-----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, CzS0UzqnaKc9omoDHMnaDp1H13BKNrt+2/oji2Hcfmojg9voEDHymYQ8oavbNtcL U3Hx61+bORk7iFcWNe1K2A== 0000943824-08-000010.txt : 20080905 0000943824-08-000010.hdr.sgml : 20080905 20080905152713 ACCESSION NUMBER: 0000943824-08-000010 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080630 FILED AS OF DATE: 20080905 DATE AS OF CHANGE: 20080905 EFFECTIVENESS DATE: 20080905 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BEACON MILEAGE FUNDS CENTRAL INDEX KEY: 0000943824 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-09018 FILM NUMBER: 081058614 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 MILEAGE FUNDS DATE OF NAME CHANGE: 19950914 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN AADVANTAGE FUNDS II DATE OF NAME CHANGE: 19950412 0000943824 S000001846 American Beacon Money Market Mileage Fund C000004820 Mileage Class AVMXX N-CSRS 1 ncsr0608mil.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-09018 AMERICAN BEACON MILEAGE FUNDS (Exact name of registrant as specified in charter) 4151 Amon Carter Boulevard, MD 2450 Fort Worth, Texas 76155 (Address of principal executive offices)-(Zip code) William F. Quinn, PRESIDENT 4151 Amon Carter Boulevard, MD 2450 Fort Worth, Texas 76155 (Name and address of agent for service) Registrant's telephone number, including area code: (817) 967-3509 Date of fiscal year end: December 31, 2008 Date of reporting period: June 30, 2008 ITEM 1. REPORT TO STOCKHOLDERS. GUIDANCE | VISION | EXPERIENCE (AMERICAN BEACON MILEAGE FUNDS(SM) LOGO) Semi-Annual Report (GRAPHIC) June 30, 2008 MONEY MARKET MILEAGE 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 you. CONTENTS President's Message................................................ 1 Financial Highlights Money Market Mileage Fund....................................... 13 Schedule of Investments Money Market Portfolio.......................................... 14 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 Money Market Mileage Fund June 30, 2008 (PHOTO OF WILLIAM F. QUINN) Fellow Shareholders, I am pleased to present to you the Semi-Annual Report for the American Beacon Money Market Mileage Fund for the six months ended June 30, 2008. The American Beacon Money Market Mileage Fund reported a total return of 1.36% for this six-month period with an expense ratio of 76 basis points (0.76%) for its most recent fiscal year. During the period, the sub-prime mortgage crisis continued to cause uncertainties surrounding banks, investment banks and the entire financial system, resulting in an extraordinary amount of volatility. The Federal Reserve ("Fed") was challenged to fulfill its dual mandate of balancing the risks to both growth and inflation. Inflation concerns were mounting, but weak economic growth and turmoil in the financial markets limited the Fed's ability to raise interest rates in the near term to strengthen the U.S. dollar and counter inflation. We feel the Fund's strategy of investing in high credit quality securities combined with lower than average expense ratios will continue to benefit the Fund's yield while protecting the Fund's liquidity for the long term. Please review the enclosed market overview, portfolio listings and detailed financial data. As always, we welcome the opportunity to serve your financial needs. To obtain further details about the American Beacon Funds family or to access your account information, please visit our website at www.americanbeaconfunds.com. Thank you for your continued confidence in the American Beacon Money Market Mileage Fund. Sincerely, /s/ William F. Quinn William F. Quinn President American Beacon Mileage Funds 1 ECONOMIC OVERVIEW JUNE 30, 2008 (UNAUDITED) The Federal Open Market Committee ("Fed") left the rates unchanged at 2.00% at the June 25th meeting, ending a 225 basis point (2.25%) easing cycle that began in September 2007. In addition, the Fed shifted its bias toward inflation risk, opening the door to the possibility that the next move could be a rate hike. However, inflation was not the Fed's only concern. They have also had to contend with a softening labor market, declining house prices, and continued strain in the financial markets. Headline producer and consumer prices both surprised to the upside in June. Thus far, waning consumer demand limited companies' ability to pass on higher raw materials costs, but this trend began to reverse as corporate profits eroded. Although inflation was on the rise, sluggish economic growth remained a chief concern for the Fed. Nonfarm payrolls declined by 438,000 for the first half of 2008, resulting in a rise in the unemployment rate to 5.5%. This combined with continued declines in home prices caused consumer confidence to drop to the lowest levels on record. Although the fiscal stimulus package is expected to buoy second quarter gross domestic product, the economic slowdown may deepen in the second half of 2008 as the impact of federal tax rebates fade. The Fed continued to address financial market instability. Although measures taken by the Fed to increase liquidity have eased short-term funding pressures somewhat, financial markets remained volatile. In response to renewed concerns over the health of the nation's financial system, Fed Chairman Ben Bernanke recently announced that the central bank may extend its emergency loan program for investment banks into 2009. The program was created in March and was set to potentially expire in mid-September. Bernanke stated that the Fed is "currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue in dealer funding markets." Given all of the above, the Fed was challenged to fulfill its dual mandate of balancing the risks to both growth and inflation. Inflation concerns mounted, but weak economic growth and turmoil in the financial markets limited the Fed's ability to raise interest rates in the near term. Bernanke stated, "Given the high degree of uncertainty, monetary policy makers will need to carefully assess incoming information bearing on the outlook for both inflation and growth." 2 PERFORMANCE OVERVIEW AMERICAN BEACON MONEY MARKET MILEAGE FUND(SM) JUNE 30, 2008 (UNAUDITED) As the economy continued to show signs of weakening during the first half of the year, the Federal Reserve ("Fed") continued its series of easing monetary policy. The year began with an overnight target rate of 4.25% before the Fed eased by 75 basis points (0.75%) inter-meeting on January 22nd. The Fed continued to cut rates at the following three Federal Open Market Committee ("FOMC") meetings, resulting in a 2.00% fed funds target by the April 30th FOMC meeting. The Fed has remained on hold the last two meetings, expressing concern for both inflation and slow growth. In response to the events that caused the Fed to ease, the American Beacon Money Market Fund's weighted-average maturity was maintained around 40 days. With credit quality a priority, the primary strategy of the Fund for the first half of the year was to buy high-quality, short-dated, fixed-rate securities and overnight investments. The strategies implemented during the year enabled the Fund to outperform its Lipper peer group. For the six months ended June 30, 2008, the total return of the American Beacon Money Market Mileage Fund - Mileage Class was 1.36%. The Fund outperformed the Lipper Money Market Instrument Average return of 1.25% by 11 basis points (0.11%). Based on annualized total returns, Lipper, Inc. ranked the Mileage Class of the Fund 147 among 337, 64 among 293, and 47 among 192 Institutional Money Market Funds for the one-year, five-year, and ten-year periods ended June 30, 2008, respectively. The Lipper Money Market Instrument Average is calculated by taking an arithmetic average of the returns of the mutual funds in the Lipper Money Market Funds category. Lipper is an independent mutual fund research and ranking service that ranks mutual funds in various categories by making comparative calculations using total returns. (BAR CHART)
ANNUALIZED TOTAL RETURNS AS OF 06/30/2008 --------------------------- 1 YEAR 5 YEARS 10 YEARS ------ ------- -------- Mileage Class (1, 2)................. 3.63% 2.92% 3.34%
(1) Performance shown is historical and may not be indicative of future returns. Investment returns will vary, and shares may be worth more or less at redemption than at original purchase. An investment in this Fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in the Fund. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. (2) The total annual Fund operating expense ratio set forth in the most recent prospectus for the Fund was 0.76%. The expense ratio above may vary from the expense ratio presented in other sections of this report, which is based on expenses incurred during the period covered by this report. 3 PERFORMANCE OVERVIEW AMERICAN BEACON MONEY MARKET MILEAGE FUND(SM) JUNE 30, 2008 (UNAUDITED) PORTFOLIO STATISTICS AS OF JUNE 30, 2008 7-day Current Yield* ............................................... 2.21% 7-day Effective Yield* ............................................. 2.23% 30-day Yield* ...................................................... 2.19% Weighted Avg. Maturity ............................................. 34 Days
* Annualized. You may call 1-800-967-9009 to obtain the Fund's current 7-day yields. Yield is a more accurate reflection of the Fund's current earnings than total returns. TOP TEN ISSUERS AS OF JUNE 30, 2008
