-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GBaISUANeQ9n3kDtj6Poa2ARpo8LSPKDpwRIeMvZLXw0qjGrL8qMDK1XT/LtWt2K 8U92KU84uDy2G6LPdNCKGw== 0000809593-10-000002.txt : 20100106 0000809593-10-000002.hdr.sgml : 20100106 20100106172703 ACCESSION NUMBER: 0000809593-10-000002 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20091031 FILED AS OF DATE: 20100106 DATE AS OF CHANGE: 20100106 EFFECTIVENESS DATE: 20100106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BEACON FUNDS CENTRAL INDEX KEY: 0000809593 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04984 FILM NUMBER: 10512531 BUSINESS ADDRESS: STREET 1: 4151 AMON CARTER BOULEVARD STREET 2: MD 2450 CITY: FORT WORTH STATE: TX ZIP: 76155 BUSINESS PHONE: 8179673509 MAIL ADDRESS: STREET 1: 4151 AMON CARTER BOULEVARD STREET 2: MD 2450 CITY: FORT WORTH STATE: TX ZIP: 76155 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN AADVANTAGE FUNDS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN EAGLE FUNDS DATE OF NAME CHANGE: 19890813 0000809593 S000000718 American Beacon Balanced Fund C000002089 Institutional Class AADBX C000002090 Investor Class AABPX C000002091 AMR Class AABNX C000004802 Advisor Class ABLSX C000085576 Y Class 0000809593 S000001091 American Beacon Large Cap Value Fund C000002969 Institutional Class AADEX C000002970 Investor Class AAGPX C000002971 AMR Class AAGAX C000004803 Advisor Class AVASX C000076735 Retirement Class ALCRX C000079122 Y Class ABLYX 0000809593 S000001092 American Beacon Large Cap Growth Fund C000002972 Institutional Class ALCGX C000002973 AMR Class ALFIX C000085577 Y Class 0000809593 S000001818 American Beacon Small Cap Value Fund C000004768 Institutional Class AVFIX C000004769 Investor Class AVPAX C000004770 Advisor Class AASSX C000004771 AMR Class AASVX C000076736 Retirement Class ASCVX C000079123 Y Class ABSYX 0000809593 S000001819 American Beacon Mid-Cap Value Fund C000004772 AMR Class AMDIX C000011075 Institutional Class AACIX C000033163 Investor Class AMPAX C000050486 Advisor Class AMCSX C000085578 Y Class 0000809593 S000001821 American Beacon Retirement Income Fund C000004774 Investor Class AANPX C000085580 Y Class 0000809593 S000001825 American Beacon International Equity Fund C000004784 Institutional Class AAIEX C000004785 Investor Class AAIPX C000004786 Advisor Class AAISX C000004787 AMR Class AAIAX C000076737 Retirement Class ABIRX C000079124 Y Class ABEYX 0000809593 S000001826 American Beacon Emerging Markets Fund C000004788 Institutional Class AEMFX C000004789 Investor Class AAEPX C000004790 AMR Class AAMRX C000085581 Y Class 0000809593 S000001830 American Beacon High Yield Bond Fund C000004795 Institutional Class AYBFX C000004796 Investor Class AHYPX C000052225 AMR Class ABMRX C000085582 Y Class 0000809593 S000001831 American Beacon Intermediate Bond Fund C000004798 Institutional Class AABDX C000004799 Investor Class ABIPX C000085583 Y Class 0000809593 S000001832 American Beacon Short-Term Bond Fund C000004800 Institutional Class AASBX C000004801 Investor Class AALPX C000085584 Y Class N-CSR 1 ncsr1009.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-4984 AMERICAN BEACON 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) Gene L. Needles, Jr., 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: October 31, 2009 Date of reporting period: October 31, 2009 ITEM 1. REPORT TO STOCKHOLDERS. GUIDANCE | VISION | EXPERIENCE (GRAPHIC) (AMERICAN BEACON FUNDS(SM) LOGO) Annual Report OCTOBER 31, 2009 HIGH YIELD BOND FUND ENHANCED INCOME FUND INTERMEDIATE BOND FUND SHORT-TERM BOND FUND About American Beacon Advisors Since 1986, American Beacon Advisors has offered a variety of products and investment advisory services to numerous institutional and retail clients, including a variety of mutual funds, corporate cash management, and separate account management. Our clients include defined benefit plans, defined contribution plans, foundations, endowments, corporations, financial planners, and other institutional investors. With American Beacon Advisors, you can put the experience of a multi-billion dollar asset management firm to work for your company. Contents President's Message ............................................... 1 American Beacon Funds' Performance ................................ 2 Market and Performance Overviews .................................. 3-9 American Beacon Schedules of Investments High Yield Bond Fund ........................................... 14 Enhanced Income Fund ........................................... 24 Intermediate Bond Fund ......................................... 34 Short-Term Bond Fund ........................................... 45 Additional Information ......................................... Back Cover
Investing in debt securities entails interest rate risk which is the risk that debt securities will decrease in value with increases in market interest rates. Investing in high yield securities involves additional risks when compared to investing in investment grade securities. These include a greater risk of default or bankruptcy and an increased sensitivity to financial difficulties or changes in interest rates. The four highest Moody's ratings for long-term obligations (or issuers thereof) are Aaa, Aa, A and Baa. Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk. Obligations rated Aa are judged to be of high quality and are subject to very low credit risk. Obligations rated A are considered upper-medium grade and are subject to low credit risk. Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics. Moody's appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. 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. (PHOTO OF GENE L. NEEDLES, JR.) FELLOW SHAREHOLDERS As an introduction to the Annual Report for the American Beacon Funds for the 12-month period ended October 31, 2009, please let me take a moment to tell you how pleased I am to have been serving as President and CEO of American Beacon Advisors since April 15, 2009. I consider it a privilege to hold this position, and I take its responsibilities quite seriously. I've enjoyed a long, successful career in the investment business, and I'm no stranger to the ups and downs that markets can deliver. As a fellow investor and shareholder, I experience these trends in much the same way you do. The majority of 2008 was difficult in many ways. However, when I took the helm at American Beacon, I already had many reasons to be optimistic about what might develop in 2009. As of October 31, 2009, my optimism has been largely confirmed. For example, for the one-year period (as of 10/31/09), the American Beacon High Yield Bond Fund-Institutional Class returned a robust 39.06%, and the American Beacon Intermediate Bond Fund-Institutional Class returned 16.16%. Of course, one year of performance doesn't tell the whole story, especially when you're investing for the long term. Please note that the recent market performance has helped to produce short-term returns that are not typical and may not continue in the future. Many of us have long-term goals, including retirement, driving our investment decisions. While this 12-month period began amid a frightening recessionary environment, we finished the year with increasing confidence that markets have begun to stabilize, that liquidity has returned to the debt markets and that equity markets have had a substantial recovery. I know as well as you do that maintaining a long-term perspective, employing a buy-and-hold philosophy (consistent with each Fund's objectives), and doing the right thing according to your risk tolerance and time horizon is not always easy. But the professionals at American Beacon are dedicated to working hard to help investors succeed. Just as you maintain a commitment to your goals--and to those who inspire you to create your goals--we maintain a strong commitment to due diligence and oversight. That commitment is one of the key reasons I am honored to serve as President and CEO, and am pleased to be able to share my enthusiasm about the path ahead with you. A financial advisor can be an important ally in creating investment success, so--as you review the enclosed annual report--please feel free to discuss your thoughts and concerns with a trusted advisor. And, as always, the professionals associated with the American Beacon Funds are grateful for the opportunity to serve you. Best Regards, /s/ Gene L. Needles, Jr. Gene L. Needles, Jr. President American Beacon Funds 1 DOMESTIC BOND MARKET OVERVIEW OCTOBER 31, 2009 (UNAUDITED) As bad as things looked at the beginning of this period, it was, in retrospect, just the beginning of what ultimately became the worst financial crisis in the United States since the Great Depression. The one-year period ended October 31, 2009 began on the heels of several historic events: the takeover of Bear Stearns by JPMorgan for $2 per share, the bankruptcy of 160-year-old Lehman Brothers, government intervention regarding Fannie Mae and Freddie Mac, and the controversial bailout of AIG. These events in the fourth quarter of 2008 marked the crescendo for corporate collapses, but the fixed-income markets didn't reach maximum stress until December 2008. At that time, credit spreads reached their widest point. The Federal Funds Rate began this one-year period at 2.00%. However, by year-end 2008, the Federal Reserve Board (the Fed) had already cut this rate down to the 0.00-0.25% range. Shorter-term interest rates followed the Fed's path and declined significantly at the beginning of this period. Longer-term interest rates ended the period nearly unchanged, but their course throughout the period was volatile. Longer-term rates declined dramatically at the end of 2008 (from 4.00% to 2.00%) after the Fed announced a series of quantitative easing measures to stimulate the economy. With the Fed Funds Rate at effectively 0%, the Fed had to use other means to add liquidity into the system. The Fed announced that it would purchase large amounts of U.S. Treasury and agency securities and over $1 trillion of mortgage-backed securities. In early 2009, the U.S. Treasury Department announced a massive increase in the federal budget deficit, due to stimulus spending and declining tax revenues. This led to increases in longer-term interest rates, as investors anticipated a significant increase in Treasury issuance. By the third quarter 2009, longer-term rates were nearly back to where they started 12 months prior. During 2009, positive economic activity was largely attributable to the wide variety of government stimulus programs. As such, the economic data did not offer much insight into the true sustainability of what was perceived as a recovery in mid-2009. Given the economic lows experienced at the end of 2008 and beginning of 2009, the speed of the bond market recovery was impressive. The fixed-income markets have functioned well over the past 12 months, as evidenced by the significantly tighter credit spreads and the absence of government involvement in several key credit markets. Through the end of 2009 and in the year to come, we may see continued government spending programs. However, it may be possible to better estimate the strength of the consumer and the status of the housing market. A recovery in the housing market, in particular, is critical to the sustainability of the economic recovery and would likely increase investor confidence in the domestic bond market as well. 2 HIGH YIELD BOND MARKET OVERVIEW OCTOBER 31, 2009 (UNAUDITED) Over the 12-month period ended October 31, 2009, the high yield asset class outperformed almost every major asset class in both the fixed income and equity universes. The 47.6% return of the JPMorgan Global High Yield Index was remarkable, especially when compared to the S&P 500, which returned 9.8%, and 10-year Treasuries, which returned 9.2% in the same time period. With the future of the financial system in doubt and with significant skepticism surrounding the U.S. government's efforts to intervene in the economy, expectations of rapidly escalating default rates caused spreads to widen, reaching a peak level of more than 19% in December 2008. Since the beginning of 2009, high yield bonds have tightened in spread versus U.S. Treasury bonds. However, at the end of October 2009, spreads were still significant and exceeding the 20-year average. Perhaps the most important factor over the 12-month period as of October 31, 2009 was the return of liquidity to the markets. The high yield market received impressive inflows from retail funds, and this allowed leveraged companies to refinance their upcoming maturities. In October 2008, there was fear that companies with debt ratings of BBB or single A may not find buyers for their debt. With valuations at severely depressed levels, and with the hope that government stimulus plans would ultimately revive the economy, investors began returning to the high yield sector toward year-end 2008, driving a technical rally into the beginning of 2009 that was focused mainly on higher quality (BB-rated) high yield credits. Beginning in March, what had been a largely technical rally got some fundamental support as signs of economic improvement emerged. In addition, lower quality credits began to see spreads tighten rapidly, as investors sought out higher return opportunities. We've seen lower-rated companies gain access to the market--not only to refinance their capital structure, but also for general corporate purposes to fund growth. Spreads tightened significantly, falling by more than half from 16% in March to less than 8% at the end of October. Access to capital and declining defaults over the last year caused the riskiest assets to perform the best. For the 12-month period ended October 31, 2009, CCC-rated securities returned 97.1%, single B securities returned 41.5%, and BB-rated bonds returned 36.7%. Fundamentally, we saw stabilization in earnings in the second and third quarters of 2009. Investors seemed surprised at how management teams were able to reduce their cost structures to conserve their cash balances in the face of historic revenue declines. The pace of defaults slowed significantly when compared to the previous 12-month period. Looking back to October 2008, the par-weighted default rate was 11.0%, and the issuer-weighted rate was slightly lower at 10.1%. The outlook for the coming year offers expectations of a 4-5% default rate. This is due to the return of liquidity in the market and stabilization expectations for earnings in most sectors. A period of earnings momentum is expected, as 81% of the companies in the S&P 500 Index beat their third quarter estimates. There have even been signs of improvement in the housing market, and markets appear to be expecting some expansion to the economy. 3 PERFORMANCE OVERVIEW AMERICAN BEACON HIGH YIELD BOND FUND(SM) OCTOBER 31, 2009 (UNAUDITED) The Institutional Class of the High Yield Bond Fund returned 39.06% for the twelve months ended October 31, 2009. The Fund underperformed the JPMorgan Global High-Yield Index (the "Index") return of 47.57%, but outperformed the Lipper High Current Yield Funds Index, which returned 35.67% for the period. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 12/29/00* THROUGH 10/31/09 (PERFORMANCE GRAPH) * Inception of Fund
ANNUALIZED TOTAL RETURNS PERIODS ENDED 10/31/09 ------------------------------ VALUE OF SINCE $10,000 INCEP. 12/29/00- 1 YEAR 5 YEARS (12/29/00) 10/31/09 ------ -------- ---------- --------- Institutional Class(1,5) ................... 39.06% 3.97% 6.88% $18,003 Investor Class(1,2,5) ...................... 38.70% 3.70% 6.62% 17,621 AMR Class (1,,3,5) ......................... 39.41% 4.09% 6.95% 18,106 JPMorgan Global High-Yield Index (4) ....... 47.57% 6.22% 8.27% 20,174 Lipper High Current Yield Funds Index (4) .. 35.67% 4.00% 5.40% 15,914
(1.) The Investor Class was formerly known as the PlanAhead Class. Performance shown is historical and may not be indicative of future returns. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is as of date indicated, and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. A portion of the fees charged to the Institutional Class of the Fund was waived through 2004. Performance prior to waiving fees was lower than the actual returns shown for periods through 2004. (2.) Fund performance for the since inception period represents the total returns achieved by the Institutional Class from 12/29/00 up to 3/1/02, the inception date of the Investor Class, and the returns of the Investor Class since its inception. Expenses of the Investor Class are higher than those of the Institutional Class. As a result, total returns shown may be higher than they would have been had the Investor Class been in existence since 12/29/00. (3.) Fund performance for the five-year and since inception periods represents the total returns achieved by the Institutional Class from 12/29/00 up to 9/4/07, the inception date of the AMR Class, and the returns of the AMR Class since its inception. Expenses of the AMR Class are lower than those of the Institutional Class. As a result, total returns shown may be lower than they would have been had the AMR Class been in existence since 12/29/00. (4.) The JPMorgan Global High-Yield Index ("JPMorgan Index") is an unmanaged index of fixed income securities with a maximum credit rating of BB+ or Ba1. Issues must be publicly registered or issued under Rule 144A under the Securities Act of 1933, with a minimum issue size of $75 million (par amount). A maximum of two issues per issuer are included in the JPMorgan Index. Convertible bonds, preferred stock, and floating-rate bonds are excluded from the JPMorgan Index. The Lipper High Current Yield Funds Index tracks the results of the 30 largest mutual funds in the Lipper High Current Yield Funds category. Lipper is an independent mutual fund research and ranking service. One cannot directly invest in an index. (5.) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus for the Institutional, Investor and AMR Class shares was 0.86%, 1.11% and 0.59%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. The Fund underperformed the Index over the twelve-month period due to the Fund's cash balances returning less than the Index, as well as issue selection and sector allocation from a sector and credit quality perspective. From a sector perspective, the Fund's underperformance stemmed from issue selections in the Cable/Media, Manufacturing, and Finance sectors, while the Fund added value through selections in the Service sector. From a sector allocation perspective, the Fund benefited from overweighting the Finance sector (up 80.1%), which was the best performing sector in the Index for the period. However, underweighting the Utilities sector (up 45.7%) and overweighting the Other Corporate sector (up 35.1%) contributed to the Fund's relative underperformance. From a credit quality perspective, issue selections in the CCC-rated credit group led to the Fund's relative underperformance, despite value added through selections in the CC-rated group. 4 PERFORMANCE OVERVIEW AMERICAN BEACON HIGH YIELD BOND FUND(SM) OCTOBER 31, 2009 (UNAUDITED) From a credit quality allocation perspective, underweighting the CC-rated group and overweighting the B-rated and A-rated credit groups detracted from performance. Each sub-advisor's "bottom-up", research intensive investment process, which focuses on a company's cash flow and fundamental credit strengths, remains in place. TOP TEN HOLDINGS
% OF NET ASSETS ------ Ford Motor Credit Co. LLC, 9.875%, Due 8/10/2011 ...................... 1.4% JBS USA LLC, 11.625%, Due 5/1/2014 .................................... 1.1% HCA, Inc., 9.625%, Due 11/15/2016 ..................................... 1.0% Harrah's Operating Co., Inc., 11.250%, Due 6/1/2017 ................... 1.0% Texas Competitive Electric Holdings Co. LLC, 10.250%, Due 11/1/2015 ... 0.9% MacDermid, Inc., 9.500%, Due 4/15/2017 ................................ 0.9% Wind Acquisition Finance S.A., 10.750%, Due 12/1/2015 ................. 0.9% US Oncology, Inc., 6.428%, Due 3/15/2012 .............................. 0.9% MGM Mirage, 6.625%, Due 7/15/2015 ..................................... 0.8% WMG Holdings Corp., Zero Coupon, Due 12/15/2014 ....................... 0.8%
SECTOR ALLOCATION
% OF FIXED INCOME ------ Corporate Bonds........................................................ 99.1% Asset Backed........................................................... 0.3% Mortgage-Backed........................................................ 0.1% Convertible Bonds...................................................... 0.5%
5 PERFORMANCE OVERVIEW AMERICAN BEACON ENHANCED INCOME FUND(SM) OCTOBER 31, 2009 (UNAUDITED) The Investor Class of the Enhanced Income Fund returned 21.50% for the twelve months ended October 31, 2009. Its benchmark, a blend of 75% Barclays Capital Aggregate Index ("Barclays Index") and 25% BofA Merrill Lynch All U.S. Convertibles Index ("ML Index"), returned 19.54%. The Fund's peer group, the Lipper Intermediate Investment Grade Index, returned 17.77% for the same period. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 7/1/03* THROUGH 10/31/09 (PERFORMANCE GRAPH) * Inception of Fund
ANNUALIZED TOTAL RETURNS PERIODS ENDED 10/31/09 --------------------------- VALUE OF SINCE $10,000 INCEP. 7/1/03- 1 YEAR 5 YEARS (7/1/03) 10/31/09 ------ ------- -------- -------- Investor Class(1,4) ................................ 21.50% 4.69% 4.49% $13,212 Enhanced Income Composite Index(3) ................. 19.54% 4.37% 4.42% 13,153 Barclays Capital Aggregate Index(2) ................ 13.79% 5.05% 4.68% 13,043 BofA Merrill Lynch All U.S. Convertibles Index(2) .. 37.26% 2.38% 4.16% 12,948 Lipper Intermediate Investment Grade Index(2) ...... 17.77% 4.16% 3.97% 12,798
(1.) The Investor Class was formerly known as the PlanAhead Class. Performance shown is historical and may not be indicative of future returns. Please note that the recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is as of date indicated and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. 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 Barclays Capital Aggregate Index represents returns of the Barclays Capital Gov./Credit Intermediate Index ("Intermediate Index") up to October 31, 2006 and the Barclays Capital Aggregate Index ("Aggregate Index") thereafter. The Intermediate Index is an unmanaged index of investment grade corporate and government debt issues with maturities between one and ten years. The Aggregate Index is a market value weighted index of government, corporate, mortgage-backed and asset-backed fixed-rate debt securities of all maturities. The BofA Merrill Lynch All U.S. Convertibles Index is an unmanaged index of domestic securities of all quality grades that are convertible into U.S. dollar-denominated common stock, ADRs or cash equivalents. The Lipper Intermediate Investment Grade Index tracks the results of the 30 largest mutual funds in the Lipper Intermediate Investment Grade Funds category. Lipper is an independent mutual fund research and ranking service. One cannot directly invest in an index. (3.) To reflect the Fund's allocation of its assets between investment grade fixed-income securities and convertible securities, the returns of the Barclays Capital Aggregate Index and the BofA Merrill Lynch All U.S. Convertibles Index have been combined in a 75%/25% proportion. (4.) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus for the Investor Class shares was 1.04%. The expense ratio above may vary from the expense ratio presented in other sections of this report that is based on expenses incurred during the period covered by this report. The Fund's assets have been allocated approximately 75% to American Beacon Advisors, Inc. (the "Manager") which invests primarily in income producing, short- and intermediate-term investment grade bonds and 25% to a sub-advisor which invests in convertible bonds, convertible preferreds, high yield bonds, and equities in order to enhance the potential return of the Fund. During the twelve-month period, the investment grade bond portion of the Fund returned 18.2% before expenses, compared to a 13.8% return for the Barclays Index. This portion of the Fund outperformed largely due to a substantial overweight position in Corporates, the second best performing sector in the Barclays Index. The remaining portion of the Fund, managed by the Fund's sub-advisor, returned 34.0% before expenses. These results trailed the 37.3% return of the ML Index. This portion of the Fund, which has a higher quality bias than the ML Index, was hurt by a strong rally in the most speculative grade credits within the ML Index. Issue selection within the Financials and Information Technology sectors also detracted from performance. The Manager and the Fund's sub-advisor remain focused on the Fund's investment objectives of generating income and capital appreciation. 6 PERFORMANCE OVERVIEW AMERICAN BEACON ENHANCED INCOME FUND(SM) OCTOBER 31, 2009 (UNAUDITED) TOP TEN HOLDINGS
% OF NET ASSETS ------ U.S. Treasury, 4.125%, Due 5/15/2015 ................................. 2.9% Federal Home Loan Mortgage Corporation, Pool # G08079, 5.000%, Due 9/1/2035 ...................................................... 2.2% Federal Farm Credit Bank, 3.000%, Due 9/22/2014 ...................... 2.2% Bank of America Corp. (FDIC Guaranteed), 2.100%, Due 4/30/2012 ....... 2.2% U.S. Treasury, 6.250%, Due 8/15/2023 ................................. 2.0% JPMorgan Chase & Co., 3.700%, Due 1/20/2015 .......................... 1.6% Federal Home Loan Mortgage Corporation, Pool # G08255, 5.000%, Due 3/1/2038 ...................................................... 1.5% Federal National Mortgage Association, Pool # 745418, 5.500%, Due 4/1/2036 ...................................................... 1.4% U.S. Treasury, 5.250%, Due 11/15/2028 ................................ 1.2% American Express Credit Account Master Trust, 5.350%, Due 1/15/2014 .. 1.2%
FIXED-INCOME SECTOR ALLOCATION
% OF FIXED INCOME ------ Corporate Bonds ...................................................... 43.4% Mortgage-Backed ...................................................... 23.3% Convertible Bonds .................................................... 14.2% U.S. Treasury ........................................................ 8.8% U.S. Agency .......................................................... 6.7% Asset-Backed ......................................................... 3.6%
EQUITY SECTOR ALLOCATION
% OF EQUITIES -------- Energy ............................................................... 27.9% Financials ........................................................... 23.5% Consumer Staples ..................................................... 14.1% Information Technology ............................................... 9.0% Materials ............................................................ 8.4% Consumer Discretionary ............................................... 6.8% Industrials .......................................................... 6.1% Health Care .......................................................... 4.2%
7 PERFORMANCE OVERVIEW AMERICAN BEACON INTERMEDIATE BOND FUND(SM) OCTOBER 31, 2009 (UNAUDITED) The Institutional Class of the Intermediate Bond Fund returned 16.17% for the twelve months ended October 31, 2009, outperforming the Barclays Capital Aggregate Index (the "Index") return of 13.79% but trailing the Lipper Intermediate Investment Grade Index return of 17.77% for the same period. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 10/31/99 THROUGH 10/31/09 (PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF PERIODS ENDED 10/31/09 $10,000 --------------------------- 10/31/99- 1 YEAR 5 YEARS 10 YEARS 10/31/09 ------ ------- -------- --------- Institutional Class(1,4) ................. 16.17% 5.44% 6.24% $18,311 Investor Class(1,2,4) .................... 15.75% 5.36% 6.20% 18,246 Barclays Capital Agg. Index(3) ........... 13.79% 5.05% 6.31% 18,439 Lipper Intermediate Inv. Grade Index(3) .. 17.77% 4.16% 5.65% 17,333
(1.) Performance shown is historical and may not be indicative of future returns. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is as of date indicated, and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. Performance shown reflects the Fund's receipt in December 2006 and March 2008 of class action proceeds that were related to investment activity in 2002. The Fund's performance was higher than it would have been absent receipt of the settlement proceeds. (2.) Fund performance represents the total returns achieved by the Institutional Class up to 3/2/09, the inception date of the Investor Class, and the returns of the Investor Class since its inception. Expenses of the Investor Class are higher than those of the Institutional Class. As a result, total returns shown may be higher than they would have been had the Investor Class been in existence since 10/31/99. (3.) The Barclays Capital Aggregate Index is a market value weighted index of government, corporate, mortgage-backed and asset-backed fixed-rate debt securities of all maturities. The Lipper Intermediate Investment Grade Index tracks the results of the 30 largest mutual funds in the Lipper Intermediate Investment Grade Funds category. Lipper is an independent research and ranking service. One cannot directly invest in an index. (4.) The total annual Fund operating expense ratios set forth in the most recent Fund prospectus for the Institutional and Investor Class shares was 0.31% and 0.88%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that is based on expenses incurred during the period covered by this report. The Fund added value relative to the Index through both sector allocation and security selection. An overweight position in Corporates, the second best performing sector in the Index, accounted for the bulk of the excess performance. Among the Fund's corporate bond holdings, the lower rated issuers (A1 to Baa3) were the largest contributors. An underweight in U.S. Treasuries, the poorest performing sector of the Index, also generated positive returns relative to the Index. The Fund's investment managers remain focused on a conservative approach toward investing in the bond market, focusing on issuer-specific opportunities to add value. TOP TEN HOLDINGS
% OF NET ASSETS ------ U.S. Treasury, 2.375%, Due 9/30/2014 ............................ 3.0% Morgan Stanley (FDIC Guaranteed), 2.250%, Due 3/13/2012 ......... 2.4% Federal Home Loan Bank, 3.625%, Due 10/18/2013 .................. 1.7% Federal National Mortgage Association, Pool # 982817, 5.000%, Due 5/1/2038 ................................................. 1.7% Federal Home Loan Mortgage Corporation, Pool # G04185, 6.000%, Due 3/1/2038 ................................................. 1.5% U.S. Treasury, 3.625%, Due 8/15/2019 ............................ 1.5% U.S. Treasury, 4.250%, Due 5/15/2039 ............................ 1.2% Federal National Mortgage Association, Pool # 889174, 5.500%, Due 8/1/2037 ................................................. 1.1% U.S. Treasury, 3.750%, Due 11/15/2018 ........................... 1.0% Federal National Mortgage Association, 2.875%, Due 12/11/2013 ... 1.0%
SECTOR ALLOCATION
% OF FIXED INCOME ------ Corporates....................................................... 41.6% Mortgage-Backed.................................................. 34.4% U.S. Treasury.................................................... 12.5% U.S. Agency...................................................... 8.6% Asset-Backed..................................................... 2.9%
8 PERFORMANCE OVERVIEW AMERICAN BEACON SHORT-TERM BOND FUND(SM) OCTOBER 31, 2009 (UNAUDITED) The Institutional Class of the Short-Term Bond Fund returned 6.56% for the twelve months ended October 31, 2009, which outperformed the BofA Merrill Lynch 1-3 Year Corp/Gov Index ("the Index") return of 6.36% but underperformed the Lipper Short Investment Grade Bond Funds Index ("Lipper") return of 9.67%. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 10/31/99 THROUGH 10/31/09 (PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF PERIODS ENDED 10/31/09 $10,000 --------------------------- 10/31/99- 1 YEAR 5 YEARS 10 YEARS 10/31/09 ------ ------- -------- --------- Institutional Class(1,3) ............................ 6.56% 3.97% 4.66% $15,762 Investor Class(1,3) ................................. 6.34% 3.46% 4.17% 15,045 Lipper Short Inv. Grade Index(2) .................... 9.67% 3.12% 3.93% 14,706 BofA Merrill Lynch 1-3Yr. Gov./Corp Index(2) ........ 6.36% 4.22% 4.84% 16,036
(1.) The Investor Class was formerly known as the PlanAhead Class. Performance shown is historical and may not be indicative of future returns. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is as of date indicated, and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. A portion of the fees charged to the Investor Class of the Fund has been waived. Performance prior to waiving fees was lower than the actual returns shown. Performance shown reflects the Fund's receipt in December 2006 and March 2008 of class action proceeds that were related to investment activity in 2002. The Fund's performance was higher than it would have been absent receipt of the settlement proceeds. (2.) The BofA Merrill Lynch 1-3 Yr. Gov./Corp. Index is a market value weighted performance benchmark for government and corporate fixed-rate debt securities with maturities between one and three years. The Lipper Short Investment Grade Bond Funds Index tracks the results of the 30 largest mutual funds in the Lipper Short Investment Grade Bond Funds category. Lipper is an independent mutual fund research and ranking service. One cannot directly invest in an index. (3.) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus for the Institutional and Investor Class shares was 0.32% and 0.89%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. As compared to the Index, the Fund outperformed due to overweight positions in the Corporate and Asset-Backed sectors. These sectors significantly outperformed Treasuries and Agencies during the period as the credit markets recovered in 2009. The overweight positions were relatively small at the beginning of the period when credit markets were compromised, but the positions grew as liquidity and normalcy returned to the markets. The Fund generally maintains an overweight position in investment-grade Corporate and Asset-Backed securities to generate incremental yield-to-maturity compared to the Index. Duration did not play a significant role during the period, as the Fund's duration was essentially neutral to that of the Index. Looking forward, with interest rates at such low levels, the Fund will likely seek a duration range of neutral-to-short of the Index, while the economy slowly regains its footing and as interest rates begin to rise. Overall, the past couple of years were extremely challenging, but we remain confident in the long-term success of the Fund's investment strategy. Markets have stabilized, and the worst of the financial crisis appears to be behind us. However, the recovery is not expected to be swift and will require diligence as it unfolds. We will continue to be conservative in our approach to credit risk, and we will look to take advantage of opportunities in this market to generate attractive long-term results. 9 PERFORMANCE OVERVIEW AMERICAN BEACON SHORT-TERM BOND FUND(SM) OCTOBER 31, 2009 (UNAUDITED) TOP TEN HOLDINGS
% OF NET ASSETS ------ Bank of America Corp. (FDIC Guaranteed), 2.375%, Due 6/22/2012 ... 6.6% Federal National Mortgage Association, 1.375%, Due 4/28/2011 ..... 5.2% Federal Home Loan Mortgage Corporation, 2.125%, Due 3/23/2012 .... 4.6% General Electric Capital Corp. (FDIC Guaranteed), 2.250%, Due 3/12/2012 ................................................. 3.3% Federal Home Loan Mortgage Corporation, 1.625%, Due 4/26/2011 .... 3.3% Citibank NA (FDIC Guaranteed), 1.625%, Due 3/30/2011 ............. 3.3% USAA Auto Owner Trust, 5.550%, Due 2/15/2013 ..................... 2.0% AT&T Wireless Services, Inc., 7.875%, Due 3/1/2011 ............... 1.8% John Deere Capital Corp., 4.125%, Due 1/15/2010 .................. 1.5% MBNA Corp., 7.500%, Due 3/15/2012 ................................ 1.4%
SECTOR ALLOCATION
% OF FIXED INCOME ------ Corporate ........................................................ 50.8% Agency............................................................ 27.7% Asset-Backed...................................................... 19.3% Mortgage-Backed................................................... 2.2%
10 FUND EXPENSES - ACTUAL OCTOBER 31, 2009 (UNAUDITED) FUND EXPENSE EXAMPLE As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including redemption fees if applicable, and (2) ongoing costs, including management fees, administrative service fees, distribution (12b-1) fees, and other Fund expenses. The examples below are intended to help you understand the ongoing cost (in dollars) of investing in a particular Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested at the beginning of the period in each Class and held for the entire period from May 1, 2009 through October 31, 2009. ACTUAL EXPENSES The following tables provide information about actual account values and actual expenses. You may use the information on this page, 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 "Expenses Paid During Period" for the applicable Fund to estimate the expenses you paid on your account during this period. Shareholders of the Investor and Institutional Classes that invest in a Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher.
HIGH YIELD INTERMEDIATE SHORT-TERM INSTITUTIONAL CLASS BOND FUND BOND FUND BOND FUND - ------------------- ---------- ------------ ---------- Beginning Account Value 5/1/09 ................. $1,000.00 $1,000.00 $1,000.00 Ending Account Value 10/31/09 .................. $1,251.50 $1,070.05 $1,034.91 Expenses Paid During Period 5/1/09-10/31/09 * .. $ 4.31 $ 1.83 $ 1.90 Annualized Expense Ratio ....................... 0.76% 0.35% 0.37%
ENHANCED HIGH YIELD INCOME INTERMEDIATE SHORT-TERM INVESTOR CLASS BOND FUND FUND BOND FUND BOND FUND - -------------- ---------- ---------- ------------ ---------- Beginning Account Value 5/1/09 ................. $1,000.00 $1,000.00 $1,000.00 $1,000.00 Ending Account Value 10/31/09 .................. $1,249.93 $1,103.65 $1,066.85 $1,034.05 Expenses Paid During Period 5/1/09-10/31/09 * .. $ 5.67 $ 5.67 $ 4.27 $ 2.77 Annualized Expense Ratio ....................... 1.00% 1.07% 0.82% 0.54%
HIGH YIELD AMR CLASS BOND FUND - --------- ---------- Beginning Account Value 5/1/09 ................. $1,000.00 Ending Account Value 10/31/2009 ................ $1,253.05 Expenses Paid During Period 5/1/09-10/31/09 * .. $ 2.90 Annualized Expense Ratio ....................... 0.51%
* Expenses are equal to the Fund's annualized expense ratios for the six-month period multiplied by the average account value over the period, multiplied by the number derived by dividing the number of days in the most recent fiscal half-year (184) by days in the year (365) to reflect the half-year period. See accompanying notes 11 FUND EXPENSES - HYPOTHETICAL OCTOBER 31, 2009 (UNAUDITED) HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The following tables 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 the Fund's actual return). You may compare the ongoing costs of investing in a particular Fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. Shareholders of the Investor and Institutional Classes that invest in a Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs charged by a Fund, such as redemption fees as applicable. 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 following tables 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.
HIGH YIELD INTERMEDIATE SHORT-TERM INSTITUTIONAL CLASS BOND FUND BOND FUND BOND FUND - ------------------- ---------- ------------ ---------- Beginning Account Value 5/1/09 ................. $1,000.00 $1,000.00 $1,000.00 Ending Account Value 10/31/09 .................. $1,021.37 $1,023.44 $1,023.34 Expenses Paid During Period 5/1/09-10/31/09 * .. $ 3.87 $ 1.79 $ 1.89 Annualized Expense Ratio ....................... 0.76% 0.35% 0.37%
ENHANCED HIGH YIELD INCOME INTERMEDIATE SHORT-TERM INVESTOR CLASS BOND FUND FUND BOND FUND BOND FUND - -------------- ---------- ---------- ------------ ---------- Beginning Account Value 5/1/09 ................. $1,000.00 $1,000.00 $1,000.00 $1,000.00 Ending Account Value 10/31/09 .................. $1,020.16 $1,019.81 $1,021.07 $1,022.48 Expenses Paid During Period 5/1/09-10/31/09 * .. $ 5.09 $ 5.45 $ 4.18 $ 2.75 Annualized Expense Ratio ....................... 1.00% 1.07% 0.82% 0.54%
HIGH YIELD AMR CLASS BOND FUND - --------- ---------- Beginning Account Value 5/1/09 ................. $1,000.00 Ending Account Value 10/31/09 .................. $1,022.63 Expenses Paid During Period 5/1/09-10/31/09 * .. $ 2.60 Annualized Expense Ratio ....................... 0.51%
* Expenses are equal to the Fund's annualized expense ratios for the six-month period multiplied by the average account value over the period, multiplied by the number derived by dividing the number of days in the most recent fiscal half-year (184) by days in the year (365) to reflect the half year period. See accompanying notes 12 AMERICAN BEACON FUNDS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of American Beacon Funds: We have audited the accompanying statements of assets and liabilities of American Beacon Funds (comprised of American Beacon Enhanced Income Fund, American Beacon High Yield Bond Fund, American Beacon Intermediate Bond Fund, and American Beacon Short-Term Bond Fund) (collectively the "Funds"), including the schedules of investments, as of October 31, 2009, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of each Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of American Beacon Funds at October 31, 2009, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/Ernst & Young LLP Dallas, Texas December 23, 2009 See accompanying notes 13 AMERICAN BEACON HIGH YIELD BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ---------- ------------ (DOLLARS IN THOUSANDS) PREFERRED STOCKS - 0.12% FINANCIALS - 0.12% DIVERSIFIED FINANCIALS - 0.12% Federal Home Loan Mortgage Corp. ## ...................................... 10,000 $ 11 Preferred Blocker, Inc. +++ .............................................. 454 277 TOTAL PREFERRED STOCKS ................................................... 288 ------------
PAR AMOUNT ---------- CORPORATE OBLIGATIONS - 96.48% AUTO COMPONENTS - 0.99% Allison Transmission, Inc., 11.00%, Due 11/1/2015 +++ .................... $ 1,100 1,122 Cooper-Standard Automotive, Inc., 8.375%, Due 12/15/2014 ................. 920 147 TRW Automotive, Inc., 7.25%, Due 3/15/2017 +++ ........................... 1,100 1,001 2,270 ------------ AUTO LOAN - 3.21% Ford Motor Credit Co. LLC, 9.75%, Due 9/15/2010 .................................................. 500 512 9.875%, Due 8/10/2011 ................................................. 3,055 3,125 7.50%, Due 8/1/2012 ................................................... 645 628 8.70%, Due 10/1/2014 .................................................. 200 200 GMAC, Inc., 7.25%, Due 3/2/2011 +++ ............................................... 410 403 6.875%, Due 9/15/2011 +++ ............................................. 1,800 1,728 8.00%, Due 11/1/2031 +++ .............................................. 945 808 7,404 ------------ BASIC MATERIALS - 3.63% Associated Materials LLC, 9.875%, Due 11/15/2016 +++ ..................... 400 410 Boise Paper Holdings LLC, 9.00%, Due 11/1/2017 +++ ....................... 275 278 Clearwater Paper Corp., 10.625%, Due 6/15/2016 +++ ....................... 1,000 1,090 CPG International I, Inc., 7.868%, Due 7/1/2012 # ........................ 460 386 Johnson Diversey, Inc., 9.625%, Due 5/15/2012 ............................ 300 305 NewPage Corp., 11.375%, Due 12/31/2014 +++ ............................... 1,125 1,122 PE Paper Escrow GmbH, 12.00%, Due 8/1/2014 +++ ........................... 650 712 Rio Tinto Finance USA Ltd., 9.00%, Due 5/1/2019 .......................... 535 666 Solutia, Inc., 8.75%, Due 11/1/2017 ...................................... 300 311 Teck Resources Ltd., 9.75%, Due 5/15/2014 .................................................. 1,170 1,313 10.75%, Due 5/15/2019 ................................................. 1,000 1,165 Weyerhaeuser Co., 7.375%, Due 10/1/2019 .................................. 600 618 8,376 ------------ CASINO/GAMING - 4.56% Ameristar Casinos, Inc., 9.25%, Due 6/1/2014 +++ ......................... 1,100 1,144 Fontainebleau Las Vegas Holdings LLC, 10.25%, Due 6/15/2015 +++ .......... 1,800 63 Harrah's Operating Co., Inc., 11.25%, Due 6/1/2017 +++ ................... 2,175 2,218 Las Vegas Sands Corp., 6.375%, Due 2/15/2015 ............................. 845 744
See accompanying notes 14 AMERICAN BEACON HIGH YIELD BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) Mandalay Resort Group, 9.375%, Due 2/15/2010 ............................. $ 720 $ 718 MGM Mirage, 10.375%, Due 5/15/2014 +++ ............................................ 750 799 6.625%, Due 7/15/2015 ................................................. 2,300 1,742 11.375%, Due 3/1/2018 +++ ............................................. 450 405 MTR Gaming Group, Inc., 12.625%, Due 7/15/2014 +++ ....................... 625 613 Pinnacle Entertainment, Inc., 7.50%, Due 6/15/2015 .................................................. 900 810 8.625%, Due 8/1/2017 +++ .............................................. 100 99 Pokagon Gaming Authority, 10.375%, Due 6/15/2014 +++ ..................... 1,000 1,035 Station Casinos, Inc., 6.875%, Due 3/1/2016 ss ............................................... 500 20 7.75%, Due 8/15/2016 ss ............................................... 400 97 10,507 ------------ COMMERCIAL SERVICES - 0.90% Iron Mountain, Inc., 8.00%, Due 6/15/2020 ................................ 400 407 RSC Equipment Rental, Inc., 9.50%, Due 12/1/2014 .................................................. 1,100 1,086 10.00%, Due 7/15/2017 +++ ............................................. 535 581 2,074 ------------ COMMUNICATIONS - 16.01% CC Holdings GS V LLC, 7.75%, Due 5/1/2017 +++ ............................ 760 798 CCO Holdings LLC, 8.75%, Due 11/15/2013 ss ............................... 1,200 1,311 Centennial Communications Corp., 6.04%, Due 1/1/2013 # ................... 990 983 Charter Communications Holdings LLC, 10.25%, Due 9/15/2010 ss .............................................. 1,100 1,331 13.50%, Due 1/15/2011 ................................................. 1,100 3 1.00%, Due 1/15/2014 .................................................. 1,100 14 10.875%, Due 9/15/2014 +++ ss ......................................... 385 425 11.00%, Due 10/1/2015 ss .............................................. 800 160 Cricket Communications, Inc., 9.375%, Due 11/1/2014 ...................... 1,310 1,271 Crown Castle International Corp., 9.00%, Due 1/15/2015 ................... 1,000 1,055 CSC Holdings LLC, 8.50%, Due 4/15/2014 +++ ............................... 1,100 1,162 Dex Media, Inc., 9.875%, Due 8/15/2013 ................................................. 1,470 294 1.00%, Due 11/15/2013 # ss ............................................ 400 72 8.00%, Due 11/15/2013 ss .............................................. 1,100 198 Digicel Group Ltd., 8.875%, Due 1/15/2015 +++ ............................................. 1,100 1,045 9.125%, Due 1/15/2015 +++ ............................................. 1,050 1,008 DirecTV Holdings LLC, 7.625%, Due 5/15/2016 .............................. 500 542 DISH DBS Corp., 7.125%, Due 2/1/2016 ..................................... 1,500 1,500 GCI, Inc., 8.625%, Due 11/15/2019 +++ .................................... 630 630 Idearc, Inc., 8.00%, Due 11/15/2016 ...................................... 1,914 96 Intelsat Corp., 9.25%, Due 8/15/2014 ..................................... 875 890
See accompanying notes 15 AMERICAN BEACON HIGH YIELD BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) Intelsat Jackson Holdings Ltd., 11.25%, Due 6/15/2016 .................... $ 1,500 $ 1,598 Intelsat Subsidiary Holding Co. Ltd., 8.50%, Due 1/15/2013 ............... 500 502 iPCS, Inc., 2.608%, Due 5/1/2013 # ....................................... 810 709 Lamar Media Corp., 7.25%, Due 1/1/2013 ................................................... 600 589 9.75%, Due 4/1/2014 ................................................... 500 550 Level 3 Financing, Inc., 8.75%, Due 2/15/2017 ............................ 630 539 Liberty Media LLC, 5.70%, Due 5/15/2013 .................................. 1,000 940 LIN Television Corp., 6.50%, Due 5/15/2013 ............................... 1,100 1,031 Mediacom LLC, 8.50%, Due 10/15/2015 ...................................... 925 934 MetroPCS Wireless, Inc., 9.25%, Due 11/1/2014 ............................ 1,100 1,108 Nielsen Finance LLC, Zero Coupon, Due 8/1/2016 ### ....................... 620 544 Quebecor Media, Inc., 7.75%, Due 3/15/2016 ............................... 1,600 1,580 Qwest Communications International, Inc., 7.50%, Due 2/15/2014 ........... 200 196 Qwest Corp., 3.549%, Due 6/15/2013 # ............................................... 460 428 8.375%, Due 5/1/2016 +++ .............................................. 1,500 1,549 6.875%, Due 9/15/2033 ................................................. 725 611 Radio One, Inc., 6.375%, Due 2/15/2013 ................................... 900 450 Sinclair Television Group, Inc., 9.25%, Due 11/1/2017 +++ ................ 1,000 985 Sprint Capital Corp., 8.75%, Due 3/15/2032 ............................... 1,405 1,215 Telesat Canada, 12.50%, Due 11/1/2017 .................................... 1,000 1,096 Time Warner Telecom Holdings, Inc., 9.25%, Due 2/15/2014 ................. 935 963 Univision Communications, Inc., 12.00%, Due 7/1/2014 +++ .............................................. 895 968 9.75%, Due 3/15/2015 +++ .............................................. 1,342 1,040 UPC Holding BV, 9.875%, Due 4/15/2018 +++ ................................ 200 211 Viasat, Inc., 8.875%, Due 9/15/2016 +++ .................................. 200 203 Virgin Media Finance PLC, 8.75%, Due 4/15/2014 ........................... 850 867 Visant Holding Corp., 8.75%, Due 12/1/2013 ............................... 325 332 Windstream Corp., 7.875%, Due 11/1/2017 +++ .............................. 400 404 36,930 ------------ CONSTRUCTION & ENGINEERING - 0.38% KB Home, 6.25%, Due 6/15/2015 .................................................. 500 470 9.10%, Due 9/15/2017 .................................................. 400 416 886 ------------ CONSUMER DISCRETIONARY - 8.06% Burlington Coat Factory Warehouse Corp., 11.125%, Due 4/15/2014 .......... 425 439 Carrols Corp., 9.00%, Due 1/15/2013 ...................................... 662 662 Dollar General Corp., 10.625%, Due 7/15/2015 ............................. 900 985 Duane Reade, Inc., 11.75%, Due 8/1/2015 +++ .............................. 700 746 Easton-Bell Sports, Inc., 8.375%, Due 10/1/2012 .......................... 690 662 Education Management LLC, 10.25%, Due 6/1/2016 ........................... 198 216 HSN, Inc., 11.25%, Due 8/1/2016 .......................................... 650 709
See accompanying notes 16 AMERICAN BEACON HIGH YIELD BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) Jostens Holding Corp., 10.25%, Due 12/1/2013 # ........................... $ 150 $ 155 Jostens IH Corp., 7.625%, Due 10/1/2012 .................................. 1,000 1,006 K Hovnanian Enterprises, Inc., 10.625%, Due 10/15/2016 +++ ............... 810 806 KAR Auction Services, Inc., 8.75%, Due 5/1/2014 .......................... 600 607 Meritage Homes Corp., 6.25%, Due 3/15/2015 ............................... 745 687 Michaels Stores, Inc., 10.00%, Due 11/1/2014 ............................. 1,100 1,100 Navistar International Corp., 8.25%, Due 11/1/2021 ....................... 1,080 1,054 Neiman Marcus Group, Inc., 9.00%, Due 10/15/2015 ......................... 812 718 NPC International, Inc., 9.50%, Due 5/1/2014 ............................. 700 691 QVC, Inc., 7.50%, Due 10/1/2019 +++ ...................................... 615 609 Rite Aid Corp., 9.75%, Due 6/12/2016 ..................................... 1,580 1,706 Sally Holdings LLC, 10.50%, Due 11/15/2016 ............................... 800 848 Speedway Motorsports, Inc., 8.75%, Due 6/1/2016 +++ ...................... 385 402 Ticketmaster Entertainment, Inc., 10.75%, Due 8/1/2016 ................... 1,000 1,030 Wesco Distribution, Inc., 7.50%, Due 10/15/2017 .......................... 1,040 1,023 WMG Acquisition Corp., 9.50%, Due 6/15/2016 +++ .......................... 1,000 1,068 Yonkers Racing Corp., 11.375%, Due 7/15/2016 +++ ......................... 625 650 18,579 ------------ CONSUMER STAPLES - 5.79% ACCO Brands Corp., 10.625%, Due 3/15/2015 +++ ............................ 400 428 Corrections Corp. of America, 7.75%, Due 6/1/2017 ........................ 805 829 Cott Beverages, Inc., 8.00%, Due 12/15/2011 .............................. 375 375 CRC Health Corp., 10.75%, Due 2/1/2016 ................................... 1,525 1,197 Dole Food Co, Inc., 13.875%, Due 3/15/2014 +++ ........................... 1,000 1,170 Great Atlantic & Pacific Tea Co., 11.375%, Due 8/1/2015 +++ .............. 575 592 Jarden Corp., 7.50%, Due 5/1/2017 ........................................ 1,000 985 JBS USA LLC, 11.625%, Due 5/1/2014 +++ ................................... 2,200 2,437 Pinnacle Foods Finance LLC, 10.625%, Due 4/1/2017 ........................ 1,125 1,148 Prestige Brands, Inc., 9.25%, Due 4/15/2012 .............................. 330 337 Reable Therapeutics, 11.75%, Due 11/15/2014 .............................. 1,150 1,150 Smithfield Foods, Inc., 10.00%, Due 7/15/2014 +++ ........................ 1,165 1,223 SUPERVALU, Inc., 8.00%, Due 5/1/2016 ..................................... 900 916 Tyson Foods, Inc., 10.50%, Due 3/1/2014 .................................. 500 570 13,357 ------------ ENERGY - 14.76% Adaro Indonesia PT, 7.625%, Due 10/22/2019 +++ ........................... 360 355 Arch Coal, Inc., 8.75%, Due 8/1/2016 +++ ................................. 300 307 Berry Petroleum Co., 10.25%, Due 6/1/2014 ................................ 1,460 1,562 Bill Barrett Corp., 9.875%, Due 7/15/2016 ................................ 200 212 Chesapeake Energy Corp., 6.625%, Due 1/15/2016 +++ ....................... 1,800 1,730 Cie Generale de Geophysique-Veritas, 7.50%, Due 5/15/2015 ..................................................... 1,000 993 9.50%, Due 5/15/2016 +++ ................................................. 100 105 Compton Petroleum Finance Corp., 7.625%, Due 12/1/2013 ................... 800 590 Concho Resources, Inc., 8.625%, Due 10/1/2017 ............................ 620 639
See accompanying notes 17 AMERICAN BEACON HIGH YIELD BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) Copano Energy LLC, 8.125%, Due 3/1/2016 .................................. $ 1,000 $ 978 Drummond Co., Inc., 9.00%, Due 10/15/2014 +++ ............................ 90 91 Dynegy Holdings, Inc., 8.375%, Due 5/1/2016 .............................. 1,300 1,212 El Paso Corp., 12.00%, Due 12/12/2013 ................................................ 1,000 1,145 8.25%, Due 2/15/2016 .................................................. 500 518 7.00%, Due 6/15/2017 .................................................. 500 500 Enterprise Products Operating LLC, 7.034%, Due 1/15/2068 ................. 1,810 1,665 Forest Oil Corp., 8.50%, Due 2/15/2014 +++ ............................... 420 426 Helix Energy Solutions Group, Inc., 9.50%, Due 1/15/2016 +++ ............. 475 488 Holly Corp., 9.875%, Due 6/15/2017 +++ ................................... 300 310 Intergen NV, 9.00%, Due 6/30/2017 +++ .................................... 1,100 1,144 International Coal Group, Inc., 10.25%, Due 7/15/2014 .................... 505 480 Linn Energy LLC, 11.75%, Due 5/15/2017 +++ ............................................. 124 138 9.875%, Due 7/1/2018 .................................................. 1,280 1,306 Mariner Energy, Inc., 7.50%, Due 4/15/2013 .................................................. 1,000 975 11.75%, Due 6/30/2016 ................................................. 100 110 MarkWest Energy Partners LP, 6.875%, Due 11/1/2014 ................................................. 800 760 8.75%, Due 4/15/2018 .................................................. 825 844 Mirant Americas Generation LLC, 8.30%, Due 5/1/2011 ...................... 325 331 Mirant North America LLC, 7.375%, Due 12/31/2013 ......................... 1,100 1,083 NRG Energy, Inc., 7.25%, Due 2/1/2014 ................................................... 800 794 7.375%, Due 2/1/2016 .................................................. 1,400 1,391 OPTI Canada, Inc., 8.25%, Due 12/15/2014 ................................. 735 577 Peabody Energy Corp., 6.875%, Due 3/15/2013 ................................................. 600 606 7.375%, Due 11/1/2016 ................................................. 500 505 Petrohawk Energy Corp., 9.125%, Due 7/15/2013 ................................................. 800 828 10.50%, Due 8/1/2014 .................................................. 1,100 1,199 Plains Exploration & Production Co., 10.00%, Due 3/1/2016 .................................................. 600 642 7.625%, Due 6/1/2018 .................................................. 500 486 Quicksilver Resources, Inc., 8.25%, Due 8/1/2015 ................................................... 1,000 978 9.125%, Due 8/15/2019 ................................................. 835 845 Regency Energy Partners LP, 9.375%, Due 6/1/2016 +++ ..................... 885 934 SandRidge Energy, Inc., 9.875%, Due 5/15/2016 +++ ............................................. 750 802 8.00%, Due 6/1/2018 +++ ............................................... 1,000 990
See accompanying notes 18 AMERICAN BEACON HIGH YIELD BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) Tesoro Corp., 6.50%, Due 6/1/2017 ................................................... $ 1,000 $ 895 9.75%, Due 6/1/2019 ................................................... 565 581 34,050 ------------ FINANCE - 8.25% Alliant Holdings I, Inc., 11.00%, Due 5/1/2015 +++ ....................... 575 561 American Real Estate Partners, L.P., 8.125%, Due 6/1/2012 ................ 1,395 1,395 E*Trade Financial Corp., 12.50%, Due 11/30/2017 .......................... 625 694 Felcor Lodging LP, 10.00%, Due 10/1/2014 +++ ............................. 900 889 Forest City Enterprises, Inc., 7.625%, Due 6/1/2015 ...................... 900 769 Fresenius US Finance II, Inc., 9.00%, Due 7/15/2015 +++ .................. 600 660 Galaxy Entertainment Finance Co. Ltd., 9.875%, Due 12/15/2012 +++ ........ 1,200 1,176 Hawker Beechcraft Acquisition Co. LLC, 9.75%, Due 4/1/2017 ............... 1,150 768 HUB International Holdings, Inc., 10.25%, Due 6/15/2015 +++ .............. 1,400 1,291 Hughes Network Systems LLC, 9.50%, Due 4/15/2014 ......................... 725 738 International Lease Finance Corp., 4.375%, Due 11/1/2009 ................................................. 405 405 5.75%, Due 6/15/2011 .................................................. 400 359 JP Morgan Chase & Co., 7.90%, Due 12/31/2049 ............................. 500 503 LaBranche & Co., Inc., 11.00%, Due 5/15/2012 ............................. 1,225 1,177 Lehman Brothers Holdings, Inc., 6.20%, Due 9/26/2014 ss .................. 900 142 Liberty Mutual Group, Inc., 10.75%, Due 6/15/2058 +++ .................... 685 719 Nationwide Mutual Insurance Co., 9.375%, Due 8/15/2039 +++ ............... 920 961 NII Capital Corp., 10.00%, Due 8/15/2016 +++ ............................. 850 897 Nuveen Investments, Inc., 5.00%, Due 9/15/2010 ........................... 650 634 Rainbow National Services LLC, 10.375%, Due 9/1/2014 +++ ................. 995 1,045 Realogy Corp., 11.00%, Due 4/15/2014 ................................................. 400 264 12.375%, Due 4/15/2015 ................................................ 600 324 Reliance Intermediate Holdings LP, 9.50%, Due 12/15/2019 +++ ............. 750 771 Rouse Company, 8.00%, Due 4/30/2049 ss ................................... 660 601 Universal City Development Partners Ltd., 8.875%, Due 11/15/2015 +++ ............................................ 300 297 10.875%, Due 11/15/2016 +++ ........................................... 100 100 Wachovia Capital Trust III, 5.80%, Due 3/15/2042 ......................... 575 411 Wells Fargo Capital XIII, 7.70%, Due 12/29/2049 .......................... 500 465 19,016 ------------ HEALTH CARE - 7.04% Biomet, Inc., 10.375%, Due 10/15/2017 .................................... 500 538 DaVita, Inc., 7.25%, Due 3/15/2015 ....................................... 1,100 1,086 Fresenius Medical Care Capital Trust IV, 7.875%, Due 6/15/2011 ........... 1,100 1,119 HCA, Inc., 9.125%, Due 11/15/2014 +++ ............................................ 1,400 1,449 9.625%, Due 11/15/2016 ................................................ 2,236 2,373 Health Net, Inc., 6.375%, Due 6/1/2017 ................................... 725 638
See accompanying notes 19 AMERICAN BEACON HIGH YIELD BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) HealthSouth Corp., 7.218%, Due 6/15/2014 # ............................... $ 1,075 $ 1,054 Psychiatric Solutions, Inc., 7.75%, Due 7/15/2015 +++ .................... 1,000 960 Talecris Biotherapeutics Holdings Corp., 7.75%, Due 11/15/2016 +++ ....... 450 456 Tenet Healthcare Corp., 10.00%, Due 5/1/2018 +++ .............................................. 1,000 1,103 8.875%, Due 7/1/2019 +++ .............................................. 200 214 United Surgical Partners International, Inc., 9.25%, Due 5/1/2017 ........ 1,000 992 US Oncology, Inc., 6.428%, Due 3/15/2012 # ............................... 2,289 2,014 Vanguard Health Holding Co. I LLC, 11.25%, Due 10/1/2015 # ............... 1,150 1,208 Vanguard Health Holding Co. II LLC, 9.00%, Due 10/1/2014 ................. 1,000 1,040 16,244 ------------ HOTELS, RESTAURANTS & LEISURE - 1.44% Denny's Holdings, Inc., 10.00%, Due 10/1/2012 ............................ 575 586 Reynolds Group DL Escrow LLC, 7.75%, Due 10/15/2016 +++ .................. 650 647 Royal Caribbean Cruises Ltd., 11.875%, Due 7/15/2015 ................................................ 100 112 7.25%, Due 3/15/2018 .................................................. 1,000 910 Starwood Hotels & Resorts Worldwide, Inc., 6.75%, Due 5/15/2018 .......... 1,100 1,059 3,314 ------------ INDUSTRIALS - 8.27% Alliance One International, Inc., 10.00%, Due 7/15/2016 +++ .............. 300 312 Belden, Inc., 9.25%, Due 6/15/2019 +++ ................................... 565 605 Case New Holland, Inc., 7.75%, Due 9/1/2013 +++ ............................................... 685 680 7.125%, Due 3/1/2014 .................................................. 900 891 Casella Waste Systems, Inc., 9.75%, Due 2/1/2013 ................................................... 1,150 1,098 11.00%, Due 7/15/2014 +++ ............................................. 850 907 CEVA Group plc, 10.00%, Due 9/1/2014 +++ .............................................. 1,000 935 11.625%, Due 10/1/2016 +++ ............................................ 100 101 Clean Harbors, Inc., 7.625%, Due 8/15/2016 +++ ........................... 1,015 1,040 Freescale Semiconductor, Inc., 8.875%, Due 12/15/2014 .................... 1,100 894 Goodyear Tire & Rubber Co., 10.50%, Due 5/15/2016 ........................ 780 844 Graphic Packaging International, Inc., 9.50%, Due 8/15/2013 .............. 600 616 Johnsondiversey Holdings, Inc., 10.67%, Due 5/15/2013 # .................. 800 812 Kansas City Southern de Mexico S.A. de C.V., 12.50%, Due 4/1/2016 +++ .... 700 786 Motors Liquidation Co., 8.375%, Due 7/15/2033 ............................ 970 146 NewPage Corp., 10.00%, Due 5/1/2012 ...................................... 600 393 Novelis, Inc., 7.25%, Due 2/15/2015 ...................................... 1,100 987 Owens-Brockway Glass Container, Inc., 6.75%, Due 12/1/2014 ............... 1,100 1,097 RBS Global, Inc., 9.50%, Due 8/1/2014 .................................... 1,100 1,089 Sanmina-SCI Corp., 8.125%, Due 3/1/2016 .................................. 1,100 1,051 Solo Cup Co., 10.50%, Due 11/1/2013 +++ ............................................. 300 318
See accompanying notes 20 AMERICAN BEACON HIGH YIELD BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) 8.50%, Due 2/15/2014 .................................................. $ 700 $ 681 Spirit Aerosystems, Inc., 7.50%, Due 10/1/2017 +++ ....................... 340 337 TFM S.A.B. de C.V., 9.375%, Due 5/1/2012 ................................. 950 969 TransDigm, Inc., 7.75%, Due 7/15/2014 +++ ................................ 380 382 USG Corp., 9.75%, Due 8/1/2014 +++ ....................................... 460 483 WCA Waste Corp., 9.25%, Due 6/15/2014 .................................... 625 619 19,073 ------------ MATERIALS - 4.18% Freeport-McMoRan Copper & Gold, Inc., 8.375%, Due 4/1/2017 ............... 920 989 Huntsman International LLC, 7.875%, Due 11/15/2014 ....................... 1,100 1,034 Ineos Group Holdings plc, 8.50%, Due 2/15/2016 +++ ....................... 800 448 MacDermid, Inc., 9.50%, Due 4/15/2017 +++ ................................ 2,225 2,103 Nalco Co., 8.875%, Due 11/15/2013 ................................................ 800 824 8.25%, Due 5/15/2017 +++ .............................................. 800 840 Newark Group, Inc., 9.75%, Due 3/15/2014 ss .............................. 2,200 605 Norske Skogindustrier ASA, 8.625%, Due 6/15/2011 ................................................. 1,100 693 6.125%, Due 10/15/2015 +++ ............................................ 1,000 655 Steel Dynamics, Inc., 8.25%, Due 4/15/2016 +++ ........................... 995 1,000 Tube City IMS Corp., 9.75%, Due 2/1/2015 ................................. 500 455 9,646 ------------ MEDIA - 0.75% WMG Holdings Corp., Zero Coupon, Due 12/15/2014 ### ...................... 1,755 1,737 ------------ SERVICES - 0.48% ARAMARK Corp., 8.50%, Due 2/1/2015 ....................................... 1,100 1,111 ------------ TECHNOLOGY - 1.89% First Data Corp., 9.875%, Due 9/24/2015 .................................. 1,100 1,015 Jabil Circuit, Inc., 7.75%, Due 7/15/2016 .................................................. 500 519 8.25%, Due 3/15/2018 .................................................. 500 531 SunGard Data Systems, Inc., 9.125%, Due 8/15/2013 ................................................. 500 509 10.625%, Due 5/15/2015 +++ ............................................ 975 1,050 10.25%, Due 8/15/2015 ................................................. 700 722 4,346 ------------ TELECOMMUNICATION SERVICES - 1.97% Inmarsat Finance II plc, 10.375%, Due 11/15/2012 # ....................... 1,600 1,652 Millicom International Cellular S.A., 10.00%, Due 12/1/2013 .............. 600 620 Wind Acquisition Finance S.A., 10.75%, Due 12/1/2015 +++ * ........................................... 1,900 2,052 11.75%, Due 7/15/2017 +++ ............................................. 200 226 4,550 ------------
See accompanying notes 21 AMERICAN BEACON HIGH YIELD BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) TELEPHONE - 0.59% Sprint Nextel Corp., 8.375%, Due 8/15/2017 ............................... $ 1,415 $ 1,365 ------------ UTILITIES - 3.33% AES Corp., 9.375%, Due 9/15/2010 ................................................. 292 301 9.75%, Due 4/15/2016 +++ .............................................. 1,125 1,226 8.00%, Due 10/15/2017 ................................................. 500 502 CMS Energy Corp., 8.75%, Due 6/15/2019 ................................... 980 1,079 Edison Mission Energy, 7.00%, Due 5/15/2017 .............................. 500 404 Elwood Energy LLC, 8.159%, Due 7/5/2026 .................................. 739 657 Energy Future Holdings Corp., 10.875%, Due 11/1/2017 ..................... 650 452 Orion Power Holdings, Inc., 12.00%, Due 5/1/2010 ......................... 910 940 Texas Competitive Electric Holdings Co. LLC, 10.25%, Due 11/1/2015 ....... 2,995 2,126 7,687 ------------ TOTAL CORPORATE OBLIGATIONS .............................................. 222,522 ------------ CONVERTIBLE OBLIGATIONS - 0.51% FINANCE - 0.22% E*Trade Financial Corp., 12.50%, Due 8/31/2019 ........................... 355 509 ------------ HOTELS, RESTAURANTS & LEISURE - 0.29% Horizon Lines, Inc., 4.25%, Due 8/15/2012 ................................ 850 671 ------------ TOTAL CONVERTIBLE OBLIGATIONS ............................................ 1,180 ------------ NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 0.10% Crown Castle Towers LLC, 5.772%, Due 11/15/2036 +++ ...................... 225 230 ------------ ASSET_BACKED SECURITIES - 0.31% Discover Financial Services, 10.25%, Due 7/15/2019 ....................... 600 704 ------------
SHARES ---------- SHORT TERM INVESTMENTS - 1.71% JP Morgan U.S. Government Money Market Fund .............................. 3,938,329 3,938 ------------ TOTAL INVESTMENTS - 99.23% (COST $218,052) .................................. $ 228,862 OTHER ASSETS, NET OF LIABILITIES - 0.77% .................................... 1,787 TOTAL NET ASSETS - 100.00% .................................................. $ 230,649 ============
See accompanying notes 22 AMERICAN BEACON HIGH YIELD BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009 Percentages are stated as a percent of net assets. ## Non-income producing security. +++ 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 $77,729 or 33.70% of net assets. The Fund has no right to demand registration of these securities. # The coupon rate shown on floating or adjustable rate securities represents the rate at period end. The due date on these types of securities reflects the final maturity date. ss Non-income producing - Issuer is in default. * Step Up/Down See accompanying notes 23 AMERICAN BEACON ENHANCED INCOME FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ---------- ------------ (DOLLARS IN THOUSANDS) COMMON STOCKS - 2.98% ENERGY - 1.66% ENERGY EQUIPMENT & SERVICES - 1.25% ENSCO International, Inc. ................................................ 7,300 $ 334 Noble Corp. .............................................................. 10,150 414 Transocean Ltd. ## ....................................................... 5,100 428 1,176 ------------ OIL & GAS - 0.41% Apache Corp. ............................................................. 1,450 136 Devon Energy Corp. ....................................................... 1,850 120 Noble Energy, Inc. ....................................................... 1,900 125 381 ------------ TOTAL ENERGY ............................................................. 1,157 ------------ FINANCIALS - 0.40% DIVERSIFIED FINANCIALS - 0.40% BlackRock, Inc. .......................................................... 625 135 T Rowe Price Group, Inc. ................................................. 4,800 234 TOTAL FINANCIALS ......................................................... 369 ------------ HEALTH CARE - 0.25% OPTICAL SUPPLIES - 0.25% Alcon, Inc. .............................................................. 1,630 233 ------------ INDUSTRIALS - 0.14% AEROSPACE & DEFENSE - 0.14% United Technologies Corp. ................................................ 2,150 132 ------------ INFORMATION TECHNOLOGY - 0.53% COMMUNICATIONS EQUIPMENT - 0.22% Cisco Systems, Inc. ## ................................................... 9,280 212 ------------ IT CONSULTING & SERVICES - 0.31% Accenture plc ............................................................ 7,770 288 ------------ TOTAL INFORMATION TECHNOLOGY ............................................. 500 ------------ TOTAL COMMON STOCKS ...................................................... 2,791 ------------ CONVERTIBLE PREFERRED STOCKS - 1.81% CONSUMER STAPLES - 0.33% FOOD PRODUCTS - 0.33% Bunge Ltd. ............................................................... 525 310 ------------ FINANCIALS - 0.76% BANKS - 0.76% Bank of America Corp. .................................................... 385 322 Wells Fargo & Co. ........................................................ 440 394 TOTAL FINANCIALS ......................................................... 716 ------------
See accompanying notes 24 AMERICAN BEACON ENHANCED INCOME FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ---------- ------------ (DOLLARS IN THOUSANDS) INDUSTRIALS - 0.22% HOUSEHOLD DURABLES - 0.22% Stanley Works ............................................................ 255 $ 208 ------------ MATERIALS - 0.50% METALS & MINING - 0.50% Freeport-McMoRan Copper & Gold, Inc. ..................................... 4,360 466 ------------ TOTAL CONVERTIBLE PREFERRED STOCKS ....................................... 1,700 ------------ PREFERRED STOCKS - 1.57% CONSUMER DISCRETIONARY - 0.40% FOOD PRODUCTS - 0.40% Archer-Daniels-Midland Co. ............................................... 8,850 378 ------------ CONSUMER STAPLES - 0.51% FOOD PRODUCTS - 0.25% Bunge Ltd. ............................................................... 2,800 229 ------------ HEALTH CARE - 0.26% Merck & Co., Inc. ........................................................ 1,010 244 ------------ TOTAL CONSUMER STAPLES ................................................... 473 ------------ FINANCIALS - 0.66% DIVERSIFIED FINANCIALS - 0.56% AMG Capital Trust I ...................................................... 4,150 150 Vale Capital II .......................................................... 5,000 378 528 ------------ INSURANCE - 0.10% American International Group, Inc. ....................................... 8,100 91 ------------ TOTAL FINANCIALS ......................................................... 619 ------------ TOTAL PREFERRED STOCKS ................................................... 1,470 ------------
PAR AMOUNT ---------- CORPORATE OBLIGATIONS - 38.55% AEROSPACE & DEFENSE - 0.29% Raytheon Co., 5.375%, Due 4/1/2013 ....................................... $ 250 273 ------------ BANKS - 11.71% Bank of America Corp., 7.80%, Due 9/15/2016 .................................................. 600 657 6.00%, Due 9/1/2017 ................................................... 400 408 7.625%, Due 6/1/2019 .................................................. 200 231 Bank of New York Mellon Corp., 5.125%, Due 8/27/2013 ..................... 350 379 Bank One Corp., 4.90%, Due 4/30/2015 ..................................... 250 261 Barclays Bank plc, 6.75%, Due 5/22/2019 .................................. 300 337 BP Capital Markets plc, 3.875%, Due 3/10/2015 ............................ 200 208
See accompanying notes 25 AMERICAN BEACON ENHANCED INCOME FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) Citigroup, Inc., 5.50%, Due 10/15/2014 ................................................. $ 150 $ 154 6.125%, Due 11/21/2017 ................................................ 275 281 8.50%, Due 5/22/2019 .................................................. 750 877 Credit Suisse N.Y., 3.45%, Due 7/2/2012 ................................................... 600 620 5.30%, Due 8/13/2019 .................................................. 250 259 Deutsche Bank AG, 3.875%, Due 8/18/2014 .................................. 275 280 Goldman Sachs Group, Inc., 5.35%, Due 1/15/2016 .................................................. 650 682 6.25%, Due 9/1/2017 ................................................... 550 588 ING Bank, NV, 5.125%, Due 5/1/2015 +++ ................................... 300 299 JP Morgan Chase & Co., 3.70%, Due 1/20/2015 .................................................. 1,450 1,457 6.00%, Due 1/15/2018 .................................................. 250 268 Merrill Lynch & Co., Inc., 6.11%, Due 1/29/2037 .......................... 275 260 Morgan Stanley, 7.30%, Due 5/13/2019 .................................................. 280 314 5.625%, Due 9/23/2019 ................................................. 250 252 Rabobank Nederland NV, 4.20%, Due 5/13/2014 +++ .......................... 200 208 UBS AG, 5.875%, Due 12/20/2017 ........................................... 275 282 Wachovia Corp., 5.75%, Due 2/1/2018 ...................................... 625 653 Wells Fargo & Co., 5.25%, Due 10/23/2012 ................................................. 300 321 3.75%, Due 10/1/2014 .................................................. 150 150 5.625%, Due 12/11/2017 ................................................ 275 286 ------------ BASIC MATERIALS - 0.12% Terra Capital, Inc., 7.75%, Due 11/1/2019 +++ ............................ 110 111 ------------ BEVERAGES - 0.45% Constellation Brands, Inc., 7.25%, Due 9/1/2016 .......................... 425 426 ------------ COMMUNICATIONS - 1.33% Comcast Cable Communications Holdings, Inc., 8.375%, Due 3/15/2013 ....... 109 127 Comcast Corp., 6.55%, Due 7/1/2039 ....................................... 300 313 France Telecom S.A., 4.375%, Due 7/8/2014 ................................ 150 158 Telefonica Emisiones SAU, 6.421%, Due 6/20/2016 .......................... 300 333 Time Warner Cable, Inc., 5.85%, Due 5/1/2017 ............................. 300 315 1,246 ------------ CONSUMER DISCRETIONARY - 1.48% Anheuser-Busch InBev Worldwide, Inc., 8.00%, Due 11/15/2039 +++ .......... 100 124 Royal Caribbean Cruises Ltd., 7.50%, Due 10/15/2027 ...................... 500 402 Wal-Mart Stores, Inc., 7.55%, Due 2/15/2030 .............................. 325 418
See accompanying notes 26 AMERICAN BEACON ENHANCED INCOME FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) Wesco Distribution, Inc., 7.50%, Due 10/15/2017 .......................... $ 450 $ 443 1,387 ------------ CONSUMER STAPLES - 0.89% Coca-Cola Enterprises, Inc., 7.375%, Due 3/3/2014 ........................ 150 176 Hanesbrands, Inc., 4.593%, Due 12/15/2014 # .............................. 440 396 Kellogg Co., 4.25%, Due 3/6/2013 ......................................... 250 264 836 ------------ ENERGY - 2.02% Canadian Natural Resources Ltd., 6.25%, Due 3/15/2038 .................... 275 291 ConocoPhillips, 4.60%, Due 1/15/2015 .................................................. 200 214 5.20%, Due 5/15/2018 .................................................. 325 344 EOG Resources Canada, Inc., 4.75%, Due 3/15/2014 +++ ..................... 250 266 FirstEnergy Solutions Corp., 4.80%, Due 2/15/2015 +++ .................... 150 154 Frontier Oil Corp., 8.50%, Due 9/15/2016 ................................. 250 255 Hornbeck Offshore Services, Inc., 6.125%, Due 12/1/2014 .................. 290 268 Range Resources Corp., 8.00%, Due 5/15/2019 .............................. 100 104 1,896 ------------ FINANCE - 3.93% CME Group, Inc., 5.40%, Due 8/1/2013 ..................................... 230 249 General Electric Capital Corp., 5.90%, Due 5/13/2014 .................................................. 200 219 5.65%, Due 6/9/2014 ................................................... 500 540 5.625%, Due 5/1/2018 .................................................. 250 257 6.00%, Due 8/7/2019 ................................................... 300 315 HSBC Finance Corp., 5.25%, Due 1/14/2011 ................................. 1,050 1,088 Petroplus Finance Ltd., 9.375%, Due 9/15/2019 +++ ........................ 225 226 Thomson Reuters Corp., 4.70%, Due 10/15/2019 ............................. 250 251 TIAA Global Markets, Inc., 5.125%, Due 10/10/2012 +++ .................... 500 537 3,682 ------------ HEALTH CARE - 0.13% Psychiatric Solutions, Inc., 7.75%, Due 7/15/2015 ........................ 125 123 ------------ INDUSTRIALS - 5.66% American Honda Finance Corp., 4.625%, Due 4/2/2013 +++ ................... 325 333 BE Aerospace, Inc., 8.50%, Due 7/1/2018 .................................. 325 338 Burlington Northern Santa Fe Corp., 5.75%, Due 3/15/2018 ................. 325 351 Canadian National Railway Co., 5.55%, Due 5/15/2018 ...................... 250 273 Caterpillar Financial Services Corp., 4.15%, Due 1/15/2010 .................................................. 300 302 4.25%, Due 2/8/2013 ................................................... 250 261 Daimler Finance NA LLC, 5.875%, Due 3/15/2011 ................................................. 250 261 5.75%, Due 9/8/2011 ................................................... 250 264 Deere & Co., 4.375%, Due 10/16/2019 ...................................... 250 252
See accompanying notes 27 AMERICAN BEACON ENHANCED INCOME FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) Gardner Denver, Inc., 8.00%, Due 5/1/2013 ................................ $ 300 $ 288 Goodyear Tire & Rubber Co., 7.857%, Due 8/15/2011 ........................ 300 305 Gulfmark Offshore, Inc., 7.75%, Due 7/15/2014 ............................ 120 117 Honeywell International, Inc., 4.25%, Due 3/1/2013 ....................... 250 265 Kansas City Southern Railway, 13.00%, Due 12/15/2013 ..................... 210 241 NBTY, Inc., 7.125%, Due 10/1/2015 ........................................ 150 146 Norfolk Southern Corp., 5.75%, Due 4/1/2018 .............................. 325 353 Northrop Grumman Corp., 5.05%, Due 8/1/2019 .............................. 150 158 Terex Corp., 8.00%, Due 11/15/2017 ....................................... 125 115 Tyco International Finance SA, 4.125%, Due 10/15/2014 .................... 125 128 Union Pacific Corp., 7.875%, Due 1/15/2019 ............................... 300 370 United Technologies Corp., 6.125%, Due 7/15/2038 ......................... 165 183 5,304 ------------ INSURANCE - 2.39% Aegon Funding Corp., 5.75%, Due 12/15/2020 ............................... 350 332 American International Group, Inc., 5.85%, Due 1/16/2018 .................................................. 250 188 6.25%, Due 5/1/2036 ................................................... 325 219 Lincoln National Corp., 4.75%, Due 2/15/2014 ............................. 105 106 MetLife, Inc., 6.375%, Due 6/15/2034 ..................................... 250 271 Metropolitan Life Global Funding I, 4.625%, Due 8/19/2010 +++ ............ 700 714 Pricoa Global Funding I, 5.40%, Due 10/18/2012 +++ ....................... 150 158 Prudential Financial, Inc., 4.50%, Due 7/15/2013 ......................... 250 254 2,242 ------------ PHARMACEUTICALS - 0.45% Bristol-Myers Squibb Co., 5.45%, Due 5/1/2018 ............................ 125 136 GlaxoSmithKline Capital, Inc., 5.65%, Due 5/15/2018 ...................... 125 138 Merck & Co., Inc., 5.85%, Due 6/30/2039 .................................. 140 152 426 ------------ REAL ESTATE - 0.61% ProLogis, 5.625%, Due 11/15/2016 ......................................... 250 230 Simon Property Group LP, 5.30%, Due 5/30/2013 ............................ 325 337 567 ------------ SOVEREIGN - 0.34% Province of Ontario Canada, 4.10%, Due 6/16/2014 ......................... 300 317 ------------ TECHNOLOGY - 3.02% Cisco Systems, Inc., 5.25%, Due 2/22/2011 ................................ 250 264 Dell, Inc., 5.875%, Due 6/15/2019 ........................................ 70 75 Hewlett-Packard Co., 4.50%, Due 3/1/2013 ................................. 325 348 International Business Machines Corp., 7.625%, Due 10/15/2018 ............ 150 186 Jabil Circuit, Inc., 8.25%, Due 3/15/2018 ................................ 325 345 Lender Processing Services, Inc., 8.125%, Due 7/1/2016 ................... 325 342 Oracle Corp., 5.00%, Due 7/8/2019 ........................................ 300 316 Seagate Technology, 6.80%, Due 10/1/2016 ................................. 350 343
See accompanying notes 28 AMERICAN BEACON ENHANCED INCOME FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) SunGard Data Systems, Inc., 9.125%, Due 8/15/2013 ........................ $ 150 $ 153 Syniverse Technologies, Inc., 7.75%, Due 8/15/2013 ....................... 325 310 Xerox Corp., 5.65%, Due 5/15/2013 .................................................. 75 79 8.25%, Due 5/15/2014 .................................................. 60 69 2,830 ------------ TELEPHONE - 2.64% America Movil, S.A.B. de C.V., 6.375%, Due 3/1/2035 ...................... 275 281 AT&T, Inc., 5.625%, Due 6/15/2016 ................................................. 200 218 5.50%, Due 2/1/2018 ................................................... 400 420 6.80%, Due 5/15/2036 .................................................. 125 137 6.40%, Due 5/15/2038 .................................................. 200 211 Verizon Communications, Inc., 5.50%, Due 4/1/2017 ................................................... 250 265 6.90%, Due 4/15/2038 .................................................. 325 367 Verizon Wireless Capital, LLC, 3.75%, Due 5/20/2011 +++ .................. 270 279 Vodafone Group plc, 6.15%, Due 2/27/2037 ................................. 275 293 2,471 ------------ UTILITIES - 1.09% Duke Energy Carolinas LLC, 5.10%, Due 4/15/2018 .......................... 250 264 MidAmerican Energy Holdings Co., 6.125%, Due 4/1/2036 .................... 275 293 Pacific Gas & Electric Co., 6.25%, Due 12/1/2013 ......................... 175 197 Virginia Electric and Power Co., 5.40%, Due 4/30/2018 .................... 250 267 1,021 ------------ TOTAL CORPORATE OBLIGATIONS .............................................. 36,130 ------------ CONVERTIBLE OBLIGATIONS - 12.19% BASIC MATERIALS - 1.28% Allegheny Technologies, Inc., 4.25%, Due 6/1/2014 ........................ 260 288 Newmont Mining Corp., 3.00%, Due 2/15/2012 .................................................. 50 60 1.25%, Due 7/15/2014 .................................................. 425 506 1.625%, Due 7/15/2017 ................................................. 220 259 Sterlite Industries India Ltd., 4.00%, Due 10/30/2014 .................... 90 89 1,202 ------------ COMMUNICATIONS - 1.39% Anixter International, Inc., 1.00%, Due 2/15/2013 ........................ 410 376 Arris Group, Inc., 2.00%, Due 11/15/2026 ................................. 240 225 Symantec Corp., 1.00%, Due 6/15/2013 ..................................... 400 445 VeriSign, Inc., 3.25%, Due 8/15/2037 ..................................... 300 255 1,301 ------------ CONSUMER DISCRETIONARY - 0.91% Archer-Daniels-Midland Co., 0.875%, Due 2/15/2014 ........................ 280 282 Best Buy Co., Inc., 2.25%, Due 1/15/2022 ................................. 200 212
See accompanying notes 29 AMERICAN BEACON ENHANCED INCOME FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) GameStop Corp., 8.00%, Due 10/1/2012 ..................................... $ 225 $ 232 International Game Technology, 3.25%, Due 5/1/2014 +++ ................... 110 130 856 ------------ CONSUMER STAPLES - 0.30% Kinetic Concepts, Inc., 3.25%, Due 4/15/2015 +++ ......................... 310 284 ------------ ENERGY - 1.21% Cameron International Corp., 2.50%, Due 6/15/2026 ........................ 190 237 Chesapeake Energy Corp., 2.50%, Due 5/15/2037 ............................ 570 502 Transocean, Inc., 1.50%, Due 12/15/2037 .................................. 410 394 1,133 ------------ FINANCE - 0.55% Janus Capital Group, Inc., 3.25%, Due 7/15/2014 .......................... 190 226 Leucadia National Corp., 3.75%, Due 4/15/2014 ............................ 250 289 515 ------------ HEALTH CARE - 0.37% Biovail Corp., 5.375%, Due 8/1/2014 +++ .................................. 200 229 Henry Schein, Inc., 3.00%, Due 8/15/2034 ................................. 100 120 349 ------------ INDUSTRIALS - 1.51% Alliant Techsystems, Inc., 2.75%, Due 9/15/2011 .......................... 320 327 Danaher Corp., Zero Coupon, Due 1/22/2021 ................................ 370 372 Fisher Scientific International, Inc., 3.25%, Due 3/1/2024 ............... 230 291 SEACOR Holdings, Inc., 2.875%, Due 12/15/2024 ............................ 210 238 Trinity Industries, Inc., 3.875%, Due 6/1/2036 ........................... 250 183 1,411 ------------ PHARMACEUTICALS - 1.71% Beckman Coulter, Inc., 2.50%, Due 12/15/2036 ............................. 213 241 Charles River Laboratories International, Inc., 2.25%, Due 6/15/2013 ..... 280 277 Life Technologies Corp., 1.50%, Due 2/15/2024 ............................ 246 275 Mylan, Inc., 1.25%, Due 3/15/2012 ........................................ 480 473 Teva Pharmaceutical Finance LLC, 0.25%, Due 2/1/2026 ..................... 295 334 1,600 ------------ TECHNOLOGY - 2.96% CACI International, Inc., 2.125%, Due 5/1/2014 ........................... 230 240 DST Systems, Inc., 4.125%, Due 8/15/2023 ................................. 220 231 EMC Corp., 1.75%, Due 12/1/2013 .......................................... 590 708 Intel Corp., 2.95%, Due 12/15/2035 ....................................... 255 233 Linear Technology Corp., 3.00%, Due 5/1/2027 ............................. 120 115 NetApp, Inc., 1.75%, Due 6/1/2013 ........................................ 545 599 Sybase, Inc., 3.50%, Due 8/15/2029 +++ ................................... 580 645 2,771 ------------ TOTAL CONVERTIBLE OBLIGATIONS ............................................ 11,422 ------------
See accompanying notes 30 AMERICAN BEACON ENHANCED INCOME FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 2.76% Banc of America Commercial Mortgage, Inc., 2005-6 A1, 5.001%, Due 9/10/2047 ...................................... $ 305 $ 310 2007-2 A2, 5.634%, Due 4/10/2049 ...................................... 650 656 JP Morgan Chase Commercial Mortgage Securities Corp., 2005-LDP3 A1, 4.655%, Due 8/15/2042 ................................... 58 58 2007-CB19 A4, 5.746%, Due 2/12/2049 ................................... 400 365 2007-CB20 A2, 5.629%, Due 2/12/2051 ................................... 550 562 LB-UBS Commercial Mortgage Trust, 2007-C1 A4, 5.424%, Due 2/15/2040 ...... 450 380 Wachovia Bank Commercial Mortgage Trust, 2007-C32 A2, 5.735%, Due 6/15/2049 ......................................................... 260 260 TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS ............................. 2,591 ------------ ASSET-BACKED SECURITIES - 3.20% American Express Credit Account Master Trust, 2006-2 A, 5.35%, Due 1/15/2014 ......................................................... 1,050 1,117 BMW Floorplan Master Owner Trust, 2009-1A A, 1.394%, Due 9/15/2014 +++# .. 250 249 Capital One Multi-Asset Execution Trust, 2006-A10 A10, 5.15%, Due 6/15/2014 ......................................................... 800 850 Discover Card Master Trust, 2009-A2 A, 1.545%, Due 2/17/2015 # ........... 200 201 Ford Credit Floorplan Master Owner Trust, 2009-2 A, 1.794%, Due 9/15/2014 # ....................................................... 250 251 Volkswagen Auto Loan Enhanced Trust, 2008-2 A4A, 6.24%, Due 7/20/2015 .... 300 333 TOTAL ASSET-BACKED SECURITIES ............................................ 3,001 ------------ U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 17.99% FEDERAL HOME LOAN MORTGAGE CORPORATION - 7.24% 5.00%, Due 2/1/2021 ................................................... 870 926 4.50%, Due 4/1/2021 ................................................... 866 910 5.00%, Due 9/1/2035 ................................................... 2,012 2,090 5.50%, Due 4/1/2037 ................................................... 644 679 5.00%, Due 3/1/2038 ................................................... 1,342 1,392 5.50%, Due 5/1/2038 ................................................... 744 784 6,781 ------------ FEDERAL NATIONAL MORTGAGE ASSOCIATION - 7.52% 6.50%, Due 7/1/2032 ................................................... 334 362 5.50%, Due 6/1/2033 ................................................... 748 792 4.50%, Due 9/1/2034 ................................................... 388 396 5.50%, Due 12/1/2035 .................................................. 811 856 5.00%, Due 2/1/2036 ................................................... 675 702 5.50%, Due 4/1/2036 ................................................... 1,227 1,296 5.50%, Due 2/1/2037 ................................................... 963 1,015 6.00%, Due 9/1/2037 ................................................... 655 697 6.00%, Due 1/1/2038 ................................................... 877 933 7,049 ------------ GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.23% 4.201%, Due 8/16/2026 ................................................. 457 469 6.00%, Due 2/15/2033 .................................................. 729 782 5.50%, Due 4/15/2033 .................................................. 974 1,035
See accompanying notes 31 AMERICAN BEACON ENHANCED INCOME FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) 5.00%, Due 5/15/2033 .................................................. $ 707 $ 741 3,027 ------------ TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS ............................ 16,857 ------------ U.S. AGENCY OBLIGATIONS - 5.94% FEDERAL FARM CREDIT BANK - 2.18% 3.00%, Due 9/22/2014 .................................................. 2,000 2,043 ------------ FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.49% 6.25%, Due 7/15/2032 .................................................. 375 456 ------------ FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.96% 5.375%, Due 6/12/2017 ................................................. 800 905 ------------ OTHER GOVERNMENT RELATED - 2.17% Bank of America Corp. (FDIC Guaranteed), 2.10%, Due 4/30/2012 ......... 2,000 2,033 ------------ TENNESSEE VALLEY AUTHORITY - 0.14% 5.25%, Due 9/15/2039 .................................................. 130 133 ------------ TOTAL U.S. AGENCY OBLIGATIONS ............................................ 5,570 ------------ U.S. TREASURY OBLIGATIONS - 7.85% 4.125%, Due 5/15/2015 ................................................. 2,500 2,710 3.75%, Due 11/15/2018 ................................................. 1,000 1,031 6.25%, Due 8/15/2023 .................................................. 1,500 1,860 5.25%, Due 11/15/2028 ................................................. 1,050 1,195 4.75%, Due 2/15/2037 .................................................. 420 455 4.50%, Due 8/15/2039 .................................................. 100 105 TOTAL U.S. TREASURY OBLIGATIONS .......................................... 7,356 ------------
SHARES ---------- SHORT TERM INVESTMENTS - 4.45% JP Morgan U.S. Government Money Market Fund .............................. 4,171,479 4,171 ------------ TOTAL INVESTMENTS - 99.29% (COST $89,607) ................................... $ 93,059 OTHER ASSETS, NET OF LIABILITIES - 0.71% .................................... 668 TOTAL NET ASSETS - 100.00% .................................................. $ 93,727 ============
See accompanying notes 32 AMERICAN BEACON ENHANCED INCOME FUND SCHEDULE OF INVESTMENTS October 31, 2009 Percentages are stated as a percent of net assets. ## Non-income producing security. +++ 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 $4,946 or 5.28% of net assets. The Fund has no right to demand registration of these securities. # The coupon rate shown on floating or adjustable rate securities represents the rate at period end. The due date on these types of securities reflects the final maturity date. See accompanying notes 33 AMERICAN BEACON INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) CORPORATE OBLIGATIONS - 38.85% AEROSPACE & DEFENSE - 0.10% Raytheon Co., 5.375%, Due 4/1/2013 ....................................... $ 200 $ 218 ------------ BANKS - 9.64% Bank of America Corp., 7.80%, Due 9/15/2016 .................................................. 700 767 6.00%, Due 9/1/2017 ................................................... 200 204 7.625%, Due 6/1/2019 .................................................. 800 923 Bank of New York Mellon Corp., 4.95%, Due 11/1/2012 .................................................. 140 152 5.125%, Due 8/27/2013 ................................................. 250 271 Bank One Corp., 5.90%, Due 11/15/2011 ................................................. 760 817 4.90%, Due 4/30/2015 .................................................. 500 523 Barclays Bank plc, 6.75%, Due 5/22/2019 .................................. 350 394 Bear Stearns Cos., Inc., 6.40%, Due 10/2/2017 .................................................. 605 661 7.25%, Due 2/1/2018 ................................................... 270 309 BP Capital Markets plc, 3.125%, Due 3/10/2012 ................................................. 520 538 3.875%, Due 3/10/2015 ................................................. 600 624 Citigroup, Inc., 5.50%, Due 10/15/2014 ................................................. 300 308 6.125%, Due 11/21/2017 ................................................ 755 770 8.50%, Due 5/22/2019 .................................................. 1,100 1,286 Credit Suisse N.Y., 3.45%, Due 7/2/2012 ................................................... 700 723 5.30%, Due 8/13/2019 .................................................. 425 440 Deutsche Bank AG, 3.875%, Due 8/18/2014 .................................. 400 407 Goldman Sachs Group, Inc., 5.35%, Due 1/15/2016 .................................................. 625 656 6.25%, Due 9/1/2017 ................................................... 800 856 5.95%, Due 1/18/2018 .................................................. 215 226 6.75%, Due 10/1/2037 .................................................. 245 258 ING Bank, NV, 5.125%, Due 5/1/2015 +++ ................................... 250 250 JP Morgan Chase & Co., 3.70%, Due 1/20/2015 .................................................. 1,900 1,909 6.00%, Due 1/15/2018 .................................................. 250 268 Merrill Lynch & Co., Inc., 6.40%, Due 8/28/2017 .................................................. 145 150 6.875%, Due 4/25/2018 ................................................. 1,075 1,157 6.11%, Due 1/29/2037 .................................................. 360 340 Morgan Stanley, 7.30%, Due 5/13/2019 .................................................. 370 414
See accompanying notes 34 AMERICAN BEACON INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) 5.625%, Due 9/23/2019 ................................................. $ 400 $ 402 Rabobank Nederland NV, 4.20%, Due 5/13/2014 +++ .......................... 600 626 State Street Corp., 4.30%, Due 5/30/2014 ................................. 260 273 UBS AG, 5.875%, Due 12/20/2017 ........................................... 400 411 Wachovia Corp., 5.75%, Due 2/1/2018 ...................................... 600 627 Washington Mutual Finance Corp., 6.875%, Due 5/15/2011 ................... 230 242 Wells Fargo & Co., 5.25%, Due 10/23/2012 ................................................. 350 374 3.75%, Due 10/1/2014 .................................................. 500 500 5.625%, Due 12/11/2017 ................................................ 475 494 20,550 ------------ BASIC MATERIALS - 0.35% E. I. du Pont de Nemours & Co., 5.875%, Due 1/15/2014 .................... 395 440 Lubrizol Corp., 8.875%, Due 2/1/2019 ..................................... 255 318 758 ------------ COMMUNICATIONS - 2.76% Alltel Corp., 7.00%, Due 7/1/2012 ........................................ 215 239 British Telecommunications plc, 9.125%, Due 12/15/2010 # ................. 445 479 Comcast Cable Communications Holdings, Inc., 8.375%, Due 3/15/2013 ....... 128 149 Comcast Corp., 5.30%, Due 1/15/2014 .................................................. 460 491 5.875%, Due 2/15/2018 ................................................. 235 248 6.55%, Due 7/1/2039 ................................................... 350 365 France Telecom S.A., 4.375%, Due 7/8/2014 ................................ 415 438 Nokia Corp., 5.375%, Due 5/15/2019 ....................................... 500 516 Rogers Communications, Inc., 6.80%, Due 8/15/2018 ........................ 250 282 Telecom Italia Capital SA, 4.95%, Due 9/30/2014 .......................... 395 410 Telefonica Emisiones SAU, 5.984%, Due 6/20/2011 ................................................. 285 303 4.949%, Due 1/15/2015 ................................................. 425 450 6.421%, Due 6/20/2016 ................................................. 350 388 Time Warner Cable, Inc., 8.25%, Due 2/14/2014 .................................................. 330 387 5.85%, Due 5/1/2017 ................................................... 700 736 5,881 ------------ CONSUMER DISCRETIONARY - 0.77% Anheuser-Busch InBev Worldwide, Inc., 3.00%, Due 10/15/2012 ................................................. 390 393 8.00%, Due 11/15/2039 +++ ............................................. 175 217 Best Buy Co., Inc., 6.75%, Due 7/15/2013 ................................. 240 258 Lowe's Companies, Inc., 5.50%, Due 10/15/2035 ................................................. 300 300 6.65%, Due 9/15/2037 .................................................. 130 150 Wal-Mart Stores, Inc., 7.55%, Due 2/15/2030 .............................. 250 322 1,640 ------------
See accompanying notes 35 AMERICAN BEACON INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) CONSUMER STAPLES - 1.72% Altria Group, Inc., 9.70%, Due 11/10/2018 ................................ $ 275 $ 339 Coca-Cola Enterprises, Inc., 7.375%, Due 3/3/2014 ........................ 175 206 Costco Wholesale Corp., 5.30%, Due 3/15/2012 ............................. 645 699 Dr Pepper Snapple Group, Inc., 6.82%, Due 5/1/2018 ....................... 205 234 Express Scripts, Inc., 6.25%, Due 6/15/2014 .............................. 480 527 Kellogg Co., 4.25%, Due 3/6/2013 ......................................... 250 264 Kroger Co., 7.50%, Due 1/15/2014 ......................................... 220 254 Lorillard Tobacco Co., 8.125%, Due 6/23/2019 ............................. 255 283 Mead Johnson Nutrition Co., 4.90%, Due 11/1/2019 +++ ..................... 350 349 Safeway, Inc., 6.25%, Due 3/15/2014 ...................................... 460 508 3,663 ------------ ENERGY - 3.14% Cameron International Corp., 6.375%, Due 7/15/2018 ....................... 125 134 Canadian Natural Resources Ltd., 6.70%, Due 7/15/2011 .................................................. 400 430 6.25%, Due 3/15/2038 .................................................. 360 381 ConocoPhillips, 4.60%, Due 1/15/2015 .................................................. 1,060 1,137 5.20%, Due 5/15/2018 .................................................. 250 264 5.75%, Due 2/1/2019 ................................................... 380 416 Consolidated Natural Gas Co., 6.00%, Due 10/15/2010 ...................... 175 182 Energy Transfer Partners LP, 8.50%, Due 4/15/2014 .................................................. 520 604 9.00%, Due 4/15/2019 .................................................. 300 363 Enterprise Products Operating LLC, 6.125%, Due 10/15/2039 ................ 255 256 EOG Resources Canada, Inc., 4.75%, Due 3/15/2014 +++ ..................... 400 425 EQT Corp., 8.125%, Due 6/1/2019 .......................................... 165 189 FirstEnergy Solutions Corp., 4.80%, Due 2/15/2015 +++ .................... 175 180 Marathon Oil Corp., 6.00%, Due 10/1/2017 ................................. 275 292 Petrobras International Finance Co., 6.875%, Due 1/20/2040 ............... 110 110 Spectra Energy Capital Corp., 5.65%, Due 3/1/2020 ........................ 265 272 TransCanada PipeLines Ltd., 7.625%, Due 1/15/2039 ........................ 520 664 Valero Energy Corp., 9.375%, Due 3/15/2019 ................................................. 170 201 6.625%, Due 6/15/2037 ................................................. 205 188 6,688 ------------ FINANCE - 4.31% American Express Co., 8.15%, Due 3/19/2038 ............................... 325 411 American Express Credit Corp., 5.875%, Due 5/2/2013 ...................... 305 327 Ameriprise Financial, Inc., 5.35%, Due 11/15/2010 ........................ 730 749 CME Group, Inc., 5.40%, Due 8/1/2013 ..................................... 630 682 Countrywide Home Loans, Inc., 4.00%, Due 3/22/2011 ....................... 70 72 General Electric Capital Corp., 5.90%, Due 5/13/2014 .................................................. 800 876
