UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-9603
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: December 31, 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
[AMERICAN BEACON FUNDS LOGO]
ANNUAL REPORT
[PHOTO]
DECEMBER 31, 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.
<Table>
<Caption>
Contents
-----------------------------------------------
President's Message........... 1
Financial Highlights
Money Market Select Fund... 13
U.S. Government
Money Market Select Fund... 14
Schedule of Investments
Money Market Portfolio..... 16
U.S. Government
Money Market Portfolio..... 19
Additional Information...............Back Cover
</Table>
Any opinions herein, including forecasts, reflect our judgement as of the end of
the reporting period and are subject to change. Each advisor's strategies and
each Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
American Beacon Select Funds December 31, 2005
(BILL QUINN PICTURE)
FELLOW SHAREHOLDERS:
Enclosed please find the
Annual Report for the
American Beacon Select
Funds for the year ended
December 31, 2005. During
this time, the Select
Funds outperformed 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 several times
throughout the year
resulting in a Fed Funds
target rate of 4.25% at
year end. As the year
concluded, the Federal
Open Market Committee
(FOMC) indicated that it no longer sees monetary policy as "accommodative." In
its December statement, the Fed reflected that inflation remained contained but
that "some further measured policy firming is likely to be needed to keep the
risks to the attainment of both sustainable economic growth and price stability
roughly in balance." Although there is much debate as to the proper definition
of "some," one thing is clear -- the Fed is nearing the end of its tightening
cycle.
Despite rising interest rates, the American Beacon Select Funds produced
strong relative returns for the period. The Money Market Select Fund returned
3.23% for the twelve months, outperforming the Lipper Institutional Money Market
Average return of 2.84%. The U.S. Government Money Market Select Fund outpaced
the Lipper Institutional U.S. Government Money Market Average with a return of
3.19% versus 2.85% for the Average.
Looking forward, the market is pricing in a 100% chance of a 0.25% increase
at the January 31st FOMC meeting; however, the likelihood of additional
increases at the March and/or May meetings are less certain. Rather than simply
having a conviction that the Fed Funds rate is too low, the FOMC now appears to
be entering into a phase where future rate hikes will hinge more on economic
data developments.
We will continue to monitor economic trends and will adjust the Funds'
characteristics accordingly. Additionally, we expect to remain conservative on
credit risk given the tight credit spread environment.
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
ECONOMIC OVERVIEW
(Unaudited)
- --------------------------------------------------------------------------------
The year began with the U.S. economy growing at a solid pace as first quarter
gross domestic product (GDP) came in at a strong 3.8%. GDP continued to show
solid growth at a 3.3% annual rate during the second quarter and 4.1% annual
rate during the third quarter, fueled by robust consumer spending and home
building. However, late in the third quarter, hurricanes Katrina and Rita blew
ashore, leaving wind, rain, and economic uncertainty in their wake. Crude oil
prices, already trading in the mid $60 range before the hurricanes, hit a high
of $70 per barrel on September 1st. These surging fuel costs dampened consumer
sentiment, causing concerns of reduced consumer spending and lower corporate
profit margins. As a result, fourth quarter GDP growth did not fare as well.
Economists had expected fourth quarter GDP growth would slow as a result of
reduced discounts from automakers and moderating home sales. In addition, rising
home-heating costs threatened to dampen consumer spending. The consensus
estimate of 2.8% GDP growth missed the mark as the initial estimate of fourth
quarter GDP came in at 1.1%, raising questions as to the strength of the
economy. However, fiscal spending is expected to spur economic growth during the
first half of 2006 as the government works to rebuild areas impacted by the
hurricanes.
On the employment front, nonfarm payroll growth showed some volatility in
2005. However, the monthly average jobs created during the year came in at a
respectable 165,000. In addition, the unemployment rate hit 4.9% in August
before backing up to 5.1% in September due to job losses from the hurricanes.
This drop in jobs was much less than economists had forecasted, suggesting that
underlying job growth during this time remained strong. Labor market conditions
continued to improve as U.S. employers added over 500,000 new jobs during the
fourth quarter and the unemployment rate dropped back to its pre-hurricane level
of 4.9%. Business activity also remained strong as the U.S. services sector,
which makes up almost 90% of the U.S. economy, expanded for the thirty-third
consecutive month.
Despite talk of a pause in the aftermath of Katrina and Rita, the Federal
Open Market Committee (FOMC) continued to raise overnight rates by 25 basis
points at each of their remaining meetings for the year. This made it a total of
eight 25 basis point tightenings during 2005, resulting in a Fed Funds target
rate of 4.25% at year end. In addition, the "measured" policy adjustment
language remained part of the Fed's statement throughout 2005. In the minutes of
the September meeting, the Fed stated "upside risks to inflation appeared to
have increased" and "further rate increases probably would be required." It was
not until the December meeting that the Fed made reference to no longer seeing
monetary policy as "accommodative." In its December statement, the Fed reflected
that inflation remained contained but that "some further measured policy firming
is likely to be needed to keep the risks to the attainment of both sustainable
economic growth and price stability roughly in balance." Although there is much
debate as to the proper definition of "some," it appears that the Fed is nearing
the end of its tightening cycle. The actual number of rate hikes left, however,
will ultimately be determined by future economic trends and inflation
expectations.
Though core consumer and wholesale inflation are running close to the Fed
target level of 2%, high energy prices continue to drive up headline inflation
numbers. So the question remains, will businesses begin to pass these elevated
energy costs on to the consumer in the form of higher prices for goods and
services? If so, the Fed can be expected to adjust future monetary policy
accordingly.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON SELECT FUNDS
December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
As the economy continued to show signs of strength throughout the year, the Fed
maintained its stance of tightening monetary policy at a measured pace during
all of 2005. In response, the weighted-average maturity was maintained below 45
and 20 days for the Money Market and U.S. Government Money Market Select Funds,
respectively, throughout the year. The Fed raised the overnight target at each
of the eight FOMC meetings in 2005, resulting in a 4.25% Fed Funds target by
year end. This was a move of 25 basis points (0.25%) per meeting, after starting
the year at 2.25%. The primary strategy of the Fund was to buy variable rate
securities, short-dated commercial paper and overnight investments. Maintaining
short duration in a rising interest rate environment resulted in the Fund
outperforming its Lipper peer group. This strategy will stay in place until
economic data suggest the Fed is about to end its current tightening cycle.
For the twelve months ended December 31, 2005, the total return of the
American Beacon Money Market Select Fund was 3.23%. The Fund outperformed the
Lipper Institutional Money Market Average return of 2.84% by 39 basis points.
Lipper Inc. ranked the Fund 4th among 303, 3rd among 262 and 3rd among 211
Institutional Money Market Funds for the one-year, three-years and five-years
ended December 31, 2005, respectively(1).
