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Ticker | ||||
Share
Class |
A |
C |
Y |
R5 |
Investor |
American
Beacon Developing World Income Fund (formerly known as the American
Beacon
Frontier Markets Income Fund) |
AGUAX |
AGECX |
AGEYX |
AGEIX |
AGEPX |
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Bank
Deposit Notes.
Bank deposit notes are obligations of a bank that provide an alternative
to certificates of deposit. Similar to certificates of deposit,
deposit notes represent bank level investment and, therefore, are senior
to all holding company corporate debt. Bank deposit notes rank
junior
to domestic deposit liabilities of the bank and pari passu with other
senior, unsecured obligations of the bank. Typically, bank deposit notes
are not
insured by the Federal Deposit Insurance Corporation or any other
insurer. |
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Bankers’
Acceptances.
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. Most acceptances
have maturities of six months or less. Bankers’ acceptances rank junior
to
domestic deposit liabilities of the bank and pari passu with other senior,
unsecured obligations of the bank.
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Bearer
Deposit
Notes.
Bearer deposit notes, or bearer bonds, are bonds or debt securities that
entitle the holder of the document to ownership or title
in the deposit. Such notes are typically unregistered, and whoever
physically holds the bond is presumed to be the owner of the instrument.
Recovery
of the value of a bearer bond in the event of its loss or destruction
usually is impossible. Interest is typically paid upon presentment of an
interest
coupon for payment. |
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CDs.
CDs are negotiable certificates issued against funds deposited in an
eligible bank (including its domestic and foreign branches, subsidiaries
and agencies)
for a definite period of time and earning a specified rate of return. 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. |
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Commercial
Paper.
Commercial paper is a short-term debt security issued by a corporation,
bank, municipality, or other issuer, usually for purposes such
as financing current operations. The Fund may invest in commercial paper
that cannot be resold to the public without an effective registration
statement
under the Securities Act. While some restricted commercial paper normally
is deemed illiquid, in certain cases it may be deemed
liquid. |
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Government
Money Market Funds. The
Fund may invest cash balances in money market funds that are registered as
investment companies under
the Investment Company Act, including money market funds that are advised
by the Manager. Money market funds invest in highly-liquid, short-term
instruments, which include cash and cash equivalents, and debt securities
with high credit ratings and short-term maturities, such as U.S.
Treasuries.
A “government money market fund” is required to invest at least 99.5% of
its total assets in cash, U.S. government securities, and/or
|
repurchase
agreements that are fully collateralized by government securities or cash.
Government securities include any security issued or guaranteed
as to principal or interest by the U.S. government and its agencies or
instrumentalities. By investing in a money market fund, the Fund
becomes
a shareholder of that money market fund. As a result, Fund shareholders
indirectly bear their proportionate share of the expenses of the
money
market funds in which the Fund invests in addition to any fees and
expenses Fund shareholders directly bear in connection with the Fund’s
own
operations. These expenses may include, for example, advisory and
administrative fees, including advisory fees charged by the Manager to any
applicable
money market funds advised by the Manager. These other fees and expenses
are reflected in the Fees and Expenses Table for the Fund in its
Prospectus, if applicable. Shareholders also would be exposed to the risks
associated with money market funds and the portfolio investments of
such
money market funds, including that a money market fund’s yield will be
lower than the return that the Fund would have derived from other
investments
that would provide liquidity. Although a money market fund is designed to
be a relatively low risk investment, it is not free of risk. Despite
the short maturities and high credit quality of a money market fund’s
investments, increases in interest rates and deteriorations in the credit
quality
of the instruments the money market fund has purchased can cause the price
of a money market security to decrease and may reduce the money
market fund’s yield. In addition, a money market fund is subject to the
risk that the value of an investment may be eroded over time by
inflation.
Factors that could adversely affect the value of a money market fund’s
shares include, among other things, a sharp rise in interest rates, an
illiquid
market for the securities held by the money market fund, a high volume of
redemption activity in a money market fund’s shares, and a credit
event
or credit rating downgrade affecting one or more of the issuers of
securities held by the money market fund. There can be no assurance that a
money
market fund will maintain a $1.00 per share net asset value (“NAV”) at all
times. |
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Government
Obligations.
Government obligations may include U.S. Treasury securities, Treasury
inflation-protected securities, and other debt instruments
backed by the full faith and credit of the United States, or debt
obligations of U.S. Government-sponsored
entities. |
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Short-term
Corporate
Debt Securities.
Short-term corporate debt securities are securities and bonds issued by
corporations with shorter terms to maturity.
Corporate securities generally bear a higher risk than U.S. government
bonds. |
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Time
Deposits.
Time deposits, also referred to as “fixed time deposits,” are
non-negotiable deposits maintained at a banking institution for a
specified
period of time at a specified interest rate. Time deposits may be
withdrawn on demand by the investor, but may be subject to early
withdrawal
penalties which vary depending upon market conditions and the remaining
maturity of the obligation. There are no contractual restrictions
on the right to transfer a beneficial interest in a time deposit to a
third party, although there is no market for such
deposits. |
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Contracts
for Differences
— A contract for difference (“CFD”) is a contract in which one party
agrees to pay the other party an amount of money based
on the difference between the current value of an asset (such as a single
security, a basket of securities or an index) and its value on a
specified
date in the future. CFDs allow the Fund to take a long or short position
without having to own the reference security or index. A CFD is a
privately
negotiated over-the-counter contract. Both buyer and seller generally are
required to post margin, which is adjusted daily, and adverse market
movements against the underlying asset may require the buyer to make
additional margin payments. The buyer may also pay to the seller a
financing
rate on the notional amount of the capital employed by the seller, less
the margin deposit. A CFD is usually terminated at the buyer’s
initiative.
By entering into a CFD transaction, the Fund could incur losses because it
would face many of the same types of risks as owning the underlying
asset directly. As with other types of swap transactions, CFDs also carry
counterparty risk, which is the risk that the counterparty to the
CFD
transaction may be unable or unwilling to make payments to or otherwise
honor its financial obligations under the terms of the contract, that
the
parties may disagree as to the meaning or application of contractual
terms, or that the asset may not perform as expected. CFDs are similar to
total
return swaps, except that payment only occurs once, on the contract
expiration date, whereas payment on total return swaps typically occurs at
agreed
upon intervals. |
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Forward
Foreign Currency Contracts. The
Fund may enter into forward foreign currency contracts (“forward currency
contracts”), which are a type
of derivative instrument, for a variety of reasons. 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 forward currency contracts normally are 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
its 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 use forward currency contracts to seek to hedge against, or profit
from, 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 a sub-advisor believes will have a positive correlation to
the
values of the currency being hedged. When hedging, 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 involve 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
Fund also may enter into forward currency contracts for non-hedging
purposes if a foreign currency is anticipated to appreciate or depreciate
in value,
but securities denominated in that currency do not present attractive
investment opportunities and are not held in the Fund’s investment
portfolio. |
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
securities whose U.S. dollar value is being hedged by those contracts
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 currency 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 currency contract, but such remedies may
be
subject to bankruptcy and insolvency laws which could affect the Fund’s
rights as a creditor. |
At
the maturity of a forward contract, the Fund may sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and
either extend the maturity of the forward contract (by “rolling” that
contract forward) or may initiate a new forward contract. If the Fund
retains
the portfolio security and engages in an offsetting transaction, the Fund
will incur a gain or a loss (as described below) to the extent that
there
has been movement in forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward
contract
to sell the foreign currency. |
Should
forward prices decline during the period between the Fund’s entering into
a forward contract for the sale of a foreign currency and the date
it
enters into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the
currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Fund will suffer a loss to the extent
the price
of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell. |
Forward
currency contracts in which the Fund may engage include foreign exchange
forwards. The consummation of a foreign exchange forward requires
the actual exchange of the principal amounts of the two currencies in the
contract (i.e., settlement on a physical basis). Because foreign
exchange
forwards 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. A foreign exchange
forward generally has no deposit requirement, and no commissions
are charged at any stage for trades; foreign exchange dealers realize a
profit based on the difference (the spread) between the prices at
which
they are buying and the prices at which they are selling various
currencies. When the Fund enters into a foreign exchange forward, 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. |
The
Fund may be required to obtain the currency that it must deliver under the
foreign exchange forward through the sale of portfolio securities
denominated
in such currency or through conversion of other assets of the Fund into
such currency. When the Fund engages in foreign currency
transactions
for hedging purposes, it will not enter into foreign exchange forwards to
sell currency or maintain a net exposure to such contracts if their
consummation would obligate the Fund to deliver an amount of foreign
currency materially in excess of the value of its portfolio securities or
other
assets denominated in that currency. |
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Non-Deliverable
Currency Forwards. The
Fund also may enter into NDFs. NDFs are cash-settled, short-term forward
contracts on foreign currencies
(each a “Reference Currency”), generally on currencies that are
non-convertible, and may be thinly traded or illiquid. NDFs involve an
obligation
to pay a U. S. dollar 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 other forward currency contracts, NDFs do not require physical delivery of a Reference Currency on the settlement date. Rather, on the settlement date, one counterparty pays the Settlement Amount. 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 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 swaps, and consequently commodity interests for purposes of amended Regulation 4.5. Although NDFs have historically been traded OTC, some are now exchange-traded pursuant to the Dodd-Frank Act. 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. NDFs that remain traded OTC will be subject to margin requirements for uncleared swaps and counterparty risk common to other swaps. |
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Forward
Contracts. The
Fund may enter into forward contracts. Forward contracts are a type of
derivative instrument that obligate the purchaser to
take delivery of, or cash settle a specific amount of, a commodity,
security or obligation underlying the 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 asset against receipt of the
specified price.
Generally, forward contracts are traded through financial institutions
acting as market-makers, on certain securities exchanges, or over-the-counter,
and the protections afforded to investors may vary depending on the
trading environment. This is distinguishable from futures contracts,
which are traded on U.S. and foreign commodities
exchanges. Forward contracts are often negotiated on an individual basis and are not standardized. The market for forward contracts is substantially unregulated, as there is no limit on daily price movements and speculative position limits are not applicable. The principals who deal in certain forward contract markets are not required to continue to make markets in the underlying reference assets in which they trade and these markets can experience periods of illiquidity, sometimes of significant duration. There have been periods during which certain participants in forward contract markets have refused to quote prices for certain underlying references or have quoted prices with an unusually wide spread between the price at which they were prepared to buy and that at which they were prepared to sell. At or prior to maturity of a forward contract, the Fund may enter into an offsetting contract and may incur a loss to the extent there has been adverse movement in forward contract prices. The liquidity of the markets for forward contracts depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants make or take delivery, liquidity in the market for forwards could be reduced. A relatively small price movement in a forward contract may result in substantial losses to the Fund, exceeding the amount of the margin paid. Forward contracts can increase the Fund’s risk exposure to underlying reference assets and their attendant risks. 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. |
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Futures
Contracts. The
Fund may enter into futures contracts. Futures contracts are a type of
derivative instrument that obligate the purchaser to take
delivery of, or cash settle a specific amount of, a commodity, security or
other obligation underlying the 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.
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 margin” consisting of cash, U.S. Government securities, suitable money market instruments, or liquid, high-grade debt 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 (sometimes referred to as “maintenance 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, or even
intraday, variation margin calls that could be substantial in the event of
adverse
price movements. If the Fund has insufficient cash to meet daily or
intraday 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 trades that contract. 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 many futures contracts by their terms call for the actual delivery or acquisition of the underlying asset, 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. If an offsetting purchase price is less than the original sale price, the Fund realizes a capital gain, or if it is more, the Fund realizes a capital loss. Conversely, if an offsetting sell price is more than the original purchase price, the Fund realizes a capital gain, or if it is less, the Fund realizes a capital loss. The Fund have no current intent to accept physical delivery in connection with the settlement of 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 markets, 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 a sub-advisor may still not result in a successful transaction. Futures contracts also entail other 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. 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. The degree of imperfection of correlation depends on circumstances such as variations in speculative market demand for futures, including technical influences in futures trading, and differences between the financial instruments being hedged and the instruments underlying the standard contracts available for trading in such respects as interest rate levels, maturities, and creditworthiness of issuers. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. |
■ |
Options.
The Fund may purchase and sell put options and call options, each a type
of derivative instrument, on securities and foreign currencies. A
call
option is “covered” if the Fund simultaneously holds an equivalent
position in the security underlying the option. Where the underlying
security is
a convertible bond, the call option is considered to be uncovered until
the option is exercised. |
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 or pay the value of 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. |
When
the Fund writes a call option, it is obligated to sell a security to a
purchaser at a specified price at any time until a certain date if the
purchaser decides
to exercise the option. The Fund will receive a premium for writing a call
option. So long as the obligation of the call option continues, the
Fund
may be assigned an exercise notice, requiring it to deliver the underlying
security against payment of the exercise price. The Fund may be
obligated
to deliver securities underlying an option at less than the market price.
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. If a call option that the
Fund has written expires unexercised, the Fund will realize a gain in
the
amount of the premium; however, that gain may be offset by a decline in
the market value of the underlying security during the option period. If
a
call option is exercised, the Fund will realize a gain or loss from the
sale of the underlying security. |
When
the Fund writes a put option, it is obligated to acquire a security at a
certain price at any time until a certain date if the purchaser decides to
exercise
the option. The Fund will receive a premium for writing a put option. 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 a corresponding option
with the same exercise price and expiration date as the option
previously
written. If a put option that the Fund has written expires unexercised,
the Fund will realize a gain in the amount of the premium. 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 unexercised 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. |
A
closing purchase transaction for exchange-traded options may be made only
on a national securities exchange. 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. There is no
assurance
that a liquid secondary market on an exchange will exist for a particular
option, or at any particular time, and for some options, such as
OTC
options, no secondary market on an exchange may exist. 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. The Fund may use NDOs which
are
foreign exchange products designed
to assist in reducing the foreign exchange risk, in particular situations
when physical delivery of the underlying
currencies is not required or not
possible. |
The
Fund may write (sell) and purchase covered or uncovered call and covered
put options on foreign currencies for hedging or non-hedging purposes.
The Fund may use options on foreign currencies to protect against
decreases in the U.S. dollar value of securities held or increases in the
U.S.
dollar cost of securities to be acquired by the Fund or to protect the
U.S. dollar equivalent of dividends, interest, or other payments on those
securities.
