SUNSTONE FINANCIAL GROUP, INC.
207 East Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202
(414) 271-5885
February 3, 1997
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, DC 20549
Re: The Yacktman Fund, Inc.
(33-47044; 811-6628)
Filing Pursuant to Rule 30b2-1 and Section 24(b) under the Investment
Company Act of 1940
Ladies and Gentlemen:
On behalf of the above-referenced registered investment company, 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 Annual Report for the
period ended December 31, 1996. Questions regarding this filing may be directed
to the undersigned at (414) 271-5885.
Sincerely,
/s/Constance Dye Shannon
Constance Dye Shannon
Legal and Compliance Manager
Encl.
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 more complete information about management fees and
expenses, investment objectives, risks and operating policies of the Fund.
Please 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 $17.49 by the end of the fourth quarter. Moreover,
the Fund has a cumulative return of 101.6% compared to 79.7% for the S&P 500
since the low price for the Fund on August 12, 1993.
TOTAL RETURNS FOR PERIODS ENDED 12/31/96
One Annualized Annualized
Year Three Years Since Inception
1/1/96-12/31/96 1/1/94 - 12/31/96 7/6/92 - 12/31/96
- -------------------------------------------------------------------------------
THE YACKTMAN FUND 26.0% 21.4% 13.3%
S&P 500 Stock Index 23.0% 19.7% 16.9%
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
- ------------------------------------------------------------------------------
The Yacktman Fund 10,000 10,472 9,783 10,644 13,881 17,493
S&P 500 Stock Index 10,000 10,679 11,756 11,911 16,387 20,150
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.
1996 proved a reasonable testing ground for our investment strategy. Our
strategy is first, to protect the capital of our investors, and second, to grow
your capital. We conceptually refer to this strategy as buying beach balls that
are being pushed under the water as the water level is rising. (For those of us
in Chicago, discussing beach balls in January helps us remember what summers are
like.) Continued pressure can keep the beach balls under water, but eventually
the pressure comes off, and the beach balls, or share prices, rise rather
quickly. The shares of both Barefoot and Philip Morris, for example, rose
rapidly during the fourth quarter. In the case of Barefoot, it was caused by a
buyout, and for Philip Morris, it was a perception of less pressure.
We started buying Barefoot shares in the third quarter, 1995 because we liked
the business and continued to buy into this company until we owned almost 10% of
its common stock. Yet, as of September 30, 1996, we had no gain in the stock.
Then voila! Along came ServiceMaster, who also recognized a good business in
Barefoot and is now in the process of buying the entire company at a much higher
price than our cost. Even though we believe ServiceMaster is getting a good
deal, we will also be nicely rewarded for our investment in Barefoot.
In the case of Philip Morris, you will recall that we discussed at some length
in our third quarter report its profitability and the concerns of the market
over potential regulations and lawsuits. During the past quarter, some of these
concerns were reduced, and the stock market once again focused on the very
positive fundamentals of Philip Morris (i.e., the pressure was reduced and the
beach ball rose).
When the overall market was under some downward pressure in July and December,
the Fund held up very well - exactly as we hoped it would with those underwater
beach balls. From the end of July through the end of November as the market
roared upward, we sold off some of the higher flying beach balls and had a
difficult time finding replacements. As a result, our cash position reached
almost 20% at one point, and our performance temporarily lagged. In some ways
we are reminiscent of the tortoise in the story of the tortoise and the hare.
We like to keep moving forward, though at times we may appear to be a little
slow as we execute our strategy of giving investors the highest possible return
consistent with a minimal amount of risk.
Nevertheless, as the above results indicate, we finished strong and believe
that we are well positioned for the coming year. The other members of our
investment team for the Fund - Ron Ball, Greg Jackson, and Steve Yacktman - are
talented investors, who made significant contributions to our success in 1996.
They have made my job easier, and it is both enjoyable and intellectually
stimulating to work with such fine people and professionals.
