17/2008 .................................. 200,000 200,000
Wells Fargo & Co., 2.551%, Due 8/20/2008 ++ # ............. 150,000 150,000
---------
TOTAL MEDIUM-TERM NOTES ................................... 1,285,987
---------
CERTIFICATES OF DEPOSIT AND BANK NOTES - 45.23%
Bank of America, NA, 2.92%, Due 7/25/2008 ++ .............. 27,300 27,300
Bank of Nova Scotia N.Y.,
2.57%, Due 8/13/2008 ................................... 150,000 150,000
2.61%, Due 8/13/2008 ................................... 100,000 100,000
2.60%, Due 9/2/2008 .................................... 200,000 200,000
Barclays Bank plc,
2.75%, Due 7/2/2008 .................................... 200,000 200,000
2.87%, Due 7/30/2008 ................................... 100,000 100,000
2.70%, Due 8/19/2008 ................................... 200,000 200,000
BNP Paribas N.Y.,
2.84%, Due 8/4/2008 .................................... 175,000 175,000
2.89%, Due 8/15/2008 ................................... 100,000 100,000
2.65%, Due 8/28/2008 ................................... 50,000 50,000
3.01%, Due 8/29/2008 ................................... 50,000 50,000
2.74%, Due 9/25/2008 ................................... 150,000 150,000
Commonwealth Bank of Australia N.Y.,
2.60%, Due 8/20/2008 ................................... 100,000 100,000
2.60%, Due 9/4/2008 .................................... 100,000 100,000
Dexia Credit Local S.A., 2.75%, Due 7/15/2008 ............. 200,000 200,000
HSBC Bank USA, 2.957%, Due 7/28/2008 ++ ................... 77,000 77,004
Lloyds Bank N.Y., 2.62%, Due 8/12/2008 .................... 150,000 150,000
National Australia Bank Ltd., 2.61%, Due 9/8/2008 ......... 200,000 200,000
Nordea Bank Finland N.Y.,
2.90%, Due 7/28/2008 ................................... 150,000 150,000
2.88%, Due 7/29/2008 ................................... 150,000 150,000
2.76%, Due 8/11/2008 ................................... 150,000 150,000
2.54%, Due 8/15/2008 ................................... 100,000 100,000
Rabobank Nederland N.Y.,
2.60%, Due 7/8/2008 .................................... 300,000 300,000
See accompanying notes
14
AMERICAN BEACON MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 2008 (UNAUDITED)
PAR
AMOUNT VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Rabobank Nederland N.Y.,
2.62%, Due 8/19/2008 .................................... $ 50,000 $ 50,005
2.61%, Due 8/25/2008 .................................... 100,000 100,000
2.85%, Due 9/26/2008 .................................... 200,000 200,000
Royal Bank of Canada N.Y.,
2.62%, Due 8/18/2008 .................................... 100,000 100,000
2.63%, Due 8/20/2008 .................................... 225,000 225,030
Royal Bank of Scotland plc, 2.83%, Due 7/8/2008 ............ 200,000 200,000
Societe Generale N.Y.,
3.00%, Due 7/10/2008 .................................... 250,000 250,000
2.75%, Due 8/6/2008 ..................................... 100,000 100,000
Svenska Handelsbanken AB, 2.60%, Due 9/3/2008 .............. 200,000 200,000
Toronto Dominion Bank N.Y.,
2.85%, Due 8/29/2008 .................................... 200,000 200,000
2.81%, Due 9/5/2008 ..................................... 150,000 150,000
2.76%, Due 9/24/2008 .................................... 150,000 150,000
2.72%, Due 10/20/2008 ................................... 50,000 50,000
Westpac Banking Corp.,
2.82%, Due 8/1/2008 ..................................... 100,000 100,015
2.74%, Due 8/4/2008 ..................................... 94,225 94,232
2.62%, Due 8/14/2008 .................................... 200,000 200,000
2.61%, Due 9/9/2008 ..................................... 200,000 200,000
----------
TOTAL CERTIFICATES OF DEPOSIT AND BANK NOTES ............... 5,748,586
----------
COMMERCIAL PAPER - 25.92%
Concord Minutemen Capital Co. LLC, 3.00%, Due 7/1/2008 # ... 394,026 394,026
Elysian Funding LLC, 3.10%, Due 7/1/2008 # ................. 350,000 350,000
Fountain Square Commercial Funding, 3.75%, Due 7/1/2008 # .. 300,000 300,000
Gemini Securitization Corp. LLC,
2.77%, Due 7/25/2008 .................................... 95,219 95,043
2.75%, Due 7/28/2008 .................................... 198,750 198,355
General Electric Capital Corp.,
2.78%, Due 7/11/2008 .................................... 175,000 174,865
2.76%, Due 7/15/2008 .................................... 50,000 49,946
2.72%, Due 7/30/2008 .................................... 50,000 49,890
2.78%, Due 7/31/2008 .................................... 50,000 49,884
2.86%, Due 8/15/2008 .................................... 100,000 99,643
2.46%, Due 10/27/2008 ................................... 200,000 198,387
2.55%, Due 10/31/2008 ................................... 46,000 45,603
ING (US) Funding LLC, 2.65%, Due 9/30/2008 ................. 300,000 297,990
Kitty Hawk Funding Corp., 2.77%, Due 8/7/2008 .............. 74,985 74,772
Lexington Parker Capital Co. LLC, 3.05%, Due 7/1/2008 # .... 494,301 494,301
Salisbury Receivables Co., 3.00%, Due 7/1/2008 ............. 23,785 23,785
Toyota Motor Credit Corp.,
2.92%, Due 7/3/2008 ..................................... 50,000 49,992
See accompanying notes
15
AMERICAN BEACON MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 2008 (UNAUDITED)
PAR
AMOUNT VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
Toyota Motor Credit Corp.,
2.76%, Due 8/21/2008 ...................... $ 75,000 $ 74,707
2.76%, Due 8/22/2008 ...................... 275,000 273,904
----------
TOTAL COMMERCIAL PAPER ....................... 3,295,093
