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, 2006
Date of reporting period: December 31, 2006
ITEM 1. REPORT TO STOCKHOLDERS.
G U I D A N C E | V I S I O N | E X P E R I E N C E
(AMERICAN BEACON SELECT FUNDS(SM) LOGO)
ANNUAL REPORT
(GRAPHIC)
DECEMBER 31, 2006
MONEY MARKET SELECT FUND
U.S. GOVERNMENT MONEY MARKET SELECT FUND
About American Beacon
Since 1986, American Beacon Advisors has offered a variety of products and
investment advisory services to numerous institutional and retail clients,
including a variety of mutual funds, corporate cash management, and separate
account management.
Our clients include defined benefit plans, defined contribution plans,
foundations, endowments, corporations, financial planners, and other
institutional investors. With American Beacon Advisors, you can put the
experience of a multi-billion dollar asset management firm to work for your
company.
Contents
<Table>
President's Message................................................ 1
Financial Highlights:
Money Market Select Fund......................................... 13
U.S. Government Select Fund...................................... 14
Schedule of Investments:
Money Market Portfolio........................................... 16
U.S. Government Money Market Portfolio........................... 20
Additional Information............................................. Back Cover
</Table>
Any opinions herein, including forecasts, reflect our judgment as of the end of
the reporting period and are subject to change. Each advisor's strategies and
the Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
American Beacon Select Funds December 31, 2006
(AMERICAN BEACON ADVISORS)
(PHOTO OF WILLIAM F. QUINN)
FELLOW SHAREHOLDERS,
Enclosed please find the Annual Report for the American Beacon Select Funds for
the year ended December 31, 2006. During this time, the Select Funds
outperformed their respective peer groups.
After 17 consecutive 25-basis point (0.25%) rate hikes, the Federal Open
Market Committee ("FOMC") held interest rates steady at 5.25% at their August
8th meeting. The Federal Reserve Board (the "Fed") will continue to weigh the
risks of accelerating inflation and decelerating economic growth. At the final
FOMC meeting in December 2006, the Fed acknowledged the cooling housing market,
but remained primarily concerned about inflation. The FOMC should hold rates
steady at least through the first half of 2007. The market is focused on slowing
housing and auto data and pricing in an ease for the next move by the Fed
(albeit in the late part of 2007). Fed officials continue to discuss that
additional firming may be needed because inflation remains on the higher-end of
their comfort range.
Despite rising interest rates earlier in the year, the American Beacon
Money Market Select Fund one-year return of 5.08% outperformed the Lipper
Institutional Money Market Average return by 36 basis points (0.36%). The
American Beacon U.S. Government Money Market Select Fund also outperformed the
Lipper Institutional U.S. Government Money Market Average with a one-year return
of 5.04% versus 4.69%.
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
DECEMBER 31, 2006 (UNAUDITED)
The initial estimate of the U.S. gross domestic product ("GDP") growth rate rose
3.5% in the fourth quarter, after rising a modest 2.0% in the third quarter of
2006. Consumer spending was the primary driver, up 4.4%. Consumers used credit
cards to make up for diminished mortgage borrowing power. Business fixed
investment fell 0.4%, the first decline since the first quarter of 2003.
Inventories were up only $35.3 billion, trimming 0.7% from GDP growth. Growth
rose solidly above the Fed's target after two quarters of coming in below,
leaving room for debate on the implications of growth. In addition to the up
tick in growth, the labor market remains healthy as payroll gains averaged
136,000 per month during the fourth quarter and the unemployment rate remained
low at 4.5% in December.
The Federal Open Market Committee ("FOMC") ended a streak of seventeen
consecutive 25 basis point (0.25%) rate hikes at their August 8th meeting,
leaving rates unchanged at 5.25% through the rest of 2006. Fed officials
continue to weigh the risks of a slowing economy against the risks of higher
inflation in determining the future direction of interest rates. At the December
meeting, the Fed acknowledged the cooling housing market and its impact on
economic growth, but inflation remained their chief concern. "...participants
expressed concern that a failure of inflation to moderate as expected could
entail significant costs if an upward drift in inflation expectations ensued,"
the minutes said. As a result, the Fed retained a tightening bias in its
December statement maintaining the phrase that "the extent and timing of any
additional firming that may be needed to address these risks will depend on the
evolution of the outlook for both inflation and economic growth."
The latest readings of consumer and producer prices indicate that the
easing of inflationary pressures may be slow. The core consumer price index
("CPI") rose 0.2% in December after remaining flat in November, and the core
producers price index ("PPI"), which also rose 0.2% during the month, came in
above economists' expectations. In addition, despite a decline to an annual rate
of 2.2% in November which was unchanged in December, the core personal
consumption expenditures ("PCE") price index remains above the Fed's comfort
range of 1-2%.
U.S. Treasury yields rose during the fourth quarter as the likelihood of a
Fed ease during the first quarter of 2007 began to dissipate. Though the yield
curve remained inverted, Treasury yields reached five month highs in January
2007 on signals that the housing market is bottoming, inflation remains
stubborn, and employment is strengthening.
The FOMC should remain on hold at least through the first part of 2007 as
Fed officials wait for signs that inflation is indeed moderating. If inflation
remains above the Fed's comfort level for an extended period of time, an
additional Fed tightening is possible. Despite the Fed's stated tightening bias,
the market continues to expect an ease during the second half of 2007.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON SELECT FUNDS
DECEMBER 31, 2006 (UNAUDITED)
As the economy continued to show signs of strength during the year, the Fed
continued tightening monetary policy through June 2006. Since then the Fed has
been on hold with a tightening bias, resulting in a 5.25% fed funds target by
year end. This was a move of 25 basis points (0.25%) for each of the first four
FOMC meetings after starting the year at 4.25%. In response, the American Beacon
Money Market Fund's weighted-average maturity ("WAM") was maintained below 45
days throughout the year. The primary strategy of the Fund was to buy variable
rate securities, short-dated commercial paper and overnight investments. Due to
maintaining a short WAM in a rising to stable interest rate environment, the
Fund outperformed its Lipper peer group. This strategy will stay in place until
economic data suggest the Fed is about to enter into an easing cycle.
For the year ended December 31, 2006, the total return of the Money Market
Select Fund was 5.08%. The Fund outperformed the Lipper Institutional Money
Market Average return of 4.72% by 36 basis points (0.36%). Lipper Inc. ranked
the Fund 6th among 357, 4th among 291, and 4th among 233 Institutional Money
Market Funds for the one-year, three-year and five-year periods ended December
31, 2006, respectively.
For the year ended December 31, 2006, the total return of the U.S.
Government Money Market Select Fund was 5.04%. The Fund outperformed the Lipper
Institutional U.S. Government Money Market Average return of 4.69% by 35 basis
points (0.35%). Lipper Inc. ranked the Fund 3rd among 147, 2nd among 126 and 2nd
among 106 Institutional U.S. Government Money Market Funds for the one-year,
three-year and five-year periods ended December 31, 2006, respectively.
