Purchase
and Redemption of Shares
Eligibility
The A Class, C Class, Investor Class, Institutional
Class and Y Class shares offered in this prospectus are available to eligible investors who meet the minimum initial investment.
American Beacon Funds do not accept accounts registered to foreign individuals or entities, including foreign correspondence accounts.
The Fund does not conduct operations and is not offered for purchase outside the United States. A Class and C Class shares are
available to retail investors who invest through intermediary organizations, such as broker-dealers or other financial intermediaries,
or through employee directed benefit plans. Investor Class shares are available for traditional and Roth IRAs investing directly
through American Beacon.
Investors in the Fund may include:
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agents or fiduciaries acting on behalf of their clients (such as employee benefit plans, personal
trusts and other accounts for which a trust company or financial advisor acts as agent or fiduciary);
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endowment funds and charitable foundations;
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employee welfare plans that are tax-exempt under Section 501(c)(9) of the Internal Revenue
Code of 1986, as amended (“Code”);
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qualified pension and profit sharing plans;
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cash and deferred arrangements under Section 401(k) of the Code;
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other investors who make an initial investment of at least the minimum investment amounts.
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Subject to your eligibility, you may invest
in the Fund directly or through intermediary organizations, such as broker-dealers, insurance companies, plan sponsors, third party
administrators and retirement plans.
If you invest directly with the Fund, the
fees and policies with respect to the Fund’s shares that are outlined in this prospectus are set by the Fund.
If you invest through a financial intermediary,
most of the information you will need for managing your investment will come from your financial intermediary. This includes information
on how to buy, sell and exchange shares of the Fund. If you establish an account through a financial intermediary, the investment
minimums described in this section may not apply. Investors investing in the Fund through a financial intermediary should consult
with their financial intermediary to ensure they obtain any proper “breakpoint” discount and regarding the differences
between available share classes. Your broker-dealer or financial intermediary also may charge fees that are in addition to those
described in this prospectus. Please contact your intermediary for information regarding investment minimums, how to purchase and
redeem shares and applicable fees.
Minimum
Initial Investment
Share Class
|
Minimum
Initial
Investment
|
C
|
$ 1,000
|
A; Investor
|
$ 2,500
|
Y
|
$100,000
|
Institutional
|
$250,000
|
The Manager may allow a reasonable period
of time after opening an account for an Institutional Class or Y Class investor to meet the initial investment requirement. In
addition, for investors such as trust companies and financial advisors who make investments for a group of clients, the minimum
initial investment can be met through an aggregated purchase order for more than one client.
Because in most cases it is more advantageous
to purchase A Class shares than C Class shares for amounts of $1 million or more, the Fund will decline a request to purchase C
Class shares for $1 million or more.
Opening
an Account
You may open an account through your broker-dealer
or other financial intermediary. Please contact your financial intermediary for more information on how to open an account. Shares
you purchase through your broker dealer will normally be held in your account with that firm.
You may also open an account directly through
us. A completed, signed application is required. You may download an account application from the Fund’s web site at
www.americanbeaconfunds.com
.
You also may obtain an application form by calling 1-800-658-5811 or institutional shareholders should call 1-800-967-9009.
Complete the application, sign it and send
it
Regular Mail to:
American Beacon Funds
P.O. Box 219643
Kansas City, MO 64121-9643
(or institutional shareholders may fax
to)
(816) 374-7408
For Overnight Delivery:
American Beacon Funds
c/o BFDS
330 West 9th Street
Kansas City, MO 64105
(800) 658-5811
To help the government fight the funding
of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information
that identifies each person who opens an account. When you open an account with the Fund or your financial institution, you will
be asked for information that will allow the Fund or your financial institution to identify you. Non-public corporations and other
entities may be required to provide articles of incorporation, trust or partnership agreements, taxpayer identification numbers
and Social Security numbers of persons authorized to provide instructions on the account or other documentation. The Fund and your
financial institution are required by law to reject your new account application if the required identifying information is not
provided.
Purchase
Policies
Shares of the Fund are offered and purchase
orders are typically accepted until 4:00 p.m. Eastern Time or the close of the NYSE (whichever comes first) on each day on which
the NYSE is open for business. If a purchase order is received by the Fund in good order prior to the Fund’s deadline, the
purchase price will be the NAV per share next determined on that day, plus any applicable sales charges. If a purchase order is
received in good order after the applicable deadline, the purchase price will be the NAV per share of the following day that the
Fund is open for business plus any applicable sales charge.
The Fund has authorized certain third party
financial intermediaries, such as broker-dealers, insurance companies, third party administrators and trust companies, to receive
purchase and redemption orders on behalf of the Fund and to designate other intermediaries to receive purchase and redemption orders
on behalf of the Fund. The Fund is deemed to have received such orders when they are received by the financial intermediaries or
their designees. Thus, an order to purchase or sell Fund shares will be priced at the Fund’s next determined NAV after receipt
by the financial intermediary or its designee. You should contact your broker-dealer or other financial intermediary to find out
by what time your purchase order must be received so that it can be processed the same day. It is the responsibility of your broker-dealer
or financial intermediary to transmit orders that will be received by the Funds in proper form and in a timely manner.
Fund shares may be purchased only in U.S.
States and Territories in which they can be legally sold. The Fund reserves the right to refuse purchases if, in the judgment of
the Fund, the transaction would adversely affect the Fund and its shareholders. The Fund has the right to reject any purchase order
or cease offering any or all classes of shares at any time. Checks to purchase shares are accepted subject to collection at full
face value in U.S. funds and must be drawn in U.S. dollars on a U.S. bank. The Funds will not accept “starter” checks,
credit card checks, money orders, cashier’s checks, or third party checks.
Please refer to the section titled “Frequent
Trading and Market Timing” for information on the Funds’ policies regarding frequent purchases, redemptions, and exchanges.
Redemption
Policies
If you purchased shares of the Fund through
your financial intermediary, please contact your broker-dealer or other financial intermediary to sell shares of the Fund.
If you purchased your shares directly
from the Fund, your shares may be redeemed by telephone by calling 1-800-658-5811to speak to a representative, via the Funds’
website,
www.americanbeaconfunds.com
, or by mail on any day that the Fund is open for business.
The redemption price will be the NAV next
determined after a redemption request is received in good order, minus any applicable CDSC and/or redemption fees. In order to
receive the redemption price calculated on a particular business day, redemption requests must be received in good order by 4:00
p.m. Eastern Time or by the close of the NYSE (whichever comes first). You should contact your broker-dealer or other financial
intermediary to find out by what time your order must be received so that it can be processed the same day.
You may, within 90 days of redemption,
reinvest all or part of the proceeds of your redemption of shares of the Fund, without incurring any applicable additional sales
charge, in the same class of another American Beacon Fund, by sending a written request and a check to your financial intermediary
or directly to the Fund. Reinvestment must be into the same account from which you redeemed the shares or received the distribution.
Proceeds from a redemption and all dividend payments and capital gain distributions will be reinvested in the same share class
from which the original redemption or distribution was made. Reinvestment will be at the NAV next calculated after the Fund receives
your request. You must notify the Fund and your financial intermediary at the time of investment if you decide to exercise this
privilege.
Wire proceeds from redemption requests
received in good order by 4:00 p.m. Eastern Time or by the close of the NYSE (whichever comes first) generally are transmitted
to shareholders on the next day the Fund is open for business. In any event, proceeds from a redemption request will typically
be transmitted to a shareholder by no later than seven days after the receipt of a redemption request in good order. Delivery of
proceeds from shares purchased by check or pre-authorized automatic investment may be delayed until the funds have cleared, which
may take up to ten days.
The Fund reserves the right to suspend
redemptions or postpone the date of payment for more than seven days (i) when the NYSE is closed (other than for customary
weekend and holiday closings); (ii) when trading on the NYSE is restricted; (iii) when the SEC determines that an emergency
exists so that disposal of the Fund’s investments or determination of its NAV is not reasonably practicable; or (iv) by
order of the SEC for protection of the Fund’s shareholders.
Although the Fund intends to redeem shares
in cash, the Fund reserves the right to pay the redemption price in whole or in part by a distribution of securities or other assets
held by the Fund. To the extent that the Fund redeems its shares in this manner, the shareholder
assumes the
risk of a subsequent change in the market value of those securities, the cost of liquidating the securities and the possibility
of a lack of a liquid market for those securities.
Please refer
to the section titled “Frequent Trading and Market Timing” for information on the Fund’s policies regarding
frequent purchases, redemptions, and exchanges.
Exchange
Policies
If you purchased
shares of the Fund through your financial intermediary, please contact your financial intermediary to determine if you may take
advantage of the exchange policies described in this section and for its policies to effect an exchange. If you purchased
shares of the Fund directly, your shares may be exchanged by calling 1-800-658-5811 to speak to a representative, through our
website,
www.americanbeaconfunds.com
or use the Automated Voice Response System for Investor Class shares.
Shares of any
class of the Fund may be exchanged for shares of the same class of another American Beacon Fund under certain limited circumstances.
Shares of any class of the Fund may be exchanged for shares of another class of the same Fund under certain limited circumstances.
Shares exchanged between funds that impose a CDSC will be charged a CDSC if redeemed within 12 or 18 months, as may be applicable,
of the purchase of the initial shares. Since an exchange involves a concurrent purchase and redemption, please review the sections
titled “Purchase Policies” and “Redemption Policies” for additional limitations that apply to purchases
and redemptions. There is no front-end sales charge on exchanges between A Class shares of the Fund for A Class shares of another
Fund. Shares otherwise subject to a CDSC will not be charged a CDSC in an exchange to shares of another fund having a CDSC.
Before exchanging
shares, shareholders should consider how the exchange may affect any CDSC that might be imposed on the subsequent redemption of
remaining shares.
If shares were
purchased by check, shareholder must have owned shares of the redeeming Fund for at least ten days prior to exchanging out of
one Fund and into another.
The eligibility
and minimum investment requirement must be met for the class into which the shareholder is exchanging. Fund shares may be acquired
through exchange only in U.S. States and Territories in which they can be legally sold. The Fund reserves the right to charge
a fee and to modify or terminate the exchange privilege at any time. The Fund reserves the right to refuse exchange purchases
if, in the judgment of a Fund, the transaction would adversely affect the Fund and its shareholders.
For federal
income tax purposes, the conversion of shares of one share class for shares of a different share class of the same fund should
not result in a capital gain or loss. However, an exchange of shares of one Fund for shares of a different Fund is considered
a sale and a purchase, respectively, and may result in a gain or loss for tax purposes. There can be no assurance of any particular
tax treatment, however, and you are urged and advised to consult with your own tax advisor before entering into a fund or share
class exchange. Please refer to the section titled “Frequent Trading and Market Timing” for information on the Fund’s
policies regarding frequent purchases, redemptions, and exchanges.
Payments
to Financial Intermediaries
The Fund and
its affiliates (at their own expense) may pay compensation to financial intermediaries for shareholder-related services and, if
applicable, distribution-related services, including administrative, sub-transfer agency type, recordkeeping and shareholder communication
services. For example, compensation may be paid to make Fund shares available to customers of the fund supermarket platform or
similar program sponsor or for services provided in connection with such fund supermarket platforms and programs.
The amount
of compensation paid to different financial intermediaries may differ. The compensation paid to a financial intermediary may be
based on a variety of factors, including average assets under management in accounts distributed and/or serviced by the financial
intermediary, gross sales by the financial intermediary and/or the number of accounts serviced by the financial intermediary that
invest in the Fund. To the extent that the Fund pays any such compensation, it is designed to compensate the financial intermediary
for providing services that would otherwise be provided by the Fund or its transfer agent. To the extent the Fund affiliate pays
such compensation, it may include amounts from that affiliate’s own resources and constitute what is sometimes referred
to as “revenue sharing.”
Compensation
received by a financial intermediary from the Manager or another Fund affiliate may include payments for marketing and/or training
expenses incurred by the financial intermediary, including expenses incurred by the financial intermediary in educating (itself
and) its salespersons with respect to Fund shares. For example, such compensation may include reimbursements for expenses incurred
in attending educational seminars regarding the Fund, including travel and lodging expenses. It may also cover costs incurred
by financial intermediaries in connection with their efforts to sell Fund shares, including costs incurred compensating (registered)
sales representatives and preparing, printing and distributing sales literature.
Any compensation
received by a financial intermediary, whether from the Fund or its affiliate(s), and the prospect of receiving it may provide
the financial intermediary with an incentive to recommend the shares of the Fund, or a certain class of shares of the Fund, over
other potential investments. Similarly, the compensation may cause financial intermediaries to elevate the prominence of the Fund
within its organization by, for example, placing it on a list of preferred funds. You should ask your financial intermediary for
details about any such payments it receives from the Manager or the Distributor, or any other fees, expenses, or commissions your
financial intermediary may charge you in addition to those disclosed in this prospectus.
How
to Purchase Shares
Through
your Broker-Dealer or Other Financial Intermediary
Contact your
broker-dealer or other financial intermediary to purchase shares of the Fund. Your broker-dealer or financial intermediary can
help you open a new account, review your financial needs and formulate long-term investment goals and objectives. Your broker
dealer or financial intermediary will transmit your request to the Funds and may charge you a fee for this service. The Fund will
not accept a purchase order of $1,000,000 or more for C Class shares if the purchase is known to be on behalf of a single investor
(not including dealer “street name” or omnibus accounts). Dealers or other financial intermediaries purchasing shares
for their customers in omnibus accounts are responsible for determining the suitability of a particular share class for an investor.
By
Check
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The minimum
initial and subsequent investment requirements for investments by
check are:
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Share
Class
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Minimum
Initial
Investment
Amount
|
Minimum
Subsequent
Investment
Amount
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C
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$ 1,000
|
$ 50
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A
|
$ 2,500
|
$ 50
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Investor
|
$ 2,500
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$ 50
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Institutional
|
$ 250,000
|
$ 50
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Y
|
$ 100,000
|
$ 50
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Make the
check payable to American Beacon Funds.
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Include
the shareholder’s account number, Fund name and Fund number
on the check.
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American
Beacon Funds
P.O.
Box 219643
Kansas
City, MO 64121-9643
For
Overnight Delivery:
American
Beacon Funds
c/o
BFDS
330
West 9th Street
Kansas
City, MO 64105
By Wire
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The minimum
initial and subsequent investment requirements for investments by
wire are:
|
Share
Class
|
Minimum
Initial
Investment
Amount
|
Minimum
Subsequent
Investment
Amount
|
C
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$ 1,000
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$ 500
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A
|
$ 2,500
|
$ 500
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Investor
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$ 2,500
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$ 500
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Y
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$ 100,000
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None
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Institutional
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$ 250,000
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None
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If your
account has been established, call 1-800-658-5811 to purchase shares
by wire.
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Send a
bank wire to State Street Bank and Trust Co. with these instructions:
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ABA# 0110-0002-8;
AC-9905-342-3,
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Attn: American
Beacon Funds
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the Fund
name and Fund number, and
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shareholder
account number and registration.
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By
Exchange
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The
minimum requirements to establish an account by making an exchange
and to make subsequent exchanges are as follows:
|
Share
Class
|
Minimum Amount
to Establish a
New Account
|
Minimum
Subsequent
Exchange Amount
|
C
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$ 1,000
|
$ 50
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A
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$ 2,500
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$ 50
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Investor
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$ 2,500
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$ 50
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Y
|
$ 100,000
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$ 50
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Institutional
|
$ 250,000
|
$ 50
|
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To exchange
shares, send a written request to the address above, or call 1-800-658-5811
and speak to a representative. You may use the Automated Voice Response
System for exchanges in the Investor Class only.
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You also
may exchange shares by visiting
www.americanbeaconfunds.com
.
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If you
purchased shares through a financial intermediary, please contact
your broker dealer or other financial intermediary to exchange your
shares.
|
Via
www.americanbeaconfunds.com
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You may
purchase shares of Investor Class via
www.americanbeaconfunds.com
.
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Funds will
be transferred automatically from your bank account via Automated
Clearing House (“ACH”) if valid bank instructions were
included on your application.
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If not,
please call 1-800-658-5811 for assistance with establishing bank instructions.
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By Pre-Authorized
Automatic Investment (A Class, C Class and Investor Class shares only)
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The minimum
account size of $1,000 for C Class shares and $2,500 for A Class and
Investor Class shares must be met before establishing an automatic
investment plan.
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Fill in
required information on the account application, including amount
of automatic investment ($50 minimum). Attach a voided check to the
account application.
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You may
also establish an automatic investment plan through
www.americanbeaconfunds.com
.
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Funds will
be transferred automatically from your bank account via ACH on or
about the 5th day of each month or quarter, depending upon which periods
you specify.
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If you
establish your automatic investment plan through
www.americanbeaconfunds.com
,
you can choose the date and frequency of transfer.
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How
to Redeem Shares
Through
your Broker-Dealer or other Financial Intermediary
Contact your
broker-dealer or other financial intermediary to sell shares of the Fund. Your broker-dealer or other financial intermediary is
responsible for transmitting your sale request to the transfer agent in proper form and in a timely manner. Your financial intermediary
may charge you a fee for selling your shares.
By
Telephone
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Call 1-800-658-5811
to request a redemption.
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Minimum
redemption amounts and applicable class limitations, and policies
as to the disposition of the proceeds of telephone redemptions are
as follows:
|
Share
Class
|
Minimum
Redemption
|
Limitations
|
Disposition
of
Redemption Proceeds
|
A,
C and Investor
|
$500 by wire or
|
$50,000 per
account
|
Mailed to account address
of record; or
|
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$50
by check or ACH
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Transmitted
to commercial bank designated on the account application form.
|
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Y
and Institutional
|
None
|
None
|
Transmitted to commercial
bank designated on the account application form.
|
By
Mail
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Write a
letter of instruction including:
|
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u
|
the
Fund name and Fund
number,
|
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u
|
shareholder
account number,
|
|
u
|
shares
or dollar amount
to be redeemed,
and
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u
|
authorized
signature(s) of
all persons required
to sign for the
account.
|
Mail to
:
American Beacon
Funds
P.O. Box 219643
Kansas City,
MO 64121-9643
For Overnight
Delivery
:
American Beacon
Funds
c/o BFDS
330 West 9th
Street
Kansas City,
MO 64105
|
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Proceeds
will be mailed to the account address of record or transmitted
to the commercial bank designated on the account application
form.
|
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Minimum
redemption amounts are as follows:
|
Share
Class
|
Minimum
Redemption
|
A, C and Investor
|
$500 by wire, $50 by check or ACH
|
All other Classes
|
None
|
Supporting
documents may be required for redemptions by estates, trusts, guardianships, custodians, corporations, and welfare, pension and
profit sharing plans. Call 1-800-658-5811 for instructions.
To protect
the Fund and your account from fraud, a STAMP 2000 Medallion signature guarantee is required for redemption orders:
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with a
request to send the proceeds to an address or commercial bank account
other than the address or commercial bank account designated on the
account application, or
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•
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for an
account whose address has changed within the last 30 days if proceeds
are sent by check.
|
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The Fund
only accept STAMP 2000 Medallion signature guarantees, which may be
obtained at participating banks, broker-dealers and credit unions.
A notary public cannot provide a signature guarantee. Call 1-800-658-5811
for instructions and further assistance.
|
By
Exchange
|
•
|
Send a
written request to the address above.
|
|
•
|
Call 1-800-658-5811
and use the Automated Voice Response System (for Investor Class only)
or speak to a representative to exchange shares.
|
|
•
|
Visit
www.americanbeaconfunds.com
and select “Account Login”
|
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•
|
The minimum
requirement to redeem shares by making an exchange is $50.
|
|
•
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If you
purchased shares through a financial intermediary, please contact
your broker dealer or other financial intermediary to exchange your
shares.
|
Via
www.americanbeaconfunds.com
|
•
|
If you
have established bank instructions for your account, you may request
a redemption via ACH or wire for Investor Class shares by accessing
www.americanbeaconfunds.com
.
|
|
•
|
If bank
instructions were not included on the account application form, please
call 1-800-658-5811 to establish bank instructions.
|
|
•
|
Minimum
wire, ACH and check redemption amounts and policies as to the disposition
of the proceeds of redemptions via
www.americanbeaconfunds.com
are as follows:
|
Share Class
|
Minimum
Wire Amount
|
Minimum
ACH or
Check
Amount
|
Disposition of
Redemption Proceeds
|
Investor
|
$500
|
$50
|
Check mailed to account
address of record;
Wire transmitted to commercial bank designated on the account application
form; or Funds transferred via ACH to bank account designated on application form.
|
By Pre-Authorized
Automatic Redemption (A, C and Investor Class shares only)
|
•
|
Fill in
required information on the account application or establish via
www.americanbeaconfunds.com
($50 minimum).
|
Proceeds will
be transferred automatically from your Fund account to your bank account via ACH.
General
Policies
If a shareholder’s
account balance falls below the following minimum levels, the shareholder may be asked to increase the balance.
|
|
Share
Class
|
Account
Balance
|
A
|
$ 2,500
|
C
|
$ 1,000
|
Investor
|
$ 2,500
|
Y
|
$ 25,000
|
Institutional
|
$ 75,000
|
If the account
balance remains below the applicable minimum account balance after 45 days, the Fund reserves the right to close the account and
send the proceeds to the shareholder. IRA accounts will be charged an annual maintenance fee of $15.00 by the Custodian for maintaining
either a traditional IRA or a Roth IRA. The Fund reserves the authority to modify minimum account balances in its discretion.
A Signature
Validation Program (“SVP”) stamp may be required in order to change an account’s registration or banking instructions.
You may obtain a SVP stamp at participating banks, broker-dealers and credit unions, but not from a notary public. The SVP stamp
is analogous to the STAMP 2000 Medallion guarantee in that it is provided at similar institutions. However, it is used only for
non-financial transactions.
The following
policies apply to instructions you may provide to the Fund by telephone:
|
•
|
The Fund,
its officers, trustees, employees, or agents are not responsible for
the authenticity of instructions provided by telephone, nor for any
loss, liability, cost or expense incurred for acting on them.
|
|
•
|
The Fund
employs procedures reasonably designed to confirm that instructions
communicated by telephone are genuine.
|
|
•
|
Due to
the volume of calls or other unusual circumstances, telephone redemptions
may be difficult to implement during certain time periods.
|
The Fund reserves
the right to:
|
•
|
liquidate
a shareholder’s account at the current day’s NAV and remit
proceeds via check if the Fund or a financial institution are unable
to verify the shareholder’s identity within three business days
of account opening,
|
|
•
|
seek reimbursement
from the shareholder for any related loss incurred by the Fund if
payment for the purchase of Fund shares by check does not clear the
shareholder’s bank, and
|
|
•
|
reject
a purchase order and seek reimbursement from the shareholder for any
related loss incurred by the Fund if funds are not received by the
applicable wire deadline.
|
A shareholder
will not be required to pay a CDSC when the registration for A Class or C Class shares is transferred to the name of another person
or entity. The transfer may occur by absolute assignment, gift or bequest, as long as it does not involve, directly or indirectly,
a public sale of the shares. When A Class or C Class shares are transferred, any applicable CDSC will continue to apply to the
transferred shares and will be calculated as if the transferee had acquired the shares in the same manner and at the same time
as the transferring shareholder.