----------
TIME DEPOSITS - 3.93%
BNP Paribas N.Y., 2.75%, Due 7/1/2008 ........ 75,000 75,000
Deutsche Bank N.Y., 2.75%, Due 7/1/2008 ...... 225,000 225,000
Societe Generale N.Y., 2.563%, Due 7/1/2008 .. 200,000 200,000
----------
TOTAL TIME DEPOSITS .......................... 500,000
----------
SHARES
-----------
SHORT TERM INVESTMENTS - 9.04%
OTHER SHORT-TERM INVESTMENTS - 9.04%
BlackRock Temp Fund ................................ 529,063,351 529,063
Dreyfus Institutional Preferred Money Market Fund .. 620,262,421 620,263
---------
TOTAL SHORT TERM INVESTMENTS ....................... 1,149,326
---------
PAR
AMOUNT
--------
REPURCHASE AGREEMENTS - 7.08%
Bank of America, NA, 2.75%, Due 7/1/2008 (Held at
Bank of New York, Collateralized by Mortgage
Obligations valued at $588,500, 2/23/2036) .. $550,000 550,000
Barclays Bank plc, 2.75%, Due 7/1/2008 (Held at Bank
of New York, Collateralized by Equity Securities
valued at $105,000) ................ 100,000 100,000
Citigroup, Inc., 2.80%, Due 7/1/2008 (Held at Chase
NYC, Collateralized by Mortgage Obligations valued
at $303,279, 3/14/2036 - 6/23/2038) ..... 250,000 250,000
-----------
TOTAL REPURCHASE AGREEMENTS ............................... 900,000
-----------
TOTAL INVESTMENTS - 101.32% (COST $12,878,992) ............... $12,878,992
LIABILITIES, NET OF OTHER ASSETS - (1.32%) ................... (168,355)
-----------
TOTAL NET ASSETS - 100.00% ................................... $12,710,637
===========
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 $2,035,033 or 16.01% of net
assets. The Fund has no right to demand registration of these securities.
See accompanying notes
16
AMERICAN BEACON MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED) (IN THOUSANDS)
ASSETS:
Investment in securities at value (cost - $11,978,992) ..... $11,978,992
Repurchase agreement (cost - $900,000) ..................... 900,000
Dividends and interest receivable .......................... 31,127
Prepaid expenses ........................................... 115
-----------
TOTAL ASSETS ............................................ 12,910,234
-----------
LIABILITIES:
Management and investment advisory fees payable (Note 2) ... 1,083
Other liabilities .......................................... 198,514
-----------
TOTAL LIABILITIES ....................................... 199,597
-----------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS ...... $12,710,637
===========
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) (IN THOUSANDS)
INVESTMENT INCOME:
Interest income ............................................ $234,691
--------
TOTAL INVESTMENT INCOME ................................. 234,691
--------
EXPENSES:
Management and investment advisory fees (Note 2) ........... 6,844
Custodian fees ............................................. 183
Professional fees .......................................... 76
Other expenses ............................................. 195
--------
TOTAL EXPENSES .......................................... 7,298
--------
NET INVESTMENT INCOME ......................................... 227,393
--------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ........................... 0
--------
NET GAIN ON INVESTMENTS ................................. 0
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......... $227,393
========
See accompanying notes
17
AMERICAN BEACON MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six Months Year Ended
Ended June 30, December 31,
2008 2007
-------------- ------------
(unaudited)
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income ......................... $ 227,393 $ 824,823
Net realized gain on investments .............. 0 127
------------ ------------
TOTAL INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ......................... 227,393 824,950
------------ ------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Contributions ................................. 89,239,048 35,059,358
Withdrawals ................................... (89,939,803) (35,428,478)
------------ ------------
NET DECREASE IN NET ASSETS RESULTING FROM
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS ............................... (700,755) (369,120)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS ...... (473,362) 455,830
------------ ------------
NET ASSETS:
Beginning of period ........................... 13,183,999 12,728,169
------------ ------------
END OF PERIOD ................................. $ 12,710,637 $ 13,183,999
============ ============
FINANCIAL HIGHLIGHTS
Six Months Year Ended December 31,
Ended June 30, --------------------------------
2008 2007 2006 2005 2004 2003
-------------- ---- ---- ---- ---- ----
(unaudited)
Total return ............................. 1.66%(A) 5.33% 5.09% 3.25% 1.34% 1.13%
Ratios to average net assets (annualized):
Expenses .............................. 0.11% 0.11% 0.11% 0.11% 0.11% 0.11%
Net investment income ................. 3.31% 5.19% 5.03% 3.20% 1.30% 1.14%
(A) Not annualized
See accompanying notes
18
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
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. 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 (the
"Portfolio"). The objective of the Portfolio is current income, liquidity and
the maintenance of a stable price of $1.00 per share. The assets of the
Portfolio belong only to that Portfolio, and the liabilities of the Portfolio
are borne solely by that Portfolio and no other.
