The Yacktman Funds
3rd Quarter Report
September 30, 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
Dear Shareholder:
<Photo>
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 $21.27 by the end of the third quarter. The
Yacktman Fund had a 7.7% return for the third quarter of 1997 as compared to a
7.5% return for the S&P 500.
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 $11.90 by the end of the third quarter.
This represents a cumulative return of 19.0%, which compares to a 19.1%
cumulative return for the S&P 500 for the same period. The Yacktman Focused
Fund had a 9.0% return for the third quarter of 1997.
- --------------------------------------------------------------------
THE S&P 500
YACKTMAN FUND ANNUALIZED
TIME PERIOD ANNUALIZED RETURNS RETURNS
- --------------------------------------------------------------------
One Year (10/1/96 - 9/30/97) 35.5% 40.5%
Three Years (10/1/94 - 9/30/97) 26.2% 29.9%
Since low price for Fund
(8/12/93 - 9/30/97) 24.2% 22.7%
Five Years (10/1/92 - 9/30/97) 16.2% 20.8%
Since Inception (7/6/92 - 9/30/97) 15.5% 20.1%
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.
- ------------------------------------------------------------------------------
I recently attended my 30 year class reunion at the Harvard Business School
and could not help but notice an interesting phenomenon. Thirty years ago when
we had a party, we stayed as long as possible. Now, by eleven o'clock, it was
time for the clean-up crew. Everyone appears to prefer the comfort and security
of a more disciplined schedule and routine, and I suspect that you have a
similar attitude with respect to your investments.
- ------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
One interesting piece of data emerged again during the quarter, and I believe
a clear pattern of performance is starting to appear. Both of our Funds
outperformed the S&P 500 for the quarter, which was a result of our strong
relative performance during a decline of the S&P 500 in August. Since we have
not had any down quarters in the S&P 500 in the past two years, we went back and
looked at what has been happening in down months. Listed below is the
performance of The Yacktman Funds during the down months since December, 1995.
- ------------------------------------------------------------------------
THE YACKTMAN THE YACKTMAN
MONTH S&P 500 FUND FOCUSED FUND
- ------------------------------------------------------------------------
July, 1996 -4.4% -1.9% -
December, 1996 -2.0% 2.9% -
March, 1997 -4.1% -1.6% -
August, 1997 -5.6% -1.2% 1.0%
- ------------------------------------------------------------------------
We believe two general observations can be drawn from the above statistics.
First, our equity investment strategy seeks to reduce portfolio risk, and we
have done comparatively well in recent down periods. In fact, The Yacktman Fund
has outperformed the S&P 500 by an average of 3.6% over the last four down
months. The Yacktman Focused Fund was a salmon by going against the current in
August with a positive return. Past performance is admittedly no guarantee of
future results.
Second, our objective is to take advantage of beach balls (stocks) being
pushed underwater. When additional pressure occurs (a market decline), the more
resilient beach balls (i.e., the undervalued stocks we seek for our Funds) will
go down less than other beach balls and will tend to rise more rapidly as the
pressure is reduced. We believe this beach ball effect explains our highly
competitive performance in down markets, including August of this year.
While we avoid analyzing and forecasting the overall stock market, we, as
bargain hunters, have continued this past quarter to work in a hostile
environment. We would prefer to see the cash equivalent investment position at
0% rather than near 20% as it has been throughout the year. However, we would
also rather not take significant risks with investments in what appears to us to
be overvalued equities. Our comfort level, therefore, has clearly been greater
with our higher commitments to short-term investments, which will, of course,
change as we begin to find more reasonably priced stocks for inclusion in our
Funds.
Sincerely,
/s/ Donald A. Yacktman
Donald A. Yacktman
- --------------------------------------------------
TOP TWELVE EQUITY HOLDINGS
55.1% of The Yacktman Fund
- --------------------------------------------------
PERCENTAGE OF
THE YACKTMAN FUND
- --------------------------------------------------
Philip Morris Cos., Inc. 8.5%
Whitman Corp. 5.8%
Department 56, Inc. 5.4%
Franklin Covey Co. 4.9%
Fruit of the Loom, Inc. 4.8%
United Asset Management Corp. 4.7%
Clorox Co. 4.5%
Reebok International Ltd. 3.7%
Intimate Brands, Inc. 3.6%
Bandag, Inc., Class A 3.3%
HealthCare COMPARE Corp. 3.1%
A.C. Nielsen Corp. 2.8%
-------
TOTAL 55.1%
- --------------------------------------------------
THE YACKTMAN FUND
PURCHASES & SALES
For the Quarter Ended September 30, 1997
- ---------------------------------------------------------------
NET SHARES CURRENT
NEW PURCHASES PURCHASED SHARES HELD
- ---------------------------------------------------------------
ANNTAYLOR STORES CORP.