Escheatment
Please be advised
that certain state escheatment laws may require the Fund to turn over your mutual fund account to the state listed in your account
registration as abandoned property unless you contact the Fund. Many states have added “inactivity” or the absence
of
customer initiated contact
as a component of their rules and guidelines for the escheatment of unclaimed property. These
states consider property to be abandoned when there is no
shareholder initiated activity
on an account for at least three
(3) to five (5) years.
Depending on
the laws in your jurisdiction, customer initiated contact might be achieved by one of the following methods:
|
•
|
Sending
a letter to American Beacon Funds via the United States Post Office,
|
|
•
|
Speaking
to a Customer Service Representative on the phone after you go through
a security verification process.
For residents of certain states,
contact cannot be made by phone but must be in writing or through
the funds secure web application.
|
|
•
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Accessing
your account through the funds secure web application,
|
|
•
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Cashing
checks that are received and are made payable to the owner of the
account.
|
The Fund, the
Manager, and the Transfer Agent will not be liable to shareholders or their representatives for good faith compliance with escheatment
laws. To learn more about the escheatment rules for your particular state, please contact your attorney or State Treasurer’s
and/or Controller’s Offices.
Contact information:
American Beacon
Funds
P.O. Box 219643
Kansas City,
MO 64121-9643
1-800-658-5811
(phone)
www.americanbeaconfunds.com
(web)
If you do not
hold your shares directly with the Fund, you should contact your broker-dealer, retirement plan, or other third party, intermediary
regarding applicable state escheatment laws.
Frequent
Trading and Market Timing
Frequent trading
by Fund shareholders poses risks to other shareholders in that Fund, including (i) the dilution of the Fund’s NAV,
(ii) an increase in the Fund’s expenses, and (iii) interference with the portfolio managers’ ability to
execute efficient investment strategies. Frequent, short-term trading of Fund shares in an attempt to profit from day-to-day fluctuations
in a Fund’s NAV is known as market timing.
The Fund’s
Board of Trustees has adopted policies and procedures intended to discourage frequent trading and market timing. Shareholders
may transact one “round trip” in the Fund in any rolling 90-day period. A “round trip” is defined as two
transactions, each in an opposite direction. A round trip may involve (i) a purchase or exchange into the Fund followed by
a redemption or exchange out of the same Fund or (ii) a redemption or exchange out of a Fund followed by a purchase or exchange
into the same Fund. If the Manager detects that a shareholder has exceeded one round trip in a Fund in any rolling 90-day period,
the Manager, without prior notice to the shareholder, will prohibit the shareholder from making further purchases of that Fund.
In general, the Fund reserves the right to reject any purchase order, terminate the exchange privilege, or liquidate the account
of any shareholder that the Manager determines has engaged in frequent trading or market timing, regardless of whether the shareholder’s
activity violates any policy stated in this prospectus. Additionally,
the Manager
may, in its discretion, reject any purchase or exchange into the Fund from any individual investor, institutional investor, or
group whose trading activity could disrupt the management of the Fund or dilute the value of the Fund’s shares, including
collective trading (e.g. following the advice of an investment newsletter). Such investors may be barred from future purchases
of American Beacon Funds.
The round-trip
limit does not apply to the following transaction types:
|
•
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shares
acquired through the reinvestment of dividends and other distributions;
|
|
•
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systematic
purchases and redemptions;
|
|
•
|
shares
redeemed to return excess IRA contributions; or
|
|
•
|
certain
transactions made within a retirement or employee benefit plan, such
as payroll contributions, minimum required distributions, loans, and
hardship withdrawals, or other transactions that are initiated by
a party other than the plan participant.
|
Financial intermediaries
that offer Fund shares, such as broker-dealers, third party administrators of retirement plans, and trust companies, will be asked
to enforce the Fund’s policies to discourage frequent trading and market timing by investors. However, certain intermediaries
that offer Fund shares have informed the Fund that they are currently unable to enforce the Fund’s policies on an automated
basis. In those instances, the Manager will monitor trading activity of the intermediary in an attempt to detect patterns of activity
that indicate frequent trading or market timing by underlying investors. In some cases, intermediaries that offer Fund shares
have their own policies to deter frequent trading and market timing that differ from the Fund’s policies. The Fund may defer
to an intermediary’s policies. For more information, please contact the financial intermediary through which you invest
in the Fund.
The Manager
monitors trading activity in the Fund to attempt to identify shareholders engaged in frequent trading or market timing. The Manager
may exclude transactions below a certain dollar amount from monitoring and may change that dollar amount from time to time. The
ability of the Manager to detect frequent trading and market timing activity by investors who own shares through an intermediary
is dependent upon the intermediary’s provision of information necessary to identify transactions by the underlying investors.
The Fund has entered into agreements with the intermediaries that service the Fund’s investors, pursuant to which the intermediaries
agree to provide information on investor transactions to the Fund and to act on the Fund’s instructions to restrict transactions
by investors who the Manager has identified as having violated the Fund’s policies and procedures to deter frequent trading
and market timing.
Wrap programs
offered by certain intermediaries may be designated “Qualified Wrap Programs” by the Fund based on specific criteria
established by the Fund and a certification by the intermediary that the criteria have been met. A Qualified Wrap Program is:
(i) a wrap program whose sponsoring intermediary certifies that it has investment discretion over $50 million or more in
client assets invested in mutual funds at the time of the certification, (ii) a wrap program whose sponsoring intermediary
certifies that it directs transactions in accounts participating in the wrap program(s) in concert with changes in a model portfolio;
(iii) managed by an intermediary that agrees to provide the Manager a description of the wrap program(s) that the intermediary
seeks to qualify; and (iv) managed by an intermediary that agrees to provide the Manager sufficient information to identify
individual accounts in the intermediary’s wrap program(s). For purposes of applying the round-trip limit, transactions initiated
by clients invested in a Qualified Wrap Program will not be matched to transactions initiated by the intermediary sponsoring the
Qualified Wrap Program. For example, a client’s purchase of the Fund followed within 90 days by the intermediary’s
redemption of the same Fund would not be considered a round trip. However, transactions initiated by a Qualified Wrap Program
client are subject to the round-trip limit and will be matched to determine if the client has exceeded the round-trip limit. In
addition, the Manager will monitor transactions initiated by Qualified Wrap Program intermediaries to determine whether any intermediary
has engaged in frequent trading or market timing. If the Manager determines that an intermediary has engaged in activity that
is harmful to the Fund, the Manager will revoke the intermediary’s Qualified Wrap Program status. Upon termination of status
as a Qualified Wrap Program, all account transactions will be matched for purposes of testing compliance with the Fund’s
frequent trading and market timing policies, including any applicable redemption fees.
The Fund reserves
the right to modify the frequent trading and market timing policies and procedures and grant or eliminate waivers to such policies
and procedures at any time without advance notice to shareholders. There can be no assurance that the Fund’s policies and
procedures to deter frequent trading and market timing will have the intended effect nor that the Manager will be able to detect
frequent trading and market timing.
STATEMENT OF ADDITIONAL INFORMATION
AMERICAN BEACON FUNDS
SM
xxx xx, 201x
American Beacon SGA Global Growth Fund
A CLASS [xxxx]
C CLASS [xxxx]
Y CLASS [xxxx]
INSTITUTIONAL CLASS [xxxx]
INVESTOR CLASS [xxxx]
This Statement of
Additional Information (“SAI”) should be read in conjunction with the Prospectus dated xx xx, 201x (the “Prospectus”)
for the American Beacon SGA Global Growth Fund (the “Fund”), a series of the American Beacon Funds, a Massachusetts
business trust. Copies of the Prospectus may be obtained without charge by calling (800) 658-5811. You also may obtain copies
of the Prospectus without charge by visiting the Fund’s website at www.americanbeaconfunds.com. This SAI is incorporated
herein by reference to the Fund’s Prospectus. In other words, it is legally a part of the Prospectus. This SAI is not a prospectus
and is authorized for distribution to prospective investors only if preceded or accompanied by a current Prospectus.
The Fund has not commenced
operations as of the date hereof. Accordingly, financial statements for the Fund are not available. Copies of the Fund’s
Annual Report may be obtained when available, without charge, upon request by calling (800) 658-5811.
TABLE OF CONTENTS
Organization and History of the Fund
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1
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Additional Information About Investment Strategies and Risks
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1
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Non-Principal Investment Strategies and Risks
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14
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Investment Restrictions
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14
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Temporary Defensive and Interim Investments
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15
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Portfolio Turnover
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16
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Disclosure of Portfolio Holdings
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16
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Lending of Portfolio Securities
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17
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Trustees and Officers of the Trust
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18
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Code of Ethics
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24
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Proxy Voting Policies
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24
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Control Persons and 5% Shareholders
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24
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Investment Sub-Advisory Agreement
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25
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Management, Administrative and Distribution Services
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25
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Other Service Providers
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27
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Portfolio Manager
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27
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Portfolio Securities Transactions
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28
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Additional Purchase and Sale Information for A Class Shares
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29
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Additional Information Regarding Contingent Deferred Sales Charges
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31
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Redemptions in Kind
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31
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Tax Information
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31
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Description of the Trust
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35
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Financial Statements
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36
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Appendix A: Proxy Voting Policy and Procedures for the Trust
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A-1
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Appendix B: Proxy Voting Policies — Investment Sub-Advisor
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B-1
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Appendix C: Ratings Definitions
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C-1
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ORGANIZATION AND HISTORY OF THE FUND
The Fund is a separate
investment portfolio of the American Beacon Funds (the “Trust”), an open-end management investment company organized
as a Massachusetts business trust on January 16, 1987. The Fund constitutes a separate investment portfolio with a distinct
investment objective and distinct purpose and strategy. The Fund is non-diversified. On xxx, 201x, the Fund acquired all the assets
of the SGA Global Growth Fund (the “Acquired Fund”), a series of the Investment Managers Series Trust. Since the Acquired
Fund’s objective and policies are the same in all material respects as the Fund, and since the Fund will engage the investment
advisor currently providing services to the Acquired Fund, Sustainable Growth Advisers, LP, as sub-advisor (“Sub-Advisor”),
the Fund has adopted the prior performance and financial history of the Acquired Fund. The Fund is comprised of multiple classes
of shares designed to meet the needs of different groups of investors. This SAI relates to the A Class, C Class, Y Class, Institutional
Class, and Investor Class shares of the Trust.
ADDITIONAL INFORMATION ABOUT INVESTMENT
STRATEGIES AND RISKS
The investment objective
and principal investment strategies and risks of the Fund are described in the Prospectus. This section contains additional information
about the Fund’s investment policies and risks and types of securities the Fund may purchase. The composition of the Fund’s
portfolio and the strategies that the Fund may use in selecting portfolio securities may vary over time. The Fund is not required
to use all of the investment strategies described below in pursuing its investment objectives. It may use some of the investment
strategies only at some times or it may not use them at all.
Borrowing Risks
— The Fund may borrow money in an amount up to one-third of its total assets (including the amount borrowed) from banks and
other financial institutions. The Fund may borrow for temporary purposes. Borrowing may exaggerate changes in the Fund’s
NAV and in its total return. Interest expense and other fees associated with borrowing may reduce the Fund’s return.
Cash Equivalents
— Cash equivalents include certificates of deposit, time deposits, bankers’ acceptances, government obligations, commercial
paper, short-term corporate debt securities and repurchase agreements.
Bankers’ acceptances
are short-term credit instruments designed to enable businesses to obtain funds to finance commercial transactions. Generally,
an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then “accepted” by a bank that, in effect, unconditionally guarantees to pay the face value
of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be
sold in the secondary market at the going rate of discount for a specific maturity. Although maturities for acceptances can be
as long as 270 days, most acceptances have maturities of six months or less.
Certificates of deposit
(“CDs”) are issued against funds deposited in an eligible bank (including its domestic and foreign branches, subsidiaries
and agencies), are for a definite period of time, earn a specified rate of return and are normally negotiable. U.S. dollar denominated
CDs issued by banks abroad are known as Eurodollar CDs. CDs issued by foreign branches of U.S. banks are known as Yankee CDs.
Time deposits are
non-negotiable deposits maintained at a banking institution for a specified period of time at a specified interest rate.
Common Stock
— Common stock generally takes the form of shares in a corporation which represent an ownership interest. It ranks below
preferred stock and debt securities in claims for dividends and for assets of the company in a liquidation or bankruptcy. The value
of a company’s common stock may fall as a result of factors directly relating to that company, such as decisions made by
its management or decreased demand the company’s products or services. A stock’s value may also decline because of
factors affecting not just the company, but also companies in the same industry or sector. The price of a company’s stock
may also be affected by changes in financial markets that are relatively unrelated to the company, such as changes in interest
rates, currency exchange rates or industry regulation. Companies that elect to pay dividends on their common stock generally only
do so after they invest in their own business and make required payments to bondholders and on other debt and preferred stock.
Therefore, the value of a company’s common stock will usually be more volatile than its bonds, other debt and preferred stock.
Common stock may be exchange-traded or over-the-counter (“OTC”). OTC stock may be less liquid than exchange-traded
stock.
Convertible
Securities
— Convertible securities include corporate bonds, notes, preferred stock or other securities that may
be converted into or exchanged for a prescribed amount of common stock of the same or a different issuer within a particular period
of time at a specified price or formula. A convertible security entitles the holder to receive interest paid or accrued on debt
or dividends paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. While no securities
investment is without some risk, investments in convertible securities generally entail less risk than the issuer’s common
stock, although the extent to which such risk is reduced depends in large measure upon the degree to which the convertible security
sells above its value as a fixed income security. The market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. While convertible securities generally offer lower interest or
dividend yields than non-convertible
debt securities of similar quality, they
do enable the investor to benefit from increases in the market price of the underlying common stock. Holders of convertible securities
have a claim on the assets of the issuer prior to the common stockholders, but may be subordinated to holders of similar non-convertible
securities of the same issuer. Because of the conversion feature, certain convertible securities may be considered equity equivalents.
Cover and Asset
Segregation
— The Fund may make investments or employ trading practices that obligate the Fund, on a fixed or contingent
basis, to deliver an asset or make a cash payment to another party in the future. The Fund will comply with guidance from the U.S.
Securities and Exchange Commission (the “SEC”) and other applicable regulatory bodies with respect to coverage of certain
investments and trading practices. This guidance requires segregation (which may include earmarking) by the Fund of cash or liquid
securities with its custodian or a designated sub-custodian to the extent the Fund’s obligations with respect to these strategies
are not otherwise “covered” through ownership of the underlying security or financial instrument or by offsetting portfolio
positions.
For example, if the
Fund enters into a currency forward contract to sell foreign currency on a future date, the Fund may cover its obligation to deliver
the foreign currency by segregating cash or liquid securities having a value at least equal to the value of the deliverable currency.
Alternatively, the Fund could cover its obligation by entering into an offsetting transaction to acquire an amount of foreign currency
at least equal to the deliverable amount at a price at or below the sale price received by the Fund under the currency forward
contract.
The Fund’s approach
to asset coverage may vary among different types of investments. With respect to certain investments, the Fund calculates the obligations
of the parties to the agreement on a “net basis” (i.e., the two payment streams are netted out with the Fund receiving
or paying, as the case may be, only the net amount of the two payments). Under such circumstances, the Fund’s current obligations
will generally be equal only to the net amount to be paid by the Fund based on the relative values of the positions held by each
party to the agreement (the “net amount”).
Inasmuch as the Fund
covers its obligations under these transactions as described above, American Beacon Advisors, Inc. (the “Manager”)
and the Fund believe such obligations do not constitute senior securities. Earmarking or otherwise segregating a large percentage
of the Fund’s assets could impede the sub-advisor’s ability to manage the Fund’s portfolio.
Currencies
— The Fund may have significant exposure to foreign currencies for investment or hedging purposes by purchasing or selling
forward currency exchange contracts in non-U.S. or emerging market currencies, non-U.S. currency futures contracts, options on
non-U.S. currencies and non-U.S. currency futures, swaps for cross-currency investments, direct investments in non- U.S. currencies
and in securities denominated in non-U.S. currencies.
Foreign currencies
may decline in value relative to the U.S. dollar and affect the Fund’s investments in foreign (non-U.S.) currencies or in
securities that trade in, and receive revenues in, or in derivatives that provide exposure to, foreign (non-U.S.) currencies.
Depositary Receipts
— American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs)
—
ADRs are depositary receipts for foreign issuers in registered form traded in U.S. securities markets. EDRs are in bearer form
and traded in European securities markets. GDRs are in bearer form and traded in both the U.S. and European securities markets.
Depositary receipts may not be denominated in the same currency as the securities into which they may be converted. Investing in
depositary receipts entails substantially the same risks as direct investment in foreign securities. There is generally less publicly
available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges,
brokers and listed companies. In addition, such companies may use different accounting and financial standards (and certain currencies
may become unavailable for transfer from a foreign currency), resulting in the Fund’s possible inability to convert immediately
into U.S. currency proceeds realized upon the sale of portfolio securities of the affected foreign companies. In addition, the
Fund may invest in unsponsored depositary receipts, the issuers of which are not obligated to disclose material information about
the underlying securities to investors in the United States. Ownership of unsponsored depositary receipts may not entitle the Fund
to the same benefits and rights as ownership of a sponsored depositary receipt or the underlying security. Please see “Foreign
Securities” below for a description of the risks associated with investments in foreign securities.
Derivatives
— Generally a derivative is a financial arrangement, the value of which is based on, or “derived” from, a traditional
security, asset, currency, or market index. Some “derivatives” such as mortgage-related securities (“MBS”)
and other asset-backed securities (“ABS”) are in many respects like any other investment, although they may be more
volatile or less liquid than more traditional debt securities. There are, in fact, many different types of derivatives and many
different ways to use them. Certain derivative securities are described more accurately as index/structured securities. Index/structured
securities are derivative securities whose value or performance is linked to other equity securities (such as depositary receipts),
currencies, interest rates, indices or other financial indicators (reference indices).
The Fund may invest
in one or more of the following types of derivatives, including options, futures, forwards, warrants, structured products, interest
rate caps, floors, collars, reverse collars, and other derivative instruments. The enactment of the Dodd-Frank Act resulted in historic and comprehensive
statutory reform of derivatives, including the manner in which they are designed, negotiated, reported, executed, settled (or “cleared”)
and regulated. The Dodd-Frank Act requires the SEC and the U.S. Commodity Futures Trading Commission (“CFTC”) to establish
new regulations with respect to derivatives defined as security-based swaps (e.g., derivatives based on an equity) and swaps (e.g.,
derivatives based on a broad-based index or commodity), respectively, and the markets in which these instruments trade. In addition,
it subjected all swaps and security-based swaps to CFTC and SEC jurisdiction, respectively.
Historically, advisers
of registered investment companies trading commodity interests (such as futures contracts, options on futures contracts, non-deliverable
forwards and swaps), including the Fund, have been excluded from regulation as commodity pool operators (“CPOs”) pursuant
to CFTC Regulation 4.5. The CFTC amended Regulation 4.5 to dramatically narrow this exclusion.
Under the amended
Regulation 4.5 exclusion, the Fund’s commodity interests — other than those used for bona fide hedging purposes (as
defined by the CFTC) — must be limited such that the aggregate initial margin and premiums required to establish the positions
(after taking into account unrealized profits and unrealized losses on any such positions and excluding the amount by which options
that are “in-the-money” at the time of purchase) does not exceed 5% of the Fund’s NAV, or alternatively, the
aggregate net notional value of the positions, determined at the time the most recent position was established, does not exceed
100% of the Fund’s NAV (after taking into account unrealized profits and unrealized losses on any such positions). Further,
to qualify for the exclusion in amended Regulation 4.5, the Fund must satisfy a marketing test, which requires, among other things,
that the Fund not hold itself out as a vehicle for trading commodity interests.
Amended Regulation
4.5 was effective on April 24, 2012, but the compliance date for advisers to existing funds, such as the Fund, is January 1,
2013. However, the Manager is not registered as a commodity pool operator (“CPO”) with respect to the Fund in this
SAI in reliance on the delayed compliance date provided by No-Action Letter 12-38 of the Division of Swap Dealer and Intermediary
Oversight (“Division”) of the Commodity Futures Trading Commission (“CFTC”). Pursuant to this letter, the
Manager is not required to register as a CPO, or rely on an exemption from registration, until the later of June 30, 2013
or six months from the date the Division issues revised guidance on the application of the calculation of the de minimis thresholds
in the context of the CPO exemption in CFTC Regulation 4.5 (the “Deadline”). Such guidance is expected to clarify how
to calculate compliance with the thresholds given the Fund’s investments in investment vehicles, such as securitization vehicles,
which may cause the Fund to be deemed to be indirectly trading commodity interests. Prior to the Deadline, the Manager will determine
whether it must register as a CPO or whether it may rely on an exemption or exclusion with respect to the Fund. If the Manager
determines that it can rely on the exclusion in Regulation 4.5 with respect to the Fund, the Manager will reaffirm its current
Regulation 4.5 exclusion, as previously filed, and comply with the thresholds in Regulation 4.5 with respect to any other commodity
interests in the Fund’s portfolio.
Derivatives may involve
significant risk. Some derivatives have the potential for unlimited loss, regardless of the size of the Fund’s initial investment.
Not all derivative transactions require a counterparty to post collateral, which may expose the Fund to greater losses in the event
of a default by a counterparty. Derivatives may be illiquid and may be more volatile than other types of investments. The Fund
may buy derivatives not traded on an exchange, which may be subject to heightened liquidity and valuation risk.
Emerging Market
Investments
— The Fund may invest in the securities and derivatives of issuers domiciled in various countries with
emerging capital markets. Investments in the securities and derivatives of issuers domiciled in countries with emerging capital
markets involve significantly higher risks not involved in investments in securities of issuers in more developed capital markets,
such as (i) low or non-existent trading volume, resulting in a lack of liquidity and increased volatility in prices for such
securities, as compared to securities of comparable issuers in more developed capital markets, (ii) uncertain national policies
and social, political and economic instability, increasing the potential for expropriation of assets, confiscatory taxation, high
rates of inflation or unfavorable diplomatic developments, (iii) possible fluctuations in exchange rates, differing legal
systems and the existence or possible imposition of exchange controls, custodial restrictions or other non-U.S. or U.S. governmental
laws or restrictions applicable to such investments, (iv) national policies that may limit the Fund’s investment opportunities
such as restrictions on investment in issuers or industries deemed sensitive to national interests, (v) the lack or relatively
early development of legal structures governing private and foreign investments and private property, and (vi) less diverse
or immature economic structures. In addition to withholding taxes on investment income, some countries with emerging markets may
impose differential capital gain taxes on foreign investors.
Such capital markets
are emerging in a dynamic political and economic environment brought about by events over recent years that have reshaped political
boundaries and traditional ideologies. In such a dynamic environment, there can be no assurance that these capital markets will
continue to present viable investment opportunities for the Fund. In the past, governments of such nations have expropriated substantial
amounts of private property, and most claims of the property owners have never been fully settled. There is no assurance that such
expropriations will not reoccur. In such event, it is possible that the Fund could lose the entire value of its investments in
the affected markets.
The economies of emerging
market countries may be based predominately on only a few industries or may be dependent on revenues from participating commodities
or on international aid or developmental assistance, may be highly vulnerable to changes in local or global trade conditions, and
may suffer from extreme and volatile debt burdens or inflation rates.
Also, there may be
less publicly available information about issuers in emerging markets than would be available about issuers in more developed capital
markets, and such issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable
to those to which U.S. companies are subject. In certain countries with emerging capital markets, reporting standards vary widely.
