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THE YACKTMAN FUNDS
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1ST QUARTER REPORT
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MARCH 31, 1998
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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. Please read the Prospectus
carefully.
THE YACKTMAN FUNDS, INC.
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MESSAGE TO SHAREHOLDERS
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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 $22.37 by the end of the first quarter. The
Yacktman Fund had a 8.1% return for the first quarter of 1998 as compared to a
14.0% 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 $12.89 by the end of the first quarter.
This represents a cumulative return of 28.9%, which compares to a 39.7%
cumulative return for the S&P 500 for the same period. The Yacktman Focused
Fund had an 11.7% return for the first quarter of 1998.
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THE S&P 500
YACKTMAN FUND ANNUALIZED
TIME PERIOD ANNUALIZED RETURNS RETURNS
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One Year (4/30/97 - 3/31/98) 23.6% 48.0%
Since low price for Fund
(8/12/93 - 3/31/98) 22.7% 24.2%
Five Years (4/30/93 - 3/31/98) 17.3% 22.4%
Since Inception (7/6/92 - 3/31/98) 15.1% 21.5%
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.
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The first quarter was a good year for the market. The first quarter return of
14% for the market, as measured by the S&P 500, exceeds the historical compound
ANNUAL rate since 1926 of 11% for the stocks of larger companies. We are clearly
in unchartered waters with the traditional valuation ratios of price to
earnings, to dividends, to book, and to sales at all-time highs. Likewise, we
are also at an all-time high on corporate returns on equity.
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THE YACKTMAN FUNDS, INC.
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Last summer my son-in-law worked with some mentally handicapped young men in
Indianapolis. Since it had rained on both the Sunday before Memorial Day and
Memorial Day, many ticket holders of the Indy 500 left town, and he was able to
take these young men, free of charge, on Tuesday to the race and sit in the
front row. They enjoyed the race, but as they left, they noticed their clothes
had been sprayed with oil because they had been too close to the cars.
In a way, many investors are acting like the drivers at the Indy 500 holding
their right foot to the floor. The speed is unsustainable, but each driver is
afraid to take his foot off the gas pedal for fear he will fall behind the other
cars. Even though the fans are cheering the drivers on to even greater speeds,
the spectators too close to the fast cars are likely to find themselves oil
stained after the race is over (i.e., holding stocks with drastically reduced
prices).
Will Rogers once said, "Return on capital is not as important as return of
capital." Our goals continue to be to first protect our shareholders' capital
and secondly to make money by buying profitable, well-managed businesses when
their shares are selling at depressed prices. As is the case with our largest
holding, Philip Morris, some of our stocks may not be popular at this point, but
they are still very profitable businesses whose share prices we believe will
ultimately reflect their underlying profitability.
Right now there is a significant difference in market valuations between the
very popular stocks and the very unpopular ones. For example, the marketplace
values Microsoft at twice what it values Philip Morris, yet Philip Morris
generates more operating cash flow than Microsoft's REVENUES. Pfizer sells at
over $100 a share versus $32 for First Data. However, if the non-cash item of
goodwill is added to First Data's earnings, it would have a higher earnings per
share than Pfizer. Such disparities remind me of other "Nifty 50" time periods,
which eventually came to dramatic ends with substantial declines in stock
prices.
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Overall the weighted price/earnings (P/E) ratios for the Funds are:
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PRICE/EARNINGS DISCOUNT FROM
(P/E) RATIOS S&P 500 P/E
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The Yacktman Fund 16.6 23.1%
The Yacktman Focused Fund 16.4 24.1%
S&P 500 21.6 -
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.
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We continue to earn good absolute returns, and someday our pace car approach
will catch the formula race cars (i.e., high P/E and earnings momentum
investors), which frequently succumb to the excesses and stress of high speed
driving. While admittedly our pace car approach is less glamorous and exciting,
we believe we have our direction and strategy clearly in place.