In addition, the Fund may write and purchase covered or uncovered call and
covered put options on foreign currencies for non-hedging purposes
(e.g., when the Manager or sub-advisor anticipates that a foreign currency
will appreciate or depreciate in value, but securities denominated
in that currency do not present attractive investment opportunities and
are not held in the Fund’s investment portfolio). The Fund may
write
covered or uncovered call and covered put options on any currency in order
to realize greater income than would be realized on portfolio securities
alone. Currency options have characteristics and risks similar to those of
securities options, as discussed herein. Certain options on foreign
currencies
are traded on the OTC market and involve liquidity and credit risks that
may not be present in the case of exchange-traded currency options. |
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Structured
Products.
The Fund may invest in structured products, including instruments
such as credit-linked securities, commodity-linked notes and
structured notes, which are potentially high-risk derivatives. For
example, a structured product may combine a traditional stock or bond with
an option
or forward contract. Generally, the principal amount, amount payable upon
maturity or redemption, or interest rate of a structured product is
tied
(positively or negatively) to the price of some currency or securities
index or another interest rate or some other economic factor (each, a
“benchmark”).
The interest rate or (unlike most fixed-income securities) the principal
amount payable at maturity of a structured product may be increased
or decreased, depending on changes in the value of the
benchmark. |
Structured
products can be used as an efficient means of pursuing a variety of
investment goals, including currency hedging, duration management,
and
increased total return. Structured products may not bear interest or pay
dividends. The value of a structured product or its interest rate may be a
multiple
of a benchmark and, as a result, may be leveraged and move (up or down)
more steeply and rapidly than the benchmark. These benchmarks
may be sensitive to economic and political events, such as commodity
shortages and currency devaluations, which cannot be readily foreseen
by the purchaser of a structured product. Under certain conditions, the
redemption value of a structured product could be zero. Thus, an
investment
in a structured product may entail significant market risks that are not
associated with a similar investment in a traditional, U.S. dollar-denominated
bond that has a fixed principal amount and pays a fixed rate or floating
rate of interest. The purchase of structured products also exposes
the Fund to the credit risk of the issuer of the structured product.
These risks may cause significant fluctuations in the NAV of the
Fund. |
■ |
Credit-Linked
Notes.
CLNs are derivative debt obligations that are issued by limited purpose
entities or by financial firms, such as banks, securities
firms or their affiliates, and that are structured so that their
performance is linked to that of an underlying bond or other debt
obligation (a
“reference asset”), normally by means of an embedded or underlying credit
default swap. The issuer of a CLN in turns enters into a credit
protection
agreement or invests in a derivative instrument or basket of derivative
instruments, such as credit default swaps or interest rate swaps,
to
obtain exposure to certain fixed-income markets or to remain fully
invested when more traditional income producing securities are not
available. The reference assets for the CLNs in which the Fund may invest will be limited to sovereign or quasi-sovereign debt instruments or other investments in which the Fund’s investment policies permit it to invest directly. The Fund may invest in CLNs when the Fund’s sub-advisor believes that doing so is more efficient than investing in the reference assets directly or when such direct investment by the Fund is not feasible due to legal or other restrictions. The issuer or one of the affiliates of the issuer of the CLNs in which the Fund will invest, normally will purchase the reference asset underlying the CLN directly, but in some cases it may gain exposure to the reference asset through a credit default swap or other derivative. Under the terms of a CLN, the Fund will receive a fixed or variable rate of interest on the outstanding principal amount of the CLN, which in turn will be subject to reduction (potentially down to zero) if a “credit event” occurs with respect to the underlying reference asset or its issuer. Such credit events will include payment defaults on the reference asset, and normally will also include events that do not involve an actual default, such as actual or potential insolvencies, repudiations of indebtedness, moratoria on payments, reference asset restructurings, limits on the convertibility or repatriation of currencies, and the imposition of ownership restrictions. If a credit event occurs, payments on the CLN would terminate, and the Fund normally would receive delivery of the underlying reference asset (or, in some cases, a comparable “deliverable” asset) in lieu of the repayment of principal. In some cases, however, including but not limited to instances where there has been a market disruption or in which it is |
or
has become illegal, impossible or impracticable for the Fund to purchase,
hold or receive the reference assets, the Fund may receive a cash
settlement
based on the value of the reference asset or a comparable instrument, less
fees charged and certain expenses incurred by the CLN issuer. CLNs are debt obligations of the CLN issuers, and the Fund would have no ownership or other property interest in the reference assets (other than following a credit event that results in the reference assets being delivered to the Fund) or any direct recourse to the issuers of those reference assets. Thus, the Fund will be exposed to the credit risk of the issuers of the reference assets that underlie its CLNs, as well as to the credit risk of the issuers of the CLNs themselves. CLNs will also be subject to currency risk, liquidity risk, valuation risks, and the other risks of a credit default swap. Various determinations that may need to be made with respect to the CLNs, including the occurrence of a credit event, the selection of deliverable assets (where applicable) and the valuation of the reference asset for purposes of determining any cash settlement amount, normally will be made by the issuer or sponsor of the CLN. The interests of such issuer or sponsor may not be aligned with those of the Fund or other investors in the CLN. Accordingly, CLNs may also be subject to potential conflicts of interest. There may be no established trading market for the Fund’s CLNs, in which event they may constitute illiquid investments. |
■ |
Structured
Notes. The
Fund may invest in structured notes, which are derivative debt instruments
with principal and/or interest payments linked to
the value of a reference instrument (for example, a commodity, a foreign
currency, an index of securities, an interest rate or other financial
indicators).
The payments on a structured note may vary based on changes in one or more
specified reference instruments, such as a floating interest
rate compared to a fixed interest rate, the exchange rates between two
currencies, one or more securities or a securities or commodities
index.
A structured note may be positively or negatively indexed. For example,
its principal amount and/or interest rate may increase or decrease if
the
value of the reference instrument increases, depending upon the terms of
the instrument. The change in the principal amount payable with
respect
to, or the interest rate of, a structured note may be a multiple of the
percentage change (positive or negative) in the value of the underlying
reference instrument or instruments, which can make the value of such
securities volatile. This type of note increases the potential for
income
but at a greater risk of loss than a typical debt security of the same
maturity and credit quality. Structured notes can be used to increase
the
Fund’s exposure to changes in the value of assets or to hedge the risks of
other investments that the Fund holds. Structured notes are subject to interest rate risk. They are also subject to credit risk with respect both to the issuer and, if applicable, to the underlying security or borrower. If the underlying investment or index does not perform as anticipated, the structured note might pay less interest than the stated coupon payment or repay less principal upon maturity. The price of structured notes may be very volatile and they may have a limited trading market, making it difficult to value them or sell them at an acceptable price. In some cases, the Fund may enter into agreements with an issuer of structured notes to purchase minimum amounts of those notes over time. Certain issuers of structured products may be deemed to be investment companies as defined in the Investment Company Act. As a result, the Fund’s investments in these structured products may be subject to limits applicable to investments in other investment companies. |
■ |
Swap
Agreements.
A swap is a transaction in which the Fund and a counterparty agree 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) or the performance of
specified
securities or indices based on a specified amount (the “notional” amount).
Nearly any type of derivative, including forward contracts, can
be
structured as a swap. 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. Swaps may have a leverage
component,
and 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 exposed to the creditworthiness of the clearing
organizations (and, consequently, that of their members - generally,
banks
and broker-dealers) 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 able to recover only a portion of the
net
amount of gains on its transactions and of the margin owed to it,
potentially resulting in losses to the investor. Swaps that are not
centrally cleared
involve 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. If a counterparty’s creditworthiness declines, the value of the
swap
might decline, potentially resulting in losses to the Fund. 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. To mitigate this risk, the
Fund
will only enter into swap agreements with counterparties considered by a
sub-advisor to present minimum risk of default, and the Fund normally
obtains collateral to secure its exposure. Swaps involve the risk that, if
the swap declines in value, additional margin would be required to
maintain
the margin level. The seller may require the Fund to deposit additional
sums to cover this, and this may be at short notice. If additional
margin
is not provided in time, the seller may liquidate the positions at a loss,
which may cause the Fund to owe money to the seller. The centrally
cleared
and OTC swap agreements into which the Fund enters normally provide for
the obligations of the Fund and its counterparty in the event of a
default
or other early termination to be determined on a net basis. Similarly,
periodic payments on a swap transaction that are due by each party on
the
same day normally are netted. 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, and the Fund may be unable to sell a swap agreement to
a
third party at a favorable price; see “Illiquid and Restricted Securities”
for a description of liquidity risk. |
■ |
Credit
Default Swaps.
In a credit default swap, one party (the seller) agrees to make a payment
to the other party (the buyer) in the event that a “credit
event,” such as a default or issuer insolvency, occurs with respect to one
or more underlying or “reference” bonds or other debt securities.
The
Fund may be either a seller or a buyer of credit protection under a credit
default swap. The purchaser pays a fee during the life of the swap. If
there
is a credit event with respect to a referenced debt security, the seller
under a credit default swap may be required to pay the buyer the par
amount
(or a specified percentage of the par amount) of that security in exchange
for receiving the referenced security (or a specified alternative
security)
from the buyer. Credit default swaps may be on a single security, a basket
of securities or on a securities index. Alternatively, the credit
|
default
swap may be cash settled, meaning that the seller will pay the buyer the
difference between the par value and the market value of the defaulted
bonds. If the swap is on a basket of securities (such as the CDX indices),
the notional amount of the swap is reduced by the par amount of
the defaulted bond, and the fixed payments are then made on the reduced
notional amount. Taking a long position in (i.e., acting as the seller under) a credit default swap increases the exposure to the specific issuers, and the seller could experience a loss if a credit event occurs and the credit of the reference entity or underlying asset has deteriorated. As a seller, the Fund would effectively add leverage because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the swap. Taking a short position in (i.e., acting as the buyer under) a credit default swap results in opposite exposures for the Fund. The risks of being the buyer of credit default swaps include the cost of paying for credit protection if there are no credit events, pricing transparency when assessing the cost of a credit default swap, counterparty risk, and the need to fund any delivery obligation, particularly in the event of adverse pricing when purchasing bonds to satisfy a delivery obligation. Credit default swap buyers are also subject to counterparty risk since the ability of the seller to make required payments is dependent on its creditworthiness. |
■ |
Currency
Swaps.
A currency swap involves the exchange of payments denominated in one
currency for payments denominated in another. Payments
are based on a notional principal amount, the value of which is fixed in
exchange rate terms at the swap’s inception. Currency swap agreements
may be entered into on a net basis or may involve the delivery of the
entire principal value of one designated currency in exchange for
the
entire principal value of another designated currency. In such cases, the
entire principal value of a currency swap is subject to the risk that the
counterparty
will default on its contractual delivery obligations. Currency swaps are
subject to currency risk. |
■ |
Interest
Rate and Inflation Swaps.
In an interest rate swap, the parties exchange payments based on fixed or
floating interest rates multiplied by
a hypothetical or “notional” amount. For example, one party might agree to
pay the other a specified fixed rate on the notional amount in
exchange
for recovering a floating rate on that notional amount. Interest rate swap
agreements entail both interest rate risk and counterparty risk.
The
purchase of an interest rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments
of interest on a notional principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor entitles the
purchaser,
to the extent that a specified index falls below a predetermined interest
rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate floor. There is a risk that
based on movements of interest rates, the payments made under a swap
agreement
will be greater than the payments received. The Fund may also invest in
inflation swaps, where an inflation rate index is used in place
of
an interest rate index. |
■ |
Total
Return Swaps.
In a total return swap transaction, one party agrees to pay the other
party an amount equal to the total return on a defined underlying
asset such as a security or basket of securities or on a referenced index
during a specified period of time. In return, the other party would
make periodic payments based on a fixed or variable interest rate or on
the total return from a different underlying asset or index. Total
return
swap agreements may be used to gain exposure to price changes in an
overall market or an asset. Total return swaps may effectively add
leverage
to the Fund’s portfolio because, in addition to its net assets, the Fund
would be subject to investment exposure on the notional amount
of
the swap, which may exceed the Fund’s net assets. If the Fund is the total
return receiver in a total return swap, then the credit risk for an
underlying
asset is transferred to the Fund in exchange for its receipt of the return
(appreciation) on that asset or index. If the Fund is the total
return
payer, it is hedging the downside risk of an underlying asset or index but
it is obligated to pay the amount of any appreciation on that asset
or
index. Total return swaps could result in losses if the underlying asset
or index does not perform as anticipated. Written total return swaps can
have
the potential for unlimited losses. |
■ |
Warrants.
Warrants are options to purchase an issuer’s securities at a stated price
during a stated term, usually at a price below the initial offering
price
of the securities and before the securities are offered to the general
public. 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. As a result, warrants may be considered more
speculative
than certain other types of investments. 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. Warrants
may also be linked to the performance of oil and/or the GDP of specific
developing markets.
Warrants
are usually freely transferable, but may not be as liquid as
exchange-traded options, and the market for warrants may be very limited
and it may
be difficult to sell them promptly at an acceptable
price. |
■ |
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 generally will decline as prevailing
interest
rates rise, which may cause the Fund’s NAV 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. They 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. |
■ |
High-Yield
Bonds.
High-yield, non-investment grade bonds (also known as “junk bonds”) are
low-quality, high-risk corporate bonds that generally offer
a high level of current income. These bonds are considered speculative
with respect to the issuer’s ability to pay interest and repay principal
by rating
organizations. For example, Moody’s, S&P Global, and Fitch, Inc.
currently rate them below Baa3, BBB- and BBB-, respectively. Please see
“Appendix
A: Ratings Definitions” below for an explanation of the ratings applied to
high-yield bonds. High-yield bonds are often issued as a result
of
corporate restructurings, such as leveraged buyouts, mergers,
acquisitions, or other similar events. They may also be issued by smaller,
less creditworthy
companies or by highly leveraged firms, which are generally less able to
make scheduled payments of interest and principal than more financially
stable firms. Because of their lower credit quality, high-yield bonds must
pay higher interest to compensate investors for the substantial
credit
risk they assume. Lower-rated securities are subject to certain risks that
may not be present with investments in higher-grade securities.
