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: 811-9098
AMERICAN BEACON MASTER TRUST
(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 FUNDS(SM) LOGO)
Semi-Annual Report
(GRAPHIC)
June 30, 2008
MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
ABOUT AMERICAN BEACON ADVISORS
Since 1986, American Beacon Advisors has offered a variety of products and
investment advisory services to numerous institutional and retail clients,
including a variety of mutual funds, corporate cash management, and separate
account management.
Our clients include defined benefit plans, defined contribution plans,
foundations, endowments, corporations, financial planners, and other
institutional investors. With American Beacon Advisors, you can put the
experience of a multi-billion dollar asset management firm to work for your
company.
CONTENTS
President's Message ............................................... 1
Financial Highlights
Money Market Fund .............................................. 16
U.S. Government Money Market Fund .............................. 20
Schedules of Investments
Money Market Portfolio ......................................... 22
U.S. Government Money Market Portfolio ......................... 25
Additional Information ............................................ Back Cover
Any opinions herein, including forecasts, reflect our judgment as of the end of
the reporting period and are subject to change. Each advisor's strategies and
each Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
American Beacon Funds 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 Fund and the U.S. Government Money Market Fund for the six
months ended June 30, 2008.
The American Beacon Money Market Fund reported a total return of 1.63% and
1.64% for this six-month period for the Institutional and Cash Management
classes with expense ratios of 23 basis points (0.23%) and 20 basis points
(0.20%), respectively, for their most recent fiscal year. Both classes
outperformed the Lipper Institutional Money Market Funds Average return of
1.49%.
The American Beacon U.S. Government Money Market Fund - Cash Management
Class reported a total return of 1.41% for this same period with an expense
ratio of 60 basis points (0.60%) for its most recent fiscal year, outperforming
the Lipper Institutional U.S. Government Money Market Funds Average return by 9
basis points (0.09%).
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 Funds' strategy of investing in high credit quality
securities combined with lower than average expense ratios will continue to
benefit the Funds' yields while protecting the Funds' 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 Funds.
Sincerely,
/s/ William F. Quinn
William F. Quinn
President
American Beacon Funds
1
ECONOMIC OVERVIEW
AMERICAN BEACON MONEY MARKET FUND(SM)
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 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 Cash
Management Class of the American Beacon Money Market Fund was 1.64%. The Fund
outperformed the Lipper Institutional Money Market Average return of 1.49% by 15
basis points (0.15%). Based on annualized total returns, Lipper Inc. ranked the
Cash Management Class of the Fund 74 among 386, 29 among 337 and 17 among 271
Institutional Money Market Funds for the one-year, three-year, and five-year
periods ended June 30, 2008, respectively.
(BAR CHART)
ANNUALIZED TOTAL RETURNS
AS OF 6/30/2008
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Mgmt Class(1,2,5) ........ 4.27% 3.38% 3.77%
Institutional Class (1,3,5) ... 4.25% 3.30% 3.72%
PlanAhead Class (1,5) ......... 3.93% 3.02% 3.42%
BBH ComSet Class (1,4,5) ...... 4.27% 3.38% 3.77%
(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.) Fund performance for the ten-year period represents the total returns
achieved by the Institutional Class from 7/1/98 to 12/1/01, the inception
date of the Cash Management Class, and the returns of the Cash Management
Class thereafter. Expenses of the Cash Management Class are lower than
those of the Institutional Class. Therefore, total returns shown are lower
than the Cash Management Class would have realized in the same period. A
portion of the fees charged to the Cash Management Class of the Fund has
been waived. Performance prior to waiving fees was lower than the actual
returns shown.
(3.) A portion of the fees charged to the Institutional Class of the Fund has
been waived since 2006. Performance prior to waiving fees was lower than
the actual returns shown for periods since 2006.
(4.) Fund performance represents the total returns achieved by the Institutional
Class from 7/1/98 to 12/1/01, the total returns achieved by the Cash
Management Class from 12/1/01 up to 4/2/07, the inception date of the BBH
ComSet Class, and the returns of the BBH ComSet Class thereafter. Expenses
of the BBH ComSet Class are lower than those of the Institutional and Cash
Management Classes through 12/31/03. Therefore, total returns shown through
12/31/03 are lower than they would have been had the BBH ComSet Class been
in place during that period. Expenses of the BBH ComSet Class have been the
same as those of the Cash Management Class since 1/1/04.
(5.) The total annual Fund operating expense ratios set forth in the most recent
Fund prospectus for the Cash Management, Institutional, PlanAhead and the
BBH ComSet Class shares were 0.20%, 0.23%, 0.48% and 0.22%, respectively.
After expense reimbursement, the net expense ratio set forth in the most
recent Fund prospectus for the Cash Management, Institutional and BBH
ComSet Class shares was 0.15%, 0.18% and 0.15%, respectively. The expense
ratios above may vary from the expense ratios presented in other sections
of this report, which are based on expenses incurred during the period
covered by this report.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET FUND(SM)
JUNE 30, 2008 (UNAUDITED)
PORTFOLIO STATISTICS AS OF JUNE 30, 2008
CASH BBH
MANAGEMENT INSTITUTIONAL PLANAHEAD COMSET
CLASS CLASS CLASS CLASS
---------- ------------- --------- -------
7-day Current
Yield* ........ 2.60% 2.57% 2.28% 2.60%
7-day
Effective
Yield* ........ 2.63% 2.60% 2.30% 2.63%
30-day Yield* .... 2.58% 2.55% 2.25% 2.58%
Weighted Avg.
Maturity ...... 34 Days 34 Days 34 Days 34 Days
Moody's Rating ... Aaa N/A N/A Aaa
S&P Rating ....... AAAm N/A N/A AAAm
* Annualized. You may call 1-800-388-3344 to obtain the Fund's current 7-day
yield. 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%
US 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 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" lines of the table provide information about actual account
values and actual expenses. You may use the information in these lines, 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" for the
applicable Class to estimate the expenses you paid on your account during this
period. Shareholders of the PlanAhead Class that invest in the Fund through an
IRA may be subject to a custodial IRA fee of $12 that is typically deducted each
December. If your account was subject to a custodial IRA fee during the period,
your costs would have been $12 higher.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed 5% per year rate of return before expenses (not the
Fund's actual return). You may compare the ongoing costs of investing in the
Fund with other funds by contrasting this 5% hypothetical example and the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. Shareholders
of the PlanAhead Class that invest in the Fund through an IRA may be subject to
a custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
You should also be aware that the expenses shown in the table highlight
only your ongoing costs and do not reflect any transaction costs charged by the
Fund. Similarly, the expense examples for other funds do not reflect any
transaction costs charged by those funds, such as sales charges (loads),
redemption fees or exchange fees. Therefore, the "Hypothetical" lines of the
table are useful in comparing ongoing costs only and will not help you determine
the relative total costs of owning different funds. If you were subject to any
transaction costs during the period, your costs would have been higher.