For the twelve months ended December 31, 2005, the total return of the
American Beacon U.S. Government Money Market Select Fund was 3.19%. The Fund
outperformed the Lipper Institutional U.S. Government Money Market Average
return of 2.85% by 34 basis points. Lipper Inc. ranked the Fund 3rd among 137
and 2nd among 120 Institutional U.S. Government Money Market Funds for the
one-year and three-years ended December 31, 2005, respectively(1).
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.
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
AS OF 12/31/05
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Money Market(1,2).................. 3.23% 2.35% 4.01%
U.S. Government(1,3)............... 3.19% 2.28% 3.87%
</Table>
1 Past performance is not indicative of future performance. An in-
vestment 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 December 31, 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 December 31, 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.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON SELECT FUNDS -- CONTINUED
December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2005
<Table>
<Caption>
MONEY MARKET U.S. GOVERNMENT
------------ ---------------
7-day Current Yield* 4.23% 4.22%
7-day Effective Yield* 4.32% 4.31%
30-day Yield* 4.14% 4.12%
Weighted Average
Maturity 35 Days 9 Days
Moody's Rating Aaa Aaa
Standard & Poor's Rating AAAm AAAm
</Table>
* 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 DECEMBER 31, 2005
<Table>
<Caption>
% OF
NET ASSETS*
-----------
HSBC Bank USA 5.4%
SunTrust Bank 5.1%
Wells Fargo and Company 5.0%
General Electric Capital Corporation 4.8%
American Honda Finance Corporation 4.6%
Goldman Sachs Group 4.4%
Morgan Stanley Group, Incorporated 4.2%
Toyota Motor Credit Corporation 3.8%
Halifax Bank of Scotland plc 3.6%
Stanfield Victoria 3.2%
</Table>
MONEY MARKET PORTFOLIO -- ASSET ALLOCATION AS OF DECEMBER 31, 2005
<Table>
<Caption>
% OF
NET ASSETS*
-----------
Corporate Notes 41.1%
Bank CDs, TDs, and Notes 34.5%
Commercial Paper 11.1%
Repurchase Agreements 10.8%
Funding Agreements 2.2%
Net Other Assets 0.3%
</Table>
* Percent of net assets portion of American Beacon Master
Money Market Portfolio.
U.S. GOVERNMENT MONEY MARKET PORTFOLIO -- ASSET ALLOCATION AS OF DECEMBER 31,
2005
<Table>
<Caption>
% OF
NET ASSETS*
-----------
Repurchase Agreements 87.4%
Government Securities 12.5%
Net Other Assets 0.1%
</Table>
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning
of the period in each Fund and held for the entire period from July 1, 2005
through December 31, 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 "Hypo-
4
PERFORMANCE OVERVIEW
AMERICAN BEACON SELECT FUNDS -- CONTINUED
December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
thetical" lines of the table are useful in comparing ongoing costs only and will
not help you determine the relative total costs of owning different funds. If
you were subject to any transaction costs during the period, your costs would
have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
--------- --------- ---------------
MONEY MARKET
Actual $1,000.00 $1,018.66 $0.59
Hypothetical (5%
return before
expenses) $1,000.00 $1,024.62 $0.59
U.S. GOVERNMENT
Actual $1,000.00 $1,018.52 $0.63
Hypothetical (5%
return before
expenses) $1,000.00 $1,024.58 $0.63
</Table>
* 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 (184) by
days in the year (365) to reflect the half-year period.
5
AMERICAN BEACON SELECT FUNDS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
American Beacon Select Funds
We have audited the accompanying statements of assets and liabilities of
American Beacon Select Funds (formerly known as American AAdvantage Select
Funds), comprised of the American Beacon Money Market Select Fund and the
American Beacon U.S. Government Money Market Select Fund (collectively, the
"Funds") (formerly known as the American AAdvantage Money Market Select Fund and
the American AAdvantage U.S. Government Money Market Select Fund, respectively)
as of December 31, 2005, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Funds' internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Funds' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
American Beacon Select Funds at December 31, 2005, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods indicated therein, in conformity with U.S. generally accepted
accounting principles.
-s- ERNST & YOUNG LLP
Chicago, Illinois
February 21, 2006
- --------------------------------------------------------------------------------
6
AMERICAN BEACON SELECT FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
-------------- ---------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
ASSETS:
Investment in Portfolio, at value....................... $ 5,223,983 $ 197,267
Receivable from Manager for expense reimbursement (Note
2).................................................... -- 2
-------------- ------------
TOTAL ASSETS........................................ 5,223,983 197,269
-------------- ------------
LIABILITIES:
Dividends payable....................................... 6,892 554
Other liabilities....................................... 164 19
-------------- ------------
TOTAL LIABILITIES................................... 7,056 573
-------------- ------------
NET ASSETS.................................................. $ 5,216,927 $ 196,696
============== ============
ANALYSIS OF NET ASSETS:
Paid-in-capital......................................... 5,216,927 196,696
-------------- ------------
NET ASSETS.................................................. $ 5,216,927 $ 196,696
============== ============
Shares outstanding (no par value)....................... 5,216,926,513 196,695,519
============== ============
Net asset value, offering and redemption price per
share................................................. $ 1.00 $ 1.00
============== ============
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
7
AMERICAN BEACON SELECT FUNDS
STATEMENTS OF OPERATIONS
Year Ended December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
------------ ---------------
(IN THOUSANDS)
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest income......................................... $ 167,726 $6,557
Portfolio expenses...................................... (5,638) (241)
--------- ------
NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO...... 162,088 6,316
--------- ------
FUND EXPENSES:
Transfer agent fees..................................... 171 8
Professional fees....................................... 45 9
Registration fees and expenses.......................... 6 --
Other expenses.......................................... 73 14
--------- ------
TOTAL FUND EXPENSES................................. 295 31
--------- ------
LESS REIMBURSEMENT OF EXPENSES (NOTE 2)..................... -- 26
--------- ------
NET FUND EXPENSES................................... 295 5
--------- ------
NET INVESTMENT INCOME....................................... 161,793 6,311
--------- ------
REALIZED GAIN ALLOCATED FROM PORTFOLIO:
Net realized gain on investments........................ 14 5
--------- ------
NET GAIN ON INVESTMENTS............................. 14 5
--------- ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 161,807 $6,316
========= ======
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
8
AMERICAN BEACON SELECT FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
--------------------------- -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------- -------------------------
2005 2004 2005 2004
------------ ------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................... $ 161,793 $ 55,567 $ 6,311 $ 2,633
Net realized gain on investments........................ 14 169 5 11
------------ ------------ ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................ 161,807 55,736 6,316 2,644
------------ ------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income................................... (161,793) (55,567) (6,311) (2,633)
Net realized gain on investment......................... (14) (169) (5) (11)
------------ ------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS....................... (161,807) (55,736) (6,316) (2,644)
------------ ------------ ----------- -----------
CAPITAL SHARE TRANSACTIONS (AT $1.00 PER SHARE):
Proceeds from sales of shares........................... 86,821,599 55,001,001 1,623,288 1,169,538
Reinvestment of dividends and distributions............. 83,465 30,516 2,203 772
Cost of shares redeemed................................. (85,661,240) (55,047,138) (1,622,082) (1,139,512)
------------ ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS................................ 1,243,824 (15,621) 3,409 30,798
------------ ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS....................... 1,243,824 (15,621) 3,409 30,798
NET ASSETS:
Beginning of period..................................... 3,973,103 3,988,724 193,287 162,489
------------ ------------ ----------- -----------
END OF PERIOD........................................... $ 5,216,927 $ 3,973,103 $ 196,696 $ 193,287
============ ============ =========== ===========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
9
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
- --------------------------------------------------------------------------------
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 diversified, 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").