Investors
should consider carefully their ability to assume the risks associated
with lower-rated securities before investing in the Fund. The lower
rating
of certain high-yield corporate income securities reflects a greater
possibility that the financial condition of the issuer or adverse changes
in general
economic conditions may impair the ability of the issuer to pay income and
principal. Changes by rating agencies in their ratings of a
|
fixed-income
security also may affect the value of these investments; however,
allocating investments in the Fund among securities of different
issuers
should reduce the risks of owning any such securities separately. The
prices of these high-yield securities tend to be less sensitive to
interest rate
changes than higher-rated investments, but more sensitive to adverse
economic changes or individual corporate developments. During economic
downturns, periods of rising interest rates, or when inflation or
deflation occurs, highly leveraged issuers may experience financial stress
that
adversely affects their ability to service principal and interest payment
obligations, to meet projected business goals or to obtain additional
financing,
and the markets for their securities may be more volatile. They may also
not have more traditional methods of financing available to them
and
may be unable to repay debt at maturity by refinancing. In addition,
lower-rated securities may experience substantial price declines when
there is
an expectation that issuers of such securities might experience financial
difficulties. As a result, the yields on lower-rated securities can rise
dramatically.
However, the higher yields of high-yield securities may not reflect the
value of the income stream that holders of such securities may
expect,
but rather the risk that such securities may lose a substantial portion of
their value as a result of their issuer’s financial restructuring or
default.
If an issuer defaults, the Fund may incur additional expenses to seek
recovery. Additionally, accruals of interest income for the Fund may
have
to be adjusted in the event of default. In the event of an issuer’s
default, the Fund may write off prior income accruals for that issuer,
resulting in
a reduction in the Fund’s current dividend payment. In the event of an in
court or out of court restructuring of high-yield bond in which the Fund
invests,
the Fund may acquire (and subsequently sell) equity securities or exercise
warrants that it receives. In addition, the market for high-yield
securities
generally is less robust and active than that for higher-rated securities,
which may limit the Fund’s ability to sell such securities at fair value
in
response to changes in the economy or financial markets and could make the
valuation of these portfolio securities more
difficult. |
■ |
African
Securities.
The Fund may invest in securities of issuers in African countries that
involve heightened risks of political instability, civil war, armed
conflict, social instability as a result of religious, ethnic and/or
socio-economic unrest, authoritarian and/or military involvement in
governmental
decision-making, corruption, expropriation and/or nationalization of
assets, confiscatory taxation, genocidal warfare in certain countries,
and other risks. Many under-developed African countries have developing capital markets that do not contain the safeguards inherent in those of developed countries. Risks of investing in such markets include heightened volatility, smaller investor base, fewer brokerage firms, heightened counterparty risk, inconsistent and rapidly changing regulation, and the risk that trading on African securities markets may be suspended altogether. Some markets of the countries in Africa in which the Fund may invest are in only the earliest stages of development with less liquidity, fewer securities brokers, fewer issuers and more capital market restrictions than developed markets. There may be less financial and other information publicly available to investors, and the information that is provided may lack integrity. Uniform accounting, auditing and financial reporting standards may not exist, and the governments of certain countries may exercise substantial influence over many aspects of the private sector. Investments in certain countries may require the adoption of special procedures that may involve additional costs to the Fund. Certain African countries may unpredictably restrict or control the extent to which foreign investors may invest in securities of issuers located in those countries, and governments may limit the repatriation of investment proceeds to foreign countries. Regulation may require governmental approval or |
special
licenses for foreign investors and limitations could be places on
investment practices regarding share-class ownership, shareholder rights
and title
to securities. A delay in obtaining a government approval or a license
would delay investments in a particular country, and, as a result, the
Fund may
not be able to invest in certain securities while approval is pending.
Additionally, taxes may be placed on foreign investors, and while portions
of these
taxes may be recoverable, any non-recovered portions will reduce the
income received from investments in such countries. Even in circumstances
where adequate laws and shareholder rights exist, it may not be possible
to obtain timely and equitable enforcement of the law. Many countries in Africa are heavily dependent on international trade and are subject to trade barriers, embargoes, exchange controls, currency valuation adjustments and other protectionist measures. A primary source of revenue for these countries is the export of commodities including precious minerals and metals, agricultural products and energy products. The countries are, therefore, more vulnerable to changes in commodity prices, interest rates, or sectors affecting a particular commodity, such as drought, floods, weather, embargoes, tariffs, and international economic, political and regulatory developments. Certain issuers located in countries in Africa in which the Fund may invest may operate in, or have dealings with, countries subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations, and/or countries identified by the U.S. government as state sponsors of terrorism. As a result, an issuer may sustain damage to its reputation if it is identified as an issuer which operates in, or has dealings with, such countries. In addition, disease epidemics are more likely to affect trade practices and international dealings with certain African countries. Political instability and protests in North Africa and the Middle East have caused significant disruptions to many industries. Political and social unrest can spread quickly through the region, and developments in one country can influence the political events in neighboring countries. Protests may turn violent, and civil war and political reconstruction in certain countries pose a risk to investments in the region. Continued political and social unrest, including ongoing warfare and terrorist activities in the Middle East and Africa, may negatively affect the value of an investment in the Fund. All of these risks, among others, could adversely affect the Fund’s investments in African countries. Any particular country in Africa may be subject to the foregoing risks in greater or lesser degrees relative to other countries in Africa, and as a result, circumstances that may positively affect a country in Africa in which the Fund is not invested may not have a corresponding positive effect on other countries in Africa in which the Fund is invested. |
■ |
Developing
Market Investments.
The Fund may invest in developing market securities. Developing countries
include all countries in the world except
the countries that are classified by MSCI Inc. as “developed markets.”
Developing countries typically have lower incomes, less integrated
financial
markets, smaller economies, and less mature political systems compared to
developed countries. Developing countries are commonly located
in Africa, the Asia-Pacific region, Central or Eastern Europe, the Middle
East, Central America or the Caribbean, and South America. Investments
in developing market country securities involve special risks. The
economies, markets and political structures of a number of the
developing
market countries in which the Fund can invest do not compare favorably
with the United States and other mature economies in terms of wealth
and stability. Therefore, investments in these countries may be riskier,
and will be subject to erratic and abrupt price movements. These risks
are
discussed below. Economies. The economies of developing market countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, reliable access to capital, capital reinvestment, resource self-sufficiency and balance of payments and trade difficulties. Some economies are less well developed and less diverse (for example, Latin America, Eastern Europe and certain Asian countries), and may be heavily dependent upon international trade, as well as the economic conditions in the countries with which they trade. Such economies accordingly have been, and may continue to be, adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist or retaliatory measures imposed or negotiated by the countries with which they trade. Similarly, many of these countries have historically experienced, and may continue to experience, high rates of inflation, high interest rates, exchange rate fluctuations, large amounts of national and external debt, severe recession, and extreme poverty and unemployment. Developing market countries may also experience a higher level of exposure and vulnerability to the adverse effects of climate change. This may be attributed to both the geographic location of developing market countries and/or a country’s lack of access to technology or resources to adjust and adapt to its effects. An increased occurrence and severity of natural disasters and extreme weather events such as droughts and decreased crop yields, heat waves, flooding and rising sea levels, and increased spread of disease, could cause harmful effects to the performance of affected economies. The economies of developing 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. Developing market economies may develop unevenly or may never fully develop. Investments in countries that have recently begun moving away from central planning and state-owned industries toward free markets, such as the Eastern European, Russian or Chinese economies, should be regarded as speculative. Governments. Developing markets may have uncertain national policies and social, political and economic instability. While government involvement in the private sector varies in degree among developing market countries, such involvement may in some cases include government ownership of companies in certain sectors, wage and price controls or imposition of trade barriers and other protectionist measures. 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 addition, there is no guarantee that some future economic or political crisis will not lead to price controls, forced mergers of companies, confiscatory taxation or creation of government monopolies to the possible detriment of the Fund’s investments. In such event, it is possible that the Fund could lose the entire value of its investments in the affected markets. Developing market countries may have national policies that limit the Fund’s investment opportunities such as restrictions on investment in issuers or industries deemed sensitive to national interests. Repatriation of investment income, capital and the proceeds of sales by foreign investors may require governmental registration and/or approval in some developing market countries. In addition, if the Fund invests in a market where restrictions are considered acceptable, a country could impose new or additional repatriation restrictions after investment that are unacceptable. This might require, among other things, applying to the appropriate authorities for a waiver of the restrictions or engaging in transactions in other markets designed to offset the risks of decline in that country. Further, some attractive securities may not be available, or may require a premium for purchase, due to foreign shareholders already holding the maximum amount legally permissible. In addition to withholding taxes on investment income, some countries with developing capital markets may impose differential capital gain taxes on foreign investors. An issuer or governmental authority that controls the repayment of a developing market country’s debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A debtor’s willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, and, in the case of a government debtor, the extent of its foreign |
reserves,
the availability of sufficient foreign exchange on the date a payment is
due, the relative size of the debt service burden to the economy as a
whole
and the political constraints to which a government debtor may be subject.
Government debtors may default on their debt and may also be dependent
on expected disbursements from foreign governments, multilateral agencies
and others abroad to reduce principal and interest arrearages
on their debt. Holders of government debt may be requested to participate
in the rescheduling of such debt and to extend further loans to
government debtors. There may be limited legal recourse against the issuer
and/or guarantor. Remedies must, in some cases, be pursued in the
courts
of the defaulting party itself, and the ability of the holder of foreign
government fixed-income securities to obtain recourse may be subject to
the
political climate in the relevant country. In addition, no assurance can
be given that the holders of commercial bank debt will not contest
payments
to the holders of other foreign government debt obligations in the event
of default under their commercial bank loan agreements. Capital Markets. The capital markets in developing market countries may be underdeveloped. They may have low or non-existent trading volume, resulting in a lack of liquidity and increased volatility in prices for such securities, as compared to securities from more developed capital markets. Developing market securities may be substantially less liquid and more volatile than those of mature markets, and securities may be held by a limited number of investors. This may adversely affect the timing and pricing of the Fund’s acquisition or disposal of securities. There may be less publicly available information about issuers in developing market countries than would be available 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 developing capital markets, reporting standards vary widely. As a result, traditional investment measurements used in the U.S., may not be applicable. Investing in certain countries with developing capital markets may entail purchasing securities issued by or on behalf of entities that are insolvent, bankrupt, in default or otherwise engaged in an attempt to reorganize or reschedule their obligations, and in entities that have little or no proven credit rating or credit history. In any such case, the issuer’s poor or deteriorating financial condition may increase the likelihood that the investing Fund will experience losses or diminution in available gains due to bankruptcy, insolvency or fraud. There may also be custodial restrictions or other non-U.S. or U.S. governmental laws or restrictions applicable to investments in developing market countries. Practices in relation to the clearing or settlement of securities transactions in developing markets involve higher risks than those in developed markets, in part because the Fund may use brokers and counterparties that are less well capitalized, and custody and registration of assets in some countries may be unreliable. Supervisory authorities also may be unable to apply standards comparable to those in developed markets. Thus, there may be risks that settlement may be delayed and that cash or securities belonging to the Fund may be in jeopardy because of failures of or defects in the systems. In particular, market practice may require that payment be made before receipt of the security being purchased or that delivery of a security be made before payment is received. In such cases, default by a broker or bank (the “counterparty”) through whom the transaction is effected might cause the Fund to suffer a loss. There can be no certainty that the Fund will be successful in eliminating counterparty risk, particularly as counterparties operating in developing market countries frequently lack the substance or financial resources of those in developed countries. There may also be a danger that, because of uncertainties in the operation of settlement systems in individual markets, competing claims may arise with respect to securities held by or to be transferred to the Fund. |
■ |
Eastern
European and Russian Securities.
In addition to the risks listed under “Foreign Securities - Developing
Market Investments, “ investing in Russian
and other Eastern European issuers presents additional risks. Investing in
the securities of Eastern European and Russian issuers is highly
speculative
and involves risks not usually associated with investing in the more
developed markets of Western Europe, the U.S. or other developed
countries.
Political and economic reforms have not yet established a definite trend
away from centrally planned economies and state-owned industries.
Investments in Eastern European countries may involve risks of
nationalization, expropriation, and confiscatory taxation. Many Eastern
European
countries continue to move towards market economies at different paces
with different characteristics. Most Eastern European markets suffer
from thin trading activity and less reliable investor protections.
Additionally, because of less stringent auditing and financial reporting
standards
as compared to U.S. companies, there may be little reliable corporate
information available to investors. As a result, it may be difficult to
assess
the value or prospects of an investment in Eastern European and Russian
companies. Further, information and transaction costs, differential
taxes,
and sometimes political or transfer risk give a comparative advantage to
the domestic investor rather than the foreign investor. In addition,
these
markets are particularly sensitive to social, political, economic, and
currency events in Western Europe and Russia and may suffer heavy losses
as
a result of their trading and investment links to these economies and
currencies. Additionally, Russia may continue to attempt to assert its
influence
in the region through economic or even military measures, as evidenced by
its invasion of Ukraine in February 2022 and the ongoing conflict
in that region. The United States and the EU historically have imposed economic sanctions on certain Russian individuals and companies, including certain financial institutions, and have limited certain exports and imports to and from Russia. Sanctions, or even the threat of further sanctions, may result in the decline of the value and liquidity of Russian securities, a weakening of the ruble or other adverse consequences to the Russian economy. These sanctions could also result in the immediate freeze of Russian securities, either by issuer, sector or the Russian markets as a whole, impairing the ability of the Fund to buy, sell, receive or deliver those securities. In such circumstances, the Fund may be forced to liquidate non-restricted assets in order to satisfy shareholder redemptions. Such liquidation of Fund assets could result in the Fund receiving substantially lower prices for its securities. Sanctions could also result in Russia taking counter measures or retaliatory actions which may further impair the value and liquidity of Russian securities. As a result, the Fund’s performance may be adversely affected. The potential impact of sanctions imposed in response to Russia’s invasion of Ukraine in February 2022 are discussed below. In some of the countries of Eastern Europe, there is no stock exchange or formal market for securities. Such countries may also have government exchange controls, currencies with no recognizable market value relative to the established currencies of Western market economies, little or no experience in trading in securities, no accounting or financial reporting standards, a lack of banking and securities infrastructure to handle such trading and a legal tradition that does not recognize rights in private property. Credit and debt issues and other economic difficulties affecting Western Europe and its financial institutions can negatively affect Eastern European countries. Eastern European economies may also be particularly susceptible to the volatility of the international credit market due to their reliance on bank related inflows of foreign capital, and their continued dependence on the Western European zone for credit and trade. Accordingly, the European crisis may present serious risks for Eastern European economies, which may have a negative effect on the Fund’s investments in the region. Compared to most national stock markets, the Russian securities market suffers from a variety of problems not encountered in more developed |
markets.
