N-30D 1 yk7040.txt (LOGO) YACKTMAN FUNDS -------------------------------------------------------------------------------- ANNUAL REPORT -------------------------------------------------------------------------------- December 31, 2001 -------------------------------------------------------------------------------- This report is submitted for the general information of shareholders of The Yacktman Funds. It is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus for the Funds, which contains more information concerning the Funds' investment policies, as well as fees and expenses and other pertinent information. Read the Prospectus carefully. THE YACKTMAN FUNDS, INC. -------------------------------------------------------------------------------- MESSAGE TO SHAREHOLDERS -------------------------------------------------------------------------------- (PHOTO) -------------------------------------------------------------------------------- Dear Fellow Shareholder: During 2001, The Yacktman Fund's performance was +19.47% and The Yacktman Focused Fund's +17.14% while the S&P 500(R) Index was -11.89%. This outperformance spread is the largest one I have seen in all the years I have managed a mutual fund. I want to thank all our staff and give special thanks to Stephen Yacktman and Russell Wilkins for their help during the past year. I also want to thank Bruce Bingham, Al Malwitz, and George Stevenson for their support over the past three years they have been directors. It is also nice to note The Yacktman Fund earned an annual return of 4.05% vs. a -1.03% for the S&P 500 during those years. Last year the economy suffered its first recession in roughly a decade and the events of 9/11 only magnified the existing economic situation. For the first time since 1973-4, the stock market suffered back-to-back down years. Yet, even with last year's decline in the S&P 500, coupled with optimistic earnings estimates for 2002, the P/E ratio is well above 20 and still high by historical standards. The Nasdaq, by comparison, is even more optimistic with an estimated P/E between 50 and 100 times. The Yacktman Funds, by comparison are at about 14 times estimated earnings and well below that of the market. Thus, we feel well positioned given the economic uncertainty. -------------------------------------------------------------------------- THE DISCOUNT YACKTMAN FROM THE S&P 500 FUND S&P 500 TIME PRICE/ PRICE/ PRICE/ PERIOD EARNINGS EARNINGS EARNINGS -------------------------------------------------------------------------- December, 1997 19.0 14.7 22% December, 1998 26.4 13.7 48% December, 1999 29.1 10.6 64% December, 2000 22.7 10.4 54% December, 2001 21.4 13.8 36% -------------------------------------------------------------------------------- THE YACKTMAN FUNDS, INC. -------------------------------------------------------------------------- -------------------------------------------------------------------------- THE DISCOUNT YACKTMAN FROM THE S&P 500 FOCUSED FUND S&P 500 TIME PRICE/ PRICE/ PRICE/ PERIOD EARNINGS EARNINGS EARNINGS -------------------------------------------------------------------------- December, 1997 19.0 14.2 25% December, 1998 26.4 13.1 50% December, 1999 29.1 9.8 66% December, 2000 22.7 9.6 58% December, 2001 21.4 14.4 33% -------------------------------------------------------------------------- The estimated earnings used to create the above P/E ratios were provided by commercial estimates when available, or by internal estimates. Our strategy has remained the same for many years -- buy inexpensive, solid, very profitable businesses. They will usually have consistently rising earnings and thus the ability to pay steadily rising dividends or to make investments that can accelerate rising earnings. We are still committed to having a consistent and logical investment process yesterday, today and tomorrow. Three years ago there were many detractors who urged us to participate in the current investment fad, a fad so powerful that many managers were forced to change their stripes. Fortunately we did not drop the ball and our long-term investment approach has paid off handsomely. Out of our top ten holdings three years ago, five are still in the top ten and another two were bought out. This low turnover rate speaks volumes about our long-term approach. Detractors call us stubborn. Real investors call this consistency. Lancaster Colony became our largest holding by the end of the year and well illustrates the kind of investment we like to own. About 70% of their earnings come from specialty foods, they rarely have a down year in earnings, and they have raised the dividend 39 years in a row. We continue to avoid trying to predict where the stock market will go or what will happen to interest rates, or the economy. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Instead, we spend our time trying to identify good businesses, with good management, selling at good prices relative to what we perceive they are worth. Buying what are currently the most popular stocks may make for interesting social conversation, but we don't feel it provides the best long-run investment returns. We believe the future looks well for us and we appreciate those investors who have joined us in 2001. We are excited about the prospects for our portfolios and look forward to a rewarding future. Sincerely, /S/Donald A. Yacktman Donald A. Yacktman President -------------------------------------------------------------------------------- THE YACKTMAN FUND AVERAGE ANNUAL RETURNS -------------------------------------------------------------------------------- One Year (1/1/01 - 12/31/01) 19.47% Five Years (1/1/97 - 12/31/01) 6.04% Since Inception (7/6/92) 9.40% YACKTMAN S&P 500 -------------- --------------- 10,000 CHART BENCHMARK INVESTMENT INVESTMENT 7/5/92 10,000 10,000 12/31/92 10,472 10,679 12/31/93 9,783 11,756 12/31/94 10,644 11,911 12/31/95 13,881 16,387 12/31/96 17,493 20,150 12/31/97 20,691 26,873 12/31/98 20,822 34,552 12/31/99 17,303 41,823 12/31/00 19,632 38,015 12/31/01 23,455 33,497 The chart assumes an initial gross investment of $10,000 made on 7/6/92 (inception). -------------------------------------------------------------------------------- THE YACKTMAN FUNDS, INC. -------------------------------------------------------------------------------- THE YACKTMAN FOCUSED FUND AVERAGE ANNUAL RETURNS -------------------------------------------------------------------------------- One Year (1/1/01 - 12/31/01) 17.14% Since Inception (5/1/97) 3.51% YACKTMAN FOCUSED S&P 500 -------------- -------------- 10,000 CHART BENCHMARK INVESTMENT INVESTMENT ------------- --------------- 4/30/97 10,000 10,000 12/31/97 11,538 12,256 12/31/98 12,067 15,759 12/31/99 9,409 19,075 12/31/00 10,031 17,338 12/31/01 11,749 15,278 The chart assumes an initial gross investment of $10,000 made on 5/1/97 (inception). * The S&P 500 is an unmanaged but commonly used measure of common stock total return performance. Returns shown include the reinvestment of all dividends, but do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The above past performance is not predictive of future results. The investment return and principal value of the Funds will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. -------------------------------------------------------------------------------- THE YACKTMAN FUND -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS December 31, 2001 -------------------------------------------------------------------------------- PERCENTAGE OF NET ASSETS -------------------------------------------------------------------------------- Lancaster Colony Corp. 11.0% Dentsply International, Inc. 6.0% Clorox Co. 4.9% Department 56, Inc. 4.8% Franklin Covey Co. 4.4% First Data Corp. 3.5% Block H&R, Inc. 3.3% Philip Morris Cos., Inc. 3.2% Russ Berrie & Co., Inc. 2.7% Bandag, Inc., Class A 2.1% ----- TOTAL 45.9% -------------------------------------------------------------------------------- THE YACKTMAN FUND -------------------------------------------------------------------------------- EQUITY PURCHASES & SALES For the Six Months Ended December 31, 2001 -------------------------------------------------------------------------------- NET SHARES CURRENT NEW PURCHASES PURCHASED SHARES HELD -------------------------------------------------------------------------------- AMERICAN EXPRESS CO Provides travel-related, financial advisory, and international banking services around the world. 17,500 17,500 BLAIR CORP Sells fashion apparel for men and women and a range of home products, primarily by direct mail catalogs. 50,000 50,000 BRISTOL-MYERS SQUIBB CO A diversified worldwide health and personal care company that manufactures medicines and other products. 20,000 20,000 COCA-COLA CO Manufactures, markets, and distributes soft drink concentrates and syrups, juice and juice-drink products. 30,000 30,000 HEWLETT-PACKARD CO Provides imaging and printing systems, computing systems, and information technology services for business and home 20,000 20,000 INSTINET GROUP, INC Operates a global electronic brokerage marketplace, offering equity trading, fixed income research, clearing, and settlement services. 100,000 100,000 INTERPUBLIC GROUP OF COMPANIES, INC An organization of advertising agencies and marketing service companies. 30,000 30,000 KRAFT FOODS, INC A worldwide food and beverage company 60,000 60,000 MBIA, INC A financial guarantor and a provider of specialized financial services. 10,000 10,000 -------------------------------------------------------------------------------- THE YACKTMAN FUND -------------------------------------------------------------------------------- EQUITY PURCHASES & SALES (Cont'd.) For the Six Months Ended December 31, 2001 -------------------------------------------------------------------------------- NET SHARES CURRENT NEW PURCHASES (CONT'D.) PURCHASED SHARES HELD -------------------------------------------------------------------------------- MERCK & CO., INC A global pharmaceutical company that discovers, develops, manufactures, and markets a broad range of human and animal health products 25,000 25,000 NORDIC AMERICAN TANKER SHIPPING LTD A shipping company that owns and charters Suezmax tankers for oil transportation 3,400 3,400 POLYMEDICA CORP Provides direct-to-consumer specialty medical products and services, primarily focusing on the diabetes supplies and consumer healthcare markets 25,000 25,000 SAUCONY, INC., CLASS A Designs, develops, manufactures, and markets performance-oriented athletic shoes for adults and children 10,000 10,000 SAUCONY, INC., CLASS B Designs, develops, manufactures, and markets performance-oriented athletic shoes for adults and children 90,000 90,000 SHERWIN-WILLIAMS CO Manufactures, distributes, and sells paints, coatings, and related products 15,000 15,000 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NET SHARES CURRENT PURCHASES PURCHASED SHARES HELD -------------------------------------------------------------------------------- Bandag, Inc., Class A 1,500 80,000 Clorox Co. 52,000 140,000 Franklin Covey Co. 199,400 829,400 Hospitality Properties Trust 30,000 80,000 Lancaster Colony Corp. 192,700 350,000 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NET SHARES CURRENT SALES SOLD SHARES HELD -------------------------------------------------------------------------------- Block H&R, Inc.