-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wju0jEIr/tdRBhC3q60I6VZ/Tcey+nFIFeVEz7jPYIjR/Qa3mBtkuefVuRJ+/nTQ ikO2oVZpKTBN5dFtrSMmJQ== 0000948221-98-000044.txt : 19980211 0000948221-98-000044.hdr.sgml : 19980211 ACCESSION NUMBER: 0000948221-98-000044 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980210 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: YACKTMAN FUND INC CENTRAL INDEX KEY: 0000885980 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06628 FILM NUMBER: 98529663 BUSINESS ADDRESS: STREET 1: 303 W MADISON ST CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126412400 MAIL ADDRESS: STREET 1: 207 E BUFFALO ST STREET 2: STE 400 CITY: MILWAUKEE STATE: WI ZIP: 53202 N-30D 1 THE YACKTMAN FUNDS (LOGO) ANNUAL REPORT December 31, 1997 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 Shareholder: For investors who purchased shares at THE YACKTMAN FUND'S inception in July, 1992 at $10.00 per share, your initial investment, adjusted for dividends and capital gains, would have grown to $20.69 by the end of the fourth quarter. The Yacktman Fund had a -2.8% return for the fourth quarter of 1997 as compared to a 2.9% return for the S&P 500. THE S&P 500 YACKTMAN FUND ANNUALIZED TIME PERIOD ANNUALIZED RETURNS RETURNS - ----------------------------------------------------------------- One Year (1/1/97 - 12/31/97) 18.3% 33.4% Since low price for Fund (8/12/93 - 12/31/97) 21.9% 22.1% Five Years (1/1/93 - 12/31/97) 14.6% 20.3% Since Inception (7/6/92 - 12/31/97) 14.2% 19.7% The S&P 500 Stock Index is an unmanaged but commonly used measure of common stock total return performance. 7/6/92 12/92 12/93 12/94 12/95 12/96 12/97 THE YACKTMAN FUND $10,000 $10,472 $9,783 $10,644 $13,881 $17,493 $20,691 S&P 500 Stock Index $10,000 $10,679 $11,756 $11,911 $16,387 $20,150 $26,873 The chart assumes an initial gross investment of $10,000 made on 7/6/92 (inception). Returns shown include the reinvestment of all dividends. The above past performance is not predictive of future results. The investment return and principal value of the Fund will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. For investors who purchased shares at THE YACKTMAN FOCUSED FUND'S inception on May 1, 1997 at $10.00 per share, your initial investment, adjusted for dividends and capital gains, would have grown to $11.54 by the end of the fourth quarter. This represents a cumulative return of 15.4%, which compares to a 22.6% cumulative return for the S&P 500 for the same period. The Yacktman Focused Fund had a -3.1% return for the fourth quarter of 1997. 5/1/97 8/97 12/97 The Yacktman Focused Fund $10,000 $11,461 $11,538 S&P 500 Stock Index $10,000 $11,296 $12,256 The chart assumes an initial gross investment of $10,000 made on 5/1/97 (inception). Returns shown include the reinvestment of all dividends. The above past performance is not predictive of future results. The investment return and principal value of the Fund will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Since July, 1992, the stock market has had only one down quarter. For the first time in the 101-year history of the Dow Jones Industrial Average, the index rose by over 20% in three consecutive years. It is also the second biggest cumulative three-year rise in the Dow's history. In view of the current market valuations for many stocks, which are high by historical standards, I doubt seriously whether the returns for the remainder of the millennium will come close to those of the past three years. We believe this may be an opportune time for our shareholders. As the chart to the right suggests, we should be well-positioned on a relative basis for both downside protection and capital appreciation in market advances. This is true because of the fundamental quality of our companies (as reflected in their comparatively high cash returns on tangible assets) and their relatively low P/E ratios. PRICE/EARNINGS DISCOUNT FROM (P/E) RATIOS S&P 500 P/E - ----------------------------------------------------------- The Yacktman Fund 14.9 21.6% The Yacktman Focused Fund 14.2 25.3% S&P 500 19.0 - The above P/E ratios are weighted by market capitalization and based upon estimated 1998 earnings. The estimated earnings for the above P/E ratios are the consensus