There is little long-term historical data on the Russian securities market
because it is relatively new and a substantial proportion of securities
transactions
in Russia are privately negotiated outside of stock exchanges. The
inexperience of the Russian securities market and the limited volume
of
trading in securities in the market may make obtaining accurate prices on
portfolio securities from independent sources more difficult than in
more
developed markets. Poor accounting standards, inept management, pervasive
corruption, insider trading and crime, and inadequate regulatory
protection
for the rights of all investors all may pose additional risks, including
to foreign investors. Because of the relatively recent formation of the Russian securities market as well as the underdeveloped state of the banking and telecommunications systems, settlement, clearing and registration of securities transactions are subject to significant risks not normally associated with securities transactions in the United States and other more developed markets. Prior to 2013, there was no central registration system for equity share registration in Russia and registration was carried out by either the issuers themselves or by registrars located throughout Russia. Such registrars were not necessarily subject to effective state supervision nor were they licensed with any governmental entity, thereby increasing the risk that the Fund could lose ownership of its securities through fraud, negligence, or even mere oversight. With the implementation of the National Settlement Depository (“NSD”) in Russia as a recognized central securities depository, title to Russian equities is now based on the records of the NSD and not the registrars. Although the implementation of the NSD is generally expected to decrease the risk of loss in connection with recording and transferring title to securities, issues resulting in loss still might occur. In addition, issuers and registrars are still prominent in the validation and approval of documentation requirements for corporate action processing in Russia. Because the documentation requirements and approval criteria vary between registrars and/or issuers, there remain unclear and inconsistent market standards in the Russian market with respect to the completion and submission of corporate action elections. Significant delays or problems may occur in registering the transfer of securities, which could cause the Fund to incur losses due to a counterparty’s failure to pay for securities the Fund has delivered or the Fund’s inability to complete its contractual obligations because of theft or other reasons. To the extent that the Fund suffers a loss relating to title or corporate actions relating to its portfolio securities, it may be difficult for the Fund to enforce its rights or otherwise remedy the loss. In addition, there is the risk that the Russian tax system will not be reformed to prevent inconsistent, retroactive, and/or exorbitant taxation, or, in the alternative, the risk that a reformed tax system may result in the inconsistent and unpredictable enforcement of the new tax laws. |
The
Russian economy is heavily dependent upon the export of a range of
commodities including most industrial metals, forestry products, oil, and
gas.
Accordingly, it is strongly affected by international commodity prices and
is particularly vulnerable to any weakening in global demand for these
products.
Decreases in the price of commodities, which have in the past pushed the
whole economy into recession, have demonstrated the sensitivity
of the Russian economy to such price volatility. Russia continues to face
significant economic challenges, including weak levels of investment
and a sluggish recovery in external demand. Over the long-term, Russia
faces challenges including a shrinking workforce, a high level of
corruption,
and difficulty in accessing capital for smaller, non-energy companies and
poor infrastructure in need of large
investments. |
Foreign
investors also face a high degree of currency risk when investing in
Russian securities and a lack of available currency hedging instruments.
In the
past, the Russian ruble has been subject to significant devaluation
pressure as a result of the imposition of sanctions by the United States
and the European
Union and the decline in commodity prices and the value of Russian
exports. Although the Russian Central Bank has spent a significant
amount
of its foreign exchange reserves in an attempt to maintain the ruble’s
value, there is a risk of significant future devaluation. In addition,
there is
the risk that the Russian government may impose capital controls on
foreign portfolio investments in the event of extreme financial or
political crisis.
Such capital controls may prevent the sale of a portfolio of foreign
assets and the repatriation of investment income and capital. These risks
may
cause flight from the ruble into U.S. dollars and other
currencies. |
In
February 2022, Russia launched a large-scale invasion of Ukraine. The
outbreak of hostilities between the two countries could result in more
widespread
conflict and could have a severe adverse effect on the regional and the
global financial markets and economies (including in Europe and
the
U.S.), companies in other countries (including those that have done
business in Russia), and various sectors, industries and markets for
securities and
commodities. Actual and threatened responses to such military action have
impacted, and may continue to impact, the markets for certain Russian
commodities, such as oil and natural gas. In addition, tensions have
increased between Russia’s neighbors and Western countries, which may
adversely
affect the region’s economic growth. Moreover, disruptions caused by
Russian military action or other actions (including cyberattacks and
espionage)
or resulting actual and threatened responses to such activity, including
purchasing and financing restrictions, boycotts or changes in consumer
or purchaser preferences, sanctions, tariffs or cyberattacks on the
Russian government, Russian companies or Russian individuals, including
politicians,
may impact Russia’s economy and Russian issuers of securities in which the
Fund invests. The extent and duration of the military action, the
resulting sanctions or other punitive actions, and the resulting future
market disruptions, are impossible to predict but have been and could
continue
to be significant. Russia’s actions have induced the United States and other countries (collectively, the “Sanctioning Bodies”) to impose economic sanctions on Russia, Russian individuals, and Russian corporate and banking entities, which can consist of prohibiting certain securities trades and private transactions in the energy sector, asset freezes and prohibition of all business with such persons and entities. The sanctions have included a commitment by certain countries and the EU to remove selected Russian banks from the Society for Worldwide Interbank Financial Telecommunications, commonly called “SWIFT,” the electronic network that connects banks globally, and the imposition of restrictive measures to prevent the Russian Central Bank from undermining the impact of the sanctions. A number of large corporations and U.S. states have also divested or announced plans to divest interests or otherwise curtail business dealings with certain Russian businesses. The Sanctioning Bodies may impose additional sanctions in the future. Such sanctions, or even the threat of further sanctions, may impact many sectors of the Russian economy and related markets. Current and potential future sanctions, or the threat of sanctions, and Russia’s response, as discussed below, may cause any of the following: (a) a decline in the value and liquidity of Russian securities; (b) a weakening or devaluation of the ruble; (c) a downgrade in Russia’s credit rating and/or its default on sovereign obligations; (d) increased volatility of Russian securities; (e) the immediate freeze of Russian securities and/or funds invested in prohibited assets; or (f) additional counter measures or retaliatory actions. In response to the sanctions, the Russian Central Bank raised its interest rates, suspended the sales of Russian securities by non-residents of Russia on its local stock exchange, prohibited the repatriation of Russian assets by foreign investors, and barred Russian issuers from participating in depositary receipt programs. Russia may take additional countermeasures or retaliatory actions in the future, including, for example, restricting gas exports to other countries, seizing U.S. and European residents’ assets, imposing capital controls to restrict movements of capital entering and existing the |
country,
or undertaking or provoking other military conflict elsewhere in
Europe. The Russian invasion, sanctions in response, and any related events may adversely and significantly affect the performance of the Fund and its ability to achieve its investment objectives by restricting or prohibiting the Fund’s ability to gain exposure to Russian issuers or other affected issuers. To the extent that the Fund has direct exposure to Russian or Eastern European issuers, these events may also make it difficult for the Fund to sell, receive or deliver securities or assets to realize the value of that exposure. |
■ |
European
Securities.
The Fund’s performance may be affected by political, social and economic
conditions in Europe, such as the
growth
of the
economic
output (the gross national product
of the countries in the region),
the rate of inflation, the rate at which capital is reinvested into
European economies,
the success of governmental actions to reduce budget deficits, the
resource self-sufficiency of European countries,
interest rates in European
countries, monetary exchange rates between European countries, and
conflict between European countries. The Economic and Monetary Union (“EMU”) of the European Union (“EU”) is comprised of EU members that have adopted the euro currency. By adopting the euro as its currency, a member state relinquishes control of its own monetary policies and is subject to fiscal and monetary controls. The EMU requires Eurozone countries to comply with restrictions on interest rates, deficits, debt levels, and inflation rates, fiscal and monetary controls, and other factors. Although the EMU has adopted a common currency and central bank, there is no fiscal union; therefore, money does not automatically flow from countries with surpluses to those with deficits. These restrictions and characteristics may limit the ability of EMU member countries to implement monetary policy to address regional economic conditions and significantly impact every European country and their economic partners, including those countries that are not members of the EMU. In addition, those EU member states that are not currently in the Eurozone (Bulgaria, the Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden), excluding Denmark, are required to seek to comply with convergence criteria to permit entry to the Eurozone. The economies and markets of European countries are often closely connected and interdependent, and events in one country in Europe can have an adverse impact on other European countries. Decreasing imports or exports, changes in governmental or other regulations on trade, changes in the exchange rate of the euro or other European currency, the threat of default or actual default by one or more EU member countries, or other European countries, on its sovereign debt, and/or an economic recession in one or more European countries may have a significant adverse effect on the economies of other European countries and major trading partners outside Europe. The European financial markets have experienced and may continue to experience volatility and adverse trends due to concerns relating to economic downturns; rising government debt levels and national unemployment; the possible default of government debt in several European countries; public health crises; political unrest; economic sanctions; inflation; energy crises; the future of the euro as a common currency; and war and military conflict, such as the Russian invasion of Ukraine. These events have adversely affected the exchange rate of the euro and may continue to significantly affect European countries. Responses to financial problems by European governments, central banks, and others, including austerity measures and other reforms, may not produce the desired results, may result in social unrest and may limit future growth and economic recovery or may have unintended consequences. In order to prevent further economic deterioration, certain countries, without prior warning, can institute “capital controls.” Countries may use these controls to restrict volatile movements of capital entering and exiting their country. Such controls may negatively affect a Fund’s investments. In addition, one or more countries may abandon the euro and/or withdraw from the EU. The impact of these actions, especially if they occur in a disorderly fashion, could be significant and far-reaching. Many European nations are susceptible to economic risks associated with high levels of debt. Non-governmental issuers, and even certain governments, have defaulted on, or been forced to restructure, their debts, and other issuers have faced difficulties obtaining credit or refinancing existing obligations. A default or debt restructuring by any European country could adversely impact holders of that country’s debt and sellers of credit default swaps linked to that country’s creditworthiness, which may be located in other countries. Such a default or debt restructuring could affect exposures to other European countries and their financial companies as well. Further defaults on, or restructurings of, the debt of governments or other entities could have additional adverse effects on economies, financial markets and asset valuations around the world. In addition, issuers may face difficulties obtaining credit or refinancing existing obligations; financial institutions may require government or central bank support, or need to raise capital, and/or be impaired in their ability to extend credit. Furthermore, certain European countries have had to accept assistance from supranational agencies such as the International Monetary Fund, the European Stability Mechanism or others. The European Central Bank has also intervened to purchase Eurozone debt in an attempt to stabilize markets and reduce borrowing costs. There can be no assurance that any creditors or supranational agencies will continue to intervene or provide further assistance, and markets may react adversely to any expected reduction in the financial support provided by these creditors. Certain European countries have also developed increasingly strained relationships with the U.S., and if these relationships were to worsen, they could adversely affect European issuers that rely on the U.S. for trade. In addition, the national politics of European countries have been unpredictable and subject to influence by disruptive political groups, ideologies, and polarizing political events such as the conflict between Israel and Hamas. Secessionist movements, as well as government or other responses to such movements, may create instability and uncertainty in a country or region. European governments may be subject to change and such countries may experience social and political unrest. Unanticipated or sudden political or social developments may result in sudden and significant investment losses. The occurrence of terrorist incidents throughout Europe and in the Middle East also could impact financial markets, as could military conflicts. For example, Houthi attacks on commercial shipping in the Red Sea and Gulf of Aden, and retaliatory action, may disrupt supply chains and cause difficulties for impacted businesses, including those that wish to ship goods through that route. The impact of these kinds of events could be significant and far-reaching and materially impact the value and liquidity of a Fund’s investments. Russia’s war with Ukraine has negatively impacted European economic activity. The Russia/Ukraine war and Russia’s response to sanctions imposed by the U.S. and other countries are impossible to predict, but have severely impacted the performance of the economies of European and other countries, including through adverse effects to global financial and energy markets, global supply chains and global growth, and consequential inflation. Investments in companies with contractual relationships with Russian counterparties, or with significant operations and/or assets in Russia could be adversely impacted by the new legal, political, and regulatory environment, whether by increased costs or the termination of business plans or operations due to sanctions. Various companies operating in Russia, or with Russian counterparties, have faced difficulties enforcing Russian debts or contractual reliefs due to the Russian court’s hostility towards European companies in response to sanctions. Certain countries have applied to become new member countries of the EU, and these candidate countries’ accessions may become more controversial to the existing EU members. Some member states may repudiate certain candidate countries joining the EU due to concerns about the |
possible
economic, immigration and cultural implications. Certain other countries
have applied to join or, in the case of Finland and Sweden, have
recently
joined, the North Atlantic Treaty Organization (“NATO”). Russia is
understood to oppose certain expansions, or potential expansions, of
NATO
and the EU, and its reaction to such developments could negatively impact
European economic activity. The United Kingdom withdrew from the
European Union on January 31, 2020 and entered into a transition period,
which ended on December 31, 2020. The longer-term economic, legal,
and political framework between the United Kingdom and the EU is still
developing and may lead to ongoing political and economic uncertainty
in the United Kingdom, Europe, and the global market. Investments in
companies with significant operations and/or assets in the United
Kingdom
could be adversely impacted by the new legal, political, and regulatory
environment, whether by increased costs or impediments to the implementation
of business plans. The uncertainty resulting from any further exits from
the EU, or the possibility of such exits, would also be likely to
cause
market disruption in the EU and more broadly across the global economy, as
well as introduce further legal, political, and regulatory uncertainty
in Europe. |
■ |
Latin
American Securities. Investments
in securities of Latin American issuers involve risks that are specific to
Latin America, including certain legal, regulatory,
political and economic risks. Most Latin American countries have
experienced, at one time or another, severe and persistent levels of
inflation,
including, in some cases, hyperinflation, as well as high interest rates.