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 the 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 12/31/2006
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Money Market (1, 2)....................................... 5.08% 2.51% 3.97%
U.S. Government (1, 3).................................... 5.04% 2.46% 3.85%
</Table>
(1) Performance shown is historical and may not be indicative of future
returns. Investment returns will vary, and share may be worth more or
less at redemption than at original purchase. An investment in this Fund
is neither insured nor guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Although the Fund seeks to
preserve the value of an investment at $1.00 per share it is possible to
lose money by investing in the Fund. Fund performance in the table above
does not reflect the deduction of taxes a shareholder would pay on
distributions or the redemption of shares.
(2) The 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, 2006 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. A portion of the
fees charged to the Money Market Fund was waived through 2001.
Performance prior to waiving fees was lower than the actual returns for
periods prior to 2001.
(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 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 from
that date through December 31, 2006 are for the Fund. Because the
Companion Fund had moderately higher expenses, their performance was
slightly worse than the Fund would have realized in the same period. A
portion of the fees charged to the U.S. Government Fund has been waived.
Performance prior to waiving fees was lower than the actual returns
shown.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON SELECT FUNDS
DECEMBER 31, 2006 (UNAUDITED)
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2006
<Table>
<Caption>
MONEY MARKET U.S. GOVERNMENT
------------ ---------------
7-day Current Yield* 5.28% 5.26%
7-day Effective Yield* 5.42% 5.39%
30-day Yield* 5.27% 5.23%
Weighted Avg. Maturity 47 Days 6 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 yields. Yield is a more accurate reflection of the Funds'
current earnings than total returns.
MONEY MARKET PORTFOLIO -- TOP TEN ISSUERS AS OF DECEMBER 31, 2006
<Table>
<Caption>
% OF
NET ASSETS
----------
Wells Fargo & Co. 5.3%
US Bank, NA 5.1%
Caylon 4.7%
World Savings Bank FSB 4.5%
BNP Paribas 4.3%
Abbey National Treasury Services, PLC 4.3%
Credit Suisse USA, Inc. 4.2%
General Electric Capital Corp. 4.0%
Goldman Sachs Group, Inc. 3.9%
Royal Bank of Scotland PLC 3.4%
</Table>
MONEY MARKET PORTFOLIO -- ASSET ALLOCATION AS OF DECEMBER 31, 2006
<Table>
<Caption>
% OF
NET ASSETS
----------
Bank CDs, TDs and Notes 44.7%
Corporate Notes 41.0%
Commercial Paper 10.2%
Repurchase Agreements 2.5%
Fund Agreements 1.2%
Net Other Assets 0.4%
</Table>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO -- ASSET ALLOCATION AS OF DECEMBER 31,
2006
<Table>
<Caption>
% OF
NET ASSETS
----------
Repurchase Agreements 94.8%
Government Securities 5.1%
Net Other Assets 0.1%
</Table>
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual funds. The
examples are based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2006 through December 31,
2006.
ACTUAL EXPENSES
The "Actual" line of the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the "Actual" line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed 5% per year rate of return before expenses (not the
Fund's actual return). You may compare the ongoing costs of investing in the
Fund with other funds by contrasting
4
PERFORMANCE OVERVIEW
AMERICAN BEACON SELECT FUNDS
DECEMBER 31, 2006 (UNAUDITED)
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.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 7/1/06-
7/1/06 12/31/06 12/31/06
--------- --------- --------------
MONEY MARKET
Actual............................................ $1,000.00 $1,026.87 $0.61
Hypothetical (5% return before expenses).......... $1,000.00 $1,024.60 $0.61
U.S. GOVERNMENT MONEY MARKET
Actual............................................ $1,000.00 $1,026.62 $0.61
Hypothetical (5% return before expenses).......... $1,000.00 $1,024.60 $0.61
</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 Select Fund and U.S.
Government Money Market Select Fund 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, comprised of the American Beacon Money Market
Select Fund and the American Beacon U.S. Government Money Market Select Fund
(collectively, the "Funds") as of December 31, 2006, and the related statements
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Beacon Select Funds at December 31, 2006, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, TX
February 27, 2007
6
AMERICAN BEACON SELECT FUNDS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<Table>
<Caption>
U.S.
GOVERNMENT
MONEY MARKET MONEY MARKET
-------------- ------------
ASSETS:
Investment in Portfolio, at Value.................... $ 8,489,605 $ 536,661
Receivable from Manager for expense reimbursement
(Note 2).......................................... -- 2
-------------- ------------
TOTAL ASSETS...................................... 8,489,605 536,663
-------------- ------------
LIABILITIES:
Dividends payable.................................... 15,866 2,109
Other Liabilities.................................... 203 18
-------------- ------------
TOTAL LIABILITIES................................. $ 16,069 $ 2,127
-------------- ------------
NET ASSETS........................................... 8,473,536 534,536
============== ============
ANALYSIS OF NET ASSETS:
Paid-in-capital................................... 8,473,536 534,536
-------------- ------------
NET ASSETS............................................. $ 8,473,536 $ 534,536
============== ============
Shares outstanding (no par value):..................... 8,473,536,032 534,536,362
Net asset value, offering and redemption price per
share:............................................... 1.00 1.00
</Table>
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolios
7
AMERICAN BEACON SELECT FUNDS
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2006 (IN THOUSANDS)
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
------------ ---------------
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest Income...................................... $404,496 $16,108
Portfolio expenses................................... (8,614) (386)
-------- -------
NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO.... 395,882 15,722
-------- -------
FUND EXPENSES:
Transfer agent fees:................................. 129 9
Professional fees.................................... 21 9
Registration fees and expenses....................... 109 --
Printing expense..................................... 6 2
Other expenses....................................... 116 8
-------- -------
TOTAL FUND EXPENSES............................... 381 28
-------- -------
NET (FEES WAIVED AND EXPENSES REIMBURSED)/RECOVERED BY
MANAGER (NOTE 2)..................................... 49 (24)
-------- -------
Net fund expenses................................. 430 4
-------- -------
NET INVESTMENT INCOME.................................. 395,452 15,718
-------- -------
REALIZED GAIN ALLOCATED FROM PORTFOLIO
Net realized gain on investment...................... 9 --
-------- -------
NET GAIN ON INVESTMENTS........................... 9 --
-------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS... $395,461 $15,718
======== =======
</Table>
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolios
8
AMERICAN BEACON SELECT FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
<Table>
<Caption>
U.S. GOVERNMENT MONEY
MONEY MARKET MARKET
---------------------------- -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- -------------------------
2006 2005 2006 2005
------------- ------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............. $ 395,452 $ 161,793 $ 15,718 $ 6,311
Net realized gain on investments... 9 14 -- 5
------------- ------------ ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..... 395,461 161,807 15,718 6,316
------------- ------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income.............. (395,452) (161,793) (15,718) (6,311)
Net realized gain on investments... (9) (14) -- (5)
------------- ------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS... (395,461) (161,807) (15,718) (6,316)
------------- ------------ ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares...... 112,232,901 86,821,599 2,947,923 1,623,288
Reinvestment of dividends and
distributions................... 219,523 83,465 4,123 2,203
Cost of shares redeemed............ (109,195,815) (85,661,240) (2,614,206) (1,622,082)
------------- ------------ ----------- -----------
NET INCREASE IN NET ASSETS...... 3,256,609 1,243,824 337,840 3,409
------------- ------------ ----------- -----------
NET INCREASE IN NET ASSETS........... 3,256,609 1,243,824 337,840 3,409
------------- ------------ ----------- -----------
NET ASSETS:
Beginning of period................ 5,216,927 3,973,103 196,696 193,287
------------- ------------ ----------- -----------
END OF PERIOD *.................... $ 8,473,536 $ 5,216,927 $ 534,536 $ 196,696
============= ============ =========== ===========
*Includes undistributed net
investment income (loss) of........ $ -- $ -- $ -- $ --
============= ============ =========== ===========
</Table>
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolios
9
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Select Funds (the "Trust") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940 (the
"Act"), as amended, as a diversified, no load, open-end management investment
company with separate series. The following series are included in this report:
American Beacon Money Market 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 ("U.S.