forecasts of the institutional analysts as reported each week in the New York and NASDAQ/American Stock Exchange Daily Graphs booklets. In 1997, we earned a good absolute return for our shareholders but still trailed the overall market, as measured by the S&P 500. This shortfall in performance was largely due to a higher than normal cash position throughout the year and the popularity of the higher P/E companies in the S&P 500. It was not the result of earnings and cash flow problems with our companies. In fact, the P/E spread between our Funds and the S&P 500 may be approaching historically its widest point. We would expect to see the spread narrow in 1998, which could mean good relative performance for our Funds. While we clearly want to beat the index over longer periods of time, we are even more concerned about reaching our ultimate performance objective of earning competitive returns while also seeking to reduce portfolio risk. One way to reduce risk is to buy good businesses, which we define as businesses with high returns on tangible assets and high EVAs (Economic Value Added). An EVA-oriented management attempts to earn the highest possible returns with a given amount of assets. When businesses earn returns above their cost of capital, as we hope ours will continue to do, they create added economic value (EVA), which ultimately should be reflected in the stock price. We have typically owned the shares of larger companies with multiple divisions that can spread the underlying business risk over several operating areas. However, we believe the profitability of a business over a long time frame is even more important than company size. While the smaller companies may be somewhat more vulnerable to competition and industry changes, the profitable ones are often more focused and aggressively managed, and are capable of generating outstanding results. The shares of many of the supersized companies (e.g., pharmaceutical firms), which were in our portfolio in the earlier years of The Yacktman Fund, were sold last year because of price risk (i.e., we believed their market prices had gone well above reasonable valuations), and the proceeds of the sales were recycled into the shares of somewhat smaller (but hardly small) businesses. Notwithstanding the lower median market capitalization of the holdings in our two Funds, it is important to know that our purchases continue to be consistent with our long-standing investment objectives. Moreover, I must confess that I really cannot understand how companies with annual operating cash flows of almost $100 million can be categorized by independent evaluators as "small." Since opening our doors for business in 1992, we are pleased to report that we have not been forced to sell any of our holdings because of difficult business problems. We believe the true strength of our stock selection will show up when the economy slows down, as it inevitably will sometime in the future. More importantly, we remain focused on buying excellent businesses at low prices even if some of these companies are unpopular in the short term. Our experience clearly indicates that if we "stick to our knitting," the longer term will take care of itself. Sincerely, /S/ Donald A. Yacktman Donald A. Yacktman THE YACKTMAN FUND TOP TWELVE EQUITY HOLDINGS December 31, 1997 PERCENTAGE OF NET ASSETS - ----------------------------------------------------------- Philip Morris Cos., Inc. 14.2% First Data Corp. 8.6% Whitman Corp. 4.8% Department 56, Inc. 4.8% Reebok International Ltd. 4.7% Franklin Covey Co. 4.6% Intimate Brands, Inc. 4.6% Fruit of the Loom, Inc. 4.6% United Asset Management Corp. 4.5% Clorox Co. 4.2% Bandag, Inc., Class A 3.3% Healthcare COMPARE Corp. 3.0% ----- TOTAL 65.9% THE YACKTMAN FUND PURCHASES & SALES For the Quarter Ended December 31, 1997 NET SHARES CURRENT NEW PURCHASES PURCHASED SHARES HELD - ------------------------------------------------------------------------ DE BEERS CONSOLIDATED MINES LIMITED ADR Owns several diamond mines and the South African elements of the Central Selling Organiza- tion (CSO), which markets 70% of the world's diamond production. 