Beginning Ending Expenses
Account Account Paid During
Value Value Period*
1/1/08 6/30/08 1/1/08-6/30/08
--------- --------- --------------
CASH MANAGEMENT CLASS
Actual ................. $1,000.00 $1,016.37 $0.75
Hypothetical (5%
return before
expenses) ........... $1,000.00 $1,024.12 $0.76
INSTITUTIONAL CLASS
Actual ................. $1,000.00 $1,016.29 $0.89
Hypothetical (5%
return before
expenses) ........... $1,000.00 $1,023.97 $0.89
PLANAHEAD CLASS
Actual ................. $1,000.00 $1,014.75 $2.37
Hypothetical (5%
return before
expenses) ........... $1,000.00 $1,022.51 $2.38
BBH COMSET CLASS
Actual ................. $1,000.00 $1,016.37 $0.75
Hypothetical (5%
return before
expenses) ........... $1,000.00 $1,024.12 $0.76
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.15%, 0.18%, 0.47% and 0.15% for the Cash Management,
Institutional, PlanAhead and BBH ComSet Classes respectively, multiplied by
the average account value over the period, multiplied by the number derived
by dividing the number of days in the most recent fiscal half-year (182) by
days in the year (366) to reflect the half-year period.
5
PERFORMANCE OVERVIEW
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET 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 U.S. Government Money Market Fund's
weighted-average maturity was maintained around 20 days. With the ongoing
volatility in the market, the primary strategy of the Fund for the first half of
the year was to buy short-dated, fixed-rate agencies 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 Cash
Management Class of the American Beacon U.S. Government Money Market Fund was
1.41%. The Fund outperformed the Lipper Institutional U.S. Government Money
Market Average return of 1.32% by 9 basis points (0.09%). Based on annualized
total returns, Lipper Inc. ranked the Cash Management Class of the Fund 30 among
171, 9 among 116 and 6 among 71 Institutional U.S. Government Money Market Funds
for the one-year, five-year, and ten-year periods ended June 30, 2008,
respectively.
(BAR CHART)
ANNUALIZED TOTAL RETURNS
AS OF 6/30/2008
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class (1,2,4) .... 3.92% 3.26% 3.65%
PlanAhead Class (1,3,4) .......... 3.44% 2.81% 3.25%
(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) Prior to December 1, 2001, the Cash Management Class of the Fund was known
as the Institutional Class. A portion of the fees charged to the Cash
Management Class of the Fund has been waived since 2002. Performance prior
to waiving fees was lower than actual returns shown for periods since 2002.
(3) A portion of the fees charged to the PlanAhead Class of the Fund has been
waived since 2003. Performance prior to waiving fees was lower than the
actual returns shown for periods since 2003.
(4) The total annual Fund operating expense ratios set forth in the most recent
Fund prospectus for the Cash Management and the PlanAhead Class shares were
0.60% and 1.20%, respectively. After expense reimbursement, the net expense
ratio set forth in the most recent Fund prospectus for the Cash Management
and PlanAhead Class shares were 0.15% and 0.65%, respectively. The expense
ratios above may vary from the expense ratios presented in other sections
of this report, which are based on expenses incurred during the period
covered by this report.
PORTFOLIO STATISTICS AS OF JUNE 30, 2008
CASH
MANAGEMENT PLANAHEAD
CLASS CLASS
---------- ---------
7-day Current Yield* .... 2.19% 1.69%
7-day Effective Yield* .. 2.22% 1.71%
30-day Yield* ........... 2.16% 1.66%
Weighted Avg. Maturity .. 15 Days 15 Days
Moody's Rating .......... Aaa N/A
S&P Rating .............. AAAm N/A
* Annualized. You may call 1-800-388-3344 to obtain the Fund's current 7-day
yield. Yield is a more accurate reflection of the Fund's current earnings
than total returns.
6
PERFORMANCE OVERVIEW AND FUND EXPENSES
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND(SM)
JUNE 30, 2008 (UNAUDITED)
ASSET ALLOCATION AS OF JUNE 30, 2008
% OF
NET ASSETS**
------------
Repurchase Agreements ....................... 71.1%
Government Securities ....................... 28.8%
Other Assets, Net of Liabilities ............ 0.1%
TOP ISSUERS AS OF JUNE 30, 2008
% OF
NET ASSETS**
------------
Federal Home Loan Bank ...................... 21.2%
Federal Home Loan Mortgage Corporation ...... 4.7%
Federal National Mortgage Association ....... 2.9%
** Percent of net assets of the American Beacon Master U.S. Government Money
Market Portfolio.
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual funds. The
examples are based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from January 1, 2008 through June 30,
2008.
ACTUAL EXPENSES
The "Actual" lines of the table provide information about actual account
values and actual expenses. You may use the information in these lines, 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" for the
applicable Class to estimate the expenses you paid on your account during this
period. Shareholders of the PlanAhead Class that invest in the Fund through an
IRA may be subject to a custodial IRA fee of $12 that is typically deducted each
December. If your account was subject to a custodial IRA fee during the period,
your costs would have been $12 higher.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed 5% per year rate of return before expenses (not the
Fund's actual return). You may compare the ongoing costs of investing in the
Fund with other funds by contrasting this 5% hypothetical example and the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. Shareholders
of the PlanAhead Class that invest in the Fund through an IRA may be subject to
a custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
You should also be aware that the expenses shown in the table highlight
only your ongoing costs and do not reflect any transaction costs charged by the
Fund. Similarly, the expense examples for other funds do not reflect any
transaction costs charged by those funds, such as sales charges (loads),
redemption fees or exchange fees. Therefore, the "Hypothetical" lines of the
table are useful in comparing ongoing costs only and will not help you determine
the relative total costs of owning different funds. If you were subject to any
transaction costs during the period, your costs would have been higher.
Beginning Ending Expenses
Account Account Paid During
Value Value Period*
1/1/08 6/30/08 1/1/08-6/30/08
--------- --------- --------------
CASH MANAGEMENT CLASS
Actual ........................... $1,000.00 $1,014.09 $0.75
Hypothetical (5% return before
expenses) ..................... $1,000.00 $1,024.12 $0.75
PLANAHEAD CLASS
Actual ........................... $1,000.00 $1,011.64 $3.15
Hypothetical (5% return before
expenses) ..................... $1,000.00 $1,021.73 $3.17
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.15% and 0.63% for the Cash Management and PlanAhead
Classes respectively, multiplied by the average account value over the
period, multiplied by the number derived by dividing the number of days in
the most recent fiscal half-year (182) by days in the year (366) to reflect
the half-year period.