See accompanying notes 36 AMERICAN BEACON INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) General Electric Capital Corp., 5.65%, Due 6/9/2014 ................................................... $ 450 $ 486 5.625%, Due 5/1/2018 .................................................. 695 715 6.00%, Due 8/7/2019 ................................................... 350 368 5.875%, Due 1/14/2038 ................................................. 645 616 HSBC Finance Corp., 5.25%, Due 1/14/2011 ................................. 1,550 1,607 International Lease Finance Corp., 5.75%, Due 6/15/2011 .................. 240 216 Novartis Capital Corp., 4.125%, Due 2/10/2014 ............................ 395 417 PNC Funding Corp., 4.25%, Due 9/21/2015 .................................. 390 391 Thomson Reuters Corp., 4.70%, Due 10/15/2019 ............................. 400 402 TIAA Global Markets, Inc., 5.125%, Due 10/10/2012 +++ .................... 800 858 9,193 ------------ HEALTH CARE - 0.46% Covidien International Finance SA, 5.45%, Due 10/15/2012 ................. 120 130 UnitedHealth Group, Inc., 5.25%, Due 3/15/2011 ........................... 820 856 986 ------------ INDUSTRIALS - 4.12% American Honda Finance Corp., 4.625%, Due 4/2/2013 +++ ................... 250 256 Amphenol Corp., 4.75%, Due 11/15/2014 .................................... 155 155 Burlington Northern Santa Fe Corp., 5.75%, Due 3/15/2018 ................. 250 270 Canadian National Railway Co., 5.55%, Due 5/15/2018 .................................................. 400 436 5.55%, Due 3/1/2019 ................................................... 165 181 Caterpillar Financial Services Corp., 4.15%, Due 1/15/2010 .................................................. 200 201 4.85%, Due 12/7/2012 .................................................. 195 208 4.25%, Due 2/8/2013 ................................................... 250 261 CRH America, Inc., 6.00%, Due 9/30/2016 .................................. 370 383 Daimler Finance NA LLC, 5.875%, Due 3/15/2011 ................................................. 300 313 5.75%, Due 9/8/2011 ................................................... 200 211 Deere & Co., 4.375%, Due 10/16/2019 ...................................... 400 403 Eaton Corp., 5.60%, Due 5/15/2018 ........................................ 280 298 Home Depot, Inc., 5.20%, Due 3/1/2011 .................................... 485 507 Honeywell International, Inc., 4.25%, Due 3/1/2013 ....................... 670 709 John Deere Capital Corp., 4.125%, Due 1/15/2010 ................................................. 675 680 5.40%, Due 10/17/2011 ................................................. 555 597 Koninklijke Philips Electronics NV, 5.75%, Due 3/11/2018 ................. 165 178 L-3 Communications Corp., 5.20%, Due 10/15/2019 +++ ...................... 160 162 Norfolk Southern Corp., 5.75%, Due 4/1/2018 .............................. 250 272 Northrop Grumman Corp., 5.05%, Due 8/1/2019 .............................. 200 210 Tyco Electronics Group SA, 6.55%, Due 10/1/2017 .......................... 225 236 Tyco International Finance SA, 4.125%, Due 10/15/2014 ................................................ 200 204
See accompanying notes 37 AMERICAN BEACON INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) 8.50%, Due 1/15/2019 .................................................. $ 320 $ 390 Union Pacific Corp., 7.875%, Due 1/15/2019 ............................... 350 432 United Technologies Corp., 6.125%, Due 2/1/2019 .................................................. 155 175 6.125%, Due 7/15/2038 ................................................. 125 139 Waste Management, Inc., 7.375%, Due 3/11/2019 ............................ 270 315 8,782 ------------ INSURANCE - 1.61% Aegon Funding Corp., 5.75%, Due 12/15/2020 ............................... 200 189 American International Group, Inc., 5.85%, Due 1/16/2018 .................................................. 200 151 6.25%, Due 5/1/2036 ................................................... 250 169 John Hancock Global Funding II, 7.90%, Due 7/2/2010 +++ .................. 700 728 Lincoln National Corp., 4.75%, Due 2/15/2014 ............................. 50 51 MetLife, Inc., 5.375%, Due 12/15/2012 ................................................ 240 258 6.375%, Due 6/15/2034 ................................................. 400 434 Metropolitan Life Global Funding I, 4.625%, Due 8/19/2010 +++ ............ 500 510 Pricoa Global Funding I, 5.40%, Due 10/18/2012 +++ ....................... 175 184 Prudential Financial, Inc., 4.50%, Due 7/15/2013 .................................................. 200 203 5.10%, Due 9/20/2014 .................................................. 280 288 Willis North America, Inc., 6.20%, Due 3/28/2017 ......................... 280 274 3,439 ------------ PHARMACEUTICALS - 0.91% Bristol-Myers Squibb Co., 5.45%, Due 5/1/2018 ............................ 125 136 GlaxoSmithKline Capital, Inc., 5.65%, Due 5/15/2018 ...................... 125 138 Hospira, Inc., 6.05%, Due 3/30/2017 ...................................... 205 216 Merck & Co., Inc., 5.85%, Due 6/30/2039 .................................. 180 196 Pfizer, Inc., 4.45%, Due 3/15/2012 ....................................... 565 599 Wyeth Corp., 5.50%, Due 2/1/2014 ......................................... 590 646 1,931 ------------ REAL ESTATE - 0.56% Equity Residential, 5.125%, Due 3/15/2016 ................................ 380 375 ProLogis, 5.625%, Due 11/15/2016 ......................................... 200 184 Simon Property Group LP, 5.30%, Due 5/30/2013 .................................................. 250 259 5.75%, Due 12/1/2015 .................................................. 370 382 1,200 ------------ SOVEREIGN - 0.17% Province of Ontario Canada, 4.10%, Due 6/16/2014 ......................... 350 370 ------------ TECHNOLOGY - 2.21% Cisco Systems, Inc., 5.25%, Due 2/22/2011 ................................ 200 211
See accompanying notes 38 AMERICAN BEACON INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) Computer Sciences Corp., 5.50%, Due 3/15/2013 .................................................. $ 220 $ 232 6.50%, Due 3/15/2018 .................................................. 505 551 Dell, Inc., 3.375%, Due 6/15/2012 ................................................. 235 243 5.875%, Due 6/15/2019 ................................................. 90 97 Hewlett-Packard Co., 4.25%, Due 2/24/2012 .................................................. 440 465 4.50%, Due 3/1/2013 ................................................... 250 268 6.125%, Due 3/1/2014 .................................................. 310 349 International Business Machines Corp., 4.75%, Due 11/29/2012 ................................................. 325 352 7.625%, Due 10/15/2018 ................................................ 570 705 ITT Corp., 4.90%, Due 5/1/2014 ........................................... 640 679 Oracle Corp., 5.00%, Due 7/8/2019 ........................................ 350 369 Xerox Corp., 5.65%, Due 5/15/2013 .................................................. 50 53 8.25%, Due 5/15/2014 .................................................. 115 132 4,706 ------------ TELEPHONE - 2.49% America Movil, S.A.B. de C.V., 6.375%, Due 3/1/2035 ...................... 375 383 AT&T Wireless Services, Inc., 8.75%, Due 3/1/2031 ........................ 335 442 AT&T, Inc., 5.10%, Due 9/15/2014 .................................................. 755 814 5.625%, Due 6/15/2016 ................................................. 400 435 5.50%, Due 2/1/2018 ................................................... 300 315 6.80%, Due 5/15/2036 .................................................. 225 247 6.40%, Due 5/15/2038 .................................................. 125 132 Deutsche Telekom AG, 8.50%, Due 6/15/2010 ................................ 340 355 Verizon Communications, Inc., 5.50%, Due 4/1/2017 ................................................... 400 424 6.90%, Due 4/15/2038 .................................................. 400 452 Verizon Wireless Capital, LLC, 3.75%, Due 5/20/2011 +++ .............................................. 370 382 8.50%, Due 11/15/2018 +++ ............................................. 435 542 Vodafone Group plc, 6.15%, Due 2/27/2037 ................................. 360 384 5,307 ------------ UTILITIES - 3.53% Columbus Southern Power Co., 5.50%, Due 3/1/2013 ......................... 495 522 Dominion Resources, Inc., Series A, 5.60%, Due 11/15/2016 ....................................... 475 502 Series D, 8.875%, Due 1/15/2019 ....................................... 80 101 Duke Energy Carolinas LLC, 5.10%, Due 4/15/2018 .......................... 400 423 Duke Energy Indiana, Inc., 6.05%, Due 6/15/2016 .......................... 355 388 Exelon Generation Co. LLC, 6.25%, Due 10/1/2039 .......................... 265 277
See accompanying notes 39 AMERICAN BEACON INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) Kerr-McGee Corp., 6.95%, Due 7/1/2024 .................................... $ 325 $ 344 MidAmerican Energy Holdings Co., 5.875%, Due 10/1/2012 ................................................. 405 442 6.125%, Due 4/1/2036 .................................................. 375 400 Pacific Gas & Electric Co., 6.25%, Due 12/1/2013 ......................... 150 169 Public Service Enterprise Group, Inc., 6.95%, Due 6/1/2012 ............... 590 651 Sempra Energy, 6.50%, Due 6/1/2016 ....................................... 285 313 Southern Power Co., 6.25%, Due 7/15/2012 ................................. 450 494 Spectra Energy Capital LLC, 5.668%, Due 8/15/2014 ........................ 255 271 Union Electric Co., 6.70%, Due 2/1/2019 .................................. 370 415 Virginia Electric and Power Co., 5.40%, Due 4/30/2018 .................... 400 427 Westar Energy, Inc., 6.00%, Due 7/1/2014 ................................. 200 216 Wisconsin Electric Power Co., 6.25%, Due 12/1/2015 ....................... 470 543 Xcel Energy, Inc., 5.613%, Due 4/1/2017 .................................. 581 618 7,516 ------------ TOTAL CORPORATE OBLIGATIONS .............................................. 82,828 ------------ NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 6.26% Banc of America Commercial Mortgage, Inc., 2006-4 A4, 5.634%, Due 7/10/2046 ...................................... 1,180 1,165 2005-6 A1, 5.001%, Due 9/10/2047 ...................................... 153 155 2007-2 A2, 5.634%, Due 4/10/2049 ...................................... 850 858 Bear Stearns Commercial Mortgage Securities, Inc., 2006-T22 A2, 5.463%, Due 4/12/2038 .................................... 830 843 2006-PWR14 A4, 5.201%, Due 12/11/2038 ................................. 540 513 2006-PW13 A4, 5.54%, Due 9/11/2041 .................................... 710 718 2004-PWR5 A4, 4.831%, Due 7/11/2042 ................................... 835 818 2005-T20 A2, 5.127%, Due 10/12/2042 ................................... 430 436 Chase Mortgage Finance Corp., 2006-A1 A1, 6.024%, Due 9/25/2036 ss ....... 770 672 Citicorp Mortgage Securities, Inc., 2006-3 2A1, 5.50%, Due 6/25/2021 ..... 353 343 Citigroup Commercial Mortgage Trust, 2004-C2 A3, 4.38%, Due 10/15/2041 ... 770 770 Citigroup/Deutsche Bank Commercial Mortgage Trust, 2007-CD5 A4, 5.886%, Due 11/15/2044 ........................................................ 1,495 1,477 JP Morgan Chase Commercial Mortgage Securities Corp., 2004-CBX A4, 4.529%, Due 1/12/2037 .................................... 255 257 2005-LDP3 A1, 4.655%, Due 8/15/2042 ................................... 33 33 2005-LDP1 A2, 4.625%, Due 3/15/2046 ................................... 713 714 2006-LDP9 A3, 5.336%, Due 5/15/2047 ................................... 695 625 2007-CB19 A4, 5.746%, Due 2/12/2049 ................................... 550 502 2007-CB20 A2, 5.629%, Due 2/12/2051 ................................... 750 766 LB-UBS Commercial Mortgage Trust, 2007-C1 A4, 5.424%, Due 2/15/2040 ...... 550 465 Prime Mortgage Trust, 2005-2, 5.25%, Due 7/25/2020 ....................... 436 441 Wachovia Bank Commercial Mortgage Trust, 2007-C32 A2, 5.735%, Due 6/15/2049 ......................................................... 410 410 Wells Fargo Mortgage Backed Securities Trust, 2006-11 A8, 6.00%, Due 9/25/2036 ......................................................... 415 366 TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS ............................. 13,347 ------------
See accompanying notes 40 AMERICAN BEACON INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) ASSET-BACKED SECURITIES - 2.75% American Express Credit Account Master Trust, 2006-2 A, 5.35%, Due 1/15/2014 ......................................................... $ 1,550 $ 1,648 BMW Floorplan Master Owner Trust, 2009-1A A, 1.394%, Due 9/15/2014 +++ ss .................................................. 400 399 Capital One Multi-Asset Execution Trust, 2006-A10 A10, 5.15%, Due 6/15/2014 ......................................................... 1,150 1,222 Discover Card Master Trust, 2009-A2 A, 1.545%, Due 2/17/2015 ss .......... 600 603 Ford Credit Floorplan Master Owner Trust, 2009-2 A, 1.794%, Due 9/15/2014 ss ...................................................... 400 401 Honda Auto Receivables Owner Trust, 2009-3 A4, 3.30%, Due 9/15/2015 ...... 385 395 Hyundai Auto Receivables Trust, 2009-A A4, 3.15%, Due 3/15/2016 .......... 220 223 John Deere Owner Trust, 2009-A A3, 2.59%, Due 10/15/2013 ...................................... 395 402 2009-A A4, 3.96%, Due 5/16/2016 ....................................... 215 224 Volkswagen Auto Loan Enhanced Trust, 2008-2 A4A, 6.24%, Due 7/20/2015 .... 300 333 TOTAL ASSET-BACKED SECURITIES ............................................ 5,850 ------------ U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 25.80% FEDERAL HOME LOAN MORTGAGE CORPORATION - 8.16% 4.50%, Due 3/1/2019 ................................................... 419 444 5.00%, Due 10/1/2020 .................................................. 1,017 1,083 5.50%, Due 12/1/2022 .................................................. 129 138 5.00%, Due 4/1/2023 ................................................... 335 354 5.50%, Due 1/1/2024 ................................................... 597 636 5.00%, Due 8/1/2033 ................................................... 601 625 5.50%, Due 2/1/2034 ................................................... 769 813 6.00%, Due 8/1/2034 ................................................... 352 376 5.00%, Due 8/1/2035 ................................................... 403 419 5.00%, Due 9/1/2035 ................................................... 584 606 5.00%, Due 9/1/2035 ................................................... 1,006 1,045 6.00%, Due 8/1/2036 ................................................... 601 640 5.50%, Due 11/1/2036 .................................................. 534 564 5.50%, Due 4/1/2037 ................................................... 644 678 5.50%, Due 5/1/2037 ................................................... 374 394 6.00%, Due 9/1/2037 ................................................... 274 292 6.00%, Due 12/1/2037 .................................................. 321 343 5.00%, Due 3/1/2038 ................................................... 1,907 1,979 6.00%, Due 3/1/2038 ................................................... 2,992 3,183 5.00%, Due 3/1/2038 ................................................... 987 1,024 5.50%, Due 5/1/2038 ................................................... 930 980 5.50%, Due 6/1/2038 ................................................... 744 784 17,400 ------------ FEDERAL NATIONAL MORTGAGE ASSOCIATION - 16.93% 6.50%, Due 2/1/2017 ................................................... 167 181 5.00%, Due 12/1/2017 .................................................. 590 630 4.50%, Due 9/1/2018 ................................................... 1,106 1,172 4.00%, Due 8/1/2020 ................................................... 335 342 5.50%, Due 5/1/2023 .................................................. 53 56
See accompanying notes 41 AMERICAN BEACON INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) 5.00%, Due 12/1/2023 .................................................. $ 626 $ 660 5.00%, Due 3/1/2024 ................................................... 1,590 1,677 5.00%, Due 3/1/2034 ................................................... 761 792 5.50%, Due 6/1/2034 ................................................... 408 431 4.50%, Due 9/1/2034 ................................................... 259 264 5.50%, Due 2/1/2035 ................................................... 878 929 5.00%, Due 11/1/2035 .................................................. 1,333 1,386 5.50%, Due 12/1/2035 .................................................. 624 659 5.50%, Due 12/1/2035 .................................................. 335 354 5.50%, Due 1/1/2036 ................................................... 528 558 5.50%, Due 1/1/2036 ................................................... 823 870 5.50%, Due 2/1/2036 ................................................... 643 679 5.00%, Due 2/1/2036 ................................................... 675 702 5.00%, Due 3/1/2036 ................................................... 625 649 5.50%, Due 4/1/2036 ................................................... 1,534 1,620 6.00%, Due 9/1/2036 ................................................... 337 359 6.50%, Due 9/1/2036 ................................................... 1,315 1,416 5.50%, Due 11/1/2036 .................................................. 508 536 6.00%, Due 11/1/2036 .................................................. 614 654 6.50%, Due 12/1/2036 .................................................. 594 639 6.00%, Due 12/1/2036 .................................................. 580 618 5.50%, Due 2/1/2037 ................................................... 963 1,015 5.50%, Due 8/1/2037 ................................................... 2,137 2,259 6.00%, Due 8/1/2037 ................................................... 646 688 6.50%, Due 8/1/2037 ................................................... 905 973 6.00%, Due 9/1/2037 ................................................... 983 1,046 6.00%, Due 11/1/2037 .................................................. 1,130 1,203 6.00%, Due 1/1/2038 ................................................... 1,403 1,493 5.00%, Due 3/1/2038 ................................................... 154 160 5.00%, Due 4/1/2038 ................................................... 814 846 5.00%, Due 4/1/2038 ................................................... 1,132 1,176 5.00%, Due 5/1/2038 ................................................... 3,422 3,553 5.50%, Due 6/1/2038 ................................................... 738 778 5.00%, Due 6/1/2038 ................................................... 1,067 1,108 5.50%, Due 6/1/2038 ................................................... 921 971 36,102 ------------ GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.71% 4.201%, Due 8/16/2026 ................................................. 261 268 6.50%, Due 3/15/2028 .................................................. 316 342 6.00%, Due 4/15/2031 .................................................. 386 415 5.50%, Due 2/20/2034 .................................................. 452 480 1,505 ------------ TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS ............................ 55,007 ------------
See accompanying notes 42 AMERICAN BEACON INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) U.S. AGENCY OBLIGATIONS - 8.04% FEDERAL HOME LOAN BANK - 1.74% 3.625%, Due 10/18/2013 ................................................ $ 3,500 $ 3,701 ------------ FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.34% 6.25%, Due 7/15/2032 .................................................. 600 730 ------------ FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.04% 2.875%, Due 12/11/2013 ................................................ 2,000 2,046 5.125%, Due 1/2/2014 .................................................. 385 410 4.625%, Due 10/15/2014 ................................................ 500 547 5.375%, Due 6/12/2017 ................................................. 1,200 1,357 4,360 ------------ OTHER GOVERNMENT RELATED - 3.82% Citibank NA (FDIC Guaranteed), 1.625%, Due 3/30/2011 .................. 2,000 2,025 Morgan Stanley (FDIC Guaranteed), 2.25%, Due 3/13/2012 ................ 5,000 5,104 Bank of America Corp. (FDIC Guaranteed), 2.10%, Due 4/30/2012 ......... 1,000 1,016 8,145 ------------ TENNESSEE VALLEY AUTHORITY - 0.10% 5.25%, Due 9/15/2039 .................................................. 200 205 ------------ TOTAL U.S. AGENCY OBLIGATIONS ............................................ 17,141 ------------ U.S. TREASURY OBLIGATIONS - 11.66% 1.375%, Due 2/15/2012 ................................................. 1,850 1,862 1.375%, Due 3/15/2012 ................................................. 1,000 1,006 2.375%, Due 9/30/2014 ................................................. 6,270 6,295 4.125%, Due 5/15/2015 ................................................. 1,000 1,084 3.75%, Due 11/15/2018 ................................................. 2,000 2,062 3.625%, Due 8/15/2019 ................................................. 3,095 3,154 7.875%, Due 2/15/2021 ................................................. 1,050 1,457 6.25%, Due 8/15/2023 .................................................. 1,400 1,736 6.875%, Due 8/15/2025 ................................................. 770 1,021 5.25%, Due 11/15/2028 ................................................. 750 853 4.75%, Due 2/15/2037 .................................................. 1,300 1,410 4.25%, Due 5/15/2039 .................................................. 2,500 2,506 4.50%, Due 8/15/2039 .................................................. 400 418 TOTAL U.S. TREASURY OBLIGATIONS .......................................... 24,864 ------------
SHARES ---------- SHORT TERM INVESTMENTS - 5.81% JP Morgan U.S. Government Money Market Fund .............................. 12,391,640 12,392 ------------ TOTAL INVESTMENTS - 99.17% (COST $202,907) .................................. $ 211,429 OTHER ASSETS, NET OF LIABILITIES - 0.83% .................................... 1,767 TOTAL NET ASSETS - 100.00% .................................................. $ 213,196 ============
See accompanying notes 43 AMERICAN BEACON INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009 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 $6,068 or 2.85% of net assets. The Fund has no right to demand registration of these securities. # Step Up/Down ss The coupon rate shown on floating or adjustable rate securities represents the rate at period end. The due date on these types of securities reflects the final maturity date. See accompanying notes 44 AMERICAN BEACON SHORT-TERM BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) CORPORATE OBLIGATIONS - 48.05% BANKS - 8.77% Barclays Bank plc, 5.45%, Due 9/12/2012 .................................. $ 1,000 $ 1,083 Credit Suisse First Boston, 5.00%, Due 5/15/2013 ......................... 2,000 2,135 Goldman Sachs Group, Inc., 4.75%, Due 7/15/2013 .......................... 2,000 2,101 JP Morgan Chase & Co., 6.75%, Due 2/1/2011 ............................... 2,000 2,116 Morgan Stanley, 5.05%, Due 1/21/2011 ..................................... 2,000 2,073 Rabobank Nederland NV, 2.65%, Due 8/17/2012 +++ .......................... 2,000 2,024 Wachovia Corp., 2.253%, Due 5/1/2013 # ................................... 1,000 1,016 Wells Fargo & Co., 5.25%, Due 10/23/2012 ................................. 1,000 1,070 13,618 ------------ COMMUNICATIONS - 2.34% Comcast Cable Communications Holdings, Inc., 8.375%, Due 3/15/2013 ....... 1,365 1,587 Telefonica Emisiones SAU, 0.809%, Due 2/4/2013 # ......................... 1,000 980 Time Warner Cable, Inc., 5.40%, Due 7/2/2012 ............................. 1,000 1,068 3,635 ------------ CONSUMER DISCRETIONARY - 0.65% Anheuser-Busch InBev Worldwide, Inc., 3.00%, Due 10/15/2012 .............. 1,000 1,009 ------------ CONSUMER STAPLES - 1.72% Kellogg Co., 6.60%, Due 4/1/2011 ......................................... 1,000 1,075 Kraft Foods, Inc., 5.625%, Due 11/1/2011 ................................. 500 534 Roche Holdings, Inc., 4.50%, Due 3/1/2012 +++ ............................ 1,000 1,058 2,667 ------------ ENERGY - 2.82% Canadian Natural Resources Ltd., 6.70%, Due 7/15/2011 .................... 1,000 1,075 Devon Financing Corp. U.L.C., 6.875%, Due 9/30/2011 ...................... 1,000 1,091 Marathon Oil Canada Corp., 8.375%, Due 5/1/2012 .......................... 1,000 1,130 XTO Energy, Inc., 5.90%, Due 8/1/2012 .................................... 1,000 1,079 4,375 ------------ FINANCE - 7.55% Berkshire Hathaway Finance Corp., 4.00%, Due 4/15/2012 ................... 1,000 1,053 CME Group, Inc., 5.40%, Due 8/1/2013 ..................................... 250 271 Dexia Credit Local N.Y., 2.375%, Due 9/23/2011 +++ ....................... 2,000 2,050 General Electric Capital Corp., 5.875%, Due 2/15/2012 ................................................. 1,500 1,617 0.422%, Due 3/20/2014 # ............................................... 1,446 1,326 HSBC Finance Corp., 6.75%, Due 5/15/2011 ................................. 1,000 1,063 MBNA Corp., 7.50%, Due 3/15/2012 ......................................... 2,000 2,188 TIAA Global Markets, Inc., 5.125%, Due 10/10/2012 +++ .................... 2,000 2,146 11,714 ------------ HEALTH CARE - 0.67% UnitedHealth Group, Inc., 5.125%, Due 11/15/2010 ......................... 1,000 1,038 ------------
See accompanying notes 45 AMERICAN BEACON SHORT-TERM BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) INDUSTRIALS - 9.55% American Honda Finance Corp., 4.625%, Due 4/2/2013 +++ ................... $ 1,000 $ 1,024 Burlington Northern Santa Fe Corp., 6.75%, Due 7/15/2011 ................. 1,000 1,087 Caterpillar Financial Services Corp., 4.15%, Due 1/15/2010 .................................................. 2,000 2,013 4.25%, Due 2/8/2013 ................................................... 500 521 Daimler Finance NA LLC, 5.75%, Due 9/8/2011 .............................. 1,000 1,057 John Deere Capital Corp., 4.125%, Due 1/15/2010 ................................................. 2,325 2,344 5.25%, Due 10/1/2012 .................................................. 1,000 1,087 Lockheed Martin Corp., 8.20%, Due 12/1/2009 .............................. 1,000 1,005 Nissan Motor Acceptance Corp., 4.625%, Due 3/8/2010 +++ .................. 1,000 999 Norfolk Southern Corp., 8.625%, Due 5/15/2010 ............................ 1,000 1,042 Northrop Grumman Corp., 7.125%, Due 2/15/2011 ............................ 1,000 1,069 Raytheon Co., 4.85%, Due 1/15/2011 ....................................... 450 467 Union Pacific Corp., 6.50%, Due 4/15/2012 ................................ 1,000 1,102 14,817 ------------ INSURANCE - 5.89% ING Security Life Institutional Funding, 4.25%, Due 1/15/2010 +++ ........ 1,500 1,489 John Hancock Global Funding II, 7.90%, Due 7/2/2010 +++ .................. 2,000 2,080 MassMutual Global Funding II, 3.625%, Due 7/16/2012 +++ .................. 500 516 Metropolitan Life Global Funding I, 4.625%, Due 8/19/2010 +++ ............................................. 1,500 1,530 2.875%, Due 9/17/2012 +++ ............................................. 1,000 1,004 Monumental Global Funding II, 4.625%, Due 3/15/2010 +++ .................. 1,000 1,002 Pricoa Global Funding I, 4.20%, Due 1/15/2010 +++ .............................................. 1,000 1,000 5.40%, Due 10/18/2012 +++ ............................................. 500 525 9,146 ------------ REAL ESTATE - 0.67% Simon Property Group LP, 5.375%, Due 6/1/2011 ............................ 1,000 1,045 ------------ TECHNOLOGY - 1.57% Cisco Systems, Inc., 5.25%, Due 2/22/2011 ................................ 550 580 Dell, Inc., 3.375%, Due 6/15/2012 ........................................ 500 518 Hewlett-Packard Co., 2.25%, Due 5/27/2011 .................................................. 500 510 2.95%, Due 8/15/2012 .................................................. 500 513 Xerox Corp., 5.65%, Due 5/15/2013 ........................................ 300 315 2,436 ------------ TELEPHONE - 4.49% AT&T Wireless Services, Inc., 7.875%, Due 3/1/2011 ....................... 2,500 2,708 Deutsche Telekom AG, 8.50%, Due 6/15/2010 ................................ 1,000 1,045 France Telecom S.A., 7.75%, Due 3/1/2011 ................................. 1,000 1,081 Verizon Wireless Capital, LLC, 5.25%, Due 2/1/2012 +++ ................... 1,000 1,069
See accompanying notes 46 AMERICAN BEACON SHORT-TERM BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) Vodafone Group plc, 5.50%, Due 6/15/2011 ................................. $ 1,000 $ 1,059 6,962 ------------ UTILITIES - 1.36% Dominion Resources, Inc., 5.70%, Due 9/17/2012 ........................... 1,000 1,094 Midamerican Energy Holdings Co., 3.15%, Due 7/15/2012 .................... 1,000 1,020 2,114 ------------ TOTAL CORPORATE OBLIGATIONS .............................................. 74,576 ------------ NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 0.90% Banc of America Commercial Mortgage, Inc., 2005-6 A1, 5.001%, Due 9/10/2047 ...................................... 305 309 2007-2 A2, 5.634%, Due 4/10/2049 ...................................... 800 807 Wachovia Bank Commercial Mortgage Trust, 2006-C23 A1, 5.203%, Due 1/15/2045 ......................................................... 282 286 TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS ............................. 1,402 ------------ ASSET-BACKED SECURITIES - 18.31% Bank of America Auto Trust, 2009-1A A3, 2.67%, Due 7/15/2013 +++ .................................. 1,000 1,019 2009-2A A3, 2.13%, Due 9/15/2013 +++ .................................. 1,000 1,011 BMW Floorplan Master Owner Trust, 2009-1A A, 1.394%, Due 9/15/2014 +++ # ................................................... 2,000 1,994 Capital One Multi-Asset Execution Trust, 2009-A2 A2, 3.20%, Due 4/15/2014 ......................................................... 2,000 2,059 CarMax Auto Owner Trust, 2005-3 A4, 4.91%, Due 1/18/2011 ................. 298 299 Citibank Credit Card Issuance Trust, 2009-A3 A3, 2.70%, Due 6/24/2013 .... 2,000 2,046 CitiFinancial Auto Issuance Trust, 2009-1 A3, 2.59%, Due 10/15/2013 +++ .. 2,000 2,000 Discover Card Master Trust, 2009-A2 A, 1.545%, Due 2/17/2015 # ........... 2,000 2,010 Ford Credit Auto Owner Trust, 2009-D A3, 2.17%, Due 10/15/2013 ........... 1,000 1,012 Ford Credit Floorplan Master Owner Trust, 2009-2 A, 1.794%, Due 9/15/2014 # ....................................................... 2,000 2,004 GE Capital Credit Card Master Note Trust, 2009-2 A, 3.69%, Due 7/15/2015 ......................................................... 2,000 2,052 GE Equipment Midticket LLC, 2009-1 A3, 2.34%, Due 6/17/2013 .............. 1,000 1,002 Harley-Davidson Motorcycle Trust, 2007-3 A4, 5.52%, Due 11/15/2013 ....... 2,000 2,112 Honda Auto Receivables Owner Trust, 2009-3 A3, 2.31%, Due 5/15/2013 ...... 1,500 1,523 Nissan Auto Lease Trust, 2009-B A3, 2.07%, Due 1/15/2015 ................. 2,000 2,008 USAA Auto Owner Trust, 2007-1 A4, 5.55%, Due 2/15/2013 ................... 3,000 3,161 Volkswagen Auto Loan Enhanced Trust, 2008-2 A4A, 6.24%, Due 7/20/2015 .... 1,000 1,109 TOTAL ASSET-BACKED SECURITIES ............................................ 28,421 ------------ U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 1.20% GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.20% 4.968%, Due 12/16/2021 ................................................ 514 525 4.201%, Due 8/16/2026 ................................................. 1,307 1,341 TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS ............................ 1,866 ------------ U.S. AGENCY OBLIGATIONS - 26.18% FEDERAL HOME LOAN MORTGAGE CORPORATION - 7.84% 1.625%, Due 4/26/2011 ................................................. 5,000 5,064
See accompanying notes 47 AMERICAN BEACON SHORT-TERM BOND FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- ------------ (DOLLARS IN THOUSANDS) 2.125%, Due 3/23/2012 ................................................. $ 7,000 $ 7,101 12,165 ------------ FEDERAL NATIONAL MORTGAGE ASSOCIATION - 5.20% 1.375%, Due 4/28/2011 ................................................. 8,000 8,067 ------------ OTHER GOVERNMENT RELATED - 13.14% Citibank NA (FDIC Guaranteed), 1.625%, Due 3/30/2011 .................. 5,000 5,061 General Electric Capital Corp. (FDIC Guaranteed), 2.25%, Due 3/12/2012 ...................................................... 5,000 5,098 Bank of America Corp. (FDIC Guaranteed), 2.375%, Due 6/22/2012 ........ 10,000 10,231 TOTAL U.S. AGENCY OBLIGATIONS ............................................ 20,390 ------------ 40,622 ------------
SHARES ---------- SHORT TERM INVESTMENTS - 4.38% JP Morgan U.S. Government Money Market Fund .............................. 6,788,470 6,789 ------------ TOTAL INVESTMENTS - 99.02% (COST $150,583) .................................. $ 153,676 OTHER ASSETS, NET OF LIABILITIES - 0.98% .................................... 1,517 TOTAL NET ASSETS - 100.00% .................................................. $ 155,193 ============
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 $25,540 or 16.46% of net assets. The Fund has no right to demand registration of these securities. # The coupon rate shown on floating or adjustable rate securities represents the rate at period end. The due date on these types of securities reflects the final maturity date. See accompanying notes 48 AMERICAN BEACON FUNDS STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2009 (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
ENHANCED HIGH YIELD INCOME INTERMEDIATE SHORT-TERM BOND FUND FUND BOND FUND BOND FUND ----------- ---------- ------------ ------------ ASSETS: Investments in unaffiliated securities, at value (A) .... $ 228,862 $ 93,059 $ 211,429 $ 153,676 Receivable for investments sold ......................... 6,327 -- 494 -- Dividends and interest receivable ....................... 5,703 863 1,788 1,110 Receivable for fund shares sold ......................... 634 11 385 681 Receivable for tax reclaims ............................. 1 5 7 -- Receivable for expense reimbursement .................... -- -- 9 19 Prepaid expenses ........................................ 23 12 22 16 ----------- ---------- ----------- ----------- TOTAL ASSETS ......................................... 241,550 93,950 214,134 155,502 ----------- ---------- ----------- ----------- LIABILITIES: Payable for investments purchased ....................... 6,160 10 504 -- Payable for fund shares redeemed ........................ 4,116 45 353 212 Dividends payable ....................................... 176 -- -- 12 Management and investment advisory fees payable (Note 2) ............................................. 317 83 35 26 Administrative service and service fees payable ......... 52 51 9 20 Other liabilities ....................................... 80 34 37 39 ----------- ---------- ----------- ----------- TOTAL LIABILITIES .................................... 10,901 223 938 309 ----------- ---------- ----------- ----------- NET ASSETS ................................................. $ 230,649 $ 93,727 $ 213,196 $ 155,193 =========== ========== =========== =========== ANALYSIS OF NET ASSETS: Paid-in-capital ............................................ 247,100 92,917 204,807 160,667 Undistributed net investment income ........................ 503 (117) 501 (137) Accumulated net realized (loss) ............................ (27,764) (2,525) (634) (8,430) Unrealized appreciation of investments, futures contracts, and foreign currency .................................... 10,810 3,452 8,522 3,093 ----------- ---------- ----------- ----------- NET ASSETS ................................................. $ 230,649 $ 93,727 $ 213,196 $ 155,193 =========== ========== =========== =========== Shares outstanding (no par value): Institutional Class ..................................... 5,612,015 N/A 19,744,087 14,132,465 =========== ========== =========== =========== Investor Class .......................................... 10,771,460 9,142,658 207,169 3,439,981 =========== ========== =========== =========== AMR Class ............................................... 11,005,351 N/A N/A N/A =========== ========== =========== =========== Net asset value, offering and redemption price per share: Institutional Class ..................................... $ 8.42 N/A $ 10.69 $ 8.83 =========== ========== =========== =========== Investor Class .......................................... $ 8.42 $ 10.25 $ 10.68 $ 8.84 =========== ========== =========== =========== AMR Class ............................................... $ 8.42 N/A N/A N/A =========== ========== =========== =========== A Cost of investments in unaffiliated securities ........... $ 218,052 $ 89,607 $ 202,907 $ 150,583
49 AMERICAN BEACON FUNDS STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2009 (IN THOUSANDS)
ENHANCED HIGH YIELD INCOME INTERMEDIATE SHORT-TERM BOND FUND FUND BOND FUND BOND FUND ---------- -------- ------------ ---------- INVESTMENT INCOME: Dividend income from unaffiliated securities (net of foreign taxes) (A) ................................... $ 56 $ 306 $ 30 $ 17 Dividend income from affiliated securities .............. 9 5 11 2 Interest income ......................................... 21,157 3,930 9,115 6,023 Income derived from securities lending, net ............. -- 92 299 440 -------- -------- ------- -------- TOTAL INVESTMENT INCOME ........................... 21,222 4,333 9,455 6,482 -------- -------- ------- -------- EXPENSES: Management and investment advisory fees (Note 2) ........ 726 265 407 444 Administrative service fees (Note 2): Institutional Class .................................. 165 -- 102 101 Investor Class ....................................... 154 267 2 62 AMR Class ............................................ 42 -- -- -- Transfer agent fees: Institutional Class .................................. -- -- 14 17 Investor Class ....................................... 3 7 2 -- Custody and fund accounting fees ........................ 37 17 42 44 Professional fees ....................................... 32 26 34 34 Registration fees and expenses .......................... 39 16 20 34 Service fees (Note 2): Investor Class ....................................... 129 283 2 52 Prospectus and shareholder reports ...................... 40 5 8 14 Trustee fees ............................................ 22 8 24 29 Other expenses .......................................... 12 6 11 14 -------- -------- ------- -------- TOTAL EXPENSES .................................... 1,401 900 668 845 -------- -------- ------- -------- Net (fees waived and expenses reimbursed)/recouped by Manager (Note 2) ..................................... -- -- (11) (73) -------- -------- ------- -------- NET EXPENSES ...................................... 1,401 900 657 772 -------- -------- ------- -------- NET INVESTMENT INCOME ...................................... 19,821 3,433 8,798 5,710 -------- -------- ------- -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from: Investments .......................................... (11,143) (244) 1,112 5,301 Commission recapture (Note 1) ........................ -- 2 -- -- Change in net unrealized appreciation or depreciation of: Investments .......................................... 61,933 14,228 17,269 2,645 -------- -------- ------- -------- NET GAIN ON INVESTMENTS ........................... 50,790 13,986 18,381 7,946 -------- -------- ------- -------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... $ 70,611 $ 17,419 $27,179 $ 13,656 ======== ======== ======= ======== A Foreign taxes ............................................ $ -- $ 1 $ -- $ --
See accompanying notes 50 AMERICAN BEACON FUNDS STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
High Yield Bond Fund Enhanced Income Fund ------------------------- ------------------------ Year Ended Year Ended Year Ended Year Ended October 31, October 31, October October 31, 2009 2008 31, 2009 2008 ----------- ----------- ---------- ----------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income ................................... $ 19,821 $ 15,343 $ 3,433 $ 3,923 Net realized (loss) on investments, futures contracts, and foreign currency transactions .................... (11,143) (14,708) (242) (1,148) Change in net unrealized appreciation or depreciation of investments, futures contracts, and foreign currency translations ........................ 61,933 (48,374) 14,228 (14,259) --------- --------- -------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................................ 70,611 (47,739) 17,419 (11,484) --------- --------- -------- --------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Institutional Class .................................. (6,264) (7,731) -- -- Investor Class ....................................... (4,848) (1,837) (3,577) (5,038) AMR Class ............................................ (8,707) (5,774) -- -- Net realized gain on investments: Investor Class ....................................... -- -- -- (2,097) Return of Capital: Investor Class ....................................... -- -- (173) -- --------- --------- -------- --------- NET DISTRIBUTIONS TO SHAREHOLDERS ................. (19,819) (15,342) (3,750) (7,135) --------- --------- -------- --------- CAPITAL SHARE TRANSACTIONS: Proceeds from sales of shares ........................... 297,510 72,610 24,626 79,277 Reinvestment of dividends and distributions ............. 17,602 13,364 3,745 7,127 Cost of shares redeemed ................................. (255,402) (128,737) (48,782) (67,105) --------- --------- -------- --------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ............................. 59,710 (42,763) (20,411) 19,299 --------- --------- -------- --------- NET INCREASE (DECREASE) IN NET ASSETS ...................... 110,502 (105,844) (6,742) 680 --------- --------- -------- --------- NET ASSETS: Beginning of period ..................................... 120,147 225,991 100,469 99,789 --------- --------- -------- --------- END OF PERIOD * ......................................... $ 230,649 $ 120,147 $ 93,727 $ 100,469 ========= ========= ======== ========= * Includes undistributed net investment income (loss) of ... $ 503 $ 503 $ (117) $ (96) ========= ========= ======== =========
51 AMERICAN BEACON FUNDS STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Intermediate Bond Fund Short-Term Bond Fund ------------------------- ------------------------- Year Ended Year Ended Year Ended Year Ended October 31, October 31, October 31, October 31, 2009 2008 2009 2008 ----------- ----------- ----------- ----------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income ................................... $ 8,798 $ 7,050 $ 5,710 $ 5,355 Net realized gain (loss) on investments, futures contracts, and foreign currency transactions ......... 1,112 70 5,301 (4,833) Change in net unrealized appreciation or depreciation of investments, futures contracts, and foreign currency translations ......................................... 17,269 (8,956) 2,645 309 --------- -------- --------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................................ 27,179 (1,836) 13,656 831 --------- -------- --------- -------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Institutional Class .................................. (8,775) (7,053) (7,180) (6,084) Investor Class ....................................... (23) -- (653) (220) --------- -------- --------- -------- NET DISTRIBUTIONS TO SHAREHOLDERS ................. (8,798) (7,053) (7,833) (6,304) --------- -------- --------- -------- CAPITAL SHARE TRANSACTIONS: Proceeds from sales of shares ........................... 154,268 103,092 92,994 200,633 Reinvestment of dividends and distributions ............. 8,797 7,052 7,696 6,236 Cost of shares redeemed ................................. (115,884) (63,295) (214,778) (30,341) --------- -------- --------- -------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ............................. 47,181 46,849 (114,088) 176,528 --------- -------- --------- -------- NET INCREASE (DECREASE) IN NET ASSETS ...................... 65,562 37,960 (108,265) 171,055 --------- -------- --------- -------- NET ASSETS: Beginning of period ..................................... 147,634 109,674 263,458 92,403 --------- -------- --------- -------- END OF PERIOD * ......................................... $ 213,196 $147,634 $ 155,193 $263,458 ========= ======== ========= ======== * Includes undistributed net investment income (loss) of ... $ 501 $ 501 $ (137) $ (563) ========= ======== ========= ========
See accompanying notes 52 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES American Beacon Funds (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, (the "Act") as a diversified, open-end management investment company. These financial statements and notes to the financial statements relate to the American Beacon High Yield Bond Fund, the American Beacon Enhanced Income Fund, the American Beacon Intermediate Bond Fund and the American Beacon Short-Term Bond Fund (each a "Fund" and collectively, the "Funds"), each a series of the Trust. 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. Class Disclosure Prior to March 1, 2009, the Investor Class was known as the PlanAhead Class. March 2, 2009 is the inception date of the Investor Class of the Intermediate Bond Fund. Each Fund, except the Enhanced Income Fund, has multiple classes of shares designed to meet the needs of different groups of investors; however, not all Funds offer all classes. The following table sets forth the differences amongst the classes:
CLASS: OFFERED TO: - ----- ----------- INSTITUTIONAL CLASS Investors making an initial investment of $250,000 INVESTOR CLASS General public and investors investing through an intermediary AMR CLASS Investors in the tax-exempt retirement and benefit plans of AMR Corporation and its affiliates
Administrative service fees, service fees and distribution fees vary amongst the classes as described more fully in footnote 2. Investment income, net capital gains (losses) and all expenses incurred by the Funds are allocated based on the relative net assets of each class, except for service fees and certain other fees and expenses related solely to one class of shares. Security Valuation Investments are valued at the close of the New York Stock Exchange (the "Exchange"), normally 4 p.m. ET, each day that the Exchange is open for business. Equity securities for which market quotations are available are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) on the primary market or exchange on which they trade. Debt securities (other than short-term securities) normally are valued on the basis of prices provided by an independent pricing service and may take into account appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. The prices of debt securities may be determined using quotes obtained from brokers. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. Investment grade short-term obligations with 60 days or less to maturity are valued using the amortized cost method, which approximates market value. 53 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 Securities for which market prices are not readily available or are not reflective of the fair value of the security, as determined by the Manager, will be priced at fair value following procedures approved by the Board of Trustees (the "Board"). Valuation Inputs Various inputs may be used to determine the value of the Funds' investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. 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 other significant unobservable inputs. Unobservable inputs reflect the Fund'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 Funds' investments as of October 31, 2009 is as follows (in thousands):
HIGH YIELD BOND Level 1 Level 2 Level 3 Total - --------------- ------- -------- ------- -------- Preferred Stocks ........................ $ 11 $ 277 $-- $ 288 Corporate Obligations ................... -- 222,522 -- 222,522 Convertible Obligations ................. -- 1,180 -- 1,180 Non-Agency Mortgage Backed Obligations .. -- 230 -- 230 Asset-Backed Obligations ................ -- 704 -- 704 Short Term Investments .................. 3,938 -- -- 3,938 ------ -------- --- -------- Total Investments in Securities ...... $3,949 $224,913 $-- $228,862 ====== ======== === ========
ENHANCED INCOME FUND Level 1 Level 2 Level 3 Total - -------------------- ------- -------- ------- -------- Preferred Stocks ........................ $1,320 $ 150 $-- $ 1,470 Common Stock ............................ 2,791 -- -- 2,791 Convertible Preferred ................... 1,390 310 -- 1,700 Convertible Obligations ................. -- 11,422 -- 11,422 Corporate Obligations ................... -- 36,130 -- 36,130 Non-Agency Mortgage Backed Obligations .. -- 2,591 -- 2,591 Asset-Backed Obligations ................ -- 3,001 -- 3,001 U.S. Agency Mortgage Backed Obligations .......................... -- 16,857 -- 16,857 U.S. Agency Obligations ................. -- 5,570 -- 5,570 U.S. Treasury Obligations ............... -- 7,356 -- 7,356 Short Term Investments .................. 4,171 -- -- 4,171 ------ ------- --- ------- Total Investments in Securities ...... $9,672 $83,387 $-- $93,059 ====== ======= === =======
INTERMEDIATE BOND FUND Level 1 Level 2 Level 3 Total - ---------------------- ------- -------- ------- -------- Corporate Obligations ................... $ -- $ 82,828 $-- $ 82,828 Non-Agency Mortgage Backed Obligations .. -- 13,347 -- 13,347 Asset-Backed Obligations ................ -- 5,850 -- 5,850 U.S. Agency Mortgage Backed Obligations . -- 55,007 -- 55,007 U.S. Agency Obligations ................. -- 17,141 -- 17,141 U.S. Treasury Obligations ............... -- 24,864 -- 24,864 Short Term Investments .................. 12,392 -- -- 12,392 ------- -------- --- -------- Total Investments in Securities ...... $12,392 $199,037 $-- $211,429 ======= ======== === ========
54 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009
SHORT-TERM BOND FUND Level 1 Level 2 Level 3 Total - -------------------- ------- -------- ------- -------- Corporate Obligations ................... $ -- $ 74,576 $-- $ 74,576 Non-Agency Mortgage Backed Obligations .. -- 1,402 -- 1,402 Asset-Backed Obligations ................ -- 28,421 -- 28,421 U.S. Agency Mortgage Backed Obligations .......................... -- 1,866 -- 1,866 U.S. Agency Obligations ................. -- 40,622 -- 40,622 Short Term Investments .................. 6,789 -- -- 6,789 ------ -------- --- -------- Total Investments in Securities ...... $6,789 $146,887 $-- $153,676 ====== ======== === ========
Security Transactions and Investment Income Security transactions are recorded on the trade date of the security purchase or sale. The Funds may purchase securities with delivery or payment to occur at a later date. At the time the Funds enter into a commitment to purchase a security, the transaction is recorded, and the value of the security is reflected in the net asset value. The value of the security may vary with market fluctuations. Dividend income, net of foreign taxes, is recorded on the ex-dividend date except certain dividends from foreign securities which are recorded as soon as the information is available to the Funds. Interest income is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification. Dividends to Shareholders Dividends from net investment income of the Funds generally will be declared daily, payable monthly. Distributions, if any, of net realized capital gains are generally paid at least annually and recorded on the ex-dividend date. Commission Recapture The Funds have established brokerage commission recapture arrangements with certain brokers or dealers. If a Fund's investment advisor chooses to execute a transaction through a participating broker, the broker rebates a portion of the commission back to the Fund. Any collateral benefit received through participation in the commission recapture program is directed exclusively to the Fund. These amounts are reported with the net realized gains in the Fund's Statement of Operations. Allocation of Income, Expenses, Gains, and Losses Income, expenses (other than those attributable to a specific class), gains, and losses are allocated daily to each class of shares based upon the relative proportion of net assets represented by such class. Operating expenses directly attributable to a specific class are charged against the operations of that class. 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 trustees 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 55 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 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, fund management and securities lending services. Investment assets of the High Yield Bond, Enhanced Income, and Intermediate Bond Funds are managed by one or more investment advisors which have entered into separate investment advisory agreements with the Manager. As compensation for performing the duties required under the Management Agreement, the Manager receives from the High Yield Bond Fund, and Enhanced Income Fund an annualized fee equal to 0.05% of the average daily net assets plus amounts paid by the Manager to the investment advisors hired by the Manager to direct investment activities of the Funds. The Manager receives an annualized fee of 0.20% of the average daily net assets of the Intermediate Bond Fund and pays a portion of its fee to an investment advisor hired by the Manager to direct investment activities of a portion of the Fund. The Manager is one of the investment advisors of the Enhanced Income Fund and receives an annualized fee of 0.15% on the portion of assets managed by the Manager. The Manager serves as the sole investment advisor to the Short-Term Bond Fund, Pursuant to the Management Agreement, the Manager receives from the Fund an annualized fee equal to 0.20% of average daily net assets of the Short-Term Bond Fund. Management fees paid during the year ended October 31, 2009 were as follows (dollars in thousands):
AMOUNTS PAID NET AMOUNTS MANAGEMENT MANAGEMENT TO INVESTMENT RETAINED BY FEE RATE FEE ADVISORS MANAGER ---------- ---------- ------------- ----------- High Yield Bond..... 0.30%-0.45% 726 631 95 Enhanced Income..... 0.20%-0.80% 265 221 44 Intermediate Bond... 0.20% 407 173 234
As discussed in Footnote 5, prior to May 19, 2009, as compensation for services provided by the Manager in connection with securities lending activities, the lending Funds paid to the Manager, with respect to cash collateral posted by borrowers, a fee up to 25% of the net monthly interest income (the gross interest income earned by the investment of cash collateral, less the amount paid to borrowers and related expenses) from such activities and, with respect to loan fees paid by borrowers when a borrower posts collateral other than cash, a fee up to 25% of such loan fees. This fee is netted against securities lending income in the Statements of Operations. During the year ended October 31, 2009, securities lending fees paid to the Manager were as follows (in thousands): Enhanced Income..... 11 Intermediate Bond... 38 Short-Term Bond..... 55
Administrative Services Agreement The Manager and the Trust entered into an Administrative Services Agreement which 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 0.05% of the average daily net assets of the AMR Class and 0.30% of the average daily net assets of the Institutional and Investor Classes of each Fund except for the Institutional Class of the Intermediate and Short-Term Bond Funds from which the Manager received a fee of 0.05% of average daily net assets. 56 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 Distribution Plans The Trust, has adopted a "defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act, pursuant to which no fees may be charged to the Funds for distribution purposes. However, the Plan authorizes the management and administrative service fees received by the Manager and the investment advisors hired by the Manager to be used for distribution purposes. Under this Plan, the Trust does not intend to compensate the Manager or any other party, either directly or indirectly, for the distribution of Trust shares. Service Plans The Manager and the Trust entered into Service Plans that obligate the Manager to oversee additional shareholder servicing of the Investor Class. As compensation for performing the duties required under the Service Plan, the Manager receives up to 0.375% of the average daily net assets of the Investor Class of each Fund. Investment in Affiliated Funds The Funds may invest in the American Beacon Money Market Select Fund (the "MM Select Fund") and the American Beacon US Government Money Market Select Fund (the "USG Select Fund") (collectively, the "Select Fund"). Prior to May 19, 2009 cash collateral received by certain Funds in connection with securities lending could be invested in the Select Funds. The Funds and the Select Funds have the same investment advisor and therefore, are considered to be affiliated. The Manager serves as investment advisor to the Select Funds and receives from the Select Funds an annualized management fee of 0.09% of the average daily net assets of the Select Funds. During the year ended October 31, 2009, fees earned by the Manager from the Select Funds were as follows:
SECURITIES LENDING DIRECT INVESTMENT IN COLLATERAL INVESTED AFFILIATED FUNDS IN AFFILIATED FUNDS TOTAL -------------------- ------------------- ----- High Yield Bond..... 268 -- 268 Enhanced Income..... 343 1,095 1,438 Intermediate Bond... 825 4,507 5,332 Short-Term Bond..... 139 6,241 6,380
Interfund Lending Program Pursuant to an exemptive order by the Securities and Exchange Commission ("SEC"), the Funds, along with other registered investment companies having management contracts with the Manager, may participate in an interfund lending program as a borrower. This program provides an alternative credit facility allowing the Funds to borrow from other participating Funds. For the year ended October 31, 2009, the High Yield Bond Fund borrowed from the American Beacon Money Market Portfolio on average $19,712,907 for two days at 0.96% with interest charges of $1,037. Reimbursement of Expenses The Manager voluntarily agreed to reimburse the Intermediate and Short-Term Bond Funds for operating expenses. For the period ended October 31, 2009, the Manager reimbursed fees for the Intermediate Bond Fund Institutional and Investor Classes of $8,015 and $2,494, respectively. The Manager reimbursed fees for the Short-Term Bond Institutional and Investor Classes of $8,672 and $64,396, respectively. Expense Reimbursement Plan The Funds have adopted an Expense Reimbursement Plan whereby the Manager may seek repayment of fees waived or expenses reimbursed for a period of up to three years. However, reimbursement will occur only 57 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 if the Class' average net assets have grown or expenses have declined sufficiently to allow reimbursement without causing its expense ratio to exceed the previously agreed upon contractual expense limit. During the year ended October 31, 2009, the Funds have not recorded a liability for potential reimbursement, due to the current assessment that a reimbursement is unlikely. 3. FEDERAL INCOME AND EXCISE TAXES It is the policy of each of the Funds to comply with the requirements of Subchapter M of the Internal Revenue Code and to distribute substantially all net investment income as well as any net realized capital gains on the sale of investments. Therefore, no federal income or excise tax provision is required. The Funds do not have any unrecognized tax benefits in the accompanying financial statements. Each of the tax years in the four year period ended October 31, 2009 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 during the fiscal years ended October 31, 2009 and October 31, 2008 were as follows (in thousands)
HIGH YIELD BOND ENHANCED INCOME ------------------------- ------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2009 2008 2009 2008 ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID FROM: ORDINARY INCOME* Institutional Class ....... $ 6,264 $ 7,731 $ -- $ -- Investor Class ............ 4,848 1,837 3,577 5,674 AMR Class ................. 8,707 5,774 -- -- LONG-TERM CAPITAL GAIN Institutional Class ....... -- -- -- Investor Class ............ -- -- -- 1,461 AMR Class ................. -- -- -- -- RETURN OF CAPITAL Institutional Class ....... -- -- -- -- Investor Class ............ -- -- 173 -- AMR Class ................. -- -- -- -- ------- ------- ------ ------ TOTAL DISTRIBUTIONS PAID $19,819 $15,342 $3,750 $7,135 ======= ======= ====== ======
* For tax purposes, short-term capital gains are considered ordinary income distributions.
INTERMEDIATE BOND SHORT-TERM BOND ------------------------- ------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2009 2008 2009 2008 ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID FROM: ORDINARY INCOME* Institutional Class .......... $8,775 $7,053 $7,180 $6,084 Investor Class ............... 23 -- 653 220 AMR Class .................... -- -- -- -- LONG-TERM CAPITAL GAIN .......... -- -- -- -- Institutional Class .......... -- -- -- -- Investor Class ............... -- -- -- -- AMR Class .................... -- -- -- -- ------ ------ ------ ------ TOTAL DISTRIBUTIONS PAID .. $8,798 $7,053 $7,833 $6,304 ====== ====== ====== ======
* For tax purposes, short-term capital gains are considered ordinary income distributions. 58 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 As of October 31, 2009, the components of distributable earnings on a tax basis were as follows (in thousands):
HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM BOND INCOME BOND BOND ---------- -------- ------------ ---------- Cost basis of investments for federal income tax purposes $220,786 $89,726 $202,915 $151,255 Unrealized appreciation 18,973 5,136 9,160 2,667 Unrealized depreciation (10,897) (1,803) (646) (246) -------- ------- -------- -------- Net unrealized appreciation/(depreciation) 8,076 3,333 8,514 2,421 Undistributed ordinary income 326 -- 502 523 Undistributed long-term gain/(loss) (25,030) (2,523) (626) (8,430) -------- ------- -------- -------- Distributable earnings $(16,628) $ 810 $ 8,390 $ (5,486) ======== ======= ======== ========
Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. The temporary differences between financial reporting and tax-basis reporting of unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses from wash sales, book amortization for premiums, and income adjustments associated with contingent payment debt instruments. Due to inherent differences in the recognition of income, expenses and realized gains/losses under U.S. generally accepted accounting principles and federal income tax regulations, permanent differences between book and tax reporting have been identified and appropriately reclassified on the Statements of Assets and Liabilities. Accordingly, the following amounts represent current year permanent differences derived from reclassifications of income from real estate investment securities, foreign currency, book amortization of premium, pay down reclasses, income adjustments associated with contingent payment debt instruments, and dividend reclasses that have been reclassified as of October 31, 2009 (in thousands):
HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM BOND INCOME BOND BOND ---------- -------- ------------ ---------- Paid-in-capital......................................... $-- $ 70 $-- $ (1) Undistributed net investment income..................... (2) 123 -- 2,549 Accumulated net realized gain (loss).................... 1 (194) -- (2,548) Unrealized appreciation (depreciation) of investments, futures contracts and foreign currency............... 1 1 -- --
At October 31, 2009, capital loss carry forward positions for federal income tax purposes were as follows (in thousands):
FUND 2013 2014 2015 2016 2017 TOTAL - ---- ---- ----- ---- ------ ----- ------ High Yield Bond..... -- 1,722 -- 14,332 8,926 25,030 Enhanced Income..... -- -- -- 2,058 465 2,523 Intermediate Bond... -- 626 -- -- -- 626 Short-Term Bond..... 378 2,387 467 5,198 -- 8,430
The Intermediate Bond and Short-Term Bond Funds utilized $1,118 and $2,753, respectively, of net capital loss carryovers for the year ended October 31, 2009. 4. INVESTMENT TRANSACTIONS The aggregate cost of purchases and proceeds from sales and maturities of long-term investments during the year ended October 31, 2009 were as follows (in thousands): 59 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009
HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM BOND INCOME BOND BOND ---------- -------- ------------ ---------- Purchases (excluding U.S. government securities).............. $430,145 $46,039 $348,067 $296,642 Sales and maturities (excluding U.S. government securities)... 368,254 65,473 303,196 412,571 Purchases of U.S. government securities....................... -- 10,983 189,639 110,489 Sales and maturities of U.S. government securities............ -- 13,119 187,106 298,074
A summary of the Funds' direct transactions in Select Funds for the year ended October 31, 2009 is set forth below (in thousands):
OCTOBER 31, 2008 OCTOBER 31, 2009 AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE -------------- ------------------- --------- ------ ------------------- High Yield Bond..... MM Select Fund $5,762 $-- $5,762 $-- Enhanced Income..... MM Select Fund 3,057 -- 3,057 -- Intermediate Bond... MM Select Fund 7,368 -- 7,368 -- Short-Term Bond..... MM Select Fund 1,241 -- 1,241 --
5. SECURITIES LENDING On May 19, 2009 the Enhanced Income, Intermediate Bond, and Short-Term Bond Funds terminated their security lending program. Prior to that the Funds, the Agent, and the Manager retained 75%, 15%, and 10%, respectively, of the income generated from the securities lending, as stated on the Statements of Operations. 6. CAPITAL SHARE TRANSACTIONS The tables below summarize the activity in capital shares for each Class of the Funds (shares and dollars in thousands): YEAR ENDED OCTOBER 31, 2009
INSTITUTIONAL CLASS INVESTOR CLASS AMR CLASS ------------------- ----------------- ------------------- HIGH YIELD BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT - -------------------- -------- -------- ------ -------- ------- --------- Shares sold .......................... 4,158 $27,998 16,984 $119,477 20,142 $ 150,035 Reinvestment of dividends ............ 601 4,158 626 4,738 1,177 8,706 Shares redeemed ...................... (8,324) (58,240) (8,898) (65,269) (16,820) (131,893) ------ -------- ------ -------- ------- --------- Net increase (decrease) in shares outstanding ....................... (3,565) $(26,084) 8,712 $ 58,946 4,499 $ 26,848 ====== ======== ====== ======== ======= =========
INVESTOR CLASS ------------------- ENHANCED INCOME FUND SHARES AMOUNT - -------------------- -------- -------- Shares sold .......................... 2,591 $ 24,626 Reinvestment of dividends ............ 393 3,745 Shares redeemed ...................... (5,256) (48,782) ------ -------- Net (decrease) in shares outstanding.. (2,272) $(20,411) ====== ========
INSTITUTIONAL CLASS INVESTOR CLASS ------------------- ----------------- INTERMEDIATE BOND FUND SHARES AMOUNT SHARES AMOUNT - ---------------------- -------- --------- ------ -------- Shares sold .......................... 14,857 $ 152,046 213 $2,222 Reinvestment of dividends ............ 850 8,774 2 23 Shares redeemed ...................... (11,318) (115,800) (8) (84) ------- --------- --- ------ Net increase in shares outstanding ... 4,389 $ 45,020 207 $2,161 ======= ========= === ======
60 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009
INSTITUTIONAL CLASS INVESTOR CLASS ------------------- ----------------- SHORT-TERM BOND FUND SHARES AMOUNT SHARES AMOUNT - -------------------- -------- --------- ------ --------- Shares sold .......................... 4,547 $ 39,495 6,121 $ 53,499 Reinvestment of dividends ............ 827 7,178 59 518 Shares redeemed ...................... (21,058) (182,876) (3,640) (31,902) ------- --------- ------ -------- Net increase (decrease) in shares outstanding ....................... (15,684) $(136,203) 2,540 $ 22,115 ======= ========= ====== ========
PERIOD ENDED OCTOBER 31, 2008
INSTITUTIONAL CLASS INVESTOR CLASS AMR CLASS ------------------- ----------------- ------------------ HIGH YIELD BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT - -------------------- -------- -------- ------ -------- ------- -------- Shares sold .......................... 3,029 $ 28,128 2,332 $ 21,959 2,416 $ 22,523 Reinvestment of dividends ............ 645 5,835 193 1,751 639 5,778 Shares redeemed ...................... (5,867) (54,359) (3,309) (31,075) (4,693) (43,303) ------ -------- ------ -------- ------ -------- Net (decrease) in shares outstanding.. (2,193) $(20,396) (784) $ (7,365) (1,638) $(15,002) ====== ======== ====== ======== ====== ========
INVESTOR CLASS ------------------- ENHANCED INCOME FUND SHARES AMOUNT - -------------------- -------- -------- Shares sold .......................... 8,011 $ 79,277 Reinvestment of dividends ............ 714 7,127 Shares redeemed ...................... (6,812) (67,105) ------ -------- Net increase in shares outstanding ... 1,913 $ 19,299 ====== ========
INSTITUTIONAL CLASS ------------------- INTERMEDIATE BOND FUND SHARES AMOUNT - ---------------------- -------- -------- Shares sold .......................... 10,030 $103,092 Reinvestment of dividends ............ 695 7,052 Shares redeemed ...................... (6,232) (63,295) ------ -------- Net increase in shares outstanding ... 4,493 $ 46,849 ====== ========
INSTITUTIONAL CLASS INVESTOR CLASS ------------------- ----------------- SHORT-TERM BOND FUND SHARES AMOUNT SHARES AMOUNT - -------------------- -------- --------- ------ -------- Shares sold .......................... 22,147 $ 193,487 816 $ 7,146 Reinvestment of dividends ............ 696 6,082 17 154 Shares redeemed ...................... (3,197) (27,969) (271) (2,372) ------ --------- ---- ------- Net increase in shares outstanding ... 19,646 $ 171,600 562 $ 4,928 ====== ========= ==== =======
7. SUBSEQUENT EVENTS In preparing the financial statements as of October 31, 2009, management considered the impact of subsequent events occurring through December 23, 2009, for potential recognition or disclosure in these financial statements. 61 AMERICAN BEACON HIGH YIELD BOND FUND FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class -------------------------------------------------- Year Ended October 31, -------------------------------------------------- 2009 2008(A) 2007 2006(B) 2005 ------- ------- -------- -------- -------- Net asset value, beginning of period ....................... $ 6.77 $ 10.11 $ 10.20 $ 10.22 $ 10.86 ------- ------- -------- -------- -------- Income from investment operations: Net investment income ................................... 0.79 0.78 0.77 0 .88 0.76 Net gains (losses) on securities (both realized and unrealized) .......................................... 1.66 (3.34) (0.09) 0.09 (0.84) ------- ------- -------- -------- -------- Total income (loss) from investment operations ............. 2.45 (2.56) 0.68 0.97 (0.08) ------- ------- -------- -------- -------- Less distributions: Dividends from net investment income .................... (0.80) (0.78) (0.77) (0.88) (0.76) Distributions from net realized gains on securities ..... -- -- -- (0.11) 0.20 ------- ------- -------- -------- -------- Total distributions ........................................ (0.80) (0.78) (0.77) (0.99) (0.56) ------- ------- -------- -------- -------- Net asset value, end of period ............................. $ 8.42 $ 6.77 $ 10.11 $ 10.20 $ 10.22 ======= ======= ======== ======== ======== Total return ............................................... 39.06% (27.03)% 6.85% 8.78% 3.03% ======= ======= ======== ======== ======== Ratios and supplemental data: Net assets, end of period (in thousands) ................ $47,254 $62,138 $114,911 $231,693 $216,744 Ratios to average net assets (annualized): Expenses, net of waivers ................................ 0.79% 0.85% 0.85% 0.85% 0.84% Expenses, before waivers ................................ 0.79% 0.85% 0.86% 0.85% 0.84% Net investment income, net of waivers ................... 11.46% 8.38% 7.55% 7.55% 7.24% Net investment income, before waivers ................... 11.46% 8.38% 7.54% 7.55% 7.24% Portfolio turnover rate ................................. 212% 157% 92% 88% 128%
Investor Class ------------------------------------------------- Year Ended October 31, ------------------------------------------------- 2009 2008(A) 2007 2006(B) 2005 ------- -------- ------- ------- -------- Net asset value, beginning of period ....................... $ 6.77 $ 10.11 $ 10.21 $ 10.22 $ 10.87 ------- ------- ------- ------- -------- Income from investment operations: Net investment income ................................... 0.78 0.75 0.75 0.85 0.74 Net gains (losses) on securities (both realized and unrealized) .......................................... 1.65 (3.34) (0.10) 0.10 (0.85) ------- ------- ------- ------- -------- Total income (loss) from investment operations ............. 2.43 (2.59) 0.65 0.95 (0.11) ------- ------- ------- ------- -------- Less distributions: Dividends from net investment income .................... (0.78) (0.75) (0.75) (0.85) (0.74) Distributions from net realized gains on securities ..... -- -- -- (0.11) 0.20 ------- ------- ------- ------- -------- Total distributions ........................................ (0.78) (0.75) (0.75) (0.96) (0.54) ------- ------- ------- ------- -------- Net asset value, end of period ............................. $ 8.42 $ 6.77 $ 10.11 $ 10.21 $ 10.22 ======= ======= ======= ======= ======== Total return ............................................... 38.70% (27.24)% 6.52% 8.63% 2.69% ======= ======= ======= ======= ======== Ratios and supplemental data: Net assets, end of period (in thousands) ................ $90,736 $13,949 $28,758 $80,284 $120,360 Ratios to average net assets (annualized): Expenses, net of waivers ................................ 1.01% 1.10% 1.08% 1.08% 1.08% Expenses, before waivers ................................ 1.01% 1.10% 1.08% 1.08% 1.08% Net investment income, net of waivers ................... 9.36% 8.06% 7.32% 7.33% 7.00% Net investment income, before waivers ................... 9.36% 8.06% 7.32% 7.33% 7.00% Portfolio turnover rate ................................. 212% 157% 92% 88% 128%
AMR Class ----------------------------- Year Ended September October 31, 4 to ----------------- October 2009 2008(A) 31, 2007 ------- ------- --------- Net asset value, beginning of period ....................... $ 6.77 $ 10.11 $ 9.94 ------- ------- ------- Income from investment operations: Net investment income ................................... 0.81 0.80 0.12 Net gains (losses) on securities (both realized and unrealized) .......................................... 1.65 (3.34) 0.17 ------- ------- ------- Total income (loss) from investment operations ............. 2.46 (2.54) 0.29 ------- ------- ------- Less distributions: Dividends from net investment income .................... (0.81) (0.80) (0.12) Distributions from net realized gains on securities ..... -- -- -- ------- ------- ------- Total distributions ........................................ (0.81) (0.80) (0.12) ------- ------- ------- Net asset value, end of period ............................. $ 8.42 $ 6.77 $ 10.11 ======= ======= ======= Total return ............................................... 39.41% (26.84)% 2.94%(C) ======= ======= ======= Ratios and supplemental data: Net assets, end of period (in thousands) ................ $92,659 $44,060 $82,322 Ratios to average net assets (annualized): Expenses, net of waivers ................................ 0.53% 0.58% 0.61%(D) Expenses, before waivers ................................ 0.53% 0.58% 0.61%(D) Net investment income, net of waivers ................... 10.34% 8.64% 7.54%(D) Net investment income, before waivers ................... 10.34% 8.64% 7.54%(D) Portfolio turnover rate ................................. 212% 157% 92%(E)
(A) On May 21, 2008, Post Advisory Group, LLC ceased managing a portion of the High Yield Bond Fund and on May 22, 2008 Logan Circle Partners, L.P. began managing a portion of the High Yield Bond Fund. (B) Franklin Advisers, Inc. was added as an investment advisor to the High Yield Bond Fund on September 12, 2006. (C) Not annualized. (D) Annualized. (E) Portfolio turnover rate is for the period from November 1, 2006 through October 31, 2007. 62 AMERICAN BEACON ENHANCED INCOME FUND FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Investor Class --------------------------------------------------- Year Ended October 31, --------------------------------------------------- 2009 2008 2007 2006 2005 ------- -------- ------- -------- -------- Net asset value, beginning of period ....................... $ 8.80 $ 10.50 $ 10.25 $ 9.98 $ 10.16 ------- -------- ------- -------- -------- Income from investment operations: Net investment income ................................... 0.32 0.41 0.36 0.33 0.29 Net gains (losses) on securities (both realized and unrealized) .......................................... 1.53 (1.39) 0.32 0.29 (0.16) ------- -------- ------- -------- -------- Total income (loss) from investment operations ............. 1.85 (0.98) 0.68 0.62 0.13 ------- -------- ------- -------- -------- Less distributions: Dividends from net investment income .................... (0.40) (0.49) (0.42) (0.35) (0.31) Distributions from net realized gains on securities ..... -- (0.23) (0.01) -- -- Return of capital ....................................... 0.00(A) -- -- -- -- ------- -------- ------- -------- -------- Total distributions ........................................ (0.40) (0.72) (0.43) (0.35) (0.31) ------- -------- ------- -------- -------- Net asset value, end of period ............................. $ 10.25 $ 8.80 $ 10.50 $ 10.25 $ 9.98 ======= ======== ======= ======== ======== Total return ............................................... 21.50% (10.02)% 6.75% 6.36% 1.32% ======= ======== ======= ======== ======== Ratios and supplemental data: Net assets, end of period (in thousands) ................ $93,727 $100,469 $99,789 $125,915 $112,341 Ratios to average net assets (annualized): Expenses ................................................ 1.01% 0.92% 0.94% 0.93% 0.92% Net investment income ................................... 3.86% 3.64% 3.69% 3.21% 2.79% Portfolio turnover rate ................................. 53% 76% 103% 65% 41%
(A) The tax return of capital is calculated based upon outstanding shares at the time of distribution. Amounts are less than $0.01 per share.. 63 AMERICAN BEACON INTERMEDIATE BOND FUND FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class (formerly AMR Class prior Investor to 3/1/05) Class --------------------------------------------------- ----------- Year Ended October 31, March 2 to --------------------------------------------------- October 31, 2009 2008 2007 2006 2005(A) 2009 -------- -------- -------- ------- -------- ----------- Net asset value, beginning of period ....................... $ 9.61 $ 10.10 $ 10.02 $ 10.01 $ 10.33 $ 10.14 -------- -------- -------- ------- -------- ------- Income from investment operations: Net investment income ................................... 0.46 0.50 0.50 0.46 0.42 0.27 Net gains (losses) on securities (both realized and unrealized) .......................................... 1.07 (0.51) 0.07 0.02 (0.29) 0.54 -------- -------- -------- ------- -------- ------- Total income (loss) from investment operations ............. 1.53 (0.01) 0.57 0.48 0.13 0.81 -------- -------- -------- ------- -------- ------- Less distributions: Dividends from net investment income .................... (0.45) (0.48) (0.49) (0.47) (0.45) (0.27) Distributions from net realized gains on securities ..... -- -- -- -- -- -- -------- -------- -------- ------- -------- ------- Total distributions ........................................ (0.45) (0.48) (0.49) (0.47) (0.45) (0.27) -------- -------- -------- ------- -------- ------- Net asset value, end of period ............................. $ 10.69 $ 9.61 $ 10.10 $ 10.02 $ 10.01 $ 10.68 ======== ======== ======== ======= ======== ======= Total return ............................................... 16.17% (0.26)% 5.83% 4.96% 1.26% 8.05%(B) ======== ======== ======== ======= ======== ======= Ratios and supplemental data: Net assets, end of period (in thousands) ................ $210,983 $147,634 $109,674 $97,319 $ 93,270 $ 2,213 Ratios to average net assets (annualized): Expenses, net of waivers ................................ 0.32% 0.30% 0.34% 0.35% 0.31% 0.81%(C) Expenses, before waivers ................................ 0.32% 0.30% 0.34% 0.35% 0.31% 1.22%(C) Net investment income, net of waivers ................... 4.32% 4.70% 4.86% 4.64% 4.12% 3.74%(C) Net investment income, before waivers ................... 4.31% 4.70% 4.86% 4.64% 4.12% 3.33%(C) Portfolio turnover rate ................................. 157% 105% 85% 122% 119% 157%(D)
(A) On March 1, 2005, the existing Institutional Class shares were terminated and exchanged for AMR Class shares at a conversion rate of 1.0202. Following this exchange, the former AMR Class Shares were re-named Institutional Class. (B) Not annualized. (C) Annualized. (D) Portfolio turnover rate is for the period from November 1, 2008 through October 31, 2009. 64 AMERICAN BEACON SHORT-TERM BOND FUND FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class Investor Class Year Ended October 31 Year Ended October 31, ------------------------------------------------- ------------------------------------------- 2009 2008 2007 2006 2005(A) 2009 2008 2007 2006 2005 ---------- ---------- --------- --------- ------- --------- -------- -------- -------- ------ Net asset value, beginning of period ....... $ 8.58 $ 8.79 $ 8.74 $ 8.75 $ 9.07 $ 8.59 $ 8.81 $ 8.76 $ 8.77 $ 9.09 -------- -------- ------- ------- ------- ------- ------ ------ ------ ------ Income from investment operations: Net investment income (loss) ................. 0.22(B) 0.35(B) 0.39(B) 0.32(B) 0.29 0.20(B) 0.29(B) 0.35(B) 0.27(B) 0.28 Net gains (losses) on securities (both realized and unrealized) ......... 0.33 (0.15) 0.09 0.07 (0.20) 0.34 (0.15) 0.09 0.07 (0.24) -------- -------- ------- ------- ------- ------- ------ ------ ------ ------ Total income from investment operations ................ 0.55 0.20 0.48 0.39 0.09 0.54 0.14 0.44 0.34 0.04 -------- -------- ------- ------- ------- ------- ------ ------ ------ ------ Less distributions: Dividends from net investment income ..... (0.30) (0.41) (0.43) (0.40) (0.41) (0.29) (0.36) (0.39) (0.35) (0.36) Distributions from net realized gains on securities -- -- -- -- -- -- -- -- -- -- -------- -------- ------- ------- ------- ------- ------ ------ ------ ------ Total distributions .......... (0.30) (0.41) (0.43) (0.40) (0.41) (0.29) (0.36) (0.39) (0.35) (0.36) -------- -------- ------- ------- ------- ------- ------ ------ ------ ------ Net asset value, end of period .................... $ 8.83 $ 8.58 $ 8.79 $ 8.74 $ 8.75 $ 8.84 $ 8.59 $ 8.81 $ 8.76 $ 8.77 ======== ======== ======= ======= ======= ======= ====== ====== ====== ====== Total return ................. 6.56% 2.21% 5.61% 4.56% 1.00% 6.34% 1.54% 5.08% 4.01% 0.46% ======== ======== ======= ======= ======= ======= ====== ====== ====== ====== Ratios and supplemental data: Net assets, end of period (in thousands) .. $124,791 $255,725 $89,427 $73,417 $79,683 $30,402 $7,733 $2,976 $7,189 $8,582 Ratios to average net assets (annualized): Expenses, net of waivers ................ 0.33% 0.31% 0.37% 0.35% 0.33% 0.54% 0.85% 0.87% 0.88% 0.87% Expenses, before waivers ................ 0.33% 0.31% 0.37% 0.35% 0.33% 0.85% 0.88% 0.98% 0.90% 0.94% Net investment income, net of waivers ......... 2.62% 3.75% 4.48% 3.64% 3.15% 2.20% 3.19% 3.91% 3.10% 2.59% Net investment income, before waivers ......... 2.61% 3.75% 4.48% 3.64% 3.15% 1.89% 3.16% 3.81% 3.08% 2.52% Portfolio turnover rate ... 140% 21% 40% 48% 38% 140% 21% 40% 48% 38%
(A) On March 1, 2005, the existing Institutional Class shares were terminated and exchanged for AMR Class shares at a conversion rate of 1.0014. Following this exchange, the former AMR Class Shares were re-named Institutional Class. (B) For purposes of this calculation, the change in undistributed net investment income per share was derived by dividing the change in undistributed net investment income by average shares outstanding for the period. 65 AMERICAN BEACON FUNDS PRIVACY POLICY (UNAUDITED) The American Beacon Funds recognizes and respects the privacy of our shareholders. We are providing this notice to you so you will understand how shareholder information may be collected and used. We may collect nonpublic personal information about you from one or more of the following sources: - information we receive from you on applications or other forms; - information about your transactions with us or our service providers; and - information we receive from third parties. We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. We restrict access to your nonpublic personal information to those employees or service providers who need to know that information to provide products or services to you. To ensure the confidentiality of your nonpublic personal information, we maintain safeguards that comply with federal standards. FEDERAL TAX INFORMATION (UNAUDITED) For corporate shareholders in the Funds, the percentage of ordinary dividend income distributed for the year ended October 31, 2009, which is designated as qualifying for the dividends-received deduction, is as follows: Enhanced Income Fund 2.60%
For shareholders in the Funds, the percentage of dividend income distributed for the year ended October 31, 2009, which is designated as qualified dividends income under the Jobs and Growth Tax Relief Act of 2003, is as follows: Enhanced Income Fund 3.28%
Shareholders will receive notification in January 2010 of the percentage applicable to the preparation of their 2009 income tax returns. 66 This page intentionally left blank. 67 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUNDS (UNAUDITED) At its May 27, 2009 meeting, the Board of Trustees ("Board") considered the renewal of each existing Management Agreement between American Beacon Advisors, Inc. (the "Manager") and the American Beacon Funds ("Beacon Trust") (the "Funds") and each Investment Advisory Agreement between the Manager and a subadvisor ("Investment Advisory Agreements" and collectively with the Management Agreement, the "Agreements"). 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 and each subadvisor. 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 and each Investment Advisory Agreement, the Trustees considered, among other materials, responses by the Manager and the subadvisors 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 1 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 subadvisors to 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; - 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; 68 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS - 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 subadvisor and each Fund versus the respective peer group average; - a discussion, if applicable, of any underperformance by a subadvisor relative to its peer group and what, if any, remedial measures the Manager has or intends to take; - a comparison of advisory fees and expense ratios for comparable mutual funds; - an analysis of any material complaints received from Fund shareholders; - a description of the Manager's securities lending practices and the fees received from such practices; - a 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 each subadvisor to a Fund; and - a description of how expenses that are not readily identifiable to a particular Fund are allocated. In connection with the Management Agreement and each Investment Advisory Agreement, the Board also obtained an analysis provided by Lipper that compared: (i) investment performance of each Fund versus comparable investment companies and appropriate indices; (ii) total Fund expenses of each Fund versus comparable mutual funds; and (iii) each Fund's investment advisory fees versus comparable mutual funds. For each Fund with more than one class of shares, the class of shares used for comparative purposes was the class with the longest performance history, which in most cases was the Institutional Class. References below to each Fund's Lipper peer group are to the group of comparable mutual funds included in the analysis provided by Lipper. 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 each subadvisor and the primary factors considered by the Board at its May 27, 2009 meeting at which the Board considered the renewal of the Agreements. The Board did not identify any particular information that was most relevant to its consideration to renew the Management Agreement and each Investment Advisory Agreement, 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 Agreement and each Investment Advisory Agreement, the Trustees considered the best interests of each Fund separately. While the Management Agreement and the Investment Advisory Agreements for all of the Funds were considered at the May 27, 2009 meeting, the Board considered each Fund's investment management and subadvisory relationships separately. In each instance, the Board considered, among other things, the following factors: (1) the nature and quality of the services 69 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS provided; (2) the investment performance of a Fund and, as applicable, each subadvisor for a Fund; (3) the costs incurred by the Manager and (to the extent provided) the subadvisors in rendering their services and their 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 or a subadvisor or their affiliates 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 or a subadvisor from their 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 Agreement, the Board considered: the background and experience of key investment personnel and the Manager's ability to retain them; the Manager's disciplined investment approach and goal to provide consistent above average long-term performance at a low cost; the Manager's continuing 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 investment subadvisors and master portfolios. With respect to the renewal of each Investment Advisory Agreement, the Trustees considered the background and experience of each subadvisor's investment personnel responsible for managing the Funds, the size of the subadvisor and their ability to continue to attract and retain qualified investment personnel. Based on the foregoing information, the Board concluded that the nature, extent and quality of the management and advisory services provided by the Manager and each subadvisor were appropriate for each Fund and, thus, determined to renew the Management Agreement and the Investment Advisory Agreement for each Fund. Investment Performance. The Board evaluated the comparative information provided by Lipper and the Manager regarding each Fund's investment performance relative to its benchmark index(es) and peer group. The Board considered the information provided by Lipper regarding its independent peer selection methodology to select all peer groups and universes. The Board also considered the performance reports and discussions with management at Board and Committee meetings throughout the year. The Manager also noted that it generally was satisfied with the performance of the subadvisors. A discussion regarding the Board's considerations with respect to each Fund's performance appears below under "Additional Considerations and Conclusions with Respect to Each Fund." Costs of the Services 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 and a subadvisor 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 Beacon Trust, stipulates 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. The index series of the Funds also operate under a master-feeder structure, but each of these series invests in a master portfolio that is not managed by the Manager. As such, the Board considered that the Manager does not receive a management fee with respect to the International Equity Index, S&P 500 Index, or Small Cap Index Funds. With respect to the Short-Term Bond Fund, 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 further considered that each subadvised Fund pays the Manager the amounts due to its subadvisors, and the Manager remits these amounts directly to the applicable subadvisors. 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. In addition, the Board considered that the Manager receives management fees for overseeing the securities lending relationships on behalf of various Funds. The Board also noted that certain classes of the Funds maintain higher expense ratios in order to compensate third-party distributors. In analyzing the cost of services and profitability for each subadvisor in connection with its investment advisory services to the Fund, the Board considered that, in many cases, the Manager has negotiated the lowest subadvisory fee a subadvisor charges for any comparable client accounts. The Board gave less weight to profitability considerations or did not view this data as imperative to its deliberations given the arm's length nature of the relationship between the Manager and the subadvisors with respect to the negotiation of subadvisory fees. Based on the foregoing information, the Board concluded that the profitability levels were reasonable in light of the services performed by the Manager and the subadvisors. 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 and investment advisory 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. In this regard, the Board considered that the Manager has negotiated breakpoints in many subadvisory fee rates. The Board also noted that, for purposes of determining the fee rates chargeable to the Funds, many subadvisors have agreed to take into account other assets of AMR Corporation and its pension plans that are managed by the subadvisors. Thus, the Funds are able to receive lower effective fee rates. 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 70 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS throughout the industry. Based on the foregoing information, the Board concluded that the Manager and subadvisor fee schedules for each Fund provides for a reasonable sharing of benefits from any economies of scale with the Fund. Benefits Derived from the Relationship with the Funds. The Board considered the "fall-out" or ancillary benefits that accrue to the Manager and/or the subadvisors as a result of the advisory relationships with the Funds, including greater exposure in the marketplace with respect to the Manager's or subadvisor's investment process and expanding the level of assets under management by the Manager and the subadvisors. The Board also considered that the Manager's relationship with the Funds 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. The Board considered that certain of the subadvisors reimburse the Manager for certain of its costs relating to distribution activities for the Funds. The Board also considered that Funds did not pay commissions to any affiliated broker-dealer of the Manager or the relevant subadvisor during the most recent fiscal year ended October 31. Based on the foregoing information, the Board concluded that the potential benefits accruing to the Manager and the subadvisors by virtue of their relationships with the Funds appear to be fair and reasonable. Additional Considerations and Conclusions with Respect to Each Fund Except for the Short-Term Bond Fund, the performance comparisons below were made versus each Fund's Lipper peer universe median. 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. Additional Considerations and Conclusions with Respect to the Enhanced Income Fund In considering the renewal of the Management Agreement for the Enhanced Income Fund, the Trustees considered the following additional factors: (1) the Enhanced Income Fund's unique investment strategy as compared to other funds in its peer universe and the impact of such strategy on peer performance and expense ratio comparisons; (2) the Fund underperformed the peer universe median for the one-, and three-year periods, but outperformed for the five-year period ended March 31, 2009; (3) management's analysis regarding the rationale for the underperformance of the Enhanced Income Fund; (4) the Manager outperformed the peer universe median with respect to its allocated portion of the Fund's assets for the one-, three, and five-year periods; and (5) the expense ratio of the Fund ranked worse than the median of its Lipper expense universe. In considering the renewal of the Investment Advisory Agreement with Calamos Advisors LLC ("Calamos"), the Trustees considered the following additional factors: (1) Calamos underperformed the peer universe median for the one-, three- and five- year periods, but outperformed the Merrill Lynch All U.S. Convertibles Index for the one-, three-, and five-year periods ended March 31, 2009; (2) management's analysis regarding the rationale for Calamos' underperformance; (3) that management will continue to monitor, and the Board or its Investment Committee will periodically review, Calamos' investment performance with respect to its allocated portion of the Enhanced Income Fund's asset; (4) Calamos' representation that it does not manage other accounts comparable to the Fund; and (5) the Manager's recommendation to continue to retain Calamos. Based on these and other considerations the Trustees (1) concluded that the fees paid to the Manager and Calamos under the Agreements are fair and reasonable, (2) determined that the Enhanced Income Fund and its shareholders would benefit from the Manager's and Calamos' continued management of the Fund and (3) approved the renewal of the Management and Investment Advisory Agreements with respect to the Enhanced Income Fund. Additional Considerations and Conclusions with Respect to the High Yield Bond Fund In considering the renewal of the Management Agreement for the High Yield Bond Fund, the Trustees considered the following additional factors: (1) the High Yield Bond Fund underperformed the peer universe median for the one-, three- and five-year periods ended March 31, 2009; (2) management's analysis regarding the rationale for the underperformance of the High Yield Bond Fund; (3) the relatively short tenure of the two subadvisors (Franklin Advisors, Inc. ("Franklin") was hired in mid-September 2006 and Logan Circle Partners, L.P. ("Logan Circle") was hired mid-May 2008); and (4) the expense ratio of the Institutional Class of Fund shares ranked worse than the median of its Lipper expense universe. In this regard, the Board noted that management expects the High Yield Bond Fund's expense ratio to decline because the newly approved investment advisor, Logan Circle, charges a lower fee rate. In considering the renewal of the Investment Advisory Agreement with Franklin Advisors, Inc. ("Franklin") and Logan Circle, the Trustees considered the following additional factors: (1) Franklin outperformed the peer universe median for the one- and two-year periods ended March 31, 2009; (2) Logan Circle was added as a subadvisor in May 2008 and therefore does not have performance of greater than one year, however it outperformed the peer universe median for the one-quarter period ended March 31, 2009; (3) each of the Fund's subadvisors has informed the Manager that it does not use Fund commissions to obtain proprietary or third-party soft dollars research; (4) each of the Fund's subadvisors has indicated that it does not charge lower advisory fees to other clients for which it provides comparable services; and (5) the Manager's recommendation to continue to retain each subadvisor. Based on these and other considerations the Trustees (1) concluded that the fees paid to the Manager and the subadvisors under the Agreements are fair and reasonable, (2) determined that the High Yield Bond Fund and its shareholders would benefit from the Manager's and subadvisors' continued management of the Fund and (3) approved the renewal of the Management and Investment Advisory Agreements with respect to the High Yield Bond Fund. 71 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS Additional Considerations and Conclusions with Respect to the Intermediate Bond Fund In considering the renewal of the Management Agreement for the Intermediate Bond Fund, the Trustees considered the following additional factors: (1) the Intermediate Bond Fund outperformed the peer universe median for the one-, three- five- and ten-year periods ended March 31, 2009; (2) the Manager outperformed the universe peer median with respect to its allocated portion of the Fund's assets for the one-, three-, five- and ten-year periods ended March 31, 2009; and (3) the expense ratio of the Institutional Class of Fund shares ranked better than the median of its Lipper expense universe. In considering the renewal of the Investment Advisory Agreement with Barrow, the Trustees considered the following additional factors: (1) Barrow outperformed the peer universe median with respect to its allocated portion of the Fund's assets for the one-, three-, five- and ten-year periods ended March 31, 2009; (2) Barrow has informed the Manager that it uses Fund commissions to obtain proprietary research, the application of which benefits the Fund and Barrow's other clients; (3) Barrow has indicated that it does not charge lower advisory fees to other clients for which it provides comparable services; and (4) the Manager's recommendation to continue to retain Barrow. Based on these and other considerations the Trustees (1) concluded that the fees paid to the Manager and Barrow under the Agreements are fair and reasonable, (2) determined that the Intermediate Bond Fund and its shareholders would benefit from the Manager's and Barrow's continued management of the Fund and (3) approved the renewal of the Management and Investment Advisory Agreements with respect to the Intermediate Bond Fund. Additional Considerations and Conclusions with Respect to the Short-Term Bond Fund In considering the renewal of the Management Agreement for the Short-Term Bond Fund, the Trustees considered the following additional factors: (1) the Short-Term Bond Fund outperformed its benchmark index for the one-, three-, five- and ten-year periods for the period ended March 31, 2009; (2) the Short-Term Bond Fund outperformed the Lipper Index for all reported periods ended March 31, 2009; and (3) the expense ratio of the Institutional Class of Fund shares was 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 Short-Term Bond 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 Short-Term Bond Fund. 72 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED) The Trustees and officers of the American Beacon Funds (the "Trust") are listed below, together with their principal occupations during the past five years. Unless otherwise indicated, the address of each person listed below is 4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees nineteen funds in the fund complex that includes the Trust, the American Beacon Master Trust, the American Beacon Mileage Funds, and the American Beacon Select Funds. The Trust's Statement of Additional Information contains additional information about the Trustees and is available without charge by calling 1-800-658-5811.
