UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-09603
AMERICAN BEACON SELECT FUNDS
(Exact name of registrant as specified in charter)
4151 Amon Carter Boulevard, MD 2450
Fort Worth, Texas 76155
(Address of principal executive offices)-(Zip code)
William F. Quinn, PRESIDENT
4151 Amon Carter Boulevard, MD 2450
Fort Worth, Texas 76155
(Name and address of agent for service)
Registrant's telephone number, including area code: (817) 967-3509
Date of fiscal year end: December 31, 2009
Date of reporting period: June 30, 2009
ITEM 1. REPORT TO STOCKHOLDERS.
GUIDANCE | VISION | EXPERIENCE
(AMERICAN BEACON SELECT FUNDS(SM) LOGO)
Semi-Annual Report
(GRAPHIC)
June 30, 2009
MONEY MARKET SELECT FUND
U.S. GOVERNMENT MONEY MARKET SELECT FUND
ABOUT AMERICAN BEACON ADVISORS
Since 1986, American Beacon Advisors has offered a variety of products
and investment advisory services to numerous institutional and retail clients,
including a variety of mutual funds, corporate cash management, and separate
account management.
Our clients include defined benefit plans, defined contribution plans,
foundations, endowments, corporations, financial planners, and other
institutional investors. With American Beacon Advisors, you can put the
experience of a multi-billion dollar asset management firm to work for your
company.
CONTENTS
Message from American Beacon....................... 1
Schedule of Investments
U.S. Government Money Market Select Fund........ 8
Financial Highlights
Money Market Select Fund........................ 18
U.S. Government Money Market Select Fund........ 19
Schedule of Investments
Money Market Portfolio.......................... 20
Additional Information............................. Back Cover
Any opinions herein, including forecasts, reflect our judgment as of the end of
the reporting period and are subject to change. Each advisor's strategies and
each Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
American Beacon Select Funds June 30, 2009
(PHOTO OF GENE L. NEEDLES, JR.)
FELLOW SHAREHOLDERS,
Enclosed is the Semi-Annual Report for the American Beacon Money
Market Select Fund and the U.S. Government Money Market Select Fund for the six
months ended June 30, 2009.
During the six months covered by this report, the Federal Reserve
("Fed") maintained the target range for the Fed Funds rate at 0% to 0.25% and
reiterated its expectation that the key short-term rate will remain at
exceptionally low levels for an extended period.
The American Beacon Money Market Select Fund reported a return of
0.25% for the six-month period ended June 30, 2009, matching the Lipper
Institutional Money Market Average, while the American Beacon U.S. Government
Money Market Select Fund's return of 0.19% beat the Lipper Institutional U.S.
Government Money Market Average of 0.12% for the period.
American Beacon will continue to manage the Funds with preservation of
principal, liquidity and yield as our top priorities. We believe this strategy
and our low expense ratios will continue to serve the Funds well over time.
Please review the enclosed market overview, portfolio listings, and
detailed financial data. As always, we welcome the opportunity to serve your
financial needs. To obtain further details about the American Beacon Funds
family or to access your account information, please visit our website at
www.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Select Funds.
Sincerely,
/s/ Gene L. Needles, Jr.
Gene L. Needles, Jr.
Executive Vice President
American Beacon Select Funds
1
ECONOMIC OVERVIEW
JUNE 30, 2009 (UNAUDITED)
Economic conditions remain challenging, but tentative signs of
improvement are emerging. The housing market is showing some signs of
stabilizing, job losses are slowing, and business and consumer confidence are
improving. Despite these economic "green shoots" recovery will be slow to take
hold. Home sales have picked up, but the supply of homes on the market remains
elevated, and home values continue to fall. While the pace of payroll declines
is decelerating, the U.S. continues to shed jobs, and the unemployment rate
continues to climb. Improvements in business and consumer confidence are
encouraging, but growth in spending is likely to be moderate. Consumers are in
the process of deleveraging and building savings, neither of which is conducive
to a robust rebound in consumer spending or business investment. So while the
economic bottoming process may have begun, we are not likely to achieve
sustainable economic growth for some time.
On the financial front, the government's efforts to stabilize
financial markets are producing results. Equity markets have improved and credit
markets are beginning to thaw. The Treasury-Euro Dollar ("TED") spread, an
indicator of perceived credit risk in the general economy, has come in over 400
basis points (4.00%) since its October 2008 peak. Banks and corporations are
taking advantage of increased access to liquidity by successfully raising
capital without government assistance. In addition, some large banks are
beginning to wean themselves from government aid by announcing plans to repay
Troubled Assets Relief Program ("TARP") funds.
For its part, the Fed remains committed to its accommodative policy
stance. Amid concerns that record liquidity injections and unprecedented
government borrowing will cause inflation to accelerate, the Committee left the
target range of the federal funds rate unchanged at 0.0-0.25% at the June 24th
meeting. The Committee believes that although commodity prices have risen,
substantial economic slack will dampen inflation pressures. They stated that
"economic activity is likely to remain weak for some time," warranting
"exceptionally low levels of the federal funds rate for an extended period."
While we appear to be returning from the edge of economic abyss, we
should not expect to see a substantial increase in economic activity in the near
term. Recovery is likely to be limited with consumer demand constrained by
rising unemployment and tight credit conditions. The economic outlook has
improved, but significant headwinds remain.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET SELECT FUND
JUNE 30, 2009 (UNAUDITED)
Economic conditions remained challenging but some signs of improvement
began to emerge during the first half of 2009. With continued uncertainty, the
Federal Open Market Committee (FOMC) kept the benchmark interest rate at between
0.00 and 0.25 percent for the first four meetings of the year. It is expected
that the low fed funds target is here to stay through the rest of 2009. As
credit quality and liquidity continue to be the priority, the American Beacon
Money Market Portfolio's primary strategy has been to buy short-dated, high
quality commercial paper and overnight repurchase agreements. This strategy
should stay in place until we see an improvement in overall credit conditions
and improving employment reports.
For the six months ended June 30, 2009, the total return of the
American Beacon Money Market Select Fund was 0.25%. The Lipper Institutional
Money Market Average also returned 0.25%. Based on annualized total returns,
Lipper Inc. ranked the Fund 178th among 353, 79th among 323 and 40th among 273
Institutional Money Market Funds for the one-year, three-year, and five-year
periods ended June 30, 2009, respectively.
(BAR CHART)
ANNUALIZED TOTAL RETURNS
AS OF 6/30/2009
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Money Market Select(1, 2, 4)... 1.31% 3.48% 3.43%
Lipper Institutional Money ....
Market Average (3)............. 1.26% 3.19% 3.13%
(1) Performance shown is historical and may not be indicative of future
returns. Investment returns will vary, and shares may be worth more or less
at redemption than at original purchase. An investment in the 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
shown through December 31, 1999 are those of the Companion Fund. The Fund
began offering its shares on January 1, 2000. Thus, performance results
shown from that date through June 30, 2009 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 Fund was waived through 2001. Performance prior to waiving fees was
lower than the actual returns shown for periods through 2001.
(3) The Lipper Institutional Money Market Average is calculated by taking an
arithmetic average of the returns of the mutual funds in the Lipper
Institutional Money Market Funds category. Lipper is an independent mutual
fund research and ranking service.
(4) The total annual Fund operating expense ratio set forth in the most recent
prospectus for the Fund was 0.14%. The expense ratio above may vary from
the expense ratio presented in other sections of this report, which is
based on expenses incurred during the period covered by this report.