Sells better-quality women's
apparel, accessories, and shoes.
Stores are located primarily in
upscale malls and specialty
retail centers. 845,700 845,700
COLUMBIA/HCA HEALTHCARE CORP.
Is the largest hospital manage-
ment company in the U.S.
Operates general hospitals, home
health agencies, nursing
homes, outpatient surgery
centers, and psychiatric units. 1,075,000 1,075,000
LINCARE HOLDINGS, INC.
Is a leading provider of oxygen
and other respiratory services
to patients in the home. 100,000 100,000
NIKE, INC., CLASS B
Designs and markets a wide
variety of footwear, apparel, and
accessories for athletic and
leisure-time activities. 175,000 175,000
REUTERS HOLDINGS ADS
Is the leading supplier of real-time
information systems and automated
trading services to the financial
community worldwide. Reuters is
also the world's largest electronic
publisher. 200,000 200,000
WELLS FARGO & COMPANY
Is the eighth largest bank holding
company in the U.S. 40,000 40,000
- ---------------------------------------------------------------
NET SHARES CURRENT
OTHER PURCHASES PURCHASED SHARES HELD
- ---------------------------------------------------------------
Clorox Co.<F1> 15,000 710,000
Dentsply International, Inc. 171,000 181,000
First Data Corp. 373,900 688,900
Franklin Covey Co. 80,000 2,020,000
Fruit of the Loom, Inc. 150,000 2,000,000
Intimate Brands, Inc. 280,000 1,790,000
Philip Morris Cos., Inc. 190,000 2,370,000
Tootsie Roll Industries 28,700 297,221
Tupperware Corp. 61,600 151,600
United Asset Management Corp. 195,000 1,920,000
Whitman Corp. 515,000 2,485,000
- ---------------------------------------------------------------
NET SHARES CURRENT
SALES SOLD SHARES HELD
- ---------------------------------------------------------------
International Dairy Queen, Inc. 42,500 795,000
Interpublic Group of Cos., Inc.<F2> 285,000 -
Liz Claiborne, Inc. 9,000 276,000
Reebok International Ltd. 499,800 875,000
Reynolds & Reynolds, Class A 350,000 425,000
Rollins, Inc. 54,000 1,171,000
Torchmark Corp. 42,800 -
Toys 'R' Us, Inc. 100,000 -
UST, Inc. 100,000 900,000
Valassis Communications, Inc. 300,000 800,000
<F1> Adjusted for 2 for 1 stock split on 9/3/97
<F2> Adjusted for 3 for 2 stock split on 7/16/97
THE YACKTMAN FUND
PORTFOLIO OF INVESTMENTS
September 30, 1997 (Unaudited)
- -----------------------------------------------------------------
NUMBER
OF SHARES VALUE
- -----------------------------------------------------------------
COMMON STOCKS - 83.6%
APPAREL/SHOES - 10.6%
Fruit of the Loom, Inc.<F3> 2,000,000 $ 56,250,000
Liz Claiborne, Inc. 276,000 15,162,750
NIKE, Inc., Class B 175,000 9,275,000
Reebok International Ltd. 875,000 42,601,563
-------------
123,289,313
-------------
BANKING - 0.9%
Wells Fargo & Company 40,000 11,000,000
-------------
CONGLOMERATES - 5.8%
Whitman Corp. 2,485,000 67,716,250
-------------
CONSUMER GOODS - 5.5%
Department 56, Inc.<F3> 2,150,000 62,215,625
Topps Co. (The)<F3> 500,000 1,531,250
-------------
63,746,875
-------------
FINANCIAL SERVICES - 7.0%
First Data Corp. 688,900 25,876,806
United Asset Management Corp. 1,920,000 55,080,000
-------------
80,956,806
-------------
FOOD/BEVERAGE - 1.3%
Tootsie Roll Industries 297,221 15,083,966
-------------
FOOD/TOBACCO - 10.9%
