Sunstone Financial Group
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
Phone 414/271-5885
FAX 414/271-9717
August 2, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: The Yacktman Fund, Inc. Semi-Annual Report
Filing Pursuant to Rule 30b2-1
SEC File No. 811-6628, 33-47044
Gentlemen:
On behalf of The Yacktman Fund, Inc. (The "Fund"), transmitted herewith
for filing pursuant to Rule 30b2-1 and Section 24(b) under the Investment
Company Act of 1940, as amended, is the Fund's Semi-Annual Report to the
Shareholders for the period ended June 30, 1996.
Questions regarding this filing should be directed to the undersigned.
Sincerely,
/s/ Jon Kiekhofer
Jon Kiekhofer
Financial Analyst
JK/kg
Encl.
SEMI-ANNUAL REPORT
June 30, 1996
This report is submitted for the general information of shareholders of The
Yacktman Fund. It is not authorized for distribution to prospective investors
unless accompanied or preceded by an effective prospectus for the Fund, which
contains more information concerning the Fund's investment policies, as well as
fees and expenses and other pertinent information. Read the prospectus
carefully.
THE YACKTMAN FUND, INC.
MESSAGE TO SHAREHOLDERS
Dear Shareholder:
For investors who purchased shares at the Fund's inception in July, 1992 at
$10.00 per share, your initial investment adjusted for dividends and capital
gains, would have grown to $15.62 by the end of the second quarter. Moreover,
the Fund has a cumulative return of 80.0% compared to 60.9% for the S&P 500
since the low price for the Fund on August 12, 1993.
ONE ANNUALIZED ANNUALIZED
YEAR THREE YEARS SINCE INCEPTION
7/1/95-6/30/96 7/1/93-6/30/96 7/6/92-6/30/96
- -------------------------------------------------------------------------
The Yacktman Fund 27.0% 18.5% 11.8%
S&P 500 26.0% 17.2% 15.9%
The above past performance is not predictive of future results. The investment
return and principal value of the Fund will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
We have changed our performance "scorecard" above from one quarter and one
year to one year and three years. We made the change for two reasons. First,
the various mutual fund rating services typically evaluate funds over these time
periods. Second, quarterly returns can provoke emotional reactions from
investors at precisely the wrong points in the market cycle, tempting investors
to buy high and sell low.
As we have noted in prior quarterly messages to shareholders, we believe
investing is a marathon, not a sprint, and as such, our strategy is long-term
oriented. We like to buy common stocks that we can own for many years and then
sell them only when they are overpriced or can be replaced with the shares of
better businesses whose relative market valuations are more attractive.
Our whole strategy is basically designed to squeeze out as much risk as is
possible in the investment process. From a fundamental point of view, we do
this by limiting our purchases to the shares of good businesses with high
returns on tangible assets. The growth rate in the private market value of
these businesses will exceed the growth rate for the overall market, continually
putting upward pressure on the share values. Our equity holdings tend to act
like beach balls being pushed under water. Once the pressure is reduced, their
share prices will rise rather quickly, as occurred with the drug stocks in late
1993 and in 1994.
A second objective of our investment process is to gain enough knowledge and
understanding of a business to enable us to place a realistic private value on
the business. There is no substitute for knowledge. Superficial understanding
of a company can lead to panic selling and/or missed buying opportunities,
especially when the business announces "bad news." Consequently, objective
decision making derived from an understanding of the true value of a business is
key to successful equity investing.
A large percentage of our portfolio turnover rate (historically around 50%)
represents purchases and sales of the same common stock at different price
levels as distinguished from selling the shares in one company and buying shares
in another company. Our quarterly reports only show the "net" purchases or
sales for the quarter. Thus, even though we now have an unrealized capital gain
in excess of $100 million in the Fund, this gain will probably continue to grow
over time but will not be realized on a yearly basis. We will minimize the
realized gains by our practice of selling the higher cost shares first (as
contrasted with dollar cost averaging our sales).
Since we work hard to find good businesses at good prices, we are pleased at
how well our relative performance has been during volatile periods and by the
fact that the free cash flow is
rising in the businesses we own in our portfolio. With this surplus cash, the
managements of our companies have many options available to them to enhance
shareholder value, including share repurchases, and can positively impact the
prices of their stocks in volatile markets and economic downturns.