7
AMERICAN BEACON FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
-------------- ---------------
ASSETS:
Investment in Portfolio, at value ..... $ 2,538,318 $ 32,749
Receivable for fund shares sold ....... 3 7
Receivable from Manager for expense
reimbursement (Note 2) ............. 102 8
Prepaid expenses ...................... 18 24
-------------- -----------
TOTAL ASSETS ....................... 2,538,441 32,788
-------------- -----------
LIABILITIES:
Payable for fund shares redeemed ...... 6 --
Dividends payable ..................... 3,893 30
Administrative service and service fees
payable (Note 2) ................... 195 2
Distribution fees payable (Note 2) .... 1 --
Other liabilities ..................... 36 19
-------------- -----------
TOTAL LIABILITIES .................. 4,131 51
-------------- -----------
NET ASSETS ............................ $ 2,534,310 $ 32,737
============== ===========
ANALYSIS OF NET ASSETS:
Paid-in-capital .................... 2,534,310 32,737
-------------- -----------
NET ASSETS ............................... $ 2,534,310 $ 32,737
============== ===========
SHARES OUTSTANDING (NO PAR VALUE):
Cash Management Class ................. 790,500,052 30,395,128
============== ===========
Institutional Class ................... 564,940,638 N/A
============== ===========
PlanAhead Class ....................... 86,004,736 2,342,237
============== ===========
BBH ComSet Class ...................... 1,092,864,925 N/A
============== ===========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE:
Cash Management Class ................. $ 1.00 $ 1.00
============== ===========
Institutional Class ................... $ 1.00 N/A
============== ===========
PlanAhead Class ....................... $ 1.00 $ 1.00
============== ===========
BBH ComSet Class ...................... $ 1.00 N/A
============== ===========
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolios
8
AMERICAN BEACON FUNDS
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) (IN THOUSANDS)
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
------------ ---------------
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest income ........................ $44,061 $358
Portfolio expenses ..................... (1,389) (14)
------- ----
NET INVESTMENT INCOME ALLOCATED FROM
PORTFOLIO ........................ 42,672 344
------- ----
FUND EXPENSES:
Administrative service fees (Note 2):
Cash Management Class ............... 229 8
Institutional Class ................. 174 --
PlanAhead Class ..................... 54 1
BBH ComSet Class .................... 596 --
Transfer agent fees:
Cash Management Class ............... 8 1
Institutional Class ................. 9 --
PlanAhead Class ..................... 4 2
BBH ComSet Class .................... 16 --
Professional fees ...................... 13 5
Registration fees and expenses ......... 33 18
Service fees - PlanAhead Class
(Note 2) ............................ 135 3
Prospectus and shareholder reports ..... 12 2
Other expenses ......................... 54 2
------- ----
TOTAL FUND EXPENSES ................. 1,337 42
------- ----
Less waiver and reimbursement of expenses
(Note 2) ............................... (551) (31)
------- ----
NET FUND EXPENSES ................... 786 11
------- ----
NET INVESTMENT INCOME ..................... 41,886 333
------- ----
REALIZED GAIN ALLOCATED FROM PORTFOLIO:
Net realized gain on investments ....... -- --
------- ----
NET GAIN ON INVESTMENTS ............. -- --
------- ----
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................. $41,886 $333
------- ----
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolios
9
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
MONEY MARKET U.S. GOVERNMENT MONEY MARKET
------------------------------- -------------------------------
Year ended Year ended
Six Months ended December 31, Six Months ended December 31,
June 30, 2008 2007 June 30, 2008 2007
---------------- ------------ ---------------- ------------
(unaudited) (unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ..................... $ 41,886 $ 88,036 $ 333 $ 494
Net realized gain (loss) on investments ... -- 10 -- --
----------- ------------ -------- ---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS .................. 41,886 88,046 333 494
----------- ------------ -------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Cash Management Class .................. (10,361) (32,696) (304) (334)
Institutional Class .................... (5,814) (13,567) -- --
PlanAhead Class ........................ (1,613) (6,183) (29) (94)
Platinum Class ......................... -- (543) -- (66)
BBH ComSet Class ....................... (24,098) (35,047) -- --
Net realized gain on investments:
Cash Management Class .................. -- (6) -- --
Institutional Class .................... -- (3) -- --
PlanAhead Class ........................ -- (1) -- --
BBH ComSet Class ....................... -- -- -- --
----------- ------------ -------- ---------
DISTRIBUTIONS TO SHAREHOLDERS ....... (41,886) (88,046) (333) (494)
----------- ------------ -------- ---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares ............. 7,566,309 11,962,330 38,932 145,717
Reinvestment of dividends and
distributions .......................... 12,267 44,661 168 157
Cost of shares redeemed ................... (7,383,042) (10,878,697) (24,424) (137,451)
----------- ------------ -------- ---------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS .................. 195,534 1,128,294 14,676 8,423
=========== ============ ======== =========
NET INCREASE IN NET ASSETS ................... 195,534 1,128,294 14,676 8,423
----------- ------------ -------- ---------
NET ASSETS:
Beginning of period ....................... 2,338,776 1,210,482 18,061 9,638
----------- ------------ -------- ---------
END OF PERIOD ............................. $ 2,534,310 $ 2,338,776 $ 32,737 $ 18,061
=========== ============ ======== =========
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolios
10
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940 (the
"Act"), as amended, as a diversified, no-load, open-end management investment
company with separate series. The following series are included in this report:
American Beacon Money Market and American Beacon U.S. Government Money Market
Funds (each a "Fund" and collectively, the "Funds").
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 BBH ComSet Class of the Money Market Fund commenced operations on April
2, 2007. The Platinum Class of the Funds was fully liquidated effective May 31,
2007.
Each Fund invests all of its investable assets in the corresponding
portfolio of the American Beacon Master Trust, an open-end diversified
management investment company, as follows:
AMERICAN BEACON: (ARROW) invests assets in (ARROW) AMERICAN BEACON MASTER TRUST:
- ---------------- -----------------------------
Money Market Fund Money Market Portfolio
U.S. Government Money Market Fund U.S. Government Money Market Portfolio
Each Fund has the same investment objectives as its corresponding American
Beacon Master Trust Portfolio. The value of such investment reflects each Fund's
proportionate interest in the net assets of the corresponding portfolio (20.0%
and 4.5% at June 30, 2008 of the American Beacon Master Trust Money Market and
U.S. Government Money Market Portfolios, respectively) (each a "Portfolio" and
collectively the "Portfolios"). The financial statements of the Portfolios are
included elsewhere in this report and should be read in conjunction with the
Funds' financial statements.
The following is a summary of the significant accounting policies followed
by the Funds.
Class Disclosure
Each Fund has multiple classes of shares designed to meet the needs of
different groups of investors. Please note that not all Funds offer all classes.
The following table sets forth the differences amongst the classes:
11
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
CLASS: OFFERED TO: SERVICE AND DISTRIBUTION FEES:
- ------ --------------------------------------------------------- ----------------------------------
CASH MANAGEMENT CLASS Investors making an initial investment of $10 million for Administrative Service Fee - 0.07%
Money Market and $2 million for U.S. Government Money
Market, or investors investing through an intermediary
INSTITUTIONAL CLASS Investors making an initial investment of $2 million Administrative Service Fee - 0.10%
PLANAHEAD CLASS General public and investors investing through an Administrative Service Fee - 0.10%
intermediary Service Fee - 0.25%
BBH COMSET Investors making an initial investment of at least $10 Administrative Service Fee - 0.08%
million in BBH ComSet(SM) who meet the eligibility
requirements established by Brown Brothers Harriman & Co.