Even though our assets did not double for the fourth year in a row in 1996,
the Fund still had its second best year of asset growth. We want to welcome all
of our new shareholders and hopefully will be able to find more of those beach
balls under pressure in 1997. If we are successful, we will continue to protect
and grow the assets in your Fund.
Sincerely,
/s/ Donald A. Yacktman
Donald A. Yacktman
TOP TWELVE EQUITY HOLDINGS
54.9% of the Fund
% OF
THE FUND
- ---------------------------------------------------
Philip Morris Cos., Inc. 10.7%
United Asset Management Corp. 5.6%
Reebok International Ltd. 5.5%
Clorox Co. 4.9%
UST, Inc. 4.3%
Franklin Quest Co. 4.3%
Whitman Corp. 3.9%
Valassis Communications, Inc. 3.6%
Salomon, Inc. 3.4%
Bristol-Myers Squibb Co. 3.0%
Fruit of the Loom, Inc. 2.9%
Barefoot, Inc. 2.8%
------
TOTAL 54.9%
PURCHASES & SALES
For the Quarter Ended December 31, 1996
NET SHARES CURRENT
NEW PURCHASES PURCHASED SHARES HELD
- ----------------------------------------------------------------------------
DUN & BRADSTREET CORP.
Leading purveyor of business
information. Subsidiaries include
Dun & Bradstreet Information
Services (sells credit reports),
Moody's Investors Service
(publishes financial information),
and R.H. Donnelley (publishes
Yellow Pages). 180,000 180,000
INTIMATE BRANDS, INC.
A leading retailer of intimate
apparel and personal care
products. Operates 1,293 specialty
stores (Victoria's Secret, Bath
& Body Works, Cacique, and
Penhaligon's). 1,185,000 1,185,000
PURCHASES & SALES (CONT'D.)
For the Quarter Ended December 31, 1996
NET SHARES CURRENT
NEW PURCHASES PURCHASED SHARES HELD
- ----------------------------------------------------------------------------
SARA LEE CORP.
An international manufacturer
and marketer of branded consumer
products (coffee, specialty meats,
baked goods, foodservice
distribution, household/personal
care, and apparel). 306,500 306,500
SELECTIVE INSURANCE GROUP
A holding company for six property/
casualty insurance companies.
Markets products through
approximately 910 independent
agents. 358,000 358,000
TOOTSIE ROLL INDUSTRIES
A leading producer of candy
(Tootsie Roll, Tootsie Pop, Charms,
Junior Mints, Sugar Babies, etc.). 20,700 20,700
NET SHARES CURRENT
OTHER PURCHASES PURCHASED SHARES HELD
- ----------------------------------------------------------------------------
Clorox Co. 60,000 370,000
Jenny Craig, Inc. 57,000 290,000
Department 56, Inc. 467,500 767,500
Dow Jones & Co., Inc. 30,000 470,000
Franklin Quest Co. 180,000 1,530,000
Block H&R, Inc. 25,000 475,000
International Dairy Queen, Inc. 274,700 609,200
Reebok International Ltd. 45,000 980,000
Rollins, Inc. 326,800 596,800
UST, Inc. 69,000 1,000,000
Valassis Communications, Inc. 320,000 1,270,000
Whitman Corp. 475,000 1,275,000
PURCHASES & SALES (cont'd.)