PORTFOLIO STATISTICS AS OF JUNE 30, 2009
MONEY MARKET
------------
7-day Current Yield*............... 0.39%
7-day Effective Yield*............. 0.39%
30-day Yield*...................... 0.40%
Weighted Avg. Maturity............. 19 Days
Standard & Poor's Rating........... AAAm
* Annualized. You may call 1-800-231-4252 to obtain the Funds' current 7-day
yields. Yield is a more accurate reflection of the Funds' current earnings
than total returns.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET SELECT FUND
JUNE 30, 2009 (UNAUDITED)
ASSET ALLOCATION AS OF JUNE 30, 2009
% OF
NET ASSETS**
------------
Overnight Repurchase Agreements................. 39.8%
U.S. Government Agencies ....................... 25.2%
Commercial Paper................................ 15.7%
Short-Term Investments.......................... 9.9%
TLGP CP (FDIC Insured).......................... 5.0%
Term Tri-Party Repurchase Agreements............ 4.4%
** Percent of net assets of American Beacon Master Money Market Portfolio.
TOP ISSUERS AS OF JUNE 30, 2009
% OF
NET ASSETS**
------------
Federal Home Loan Mortgage Corporation.......... 25.2%
Old Line Funding LLC............................ 5.7%
Barton Capital Corp............................. 5.7%
US Bank, NA (FDIC Guaranteed)................... 5.0%
Goldman Sachs & Co.............................. 4.4%
Atlantis One Funding Corp....................... 4.4%
** Percent of net assets of American Beacon Master Money Market Portfolio.
4
PERFORMANCE OVERVIEW
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET SELECT FUND
JUNE 30, 2009 (UNAUDITED)
Economic conditions remained challenging but some signs of improvement
began to emerge during the first half of 2009. With continued uncertainty, the
Federal Open Market Committee (FOMC) kept the benchmark interest rate at between
0.00 and 0.25 percent for the first four meetings of the year. It is expected
that the low fed funds target is here to stay through the rest of 2009. As it
became apparent that the FOMC was not going to tighten monetary policy any time
soon, the American Beacon U.S. Government Money Market Select Fund continued its
strategy of buying short-dated agencies, primarily with six month maturities,
and overnight repurchase agreements. This strategy should stay in place until we
see an improvement in overall credit conditions and improving employment
reports.
For the six months ended June 30, 2009, the total return of the
American Beacon U.S. Government Money Market Select Fund was 0.19%. The Fund
outperformed the Lipper Institutional U.S. Government Money Market Average
return of 0.12% by 7 basis points (0.07%). Based on annualized total returns,
Lipper Analytical Services ranked the Fund 38th among 158, 9th among 140 and 1st
among 114 Institutional U.S. Government Money Market Funds for the one-year,
three-year, and five-year periods ended June 30, 2009, respectively.
(BAR CHART)
ANNUALIZED TOTAL RETURNS
AS OF 6/30/2009
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
U.S. Government Money Market
Select(1, 2, 4)............. 1.07% 3.33% 3.30%
Lipper Institutional U.S.
Government Money Market
Average (3)................. 0.90% 3.03% 3.04%
(1) Performance shown is historical and may not be indicative of future
returns. Investment returns will vary, and shares may be worth more or less
at redemption than at original purchase. An investment in the 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") no longer in
operation. The Companion Fund managed by American Beacon Advisors since its
inception on March 2, 1992 until the Companion Fund and the Fund invested
all of their investable assets in the same corresponding Portfolio of the
American Beacon Master Trust. The performance results shown 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 June 30, 2009 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. A portion of the fees charged
to the Fund has been waived. Performance prior to waiving fees was lower
than the actual returns shown.
(3) The Lipper Institutional U.S. Government Money Market Average is calculated
by taking an arithmetic average of the returns of the mutual funds in the
Lipper Institutional U.S. Government Money Market Funds category. Lipper is
an independent mutual fund research and ranking service.
(4) The total annual Fund operating expense ratio set forth in the most recent
prospectus for the Fund was 0.16%. The expense ratio above may vary from
the expense ratio presented in other sections of this report, which is
based on expenses incurred during the period covered by this report.
PORTFOLIO STATISTICS AS OF JUNE 30, 2009
U.S. GOVERNMENT
---------------
7-day Current Yield*............... 0.17%
7-day Effective Yield*............. 0.17%
30-day Yield*...................... 0.27%
Weighted Avg. Maturity............. 33 Days
Standard & Poor's Rating........... AAAm
* Annualized. You may call 1-800-231-4252 to obtain the Funds' current 7-day
yields. Yield is a more accurate reflection of the Funds' current earnings
than total returns.
5
PERFORMANCE OVERVIEW
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET SELECT FUND
JUNE 30, 2009 (UNAUDITED)
TOP ISSUERS AS OF JUNE 30, 2009
% OF
NET ASSETS
----------
Federal National Mortgage Association.... 15.2%
U.S. Treasury............................ 5.4%
Federal Home Loan Mortgage Corporation... 4.7%
Citigroup (FDIC Guaranteed) ............. 4.5%
US Bank, NA (FDIC Guaranteed) ........... 4.5%
ASSET ALLOCATION AS OF JUNE 30, 2009
% OF
NET ASSETS
----------
U.S. Government Tri-Party Repos.......... 61.4%
U.S. Government Agencies................. 19.9%
TLGP CP (FDIC Insured) .................. 8.9%
Short-Term Investments................... 9.8%
U.S. Treasuries.......................... 5.4%
Liabilities, Net of Other Assets......... -5.4%
6
FUND EXPENSES
AMERICAN BEACON SELECT FUNDS
JUNE 30, 2009 (UNAUDITED)
FUND EXPENSE EXAMPLE
As a shareholder of a 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 a
Fund and to compare these costs with the ongoing costs of investing in other
mutual funds. The examples are based on an investment of $1,000 invested at the
beginning of the period and held for the entire period from January 1, 2009
through June 30, 2009.
ACTUAL EXPENSES
The "Actual" lines of the table provide information about actual
account values and actual expenses. You may use the information in these lines,
together with the amount you invested, to estimate the expenses that you paid
over the period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the "Actual" line under the heading "Expenses Paid During Period" for
the applicable Fund 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 a Fund's actual
expense ratio and an assumed 5% per year rate of return before expenses (not a
Fund's actual return).
You may compare the ongoing costs of investing in a 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 Funds. Similarly, the expense examples for other funds do not
reflect any transaction costs charged by those funds, such as sales charges
(loads), redemption fees or exchange fees. Therefore, the "Hypothetical" lines
of the table are useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different funds. If you were
subject to any transaction costs during the period, your costs would have been
higher.
Beginning Ending Expenses
Account Account paid During
Value Value Period*
1/1/09 6/30/09 1/1/09-6/30/09
--------- --------- --------------
MONEY MARKET
Actual................ $1,000.00 $1,002.48 $0.84
Hypothetical (5%
return before
expenses).......... $1,000.00 $1,023.95 $0.85
U.S. GOVERNMENT MONEY
MARKET
Actual................ $1,000.00 $1,001.87 $0.60
Hypothetical (5%
return before
expenses).......... $1,000.00 $1,024.20 $0.60
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.17% and 0.12% for the Money Market Select Feeder and
U.S. Government Money Market Select Funds respectively, multiplied by the
average account value over the period, multiplied by the number derived by
dividing the number of days in the most recent fiscal half-year (181) by
days in the year (365) to reflect the half-year period.
7
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET SELECT FUND
SCHEDULE OF INVESTMENTS
June 30, 2009 (Unaudited)
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
U.S. AGENCY OBLIGATIONS - 28.81%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 4.69%
1.05%, Due 7/10/2009 .................................................. $ 5,000 $ 4,999
0.29%, Due 7/28/2009 .................................................. 6,250 6,249
0.50%, Due 9/30/2009 .................................................. 10,000 9,987
0.32%, Due 12/7/2009 .................................................. 5,000 4,993
26,228
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 15.19%
0.35%, Due 7/1/2009 ................................................... 5,000 5,000
0.559%, Due 7/30/2009 ................................................. 25,000 24,989
0.44%, Due 8/5/2009 ................................................... 10,000 9,996
1.08%, Due 10/1/2009 .................................................. 10,000 9,972
0.32%, Due 12/9/2009 .................................................. 5,000 4,993
0.32%, Due 12/16/2009 ................................................. 30,000 29,955
84,905
--------
OTHER GOVERNMENT RELATED - 8.93%
Citigroup Funding, Inc. (FDIC Guaranteed) 0.30%, Due 9/14/2009 # ...... 25,000 24,984
US Bank, NA (FDIC Guaranteed), 1.02%, Due 9/21/2009 # ................. 10,000 9,977
US Bank, NA (FDIC Guaranteed), 0.86%, Due 9/30/2009 # ................. 15,000 14,967
49,928
--------
TOTAL U.S. AGENCY OBLIGATIONS ............................................ 161,061
--------
U.S. TREASURY OBLIGATIONS - 5.36%
0.33%, Due 12/31/2009 ................................................. 30,000 29,950
--------
SHARES
-----------
SHORT TERM INVESTMENTS - 9.84%
OTHER SHORT-TERM INVESTMENTS - 9.84%
Goldman Sachs Financial Square Government Fund ........................... 27,500,000 27,500
JP Morgan U.S. Government Money Market Fund .............................. 27,500,000 27,500
TOTAL SHORT TERM INVESTMENTS ............................................. 55,000
--------
PAR
AMOUNT
-----------
REPURCHASE AGREEMENTS - 61.37%
Barclays Capital, Inc., 0.09%, Due 7/1/2009 (Held at Bank of New York
Mellon, Collateralized by U.S. Government Agency Obligations valued
at $147,900, Zero Coupon - 2.125%, 5/5/2011 - 5/7/2012) ............... $ 145,000 145,000
Credit Suisse Securities (USA) LLC, 0.10%, Due 7/1/2009 (Held at JPMorgan
Chase, Collateralized by U.S. Government Agency Obligations valued at
$25,504, Zero Coupon, 4/1/2033 - 6/1/2039) ............................ 25,000 25,000
Goldman Sachs & Co., 0.05%, Due 7/1/2009 (Held at Bank of New York Mellon,
Collateralized by U.S. Government Agency Obligations valued at $23,568,
Zero Coupon - 7.275%, 7/7/2009 - 7/15/2032) ........................... 23,101 23,101
See accompanying notes
8
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET SELECT FUND
SCHEDULE OF INVESTMENTS
June 30, 2009 (Unaudited)
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Royal Bank of Canada N.Y., 0.10%, Due 7/1/2009 (Held at Bank of New York
Mellon, Collateralized by U.S. Government Agency Obligations valued at
$153,000, 5.0% - 8.0%, 9/1/2023 - 12/1/2038) .......................... $ 150,000 $150,000
TOTAL REPURCHASE AGREEMENTS .............................................. 343,101
--------
TOTAL INVESTMENTS - 105.38% (COST $589,112) ................................. $589,112
LIABILITIES, NET OF OTHER ASSETS - (5.38%) .................................. (30,087)
TOTAL NET ASSETS - 100.00% .................................................. $559,025
========
Percentages are stated as a percent of net assets.
