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: 811-09603
AMERICAN BEACON SELECT FUNDS
(Exact name of registrant as specified in charter)
4151 Amon Carter Boulevard, MD 2450
Fort Worth, Texas 76155
(Address of principal executive offices)-(Zip code)
WILLIAM F. QUINN, PRESIDENT
4151 Amon Carter Boulevard, MD 2450
Fort Worth, Texas 76155
(Name and address of agent for service)
Registrant's telephone number, including area code: (817) 967-3509
Date of fiscal year end: December 31, 2005
Date of reporting period: June 30, 2005
ITEM 1. REPORT TO STOCKHOLDERS.
================================================================================
G U I D A N C E | V I S I O N | E X P E R I E N C E
[LOGO OF AMERICAN BEACON SELECT FUNDS] AMERICAN BEACON
SELECT FUNDS(SM)
SEMI-ANNUAL REPORT
[GRAPHIC OF AMERICAN BEACON SELECT FUNDS]
JUNE 30, 2005
MONEY MARKET SELECT FUND
U.S. GOVERNMENT MONEY MARKET SELECT FUND
Formerly known as the
American AAdvantage Select Funds
================================================================================
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 Select Fund ................................ 12
U.S. Government
Money Market Select Fund ................................ 13
Schedule of Investments
Money Market Portfolio .................................. 14
U.S. Government
Money Market Portfolio .................................. 16
Additional Information ...................................... Inside Back Cover
- --------------------------------------------------------------------------------
Any opinions herein, including forecasts, reflect our judgement as of the end of
the reporting period and are subject to change. Each advisor's strategies and
each Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
- --------------------------------------------------------------------------------
American Beacon Select Funds June 30, 2005
[GRAPHIC OF AMERICAN BEACON ADVISORS]
FELLOW SHAREHOLDERS:
Enclosed please find the Semi-Annual Report for the American Beacon Select Funds
for the six months ended June 30, 2005. During this time, the American Beacon
Select Funds outpaced their respective peer groups.
The year started with a short-term interest rate of 2.25%; however, the
Federal Reserve Board subsequently raised the rate four times with increases of
25 basis points each time to end the six-month period at 3.25%. These widely
expected moves were a continuation of the Fed's stated process of removing
monetary policy accommodation at a "measured" pace. The Federal Open Market
Committee ("FOMC") has now boosted the target rate a quarter percentage point at
each of their last nine meetings. The FOMC stated that, even after these
actions, "the stance of monetary policy remains accommodative and, coupled with
robust underlying growth in productivity, is providing ongoing support to
economic activity. Although energy prices have risen further, the expansion
remains firm and labor market conditions continue to improve gradually.
Pressures on inflation have stayed elevated, but longer-term inflation
expectations remain well contained."
The American Beacon Select Funds produced solid returns for the period. The
Money Market Select Fund returned 1.34% for the six months, outperforming the
Lipper Institutional Money Market Average return of 1.14%. The U.S. Government
Money Market Select Fund outpaced the Lipper Institutional U.S. Government
Money Market Average with a return of 1.32% versus 1.14% for the Average.
Looking forward, expectations are that the FOMC will vote to hike the
overnight federal funds rate another 25 basis points at their upcoming meetings
in August and September. During this rising rate environment, we will monitor
the duration and quality of the money market portfolios as we evaluate economic
growth, inflation, and the direction of interest rates.
Please review the enclosed portfolio listings and detailed financial data.
As always, we welcome the opportunity to serve your financial needs. Should you
have any questions about the enclosed information, please do not hesitate to
contact us at 800-967-9009. You may also access Fund and account information at
www.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Select Funds.
Sincerely,
/s/ William F. Quinn
William F. Quinn
President, American Beacon Select Funds
1
MARKET AND PERFORMANCE OVERVIEW
AMERICAN BEACON SELECT FUNDS
(Unaudited)
================================================================================
Much like 2004, the financial markets have been keenly focused on the "Non-Farm
Payroll" numbers in 2005. With employment demonstrating solid growth and
concerns about inflation building, the Federal Reserve has raised overnight
borrowing rates at nine consecutive Federal Open Market Committee (FOMC)
meetings since June 2004. Over the past six months, the economy has shown
significant growth across all sectors, particularly in housing, given
single-family housing starts averaged more than 1.65 million units annually.
With the economy expanding at a moderate pace, housing activity at high levels
and business investment and manufacturing stronger, the Federal Reserve is
predicted to continue raising the Fed Funds rate to at least 4.00% (according to
economists' forecasts and the Fed Funds futures contracts) by December 2005. The
yield curve flattened throughout the first six months of 2005, which led Federal
Reserve Chairman Greenspan to label the flattening and potential inversion a
"conundrum." Credit spreads remained at or near historically tight levels with
little evidence of widening.
Steady growth in the labor market and significant price increases in oil
have changed the focus of the FOMC toward inflation. Higher employment typically
puts pressure on labor costs that lead to higher prices for consumers. Core
prices rose rapidly in the first half of the year, elevated by the indirect
effects of higher energy prices on business costs and increases in non-oil
import prices that reflect past dollar depreciation and the surge in global
prices for primary commodities. The FOMC has consistently reiterated its stance
that the tightening cycle would occur at a "measured" pace, and policymakers
signaled that they will respond to changes in economic conditions in order to
maintain their goal of price stability.
The U.S. economy continued to grow at a solid pace as Gross Domestic Product
(GDP) for the first quarter of 2005 was revised upward to 3.8%. Although nonfarm
payroll growth came in below consensus expectations, the unemployment rate
dropped to 5.0% in June, its lowest point since September 2001. Crude oil prices
remained elevated, approaching $60 per barrel, leading to concerns of reduced
consumer spending and lower corporate profit margins. Still, GDP growth remains
steady as estimates for the full year 2005 are in the 3.5-4% range.
In this rising interest rate environment, the American Beacon Money Market
Fund continued to maintain the strategy of purchasing 3-month LIBOR-based
variable rate securities in addition to short-dated commercial paper. The
American Beacon U.S. Government Money Market Fund continued to maintain the
strategy of purchasing 3-month LIBOR-based variable rate agencies in addition
to short-dated agency discount notes and coupons. The FOMC raised overnight
rates by 25 basis points at both the May and June meetings, resulting in a Fed
Funds target rate of 3.25%. The FOMC maintained its "measured" policy adjustment
posture at the June meeting, ending speculation that they were done raising
rates. "Although energy prices have risen further, the expansion remains firm
and labor market conditions continue to improve gradually," the FOMC said in its
statement accompanying the decision. Although the Fed characterized inflation
pressures as "elevated," the headline Personal Consumption Expenditure
deflator was a benign 2.2% at its May reading and the Consumer Price Index (CPI)
was unchanged in June.
Currently, with the Eurodollar futures market pricing in a Fed Funds rate
of 4.00% by the end of the year, the Select Funds will maintain its
weighted-average maturity relatively short. However, the Funds' investment
advisor will continue to monitor economic trends and adjust the Funds' duration
posture accordingly.