For the Quarter Ended December 31, 1996
NET SHARES CURRENT
SALES SOLD SHARES HELD
- ----------------------------------------------------------------------------
American Media Inc., Class A 23,500 1,200,000
Barefoot, Inc. 123,000 1,312,000
Bristol-Myers Squibb Co. 110,000 210,000
Fruit of the Loom, Inc. 171,800 578,200
Liz Claiborne, Inc. 160,000 340,000
Merck & Co., Inc. 130,000 -
Pfizer, Inc. 127,000 -
Philip Morris Cos., Inc. 120,000 720,000
Quaker Oats Co. 76,000 349,000
Salomon, Inc. 36,500 538,500
Stride Rite Corp. 158,100 158,800
Tambrands, Inc. 120,000 -
Torchmark Corp. 175,000 300,000
Toys'R' Us, Inc. 150,000 250,000
PORTFOLIO OF INVESTMENTS
December 31, 1996
NUMBER
OF SHARES VALUE
- ----------------------------------------------------------------------------
COMMON STOCKS - 85.4%
APPAREL/SHOES - 10.3%
Fruit of the Loom, Inc.<F1> 578,200 $ 21,899,325
Liz Claiborne, Inc. 340,000 13,132,500
Reebok International Ltd. 980,000 41,160,000
Stride Rite Corp. 158,800 1,588,000
-------------
77,779,825
-------------
CONGLOMERATES - 3.9%
Whitman Corp. 1,275,000 29,165,625
-------------
CONSUMER GOODS - 7.0%
Department 56, Inc.<F1> 767,500 18,995,625
Franklin Quest Co.<F1><F2> 1,530,000 32,130,000
Topps Co. (The)<F1> 500,000 2,000,000
-------------
53,125,625
-------------
DRUGS AND MEDICAL - 3.7%
Abbott Laboratories 100,000 5,075,000
Bristol-Myers Squibb Co. 210,000 22,837,500
-------------
27,912,500
-------------
FINANCIAL SERVICES - 10.8%
Block H&R, Inc. 475,000 13,775,000
Salomon, Inc. 538,500 25,376,813
United Asset Management Corp. 1,590,000 42,333,750
-------------
81,485,563
-------------
FOOD/BEVERAGE - 3.4%
Quaker Oats Co. 349,000 13,305,625
Sara Lee Corp. 306,500 11,417,125
Tootsie Roll Industries 20,700 820,237
-------------
25,542,987
-------------
FOOD/TOBACCO - 15.0%
Philip Morris Cos., Inc. 720,000 81,090,000
UST, Inc. 1,000,000 32,375,000
-------------
113,465,000
-------------
PORTFOLIO OF INVESTMENTS (CONT'D.)
December 31, 1996
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 4.9%
Clorox Co. 370,000 $ 37,138,750
--------------
INSURANCE - 3.8%
Selective Insurance Group 358,000 13,604,000
Torchmark Corp. 300,000 15,150,000
--------------
28,754,000
--------------
MEDIA - 4.8%
American Media, Inc., Class A<F1><F2> 1,200,000 7,050,000
Dow Jones & Co., Inc. 470,000 15,921,250
King World Productions, Inc.<F1> 363,500 13,404,062
--------------
36,375,312
--------------
RETAILING - 5.3%
International Dairy Queen, Inc.<F1> 609,200 12,184,000
Intimate Brands, Inc. 1,185,000 20,145,000
Toys 'R' Us, Inc.<F1> 250,000 7,500,000
--------------
39,829,000
--------------
SERVICES - 10.0%
Barefoot, Inc.<F2> 1,312,000 20,828,000
Dun & Bradstreet Corp. 180,000 4,275,000
Interpublic Group of Cos., Inc. 190,000 9,025,000
Jenny Craig, Inc.<F1> 290,000 2,573,750
Rollins, Inc. 596,800 11,936,000
Valassis Communications, Inc.<F1> 1,270,000 26,828,750
--------------
75,466,500
--------------
TIRES AND RUBBER - 2.5%
Bandag, Inc., Class A 418,500 19,146,375
--------------
Total Common Stocks
(cost $501,044,128) 645,187,062
--------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 14.3%
COMMERCIAL PAPER - 13.9%
American Express Co.,
6.30%, 1/2/97 $ 3,500,000 $ 3,500,000
Anchor Funding Corp.,
5.35%, 1/16/97 4,000,000 3,991,083
Deerfield Funding Corp.