# Under the Temporary Liquidity Guarantee Program, the Federal Deposit
Insurance Corporation guarantees principal and interest in the event of a
payment default or bankruptcy until the earlier of maturity date of the
debt or until June 30, 2012. At the period end, the values of these
Securities amounted to $49,928 or 8.93%
See accompanying notes
9
AMERICAN BEACON SELECT FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2009 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
------------ ---------------
ASSETS:
Investments in securities, at value (cost - $246,011) ....... $ -- $ 246,011
Repurchase agreements (cost - $343,101) ..................... -- 343,101
Investment in Portfolio, at value ........................... 680,361 --
Receivable for fund shares sold ............................. -- 2
Receivable from Manager for expense reimbursement (Note 2) .. 4 --
Dividends and interest receivable ........................... -- 12
Prepaid expenses ............................................ -- 4
------------ ------------
TOTAL ASSETS ............................................. 680,365 589,130
------------ ------------
LIABILITIES:
Management and investment advisory fees (Note 2) ............ -- 13
Payable for investments purchased ........................... -- 29,950
Payable for fund shares redeemed ............................ 2 --
Dividends payable ........................................... 8 105
Administrative service and service fees payable (Note 2) .... -- 30
Other liabilities ........................................... 122 7
------------ ------------
TOTAL LIABILITIES ........................................ 132 30,105
------------ ------------
NET ASSETS ..................................................... $ 680,233 $ 559,025
============ ============
ANALYSIS OF NET ASSETS:
Paid-in-capital .......................................... 680,233 559,025
------------ ------------
NET ASSETS ..................................................... $ 680,233 $ 559,025
============ ============
Shares outstanding (no par value) .............................. 680,233,151 559,024,745
Net asset value, offering and redemption price per share ....... $ 1.00 $ 1.00
See accompanying notes
See accompanying Financial Statements of the American Beacon Money Market
Portfolio
10
AMERICAN BEACON SELECT FUNDS
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2009 (IN THOUSANDS) (UNAUDITED)
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
------------ ---------------
INVESTMENT INCOME:
Dividend income .......................................................... $ -- $ 19
Interest income .......................................................... -- 205
Investment Income Allocated From Portfolio:
Dividend income .......................................................... 246 115
Interest income .......................................................... 2,014 920
Portfolio expenses ....................................................... (516) (227)
Other income ............................................................. -- 6
------ ------
NET INVESTMENT INCOME ................................................. 1,744 1,038
------ ------
FUND EXPENSES:
Management and investment advisory fees (Note 2) ......................... -- 55
Custodian fees ........................................................... -- 2
Administrative fees ...................................................... -- 6
Transfer agent fees ...................................................... 33 7
Professional fees ........................................................ 19 18
Registration fees and expenses ........................................... 7 --
Printing expense ......................................................... 1 1
Trustee expense .......................................................... 11 2
Other expenses ........................................................... 15 4
------ ------
TOTAL FUND EXPENSES ................................................... 86 95
------ ------
Net (fees waived and expenses reimbursed)/recovered by Manager (Note 2) ..... (9) --
------ ------
NET FUND EXPENSES ..................................................... 77 95
------ ------
NET INVESTMENT INCOME ....................................................... 1,667 943
------ ------
REALIZED GAIN ALLOCATED FROM PORTFOLIO
Net realized gain on investments ......................................... 62 51
------ ------
NET GAIN ON INVESTMENTS ............................................... 62 51
------ ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................ $1,729 $ 994
====== ======
See accompanying notes
See accompanying Financial Statements of the American Beacon Money Market
Portfolio
11
AMERICAN BEACON SELECT FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
MONEY MARKET U.S. GOVERNMENT MONEY MARKET
-------------------------------- -------------------------------
Year ended Year ended
Six Months ended December 31, Six Months ended December 31,
June 30, 2009 2008 June 30, 2009 2008
---------------- ------------- ---------------- ------------
(unaudited) (unaudited)
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income .................................... $ 1,667 $ 216,268 $ 943 $ 19,046
Net realized gain on investments ......................... 62 124 51 120
-------- ------------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ......................................... 1,729 216,392 994 19,166
-------- ------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income .................................... (1,667) (216,268) (943) (19,046)
Net realized gain on investments ......................... (62) (124) (51) (120)
-------- ------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS ......................... (1,729) (216,392) (994) (19,166)
-------- ------------- ----------- -----------
CAPITAL SHARE TRANSACTIONS (AT $1.00 PER SHARE):
Proceeds from sales of shares ............................ 464,589 102,008,931 1,204,952 6,128,248
Reinvestment of dividends and distributions .............. 1,540 65,877 87 3,785
Cost of shares redeemed .................................. (494,262) (109,945,730) (1,020,564) (7,118,942)
-------- ------------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ................. (28,133) (7,870,922) 184,475 (986,909)
-------- ------------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ....................... (28,133) (7,870,922) 184,475 (986,909)
-------- ------------- ----------- -----------
NET ASSETS:
Beginning of period ...................................... 708,366 8,579,288 374,550 1,361,459
-------- ------------- ----------- -----------
END OF PERIOD ............................................ $680,233 $ 708,366 $ 559,025 $ 374,550
======== ============= =========== ===========
See accompanying notes
See accompanying Financial Statements of the American Beacon Money Market
Portfolio
12
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED)
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 (the "Money Market Fund")
and American Beacon U.S. Government Money Market Select Fund (the "Government
Fund")(each a "Fund" and collectively, the "Funds").
American Beacon Advisors, Inc. (the "Manager") is a wholly owned
subsidiary of Lighthouse Holdings, Inc. and was organized in 1986 to provide
business management, advisory, administrative and asset management consulting
services to the Trust and other investors.
The Money Market Fund operates under a master-feeder structure,
investing all of its investable assets in the American Beacon Money Market
Portfolio (the "Money Market Portfolio") of the American Beacon Master Trust, an
open-end diversified management investment company. The Money Market Fund has
the same investment objectives as the Money Market Portfolio and the value of
such investment reflects the Money Market Fund's proportionate interest in the
net assets of the Money Market Portfolio (85.7% at June 30, 2009). The financial
statements of the Money Market Portfolio are included elsewhere in this report
and should be read in conjunction with the Fund's financial statements.
Reorganization
Prior to May 18, 2009, the Government Fund operated under a
master-feeder structure and invested all of its investable assets in the
American Beacon U.S. Government Money Market Portfolio (the "Government
Portfolio") of the American Beacon Master Trust. At the beginning of business on
May 18, 2009, the Government Fund withdrew its interest in the Government
Portfolio. The Government Fund received a distribution of cash and securities
from the Government Portfolio with a market value equal to the Government Fund's
investment in the Government Portfolio in the amount of $537,530,130. The
Government Portfolio then ceased operations.
The following is a summary of the significant accounting policies
followed by the Funds.