American Beacon Advisors, Inc. (the "Manager") is a wholly owned subsidiary
of AMR Corporation ("AMR") and was organized in 1986 to provide business
management, advisory, administrative and asset management consulting services.
On April 16, 2008, AMR, the parent company of the Manager, announced that
it had reached a definitive agreement to sell all of its interests in the
Manager to Lighthouse Holdings, Inc., which is owned by investment funds
affiliated with Pharos Capital Group, LLC and TPG Capital, L.P. AMR will acquire
a minority equity stake in the parent corporation of Lighthouse Holdings, Inc.
Completion of the sale would result in a change of control of the Manager, but
there are no anticipated material changes in the services to be provided by the
Manager or in the fee rate charged by the Manager to the Fund. The target
closing date for the proposed acquisition is expected to be no later than
September 30, 2008. Based in Dallas and Nashville, Pharos Capital Group, LLP
invests through private equity funds, primarily in companies seeking later stage
equity funding for internal growth, acquisitions, management buyouts or
recapitalizations across industry sectors. TPG Capital, L.P. is the global
buyout group of TPG, a leading private investment firm with more than $50
billion of assets under management. TPG Capital, L.P. has extensive experience
with global public and private investments executed through leveraged buyouts,
recapitalizations, spinouts, joint ventures and restructurings.
The following is a summary of the significant accounting policies followed
by the Portfolio.
Valuation of Investments
Securities of the Portfolio 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 Portfolio, 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.
The Portfolio adopted the provisions of Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"), effective with the
beginning of the Portfolio's fiscal year. 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. The three levels of the hierarchy under FAS 157 are described
below:
Level 1 - Quoted prices in active markets for identical securities.
Level 2 - Prices determined using other significant observable inputs.
These may include quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, and others.
Level 3 - Prices determined using significant unobservable inputs.
Unobservable inputs reflect the Portfolio's own assumptions about the
factors market participants would use in pricing an investment, and would
be based on the best information available.
19
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
A summary of the inputs used to value the Portfolio's net assets as of June 30,
2008 is as follows (in thousands):
Investments in
Valuation Inputs Securities
- ---------------- --------------
Level 1 - Quoted Prices ........................ $ 1,149,326
Level 2 - Other significant observable inputs .. 11,729,666
Level 3 - Significant unobservable inputs ...... --
-----------
Total .......................................... $12,878,992
The inputs or methodology used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities. For
example, money market securities are valued using amortized cost, in accordance
with rules under the Investment Company Act of 1940. Generally, amortized cost
approximates the current fair value of a security, but since the value is not
obtained from a quoted price in an active market, such securities are reflected
as Level 2.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale. Interest income is earned from settlement date, recorded on
the accrual basis, and adjusted, if necessary, for amortization of premiums or
accretion of discounts on investment grade short-term securities and zero coupon
instruments. For financial and tax reporting purposes, realized gains and losses
are determined on the basis of specific lot identification.
Federal Income and Excise Taxes
The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that the
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.
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 the Portfolio'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. The Portfolio
files a tax return with the U.S. Internal Revenue Service. Generally, the tax
authorities can examine all tax returns filed for the last three years. The
Portfolio may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on returns on income earned or gains realized or
repatriated. Taxes are accrued and applied to net investment income, net
realized capital gains and net unrealized appreciation, as applicable, as the
income is earned or capital gains are recorded. If applicable, the Portfolio
recognizes interest accrued related to unrecognized tax benefits in interest
expense and penalties in "Other expenses" on the Statement of Operations. The
Portfolio adopted the provisions of FIN 48 effective January 1, 2007. Tax
positions taken by the Portfolio have been deemed to meet the more likely than
not threshold, and therefore there have been no adjustments to the Portfolio's
net asset value per share.
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
20
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
government and non-government securities. All collateral is valued at cost,
which approximates market value and 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.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimated.
Other
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Trust. In the normal course of business, the Trust enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Trust and the Manager are parties to a Management Agreement that
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory and portfolio management services. The Manager serves as the
sole investment advisor to the Portfolio. As compensation for performing the
duties required under the Management Agreement, the Manager receives from the
Portfolio 0.10% of the average daily net assets of the Portfolio.
Interfund Lending Program
Pursuant to an exemptive order by the Securities and Exchange Commission,
the Portfolio, along with other registered investment companies having
management contracts with the Manager, may participate in an interfund lending
program. This program provides an alternative credit facility allowing the Money
Market Portfolio to lend money to other participating series managed by the
Manager. For the six months ended June 30, 2008, credit facility was not
utilized.
21
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
At its May 21, 2008 meeting, the Board of Trustees ("Board" or "Trustees")
considered the renewal of each existing Management Agreement (each, a "Current
Agreement" and collectively, the "Current Agreements") between the Manager and
the American Beacon Funds ("Beacon Trust"), American Beacon Mileage Funds
("Mileage Trust"), American Beacon Select Funds ("Select Trust") or American
Beacon Master Trust ("Master Trust") (collectively, the "Funds") and each
Investment Advisory Agreement between the Manager and a subadvisor ("Current
Investment Advisory Agreement"). In preparation for the Board's consideration to
renew these Current Agreements, the Board and its Investment Committee undertook
steps to gather and consider information furnished by the Manager, the
subadvisors and Lipper, Inc. ("Lipper"). The Board, with the assistance of
independent legal counsel, requested and received certain relevant information
from the Manager and each subadvisor.