Philip Morris Cos., Inc. 2,370,000 98,503,125
UST, Inc. 900,000 27,506,250
-------------
126,009,375
-------------
HEALTHCARE SERVICES - 0.4%
Lincare Holdings, Inc. <F3> 100,000 5,043,750
-------------
HOUSEHOLD PRODUCTS - 4.9%
Clorox Co. 710,000 52,628,750
Tupperware Corp. 151,600 4,263,750
-------------
56,892,500
-------------
- -----------------------------------------------------------------
NUMBER
OF SHARES VALUE
- -----------------------------------------------------------------
INSURANCE - 1.4%
Selective Insurance Group 325,000 $ 16,737,500
-------------
MEDIA - 6.2%
A.C. Nielsen Corp.<F3> 1,330,000 31,920,000
American Media, Inc., Class A<F3> 1,200,000 10,200,000
King World Productions, Inc.<F3> 363,500 15,721,375
Reuters Holdings ADS 200,000 14,250,000
-------------
72,091,375
-------------
MEDICAL SERVICES - 5.8%
Columbia/HCA Healthcare Corp. 1,075,000 30,906,250
HealthCare COMPARE Corp.<F3> 562,600 35,936,075
-------------
66,842,325
-------------
MEDICAL SUPPLIES - 0.9%
Dentsply International, Inc. 181,000 10,136,000
-------------
RETAILING - 6.3%
AnnTaylor Stores Corp.<F3> 845,700 12,579,787
International Dairy Queen, Inc.<F3> 795,000 18,694,922
Intimate Brands, Inc. 1,790,000 41,729,375
-------------
73,004,084
-------------
SERVICES - 12.4%
Block H&R, Inc. 483,400 18,671,325
Franklin Covey Co.<F3> 2,020,000 56,433,750
Jenny Craig, Inc.<F3> 843,800 7,172,300
Reynolds & Reynolds, Class A 425,000 8,260,937
Rollins, Inc. 1,171,000 27,957,625
Valassis Communications, Inc.<F3> 800,000 25,500,000
-------------
143,995,937
-------------
TIRES AND RUBBER - 3.3%
Bandag, Inc., Class A 734,700 37,745,213
-------------
Total Common Stocks
(cost $723,034,248) 970,291,269
-------------
THE YACKTMAN FUND
PORTFOLIO OF INVESTMENTS (Cont'd.)
September 30, 1997 (Unaudited)
- ------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
US GOVERNMENT AGENCIES- 5.0%
Federal Farm Credit Bank
6.490%, 07/02/98 $1,000,000 $ 1,000,520
6.860%, 06/05/00 6,045,000 6,048,567
Federal Home Loan Bank
6.010%, 07/29/98 500,000 501,950
6.020%, 10/30/98 500,000 500,450
6.870%, 10/01/99 2,320,000 2,321,647
6.520%, 10/08/99 1,000,000 1,000,410
6.440%, 11/19/99 500,000 500,040
6.880%, 05/25/00 2,000,000 2,003,340
7.005%, 10/02/00 1,135,000 1,138,518
7.035%, 10/24/00 1,575,000 1,581,316
7.000%, 10/18/01 500,000 500,575
7.300%, 10/18/01 300,000 300,453
7.010%, 10/30/01 8,700,000 8,711,832
7.050%, 11/27/01 1,000,000 1,000,310
7.000%, 01/10/02 1,000,000 1,001,560
6.955%, 07/09/02 5,000,000 5,006,600
6.780%, 02/12/03 1,000,000 998,190
7.330%, 11/20/03 1,000,000 1,000,830
8.440%, 10/27/04 310,000 310,809
8.470%, 10/27/04 5,000,000 5,013,300
7.740%, 05/23/05 2,000,000 2,001,060
Federal National Mortgage Association
6.300%, 11/05/99 5,000,000 4,999,800
6.500%, 01/10/00 2,000,000 2,001,240
7.000%, 10/17/01 1,205,000 1,205,265
7.320%, 05/07/02 5,000,000 5,003,700
Student Loan Marketing Association
Variable Rate, 11/06/97 500,000 499,312
7.010%, 05/26/00 2,000,000 2,002,540
7.020%, 05/26/00 250,000 250,323
-----------
Total US Government Agencies
(cost $58,466,524) 58,404,457
-----------
COMMERCIAL PAPER - 11.5%
Anchor Funding Corp.,
5.57%, 10/03/97 5,000,000 4,998,453
- ------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
COMMERCIAL PAPER - 11.5% (CONT'D.)