Security Valuation
The Money Market Fund records its investment in the Money Market
Portfolio at fair value. Valuation of securities by the Money Market Portfolio
is discussed in Note 1 of the Money Market Portfolio's Notes to Financial
Statements which are included elsewhere in this report. Securities of the
Government Fund 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 Government Fund, calculated at amortized cost, and the price
per share calculated by reference to market quotations, or if there is any other
deviation that the Trust's Board of Trustees (the "Board") believes would result
in a material dilution to shareholders or purchasers, the Board will promptly
consider the appropriate action that should be initiated.
The Government Fund adopted the provisions of Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157") January 1,
2008. 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. In addition,
effective June 30, 2009, the Fund adopted FASB Staff position ("FSP") No. 157-4,
"Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly" ("FSP No. 157-4"). FSP No. 157-4 provides additional guidance for
estimating fair value in accordance with SFAS No. 157 when the volume and level
of activity for the asset or liability have significantly decreased. The three
levels of the hierarchy under FAS 157 are described below:
13
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED)
Level 1 - Quoted prices in active markets for identical securities.
Level 2 - Prices determined using other significant observable inputs.
These may include quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, and others.
Level 3 - Prices determined using significant unobservable inputs.
Unobservable inputs reflect the Portfolios' own assumptions about the
factors market participants would use in pricing an investment, and would
be based on the best information available.
The summary of inputs used to value the Money Market Portfolio's net
assets as of June 30, 2009 is discussed in the Money Market Portfolio's Notes to
Financial Statements, which are included elsewhere in this report. A summary of
the inputs used to value the Government Fund's investments as of June 30, 2009
is as follows (in thousands):
Quoted
Prices in
Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
Description (Level 1) (Level 2) (Level 3) Total
- ----------- ----------- ----------- ------------ --------
Assets:
U.S. Agency Obligations............................ $ -- $ 161,061 $-- $161,061
U.S. Treasury Obligations.......................... -- 29,950 -- 29,950
Short-Term Investments............................. 55,000 -- -- 55,000
Repurchase Agreements.............................. -- 343,101 -- 343,101
------- --------- --- --------
Total Investments.................................. 55,000 534,112 -- 589,112
Liabilities:
Investments in Other Financial Instruments......... -- -- -- --
Total.............................................. $55,000 $ 534,112 $-- $589,112
======= ========= === ========
The inputs or methodology used for valuing securities are not
necessarily an indication of the risk associated with investing in those
securities. For example, money market securities are valued using amortized
cost, in accordance with rules under the Investment Company Act of 1940.
Generally, amortized cost approximates the current fair value of a security, but
since the value is not obtained from a quoted price in an active market, such
securities are reflected as Level 2.
Security Transactions
Security transactions for the Government Fund are recorded on the
trade date of the security purchase or sale.
Investment Income and Dividends to Shareholders
Interest income for the Government Fund is earned from settlement
date, recorded on an 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. The
Money Market Fund records its share of net investment income (loss) and realized
gain (loss) in the Money Market Portfolio each day. All net investment income
(loss) and realized gain (loss) of the Money Market Portfolio is allocated pro
rata to the Money Market Fund and other investors in the Money Market Portfolio
at the time of such determination. The Funds generally declare dividends daily
from net investment income and net short-term capital gain, if any, payable
monthly.
14
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED)
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.
Repurchase Agreements
Under the terms of a repurchase agreement, securities are acquired by
the Government Fund from a securities dealer or a bank that are subject to
resale at a later date. Repurchase agreements are fully collateralized by
government securities for the Government Fund. All collateral is valued at cost,
which approximates market value and is held at the custodian bank. The
collateral is monitored daily by the Manager so that the collateral's market
value exceeds the carrying value of the repurchase agreement plus accrued
interest.
Use of Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimated.
Other
Under the Trust's organizational documents, its officers and directors
are indemnified against certain liability arising out of the performance of
their duties to the Trust. In the normal course of business, the Trust enters
into contracts that provide indemnification to the other party or parties
against potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Funds and the Manager are parties to a Management Agreement that
obligates the Manager to provide or oversee the provisions of all investment
advisory and portfolio management services. The Manager serves as the sole
investment advisor to the Funds. As compensation for performing the duties
required under the Management Agreement, the Manager receives 0.09% of the
average daily net assets of the Funds. To the extent and for such periods of
time that a Fund invests all of its investable assets in another registered
investment company pursuant to a master-feeder arrangement, then the Fund will
not pay a management fee.
Administrative Services Agreement
The Manager and the Funds entered into an Administrative Services
Agreement that obligates the Manager to provide or oversee administrative
services to the Funds. As compensation for performing the duties required under
the Administrative Services Agreement, the Manager receives an annualized fee of
0.01% of the average daily net assets of the Funds. To the extent and for such
period of time that a Fund invests all of its
15
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED)
investable assets in another registered investment company pursuant to a
master-feeder arrangement, then the Fund will not pay administrative services
fees.
Reimbursement of Expenses
The Manager voluntarily reimbursed the Money Market Fund for other
expenses. For the six months ended June 30, 2009, the Manager reimbursed
expenses totaling $8,888 to the Money Market 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 for the Money Market
Fund totaling $119,783 and $8,888 will expire in 2011 and 2012, respectively.
The Money Market Fund has not recorded a liability for this potential
reimbursement due to the current assessment that a reimbursement is unlikely.
Reimbursed expenses subject to potential recovery for the Government Fund
totaling $14,889, $32,513, and $69,000, will expire in 2009, 2010, and 2011
respectively. The Government Fund has not recorded a liability for this
potential reimbursement due to the current assessment that a reimbursement is
unlikely.
3. FEDERAL INCOME AND EXCISE TAXES
It is the policy of the Funds to comply with the requirements of
Subchapter M of the Internal Revenue Code and to distribute substantially all
net investment income as well as any net realized capital gains on the sale of
investments. Therefore, no federal income or excise tax provision is required.
The Funds adopted the provisions of FASB Interpretation No. 48,
"Accounting for Uncertainties in Income Taxes" ("FIN 48"), on January 1, 2007.
FIN 48 sets forth a minimum threshold for financial statement recognition of the
benefit of a tax position taken or expected to be taken in a tax return. The
implementation of FIN 48 did not result in any unrecognized tax benefits in the
accompanying financial statements. Each of the tax years in the three year
period ended December 31, 2008, remains subject to examination by the Internal
Revenue Service. If applicable, the Funds recognize interest accrued related to
unrecognized tax benefits in interest expense and penalties in "Other expenses"
on the Statements of Operations.
Dividends are categorized in accordance with income tax regulations
which may treat certain transactions differently than U.S. generally accepted
accounting principles. Accordingly, the character of distributions and
composition of net assets for tax purposes may differ from those reflected in
the accompanying financial statements.
The tax character of distributions paid for the six months ended June
30, 2009 and the fiscal year ended December 31, 2008 were as follows (in
thousands):
MONEY MARKET U.S. GOVERNMENT MONEY MARKET
------------------------------- ----------------------------
Year Ended Six Months Year Ended
Six Months Ended December 31, Ended December 31,
June 30, 2009 2008 June 30, 2009 2008
---------------- ------------ ------------- ------------
(unaudited) (unaudited)
Distributions paid from:
Ordinary income*................. $1,729 $216,392 $994 $19,166
Long-term capital gain........... -- -- -- --
------ -------- ---- -------
Total distributions paid............ $1,729 $216,392 $994 $19,166
====== ======== ==== =======
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
16
AMERICAN BEACON SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED)
As of June 30, 2009, 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 June 30, 2009.
4. SUBSEQUENT EVENTS
In accordance with the provisions set forth in FASB Statement of
Financial Accounting Standards No. 165 "Subsequent Events", adopted by the Funds
as of June 30, 2009, management has evaluated the possibility of subsequent
events existing in the Funds' financial statements through August 28, 2009.
Management has determined that there are no material events that would require
disclosure in the Funds' financial statements through this date.