This has at time led to extreme government measures to keep inflation
in check, and a generally debilitating effect on economic growth. Although
inflation in many countries has lessened, there is no guarantee
it
will remain at lower levels. Political Instability. Certain Latin American countries have historically suffered from social, political, and economic instability and volatility, currency devaluations, government defaults and high unemployment rates. For investors, this has meant additional risk caused by periods of regional conflict, political corruption, totalitarianism, protectionist measures, nationalization, hyperinflation, debt crises, sudden and large currency devaluation, and intervention by the military in civilian and economic spheres. However, in some Latin American countries, a move to sustainable democracy and a more mature and accountable political environment is under way. Domestic economies have been deregulated, privatization of state-owned companies is almost completed and foreign trade restrictions have been relaxed. Nonetheless, there can be no guarantee that such trends will continue or that the desired outcomes of these developments will be successful. In addition, to the extent that events such as those listed above continue in the future, they could reverse favorable trends toward market and economic reform, privatization, and removal of trade barriers, and result in significant disruption in securities markets in the region. Investors in the region continue to face a number of potential risks. Governments of many Latin American countries have exercised and continue to exercise substantial influence over many aspects of the private sector. Governmental actions in the future could have a significant effect on economic conditions in Latin American countries, which could affect the companies in which the Fund invests and, therefore, the value of Fund shares. Additionally, an investment in Latin America is subject to certain risks stemming from political and economic corruption, which may negatively affect the country or the reputation of companies domiciled in a certain country. For certain countries in Latin America, political risks have created significant uncertainty in the financial markets and may further limit the economic recovery in the region. Dependence on Exports and Economic Risk. Certain Latin American countries depend heavily on exports to the U.S., investments from a small number of countries, and trading relationships with key trading partners, including the U.S., Europe, Asia and other Latin American countries. Accordingly, these countries may be sensitive to fluctuations in demand, protectionist trade policies, exchange rates and changes in market conditions associated with those countries. Additionally, in Mexico, the long-term implications of the United States-Mexico-Canada Agreement, the 2020 successor to NAFTA, are yet to be determined. This uncertainty may have an adverse impact on Mexico’s economic outlook and the value of Fund investments in Mexico. |
The
economic growth of most Latin American countries is highly dependent on
commodity exports and the economies of certain Latin American countries,
particularly Mexico and Venezuela, are highly dependent on oil exports. As
a result, these economies are particularly susceptible to fluctuations
in the price of oil and other commodities and currency
fluctuations. |
The
prices of oil and other commodities experienced volatility driven, in
part, by a continued slowdown of growth in China and the effects of the
COVID-19
pandemic. If growth in China remains slow, or if global economic
conditions worsen, prices for Latin American commodities may experience
increased volatility and demand may continue to decrease. Although certain
of these countries have recently shown signs of recovery, such
recovery, if sustained, may be gradual. In addition, prolonged economic
difficulties may have negative effects on the transition to a more stable
democracy
in some Latin American countries. |
Trade
Agreements. Certain Latin American countries have entered into regional
trade agreements that are designed to, among other things, reduce
trade
barriers between countries, increase competition among companies, and
reduce government subsidies in certain industries. No assurance can
be
given that these changes will be successful in the long term, or that
these changes will result in the economic stability intended. There is a
possibility
that these trade arrangements will not be fully implemented, or will be
partially or completely unwound. It is also possible that a significant
participant could choose to abandon a trade agreement, which could
diminish its credibility and influence. Any of these occurrences could
have
adverse effects on the markets of both participating and non-participating
countries, including sharp appreciation or depreciation of participants’
national currencies and a significant increase in exchange rate
volatility, a resurgence in economic protectionism, an undermining of
confidence
in the Latin American markets, an undermining of Latin American economic
stability, the collapse or slowdown of the drive towards Latin
American
economic unity, and/or reversion of the attempts to lower government debt
and inflation rates that were introduced in anticipation of such
trade agreements. Such developments could have an adverse impact on the
Fund’s investments in Latin America generally or in specific countries
participating in such trade agreements. |
Sovereign
Debt. Latin American economies generally are heavily dependent upon
foreign credit and loans, and may be more vulnerable to diplomatic
developments,
the imposition of economic sanctions against a particular country or
countries, changes in international trading patterns, trade barriers,
and other protectionist or retaliatory measures. In addition to risk of
default, debt repayment may be restructured or rescheduled, which
may
impair economic activity. Moreover, the debt may be susceptible to high
interest rates and may reach levels that would adversely affect Latin
American
economies. In addition, certain Latin American economies have been
influenced by changing supply and demand for a particular currency,
monetary
policies of governments (including exchange control programs, restrictions
on local exchanges or markets and limitations on foreign
|
investment
in a country or on investment by residents of a country in other
countries), and currency devaluations and revaluations. A relatively small
number
of Latin American companies represents a large portion of Latin America’s
total market and thus may be more sensitive to adverse political
or
economic circumstances and market movements. A number of Latin American
countries are among the largest debtors of developing countries
and
have a history of reliance on foreign debt and default. The majority of
the region’s economies have become dependent upon foreign credit and
loans
from external sources to fund government economic plans. Historically,
these plans have frequently resulted in little benefit accruing to the
economy.
Most countries have been forced to restructure their loans or risk default
on their debt obligations. In addition, interest on the debt is
subject
to market conditions and may reach levels that would impair economic
activity and create a difficult and costly environment for borrowers.
Accordingly,
these governments may be forced to reschedule or freeze their debt
repayment, which could negatively affect local markets. While the
region
has recently had mixed levels of economic growth, recovery from past
economic downturns in Latin America has historically been slow, and
such
growth, if sustained, may be gradual. The ongoing effects of the European
debt crisis, the effects of the COVID-19 pandemic, and persistent
low
growth in the global economy may reduce demand for exports from Latin
America and limit the availability of foreign credit for some countries
in
the region. As a result, the Fund’s investments in Latin American
securities could be harmed if economic recovery in the region is
limited. |
■ |
Middle
East Securities.
Many Middle Eastern countries are prone to political turbulence, and the
political and legal systems in such countries may have
an adverse impact on the Fund. Certain economies in the Middle East are
highly reliant on income from the exports of primary commodities,
such
as oil, or trade with countries involved in the sale of oil, and their
economies are therefore vulnerable to changes in the market for oil and
foreign
currency values. As global demand for oil fluctuates, many Middle Eastern
economies may be significantly impacted. Additionally, the economies
of many Middle Eastern countries are largely dependent on, and linked
together by, certain commodities (such as gold, silver, copper,
diamonds,
and oil). As a result, Middle Eastern economies are vulnerable to changes
in commodity prices, and fluctuations in demand for these commodities
could significantly impact economies in these regions. A downturn in one
country’s economy could have a disproportionally large effect on
others in the region. Many Middle Eastern governments have exercised and continue to exercise substantial influence over many aspects of the private sector. In certain cases, a Middle Eastern country’s government may own or control many companies, including some of the largest companies in the country. Accordingly, governmental actions in the future could have a significant effect on economic conditions in Middle Eastern countries, and a country’s government may act in a detrimental or hostile manner toward private enterprise or foreign investment. This could affect private sector companies and the Fund, as well as the value of securities in the Fund’s portfolio. Certain Middle Eastern markets are in the earliest stages of development and may be considered “developing markets.” Financial markets in the Middle East generally are less liquid and more volatile than other markets, including markets in developed and developing economies. As a result, there may be a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial intermediaries. Brokers in Middle Eastern countries typically are fewer in number and less well-capitalized than brokers in the United States. Since the Fund may need to effect securities transactions through these brokers, the Fund is subject to the risk that these brokers will not be able to fulfill their obligations to the Fund (i.e., counterparty risk). This risk is magnified to the extent that the Fund effects securities transactions through a single broker or a small number of brokers. In addition, securities may have limited marketability and be subject to erratic price movements. The legal systems in certain Middle Eastern countries also may have an adverse impact on the Fund. For example, the potential liability of a shareholder in a U.S. corporation with respect to acts of the corporation generally is limited to the amount of the shareholder’s investment. However, the concept of limited liability is less clear in certain Middle Eastern countries. The Fund therefore may be liable in certain Middle Eastern countries for the acts of a corporation in which it invests for an amount greater than its actual investment in that corporation. Similarly, the rights of investors in Middle Eastern issuers may be more limited than those of shareholders of a U.S. corporation. It may be difficult or impossible to obtain or enforce a legal judgment in a Middle Eastern country. Some Middle Eastern countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as the Fund. For example, certain countries may require governmental approval prior to investment by foreign persons or limit the amount of investment by foreign persons in a particular issuer. Certain Middle Eastern countries may also limit the investment by foreign persons to a specific class of securities of an issuer that may have less advantageous terms (including price) than securities of the issuer available for purchase by nationals of the relevant Middle Eastern country. The manner in which foreign investors may invest in issuers in certain Middle Eastern countries, as well as limitations on those investments, may have an adverse impact on the operations of the Fund. For example, in certain of these countries, the Fund may be required to invest initially through a local broker or other entity and then have the shares that were purchased re-registered in the name of the Fund. Re-registration in some instances may not be possible on a timely basis. This may result in a delay during which the Fund may be denied certain of its rights as an investor, including rights as to dividends or to be made aware of certain corporate actions. There also may be instances where the Fund places a purchase order but is subsequently informed, at the time of re-registration, that the permissible allocation of the investment to foreign investors has been filled and, consequently, the Fund may not be able to invest in the relevant company. Substantial limitations may exist in certain Middle Eastern countries with respect to the Fund’s ability to repatriate investment income or capital gains. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investment. Certain Middle Eastern countries may be heavily dependent upon international trade and, consequently, have been and may continue to be negatively affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These countries also have been and may continue to be adversely impacted by economic conditions in the countries with which they trade. In addition, certain issuers located in Middle Eastern countries in which the Fund invests may operate in, or have dealings with, countries subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations, and/or countries identified by the U.S. government as state sponsors of terrorism. As a result, an issuer may sustain damage to its reputation if it is identified as an issuer which operates in, or has dealings with, such countries. The Fund, as an investor in such issuers, will be indirectly subject to those risks. Certain Middle Eastern countries have strained relations with other Middle Eastern countries due to territorial and sovereignty disputes, historical animosities, international alliances, religious tensions or defense concerns, which may periodically become violent and may adversely affect the economies of these countries. Certain Middle Eastern countries experience significant unemployment as well as widespread underemployment. |
Many
Middle Eastern countries periodically have experienced political, economic
and social unrest as protestors have called for widespread reform.
Some
of these protests have resulted in a governmental regime change, internal
conflict or civil war. In some instances where pro-democracy movements
successfully toppled regimes, the stability of successor regimes has at
times proven weak, as evidenced, for example, in Egypt. In other
instances,
these changes have devolved into armed conflict involving local factions,
regional allies or international forces, and even protracted civil
wars.
If further regime change were to occur, internal conflicts were to
intensify, or a civil war were to continue in any of these countries, such
instability
could adversely affect the economies of these Middle Eastern countries in
which the Fund invests and could decrease the value of the Fund’s
investments. Middle Eastern economies may be subject to acts of terrorism, political strife, religious, ethnic or socioeconomic unrest, conflict and violence and sudden outbreaks of hostilities with neighboring countries. There has been an increase in recruitment efforts and an aggressive push for territorial control by terrorist groups in the region, which has led to an outbreak of warfare and hostilities. Such hostilities may continue into the future or may escalate at any time due to ethnic, racial, political, religious or ideological tensions between groups in the region or foreign intervention or lack of intervention, among other factors. These developments could adversely affect the Fund. |
■ |
Pacific
Basin Securities.
Many Asian countries may be subject to a greater degree of social,
political and economic instability than is the case in the U.S.
and Western European countries. Such instability may result from, among
other things, (i) authoritarian governments or military involvement in
political
and economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with
demands
for improved political, economic and social conditions; (iii) internal
insurgencies; (iv) hostile relations with neighboring countries; and (v)
ethnic,
religious and racial disaffection. In addition, the Asia-Pacific
geographic region has historically been prone to natural disasters. The
occurrence of
a natural disaster in the region, including the subsequent recovery, could
negatively impact the economy of any country in the region. The
existence
of overburdened infrastructure and obsolete financial systems also
presents risks in certain Asian countries, as do environmental
problems. The economies of most of the Asian countries are heavily dependent on international trade and are accordingly affected by protective trade barriers and the economic conditions of their trading partners, principally, the U.S., Japan, China and the EU. The enactment by the U.S. or other principal trading partners of protectionist trade legislation, reduction of foreign investment in the local economies and general declines in the international securities markets could have a significant adverse effect upon the securities markets of the Asian countries. The economies of certain Asian countries may depend to a significant degree upon only a few industries and/or exports of primary commodities and, therefore, are vulnerable to changes in commodity prices that, in turn, may be affected by a variety of factors. In addition, certain developing Asian countries, such as the Philippines and India, are especially large debtors to commercial banks and foreign governments. Many of the Pacific Basin economies may be intertwined, so an economic downturn in one country may result in, or be accompanied by, an economic downturn in other countries in the region. Furthermore, many of the Pacific Basin economies are characterized by high inflation, underdeveloped financial services sectors, heavy reliance on international trade, frequent currency fluctuations, devaluations, or restrictions, political and social instability, and less efficient markets. The securities markets in Asia are substantially smaller, less liquid and more volatile than the major securities markets in the U.S., and some of the stock exchanges in the region are in the early stages of their development, as compared to the stock exchanges in the U.S. Equity securities of many companies in the region may be less liquid and more volatile than equity securities of U.S. companies of comparable size. Additionally, many companies traded on stock exchanges in the region are smaller and less seasoned than companies whose securities are traded on stock exchanges in the U.S. A high proportion of the shares of many issuers may be held by a limited number of persons and financial institutions, which may limit the number of shares available for investment by the Fund. In some countries, there is no established secondary market for securities. Therefore, liquidity of securities may be generally low and transaction costs generally high. Similarly, volume and liquidity in the bond markets in Asia are less than in the U.S. and, at times, price volatility can be greater than in the U.S. A limited number of issuers in Asian securities markets may represent a disproportionately large percentage of market capitalization and trading value. The limited liquidity of securities markets in Asia may also affect the Fund’s ability to acquire or dispose of securities at the price and time it wishes to do so. In addition, the Asian securities markets are susceptible to being influenced by large investors trading significant blocks of securities. |
The
legal systems in certain developing market Pacific Basin countries also
may have an adverse impact on the Fund. For example, while the potential
liability
of a shareholder in a U.S. corporation with respect to acts of the
corporation is generally limited to the amount of the shareholder’s
investment,
the notion of limited liability is less clear in certain Pacific Basin
countries. Similarly, the rights of investors in Pacific Basin companies
may be
more limited than those of shareholders of U.S. corporations. It may be
difficult or impossible to obtain and/or enforce a judgment in a Pacific
Basin
country. |
Many
stock markets are undergoing a period of growth and change which may
result in trading volatility and difficulties in the settlement and
recording
of transactions, and in interpreting and applying the relevant law and
regulations. With respect to investments in the currencies of Asian
countries,
changes in the value of those currencies against the U.S. dollar will
result in corresponding changes in the U.S. dollar value of the Fund’s
assets
denominated in those currencies. Certain developing economies in the
Asia-Pacific region have experienced currency fluctuations, devaluations,
and restrictions; unstable employment rates; rapid fluctuation in, among
other things, inflation and reliance on exports; and less efficient
markets. Currency fluctuations or devaluations in any one country can have
a significant effect on the entire Asia Pacific region. Holding
securities
in currencies that are devalued (or in companies whose revenues are
substantially in currencies that are devalued) will likely decrease the
value
of the Fund’s investments. Some developing Asian countries prohibit or
impose substantial restrictions on investments in their capital markets,
particularly
their equity markets, by foreign entities such as the Fund. For example,
certain countries may require governmental approval prior to investments
by foreign persons or limit the amount of investment by foreign persons in
a particular company or limit the investment by foreign persons
to only a specific class of securities of a company which may have less
advantageous terms (including price and shareholder rights) than
securities
of the company available for purchase by nationals of the relevant
country. There can be no assurance that the Fund will be able to obtain
required
governmental approvals in a timely manner. In addition, changes to
restrictions on foreign ownership of securities subsequent to the Fund’s
purchase
of such securities may have an adverse effect on the value of such shares.