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 Fund
has the same investment objectives as its corresponding American Beacon Master
Trust Portfolio. The value of such investments reflects each Fund's
proportionate interest in the net assets of the corresponding portfolio (76.98%
and 82.34% at December 31, 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"), formerly known as AMR
Investment Services, Inc., is a wholly-owned subsidiary of AMR Corporation, the
parent company of American Airlines, Inc. ("American"), and was organized in
1986 to provide business management, advisory, administrative and asset
management consulting services to the Trust and other investors.
The following is a summary of the significant accounting policies followed
by the Funds.
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.
- --------------------------------------------------------------------------------
10
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
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 year ended December 31, 2005, the Manager
reimbursed expenses totaling $25,649 to the U.S. Government Money Market Select
Fund.
Expense Reimbursement Plan
The Funds have adopted an Expense Reimbursement Plan whereby the Manager
may seek recoupment of expenses reimbursed for a period of up to three years.
However, recoupment will occur only if a Fund's average net assets have grown or
expenses have declined sufficiently to allow recoupment without causing its
expense ratio to exceed the previously agreed upon contractual expense limit.
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.
- --------------------------------------------------------------------------------
11
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
Reimbursed expenses subject to potential recovery totaling $25,649 for the U.S.
Government Money Market Select Fund will expire in 2008.
The Funds have not recorded a liability for this potential reimbursement
due to the current assessment that a reimbursement is unlikely.
Other
Certain officers or Trustees of the Trust are also current or former
officers or employees of the Manager or American. The Trust makes no direct
payments to its officers. Mr. Feld and the non-interested Trustees (other than
Mr. O'Sullivan) and their spouses are provided 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.
3. FEDERAL INCOME AND EXCISE TAXES
It is the policy of each of the Funds to comply with the requirements of
Subchapter M of the Internal Revenue Code and to distribute substantially all
net investment income as well as any net realized capital gains on the sale of
investments. Therefore, no federal income tax provision is required.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes because of temporary or permanent
book-to-tax differences. To the extent these differences are permanent,
reclassifications are made to the appropriate equity accounts in the period that
the differences arise. Temporary differences are not reflected in the financial
records.
Dividends are determined in accordance with federal income tax regulations
which may treat certain transactions differently than United States generally
accepted accounting principles. Accordingly, the character of distributions and
composition of net assets for tax purposes may differ from those reflected in
the accompanying financial statements.
The tax character of distributions during the years ended December 31, 2005
and December 31, 2004 were as follows (in thousands):
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
--------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Distributions paid from:
Ordinary Income*.......................................... $161,807 $55,736 $6,316 $2,644
</Table>
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
As of December 31, 2005, the components of taxable distributable earnings
were the same as book. The cost basis of investments for federal income tax
purposes was also the same as the book basis.
- --------------------------------------------------------------------------------
12
AMERICAN BEACON MONEY MARKET SELECT FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
2005 2004 2003 2002 2001(B)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A)...................... 0.03 0.01 0.01 0.02 0.04
Net realized gain on investments.............. --(C) --(C) --(C) --(C) --(C)
---------- ---------- ---------- ---------- ----------
Total income from investment operations........... 0.03 0.01 0.01 0.02 0.04
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income.......... (0.03) (0.01) (0.01) (0.02) (0.04)
Distributions from net realized gain on
investments................................. --(C) --(C) --(C) --(C) --(C)
---------- ---------- ---------- ---------- ----------
Total distributions............................... (0.03) (0.01) (0.01) (0.02) (0.04)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
TOTAL RETURN...................................... 3.23% 1.33% 1.13% 1.81% 4.28%
========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...... $5,216,927 $3,973,103 $3,988,724 $5,030,034 $5,589,030
Ratios to average net assets (annualized)(A):
Expenses, net of waivers.................... 0.12% 0.12% 0.12% 0.11% 0.12%
Expenses, before waivers.................... 0.12% 0.12% 0.12% 0.11% 0.12%
Net investment income, net of waivers....... 3.20% 1.28% 1.14% 1.82% 3.84%
Net investment income, before waivers....... 3.20% 1.28% 1.14% 1.82% 3.84%
</Table>
- ---------------
(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 per share.
- --------------------------------------------------------------------------------
13
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET SELECT FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED DECEMBER 31, DECEMBER 1 TO
-------------------------------------------------- DECEMBER 31,
2005 2004 2003 2002 2001(B)
-------- -------- -------- -------- -------------
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A)........................ 0.03 0.01 0.01 0.02 --(D)
Net realized gain on investments................ --(D) --(D) --(D) --(D) --(D)
-------- -------- -------- -------- ------
Total income from investment operations............. 0.03 0.01 0.01 0.02 --
-------- -------- -------- -------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income............ (0.03) (0.01) (0.01) (0.02) --(D)
Distributions from net realized gain on
investments................................... --(D) --(D) --(D) --(D) --(D)
-------- -------- -------- -------- ------
Total distributions................................. (0.03) (0.01) (0.01) (0.02) --
-------- -------- -------- -------- ------
NET ASSET VALUE, END OF PERIOD...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======
TOTAL RETURN........................................ 3.19% 1.29% 1.11% 1.74% 0.20%(C)
======== ======== ======== ======== ======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........ $196,696 $193,287 $162,489 $110,014 $2,822
Ratios to average net assets (annualized)(A):
Expenses, net of waivers...................... 0.12% 0.12% 0.12% 0.12% 0.10%
Expenses, before waivers...................... 0.14% 0.12% 0.15% 0.15% 0.10%
Net investment income, net of waivers......... 3.17% 1.31% 1.09% 1.75% 2.06%
Net investment income, before waivers......... 3.15% 1.31% 1.06% 1.72% 2.06%
</Table>
- ---------------
(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.