Sincerely,
/S/ Donald A. Yacktman
Donald A. Yacktman
TOP TWELVE EQUITY HOLDINGS
59.7% of the Fund
PERCENTAGE OF
THE FUND
-------------
Philip Morris Cos., Inc. 12.0%
United Asset Management Corp. 6.4%
Reebok International Ltd. 5.3%
Clorox Co. 5.0%
UST, Inc. 4.9%
Bristol-Myers Squibb Co. 4.7%
Salomon, Inc. 4.2%
Fruit of the Loom, Inc. 4.1%
Torchmark Corp. 4.0%
Bandag, Inc., Class A 3.1%
Franklin Quest Co. 3.0%
Dow Jones & Co., Inc. 3.0%
-----
TOTAL 59.7%
THE YACKTMAN FUND, INC.
PURCHASES & SALES
For the Quarter Ended June 30, 1996
NET SHARES CURRENT
NEW PURCHASES PURCHASED SHARES HELD
- ------------------------------------------------------------------------
DEPARTMENT 56, INC.
Leading designer, importer and
distributor of collectibles and
other giftware products. Best
known for its Village Series. 150,000 150,000
DURACELL INTERNATIONAL, INC.
World's leading manufacturer
and marketer of high
performance alkaline
batteries. 200,000 200,000
KING WORLD PRODUCTIONS, INC.
Distributor of first-run programs
to TV stations. Top programs
are Wheel of Fortune,
Jeopardy! and the Oprah
Winfrey Show. 253,400 253,400
NET SHARES CURRENT
OTHER PURCHASES PURCHASED SHARES HELD
- ------------------------------------------------------------------------
American Media, Inc., Class A 30,000 1,280,000
Barefoot, Inc. 160,000 1,350,000
Franklin Quest Co. 195,000 890,000
Torchmark Corp. 45,000 560,000
NET SHARES CURRENT
SALES SOLD SHARES HELD
- ------------------------------------------------------------------------
Clorox Co. 5,000 340,000
Dow Jones and Co., Inc. 80,000 440,000
Fruit of the Loom, Inc. 185,000 965,000
Jenny Craig, Inc. 7,000 283,000
Newell Co. 100,000 --
Pfizer, Inc. 83,000 127,000
Philip Morris Cos., Inc. 15,000 700,000
Quaker Oats Co. 124,000 320,000
RJR Nabisco Holdings Corp. 210,000 --
Ralston Purina Group 130,000 --
Reebok International Ltd. 188,000 952,000
Salomon, Inc. 75,000 575,000
Stanhome, Inc. 90,000 --
Toys 'R' Us, Inc. 400,000 500,000
UST, Inc. 30,000 860,000
Valassis Communications, Inc. 110,500 730,000
THE YACKTMAN FUND, INC.
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
NUMBER
OF SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS - 88.1%
APPAREL/SHOES - 12.7%
Fruit of the Loom, Inc.<F1> 965,000 $ 24,607,500
Liz Claiborne, Inc. 520,000 18,005,000
Reebok International Ltd. 952,000 32,011,000
Stride Rite Corp. 300,000 2,475,000
------------
77,098,500
------------
CONGLOMERATES - 2.4%
Whitman Corp. 600,000 14,475,000
------------
CONSUMER GOODS - 4.1%
Department 56, Inc.<F1> 150,000 3,393,750
Franklin Quest Co.<F1> 890,000 18,467,500
Topps Co. (The)<F1> 500,000 2,812,500
------------
24,673,750
------------
DRUGS AND MEDICAL - 8.3%
Abbott Laboratories 100,000 4,350,000
Bristol-Myers Squibb Co. 320,000 28,800,000
Merck & Co., Inc. 130,000 8,401,250
Pfizer, Inc. 127,000 9,064,625
------------
50,615,875
------------
FINANCIAL SERVICES - 10.6%
Salomon, Inc. 575,000 25,300,000
United Asset Management Corp. 1,590,000 38,955,000
------------
64,255,000
------------