% OF NET ASSETS** -------- General Electric Capital Corp. ..................................... 5.3% Rabobank Nederland N.Y. ............................................ 5.1% Westpac Banking Corp. .............................................. 4.7% Nordea Bank Finland N.Y. ........................................... 4.3% Toronto Dominion Bank N.Y. ......................................... 4.3% U.S. Bank, NA ...................................................... 4.3% BNP Paribas N.Y. ................................................... 4.1% Barclays Bank plc .................................................. 3.9% Toyota Motor Credit Corp. .......................................... 3.6% Bank of Nova Scotia N.Y. ........................................... 3.5%
** Percent of net assets of American Beacon Master Money Market Portfolio. ASSET ALLOCATION AS OF JUNE 30, 2008
% OF NET ASSETS** -------- Bank CDs, TDs and Notes............................................. 49.1% Commercial Paper.................................................... 25.9% Corporate Notes..................................................... 10.2% Short-Term Investments.............................................. 9.0% Repurchase Agreements............................................... 7.1% Liabilities, Net of Other Assets.................................... -1.3%
** Percent of net assets of American Beacon Master Money Market Portfolio. 4 FUND EXPENSES AMERICAN BEACON MONEY MARKET MILEAGE FUND(SM) JUNE 30, 2008 (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, and other Fund expenses. The examples below are intended to help you understand the ongoing cost (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2008 through June 30, 2008. ACTUAL EXPENSES The "Actual" line of the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The "Hypothetical" line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed 5% per year rate of return before expenses (not the Fund's actual return). You may compare the ongoing costs of investing in the Fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs charged by the Fund. Similarly, the expense examples for other funds do not reflect any transaction costs charged by those funds, such as sales charges (loads), redemption fees or exchange fees. Therefore, the "Hypothetical" line of the table is 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.
Expenses Paid Beginning Ending During Account Account Period* Value Value 1/1/08- 1/1/2008 6/30/08 6/30/08 --------- --------- ------------- MILEAGE CLASS Actual .......................................... $1,000.00 $1,013.62 $3.50 Hypothetical (5% return before expenses) ........ $1,000.00 $1,021.38 $3.51
* Expenses are equal to the Fund's annualized expense ratios for the six-month period of 0.70%, 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 (182) by days in the year (366) to reflect the half-year period. 5 AMERICAN BEACON MONEY MARKET MILEAGE FUND STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2008 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS: Investment in Portfolio, at value ............................. $ 47,205 Receivable for fund share sold ................................ 2 Receivable from Manager for expense reimbursement (Note 2) .... 1 Prepaid expenses .............................................. 10 ----------- TOTAL ASSETS ............................................... 47,218 ----------- LIABILITIES: Payable for fund shares redeemed .............................. 83 Distribution fees payable (Note 2) ............................ 10 Dividends payable ............................................. 1 Administrative service and service fees payable (Note 2) ...... 4 Other liabilities ............................................. 23 ----------- TOTAL LIABILITIES .......................................... 121 ----------- NET ASSETS .................................................... $ 47,097 =========== ANALYSIS OF NET ASSETS: Paid-in-capital ............................................ 47,097 ----------- NET ASSETS ....................................................... $ 47,097 =========== SHARES OUTSTANDING (NO PAR VALUE): Mileage Class ................................................. 47,097,094 =========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE: Mileage Class ................................................. $ 1.00 ===========
See accompanying notes See accompanying Financial Statements of the American Beacon Master Portfolio 6 AMERICAN BEACON MONEY MARKET MILEAGE FUND STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) (IN THOUSANDS) INVESTMENT INCOME ALLOCATED FROM PORTFOLIO: Interest income ............................................... $ 806 Portfolio expenses ............................................ (25) ----------- NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO ............. 781 ----------- FUND EXPENSES: Administrative service fees - Mileage Class (Note 2) .......... 24 Transfer agent fees - Mileage Class ........................... 21 Professional fees ............................................. 6 Registration fees and expenses ................................ 25 Distribution fees - Mileage Class (Note 2) .................... 59 Prospectus and shareholder reports ............................ 5 Other expenses ................................................ 1 ----------- TOTAL FUND EXPENSES ........................................ 141 ----------- Less reimbursement of fund expense (Note 2) ................... (2) ----------- NET FUND EXPENSES .......................................... 139 ----------- NET INVESTMENT INCOME ............................................ 642 ----------- REALIZED GAIN ALLOCATED FROM PORTFOLIO Net realized gain on investments .............................. -- ----------- NET GAIN ON INVESTMENTS .................................... -- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............. $ 642 ===========
See accompanying notes See accompanying Financial Statements of the American Beacon Master Portfolio 7 AMERICAN BEACON MONEY MARKET MILEAGE FUND STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six Months Year ended ended June 30, December 31, 2008 2007 -------------- ------------ (unaudited) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income .......................................... $ 642 $ 7,579 Net realized gain on investments ............................... -- 3 -------- --------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........ 642 7,582 -------- --------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Mileage class ............................................... (642) (2,276) Platinum class .............................................. -- (5,303) Net realized gain on investments: Platinum class (Note 1) ..................................... -- (3) -------- --------- DISTRIBUTIONS TO SHAREHOLDERS ............................... (642) (7,582) -------- --------- CAPITAL SHARE TRANSACTIONS: Proceeds from sales of shares .................................. 4,288 102,145 Reinvestment of dividends and distributions .................... 633 7,133 Cost of shares redeemed ........................................ (5,641) (448,000) -------- --------- NET INCREASE (DECREASE) IN NET ASSETS ....................... (720) (338,722) -------- --------- NET INCREASE (DECREASE) IN NET ASSETS ............................. (720) (338,722) -------- --------- NET ASSETS: Beginning of period ............................................ 47,817 386,539 -------- --------- END OF PERIOD .................................................. $ 47,097 $ 47,817 ======== =========
See accompanying notes See accompanying Financial Statements of the American Beacon Master Portfolio 8 AMERICAN BEACON MONEY MARKET MILEAGE FUND NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 (UNAUDITED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The American Beacon Money Market Mileage Fund (the "Fund") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940 (the "Act"), as amended, as a diversified, no load, open-end management investment company. American Beacon Advisors, Inc. (the "Manager") is a wholly-owned subsidiary of AMR Corporation ("AMR") and was organized in 1986 to provide business management, advisory, administrative and asset management consulting services to the Trust and other investors. On April 16, 2008, AMR, the parent company of the Manager, announced that it had reached a definitive agreement to sell all of its interests in the Manager to Lighthouse Holdings, Inc., which is owned by investment funds affiliated with Pharos Capital Group, LLC and TPG Capital, L.P. AMR will acquire a minority equity stake in the parent corporation of Lighthouse Holdings, Inc. Completion of the sale would result in a change of control of the Manager, but there are no anticipated material changes in the services to be provided by the Manager or in the fee rate charged by the Manager to the Fund. The target closing date for the proposed acquisition is expected to be no later than September 30, 2008. Based in Dallas and Nashville, Pharos Capital Group, LLP invests through private equity funds, primarily in companies seeking later stage equity funding for internal growth, acquisitions, management buyouts or recapitalizations across industry sectors. TPG Capital, L.P. is the global buyout group of TPG, a leading private investment firm with more than $50 billion of assets under management. TPG Capital, L.P. has extensive experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts, joint ventures and restructurings. The Fund invests all of its investable assets in the Money Market Portfolio of the American Beacon Master Trust (the "Portfolio"), an open-end diversified management investment company.