5.35%, 1/3/97 7,700,000 7,697,711
5.47%, 1/6/97 6,408,000 6,403,132
5.35%, 1/6/97 2,700,000 2,697,994
Epson America, Inc.,
5.40%, 1/10/97 7,500,000 7,489,875
FP Funding Corp.
5.30%, 1/15/97 515,000 513,939
5.31%, 1/16/97 5,000,000 4,988,937
Gotham Funding Corp.,
5.37%, 1/10/97 1,665,000 1,662,765
Iris Partners,
5.34%, 1/6/97 10,000,000 9,992,583
Orix America, Inc.
5.33%, 1/2/97 1,000,000 999,852
5.43%, 1/9/97 4,000,000 3,995,173
PHH Corp.,
5.37%, 1/8/97 8,000,000 7,991,647
Ridge Capital
5.48%, 1/3/97 10,000,000 9,997,088
5.35%, 1/6/97 1,000,000 999,257
5.35%, 1/8/97 1,300,000 1,298,647
5.48%, 1/21/97 2,000,000 1,993,911
SRD Finance, Inc.,
5.33%, 1/9/97 3,000,000 2,996,447
Travelers Insurance Co.,
5.31%, 1/6/97 10,000,000 9,992,625
Triple A One Funding
5.38%, 1/6/97 10,000,000 9,992,528
5.28%, 1/6/97 6,000,000 5,995,600
------------
Total Commercial Paper
(cost $105,190,794) 105,190,794
------------
PORTFOLIO OF INVESTMENTS (CONT'D.)
December 31, 1996
Principal
Amount Value
- ----------------------------------------------------------------------------
DEMAND NOTES
(VARIABLE RATE) - 0.4%
American Family Financial Services $ 435,792 $ 435,792
Johnson Controls, Inc. 2,143,119 2,143,119
Wisconsin Electric Power Company 93,436 93,436
------------
Total Demand Notes
(cost $2,672,347) 2,672,347
------------
Total Short-Term Investments
(cost $107,863,141) 107,863,141
------------
Total Investments - 99.7%
(cost $608,907,269) 753,050,203
Cash and Other Assets,
less Liabilities - 0.3% 2,566,459
------------
Net Assets - 100% (equivalent
to $13.34 per share based on
56,635,125 shares outstanding) $755,616,662
=============
<F1> Non-income producing
<F2> Affiliated company - See Note 7
See notes to financial statements
STATEMENT OF ASSETS & LIABILITIES
December 31, 1996
ASSETS:
Investments at value
Nonaffiliated issuers (cost $556,115,602) $693,042,203
Affiliated issuers (cost $52,791,667) 60,008,000
Cash 108,874
Dividends and interest receivable 1,917,565
Receivable for securities sold 1,134,399
Receivable for fund shares issued 1,054,859
Prepaid expenses 78,307
-------------
Total Assets 757,344,207
-------------
LIABILITIES:
Payable for securities purchased 952,390
Accrued investment advisory fees 409,301
Payable for fund shares redeemed 76,830
Shareholder distributions payable 21,299
Accrued expenses 267,725
-------------
Total Liabilities 1,727,545
-------------
NET ASSETS $755,616,662
=============
NET ASSETS CONSIST OF:
Capital stock $611,912,029
Undistributed net investment income 14,901
Distribution in excess of book realized gains (453,202)
Unrealized net appreciation on investments 144,142,934
-------------
Total Net Assets $755,616,662
=============
CAPITAL STOCK, $.0001 par value
Authorized 500,000,000
Issued and outstanding 56,635,125
NET ASSET VALUE, REDEMPTION PRICE
AND OFFERING PRICE PER SHARE $13.34
======
See notes to financial statements
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
INVESTMENT INCOME:
Dividend income $ 12,822,788
Interest income 4,468,226
-------------
17,291,014
-------------
EXPENSES:
Investment advisory fees 4,086,939
Shareholder servicing fees 772,666
12b-1 plan distribution fees 476,920
Administration and accounting fees 287,053
Federal and state registration fees 122,272
Custody fees 117,695
Reports to shareholders 108,644
Professional fees 56,036
Miscellaneous costs 40,530
Amortization of organization costs 23,375
Directors' fees and expenses 22,238
-------------
Total expenses before reductions 6,114,368
Expense reductions (See Note 6) (363,016)
-------------
Net expenses 5,751,352
-------------
NET INVESTMENT INCOME 11,539,662
-------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 83,892,326
Change in unrealized appreciation
on investments 55,159,313
-------------
Net gain on investments 139,051,639
-------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $150,591,301
============
See notes to financial statements
STATEMENT OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
DEC. 31, 1996 DEC. 31, 1995