- --------------------------------------------------------------------------------
14
AMERICAN BEACON MASTER TRUST
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
American Beacon Master Trust
We have audited the accompanying statements of assets and liabilities,
including the schedule of investments, of American Beacon Master Trust (formerly
known as AMR Investment Services Trust), comprised of the American Beacon Money
Market Portfolio and the American Beacon U.S. Government Money Market Portfolio
(collectively, the "Portfolios") (formerly known as the AMR Investments Money
Market Portfolio and the AMR Investments U.S. Government Money Market Portfolio,
respectively) as of December 31, 2005, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Portfolios' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Portfolios' internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Portfolios' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2005, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
American Beacon Master Trust at December 31, 2005, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
-s- ERNST & YOUNG LLP
Chicago, Illinois
February 21, 2006
- --------------------------------------------------------------------------------
15
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS (NOTE B) - 10.79%
Banc of America Securities, LLC, 4.27%, Due 1/3/2006........ $497,281 $ 497,281
UBS Securities, LLC, 4.28%, Due 1/3/2006.................... 235,000 235,000
----------
TOTAL REPURCHASE AGREEMENTS............................. 732,281
----------
EURODOLLAR TIME DEPOSITS - 10.68%
Rabobank Nederland, 4.188%, Due 1/3/2006.................... 300,000 300,000
Societe Generale, 4.13%, Due 1/3/2006....................... 225,000 225,000
UBS AG, 4.063%, Due 1/3/2006................................ 200,000 200,000
----------
TOTAL EURODOLLAR TIME DEPOSITS.......................... 725,000
----------
CERTIFICATES OF DEPOSIT AND BANK NOTES - 23.87%
CERTIFICATES OF DEPOSIT - U.S. BANKS - 9.00%
JP Morgan Chase Bank, NA, (Note D)
4.35%, Due 5/1/2006....................................... 15,000 15,007
4.391%, Due 5/5/2006...................................... 54,375 54,399
SouthTrust Bank, 4.44%, Due 6/1/2006 (Note D)............... 20,000 20,005
State Street Bank and Trust Company, 4.461%, Due 12/15/2006
(Note D).................................................. 15,750 15,747
SunTrust Bank, (Note D)
4.519%, Due 3/24/2006..................................... 100,000 100,003
4.282%, Due 5/12/2006..................................... 150,000 150,000
4.35%, Due 5/17/2006...................................... 94,100 94,111
US Bank, NA, (Note D)
4.422%, Due 3/8/2006...................................... 30,000 30,000
4.23%, Due 7/28/2006...................................... 131,385 131,405
----------
TOTAL CERTIFICATES OF DEPOSIT - U.S. BANKS.............. 610,677
----------
YANKEE CERTIFICATES OF DEPOSIT - U.S. BRANCHES - 14.87%
Barclays Bank, 4.313%, Due 6/21/2006 (Note D)............... 47,500 47,497
BNP Paribas, 4.158%, Due 1/30/2006 (Note D)................. 88,000 87,997
Canadian Imperial Bank of Commerce, 4.47%, Due 6/2/2006
(Note D).................................................. 50,000 50,011
Credit Suisse First Boston, (Note D)
4.271%, Due 2/3/2006...................................... 25,000 24,999
4.311%, Due 2/6/2006...................................... 10,000 10,000
4.33%, Due 5/10/2006...................................... 172,000 172,021
HSBC Bank USA,
4.509%, Due 12/14/2006.................................... 268,700 268,819
4.29%, Due 5/4/2006 (Note D).............................. 98,000 98,014
Royal Bank of Scotland, 4.34%, Due 11/21/2006, 144A (Notes C
and D).................................................... 150,000 150,000
Societe Generale, 4.158%, Due 1/30/2006 (Note D)............ 50,000 49,997
UBS AG, 4.143%, Due 1/30/2006 (Note D)...................... 50,000 49,997
----------
TOTAL YANKEE CERTIFICATES OF DEPOSIT - U.S. BRANCHES.... 1,009,352
----------
TOTAL CERTIFICATES OF DEPOSIT AND BANK NOTES............ 1,620,029
----------
VARIABLE RATE PROMISSORY NOTES (NOTE D) - 4.42%
Goldman Sachs Group, 4.364%, Due 11/9/2006.................. 300,000 300,000
----------
TOTAL VARIABLE RATE PROMISSORY NOTES.................... 300,000
----------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
16
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
VARIABLE RATE FUNDING AGREEMENTS (NOTES A AND D) - 2.21%
Metropolitan Life Insurance Company, 4.42%, Due
11/21/2006................................................ $150,000 $ 150,000
----------
TOTAL VARIABLE RATE FUNDING AGREEMENTS.................. 150,000
----------
ASSET-BACKED COMMERCIAL PAPER (NOTE E) - 11.08%
Clipper Receivables Corporation, 4.30%, Due 1/26/2006, 144A
(Note C).................................................. 47,000 46,860
FCAR Owner Trust, Series I,
4.32%, Due 1/26/2006...................................... 50,000 49,850
4.29%, Due 1/17/2006...................................... 50,000 49,905
4.22%, Due 2/6/2006....................................... 75,000 74,684
Fountain Square Commercial Funding, 4.29%, Due 2/8/2006,
144A (Note C)............................................. 35,000 34,842
GOVCO Incorporated, 4.415%, Due 1/23/2006, 144A (Note C).... 50,000 49,873
Jupiter Asset Securitization Corporation, 4.16%, Due
1/11/2006, 144A (Note C).................................. 50,000 49,942
K2 USA LLC, 4.27%, Due 2/8/2006, 144A (Note C).............. 50,000 49,775
Long Lane Master Trust IV, 144A (Note C)
4.29%, Due 2/1/2006....................................... 50,000 49,815
4.245%, Due 1/23/2006..................................... 81,661 81,449
Stanfield Victoria, 144A (Note C)
4.30%, Due 1/20/2006...................................... 22,000 21,950
4.18%, Due 1/25/2006...................................... 42,000 41,883
4.19%, Due 1/27/2006...................................... 30,800 30,707
4.20%, Due 1/30/2006...................................... 27,000 26,909
4.21%, Due 2/1/2006....................................... 59,744 59,528
4.31%, Due 2/21/2006...................................... 34,000 33,792
----------
TOTAL ASSET-BACKED COMMERCIAL PAPER..................... 751,764
----------
VARIABLE RATE MEDIUM-TERM NOTES (NOTE D) - 36.64%
