(LOGO)
THE YACKTMAN FUNDS
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SEMI-ANNUAL REPORT
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JUNE 30, 1998
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.
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MESSAGE TO SHAREHOLDERS
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(photo)
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 $21.82 by the end of the second quarter.
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 $12.73 by the end of the second quarter.
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THE YACKTMAN THE YACKTMAN
FUND AVERAGE FOCUSED FUND AVERAGE
TIME PERIOD ANNUAL RETURNS ANNUAL RETURNS
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One Year (7/1/97 - 6/30/98) 8.6% 14.3%
Three Years (7/1/95 - 6/30/98) 20.4% N/A
Five Years (7/1/93 - 6/30/98) 18.0% N/A
Since Inception (7/6/92
and 5/1/97, respectively) 13.6% 20.9%
The above past performance is not predictive of future results. The investment
return and principal value of the Funds will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
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While our recent performance has not "shot the lights out," our investment
strategy has not changed nor will it change. We continue to purchase highly
profitable businesses at prices well below their private market valuations.
Although we have been pressured to change, we remain convinced that our
strategy will provide excellent long-term results. As a Morningstar publication
recently stated, "Yacktman hasn't changed an iota since leaving Selected
American in 1992 to start his own firm. The same investment philosophy that gave
him a
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THE YACKTMAN FUNDS, INC.
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lock on the fund manager hall of fame also leads to occasional performance lulls
- - and it makes his Funds jump around the style box, too. Yet Yacktman's clear-
cut strategy and stick to-it-iveness are rare finds in the fund industry, and
good times outnumber bad. There's good reason to stand by him."
In our last quarterly report, we commented about the disparity that is
appearing between the valuations of the large companies and the rest of the
market. It seems as though the market is only concerned about two things: the
company's market capitalization (Is it big?) and its price momentum (Has it gone
up in the recent past?). The top 50 stocks in the S&P 500 make up about 50% of
the capitalization of the index. These stocks have risen in price over 21% since
late October and over 24% since late December. In contrast, the decile
comprising the smallest capitalization stocks actually slightly declined since
late October. As I said in the last quarterly report, such disparities remind
me of other "Nifty 50" time periods which eventually came to dramatic ends with
substantial declines in stock prices.
As a result of this market behavior, the larger capitalization stocks now sell
at a substantial premium to the S&P 500 as measured by their price/earnings
ratios. At the same time, we own a portfolio selling at a big discount to the
S&P 500. Please note the disparities as shown in the following table.
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PRICE/EARNINGS RELATIVE TO THE
(P/E) RATIOS S&P 500 P/E
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The Yacktman Fund 17.0 (26)%
The Yacktman Focused Fund 17.0 (26)%
S&P 500 23.0 _
S&P 500 Largest 50 29.0 26%
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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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Among our "ugly ducklings" are several "swans" that we believe will be
excellent long-term investments for our share-
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holders. In most cases, these investments are the Number One company in their
industry. They have a cost advantage over the competition, they are gaining
market share, and they are much more sheltered from an economic downturn than
the average company.
We appreciate your support during this challenging time. While we cannot
guarantee future results, we have a large investment in our Funds (i.e.," we eat
our own cooking") and look forward to a very rewarding future.
Sincerely,
/s/ Donald A. Yacktman
Donald A. Yacktman
THE YACKTMAN FUND
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TOP TWELVE EQUITY HOLDINGS
June 30, 1998
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PERCENTAGE OF
NET ASSETS
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Philip Morris Cos., Inc. 14.8%
First Data Corp. 12.9%
Department 56, Inc. 6.3%
Dentsply International, Inc. 5.5%
First Health Group Corporation 5.4%
Reebok International Ltd. 5.3%
Franklin Covey Co. 5.1%
United Asset Management Corp. 5.1%
Fruit of the Loom, Inc. 4.4%
Intimate Brands, Inc. 4.0%
Clorox Co. 3.9%
Whitman Corp. 3.5%
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TOTAL 76.2%
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THE YACKTMAN FUND
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PURCHASES & SALES
For the Quarter Ended June 30, 1998
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NET SHARES CURRENT
PURCHASES PURCHASED SHARES HELD
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DENTSPLY INTERNATIONAL, INC. 466,700 1,751,700
FRANKLIN COVEY CO. 48,500 2,126,400
ROLLINS, INC. 21,000 1,276,000
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NET SHARES CURRENT
SALES SOLD SHARES HELD
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A.C. Nielsen Corp. 240,000 392,000
AnnTaylor Stores Corp. 375,000 _
Clorox Co. 135,000 325,000
Department 56, Inc. 20,000 1,410,000
First Data Corp. 30,000 3,070,000
Fruit of the Loom, Inc. 450,000 1,050,000
Hussmann Intemational, Inc.<F1> 250,000 _
Intimate Brands, Inc. 338,000 1,157,000
Philip Morris Cos., Inc. 400,000 3,000,000
Reuters Holdings ADS 344,500 _
Topps Co. (The) 500,000 _
United Asset Management Corp. 110,000 1,550,000
Valassis Communications, Inc. 45,600 335,400
Whitman Corp. 675,000 1,200,000
<F1> Spin-off from Whitman Corp. on 1/30/98.