Commercial Credit Co.,
5.50%, 10/09/97 $ 7,000,000 $ 6,991,444
Deerfield Funding Corp.
5.56%, 10/06/97 10,000,000 9,992,278
5.54%, 10/20/97 9,000,000 8,973,685
Fountain Square,
5.55%, 10/03/97 4,605,000 4,603,580
Gotham Funding Co.,
5.54%, 10/02/97 10,000,000 9,998,461
Great Lakes Chemical,
5.57%, 10/09/97 5,000,000 4,993,811
Industrial Funding Corp.,
5.55%, 10/07/97 16,499,000 16,483,738
Mitsubishi Motors Co.,
5.56%, 10/01/97 3,000,000 3,000,000
Oak Funding Corp.,
5.55%, 10/15/97 10,000,000 9,978,417
Ridge Capital Corp.,
5.52%, 10/02/97 4,000,000 3,999,387
Ryobi Finance Co.,
5.55%, 10/15/97 3,000,000 2,993,525
Traveler's Group, Inc.,
5.50%, 10/09/97 7,000,000 6,991,444
Working Capital Management
5.55%, 10/02/97 7,000,000 6,998,921
5.55%, 10/02/97 20,000,000 19,996,917
5.54%, 10/08/97 5,000,000 4,995,464
5.59%, 10/17/97 7,000,000 6,982,609
-----------
Total Commercial Paper
(cost $132,972,134) 132,972,134
-----------
Total Investments - 100.1%
(cost $914,472,906) 1,161,667,860
Liabilities less Other Assets - (0.1)% (1,319,755)
-------------
Net Assets - 100% (equivalent
to $16.03 per share based on
72,387,561 shares outstanding) $1,160,348,105
==============
<F3> Non-income producing
THE YACKTMAN FOCUSED FUND
PURCHASES & SALES
For the Quarter Ended September 30, 1997
- ---------------------------------------------------------------------------
NET SHARES CURRENT
NEW PURCHASES PURCHASED SHARES HELD
- ---------------------------------------------------------------------------
AnnTaylor Stores Corp. 110,000 110,000
Columbia/HCA Healthcare Corp. 45,000 45,000
First Data Corp. 30,000 30,000
Lincare Holdings, Inc. 11,000 11,000
Tootsie Roll Industries 18,000 18,000
Wells Fargo & Company 1,700 1,700
- ---------------------------------------------------------------------------
NET SHARES CURRENT
OTHER PURCHASES PURCHASED SHARES HELD
- ---------------------------------------------------------------------------
Department 56, Inc. 171,500 331,500
Franklin Covey Co. 70,000 115,000
Fruit of the Loom, Inc. 31,500 57,000
Intimate Brands, Inc. 49,000 80,000
Philip Morris Cos., Inc. 67,000 140,000
United Asset Management Corp. 34,000 65,000
- ---------------------------------------------------------------------------
NET SHARES CURRENT
SALES SOLD SHARES HELD
- ---------------------------------------------------------------------------
Clorox Co. 2,500 -
Reynolds & Reynolds, Class A 35,000 -
Rollins, Inc. 35,000 -
THE YACKTMAN FOCUSED FUND
PORTFOLIO OF INVESTMENTS
September 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS - 80.2%
APPAREL/SHOES - 5.7%
Fruit of the Loom, Inc.<F4> 57,000 $ 1,603,125
Reebok International Ltd. 15,500 754,656
-----------
2,357,781
-----------
BANKING - 1.1%
Wells Fargo & Company 1,700 467,500
-----------
CONGLOMERATES - 4.7%
Whitman Corp.<F5> 70,000 1,907,500
-----------
CONSUMER GOODS - 23.3%
Department 56, Inc.<F4><F5> 331,500 9,592,781
-----------
FINANCIAL SERVICES - 7.3%
First Data Corp. 30,000 1,126,875
United Asset Management Corp. 65,000 1,864,688
-----------
2,991,563
-----------
FOOD/BEVERAGE - 2.2%
Tootsie Roll Industries 18,000 913,500
-----------
FOOD/TOBACCO - 14.1%
Philip Morris Cos., Inc.<F5> 140,000 5,818,750
-----------
HEALTH CARE SERVICES - 1.3%
Lincare Holdings, Inc.<F4> 11,000 554,812
-----------
MEDICAL SERVICES - 4.2%
Columbia/HCA Healthcare Corp. 45,000 1,293,750
HealthCare COMPARE Corp.<F4> 6,000 383,250
-----------
1,677,000
-----------
THE YACKTMAN FOCUSED FUND
PORTFOLIO OF INVESTMENTS (Cont'd.)