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS --------------------- ------------------- ------------------------------------------------------------ INTERESTED TRUSTEES Term Lifetime of Trust until removal, resignation or retirement* Alan D. Feld** (72) Trustee since 1996 Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (1960-Present); Director, Clear Channel Communications (1984-Present); Trustee, CenterPoint Properties (1994-2006); Member, Board of Trustees, Southern Methodist University ; Member, Board of Visitors, M.D. Anderson Hospital; Board of Visitors, Zale/Lipshy Hospital; Trustee, American Beacon Mileage Funds (1996-present); Trustee, American Beacon Select Funds (1996-present); Trustee, American Beacon Master Trust Funds (1996-present). NON-INTERESTED TRUSTEES Term Lifetime of Trust until removal, resignation or retirement* W. Humphrey Bogart (65) Trustee since 2004 Board Member, Baylor University Medical Center Foundation (1992-2004); Consultant, New River Canada Ltd. (mutual fund servicing company) (1998-2003); President and CEO, Allmerica Trust Company, NA (1996-1997); President and CEO, Fidelity Investments Southwest Company (1983-1995); Senior Vice President of Regional Centers, Fidelity Investments (1988-1995); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). Brenda A. Cline (49) Trustee since 2004 Executive Vice President, Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Trustee, Texas Christian University (1998-Present); Trustee, W.I. Cook Foundation, Inc. (d/b/a Cook Children's Health Foundation) (2001-2006); Director, Christian Church Foundation (1999-2007); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). Eugene J. Duffy (55) Trustee since 2008 Principal and Executive Vice President, Paradigm Asset Management (1994-Present); Director, Sunrise Bank of Atlanta (2008-Present); Chairman, Special Contributions Fund Board of Trustees, National Association for the Advancement of Colored People (2007-Present); Trustee, National Association for the Advancement of Colored People (2000-Present); Board of Visitors, Emory University (2006-Present); Trustee, Atlanta Botanical Garden (2006-Present); Board Member, Willie L. Brown Jr. Institute on Politics and Public Service (2001-Present); Chair, National Association of Securities Professionals (2000-2002); Deputy Chief Administrative Officer, City of Atlanta (1985-1990); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present).
73 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED)
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS --------------------- ------------------- ------------------------------------------------------------ Thomas M. Dunning (66) Trustee since 2008 Consultant, (2008-Present); Chairman (2003-2008) and Chief Executive Officer (2003-2007), Lockton Dunning Benefits (consulting firm in employee benefits); Director, Oncor Electric Delivery Company LLC (2007-present); Advisory Director, Comerica Texas (2003-present); Immediate Past Chairman and Board Member, Dallas Citizens Council; Director, Baylor Health Care System Foundation (2007-present); State Vice Chair, State Fair of Texas; Board Member, Southwestern Medical Foundation (1994-present); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present). Richard A. Massman (66) Trustee since 2004 Consultant and General Counsel Emeritus (2009-Present), Chairman since 2008 Senior Vice President and General Counsel, Hunt Consolidated, Inc. (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities) (1994-2009). Chairman (2007-Present) and Director (2005-Present), The Dallas Opera Foundation; Chairman (2006-Present) and Director (2005-Present), Temple Emanu-El Foundation; Trustee, Presbyterian Hospital Foundation (2006-Present); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). R. Gerald Turner (64) Trustee since 2001 President, Southern Methodist University (1995-Present); 225 Perkins Admin. Bldg. Director, ChemFirst (1986-2002); Director, J.C. Penney Southern Methodist Univ. Company, Inc. (1996-Present); Director, California Federal Dallas, Texas 75275 Preferred Capital Corp. (2001-2003); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Director, First Broadcasting Investment Partners, LLC (2003-2007); Member, Salvation Army of Dallas Board of Directors; Member, Methodist Hospital Advisory Board; Co-Chair, Knight Commission on Intercollegiate Athletics; Trustee, American Beacon Mileage Funds (2001-present); Trustee, American Beacon Select Funds (2001-present); Trustee, American Beacon Master Trust Funds (2001-present). Paul J. Zucconi,CPA (68) Trustee since 2008 Director, Affirmative Insurance Holdings, Inc. (producer of nonstandard automobile insurance) (2004-present); Director, Titanium Metals Corporation (producer of titanium melted and mill products and sponge) (2002- present); Director, Torchmark Corporation (life and health insurance products) (2002-present); Director, National Kidney Foundation of North Texas (2003-Present); Director, Dallas Chapter of National Association of Corporate Directors (2004-Present); Partner, KPMG (1976-2001); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present).
74 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED) OFFICERS
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS --------------------- ------------------- ------------------------------------------------------------ TERM One Year William F. Quinn** (61) Executive Vice Executive Chairman (2009-Present), Chairman (2006-2009) and President from CEO (2006-2007), President (1986-2006) and Director 2007 to 2008 and (2003-Present), American Beacon Advisors, Inc.; Chairman 2009 to Present (1989-2003) and Director (1979-1989, 2003-Present), American President from Airlines Federal Credit Union; Director, Hicks Acquisition 1987 to 2007 I, Inc. (2007-2009); Director, Crescent Real Estate and 2008 to 2009 Equities, Inc.(1994-2007); Director, Pritchard, Hubble & Trustee from Herr, LLC (investment advisor) (2001-2006); Director of 1987 to 2008 Investment Committee, Southern Methodist University Endowment Fund (1996-Present); Member, Southern Methodist University Cox School of Business Advisory Board (1999-2002); Member, New York Stock Exchange Pension Manager Committee (1997-1998, 2000-2002, 2006-Present); Chairman (2007-Present) and Vice Chairman (2004-2007), Committee for the Investment of Employee Benefits; Director, United Way of Metropolitan Tarrant County (1988-2000, 2004-Present); Trustee, American Beacon Mileage Funds (1995-2008); Trustee, American Beacon Select Funds (1999-2008); Trustee, American Beacon Master Trust (1995-2008). Gene L. Needles, Jr. (54) President 2009 to President, CEO and Director (2009-Present), American Beacon Present Advisors, Inc. President (November 2009-Present), Executive Executive Vice Vice President (May 2009-November 2009) of the American President 2009 Beacon Funds, American Beacon Mileage Funds, American Beacon Select Funds, and American Beacon Master Trust. President (2008-2009), Touchstone Investments; President (2003-2007), CEO (2004-2007), Managing Director of Sales (2002-2003), National Sales Manager (1999-2002), and Regional Sales Manager (1993-1999), AIM Distributors. Rosemary K. Behan (50) VP, Secretary and Vice President, Legal and Compliance, American Beacon Chief Legal Advisors, Inc. (2006-Present); Assistant General Counsel, Officer since 2006 First Command Financial Planning, Inc. (2004-2006); Attorney (1995-2004), Securities and Exchange Commission. Brian E. Brett (49) VP since 2004 Vice President, Director of Sales and Marketing, American Beacon Advisors, Inc. (2004-Present); Regional Vice President, Neuberger Berman, LLC (investment advisor) (1996-2004). Wyatt Crumpler (43) VP since 2007 Vice President, Asset Management, American Beacon Advisors, Inc. (2007-Present); Managing Director of Corporate Accounting (2004-2007), Director of IT Strategy and Finance (2002-2004), American Airlines, Inc. Michael W. Fields (55) VP since 1989 Vice President, Fixed Income Investments, American Beacon Advisors, Inc. (1988-Present); Director American Beacon Global Funds SPC (2002-present); Director, American Beacon Global Funds plc (2007-2009). Rebecca L. Harris (42) Treasurer since Vice President, Finance, American Beacon Advisors, Inc. 1995 (1995-Present). Christina E. Sears (38) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc. Officer since 2004 (2004-Present); Senior Compliance Analyst, American Beacon and Asst. Advisors, Inc. (1998-2004). Secretary since 1999
* The Board has adopted a retirement plan that requires Trustees to retire no later than the last day of the calendar year in which they reach the age of 72, provided, however, that the Board may determine to grant one or more annual exemptions to this requirement. ** Mr. Feld is deemed to be an "interested person" of the Trusts, as defined by the 1940 Act. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the past two fiscal years to the Manager and one or more of the Trust's and Master Trust's sub-advisors. 75 (AMERICAN BEACON LOGO) DELIVERY OF DOCUMENTS If you invest in the Funds 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 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. TO OBTAIN MORE INFORMATION ABOUT THE FUND: (GRAPHIC) (GRAPHIC) BY E-MAIL: ON THE INTERNET: american_beacon.funds@ambeacon.com Visit our website at www.americanbeaconfunds.com (GRAPHIC) (GRAPHIC) BY TELEPHONE: BY MAIL: Institutional and Investor Classes American Beacon Funds Call (800) 658-5811 P.O. Box 219643 AMR Class(SM) Kansas City, MO 64121-9643 Call (800) 345-2345 AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES AVAILABILITY OF PROXY VOTING POLICY AND RECORDS In addition to the Schedule of Investments A description of the policies and procedures the provided in each semi-annual and annual report, Fund uses to determine how to vote proxies the Fund files a complete schedule of its relating to portfolio securities is available in portfolio holdings with the Securities and the Fund's Statement of Additional Information, Exchange Commission ("SEC") on Form N-Q as of is available free of charge on the Fund's the first and third fiscal quarters. The Fund's website (www.americanbeaconfunds.com) and by Forms N-Q are available on the SEC's website at calling 1-800-967-9009 or by accessing the SEC's www.sec.gov. The Forms N-Q may also be reviewed website at www.sec.gov. The Fund's proxy voting and copied at the SEC's Public Reference Room, record for the most recent year ended June 30 is 450 Fifth Street, NW, Washington, DC 20549. filed annually with the SEC on Form N-PX. The Information regarding the operation of the SEC's Fund's Forms N-PX are available on the SEC's Public Reference Room may be obtained by calling website at www.sec.gov. The Fund's proxy voting 1-800-SEC-0330. A complete schedule of the record may also be obtained by calling Fund's portfolio holdings is also available on 1-800-967-9009. the Funds' website (www.americanbeaconfunds.com) approximately thirty days after the end of each month.
FUND SERVICE PROVIDERS: CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR STATE STREET BANK AND BOSTON FINANCIAL DATA PUBLIC ACCOUNTING FORESIDE FUND SERVICES TRUST SERVICES FIRM Portland, Maine Boston, Massachusetts Kansas City, Missouri ERNST & YOUNG LLP Dallas, Texas
This report is prepared for shareholders of the American Beacon Funds and may be distributed to others only if preceded or accompanied by a current prospectus. American Beacon Funds, American Beacon High Yield Bond Fund, American Beacon Enhanced Income Fund, American Beacon Intermediate Bond Fund and American Beacon Short-Term Bond Fund are service marks of American Beacon Advisors, Inc. AR 10/09 00071316 GUIDANCE | VISION | EXPERIENCE (AMERICAN BEACON FUNDS(SM) LOGO) ANNUAL REPORT (GRAPHIC) OCTOBER 31, 2009 EQUITY FUNDS BALANCED FUND LARGE CAP GROWTH FUND MID-CAP VALUE FUND About American Beacon Advisors Since 1986, American Beacon Advisors has offered a variety of products and investment advisory services to numerous institutional and retail clients, including a variety of mutual funds, corporate cash management, and separate account management. Our clients include defined benefit plans, defined contribution plans, foundations, endowments, corporations, financial planners, and other institutional investors. With American Beacon Advisors, you can put the experience of a multi-billion dollar asset management firm to work for your company.
Contents - -------- President's Message................................................ 1 American Beacon Funds' Performance................................. 2 Market and Performance Overviews................................... 3-23 American Beacon Schedules of Investments Balanced Fund................................................... 12 Large Cap Growth Fund........................................... 22 Mid-Cap Value Fund.............................................. 25 Additional Information.......................................... Back Cover
Any opinions herein, including forecasts, reflect our judgment as of the end of the reporting period and are subject to change. Each advisor's strategies and each Fund's portfolio composition will change depending on economic and market conditions. This report is not a complete analysis of market conditions and therefore, should not be relied upon as investment advice. Although economic and market information has been compiled from reliable sources, American Beacon Advisors, Inc. makes no representation as to the completeness or accuracy of the statements contained herein. Investing in debt securities entails interest rate risk which is the risk that debt securities will decrease in value with increases in market interest rates. Investing in the securities of mid-capitalization companies involves greater risk and the possibility of greater price volatility than investing in larger capitalization and more established companies. (PHOTO OF GENE L. NEEDLES, JR.) FELLOW SHAREHOLDERS, As an introduction to the Annual Report for the American Beacon Funds for the 12-month period ended October 31, 2009, please let me take a moment to tell you how pleased I am to have been serving as President and CEO of American Beacon Advisors since April 15, 2009. I consider it a privilege to hold this position, and I take its responsibilities quite seriously. I've enjoyed a long, successful career in the investment business, and I'm no stranger to the ups and downs that markets can deliver. As a fellow investor and shareholder, I experience these trends in much the same way you do. The majority of 2008 was difficult in many ways. However, when I took the helm at American Beacon, I already had many reasons to be optimistic about what might develop in 2009. As of October 31, 2009, my optimism has been largely confirmed. For example, for the one-year period (as of 10/31/09), the American Beacon Mid-Cap Value Fund-Institutional Class returned a robust 30.46%, and the American Beacon Balanced Fund - Institutional Class returned 16.64%. Of course, one year of performance doesn't tell the whole story, especially when you're investing for the long term. Please note that the recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Many of us have long-term goals, including retirement, driving our investment decisions. While this 12-month period began amid a frightening recessionary environment, we finished the year with increasing confidence that markets have begun to stabilize, that liquidity has returned to the debt markets and that equity markets have had a substantial recovery. I know as well as you do that maintaining a long-term perspective, employing a buy-and-hold philosophy (consistent with each Fund's objectives), and doing the right thing according to your risk tolerance and time horizon is not always easy. But the professionals at American Beacon are dedicated to working hard to help investors succeed. Just as you maintain a commitment to your goals--and to those who inspire you to create your goals--we maintain a strong commitment to due diligence and oversight. That commitment is one of the key reasons I am honored to serve as President and CEO, and am pleased to be able to share my enthusiasm about the path ahead with you. A financial advisor can be an important ally in creating investment success, so--as you review the enclosed annual report--please feel free to discuss your thoughts and concerns with a trusted advisor. And, as always, the professionals associated with the American Beacon Funds are grateful for the opportunity to serve you. Best Regards, /s/ Gene L. Needles, Jr. Gene L. Needles, Jr. President American Beacon Funds 1 DOMESTIC EQUITY MARKET OVERVIEW OCTOBER 31, 2009 (UNAUDITED) The past 12-month period saw a great deal of volatility in equity markets. The first quarter of 2009 saw marginal improvements in U.S. housing, income and consumption data. The U.S. Treasury partnered with private investors to purchase toxic bank assets, which spurred a market rally late in the first quarter. Soon after his January inauguration, President Obama attempted to blunt the impact of the recession in the U.S. by signing an almost $800 billion economic stimulus package, introducing a sizable mortgage relief program and initiating stress tests for the nation's banks. Other stimulus packages were enacted worldwide, representing an unprecedented commitment from governments across the globe to stabilize the world's economies. While the markets behaved sluggishly at the beginning of the first quarter, they picked up speed following more encouraging data suggesting that the economy had begun to move from recession to recovery. The global equity market rally that began in early March and continued into May was one of the strongest rebounds since the Great Depression era. Toward the end of the second quarter, investors showed concern that the equity markets had moved too far ahead of economic realities. The sharp equity rally lost momentum, as equity markets pulled back modestly in June. During the third quarter, stronger-than-expected corporate earnings--combined with encouraging economic news--rekindled the rally to some degree. The United States announced that gross domestic product (GDP) contracted in the second quarter, but by a better-than-expected -1.0% (subsequently revised to -0.7%). Meanwhile, strong demand for automobiles, fueled by the U.S. Government's "Cash for Clunkers" program, produced the first signs of growth in the American manufacturing industry since January 2008. The third quarter of 2009 saw housing numbers improve, increased merger and acquisition activity, and evidence of capital markets normalization. In addition to stabilization, liquidity was a major contributor to market strength. Unfortunately, the domestic equity markets struggled with the effects of rising unemployment, a tight credit environment, and weakness in commercial real estate. Amid fears about job stability, the U.S. Consumer Confidence Index declined to 53.1 in September from 54.5 in August 2009. Although the pace of job losses slowed, total U.S. unemployment continued to rise in October 2009, along with credit default and delinquency rates. Third quarter corporate earnings results were mixed. Many companies were quick to downsize in response to reduced demand. Corporate profits exceeded reduced expectations due to cost cutting. It remains to be seen if increased corporate profitability ultimately leads to more hiring and, thus, increased consumer demand. This pattern of positive developments tempered with set-backs is typical of economic recoveries. Different types of economic activity require more time to be effective. Some uncertainty about what will drive the markets going forward remains, as the Federal Reserve Board (the Fed) may start to reverse and unwind the unprecedented levels of support provided to the U.S. economy. The magnitude of any consumer-led recovery remains difficult to gauge, as it is hard to distinguish between a traditional cyclical recovery and potentially artificial gains resulting from the U.S. Government's stimulus measures. As the Fed's plans become clearer, the market may favor companies with higher earnings and balance sheet quality. These companies with solid fundamentals may provide better upside potential than more speculative companies. It is unlikely that the lowest credit quality companies (without earnings or dividends) will remain market leaders, since there are many companies with excellent fundamentals selling for equally attractive prices. 2 PERFORMANCE OVERVIEW AMERICAN BEACON BALANCED FUND(SM) OCTOBER 31, 2009 (UNAUDITED) The Balanced Fund's Institutional Class returned 16.64% for the twelve months ended October 31, 2009, outperforming the 60% Russell 1000(R) Value/40% Barclays Capital Aggregate Index benchmark return of 9.20%, but trailing the Lipper Mixed-Asset Target Allocation Growth Funds Index return of 16.95%. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 10/31/99 THROUGH 10/31/09 (PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF PERIODS ENDED 10/31/09 $10,000 --------------------------- 10/31/99- 1 YEAR 5 YEARS 10 YEARS 10/31/09 ------ ------- -------- --------- Institutional Class(1, 5).. 16.64% 2.82% 4.89% $16,122 Investor Class(1, 5)....... 16.29% 2.53% 4.62% $15,706 Advisor Class(1, 2, 5)..... 16.05% 2.27% 4.48% $15,506 AMR Class(1, 5)............ 16.95% 3.06% 5.16% $16,547 Balanced Composite Index(3)................ 9.20% 2.32% 3.87% $14,619 Russell 1000 Value Index (4)..................... 4.79% -0.05% 1.70% $11,838 Barclays Capital Aggregate Index(4)...... 13.79% 5.05% 6.31% $18,439 Lipper Mixed-Asset Target Allocation Growth Funds Index (4).. 16.95% 2.70% 3.38% $13,935
(1.) The Investor and Advisor Classes were formerly known as the PlanAhead and Service Classes, respectively. Performance shown is historical and may not be indicative of future returns. Please note that the recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is as of date indicated, and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. (2.) Fund performance for the five-year and ten-year periods represents the total returns achieved by the Investor Class from 10/31/99 up to 5/31/05, the inception date of the Advisor Class, and the returns of the Advisor Class since its inception. Expenses of the Advisor Class are higher than those of the Investor Class. Therefore, total returns shown may be higher than they would have been had the Advisor Class been in existence since 10/31/99. A portion of the fees charged to the Advisor Class of the Fund was waived in 2005. Performance prior to waiving fees was lower than actual returns shown for 2005. (3.) To reflect the Fund's allocation of its assets between investment grade fixed-income securities and equity securities, the returns of the Russell 1000 Value Index and the Barclays Capital Aggregate Index have been combined in a 60%/40% proportion. (4.) The Russell 1000 Value Index is an unmanaged index of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values. Russell 1000 Value Index is a registered trade mark of Frank Russell Company. The Barclays Capital Aggregate Index is a market value weighted index of government, corporate, mortgage-backed and asset-backed fixed-rate debt securities of all maturities. The Lipper Mixed-Asset Target Allocation Growth Funds Index tracks the results of the 30 largest mutual funds in the Lipper Mixed-Asset Target Allocation Growth Funds category. Lipper is an independent mutual fund research and ranking service. One cannot directly invest in an index. (5.) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus for the Institutional, Investor, Advisor and AMR Class shares was 0.57%, 0.91%, 1.08% and 0.32%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. During the twelve-month period, the Fund's assets on average were invested 55% in equities (including equitized cash) and 45% in fixed-income securities, ending the period with 62% in equities/equitized cash and 38% in fixed-income securities. The equity portion of the Fund (excluding equitized cash) returned 11.9%, outperforming the Russell 1000(R) Value Index (the "Index") return of 4.8%. The Fund's equities outperformed the Index as both stock selection and sector allocation generated excess returns. Good stock selection in the Industrials, Health Care, Materials, and Consumer Discretionary sectors contributed the most value relative to the Index. In the Industrials sector, Honeywell International (up 23.3%), Tyco International (up 51.7%), and 3M (up 18.4%) were a significant source of added value. The largest contributors to positive performance in the Health Care sector were Schering-Plough (up 89.8%), Merck (up 8.1%) and Eli Lilly (up 8.3%). Alcoa (up 59.1%) and Air Products & Chemicals (up 40.3%) had the largest impact on performance in the Materials sector. Strong performers in the Consumer Discretionary sector included Target (up 23.1%) and McDonald's (up 6.2% for the period the Fund owned 3 PERFORMANCE OVERVIEW AMERICAN BEACON BALANCED FUND(SM) OCTOBER 31, 2009 (UNAUDITED) the security). The aforementioned positive returns were slightly offset by poor stock selection in the Information Technology sector where Hewlett Packard (up 21.6%) and CA (up 18.5%) had the largest negative impact. During the twelve-month period, a four times overweight in Information Technology, the best performing sector in the Index, and an underweight in Financials, the worst performing sector in the Index, added value to the Fund's relative returns through sector allocation. An overweight position in the Industrials sector slightly detracted value from performance. The fixed-income portion of the Fund returned 22.1% for the period, outperforming the Barclays Capital Aggregate Index (the "Barclays Index") return of 13.8%. The Fund's exposure to Agencies, Treasuries, and Corporates contributed to most of the superior performance during the twelve-month period. A near two times overweight in Corporates, the best performing sector in the Barclays Index, combined with superior security selection among Corporate issuers, ultimately accounted for a majority of the excess return. The sub-advisors continue to focus on the disciplined selection of attractive securities that should allow the Fund to benefit long term. TOP TEN EQUITY HOLDINGS
% OF EQUITIES -------- ConocoPhillips........................................ 2.3% JPMorgan Chase & Co................................... 1.9% Bank of America Corp.................................. 1.6% Wells Fargo & Co. .................................... 1.6% Hewlett-Packard Co. .................................. 1.5% International Business Machines Corp. ................ 1.3% Pfizer, Inc. ......................................... 1.3% Raytheon Co. ......................................... 1.3% Honeywell International, Inc. ........................ 1.2% Philip Morris International, Inc. .................... 1.2%
EQUITY SECTOR ALLOCATION
% OF EQUITIES -------- Financials............................................ 21.4% Industrials........................................... 15.5% Information Technology................................ 12.3% Energy................................................ 12.1% Health Care........................................... 10.9% Consumer Staples...................................... 8.4% Consumer Discretionary................................ 7.6% Utilities............................................. 5.4% Telecommunication Services............................ 3.4% Materials............................................. 3.0%
FIXED-INCOME SECTOR ALLOCATION
% OF FIXED INCOME ------ Corporate Bonds...................................... 47.3% Mortgage-Backed...................................... 24.0% Agency............................................... 15.4% U.S. Treasury........................................ 11.5% Asset-Backed......................................... 1.8%
4 PERFORMANCE OVERVIEW AMERICAN BEACON LARGE CAP GROWTH FUND(SM) OCTOBER 31, 2009 (UNAUDITED) The Institutional Class of the Large Cap Growth Fund returned 12.34% for the twelve months ended October 31, 2009, trailing both the Russell 1000(R) Growth Index (the "Index") return of 17.51% and the Lipper Large-Cap Growth Funds Index return of 16.91%. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 7/31/00* THROUGH 10/31/09 (PERFORMANCE GRAPH) * Inception of Fund
ANNUALIZED TOTAL RETURNS PERIODS ENDED 10/31/09 ---------------------------- VALUE OF SINCE $10,000 INCEP. 7/31/00- 1 YEAR 5 YEARS (7/31/00) 10/31/09 ------ ------- --------- -------- Institutional Class(1, 3) .......... 12.34% -1.83% -6.55% $5,345 AMR Class(1, 3) ........ 12.46% -1.55% -6.35% $5,451 Russell 1000 Growth Index(2) ..... 17.51% 1.27% -5.22% $6,092 Lipper Large-Cap Growth Funds Index(2) ............. 16.91% 0.86% -5.60% $5,867
(1.) Performance shown is historical and may not be indicative of future returns. Please note that the recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is as of date indicated, and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. A portion of the fees charged to the Institutional Class of the Fund has been waived since 2004. Performance prior to waiving the fees was lower than actual returns shown for periods since 2004. (2.) The Russell 1000 Growth Index is an unmanaged index of those stocks in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. Russell 1000 Growth Index and Russell 1000 Index are registered trademarks of Frank Russell Company. The Lipper Large-Cap Growth Funds Index tracks the results of the 30 largest mutual funds in the Lipper Large-Cap Growth Funds category. Lipper is an independent mutual fund research and ranking service. One cannot directly invest in an index. (3.) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus for the Institutional and AMR Class shares was 1.01% and 0.65%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. The Fund underperformed the Index primarily due to stock selection, though sector allocation also detracted modestly from the Fund's relative returns. Most of the Fund's underperformance was attributed to poor security selection in the Health Care, Materials, Financials, Industrials, and Information Technology sectors. In the Health Care sector, Amgen (down 9.0%) and Schering Plough (up 41.1% for the period the Fund owned the security) detracted the most relative value. For the period the Fund owned the securities, Southern Copper (down 9.6%) and Monsanto (down 24.2%) had the largest negative impact in the Materials sector, while State Street (down 31.2%) and CME (down 20.8%) were the largest detractors in the Financials sector. In the Industrials sector, positions in General Dynamics (up 6.0%) and Emerson (down 22.6% for the period the Fund owned the security) hurt performance most. The Fund's holdings in the Information Technology sector that had the largest impact for the period the Fund owned the securities were IBM (up 22.2%) and Adobe Systems (down 12.3%). Overweight positions in the Health Care and Energy sectors detracted value relative to the Index, as did an underweight in Information Technology, the best performing sector in the Index. This was somewhat offset by being underweight in the Financials sector. Looking forward, the Fund's sub-advisors will continue to maintain a disciplined, long-term approach to equity investing in larger stocks with above-average growth potential. 5 PERFORMANCE OVERVIEW AMERICAN BEACON LARGE CAP GROWTH FUND(SM) OCTOBER 31, 2009 (UNAUDITED) TOP TEN HOLDINGS
% OF NET ASSETS ---------- Apple Computer, Inc. .................. 3.0% Cognizant Technology Solutions Corp. .. 2.6% Hewlett-Packard Co..................... 2.5% QUALCOMM, Inc. ........................ 2.4% Cisco Systems, Inc. ................... 2.2% Google, Inc. .......................... 2.0% priceline.com, Inc. ................... 2.0% Medco Health Solutions, Inc. .......... 1.9% Microsoft Corp. ....................... 1.9% Goldman Sachs Group, Inc. ............. 1.8%
SECTOR ALLOCATION
% OF EQUITIES -------- Information Technology................ 32.6% Industrials........................... 14.5% Consumer Discretionary................ 13.8% Health Care........................... 13.3% Financials............................ 11.6% Energy................................ 7.6% Materials............................. 2.4% Consumer Staples...................... 2.0% Utilities............................. 1.7% Telecommunication Services............ 0.5%
6 PERFORMANCE OVERVIEW AMERICAN BEACON MID-CAP VALUE FUND(SM) OCTOBER 31, 2009 (UNAUDITED) The Institutional Class of the Mid-Cap Value Fund returned 30.46% for the twelve months ended October 31, 2009. The Fund outperformed the Russell Midcap(R) Value Index (the "Index") return of 14.52% and the Lipper Mid-Cap Value Funds Index return of 20.66%. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 6/30/04* THROUGH 10/31/09 (PERFORMANCE GRAPH) * Inception of Fund
Annualized Total Returns Periods Ended 10/31/09 --------------------------- Value of Since $10,000 Incep. 6/30/04- 1 Year 5 Years (6/30/04) 10/31/09 ------ ------- --------- -------- Institutional Class(1, 3, 6) ... 30.46% 1.95% 2.34% $11,311 Investor Class (1, 2, 6) ........ 29.98% 1.74% 2.13% $11,193 Advisor Class (1, 4, 6) ........ 30.60% 1.78% 2.18% $11,217 AMR Class (1, 6)..... 30.56% 2.09% 2.47% $11,391 Russell Midcap Value Index(5).... 14.52% 2.06% 2.69% $11,522 Lipper Mid-Cap Value Funds Index(5) ......... 20.66% 2.01% 1.99% $11,112
(1.) The Investor and Advisor Classes were formerly known as the PlanAhead and Service Classes, respectively. Performance shown is historical and may not be indicative of future returns. Please note that the recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is as of date indicated and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. A portion of the fees charged to the AMR Class of the Fund was waived through 2005. Performance prior to waiving fees was lower than the actual returns shown for periods through 2005. (2.) Fund performance for the five-year and since inception periods represents the total returns achieved by the AMR Class from 6/30/04 up to 3/1/06, the inception date of the Investor Class, and the returns of the Investor Class since its inception. Expenses of the Investor Class are higher than those of the AMR Class. As a result, total returns shown may be higher than they would have been had the Investor Class been in existence since 6/30/04. A portion of the fees charged to the Investor Class of the Fund has been waived since 2006. Performance prior to waiving fees was lower than actual returns shown since 2006. (3.) Fund performance represents the total returns achieved by the AMR Class from 6/30/04 up to 11/30/05, the inception date of the Institutional Class, and the returns of the Institutional Class since its inception. Expenses of the Institutional Class are higher than those of the AMR Class. As a result, total returns shown may be higher than they would have been had the Institutional Class been in existence since 6/30/04. A portion of the fees charged to the Institutional Class of the Fund has been waived since 2007. Performance prior to waiving fees was lower than actual returns shown since 2007. (4.) Performance shown prior to the 6/29/07 inception of the Advisor Class is that of the AMR Class from 6/30/04 to 11/30/05, the Institutional Class from 11/30/05 to 3/1/06 and the Investor Class from 3/1/06 to 6/29/07. Because the AMR, Institutional, and Investor Classes had lower expenses, their performance was better than the Advisor Class would have realized during the same period. A portion of the fees charged to the Advisor Class of the Fund has been waived since 2007. Performance prior to waiving fees was lower than the actual returns shown since 2007. (5.) The Russell Midcap Value Index is an unmanaged index of those stocks in the Russell Midcap Index with lower price-to-book ratios and lower forecasted growth values. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index. Russell Midcap Value Index and Russell 1000 Index are registered trademarks of Frank Russell Company. The Lipper Mid-Cap Value Funds Index tracks the results of the 30 largest mutual funds in the Lipper Mid-Cap Value Funds category. Lipper is an independent mutual fund research and ranking service. One cannot directly invest in an index. (6.) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus for the Institutional, Investor, Service, and AMR Class shares was 1.17%, 1.33%, 2.05%, and 0.83%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. The Fund outperformed the Index due to both stock selection and sector allocation. Holdings in the Financials, Information Technology, and Utilities sectors had the largest positive impact on performance through stock selection. In the Financials sector, Capital One (up 72.6% for the period the Fund owned the security), Delphi Financial Group (up 41.1%) and Conseco (up 180.1%) added the most value to the Fund's return relative to the Index. Motorola (up 67.0%) and Alcatel Lucent (up 45.4%) were the largest contributors in the Information Technology sector, as was PNM Resources (up 7.7% for the period the Fund owned the security) in the Utilities sector. 7 PERFORMANCE OVERVIEW AMERICAN BEACON MID-CAP VALUE FUND(SM) OCTOBER 31, 2009 (UNAUDITED) This excess performance, in the previously mentioned sectors, was slightly offset by poor security selection in the Health Care sector where Mednax (up 62.8% for the period the Fund owned the security) and Quest Diagnostics (up 20.6%) were the largest detractors. Significant overweight positions in the Consumer Discretionary, Information Technology, and Health Care sectors, the three best performing sectors in the Index, added value through sector allocation. An underweight in Financials, the worst performing sector in the Index, also generated excess returns. The sub-advisors' philosophy of investing in undervalued companies that exhibit improving profitability and earnings growth potential should allow the Fund to benefit longer term. TOP TEN HOLDINGS
% OF NET ASSETS ---------- L-3 Communications Holdings, Inc. ... 2.5% PNC Financial Services Group, Inc. .. 2.2% Cardinal Health, Inc. ............... 2.0% Fifth Third Bancorp. ................ 1.9% Capital One Financial Corp. ......... 1.7% Murphy Oil Corp. .................... 1.6% Computer Sciences Corp. ............. 1.5% Stanley Works. ...................... 1.5% Spirit Aerosystems Holdings, Inc. ... 1.5% Eaton Corp. ......................... 1.4%
SECTOR ALLOCATION
% OF EQUITIES -------- Financials.......................... 25.5% Consumer Discretionary.............. 20.1% Industrials......................... 14.0% Health Care......................... 11.4% Information Technology.............. 11.1% Utilities........................... 8.8% Energy.............................. 4.6% Consumer Staples.................... 4.5%
8 FUND EXPENSES - ACTUAL OCTOBER 31, 2009 (UNAUDITED) FUND EXPENSE EXAMPLE As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including redemption fees if applicable, and (2) ongoing costs, including management fees, administrative service fees, distribution (12b-1) fees, and other Fund expenses. The examples below are intended to help you understand the ongoing cost (in dollars) of investing in a particular Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested at the beginning of the period in each Class and held for the entire period from May 1, 2009 through October 31, 2009. ACTUAL EXPENSES The following tables provide information about actual account values and actual expenses. You may use the information on this page, 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 "Expenses Paid During Period" for the applicable Fund to estimate the expenses you paid on your account during this period. Shareholders of the Investor and Institutional Classes that invest in a Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher.
Large Cap Balanced Growth Mid-Cap Institutional Class Fund Fund Value Fund - ------------------- --------- --------- ---------- Beginning Account Value 5/1/09 ....... $1,000.00 $1,000.00 $1,000.00 Ending Account Value 10/31/09 ........ $1,180.63 $1,158.51 $1,261.67 Expenses Paid During Period 5/1/09- 10/31/09 * ........................ $ 3.41 $ 5.17 $ 5.59 Annualized Expense Ratio ............. 0.62% 0.95% 0.98%
Balanced Mid-Cap Investor Class Fund Value Fund - -------------- --------- ---------- Beginning Account Value 5/1/09 ....... $1,000.00 $1,000.00 Ending Account Value 10/31/09 ........ $1,178.50 $1,259.20 Expenses Paid During Period 5/1/09- 10/31/09 * ........................ $ 5.22 $ 7.00 Annualized Expense Ratio ............. 0.95% 1.23%
Balanced Mid-Cap Advisor Class Fund Value Fund - ------------- --------- ---------- Beginning Account Value 5/1/09 ....... $1,000.00 $1,000.00 Ending Account Value 10/31/09 ........ $1,177.38 $1,260.50 Expenses Paid During Period 5/1/09- 10/31/09 * ........................ $ 6.15 $ 9.17 Annualized Expense Ratio ............. 1.12% 1.61%
Balanced Large Cap Mid-Cap AMR Class Fund Growth Fund Value Fund - --------- --------- ----------- ---------- Beginning Account Value 5/1/09 ....... $1,000.00 $ 1,000.00 $1,000.00 Ending Account Value 10/31/2009 ...... $1,181.82 $ 1,160.10 $1,262.90 Expenses Paid During Period 5/1/09- 10/31/09 * ........................ $ 2.03 $ 3.65 $ 4.56 Annualized Expense Ratio ............. 0.37% 0.67% 0.80%
- ---------- * Expenses are equal to the Fund's annualized expense ratios for the six-month period multiplied by the average account value over the period, multiplied by the number derived by dividing the number of days in the most recent fiscal half-year (184) by days in the year (365) to reflect the half- year period. 9 FUND EXPENSES - HYPOTHETICAL OCTOBER 31, 2009 (UNAUDITED) HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The following tables 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 the Fund's actual return). You may compare the ongoing costs of investing in a particular Fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. Shareholders of the Investor and Institutional Classes that invest in a Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs charged by a Fund, such as redemption fees as applicable. 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 following tables 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.
Large Cap Balanced Growth Mid-Cap Institutional Class Fund Fund Value Fund - ------------------- --------- --------- ---------- Beginning Account Value 5/1/09 ....... $1,000.00 $1,000.00 $1,000.00 Ending Account Value 10/31/09 ........ $1,022.08 $1,020.42 $1,020.27 Expenses Paid During Period 5/1/09- 10/31/09* ......................... $ 3.16 $ 4.84 $ 4.99 Annualized Expense Ratio ............. 0.62% 0.95% 0.98%
Balanced Mid-Cap Investor Class Fund Value Fund - -------------- --------- ---------- Beginning Account Value 5/1/09 ....... $1,000.00 $1,000.00 Ending Account Value 10/31/09 ........ $1,020.42 $1,019.00 Expenses Paid During Period 5/1/09- 10/31/09* ......................... $ 4.84 $ 6.26 Annualized Expense Ratio ............. 0.95% 1.23%
Balanced Mid-Cap Advisor Class Fund Value Fund - ------------- --------- ---------- Beginning Account Value 5/1/09 ....... $1,000.00 $1,000.00 Ending Account Value 10/31/09 ........ $1,019.56 $1,017.09 Expenses Paid During Period 5/1/09- 10/31/09* ......................... $ 5.70 $ 8.19 Annualized Expense Ratio ............. 1.12% 1.61%
Large Cap Balanced Growth Mid-Cap AMR Class Fund Fund Value Fund - --------- --------- --------- ---------- Beginning Account Value 5/1/09 ....... $1,000.00 $1,000.00 $1,000.00 Ending Account Value 10/31/09 ........ $1,023.34 $1,021.83 $1,021.17 Expenses Paid During Period 5/1/09- 10/31/09* ......................... $ 1.89 $ 3.41 $ 4.08 Annualized Expense Ratio ............. 0.37% 0.67% 0.80%
* Expenses are equal to the Fund's annualized expense ratios for the six-month period multiplied by the average account value over the period, multiplied by the number derived by dividing the number of days in the most recent fiscal half-year (184) by days in the year (365) to reflect the half year period. 10 AMERICAN BEACON FUNDS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of American Beacon Funds: We have audited the accompanying statements of assets and liabilities of American Beacon Funds (comprised of American Beacon Balanced Fund, American Beacon Large Cap Growth Fund, and American Beacon Mid-Cap Value Fund) (collectively the "Funds"), including the schedules of investments, as of October 31, 2009, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of each Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of American Beacon Funds at October 31, 2009, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/Ernst & Young LLP Dallas, Texas December 23, 2009 11 AMERICAN BEACON BALANCED FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) COMMON STOCKS - 57.15% CONSUMER DISCRETIONARY - 4.35% HOTELS, RESTAURANTS & LEISURE - 1.14% Carnival Corp. ................................... 117,400 $ 3,419 McDonald's Corp. ................................. 57,500 3,370 Wyndham Worldwide Corp. .......................... 143,200 2,441 -------- 9,230 -------- INTERNET & CATALOG RETAIL - 0.13% eBay, Inc. ## .................................... 48,100 1,071 -------- MEDIA - 1.28% CBS Corp. ........................................ 190,100 2,237 Comcast Corp. .................................... 128,600 1,803 Interpublic Group of Cos., Inc. ## ............... 211,200 1,271 Time Warner Cable, Inc. .......................... 45,400 1,791 Walt Disney Co. Ltd. ............................. 121,000 3,312 -------- 10,414 -------- MULTILINE RETAIL - 0.89% J.C. Penney Company, Inc. ........................ 65,100 2,157 Target Corp. ..................................... 67,700 3,279 Wal-Mart Stores, Inc. ............................ 36,900 1,833 -------- 7,269 -------- SPECIALTY RETAIL - 0.91% Gap, Inc. ........................................ 51,700 1,104 The Home Depot, Inc. ............................. 180,950 4,540 Limited Brands, Inc. ............................. 100,400 1,767 -------- 7,411 -------- TOTAL CONSUMER DISCRETIONARY ........................ 35,395 -------- CONSUMER STAPLES - 4.83% BEVERAGES - 1.05% Coca-Cola Co. .................................... 29,800 1,589 Diageo plc, ADR .................................. 68,200 4,434 PepsiCo, Inc. .................................... 41,200 2,495 -------- 8,518 -------- FOOD & DRUG RETAILING - 0.58% Safeway, Inc. .................................... 166,500 3,718 Sysco Corp. ...................................... 38,600 1,021 -------- 4,739 -------- FOOD PRODUCTS - 0.40% H.J. Heinz Co. ................................... 46,500 1,871 Kraft Foods, Inc. ................................ 49,600 1,365 -------- 3,236 --------
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) HOUSEHOLD PRODUCTS - 0.27% The Procter & Gamble Co. ......................... 38,000 $ 2,204 -------- TOBACCO - 2.53% Altria Group, Inc. ............................... 103,000 1,865 Imperial Tobacco Group plc, ADR .................. 121,900 7,129 Lorillard, Inc. .................................. 20,600 1,601 Philip Morris International, Inc. ................ 210,400 9,964 -------- 20,559 -------- TOTAL CONSUMER STAPLES .............................. 39,256 -------- ENERGY - 6.91% OIL & GAS - 6.91% BP plc, ADR ...................................... 78,300 4,433 Chevron Corp. .................................... 101,428 7,763 ConocoPhillips ................................... 377,176 18,927 Devon Energy Corp. ............................... 87,900 5,688 Duke Energy Corp. ................................ 178,000 2,816 Exxon Mobil Corp. ................................ 74,300 5,325 Occidental Petroleum Corp. ....................... 63,200 4,796 Royal Dutch Shell plc, ADR ....................... 110,500 6,427 -------- TOTAL ENERGY ........................................ 56,175 -------- FINANCIALS - 12.24% BANKS - 7.58% Bank of America Corp. ............................ 916,080 13,357 Bank of New York Mellon Corp. .................... 55,700 1,485 Citigroup, Inc. .................................. 791,003 3,235 Comerica, Inc. ................................... 25,800 716 JP Morgan Chase & Co. ............................ 365,834 15,281 KeyCorp .......................................... 235,457 1,269 PNC Financial Services Group, Inc. ............... 197,758 9,678 State Street Corp. ............................... 9,600 403 SunTrust Banks, Inc. ............................. 38,900 743 U.S. Bancorp ..................................... 118,560 2,753 Washington Mutual, Inc. .......................... 468,800 -- Wells Fargo & Co. ................................ 461,898 12,712 -------- 61,632 -------- DIVERSIFIED FINANCIALS - 1.56% American Express Co. ............................. 178,200 6,209 Capital One Financial Corp. ...................... 69,700 2,551 Morgan Stanley Dean Witter & Co. ................. 71,300 2,290 SLM Corp. ## ..................................... 165,200 1,602 -------- 12,652 -------- INSURANCE - 3.10% ACE Ltd. ......................................... 77,500 3,980
See accompanying notes 12 AMERICAN BEACON BALANCED FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) Allstate Corp. ................................... 77,400 $ 2,289 Genworth Financial, Inc. ......................... 194,300 2,064 Hartford Financial Services Group, Inc. .......... 33,000 809 Lincoln National Corp. ........................... 21,500 512 MetLife, Inc. .................................... 143,788 4,893 Prudential Financial, Inc. ....................... 29,400 1,330 Travelers Cos., Inc. ............................. 108,400 5,397 XL Capital Ltd. .................................. 237,900 3,904 -------- 25,178 -------- TOTAL FINANCIALS .................................... 99,462 -------- HEALTH CARE - 6.23% HEALTH CARE EQUIPMENT & SUPPLIES - 0.55% Baxter International, Inc. ....................... 47,700 2,578 CareFusion Corp. ## .............................. 34,550 773 Zimmer Holdings, Inc. ## ......................... 21,300 1,120 -------- 4,471 -------- HEALTH CARE PROVIDERS & SERVICES - 1.29% Cardinal Health, Inc. ............................ 69,100 1,958 CIGNA Corp. ...................................... 153,900 4,285 UnitedHealth Group, Inc. ......................... 72,300 1,876 WellPoint, Inc. ## ............................... 50,900 2,380 -------- 10,499 -------- PHARMACEUTICALS - 4.39% Amgen, Inc. ## ................................... 22,300 1,198 Bristol-Myers Squibb Co. ......................... 414,500 9,036 Eli Lilly & Co. .................................. 171,000 5,816 Johnson & Johnson ................................ 62,400 3,685 Merck & Co., Inc. ................................ 127,900 3,956 Merck & Co., Inc. ................................ 52,500 1,481 Pfizer, Inc. ..................................... 613,754 10,452 -------- 35,624 -------- TOTAL HEALTH CARE ................................... 50,594 -------- INDUSTRIALS - 8.87% AEROSPACE & DEFENSE - 2.78% Boeing Co. ....................................... 95,000 4,541 Lockheed Martin Corp. ............................ 37,900 2,607 Northrop Grumman Corp. ........................... 62,500 3,133 Raytheon Co. ..................................... 229,100 10,374 United Technologies Corp. ........................ 30,800 1,893 -------- 22,548 -------- AIR FREIGHT & COURIERS - 0.48% FedEx Corp. ...................................... 54,100 3,932 --------
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) INDUSTRIAL CONGLOMERATES - 3.12% 3M Co. ........................................... 61,800 $ 4,547 General Electric Co. ............................. 447,300 6,378 Honeywell International, Inc. .................... 281,600 10,107 Textron, Inc. .................................... 100,000 1,778 Tyco International Ltd. .......................... 75,725 2,540 -------- 25,350 -------- MACHINERY - 2.14% Caterpillar, Inc. ................................ 40,000 2,202 Cummins, Inc. .................................... 64,600 2,782 Eaton Corp. ...................................... 34,400 2,080 Illinois Tool Works, Inc. ........................ 72,200 3,315 ITT Industries, Inc. ............................. 77,000 3,904 PACCAR, Inc. ..................................... 82,300 3,079 -------- 17,362 -------- TRANSPORTATION INFRASTRUCTURE - 0.35% Burlington Northern Santa Fe Corp. ............... 38,000 2,862 -------- TOTAL INDUSTRIALS 72,054 -------- INFORMATION TECHNOLOGY - 7.03% COMMUNICATIONS EQUIPMENT - 0.70% Nokia Corp., ADR ................................. 450,200 5,677 -------- COMPUTERS & PERIPHERALS - 2.98% Dell, Inc. ## .................................... 137,000 1,985 Hewlett-Packard Co. .............................. 251,100 11,917 International Business Machines Corp. ............ 85,600 10,325 -------- 24,227 -------- ELECTRONIC EQUIPMENT & INSTRUMENTS -1.27% Intel Corp. ...................................... 364,600 6,967 Tyco Electronics Ltd. ............................ 155,325 3,301 -------- 10,268 -------- IT CONSULTING & SERVICES - 0.09% Accenture plc .................................... 20,400 756 -------- SOFTWARE - 1.99% CA, Inc. ......................................... 253,974 5,313 Microsoft Corp. .................................. 317,300 8,799 Oracle Corp. ..................................... 98,600 2,080 -------- 16,192 -------- TOTAL INFORMATION TECHNOLOGY 57,120 -------- MATERIALS - 1.70% CHEMICALS - 1.61% Air Products & Chemicals, Inc. ................... 24,000 1,851
See accompanying notes 13 AMERICAN BEACON BALANCED FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) Dow Chemical Co. ................................. 68,300 $ 1,604 E. I. du Pont de Nemours & Co. ................... 173,900 5,533 Eastman Chemical Co. ............................. 40,600 2,132 PPG Industries, Inc. ............................. 35,600 2,009 -------- 13,129 -------- METALS & MINING - 0.09% Alcoa, Inc. ...................................... 56,200 698 -------- TOTAL MATERIALS 13,827 -------- TELECOMMUNICATION SERVICES - 1.93% DIVERSIFIED TELECOMMUNICATION - 1.93% AT&T, Inc. ....................................... 260,477 6,687 Verizon Communications, Inc. ..................... 150,428 4,451 Vodafone Group plc, ADR .......................... 206,000 4,571 -------- TOTAL TELECOMMUNICATION SERVICES 15,709 -------- UTILITIES - 3.06% ELECTRIC UTILITIES - 2.50% CenterPoint Energy, Inc. ......................... 173,900 2,191 Constellation Energy Group, Inc. ................. 66,100 2,044 Dominion Resources, Inc. ......................... 105,300 3,590 Edison International ............................. 65,900 2,097 Entergy Corp. .................................... 30,900 2,371 Exelon Corp. ..................................... 84,800 3,982 FPL Group, Inc. .................................. 44,400 2,180 Public Service Enterprise Group, Inc. ............ 64,000 1,907 -------- 20,362 -------- GAS UTILITIES - 0.56% Spectra Energy Corp. ............................. 236,100 4,514 -------- TOTAL UTILITIES 24,876 -------- TOTAL COMMON STOCKS 464,468 --------
PAR AMOUNT ---------- CORPORATE OBLIGATIONS - 17.93% AEROSPACE & DEFENSE - 0.07% Raytheon Co., 5.375%, Due 4/1/2013 .......................... $ 550 601 -------- BANKS - 3.19% Bank of America Corp., 6.50%, Due 8/1/2016 ........................... 2,090 2,236 7.80%, Due 9/15/2016 .......................... 700 767 6.00%, Due 9/1/2017 ........................... 400 408 Bank of New York Mellon Corp., 4.95%, Due 11/1/2012 .......................... 355 385 5.125%, Due 8/27/2013 ......................... 400 433
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) Bank One Corp., 5.90%, Due 11/15/2011 ......................... $ 820 $ 882 4.90%, Due 4/30/2015 .......................... 250 261 Barclays Bank plc, 6.75%, Due 5/22/2019 .......................... 350 394 Bear Stearns Cos., Inc., 6.40%, Due 10/2/2017 .......................... 555 607 7.25%, Due 2/1/2018 ........................... 340 389 BP Capital Markets plc, 3.125%, Due 3/10/2012 ......................... 415 429 3.875%, Due 3/10/2015 ......................... 200 208 Citigroup, Inc., 6.375%, Due 8/12/2014 ......................... 1,170 1,241 5.50%, Due 10/15/2014 ......................... 550 564 6.125%, Due 11/21/2017 ........................ 760 776 8.50%, Due 5/22/2019 .......................... 650 760 Credit Suisse N.Y., 3.45%, Due 7/2/2012 ........................... 700 723 5.30%, Due 8/13/2019 .......................... 325 336 Deutsche Bank AG, 3.875%, Due 8/18/2014 ......................... 325 331 Fifth Third Bancorp, 8.25%, Due 3/1/2038 ........................... 1,500 1,444 Goldman Sachs Group, Inc., 5.35%, Due 1/15/2016 .......................... 725 761 6.25%, Due 9/1/2017 ........................... 650 695 5.95%, Due 1/18/2018 .......................... 280 295 6.75%, Due 10/1/2037 .......................... 1,402 1,477 ING Bank, NV, 5.125%, Due 5/1/2015 +++ ...................... 450 449 JP Morgan Chase & Co., 3.70%, Due 1/20/2015 .......................... 1,650 1,658 6.00%, Due 1/15/2018 .......................... 500 535 Korea Development Bank, 8.00%, Due 1/23/2014 .......................... 900 1,028 Merrill Lynch & Co., Inc., 6.40%, Due 8/28/2017 .......................... 340 351 6.875%, Due 4/25/2018 ......................... 875 942 6.11%, Due 1/29/2037 .......................... 365 345 Morgan Stanley, 7.30%, Due 5/13/2019 .......................... 350 392 5.625%, Due 9/23/2019 ......................... 350 352 Rabobank Nederland NV, 4.20%, Due 5/13/2014 +++ ...................... 200 208 State Street Corp., 4.30%, Due 5/30/2014 .......................... 290 305 UBS AG, 5.875%, Due 12/20/2017 ........................ 325 334
See accompanying notes 14 AMERICAN BEACON BALANCED FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) Wachovia Corp., 5.75%, Due 2/1/2018 ........................... $ 775 $ 810 Washington Mutual Finance Corp., 6.875%, Due 5/15/2011 ......................... 420 443 Wells Fargo & Co., 5.25%, Due 10/23/2012 ......................... 350 374 3.75%, Due 10/1/2014 .......................... 350 350 5.625%, Due 12/11/2017 ........................ 250 260 -------- 25,938 -------- BASIC MATERIALS - 0.10% E. I. du Pont de Nemours & Co., 5.875%, Due 1/15/2014 ......................... 560 623 Lubrizol Corp., 8.875%, Due 2/1/2019 .......................... 185 231 -------- 854 -------- COMMUNICATIONS - 1.82% Alltel Corp., 7.00%, Due 7/1/2012 ........................... 300 333 British Telecommunications plc, 9.125%, Due 12/15/2010 # ...................... 575 619 Comcast Cable Communications Holdings, Inc., 8.375%, Due 3/15/2013 ......................... 128 149 Comcast Corp., 5.30%, Due 1/15/2014 .......................... 410 437 5.875%, Due 2/15/2018 ......................... 305 322 6.45%, Due 3/15/2037 .......................... 2,630 2,696 6.55%, Due 7/1/2039 ........................... 350 365 France Telecom S.A., 4.375%, Due 7/8/2014 .......................... 465 491 Nokia Corp., 5.375%, Due 5/15/2019 ......................... 600 620 Rogers Communications, Inc., 6.80%, Due 8/15/2018 .......................... 350 394 Telecom Italia Capital SA, 4.95%, Due 9/30/2014 .......................... 475 493 Telefonica Emisiones SAU, 5.984%, Due 6/20/2011 ......................... 380 404 4.949%, Due 1/15/2015 ......................... 515 545 6.421%, Due 6/20/2016 ......................... 350 388 Time Warner Cable, Inc., 8.25%, Due 2/14/2014 .......................... 300 352 5.85%, Due 5/1/2017 ........................... 895 941 7.30%, Due 7/1/2038 ........................... 1,920 2,163 Viacom, Inc., 6.875%, Due 4/30/2036 ......................... 2,880 3,040 -------- 14,752 --------
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) CONSUMER DISCRETIONARY - 0.44% Anheuser-Busch InBev Worldwide, Inc., 3.00%, Due 10/15/2012 ......................... $ 470 $ 474 8.00%, Due 11/15/2039 +++ ..................... 125 155 Best Buy Co., Inc., 6.75%, Due 7/15/2013 .......................... 415 446 Lowe's Companies, Inc., 5.50%, Due 10/15/2035 ......................... 210 210 6.65%, Due 9/15/2037 .......................... 170 196 Wal-Mart Stores, Inc., 7.55%, Due 2/15/2030 .......................... 425 547 6.50%, Due 8/15/2037 .......................... 1,340 1,551 -------- 3,579 -------- CONSUMER STAPLES - 0.77% Altria Group, Inc., 9.70%, Due 11/10/2018 ......................... 365 449 Coca-Cola Enterprises, Inc., 7.375%, Due 3/3/2014 .......................... 175 206 Costco Wholesale Corp., 5.30%, Due 3/15/2012 .......................... 825 894 Dr Pepper Snapple Group, Inc., 6.82%, Due 5/1/2018 ........................... 250 286 Express Scripts, Inc., 6.25%, Due 6/15/2014 .......................... 570 626 Kellogg Co., 4.25%, Due 3/6/2013 ........................... 500 528 Kraft Foods, Inc., 7.00%, Due 8/11/2037 .......................... 1,580 1,726 Kroger Co., 7.50%, Due 1/15/2014 .......................... 190 219 Lorillard Tobacco Co., 8.125%, Due 6/23/2019 ......................... 310 345 Mead Johnson Nutrition Co., 4.90%, Due 11/1/2019 +++ ...................... 405 404 Safeway, Inc., 6.25%, Due 3/15/2014 .......................... 535 591 -------- 6,274 -------- ENERGY - 1.67% Cameron International Corp., 6.375%, Due 7/15/2018 ......................... 215 231 Canadian Natural Resources Ltd., 6.70%, Due 7/15/2011 .......................... 410 441 6.25%, Due 3/15/2038 .......................... 365 386 ConocoPhillips, 4.60%, Due 1/15/2015 .......................... 900 966 5.20%, Due 5/15/2018 .......................... 425 449 5.75%, Due 2/1/2019 ........................... 310 339 6.50%, Due 2/1/2039 ........................... 705 789
See accompanying notes 15 AMERICAN BEACON BALANCED FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) Consolidated Natural Gas Co., 6.00%, Due 10/15/2010 ......................... $ 495 $ 515 Energy Transfer Partners LP, 8.50%, Due 4/15/2014 .......................... 605 703 9.00%, Due 4/15/2019 .......................... 260 314 Enterprise Products Operating LLC, 6.125%, Due 10/15/2039 ........................ 310 311 EOG Resources Canada, Inc., 4.75%, Due 3/15/2014 +++ ...................... 350 372 EQT Corp., 8.125%, Due 6/1/2019 .......................... 190 218 FirstEnergy Solutions Corp., 4.80%, Due 2/15/2015 +++ ...................... 175 179 Marathon Oil Corp., 6.00%, Due 10/1/2017 .......................... 415 440 Petrobras International Finance Co., 6.875%, Due 1/20/2040 ......................... 125 125 Shell International Finance BV, 6.375%, Due 12/15/2038 ........................ 1,760 2,043 Spectra Energy Capital Corp., 5.65%, Due 3/1/2020 ........................... 310 319 TransCanada PipeLines Ltd., 7.625%, Due 1/15/2039 ......................... 340 434 Transocean, Inc., 6.80%, Due 3/15/2038 .......................... 3,170 3,625 Valero Energy Corp., 9.375%, Due 3/15/2019 ......................... 155 183 6.625%, Due 6/15/2037 ......................... 185 170 -------- 13,552 -------- FINANCE - 1.26% American Express Co., 8.15%, Due 3/19/2038 .......................... 325 411 American Express Credit Corp., 5.875%, Due 5/2/2013 .......................... 475 510 Ameriprise Financial, Inc., 5.35%, Due 11/15/2010 ......................... 775 795 CME Group, Inc., 5.40%, Due 8/1/2013 ........................... 735 796 Countrywide Home Loans, Inc., 4.00%, Due 3/22/2011 .......................... 140 143 General Electric Capital Corp., 5.65%, Due 6/9/2014 ........................... 1,050 1,134 5.625%, Due 5/1/2018 .......................... 765 787 6.00%, Due 8/7/2019 ........................... 350 368 5.875%, Due 1/14/2038 ......................... 625 597 HSBC Finance Corp., 5.25%, Due 1/14/2011 .......................... 1,400 1,451
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) International Lease Finance Corp., 5.75%, Due 6/15/2011 .......................... $ 475 $ 427 Novartis Capital Corp., 4.125%, Due 2/10/2014 ......................... 560 591 Novartis Securities Investment Ltd., 5.125%, Due 2/10/2019 ......................... 1,164 1,239 PNC Funding Corp., 4.25%, Due 9/21/2015 .......................... 460 461 Thomson Reuters Corp., 4.70%, Due 10/15/2019 ......................... 350 352 TIAA Global Markets, Inc., 5.125%, Due 10/10/2012 +++ .................... 200 215 -------- 10,277 -------- HEALTH CARE - 0.65% Covidien International Finance SA, 5.45%, Due 10/15/2012 ......................... 360 391 6.55%, Due 10/15/2037 ......................... 1,500 1,748 UnitedHealth Group, Inc., 5.25%, Due 3/15/2011 .......................... 765 799 6.625%, Due 11/15/2037 ........................ 2,000 2,022 6.875%, Due 2/15/2038 ......................... 285 305 -------- 5,265 -------- INDUSTRIALS - 2.46% American Honda Finance Corp., 4.625%, Due 4/2/2013 +++ ...................... 425 435 Amphenol Corp., 4.75%, Due 11/15/2014 ......................... 240 240 Burlington Northern Santa Fe Corp., 5.75%, Due 3/15/2018 .......................... 425 460 Canadian National Railway Co., 5.55%, Due 5/15/2018 .......................... 350 382 5.55%, Due 3/1/2019 ........................... 175 192 Caterpillar Financial Services Corp., 4.85%, Due 12/7/2012 .......................... 265 283 Con-way, Inc., 8.875%, Due 5/1/2010 .......................... 1,850 1,870 CRH America, Inc., 6.00%, Due 9/30/2016 .......................... 835 864 Daimler Finance NA LLC, 7.75%, Due 1/18/2011 .......................... 1,000 1,062 5.875%, Due 3/15/2011 ......................... 450 469 5.75%, Due 9/8/2011 ........................... 550 581 Deere & Co., 4.375%, Due 10/16/2019 ........................ 350 352 Eaton Corp., 5.60%, Due 5/15/2018 .......................... 340 362 FedEx Corp., 8.00%, Due 1/15/2019 .......................... 900 1,090
See accompanying notes 16 AMERICAN BEACON BALANCED FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) Home Depot, Inc., 5.20%, Due 3/1/2011 ........................... $ 445 $ 465 Honeywell International, Inc., 4.25%, Due 3/1/2013 ........................... 1,080 1,143 John Deere Capital Corp., 5.40%, Due 10/17/2011 ......................... 650 700 Koninklijke Philips Electronics NV, 5.75%, Due 3/11/2018 .......................... 335 360 L-3 Communications Corp., 5.20%, Due 10/15/2019 +++ ..................... 190 192 Norfolk Southern Corp., 5.75%, Due 4/1/2018 ........................... 425 462 Northrop Grumman Corp., 5.05%, Due 8/1/2019 ........................... 150 158 Tyco Electronics Group SA, 6.55%, Due 10/1/2017 .......................... 2,057 2,159 7.125%, Due 10/1/2037 ......................... 1,750 1,795 Tyco International Finance SA, 4.125%, Due 10/15/2014 ........................ 175 179 8.50%, Due 1/15/2019 .......................... 385 470 Unilever Capital Corp., 7.125%, Due 11/1/2010 ......................... 2,000 2,132 Union Pacific Corp., 7.875%, Due 1/15/2019 ......................... 350 432 United Technologies Corp., 6.125%, Due 2/1/2019 .......................... 190 214 6.125%, Due 7/15/2038 ......................... 210 233 Waste Management, Inc., 7.375%, Due 3/11/2019 ......................... 255 297 -------- 20,033 -------- INSURANCE - 0.78% Aegon Funding Corp., 5.75%, Due 12/15/2020 ......................... 450 426 American International Group, Inc., 5.85%, Due 1/16/2018 .......................... 550 414 6.25%, Due 5/1/2036 ........................... 425 287 John Hancock Global Funding II, 7.90%, Due 7/2/2010 +++ ....................... 25 26 Liberty Mutual Insurance Co., 7.875%, Due 10/15/2026 +++ .................... 1,500 1,374 Lincoln National Corp., 4.75%, Due 2/15/2014 .......................... 245 248 MetLife, Inc., 5.375%, Due 12/15/2012 ........................ 535 576 6.375%, Due 6/15/2034 ......................... 350 379 Metropolitan Life Global Funding I, 4.625%, Due 8/19/2010 +++ ..................... 900 918
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) Pricoa Global Funding I, 5.40%, Due 10/18/2012 +++ ..................... $ 175 $ 184 Prudential Financial, Inc., 4.50%, Due 7/15/2013 .......................... 550 559 5.10%, Due 9/20/2014 .......................... 550 567 Willis North America, Inc., 6.20%, Due 3/28/2017 .......................... 360 352 -------- 6,310 -------- PHARMACEUTICALS - 1.19% Amgen, Inc., 6.90%, Due 6/1/2038 ........................... 1,480 1,794 AstraZeneca plc, 6.45%, Due 9/15/2037 .......................... 1,880 2,182 Biogen Idec, Inc., 6.875%, Due 3/1/2018 .......................... 1,500 1,637 Bristol-Myers Squibb Co., 5.45%, Due 5/1/2018 ........................... 250 272 GlaxoSmithKline Capital, Inc., 5.65%, Due 5/15/2018 .......................... 250 275 6.375%, Due 5/15/2038 ......................... 1,020 1,157 Hospira, Inc., 6.05%, Due 3/30/2017 .......................... 360 379 Merck & Co., Inc., 5.85%, Due 6/30/2039 .......................... 180 196 Pfizer, Inc., 4.45%, Due 3/15/2012 .......................... 770 817 Wyeth Corp., 5.50%, Due 2/1/2014 ........................... 890 975 -------- 9,684 -------- REAL ESTATE - 0.22% Equity Residential, 5.125%, Due 3/15/2016 ......................... 365 360 ProLogis, 5.625%, Due 11/15/2016 ........................ 550 506 Simon Property Group LP, 5.30%, Due 5/30/2013 .......................... 425 440 5.75%, Due 12/1/2015 .......................... 460 475 -------- 1,781 -------- SOVEREIGN - 0.05% Province of Ontario Canada, 4.10%, Due 6/16/2014 .......................... 350 370 -------- TECHNOLOGY - 1.04% Cisco Systems, Inc., 5.90%, Due 2/15/2039 .......................... 1,420 1,511 Computer Sciences Corp., 5.50%, Due 3/15/2013 .......................... 255 269
See accompanying notes 17 AMERICAN BEACON BALANCED FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) 6.50%, Due 3/15/2018 .......................... $ 495 $ 541 Dell, Inc., 3.375%, Due 6/15/2012 ......................... 290 300 5.875%, Due 6/15/2019 ......................... 90 97 Hewlett-Packard Co., 4.25%, Due 2/24/2012 .......................... 585 618 4.50%, Due 3/1/2013 ........................... 425 455 6.125%, Due 3/1/2014 .......................... 460 517 International Business Machines Corp., 4.75%, Due 11/29/2012 ......................... 480 521 7.625%, Due 10/15/2018 ........................ 770 953 ITT Corp., 4.90%, Due 5/1/2014 ........................... 845 896 Oracle Corp., 5.00%, Due 7/8/2019 ........................... 350 369 6.50%, Due 4/15/2038 .......................... 1,055 1,202 Xerox Corp., 5.65%, Due 5/15/2013 .......................... 75 79 8.25%, Due 5/15/2014 .......................... 75 86 -------- 8,414 -------- TELEPHONE - 0.87% America Movil, S.A.B. de C.V., 6.375%, Due 3/1/2035 .......................... 350 357 AT&T Wireless Services, Inc., 8.75%, Due 3/1/2031 ........................... 330 435 AT&T, Inc., 5.10%, Due 9/15/2014 .......................... 860 927 5.625%, Due 6/15/2016 ......................... 400 435 5.50%, Due 2/1/2018 ........................... 300 315 6.80%, Due 5/15/2036 .......................... 150 165 6.40%, Due 5/15/2038 .......................... 1,840 1,944 Deutsche Telekom AG, 8.50%, Due 6/15/2010 .......................... 380 397 Verizon Communications, Inc., 5.50%, Due 4/1/2017 ........................... 350 371 6.90%, Due 4/15/2038 .......................... 275 311 Verizon Wireless Capital, LLC, 3.75%, Due 5/20/2011 +++ ...................... 360 372 8.50%, Due 11/15/2018 +++ ..................... 515 642 Vodafone Group plc, 6.15%, Due 2/27/2037 .......................... 365 389 -------- 7,060 -------- UTILITIES - 1.35% American Water Capital Corp., 6.593%, Due 10/15/2037 ........................ 1,367 1,425 Columbus Southern Power Co., 5.50%, Due 3/1/2013 ........................... 660 696
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) Dominion Resources, Inc., Series A, 5.60%, Due 11/15/2016 ............... $ 500 $ 528 Series D, 8.875%, Due 1/15/2019 ............... 120 152 Duke Energy Carolinas LLC, 5.10%, Due 4/15/2018 .......................... 350 370 Duke Energy Indiana, Inc., 6.05%, Due 6/15/2016 .......................... 520 569 Exelon Generation Co. LLC, 6.25%, Due 10/1/2039 .......................... 310 324 Kerr-McGee Corp., 6.95%, Due 7/1/2024 ........................... 380 402 MidAmerican Energy Holdings Co., 5.875%, Due 10/1/2012 ......................... 960 1,047 6.125%, Due 4/1/2036 .......................... 350 373 Pacific Gas & Electric Co., 6.25%, Due 12/1/2013 .......................... 175 197 Public Service Enterprise Group, Inc., 6.95%, Due 6/1/2012 ........................... 845 932 Sempra Energy, 6.50%, Due 6/1/2016 ........................... 315 346 Southern Power Co., 6.25%, Due 7/15/2012 .......................... 705 773 Spectra Energy Capital LLC, 5.668%, Due 8/15/2014 ......................... 310 330 Union Electric Co., 6.70%, Due 2/1/2019 ........................... 325 365 Virginia Electric and Power Co., 5.40%, Due 4/30/2018 .......................... 350 374 Westar Energy, Inc., 6.00%, Due 7/1/2014 ........................... 175 189 Wisconsin Electric Power Co., 6.25%, Due 12/1/2015 .......................... 570 659 Xcel Energy, Inc., 5.613%, Due 4/1/2017 .......................... 869 924 -------- 10,975 -------- TOTAL CORPORATE OBLIGATIONS 145,719 -------- NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 2.24% COMMERCIAL MORTGAGE-BACKED SECURITY - 1.20% Banc of America Commercial Mortgage, Inc., 2005-6 A1, 5.001%, Due 9/10/2047 .............. 382 387 2007-2 A2, 5.634%, Due 4/10/2049 .............. 700 707 Bear Stearns Commercial Mortgage Securities, Inc., 2006-T22 A2, 5.463%, Due 4/12/2038 ............ 905 919 2006-PW13 A4, 5.54%, Due 9/11/2041 ............ 875 885 2004-PWR5 A4, 4.831%, Due 7/11/2042 ........... 2,010 1,968
See accompanying notes 18 AMERICAN BEACON BALANCED FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) 2005-T20 A2, 5.127%, Due 10/12/2042 ........... $ 875 $ 888 Citigroup Commercial Mortgage Trust, 2004-C2 A3, 4.38%, Due 10/15/2041 ............. 995 996 JP Morgan Chase Commercial Mortgage Securities Corp., 2005-LDP3 A1, 4.655%, Due 8/15/2042 ........... 74 75 2005-LDP1 A2, 4.625%, Due 3/15/2046 ........... 941 941 2007-CB19 A4, 5.746%, Due 2/12/2049 ........... 550 502 2007-CB20 A2, 5.629%, Due 2/12/2051 ........... 700 715 LB-UBS Commercial Mortgage Trust, 2007-C1 A4, 5.424%, Due 2/15/2040 ............. 500 422 Wachovia Bank Commercial Mortgage Trust, 2007-C32 A2, 5.735%, Due 6/15/2049 ............ 330 330 -------- 9,735 -------- WHOLE LOAN COLLATERALIZED MORTGAGE OBLIGATIONS - 1.04% Banc of America Commercial Mortgage, Inc., 2006-4 A4, 5.634%, Due 7/10/2046 .............. 1,355 1,338 Bear Stearns Commercial Mortgage Securities, Inc., 2006-PWR14 A4, 5.201%, Due 12/11/2038 ......... 665 632 Chase Mortgage Finance Corp., 2006-A1 A1, 6.024%, Due 9/25/2036 ss .......... 1,095 955 Citicorp Mortgage Securities, Inc., 2006-3 2A1, 5.50%, Due 6/25/2021 .............. 940 914 Citigroup/Deutsche Bank Commercial Mortgage Trust, 2007-CD5 A4, 5.886%, Due 11/15/2044 ........... 1,690 1,670 JP Morgan Chase Commercial Mortgage Securities Corp., 2004-CBX A4, 4.529%, Due 1/12/2037 ............ 555 559 2006-LDP9 A3, 5.336%, Due 5/15/2047 ........... 615 553 Prime Mortgage Trust, 2005-2, 5.25%, Due 7/25/2020 .................. 1,273 1,289 Wells Fargo Mortgage Backed Securities Trust, 2006-11 A8, 6.00%, Due 9/25/2036 .............. 656 579 -------- 8,489 -------- TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS 18,224 -------- ASSET-BACKED SECURITIES - 0.67% ASSET BACKED SECURITIES - 0.27% BMW Floorplan Master Owner Trust, 2009-1A A, 1.394%, Due 9/15/2014 +++ ss ....... 350 349 Ford Credit Floorplan Master Owner Trust, 2009-2 A, 1.794%, Due 9/15/2014 ss ............ 350 351 Honda Auto Receivables Owner Trust, 2009-3 A4, 3.30%, Due 9/15/2015 ............... 470 483
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) Hyundai Auto Receivables Trust, 2009-A A4, 3.15%, Due 3/15/2016 ............... $ 270 $ 273 John Deere Owner Trust, 2009-A A3, 2.59%, Due 10/15/2013 .............. 480 488 2009-A A4, 3.96%, Due 5/16/2016 ............... 265 276 -------- 2,220 -------- American Express Credit Account Master Trust, 2006-2 A, 5.35%, Due 1/15/2014 ................ 1,400 1,489 Capital One Multi-Asset Execution Trust, 2006-A10 A10, 5.15%, Due 6/15/2014 ............ 1,050 1,116 Discover Card Master Trust, 2009-A2 A, 1.545%, Due 2/17/2015 ss ........... 200 201 Volkswagen Auto Loan Enhanced Trust, 2008-2 A4A, 6.24%, Due 7/20/2015 .............. 400 444 -------- 3,250 -------- TOTAL ASSET-BACKED SECURITIES 5,470 -------- U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 6.88% FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.52% 4.50%, Due 3/1/2019 ........................... 628 666 5.00%, Due 10/1/2020 .......................... 254 271 5.00%, Due 4/1/2023 ........................... 1,162 1,228 5.50%, Due 1/1/2024 ........................... 530 565 5.00%, Due 8/1/2033 ........................... 1,322 1,375 5.50%, Due 2/1/2034 ........................... 1,154 1,220 5.00%, Due 3/1/2034 ........................... 1,009 1,048 6.00%, Due 6/1/2034 ........................... 729 781 6.00%, Due 8/1/2034 ........................... 598 639 5.00%, Due 8/1/2035 ........................... 940 977 5.00%, Due 9/1/2035 ........................... 1,199 1,246 5.00%, Due 9/1/2035 ........................... 671 697 6.00%, Due 8/1/2036 ........................... 969 1,033 5.50%, Due 11/1/2036 .......................... 1,071 1,130 5.50%, Due 4/1/2037 ........................... 1,287 1,357 5.50%, Due 5/1/2037 ........................... 735 775 6.00%, Due 9/1/2037 ........................... 436 464 5.00%, Due 3/1/2038 ........................... 1,477 1,533 6.00%, Due 3/1/2038 ........................... 2,729 2,903 5.50%, Due 5/1/2038 ........................... 521 549 -------- 20,457 -------- FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.80% 5.50%, Due 2/1/2014 ........................... 211 227 6.00%, Due 4/1/2016 ........................... 210 227 5.00%, Due 12/1/2017 .......................... 590 630 4.50%, Due 9/1/2018 ........................... 369 391 4.00%, Due 8/1/2020 ........................... 781 798
See accompanying notes 19 AMERICAN BEACON BALANCED FUND SCHEDULE OF INVESTMENTS October 31, 2009
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) 5.50%, Due 5/1/2023 ........................... $ 180 $ 192 5.00%, Due 12/1/2023 .......................... 569 600 5.00%, Due 3/1/2024 ........................... 588 621 5.00%, Due 3/1/2034 ........................... 1,379 1,436 4.50%, Due 9/1/2034 ........................... 647 659 5.50%, Due 12/1/2035 .......................... 437 461 5.50%, Due 12/1/2035 .......................... 332 351 5.50%, Due 1/1/2036 ........................... 1,030 1,087 5.50%, Due 2/1/2036 ........................... 693 732 5.00%, Due 2/1/2036 ........................... 675 702 5.00%, Due 3/1/2036 ........................... 1,226 1,274 5.50%, Due 4/1/2036 ........................... 920 972 6.00%, Due 9/1/2036 ........................... 787 838 6.50%, Due 9/1/2036 ........................... 1,762 1,897 5.50%, Due 12/1/2036 .......................... 1,300 1,371 5.50%, Due 2/1/2037 ........................... 1,284 1,354 5.50%, Due 8/1/2037 ........................... 860 909 6.00%, Due 8/1/2037 ........................... 1,101 1,172 6.50%, Due 8/1/2037 ........................... 293 315 6.00%, Due 11/1/2037 .......................... 595 633 5.50%, Due 3/1/2038 ........................... 2,144 2,260 5.00%, Due 4/1/2038 ........................... 4,006 4,159 5.00%, Due 6/1/2038 ........................... 1,778 1,846 5.50%, Due 6/1/2038 ........................... 2,191 2,309 6.00%, Due 9/1/2038 ........................... 477 507 -------- 30,930 -------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.56% 7.00%, Due 12/15/2025 ......................... 238 263 4.201%, Due 8/16/2026 ......................... 588 603 6.50%, Due 8/15/2027 .......................... 280 303 6.50%, Due 11/15/2027 ......................... 296 320 7.50%, Due 12/15/2028 ......................... 224 254 5.50%, Due 7/15/2033 .......................... 770 819 6.00%, Due 12/15/2033 ......................... 804 863 5.50%, Due 2/20/2034 .......................... 1,055 1,120 -------- 4,545 -------- TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS ....... 55,932 -------- U.S. AGENCY OBLIGATIONS - 5.86% FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.04% 4.50%, Due 1/15/2015 .......................... 22,140 24,016 6.25%, Due 7/15/2032 .......................... 525 639 -------- 24,655 -------- FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.80% 5.125%, Due 1/2/2014 .......................... 645 688 4.625%, Due 10/15/2014 ........................ 1,000 1,093 5.375%, Due 6/12/2017 ......................... 1,000 1,131
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) 6.25%, Due 5/15/2029 .......................... $ 12,200 $ 14,647 6.00%, Due 4/18/2036 .......................... 5,065 5,217 -------- 22,776 -------- TENNESSEE VALLEY AUTHORITY - 0.02% 5.25%, Due 9/15/2039 .......................... 170 174 -------- TOTAL U.S. AGENCY OBLIGATIONS ....................... 47,605 -------- U.S. TREASURY OBLIGATIONS - 3.82% 1.375%, Due 2/15/2012 ......................... 2,625 2,642 2.00%, Due 11/30/2013 ......................... 3,000 3,009 2.375%, Due 9/30/2014 ......................... 3,865 3,880 4.125%, Due 5/15/2015 ......................... 2,000 2,168 3.00%, Due 9/30/2016 .......................... 1,000 1,002 3.75%, Due 11/15/2018 ......................... 2,000 2,062 3.625%, Due 8/15/2019 ......................... 3,265 3,328 7.875%, Due 2/15/2021 ......................... 1,200 1,665 6.25%, Due 8/15/2023 .......................... 800 992 6.875%, Due 8/15/2025 ......................... 580 769 5.25%, Due 11/15/2028 ......................... 750 853 4.75%, Due 2/15/2037 .......................... 130 141 4.50%, Due 5/15/2038 .......................... 4,000 4,178 4.25%, Due 5/15/2039 .......................... 3,290 3,298 4.50%, Due 8/15/2039 .......................... 1,000 1,045 TOTAL U.S. TREASURY OBLIGATIONS .................. 31,032 --------
SHARES ---------- SHORT TERM INVESTMENTS - 5.24% American Beacon U.S. Government Money Market Select Fund * ................................. 5,000,000 5,000 JP Morgan U.S. Government Money Market Fund ...... 33,209,477 33,209
PAR AMOUNT ---------- U.S. Treasury, 0.03%, Due 12/10/2009 @ ....................... $ 4,378 4,378 TOTAL SHORT TERM INVESTMENTS ..................... 42,587 -------- TOTAL INVESTMENTS 99.79% - (COST $804,925) 811,037 OTHER ASSETS, NET OF LIABILITIES - 0.21% ............ 1,695 TOTAL NET ASSETS - 100.00% .......................... $812,732 ========
See accompanying notes 20 AMERICAN BEACON BALANCED FUND SCHEDULE OF INVESTMENTS October 31, 2009 Percentages are stated as a percent of net assets. ## Non-income producing security. +++ 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 $6,474 or 0.80% of net assets. The Fund has no right to demand registration of these securities. # Step Up/Down ss The coupon rate shown on floating or adjustable rate securities represents the rate at period end. The due date on these types of securities reflects the final maturity date. * The Fund is affiliated by having the same investment advisor. @ At October 31, 2009, security pledged as collateral for open futures contracts. FUTURES CONTRACTS (DOLLARS IN THOUSANDS)
UNREALIZED NUMBER OF EXPIRATION MARKET APPRECIATION/ CONTRACTS DATE VALUE (DEPRECIATION) --------- ---------- ------- -------------- Emini S&P 500 Index .. 802 Dec 2009 $41,423 $(831) ======= =====
See accompanying notes 21 AMERICAN BEACON LARGE CAP GROWTH FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) COMMON STOCKS - 93.63% CONSUMER DISCRETIONARY - 12.90% HOTELS, RESTAURANTS & LEISURE - 1.28% Carnival Corp. ................................... 11,039 $ 322 McDonald's Corp. ................................. 10,071 590 -------- 912 -------- INTERNET & CATALOG RETAIL - 3.90% Amazon.com, Inc. ## .............................. 4,150 493 eBay, Inc. ## .................................... 37,300 831 priceline.com, Inc. ## ........................... 9,229 1,456 -------- 2,780 -------- MEDIA - 0.98% The McGraw-Hill Companies, Inc. .................. 24,309 699 -------- MULTILINE RETAIL - 1.69% Costco Wholesale Corp. ........................... 5,500 312 Kohl's Corp. ## .................................. 9,000 515 Target Corp. ..................................... 7,700 373 -------- 1,200 -------- SPECIALTY RETAIL - 4.20% Aeropostale, Inc. ## ............................. 15,243 572 AutoZone, Inc. ## ................................ 4,033 546 Best Buy Company, Inc. ........................... 10,100 386 Dollar Tree, Inc. ## ............................. 12,730 574 O'Reilly Automotive, Inc. ## ..................... 8,950 334 Ross Stores, Inc. ................................ 13,299 585 -------- 2,997 -------- TEXTILES & APPAREL - 0.85% Coach, Inc. ...................................... 18,401 607 -------- TOTAL CONSUMER DISCRETIONARY 9,195 -------- CONSUMER STAPLES - 1.92% FOOD & DRUG RETAILING - 1.03% CVS Caremark Corp. ............................... 20,650 729 -------- HOUSEHOLD PRODUCTS - 0.89% Colgate-Palmolive Co. ............................ 8,079 635 -------- TOTAL CONSUMER STAPLES 1,364 -------- ENERGY - 7.06% ENERGY EQUIPMENT & SERVICES - 1.61% FMC Technologies, Inc. ## ........................ 5,850 308 Transocean Ltd. ## ............................... 6,948 583 Weatherford International Ltd. ## ................ 14,600 256 -------- 1,147 --------
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) OIL & GAS - 5.45% Apache Corp. ..................................... 7,134 $ 672 EOG Resources, Inc. .............................. 7,548 616 Murphy Oil Corp. ................................. 11,237 687 Occidental Petroleum Corp. ....................... 7,975 605 Peabody Energy Corp. ............................. 6,250 247 Petroleo Brasileiro S.A., ADR .................... 8,700 402 Suncor Energy, Inc. .............................. 19,916 658 -------- 3,887 -------- TOTAL ENERGY 5,034 -------- FINANCIALS - 10.86% BANKS - 3.17% Goldman Sachs Group, Inc. ........................ 7,654 1,302 JP Morgan Chase & Co. ............................ 22,900 957 -------- 2,259 -------- DIVERSIFIED FINANCIALS - 7.69% BlackRock, Inc. .................................. 3,050 660 Charles Schwab Corp. ............................. 33,500 581 Franklin Resources, Inc. ......................... 6,830 715 IntercontinentalExchange, Inc. ## ................ 3,250 326 Invesco Ltd. ..................................... 8,200 173 Knight Capital Group, Inc. ## .................... 29,448 496 Mastercard, Inc. ................................. 3,600 789 TD Ameritrade Holding Corp. ## ................... 29,553 570 Visa, Inc. ....................................... 15,450 1,171 -------- 5,481 -------- TOTAL FINANCIALS 7,740 -------- HEALTH CARE - 12.45% BIOTECHNOLOGY - 2.00% Celgene Corp. ## ................................. 6,400 327 Gilead Sciences, Inc. ## ......................... 25,821 1,098 -------- 1,425 -------- HEALTH CARE EQUIPMENT & SUPPLIES - 2.24% Baxter International, Inc. ....................... 12,600 681 Becton, Dickinson & Co. .......................... 8,340 570 Mindray Medical International Ltd. ............... 11,200 345 -------- 1,596 -------- HEALTH CARE PROVIDERS & SERVICES - 1.72% McKesson Corp. ................................... 10,454 614 WellPoint, Inc. ## ............................... 13,176 616 -------- 1,230 -------- PHARMACEUTICALS - 6.49% Abbott Laboratories .............................. 12,855 650
See accompanying notes 22 AMERICAN BEACON LARGE CAP GROWTH FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) Amgen, Inc. ## ................................... 10,380 $ 558 Eli Lilly & Co. .................................. 18,823 640 Johnson & Johnson ................................ 10,225 604 Medco Health Solutions, Inc. ## .................. 23,900 1,341 Teva Pharmaceutical Industries Ltd., ADR ......... 16,450 830 -------- 4,623 -------- TOTAL HEALTH CARE 8,874 -------- INDUSTRIALS - 13.55% AEROSPACE & DEFENSE - 2.81% General Dynamics Corp. ........................... 9,779 613 Lockheed Martin Corp. ............................ 8,204 564 United Technologies Corp. ........................ 13,400 824 -------- 2,001 -------- COMMERCIAL SERVICES & SUPPLIES - 3.57% Apollo Group, Inc.## ............................. 8,926 510 CH Robinson Worldwide, Inc. ...................... 5,500 303 H&R Block, Inc. .................................. 34,868 639 Hewitt Associates, Inc. ## ....................... 15,961 567 ITT Educational Services, Inc. ## ................ 5,862 530 -------- 2,549 -------- CONSTRUCTION & ENGINEERING - 1.15% Aecom Technology Corp. ## ........................ 10,200 257 Fluor Corp. ...................................... 12,690 564 -------- 821 -------- ELECTRICAL EQUIPMENT - 0.43% First Solar, Inc. ## ............................. 2,500 305 -------- INDUSTRIAL CONGLOMERATES - 0.82% 3M Co. ........................................... 7,910 582 -------- MACHINERY - 3.08% Danaher Corp. .................................... 12,200 832 Flowserve Corp. .................................. 6,423 631 Joy Global, Inc. ................................. 14,518 732 -------- 2,195 -------- ROAD & RAIL - 1.22% Union Pacific Corp. .............................. 15,800 871 -------- TRADING COMPANIES & DISTRIBUTORS - 0.47% Fastenal Co. ..................................... 9,700 335 -------- TOTAL INDUSTRIALS 9,659 -------- INFORMATION TECHNOLOGY - 30.53% COMMUNICATIONS EQUIPMENT - 6.23% Cisco Systems, Inc. ## ........................... 68,539 1,566
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) Corning, Inc. .................................... 41,648 $ 609 Juniper Networks, Inc. ## ........................ 20,850 532 QUALCOMM, Inc. ................................... 41,859 1,733 -------- 4,440 -------- COMPUTERS & PERIPHERALS - 9.49% Apple Computer, Inc. ## .......................... 11,201 2,111 Dell, Inc. ## .................................... 44,740 648 EMC Corp. ## ..................................... 35,211 580 Hewlett-Packard Co. .............................. 37,553 1,782 International Business Machines Corp. ............ 7,859 948 Western Digital Corp. ## ......................... 20,567 693 -------- 6,762 -------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.85% Intel Corp. ...................................... 31,837 608 -------- INTERNET SOFTWARE & SERVICES - 2.73% Equinix, Inc. ## ................................. 6,300 538 Google, Inc. ## .................................. 2,630 1,410 -------- 1,948 -------- IT CONSULTING & SERVICES - 4.23% Accenture plc .................................... 15,520 576 Cognizant Technology Solutions Corp. ## .......... 47,275 1,827 The Western Union Co. ............................ 33,733 613 -------- 3,016 -------- SEMICONDUCTOR EQUIPMENT & PRODUCTS - 2.04% Lam Research Corp. ## ............................ 7,100 239 Linear Technology Corp. ## ....................... 9,700 251 Marvell Technology Group Ltd. ## ................. 23,800 327 Texas Instruments, Inc. .......................... 27,308 640 -------- 1,457 -------- SOFTWARE - 4.96% Activision Blizzard, Inc. ## ..................... 51,518 558 Adobe Systems, Inc. ## ........................... 11,200 369 Microsoft Corp. .................................. 48,080 1,333 Oracle Corp. ..................................... 60,380 1,274 -------- 3,534 -------- TOTAL INFORMATION TECHNOLOGY 21,765 -------- MATERIALS - 2.25% CHEMICALS - 1.03% Ecolab, Inc. ..................................... 7,450 328 Monsanto Co. ..................................... 6,000 403 -------- 731 --------