Certain countries may restrict investment opportunities in issuers
or
industries deemed important to national
interests. |
■ |
Government
Money
Market Funds. The
Fund can invest free cash balances in registered open-end investment
companies regulated as government
money
market funds under the Investment Company Act, to provide liquidity or for
defensive purposes.
(See “Cash Equivalents and Other
Short-Term Investments – Government Money Market Funds”
above.) |
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 Investment Company 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 33¹/3% 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 a 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 sold in private placement offerings made in reliance on the “private placement” exemption from registration afforded by Section 4(a)(2) of the Securities Act and resold to qualified institutional buyers under Rule 144A under the Securities Act. The Fund will not invest more than 15% of its net assets in Section 4(a)(2) securities and illiquid securities unless the Manager or a sub-advisor, as applicable, determines that any Section 4(a)(2) securities held by the Fund in excess of this level are liquid. |
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 Investment Company 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 with respect to portfolio securities. |
5 | Issue any senior security except as otherwise permitted (i) under the Investment Company 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 Investment Company 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 5% of its total assets (taken at market value) in securities of any one issuer, other than obligations issued by the U.S. Government, its agencies and instrumentalities, or purchase more than 10% of the voting securities of any one issuer, with respect to 75% of the Fund’s total assets. |
8 | Invest more than 25% of its total assets in the securities of companies primarily engaged in any industry or group of industries provided that this limitation does not apply to: (i) obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities; and (ii) tax-exempt securities issued by municipalities and their agencies and authorities. |
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. |
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 (available on the SEC’s website at www.sec.gov); |
2 | a complete list of holdings for the Fund as of the end of each fiscal quarter in publicly available filings of Form N-PORT with the SEC within sixty days of the end of the fiscal quarter (available on the SEC’s website at www.sec.gov); |
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 |
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. |
Service
Provider |
Service |
Holdings
Access |
Manager |
Investment
management and administrator |
Complete
list on intraday basis with no lag |
Sub-Advisor |
Investment
management |
Holdings
under sub-advisor’s management on intraday
basis with no lag |
State
Street Bank and Trust Co. (“State Street”) and
its designated foreign sub-custodians |
Securities
lending agent for Funds that participate
in securities lending, Fund’s custodian and
foreign custody manager, sub-administrator, fund
administration service provider. |
Complete
list on intraday basis with no lag |
PricewaterhouseCoopers
LLP |
Fund’s
independent registered public accounting firm |
Complete
list on annual basis with no lag |
Bloomberg,
L.P. |
Performance
and portfolio analytics reporting |
Complete
list on daily basis with no lag |
BNP
Paribas Security Services |
Middle
Office provider to sub-advisor |
Complete
list on monthly basis with no lag |
Citibank
NA and its affiliates |
Middle
Office provider to sub-advisor |
Complete
list on monthly 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 |
Virtu
ITG, LLC |
Fair
valuation of portfolio securities for American Beacon
Funds with significant foreign securities holdings;
transaction cost analysis for sub-advisor. |
Complete
list on daily basis with no lag and more
frequently when the Manager seeks advice with
respect to certain holdings |
KPMG
International |
Service
provider to State Street |
Complete
list on annual basis with lag |
1 | 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; |
2 | Holdings may only be disclosed as of a month-end date; |
3 | 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 | A member of the Manager’s Compliance staff must approve requests for nonpublic holdings information. |
Name
and Year of
Birth*
|
Position
and Length
of Time Served
on the American
Beacon Funds
and American
Beacon Select
Funds |
Position
and Length
of Time Served
on the American
Beacon Institutional
Funds
Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
INTERESTED
TRUSTEE |
|||
Eugene
J. Duffy (1954)** |
Trustee
since 2008 |
Trustee
since 2017 |
Managing
Director, Global Investment Management Distribution, Mesirow Financial
Administrative
Corporation (2016-Present); Trustee, American Beacon Sound Point
Enhanced
Income Fund (2018-2021); Trustee, American Beacon Apollo Total Return Fund
(2018-2021). |
NON-INTERESTED
TRUSTEES |
|||
Gilbert
G. Alvarado (1969) |
Trustee
since 2015 |
Trustee
since 2017 |
Chief
Financial Officer, The Conrad Prebys Foundation (2022-Present); President,
SJVIIF, LLC, Impact
Investment Fund (2018-2022); Executive Vice President/COO, Sierra Health
Foundation
(health conversion private foundation) (2022), Senior Vice President/CFO,
Sierra Health
Foundation (health conversion private foundation) (2006-2022); Executive
Vice President/COO,
Sierra Health Foundation: Center for Health Program Management
(California
public benefit corporation) (2022), Senior Vice President/CFO, Sierra
Health Foundation:
Center for Health Program Management (California public benefit
corporation) (2012-2022);
Director, Trustee, American Beacon Sound Point Enhanced Income Fund
(2018-2021);
Trustee, American Beacon Apollo Total Return Fund
(2018-2021). |
Joseph
B. Armes (1962) |
Trustee
since 2015 |
Trustee
since 2017 |
Director,
Switchback Energy Acquisition (2019-2021); Chairman & CEO, CSW
Industrials f/k/a
Capital Southwest Corporation (investment company)
(2015-Present); President & CEO,
JBA Investment Partners (family investment vehicle)
(2010-Present); Trustee, American Beacon
Sound Point Enhanced Income Fund (2018-2021); Trustee, American Beacon
Apollo Total
Return Fund (2018-2021). |
Gerard
J. Arpey (1958) |
Trustee
since 2012 |
Trustee
since 2017 |
Partner,
Emerald Creek Group (private equity firm) (2011-Present); Director, S.C.
Johnson & Son,
Inc. (privately held company) (2008-Present); Director, The Home Depot,
Inc. (NYSE: HD)
(2015-Present); Trustee, American Beacon Sound Point Enhanced Income Fund
(2018-2021);
Trustee, American Beacon Apollo Total Return Fund
(2018-2021). |
Brenda
A. Cline (1960) |
Chair
since 2019
Vice
Chair 2018
Trustee
since 2004 |
Chair
since 2019
Vice
Chair 2018
Trustee
since 2017 |
Chief
Financial Officer, Treasurer and Secretary, Kimbell Art Foundation
(1993-Present); Director,
Tyler Technologies, Inc. (public sector software solutions company)
(2014-Present); Director,
Range Resources Corporation (oil and natural gas company) (2015-Present);
Trustee,
Cushing Closed-End (2) and Open-End Funds (3) (2017-2021); Chair, American
Beacon
Sound Point Enhanced Income Fund (2019-2021), Vice Chair (2018), Trustee
(2018-2021);
Chair, American Beacon Apollo Total Return Fund (2019-2021), Vice Chair
(2018),
Trustee (2018-2021). |
Claudia
A. Holz (1957) |
Trustee
since 2018 |
Trustee
since 2018 |
Independent
Director, Blue Owl Capital Inc. (2021-Present); Trustee, American Beacon
Sound
Point Enhanced Income Fund (2018-2021); Trustee, American Beacon Apollo
Total Return
Fund (2018-2021). |
Douglas
A. Lindgren (1961) |
Trustee
since 2018 |
Trustee
since 2018 |
Director,
JLL Income Property Trust (2022-Present); Consultant, Carne Financial
Services (2017-2019);
Trustee, American Beacon Sound Point Enhanced Income Fund (2018-2021);
Trustee,
American Beacon Apollo Total Return Fund (2018-2021). |
Barbara
J. McKenna (1963) |
Trustee
since 2012 |
Trustee
since 2017 |
President
and Managing Principal, Longfellow Investment Management Company
(2005-Present,
President since 2009); Member, External Diversity Council of the Federal
Reserve
Bank of Boston (2021-2023); Board Advisor, United States Tennis
Association (2021-Present);
Trustee, American Beacon Sound Point Enhanced Income Fund (2018-2021);
Trustee, American Beacon Apollo Total Return Fund
(2018-2021). |
* | The Board has adopted a retirement policy that requires Trustees to retire no later than the last day of the calendar year in which they reach the age of 75. |
** | Mr. Duffy is deemed to be an “interested person” of the Trust, as defined by the Investment Company Act of 1940, as amended, by virtue of his position with Mesirow |
Financial, Inc., a broker-dealer. |
INTERESTED
TRUSTEE | |||||||
Duffy | |||||||
American
Beacon Developing World Income Fund |
None | ||||||
Aggregate
Dollar Range of Equity Securities in all Trusts (27
Funds as of December 31, 2023) |
$10,001
- $50,000 | ||||||
NON-INTERESTED
TRUSTEES | |||||||
Alvarado |
Armes |
Arpey |
Cline |
Holz |
Lindgren |
McKenna | |
American
Beacon Developing World Income Fund |
None |
None |
None |
None |
None |
None |
None |
Aggregate
Dollar Range of Equity Securities in all Trusts (27
Funds as of December 31, 2023) |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
The
following table shows total compensation (excluding reimbursements) paid
by the Trusts to each Trustee for the fiscal year ended January 31,
2024. | ||
Name
of Trustee |
Aggregate
Compensation from the Trust |
Total
Compensation from the Trusts |
INTERESTED
TRUSTEE |
||
Eugene
J. Duffy |
$188,372 |
$200,000 |
NON-INTERESTED
TRUSTEES |
||
Gilbert
G. Alvarado |
$203,442 |
$216,000 |
Joseph
B. Armes |
$201,559 |
$214,000 |
Gerard
J. Arpey |
$199,675 |
$212,000 |
Brenda
A. Cline1
|
$250,535 |
$266,000 |
Claudia
A. Holz |
$223,221 |
$237,000 |
Douglas
A. Lindgren |
$223,221 |
$237,000 |
Barbara
J. McKenna |
$203,442 |
$216,000 |
1 | Upon her retirement from the Board, Ms. Cline is eligible for flight benefits afforded to Eligible Trustees who served on the Boards prior to September 12, 2008 as described below. |
Name
and Year of
Birth |
Position
and Length
of Time Served
on the American
Beacon Funds
and American
Beacon Select
Funds |
Position
and Length
of Time Served
on the American
Beacon Institutional
Funds
Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
OFFICERS |
|||
Rebecca
L. Harris (1966) |
President
Since May 2024 Vice
President 2022-2024 |
President
Since May 2024 Vice
President 2022-2024 |
Director
(2024-Present), President (2024-Present), Chief Executive Officer
(2024-Present), Senior
Vice President (2021-2024), Vice President (2011-2021), American Beacon
Advisors, Inc.;
Director (2024-Present), President (2024-Present), Chief Executive Officer
(2024-Present),
Senior Vice President (2021-2024), Vice President (2017-2021), Resolute
Investment
Managers, Inc.; Director (2024-Present), President (2024-Present), Chief
Executive
Officer (2024-Present), Senior Vice President (2021-2024), Vice President
(2017-2021),
Resolute Investment Services, Inc.; Vice President, Alpha Quant Advisors,
LLC (2016-2020);
Vice President (2018-2022), Director (2022) Continuous Capital, LLC;
Director (2022-Present)
National Investment Services of America, LLC; Director (2022-Present) RSW
Investments
Holdings LLC; Director (2022-Present) Shapiro Capital Management LLC;
Director
(2022-Present) SSI Investment Management LLC; Assistant Secretary,
American Beacon
Sound Point Enhanced Income Fund (2018-2021); Assistant Secretary,
American Beacon
Apollo Total Return Fund (2018-2021); Assistant Secretary, American Beacon
Funds
(2010 – 2022); Assistant Secretary, American Beacon Select Funds (2010
–2022); Assistant
Secretary, American Beacon Institutional Funds Trust (2017–
2022). |
Rosemary
K. Behan (1959) |
Vice
President, Secretary
and Chief
Legal Officer since 2006 |
Vice
President, Secretary
and Chief
Legal Officer since 2017 |
Senior
Vice President (2021-Present), Vice President (2006-2021), Secretary and
General Counsel
(2006-Present), American Beacon Advisors, Inc.; Secretary, Resolute