Valuation of Investments
The Funds record their investment in the Portfolios at fair value.
Valuation of securities by the Portfolios is discussed in Note 1 of the
Portfolios' Notes to Financial Statements, which are included elsewhere in this
report.
The Portfolios adopted the provisions of Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"), effective with the
beginning of the American Beacon Portfolios' 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.
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
Each Fund records its share of net investment income (loss) and realized
gain (loss) in the Portfolio each day. All net investment income (loss) and
realized gain (loss) of each Portfolio are allocated pro rata among the
corresponding Fund and other investors in each Portfolio at the time of such
determination. The Funds generally declare dividends daily from net investment
income and net short-term capital gain, if any, payable monthly.
Dividends to shareholders are determined in accordance with federal income
tax principles that may treat certain transactions differently than U.S.
generally accepted accounting principles.
Allocation of Income, Expenses, Gains and Losses
Income, expenses (other than those attributable to a specific class), gains
and losses are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses directly
attributable to a specific class are charged against the operations of that
class.
12
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimated.
Other
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Trust. In the normal course of business, the Trust enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. TRANSACTIONS WITH AFFILIATES
Administrative Services Agreement
As compensation for providing administrative services to the Funds, the
Manager receives an annualized fee of 0.10% of the average daily net assets of
each of the Institutional and PlanAhead Classes of the Funds, 0.08% of the
average daily net assets of the BBH ComSet Class of the Money Market Fund and
0.07% of the Cash Management Class of the Funds.
Distribution Plan
The Trust has adopted a "defensive" Distribution Plan (the "Plan") in
accordance with Rule 12b-1 under the Act, pursuant to which no fees may be
charged to the Funds for distribution purposes. However, the Plan authorizes the
fees received by the Manager to be used for distribution purposes. Under this
plan, the Trust does not intend to compensate the Manager or any other party,
either directly or indirectly, for the distribution of Trust shares.
Service Agreement
The Manager and the Trust entered into a Service Agreement which obligates
the Manager to oversee additional shareholder servicing of the PlanAhead Class.
As compensation for performing the duties required under the Service Agreement,
the Manager receives 0.25% based on the daily net assets of the PlanAhead Class.
Reimbursement and Waiver of Expenses
The Manager contractually agreed to reimburse the following Funds for
distribution and other expenses through February 28, 2009 to the extent total
annual fund operating expenses exceed the following amounts:
FUND CLASS EXPENSE CAP AMOUNT
- ---- --------------- ----------- --------
Money Market Fund .................. Institutional 0.18% $ 73,330
Money Market Fund .................. Cash Management 0.15% 124,672
Money Market Fund .................. BBH ComSet* 0.15% 352,445
U.S. Government Money Market Fund .. Cash Management 0.15% 29,021
U.S. Government Money Market Fund .. PlanAhead 0.65% 2,434
* Prior to March 1, 2008, fees were voluntarily waived by the Manager to
arrive at expense cap.
13
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
Expense Reimbursement Plan
The Funds have adopted an Expense Reimbursement Plan whereby the Manager
may seek recoupment of fees waived or expenses reimbursed for a period of up to
three years. However, recoupment will occur only if the Class' average net
assets have grown or expenses have declined sufficiently to allow recoupment
without causing its expense ratio to exceed the previously agreed upon expense
limit. The table below excludes amounts previously reimbursed to the Platinum
Classes of the Funds. The following waived fees or reimbursed expenses are
subject to potential recovery expiring in:
U.S. GOVERNMENT
YEAR MONEY MARKET MONEY MARKET
- ---- ------------ ---------------
2008 .... 150,253 26,231
2009 .... 260,591 65,678
2010 .... 769,055 7,577
2011 .... 569,563 31,455
The Funds have not recorded a liability for this potential reimbursement
due to the current assessment that a reimbursement is unlikely.
3. FEDERAL INCOME TAXES
It is the policy of the Funds to comply with the requirements of Subchapter
M of the Internal Revenue Code and to distribute substantially all net
investment income as well as any net realized capital gains on the sale of
investments. Therefore, no federal income or excise tax provision is required.
The Funds adopted the provisions of FASB Interpretation No. 48, "Accounting
for Uncertainties in Income Taxes" ("FIN 48"), on 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 Funds recognize interest accrued related to
unrecognized tax benefits in interest expense and penalties in "Other expenses"
on the Statements of Operations.
Dividends are categorized in accordance with income tax regulations which
may treat certain transactions differently than U.S. generally accepted
accounting principles. Accordingly, the character of distributions and
composition of net assets for tax purposes may differ from those reflected in
the accompanying financial statements.
The tax character of distributions paid for the six months ended June 30,
2008 and the fiscal year ended December 31, 2007 were as follows (in thousands):
MONEY MARKET U.S. GOVERNMENT MONEY MARKET
---------------------------- ----------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED DECEMBER 31, ENDED DECEMBER 31,
JUNE 30, 2008 2007 JUNE 30, 2008 2007
------------- ------------ ------------- ------------
(Unaudited) (Unaudited)
DISTRIBUTIONS PAID FROM ORDINARY INCOME:*
Cash Management Class ................ $10,361 $32,702 $304 $334
Institutional Class .................. 5,814 13,570 -- --
PlanAhead Class ...................... 1,613 6,184 29 94
Platinum Class ....................... -- 543 -- 66
BBH ComSet Class ..................... 24,098 35,047 -- --
------- ------- ---- ----
TOTAL DISTRIBUTIONS PAID ................ $41,886 $88,046 $333 $494
======= ======= ==== ====
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
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.
14
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
The Funds do not have capital loss carry forwards as of June 30, 2008.
4. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares for each class of
the Funds (in thousands). Each share is valued at $1.00:
Six Months Ended June 30, 2008
Cash
Management Class Institutional Class PlanAhead Class
---------------- ------------------- ---------------
Money Market Beacon Fund
Shares sold .................................... 1,645,628 1,269,084 149,996
Reinvestment of dividends ...................... 9,582 2,099 586
Shares redeemed ................................ (1,213,959) (1,156,904) (176,855)
---------- ---------- --------
Net increase (decrease) in shares outstanding .. 441,251 114,279 (26,273)
========== ========== ========
BBH ComSet Class
----------------
Money Market Beacon Fund
Shares sold .................................... 4,501,601
Reinvestment of dividends ...................... --
Shares redeemed ................................ (4,835,324)
----------
Net (decrease) in shares outstanding ........... (333,723)
==========
Cash
Management Class PlanAhead Class
---------------- ---------------
U.S. Government Money Market Beacon Fund
Shares sold .................................... 26,268 12,664
Reinvestment of dividends ...................... 163 5
Shares redeemed ................................ (12,469) (11,955)
------- -------
Net increase in shares outstanding ............. 13,962 714
======= =======
Year Ended December 31, 2007
Cash
Management Class Institutional Class PlanAhead Class Platinum Class
---------------- ------------------- --------------- --------------
Money Market Beacon Fund
Shares sold .................................... 4,891,367 1,043,210 631,312 14,014
Reinvestment of dividends ...................... 28,101 12,166 3,889 502
Shares redeemed ................................ (5,072,125) (1,109,117) (693,440) (48,172)
---------- ---------- -------- -------
Net (decrease) in shares outstanding ........... (152,657) (53,741) (58,239) (33,656)
========== ========== ======== =======
BBH ComSet Class
----------------
Money Market Beacon Fund
Shares sold .................................... 5,382,427
Reinvestment of dividends ...................... 3
Shares redeemed ................................ (3,955,843)
----------
Net increase in shares outstanding ............. 1,426,587
==========
Cash
Management Class PlanAhead Class Platinum Class
---------------- --------------- --------------
U.S. Government Money Market Beacon Fund
Shares sold .................................... 132,887 8,530 4,299
Reinvestment of dividends ...................... 81 14 62
Shares redeemed ................................ (120,104) (8,973) (8,373)
-------- ------ ------
Net increase (decrease) in shares outstanding .. 12,864 (429) (4,012)
======== ====== ======
15
AMERICAN BEACON MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Cash Management 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) ..................... 0.02 0.05 0.05 0.03 0.01 0.01
Net realized gain on investments(B) .......... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total income from investment operations ......... 0.02 0.05 0.05 0.03 0.01 0.01
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income ......... (0.02) (0.05) (0.05) (0.03) (0.01) (0.01)
Distributions from net realized gains on
investments(B) ............................ -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total distributions ............................. (0.02) (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 .................................... 1.64%(C) 5.28% 5.05% 3.19% 1.30% 1.08%
======== ======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) ..... $790,500 $349,249 $501,905 $200,010 $434,587 $117,395
Ratios to average net assets (annualized):(A)
Expenses, net of waivers .................. 0.15% 0.15% 0.15% 0.15% 0.15% 0.16%
Expenses, before waivers .................. 0.19% 0.19% 0.20% 0.23% 0.23% 0.24%
Net investment income, net of waivers ..... 3.16% 5.18% 5.04% 3.08% 1.34% 1.03%
Net investment income, before waivers ..... 3.12% 5.14% 4.99% 3.00% 1.26% 0.95%
- ----------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the American Beacon Master Money Market Portfolio.
(B) Amount is less than $0.01 per share.
(C) Not annualized.
16
AMERICAN BEACON MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Institutional 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). ............................... 0.02 0.05 0.05 0.03 0.01 0.01
Net realized gain on investments(B) ..................... -- -- -- -- -- --
-------- -------- -------- ------- ------- --------
Total income from investment operations .................... 0.02 0.05 0.05 0.03 0.01 0.01
-------- -------- -------- ------- ------- --------
Less distributions:
Dividends from net investment income .................... (0.02) (0.05) (0.05) (0.03) (0.01) (0.01)
Distributions from net realized gains on
investments(B) ....................................... -- -- -- -- -- --
-------- -------- -------- ------- ------- --------
Total distributions ........................................ (0.02) (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 ............................................... 1.63%(C) 5.24% 4.99% 3.06% 1.20% 0.97%
======== ======== ======== ======= ======= ========
Ratios and supplemental data:
Net assets, end of period (in thousands) ................ $564,940 $450,662 $504,403 $36,421 $34,146 $159,092
Ratios to average net assets (annualized):(A)
Expenses, net of waivers ............................. 0.18% 0.18% 0.19% 0.28% 0.24% 0.27%
Expenses, before waivers ............................. 0.22% 0.22% 0.23% 0.28% 0.24% 0.27%
Net investment income, net of waivers ................ 3.33% 5.13% 5.06% 3.07% 1.05% 1.00%
Net investment income, before waivers ................ 3.29% 5.10% 5.02% 3.07% 1.05% 1.00%
- ----------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the American Beacon Master Money Market Portfolio.
(B) Amount is less than $0.01 per share.
(C) Not annualized.
17
AMERICAN BEACON MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
PlanAhead 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) ......... -- -- -- -- -- --
------- -------- -------- -------- -------- --------
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
investments(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 ................................... 1.48%(C) 4.94% 4.69% 2.82% 0.93% 0.70%
======= ======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) .... $86,005 $112,278 $170,518 $236,903 $132,438 $126,972
Ratios to average net assets (annualized):(A)
Expenses, net of waivers ................. 0.47% 0.47% 0.49% 0.51% 0.51% 0.54%
Expenses, before waivers ................. 0.47% 0.47% 0.49% 0.51% 0.51% 0.54%
Net investment income, net of waivers .... 2.98% 4.85% 4.59% 2.83% 0.94% 0.71%
Net investment income, before waivers .... 2.98% 4.84% 4.59% 2.83% 0.94% 0.71%
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the American Beacon Master Money Market Portfolio.
(B) Amount is less than $0.01 per share.
(C) Not annualized.
18
AMERICAN BEACON MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
BBH ComSet Class
---------------------------
Six Months April 2 to
Ended June December
30, 2008 31, 2007
----------- ----------
(Unaudited)
Net asset value, beginning of period ....................... $ 1.00 $ 1.00
---------- ----------
Income from investment operations:
Net investment income(A) ................................ 0.02 0.04
Net realized gain on investments(B) ..................... -- --
---------- ----------
Total income from investment operations .................... 0.02 0.04
---------- ----------
Less distributions:
Dividends from net investment income .................... (0.02) (0.04)
Distributions from net realized gains on
investments(B) ....................................... -- --
---------- ----------
Total distributions ........................................ (0.02) (0.04)
---------- ----------
Net asset value, end of period ............................. $ 1.00 $ 1.00
========== ==========
Total return ............................................... 1.64%(C) 3.92%(C)
========== ==========
Ratios and supplemental data:
Net assets, end of period (in thousands) ................ $1,092,865 $1,426,587
Ratios to average net assets (annualized):(A)
Expenses, net of waivers ............................. 0.15% 0.15%
Expenses, before waivers ............................. 0.20% 0.21%
Net investment income, net of waivers ................ 3.22% 5.10%
Net investment income, before waivers ................ 3.18% 5.03%
- ----------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the American Beacon Master Money Market Portfolio.
(B) Amount is less than $0.01 per share.
(C) Not annualized.
19
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Cash Management Class
------------------------------------------------------------
Six
Months
Ended Year Ended December 31,
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) .................. -- -- -- -- -- --
------- ------- ------ ------- ------- -------
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
investments (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 ............................................ 1.41%(C) 5.13% 4.97% 3.12% 1.22% 1.04%
======= ======= ====== ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands) ............. $30,395 $16,433 $3,568 $22,518 $28,591 $22,060
Ratios to average net assets (annualized):(A)
Expenses, net of waivers .......................... 0.15% 0.15% 0.19% 0.19% 0.19% 0.19%
Expenses, before waivers .......................... 0.41% 0.60% 0.64% 0.38% 0.29% 0.37%
Net investment income, net of waivers ............. 2.69% 4.87% 4.60% 2.99% 1.21% 1.04%
Net investment income, before waivers ............. 2.44% 4.42% 4.16% 2.80% 1.11% 0.86%
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the American Beacon Master U.S. Government Money Market Portfolio.