For the six months ended June 30, 2005, the total return of the American
Beacon Money Market Select Fund was 1.34%. The Fund outperformed the Lipper
Institutional Money Market Average return of 1.14% by 20 basis points. Lipper
Inc. ranked the Fund 3rd among 291, 4th among 259 and 2nd among 208
Institutional Money Market Funds for the one-year, three-years and five-years
ended June 30, 2005, respectively(1).
For the six months ended June 30, 2005, the total returnof the American
Beacon U.S. Government Money Market Select Fund was 1.32%. The Fund outperformed
the Lipper Institutional U.S. Government Money Market Average return of 1.14% by
18 basis points. Lipper Inc. ranked the Fund 2nd among 136 and 3rd among 122
Institutional U.S. Government Money Market Funds for the one-year and
three-years ended June 30, 2005, respectively(1).
2
MARKET AND PERFORMANCE OVERVIEW
AMERICAN BEACON SELECT FUNDS
(Unaudited) - (Continued)
================================================================================
The Lipper Institutional Money Market Average and the Lipper Institutional
U.S. Government Money Market Average are calculated by taking an arithmetic
average of the returns of the mutual funds in the Lipper Institutional Money
Market Funds and Lipper Institutional U.S. Government Money Market Funds
categories, respectively. Lipper is an independent mutual fund research and
ranking service that ranks mutual funds in various categories by making
comparative calculations using total returns.
ANNUALIZED TOTAL RETURNS
==================================
AS OF 6/30/05
----------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Money Market (1,2) ..................... 2.17% 2.65% 4.12%
U.S. Government (1,3) ................... 2.13% 2.56% 3.97%
1 Past performance is not indicative of future performance. An investment
in the American Beacon Select Funds is neither insured nor guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although each Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Funds. Fund
performance in the table above does not reflect the deduction of taxes a
shareholder would pay on distributions or the redemption of shares.
2 The Fund's performance is derived from a combination of the Fund's
performance and that of another fund (the "Companion Fund") not included in
this report. The Companion Fund has been managed by American Beacon
Advisors since its inception on September 1, 1987. Like the Fund, the
Companion Fund invests all of its investable assets in a corresponding
Portfolio of the American Beacon Master Trust. The performance results from
inception through December 31, 1999 are those of the Companion Fund. The
Fund began offering its shares on January 1, 2000. Thus, performance
results shown from that date through June 30, 2005 are for the Fund. Because
the Companion Fund had higher expenses, its performance was worse than the
Fund would have realized in the same period.
3 The Fund's performance is derived from a combination of the Fund's
performance and that of another fund (the "Companion Fund") not included in
this report. The Companion Fund has been managed by American Beacon
Advisors since its inception on March 2, 1992. Like the Fund, the Companion
Fund invests all of its investable assets in a corresponding Portfolio of
the American Beacon Master Trust. The performance results from inception
through November 30, 2001 are those of the Companion Fund. The Fund began
offering its shares on December 1, 2001. Thus, performance results shown
from that date through June 30, 2005 are for the Fund. Because the Companion
Fund had moderately higher expenses, its performance was slightly worse
than the Fund would have realized in the same period.
PORTFOLIO STATISTICS AS OF JUNE 30, 2005
MONEY MARKET U.S. GOVERNMENT
------------ ---------------
7-day Current Yield* 3.13% 3.08%
7-day Effective Yield* 3.18% 3.12%
30-day Yield* 3.06% 2.98%
Weighted Average Maturity 33 Days 16 Days
Moody's Rating Aaa Aaa
Standard & Poor's Rating AAAm AAAm
*Annualized. You may call 1-800-231-4252 to obtain the Funds' current seven
day yield. Yield is a more accurate reflection of the Funds' current earnings
than total returns.
MONEY MARKET PORTFOLIO - TOP TEN HOLDINGS AS OF JUNE 30, 2005
% OF
NET ASSETS*
-----------
Wells Fargo and Company 5.3%
General Electric Capital Corporation 4.4%
Goldman Sachs Group 4.2%
Toyota Motor Credit Corporation 4.1%
Morgan Stanley Group, Incorporated 3.9%
Credit Suisse First Boston Corporation 3.9%
Fifth Third Bank 3.8%
Unicredito Italiano 3.7%
SunTrust Bank 2.9%
Household Finance Corporation 2.9%
MONEY MARKET PORTFOLIO - ASSET ALLOCATION AS OF JUNE 30, 2005
% OF
NET ASSETS*
-----------
Bank CDs, TDs, and Notes 42.2%
Corporate Notes 37.9%
Repurchase Agreements 16.8%
Funding Agreements 2.1%
Commercial Paper 0.7%
Net Other Assets 0.3%
*Percent of net assets portion of American Beacon Master Money Market Portfolio.
3
MARKET AND PERFORMANCE OVERVIEW
AMERICAN BEACON SELECT FUNDS
(Unaudited) - (Continued)
================================================================================
U.S. GOVERNMENT MONEY MARKET PORTFOLIO - ASSET ALLOCATION AS OF JUNE 30, 2005
% OF
NET ASSETS*
-----------
Government Securities 51.4%
Repurchase Agreements 48.4%
Net Other Assets 0.2%
*Percent of net assets portion of 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 in each Fund and held for the entire period from January 1, 2005
through June 30, 2005.
ACTUAL EXPENSES
The "Actual" lines of the table provide information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about
hypothetical account values and hypothetical expenses based on the Fund's
actual expense ratio and an assumed 5% per year rate of return before expenses
(not the Fund's actual return). You may compare the ongoing costs of investing
in the Fund with other funds by contrasting this 5% hypothetical example and the
5% hypothetical examples that appear in the shareholder reports of the other
funds. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs charged by the Fund.
Similarly, the expense examples for other funds do not reflect any transaction
costs charged by those funds, such as sales charges (loads), redemption fees or
exchange fees. Therefore, the "Hypothetical" lines of the table are useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. If you were subject to any transaction costs
during the period, your costs would have been higher.
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
1/1/05 6/30/05 1/1/05-6/30/05
--------- --------- --------------
MONEY MARKET
Actual $1,000.00 $1,013.36 $0.59
Hypothetical (5% return before expenses) $1,000.00 $1,024.20 $0.60
U.S. GOVERNMENT
Actual $1,000.00 $1,013.15 $0.61
Hypothetical (5% return before expenses) $1,000.00 $1,024.19 $0.61
*Expenses are equal to the Fund's annualized expense ratios for the six-month
period of 0.12% and 0.12% for the Money Market and U.S. Government Money
Market Select Funds, respectively, multiplied by the average account value
over the period, multiplied by the number derived by dividing the number of
days in the most recent fiscal half-year (181) by days in the year (365) to
reflect the half-year period.