See accompanying notes 23 AMERICAN BEACON LARGE CAP GROWTH FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) CONTAINERS & PACKAGING - 0.74% Owens-Illinois, Inc. ## .......................... 16,569 $ 528 -------- METALS & MINING - 0.48% Freeport-McMoRan Copper & Gold, Inc. ## .......... 4,700 345 -------- TOTAL MATERIALS ..................................... 1,604 -------- TELECOMMUNICATION SERVICES - 0.49% WIRELESS TELECOMMUNICATION SERVICES - 0.49% American Tower Corp. ## .......................... 9,450 348 -------- UTILITIES - 1.62% GAS UTILITIES - 1.62% Petrohawk Energy Corp. ## ........................ 9,700 228 Southwestern Energy Co. ## ....................... 21,300 928 -------- TOTAL UTILITIES ..................................... 1,156 -------- TOTAL COMMON STOCKS ................................. 66,739 -------- SHORT TERM INVESTMENTS - 6.79% JP Morgan U.S. Government Money Market Fund ...... 4,149,528 4,149
PAR AMOUNT VALUE ---------- -------- (DOLLARS IN THOUSANDS) U.S. Treasury, 0.02%, Due 12/10/2009+++ ...................... $ 693 693 TOTAL SHORT TERM INVESTMENTS 4,842 -------- TOTAL INVESTMENTS 100.42% - (COST $63,854) 71,581 LIABILITIES, NET OF OTHER ASSETS - (0.42%) (297) TOTAL NET ASSETS - 100.00% $ 71,284 ========
Percentages are stated as a percent of net assets. ## Non-income producing security. +++ At October 31, 2009, security pledged as collateral for open futures contracts. FUTURES CONTRACTS (DOLLARS IN THOUSANDS)
UNREALIZED NUMBER OF EXPIRATION MARKET APPRECIATION/ CONTRACTS DATE VALUE (DEPRECIATION) ---------- ---------- ------ -------------- Emini S&P 500 Index .. 92 Dec 2009 $4,752 $(96) ====== ====
See accompanying notes 24 AMERICAN BEACON MID-CAP VALUE FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) COMMON STOCKS - 91.74% CONSUMER DISCRETIONARY - 17.63% AUDIO/VIDEO PRODUCTS - 1.06% Harman International Industries, Inc. ............ 22,250 $ 837 -------- AUTO COMPONENTS - 1.66% Advance Auto Parts, Inc. ......................... 16,400 611 Magna International, Inc. ........................ 17,825 706 -------- 1,317 -------- HOTELS, RESTAURANTS & LEISURE - 2.01% International Game Technology .................... 61,700 1,101 Royal Caribbean Cruises Ltd. ..................... 24,300 491 -------- 1,592 -------- HOUSEHOLD DURABLES - 3.46% Black & Decker Corp. ............................. 16,800 793 Stanley Works .................................... 26,000 1,176 Whirlpool Corp. .................................. 10,775 772 -------- 2,741 -------- LEISURE EQUIPMENT & PRODUCTS - 0.64% Mattel, Inc. ..................................... 26,550 503 -------- MEDIA - 1.17% Omnicom Group, Inc. .............................. 26,975 925 -------- MULTILINE RETAIL - 1.37% J.C. Penney Company, Inc. ........................ 32,775 1,086 -------- SPECIALTY RETAIL - 5.92% Family Dollar Stores, Inc. ....................... 27,500 778 GameStop Corp. ## ................................ 42,700 1,037 Gildan Activewear, Inc. ## ....................... 45,950 815 Hanesbrands, Inc. ## ............................. 40,600 878 Regis Corp. ...................................... 39,625 643 Rent-A-Center, Inc. ## ........................... 29,200 536 -------- 4,687 -------- TEXTILES & APPAREL - 0.34% Sealy Corp. ## ................................... 93,775 272 -------- TOTAL CONSUMER DISCRETIONARY 13,960 -------- CONSUMER STAPLES - 4.21% FOOD & DRUG RETAILING - 1.04% Sysco Corp. ...................................... 31,000 820 -------- FOOD PRODUCTS - 0.68% Sara Lee Corp. ................................... 47,825 540 --------
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) PERSONAL PRODUCTS - 0.75% Avon Products, Inc. .............................. 18,425 $ 591 -------- TOBACCO - 1.74% Lorillard, Inc. .................................. 8,900 692 Reynolds American, Inc. .......................... 14,200 688 -------- 1,380 -------- TOTAL CONSUMER STAPLES 3,331 -------- ENERGY - 4.30% ENERGY EQUIPMENT & SERVICES - 1.38% BJ Services Co. .................................. 56,775 1,090 -------- OIL & GAS - 2.92% El Paso Corp. .................................... 79,300 778 Murphy Oil Corp. ................................. 20,300 1,241 Valero Energy Corp. .............................. 16,275 295 -------- 2,314 -------- TOTAL ENERGY 3,404 -------- FINANCIALS - 23.60% BANKS - 7.22% Comerica, Inc. ................................... 32,700 907 Fifth Third Bancorp .............................. 165,900 1,483 First Horizon National Corp. ## .................. 13,135 155 New York Community Bancorp, Inc. ................. 51,300 554 People's United Financial, Inc. .................. 24,854 398 PNC Financial Services Group, Inc. ............... 35,203 1,723 Popular, Inc. .................................... 59,175 128 SunTrust Banks, Inc. ............................. 19,400 371 -------- 5,719 -------- DIVERSIFIED FINANCIALS - 3.07% Ameriprise Financial, Inc. ....................... 11,800 409 Capital One Financial Corp. ...................... 36,500 1,336 SLM Corp. ## ..................................... 71,100 690 -------- 2,435 -------- INSURANCE - 11.95% Axis Capital Holdings Ltd. ....................... 31,300 904 The Chubb Corp. .................................. 15,400 747 Conseco, Inc. ## ................................. 92,050 480 Delphi Financial Group, Inc. ..................... 47,800 1,037 Fidelity National Financial, Inc. ................ 62,800 852 First American Corp. ............................. 8,975 273 Hartford Financial Services Group, Inc. .......... 15,400 378 Protective Life Corp. ............................ 46,725 900 RenaissanceRe Holdings Ltd. ...................... 20,275 1,064(p)
See accompanying notes 25 AMERICAN BEACON MID-CAP VALUE FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) Torchmark Corp. .................................. 25,425 $ 1,032 Validus Holdings Ltd. ............................ 28,932 732 Willis Group Holdings Ltd. ....................... 37,700 1,018 XL Capital Ltd. .................................. 2,600 43 -------- 9,460 -------- REAL ESTATE - 1.36% Annaly Capital Management, Inc. .................. 63,600 1,075 -------- TOTAL FINANCIALS 18,689 -------- HEALTH CARE - 10.55% HEALTH CARE EQUIPMENT & SUPPLIES - 2.70% CareFusion Corp. ## .............................. 23,587 528 IMS Health, Inc. ................................. 47,625 781 Zimmer Holdings, Inc. ## ......................... 15,875 834 -------- 2,143 -------- HEALTH CARE PROVIDERS & SERVICES - 7.85% Aetna, Inc. ...................................... 24,000 625 Cardinal Health, Inc. ............................ 54,725 1,551 CIGNA Corp. ...................................... 25,700 715 Coventry Health Care, Inc. ## .................... 40,200 797 Mednax, Inc. ## .................................. 13,850 719 Omnicare, Inc. ................................... 43,900 951 Quest Diagnostics, Inc. .......................... 15,300 856 -------- 6,214 -------- TOTAL HEALTH CARE 8,357 -------- INDUSTRIALS - 13.02% AEROSPACE & DEFENSE - 5.08% Goodrich Corp. ................................... 15,700 853 L-3 Communications Holdings, Inc. ................ 27,900 2,017 Spirit Aerosystems Holdings, Inc. ## ............. 72,600 1,156 -------- 4,026 -------- BUILDING PRODUCTS - 0.49% Armstrong World Industries, Inc. ## .............. 10,475 390 -------- COMMERCIAL SERVICES & SUPPLIES - 0.45% Avery Dennison Corp. ............................. 9,900 353 -------- ELECTRICAL EQUIPMENT - 0.83% Cooper Industries plc ## ......................... 16,950 656 -------- FREIGHT TRANSPORTATION - 0.94% Ryder System, Inc. ............................... 18,400 746 -------- MACHINERY - 5.23% Brady Corp. ...................................... 26,925 729
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) Eaton Corp. ...................................... 18,900 $ 1,142 Graco, Inc. ...................................... 27,500 757 ITT Industries, Inc. ............................. 15,700 796 SPX Corp. ........................................ 13,500 713 -------- 4,137 -------- TOTAL INDUSTRIALS 10,308 -------- INFORMATION TECHNOLOGY - 10.29% COMMUNICATIONS EQUIPMENT - 1.67% Alcatel-Lucent, ADR .............................. 250,323 924 Motorola, Inc. ................................... 46,300 397 -------- 1,321 -------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.83% Avnet, Inc.## .................................... 45,875 1,137 Tyco Electronics Ltd. ............................ 52,175 1,109 -------- 2,246 -------- IT CONSULTING & SERVICES - 2.70% Alliance Data Systems Corp. ## ................... 16,600 913 Computer Sciences Corp. ## ....................... 23,200 1,176 Tech Data Corp. ## ............................... 1,272 49 -------- 2,138 -------- SEMICONDUCTOR EQUIPMENT & PRODUCTS - 1.93% Lam Research Corp. ## ............................ 19,475 656 Microchip Technology, Inc. ....................... 36,300 870 -------- 1,526 -------- SOFTWARE - 1.16% CA, Inc. ......................................... 43,850 917 -------- TOTAL INFORMATION TECHNOLOGY 8,148 -------- UTILITIES - 8.14% ELECTRIC UTILITIES - 5.33% CenterPoint Energy, Inc. ......................... 61,400 774 Edison International ............................. 11,600 369 Pinnacle West Capital Corp. ...................... 21,900 686 PNM Resources, Inc. .............................. 61,425 658 Portland General Electric Co. .................... 39,050 726 Xcel Energy, Inc. ................................ 53,400 1,007 -------- 4,220 -------- GAS UTILITIES - 2.81% MDU Resources Group, Inc. ........................ 43,150 896 Sempra Energy .................................... 14,925 768
See accompanying notes 26 AMERICAN BEACON MID-CAP VALUE FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ---------- -------- (DOLLARS IN THOUSANDS) Spectra Energy Corp. ............................. 29,200 $ 558 -------- 2,222 -------- TOTAL UTILITIES 6,442 -------- TOTAL COMMON STOCKS 72,639 -------- PREFERRED STOCKS - 0.94% CONSUMER DISCRETIONARY - 0.94% TEXTILES & APPAREL - 0.94% Sealy Corp. ## ................................... 9,571 745 -------- SHORT TERM INVESTMENTS - 7.52% JP Morgan U.S. Government Money Market Fund ...... 5,146,241 5,146
PAR AMOUNT ---------- U.S. Treasury, 0.02%, Due 12/10/2009+++ ...................... $ 809 809 TOTAL SHORT TERM INVESTMENTS 5,955 -------- TOTAL INVESTMENTS 100.20% - (COST $83,304) 79,339 LIABILITIES, NET OF OTHER ASSETS - (0.20%) (162) TOTAL NET ASSETS - 100.00% $ 79,177 ========
Percentages are stated as a percent of net assets. ## Non-income producing security. +++ At October 31, 2009, security pledged as collateral for open futures contracts. FUTURES CONTRACTS (DOLLARS IN THOUSANDS)
UNREALIZED NUMBER OF EXPIRATION MARKET APPRECIATION/ CONTRACTS DATE VALUE (DEPRECIATION) ---------- ---------- ------ -------------- Emini S&P 400 Index .. 88 Dec 2009 $5,785 $(263) ====== =====
See accompanying notes 27 AMERICAN BEACON FUNDS STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2009 (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
BALANCED LARGE CAP MID-CAP FUND GROWTH FUND VALUE FUND ----------- ----------- ---------- ASSETS: Investments in unaffiliated securities, at value (A) ......... $ 806,037 $ 71,581 $ 79,339 Investments in affiliated securities, at value (B) ........... 5,000 -- -- Receivable for investments sold .............................. 1,182 647 939 Dividends and interest receivable ............................ 4,168 38 29 Receivable for fund shares sold .............................. 275 138 152 Receivable for tax reclaims .................................. 12 2 -- Receivable for expense reimbursement ......................... -- -- 5 Prepaid expenses ............................................. 36 2 11 ----------- ----------- ---------- TOTAL ASSETS .............................................. 816,710 72,408 80,475 ----------- ----------- ---------- LIABILITIES: Payable for investments purchased ............................ 1,999 683 867 Payable for fund shares redeemed ............................. 55 183 99 Payable for variation margin on open futures contracts ....... 1,162 110 146 Management and investment advisory fees payable (Note 2) ..... 516 108 137 Administrative service and service fees payable .............. 94 3 13 Other liabilities ............................................ 152 37 36 ----------- ----------- ---------- TOTAL LIABILITIES ........................................ 3,978 1,124 1,298 ----------- ----------- ---------- NET ASSETS ...................................................... $ 812,732 $ 71,284 $ 79,177 =========== =========== ========== ANALYSIS OF NET ASSETS: Paid-in-capital ................................................. 914,309 92,027 105,104 Undistributed net investment income ............................. 19,001 274 492 Accumulated net realized (loss) ................................. (126,425) (28,648) (22,191) Unrealized appreciation (depreciation) of investments, futures contracts, and foreign currency ................................. 5,847 7,631 (4,228) ----------- ----------- ---------- NET ASSETS ...................................................... $ 812,732 $ 71,284 $ 79,177 =========== =========== ========== Shares outstanding (no par value): Institutional Class .......................................... 2,519,638 26,232 290,172 =========== =========== ========== Investor Class ............................................... 8,662,478 N/A 3,101,252 =========== =========== ========== Advisor Class ................................................ 600,234 N/A 897 =========== =========== ========== AMR Class .................................................... 60,213,998 14,220,106 7,066,440 =========== =========== ========== Net asset value, offering and redemption price per share: Institutional Class .......................................... $ 11.83 $ 4.97 $ 7.57 =========== =========== ========== Investor Class ............................................... $ 10.96 N/A $ 7.54 =========== =========== ========== Advisor Class ................................................ $ 11.35 N/A $ 7.49 =========== =========== ========== AMR Class .................................................... $ 11.31 $ 5.00 $ 7.59 =========== =========== ========== (A) Cost of investments in unaffiliated securities .............. $ 799,359 $ 63,854 $ 83,304 (B) Cost of investments in affiliated securities ................ $ 5,000 $ -- $ --
See accompanying notes 28 AMERICAN BEACON FUNDS STATEMENTS OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2009 (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
BALANCED LARGE CAP MID-CAP FUND GROWTH FUND VALUE FUND ----------- ----------- ---------- INVESTMENT INCOME: Dividend income from unaffiliated securities (net of foreign taxes) (A) ................................................ $ 12,955 $ 808 $ 1,221 Dividend income from affiliated securities ................... 55 5 6 Interest income .............................................. 16,344 1 1 Income derived from securities lending, net .................. 588 55 58 -------- -------- ------- TOTAL INVESTMENT INCOME ................................ 29,942 869 1,286 -------- -------- ------- EXPENSES: Management and investment advisory fees (Note 2) ............. 1,681 275 360 Administrative service fees (Note 2): Institutional Class ....................................... 108 -- 6 Investor Class ............................................ 285 -- 52 Advisor Class ............................................. 20 -- -- AMR Class ................................................. 297 29 19 Transfer agent fees: Institutional Class ....................................... 3 -- 1 Investor Class ............................................ 6 -- 3 Advisor Class ............................................. 1 -- -- AMR Class ................................................. 39 4 1 Custody and fund accounting fees ............................. 119 8 8 Professional fees ............................................ 49 27 28 Registration fees and expenses ............................... 39 -- 34 Service fees (Note 2): Investor Class ............................................ 286 -- 44 Advisor Class ............................................. 17 -- -- Distribution fees- Advisor Class (Note 2) .................... 17 -- -- Prospectus and shareholder reports ........................... 54 11 5 Trustee fees ................................................. 82 5 4 Other expenses ............................................... 78 9 12 -------- -------- ------- TOTAL EXPENSES ......................................... 3,181 368 577 -------- -------- ------- Net (fees waived and expenses reimbursed)/recouped by Manager (Note 2) .................................................. -- -- (22) -------- -------- ------- NET EXPENSES ........................................... 3,181 368 555 -------- -------- ------- NET INVESTMENT INCOME ........................................... 26,761 501 731 -------- -------- ------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from: Investments ............................................... (44,409) (12,980) (9,311) Commission recapture (Note 1) ............................. 8 6 21 Futures contracts ......................................... (7,775) (639) (492) Change in net unrealized appreciation or depreciation of: Investments ............................................... 131,072 19,773 23,675 Futures contracts ......................................... 8,931 677 1,128 -------- -------- ------- NET GAIN ON INVESTMENTS ................................ 87,827 6,837 15,021 -------- -------- ------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............ $114,588 $ 7,338 $15,752 ======== ======== ======= (A) Foreign taxes ............................................... $ 24 $ 2 $ 1
See accompanying notes 29 AMERICAN BEACON FUNDS STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Large Cap Balanced Fund Growth Fund Mid-Cap Value Fund ------------------------- ------------------- ------------------- Year Year Year Year Year Year Ended Ended Ended Ended Ended Ended October 31, October 31, October October October October 2009 2008 31, 2009 31, 2008 31, 2009 31, 2008 ----------- ----------- -------- -------- -------- -------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income .................................. $ 26,761 $ 35,336 $ 501 $ 868 $ 731 $ 1,382 Net realized (loss) on investments, futures contracts, and foreign currency transactions ........ (52,176) (67,673) (13,613) (14,713) (9,782) (12,043) Change in net unrealized appreciation or depreciation of investments, futures contracts, and foreign currency translations ................... 140,003 (277,483) 20,450 (24,338) 24,803 (31,024) --------- ---------- -------- -------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ........................ 114,588 (309,820) 7,338 (38,183) 15,752 (41,685) --------- ---------- -------- -------- -------- -------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Institutional Class ................................. (1,697) (1,424) (1) (1) (42) (84) Investor Class ...................................... (4,916) (5,471) -- -- (285) (326) Advisor Class ....................................... -- (318) -- -- -- -- AMR Class ........................................... (28,892) (27,782) (836) (791) (838) (1,140) Net realized gain on investments: Institutional Class ................................. -- (2,559) -- (3) -- (405) Investor Class ...................................... -- (10,490) -- -- -- (2,179) Advisor Class ....................................... -- (602) -- -- -- -- AMR Class ........................................... -- (45,704) -- (2,748) -- (4,985) --------- ---------- -------- -------- -------- -------- NET DISTRIBUTIONS TO SHAREHOLDERS ................ (35,505) (94,350) (837) (3,543) (1,165) (9,119) --------- ---------- -------- -------- -------- -------- CAPITAL SHARE TRANSACTIONS: Proceeds from sales of shares .......................... 88,318 83,795 20,562 34,857 26,852 30,505 Reinvestment of dividends and distributions ............ 35,347 93,808 837 3,543 1,163 9,098 Cost of shares redeemed ................................ (143,929) (181,757) (13,675) (41,432) (16,512) (63,782) Redemption fees ........................................ -- -- -- -- 27 43 --------- ---------- -------- -------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS .................... (20,264) (4,154) 7,724 (3,032) 11,530 (24,136) --------- ---------- -------- -------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS ..................... 58,819 (408,324) 14,225 (44,758) 26,117 (74,940) --------- ---------- -------- -------- -------- -------- NET ASSETS: Beginning of period .................................... 753,913 1,162,237 57,059 101,817 53,060 128,000 --------- ---------- -------- -------- -------- -------- END OF PERIOD * ........................................ $ 812,732 $ 753,913 $ 71,284 $ 57,059 $ 79,177 $ 53,060 ========= ========== ======== ======== ======== ======== * Includes undistributed net investment income (loss) of .. $ 19,001 $ 27,287 $ 274 $ 610 $ 492 $ 937 ========= ========== ======== ======== ======== ========
See accompanying notes 30 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES American Beacon Funds (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940 (the "Act"), as amended, as a no load, diversified, open-end management investment company. These financial statements and notes to the financial statements relate to the American Beacon Balanced Fund, the American Beacon Large Cap Growth Fund, and the American Beacon Mid-Cap Value Fund (each a "Fund" and collectively, the "Funds"), each a series of the Trust. 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. Class Disclosure Prior to March 1, 2009, the Investor and Advisor Classes were known as the PlanAhead and Service Classes, respectively. Each Fund has multiple classes of shares designed to meet the needs of different groups of investors; however, not all Funds offer all classes. The following table sets forth the differences amongst the classes:
CLASS: OFFERED TO: - ------ ----------- INSTITUTIONAL CLASS Investors making an initial investment of $250,000 INVESTOR CLASS General public and investors investing through an intermediary ADVISOR CLASS Investors investing through an intermediary AMR CLASS Investors in the tax-exempt retirement and benefit plans of AMR Corporation and its affiliates
Administrative service fees, service fees and distribution fees vary amongst the classes as described more fully in footnote 2. Investment income, net capital gains (losses) and all expenses incurred by the Funds are allocated based on the relative net assets of each class, except for service fees and certain other fees and expenses related solely to one class of shares. Security Valuation Investments are valued at the close of the New York Stock Exchange (the "Exchange"), normally 4 p.m. ET, each day that the Exchange is open for business. Equity securities for which market quotations are available are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) on the primary market or exchange on which they trade. Debt securities (other than short-term securities) normally are valued on the basis of prices provided by an independent pricing service and may take into account appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Prices of debt securities may be determined using quotes obtained from brokers. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. Investment grade short-term obligations with 60 days or less to maturity are valued using the amortized cost method, which approximates market value. 31 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 Securities for which market prices are not readily available or are not reflective of the fair value of the security, as determined by the Manager, will be priced at fair value following procedures approved by the Board of Trustees (the "Board"). Valuation Inputs Various inputs may be used to determine the value of the Funds' investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. 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 other significant unobservable inputs. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available. The Funds' investments are summarized by level based on the inputs used to determine their values. As of October 31, 2009 the investments were classified as described below: (in thousands)
BALANCED FUND Level 1 Level 2 Level 3 Total - ------------- -------- -------- ------- -------- Common Stock..................................... $464,468 $ -- $-- $464,468 Corporate Obligations............................ -- 145,719 -- 145,719 Non-Agency Mortgage Backed Obligations........... -- 18,224 -- 18,224 Asset-Backed Obligations......................... -- 5,470 -- 5,470 U.S. Agency Mortgage Backed Obligations.......... -- 55,932 -- 55,932 U.S. Agency Obligations.......................... -- 47,605 -- 47,605 U.S. Treasury Obligations........................ -- 31,032 -- 31,032 Short Term Investments........................... 38,209 4,378 -- 42,587 -------- -------- --- -------- Total Investments in Securities............... $502,677 $308,360 $-- $811,037 ======== ======== === ======== Futures Contracts................................ 41,423 41,423
LARGE CAP GROWTH FUND Level 1 Level 2 Level 3 Total - --------------------- ------- ------- ------- ------- Common Stock..................................... $66,739 $ -- $-- $66,739 Short Term Investments........................... 4,149 693 -- 4,842 ------- ---- --- ------- Total Investments in Securities............... $70,888 $693 $-- $71,581 ======= ==== === ======= Futures Contracts................................ 4,752 4,752
MID-CAP VALUE FUND Level 1 Level 2 Level 3 Total - ------------------ ------- ------- ------- ------- Common Stock..................................... $72,639 $ -- $-- $72,639 Preferred Stock.................................. 745 -- -- 745 Short Term Investments........................... 5,146 809 -- 5,955 ------- ---- --- ------- Total Investments in Securities............... $78,530 $809 $-- $79,339 ======= ==== === ======= Futures Contracts................................ 5,785 5,785
Security Transactions and Investment Income Security transactions are recorded on the trade date of the security purchase or sale. The Funds may purchase securities with delivery or payment to occur at a later date. At the time the Funds enter into a commitment to purchase a security, the transaction is recorded, and the value of the security is reflected in the net asset value. The value of the security may vary with market fluctuations. 32 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 Dividend income, net of foreign taxes, is recorded on the ex-dividend date except certain dividends from foreign securities which are recorded as soon as the information is available to the Funds. Interest income is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification. Futures Contracts Futures contracts are contracts to buy or sell a standard quantity of securities at a specified price on a future date. The Funds may enter into financial futures contracts as a method for keeping assets readily convertible to cash if needed to meet shareholder redemptions or for other needs while maintaining exposure to the stock or bond market, as applicable. The primary risks associated with the use of futures contracts are the possibility of illiquid markets or imperfect correlation between the values of the contracts and the underlying securities, or that the counterparty will fail to perform its obligations. Upon entering into a futures contract, the Fund is required to set aside or deposit with a broker an amount, termed the initial margin, which typically represents 5% of the face value of the futures contract. The Funds reflect this amount on the Schedules of Investments as a U.S. Treasury Bill held as collateral for futures contracts or as a Deposit with broker for futures contracts on the Statement of Assets and Liabilities. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates. Changes in initial settlement values are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. Futures contracts are valued at the most recent settlement price established each day by the exchange on which they are traded. Balanced Values of Derivative Instruments not accounted for as hedging instruments as of October 31, 2009 (in thousands)
Liability Statement of Assets and Liabilities Derivatives Fair Value - ----------------------------------- ----------------- ---------- Unrealized appreciation of investments, futures contracts, and foreign currency..................................... Equity Contracts* $(831)
Effect of derivative instruments not accounted for as hedging instruments during the year ended October 31, 2009 (in thousands)
Statement of Operations Derivative Fair Value - ----------------------- ----------------- ---------- Net realized gain (loss) from futures contracts............. Equity Contracts $(7,775) Change in net unrealized appreciation or depreciation of futures contracts........................................ Equity Contracts 8,931
Large Cap Growth Values of Derivative Instruments not accounted for as hedging instruments as of October 31, 2009 (in thousands)
Liability Statement of Assets and Liabilities Derivatives Fair Value - ----------------------------------- ----------------- ---------- Unrealized appreciation of investments, futures contracts, and foreign currency..................................... Equity Contracts* $(96)
Effect of derivative instruments not accounted for as hedging instruments during the year ended October 31, 2009 (in thousands)
Statement of Operations Derivative Fair Value - ----------------------- ----------------- ---------- Net realized gain (loss) from futures contracts............. Equity Contracts $(639) Change in net unrealized appreciation or depreciation of futures contracts........................................ Equity Contracts 677
Mid-Cap Value Values of Derivative Instruments not accounted for as hedging instruments as of October 31, 2009 (in thousands)
Liability Statement of Assets and Liabilities Derivatives Fair Value - ----------------------------------- ----------------- ---------- Unrealized appreciation of investments, futures contracts, and foreign currency..................................... Equity Contracts* $(263)
33 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 Effect of derivative instruments not accounted for as hedging instruments during the year ended October 31, 2009 (in thousands)
Statement of Operations Derivative Fair Value - ----------------------- ----------------- ---------- Net realized gain (loss) from futures contracts............. Equity Contracts $(492) Change in net unrealized appreciation or depreciation of futures contracts........................................ Equity Contracts 1,128
* Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments footnotes. Only current day's variation margin is reported within the Statements of Assets and Liabilities. Dividends to Shareholders Dividends from net investment income of the Funds normally will be declared and paid at least annually. Distributions, if any, of net realized capital gains are generally paid at least annually and recorded on the ex-dividend date. Commission Recapture The Funds have established brokerage commission recapture arrangements with certain brokers or dealers. If a Fund's investment advisor chooses to execute a transaction through a participating broker, the broker rebates a portion of the commission back to the Fund. Any collateral benefit received through participation in the commission recapture program is directed exclusively to the Fund. These amounts are reported with the net realized gains in the Fund's Statement of Operations. Allocation of Income, Expenses, Gains, and Losses Income, expenses (other than those attributable to a specific class), gains, and losses are allocated daily to each class of shares based upon the relative proportion of net assets represented by such class. Operating expenses directly attributable to a specific class are charged against the operations of that class. 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. Redemption Fees The AMR Class of the Mid-Cap Value Fund imposes a 2% redemption fee on certain shares held for less than 180 days. The fee is deducted from the redemption proceeds and is intended to offset the trading costs, market impact and other costs associated with short-term trading activity in the Funds. The "first-in, first-out" method is used to determine the holding period. The fee is allocated to all classes of each Fund pro-rata based on their respective net assets. Other Under the Trust's organizational documents, its officers and trustees 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. 34 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 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, fund management and securities lending services. Investment assets of Funds are managed multiple investment advisors which have entered into separate investment advisory agreements with the Manager. As compensation for performing the duties required under the Management Agreement, the Manager receives from the Funds an annualized fee equal to 0.05% of the average daily net assets plus amounts paid by the Manager to the investment advisors hired by the Manager to direct investment activities for the Funds. Management fees paid during the year ended October 31, 2009 were as follows (dollars in thousands):
AMOUNTS PAID NET AMOUNTS MANAGEMENT FEE MANAGEMENT TO INVESTMENT RETAINED BY RATE FEE ADVISORS MANAGER -------------- ---------- ------------- ----------- Balanced.................. 0.175%-0.65% $1,681 $1,317 $364 Large Cap Growth.......... 0.30%-0.60% 275 246 29 Mid-Cap Value............. 0.35%-0.90% 360 331 29
On May 19, 2009 the Funds terminated their security lending program. Prior to that, as compensation for services provided by the Manager in connection with securities lending activities, the lending Funds paid to the Manager, with respect to cash collateral posted by borrowers, a fee up to 25% of the net monthly interest income (the gross interest income earned by the investment of cash collateral, less the amount paid to borrowers and related expenses) from such activities and, with respect to loan fees paid by borrowers when a borrower posts collateral other than cash, a fee up to 25% of such loan fees. This fee is netted against securities lending income in the Statements of Operations. During the year ended October 31, 2009, securities lending fees paid to the Manager were as follows (in thousands): Balanced.................. $69 Large Cap Growth.......... 7 Mid-Cap Value............. 7
Administrative Services Agreement The Manager and the Trust entered into an Administrative Services Agreement which 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 0.30% of the average daily net assets of the Institutional, Investor, and Advisor Classes and 0.05% of the average daily net assets of the AMR Class of each of the Funds. Distribution Plans The Trust, except for the Advisor Class of the Funds, has adopted a "defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act, pursuant to which no fees may be charged to the Funds for distribution purposes. However, the Plan authorizes the management and administrative service fees received by the Manager and the investment advisors hired by the Manager to be used for distribution purposes. Under this Plan, the Trust does not intend to compensate the Manager or any other party, either directly or indirectly, for the distribution of Trust shares. A separate Distribution Plan (the "Distribution Plan") has been adopted pursuant to Rule 12b-1 under the Act for the Advisor Class of the Funds. Under the Distribution Plan, as compensation for distribution assistance, the Manager receives an annual fee of 0.25% of the average daily net assets of the Advisor Class. The fee will be payable without regard to whether the amount of the fee is more or less than the actual expenses incurred in a particular month by the Manager for distribution assistance. 35 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 Service Plans The Manager and the Trust entered into Service Plans that obligate the Manager to oversee additional shareholder servicing of the Investor and Advisor Classes. As compensation for performing the duties required under the Service Plans, the Manager receives up to 0.375% of the average daily net assets of the Investor Class and 0.25% of the average daily net assets of the Advisor Class of each Fund. Brokerage Commissions Affiliated entities of a sub-advisor to the Large Cap Growth Fund received net commissions on purchases and sales of the Fund's portfolio securities totaling $628 for the year ended October 31, 2009. Investment in Affiliated Funds The Funds may invest in the American Beacon Money Market Select Fund (the "MM Select Fund") or the US Government Money Market Select Fund (the "USG Select Fund") (collectively, the "Select Funds"). Cash collateral received by certain Funds in connection with securities lending may be invested in the Select Funds. The Funds and the Select Funds have the same investment advisor and therefore, are considered to be affiliated. The Manager serves as investment advisor to the Select Funds and receives from the Select Funds an annualized fee up to 0.09% of its average daily net assets. During the year ended October 31, 2009, fees earned by the Manager from the Select Funds were as follows (in thousands):
SECURITIES LENDING DIRECT INVESTMENT IN COLLATERAL INVESTED IN AFFILIATED FUNDS AFFILIATED FUNDS TOTAL -------------------- ---------------------- ----- Balanced...................... $ 5 $6 $11 Large Cap Growth.............. -- 1 1 Mid-Cap Value................. -- 1 1
Interfund Lending Program Pursuant to an exemptive order by the SEC, the Funds, along with other registered investment companies having management contracts with the Manager, may participate in an interfund lending program as a borrower. This program provides an alternative credit facility allowing the Funds to borrow from other participating Funds. For the year ended October 31, 2009, the Fund did not utilize the credit facility. Reimbursement of Expenses The Manager agreed to reimburse the following Funds to the extent that total annual fund operating expenses exceeded the Fund's expense cap. For the period ended October 31, 2009, the Manager waived or reimbursed expenses as follows:
Expense Cap ----------------------------------------------- 11/1/08 3/1/09 WAIVED OR TO TO REIMBURSED FUND CLASS 2/28/09 10/31/09 EXPENSES - ---- ------------- ------- -------- ---------- Large Cap Growth................ Institutional 0.90% -- $ 21 Mid-Cap Value................... Institutional 0.98% 0.98% 2,949 Mid-Cap Value................... Investor 1.23% 1.23% 19,360 Mid-Cap Value................... Advisor 1.50% 1.50% 2
Expense Reimbursement Plan The Funds have adopted an Expense Reimbursement Plan whereby the Manager may seek repayment of fees waived or expenses reimbursed for a period of up to three years. However, reimbursement will occur only if the Class' average net assets have grown or expenses have declined sufficiently to allow reimbursement without causing its expense ratio to exceed the previously agreed upon contractual expense limit. During the 36 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 year ended October 31, 2009, the Funds have not recorded a liability for potential reimbursement, due to the current assessment that a reimbursement is unlikely. 3. FEDERAL INCOME AND EXCISE TAXES It is the policy of each of the Funds to comply with the requirements of Subchapter M of the Internal Revenue Code and to distribute substantially all net investment income as well as any net realized capital gains on the sale of investments. Therefore, no federal income or excise tax provision is required. The Funds do not have any unrecognized tax benefits in the accompanying financial statements. Each of the tax years in the four year period ended October 31, 2009 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 during the fiscal years ended October 31, 2009 and October 31, 2008 were as follows (in thousands)
BALANCED LARGE CAP GROWTH MID-CAP VALUE ------------------------- ------------------------- ------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2009 2008 2009 2008 2009 2008 ----------- ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID FROM: ORDINARY INCOME* Institutional Class ........... $ 1,697 $ 1,997 $ 1 $ 1 $ 42 $ 139 Investor Class ................ 4,916 7,821 -- -- 285 618 Advisor Class ................. -- 453 -- -- -- -- AMR Class ..................... 28,892 38,025 836 791 838 1,809 LONG-TERM CAPITAL GAIN Institutional Class ........... -- 1,986 -- 3 -- 350 Investor Class ................ -- 8,140 -- -- -- 1,887 Advisor Class ................. -- 467 -- -- -- -- AMR Class ..................... -- 35,461 -- 2,748 -- 4,316 ------- ------- ---- ------ ------ ------ TOTAL DISTRIBUTIONS PAID ... $35,505 $94,350 $837 $3,543 $1,165 $9,119 ======= ======= ==== ====== ====== ======
* For tax purposes, short-term capital gains are considered ordinary income distributions. As of October 31, 2009, the components of distributable earnings on a tax basis were as follows (in thousands):
LARGE CAP MID-CAP BALANCED GROWTH VALUE --------- --------- -------- Cost basis of investments for federal income tax purposes........ $ 839,225 $ 64,683 $ 83,982 Unrealized appreciation.......................................... 76,020 9,513 7,165 Unrealized depreciation.......................................... (104,208) (2,615) (11,808) --------- -------- -------- Net unrealized appreciation/(depreciation)....................... (28,188) 6,898 (4,643) Undistributed ordinary income.................................... 19,568 275 491 Undistributed long-term gain/(loss).............................. (92,136) (27,820) (21,512) Other temporary differences ..................................... (821) (96) (263) --------- -------- -------- Distributable earnings........................................... $(101,577) $(20,743) $(25,927) ========= ======== ========
37 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. The temporary differences between financial reporting and tax-basis reporting of unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses from wash sales, the realization for tax purposes of unrealized gains/(losses) on certain derivative instruments, book amortization for premiums, and reclassifications of income from real estate investment securities. Due to inherent differences in the recognition of income, expenses and realized gains/losses under U.S. generally accepted accounting principles and federal income tax regulations, permanent differences between book and tax reporting have been identified and appropriately reclassified on the Statements of Assets and Liabilities. Accordingly, the following amounts represent current year permanent differences derived from reclassifications of income from real estate investment securities, foreign currency, book amortization of premium, pay down reclasses, income adjustments associated with contingent payment debt instruments, and dividend reclasses that have been reclassified as of October 31, 2009 (in thousands):
LARGE CAP MID-CAP BALANCED GROWTH VALUE --------- --------- -------- Paid-in-capital ................................................. $ 5 $ 1 $ (8) Undistributed net investment income ............................. 458 -- (11) Accumulated net realized gain (loss) ............................ (463) (1) 20 Unrealized appreciation (depreciation) of investments, futures contracts and foreign currency ............................... -- -- (1)
At October 31, 2009, capital loss carry forward positions for federal income tax purposes were as follows (in thousands):
FUND 2016 2017 TOTAL - ---- ------- ------- ------- Balanced......................................................... $68,541 $24,427 $92,968 Large Cap Growth................................................. 15,053 12,863 27,916 Mid-Cap Value.................................................... 13,378 8,397 21,775
4. INVESTMENT TRANSACTIONS The aggregate cost of purchases and proceeds from sales and maturities of long-term investments during the year ended October 31, 2009 were as follows (in thousands):
LARGE CAP MID-CAP BALANCED GROWTH VALUE --------- --------- -------- Purchases (excluding U.S. government securities)................. $408,499 $92,947 $42,292 Sales and maturities (excluding U.S. government securities)...... 389,577 79,554 22,409 Purchases of U.S. government securities.......................... 116,709 -- -- Sales and maturities of U.S. government securities............... 104,913 -- --
A summary of the Funds' direct transactions in Select Funds for the year ended October 31, 2009 is set forth below (in thousands):
OCTOBER 31, 2008 OCTOBER 31, 2009 AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE --------------- ------------------- --------- ------- ------------------- Balanced.......................... MM Select Fund $34,006 $ -- $34,006 $ -- Balanced.......................... USG Select Fund -- 10,000 5,000 5,000 Large Cap Growth.................. MM Select Fund 3,451 -- 3,451 -- Mid-Cap Value..................... MM Select Fund 4,196 -- 4,196 --
5. SECURITIES LENDING Prior to May 19, 2009, the Funds, the Agent, and the Manager retained 75%, 15%, and 10%, respectively, of the income generated from securities lending, as stated on the Statements of Operations. 38 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 6. CAPITAL SHARE TRANSACTIONS The tables below summarize the activity in capital shares for each Class of the Funds (shares and dollars in thousands): YEAR ENDED OCTOBER 31, 2009
INSTITUTIONAL CLASS INVESTOR CLASS ADVISOR CLASS AMR CLASS ----------------- ----------------- ---------------- ----------------- BALANCED FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT - ------------- ------ -------- ------ -------- ------ ------- ------ -------- Shares sold ...................................... 1,198 $ 12,097 2,427 $ 24,255 76 $ 744 5,034 $ 51,222 Reinvestment of dividends ........................ 170 1,684 517 4,771 -- -- 3,047 28,892 Shares redeemed .................................. (2,288) (23,603) (4,930) (47,789) (261) (2,590) (7,155) (69,947) ------ -------- ------ -------- ---- ------- ------ -------- Net increase (decrease) in shares outstanding .... (920) $ (9,822) (1,986) $(18,763) (185) $(1,846) 926 $ 10,167 ====== ======== ====== ======== ==== ======= ====== ========
INSTITUTIONAL CLASS AMR CLASS --------------- ----------------- LARGE CAP GROWTH FUND SHARES AMOUNT SHARES AMOUNT - --------------------- ------ ------ ------ -------- Shares sold ...................................... 27 $121 4,528 $ 20,441 Reinvestment of dividends ........................ -- 1 205 836 Shares redeemed .................................. (19) (93) (3,124) (13,582) --- ---- ------ -------- Net increase in shares outstanding ............... 8 $ 29 1,609 $ 7,695 === ==== ====== ========
INSTITUTIONAL CLASS INVESTOR CLASS ADVISOR CLASS AMR CLASS --------------- ---------------- --------------- ----------------- MID-CAP VALUE FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT - ------------------ ------ ------ ------ ------- ------ ------ ------ -------- Shares sold ...................................... 39 $ 255 1,083 $ 6,831 1 $ 5 3,018 $ 19,761 Reinvestment of dividends ........................ 7 41 52 284 -- -- 153 838 Shares redeemed .................................. (136) (792)* (834) (4,607)* -- --* (1,846) (11,086)* ---- ----- ----- ------- --- --- ------ -------- Net increase (decrease) in shares outstanding .... (90) $(496) 301 $ 2,508 1 $ 5 1,325 $ 9,513 ==== ===== ===== ======= === === ====== ========
* Net of Redemption Fees PERIOD ENDED OCTOBER 31, 2008
INSTITUTIONAL CLASS INVESTOR CLASS ADVISOR CLASS AMR CLASS ----------------- ----------------- ---------------- ----------------- BALANCED FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT - ------------- ------ -------- ------ -------- ------ ------- ------ -------- Shares sold ...................................... 1,198 $ 16,083 2,230 $ 28,546 297 $ 3,951 2,713 $ 35,215 Reinvestment of dividends ........................ 272 3,895 1,160 15,508 70 920 5,368 73,485 Shares redeemed .................................. (1,225) (16,311) (6,179) (76,210) (218) (2,729) (6,818) (86,507) ------ -------- ------ -------- ---- ------- ------ -------- Net increase (decrease) in shares outstanding .... 245 $ 3,667 (2,789) $(32,156) 149 $ 2,142 1,263 $ 22,193 ====== ======== ====== ======== ==== ======= ====== ========
INSTITUTIONAL CLASS AMR CLASS --------------- ----------------- LARGE CAP GROWTH FUND SHARES AMOUNT SHARES AMOUNT - --------------------- ------ ------ ------ -------- Shares sold ...................................... 4 $22 5,386 $ 34,835 Reinvestment of dividends ........................ -- 4 492 3,539 Shares redeemed .................................. (1) (8) (6,432) (41,424) --- --- ------ -------- Net increase (decrease) in shares outstanding .... 3 $18 (554) $ (3,050) === === ====== ========
INSTITUTIONAL CLASS INVESTOR CLASS ADVISOR CLASS AMR CLASS ---------------- ----------------- --------------- ----------------- MID-CAP VALUE FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT - ------------------ ------ ------- ------ -------- ------ ------ ------ -------- Shares sold ...................................... 322 $ 2,868 1,423 $ 12,385 -- $-- 1,756 $ 15,252 Reinvestment of dividends ........................ 50 469 263 2,504 -- -- 641 6,125 Shares redeemed .................................. (541) (4,589)* (2,825) (25,705)* -- --* (3,772) (33,445)* ---- ------- ------ -------- --- --- ------ -------- Net (decrease) in shares outstanding ............. (169) $(1,252) (1,139) $(10,816) -- $-- (1,375) $(12,068) ==== ======= ====== ======== === === ====== ========
* Net of Redemption Fees 39 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 7. SUBSEQUENT EVENTS Management has evaluated the possibility of subsequent events existing in the Fund's financial statements through December 23, 2009. Management has determined that there are no material events that would require disclosure in the Funds' financial statements through this date. 40 This page intentionally left blank. 41 AMERICAN BEACON BALANCED FUND FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class Year Ended October 31, -------------------------------------------- 2009 2008 2007 2006 2005 ------- ------- ------- ------- ------- Net asset value, beginning of period ........ $ 10.63 $ 16.09 $ 15.83 $ 15.00 $ 14.31 ------- ------- ------- ------- ------- Income from investment operations: Net investment income(A) ................. 0.43 0.47 0.50 0.39 0.36 Net gains (losses) on securities (both realized and unrealized) .............. 1.25 (4.70) 0.90 1.54 1.11 ------- ------- ------- ------- ------- Total income (loss) from investment operations ............................... 1.68 (4.23) 1.40 1.93 1.47 ------- ------- ------- ------- ------- Less distributions: Dividends from net investment income ..... (0.48) (0.44) (0.42) (0.38) (0.31) Distributions from net realized gains on securities ............................ -- (0.79) (0.72) (0.72) (0.47) ------- ------- ------- ------- ------- Total distributions ......................... (0.48) (1.23) (1.14) (1.10) (0.78) ------- ------- ------- ------- ------- Net asset value, end of period .............. $ 11.83 $ 10.63 $ 16.09 $ 15.83 $ 15.00 ======= ======= ======= ======= ======= Total return(E) ............................. 16.64% (28.23)% 9.31% 13.60% 10.53% ======= ======= ======= ======= ======= Ratios and supplemental data: Net assets, end of period (in thousands).. $29,808 $36,557 $51,399 $22,587 $14,122 Ratios to average net assets (annualized): Expenses, net of waivers ................. 0.60% 0.56% 0.57% 0.59% 0.56% Expenses, before waivers ................. 0.60% 0.56% 0.57% 0.59% 0.56% Net investment income, net of waivers .... 3.60% 3.37% 2.91% 2.81% 2.45% Net investment income (loss), before waivers ............................... 3.60% 3.37% 2.91% 2.81% 2.45% Portfolio turnover rate .................. 57% 53% 50% 59% 58% Investor Class Year Ended October 31, ------------------------------------------------- 2009 2008 2007 2006 2005 ------- -------- -------- -------- ------- Net asset value, beginning of period ........ $ 9.91 $ 15.09 $ 14.91 $ 14.20 $ 13.62 ------- -------- -------- -------- ------- Income from investment operations: Net investment income(A) ................. 0.30 0.41 0.41 0.35 0.34 Net gains (losses) on securities (both realized and unrealized) .............. 1.23 (4.39) 0.87 1.44 1.01 ------- -------- -------- -------- ------- Total income (loss) from investment operations ............................... 1.53 (3.98) 1.28 1.79 1.35 ------- -------- -------- -------- ------- Less distributions: Dividends from net investment income ..... (0.48) (0.41) (0.38) (0.36) (0.30) Distributions from net realized gains on securities ............................ -- (0.79) (0.72) (0.72) (0.47) ------- -------- -------- -------- ------- Total distributions ......................... (0.48) (1.20) (1.10) (1.08) (0.77) ------- -------- -------- -------- ------- Net asset value, end of period .............. $ 10.96 $ 9.91 $ 15.09 $ 14.91 $ 14.20 ======= ======== ======== ======== ======= Total return(E) ............................. 16.29% (28.39)% 9.06% 13.31% 10.12% ======= ======== ======== ======== ======= Ratios and supplemental data: Net assets, end of period (in thousands).. $94,915 $105,473 $202,750 $111,837 $86,875 Ratios to average net assets (annualized): Expenses, net of waivers ................. 0.89% 0.82% 0.83% 0.85% 0.86% Expenses, before waivers ................. 0.89% 0.82% 0.83% 0.85% 0.86% Net investment income, net of waivers .... 3.26% 3.12% 2.65% 2.55% 2.14% Net investment income (loss), before waivers ............................... 3.26% 3.12% 2.65% 2.55% 2.14% Portfolio turnover rate .................. 57% 53% 50% 59% 58% Advisor Class --------------------------------------------- Year Ended October 31, May 31 to -------------------------------- October 31, 2009 2008 2007 2006 2005 ------ ------- ------ ------ ----------- Net asset value, beginning of period ........ $ 9.77 $ 14.95 $14.83 $14.16 $ 13.96 ------ ------- ------ ------ -------- Income from investment operations: Net investment income(A) ................. 0.37 0.34 0.41 0.38 0.09 Net gains (losses) on securities (both realized and unrealized) .............. 1.21 (4.31) 0.83 1.35 0.11 ------ ------- ------ ------ -------- Total income (loss) from investment operations ............................... 1.58 (3.97) 1.24 1.73 0.20 ------ ------- ------ ------ -------- Less distributions: Dividends from net investment income ..... -- (0.42) (0.40) (0.34) -- Distributions from net realized gains on securities ............................ -- (0.79) (0.72) (0.72) -- ------ ------- ------ ------ -------- Total distributions ......................... -- (1.21) (1.12) (1.06) -- ------ ------- ------ ------ -------- Net asset value, end of period .............. $11.35 $ 9.77 $14.95 $14.83 $ 14.16 ====== ======= ====== ====== ======== Total return(E) ............................. 16.17% (28.65)% 8.83% 12.94% 1.43%(B) ====== ======= ====== ====== ======== Ratios and supplemental data: Net assets, end of period (in thousands).. $6,812 $ 7,674 $9,504 $1,562 $ 1 Ratios to average net assets (annualized): Expenses, net of waivers ................. 1.09% 1.07% 1.07% 1.22% 1.09%(C) Expenses, before waivers ................. 1.09% 1.07% 1.07% 1.22% 360.24%(C) Net investment income, net of waivers .... 3.06% 2.86% 2.34% 2.18% 1.52%(C) Net investment income (loss), before waivers ............................... 3.06% 2.86% 2.34% 2.17% (357.63)%(C) Portfolio turnover rate .................. 57% 53% 50% 59% 58%(D) AMR Class ------------------------------------------------- Year Ended October 31, ------------------------------------------------- 2009 2008 2007 2006 2005 -------- -------- -------- -------- -------- Net asset value, beginning of period ........ $ 10.19 $ 15.49 $ 15.27 $ 14.49 $ 13.87 -------- -------- -------- -------- -------- Income from investment operations: Net investment income(A) ................. 0.39 0.49 0.50 0.45 0.39 Net gains (losses) on securities (both realized and unrealized) .............. 1.24 (4.52) 0.89 1.46 1.05 -------- -------- -------- -------- -------- Total income (loss) from investment operations ............................... 1.63 (4.03) 1.39 1.91 1.44 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income ..... (0.51) (0.48) (0.45) (0.41) (0.35) Distributions from net realized gains on securities ............................ -- (0.79) (0.72) (0.72) (0.47) -------- -------- -------- -------- -------- Total distributions ......................... (0.51) (1.27) (1.17) (1.13) (0.82) -------- -------- -------- -------- -------- Net asset value, end of period .............. $ 11.31 $ 10.19 $ 15.49 $ 15.27 $ 14.49 ======== ======== ======== ======== ======== Total return(E) ............................. 16.95% (28.08)% 9.59% 13.98% 10.63% ======== ======== ======== ======== ======== Ratios and supplemental data: Net assets, end of period (in thousands).. $681,197 $604,209 $898,584 $817,333 $712,073 Ratios to average net assets (annualized): Expenses, net of waivers ................. 0.35% 0.31% 0.31% 0.33% 0.33% Expenses, before waivers ................. 0.35% 0.31% 0.31% 0.33% 0.33% Net investment income, net of waivers .... 3.75% 3.62% 3.21% 3.08% 2.70% Net investment income (loss), before waivers ............................... 3.75% 3.62% 3.21% 3.08% 2.70% Portfolio turnover rate .................. 57% 53% 50% 59% 58%
(A) Through October 31, 2005, net investment income was calculated by subtracting class expenses per share from the Fund's net investment income per share before class expenses. (B) Not annualized. (C) Annualized. (D) Portfolio turnover rate is for the period from November 1, 2004 through October 31, 2005. (E) May include adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. For the Institutional Class for the year ended 2005 the Total return has been restated from 12.78%. For the Advisor Class for the years ended 2008, 2007, and 2006, the Total returns have been restated from (28.58%), 8.76%, and 13.01%, respectively. 42 AMERICAN BEACON LARGE CAP GROWTH FUND FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class ------------------------------------------------ Year Ended October 31, ------------------------------------------------ 2009(A) 2008 2007 2006(B) 2005 ------- -------- ------ ------- ------- Net asset value, beginning of period ................................ $ 4.49 $ 7.67 $ 6.89 $ 6.18 $ 5.82 ------ ------- ------ ------ ------ Income from investment operations: Net investment income ............................................ 0.03 0.05 0.04 0.04 0.04 Net gains (losses) on securities (both realized and unrealized) .. 0.50 (2.97) 0.77 0.70 0.37 ------ ------- ------ ------ ------ Total income (loss) from investment operations ...................... 0.53 (2.92) 0.81 0.74 0.41 ------ ------- ------ ------ ------ Less distributions: Dividends from net investment income ............................. (0.05) (0.04) (0.03) (0.03) (0.05) Distributions from net realized gains on securities .............. -- (0.22) -- -- -- ------ ------- ------ ------ ------ Total distributions ................................................. (0.05) (0.26) (0.03) (0.03) (0.05) ------ ------- ------ ------ ------ Net asset value, end of period ...................................... $ 4.97 $ 4.49 $ 7.67 $ 6.89 $ 6.18 ====== ======= ====== ====== ====== Total return(C) ..................................................... 12.09% (39.35)% 11.84% 12.04% 7.06% ====== ======= ====== ====== ====== Ratios and supplemental data: Net assets, end of period (in thousands) ......................... $ 130 $ 83 $ 119 $ 110 $ 105 Ratios to average net assets (annualized): Expenses, net of waivers ......................................... 0.93% 0.89% 0.90% 0.90% 0.89% Expenses, before waivers ......................................... 0.94% 0.95% 1.06% 0.99% 4.64% Net investment income (loss), net of waivers ..................... 0.38% 0.74% 0.58% 0.56% (0.18)% Net investment income (loss), before waivers ..................... 0.36% 0.68% 0.42% 0.48% (3.93)% Portfolio turnover rate .......................................... 147% 112% 128% 181% 164% AMR Class Year Ended October 31, ------------------------------------------------- 2009(A) 2008 2007 2006(B) 2005 ------- -------- -------- ------- ------- Net asset value, beginning of period ................................ $ 4.52 $ 7.72 $ 6.95 $ 6.21 $ 5.84 ------- -------- -------- ------- ------- Income from investment operations: Net investment income ............................................ 0.04 0.07 0.06 0.05 0.06 Net gains (losses) on securities (both realized and unrealized) .. 0.51 (2.99) 0.77 0.73 0.36 ------- -------- -------- ------- ------- Total income (loss) from investment operations ...................... 0.55 (2.92) 0.83 0.78 0.42 ------- -------- -------- ------- ------- Less distributions: Dividends from net investment income ............................. (0.07) (0.06) (0.06) (0.04) (0.05) Distributions from net realized gains on securities .............. -- (0.22) -- -- -- ------- -------- -------- ------- ------- Total distributions ................................................. (0.07) (0.28) (0.06) (0.04) (0.05) ------- -------- -------- ------- ------- Net asset value, end of period ...................................... $ 5.00 $ 4.52 $ 7.72 $ 6.95 $ 6.21 ======= ======= ======== ======= ======= Total return(C) ..................................................... 12.46% (39.17)% 12.07% 12.52% 7.22% ======= ======= ======== ======= ======= Ratios and supplemental data: Net assets, end of period (in thousands) ......................... $71,154 $56,976 $101,698 $82,042 $63,183 Ratios to average net assets (annualized): Expenses, net of waivers ......................................... 0.63% 0.59% 0.60% 0.59% 0.64% Net investment income (loss), before waivers ..................... 0.63% 0.59% 0.60% 0.59% 0.64% Net investment income (loss), net of waivers ..................... 0.86% 1.05% 0.85% 0.88% 0.98% Net investment income (loss), before waivers ..................... 0.86% 1.05% 0.85% 0.88% 0.98% Portfolio turnover rate .......................................... 147% 112% 128% 181% 164%
(A) On March 17, 2009, Winslow Capital Management, Inc. assumed management of the Large Cap Growth Fund's assets previously managed by Goldman Sachs Asset Management, L.P. (B) On September 12, 2006, The Renaissance Group, LLC assumed management of the Large Cap Growth Fund's assets previously managed by J.P. Morgan Investment Management, Inc. (C) May include adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. The Total return of the Institutional Class for the year ended 2008 has been restated from (39.48%). 43 AMERICAN BEACON MID-CAP VALUE FUND FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class ------------------------------------ November Year Ended October 31, 30 to ------------------------- October 2009 2008 2007 31, 2006 ------ ------- ------ -------- Net asset value, beginning of period .................... $ 5.94 $ 11.01 $10.81 $ 12.09 ------ ------- ------ -------- Income from investment operations: Net investment income ................................ 0.10 0.16 0.12 0.21 Net gains (losses) on securities (both realized and unrealized) ................................... 1.65 (4.31) 0.41 1.25 ------ ------- ------ -------- Total income (loss) from investment operations .......... 1.75 (4.15) 0.53 1.46 ------ ------- ------ -------- Less distributions: Dividends from net investment income ................. (0.12) (0.16) (0.07) (0.16) Distributions from net realized gains on securities .. -- (0.76) (0.26) (2.58) ------ ------- ------ -------- Total distributions ..................................... (0.12) (0.92) (0.33) (2.74) ------ ------- ------ -------- Redemption fees added to beneficial interests(B) ........ 0.00 0.00 0.00 0.00 Net asset value, end of period .......................... $ 7.57 $ 5.94 $11.01 $ 10.81 ====== ======= ====== ======== Total return(G) ......................................... 30.24% (40.86)% 4.97% 15.19%(C) ====== ======= ====== ======== Ratios and supplemental data: Net assets, end of period (in thousands) ............. $2,197 $ 2,256 $6,047 $ 3,396 Ratios to average net assets (annualized): Expenses, net of waivers ............................. 0.98% 0.98% 0.92% 1.19%(D) Expenses, before waivers ............................. 1.13% 1.16% 1.09% 1.19%(D) Net investment income, net of waivers ................ 1.29% 1.51% 1.22% 1.11%(D) Net investment income, before waivers ................ 1.14% 1.33% 1.05% 1.11%(D) Portfolio turnover rate .............................. 42% 28% 35% 42%(E) Investor Class -------------------------------------- February Year Ended October 31, 28 to --------------------------- October 2009 2008 2007 31, 2006 ------- ------- ------- -------- Net asset value, beginning of period .................... $ 5.92 $ 10.96 $ 10.80 $ 9.80 ------- ------- ------- ------- Income from investment operations: Net investment income ................................ 0.07 0.14 0.10 0.01 Net gains (losses) on securities (both realized and unrealized) ................................... 1.66 (4.31) 0.40 0.99 ------- ------- ------- ------- Total income (loss) from investment operations .......... 1.73 (4.17) 0.50 1.00 ------- ------- ------- ------- Less distributions: Dividends from net investment income ................. (0.11) (0.11) (0.08) -- Distributions from net realized gains on securities .. -- (0.76) (0.26) -- ------- ------- ------- ------- Total distributions ..................................... (0.11) (0.87) (0.34) -- ------- ------- ------- ------- Redemption fees added to beneficial interests(B) ........ 0.00 0.00 0.00 0.00 Net asset value, end of period .......................... $ 7.54 $ 5.92 $ 10.96 $ 10.80 ======= ======= ======= ======= Total return(G) ......................................... 29.93% (41.04)% 4.68% 10.20%(C) ======= ======= ======= ======= Ratios and supplemental data: Net assets, end of period (in thousands) ............. $23,369 $16,550 $43,158 $27,240 Ratios to average net assets (annualized): Expenses, net of waivers ............................. 1.23% 1.23% 1.23% 1.49%(D) Expenses, before waivers ............................. 1.34% 1.32% 1.26% 1.61%(D) Net investment income, net of waivers ................ 0.98% 1.27% 0.93% 0.57%(D) Net investment income, before waivers ................ 0.87% 1.18% 0.90% 0.44%(D) Portfolio turnover rate .............................. 42% 28% 35% 42%(E) Advisor Class --------------------------------- June Year Ended October 31, 29 to ---------------------- October 2009 2008 31, 2007 -------- ------- -------- Net asset value, beginning of period .................... $ 5.87 $ 10.94 $ 11.73 ------ ------- ------- Income from investment operations: Net investment income ................................ 0.15 0.10 0.01 Net gains (losses) on securities (both realized and unrealized) ................................... 1.60 (4.27) (0.80) ------ ------- ------- Total income (loss) from investment operations .......... 1.75 (4.17) (0.79) ------ ------- ------- Less distributions: Dividends from net investment income ................. (0.13) (0.14) -- Distributions from net realized gains on securities .. -- (0.76) -- ------ ------- ------- Total distributions ..................................... (0.13) (0.90) -- ------ ------- ------- Redemption fees added to beneficial interests(B) ........ 0.00 0.00 0.00 Net asset value, end of period .......................... $ 7.49 $ 5.87 $ 10.94 ====== ======= ======= Total return(G) ......................................... 30.64% (41.28)% (6.73)%(C) ====== ======= ======= Ratios and supplemental data: Net assets, end of period (in thousands) ............. $ 7 $ 1 $ 1 Ratios to average net assets (annualized): Expenses, net of waivers ............................. 1.50% 1.50% 1.50%(D) Expenses, before waivers ............................. 1.58% 2.04% 1.80%(D) Net investment income, net of waivers ................ 0.22% 1.02% 0.32%(D) Net investment income, before waivers ................ 0.14% 0.48% 0.02%(D) Portfolio turnover rate .............................. 42% 28% 35%(F) AMR Class (formerly Institutional Class prior to December 1, 2005)(A) ----------------------------------------------- Year Ended October 31, ----------------------------------------------- 2009 2008 2007 2006 2005 ------- ------- ------- ------- ------- Net asset value, beginning of period .................... $ 5.97 $ 11.07 $ 10.87 $ 11.72 $ 10.27 ------- ------- ------- ------- ------- Income from investment operations: Net investment income ................................ 0.07 0.18 0.18 0.12 0.13 Net gains (losses) on securities (both realized and unrealized) ................................... 1.70 (4.35) 0.36 1.75 1.37 ------- ------- ------- ------- ------- Total income (loss) from investment operations .......... 1.77 (4.17) 0.54 1.87 1.50 ------- ------- ------- ------- ------- Less distributions: Dividends from net investment income ................. (0.15) (0.17) (0.08) (0.14) (0.05) Distributions from net realized gains on securities .. -- (0.76) (0.26) (2.58) -- ------- ------- ------- ------- ------- Total distributions ..................................... (0.15) (0.93) (0.34) (2.72) (0.05) ------- ------- ------- ------- ------- Redemption fees added to beneficial interests(B) ........ 0.00 0.00 0.00 0.00 0.00 Net asset value, end of period .......................... $ 7.59 $ 5.97 $ 11.07 $ 10.87 $ 11.72 ======= ======= ======= ======= ======= Total return(G) ......................................... 30.56% (40.82)% 5.09% 19.16% 14.63% ======= ======= ======= ======= ======= Ratios and supplemental data: Net assets, end of period (in thousands) ............. $53,604 $34,253 $78,794 $66,290 $44,342 Ratios to average net assets (annualized): Expenses, net of waivers ............................. 0.83% 0.82% 0.75% 0.97% 1.01% Expenses, before waivers ............................. 0.82% 0.82% 0.75% 0.92% 1.02% Net investment income, net of waivers ................ 1.38% 1.68% 1.41% 1.38% 0.92% Net investment income, before waivers ................ 1.38% 1.68% 1.40% 1.42% 0.91% Portfolio turnover rate .............................. 42% 28% 35% 42% 298%
(A) On November 30, 2005, the Mid-Cap Value Fund's Institutional Class of shares was renamed the AMR Class and the Fund began offering a new class of shares known as the Institutional Class. (B) Amounts represent less than $0.01 per share. (C) Not annualized. (D) Annualized. (E) Portfolio turnover rate is for the period from November 1, 2005 through October 31, 2006. (F) Portfolio turnover rate is for the period from November 1, 2006 through October 31, 2007. (G) May include adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. For the Institutional Class for the years and period then ended 2008, 2007 and 2006, the Total returns have been restated from (40.96%), 4.87%, and 15.30%, respectively. For the Investor Class for the year ended 2008, the Total return has been restated from (41.14%). For the Advisor Class for the years and period then ended 2008 and 2007, the Total returns have been restated from (41.24%) and (6.65%), respectively. For the AMR Class for the years ended 2008 and 2007, the Total returns have been restated from (40.87%) and 5.19%, respectively. 44 AMERICAN BEACON FUNDS PRIVACY POLICY (UNAUDITED) The American Beacon Funds recognizes and respects the privacy of our shareholders. We are providing this notice to you so you will understand how shareholder information may be collected and used. We may collect nonpublic personal information about you from one or more of the following sources: - information we receive from you on applications or other forms; - information about your transactions with us or our service providers; and - information we receive from third parties. We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. We restrict access to your nonpublic personal information to those employees or service providers who need to know that information to provide products or services to you. To ensure the confidentiality of your nonpublic personal information, we maintain safeguards that comply with federal standards. FEDERAL TAX INFORMATION (UNAUDITED) For corporate shareholders in the Funds, the percentage of ordinary dividend income distributed for the year ended October 31, 2009, which is designated as qualifying for the dividends-received deduction, is as follows: Balanced Fund 27.57% Large Cap Growth Fund 42.76% Mid-Cap Value Fund 44.20%
For shareholders in the Funds, the percentage of dividend income distributed for the year ended October 31, 2009, which is designated as qualified dividends income under the Jobs and Growth Tax Relief Act of 2003, is as follows: Balanced Fund 32.96% Large Cap Growth Fund 67.01% Mid-Cap Value Fund 75.92%
Shareholders will receive notification in January 2010 of the percentage applicable to the preparation of their 2009 income tax returns. 45 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENT (UNAUDITED) At its May 27, 2009 meeting, the Board of Trustees ("Board") considered the renewal of each existing Management Agreement between American Beacon Advisors, Inc. (the "Manager") and the American Beacon Funds ("Beacon Trust") (the "Funds") and each Investment Advisory Agreement between the Manager and a subadvisor ("Investment Advisory Agreements" and collectively with the Management Agreement, the "Agreements"). 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 and each subadvisor. 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 and each Investment Advisory Agreement, the Trustees considered, among other materials, responses by the Manager and the subadvisors 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 1 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 subadvisors to 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; - 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; 46 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS - 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 subadvisor and each Fund versus the respective peer group average; - a discussion, if applicable, of any underperformance by a subadvisor relative to its peer group and what, if any, remedial measures the Manager has or intends to take; - a comparison of advisory fees and expense ratios for comparable mutual funds; - an analysis of any material complaints received from Fund shareholders; - a description of the Manager's securities lending practices and the fees received from such practices; - a 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 each subadvisor to a Fund; and - a description of how expenses that are not readily identifiable to a particular Fund are allocated. In connection with the Management Agreement and each Investment Advisory Agreement, the Board also obtained an analysis provided by Lipper that compared: (i) investment performance of each Fund versus comparable investment companies and appropriate indices; (ii) total Fund expenses of each Fund versus comparable mutual funds; and (iii) each Fund's investment advisory fees versus comparable mutual funds. For each Fund with more than one class of shares, the class of shares used for comparative purposes was the class with the longest performance history, which in most cases was 47 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS 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 each subadvisor and the primary factors considered by the Board at its May 27, 2009 meeting at which the Board considered the renewal of the Agreements. The Board did not identify any particular information that was most relevant to its consideration to renew the Management Agreement and each Investment Advisory Agreement, 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 Agreement and each Investment Advisory Agreement, the Trustees considered the best interests of each Fund separately. While the Management Agreement and the Investment Advisory Agreements for all of the Funds were considered at the May 27, 2009 meeting, the Board considered each Fund's investment management and subadvisory 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 and, as applicable, each subadvisor for a Fund; (3) the costs incurred by the Manager and (to the extent provided) the subadvisors in rendering their services and their 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 or a subadvisor or their affiliates 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 or a subadvisor from their 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 Agreement, the Board considered: the background and experience of key investment personnel and the Manager's ability to retain them; the Manager's disciplined investment approach and goal to provide consistent above average long-term performance at a low cost; the Manager's continuing 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 investment subadvisors and master portfolios. With respect to the renewal of each Investment Advisory Agreement, the Trustees considered the background and experience of each subadvisor's investment personnel responsible for managing the Funds, the size of the subadvisor and their ability to continue to attract and retain qualified investment personnel. Based on the foregoing information, the Board concluded that the nature, extent and quality of the management and advisory services provided by the Manager and each subadvisor were appropriate for each Fund and, thus, determined to renew the Management Agreement and the Investment Advisory Agreement for each Fund. Investment Performance. The Board evaluated the comparative information provided by Lipper and the Manager regarding each Fund's investment performance relative to its benchmark index(es) and peer group. The Board considered the information provided by Lipper regarding its independent peer selection methodology to select all peer groups and universes. The Board also considered the performance reports and discussions with management at Board and Committee meetings throughout the year. The Manager also noted that it generally was satisfied with the performance of the subadvisors. A discussion regarding the Board's considerations with respect to each Fund's performance appears below under "Additional Considerations and Conclusions with Respect to Each Fund." Costs of the Services 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 and a subadvisor 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 Beacon Trust, stipulates 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. The index series of the Funds also operate under a master-feeder structure, but each of these series invests in a master portfolio that is not 48 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS managed by the Manager. As such, the Board considered that the Manager does not receive a management fee with respect to the International Equity Index, S&P 500 Index, or Small Cap Index Funds. With respect to the Short-Term Bond Fund, 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 further considered that each subadvised Fund pays the Manager the amounts due to its subadvisors, and the Manager remits these amounts directly to the applicable subadvisors. 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. In addition, the Board considered that the Manager receives management fees for overseeing the securities lending relationships on behalf of various Funds. The Board also noted that certain classes of the Funds maintain higher expense ratios in order to compensate third-party distributors. In analyzing the cost of services and profitability for each subadvisor in connection with its investment advisory services to the Fund, the Board considered that, in many cases, the Manager has negotiated the lowest subadvisory fee a subadvisor charges for any comparable client accounts. The Board gave less weight to profitability considerations or did not view this data as imperative to its deliberations given the arm's length nature of the relationship between the Manager and the subadvisors with respect to the negotiation of subadvisory fees. Based on the foregoing information, the Board concluded that the profitability levels were reasonable in light of the services performed by the Manager and the subadvisors. 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 and investment advisory 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. In this regard, the Board considered that the Manager has negotiated breakpoints in many subadvisory fee rates. The Board also noted that, for purposes of determining the fee rates chargeable to the Funds, many subadvisors have agreed to take into account other assets of AMR Corporation and its pension plans that are managed by the subadvisors. Thus, the Funds are able to receive lower effective fee rates. 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. Based on the foregoing information, the Board concluded that the Manager and subadvisor fee schedules for each Fund provides for a reasonable sharing of benefits from any economies of scale with the Fund. Benefits Derived from the Relationship with the Funds. The Board considered the "fall-out" or ancillary benefits that accrue to the Manager and/or the subadvisors as a result of the advisory relationships with the Funds, including greater exposure in the marketplace with respect to the Manager's or subadvisor's investment process and expanding the level of assets under management by the Manager and the subadvisors. The Board also considered that the Manager's relationship with the Funds 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. The Board considered that certain of the subadvisors reimburse the Manager for certain of its costs relating to distribution activities for the Funds. The Board also considered that Funds did not pay commissions to any affiliated broker-dealer of the Manager or the relevant subadvisor during the most recent fiscal year ended October 31. Based on the foregoing information, the Board concluded that the potential benefits accruing to the Manager and the subadvisors by virtue of their relationships with the Funds appear to be fair and reasonable. Additional Considerations and Conclusions with Respect to Each Fund Except for the Short-Term Bond Fund, the performance comparisons below were made versus each Fund's Lipper peer universe median. 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. 49 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS Additional Considerations and Conclusions with Respect to the Balanced Fund In considering the renewal of the Management Agreement with respect to the Balanced Fund, the Trustees considered the following additional factors: (1) the Balanced Fund outperformed the peer universe median for the one-, three-, five- and ten-year periods ended March 31, 2009; (2) the Manager outperformed its market index with respect to its portion of the Fund's fixed income assets for the one-, three- and five-year periods ended March 31, 2009; and (3) the expense ratio of the Institutional Class of Fund shares ranked better than the median of its Lipper expense universe. In considering the renewal of the Investment Advisory Agreements with Barrow, Hanley, Mewhinney & Strauss, Inc. ("Barrow"), Brandywine Global Investment Management, LLC ("Brandywine") and Hotchkis and Wiley Capital Management, LLC ("Hotchkis"), the Trustees considered the following additional factors: (1) Barrow outperformed the peer universe median for the one-, three-, five- and ten-year periods ended March 31, 2009; (2) Brandywine outperformed the peer universe median for the one-, three-, five- and ten-year periods ended March 31, 2009; (3) Hotchkis outperformed its market benchmark index with respect to its allocated portion of the Fund's equity assets for the ten-year period and the quarter ended March 31, 2009, but underperformed for the one- three- and five- year periods; (4) management's analysis of the rationale for Hotchkis' underperformance; (5) each of the Fund's subadvisors has informed the Manager that it uses Fund commissions to obtain proprietary research, the application of which benefits the Fund; (6) each of the Fund's subadvisors has indicated that it does not charge lower advisory fees to other clients for which it provides comparable services; and (7) the Manager's recommendation to continue to retain each subadvisor. Based on these and other considerations the Trustees (1) concluded that the fees paid to the Manager and the subadvisors under the Agreements are fair and reasonable, (2) determined that the Balanced Fund and its shareholders would benefit from the Manager's and subadvisors' continued management of the Fund and (3) approved the renewal of the Management and Investment Advisory Agreements with respect to the Balanced Fund. Additional Considerations and Conclusions with Respect to the Large Cap Growth Fund In considering the renewal of the Management Agreement for the Large Cap Growth Fund, the Trustees considered the following additional factors: (1) the Large Cap Growth Fund underperformed the peer universe median for the one-, three- and five-year periods ended March 31, 2009; (2) management's analysis regarding the rationale for the underperformance of the Large Cap Growth Fund; and (3) the expense ratio of the Institutional Class of Fund shares ranked better than the median of its Lipper expense universe. In considering the renewal of the Investment Advisory Agreements with Renaissance Group LLC, dba Renaissance Investment Management ("Renaissance"), the Trustees considered the following additional factors: (1) Renaissance underperformed the peer universe median for the one- and two- year period ended March 31, 2009; (2) management's analysis regarding the rationale for Renaissance's underperformance; (3) Renaissance has informed the Manager that it uses Fund commissions to obtain proprietary research, the application of which benefits the Fund and Renaissance's other clients; (4) Renaissance has indicated that it charges lower advisory fees to two similarly managed accounts driven by the significant size of such portfolios; and (5) the Manager's recommendation to continue to retain Renaissance as a subadvisor. Based on these and other considerations the Trustees (1) concluded that the fees paid to the Manager and the subadvisor under the Agreements are fair and reasonable, (2) determined that the Large Cap Growth Fund and its shareholders would benefit from the Manager's and subadvisor's continued management of the Fund and (3) approved the renewal of the Management and Investment Advisory Agreements with respect to the Large Cap Growth Fund. Additional Considerations and Conclusions with Respect to the Mid-Cap Value Fund In considering the renewal of the Management Agreement for the Mid-Cap Value Fund, the Trustees considered the following additional factors: (1) the Mid-Cap Value Fund outperformed its peer group universe median for the one-year period ended March 31, 2009 and underperformed for the three-year period; (2) management's analysis regarding the rationale for the underperformance of the Mid-Cap Value Fund; and (3) the expense ratio of the Institutional Class of Fund shares ranked better than the median of its Lipper expense universe (after consideration of the Manager's waiver). In considering the renewal of the Investment Advisory Agreements with Barrow and Pzena Investment Management, LLC ("Pzena"), the Trustees considered the following additional factors: (1) Barrow outperformed the peer universe median for the one- and three-year periods ended March 31, 2009; (2) Pzena underperformed the peer universe median for the one- and three-year periods ended March 31, 2009; (3) management's analysis regarding the rationale for 50 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS Pzena's underperformance; (4) that the Manager will continue to monitor and Board or its Investment Committee will periodically review, Pzena's investment performance with respect to its allocated portion of the Mid Cap Value Fund's assets; (5) Pzena has lowered its investment management fee by 15%; (6) Barrow has informed the Manager that it uses Fund commissions to obtain proprietary research, the application of which benefits the Fund and Barrow's other clients; (7) Barrow and Pzena have indicated that they do not charge lower advisory fee rates to other clients for which they provide comparable services; and (6) the Manager's recommendation to continue to retain each subadvisor. Based on these and other considerations the Trustees (1) concluded that the fees paid to the Manager and the subadvisors under the Agreements are fair and reasonable, (2) determined that the Mid-Cap Value Fund and its shareholders would benefit from the Manager's and subadvisors' continued management of the Fund and (3) approved the renewal of the Management and Investment Advisory Agreements with respect to the Mid-Cap Value Fund. 51 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED) The Trustees and officers of the American Beacon Funds (the "Trust") are listed below, together with their principal occupations during the past five years. Unless otherwise indicated, the address of each person listed below is 4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees nineteen funds in the fund complex that includes the Trust, the American Beacon Master Trust, the American Beacon Mileage Funds, and the American Beacon Select Funds. The Trust's Statement of Additional Information contains additional information about the Trustees and is available without charge by calling 1-800-658-5811.