Abbey National Treasury Services, PLC, 4.19%, Due 1/13/2006,
144A (Note C)............................................. 102,000 102,001
American Honda Finance Corporation, 144A (Note C)
4.541%, Due 2/6/2006...................................... 13,000 13,003
4.292%, Due 2/13/2006..................................... 25,000 25,000
4.34%, Due 2/16/2006...................................... 25,000 25,001
4.42%, Due 2/21/2006...................................... 35,120 35,124
4.285%, Due 7/11/2006..................................... 20,150 20,168
4.145%, Due 10/10/2006.................................... 30,000 30,009
4.159%, Due 10/18/2006.................................... 47,000 47,001
4.251%, Due 11/7/2006..................................... 55,000 55,000
4.44%, Due 12/12/2006..................................... 63,000 62,994
Bank One, NA, 4.173%, Due 1/12/2007......................... 63,000 63,047
Bayerische Landesbank Girozentrale, 4.50%, Due 2/1/2006..... 24,000 24,006
Citigroup, Incorporated,
4.625%, Due 3/20/2006..................................... 105,975 106,012
4.495%, Due 5/19/2006..................................... 40,000 40,022
Citigroup Global Markets Holdings, Incorporated,
4.587%, Due 6/6/2006...................................... 25,000 25,018
4.325%, Due 7/25/2006..................................... 100,000 100,086
4.59%, Due 12/12/2006..................................... 13,178 13,196
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
17
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
General Electric Capital Corporation,
4.461%, Due 2/3/2006...................................... $107,544 $ 107,566
4.491%, Due 2/6/2006...................................... 30,275 30,282
4.502%, Due 5/12/2006..................................... 10,983 10,991
4.47%, Due 1/17/2007...................................... 180,000 180,000
Halifax Bank of Scotland plc, 144A (Note C)
4.153%, Due 1/12/2006..................................... 106,000 106,002
4.236%, Due 1/26/2006..................................... 23,000 23,001
4.547%, Due 6/30/2006..................................... 76,600 76,624
4.40%, Due 8/28/2006...................................... 40,000 40,011
Metropolitan Life Global Funding I, 144A (Note C)
4.517%, Due 3/17/2006..................................... 22,000 22,003
4.55%, Due 8/28/2006...................................... 32,620 32,652
Morgan Stanley Group, Incorporated, 4.799%, Due 3/27/2006... 284,100 284,297
PACCAR Financial Corporation,
4.42%, Due 9/20/2006...................................... 33,000 32,982
4.36%, Due 12/4/2006...................................... 125,000 124,942
Toyota Motor Credit Corporation,
4.11%, Due 7/14/2006...................................... 175,000 175,018
4.436%, Due 9/15/2006..................................... 84,200 84,202
Wachovia Bank, NA, 4.37%, Due 12/4/2006..................... 27,000 27,000
Wells Fargo and Company,
4.54%, Due 3/3/2006....................................... 88,613 88,634
4.57%, Due 6/12/2006...................................... 75,500 75,545
4.581%, Due 9/15/2006..................................... 27,775 27,799
4.359%, Due 1/15/2007, 144A (Note C)...................... 150,000 150,000
----------
TOTAL VARIABLE RATE MEDIUM-TERM NOTES................... 2,486,239
----------
TOTAL INVESTMENTS - 99.69% (COST $6,765,313)................ 6,765,313
----------
OTHER ASSETS, NET OF LIABILITIES - 0.31%.................... 20,728
----------
TOTAL NET ASSETS - 100%..................................... $6,786,041
==========
</Table>
- ---------------
Based on the cost of investments of $6,765,313 for federal income tax purposes
at December 31, 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 Banc of America Securities, LLC,
FHLMC 3.962 - 5.50%, Due 3/1/2017 - 8/1/2035 and FNMA 3.981% - 7.50%, Due
12/1/2017 - 12/1/2035, Total Value - $505,091; and at JPMorgan Chase for UBS
Securities, LLC, FNMA 4.038 - 6.302%, Due 2/1/2011 - 12/1/2035 and FHLMC
4.559% - 5.989%, Due 2/1/2032 - 1/1/2034, Total Value - $235,112.
(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 $1,592,919 or 23.47% 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
- --------------------------------------------------------------------------------
18
AMERICAN BEACON MASTER U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
---------- --------
(DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS (NOTE A) - 87.43%
Banc of America Securities, LLC, 4.27%, Due 1/3/2006........ $52,000 $ 52,000
Barclays Capital, Incorporated, 4.30%, Due 1/3/2006......... 55,000 55,000
Goldman Sachs, 4.24%, Due 1/3/2006.......................... 47,449 47,449
UBS Securities, LLC, 4.28%, Due 1/3/2006.................... 55,000 55,000
--------
TOTAL REPURCHASE AGREEMENTS............................. 209,449
--------
U.S. GOVERNMENT AGENCY VARIABLE RATE INSTRUMENTS - 12.52%
Federal Farm Credit Bank,
Federal Home Loan Bank, Variable Rate Note, 3.914%, Due
4/4/2007 (Note B)....................................... 10,000 9,994
Federal Home Loan Mortgage Corporation, Variable Rate
Note, 4.389%, Due 12/27/2006 (Note B)................... 10,000 9,994
Federal National Mortgage Association, Variable Rate Note,
4.371%, Due 12/22/2006 (Note B)......................... 10,000 9,994
--------
TOTAL U.S. GOVERNMENT AGENCY VARIABLE RATE
INSTRUMENTS............................................ 29,982
--------
TOTAL INVESTMENTS - 99.95% (COST $239,431).................. 239,431
--------
OTHER ASSETS, NET OF LIABILITIES - 0.05%.................... 129
--------
TOTAL NET ASSETS - 100%..................................... $239,560
========
</Table>
- ---------------
Based on the cost of investments of $239,431 for federal income tax purposes at
December 31, 2005, there was no unrealized appreciation or depreciation of
investments.
(A) Collateral held at Bank of New York for Banc of America Securities, LLC,
FHLMC 4.00 - 5.00%, Due 1/1/2020 - 1/1/2036 and FNMA 4.50% - 5.00%, Due
1/1/2020 - 9/1/2035, Total Value - $52,847; and Barclays Capital,
Incorporated, FHLMC 3.329 - 4.892%, Due 9/1/2033 - 3/1/2035, Total
Value - $55,918; and Goldman Sachs, FHLMC 5.50 - 5.696%, Due
10/1/2032 - 11/1/2035, Total Value - $48,183, and at JP Morgan Chase Bank
for UBS Securities, LLC, FNMA 4.28%, Due 2/1/2011, Total Value - $55,026.