* 8,000 84,000 Dentsply International, Inc. 55,000 135,000 Department 56, Inc. 65,000 635,000 First Health Group Corp. 20,000 70,000 Gartner Group, Inc., Class B 120,000 -- Jenny Craig, Inc. 57,600 522,400 M&F Worldwide Corp. 50,000 50,000 Philip Morris Cos., Inc. 10,000 80,000 Servicemaster Co. 30,000 50,000 Sturm, Ruger & Co., Inc. 40,000 -- Waste Management, Inc. 30,000 30,000 * Adjusted for a 2 for 1 split on 8/2/01 -------------------------------------------------------------------------------- THE YACKTMAN FUND -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS December 31, 2001 -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS - 67.2% AUTO COMPONENTS - 2.1% Bandag, Inc., Class A 80,000 $ 2,400,000 ---------- BEVERAGES - 1.2% Coca-Cola Co. 30,000 1,414,500 ---------- COMMERCIAL SERVICES &SUPPLIES - 13.6% First Data Corp. 50,000 3,922,500 Franklin Covey Co.* 829,400 5,001,282 Block H&R, Inc. 84,000 3,754,800 Servicemaster Co. 50,000 690,000 Valassis Communications, Inc.* 30,000 1,068,600 Waste Management, Inc. 30,000 957,300 ---------- 15,394,482 ---------- COMPUTERS &PERIPHERALS - 0.4% Hewlett-Packard Co. 20,000 410,800 ---------- DIVERSIFIED FINANCIALS - 1.4% American Express Co. 17,500 624,575 Instinet Group, Inc.* 100,000 1,005,000 ---------- 1,629,575 ---------- FOOD PRODUCTS - 13.0% Kraft Foods, Inc. 60,000 2,041,800 Lancaster Colony Corp. 350,000 12,428,500 M&F Worldwide Corp.* 50,000 215,000 ---------- 14,685,300 ---------- HEALTH CARE EQUIPMENT &SUPPLIES - 6.4% Dentsply International, Inc. 135,000 6,777,000 Polymedica Corp.* 25,000 415,000 ---------- 7,192,000 ---------- HEALTH CARE PROVIDERS &SERVICES - 1.5% First Health Group Corp.* 70,000 1,731,800 ---------- HOUSEHOLD DURABLES - 8.2% Department 56, Inc.*635,0005,461,000 Russ Berrie &Co., Inc.100,0003,000,000 Tupperware Corp. 40,000 770,000 ---------- 9,231,000 ---------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE -------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS - 4.9% Clorox Co. 140,000 $5,537,000 ---------- INSURANCE - 0.5% MBIA, Inc. 10,000 536,300 ---------- INTERNET & CATALOG RETAIL - 1.0% Blair Corp. 50,000 1,130,000 ---------- MARINE - 0.0% Nordic American Tanker Shipping Ltd. 3,400 47,090 ---------- MEDIA - 0.8% Interpublic Group of Companies, Inc. 30,000 886,200 ---------- PHARMACEUTICALS - 2.2% Bristol-Meyers Squibb Co. 20,000 1,020,000 Merck & Co., Inc. 25,000 1,470,000 ---------- 2,490,000 ---------- PERSONAL PRODUCTS - 1.4% Jenny Craig, Inc.* 522,400 1,608,992 ---------- REAL ESTATE - 2.1% Hospitality Properties Trust 80,000 2,360,000 ---------- SPECIALTY RETAIL - 1.2% Intimate Brands, Inc. 60,000 891,600 Sherwin-Williams Co. 15,000 412,500 ---------- 1,304,100 ---------- TEXTILES & APPAREL - 2.1% K-Swiss, Inc., Class A 55,000 1,828,750 Saucony, Inc., Class A* 10,000 51,600 Saucony, Inc., Class B* 90,000 472,500 ---------- 2,352,850 ---------- TOBACCO - 3.2% Philip Morris Cos., Inc. 80,000 3,668,000 ---------- Total Common Stocks (cost $67,950,306) 76,009,989 ---------- PREFERRED STOCKS - 1.3% Sealed Air Corp., Class A 35,000 1,450,750 ---------- Total Preferred Stock (cost $1,138,040) 1,450,750 ---------- -------------------------------------------------------------------------------- THE YACKTMAN FUND -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Cont'd.) December 31, 2001 -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE -------------------------------------------------------------------------------- CONVERTIBLE BONDS - 2.0% Ciena Corp., 3.75%, 2/1/08 $1,000,000 $640,000 Juniper Networks, 4.75%, 3/15/07 1,500,000 1,087,500 Transwitch Corp., 4.50%, 9/12/05 1,000,000 585,000 ----------- Total Convertible Bonds (cost $2,438,299) 2,312,500 ----------- SHORT-TERMINVESTMENTS - 30.3% COMMERCIALPAPER - 23.2% American Express Co., 1.59%, 1/2/02 5,400,000 5,400,000 Galaxy Funding, Inc., 1.59%, 1/2/02 5,400,000 5,400,000 GECapital, 1.58%, 1/2/02 5,400,000 5,400,000 Merrill Lynch, 1.50%, 1/2/02 5,400,000 5,399,775 U.S. Bancorp, 1.50%, 1/2/02 4,700,000 4,700,000 ----------- Total Commercial Paper (cost $26,299,775) 26,299,775 ----------- DEMAND NOTES (VARIABLE RATE) - 7.1 American Family Financial Services, 1.65% 745,761 745,761 U.S. Bancorp, 1.68% 5,062,564 5,062,564 Wisconsin Electric Power Co., 1.65% 1,839,390 1,839,390 Wisconsin Corp. Central Credit Union, 1.60% 382,770 382,770 ----------- Total Demand Notes (cost $8,030,485) 8,030,485 ----------- Total Short-Term Investments (cost $34,330,260) 34,330,260 ----------- Total Investments - 100.8% (cost $105,856,905) 114,103,499 Liabilities less Other Assets - (0.8)% (904,527) ----------- Net Assets - 100.0% (equivalent to $11.16 per share based on 10,142,665 shares outstanding) $ 113,198,972 ============= * Non-income producing See notes to financial statements -------------------------------------------------------------------------------- THE YACKTMAN FOCUSED FUND -------------------------------------------------------------------------------- EQUITY PURCHASES & SALES For the Six Months Ended December 31, 2001 -------------------------------------------------------------------------------- NET SHARES CURRENT NEW PURCHASES PURCHASED SHARES HELD -------------------------------------------------------------------------------- Blair Corp. 10,000 10,000 Hospitality Properties Trust 5,000 5,000 Kraft Foods, Inc. 5,000 5,000 Merck & Co., Inc. 3,000 3,000 Polymedica Corp. 5,000 5,000 Saucony, Inc., Class B 40,000 40,000 -------------------------------------------------------------------------------- NET SHARES CURRENT PURCHASES PURCHASED SHARES HELD -------------------------------------------------------------------------------- Lancaster Colony Corp. 45,000 60,000 -------------------------------------------------------------------------------- NET SHARES CURRENT SALES PURCHASED SHARES HELD -------------------------------------------------------------------------------- Block H&R, Inc.