- -------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 11,539,662 $ 10,577,696
Net realized gain on
investments 83,892,326 36,025,535
Change in unrealized
appreciation on investments 55,159,313 87,228,864
------------- -------------
Net increase in net assets
resulting from operations 150,591,301 133,832,095
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 287,165,904 474,370,590
Proceeds from reinvestment
of dividends 116,149,089 12,284,222
------------- -------------
403,314,993 486,654,812
Payments for shares redeemed (269,716,485) (302,132,299)
------------- -------------
Net increase 133,598,508 184,522,513
DIVIDENDS PAID FROM:
Net investment income (11,548,136) (10,614,512)
Net realized gains (83,748,151) (36,150,442)
------------- -------------
(95,296,287) (46,764,954)
------------- -------------
TOTAL INCREASE IN NET ASSETS 188,893,522 271,589,654
NET ASSETS:
Beginning of period 566,723,140 295,133,486
------------- -------------
End of period (including
undistributed net investment
income of $14,901 and $0,
respectively) $755,616,662 $566,723,140
============ =============
TRANSACTIONS IN SHARES:
Shares sold 21,423,865 42,529,240
Issued in reinvestment of dividends 8,904,831 1,129,634
Shares redeemed (20,586,820) (26,144,022)
------------- -------------
Net increase 9,741,876 17,514,852
============= =============
See notes to financial statements
FINANCIAL HIGHLIGHTS
YEAR YEAR
ENDED ENDED
DEC. 31, 1996 DEC. 31, 1995
- -----------------------------------------------------------------------------
Net asset value, beginning
of period $12.09 $10.05
Income from investment
operations:
Net investment income 0.24 0.22
Net realized and unrealized
gains (losses) on investments 2.90 2.81
------- -------
Total from investment
operations 3.14 3.03
------- -------
Less distributions:
Dividends from net
investment income (0.24) (0.22)
Distributions from net
realized gains (1.65) (0.77)
------- -------
Total distributions (1.89) (0.99)
------- -------
Net asset value, end of
period $13.34 $12.09
======= =======
Total Return 26.02% 30.42%
======= =======
Supplemental data and ratios:
Net assets, end of period (000s) $755,617 $566,723
======== ========
Ratio of expenses to
average net assets (See Note 6) 0.96% 0.99%
======= =======
Ratio of expenses to average
net assets after expense
reductions 0.90% 0.91%
======= =======
Ratio of net income to
average net assets 1.80% 2.02%
======= =======
Portfolio turnover rate 58.54% 55.37%
======= =======
Average commission rate paid
per share $0.0550 N/A
======= =======
See notes to financial statements
YEAR YEAR JULY 6, 1992 <F3>
ENDED ENDED THROUGH
DEC. 31, 1994 DEC. 31, 1993 DEC. 31, 1992
- --------------------------------------------------------------------------------
Net asset value, beginning
of period $9.56 $10.39 $10.00
Income from investment
operations:
Net investment income 0.22 0.14 0.05
Net realized and unrealized
gains (losses)
on investments 0.61 (0.83) 0.42
-------- -------- --------
Total from investment
operations 0.83 (0.69) 0.47
-------- -------- --------
Less distributions:
Dividends from net
investment income (0.22) (0.14) (0.05)
Distributions from net
realized gains (0.12) - (0.03)
-------- -------- --------
Total distributions (0.34) (0.14) (0.08)
-------- -------- --------
Net asset value, end of
period $10.05 $9.56 $10.39
========= ========= =========
Total Return 8.80% (6.58)% 4.72% <F4>
========= ========= =========
Supplemental data and ratios:
Net assets, end
of period $295,133 $143,024 $74,666
========= ========= =========
Ratio of expenses to
average net assets
(See Note 6) 1.07% 1.18% 1.18% <F5>
========= ========= =========
Ratio of expenses to average
net assets after expense
reductions 1.07% 1.18% 1.18% <F5>
========= ========= =========
Ratio of net income to
average net assets 2.49% 1.61% 1.49% <F5>
========= ========= =========
Portfolio turnover rate 49.44% 61.14% 30.94%
========= ========= =========
Average commission rate paid
per share N/A N/A N/A
========= ========= =========