17
AMERICAN BEACON MONEY MARKET SELECT FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Six Months Year Ended December 31,
Ended June -------------------------------------------------------------------
30, 2009 2008 2007 2006 2005 2004
----------- -------- ---------- ---------- ---------- ----------
(unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A) .................. 0.00(B) 0.03 0.05 0.05 0.03 0.01
Net realized gain on investments .......... 0.00(B) 0.00(B) 0.00(B) 0.00(B) 0.00(B) 0.00(B)
-------- -------- ---------- ---------- ---------- ----------
Total income from investment operations ...... 0.00 0.03 0.05 0.05 0.03 0.01
-------- -------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income ...... 0.00(B) (0.03) (0.05) (0.05) (0.03) (0.01)
Distributions from net realized gains on
investments ............................ 0.00(B) 0.00(B) 0.00(B) 0.00(B) 0.00(B) 0.00(B)
-------- -------- ---------- ---------- ---------- ----------
Total distributions .......................... 0.00 (0.03) (0.05) (0.05) (0.03) (0.01)
-------- -------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ========== ========== ========== ==========
TOTAL RETURN ................................. 0.25%(C) 2.73% 5.32% 5.08% 3.23% 1.33%
======== ======== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .. $680,233 $708,366 $8,579,288 $8,473,536 $5,216,927 $3,973,103
Ratios to average net assets
(annualized):(A)
Expenses, after expense reimbursements
(recoupments) ....................... 0.17% 0.12% 0.11% 0.11% 0.12% 0.12%
Expenses, before expense reimbursements
(recoupments) ....................... 0.17% 0.12% 0.11% 0.11% 0.12% 0.12%
Net investment income, after expense
reimbursements (recoupments) ........ 0.48% 2.95% 5.20% 5.02% 3.20% 1.28%
Net investment income, before expense
reimbursements (recoupments) ........ 0.48% 2.95% 5.20% 5.02% 3.20% 1.28%
(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 Money Market Portfolio.
(B) Amount is less than $0.01 per share.
(C) Not annualized.
18
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET SELECT FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Six Months Year Ended December 31,
Ended June ----------------------------------------------------------
30, 2009 2008 2007 2006 2005 2004
----------- -------- ---------- -------- -------- --------
(unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ---------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A) ....................... 0.00(B) 0.02 0.05 0.05 0.03 0.01
Net realized gain on investments ............... 0.00(B) 0.00(B) 0.00(B) 0.00(B) 0.00(B) 0.00(B)
-------- -------- ---------- -------- -------- --------
Total income from investment operations ........... 0.00 0.02 0.05 0.05 0.03 0.01
-------- -------- ---------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ........... 0.00(B) (0.02) (0.05) (0.05) (0.03) (0.01)
Distributions from net realized gains on
investments ................................. 0.00(B) 0.00(B) 0.00(B) 0.00(B) 0.00(B) 0.00(B)
-------- -------- ---------- -------- -------- --------
Total distributions ............................... 0.00 (0.02) (0.05) (0.05) (0.03) (0.01)
-------- -------- ---------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ========== ======== ======== ========
TOTAL RETURN ...................................... 0.19%(C) 2.32% 5.17% 5.04% 3.19% 1.29%
======== ======== ========== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ....... $559,025 $374,550 $1,361,459 $534,536 $196,696 $193,287
Ratios to average net assets
(annualized):(A)
Expenses, after expense reimbursements
(recoupments) ............................ 0.12% 0.12% 0.12% 0.12% 0.12% 0.12%
Expenses, before expense reimbursements
(recoupments) ............................ 0.12% 0.13% 0.12% 0.13% 0.14% 0.12%
Net investment income, after expense
reimbursements (recoupments) ............. 0.35% 2.70% 4.99% 4.99% 3.17% 1.31%
Net investment income, before expense
reimbursements (recoupments) ............. 0.35% 2.69% 4.98% 4.98% 3.15% 1.31%
(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 Money Market Portfolio prior to May 18,
2009.
(B) Amount is less than $0.01 per share.
(C) Not annualized.
19
AMERICAN BEACON MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 2009 (Unaudited)
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
U.S. AGENCY OBLIGATIONS - 30.22%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 25.19%
0.54%, Due 7/14/2009 ........................................................ $ 45,000 $ 44,991
0.53%, Due 7/20/2009 ........................................................ 75,000 74,979
0.45%, Due 7/28/2009 ........................................................ 36,520 36,508
0.48%, Due 8/10/2009 ........................................................ 3,500 3,498
0.49%, Due 8/10/2009 ........................................................ 40,000 39,978
199,954
--------
OTHER GOVERNMENT RELATED - 5.03%
US Bank, NA (FDIC Guaranteed), 1.02%, Due 9/21/2009 # ...................... 40,000 39,907
--------
TOTAL U.S. AGENCY OBLIGATIONS .................................................. 239,861
--------
COMMERCIAL PAPER - 15.73%
Atlantis One Funding Corp., 0.60%, Due 12/15/2009 ++ ........................... 35,000 34,902
Barton Capital Corp., 0.50%, Due 7/6/2009 ++ ................................... 45,000 44,997
Old Line Funding LLC, 0.60%, Due 7/1/2009 ++ ................................... 45,000 45,000
TOTAL COMMERCIAL PAPER ......................................................... 124,899
--------
SHARES
-----------
SHORT TERM INVESTMENTS - 9.91%
OTHER SHORT-TERM INVESTMENTS - 9.91%
AIM Short-Term Investment Company Liquid Asset Fund ............................ 39,286,075 39,286
Dreyfus Institutional Cash Advantage Fund ...................................... 39,397,541 39,398
TOTAL SHORT TERM INVESTMENTS ................................................... 78,684
--------
PAR
AMOUNT
-----------
REPURCHASE AGREEMENTS - 44.15%
Barclays Capital, Inc., 0.09%, Due 7/1/2009 (Held at Bank of New York Mellon,
Collateralized by U.S. Government Agency Obligations valued at $12,240, 1.7%,
12/23/2010) ................................................................. $ 12,000 12,000
0.79%, Due 7/1/2009 (Held at Bank of New York Mellon, Collateralized by
Corporate Obligations valued at $40,041, 5.95% - 8.25%, 4/25/2012 -
1/20/2034) ............................................................... 38,000 38,000
BNP Paribas Securities Corp., 0.59%, Due 7/1/2009 (Held at Bank of New York
Mellon, Collateralized by Corporate Obligations valued at $41,800, Zero
Coupon - 9.86%, 8/24/2009 - 6/11/2019) ...................................... 38,000 38,000
Credit Suisse Securities (USA) LLC, 0.44%, Due 7/1/2009 (Held at JPMorgan
Chase, Collateralized by Equity Securities valued at $41,800) ............... 38,000 38,000
Deutsche Bank Securities, Inc., 0.44%, Due 7/1/2009 (Held at Bank of New York
Mellon, Collateralized by Equity Securities valued at $41,800) .............. 38,000 38,000
Goldman Sachs & Co., 0.05%, Due 7/1/2009 (Held at Bank of New York Mellon,
Collateralized by U.S. Government Agency Obligations valued at $2,545,
Zero Coupon, 1/26/2010) ..................................................... 2,495 2,495
0.49%, Due 7/6/2009 (Held at Bank of New York Mellon, Collateralized by
Equity Securities valued at $38,500) ..................................... 35,000 35,000
J.P. Morgan Clearing Corp., 0.49%, Due 7/1/2009 (Held at JPMorgan Chase,
Collateralized by Equity Securities valued at $36,750) ...................... 35,000 35,000
Merrill Lynch, Pierce, Fenner & Smith, Inc., 0.49%, Due 7/1/2009 (Held at Bank
of New York Mellon, Collateralized by Equity Securities valued at $41,800) .. 38,000 38,000
See accompanying notes
20
AMERICAN BEACON MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 2009 (Unaudited)
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Morgan Stanley & Co., 0.49%, Due 7/1/2009 (Held at JPMorgan Chase,
Collateralized by Equity Securities valued at $39,900) ...................... $ 38,000 $ 38,000
RBC Capital Markets Corp., 0.49%, Due 7/1/2009 (Held at Bank of New York Mellon,
Collateralized by Equity Securities valued at $39,900) ...................... 38,000 38,000
--------
TOTAL REPURCHASE AGREEMENTS ....................................................... 350,495
--------
TOTAL INVESTMENTS - 100.01% (COST $793,939) ....................................... $793,939
LIABILITIES, NET OF OTHER ASSETS - (0.01%) ........................................ (82)
--------
TOTAL NET ASSETS - 100.00% ........................................................ $793,857
========
Percentages are stated as a percent of net assets.
++ Security exempt from registration under the Securities Act of 1933. These
securities may be resold to qualified institutional buyers pursuant to Rule
144A. At the period end, the value of these securities amounted to $124,899
or 15.73% of net assets. The Fund has no right to demand registration of
these securities.
