Sunstone Financial Group, Inc.
Suite 400
207 East Buffalo Street
Milwaukee, Wisconsin 53202
September 30, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: The Yacktman Fund, Inc. Quarterly 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 Quarterly Report to the Shareholders for
the quarter ended September 30, 1996.
Questions regarding this filing should be directed to the undersigned.
Sincerely,
/S/ Cheryl L. King
Cheryl L. King
Financial Analyst
CK/kg
Encl.
THE YACKTMAN FUND
3RD QUARTER REPORT
September 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. The
prospectus includes complete information about management fees and expenses,
investment objectives, risks and operating policies of the Fund. 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 $15.70 by the end of the third quarter. Moreover,
the Fund has a cumulative return of 82.8% compared to 62.4% for the S&P 500
since the low price for the Fund on August 12, 1993.
- -------------------------------------------------------------------------------
One Annualized Annualized
Year Three Years Since Inception
10/1/95-9/30/96 10/1/93-9/30/96 7/6/92-9/30/96
- --------------------------------------------------------------------------------
The Yacktman Fund 19.0% 20.2% 11.2%
S&P 500 20.3% 17.4% 15.8%
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.
- --------------------------------------------------------------------------------
While our strategy is to buy growth companies, we use value techniques to
purchase them. We are typically buying ahead of the market when other investors
are willing to sell at low prices and when shares in our desired companies are
selling at attractive values for one of three reasons. First, the overall
market declines, thus creating buying opportunities even in higher quality
companies. During this past quarter, we experienced the first 10% decline in
the S&P 500 since 1990. While the decline was both past due and short-lived,
the Fund declined about half as much as the market during the decline. However,
since we normally have one of these declines once every two or three years,
history would indicate that buying opportunities created by overall market
declines will continue to occur.
Second, the market perceives a threat to the cash flow of a company. The
threat creates uncertainty and the market often overreacts and unduly depresses
the price of a stock. Philip Morris, our largest holding, fits the classic
pattern. Were it not for the concerns about lawsuits and detrimental regulatory
actions and their perceived threat to cash flow, the stock price of Philip
Morris could easily be $100 higher per share. Our fundamental analysis of
Philip Morris reveals a company with a monthly cash flow in excess of $1 billion
growing at over 15% annually with a 5% dividend yield. Moreover, Philip Morris
is buying back more than $3 billion of its shares this year, and its management
has done a superb job of focusing upon their profitable businesses, including
the faster growing businesses overseas. Even though we cannot predict the
future with certainty, we remember how negative investors were on the drug and
medical supply stocks three years ago when they sold at less than half their
current prices. We were heavy buyers of these stocks in 1993 and of Philip
Morris in the high $40's following "Marlboro Friday."
Third, a company has a short-term problem which is relatively easy to correct,
but the market perceives it as eternal in nature. One year ago, Fruit of the
Loom looked like "death warmed over" to the market. However, today, with the
stock price having doubled from its low, its future looks bright to the market
and many "momentum" investors are happily buying shares at significantly
higher prices than the prices we paid for the stock a year ago. The "bottom
line" is the market goes through manic-depressive extremes, and we become
stress relievers by buying when others want to sell, and vice versa.
We continue to keep our expense ratio, which represents all of the expenses of
the Fund, below 1.00%. This is well below the 1.41% average for growth mutual
funds. Not only have we not raised fees since we opened for business four years
ago, we have actually reduced the expense ratio (after expense reductions) from
1.2% to 0.91%. Critical to our success in reducing this ratio has been our
participation in the No Transaction Fee ("NTF") programs of several brokerage
firms. These firms have in effect served as the sub-transfer agent for more
than 25,000 shareholders. We have been able to pay part of these transfer
agency costs through best execution trades with these firms, thus, avoiding out-
of-pocket costs for the Fund.
Finally, since many of our shareholders are taxpayers, we thought you might
appreciate knowing that if the year were to close now, we would have a capital
gains distribution of about $1.00/share of which over 70% should be long term.