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THE YACKTMAN FUND
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PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
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NUMBER
OF SHARES VALUE
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COMMON STOCKS - 97.3%
APPAREL/SHOES - 9.7%
Fruit of the Loom, Inc.<F1> 1,050,000 $ 34,846,875
Reebok International Ltd. <F1> 1,515,000 41,946,562
-------------
76,793,437
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CONGLOMERATES - 3.5%
Whitman Corp. 1,200,000 27,525,000
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CONSUMER GOODS - 9.3%
Department 56, Inc. <F1><F2> 1,410,000 50,055,000
Jostens, Inc. 1,010,000 24,366,250
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74,421,250
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FINANCIAL SERVICES - 17.9%
First Data Corp. 3,070,000 102,269,375
United Asset Management Corp. 1,550,000 40,590,625
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142,860,000
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FOOD/TOBACCO - 14.8%
Philip Morris Cos., Inc. 3,000,000 118,125,000
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HOUSEHOLD PRODUCTS - 5.6%
Clorox Co. 325,000 30,996,875
Tupperware Corp. 480,000 13,500,000
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44,496,875
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INSURANCE - 1.6%
Selective Insurance Group 570,000 12,771,563
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MEDIA - 3.5%
A.C. Nielsen Corp. <F1> 392,000 9,898,000
American Media, Inc., Class A<F1><F2>1,200,000 7,950,000
King World Productions, Inc. <F1> 400,000 10,200,000
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28,048,000
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THE YACKTMAN FUND
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PORTFOLIO OF INVESTMENTS (cont'd)
June 30, 1998 (Unaudited)
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NUMBER
OF SHARES VALUE
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MEDICAL SERVICES - 5.4%
First Health Group Corp. <F1> 1,500,000 $ 42,750,000
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MEDICAL SUPPLIES - 5.5%
Dentsply International, Inc. 1,751,700 43,792,500
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RETAILING - 4.0%
Intimate Brands, Inc. 1,157,000 31,889,812
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SERVICES - 13.3%
Block H&R, Inc. 483,400 20,363,225
Franklin Covey Co. <F1><F2> 2,126,400 40,933,200
Jenny Craig, Inc. <F1> 843,800 5,115,538
Rollins, Inc. 1,276,000 26,158,000
Valassis Communications, Inc. <F1> 335,400 12,933,862
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105,503,825
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TIRES AND RUBBER - 3.2%
Bandag, Inc., Class A<F2> 734,700 25,347,150
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Total Common Stocks
(cost $629,209,482) 774,324,412
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PRINCIPAL
AMOUNT VALUE
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COMMERCIAL PAPER - 2.8%
American Express,
5.50%, 7/1/98 $17,700,000 $ 17,700,000
WPS Resources Corp.,
5.96%, 7/1/98 5,000,000 5,000,000
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Total Commercial Paper
(cost $22,700,000) 22,700,000
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DEMAND NOTES
(VARIABLE RATE) - 0.0%
Pitney Bowes Credit Corp.