As a result, traditional investment measurements used in the U.S., such as price/earnings ratios, may not be applicable. Emerging
market securities may be substantially less liquid and more volatile than those of mature markets, and companies may be held by
a limited number of persons. This may adversely affect the timing and pricing of the Fund’s acquisition or disposal of securities.
Practices in relation
to settlement of securities transactions in emerging markets involve higher risks than those in developed markets, in part because
the Fund will need to use brokers and counterparties that are less well capitalized, and custody and registration of assets in
some countries may be unreliable.
The Fund may consider
a country to be an emerging market country based on a number of factors including, but not limited to, if the country is classified
as an emerging or developing economy by any supranational organization such as the World Bank, International Financial Corporation
or the United Nations, or related entities, or if the country is considered an emerging market country for purposes of constructing
emerging markets indices.
Expense Risk
— Fund expenses are subject to a variety of factors, including fluctuations in the Fund’s net assets. Accordingly,
actual expenses may be greater or less than those indicated. For example, to the extent that the Fund’s net assets decrease
due to market declines or redemptions, the Fund’s expenses will increase as a percentage of Fund net assets. During periods
of high market volatility, these increases in the Fund’s expense ratio could be significant.
Fixed Income
Investments
— The Fund may hold debt, including corporate debt, and other fixed-income securities. Typically, the
values of fixed-income securities change inversely with prevailing interest rates. Therefore, a fundamental risk of fixed-income
securities is interest rate risk, which is the risk that their value will generally decline as prevailing interest rates rise,
which may cause the Fund’s net asset value to likewise decrease, and vice versa. How specific fixed-income securities may
react to changes in interest rates will depend on the specific characteristics of each security. For example, while securities
with longer maturities tend to produce higher yields, they also tend to be more sensitive to changes in prevailing interest rates
and are therefore more volatile than shorter-term securities and are subject to greater market fluctuations as a result of changes
in interest rates. Fixed-income securities are also subject to credit risk, which is the risk that the credit strength of an issuer
of a fixed-income security will weaken and/or that the issuer will be unable to make timely principal and interest payments and
that the security may go into default. In addition, there is prepayment risk, which is the risk that during periods of falling
interest rates, certain fixed-income securities with higher interest rates, such as mortgage- and asset-backed securities, may
be prepaid by their issuers thereby reducing the amount of interest payments. This may result in the Fund having to reinvest its
proceeds in lower yielding securities. Securities underlying mortgage- and asset-backed securities, which may include subprime
mortgages, also may be subject to a higher degree of credit risk, valuation risk, and liquidity risk.
Foreign Debt
Securities
— The Fund may invest in foreign fixed and floating rate income securities (including emerging market
securities) all or a portion of which may be non-U.S. dollar denominated and which include: (a) debt obligations issued or guaranteed
by foreign national, provincial, state, municipal or other governments with taxing authority or by their agencies or instrumentalities,
including Brady Bonds; (b) debt obligations of supranational entities; (c) debt obligations of the U.S. Government issued in non-dollar
securities; (d) debt obligations and other fixed income securities of foreign corporate issuers (both dollar and non-dollar denominated);
and (e) U.S. corporate issuers (both Eurodollar and non-dollar denominated). There is no minimum rating criteria for the Fund’s
investments in such securities. Investing in the securities of foreign issuers involves special considerations that are not typically
associated with investing in the securities of U.S. issuers. In addition, emerging markets are markets that have risks that are
different and higher than those in more developed markets.
Foreign Securities
— The Fund may invest in U.S. dollar-denominated and non-U.S. dollar denominated equity and debt securities of foreign issuers
and foreign branches of U.S. banks, including negotiable CDs, bankers’ acceptances, and commercial paper. Foreign issuers
are issuers organized and doing business principally outside the United States and include banks, non-U.S. governments, and quasi-governmental
organizations. While investments in foreign securities are intended to reduce risk by providing further diversification, such investments
involve sovereign and other risks, in addition to the credit and market risks normally associated with domestic securities. These
additional risks include the possibility of adverse political and economic developments (including political or social instability,
nationalization, expropriation, or confiscatory taxation); the potentially adverse effects of unavailability of public information regarding
issuers, less governmental supervision and regulation of financial markets, reduced liquidity of certain financial markets, and
the lack of uniform accounting, auditing, and financial reporting standards or the application
of standards that are different
or less stringent than those applied in the United States; different laws and customs governing securities tracking; and possibly
limited access to the courts to enforce the Fund’s rights as an investor.
The Fund also may
invest in equity, debt, or other income-producing securities that are denominated in or indexed to foreign currencies, including
(1) common and preferred stocks, (2) CDs, commercial paper, fixed time deposits, and bankers’ acceptances issued
by foreign banks, (3) obligations of other corporations, and (4) obligations of foreign governments and their subdivisions,
agencies, and instrumentalities, international agencies, and supranational entities. Investing in foreign currency denominated
securities involves the special risks associated with investing in non-U.S. issuers, as described in the preceding paragraph, and
the additional risks of (1) adverse changes in foreign exchange rates and (2) adverse changes in investment or exchange
control regulations (which could prevent cash from being brought back to the United States). Additionally, dividends and interest
payable on foreign securities (and gains realized on disposition thereof) may be subject to foreign taxes, including taxes withheld
from those payments.
The Fund may also
invest in foreign “market access” investments, such as participatory notes, low-exercise price options or warrants,
equity-linked notes, or equity swaps. These investments may provide economic exposure to an issuer without directly holding its
common stock. For example, market access investments may be used where regulatory or stock exchange restrictions make it difficult
or undesirable for the Fund to invest directly in an issuer’s common stock. Use of market access investments may involve
risks associated with derivative investments (see “Derivatives”). Market access investments can be either exchange-traded
or over-the-counter. Certain market access investments can be subject to the credit risk of both the underlying issuer and a counterparty.
Holders of certain market access investments might not have voting rights or dividend rights associated with shares of common stock.
Holders of market access investments might not have any right to make a claim against an issuer or counterparty in the event of
their bankruptcy or other restructuring. It may be more difficult or time consuming to dispose of certain market access investments
than exchange-traded common stock.
Commissions on foreign
securities exchanges are often at fixed rates and are generally higher than negotiated commissions on U.S. exchanges, although
the sub-advisor endeavors to achieve the most favorable net results on portfolio transactions.
Foreign securities
may trade with less frequency and in less volume than domestic securities and therefore may exhibit greater price volatility. Additional
costs associated with an investment in foreign securities may include higher custodial fees than apply to domestic custody arrangements
and transaction costs of foreign currency conversions.
Foreign markets also
have different clearance and settlement procedures. In certain markets, there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement
could result in temporary periods when a portion of the assets of the Fund is uninvested and no return is earned thereon. The inability
of the Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could result in losses to the Fund due to subsequent declines
in value of the securities or, if the Fund has entered into a contract to sell the securities, could result in possible liability
to the purchaser.
Interest rates prevailing
in other countries may affect the prices of foreign securities and exchange rates for foreign currencies. Local factors, including
the strength of the local economy, the demand for borrowing, the government’s fiscal and monetary policies, and the international
balance of payments, often affect interest rates in other countries. Individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency,
and balance of payments position.
Forward Contracts
and Forward Foreign Currency Exchange Contracts
— The Fund may enter into forward contracts and forward foreign currency
exchange contracts (“forward currency contracts”). Forward contracts are two-party contracts pursuant to which one
party agrees to pay the counterparty a fixed price for an agreed upon amount of commodities, securities, or the cash value of the
commodities, securities or the securities index, at an agreed upon date. A forward currency contract involves an obligation to
purchase or sell a specified currency at a future date, which may be any fixed number of days from the date of the contract agreed
upon by the parties at a price set at the time of the contract. Because these contracts are physically settled through an exchange
of currencies, they are traded in the interbank market directly between currency traders (usually large commercial banks) and their
customers.
Forward currency contracts
may serve as long hedges — for example, the Fund may purchase a forward currency contract to lock in the U.S. dollar price
of a security denominated in a foreign currency that it intends to acquire. Forward currency contract transactions also may serve
as short hedges — for example, the Fund may sell a forward currency contract to lock in the U.S. dollar equivalent of the
proceeds from the anticipated sale of a security or from a dividend or interest payment on a security denominated in a foreign
currency.
The Fund may enter
into forward currency contracts to sell a foreign currency for a fixed U.S. dollar amount approximating the value of some or all
of their respective portfolio securities denominated in such foreign currency. In addition, the Fund may use forward currency contracts
when a sub-advisor wishes to “lock in” the U.S. dollar price of a security when the Fund is purchasing or
selling a
security denominated in a foreign currency or anticipates receiving a dividend or interest payment denominated in a foreign currency.
The Fund may enter
into forward currency contracts for the purchase or sale of a specified currency at a specified future date either with respect
to specific transactions or with respect to portfolio positions in order to minimize the risk to the Fund from adverse changes
in the relationship between the U.S. dollar and foreign currencies.
The Fund may seek
to hedge against changes in the value of a particular currency by using forward currency contracts on another foreign currency
or a basket of currencies, the value of which the applicable sub-advisor believes will have a positive correlation to the values
of the currency being hedged. Use of a different foreign currency magnifies the risk that movements in the price of the forward
contract will not correlate or will correlate unfavorably with the foreign currency being hedged.
In addition, the Fund
may use forward currency contracts to shift exposure to foreign currency fluctuations from one country to another. For example,
if the Fund owned securities denominated in a foreign currency that a sub-advisor believed would decline relative to another currency,
it might enter into a forward currency contract to sell an appropriate amount of the first foreign currency, with payment to be
made in the second currency. Transactions that use two foreign currencies are sometimes referred to as “cross hedging.”
Use of a different foreign currency magnifies the Fund’s exposure to foreign currency exchange rate fluctuations.
The cost to the Fund
of engaging in forward currency contracts varies with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts usually are entered into on a principal basis, no
fees or commissions are involved. When the Fund enters into a forward currency contract, it relies on the counterparty to make
or take delivery of the underlying currency at the maturity of the contract. Failure by the counterparty to do so would result
in the loss of any expected benefit of the transaction.
Sellers or purchasers
of forward currency contracts can enter into offsetting closing transactions, similar to closing transactions on futures, by purchasing
or selling, respectively, an instrument identical to the instrument sold or bought, respectively. Secondary markets generally do
not exist for forward currency contracts, however, with the result that closing transactions generally can be made for forward
currency contracts only by negotiating directly with the counterparty. Thus, there can be no assurance that the Fund will in fact
be able to close out a forward currency contract at a favorable price prior to maturity. In addition, in the event of insolvency
of the counterparty, the Fund might be unable to close out a forward currency contract at any time prior to maturity. In either
event, the Fund would continue to be subject to market risk with respect to the position, and would continue to be required to
maintain a position in the securities or currencies that are the subject of the hedge or to maintain cash or securities.
The precise matching
of forward currency contract amounts and the value of the securities involved generally will not be possible because the value
of such securities, measured in the foreign currency, will change after the forward currency contract has been established. Thus,
the Fund might need to purchase or sell foreign currencies in the spot (cash) market to the extent such foreign currencies are
not covered by forward contracts. The projection of short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
The Fund bears the
risk of loss of the amount expected to be received under a forward contract in the event of the default or bankruptcy of a counterparty.
If such a default occurs, the Fund may have contractual remedies pursuant to the forward contract, but such remedies may be subject
to bankruptcy and insolvency laws which could affect the Fund’s rights as a creditor.
Non-Deliverable
Forwards
— The Fund also may enter into non-deliverable forwards (“NDFs”). NDFs are cash-settled, short-term
forward contracts on foreign currencies (each a “Reference Currency”) that are non-convertible and that may be thinly
traded or illiquid. NDFs involve an obligation to pay an amount (the “Settlement Amount”) equal to the difference between
the prevailing market exchange rate for the Reference Currency and the agreed upon exchange rate (the “NDF Rate”),
with respect to an agreed notional amount. NDFs have a fixing date and a settlement (delivery) date. The fixing date is the date
and time at which the difference between the prevailing market exchange rate and the agreed upon exchange rate is calculated. The
settlement (delivery) date is the date by which the payment of the Settlement Amount is due to the party receiving payment.
Although NDFs are
similar to forward currency contracts, NDFs do not require physical delivery of the Reference Currency on the settlement date.
Rather, on the settlement date, the only transfer between the counterparties is the monetary settlement amount representing the
difference between the NDF Rate and the prevailing market exchange rate. NDFs typically may have terms from one month up to two
years and are settled in U.S. dollars.
The Fund will typically
use NDFs for hedging purposes or for direct investment in a foreign country for income or gain. The use of NDFs for hedging or
to increase income or gain may not be successful, resulting in losses to the Fund, and the cost of such strategies may reduce the
Fund’s respective returns.
NDFs are subject to
many of the risks associated with derivatives in general and forward currency transactions including risks associated with fluctuations
in foreign currency and the risk that the counterparty will fail to fulfill its obligations. In addition, pursuant to the Dodd-Frank
Act and regulations adopted by the CFTC in connection with implementing the Dodd-Frank Act, NDFs
are deemed to be commodity interests,
including for purposes of amended Regulation 4.5. Therefore, Fund with respect to which the Manager is claiming an exclusion under
Regulation 4.5 will limit their investment in NDFs as discussed above under “Derivatives.”
Although NDFs have
historically been traded OTC, in the future pursuant to the Dodd-Frank Act, they may be exchange-traded. Under such circumstances,
they will be centrally cleared and a secondary market for them will exist. All NDFs are subject to counterparty risk, which is
the risk that the counterparty will not perform as contractually required under the NDF. With respect to NDFs that are centrally-cleared,
the Fund could lose margin payments it has deposited with the clearing organization as well as the net amount of gains not yet
paid by the clearing organization if it breaches its obligations under the NDF, becomes insolvent or goes into bankruptcy. In the
event of bankruptcy of the clearing organization, the investor may be entitled to the net amount of gains the investor is entitled
to receive plus the return of margin owed to it only in proportion to the amount received by the clearing organization’s
other customers, potentially resulting in losses to the investor.
Futures Contracts
— Futures contracts obligate a purchaser to take delivery of a specific amount of an obligation underlying the futures contract
at a specified time in the future for a specified price. Likewise, the seller incurs an obligation to deliver the specified amount
of the underlying obligation against receipt of the specified price. Futures are traded on both U.S. and foreign commodities exchanges.
Futures contracts will be traded for the same purposes as entering into forward contracts. The purchase of futures can serve as
a long hedge, and the sale of futures can serve as a short hedge.
No price is paid upon
entering into a futures contract. Instead, at the inception of a futures contract the Fund is required to deposit “initial
deposit” consisting of cash or U.S. Government Securities in an amount set by the exchange on which the contract is traded
and varying based on the volatility of the underlying asset. Margin must also be deposited when writing a call or put option on
a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin on futures
contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned
to the Fund at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the Fund may be required by a futures exchange to increase the level of its initial margin
payment, and initial margin requirements might be increased generally in the future by regulatory action.
Subsequent “variation
margin” payments are made to and from the futures broker daily as the value of the futures position varies, a process known
as “marking-to-market.” Variation margin does not involve borrowing, but rather represents a daily settlement of the
Fund’s obligations to or from a futures broker. When the Fund purchases or sells a futures contract, it is subject to daily
variation margin calls that could be substantial in the event of adverse price movements. If the Fund has insufficient cash to
meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous.
Purchasers and sellers
of futures contracts can enter into offsetting closing transactions, by selling or purchasing, respectively, an instrument identical
to the instrument purchased or sold. Positions in futures contracts may be closed only on a futures exchange or board of trade
that provides a secondary market. The Fund intends to enter into futures contracts only on exchanges or boards of trade where there
appears to be a liquid secondary market. However, there can be no assurance that such a market will exist for a particular contract
at a particular time. In such event, it may not be possible to close a futures contract.
Although futures contracts
by their terms call for the actual delivery or acquisition of securities or currency, in most cases the contractual obligation
is fulfilled before the date of the contract without having to make or take delivery of the securities or currency. The offsetting
of a contractual obligation is accomplished by buying (or selling, as appropriate) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities or currency. Since all transactions in the futures market are made, offset
or fulfilled through a clearinghouse associated with the exchange on which the contracts are traded, the Fund will incur brokerage
fees when it purchases or sells futures contracts.
Under certain circumstances,
futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s
settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do
not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading,
thereby preventing liquidation of unfavorable positions.
If the Fund were unable
to liquidate a futures contract due to the absence of a liquid secondary market or the imposition of price limits, it could incur
substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, the Fund would
continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by
the futures contract or option thereon or to maintain cash or securities in a segregated account.
The ordinary spreads
between prices in the cash and futures market, due to differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and variation margin requirements. Rather than meeting additional
variation margin deposit requirements, investors may close futures contracts through offsetting transactions that could distort
the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends on participants
entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators,
the margin deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of distortion,
a correct forecast of securities price or currency exchange rate trends by the sub-advisor may still not result in a successful
transaction.
In addition, futures
contracts entail risks. Although the use of such contracts may benefit the Fund, if investment judgment about the general direction
of, for example, an index is incorrect, the Fund’s overall performance would be worse than if it had not entered into any
such contract. In addition, there are differences between the securities and futures markets that could result in an imperfect
correlation between the markets, causing a given transaction not to achieve its objectives.
Growth Companies
Risk
— Growth companies are expected to increase their earnings at a certain rate. When these expectations are not
met, the prices of these stocks may go down, even if earnings showed an absolute increase. Growth company stocks may lack the dividend
yield that can cushion stock prices in market downturns. Different investment styles tend to shift in and out of favor, depending
on market conditions and investor sentiment.
Illiquid and
Restricted Securities
— Generally, an illiquid asset is an asset that cannot be sold or disposed of in the ordinary
course of business within seven days at approximately the price at which it has been valued.
Section 4(2)
securities are restricted as to disposition under the federal securities laws, and generally are sold to institutional investors,
such as the Fund that agrees they are purchasing the securities for investment and not with an intention to distribute to the public.
Any resale by the purchaser must be pursuant to an exempt transaction and may be accomplished in accordance with Rule 144A. Section 4(2)
securities normally are resold to other institutional investors through or with the assistance of the issuer or dealers that make
a market in the Section 4(2) securities, thus providing liquidity.
The Manager and the
sub-advisor will carefully monitor the Fund’s investments in Section 4(2) securities offered and sold under Rule 144A,
focusing on such important factors, among others, as valuation, liquidity, and availability of information. Investments in Section 4(2)
securities could have the effect of reducing the Fund’s liquidity to the extent that qualified institutional buyers no longer
wish to purchase these restricted securities.
In recognition of
the increased size and liquidity of the institutional market for unregistered securities and the importance of institutional investors
in the formation of capital, the SEC adopted Rule 144A under the Securities Act of 1933, as amended (“1933 Act”). Rule
144A is designed to facilitate efficient trading among institutional investors by permitting the sale of certain unregistered securities
to qualified institutional buyers. To the extent privately placed securities held by the Fund qualify under Rule 144A and an institutional
market develops for those securities, that Fund likely will be able to dispose of the securities without registering them under
the 1933 Act. To the extent that institutional buyers become, for a time, uninterested in purchasing these securities, investing
in Rule 144A securities could increase the level of the Fund’s illiquidity. The Manager or the sub-advisor acting under guidelines
established by the Trust’s Board of Trustees (“Board”), may determine that certain securities qualified for trading
under Rule 144A are liquid. Regulation S under the 1933 Act permits the sale abroad of securities that are not registered for sale
in the United States.
Historically, illiquid
securities have included securities that have not been registered under the 1933 Act, securities that are otherwise not readily
marketable, and repurchase agreements having a remaining maturity of longer than seven calendar days. Securities that have not
been registered under the 1933 Act are referred to as private placements or restricted securities and are purchased directly from
the issuer or in the secondary market. These securities may be sold only in a privately negotiated transaction or pursuant to
an exemption from registration. A large institutional market exists for certain securities that are not registered under the 1933
Act, including repurchase agreements, commercial paper, foreign securities, municipal securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or
on an issuer’s ability to honor a demand for repayment. However, the fact that there are contractual or legal restrictions
on resale of such investments to the general public or to certain institutions may not be indicative of their liquidity. Limitations
on resale may have an adverse effect on the marketability of portfolio securities, and the Fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemptions
within seven calendar days. In addition, the Fund may get only limited information about an issuer, so it may be less able to
predict a loss. The Fund also might have to register such restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering of securities.
Index Futures
Contracts
— The Fund may invest in index futures contracts for investment purposes, including for short-term cash
management purposes.
Index
Futures Contracts
— U.S. futures contracts traded on exchanges that have been designated “contracts markets”
by the CFTC and must be executed through a futures commission merchant, or brokerage firm, which is a member of the relevant contract
market. Futures contracts trade on a number of exchange markets.
At the
same time a futures contract on an index is purchased or sold, the Fund must allocate cash or securities as a deposit payment (“initial
deposit”) based on the contract’s face value. Daily thereafter, the futures contract is valued and the payment of “variation
margin” may be required.
Futures
Contracts on Stock Indices
— The Fund may enter into contracts providing for the making and acceptance of a cash settlement
based upon changes in the value of an index of securities (“Index Futures Contracts”). This technique is used only
to hedge against anticipated future change in general market prices which otherwise might either adversely affect the value of
securities held by the Fund or adversely affect the prices of securities which are intended to be purchased at a later date for
the Fund.
In general,
each transaction in Index Futures Contracts involves the establishment of a position that will move in a direction opposite to
that of the investment being hedged. If these hedging transactions are successful, the futures positions taken for the Fund will
rise in value by an amount that approximately offsets the decline in value of the portion of the Fund’s investments that
are being hedged. Should general market prices move in an unexpected manner, the full anticipated benefits of Index Futures Contracts
may not be achieved or a loss may be realized.
Transactions
in Index Futures Contracts involve certain risks. These risks could include a lack of correlation between the Futures Contract
and the equity market, a potential lack of liquidity in the secondary market and incorrect assessments of market trends, which
may result in worse overall performance than if a Futures Contract had not been entered into.
Brokerage
costs will be incurred and “margin” will be required to be posted and maintained as a good-faith deposit against performance
of obligations under Futures Contracts written into by the Fund.
Initial Public
Offerings
— The Fund can invest in initial public offerings (“IPOs”). By definition, securities issued
in IPOs have not traded publicly until the time of their offerings. Special risks associated with IPOs may include, among others,
the fact that there may only be a limited number of shares available for trading. The market for those securities may be unseasoned.
The issuer may have a limited operating history. These factors may contribute to price volatility. The limited number of shares
available for trading in some IPOs may also make it more difficult for the Fund to buy or sell significant amounts of shares without
an unfavorable impact on prevailing prices. In addition, some companies initially offering their shares publicly are involved in
relatively new industries or lines of business, which may not be widely understood by investors. Some of the companies involved
in new industries may be regarded as developmental state companies, without revenues or operating income, or the near-term prospects
of them. Many IPOs are by small- or micro-cap companies that are undercapitalized.
Interfund Lending
— Pursuant to an order issued by the SEC, the American Beacon Funds may participate in a credit facility whereby each American
Beacon Fund, under certain conditions, is permitted to lend money directly to and borrow directly from other American Beacon Funds
for temporary purposes. The credit facility is administered by a credit facility team consisting of professionals from the Manager’s
asset management, compliance, and accounting areas who report on credit facility activities to the Board. The credit facility can
provide a borrowing fund with savings at times when the cash position of the fund is insufficient to meet temporary cash requirements.
