UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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American Beacon Funds
American Beacon Mileage Funds
American Beacon Select Funds
American Beacon Master Trust
4151 Amon Carter Boulevard
MD 2450
Fort Worth, TX 76155

 

July 3, 2008

 

Dear Shareholder:

 

The enclosed proxy materials relate to a Special Meeting of Shareholders (“Meeting”) of American Beacon Funds (“Beacon Trust”), American Beacon Mileage Funds (“Mileage Trust”), American Beacon Select Funds (“Select Trust”) and American Beacon Master Trust (“Master Trust,” and together with Beacon Trust, Mileage Trust and Select Trust, the “Trusts”) to be held on August 22, 2008. The Meeting is being held for shareholders of all portfolios of the Trusts (“Funds”) to vote on the proposals described below (“Proposals”). Please review the attached Proxy Statement carefully and cast your vote on the Proposals. The Trustees recommend voting FOR each Proposal.

 

Approval of New Investment Management Agreement for the Funds

 

As discussed in more detail in the enclosed Proxy Statement, the parent company of American Beacon Advisors, Inc., the investment manager of the Trusts (“Manager”), recently entered into an agreement with Lighthouse Holdings, Inc. (“Lighthouse”) pursuant to which Lighthouse will acquire all of the capital stock of the Manager from the Manager’s corporate parent, AMR Corporation, subject to certain conditions, in exchange for cash and 10% of the capital stock of the parent corporation of Lighthouse (“Transaction”). Upon completion of the Transaction, each Fund’s existing investment management agreement (“Current Agreement”) with the Manager automatically will terminate. To provide for continuity of management, the shareholders of each Fund are being asked to approve a new investment management agreement (“New Agreement”) between the Manager and the Fund.

 

Under the New Agreement, the Manager will provide the same investment advisory services to each Fund on substantially the same terms as under the Fund’s Current Agreement. The senior investment advisory personnel at the Manager who currently manage each Fund’s portfolio are expected to continue to do so after the Transaction. In addition, the Current Agreements have been updated and modernized. As part of this process, the primary administrative services provided by the Manager to the Funds have been transferred to one single administrative services agreement (“New Administrative Services Agreement”). The aggregate fee rates for each Fund under the New Agreement and the New Administrative Services Agreement will be the same as the fee rates imposed under the existing agreements which they replace.

 

Election of Trustees of the Trusts

 

In connection with the Meeting, you are asked to re-elect five of the current Trustees and to elect three additional Trustees. All of the proposed additional Trustees are independent of the Trusts and the Manager.

 

Voting Procedures

 

While most of the Funds pursue their investment objectives by investing their assets directly in securities and other financial instruments, the Money Market Fund and the U.S. Government Money Market Fund of each of the Beacon Trust, Mileage Trust and Select Trust employ a master-feeder structure (“Feeder Funds”) and pursue their investment objectives by investing all of their investable assets in corresponding portfolios of the Master Trust. Shareholders of the Master Trust, principally the Feeder Funds, will vote on the Proposals with respect to the Master Trust. Shareholders of each Feeder Fund are being asked to provide voting instructions to the Feeder Funds as to how to vote regarding the Proposals for the Master Trust. The Feeder Funds will cast their votes in the same proportion as the votes by the Feeder Funds’ shareholders on such Proposals.

The International Equity Index Fund, S&P 500 Index Fund and Small Cap Index Fund also employ a master-feeder structure. Because they do not pursue their investment objectives by investing all of their assets in corresponding portfolios of the Master Trust, however, they are not considered to be “Feeder Funds,” as defined for purposes of this Proxy Statement. Shareholders of these Funds will only vote on Proposals with respect to the Beacon Trust.

 

Conclusion

 

Your vote is important no matter how many shares you own. Voting your shares now will allow you as a Fund shareholder to avoid the costs and inconvenience of any follow-up mail or telephone solicitation for your vote. Please take a moment now to review the proxy materials and complete, sign, date and return the enclosed proxy card promptly in the enclosed postage-paid envelope. Alternatively, you may vote via touch-tone telephone or through the Internet. Please refer to the proxy card for the toll-free telephone number or Internet address. If we do not hear from you by July 21, 2008, we or our proxy solicitor may contact you again for your vote. If you have any questions about these materials, please call us at 1-866-412-8384.

 

Thank you for your vote and for your continued investment in the Funds.

 

Sincerely,

 

 

William F. Quinn
President
American Beacon Funds
American Beacon Mileage Funds
American Beacon Select Funds
American Beacon Master Trust

 

American Beacon Funds
American Beacon Mileage Funds
American Beacon Select Funds
American Beacon Master Trust
4151 Amon Carter Boulevard
MD 2450
Fort Worth, TX 76155

 

 

 

 

NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS

 

 

 

 

Dear Shareholder:

 

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (“Meeting”) of the American Beacon Funds (“Beacon Trust”), American Beacon Mileage Funds (“Mileage Trust”), American Beacon Select Funds (“Select Trust”) and American Beacon Master Trust (“Master Trust,” and together with Beacon Trust, Mileage Trust and Select Trust, the “Trusts”) will be held at 2:00 p.m. Central Time on August 22, 2008, at American Beacon Advisors, Inc., 4151 Amon Carter Boulevard, First Floor, Flagship Room, Fort Worth, Texas 76155. In connection with the Meeting, as a shareholder of one or more portfolios (“Funds”) of the Trusts, you are asked to consider and act upon the following proposals (“Proposals”).

 

 

Only holders of record at the close of business on June 24, 2008 (“Record Date”) of shares of beneficial interest of each affected Fund are entitled to receive notice of, and vote at, the Meeting and any adjournments thereof. If you owned shares in more than one Fund as of the Record Date, you may receive more than one proxy card. Please vote each proxy card you receive.

 

By Order of the Board of Trustees,

 

 

Rosemary K. Behan
Secretary

 

Fort Worth, Texas

July 3, 2008

 

 

 

 

 

 

American Beacon Funds
American Beacon Mileage Funds
American Beacon Select Funds
American Beacon Master Trust
4151 Amon Carter Boulevard
MD 2450
Fort Worth, TX 76155

 

 

 

INFORMATION TO HELP YOU UNDERSTAND
AND VOTE ON THE PROPOSALS

 

 

While we strongly encourage you to read the full text of the enclosed Proxy Statement, we also are providing the following brief overview of the proposals in the Proxy Statement (“Proposals”), in “Question and Answer” format, to help you understand and vote on the Proposals. Your vote is important. Please vote.