(cost $574) 574 574
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Total Investments - 100.1%
(cost $651,910,056) 797,024,986
Liabilities less Other Assets - (0.1)% (1,065,233)
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Net Assets - 100% (equivalent
to $14.46 per share based on
55,048,419 shares outstanding) $795,959,753
=============
<F1> Non-income producing
<F2> Affiliated company - See Note 7
See notes to financial statements
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THE YACKTMAN FOCUSED FUND
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PURCHASES & SALES
For the Quarter Ended June 30, 1998
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NET SHARES CURRENT
PURCHASES PURCHASED SHARES HELD
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DENTSPLY INTERNATIONAL, INC. 65,000 145,000
DEPARTMENT 56, INC. 27,300 402,300
FIRST DATA CORP. 10,000 210,000
PHILIP MORRIS COS., INC. 30,000 230,000
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NET SHARES CURRENT
SALES SOLD SHARES HELD
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AnnTaylor Stores Corp. 25,000 _
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THE YACKTMAN FOCUSED FUND
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PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
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NUMBER
OF SHARES VALUE
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COMMON STOCKS - 88.6%
APPAREL/SHOES - 8.7%
Fruit of the Loom, Inc.<F1> 100,000 $ 3,318,750
Reebok International Ltd.<F1> 100,000 2,768,750
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6,087,500
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CONGLOMERATES - 3.3%
Whitman Corp.<F3> 100,000 2,293,750
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CONSUMER GOODS - 23.9%
Department 56, Inc.<F1><F3> 402,300 14,281,650
Jostens, Inc. 100,000 2,412,500
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16,694,150
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FINANCIAL SERVICES - 14.5%
First Data Corp. 210,000 6,995,625
United Asset Management Corp. 120,000 3,142,500
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10,138,125
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FOOD/TOBACCO - 13.0%
Philip Morris Cos., Inc.<F3> 230,000 9,056,250
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MEDICAL SERVICES - 5.2%
First Health Group Corp.<F1> 126,000 3,591,000
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MEDICAL SUPPLIES - 5.2%
Dentsply International, Inc. 145,000 3,625,000
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RETAILING - 4.0%
Intimate Brands, Inc. 100,000 2,756,250
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SERVICES - 10.8%
Franklin Covey Co.<F1> 220,000 4,235,000
Rollins, Inc. 160,000 3,280,000
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7,515,000
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Total Common Stocks
(cost $58,103,680) 61,757,025
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THE YACKTMAN FOCUSED FUND
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PORTFOLIO OF INVESTMENTS (cont'd.)
June 30, 1998 (Unaudited)
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PRINCIPAL
AMOUNT VALUE
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DEMAND NOTES
(VARIABLE RATE) - 11.2%
American Family Financial Services $ 859,013 $ 859,013
General Mills, Inc. 2,286,232 2,286,232
Johnson Controls, Inc. 1,327,253 1,327,253
Pitney Bowes Credit Corp. 1,849,432 1,849,432
Warner-Lambert, Inc. 1,463,011 1,463,011
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Total Demand Notes
(cost $7,784,941) 7,784,941
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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 1,080 108,000
Expiring Jan. 2000 @ $30.00 200 34,376
Expiring Jan. 2000 @ $35.00 200 60,000
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Total Put Options Purchased
(cost $395,086) 210,376
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Total Investments - 100.1%
(cost $66,283,707) 69,752,342
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NUMBER
OF CONTRACTS VALUE
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PUT OPTIONS WRITTEN - (0.1)%
NIKE, Inc., Class B
Expiring Jan. 1999 @ $37.50 850 $ (47,812)
(premium received $201,618)
Other Liabilities less Other Assets - 0.0% (17,917)
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Net Assets - 100% (equivalent
to $12.10 per share based on
5,757,647 shares outstanding) $69,686,613
=============
<F1> Non-income producing
<F3> All or a portion of security pledged as collateral to cover written put
options
See notes to financial statements
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THE YACKTMAN FUNDS, INC.
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STATEMENTS OF ASSETS & LIABILITIES
June 30, 1998 (Unaudited)
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THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
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ASSETS:
Investments at value
Nonaffiliated issuers
(cost $536,523,294, and
$66,283,707, respectively) $672,739,636 $69,752,342
Affiliated issuers
(cost $115,386,762, and
$0, respectively) 124,285,350 _
Cash 10,210 498
Receivable for fund shares issued 19,476 5,500
Dividends and interest receivable 2,213,274 163,530
Prepaid expenses 42,102 32,120
Due from adviser _ 2,989
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Total Assets 799,310,048 69,956,979
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LIABILITIES:
Put options written at value
(premiums received $0 and
$201,618, respectively) _ 47,812
Payable for fund shares redeemed 808,362 33,460
Accrued investment advisory fees 425,432 57,468
Accrued expenses 465,048 16,473
Shareholder distributions payable 1,651,453 115,153
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Total Liabilities 3,350,295 270,366
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NET ASSETS $795,959,753 $69,686,613
============= =============
NET ASSETS CONSIST OF:
Capital stock $576,952,256 $64,336,502
Undistributed net
investment income 70,264 30,421
Undistributed net realized gains 73,822,303 1,697,249
Net unrealized appreciation
on investments and written
put options 145,114,930 3,622,441
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Total Net Assets $795,959,753 $69,686,613
============= =============
CAPITAL STOCK, $.0001 par value
Authorized 500,000,000 500,000,000
Issued and outstanding 55,048,419 5,757,647
NET ASSET VALUE,
REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $14.46 $12.10
====== ======
See notes to financial statements
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STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
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THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
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INVESTMENT INCOME:
Dividend income $ 10,125,511<F1> $ 347,669
Interest income 1,146,588 276,142
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11,272,099 623,811
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EXPENSES:
Investment advisory fees 2,962,578 338,032
Shareholder servicing fees 703,950 17,376
12b-1 plan distribution fees 247,970 _
Administration and
accounting fees 189,040 24,794
Custody fees 86,790 7,439
Reports to shareholders 86,780 7,439
Federal and state
registration fees 68,680 19,838
Professional fees 30,734 27,023
Directors' fees and expenses 14,380 498
Miscellaneous costs 7,241 308
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Total expenses before reductions
and reimbursements 4,398,143 442,747
Expense reductions (See Note 6) (84,088) _
Expense reimbursements
(See Note 4) _ (20,207)
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Net expenses 4,314,055 422,540
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NET INVESTMENT INCOME 6,958,044 201,271
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REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments 74,273,269 1,624,156
Written put options _ 61,249
Change in unrealized
appreciation on:
Investments (42,317,602) 2,963,220
Written put options _ 316,630
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Net gain 31,955,667 4,965,255
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NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $38,913,711 $5,166,526
============= =============
<F1> Net of $62,527 in foreign withholding taxes
See notes to financial statements
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THE YACKTMAN FUNDS, INC.