* 3,000 9,000 Department 56, Inc. 18,000 65,000 Franklin Covey Co. 54,500 20,000 Gartner Group, Inc., Class B 22,000 -- K-Swiss, Inc., Class A8,000 -- M&F Worldwide Corp. 17,000 -- Servicemaster Co. 15,000 -- * Adjusted for a 2 for 1 split on 8/2/01 -------------------------------------------------------------------------------- THE YACKTMAN FOCUSED FUND -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS December 31, 2001
----------------------------------------------------------------------------------------- NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------- COMMON STOCKS - 71.3% COMMERCIAL SERVICES &SUPPLIES - 10.6% First Data Corp. 6,000 $470,700 Franklin Covey Co.* 20,000 120,600 Block H&R, Inc. 9,000 402,300 ----------- 993,600 ----------- FOOD PRODUCTS - 24.6% Kraft Foods, Inc. 5,000 170,150 Lancaster Colony Corp. 60,000 2,130,600 ----------- 2,300,750 ----------- HEALTH CARE EQUIPMENT &SUPPLIES - 5.7% Dentsply International, Inc. 9,000 451,800 Polymedica Corp.* 5,000 83,000 ----------- 534,800 ----------- HEALTH CARE PROVIDERS & SERVICES - 2.7% First Health Group Corp.* 10,000 247,400 ----------- HOUSEHOLD DURABLES - 8.2% Department 56, Inc.* 65,000 559,000 Russ Berrie &Co., Inc. 7,000 210,000 ----------- 769,000 ----------- HOUSEHOLD PRODUCTS - 4.2% Clorox Co. 10,000 395,500 ----------- INTERNET & CATALOG RETAIL - 2.4% Blair Corp. 10,000 226,000 ----------- PHARMACEUTICALS - 1.9% Merck &Co., Inc. 3,000 176,400 ----------- REAL ESTATE - 1.6% Hospitality Properties Trust 5,000 147,500 ----------- SPECIALTY RETAIL - 1.7% Intimate Brands, Inc. 11,000 163,460 ----------- TEXTILES &APPAREL - 2.3% Saucony, Inc., Class B* 40,000 210,000 ----------- TOBACCO - 5.4% Philip Morris Cos., Inc. 11,000 504,350 ----------- Total Common Stocks (cost $5,286,860) 6,668,760 ----------- ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------- PREFERRED STOCK - 4.8%^ Franklin Covey Co., Series A 2,423 $242,300 Sealed Air Corp., Class A 5,000 207,250 ----------- Total Preferred Stock (cost $379,780) 449,550 =========== ----------------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------- CONVERTIBLEBONDS - 1.3% Transwitch Corp., 4.50%, 9/12/05 $200,000 117,000 ----------- Total Convertible Bonds (cost $122,470) 117,000 ----------- SHORT-TERMINVESTMENTS - 29.4% COMMERCIAL PAPER - 19.7% American Express Co., 1.59%, 1/2/02 480,000 480,000 Galaxy Funding, Inc., 1.59%, 1/2/02 480,000 480,000 GECapital, 1.58%, 1/2/02 480,000 480,000 U.S.Bancorp, 1.50%, 1/2/02 400,000 400,000 ----------- Total Commercial Paper (cost $1,840,000) 1,840,000 ----------- DEMAND NOTES (VARIABLE RATE) - 9.7% American Family Financial Services, 1.65% 60,765 60,765 U.S.Bancorp, 1.68% 419,143 419,143 Wisconsin Corp. Central Credit Union, 1.60% 254,268 254,268 Wisconsin Electric Power Co., 1.65% 179,949 179,949 ----------- Total Demand Notes (cost $914,125) 914,125 ----------- Total Short-Term Investments (cost $2,754,125) 2,754,125 ----------- Total Investments - 106.8% (cost $8,543,235) 9,989,435 Liabilities less Other Assets - (6.8)% (633,049) ----------- Net Assets - 100.0% (equivalent to $10.92 per share based on 856,884 shares outstanding) $9,356,386 ===========
* Non-income producing ^Illiquid security. This security is valued at fair value, which at December 31, 2001 is equal to cost See notes to financial statements -------------------------------------------------------------------------------- THE YACKTMAN FUNDS, INC -------------------------------------------------------------------------------- STATEMENTS OF ASSETS & LIABILITIES December 31, 2001 ------------------------------------------------------------------------ THE YACKTMAN THE YACKTMAN FUND FOCUSED FUND ------------------------------------------------------------------------ ASSETS: Investments at value (cost $105,856,905 and $8,543,235, respectively) $114,103,499 $ 9,989,435 Receivable for fund shares sold 1,633,738 41,217 Short-term investments of collateral received for securities loaned 1,503,900 414,000 Dividends and interest receivable 202,675 16,590 Prepaid expenses 27,619 15,154 ----------- ---------- Total Assets 117,471,431 10,476,396 ----------- ---------- LIABILITIES: Payable for securities purchased 1,704,196 -- Collateral for securities loaned 1,503,900 414,000 Payable for fund shares redeemed 937,980 680,003 Accrued investment advisory fees 57,550 2,558 Other accrued expenses 68,833 23,449 ----------- ---------- Total Liabilities 4,272,459 1,120,010 ----------- ---------- NET ASSETS $113,198,972 $9,356,386 ============ =========== NET ASSETS CONSIST OF: Capital stock $104,952,188 $12,868,643 Undistributed net investment income 190 -- Accumulated net realized losses -- (4,958,457) Net unrealized appreciation on investments 8,246,594 1,446,200 ----------- ---------- Total Net Assets $113,198,972 $9,356,386 ============ ========== CAPITAL