 

 

 

 

 

 

 

 

American Beacon Funds
American Beacon Mileage Funds
American Beacon Select Funds
American Beacon Master Trust
4151 Amon Carter Boulevard
MD 2450
Fort Worth, TX 76155

 

 

 

PROXY STATEMENT

 

Special Meeting of Shareholders
to be Held on August 22, 2008

 

 

This document is a Proxy Statement for the American Beacon Funds (“Beacon Trust”), American Beacon Mileage Funds (“Mileage Trust”), American Beacon Select Funds (“Select Trust”) and American Beacon Master Trust (“Master Trust,” and together with Beacon Trust, Mileage Trust and Select Trust, the “Trusts”). Each Trust has separate investment portfolios (“Funds”) that are addressed in this Proxy Statement. The Funds in Beacon Trust are as follows:

 

Balanced Fund		Mid-Cap Value Fund
Emerging Markets Fund		Money Market Fund
Enhanced Income Fund		S&P 500 Index Fund
High Yield Bond Fund		Short-Term Bond Fund
Intermediate Bond Fund		Small Cap Index Fund
International Equity Fund		Small Cap Value Fund
International Equity Index Fund		Small Cap Value Opportunity Fund
Large Cap Growth Fund		Treasury Inflation Protected Securities Fund
Large Cap Value Fund		U.S. Government Money Market Fund

 

The Fund in Mileage Trust is as follows:

 

Money Market Mileage Fund

 

The Funds in Select Trust are as follows:

 

Money Market Select Fund

U.S. Government Money Market Select Fund

 

The Funds in Master Trust are as follows:

 

Money Market Portfolio

U.S. Government Money Market Portfolio

 

This Proxy Statement is furnished in connection with the solicitation of proxies made by, and on behalf of, the Board of Trustees of the Trusts (each member thereof, a “Trustee,” and collectively, the “Trustees” or “Board”) to be used at the Special Meeting of Shareholders of the Funds (“Meeting”), and any adjournments thereof. The Meeting will be held at 2:00 p.m. Central Time on August 22, 2008, at the offices of American Beacon Advisors, Inc. (“Manager”). The Manager serves as manager and administrator to each Trust. The purpose of the Meeting is set forth in the accompanying Notice. This Proxy Statement and accompanying proxy cards will be mailed to shareholders on or about July 3, 2008.

While most of the Funds pursue their investment objectives by investing their assets directly in securities and other financial instruments, the Money Market Fund and the U.S. Government Money Market Fund of each of the Beacon Trust, Mileage Trust and Select Trust employ a master-feeder structure (“Feeder Funds”) and pursue their investment objectives by investing all of their investable assets in corresponding portfolios of the Master Trust. Shareholders of the Feeder Funds will vote to provide instructions to the Feeder Funds as to how to vote on the Proposals with respect to the Master Trust.

 

The Feeder Funds, as shareholders of Master Trust, will vote their shares of the Master Trust in the same proportion as the vote of their shareholders on each Proposal seeking instructions to vote on the new investment management agreements and the Trustees for the Master Trust. Each Feeder Fund will vote shares for which it receives no voting instructions in the same proportion as the shares for which they do receive voting instructions. Because each Feeder Fund’s votes are proportionate to its percentage interest in the Master Trust, the majority of the Master Trust’s shareholders could approve an action against which a majority of the outstanding voting securities of any Feeder Fund votes.

 

The International Equity Index Fund, S&P 500 Index Fund and Small Cap Index Fund also employ a master-feeder structure. Because they do not pursue their investment objectives by investing all of their assets in corresponding portfolios of the Master Trust, however, they are not considered to be “Feeder Funds,” as defined for purposes of this Proxy Statement. Shareholders of these Funds will only vote on Proposals with respect to the Beacon Trust.

 

Summarized below are items (1) through (4) (the “Proposals”), which the shareholders of certain Funds are being asked to consider:

 

Which Proposal Affects My Fund?

 

 

 

 

 

 

OVERVIEW

 

 

 

 

Proposals 1 and 3: New Investment Management Agreement

 

On April 16, 2008, AMR Corporation (“AMR”), a publicly-traded company and the parent company of the Manager, entered into an agreement with Lighthouse Holdings, Inc. (“Lighthouse”) pursuant to which Lighthouse will acquire all of the capital stock of the Manager (“Transaction”) in exchange for cash and 10% of the capital stock of the parent corporation of Lighthouse. The address of AMR is 4333 Amon Carter Boulevard, Fort Worth, Texas 76155. The address of Lighthouse is 301 Commerce Street, Suite 3300, Fort Worth, Texas 76102. The estimated total value of the Transaction (inclusive of cash and AMR’s equity interest in Lighthouse’s corporate parent) is approximately $480 million.

 

Upon the closing of the Transaction (“Closing”), the Manager will cease to be a wholly owned subsidiary of AMR and will become a subsidiary of Lighthouse. This change in control is deemed to be an “assignment” under the Investment Company Act of 1940 (“1940 Act”) of each Fund’s existing investment management agreement (“Current Agreement”) with the Manager. As required by the 1940 Act, each Fund’s Current Agreement provides for its automatic termination in the event of an assignment, and each will, therefore, terminate upon the Closing.

 

To provide for the continuity of management for the Funds, shareholders of each Fund are being asked to approve a new investment management agreement (“New Agreement”) with the Manager. The New Agreement for each Fund will reflect substantially the same terms as the Current Agreement for each Fund. The New Agreement

will update and modernize the Current Agreement, including transferring substantially all administrative services provided to the Funds by the Manager into a single administrative services agreement (“New Administrative Services Agreement”). Currently, the Manager provides administrative services to the Funds in Mileage Trust, Select Trust and Master Trust pursuant to their Current Agreements and to the Funds in Beacon Trust pursuant to its Current Agreement and an administrative services agreement (“Current Administrative Services Agreement”). For each Fund, the aggregate fee rates imposed under the New Agreement and the New Administrative Services Agreement will be the same as those imposed under the Current Agreements and, in the case of Beacon Trust, under the Current Agreement and the Current Administrative Services Agreement. Appendix D to this Proxy Statement sets forth the current and new fee rates.

 

If approved by the shareholders of the Funds, the New Agreement will become effective upon the Closing or, if the Closing is not consummated, the New Agreement will become effective on or about January 1, 2009. The Manager and Lighthouse anticipate that the Closing will occur in the third calendar quarter of 2008.

 

Upon the Closing, Lighthouse will directly control the Manager. Lighthouse does not currently anticipate any changes to the organization or structure of the Funds, to the service providers or to the aggregate fee rates under any Current Agreement or Current Administrative Services Agreement. In addition, the portfolio managers at the Manager that currently manage the Funds are expected to continue to manage the Funds after the Closing. In that regard, the Manager and Lighthouse have entered into or will enter into employment contracts that will take effect upon the Closing with certain key personnel performing or overseeing the Funds’ investment programs. However, there can be no assurance that these personnel will choose to remain employed by the Manager before or after the Closing. The Manager and the Funds will continue to operate under their existing names. Potential benefits to the Funds as a result of the Transaction include Lighthouse’s intention to devote additional resources to product development and distribution of Fund shares. Any resulting growth of Fund assets may produce economies of scale that could benefit shareholders of the Funds.

 

Under the Current Agreements, the Manager may retain sub-advisors to provide investment advisory services for all or a portion of the assets of a Fund. With respect to certain Funds, the Manager has entered into investment advisory agreements (“Investment Advisory Agreements”) with various sub-advisors on behalf of those Funds. Upon the Closing, the Investment Advisory Agreements will terminate automatically upon the termination of each Current Agreement. Pursuant to an exemptive order issued by the Securities and Exchange Commission (“SEC”), the Manager is permitted to enter into new or modified investment advisory agreements with existing or new sub-advisors without approval of a Fund’s shareholders, but subject to the approval of a Fund’s Board. Therefore, shareholders will not be asked to approve new investment advisory agreements but will receive after the New Agreement becomes effective information separate from this Proxy Statement discussing the Board’s consideration to approve new investment advisory agreements on behalf of the Funds.