FOOD/BEVERAGE - 1.8%
Quaker Oats Co. 320,000 10,920,000
------------
FOOD/TOBACCO - 16.8%
Philip Morris Cos., Inc. 700,000 72,800,000
UST, Inc. 860,000 29,455,000
------------
102,255,000
------------
NUMBER
OF SHARES VALUE
- -----------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 7.5%
Clorox Co. 340,000 $ 30,132,500
Duracell International, Inc. 200,000 8,625,000
Tambrands, Inc. 160,000 6,540,000
------------
45,297,500
------------
INSURANCE - 4.0%
Torchmark Corp. 560,000 24,500,000
------------
MEDIA - 5.6%
American Media, Inc., Class A<F1> 1,280,000 6,720,000
Dow Jones & Co., Inc. 440,000 18,370,000
King World Productions, Inc.<F1> 253,400 9,217,425
------------
34,307,425
------------
RETAILING - 3.2%
International Dairy Queen, Inc.<F1> 240,000 5,280,000
Toys 'R' Us, Inc.<F1> 500,000 14,250,000
------------
19,530,000
------------
SERVICES - 8.0%
Barefoot, Inc. 1,350,000 14,850,000
Interpublic Group of Cos., Inc. 190,000 8,906,250
Jenny Craig, Inc.<F1> 283,000 5,058,625
Rollins, Inc. 270,000 6,345,000
Valassis Communications, Inc.<F1> 730,000 13,505,000
------------
48,664,875
------------
TIRES AND RUBBER - 3.1%
Bandag, Inc., Class A 400,000 18,750,000
------------
Total Common Stocks
(cost $420,229,565) 535,342,925
------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 11.7%
Commercial Paper - 11.3%
Anchor Funding Corp.,
5.40%, 7/19/96 $ 821,000 $ 818,783
AT&T Capital Corp.,
5.36%, 7/9/96 3,400,000 3,395,950
FP Funding Corp.,
5.41%, 7/31/96 3,500,000 3,485,573
GE Capital Corp.,
5.37%, 7/9/96 6,100,000 6,100,000
Hansen Funding Corp.,
5.27%, 7/19/96 5,000,000 4,986,825
Konica Financial USA Corp.,
5.40%, 7/15/96 3,615,000 3,607,409
Norwest Financial Corp.,
5.34%, 7/8/96 1,700,000 1,700,000
Prime Asset Corp.,
5.30%, 7/8/96 8,000,000 7,991,756
Sanyo Corp.,
5.40%, 7/15/96 2,000,000 1,995,800
Smith Barney,
5.37%, 7/10/96 15,000,000 15,000,000
Smith Barney,
5.37%, 7/9/96 5,000,000 5,000,000
Smith Barney,
5.37%, 7/1/96 5,000,000 5,000,000
Stellar Capital Corp.,
5.32%, 7/12/96 2,800,000 2,795,448
Towson Center,
5.31%, 7/15/96 1,700,000 1,696,490
Working Capital Management Corp.,
5.30%, 7/2/96 5,000,000 4,999,264
------------
Total Commercial Paper
(cost $68,573,298) 68,573,298
------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
Demand Notes
(variable rate) - 0.4%
General Mills Corp. $1,118,256 $ 1,118,256
Johnson Controls Corp. 799,118 799,118
Pitney Bowes Corp. 332,860 332,860
Southwestern Bell Corp. 141,707 141,707
Warner-Lambert Co. 126,839 126,839
Wisconsin Electric Corp. 110,000 110,000
------------
Total Demand Notes
(cost $2,628,780) 2,628,780
------------
Total Short-Term Investments
(cost $71,202,078) 71,202,078
------------
Total Investments - 99.8%
(cost $491,431,643) 606,545,003
Cash and Other Assets
less Liabilities - 0.2% 1,353,870
------------
Net Assets - 100% (equivalent
to $13.50 per share based on
45,027,422 shares outstanding) $607,898,873
============
<F1> Non-income producing
See notes to financial statements
THE YACKTMAN FUND, INC.