4
AMERICAN BEACON SELECT FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2005 (Unaudited)
================================================================================
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
============== ===============
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
ASSETS:
Investment in Portfolio, at value ....................................... $ 5,191,008 $ 146,791
Receivable from Manager for expense reimbursement (Note 2) .............. - 2
-------------- ------------
TOTAL ASSETS ......................................................... 5,191,008 146,793
-------------- ------------
LIABILITIES:
Payable for fund shares redeemed ........................................ 9 -
Dividends payable ....................................................... 6,027 261
Other liabilities ....................................................... 156 11
-------------- ------------
TOTAL LIABILITIES .................................................... 6,192 272
-------------- ------------
NET ASSETS ................................................................ $ 5,184,816 $ 146,521
============== ============
ANALYSIS OF NET ASSETS:
Paid-in-capital ......................................................... 5,184,816 146,521
-------------- ------------
NET ASSETS ................................................................ $ 5,184,816 $ 146,521
============== ============
Shares outstanding (no par value) ......................................... 5,184,815,861 146,520,883
============== ============
Net asset value, offering and redemption price per share .................. $ 1.00 $ 1.00
============== ============
See accompanying notes
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5
AMERICAN BEACON SELECT FUNDS
STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2005 (Unaudited)
================================================================================
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
============== ===============
(IN THOUSANDS)
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest income ..................................................... $69,446 $2,702
Portfolio expenses .................................................. (2,740) (111)
------- ------
NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO ................... 66,706 2,591
------- ------
FUND EXPENSES:
Transfer agent fees ................................................. 96 6
Professional fees ................................................... 27 3
Registration fees and expenses ...................................... 6 -
Other expenses ...................................................... 70 9
------- ------
TOTAL FUND EXPENSES .............................................. 199 18
------- ------
LESS REIMBURSEMENT OF EXPENSES (NOTE 2) ............................... 2 8
------- ------
NET FUND EXPENSES ................................................ 197 10
------- ------
NET INVESTMENT INCOME ................................................. 66,509 2,581
------- ------
REALIZED GAIN ALLOCATED FROM PORTFOLIO:
Net realized gain on investments .................................... 10 4
------- ------
NET GAIN ON INVESTMENTS .......................................... 10 4
------- ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................. $66,519 $2,585
======= ======
See accompanying notes
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6
AMERICAN BEACON SELECT FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
MONEY MARKET U.S. GOVERNMENT MONEY MARKET
============================ ================================
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, JUNE 30, 2005 DECEMBER 31,
(UNAUDITED) 2004 (UNAUDITED) 2004
------------- ------------ ------------- ------------
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ...................................... $ 66,509 $ 55,567 $ 2,581 $ 2,633
Net realized gain on investments ........................... 10 169 4 11
------------ ------------ --------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .... 66,519 55,736 2,585 2,644
------------ ------------ --------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ...................................... (66,509) (55,567) (2,581) (2,633)
Net realized gain on investment ............................ (10) (169) (4) (11)
------------ ------------ --------- -----------
DISTRIBUTIONS TO SHAREHOLDERS ........................... (66,519) (55,736) (2,585) (2,644)
------------ ------------ --------- -----------
CAPITAL SHARE TRANSACTIONS (AT $1.00 PER SHARE): .............
Proceeds from sales of shares .............................. 46,067,478 55,001,001 599,578 1,169,538
Reinvestment of dividends and distributions ................ 32,641 30,516 1,041 772
Cost of shares redeemed .................................... (44,888,406) (55,047,138 (647,385) (1,139,512)
------------ ------------ --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL SHARE TRANSACTIONS ...................... 1,211,713 (15,621) (46,766) 30,798
------------ ------------ --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ........................ 1,211,713 (15,621) (46,766) 30,798
NET ASSETS:
Beginning of period ........................................ 3,973,103 3,988,724 193,287 162,489
------------ ------------ --------- -----------
END OF PERIOD .............................................. $ 5,184,816 $ 3,973,103 $ 146,521 $ 193,287
============ ============ ========= ===========
See accompanying notes
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7
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (Unaudited)
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Select Funds (the "Trust"), formerly known as the American
AAdvantage Select Funds, is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940 (the "Act"), as amended, as
a no load, open-end management investment company with separate series. The
following series are included in this report: American Beacon Money Market
Select Fund and American Beacon U.S. Government Money Market Select Fund (each a
"Fund" and collectively, the "Funds"). The American Beacon Money Market Select
Fund commenced active operations on January 1, 2000, and the American Beacon
U.S. Government Money Market Select Fund commenced active operations on
December 1, 2001.
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: the American Beacon Money Market
Select Fund invests assets in the American Beacon Master Money Market Portfolio
and the American Beacon U.S. Government Money Market Select Fund invests assets
in the American Beacon Master U.S. Government Money Market Portfolio. Each
American Beacon Master Trust Portfolio has the same investment objectives as its
corresponding Fund. The value of such investments reflects each Fund's
pro-portionate interest in the net assets of the corresponding portfolio (71.84%
and 76.30% at June 30, 2005, of the American Beacon Master 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.
American Beacon Advisors, Inc. (the "Manager") is a wholly-owned subsidiary
of AMR Corporation, the parent company of American Airlines, Inc. ("American"),
and was organized in 1986 to provide business management, advisory,
administrative and asset management consulting services to the Trust and other
investors.
The following is a summary of the significant accounting policies followed
by the Funds.
Valuation of Investments
The Funds record their investment in the Portfolios at fair value. Valuation
of securities by the Portfolios is discussed in Note 1 of the Portfolios'
Notes to Financial Statements which are included elsewhere in this report.
Investment Income
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.
Dividends
The Funds generally declare dividends daily from net investment income and
net short-term 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.
- --------------------------------------------------------------------------------
8
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 2005 (Unaudited)
================================================================================
Federal Income and Excise Taxes
It is the policy of each of the Funds to comply with the requirements of
subchapter M of the Internal Revenue Code applicable to regulated investment
companies, and to distribute substantially all net investment income as well
as any net realized capital gains on the sale of investments. Therefore, no
federal income tax provision is required.
Expenses
Expenses directly attributable to a Fund are charged to that Fund's
operations. Expenses incurred by the Trust with respect to both Funds are
allocated in proportion to the net assets of each Fund, except where allocations
of direct expenses to each Fund can otherwise be made fairly. Each share of each
Fund bears equally those expenses that are allocated to the Fund as a whole.
Valuation of Shares
The price per share is calculated on each day on which shares are offered
for sale and orders accepted or upon receipt of a redemption request. Net asset
value per share is computed by dividing the value of each Fund's total assets
(which includes the value of the Fund's investment in the Portfolio), less
liabilities, by the number of Fund shares outstanding.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements. 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. FEES AND TRANSACTIONS WITH AFFILIATES
Reimbursement of Expenses
The Manager contractually agreed to reimburse each Fund for other expenses
through February 28, 2006 to the extent that total annual Fund operating
expenses exceed 0.12%. For the six months ended June 30, 2005, the Manager
reimbursed expenses totaling $2,014 and $8,481 to the Money Market and U.S.
Government Money Market Select Funds, respectively.
Expense Reimbursement Plan
The Funds have adopted an Expense Reimbursement Plan whereby the Manager may
seek repayment of expenses reimbursed for a period of up to three years.