AMERICAN BEACON: (ARROW) invests assets in (ARROW) AMERICAN BEACON MASTER TRUST: - ---------------- ----------------------------- Money Market Mileage Fund Money Market Portfolio
The Fund has the same investment objectives as the Portfolio, and the value of such investment reflects the Fund's proportionate interest in the net assets of the portfolio (0.37% at June 30, 2008). The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The following is a summary of the significant accounting policies followed by the Fund. Class Disclosure The Platinum Class was fully liquidated effective May 31, 2007.
CLASS: OFFERED TO: SERVICE AND DISTRIBUTION FEES: - ------ -------------------------------------- ------------------------------ Mileage Class Individuals and certain grantor trusts Distribution Fee- 0.25% Platinum Class - Closed
Valuation of Investments The Fund records its investment in the Portfolio at fair value. Valuation of securities by the Portfolio is discussed in Note 1 of the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. The Portfolio adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"), effective with the beginning of the Portfolio's fiscal year. This standard 9 AMERICAN BEACON MONEY MARKET MILEAGE FUND NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 (UNAUDITED) clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value, and requires additional disclosures about the use of fair value measurements. The three levels of the hierarchy under FAS 157 are described below: Level 1 - Quoted prices in active markets for identical securities. Level 2 - Prices determined using other significant observable inputs. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others. Level 3 - Prices determined using significant unobservable inputs. Unobservable inputs reflect the Portfolio's own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available. The summary of inputs used to value the Portfolios' net assets as of June 30, 2008 is discussed in the Portfolios' Notes to Financial Statements, which are included elsewhere in this report. Investment Income and Dividends to Shareholders The Fund records its share of net investment income (loss) and realized gain (loss) in the Portfolio each day. All net investment income (loss) and realized gain (loss) of the Portfolio are allocated pro rata among the corresponding Fund and other investors in the Portfolio at the time of such determination. The Fund generally declares dividends daily from net investment income and net short-term capital gain, if any, payable monthly. Dividends to shareholders are determined in accordance with federal income tax principles that may treat certain transactions differently than U.S. generally accepted accounting principles. 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 Fund's organizational documents, its officers and directors are indemnified against certain liability arising out of the performance of their duties to the Fund. In the normal course of business, the Fund enters into contracts that provide indemnification to the other party or parties against potential costs or liabilities. The Fund's maximum exposure under these arrangements is dependent on claims that may be made in the future and, therefore, cannot be estimated. The Fund has had no prior claims or losses pursuant to any such agreement. 2. TRANSACTIONS WITH AFFILIATES Management Agreement The Manager and the Fund entered into a Management Agreement that obligates the Manager to provide or oversee administrative and management services to the Fund. As compensation for performing administrative duties required under the Management Agreement, the Manager receives an annualized fee of 0.10% of the average daily net assets of the Fund. 10 AMERICAN BEACON MONEY MARKET MILEAGE FUND NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 (UNAUDITED) Distribution Plan The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the Plan, as compensation for distribution assistance, the Manager receives an annualized fee of 0.25% of the average daily net assets. 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. In adopting the Plan, the Fund's Board of Trustees determined that there was a reasonable likelihood that the Plan would benefit the Fund and the shareholders. Reimbursement and Waiver of Expenses The Manager voluntarily waived distribution and other expenses totaling $1,466 for the six months ended June 30, 2008. Expense Reimbursement Plan The Fund has adopted an Expense Reimbursement Plan whereby the Manager may seek recoupment of fees waived or expenses reimbursed for a period of up to three years. However, recoupment will occur only if the Class average net assets have grown or expenses have declined sufficiently to allow recoupment without causing its expense ratio to exceed the previously agreed upon contractual expense limit. For the six months ended June 30, 2008, there are no fees subject to recoupment. 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 adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainties in Income Taxes" ("FIN 48"), on January 1, 2007. FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The implementation of FIN 48 did not result in any unrecognized tax benefits in the accompanying financial statements. Each of the tax years in the three year period ended December 31, 2007, 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 six months ended June 30, 2008 and the fiscal year ended December 31, 2007 were as follows (in thousands):
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2008 2007 ---------------- ------------ (Unaudited) DISTRIBUTIONS PAID FROM ORDINARY INCOME: Mileage Class........................ $642 $2,276 Platinum Class....................... -- 5,306 ---- ------ TOTAL DISTRIBUTIONS..................... $642 $7,582 ==== ======
* For tax purposes short-term capital gains distributions are considered ordinary income distributions. 11 AMERICAN BEACON MONEY MARKET MILEAGE FUND NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 (UNAUDITED) As of June 30, 2008, the components of distributable earnings on a tax basis were the same as book. The cost basis of investments for federal income tax purposes was also the same as the book basis. The Fund does not have capital loss carryforwards as of June 30, 2008. 4. CAPITAL SHARE TRANSACTIONS The tables below summarize the activity in capital shares for the Fund (in thousands). Each share is valued at $1.00: Six Months Ended June 30, 2008
Money Market Mileage Fund -------------- Mileage Class -------------- Shares sold............................. 4,288 Reinvestment of dividends............... 633 Shares redeemed......................... (5,641) ------ Net (decrease) in shares outstanding.... (720) ======
Year Ended December 31, 2007
Money Market Mileage Fund ------------------ Mileage Platinum Class Class ------- -------- Shares sold ............................ 48,438 53,707 Reinvestment of dividends .............. 2,220 4,913 Shares redeemed ........................ (50,801) (397,199) ------- -------- Net (decrease) in shares outstanding ... (143) (338,579) ======= ========
12 AMERICAN BEACON MONEY MARKET MILEAGE FUND FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Mileage Class --------------------------------------------------------------------- Six Months Year Ended December 31 Ended June ------------------------------------------------------- 30, 2008 2007 2006 2005 2004 2003 ----------- ------- ------- ------- ------- ------- (unaudited) Net asset value, beginning of period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- ------- ------- ------- Income from investment operations: Net investment income (A) ......................... 0.01 0.05 0.05 0.03 0.01 0.01 Net realized gain on investments .................. --(B) --(B) --(B) --(B) --(B) --(B) ------- ------- ------- ------- ------- ------- Total income from investment operations .............. 0.01 0.05 0.05 0.03 0.01 0.01 ------- ------- ------- ------- ------- ------- Less distributions: Dividends from net investment income .............. (0.01) (0.05) (0.05) (0.03) (0.01) (0.01) Distributions from net realized gains on securities ..................................... --(B) --(B) --(B) --(B) --(B) --(B) ------- ------- ------- ------- ------- ------- Total distributions .................................. (0.01) (0.05) (0.05) (0.03) (0.01) (0.01) ------- ------- ------- ------- ------- ------- Net asset value, end of period ....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= ======= Total return ......................................... 1.36%(C) 4.68% 4.61% 2.75% 0.93% 0.73% ======= ======= ======= ======= ======= ======= Ratios and supplemental data: Net assets, end of period (in thousands) .......... $47,097 $47,817 $47,960 $50,684 $45,475 $49,053 Ratios to average net assets (annualized):(A) Expenses, net of waivers ....................... 0.70% 0.72% 0.57% 0.58% 0.51% 0.51% Expenses before waivers ........................ 0.70% 0.75% 0.57% 0.58% 0.51% 0.51% Net investment income, net of waivers .......... 2.72% 4.59% 4.52% 2.73% 0.91% 0.74% Net investment income (loss), before waivers ... 2.71% 4.56% 4.52% 2.73% 0.91% 0.74%
- ---------- (A) The per share amounts and ratios reflect income and expenses assuming inclusion of each Fund's proportionate share of income and expenses of the American Beacon Master Money Market Portfolio. (B) Amount is less than $.01 per share. (C) Not annualized. 13 AMERICAN BEACON MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS JUNE 30, 2008 (UNAUDITED)