Sincerely,
/s/ Donald A. Yacktman
Donald A. Yacktman
TOP TWELVE EQUITY HOLDINGS
56.7% of the Fund
- --------------------------------------------------
PERCENTAGE OF
THE FUND
- --------------------------------------------------
Philip Morris Cos., Inc. 11.6%
United Asset Management Corp. 5.8%
Reebok International Ltd. 5.0%
Bristol-Myers Squibb Co. 4.7%
Clorox Co. 4.6%
UST, Inc. 4.2%
Salomon, Inc. 4.0%
Franklin Quest Co. 3.9%
Fruit of the Loom, Inc. 3.6%
Torchmark Corp. 3.3%
Bandag, Inc., Class A 3.1%
Liz Claiborne, Inc. 2.9%
------
TOTAL 56.7%
- --------------------------------------------------
THE YACKTMAN FUND, INC.
PURCHASES & SALES
For the Quarter Ended September 30, 1996
- --------------------------------------------------------------------
NET SHARES CURRENT
NEW PURCHASES PURCHASED SHARES HELD
- --------------------------------------------------------------------
BLOCK H&R, INC.
Provides services in
three areas: H&R Block Tax
Services, Inc., CompuServe
Incorporated (information
services to personal
computer owners), and Interim
Services, Inc. (temporary
employment services). 450,000 450,000
- ---------------------------------------------------------------------
NET SHARES CURRENT
OTHER PURCHASES PURCHASED SHARES HELD
- ---------------------------------------------------------------------
Bandag, Inc., Class A 18,500 418,500
Barefoot, Inc. 85,000 1,435,000
Department 56, Inc. 150,000 300,000
Franklin Quest Co. 460,000 1,350,000
International Dairy Queen, Inc. 94,500 334,500
King World Productions, Inc. 110,100 363,500
Philip Morris Cos., Inc. 140,000 840,000
Quaker Oats Co. 105,000 425,000
Stride Rite Corp. 16,900 316,900
UST, Inc. 71,000 931,000
Valassis Communications, Inc. 220,000 950,000
Whitman Corp. 200,000 800,000
- ---------------------------------------------------------------------
NET SHARES CURRENT
SALES SOLD SHARES HELD
- ---------------------------------------------------------------------
American Media, Inc., Class A 56,500 1,223,500
Clorox Co. 30,000 310,000
Duracell International, Inc. 200,000 -
Fruit of the Loom, Inc. 215,000 750,000
Jenny Craig, Inc. 50,000 233,000
Liz Claiborne, Inc. 20,000 500,000
Reebok International Ltd. 17,000 935,000
Tambrands, Inc. 40,000 120,000
Torchmark Corp. 85,000 475,000
Toys'R' Us, Inc. 100,000 400,000
THE YACKTMAN FUND, INC.
PORTFOLIO OF INVESTMENTS
September 30, 1996 (Unaudited)
- ---------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------------------
COMMON STOCKS - 85.8%
APPAREL/SHOES - 11.9%
Fruit of the Loom, Inc. <F1> 750,000 $ 23,250,000
Liz Claiborne, Inc. 500,000 18,625,000
Reebok International Ltd. 935,000 32,491,250
Stride Rite Corp. 316,900 2,852,100
------------
77,218,350
------------
CONGLOMERATES - 2.8%
Whitman Corp. 800,000 18,500,000
------------
CONSUMER GOODS - 5.4%
Department 56, Inc. 300,000 7,462,500
Franklin Quest Co. <F1> 1,350,000 25,312,500
Topps Co. (The) <F1> 500,000 2,125,000
------------
34,900,000
------------
DRUGS AND MEDICAL - 8.4%
Abbott Laboratories 100,000 4,925,000
Bristol-Myers Squibb Co. 320,000 30,840,000
Merck & Co., Inc. 130,000 9,148,750
Pfizer, Inc. 127,000 10,048,875
------------
54,962,625
------------
FINANCIAL SERVICES - 11.9%
Block H&R, Inc. 450,000 13,387,500
Salomon, Inc. 575,000 26,234,375
United Asset Management Corp. 1,590,000 37,563,750