(B) 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
- --------------------------------------------------------------------------------
19
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
------------ ---------------
(IN THOUSANDS)
ASSETS:
Investments in securities at value (cost -- $6,033,032
and $29,982, respectively)............................ $6,033,032 $ 29,982
Repurchase agreements (cost -- $732,281 and $209,449,
respectively)......................................... 732,281 209,449
Dividends and interest receivable....................... 21,499 166
---------- --------
TOTAL ASSETS........................................ 6,786,812 239,597
---------- --------
LIABILITIES:
Management and investment advisory fees payable (Note
2).................................................... 598 23
Other liabilities....................................... 173 14
---------- --------
TOTAL LIABILITIES................................... 771 37
---------- --------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS.... $6,786,041 $239,560
========== ========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
20
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF OPERATIONS
Year Ended December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
------------ ---------------
(IN THOUSANDS)
INVESTMENT INCOME:
Interest income......................................... $225,693 $7,994
-------- ------
TOTAL INVESTMENT INCOME............................. 225,693 7,994
-------- ------
EXPENSES:
Management and investment advisory fees (Note 2)........ 6,807 245
Custodian fees.......................................... 304 9
Professional fees....................................... 180 8
Other expenses.......................................... 274 32
-------- ------
TOTAL EXPENSES...................................... 7,565 294
-------- ------
NET INVESTMENT INCOME....................................... 218,128 7,700
-------- ------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments........................ 18 6
-------- ------
NET GAIN ON INVESTMENTS............................. 18 6
-------- ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $218,146 $7,706
======== ======
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
21
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
--------------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------- --------------------------
2005 2004 2005 2004
------------ ------------ ----------- ------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.......................... $ 218,128 $ 70,915 $ 7,700 $ 3,441
Net realized gain on investments............... 18 208 6 15
------------ ------------ ----------- -----------
TOTAL INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... 218,146 71,123 7,706 3,456
------------ ------------ ----------- -----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions.................................. 98,275,830 59,602,193 1,782,252 1,351,736
Withdrawals.................................... (97,114,356) (59,216,512) (1,799,917) (1,340,743)
------------ ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS..................... 1,161,474 385,681 (17,665) 10,993
------------ ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS...... 1,379,620 456,804 (9,959) 14,449
------------ ------------ ----------- -----------
NET ASSETS:
Beginning of period............................ 5,406,421 4,949,617 249,519 235,070
------------ ------------ ----------- -----------
END OF PERIOD.................................. $ 6,786,041 $ 5,406,421 $ 239,560 $ 249,519
============ ============ =========== ===========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
22
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- --------------------------------------------------------------------------------
23
AMERICAN BEACON MASTER TRUST PORTFOLIOS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
MONEY MARKET
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
2005 2004 2003 2002 2001
----- ----- ----- ----- -----
Total return................................................ 3.25% 1.34% 1.13% 1.81% 4.30%
Ratios to average net assets (annualized):
Expenses................................................ 0.11% 0.11% 0.11% 0.11% 0.11%
Net investment income................................... 3.20% 1.30% 1.14% 1.81% 3.95%
</Table>
- --------------------------------------------------------------------------------
24
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MONEY MARKET
-------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------
2005 2004 2003 2002 2001
----- ----- ----- ----- -----
3.19% 1.30% 1.11% 1.74% 4.24%
0.12% 0.11% 0.12% 0.12% 0.11%
3.15% 1.30% 1.13% 1.71% 3.99%
</Table>
- --------------------------------------------------------------------------------
25
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Master Trust (the "Trust"), formerly known as AMR
Investment Services Trust, is registered under the Investment Company Act of
1940, as amended, as a no load, open-end management investment company that was
organized as a trust under the laws of the Commonwealth of Massachusetts
pursuant to a Declaration of Trust dated as of November 1, 2004. Prior to
November 1, 2004, the Trust was organized as a trust under the laws of the State
of New York. Beneficial interests in the Trust are divided into separate series,
each having distinct investment objectives and policies. These financial
statements relate to the American Beacon Master Money Market Portfolio 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") formerly known as AMR
Investment Services, Inc., is a wholly-owned subsidiary of AMR Corporation, the
parent company of American Airlines, Inc. ("American"), and was organized in
1986 to provide business management, advisory, administrative and asset
management consulting services.
The following is a summary of the significant accounting policies followed
by the Portfolios.
Security Valuation
Securities of the Portfolios are valued at amortized cost, which
approximates fair value. In the event that a deviation of 1/2 of 1% or more
exists between the $1.00 per share price of the Portfolios, calculated at
amortized cost, and the price per share calculated by reference to market
quotations, or if there is any other deviation that the Trust's Board of
Trustees (the "Board") believes would result in a material dilution to
shareholders or purchasers, the Board will promptly consider the appropriate
action that should be initiated.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale. Interest income is earned from settlement date, recorded on
the accrual basis, and adjusted, if necessary, for amortization of premiums or
accretion of discounts on investment grade short-term securities and zero coupon
instruments. For financial and tax reporting purposes, realized gains and losses
are determined on the basis of specific lot identification.
Federal Income and Excise Taxes
The Portfolios will be treated as partnerships for federal income tax
purposes. As such, each investor in a Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that each
Portfolio's assets will be managed in such a way that an investor in the
Portfolio will be able to satisfy the requirements of subchapter M of the
Internal Revenue Code.
Repurchase Agreements
Under the terms of a repurchase agreement, securities are acquired by a
Portfolio from a securities dealer or a bank that are subject to resale at a
later date. Repurchase agreements are fully collateralized by U.S. Treasury or
U.S. Government agency securities and are valued at cost, which approximates
market value. All collateral is held at the Portfolio's custodian bank, State
Street Bank and Trust Company, or at subcustodian
- --------------------------------------------------------------------------------
26
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
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.
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 year ended December 31, 2005, the Money Market Portfolio earned
$5,005 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.
- --------------------------------------------------------------------------------
27
AMERICAN BEACON SELECT FUNDS
TAX INFORMATION FOR THE TAX YEAR ENDED DECEMBER 31, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The distributions to shareholders included short-term capital gains as
follows:
<Table>
Money Market Fund $13,809
U.S. Government Money Market Fund $ 4,809
</Table>
- --------------------------------------------------------------------------------
28
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON SELECT FUNDS
AND THE AMERICAN BEACON MASTER TRUST
(Unaudited)
- --------------------------------------------------------------------------------
The Trustees and officers of the American Beacon Select Funds (the "Trust")
and the American Beacon Master Trust (the "Master Trust") are listed below,
together with their principal occupations during the past five years. Unless
otherwise indicated, the address of each person listed below is 4151 Amon Carter
Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees twenty-seven
funds in the fund complex that includes the Trust, the Master Trust, the
American Beacon Funds, and the American Beacon Mileage Funds.. The Trust's
Statement of Additional Information contains additional information about the
Trustees and is available without charge by calling 1-800-231-4252.