In addition, the Board's Investment Committee worked with Lipper to obtain
relevant comparative information regarding the performance, fees and expenses of
the Funds. The Investment Committee held a separate meeting on May 9, 2008 to
consider the information provided by Lipper. Further, the Board took into
consideration information furnished for the Board's review and consideration
throughout the year at regular Board and Investment Committee meetings, as well
as information specifically prepared in connection with the renewal process.
On May 21, May 22 and June 4, 2008, the Board met to determine, among other
matters, whether to approve a new investment management agreement ("New
Agreement") between the Manager and the Funds. The New Agreement is necessary
because, on April 16, 2008, AMR Corporation ("AMR"), the parent company of the
Manager, entered into an agreement with Lighthouse Holdings, Inc. ("Lighthouse")
pursuant to which Lighthouse will acquire all of the capital stock of the
Manager ("Transaction") in exchange for cash and 10% of the capital stock of the
parent corporation of Lighthouse. Upon the closing of the Transaction
("Closing"), the Manager will cease to be a wholly owned subsidiary of AMR and
will become a subsidiary of Lighthouse. This change in control is deemed to be
an "assignment" under the Investment Company Act of 1940 ("1940 Act") of each
Fund's Current Agreement with the Manager. As required by the 1940 Act, each
Fund's Current Agreement provides for its automatic termination in the event of
an assignment, and each will, therefore, terminate upon the Closing.
To provide for the continuity of management for the Funds, the Board met to
consider the New Agreement with the Manager. The New Agreement for each Fund
will reflect substantially the same terms as the Current Agreement for each
Fund. In addition, the Current Agreements have been updated and modernized. As
part of this process, the primary administrative services provided by the
Manager to the Funds will be transferred to one single administrative services
agreement ("New Administrative Services Agreement"). Currently, the Manager
provides administrative services to the Funds in Mileage Trust, Select Trust and
Master Trust pursuant to their Current Agreements and to the Funds in Beacon
Trust pursuant to its Current Agreement and an Administrative Services Agreement
("Current Administrative Services Agreement"). The aggregate fee rates for each
Fund under the New Agreement and the New Administrative Services Agreement will
be the same as the fee rates imposed under the existing agreements which they
replace.
The New Agreement is subject to shareholder approval. If approved by the
shareholders of the Funds, the New Agreement will become effective upon the
Closing or, if the Closing is not consummated, the New Agreement will become
effective on or about January 1, 2009. The Manager and Lighthouse anticipate
that the Closing will occur in the third calendar quarter of 2008.
Upon the Closing, Lighthouse directly will control the Manager. Lighthouse
currently does not anticipate any changes to the organization or structure of
the Funds, to the service providers or to the aggregate fee rates under any
Current Agreement. In addition, the portfolio managers at the Manager that
22
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
currently manage the Funds are expected to continue to manage the Funds after
the Closing. In that regard, the Manager and Lighthouse have entered into or
will enter into employment contracts that will take effect upon the Closing with
certain key personnel performing or overseeing the Funds' investment programs.
However, there can be no assurance that these personnel will choose to remain
employed by the Manager before or after the Closing. The Manager and the Funds
will continue to operate under their existing names. Potential benefits to the
Funds as a result of the Transaction include Lighthouse's intention to devote
additional resources to product development and distribution of Fund shares. Any
resulting growth of Fund assets may produce economies of scale that could
benefit shareholders of the Funds.
In addition, under the Current Agreements, the Manager may retain
subadvisors to provide investment advisory services for all or a portion of the
assets of a Fund. With respect to certain Funds, the Manager has entered into
Current Investment Advisory Agreements with various subadvisors on behalf of
those Funds. Upon the Closing, these Current Investment Advisory Agreements will
terminate automatically upon the termination of each Current Agreement. Pursuant
to an exemptive order issued by the Securities and Exchange Commission ("SEC"),
the Manager is permitted to enter into new or modified investment advisory
agreements with existing or new subadvisors ("New Investment Advisory
Agreements") without approval of a Fund's shareholders, but subject to the
approval of a Fund's Board. Each New Investment Advisory Agreement will reflect
substantially the same terms as the Current Investment Advisory Agreement for
each applicable Fund. The New Investment Advisory Agreements will become
effective concurrent with the effectiveness of the New Agreement.
In preparation for the Board's consideration to approve the New Agreement
and New Investment Advisory Agreements, the Board held preliminary conference
call meetings on April 15, 16 and 21, 2008, to discuss the New Agreement and New
Investment Advisory Agreements and the effect that approving the New Agreement
and New Investment Advisory Agreements would have on the Funds. The Board, with
the assistance of independent legal counsel, received a memorandum and related
advice from their legal counsel detailing the Board's responsibilities in
considering the New Agreement and New Investment Advisory Agreements.