This situation could arise when shareholder redemptions exceed anticipated volumes and certain funds have insufficient cash on
hand to satisfy such redemptions. When the funds liquidate portfolio securities to meet redemption requests, they often do not
receive payment in settlement for up to three days (or longer for certain foreign transactions). However, redemption requests normally
are satisfied immediately. The credit facility provides a source of immediate, short-term liquidity pending settlement of the sale
of portfolio securities. Although the credit facility may reduce the Fund’s need to borrow from banks, the Fund remains free
to establish lines of credit or other borrowing arrangements with banks.
Issuer Risk
— The value of an investment may decline for a number of reasons which directly relate to the issuer, such as management
performance, financial leverage and reduced demand for the issuer’s goods or services, as well as the historical and prospective
earnings of the issuer and the value of its assets.
Large-Capitalization
Companies Risk
— The securities of large market capitalization companies may underperform other segments of the market
because such companies may be less responsive to competitive challenges and opportunities and may be unable to attain high growth
rates during periods of economic expansion.
Limited Liability
Companies
— The Fund may purchase securities of entities such as limited partnerships, limited liability companies,
business trusts and companies organized outside the United States.
Loan Transactions
— Loan transactions involve the lending of securities to a broker-dealer or institutional investor for its use in connection
with short sales, arbitrages or other security transactions. Such loan transactions are referred to in this SAI as “qualified”
loan transactions. The purpose of a qualified loan transaction is to capture a demand premium paid by the borrower or to afford
a lender the opportunity to continue to earn income on the securities loaned and at the same time earn fee income or income on
the collateral held or reinvested by it. Cash collateral received through qualified loan transactions may be invested only in those
categories of high quality liquid securities previously authorized by the Board. Please see the “Lending of Portfolio Securities”
section for additional information.
Securities loans will
be made in accordance with the following conditions: (1) the Fund must receive at least 100% collateral in the form of cash
or cash equivalents, securities of the U.S. Government and its agencies and instrumentalities, and approved bank letters of credit;
(2) the borrower must increase the collateral whenever the market value of the loaned securities (determined on a daily basis)
rises above the level of collateral; (3) the Fund must be able to terminate the loan after notice, at any time; (4) the
Fund
must receive reasonable interest on the loan or a flat fee from the borrower, as well as amounts equivalent to any dividends,
interest or other distributions on the securities loaned, and any increase in market value of the loaned securities; (5) the
Fund may pay only reasonable custodian fees in connection with the loan; and (6) voting rights on the securities loaned may
pass to the borrower, provided, however, that if a material event affecting the investment occurs, the Board must be able to terminate
the loan and vote proxies or enter into an alternative arrangement with the borrower to enable the Board as appropriate, to vote
proxies.
While there may be
delays in recovery of loaned securities or even a loss of rights in collateral supplied should the borrower fail financially, loans
will be made only to firms deemed by the Board to be of good financial standing and will not be made unless the consideration to
be earned from such loans would justify the risk. If the borrower of the securities fails financially, there is a risk of delay
in recovery of the securities loaned or loss of rights in the collateral.
The cash collateral
so acquired through qualified loan transactions may be invested only in those categories of high quality liquid securities previously
authorized by the Board.
Market Events
— Turbulence in the financial sector has resulted, and may continue to result, in an unusually high degree of volatility
in the financial markets. Both domestic and foreign equity markets have been experiencing increased volatility and turmoil, with
issuers that have exposure to the real estate, mortgage and credit markets particularly affected, and it is uncertain whether or
for how long these conditions could continue.
Reduced liquidity
in equity, credit and fixed-income markets may adversely affect many issuers worldwide. This reduced liquidity may result in less
money being available to purchase raw materials, goods and services from emerging markets, which may, in turn, bring down the prices
of these economic staples. It may also result in small or emerging market issuers having more difficulty obtaining financing, which
may, in turn, cause a decline in their stock prices. These events and possible continued market turbulence may have an adverse
effect on the Fund.
Mid-Capitalization
Companies Risk
— Investing in the securities of mid-capitalization companies involves greater risk and the possibility
of greater price volatility than investing in larger capitalization companies. Since mid-capitalization companies may have limited
operating history, product lines and financial resources, the securities of these companies may lack sufficient market liquidity
and can be sensitive to expected changes in interest rates, borrowing costs and earnings.
Options
— The Fund may purchase and sell put options and call options on securities and foreign currencies in standardized contracts
traded on recognized securities exchanges, boards of trade, or similar entities, or quoted on the NASDAQ National Market System.
The Fund will only write (sell) covered call and put options. For a further description, see “Cover and Asset Segregation.”
An option is a contract
that gives the purchaser (holder) of the option, in return for a premium, the right to buy from (call) or sell to (put) the seller
(writer) of the option the security or currency underlying the option at a specified exercise price at any time during the term
of the option (normally not exceeding nine months). The writer of an option has the obligation upon exercise of the option to deliver
the underlying security or currency upon payment of the exercise price or to pay the exercise price upon delivery of the underlying
security or currency.
By writing a covered
call option, the Fund forgoes, in exchange for the premium less the commission (“net premium”), the opportunity to
profit during the option period from an increase in the market value of the underlying security or currency above the exercise
price. By writing a put option, the Fund, in exchange for the net premium received, accepts the risk of a decline in the market
value of the underlying security or currency below the exercise price.
The Fund may terminate its obligation as the writer of a call
or put option by purchasing an option with the same exercise price and expiration date as the option previously written.
When the Fund writes
an option, an amount equal to the net premium received by the Fund is included in the liability section of the Fund’s Statement
of Assets and Liabilities as a deferred credit. The amount of the deferred credit will be subsequently marked to market to reflect
the current market value of the option written. The current market value of a traded option is the last sale price or, in the absence
of a sale, the mean between the closing bid and asked price. If an option expires on its stipulated expiration date or if the Fund
enters into a closing purchase transaction, the Fund will realize a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was sold), and the deferred credit related to such option will be eliminated.
The hours of trading
for options may not conform to the hours during which the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. It is impossible to predict the volume of trading that may exist in such
options, and there can be no assurance that viable exchange markets will develop or continue.
Other Investment
Company Securities and Exchange Traded Products
— The Fund at times may invest in shares of other investment companies,
including open-end funds, closed-end funds, business development companies, exchange-traded funds (“ETFs”),
exchange-traded notes (“ETNs”), unit investment trusts, and other series of the
Trust and
the American Beacon Select Funds. The Fund may invest in investment company securities advised by the Manager or a sub-advisor.
Investments in the securities of other investment companies may involve duplication of advisory fees and certain other
expenses. By investing in another investment company, the Fund becomes a shareholder of that investment company. As a result,
Fund shareholders indirectly will bear the Fund’s proportionate share of the fees and expenses paid by shareholders of
the other investment company, in addition to the fees and expenses Fund shareholders directly bear in connection with
the Fund’s own operations. These other fees and expenses are reflected as Acquired Fund Fees and Expenses and are
included in the Fees and Expenses Table for the Fund in its Prospectus, if applicable. Investment in other investment
companies may involve the payment of substantial premiums above the value of such issuer’s portfolio securities.
The Fund can invest
free cash balances in registered open-end investment companies regulated as money market funds under the Investment Company Act
of 1940, as amended (the “1940 Act”), to provide liquidity or for defensive purposes. The Fund would invest in money
market funds rather than purchasing individual short-term investments. If the Fund invests in money market funds shareholders will
bear their proportionate share of the expenses, including for example, advisory and administrative fees, of the money market funds
in which the Fund invests, including advisory fees charged by the Manager to any applicable money market Funds sponsored by the
Manager.
The Fund may purchase
shares of ETFs. ETFs trade like a common stock and usually represent a fixed portfolio of securities designed to track the performance
and dividend yield of a particular domestic or foreign market index. Typically, the Fund would purchase ETF shares for the same
reason it would purchase (and as an alternative to purchasing) futures contracts: to obtain exposure to all or a portion of the
stock or bond market. ETF shares may have advantages over futures in certain circumstances. Depending on the market, the holding
period, and other factors, ETF shares can be less costly and more tax-efficient than futures. In addition, ETF shares can be purchased
for smaller sums, offer exposure to market sectors and styles for which there is no suitable or liquid futures contract, and do
not involve leverage. As a shareholder of an ETF, the Fund would be subject to its ratable share of ETFs expenses, including its
advisory and administration expenses.
An investment in an
ETF generally presents the same primary risks as an investment in a conventional mutual fund (i.e., one that is not exchange traded)
that has the same investment objective, strategies, and policies. The price of an ETF can fluctuate within a wide range, and the
Fund could lose money investing in an ETF if the prices of the securities owned by the ETF go down. In addition, ETFs are subject
to the following risks that do not apply to conventional funds: (1) the market price of the ETF’s shares may trade at
a discount to their net asset value; (2) an active trading market for an ETF’s shares may not develop or be maintained;
or (3) trading of an ETF’s shares may be halted if the listing exchange’s officials deem such action appropriate,
the shares are de-listed from the exchange, or the activation of market-wide “circuit breakers” (which are tied to
large decreases in stock prices) halts stock trading generally.
Preferred Stock
— A preferred stock blends the characteristics of a bond and common stock. It can offer the higher yield of a bond and has
priority over common stock in equity ownership, but does not have the seniority of a bond and its participation in the issuer’s
growth may be limited. Preferred stock generally has preference over common stock in the receipt of dividends and in any residual
assets after payment to creditors should the issuer be dissolved. Although the dividend is set at a fixed or variable rate, in
some circumstances it can be changed or omitted by the issuer. Preferred stocks are subject to the risks associated with other
types of equity securities, as well as additional risks, such as credit risk, interest rate risk, potentially greater volatility
and risks related to deferral, non-cumulative dividends, subordination, liquidity, limited voting rights, and special redemption
rights.
Publicly Traded
Partnerships; Master Limited Partnerships
— The Fund may invest in publicly traded partnerships such as master limited
partnerships (“MLPs”). MLPs issue units that are registered with the SEC and are freely tradable on a securities exchange
or in the OTC market. An MLP may have one or more general partners, who conduct the business, and one or more limited partners,
who contribute capital. The general partner or are jointly and severally responsible for the liabilities of the MLP. The Fund invests
as a limited partner, and normally would not be liable for the debts of an MLP beyond the amount the Fund have contributed but
it would not be shielded to the same extent that a shareholder of a corporation would be. In certain instances, creditors of an
MLP would have the right to seek a return of capital that had been distributed to a limited partner. The right of an MLP’s
creditors would continue even after the Fund had sold its investment in the partnership. MLPs typically invest in real estate,
oil and gas equipment leasing assets, but they also finance entertainment, research and development, and other projects.
Real Estate
Related Investments
— The Fund may gain exposure to the real estate sector by investing in real estate-linked derivatives,
real estate investment trusts (“REITs”), and common, preferred and convertible securities of issuers in real estate-related
industries. Adverse economic, business or political developments affecting real estate could have a major effect on the value of
the Fund’s investments. Investing in securities issued by real estate and real estate-related companies may subject the Fund
to risks associated with the direct ownership of real estate. Changes in interest rates, debt leverage ratios, debt maturity schedules,
and the availability of credit to real estate companies may also affect the value of the Fund’s investment in real estate
securities. Real estate securities are dependent upon specialized management skills at the operating company level, have limited
diversification and are, therefore, subject to risks inherent in operating and financing a limited number of properties. Real estate
securities are also subject to heavy cash flow dependency and defaults by borrowers. The real estate industry tends to be cyclical.
Such cycles may adversely affect the value of the Fund’s portfolio. The Fund will indirectly bear a proportionate share of
a REIT’s ongoing operating fees and expense.
In addition, U.S.-qualified REITs are subject to the possibility of failing
to a) qualify for tax-free pass-through of income and gains under the Internal Revenue Code of 1986, as amended (“Internal
Revenue Code”) and b) maintain exemption eligibility from the investment company registration requirements.
Repurchase Agreements
— A repurchase agreement is a fixed income security in the form of an agreement between the Fund as purchaser and an approved
counterparty as seller. The agreement is backed by collateral in the form of securities and/or cash transferred by the seller to
the buyer to be held by an eligible third-party custodian. Under the agreement the Fund acquires securities from the seller and
the seller simultaneously commits to repurchase the securities at an agreed upon price and date, normally within a week. The price
for the seller to repurchase the securities is greater than the Fund’s purchase price, reflecting an agreed upon “interest
rate” that is effective for the period of time the purchaser’s money is invested in the security. During the term of
the repurchase agreement, the Fund monitors on a daily basis the market value of the collateral subject to the agreement and, if
the market value of the securities falls below the seller’s repurchase amount provided under the repurchase agreement, the
seller is required to transfer additional securities or cash collateral equal to the amount by which the market value of the securities
falls below the repurchase amount. Because a repurchase agreement permits the Fund to invest temporarily available cash on a fully-collateralized
basis, repurchase agreements permit the Fund to earn income while retaining “overnight” flexibility in pursuit of longer-term
investments. Repurchase agreements may exhibit the economic characteristics of loans by the Fund.
The obligation of the
seller under the repurchase agreement is not guaranteed, and there is a risk that the seller may fail to repurchase the underlying
securities, whether because of the seller’s bankruptcy or otherwise. In such event the Fund would attempt to exercise its
rights with respect to the underlying collateral, including possible sale of the securities. The Fund may incur various expenses
in the connection with the exercise of its rights and may be subject to various delays and risks of loss, including (a) possible
declines in the value of the underlying collateral, (b) possible reduction in levels of income and (c) lack of access
to the securities (if they are held through a third-party custodian) and possible inability to enforce the Portfolio’s rights.
The Fund’s Board of Trustees has established procedures pursuant to which the sub-advisor monitors the creditworthiness of
the counterparties with which the Fund enters into repurchase agreement transactions.
The Fund may enter into
repurchase agreements with member banks of the Federal Reserve System or registered broker-dealers who, in the opinion of the sub-advisor,
present a minimal risk of default during the term of the agreement. The underlying securities which serve as collateral for repurchase
agreements may include equity and fixed income securities such as U.S. Government and agency securities, municipal obligations,
asset-backed securities, mortgage-backed securities, common and preferred stock, depositary receipts, ETFs, corporate
obligations and convertible securities.
Rights and
Warrants
—Rights are short-term warrants issued in conjunction with new stock or bond issues. Warrants are options
to purchase an issuer’s securities at a stated price during a stated term. If the market price of the underlying common
stock does not exceed the warrant’s exercise price during the life of the warrant, the warrant will expire worthless. Warrants
usually have no voting rights, pay no dividends and have no rights with respect to the assets of the corporation issuing them.
The percentage increase or decrease in the value of a warrant may be greater than the percentage increase or decrease in the value
of the underlying common stock. Warrants may be purchased with values that vary depending on the change in value of one or more
specified indices (“index warrants”). Index warrants are generally issued by banks or other financial institutions
and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the time of the exercise. The market for warrants or rights may
be very limited and it may be difficult to sell them promptly at an acceptable price. There is no specific limit on the percentage
of assets the Fund may invest in rights and warrants.
Small Capitalization
Companies Risk
— Investing in the securities of small capitalization companies involves greater risk and the possibility
of greater price volatility than investing in larger capitalization and more established companies, since smaller companies may
have limited operating history, product lines, and financial resources, the securities of these companies may lack sufficient market
liquidity and they can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings.
Swap Agreements
— Considered a derivative, a swap is an agreement involving the exchange by the Fund with another party of their respective
commitments to pay or receive payments at specified dates based upon or calculated by reference to changes in specified prices
or rates (
e.g.
, interest rates in the case of interest rate swaps) based on a specified amount (the “notional”
amount). See “Derivatives” for a further discussion of derivatives risks.
Swap agreements can
be structured to provide exposure to a variety of different types of investments or market factors. For example, in an interest
rate swap, fixed-rate payments may be exchanged for floating rate payments; in a currency swap, U.S. dollar-denominated payments
may be exchanged for payments denominated in a foreign currency; and in a total return swap, payments tied to the investment return
on a particular asset, group of assets or index may be exchanged for payments that are effectively equivalent to interest payments
or for payments tied to the return on another asset, group of assets, or index. Because swap agreements may have a leverage component,
adverse changes in the value or level of the underlying asset, reference rate or index can result in gains or losses that are substantially
greater than the amount invested in the swap itself.
Some swaps currently
are, and more in the future will be, centrally cleared. Swaps that are centrally-cleared are subject to the creditworthiness of
the clearing organizations involved in the transaction. For example, an investor could lose margin payments it has deposited with
the clearing organization as well as the net amount of gains not yet paid by the clearing organization if it breaches its agreement
with the investor or becomes insolvent or goes into bankruptcy. In the event of bankruptcy of the clearing organization, the investor
may be entitled to the net amount of gains the investor is entitled to receive plus the return of margin owed to it only in proportion
to the amount received by the clearing organization’s other customers, potentially resulting in losses to the investor.
To the extent a swap
is not centrally cleared, the use of swaps also involves the risk that a loss may be sustained as a result of the insolvency or
bankruptcy of the counterparty or the failure of the counterparty to make required payments or otherwise comply with the terms
of the agreement. To mitigate this risk, the Fund will only enter into swap agreements with counterparties considered by
the
sub-advisor to present minimum risk of default. Changing conditions in a particular market area, whether or not directly related
to the referenced assets that underlie the swap agreement, may have an adverse impact on the creditworthiness of a counterparty.
Most OTC swap agreements
into which the Fund enters may calculate the obligations of the Fund and its counterparty on a net basis. Under certain circumstances,
certain centrally cleared swap agreements also may be netted. To the extent that a swap agreement is subject to netting, the Fund’s
cover and asset segregation responsibilities will normally be with respect to the net amount owed by the Fund. See “Cover
and Asset Segregation” for additional discussion of these matters.
The use of swap agreements
requires special skills, knowledge and investment techniques that differ from those required for normal portfolio management. Swaps
may be considered illiquid investments; see “Illiquid and Restricted Securities” for a description of liquidity risk.
Time-Zone
Arbitrage
— Investing in foreign securities may involve a greater risk for excessive trading due to “time-zone
arbitrage.” If an event occurring after the close of a foreign market, but before the time the Fund computes its current
net asset value, causes a change in the price of the foreign securities and such price is not reflected in the Fund’s current
net asset value, investors may attempt to take advantage of anticipated price movements in securities held by the Fund based on
such pricing discrepancies.
U.S. Treasury
Obligations
— U.S. Treasury obligations include bills (initial maturities of one year or less), notes (initial maturities
between two and ten years), and bonds (initial maturities over ten years) issued by the U.S. Treasury, Separately Traded Registered
Interest and Principal component parts of such obligations known as STRIPS and inflation-indexed securities. The prices of these
securities (like all debt securities) change between issuance and maturity in response to fluctuating market interest rates. U.S.
Treasury obligations are subject to credit risk and interest rate risk.
Value Stocks
— Value stocks are subject to the risk that their intrinsic value may never be realized by the market or that their
prices may go down. While the Fund’s investments in value stocks may limit its downside risk over time, the Fund may produce
more modest gains than riskier stock funds as a trade-off for this potentially lower risk. Different investment styles tend to
shift in and out of favor, depending on market conditions and investor sentiment. The Fund’s investments in value stocks
may underperform growth or non-value stocks that have a broader investment style.
When-Issued
and Forward Commitment Transactions
— These transactions involve a commitment by the Fund to purchase or sell securities
at a future date. These transactions enable the Fund to “lock-in” what the Manager or the sub-advisor, as applicable,
believes to be an attractive price or yield on a particular security for a period of time, regardless of future changes in interest
rates. For instance, in periods of rising interest rates and falling prices, the Fund might sell securities it owns on a forward
commitment basis to limit its exposure to falling prices. In periods of falling interest rates and rising prices, the Fund might
purchase a security on a when-issued or forward commitment basis and sell a similar security to settle such purchase, thereby obtaining
the benefit of currently higher yields. If the other party fails to complete the trade, the Fund may lose the opportunity to obtain
a favorable price. For purchases on a when-issued basis, the price of the security is fixed at the date of purchase, but delivery
of and payment for the securities is not set until after the securities are issued. The value of when-issued securities is subject
to market fluctuation during the interim period and no income accrues to the Fund until settlement takes place. Such transactions
therefore involve a risk of loss if the value of the security to be purchased declines prior to the settlement date or if the value
of the security to be sold increases prior to the settlement date. A sale of a when-issued security also involves the risk that
the other party will be unable to settle the transaction. Forward commitment transactions involve a commitment to purchase or sell
securities with payment and delivery to take place at some future date, normally one to two months after the date of the transaction.
The payment obligation and interest rate are fixed at the time the buyer enters into the forward commitment. Forward commitment
transactions are typically used as a hedge against anticipated changes in interest rates and prices. Forward commitment transactions
are executed for existing obligations, whereas in a when-issued transaction, the obligations have not yet been issued.
The Fund will maintain
with the Custodian segregated (or earmarked) liquid securities in an amount at least equal to the when-issued or forward commitment
transaction. When entering into a when-issued or forward commitment transaction, the Fund will rely on the other party to consummate
the transaction; if the other party fails to do so, the Fund may be disadvantaged.
NON PRINCIPAL INVESTMENT STRATEGIES AND
RISKS
In addition to the
investment strategies and risks described in the Prospectus, the Fund may:
1. Engage in dollar rolls or
purchase or sell securities on a when-issued or forward commitment basis. The purchase or sale of when-issued securities enables
an investor to hedge against anticipated changes in interest rates and prices by locking in an attractive price or yield. The price
of when-issued securities is fixed at the time the commitment to purchase or sell is made, but delivery and payment for the when-issued
securities takes place at a later date, normally one to two months after the date of purchase. During the period between purchase
and settlement, no payment is made by the purchaser to the issuer and no interest accrues to the purchaser. Such transactions therefore
involve a risk of loss if the value of the security to be purchased declines prior to the settlement date or if the value of the
security to be sold increases prior to the settlement date. A sale of a when-issued security also involves the risk that the other
party will be unable to settle the transaction. Dollar rolls are a type of forward commitment transaction. Purchases and sales
of securities on a forward commitment basis involve a commitment to purchase or sell securities with payment and delivery to take
place at some future date, normally one to two months after the date of the transaction. As with when-issued securities, these
transactions involve certain risks, but they also enable an investor to hedge against anticipated changes in interest rates and
prices. Forward commitment transactions are executed for existing obligations, whereas in a when-issued transaction, the obligations
have not yet been issued. When purchasing securities on a when-issued or forward commitment basis, a segregated amount of liquid
assets at least equal to the value of purchase commitments for such securities will be maintained until the settlement date.
2. Invest in other investment
companies (including affiliated investment companies) to the extent permitted by the 1940 Act, or exemptive relief granted by the
SEC.
3. Loan securities to broker-dealers
or other institutional investors. Securities loans will not be made if, as a result, the aggregate amount of all outstanding securities
loans by the Fund exceeds 33
1
/
3
% of its total assets (including the market value of collateral received).
For purposes of complying with the Fund’s investment policies and restrictions, collateral received in connection with securities
loans is deemed an asset of the Fund to the extent required by law.
4. Enter into repurchase agreements.
A repurchase agreement is an agreement under which securities are acquired by the Fund from a securities dealer or bank subject
to resale at an agreed upon price on a later date. The acquiring Fund bears a risk of loss in the event that the other party to
a repurchase agreement defaults on its obligations and the Fund is delayed or prevented from exercising its rights to dispose of
the collateral securities. However, the Manager or the sub-advisor, as applicable, attempts to minimize this risk by entering into
repurchase agreements only with financial institutions that are deemed to be of good financial standing.