 

Proposals 2 and 4: Election of Trustees

 

The Trustees who are not “interested persons” of the Trusts, within the meaning of the 1940 Act (“Non-interested Trustees”), recommend to shareholders the election of three new Trustees to each Trust’s Board and the re-election of five of the current Trustees. The three nominees for Trustee are Thomas M. Dunning, Eugene J. Duffy and Paul J. Zucconi, who, if elected, will be Non-interested Trustees on each Trust’s Board. If shareholders elect the proposed three new nominees and the five current Trustees are re-elected by shareholders, each Trust’s Board will consist of eight Trustees, seven of whom will be Non-interested Trustees and one of whom will be “interested” within the meaning of the 1940 Act (“Interested Trustee”). If elected by the shareholders of each Trust, the new Trustees will take office and the election of Trustees will be effective on or about September 1, 2008.

 

Procedural Information Related to this Proxy Solicitation

 

Voting

 

On any matter submitted to a vote of the shareholders, each shareholder of a Fund shall be entitled to one vote for each dollar of net asset value (number of shares owned times net asset value per share) as to any matter on which the shareholder is entitled to vote, and each fractional dollar amount shall be entitled to a proportionate fractional vote. Proposals 1 and 3 require a vote by each Fund. Proposals 2 and 4 require a vote by each Trust.

Solicitations

 

The solicitation of proxies will be made by mail, but also may include telephone communications by the proxy solicitor and/or employees of the Manager who will not receive any compensation from the Trusts for such solicitation. The Manager has retained Broadridge Financial Solutions, Inc. for the purposes of mailing proxy materials to shareholders and tabulating voting results at a cost of approximately $1.6 million. AMR and Lighthouse will bear equally the costs, fees and expenses incurred by the Funds in connection with the Proxy Statement, for fees and expenses of accountants and attorneys relating to the Transaction and Proxy Statement, for fees and expenses incurred by the Funds in connection with the Transaction, and the meeting fees of the Boards for meetings held in connection with the Transaction.

 

“Householding”

 

One copy of this Proxy Statement may be delivered to multiple shareholders who share a single address. If you would like to obtain an additional copy of this Proxy Statement or a copy of any Fund’s most recent annual or semi-annual report to shareholders, free of charge, write to the Manager at 4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155, attn: Terri L. McKinney, or call 1-866-412-8384. If you received a Proxy Statement for each shareholder at your address and would like to receive a single copy in the future, please contact the Manager as instructed above.

 

The Quorum Requirement and Adjournments

 

With respect to Proposal 1 and Proposal 3, shareholders of at least one-third of each Fund’s shares entitled to vote on June 24, 2008 (the “Record Date”), represented in person or by proxy, constitute a quorum. Such a quorum must be present for the transaction of business with respect to each of Proposal 1 and Proposal 3.

 

With respect to Proposal 2 and Proposal 4, shareholders of at least one-third of each Trust’s shares entitled to vote on the Record Date, represented in person or by proxy, constitute a quorum. Such a quorum must be present for the transaction of business with respect to each of Proposal 2 and Proposal 4.

 

In the absence of a quorum, or in the event that a quorum is present at the Meeting but sufficient votes to approve any of the Proposals are not received, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies. If a quorum is present but sufficient votes to approve any of the Proposals are not received, the persons named as proxies will vote those proxies that they are entitled to vote FOR any such Proposal in favor of such an adjournment, and will vote those proxies required to be voted AGAINST any such Proposal against such adjournment. A shareholder vote may be taken on one or more of the Proposals in this Proxy Statement prior to any such adjournment if sufficient votes have been received for such Proposal and it is otherwise appropriate.

 

Abstentions and broker non-votes will be counted as shares present for purposes of determining whether a quorum is present but will not be voted FOR or AGAINST any adjournment. Abstentions and broker non-votes will not be counted, however, as votes cast for purposes of determining whether sufficient votes have been received to approve a Proposal. Accordingly, abstentions and broker non-votes effectively will be a vote AGAINST Proposals 1 and 3, for which the required affirmative vote is a majority of the outstanding voting securities (as defined below) of a Fund. Abstentions and broker non-votes will have no effect on Proposals 2 and 4, for which the required vote is a plurality number of the votes cast by each Trust.

 

How Proxies Will Be Voted

 

Shareholders of record at the close of business on the Record Date will be entitled to vote at the Meeting. The individuals named as proxies on the enclosed proxy cards will vote in accordance with your directions as indicated thereon if your proxy card is received and has been properly executed. If your proxy card is properly executed and you give no voting instructions, your shares will be voted FOR the Proposals described in this Proxy Statement. The duly appointed proxies may, in their discretion, vote upon such other matters as may properly come before the Meeting. However, if the Funds have received a shareholder proposal to be presented to shareholders at the Meeting within a reasonable time before the proxy solicitation is made, the duly appointed proxies do not have discretionary

authority to vote upon such proposals. You may revoke your proxy card by giving another proxy, by letter, telegram or facsimile revoking your initial proxy if received by that applicable Fund prior to the Meeting, or by appearing and voting at the Meeting.

 

A list of the shares of each class of each Fund issued and outstanding as of the Record Date is included in Appendix A. A list of shareholders who owned of record five percent or more of the shares of a class of a Fund as of the Record Date is included in Appendix B, as well as information regarding officer ownership of Fund shares. The executive officers and Trustees, as a group, owned more than one percent of the outstanding shares of certain classes of the Funds as of June 24, 2008. Information regarding such ownership is included in Appendix B. To the knowledge of the Manager, the executive officers and Trustees, as a group, owned less than one percent of the outstanding shares of all other classes of the Funds as of the Record Date. Information regarding the Trusts’ executive officers and the Manager’s directors and officers, including information regarding their interest in the Transaction, is set forth in Appendix G. In addition, the Manager has no knowledge of any purchases or sales exceeding 1% of the outstanding securities of the Manager or its parent company by any Trustees, or nominees for election as Trustees, of the Funds since the beginning of the Funds’ most recent fiscal years ended October 31 and December 31, 2007.

 

The Trusts will request broker-dealers, custodians, nominees and fiduciaries to forward proxy materials to the beneficial owners of the shares held of record by such persons. The Trusts or the Manager may reimburse such broker-dealers, custodians, nominees and fiduciaries for their reasonable expenses incurred in connection with such proxy solicitation.

 

Required Vote

 

Approval of Proposals 1 and 3 outlined below with respect to each Fund requires the affirmative vote of the holders of a “majority of the outstanding voting securities” of that Fund entitled to vote on the particular Proposal, as such term is defined in the 1940 Act. For that purpose, a vote of the holders of a “majority of the outstanding voting securities” of a Fund means the lesser of either (1) the affirmative vote of 67% or more of the shares of such Fund present at the Meeting if the holders of more than 50% of the outstanding Fund shares are present or represented by proxy, or (2) the affirmative vote of the holders of more than 50% of the outstanding shares of such Fund.

 

Approval of Proposals 2 and 4 requires a plurality of the relevant Trust’s shares voted in person or by proxy at the Meeting.