However, reimbursement will occur only if a
- --------------------------------------------------------------------------------
9
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 2005 (Unaudited)
================================================================================
Fund's average net assets have grown or expenses have declined sufficiently to
allow reimbursement without causing its expense ratio to exceed the previously
agreed upon contractual expense limit. Reimbursed expenses subject to potential
recovery totaling $8,002 and $11,073 for the Money Market and U.S. Government
Money Market Select Funds, respectively, will expire in 2006. Reimbursed
expenses subject to potential recovery totaling $46,276 and $2,418 for the Money
Market and U.S. Government Money Market Select Funds, respectively, will expire
in 2007. Reimbursed expenses subject to potential recovery totaling $2,014 and
$8,481 for the Money Market and U.S. Government Money Market Select Funds,
respectively, will expire in 2008.
Other
Certain officers or Trustees of the Trust are also current or former
officers or employees of the Manager or American. The Trust makes no direct
payments to its officers. Mr. Feld and the non-interested Trustees (other than
Mr. O'Sullivan) and their spouses are provided unlimited air transportation on
American. Retired Trustees and their spouses are provided free transportation on
American, up to a maximum annual value of $40,000. The Trust compensates each
Trustee with payments in an amount equal to the Trustee's income tax on the
value of this free airline travel. Mr. O'Sullivan, as a retiree of American,
already receives flight benefits. This Trustee receives an annual retainer of
$40,000 plus $1,250 for each Board meeting attended.
- --------------------------------------------------------------------------------
10
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AMERICAN BEACON MONEY MARKET SELECT FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ==================================================================
2005 2004 2003 2002 2001(B) 2000
----------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
Net asset value, beginning of period ....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ---------- ----------
Net investment income(A) .................. 0.01 0.01 0.01 0.02 0.04 0.06
Less dividends from net investment
income ................................ (0.01) (0.01) (0.01) (0.02) (0.04) (0.06)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ==========
Total return ................................ 1.34%(D) 1.33% 1.13% 1.81% 4.28% 6.58%
========== ========== ========== ========== ========== ==========
Ratios and supplemental data:
Net assets, end of period
(in thousands) ......................... $5,184,816 $3,973,103 $3,988,724 $5,030,034 $5,589,030 $2,227,985
Ratios to average net assets
(annualized)(A):
Expenses ............................. 0.12% 0.12% 0.12% 0.11% 0.12% 0.12%
Net investment income .................. 2.70% 1.28% 1.14% 1.82% 3.84% 6.47%
Decrease reflected in above expense
ratio due to absorption of
expenses by the Manager ............. 0.00%(C) 0.00%(C) 0.00%(C) - 0.00%(C) 0.03%
- -------------
(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) Prior to December 1, 2001, the American Beacon Money Market Select Fund was
known as the American Select Cash Reserve Fund.
(C) Amount is less than 0.01%.
(D) Not annualized.
- --------------------------------------------------------------------------------
12
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET SELECT FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31, DECEMBER 1 TO
JUNE 30, ==================================== DECEMBER 31,
2005 2004 2003 2002 2001(B)
---------- -------- -------- -------- -------------
(UNAUDITED)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ------
Net investment income(A) ....................... 0.01 0.01 0.01 0.02 -(D)
Less dividends from net investment income ...... (0.01) (0.01) (0.01) (0.02) -(D)
-------- -------- -------- -------- ------
Net asset value, end of period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======
Total return ..................................... 1.32%(C) 1.29% 1.11% 1.74% 0.20%(C)
======== ======== ======== ======== ======
Ratios and supplemental data:
Net assets, end of period (in thousands) ....... $146,521 $193,287 $162,489 $110,014 $2,822
Ratios to average net assets (annualized)(A):
Expenses .................................... 0.12% 0.12% 0.12% 0.12% 0.10%
Net investment income ....................... 2.62% 1.31% 1.09% 1.75% 2.06%
Decrease reflected in above expense ratio due
to absorption of expenses by the Manager 0.01% 0.00%(E) 0.03% 0.03% -
- ---------------
(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 U.S. Government Money Market Portfolio.
(B) The American Beacon U.S. Government Money Market Select Fund commenced
active operations on December 1, 2001.
(C) Not annualized.
(D) Amount is less than $0.01 per share.
(E) Amount is less than 0.01%.
- --------------------------------------------------------------------------------
13
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 2005 (Unaudited)
================================================================================
PAR
AMOUNT VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS (NOTE B) - 16.81%
Barclays Capital, Incorporated, 3.42%, Due 7/1/2005 ...................... $450,000 $ 450,000
Goldman Sachs, 3.43%, Due 7/1/2005 ....................................... 765,000 765,000
----------
TOTAL REPURCHASE AGREEMENTS ......................................... 1,215,000
----------
EURODOLLAR TIME DEPOSITS - 12.07%
ABN AMRO Bank, 3.36%, Due 7/1/2005 ....................................... 325,000 325,000
National City Bank, 3.29%, Due 7/1/2005 .................................. 272,296 272,296
Societe Generale, 3.344%, Due 7/1/2005 ................................... 275,000 275,000
----------
TOTAL EURODOLLAR TIME DEPOSITS ...................................... 872,296
----------
VARIABLE RATE CERTIFICATES OF DEPOSIT AND BANK NOTES (NOTE D) - 30.13%
Barclays Bank, 3.38%, Due 9/29/2005 ...................................... 75,000 49,989
BNP Paribas,
3.204%, Due 8/23/2005 .................................................. 72,000 71,994
3.105%, Due 1/30/2006 .................................................. 88,000 87,977
Credit Lyonnais, 3.305%, Due 9/12/2005 ................................... 97,000 96,987
Credit Suisse First Boston,
3.28%, Due 11/10/2005 .................................................. 100,000 100,006
3.50%, Due 12/29/2005 .................................................. 20,400 20,404
3.24%, Due 2/6/2006 .................................................... 10,000 10,002
3.48%, Due 5/10/2006 ................................................... 150,000 150,049
Fifth Third Bank, 3.188%, Due 11/14/2005 ................................. 197,000 196,960
ForeningsSparbanken AB, 3.13%, Due 7/29/2005 ............................. 75,000 74,998
HSBC Bank USA, 3.22%, Due 5/4/2006 ....................................... 85,000 85,030
JP Morgan Chase Bank, NA,