5. Purchase securities in
private placement offerings made in reliance on the “private placement” exemption from registration afforded by Section 4(2)
of the 1933 Act and resold to qualified institutional buyers under Rule 144A under the 1933 Act (“Section 4(2) securities”).
The Fund will not invest more than 15% of its net assets in Section 4(2) securities and illiquid securities unless the Manager
or the sub-advisor, as applicable, determines, by continuous reference to the appropriate trading markets and pursuant to guidelines
approved by the Board that any Section 4(2) securities held by such Fund in excess of this level are at all times liquid.
INVESTMENT RESTRICTIONS
Fundamental Policies.
The Fund has the following fundamental investment policy that enables it to invest in another investment company or series thereof
that has substantially similar investment objectives and policies:
Notwithstanding any other limitation,
the Fund may invest all of its investable assets in an open-end management investment company with substantially the same investment
objectives, policies and limitations as the Fund. For this purpose, “all of the Fund’s investable assets” means
that the only investment securities that will be held by the Fund will be the Fund’s interest in the investment company.
Fundamental Investment
Restrictions.
The following discusses the investment policies of the Fund.
The following restrictions
have been adopted by the Fund and may be changed with respect to the Fund only by the majority vote of the Fund’s outstanding
interests. “Majority of the outstanding voting securities” under the 1940 Act and as used herein means, with respect
to the Fund, the lesser of (a) 67% of the shares of the Fund present at the meeting if the holders of more than 50% of the
shares are present and represented at the shareholders’ meeting or (b) more than 50% of the shares of the Fund.
The Fund may not:
1. Purchase or sell real estate
or real estate limited partnership interests, provided, however, that the Fund may invest in securities secured by real estate
or interests therein or issued by companies which invest in real estate or interests therein when consistent with the other policies
and limitations described in the Prospectus.
2. Invest in physical commodities
unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing
or selling foreign currency, options, futures contracts, options on futures contracts, forward contracts, swaps, caps, floors,
collars, securities on a forward-commitment or delayed-delivery basis, and other similar financial instruments).
3. Engage in the business of
underwriting securities issued by others, except to the extent that, in connection with the disposition of securities, the Fund
may be deemed an underwriter under federal securities law.
4. Lend any security or make
any other loan except (i) as otherwise permitted under the 1940 Act, (ii) pursuant to a rule, order or interpretation
issued by the SEC or its staff, (iii) through the purchase of a portion of an issue of debt securities in accordance with
the Fund’s investment objective, policies and limitations, or (iv) by engaging in repurchase agreements.
5. Issue any senior security
except as otherwise permitted (i) under the 1940 Act or (ii) pursuant to a rule, order or interpretation issued by the
SEC or its staff.
6. Borrow money, except as
otherwise permitted under the 1940 Act or pursuant to a rule, order or interpretation issued by the SEC or its staff, including
(i) as a temporary measure, (ii) by entering into reverse repurchase agreements, and (iii) by lending portfolio
securities as collateral. For purposes of this investment limitation, the purchase or sale of options, futures contracts, options
on futures contracts, forward contracts, swaps, caps, floors, collars and other similar financial instruments shall not constitute
borrowing.
7. Invest more than 25% of
its total assets in the securities of companies primarily engaged in any one industry provided that: (i) this limitation does
not apply to obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities; and (ii) municipalities
and their agencies and authorities are not deemed to be industries. For purposes of this restriction, the Fund will regard tax
exempt securities issued by municipalities and their agencies not to be an industry.
The above percentage
limits (except the limitation to borrowings) are based upon asset values at the time of the applicable transaction; accordingly,
a subsequent change in asset values will not affect a transaction that was in compliance with the investment restrictions at the
time such transaction was effected.
Non-Fundamental
Investment Restrictions.
The following non-fundamental investment restrictions apply to the Fund (except where noted otherwise)
and may be changed with respect to the Fund by a vote of a majority of the Board. The Fund may not:
1. Invest more than 15% of
its net assets in illiquid securities, including time deposits and repurchase agreements that mature in more than seven days; or
2. Purchase securities on margin,
except that (1) the Fund may obtain such short term credits as necessary for the clearance of transactions, and (2) the Fund may
make margin payments in connection with foreign currency, futures contracts, options, forward contracts, swaps, caps, floors, collars,
securities purchased or sold on a forward-commitment or delayed-delivery basis or other financial instruments.
All percentage limitations
on investments will apply at the time of the making of an investment and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment. Except for the investment restrictions listed above as fundamental
or to the extent designated as such in the Prospectus, the other investment policies described in this SAI are not fundamental
and may be changed by approval of the Trustees.
TEMPORARY DEFENSIVE AND INTERIM INVESTMENTS
In times of unstable
or adverse market, economic, political or other conditions, where the Manager or the sub-advisor believes it is appropriate and
in the Fund’s best interest, the Fund can invest up to 100% in cash and other types of securities for defensive or temporary
purposes. It can also hold cash or purchase these types of securities for liquidity purposes to meet cash needs due to redemptions
of Fund shares, or to hold while waiting to invest cash received from purchases of Fund shares or the sale of other portfolio securities.
These temporary investments
can include (i) obligations issued or guaranteed by the U.S. Government, its agents or instrumentalities; (ii) commercial
paper rated in the highest short term category by a rating organization; (iii) domestic, Yankee and Eurodollar certificates
of deposit or bankers’ acceptances of banks rated in the highest short term category by a rating organization; (iv) any
of the foregoing securities that mature in one year or less (generally known as “cash equivalents”); (v) other
short-term corporate debt obligations; (vi) repurchase agreements; (vii) futures; or (viii) shares of other investment
companies, including open-end funds, ETFs; or money market funds, including investment companies advised by the
Manager or the sub-advisor.
PORTFOLIO TURNOVER
Portfolio turnover
is a measure of trading activity in a portfolio of securities, usually calculated over a period of one year. The rate is calculated
by dividing the lesser amount of purchases or sales of securities by the average amount of securities held over the period. A portfolio
turnover rate of 100% would indicate that the Fund sold and replaced the entire value of its securities holdings during the period.
High portfolio turnover can increase the Fund’s transaction costs and generate additional capital gains or losses.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Fund publicly discloses portfolio holdings
information as follows:
|
1.
|
a complete list of holdings for the Fund on an annual and semi-annual basis in the reports to shareholders
within sixty days of the end of each fiscal semi-annual period and in publicly available filings of Form N-CSR with the SEC within
ten days thereafter;
|
|
2.
|
a complete list of holdings for the Fund as of the end of its first and third fiscal quarters in
publicly available filings of Form N-Q with the SEC within sixty days of the end of the fiscal quarter;
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|
3.
|
a complete list of holdings for the Fund as of the end of each month on the Fund’s website
(www.americanbeaconfunds.com) approximately twenty days after the end of the month; and
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|
4.
|
ten largest holdings for the Fund as of the end of each calendar quarter on the Fund’s website
(www.americanbeaconfunds.com) and in sales materials approximately fifteen days after the end of the calendar quarter.
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Public
disclosure of the Fund’s holdings on the website and in sales materials may be delayed when an investment manager informs
the Fund that such disclosure could be harmful to the Fund. In addition, individual holdings may be omitted from website and sales
material disclosure, when such omission is deemed to be in the Fund’s best interest.
Disclosure of Nonpublic Holdings.
Occasionally, certain
interested parties — including individual investors, institutional investors, intermediaries that distribute shares of the
Fund, third-party service providers, rating and ranking organizations, and others — may request portfolio holdings information
that has not yet been publicly disclosed by the Fund. The Fund’s policy is to control the disclosure of nonpublic portfolio
holdings information in an attempt to prevent parties from utilizing such information to engage in trading activity harmful to
Fund shareholders. To this end, the Board has adopted a Policy and Procedures for Disclosure of Portfolio Holdings Information
(the “Holdings Policy”). The purpose of the Holdings Policy is to define those interested parties who are authorized
to receive nonpublic portfolio holdings information on a selective basis and to set forth conditions upon which such information
may be provided. In general, nonpublic portfolio holdings may be disclosed on a selective basis only when it is determined that
(i) there is a legitimate business purpose for the information, (ii) recipients are subject to a duty of confidentiality,
including a duty not to trade on the nonpublic information; and (iii) disclosure is in the best interests of Fund shareholders.
The Holdings Policy is summarized below.
A variety of third
party service providers require access to Fund holdings to provide services to the Fund or to assist the Manager and the sub-advisor
in managing the Fund (“service providers”). The service providers have a duty to keep the Fund’s nonpublic information
confidential either through written contractual arrangements with the Fund (or another Fund service provider) or by the nature
of their role with respect to the Fund (or the service provider). The Fund has determined that complete disclosure of nonpublic
holdings information to service providers fulfills a legitimate business purpose and is in the best interest of shareholders.
The Fund has ongoing arrangements to provide
nonpublic holdings information to the following service providers:
Service Provider
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Service
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Holdings Access
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Manager
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Investment management
|
Complete list on intraday basis with no lag
|
Sub-Advisor
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Investment management
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Holdings under sub-advisor’s management on intraday basis with no lag
|
State Street Bank and Trust Co. (“State Street”)
|
Funds’ custodian and fund accountant
|
Complete list on intraday basis with no lag
|
xxx
|
Fund’s independent public accounting firm
|
Complete list on annual basis with no lag
|
Elkins McSherry LLC
|
Trade execution cost analysis
|
Complete list on daily basis with no lag
|
FactSet Research Systems, Inc.
|
Performance and portfolio analytics reporting for the Manager and sub-advisor
|
Complete list on daily basis with no lag
|
Bloomberg, L.P.
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Performance and portfolio analytics reporting
|
Complete list on daily basis with no lag
|
xxx
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Proxy voting research provider to sub-advisor
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Complete list on monthly basis with no lag
|
Certain third parties
are provided with nonpublic holdings information (either complete or partial lists) by the Manager or another service provider
on an ad hoc basis. These third parties include: broker-dealers, prospective sub-advisors, borrowers of the Fund’s portfolio
securities, pricing services, legal counsel, and issuers (or their agents). Broker-dealers utilized by the Fund in the process
of purchasing and selling portfolio securities or providing market quotations receive limited holdings information on a current
basis with no lag. The Manager provides current holdings to investment managers being considered for appointment as a sub-advisor
to the Fund. If the Fund participates in securities lending activities, potential borrowers of the Fund’s securities receive
information pertaining to the Fund’s securities available for loan. Such information is provided on a current basis with
no lag. The Fund utilizes various pricing services to supply market quotations and evaluated prices to State Street. State Street
and the Manager may disclose current nonpublic holdings to those pricing services. An investment manager may provide holdings information
to legal counsel when seeking advice regarding those holdings. From time to time, an issuer (or its agent) may contact the Fund
requesting confirmation of ownership of the issuer’s securities. Such holdings information is provided to the issuer (or
its agent) as of the date requested. The Fund does not have written contractual arrangements with these third parties regarding
the confidentiality of the holdings information. However, the Fund would not continue to utilize a third party that the Manager
determined to have misused nonpublic holdings information.
The Fund has ongoing
arrangements to provide periodic holdings information to certain organizations that publish ratings and/or rankings for the Fund
or that redistribute the Fund’s holdings to financial intermediaries to facilitate their analysis of the Fund. The Fund has
determined that complete disclosure of holdings information to such organizations fulfills a legitimate business purpose and is
in the best interest of shareholders, as it provides existing and potential shareholders with an independent basis for evaluating
the Fund in comparison to other mutual funds. As of the date of this SAI, all such organizations receive holdings information after
it has been made public on the Fund’s website.
No compensation or
other consideration may be paid to the Fund, the Fund’s service providers, or any other party in connection with the disclosure
of portfolio holdings information.
Under the Holdings
Policy, disclosure of nonpublic portfolio holdings information to parties other than those discussed above must meet
all
of the following conditions:
|
1.
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Recipients of portfolio holdings information must agree in writing to keep the information confidential
until it has been posted to the Fund’s website and not to trade based on the information;
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|
2.
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Holdings may only be disclosed as of a month-end date;
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|
3.
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No compensation may be paid to the Fund, the Manager or any other party in connection with the
disclosure of information about portfolio securities; and
|
|
4.
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A member of the Manager’s Compliance staff must approve requests for nonpublic holdings information.
|
In determining whether
to approve a request for portfolio holdings disclosure by the Manager, Compliance staff shall consider the type of requestor and
its relationship to the Fund, the stated reason for the request, any historical pattern of requests from that same individual or
entity, the style and strategy of the Fund for which holdings have been requested (e.g. passive versus active management), whether
the Fund is managed by one or multiple investment managers, and any other factors it deems relevant. In its analysis, the Compliance
staff shall attempt to uncover any apparent conflict between the interests of Fund shareholders on the one hand and those of the
Manager or any affiliated person of the Fund on the other. For example, the Compliance staff will inquire whether the Manager has
entered into any special arrangements with the requestor to share nonpublic portfolio holdings information in exchange for a substantial
investment in the Fund or other products managed by the Manager. Any potential conflicts between shareholders and affiliated persons
of the Fund that arise as a result of a request for portfolio holdings information shall be decided by the Manager in the best
interests of shareholders. However, if a conflict exists between the interests of shareholders and the Manager, the Manager will
present the details of the request to the Board who will either approve or deny the request. On a quarterly basis, the Manager
will prepare a report for the Board outlining the requests for disclosures that were approved during the period. The Compliance
staff will determine whether a historical pattern of requests by the same individual or entity constitutes an “ongoing arrangement”
and this requires disclosure in the Fund’s SAI.
The Manager and sub-advisor
to the Fund may manage substantially similar portfolios for clients other than the Fund. Those other clients may receive and publicly
disclose their portfolio holdings information prior to public disclosure by the Fund. The Holdings Policy is not intended to limit
the Manager or the sub-advisor from making such disclosures to their clients.
LENDING OF PORTFOLIO SECURITIES
The Fund may lend
securities from its portfolio to brokers, dealers and other financial institutions needing to borrow securities to complete certain
transactions. In connection with such loans, the Fund remains the beneficial owner of the loaned securities and
continues to be
entitled to payments in amounts equal to the interest, dividends or other distributions payable on the loaned securities. The Fund
also has the right to terminate a loan at any time. The Fund does not have the right to vote on securities while they are on loan.
However, it is the Fund’s policy to attempt to terminate loans in time to vote those proxies that the Fund determine are
material to its interests. Loans of portfolio securities may not exceed 33
1
/
3
% of the value of the
Fund’s total assets (including the value of all assets received as collateral for the loan). The Fund will receive collateral
consisting of cash in the form of U.S. dollars, foreign currency, or securities issued or fully guaranteed by the U.S. Government
which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities.
If the collateral consists of cash, the Fund will reinvest the cash and pay the borrower a pre-negotiated fee or “rebate”
from any return earned on the investment. Should the borrower of the securities fail financially, the Fund may experience delays
in recovering the loaned securities or exercising its rights in the collateral. Loans are made only to borrowers that are deemed
by the Manager to present acceptable credit risk on a fully collateralized basis. In a loan transaction, the Fund will also bear
the risk of any decline in value of securities acquired with cash collateral. The Fund will minimize this risk by limiting the
investment of cash collateral to registered money market funds, including money market funds that invest in U.S. Government and
agency securities advised by the Manager.
For all Funds that
engage in securities lending, the Manager receives compensation for administrative and oversight functions with respect to securities
lending, including oversight of the securities lending agent, Brown Brothers Harriman & Co.. The amount of such compensation
depends on the income generated by the loan of the securities. The Fund continues to receive dividends or interest, as applicable,
on the securities loaned and simultaneously earns either interest on the investment of the cash collateral or fee income if the
loan is otherwise collateralized.
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees
The Trust is governed
by its Board of Trustees. The Board is responsible for and oversees the overall management and operations of the Trust and the
Fund, which includes the general oversight and review of the Fund’s investment activities, in accordance with federal law
and the law of the Commonwealth of Massachusetts as well as the stated policies of the Fund. The Board oversees the Trust’s
officers and service providers, including American Beacon Advisors, Inc. (“American Beacon”), which is responsible
for the management of the day-to-day operations of the Fund based on policies and agreements reviewed and approved by the Board.
In carrying out these responsibilities, the Board regularly interacts with and receives reports from senior personnel of service
providers, including American Beacon’s investment personnel and the Trust’s Chief Compliance Officer (“CCO”).
The Board also is assisted by the Trust’s independent registered public accounting firm (which reports directly to the Trust’s
Audit and Compliance Committee), independent counsel and other experts as appropriate, all of whom are selected by the Board.
Risk Oversight
Consistent with its
responsibility for oversight of the Trust and its Fund, the Board oversees the management of risks relating to the administration
and operation of the Trust and the Fund. American Beacon, as part of its responsibilities for the day-to-day operations of the
Fund, is responsible for day-to-day risk management for the Fund. The Board, in the exercise of its reasonable business judgment,
also separately considers potential risks that may impact the Fund. The Board performs this risk management oversight directly
and, as to certain matters, through its committees (described above) and through the Independent Trustees. The following provides
an overview of the principal, but not all, aspects of the Board’s oversight of risk management for the Trust and the Fund.
In general, the Fund’s
risks include, among others, investment risk, credit risk, liquidity risk, securities selection risk, valuation risk and operational
risk. The Board has adopted, and periodically reviews, policies and procedures designed to address these and other risks to the
Trust and the Fund. In addition, under the general oversight of the Board, American Beacon, the Fund’s investment adviser,
and other service providers to the Fund has itself adopted a variety of policies, procedures and controls designed to address
particular risks to the Fund. Different processes, procedures and controls are employed with respect to different types of risks.
Further, American Beacon as manager of the Fund oversees and regularly monitors the investments, operations and compliance of
the Fund’s investment advisers.
The Board also oversees
risk management for the Trust and the Fund through review of regular reports, presentations and other information from officers
of the Trust and other persons. Senior officers of the Trust, and senior officers of American Beacon, and the Fund’s CCO
regularly report to the Board on a range of matters, including those relating to risk management. The Board and the Investment
Committee also regularly receive reports from American Beacon with respect to the investments, securities trading and securities
lending activities of the Fund. In addition to regular reports from American Beacon, the Board also receives reports regarding
other service providers to the Trust, either directly or through American Beacon or the Fund’s CCO, on a periodic or regular
basis. At least annually, the Board receives a report from the Fund’s CCO regarding the effectiveness of the Fund’s
compliance program. Also, on an annual basis, the Board receives reports, presentations and other information from American Beacon
in connection with the Board’s consideration of the renewal of each of the Trust’s agreements with American Beacon
and the Trust’s distribution plans under Rule 12b-1 under the 1940 Act.
Senior officers of
the Trust and American Beacon also report regularly to the Audit and Compliance Committee on Fund valuation matters and on the
Trust’s internal controls and accounting and financial reporting policies and practices. In addition, the Audit and Compliance
Committee receives regular reports from the Trust’s independent registered public accounting firm on internal control and
financial reporting matters. On at least a quarterly basis, the Independent Trustees meet with the Fund’s CCO to discuss
matters relating to the Fund’s compliance program.
Board Structure and Related
Matters
Board
members who are not “interested persons” as defined in Section 2(a)(19) of the 1940 Act, of the Trust
(“Independent Trustees”) constitute at least two-thirds of the Board. Richard A. Massman, an Independent Trustee,
serves as Independent Chair of the Board. The Independent Chair’s responsibilities include: setting an agenda for each
meeting of the Board; presiding at all meetings of the Board and Interested Trustees; and serving as a liaison with other
Trustees, the Trust’s officers and other management personnel, and counsel to the Fund. The Independent Chair shall
perform such other duties as the Board may from time to time determine.
The Trustees discharge
their responsibilities collectively as a Board, as well as through Board committees, each of which operates pursuant to a charter
approved by the Board that delineates the specific responsibilities of that committee. The Board has established three standing
committees: the Audit and Compliance Committee, the Investment Committee and the Nominating and Governance Committee. For example,
the Investment Committee is responsible for oversight of the annual process by which the Board considers and approves the Fund’s
investment advisory agreement with American Beacon, while specific matters related to oversight of the Fund’s independent
auditors have been delegated by the Board to its Audit and Compliance Committee, subject to approval of the Audit and Compliance
Committee’s recommendations by the Board. The members and responsibilities of each Board committee are summarized below.
The Board periodically
evaluates its structure and composition as well as various aspects of its operations. The Board believes that its leadership structure,
including its Independent Chair position and its committees, is appropriate for the Trust in light of, among other factors, the
asset size and nature of the Fund, the number of Funds overseen by the Board, the arrangements for the conduct of the Fund’s
operations, the number of Trustees, and the Board’s responsibilities. On an annual basis, the Board conducts a self-evaluation
that considers, among other matters, whether the Board and its committees are functioning effectively and whether, given the size
and composition of the Board and each of its committees, the Trustees are able to oversee effectively the number of Funds in the
complex.
The Trust is part
of the American Beacon Funds Complex, which is comprised of the 27 series within the Trust and 2 series within the American Beacon
Select Funds. The same persons who constitute the Board also constitute the board of trustees of American Beacon Select Funds.
The Board holds four
regularly scheduled meetings each year. The Board may hold special meetings, as needed, either in person or by telephone, to address
matters arising between regular meetings. The Independent Trustees also hold at least one in-person meeting each year during a
portion of which management is not present and may hold special meetings, as needed, either in person or by telephone.
The Trustees of the
Trust are identified in the tables below, which provide information as to their principal business occupations and directorships
held during the last five years and certain other information. Subject to the Trustee Emeritus and Retirement Policy described
below, a Trustee serves until his or her successor is elected and qualified or until his or her earlier death, resignation or removal.
The address of each Trustee listed below is 4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee serves for
an indefinite term, or until his or her removal, resignation, or retirement*. Each Trustee has and continues to serve the same
term as a Trustee of the American Beacon Select Funds as he or she has with the Trust.