STOCK, $.0001 par value Authorized 500,000,000 500,000,000 Issued and outstanding 10,142,665 856,884 NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $11.16 $10.92 ====== ====== See notes to financial statements ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS For the Year Ended December 31, 2001 ------------------------------------------------------------------------------- THE YACKTMAN THE YACKTMAN FUND FOCUSED FUND ------------------------------------------------------------------------------- INVESTMENT INCOME: Dividend income $ 1,182,498 $ 112,060 Interest income 420,017 65,074 Securities lending income (See Note 6) 4,119 1,387 ---------- --------- 1,606,634 178,521 ---------- --------- EXPENSES: Investment advisory fees 470,043 77,249 Shareholder servicing fees 134,831 6,860 Administration and accounting fees 106,115 50,000 Professional fees 43,163 18,614 Directors' fees and expenses 25,547 2,834 Federal and state registration fees 23,064 19,667 Reports to shareholders 15,373 730 Custody fees 14,850 2,637 Miscellaneous costs 10,038 814 ---------- --------- Total expenses before reimbursements 843,024 179,405 Expense reimbursements (See Note 4) -- (82,843) ---------- --------- Net expenses 843,024 96,562 ---------- --------- NET INVESTMENT INCOME 763,610 81,959 ---------- --------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investments 7,153,224 (520,128) Change in unrealized appreciation on investments 5,506,854 1,631,964 ---------- --------- Net realized and unrealized gain on investments 12,660,078 1,111,836 ---------- --------- NET INCREASEIN NET ASSETS RESULTING FROM OPERATIONS $13,423,688 $1,193,795 =========== ========== See notes to financial statements ------------------------------------------------------------------------------- THE YACKTMAN FUNDS, INC. ------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
THE YACKTMAN THE YACKTMAN FUND FOCUSED FUND --------------------------- --------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 2001 2000 2001 2000 --------------------------- --------------------------- OPERATIONS: Net investment income $763,610 $735,508 $81,959 $113,353 Net realized gain (loss) on investments Change in unrealized appreciation (depreciation) on investments 7,153,224 8,741,649 (520,128) (979,228) Net increase in net assets resulting from operations 5,506,854 1,631,964 1,631,964 1,317,064 ----------- ---------- --------- --------- 13,423,688 5,047,807 1,193,795 451,189 ----------- ---------- --------- --------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 68,358,924 44,342,810 7,535,485 5,380,906 Proceeds from reinvestment of dividends 5,119,695 5,605,985 79,772 115,185 ----------- ---------- --------- --------- 73,478,619 49,948,795 7,615,257 5,496,091 Payments for shares redeemed (38,189,081) (88,815,260) (6,976,998) (7,228,296) ----------- ---------- --------- --------- Net increase (decrease) 35,289,538 (38,866,465) 638,259 (1,732,205) DISTRIBUTIONS PAIDFROM: Net investment income (511,879) (427,037) (81,983) (113,385) Net realized gains (4,802,800) (5,383,980) -- -- Return of capital -- -- -- (7,774) ----------- ---------- --------- --------- Total Distributions (5,314,679) (5,811,017) (81,983) (121,159) ----------- ---------- --------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 43,398,547 (39,629,675) 1,750,071 (1,402,175) NET ASSETS: Beginning of year 69,800,425 109,430,100 7,606,315 9,008,490 ----------- ---------- --------- --------- End of year (including undistributed net investment income of $190, $8,706, $0 and $0, respectively) $ 113,198,972 $69,800,425 $9,356,386 $7,606,315 ============= =========== ========== ========== TRANSACTIONS IN SHARES: Shares sold 6,219,354 4,548,744 713,272 622,742 Issued in reinvestment of dividends 457,950 567,558 7,285 12,650 Shares redeemed (3,654,440) (9,632,224) (672,961) (831,726) ----------- ---------- --------- --------- Net increase (decrease) 3,022,864 (4,515,922) 47,596 (196,334) ============= =========== ========== ==========
See notes to financial statements THE YACKTMAN FUNDS, INC. ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
THE YACKTMAN FUND THE YACKTMAN FUND -------------------------------------------------------------------------------------------------------------------------------- For a Fund share outstanding throughout each year YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 2001 2000 1999 1998 1997 -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 9.80 $ 9.40 $11.61 $14.05 $13.34 Income from investment operations: Net investment income 0.08 0.11 0.12 0.11 0.22 Net realized and unrealized gain (loss) on investments 1.83 1.16 (2.07) (0.04) 2.21 --------- ---------- -------- --------- -------- Total from investment operations 1.91 1.27 (1.95) 0.07 2.43 --------- ---------- -------- --------- -------- Less distributions: From net investment income (0.05) (0.06) (0.10) (0.11) (0.22) From net realized gains (0.50) (0.81) (0.16) (2.40) (1.50) --------- ---------- -------- --------- -------- Total distributions (0.55) (0.87) (0.26) (2.51) (1.72) --------- ---------- -------- --------- -------- Net asset value, end of year $11.16 $9.80 $9.40 $11.61 $14.05 ========= ========== ======== ======= ========= Total Return 19.47% 13.46 (16.90)% 0.64% 18.28% ========= ========== ======== ======= ========= Supplemental data and ratios: Net assets, end of year (000s) $113,199 $69,800 $109,430 $307,430 $1,082,139 ========= ========== ======== ======= ========= Ratio of expenses before expense reimbursements to average net assets (See Note 4) 1.17% 1.23% 0.72% 1.16% 0.90% ========= ========== ======== ======= ========= Ratio of net expenses to average net assets 1.17% 1.23% 0.71% 1.14% 0.86% ========= ========== ======== ======= ========= Ratio of net investment income to average net assets 1.06% 1.03% 0.95% 0.87% 1.54% ========= ========== ======== ======= ========= Portfolio turnover rate 42.79% 19.00% 4.80% 14.32% 69.13% ========= ========== ======== ======= =========