3.31%, Due 5/1/2006 .................................................... 10,000 10,011
3.319%, Due 5/5/2006 ................................................... 25,000 25,029
Nordea Bank Finland, PLC, 3.10%, Due 10/27/2005 .......................... 25,000 24,994
Royal Bank of Scotland, 3.24%, Due 7/21/2006 ............................. 150,000 150,000
Societe Generale, 3.105%, Due 1/30/2006 .................................. 50,000 49,975
SouthTrust Bank,
3.19%, Due 8/12/2005 ................................................... 150,000 149,995
3.35%, Due 12/14/2005 .................................................. 40,000 39,995
SunTrust Bank,
3.529%, Due 10/3/2005 .................................................. 62,230 62,235
3.20%, Due 5/12/2006 ................................................... 150,000 150,000
Toronto Dominion Bank, 3.30%, Due 9/12/2005 .............................. 100,000 99,986
UBS AG, 3.09%, Due 1/30/2006 ............................................. 50,000 49,975
Unicredito Italiano,
3.07%, Due 10/20/2005 .................................................. 100,000 99,985
3.367%, Due 12/19/2005 ................................................. 166,000 165,959
US Bank, NA,
3.415%, Due 12/29/2005 ................................................. 125,000 124,985
3.335%, Due 3/8/2006 ................................................... 30,000 29,999
----------
TOTAL VARIABLE RATE CERTIFICATES OF DEPOSIT AND BANK NOTES .......... 2,177,519
----------
VARIABLE RATE PROMISSORY NOTES (NOTE D) - 4.15%
Goldman Sachs Group, 3.288%, Due 5/10/2006 ............................... 300,000 300,000
----------
TOTAL VARIABLE RATE PROMISSORY NOTES ................................ 300,000
----------
VARIABLE RATE FUNDING AGREEMENTS (NOTES A AND D) - 2.08%
Metropolitan Life Insurance Company, 6.81%, Due 12/1/2005 ................ 150,000 150,000
----------
TOTAL VARIABLE RATE FUNDING AGREEMENTS .............................. 150,000
----------
ASSET-BACKED COMMERCIAL PAPER, 144A (NOTES C AND E) - 0.67%
Galaxy Funding, Incorporated, 3.45%, Due 9/29/2005 ...................... 49,000 48,580
----------
TOTAL ASSET-BACKED COMMERCIAL PAPER ................................. 48,580
----------
VARIABLE RATE MEDIUM-TERM NOTES (NOTE D) - 33.80%
American Honda Finance Corporation, 144A (Note C)
3.62%, Due 10/7/2005 ................................................... 25,000 25,006
3.47%, Due 2/6/2006 .................................................... 13,000 13,021
See accompanying notes
- --------------------------------------------------------------------------------
14
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 2005 (Unaudited)
================================================================================
PAR
AMOUNT VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
3.22%, Due 2/13/2006 ................................................... $ 25,000 $ 25,000
3.334%, Due 2/21/2006 ................................................. 35,120 35,138
3.32%, Due 3/7/2006 .................................................... 25,000 25,000
Bayerische Landesbank Girozentrale, 3.46%, Due 2/1/2006 .................. 24,000 24,042
Caterpillar Financial Services, 3.328%, Due 8/15/2005 .................... 71,000 71,008
Citigroup, Incorporated, 3.555%, Due 3/20/2006 ........................... 37,000 37,045
Citigroup Global Markets Holdings, Incorporated,
3.44%, Due 12/12/2005 ................................................. 18,000 18,007
3.424%, Due 3/16/2006 ................................................. 50,585 50,600
3.49%, Due 6/6/2006 .................................................... 25,000 25,040
Fifth Third Bank, 3.041%, Due 11/1/2005 .................................. 75,000 74,989
General Electric Capital Corporation,
3.41%, Due 2/3/2006 .................................................... 97,544 97,679
3.42%, Due 2/6/2006 .................................................... 30,275 30,320
3.42%, Due 5/12/2006 ................................................... 10,983 11,003
3.34%, Due 7/17/2006 ................................................... 180,000 180,000
General Electric Company, 3.211%, Due 10/24/2005 ......................... 43,975 43,985
Halifax Bank of Scotland plc, 144A (Note C)
3.16%, Due 1/12/2006 ................................................... 106,000 106,028
3.20%, Due 1/26/2006 ................................................... 23,000 23,008
Household Finance Corporation, 3.37%, Due 8/18/2005 ...................... 211,250 211,284
Merrill Lynch & Company, Incorporated, 3.471%, Due 3/17/2006 ............ 45,000 45,027
Metropolitan Life Global Funding I, 3.441%, Due 3/17/2006, 144A (Note C).. 22,000 22,009
Monumental Global Funding II, 144A (Note C)
3.70%, Due 7/1/2005 .................................................... 102,000 102,000
3.15%, Due 7/6/2005 .................................................... 65,700 65,700
JP Morgan Chase & Company, 3.39%, Due 10/31/2005 ......................... 10,000 10,007
Morgan Stanley Group, Incorporated, 3.75%, Due 3/27/2006 ................. 284,100 284,724
Paccar Financial Corporation,
3.07%, Due 7/11/2005 ................................................... 50,000 50,000
3.361%, Due 9/16/2005 ................................................. 40,000 39,998
Toyota Motor Credit Corporation,
3.53%, Due 10/7/2005 ................................................... 70,000 70,003
3.24%, Due 11/18/2005 ................................................. 50,000 50,001
3.11%, Due 7/14/2006 ................................................... 175,000 175,034
US Bancorp, 3.564%, Due 9/16/2005 ....................................... 20,095 20,102
Wells Fargo and Company,
3.51%, Due 9/29/2005 ................................................... 76,580 76,591
3.45%, Due 3/3/2006 .................................................... 86,613 86,694
3.48%, Due 6/12/2006 ................................................... 67,500 67,589
3.19%, Due 7/15/2006, 144A (Note C) ................................... 150,000 150,000
----------
TOTAL VARIABLE RATE MEDIUM-TERM NOTES .............................. 2,442,682
----------
TOTAL INVESTMENTS - 99.71% (COST $7,206,077) ............................. 7,206,077
----------
OTHER ASSETS, NET OF LIABILITIES - 0.29% ................................ 19,942
----------
TOTAL NET ASSETS - 100% ................................................. $7,226,019
==========
- ---------------
Based on the cost of investments of $7,206,077 for federal income tax purposes
at June 30, 2005, there was no unrealized appreciation or depreciation of
investments.
(A) Obligation is subject to an unconditional put back to the issuer with ninety
calendar days notice.
(B) Collateral held at Bank of New York for Barclays, 4.00% -7.50%, Due
12/1/2008 - 7/1/2035, Total Value - $459,000; and for Goldman Sachs, 3.553%
-6.50%, Due 6/1/2018 - 12/1/2044 Total Value - $780,300.
(C) 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 $640,490 or 8.86% of net assets.
(D) 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.
(E) Rates associated with money market securities represent discount rate at
time of purchase.