 

 

 

 

PROPOSALS 1 AND 3

 

APPROVAL OF THE NEW

INVESTMENT MANAGEMENT

AGREEMENT FOR THE FUNDS

 

 

 

 

Shareholders of each Fund are being asked to approve the New Agreement between the Fund and the Manager. As described above, each Fund’s Current Agreement will terminate upon the Closing or, if the Closing is not consummated, the New Agreement will become effective on or about January 1, 2009. Therefore, approval of the New Agreement is sought so that the operation of each Fund can continue without interruption.

 

Board Considerations, Approvals and Recommendations

 

The Board met in person on May 21, May 22 and June 4, 2008 to consider whether to approve the New Agreement between each Fund and the Manager. In addition, the Board held preliminary conference call meetings on April 15, 16 and 21, 2008 to discuss the Transaction and the effect that the Transaction would have on the Funds. Throughout this process, the Board (including all of its Non-interested Trustees) has been advised by its independent legal counsel. In connection with the approval process for the New Agreement, the Trustees received a memorandum and related advice from their legal counsel detailing the Board’s responsibilities pertaining thereto.

 

At the May 21 meeting, the Board considered, among other matters, whether to renew each Fund’s Current Agreement with the Manager and each Investment Advisory Agreement between a sub-advisor and the Manager. In

preparation for the May 21 meeting, the Board and its Investment Committee gathered and considered information furnished by the Manager, each sub-advisor and Lipper, Inc. (“Lipper”). Based on, among other considerations, the information presented to the Board in connection with the May 21 meeting, the Board, including the Non-interested Trustees, unanimously approved the renewal of each Fund’s Current Agreement with the Manager and each Investment Advisory Agreement between the applicable sub-advisor and the Manager.

 

On May 21, May 22 and June 4, the Board met to determine, among other matters, whether to approve the New Agreement for each Fund pursuant to which the Manager would provide the same services to the Fund on substantially the same terms as under the Fund’s Current Agreement. In addition, the Board considered that each Fund would pay the same aggregate fee rates under the New Agreement and New Administrative Services Agreement as the Fund does under the Current Agreements and, in the case of Beacon Trust, under the Current Agreement and Current Administrative Services Agreement. Based on the process undertaken and the considerations weighed by the Board during its meetings in connection with the Board’s consideration of the Transaction and of the renewal of each Fund’s Current Agreement, the Board approved the New Agreement for each Fund. At the same time, the Board unanimously recommended that shareholders of each Fund also approve the New Agreement for the Fund.

 

In connection with the Transaction, the Board and its counsel reviewed materials furnished by the Manager and met with senior representatives of the Manager regarding its personnel, operations and financial condition. The Board also reviewed the terms of the Transaction and considered its possible effects on the Funds and their shareholders. In this regard, the Trustees met with representatives of the Manager and Lighthouse during Board meetings and in executive sessions to discuss the anticipated effects of the Transaction. During these meetings, the representatives of the Manager and Lighthouse indicated their belief that the Transaction would not adversely affect: (1) the continued operation of the Funds; (2) the capabilities of the senior investment advisory personnel who currently manage the Funds to continue to provide these and other services to the Funds at the current levels; and (3) the capabilities of each sub-advisor to continue to provide the same level of advisory and other services to the Funds. Those representatives also indicated that they believe that the Transaction may provide certain benefits to the Funds but also indicated that there could be no assurance as to any particular benefits that may result.

 

In connection with the Board’s recommendation that shareholders of each Fund approve the New Agreement, the Trustees considered, among other information, the following factors, in addition to other factors noted in this Proxy Statement:

 

 

 

 

 

Description of the Current and New Agreements

 

Each Trust presently has an agreement with the Manager that covers both advisory and administrative services provided by the Manager. The Beacon Trust also has a separate Administrative Services Agreement with the Manager. Management proposed to the Board, at a meeting held on June 4, 2008, to separate the Manager’s obligations to provide advisory services and administrative services to the Trusts into two different agreements. This action would allow the Manager to allocate its management fees for each Fund between advisory and administrative services. Accordingly, at its meeting, the Board approved a New Agreement for all Funds, which is attached as Appendix C to this Proxy Statement. In addition, the Board approved a separate administrative services agreement, which you are not required to approve. The New Agreement consolidates and standardizes the Current Agreements into a single contractual arrangement among each Trust, on behalf of its Funds, and the Manager. The New Agreement also modernizes and updates the provisions and terms of the Current Agreements. The current and proposed fee rates payable under the Current Agreements, the Current Administrative Services Agreement, the New Agreement and the New Administrative Services Agreement are set forth in Appendix D.

 

The Current Agreements

 

The Manager currently serves as the investment adviser and administrator under the Current Agreements. Under the Current Agreements, the Manager provides a continuous investment program for each Fund and may delegate such duties to an investment sub-advisor. In addition, the Manager provides administrative services, including providing office space and facilities, maintaining books and records and providing clerical services. The services provided by the Manager are not exclusive and the Manager is free to furnish similar services to others. The Current Agreements initially were approved by the Board for a term of two years and have been approved annually thereafter in accordance with the 1940 Act. The Board, including the Non-interested Trustees, last approved the Current Agreements on May 21, 2008. The fee rate schedules from the Current Agreements and related administrative agreements are set forth in the table in Appendix D, together with corresponding fee rate schedules from the New Agreement and New Administrative Services Agreement. The date of each Current Agreement, the date when the Current Agreement was last submitted to a vote of shareholders of each Fund, including the purpose of such submission and the aggregate amount of each Fund’s advisory fees during its last fiscal year are set forth in Appendix E.

 

The New Agreement

 

The New Agreement would require the Manager to provide the same investment advisory services as required by the Current Agreement. In addition, the Manager will provide the same administrative services it previously provided to the Funds. As shown in Appendix D, the aggregate fee rates charged for advisory services and administrative services are not changing but are being allocated between the New Agreement and the New Administrative Services Agreement. The New Agreement, in contrast to the Current Agreements, also:

 

 

 

A copy of the New Agreement is at Appendix C. The description of the New Agreement in this Proxy Statement is qualified in its entirety by reference to the New Agreement in Appendix C.

 

Both the Current Agreements and New Agreement provide that the Manager is responsible for supervising and managing each Fund’s investments and effecting each Fund’s portfolio transactions. Other than noted above, these agreements maintain the same standard of care and indemnification provisions. In addition, the compensation for advisory services under these agreements remains the same, in that once the administrative services fee rate portion of the management fee has been deducted, the advisory fee rate for each Fund remains unchanged. Additionally, the Funds’ operating expenses are not expected to change as a result of the approval of the New Agreement.

 

Under the proposed new arrangements, the Manager would provide administrative services to the Trust primarily pursuant to a New Administrative Services Agreement. Currently, the Manager provides administrative services to the Funds in Mileage Trust, Select Trust and Master Trust under their Current Agreements, and to the Funds in Beacon Trust under its Current Agreement and the Current Administrative Services Agreement. As with the New Agreement, no changes are being proposed to the level of administrative services or the administrative services fee rates charged by the Manager under the New Administrative Services Agreement. The current and proposed fee rates under these agreements are set forth in Appendix D. The aggregate amount of fees received by the Manager as well as other material payments are set forth in Appendix E. Under the New Administrative Services Agreement, the fee rates may be changed by the Board without shareholder approval.