Government 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 (66.70% and 95.25% at December 31, 2006, 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.
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.
10
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
Valuation of Shares
The price per share is calculated on each day on which shares are offered
for sale. 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 amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimated.
Recently Issued Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 provides guidance on how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing each Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. At this time, the
Manager is evaluating the implications of FIN 48 and its potential impact on the
financial statements. The Fund's net asset value per share will reflect FIN 48
adjustments no later than June 29, 2007, and any adjustments will be reflected
in the Fund's Semi-Annual report to shareholders.
In September 2006, the FASB issued Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The Manager is evaluating the impact of FAS 157;
however, it is not expected to have a material impact on the Funds' net assets
or results of operations.
Other
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Trust. In the normal course of business, the Trust enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. FEES AND TRANSACTIONS WITH AFFILIATES
Reimbursement of Expenses
The Manager contractually agreed to reimburse the U.S. Government Fund for
other expenses through February 28, 2007 to the extent that total annual Fund
operating expenses exceed 0.12%. For the twelve months ended December 31, 2006,
the Manager reimbursed expenses totaling $23,524 to the U.S. Government Fund.
11
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
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 for the U.S. Government
Fund totaling $2,418, $25,649 and $23,524, will expire in 2007, 2008 and 2009
respectively. The U.S. Government Fund has not recorded a liability for this
potential reimbursement due to the current assessment that a reimbursement is
unlikely. Fees waived during 2003 totaling $11,073 expired in 2006 and will not
be reimbursed to the Manager.
During the twelve months ended December 31, 2006, due to asset growth and a
reduction of expenses, the Manager recouped $49,000 from the Money Market Select
Fund for expenses waived during 2003 and 2004 totaling $2,724 and $46,276,
respectively. Fees waived during 2003 totaling $5,278 expired in 2006 and will
not be reimbursed to the Manager.
3. FEDERAL INCOME TAXES
It is the policy of each of the Funds to comply with the requirements of
Subchapter M of the Internal Revenue Code and to distribute substantially all
net investment income as well as any net realized capital gains on the sale of
investments. Therefore, no federal income tax provision is required.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes because of temporary or permanent book-to-
tax differences. To the extent these differences are permanent;
reclassifications are made to the appropriate equity accounts in the period that
the differences arise. Temporary differences are not reflected in the financial
records.
Dividends are categorized in accordance with federal income tax regulations
which may treat certain transactions differently than U.S. generally accepted
accounting principles. Accordingly, the character of distributions and
composition of net assets for tax purposes may differ from those reflected in
the accompanying financial statements.
The tax character of distributions paid for the year ended December 31,
2006 and the year ended December 31, 2005 were as follows (in thousands):
<Table>
<Caption>
MONEY MARKET U.S. GOVERNMENT MONEY MARKET
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2006 2005 2006 2005
------------ ------------ ------------ ------------
Distributions paid from Ordinary
Income*............................. $395,461 $161,807 $15,718 $6,316
</Table>
- --------
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
As of December 31, 2006, the components of distributable earnings on a tax
basis were the same as book. The cost basis of investments for federal income
tax purposes was also the same as the book basis.
The Funds do not have capital loss carryforwards as of December 31, 2006.
12
AMERICAN BEACON MONEY MARKET SELECT FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<Table>
<Caption>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------
2006 2005 2004 2003 2002
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF
PERIOD........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(A)...... 0.05 0.03 0.01 0.01 0.02
Net realized gain on
investments................ --(B) --(B) --(B) --(B) --(B)
---------- ---------- ---------- ---------- ----------
Total income from investment
operations.................... 0.05 0.03 0.01 0.01 0.02
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment
income..................... (0.05) (0.03) (0.01) (0.01) (0.02)
Distributions from net
realized gains on
investments................ --(B) --(B) --(B) --(B) --(B)
---------- ---------- ---------- ---------- ----------
Total distributions............. (0.05) (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.................... 5.08% 3.23% 1.33% 1.13% 1.81%
========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)................. $8,473,536 $5,216,927 $3,973,103 $3,988,724 $5,030,034
Ratios to average net assets
(annualized):(A)
Expenses, after expense
reimbursements
(recoupments)............ 0.11% 0.12% 0.12% 0.12% 0.11%
Expenses, before expense
reimbursements
(recoupments)............ 0.11% 0.12% 0.12% 0.12% 0.11%
Net investment income,
after expenses
reimbursements
(recoupments)............ 5.02% 3.20% 1.28% 1.14% 1.82%
Net investment income,
before expenses
reimbursements
(recoupments)............ 5.02% 3.20% 1.28% 1.14% 1.82%
</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) 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
------------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A)............ 0.05 0.03 0.01 0.01 0.02
Net realized gain on investments.... --(B) --(B) --(B) --(B) --(B)
-------- -------- -------- -------- --------
Total income from investment
operations.......................... 0.05 0.03 0.01 0.01 0.02
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... (0.05) (0.03) (0.01) (0.01) (0.02)
Distributions from net realized
gains on investments............. --(B) --(B) --(B) --(B) --(B)
-------- -------- -------- -------- --------
Total distributions................... (0.05) (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.......................... 5.04% 3.19% 1.29% 1.11% 1.74%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)....................... $534,536 $196,696 $193,287 $162,489 $110,014
Ratios to average net assets
(annualized):(A)