STATEMENT OF ASSETS & LIABILITIES
June 30, 1996 (Unaudited)
ASSETS:
Investments at value (cost $491,431,643) $606,545,003
Cash 860
Receivable for securities sold 2,547,565
Dividends and interest receivable 1,499,910
Prepaid expenses 87,309
Receivable for fund shares issued 69,988
Organization costs, net of accumulated
amortization 12,553
------------
Total Assets 610,763,188
------------
LIABILITIES:
Shareholder distributions payable 2,251,371
Accrued investment advisory fees 316,338
Payable for fund shares redeemed 18,646
Accrued expenses 277,960
------------
Total Liabilities 2,864,315
------------
NET ASSETS $607,898,873
============
NET ASSETS CONSIST OF:
Capital stock $453,081,945
Undistributed net investment income 287,386
Undistributed net realized gains 39,416,182
Unrealized net appreciation on investments 115,113,360
------------
Total Net Assets $607,898,873
============
CAPITAL STOCK, $.0001 par value
Authorized 500,000,000
Issued and outstanding 45,027,422
NET ASSET VALUE, REDEMPTION PRICE
AND OFFERING PRICE PER SHARE $13.50
======
See notes to financial statements
STATEMENT OF OPERATIONS
For Six Months Ended June 30, 1996 (Unaudited)
INVESTMENT INCOME:
Dividend income $ 6,107,418
Interest income 1,664,852
------------
7,772,270
------------
EXPENSES:
Investment advisory fees 1,938,170
Shareholder servicing fees 377,846
12b-1 plan distribution fees 267,731
Administration and accounting fees 138,008
Federal and state registration fees 80,247
Custody fees 72,153
Reports to shareholders 62,272
Professional fees 24,017
Miscellaneous costs 20,718
Amortization of organization costs 10,822
Directors' fees and expenses 10,626
------------
Total expenses before reductions 3,002,610
Expense reductions (See Note 6) (159,384)
------------
Net expenses 2,843,226
------------
NET INVESTMENT INCOME 4,929,044
------------
REALIZED AND UNREALIZED LOSS:
Net realized gain on investments 40,013,559
Change in unrealized appreciation
on investments 26,129,739
------------
Net gain on investments 66,143,298
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 71,072,342
============
See notes to financial statements
THE YACKTMAN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 1996 DEC. 31, 1995
- -----------------------------------------------------------------------
OPERATIONS:
Net investment income $ 4,929,044 $ 10,577,696
Net realized gain on
investments 40,013,559 36,025,535
Change in unrealized
appreciation on investments 26,129,739 87,228,864
------------- ------------
Net increase in net assets
resulting from operations 71,072,342 133,832,095
------------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 91,517,933 474,370,590
Proceeds from reinvestment
of dividends 34,497,362 12,284,222
Payments for shares redeemed (151,270,246) (302,132,299)
------------- ------------
Net (decrease) increase (25,254,951) 184,522,513
------------- ------------
DIVIDENDS PAID FROM:
Net investment income (4,641,658) (10,614,512)
Net realized gains -- (36,150,442)
------------- ------------
(4,641,658) (46,764,954)
------------- ------------
TOTAL INCREASE IN NET
ASSETS 41,175,733 271,589,654
NET ASSETS:
Beginning of period 566,723,140 295,133,486
------------- ------------
End of period $607,898,873 $566,723,140
============= ============
TRANSACTIONS IN SHARES:
Shares sold 7,164,717 42,529,240
Issued in reinvestment of dividends 2,843,899 1,129,634
Shares redeemed (11,874,443) (26,144,022)
------------- ------------
Net increase (decrease) (1,865,827) 17,514,852
============= ============
See notes to financial statements
THE YACKTMAN FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
1. ORGANIZATION
The Yacktman Fund, Inc. (the "Fund") is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940. The
objective of the Fund is to produce long-term growth of capital. Yacktman Asset
Management Co. is the Fund's investment adviser (the "Adviser").
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its 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 where the principal and most
representative market is a national securities exchange are valued at the latest
reported sale price on such exchange. If there is no such sale price reported
for the valuation date, then such securities are valued at the latest reported
bid price on such exchange. Securities, other than debt securities, where the
over-the-counter market is the principal and most representative market are
valued at latest bid price. Debt securities (other than short-term instruments)
are valued at prices furnished by a commercial pricing service, subject to
review by the Adviser and determination of the appropriate price whenever a
furnished price is significantly different from the previous day's furnished
price. 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. 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) Federal Income Taxes - No provision for federal income taxes has been made
since the Fund has complied to date with the provisions of the Internal Revenue
Code available to regulated investment companies and intends to continue to so
comply in future years.
c) Distributions to Shareholders - Dividends from net investment income are
declared and paid quarterly. Dividends differ from book net investment income
due to the nondeductible tax treatment of organization costs. Distributions of
net realized capital gains, if any, will be declared at least annually.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
may 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.
d) Other - Investment transactions are accounted for on the trade date plus
one. The Fund determines the gain or loss realized from the 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 for the Fund, excluding short-
term investments and U.S. Government obligations, for the Fund for the six
months ended June 30, 1996 were $120,708,012 and $194,486,794, respectively.