PAR AMOUNT VALUE --------- ---------- (DOLLARS IN THOUSANDS) MEDIUM-TERM NOTES - 10.12% American Honda Finance Corp., 3.013%, Due 9/18/2008 ++ # .. $ 20,900 $ 20,905 Bank of Scotland plc, 2.716%, Due 7/17/2008 ++ # .......... 125,800 125,801 Goldman Sachs Group, Inc., 3.013%, Due 7/29/2008 ++ ....... 178,775 178,781 Royal Bank of Scotland plc, 2.868%, Due 7/21/2008 ++ # ............................. 50,000 50,000 2.511%, Due 8/20/2008 ++ # ............................. 150,000 150,000 Toyota Motor Credit Corp., 2.698%, Due 7/7/2008 ++ ........ 60,500 60,500 US Bank, NA, 2.65%, Due 9/16/2008 ................................... 250,000 250,000 2.83%, Due 10/20/2008 .................................. 100,000 100,000 2.70%, Due 11/17/2008 .................................. 200,000 200,000 Wells Fargo & Co., 2.551%, Due 8/20/2008 ++ # ............. 150,000 150,000 --------- TOTAL MEDIUM-TERM NOTES ................................... 1,285,987 --------- CERTIFICATES OF DEPOSIT AND BANK NOTES - 45.23% Bank of America, NA, 2.92%, Due 7/25/2008 ++ .............. 27,300 27,300 Bank of Nova Scotia N.Y., 2.57%, Due 8/13/2008 ................................... 150,000 150,000 2.61%, Due 8/13/2008 ................................... 100,000 100,000 2.60%, Due 9/2/2008 .................................... 200,000 200,000 Barclays Bank plc, 2.75%, Due 7/2/2008 .................................... 200,000 200,000 2.87%, Due 7/30/2008 ................................... 100,000 100,000 2.70%, Due 8/19/2008 ................................... 200,000 200,000 BNP Paribas N.Y., 2.84%, Due 8/4/2008 .................................... 175,000 175,000 2.89%, Due 8/15/2008 ................................... 100,000 100,000 2.65%, Due 8/28/2008 ................................... 50,000 50,000 3.01%, Due 8/29/2008 ................................... 50,000 50,000 2.74%, Due 9/25/2008 ................................... 150,000 150,000 Commonwealth Bank of Australia N.Y., 2.60%, Due 8/20/2008 ................................... 100,000 100,000 2.60%, Due 9/4/2008 .................................... 100,000 100,000 Dexia Credit Local S.A., 2.75%, Due 7/15/2008 ............. 200,000 200,000 HSBC Bank USA, 2.957%, Due 7/28/2008 ++ ................... 77,000 77,004 Lloyds Bank N.Y., 2.62%, Due 8/12/2008 .................... 150,000 150,000 National Australia Bank Ltd., 2.61%, Due 9/8/2008 ......... 200,000 200,000 Nordea Bank Finland N.Y., 2.90%, Due 7/28/2008 ................................... 150,000 150,000 2.88%, Due 7/29/2008 ................................... 150,000 150,000 2.76%, Due 8/11/2008 ................................... 150,000 150,000 2.54%, Due 8/15/2008 ................................... 100,000 100,000 Rabobank Nederland N.Y., 2.60%, Due 7/8/2008 .................................... 300,000 300,000
See accompanying notes 14 AMERICAN BEACON MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS JUNE 30, 2008 (UNAUDITED)
PAR AMOUNT VALUE --------- ---------- (DOLLARS IN THOUSANDS) Rabobank Nederland N.Y., 2.62%, Due 8/19/2008 .................................... $ 50,000 $ 50,005 2.61%, Due 8/25/2008 .................................... 100,000 100,000 2.85%, Due 9/26/2008 .................................... 200,000 200,000 Royal Bank of Canada N.Y., 2.62%, Due 8/18/2008 .................................... 100,000 100,000 2.63%, Due 8/20/2008 .................................... 225,000 225,030 Royal Bank of Scotland plc, 2.83%, Due 7/8/2008 ............ 200,000 200,000 Societe Generale N.Y., 3.00%, Due 7/10/2008 .................................... 250,000 250,000 2.75%, Due 8/6/2008 ..................................... 100,000 100,000 Svenska Handelsbanken AB, 2.60%, Due 9/3/2008 .............. 200,000 200,000 Toronto Dominion Bank N.Y., 2.85%, Due 8/29/2008 .................................... 200,000 200,000 2.81%, Due 9/5/2008 ..................................... 150,000 150,000 2.76%, Due 9/24/2008 .................................... 150,000 150,000 2.72%, Due 10/20/2008 ................................... 50,000 50,000 Westpac Banking Corp., 2.82%, Due 8/1/2008 ..................................... 100,000 100,015 2.74%, Due 8/4/2008 ..................................... 94,225 94,232 2.62%, Due 8/14/2008 .................................... 200,000 200,000 2.61%, Due 9/9/2008 ..................................... 200,000 200,000 ---------- TOTAL CERTIFICATES OF DEPOSIT AND BANK NOTES ............... 5,748,586 ---------- COMMERCIAL PAPER - 25.92% Concord Minutemen Capital Co. LLC, 3.00%, Due 7/1/2008 # ... 394,026 394,026 Elysian Funding LLC, 3.10%, Due 7/1/2008 # ................. 350,000 350,000 Fountain Square Commercial Funding, 3.75%, Due 7/1/2008 # .. 300,000 300,000 Gemini Securitization Corp. LLC, 2.77%, Due 7/25/2008 .................................... 95,219 95,043 2.75%, Due 7/28/2008 .................................... 198,750 198,355 General Electric Capital Corp., 2.78%, Due 7/11/2008 .................................... 175,000 174,865 2.76%, Due 7/15/2008 .................................... 50,000 49,946 2.72%, Due 7/30/2008 .................................... 50,000 49,890 2.78%, Due 7/31/2008 .................................... 50,000 49,884 2.86%, Due 8/15/2008 .................................... 100,000 99,643 2.46%, Due 10/27/2008 ................................... 200,000 198,387 2.55%, Due 10/31/2008 ................................... 46,000 45,603 ING (US) Funding LLC, 2.65%, Due 9/30/2008 ................. 300,000 297,990 Kitty Hawk Funding Corp., 2.77%, Due 8/7/2008 .............. 74,985 74,772 Lexington Parker Capital Co. LLC, 3.05%, Due 7/1/2008 # .... 494,301 494,301 Salisbury Receivables Co., 3.00%, Due 7/1/2008 ............. 23,785 23,785 Toyota Motor Credit Corp., 2.92%, Due 7/3/2008 ..................................... 50,000 49,992
See accompanying notes 15 AMERICAN BEACON MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS JUNE 30, 2008 (UNAUDITED)
PAR AMOUNT VALUE -------- ---------- (DOLLARS IN THOUSANDS) Toyota Motor Credit Corp., 2.76%, Due 8/21/2008 ...................... $ 75,000 $ 74,707 2.76%, Due 8/22/2008 ...................... 275,000 273,904 ---------- TOTAL COMMERCIAL PAPER ....................... 3,295,093 ---------- TIME DEPOSITS - 3.93% BNP Paribas N.Y., 2.75%, Due 7/1/2008 ........ 75,000 75,000 Deutsche Bank N.Y., 2.75%, Due 7/1/2008 ...... 225,000 225,000 Societe Generale N.Y., 2.563%, Due 7/1/2008 .. 200,000 200,000 ---------- TOTAL TIME DEPOSITS .......................... 500,000 ----------
SHARES ----------- SHORT TERM INVESTMENTS - 9.04% OTHER SHORT-TERM INVESTMENTS - 9.04% BlackRock Temp Fund ................................ 529,063,351 529,063 Dreyfus Institutional Preferred Money Market Fund .. 620,262,421 620,263 --------- TOTAL SHORT TERM INVESTMENTS ....................... 1,149,326 ---------
PAR AMOUNT -------- REPURCHASE AGREEMENTS - 7.08% Bank of America, NA, 2.75%, Due 7/1/2008 (Held at Bank of New York, Collateralized by Mortgage Obligations valued at $588,500, 2/23/2036) .. $550,000 550,000 Barclays Bank plc, 2.75%, Due 7/1/2008 (Held at Bank of New York, Collateralized by Equity Securities valued at $105,000) ................ 100,000 100,000 Citigroup, Inc., 2.80%, Due 7/1/2008 (Held at Chase NYC, Collateralized by Mortgage Obligations valued at $303,279, 3/14/2036 - 6/23/2038) ..... 250,000 250,000 ----------- TOTAL REPURCHASE AGREEMENTS ............................... 900,000 ----------- TOTAL INVESTMENTS - 101.32% (COST $12,878,992) ............... $12,878,992 LIABILITIES, NET OF OTHER ASSETS - (1.32%) ................... (168,355) ----------- TOTAL NET ASSETS - 100.00% ................................... $12,710,637 ===========
Percentages are stated as a percent of net assets. ++ The coupon rate shown on floating or adjustable rate securities represents the rate at period end. The due date on these types of securities reflects the final maturity date. # Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the period end, the value of these securities amounted to $2,035,033 or 16.01% of net assets. The Fund has no right to demand registration of these securities. See accompanying notes 16 AMERICAN BEACON MONEY MARKET PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2008 (UNAUDITED) (IN THOUSANDS) ASSETS: Investment in securities at value (cost - $11,978,992) ..... $11,978,992 Repurchase agreement (cost - $900,000) ..................... 900,000 Dividends and interest receivable .......................... 31,127 Prepaid expenses ........................................... 115 ----------- TOTAL ASSETS ............................................ 12,910,234 ----------- LIABILITIES: Management and investment advisory fees payable (Note 2) ... 1,083 Other liabilities .......................................... 198,514 ----------- TOTAL LIABILITIES ....................................... 199,597 ----------- NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS ...... $12,710,637 ===========