# Under the Temporary Liquidity Guarantee Program, the Federal Deposit
Insurance Corporation guarantees principal and interest in the event of a
payment default or bankruptcy until the earlier of maturity date of the
debt or until June 30, 2012. At the period end, the values of these
Securities amounted to $39,907 or 5.03% of net assets
See accompanying notes
21
AMERICAN BEACON MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2009 (UNAUDITED) (IN THOUSANDS)
MONEY MARKET
------------
ASSETS:
Investment in securities at value (cost - $443,444) ....... $443,444
Repurchase agreement (cost - $350,495) .................... 350,495
Dividends and interest receivable ......................... 6
Prepaid expenses .......................................... 53
--------
TOTAL ASSETS ........................................... 793,998
--------
LIABILITIES:
Management and investment advisory fees payable (Note 2) .. 64
Other liabilities ......................................... 77
--------
TOTAL LIABILITIES ...................................... 141
--------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS ..... $793,857
========
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 (UNAUDITED) (IN THOUSANDS)
MONEY MARKET
------------
INVESTMENT INCOME:
Dividend income ........................................... $ 297
Interest income ........................................... 2,703
------
TOTAL INVESTMENT INCOME ................................ 3,000
------
EXPENSES:
Management and investment advisory fees (Note 2) .......... 457
Custodian fees ............................................ 36
Professional fees ......................................... 50
Insurance fees ............................................ 107
Other expenses ............................................ 31
------
TOTAL EXPENSES ......................................... 681
------
NET INVESTMENT INCOME ........................................ 2,319
------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments .......................... 84
------
NET GAIN ON INVESTMENTS ................................ 84
------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... $2,403
======
See accompanying notes
22
AMERICAN BEACON MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
MONEY MARKET
---------------------------
Six Months Year Ended
Ended June December 31,
30, 2009 2008
----------- -------------
(unaudited)
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income ........................ $ 2,319 $ 330,834
Net realized gain on investments ............. 84 197
----------- -------------
TOTAL INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................. 2,403 331,031
----------- -------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Contributions ................................ 1,015,994 125,022,264
Withdrawals .................................. (1,186,828) (137,575,006)
----------- -------------
NET DECREASE IN NET ASSETS RESULTING FROM
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS .............................. (170,834) (12,552,742)
----------- -------------
NET DECREASE IN NET ASSETS ................ (168,431) (12,221,711)
----------- -------------
NET ASSETS:
Beginning of period .......................... 962,288 13,183,999
----------- -------------
END OF PERIOD ................................ $ 793,857 $ 962,288
=========== =============
FINANCIAL HIGHLIGHTS
Money Market
-----------------------------------------------
Six Months Year Ended December 31,
Ended June ----------------------------------
30, 2009 2008 2007 2006 2005 2004
----------- ---- ---- ---- ---- ----
(unaudited)
Total return .................................... 0.27%(A) 2.75% 5.33% 5.09% 3.25% 1.34%
Ratios to average net assets (annualized):
Expenses ..................................... 0.15% 0.11% 0.11% 0.11% 0.11% 0.11%
Net investment income ........................ 0.51% 2.94% 5.19% 5.03% 3.20% 1.30%
(A) Not annualized
See accompanying notes
23
AMERICAN BEACON MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The American Beacon Money Market Portfolio (the "Portfolio") is a
series of the American Beacon Master Trust (the "Trust"), which 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. The objective of the Portfolio is current income, liquidity
and the maintenance of a stable price of $1.00 per share.
American Beacon Advisors, Inc. (the "Manager") is a wholly-owned
subsidiary of Lighthouse Holdings, Inc. 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 Portfolio.
Security Valuation
Securities of the Portfolio are valued at amortized cost, which
approximates fair value. In the event that a deviation of 1/2 of 1% or more
exists between the $1.00 per share price of the Portfolio, calculated at
amortized cost, and the price per share calculated by reference to market
quotations, or if there is any other deviation that the Trust's Board of
Trustees (the "Board") believes would result in a material dilution to
shareholders or purchasers, the Board will promptly consider the appropriate
action that should be initiated.
The Portfolio adopted the provisions of Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157") January 1,
2008. 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. In addition,
effective June 30, 2009, the Fund adopted FASB Staff position ("FSP") No. 157-4,
"Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly" ("FSP No. 157-4"). FSP No. 157-4 provides additional guidance for
estimating fair value in accordance with SFAS No. 157 when the volume and level
of activity for the asset or liability have significantly decreased. The three
levels of the hierarchy under FAS 157 are described below:
Level 1 - Quoted prices in active markets for identical securities.
Level 2 - Prices determined using other significant observable inputs.
These may include quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, and others.
Level 3 - Prices determined using significant unobservable inputs.
Unobservable inputs reflect the Portfolio's own assumptions about the
factors market participants would use in pricing an investment, and would
be based on the best information available.
A summary of the inputs used to value the Portfolio's net assets as of June 30,
2009 is as follows (in thousands):
24
AMERICAN BEACON MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED)
Quoted
Prices in
Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
Description (Level 1) (Level 2) (Level 3) Total
- ----------- ----------- ----------- ------------ --------
Assets:
U.S. Agency Obligations ............................ $ -- $239,861 $-- $239,861
Commercial Paper ................................... -- 124,899 -- 124,899
Short-Term Investments ............................. 78,684 -- -- 78,684
Repurchase Agreements .............................. -- 350,495 -- 350,495
------- -------- --- --------
Total Investments .................................. 78,684 715,255 -- 793,939
Liabilities:
Investments in Other Financial Instruments ......... -- -- -- --
Total .............................................. $78,684 $715,255 $-- $793,939
======= ======== === ========
The inputs or methodology used for valuing securities are not
necessarily an indication of the risk associated with investing in those
securities. For example, money market securities are valued using amortized
cost, in accordance with rules under the Investment Company Act of 1940.
Generally, amortized cost approximates the current fair value of a security, but
since the value is not obtained from a quoted price in an active market, such
securities are reflected as Level 2.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale. Interest income is earned from settlement date, recorded on
the accrual basis, and adjusted, if necessary, for amortization of premiums or
accretion of discounts on investment grade short-term securities and zero coupon
instruments. For financial and tax reporting purposes, realized gains and losses
are determined on the basis of specific lot identification.
Federal Income Taxes Taxes
The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that the
Portfolio's assets will be managed in such a way that an investor in the
Portfolio will be able to satisfy the requirements of subchapter M of the
Internal Revenue Code.
For FASB Interpretation No. 48 "Accounting for Uncertainty in Income
Taxes" ("FIN 48") purposes, there are no unrecognized tax benefits as of June
30, 2009 included in the accompanying financial statements. Each of the tax
years in the three year period ended December 31, 2008, remains subject to
examination by the Internal Revenue Service. If applicable, the Portfolio
recognizes interest accrued related to unrecognized tax benefits in interest
expense and penalties in "Other expenses" on the Statement of Operations. For
the six months ended June 30, 2009, the Portfolio recognized $0 in interest and
penalties.
Repurchase Agreements
Under the terms of a repurchase agreement, securities are acquired by
a Portfolio from a securities dealer or a bank that are subject to resale at a
later date. Repurchase agreements are fully collateralized by government or
non-government securities. All collateral is valued at cost, which approximates
market value and is held at the custodian bank. The collateral is monitored
daily by the Manager so that the collateral's market value exceeds the carrying
value of the repurchase agreement plus accrued interest.
25
AMERICAN BEACON MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED)
Use of Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimated.
Other
Under the Trust's organizational documents, its officers and directors
are indemnified against certain liability arising out of the performance of
their duties to the Trust. In the normal course of business, the Trust enters
into contracts that provide indemnification to the other party or parties
against potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Trust and the Manager are parties to a Management Agreement that
obligates the Manager to provide or oversee the provision of all investment
advisory and portfolio management services. The Manager serves as the sole
investment advisor to the Portfolio. As compensation for performing the duties
required under the Management Agreement, the Manager receives 0.09% of the
average daily net assets of the Portfolio.
Administrative Services Agreement
The Trust and the Manager entered into an Administrative Services
Agreement that obligates the Manager to provide or oversee administrative
services to the Portfolio. As compensation for performing the duties required
under the Administrative Services Agreement, the Manager receives an annualized
fee of 0.01% of the average daily net assets of the Portfolio.
Interfund Lending Program
Pursuant to an exemptive order by the Securities and Exchange
Commission, the Portfolio, along with other registered investment companies
having management contracts with the Manager, may participate in an interfund
lending program. This program provides an alternative credit facility allowing
the Portfolio to lend money to other participating series managed by the
Manager. For the six months ended June 30, 2009, the credit facility was not
utilized.
3. SUBSEQUENT EVENTS
In accordance with the provisions set forth in FASB Statement of
Financial Accounting Standards No. 165 "Subsequent Events", adopted by the
Portfolio as of June 30, 2009, management has evaluated the possibility of
subsequent events existing in the Portfolio's financial statements through
August 28, 2009. Management has determined that there are no material events
that would require disclosure in the Portfolio's financial statements through
this date.