<F3> Commencement of operations
<F4> Not annualized for the period July 6, 1992 through December 31, 1992
<F5> Annualized
See notes to financial statements
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996
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 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 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. 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 - It is the Fund's policy to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and it
intends to distribute investment company net taxable income and net capital
gains to its shareholders. Therefore, no federal income tax provision is
required.
c) DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income are
declared and paid quarterly. Distributions of net realized capital gains, if
any, are declared at least annually. Distributions to shareholders are recorded
on the ex-dividend date. The Fund periodically makes 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 nondeductible tax treatment of organization costs.
Accordingly, at December 31, 1996 reclassifications were recorded to
undistributed net investment income to reduce capital stock by $23,375.
d) OTHER - Investment transactions are accounted for on the trade date. The
Fund determines 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 for the Fund, excluding short-
term investments and U.S. Government obligations, for the Fund for the year
ended December 31, 1996 were $322,771,625 and $359,557,323, respectively.
Purchases and sales of U.S. obligations were $5,001,500 and $5,000,000,
respectively. At December 31, 1996 gross unrealized appreciation and
depreciation on investments on a tax basis were as follows:
Appreciation $150,824,766
(Depreciation) (7,147,018)
-------------
Net appreciation on investments $143,677,748
=============
The cost of securities for federal income tax purposes is $609,372,455. For the
year ended December 31, 1996, 100% of dividends paid from net investment income,
excluding short-term capital gains, qualifies for the dividend received
deduction available to corporate shareholders.
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% on 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 year ended December 31, 1996,
payments under the Plan represented 0.07% 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 year
ended December 31, 1996, the Fund's expenses were reduced $363,016 by utilizing
soft dollar credits resulting in an expense ratio of 0.90% 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.
7. TRANSACTIONS WITH AFFILIATES
The following is an analysis of transactions for the year ended December 31,
1996 with "affiliated companies" (an affiliated company is defined by the
Investment Company Act of 1940 as a company in which the Fund owns 5% or more of
that company's outstanding voting shares):
Amount of
Amount of Gain (Loss)
Dividends Realized
Share Activity Credited on Sale
----------------------------------------- to Income of Shares
Balance Balance in Fiscal in Fiscal
Security Name 12/31/95 Purchases Sales 12/31/96 1996 1996
- ------------- -------- --------- ----- -------- ---------- ----------
American Media,
Inc., Class A 1,159,000 442,000 401,000 1,200,000 __ $(2,168,118)
Barefoot, Inc. 775,000 675,000 138,000 1,312,000 $261,000 (20,927)
Franklin Quest Co. 630,000 951,100 51,100 1,530,000 __ 70,029
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE YACKTMAN FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio 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, Inc. (the
"Fund") at December 31, 1996, the results of its operations, the changes in its
net assets and the financial highlights for 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 Fund's 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, 1996 by
correspondence with the custodian and the application of alternative procedures
for unsettled securities, provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Milwaukee, Wisconsin
January 17, 1997