See accompanying notes
- --------------------------------------------------------------------------------
15
AMERICAN BEACON MASTER U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 2005 (Unaudited)
================================================================================
PAR
AMOUNT VALUE
------- --------
(DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS (NOTE A) - 48.37%
Banc of America Securities, LLC, 3.42%, Due 7/1/2005 ................... $10,000 $ 10,000
Barclays Capital, Incorporated, 3.42%, Due 7/1/2005 .................... 40,000 40,000
Goldman Sachs, 3.43%, Due 7/1/2005 ..................................... 43,046 43,046
--------
TOTAL REPURCHASE AGREEMENTS ........................................ 93,046
--------
U.S. GOVERNMENT AGENCY INSTRUMENTS - 51.42%
Federal Home Loan Bank,
Variable Rate Note, 3.224%, Due 7/26/2005 (Note C) .................... 15,000 15,000
Variable Rate Note, 3.045%, Due 8/2/2005 (Note C) .................... 15,000 15,000
Variable Rate Note, 3.003%, Due 10/5/2005 (Note C) .................... 5,000 4,999
Federal Home Loan Mortgage Corporation,
Variable Rate Note, 3.34%, Due 12/27/2006 (Note B) .................... 10,000 9,991
Variable Rate Note, 7.00%, Due 7/15/2005 (Note B) .................... 5,000 5,008
Variable Rate Note, 1.085%, Due 9/9/2005 (Note C) .................... 5,000 5,000
Federal National Mortgage Association,
Discount Note, 3.35%, Due 9/14/2005 (Note B) ......................... 2,662 2,643
Variable Rate Note, 3.314%, Due 12/22/2006 (Note C) ................... 10,000 9,991
Variable Rate Note, 3.39%, Due 10/3/2005 (Note C) .................... 16,300 16,297
Variable Rate Note, 3.064%, Due 12/9/2005 (Note C) .................... 15,000 14,996
--------
TOTAL U.S. GOVERNMENT AGENCY INSTRUMENTS ........................... 98,625
--------
TOTAL INVESTMENTS - 99.79% (COST $191,971) .............................. 191,971
--------
OTHER ASSETS, NET OF LIABILITIES - 0.21% ............................... 406
--------
TOTAL NET ASSETS - 100% ................................................ $192,377
========
- -----------------
Based on the cost of investments of $191,971 for federal income tax purposes at
June 30, 2005, there was no unrealized appreciation or depreciation of
investments.
(A) Collateral held at Bank of New York for Banc of America Securities, LLC,
5.50%, Due 7/1/2020, Total Value - $10,200; and Barclays Capital,
Incorporated, 4.13% - 6.50%, Due 6/1/2019 - 6/1/2035, Total Value - $40,800;
and Goldman Sachs, 5.50%, Due 6/1/2035, Total Value - $43,907.
(B) Rates represent discount rate.
(C) 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
- --------------------------------------------------------------------------------
16
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2005 (Unaudited)
================================================================================
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
============== ===============
(IN THOUSANDS)
ASSETS:
Investments in securities at value (cost - $5,991,077
and $98,925, respectively) ........................................ $5,991,077 $ 98,925
Repurchase agreements (cost - $1,215,000 and $93,046, respectively) .. 1,215,000 93,046
Receivable from interfund lending .................................... 1,964 -
Dividends and interest receivable ................................... 18,641 421
Prepaid expenses .................................................... 136 12
---------- --------
TOTAL ASSETS ..................................................... 7,226,818 192,404
---------- --------
LIABILITIES:
Management and investment advisory fees payable (Note 2) ............ 640 19
Other liabilities .................................................... 159 8
---------- --------
TOTAL LIABILITIES ................................................. 799 27
---------- --------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS .............. $7,226,019 $192,377
========== ========
See accompanying notes
- --------------------------------------------------------------------------------
17
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2005 (Unaudited)
================================================================================
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
============== ===============
(IN THOUSANDS)
INVESTMENT INCOME:
Interest income .................................................. $91,846 $3,381
------- ------
TOTAL INVESTMENT INCOME ........................................ 91,846 3,381
------- ------
EXPENSES:
Management and investment advisory fees (Note 2) ................. 3,262 123
Custodian fees .................................................... 190 7
Professional fees.................................................. 80 4
Other expenses..................................................... 91 5
------- ------
TOTAL EXPENSES ................................................. 3,623 139
------- ------
NET INVESTMENT INCOME ............................................... 88,223 3,242
------- ------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ................................. 13 6
------- ------
NET GAIN ON INVESTMENTS ....................................... 13 6
------- ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................ $88,236 $3,248
======= ======
See accompanying notes
- --------------------------------------------------------------------------------
18
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
============================= =============================
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2005 DECEMBER 31, 2005 DECEMBER 31,
(UNAUDITED) 2004 (UNAUDITED) 2004
------------ ------------ ----------- ------------
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .......................................... $ 88,223 $ 70,915 $ 3,242 $ 3,441
Net realized gain on investments ................................ 13 208 6 15
------------ ------------ --------- -----------
TOTAL INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... 88,236 71,123 3,248 3,456
------------ ------------ --------- -----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions ................................................... 51,533,535 59,602,193 701,467 1,351,736
Withdrawals ..................................................... (49,802,173) (59,216,512) (761,857) (1,340,743)
------------ ------------ --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS .......... 1,731,362 385,681 (60,390) 10,993
------------ ------------ --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ....................... 1,819,598 456,804 (57,142) 14,449
------------ ------------ --------- -----------
NET ASSETS:
Beginning of period ............................................ 5,406,421 4,949,617 249,519 235,070
------------ ------------ --------- -----------
END OF PERIOD ................................................... $ 7,226,019 $ 5,406,421 $ 192,377 $ 249,519
============ ============ ========= ===========
See accompanying notes
- --------------------------------------------------------------------------------
19
AMERICAN BEACON MASTER TRUST PORTFOLIOS
FINANCIAL HIGHLIGHTS
================================================================================
MONEY MARKET
================================================================================
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, =================================================================
2005 2004 2003 2002 2001 2000
------------ ---------- ---------- ----------- ----------- ----------
(UNAUDITED)
Total return ................................. 1.34%(A) 1.34% 1.13% 1.81% 4.30% N/A
Ratios to average net assets (annualized):
Expenses ................................... 0.11% 0.11% 0.11% 0.11% 0.11% 0.11%
Net investment income ...................... 2.70% 1.30% 1.14% 1.81% 3.95% 6.40%
(A) Not annualized.
See accompanying notes
- --------------------------------------------------------------------------------
20
U.S. GOVERNMENT MONEY MARKET
==========================================================================
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ===========================================================
2005 2004 2003 2002 2001 2000
- ------------ ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
1.33%(A) 1.30% 1.11% 1.74% 4.24% N/A
0.11% 0.11% 0.12% 0.12% 0.11% 0.13%
2.63% 1.30% 1.13% 1.71% 3.99% 6.27%
See accompanying notes
- --------------------------------------------------------------------------------
21
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (Unaudited)
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Master Trust (the "Trust"), formerly known as AMR Investment
Services Trust, is registered under the Investment Company Act of 1940, as
amended, as a no load, open-end management investment company that was
organized as a trust underthe 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 assets of each Portfolio belong only to that
Portfolio, and the liabilities of each Portfolio are borne solely by that
Portfolio and no other.
American Beacon Advisors, Inc. (the "Manager") is a wholly-owned subsidiary
of AMR Corporation, the parent company of American Airlines, Inc. ("American"),
and was organized in 1986 to provide business management, advisory,
administrative and asset management consulting services.
The following is a summary of the significant accounting policies followed
by the Portfolios.
Security Valuation
Securities of the Portfolios are valued at fair value, which approximates
amortized cost. In the event that a deviation of 1/2 of 1% or more exists
between the $1.00 per share price of the Portfolios, calculated at amortized
cost, and the price per share calculated by reference to market quotations, or
if there is any other deviation that the Trust's Board of Trustees (the "Board")
believes would result in a material dilution to shareholders or purchasers,
the Board will promptly consider the appropriate action that should be
initiated.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale. Interest income is earned from settlement date, recorded on
the accrual basis, and adjusted, if necessary, for amortization of premiums or
accretion of discounts on investment grade short-term securities and zero coupon
instruments. For financial and tax reporting purposes, realized gains and
losses are determined on the basis of specific lot identification.