Sincerely,
/s/Donald A. Yacktman
Donald A. Yacktman
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THE YACKTMAN FUND
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TOP TWELVE EQUITY HOLDINGS
March 31, 1998
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PERCENTAGE OF
NET ASSETS
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Philip Morris Cos., Inc. 14.3%
First Data Corp. 10.1%
Department 56, Inc. 5.5%
Franklin Covey Co. 5.1%
Reebok International Ltd. 4.7%
Fruit of the Loom, Inc. 4.6%
United Asset Management Corp. 4.6%
First Health Group Corp. 4.1%
Intimate Brands, Inc. 4.1%
Dentsply International, Inc. 4.0%
Clorox Co. 4.0%
Bandag, Inc., Class A 3.9%
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TOTAL 69.0%
THE YACKTMAN FUND
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PURCHASES & SALES
For the Quarter Ended March 31, 1998
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NET SHARES CURRENT
PURCHASES PURCHASED SHARES HELD
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Dentsply International, Inc. 898,000 1,285,000
First Health Group Corp. 115,700 750,000
Jostens, Inc. 505,000 1,010,000
Reuters Holdings ADS 200,000 344,500
Rollins, Inc. 130,100 1,255,000
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NET SHARES CURRENT
SALES SOLD SHARES HELD
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A.C. Nielsen Corp. 698,000 632,000
AnnTaylor Stores Corp. 486,000 375,000
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NET SHARES CURRENT
SALES (CONT'D.) SOLD SHARES HELD
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Clorox Co. 110,000 460,000
Columbia/HCA Healthcare Corp. 1,000,000 _
De Beers Consolidated Mines 495,300 _
Limited ADR
Department 56, Inc. 360,000 1,430,000
First Data Corp. 93,900 3,100,000
Franklin Covey Co. 192,100 2,077,900
Fruit of the Loom, Inc. 425,000 1,500,000
Hussmann International, Inc.* 687,500 250,000
International Dairy Queen, Inc. 795,000 _
Intimate Brands, Inc. 570,000 1,495,000
Liz Claiborne, Inc. 236,000 _
Luxottica Group ADR 66,200 _
Midas, Inc.* 312,500 _
The PMI Group, Inc. 100,000 _
Reebok International Ltd. 245,000 1,515,000
Reynolds & Reynolds, Class A 95,000 _
United Asset Management Corp. 340,000 1,660,000
Valassis Communications, Inc. 369,000 381,000
Whitman Corp. 125,000 1,875,000
* Spin-off from Whitman Corp. on 1/30/98.
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THE YACKTMAN FUND
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PORTFOLIO OF INVESTMENTS
March 31, 1998 (Unaudited)
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NUMBER
OF SHARES VALUE
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COMMON STOCKS - 92.2%
APPAREL/SHOES - 9.3%
Fruit of the Loom, Inc.* 1,500,000 $45,937,500
Reebok International Ltd.* 1,515,000 46,207,500
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92,145,000
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CONGLOMERATES - 3.7%
Whitman Corp. 1,875,000 37,031,250
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CONSUMER GOODS - 8.0%
Department 56, Inc.* 1,430,000 54,340,000
Jostens, Inc. 1,010,000 24,240,000
Topps Co. (The)* 500,000 1,281,250
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79,861,250
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FINANCIAL SERVICES - 14.7%
First Data Corp. 3,100,000 100,750,000
United Asset Management Corp. 1,660,000 45,235,000
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145,985,000
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FOOD/TOBACCO - 14.3%
Philip Morris Cos., Inc. 3,400,000 141,737,500
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HOUSEHOLD PRODUCTS - 5.3%
Clorox Co. 460,000 39,416,250
Tupperware Corp. 480,000 12,780,000
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52,196,250
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INSURANCE - 1.6%
Selective Insurance Group 570,000 15,318,750
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MANUFACTURING - 0.5%
Hussmann International, Inc. 250,000 4,687,500
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NUMBER
OF SHARES VALUE
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MEDIA - 6.0%
A.C. Nielsen Corp.* 632,000 $16,708,500
American Media, Inc., Class A* 1,200,000 9,450,000
King World Productions, Inc.* 400,000 11,700,000
Reuters Holdings ADS 344,500 22,241,781
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60,100,281
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MEDICAL SERVICES - 4.1%
First Health Group Corp.* 750,000 40,687,500
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MEDICAL SUPPLIES - 4.0%
Dentsply International, Inc. 1,285,000 40,075,937
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RETAILING - 4.7%
AnnTaylor Stores Corp.* 375,000 6,164,062
Intimate Brands, Inc. 1,495,000 40,458,438
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46,622,500
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SERVICES - 12.1%
Block H&R, Inc. 483,400 22,991,713
Franklin Covey Co.* 2,077,900 50,518,944
Jenny Craig, Inc.* 843,800 4,904,588
Rollins, Inc. 1,255,000 26,198,125
Valassis Communications, Inc.* 381,000 15,621,000
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120,234,370
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TIRES AND RUBBER - 3.9%
Bandag, Inc., Class A 734,700 39,168,693
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TOTAL COMMON STOCKS
(cost $708,660,439) 915,851,781
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THE YACKTMAN FUND
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PORTFOLIO OF INVESTMENTS (CONT'D.)
March 31, 1998 (Unaudited)
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PRINCIPAL
AMOUNT VALUE
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COMMERCIAL PAPER - 7.1%
American Express
5.58%, 4/2/98 $10,000,000 $10,000,000
5.69%, 4/3/98 6,000,000 6,000,000
Ford Motor Credit Co.
5.54%, 4/1/98 10,000,000 10,000,000
5.65%, 4/6/98 12,000,000 12,000,000
General Electric Capital Corp.