Purchases and sales of U.S. obligations were $5,001,500 and $5,000,000,
respectively. At June 30, 1996 gross unrealized appreciation and depreciation on
investments were as follows:
Appreciation $123,078,971
(Depreciation) (7,965,611)
------------
Net appreciation on investments $115,113,360
============
4. INVESTMENT ADVISORY AGREEMENT
The Fund has an agreement with the Adviser, with whom certain officers and
directors of the Fund are affiliated, to furnish investment advisory services to
the Fund. Under the terms of this agreement, the Fund will pay the Adviser a
monthly fee at the annual rate of 0.65% of the first $500,000,000 of average net
assets, 0.60% on the next $500,000,000 of average net assets and 0.55% on
average net assets in excess of $1,000,000,000.
5. DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. For the six months ended June 30,
1996, payments under the Plan represented 0.09% 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 distributor's brokerage
clients who established their Fund accounts prior to December 31, 1992.
6. EXPENSE REDUCTIONS
The Adviser has directed certain Fund portfolio trades to brokers at best price
and execution and has generated soft dollar credits to be used against sub-
transfer agency fees. Shareholders benefit under this arrangement as the net
expenses of the Fund do not include such sub-transfer agency fees. For the six
months ended June 30, 1996, the Fund's expenses were reduced $159,384 by
utilizing soft dollar credits resulting in an expense ratio of 0.94% being
charged to shareholders. In accordance with the SEC's rule amendments, such
amount is required to be shown as an expense and has been included in
shareholder servicing fees in the Statement of Operations.
<TABLE>
THE YACKTMAN FUND, INC.
FINANCIAL HIGHLIGHTS
(Unaudited)
<CAPTION>
SIX MONTHS YEAR YEAR YEAR JULY 6, 1992<F2>
ENDED ENDED ENDED ENDED THROUGH
JUNE 30, 1996 DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1993 DEC. 31, 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $12.09 $10.05 $9.56 $10.39 $10.00
Income from investment
operations:
Net investment income 0.10 0.22 0.22 0.14 0.05
Net realized and unrealized
gains (losses) on investments 1.41 2.81 0.61 (0.83) 0.42
--------- --------- --------- --------- ---------
Total from investment
operations 1.51 3.03 0.83 (0.69) 0.47
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net
investment income (0.10) (0.22) (0.22) (0.14) (0.05)
Distributions from net
realized gains -- (0.77) (0.12) -- (0.03)
--------- --------- --------- --------- ---------
Total distributions (0.10) (0.99) (0.34) (0.14) (0.08)
--------- --------- --------- --------- ---------
Net asset value, end of
period $13.50 $12.09 $10.05 $9.56 $10.39
========= ========= ========= ========= =========
Total Return <F3> 12.52% 30.42% 8.80% (6.58)% 4.72%
========= ========= ========= ========= =========
Supplemental data and ratios:
Net assets, end of period (000s) $607,899 $566,723 $295,133 $143,024 $74,666
========= ========= ========= ========= =========
Ratio of expenses to
average net assets (See Note 6) 1.00% <F4> 0.99% 1.07% 1.18% 1.18% <F4>
========= ========= ========= ========= =========
Ratio of expenses to average
net assets 0.94% <F4> 0.91% 1.07% 1.18% 1.18% <F4>
========= ========= ========= ========= =========
Ratio of net income to
average net assets 2.57% <F4> 2.02% 2.49% 1.61% 1.49% <F4>
========= ========= ========= ========= =========
Portfolio turnover rate 23.09% 55.37% 49.44% 61.14% 30.94%
========= ========= ========= ========= =========
Average commission rate paid
per share $0.0549 N/A N/A N/A N/A
========= ========= ========= ========= =========
<FN>
<F2> Commencement of operations
<F3> Not annualized for six months ended June 30, 1996 and the period July 6, 1992 through December 31, 1992
<F4> Annualized
See notes to financial statements
</TABLE>
FOR FUND INFORMATION AND
SHAREHOLDER SERVICES, CALL
1-800/525-8258