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (57) President and President (1986-Present) and Director (2003-Present),
Trustee of the American Beacon Advisors, Inc.; Chairman (1989-2003) and
Master Trust Director (1979-1989, 2003-Present), American Airlines
since 1995 and Federal Credit Union; Director, Crescent Real Estate
the Trust since Equities, Inc. (1994- Present); Director, Pritchard, Hubble
1999 & Herr, LLC (investment adviser) (2001- Present); Director
of Investment Committee, Southern Methodist University
Endowment Fund (1996-Present); Member of Advisory Board,
Southern Methodist University Cox School of Business
(1999-2002); Member of Pension Manager Committee, New York
Stock Exchange (1997-1998, 2000-2002); Vice Chairman,
Committee for the Investment of Employee Benefits
(2004-Present); Chairman of Defined Benefit Sub-Committee,
Committee for the Investment of Employee Benefits
(2002-2004); Director, United Way of Metropolitan Tarrant
County (1988-2000, 2004-Present); Trustee, American Beacon
Funds (1987-Present); Trustee, American Beacon Mileage Funds
(1995-Present).
Alan D. Feld** (69) Trustee of the Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm)
Master Trust (1960-Present); Director, Clear Channel Communications
since 1996 and (1984-Present); Trustee, CenterPoint Properties, Inc.
the Trust since (1994-Present); Trustee, American Beacon Funds
1999 (1996-Present); Trustee, American Beacon Mileage Funds
(1996-Present).
NON-INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (61) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund servicing
company) (1998-2003); Board Member, Baylor University
Medical Center Foundation (1992-2004); President and CEO,
Allmerica Trust Company, N.A. (1996-1997); President and
CEO, Fidelity Investments Southwest Company (1983-1995);
Senior Vice President of Regional Centers, Fidelity
Investments (1988-1995); Trustee, American Beacon Funds
(2004-Present); Trustee, American Beacon Mileage Funds
(2004-Present).
</Table>
- --------------------------------------------------------------------------------
29
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON SELECT FUNDS
AND THE AMERICAN BEACON MASTER TRUST -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
NON-INTERESTED TRUSTEES (CONT.)
Brenda A. Cline (45) Trustee since 2004 Executive Vice President, Chief Financial Officer, Treasurer
and Secretary, Kimbell Art Foundation (1993-Present);
Trustee, Texas Christian University (1998-Present); Trustee,
W.I. Cook Foundation, Inc. (d/b/a Cook Children's Health
Foundation) (2001-Present); Director, Christian Church
Foundation (1999-Present); Trustee, American Beacon Funds
(2004-Present); Trustee, American Beacon Mileage Funds
(2004-Present).
Richard A. Massman (62) Trustee since 2004 Senior Vice President and General Counsel, Hunt
Consolidated, Inc. (holding company engaged in energy, real
estate, farming, ranching and venture capital activities)
(1994-Present); Trustee, American Beacon Funds
(2004-Present); Trustee, American Beacon Mileage Funds
(2004-Present).
Stephen D. O'Sullivan (70) Trustee of the Consultant (1994-Present); Trustee, American Beacon Funds
Master Trust (1987-Present); Trustee, American Beacon Mileage Funds
since 1995 and (1995-Present).
the Trust since
1999
R. Gerald Turner (60) Trustee since 2001 President, Southern Methodist University (1995-Present);
225 Perkins Admin. Bldg. Director, ChemFirst (1986-2002); Director, J.C. Penney
Southern Methodist Univ. Company, Inc. (1996-Present); Director, California Federal
Dallas, Texas 75275 Preferred Capital Corp. (2001-2003); Director, Kronus
Worldwide Inc. (chemical manufacturing) (2003-Present);
Director, First Broadcasting Investment Partners, LLC
(2003-Present); Member, United Way of Dallas Board of
Directors; Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory Board;
Member, Knight Commission on Intercollegiate Athletics;
Trustee, American Beacon Funds (2001-Present); Trustee,
American Beacon Mileage Funds (2001-Present).
Kneeland Youngblood (50) Trustee of the Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court Master Trust equity firm) (1998- Present); Director, Burger King
Suite 1740 since 1996, the Corporation (2004-Present); Trustee, The Hockaday School
Dallas, Texas 75201 Trust since 1999 (1997-2005); Director, Starwood Hotels and Resorts (2001-
and Chairman Present); Member, Council on Foreign Relations
since 2005 (1995-Present); Director, Just For the Kids (1995-2001);
Director, L&B Realty Advisors (1998-2000); Trustee, Teachers
Retirement System of Texas (1993-1999); Director, Starwood
Financial Trust (1998-2001); Trustee, St. Mark's School of
Texas (2002-Present); Trustee, Dallas Employee Retirement
Fund (2004-Present); Trustee, American Beacon Funds
(1996-Present); Trustee, American Beacon Mileage Funds
(1996-Present).
</Table>
- --------------------------------------------------------------------------------
30
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON SELECT FUNDS
AND THE AMERICAN BEACON MASTER TRUST -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
OFFICERS
TERM
------------------
One Year
Brian E. Brett (45) VP since 2004 Vice President, Director of Sales, American Beacon Advisors,
Inc. (2004-Present); Regional Vice President, Neuberger
Berman, LLC (investment adviser) (1996-2004).
Nancy A. Eckl (43) VP of the Master Vice President, Trust Investments, American Beacon Advisors,
Trust since 1995 Inc. (1990-Present).
and the Trust
since 1999
Michael W. Fields (51) VP of the Master Vice President, Fixed Income Investments, American Beacon
Trust since 1995 Advisors, Inc. (1988- Present).
and the Trust
since 1999
Rebecca L. Harris (39) Treasurer of the Vice President, Finance, American Beacon Advisors, Inc.
Master Trust (1995-Present).
since 1995 and
the Trust since
1999
Christina E. Sears (34) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc.
Officer since (2004-Present); Senior Compliance Analyst, American Beacon
2004 and Advisors, Inc. (1998-2004).
Secretary since
2005
</Table>
- ---------------
* The Board has adopted a retirement plan that requires Trustees to retire no
later than the last day of the calendar year in which they reach the age of
70, with the exception of Messrs. Quinn and O'Sullivan.
** Mr. Quinn is deemed to be an "interested person" of the Trust and the Master
Trust, as defined by the 1940 Act, because Mr. Quinn is President of the
Manager. Mr. Feld is deemed to be an "interested person" of the Master Trust
only, as defined by the 1940 Act, because Mr. Feld's law firm of Akin, Gump,
Strauss, Hauer & Feld LLP has provided legal services within the past two
years to one or more of the Master Trust's sub-advisers.
- --------------------------------------------------------------------------------
31
AMERICAN BEACON SELECT FUNDS
PRIVACY POLICY
(Unaudited)
- --------------------------------------------------------------------------------
The American Beacon Select Funds recognizes and respects the privacy of our
shareholders. We are providing this notice to you so you will understand how
shareholder information may be collected and used.
We may collect nonpublic personal information about you from one or more of
the following sources:
- information we receive from you on applications or other forms;
- information about your transactions with us or our service providers; and
- information we receive from third parties.
We do not disclose any nonpublic personal information about our customers
or former customers to anyone, except as permitted by law.
We restrict access to your nonpublic personal information to those
employees or service providers who need to know that information to provide
products or services to you. To ensure the confidentiality of your nonpublic
personal information, we maintain safeguards that comply with federal standards.