Federal Income and Excise Taxes
The Portfolios will be treated as partnerships for federal income tax
purposes. As such, each investor in a Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that each
Portfolio's assets will be managed in such a way that an investor in the
Portfolio will be able to satisfy the requirements of subchapter M of the
Internal Revenue Code.
Repurchase Agreements
Under the terms of a repurchase agreement, securities are acquired by a
Portfolio from a securities dealer or a bank that are subject to resale at a
later date. Repurchase agreements are fully collateralized by U.S. Treasury or
U.S. Government agency securities. All collateral is held at the Portfolio's
custodian bank, State Street Bank and Trust Company, or at subcustodian
banks. The collateral is monitored daily by the Manager so that the collateral's
market value exceeds the carrying value of the repurchase agreement plus accrued
interest.
- --------------------------------------------------------------------------------
22
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 2005 (Unaudited)
================================================================================
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimated.
Other
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Trust. In the normal course of business, the Trust enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Trust and the Manager are parties to a Management Agreement that
obligates the Manager to provide or oversee the provision of all
administrative, investment advisory and portfolio management services. The
Manager serves as the sole investment advisor to each of the Portfolios. As
compensation for performing the duties required under the Management
Agreement, the Manager receives from the Portfolios 0.10% of the average daily
net assets of each of the Portfolios.
Interfund Lending Program
Pursuant to an exemptive order by the Securities and Exchange Commission,
the Portfolios, along with other registered investment companies having
management contracts with the Manager, may participate in an interfund lending
program. This program provides an alternative credit facility allowing the
Portfolios to lend money to other participating series managed by the
Manager. For the six months ended June 30, 2005, the Money Market Portfolio
earned $703 under the credit facility. This amount is included in interest
income on the financial statements.
Other
Certain officers or Trustees of the Trust are also current or former
officers or employees of the Manager or American. The Trust makes no direct
payments to its officers. Mr. Feld and the non-interested Trustees (other than
Mr. O'Sullivan) and their spouses are provided free unlimited air transportation
on American. Retired Trustees and their spouses are provided free air
transportation on American, up to a maximum annual value of $40,000. The Trust
compensates each Trustee with payments in an amount equal to the Trustee's
income tax on the value of this free airline travel. Mr. O'Sullivan as a retiree
of American, already receives flight benefits. Mr. O'Sullivan receives an annual
retainer of $40,000 plus $1,250 for each Board meeting attended.
- --------------------------------------------------------------------------------
23
RENEWAL OF MANAGEMENT AGREEMENT
(Unaudited)
================================================================================
At their February 23, 2005 meeting, the Trustees considered the renewal of
the existing Management Agreement between the Manager and the Funds. As part of
the renewal process, legal counsel to the Trusts and the independent Trustees
sent information request letters to the Manager seeking certain relevant
information. The response by the Manager was provided to the Trustees for their
review prior to their meeting, and the Trustees were provided with the
opportunity to request any additional materials.
The Trustees considered, among other materials, response by the Manager to
inquiries requesting:
o 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;
o a copy of the most recent audited or unaudited financial statements as
well as Parts I and II of its Form ADV;
o a summary of any material past, pending or anticipated litigation or
regulatory proceedings involving the Manager or its personnel,
including the results of any recent regulatory examination or
independent audit;
o a comparison of the performance of each Fund with performance of other
similar accounts managed by the Manager, including a discussion of
relative performance versus a peer group average and any remedial
measures if the Manager's performance was materially below that of the
peer group;
o a cost/profitability analysis of the Manager and any actual or
anticipated economies of scale in relation to the services it provides
to the Funds, if available;
o 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;
o an evaluation of any other benefits to the Manager or Funds as a result
of their relationship, if any;
o a description of the scope of portfolio management services provided to
the Funds, including whether such services differ from the services
provided to other clients, including other registered investment
companies;
o a description of the personnel who are assigned primary responsibility
for managing the Fund, including any changes during the past year;
o a description of the basis upon which portfolio managers are
compensated, including any "incentive" arrangements;
o a description of any actual or potential conflicts of interest
anticipated in managing Fund assets;
o a discussion regarding the Manager's participation in "soft dollar"
arrangements, if any, or other brokerage allocation policies with
respect to Fund transactions, including the Manager's methodology for
obtaining the most favorable execution and the use of any affiliated
broker-dealers;
o a description of trade allocation procedures among accounts managed by
the Manager;
o a discussion of the Manager's compliance program with regard to federal,
state, corporate and Fund requirements;
- --------------------------------------------------------------------------------
24
RENEWAL OF MANAGEMENT AGREEMENT
(Unaudited) - (Continued)
================================================================================
o information regarding the Manager's code of ethics, insider trading
policy and disaster recovery plan, including a description of any
material changes thereto;
o a description of the Manager's affiliation with any broker-dealer;
o a discussion of any anticipated change in the Manager's controlling
persons;
o verification of the Manager's insurance coverage with regards to the
services provided to the Funds;
o a table comparing the performance of each Fund to appropriate indices,
including comments on each Fund's relative performance;
o a table detailing the Manager's profitability with respect to each Fund;
o an analysis of any material complaints received from Fund shareholders;
o a description of how expenses that are not readily identifiable to a
particular Fund are allocated; and
o any ideas for the future growth and efficient operation of the Funds.
The Trustees were also provided with an analysis provided by Lipper, Inc.,
which compared: (i) investment performance of each Fund versus comparable
investment companies and appropriate indices; (ii) total expenses of each Fund
versus comparable mutual funds, and (iii) each Fund's investment advisory fees
versus comparable mutual funds.
Legal counsel provided the Trustees with a memorandum detailing their
responsibilities pertaining to the renewal of the Management Agreements. This
memorandum explained the regulatory requirements surrounding the Trustees'
process for evaluating investment advisors and the terms of the contracts.
CONSIDERATIONS WITH RESPECT TO ALL FUNDS
- ----------------------------------------
In determining whether to approve the continuance of the Management
Agreement, the Trustees considered the best interests of each Fund separately.
In each instance, the Trustees considered, among other things, the following
factors: (1) the nature and quality of the services provided; (2) the investment
performance of the Fund and the Manager; (3) the Manager's cost for providing
the services and the profitability of the advisory business to the Manager; (4)
the extent to which economies of scale have been taken into account in setting
the fee schedule; and (5) whether fee levels reflect these economies of scale
for the benefit of Fund investors. The Trustees posed questions to various
management personnel of the Manager regarding certain key aspects of the
material submitted in support of the renewal.
With respect to the renewal of the Management Agreement, the Trustees
considered: the Manager's ability to retain key investment personnel and to
provide consistent performance and an active client service program; the
Manager's goal to continue to provide consistent above average long-term
performance at low cost; the continuing efforts by the Manager to add new series
so as to enhance the Trust's product line; the Manager's record in building
improved compliance, control and credit functions that reduce risks to the
Funds; and the addition of personnel to manage the Funds, promote sales and
improve services.