Name
(Age)
|
|
Position
and Length of Time
Served with each Trust
|
|
Principal Occupation(s) and Directorships During Past 5 Years
|
INTERESTED TRUSTEES
|
|
|
|
|
Gerard J. Arpey** (55)
|
|
Trustee since 2012
|
|
Partner, Emerald Creek Group (private equity firm) (2011-Present); Chairman and Chief Executive Officer, AMR Corp. and American Airlines, Inc. (2003-2011); Director, S. C. Johnson & Son, Inc. (privately held company) (2008-present).
|
|
|
|
|
|
Alan D. Feld*** (76)
|
|
Trustee since 1996
|
|
Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (law firm) (1960-Present); Director, Clear Channel Communications (1984-2008); Trustee, American Beacon Mileage Funds (1996-2012).
|
NON-INTERESTED TRUSTEES
|
|
|
|
|
W. Humphrey Bogart (69)
|
|
Trustee since 2004
|
|
Trustee, American Beacon Mileage Funds (2004-2012).
|
Name
(Age)
|
|
Position
and Length of Time
Served with each Trust
|
|
Principal Occupation(s) and Directorships During Past 5 Years
|
Brenda A. Cline (52)
|
|
Trustee since 2004
|
|
Executive Vice President, Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Trustee, American Beacon Mileage Funds (2004-2012).
|
|
|
|
|
|
Eugene J. Duffy (58)
|
|
Trustee since 2008
|
|
Principal and Executive Vice President, Paradigm Asset Management (1994-Present); Director, Sunrise Bank of Atlanta (2008-Present); Trustee, American Beacon Mileage Funds (2008-2012).
|
|
|
|
|
|
Thomas M. Dunning (70)
|
|
Trustee since 2008
|
|
Chairman Emeritus (2008-Present) and Chairman (1998-2008), Lockton Dunning Benefits (consulting firm in employee benefits); Lead Director, Oncor Electric Delivery Company LLC (2007-Present); Board Member, BancTec (2010-Present); Trustee, American Beacon Mileage Funds (2008-2012).
|
|
|
|
|
|
Richard A. Massman (70)
|
|
Trustee since 2004 Chairman
since 2008
|
|
Consultant and General Counsel Emeritus (2009-Present) and Senior Vice President and General Counsel (1994-2009), Hunt Consolidated, Inc. (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities); Trustee, American Beacon Mileage Funds (2004-2012).
|
|
|
|
|
|
Barbara J. McKenna (50)
|
|
Trustee since 2012
|
|
Managing Principal, Longfellow Investment Management Company (2005- Present).
|
|
|
|
|
|
R. Gerald Turner (67)
|
|
Trustee since 2001
|
|
President, Southern Methodist University (1995-Present); Director, J.C. Penney Company, Inc. (1996-Present); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Trustee, American Beacon Mileage Funds (2001-2012).
|
|
|
|
|
|
Paul J. Zucconi, CPA (73)
|
|
Trustee since 2008
|
|
Director, Affirmative Insurance Holdings, Inc. (producer of nonstandard automobile insurance) (2004-Present); Director, Titanium Metals Corporation (producer of titanium melted and mill products) (2002-2012); Director, Torchmark Corporation (life and health insurance products) (2002-Present); Director, Charter Bank (community bank services and products) (2010-2011); Trustee, American Beacon Mileage Funds (2008-2012).
|
|
*
|
The Board has adopted a retirement plan that requires Trustees to retire no later than the last
day of the calendar year in which they reach the age of 72, provided, however, that the Board may determine to grant one or more
annual exemptions to this requirement.
|
|
**
|
Mr. Arpey is deemed to be an “interested person” of the Trust, as defined by the
1940 Act. Mr. Arpey previously served as CEO of AMR Corp., which has a material relationship with the Manager.
|
|
***
|
Mr. Feld is deemed to be an “interested person” of the Trust, as defined by the
1940 Act. Mr. Feld’s law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the
past two years to the Manager and one or more of the Trust’s sub-advisors.
|
In addition to the
information set forth in the tables above and other relevant qualifications, experience, attributes or skills applicable to a particular
Trustee, the following provides further information about the qualifications and experience of each Trustee.
Gerard J. Arpey: Mr. Arpey has extensive
organizational management, financial and international experience serving as chairman, chief executive officer, and chief financial
officer of one of the largest global airlines, service as a director of public and private companies, and service to several charitable
organizations.
W. Humphrey Bogart: Mr. Bogart has
extensive experience in the investment management business including as president and chief executive officer of an investment
adviser and as a consultant, significant organizational management experience through start-up efforts with a national bank, service
as a board member of a university medical center foundation, and multiple years of service as a Trustee.
Brenda A. Cline: Ms. Cline has extensive
organizational management, financial and investment experience as executive vice president, chief financial officer, secretary
and treasurer to a private foundation, service as a trustee to a private university, a children’s hospital and a school,
including acting as a member of their investment andor audit committees, extensive experience as an audit senior manager with
a large public accounting firm, and multiple years of service as a Trustee.
Eugene J. Duffy: Mr. Duffy has extensive
experience in the investment management business and organizational management experience as a member of senior management, service
as a director of a bank, service as a chairman of a charitable fund and as a trustee to an association, service on the board of
a private university and non-profit organization, service as chair to an financial services industry association, and multiple
years of service as a Trustee.
Thomas M. Dunning: Mr. Dunning has
extensive organizational management experience founding and serving as chairman and chief executive officer of a private company,
service as a director of a private company, service as chairman of a large state municipal bond issuer and chairman of a large
airport authority, also an issuer of bonds, service as a board member of a state department of transportation, service as a director
of various foundations, service as chair of civic organizations, and multiple years of service as a Trustee.
Alan D. Feld: Mr. Feld has extensive
experience as a business attorney, organizational management experience as chairman of a law firm, experience as a director of
several publicly held companies; service as a trustee of a private university and a board member of a hospital, and multiple years
of service as a Trustee.
Richard A. Massman: Mr. Massman has
extensive experience as a business attorney, organizational management experience as a founding member of a law firm, experience
as a senior vice president and general counsel of a large private company, service as the chairman and director of several foundations,
including services on their Investment Committees and Finance Committees, chairman of a governmental board, chairman of various
professional organizations and multiple years of service as a Trustee and as Independent Chair.
Barbara J. McKenna: Ms. McKenna has
extensive experience in the investment management industry, organizational management experience as a member of senior management,
service as a director of an investment manager, and member of numerous financial services industry associations.
R. Gerald Turner: Mr. Turner has extensive
organizational management experience as president of a private university, service as a director and member of the audit and governance
committees of various publicly held companies, service as a member to several charitable boards, service as a co-chair to an intercollegiate
athletic commission, and multiple years of service as a Trustee.
Paul J. Zucconi: Mr. Zucconi has extensive
financial experience as partner with a large public accounting firm auditing financial services firms, including investment companies,
organizational management and financial experience as a director to various publicly held and private companies, including acting
as chairman or as a member of their audit and/or audit and compliance committees, service as a board member to a local chapter
of not-for-profit foundation; and multiple years of service as a Trustee.
Committees of the Board
The Trust has an
Audit and Compliance Committee (“Audit Committee”), consisting of Messrs. Zucconi (Chair), Duffy and Dunning. Mr. Massman,
as Chairman of the Trust, serves on the Audit Committee in an ex-officio capacity. None of the members of the committee are “interested
persons” of the Trust, as defined by the 1940 Act. As set forth in its charter, the primary duties of the Trust’s
Audit Committee are: (a) to oversee the accounting and financial reporting processes of the Trust and the Funds and their
internal controls and, as the Committee deems appropriate, to inquire into the internal controls of certain third-party service
providers; (b) to oversee the quality and integrity of the Trust’s financial statements and the independent audit thereof;
(c) to approve, prior to appointment, the engagement of the Trust’s independent auditors and, in connection therewith,
to review and evaluate the qualifications, independence and performance of the Trust’s independent auditors; (d) to
oversee the Trust’s compliance with all regulatory obligations arising under applicable federal securities laws, rules and
regulations and oversee management’s implementation and enforcement of the Trust’s compliance policies and procedures
(“Compliance Program”); and (e) to coordinate the Board’s oversight of the Trust’s CCO in connection
with his or her implementation of the Trust’s Compliance Program. The Audit Committee met xx times during the fiscal year
ended xx xx, 201x.
The Trust has a Nominating
and Governance Committee (“Nominating Committee”) that is comprised of Messrs. Feld (Chair) and Turner. Mr. Massman,
as Chairman of the Trust, serves on the Nominating Committee in an ex-officio capacity. As set forth in its charter, the Nominating
Committee’s primary duties are: (a) to make recommendations regarding the nomination of non-interested Trustees to the
Board; (b) to make recommendations regarding the appointment of an Independent Trustee as Chairman of the Board; (c) to
evaluate qualifications of potential “interested” members of the Board and Trust officers; (d) to review shareholder
recommendations for nominations to fill vacancies on the Board; (e) to make recommendations to the Board for nomination for
membership on all committees of the Board; (f) to consider and evaluate the structure, composition and operation of the Board;
(g) to review shareholder recommendations for proposals to be submitted for consideration during a meeting of Fund shareholders;
and (h) to consider and make recommendations relating to the compensation of Independent Trustees and of those officers as
to whom the Board is charged with approving compensation. Shareholder recommendations for Trustee candidates may be mailed in writing,
including a comprehensive resume and any supporting documentation, to the Nominating Committee in care of the Secretary of the
Fund. The Nominating and Governance Committee met xx times during the fiscal year ended xx xx, 201x.
The Trust has an Investment
Committee that is comprised of Mr. Bogart (Chair), Ms. Cline (Vice-Chair), Ms. McKenna and Mr. Arpey. Mr. Massman,
as Chairman of the Trust, serves on the Investment Committee in an ex-officio capacity. As set forth in its charter, the Investment
Committee’s primary duties are: (a) to review and evaluate the short- and long-term investment performance of the Manager
and each of the designated sub-advisors to the Fund; (b) to evaluate recommendations by the Manager regarding the hiring or
removal of designated sub-advisors to the Fund; (c) to review material changes recommended by the Manager to the allocation
of Fund assets to a sub-advisor; (d) to review proposed changes recommended by the Manager to the investment objective or
principal investment strategies of the Fund; and (e) to review proposed changes recommended by the Manager to the material
provisions of the advisory agreement with a sub-advisor, including, but not limited to, changes to the provision regarding compensation.
The Investment Committee met xx times during the fiscal year ended xx xx, 201x.
Trustee Ownership in the
Funds
As of the date of
this SAI, no Trustee owns Shares of the Fund. The following table shows the amount of equity securities owned in the American
Beacon Funds family by the Trustees as of the calendar year ended xxx xx, 201x.
INTERESTED
American Beacon Fund
|
Arpey
|
Feld
|
SGA Global Growth
|
xx
|
xx
|
|
|
|
Aggregate Dollar Range of Equity
Securities in all
Trusts (29 Funds)
|
xx
|
xx
|
NON-INTERESTED
American Beacon Fund
|
|
Bogart
|
|
Cline
|
|
Duffy
|
|
Dunning
|
|
Massman
|
|
McKenna
|
|
Turner
|
|
Zucconi
|
SGA Global Growth
|
|
xx
|
|
xx
|
|
xx
|
|
xx
|
|
xx
|
|
xx
|
|
xx
|
|
xx
|
Aggregate Dollar Range of Equity Securities in all Trusts (29 Funds)
|
|
xx
|
|
xx
|
|
xx
|
|
xx
|
|
xx
|
|
xx
|
|
xx
|
|
xx
|
Trustee Compensation
As compensation
for their service to the Trust and the American Beacon Select Funds (collectively, the “Trusts”), each Trustee is
compensated as follows: (1) an annual retainer of $110,000; (2) meeting attendance fee (for attendance in person or
via teleconference) of (a) $2,500 for attendance by Board members at quarterly Board meetings, (b) $2,500 for attendance
by Committee members at meetings of the Audit Committee and the Investment Committee, (c) $1,500 for attendance by Committee
members at meetings of the Nominating Committee, and (d) $2,500 for attendance by any Trustee at an annual Investment Committee
meeting to review the Trust’s management and investment advisory agreements; and (3) reimbursement of reasonable expenses
incurred in attending such Board and Committee meetings.
Mr. Massman was
elected as Chairman April 15, 2008. For his service as Chairman, Mr. Massman receives an additional annual payment of
$15,000. He also receives an additional $2,500 per quarter for his service as an ex-officio member of multiple committees. The
following table shows estimated compensation (excluding reimbursements) that will be earned by each Trustee for the fiscal year
ended xx xx, 201x.
Name of Trustee
|
|
Aggregate
Compensation
From the Trust
|
|
Pension or Retirement
Benefits Accrued as Part
of the Trust’s Expenses
|
|
Total Compensation
From the Trusts
(26 funds)
|
INTERESTED TRUSTEES
|
|
|
|
|
|
|
Gerard J. Arpey
|
|
$ xx
|
|
$ xx
|
|
$ xx
|
Alan D. Feld
|
|
$ xx
|
|
$ xx
|
|
$ xx
|
NON-INTERESTED TRUSTEES
|
|
|
|
|
|
|
W. Humphrey Bogart
|
|
$ xx
|
|
$ xx
|
|
$ xx
|
Brenda A. Cline
|
|
$ xx
|
|
$ xx
|
|
$ xx
|
Eugene J. Duffy
|
|
$ xx
|
|
$ xx
|
|
$ xx
|
Thomas M. Dunning
|
|
$ xx
|
|
$ xx
|
|
$ xx
|
Richard A. Massman
|
|
$ xx
|
|
$ xx
|
|
$ xx
|
Barbara J. McKenna
|
|
$ xx
|
|
$ xx
|
|
$ xx
|
R. Gerald Turner
|
|
$ xx
|
|
$ xx
|
|
$ xx
|
Paul Zucconi
|
|
$ xx
|
|
$ xx
|
|
$ xx
|
* Estimated compensation for the fiscal
period xxx, 201x through xxx, 201x.
The Boards have adopted
an Emeritus Trustee and Retirement Plan (“Plan”). The Plan provides that a Trustee who has served on the Boards as
of June 4, 2008, and who has reached a mandatory retirement age established by the Board (currently 72) is eligible to elect
Trustee Emeritus status. The Boards, through a majority vote, may determine to grant one or more annual exemptions to this mandatory
retirement requirement. Additionally, a Trustee who has served on the Board of one or more Trusts for at least 5 years as of June 4,
2008, may elect to retire from the Boards at an earlier age and immediately assume Trustee Emeritus status.
A person may serve
as a Trustee Emeritus and receive related benefits for a period up to a maximum of 10 years. Only those Trustees who retire from
the Boards and elect Trustee Emeritus status may receive benefits under the Plan. A Trustee Emeritus must commit to provide certain
ongoing services and advice to the Board members and the Trusts; however, a Trustee Emeritus does not have any voting rights at
Board meetings and is not subject to election by shareholders of the Fund. Currently, two individuals have assumed Trustee Emeritus
status. One receives an annual stipend of $20,000 from the American Beacon Funds complex. The other individual and his spouse receive
annual flights benefits from the American Beacon Funds complex of up to $40,000 combined, on a tax-grossed up basis, on American
Airlines (a subsidiary of the Manager’s former parent company).
Principal Officers of the Trust
The Officers
of the Trust conduct and supervise its daily business. As of the date of this SAI, the Officers of the Trust, their ages, their
business address and their principal occupations and directorships during the past five years are as set forth below. The address
of each Officer is 4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Officer serves for a term of one year or
until his or her resignation, retirement, or removal. Each Officer has and continues to hold the same position with the American
Beacon Select Funds as listed below for the Trust.
Name
(Age)
|
|
Position
and Length of Time
Served with each Trust
|
|
Principal
Occupation(s) and Directorships During Past 5 Years
|
OFFICERS
|
|
|
|
|
Gene L. Needles, Jr. (58)
|
|
President since 2009 Executive Vice President 2009
|
|
President, CEO and Director, American Beacon Advisors, Inc. (2009-Present); President, CEO and Director, Lighthouse Holdings, Inc. (2009-Present); President and CEO, Lighthouse Holdings Parent, Inc. (2009-Present); Manager and President, American Private Equity Management, L.L.C. (2012-Present); President, Touchstone Investments (2008-2009); CEO (2004-2007), AIM Distributors.
|
|
|
|
|
|
|
|
|
|
|
Jeffrey K. Ringdahl (38)
|
|
Vice President
since 2010
|
|
Chief Operating Officer, American Beacon Advisors, Inc. (2010-Present); Vice President, American Private Equity Management, L.L.C. (2012-Present); Vice President, Product Management, Touchstone Advisors, Inc. (2007-2010).
|
|
|
|
|
|
Rosemary K. Behan (54)
|
|
Vice President,
Secretary and Chief
Legal Officer
since 2006
|
|
Secretary, American Beacon Advisors, Inc. (2006-Present); Secretary, Lighthouse Holdings, Inc. (2008-Present); Secretary, Lighthouse Holdings Parent, Inc. (2008-Present); Secretary (2008-Present) and Asst. Secretary (2007-2008), American Private Equity Management, L.L.C.
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Brian E. Brett (53)
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Vice President
since 2004
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Vice President, Director of Sales, American Beacon Advisors, Inc. (2004-Present).
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Wyatt L. Crumpler (47)
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Vice President
since 2007
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Chief Investment Officer (2012-Present), Vice President, Asset Management (2009-2012) and Vice President, Trust Investments (2007-2009), American Beacon Advisors, Inc.; Vice President, American Private Equity Management, L.L.C. (2012-Present).
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Erica B. Duncan (42)
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Vice President
since 2011
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Vice President, Marketing & Client Services, American Beacon Advisors, Inc. (2011-Present); Supervisor, Brand Marketing, Invesco (2010-2011); Supervisor, Marketing Communications (2009-2010) and Senior Financial Writer (2004-2009), Invesco AIM.
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Michael W. Fields (59)
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Vice President
since 1989
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Chief Fixed Income Officer (2011-Present) and Vice President, Fixed Income Investments (1988-2011), American Beacon Advisors, Inc.; Director, American Beacon Global Funds SPC (2002-2011); Director, American Beacon Global Funds plc (2007-2009).
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Melinda G. Heika (52)
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Treasurer
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Treasurer (2010-Present), Controller (2005-2009), American Beacon
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Name (Age)
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Position
and Length of Time
Served with each Trust
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Principal Occupation(s) and Directorships During Past 5 Years
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since 2010
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Advisors, Inc.; Treasurer, Lighthouse Holdings, Inc. (2010-Present); Treasurer, Lighthouse Holdings Parent, Inc. (2010-Present); Treasurer, American Private Equity Management, L.L.C. (2012-Present).
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Terri L. McKinney (49)
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Vice President
since 2010
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Vice President, Enterprise Services (2009-Present), Managing Director (2003-2009), American Beacon Advisors, Inc.
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Samuel J. Silver (50)
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Vice President
since 2011
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Vice President, Fixed Income Investments (2011-Present) and Senior Portfolio Manager, Fixed Income Investments (1999-2011), American Beacon Advisors, Inc.
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Sonia L. Bates (56)
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Asst. Treasurer
since 2011
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Director, Tax and Financial Reporting (2011-Present), Manager, Tax and Financial Reporting (2005-2010), American Beacon Advisors, Inc.; Asst. Treasurer, Lighthouse Holdings, Inc. (2011-Present); Asst. Treasurer, Lighthouse Holdings Parent, Inc. (2011-Present); Asst. Treasurer, American Private Equity Management, L.L.C. (2012-Present).
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John J. Okray (39)
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Asst. Secretary
since 2010
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Deputy General Counsel (2012-Present), Asst. General Counsel (2010- 2012) and Asst. Secretary (2010-Present), American Beacon Advisors, Inc.; Asst. Secretary, Lighthouse Holdings, Inc. (2010-Present); Asst. Secretary, Lighthouse Holdings Parent, Inc. (2010-Present); Asst. Secretary, American Private Equity Management, L.L.C. (2012-Present); Vice President, OppenheimerFunds, Inc. (2004-2010).
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Christina E. Sears (41)
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Chief Compliance
Officer since 2004
and Asst. Secretary
since 1999
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Chief Compliance Officer, American Beacon Advisors, Inc., (2004-Present); Chief Compliance Officer, American Private Equity Management, L.L.C. (2012-Present).
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CODE OF ETHICS
The Manager, the Trust
and the sub-advisor have each adopted a Code of Ethics under Rule 17j-1 of the 1940 Act. Each Code of Ethics significantly restricts
the personal trading of all employees with access to non-public portfolio information. For example, each Code of Ethics generally
requires pre-clearance of all personal securities trades (with limited exceptions) and prohibits employees from purchasing or selling
a security that is being purchased or sold or being considered for purchase (with limited exceptions) or sale by any Fund. In addition,
the Manager’s and Trust’s Code of Ethics require employees to report trades in shares of the Trusts. Each Code of Ethics
is on public file with, and may be obtained from, the SEC.
PROXY VOTING POLICIES
From time to time,
the Fund may own a security whose issuer solicits a proxy vote on certain matters. The Board seeks to ensure that proxies are voted
in the best interests of the Fund’s shareholders and has delegated proxy voting authority to the Manager. The Manager in
turn has delegated proxy voting authority to the sub-advisor with respect to the Fund’s assets under the sub-advisor’s
management. The Trust has adopted a Proxy Voting Policy and Procedures (the “Policy”) that governs proxy voting by
the Manager and sub-advisor, including procedures to address potential conflicts of interest between the Fund’s shareholders
and the Manager, the sub-advisor or their affiliates. The Trust’s Board of Trustees has approved the Manager’s proxy
voting policies and procedures with respect to Fund assets under the Manager’s management. Please see Appendix A for a copy
of the Policy. The sub-advisor’s proxy voting policy and procedures are summarized (or included in its entirety) in Appendix
B. The Fund’s proxy voting record for the most recent year ended June 30 is available as of August 31 of each year
upon request and without charge by calling 1-800-967-9009 or by visiting the SEC’s website at http://www.sec.gov. The proxy
voting record can be found in Form N-PX on the SEC’s website.
CONTROL PERSONS AND 5% SHAREHOLDERS
A principal shareholder
is any person who owns of record or beneficially 5% or more of any Class of the Fund’s outstanding shares. A control person
is a shareholder that owns beneficially or through controlled companies more than 25% of the voting securities of a company or
acknowledges the existence of control. Shareholders owning voting securities in excess of 25% may determine the outcome of any
matter affecting and voted on by shareholders of the Fund. The actions of an entity or person that controls the Fund could have
an effect on other shareholders. For instance, a control person may have effective voting control over the
Fund or large redemptions by a control
person could cause the Fund’s other shareholders to pay a higher pro rata portion of the Fund’s expenses. As of the
date of this SAI, the Manager is the sole shareholder of the Fund.
INVESTMENT SUB-ADVISORY AGREEMENT
The Fund’s sub-advisor
is listed below with information regarding its controlling persons or entities. According to the 1940 Act, a person or entity with
control with respect to an investment advisor has “the power to exercise a controlling influence over the management or policies
of a company, unless such power is solely the result of an official position with such company.” Persons and entities affiliated
with the sub-advisor are considered affiliates for the portion of Fund assets managed by that sub-advisor.
Sustainable Growth Advisers, LP:
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Controlling Person/Entity
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Basis of Control
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Nature of Controlling
Person/Entity Business
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SGIA, LLC
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General Partner
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Financial Services
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George P. Fraise
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Minority Owner
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Financial Services
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Gordon M. Marchand
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Minority Owner
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Financial Services
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Robert L. Rohn
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Minority Owner
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Financial Services
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Pursuant to an investment advisory agreement, the Manager
has agreed to pay an annualized advisory fee to the sub-advisor according to the following schedule:
Up to $100 million
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0.45 of 1%
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Between $100 million and up to $1 billion
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0.40 of 1%
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Over $1 billion
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0.35 of 1%
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The Investment Advisory
Agreement will automatically terminate if assigned, and may be terminated without penalty at any time by the Manager, by a vote
of a majority of the Trustees or by a vote of a majority of the outstanding voting securities of the Fund on no less than thirty
(30) days’ nor more than sixty (60) days’ written notice to the sub-advisor, or by the sub-advisor upon sixty
(60) days’ written notice to the Trust. The Investment Advisory Agreements will continue in effect provided that annually
such continuance is specifically approved by a vote of the Trustees, including the affirmative votes of a majority of the Trustees
who are not parties to the Agreement or “interested persons” (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of considering such approval, or by the vote of shareholders.