26
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUND AND THE PORTFOLIO
(UNAUDITED)
At its May 27, 2009 meeting, the Board of Trustees ("Board")
considered the renewal of each existing Management Agreement between the Manager
and the American Beacon Funds ("Beacon Trust"), American Beacon Mileage Funds
("Mileage Trust"), American Beacon Select Funds ("Select Trust") and American
Beacon Master Trust ("Master Trust") (collectively, the "Funds"). In preparation
for the Board's consideration to renew these Agreements, the Board and its
Investment Committee undertook steps to gather and consider information
furnished by the Manager, the subadvisors and Lipper, Inc. ("Lipper"). The
Board, with the assistance of independent legal counsel, requested and received
certain relevant information from the Manager.
In addition, the Board's Investment Committee worked with Lipper to
obtain relevant comparative information regarding the performance, fees and
expenses of the Funds. The Investment Committee held a separate meeting on May
13, 2009 to consider the information provided by Lipper. Further, the Board took
into consideration information furnished for the Board's review and
consideration throughout the year at regular Board and Investment Committee
meetings, as well as information specifically prepared in connection with the
renewal process.
In connection with the Board's consideration of the Management
Agreement, the Trustees considered, among other materials, responses by the
Manager to inquiries requesting:
- a description of any significant changes (actual or anticipated) to
principal activities, personnel, services provided to the Funds, or
any other area, including how these changes might affect the Funds;
- a copy of the firm's most recent audited or unaudited financial
statements, as well as Parts I and II of its Form ADV registration
statement with the SEC;
- a summary of any material past, pending or anticipated litigation or
regulatory proceedings involving the firm or its personnel, including
the results of any recent regulatory examination or independent audit;
- a comparison of the performance of that portion of Fund assets managed
by each firm with performance of other similar accounts managed by the
firm, including a discussion of relative performance versus a peer
group average and any remedial measures if the firm's performance was
materially below that of the peer group;
- a profit/loss analysis of the firm and any actual or anticipated
economies of scale in relation to the services it provides to each
Fund;
- an analysis of compensation, including a comparison with fees charged
to other clients for which similar services are provided, any proposed
changes to the fee schedule and the effect of any fee waivers;
- a description of any payments by the Manager to support the Funds'
marketing efforts;
- an evaluation of any other benefits to the firm or Funds as a result
of their relationship, if any;
- confirmation that the firm's financial condition would not impair its
ability to provide high-quality advisory services to the Funds;
- a description of any internal actions the firm has taken or
anticipates taking in light of the current and projected decrease in
revenues from prior years as a result of the current economic
environment and, as applicable, information regarding the firm's
decline in assets under management from January 1, 2008 through March
31, 2009;
- a description of the scope of portfolio management services provided
to the Funds, including whether such services differ from the services
provided to other clients, including other registered investment
companies, and any advantages or disadvantages that might accrue to
the Funds due to the firm's involvement in other activities;
27
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUND AND THE PORTFOLIO
(UNAUDITED)
- a description of the personnel who are assigned primary responsibility
for managing the Funds, including any changes during the past year,
and a discussion of the adequacy of current and projected staffing
levels to service the Funds;
- a description of the basis upon which portfolio managers are
compensated, including any "incentive" arrangements;
- a discussion regarding the firm's participation in "soft dollar"
arrangements, if any, or other brokerage allocation policies with
respect to Fund transactions, including the firm's methodology for
obtaining the most favorable execution and the use of any affiliated
broker-dealers;
- a description of any actual or potential conflicts of interest
anticipated in managing Fund assets;
- a description of trade allocation procedures among accounts managed by
the firm;
- a discussion of whether the firm receives, with respect to the Funds,
other compensation, including any payment for order flow or ECN
liquidity rebates;
- a certification by the firm regarding the reasonable design of its
compliance program;
- information regarding the firm's code of ethics, insider trading
policy and disaster recovery plan, including a description of any
material changes thereto and a related certification of compliance by
the firm;
- a description of the firm's affiliation with any broker-dealer;
- a discussion of any anticipated change in the firm's controlling
persons; and
- verification of the firm's insurance coverage with regards to the
services provided to the Funds.
In addition to the foregoing, the Manager provided the following
information specific to the renewal of the Management Agreement:
- a comparison of the performance of each Fund to comparable investment
companies and appropriate indices, including comments on the relative
performance of each Fund versus the respective peer group average;
- a comparison of advisory fees and expense ratios for comparable mutual
funds;
- an analysis of any material complaints received from Fund
shareholders;
- a description of the Manager's securities lending practices and the
fees received from such practices;
- a discussion of any rebate arrangements between the Manager and a
service provider to the Funds pursuant to which the Manager receives
direct or indirect benefits from the service provider;
- a description of any revenue sharing activities with respect to the
Funds;
- a description of the portfolio turnover rate and average execution
costs for each Fund; and
- a description of how expenses that are not readily identifiable to a
particular Fund are allocated.
In connection with the Management Agreement, the Board also obtained
an analysis provided by Lipper that compared: (i) investment performance of each
Fund versus comparable investment companies and appropriate indices;
28
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUND AND THE PORTFOLIO
(UNAUDITED)
(ii) total Fund expenses of each Fund versus comparable mutual funds; and (iii)
each Fund's investment advisory fees versus comparable mutual funds. For each
Fund with more than one class of shares, the class of shares used for
comparative purposes was the class with the longest performance history, which
in most cases was the Institutional Class. References below to each Fund's
Lipper peer group are to the group of comparable mutual funds included in the
analysis provided by Lipper.
Provided below is an overview of the primary factors the Trustees considered at
the Investment Committee meeting on May 13, 2009 at which the Trustees reviewed
the investment performance of the Manager and the primary factors considered by
the Board at its May 27, 2009 meeting at which the Board considered the renewal
of the Management Agreements. The Board did not identify any particular
information that was most relevant to its consideration to renew the Management
Agreements, and each Trustee may have afforded different weight to the various
factors. Legal counsel to the independent Trustees provided the Board with a
memorandum regarding its responsibilities pertaining to the renewal of the
Agreements. The memorandum explained the regulatory requirements surrounding the
Trustees' process for evaluating investment advisors and the terms of the
contracts. Based on its evaluation, the Board unanimously concluded that the
terms of each Agreement were reasonable and fair and that the renewal of each
Agreement was in the best interests of the Funds and their shareholders.
CONSIDERATIONS WITH RESPECT TO ALL FUNDS
In determining whether to renew the Management Agreements, the
Trustees considered the best interests of each Fund separately. While the
Agreements for all of the Funds were considered at the May 27, 2009 meeting, the
Board considered each Fund's investment management relationships separately. In
each instance, the Board considered, among other things, the following factors:
(1) the nature and quality of the services provided; (2) the investment
performance of a Fund; (3) the costs incurred by the Manager in rendering its
services and its resulting profits or losses; (4) the extent to which economies
of scale have been taken into account in setting each fee schedule; (5) whether
fee levels reflect these economies of scale for the benefit of Fund investors;
(6) comparisons of services and fees with contracts entered into by the Manager
with other clients (such as pension funds and other institutional funds); and
(7) any other benefits derived or anticipated to be derived by the Manager from
its relationship with a Fund. The Trustees posed questions to various management
personnel of the Manager regarding certain key aspects of the materials
submitted in support of the renewal.
Nature, Extent and Quality of Services. With respect to the renewal of
the Management Agreements, the Board considered: the background and experience
of key investment personnel and the Manager's ability to retain them; the
Manager's disciplined investment approach and goal to provide consistent above
average long-term performance at a low cost; the Manager's continuing efforts to
add new series and share classes to enhance the Funds' product line; the
Manager's record in building improved compliance, control and credit functions
that reduce risks to the Funds; the addition of personnel to manage the Funds,
promote sales and improve services; and the active role played by the Manager in
monitoring and, as appropriate, recommending replacements for the master
portfolios.
Investment Performance. The Board evaluated the comparative
information provided by Lipper and the Manager regarding each Fund's investment
performance relative to its benchmark index(es) and peer group. The Board
considered the information provided by Lipper regarding its independent peer
selection methodology to select all peer groups and universes. The Board also
considered the performance reports and discussions with management at Board and
Committee meetings throughout the year. A discussion regarding the Board's
considerations with respect to the Fund's performance appears below under
"Additional Considerations and Conclusions with Respect to Each Fund."