 

Board Considerations Regarding the New Agreement

 

The 1940 Act requires that the Board review each Fund’s advisory contracts and consider whether to approve them and recommend that the shareholders of each Fund approve them. At its meeting on May 21, 2008, the Board, including the Non-interested Trustees, reviewed and considered the renewal of each Fund’s Current Agreement with the Manager. On May 21, May 22 and June 4, 2008, the Board, including the Non-interested Trustees, reviewed and considered the approval of the New Agreement for the Funds pursuant to which the Manager would provide the

same services on substantially the same terms upon the assignment and termination of the Current Agreements due to the Closing of the Transaction.

 

In connection with the May 21, May 22 and June 4, 2008 meetings, the Trustees and/or legal counsel for the Non-interested Trustees received and considered, among other materials, responses by the Manager to inquiries requesting the following:

 

 

 

In addition to the foregoing, the Manager provided the following information specific to the renewal of each Fund’s Current Agreement and the approval of each Fund’s New Agreement:

 

 

The Board also obtained an analysis provided by Lipper that compared: (i) investment performance of each Fund versus comparable investment companies and appropriate indices; (ii) total Fund expenses of each Fund versus comparable mutual funds, and (iii) each Fund’s investment advisory fees versus comparable mutual funds. For each Fund with more than one class of shares, the class of shares used for comparative purposes was the class with the longest performance history, which in most cases was the Institutional Class. References below to each Fund’s Lipper peer group are to the group of comparable mutual funds included in the analysis provided by Lipper.

 

Provided below is an overview of the primary factors the Board considered at its May 21, May 22 and June 4, 2008 meetings. Additional considerations made by the Board with respect to certain Funds are reported in Appendix F of this Proxy Statement. The Board did not identify any particular information that was most relevant to its consideration to renew the Current Agreements and approve the New Agreement, and each Trustee may have afforded different weight to the various factors. Legal counsel to the Non-interested Trustees provided the Board with a memorandum regarding its responsibilities pertaining to the renewal of the Current Agreements and the approval of the New Agreement. Based on its evaluation, the Board unanimously concluded that the terms of each Current Agreement were reasonable and fair and that the renewal of each Current Agreement was in the best interests of the Fund and its shareholders. The Board also unanimously concluded that the terms of the New Agreement were reasonable and fair and that the approval of the New Agreement was in the best interests of the Fund and its shareholders.

 

In determining whether to renew the Current Agreements and approve the New Agreement, the Trustees considered the best interests of each Fund separately. While the Current Agreements for all of the Funds were considered at the Board meetings on May 21, 2008, and the New Agreement for all of the Funds were considered at the meetings on May 21, May 22 and June 4, 2008, the Board considered each Fund’s investment management and sub-advisory relationships separately. In each instance, the Board considered, among other things, the following factors: (1) the nature and quality of the services provided; (2) the investment performance of a Fund and, as applicable, each sub-advisor for a Fund; (3) the costs incurred by the Manager and (to the extent provided) the sub-advisors in rendering their services and their resulting profits or losses; (4) the extent to which economies of scale have been taken into account in setting each fee schedule; (5) whether fee levels reflect these economies of scale for the benefit of Fund investors; (6) comparisons of services and fees with contracts entered into by the Manager or a sub-advisor or their affiliates with other clients (such as pension funds and other institutional funds); and (7) any other benefits derived or anticipated to be derived by the Manager or a sub-advisor from their relationship with a

Fund. The Trustees posed questions to various management personnel of the Manager and Lighthouse regarding certain key aspects of the materials submitted in support of the renewal.

 

Nature, Extent and Quality of the Services to be Provided

 

With respect to the renewal of each Fund’s Current Agreement and the approval of each Fund’s New Agreement, the Board considered: the background and experience of key investment personnel and the Manager’s ability to retain them; the Manager’s disciplined investment approach and goal to provide consistent above average long-term performance at a low cost; the Manager’s continuing efforts to add new series and share classes to enhance the Funds’ product line; the Manager’s record in building improved compliance, control and credit functions that reduce risks to the Funds; the addition of personnel to manage the Funds, promote sales and improve services, including the addition of a separate new information technology (IT) department at the Manager; the high rankings received by the Funds in service surveys; and the active role played by the Manager in monitoring and, as appropriate, recommending replacements for the investment sub-advisors and master portfolios. Based on the foregoing information, the Board concluded that the nature, extent and quality of the management and advisory services provided by the Manager were appropriate for each Fund and, thus, determined to renew the Current Agreement and approve the New Agreement for each Fund.

 

Investment Performance

 

The Board evaluated the comparative information provided by Lipper and the Manager regarding each Fund’s investment performance relative to its benchmark index(es) and peer group. The Board considered the information provided by Lipper regarding its independent peer selection methodology to select all peer groups and universes. The Board also considered the performance reports and discussions with management at Board and Committee meetings throughout the year. The Manager also noted that it generally was satisfied with the performance of the sub-advisors.

 

Costs of the Services to be Provided to the Funds and the Projected Profits to be Realized by the Manager from its Relationship with the Funds

 

In analyzing the cost of services and profitability of the Manager by Fund, the Board considered the revenues earned and the expenses incurred by the Manager. The profits or losses were noted at both an individual Fund level and at an aggregate level for all Funds. The Board also considered that the Current and New Agreements for the Beacon Trust, Mileage Trust and Select Trust stipulate that, to the extent that a Fund invests all of its investable assets in another registered investment company (i.e., is a Feeder Fund), the Fund will not pay the Manager a management fee. Because the money market series of the Beacon Trust, Mileage Trust and Select Trust operate as Feeder Funds with respect to the Master Trust, the Manager only receives a management fee from the Master Trust. The index series of the Funds also operate under a master-feeder structure, but each of these series invests in a master portfolio that is not managed by the Manager. As such, the Board considered that the Manager does not receive a management fee with respect to the International Equity Index, S&P 500 Index, or Small Cap Index Funds. With respect to the Money Market Funds and the Short-Term Bond Fund, the Board also considered the Manager’s advisory fees for services provided by the Manager to institutional separate accounts with similar investment strategies. Although the Board noted that, in certain cases, the fee rates paid by other clients are lower than the fee rates paid by the Funds, the difference reflects the greater level of responsibility and regulatory requirements associated with managing the Funds.

 

The Board also noted that the Manager proposed to continue the expense waivers and reimbursements for certain Funds and classes that were in place during the last fiscal year. The Board further considered that each sub-advised Fund pays the Manager the amounts due to its sub-advisors, and the Manager remits these amounts directly to the applicable sub-advisors. The Board considered that the Manager receives service and administrative fees to compensate the Manager for providing administrative services to the Funds and to compensate third-party administrators and broker-dealers for services to Fund shareholders. In addition, the Board considered that the Manager receives management fees for overseeing the securities lending relationships on behalf of various Funds. The Board also noted that certain classes of the Funds maintain higher expense ratios in order to compensate third-party distributors.

Based on the foregoing information, the Board concluded that the profitability levels were reasonable in light of the services performed by the Manager.