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS - ------------------------- ------------------- ---------------------------------------------------------------------- INTERESTED TRUSTEES Term Lifetime of Trust until removal, resignation or retirement* Alan D. Feld** (72) Trustee since 1996 Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (1960-Present); Director, Clear Channel Communications (1984-Present); Trustee, CenterPoint Properties (1994-2006); Member, Board of Trustees, Southern Methodist University ; Member, Board of Visitors, M.D. Anderson Hospital; Board of Visitors, Zale/Lipshy Hospital; Trustee, American Beacon Mileage Funds (1996-present); Trustee, American Beacon Select Funds (1996-present); Trustee, American Beacon Master Trust Funds (1996-present). NON-INTERESTED TRUSTEES Term Lifetime of Trust until removal, resignation or retirement* W. Humphrey Bogart (65) Trustee since 2004 Board Member, Baylor University Medical Center Foundation (1992-2004); Consultant, New River Canada Ltd. (mutual fund servicing company) (1998-2003); President and CEO, Allmerica Trust Company, NA (1996-1997); President and CEO, Fidelity Investments Southwest Company (1983-1995); Senior Vice President of Regional Centers, Fidelity Investments (1988-1995); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). Brenda A. Cline (49) Trustee since 2004 Executive Vice President, Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Trustee, Texas Christian University (1998-Present); Trustee, W.I. Cook Foundation, Inc. (d/b/a Cook Children's Health Foundation) (2001-2006); Director, Christian Church Foundation (1999-2007); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). Eugene J. Duffy (55) Trustee since 2008 Principal and Executive Vice President, Paradigm Asset Management (1994-Present); Director, Sunrise Bank of Atlanta (2008-Present); Chairman, Special Contributions Fund Board of Trustees, National Association for the Advancement of Colored People (2007-Present); Trustee, National Association for the Advancement of Colored People (2000-Present); Board of Visitors, Emory University (2006-Present); Trustee, Atlanta Botanical Garden (2006-Present); Board Member, Willie L. Brown Jr. Institute on Politics and Public Service (2001-Present); Chair, National Association of Securities Professionals (2000-2002); Deputy Chief Administrative Officer, City of Atlanta (1985-1990); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present).
52 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED)
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS - ------------------------- ------------------- ---------------------------------------------------------------------- Thomas M. Dunning (66) Trustee since 2008 Consultant, (2008-Present); Chairman (2003-2008) and Chief Executive Officer (2003-2007), Lockton Dunning Benefits (consulting firm in employee benefits); Director, Oncor Electric Delivery Company LLC (2007-present); Advisory Director, Comerica Texas (2003-present); Immediate Past Chairman and Board Member, Dallas Citizens Council; Director, Baylor Health Care System Foundation (2007-present); State Vice Chair, State Fair of Texas; Board Member, Southwestern Medical Foundation (1994-present); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present). Richard A. Massman (66) Trustee since 2004 Consultant and General Counsel Emeritus (2009-Present), Senior Vice Chairman since 2008 President and General Counsel, Hunt Consolidated, Inc. (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities) (1994-2009). Chairman (2007-Present) and Director (2005-Present), The Dallas Opera Foundation; Chairman (2006-Present) and Director (2005-Present), Temple Emanu-El Foundation; Trustee, Presbyterian Hospital Foundation (2006-Present); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). R. Gerald Turner (64) Trustee since 2001 President, Southern Methodist University (1995-Present); Director, 225 Perkins Admin. Bldg. ChemFirst (1986-2002); Director, J.C. Penney Company, Inc. Southern Methodist Univ. (1996-Present); Director, California Federal Preferred Capital Corp. Dallas, Texas 75275 (2001-2003); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Director, First Broadcasting Investment Partners, LLC (2003-2007); Member, Salvation Army of Dallas Board of Directors; Member, Methodist Hospital Advisory Board; Co-Chair, Knight Commission on Intercollegiate Athletics; Trustee, American Beacon Mileage Funds (2001-present); Trustee, American Beacon Select Funds (2001-present); Trustee, American Beacon Master Trust Funds (2001-present). Paul J. Zucconi,CPA (68) Trustee since 2008 Director, Affirmative Insurance Holdings, Inc. (producer of nonstandard automobile insurance) (2004-present); Director, Titanium Metals Corporation (producer of titanium melted and mill products and sponge) (2002- present); Director, Torchmark Corporation (life and health insurance products) (2002-present); Director, National Kidney Foundation of North Texas (2003-Present); Director, Dallas Chapter of National Association of Corporate Directors (2004-Present); Partner, KPMG (1976-2001); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present). OFFICERS Term One Year William F. Quinn** (61) Executive Vice Executive Chairman (2009-Present), Chairman (2006-2009) and CEO President from (2006-2007), President (1986-2006) and Director (2003-Present), 2007 to 2008 and American Beacon Advisors, Inc.; Chairman (1989-2003) and Director 2009 to Present (1979-1989, 2003-Present), American Airlines Federal Credit Union; President from Director, Hicks Acquisition I, Inc. (2007-2009); Director, Crescent 1987 to 2007 Real Estate Equities, Inc.(1994-2007); Director, Pritchard, Hubble & and 2008 to 2009 Herr, LLC (investment advisor) (2001-2006); Director of Investment Trustee from Committee, Southern Methodist University Endowment Fund 1987 to 2008 (1996-Present); Member, Southern Methodist University Cox School of Business Advisory Board (1999-2002); Member, New York Stock Exchange Pension Manager Committee (1997-1998, 2000-2002, 2006-Present); Chairman (2007-Present) and Vice Chairman (2004-2007), Committee for the Investment of Employee Benefits; Director, United Way of Metropolitan Tarrant County (1988-2000, 2004-Present); Trustee, American Beacon Mileage Funds (1995-2008); Trustee, American Beacon Select Funds (1999-2008); Trustee, American Beacon Master Trust (1995-2008).
53 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED) Gene L. Needles, Jr. (54) President 2009 to President, CEO and Director (2009-Present), American Beacon Advisors, Present Inc. President (November 2009-Present), Executive Vice President (May 2009-November 2009) of the American Beacon Funds, American Beacon Mileage Funds, American Beacon Select Funds, and American Beacon Master Trust. President (2008-2009), Touchstone Investments; President (2003-2007), CEO (2004-2007), Managing Director of Sales (2002-2003), National Sales Manager (1999-2002), and Regional Sales Manager (1993-1999), AIM Distributors. Rosemary K. Behan (50) VP, Secretary and Vice President, Legal and Compliance, American Beacon Advisors, Inc. Chief Legal (2006-Present); Assistant General Counsel, First Command Financial Officer since 2006 Planning, Inc. (2004-2006); Attorney (1995-2004), Securities and Exchange Commission. Brian E. Brett (49) VP since 2004 Vice President, Director of Sales and Marketing, American Beacon Advisors, Inc. (2004-Present); Regional Vice President, Neuberger Berman, LLC (investment advisor) (1996-2004).
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS - ------------------------- ------------------- ---------------------------------------------------------------------- Wyatt Crumpler (43) VP since 2007 Vice President, Asset Management, American Beacon Advisors, Inc. (2007-Present); Managing Director of Corporate Accounting (2004-2007), Director of IT Strategy and Finance (2002-2004), American Airlines, Inc. Michael W. Fields (55) VP since 1989 Vice President, Fixed Income Investments, American Beacon Advisors, Inc. (1988-Present); Director American Beacon Global Funds SPC (2002-present); Director, American Beacon Global Funds plc (2007-2009). Rebecca L. Harris (42) Treasurer since Vice President, Finance, American Beacon Advisors, Inc. 1995 (1995-Present). Christina E. Sears (38) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc. Officer since 2004 (2004-Present); Senior Compliance Analyst, American Beacon Advisors, and Asst. Inc. (1998-2004). Secretary since 1999
* The Board has adopted a retirement plan that requires Trustees to retire no later than the last day of the calendar year in which they reach the age of 72, provided, however, that the Board may determine to grant one or more annual exemptions to this requirement. ** Mr. Feld is deemed to be an "interested person" of the Trusts, as defined by the 1940 Act. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the past two fiscal years to the Manager and one or more of the Trust's and Master Trust's sub-advisors. 54 (AMERICAN BEACON FUNDS(R) LOGO) DELIVERY OF DOCUMENTS If you invest in the Funds 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 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. TO OBTAIN MORE INFORMATION ABOUT THE FUND: (GRAPHIC) (GRAPHIC) BY E-MAIL: ON THE INTERNET: american_beacon.funds@ambeacon.com Visit our website at www.americanbeaconfunds.com (GRAPHIC) (GRAPHIC) BY TELEPHONE: BY MAIL: Institutional, Investor, and Advisor Classes American Beacon Funds Call (800) 658-5811 P.O. Box 219643 AMR Class(SM) Kansas City, MO 64121-9643 Call (800) 345-2345
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES In addition to the Schedule of Investments provided in each semi-annual and annual report, the Fund files a complete schedule of its portfolio holdings with the Securities and Exchange Commission ("SEC") on Form N-Q as of the first and third fiscal quarters. The Fund's Forms N-Q are available on the SEC's website at www.sec.gov. The Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549. Information regarding the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. A complete schedule of the Fund's portfolio holdings is also available on the Funds' website (www.americanbeaconfunds.com) approximately thirty days after the end of each month. AVAILABILITY OF PROXY VOTING POLICY AND RECORDS A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available in the Fund's Statement of Additional Information, is available free of charge on the Fund's website (www.americanbeaconfunds.com) and by calling 1-800-967-9009 or by accessing the SEC's website at www.sec.gov. The Fund's proxy voting record for the most recent year ended June 30 is filed annually with the SEC on Form N-PX. The Fund's Forms N-PX are available on the SEC's website at www.sec.gov. The Fund's proxy voting record may also be obtained by calling 1-800-967-9009. FUND SERVICE PROVIDERS: CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR STATE STREET BANK AND BOSTON FINANCIAL DATA PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES TRUST SERVICES ERNST & YOUNG LLP Portland, Maine Boston, Massachusetts Kansas City, Missouri Dallas, Texas
This report is prepared for shareholders of the American Beacon Funds and may be distributed to others only if preceded or accompanied by a current prospectus. American Beacon Funds, American Beacon Balanced Fund, American Beacon Large Cap Growth Fund, and American Beacon Mid-Cap Value Fund are service marks of American Beacon Advisors, Inc. AR 10//09 00071319 GUIDANCE | VISION | EXPERIENCE (AMERICAN BEACON FUNDS(SM) LOGO) ANNUAL REPORT (GRAPHIC) October 31, 2009 EMERGING MARKETS FUND INTERNATIONAL EQUITY FUND ABOUT AMERICAN BEACON ADVISORS Since 1986, American Beacon Advisors has offered a variety of products and investment advisory services to numerous institutional and retail clients, including a variety of mutual funds, corporate cash management, and separate account management. Our clients include defined benefit plans, defined contribution plans, foundations, endowments, corporations, financial planners, and other institutional investors. With American Beacon Advisors, you can put the experience of a multi-billion dollar asset management firm to work for your company. CONTENTS President's Message................ 1 Market and Performance Overview ... 6 Schedules of Investments: Emerging Markets................ 11 International Equity............ 16 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 the Fund's portfolio composition will change depending on economic and market conditions. This report is not a complete analysis of market conditions and, therefore, should not be relied upon as investment advice. Although economic and market information has been compiled from reliable sources, American Beacon Advisors, Inc. makes no representation as to the completeness or accuracy of the statements contained herein. Investing in foreign equities entails additional risk not associated with domestic equities, such as currency fluctuations, economic and political instability and differences in accounting standards. The risks of investing in foreign equities are heightened when investing in emerging markets. American Beacon Funds October 31, 2009 (PHOTO OF GENE L. NEEDLES, JR.) FELLOW SHAREHOLDERS, As an introduction to the Annual Report for the American Beacon Emerging Markets Fund and American Beacon International Equity Fund for the 12-month period ended October 31, 2009, please let me take a moment to tell you how pleased I am to have been serving as President and CEO of American Beacon Advisors since April 15, 2009. I consider it a privilege to hold this position, and I take its responsibilities quite seriously. I've enjoyed a long, successful career in the investment business, and I'm no stranger to the ups and downs that markets can deliver. As a fellow investor and shareholder, I experience these trends in much the same way you do. The majority of 2008 was difficult in many ways. However, when I took the helm at American Beacon, I already had many reasons to be optimistic about what might develop in 2009. As of October 31, 2009, my optimism has been largely confirmed. For the one-year period (as of 10/31/09), the American Beacon Emerging Markets Fund returned a robust 60.56%, and the American Beacon International Equity Fund returned 27.44%. Of course, one year of performance doesn't tell the whole story, especially when you're investing for the long term. Please note that the recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Many of us have long-term goals, including retirement, driving our investment decisions. While this 12-month period began amid a frightening recessionary environment, we finished the year with increasing confidence that markets have begun to stabilize, that liquidity has returned to the debt markets and that equity markets have had a substantial recovery. I know as well as you do that maintaining a long-term perspective, employing a buy-and-hold philosophy (consistent with each Fund's objectives), and doing the right thing according to your risk tolerance and time horizon is not always easy. But the professionals at American Beacon are dedicated to working hard to help investors succeed. Just as you maintain a commitment to your goals--and to those who inspire you to create your goals--we maintain a strong commitment to due diligence and oversight. That commitment is one of the key reasons I am honored to serve as President and CEO, and am pleased to be able to share my enthusiasm about the path ahead with you. A financial advisor can be an important ally in creating investment success, so--as you review the enclosed annual report--please feel free to discuss your thoughts and concerns with a trusted advisor. And, as always, the professionals associated with the American Beacon Funds are grateful for the opportunity to serve you. Best Regards, /s/ Gene L. Needles, Jr. ---------------------------------------- Gene L. Needles, Jr. President American Beacon Funds 1 EMERGING MARKETS OVERVIEW OCTOBER 31, 2009 (UNAUDITED) Emerging markets soared during the year ended October 31, 2009. The MSCI Emerging Markets Index gained 64.1% during that one-year period. While the markets behaved with some trepidation at the beginning of the second quarter 2009, encouraging economic data suggested a turn from recession to recovery. The global equity market rally that began in early March was one of the strongest rebounds since the Great Depression era. China's stimulus package and a weaker U.S. dollar supported higher commodity prices, which comprise a meaningful part of the emerging market profit pool. This helped to stabilize Russia's economy and currency and to buffer the economic impact to Brazil and Chile. Emerging markets equities continued to surge late in the third quarter of 2009, continuing an impressive run that started back in late October 2008. Returns broadened during the quarter on a country basis. Smaller Eastern European countries outperformed during the period, while China and India lagged after outperforming earlier in the year. We saw favorable prospects develop for gross domestic product (GDP) growth in Emerging Asia, as the Asian Development Bank upgraded its forecast to 6.4% from 6.0% for the region. Low interest rates coupled with various fiscal stimulus programs globally have created a favorable environment for stocks to bounce back sharply from mid-recession lows. Companies generated better-than-expected earnings during the second and third quarters of 2009. While much of the earnings outperformance thus far has been driven by cost-cutting measures, certain industries, such as technology and mining, have seen sequential revenue improvements as the inventory cycle has begun to provide a boost for manufacturers. Investors have been awaiting evidence that improved trends in capacity utilization and manufacturing will translate into a sustainable global recovery. Although the global economic environment has improved, it has not turned decidedly positive. Emerging economies have held up better than expected, fueled by accommodative monetary policy and China's massive stimulus package. However, further earnings upgrades for many sectors will be harder to come by as inventories are replenished, cost cutting plateaus, and government spending reverses. Despite the threats of the return of commodity inflation, protectionism, and weak reform agendas, the longer-term prospects for emerging markets remain intact. While the developed world is dealing with deleveraging and stubbornly high unemployment, high global liquidity, healthy household savings, and generally solid financial footing may allow emerging markets to invest in their local economies without extreme leverage. There are many reasons to be optimistic about the outlook for these markets. 2 PERFORMANCE OVERVIEW AMERICAN BEACON EMERGING MARKETS FUND(SM) OCTOBER 31, 2009 (UNAUDITED) The Institutional Class of the Emerging Markets Fund returned 60.56% for the twelve months ended October 31, 2009. The Fund underperformed the MSCI Emerging Markets Index (the "Index") return of 64.13% but outperformed the Lipper Emerging Market Funds Index return of 56.89% for the period. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 7/31/00 THROUGH 10/31/09 (PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS PERIODS ENDED 10/31/09 VALUE OF ---------------------------- $10,000 SINCE 7/31/00- 1 YEAR 5 YEARS INCEPTION 10/31/09 ------ ------- --------- -------- Institutional Class(1, 4)............... 60.56% 14.95% 10.91% $26,060 Investor Class(1, 2, 4)..... 60.24% 14.63% 10.66% $25,526 AMR Class(1, 4) ............ 61.01% 15.24% 11.19% $26,679 MSCI Emg Mkts Index(3)...... 64.13% 16.78% 11.30% $26,930 Lipper Emg Mkts Funds Index(3)................. 56.89% 14.43% 10.38% $24,941
(1.) The Investor Class was formerly known as the PlanAhead Class. Performance shown is historical and may not be indicative of future returns. Please note that the recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is as of date indicated, and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. (2.) Fund performance for the since inception period represents the total returns achieved by the Institutional Class from 7/31/00 up to 10/1/02, the inception date of the Investor Class, and the returns of the Investor Class since its inception. Expenses of the Investor Class are higher than those of the Institutional Class. Therefore, total returns shown may be higher than they would have been had the Investor Class been in existence since 7/31/00. A portion of the fees charged to the Investor Class of the Fund was waived in 2004 and 2005 and recouped in 2006. Performance prior to fee waivers and fee recoupment is different than the actual returns shown. (3.) The MSCI Emerging Markets Index is a market capitalization weighted index composed of companies that are representative of the market structure of developing countries in Latin America, Asia, Eastern Europe, the Middle East and Africa. The Lipper Emerging Market Funds Index tracks the results of the 30 largest mutual funds in the Lipper Emerging Market Funds category. Lipper is an independent mutual fund research and ranking service. One cannot directly invest in an index. (4.) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus for the Institutional, Investor and AMR Class shares was 1.39%, 1.73% and 1.18%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. The Fund underperformed the Index by 3.57% over the twelve-month period due to the Fund's equitized cash balances returning less than the Index, and Fund expenses, while stock selection and country allocation added value. Stock selection had a significantly positive impact, specifically due to investments in Taiwan and Thailand, while holdings in Russia and India detracted from performance. In Taiwan, the Fund benefited from investments in HON HAI Precision Industry Co. Ltd. (up 91.3%) and Chinatrust Financial Holding Co. Ltd. (up 123.6%), and in Thailand from investments in companies Charoen Pokphand Foods PCL (up 258.3%) and Krung Thai Bank PCL (up 155.1%). Investments in Russian company Gazprom OAO (up 15.6%) and Indian company Satyam Computer Services Ltd. (down 82.1% for the period the Fund owned the security) contributed negatively for the period. From a country allocation perspective, the Fund added value through overweighting Indonesia (up 127.4%) and underweighting Israel (up 31.4%). Indonesia was the best performing market in the Index for the twelve-month period. Underweighting Brazil (up 91.6%) detracted from the Fund's relative performance. The Fund's basic philosophy remains focused on investing in attractively valued companies with above-average earnings growth expectations. 3 PERFORMANCE OVERVIEW AMERICAN BEACON EMERGING MARKETS FUND(SM) OCTOBER 31, 2009 (UNAUDITED) TOP TEN HOLDINGS
% OF NET ASSETS ---------- Samsung Electronics Co. Ltd. .................. 3.2% Petroleo Brasileiro S.A. ...................... 2.9% China Mobile Ltd. ............................. 2.0% Vale S.A. ..................................... 2.0% PetroChina Co. Ltd. ........................... 1.9% China Construction Bank Corp. ................. 1.8% Itau Unibanco Banco Multiplo S.A. ............. 1.6% LUKOIL Oil Co. ................................ 1.4% America Movil, S.A.B. de C.V. ................. 1.4% Taiwan Semiconductor Manufacturing Co. Ltd. ... 1.3%
SECTOR ALLOCATION
% OF EQUITIES --------- Financials..................................... 28.2% Information Technology ........................ 12.6% Energy......................................... 11.8% Telecommunication Services..................... 11.5% Materials...................................... 11.0% Consumer Discretionary......................... 7.4% Consumer Staples............................... 5.8% Industrials.................................... 5.5% Utilities...................................... 4.0% Health Care.................................... 2.2%
COUNTRY ALLOCATION (PIE CHART)
% OF EQUITIES --------- China......................................... 18.1% South Korea................................... 15.1% Brazil........................................ 13.8% Taiwan........................................ 11.4% India......................................... 8.5% South Africa.................................. 8.3% Other Asia.................................... 8.2% Other Europe, Middle East, Africa............. 7.9% Russia........................................ 5.2% Mexico........................................ 3.5%
4 FUND EXPENSES AMERICAN BEACON EMERGING MARKETS FUND(SM) OCTOBER 31, 2009 (UNAUDITED) FUND EXPENSE EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, such as redemption fees, and (2) ongoing costs, including management fees, administrative service fees, distribution (12b-1) fees, and other Fund expenses. The examples below are intended to help you understand the ongoing cost (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested at the beginning of the period in each Class and held for the entire period from May 1, 2009 through October 31, 2009. ACTUAL EXPENSES The "Actual" lines of the table provide information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Shareholders of the Investor and Institutional Classes that invest in the Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The "Hypothetical" lines of the table provide information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed 5% per year rate of return before expenses (not the Fund's actual return). You may compare the ongoing costs of investing in the Fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. Shareholders of the Investor and Institutional Classes that invest in the Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs charged by the Fund, such as redemption fees. Similarly, the expense examples for other funds do not reflect any transaction costs charged by those funds, such as sales charges (loads), redemption fees or exchange fees. Therefore, the "Hypothetical" lines of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If you were subject to any transaction costs during the period, your costs would have been higher.
Beginning Ending Account Account Expenses Paid Value Value During Period* 5/1/09 10/31/09 5/1/09-10/31/09 --------- --------- --------------- INSTITUTIONAL CLASS Actual $1,000.00 $1,397.66 $ 9.61 Hypothetical $1,000.00 $1,017.19 $ 8.08 (5% return before expenses) INVESTOR CLASS Actual $1,000.00 $1,396.20 $11.35 Hypothetical $1,000.00 $1,015.73 $ 9.55 (5% return before expenses) AMR CLASS Actual $1,000.00 $1,399.30 $ 8.16 Hypothetical $1,000.00 $1,018.40 $ 6.87 (5% return before expenses)
* Expenses are equal to the Fund's annualized expense ratios for the six-month period of 1.59%, 1.88% and 1.35% for the Institutional, Investor and AMR Classes respectively, multiplied by the average account value over the period, multiplied by the number derived by dividing the number of days in the most recent fiscal half-year (184) by days in the year (365) to reflect the half year period. 5 INTERNATIONAL EQUITY MARKET OVERVIEW OCTOBER 31, 2009 (UNAUDITED) The first part of the 12-month period ended October 31, 2009 was characterized by a continuation of the prior market declines. This was followed by a sharp rally from early March through the end of September and then a correction in October. For the 12-month period, the EAFE Index gained 27.7%. Early in the period, the credit crisis and world recession dominated. Investors demonstrated growing concern that the global financial system would fail. Several high profile banks in the U.S. and Europe faced bankruptcy, government conservatorship, private takeover or distressed sale. This caused further deleveraging and led to extreme investor risk aversion, which continued to pressure global capital markets. Combined with 2008's significant market retreat, investors faced the worst bear market since the 1930s. However, the unprecedented synchronized rescue by monetary and fiscal policymakers globally saved the collapsing financial system. Investors began to look past short-term economic hurdles and instead focused on the likelihood of economic recovery. From the mid-March 2009 lows, global equities rebounded tremendously. We witnessed strong rotation into financials and more cyclical sectors, as investors anticipated improvements in both the credit markets and the global economy. The performance of European stocks was mixed, despite the generally positive business and consumer confidence in the region. Norway was the second developed economy (following Australia) to raise interest rates since the start of the financial crisis, as the country benefited from the recovery in commodity prices. Ireland, on the other hand, fell sharply on concerns over growing government indebtedness related to the bailouts of ailing banks. In Asia, stocks were underpinned based on the reacceleration of Chinese economic growth, which added confidence to the economies in the region. International returns were amplified by the strength of foreign currencies relative to the U.S. dollar. Early in the period, deleveraging and risk reduction led to temporary demand for the U.S. dollar. The U.S. dollar appreciated versus every major currency except the Japanese yen during the financial crisis, only to lose strength after the March 2009 equity market lows. The remainder of the period was characterized by U.S. dollar weakness as economic growth strengthened and investors embraced risk. 6 PERFORMANCE OVERVIEW AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM) OCTOBER 31, 2009 (UNAUDITED) The Institutional Class of the International Equity Fund returned 27.44% for the twelve months ended October 31, 2009. The Fund underperformed the MSCI EAFE Index (the "Index") return of 27.71% and the Lipper International Funds Index return of 28.18% for the period. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 10/31/99 THROUGH 10/31/09 (PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS PERIODS ENDED 10/31/09 VALUE OF --------------------------- $10,000 1 YEAR 5 YEARS 10 YEARS 10/31/99-10/31/09 ------ ------- -------- ----------------- Institutional Class(1, 6) ......... 27.44% 4.62% 4.45% $15,450 Y Class(1, 2, 6) .................. 27.44% 4.62% 4.45% $15,450 Investor C lass(1, 6) ............. 27.08% 4.35% 4.22% $15,112 Advisor Class(1, 3, 6) ............ 26.58% 4.05% 4.01% $14,821 Retirement Class(1, 4, 6) ......... 26.58% 4.05% 4.01% $14,821 AMR Class(1, 6) ................... 27.70% 4.90% 4.71% $15,850 Lipper Int'l. Funds Index(5) ...... 28.18% 5.93% 3.32% $13,862 MSCI EAFE Index (5) ............... 27.71% 5.10% 2.05% $12,249
(1.) The Investor and Advisor Classes were formerly known as the PlanAhead and Service Classes, respectively. Performance shown is historical and may not be indicative of future returns. Please note that the recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is as of date indicated and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. (2.) Fund performance for the one-year, five-year, and ten-year periods represents the total returns achieved by the Institutional Class from 10/31/99 up to 8/3/09, the inception date of the Y Class, and the returns of the Y Class since its inception. Expenses of the Y Class are higher than those of the Institutional Class. As a result, total returns shown may be higher than they would have been had the Y Class been in existence since 10/31/99. (3.) Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/99 up to 5/1/03, the inception date of the Advisor Class, and the returns of the Advisor Class since its inception. Expenses of the Advisor Class are higher than those of the Investor Class. As a result, total returns shown may be higher than they would have been had the Advisor Class been in existence since 10/31/99. A portion of the fees charged to the Advisor Class of the Fund was waived through 2007. Performance prior to waiving fees was lower than the actual returns shown for periods through 2007. (4.) Fund performance for the one-year, five-year, and ten-year periods represents the total returns achieved by the Investor Class from 10/31/99 through 4/30/03 and the Advisor Class from 5/1/03 up to 5/1/09, the inception date of the Retirement Class, and the returns of the Retirement Class since its inception. Expenses of the Retirement Class are higher than those of the Advisor and Investor Classes. As a result, total returns shown may be higher than they would have been had the Retirement Class been in existence since 10/31/99. (5.) The Lipper International Funds Index tracks the results of the 30 largest mutual funds in the Lipper International Funds category. Lipper is an independent mutual fund research and ranking service. One cannot directly invest in an index. The MSCI EAFE Index is a market capitalization weighted index of international stock performance composed of equities from developed markets excluding the U.S. and Canada. (6.) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus for the Institutional, Y, Investor, Advisor, Retirement, and AMR Class shares was 0.67%, 0.83%, 1.05%, 1.35%, 1.49%, and 0.42%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. The Fund underperformed the Index by 0.27% over the twelve-month period primarily due to Fund expenses. While the Fund lost value through country allocation, it was more than offset by positive stock selection during the period. Stock selection had a significantly beneficial impact overall, specifically in Germany and Ireland, though selections in Canada detracted from performance. The Fund added value through investments in German Industrial companies Siemens AG (up 59.3%) and Deutsche Post AG (up 65.1%) and in Irish Material stocks, including CRH plc (up 35.2%) and Smurfit Kappa Group plc (up 342.8%). In Canada, investment in the Telecommunication Services company TELUS Corp. (down 4.7%) detracted from relative performance. 7 PERFORMANCE OVERVIEW AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM) OCTOBER 31, 2009 (UNAUDITED) From a country allocation perspective, underweighting Japan (up 13.8%) added value for the period, but not enough to overcome the negative impact from underweighting Australia (up 65.3%), one of the best performing EAFE markets for the period. Overweighting Ireland (down 19.4%) - the only EAFE market to post negative returns for the twelve-month period - and underweighting Spain (up 56.2%) also hurt performance for the period. Although economic and market conditions vary from period to period, the Fund's primary strategy of investing in undervalued companies with above-average earnings growth expectations remains consistent. TOP TEN HOLDINGS
% OF NET ASSETS ---------- Sanofi-Aventis S.A. ............................... 2.5% HSBC Holdings plc.................................. 2.3% Siemens AG......................................... 2.3% Vodafone Group plc................................. 2.2% BP plc............................................. 1.8% Total S.A. ........................................ 1.8% Novartis AG........................................ 1.8% Royal Dutch Shell plc. ............................ 1.7% DBS Group Holdings Ltd. ........................... 1.5% E.ON AG............................................ 1.5%
SECTOR ALLOCATION
% OF EQUITIES -------- Financials......................................... 22.2% Industrials........................................ 16.0% Consumer Discretionary............................. 13.6% Energy............................................. 9.3% Health Care........................................ 9.0% Telecommunications Services........................ 8.4% Materials.......................................... 7.0% Consumer Staples................................... 5.4% Information Technology............................. 5.2% Utilities.......................................... 3.9%
REGIONAL ALLOCATION* (PIE CHART) North America 7.6% Europe 72.0% Pacific Rim 20.4%
* shown as a percentage of equities 8 FUND EXPENSES AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM) OCTOBER 31, 2009 (UNAUDITED) FUND EXPENSE EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, such as redemption fees, and (2) ongoing costs, including management fees, administrative service fees, distribution (12b-1) fees, and other Fund expenses. The examples below are intended to help you understand the ongoing cost (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested at the beginning of the period in each Class and held for the entire period from May 1, 2009 through October 31, 2009. ACTUAL EXPENSES The "Actual" lines of the table provide information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Shareholders of the Investor and Institutional Classes that invest in the Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The "Hypothetical" lines of the table provide information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed 5% per year rate of return before expenses (not the Fund's actual return). You may compare the ongoing costs of investing in the Fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. Shareholders of the Investor and Institutional Classes that invest in the Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs charged by the Fund, such as redemption fees. 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.
Ending Beginning Account Expenses Paid During Account Value Value Period* 5/1/09 10/31/09 5/1/09-10/31/09 ------------- --------- -------------------- INSTITUTIONAL CLASS Actual $1,000.00 $1,300.08 $4.23 Hypothetical $1,000.00 $1,021.53 $3.72 (5% return before expenses) Y CLASS** Actual $1,000.00 $1,041.64 $1.72 Hypothetical $1,000.00 $1,010.63 $1.71 (5% return before expenses) INVESTOR CLASS Actual $1,000.00 $1,298.81 $6.37 Hypothetical $1,000.00 $1,019.66 $5.60 (5% return before expenses) ADVISOR CLASS Actual $1,000.00 $1,295.82 $8.85 Hypothetical $1,000.00 $1,017.49 $7.78 (5% return before expenses) RETIREMENT CLASS Actual $1,000.00 $1,290.33 $8.50 Hypothetical $1,000.00 $1,017.74 $7.53 (5% return before expenses) AMR CLASS Actual $1,000.00 $1,301.92 $2.79 Hypothetical $1,000.00 $1,022.79 $2.45 (5% return before expenses)
* Expenses are equal to the Fund's annualized expense ratios for the six-month period of 0.73%, 0.69%, 1.10%, 1.53%, 1.48% and 0.48% for the Institutional, Y, Investor, Advisor, Retirement and AMR Classes respectively, multiplied by the average account value over the period, multiplied by the number derived by dividing the number of days in the most recent fiscal half-year (184) by days in the year (365) to reflect the half year period. ** Beginning account value for Y Class is the inception date of 8/3/09. Expenses are equal to the Class annualized ratio for the period multiplied by the average account value for the period multiplied by the number derived by dividing the number of days in the period (90) by the days in the year (365). 9 AMERICAN BEACON FUNDS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of American Beacon Funds: We have audited the accompanying statements of assets and liabilities of American Beacon Funds (comprised of American Beacon Emerging Markets Fund and American Beacon International Equity Fund) (collectively the "Funds"), including the schedules of investments, as of October 31, 2009, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of each Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of American Beacon Funds at October 31, 2009, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/Ernst & Young LLP Dallas, Texas December 23, 2009 10 AMERICAN BEACON EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) BRAZIL - 13.21% COMMON STOCKS - 10.84% Amil Participacoes S.A. ................. 18,100 $ 102 Banco Bradesco S.A., ADR ................ 22,800 449 Banco Santander Brasil S.A., ADR## ...... 50,000 593 BM & F Bovespa S.A. ..................... 76,000 492 BRF - Brasil Foods S.A.## ............... 28,005 679 Centrais Eletricas Brasileiras S.A. ..... 21,866 309 Cia Brasileira de Meios de Pagamento .... 31,800 292 Cia de Bebidas das Americas, ADR ........ 6,600 594 Cia de Saneamento Basico do Estado de Sao Paulo ................................ 10,670 203 Cia de Saneamento Basico do Estado de Sao Paulo, ADR .............................. 1,260 49 Cia de Saneamento de Minas Gerais-COPASA ........................ 11,200 200 Cia Energetica de Minas Gerais, ADR ..... 1,852 29 Empresa Brasileira de Aeronautica S.A. (Embraer), ADR ## .................... 5,200 105 Grendene S.A. ........................... 74,940 336 Itau Unibanco Banco Holding S.A., ADR ... 91,849 1,758 Medial Saude S.A. ## .................... 38,800 315 MRV Engenharia e Participacoes S.A. ..... 15,400 287 PDG Realty SA Empreendimentos e Participacoes ........................ 36,000 304 Petroleo Brasileiro S.A., ADR ........... 3,530 163 Petroleo Brasileiro S.A., A Shares, ADR .................................. 90,839 3,644 Porto Seguro SA ......................... 10,100 106 Redecard S.A. ........................... 30,600 454 Tractebel Energia S.A. .................. 22,330 265 Vale S.A. ............................... 97,096 2,337 --------------- TOTAL COMMON STOCKS ........................ 14,065 --------------- PREFERRED STOCKS - 2.37% Banco Bradesco S.A. ..................... 8,000 157 Braskem S.A. ## ......................... 78,600 522 Cia de Tecidos do Norte de Minas - Coteminas ............................ 54,862 181 Cia Energetica de Minas Gerais .......... 43,549 680 Itau Unibanco Banco Holding S.A. ........ 13,955 265 Net Servicos de Comunicacao S.A. ## ..... 25,177 315 Tele Norte Leste Participacoes S.A., ADR .................................. 23,260 443 Ultrapar Participacoes S.A. ............. 6,200 269 Vale S.A., A Shares ..................... 10,704 240 --------------- TOTAL PREFERRED STOCKS ..................... 3,072 --------------- TOTAL BRAZIL ............................... 17,137 --------------- CZECH REPUBLIC - 0.75% COMMON STOCKS - 0.75% CEZ ..................................... 3,452 171 Komercni Banka, a.s. .................... 3,024 599
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Telefonica O2 Czech Republic a.s. ....... 8,753 $ 207 TOTAL CZECH REPUBLIC ....................... 977 --------------- HONG KONG/CHINA - 17.27% COMMON STOCKS - 17.27% Anhui Conch Cement Co. Ltd. ............. 16,200 105 Anhui Expressway Co. Ltd. ............... 308,000 193 Asia Cement China Holdings Corp. ........ 250,000 157 Bank of China Ltd. ...................... 1,655,900 946 Beijing Enterprises Holdings Ltd. ....... 69,500 414 Belle International Holdings Ltd. ....... 275,000 277 Bosideng International Holdings Ltd. .... 2,150,000 380 China CITIC Bank ........................ 574,000 428 China Communications Services Corp. Ltd. ................................. 256,000 133 China Construction Bank Corp. ........... 2,735,360 2,350 China Dongxiang Group Co. ............... 189,000 116 China Life Insurance Co. Ltd. ........... 196,000 903 China Mobile Ltd. ....................... 211,000 1,976 China Mobile Ltd., ADR .................. 14,250 666 China Molybdenum Co. Ltd. ............... 165,000 135 China Oilfield Services Ltd. 212,000 229 China Power International Development Ltd. ## .............................. 1,511,800 416 China Railway Construction Corp. Ltd. ... 127,100 170 China Resources Cement Holdings Ltd. ## .............................. 36,000 17 China Resources Land Ltd. ............... 54,000 130 China Resources Power Holdings Co. Ltd. . 132,000 274 China Unicom Hong Kong Ltd. ............. 124,744 160 China Zhongwang Holdings Ltd.## ......... 410,800 386 CNOOC Ltd. .............................. 37,000 55 CNOOC Ltd., ADR ......................... 2,320 346 COSCO Pacific Ltd. ...................... 392,578 547 Datang International Power Generation Co. Ltd. ................................. 294,000 136 Denway Motors Ltd. ...................... 856,700 406 Dongfeng Motor Group Co. Ltd. ........... 534,000 634 Fushan International Energy Group Ltd. .. 282,000 213 Global Bio-chem Technology Group Co. Ltd. ................................. 1,261,800 308 GOME Electrical Appliances Holdings Ltd. ## .............................. 2,362,240 694 Huaneng Power International, Inc. ....... 469,900 301 Huaneng Power International, Inc., ADR .. 530 14 Industrial & Commercial Bank of China ... 1,669,000 1,328 Jiangsu Expressway Co. Ltd. ............. 128,000 113 Lumena Resources Corp. ## ............... 300,000 107 NWS Holdings Ltd. ....................... 84,842 161 PetroChina Co. Ltd. ..................... 1,820,000 2,197 PetroChina Co. Ltd., ADR ................ 1,960 235 Ping'an Insurance Co. of China Ltd. ..... 63,500 556 Renhe Commercial Holdings Co. Ltd. ...... 2,700,000 511 Shanghai Industrial Holdings Ltd. ....... 127,000 591 Shimao Property Holdings Ltd. ........... 84,000 156
See accompanying notes 11 AMERICAN BEACON EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Sinopharm Group Co. ## .................. 8,800 $ 32 Sinotrans Ltd. .......................... 1,535,000 402 Soho China Ltd. ......................... 737,500 396 Texwinca Holdings Ltd. .................. 44,000 37 TPV Technology Ltd. ..................... 596,970 385 Weiqiao Textile Co. ..................... 658,100 458 Wynn Macau Ltd.## ....................... 88,800 115 TOTAL HONG KONG/CHINA ...................... 22,395 --------------- HUNGARY - 0.84% COMMON STOCKS - 0.84% Mol Hungarian Oil and Gas plc## ......... 5,394 452 OTP Bank## .............................. 9,162 254 Richter Gedeon Nyrt. .................... 1,848 384 TOTAL HUNGARY ........................... 1,090 --------------- INDIA - 8.12% COMMON STOCKS - 8.12% Andhra Bank ............................. 84,800 199 Asian Paints Ltd. ....................... 4,854 166 Bank of India ........................... 14,910 103 Bharat Heavy Electricals Ltd. ........... 12,567 583 Bharat Petroleum Corp. Ltd. ............. 18,973 206 Bharti Airtel Ltd. ...................... 82,520 509 Colgate-Palmolive India Ltd. ............ 9,841 145 Deccan Chronicle Holdings Ltd. .......... 23,879 69 DLF Ltd. ................................ 14,700 114 Glenmark Pharmaceuticals Ltd. ........... 99,610 470 Godrej Consumer Products Ltd. ........... 19,813 112 GVK Power & Infrastructure Ltd. ## ...... 276,272 256 HDFC Bank Ltd. .......................... 30,223 1,031 Hero Honda Motors Ltd. .................. 18,399 604 Hindustan Construction Co. .............. 73,740 192 Hindustan Petroleum Corp. Ltd. .......... 66,804 502 Hindustan Unilever Ltd. ................. 37,440 221 India Cements Ltd. ...................... 275,510 636 IndusInd Bank Ltd. ...................... 74,974 183 Infosys Technologies Ltd. ............... 24,215 1,132 Infosys Technologies Ltd., ADR .......... 1,530 70 ITC Ltd. ................................ 24,650 133 Jaiprakash Associates Ltd. .............. 91,715 398 KSK Energy Ventures Ltd. ## ............. 46,000 189 Mahanagar Telephone Nigam Ltd. .......... 182,310 262 Marico Ltd. ............................. 51,000 104 Maruti Suzuki India Ltd. ................ 4,722 138 Nestle India Ltd. ....................... 1,927 105 Reliance Industries Ltd. ................ 13,790 558 State Bank of India Ltd., GDR++ ......... 9,190 841 Tata Motors Ltd. ........................ 8,269 96
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Wipro Ltd. .............................. 15,928 $ 205 TOTAL INDIA ................................ 10,532 --------------- INDONESIA - 2.38% COMMON STOCKS - 2.38% Astra International Tbk PT .............. 117,900 382 Bank Mandiri Tbk PT ..................... 542,000 260 PT Bank Central Asia Tbk ................ 866,000 411 PT Bank Rakyat Indonesia Tbk ............ 372,000 272 PT Bumi Resources Tbk ................... 619,500 150 PT Gudang Garam Tbk ..................... 166,300 247 PT Indocement Tunggal Prakarsa Tbk ...... 125,000 143 PT Indofood Sukses Makmur Tbk ........... 698,500 221 PT Indosat Tbk .......................... 399,500 213 PT Kalbe Farma Tbk ...................... 270,100 34 PT Perusahaan Gas Negara Persero Tbk .... 579,500 216 PT Telekomunikasi Indonesia Tbk ......... 618,800 536 TOTAL INDONESIA 3,085 --------------- ISRAEL - 1.42% COMMON STOCKS - 1.42% Bank Hapoalim B.M.## .................... 89,270 324 Check Point Software Technologies Ltd. ## .............................. 9,368 291 Makhteshim-Agan Industries Ltd. ......... 48,720 229 Teva Pharmaceutical Industries Ltd., ADR .................................. 19,733 996 TOTAL ISRAEL 1,840 --------------- MALAYSIA - 2.38% COMMON STOCKS - 2.38% CIMB Group Holdings Bhd ................. 81,300 296 Digi.Com Bhd ............................ 21,100 135 Gamuda Bhd .............................. 350,400 319 Genting Malaysia Bhd .................... 701,810 559 Malayan Banking Bhd ..................... 631,870 1,221 Sime Darby Bhd .......................... 77,100 199 Tenaga Nasional Bhd ..................... 146,100 359 TOTAL MALAYSIA ............................. 3,088 --------------- MEXICO - 3.35% COMMON STOCKS - 3.35% America Movil, S.A.B. de C.V., ADR ...... 41,147 1,816 Coca-Cola Femsa, S.A. de C.V., ADR ...... 160 9 Consorcio ARA, S.A.B. de C.V.## ......... 288,900 181 Embotelladoras Arca, S.A.B. de C.V. ..... 139,630 350 Fomento Economico Mexicano, S.A.B. de C.V., ADR ............................ 10,200 442 Gruma, S.A.B. de C.V. ## ................ 18,990 35 Grupo Continential, S.A.B. de C.V. ...... 145,050 340 Grupo Financiero Banorte, S.A.B. de C.V. ................................. 176,489 579 Grupo Modelo, S.A.B. de C.V. ## ......... 19,500 90
See accompanying notes 12 AMERICAN BEACON EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Grupo Televisa, S.A., ADR ............... 25,600 $ 496 TOTAL MEXICO ............................... 4,338 --------------- PHILIPPINES - 0.41% COMMON STOCKS - 0.41% ABS-CBN Broadcasting Corp. .............. 47,030 30 Bank of the Philippine Islands .......... 163,027 159 Metro Pacific Investments Corp.## ....... 2,202,000 153 Metropolitan Bank & Trust ............... 98,300 83 Union Bank of the Philippines ........... 156,300 111 TOTAL PHILIPPINES 536 --------------- POLAND - 2.17% COMMON STOCKS - 2.17% Bank Handlowy W Warszawie S.A. ## ....... 9,112 199 Bank Pekao S.A. ## ...................... 11,564 615 Bank Zachodni WBK S.A. ## ............... 4,790 254 Cyfrowy Polsat S.A. ..................... 20,207 97 Polski Koncern Naftowy Orlen S.A. ## .... 24,467 253 Powszechna Kasa Oszczednosci Bank Polski S.A. ................................. 50,975 603 Telekomunikacja Polska S.A. ............. 135,109 790 TOTAL POLAND ............................... 2,811 --------------- RUSSIA - 4.97% COMMON STOCKS - 4.97% Gazprom OAO, ADR ........................ 68,510 1,655 LUKOIL Oil Co., ADR ..................... 30,186 1,763 Mobile TeleSystems OJSC, ADR ............ 3,550 161 OJSC MMC Norilsk Nickel, ADR ## ......... 37,974 501 OJSC Rosneft Oil Co.## .................. 54,054 414 Polyus Gold Co., ADR .................... 9,241 246 RusHydro, ADR ## ........................ 54,500 194 Sberbank RF, GDR## ...................... 2,000 520 Vimpel-Communications, ADR## ............ 18,187 326 Wimm-Bill-Dann Foods OJSC, ADR## ........ 4,112 278 X 5 Retail Group NV ## .................. 15,932 382 X 5 Retail Group NV, GDR ## ............. 251 6 TOTAL RUSSIA ............................... 6,446 --------------- SOUTH AFRICA - 7.96% COMMON STOCKS - 7.96% African Bank Investments Ltd. ........... 70,679 275 Anglo Platinum Ltd. ## .................. 8,007 684 AngloGold Ashanti Ltd. .................. 3,465 130 AngloGold Ashanti Ltd., ADR ............. 15,484 581 ArcelorMittal South Africa Ltd. ......... 29,024 390 Barloworld Ltd. ......................... 59,070 368 FirstRand Ltd. .......................... 373,950 838 Gold Fields Ltd., ADR ................... 13,910 177
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Harmony Gold Mining Co. Ltd. ............ 9,400 $ 94 Harmony Gold Mining Co. Ltd., ADR ....... 1,300 13 Impala Platinum Holdings Ltd. ........... 24,200 528 Imperial Holdings Ltd. .................. 20,700 214 JD Group Ltd. ........................... 18,670 104 Mr Price Group Ltd. ..................... 46,993 215 MTN Group Ltd. .......................... 92,836 1,393 Murray & Roberts Holdings Ltd. .......... 29,060 207 Nampak Ltd. ............................. 194,890 422 Naspers Ltd. ............................ 24,026 864 Nedbank Group Ltd. ...................... 23,014 347 SABMiller plc ........................... 28,604 764 Sanlam Ltd. ............................. 59,260 163 Sappi Ltd. .............................. 97,794 359 Sasol Ltd. .............................. 14,610 547 Sasol Ltd., ADR ......................... 5,140 192 Tiger Brands Ltd. ....................... 12,449 250 Vodacom Group Pty Ltd.## ................ 29,000 201 TOTAL SOUTH AFRICA ......................... 10,320 --------------- SOUTH KOREA - 14.37% COMMON STOCKS - 14.10% Amorepacific Corp. ...................... 376 261 Cheil Industries, Inc. .................. 5,248 196 Cheil Worldwide, Inc. ................... 1,173 303 CJ CheilJedang Corp. .................... 1,508 257 Hana Financial Group, Inc. .............. 3,470 104 Hyundai Engineering & Construction Co. Ltd. ................................. 5,565 309 Hyundai Motor Co. ....................... 7,660 695 Kangwon Land, Inc. ...................... 28,300 381 KB Financial Group, Inc. ## ............. 30,173 1,462 Kia Motors Corp.## ...................... 8,118 121 Korea Electric Power Corp. ## ........... 24,235 689 Korea Exchange Bank ..................... 7,450 85 Korean Reinsurance Co. .................. 29,650 267 KT Corp. ................................ 9,880 323 KT Corp., ADR ........................... 25,080 403 KT&G Corp. .............................. 7,845 458 LG Chem Ltd. ............................ 3,673 634 LG Corp. ................................ 2,164 124 LG Dacom Corp. .......................... 4,400 70 LG Display Co. Ltd. ..................... 10,030 242 LG Display Co. Ltd., ADR ................ 5,500 65 LG Electronics, Inc. .................... 1,127 105 Lotte Chilsung Beverage Co. Ltd. ........ 72 49 Lotte Confectionery Co. Ltd. ............ 124 126 Lotte Shopping Co. Ltd. ................. 2,404 687 NCSoft Corp. ............................ 933 99 NHN Corp.## ............................. 2,441 363 OCI Co. Ltd. ............................ 1,280 226
See accompanying notes 13 AMERICAN BEACON EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) POSCO ................................... 1,837 $ 763 POSCO, ADR .............................. 1,520 155 Samsung Electronics Co. Ltd. ............ 6,203 3,734 Samsung Fire & Marine Insurance Co. Ltd. ................................. 3,442 631 Shinhan Financial Group Co. Ltd. ## ..... 31,996 1,223 Shinsegae Co. Ltd. ...................... 687 298 SK Telecom Co. Ltd. ..................... 488 75 SK Telecom Co. Ltd., ADR ................ 41,690 697 S-Oil Corp. ............................. 8,574 418 SSCP Co. Ltd.## ......................... 10,299 68 Tong Yang Life Insurance ## ............. 15,680 188 Woongjin Coway Co. Ltd. ................. 14,406 484 Yuhan Corp. ............................. 2,786 450 --------------- TOTAL COMMON STOCKS 18,288 --------------- PREFERRED STOCKS - 0.27% Samsung Electronics Co. Ltd. ............ 881 354 --------------- TOTAL SOUTH KOREA .......................... 18,642 --------------- TAIWAN - 10.85% COMMON STOCKS - 10.85% Acer, Inc. .............................. 121,886 289 Asia Cement Corp. ....................... 239,000 252 Asustek Computer, Inc. .................. 189,356 349 AU Optronics Corp. ...................... 395,520 352 AU Optronics Corp., ADR ................. 31,010 274 Catcher Technology Co. Ltd. ............. 37,000 90 Cathay Financial Holding Co. Ltd.## ..... 525,400 907 China Steel Corp. ....................... 1,121,502 998 Chinatrust Financial Holding Co. Ltd. ... 716,326 433 Compal Electronics, Inc. ................ 614,345 770 First Financial Holding Co. Ltd. ........ 731,201 425 Foxconn Technology Co. Ltd. ............. 76,300 256 Fubon Financial Holding Co. Ltd.## ...... 298,000 333 HON HAI Precision Industry Co. Ltd. ..... 436,112 1,717 HTC Corp. ............................... 60,970 610 Lite-On Technology Corp. ................ 134,000 177 Mega Financial Holding Co. Ltd. ......... 454,000 254 Nan Ya Printed Circuit Board Corp. ...... 127,989 400 Siliconware Precision Industries Co. .... 179,000 239 SinoPac Financial Holdings Co. Ltd.## ... 1,584,987 586 Taishin Financial Holdings Co. Ltd.## ... 337,000 133 Taiwan Fertilizer Co. Ltd. .............. 93,000 290 Taiwan Semiconductor Manufacturing Co. Ltd. ............................. 947,385 1,723 Tatung Co. Ltd.## ....................... 2,302,000 511 United Microelectronics Corp.## ......... 1,408,226 688 Wistron Corp. ........................... 232,280 394 Yaego Corp. ............................. 949,000 264
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Yuanta Financial Holding Co. Ltd. ....... 543,000 $ 359 TOTAL TAIWAN 14,073 --------------- THAILAND - 2.68% COMMON STOCKS - 2.68% Bangkok Bank PCL ........................ 212,690 702 Charoen Pokphand Foods PCL .............. 606,100 163 Kasikornbank PCL ........................ 422,600 1,012 Krung Thai Bank PCL ..................... 1,288,200 339 PTT Exploration & Production PCL ........ 36,000 156 PTT PCL ................................. 67,600 486 Siam Cement PCL ......................... 35,930 216 Siam Commercial Bank PCL ................ 99,500 226 Thai Union Frozen Products PCL .......... 206,700 172 TOTAL THAILAND ............................. 3,472 --------------- TURKEY - 2.26% COMMON STOCKS - 2.26% Akbank TAS .............................. 44,721 240 Anadolu Efes Biracilik Ve Malt Sanayii A.S. ......................... 23,504 266 Coca-Cola Icecek A.S. ................... 6,255 48 Tupras-Turkiye Petrol Rafinerileri A.S. . 17,760 303 Turk Telekomunikasyon A.S. .............. 36,035 109 Turkcell Iletisim Hizmetleri A.S. ....... 65,730 435 Turkcell Iletisim Hizmetleri A.S., ADR .. 2,900 48 Turkiye Garanti Bankasi A.S. ............ 122,398 439 Turkiye Halk Bankasi A.S. ............... 36,755 217 Turkiye Is Bankasi (Isbank) ............. 158,447 595 Turkiye Sise ve Cam Fabrikalari A.S. .... 216,517 226 TOTAL TURKEY 2,926 --------------- UNITED KINGDOM - 0.09% COMMON STOCKS - 0.09% JKX Oil & Gas plc ....................... 26,720 120 --------------- SHORT TERM INVESTMENTS - 3.73% JP Morgan U.S. Government Money Market Fund ................................. 3,732,017 3,732
PAR AMOUNT --------------- U.S. Treasury, 0.02%, Due 12/10/2009# ............... $ 1,105 1,105 TOTAL SHORT TERM INVESTMENTS 4,837 --------------- TOTAL INVESTMENTS 99.21% - (COST $103,170) . ....................... 128,665 OTHER ASSETS, NET OF LIABILITIES - 0.79% ... 1,022 TOTAL NET ASSETS - 100.00% ................. $ 129,687 ===============
See accompanying notes 14 AMERICAN BEACON EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS October 31, 2009 Percentages are stated as a percent of net assets. ## Non-income producing security. ++ 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 $841 or 0.65% of net assets. The Fund has no right to demand registration of these securities. # At October 31, 2009, security pledged as collateral for open futures contracts. FUTURES CONTRACTS (DOLLARS IN THOUSANDS)
UNREALIZED NUMBER OF EXPIRATION MARKET APPRECIATION/ CONTRACTS DATE VALUE (DEPRECIATION) --------- ---------- ------ -------------- Emini S&P 500 Index .. 118 Dec 2009 $6,095 $(119) ====== =====
SECTOR DIVERSIFICATION
Percent of Net Assets ---------- Communications ................. 1.43% Consumer Discretionary ......... 7.08% Consumer Staples ............... 5.55% Energy ......................... 11.26% Financials ..................... 26.90% Health Care .................... 2.12% Industrials .................... 5.26% Information Technology ......... 12.05% Materials ...................... 10.49% Telecommunication Services ..... 9.56% Utilities ...................... 3.78% Short Term Investments ......... 3.73% Other Assets, Net of Liabilities ................. 0.79% ------ 100.00% ======
See accompanying notes 15 AMERICAN BEACON INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) AUSTRALIA - 1.12% COMMON STOCKS - 1.12% BlueScope Steel Ltd. .................... 1,082,721 $ 2,844 Foster's Group Ltd. ..................... 450,285 2,194 Insurance Australia Group Ltd. .......... 2,154,061 7,200 QBE Insurance Group Ltd. ................ 156,500 3,150 TOTAL AUSTRALIA 15,388 --------------- AUSTRIA - 0.24% COMMON STOCKS - 0.24% Telekom Austria AG ...................... 202,700 3,319 --------------- BELGIUM - 0.44% COMMON STOCKS - 0.44% Anheuser-Busch InBev NV ................. 127,200 5,978 --------------- CANADA - 0.79% COMMON STOCKS - 0.79% Precision Drilling Trust ................ 1,017,429 6,601 TELUS Corp. ............................. 134,810 4,225 TOTAL CANADA 10,826 --------------- DENMARK - 0.22% COMMON STOCKS - 0.22% Novo Nordisk AS ......................... 47,425 2,949 --------------- FINLAND - 1.02% COMMON STOCKS - 1.02% Nokia Oyj ............................... 707,019 8,922 UPM-Kymmene Oyj ......................... 420,277 5,059 TOTAL FINLAND 13,981 --------------- FRANCE - 12.78% COMMON STOCKS - 12.78% Accor S.A. .............................. 154,849 7,446 AXA S.A. ................................ 580,833 14,434 BNP Paribas ............................. 177,174 13,329 Carrefour S.A. .......................... 174,600 7,499 Compagnie Generale des Etablissements Michelin ............................. 90,220 6,686 France Telecom S.A. ..................... 592,369 14,647 Groupe Danone ........................... 52,252 3,139 Sanofi-Aventis S.A. ..................... 474,371 34,673 Societe Generale ........................ 157,610 10,468 Technip S.A. ............................ 218,223 13,755 Total S.A.+ ............................. 416,407 24,796 VINCI S.A. .............................. 219,034 11,432
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Vivendi S.A. ............................ 453,916 $ 12,573 TOTAL FRANCE 174,877 --------------- GERMANY - 11.14% COMMON STOCKS - 10.99% Allianz SE .............................. 75,482 8,651 Bayer AG ................................ 156,609 10,847 Bayerische Motoren Werke AG ............. 221,470 10,821 Celesio AG .............................. 245,480 6,118 Daimler AG .............................. 121,400 5,910 Deutsche Post AG ........................ 1,153,144 19,466 E.ON AG ................................. 548,042 20,948 HeidelbergCement AG ..................... 24,580 1,464 Linde AG ................................ 105,646 11,048 Merck KGaA .............................. 81,740 7,688 Muenchener Rueckversicherungs-Gesellschaft AG ... 45,297 7,184 SAP AG .................................. 196,610 8,885 Siemens AG .............................. 347,808 31,341 --------------- TOTAL COMMON STOCKS 150,371 --------------- PREFERRED STOCKS - 0.15% Henkel AG & Co. KGaA .................... 46,482 2,108 --------------- TOTAL GERMANY 152,479 --------------- GREECE - 0.91% COMMON STOCKS - 0.91% OPAP S.A. ............................... 307,449 7,856 Public Power Corp. S.A.## ............... 228,870 4,652 TOTAL GREECE 12,508 --------------- HONG KONG/CHINA - 2.16% COMMON STOCKS - 2.16% Cheung Kong Holdings Ltd. ............... 472,500 6,016 Esprit Holdings Ltd. .................... 822,000 5,386 Hutchison Whampoa Ltd. .................. 187,000 1,309 Kerry Properties Ltd. ................... 390,500 2,200 Swire Pacific Ltd. ...................... 622,100 7,560 Yue Yuen Industrial Holdings Ltd. ....... 2,537,667 7,032 TOTAL HONG KONG/CHINA 29,503 --------------- IRELAND - 0.69% COMMON STOCKS - 0.69% CRH plc, ADR ............................ 167,632 4,089 Smurfit Kappa Group plc ## .............. 688,413 5,357 TOTAL IRELAND .............................. 9,446 ---------------
See accompanying notes 16 AMERICAN BEACON INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) ITALY - 2.02% COMMON STOCKS - 2.02% Atlantia S.p.A........................... 121,000 $ 2,864 Eni S.p.A. .............................. 233,856 5,798 Finmeccanica S.p.A. ..................... 370,390 6,218 Intesa Sanpaolo S.p.A ## ................ 824,480 3,473 Snam Rete Gas S.p.A+ .................... 1,030,173 4,998 UniCredit S.p.A. ........................ 1,284,864 4,298 TOTAL ITALY ................................ 27,649 --------------- JAPAN - 13.96% COMMON STOCKS - 13.96% Aeon Co. Ltd. ........................... 466,900 4,162 Benesse Holdings, Inc. .................. 33,000 1,464 Canon, Inc. ............................. 199,500 7,486 Central Japan Railway Co. ............... 544 3,632 Chuo Mitsui Trust Holdings, Inc. ........ 1,298,400 4,701 Daito Trust Construction Co. Ltd. ....... 104,900 4,386 Fanuc Ltd. .............................. 177,000 14,867 FUJIFILM Holdings Corp. ................. 107,900 3,101 Haseko Corp.## .......................... 3,521,018 2,641 Honda Motor Co. Ltd. .................... 226,300 7,003 Hoya Corp. .............................. 185,300 4,058 INPEX Corp. ............................. 335 2,741 JS Group Corp. .......................... 310,400 5,076 KDDI Corp. .............................. 1,824 9,692 Keyence Corp. ........................... 14,500 2,877 Konica Minolta Holdings, Inc. ........... 347,500 3,241 Kubota Corp. ............................ 184,000 1,428 Mitsubishi Corp. ........................ 191,800 4,097 Mitsubishi Estate Co. Ltd. .............. 238,000 3,614 Mitsubishi Gas Chemical Co., Inc. ....... 1,168,000 5,330 Mitsubishi UFJ Financial Group, Inc. .... 1,647,800 8,796 Murata Manufacturing Co. Ltd. ........... 73,690 3,632 NGK Spark Plug Co. Ltd. ................. 643,000 7,275 Nintendo Co. Ltd. ....................... 11,400 2,907 Nomura Holdings, Inc. ................... 973,100 6,810 Sankyo Co. Ltd. ......................... 110,800 6,313 Secom Co. Ltd. .......................... 61,300 2,867 Seven & I Holdings Co. Ltd. ............. 140,800 3,087 Shin-Etsu Chemical Co. Ltd. ............. 145,000 7,639 SMC Corp. ............................... 45,900 5,275 Sony Corp. .............................. 64,102 1,884 Sony Financial Holdings, Inc. ........... 2,609 7,456 Sumitomo Corp. .......................... 363,700 3,541 Takeda Pharmaceutical Co. Ltd. .......... 16,000 643 Tokyo Electron Ltd. ..................... 171,300 9,522 Tokyo Gas Co. Ltd. ...................... 1,147,000 4,541 Tokyo Steel Manufacturing Co. Ltd. ...... 357,100 4,680
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Toyota Motor Corp. ...................... 218,600 $ 8,650 TOTAL JAPAN 191,115 --------------- NETHERLANDS - 5.59% COMMON STOCKS - 5.59% Akzo Nobel N.V. + ....................... 233,801 13,817 ASML Holding N.V. ....................... 211,757 5,701 ING Groep N.V. ##+ ...................... 379,330 4,904 Koninklijke Philips Electronics N.V. .... 564,828 14,199 Randstad Holding N.V. ## ................ 55,060 2,094 Reed Elsevier N.V. ...................... 724,072 8,461 SBM Offshore N.V. ....................... 265,765 5,112 TNT N.V. ................................ 585,978 15,525 Unilever N.V. ........................... 218,722 6,736 TOTAL NETHERLANDS .......................... 76,549 --------------- NORWAY - 1.71% COMMON STOCKS - 1.71% Aker Solutions ASA ...................... 1,109,250 13,387 StatoilHydro ASA ........................ 75,290 1,787 Telenor ASA ## .......................... 640,840 8,249 TOTAL NORWAY 23,423 --------------- PORTUGAL - 0.62% COMMON STOCKS - 0.62% Portugal Telecom, SGPS, S.A. ............ 747,760 8,540 --------------- SINGAPORE - 2.66% COMMON STOCKS - 2.66% DBS Group Holdings Ltd. ................. 2,313,182 21,108 Flextronics International Ltd. ## ....... 848,510 5,498 Singapore Telecommunications Ltd. ....... 4,703,000 9,744 TOTAL SINGAPORE 36,350 --------------- SOUTH KOREA - 1.07% COMMON STOCKS - 1.07% Hyundai Heavy Industries ................ 56,474 7,830 KB Financial Group, Inc., ADR ## + ...... 143,018 6,785 TOTAL SOUTH KOREA .......................... 14,615 --------------- SPAIN - 3.55% COMMON STOCKS - 3.55% Banco Bilbao Vizcaya Argentaria S.A. .... 233,200 4,177 Banco Santander S.A. .................... 361,009 5,811 Banco Santander S.A., GDR ............... 400,828 6,371 Banco Santander S.A., Right ## .......... 310,129 55 Enagas S.A. ............................. 229,984 4,735 Iberdrola S.A. .......................... 271,304 2,460 Repsol YPF S.A. ......................... 257,990 6,868
See accompanying notes 17 AMERICAN BEACON INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Telefonica S.A. ......................... 650,634 $ 18,160 TOTAL SPAIN 48,637 --------------- SWEDEN - 2.31% COMMON STOCKS - 2.31% Atlas Copco AB .......................... 645,240 8,817 Nordea Bank AB .......................... 582,370 6,214 Skandinaviska Enskilda Banken ## ........ 814,675 5,075 Telefonaktiebolaget LM Ericsson ......... 1,082,375 11,540 TOTAL SWEDEN 31,646 --------------- SWITZERLAND - 8.35% COMMON STOCKS - 8.35% Adecco S.A.+ ............................ 130,550 5,836 Compagnie Financiere Richemont S.A. ..... 265,588 7,436 Credit Suisse Group AG .................. 135,900 7,259 Julius Baer Group Ltd. .................. 53,000 1,995 Lonza Group AG .......................... 52,740 4,110 Nestle S.A. ............................. 162,878 7,571 Novartis AG ............................. 462,160 24,108 Roche Holding AG ........................ 116,613 18,684 Swiss Reinsurance Co. Ltd. .............. 100,960 4,114 UBS AG## ................................ 1,117,300 18,711 Zurich Financial Services AG ............ 62,966 14,415 TOTAL SWITZERLAND 114,239 --------------- UNITED KINGDOM - 22.36% COMMON STOCKS - 22.36% Anglo American plc ## ................... 219,270 7,971 Aviva plc ............................... 1,874,344 11,736 BAE Systems plc ......................... 2,071,389 10,659 Barclays Bank plc ## .................... 863,600 4,518 BG Group plc ............................ 240,800 4,151 BP plc .................................. 2,630,409 24,773 British American Tobacco plc ............ 283,180 9,042 British Sky Broadcasting Group plc ...... 863,040 7,524 BT Group plc ............................ 1,754,900 3,747 Cadbury plc ............................. 499,764 6,295 Cairn Energy plc ## ..................... 48,000 2,075 Centrica plc ............................ 1,670,765 6,787 Compass Group plc ....................... 735,520 4,670 GlaxoSmithKline plc ..................... 907,203 18,631 HSBC Holdings plc ....................... 2,889,943 31,848 Informa plc ............................. 456,400 2,189 International Power Co. ................. 597,900 2,489 Kingfisher plc .......................... 1,256,400 4,596 Lloyds Banking Group plc + .............. 2,906,600 4,112 Marks and Spencer Group plc ............. 354,320 1,985 Michael Page International .............. 685,409 3,609 Pearson plc ............................. 534,980 7,281
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Prudential plc .......................... 459,100 $ 4,166 Qinetiq Group plc ....................... 536,100 1,437 Reed Elsevier plc ....................... 492,300 3,735 Rexam plc ............................... 591,642 2,690 Rio Tinto plc ........................... 168,558 7,450 Rolls-Royce Group plc C Shares Entitlement Dec. 09## ++ ............. 95,218,680 156 Rolls-Royce Group plc ................... 1,586,978 11,719 Royal Dutch Shell plc, A Shares ......... 343,949 10,230 Royal Dutch Shell plc, B Shares ......... 441,679 12,794 Smith & Nephew plc ...................... 519,047 4,592 Smiths Group plc ........................ 275,620 4,032 Standard Chartered plc .................. 351,090 8,621 Tesco plc ............................... 615,900 4,110 Unilever plc ............................ 426,551 12,768 Vodafone Group plc ...................... 13,535,986 29,948 WPP Group plc + ......................... 352,600 3,162 Xstrata ## .............................. 262,100 3,754 TOTAL UNITED KINGDOM 306,052 --------------- UNITED STATES - 0.15% COMMON STOCKS - 0.15% News Corp. .............................. 172,040 1,982 --------------- SHORT TERM INVESTMENTS - 2.72% American Beacon U.S. Government Money Market Select Fund# .................. 3,956,093 3,956 JP Morgan U.S. Government Money Market Fund ................................. 33,282,254 33,282 TOTAL SHORT TERM INVESTMENTS 37,238 --------------- SECURITIES LENDING COLLATERAL - 4.10% American Beacon U.S. Government Money Market Select Fund# .................. 31,052,537 31,053 JP Morgan U.S. Government Money Market Fund ................................. 25,000,000 25,000 TOTAL SECURITIES LENDING COLLATERAL ........ 56,053 --------------- TOTAL INVESTMENTS 102.68% - (COST $1,308,627) ....................... 1,405,342 LIABILITIES, NET OF OTHER ASSETS - (2.68%) .................. (36,686) TOTAL NET ASSETS - 100.00% ................. $ 1,368,656 ===============
See accompanying notes 18 AMERICAN BEACON INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS October 31, 2009 Percentages are stated as a percent of net assets. ## Non-income producing security. + All or a portion of this security is on loan at October 31, 2009. ++ Valued at fair value pursuant to procedures approved by the Board of Trustees. # The Fund is affiliated by having the same investment advisor. FUTURES CONTRACTS (DOLLARS IN THOUSANDS)
UNREALIZED NUMBER OF EXPIRATION MARKET APPRECIATION/ CONTRACTS DATE VALUE (DEPRECIATION) --------- ---------- ------- -------------- Australia SPI Index ........ 40 Dec 2009 $ 4,178 $ (50) Canada S&PCDA 60 Index ..... 39 Dec 2009 4,676 (176) France CAC 40 Index ........ 101 Dec 2009 5,338 (213) Germany DAX Index .......... 20 Dec 2009 3,986 (181) Hang Seng Index ............ 9 Nov 2009 1,256 (25) Italy MIB 30 Index ......... 11 Dec 2009 1,786 (82) Netherlands 200 AEX Index .. 14 Nov 2009 1,246 (76) Spain IBEX 35 Index ........ 14 Nov 2009 2,343 (51) Sweden OMX Index ........... 97 Nov 2009 1,298 42 Tokyo FE TOPIX Index ....... 107 Dec 2009 10,568 (326) UK FTSE 100 Index .......... 128 Dec 2009 10,552 (94) ------- ------- $47,227 $(1,232) ======= =======
See accompanying notes 19 AMERICAN BEACON INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS October 31, 2009 FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (DOLLARS IN THOUSANDS)
SETTLEMENT MARKET UNREALIZED DATE VALUE GAIN/(LOSS) ---------- ------- ----------- CONTRACTS TO DELIVER 1,797 Australian Dollar ................ 12/18/2009 $ 1,610 $ (60) 2,204 Canadian Dollar .................. 12/18/2009 2,037 15 4,253 Euro Currency .................... 12/18/2009 6,258 (20) 493,867 Japanese Yen ..................... 12/18/2009 5,488 (22) 2,617 Pound Sterling ................... 12/18/2009 4,294 (74) 4,203 Swedish Krona .................... 12/18/2009 593 10 1,989 Swiss Franc ...................... 12/18/2009 1,939 (12) ------- ----- TOTAL CONTRACTS TO DELIVER (RECEIVABLE AMOUNT $22,056) ............. $22,219 $(163) ------- ----- CONTRACTS TO RECEIVE 6,040 Australian Dollar ................ 12/18/2009 $ 5,413 $ 198 6,694 Canadian Dollar .................. 12/18/2009 6,186 (31) 13,206 Euro Currency .................... 12/18/2009 19,432 93 1,388,110 Japanese Yen ..................... 12/18/2009 15,425 282 8,469 Pound Sterling ................... 12/18/2009 13,896 (176) 11,285 Swedish Krona .................... 12/18/2009 1,592 (29) 5,850 Swiss Franc ...................... 12/18/2009 5,704 43 ------- ----- TOTAL CONTRACTS TO RECEIVE (PAYABLE AMOUNT $67,268) ................ $67,648 $ 380 ------- ----- NET CURRENCY FLUCTUATION ................... $ 217 =====
SECTOR DIVERSIFICATION
Percent of Net Assets ---------- Consumer Discretionary ............ 13.01% Consumer Staples .................. 5.15% Energy ............................ 8.87% Financials ........................ 21.29% Health Care ....................... 8.63% Industrials ....................... 15.37% Information Technology ............ 4.98% Materials ......................... 6.73% Telecommunication Services ........ 8.06% Utilities ......................... 3.77% Short Term Investments ............ 6.82% Liabilities, Net of Other Assets .. (2.68)% ------ 100.00% ======
See accompanying notes 20 AMERICAN BEACON FUNDS(SM) STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2009 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
EMERGING MARKETS INTERNATIONAL FUND EQUITY FUND ---------- ------------- ASSETS: Investments in unaffiliated securities, at value (A D) ............... $ 128,665 $ 1,370,333 Investments in affiliated securities, at value (B) ................... -- 35,009 Foreign currency, at value (C) ....................................... 1,437 5,015 Deposit with brokers for futures contracts ........................... -- 3,944 Receivable for investments sold ...................................... 417 11,824 Dividends and interest receivable .................................... 168 2,659 Receivable for fund shares sold ...................................... 75 1,365 Receivable for tax reclaims .......................................... 4 169 Net unrealized Appreciation on foreign currency contracts ............ -- 217 Prepaid expenses ..................................................... 11 83 ---------- ----------- TOTAL ASSETS ...................................................... 130,777 1,430,618 ---------- ----------- LIABILITIES: Payable for investments purchased .................................... 696 2,072 Payable upon return of securities loaned ............................. -- 56,053 Payable for fund shares redeemed ..................................... 30 1,288 Payable for variation margin on open futures contracts ............... 179 517 Management and investment advisory fees payable (Note 2) ............. 88 1,396 Administrative service and service fees payable ...................... 11 410 Other liabilities .................................................... 86 226 ---------- ----------- TOTAL LIABILITIES ................................................. 1,090 61,962 ---------- ----------- NET ASSETS .............................................................. $ 129,687 $ 1,368,656 ========== =========== ANALYSIS OF NET ASSETS: Paid-in-capital ......................................................... 134,505 1,488,152 Undistributed net investment income ..................................... 1,183 41,027 Accumulated net realized (loss) ......................................... (31,371) (256,287) Unrealized appreciation of investments, futures contracts, and foreign currency ............................................................. 25,370 95,764 ---------- ----------- NET ASSETS .............................................................. $ 129,687 $ 1,368,656 ========== =========== Shares outstanding (no par value): Institutional Class .................................................. 794,255 31,576,195 ========== =========== Y Class .............................................................. N/A 67 ========== =========== Investor Class ....................................................... 867,527 29,125,166 ========== =========== Advisor Class ........................................................ N/A 113,319 ========== =========== Retirement Class ..................................................... N/A 85 ========== =========== AMR Class ............................................................ 9,147,677 27,641,470 ========== =========== Net asset value, offering and redemption price per share: Institutional Class .................................................. $ 11.95 $ 15.51 ========== =========== Y Class .............................................................. N/A $ 15.52 ========== =========== Investor Class ....................................................... $ 11.77 $ 15.30 ========== =========== Advisor Class ........................................................ N/A $ 15.20 ========== =========== Retirement Class ..................................................... N/A $ 15.20 ========== =========== AMR Class ............................................................ $ 12.02 $ 15.61 ========== =========== (A) Cost of investments in unaffiliated securities ...................... $ 103,170 $ 1,273,619 (B) Cost of investments in affiliated securities ........................ $ -- $ 35,009 (C) Cost of foreign currency ............................................ $ 1,448 $ 4,979 (D) Market value of securities on loan .................................. $ -- $ 53,380
See accompanying notes 21 AMERICAN BEACON FUNDS(SM) STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2009 (IN THOUSANDS)
EMERGING MARKETS INTERNATIONAL FUND EQUITY FUND -------- ------------- INVESTMENT INCOME: Dividend income from unaffiliated securities (net of foreign taxes) (A) ... $ 2,610 $ 40,091 Dividend income from affiliated securities ................................ 7 48 Interest income ........................................................... 4 36 Income derived from securities lending, net ............................... 96 1,777 -------- --------- TOTAL INVESTMENT INCOME ............................................. 2,717 41,952 -------- --------- EXPENSES: Management and investment advisory fees (Note 2) .......................... 773 4,042 Administrative service fees (Note 2): Institutional Class .................................................... 21 1,343 Investor Class ......................................................... 19 1,181 Advisor Class .......................................................... -- 5 AMR Class .............................................................. 44 177 Transfer agent fees: Institutional Class .................................................... 1 33 Investor Class ......................................................... 4 35 Advisor Class .......................................................... -- 3 AMR Class .............................................................. 5 23 Custody and fund accounting fees .......................................... 468 281 Professional fees ......................................................... 43 75 Registration fees and expenses ............................................ 31 75 Service fees (Note 2): Investor Class ......................................................... 16 1,240 Advisor Class .......................................................... -- 4 Distribution fees - Advisor Class (Note 2) ................................ -- 4 Prospectus and shareholder reports ........................................ 4 189 Trustee fees .............................................................. 10 121 Other expenses ............................................................ 54 317 -------- --------- TOTAL EXPENSES ...................................................... 1,493 9,148 -------- --------- Net (fees waived and expenses reimbursed)/recouped by Manager (Note 2) ............................................................... -- -- -------- --------- NET EXPENSES ........................................................ 1,493 9,148 -------- --------- NET INVESTMENT INCOME ........................................................ 1,224 32,804 -------- --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from: (B) Investments ............................................................ (13,356) (234,766) Commission recapture (Note 1) .......................................... -- 68 Foreign currency transactions .......................................... (5,706) (2,677) Futures contracts ...................................................... 7 (7,027) Change in net unrealized appreciation or depreciation of: Investments ............................................................ 56,033 340,188 Foreign currency translations .......................................... 10,156 142,812 Futures contracts ...................................................... 1,196 15,561 -------- --------- NET GAIN ON INVESTMENTS ............................................. 48,330 254,159 -------- --------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... $ 49,554 $ 286,963 ======== ========= (A) Foreign taxes ............................................................ $ 270 $ 3,998 (B) Net of foreign withholding taxes on capital gains ........................ $ 2 $ --
See accompanying notes 22 AMERICAN BEACON FUNDS(SM) STATEMENT OF CHANGES OF NET ASSETS (IN THOUSANDS)
Emerging Markets Fund International Equity Fund ------------------------- ------------------------- Year Ended Year Ended Year Ended Year Ended October 31, October 31, October 31, October 31, 2009 2008 2009 2008 ----------- ----------- ----------- ----------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income .................................. $ 1,224 $ 2,837 $ 32,804 $ 71,599 Net realized gain (loss) on investments, futures contracts, and foreign currency transactions ........ (19,055) 1,673 (244,402) 33,063 Change in net unrealized appreciation or depreciation of investments, futures contracts, and foreign currency translations ............................... 67,385 (133,877) 498,561 (1,329,781) -------- --------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ..................... 49,554 (129,367) 286,963 (1,225,119) -------- --------- ---------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Institutional Class ................................. (129) (58) (22,416) (40,937) Investor Class ...................................... (93) (43) (17,116) (20,913) Advisor Class ....................................... -- -- (61) (105) AMR Class ........................................... (2,146) (2,023) (17,313) (18,454) Net realized gain on investments: Institutional Class ................................. (798) (2,019) (12,166) (155,609) Investor Class ...................................... (756) (1,876) (10,088) (87,859) Advisor Class ....................................... -- -- (40) (482) AMR Class ........................................... (11,268) (39,911) (8,489) (63,681) -------- --------- ---------- ----------- NET DISTRIBUTIONS TO SHAREHOLDERS ................ (15,190) (45,930) (87,689) (388,040) -------- --------- ---------- ----------- CAPITAL SHARE TRANSACTIONS: Proceeds from sales of shares .......................... 21,046 28,155 264,266 443,828 Reinvestment of dividends and distributions ............ 15,153 45,849 81,731 366,395 Cost of shares redeemed ................................ (24,071) (112,884) (500,348) (1,148,081) Redemption fees ........................................ 18 161 217 868 -------- --------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS .................... 12,146 (38,719) (154,134) (336,990) -------- --------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS ..................... 46,510 (214,016) 45,140 (1,950,149) -------- --------- ---------- ----------- NET ASSETS: Beginning of period .................................... 83,177 297,193 1,323,516 3,273,665 -------- --------- ---------- ----------- END OF PERIOD * ........................................ $129,687 $ 83,177 $1,368,656 $ 1,323,516 ======== ========= ========== =========== *Includes undistributed net investment income (loss) of ... $ 1,183 $ 2,109 $ 41,027 $ 70,764 ======== ========= ========== ===========
See accompanying notes 23 AMERICAN BEACON FUNDS(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES American Beacon Funds (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, (the "Act"), as amended as a diversified, open-end management investment company. These financial statements and notes to the financial statements relate to the American Beacon Emerging Markets and International Equity Funds (the "Funds"), each a series of the Trust. 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. Class Disclosure Prior to March 1, 2009, the Investor and Advisor Classes were formerly known as the PlanAhead and Service Classes, respectively. May 1 and August 3, 2009 are the inception dates of the Retirement and Y Classes, respectively. The Funds have multiple classes of shares designed to meet the needs of different groups of investors. The following table sets forth the differences amongst the classes:
CLASS: OFFERED TO: - ------ -------------------------------------------------------- INSTITUTIONAL CLASS Investors making an initial investment of $250,000 Y CLASS Investors making an initial investment of $100,000 INVESTOR CLASS General public and investors investing through an intermediary ADVISOR CLASS Investors investing through an intermediary RETIREMENT CLASS Investors investing through an intermediary AMR CLASS Investors in the tax-exempt retirement and benefit plans of AMR Corporation and its affiliates
Administrative service fees, service fees and distribution fees vary amongst the classes as described more fully in footnote 2. Investment income, net capital gains (losses) and all expenses incurred by the Funds are allocated based on the relative net assets of each class, except for service fees and certain other fees and expenses related solely to one class of shares. Security Valuation Investments are valued at the close of the New York Stock Exchange (the "Exchange"), normally 4 p.m. ET, each day that the Exchange is open for business. Equity securities for which market quotations are available are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) on the primary market or exchange on which they trade. Debt securities (other than short-term securities) normally are valued on the basis of prices provided by an independent pricing service and may take into account appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The prices of debt securities may be determined using quotes obtained from brokers. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. Investment grade short-term obligations with 60 days or less to maturity are valued using the amortized cost method, which approximates market value. 24 AMERICAN BEACON FUNDS(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 Securities for which the market prices are not readily available or are not reflective of the fair value of the security, as determined by the Manager, will be priced at fair value following procedures approved by the Board of Trustees (the "Board"). Most foreign markets close before the Exchange. Developments that could affect the values of securities that occur between the close of a foreign market and the close of the Exchange normally will not be reflected in security valuations. If such developments are so significant that they will, in the judgment of the pricing committee of the Fund, clearly and materially affect the value of securities, the foreign market closing prices may be adjusted to reflect the fair value of the securities as of the close of the Exchange, as determined in good faith and pursuant to procedures approved by the Board. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Of the total investments at October 31, 2009, for the Emerging Markets and International Equity Funds $84,980 or 65.5% and $1,164,113 or 85.1%, respectively, were valued at fair value based on procedures established by the Board. Valuation Inputs Various inputs may be used to determine the value of the Funds' investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. 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 other significant unobservable inputs. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available. The Funds' investments are summarized by level based on the inputs used to determine their values. As of October 31, 2009 the Funds' investments were classified as follows: (in thousands)