495,300 495,300 THE YACKTMAN FUND PURCHASES & SALES (cont'd.) For the Quarter Ended December 31, 1997 NET SHARES CURRENT NEW PURCHASES PURCHASED SHARES HELD - ------------------------------------------------------------------------ JOSTENS, INC. A leading maker of school products (i.e., class rings, grad- uation products, yearbooks, and school pictures) and recognition products (i.e., customized and personalized jewelry, plaques, and certificates). 505,000 505,000 LUXOTTICA GROUP ADR An Italian company engaged in the design, manufacture, and worldwide distribution (LensCrafters) of about 1,700 different eyeglass frames and sunglasses. 66,200 66,200 THE PMI GROUP, INC. Through its subsidiary, PMI Mortgage Insurance Co., provides private mortgage insurance that insures mortgage lenders against potential losses in the event of borrower default. 100,000 100,000 NET SHARES CURRENT OTHER PURCHASES PURCHASED SHARES HELD - ------------------------------------------------------------------------ AnnTaylor Stores Corp. 15,300 861,000 Dentsply International, Inc.+ 25,000 387,000 First Data Corp. 2,505,000 3,193,900 Franklin Covey Co. 250,000 2,270,000 THE YACKTMAN FUND PURCHASES & SALES (cont'd.) For the Quarter Ended December 31, 1997 NET SHARES CURRENT OTHER PURCHASES (cont'd.) PURCHASED SHARES HELD - ------------------------------------------------------------------------ Healthcare COMPARE Corp. 71,700 634,300 Intimate Brands, Inc. 275,000 2,065,000 Philip Morris Cos., Inc. 1,030,000 3,400,000 Reebok International Ltd. 885,000 1,760,000 Tupperware Corp. 328,400 480,000 United Asset Management Corp. 80,000 2,000,000 NET SHARES CURRENT SALES SOLD SHARES HELD - ------------------------------------------------------------------------ Clorox Co. 140,000 570,000 Columbia/HCA Healthcare Corp. 75,000 1,000,000 Department 56, Inc. 360,000 1,790,000 Fruit of the Loom, Inc. 75,000 1,925,000 King World Productions, Inc. 163,500 200,000 Lincare Holdings, Inc. 100,000 - Liz Claiborne, Inc. 40,000 236,000 NIKE, Inc., Class B 175,000 - Reuters Holdings ADS 2,500 197,500 Reynolds & Reynolds, Class A 330,000 95,000 Rollins, Inc. 46,100 1,124,900 Selective Insurance Group+ 40,000 570,000 Tootsie Roll Industries 297,221 - UST, Inc. 900,000 - Valassis Communications, Inc. 50,000 750,000 Wells Fargo & Company 40,000 - Whitman Corp. 485,000 2,000,000 + Adjusted for 2 for 1 stock split THE YACKTMAN FUND PORTFOLIO OF INVESTMENTS December 31, 1997 NUMBER OF SHARES VALUE - -------------------------------------------------------------------------- COMMON STOCKS - 93.0% APPAREL/SHOES - 10.2% Fruit of the Loom, Inc.* 1,925,000 $ 49,328,125 Liz Claiborne, Inc. 236,000 9,867,750 Reebok International Ltd.* 1,760,000 50,710,000 ------------- 109,905,875 ------------- CONGLOMERATES - 4.8% Whitman Corp. 2,000,000 52,125,000 ------------- CONSUMER GOODS - 5.9% Department 56, Inc.*+ 1,790,000 51,462,500 Jostens, Inc. 505,000 11,646,563 Topps Co. (The)* 500,000 1,109,375 ------------- 64,218,438 ------------- FINANCIAL SERVICES - 13.2% First Data Corp. 3,193,900 93,421,575 United Asset Management Corp. 2,000,000 48,875,000 ------------- 142,296,575 ------------- FOOD/TOBACCO - 14.2% Philip Morris Cos., Inc. 3,400,000 154,062,500 ------------- HOUSEHOLD PRODUCTS - 5.4% Clorox Co. 570,000 45,065,625 Tupperware Corp. 480,000 13,380,000 ------------- 58,445,625 ------------- INSURANCE - 2.1% The PMI Group, Inc. 100,000 7,231,250 Selective Insurance Group 570,000 15,390,000 ------------- 22,621,250 ------------- MEDIA - 6.1% A.C. Nielsen Corp.* 1,330,000 32,418,750 American Media, Inc., Class A*+ 1,200,000 9,300,000 King World Productions, Inc.* 200,000 11,550,000 THE YACKTMAN FUND PORTFOLIO OF INVESTMENTS (cont'd) December 31, 1997 NUMBER OF SHARES VALUE - -------------------------------------------------------------------------- MEDIA - 6.1% (cont'd.) Reuters Holdings ADS 197,500 $ 13,084,375 ------------- 66,353,125 ------------- MEDICAL SERVICES - 5.7% Columbia/HCA Healthcare Corp. 1,000,000 29,625,000 HealthCare COMPARE Corp.* 634,300 32,428,587 ------------- 62,053,587 ------------- MEDICAL SUPPLIES - 1.1% Dentsply International, Inc. 387,000 11,803,500 ------------- METALS MINING - 0.9% De Beers Consolidated Mines Limited ADR 495,300 10,122,694 ------------- RETAILING - 8.0% AnnTaylor Stores Corp.* 861,000 11,515,875 International Dairy Queen, Inc.