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) (IN THOUSANDS) INVESTMENT INCOME: Interest income ............................................ $234,691 -------- TOTAL INVESTMENT INCOME ................................. 234,691 -------- EXPENSES: Management and investment advisory fees (Note 2) ........... 6,844 Custodian fees ............................................. 183 Professional fees .......................................... 76 Other expenses ............................................. 195 -------- TOTAL EXPENSES .......................................... 7,298 -------- NET INVESTMENT INCOME ......................................... 227,393 -------- REALIZED GAIN ON INVESTMENTS: Net realized gain on investments ........................... 0 -------- NET GAIN ON INVESTMENTS ................................. 0 -------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......... $227,393 ========
See accompanying notes 17 AMERICAN BEACON MONEY MARKET PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six Months Year Ended Ended June 30, December 31, 2008 2007 -------------- ------------ (unaudited) INCREASE IN NET ASSETS: OPERATIONS: Net investment income ......................... $ 227,393 $ 824,823 Net realized gain on investments .............. 0 127 ------------ ------------ TOTAL INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... 227,393 824,950 ------------ ------------ TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS: Contributions ................................. 89,239,048 35,059,358 Withdrawals ................................... (89,939,803) (35,428,478) ------------ ------------ NET DECREASE IN NET ASSETS RESULTING FROM TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS ............................... (700,755) (369,120) ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS ...... (473,362) 455,830 ------------ ------------ NET ASSETS: Beginning of period ........................... 13,183,999 12,728,169 ------------ ------------ END OF PERIOD ................................. $ 12,710,637 $ 13,183,999 ============ ============
FINANCIAL HIGHLIGHTS
Six Months Year Ended December 31, Ended June 30, -------------------------------- 2008 2007 2006 2005 2004 2003 -------------- ---- ---- ---- ---- ---- (unaudited) Total return ............................. 1.66%(A) 5.33% 5.09% 3.25% 1.34% 1.13% Ratios to average net assets (annualized): Expenses .............................. 0.11% 0.11% 0.11% 0.11% 0.11% 0.11% Net investment income ................. 3.31% 5.19% 5.03% 3.20% 1.30% 1.14%
(A) Not annualized See accompanying notes 18 AMERICAN BEACON MASTER TRUST NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 (UNAUDITED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES American Beacon Master Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as a no load, open-end management investment company that was organized as a trust under the laws of the Commonwealth of Massachusetts pursuant to a Declaration of Trust dated as of November 1, 2004. Beneficial interests in the Trust are divided into separate series, each having distinct investment objectives and policies. These financial statements relate to the American Beacon Master Money Market Portfolio (the "Portfolio"). The objective of the Portfolio is current income, liquidity and the maintenance of a stable price of $1.00 per share. The assets of the Portfolio belong only to that Portfolio, and the liabilities of the Portfolio are borne solely by that Portfolio and no other. American Beacon Advisors, Inc. (the "Manager") is a wholly owned subsidiary of AMR Corporation ("AMR") and was organized in 1986 to provide business management, advisory, administrative and asset management consulting services. On April 16, 2008, AMR, the parent company of the Manager, announced that it had reached a definitive agreement to sell all of its interests in the Manager to Lighthouse Holdings, Inc., which is owned by investment funds affiliated with Pharos Capital Group, LLC and TPG Capital, L.P. AMR will acquire a minority equity stake in the parent corporation of Lighthouse Holdings, Inc. Completion of the sale would result in a change of control of the Manager, but there are no anticipated material changes in the services to be provided by the Manager or in the fee rate charged by the Manager to the Fund. The target closing date for the proposed acquisition is expected to be no later than September 30, 2008. Based in Dallas and Nashville, Pharos Capital Group, LLP invests through private equity funds, primarily in companies seeking later stage equity funding for internal growth, acquisitions, management buyouts or recapitalizations across industry sectors. TPG Capital, L.P. is the global buyout group of TPG, a leading private investment firm with more than $50 billion of assets under management. TPG Capital, L.P. has extensive experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts, joint ventures and restructurings. The following is a summary of the significant accounting policies followed by the Portfolio. Valuation of Investments Securities of the Portfolio are valued at amortized cost, which approximates fair value. In the event that a deviation of 1/2 of 1% or more exists between the $1.00 per share price of the Portfolio, calculated at amortized cost, and the price per share calculated by reference to market quotations, or if there is any other deviation that the Trust's Board of Trustees (the "Board") believes would result in a material dilution to shareholders or purchasers, the Board will promptly consider the appropriate action that should be initiated. The Portfolio adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"), effective with the beginning of the Portfolio's fiscal year. This standard clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value, and requires additional disclosures about the use of fair value measurements. The three levels of the hierarchy under FAS 157 are described below: Level 1 - Quoted prices in active markets for identical securities. Level 2 - Prices determined using other significant observable inputs. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others. Level 3 - Prices determined using significant unobservable inputs. Unobservable inputs reflect the Portfolio's own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available. 19 AMERICAN BEACON MASTER TRUST NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 (UNAUDITED) A summary of the inputs used to value the Portfolio's net assets as of June 30, 2008 is as follows (in thousands):
Investments in Valuation Inputs Securities - ---------------- -------------- Level 1 - Quoted Prices ........................ $ 1,149,326 Level 2 - Other significant observable inputs .. 11,729,666 Level 3 - Significant unobservable inputs ...... -- ----------- Total .......................................... $12,878,992
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. For example, money market securities are valued using amortized cost, in accordance with rules under the Investment Company Act of 1940. Generally, amortized cost approximates the current fair value of a security, but since the value is not obtained from a quoted price in an active market, such securities are reflected as Level 2. Security Transactions and Investment Income Security transactions are recorded on the trade date of the security purchase or sale. Interest income is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for amortization of premiums or accretion of discounts on investment grade short-term securities and zero coupon instruments. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification. Federal Income and Excise Taxes The Portfolio will be treated as a partnership for federal income tax purposes. As such, each investor in the Portfolio will be taxed on its share of the Portfolio's ordinary income and capital gains. It is intended that the Portfolio's assets will be managed in such a way that an investor in the Portfolio will be able to satisfy the requirements of subchapter M of the Internal Revenue Code. On July 13, 2006, the Financial Accounting Standards Board ("FASB") released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 provides guidance on how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Portfolio's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The Portfolio files a tax return with the U.S. Internal Revenue Service. Generally, the tax authorities can examine all tax returns filed for the last three years. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on returns on income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation, as applicable, as the income is earned or capital gains are recorded. If applicable, the Portfolio recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in "Other expenses" on the Statement of Operations. The Portfolio adopted the provisions of FIN 48 effective January 1, 2007. Tax positions taken by the Portfolio have been deemed to meet the more likely than not threshold, and therefore there have been no adjustments to the Portfolio's net asset value per share. Repurchase Agreements Under the terms of a repurchase agreement, securities are acquired by a Portfolio from a securities dealer or a bank that are subject to resale at a later date. Repurchase agreements are fully collateralized by 20 AMERICAN BEACON MASTER TRUST NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 (UNAUDITED) government and non-government securities. All collateral is valued at cost, which approximates market value and is held at the custodian bank. The collateral is monitored daily by the Manager so that the collateral's market value exceeds the carrying value of the repurchase agreement plus accrued interest. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimated. Other Under the Trust's organizational documents, its officers and directors are indemnified against certain liability arising out of the performance of their duties to the Trust. In the normal course of business, the Trust enters into contracts that provide indemnification to the other party or parties against potential costs or liabilities. The Trust's maximum exposure under these arrangements is dependent on claims that may be made in the future and, therefore, cannot be estimated. The Trust has had no prior claims or losses pursuant to any such agreement. 2. TRANSACTIONS WITH AFFILIATES Management Agreement The Trust and the Manager are parties to a Management Agreement that obligates the Manager to provide or oversee the provision of all administrative, investment advisory and portfolio management services. The Manager serves as the sole investment advisor to the Portfolio. As compensation for performing the duties required under the Management Agreement, the Manager receives from the Portfolio 0.10% of the average daily net assets of the Portfolio. Interfund Lending Program Pursuant to an exemptive order by the Securities and Exchange Commission, the Portfolio, along with other registered investment companies having management contracts with the Manager, may participate in an interfund lending program. This program provides an alternative credit facility allowing the Money Market Portfolio to lend money to other participating series managed by the Manager. For the six months ended June 30, 2008, credit facility was not utilized. 21 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENT (UNAUDITED) At its May 21, 2008 meeting, the Board of Trustees ("Board" or "Trustees") considered the renewal of each existing Management Agreement (each, a "Current Agreement" and collectively, the "Current Agreements") between the Manager and the American Beacon Funds ("Beacon Trust"), American Beacon Mileage Funds ("Mileage Trust"), American Beacon Select Funds ("Select Trust") or American Beacon Master Trust ("Master Trust") (collectively, the "Funds") and each Investment Advisory Agreement between the Manager and a subadvisor ("Current Investment Advisory Agreement"). In preparation for the Board's consideration to renew these Current 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 9, 2008 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. On May 21, May 22 and June 4, 2008, the Board met to determine, among other matters, whether to approve a new investment management agreement ("New Agreement") between the Manager and the Funds. The New Agreement is necessary because, on April 16, 2008, AMR Corporation ("AMR"), the parent company of the Manager, entered into an agreement with Lighthouse Holdings, Inc. ("Lighthouse") pursuant to which Lighthouse will acquire all of the capital stock of the Manager ("Transaction") in exchange for cash and 10% of the capital stock of the parent corporation of Lighthouse. Upon the closing of the Transaction ("Closing"), the Manager will cease to be a wholly owned subsidiary of AMR and will become a subsidiary of Lighthouse. This change in control is deemed to be an "assignment" under the Investment Company Act of 1940 ("1940 Act") of each Fund's Current Agreement with the Manager. As required by the 1940 Act, each Fund's Current Agreement provides for its automatic termination in the event of an assignment, and each will, therefore, terminate upon the Closing. To provide for the continuity of management for the Funds, the Board met to consider the New Agreement with the Manager. The New Agreement for each Fund will reflect substantially the same terms as the Current Agreement for each Fund. In addition, the Current Agreements have been updated and modernized. As part of this process, the primary administrative services provided by the Manager to the Funds will be transferred to one single administrative services agreement ("New Administrative Services Agreement"). Currently, the Manager provides administrative services to the Funds in Mileage Trust, Select Trust and Master Trust pursuant to their Current Agreements and to the Funds in Beacon Trust pursuant to its Current Agreement and an Administrative Services Agreement ("Current Administrative Services Agreement"). The aggregate fee rates for each Fund under the New Agreement and the New Administrative Services Agreement will be the same as the fee rates imposed under the existing agreements which they replace. The New Agreement is subject to shareholder approval. If approved by the shareholders of the Funds, the New Agreement will become effective upon the Closing or, if the Closing is not consummated, the New Agreement will become effective on or about January 1, 2009. The Manager and Lighthouse anticipate that the Closing will occur in the third calendar quarter of 2008. Upon the Closing, Lighthouse directly will control the Manager. Lighthouse currently does not anticipate any changes to the organization or structure of the Funds, to the service providers or to the aggregate fee rates under any Current Agreement. In addition, the portfolio managers at the Manager that 22 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENT (UNAUDITED) currently manage the Funds are expected to continue to manage the Funds after the Closing. In that regard, the Manager and Lighthouse have entered into or will enter into employment contracts that will take effect upon the Closing with certain key personnel performing or overseeing the Funds' investment programs. However, there can be no assurance that these personnel will choose to remain employed by the Manager before or after the Closing. The Manager and the Funds will continue to operate under their existing names. Potential benefits to the Funds as a result of the Transaction include Lighthouse's intention to devote additional resources to product development and distribution of Fund shares. Any resulting growth of Fund assets may produce economies of scale that could benefit shareholders of the Funds. In addition, under the Current Agreements, the Manager may retain subadvisors to provide investment advisory services for all or a portion of the assets of a Fund. With respect to certain Funds, the Manager has entered into Current Investment Advisory Agreements with various subadvisors on behalf of those Funds. Upon the Closing, these Current Investment Advisory Agreements will terminate automatically upon the termination of each Current Agreement. Pursuant to an exemptive order issued by the Securities and Exchange Commission ("SEC"), the Manager is permitted to enter into new or modified investment advisory agreements with existing or new subadvisors ("New Investment Advisory Agreements") without approval of a Fund's shareholders, but subject to the approval of a Fund's Board. Each New Investment Advisory Agreement will reflect substantially the same terms as the Current Investment Advisory Agreement for each applicable Fund. The New Investment Advisory Agreements will become effective concurrent with the effectiveness of the New Agreement. In preparation for the Board's consideration to approve the New Agreement and New Investment Advisory Agreements, the Board held preliminary conference call meetings on April 15, 16 and 21, 2008, to discuss the New Agreement and New Investment Advisory Agreements and the effect that approving the New Agreement and New Investment Advisory Agreements would have on the Funds. The Board, with the assistance of independent legal counsel, received a memorandum and related advice from their legal counsel detailing the Board's responsibilities in considering the New Agreement and New Investment Advisory Agreements. In connection with Board's consideration of the Current Agreement, Current Investment Advisory Agreements, New Agreement and New Investment Advisory Agreements, the Trustees considered, among other materials, responses by the Manager and the subadvisors to inquiries requesting: - a description of the Transaction, the effects of the Transaction on the Trusts and the Board, and any proposed changes to the Trusts, their service providers or fee structure and other information; - 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 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 profit/loss analysis of the firm and any actual or anticipated economies of scale in relation to the services it provides to each Fund; - a description of any payments by the firm to support the Funds' marketing efforts; - 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; - an evaluation of other benefits to the firm or Funds as a result of their relationship, if any; - confirmation that the firm's financial condition does not raise concerns that the firm would be unable to continue providing the same scope and quality of services to the Funds; - a description of the scope of portfolio management services provided to the Funds and the firm's other clients, including other registered investment companies, whether such services differ, and any 23 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENT (UNAUDITED) 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 discussion of whether the firm receives, with respect to the Funds, other compensation, including any payment for order flow or ECN liquidity rebates; - a description of any actual or potential conflicts of interest anticipated in managing Fund assets; - a summary of any material changes to the firm's compliance program with regard to federal, state, corporate and Fund requirements and a certification regarding the reasonable design of the compliance program; - a discussion of any material compliance problems and remedial actions; - information regarding the firm's code of ethics, insider trading policy and disaster recovery plan, including a description of any material changes thereto; - 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 regard to the services provided to the Funds. In addition to the foregoing, the Manager provided the following information specific to the renewal of each Fund's Current Agreement and the approval of each Fund's New 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 description of any revenue sharing activities with respect to the Funds; - 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 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 Current Agreements, Current Investment Advisory Agreements, New Agreement and New Investment Advisory Agreements, 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. The Current Agreements, Current Investment Advisory Agreements, New Agreement and New Investment Advisory Agreements are each referenced to herein as an "Agreement" and collectively, the "Agreements." 