See notes to financial statements ------------------------------------------------------------------------------- THE YACKTMAN FUNDS, INC. -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (Cont'd.) THE YACKTMAN FOCUSED FUND -------------------------------------------------------------------------------- For a Fund share outstanding throughout each period
---------------------------------------------------------------------------------------------------------------------------------- THE YACKTMAN FOCUSED FUND MAY 1, 1997 (1) YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, THROUGH 2001 2000 1999 1998 DEC. 31, 1997 ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.40 $ 8.96 $11.62 $11.21 $10.00 Income from investment operations: Net investment income 0.09 0.14 0.09 0.05 0.07 Net realized and unrealized gain (loss) on investments 1.52 0.45 (2.64) 0.46 1.47 --------- -------- ------ ------- ------ Total from investment operations 1.61 0.59 (2.55) 0.51 1.54 --------- -------- ------ ------- ------ Less distributions: From net investment income (0.09) (0.14) (0.09) (0.05) (0.07) From net realized gains -- -- (0.02) (0.05) (0.26) Return of capital -- (0.01) -- -- -- --------- -------- Total distributions (0.09) (0.15) (0.11) (0.10) (0.33) --------- -------- Net asset value, end of period $10.92 $9.40 $8.96 $11.62 $11.21 ========= ========= ========= ========= ========= Total Return 17.14% 6.60% (22.02)% 4.58% 15.38%(2) ========= ========= ========= ========= ========= Supplemental data and ratios: Net assets, end of period (000s) $9,356 $7,606 $9,008 $27,407 $58,446 ========= ========= ========= ========= ========= Ratio of expenses before expense reimbursements to average net assets (See Note 4) 2.32% 2.50% 1.19% 1.81% 1.71%(3) ========= ========= ========= ========= ========= Ratio of net expenses to average net assets 1.25% 1.25% 1.19% 1.25% 1.25%(3) ========= ========= ========= ========= ========= Ratio of net investment income to average net assets 1.06% 1.56% 0.74% 0.48% 1.02%(3) ========= ========= ========= ========= ========= Portfolio turnover rate 51.33% 37.84% 25.36% 49.26% 60.43% ========= ========= ========= ========= =========
(1) Commencement of operations (2) Not annualized (3) Annualized See notes to financial statements -------------------------------------------------------------------------------- THE YACKTMAN FUNDS, INC. -------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS December 31, 2001 -------------------------------------------------------------------------------- 1. ORGANIZATION The Yacktman Funds, Inc. (comprised of The Yacktman Fund and The Yacktman Focused Fund, hereafter referred to as the "Funds") is registered as an open-end management investment company under the Investment Company Act of 1940 (the "1940 Act"). The Funds consist of two investment portfolios: The Yacktman Fund is a diversified fund that commenced operations July 6, 1992 and The Yacktman Focused Fund is a non-diversified fund that commenced operations May 1, 1997. The objective of each of the Funds is to produce long-term capital appreciation with current income as a secondary objective. Yacktman Asset Manage ment Co. is the Funds' investment adviser (the "Adviser"). 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. A) INVESTMENT VALUATION - Securities which are traded on a recognized stock exchange are valued at the last sale price on the securities exchange on which such securities are primarily traded. Exchange-traded securities for which there were no transactions are valued at the current bid prices. Securities traded on only over-the-counter markets are valued on the basis of closing over-the-counter bid prices. Short-term debt instruments maturing within 60 days are valued by the amortized cost method, which approximates fair value. Variable rate demand notes are valued at cost which approximates fair value. Options written or purchased by The Yacktman Focused Fund are valued at the last sales price if such last sales price is between the current bid and asked prices. Otherwise, options are valued at the mean between the current bid and asked prices. Any securities for which market quotations are not readily available are valued at their fair value as determined in good faith by the Board of Directors. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- B) OPTIONS - Premiums received by The Yacktman Focused Fund upon writing options are recorded as an asset with a corresponding liability which is subsequently adjusted to the current market value of the option. Changes between the initial premiums received and the current value of the options are recorded in unrealized gains and losses. When an option expires, is exercised, or is closed, the Fund realizes a gain or loss, and the liability is eliminated. The Fund continues to bear the risk of adverse movements in the price of the underlying security during the period of the option, although any potential loss would be reduced by the amount of the option premium received. The Yacktman Focused Fund had no activity in written options for the year ended December 31, 2001. C) FEDERAL INCOME TAXES - It is each Fund's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all investment company net taxable income and net capital gains to its shareholders in a manner which results in no tax cost to the Fund. Therefore, no federal income tax provision is recorded. D) DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income are declared and paid annually. Distributions of net realized capital gains, if any, are declared and paid at least annually. Distri bu tions to shareholders are recorded on the ex-dividend date. The character of distributions made during the year from net investment income or net realized gains may differ from the characterization for federal income tax purposes due to differences in the recognition of income, expense and gain items for financial statement and tax purposes. Additionally, the Funds may utilize earnings and profits distributed to shareholders on redemption of shares as part of the dividends paid deduction for income tax purposes. Where appropriate, reclassifications between capital accounts are made for such differences that are permanent in nature. E) OTHER - Investment transactions are accounted for on the trade date. The Funds determine gain or loss realized from investment transactions by comparing the original cost of the security lot sold with the net sale proceeds. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. -------------------------------------------------------------------------------- THE YACKTMAN FUNDS, INC. -------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS (Cont'd.) December 31, 2001 -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS For the year ended December 31, 2001, the aggregate purchases and sales of securities, excluding short-term securities, were $28,256,301 and $26,701,946 for The Yacktman Fund and $3,153,977 and $3,372,801 for The Yacktman Focused Fund, respectively. There were no purchases or sales of U.S. Government securities for the year ended December 31, 2001. 4. INVESTMENT ADVISORY AGREEMENT The Funds have agreements with the Adviser, with whom certain officers and directors of the Funds are affiliated, to furnish investment advisory services to the Funds. Under the terms of these agreements, The Yacktman Fund will pay the Adviser a monthly fee at the annual rate of 0.65% on the first $500,000,000 of average daily net assets, 0.60% on the next $500,000,000 of average daily net assets and 0.55% on average daily net assets in excess of $1,000,000,000, and The Yacktman Focused Fund will pay the Adviser a monthly fee at the annual rate of 1% of its average daily net assets. The Adviser has voluntarily agreed to reimburse The Yacktman Focused Fund for all expenses exceeding 1.25% of its average daily net assets. 5. TRANSACTIONS WITH AFFILIATES The following is an analysis of transactions for the year ended December 31, 2001 for The Yacktman Fund with "affiliated companies" (an affiliated company as defined by the 1940 Act includes a company in which a Fund owns 5% or more of that company's outstanding voting shares):
Amount of Amount of Loss Dividends Realized Share Activity Credited on Sale Balance Balance to Income of Shares Security Name 12/31/00 Purchases Sales 12/31/01 in 2001 in 2001 ------------- -------- ---------- ------- --------- ----------- ----------- Department 56, Inc. 700,000 -- 65,000 635,000 -- $(666,703)
As of December 31, 2001, Department 56, Inc. was not an affiliated company. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 6. SECURITIES LENDING The Funds have entered into a securities lending arrangement with the custodian. Under the terms of the agreement, the custodian is authorized to loan securities on behalf of the Funds to approved brokers against the receipt of cash collateral at least equal to the value of the securities loaned. The cash collateral is invested by the custodian in a money market pooled account approved by the Adviser. Although risk is mitigated by the collateral, the Funds could experience a delay in recovering their securities and possible loss of income or value if the borrower fails to return them. The agreement provides that after predetermined rebates to the brokers, the income generated from lending transactions is allocated 60% to the Funds and 40% to the custodian. As of December 31, 2001, The Yacktman Fund had on loan securities valued at $1,419,473 and collateral of $1,503,900 and The Yacktman Focused Fund had on loan securities valued at $402,300 and collateral of $414,000. 7. TAX INFORMATION The following information for the Funds is presented on an income tax basis as of December 31, 2001: THE YACKTMAN THE YACKTMAN FUND FOCUSED FUND Cost of Investments $105,856,905 $8,579,814 ============ ========== Gross Unrealized Appreciation $ 24,149,009 $1,789,327 Gross Unrealized Depreciation (15,902,415) (379,706) ------------- ---------- Net Unrealized Appreciation on Investments $ 8,246,594 $1,409,621 ============ ========== The difference between cost amounts for financial statement and federal income tax purposes is due primarily to timing differences in recognizing certain gains and losses on security transactions. -------------------------------------------------------------------------------- THE YACKTMAN FUNDS, INC. -------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS (Cont'd.) December 31, 2001 -------------------------------------------------------------------------------- The tax components of dividends paid during the year and the tax undistributed amounts at year end were as follows: THE YACKTMAN THE YACKTMAN FUND FOCUSED FUND Ordinary Income $ 999,941 $ 81,983 Long-Term Capital Gains 4,314,738 -- Undistributed Ordinary Income 190 -- Capital Loss Carryforward -- (4,753,281) The Yacktman Focused Fund realized post-October capital losses in 2001 of $168,597, which for tax purposes are deferred, and will be recognized in the following year. At December 31, 2001, The Yacktman Focused Fund had total accumulated capital loss carryforwards of $4,753,281, with $1,333,190 expiring in 2007, $3,025,700 expiring in 2008, and $394,391 expiring in 2009. To the extent that the Fund realizes future net capital gains, those gains will be offset by any unused capital loss carryforward. 