*+ 795,000 21,291,094 Intimate Brands, Inc. 2,065,000 49,689,062 Luxottica Group ADR 66,200 4,137,500 ------------- 86,633,531 ------------- SERVICES - 12.1% Block H&R, Inc. 483,400 21,662,362 Franklin Covey Co.*+ 2,270,000 49,940,000 Jenny Craig, Inc.* 843,800 6,381,238 Reynolds & Reynolds, Class A 95,000 1,751,563 Rollins, Inc. 1,124,900 22,849,531 Valassis Communications, Inc.* 750,000 27,750,000 ------------- 130,334,694 ------------- TIRES AND RUBBER - 3.3% Bandag, Inc., Class A+ 734,700 35,173,763 ------------- Total Common Stocks (cost $818,717,479) 1,006,150,157 ------------- THE YACKTMAN FUND PORTFOLIO OF INVESTMENTS (cont'd) December 31, 1997 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------- US GOVERNMENT AGENCIES - 0.4% Federal Home Loan Bank 6.01%, 07/29/98 $ 500,000 $ 501,115 6.25%, 11/12/99 2,000,000 1,999,920 6.68%, 9/21/01 1,000,000 1,001,180 6.78%, 2/12/03 1,000,000 1,000,010 ------------ Total US Government Agencies (cost $4,502,371) 4,502,225 ------------ COMMERCIAL PAPER - 5.5% American Express 6.25%, 1/02/98 23,000,000 23,000,000 6.01%, 1/06/98 6,750,000 6,750,000 Ford Motor Credit Co., 5.95%, 1/06/98 30,000,000 30,000,000 ------------ Total Commercial Paper (cost $59,750,000) 59,750,000 ------------ DEMAND NOTES (VARIABLE RATE) - 0.6% Johnson Controls, Inc. 1,000,000 1,000,000 Sara Lee Corp. 2,316,128 2,316,128 Warner-Lambert, Inc. 3,449,583 3,449,583 ------------ Total Demand Notes (cost $6,765,711) 6,765,711 ------------ Total Investments - 99.5% (cost $889,735,561) 1,077,168,093 Other Assets less Liabilities - 0.5% 4,971,228 ------------ Net Assets - 100% (equivalent to $14.05 per share based on 77,002,248 shares outstanding) $1,082,139,321 ============= * Non-income producing + Affiliated company - See Note 7 See notes to financial statements THE YACKTMAN FOCUSED FUND PURCHASES & SALES For the Quarter Ended December 31, 1997 NET SHARES CURRENT NEW PURCHASES PURCHASED SHARES HELD - -------------------------------------------------------------------------- The PMI Group, Inc. 32,600 32,600 Rollins, Inc. 106,000 106,000 NET SHARES CURRENT OTHER PURCHASES PURCHASED SHARES HELD - -------------------------------------------------------------------------- AnnTaylor Stores Corp. 25,000 135,000 Department 56, Inc. 68,500 400,000 First Data Corp. 150,000 180,000 Franklin Covey Co. 56,300 171,300 Fruit of the Loom, Inc. 43,000 100,000 Intimate Brands, Inc. 30,000 110,000 Philip Morris Cos., Inc. 20,000 160,000 Reebok International Ltd. 75,800 91,300 United Asset Management Corp. 35,000 100,000 Whitman Corp. 30,000 100,000 NET SHARES CURRENT SALES SOLD SHARES HELD - --------------------------------------------------------------------------- Columbia/HCA Healthcare Corp. 20,000 25,000 Healthcare COMPARE Corp. 6,000 - Lincare Holdings, Inc. 11,000 - Tootsie Roll Industries 18,000 - Wells Fargo & Company 1,700 - THE YACKTMAN FOCUSED FUND PORTFOLIO OF INVESTMENTS December 31, 1997 NUMBER OF SHARES VALUE - --------------------------------------------------------------------------- COMMON STOCKS - 81.7% APPAREL/SHOES - 8.9% Fruit of the Loom, Inc.* 100,000 $ 2,562,500 Reebok International Ltd.* 91,300 2,630,581 ------------ 5,193,081 ------------ CONGLOMERATES - 4.5% Whitman Corp.++ 100,000 2,606,250 ------------ CONSUMER GOODS - 19.7% Department 56, Inc.*++ 400,000 11,500,000 ------------ FINANCIAL SERVICES - 13.2% First Data Corp. 180,000 5,265,000 United Asset Management Corp. 100,000 2,443,750 ------------ 7,708,750 ------------ FOOD/TOBACCO - 12.4% Philip Morris Cos., Inc.++ 160,000 7,250,000 ------------ INSURANCE - 4.0% The PMI Group, Inc. 32,600 2,357,388 ------------ MEDICAL SERVICES - 1.3% Columbia/HCA Healthcare Corp. 25,000 740,625 ------------ RETAILING - 7.6% AnnTaylor Stores Corp.* 135,000 1,805,625 Intimate Brands, Inc. 110,000 2,646,875 ------------ 4,452,500 ------------ SERVICES - 10.1% Franklin Covey Co.