September 30, 1997 (Unaudited)
RETAILING - 8.5%
AnnTaylor Stores Corp.<F4> 110,000 1,636,250
Intimate Brands, Inc. 80,000 1,865,000
-----------
3,501,250
-----------
THE YACKTMAN FOCUSED FUND
PORTFOLIO OF INVESTMENTS (Cont'd.)
- ----------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ----------------------------------------------------------------------
COMMON STOCKS - 80.2% (CONT'D.)
SERVICES - 7.8%
Franklin Covey Co.<F4> 115,000 $ 3,212,813
-----------
Total Common Stocks
(cost $30,325,976) 32,995,250
-----------
- ----------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------
US GOVERNMENT AGENCIES - 5.1%
Federal Home Loan Bank
6.880%, 10/10/00 $ 500,000 501,420
6.683%, 10/16/00 500,000 500,930
Federal National
Mortgage Association,
6.45%, 10/14/99 1,100,000 1,100,099
-----------
Total US Government Agencies
(cost $2,101,648) 2,102,449
-----------
COMMERCIAL PAPER - 8.5%
Bridgestone/Firestone,
5.51%, 10/03/97 1,500,000 1,499,541
Great Lakes Chemical,
5.57%, 10/09/97 1,000,000 998,762
Working Capital Management,
5.55%, 10/02/97 1,000,000 999,846
-----------
Total Commercial Paper
(cost $3,498,149) 3,498,149
-----------
DEMAND NOTES
(VARIABLE RATE) - 4.3%
American Family Financial Services 192,608 192,608
Johnson Controls, Inc. 952,268 952,268
Pitney Bowes Credit Corp. 183,750 183,750
Wisconsin Electric Power Company 455,217 455,217
-----------
Total Demand Notes
(cost $1,783,843) 1,783,843
-----------
- ----------------------------------------------------------------------
NUMBER OF
CONTRACTS VALUE
- ----------------------------------------------------------------------
PUT OPTIONS PURCHASED - 0.6%
Philip Morris Cos., Inc. Put Option
Expiring Jan. 1999 @ $26.625 320 $ 16,000
Philip Morris Cos., Inc. Put Option
Expiring Jan. 1999 @ $33.375 880 176,000
Philip Morris Cos., Inc. Put Option
Expiring Jan. 1999 @ $36.625 200 61,250
-----------
Total Put Options Purchased
(cost $311,536)
253,250
-----------
Total Investments - 98.7%
(cost $38,021,152) 40,632,941
-----------
PUT OPTIONS WRITTEN - (0.6)%
HealthCare COMPARE Corp. Put Option
Expiring Feb. 1998 @ $55.00 250 (28,907)
Lincare Holdings, Inc. Put Option
Expiring Feb. 1998 @ $45.00 250 (42,188)
NIKE, Inc., Class B Put Option
Expiring Jan. 1999 @ $47.50 350 (166,250)
-----------
Total Put Options Written
(premiums received $220,367) (237,345)
-----------
Other Assets less Other Liabilities - 1.9% 753,440
-----------
Net Assets - 100% (equivalent
to $11.85 per share based on
3,472,364 shares outstanding) $41,149,036
===========
<F4> Non-income producing
<F5> All or a portion of security pledged as collateral to cover written
put options
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 53201-5207