EMERGING MARKETS Level 1 Level 2 Level 3 Total - ---------------- --------- ------- ------- -------- Preferred Stocks................................ $ 3,073 $ 353 $-- $ 3,426 Common Stocks................................... 35,776 84,626 -- 120,402 Short Term Investments.......................... 3,732 1,105 -- 4,837 ------- ------- --- -------- Total Investments in Securities.............. $42,581 $86,084 $-- $128,665 ======= ======= === ======== Futures Contracts............................... 6,095 -- -- 6,095
INTERNATIONAL EQUITY Level 1 Level 2 Level 3 Total - -------------------- --------- ---------- ------- ---------- Preferred Stocks................................ $ -- $ 2,108 $-- $ 2,108 Common Stocks................................... 150,941 1,159,002 -- 1,309,943 Short Term Investments.......................... 93,291 -- -- 93,291 -------- ---------- --- ---------- Total Investments in Securities.............. $244,232 $1,161,110 $-- $1,405,342 ======== ========== === ========== Forward Exchange Contracts - Assets............. $ 67,648 -- -- $67,648 Forward Exchange Contracts - Liabilities........ (22,219) -- -- (22,219) Futures Contracts............................... 47,227 -- -- 47,227
Security Transactions and Investment Income Security transactions are recorded on the trade date of the security purchase or sale. The Funds may purchase securities with delivery or payment to occur at a later date. At the time the Funds enter into a 25 AMERICAN BEACON FUNDS(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 commitment to purchase a security, the transaction is recorded, and the value of the security is reflected in the net asset value. The value of the security may vary with market fluctuations. Dividend income, net of foreign taxes, is recorded on the ex-dividend date except certain dividends from foreign securities which are recorded as soon as the information is available to the Funds. Interest income is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification. Currency Translation All assets and liabilities initially expressed in foreign currency values are converted into U.S. dollar values at the mean of the bid and ask prices of such currencies against U.S. dollars as last quoted by a recognized dealer. Income, expenses and purchases and sales of investments are translated into U.S. dollars at the rate of exchange prevailing on the respective dates of such transactions. The effect of changes in foreign currency exchange rates on investments is separately identified from the fluctuations arising from changes in market values of securities held and is reported with all other foreign currency gains and losses in the Funds' Statements of Operations. Forward Foreign Currency Contracts The Funds may enter into forward foreign currency contracts to hedge the exchange rate risk on investment transactions or to hedge the value of the Funds securities denominated in foreign currencies. Forward foreign currency contracts are valued at the forward exchange rate prevailing on the day of valuation. The Funds bear the market risk that arises from changes in foreign exchange rates, and accordingly, the unrealized gain (loss) on these contracts is reflected in the accompanying financial statements. The Funds also bear the credit risk if the counterparty fails to perform under the contract. Futures Contracts Futures contracts are contracts to buy or sell a standard quantity of securities at a specified price on a future date. The Funds may enter into financial futures contracts as a method for keeping assets readily convertible to cash if needed to meet shareholder redemptions or for other needs while maintaining exposure to the stock or bond market, as applicable. The primary risks associated with the use of futures contracts are the possibility of illiquid markets or imperfect correlation between the values of the contracts and the underlying securities, or that the counterparty will fail to perform its obligations. Upon entering into a futures contract, the Funds are required to set aside or deposit with a broker an amount, termed the initial margin, which typically represents 5% of the face value of the futures contract. The initial margin amount is reflected as a Deposit with broker for futures contracts on the Statements of Assets and Liabilities. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates. Changes in initial settlement values are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. Futures contracts are valued at the most recent settlement price established each day by the exchange on which they are traded. Emerging Markets Values of Derivative Instruments not accounted for as hedging instruments as of October 31, 2009 (in thousands)
Liability Statement of Assets and Liabilities Derivatives Fair Value - ----------------------------------- ----------------- ---------- Unrealized appreciation of investments, futures contracts, and foreign currency...... Equity Contracts* $(119)
26 AMERICAN BEACON FUNDS(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 Effect of derivative instruments not accounted for as hedging instruments during the year ended October 31, 2009 (in thousands)
Statement of Operations Derivative Fair Value - ----------------------- ---------------- ---------- Net realized gain (loss) from futures contracts................................. Equity Contracts $ 7 Change in net unrealized appreciation or depreciation of futures contracts...... Equity Contracts 1,196
International Equity Values of Derivative Instruments not accounted for as hedging instruments as of October 31, 2009 (in thousands)
Statement of Assets and Liabilities Asset Derivatives Fair Value - ----------------------------------- ------------------ ---------- Net unrealized appreciation on foreign currency contracts...... Foreign Exchange $380 Currency Contracts
Liability Derivatives --------------------- Foreign Exchange Net unrealized appreciation on foreign currency contracts............................ Currency Contracts (163) Unrealized appreciation of investments, futures contracts, and foreign currency...... Equity Contracts* (1,232)
Effect of derivative instruments not accounted for as hedging instruments during the year ended October 31, 2009 (in thousands)
Statement of Operations Derivative Fair Value - ----------------------- ---------------- ---------- Net realized gain (loss) from futures contracts................................. Equity Contracts $(7,027) Change in net unrealized appreciation or depreciation of futures contracts...... Equity Contracts 15,561
* Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments footnotes. Only current day's variation margin is reported within the Statements of Assets and Liabilities. Dividends to Shareholders Dividends from net investment income of the Funds normally will be declared and paid at least annually. Distributions, if any, of net realized capital gains are generally paid at least annually and recorded on the ex-dividend date. Commission Recapture The Funds have established brokerage commission recapture arrangements with certain brokers or dealers. If the Funds' investment advisor chooses to execute a transaction through a participating broker, the broker rebates a portion of the commission back to the Funds. Any collateral benefit received through participation in the commission recapture program is directed exclusively to the Funds. This amount is reported with the net realized gain in the Funds' Statements of Operations. Allocation of Income, Expenses, Gains, and Losses Income, expenses (other than those attributable to a specific class), gains, and losses are allocated daily to each class of shares based upon the relative proportion of net assets represented by such class. Operating expenses directly attributable to a specific class are charged against the operations of that class. 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. Redemption Fees The Funds impose a 2% redemption fee on shares held for less than 90 days. The fee is deducted from the redemption proceeds and is intended to offset the trading costs, market impact and other costs associated 27 AMERICAN BEACON FUNDS(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 with short-term trading activity in the Funds. The "first-in, first-out" method is used to determine the holding period. The fee is allocated to all classes of the Funds pro-rata based on their respective net assets. 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, fund management, and securities lending services. Investment assets of the Funds are managed by multiple investment advisors that have entered into separate investment advisory agreements with the Manager. As compensation for performing the duties required under the Management Agreement, the Manager receives from the Funds an annualized fee equal to 0.05% of the average daily net assets plus amounts paid by the Manager to the investment advisors hired by the Manager to direct investment activities of the Funds. Management fees paid during the year ended October 31, 2009 were as follows (dollars in thousands):
AMOUNTS PAID NET AMOUNTS MANAGEMENT MANAGEMENT TO INVESTMENT RETAINED BY FEE RATE FEE ADVISORS MANAGER ----------- ---------- ------------- ----------- Emerging Markets............ 0.60%-0.95% $ 773 $ 722 $ 51 International Equity........ 0.20%-0.55% $4,042 $3,442 $600
As compensation for services provided by the Manager in connection with securities lending activities, the lending Funds pays to the Manager, with respect to cash collateral posted by borrowers, a fee up to 25% of the net monthly interest income (the gross interest income earned by the investment of cash collateral, less the amount paid to borrowers and related expenses) from such activities and, with respect to loan fees paid by borrowers when a borrower posts collateral other than cash, a fee up to 25% of such loan fees. This fee is netted against securities lending income in the Statements of Operations. During the year ended October 31, 2009, securities lending fees paid to the Manager oh behalf of the Emerging Markets and International Equity Funds were $12,594 and $238,271, respectively. Administrative Services Agreement The Manager and the Trust entered into an Administrative Services Agreement which 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 0.30% of the average daily net assets of the Institutional, Y, Investor, Advisor and Retirement Classes of the Funds and 0.05% of the average daily net assets of the AMR Class of the Funds. Distribution Plans The Funds, except for the Advisor and Retirement Classes of the Funds, have adopted a "defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act, pursuant to which no fees may be 28 AMERICAN BEACON FUNDS(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 charged to the Funds for distribution purposes. However, the Plan authorizes the management and administrative service fees received by the Manager and the investment advisors hired by the Manager to be used for distribution purposes. Under this Plan, the Funds do not intend to compensate the Manager or any other party, either directly or indirectly, for the distribution of Funds shares. Separate Distribution Plans (the "Distribution Plans") have been adopted pursuant to Rule 12b-1 under the Act for the Advisor and Retirement Classes of the Funds. Under the Distribution Plans, as compensation for distribution assistance, the Manager receives an annual fee of 0.25% of the average daily net assets of the Advisor Class and 0.50% of the average daily net assets of the Retirement Class. The fee will be payable without regard to whether the amount of the fee is more or less than the actual expenses incurred in a particular month by the Manager for distribution assistance. Service Plans The Manager and the Trust entered into Service Plans that obligate the Manager to oversee additional shareholder servicing of the Y, Investor, Advisor and Retirement Classes. As compensation for performing the duties required under the Service Plans, the Manager receives 0.10% of the average daily net assets of the Y Class, 0.25% of the average daily net assets of the Advisor and Retirement Classes and up to 0.375% of the average daily net assets of the Investor Class of the Funds. Brokerage Commissions Affiliated entities of an investment advisor to the Funds received net commissions on purchases and sales of the Funds' portfolio securities totaling $14,316 and $2,420 for the Emerging Markets and International Equity Funds, respectively for the year ended October 31, 2009. Investment in Affiliated Funds The Funds may invest in the American Beacon Money Market Select Fund (the "MM Select Fund") or the US Government Money Market Fund (the "USG Select Fund"), (collectively the "Select Funds"). Cash collateral received by the Funds in connection with securities lending may be invested in the Select Funds. The Funds and the Select Funds have the same investment advisor and therefore, are considered to be affiliated. The Manager serves as investment advisor to the Select Funds and receives from the Select Funds an annualized fee equal to 0.09% of its average daily net assets. During the year ended October 31, 2009, fees earned by the Manager from the Select funds were as follows:
DIRECT SECURITIES LENDING INVESTMENTS IN COLLATERAL INVESTED SELECT FUNDS IN SELECT FUNDS TOTAL -------------- ------------------- ------- Emerging Markets......... $ 594 $ 1,054 $ 1,648 International Equity..... 5,743 10,534 16,277
Interfund Lending Program Pursuant to an exemptive order by the SEC, the Fund, along with other registered investment companies having management contracts with the Manager, may participate in an interfund lending program as a borrower. This program provides an alternative credit facility allowing the Fund to borrow from other participating Funds. The Fund did not utilize the credit facility during the year ended October 31, 2009. Expense Reimbursement Plan The Fund has adopted an Expense Reimbursement Plan whereby the Manager may seek repayment of fees waived or expenses reimbursed for a period of up to three years. However, reimbursement will occur only if the Class's average net assets have grown or expenses have declined sufficiently to allow reimbursement without causing its expense ratio to exceed the previously agreed upon contractual expense limit. During the 29 AMERICAN BEACON FUNDS(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 year ended October 31, 2009, the International Equity Advisor Class waived $130. A liability has not been booked as the Manager does not intend to seek repayment. 3. FEDERAL INCOME AND EXCISE TAXES It is the policy of each of the Funds to comply with the requirements of Subchapter M of the Internal Revenue Code and to distribute substantially all net investment income as well as any net realized capital gains on the sale of investments. Therefore, no federal income or excise tax provision is required. The Funds do not have any unrecognized tax benefits in the accompanying financial statements. Each of the tax years in the four year period ended October 31, 2009 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 Statement 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 during the fiscal years ended October 31, 2009 and October 31, 2008 were as follows (in thousands):
EMERGING MARKETS INTERNATIONAL EQUITY ------------------------- ------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2009 2008 2009 2008 ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID FROM: ORDINARY INCOME* Institutional Class............. $ 129 $ 550 $24,114 $ 69,221 Investor Class.................. 93 499 17,999 36,886 Advisor Class................... -- -- 66 193 AMR Class....................... 2,146 11,725 17,924 30,031 LONG-TERM CAPITAL GAIN Institutional Class............. 798 1,527 10,468 127,324 Investor Class.................. 756 1,420 9,205 71,886 Advisor Class................... -- -- 35 395 AMR Class....................... 11,268 30,209 7,878 52,104 ------- ------- ------- -------- TOTAL DISTRIBUTIONS PAID.............. $15,190 $45,930 $87,689 $388,040 ======= ======= ======= ========
* For tax purposes, short-term capital gains are considered ordinary income distributions. As of October 31, 2009, the components of distributable earnings on a tax basis were as follows (in thousands):
EMERGING INTERNATIONAL MARKETS EQUITY ---------- ------------- Cost basis of investments for federal income tax purposes ...... $117,402 $1,348,848 Unrealized appreciation ........................................ 20,279 203,598 Unrealized depreciation ........................................ (9,016) (147,105) -------- ---------- Net unrealized appreciation/(depreciation) ..................... 11,263 56,493 Undistributed ordinary income .................................. 1,932 45,083 Undistributed long-term gain/(loss) ............................ (17,887) (223,489) Other temporary differences .................................... (126) 2,417 -------- ---------- Distributable earnings ......................................... $ (4,818) $ (119,496) ======== ==========
Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. The temporary differences between financial reporting and tax-basis reporting of unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses from wash sales, the realization for tax purposes of unrealized gain/(losses) on certain 30 AMERICAN BEACON FUNDS(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 derivative instruments, the realization for tax purposes of unrealized gain/(losses) on investments in passive foreign investment companies, and Section 732 basis adjustments. Due to inherent differences in the recognition of income, expenses and realized gains/(losses) under U.S. generally accepted accounting principles and federal income tax regulations, permanent differences between book and tax reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities. Accordingly, the following amounts represent current year permanent differences derived from foreign currency gains/(losses) from sales of investments in passive foreign investment companies, and Section 732 basis adjustments that have been reclassified as of October 31, 2009 (in thousands):
EMERGING INTERNATIONAL MARKETS EQUITY -------- ------------- Paid-in-capital ..................................................................... $ -- $ 2,825 Undistributed net investment income ................................................. 218 (5,635) Accumulated net realized loss ....................................................... (217) 2,811 Unrealized depreciation of investments, futures contracts and foreign currency ...... (1) (1)
At October 31, 2009 the capital loss carry forward positions for federal income tax purposes were $18,006 for Emerging Markets Fund and $224,721 for International Equity Fund expiring in 2017. (in thousands) 4. INVESTMENT TRANSACTIONS The aggregate cost of purchases and proceeds from sales of investments, other than short-term obligations, for the year ended October 31, 2009 were (in thousands):
EMERGING INTERNATIONAL MARKETS EQUITY -------- ------------- Purchases ....................... $79,113 $473,161 Sales and Maturities ............ 65,097 562,166
A summary of the Fund's direct transactions in the Select Funds for the year ended October 31, 2009 is set forth below (in thousands):
OCTOBER 31, 2008 OCTOBER 31, 2009 AFFILIATED FUND SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE --------------- ------------------- --------- ------- ------------------- Emerging Markets MM Select Fund $ 5,304 $ -- $ 5,304 $ -- International Equity MM Select Fund 26,918 -- 26,918 -- International Equity USG Select Fund -- 17,051 13,095 3,956
5. SECURITIES LENDING On May 19, 2009, the Emerging Markets Fund terminated its securities lending program. The International Equity Fund may lend its securities to qualified financial institutions, such as certain broker-dealers, to earn additional income. The borrowers are required to secure their loans continuously with collateral in an amount at least equal to the fair value of the securities loaned, initially in an amount at least equal to 102% of the fair value of domestic securities loaned and 105% of the fair value of international securities loaned. Collateral is monitored and marked to market daily. Daily mark to market amounts are required to be paid to the borrower or received from the borrower by the end of the following business day. This one day settlement for mark to market amounts may result in the collateral being temporarily less than the value of the securities on loan or temporarily more than the required minimum collateral. 31 AMERICAN BEACON FUNDS(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 To the extent that a loan is collateralized by cash, such cash collateral shall be invested by the securities lending agent (the "Agent") in money market mutual funds, and other short-term investments, provided the investments meet certain quality and diversification requirements. Securities lending income is generated from the demand premium (if any) paid by the borrower to borrow a specific security and from the return on investment of cash collateral, reduced by negotiated rebate fees paid to the borrower and transaction costs. To the extent that a loan is secured by non-cash collateral, securities lending income is generated as a demand premium reduced by transaction costs. The Fund, the Agent, and the Manager retain 75%, 15%, and 10%, respectively, of the income generated from securities lending. While securities are on loan, the Fund continues to receive any income associated with that security and any gain or loss in the market price that may occur during the term of the loan. Securities lending transactions pose certain risks to the Fund, including that the borrower may not provide additional collateral when required or return the securities when due, that the value of the short-term investments will be less than the amount of cash collateral required to be returned to the borrower, that non-cash collateral may be subject to legal constraints in the event of a borrower bankruptcy, and that the cash collateral investments could become illiquid and unable to be used to return collateral to the borrower. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the cash collateral available for return to the borrower and any action which impairs its ability to liquidate non-cash collateral to satisfy a borrower default. As of October 31, 2009, the value of outstanding securities on loan and the value of collateral was as follows (in thousands):
MARKET VALUE OF SECURITIES ON LOAN NON-CASH COLLATERAL CASH COLLATERAL POSTED BY BORROWER - ------------------ ------------------- ---------------------------------- $53,380 $-- $56,053
Cash collateral is listed in the Fund's Schedule of Investments and is shown on the Statement of Assets and Liabilities. Income earned on these investments is included in Income derived from securities lending in the Statement of Operations. Non-cash collateral received by the Fund may not be sold or re-pledged except to satisfy a borrower default. Therefore, non-cash collateral is not included on the Fund's Schedule of Investments or Statement of Assets and Liabilities. 6. CAPITAL SHARE TRANSACTIONS The tables below summarize the activity in capital shares for each Class of the Fund (dollars and shares in thousands): Year ended October 31, 2009
INSTITUTIONAL CLASS INVESTOR CLASS AMR CLASS --------------- ---------------- ----------------- EMERGING MARKETS FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT - --------------------- ------ ------ ------ ------- ------ -------- Shares sold..................................... 119 $1,207 355 $ 3,717 1,767 $ 16,122 Reinvestment of dividends....................... 126 917 114 822 1,832 13,414 Shares redeemed................................. (59) (672)* (187) (1,654)* (2,458) (21,727)* --- ------ ---- ------- ------ -------- Net increase in shares outstanding.............. 186 $1,452 282 $ 2,885 1,141 $ 7,809 === ====== ==== ======= ====== ========
32 AMERICAN BEACON FUNDS(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009
INSTITUTIONAL CLASS Y CLASS INVESTOR CLASS -------------------- --------------- ------------------- INTERNATIONAL EQUITY FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT - ------------------------- -------- --------- ------ ------ ------- --------- Shares sold..................................... 7,840 $ 100,116 -- $ 1 7,880 99,626 Reinvestment of dividends....................... 2,451 29,191 -- -- 2,263 26,656 Shares redeemed................................. (21,920) (270,772)* -- --* (13,941) (175,030)* ------- --------- --- --- ------- --------- Net increase (decrease) in shares outstanding... (11,629) $(141,465) -- $ 1 (3,798) $ (48,748) ======= ========= === === ======= =========
RETIREMENT ADVISOR CLASS CLASS AMR CLASS --------------- --------------- ----------------- INTERNATIONAL EQUITY FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT - ------------------------- ------ ------ ------ ------ ------ -------- Shares sold..................................... 21 $ 262 -- $ 1 4,956 $ 64,260 Reinvestment of dividends....................... 7 82 -- -- 2,157 25,802 Shares redeemed................................. (35) (464)* -- --* (4,240) (53,865)* --- ----- --- --- ------ -------- Net increase (decrease) in shares outstanding... (7) $(120) -- $ 1 2,873 $ 36,197 === ===== === === ====== ========
Year Ended October 31, 2008
INSTITUTIONAL CLASS INVESTOR CLASS AMR CLASS ---------------- ---------------- ------------------ EMERGING MARKETS FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT - --------------------- ------ ------- ------ ------- ------ --------- Shares sold..................................... 7 $ 117 540 $ 9,707 1,030 $ 18,331 Reinvestment of dividends....................... 109 2,039 101 1,876 2,222 41,934 Shares redeemed................................. (76) (1,074)* (544) (9,254)* (6,393) (102,395)* --- ------- ---- ------- ------ --------- Net increase (decrease) in shares outstanding... 40 $ 1,082 97 $ 2,329 (3,141) $ (42,130) === ======= ==== ======= ====== =========
INSTITUTIONAL CLASS INVESTOR CLASS ADVISOR CLASS AMR CLASS ------------------- ------------------- ---------------- ------------------ INTERNATIONAL EQUITY FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT - ------------------------- ------- --------- ------- --------- ------ ------- ------ --------- Shares sold.................................. 6,925 $ 137,615 12,711 $ 257,961 40 $ 790 2,312 $ 47,462 Reinvestment of dividends.................... 7,822 177,012 4,768 106,664 26 585 3,605 82,134 Shares redeemed.............................. (33,276) (680,261)* (18,249) (352,680)* (130) (2,617)* (5,574) (111,655)* ------- --------- ------- --------- ---- ------- ------ --------- Net increase (decrease) in shares outstanding............................... (18,529) $(365,634) (770) $ 11,945 (64) $(1,242) 343 $ 17,941 ======= ========= ======= ========= ==== ======= ====== =========
- ---------- * Net of Redemption Fees 7. SUBSEQUENT EVENTS In preparing the financial statements as of October 31, 2009, management considered the impact of subsequent events occurring through December 23, 2009, for potential recognition or disclosure in these financial statements. 33 AMERICAN BEACON EMERGING MARKETS FUND(SM) FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
Institutional Class ---------------------------------------------- Year Ended October 31, ---------------------------------------------- 2009 2008 2007 2006 2005 ------- ------- ------- ------- ------ Net asset value, beginning of period ............................. $ 9.00 $ 24.20 $ 17.42 $ 15.10 $12.64 ------- ------- ------- ------- ------ Income from investment operations: Net investment income ......................................... 0.05 0.23 0.26 0.11 0.15 Net gains (losses) on securities (both realized and unrealized) ................................................ 4.42 (11.78) 9.11 4.63 3.45 ------- ------- ------- ------- ------ Total income (loss) from investment operations ................... 4.47 (11.55) 9.37 4.74 3.60 ------- ------- ------- ------- ------ Less distributions: Dividends from net investment income .......................... (0.21) (0.10) (0.10) (0.21) (0.06) Distributions from net realized gains on securities ........... (1.31) (3.55) (2.49) (2.21) (1.08) ------- ------- ------- ------- ------ Total distributions .............................................. (1.52) (3.65) (2.59) (2.42) (1.14) ------- ------- ------- ------- ------ Redemption fees added to beneficial interests(A) ................. 0.00 0.00 0.00 0.00 0.00 Net asset value, end of period ................................... $ 11.95 $ 9.00 $ 24.20 $ 17.42 $15.10 ======= ======= ======= ======= ====== Total return(B) .................................................. 60.56% (55.59)% 60.83% 34.58% 30.03% ======= ======= ======= ======= ====== Ratios and supplemental data: Net assets, end of period (in thousands) ...................... $ 9,494 $ 5,478 $13,773 $16,552 $9,348 Ratios to average net assets (annualized): Expenses, net of waivers ...................................... 1.66% 1.38% 1.60% 1.56% 1.52% Expenses, before waivers ...................................... 1.66% 1.38% 1.60% 1.56% 1.52% Net investment income, net of waivers ......................... 0.95% 1.35% 0.93% 0.80% 1.22% Net investment income, before waivers ......................... 0.95% 1.35% 0.93% 0.80% 1.22% Portfolio turnover rate ....................................... 70% 82% 81% 67% 63% Investor Class --------------------------------------------- Year Ended October 31, --------------------------------------------- 2009 2008 2007 2006 2005 ------- ------- ------- ------ ------ Net asset value, beginning of period ............................. $ 8.85 $ 23.91 $ 17.22 $14.98 $12.53 ------- ------- ------- ------ ------ Income from investment operations: Net investment income ......................................... 0.04 0.17 0.11 0.09 0.15 Net gains (losses) on securities (both realized and unrealized) ................................................ 4.35 (11.60) 9.11 4.55 3.41 ------- ------- ------- ------ ------ Total income (loss) from investment operations ................... 4.39 (11.43) 9.22 4.64 3.56 ------- ------- ------- ------ ------ Less distributions: Dividends from net investment income .......................... (0.16) (0.08) (0.04) (0.19) (0.03) Distributions from net realized gains on securities ........... (1.31) (3.55) (2.49) (2.21) (1.08) ------- ------- ------- ------ ------ Total distributions .............................................. (1.47) (3.63) (2.53) (2.40) (1.11) ------- ------- ------- ------ ------ Redemption fees added to beneficial interests(A) ................. 0.00 0.00 0.00 0.00 0.00 Net asset value, end of period ................................... $ 11.77 $ 8.85 $ 23.91 $17.22 $14.98 ======= ======= ======= ====== ====== Total return(B) .................................................. 60.24% (55.75)% 60.38% 34.01% 29.86% ======= ======= ======= ====== ====== Ratios and supplemental data: Net assets, end of period (in thousands) ...................... $10,208 $ 5,183 $11,694 $5,841 $2,592 Ratios to average net assets (annualized): Expenses, net of waivers ...................................... 1.96% 1.72% 1.96% 2.04% 1.75% Expenses, before waivers ...................................... 1.96% 1.72% 1.96% 1.91% 2.01% Net investment income, net of waivers ......................... 0.65% 1.00% 0.65% 0.49% 1.16% Net investment income, before waivers ......................... 0.65% 1.00% 0.65% 0.62% 0.90% Portfolio turnover rate ....................................... 70% 82% 81% 67% 63% AMR Class -------------------------------------------------- Year Ended October 31, -------------------------------------------------- 2009 2008 2007 2006 2005 -------- ------- -------- -------- ------- Net asset value, beginning of period ............................. $ 9.06 $ 24.37 $ 17.52 $ 15.17 $ 12.68 -------- ------- -------- -------- ------- Income from investment operations: Net investment income ......................................... 0.09 0.33 0.19 0.15 0.24 Net gains (losses) on securities (both realized and unrealized) ................................................ 4.43 (11.91) 9.30 4.65 3.42 -------- ------- -------- -------- ------- Total income (loss) from investment operations ................... 4.52 (11.58) 9.49 4.80 3.66 -------- ------- -------- -------- ------- Less distributions: Dividends from net investment income .......................... (0.25) (0.18) (0.15) (0.24) (0.09) Distributions from net realized gains on securities ........... (1.31) (3.55) (2.49) (2.21) (1.08) -------- ------- -------- -------- ------- Total distributions .............................................. (1.56) (3.73) (2.64) (2.45) (1.17) -------- ------- -------- -------- ------- Redemption fees added to beneficial interests(A) ................. 0.00 0.00 0.00 0.00 0.00 Net asset value, end of period ................................... $ 12.02 $ 9.06 $ 24.37 $ 17.52 $ 15.17 ======== ======= ======== ======== ======= Total return(B) .................................................. 61.01% (55.48)% 61.28% 34.88% 30.45% ======== ======= ======== ======== ======= Ratios and supplemental data: Net assets, end of period (in thousands) ...................... $109,985 $72,516 $271,726 $135,146 $94,864 Ratios to average net assets (annualized): Expenses, net of waivers ...................................... 1.42% 1.17% 1.37% 1.30% 1.25% Expenses, before waivers ...................................... 1.42% 1.17% 1.37% 1.30% 1.25% Net investment income, net of waivers ......................... 1.27% 1.46% 1.25% 1.01% 1.60% Net investment income, before waivers ......................... 1.27% 1.46% 1.25% 1.01% 1.60% Portfolio turnover rate ....................................... 70% 82% 81% 67% 63%
- ---------- (A) Amounts represent less than $0.01 per share. (B) May include adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. For the Institutional Class for the years ended 2006 and 2005, the Total returns have been restated from 34.49% and 30.11%, respectively. For the Investor Class for the years ended 2008, 2007, 2006, and 2005, the Total returns have been restated from (55.77%), 60.17%, 34.16%, and 29.95%, respectively. For the AMR Class for the years ended 2007, 2006, and 2005, the Total returns have been restated from 61.19%, 34.87%, and 30.43%, respectively. 34 AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM) FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
Y Class Institutional Class ---------- ---------------------------------------------------------- August Year Ended October 31, 3 to ---------------------------------------------------------- October 2009 2008 2007 2006 2005 31, 2009 -------- -------- ---------- ---------- ---------- ---------- Net asset value, beginning of period ..................... $ 13.13 $ 27.32 $ 24.68 $ 20.98 $ 18.47 $14.89 -------- -------- ---------- ---------- ---------- ------ Income from investment operations: Net investment income(A, B) ........................... 0.54 0.77 0.65 0.60 0.44 0.04 Net gains (losses) on securities (both realized and unrealized)(A) ..................................... 2.78 (11.60) 4.31 4.86 2.31 0.59 -------- -------- ---------- ---------- ---------- ------ Total income (loss) from investment operations ........... 3.32 (10.83) 4.96 5.46 2.75 0.63 -------- -------- ---------- ---------- ---------- ------ Less distributions: Dividends from net investment income .................. (0.61) (0.70) (0.50) (0.43) (0.24) -- Distributions from net realized gains on securities ... (0.33) (2.66) (1.82) (1.33) -- -- -------- -------- ---------- ---------- ---------- ------ Total distributions ...................................... (0.94) (3.36) (2.32) (1.76) (0.24) -- -------- -------- ---------- ---------- ---------- ------ Redemption fees added to beneficial interest(C) .......... 0.00 0.00 0.00 0.00 0.00 0.00 -------- -------- ---------- ---------- ---------- ------ Net asset value, end of period ........................... $ 15.51 $ 13.13 $ 27.32 $ 24.68 $ 20.98 $15.52 ======== ======== ========== ========== ========== ====== Total return(H) .......................................... 27.44% (44.81)% 21.54% 27.55% 14.99% 4.23%(F) ======== ======== ========== ========== ========== ====== Ratios and supplemental data: Net assets, end of period (in thousands) .............. $489,836 $567,414 $1,686,668 $1,549,521 $1,286,441 $ 1 Ratios to average net assets (annualized): Expenses, net of waivers(A) ........................ 0.73% 0.66% 0.67% 0.71% 0.70% 0.69%(G) Expenses, before waivers(A) ........................ 0.73% 0.66% 0.67% 0.71% 0.70% 0.69%(G) Net investment income, net of waivers(A) ........... 2.76% 2.91% 2.46% 2.52% 2.17% 1.00%(G) Net investment income (loss), before waivers(A) .... 2.76% 2.91% 2.46% 2.52% 2.17% 1.00%(G) Portfolio turnover rate(D) ............................ 41% 31% 38% 40% 37% 41%(E)
- ---------- (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 International Equity Portfolio through February 28, 2006. (B) Class expenses per share were subtracted from net investment income per share for the Fund before class expenses to determine net investment income per share through October 31, 2005. (C) Amounts represent less than $0.01 per share. (D) The International Equity Fund invested all of its investable assets in the American Beacon International Equity Portfolio through February 28, 2006. Portfolio turnover rate through February 28, 2006 is that of the American Beacon International Equity Portfolio. (E) Portfolio turnover rate is for the period from November 1, 2008 through October 31, 2009. (F) Not annualized. (G) Annualized. (H) May include adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. The Total returns for the Institutional Class for the years ended 2006 and 2005, have been restated from 27.49%, and 15.04%, respectively. 35 AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM) FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
Investor Class ---------------------------------------------------- Year Ended October 31, ---------------------------------------------------- 2009 2008 2007 2006 2005 -------- -------- -------- -------- -------- Net asset value, beginning of period ..................... $ 12.95 $ 26.99 $ 24.42 $ 20.79 $ 18.31 -------- -------- -------- -------- -------- Income from investment operations: Net investment income(A, B) ........................... 0.37 0.66 0.58 0.50 0.41 Net gains (losses) on securities (both realized and unrealized)(A) ..................................... 2.87 (11.41) 4.26 4.84 2.29 -------- -------- -------- -------- -------- Total income (loss) from investment operations ........... 3.24 (10.75) 4.84 5.34 2.70 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income .................. (0.56) (0.63) (0.45) (0.38) (0.22) Distributions from net realized gains on securities ... (0.33) (2.66) (1.82) (1.33) -- -------- -------- -------- -------- -------- Total distributions ...................................... (0.89) (3.29) (2.27) (1.71) (0.22) -------- -------- -------- -------- -------- Redemption fees added to beneficial interest(C) .......... 0.00 0.00 0.00 0.00 0.00 -------- -------- -------- -------- -------- Net asset value, end of period ........................... $ 15.30 $ 12.95 $ 26.99 $ 24.42 $ 20.79 ======== ======== ======== ======== ======== Total return(E) .......................................... 27.08% (44.96)% 21.22% 27.20% 14.80% ======== ======== ======== ======== ======== Ratios and supplemental data: Net assets, end of period (in thousands) .............. $445,596 $426,473 $909,385 $771,298 $560,770 Ratios to average net assets (annualized): Expenses, net of waivers(A) ........................ 1.05% 0.92% 0.93% 0.96% 0.95% Expenses, before waivers(A) ........................ 1.05% 0.92% 0.93% 0.96% 0.95% Net investment income, net of waivers(A) ........... 2.45% 2.82% 2.26% 2.25% 1.96% Net investment income (loss), before waivers(A) .... 2.45% 2.82% 2.26% 2.25% 1.96% Portfolio turnover rate(D) ............................ 41% 31% 38% 40% 37%
- ---------- (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 International Equity Portfolio through February 28, 2006. (B) Class expenses per share were subtracted from net investment income per share for the Fund before class expenses to determine net investment income per share through October 31, 2005. (C) Amounts represent less than $0.01 per share. (D) The International Equity Fund invested all of its investable assets in the American Beacon International Equity Portfolio through February 28, 2006. Portfolio turnover rate through February 28, 2006 is that of the American Beacon International Equity Portfolio. (E) May include adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. The Total returns for the Investor Class for the year ended 2005, has been restated from 14.73%. 36 AMERICAN BEACON INTERNATIONAL EQUITY FUND(SM) FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
Retirement Advisor Class Class ------------------------------------------------ ----------- Year Ended October 31, May 1 to ------------------------------------------------ October 31, 2009 2008 2007 2006 2005 2009 -------- -------- -------- ------ ------ ----------- Net asset value, beginning of period ..................... $ 12.86 $ 26.83 $ 24.24 $20.61 $18.24 $ 11.78 -------- -------- -------- ------ ------ ------- Income from investment operations: Net investment income(A,B) ............................ 0.31 0.62 0.56 0.46 0.37 0.12 Net gains (losses) on securities (both realized and unrealized)(A) ..................................... 2.86 (11.35) 4.20 4.76 2.26 3.30 -------- -------- -------- ------ ------ ------- Total income (loss) from investment operations ........... 3.17 (10.73) 4.76 5.22 2.63 3.42 -------- -------- -------- ------ ------ ------- Less distributions: Dividends from net investment income .................. (0.50) (0.58) (0.35) (0.26) (0.26) -- Distributions from net realized gains on securities ... (0.33) (2.66) (1.82) (1.33) -- -- -------- -------- -------- ------ ------ ------- Total distributions ...................................... (0.83) (3.24) (2.17) (1.59) (0.26) -- -------- -------- -------- ------ ------ ------- Redemption fees added to beneficial interest(C) .......... 0.00 0.00 0.00 0.00 0.00 0.00 -------- -------- -------- ------ ------ ------- Net asset value, end of period ........................... $ 15.20 $ 12.86 $ 26.83 $24.24 $20.61 $ 15.20 ======== ======== ======== ====== ====== ======= Total return(H) .......................................... 26.58% (45.10)% 21.00% 26.73% 14.51% 29.03%(F) ======== ======== ======== ====== ====== ======= Ratios and supplemental data: Net assets, end of period (in thousands) .............. $ 1,722 $ 1,546 $ 4,932 $4,740 $2,987 $ 1 Ratios to average net assets (annualized): Expenses, net of waivers(A) ........................ 1.44% 1.19% 1.12% 1.16% 1.21% 1.48%(G) Expenses, before waivers(A) ........................ 1.45% 1.19% 1.15% 1.19% 1.21% 1.48%(G) Net investment income, net of waivers(A) ........... 2.26% 2.36% 2.04% 2.09% 1.70% 1.72%(G) Net investment income (loss), before waivers(A) .... 2.25% 2.36% 2.01% 2.05% 1.70% 1.72%(G) Portfolio turnover rate(D) ............................ 41% 31% 38% 40% 37% 41%(E) AMR Class ---------------------------------------------------- Year Ended October 31, ---------------------------------------------------- 2009 2008 2007 2006 2005 -------- -------- -------- -------- -------- Net asset value, beginning of period ..................... $ 13.25 $ 27.54 $ 24.86 $ 21.12 $ 18.58 -------- -------- -------- -------- -------- Income from investment operations: Net investment income(A,B) ............................ 0.37 0.72 0.73 0.63 0.50 Net gains (losses) on securities (both realized and unrealized)(A) ..................................... 2.99 (11.58) 4.33 4.92 2.33 -------- -------- -------- -------- -------- Total income (loss) from investment operations ........... 3.36 (10.86) 5.06 5.55 2.83 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income .................. (0.67) (0.77) (0.56) (0.48) (0.29) Distributions from net realized gains on securities ... (0.33) (2.66) (1.82) (1.33) -- -------- -------- -------- -------- -------- Total distributions ...................................... (1.00) (3.43) (2.38) (1.81) (0.29) -------- -------- -------- -------- -------- Redemption fees added to beneficial interest(C) .......... 0.00 0.00 0.00 0.00 0.00 -------- -------- -------- -------- -------- Net asset value, end of period ........................... $ 15.61 $ 13.25 $ 27.54 $ 24.86 $ 21.12 ======== ======== ======== ======== ======== Total return(H) .......................................... 27.70% (44.65)% 21.86% 27.88% 15.32% ======== ======== ======== ======== ======== Ratios and supplemental data: Net assets, end of period (in thousands) .............. $431,499 $328,083 $672,680 $563,231 $448,096 Ratios to average net assets (annualized): Expenses, net of waivers(A) ........................ 0.48% 0.41% 0.42% 0.45% 0.44% Expenses, before waivers(A) ........................ 0.48% 0.41% 0.42% 0.45% 0.44% Net investment income, net of waivers(A) ........... 3.00% 3.24% 2.77% 2.76% 2.49% Net investment income (loss), before waivers(A) .... 3.00% 3.24% 2.77% 2.76% 2.49% Portfolio turnover rate(D) ............................ 41% 31% 38% 40% 37%
(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 International Equity Portfolio through February 28, 2006. (B) Class expenses per share were subtracted from net investment income per share for the Fund before class expenses to determine net investment income per share through October 31, 2005. (C) Amounts represent less than $0.01 per share. (D) The International Equity Fund invested all of its investable assets in the American Beacon International Equity Portfolio through February 28, 2006. Portfolio turnover rate through February 28, 2006 is that of the American Beacon International Equity Portfolio. (E) Portfolio turnover rate is for the period from November 1, 2008 through October 31, 2009. (F) Not annualized. (G) Annualized. (H) May include adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. For the Advisor Class for the years ended 2007, 2006, and 2005, the Total returns have been restated from 20.85%, 26.89%, and 14.45%, respectively. 37 AMERICAN BEACON FUNDS PRIVACY POLICY & FEDERAL TAX INFORMATION OCTOBER 31, 2009 (UNAUDITED) PRIVACY POLICY The American Beacon Funds recognizes and respects the privacy of our shareholders. We are providing this notice to you so you will understand how shareholder information may be collected and used. We may collect nonpublic personal information about you from one or more of the following sources: - information we receive from you on applications or other forms; - information about your transactions with us or our service providers; and - information we receive from third parties. We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. We restrict access to your nonpublic personal information to those employees or service providers who need to know that information to provide products or services to you. To ensure the confidentiality of your nonpublic personal information, we maintain safeguards that comply with federal standards. FEDERAL TAX INFORMATION For shareholders in the Fund, the percentage of dividend income distributed for the year ended October 31, 2009, which is designated as qualified dividend income under the Jobs Growth Tax Relief Act of 2003, was 95.43% for Emerging Markets Fund and 85.43% for International Equity Fund. Shareholders will receive notification in January 2010 of the percentage applicable to the preparation of their 2009 income tax returns. The International Equity Fund designated a foreign tax credit of $3,975,774 and recognized foreign source income of $43,931,743. Pursuant to Section 852 of the Internal Revenue Code, the Emerging Markets Fund designated $12,821,432 and the International Equity Fund designated $27,586,802 as long-term capital gain dividends for the tax year ended October 31, 2009. 38 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISOR AGREEMENT (UNAUDITED) At its May 27, 2009 meeting, the Board of Trustees ("Board") considered the renewal of each existing Management Agreement between American Beacon Advisors, Inc. (the "Manager") and the American Beacon Funds ("Beacon Trust") (the "Funds") and each Investment Advisory Agreement between the Manager and a subadvisor ("Investment Advisory Agreements" and collectively with the Management Agreement, the "Agreements"). 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 and each subadvisor. 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 and each Investment Advisory Agreement, the Trustees considered, among other materials, responses by the Manager and the subadvisors 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 1 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 subadvisors to 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; - 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; 39 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISOR AGREEMENT (UNAUDITED) - a discussion of whether the firm receives, with respect to the Funds, other compensation, including any payment for order flow or ECN liquidity rebates - a 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 subadvisor and each Fund versus the respective peer group average; - a discussion, if applicable, of any underperformance by a subadvisor relative to its peer group and what, if any, remedial measures the Manager has or intends to take; - a comparison of advisory fees and expense ratios for comparable mutual funds; - an analysis of any material complaints received from Fund shareholders; - a description of the Manager's securities lending practices and the fees received from such practices; - a 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 each subadvisor to a Fund; and - a description of how expenses that are not readily identifiable to a particular Fund are allocated. In connection with the Management Agreement and each Investment Advisory Agreement, the Board also obtained an analysis provided by Lipper that compared: (i) investment performance of each Fund versus comparable investment companies and appropriate indices; (ii) total Fund expenses of each Fund versus comparable mutual funds; and (iii) each Fund's investment advisory fees versus comparable mutual funds. For each Fund with more than one class of shares, the class of shares used for comparative purposes was the class with the longest performance history, which in most cases was the Institutional Class. References below to each Fund's Lipper peer group are to the group of comparable mutual funds included in the analysis provided by Lipper. 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 each subadvisor and the primary factors considered by the Board at its May 27, 2009 meeting at which the Board considered the renewal of the Agreements. The Board did not identify any particular information that was most relevant to its consideration to renew the Management Agreement and each Investment Advisory Agreement, 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 Agreement and each Investment Advisory Agreement, the Trustees considered the best interests of each Fund separately. While the Management Agreement and the Investment Advisory Agreements for all of the Funds were considered at the May 27, 2009 meeting, the Board considered each Fund's investment management and subadvisory 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 and, as applicable, each subadvisor for a Fund; (3) the costs incurred by the Manager and (to the extent provided) the subadvisors in rendering their services and their resulting profits or losses; (4) the extent to which 40 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISOR AGREEMENT (UNAUDITED) 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 or a subadvisor or their affiliates 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 or a subadvisor from their 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 Agreement, the Board considered: the background and experience of key investment personnel and the Manager's ability to retain them; the Manager's disciplined investment approach and goal to provide consistent above average long-term performance at a low cost; the Manager's continuing 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 investment subadvisors and master portfolios. With respect to the renewal of each Investment Advisory Agreement, the Trustees considered the background and experience of each subadvisor's investment personnel responsible for managing the Funds, the size of the subadvisor and their ability to continue to attract and retain qualified investment personnel. Based on the foregoing information, the Board concluded that the nature, extent and quality of the management and advisory services provided by the Manager and each subadvisor were appropriate for each Fund and, thus, determined to renew the Management Agreement and the Investment Advisory Agreement for each Fund. Investment Performance. The Board evaluated the comparative information provided by Lipper and the Manager regarding each Fund's investment performance relative to its benchmark index(es) and peer group. The Board considered the information provided by Lipper regarding its independent peer selection methodology to select all peer groups and universes. The Board also considered the performance reports and discussions with management at Board and Committee meetings throughout the year. The Manager also noted that it generally was satisfied with the performance of the subadvisors. A discussion regarding the Board's considerations with respect to each Fund's performance appears below under "Additional Considerations and Conclusions with Respect to Each Fund." Costs of the Services 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 and a subadvisor 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 Beacon Trust, stipulates 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. The index series of the Funds also operate under a master-feeder structure, but each of these series invests in a master portfolio that is not managed by the Manager. As such, the Board considered that the Manager does not receive a management fee with respect to the International Equity Index, S&P 500 Index, or Small Cap Index Funds. With respect to the Short-Term Bond Fund, 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 further considered that each subadvised Fund pays the Manager the amounts due to its subadvisors, and the Manager remits these amounts directly to the applicable subadvisors. 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. In addition, the Board considered that the Manager receives management fees for overseeing the securities lending relationships on behalf of various Funds. The Board also noted that certain classes of the Funds maintain higher expense ratios in order to compensate third-party distributors. In analyzing the cost of services and profitability for each subadvisor in connection with its investment advisory services to the Fund, the Board considered that, in many cases, the Manager has negotiated the lowest subadvisory fee a subadvisor charges for any comparable client accounts. The Board gave less weight to profitability considerations or did not view this data as imperative to its deliberations given the arm's length nature of the relationship between the Manager and the subadvisors with respect to the negotiation of subadvisory fees. Based on the foregoing information, the Board concluded that the profitability levels were reasonable in light of the services performed by the Manager and the subadvisors. 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 and investment advisory 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. In this regard, the Board considered that the Manager has negotiated breakpoints in many subadvisory fee rates. The Board also noted that, for purposes of determining the fee rates chargeable to the Funds, many subadvisors have agreed to take into account other assets of AMR Corporation and its pension plans that are managed by the subadvisors. Thus, the Funds are able to receive lower effective fee rates. 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. Based on the foregoing information, the Board concluded that the Manager and subadvisor fee schedules for each Fund provides for a reasonable sharing of benefits from any economies of scale with the Fund. 41 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISOR AGREEMENT (UNAUDITED) Benefits Derived from the Relationship with the Funds. The Board considered the "fall-out" or ancillary benefits that accrue to the Manager and/or the subadvisors as a result of the advisory relationships with the Funds, including greater exposure in the marketplace with respect to the Manager's or subadvisor's investment process and expanding the level of assets under management by the Manager and the subadvisors. The Board also considered that the Manager's relationship with the Funds 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. The Board considered that certain of the subadvisors reimburse the Manager for certain of its costs relating to distribution activities for the Funds. The Board also considered that Funds did not pay commissions to any affiliated broker-dealer of the Manager or the relevant subadvisor during the most recent fiscal year ended October 31. Based on the foregoing information, the Board concluded that the potential benefits accruing to the Manager and the subadvisors by virtue of their relationships with the Funds appear to be fair and reasonable. Additional Considerations and Conclusions with Respect to Each Fund Except for the Short-Term Bond Fund, the performance comparisons below were made versus each Fund's Lipper peer universe median. 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. Additional Considerations and Conclusions with Respect to the Emerging Markets Fund In considering the renewal of the Management Agreement for the Emerging Markets Fund, the Trustees considered the following additional factors: (1) the Emerging Markets Fund outperformed the peer universe median for the one-, three-, and five-year periods ended March 31, 2009 and (2) the expense ratio of the Institutional Class of the Fund ranked better than the median of its Lipper expense universe. In considering the renewal of the Investment Advisory Agreements with The Boston Company Asset Management, LLC ("TBC") and Morgan Stanley Investment Management Inc. ("MSIM"), the Trustees considered the following additional factors: (1) MSIM outperformed the peer universe median for the three- and five-year periods ended March 31, 2009, but underperformed for the one-year period; (2) TBC outperformed the peer universe median for the one-, three- and five-year periods ended March 31, 2009; (3) each of the Fund's subadvisors has informed the Manager that it uses Fund commissions to obtain proprietary research, the application of which benefits the Fund and each subadvisor's other clients; (4) each of the Fund's subadvisors has indicated that it does not charge lower advisory fees to other clients for which it provides comparable services; and (5) the Manager's recommendation to continue to retain each subadvisor. Based on these and other considerations the Trustees (1) concluded that the fees paid to the Manager and the subadvisors under the Agreements are fair and reasonable, (2) determined that the Emerging Markets Fund and its shareholders would benefit from the Manager's and subadvisors' continued management of the Fund and (3) approved the renewal of the Management and Investment Advisory Agreements with respect to the Emerging Markets Fund. Additional Considerations and Conclusions with Respect to the International Equity Fund In considering the renewal of the Management Agreement for the International Equity Fund, the Trustees considered the following additional factors: (1) the Fund outperformed the peer universe median for the one-, three- and five-year periods ended March 31, 2009, and matched the peer universe median for the ten-year period and (2) the expense ratio of the Institutional Class of Fund shares ranked better than the median of its Lipper expense universe. In considering the renewal of the Investment Advisory Agreements with Causeway Capital Management LLC ("Causeway"), Lazard Asset Management LLC ("Lazard"), Templeton Investment Counsel, LLC ("Templeton"), and TBC, the Trustees considered the following additional factors: (1) Templeton outperformed the peer universe median for the one-, three-, five- and ten-year periods ended March 31, 2009; (2) Causeway outperformed the peer universe median for the three-, five- and ten-year periods ended March 31, 2009, but underperformed for the one-year period; (3) Lazard outperformed the peer universe median for the one-, three- and five-year periods, but underperformed for the ten-year period ended March 31, 2009; (4) TBC outperformed the peer universe median for the one-year period ended March 31, 2009, but underperformed for the three-year period; (5) each of the Fund's subadvisors has informed the Manager that it uses Fund commissions to obtain proprietary research, the application of which benefits the Fund and each subadvisor's other clients; (6) each of the Fund's subadvisors has indicated that it does not charge lower advisory fees to other clients for which it provides comparable services; and (7) the Manager's recommendation to continue to retain each subadvisor. Based on these and other considerations the Trustees (1) concluded that the fees paid to the Manager and the subadvisors under the Agreements are fair and reasonable, (2) determined that the International Equity Fund and its shareholders would benefit from the Manager's and subadvisors' continued management of the Fund and (3) approved the renewal of the Management and Investment Advisory Agreements with respect to the International Equity Fund. 42 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED) The Trustees and officers of the American Beacon Funds (the "Trust") are listed below, together with their principal occupations during the past five years. Unless otherwise indicated, the address of each person listed below is 4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees nineteen funds in the fund complex that includes the Trust, the American Beacon Master Trust, the American Beacon Mileage Funds, and the American Beacon Select Funds. The Trust's Statement of Additional Information contains additional information about the Trustees and is available without charge by calling 1-800-658-5811.
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS --------------------- ------------------- ------------------------------------------------------------ INTERESTED TRUSTEES Term Lifetime of Trust until removal, resignation or retirement* Alan D. Feld** (72) Trustee since 1996 Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (1960-Present); Director, Clear Channel Communications (1984-Present); Trustee, CenterPoint Properties (1994-2006); Member, Board of Trustees, Southern Methodist University ; Member, Board of Visitors, M.D. Anderson Hospital; Board of Visitors, Zale/Lipshy Hospital; Trustee, American Beacon Mileage Funds (1996-present); Trustee, American Beacon Select Funds (1996-present); Trustee, American Beacon Master Trust Funds (1996-present). NON-INTERESTED TRUSTEES Term Lifetime of Trust until removal, resignation or retirement* W. Humphrey Bogart (65) Trustee since 2004 Board Member, Baylor University Medical Center Foundation (1992-2004); Consultant, New River Canada Ltd. (mutual fund servicing company) (1998-2003); President and CEO, Allmerica Trust Company, NA (1996-1997); President and CEO, Fidelity Investments Southwest Company (1983-1995); Senior Vice President of Regional Centers, Fidelity Investments (1988-1995); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). Brenda A. Cline (49) Trustee since 2004 Executive Vice President, Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Trustee, Texas Christian University (1998-Present); Trustee, W.I. Cook Foundation, Inc. (d/b/a Cook Children's Health Foundation) (2001-2006); Director, Christian Church Foundation (1999-2007); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). Eugene J. Duffy (55) Trustee since 2008 Principal and Executive Vice President, Paradigm Asset Management (1994-Present); Director, Sunrise Bank of Atlanta (2008-Present); Chairman, Special Contributions Fund Board of Trustees, National Association for the Advancement of Colored People (2007-Present); Trustee, National Association for the Advancement of Colored People (2000-Present); Board of Visitors, Emory University (2006-Present); Trustee, Atlanta Botanical Garden (2006-Present); Board Member, Willie L. Brown Jr. Institute on Politics and Public Service (2001-Present); Chair, National Association of Securities Professionals (2000-2002); Deputy Chief Administrative Officer, City of Atlanta (1985-1990); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present).
43 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED)
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS --------------------- ------------------- ------------------------------------------------------------ Thomas M. Dunning (66) Trustee since 2008 Consultant, (2008-Present); Chairman (2003-2008) and Chief Executive Officer (2003-2007), Lockton Dunning Benefits (consulting firm in employee benefits); Director, Oncor Electric Delivery Company LLC (2007-present); Advisory Director, Comerica Texas (2003-present); Immediate Past Chairman and Board Member, Dallas Citizens Council; Director, Baylor Health Care System Foundation (2007-present); State Vice Chair, State Fair of Texas; Board Member, Southwestern Medical Foundation (1994-present); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present). Richard A. Massman (66) Trustee since 2004 Consultant and General Counsel Emeritus (2009-Present), Chairman since 2008 Senior Vice President and General Counsel, Hunt Consolidated, Inc. (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities) (1994-2009). Chairman (2007-Present) and Director (2005-Present), The Dallas Opera Foundation; Chairman (2006-Present) and Director (2005-Present), Temple Emanu-El Foundation; Trustee, Presbyterian Hospital Foundation (2006-Present); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). R. Gerald Turner (64) Trustee since 2001 President, Southern Methodist University (1995-Present); 225 Perkins Admin. Bldg. Director, ChemFirst (1986-2002); Director, J.C. Penney Southern Methodist Univ. Company, Inc. (1996-Present); Director, California Federal Dallas, Texas 75275 Preferred Capital Corp. (2001-2003); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Director, First Broadcasting Investment Partners, LLC (2003-2007); Member, Salvation Army of Dallas Board of Directors; Member, Methodist Hospital Advisory Board; Co-Chair, Knight Commission on Intercollegiate Athletics; Trustee, American Beacon Mileage Funds (2001-present); Trustee, American Beacon Select Funds (2001-present); Trustee, American Beacon Master Trust Funds (2001-present). Paul J. Zucconi, CPA (68) Trustee since 2008 Director, Affirmative Insurance Holdings, Inc. (producer of nonstandard automobile insurance) (2004-present); Director, Titanium Metals Corporation (producer of titanium melted and mill products and sponge) (2002- present); Director, Torchmark Corporation (life and health insurance products) (2002-present); Director, National Kidney Foundation of North Texas (2003-Present); Director, Dallas Chapter of National Association of Corporate Directors (2004-Present); Partner, KPMG (1976-2001); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present). OFFICERS Term One Year William F. Quinn** (61) Executive Vice Executive Chairman (2009-Present), Chairman (2006-2009) and President from CEO (2006-2007), President (1986-2006) and Director 2007 to 2008 and (2003-Present), American Beacon Advisors, Inc.; Chairman 2009-Present (1989-2003) and Director (1979-1989, 2003-Present), American President from Airlines Federal Credit Union; Director, Hicks Acquisition 1987 to 2007 I, Inc. (2007-2009); Director, Crescent Real Estate and 2008 to 2009 Equities, Inc.(1994-2007); Director, Pritchard, Hubble & Trustee from Herr, LLC (investment advisor) (2001-2006); Director of 1987 to 2008 Investment Committee, Southern Methodist University Endowment Fund (1996-Present); Member, Southern Methodist University Cox School of Business Advisory Board (1999-2002); Member, New York Stock Exchange Pension Manager Committee (1997-1998, 2000-2002, 2006-Present); Chairman (2007-Present) and Vice Chairman (2004-2007), Committee for the Investment of Employee Benefits; Director, United Way of Metropolitan Tarrant County (1988-2000, 2004-Present); Trustee, American Beacon Mileage Funds (1995-2008); Trustee, American Beacon Select Funds (1999-2008); Trustee, American Beacon Master Trust (1995-2008).
44 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED)
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS --------------------- ------------------- ------------------------------------------------------------ Gene L. Needles, Jr. (54) President 2009 to President, CEO and Director (2009-Present), American Beacon Present Advisors, Inc. President (November 2009-Present), Executive Vice President (May 2009-November 2009) of the American Beacon Funds, American Beacon Mileage Funds, American Beacon Select Funds, and American Beacon Master Trust. President (2008-2009), Touchstone Investments; President (2003-2007), CEO (2004-2007), Managing Director of Sales (2002-2003), National Sales Manager (1999-2002), and Regional Sales Manager (1993-1999), AIM Distributors. Rosemary K. Behan (50) VP, Secretary and Vice President, Legal and Compliance, American Beacon Chief Legal Advisors, Inc. (2006-Present); Assistant General Counsel, Officer since 2006 First Command Financial Planning, Inc. (2004-2006); Attorney (1995-2004), Securities and Exchange Commission. Brian E. Brett (49) VP since 2004 Vice President, Director of Sales and Marketing, American Beacon Advisors, Inc. (2004-Present); Regional Vice President, Neuberger Berman, LLC (investment advisor) (1996-2004). Wyatt Crumpler (43) VP since 2007 Vice President, Asset Management, American Beacon Advisors, Inc. (2007-Present); Managing Director of Corporate Accounting (2004-2007), Director of IT Strategy and Finance (2002-2004), American Airlines, Inc. Michael W. Fields (55) VP since 1989 Vice President, Fixed Income Investments, American Beacon Advisors, Inc. (1988-Present); Director American Beacon Global Funds SPC (2002-present); Director, American Beacon Global Funds plc (2007-2009). Rebecca L. Harris (42) Treasurer since Vice President, Finance, American Beacon Advisors, Inc. 1995 (1995-Present). Christina E. Sears (38) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc. Officer since 2004 (2004-Present); Senior Compliance Analyst, American Beacon and Asst. Advisors, Inc. (1998-2004). Secretary since 1999
* The Board has adopted a retirement plan that requires Trustees to retire no later than the last day of the calendar year in which they reach the age of 72, provided, however, that the Board may determine to grant one or more annual exemptions to this requirement. ** Mr. Feld is deemed to be an "interested person" of the Trusts, as defined by the 1940 Act. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the past two fiscal years to the Manager and one or more of the Trust's and Master Trust's sub-advisors. 45 This page intentionally left blank. 46 This page intentionally left blank. 47 (AMERICAN BEACON FUNDS(SM) 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) BY E-MAIL: american_beacon.funds@ambeacon.com (GRAPHIC) ON THE INTERNET: Visit our website at www.americanbeaconfunds.com (GRAPHIC) BY TELEPHONE: Institutional, Y, Investor, Advisor, and Retirement Classes Call (800) 658-5811 AMR Class(SM) Call (800) 345-2345 (GRAPHIC) BY MAIL: American Beacon Funds P.O. Box 219643 Kansas City, MO 64121-9643 AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES In addition to the Schedule of Investments provided in each semi-annual and annual report, the Fund files a complete schedule of its portfolio holdings with the Securities and Exchange Commission ("SEC") on Form N-Q as of the first and third fiscal quarters. The Fund's Forms N-Q are available on the SEC's website at www.sec.gov. The Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549. Information regarding the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. A complete schedule of the Fund's portfolio holdings is also available on the Funds' website (www.americanbeaconfunds.com) approximately thirty days after the end of each month. AVAILABILITY OF PROXY VOTING POLICY AND RECORDS A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available in the Fund's Statement of Additional Information, is available free of charge on the Fund's website (www.americanbeaconfunds.com) and by calling 1-800-967-9009 or by accessing the SEC's website at www.sec.gov. The Fund's proxy voting record for the most recent year ended June 30 is filed annually with the SEC on Form N-PX. The Fund's Forms N-PX are available on the SEC's website at www.sec.gov. The Fund's proxy voting record may also be obtained by calling 1-800-967-9009. FUND SERVICE PROVIDERS: CUSTODIAN STATE STREET BANK AND TRUST Boston, Massachusetts TRANSFER AGENT BOSTON FINANCIAL DATA SERVICES Kansas City, Missouri INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP Dallas, Texas DISTRIBUTOR FORESIDE FUND SERVICES Portland, Maine This report is prepared for shareholders of the American Beacon Funds and may be distributed to others only if preceded or accompanied by a current prospectus. American Beacon Funds, American Beacon Emerging Markets Fund, and American Beacon International Equity Fund are service marks of American Beacon Advisors, Inc. AR 10/09 00071315 GUIDANCE | VISION | EXPERIENCE (GRAPHIC) (AMERICAN BEACON FUNDS(SM) LOGO) Annual Report OCTOBER 31, 2009 LARGE CAP VALUE FUND About American Beacon Advisors Since 1986, American Beacon Advisors has offered a variety of products and investment advisory services to numerous institutional and retail clients, including a variety of mutual funds, corporate cash management, and separate account management. Our clients include defined benefit plans, defined contribution plans, foundations, endowments, corporations, financial planners, and other institutional investors. With American Beacon Advisors, you can put the experience of a multi-billion dollar asset management firm to work for your company. Contents President's Message................................................ 1 Market and Performance Overview.................................... 2 Schedule of Investments............................................ 7 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 the Fund's portfolio composition will change depending on economic and market conditions. This report is not a complete analysis of market conditions and therefore, should not be relied upon as investment advice. Although economic and market information has been compiled from reliable sources, American Beacon Advisors, Inc. makes no representation as to the completeness or accuracy of the statements contained herein. American Beacon Funds October 31, 2009 (PHOTO OF GENE L. NEEDLES, JR.) FELLOW SHAREHOLDERS, As an introduction to the American Beacon Large Cap Value Fund Annual Report for the 12-month period ended October 31, 2009, please let me take a moment to tell you how pleased I am to have been serving as President and CEO of American Beacon Advisors since April 15, 2009. I consider it a privilege to hold this position, and I take its responsibilities quite seriously. I've enjoyed a long, successful career in the investment business, and I'm no stranger to the ups and downs that markets can deliver. As a fellow investor and shareholder, I experience these trends in much the same way you do. The majority of 2008 was difficult in many ways. However, when I took the helm at American Beacon, I already had many reasons to be optimistic about what might develop in 2009. As of October 31, 2009, my optimism has been largely confirmed. For the one-year period (as of 10/31/09), American Beacon Large Cap Value Fund-Institutional Class returned 12.41%. Of course, one year of performance doesn't tell the whole story, especially when you're investing for the long term. Please note that the recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Many of us have long-term goals, including retirement, driving our investment decisions. While this 12-month period began amid a frightening recessionary environment, we finished the year with increasing confidence that markets have begun to stabilize, that liquidity has returned to the debt markets and that equity markets have had a substantial recovery. I know as well as you do that maintaining a long-term perspective, employing a buy-and-hold philosophy (consistent with the Fund's objectives), and doing the right thing according to your risk tolerance and time horizon is not always easy. But the professionals at American Beacon are dedicated to working hard to help investors succeed. Just as you maintain a commitment to your goals--and to those who inspire you to create your goals--we maintain a strong commitment to due diligence and oversight. That commitment is one of the key reasons I am honored to serve as President and CEO, and am pleased to be able to share my enthusiasm about the path ahead with you. A financial advisor can be an importantally in creating investment success, so--as you review the enclosed annual report--please feel free to discuss your thoughts and concerns with a trusted advisor. And, as always, the professionals associated with the American Beacon Funds are grateful for the opportunity to serve you. Best Regards, /s/ Gene L. Needles, Jr. Gene L. Needles, Jr. President American Beacon Funds 1 DOMESTIC EQUITY MARKET OVERVIEW OCTOBER 31, 2009 (UNAUDITED) The past 12-month period saw a great deal of volatility in equity markets. The first quarter of 2009 saw marginal improvements in U.S. housing, income and consumption data. The U.S. Treasury partnered with private investors to purchase toxic bank assets, which spurred a market rally late in the first quarter. Soon after his January inauguration, President Obama attempted to blunt the impact of the recession in the U.S. by signing an almost $800 billion economic stimulus package, introducing a sizable mortgage relief program and initiating stress tests for the nation's banks. Other stimulus packages were enacted worldwide, representing an unprecedented commitment from governments across the globe to stabilize the world's economies. While the markets behaved sluggishly at the beginning of the first quarter, they picked up speed following more encouraging data suggesting that the economy had begun to move from recession to recovery. The global equity market rally that began in early March and continued into May was one of the strongest rebounds since the Great Depression era. Toward the end of the second quarter, investors showed concern that the equity markets had moved too far ahead of economic realities. The sharp equity rally lost momentum, as equity markets pulled back modestly in June. During the third quarter, stronger-than-expected corporate earnings--combined with encouraging economic news--rekindled the rally to some degree. The United States announced that gross domestic product (GDP) contracted in the second quarter, but by a better-than-expected -1.0% (subsequently revised to -0.7%). Meanwhile, strong demand for automobiles, fueled by the U.S. Government's "Cash for Clunkers" program, produced the first signs of growth in the American manufacturing industry since January 2008. The third quarter of 2009 saw housing numbers improve, increased merger and acquisition activity, and evidence of capital markets normalization. In addition to stabilization, liquidity was a major contributor to market strength. Unfortunately, the domestic equity markets struggled with the effects of rising unemployment, a tight credit environment, and weakness in commercial real estate. Amid fears about job stability, the U.S. Consumer Confidence Index declined to 53.1 in September from 54.5 in August 2009. Although the pace of job losses slowed, total U.S. unemployment continued to rise in October 2009, along with credit default and delinquency rates. Third quarter corporate earnings results were mixed. Many companies were quick to downsize in response to reduced demand. Corporate profits exceeded reduced expectations due to cost cutting. It remains to be seen if increased corporate profitability ultimately leads to more hiring and, thus, increased consumer demand. This pattern of positive developments tempered with set-backs is typical of economic recoveries. Different types of economic activity require more time to be effective. Some uncertainty about what will drive the markets going forward remains, as the Federal Reserve Board (the Fed) may start to reverse and unwind the unprecedented levels of support provided to the U.S. economy. The magnitude of any consumer-led recovery remains difficult to gauge, as it is hard to distinguish between a traditional cyclical recovery and potentially artificial gains resulting from the U.S. Government's stimulus measures. As the Fed's plans become clearer, the market may favor companies with higher earnings and balance sheet quality. These companies with solid fundamentals may provide better upside potential than more speculative companies. It is unlikely that the lowest credit quality companies (without earnings or dividends) will remain market leaders, since there are many companies with excellent fundamentals selling for equally attractive prices. 2 DOMESTIC EQUITY MARKET OVERVIEW OCTOBER 31, 2009 (UNAUDITED) The Institutional Class of the Large Cap Value Fund returned 12.41% for the twelve months ended October 31, 2009. The Fund outperformed the Russell 1000(R) Value Index (the "Index") return of 4.79% and the Lipper Large-Cap Value Funds Index return of 10.69%. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 10/31/99 THROUGH 10/31/09 (PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF PERIODS ENDED 10/31/09 $10,000 --------------------------- 10/31/99- 1 YEAR 5 YEARS 10 YEARS 10/31/09 ------ ------- -------- --------- Institutional Class(1, 6) ................... 12.41% 1.35% 3.97% $14,754 Y Class (1, 2, 6) ........................... 12.41% 1.35% 3.97% 14,754 Investor Class(1, 6) ........................ 11.99% 1.08% 3.69% 14,363 Advisor Class(1, 3, 6) ...................... 11.81% 0.87% 3.58% 14,213 Retirement Class (1, 4, 6) .................. 11.60% 0.83% 3.56% 14,185 AMR Class(1, 6) ............................. 12.59% 1.61% 4.23% 15,130 Lipper Large-Cap Value Funds Index(5) ....... 10.69% 0.39% 0.50% 10,514 Russell 1000 Value Index (5) ................ 4.79% -0.05% 1.70% 11,838
(1.) The Investor and Advisor Classes were formerly known as the PlanAhead and Service Classes, respectively. Please note that the recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Performance shown is historical and may not be indicative of future returns. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is as of date indicated, and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. (2.) Fund performance for the one-year, five-year and ten-year periods represents the total returns achieved by the Institutional Class from 10/31/99 up to 8/3/09, the inception date of the Y Class, and the returns of the Y Class since its inception. Expenses of the Y Class are higher than those of the Institutional Class. As a result, total returns shown may be higher than they would have been had the Y Class been in existence since 10/31/99. (3.) Fund performance for the five-year and ten-year periods represents the total returns achieved by the Investor Class from 10/31/99 up to 5/31/05, the inception date of the Advisor Class, and the returns of the Advisor Class since its inception. Expenses of the Advisor Class are higher than those of the Investor Class. As a result, total returns shown may be higher than they would have been had the Advisor Class been in existence since 10/31/99. (4.) Fund performance for the one-year, five-year and ten-year periods represents the total returns achieved by the Investor Class from 10/31/99 through 5/31/05 and the Advisor Class from 6/1/05 up to 5/1/09, the inception date of the Retirement Class, and the returns of the Retirement Class since its inception. Expenses of the Retirement Class are higher than those of the Advisor and Investor Classes. As a result, total returns shown may be higher than they would have been had the Retirement Class been in existence since 10/31/99. A portion of the fees charged to the Advisor Class of the Fund was waived in 2005. Performance prior to waiving fees was lower than the actual returns shown for 2005. (5.) The Russell 1000 Value Index is an unmanaged index of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values. Russell 1000 Value Index is a registered trademark of the Frank Russell Company. The Lipper Large-Cap Value Funds Index tracks the results of the 30 largest mutual funds in the Lipper Large-Cap Value Funds category. Lipper is an independent mutual fund research and ranking service. One cannot directly invest in an index. (6.) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus for the Institutional, Y, Investor, Advisor, Retirement, and AMR Class shares was 0.59%, 0.69%, 0.97%, 1.09%, 1.34%, and 0.33%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. The Fund generated excess performance through both stock selection and sector allocation. From a stock selection standpoint, the Fund's holdings in the Industrials, Consumer Staples, Consumer Discretionary, and Health Care sectors added the most value relative to the Index. 3 PERFORMANCE OVERVIEW AMERICAN BEACON LARGE CAP VALUE FUND(SM) OCTOBER 31, 2009 (UNAUDITED) Companies in the Industrials sector that had the greatest impact on the Fund's return were Honeywell International (up 22.6%), 3M (up 18.0%), and Molex (up 34.3%). In the Consumer Staples sector, Philip Morris International (up 14.3%), L'Oreal (up 39.8%), and Unilever (up 11.9% for the period the Fund owned the security) were the largest contributors, as were Gentex (up 73.4%), Polo Ralph Lauren (up 93.1% for the period the Fund owned the security), and Target (up 22.4%) in the Consumer Discretionary sector. In the Health Care sector, Schering-Plough (up 88.7%), Hospira (up 60.5%), and Merck (up 8.1% for the period the Fund owned the security) added the most value relative to the Index. Poor stock selection in the Information Technology sector, mostly in Hewlett Packard (up 24.4%) and Tyco Electronics (down 46.6% for the period the Fund owned the security), detracted value relative to the Index but not enough to offset the positive impact of the aforementioned sectors. A larger than four times overweight in Information Technology, the best performing sector in the Index, and an underweight in Financials, the worst performing sector in the Index, added value through sector allocation. This was somewhat offset by an overweight in Industrials, the second worst performing sector in the Index, and an underweight in the Consumer Discretionary sector, which detracted relative value from the Fund's performance. The sub-advisors continue to invest in a broadly diversified portfolio of companies that they believe have attractive valuations and above-average earnings growth potential. This approach should allow the Fund to benefit over the longer term. TOP TEN HOLDINGS
% OF NET ASSETS ---------- ConocoPhillips.................................................... 3.2% International Business Machines Corp. ............................ 3.1% JPMorgan Chase & Co. ............................................. 3.1% Bank of America Corp. ............................................ 2.2% Raytheon Co. ..................................................... 1.9% Hewlett-Packard Co. .............................................. 1.9% Pfizer, Inc. ..................................................... 1.8% Well Fargo & Co. ................................................. 1.7% Diageo plc........................................................ 1.6% PNC Financial Services Group, Inc................................. 1.5%
SECTOR ALLOCATION
% OF EQUITIES -------- Financials........................................................ 19.7% Information Technology............................................ 15.9% Industrials....................................................... 12.8% Consumer Staples.................................................. 12.0% Health Care....................................................... 11.0% Energy............................................................ 9.8% Consumer Discretionary............................................ 8.1% Utilities......................................................... 5.8% Telecommunication Services........................................ 2.6% Materials......................................................... 2.3%
4 FUND EXPENSES AMERICAN BEACON LARGE CAP VALUE FUND(SM) OCTOBER 31, 2009 (UNAUDITED) FUND EXPENSE EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, administrative service fees, distribution (12b-1) fees, and other Fund expenses. The examples below are intended to help you understand the ongoing cost (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested at the beginning of the period in each Class and held for the entire period from May 1, 2009 through October 31, 2009. ACTUAL EXPENSES The "Actual" lines of the table provide information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Shareholders of the Investor and Institutional Classes that invest in the Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The "Hypothetical" lines of the table provide information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed 5% per year rate of return before expenses (not the Fund's actual return). You may compare the ongoing costs of investing in the Fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. Shareholders of the Investor and Institutional Classes that invest in the Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs charged by the Fund. Similarly, the expense examples for other funds do not reflect any transaction costs charged by those funds, such as sales charges (loads), redemption fees or exchange fees. Therefore, the "Hypothetical" lines of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If you were subject to any transaction costs during the period, your costs would have been higher.