(B) Amount is less than $0.01 per share.
(C) Not annualized.
20
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
PlanAhead Class
-----------------------------------------------------------
Six
Months
Ended Year Ended December 31,
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 0.04 0.03 0.00(B) 0.01
Net realized gain on investments(B) .................. -- -- -- -- -- --
------ ------ ------ ------ ------ -------
Total income from investment operations ................. 0.01 0.05 0.04 0.03 -- 0.01
------ ------ ------ ------ ------ -------
Less distributions:
Dividends from net investment income ................. (0.01) (0.05) (0.04) (0.03) 0.00(B) (0.01)
Distributions from net realized gains on
investments (B) ................................... -- -- -- -- -- --
------ ------ ------ ------ ------ -------
Total distributions ..................................... (0.01) (0.05) (0.04) (0.03) -- (0.01)
------ ------ ------ ------ ------ -------
Net asset value, end of period .......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== =======
Total return ............................................ 1.16%(C) 4.65% 4.51% 2.71% 0.85% 0.61%
====== ====== ====== ====== ====== =======
Ratios and supplemental data:
Net assets, end of period (in thousands) ............. $2,342 $1,628 $2,058 $1,933 $5,370 $26,785
Ratios to average net assets (annualized):(A)
Expenses, net of waivers .......................... 0.63% 0.61% 0.63% 0.58% 0.56% 0.58%
Expenses, before waivers .......................... 0.82% 1.20% 1.02% 0.61% 0.57% 0.62%
Net investment income, net of waivers ............. 2.29% 4.56% 4.39% 2.47% 0.68% 0.72%
Net investment income, before waivers ............. 2.09% 3.97% 4.00% 2.44% 0.67% 0.68%
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the American Beacon Master U.S. Government Money Market Portfolio.
(B) Amount is less than $0.01 per share.
(C) Not annualized.
21
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
22
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
23
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
24
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 2008 (Unaudited)
PAR
AMOUNT VALUE
------------ -----------
(DOLLARS IN THOUSANDS)
U.S. AGENCY OBLIGATIONS - 28.77%
FEDERAL HOME LOAN BANK - 21.19%
2.17%, Due 8/6/2008 ........................................ $ 7,579 $ 7,562
2.589%, Due 8/15/2008 ++ ................................... 35,000 35,003
2.65%, Due 9/17/2008 ++ .................................... 25,000 24,998
2.616%, Due 12/15/2008 ++ .................................. 35,000 35,006
2.51%, Due 1/9/2009 ++ ..................................... 25,000 25,025
2.737%, Due 1/28/2009 ++ ................................... 25,000 24,997
-----------
152,591
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 4.67%
2.16%, Due 7/21/2008 ....................................... 23,731 23,702
1.004%, Due 11/8/2008 ...................................... 10,000 9,964
-----------
33,666
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.91%
2.27%, Due 7/30/2008 ....................................... 10,000 9,982
2.30%, Due 8/1/2008 ........................................ 11,000 10,978
-----------
20,960
-----------
TOTAL U.S. AGENCY OBLIGATIONS ................................. 207,217
-----------
SHARES
------------
SHORT TERM INVESTMENTS - 0.03%
OTHER SHORT-TERM INVESTMENTS - 0.03%
Goldman Sachs Financial Square Government Fund ................ 24,748 25
Morgan Stanley Government Portfolio ........................... 193,229 193
-----------
TOTAL SHORT TERM INVESTMENTS .................................. 218
-----------
PAR
AMOUNT
------------
REPURCHASE AGREEMENTS - 71.13%
Banc of America Securities LLC, 2.52%, Due 7/1/2008 (Held at
Bank of New York, Collateralized by U.S. Government Agency
Obligations valued at $253,820, 5.5% - 6.0%, 6/1/2033 -
5/1/2038) .................................................. $ 250,000 250,000
Barclays Capital, Inc., 2.60%, Due 7/1/2008 (Held at Bank of
New York, Collateralized by U.S. Government Agency
Obligations valued at $192,952, 4.44% - 6.43%, 8/1/2035 -
4/1/2038) .................................................. 190,000 190,000
Goldman Sachs Group, Inc., 2.45%, Due 7/1/2008 (Held at Bank
of New York, Collateralized by U.S. Government Agency
Obligations valued at $73,448, 4.0% - 8.0%, 9/20/2010 -
6/1/2038) .................................................. 72,365 72,365
-----------
TOTAL REPURCHASE AGREEMENTS ................................... 512,365
-----------
TOTAL INVESTMENTS - 99.93% (COST $719,800) ....................... $ 719,800
OTHER ASSETS, NET OF LIABILITIES - 0.07% ......................... 510
-----------
TOTAL NET ASSETS - 100.00% ....................................... $ 720,310
===========
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.
See accompanying notes
25
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED) (IN THOUSANDS)
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
------------ ---------------
ASSETS:
Investment in securities at value (cost - $11,978,992 and $207,435, respectively) .. $11,978,992 $207,435
Repurchase agreement (cost - $900,000 and $512,365, respectively) .................. 900,000 512,365
Dividends and interest receivable .................................................. 31,127 595
Prepaid expenses ................................................................... 115 14
----------- --------
TOTAL ASSETS .................................................................... 12,910,234 720,409
----------- --------
LIABILITIES:
Management and investment advisory fees payable (Note 2) ........................... 1,083 54
Other liabilities .................................................................. 198,514 45
TOTAL LIABILITIES ----------- --------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS .............................. 199,597 99
----------- --------
$12,710,637 $720,310
=========== ========
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) (IN THOUSANDS)
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
------------ ---------------
INVESTMENT INCOME:
Interest income .................................................................... $234,691 $16,340
-------- -------
TOTAL INVESTMENT INCOME ......................................................... 234,691 16,340
-------- -------
EXPENSES:
Management and investment advisory fees (Note 2) 6,844 518
Custodian fees ..................................................................... 183 17
Professional fees .................................................................. 76 12
Other expenses ..................................................................... 195 24
-------- -------
TOTAL EXPENSES .................................................................. 7,298 571
-------- -------
NET INVESTMENT INCOME ................................................................. 227,393 15,769
-------- -------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ................................................... 0 6
-------- -------
NET GAIN ON INVESTMENTS ......................................................... 0 6
-------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................................. $227,393 $15,775
======== =======
See accompanying notes
26
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
U.S. GOVERNMENT MONEY
MONEY MARKET MARKET
----------------------------- --------------------------
Six Months Year Ended Six Months Year Ended
Ended June 30, December 31, Ended June December 31,
2008 2007 30, 2008 2007
-------------- ------------ ----------- ------------
(unaudited) (unaudited)
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income ......................................... $ 227,393 $ 824,823 $ 15,769 $ 47,203
Net realized gain on investments .............................. 0 127 6 3
----------- ------------ ----------- -----------
TOTAL INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... 227,393 824,950 15,775 47,206
----------- ------------ ----------- -----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions ................................................. 89,239,048 35,059,358 3,942,000 5,041,893
Withdrawals ................................................... (89,939,803) (35,428,478) (4,619,449) (4,270,511)
----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS ......... (700,755) (369,120) (677,449) 771,382
----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ...................... (473,362) 455,830 (661,674) 818,588
----------- ------------ ----------- -----------
NET ASSETS:
Beginning of period ........................................... 13,183,999 12,728,169 1,381,984 563,396
----------- ------------ ----------- -----------
END OF PERIOD ................................................. $12,710,637 $ 13,183,999 $ 720,310 $ 1,381,984
=========== ============ =========== ===========
FINANCIAL HIGHLIGHTS
MONEY MARKET
----------------------------------------------
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%
U.S. GOVERNMENT MONEY MARKET
----------------------------------------------
Six Months Year Ended December 31,
Ended June --------------------------------
30, 2008 2007 2006 2005 2004 2003
----------- ---- ---- ---- ---- ----
(unaudited)
Total return ..................................................... 1.43%(A) 5.18% 5.04% 3.19% 1.30% 1.11%
Ratios to average net assets (annualized): .......................