Expenses, after expense
reimbursements (recoupments)... 0.12% 0.12% 0.12% 0.12% 0.12%
Expenses, before expense
reimbursements (recoupments)... 0.13% 0.14% 0.12% 0.15% 0.15%
Net investment income, after
expenses reimbursements
(recoupments).................. 4.99% 3.17% 1.31% 1.09% 1.75%
Net investment income, before
expenses reimbursements
(recoupments).................. 4.98% 3.15% 1.31% 1.06% 1.72%
</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 U.S. Government Master Money Market Portfolio
(B) 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, comprised of the
American Beacon Money Market Portfolio and the American Beacon U.S. Government
Money Market Portfolio (collectively, the "Portfolios") as of December 31, 2006,
and the related statements of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Portfolios' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Portfolios' internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Portfolios' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2006, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Beacon Master Trust at December 31, 2006, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, TX
February 27, 2007
15
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PAR
AMOUNT VALUE
-------- -----------
(DOLLARS IN THOUSANDS)
FUNDING AGREEMENTS -- 1.18%
Metropolitan Life Insurance Co., 5.419%, Due 11/21/2007 ++.. $150,000 $ 150,000
-----------
MEDIUM-TERM NOTES -- 38.59%
Abbey National Treasury Services, PLC, 5.374%,
Due 6/29/2007 ++......................................... 491,615 491,737
American Honda Finance Corp.,
5.514%, Due 1/16/2007 ++#................................ 25,000 25,002
5.34%, Due 1/26/2007 ++#................................. 50,000 50,000
5.505%, Due 2/20/2007 ++#................................ 10,000 10,002
5.328%, Due 7/10/2007 ++#................................ 33,040 33,042
5.404%, Due 7/23/2007 ++#................................ 10,000 10,005
5.39%, Due 8/23/2007 ++#................................. 20,000 20,007
5.48%, Due 8/23/2007 ++#................................. 5,500 5,505
5.385%, Due 9/19/2007 ++#................................ 10,000 10,004
5.484%, Due 10/22/2007 ++#............................... 10,000 10,011
ASIF Global Financing,
5.37%, Due 2/23/2007 ++#................................. 238,250 238,251
5.41%, Due 5/3/2007 ++#.................................. 107,200 107,234
Citigroup Global Markets Holdings, Inc., 5.431%,
Due 3/16/2007 ++......................................... 149,300 149,330
Citigroup, Inc.,
5.43%, Due 6/4/2007 ++................................... 208,830 208,901
5.431%, Due 11/1/2007 ++................................. 103,500 103,594
Credit Suisse USA, Inc.,
5.874%, Due 2/15/2007 ++................................. 32,604 32,624
6.063%, Due 3/28/2007 ++................................. 10,000 10,018
5.47%, Due 4/5/2007 ++................................... 215,443 215,503
General Electric Capital Corp.,
5.443%, Due 3/9/2007 ++.................................. 37,500 37,509
5.425%, Due 6/22/2007 ++................................. 225,904 226,009
5.475%, Due 10/17/2007 ++................................ 180,000 180,000
5.43%, Due 1/3/2008 ++................................... 67,000 67,068
Goldman Sachs Group, Inc.,
5.464%, Due 3/30/2007 ++................................. 64,000 64,019
5.476%, Due 5/11/2007 ++................................. 70,820 70,846
5.497%, Due 7/2/2007 ++.................................. 64,350 64,399
HBOS Treasury Services PLC, 5.452%, Due 1/12/2007 ++#....... 20,000 20,001
HSBC Finance Corp.,
5.525%, Due 2/9/2007 ++.................................. 20,715 20,720
5.41%, Due 2/28/2007 ++.................................. 23,500 23,502
5.414%, Due 5/10/2007 ++................................. 39,000 39,009
5.53%, Due 7/27/2007 ++.................................. 86,525 86,615
5.41%, Due 10/4/2007 ++.................................. 115,000 115,064
MBNA Europe Funding PLC, 5.45%, Due 9/7/2007 ++#............ 140,525 140,643
Merrill Lynch & Co., Inc.,
5.48%, Due 8/27/2007 ++.................................. 45,000 45,040
</Table>
See accompanying notes
16
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PAR
AMOUNT VALUE
-------- -----------
(DOLLARS IN THOUSANDS)
5.499%, Due 10/19/2007 ++................................ $ 83,000 $ 83,098
Merrill Lynch & Co., Inc.,
5.335%, Due 5/29/2007 ++................................. 52,000 51,996
5.40%, Due 8/24/2007 ++.................................. 39,830 39,845
Morgan Stanley,
5.512%, Due 1/12/2007 ++................................. 21,700 21,701
5.505%, Due 7/27/2007 ++................................. 58,595 58,653
Royal Bank of Scotland PLC,
5.364%, Due 3/30/2007 ++#................................ 278,000 278,017
5.34%, Due 1/18/2008 ++#................................. 150,000 150,000
Toyota Motor Credit Corp.,
5.335%, Due 3/22/2007 ++................................. 30,000 30,002
5.33%, Due 6/28/2007 ++.................................. 100,000 100,011
5.344%, Due 8/10/2007 ++................................. 60,000 60,012
5.33%, Due 9/14/2007 ++.................................. 95,000 95,016
Wachovia Corp.,
5.428%, Due 2/6/2007 ++.................................. 153,925 153,938
5.454%, Due 7/20/2007 ++................................. 179,152 179,266
Wells Fargo & Co.,
5.426%, Due 3/23/2007 ++................................. 273,500 273,560
5.423%, Due 9/28/2007 ++................................. 254,641 254,841
5.36%, Due 1/15/2008 ++#................................. 150,000 150,000
-----------
TOTAL MEDIUM-TERM NOTES..................................... 4,911,170
-----------
PROMISSORY NOTES -- 2.36%
Goldman Sachs Group, Inc., 5.435%, Due 2/9/2007 ++#......... 300,000 300,000
-----------
CERTIFICATES OF DEPOSIT AND BANK NOTES -- 35.58%
Abbey National Treasury Services, PLC, 5.464%,
Due 1/16/2007 ++......................................... 54,000 54,004
ABN Amro Bank NV, 5.436%, Due 5/11/2007 ++.................. 23,170 23,177
Allied Irish Banks PLC, 5.318%, Due 5/3/2007 ++............. 50,000 49,993
Bank of Nova Scotia,
5.305%, Due 6/20/2007 ++................................. 200,000 199,979
5.356%, Due 10/31/2007 ++................................ 64,860 64,868
BB&T Corp.,
5.323%, Due 1/24/2007 ++................................. 150,000 150,000
5.44%, Due 6/4/2007 ++................................... 91,380 91,421
5.324%, Due 8/10/2007 ++................................. 50,000 49,997
BNP Paribas,
5.305%, Due 6/20/2007 ++................................. 450,000 449,959
5.31%, Due 10/3/2007 ++.................................. 100,000 99,982
Branch Banking & Trust Co., 5.37%, Due 11/16/2007 ++........ 100,000 100,038
Canadian Imperial Bank of Commerce, 5.432%,
Due 4/2/2007 ++.......................................... 39,000 39,010
Caylon,
5.344%, Due 8/10/2007 ++................................. 342,000 341,993