* 171,300 3,768,600 Rollins, Inc. 106,000 2,153,125 ------------ 5,921,725 ------------ Total Common Stocks (cost $47,025,868) 47,730,319 ------------ THE YACKTMAN FOCUSED FUND PORTFOLIO OF INVESTMENTS December 31, 1997 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------- DEMAND NOTES (variable rate) - 18.9% American Family Financial Services $2,437,553 $ 2,437,553 General Mills, Inc. 783,412 783,412 Johnson Controls, Inc. 2,700,000 2,700,000 Pitney Bowes Credit Corp. 1,131,829 1,131,829 Sara Lee Corp. 39,000 39,000 Warner-Lambert, Inc. 1,831,018 1,831,018 Wisconsin Electric Power Company 2,130,467 2,130,467 ------------ Total Demand Notes (cost $11,053,279) 11,053,279 ------------ NUMBER OF CONTRACTS VALUE - -------------------------------------------------------------------------- PUT OPTIONS PURCHASED - 0.2% Philip Morris Cos., Inc. Expiring Jan. 1999 @ $26.625 320 8,000 Philip Morris Cos., Inc. Expiring Jan. 1999 @ $33.375 1,080 94,500 ------------ Total Put Options Purchased (cost $301,536) 102,500 ------------ Total Investments - 100.8% (cost $58,380,683) 58,886,098 ------------ THE YACKTMAN FOCUSED FUND PORTFOLIO OF INVESTMENTS (cont'd) December 31, 1997 NUMBER OF CONTRACTS VALUE - -------------------------------------------------------------------------- PUT OPTIONS WRITTEN - (0.8)% Healthcare COMPARE Corp. Expiring Feb. 1998 @ $55.00 450 $ (216,563) Lincare Holdings, Inc. Expiring Feb. 1998 @ $45.00 250 (9,375) NIKE, Inc., Class B Expiring Jan. 1999 @ $37.50 550 (233,750) ------------ Total Put Options Written (premiums received $296,864) (459,688) ------------ Other Assets less Other Liabilities - 0.0% 19,651 ------------ Net Assets - 100% (equivalent to $11.21 per share based on 5,212,128 shares outstanding) $58,446,061 =========== * Non-income producing ++ All or a portion of security pledged as collateral to cover written put options See notes to financial statements This page intentionally left blank. THE YACKTMAN FUNDS, INC. STATEMENTS OF ASSETS & LIABILITIES December 31, 1997 THE YACKTMAN THE YACKTMAN FUND FOCUSED FUND - --------------------------------------------------------------------------- ASSETS: Investments at value Nonaffiliated issuers (cost $747,176,081, and $58,380,683, respectively) $ 910,000,737 $58,886,098 Affiliated issuers (cost $142,559,480, and $0, respectively) 167,167,356 - Receivable for fund shares issued 3,962,765 30,607 Dividends and interest receivable 2,636,270 144,300 Prepaid expenses 34,557 21,389 Cash 2,243 - Due from adviser - 44,131 ------------- ----------- Total Assets 1,083,803,928 59,126,525 ------------- ----------- LIABILITIES: Put options written at value (premiums received $0 and $296,864, respectively) - 459,688 Payable for securities purchased - 36,316 Payable for fund shares redeemed 610,383 87,178 Accrued investment advisory fees 588,751 47,392 Accrued expenses 450,715 49,595 Shareholder distributions payable 14,758 295 ------------- ----------- Total Liabilities 1,664,607 680,464 ------------- ----------- NET ASSETS $1,082,139,321 $58,446,061 ============= =========== NET ASSETS CONSIST OF: Capital stock $ 895,128,743 $58,091,443 Undistributed net investment income 23,937 1,476 Undistributed net realized gains - 10,551 Distribution in excess of book realized gains (445,891) - Net unrealized appreciation on investments and written put options 187,432,532 342,591 ------------- ----------- Total Net Assets $1,082,139,321 $58,446,061 ============= =========== CAPITAL STOCK, $.0001 par value Authorized 500,000,000 500,000,000 Issued and outstanding 77,002,248 5,212,128 NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $14.05 $11.21 ====== ====== See notes to financial statements STATEMENTS OF OPERATIONS For the Periods Ended December 31, 1997 THE YACKTMAN THE YACKTMAN FUND FOCUSED FUND - --------------------------------------------------------------------------- INVESTMENT INCOME: Dividend income $ 13,188,134 $ 239,293 Interest income 11,278,899 257,303 ------------- ----------- 24,467,033 496,596 ------------- ----------- EXPENSES: Investment advisory fees 6,360,037 218,380 Shareholder servicing fees 1,309,626 21,248 12b-1 plan distribution fees 484,861 - Administration and accounting fees 401,002 33,563 Federal and state registration fees 179,542 35,055 Reports to shareholders 168,375 8,818 Custody fees 157,047 11,593 Professional fees 65,298 44,043 Directors' fees and expenses 28,199 511 Miscellaneous costs 11,573 660 ------------- ----------- Total expenses before reductions and reimbursements 9,165,560 373,871 Expense reductions (See Note 6) (364,752) - Expense reimbursements (See Note 