In connection with Board's consideration of the Current Agreement, Current
Investment Advisory Agreements, New Agreement and New Investment Advisory
Agreements, the Trustees considered, among other materials, responses by the
Manager and the subadvisors to inquiries requesting:
- a description of the Transaction, the effects of the Transaction on
the Trusts and the Board, and any proposed changes to the Trusts,
their service providers or fee structure and other information;
- a description of any significant changes (actual or anticipated) to
principal activities, personnel, services provided to the Funds, or
any other area, including how these changes might affect the Funds;
- a copy of the firm's Form ADV registration statement with the SEC;
- a summary of any material past, pending or anticipated litigation or
regulatory proceedings involving the firm or its personnel, including
the results of any recent regulatory examination or independent audit;
- a profit/loss analysis of the firm and any actual or anticipated
economies of scale in relation to the services it provides to each
Fund;
- a description of any payments by the firm to support the Funds'
marketing efforts;
- an analysis of compensation, including a comparison with fees charged
to other clients for which similar services are provided, any proposed
changes to the fee schedule and the effect of any fee waivers;
- an evaluation of other benefits to the firm or Funds as a result of
their relationship, if any;
- confirmation that the firm's financial condition does not raise
concerns that the firm would be unable to continue providing the same
scope and quality of services to the Funds;
- a description of the scope of portfolio management services provided
to the Funds and the firm's other clients, including other registered
investment companies, whether such services differ, and any
23
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
advantages or disadvantages that might accrue to the Funds due to the
firm's involvement in other activities;
- a description of the personnel who are assigned primary responsibility
for managing the Funds, including any changes during the past year,
and a discussion of the adequacy of current and projected staffing
levels to service the Funds;
- a description of the basis upon which portfolio managers are
compensated, including any "incentive" arrangements;
- a discussion regarding the firm's participation in "soft dollar"
arrangements, if any, or other brokerage allocation policies with
respect to Fund transactions, including the firm's methodology for
obtaining the most favorable execution and the use of any affiliated
broker-dealers;
- a discussion of whether the firm receives, with respect to the Funds,
other compensation, including any payment for order flow or ECN
liquidity rebates;
- a description of any actual or potential conflicts of interest
anticipated in managing Fund assets;
- a summary of any material changes to the firm's compliance program
with regard to federal, state, corporate and Fund requirements and a
certification regarding the reasonable design of the compliance
program;
- a discussion of any material compliance problems and remedial actions;
- information regarding the firm's code of ethics, insider trading
policy and disaster recovery plan, including a description of any
material changes thereto;
- a description of the firm's affiliation with any broker-dealer;
- a discussion of any anticipated change in the firm's controlling
persons; and
verification of the firm's insurance coverage with regard to the
services provided to the Funds.
In addition to the foregoing, the Manager provided the following information
specific to the renewal of each Fund's Current Agreement and the approval of
each Fund's New Agreement:
- a comparison of the performance of each Fund to comparable investment
companies and appropriate indices, including comments on the relative
performance of each subadvisor and each Fund versus the respective
peer group average;
- a discussion, if applicable, of any underperformance by a subadvisor
relative to its peer group and what, if any, remedial measures the
Manager has or intends to take;
- a comparison of advisory fees and expense ratios for comparable mutual
funds;
- an analysis of any material complaints received from Fund
shareholders;
- a description of the Manager's securities lending practices and the
fees received from such practices;
- a description of any revenue sharing activities with respect to the
Funds;
- a discussion of any rebate arrangements between the Manager and a
service provider to the Funds pursuant to which the Manager receives
direct or indirect benefits from the service provider;
- a description of the portfolio turnover rate and average execution
costs for each Fund and each subadvisor to a Fund; and
- a description of how expenses that are not readily identifiable to a
particular Fund are allocated.
In connection with the Current Agreements, Current Investment Advisory
Agreements, New Agreement and New Investment Advisory Agreements, the Board also
obtained an analysis provided by Lipper that compared: (i) investment
performance of each Fund versus comparable investment companies and appropriate
indices; (ii) total Fund expenses of each Fund versus comparable mutual funds,
and (iii) each Fund's investment advisory fees versus comparable mutual funds.
For each Fund with more than one class of shares, the class of shares used for
comparative purposes was the class with the longest performance history, which
in most cases was the Institutional Class. References below to each Fund's
Lipper peer group are to the group of comparable mutual funds included in the
analysis provided by Lipper. The Current Agreements, Current Investment Advisory
Agreements, New Agreement and New Investment Advisory Agreements are each
referenced to herein as an "Agreement" and collectively, the "Agreements."
24
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
The Trustees also received memoranda from their legal counsel detailing the
Board's responsibilities pertaining to the approval of each Agreement. These
memoranda explained the regulatory requirements surrounding the Trustees'
process for evaluating investment advisors and the terms of the contracts.
In connection with the Board's consideration of the New Agreement and each
New Investment Advisory Agreement, the Trustees considered, among other
information, the following factors, in addition to other factors noted in the
Proxy Statement:
(1) The manner in which each Fund's assets are managed will not change as a
result of the Transaction, and the same people who currently manage the
Fund's assets are expected to continue to do so after the Transaction;
(2) The aggregate fee rates payable by each Fund under the New Agreement and
the New Administrative Services Agreement are the same as the fee rates
payable under the Current Agreements and, in the case of the Beacon Trust,
under the Current Agreement and the Current Administrative Services
Agreement;
(3) The material terms regarding advisory services pursuant to the New
Agreement are substantially the same as the terms of the Current
Agreements;
(4) The qualifications of the Manager's personnel who will provide advisory and
administrative services to the Funds are not expected to change;
(5) The Manager's financial condition and the post-Closing capitalization of
Lighthouse;
(6) The impact of the Transaction on the Manager's day-to-day operations;
(7) The capabilities, experience, corporate structure and capital resources of
Lighthouse;
(8) The long-term business goals of Lighthouse with regard to the Manager and
the Trusts;
(9) Fund shareholders will not bear any costs in connection with the
Transaction, inasmuch as AMR and Lighthouse will bear equally the costs,
fees and expenses incurred by the Funds in connection with the Proxy
Statement, the fees and expenses of accountants and attorneys relating to
the Transaction and Proxy Statement, the fees and expenses incurred by the
Funds in connection with the Transaction, and the meeting fees of the
Boards for meetings held in connection with the Transaction;
(10) The Funds may realize benefits as a result of the Transaction, including
long-term economies of scale; and
(11) The potential for increased costs to the Trusts in order to satisfy
existing obligations under the current Trustees' retirement plan.