5.30%, Due 9/13/2007 ++.................................. 185,700 185,666
</Table>
See accompanying notes
17
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PAR
AMOUNT VALUE
-------- -----------
(DOLLARS IN THOUSANDS)
5.31%, Due 10/3/2007 ++.................................. $ 67,500 $ 67,490
Credit Suisse USA, Inc.,
5.336%, Due 6/12/2007 ++................................. 150,000 150,000
5.356%, Due 8/13/2007 ++................................. 125,000 125,003
HSBC Bank USA, 5.435%, Due 9/21/2007 ++..................... 203,550 203,709
JP Morgan Chase Bank, NA, 5.422%, Due 1/12/2007 ++.......... 63,000 63,001
M&I Marshall & Ilsley Bank, 5.356%, Due 8/1/2007 ++......... 50,000 50,000
National City Bank,
5.40%, Due 6/4/2007 ++................................... 38,000 38,009
5.32%, Due 10/4/2007 ++.................................. 135,000 134,984
Natixis S.A., 5.35%, Due 6/20/2007 ++....................... 25,000 25,002
Royal Bank of Canada, 5.392%, Due 1/12/2007 ++.............. 10,000 10,000
SouthTrust Bank,
5.425%, Due 3/19/2007 ++................................. 46,000 46,009
5.42%, Due 6/14/2007 ++.................................. 16,170 16,177
State Street Bank & Trust Co., 5.343%, Due 1/16/2007 ++..... 59,500 59,500
SunTrust Banks, Inc., 5.433%, Due 5/17/2007 ++.............. 167,000 167,047
US Bank, NA,
5.337%, Due 1/25/2007 ++................................. 233,000 233,001
5.361%, Due 3/16/2007 ++................................. 50,000 50,004
5.383%, Due 9/10/2007 ++................................. 250,000 250,130
5.402%, Due 10/1/2007 ++................................. 110,750 110,808
Wachovia Bank, NA, 5.324%, Due 3/30/2007 ++................. 200,000 199,999
Wachovia Corp., 5.353%, Due 9/28/2007 ++.................... 50,000 50,010
World Savings Bank FSB,
5.429%, Due 6/1/2007 ++.................................. 178,460 178,517
5.374%, Due 10/19/2007 ++................................ 400,000 400,133
-----------
TOTAL CERTIFICATES OF DEPOSIT AND BANK NOTES................ 4,528,620
-----------
COMMERCIAL PAPER -- 10.22%
Citigroup Funding, Inc., 5.26%, Due 2/7/2007................ 150,000 149,189
FCAR Owner Trust, Series I, 5.27%, Due 3/15/2007............ 100,000 98,931
Fountain Square Commercial Funding,
5.25%, Due 2/1/2007 #.................................... 32,377 32,230
5.24%, Due 4/19/2007 #................................... 51,485 50,676
Long Lane Master Trust IV,
5.30%, Due 2/26/2007 #................................... 158,000 156,697
5.27%, Due 3/8/2007 #.................................... 118,704 117,557
Park Avenue Receivables Co. LLC, 5.26%, Due 2/12/2007....... 83,000 82,491
Scaldis Capital LLC, 5.30%, Due 1/25/2007 #................. 55,262 55,067
Sheffield Receivables Corp., 5.24%, Due 3/28/2007 #......... 30,000 29,624
Stanfield Victoria,
5.27%, Due 1/30/2007 #................................... 30,000 29,873
5.26%, Due 3/12/2007 #................................... 45,000 44,540
Three Rivers Funding Corp.,
5.34%, Due 1/4/2007 #.................................... 75,929 75,895
</Table>
See accompanying notes
18
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PAR
AMOUNT VALUE
-------- -----------
(DOLLARS IN THOUSANDS)
5.33%, Due 1/16/2007 #................................... $ 42,224 $ 42,130
Yorktown Capital LLC,
5.305%, Due 2/1/2007..................................... 240,000 238,904
5.285%, Due 2/15/2007.................................... 98,273 97,624
-----------
TOTAL COMMERCIAL PAPER...................................... 1,301,428
-----------
TIME DEPOSITS -- 9.11%
Deutsche Bank AG, 5.25%, Due 1/2/2007....................... 110,000 110,000
ING Bank, NV, 5.26%, Due 1/2/2007........................... 425,000 425,000
Societe Generale, 5.313%, Due 1/2/2007...................... 625,000 625,000
-----------
TOTAL TIME DEPOSITS......................................... 1,160,000
-----------
REPURCHASE AGREEMENTS -- 2.52%
Barclays Capital, Inc., 5.31%, Due 1/2/2007 (Collateral
held at Bank of New York, FHLMC 4.478% -- 5.632%, Due
10/1/2024 -- 3/1/2036; and FNMA 3.517% -- 7.376%, Due
1/1/2028 -- 11/1/2036, Total Value $76,169).............. 75,000 75,000
Goldman Sachs, 5.34%, Due 1/2/2007 (Collateral held at Bank
of New York, FNMA 5.0% -- 6.5%, Due
3/1/2019 -- 12/1/2036, Total Value $250,069)............. 246,267 246,267
-----------
TOTAL REPURCHASE AGREEMENTS................................. 321,267
-----------
TOTAL INVESTMENTS -- 99.56% (Cost $12,672,485)................ $12,672,485
OTHER ASSETS, NET OF LIABILITIES -- 0.44%..................... 55,684
-----------
TOTAL NET ASSETS -- 100.00%................................... $12,728,169
===========
</Table>
Percentages are stated as a percent of net assets.
++ The coupon rate shown on floating or adjustable rate securities
represents the rate at period end. The due date on these types of
securities reflects the final maturity date.
# Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $2,192,013 or 17.22% of
net assets. The Fund has no right to demand registration of these
securities.
See accompanying notes
19
AMERICAN BEACON U.S. GOVERNMENT MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PAR AMOUNT VALUE
---------- --------
(DOLLARS IN
THOUSANDS)
U.S. AGENCY OBLIGATIONS -- 5.14%
FEDERAL HOME LOAN BANK -- 3.19%
5.23%, Due 4/4/2007 ++................................. $ 10,000 $ 9,999
3.875%, Due 6/8/2007................................... 5,000 4,970
5.21%, Due 6/8/2007 ++................................. 3,000 2,999
--------
17,968
--------
FEDERAL HOME LOAN MORTGAGE CORPORATION -- 1.63%
5.18%, Due 1/2/2007 #.................................. 9,210 9,209
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 0.32%
5.11%, Due 5/31/2007 #................................. 566 554
5.105%, Due 6/1/2007 #................................. 1,250 1,223
--------
1,777
--------
TOTAL U.S. AGENCY OBLIGATIONS............................. 28,954
--------
REPURCHASE AGREEMENTS -- 94.81%
Banc of America Securities, LLC, 5.313%, Due 1/2/2007
(Collateral held at Bank of New York, FHLMC 5.0%, Due
5/1/2035, Total Value -- $152,386)..................... 150,000 150,000
Barclays Capital, Inc., 5.31%, Due 1/2/2007 (Collateral
held at Bank of New York, FHLMC 4.442% -- 7.329%, Due
1/1/2028 -- 12/1/2036; and FNMA 5.0% -- 6.995%, Due
1/1/2028 -- 11/1/2036, Total Value -- $203,219) ....... 200,000 200,000
Goldman Sachs, 5.34%, Due 1/2/2007 (Collateral held at
Bank of New York, FNMA 5.0%, Due 2/1/2036, Total
Value -- $187,072)..................................... 184,142 184,143
--------
TOTAL REPURCHASE AGREEMENTS............................... 534,143
--------
TOTAL INVESTMENTS -- 99.95% (COST $563,097)................. $563,097
OTHER ASSETS, NET OF LIABILITIES -- 0.05% 299
--------
TOTAL NET ASSETS -- 100.00%................................. $563,396
========
</Table>
Percentages are stated as a percent of net assets.