4) - (101,060) ------------- ----------- Net expenses 8,800,808 272,811 ------------- ----------- NET INVESTMENT INCOME 15,666,225 223,785 ------------- ----------- REALIZED AND UNREALIZED GAIN: Net realized gain (loss) on: Investments 105,107,464 1,360,593 Written put options - (35,042) Change in unrealized appreciation (depreciation) on: Investments 43,289,598 505,415 Written put options - (162,824) ------------- ----------- Net gain 148,397,062 1,668,142 ------------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $164,063,287 $1,891,927 ============= =========== Commenced operations May 1, 1997 Net of $11,298 in foreign withholding taxes. See notes to financial statements THE YACKTMAN FUNDS, INC. STATEMENTS OF CHANGES IN NET ASSETS THE YACKTMAN THE YACKTMAN FUND FOCUSED FUND ------------------ -------------- YEAR YEAR MAY 1, 1997 ENDED ENDED THROUGH DEC. 31, 1997 DEC. 31, 1996 DEC. 31, 1997 ----------------------------- -------------- OPERATIONS: Net investment income $ 15,666,225 $ 11,539,662 $ 223,785 Net realized gain on investments and written put options 105,107,464 83,892,326 1,325,551 Change in net unrealized appreciation on investments and written put options 43,289,598 55,159,313 342,591 ------------ ------------ ----------- Net increase in net assets resulting from operations 164,063,287 150,591,301 1,891,927 ------------ ------------ ----------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 519,726,430 287,165,904 62,749,613 Proceeds from reinvestment of dividends 111,934,459 116,149,089 1,425,206 ------------ ------------ ----------- 631,660,889 403,314,993 64,174,819 ------------ ------------ ----------- Payments for shares redeemed (348,444,175) (269,716,485) (6,062,180) ------------ ------------ ----------- Net increase 283,216,714 133,598,508 58,112,639 ------------ ------------ ----------- DIVIDENDS PAID FROM: Net investment income (15,657,189) (11,548,136) (243,505) Net realized gains (105,100,153) (83,748,151) (1,315,000) ------------ ------------ ----------- (120,757,342) (95,296,287) (1,558,505) ------------ ------------ ----------- TOTAL INCREASE IN NET ASSETS 326,522,659 188,893,522 58,446,061 NET ASSETS: Beginning of period 755,616,662 566,723,140 - ------------ ------------ ----------- End of period (including undistributed net investment income of $23,937, $14,901 and $1,476, respectively) $1,082,139,321 $755,616,662 $58,446,061 ============= ============ =========== TRANSACTIONS IN SHARES: Shares sold 35,997,446 21,423,865 5,618,285 Issued in reinvestment of dividends 7,895,132 8,904,831 125,719 Shares redeemed (23,525,455) (20,586,820) (531,876) ------------ ------------ ----------- Net increase 20,367,123 9,741,876 5,212,128 ============ ============ =========== Commencement of operations See notes to financial statements THE YACKTMAN FUNDS, INC. FINANCIAL HIGHLIGHTS
THE YACKTMAN THE YACKTMAN FUND THE YACKTMAN FUND FOCUSED FUND --------------------------- -------------------------------------------- ---------------- YEAR YEAR YEAR YEAR YEAR MAY 1, 1997 ENDED ENDED ENDED ENDED ENDED THROUGH DEC. 31, 1997 DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1993 DEC. 31, 1997 ---------------------------- --------------------------------------------- ---------------- Net asset value, beginning of period $13.34 $12.09 $10.05 $9.56 $10.39 $10.00 Income from investment operations: Net investment income 0.22 0.24 0.22 0.22 0.14 0.07 Net realized and unrealized gains (losses) on investments 2.21 2.90 2.81 0.61 (0.83) 1.47 ------- ------- ------- ------- ------- ------- Total from investment operations 2.43 3.14 3.03 0.83 (0.69) 1.54 ------- ------- ------- ------- ------- ------- Less distributions: Dividends from net investment income (0.22) (0.24) (0.22) (0.22) (0.14) (0.07) Distributions from net realized gains (1.50) (1.65) (0.77) (0.12) - (0.26) ------- ------- ------- ------- ------- ------- Total distributions (1.72) (1.89) (0.99) (0.34) (0.14) (0.33) ------- ------- ------- ------- ------- ------- Net asset value, end of period $14.05 $13.34 $12.09 $10.05 $9.56 $11.21 ======= ======= ======= ======= ======= ======= Total Return 18.28% 26.02% 30.42% 8.80% (6.58)% 15.38% ======= ======= ======= ======= ======= ======= Supplemental data and ratios: Net assets, end of period (000s) $1,082,139 $755,617 $566,723 $295,133 $143,024 $58,446 ========== ======== ======== ======== ======== ======= Ratio of expenses to average net assets (See Note 6) 0.90% 0.96% 0.99% 1.07% 1.18% N/A ======= ======= ======= ======= ======= ======= Ratio of net expenses to average net assets 0.86% 0.90% 0.91% 1.07% 1.18% 1.25% ======= ======= ======= ======= ======= ======= Ratio of net investment income to average net assets 1.54% 1.80% 2.02% 2.49% 1.61% 1.02% ======= ======= ======= ======= ======= ======= Portfolio turnover rate 69.13% 58.54% 55.37% 49.44% 61.14% 60.43% ======= ======= ======= ======= ======= ======= Average commission rate paid per share $0.0549 $0.0550 N/A N/A N/A $0.0553 ======= ======= ======= ======= ======= ======= Commencement of operations Not annualized Annualized Net of reimbursements. Without the reimbursements, the ratio of net expenses to average net assets would have been 1.71% and the ratio of net investment income to average net assets would have been 0.56%. See notes to financial statements
THE YACKTMAN FUNDS, INC. NOTES TO THE FINANCIAL STATEMENTS December 31, 1997 1. ORGANIZATION The Yacktman Funds, Inc. (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 and 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 growth of capital with current income as a secondary objective. Yacktman Asset Management 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 generally accepted accounting principles 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 or at the last sale price on the national securities market. 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. Variable rate demand notes are valued at cost which approximates market value. Put 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, put 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) PUT OPTIONS - Premiums received by The Yacktman Focused Fund upon writing put options are recorded as an asset with a corresponding liability which is subsequently adjusted to the current market value of the option. When an option expires 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 asset during the period of the option, although any potential loss, which is limited to the strike price of the option, would be reduced by the amount of the option premium received. The Yacktman Focused Fund's activity in written put options for the eight months ended December 31, 1997 was as follows: NUMBER OF CONTRACTS PREMIUMS Options outstanding at 5/1/97 - - Options written 2,810 $ 844,795 Options closed (1,560) (547,931) Options exercised - - Options expired - - ------- --------- Options outstanding at 12/31/97 1,250 $ 296,864 ======= ========= 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 required. D) DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income are declared and paid quarterly. Distributions of net realized capital gains, if any, are declared and paid at least annually. Distributions to shareholders are recorded on the ex-dividend date. The Funds periodically make reclassifications among certain of its capital accounts as a result of the recognition and characterization of certain income and capital gain distributions determined annually in accordance with federal tax regulations which may differ from generally accepted accounting principles. Dividends differ from book net investment income due to the THE YACKTMAN FUNDS, INC. NOTES TO THE FINANCIAL STATEMENTS (cont'd.) December 31, 1997 nondeductible tax treatment of organization costs. Accordingly, at December 31, 1997 reclassifications were recorded to undistributed net investment income to reduce capital stock by $21,196 for The Yacktman Focused Fund. 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. 