MANAGEMENT, ADMINISTRATIVE AND DISTRIBUTION
SERVICES
The Manager
The Manager
is a Delaware corporation and wholly owned subsidiary of Lighthouse Holdings, Inc. (“Lighthouse”). Lighthouse is indirectly
majority owned by investment funds affiliated with Pharos Capital Group, LLC (“Pharos”) and TPG Capital, L.P. (“TPG”).
The Manager is paid a management fee as compensation for paying investment advisory fees and for providing the Trust with advisory
and asset allocation services. The expenses are allocated daily to each class of shares based upon the relative proportion of
net assets represented by such class. Operating expenses directly attributable to a specific class are charged against the assets
of that class. Pursuant to management and administrative services agreements, the Manager provides the Trust with office space,
office equipment and personnel necessary to manage and administer the Trust’s operations. This includes:
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complying with reporting requirements;
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•
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corresponding with shareholders;
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•
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maintaining internal bookkeeping, accounting and auditing services and records; and
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•
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supervising the provision of services to the Trust by third parties.
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In addition to its
oversight of the sub-advisor, the Manager may invest the portion of the Fund’s assets that the sub-advisor determines to
be allocated to short-term investments.
The Fund is responsible
for expenses not otherwise assumed by the Manager, including the following: audits by independent auditors; transfer agency, custodian,
dividend disbursing agent and shareholder recordkeeping services; taxes, if any, and the preparation of the Fund’s tax returns;
interest; costs of Trustee and shareholder meetings; printing and mailing Prospectuses and reports to existing shareholders; fees
for filing reports with regulatory bodies and the maintenance of the Fund’s existence; legal fees; fees to federal and state
authorities for the registration of shares; fees and expenses of Trustees; insurance and fidelity bond premiums; fees paid to consultants
providing reports regarding adherence by the sub-advisor to the investment style of the Fund; fees paid for
brokerage commission analysis for the purpose
of monitoring best execution practices of the sub-advisor; and any extraordinary expenses of a nonrecurring nature.
The management
agreement provides for the Manager to receive an annualized management fee that is calculated and accrued daily, equal to the
sum of: 0.05% of the net assets of the Fund plus the amount payable by the Manager to the sub-advisor. Because the Fund has not
commenced operations prior to the date of this SAI, no fees have been paid to the Manager or the sub-advisor for the past
three fiscal years.
In addition to
the management fee, the Manager is paid an administrative services fee for providing administrative services to the Fund. Because
the Fund has not commenced operations prior to the date of this SAI, the Fund has not paid an administrative service fee to the
Manager for the last three fiscal years.
The Manager (or another
entity approved by the Board) under a distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act, is paid up to 1.00% per
annum of the average daily net assets of the C Class shares and up to 0.25% per annum of the average daily net assets of the
A Class shares of the Fund for distribution and shareholder servicing related services, including expenses relating to selling
efforts of various broker-dealers, shareholder servicing fees and the preparation and distribution of C Class and A Class advertising
material and sales literature. The Sub-Advisor may contribute a portion of its advisory fees to the Manager to support the Fund’s
distribution activities. The Manager will receive Rule 12b-1 fees from the C Class and A Class regardless of the amount of the
Manager’s actual expenses related to distribution and shareholder servicing efforts on behalf of each Class. Thus, the Manager
may realize a profit or a loss based upon its actual distribution and shareholder servicing related expenditures for the C Class
and A Class. The Manager anticipates that the Rule 12b-1 plan will benefit shareholders by providing broader access to the Fund
through broker-dealers and other financial intermediaries who require compensation for their expenses in order to offer shares
of the Fund. Because the Fund has not commenced operations prior to the date of this SAI, there were no prior fees pursuant to
Rule 12b-1 under the 1940 Act.
The A, C, Y and Investor
Classes have each adopted a Service Plan (collectively, the “Plans”). The Service Plan for the Investor Class provides
that the Fund will pay up to 0.375% per annum of its average daily net assets to the Manager (or another entity approved by
the Board). The Service Plan for the A Class, and C Class provide that the Fund will pay up to 0.25% per annum of the average
daily net assets to the Manager (or another entity approved by the Board). The Service Plan for the Y Class provides that the Fund
will pay up to 0.10% per annum of its average daily net assets to the Manager (or another entity approved by the Board). The
Manager or these approved entities may spend such amounts on any activities or expenses primarily intended to result in or relate
to the servicing of A, C, Y and Investor Class shares including, but not limited to, payment of shareholder service fees and transfer
agency or sub-transfer agency expenses. The fees, which are included as part of the Fund’s “Other Expenses” in
the Table of Fees and Expenses in the Prospectus, will be payable monthly in arrears. The fees for each Class will be paid on the
actual expenses incurred in a particular month by the entity for the services provided pursuant to the respective Class and its
Service Plan. The primary expenses expected to be incurred under the Plans are shareholder servicing, record keeping fees and servicing
fees paid to financial intermediaries such as plan sponsors and broker-dealers. Because the Fund has not commenced operations prior
to the date of this SAI, there were no prior service fees.
The Manager also may
receive up to 25% of the net monthly income generated from the securities lending activities of the Fund as compensation for administrative
and oversight functions with respect to securities lending of the Fund. Currently, the Manager receives 10% of such income for
other series of the Trust. The Fund has not commenced operations prior to the date of this SAI. Accordingly, the Manager has not
received any fees from the securities lending activities of the Fund. The SEC has granted exemptive relief that permits the Fund
to invest cash collateral received from securities lending transactions in shares of one or more private or registered investment
companies managed by the Manager. As of the date of this SAI, the Fund does not intend to engage in securities lending activities.
The Manager has contractually
agreed from time to time to reduce fees and/or reimburse expenses for the Fund in order to maintain competitive expense ratios
for the Fund. In July of 2003, the Board approved a policy whereby the Manager may seek repayment for such fee reductions and expense
reimbursements. Under the policy, the Manager can be reimbursed by the Fund for any contractual or voluntary fee reductions or
expense reimbursements if reimbursement to the Manager (a) occurs within three years after the Manager’s own waiver
or reimbursement and (b) does not cause the Fund’s Total Annual Fund Operating Expenses to exceed the previously agreed
upon contractual expense limit.
The Distributor
Foreside Fund
Services, LLC (“Foreside” or “Distributor”), located at Three Canal Plaza, Suite 100, Portland, Maine
04101, is the distributor and principal underwriter of the Fund’s shares. The Distributor is a registered broker-dealer
and is a member of the Financial Industry Regulatory Authority (FINRA). Under a Distribution Agreement with the Trust, the Distributor
acts as the agent of the Trust in connection with the continuous offering of shares of the Fund. The Distributor continually distributes
shares of the Fund on a best efforts basis. The Distributor has no obligation to sell any specific quantity of Fund’s shares.
The Distributor and its officers have no role in determining the investment policies or which securities are to be purchased or
sold by the Trust or its Funds. Pursuant to a Sub-Administration Agreement between Foreside and the Manager, Foreside receives
a fee from the Manager for providing
administrative services in connection with
the marketing and distribution of shares of the Trust, including the registration of Manager employees as registered representatives
of the Distributor to facilitate distribution of Fund shares. Pursuant to the Distribution Agreement, the Distributor receives,
and may re-allow to broker-dealers, all or a portion of the sales charge paid by the purchasers of A and C Class shares. For A
and C Class shares, the Distributor receives commission revenue consisting of the portion of A and C Class sales charge remaining
after the allowances by the Distributor to the broker dealers. The Distributor retains any portion of the commission fees that
are not paid to the broker-dealers, for use solely to pay distribution related expenses.
OTHER SERVICE PROVIDERS
State Street, located
at Lafayette Corporate Center, 2 Avenue De Lafayette, Boston, Massachusetts 02111, is the transfer agent for the Trust and provides
transfer agency services to Fund shareholders through its affiliate Boston Financial Data Services, located at 330 W. 9th Street,
Kansas City, Missouri 64105. State Street also serves as custodian for the Fund. In addition to its other duties as custodian,
pursuant to an Administrative Services Agreement and instructions given by the Manager, State Street may invest certain excess
cash balances for certain series of the Trust in various futures contracts or forwards. The Fund’s independent registered
public accounting firm is xxx, which is located at [Address].
PORTFOLIO MANAGERS
The portfolio managers
to the Fund (the “Portfolio Managers”) have responsibility for the day-to-day management of accounts other than the
Fund. Information regarding these other accounts has been provided by the Portfolio Managers’ firm and is set forth below.
The number of accounts and assets is shown as of xxx xx, 201x.
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Number of Other Accounts Managed
and Assets by Account Type
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Number of Accounts and Assets for Which
Advisory Fee is Performance-Based
|
Name of
Investment Advisor and
Portfolio Managers
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Registered
Investment
Companies
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Other Pooled
Investment
Vehicles
|
Other
Accounts
|
Registered
Investment
Companies
|
Other Pooled
Investment
Vehicles
|
Other
Accounts
|
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Sustainable Growth Advisers, LP
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George P. Fraise
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18 ($3.0 bil)
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13 ($388 mil)
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18 ($523 mil)
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0
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0
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0
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Gordon M. Marchand
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18 ($3.0 bil)
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13 ($388 mil)
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18 ($523 mil)
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0
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0
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0
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Robert L. Rohn
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18 ($3.0 bil)
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13 ($388 mil)
|
18 ($523 mil)
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0
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0
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0
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Conflicts of Interest
As noted in
the table above, the Portfolio Manager manages accounts other than the Fund. This side-by-side management may present potential
conflicts between a Portfolio Manager’s management of the Fund’s investments, on the one hand, and the investments
of the other accounts, on the other hand. Set forth below is a description by the sub-advisor of any foreseeable material conflicts
of interest that may arise from the concurrent management of the Fund and other accounts. The information regarding potential
conflicts of interest was provided by the sub-advisor.
Sustainable
Growth Advisers, LP (“SGA”)
Actual or apparent
conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than
one fund or other account. Where conflicts of interest arise between the Fund and other accounts managed by the portfolio manager,
the sub-advisor will proceed in a manner that ensures that the Fund will not be treated less favorably. There may be instances
where similar portfolio transactions may be executed for the same security for numerous accounts managed by the portfolio managers.
In such instances, securities will be allocated in accordance with the sub-advisor’s trade allocation policy.
Compensation
The following
is a description provided by the investment sub-advisor regarding the structure of and criteria for determining the compensation
of the Portfolio Managers.
SGA
For serving as portfolio managers of the Fund, SGA has adopted a system of compensation that seeks to align the financial interest
of the investment professionals with those of SGA. The portfolio managers receive a fixed base salary. In addition, the portfolio
managers share in the profitability of the Advisor from their equity ownership of the firm. The portfolio managers’ compensation
arrangements are not determined on the basis of specific funds or accounts managed. All investment professionals receive customary
benefits that are offered generally to all salaried employees of SGA.
Ownership of Funds
The Portfolio
Managers’ beneficial ownership of the Fund is defined as the Portfolio Managers having the opportunity to share in any profit
from transactions in the Fund, either directly or indirectly, as the result of any contract, understanding, arrangement, relationship
or otherwise. Therefore, ownership of Fund shares by members of the Portfolio Managers’ immediate family or by a trust of
which the Portfolio Managers are a trustee could be considered ownership by the Portfolio Managers. As of the date of this SAI,
the Fund has not commenced operations. Accordingly, the Portfolio Managers do not beneficially own any shares of the Fund.
PORTFOLIO SECURITIES TRANSACTIONS
In selecting brokers
or dealers to execute particular transactions, the Manager and the sub-advisor are authorized to consider “brokerage and
research services” (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), provision of
statistical quotations (including the quotations necessary to determine the Fund’s net asset value), and other information
provided to the Fund, to the Manager and/or to the sub-advisor (or their affiliates), provided, however, that the Manager or the
sub-advisor must always seek best execution. Research and brokerage services may include information on portfolio companies, economic
analyses, and other investment research services. The Trusts do not allow the Manager or sub-advisor to enter arrangements to direct
transactions to broker-dealers as compensation for the promotion or sale of Trust shares by those broker-dealers. The Manager and
the sub-advisor are also authorized to cause the Fund to pay a commission (as defined in SEC interpretations) to a broker or dealer
who provides such brokerage and research services for executing a portfolio transaction which is in excess of the amount of the
commission another broker or dealer would have charged for effecting that transaction. The Manager or the sub-advisor, as appropriate,
must determine in good faith, however, that such commission was reasonable in relation to the value of the brokerage and research
services provided, viewed in terms of that particular transaction or in terms of all the accounts over which the Manager or the
sub-advisor exercises investment discretion. The fees of the sub-advisors are not reduced by reason of receipt of such brokerage
and research services. However, with disclosure to and pursuant to written guidelines approved by the Board, as applicable, the
Manager, or the sub-advisor (or a broker-dealer affiliated with them) may execute portfolio transactions and receive usual and
customary brokerage commissions (within the meaning of Rule 17e-1 under the 1940 Act) for doing so. Brokerage and research services
obtained with Fund commissions might be used by the Manager and/or the sub-advisor, as applicable, to benefit their other accounts
under management.
The Manager and the
sub-advisor will place its own orders to execute securities transactions that are designed to implement the Fund’s investment
objective and policies. In placing such orders, the sub-advisor will seek best execution. The full range and quality of services
offered by the executing broker or dealer will be considered when making these determinations. Pursuant to written guidelines approved
by the Board, as appropriate, the sub-advisor of the Fund, or its affiliated broker-dealer, may execute portfolio transactions
and receive usual and customary brokerage commissions (within the meaning of Rule 17e-1 of the 1940 Act) for doing so. The Fund’s
turnover rate, or the frequency of portfolio transactions, will vary from year to year depending on market conditions and the Fund’s
cash flows. High portfolio activity increases the Fund’s transaction costs, including brokerage commissions, and may result
in a greater number of taxable transactions.
The Investment Advisory
Agreement provides, in substance, that in executing portfolio transactions and selecting brokers or dealers, the principal objective
of the sub-advisor is to seek best execution. In assessing available execution venues, the sub-advisor shall consider all factors
it deems relevant, including the breadth of the market in the security, the price of the security, the value of any eligible research,
the financial condition and execution capability of the broker or dealer and the reasonableness of the commission, if any, for
the specific transaction and on a continuing basis. Transactions with respect to the securities of small and emerging growth companies
in which the Fund may invest may involve specialized services on the part of the broker or dealer and thereby may entail higher
commissions or spreads than would be the case with transactions involving more widely traded securities.
The Fund may establish
brokerage commission recapture arrangements with certain brokers or dealers. If the sub-advisor chooses to execute a transaction
through a participating broker, the broker rebates a portion of the commission back to the Fund. Any collateral benefit received
through participation in the commission recapture program is directed exclusively to the Fund. Neither the Manager nor the sub-advisor
receives any benefits from the commission recapture program. The sub-advisor’s participation in the brokerage commission
recapture program is optional. The sub-advisor retains full discretion in selecting brokerage firms for securities transactions
and is instructed to use the commission recapture program for a transaction only if it is consistent with the sub-advisor’s
obligation to seek the best execution available.
The Fund has not commenced
operations as of the date of this SAI. Accordingly, no brokerage commissions were paid by the Fund during the previous three fiscal
years and the Fund did not receive any amount as a result of participation in the commission recapture program.
ADDITIONAL PURCHASE
AND SALE INFORMATION FOR A CLASS SHARES
Sales Charge Reductions
and Waivers
As described
in the Prospectus, there are various ways to reduce your sales charge when purchasing A Class shares. Additional information about
A Class sales charge reductions is provided below.
Letter of Intent
(“LOI”)
. The LOI may be revised upward at any time during the 13-month period of the LOI (“LOI Period”),
and such a revision will be treated as a new LOI, except that the LOI Period during which the purchases must be made will remain
unchanged. Purchases made from the date of revision will receive the reduced sales charge, if any, resulting from the revised LOI.
The LOI will be considered completed if the shareholder dies within the 13-month LOI Period. Commissions to dealers will not be
adjusted or paid on the difference between the LOI amount and the amount actually invested before the shareholder’s death.
All dividends and
any capital gain distributions on shares held in escrow will be credited to the shareholder’s account in shares (or paid
in cash, if requested). If the intended investment is not completed within the specified LOI Period, the purchaser may be required
to remit to the transfer agent the difference between the sales charge actually paid and the sales charge which would have been
paid if the total of such purchases had been made at a single time. Any dealers assigned to the shareholder’s account at
the time a purchase was made during the LOI Period will receive a corresponding commission adjustment if appropriate. If the difference
is not paid by the close of the LOI Period, the appropriate number of shares held in escrow will be redeemed to pay such difference.
If the proceeds from this redemption are inadequate, the purchaser may be liable to the transfer agent for the balance still outstanding.
Rights of Accumulation
.
Subject to the limitations described in the aggregation policy, you may take into account your accumulated holdings in A Class
shares of the Fund to determine your sales charge on investments in accounts eligible to be aggregated. If you make a gift of A
Class shares, upon your request, you may purchase the shares at the sales charge discount allowed under rights of accumulation
of all of your investments in A Class shares of the American Beacon Funds.
Aggregation
.
Qualifying investments for aggregation include those made by you and your “immediate family” as defined in the Prospectus,
if all parties are purchasing shares for their own accounts and/or:
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individual-type employee benefit plans, such as an IRA, individual 403(b) plan or single-participant
Keogh-type plan;
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business accounts solely controlled by you or your immediate family (for example, you own the entire
business);
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trust accounts established by you or your immediate family (for trusts with only one primary beneficiary,
upon the trustor’s death the trust account may be aggregated with such beneficiary’s own accounts; for trusts with
multiple primary beneficiaries, upon the trustor’s death the trustees of the trust may instruct the Fund’s transfer
agent to establish separate trust accounts for each primary beneficiary; each primary beneficiary’s separate trust account
may then be aggregated with such beneficiary’s own accounts);
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endowments or foundations established and controlled by you or your immediate family; or
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529 accounts, which will be aggregated at the account owner level (Class 529-E accounts may only
be aggregated with an eligible employer plan).
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Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the investments are:
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for a single trust estate or fiduciary account, including employee benefit plans other than the
individual-type employee benefit plans described above;
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made for two or more employee benefit plans of a single employer or of affiliated employers as
defined in the 1940 Act, excluding the individual-type employee benefit plans described above;
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for nonprofit, charitable or educational organizations, or any endowments or foundations established
and controlled by such organizations, or any employer-sponsored retirement plans established for the benefit of the employees of
such organizations, their endowments, or their foundations; or
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for individually established participant accounts of a 403(b) plan that is treated similarly to
an employer-sponsored plan for sales charge purposes (see “Purchases by certain 403(b) plans” under “Sales Charges”
above), or made for two or more such 403(b) plans that are treated similarly to employer-sponsored plans for sales charge purposes,
in each case of a single employer or affiliated employers as defined in the 1940 Act.
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Purchases made for
nominee or street name accounts (securities held in the name of a broker- dealer or another nominee such as a bank trust department
instead of the customer) may not be aggregated with those made for other accounts and may not be aggregated with other nominee
or street name accounts unless otherwise qualified as described above.
Concurrent Purchases
.
As described in the Prospectus, you may reduce your A Class sales charge by combining purchases of A Class shares of the Fund subject
to a sales load.
Other Purchases
.
Pursuant to a determination of eligibility by the Manager, A Class shares of the Fund may be sold at net asset value (without the
imposition of a front-end sales charge) to:
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1.
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current or retired trustees, and officers of the American Beacon Funds family, current or retired
employees and directors of the Manager and its affiliated companies, certain family members and employees of the above persons,
and trusts or plans primarily for such persons;
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2.
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currently registered representatives and assistants directly employed by such representatives,
retired registered representatives with respect to accounts established while active, or full-time employees (collectively, “Eligible
Persons”) (and their spouses, and children, including children in step and adoptive relationships, sons-in- law and daughters-in-law,
if the Eligible Persons or the spouses or children of the Eligible Persons are listed in the account registration with the spouse
or parent) of broker-dealers who have sales agreements with the Distributor (or who clear transactions through such dealers), plans
for the dealers, and plans that include as participants only the Eligible Persons, their spouses and/or children;
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3.
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companies exchanging securities with the Fund through a merger, acquisition or exchange offer;
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4.
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insurance company separate accounts;
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5.
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accounts managed by the Manager, the sub-advisor to the Fund and its affiliated companies;
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6.
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the Manager or the sub-advisor to the Fund and its affiliated companies;
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7.
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an individual or entity with a substantial business relationship with the Manager, which may include
the officers and employees of the Fund’s custodian and transfer agent, or a sub-adviser to the Fund and its affiliated companies,
or an individual or entity related or relating to such individual or entity;
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8.
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full-time employees of banks that have sales agreements with the Distributor, who are solely dedicated
to directly supporting the sale of mutual funds;
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9.
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directors, officers and employees of financial institutions that have a selling group agreement
with the Distributor;
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10.
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banks, broker-dealers and other financial institutions (including registered investment advisors
and financial planners) that have entered into an agreement with the Distributor or one of its affiliates, purchasing shares on
behalf of clients participating in the fund supermarket or in a wrap program, asset allocation program or other program in which
the clients pay an asset-based fee;
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11.
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clients of authorized dealers purchasing shares in fixed or flat fee brokerage accounts;
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12.
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Employer-sponsored defined contribution — type plans, including 401(k) plans, 457 plans,
employer sponsored 403(b) plans, profit-sharing and money purchase pension plans, defined benefit plans and non-qualified deferred
compensation plans, and individual retirement account (“IRA”) rollovers involving retirement plan assets invested in
the Fund in the American Beacon Funds fund family; and
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13.
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Employee benefit and retirement plans for the Manager and its affiliates.
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Shares are offered
at net asset value to these persons and organizations due to anticipated economies in sales effort and expense. Once an account
is established under this net asset value privilege, additional investments can be made at net asset value for the life of the
account.
It is possible that
a broker-dealer may not be able to offer one or more of these waiver categories. If this situation occurs, it is possible that
the investor would need to invest directly through American Beacon Funds in order to take advantage of the waiver. The Fund may
terminate or amend the terms of these sales charge waivers at any time.
Moving Between
Accounts
. Investments in certain account types may be moved to other account types without incurring additional A Class sales
charges. These transactions include, for example:
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redemption proceeds from a non-retirement account (for example, a joint tenant account) used to
purchase Fund shares in an IRA or other individual-type retirement account;
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required minimum distributions from an IRA or other individual-type retirement account used to
purchase Fund shares in a non-retirement account; and;
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death distributions paid to a beneficiary’s account that are used by the beneficiary to purchase
Fund shares in a different account.
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ADDITIONAL INFORMATION REGARDING CONTINGENT
DEFERRED SALES CHARGES
As discussed in the Prospectus,
the redemption of C Class shares may be subject to a contingent deferred sales charge (“CDSC”) if you redeem your shares
within 12 months of purchase. In addition, if you purchased $1,000,000 or more of A Class shares of any American Beacon Fund (therefore
paid no initial sales charges) and subsequently redeem your shares within 18 months of your purchase, you may be charged a CDSC
upon redemption. In determining whether the CDSC is payable, it is assumed that shares not subject to the CDSC are the first redeemed
followed by other shares held for the longest period of time. The CDSC will not be imposed upon shares representing reinvested
dividends or capital gains distributions, or upon amounts representing share appreciation. As described in the Prospectus, there
are various circumstances under which the CDSC will be waived. Additional information about CDSC waivers is provided below.