 

Economies of Scale and Whether Fee Levels Reflect Economies of Scale

 

In considering the reasonableness of the management fees, the Board considered whether economies of scale will be realized as the Funds grow and whether fee levels reflect these economies of scale for the benefit of Fund shareholders. In this regard, the Board considered that the Manager has negotiated breakpoints in many sub-advisory fee rates. The Board also noted that, for purposes of determining the fee rates chargeable to the Funds, many sub-advisors have agreed to take into account other assets of AMR and its pension plans that are managed by the sub-advisors. Thus, the Funds are able to receive lower effective fee rates. The Board also noted that certain Funds have grown their shareholder base, which has spread fixed costs over a larger shareholder and asset base. With respect to the Money Market Funds, the Board noted that, although the fee schedules for these Funds do not have breakpoints, the effective advisory fee rates are low by industry standards and the performance of these Funds has been highly competitive and, in many cases, among the top performers among similar funds.

 

The Board also considered the Manager’s representations that its costs have increased due primarily to greater service provider and regulatory costs. The Manager also represented that it anticipates further economies of scale would be largely offset by higher costs of adding and retaining qualified personnel, improving technology and increasing demands on its advisory business.

 

Based on the foregoing information, the Board concluded that the Manager’s fee schedule for each Fund provides for a reasonable sharing of benefits from any economies of scale with the Fund.

 

Benefits Derived by the Manager from Relationships With the Funds

 

The Board considered the “fall-out” or ancillary benefits that accrue to the Manager and/or the sub-advisors as a result of the advisory relationships with the Funds, including greater exposure in the marketplace with respect to the Manager’s or sub-advisor’s investment process and expanding the level of assets under management by the Manager and the sub-advisors. The Board also considered that the Manager’s relationship with the Funds and, in particular the money market funds, continues to be a significant factor in attracting separate account assets for the Manager. In addition, the Board noted that the Manager provides services to each Trust at a relatively low cost. In this regard, the Board considered that the benefit plans of AMR have invested substantial assets in the Funds, which helps reduce costs for other Fund shareholders, just as the investment of other Fund shareholders helps to reduce costs for AMR’s benefit plans. In addition, the Board considered that certain of the sub-advisors reimburse the Manager for certain of its costs relating to distribution activities for the Funds. The Board also considered that Funds did not pay commissions to any affiliated broker-dealer of the Manager during the most recent fiscal years ended October 31, and December 31, 2007, though during that period certain Funds did pay commissions to affiliated broker-dealers of the relevant sub-advisor, as set forth in the following table.

 

 

The percentage of total commissions of the American Beacon Large Cap Growth Fund and Emerging Markets Fund paid to affiliated broker-dealers in 2007 was 4.13% and 0.07%, respectively.

 

Based on the foregoing information, the Board concluded that the potential benefits accruing to the Manager by virtue of its relationships with the Funds appear to be fair and reasonable.

 

Section 15(f) of the 1940 Act

 

The Transaction involves a sale of the Manager. The Manager intends for the Transaction to come within the safe harbor provided by section 15(f) of the 1940 Act. Section 15(f) of the 1940 Act permits an investment adviser of

a registered investment company (or any affiliated persons of the investment adviser) to receive any amount or benefit in connection with a sale of an interest in the investment adviser, provided that two conditions are satisfied.

 

First, an “unfair burden” may not be imposed on the investment company as a result of the sale of the interest, or any express or implied terms, conditions or understandings applicable to the sale of the interest. The term “unfair burden,” as defined in the 1940 Act, includes any arrangement during the two-year period after the transaction whereby the investment adviser (or predecessor or successor adviser), or any “interested person” of the adviser (as defined in the 1940 Act), receives or is entitled to receive any compensation, directly or indirectly, from the investment company or its security holders (other than fees for bona fide investment advisory or other services), or from any person in connection with the purchase or sale of securities or other property to, from or on behalf of the investment company (other than ordinary fees for bona fide principal underwriting services). The Board has not been advised by the Manager of any circumstances arising from the Transaction that might result in the imposition of an “unfair burden” on any Fund. Moreover, the Manager has agreed that, for two years after the consummation of the Transaction, it will use reasonable best efforts to refrain from imposing, or agreeing to impose, any unfair burden on any Fund.

 

Second, during the three-year period after the transaction, at least 75% of the members of the investment company’s board of trustees cannot be “interested persons” (as defined in the 1940 Act) of the investment adviser or its predecessor. At the present time, 83% of the Trustees are classified as Non-interested Trustees and following the Transaction, all but one of the Trustees will be classified as such. The Manager will use its reasonable best efforts to ensure that at least 75% of the Trustees are not “interested persons” (as defined in the 1940 Act) of AMR, Lighthouse or the Manager during the three-year period after the completion of the Transaction.

 

Required Vote

 

Approval of the New Agreement for each Fund requires the affirmative vote of a “majority of the outstanding voting securities” of each Fund, which, under the 1940 Act, means the affirmative vote of the lesser of (a) 67% or more of the shares of the Fund present at the Meeting or represented by proxy if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (b) more than 50% of the outstanding shares.

 

The Board has determined that recommending the New Agreement for each Fund is in the best interest of the Fund’s shareholders.

 

THE BOARD UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE “FOR”
PROPOSALS 1 AND 3

 

 

 

 

PROPOSALS 2 AND 4

 

ELECTION OF TRUSTEES

FOR EACH OF THE TRUSTS

 

 

 

 

Proposals 2 and 4 relate to the election of eight Trustees to the Board at the Meeting. The Boards have nominated the individuals listed below for election as Trustees, each to hold office until termination, resignation or removal. Five of the nominees (Alan D. Feld, R. Gerald Turner, W. Humphrey Bogart, Brenda A. Cline and Richard A. Massman) currently serve as Trustees of each of the Trusts. Each current Trustee has indicated a willingness to continue to serve if re-elected. If any of the nominees should not be available for election, the persons named as proxies (or their substitutes) may vote for other persons in their discretion. Management has no reason to believe that any nominee will be unavailable for election.

 

Thomas M. Dunning, Eugene J. Duffy and Paul J. Zucconi were selected by the Board’s Nominating and Governance Committee and nominated by the Non-interested Trustees for election at the Meeting.

 

The persons named as proxies on the enclosed proxy card will vote FOR the election of the nominees listed below unless the shareholder specifically indicates on his or her proxy card a desire to withhold authority to vote for any nominee.

The Board provides broad supervision over the affairs of each Trust. The Manager is responsible for the management of Trust assets, and each Trust’s officers are responsible for the Trust’s operations. The Trustees of each Trust are listed below, together with their principal occupations during the past five years. The address of each person listed below is c/o American Beacon Advisors, Inc., 4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees 23 funds in the “fund complex,” which includes the Beacon Trust, Mileage Trust, Select Trust and the Master Trust. Foreside Fund Services LLC, located at Two Portland Square, Portland, Maine 04101, serves as principal underwriter to the Trusts.

 

 

 

 

Each Trust has an Audit and Compliance Committee (“Audit Committee”). The Audit Committee consists of Ms. Cline and Mr. Stephen D. O’Sullivan, who is not seeking re-election to the Board. Effective on June 4, 2008, Mr. Massman became an ex officio member of this Committee. None of the members of the Audit Committee are or will be “interested persons” of the Trusts, as defined by the 1940 Act. As set forth in its charter, the primary duties of each Trust’s Audit Committee are: (a) to oversee the accounting and financial reporting processes of the Trust and the Fund and their internal controls and, as the Audit 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 Chief Compliance Officer in connection with his or her implementation of the Trust’s Compliance Program. The Audit Committee met four times during the fiscal years ended October 31, and December 31, 2007.