++ The coupon rate shown on floating or adjustable rate securities
represents the rate at period end. The due date on these types of
securities reflects the final maturity date.
# Rates represent discount rate.
See accompanying notes
20
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006 (IN THOUSANDS)
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
------------ ---------------
ASSETS:
Investment in securities at value
(cost -- $12,351,218 and $28,954, respectively)... $12,351,218 $ 28,954
Repurchase agreement (cost -- $321,267 and $534,143,
respectively)..................................... 321,267 534,143
Dividends and interest receivable.................... 57,056 389
Prepaid expenses..................................... 7 --
----------- --------
TOTAL ASSETS...................................... 12,729,548 563,486
----------- --------
LIABILITIES:
Management and investment advisory fees payable (Note
2)................................................ 1,140 48
Other Liabilities.................................... 239 42
----------- --------
TOTAL LIABILITIES................................. 1,379 90
----------- --------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL
INTERESTS............................................ $12,728,169 $563,396
=========== ========
</Table>
See accompanying notes
21
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENT OF OPERATIONS
DECEMBER 31, 2006 (IN THOUSANDS)
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
------------ ---------------
INVESTMENT INCOME:
Interest Income................................... $542,409 $17,620
-------- -------
TOTAL INVESTMENT INCOME........................... 542,409 17,620
-------- -------
EXPENSES:
Management and investment advisory fees (Note 2).. 10,562 346
Custodian fees.................................... 437 14
Professional fees................................. 86 23
Other expenses.................................... 431 40
-------- -------
TOTAL EXPENSES.................................... 11,516 423
-------- -------
NET INVESTMENT INCOME.................................. 530,893 17,197
-------- -------
REALIZED GAIN ALLOCATED FROM PORTFOLIO
Net realized gain on investments.................. 12 1
-------- -------
NET GAIN ON INVESTMENTS................................ 12 1
-------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS... $530,905 $17,198
======== =======
</Table>
See accompanying notes
22
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<Table>
<Caption>
U.S. GOVERNMENT MONEY
MONEY MARKET MARKET
---------------------------- -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- -------------------------
2006 2005 2006 2005
------------- ------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............. $ 530,893 $ 218,128 $ 17,197 $ 7,700
Net realized gain (loss) on
investments..................... 12 18 1 6
------------- ------------ ----------- -----------
TOTAL INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..... 530,905 218,146 17,198 7,706
------------- ------------ ----------- -----------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Contributions...................... 131,682,048 98,275,830 3,002,184 1,782,252
Withdrawals........................ (126,270,825) (97,144,356) (2,695,546) (1,799,917)
------------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS.......... 5,411,223 1,161,474 306,638 (17,665)
------------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS........................ 5,942,128 1,379,620 323,836 (9,929)
------------- ------------ ----------- -----------
NET ASSETS:
Beginning of period................ 6,786,041 5,406,421 239,560 249,519
------------- ------------ ----------- -----------
END OF PERIOD...................... $ 12,728,169 $ 6,786,041 $ 563,396 $ 239,560
============= ============ =========== ===========
</Table>
See accompanying notes
23
AMERICAN BEACON MASTER TRUST PORTFOLIOS
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
MONEY MARKET
--------------------------------
YEAR END DECEMBER 31, 2006
--------------------------------
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
Total return........................................ 5.09% 3.25% 1.34% 1.13% 1.81%
Ratios to average net assets (annualized):
Expenses.......................................... 0.11% 0.11% 0.11% 0.11% 0.11%
Net investment income............................. 5.03% 3.20% 1.30% 1.14% 1.81%
</Table>
<Table>
<Caption>
U.S. GOVERNMENT MONEY MARKET
--------------------------------
YEAR END DECEMBER 31, 2006
--------------------------------
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
Total return........................................ 5.04% 3.19% 1.30% 1.11% 1.74%
Ratios to average net assets (annualized):
Expenses.......................................... 0.12% 0.12% 0.11% 0.12% 0.12%
Net investment income............................. 4.97% 3.15% 1.30% 1.13% 1.71%
</Table>
See accompanying notes
24
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Master Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as a no load, open-end management
investment company that was organized as a trust under the laws of the
Commonwealth of Massachusetts pursuant to a Declaration of Trust dated as of
November 1, 2004. 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 the
American Beacon Master U.S. Government Money Market Portfolio (each a
"Portfolio" and collectively the "Portfolios"). The objective of each Portfolio
is current income, liquidity and the maintenance of a stable price of $1.00 per
share. The assets of each Portfolio belong only to that Portfolio, and the
liabilities of each Portfolio are borne solely by that Portfolio and no other.
American Beacon Advisors, Inc. (the "Manager"), is a wholly-owned
subsidiary of AMR Corporation, the parent company of American Airlines, Inc.
("American"), and was organized in 1986 to provide business management,
advisory, administrative and asset management consulting services.
The following is a summary of the significant accounting policies followed
by the Portfolios.
Security Valuation
Securities of the Portfolios are valued at amortized cost, which
approximates fair value. In the event that a deviation of 1/2 of 1% or more
exists between the $1.00 per share price of the Portfolios, calculated at
amortized cost, and the price per share calculated by reference to market
quotations, or if there is any other deviation that the Trust's Board of
Trustees (the "Board") believes would result in a material dilution to
shareholders or purchasers, the Board will promptly consider the appropriate
action that should be initiated.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale. Interest income is earned from settlement date, recorded on
the accrual basis, and adjusted, if necessary, for amortization of premiums or
accretion of discounts on investment grade short-term securities and zero coupon
instruments. For financial and tax reporting purposes, realized gains and losses
are determined on the basis of specific lot identification.
Federal Income Taxes
The Portfolios will be treated as partnerships for federal income tax
purposes. As such, each investor in a Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that each
Portfolio's assets will be managed in such a way that an investor in the
Portfolio will be able to satisfy the requirements of subchapter M of the
Internal Revenue Code.