24 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENT (UNAUDITED) The Trustees also received memoranda from their legal counsel detailing the Board's responsibilities pertaining to the approval of each Agreement. These memoranda explained the regulatory requirements surrounding the Trustees' process for evaluating investment advisors and the terms of the contracts. In connection with the Board's consideration of the New Agreement and each New Investment Advisory Agreement, the Trustees considered, among other information, the following factors, in addition to other factors noted in the Proxy Statement: (1) The manner in which each Fund's assets are managed will not change as a result of the Transaction, and the same people who currently manage the Fund's assets are expected to continue to do so after the Transaction; (2) The aggregate fee rates payable by each Fund under the New Agreement and the New Administrative Services Agreement are the same as the fee rates payable under the Current Agreements and, in the case of the Beacon Trust, under the Current Agreement and the Current Administrative Services Agreement; (3) The material terms regarding advisory services pursuant to the New Agreement are substantially the same as the terms of the Current Agreements; (4) The qualifications of the Manager's personnel who will provide advisory and administrative services to the Funds are not expected to change; (5) The Manager's financial condition and the post-Closing capitalization of Lighthouse; (6) The impact of the Transaction on the Manager's day-to-day operations; (7) The capabilities, experience, corporate structure and capital resources of Lighthouse; (8) The long-term business goals of Lighthouse with regard to the Manager and the Trusts; (9) Fund shareholders will not bear any costs in connection with the Transaction, inasmuch as AMR and Lighthouse will bear equally the costs, fees and expenses incurred by the Funds in connection with the Proxy Statement, the fees and expenses of accountants and attorneys relating to the Transaction and Proxy Statement, the fees and expenses incurred by the Funds in connection with the Transaction, and the meeting fees of the Boards for meetings held in connection with the Transaction; (10) The Funds may realize benefits as a result of the Transaction, including long-term economies of scale; and (11) The potential for increased costs to the Trusts in order to satisfy existing obligations under the current Trustees' retirement plan. (12) The advisory relationship with each subadvisor would continue in the same manner as before the Transaction and that each New Investment Advisory Agreement will be substantially the same as each Current Investment Advisory Agreement. Provided below is an overview of the other primary factors the Board considered at its May 21, May 22 and June 4, 2008 meetings. The Board did not identify any particular information that was most relevant to its consideration to renew the Current Agreement and Current Investment Advisory Agreements and approve the New Agreement and New Investment Advisory Agreements, and each Trustee may have afforded different weight to the various factors. Legal counsel to the Non-interested Trustees provided the Board with memoranda regarding its responsibilities pertaining to the renewal of the Current Agreement and Current Investment Advisory Agreements and approve the New Agreement and New Investment Advisory Agreements. Based on its evaluation, the Board unanimously concluded that the terms of each Current Agreement and Current Investment Advisory Contract were reasonable and fair and that the renewal of each Current Agreement and Current Investment Advisory Contract was in the best interests of the Fund and its shareholders. The Board also unanimously concluded that the terms of the New Agreement and New 25 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENT (UNAUDITED) Investment Advisory Contracts were reasonable and fair and that the approval of the New Agreement and New Investment Advisory Contracts was in the best interests of the Fund and its shareholders. CONSIDERATIONS WITH RESPECT TO ALL FUNDS In determining whether to renew the Current Agreement and the Current Investment Advisory Agreements and approve the New Agreement and New Investment Advisory Agreements, the Trustees considered the best interests of each Fund separately. While the Current Agreement and Current Investment Advisory Agreements for all of the Funds were considered at the Board meetings on May 21, 2008, and the New Agreement and New Investment Advisory Agreement for all of the Funds were considered at the meetings on May 21, May 22 and June 4, 2008, 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 and Lighthouse 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 each Fund's Current Agreement and the approval of each Fund's New 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, including the addition of a separate new information technology (IT) department at the Manager; the high rankings received by the Funds in service surveys; 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 the Current Investment Advisory Agreements and the approval of the New Investment Advisory Agreements, 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 Current Agreement and Current Investment Advisory Agreements, and approve each New Agreement and New Investment Advisory Agreements 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." 26 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENT (UNAUDITED) Costs of the Services to be Provided to the Funds and the Projected Profits to be 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 Current and New Agreements for the Beacon Trust, Mileage Trust and Select Trust stipulate that, to the extent that a Fund invests all of its investable assets in another registered investment company (i.e., is a Feeder Fund), the Fund will not pay the Manager a management fee. Because the money market series of the Beacon Trust, Mileage Trust and Select Trust operate as Feeder Funds with respect to the Master Trust, the Manager only receives a management fee from the Master Trust. 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 Money Market Funds and 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. 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 of each subadvisor in connection with its investment advisory services to a 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 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 that certain Funds have grown their shareholder base, which has spread fixed costs over a larger shareholder and asset base. With respect to the Money Market Funds, the Board noted that, although the fee schedules for these Funds do not have breakpoints, the effective advisory fee rates are low by industry standards and the performance of these Funds has been highly competitive and, in many cases, among the top performers among similar funds. The Board also considered the Manager's representations that its costs have increased due primarily to greater service provider and regulatory costs. The Manager also represented that it anticipates further 27 DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF INVESTMENT ADVISORY AGREEMENT (UNAUDITED) economies of scale would be largely offset by higher costs of adding and retaining qualified personnel, improving technology and increasing demands on its advisory business. 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 and, in particular the money market funds, continues to be a significant factor in attracting separate account assets for the Manager. In addition, the Board noted that the Manager provides services to each Trust at a relatively low cost. In this regard, the Board considered that the benefit plans of AMR have invested substantial assets in the Funds, which helps reduce costs for other Fund shareholders, just as the investment of other Fund shareholders helps to reduce costs for AMR's benefit plans. In addition, 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 during the most recent fiscal years ended October 31, and December 31, 2007, though during that period certain Funds did pay commissions to affiliated broker-dealers of the relevant subadvisor, as set forth in the following table.