- --------------------------------------------------------------------------------
32
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33
(AMERICAN BEACON FUNDS LOGO)
- --------------------------------------------------------------------------------
DELIVERY OF DOCUMENTS
To reduce expenses, your financial institution may mail only one copy of the
Prospectus, Annual Report and Semi-Annual Report to those addresses shared by
two or more accounts. If you wish to receive individual copies of these
documents, please contact your financial institution. Delivery of individual
copies will commence thirty days after receiving your request.
If you invest in the Funds through a financial institution, you may be able to
receive the Funds' regulatory mailings, such as the Prospectus, Annual Report
and Semi-Annual Report, by e-mail. If you are interested in this option, please
go to www.icsdelivery.com and search for your financial institution's name or
contact your financial institution directly.
TO OBTAIN MORE INFORMATION ABOUT THE FUND:
<Table>
(KEYBOARD GRAPHIC) (MOUSE GRAPHIC)
BY E-MAIL: ON THE INTERNET:
American-Beacon.Funds@ambeacon.com Visit our website at www.americanbeaconfunds.com
</Table>
- --------------------------------------------------------------------------------
<Table>
(TELEPHONE GRAPHIC) (MAILBOX GRAPHIC)
BY TELEPHONE: BY MAIL
Call (800) 658-5811 American Beacon Select Funds
4151 Amon Carter Blvd., MD 2450
Fort Worth, TX 76155
</Table>
- --------------------------------------------------------------------------------
<Table>
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES AVAILABILITY OF PROXY VOTING POLICY AND RECORDS
In addition to the Schedule of Investments provided in each A description of the policies and procedures that the Funds
semi-annual and annual report, each Fund files a complete use to determine how to vote proxies relating to portfolio
schedule of its portfolio holdings with the Securities and securities is available in each Fund's Statement of
Exchange Commission ("SEC") on Form N-Q as of the first and Additional Information, which may be obtained free of charge
third fiscal quarters. The Funds' Forms N-Q are available on by calling 1-800-967-9009 or by accessing the SEC's website
the SEC's website at www.sec.gov. The Forms N-Q may also be at www.sec.gov. Each Fund's proxy voting record for the most
reviewed and copied at the SEC's Public Reference Room, 450 recent year ended June 30 is filed annually with the SEC on
Fifth Street, NW, Washington, DC 20549. Information Form N-PX. The Funds' Forms N-PX are available on the SEC's
regarding the operation of the SEC's Public Reference Room website at www.sec.gov. Each Fund's proxy voting record may
may be obtained by calling 1-800-SEC-0330. A complete also be obtained by calling 1-800-967-9009.
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.
</Table>
FUND SERVICE PROVIDERS:
<Table>
CUSTODIAN TRANSFER AGENT INDEPENDENT DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES REGISTERED PUBLIC FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri ACCOUNTING FIRM Portland, Maine
ERNST & YOUNG LLP
Chicago, Illinois
</Table>
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.
AR 12/05
536436
ITEM 2. CODE OF ETHICS.
The Trust has adopted a code of ethics that applies to its principal
executive and financial officers (the "Code"). The Trust did not amend the
Code nor did it grant any waivers to the provisions of the Code during the
period covered by the shareholder report presented in Item 1. The Code is
filed herewith as Exhibit 99.CODE ETH.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Trust's Board of Trustees has determined that Stephen O'Sullivan, a member
of the Trust's Audit and Compliance Committee, is an "audit committee financial
expert" as defined in Form N-CSR. Mr. O'Sullivan is "independent" as defined
in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a)
<Table>
<Caption>
Audit Fees Fiscal Year Ended
- ---------- -----------------
$3,238 12/31/2004
$4,458 12/31/2005
</Table>
(b)
<Table>
<Caption>
Audit-Related Fees Fiscal Year Ended
- ------------------ -----------------
$0 12/31/2004
$0 12/31/2005
</Table>
(c)
<Table>
<Caption>
Tax Fees Fiscal Year Ended
- -------- -----------------
$0 12/31/2004
$4,503* 12/31/2005
</Table>
<FN>
* For review of 2003 and 2004 tax returns
</FN>
(d)
<Table>
<Caption>
All Other Fees Fiscal Year Ended
- -------------- -----------------
$0 12/31/2004
$0 12/31/2005
</Table>
(e)(1) Pursuant to its charter, the Trust's Audit and Compliance Committee
shall have the following duties and powers pertaining to pre-approval
of audit and non-audit services provided by the Trust's principal
accountant:
- to approve, prior to appointment, the engagement of auditors to
annually audit and provide their opinion on the Trusts' financial
statements, and, in connection therewith, reviewing and evaluating
matters potentially affecting the independence and capabilities of
the auditors;
- to approve, prior to appointment, the engagement of the auditors to
provide non-audit services to the Trusts, an investment adviser to
any series of the Trusts or any entity controlling, controlled by,
or under common control with an investment adviser ("adviser
affiliate") that provides ongoing services to the Trusts, if the
engagement relates directly to the operations and financial
reporting of the Trusts;
- to consider whether the non-audit services provided by a Trust's
auditor to an investment adviser or any adviser affiliate that
provides ongoing services to a series of the Trusts, which services
were not pre-approved by the Committee, are compatible with
maintaining the auditor's independence;
- to review the arrangements for and scope of the annual audit and
any special audits; and
- to review and approving the fees proposed to be charged to the
Trusts by the auditors for each audit and non-audit service.
The Audit and Compliance Committee may delegate any portion of its authority,
including the authority to grant pre-approvals of audit and permitted
non-audit services, to a subcommittee of one or more members. Any decisions
of the subcommittee to grant pre-approvals shall be presented to the full
committee at its next regularly scheduled meeting.
(e)(2) None of the fees disclosed in paragraphs (b) through (d) above were
approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X.
(f) Not Applicable.
(g)
<Table>
<Caption>
Aggregate Non-Audit Fees for Services Rendered to the:
- ------------------------------------------------------
Adviser's Affiliates Providing
Registrant Adviser Ongoing Services to Registrant Fiscal Year Ended
- ---------- ------- ------------------------------ -----------------
$0 $0 N/A 12/31/2004
$4,503 $0 N/A 12/31/2005
</Table>
(h) Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedules of investments for each series of the Trust are included in the
shareholder report presented in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 9. 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) Filed herewith as EX-99.CODE ETH.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the Trust as required by Rule
30a-2(a) under the Investment Company Act of 1940 is attached hereto
as EX-99.CERT.
(a)(3) Not Applicable.
(b) The certifications required by Rule 30a-2(b) under the Investment
Company Act of 1940 are attached hereto as EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): American Beacon Select Funds
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: March 8, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: March 8, 2006
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: March 8, 2006