Repurchase Agreements
Under the terms of a repurchase agreement, securities are acquired by a
Portfolio from a securities dealer or a bank that are subject to resale at a
later date. Repurchase agreements are fully collateralized by U.S. Treasury or
U.S. Government agency securities and are valued at cost, which approximates
market value. All collateral is held at the custodian bank. The collateral is
monitored daily by the Manager so that the collateral's market value exceeds the
carrying value of the repurchase agreement plus accrued interest.
25
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimated.
Recently Issued Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 provides guidance on how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing each Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. At this time, the
Manager is evaluating the implications of FIN 48 and its potential impact on the
financial statements. The Fund's net asset value per share will reflect FIN 48
adjustments no later than June 29, 2007, and any adjustments will be reflected
in the Fund's Semi-Annual report to shareholders.
In September 2006, the FASB issued Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The Manager is evaluating the impact of FAS 157;
however, it is not expected to have a material impact on the Funds' net assets
or results of operations.
Other
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Trust. In the normal course of business, the Trust enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Trust and the Manager are parties to a Management Agreement that
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory and portfolio management services. The Manager serves as the
sole investment advisor to each of the Portfolios. As compensation for
performing the duties required under the Management Agreement, the Manager
receives from the Portfolios 0.10% of the average daily net assets of each of
the Portfolios.
Interfund Lending Program
Pursuant to an exemptive order by the Securities and Exchange Commission,
the Portfolios, along with other registered investment companies having
management contracts with the Manager, may participate in an interfund lending
program. This program provides an alternative credit facility allowing the Money
Market Portfolio to lend money to other participating series managed by the
Manager. For the twelve months ended
26
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
December 31, 2006, the Money Market Portfolio earned $2,108 under the credit
facility. This amount is included in interest income on the financial
statements.
27
(UNAUDITED)
AMERICAN BEACON SELECT FUNDS
TAX INFORMATION FOR THE TAX YEAR ENDED DECEMBER 31, 2006
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The distributions to shareholders during the tax year ended December 31,
2006 include short-term capital gains as follows:
<Table>
Money Market Select Fund $8,700
U.S. Government Money Market Select Fund 454
</Table>
We are required by Internal Revenue Code to advise you within 60 days of
the Funds' fiscal year end as to the federal tax status of dividends paid by the
Funds during its fiscal year ended December 31, 2006. For purposes of preparing
your annual federal income tax returns, you should report the amounts reflected
on your Form 1099-INT. Of the ordinary dividends paid, the percentage of income
exempt from federal income taxes is as follows:
<Table>
Money Market Select Fund 0.0%
U.S. Government Money Market Select Fund 0.0%
</Table>
Of ordinary dividends paid to shareholders during the tax year ended
December 31, 2006, the percentage of income derived from U.S. Treasury
obligations is as follows:
<Table>
Money Market Select Fund 0.0%
U.S. Government Money Market Select Fund 0.0%
</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 American Beacon Trust,
the American Beacon Mileage Funds, and the American Beacon Select Funds. The
Trust's Statement of Additional Information contains additional information
about the Trustees and is available without charge by calling 1-800-658-5811.
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
INTERESTED TRUSTEES
TERM
-----------------
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (58) Trustee and Chairman and CEO (2006-Present) and
President since 1987 President (1986-2006), American Beacon
Advisors, Inc.; Chairman (1989-2003) and
Director (1979-1989, 2003-Present),
American Airlines Federal Credit Union;
Director, Crescent Real Estate Equities,
Inc.(1994-Present); Director, Pritchard,
Hubble & Herr, LLC (investment advisor)
(2001-2006); Director of Investment
Committee, Southern Methodist University
Endowment Fund (1996-Present); Member,
Southern Methodist University Cox School of
Business Advisory Board (1999-2002);
Member, New York Stock Exchange Pension
Manager Committee (1997-1998, 2000-2002,
2006-Present); Chairman (2007-Present) and
Vice Chairman (2004-2006), Committee for
the Investment of Employee Benefits;
Chairman, Committee for the Investment of
Employee Benefits Defined Benefit Sub-
Committee (2002-2004); Director, United Way
of Metropolitan Tarrant County (1988-2000,
2004-Present); Trustee, American Beacon
Mileage Funds (1995-Present); Trustee,
American Beacon Select Funds (1999-
Present); Trustee, American Beacon Master
Trust (1995-Present).
Alan D. Feld** (69) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld,
LLP (law firm) (1960-Present); Director,
Clear Channel Communications (1984-
Present); Trustee, CenterPoint Properties
(1994-Present); Trustee, American Beacon
Mileage Funds (1996-Present); Trustee,
American Beacon Select Funds (1999-
Present); Trustee, American Beacon Master
Trust (1996-Present).
NON-INTERESTED TRUSTEES TERM
-----------------
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (62) Trustee since 2004 Consultant, New River Canada Ltd. (mutual
fund servicing company) (1998-2003); Board
Member, Baylor University Medical Center
Foundation (1992-2004); President and CEO,
Allmerica Trust Company, NA (1996-1997);
President and CEO, Fidelity Investments
Southwest Company (1983-1995); Senior Vice
President of Regional Centers, Fidelity
Investments (1988-1995); Trustee, American
Beacon Mileage Funds (2004-Present);
Trustee, American Beacon Select Funds
(2004-Present); Trustee, American Beacon
Master Trust (2004-Present).
</Table>
29
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON SELECT FUNDS AND THE AMERICAN
BEACON MASTER TRUST
(UNAUDITED)
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
NON-INTERESTED TRUSTEES
(CONT.)
Brenda A. Cline (45) Trustee since 2004 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary, Kimbell
Art Foundation (1993-Present); Trustee,
Texas Christian University (1998-Present);
Trustee, W.I. Cook Foundation, Inc. (d/b/a
Cook Children's Health Foundation) (2001-
Present); Director, Christian Church
Foundation (1999-Present); Trustee,
American Beacon Mileage Funds (2004-
Present); Trustee, American Beacon Select
Funds (2004-Present); Trustee, American
Beacon Master Trust (2004-Present).
Richard A. Massman (63) Trustee since 2004 Senior Vice President and General Counsel,
Hunt Consolidated, Inc. (holding company
engaged in energy, real estate, farming,
ranching and venture capital activities)
(1994-Present); Trustee, American Beacon
Mileage Funds (2004-Present); Trustee,
American Beacon Select Funds (2004-
Present); Trustee, American Beacon Master
Trust (2004-Present).
Stephen D. O'Sullivan (71) Trustee since 1987 Consultant (1994-Present); Trustee,
American Beacon Mileage Funds (1995-
Present); Trustee, American Beacon Select
Funds (1999-Present); Trustee, American
Beacon Master Trust (1995-Present).
R. Gerald Turner (60) Trustee since 2001 President, Southern Methodist University
225 Perkins Admin. Bldg. (1995-Present); Director, ChemFirst (1986-
Southern Methodist Univ. 2002); Director, J.C. Penney Company, Inc.