FUND BROKER AFFILIATED WITH COMMISSION - ---- ---------------------------- ----------------------------------------- ------------ American Beacon Large Cap Growth Fund Goldman, Sachs & Co. Goldman Sachs Asset Management, L.P. $1,020 American Beacon Emerging Markets Fund JM Morgan Stanley Securities Limited Morgan Stanley Investment Management Inc. $ 326
The percentage of total commissions of the American Beacon Large Cap Growth Fund and Emerging Markets Fund paid to affiliated broker-dealers in 2007 was 4.13% and 0.07%, respectively. Based on the foregoing information, the Board concluded that the potential benefits accruing to the Manager and the subadvisors by virtue of its relationships with the Funds appear to be fair and reasonable. ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE MONEY MARKET FUNDS The Money Market Funds were compared to the respective Lipper Average, which includes all comparable funds in the Lipper category, and the Lipper Index, which includes the 30 largest funds in the Lipper category. References to the Lipper expense group below are to the group of comparable mutual funds included in the analysis provided to the Trustees by Lipper, Inc. In considering the renewal of the Current Agreement and the approval of the New Agreement, the Trustees considered the following additional factors: (1) the Mileage Trust - Mileage Class outperformed the Lipper Index for all reported periods except the one and two years ended March 31, 2008 and outperformed the Lipper Average for all reported periods ended March 31, 2008; (2) the total expense ratio of the Mileage Trust - Mileage Class was lower than its Lipper expense group median; (3) the Manager is subject to a high degree of risk of financial responsibility should the Fund be unable to maintain a stable $1.00 per share net asset value; and (4) the Manager's explanation that fee schedule "breakpoints" were not warranted due to, among other factors, the low base management fee charged to the Fund. Based on these and other considerations, the Trustees (1) concluded that the fees paid to the Manager under the Agreements are fair and reasonable, (2) determined that the Fund and its shareholders would benefit from the Manager's continued management of the Fund, (3) approved the renewal of Current Agreement and (4) approved the New Agreement with respect to the Fund. 28 [This page intentionally left blank] 29 (AMERICAN BEACON MILEAGE 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: Mileage Class(R) American Beacon Funds Call (800) 388-3344 P.O. Box 219643 Kansas City, MO 64121-9643 AVAILABILITY OF QUARTERLY AVAILABILITY OF PROXY VOTING PORTFOLIO SCHEDULES POLICY AND RECORDS In addition to the Schedule of A description of the policies and Investments provided in each procedures the Fund uses to determine semi-annual and annual report, the Fund how to vote proxies relating to files a complete schedule of its portfolio securities is available in portfolio holdings with the Securities the Fund's Statement of Additional and Exchange Commission ("SEC") on Form Information, is available free of N-Q as of the first and third fiscal charge on the Fund's website quarters. The Fund's Forms N-Q are (www.americanbeaconfunds.com) and by available on the SEC's website at calling 1-800-967-9009 or by accessing www.sec.gov. The Forms N-Q may also be the SEC's website at www.sec.gov. The reviewed and copied at the SEC's Public Fund's proxy voting record for the most Reference Room, 450 Fifth Street, NW, recent year ended June 30 is filed Washington, DC 20549. Information annually with the SEC on Form N-PX. The regarding the operation of the SEC's Fund's Forms N-PX are available on the Public Reference Room may be obtained SEC's website at www.sec.gov. The by calling 1-800-SEC-0330. A complete Fund's proxy voting record may also be schedule of the Fund's portfolio obtained by calling 1-800-967-9009. holdings is also available on the Fund's 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 Mileage Fund and may be distributed to others only if preceded or accompanied by a current prospectus. American Airlines, Inc. is not responsible for investments made in the American Beacon Mileage Funds. American Beacon Mileage Funds, Mileage Class, and American Beacon Money Market Mileage Fund are service marks of American Beacon Advisors, Inc. SAR 6/08 62518 ITEM 2. CODE OF ETHICS. The Trust did not amend the code of ethics that applies to its principal executive and financial officers (the "Code") nor did it grant any waivers to the provisions of the Code during the period covered by the shareholder reports presented in Item 1. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not Applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not Applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not Applicable. ITEM 6. SCHEDULE OF INVESTMENTS. The schedules of investments for each series of the Trust are included in the shareholder reports presented in Item 1. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not Applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not Applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Trust has made no material changes to the procedures by which shareholders may recommend nominees to the Trust's Board of Trustees since the Trust last disclosed such procedures in Schedule 14A. ITEM 11. CONTROLS AND PROCEDURES. (a) Based upon an evaluation within 90 days of the filing date of this report, the principal executive and financial officers concluded that the disclosure controls and procedures of the Trust are effective. (b) There were no changes in the Trust's internal control over financial reporting during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Trust's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Not Applicable. (a)(2) A separate certification for each principal executive officer and principal financial officer of the Trust as required by Rule 30a-2(a) under the Investment Company Act of 1940 is attached hereto as EX-99.CERT. (a)(3) Not Applicable. (b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940 are attached hereto as EX-99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant): American Beacon Mileage Funds By /s/ William F. Quinn -------------------- William F. Quinn President Date: September 5, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ William F. Quinn -------------------- William F. Quinn President Date: September 5, 2008 By /s/ Rebecca L. Harris --------------------- Rebecca L. Harris Treasurer Date: September 5, 2008 EX-99.CERT 2 ex99cert-08.txt For period ended 06/30/2008 Registrant Name: American Beacon Mileage Funds File Number: 811-9018 EXHIBIT 99.CERT I, Rebecca L. Harris, certify that: 1. I have reviewed this report on Form N-CSR of American Beacon Mileage 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) and internal control over financial reporting (as defined in Rule 30a-3(d) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) 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: September 5, 2008 /s/ Rebecca L. Harris ----------------- --------------------- Rebecca L. Harris Treasurer American Beacon Mileage Funds I, William F. Quinn, certify that: 1. I have reviewed this report on Form N-CSR of American Beacon Mileage 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) and internal control over financial reporting (as defined in Rule 30a-3(d) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) 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: September 5, 2008 /s/ William F. Quinn ----------------- -------------------- William F. Quinn President American Beacon Mileage Funds EX-99.906 CERT 3 ex906cert-08.txt For period ended 06/30/2008 Registrant Name: American Beacon Mileage Funds File Number: 811-09018 EX-99.906CERT William F. Quinn and Rebecca L. Harris, respectively, the President and Treasurer of the American Beacon Mileage 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 June 30, 2008 (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/ William F. Quinn /s/ Rebecca L. Harris - ---------------------- --------------------- William F. Quinn Rebecca L. Harris President Treasurer American Beacon Mileage Funds American Beacon Mileage Funds Date: September 5, 2008 A signed original of this written statement required by Section 906 has been provided to American Beacon Mileage Funds and will be retained by American Beacon Mileage Funds and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----