------------
77,185,625
------------
FOOD/BEVERAGE - 2.4%
Quaker Oats Co. 425,000 15,565,625
------------
FOOD/TOBACCO - 15.8%
Philip Morris Cos., Inc. 840,000 75,390,000
UST, Inc. 931,000 27,580,875
------------
102,970,875
------------
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Number
of Shares Value
- ---------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 5.3%
Clorox Co. 310,000 $ 29,721,250
Tambrands, Inc. 120,000 5,055,000
------------
34,776,250
------------
INSURANCE - 3.3%
Torchmark Corp. 475,000 21,790,625
------------
MEDIA - 5.6%
American Media, Inc., Class A 1,223,500 6,576,313
Dow Jones & Co., Inc. 440,000 16,280,000
King World Productions, Inc.<F1> 363,500 13,404,062
------------
36,260,375
------------
RETAILING - 2.8%
International Dairy Queen, Inc.<F1> 334,500 6,857,250
Toys 'R' Us, Inc.<F1> 400,000 11,650,000
------------
18,507,250
------------
SERVICES - 7.1%
Barefoot, Inc. 1,435,000 14,529,375
Interpublic Group of Cos., Inc. 190,000 8,977,500
Jenny Craig, Inc.<F1> 233,000 2,155,250
Rollins, Inc. 270,000 5,433,750
Valassis Communications, Inc. <F1> 950,000 14,843,750
------------
45,939,625
------------
TIRES AND RUBBER - 3.1%
Bandag, Inc., Class A 418,500 20,035,688
------------
Total Common Stocks
(cost $451,767,264) 558,612,913
------------
- ------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 14.3%
COMMERCIAL PAPER - 13.4%
Commercial Credit
5.31%, 10/4/96 $ 5,000,000 $ 5,000,000
5.36%, 10/4/96 10,000,000 9,995,533
5.31%, 10/7/96 6,000,000 5,994,690
Industrial Funding,
5.31%, 10/9/96 5,000,000 4,994,100
Konica Financial USA Corp.,
5.35%, 10/15/96 5,000,000 4,989,597
Prudential Funding
5.65%, 10/1/96 3,700,000 3,700,000
5.30%, 10/3/96 1,200,000 1,200,000
Smith Barney
5.33%, 10/1/96 3,000,000 3,000,000
5.32%, 10/2/96 10,000,000 10,000,000
5.34%, 10/2/96 2,000,000 1,999,726
5.37%, 10/3/96 1,500,000 1,499,553
SRD Finance
5.32%, 10/3/96 5,000,000 4,998,522
5.34%, 10/3/96 5,000,000 4,998,517
Strategic Asset Funding
5.27%, 10/1/96 2,000,000 2,000,000
5.42%, 10/15/96 5,000,000 4,989,461
Travelers Aetna Property Casualty,
5.40%, 10/1/96 3,000,000 3,000,000
Travelers Insurance,
5.37%, 10/2/96 10,000,000 9,998,508
Working Capital Management,
5.34%, 10/18/96 5,000,000 4,987,392
------------
Total Commercial Paper
(cost $87,345,599) 87,345,599
------------
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Principal
Amount Value
- ------------------------------------------------------------------------
DEMAND NOTES
(VARIABLE RATE) - 0.9%
Johnson Controls Corp. $ 721,535 $ 721,535
Sara Lee Corp. 1,364,825 1,364,825
Southwestern Bell Corp. 73,877 73,877
Warner-Lambert Co. 3,000,000 3,000,000
Wisconsin Electric Power Co. 784,727 784,727
------------
Total Demand Notes
(cost $5,944,964) 5,944,964
------------
Total Short-Term Investments
(cost $93,290,563) 93,290,563
------------
Total Investments - 100.1%
(cost $545,057,827) 651,903,476
Liabilities Less
Other Assets - (0.1)% (747,301)
------------
Net Assets - 100% (equivalent
to $13.50 per share based on
48,239,964 shares outstanding) $651,156,175
============
<F1> Non-income producing
FOR FUND INFORMATION AND
SHAREHOLDER SERVICES, CALL
1-800/525-8258
THE YACKTMAN FUND, INC.
Shareholder Services Center
615 East Michigan Street
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