(12) The advisory relationship with each subadvisor would continue in the same
manner as before the Transaction and that each New Investment Advisory
Agreement will be substantially the same as each Current Investment
Advisory Agreement.
Provided below is an overview of the other primary factors the Board
considered at its May 21, May 22 and June 4, 2008 meetings. The Board did not
identify any particular information that was most relevant to its consideration
to renew the Current Agreement and Current Investment Advisory Agreements and
approve the New Agreement and New Investment Advisory Agreements, and each
Trustee may have afforded different weight to the various factors. Legal counsel
to the Non-interested Trustees provided the Board with memoranda regarding its
responsibilities pertaining to the renewal of the Current Agreement and Current
Investment Advisory Agreements and approve the New Agreement and New Investment
Advisory Agreements. Based on its evaluation, the Board unanimously concluded
that the terms of each Current Agreement and Current Investment Advisory
Contract were reasonable and fair and that the renewal of each Current Agreement
and Current Investment Advisory Contract was in the best interests of the Fund
and its shareholders. The Board also unanimously concluded that the terms of the
New Agreement and New
25
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
Investment Advisory Contracts were reasonable and fair and that the approval of
the New Agreement and New Investment Advisory Contracts was in the best
interests of the Fund and its shareholders.
CONSIDERATIONS WITH RESPECT TO ALL FUNDS
In determining whether to renew the Current Agreement and the Current
Investment Advisory Agreements and approve the New Agreement and New Investment
Advisory Agreements, the Trustees considered the best interests of each Fund
separately. While the Current Agreement and Current Investment Advisory
Agreements for all of the Funds were considered at the Board meetings on May 21,
2008, and the New Agreement and New Investment Advisory Agreement for all of the
Funds were considered at the meetings on May 21, May 22 and June 4, 2008, the
Board considered each Fund's investment management and subadvisory relationships
separately. In each instance, the Board considered, among other things, the
following factors: (1) the nature and quality of the services provided; (2) the
investment performance of a Fund and, as applicable, each subadvisor for a Fund;
(3) the costs incurred by the Manager and (to the extent provided) the
subadvisors in rendering their services and their resulting profits or losses;
(4) the extent to which economies of scale have been taken into account in
setting each fee schedule; (5) whether fee levels reflect these economies of
scale for the benefit of Fund investors; (6) comparisons of services and fees
with contracts entered into by the Manager or a subadvisor or their affiliates
with other clients (such as pension funds and other institutional funds); and
(7) any other benefits derived or anticipated to be derived by the Manager or a
subadvisor from their relationship with a Fund. The Trustees posed questions to
various management personnel of the Manager and Lighthouse regarding certain key
aspects of the materials submitted in support of the renewal.
Nature, Extent and Quality of Services. With respect to the renewal of each
Fund's Current Agreement and the approval of each Fund's New Agreement, the
Board considered: the background and experience of key investment personnel and
the Manager's ability to retain them; the Manager's disciplined investment
approach and goal to provide consistent above average long-term performance at a
low cost; the Manager's continuing efforts to add new series and share classes
to enhance the Funds' product line; the Manager's record in building improved
compliance, control and credit functions that reduce risks to the Funds; the
addition of personnel to manage the Funds, promote sales and improve services,
including the addition of a separate new information technology (IT) department
at the Manager; the high rankings received by the Funds in service surveys; and
the active role played by the Manager in monitoring and, as appropriate,
recommending replacements for the investment subadvisors and master portfolios.
With respect to the renewal of the Current Investment Advisory Agreements
and the approval of the New Investment Advisory Agreements, the Trustees
considered the background and experience of each subadvisor's investment
personnel responsible for managing the Funds, the size of the subadvisor and
their ability to continue to attract and retain qualified investment personnel.
Based on the foregoing information, the Board concluded that the nature,
extent and quality of the management and advisory services provided by the
Manager and each subadvisor were appropriate for each Fund and, thus, determined
to renew the Current Agreement and Current Investment Advisory Agreements, and
approve each New Agreement and New Investment Advisory Agreements for each Fund.
Investment Performance. The Board evaluated the comparative information
provided by Lipper and the Manager regarding each Fund's investment performance
relative to its benchmark index(es) and peer group. The Board considered the
information provided by Lipper regarding its independent peer selection
methodology to select all peer groups and universes. The Board also considered
the performance reports and discussions with management at Board and Committee
meetings throughout the year. The Manager also noted that it generally was
satisfied with the performance of the subadvisors. A discussion regarding the
Board's considerations with respect to each Fund's performance appears below
under "Additional Considerations and Conclusions with Respect to Each Fund."