Ending Beginning Account Expenses Paid During Account Value Value Period* 5/1/09 10/31/09 5/1/09-10/31/09 ------------- --------- -------------------- INSTITUTIONAL CLASS Actual $1,000.00 $1,228.00 $3.54 Hypothetical $1,000.00 $1,022.03 $3.21 (5% return before expenses) Y CLASS** Actual $1,000.00 $1,046.83 $1.70 Hypothetical $1,000.00 $1,010.63 $1.71 (5% return before expenses) INVESTOR CLASS Actual $1,000.00 $1,225.12 $5.55 Hypothetical $1,000.00 $1,020.21 $5.04 (5% return before expenses) ADVISOR CLASS Actual $1,000.00 $1,224.34 $6.22 Hypothetical $1,000.00 $1,019.61 $5.65 (5% return before expenses) RETIREMENT CLASS Actual $1,000.00 $1,213.27 $7.60 Hypothetical $1,000.00 $1,018.30 $6.97 (5% return before expenses) AMR CLASS Actual $1,000.00 $1,228.32 $2.13 Hypothetical $1,000.00 $1,023.29 $1.94 (5% return before expenses)
* Expenses are equal to the Fund's annualized expense ratios for the six-month period of 0.63%, 0.99%, 1.11%, 0.38%, 1.37% and 0.68% for the Institutional, Investor, Advisor, AMR, Retirement and Y Classes respectively, multiplied by the average account value over the period, multiplied by the number derived by dividing the number of days in the most recent fiscal half-year (184) by days in the year (365) to reflect the half year period. ** Beginning account value for Y Class is the inception date of 8/3/09. Expenses are equal to the Class annualized ratio for the period multiplied by the average account value for the period multiplied by the number derived by dividing the number of days in the period (90) by the days in the year (365). 5 AMERICAN BEACON LARGE CAP VALUE FUND(SM) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of American Beacon Large Cap Value Fund and the Board of Trustees of American Beacon Funds: We have audited the accompanying statement of assets and liabilities of American Beacon Large Cap Value Fund (a portfolio of American Beacon Funds) (the "Fund"), including the schedule of investments, as of October 31, 2009, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of American Beacon Large Cap Value Fund at October 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/Ernst & Young LLP Dallas, Texas December 23, 2009 6 AMERICAN BEACON LARGE CAP VALUE FUND SCHEDULE OF INVESTMENTS OCTOBER 31, 2009
SHARES VALUE ----------- ----------- (DOLLARS IN THOUSANDS) COMMON STOCKS - 96.39% CONSUMER DISCRETIONARY - 7.78% AUTO COMPONENTS - 0.57% Gentex Corp. ................................................... 2,365,000 $ 37,864 ----------- HOTELS, RESTAURANTS & LEISURE - 1.60% Carnival Corp. ................................................. 1,046,400 30,471 McDonald's Corp. ............................................... 809,800 47,462 Wyndham Worldwide Corp. ........................................ 1,680,680 28,656 ----------- 106,589 ----------- INTERNET & CATALOG RETAIL - 0.06% eBay, Inc. ## .................................................. 193,300 4,305 ----------- MEDIA - 1.55% CBS Corp. ...................................................... 2,737,800 32,224 Comcast Corp. .................................................. 517,400 7,254 Interpublic Group of Cos., Inc.## .............................. 850,000 5,117 Time Warner Cable, Inc. ........................................ 182,700 7,205 Walt Disney Co. Ltd. ........................................... 1,396,600 38,225 Warner Music Group Corp. ## .................................... 2,322,000 13,375 ----------- 103,400 ----------- MULTILINE RETAIL - 1.58% J.C. Penney Company, Inc. ...................................... 1,512,000 50,093 Target Corp. ................................................... 814,300 39,436 Wal-Mart Stores, Inc. .......................................... 311,200 15,460 ----------- 104,989 ----------- SPECIALTY RETAIL - 1.42% Gap, Inc. ...................................................... 207,900 4,436 The Home Depot, Inc. ........................................... 3,294,367 82,656 Limited Brands, Inc. ........................................... 403,900 7,109 ----------- 94,201 ----------- TEXTILES & APPAREL - 1.00% Polo Ralph Lauren Corp. ........................................ 890,000 66,234 ----------- TOTAL CONSUMER DISCRETIONARY ...................................... 517,582 ----------- CONSUMER STAPLES - 11.60% BEVERAGES - 2.20% Coca-Cola Co. .................................................. 316,100 16,851 Diageo plc, ADR ................................................ 1,626,200 105,735 PepsiCo, Inc. .................................................. 397,400 24,063 ----------- 146,649 ----------- FOOD & DRUG RETAILING - 1.75% Safeway, Inc. .................................................. 2,484,900 55,488 Sysco Corp. .................................................... 2,305,140 60,971 ----------- 116,459 -----------
SHARES VALUE ----------- ----------- (DOLLARS IN THOUSANDS) FOOD PRODUCTS - 3.30% ConAgra Foods, Inc. ............................................ 2,600,000 $ 54,600 H.J. Heinz Co. ................................................. 526,500 21,187 Hershey Co. .................................................... 1,084,000 40,964 Kellogg Co. .................................................... 990,000 51,025 Kraft Foods, Inc. .............................................. 200,300 5,512 Unilever N.V. .................................................. 1,500,000 46,335 ----------- 219,623 ----------- HOUSEHOLD PRODUCTS - 0.37% The Procter & Gamble Co. ....................................... 430,000 24,940 ----------- PERSONAL PRODUCTS - 0.82% L'Oreal SA ..................................................... 2,675,000 54,597 ----------- TOBACCO - 3.16% Altria Group, Inc. ............................................. 1,312,900 23,776 Imperial Tobacco Group plc, ADR ................................ 1,394,100 81,527 Lorillard, Inc. ................................................ 82,900 6,443 Philip Morris International, Inc. .............................. 2,076,900 98,362 ----------- 210,108 ----------- TOTAL CONSUMER STAPLES ............................................ 772,376 ----------- ENERGY - 9.42% ENERGY EQUIPMENT & SERVICES - 0.61% Weatherford International Ltd.## ............................... 2,300,000 40,319 ----------- OIL & GAS - 8.81% BP plc, ADR .................................................... 957,600 54,219 Chevron Corp. .................................................. 1,034,162 79,155 ConocoPhillips ................................................. 4,290,396 215,292 Devon Energy Corp. ............................................. 989,300 64,018 Duke Energy Corp. .............................................. 2,260,900 35,767 Exxon Mobil Corp. .............................................. 754,100 54,046 Occidental Petroleum Corp. ..................................... 774,400 58,762 Royal Dutch Shell plc, ADR ..................................... 432,200 25,137 ----------- 586,396 ----------- TOTAL ENERGY ...................................................... 626,715 ----------- FINANCIALS - 19.03% BANKS - 11.68% Banco Santander S.A. ........................................... 2,884,000 46,317 Bank of America Corp. .......................................... 9,997,890 145,769 Bank of New York Mellon Corp. .................................. 619,200 16,508 Citigroup, Inc. ................................................ 4,239,368 17,339 Comerica, Inc. ................................................. 106,600 2,958 East West Bancorp, Inc. ........................................ 1,638,200 14,793
See accompanying notes 7 AMERICAN BEACON LARGE CAP VALUE FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ----------- ----------- (DOLLARS IN THOUSANDS) JP Morgan Chase & Co. .......................................... 4,885,498 $ 204,067 KeyCorp ........................................................ 910,874 4,910 M&T Bank Corp. ................................................. 590,000 37,082 PNC Financial Services Group, Inc. ............................. 2,026,749 99,189 State Street Corp. ............................................. 90,900 3,816 SunTrust Banks, Inc. ........................................... 160,600 3,069 Synovus Financial Corp. ........................................ 4,516,000 10,026 U.S. Bancorp ................................................... 1,544,160 35,855 Washington Mutual, Inc. ........................................ 1,765,000 -- Wells Fargo & Co. .............................................. 4,030,758 110,926 Zions Bancorporation ........................................... 1,728,000 24,469 ----------- 777,093 ----------- DIVERSIFIED FINANCIALS - 3.40% American Express Co. ........................................... 1,854,600 64,614 Capital One Financial Corp. .................................... 1,207,400 44,191 Charles Schwab Corp. ........................................... 1,247,620 21,634 Mitsubishi UFJ Financial Group, Inc., ADR ...................... 8,256,000 43,839 Morgan Stanley Dean Witter & Co. ............................... 894,600 28,735 SLM Corp.## .................................................... 2,435,500 23,624 ----------- 226,637 ----------- INSURANCE - 3.95% ACE Ltd. ....................................................... 1,075,700 55,248 Aflac, Inc. .................................................... 779,000 32,321 Allstate Corp. ................................................. 308,400 9,119 Genworth Financial, Inc. ....................................... 781,400 8,298 Hartford Financial Services Group, Inc. ........................ 889,050 21,799 Lincoln National Corp. ......................................... 580,600 13,836 MetLife, Inc. .................................................. 1,128,659 38,408 Prudential Financial, Inc. ..................................... 118,100 5,342 Travelers Cos., Inc. ........................................... 997,100 49,646 XL Capital Ltd. ................................................ 1,745,400 28,642 ----------- 262,659 ----------- TOTAL FINANCIALS .................................................. 1,266,389 ----------- HEALTH CARE - 10.59% HEALTH CARE EQUIPMENT & SUPPLIES - 1.59% Baxter International, Inc. ..................................... 1,596,900 86,328 CareFusion Corp.## ............................................. 658,950 14,741 Zimmer Holdings, Inc. ## ....................................... 85,700 4,505 ----------- 105,574 ----------- HEALTH CARE PROVIDERS & SERVICES - 2.51% Cardinal Health, Inc. .......................................... 1,317,900 37,349 CIGNA Corp. .................................................... 1,694,500 47,175 UnitedHealth Group, Inc. ....................................... 857,700 22,257 Universal Health Services, Inc. ................................ 605,730 33,709
SHARES VALUE ----------- ----------- (DOLLARS IN THOUSANDS) WellPoint, Inc.## .............................................. 565,900 $ 26,462 ----------- 166,952 ----------- PHARMACEUTICALS - 6.49% Amgen, Inc. ## ................................................. 415,900 22,346 Bristol-Myers Squibb Co. ....................................... 4,075,000 88,835 Eli Lilly & Co. ................................................ 2,150,600 73,142 Hospira, Inc. ## ............................................... 1,143,000 51,024 Johnson & Johnson .............................................. 719,800 42,504 Merck & Co., Inc. .............................................. 1,204,800 36,688 Pfizer, Inc. ................................................... 6,909,049 117,661 ----------- 432,200 ----------- TOTAL HEALTH CARE ................................................. 704,726 ----------- INDUSTRIALS - 12.33% AEROSPACE & DEFENSE - 4.73% Boeing Co. ..................................................... 1,963,200 93,841 Lockheed Martin Corp. .......................................... 152,400 10,483 Northrop Grumman Corp. ......................................... 1,337,800 67,064 Raytheon Co. ................................................... 2,731,500 123,682 United Technologies Corp. ...................................... 324,700 19,953 ----------- 315,023 ----------- AIR FREIGHT & COURIERS - 0.31% FedEx Corp. .................................................... 286,200 20,804 ----------- INDUSTRIAL CONGLOMERATES - 4.00% 3M Co. ......................................................... 673,100 49,520 General Electric Co. ........................................... 6,321,500 90,145 Honeywell International, Inc. .................................. 2,679,225 96,157 Textron, Inc. .................................................. 1,124,500 19,994 Tyco International Ltd. ........................................ 304,900 10,229 ----------- 266,045 ----------- MACHINERY - 3.01% Caterpillar, Inc. .............................................. 376,500 20,730 Cummins, Inc. .................................................. 259,800 11,187 Deere & Co. .................................................... 1,039,000 47,327 Eaton Corp. .................................................... 342,100 20,680 Illinois Tool Works, Inc. ...................................... 887,000 40,731 ITT Industries, Inc. ........................................... 930,300 47,166 PACCAR, Inc. ................................................... 331,300 12,394 ----------- 200,215 ----------- TRANSPORTATION INFRASTRUCTURE - 0.28% Burlington Northern Santa Fe Corp. ............................. 242,900 18,295 ----------- TOTAL INDUSTRIALS ................................................. 820,382 -----------
See accompanying notes 8 AMERICAN BEACON LARGE CAP VALUE FUND SCHEDULE OF INVESTMENTS OCTOBER 31, 2009
SHARES VALUE ----------- ----------- (DOLLARS IN THOUSANDS) INFORMATION TECHNOLOGY - 15.32% COMMUNICATIONS EQUIPMENT - 1.01% Nokia Corp., ADR ............................................... 5,342,300 $ 67,366 ----------- COMPUTERS & PERIPHERALS - 7.72% Apple Computer, Inc. ## ........................................ 457,000 86,145 Dell, Inc. ## .................................................. 1,634,400 23,682 EMC Corp. ## ................................................... 4,000,000 65,880 Hewlett-Packard Co. ............................................ 2,728,600 129,499 International Business Machines Corp. .......................... 1,730,900 208,764 ----------- 513,970 ----------- ELECTRICAL EQUIPMENT - 0.51% Molex, Inc. - Class A .......................................... 1,688,000 27,937 Molex, Inc. .................................................... 339,000 6,329 ----------- 34,266 ----------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.47% Intel Corp. .................................................... 4,406,900 84,216 Tyco Electronics Ltd. .......................................... 625,200 13,285 ----------- 97,501 ----------- IT CONSULTING & SERVICES - 0.05% Accenture plc .................................................. 82,200 3,048 ----------- SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.66% Texas Instruments, Inc. ........................................ 1,882,000 44,133 ----------- SOFTWARE - 3.90% Adobe Systems, Inc. ## ......................................... 1,500,000 49,410 CA, Inc. ....................................................... 1,021,703 21,374 Intuit, Inc.## ................................................. 1,398,100 40,643 Microsoft Corp. ................................................ 2,870,500 79,599 Oracle Corp. ................................................... 3,255,700 68,695 ----------- 259,721 ----------- TOTAL INFORMATION TECHNOLOGY ...................................... 1,020,005 ----------- MATERIALS - 2.26% CHEMICALS - 2.22% Air Products & Chemicals, Inc. ................................. 1,067,500 82,336 Dow Chemical Co. ............................................... 973,900 22,867 E. I. du Pont de Nemours & Co. ................................. 1,062,300 33,802 PPG Industries, Inc. ........................................... 154,500 8,719 ----------- 147,724 ----------- METALS & MINING - 0.04% Alcoa, Inc. .................................................... 226,300 2,811 ----------- TOTAL MATERIALS ................................................... 150,535 -----------
SHARES VALUE ----------- ----------- (DOLLARS IN THOUSANDS) TELECOMMUNICATION SERVICES - 2.51% DIVERSIFIED TELECOMMUNICATION - 2.51% AT&T, Inc. ..................................................... 2,564,852 $ 65,840 Verizon Communications, Inc. ................................... 1,359,446 40,226 Vodafone Group plc, ADR ........................................ 2,758,900 61,220 ----------- TOTAL TELECOMMUNICATION SERVICES .................................. 167,286 ----------- UTILITIES - 5.55% ELECTRIC UTILITIES - 4.14% CenterPoint Energy, Inc. ....................................... 2,175,700 27,414 Constellation Energy Group, Inc. ............................... 927,100 28,666 Dominion Resources, Inc. ....................................... 2,813,900 95,926 Edison International ........................................... 262,100 8,340 Entergy Corp. .................................................. 240,200 18,428 Exelon Corp. ................................................... 340,900 16,009 FPL Group, Inc. ................................................ 1,136,700 55,812 Public Service Enterprise Group, Inc. .......................... 828,600 24,692 ----------- 275,287 ----------- GAS UTILITIES - 0.81% Spectra Energy Corp. ........................................... 2,813,500 53,794 ----------- MULTI-UTILITIES - 0.60% Questar Corp. .................................................. 1,006,000 40,079 ----------- TOTAL UTILITIES ................................................... 369,160 ----------- TOTAL COMMON STOCKS ............................................... 6,415,156 ----------- SHORT TERM INVESTMENTS - 3.89% American Beacon U.S. Government Money Market Select Fund +++ ... 60,000,000 60,000 JP Morgan U.S. Government Money Market Fund .................... 173,618,181 173,618
PAR AMOUNT ----------- U.S. Treasury, 0.04%, Due 12/10/2009# ...................................... $ 25,103 25,101 TOTAL SHORT TERM INVESTMENTS ...................................... 258,719 ----------- TOTAL INVESTMENTS 100.28% - (COST $7,325,652) ........................ 6,673,875 LIABILITIES, NET OF OTHER ASSETS - (0.28%) ........................... (18,335) TOTAL NET ASSETS - 100.00% ........................................... $ 6,655,540 ===========
See accompanying notes 9 AMERICAN BEACON LARGE CAP VALUE FUND SCHEDULE OF INVESTMENTS OCTOBER 31, 2009 Percentages are stated as a percent of net assets. ## Non-income producing security. +++ The Fund is affiliated by having the same investment advisor. # At October 31, 2009, security pledged as collateral for open futures contracts. FUTURES CONTRACTS (DOLLARS IN THOUSANDS)
UNREALIZED NUMBER OF EXPIRATION MARKET APPRECIATION/ CONTRACTS DATE VALUE (DEPRECIATION) --------- ---------- -------- -------------- Emini S&P 500 Index........... 4,872 Dec 2009 $251,639 $(4,874) ======== =======
See accompanying notes 10 AMERICAN BEACON LARGE CAP VALUE FUND(SM) STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2009 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS: Investments in unaffiliated securities, at value (A) ................................ $ 6,613,875 Investments in affiliated securities, at value (B) .................................... 60,000 Receivable for investments sold ....................................................... 3,705 Dividends and interest receivable ..................................................... 9,635 Receivable for fund shares sold ....................................................... 9,612 Receivable for tax reclaims ........................................................... 137 Prepaid expenses ...................................................................... 245 ------------ TOTAL ASSETS ....................................................................... 6,697,209 ------------ LIABILITIES: Payable for investments purchased ..................................................... 21,116 Payable for fund shares redeemed ...................................................... 4,983 Payable for variation margin on open futures contracts ................................ 7,062 Management and investment advisory fees payable (Note 2) .............................. 4,435 Administrative service and service fees payable ....................................... 2,890 Other liabilities ..................................................................... 1,183 ------------ TOTAL LIABILITIES .................................................................. 41,669 ------------ NET ASSETS ............................................................................... $ 6,655,540 ============ ANALYSIS OF NET ASSETS: Paid-in-capital ....................................................................... 9,221,166 Undistributed net investment income ................................................... 85,814 Accumulated net realized loss ......................................................... (1,994,789) Unrealized depreciation of investments, futures contracts, and foreign currency ....... (656,651) ------------ NET ASSETS ............................................................................... $ 6,655,540 ============ SHARES OUTSTANDING (NO PAR VALUE): Institutional Class ................................................................... 136,141,119 ============ Y Class ............................................................................... 64 ============ Investor Class ........................................................................ 244,930,398 ============ Advisor Class ......................................................................... 7,469,344 ============ Retirement Class ...................................................................... 79 ============ AMR Class ............................................................................. 32,262,314 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE: Institutional Class ................................................................... $ 16.32 ============ Y Class ............................................................................... $ 16.32 ============ Investor Class ........................................................................ $ 15.51 ============ Advisor Class ......................................................................... $ 15.39 ============ Retirement Class ...................................................................... $ 15.36 ============ AMR Class ............................................................................. $ 16.14 ============ - ---------- (A) Cost of investments in unaffiliated securities ..................................... $ 7,265,652 (B) Cost of investments in affiliated securities ....................................... $ 60,000
See accompanying notes 11 AMERICAN BEACON LARGE CAP VALUE FUND(SM) STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2009 (IN THOUSANDS) INVESTMENT INCOME: Dividend income from unaffiliated securities (net of foreign taxes)* .................. $ 167,510 Dividend income from affiliated securities ............................................ 611 Interest income ....................................................................... 137 Income derived from securities lending, net ........................................... 2,093 Other income .......................................................................... 1 ------------ TOTAL INVESTMENT INCOME ......................................................... 170,352 ------------ EXPENSES: Management and investment advisory fees (Note 2) ...................................... 13,660 Administrative service fees (Note 2): Institutional Class ................................................................ 5,643 Investor Class ..................................................................... 9,889 Advisor Class ...................................................................... 291 AMR Class .......................................................................... 228 Transfer agent fees: Institutional Class ................................................................ 129 Investor Class ..................................................................... 243 Advisor Class ...................................................................... 7 AMR Class .......................................................................... 29 Custody and fund accounting fees ...................................................... 966 Professional fees ..................................................................... 228 Registration fees and expenses ........................................................ 178 Service fees: Investor Class (Note 2) ............................................................ 10,451 Advisor Class (Note 2) ............................................................. 242 Distribution fees - Advisor Class (Note 2) ............................................ 242 Prospectus and shareholder reports .................................................... 1,209 Trustee fees .......................................................................... 609 Other expenses ........................................................................ 726 ------------ TOTAL EXPENSES .................................................................. 44,970 ------------ Net fees waived and expenses reimbursed by Manager (Note 2) ........................... (12) ------------ NET EXPENSES .................................................................... 44,958 ------------ NET INVESTMENT INCOME .................................................................... 125,394 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from: Investments ........................................................................ (743,912) Commission recapture (Note 1) ...................................................... 218 Futures contracts .................................................................. (82,123) Change in net unrealized appreciation or depreciation of: Investments ........................................................................ 1,269,011 Futures contracts .................................................................. 97,160 ------------ NET GAIN ON INVESTMENTS ......................................................... 540,354 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................................... $ 665,748 ============ * Foreign taxes ...................................................................... $ 675
See accompanying notes 12 AMERICAN BEACON LARGE CAP VALUE FUND(SM) STATEMENT OF CHANGES OF NET ASSETS (IN THOUSANDS)
Year Ended Year Ended October 31, October 31, 2009 2008 ----------- ----------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income ................................................................. $ 125,394 $ 171,389 Net realized loss on investments, futures contracts, and foreign currency transactions ....................................................................... (825,817) (1,148,714) Change in net unrealized appreciation or (depreciation) of investments, futures contracts, and foreign currency translations ....................................... 1,366,171 (3,031,895) ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................. 665,748 (4,009,220) ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Institutional Class ................................................................ (57,494) (41,356) Investor Class ..................................................................... (96,586) (76,907) Advisor Class ...................................................................... (2,701) (1,578) AMR Class .......................................................................... (15,992) (16,885) Net realized gain on investments: Institutional Class ................................................................ -- (71,604) Investor Class ..................................................................... -- (153,834) Advisor Class ...................................................................... -- (3,382) AMR Class .......................................................................... -- (26,071) ----------- ----------- NET DISTRIBUTIONS TO SHAREHOLDERS ............................................... (172,773) (391,617) ----------- ----------- CAPITAL SHARE TRANSACTIONS: Proceeds from sales of shares ......................................................... 1,578,918 3,966,783 Reinvestment of dividends and distributions ........................................... 164,886 370,495 Cost of shares redeemed ............................................................... (1,810,886) (2,471,194) ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ........... (67,082) 1,866,084 ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS .................................................... 425,893 (2,534,753) ----------- ----------- NET ASSETS: Beginning of period ................................................................... 6,229,647 8,764,400 ----------- ----------- END OF PERIOD * ....................................................................... $ 6,655,540 $ 6,229,647 =========== =========== * Includes undistributed net investment income of ........................................ $ 85,814 $ 133,193 =========== ===========
See accompanying notes 13 AMERICAN BEACON LARGE CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES American Beacon Funds (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. These financial statements and notes to the financial statements relate to the American Beacon Large Cap Value Fund (the "Fund"), a series of the Trust. 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. Class Disclosure Prior to March 1, 2009, the Investor and Advisor Classes were known as the PlanAhead and Service Classes, respectively. The inception dates of the Retirement and Y Classes are May 1 and August 3, 2009, respectively. The Fund has multiple classes of shares designed to meet the needs of different groups of investors. The following table sets forth the differences amongst the classes:
CLASS: OFFERED TO: - ------ ----------- INSTITUTIONAL CLASS Investors making an initial investment of $250,000 Y CLASS Investors making an initial investment of $100,000 INVESTOR CLASS General public and investors investing through an intermediary ADVISOR CLASS Investors investing through an intermediary RETIREMENT CLASS Investors investing through an intermediary AMR CLASS Investors in the tax-exempt retirement and benefit plans of AMR Corporation and its affiliates
Administrative service fees, service fees and distribution fees vary amongst the classes as described more fully in footnote 2. Investment income, net capital gains (losses) and all expenses incurred by the Fund are allocated based on the relative net assets of each class, except for service fees and certain other fees and expenses related solely to one class of shares. Security Valuation Investments are valued at the close of the New York Stock Exchange (the "Exchange"), normally 4 p.m. ET, each day that the Exchange is open for business. Equity securities for which market quotations are available are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) on the primary market or exchange on which they trade. Debt securities (other than short-term securities) normally are valued on the basis of prices provided by an independent pricing service and may take into account appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The prices of debt securities may be determined using quotes obtained from brokers. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. Investment grade short-term obligations with 60 days or less to maturity are valued using the amortized cost method, which approximates market value. 14 AMERICAN BEACON LARGE CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 Securities for which the market prices are not readily available or are not reflective of the fair value of the security, as determined by the Manager, will be priced at fair value following procedures approved by the Trust's Board of Trustees (the "Board"). Valuation Inputs Various inputs may be used to determine the value of the Fund's investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. 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 other significant unobservable inputs. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available. The Fund's investments are summarized by level based on the inputs used to determine their values. As of October 31, 2009, the Fund's investments were classified as follows: (in thousands)
Level 1 Level 2 Level 3 Total ---------- ------- ------- ---------- Common Stock ........................... $6,415,156 $ -- $-- $6,415,156 Short Term Investments ................. 233,618 25,101 -- 258,719 ---------- ------- --- ---------- Total Investments in Securities ..... $6,648,774 $25,101 $-- $6,673,875 ========== ======= === ========== Futures Contracts ...................... 251,639 -- -- 251,639
Security Transactions and Investment Income Security transactions are recorded on the trade date of the security purchase or sale. The Fund may purchase securities with delivery or payment to occur at a later date. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded and the value of the security is reflected in the net asset value. The value of the security may vary with market fluctuations. Dividend income, net of foreign taxes, is recorded on the ex-dividend date except certain dividends from foreign securities which are recorded as soon as the information is available to the Fund. Interest income is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification. Futures Contracts Futures contracts are contracts to buy or sell a standard quantity of securities at a specified price on a future date. The Fund may enter into financial futures contracts as a method for keeping assets readily convertible to cash if needed to meet shareholder redemptions or for other needs while maintaining exposure to the stock or bond market, as applicable. The primary risks associated with the use of futures contracts are the possibility of illiquid markets or imperfect correlation between the values of the contracts and the underlying securities, or that the counterparty will fail to perform its obligations. Upon entering into a futures contract, the Fund is required to set aside or deposit with a broker an amount, termed the initial margin, which typically represents 5% of the face value of the futures contract. The Fund reflects this amount on the Schedule of Investments as a U.S. Treasury Bill held as collateral for futures contracts. Payments to and from the broker, known as variation margin, are required to be made on a daily 15 AMERICAN BEACON LARGE CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 basis as the price of the futures contract fluctuates. Changes in initial settlement values are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. Futures contracts are valued at the most recent settlement price established each day by the exchange on which they are traded. Values of Derivative Instruments not accounted for as hedging instruments as of October 31, 2009 (in thousands)
Liability Statement of Assets and Liabilities Derivatives Fair Value - ----------------------------------- ----------------- ---------- Unrealized appreciation of investments, futures contracts, and foreign currency....... Equity Contracts* $(4,874)
Effect of derivative instruments not accounted for as hedging instruments during the year ended October 31, 2009 (in thousands)
Statement of Operations Derivatives Fair Value - ----------------------- ----------------- ---------- Net realized gain (loss) from futures contracts....................................... Equity Contracts $(82,123) Change in net unrealized appreciation or depreciation of futures contracts............ Equity Contracts $ 97,160
* Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments footnotes. Only current day's variation margin is reported within the Statements of Assets and Liabilities. Dividends to Shareholders Dividends from net investment income of the Fund normally will be declared and paid at least annually. Distributions, if any, of net realized capital gains are generally paid at least annually and recorded on the ex-dividend date. Commission Recapture The Fund has established brokerage commission recapture arrangements with certain brokers or dealers. If the Fund's investment advisor chooses to execute a transaction through a participating broker, the broker rebates a portion of the commission back to the Fund. Any collateral benefit received through participation in the commission recapture program is directed exclusively to the Fund. This amount is reported with the net realized gain in the Fund's Statement of Operations. Allocation of Income, Expenses, Gains, and Losses Income, expenses (other than those attributable to a specific class), gains, and losses are allocated daily to each class of shares based upon the relative proportion of net assets represented by such class. Operating expenses directly attributable to a specific class are charged against the operations of that class. 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 trustees 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. 16 AMERICAN BEACON LARGE CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 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, fund management, and securities lending services. Investment assets of the Fund are managed by multiple investment advisors which have entered into separate investment advisory agreements with the Manager. As compensation for performing the duties required under the Management Agreement, the Manager receives from the Fund an annualized fee equal to 0.05% of the average daily net assets plus amounts paid by the Manager to investment advisors hired by the Manager to direct investment activities of the Fund. Management fees paid during the year ended October 31, 2009 were as follows (dollars in thousands):
AMOUNTS PAID TO NET AMOUNTS MANAGEMENT MANAGEMENT INVESTMENT RETAINED BY FEE RATE FEE ADVISORS MANAGER - ----------- ---------- --------------- ----------- 0.175%-0.65% $13,660 $10,800 $2,860
As discussed in Footnote 5, prior to May 19, 2009, as compensation for services provided by the Manager in connection with securities lending activities, the lending Fund paid to the Manager, with respect to cash collateral posted by borrowers, a fee up to 25% of the net monthly interest income (the gross interest income earned by the investment of cash collateral, less the amount paid to borrowers and related expenses) from such activities and, with respect to loan fees paid by borrowers when a borrower posts collateral other than cash, a fee up to 25% of such loan fees. This fee is netted against securities lending income in the Statement of Operations. During the year ended October 31, 2009, securities lending fees paid to the Manager were $251,178. Administrative Services Agreement The Manager and the Trust entered into an Administrative Services Agreement which obligates the Manager to provide or oversee administrative services to the Fund. As compensation for performing the duties required under the Administrative Services Agreement, the Manager receives an annualized fee of 0.30% of the average daily net assets of the Institutional, Y, Investor, Advisor and Retirement Classes of the Fund and 0.05% of the average daily net assets of the AMR Class of the Fund. Distribution Plans The Fund, except for the Advisor and Retirement Classes of the Fund, has adopted a "defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act, pursuant to which no fees may be charged to the Fund for distribution purposes. However, the Plan authorizes the management and administrative service fees received by the Manager and the investment advisors hired by the Manager to be used for distribution purposes. Under this Plan, the Fund does not intend to compensate the Manager or any other party, either directly or indirectly, for the distribution of Fund shares. Separate Distribution Plans (the "Distribution Plans") have been adopted pursuant to Rule 12b-1 under the Act for the Advisor and Retirement Classes of the Fund. Under the Distribution Plans, as compensation for distribution assistance, the Manager receives an annual fee of 0.25% of the average daily net assets of the Advisor Class and 0.50% of the average daily net assets of the Retirement Class. The fee will be payable without regard to whether the amount of the fee is more or less than the actual expenses incurred in a particular month by the Manager for distribution assistance. 17 AMERICAN BEACON LARGE CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 Service Plans The Manager and the Trust entered into Service Plans that obligate the Manager to oversee additional shareholder servicing of the Y, Investor, Advisor and Retirement Classes. As compensation for performing the duties required under the Service Plans, the Manager receives 0.10% of the average daily net assets of Y Class, 0.25% of the average daily net assets of the Advisor and Retirement Classes and up to 0.375% of the average daily net assets of the Investor Class of the Fund. Investment in Affiliated Funds The Fund may invest in the American Beacon Money Market Select Fund (the "MM Select Fund") and the American Beacon US Government Money Market Select Fund (the "USG Select Fund"), (collectively the "Select Funds"). Prior to May 19, 2009, some cash collateral received by the Fund in connection with securities lending was invested in the Select Funds. The Select Funds and the Fund have the same investment advisor and therefore, are considered to be affiliated. The Manager serves as investment advisor to the Select Funds and receives from the Select Funds an annualized fee of 0.09% of its average daily net assets of the Select Funds. During the year ended October 31, 2009, the Manager earned fees from the Select Funds totaling $71,192 on the Fund's direct investment in the Select Funds and $17,303 from the Fund's securities lending collateral invested in the Select Funds. Interfund Lending Program Pursuant to an exemptive order issued by the Securities and Exchange Commission ("SEC"), the Fund, along with other registered investment companies having management contracts with the Manager, may participate in an interfund lending program as a borrower. This program provides an alternative credit facility allowing the Fund to borrow from other participating Funds. During the year ended October 31, 2009, the Fund did not utilize the credit facility. Expense Reimbursement Plan The Fund has adopted an Expense Reimbursement Plan whereby the Manager may seek repayment of fees waived or expenses reimbursed for a period of up to three years. However, reimbursement will occur only if the Class's average net assets have grown or expenses have declined sufficiently to allow reimbursement without causing its expense ratio to exceed the previously agreed upon contractual expense limit. During the year ended October 31, 2009, the Advisor Class waived $11,791. A liability has not been booked as the Manager does not intend to seek repayment of this waiver. 3. FEDERAL INCOME AND EXCISE TAXES It is the policy of the Fund 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 Fund does not have any unrecognized tax benefits in the accompanying financial statements. Each of the tax years in the four year period ended October 31, 2009 remains subject to examination by the Internal Revenue Service. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in "Other expenses" on the Statement 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. 18 AMERICAN BEACON LARGE CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 The tax character of distributions paid during the fiscal years ended October 31, 2009 and October 31, 2008 were as follows (in thousands):
YEAR ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, 2009 2008 ----------- ----------- DISTRIBUTIONS PAID FROM: ORDINARY INCOME* Institutional Class.......... $ 57,494 $ 65,641 Investor Class............... 96,586 129,081 Advisor Class................ 2,701 2,725 AMR Class.................... 15,992 25,728 LONG-TERM CAPITAL GAIN Institutional Class.......... -- 47,318 Investor Class............... -- 101,660 Advisor Class................ -- 2,235 AMR Class.................... -- 17,229 -------- -------- TOTAL DISTRIBUTIONS PAID........... $172,773 $391,617 ======== ========
* For tax purposes, short-term capital gains are considered ordinary income distributions. As of October 31, 2009, the components of distributable earnings on a tax basis were as follows (in thousands): Cost basis of investments for federal income tax purposes...... $ 7,596,245 Unrealized appreciation........................................ 535,735 Unrealized depreciation........................................ (1,458,105) ----------- Net unrealized appreciation/(depreciation)..................... (922,370) Undistributed ordinary income.................................. 85,814 Undistributed long-term gain/(loss)............................ (1,724,240) Other temporary differences.................................... (4,830) ----------- Distributable earnings......................................... $(2,565,626) ===========
Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. The temporary differences between financial reporting and tax-basis reporting of unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses from wash sales and the realization for tax purposes of unrealized gains/(losses) on certain derivative instruments. Due to inherent differences in the recognition of income, expenses and realized gains/losses under U.S. generally accepted accounting principles and federal income tax regulations, permanent differences between book and tax reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities. Accordingly, the following amounts represent current year permanent differences derived from reclassifications of income from real estate investment securities, foreign currency, and dividend reclasses that have been reclassified as of October 31, 2009 (in thousands): Paid-in-capital..................................................................................... $ 14 Undistributed net investment income................................................................. --- Accumulated net realized gain (loss)................................................................ (14) Unrealized appreciation (depreciation) of investments, futures contracts and foreign currency....... ---
At October 31, 2009 the capital loss carry forward positions for federal income tax purposes were $1,044,692 and $684,423 expiring in 2016 and 2017, respectively. (in thousands) 19 AMERICAN BEACON LARGE CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 4. INVESTMENT TRANSACTIONS The aggregate cost of purchases and proceeds from sales of investments other than short-term obligations for the year ended October 31, 2009 were (in thousands) $1,919,417 and $1,447,731, respectively. A summary of the Fund's direct ownership and transactions in the Select Funds for the year ended October 31, 2009 is set forth below (in thousands):
OCTOBER 31, 2008 OCTOBER 31, 2009 AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE - --------- ------------------- --------- -------- ------------------- MM Select Fund ............... $362,064 $ -- $362,064 $ -- USG Select Fund .............. $ -- $60,000 $ -- $60,000
5. SECURITIES LENDING On May 19, 2009, the Fund terminated its securities lending program. Prior to that, the Fund, the Agent, and the Manager retained 75%, 15%, and 10%, respectively, of the income generated from securities lending, as stated on the Statement of Operations. 6. CAPITAL SHARE TRANSACTIONS The tables below summarize the activity in capital shares for each Class of the Fund (dollars and shares in thousands): Year Ended October 31, 2009
INSTITUTIONAL CLASS Y CLASS INVESTOR CLASS ------------------- --------------- --------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------- --------- ------ ------ ------- ----------- Shares sold ..................... 38,693 $ 535,949 -- $ 1 74,391 $ 985,338 Reinvestment of dividends ....... 4,043 53,008 -- -- 7,465 93,236 Shares redeemed ................. (42,400) (575,194) -- -- (88,535) (1,151,477) ------- --------- --- --- ------- ----------- Net increase (decrease) in shares outstanding .................. 336 $ 13,763 -- $ 1 (6,679) $ (72,903) ======= ========= === === ======= ===========
ADVISOR CLASS RETIREMENT CLASS AMR CLASS ------------------- ---------------- ------------------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------- --------- ------ ------- ------- -------- Shares sold ..................... 1,726 $ 22,607 -- $ 1 2,516 $ 35,022 Reinvestment of dividends ....... 214 2,650 -- -- 1,236 15,992 Shares redeemed ................. (1,478) (19,228) -- -- (4,909) (64,987) ------ -------- --- --- ------ -------- Net increase (decrease) in shares outstanding .................. 462 $ 6,029 -- $ 1 (1,157) $(13,973) ====== ======== === === ====== ========
Year Ended October 31, 2008
INSTITUTIONAL CLASS INVESTOR CLASS ADVISOR CLASS AMR CLASS -------------------- -------------------- ----------------- ------------------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------- ---------- ------- ---------- ------ -------- ------ --------- Shares sold ..................... 72,124 $1,522,430 113,619 $2,297,576 5,559 $111,669 1,693 $ 35,108 Reinvestment of dividends ....... 4,204 99,590 9,867 222,989 220 4,960 1,833 42,956 Shares redeemed ................. (36,318) (729,713) (81,231) (1,524,704) (2,814) (55,162) (7,797) (161,615) ------- ---------- ------- ---------- ------ -------- ------ -------- Net increase (decrease) in shares outstanding ........... 40,010 $ 892,307 42,255 $ 995,861 2,965 $ 61,467 (4,271) $ (83,551) ======= ========== ======= ========== ====== ======== ====== =========
20 AMERICAN BEACON LARGE CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 7. SUBSEQUENT EVENTS Management has evaluated the possibility of subsequent events existing in the Fund's financial statements through December 23, 2009. Management has determined that there are no material events that would require disclosure in the Fund's financial statements through this date. 21 AMERICAN BEACON LARGE CAP VALUE FUND(SM) FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class Y Class ------------------------------------------------------- -------- August Year Ended October 31, 3 to ------------------------------------------------------- October 2009 2008 2007 2006 2005 31, 2009 ---------- ---------- ---------- -------- -------- -------- Net asset value, beginning of period ....................... $ 15.01 $ 26.03 $ 23.77 $ 21.00 $ 18.23 $ 15.59 ---------- ---------- ---------- -------- -------- ------- Income from investment operations: Net investment income(A, B) ............................. 0.35 0.51 0.40 0.31 0.28 0.06 Net gains (losses) on securities (both realized and unrealized) .......................................... 1.40 (10.41) 2.78 3.48 2.74 0.67 ---------- ---------- ---------- -------- -------- ------- Total income (loss) from investment operations ............. 1.75 (9.90) 3.18 3.79 3.02 0.73 ---------- ---------- ---------- -------- -------- ------- Less distributions: Dividends from net investment income .................... (0.44) (0.41) (0.31) (0.26) (0.25) -- Distributions from net realized gains on securities ..... -- (0.71) (0.61) (0.76) -- -- ---------- ---------- ---------- -------- -------- ------- Total distributions ........................................ (0.44) (1.12) (0.92) (1.02) (0.25) -- ---------- ---------- ---------- -------- -------- ------- Net asset value, end of period ............................. $ 16.32 $ 15.01 $ 26.03 $ 23.77 $ 21.00 $ 16.32 ========== ========== ========== ======== ======== ======= Total return ............................................... 12.41% (39.59)% 13.76% 18.69% 16.64% 4.68%(F) ========== ========== ========== ======== ======== ======= Ratios and supplemental data: Net assets, end of period (in thousands) ................ $2,221,162 $2,038,539 $2,493,451 $958,830 $201,111 $ 1 Ratios to average net assets (annualized): Expenses, net of waivers ............................. 0.61% 0.58% 0.59% 0.60% 0.60% 0.68%(C) Expenses, before waivers ............................. 0.61% 0.58% 0.59% 0.60% 0.60% 0.68%(C) Net investment income, net of waivers ................ 2.36% 2.19% 1.82% 1.86% 1.58% 1.58%(C) Net investment income (loss), before waivers ......... 2.36% 2.19% 1.82% 1.86% 1.58% 1.58%(C) Portfolio turnover rate ................................. 27% 28% 20% 26% 25% 27%(D)
Investor Class --------------------------------------------------------- Year Ended October 31, --------------------------------------------------------- 2009 2008 2007 2006 2005 ---------- ---------- ---------- ---------- -------- Net asset value, beginning of period ....................... $ 14.29 $ 24.83 $ 22.74 $ 20.16 $ 17.54 ---------- ---------- ---------- ---------- -------- Income from investment operations: Net investment income(A, B) ............................. 0.28 0.41 0.35 0.28 0.27 Net gains (losses) on securities (both realized and unrealized) ............................................. 1.34 (9.88) 2.63 3.31 2.58 ---------- ---------- ---------- ---------- -------- Total income (loss) from investment operations ............. 1.62 (9.47) 2.98 3.59 2.85 ---------- ---------- ---------- ---------- -------- Less distributions: Dividends from net investment income .................... (0.40) (0.36) (0.28) (0.25) (0.23) Distributions from net realized gains on securities ..... -- (0.71) (0.61) (0.76) -- ---------- ---------- ---------- ---------- -------- Total distributions ........................................ (0.40) (1.07) (0.89) (1.01) (0.23) ---------- ---------- ---------- ---------- -------- Net asset value, end of period ............................. $ 15.51 $ 14.29 $ 24.83 $ 22.74 $ 20.16 ========== ========== ========== ========== ======== Total return ............................................... 11.99% (39.72)% 13.46% 18.44% 16.33% ========== ========== ========== ========== ======== Ratios and supplemental data: Net assets, end of period (in thousands) ................ $3,798,632 $3,594,565 $5,198,835 $2,586,410 $526,357 Ratios to average net assets (annualized): Expenses, net of waivers ............................. 0.93% 0.83% 0.83% 0.85% 0.86% Expenses, before waivers ............................. 0.93% 0.83% 0.83% 0.85% 0.86% Net investment income, net of waivers ................ 2.05% 1.94% 1.59% 1.61% 1.30% Net investment income (loss), before waivers ......... 2.05% 1.94% 1.59% 1.61% 1.30% Portfolio turnover rate ................................. 27% 28% 20% 26% 25%
Retirement Advisor Class Class ---------------------------------------------- ---------- May Year Ended October 31, 31 to May 1 to ------------------------------------ October October 2009 2008 2007 2006 31, 2005 31, 2009 -------- ------- ------- ------- -------- ---------- Net asset value, beginning of period ....................... $ 14.19 $ 24.70 $ 22.64 $ 20.13 $ 19.33 $12.66 -------- ------- ------- ------- ------- ------ Income from investment operations: Net investment income(A, B) ............................. 0.26 0.32 0.28 0.26 0.01 0.08 Net gains (losses) on securities (both realized and unrealized) ............................................. 1.32 (9.79) 2.62 3.27 0.79 2.62 -------- ------- ------- ------- ------- ------ Total income (loss) from investment operations ............. 1.58 (9.47) 2.90 3.53 0.80 2.70 -------- ------- ------- ------- ------- ------ Less distributions: Dividends from net investment income .................... (0.38) (0.33) (0.23) (0.26) -- -- Distributions from net realized gains on securities ..... -- (0.71) (0.61) (0.76) -- -- -------- ------- ------- ------- ------- ------ Total distributions ........................................ (0.38) (1.04) (0.84) (1.02) -- -- -------- ------- ------- ------- ------- ------ Net asset value, end of period ............................. $ 15.39 $ 14.19 $ 24.70 $ 22.64 $ 20.13 $15.36 ======== ======= ======= ======= ======= ====== Total return ............................................... 11.81% (39.87)% 13.16% 18.18% 4.14%(F) 21.33%(F) ======== ======= ======= ======= ======= ====== Ratios and supplemental data: Net assets, end of period (in thousands) ................ $114,945 $99,416 $99,854 $39,077 $11,604 $ 1 Ratios to average net assets (annualized): Expenses, net of waivers ............................. 1.10% 1.08% 1.08% 1.09% 1.14%(C) 1.37%(C) Expenses, before waivers ............................. 1.12% 1.08% 1.08% 1.09% 1.77%(C) 1.37%(C) Net investment income, net of waivers ................ 1.86% 1.69% 1.32% 1.39% 1.72%(C) 1.15%(C) Net investment income (loss), before waivers ......... 1.84% 1.69% 1.32% 1.39% 1.09%(C) 1.15%(C) Portfolio turnover rate ................................. 27% 28% 20% 26% 25%(E) 27%(D)
AMR Class --------------------------------------------------- Year Ended October 31, --------------------------------------------------- 2009 2008 2007 2006 2005 -------- -------- -------- ---------- -------- Net asset value, beginning of period ....................... $ 14.88 $ 25.80 $ 23.55 $ 20.78 $ 18.02 -------- -------- -------- ---------- -------- Income from investment operations: Net investment income(A, B) ............................. 0.37 0.51 0.45 0.35 0.31 Net gains (losses) on securities (both realized and unrealized) ............................................. 1.38 (10.26) 2.76 3.47 2.73 -------- -------- -------- ---------- -------- Total income (loss) from investment operations ............. 1.75 (9.75) 3.21 3.82 3.04 -------- -------- -------- ---------- -------- Less distributions: Dividends from net investment income .................... (0.49) (0.46) (0.35) (0.29) (0.28) Distributions from net realized gains on securities ..... -- (0.71) (0.61) (0.76) -- -------- -------- -------- ---------- -------- Total distributions ........................................ (0.49) (1.17) (0.96) (1.05) (0.28) -------- -------- -------- ---------- -------- Net asset value, end of period ............................. $ 16.14 $ 14.88 $ 25.80 $ 23.55 $ 20.78 ======== ======== ======== ========== ======== Total return ............................................... 12.59% (39.43)% 14.03% 19.08% 16.95% ======== ======== ======== ========== ======== Ratios and supplemental data: Net assets, end of period (in thousands) ................ $520,799 $497,127 $972,260 $1,024,899 $848,219 Ratios to average net assets (annualized): Expenses, net of waivers ............................. 0.36% 0.32% 0.32% 0.34% 0.35% Expenses, before waivers ............................. 0.36% 0.32% 0.32% 0.34% 0.35% Net investment income, net of waivers ................ 2.62% 2.44% 2.13% 2.18% 1.87% Net investment income (loss), before waivers ......... 2.62% 2.44% 2.13% 2.18% 1.87% Portfolio turnover rate ................................. 27% 28% 20% 26% 25%
(A) Through October 31, 2005, net investment income was calculated by subtracting class expenses per share from the Fund's net investment income per share before class expenses. (B) For purposes of this calculation, through October 31, 2007, the change in undistributed net investment income per share was derived by dividing the change in undistributed net investment income by average shares outstanding. (C) Annualized. (D) Portfolio turnover rate is for the period from November 1, 2008 through October 31, 2009. (E) Portfolio turnover rate is for the period from November 1, 2004 through October 31, 2005. (F) Not annualized. 22 AMERICAN BEACON LARGE CAP VALUE FUND(SM) PRIVACY POLICY & FEDERAL TAX INFORMATION OCTOBER 31, 2009 (UNAUDITED) PRIVACY POLICY The American Beacon Funds recognizes and respects the privacy of our shareholders. We are providing this notice to you so you will understand how shareholder information may be collected and used. We may collect nonpublic personal information about you from one or more of the following sources: - information we receive from you on applications or other forms; - information about your transactions with us or our service providers; and - information we receive from third parties. We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. We restrict access to your nonpublic personal information to those employees or service providers who need to know that information to provide products or services to you. To ensure the confidentiality of your nonpublic personal information, we maintain safeguards that comply with federal standards. FEDERAL TAX INFORMATION For corporate shareholders in the Fund, the percentage of ordinary dividend income distributed for the year ended October 31, 2009, which is designated as qualifying for the dividends-received deduction, was 76.75%. For shareholders in the Fund, the percentage of dividend income distributed for the year ended October 31, 2009, which is designated as qualified dividend income under the Jobs Growth Tax Relief Act of 2003 was 100.00%. Shareholders will receive notification in January 2010 of the percentage applicable to the preparation of their 2009 income tax returns. 23 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (UNAUDITED) At its May 27, 2009 meeting, the Board of Trustees ("Board") considered the renewal of each existing Management Agreement between American Beacon Advisors, Inc. (the "Manager") and the American Beacon Funds ("Beacon Trust") (the "Funds") and each Investment Advisory Agreement between the Manager and a subadvisor ("Investment Advisory Agreements" and collectively with the Management Agreement, the "Agreements"). 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 and each subadvisor. 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 and each Investment Advisory Agreement, the Trustees considered, among other materials, responses by the Manager and the subadvisors 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 1 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 subadvisors to 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; - 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; 24 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (UNAUDITED) - 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 subadvisor and each Fund versus the respective peer group average; - a discussion, if applicable, of any underperformance by a subadvisor relative to its peer group and what, if any, remedial measures the Manager has or intends to take; - a comparison of advisory fees and expense ratios for comparable mutual funds; - an analysis of any material complaints received from Fund shareholders; - a description of the Manager's securities lending practices and the fees received from such practices; - a 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 each subadvisor to a Fund; and - a description of how expenses that are not readily identifiable to a particular Fund are allocated. In connection with the Management Agreement and each Investment Advisory Agreement, the Board also obtained an analysis provided by Lipper that compared: (i) investment performance of each Fund versus comparable investment companies and appropriate indices; (ii) total Fund expenses of each Fund versus comparable mutual funds; and (iii) each Fund's investment advisory fees versus comparable mutual funds. For each Fund with more than one class of shares, the class of shares used for comparative purposes was the class with the longest performance history, which in most cases was the Institutional Class. References below to each Fund's Lipper peer group are to the group of comparable mutual funds included in the analysis provided by Lipper. 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 each subadvisor and the primary factors considered by the Board at its May 27, 2009 meeting at which the Board considered the renewal of the Agreements. The Board did 25 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (UNAUDITED) not identify any particular information that was most relevant to its consideration to renew the Management Agreement and each Investment Advisory Agreement, 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 Agreement and each Investment Advisory Agreement, the Trustees considered the best interests of each Fund separately. While the Management Agreement and the Investment Advisory Agreements for all of the Funds were considered at the May 27, 2009 meeting, the Board considered each Fund's investment management and subadvisory 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 and, as applicable, each subadvisor for a Fund; (3) the costs incurred by the Manager and (to the extent provided) the subadvisors in rendering their services and their 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 or a subadvisor or their affiliates 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 or a subadvisor from their 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 Agreement, the Board considered: the background and experience of key investment personnel and the Manager's ability to retain them; the Manager's disciplined investment approach and goal to provide consistent above average long-term performance at a low cost; the Manager's continuing 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 investment subadvisors and master portfolios. With respect to the renewal of each Investment Advisory Agreement, the Trustees considered the background and experience of each subadvisor's investment personnel responsible for managing the Funds, the size of the subadvisor and their ability to continue to attract and retain qualified investment personnel. Based on the foregoing information, the Board concluded that the nature, extent and quality of the management and advisory services provided by the Manager and each subadvisor were appropriate for each Fund and, thus, determined to renew the Management Agreement and the Investment Advisory Agreement for each Fund. Investment Performance. The Board evaluated the comparative information provided by Lipper and the Manager regarding each Fund's investment performance relative to its benchmark index(es) and peer group. The Board considered the information provided by Lipper regarding its independent peer selection methodology to select all peer groups and universes. The Board also considered the performance reports and discussions with management at Board and Committee meetings throughout the year. The Manager also noted that it generally was satisfied with the performance of the subadvisors. A discussion regarding the Board's considerations with respect to each Fund's performance appears below under "Additional Considerations and Conclusions with Respect to Each Fund." Costs of the Services 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 and a subadvisor 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 Beacon Trust, stipulates 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. The index series of the Funds also operate under a master-feeder structure, but each of these series invests in a master portfolio that is not managed by the Manager. As such, the Board considered that the Manager does not receive a management fee with respect to the International Equity Index, S&P 500 Index, or Small Cap Index Funds. With respect to the Short-Term Bond Fund, 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 26 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (UNAUDITED) classes of the Funds that were closing or maintained competitive expense ratios without such expense waivers. The Board further considered that each subadvised Fund pays the Manager the amounts due to its subadvisors, and the Manager remits these amounts directly to the applicable subadvisors. 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. In addition, the Board considered that the Manager receives management fees for overseeing the securities lending relationships on behalf of various Funds. The Board also noted that certain classes of the Funds maintain higher expense ratios in order to compensate third-party distributors. In analyzing the cost of services and profitability for each subadvisor in connection with its investment advisory services to the Fund, the Board considered that, in many cases, the Manager has negotiated the lowest subadvisory fee a subadvisor charges for any comparable client accounts. The Board gave less weight to profitability considerations or did not view this data as imperative to its deliberations given the arm's length nature of the relationship between the Manager and the subadvisors with respect to the negotiation of subadvisory fees. Based on the foregoing information, the Board concluded that the profitability levels were reasonable in light of the services performed by the Manager and the subadvisors. 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 and investment advisory 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. In this regard, the Board considered that the Manager has negotiated breakpoints in many subadvisory fee rates. The Board also noted that, for purposes of determining the fee rates chargeable to the Funds, many subadvisors have agreed to take into account other assets of AMR Corporation and its pension plans that are managed by the subadvisors. Thus, the Funds are able to receive lower effective fee rates. 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. Based on the foregoing information, the Board concluded that the Manager and subadvisor fee schedules for each Fund provides for a reasonable sharing of benefits from any economies of scale with the Fund. Benefits Derived from the Relationship with the Funds. The Board considered the "fall-out" or ancillary benefits that accrue to the Manager and/or the subadvisors as a result of the advisory relationships with the Funds, including greater exposure in the marketplace with respect to the Manager's or subadvisor's investment process and expanding the level of assets under management by the Manager and the subadvisors. The Board also considered that the Manager's relationship with the Funds 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. The Board considered that certain of the subadvisors reimburse the Manager for certain of its costs relating to distribution activities for the Funds. The Board also considered that Funds did not pay commissions to any affiliated broker-dealer of the Manager or the relevant subadvisor during the most recent fiscal year ended October 31. Based on the foregoing information, the Board concluded that the potential benefits accruing to the Manager and the subadvisors by virtue of their relationships with the Funds appear to be fair and reasonable. Additional Considerations and Conclusions with Respect to Each Fund Except for the Short-Term Bond Fund, the performance comparisons below were made versus each Fund's Lipper peer universe median. 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. Additional Considerations and Conclusions with Respect to the Large Cap Value Fund In considering the renewal of the Management Agreement for the Large Cap Value Fund, the Trustees considered the following additional factors: (1) the Large Cap Value Fund outperformed the peer universe median for the five-, and ten-year periods ended March 31, 2009 but underperformed for the one- and three-year periods; (2) management's analysis regarding the rationale for the underperformance of the Large Cap Value Fund; and (3) the expense ratio of the Institutional Class of Fund shares ranked better than the median of its Lipper universe. In considering the renewal of the Investment Advisory Agreements with Barrow, Brandywine, Hotchkis and Metropolitan West Capital Management, LLC ("MetWest"), the Trustees considered the following additional factors: (1) Barrow outperformed the 27 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (UNAUDITED) peer universe median for the one-, three-, five- and ten-year periods ended March 31, 2009; (2) Brandywine outperformed the peer universe median for the ten-year period ended March 31, 2009 but underperformed for the one-, three- and five-year periods; (3) Hotchkis outperformed the peer universe median for the ten-year period and the quarter ended March 31, 2009, but underperformed for the one-, three- and five-year periods; (4) MetWest outperformed the peer universe median for the one-; three- and five-year periods ended March 31, 2009; (5) management's analysis regarding the rationale for Brandywine's and Hotchkis' underperformance; (6) each of the Fund's subadvisors has informed the Manager that it uses Fund commissions to obtain proprietary research, the application of which benefits the Fund and each of the subadvisor's clients, but there is little or no impact to the Fund; (7) each of the Fund's subadvisors has indicated that it does not charge lower advisory fees to other clients for which it provides comparable services; and (8) the Manager's recommendation to continue to retain each subadvisor. Based on these and other considerations the Trustees (1) concluded that the fees paid to the Manager and the subadvisors under the Agreements are fair and reasonable, (2) determined that the Large Cap Value Fund and its shareholders would benefit from the Manager's and subadvisors' continued management of the Fund and (3) approved the renewal of the Management and Investment Advisory Agreements with respect to the Large Cap Value Fund. 28 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED) The Trustees and officers of the American Beacon Funds (the "Trust") are listed below, together with their principal occupations during the past five years. Unless otherwise indicated, the address of each person listed below is 4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees nineteen funds in the fund complex that includes the Trust, the American Beacon Master Trust, the American Beacon Mileage Funds, and the American Beacon Select Funds. The Trust's Statement of Additional Information contains additional information about the Trustees and is available without charge by calling 1-800-658-5811.
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND CURRENT DIRECTORSHIPS - --------------------- --------------------------- --------------------------------------------------------------------- INTERESTED TRUSTEES Term Lifetime of Trust until removal, resignation or retirement* Alan D. Feld** (72) Trustee since 1996 Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (1960-Present); Director, Clear Channel Communications (1984-Present); Trustee, CenterPoint Properties (1994-2006); Member, Board of Trustees, Southern Methodist University ; Member, Board of Visitors, M.D. Anderson Hospital; Board of Visitors, Zale/Lipshy Hospital; Trustee, American Beacon Mileage Funds (1996-present); Trustee, American Beacon Select Funds (1996-present); Trustee, American Beacon Master Trust Funds (1996-present). NON-INTERESTED TRUSTEES Term Lifetime of Trust until removal, resignation or retirement* W. Humphrey Bogart (65) Trustee since 2004 Board Member, Baylor University Medical Center Foundation (1992-2004); Consultant, New River Canada Ltd. (mutual fund servicing company) (1998-2003); President and CEO, Allmerica Trust Company, NA (1996-1997); President and CEO, Fidelity Investments Southwest Company (1983-1995); Senior Vice President of Regional Centers, Fidelity Investments (1988-1995); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); American Beacon Master Trust Funds (2004-present). Brenda A. Cline (49) Trustee since 2004 Executive Vice President, Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Trustee, Texas Christian University (1998-Present); Trustee, W.I. Cook Foundation, Inc. (d/b/a Cook Children's Health Foundation) (2001-2006); Director, Christian Church Foundation (1999-2007); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). Eugene J. Duffy (55) Trustee since 2008 Principal and Executive Vice President, Paradigm Asset Management (1994-Present); Director, Sunrise Bank of Atlanta (2008-Present); Chairman, Special Contributions Fund Board of Trustees, National Association for the Advancement of Colored People (2007-Present); Trustee, National Association for the Advancement of Colored People (2000-Present); Board of Visitors, Emory University (2006-Present); Trustee, Atlanta Botanical Garden (2006-Present); Board Member, Willie L. Brown Jr. Institute on Politics and Public Service (2001-Present); Chair, National Association of Securities Professionals (2000-2002); Deputy Chief Administrative Officer, City of Atlanta (1985-1990); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present).
29 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED)
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND CURRENT DIRECTORSHIPS - --------------------- --------------------------- --------------------------------------------------------------------- Thomas M. Dunning (66) Trustee since 2008 Consultant, (2008-Present); Chairman (2003-2008) and Chief Executive Officer (2003-2007), Lockton Dunning Benefits (consulting firm in employee benefits); Director, Oncor Electric Delivery Company LLC (2007-present); Advisory Director, Comerica Texas (2003-present); Immediate Past Chairman and Board Member, Dallas Citizens Council; Director, Baylor Health Care System Foundation (2007-present); State Vice Chair, State Fair of Texas; Board Member, Southwestern Medical Foundation (1994-present); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present). Richard A. Massman (66) Trustee since 2004 Consultant and General Counsel Emeritus (2009-Present), Senior Vice Chairman since 2008 President and General Counsel, Hunt Consolidated, Inc. (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities) (1994-2009). Chairman (2007-Present) and Director (2005-Present), The Dallas Opera Foundation; Chairman (2006-Present) and Director (2005-Present), Temple Emanu-El Foundation; Trustee, Presbyterian Hospital Foundation (2006-Present); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). R. Gerald Turner (64) Trustee since 2001 President, Southern Methodist University (1995-Present); Director, 225 Perkins Admin. Bldg. ChemFirst (1986-2002); Director, J.C. Penney Company, Inc. Southern Methodist Univ. (1996-Present); Director, California Federal Preferred Capital Corp. Dallas, Texas 75275 (2001-2003); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Director, First Broadcasting Investment Partners, LLC (2003-2007); Member, Salvation Army of Dallas Board of Directors; Member, Methodist Hospital Advisory Board; Co-Chair, Knight Commission on Intercollegiate Athletics; Trustee, American Beacon Mileage Funds (2001-present); Trustee, American Beacon Select Funds (2001-present); Trustee, American Beacon Master Trust Funds (2001-present). Paul J. Zucconi,CPA (68) Trustee since 2008 Director, Affirmative Insurance Holdings, Inc. (producer of nonstandard automobile insurance) (2004-present); Director, Titanium Metals Corporation (producer of titanium melted and mill products and sponge) (2002- present); Director, Torchmark Corporation (life and health insurance products) (2002-present); Director, National Kidney Foundation of North Texas (2003-Present); Director, Dallas Chapter of National Association of Corporate Directors (2004-Present); Partner, KPMG (1976-2001); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present).
30 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED)
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND CURRENT DIRECTORSHIPS - --------------------- --------------------------- --------------------------------------------------------------------- OFFICERS TERM One Year William F. Quinn** (61) Executive Vice President Executive Chairman (2009-Present), Chairman (2006-2009) and CEO from 2007 to 2008 and 2009 (2006-2007), President (1986-2006) and Director (2003-Present), to Present President from American Beacon Advisors, Inc.; Chairman (1989-2003) and Director 1987 to 2007 and 2008 to (1979-1989, 2003-Present), American Airlines Federal Credit Union; 2009 Trustee from 1987 to Director, Hicks Acquisition I, Inc. (2007-2009); Director, Crescent 2008 Real Estate Equities, Inc.(1994-2007); Director, Pritchard, Hubble & Herr, LLC (investment advisor) (2001-2006); Director of Investment Committee, Southern Methodist University Endowment Fund (1996-Present); Member, Southern Methodist University Cox School of Business Advisory Board (1999-2002); Member, New York Stock Exchange Pension Manager Committee (1997-1998, 2000-2002, 2006-Present); Chairman (2007-Present) and Vice Chairman (2004-2007), Committee for the Investment of Employee Benefits; Director, United Way of Metropolitan Tarrant County (1988-2000, 2004-Present); Trustee, American Beacon Mileage Funds (1995-2008); Trustee, American Beacon Select Funds (1999-2008); Trustee, American Beacon Master Trust (1995-2008). Gene L. Needles, Jr. (54) President 2009 to Present President, CEO and Director (2009-Present), American Beacon Advisors, Executive Vice President Inc. President (November 2009-Present), Executive Vice President (May 2009 Present 2009-November 2009) of the American Beacon Funds, American Beacon Mileage Funds, American Beacon Select Funds, and American Beacon Master Trust. President (2008-2009), Touchstone Investments; President (2003-2007), CEO (2004-2007), Managing Director of Sales (2002-2003), National Sales Manager (1999-2002), and Regional Sales Manager (1993-1999), AIM Distributors. Rosemary K. Behan (50) VP, Secretary and Chief Vice President, Legal and Compliance, American Beacon Advisors, Inc. Legal Officer since 2006 (2006-Present); Assistant General Counsel, First Command Financial Planning, Inc. (2004-2006); Attorney (1995-2004), Securities and Exchange Commission. Brian E. Brett (49) VP since 2004 Vice President, Director of Sales and Marketing, American Beacon Advisors, Inc. (2004-Present); Regional Vice President, Neuberger Berman, LLC (investment advisor) (1996-2004). Wyatt Crumpler (43) VP since 2007 Vice President, Asset Management, American Beacon Advisors, Inc. (2007-Present); Managing Director of Corporate Accounting (2004-2007), Director of IT Strategy and Finance (2002-2004), American Airlines, Inc. Michael W. Fields (55) VP since 1989 Vice President, Fixed Income Investments, American Beacon Advisors, Inc. (1988-Present); Director American Beacon Global Funds SPC (2002-present); Director, American Beacon Global Funds plc (2007-2009). Rebecca L. Harris (42) Treasurer since 1995 Vice President, Finance, American Beacon Advisors, Inc. (1995-Present). Christina E. Sears (38) Chief Compliance Officer Chief Compliance Officer, American Beacon Advisors, Inc. since 2004 and Asst. (2004-Present); Senior Compliance Analyst, American Beacon Advisors, Secretary since 1999 Inc. (1998-2004).
* The Board has adopted a retirement plan that requires Trustees to retire no later than the last day of the calendar year in which they reach the age of 72, provided, however, that the Board may determine to grant one or more annual exemptions to this requirement. ** Mr. Feld is deemed to be an "interested person" of the Trusts, as defined by the 1940 Act. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the past two fiscal years to the Manager and one or more of the Trust's and Master Trust's sub-advisors. 31 (GRAPHIC) (This page intentionally left blank) 32 (AMERICAN BEACON FUNDS(SM 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: Institutional, Y, Investor, Advisor and Retirement Classes American Beacon Funds Call (800) 658-5811 P.O. Box 219643 AMR Class(SM) Kansas City, MO 64121-9643 Call (800) 345-2345 AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES AVAILABILITY OF PROXY VOTING POLICY AND RECORDS In addition to the Schedule of Investments provided in A description of the policies and procedures the Fund uses each semi-annual and annual report, the Fund files a to determine how to vote proxies relating to portfolio complete schedule of its portfolio holdings with the securities is available in the Fund's Statement of Securities and Exchange Commission ("SEC") on Form N-Q as Additional Information, is available free of charge on the of the first and third fiscal quarters. The Fund's Forms Fund's website (www.americanbeaconfunds.com) and by N-Q are available on the SEC's website at www.sec.gov. The calling 1-800-967-9009 or by accessing the SEC's website Forms N-Q may also be reviewed and copied at the SEC's at www.sec.gov. The Fund's proxy voting record for the Public Reference Room, 450 Fifth Street, NW, Washington, most recent year ended June 30 is filed annually with the DC 20549. Information regarding the operation of the SEC's SEC on Form N-PX. The Fund's Forms N-PX are available on Public Reference Room may be obtained by calling the SEC's website at www.sec.gov. The Fund's proxy voting 1-800-SEC-0330. A complete schedule of the Fund's record may also be obtained by calling 1-800-967-9009. portfolio 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 PUBLIC DISTRIBUTOR STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES ACCOUNTING FIRM FORESIDE FUND SERVICES Boston, Massachusetts Kansas City, Missouri ERNST & YOUNG LLP Portland, Maine Dallas, Texas
This report is prepared for shareholders of the American Beacon Funds and may be distributed to others only if preceded or accompanied by a current prospectus. American Beacon Funds and American Beacon Large Cap Value Fund are service marks of American Beacon Advisors, Inc. AR 10/09 00071317 GUIDANCE | VISION | EXPERIENCE (AMERICAN BEACON FUNDS(SM) LOGO) ANNUAL REPORT (GRAPHIC) October 31, 2009 SMALL CAP VALUE FUND About American Beacon Advisors Since 1986, American Beacon Advisors has offered a variety of products and investment advisory services to numerous institutional and retail clients, including a variety of mutual funds, corporate cash management, and separate account management. Our clients include defined benefit plans, defined contribution plans, foundations, endowments, corporations, financial planners, and other institutional investors. With American Beacon Advisors, you can put the experience of a multi-billion dollar asset management firm to work for your company. Contents President's Message...................... 1 Market and Performance Overview.......... 2 Schedule of Investments.................. 7 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 the Fund's portfolio composition will change depending on economic and market conditions. This report is not a complete analysis of market conditions and therefore, should not be relied upon as investment advice. Although economic and market information has been compiled from reliable sources, American Beacon Advisors, Inc. makes no representation as to the completeness or accuracy of the statements contained herein. Investing in the securities of small capitalization companies involves greater risk and the possibility of greater price volatility than investing in larger capitalization and more established companies. American Beacon Funds October 31, 2009 (PHOTO OF GENE L. NEEDLES, JR.) FELLOW SHAREHOLDERS, As an introduction to the American Beacon Small Cap Value Fund Annual Report for the 12-month period ended October 31, 2009, please let me take a moment to tell you how pleased I am to have been serving as President and CEO of American Beacon Advisors since April 15, 2009. I consider it a privilege to hold this position, and I take its responsibilities quite seriously. I've enjoyed a long, successful career in the investment business, and I'm no stranger to the ups and downs that markets can deliver. As a fellow investor and shareholder, I experience these trends in much the same way you do. The majority of 2008 was difficult in many ways. However, when I took the helm at American Beacon, I already had many reasons to be optimistic about what might develop in 2009. As of October 31, 2009, my optimism has been largely confirmed. For the one-year period (as of 10/31/09), American Beacon Small Cap Value Fund-Institutional Class returned 16.97%. Of course, one year of performance doesn't tell the whole story, especially when you're investing for the long term. Please note that the recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Many of us have long-term goals, including retirement, driving our investment decisions. While this 12-month period began amid a frightening recessionary environment, we finished the year with increasing confidence that markets have begun to stabilize, that liquidity has returned to the debt markets and that equity markets have had a substantial recovery. I know as well as you do that maintaining a long-term perspective, employing a buy-and-hold philosophy (consistent with the Fund's objectives), and doing the right thing according to your risk tolerance and time horizon is not always easy. But the professionals at American Beacon are dedicated to working hard to help investors succeed. Just as you maintain a commitment to your goals--and to those who inspire you to create your goals--we maintain a strong commitment to due diligence and oversight. That commitment is one of the key reasons I am honored to serve as President and CEO, and am pleased to be able to share my enthusiasm about the path ahead with you. A financial advisor can be an important ally in creating investment success, so--as you review the enclosed annual report--please feel free to discuss your thoughts and concerns with a trusted advisor. And, as always, the professionals associated with the American Beacon Funds are grateful for the opportunity to serve you. Best Regards, /s/ Gene L. Needles, Jr. Gene L. Needles, Jr. President American Beacon Funds 1 DOMESTIC EQUITY MARKET OVERVIEW OCTOBER 31, 2009 (UNAUDITED) The past 12-month period saw a great deal of volatility in equity markets. The first quarter of 2009 saw marginal improvements in U.S. housing, income and consumption data. The U.S. Treasury partnered with private investors to purchase toxic bank assets, which spurred a market rally late in the first quarter. Soon after his January inauguration, President Obama attempted to blunt the impact of the recession in the U.S. by signing an almost $800 billion economic stimulus package, introducing a sizable mortgage relief program and initiating stress tests for the nation's banks. Other stimulus packages were enacted worldwide, representing an unprecedented commitment from governments across the globe to stabilize the world's economies. While the markets behaved sluggishly at the beginning of the first quarter, they picked up speed following more encouraging data suggesting that the economy had begun to move from recession to recovery. The global equity market rally that began in early March and continued into May was one of the strongest rebounds since the Great Depression era. Toward the end of the second quarter, investors showed concern that the equity markets had moved too far ahead of economic realities. The sharp equity rally lost momentum, as equity markets pulled back modestly in June. During the third quarter, stronger-than-expected corporate earnings--combined with encouraging economic news--rekindled the rally to some degree. The United States announced that gross domestic product (GDP) contracted in the second quarter, but by a better-than-expected -1.0% (subsequently revised to -0.7%). Meanwhile, strong demand for automobiles, fueled by the U.S. Government's "Cash for Clunkers" program, produced the first signs of growth in the American manufacturing industry since January 2008. The third quarter of 2009 saw housing numbers improve, increased merger and acquisition activity, and evidence of capital markets normalization. In addition to stabilization, liquidity was a major contributor to market strength. Unfortunately, the domestic equity markets have struggled with the effects of rising unemployment, a tight credit environment, and weakness in commercial real estate. Amid fears about job stability, the U.S. Consumer Confidence Index declined to 53.1 in September from 54.5 in August 2009. Although the pace of job losses slowed, total U.S. unemployment continued to rise in October 2009, along with credit default and delinquency rates. Third quarter corporate earnings results were mixed. Many companies were quick to downsize in response to reduced demand. Corporate profits exceeded reduced expectations due to cost cutting. It remains to be seen if increased corporate profitability ultimately leads to more hiring and, thus, increased consumer demand. This pattern of positive developments tempered with set-backs is typical of economic recoveries. Different types of economic activity require more time to be effective. Some uncertainty about what will drive the markets going forward remains, as the Federal Reserve Board (the Fed) may start to reverse and unwind the unprecedented levels of support provided to the U.S. economy. The magnitude of any consumer-led recovery remains difficult to gauge, as it is hard to distinguish between a traditional cyclical recovery and potentially artificial gains resulting from the U.S. Government's stimulus measures. As the Fed's plans become clearer, the market may favor companies with higher earnings and balance sheet quality. These companies with solid fundamentals may provide better upside potential than more speculative companies. It is unlikely that the lowest credit quality companies (without earnings or dividends) will remain market leaders, since there are many companies with excellent fundamentals selling for equally attractive prices. 2 PERFORMANCE OVERVIEW AMERICAN BEACON SMALL CAP VALUE FUND(SM) OCTOBER 31, 2009 (UNAUDITED) The Institutional Class of the Small Cap Value Fund returned 16.97% for the twelve months ended October 31, 2009, outperforming the Russell 2000(R) Value Index (the "Index") return of 1.96% and the Lipper Small-Cap Value Funds Index return of 13.99% for the same period. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 10/31/99 THROUGH 10/31/09 (PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF PERIODS ENDED 10/31/09 $10,000 ----------------------------- 10/31/99- 1 YEAR 5 YEARS 10 YEARS 10/31/09 -------- ------- -------- ---------- Institutional Class(1, 6) ...... 16.97% 1.12% 10.19% $26,387 Y Class(1, 2, 6) ............... 16.81% 1.09% 10.17% 26,351 Investor Class(1, 6) ........... 16.59% 0.85% 9.90% 25,710 Advisor Class(1, 3, 6) ......... 16.41% 0.61% 9.72% 25,287 Retirement Class (1, 4, 6) ..... 16.25% 0.58% 9.71% 25,251 AMR Class(1, 6) ................ 17.30% 1.39% 10.49% 27,126 Lipper Small-Cap Value Funds Index(5) .................... 13.99% 1.73% 8.39% 22,393 Russell 2000 Value Index(5) .... 1.96% 0.08% 7.53% 20,663
(1.) The Investor and Advisor Classes were formerly known as the PlanAhead and Service Classes, respectively. Please note that the recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Performance shown is historical and may not be indicative of future returns. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is as of date indicated, and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. (2.) Fund performance for the one-year, five-year and ten-year periods represents the total returns achieved by the Institutional Class from 10/31/99 up to 8/3/09, the inception date of the Y Class. Expenses of the Y Class are higher than those of the Institutional Class. As a result, total returns shown may be higher than they would have been had the Y Class been in existence since 10/31/99. (3.) Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/99 up to 5/1/03, and the returns of the Advisor Class since its inception. Expenses of the Advisor Class are higher than those of the Investor Class. As a result, total returns shown may be higher than they would have been had the Advisor Class been in existence since 10/31/99. A portion of the fees charged to the Advisor Class of the Fund was waived through 2004. Performance prior to waiving fees was lower than the actual returns shown for periods through 2004. (4.) Fund performance for the one-year, five-year and ten-year periods represents the total returns achieved by the Investor Class from 10/31/99 up to 5/1/03 and the Advisor Class from 5/1/03 up to 5/1/09, the inception date of the Retirement Class, and the returns of the Retirement Class since its inception. Expenses of the Retirement Class are higher than those of the Advisor and Investor Classes. As a result, total returns shown may be higher than they would have been had the Retirement Class been in existence since 10/31/99. (5.) Russell 2000 Value Index is a registered trademark of Frank Russell Company. The Russell 2000 Value Index is an unmanaged index of those stocks in the Russell 2000 Index with lower price-to-book ratios and lower forecasted growth values. The Lipper Small-Cap Value Funds Index tracks the results of the 30 largest mutual funds in the Lipper Small-Cap Value Funds category. Lipper is an independent mutual fund research and ranking service. One cannot directly invest in an index. (6.) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus for the Institutional, Y, Investor, Advisor, Retirement and AMR Class shares was 0.82%, 0.92%, 1.19%, 1.32%, 1.59%, and 0.57%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. The Fund outperformed the Index in eight of the ten sectors, generating excess performance through both stock selection and sector allocation. The Fund's superior performance in stock selection resulted primarily from its holdings in the Industrials, Financials, Energy, and Utilities sectors. Individual holdings in the Industrials sector that had the largest impact on the Fund's performance were Oshkosh (up 319.3%), Flowserve (up 71.0%), and Timken (up 49.7%). For the period the Fund owned the securities, Legg Mason (up 14.8%) and Jeffries Group (up 31.4%) added the most relative value in the Financials sector. In the Energy 3 PERFORMANCE OVERVIEW AMERICAN BEACON SMALL CAP VALUE FUND(SM) OCTOBER 31, 2009 (UNAUDITED) sector, Dril-Quip (up 97.9%), Oil States International (up 50.3%), and Arena Resources (up 37.9%) were the largest contributors, while OGE Energy (up 27.7%), Energen (up 30.4%), and NV Energy (up 19.1%) added the most relative value in the Utilities sector. Poor stock selection in the Information Technology sector detracted value from performance. Lexmark International (down 27.0% for the period the Fund owned the security), Comtech Telecommunications (down 34.2%) and ManTech International (down 14.7%) were the largest detractors in the Information Technology sector. The Fund's underweight in Financials, the second worst performing sector in the Index, added value to performance through sector allocation. Overweights in the Information Technology and Consumer Discretionary sectors also generated excess returns. An overweight in Energy, the worst performing sector in the Index, detracted from the Fund's performance relative to the Index. The sub-advisors continue to focus on uncovering investment opportunities through stock selection that should benefit the Fund's performance over the longer term. TOP TEN HOLDINGS
% OF NET ASSETS ---------- Valassis Communications, Inc. ... 1.4% Hanover Insurance Group, Inc. ... 1.0% Oshkosh Corp. ................... 0.8% LifePoint Hospitals, Inc. ....... 0.8% Rent-a-Center, Inc. ............. 0.8% Gentex Corp. .................... 0.8% Aspen Insurance Holdings Ltd. ... 0.8% Great Plains Energy, Inc. ....... 0.8% Men's Wearhouse, Inc. ........... 0.8% Tidewater, Inc. ................. 0.7%
SECTOR ALLOCATION
% OF EQUITIES -------- Financials ...................... 21.6% Industrials ..................... 20.5% Consumer Discretionary .......... 14.5% Information Technology .......... 14.5% Health Care ..................... 8.6% Utilities ....................... 6.3% Energy .......................... 5.9% Materials ....................... 4.9% Consumer Staples ................ 2.8% Telecommunication Services ...... 0.4%
4 AMERICAN BEACON SMALL CAP VALUE FUND(SM) FUND EXPENSES OCTOBER 31, 2009 (UNAUDITED) FUND EXPENSE EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, administrative service fees, distribution (12b-1) fees, and other Fund expenses. The examples below are intended to help you understand the ongoing cost (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested at the beginning of the period in each Class and held for the entire period from May 1, 2009 through October 31, 2009. ACTUAL EXPENSE The "Actual" lines of the table provide information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Shareholders of the Investor and Institutional Classes that invest in the Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The "Hypothetical" lines of the table provide information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed 5% per year rate of return before expenses (not the Fund's actual return). You may compare the ongoing costs of investing in the Fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. Shareholders of the Investor and Institutional Classes that invest in the Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs charged by the Fund. Similarly, the expense examples for other funds do not reflect any transaction costs charged by those funds, such as sales charges (loads), redemption fees or exchange fees. Therefore, the "Hypothetical" lines of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If you were subject to any transaction costs during the period, your costs would have been higher.