Expenses....................................................... 0.11% 0.11% 0.12% 0.12% 0.11% 0.12%
Net investment income.......................................... 3.04% 4.98% 4.97% 3.15% 1.30% 1.13%
(A) Not annualized
See accompanying notes
27
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. Prior to November 1, 2004, the Trust was organized as a trust
under the laws of the State of New York. Beneficial interests in the Trust are
divided into separate series, each having distinct investment objectives and
policies. These financial statements relate to the American Beacon Master Money
Market Portfolio and American Beacon Master U.S. Government Money Market
Portfolio (each a "Portfolio" and collectively the "Portfolios"). The objective
of each Portfolio is current income, liquidity and the maintenance of a stable
price of $1.00 per share. The assets of each Portfolio belong only to that
Portfolio, and the liabilities of each Portfolio are borne solely by that
Portfolio and no other.
American Beacon Advisors, Inc. (the "Manager") is a wholly-owned subsidiary
of AMR Corporation ("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 following is a summary of the significant accounting policies followed
by the Portfolios.
Valuation of Investments
Securities of the Portfolios are valued at amortized cost, which
approximates fair value. In the event that a deviation of 1/2 of 1% or more
exists between the $1.00 per share price of the Portfolios, calculated at
amortized cost, and the price per share calculated by reference to market
quotations, or if there is any other deviation that the Trust's Board of
Trustees (the "Board") believes would result in a material dilution to
shareholders or purchasers, the Board will promptly consider the appropriate
action that should be initiated.
The Portfolios adopted the provisions of Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"), effective with the
beginning of the Portfolios' 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.
28
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
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.
A summary of the inputs used to value the Portfolios' net assets as of June 30,
2008 is as follows (in thousands):
Investments in Securities
------------------------------
U.S. Government
Valuation Inputs Money Market Money Market
- ---------------- ------------ ---------------
Level 1 - Quoted Prices............................... $ 1,149,326 $ 218
Level 2 - Other significant observable inputs......... 11,729,666 719,582
Level 3 - Significant unobservable inputs............. -- --
----------- --------
Total................................................. $12,878,992 $719,800
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 Portfolios will be treated as partnerships for federal income tax
purposes. As such, each investor in a Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that each
Portfolio's assets will be managed in such a way that an investor in the
Portfolio will be able to satisfy the requirements of subchapter M of the
Internal Revenue Code.
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 Portfolios' 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
Portfolios file tax returns with the U.S. Internal Revenue Service. Generally,
the tax authorities can examine all tax returns filed for the last three years.
The Portfolios 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 Portfolios
recognize interest accrued related to unrecognized tax benefits in interest
expense and penalties in "Other expenses" on the Statements of Operations. The
Portfolios adopted the provisions of FIN 48 effective January 1, 2007. Tax
positions taken by the Portfolios have been deemed to
29
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
meet the more likely than not threshold, and therefore there have been no
adjustments to the Portfolios' 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 government
securities for the Portfolios. Additionally, repurchase agreements in the Money
Market Portfolio may be collateralized by 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 each of the Portfolios. As compensation for
performing the duties required under the Management Agreement, the Manager
receives from the Portfolios 0.10% of the average daily net assets of each of
the Portfolios.
Interfund Lending Program
Pursuant to an exemptive order by the Securities and Exchange Commission,
the Portfolios, along with other registered investment companies having
management contracts with the Manager, may participate in an interfund lending
program. This program provides an alternative credit facility allowing the Money
Market Portfolio to lend money to other participating series managed by the
Manager. For the six months ended June 30, 2008, the credit facility was not
utilized.
30
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE
MANAGEMENT AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS
(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"). 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 and Lipper, Inc. ("Lipper"). The Board, with the
assistance of independent legal counsel, requested and received certain relevant
information from the Manager.
In addition, the Board's Investment Committee worked with Lipper to obtain
relevant comparative information regarding the performance, fees and expenses of
the Funds. The Investment Committee held 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
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
31
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE
MANAGEMENT AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS
(UNAUDITED)
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. 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.
In preparation for the Board's consideration to approve the New Agreement,
the Board held preliminary conference call meetings on April 15, 16 and 21,
2008, to discuss the New Agreement and the effect that approving the New
Agreement 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.
In connection with Board's consideration of the Current Agreement and New
Agreement, the Trustees considered, among other materials, responses by the
Manager 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 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;
32
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE
MANAGEMENT AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS
(UNAUDITED)
- 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;
- verification of the firm's insurance coverage with regard to the
services provided to the Funds;
- a comparison of the performance of each Fund to comparable investment
companies and appropriate indices, including comments on the relative
performance of each Fund versus the respective peer group average;
- a discussion, if applicable, of any underperformance by a Fund
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
- a description of how expenses that are not readily identifiable to a
particular Fund are allocated.
In connection with the Current Agreements and New Agreement, 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 and New Agreement are each
referenced to herein as an "Agreement" and collectively, the "Agreements."
The Trustees also received memoranda from their legal counsel detailing the
Board's responsibilities pertaining to the approval of each Agreement. These
memoranda explained the regulatory requirements surrounding the Trustees'
process for evaluating investment advisors and the terms of the contracts.
In connection with the Board's consideration of the New Agreement, 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;
33
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE
MANAGEMENT AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS
(UNAUDITED)
(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.
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 Agreements and approve the New Agreement, 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 Agreements and
approval of the New Agreement. Based on its evaluation, the Board unanimously
concluded that the terms of each Current Agreement were reasonable and fair and
that the renewal of each Current Agreement was in the best interests of each
Fund and its shareholders. The Board also unanimously concluded that the terms
of the New Agreement were reasonable and fair and that the approval of the New
Agreement was in the best interests of each Fund and its shareholders.
CONSIDERATIONS WITH RESPECT TO ALL FUNDS
In determining whether to renew the Current Agreement and approve the New
Agreement, the Trustees considered the best interests of each Fund separately.