3. INVESTMENT TRANSACTIONS The aggregate purchases and sales of securities, excluding short-term securities, for the Funds for the period ended December 31, 1997 were as follows: THE YACKMAN THE YACKTMAN FUND FOCUSED FUND Purchases U.S. Government $ 93,422,321 $ 8,712,969 Other 698,406,056 53,877,640 Sales U.S. Government 88,750,938 8,706,401 Other 485,843,002 7,923,516 At December 31, 1997 gross unrealized appreciation and depreciation on investments on a tax basis were as follows: THE YACKMAN THE YACKTMAN FUND FOCUSED FUND Appreciation $215,593,644 $3,059,816 (Depreciation) (28,762,101) (2,554,401) ------------ ----------- Net appreciation on investments $186,831,543 $ 505,415 ============ =========== The cost of investments for federal income tax purposes was $890,336,550 and $58,380,683 for The Yacktman Fund and The Yacktman Focused Fund, respectively. For distributions paid during the taxable year ended December 31, 1997, The Yacktman Fund designates $39,400,000 as a 28% rate capital gain distribution and $29,999,993 as a 20% rate capital gain distribution. For the year ended December 31, 1997, 84% and 51% of dividends paid from net investment income, excluding short-term capital gains, for The Yacktman Fund and The Yacktman Focused Fund, respectively, qualify for the dividends received deduction available to corporate shareholders. 4. INVESTMENT ADVISORY AGREEMENT The Funds have agreements with the Adviser, with whom certain officers and directors of the Fund 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 agreements further stipulate that the Adviser will reimburse the Funds for annual expenses exceeding certain specified levels. In addition to the reimbursements required under the agreements, the Adviser has voluntarily agreed to reimburse The Yacktman Focused Fund for all expenses exceeding 1.25% of its average daily net assets. 5. DISTRIBUTION PLAN The Yacktman Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. For the year ended December 31, 1997, payments under the Plan represented 0.05% per annum of the Fund's total average net assets. Such payments may not exceed 0.25% of the average daily net assets of the Fund. Payments may be made only to distributors employed by the Fund with respect to shares beneficially owned by each such distributor's brokerage clients who established their Fund accounts PRIOR TO December 31, 1992. THE YACKTMAN FUNDS, INC. NOTES TO THE FINANCIAL STATEMENTS (cont'd.) December 31, 1997 6. EXPENSE REDUCTIONS The Adviser has directed certain of The Yacktman Fund portfolio trades to brokers at best price and execution and has generated directed brokerage credits to be used against sub-transfer agency fees. Shareholders benefit under this arrangement as the net expenses of The Yacktman Fund do not include such sub- transfer agency fees. For the year ended December 31, 1997, The Yacktman Fund's expenses were reduced $364,752 by utilizing directed brokerage credits resulting in an expense ratio of 0.86% being charged to shareholders. In accordance with Securities and Exchange Commission requirements, such amount is required to be shown as an expense and has been included in shareholder servicing fees in the Statement of Operations. 7. TRANSACTIONS WITH AFFILIATES The following is an analysis of transactions for the period ended December 31, 1997 for The Yacktman Fund with "affiliated companies" (an affiliated company is defined by the 1940 Act as a company in which a Fund owns 5% or more of that company's outstanding voting shares):
Amount of Amount of Gain Dividends Realized Share Activity Credited on Sale ---------------------------------------------------- to Income of Shares Balance Balance in Fiscal in Fiscal Security Name 12/31/96 Purchases Sales 12/31/97 1997 1997 - -------------- -------- ---------- ----- -------- -------- -------- American Media, Inc., Class A 1,200,000 - - 1,200,000 - - Bandag, Inc., Class A 418,500 316,200 - 734,700 $674,018 - Department 56, Inc. 767,500 1,448,800 426,300 1,790,000 - $3,073,464 Franklin Covey Co. 1,530,000 750,000 10,000 2,270,000 - 4,026 International Dairy Queen, Inc. 609,200 228,300 42,500 795,000 - 196,561
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, 1997, the results of each of their operations, the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards which require that we plan and perform the audit 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, 1997 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. /S/Price Waterhouse LLP Chicago, Illinois January 28,1998 This page intentionally left blank. FOR FUND INFORMATION AND SHAREHOLDER SERVICES, CALL 1-800-525-8258 THE YACKTMAN FUNDS, INC. Shareholder Services Center 615 East Michigan Street, 3rd Floor Milwaukee, Wisconsin 53202-5207 -----END PRIVACY-ENHANCED MESSAGE-----