 

Each Trust has an Investment Committee that is comprised of Messrs. Bogart and Massman. 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 Funds; (b) to evaluate recommendations by the Manager regarding the hiring or removal of designated sub-advisors to the Funds; (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 Funds; 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 four times during the fiscal years ended October 31, and December 31, 2007.

 

Each Trust has a Nominating and Governance Committee (“Nominating Committee”) that is comprised of one Interested Trustee and one Non-interested Trustee, Messrs. Feld and Turner. Effective on June 4, 2008, Mr. Massman became an ex officio member of this Committee. 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 a Non-interested 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 Non-interested 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 Fund. The Nominating Committee met three times during the fiscal years ended October 31, and December 31, 2007.

 

With respect to the criteria for selecting Non-interested Trustees, it is expected that all candidates will possess the following minimum qualifications: (a) unquestioned personal integrity; (b) is not an “interested person” of the Manager or its affiliates within the meaning of the 1940 Act; (c) not have a material relationship (e.g., commercial, banking, consulting, legal, or accounting) that could create an appearance of lack of independence in respect of the Manager and its affiliates; (d) has the disposition to act independently in respect of the Manager and its affiliates and others in order to protect the interests of the Funds and all shareholders; (e) has the ability to attend all of the meetings per year; (f) demonstrates sound business judgment gained through broad experience in significant positions where the candidate has dealt with management, technical, financial or regulatory issues; (g) has sufficient legal, financial or accounting knowledge to add value in the complex financial environment of the Funds; and (h) has the capacity for the hard work and attention to detail that is required to be an effective Non-interested Trustee. The Nominating Committee may determine that a candidate who does not have the type of previous experience or knowledge referred to above should nevertheless be considered as a nominee if the Nominating Committee finds that the candidate had additional qualifications such that his or her qualifications, taken as a whole, demonstrate the same level of fitness to serve as a Non-interested Trustee. The Nominating Committee may use a search firm or other sources to identify and evaluate Board candidates.

 

In recommending the election of Messrs. Dunning, Duffy and Zucconi, the Nominating Committee noted the candidates’ appropriate background, experience, capabilities and integrity. As part of the nomination process, each nominee completed a questionnaire requesting relevant information such as experience and material transactions.

 

During each fiscal year ended October 31, 2007 and December 31, 2007, the Board held a total of four meetings. The Trusts do not hold annual shareholder meetings and, therefore, do not have a policy with respect to Trustees’ attendance at such meetings.

The Trustees who owned shares of any Fund are listed in the following tables with the dollar range of their ownership in such Funds and the Trusts as a whole as of the calendar year ended December 31, 2007.

 

 

 

As compensation for their service to the Trusts, the Non-interested Trustees currently receive the following:

 

 

Mr. Massman was elected as Chairman April 15, 2008. For his service as Chairman, Mr. Massman receives an additional annual payment of $10,000. Trustees also are reimbursed for any expenses incurred in attending Board meetings. Total compensation (excluding reimbursements) is reflected in the following table for the twelve months ended October 31, 2007. The compensation amounts below include the flight service charges paid by the Trusts to American Airlines, Inc.

 

 

Effective upon the closing of the Transaction, each Non-interested Trustee will be 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, and (c) $1,500 for attendance by Committee members at meetings of the Nominating Committee; and (3) reimbursement for reasonable expenses incurred in attending such Board and Committee meetings. In addition, the Chairman of the Board will receive an additional annual retainer of $15,000.

 

The Board previously adopted an Emeritus Trustee and Retirement Plan (the “Plan”). The Plan currently provides that a Trustee who has reached the mandatory retirement age established by the Board (currently 72) is eligible to elect Trustee Emeritus status. Alternatively, a Trustee who has served on the Board of one or more Trusts for at least five years 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 retirement benefits for a period equal to the number of years the Trustee served on the Board up to a maximum of 10 years. Only those Trustees who retire from the Boards and elect Trustee Emeritus status may receive retirement 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 Funds. Ben Fortson retired from the Trust effective February 28, 2002 and currently serves as Trustee Emeritus to the Trusts. During the fiscal year ended October 31, 2007, Mr. Fortson did not utilize flight benefits and so no Trust compensation is reported.

 

During the term that the Trustee Emeritus serves, each Trustee Emeritus and his or her spouse will receive American Airlines, Inc. annual flight benefits plus reimbursement to the Trustee Emeritus of any tax liability relating to such flights during the term that such person serves as a Trustee Emeritus. Such flight benefits, excluding the taxes that are payable with respect to such benefits, shall not exceed a maximum annual value to the Trustee Emeritus of $40,000.

 

The Board has determined that, effective upon the Closing of the Transaction, no additional benefits will accrue under the Plan for current or future Trustees. However, current Trustees will receive those benefits with respect to their respective terms of service as of the closing date if and when they retire and opt to assume Trustee Emeritus status. The duration of those benefits will be based on the duration of the Trustee’s service on the Board as of the closing date of the Transaction. Thus, for example, a Trustee who has six years of service as of the closing date would, upon retirement and assumption of Trustee Emeritus status, be entitled to only six years of retirement benefits, even if that Trustee ultimately served on the Board for more than six years prior to his or her retirement. Similarly, a Trustee who has served in such capacity for four years as of the closing date would be entitled to four years of the retirement benefits only if such Trustee ultimately serves for a total of at least five years on the Board

prior to his or her retirement and assumption of Trustee Emeritus status. To date, American Airlines, Inc. voluntarily has made the flight benefit component of the retirement plan available to the Trusts at a substantial discount to market cost. American Airlines, Inc. will eliminate most of this discount upon the closing of the Transaction. Thus, the Trusts potentially will incur higher costs in the future in order to honor the existing benefits which have been earned under the Trustees’ current retirement plan.

 

Required Vote

 

Election of each nominee as a Trustee of each Trust requires the vote of a plurality of the votes cast at the Meeting in person or by proxy, provided that a quorum is present. Shareholders of the Feeder Funds are being asked to authorize the Trusts of the Feeder Funds to vote to elect Trustees for the Master Trust. Those shareholders who wish to withhold their vote on any specific nominee(s) may do so on the proxy card.

 

THE BOARD UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE “FOR”
EACH OF THE NOMINEES IN PROPOSALS 2 AND 4

 

 

 

 

INFORMATION ON THE TRUSTS’ INDEPENDENT ACCOUNTANTS

 

The Trusts’ financial statements for the fiscal years ended October 31 and December 31, 2007 were audited by Ernst & Young LLP (“E&Y”), 2100 Ross Avenue, Suite 1500, Dallas, TX 75201. E&Y has informed the Trusts that it has no material direct or indirect financial interest in any of the Funds and that investments in the Funds by its personnel and their family members are prohibited where appropriate to maintaining the auditors’ independence. In the opinion of the Board, the services provided by E&Y are compatible with maintaining the independence of the auditors. The Board appointed E&Y as the independent accountants for each Trust for the respective fiscal years ending October 31, and December 31, 2008.