While the Current Agreements for all of the Funds were considered at the Board
meetings on May 21, 2008, and the New Agreement for all of the Funds was
considered at the meetings on May 21, May 22 and June 4, 2008, the Board
considered each Fund's investment management 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; (3) the costs incurred by the Manager in rendering its services and
its 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 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 from its
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
34
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE
MANAGEMENT AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS
(UNAUDITED)
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.
Based on the foregoing information, the Board concluded that the nature,
extent and quality of the management and advisory services provided by the
Manager were appropriate for each Fund and, thus, determined to renew the
Current Agreements and approve the New Agreement 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. 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."
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 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. With respect to the Money Market Funds, 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 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. The Board
also noted that certain classes of the Funds maintain higher expense ratios in
order to compensate third-party distributors.
Based on the foregoing information, the Board concluded that the
profitability levels were reasonable in light of the services performed by the
Manager. 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
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. The Board 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 also 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
35
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE
MANAGEMENT AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS
(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
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 as a result of
the advisory relationships with the Funds, including greater exposure in the
marketplace with respect to the Manager's investment process and expanding the
level of assets under management by the Manager. 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. The Board also considered that
Funds did not pay commissions to any affiliated broker-dealer of the Manager
during the most recent fiscal year ended December 31, 2007.
Based on the foregoing information, the Board concluded that the potential
benefits accruing to the Manager by virtue of its relationships with the Funds
appear to be fair and reasonable.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO EACH FUND
The performance comparisons below were made versus each Fund's 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.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE MONEY MARKET FUND
In considering the renewal of the Current Agreement and the approval of the
New Agreement, the Trustees considered the following additional factors: (1) the
Institutional Class of the Beacon Trust slightly underperformed the Lipper Index
and outperformed the Lipper Average for all reported periods ended March 31,
2008; (2) the total expense ratio and contractual management fees of the
Institutional Class of Beacon Trust shares were both lower than its Lipper
expense group average; (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; (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; and (5) the Manager has contractually agreed
to waive fees and/or reimburse Fund expenses to the extent necessary to maintain
a competitive total expense ratio for the Institutional, Cash Management and BBH
ComSet Classes of the Beacon Trust.
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 the Current
Agreement and (4) approved the New Agreement with respect to the Fund.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE U.S. GOVERNMENT
MONEY MARKET FUND
In considering the renewal of the Current Agreement and the approval of the
New Agreement, the Trustees considered the following additional factors: (1) the
U.S. Government Money Market Fund was ranked as the 16th best institutional U.S.
Government money market fund among 170 funds for the one year ending March 31,
2008 according to Lipper Analytical Services; (2) the Fund's total return of
4.69% outperformed the Lipper Institutional U.S. Government Money Fund Average
return of 4.44%; (3) the Fund was ranked in the first quartile for the one,
three and five year period ended March 31, 2008; and (4) similar to the Money
Market Fund, and for the same reasons, this Fund maintained a relatively short
weighted-average maturity throughout
36
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE
MANAGEMENT AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS
(UNAUDITED)
2007. This strategy was accomplished primarily by purchasing short-dated fixed
rate agencies, variable rate agencies and overnight repurchase agreements.
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 the Current
Agreement and (4) approved the New Agreement with respect to the Fund.
37
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40
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41
(AMERICAN BEACON FUNDS(SM) LOGO)
DELIVERY OF DOCUMENT
To reduce expenses, your financial institution may mail only one copy of the
Prospectus, Annual Report and Semi-Annual Report to those addresses shared by
two or more accounts. If you wish to receive individual copies of these
documents, please contact your financial institution. Delivery of individual
copies will commence thirty days after receiving your request.
If you invest in the Fund through a financial institution, you may be able to
receive the Fund's regulatory mailings, such as the Prospectus, Annual Report
and Semi-Annual Report, by e-mail. If you are interested in this option, please
go to www.icsdelivery.com and search for your financial institution's name or
contact your financial institution directly.
TO OBTAIN MORE INFORMATION ABOUT THE FUND:
(GRAPHIC) (GRAPHIC)
BY E-MAIL: ON THE INTERNET:
american_beacon.funds@ambeacon.com Visit our website at www.americanbeaconfunds.com
(GRAPHIC) (GRAPHIC)
BY TELEPHONE: BY MAIL:
Institutional Class American Beacon Funds
Call (800) 658-5811 4151 Amon Carter Blvd., MD 2450
PlanAhead Class Fort Worth, TX 76155
Call (800) 388-3344
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES AVAILABILITY OF PROXY VOTING POLICY AND RECORDS
In addition to the Schedule of Investments A description of the policies and procedures the
provided in each semi-annual and annual report, Fund uses to determine how to vote proxies
the Fund files a complete schedule of its relating to portfolio securities is available in
portfolio holdings with the Securities and the Fund's Statement of Additional Information,
Exchange Commission ("SEC") on Form N-Q as of is available free of charge on the Fund's
the first and third fiscal quarters. The Fund's website (www.americanbeaconfunds.com) and by
Forms N-Q are available on the SEC's website at calling 1-800-967-9009 or by accessing the SEC's
www.sec.gov. The Forms N-Q may also be reviewed website at www.sec.gov. The Fund's proxy voting
and copied at the SEC's Public Reference Room, record for the most recent year ended June 30 is
450 Fifth Street, NW, Washington, DC 20549. filed annually with the SEC on Form N-PX. The
Information regarding the operation of the SEC's Fund's Forms N-PX are available on the SEC's
Public Reference Room may be obtained by calling website at www.sec.gov. The Fund's proxy voting
1-800-SEC-0330. A complete schedule of the record may also be obtained by calling
Fund's portfolio holdings is also available on 1-800-967-9009.
the Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of each
month.
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BANK AND BOSTON FINANCIAL DATA PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES
TRUST SERVICES ERNST & YOUNG LLP Portland, Maine
Boston, Massachusetts Kansas City, Missouri Dallas, Texas
This report is prepared for shareholders of the American Beacon Funds and may be
distributed to others only if preceded or accompanied by a current prospectus.
American Airlines, Inc. is not responsible for investments made in the American
Beacon Funds. PlanAhead Class is a registered service mark of American Beacon
Advisors, Inc. American Beacon Funds, American Beacon Money Market Fund, and
American Beacon U.S. Government Money Market Fund are service marks of American
Beacon Advisors, Inc.
SAR 6/08
62519
42
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 report
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 the Money Market Portfolio and U.S. Government
Money Market Portfolio of the American Beacon Master Trust are included in the
American Beacon Funds shareholder report presented in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Trust has made no material changes to the procedures by which shareholders
may recommend nominees to the Trust's Board of Trustees since the Trust last
disclosed such procedures in Schedule 14A.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon an evaluation within 90 days of the filing date of this
report, the principal executive and financial officers concluded that
the disclosure controls and procedures of the Trust are effective.
(b) There were no changes in the Trust's internal control over financial
reporting during the second fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to
materially affect, the Trust's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) 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 Master Trust
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
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Rebecca L. Harris
Treasurer
Date: September 5, 2008