5.57%, 4/2/98 10,000,000 10,000,000
5.57%, 4/3/98 12,000,000 12,000,000
5.59%, 4/3/98 10,000,000 10,000,000
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Total Commercial Paper
(cost $70,000,000) 70,000,000
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DEMAND NOTES
(VARIABLE RATE) - 0.7%
General Mills, Inc. 373,184 373,184
Johnson Controls, Inc. 1,648,760 1,648,760
Pitney Bowes Credit Corp. 1,474,171 1,474,171
Sara Lee Corp. 869,462 869,462
Warner-Lambert, Inc. 3,014,251 3,014,251
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Total Demand Notes
(cost $7,379,828) 7,379,828
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Total Investments - 100.0%
(cost $786,040,267) 993,231,609
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Other Assets less Liabilities - 0.0% 203,211
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Net Assets - 100% (equivalent
to $15.11 per share based on
65,747,484 shares outstanding) $993,434,820
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* Non-income producing
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THE YACKTMAN FOCUSED FUND
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PURCHASES & SALES
For the Quarter Ended March 31, 1998
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NET SHARES CURRENT
NEW PURCHASES PURCHASED SHARES HELD
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Dentsply International, Inc. 80,000 80,000
First Health Group Corp. 63,000 63,000
Jostens, Inc. 100,000 100,000
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NET SHARES CURRENT
OTHER PURCHASES PURCHASED SHARES HELD
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Franklin Covey Co. 48,700 220,000
First Data Corp. 20,000 200,000
Philip Morris Cos., Inc. 40,000 200,000
Reebok International Ltd. 8,700 100,000
Rollins, Inc. 54,000 160,000
United Asset Management Corp. 20,000 120,000
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NET SHARES CURRENT
SALES SOLD SHARES HELD
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AnnTaylor Stores Corp. 110,000 25,000
Columbia/HCA Healthcare Corp. 25,000 _
Department 56, Inc. 25,000 375,000
Intimate Brands, Inc. 10,000 100,000
The PMI Group, Inc. 32,600 _
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THE YACKTMAN FOCUSED FUND
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PORTFOLIO OF INVESTMENTS
March 31, 1998 (Unaudited)
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NUMBER
OF SHARES VALUE
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COMMON STOCKS - 84.1%
APPAREL/SHOES - 8.5%
Fruit of the Loom, Inc.* 100,000 $3,062,500
Reebok International Ltd.* 100,000 3,050,000
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6,112,500
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CONGLOMERATES - 2.7%
Whitman Corp.+ 100,000 1,975,000
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CONSUMER GOODS - 23.1%
Department 56, Inc.*+ 375,000 14,250,000
Jostens, Inc. 100,000 2,400,000
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16,650,000
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FINANCIAL SERVICES - 13.6%
First Data Corp. 200,000 6,500,000
United Asset Management Corp. 120,000 3,270,000
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9,770,000
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FOOD/TOBACCO - 11.6%
Philip Morris Cos., Inc.+ 200,000 8,337,500
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MEDICAL SERVICES - 4.7%
First Health Group Corp.* 63,000 3,417,750
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MEDICAL SUPPLIES - 3.5%
Dentsply International, Inc. 80,000 2,495,000
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RETAILING - 4.3%
AnnTaylor Stores Corp.* 25,000 410,938
Intimate Brands, Inc. 100,000 2,706,250
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3,117,188
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SERVICES - 12.1%
Franklin Covey Co.* 220,000 5,348,750
Rollins, Inc. 160,000 3,340,000
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8,688,750
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Total Common Stocks
(cost $54,347,404) 60,563,688
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PRINCIPAL
AMOUNT VALUE
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COMMERCIAL PAPER - 2.8%
Ford Motor Credit Co.,
5.76%, 4/1/98 $2,000,000 $2,000,000
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Total Commercial Paper
(cost $2,000,000) 2,000,000
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DEMAND NOTES
(VARIABLE RATE) - 12.7%
American Family Financial Services 781,661 781,661
General Mills, Inc. 1,517,789 1,517,789
Johnson Controls, Inc. 2,184,719 2,184,719
Pitney Bowes Credit Corp. 2,023,682 2,023,682
Sara Lee Corp. 563,198 563,198
Warner-Lambert, Inc. 825,331 825,331
Wisconsin Electric Power Company 1,292,175 1,292,175
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Total Demand Notes
(cost $9,188,555) 9,188,555
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THE YACKTMAN FOCUSED FUND
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PORTFOLIO OF INVESTMENTS (CONT'D.)
March 31, 1998 (Unaudited)
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NUMBER
OF CONTRACTS VALUE
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PUT OPTIONS PURCHASED - 0.3%
Philip Morris Cos., Inc.
Expiring Jan. 1999 @ $26.625 320 $ 8,000
Expiring Jan. 1999 @ $33.375 1,080 118,130
Expiring Jan. 2000 @ $35.00 200 62,500
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Total Put Options Purchased
(cost $354,586) 188,630
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Total Investments - 99.9%
(cost $65,890,545) 71,940,873
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PUT OPTIONS WRITTEN - (0.4)%
First Data Corp.
Expiring Aug. 1998 @ $30.00 500 (81,250)
NIKE, Inc., Class B
Expiring Jan. 1999 @ $37.50 850 (196,562)
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Total Put Options Written
(premiums received $272,241 (277,812)
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Other Assets less Other Liabilities - 0.5% 337,072
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Net Assets - 100% (equivalent
to $12.51 per share based on
5,755,301 shares outstanding) $72,000,133
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* Non-income producing
+ All or a portion of security pledged as collateral to cover written put
options.
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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
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YA-412-0498