Dallas, Texas 75275 (1996-Present); Director, California
Federal 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 Mileage Funds (2001-
Present); Trustee, American Beacon Select
Funds (2001-Present); Trustee, American
Beacon Master Trust (2001-Present).
Kneeland Youngblood (50) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC
100 Crescent Court Chairman since 2005 (a private equity firm) (1998-Present);
Suite 1740 Director, Burger King Corporation (2004-
Dallas, Texas 75201 Present); Trustee, City of Dallas, Texas
Employee Retirement Fund (2004-Present);
Trustee, The Hockaday School (1997-2005);
Director, Starwood Hotels and Resorts
(2001-Present); Member, Council on Foreign
Relations (1995-Present); Director, Just
For the Kids (1995-2001); Director, L&B
Realty Advisors (1998-2000); Trustee,
Teachers Retirement System of Texas (1993-
1999); Director, Starwood Financial Trust
(1998-2001); Trustee, St. Mark's School of
Texas (2002-Present); Trustee, American
Beacon Mileage Funds (1996-Present);
Trustee, American Beacon Select Funds
(1999-Present); Trustee, American Beacon
Master Trust (1996-Present).
</Table>
30
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON SELECT FUNDS AND THE
AMERICAN BEACON MASTER TRUST
(UNAUDITED)
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
OFFICERS
TERM
One Year
Rosemary K. Behan (47) VP, Secretary and Vice President, Legal and Compliance,
Chief Legal Officer American Beacon Advisors, Inc. (2006-
since 2006 Present); Assistant General Counsel, First
Command Financial Planning, Inc. (2004-
2006); Enforcement Attorney (2002-2004) and
Branch Chief (2000-2002); Securities and
Exchange Commission.
Brian E. Brett (46) VP since 2004 Vice President, Director of Sales, American
Beacon Advisors, Inc. (2004-Present);
Regional Vice President, Neuberger Berman,
LLC (investment advisor) (1996-2004).
Michael W. Fields (52) VP since 1989 Vice President, Fixed Income Investments,
American Beacon Advisors, Inc. (1988-
Present).
Rebecca L. Harris (40) Treasurer since 1995 Vice President, Finance, American Beacon
Advisors, Inc. (1995-Present).
Christina E. Sears (35) Chief Compliance Chief Compliance Officer, American Beacon
Officer since 2004 Advisors, Inc. (2004-Present); Senior
and Asst. Secretary Compliance Analyst, American Beacon
since 1999 Advisors, Inc. (1998-2004).
</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 72, with the exception of Messrs. Quinn and O'Sullivan.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the
Trust, as defined by the 1940 Act. Mr. Quinn is Chairman of the Manager.
Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided
legal services within the past two years to one or more of the Trust's
Investment advisors.
31
(AMERICAN BEACON SELECT 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 A description of the policies and procedures
provided in each semi-annual and annual that the Funds use to determine how to vote
report, each Fund files a complete schedule of proxies relating to portfolio securities is
its portfolio holdings with the Securities and available in each Fund's Statement of
Exchange Commission ("SEC") on Form N-Q as of Additional Information, which may be obtained
the first and third fiscal quarters. The free of charge by calling 1-800-967-9009 or by
Funds' Forms N-Q are available on the SEC's accessing the SEC's website at www.sec.gov.
website at www.sec.gov. The Forms N-Q may also Each Fund's proxy voting record for the most
be reviewed and copied at the SEC's Public recent year ended June 30 is filed annually
Reference Room, 450 Fifth Street, NW, with the SEC on Form N-PX. The Funds' Forms N-
Washington, DC 20549. Information regarding PX are available on the SEC's website at
the operation of the SEC's Public Reference www.sec.gov. Each Fund's proxy voting record
Room may be obtained by calling 1-800-SEC- may also be obtained by calling 1-800-967-
0330. A complete schedule of each Fund's 9009.
portfolio holdings is also available on the
Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of
each quarter.
</Table>
FUND SERVICE PROVIDERS:
<Table>
<Caption>
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BANK AND BOSTON FINANCIAL DATA PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES
TRUST SERVICES ERNST & YOUNG LLP Portland, Maine
Boston, Massachusetts Kansas City, Missouri Dallas, Texas
</Table>
This report is prepared for shareholders of the American Beacon 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 12/06
539337
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
- ---------- -----------------
$4,458 12/31/2005
$20,041 12/31/2006
</Table>
(b)
<Table>
<Caption>
Audit-Related Fees Fiscal Year Ended
- ------------------ -----------------
$0 12/31/2005
$0 12/31/2006
</Table>
(c)
<Table>
<Caption>
Tax Fees Fiscal Year Ended
- -------- -----------------
$4,503* 12/31/2006
$ 12/31/2006
</Table>
<FN>
* For review of 2003 and 2004 tax returns
</FN>
(d)
<Table>
<Caption>
All Other Fees Fiscal Year Ended
- -------------- -----------------
$0 12/31/2006
$0 12/31/2006
</Table>
(e)(1) Pursuant to its charter, the Trust's Audit and Compliance Committee
shall have the following duties and powers pertaining to pre-approval
of audit and non-audit services provided by the Trust's principal
accountant:
- to approve, prior to appointment, the engagement of auditors to
annually audit and provide their opinion on the Trusts' financial
statements, and, in connection therewith, reviewing and evaluating
matters potentially affecting the independence and capabilities of
the auditors;
- to approve, prior to appointment, the engagement of the auditors to
provide non-audit services to the Trusts, an investment adviser to
any series of the Trusts or any entity controlling, controlled by,
or under common control with an investment adviser ("adviser
affiliate") that provides ongoing services to the Trusts, if the
engagement relates directly to the operations and financial
reporting of the Trusts;
- to consider whether the non-audit services provided by a Trust's
auditor to an investment adviser or any adviser affiliate that
provides ongoing services to a series of the Trusts, which services
were not pre-approved by the Committee, are compatible with
maintaining the auditor's independence;
- to review the arrangements for and scope of the annual audit and
any special audits; and
- to review and approving the fees proposed to be charged to the
Trusts by the auditors for each audit and non-audit service.
The Audit and Compliance Committee may delegate any portion of its authority,
including the authority to grant pre-approvals of audit and permitted
non-audit services, to a subcommittee of one or more members. Any decisions
of the subcommittee to grant pre-approvals shall be presented to the full
committee at its next regularly scheduled meeting.
(e)(2) None of the fees disclosed in paragraphs (b) through (d) above were
approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X.
(f) Not Applicable.
(g)
<Table>
<Caption>
Aggregate Non-Audit Fees for Services Rendered to the:
- ------------------------------------------------------
Adviser's Affiliates Providing
Registrant Adviser Ongoing Services to Registrant Fiscal Year Ended
- ---------- ------- ------------------------------ -----------------
$4,503 $0 N/A 12/31/2005
$ $0 N/A 12/31/2006
</Table>
(h) Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedules of investments for each series of the Trust are included in the
shareholder report presented in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 9. 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 9, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: March 9, 2007
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: March 9, 2007