8. ADDITIONAL TAX INFORMATION (UNAUDITED) For the year ended December 31, 2001, 68.29% and 100.00% of the dividends paid from net investment income, including short-term capital gains (if any), for The Yacktman Fund and The Yacktman Focused Fund, respectively, qualify for the dividends received deduction available to corporate shareholders. The Yacktman Fund hereby designates $6,507,243, which includes earnings and profits distributed to shareholders on redemption of shares, as a long-term capital gain distribution for purposes of the dividends paid deduction. -------------------------------------------------------------------------------- THE YACKTMAN FUNDS, INC. -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE YACKTMAN FUNDS, INC. In our opinion, the accompanying statements of assets and liabilities, including the portfolios of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Yacktman Fund and The Yacktman Focused Fund (constituting The Yacktman Funds, Inc., hereafter referred to as the "Funds") at December 31, 2001, and the results of each of their operations, the changes in each of their net assets and each of their financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2001 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Milwaukee, Wisconsin January 25, 2002 -------------------------------------------------------------------------------- THE YACKTMAN FUNDS, INC. -------------------------------------------------------------------------------- FUND DIRECTOR INFORMATION INDEPENDENT DIRECTORS -------------------------------------------------------------------------------- CURRENT POSITION HELD NAME AGE ADDRESS WITH THE FUND Bruce B. Bingham 53 c/o Yacktman Asset Management Co. Director 1110 Lake Cook Road, Suite 385 Buffalo Grove, IL 60089 ------------------------------------------------------------------------------ Albert J. Malwitz 65 c/o Yacktman Asset Management Co. Director 1110 Lake Cook Road, Suite 385 Buffalo Grove, IL 60089 ------------------------------------------------------------------------------ George J. Stevenson, III 62 c/o Yacktman Asset Management Co. Director 1110 Lake Cook Road, Suite 385 Buffalo Grove, IL 60089 INTERESTED DIRECTORS* ------------------------------------------------------------------------------ Ronald W. Ball 61 c/o Yacktman Asset Management Co. Director, 1110 Lake Cook Road, Suite 385 Vice President Buffalo Grove, IL 60089 Secretary ------------------------------------------------------------------------------ Donald A. Yacktman 60 c/o Yacktman Asset Management Co. Director, 1110 Lake Cook Road, Suite 385 President Buffalo Grove, IL 60089 Treasurer ------------------------------------------------------------------------------ *Each of the Interested Directors serves as director and officer of The Yacktman Funds. Additional information about the Portfolios' directors is available in the Statement of Additional Information and is available, without charge, upon request, by calling 1-800-525-8258. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ NUMBER OF OTHER TERM OF OFFICE PRINCIPAL OCCUPATION PORTFOLIOS DIRECTORShIPS AND LENGTH OF DURING THE PAST OVERSEEN WITHIN THE HELD OUTSIDE TIME SERVED FIVE YEARS FUND COMPLEX THE FUND COMPLEX Indefinite, until Mr. Bingham has been a 2 None successor elected partner in Hamilton Partners, a real estate development firm, 3 years for more than five years ------------------------------------------------------------------------------ Indefinite, until Mr. Malwitz has been owner 2 None successor elected and chief executive officer of Arlington Fastener Co., 3 years a manufacturer and distributor of industrial fasteners, for more than five years ------------------------------------------------------------------------------ Indefinite, until Mr. Stevenson has been 2 None successor elected President of Stevenson & Company, a registered business 3 years broker, and President of Healthmate Products Co., a fruit juice concentrate manufacturing company, for more than five years ------------------------------------------------------------------------------ Indefinite, until Mr. Ball has been Senior 2 None successor elected Vice President of Yacktman Asset Management Co. since 3 years April, 1992 ------------------------------------------------------------------------------ Indefinite, until Mr. Yacktman has been 2 None successor elected President of Yacktman Asset Management Co. since 9 years April, 1992 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ (LOGO) FOR FUND INFORMATION AND SHAREHOLDER SERVICES, CALL 1-800-525-8258 WEB SITE: WWW.YACKTMAN.COM THE YACKTMAN FUNDS, INC. Shareholder Services Center 615 East Michigan Street, 3rd Floor Milwaukee, Wisconsin 53201-5207 -------------------------------------------------------------------------------- YA-408-0202