Investment Holdings,
LLC (2015-Present); Secretary, Resolute Topco, Inc. (2015-Present);
Secretary, Resolute
Acquisition, Inc. (2015-Present); Senior Vice President (2021-Present),
Vice President
(2015-2021), Secretary and General Counsel (2015-Present), Resolute
Investment Managers,
Inc.; Secretary, Resolute Investment Distributors, Inc. (2017-Present);
Senior Vice President
(2021-Present), Vice President (2017-2021), Secretary and General Counsel
(2017-Present),
Resolute Investment Services, Inc.; Secretary, American Private Equity
Management,
LLC (2008-2024); Secretary and General Counsel, Alpha Quant Advisors, LLC
(2016-2020);
Vice President and Secretary, Continuous Capital, LLC (2018-2022);
Secretary, Green
Harvest Asset Management, LLC (2019-2021); Secretary, American
Beacon Cayman Managed
Futures Strategy Fund, Ltd. (2014-Present); Secretary, American Beacon
Cayman TargetRisk
Company, Ltd (2018-Present); Secretary, American Beacon Cayman
Multi-Alternatives
Company, Ltd. (2023-Present); Secretary, American Beacon Cayman
Trend
Company, Ltd. (2023-Present); Vice President, Secretary, and Chief Legal
Officer, American
Beacon Sound Point Enhanced Income Fund (2018-2021); Vice President,
Secretary,
and Chief Legal Officer, American Beacon Apollo Total Return Fund
(2018-2021). |
Paul
B. Cavazos (1969) |
Vice
President since 2016 |
Vice
President since 2017 |
Chief
Investment Officer and Senior Vice President, American Beacon Advisors,
Inc. (2016-Present);
Vice President, American Private Equity Management, L.L.C. (2017-2024);
Vice
President, American Beacon Sound Point Enhanced Income Fund (2018-2021);
Vice President,
American Beacon Apollo Total Return Fund (2018-2021). |
Erica
B. Duncan (1970) |
Vice
President since 2011 |
Vice
President since 2017 |
Vice
President, American Beacon Advisors, Inc. (2011-Present); Vice President,
Resolute Investment
Managers, Inc. (2018-Present); Vice President, Resolute Investment
Services, Inc. (2018-Present);
Vice President, American Beacon Sound Point Enhanced Income Fund
(2018-2021);
Vice President, American Beacon Apollo Total Return Fund
(2018-2021). |
Name
and Year of
Birth |
Position
and Length
of Time Served
on the American
Beacon Funds
and American
Beacon Select
Funds |
Position
and Length
of Time Served
on the American
Beacon Institutional
Funds
Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
Terri
L. McKinney (1963) |
Vice
President since 2010 |
Vice
President since 2017 |
Director
(2024-Present), Vice President (2024-Present), Resolute Investment
Distributors, Inc.;Senior
Vice President, (2021-Present) Vice President, (2009-2021), American
Beacon Advisors,
Inc.; Senior Vice President (2021-Present), Vice President (2017-2021),
Resolute Investment
Managers, Inc.; Senior Vice President (2021-Present), Vice President
(2018-2021),
Resolute Investment Services, Inc.; Vice President, Alpha Quant
Advisors, LLC (2016-2020);
Vice President, Continuous Capital, LLC (2018-2022); Vice President,
American
Beacon Sound Point Enhanced Income Fund (2018-2021); Vice President,
American
Beacon Apollo Total Return Fund (2018-2021). |
Samuel
J. Silver (1963) |
Vice
President since 2011 |
Vice
President since 2017 |
Vice
President (2011-Present), Chief Fixed Income Officer (2016-Present),
American Beacon Advisors,
Inc.; Vice President, American Beacon Sound Point Enhanced Income Fund
(2018-2021);
Vice President, American Beacon Apollo Total Return Fund
(2018-2021). |
Melinda
G. Heika (1961) |
Vice
President since 2021 |
Vice
President since 2021 |
Senior
Vice President (2021-Present), Treasurer and CFO (2010-Present), American
Beacon Advisors,
Inc.; Treasurer, Resolute Topco, Inc. (2015-Present); Treasurer, Resolute
Investment Holdings,
LLC (2015-Present); Treasurer, Resolute Acquisition, Inc. (2015-Present);
Senior Vice
President (2021-Present), Treasurer and CFO (2017-Present), Resolute
Investment Managers,
Inc.; Senior Vice President (2021-Present), Treasurer and CFO
(2017-Present), Resolute
Investment Services, Inc.; Treasurer, American Private Equity Management,
L.L.C. (2012-2024);
Treasurer and CFO, Alpha Quant Advisors, LLC (2016-2020); Treasurer,
Continuous
Capital, LLC (2018-2022); Director (2014-Present), Vice President
(2022-Present)
and Treasurer (2014-2022), American Beacon Cayman Managed Futures
Strategy
Fund, Ltd.; Director and Vice President (2022-Present), and Treasurer
(2018-2022), American
Beacon Cayman TargetRisk Company, Ltd.; Director and Vice President,
American Beacon
Cayman Multi-Alternatives Company, Ltd. (2023-Present); Director and Vice
President,
American Beacon Cayman Trend Company, Ltd. (2023-Present); Principal
Accounting
Officer and Treasurer, American Beacon Funds (2010-2021); Principal
Accounting
Officer and Treasurer, American Beacon Select Funds (2010-2021); Principal
Accounting
Officer and Treasurer, American Beacon Institutional Funds Trust
(2017-2021); Principal
Accounting Officer and Treasurer (2018-2021), Vice President (2021),
American Beacon
Sound Point Enhanced Income Fund; Principal Accounting Officer and
Treasurer (2018-2021),
Vice President (2021), American Beacon Apollo Total Return
Fund. |
Gregory
Stumm (1981) |
Vice
President since 2022 |
Vice
President since 2022 |
Senior
Vice President, American Beacon Advisors, Inc. (2022-Present); Senior Vice
President, Resolute
Investment Managers, Inc. (2022-Present); Senior Vice President, Resolute
Investment
Services, Inc. (2022-Present); President (2024-Present), Chief Executive
Officer (2024-Present),
Director (2022-Present), Senior Vice President (2022-2024), Resolute
Investment
Distributors, Inc.; Director (2024-Present), National Investment Services
of America,
LLC; Director (2024-Present), RSW Investments Holdings LLC; Director
(2024-Present),
Shapiro Capital Management LLC; Director (2024-Present), SSI Investment
Management
LLC. |
Sonia
L. Bates (1956) |
Principal
Accounting
Officer
and Treasurer since 2021 |
Principal
Accounting
Officer
and Treasurer since 2021 |
Assistant
Treasurer, American Beacon Advisors, Inc. (2023-Present); Vice President,
Fund and Tax
Reporting (2023-Present), Director, Fund and Tax Reporting (2011-2023),
Resolute Investment
Services, Inc; Assistant Treasurer, American Private Equity Management,
L.L.C. (2012-2024);
Treasurer, American Beacon Cayman Managed Futures Strategy Fund, Ltd.
(2022-Present);
Treasurer (2022-Present) and Assistant Treasurer (2018-2022), American
Beacon
Cayman TargetRisk Company, Ltd.; Treasurer, American Beacon Cayman
Multi-Alternatives
Company, Ltd. (2023-Present); Treasurer, American Beacon Cayman
Trend
Company, Ltd. (2023-Present); Assistant Treasurer (2018-2021), Principal
Accounting Officer
and Treasurer (2021), American Beacon Sound Point Enhanced Income Fund;
Assistant
Treasurer (2019-2021), Principal Accounting Officer and Treasurer (2021),
American
Beacon Apollo Total Return Fund; Assistant Treasurer, American Beacon
Funds (2011-2021);
Assistant Treasurer, American Beacon Select Funds (2011-2021); Assistant
Treasurer,
American Beacon Institutional Funds Trust
(2017-2021). |
Name
and Year of
Birth |
Position
and Length
of Time Served
on the American
Beacon Funds
and American
Beacon Select
Funds |
Position
and Length
of Time Served
on the American
Beacon Institutional
Funds
Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
Christina
E. Sears (1971) |
Chief
Compliance
Officer since 2004 Assistant Secretary since 1999 |
Chief
Compliance
Officer
and Assistant
Secretary since 2017 |
Chief
Compliance Officer (2004-Present), Vice President (2019-Present), American
Beacon Advisors,
Inc.; Vice President, Resolute Investment Managers, Inc. (2017-Present);
Vice President,
Resolute Investment Distributors, Inc. (2017-Present); Vice President,
Resolute Investment
Services, Inc. (2019-Present); Chief Compliance Officer, American Private
Equity Management,
LLC (2012-2024); Chief Compliance Officer, Green Harvest Asset
Management,
LLC (2019-2021); Chief Compliance Officer, RSW Investments Holdings, LLC
(2019-Present);
Chief Compliance Officer (2016-2019), Vice President (2016-2020), Alpha
Quant
Advisors, LLC; Chief Compliance Officer (2018-2019), Vice President
(2018-2022), Continuous
Capital, LLC.; Chief Compliance Officer and Assistant Secretary, American
Beacon
Sound Point Enhanced Income Fund (2018-2021); Chief Compliance Officer and
Assistant
Secretary, American Beacon Apollo Total Return Fund
(2018-2021). |
Shelley
L. Dyson (1969) |
Assistant
Treasurer since 2021 |
Assistant
Treasurer since 2021 |
Fund
Tax Director (2024-Present), Fund Tax Manager (2020-2024), Manager, Tax
(2014-2020),
Resolute Investment Services, Inc.; Assistant Treasurer, American Beacon
Cayman
Managed Futures Strategy Fund, Ltd. (2022-Present); Assistant Treasurer,
American Beacon
Cayman TargetRisk Company, Ltd (2022-Present); Assistant Treasurer,
American Beacon
Cayman Multi-Alternatives Company, Ltd. (2023-Present); Assistant
Treasurer, American
Beacon Cayman Trend Company, Ltd. (2023-Present); Assistant Treasurer,
American
Beacon Sound Point Enhanced Income Fund (2021); Assistant Treasurer,
American Beacon
Apollo Total Return Fund (2021). |
Shelley
D. Abrahams (1974) |
Assistant
Secretary since 2008 |
Assistant
Secretary since 2017 |
Corporate
Governance Manager (2023-Present), Senior Corporate Governance &
Regulatory
Specialist (2020-2023), Corporate Governance & Regulatory Specialist
(2017-2020),
Resolute Investment Services, Inc.; Assistant Secretary, American Beacon
Cayman
Managed Futures Strategy Fund, Ltd. (2022-Present); Assistant Secretary,
American Beacon
Cayman TargetRisk Company, Ltd (2022-Present); Assistant Secretary,
American Beacon
Cayman Multi-Alternatives Company, Ltd. (2023-Present); Assistant
Secretary, American
Beacon Cayman Trend Company, Ltd. (2023-Present); Assistant Secretary,
American
Beacon Sound Point Enhanced Income Fund (2018-2021); Assistant Secretary,
American
Beacon Apollo Total Return Fund (2018-2021). |
Teresa
A. Oxford (1958) |
Assistant
Secretary since 2015 |
Assistant
Secretary since 2017 |
Deputy
General Counsel (2024-Present), Assistant Secretary (2015-Present),
Associate General
Counsel (2015-2024), American Beacon Advisors, Inc.; Assistant Secretary
(2018-2021)
(2024-Present), Resolute Investment Distributors, Inc.; Deputy General
Counsel (2024-Present),
Assistant Secretary (2017-Present), Associate General Counsel (2017-2024),
Resolute
Investment Managers, Inc.; Deputy General Counsel (2024-Present),
Assistant Secretary
(2018-Present), Associate General Counsel (2018-2024), Resolute Investment
Services,
Inc.; Assistant Secretary (2016-2020), Alpha Quant Advisors, LLC;
Assistant Secretary
(2020-2022), Continuous Capital, LLC.; Assistant Secretary, American
Beacon Sound
Point Enhanced Income Fund (2018-2021); Assistant Secretary, American
Beacon Apollo
Total Return Fund (2018-2021). |
Shareholder
Address |
Fund
Percentage (listed
if over 25%) |
A
CLASS |
C
CLASS |
Y
CLASS |
R5
CLASS |
Investor
CLASS |
CHARLES
SCHWAB & CO INC*
|
31.38% |
17.42% |
27.67% |
49.97% |
47.76% | |
SPECIAL
CUST A/C |
||||||
EXCLUSIVE
BENEFIT OF CUSTOMERS |
||||||
ATTN
MUTUAL FUNDS |
||||||
211
MAIN ST |
||||||
SAN
FRANCISCO CA 94105-1901 |
||||||
J.P.
MORGAN SECURITIES LLC OMNIBUS* |
10.48% |
|||||
ACCT
FOR THE EXCLUSIVE BEN OF CUST |
||||||
4
CHASE METROTECH CTR FL 3RD |
||||||
BROOKLYN
NY 11245-0003 |
||||||
LPL
FINANCIAL* |
15.35% |
8.41% |
12.46% |
|||
4707
EXECUTIVE DR |
||||||
SAN
DIEGO CA 92121-3091 |
||||||
NATIONAL
FINANCIAL SERVICES LLC* |
25.16% |
11.30% |
27.01% |
15.57% |
25.36% | |
FOR
EXCLUSIVE BENEFIT OF OUR |
||||||
CUSTOMERS |
||||||
ATTN
MUTUAL FUNDS DEPT 4TH FLOOR |
||||||
499
WASHINGTON BLVD |
||||||
JERSEY
CITY NJ 07310-1995 |
||||||
PERSHING
LLC* |
25.51% |
39.61% |
14.62% | |||
1
PERSHING PLZ |
||||||
JERSEY
CITY NJ 07399-0001 |
||||||
RAYMOND
JAMES* |
6.61% |
7.23% |
14.34% |
|||
OMNIBUS
FOR MUTUAL FUNDS |
||||||
ATTN
COURTNEY WALLER |
||||||
880
CARILLON PKWY |
||||||
ST
PETERSBURG FL 33716-1100 |
||||||
UBS
WM USA* |
5.33% |
29.02% |
7.05% |
|||
OMNI
ACCOUNT M/F |
||||||
SPEC
CDY A/C EBOC UBSFSI |
||||||
1000
HARBOR BLVD |
||||||
WEEHAWKEN
NJ 07086-6761 |
||||||
KEYBANK
NA |
5.28% |
|||||
CHARITABLE
OPPORTUNISTIC INC FD PRI |
||||||
P.O.