 

Representatives of E&Y are not expected to be present at the Meeting, but have been given the opportunity to make a statement if they so desire and will be available should any matter arise requiring their presence.

 

Audit Fees

 

The aggregate fees billed by E&Y for professional services rendered for the audit of the Trusts’ annual financial statements for the fiscal years ended October 31, and December 31, 2007, and the review of the financial statements included in the Trusts’ annual reports to shareholders were $280,299 and $166,581, respectively. The aggregate fees billed by E&Y for professional services rendered for the audit of the Trusts’ annual financial statements for the fiscal years ended October 31, and December 31, 2006, and the review of the financial statements included in the Trusts’ annual reports to shareholders were $265,722 and $215,459, respectively.

 

Audit-Related Fees

 

The aggregate fees billed by E&Y for the fiscal years ended October 31, and December 31, 2007, for professional services rendered for audit-related services were $8,750 and $6,250, respectively. These fees were paid to E&Y for their review of N-1A filings for new funds. The aggregate fees billed by E&Y for the fiscal years ended October 31, and December 31, 2006, for professional services rendered for audit-related services were $35,164 and $0, respectively. These fees were paid to E&Y for their review of N-1A filings for new funds, attestation services related to the Interfund Credit Facility for the Funds and disclosures relating to the International Equity Fund reorganization.

 

Tax Fees

 

The aggregate fees billed by E&Y for the fiscal years ended October 31, and December 31, 2007, for professional services rendered for tax compliance, tax advice and tax planning were $29,199 and $26,335, respectively. These fees were paid to E&Y for their review of the Funds’ 2005 and 2006 tax returns and tax services related to the reorganization of the International Equity Fund. E&Y did not receive any fees for the fiscal years ended October 31, and December 31, 2006, for tax compliance, tax advice and tax planning services.

All Other Fees

 

E&Y did not receive any fees for the fiscal years ended October 31, and December 31, 2006, or October 31, and December 31, 2007, for products and services, other than the services reported above.

 

Pre-Approval Policies and Procedures

 

Pursuant to its charter, the Trusts’ Audit Committee shall have the following duties and powers pertaining to pre-approval of audit and non-audit services provided by the Trusts’ principal independent accountant to: (1) approve, prior to appointment, the engagement of auditors to annually audit and provide their opinion on the Trusts’ financial statements, and, in connection therewith, to review and evaluate matters potentially affecting the independence and capabilities of the auditors; (2) approve, prior to appointment, the engagement of the auditors to provide non-audit services to the Trusts, an investment adviser to any Fund or any entity controlling, controlled by, or under common control with an investment adviser that provides ongoing services to the Trusts, if the engagement relates directly to the operations and financial reporting of the Trusts; (3) review the arrangements for and scope of the annual audit and any special audits; and (4) review and approve the fees proposed to be charged to the Trusts by the auditors for each audit and non-audit service. The Audit Committee has approved none of the fees disclosed above, except for the “Audit Fees,” in reliance on the SEC’s Regulation S-X.

 

Aggregate Non-Audit Services

 

The aggregate non-audit fees billed by E&Y during the fiscal years ended October 31, and December 31, 2007, for services rendered to the Trusts were $37,949 and $32,585, respectively. The aggregate non-audit fees billed by E&Y during the fiscal years ended October 31, and December 31, 2006, for services rendered to the Trusts were $35,164 and $0, respectively. E&Y did not render services to the Manager or any entity controlling, controlled by, or under common control with the Manager that provided ongoing services to the Trusts during the applicable periods.

 

SHAREHOLDER PROPOSALS

 

As a general matter, the Trusts do not hold annual or other regular meetings of shareholders. Shareholders wishing to submit proposals for inclusion in a proxy statement for a subsequent shareholders’ meeting should send their written proposals to their Fund at 4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155, attn: Terri McKinney, so as to be received a reasonable time before the proxy solicitation for that meeting is made. Shareholder proposals that are submitted in a timely manner will not necessarily be included in a Fund’s proxy materials. Inclusion of such proposals is subject to limitations under the federal securities laws. In addition, the Trusts are each required to convene a special shareholders’ meeting upon written request for such a meeting by their respective shareholders owning at least ten percent of their outstanding shares.

 

OTHER BUSINESS

 

Management knows of no business to be presented to the Meeting other than the matters set forth in this Proxy Statement, but should any other matter requiring a vote of shareholders arise, the proxies will vote thereon according to their best judgment and in the best interests of the Funds.

 

SHAREHOLDER REPORTS

 

The Trusts’ most recent annual and semi-annual reports have previously been sent to shareholders and may be obtained without charge by going to www.americanbeaconfunds.com, calling toll-free 1-800-658-5811 or by writing to the Trusts at 4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155.

 

Dated: July 3, 2008

 

APPENDIX A

 

SHARES OF BENEFICIAL INTEREST
(As of June 24, 2008)

 

Outstanding Shares

 

Outstanding Dollar Amounts

 

 

APPENDIX B

 

OWNERSHIP OF FUND SHARES

 

5% Shareholders of a Class of a Fund

(As of June 24, 2008)

 

MONEY MARKET FUND — INSTITUTIONAL CLASS

 

 

U.S. GOVERNMENT MONEY MARKET FUND — CASH MANAGEMENT CLASS

 

BALANCED FUND — INSTITUTIONAL CLASS

 

 

LARGE CAP VALUE FUND — INSTITUTIONAL CLASS

 

INTERNATIONAL EQUITY FUND — INSTITUTIONAL CLASS

 

 

MONEY MARKET MILEAGE FUND

 

BALANCED FUND — PLANAHEAD CLASS

 

 

LARGE CAP VALUE FUND — PLANAHEAD CLASS

 

INTERNATIONAL EQUITY FUND — PLANAHEAD CLASS

 

 

SHORT-TERM BOND FUND — PLANAHEAD CLASS

 

MONEY MARKET FUND — PLANAHEAD CLASS

 

 

U.S. GOVERNMENT MONEY MARKET FUND — PLANAHEAD CLASS

 

 

EMERGING MARKETS FUND — PLANAHEAD CLASS

 

 

SMALL CAP VALUE FUND — INSTITUTIONAL CLASS

 

 

SMALL CAP VALUE FUND — PLANAHEAD CLASS

 

 

S&P 500 INDEX FUND — INSTITUTIONAL CLASS

 

 

S&P 500 INDEX FUND — PLANAHEAD CLASS

 

MONEY MARKET SELECT FUND

 

 

HIGH YIELD BOND FUND — INSTITUTIONAL CLASS

 

MONEY MARKET FUND — CASH MANAGEMENT CLASS

 

 

U.S. GOVERNMENT MONEY MARKET SELECT FUND

 

 

HIGH YIELD BOND FUND — PLANAHEAD CLASS

 

LARGE CAP GROWTH FUND — INSTITUTIONAL CLASS

 

 

EMERGING MARKETS FUND — INSTITUTIONAL CLASS

 

 

SMALL CAP INDEX FUND — INSTITUTIONAL CLASS

 

INTERNATIONAL INDEX FUND — INSTITUTIONAL CLASS

 

 

ENHANCED INCOME FUND — PLANAHEAD CLASS

 

 

INTERNATIONAL EQUITY FUND — SERVICE CLASS