26
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
Costs of the Services to be Provided to the Funds and the Projected Profits
to be Realized by the Manager from its Relationship with the Funds. In analyzing
the cost of services and profitability of the Manager and a subadvisor by Fund,
the Board considered the revenues earned and the expenses incurred by the
Manager. The profits or losses were noted at both an individual Fund level and
at an aggregate level for all Funds. The Board also considered that the Current
and New Agreements for the Beacon Trust, Mileage Trust and Select Trust
stipulate that, to the extent that a Fund invests all of its investable assets
in another registered investment company (i.e., is a Feeder Fund), the Fund will
not pay the Manager a management fee. Because the money market series of the
Beacon Trust, Mileage Trust and Select Trust operate as Feeder Funds with
respect to the Master Trust, the Manager only receives a management fee from the
Master Trust. The index series of the Funds also operate under a master-feeder
structure, but each of these series invests in a master portfolio that is not
managed by the Manager. As such, the Board considered that the Manager does not
receive a management fee with respect to the International Equity Index, S&P 500
Index, or Small Cap Index Funds. With respect to the Money Market Funds and the
Short-Term Bond Fund, the Board also considered the Manager's advisory fees for
services provided by the Manager to institutional separate accounts with similar
investment strategies. Although the Board noted that, in certain cases, the fee
rates paid by other clients is lower than the fee rates paid by the Funds, the
difference reflects the greater level of responsibility and regulatory
requirements associated with managing the Funds.
The Board also noted that the Manager proposed to continue the expense
waivers and reimbursements for certain Funds and classes that were in place
during the last fiscal year. The Board further considered that each subadvised
Fund pays the Manager the amounts due to its subadvisors, and the Manager remits
these amounts directly to the applicable subadvisors. The Board considered that
the Manager receives service and administrative fees to compensate the Manager
for providing administrative services to the Funds and to compensate third-party
administrators and broker-dealers for services to Fund shareholders. In
addition, the Board considered that the Manager receives management fees for
overseeing the securities lending relationships on behalf of various Funds. The
Board also noted that certain classes of the Funds maintain higher expense
ratios in order to compensate third-party distributors.
In analyzing the cost of services and profitability of each subadvisor in
connection with its investment advisory services to a Fund, the Board considered
that, in many cases, the Manager has negotiated the lowest subadvisory fee a
subadvisor charges for any comparable client accounts. The Board gave less
weight to profitability considerations or did not view this data as imperative
to its deliberations given the arm's-length nature of the relationship between
the Manager and the subadvisors with respect to the negotiation of subadvisory
fees.
Based on the foregoing information, the Board concluded that the
profitability levels were reasonable in light of the services performed by the
Manager and the subadvisors. A discussion regarding the Board's considerations
with respect to each Fund's fee rates is set forth below under "Additional
Considerations and Conclusions with Respect to Each Fund."
Economies of Scale. In considering the reasonableness of the management and
investment advisory fees, the Board considered whether economies of scale will
be realized as the Funds grow and whether fee levels reflect these economies of
scale for the benefit of Fund shareholders. In this regard, the Board considered
that the Manager has negotiated breakpoints in many subadvisory fee rates. The
Board also noted that, for purposes of determining the fee rates chargeable to
the Funds, many subadvisors have agreed to take into account other assets of AMR
and its pension plans that are managed by the subadvisors. Thus, the Funds are
able to receive lower effective fee rates. The Board also noted that certain
Funds have grown their shareholder base, which has spread fixed costs over a
larger shareholder and asset base. With respect to the Money Market Funds, the
Board noted that, although the fee schedules for these Funds do not have
breakpoints, the effective advisory fee rates are low by industry standards and
the performance of these Funds has been highly competitive and, in many cases,
among the top performers among similar funds.
The Board also considered the Manager's representations that its costs have
increased due primarily to greater service provider and regulatory costs. The
Manager also represented that it anticipates further
27
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT
ADVISORY AGREEMENT
(UNAUDITED)
economies of scale would be largely offset by higher costs of adding and
retaining qualified personnel, improving technology and increasing demands on
its advisory business.
Based on the foregoing information, the Board concluded that the Manager
and subadvisor fee schedules for each Fund provides for a reasonable sharing of
benefits from any economies of scale with the Fund.
Benefits Derived from the Relationship with the Funds. The Board considered
the "fall-out" or ancillary benefits that accrue to the Manager and/or the
subadvisors as a result of the advisory relationships with the Funds, including
greater exposure in the marketplace with respect to the Manager's or
subadvisor's investment process and expanding the level of assets under
management by the Manager and the subadvisors. The Board also considered that
the Manager's relationship with the Funds and, in particular the money market
funds, continues to be a significant factor in attracting separate account
assets for the Manager. In addition, the Board noted that the Manager provides
services to each Trust at a relatively low cost. In this regard, the Board
considered that the benefit plans of AMR have invested substantial assets in the
Funds, which helps reduce costs for other Fund shareholders, just as the
investment of other Fund shareholders helps to reduce costs for AMR's benefit
plans. In addition, the Board considered that certain of the subadvisors
reimburse the Manager for certain of its costs relating to distribution
activities for the Funds. The Board also considered that Funds did not pay
commissions to any affiliated broker-dealer of the Manager during the most
recent fiscal years ended October 31, and December 31, 2007, though during that
period certain Funds did pay commissions to affiliated broker-dealers of the
relevant subadvisor, as set forth in the following table.
FUND BROKER AFFILIATED WITH COMMISSION
- ---- ---------------------------- ----------------------------------------- ------------
American Beacon Large Cap Growth Fund Goldman, Sachs & Co. Goldman Sachs Asset Management, L.P. $1,020
American Beacon Emerging Markets Fund JM Morgan Stanley Securities Limited Morgan Stanley Investment Management Inc. $ 326
The percentage of total commissions of the American Beacon Large Cap Growth
Fund and Emerging Markets Fund paid to affiliated broker-dealers in 2007 was
4.13% and 0.07%, respectively.