BOX 94871 |
||||||
CLEVELAND
OH 44101-4871 |
* | Denotes record owner of Fund shares only |
abrdn
Investments Limited |
||
Controlling
Person/Entity |
Basis
of Control |
Nature
of Controlling Person/Entity’s Business |
abrdn
plc |
Parent
of abrdn (Holdings) PLC |
Financial
Services |
abrdn
(Holdings) PLC |
Parent
of abrdn Investments Limited |
Financial
Services |
Global
Evolution USA, LLC |
||
Controlling
Person/Entity |
Basis
of Control |
Nature
of Controlling Person/Entity’s Business |
Generali
Investments Holding S.p.A. |
Parent
Company. Owns 100% of Conning Holdings
Limited (UK) |
Financial
Services |
Conning
Holdings Limited (UK) |
Owns
77.89% of Global Evolution Holding ApS (Denmark) |
Financial
holding company |
Global
Evolution Holding ApS (Denmark) |
Owns
approximately 99.45% of Global Evolution
Financial ApS (Denmark) |
Financial
holding company |
Global
Evolution Financial ApS (Denmark) |
100%
holding company of Global Evolution USA,
LLC (US) |
Financial
holding company |
Søren
Rump |
Co-founder
and Board Member |
Financial
Services |
Morten
Bugge |
Co-founder
and Director |
Financial
Services |
Torben
Schytt |
Director |
Financial
Services |
Controlling
Person/Entity |
Basis
of Control |
Nature
of Controlling Person/Entity’s Business |
Resolute
Topco, Inc. |
Ultimate
Parent Company |
Holding
Company – Founded in 2015 |
First
$5 billion |
0.35% |
Next
$5 billion |
0.325% |
Next
$10 billion |
0.30% |
Over
$20 billion |
0.275% |
■ |
complying
with reporting requirements; |
■ |
corresponding
with shareholders; |
■ |
maintaining
internal bookkeeping, accounting and auditing services and
records; |
■ |
supervising
the provision of services to the Trust by third parties;
and |
■ |
administering
the Funds’ interfund lending facility and lines of credit, if
applicable. |
Management
Fees Paid to American Beacon Advisors, Inc. (Gross) |
|||
2022 |
2023 |
2024 | |
$1,641,296 |
$1,438,882 |
$1,544,867 |
Sub-Advisor
Fees (Gross) |
|||
2022 |
2023 |
2024 | |
$2,306,841 |
$2,017,339 |
$2,186,742 | |
0.50% |
0.50% |
0.50% |
Management
Fees (Waived)/Recouped |
|||
2022 |
2023 |
2024 | |
$0 |
$0 |
$0 |
Distribution
Fees | |
A
Class |
$7,027 |
C
Class |
$80,590 |
Service
Plan Fees |
|||
2022 |
2023 |
2024 | |
A
Class |
$2,986 |
$2,538 |
$3,241 |
C
Class |
$9,061 |
$8,576 |
$8,893 |
Investor
Class |
$180,360 |
$144,788 |
$122,075 |
American
Beacon Fund |
Sales
Charge Revenue |
Deferred
Sales Charge Revenue | |||
Fiscal
Year |
Amount
Paid to Distributor |
Amount
Retained by
Distributor |
Amount
Paid to Distributor |
Amount
Retained by
Distributor | |
American
Beacon Developing World Income Fund |
2024 |
$30,200 |
$3,879 |
$268 |
- |
2023 |
$13,963 |
$1,364 |
$272 |
- | |
2022 |
$21,419 |
$2,497 |
$92 |
- |
Number
of Other Accounts Managed and Assets by Account
Type |
Number
of Accounts and Assets for which Advisory Fee is Performance-Based | |||||
Name
of Investment Advisor and
Portfolio Manager |
Registered
Investment
Companies |
Other
Pooled Investment
Vehicles |
Other
Accounts |
Registered
Investment
Companies |
Other
Pooled Investment
Vehicles |
Other
Accounts |
American
Beacon Advisors, Inc. | ||||||
Paul
B. Cavazos |
5
($9.4 bil) |
1
($0.6 bil) |
3
($13.7 bil) |
None |
None |
None |
Colin
J. Hamer |
2
($5.1 bil) |
1
($0.6 bil) |
2
($13.1 bil) |
None |
None |
None |
Patrick
Sporl |
None |
None |
1
($12.4 bil) |
None |
None |
None |
Number
of Other Accounts Managed and Assets by Account Type |
Number
of Accounts and Assets for Which Advisory Fee is Performance-Based | |||||
Name
of Investment
Advisor and
Portfolio Manager |
Registered
Investment
Companies |
Other
Pooled Investment
Vehicles |
Other
Accounts |
Registered
Investment
Companies |
Other
Pooled Investment
Vehicles |
Other
Accounts |
abrdn
Investments Limited | ||||||
Brett
Diment |
None |
1
($0.2 bil) |
1
($0.3 bil) |
None |
None |
None |
Kevin
Daly |
None |
3
($0.8 bil) |
None |
None |
None |
None |
Edwin
Gutierrez |
1
($0.3 bil) |
7
($1.5 bil) |
1
($0.6 bil) |
None |
None |
None |
Siddharth
Dahiya |
2
($0.4 bil) |
4
($1.4 bil) |
4
($0.6 bil) |
None |
None |
None |
Number
of Other Accounts Managed and Assets by Account Type |
Number
of Accounts and Assets for Which Advisory Fee is Performance-Based | |||||
Name
of Investment
Advisor and
Portfolio Manager |
Registered
Investment
Companies |
Other
Pooled Investment
Vehicles |
Other
Accounts |
Registered
Investment
Companies |
Other
Pooled Investment
Vehicles |
Other
Accounts |
Global
Evolution USA, LLC | ||||||
Morten
Bugge |
1
($49.7 bil) |
10
($3.7 bil) |
22
($5.6 bil) |
None |
None |
6
($1.7 bil) |
Christian
Mejrup |
1
($49.7 bil) |
10
($3.7 bil) |
22
($5.6 bil) |
None |
None |
6
($1.7 bil) |
Lars
Peter Nielson |
1
($49.7 bil) |
10
($3.7 bil) |
22
($5.6 bil) |
None |
None |
6
($1.7 bil) |
Sofus
Asboe |
1
($49.7 bil) |
10
($3.7 bil) |
22
($5.6 bil) |
None |
None |
6
($1.7 bil) |
Michael
Hansen |
1
($49.7 bil) |
10
($3.7 bil) |
22
($5.6 bil) |
None |
None |
6
($1.7 bil) |
Kristian
Wigh |
1
($49.7 bil) |
10
($3.7 bil) |
22
($5.6 bil) |
None |
None |
6
($1.7 bil) |
Stephen
Bailey-Smith*
|
None |
9
($3.2 bil) |
22
($6.3 bil) |
None |
None |
7
($2.1 bil) |
Anne
Margrethe Tingleff*
|
None |
9
($3.2 bil) |
22
($6.3 bil) |
None |
None |
7
($2.1 bil) |
* | As of March 31, 2024. |
Name
of Investment Advisor and Portfolio Managers |
American
Beacon Developing
World Income
Fund |
American
Beacon Advisors, Inc. |
|
Paul
B. Cavazos |
None |
Colin
J. Hamer |
$1-$10,000 |
Patrick
Sporl |
None |
Name
of Investment Advisor and Portfolio Managers |
American
Beacon Developing
World Income
Fund |
aIL |
|
Brett
Diment |
None |
Kevin
Daly |
None |
Edwin
Gutierrez |
None |
Siddharth
Dahiya |
None |
Name
of Investment Advisor and Portfolio Managers |
American
Beacon Developing
World Income
Fund |
Global
Evolution |
|
Morten
Bugge |
None |
Christian
Mejrup |
None |
Lars
Peter Nielson |
None |
Kristian
Wigh |
None |
Sofus
Asboe |
None |
Michael
Hansen |
None |
Stephen
Bailey-Smith*
|
None |
Anne
Margrethe Tingleff*
|
None |
* | As of March 31, 2024. |
Regular
Broker-Dealers |
American
Beacon Fund |
Aggregate
Value of Securities (000s) |
Citigroup
Global Markets |
American
Beacon Developing
World Income
Fund |
$8,573 |
■ |
individual-type
employee benefit plans, such as an IRA, individual 403(b) plan or
single-participant Keogh-type plan; |
■ |
business
accounts solely controlled by you or your immediate family (for example,
you own the entire business); |
■ |
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); |
■ |
endowments
or foundations established and controlled by you or your immediate family;
or |
■ |
529
accounts, which will be aggregated at the account owner level (Class 529-E
accounts may only be aggregated with an eligible employer
plan). |
■ |
for
a single trust estate or fiduciary account, including employee benefit
plans other than the individual-type employee benefit plans described
above; |
■ |
made
for two or more employee benefit plans of a single employer or of
affiliated employers as defined in the Investment Company Act, excluding
the
individual-type employee benefit plans described
above; |
■ |
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 |
■ |
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 Investment Company Act.
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. |
1 | 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; |
2 | 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; |
3 | companies exchanging securities with the Fund through a merger, acquisition or exchange offer; |
4 | insurance company separate accounts; |
5 | accounts managed by the Manager, a sub-advisor to the Fund and its affiliated companies; |
6 | the Manager or a sub-advisor to the Fund and its affiliated companies; |
7 | an individual or entity with a substantial business relationship with, which may include the officers and employees of the Fund’s Custodian or transfer agent, the Manager or a sub-advisor to the Fund and its affiliated companies, or an individual or entity related or relating to such individual or entity; |
8 | full-time employees of banks that have sales agreements with the Distributor, who are solely dedicated to directly supporting the sale of mutual funds; |
9 | directors, officers and employees of financial institutions that have a selling group agreement with the Distributor; |
10 | 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 a fund supermarket or in a wrap program, asset allocation program or other program in which the clients pay an asset-based fee; |
11 | clients of authorized dealers purchasing shares in fixed or flat fee brokerage accounts; |
12 | 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 IRA rollovers involving retirement plan assets invested in a fund in the American Beacon Funds fund family; and |
13 | Employee benefit and retirement plans for the Manager and its affiliates. |
■ |
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; |
■ |
“required
minimum distributions” (as described in Section 401(a)(9) of the Internal
Revenue Code) from an IRA or other individual-type retirement
account
used to purchase Fund shares in a non-retirement account;
and |
■ |
death
distributions paid to a beneficiary’s account that are used by the
beneficiary to purchase Fund shares in a different
account. |
■ |
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. |
■ |
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. |
■ |
Redemptions
from retirement plans qualified under Section 401 of the Internal Revenue
Code. The CDSC will be waived for benefit payments made by
American Beacon Funds directly to plan participants. Benefit payments
include, but are not limited to, payments resulting from death,
“disability,” “retirement,”
“separation from service” (each as defined in the Internal Revenue Code),
“required minimum distributions” (as described in 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. |
■ |
Redemptions
that are required minimum distributions from a traditional IRA as required
by the Internal Revenue Service. |
■ |
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. |
■ |
Distributions
from accounts for which the broker-dealer of record has entered into a
written agreement with the Distributor (or Manager) allowing this
waiver. |
■ |
To
return excess contributions made to a retirement
plan. |
■ |
To
return contributions made due to a mistake of
fact. |
■ |
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 other income,
including gains from options, futures or forward contracts, derived with
respect
to its business of investing in securities or those currencies
(“Qualifying Income”) 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” (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”))
that meets certain qualifying income requirements other than a partnership
at least 90% of the gross income of which is Qualifying
Income; |
■ |
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, 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) the securities (other than
Government securities or securities of other RICs) of any one
issuer, (b) the securities
(other than securities of other RICs) of two or more issuers the Fund
controls (by owning 20% or more of their voting power) that are
determined
to be engaged in the same, similar or related trades or businesses, or (c)
the securities of one or more QPTPs (“Diversification Requirements”);
and |
■ |
Distribute
annually to its shareholders at least the sum of 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 (if any) from certain foreign currency transactions, all
determined
without regard to any deduction for dividends paid) and 90% of its net
exempt interest income (“Distribution
Requirement”). |
Advisers
Act |
Investment
Advisers Act of 1940, as amended |
American
Beacon or the Manager |
American
Beacon Advisors, Inc. |
Beacon
Funds |
American
Beacon Funds |
Board |
Board
of Trustees |
Brexit |
The
United Kingdom’s departure from the European Union |
CCO |
Chief
Compliance Officer |
CD |
Certificate
of Deposit |
CDSC |
Contingent
Deferred Sales Charge |
CFTC |
Commodity
Futures Trading Commission |
CFD |
Contract
for Difference |
CPO |
Commodity
Pool Operator |
CLN |
Credit-Linked
Notes |
Denial
of Services |
A
cybersecurity incident that results in customers or employees being unable
to access electronic systems |
Dividends |
Distributions
from the Fund’s net investment income |
Dodd-Frank
Act |
Dodd-Frank
Wall Street Reform and Consumer Protection Act |
DRD |
Dividends-received
deduction |
EMU |
The
European Union’s Economic and Monetary Union |
ESG |
Environmental,
Social, and Governance |
ETF |
Exchange-Traded
Fund |
ETN |
Exchange-Traded
Note |
EU |
European
Union |
FINRA |
Financial
Industry Regulatory Authority, Inc. |
Floaters |
Floating
rate debt instruments |
Forwards |
Forward
Currency Contracts |
Holdings
Policy |
Policies
and Procedures for Disclosure of Portfolio Holdings |
Internal
Revenue Code |
Internal
Revenue Code of 1986, as amended |
IRA |
Individual
Retirement Account |
IRS |
Internal
Revenue Service |
Junk
Bonds |
High-yield,
non-investment grade bonds |
Management
Agreement |
The
Fund’s Management Agreement with the Manager |
Manager |
American
Beacon Advisors, Inc. |
Moody’s |
Moody’s
Investors Service, Inc. |
NAV |
Net
asset value |
NDF |
Non-deliverable
forward contracts |
NDO |
Non-deliverable
Option |
NYSE |
New
York Stock Exchange |
OTC |
Over-the-Counter |
QDI |
Qualified
Dividend Income |
RIC |
Regulated
Investment Company, as defined in the Internal Revenue
Code |
S&P
Global |
S&P
Global Ratings |
SAI |
Statement
of Additional Information |
SEC |
Securities
and Exchange Commission |
Securities
Act |
Securities
Act of 1933, as amended |
|
|
State
Street |
State
Street Bank and Trust Co. |
STRIPS |
Separately
traded registered interest and principal securities |
Trust |
American
Beacon Funds |
Trustee
Retirement Plan |
Trustee
Retirement Policy and Trustee Emeritus and Retirement
Plan |
UK |
United
Kingdom |