Costs of the Services Provided to the Funds and the Profits Realized
by the Manager from its Relationship with the Funds. In analyzing the cost of
services and profitability of the Manager by Fund, the Board considered the
revenues earned and the expenses incurred by the Manager. The profits or losses
were noted at both an individual Fund level and at an aggregate level for all
Funds. The Board also considered that the Management Agreement for the
29
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUND AND THE PORTFOLIO
(UNAUDITED)
Beacon Trust, Mileage Trust and Select Trust stipulate that, to the extent that
a Fund invests all of its investable assets in another registered investment
company (i.e., is a "Feeder Fund"), the Fund will not pay the Manager a
management fee. Because the money market series of the Select Trust and the
Mileage Trust operate as Feeder Funds with respect to the Master Trust, the
Manager only receives a management fee from the Master Trust. With respect to
the Money Market Funds, the Board also considered the Manager's advisory fees
for services provided by the Manager to institutional separate accounts with
similar investment strategies. Although the Board noted that, in certain cases,
the fee rates paid by other clients is lower than the fee rates paid by the
Funds, the difference reflects the greater level of responsibility and
regulatory requirements associated with managing the Funds.
The Board also noted that the Manager proposed to continue the expense
waivers and reimbursements for certain Funds and classes that were in place
during the last fiscal year and to discontinue the expense waivers and
reimbursements for certain classes of the Funds that were closing or maintained
competitive expense ratios without such expense waivers. The Board considered
that the Manager receives service and administrative fees to compensate the
Manager for providing administrative services to the Funds and to compensate
third-party administrators and broker-dealers for services to Fund shareholders.
The Board also noted that certain classes of the Funds maintain higher expense
ratios in order to compensate third-party distributors.
Based on the foregoing information, the Board concluded that the
profitability levels were reasonable in light of the services performed by the
Manager. A discussion regarding the Board's considerations with respect to each
Fund's fee rates is set forth below under "Additional Considerations and
Conclusions with Respect to Each Fund."
Economies of Scale. In considering the reasonableness of the
management fees, the Board considered whether economies of scale will be
realized as the Funds grow and whether fee levels reflect these economies of
scale for the benefit of Fund shareholders. The Board also noted the Manager's
representation that Fund assets have decreased significantly primarily due to
market depreciation in 2008 and the first quarter of 2009, as well as
significant share redemptions from the Money Market Funds and the inability of
certain competitor money market funds' to maintain positive yields, causing mass
redemptions in money market funds throughout the industry. In addition, the
Board noted that the management fee for the Money Market Funds is amongst the
lowest in the industry. Based on the foregoing information, the Board concluded
that the Manager fee schedule for each Fund provides for a reasonable sharing of
benefits from any economies of scale with the Fund.
Benefits Derived from the Relationship with the Funds. The Board
considered the "fall-out" or ancillary benefits that accrue to the Manager as a
result of the advisory relationships with the Funds, including greater exposure
in the marketplace with respect to the Manager's investment process and
expanding the level of assets under management by the Manager. The Board also
considered that the Manager's relationship with the Funds and the money market
portfolios continues to be a significant factor in attracting separate account
assets for the Manager, noting specifically the Manager's utilization of the
Large Cap Value Fund model for a newly registered actively managed exchange
traded fund managed by the Manager. In addition, the Board noted that the
Manager provides services to each Trust at a relatively low cost.
Based on the foregoing information, the Board concluded that the
potential benefits accruing to the Manager by virtue of its relationship with
the Funds appear to be fair and reasonable.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO EACH FUND
The performance comparisons below were compared to the respective
Lipper Average, which includes all comparable funds in the Lipper category, and
the Lipper Index, which includes the 30 largest funds in the Lipper category.
References to the Lipper expense universe below are to the universe of
comparable mutual funds included in the analysis provided to the Trustees by
Lipper, Inc.
30
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUND AND THE PORTFOLIO
(UNAUDITED)
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE MONEY MARKET
SELECT FUND
In considering the renewal of the Management Agreement, the Trustees
considered the following additional factors: (1) the Select Fund outperformed
the Lipper Average for all reported periods ended March 31, 2009; and (2) the
Select Fund's expense ratio was the lowest of its Lipper expense group.
Based on these and other considerations the Trustees (1) concluded
that the fees paid to the Manager under the Management Agreement are fair and
reasonable, (2) determined that each Fund and its shareholders would benefit
from the Manager's continued management of the Fund and (3) approved the renewal
of the Management Agreement with respect to the Fund.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE U.S. GOVERNMENT
MONEY MARKET SELECT FUND
In considering the renewal of the Management Agreement for the U.S.
Government Money Market Select Fund, the Trustees considered the following
additional factors: (1) the Fund outperformed the Lipper Index and Average for
all reported periods ended March 31, 2009; and (2) the Select Fund's total
expense ratio ranked better than the median of its Lipper expense universe.
Based on these and other considerations the Trustees (1) concluded
that the fees paid to the Manager under the Management Agreement are fair and
reasonable, (2) determined that the Fund and its shareholders would benefit from
the Manager's continued management of the Fund and (3) approved the renewal of
the Management Agreement with respect to the U.S. Government Money Market Select
Fund.
31
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32
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33
(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 Fund through a financial institution, you may be able to receive the Fund's
regulatory mailings, such as the Prospectus, Annual Report and Semi-Annual
Report, by e-mail. If you are interested in this option, please go to
www.icsdelivery.com and search for your financial institution's name or contact
your financial institution directly.
TO OBTAIN MORE INFORMATION ABOUT THE FUND:
(GRAPHIC) (GRAPHIC)
BY E-MAIL: ON THE INTERNET:
american_beacon.funds@ambeacon.com Visit our website at
www.americanbeaconfunds.com
(GRAPHIC) (GRAPHIC)
BY TELEPHONE: BY MAIL:
American Beacon Select Funds
Call (800) 658-5811 P.O. Box 219643
Kansas City, MO 64121
AVAILABILITY OF QUARTERLY AVAILABILITY OF PROXY VOTING
PORTFOLIO SCHEDULES In addition to the POLICY AND RECORDS A description of the
Schedule of Investments provided in policies and procedures the Fund uses
each semi-annual and annual report, the to determine how to vote proxies
Fund files a complete schedule of its relating to portfolio securities is
portfolio holdings with the Securities available in the Fund's Statement of
and Exchange Commission ("SEC") on Form Additional Information, is available
N-Q as of the first and third fiscal free of charge on the Fund's website
quarters. The Fund's Forms N-Q are (www.americanbeaconfunds.com) and by
available on the SEC's website at calling 1-800-967-9009 or by accessing
www.sec.gov. The Forms N-Q may also be the SEC's website at www.sec.gov. The
reviewed and copied at the SEC's Public Fund's proxy voting record for the most
Reference Room, 450 Fifth Street, NW, recent year ended June 30 is filed
Washington, DC 20549. Information annually with the SEC on Form N-PX. The
regarding the operation of the SEC's Fund's Forms N-PX are available on the
Public Reference Room may be obtained SEC's website at www.sec.gov. The
by calling 1-800-SEC-0330. A complete Fund's proxy voting record may also be
schedule of the Fund's portfolio obtained by calling 1-800-967-9009.
holdings is also available on the
Funds' website
(www.americanbeaconfunds.com)
approximately thirty days after the end
of each month.
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BANK AND BOSTON FINANCIAL DATA PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES
TRUST SERVICES ERNST & YOUNG LLP Portland, Maine
Boston, Massachusetts Kansas City, Missouri Dallas, Texas
This report is prepared for shareholders of the American Beacon Select Funds and
may be distributed to others only if preceded or accompanied by a current
prospectus.
American Beacon Select Funds, American Beacon Money Market Select Fund, and
American Beacon U.S. Government Money Market Select Fund are service marks of
American Beacon Advisors, Inc.
SAR 6/09
ITEM 2. CODE OF ETHICS.
The Trust did not amend the code of ethics that applies to its principal
executive and financial officers (the "Code") nor did it grant any waivers to
the provisions of the Code during the period covered by the shareholder reports
presented in Item 1.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedules of investments for each series of the Trust are included in the
shareholder reports presented in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Trust has made no material changes to the procedures by which shareholders
may recommend nominees to the Trust's Board of Trustees since the Trust last
disclosed such procedures in Schedule 14A.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon an evaluation within 90 days of the filing date of this
report, the principal executive and financial officers concluded that
the disclosure controls and procedures of the Trust are effective.
(b) There were no changes in the Trust's internal control over financial
reporting during the second fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to
materially affect, the Trust's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Not Applicable.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the Trust as required by Rule
30a-2(a) under the Investment Company Act of 1940 is attached
hereto as EX-99.CERT.
(a)(3) Not Applicable.
(b) The certifications required by Rule 30a-2(b) under the Investment
Company Act of 1940 are attached hereto as EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): American Beacon Select Funds
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: September 3, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: September 3, 2009
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: September 3, 2009