Based on the foregoing information, the Board concluded that the potential
benefits accruing to the Manager and the subadvisors by virtue of its
relationships with the Funds appear to be fair and reasonable.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE MONEY MARKET FUNDS
The Money Market Funds were compared to the respective Lipper Average,
which includes all comparable funds in the Lipper category, and the Lipper
Index, which includes the 30 largest funds in the Lipper category. References to
the Lipper expense group below are to the group of comparable mutual funds
included in the analysis provided to the Trustees by Lipper, Inc.
In considering the renewal of the Current Agreement and the approval of the
New Agreement, the Trustees considered the following additional factors: (1) the
Mileage Trust - Mileage Class outperformed the Lipper Index for all reported
periods except the one and two years ended March 31, 2008 and outperformed the
Lipper Average for all reported periods ended March 31, 2008; (2) the total
expense ratio of the Mileage Trust - Mileage Class was lower than its Lipper
expense group median; (3) the Manager is subject to a high degree of risk of
financial responsibility should the Fund be unable to maintain a stable $1.00
per share net asset value; and (4) the Manager's explanation that fee schedule
"breakpoints" were not warranted due to, among other factors, the low base
management fee charged to the Fund.
Based on these and other considerations, the Trustees (1) concluded that
the fees paid to the Manager under the Agreements are fair and reasonable, (2)
determined that the Fund and its shareholders would benefit from the Manager's
continued management of the Fund, (3) approved the renewal of Current Agreement
and (4) approved the New Agreement with respect to the Fund.
28
[This page intentionally left blank]
29
(AMERICAN BEACON MILEAGE FUNDS(SM) LOGO)
DELIVERY OF DOCUMENTS
To reduce expenses, your financial institution may mail only one copy of the
Prospectus, Annual Report and Semi-Annual Report to those addresses shared by
two or more accounts. If you wish to receive individual copies of these
documents, please contact your financial institution. Delivery of individual
copies will commence thirty days after receiving your request.
If you invest in the Fund through a financial institution, you may be able to
receive the Fund's regulatory mailings, such as the Prospectus, Annual Report
and Semi-Annual Report, by e-mail. If you are interested in this option, please
go to WWW.ICSDELIVERY.COM and search for your financial institution's name or
contact your financial institution directly.
TO OBTAIN MORE INFORMATION ABOUT THE FUND:
(GRAPHIC) (GRAPHIC)
BY E-MAIL: ON THE INTERNET:
american_beacon.funds@ambeacon.com Visit our website at
www.americanbeaconfunds.com
(GRAPHIC) (GRAPHIC)
BY TELEPHONE: BY MAIL:
Mileage Class(R) American Beacon Funds
Call (800) 388-3344 P.O. Box 219643
Kansas City, MO 64121-9643
AVAILABILITY OF QUARTERLY AVAILABILITY OF PROXY VOTING
PORTFOLIO SCHEDULES POLICY AND RECORDS
In addition to the Schedule of A description of the policies and
Investments provided in each procedures the Fund uses to determine
semi-annual and annual report, the Fund how to vote proxies relating to
files a complete schedule of its portfolio securities is available in
portfolio holdings with the Securities the Fund's Statement of Additional
and Exchange Commission ("SEC") on Form Information, is available free of
N-Q as of the first and third fiscal charge on the Fund's website
quarters. The Fund's Forms N-Q are (www.americanbeaconfunds.com) and by
available on the SEC's website at calling 1-800-967-9009 or by accessing
www.sec.gov. The Forms N-Q may also be the SEC's website at www.sec.gov. The
reviewed and copied at the SEC's Public Fund's proxy voting record for the most
Reference Room, 450 Fifth Street, NW, recent year ended June 30 is filed
Washington, DC 20549. Information annually with the SEC on Form N-PX. The
regarding the operation of the SEC's Fund's Forms N-PX are available on the
Public Reference Room may be obtained SEC's website at www.sec.gov. The
by calling 1-800-SEC-0330. A complete Fund's proxy voting record may also be
schedule of the Fund's portfolio obtained by calling 1-800-967-9009.
holdings is also available on the
Fund's website
(www.americanbeaconfunds.com)
approximately thirty days after the end
of each month.
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED PUBLIC DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES ACCOUNTING FIRM FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri ERNST & YOUNG LLP Portland, Maine
Dallas, Texas
This report is prepared for shareholders of the American Beacon Mileage Fund 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, Mileage Class, and American
Beacon Money Market Mileage Fund are service marks of American Beacon Advisors,
Inc.
SAR 6/08
62518
ITEM 2. CODE OF ETHICS.
The Trust did not amend the code of ethics that applies to its principal
executive and financial officers (the "Code") nor did it grant any waivers to
the provisions of the Code during the period covered by the shareholder reports
presented in Item 1.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedules of investments for each series of the Trust are included in the
shareholder reports presented in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Trust has made no material changes to the procedures by which shareholders
may recommend nominees to the Trust's Board of Trustees since the Trust last
disclosed such procedures in Schedule 14A.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon an evaluation within 90 days of the filing date of this
report, the principal executive and financial officers concluded that
the disclosure controls and procedures of the Trust are effective.
(b) There were no changes in the Trust's internal control over financial
reporting during the second fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to
materially affect, the Trust's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Not Applicable.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the Trust as required by Rule
30a-2(a) under the Investment Company Act of 1940 is attached
hereto as EX-99.CERT.
(a)(3) Not Applicable.
(b) The certifications required by Rule 30a-2(b) under the Investment
Company Act of 1940 are attached hereto as EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): American Beacon Mileage Funds
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: September 5, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: September 5, 2008
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: September 5, 2008