- --------------------------------------------------------------------------------
25
RENEWAL OF MANAGEMENT AGREEMENT
(Unaudited) - (Continued)
================================================================================
ADDITIONAL CONSIDERATIONS WITH RESPECT TO THE MONEY MARKET SELECT FUND
- ----------------------------------------------------------------------
In considering the renewal of the Management Agreement, the Trustees
considered the following additional factors: (1) the Money Market Select Fund
had substantially above-average performance for all reported periods ended
December 31, 2004; (2) the Fund's expense ratio was lower than its peer group
average and other comparable funds; (3) the Trustees deemed the profit made by
the Manager on the services it provided to the Fund to be reasonable in light of
the fact that the Manager provides high-quality services at a low cost to
investors, manages the Fund's assets, is subject to a high degree of risk of
financial responsibility should the Fund be unable to maintain its stable
$1.00 per share net asset value and provides a comprehensive compliance program
for the Fund; and (4) the Manager's explanation that fee schedule "breakpoints"
were not warranted due to, among other factors, the low, base management fee
charged to the Fund.
Based on these considerations and those noted above with respect to all
Funds, the Trustees (1) concluded that the fees paid to the Manager under the
Management Agreement are fair and reasonable, (2) determined that the Money
Market Select Fund and its shareholders would benefit from the Manager's
continued management of the Fund and (3) approved the renewal of the Management
Agreement with respect to the Money Market Select Fund.
ADDITIONAL CONSIDERATIONS WITH RESPECT TO THE U.S. GOVERNMENT MONEY MARKET
- --------------------------------------------------------------------------
SELECT FUND
- -----------
In considering the renewal of the Management Agreement, the Trustees
considered the following additional factors: (1) the U.S. Government Money
Market Select Fund had substantially above-average performance for all reported
periods ended December 31, 2004; (2) the Select Fund's expense ratio was lower
than the its peer group average and other comparable funds; (3) the Manager
provides high-quality services at a low cost to investors, manages the Fund's
assets, is subject to a high degree of risk of financial responsibility should
the Fund be unable to maintain its stable $1.00 per share net asset value and
provides a comprehensive compliance program for the Fund; and (4) the Manager's
explanation that fee schedule "breakpoints" were not warranted due to, among
other factors, the low, base management fee charged to the Fund.
Based on these considerations and those noted above with respect to all
Funds, the Trustees (1) concluded that the fees paid to the Manager under the
Management Agreement are fair and reasonable, (2) determined that the U.S.
Government Money Market Select Fund and its shareholders would benefit from the
Manager's continued management of the Fund and (3) approved the renewal of the
Management Agreement with respect to the U.S. Government Money Market Select
Fund.
- --------------------------------------------------------------------------------
26
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[LOGO OF AMERICAN BEACON SELECT FUND] AMERICAN BEACON
SELECT FUNDS(SM)
- --------------------------------------------------------------------------------
DELIVERY OF DOCUMENTS
To reduce expenses, your financial institution may mail only one copy of the
Prospectus, Annual Report and Semi-Annual Report to those addresses shared by
two or more accounts. If you wish to receive individual copies of these
documents, please contact your financial institution. Delivery of individual
copies will commence thirty days after receiving your request.
If you invest in the Funds through a financial institution, you may be able to
receive the Funds' regulatory mailings, such as the Prospectus, Annual Report
and Semi-Annual Report, by e-mail. If you are interested in this option, please
go to www.icsdelivery.com and search for your financial institution's name or
contact your financial institution directly.
TO OBTAIN MORE INFORMATION ABOUT THE FUND:
[LOGO OF KEYBOARD] [LOGO OF MOUSE]
BY E-MAIL: ON THE INTERNET:
American_Beacon.Funds@ambeacon.com Visit our website at
www.americanbeaconfunds.com
- --------------------------------------------------------------------------------
[LOGO OF TELEPHONE] [LOGO OF MAIL]
BY TELEPHONE: BY MAIL:
Call (800) 658-5811 American Beacon Select Funds
4151 Amon Carter Blvd., MD 2450
Forth Worth TX 76155
- --------------------------------------------------------------------------------
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES
In addition to the Schedule of Investments provided in each semiannual and
annual report, each Fund files a complete schedule of its portfolio holdings
with the Securities and Exchange Commission ("SEC") on Form N-Q as of the first
and third fiscal quarters. The Funds' Forms N-Q are available on the SEC's
website at www.sec.gov. The Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549.
Information regarding the operation of the SEC's Public Reference Room may be
obtained by calling 1-800-SEC-0330. A complete schedule of each Fund's portfolio
holdings is also available on the Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of each quarter.
AVAILABILITY OF PROXY VOTING POLICY AND RECORDS
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available in each Fund's
Statement of Additional Information, which may be obtained free of charge by
calling 1-800-967-9009 or by accessing the SEC's website at www.sec.gov. Each
Fund's proxy voting record for the most recent year ended June 30 is filed
annually with the SEC on Form N-PX. The Funds' Forms N-PX are available on the
SEC's website at www.sec.gov. Each Fund's proxy voting record may also be
obtained by calling 1-800-967-9009.
FUND SERVICE PROVIDERS:
============================== ================================ ======================== ========================
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri ERNST & YOUNG LLP Portland, Maine
Chicago, Illinois
This report is prepared for shareholders of the American Beacon Select 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 Select Funds. American Beacon Select Funds is a service mark of AMR
Corporation. American Beacon Money Market Select Fund and American Beacon
U.S. Government Money Market Select Fund are service marks of American
Beacon Advisors, Inc.
[LOGO OF AMERICAN BEACON SELECT FUND] AMERICAN BEACON
SELECT FUNDS(SM)
4151 Amon Carter Blvd.
MD 2450
Fort Worth, TX 76155
1.800.658.5811
www.americanbeaconfunds.com
ITEM 2. CODE OF ETHICS.
The Trust did not amend the code of ethics that applies to its principal
executive and financial officers (the "Code") nor did it grant any waivers to
the provisions of the Code during the period covered by the shareholder reports
presented in Item 1.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedules of investments for each series of the Trust are included in the
shareholder reports presented in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Trust has made no material changes to the procedures by which shareholders
may recommend nominees to the Trust's Board of Trustees since the Trust last
disclosed such procedures in Schedule 14A.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon an evaluation within 90 days of the filing date of this
report, the principal executive and financial officers concluded that
the disclosure controls and procedures of the Trust are effective.
(b) There were no changes in the Trust's internal control over financial
reporting during the second fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to
materially affect, the Trust's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Not Applicable.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the Trust as required by Rule
30a-2(a) under the Investment Company Act of 1940 is attached
hereto as EX-99.CERT.
(a)(3) Not Applicable.
(b) The certifications required by Rule 30a-2(b) under the Investment
Company Act of 1940 are attached hereto as EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): American Beacon Select Funds
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: September 2, 2005
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 2, 2005
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: September 2, 2005