The CDSC is waived
under the following circumstances:
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Any partial or complete redemption following death or disability (as defined in the Internal Revenue
Code) of a shareholder (including one who owns the shares with his or her spouse as a joint tenant with rights of survivorship)
from an account in which the deceased or disabled is named. The Manager or the Fund’s transfer agent may require documentation
prior to waiver of the charge, including death certificates, physicians’ certificates, etc.
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Redemptions from a systematic withdrawal plan. If the systematic withdrawal plan is based on a
fixed dollar amount or number of shares, systematic withdrawal redemptions are limited to no more than 10% of your account value
or number of shares per year, as of the date the Manager or the Fund’s transfer agent receives your request. If the systematic
withdrawal plan is based on a fixed percentage of your account value, each redemption is limited to an amount that would not exceed
10% of your annual account value at the time of withdrawal.
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Redemptions from retirement plans qualified under Section 401 of the Internal Revenue Code
of 1986. The CDSC will be waived for benefit payments made by American Beacon Funds directly to plan participants. Benefit payments
will include, but are not limited to, payments resulting from death, disability, retirement, separation from service, required
minimum distributions (as described under Section 401(a)(9) of the Internal Revenue Code), in-service distributions, hardships,
loans and qualified domestic relations orders. The CDSC waiver will not apply in the event of termination of the plan or transfer
of the plan to another financial institution.
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Redemptions that are mandatory withdrawals from a traditional IRA account after age 70 1/2.
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Involuntary redemptions as a result of your account not meeting the minimum balance requirements,
the termination and liquidation of the Fund, or other actions by the Fund.
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Distributions from accounts for which the broker-dealer of record has entered into a written agreement
with the Distributor (or Manager) allowing this waiver.
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To return excess contributions made to a retirement plan.
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To return contributions made due to a mistake of fact.
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The following example
illustrates the operation of the CDSC. Assume that you open an account and purchase 1,000 shares at $10 per share and that six
months later the NAV per share is $12 and, during such time, you have acquired 50 additional shares through reinvestment of distributions.
If at such time you should redeem 450 shares (proceeds of $5,400), 50 shares will not be subject to the charge because of dividend
reinvestment. With respect to the remaining 400 shares, the charge is applied only to the original cost of $10 per share and not
to the increase in NAV of $2 per share. Therefore, $4,000 of the $5,400 redemption proceeds will pay the charge. At the rate of
1.00%, the CDSC would be $40 for redemptions of C Class shares. In determining whether an amount is available for redemption without
incurring a deferred sales charge, the purchase payments made for all shares in your account are aggregated.
REDEMPTIONS IN KIND
Although the Fund
intends to redeem shares in cash, the Fund reserves the right to pay the redemption price in whole or in part by a distribution
of securities or other assets. However, shareholders always will be entitled to redeem shares for cash up to the lesser of $250,000
or 1% of the Fund’s net asset value during any 90-day period. Redemption in kind is not as liquid as a cash redemption. In
addition, to the extent the Fund redeems its shares in this manner; the shareholder assumes the risk of a subsequent change in
the market value of those securities, the cost of liquidating the securities and the possibility of a lack of a liquid market for
those securities.
TAX INFORMATION
The tax information
set forth in the Prospectus and in this section relates solely to federal income tax law and assumes that the Fund qualifies as
a regulated investment company (“RIC”) (as discussed below). The tax information in this section is only a summary
of certain key federal tax
considerations affecting the Fund and its shareholders and is in addition to the information provided in the Prospectus. No
attempt has been made to present a complete explanation of the federal income tax treatment of the Fund or the tax
implications to its shareholders. The discussions here and in the Prospectus are not intended as substitutes for careful tax
planning. The information below is based on the Internal Revenue Code and applicable regulations in effect on the date of this
SAI. Future legislative, regulatory or administrative changes or court decisions may significantly change the tax rules
applicable to the Fund and its shareholders. Any of these changes or court decisions may have a retroactive effect.
Taxation of the Fund
The Fund intends
to qualify each taxable year for treatment as a RIC under Subchapter M of Chapter 1 of Subtitle A of the Internal Revenue Code.
The Fund (which is treated as a separate corporation for these purposes) must, among other requirements:
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Derive at least 90% of its gross income each taxable year from (1) dividends, interest,
payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies,
or certain other income, including gains from options, futures or forward contracts, derived with respect to its business of
investing in securities or those currencies and (2) net income derived from an interest in a “qualified publicly
traded partnership” (“QPTP”) (“Gross Income Requirement”). A QPTP is a “publicly traded
partnership” other than a partnership at least 90% of the gross income of which is described in clause (1).
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Diversify its investments so that, at the close of each quarter of its taxable year, (1) at
least 50% of the value of its total assets is represented by cash and cash items, U.S. Government securities, securities of other
RICs, and other securities, with those other securities limited, in respect of any one issuer, to an amount that does not exceed
5% of the value of the Fund’s total assets and that does not represent more than 10% of the issuer’s outstanding voting
securities (equity securities of QPTPs being considered voting securities for these purposes) and (2) not more than 25% of
the value of its total assets is invested in (a) securities (other than U.S. Government securities or securities of other
RICs) of any one issuer, (b) securities (other than securities of other RICs) of two or more issuers the Fund controls that
are determined to be engaged in the same, similar or related trades or businesses, or (c) securities of one or more QPTPs
(“Diversification Requirements”); and
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Distribute annually to its shareholders at least 90% of its investment company taxable income (generally,
net investment income, the excess (if any) of net short-term capital gain over net long-term capital loss and, net gains and
losses from certain foreign currency transactions, all determined without regard to any deduction for dividends paid) (“Distribution
Requirement”).
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The Fund will be subject
to a nondeductible 4% excise tax (“Excise Tax”) to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary (taxable) income for that year and substantially all of its capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
If for any taxable year the Fund does not qualify for treatment
as a RIC
either (1) by failing to satisfy the Distribution Requirement,
even if it satisfied the Income and Diversification Requirements, or (2) by failing to satisfy the Income Requirement and/or
either Diversification Requirement and was unable, or determined not to, avail itself of provisions enacted as part of the Regulated
Investment Company Modernization Act of 2010 that enable a RIC to cure a failure to satisfy any of the Income and Diversification
Requirements as long as the failure “is due to reasonable cause and not due to willful neglect” and the RIC pays a
deductible tax calculated in accordance with those provisions and meets certain other requirements ---then for federal tax purposes
,
all of its taxable income (including its net capital gain) would be subject to tax at regular corporate rates without any deduction
for dividends paid to shareholders, and the dividends it distributes would be taxable to its shareholders as ordinary income (or
possibly, for individual and certain other non-corporate (collectively, “individual”) shareholders as “qualified
dividend income” (as described in the Prospectus)) to the extent of the Fund’s current and accumulated earnings and
profits. Failure to qualify for RIC treatment would therefore have a negative impact on the Fund’s income and performance.
Furthermore, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest, and make substantial
distributions before requalifying for RIC treatment. It is possible that the Fund will not qualify as a RIC in any given taxable
year.
Taxation of Certain Investments
and Strategies
If the Fund
acquires stock in a “passive foreign investment company” (“PFIC”) - generally, any
foreign corporation, with certain exceptions, that, in general, meets either of the following tests for the taxable year: (1)
at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce or are held for the
production of, passive income - and holds the stock beyond the end of the year of acquisition, the Fund will be subject to
federal income tax on any “excess distribution” it receives on the stock or of any gain it realizes from
disposition of that stock (collectively “PFIC income”), plus interest thereon, even if the Fund distributes
the PFIC income as a taxable dividend to its shareholders. Fund distributions thereof will not be eligible for the 15% and
20% maximum federal income tax rates on individuals’ “qualified dividend income”. The Fund may avoid this
tax and interest if it elects to treat the PFIC as a “qualified electing fund”; however, the requirements for
that election are difficult to satisfy. If such an election were made, the Fund would be required to include in its income
each taxable year a portion of the ordinary income and net capital gains of the PFIC, even if the income and gains were not
distributed to the Fund. Any such income would be subject to the Distribution Requirement and to the calendar year Excise Tax
distribution requirement.
The Fund
may elect to “mark-to-market” any stock in a PFIC it owns at the end of its taxable year. Under such an election,
the Fund (1) would include in gross income each taxable year (and treat as ordinary income) an amount equal to the excess,
if any, of the fair market value of the PFIC stock as of the close of the taxable year over the Fund’s adjusted basis
in the PFIC stock and (2) would be allowed a deduction (of an ordinary, not a capital, loss) for the excess, if any, of
its adjusted basis in the PFIC stock over the fair market value of the PFIC stock as of the close of the taxable year, but
only to the extent of any net mark-to-market gains included by the Fund for prior taxable years. The Fund’s adjusted
basis in PFIC stock would be adjusted to reflect the amounts included in income or deducted under this election. Any gain or
loss realized on the sale or other disposition of PFIC stock would be treated as ordinary income or loss. The Fund generally
would not be subject to the deferred tax and interest charge discussed above with respect to PFIC stock for which a
mark-to-market election has been made.
Investors should be
aware that the Fund may not be able, at the time it acquires a foreign corporation’s shares, to ascertain whether the corporation
is a PFIC and that a foreign corporation may become a PFIC after the Fund acquires shares therein. While the Fund generally
will seek to avoid investing in PFIC shares to avoid the tax consequences detailed above, there are no guarantees that it will
be able to do so, and it reserves the right to make such investments as a matter of its investment policy.
Hedging strategies,
such as entering into forward contracts and selling (writing) and purchasing options and futures contracts, involve complex rules
that will determine for federal income tax purposes the amount, character and timing of recognition of gains and losses the Fund
may realize in connection therewith. In general, the Fund’s (1) gains from the disposition of foreign currencies and
(2) gains from options, futures and forward contracts derived with respect to its business of investing in securities or foreign
currencies will be treated as qualifying income under the Gross Income Requirement.
The Fund may invest
in one or more limited liability companies (“LLCs”) and limited partnerships (“LPs”) that will be classified
for federal tax purposes as partnerships (and, except as expressly stated below, this discussion assumes that classification).
LLCs and LPs in which the Fund may invest may include (1) a “publicly traded partnership” (that is, a partnership
the interests in which are “traded on an established securities market” or “readily tradable on a secondary market
(or the substantial equivalent thereof)”) (a “PTP”), which may be a QPTP, or (2) a non-PTP at least 90%
of the income of which satisfies the Gross Income Requirement.
If an LLC or LP in
which the Fund invests is a QPTP, all its net income (regardless of source) will be qualifying income to the Fund under the Gross
Income Requirement. The Fund’s investment in QPTPs, together with certain other investments, however, may not exceed 25%
of the value of its total assets in order to satisfy the Diversification Requirements. In addition, the Fund’s holding of
more than 10% of a QPTP’s equity securities will not count toward its satisfying those requirements.
With respect
to non-QPTPs, (1) if an LLC or LP (including a PTP) is treated for federal tax purposes as a corporation,
distributions from it to the Fund would likely be treated as “qualified dividend income” and disposition of the
Fund’s interest therein would generate gain or loss from the disposition of a security, or (2) if such an LLC or
LP is not treated as a corporation, the Fund would be treated as having earned its proportionate share of each item
of income the LLC or LP earned. In the latter case, the Fund would be able to treat its share of the entity’s income as
qualifying income under the Gross Income Requirement only to the extent that income would be qualifying income if realized
directly by the Fund in the same manner as realized by the LLC or LP.
Certain LLCs and LPs
(
e.g.
, private funds) in which the Fund invests may generate income and gains that is not qualifying income under the Gross
Income Requirement. The Fund will monitor its investments in LLCs and LPs to assure its compliance with the requirements for qualification
as a RIC.
Dividends and interest
the Fund receives, and gains it realizes, may be subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions that would reduce the yield and/or total return on its securities. Tax treaties between certain countries and
the United States may reduce or eliminate those taxes, however, and many foreign countries do not impose taxes on capital gains
on investments by foreign investors.
Some futures
contracts, foreign currency contracts and “nonequity” options (i.e., certain listed options, such as those on a
“broad-based” securities index) - except any “securities futures contract” that is not a
“dealer securities futures contract” (both as defined in the Internal Revenue Code) and any interest rate swap,
currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit
default swap, or similar agreement—in which the Fund invests may be subject to Internal Revenue Code section 1256
(collectively, “section 1256 contracts”). Any section 1256 contracts the Fund holds at the end of its taxable year
generally must be “marked-to-market” (that is, treated as having been sold at that time for its fair market
value) for federal income tax purposes, with the result that unrealized gains or losses will be treated as though they were
realized. Sixty percent of any net gain or loss realized on these deemed sales, and 60% of any net realized gain or loss from
any actual sales of section 1256 contracts, will be treated as long-term capital gain or loss, and the balance will be
treated as short-term capital gain or loss. Section 1256 contracts also
may be marked-to-market for purposes of the Excise Tax. These rules may operate to increase the amount that the Fund must distribute
to satisfy the Distribution Requirement (i.e., with respect to the portion treated as short-term capital gain), which will be taxable
to its shareholders as ordinary income, and to increase the net capital gain the Fund recognizes, without in either case increasing
the cash available to it.
Section 988
of the Internal Revenue Code also may apply to the Fund’s forward currency contracts and options and futures, on
foreign currencies. Under that section, each foreign currency gain or loss generally is computed separately and treated as
ordinary income or loss. These gains or losses will increase or decrease the amount of the Fund’s investment company
taxable income to be distributed to its shareholders as ordinary income, rather than affecting the amount of its net capital
gain. If section 988 losses exceed other investment company taxable income during a taxable year, the Fund would not be able
to distribute any dividends, and any distributions made during that year before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as a dividend, thereby reducing each shareholder’s
basis in his or her Fund shares.
Offsetting positions
the Fund enters into or holds in any actively traded option, futures or forward contract may constitute a “straddle”
for federal income tax purposes. Straddles are subject to certain rules that may affect the amount, character and timing of the
Fund’s gains and losses with respect to positions of the straddle by requiring, among other things, that (1) losses
realized on disposition of one position of a straddle be deferred to the extent of any unrealized gain in an offsetting position
until the latter position is disposed of, (2) the Fund’s holding period in certain straddle positions not begin until
the straddle is terminated (possibly resulting in gain being treated as short-term rather than long-term capital gain) and (3) losses
recognized with respect to certain straddle positions, that otherwise would constitute short-term capital losses, be treated as
long-term capital losses. Applicable regulations also provide certain “wash sale” rules, which apply to transactions
where a position is sold at a loss and a new offsetting position is acquired within a prescribed period, and “short sale”
rules applicable to straddles. Different elections are available, which may mitigate the effects of the straddle rules, particularly
with respect to “mixed straddles” (i.e., a straddle of which at least one, but not all, positions are section 1256
contracts).
When a covered call
option written (sold) by the Fund expires, it will realize a short-term capital gain equal to the amount of the premium it received
for writing the option. When the Fund terminates its obligations under such an option by entering into a closing transaction, it
will realize a short-term capital gain (or loss), depending on whether the cost of the closing transaction is less (or more) than
the premium it received when it wrote the option. When a covered call option written by the Fund is exercised, it will be treated
as having sold the underlying security, producing long-term or short-term capital gain or loss, depending on the holding period
of the underlying security and whether the sum of the option price received on the exercise plus the premium received when it wrote
the option is more or less than the underlying security’s basis.
If the Fund has an “appreciated financial position”
— generally, an interest (including an interest through an option, futures or forward contract, or short sale) with respect
to any stock, debt instrument (other than “straight debt”) or partnership interest the fair market value of which exceeds
its adjusted basis — and enters into a “constructive sale” of the position, the Fund will be treated as having
made an actual sale thereof, with the result that it will recognize gain at that time. A constructive sale generally consists of
a short sale, an offsetting notional principal contract, or a futures or forward contract the Fund or a related person enters into
with respect to the same or substantially identical property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially identical property will be deemed a constructive
sale. The foregoing will not apply, however, to any Fund transaction during any taxable year that otherwise would be treated as
a constructive sale if the transaction is closed within 30 days after the end of that year and the Fund holds the appreciated financial
position unhedged for 60 days after that closing (i.e., at no time during that 60-day period is the Fund’s risk of loss regarding
that position reduced by reason of certain specified transactions with respect to substantially identical or related property,
such as having an option to sell, being contractually obligated to sell, making a short sale or granting an option to buy substantially
identical stock or securities).
Taxation of the Fund’s Shareholders
General-
Dividends
and other distributions the Fund declares in the last quarter of any calendar year that are payable to shareholders of record
on a date in that quarter will be deemed to have been paid by the Fund and received by those shareholders on December 31
of that year if the Fund pays the distributions during the following January. Accordingly, those distributions will be reported
by, and taxed to, those shareholders for the taxable year in which that December 31 falls.
If Fund shares are
sold at a loss after being held for six months or less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received thereon. Investors also should be aware that the price of Fund shares
at any time may reflect the amount of a forthcoming dividend or capital gain distribution. So, if an investor purchases Fund shares
shortly before the record date for a distribution, the investor will pay full price for the shares and receive some portion of the price back as a taxable distribution even though it represents in part a return of invested
capital.
If more than 50% of
the value of the total assets of the Fund at the close of its taxable year consists of securities of foreign corporations, the
Fund will be eligible to, and may, file an election with the Internal Revenue Service (“IRS”) that will enable its
shareholders, in effect, to receive the benefit of the foreign tax credit with respect to any foreign and U.S. possessions
income taxes paid by it. If the Fund makes this election, it will treat those taxes as dividends paid to its shareholders and each
shareholder will be required to (1) include
in gross income, and treat as paid by him, his proportionate share of those taxes, (2) treat his share of those taxes and
of any dividend the Fund pays that represents income from foreign or U.S. possessions sources as his own income from those sources
and (3) either use the foregoing information in calculating the foreign tax credit against his federal income tax or, alternatively,
deduct the taxes deemed paid by him in computing his taxable income. If the Fund makes this election, it will report to its shareholders
shortly after each taxable year their respective shares of the Fund’s income from foreign and U.S. possessions sources and
foreign taxes paid. Pursuant to that election, individuals who have no more than $300 ($600 for married persons filing jointly)
of creditable foreign taxes included on Forms 1099 and all of whose foreign source income is “qualified passive income”
may elect each year to be exempt from the extremely complicated foreign tax credit limitation and will be able to claim a foreign
tax credit without having to file the detailed Form 1116 that otherwise is required.
Basis Election and Reporting
Fund
shareholders who want to use an acceptable method for basis determination other than the average basis method for determining
basis with respect to Fund shares he or she acquires after December 31, 2011 (“Covered Shares”), must elect to do
so in writing (which may be electronic). If a shareholder of the Fund fails to affirmatively elect that method, the basis
determination will be made in accordance with the Fund’s default method which is average basis. The basis determination
method a Fund shareholder elects may not be changed with respect to a redemption of Covered Shares after the settlement
date of the redemption.
In addition
to the requirement to report the gross proceeds from the redemption of shares, the Fund (or its administrative agent)
must report to the IRS and furnish to its shareholders the basis information for Covered Shares and indicate whether they had
a short-term (one year or less) or long-term (more than one year) holding period. Fund shareholders should consult with their
tax advisors to determine the best IRS-accepted basis determination method for their tax situation and to obtain more
information about how the basis reporting law applies to them. Fund shareholders who acquire and hold shares through a
financial intermediary should contact their financial intermediary for information related to the basis election and
reporting.
Backup Withholding
The Fund will be required
in certain cases to withhold and remit to the U.S. Treasury 28% of dividends, capital gain distributions, and
redemption proceeds (regardless of the extent to which gain or loss may be realized) otherwise payable to any individual shareholder who fails to certify that the taxpayer identification number furnished to the Fund is correct
or who furnishes an incorrect number (together with the withholding described in the next sentence, “backup withholding”).
Withholding at that rate also is required from the Fund’s dividends and capital gain distributions otherwise payable to
such a shareholder who (1) is subject to backup withholding for failure to report the receipt of interest or dividend income
properly or (2) fails to certify to the Fund that he or she is not subject to backup withholding or that it is a corporation
or other “exempt recipient.”
Backup withholding is not an additional
tax; rather any amounts so withheld may be credited against your federal income tax liability or refunded.
FACTA
- Under
legislation known as “FATCA” (the Foreign Account Tax Compliance Act), the Fund will be required to withhold 30% of
certain ordinary dividends it pays after December 31, 2013, and 30% of the gross proceeds of share redemptions and certain capital
gain distributions it pays after December 31, 2016, to shareholders that fail to meet prescribed information reporting or certification
requirements. In general, no such withholding will be required with respect to a U.S. person that timely provides the certifications
required by the Fund or its agent on a valid IRS Form W-9.
Other Taxes-
Statutory rules and regulations regarding state and local taxation of ordinary income, qualified dividend income and capital gain
dividends may differ from the federal income taxation rules described above. Distributions may also be subject to additional state,
local and foreign taxes depending on each shareholder’s participation situation.
DESCRIPTION OF THE TRUST
The Trust is an entity
of the type commonly known as a “Massachusetts business trust.” Under Massachusetts law, shareholders of such a trust
may, under certain circumstances, be held personally liable for its obligations. However, the Trust’s Declaration of Trust
contains an express disclaimer of shareholder liability for acts or obligations of the Trust and provides for indemnification
and reimbursement of expenses out of Trust property for any shareholder held personally liable for the obligations of the Trust.
The Declaration of Trust also provides that the Trust may maintain appropriate insurance (for example, fidelity bonding) for the
protection
of the Trust, its shareholders, Trustees,
officers, employees and agents to cover possible tort and other liabilities. Thus, the risk of a shareholder incurring financial
loss due to shareholder liability is limited to circumstances in which both inadequate insurance existed and the Trust itself was
unable to meet its obligations. The Trust has not engaged in any other business.
The Trust was originally
created to manage money for large institutional investors, including pension and 401(k) plans for American Airlines, Inc. The following
individuals (and members of that individual’s “immediate family”), are eligible to purchase shares of the Institutional
Class with an initial investment of less than $250,000 (i) employees of the Manager, (ii) employees of the sub-advisor
for the Fund where it serves as sub-advisor, (iii) officers and directors of AMR Corporation, (iv) members of the Trust’s
Board of Trustees, (v) employees of TPG/Pharos, and (vi) members of the Manager’s Board of Directors. The term
“immediate family” refers to one’s spouse, children, grandchildren, grandparents, parents, parents in law, brothers
and sisters, sons and daughters in law, a sibling’s spouse, a spouse’s sibling, aunts, uncles, nieces and nephews;
relatives by virtue of remarriage (step-children, step-parents, etc.) are included. Any shareholders that the Manager transfers
to the Institutional Class upon termination of the class of shares in which the shareholders were originally invested is also eligible
for purchasing shares of the Institutional Class with an initial investment of less than $250,000.
The Investor Class
was created to give individuals and other smaller investors an opportunity to invest in the American Beacon Funds. The Institutional
and Y Classes were created to manage money for large institutional investors, including pension and 401(k) plans. The A Class and
C Class were created for investors investing in the funds through their broker-dealers or other financial intermediaries.
FINANCIAL STATEMENTS
The Trust’s
independent registered public accounting firm, xxx audits and reports on the Fund’s annual financial statements. The financial
statements include the schedule of investments, statement of assets and liabilities, statement of operations, statements of changes
in net assets, financial highlights, notes and report of independent registered public accounting firm. Shareholders will receive
annual audited financial statements and semi-annual unaudited financial statements. The Fund will adopt the financial statements
of the SGA Global Growth Fund. Those financial statements were audited by another registered public accounting firm.