Beginning Ending Account Account Expenses Paid Value Value During Period* 5/1/09 10/31/09 5/1/09-10/31/09 ------------ ----------- --------------- INSTITUTIONAL CLASS Actual $1,000.00 $1,209.25 $4.73 Hypothetical $1,000.00 $1,020.92 $4.33 (5% return before expenses) Y CLASS** Actual $1,000.00 $1,024.24 $2.74 Hypothetical $1,000.00 $1,009.59 $2.74 (5% return before expenses) INVESTOR CLASS Actual $1,000.00 $1,206.19 $6.73 Hypothetical $1,000.00 $1,019.11 $6.16 (5% return before expenses) ADVISOR CLASS Actual $1,000.00 $1,206.39 $7.17 Hypothetical $1,000.00 $1,018.70 $6.56 (5% return before expenses) RETIREMENT CLASS Actual $1,000.00 $1,204.67 $8.46 Hypothetical $1,000.00 $1,017.49 $7.78 (5% return before expenses) AMR CLASS Actual $1,000.00 $1,210.48 $3.34 Hypothetical $1,000.00 $1,022.18 $3.06 (5% return before expenses)
* Expenses are equal to the Fund's annualized expense ratios for the six-month period of 0.85%, 1.21%, 1.29%, 0.60%, 1.53% and 1.11% for the Institutional, Investor, Advisor, AMR, Retirement and Y Classes respectively, multiplied by the average account value over the period, multiplied by the number derived by dividing the number of days in the most recent fiscal half-year (184) by days in the year (365) to reflect the half year period. ** Beginning account value for Y Class is the inception date of 8/3/09. Expenses are equal to the Class annualized ratio for the period multiplied by the average account value for the period multiplied by the number derived by dividing the number of days in the period (90) by the days in the year (365). 5 AMERICAN BEACON SMALL CAP VALUE FUND(SM) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of American Beacon Small Cap Value Fund and the Board of Trustees of American Beacon Funds: We have audited the accompanying statement of assets and liabilities of American Beacon Small Cap Value Fund (a portfolio of American Beacon Funds) (the "Fund"), including the schedule of investments, as of October 31, 2009, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of American Beacon Small Cap Value Fund at October 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/Ernst & Young LLP Dallas, Texas December 23, 2009 6 AMERICAN BEACON SMALL CAP VALUE FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ----------- ----------- (DOLLARS IN THOUSANDS) COMMON STOCKS - 95.04% COMMUNICATIONS - 0.25% MEDIA - 0.25% Belo Corp. ................................... 167,900 $ 789 Courier Corp. ................................ 46,314 687 Meredith Corp. ............................... 138,970 3,761 ----------- TOTAL COMMUNICATIONS 5,237 ----------- CONSUMER DISCRETIONARY - 13.76% AUTO COMPONENTS - 1.16% American Axle & Manufacturing Holdings, Inc. + .................................... 1,027,200 6,153 ATC Technology Corp. ## ...................... 21,600 451 Gentex Corp. ................................. 1,024,850 16,408 Superior Industries International, Inc. ...... 58,500 777 ----------- 23,789 ----------- DISTRIBUTORS - 0.19% Beacon Roofing Supply, Inc. ## ............... 50,500 725 WESCO International, Inc. ## ................. 122,300 3,126 ----------- 3,851 ----------- HOTELS, RESTAURANTS & LEISURE - 1.68% Ameristar Casinos, Inc. ...................... 340,500 5,012 Boyd Gaming Corp. ## + ....................... 197,630 1,455 CEC Entertainment, Inc. ## ................... 33,100 967 CKE Restaurants, Inc. ........................ 244,000 2,135 Cracker Barrel Old Country Store, Inc. ....... 82,811 2,745 Domino's Pizza, Inc. ## ...................... 118,300 868 Jack in the Box, Inc. ## ..................... 542,050 10,169 Lakes Entertainment, Inc. ## ................. 150,800 371 Orient-Express Hotels Ltd. ................... 69,200 595 Panera Bread Co. ## .......................... 72,280 4,335 Pinnacle Entertainment, Inc. ## .............. 248,000 2,096 Speedway Motorsports, Inc. ................... 166,610 2,256 Wendy's Group Inc. ........................... 422,100 1,667 ----------- 34,671 ----------- HOUSEHOLD DURABLES - 1.60% Cavco Industries, Inc. ## .................... 40,760 1,239 Ethan Allen Interiors, Inc. + ................ 273,350 3,406 Helen of Troy Ltd. ## ........................ 50,348 1,150 Knoll, Inc. .................................. 117,180 1,148 M.D.C. Holdings, Inc. ........................ 131,780 4,299 National Presto Industries, Inc. ............. 12,000 1,043 Ryland Group, Inc. ........................... 289,250 5,366 Snap-On, Inc. ................................ 85,030 3,106 Whirlpool Corp. .............................. 171,700 12,292 ----------- 33,049 -----------
SHARES VALUE ----------- ----------- (DOLLARS IN THOUSANDS) INTERNET & CATALOG RETAIL - 0.32% NutriSystem, Inc. + ......................... 184,300 $ 3,966 School Specialty, Inc. ## .................... 38,400 855 Systemax, Inc. ## ............................ 125,400 1,690 ----------- 6,511 ----------- LEISURE EQUIPMENT & PRODUCTS - 0.78% Brunswick Corp. .............................. 521,900 4,948 Callaway Golf Co. ............................ 382,960 2,619 Polaris Industries, Inc. ..................... 54,600 2,297 Scholastic Corp. ............................. 143,800 3,576 Thor Industries, Inc. ........................ 101,430 2,660 ----------- 16,100 ----------- MEDIA - 0.33% Interpublic Group of Cos., Inc. ## ........... 941,100 5,666 inVentiv Health, Inc. ## ..................... 68,900 1,170 ----------- 6,836 ----------- MULTILINE RETAIL - 0.94% Big Lots, Inc. ## ............................ 221,050 5,537 BJ's Wholesale Club, Inc. ## ................. 153,730 5,385 Dillards, Inc. ............................... 168,900 2,301 Saks, Inc. ## + .............................. 1,097,860 6,159 ----------- 19,382 ----------- SPECIALTY RETAIL - 5.40% Aaron Rents, Inc. + .......................... 185,600 4,649 Bare Escentuals, Inc. ## ..................... 140,700 1,777 Bebe Stores, Inc. ............................ 360,950 2,260 Buckle, Inc. + ............................... 28,500 855 Cabela's, Inc. ## + .......................... 792,700 9,964 Childrens Place Retail Stores, Inc. ## ....... 66,240 2,083 Finish Line, Inc., Class A Shares ............ 46,955 476 Foot Locker, Inc. ............................ 794,300 8,324 Genesco, Inc. ## ............................. 46,500 1,212 Group 1 Automotive, Inc. ..................... 53,700 1,365 Gymboree Corp. ## ............................ 260,970 11,110 Interline Brands, Inc. ## .................... 16,200 237 Jos. A. Bank Clothiers, Inc. ## .............. 85,390 3,499 MarineMax, Inc. ## ........................... 81,800 557 Men's Wearhouse, Inc. ........................ 667,400 15,464 OfficeMax, Inc. .............................. 468,293 5,353 Pep Boys, Inc. ............................... 107,100 939 RadioShack Corp. ............................. 671,800 11,347 Regis Corp. .................................. 106,600 1,731 Rent-A-Center, Inc. ## ....................... 897,450 16,477 Sonic Automotive, Inc., A Shares + ........... 183,380 1,640 Stage Stores, Inc. ........................... 129,320 1,526 Tractor Supply Co. ## ........................ 48,550 2,170
See accompanying notes 7 AMERICAN BEACON SMALL CAP VALUE FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ----------- ----------- (DOLLARS IN THOUSANDS) Williams-Sonoma, Inc. ........................ 327,854 $ 6,157 ----------- 111,172 ----------- TEXTILES & APPAREL - 1.36% Brown Shoe Company, Inc. ..................... 122,720 1,273 Jones Apparel Group, Inc. .................... 416,000 7,442 Quiksilver, Inc. ## .......................... 2,560,900 5,096 Skechers U.S.A., Inc. ## ..................... 212,760 4,642 Timberland Co. ## ............................ 205,050 3,318 Unifirst Corp. ............................... 29,600 1,245 Warnaco Group, Inc. ## ....................... 74,000 2,999 Wolverine World Wide, Inc. ................... 81,300 2,080 ----------- 28,095 ----------- TOTAL CONSUMER DISCRETIONARY 283,456 ----------- CONSUMER STAPLES - 2.62% FOOD & DRUG RETAILING - 1.18% Casey's General Stores, Inc. ................. 171,473 5,407 Flowers Foods, Inc. .......................... 103,230 2,411 Ingles Markets, Inc. ......................... 87,900 1,352 Ruddick Corp. ................................ 146,650 3,919 Spartan Stores, Inc. ......................... 425,450 6,024 Winn-Dixie Stores, Inc. ## ................... 460,090 5,102 ----------- 24,215 ----------- FOOD PRODUCTS - 1.13% American Italian Pasta Co. ## ................ 43,000 1,168 Cal-Maine Foods, Inc. + ...................... 142,800 3,877 Chiquita Brands International, Inc. ## ....... 91,400 1,480 Corn Products International, Inc. ............ 55,500 1,564 Del Monte Foods Co. .......................... 330,300 3,567 Fresh Del Monte Produce, Inc. ## ............. 98,400 2,136 Hain Celestial Group, Inc. ## ................ 119,120 2,089 Herbalife Ltd. ............................... 115,200 3,877 Overhill Farms, Inc. ## ...................... 316,300 1,727 Smithfield Foods, Inc. ## + .................. 131,300 1,752 ----------- 23,237 ----------- HOUSEHOLD PRODUCTS - 0.03% Central Garden and Pet Co. ## ................ 73,900 699 ----------- TOBACCO - 0.28% Alliance One International, Inc. ## .......... 232,100 1,024 Universal Corp. .............................. 112,700 4,687 ----------- 5,711 ----------- TOTAL CONSUMER STAPLES 53,862 -----------
SHARES VALUE ----------- ----------- (DOLLARS IN THOUSANDS) ENERGY - 5.65% ENERGY EQUIPMENT & SERVICES - 3.16% Atwood Oceanics, Inc. ## ..................... 42,100 $ 1,494 CARBO Ceramics, Inc. + ....................... 28,160 1,644 Complete Production Services, Inc. ## ........ 109,100 1,040 Dresser-Rand Group, Inc. ## .................. 89,700 2,644 Dril-Quip, Inc. ## ........................... 97,380 4,732 Global Industries Ltd. ## .................... 176,400 1,286 Gulfmark Offshore, Inc. ## ................... 86,400 2,391 Key Energy Services, Inc. ## ................. 64,500 472 Lufkin Industries, Inc. ...................... 55,130 3,145 Oil States International, Inc. ## ............ 336,221 11,579 Parker Drilling Co. ## ....................... 238,300 1,239 Patterson-UTI Energy, Inc. ................... 114,650 1,786 Rowan Companies, Inc. ........................ 106,200 2,469 SEACOR Holdings, Inc. ## ..................... 63,900 5,193 Superior Energy Services, Inc. ## ............ 68,900 1,489 Tidewater, Inc. .............................. 367,200 15,301 Unit Corp. ## ................................ 156,465 6,115 Willbros Group, Inc. ## ...................... 81,300 1,068 ----------- 65,087 ----------- OIL & GAS - 2.49% Arena Resources, Inc. ## ..................... 132,730 4,945 Comstock Resources, Inc. ## .................. 112,330 4,616 CVR Energy, Inc. ## .......................... 161,000 1,694 Delek US Holdings, Inc. ...................... 110,300 744 Encore Acquisition Co. ## .................... 111,200 4,122 EXCO Resources, Inc. ......................... 539,500 8,427 Forest Oil Corp. ## .......................... 119,990 2,352 Helix Energy Solutions Group, Inc. ## ........ 172,700 2,371 Holly Corp. .................................. 291,250 8,449 Penn Virginia Corp. .......................... 322,310 6,527 Stone Energy Corp. ## ........................ 247,500 3,794 Tesoro Corp. ................................. 229,200 3,241 ----------- 51,282 ----------- TOTAL ENERGY 116,369 ----------- FINANCIALS - 20.48% BANKS - 3.60% 1st Source Corp. ............................. 34,120 506 BancorpSouth, Inc. + ......................... 161,550 3,648 City National Corp. + ........................ 276,503 10,416 Community Bank System, Inc. .................. 30,400 566 CVB Financial Corp. + ........................ 170,233 1,364 First Horizon National Corp. ## .............. 868,855 10,279 First Niagara Financial Group, Inc. .......... 181,200 2,327
See accompanying notes 8 AMERICAN BEACON SMALL CAP VALUE FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE ----------- ----------- (DOLLARS IN THOUSANDS) FirstMerit Corp. ............................. 253,662 $ 4,807 Hancock Holding Co. .......................... 71,720 2,601 Home Federal Bancorp Inc. + .................. 171,000 1,975 National Penn Bancshares, Inc. ............... 212,940 1,197 NewAlliance Bancshares, Inc. ................. 371,778 4,119 Old National Bancorp ......................... 149,200 1,547 PacWest Bancorp .............................. 122,410 2,078 Provident Financial Services, Inc. ........... 311,460 3,348 Southwest Bancorp, Inc. ...................... 121,240 1,193 Sterling Bancshares, Inc. .................... 136,400 760 Synovus Financial Corp. ...................... 728,600 1,617 Territorial Bancorp, Inc. ## ................. 6,700 110 Trustmark Corp. .............................. 131,950 2,500 Washington Federal, Inc. ..................... 460,364 7,895 Washington Trust Bancorp, Inc. ............... 29,800 448 Webster Financial Corp. ...................... 641,800 7,259 Wintrust Financial Corp. ..................... 57,900 1,633 ----------- 74,193 ----------- DIVERSIFIED FINANCIALS - 3.72% AmeriCredit Corp. ## + ....................... 124,400 2,196 Cash America International, Inc. ............. 230,636 6,979 Credit Acceptance Corp. ## + ................. 159,100 5,468 Ezcorp, Inc. ## .............................. 638,550 8,282 Federated Investors, Inc. .................... 55,900 1,467 Financial Federal Corp. ...................... 179,980 3,675 Investment Technology Group, Inc. ## ......... 471,515 10,171 Knight Capital Group, Inc. ## ................ 363,650 6,128 Lazard Ltd. .................................. 90,502 3,417 Marshall & Ilsley Corp. ...................... 265,900 1,415 MF Global Ltd. ## + .......................... 271,800 1,935 Nelnet, Inc. ## .............................. 184,700 2,591 Piper Jaffray Co. ## ......................... 232,753 10,797 Raymond James Financial, Inc. + .............. 220,430 5,204 Student Loan Corp. ........................... 33,600 1,413 Texas Capital Bancshares, Inc. ## ............ 95,050 1,385 World Acceptance Corp. ## + .................. 168,250 4,221 ----------- 76,744 ----------- INSURANCE - 9.63% Allied World Assurance Co. Holdings Ltd. ..... 100,900 4,516 American Equity Investment Life Holding Co. .. 209,900 1,379 American Financial Group, Inc. ............... 359,500 8,844 American National Insurance Co. .............. 44,700 3,732 American Physicians Capital, Inc. ............ 9,916 280 AmTrust Financial Services, Inc. ............. 240,100 2,708 Argo Group International Holdings Ltd. ## .... 219,557 7,456 Aspen Insurance Holdings Ltd. ................ 624,830 16,121 CNA Surety Corp. ## .......................... 239,200 3,459
SHARES VALUE ----------- ----------- (DOLLARS IN THOUSANDS) Conseco, Inc. ## ............................. 886,200 $ 4,617 Delphi Financial Group, Inc. ................. 403,000 8,745 Employers Holdings, Inc. ..................... 537,400 7,964 Endurance Specialty Holdings Ltd. ............ 139,400 5,017 First American Corp. ......................... 295,770 8,989 Flagstone Reinsurance Holdings Ltd. .......... 225,500 2,469 Hanover Insurance Group, Inc. ................ 481,750 20,267 HCC Insurance Holdings, Inc. ................. 183,170 4,834 Horace Mann Educators Corp. .................. 94,900 1,180 Infinity Property and Casualty Corp. ......... 50,698 1,961 Max Capital Group Ltd. ....................... 106,400 2,197 Montpelier Re Holdings Ltd. .................. 65,108 1,052 National Western Life Insurance Co. .......... 2,100 370 Navigators Group, Inc. ## .................... 154,300 8,189 Old Republic International Corp. ............. 313,800 3,351 OneBeacon Insurance Group Ltd. ............... 48,000 572 Platinum Underwriters Holdings Ltd. .......... 123,900 4,432 PMA Capital Corp. ## ......................... 231,200 1,105 Presidential Life Corp. ...................... 108,700 1,014 ProAssurance Corp. ## ........................ 36,900 1,855 Reinsurance Group of America, Inc. ........... 265,900 12,258 Safety Insurance Group, Inc. ................. 44,100 1,476 StanCorp Financial Group, Inc. ............... 352,450 12,939 Stewart Information Services Corp. ........... 109,880 982 Torchmark Corp. .............................. 187,800 7,625 Tower Group, Inc. ............................ 207,200 5,093 United America Indemnity Ltd. ## ............. 1,206,243 8,456 United Fire & Casualty, Co. .................. 38,830 679 Unitrin, Inc. ................................ 65,500 1,284 Universal American Corp. ## .................. 415,100 4,151 Validus Holdings Ltd. ........................ 112,444 2,845 White Mountains Insurance Group Ltd. ......... 3,300 1,021 Zenith National Insurance Corp. .............. 27,310 779 ----------- 198,263 ----------- REAL ESTATE - 3.53% Alexandria Real Estate Equities, Inc. + ...... 66,630 3,609 BioMed Realty Trust, Inc. .................... 527,570 7,159 CapLease, Inc. ............................... 943,100 3,235 CBL & Associates Properties, Inc. + .......... 265,170 2,164 Cohen & Steers, Inc. + ....................... 132,548 2,562 DiamondRock Hospitality Co. .................. 817,390 6,220 Douglas Emmett, Inc. ......................... 292,270 3,449 EastGroup Properties, Inc. ................... 61,510 2,264 Entertainment Properties Trust ............... 147,350 5,013 Essex Property Trust, Inc. ................... 47,080 3,540 Extra Space Storage, Inc. .................... 272,950 2,612 Forestar Group, Inc. ## ...................... 32,100 474
See accompanying notes 9 AMERICAN BEACON SMALL CAP VALUE FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Hilltop Holdings, Inc. ## ............ 116,000 $ 1,373 LaSalle Hotel Properties ............. 231,920 3,980 Mack-Cali Realty Corp. ............... 107,980 3,342 MI Developments, Inc. ................ 425,100 6,036 Mission West Properties, Inc. ........ 136,010 904 Omega Healthcare Investors, Inc. ..... 244,670 3,709 Redwood Trust, Inc. .................. 195,775 2,729 Urstadt Biddle Properties, Inc. ...... 65,970 974 U-Store-It Trust ..................... 1,077,630 6,143 WP Carey & Co. LLC ................... 40,920 1,134 --------------- 72,625 --------------- TOTAL FINANCIALS 421,825 --------------- HEALTH CARE - 8.20% BIOTECHNOLOGY - 0.05% Cubist Pharmaceuticals, Inc. ## ...... 64,300 1,089 --------------- HEALTH CARE EQUIPMENT & SUPPLIES - 0.98% CONMED Corp. ## ...................... 27,200 576 The Cooper Companies, Inc. ........... 55,600 1,557 Immucor, Inc. ## ..................... 83,030 1,485 IMS Health, Inc. ..................... 229,500 3,762 Kensey Nash Corp. ## ................. 91,630 2,191 Kinetic Concepts, Inc. ## ............ 145,900 4,842 STERIS Corp. ......................... 196,340 5,745 --------------- 20,158 --------------- HEALTH CARE PROVIDERS & SERVICES - 4.85% Air Methods Corp. ## ................. 115,670 3,533 AMERIGROUP Corp. ## .................. 394,710 8,703 Assisted Living Concepts, Inc. ## .... 48,410 1,003 Centene Corp. ## ..................... 291,550 5,198 Coventry Health Care, Inc. ## ........ 50,500 1,001 Gentiva Health Services, Inc. ## ..... 354,000 8,496 Health Net, Inc. ## .................. 173,400 2,585 Healthways Inc. ## .................. 62,300 1,002 Kindred Healthcare, Inc. ## .......... 80,100 1,178 LifePoint Hospitals, Inc. ## ......... 594,780 16,850 Lincare Holdings, Inc. ## ............ 364,000 11,433 Magellan Health Services, Inc. ## .... 143,730 4,618 MAXIMUS, Inc. ........................ 222,875 10,310 Mednax Inc. ## ...................... 75,150 3,902 Molina Healthcare, Inc. ## ........... 52,400 981 Odyssey HealthCare, Inc. ## .......... 237,960 3,317 Parexel International Corp. ## ....... 565,480 7,080 RehabCare Group, Inc. ## ............. 117,960 2,212 Res-Care, Inc. ## .................... 303,350 3,649 Sun Healthcare Group, Inc. ## ........ 223,400 2,029
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Triple-S Management Corp. ## + ....... 50,300 $ 840 --------------- 99,920 --------------- PHARMACEUTICALS - 2.32% Endo Pharmaceuticals Holdings, Inc. ## ........................... 455,320 10,199 King Pharmaceuticals, Inc. ## ........ 1,346,600 13,641 Medicis Pharmaceutical Corp. ......... 264,800 5,606 NBTY, Inc. ## ........................ 348,250 12,680 Perrigo Co. + ........................ 148,200 5,512 --------------- 47,638 --------------- TOTAL HEALTH CARE 168,805 --------------- INDUSTRIALS - 19.45% AEROSPACE & DEFENSE - 1.73% AAR Corp ## ........................ 130,800 2,565 BE Aerospace, Inc. ## ................ 426,540 7,562 Ceradyne, Inc. ## .................... 90,000 1,451 Curtiss-Wright Corp. ................. 105,150 3,135 Esterline Technologies Corp. ## ...... 98,850 4,163 Hawk Corp. ## ........................ 107,600 1,498 Spirit Aerosystems Holdings, Inc. ## ........................... 153,270 2,440 Triumph Group, Inc. .................. 206,230 9,654 World Fuel Services Corp. ............ 60,800 3,092 --------------- 35,560 --------------- AIRLINES - 0.06% Aircastle Ltd. ....................... 162,769 1,289 --------------- BUILDING PRODUCTS - 2.07% Apogee Enterprises, Inc. ............. 345,000 4,568 Armstrong World Industries, Inc. ## .. 185,300 6,902 Crane Co. ............................ 301,950 8,409 Drew Industries, Inc. ## ............. 144,771 2,771 Griffon Corp. ## ..................... 154,651 1,356 Insituform Technologies, Inc. ## ..... 404,700 8,580 Simpson Manufacturing Co., Inc. ...... 359,775 8,415 USG Corp. ## + ....................... 134,000 1,761 --------------- 42,762 --------------- COMMERCIAL SERVICES & SUPPLIES - 5.86% Administaff, Inc. .................... 215,200 5,341 American Ecology Corp. ............... 144,090 2,395 Brink's Home Security Holdings, Inc. ## ........................... 115,380 3,574 Clean Harbors, Inc. ## ............... 52,668 2,973 Convergys Corp. ## ................... 276,100 2,996 Con-way, Inc. ........................ 76,500 2,524 CSG Systems International, Inc. ## ... 109,800 1,794 Deluxe Corp. ......................... 133,300 1,897 Dollar Financial Corp. ## ............ 39,800 747
See accompanying notes 10 AMERICAN BEACON SMALL CAP VALUE FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Ennis, Inc. .......................... 94,700 $ 1,435 G&K Services, Inc. ................... 37,820 838 Heidrick & Struggles International, Inc. .............................. 249,420 6,824 Herman Miller, Inc. .................. 210,700 3,255 Hudson Highland Group, Inc. ## ....... 511,600 1,658 Kelly Services, Inc. ................. 149,600 1,658 Koppers Holdings, Inc. ............... 30,100 786 Korn/Ferry International ## .......... 791,140 12,627 Layne Christensen Co. ## ............. 62,990 1,631 Manpower, Inc. ....................... 87,100 4,129 McGrath Rentcorp ..................... 85,448 1,688 PHH Corp. ## + ....................... 522,800 8,448 Pre-Paid Legal Services, Inc. ## ..... 62,370 2,466 Spherion Corp. ## .................... 400,400 1,982 Steelcase, Inc., A Shares ............ 420,760 2,428 Team Inc. ## ........................ 140,754 2,284 TeleTech Holdings, Inc. ## ........... 3,000 54 United Stationers, Inc. ## ........... 126,300 5,954 Valassis Communications, Inc. ## ..... 1,615,100 29,443 Viad Corp. ........................... 81,430 1,425 Waste Connections, Inc. ## ........... 171,490 5,390 --------------- 120,644 --------------- CONSTRUCTION & ENGINEERING - 1.69% Comfort Systems USA, Inc. ............ 649,395 7,078 EMCOR Group, Inc. ## ................. 482,300 11,392 Granite Construction, Inc. ........... 135,170 3,860 MasTec, Inc. ## ...................... 69,200 817 Shaw Group Inc. ## ................... 123,407 3,167 Tutor Perini Corp. ## ................ 479,700 8,467 --------------- 34,781 --------------- CONSUMER DISCRETIONARY - 0.07% Weight Watchers International, Inc. .. 51,600 1,368 --------------- DIVERSIFIED MANUFACTURING - 0.71% Acuity Brands, Inc. .................. 99,194 3,140 Barnes Group, Inc. ................... 153,630 2,435 Kennametal, Inc. ..................... 382,900 9,021 --------------- 14,596 --------------- ELECTRICAL EQUIPMENT - 1.48% Anixter International, Inc. ## ....... 180,859 7,569 AZZ, Inc. ## ......................... 25,200 863 Encore Wire Corp. + .................. 53,570 1,112 EnerSys ## ........................... 98,700 2,181 General Cable Corp. ## + ............. 86,800 2,703 Hubbell, Inc. ........................ 157,300 6,690 Powell Industries, Inc. ## ........... 10,400 383
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Regal-Beloit Corp. ................... 191,600 $ 8,982 --------------- 30,483 --------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -0.73% Diebold, Inc. ........................ 388,210 11,739 PerkinElmer, Inc. .................... 183,700 3,419 --------------- 15,158 --------------- MACHINERY - 3.87% Applied Industrial Technologies, Inc. .............................. 212,000 4,289 Astec Industries, Inc. ## ............ 139,786 3,215 Brady Corp. .......................... 87,750 2,376 Briggs & Stratton Corp. .............. 25,500 477 Bucyrus International, Inc. .......... 102,800 4,566 CIRCOR International, Inc. ........... 34,800 948 Flowserve Corp. ...................... 81,500 8,004 Gardner Denver, Inc. ## .............. 242,800 8,719 Harsco Corp. ......................... 201,100 6,333 Middleby Corp ## ................... 16,800 761 Miller Industries, Inc. ## ........... 231,100 2,323 Mueller Industries, Inc. ............. 106,810 2,527 Oshkosh Corp. ........................ 542,000 16,943 Reliance Steel & Aluminum Co. ........ 28,800 1,051 RSC Holdings, Inc. ## + .............. 71,390 481 SPX Corp. ............................ 17,400 918 Terex Corp. ## ....................... 465,400 9,410 Timken Co. ........................... 101,510 2,236 Trinity Industries, Inc. ............. 44,400 750 Watts Water Technologies, Inc. ....... 117,900 3,331 --------------- 79,658 --------------- MARINE - 0.67% Cal Dive International, Inc. ## ...... 306,000 2,350 Genco Shipping & Trading Ltd. + ...... 303,000 6,027 Hornbeck Offshore Services, Inc. ## .. 53,500 1,300 Kirby Corp. ## ....................... 122,000 4,124 --------------- 13,801 --------------- ROAD & RAIL - 0.51% Amerco, Inc. ## ...................... 20,835 881 Arkansas Best Corp. .................. 36,000 929 Bristow Group, Inc. ## ............... 60,300 1,758 GATX Corp. ........................... 193,400 5,257 Marten Transport Ltd. ## ............. 94,610 1,659 --------------- 10,484 --------------- TOTAL INDUSTRIALS 400,584 --------------- INFORMATION TECHNOLOGY - 13.82% COMMUNICATIONS EQUIPMENT - 1.16% Adaptec, Inc. ## ..................... 158,500 506
See accompanying notes 11 AMERICAN BEACON SMALL CAP VALUE FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Arris Group, Inc. ## ................. 282,240 $ 2,896 Avocent Corp. ## ..................... 202,700 5,041 Black Box Corp. ...................... 266,400 7,062 Harmonic, Inc. ## .................... 503,910 2,645 Harte Hanks, Inc. .................... 44,200 519 Sonus Networks, Inc. ## .............. 1,008,747 1,937 Sycamore Networks, Inc. ## ........... 1,195,500 3,407 --------------- 24,013 --------------- COMPUTERS & PERIPHERALS - 1.54% Avid Technology, Inc. ## ............. 111,540 1,409 Electronics for Imaging, Inc. ## ..... 606,656 7,073 Hypercom Corp ## ................... 615,100 1,753 Ingram Micro, Inc. ## ................ 833,700 14,715 Mercury Computer Systems, Inc. ## .... 355,200 3,801 NCR Corp. ## ......................... 119,000 1,208 Teradata Corp. ## .................... 65,000 1,812 --------------- 31,771 --------------- ELECTRONIC COMPONENTS - 0.94% II-VI, Inc. ## ....................... 56,516 1,496 Plexus Corp ## ..................... 444,100 11,236 Thomas & Betts Corp. ## .............. 191,900 6,565 --------------- 19,297 --------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.71% Analogic Corp. ....................... 72,830 2,720 Arrow Electronics, Inc. ## ........... 246,700 6,251 AVX Corp. ............................ 280,400 3,174 Benchmark Electronics, Inc. ## ....... 423,300 7,112 Coherent, Inc. ## .................... 9,700 244 Littelfuse, Inc. ## .................. 421,200 11,608 Methode Electronics, Inc. ............ 869,433 6,303 MTS Systems Corp. .................... 120,220 3,186 Multi-Fineline Electronix, Inc. ## ... 31,300 853 Vishay Intertechnology, Inc. ## ...... 2,301,800 14,340 --------------- 55,791 --------------- INTERNET SOFTWARE & SERVICES - 1.04% DealerTrack Holdings, Inc. ## ........ 205,929 3,394 EarthLink, Inc. ...................... 491,100 3,978 InterActiveCorp ## ................... 457,600 8,667 United Online, Inc. .................. 271,380 2,171 Websense, Inc. ## .................... 195,970 3,147 --------------- 21,357 --------------- IT CONSULTING & SERVICES - 1.71% CACI International, Inc. ## .......... 149,900 7,138 ManTech International Corp. ## ....... 147,400 6,465 Ness Technologies, Inc. ## ........... 411,800 2,714 Patni Computer Systems Ltd., ADR ..... 74,300 1,430
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) SRA International, Inc. ## ........... 109,860 $ 2,061 SYNNEX Corp. ## ...................... 171,900 4,423 Syntel, Inc. ......................... 31,700 1,136 Tech Data Corp. ## ................... 256,400 9,853 --------------- 35,220 --------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS - 1.70% Brooks Automation, Inc. ## ........... 1,258,000 8,655 Cirrus Logic, Inc. ## ................ 378,690 1,833 Cymer, Inc. ## ....................... 108,890 3,728 Fairchild Semiconductor International, Inc. ## ........................... 83,000 621 FEI Co. ## ........................... 150,130 3,575 Formfactor, Inc. ## .................. 185,900 3,158 International Rectifier Corp. ## ..... 53,000 969 MKS Instruments, Inc. ## ............. 284,339 4,447 ON Semiconductor Corp. ## ............ 431,900 2,889 Teradyne, Inc. ## .................... 409,430 3,427 TriQuint Semiconductor, Inc. ## ...... 311,960 1,682 --------------- 34,984 --------------- SOFTWARE - 3.02% Aspen Technology, Inc. ## ............ 264,760 2,780 Cadence Design Systems, Inc. ## ...... 479,300 2,929 Cognex Corp. ......................... 576,200 9,271 DST Systems, Inc. ## ................. 64,900 2,707 EPIQ Systems, Inc. ## ................ 196,653 2,480 Fair Isaac Corp. ..................... 36,400 740 infoGROUP, Inc. ...................... 1,114,300 7,310 Informatica Corp. ## ................. 176,260 3,742 JDA Software Group, Inc. ## .......... 380,750 7,554 Lawson Software, Inc. ## ............. 1,145,700 7,229 Mentor Graphics Corp. ## ............. 1,120,700 8,181 Novell, Inc. ## ...................... 827,400 3,384 TIBCO Software, Inc. ## .............. 293,500 2,568 TradeStation Group, Inc. ## .......... 181,920 1,404 --------------- 62,279 --------------- TOTAL INFORMATION TECHNOLOGY 284,712 --------------- MATERIALS - 4.65% BASIC MATERIALS - 0.03% Innophos Holdings, Inc. .............. 35,100 679 --------------- CHEMICALS - 1.89% H.B. Fuller Co. ...................... 99,330 1,898 Olin Corp. ........................... 415,700 6,348 OM Group Inc. ## .................... 63,100 1,705 PolyOne Corp. ## ..................... 1,636,000 9,129 RPM International, Inc. .............. 846,800 14,921
See accompanying notes 12 AMERICAN BEACON SMALL CAP VALUE FUND SCHEDULE OF INVESTMENTS October 31, 2009
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) Westlake Chemical Corp. .............. 204,300 $ 4,962 --------------- 38,963 --------------- CONTAINERS & PACKAGING - 1.05% Greif, Inc. .......................... 82,300 4,405 Jarden Corp. ......................... 212,600 5,823 Packaging Corp. of America ........... 291,320 5,325 Rock-Tenn Co. ........................ 64,400 2,821 Temple-Inland, Inc. .................. 210,100 3,246 --------------- 21,620 --------------- METALS & MINING - 1.59% AMCOL International Corp. ............ 73,980 1,926 Carpenter Technology Corp. ........... 530,030 11,146 Century Aluminum Co. ## .............. 67,800 588 Coeur d'Alene Mines Corp. ## + ....... 161,950 3,252 Compass Minerals International, Inc. .............................. 14,500 904 GrafTech Int'l Ltd. ## ............... 210,120 2,837 Hecla Mining Co. ## + ................ 278,100 1,143 Kaiser Aluminum Corp. ................ 41,600 1,662 Patriot Coal Corp. ## + .............. 135,500 1,531 RTI International Metals, Inc. ## .... 186,030 3,853 Schnitzer Steel Industries, Inc. ..... 14,400 623 Universal Stainless & Alloy ## ....... 36,700 554 USEC, Inc. ## + ...................... 493,600 1,905 Worthington Industries, Inc. ......... 66,970 740 --------------- 32,664 --------------- PAPER & FOREST PRODUCTS - 0.09% Glatfelter ........................... 2,750 29 Wausau Paper Corp. ................... 194,770 1,708 --------------- 1,737 --------------- TOTAL MATERIALS 95,663 --------------- TELECOMMUNICATION SERVICES - 0.14% DIVERSIFIED TELECOMMUNICATION - 0.14% Cincinnati Bell, Inc. ## ............. 539,400 1,661 EchoStar Corp. ## .................... 70,800 1,286 --------------- TOTAL TELECOMMUNICATION SERVICES 2,947 --------------- UTILITIES - 6.02% ELECTRIC UTILITIES - 4.62% Avista Corp. ......................... 132,300 2,508 Black Hills Corp. .................... 115,000 2,802 El Paso Electric Co. ## .............. 326,490 6,122 Empire District Electric Co. ......... 175,950 3,178 Great Plains Energy, Inc. ............ 922,400 15,957 IDACORP, Inc. ........................ 289,900 8,143 Mirant Corp. ## ...................... 310,700 4,344
SHARES VALUE --------------- --------------- (DOLLARS IN THOUSANDS) OGE Energy Corp. ..................... 362,800 $ 12,052 Pinnacle West Capital Corp. .......... 185,110 5,798 PNM Resources, Inc. .................. 464,500 4,979 Portland General Electric Co. ........ 816,610 15,181 RRI Energy, Inc. ## .................. 196,900 1,038 Westar Energy, Inc. .................. 684,600 13,110 --------------- 95,212 --------------- GAS UTILITIES - 1.06% AGL Resources, Inc. .................. 55,100 1,926 Atmos Energy Corp. ................... 277,700 7,734 Energen Corp. ........................ 105,502 4,629 Nicor, Inc. .......................... 81,970 3,040 Southern Union Co. ................... 139,000 2,720 Southwest Gas Corp. .................. 65,700 1,642 --------------- 21,691 --------------- MULTI-UTILITIES - 0.34% NV Energy, Inc. ...................... 609,400 6,984 --------------- TOTAL UTILITIES 123,887 --------------- TOTAL COMMON STOCKS ..................... 1,957,347 --------------- SHORT TERM INVESTMENTS - 5.01% American Beacon U.S. Government Money Market Select Fund ++ ............. 20,000,000 20,000 JP Morgan U.S. Government Money Market Fund .............................. 74,972,062 74,972
PAR AMOUNT --------------- U.S. Treasury, 0.02%, Due 12/10/2009 # ........... $ 8,268 8,267 TOTAL SHORT TERM INVESTMENTS ............ 103,239 ---------------
SHARES --------------- SECURITIES LENDING COLLATERAL - 4.95% American Beacon U.S. Government Money Market Select Fund +++ ............ 50,000,000 50,000 JP Morgan U.S. Government Money Market Fund .............................. 51,879,406 51,879 TOTAL SECURITIES LENDING COLLATERAL ..... 101,879 --------------- TOTAL INVESTMENTS 105.00% - (COST $2,105,955) ....................... 2,162,465 LIABILITIES, NET OF OTHER ASSETS - (5.00%) .................................. (103,020) TOTAL NET ASSETS - 100.00% ................. $ 2,059,445 ===============
See accompanying notes 13 AMERICAN BEACON SMALL CAP VALUE FUND SCHEDULE OF INVESTMENTS October 31, 2009 Percentages are stated as a percent of net assets. ## Non-income producing security. + All or a portion of this security is on loan at October 31, 2009. +++ The Fund is affiliated by having the same investment advisor. # At October 31, 2009, security pledged as collateral for open futures contracts. FUTURES CONTRACTS (DOLLARS IN THOUSANDS)
UNREALIZED NUMBER OF EXPIRATION MARKET APPRECIATION/ CONTRACTS DATE VALUE (DEPRECIATION) --------- ---------- -------- -------------- Emini Mini Russell .. 1,793 Dec 2009 $100,731 $(5,968) ======== ========
See accompanying notes 14 AMERICAN BEACON SMALL CAP VALUE FUND(SM) STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2009 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS: Investments in unaffiliated securities, at value (A C) ....... $ 2,092,465 Investments in affiliated securities, at value (B) ........... 70,000 Receivable for investments sold .............................. 12,349 Dividends and interest receivable ............................ 669 Receivable for fund shares sold .............................. 1,491 Receivable for tax reclaims .................................. 2 Prepaid expenses ............................................. 89 ----------- TOTAL ASSETS .............................................. 2,177,065 ----------- LIABILITIES: Payable for investments purchased ............................ 7,979 Payable upon return of securities loaned ..................... 101,879 Payable for fund shares redeemed ............................. 1,051 Payable for variation margin on open futures contracts ....... 2,559 Management and investment advisory fees payable (Note 2) ..... 2,909 Administrative service and service fees payable .............. 734 Other liabilities ............................................ 509 ----------- TOTAL LIABILITIES ......................................... 117,620 ----------- NET ASSETS ...................................................... $ 2,059,445 =========== ANALYSIS OF NET ASSETS: Paid-in-capital .............................................. 2,634,209 Undistributed net investment income .......................... 9,850 Accumulated net realized loss ................................ (635,156) Unrealized appreciation of investments, futures contracts, and foreign currency ...................................... 50,542 ----------- NET ASSETS ...................................................... $ 2,059,445 =========== SHARES OUTSTANDING (NO PAR VALUE): Institutional Class .......................................... 72,333,735 =========== Y Class ...................................................... 71 =========== Investor Class ............................................... 51,209,186 =========== Advisor Class ................................................ 2,028,093 =========== Retirement Class ............................................. 86 =========== AMR Class .................................................... 18,932,884 =========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE: Institutional Class .......................................... $ 14.39 =========== Y Class ...................................................... $ 14.37 =========== Investor Class ............................................... $ 14.05 =========== Advisor Class ................................................ $ 13.97 =========== Retirement Class ............................................. $ 13.95 =========== AMR Class .................................................... $ 14.32 ===========
- ---------- (A) Cost of investments in unaffiliated securities .............. $ 2,035,955 (B) Cost of investments in affiliated securities ................ $ 70,000 (C) Market value of securities on loan .......................... $ 99,198
SEE ACCOMPANYING NOTES 15 AMERICAN BEACON SMALL CAP VALUE FUND(SM) STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2009 (IN THOUSANDS) INVESTMENT INCOME: Dividend income from unaffiliated securities (net of foreign taxes)* ................................... $ 26,400 Dividend income from affiliated securities ................... 160 Interest income .............................................. 44 Income derived from securities lending, net .................. 3,122 ----------- TOTAL INVESTMENT INCOME ................................... 29,726 ----------- EXPENSES: Management and investment advisory fees (Note 2) ............. 7,981 Administrative service fees (Note 2): Institutional Class ....................................... 2,531 Investor Class ............................................ 1,949 Advisor Class ............................................. 82 AMR Class ................................................. 103 Transfer agent fees: Institutional Class ....................................... 59 Investor Class ............................................ 50 Advisor Class ............................................. 4 AMR Class ................................................. 11 Custody and fund accounting fees ............................. 290 Professional fees ............................................ 87 Registration fees and expenses ............................... 67 Service fees: Investor Class (Note 2) ................................... 2,021 Advisor Class (Note 2) .................................... 68 Distribution fees - Advisor Class (Note 2) ................... 69 Prospectus and shareholder reports ........................... 418 Trustee fees ................................................. 183 Other expenses ............................................... 196 ----------- TOTAL EXPENSES ............................................ 16,169 ----------- Net fees waived and expenses reimbursed by Manager (Note 2) .. (9) ----------- NET EXPENSES .............................................. 16,160 ----------- NET INVESTMENT INCOME ........................................... 13,566 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from: Investments ............................................... (340,575) Commission recapture (Note 1) ............................. 278 Futures contracts ......................................... (14,698) Change in net unrealized appreciation or depreciation of: Investments ............................................... 597,542 Futures contracts ......................................... 27,946 ----------- NET GAIN ON INVESTMENTS ................................ 270,493 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............ $ 284,059 =========== * Foreign taxes .............................................. $ 40
SEE ACCOMPANYING NOTES 16 AMERICAN BEACON SMALL CAP VALUE FUND(SM) STATEMENT OF CHANGES OF NET ASSETS (IN THOUSANDS)
Year Ended Year Ended October 31, October 31, 2009 2008 ----------- ----------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income ........................................ $ 13,566 $ 32,606 Net realized loss on investments, futures contracts, and foreign currency transactions ............................. (354,995) (266,287) Change in net unrealized appreciation or (depreciation) of investments, futures contracts, and foreign currency translations .............................................. 625,488 (785,333) ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................................................... 284,059 (1,019,014) ---------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Institutional Class ....................................... (13,600) (13,291) Investor Class ............................................ (8,841) (9,332) Advisor Class ............................................. (311) (298) AMR Class ................................................. (3,927) (4,903) Net realized gain on investments: Institutional Class ....................................... -- (152,714) Investor Class ............................................ -- (145,952) Advisor Class ............................................. -- (7,763) AMR Class ................................................. -- (43,605) ---------- ----------- NET DISTRIBUTIONS TO SHAREHOLDERS ...................... (26,679) (377,858) ---------- ----------- CAPITAL SHARE TRANSACTIONS: Proceeds from sales of shares ................................ 529,412 463,771 Reinvestment of dividends and distributions .................. 26,349 371,165 Cost of shares redeemed ...................................... (523,004) (879,196) NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE ---------- ----------- TRANSACTIONS ........................................... 32,757 (44,260) ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS ........................... 290,137 (1,441,132) ---------- ----------- NET ASSETS: Beginning of period .......................................... 1,769,308 3,210,440 ---------- ----------- END OF PERIOD * .............................................. $2,059,445 $ 1,769,308 ========== =========== * Includes undistributed net investment income of ............... $ 9,850 $ 23,220 ========== ===========
SEE ACCOMPANYING NOTES 17 AMERICAN BEACON SMALL CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES American Beacon Funds (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. These financial statements and notes to the financial statements relate to the American Beacon Small Cap Value Fund (the "Fund"), a series of the Trust. 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. Class Disclosure Prior to March 1, 2009, the Investor and Advisor Classes were known as the PlanAhead and Service Classes, respectively. May 1, 2009 and August 3, 2009 are the inception dates of the Retirement and Y Classes, respectively. The Fund has multiple classes of shares designed to meet the needs of different groups of investors. The following table sets forth the differences amongst the classes:
CLASS: OFFERED TO: - ------ ----------- INSTITUTIONAL CLASS Investors making an initial investment of $250,000 Y CLASS Investors making an initial investment of $100,000 INVESTOR CLASS General public and investors investing through an intermediary ADVISOR CLASS Investors investing through an intermediary RETIREMENT CLASS Investors investing through an intermediary AMR CLASS Investors in the tax-exempt retirement and benefit plans of AMR Corporation and its affiliates
Administrative service fees, service fees and distribution fees vary amongst the classes as described more fully in footnote 2. Investment income, net capital gains (losses) and all expenses incurred by the Fund are allocated based on the relative net assets of each class, except for service fees and certain other fees and expenses related solely to one class of shares. Security Valuation Investments are valued at the close of the New York Stock Exchange (the "Exchange"), normally 4 p.m. ET, each day that the Exchange is open for business. Equity securities for which market quotations are available are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) on the primary market or exchange on which they trade. Debt securities (other than short-term securities) normally are valued on the basis of prices provided by an independent pricing service and may take into account appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The prices of debt securities may be determined using quotes obtained from brokers. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. Investment grade short-term obligations with 60 days or less to maturity are valued using the amortized cost method, which approximates market value. 18 AMERICAN BEACON SMALL CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 Securities for which market prices are not readily available or are not reflective of the fair value of the security, as determined by the Manager, will be priced at fair value following procedures approved by the Board of Trustees (the "Board"). Valuation Inputs Various inputs may be used to determine the value of the Fund's investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. 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 other significant unobservable inputs. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available. The Fund's investments are summarized by level based on the inputs used to determine their values. As of October 31, 2009, the Fund's investments were classified as follows: (in thousands)
Level 1 Level 2 Level 3 Total ---------- ------- ------- ---------- Common Stock ........................ $1,957,347 $ -- $-- $1,957,347 Short Term Investments .............. 196,851 8,267 -- 205,118 ---------- ------ --- ---------- Total Investments in Securities .. $2,154,198 $8,267 $-- $2,162,465 ========== ====== === ========== Futures Contracts ................... $ 100,731 -- -- $ 100,731
Security Transactions and Investment Income Security transactions are recorded on the trade date of the security purchase or sale. The Fund may purchase securities with delivery or payment to occur at a later date. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded and the value of the security is reflected in the net asset value. The value of the security may vary with market fluctuations. Dividend income, net of foreign taxes, is recorded on the ex-dividend date except certain dividends from foreign securities which are recorded as soon as the information is available to the Fund. Interest income is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification. Futures Contracts Futures contracts are contracts to buy or sell a standard quantity of securities at a specified price on a future date. The Fund may enter into financial futures contracts as a method for keeping assets readily convertible to cash if needed to meet shareholder redemptions or for other needs while maintaining exposure to the stock or bond market, as applicable. The primary risks associated with the use of futures contracts are the possibility of illiquid markets or imperfect correlation between the values of the contracts and the underlying securities, or that the counterparty will fail to perform its obligations. Upon entering into a futures contract, the Fund is required to set aside or deposit with a broker an amount, termed the initial margin, which typically represents 5% of the face value of the futures contract. The Fund reflects this amount on the Schedule of Investments as a U.S. Treasury Bill held as collateral for futures contracts. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures 19 AMERICAN BEACON SMALL CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 contract fluctuates. Changes in initial settlement values are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. Futures contracts are valued at the most recent settlement price established each day by the exchange on which they are traded. Values of Derivative Instruments not accounted for as hedging instruments as of October 31, 2009 (in thousands)
Liability Statement of Assets and Liabilities Derivatives Fair Value - ----------------------------------- ----------------- ---------- Unrealized appreciation of investments, futures contracts, and foreign currency .. Equity Contracts* $(5,968)
Effect of derivative instruments not accounted for as hedging instruments during the year ended October 31, 2009 (in thousands)
Statement of Operations Derivative Fair Value - ----------------------------------- ----------------- ---------- Net realized gain (loss) from futures contracts ................................ Equity Contracts $(14,698) Change in net unrealized appreciation or depreciation of futures contracts ........ Equity Contracts $ 27,946
* Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments footnotes. Only current day's variation margin is reported within the Statements of Assets and Liabilities. Dividends to Shareholders Dividends from net investment income of the Fund normally will be declared and paid at least annually. Distributions, if any, of net realized capital gains are generally paid at least annually and recorded on the ex-dividend date. Commission Recapture The Fund has established brokerage commission recapture arrangements with certain brokers or dealers. If the Fund's investment advisor chooses to execute a transaction through a participating broker, the broker rebates a portion of the commission back to the Fund. Any collateral benefit received through participation in the commission recapture program is directed exclusively to the Fund. This amount is reported with the net realized gain in the Fund's Statement of Operations. Allocation of Income, Expenses, Gains, and Losses Income, expenses (other than those attributable to a specific class), gains, and losses are allocated daily to each class of shares based upon the relative proportion of net assets represented by such class. Operating expenses directly attributable to a specific class are charged against the operations of that class. 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 trustees 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. 20 AMERICAN BEACON SMALL CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 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, fund management, and securities lending services. Investment assets of the Fund are managed by multiple investment advisors which have entered into separate investment advisory agreements with the Manager. As compensation for performing the duties required under the Management Agreement, the Manager receives from the Fund an annualized fee equal to 0.05% of the average daily net assets plus amounts paid by the Manager to the investment advisors hired by the Manager to direct investment activities of the Fund. Management fees paid during the year ended October 31, 2009 were as follows (dollars in thousands):
AMOUNTS PAID TO NET AMOUNTS MANAGEMENT FEE RATE MANAGEMENT FEE INVESTMENT ADVISORS RETAINED BY MANAGER - ------------------- -------------- ------------------- ------------------- 0.30%-0.55% $7,981 $7,118 $863
As compensation for services provided by the Manager in connection with securities lending activities, the lending Fund pays to the Manager, with respect to cash collateral posted by borrowers, a fee up to 25% of the net monthly interest income (the gross interest income earned by the investment of cash collateral, less the amount paid to borrowers and related expenses) from such activities and, with respect to loan fees paid by borrowers when a borrower posts collateral other than cash, a fee up to 25% of such loan fees. This fee is netted against securities lending income in the Statement of Operations. During the year ended October 31, 2009, securities lending fees paid to the Manager were $376,084. Administrative Services Agreement The Manager and the Trust entered into an Administrative Services Agreement which obligates the Manager to provide or oversee administrative services to the Fund. As compensation for performing the duties required under the Administrative Services Agreement, the Manager receives an annualized fee of 0.30% of the average daily net assets of the Institutional, Y, Investor, Advisor, and Retirement Classes of the Fund and 0.05% of the average daily net assets of the AMR Class of the Fund. Distribution Plans The Fund, except for the Advisor and Retirement Classes of the Fund, has adopted a "defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act, pursuant to which no fees may be charged to the Fund for distribution purposes. However, the Plan authorizes the management and administrative service fees received by the Manager and the investment advisors hired by the Manager to be used for distribution purposes. Under this Plan, the Fund does not intend to compensate the Manager or any other party, either directly or indirectly, for the distribution of Fund shares. Separate Distribution Plans (the "Distribution Plans") have been adopted pursuant to Rule 12b-1 under the Act for the Advisor and Retirement Classes of the Fund. Under the Distribution Plans, as compensation for distribution assistance, the Manager receives an annual fee of 0.25% of the average daily net assets of the Advisor Class and 0.50% of the average daily net assets of the Retirement Class. The fee will be payable without regard to whether the amount of the fee is more or less than the actual expenses incurred in a particular month by the Manager for distribution assistance. Service Plans The Manager and the Trust entered into Service Plans that obligate the Manager to oversee additional shareholder servicing of the Y, Investor, Advisor and Retirement Classes. As compensation for performing the duties required under the Service Plans, the Manager receives 0.10% of the average daily net assets of the Y Class, 0.25% of 21 AMERICAN BEACON SMALL CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 the average daily net assets of the Advisor and Retirement Classes, and up to 0.375% of the average daily net assets of the Investor Class of the Fund. Brokerage Commissions Affiliated entities of a sub-advisor to the Fund received net commissions on purchases and sales of the Fund's portfolio securities totaling $36,667 for the year ended October 31, 2009. Investment in Affiliated Funds The Fund may invest in the American Beacon Money Market Select Fund (the "MM Select Fund") and the American Beacon US Government Money Market Select Fund (the "USG Select Fund"), (collectively the "Select Funds"). Cash collateral received by the Fund in connection with securities lending may be invested in the Select Funds. The Select Funds and the Fund have the same investment advisor and therefore, are considered to be affiliated. The Manager serves as investment advisor to the Select Funds and receives from the Select Funds an annualized fee of 0.09% of the average daily net assets of the Select Funds. During the year ended October 31, 2009, the Manager earned fees from the Select Funds totaling $18,730 on the Fund's direct investment in the Select Funds and $43,516 from the Fund's securities lending collateral invested in the Select Funds. Interfund Lending Program Pursuant to an exemptive order by the SEC, the Fund, along with other registered investment companies having management contracts with the Manager, may participate in an interfund lending program as a borrower. This program provides an alternative credit facility allowing the Fund to borrow from other participating Funds. During the year ended October 31, 2009, the Fund did not utilize the credit facility. Expense Reimbursement Plan The Fund has adopted an Expense Reimbursement Plan whereby the Manager may seek repayment of fees waived or expenses reimbursed for a period of up to three years. However, reimbursement will occur only if the Class's average net assets have grown or expenses have declined sufficiently to allow reimbursement without causing its expense ratio to exceed the previously agreed upon contractual expense limit. During the year ended October 31, 2009, the Advisor Class waived $9,375. A liability has not been booked as the Manager does not intend to seek repayment of this reimbursement. 3. FEDERAL INCOME AND EXCISE TAXES It is the policy of the Fund 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 Fund does not have any unrecognized tax benefits in the accompanying financial statements. Each of the tax years in the four year period ended October 31, 2008 remains subject to examination by the Internal Revenue Service. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in "Other expenses" on the Statement 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 during the fiscal years ended October 31, 2009 and October 31, 2008 were as follows (in thousands): 22 AMERICAN BEACON SMALL CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009
YEAR ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, 2009 2008 ----------- ----------- DISTRIBUTIONS PAID FROM: ORDINARY INCOME* Institutional Class .. $13,600 $ 37,816 Investor Class ....... 8,841 32,770 Advisor Class ........ 311 1,545 AMR Class ............ 3,927 11,905 LONG-TERM CAPITAL GAIN Institutional Class .. -- 128,189 Investor Class ....... -- 122,514 Advisor Class ........ -- 6,516 AMR Class ............ -- 36,603 ------- -------- TOTAL DISTRIBUTIONS PAID ... $26,679 $377,858 ======= ========
* For tax purposes, short-term capital gains are considered ordinary income distributions. As of October 31, 2009, the components of distributable earnings on a tax basis were as follows (in thousands): Cost basis of investments for federal income tax purposes .. $2,161,523 Unrealized appreciation .................................... 225,324 Unrealized depreciation .................................... (224,382) ---------- Net unrealized appreciation/(depreciation) ................. 942 Undistributed ordinary income .............................. 7,869 Undistributed long-term gain/(loss) ........................ (577,607) Other temporary differences ................................ (5,968) ---------- Distributable earnings ..................................... $ (574,764) ==========
Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. The temporary differences between financial reporting and tax-basis reporting of unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses from wash sales, the realization for tax purposes of unrealized gains/(losses) on certain derivative instruments, and reclassifications of income from real estate investment securities. Due to inherent differences in the recognition of income, expenses and realized gains/losses under U.S. generally accepted accounting principles and federal income tax regulations, permanent differences between book and tax reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities. Accordingly, the following amounts represent current year permanent differences derived from reclassifications of income from real estate investment securities, foreign currency, and dividend reclasses that have been reclassified as of October 31, 2009 (in thousands): Paid-in-capital ......................................... $ -- Undistributed net investment income (loss) .............. (257) Accumulated net realized gain (loss) .................... 258 Unrealized appreciation (depreciation) of investments, futures contracts and foreign currency ............... (1)
At October 31, 2009 the capital loss carry forward positions for federal income tax purposes were $259,968 and $323,607 expiring in 2016 and 2017 respectively. (in thousands) 4. INVESTMENT TRANSACTIONS The aggregate cost of purchases and proceeds from sales of investments, other than short-term obligations, for the year ended October 31, 2009 were (in thousands) $1,143,259 and $993,662, respectively. A summary of the Fund's direct transactions in the Select Funds for the year ended October 31, 2009 is set forth below (in thousands): 23 AMERICAN BEACON SMALL CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009
OCTOBER 31, 2008 OCTOBER 31, 2009 AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE - --------------------- ------------------- --------- ------- ------------------- MM Select Fund ...... $93,829 $ -- $93,829 $ -- USG Select Fund ..... $ -- $30,000 $10,000 $20,000
5. SECURITIES LENDING The Fund may lend its securities to qualified financial institutions, such as certain broker-dealers, to earn additional income. The borrowers are required to secure their loans continuously with collateral in an amount at least equal to the fair value of the securities loaned, initially in an amount at least equal to 102% of the fair value of domestic securities loaned and 105% of the fair value of international securities loaned. Collateral is monitored and marked to market daily. Daily mark to market amounts are required to be paid to the borrower or received from the borrower by the end of the following business day. This one day settlement for mark to market amounts may result in the collateral being temporarily less than the value of the securities on loan or temporarily more than the required minimum collateral. To the extent that a loan is collateralized by cash, such cash collateral shall be invested by the securities lending agent (the "Agent") in money market mutual funds, and other short-term investments, provided the investments meet certain quality and diversification requirements. Securities lending income is generated from the demand premium (if any) paid by the borrower to borrow a specific security and from the return on investment of cash collateral, reduced by negotiated rebate fees paid to the borrower and transaction costs. To the extent that a loan is secured by non-cash collateral, securities lending income is generated as a demand premium reduced by transaction costs. The Fund, the Agent, and the Manager retain 75%, 15%, and 10%, respectively, of the income generated from securities lending. While securities are on loan, the Fund continues to receive any income associated with that security and any gain or loss in the market price that may occur during the term of the loan. Securities lending transactions pose certain risks to the Fund, including that the borrower may not provide additional collateral when required or return the securities when due, that the value of the short-term investments will be less than the amount of cash collateral required to be returned to the borrower, that non-cash collateral may be subject to legal constraints in the event of a borrower bankruptcy, and that the cash collateral investments could become illiquid and unable to be used to return collateral to the borrower. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the cash collateral available for return to the borrower and any action which impairs its ability to liquidate non-cash collateral to satisfy a borrower default. As of October 31, 2009, the value of outstanding securities on loan and the value of collateral was as follows (in thousands):
MARKET VALUE OF SECURITIES ON LOAN NON-CASH COLLATERAL CASH COLLATERAL POSTED BY BORROWER - ------------------ ------------------- ---------------------------------- $ 99,198 $-- $101,879
Cash collateral is listed in the Fund's Schedule of Investments and is shown on the Statement of Assets and Liabilities. Income earned on these investments is included in Income derived from securities lending in the Statement of Operations. Non-cash collateral received by the Fund may not be sold or re-pledged except to satisfy a borrower default. Therefore, non-cash collateral is not included on the Fund's Schedule of Investments or Statement of Assets and Liabilities. 24 AMERICAN BEACON SMALL CAP VALUE FUND(SM) NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2009 6. CAPITAL SHARE TRANSACTIONS The tables below summarize the activity in capital shares for each Class of the Fund (dollars and shares in thousands): Year Ended October 31, 2009
INSTITUTIONAL CLASS Y CLASS INVESTOR CLASS ------------------- ----------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------- --------- ------ -------- ------- --------- Shares sold ............................ 26,973 $ 326,038 -- $ 1 11,685 $ 134,422 Reinvestment of dividends .............. 1,227 13,407 -- -- 813 8,704 Shares redeemed ........................ (21,813) (257,527) -- -- (18,535) (216,176) ------- --------- --- --- ------- ---------- Net increase (decrease) in shares outstanding ......................... 6,387 $ 81,918 -- $ 1 (6,037) $(73,050) ======= ========= === === ======= ==========
ADVISOR CLASS RETIREMENT CLASS AMR CLASS ------------------- ----------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------- --------- ------ -------- ------- --------- Shares sold ............................ 752 $ 8,517 -- $ 1 4,659 $ 60,433 Reinvestment of dividends .............. 29 311 -- -- 361 3,927 Shares redeemed ........................ (1,513) (17,313) -- -- (2,907) (31,988) ------- -------- --- --- ------ -------- Net increase (decrease) in shares outstanding ......................... (732) $ (8,485) -- $ 1 (2,113) $(32,372) ======= ======== === === ====== ========
Year Ended October 31, 2008
INSTITUTIONAL CLASS INVESTOR CLASS ADVISOR CLASS AMR CLASS ------------------- ----------------- ------------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------- --------- ------ -------- ------- --------- ------- --------- Shares sold ............................ 14,496 $ 244,453 10,422 $172,430 888 $ 14,694 1,925 $ 32,194 Reinvestment of dividends .............. 8,983 161,791 8,677 152,805 460 8,061 2,708 48,508 Shares redeemed ........................ (21,496) (364,982) (22,737) (376,472) (1,809) (29,610) (6,475) (108,132) ------- --------- ------- -------- ------ --------- ------ --------- Net increase (decrease) in shares outstanding ......................... 1,983 $ (41,262) (3,638) $(51,237) (461) $ (6,855) (1,842) $ (27,430) ======= ========= ======= ======== ====== ========= ====== =========
7. SUBSEQUENT EVENTS Management has evaluated the possibility of subsequent events existing in the Fund's financial statements through December 23, 2009. Management has determined that there are no material events that would require disclosure in the Fund's financial statements through this date. 25 AMERICAN BEACON SMALL CAP VALUE FUND(SM) FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class Y Class --------------------------------------------------------- ----------- August Year Ended October 31, 3 to --------------------------------------------------------- October 2009 2008 2007 2006 2005(A) 31, 2009 ---------- -------- ---------- ---------- ---------- ----------- Net asset value, beginning of period .................. $ 12.53 $ 22.10 $ 22.53 $ 20.43 $ 18.85 $ 14.03 ---------- -------- ---------- ---------- ---------- ----------- Income from investment operations: Net investment income (loss) .................. 0.10 0.25 0.22 0.19 0.11 0.00 Net gains (losses) on securities (both realized and unrealized) ......... 1.96 (7.13) 1.10 2.94 2.31 0.34 ---------- -------- ---------- ---------- ---------- ----------- Total income (loss) from investment operations ...... 2.06 (6.88) 1.32 3.13 2.42 0.34 ---------- -------- ---------- ---------- ---------- ----------- Less distributions: Dividends from net investment income ....... (0.20) (0.22) (0.19) (0.14) (0.07) -- Distributions from net realized gains on securities .............. -- (2.47) (1.56) (0.89) (0.77) -- ---------- -------- ---------- ---------- ---------- ----------- Total distributions ........... (0.20) (2.69) (1.75) (1.03) (0.84) -- ---------- -------- ---------- ---------- ---------- ----------- Net asset value, end of period ..................... $ 14.39 $ 12.53 $ 22.10 $ 22.53 $ 20.43 $ 14.37 ========== ======== ========== ========== ========== =========== Total return(E) ............... 16.97% (34.84)% 6.10% 15.80% 12.90% 2.42%(C) ========== ======== ========== ========== ========== =========== Ratios and supplemental data: Net assets, end of period (in thousands) .......... $1,040,805 $826,232 $1,413,734 $1,319,024 $1,076,909 $ 1 Ratios to average net assets (annualized): Expenses, net of waivers .............. 0.84% 0.81% 0.80% 0.82% 0.87% 1.11%(D) Expenses before waivers .............. 0.84% 0.81% 0.80% 0.82% 0.87% 1.11%(D) Net investment income (loss), net of waivers .............. 0.87% 1.36% 0.94% 0.83% 0.66% 0.03%(D) Net investment income (loss), before waivers ....... 0.87% 1.36% 0.94% 0.83% 0.66% 0.03%(D) Portfolio turnover rate .... 61% 62% 52% 48% 47% 61%(B) Investor Class ------------------------------------------------------- Year Ended October 31, ------------------------------------------------------- 2009 2008 2007 2006 2005(A) -------- -------- ---------- ---------- ---------- Net asset value, beginning of period .................. $ 12.22 $ 21.62 $ 22.08 $ 20.04 $ 18.54 -------- -------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) .................. 0.08 0.20 0.16 0.13 0.09 Net gains (losses) on securities (both realized and unrealized) ......... 1.91 (6.97) 1.07 2.89 2.24 -------- -------- ---------- ---------- ---------- Total income (loss) from investment operations ...... 1.99 (6.77) 1.23 3.02 2.33 -------- -------- ---------- ---------- ---------- Less distributions: Dividends from net investment income ....... (0.16) (0.16) (0.13) (0.09) (0.06) Distributions from net realized gains on securities .............. -- (2.47) (1.56) (0.89) (0.77) -------- -------- ---------- ---------- ---------- Total distributions ........... (0.16) (2.63) (1.69) (0.98) (0.83) -------- -------- ---------- ---------- ---------- Net asset value, end of period ..................... $ 14.05 $ 12.22 $ 21.62 $ 22.08 $ 20.04 ======== ======== ========== ========== ========== Total return(E) ............... 16.68% (35.04)% 5.83% 15.56% 12.63% ======== ======== ========== ========== ========== Ratios and supplemental data: Net assets, end of period (in thousands) .......... $719,239 $699,670 $1,316,188 $1,333,814 $1,320,853 Ratios to average net assets (annualized): Expenses, net of waivers .............. 1.15% 1.06% 1.05% 1.06% 1.10% Expenses before waivers .............. 1.15% 1.06% 1.05% 1.06% 1.10% Net investment income (loss), net of waivers .............. 0.59% 1.12% 0.70% 0.59% 0.42% Net investment income (loss), before waivers ....... 0.59% 1.12% 0.70% 0.59% 0.42% Portfolio turnover rate .... 61% 62% 52% 48% 47% Retirement Advisor Class Class --------------------------------------------------------- ----------- Year Ended October 31, May 1 to --------------------------------------------------------- October 31, 2009 2008 2007 2006 2005(A) 2009 ---------- -------- ---------- ---------- ---------- ----------- Net asset value, beginning of period .................. $ 12.13 $ 21.46 $ 21.94 $ 19.94 $ 18.49 $ 11.58 ---------- -------- ---------- ---------- ---------- ----------- Income from investment operations: Net investment income (loss) .................. 0.06 0.16 0.10 0.07 0.04 (0.02) Net gains (losses) on securities (both realized and unrealized) ......... 1.90 (6.93) 1.07 2.88 2.23 2.39 ---------- -------- ---------- ---------- ---------- ----------- Total income (loss) from investment operations ...... 1.96 (6.77) 1.17 2.95 2.27 2.37 ---------- -------- ---------- ---------- ---------- ----------- Less distributions: Dividends from net investment income ....... (0.12) (0.09) (0.09) (0.06) (0.05) -- Distributions from net realized gains on securities .............. -- (2.47) (1.56) (0.89) (0.77) -- ---------- -------- ---------- ---------- ---------- ----------- Total distributions ........... (0.12) (2.56) (1.65) (0.95) (0.82) -- ---------- -------- ---------- ---------- ---------- ----------- Net asset value, end of period ..................... $ 13.97 $ 12.13 $ 21.46 $ 21.94 $ 19.94 $ 13.95 ========== ======== ========== ========== ========== =========== Total return(E) ............... 16.41% (35.19)% 5.55% 15.23% 12.32% 20.47%(C) ========== ======== ========== ========== ========== =========== Ratios and supplemental data: Net assets, end of period (in thousands) .......... $ 28,333 $ 33,479 $ 69,112 $ 70,602 $ 44,709 $ 1 Ratios to average net assets (annualized): Expenses, net of waivers .............. 1.31% 1.31% 1.32% 1.34% 1.40% 1.53%(D) Expenses before waivers .............. 1.34% 1.31% 1.32% 1.34% 1.40% 1.53%(D) Net investment income (loss), net of waivers .............. 0.48% 0.86% 0.43% 0.31% 0.12% (0.28)%(D) Net investment income (loss), before waivers ....... 0.44% 0.86% 0.43% 0.31% 0.12% (0.28)%(D) Portfolio turnover rate .... 61% 62% 52% 48% 47% 61%(B) AMR Class ------------------------------------------------------- Year Ended October 31, ------------------------------------------------------- 2009 2008 2007 2006 2005(A) -------- -------- ---------- ---------- ---------- Net asset value, beginning of period .................. $ 12.48 $ 22.05 $ 22.48 $ 20.38 $ 18.78 -------- -------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) .................. 0.11 0.33 0.30 0.27 0.21 Net gains (losses) on securities (both realized and unrealized) ......... 1.97 (7.15) 1.08 2.91 2.26 -------- -------- ---------- ---------- ---------- Total income (loss) from investment operations ...... 2.08 (6.82) 1.38 3.18 2.47 -------- -------- ---------- ---------- ---------- Less distributions: Dividends from net investment income ....... (0.24) (0.28) (0.25) (0.19) (0.10) Distributions from net realized gains on securities .............. -- (2.47) (1.56) (0.89) (0.77) -------- -------- ---------- ---------- ---------- Total distributions ........... (0.24) (2.75) (1.81) (1.08) (0.87) -------- -------- ---------- ---------- ---------- Net asset value, end of period ..................... $ 14.32 $ 12.48 $ 22.05 $ 22.48 $ 20.38 ======== ======== ========== ========== ========== Total return(E) ............... 17.30% (34.71)% 6.39% 16.12% 13.23% ======== ======== ========== ========== ========== Ratios and supplemental data: Net assets, end of period (in thousands) .......... $271,066 $209,927 $ 411,406 $ 412,857 $ 424,965 Ratios to average net assets (annualized): Expenses, net of waivers .............. 0.59% 0.56% 0.54% 0.55% 0.58% Expenses before waivers .............. 0.59% 0.56% 0.54% 0.55% 0.58% Net investment income (loss), net of waivers .............. 1.11% 1.62% 1.21% 1.10% 0.94% Net investment income (loss), before waivers ....... 1.11% 1.62% 1.21% 1.10% 0.94% Portfolio turnover rate .... 61% 62% 52% 48% 47%
(A) Opus Capital Group, LLC was added as an investment advisor on February 1, 2005 and Metropolitan West Capital Management, LLC and Dreman Value Management, LLC were added as investment advisors on August 31, 2005. (B) Portfolio turnover rate is for the period from November 1, 2008 through October 31, 2009. (C) Not annualized. (D) Annualized. (E) May include adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. 26 AMERICAN BEACON FUNDS PRIVACY POLICY & FEDERAL TAX INFORMATION (UNAUDITED) PRIVACY POLICY The American Beacon Funds recognizes and respects the privacy of our shareholders. We are providing this notice to you so you will understand how shareholder information may be collected and used. We may collect nonpublic personal information about you from one or more of the following sources: - information we receive from you on applications or other forms; - information about your transactions with us or our service providers; and - information we receive from third parties. We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. We restrict access to your nonpublic personal information to those employees or service providers who need to know that information to provide products or services to you. To ensure the confidentiality of your nonpublic personal information, we maintain safeguards that comply with federal standards. FEDERAL TAX INFORMATION For corporate shareholders in the Fund, the percentage of ordinary dividend income distributed for the year ended October 31, 2009, which is designated as qualifying for the dividends-received deduction, was 38.12%. For shareholders in the Fund, the percentage of dividend income distributed for the year ended October 31, 2009, which is designated as qualified dividend income under the Jobs Growth Tax Relief Act of 2003, was 69.55%. Shareholders will receive notification in January 2010 of the percentage applicable to the preparation of their 2009 income tax returns. 27 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND (UNAUDITED) At its May 27, 2009 meeting, the Board of Trustees ("Board") considered the renewal of each existing Management Agreement between American Beacon Advisors, Inc. (the "Manager") and the American Beacon Funds ("Beacon Trust") (the "Funds") and each Investment Advisory Agreement between the Manager and a subadvisor ("Investment Advisory Agreements" and collectively with the Management Agreement, the "Agreements"). 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 and each subadvisor. 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 and each Investment Advisory Agreement, the Trustees considered, among other materials, responses by the Manager and the subadvisors 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 1 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 subadvisors to 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; - 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; 28 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND (UNAUDITED) - a discussion of whether the firm receives, with respect to the Funds, other compensation, including any payment for order flow or ECN liquidity rebates - a 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 subadvisor and each Fund versus the respective peer group average; - a discussion, if applicable, of any underperformance by a subadvisor relative to its peer group and what, if any, remedial measures the Manager has or intends to take; - a comparison of advisory fees and expense ratios for comparable mutual funds; - an analysis of any material complaints received from Fund shareholders; - a description of the Manager's securities lending practices and the fees received from such practices; - a 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 each subadvisor to a Fund; and - a description of how expenses that are not readily identifiable to a particular Fund are allocated. In connection with the Management Agreement and each Investment Advisory Agreement, the Board also obtained an analysis provided by Lipper that compared: (i) investment performance of each Fund versus comparable investment companies and appropriate indices; (ii) total Fund expenses of each Fund versus comparable mutual funds; and (iii) each Fund's investment advisory fees versus comparable mutual funds. For each Fund with more than one class of shares, the class of shares used for comparative purposes was the class with the longest performance history, which in most cases was the Institutional Class. References below to each Fund's Lipper peer group are to the group of comparable mutual funds included in the analysis provided by Lipper. 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 each subadvisor and the primary factors considered by the Board at its May 27, 2009 meeting at which the Board considered the renewal of the Agreements. The Board did not identify any particular information that was most relevant to its consideration to renew the Management Agreement and each Investment Advisory Agreement, 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 Agreement and each Investment Advisory Agreement, the Trustees considered the best interests of each Fund separately. While the Management Agreement and the Investment Advisory Agreements for all of the Funds were considered at the May 27, 2009 meeting, the Board considered each Fund's investment management and subadvisory relationships separately. In each instance, the Board considered, among other things, the following factors: (1) the nature and quality of the services 29 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND (UNAUDITED) provided; (2) the investment performance of a Fund and, as applicable, each subadvisor for a Fund; (3) the costs incurred by the Manager and (to the extent provided) the subadvisors in rendering their services and their 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 or a subadvisor or their affiliates 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 or a subadvisor from their 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 Agreement, the Board considered: the background and experience of key investment personnel and the Manager's ability to retain them; the Manager's disciplined investment approach and goal to provide consistent above average long-term performance at a low cost; the Manager's continuing 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 investment subadvisors and master portfolios. With respect to the renewal of each Investment Advisory Agreement, the Trustees considered the background and experience of each subadvisor's investment personnel responsible for managing the Funds, the size of the subadvisor and their ability to continue to attract and retain qualified investment personnel. Based on the foregoing information, the Board concluded that the nature, extent and quality of the management and advisory services provided by the Manager and each subadvisor were appropriate for each Fund and, thus, determined to renew the Management Agreement and the Investment Advisory Agreement for each Fund. Investment Performance. The Board evaluated the comparative information provided by Lipper and the Manager regarding each Fund's investment performance relative to its benchmark index(es) and peer group. The Board considered the information provided by Lipper regarding its independent peer selection methodology to select all peer groups and universes. The Board also considered the performance reports and discussions with management at Board and Committee meetings throughout the year. The Manager also noted that it generally was satisfied with the performance of the subadvisors. A discussion regarding the Board's considerations with respect to each Fund's performance appears below under "Additional Considerations and Conclusions with Respect to Each Fund." Costs of the Services 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 and a subadvisor 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 Beacon Trust, stipulates 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. The index series of the Funds also operate under a master-feeder structure, but each of these series invests in a master portfolio that is not managed by the Manager. As such, the Board considered that the Manager does not receive a management fee with respect to the International Equity Index, S&P 500 Index, or Small Cap Index Funds. With respect to the Short-Term Bond Fund, 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 further considered that each subadvised Fund pays the Manager the amounts due to its subadvisors, and the Manager remits these amounts directly to the applicable subadvisors. 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. In addition, the Board considered that the Manager receives management fees for overseeing the securities lending relationships on behalf of various Funds. The Board also noted that certain classes of the Funds maintain higher expense ratios in order to compensate third-party distributors. In analyzing the cost of services and profitability for each subadvisor in connection with its investment advisory services to the Fund, the Board considered that, in many cases, the Manager has negotiated the lowest subadvisory fee a subadvisor charges for any comparable client accounts. The Board gave less weight to profitability considerations or did not view this data as imperative to its deliberations given the arm's length nature of the relationship between the Manager and the subadvisors with respect to the negotiation of subadvisory fees. Based on the foregoing information, the Board concluded that the profitability levels were reasonable in light of the services performed by the Manager and the subadvisors. 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 and investment advisory 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. In this regard, the Board considered that the Manager has negotiated breakpoints in many subadvisory fee rates. The Board also noted that, for purposes of determining the fee rates chargeable to the Funds, many subadvisors have agreed to take into account other assets of AMR Corporation and its pension plans that are managed by the subadvisors. Thus, the Funds are able to receive lower effective fee rates. 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 30 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND (UNAUDITED) the industry. Based on the foregoing information, the Board concluded that the Manager and subadvisor fee schedules for each Fund provides for a reasonable sharing of benefits from any economies of scale with the Fund. Benefits Derived from the Relationship with the Funds. The Board considered the "fall-out" or ancillary benefits that accrue to the Manager and/or the subadvisors as a result of the advisory relationships with the Funds, including greater exposure in the marketplace with respect to the Manager's or subadvisor's investment process and expanding the level of assets under management by the Manager and the subadvisors. The Board also considered that the Manager's relationship with the Funds 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. The Board considered that certain of the subadvisors reimburse the Manager for certain of its costs relating to distribution activities for the Funds. The Board also considered that Funds did not pay commissions to any affiliated broker-dealer of the Manager or the relevant subadvisor during the most recent fiscal year ended October 31. Based on the foregoing information, the Board concluded that the potential benefits accruing to the Manager and the subadvisors by virtue of their relationships with the Funds appear to be fair and reasonable. Additional Considerations and Conclusions with Respect to Each Fund Except for the Short-Term Bond Fund, the performance comparisons below were made versus each Fund's Lipper peer universe median. 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. Additional Considerations and Conclusions with Respect to the Small Cap Value Fund In considering the renewal of the Management Agreement for the Small Cap Value Fund, the Trustees considered the following additional factors: (1) the Small Cap Value Fund outperformed the peer universe median for the one-, three-, and ten-year periods ended March 31, 2009 but underperformed for the five-year period; and (2) the expense ratio of the Institutional Class of Fund shares ranked better than the median of its Lipper expense universe. In considering the renewal of the Investment Advisory Agreements with Barrow, Brandywine, Dreman Value Management, LLC ("Dreman"), Hotchkis, MetWest, TBC, and Opus Capital Group, LLC ("Opus"), the Trustees considered the following additional factors: (1) Hotchkis outperformed the peer universe median for the ten-year period and the quarter ended March 31, 2009, but underperformed for the one- three- and five-year periods; (2) Brandywine outperformed the peer universe median for the three- and ten-year periods ended March 31, 2009, but underperformed for the one- and five-year periods; (3) Barrow outperformed the peer universe median for the three- and five-year periods ended March 31, 2009, but underperformed for the one-year period; (4) TBC and Opus outperformed the peer universe median for the one- and three-year periods ended March 31, 2009; (5) Dreman and MetWest have not been allocated a portion of Fund assets to date; (6) management's analysis regarding the rationale for Hotchkis', Brandywine's and Barrow's underperformance; (7) that management will continue to monitor, and the Board or its Investment Committee will periodically review, Barrow's investment performance with respect to its allocated portion of the Small Cap Value Fund's assets; (8) Barrow, Brandywine, Hotchkis, and TBC informed the Manager that they use Fund commissions to obtain proprietary research, the application of which benefits the Fund and each of those subadvisors' clients; (9) Barrow, Brandywine, Hotchkis and TBC have indicated that they do not charge lower advisory fees to other clients for which they provide comparable services; and (10) the Manager's recommendation to continue to retain each subadvisor. Based on these and other considerations the Trustees (1) concluded that the fees paid to the Manager and the subadvisors under the Agreements are fair and reasonable, (2) determined that the Small Cap Value Fund and its shareholders would benefit from the Manager's and subadvisors' continued management of the Fund and (3) approved the renewal of the Management and Investment Advisory Agreements with respect to the Small Cap Value Fund. 31 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED) The Trustees and officers of the American Beacon Funds (the "Trust") are listed below, together with their principal occupations during the past five years. Unless otherwise indicated, the address of each person listed below is 4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees nineteen funds in the fund complex that includes the Trust, the American Beacon Master Trust, the American Beacon Mileage Funds, and the American Beacon Select Funds. The Trust's Statement of Additional Information contains additional information about the Trustees and is available without charge by calling 1-800-658-5811.
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS - --------------------- ------------------ ---------------------------------------------------------------- INTERESTED TRUSTEES Term Lifetime of Trust until removal, resignation or retirement* Alan D. Feld** (72) Trustee since 1996 Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (1960-Present); Director, Clear Channel Communications (1984-Present); Trustee, CenterPoint Properties (1994-2006); Member, Board of Trustees, Southern Methodist University; Member, Board of Visitors, M.D. Anderson Hospital; Board of Visitors, Zale/Lipshy Hospital; Trustee, American Beacon Mileage Funds (1996-present); Trustee, American Beacon Select Funds (1996-present); Trustee, American Beacon Master Trust Funds (1996-present). NON-INTERESTED TRUSTEES Term Lifetime of Trust until removal, resignation or retirement* W. Humphrey Bogart (65) Trustee since 2004 Board Member, Baylor University Medical Center Foundation (1992-2004); Consultant, New River Canada Ltd. (mutual fund servicing company) (1998-2003); President and CEO, Allmerica Trust Company, NA (1996-1997); President and CEO, Fidelity Investments Southwest Company (1983-1995); Senior Vice President of Regional Centers, Fidelity Investments (1988-1995); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). Brenda A. Cline (49) Trustee since 2004 Executive Vice President, Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Trustee, Texas Christian University (1998-Present); Trustee, W.I. Cook Foundation, Inc. (d/b/a Cook Children's Health Foundation) (2001-2006); Director, Christian Church Foundation (1999-2007); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). Eugene J. Duffy (55) Trustee since 2008 Bank of Atlanta (2008-Present); Chairman, Special Contributions Fund Board of Trustees, National Association for the Advancement of Colored People (2007-Present); Trustee, National Association for the Advancement of Colored People (2000-Present); Board of Visitors, Emory University (2006-Present); Trustee, Atlanta Botanical Garden (2006-Present); Board Member, Willie L. Brown Jr. Institute on Politics and Public Service (2001-Present); Chair, National Association of Securities Professionals (2000-2002); Deputy Chief Administrative Officer, City of Atlanta (1985-1990); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present).
32 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED)
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS - --------------------- ------------------ ---------------------------------------------------------------- Thomas M. Dunning (66) Trustee since 2008 Consultant, (2008-Present); Chairman (2003-2008) and Chief Executive Officer (2003-2007), Lockton Dunning Benefits (consulting firm in employee benefits); Director, Oncor Electric Delivery Company LLC (2007-present); Advisory Director, Comerica Texas (2003-present); Immediate Past Chairman and Board Member, Dallas Citizens Council; Director, Baylor Health Care System Foundation (2007-present); State Vice Chair, State Fair of Texas; Board Member, Southwestern Medical Foundation (1994-present); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present). Richard A. Massman (66) Trustee since 2004 Consultant and General Counsel Emeritus (2009-Present), Senior Chairman since Vice President and General Counsel, Hunt Consolidated, Inc. 2008 (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities) (1994-2009). Chairman (2007-Present) and Director (2005-Present), The Dallas Opera Foundation; Chairman (2006-Present) and Director (2005-Present), Temple Emanu-El Foundation; Trustee, Presbyterian Hospital Foundation (2006-Present); Trustee, American Beacon Mileage Funds (2004-present); Trustee, American Beacon Select Funds (2004-present); Trustee, American Beacon Master Trust Funds (2004-present). R. Gerald Turner (64) Trustee since 2001 President, Southern Methodist University (1995-Present); 225 Perkins Admin. Bldg. Director, ChemFirst (1986-2002); Director, J.C. Penney Company, Southern Methodist Univ. Inc. (1996-Present); Director, California Federal Preferred Dallas, Texas 75275 Capital Corp. (2001-2003); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Director, First Broadcasting Investment Partners, LLC (2003-2007); Member, Salvation Army of Dallas Board of Directors; Member, Methodist Hospital Advisory Board; Co-Chair, Knight Commission on Intercollegiate Athletics; Trustee, American Beacon Mileage Funds (2001-present); Trustee, American Beacon Select Funds (2001-present); Trustee, American Beacon Master Trust Funds (2001-present). Paul J. Zucconi, CPA Trustee since 2008 Director, Affirmative Insurance Holdings, Inc. (producer of (68) nonstandard automobile insurance) (2004-present); Director, Titanium Metals Corporation (producer of titanium melted and mill products and sponge) (2002-present); Director, Torchmark Corporation (life and health insurance products) (2002-present); Director, National Kidney Foundation of North Texas (2003-Present); Director, Dallas Chapter of National Association of Corporate Directors (2004-Present); Partner, KPMG (1976-2001); Trustee, American Beacon Mileage Funds (2008-present); Trustee, American Beacon Select Funds (2008-present); Trustee, American Beacon Master Trust Funds (2008-present). OFFICERS Term One Year William F. Quinn** (61) Executive Vice Executive Chairman (2009-Present), Chairman (2006-2009) and CEO President from (2006-2007), President (1986-2006) and Director (2003-Present), 2007 to 2008 and American Beacon Advisors, Inc.; Chairman (1989-2003) and 2009 to Present Director (1979-1989, 2003-Present), American Airlines Federal President from Credit Union; Director, Crescent Real Estate Equities, 1987 to 2007 Inc. (1994-2007); Director, Pritchard, Hubble & Herr, LLC and 2008 to 2009 (investment advisor) (2001-2006); Director of Investment Trustee from Committee, Southern Methodist University Endowment Fund 1987 to 2008 (1996-Present); Member, Southern Methodist University Cox School of Business Advisory Board (1999-2002); Member, New York Stock Exchange Pension Manager Committee (1997-1998, 2000-2002, 2006-Present); Chairman (2007-Present) and Vice Chairman (2004-2007), Committee for the Investment of Employee Benefits; Director, United Way of Metropolitan Tarrant County (1988-2000, 2004-Present); Trustee, American Beacon Mileage Funds (1995-2008); Trustee, American Beacon Select Funds (1999-2008); Trustee, American Beacon Master Trust (1995-2008).
33 TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS (UNAUDITED)
POSITION, TERM OF OFFICE AND LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS - --------------------- ------------------ ---------------------------------------------------------------- Gene L. Needles, Jr. President 2009 to President, CEO and Director (2009-Present), American Beacon (54) Present and Advisors, Inc. President (November 2009-Present), Executive Vice Executive Vice President (May 2009-November 2009) of the American Beacon Funds, President 2009 American Beacon Mileage Funds, American Beacon Select Funds, and American Beacon Master Trust. President (2008-2009), Touchstone Investments; President (2003-2007), CEO (2004-2007), Managing Director of Sales (2002-2003), National Sales Manager (1999-2002), and Regional Sales Manager (1993-1999), AIM Distributors. Rosemary K. Behan (50) VP, Secretary and Vice President, Legal and Compliance, American Beacon Advisors, Chief Legal Inc. (2006-Present); Assistant General Counsel, First Command Officer since 2006 Financial Planning, Inc. (2004-2006); Attorney (1995-2004), Securities and Exchange Commission. Brian E. Brett (49) VP since 2004 Vice President, Director of Sales and Marketing, American Beacon Advisors, Inc. (2004-Present); Regional Vice President, Neuberger Berman, LLC (investment advisor) (1996-2004). Wyatt Crumpler (43) VP since 2007 Vice President, Asset Management, American Beacon Advisors, Inc. (2007-Present); Managing Director of Corporate Accounting (2004-2007), Director of IT Strategy and Finance (2002-2004), American Airlines, Inc. Michael W. Fields (55) VP since 1989 Vice President, Fixed Income Investments, American Beacon Advisors, Inc. (1988-Present); Director American Beacon Global Funds SPC (2002-present); Director, American Beacon Global Funds plc (2007-2009). Rebecca L. Harris (42) Treasurer since Vice President, Finance, American Beacon Advisors, Inc. 1995 (1995-Present). Christina E. Sears (38) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc. Officer since 2004 (2004-Present); Senior Compliance Analyst, American Beacon and Asst. Advisors, Inc. (1998-2004). Secretary since 1999
* The Board has adopted a retirement plan that requires Trustees to retire no later than the last day of the calendar year in which they reach the age of 72, provided, however, that the Board may determine to grant one or more annual exemptions to this requirement. ** Mr. Feld is deemed to be an "interested person" of the Trusts, as defined by the 1940 Act. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the past two fiscal years to the Manager and one or more of the Trust's and Master Trust's sub-advisors. 34 This page intentionally left blank. 35 This page intentionally left blank. 36 (AMERICAN BEACON FUNDS(SM) 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) BY E-MAIL: american_beacon.funds@ambeacon.com (GRAPHIC) ON THE INTERNET: Visit our website at www.americanbeaconfunds.com (GRAPHIC) BY TELEPHONE: Institutional, Y, Investor, Advisor and Retirement Classes Call (800) 658-5811 AMR Class(SM) Call (800) 345-2345 (GRAPHIC) BY MAIL: American Beacon Funds P.O. Box 219643 Kansas City, MO 64121-9643 AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES In addition to the Schedule of Investments provided in each semi-annual and annual report, the Fund files a complete schedule of its portfolio holdings with the Securities and Exchange Commission ("SEC") on Form N-Q as of the first and third fiscal quarters. The Fund's Forms N-Q are available on the SEC's website at www.sec.gov. The Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549. Information regarding the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. A complete schedule of the Fund's portfolio holdings is also available on the Funds' website (www.americanbeaconfunds.com) approximately thirty days after the end of each month. AVAILABILITY OF PROXY VOTING POLICY AND RECORDS A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available in the Fund's Statement of Additional Information, is available free of charge on the Fund's website (www.americanbeaconfunds.com) and by calling 1-800-967-9009 or by accessing the SEC's website at www.sec.gov. The Fund's proxy voting record for the most recent year ended June 30 is filed annually with the SEC on Form N-PX. The Fund's Forms N-PX are available on the SEC's website at www.sec.gov. The Fund's proxy voting record may also be obtained by calling 1-800-967-9009. FUND SERVICE PROVIDERS: CUSTODIAN STATE STREET BANK AND TRUST Boston, Massachusetts TRANSFER AGENT BOSTON FINANCIAL DATA SERVICES Kansas City, Missouri INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP Dallas, Texas DISTRIBUTOR FORESIDE FUND SERVICES Portland, Maine This report is prepared for shareholders of the American Beacon Funds and may be distributed to others only if preceded or accompanied by a current prospectus. American Beacon Funds and American Beacon Small Cap Value Fund are service marks of American Beacon Advisors, Inc. AR 10/09 00071318 ITEM 2. CODE OF ETHICS. The Trust has adopted a code of ethics that applies to its principal executive and financial officers (the "Code"). The Trust did not amend, nor grant any waivers to, the provisions of the Code during the period covered by the shareholder report presented in Item 1. The Code is filed herewith as Exhibit 99.CODE ETH. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Trust's Board of Trustees has determined that Mr. Paul Zucconi, a member of the Trust's Audit and Compliance Committee, is an "audit committee financial expert" as defined in Form N-CSR. Mr. Paul Zucconi is "independent" as defined in Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a)
Audit Fees Fiscal Year Ended - ---------- ----------------- $280,229 10/31/2007 $85,006 12/31/2007 $294,836 10/31/2008 $88,878 12/31/2008 $298,018 10/31/2009 $72,414 12/31/2009
(b)
Audit-Related Fees Fiscal Year Ended - ------------------ ----------------- $8,750 10/31/2007 $6,250* 12/31/2007 (revised) $0 10/31/2008 $0 12/31/2008 $13,750* 10/31/2009 $0 12/31/2009
*Review of N-1A filings (c)
Tax Fees Fiscal Year Ended - -------- ----------------- $29,199** 10/31/2007 $11,141 12/31/2007 $12,698* 10/31/2008 $6,095 12/31/2008 $10,077 10/31/2009 $10,257 12/31/2009
* For review of 2007 tax returns ** 2005 and 2006 tax compliance and tax advice related to International Equity Fund reorganization (d)
All Other Fees Fiscal Year Ended - -------------- ----------------- $0 10/31/2007 $0 12/31/2007 $0 10/31/2008 $0 12/31/2008 $0 10/31/2009 $0 12/31/2009
(e)(1) Pursuant to its charter, the Trust's Audit and Compliance Committee shall have the following duties and powers pertaining to pre-approval of audit and non-audit services provided by the Trust's principal accountant: - to approve, prior to appointment, the engagement of auditors to annually audit and provide their opinion on the Trusts' financial statements, and, in connection therewith, reviewing and evaluating matters potentially affecting the independence and capabilities of the auditors; - to approve, prior to appointment, the engagement of the auditors to provide non-audit services to the Trusts, an investment adviser to any series of the Trusts or any entity controlling, controlled by, or under common control with an investment adviser ("adviser affiliate") that provides ongoing services to the Trusts, if the engagement relates directly to the operations and financial reporting of the Trusts; - to consider whether the non-audit services provided by a Trust's auditor to an investment adviser or any adviser affiliate that provides ongoing services to a series of the Trusts, which services were not pre-approved by the Committee, are compatible with maintaining the auditor's independence; - to review the arrangements for and scope of the annual audit and any special audits; and - to review and approving the fees proposed to be charged to the Trusts by the auditors for each audit and non-audit service. The Audit and Compliance Committee may delegate any portion of its authority, including the authority to grant pre-approvals of audit and permitted non-audit services, to a subcommittee of one or more members. Any decisions of the subcommittee to grant pre-approvals shall be presented to the full audit committee at its next regularly scheduled meeting. (e)(2) None of the fees disclosed in paragraphs (b) through (d) above were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Not applicable. (g)
Aggregate Non-Audit Fees for Services Rendered to the: - ------------------------------------------------------ Adviser's Affiliates Providing Registrant Adviser Ongoing Services to Registrant Fiscal Year Ended - ---------- ------- ------------------------------ ----------------- $37,949 $0 N/A 10/31/2007 $17,391 $0 N/A 12/31/2007 (revised) $12,698 $0 N/A 10/31/2008 $6,095 $0 N/A 12/31/2008 $23,827 $0 N/A 10/31/2009 $10,257 $0 N/A 12/31/2009
(h) Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. The schedules of investments for each series of the Trust are included in the shareholder report presented in Item 1. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Trust has made no material changes to the procedures by which shareholders may recommend nominees to the Trust's Board of Trustees since the Trust last disclosed such procedures in Schedule 14A. ITEM 11. CONTROLS AND PROCEDURES. (a) Based upon an evaluation within 90 days of the filing date of this report, the principal executive and financial officers concluded that the disclosure controls and procedures of the Trust are effective. (b) There were no changes in the Trust's internal control over financial reporting during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Trust's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Filed herewith as EX-99.CODE ETH. (a)(2) A separate certification for each principal executive officer and principal financial officer of the Trust as required by Rule 30a-2(a) under the Investment Company Act of 1940 is attached hereto as EX-99.CERT. (a)(3) Not applicable. (b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940 are attached hereto as EX-99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant): American Beacon Funds By /s/ Gene L. Needles, Jr. ---------------------- Gene L. Needles, Jr. President Date: January 6, 2010 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/ Gene L. Needles, Jr. ---------------------- Gene L. Needles, Jr. President Date: January 6, 2010 By /s/ Rebecca L. Harris --------------------- Rebecca L. Harris Treasurer Date: January 6, 2010 EX-99.CERT 2 ex99cert.txt For period ended 10/31/2009 Registrant Name: American Beacon Funds File Number: 811-4984 EXHIBIT 99.CERT I, Rebecca L. Harris, certify that: 1. I have reviewed this report on Form N-CSR of American Beacon Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 6, 2010 /s/ Rebecca L. Harris ----------------- --------------------- Rebecca L. Harris Treasurer American Beacon Funds I, Gene L. Needles, Jr., certify that: 1. I have reviewed this report on Form N-CSR of American Beacon Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 6, 2010 /s/ Gene L. Needles, Jr. ----------------- --------------------- Gene L. Needles, Jr. President American Beacon Funds EX-99.CODE ETH 3 ex99code.txt For period ended 10/31/2009 Registrant Name: American Beacon Funds File Number: 811-4984 EXHIBIT 99.CODE ETH AMERICAN BEACON FUNDS AMERICAN BEACON MILEAGE FUNDS AMERICAN BEACON SELECT FUNDS AMERICAN BEACON MASTER TRUST Code of Ethics for Principal Executive and Financial Officers Dated: May 21, 2008 Purpose The American Beacon Funds, the American Beacon Mileage Funds, the American Beacon Select Funds, and the American Beacon Master Trust (collectively, the "Trusts") have adopted this Code of Ethics for Principal Executive and Financial Officers (the "Code"), which applies to the Trusts' Principal Executive Officer and Principal Financial Officer (the "Covered Officers" as set forth in Exhibit A), for the purpose of promoting: * honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; * full, fair, accurate, timely, and understandable disclosure in reports and documents that a Trust files with, or submits to, the Securities and Exchange Commission (the "SEC") and in other public communications made by the registrant; * compliance with applicable governmental laws, rules, and regulations; * the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and * accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. Conflicts of Interest For purposes of this Code, a "conflict of interest" occurs when a Covered Officer's "personal interests" interfere with the interests of, or his/her service to, the Trusts. For example, a conflict of interest would arise if a Covered Officer, or a member of his/her family, receives improper personal benefits as a result of his/her position with the Trusts. Certain conflicts of interest arise out of the relationship between Covered Officers and the Trusts and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Trusts because of their status as "affiliated persons" of the Trusts. Conflicts also may arise from a Covered Officer's position or employment at American Beacon Advisors, Inc. ("AmBeacon"), the Trusts' manager, and his/her position with each Trust. This Code recognizes that the Covered Officers will, in the normal course of their duties, be involved in establishing policies and implementing decisions that will have different effects on AmBeacon and the Trusts. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Trusts and AmBeacon and is consistent with the performance by the Covered Officers of their duties as officers of the Trusts. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Trusts. Each Covered Officer should not: * use his/her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Trusts whereby the Covered Officer would benefit personally to the detriment of the Trusts; or * cause the Trusts to take action, or fail to take action, for the personal benefit of the Covered Officer rather than the benefit of the Trusts. At times, certain situations may arise that may, or may not, be considered conflicts of interest under this Code. Covered Officers are encouraged to discuss such situations with the Trusts' Chief Legal Officer ("CLO"). Examples of these types of situations include: * service as a director on the board of any public or private company; * the receipt of any non-nominal gifts in excess of $150; * the receipt of any entertainment from any company with which the Trusts have current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; * any ownership interest in, or any consulting or employment relationship with, any of the Trusts' service providers, other than AmBeacon, the distributor for the Trusts' shares, or any affiliated person thereof; * a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Trusts for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. Disclosure and Compliance Each Covered Officer: * should familiarize himself/herself with the disclosure requirements generally applicable to the Trusts; * should not knowingly misrepresent, or cause others to misrepresent, facts about the Trusts to others, whether within or outside the Trusts, including to the Trusts' Trustees and auditors, and to governmental regulators and self-regulatory organizations; * should, to the extent appropriate within his/her area of responsibility, consult with other officers and employees of the Trusts and AmBeacon with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Trusts file with, or submit to, the SEC and in other public communications made by the Trusts; and 2 * is responsible to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. Reporting and Accountability Each Covered Officer must: * upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he/she has received, read, and understands the Code; * annual thereafter affirm to the Board that he/she has complied with the requirements of the Code; * complete at least annually the Officer Questionnaire by detailing any directorships with public or private companies and/or material relationships or transactions with affiliated persons of any Trust or its series; * not retaliate against any other Covered Officer or any employee of the Trusts or their affiliated persons for reports of potential violations that are made in good faith; and * notify the Legal Officer promptly if he/she knows of any violations of this Code. Failure to do so is itself a violation of this Code. The CLO is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. In addition, the CLO is authorized and encouraged to consult with counsel to the Trusts and counsel to the Independent Trustees of the Trusts' Boards of Trustees. However, any approvals or waivers sought by the Covered Officers will be considered by the Independent Trustees. The Trusts will follow these procedures in investigating and enforcing this Code: * the CLO will take all appropriate action to investigate any potential violations reported to him; * if, after such investigation, the CLO believes that no violation has occurred, the CLO is not required to take any further action; * any matter that the CLO believes is a violation will be reported to the Independent Trustees; * if the Independent Trustees concur that a violation has occurred, they will inform and make a recommendation to the applicable Trust's Board of Trustees, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of AmBeacon or its board; or a recommendation to dismiss the Covered Officer; * the Independent Trustees will be responsible for granting waivers, as appropriate; and * any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. 3 Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Trusts for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Trusts, AmBeacon, the distributor for the Trusts' shares, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Trusts' and AmBeacon's codes of ethics under Rule 17j-1 under the Investment Company Act and the more detailed policies and procedures set forth in the Trusts' Statement of Policy on Material Non-Public Information are separate requirements applying to the Covered Officers and others, and are not part of nor replaced by this Code. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the Board, including a majority of Independent Trustees. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Board of Trustees, its counsel and AmBeacon. Internal Use This Code is intended solely for the internal use by the Trusts and does not constitute an admission, by or on behalf of any Trust, as to any fact, circumstance, or legal conclusion. 4 EXHIBIT A Persons Covered by this Code of Ethics
Position with each Trust Name Principal Executive Officer President Gene L. Needles, Jr. Principal Financial Officer Treasurer Rebecca L. Harris
5 EX-99.906 CERT 4 ex906cert.txt For period ended 10/31/2009 Registrant Name: American Beacon Funds File Number: 811-4984 EXHIBIT 99.906CERT Gene L. Needles, Jr. and Rebecca L. Harris, respectively, the President and Treasurer of the American Beacon Funds (the "Registrant"), each certify to the best of his or her knowledge and belief that: 1. the Registrant's report on Form N-CSR for the period ended October 31, 2009 (the "Form N-CSR") fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ Gene L. Needles, Jr. /s/ Rebecca L. Harris - ---------------------- --------------------- Gene L. Needles, Jr. Rebecca L. Harris President Treasurer American Beacon Funds American Beacon Funds Date: January 6, 2010 A signed original of this written statement required by Section 906 has been provided to American Beacon Funds and will be retained by American Beacon Funds and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----