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STATEMENTS OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
The Yacktman
The Yacktman Fund Focused Fund
- -------------------------------------------------------------- -------------------- -------------------
Six Months Six Months
Ended Year Ended May 1, 1997 (1)
June 30, 1998 Ended June 30, 1998 through
(Unaudited) Dec. 31, 1997 (Unaudited) Dec. 31, 1997
- -------------------------------------------------------------- ------------------------------- --------------------------------
<C> <C> <C> <C>
OPERATIONS:
Net investment income $ 6,958,044 $ 15,666,225 $ 201,271 $ 223,785
Net realized gain on investments 74,273,269 105,107,464 1,685,405 1,325,551
Change in net unrealized appreciation
on investments (42,317,602) 43,289,598 3,279,850 342,591
------------- -------------- ------------ -----------
Net increase in net assets resulting from operations 38,913,711 164,063,287 5,166,526 1,891,927
------------- -------------- ------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 61,436,889 519,726,430 23,662,914 62,749,613
Proceeds from reinvestment of dividends 4,842,004 111,934,459 51,110 1,425,206
------------- -------------- ------------ -----------
66,278,893 631,660,889 23,714,024 64,174,819
Payments for shares redeemed (384,455,380) (348,444,175) (17,468,965) (6,062,180)
------------- -------------- ------------ -----------
Net increase (decrease) (318,176,487) 283,216,714 6,245,059 58,112,639
------------- -------------- ------------ -----------
DIVIDENDS PAID FROM:
Net investment income (6,916,792) (15,657,189) (171,033) (243,505)
Net realized gains _ (105,100,153) _ (1,315,000)
------------- -------------- ------------ -----------
(6,916,792) (120,757,342) (171,033) (1,558,505)
------------- -------------- ------------ -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (286,179,568) 326,522,659 11,240,552 58,446,061
NET ASSETS:
Beginning of period 1,082,139,321 755,616,662 58,446,061 _
------------- -------------- ------------ -----------
End of period (including undistributed net
investmentincome of $70,264, $23,937, $30,421
and $1,476, respectively) $ 795,959,753 $1,082,139,321 $69,686,613 $58,446,061
============= ============== ============ ===========
TRANSACTIONS IN SHARES:
Shares sold 4,246,841 35,997,446 2,006,633 5,618,285
Issued in reinvestment of dividends 320,511 7,895,132 4,073 125,719
Shares redeemed (26,521,181) (23,525,455) (1,465,187) (531,876)
------------- -------------- ------------ -----------
Net increase (decrease) (21,953,829) 20,367,123 545,519 5,212,128
============= ============== ============ ===========
<F1> Commencement of operations
See notes to financial statements
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
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THE YACKTMAN FUNDS, INC.
- ------------------------------------------------
FINANCIAL HIGHLIGHTS
The Yacktman Fund The Yacktman Fund
- ------------------------------------------------------------------- ----------------------------------------------------
Six Months Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
June 30, 1998 Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
(Unaudited) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------- ----------------------------------------------------
<C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $14.05 $13.34 $12.09 $10.05 $9.56 $10.39
Income from investment
operations:
Net investment income 0.11 0.22 0.24 0.22 0.22 0.14
Net realized and unrealized
gains (losses) on investments 0.41 2.21 2.90 2.81 0.61 (0.83)
------- ------- ------- ------- ------- -------
Total from investment
operations 0.52 2.43 3.14 3.03 0.83 (0.69)
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.11) (0.22) (0.24) (0.22) (0.22) (0.14)
Distributions from net
realized gains _ (1.50) (1.65) (0.77) (0.12) _
------- ------- ------- ------- ------- -------
Total distributions (0.11) (1.72) (1.89) (0.99) (0.34) (0.14)
------- ------- ------- ------- ------- -------
Net asset value, end of
period $14.46 $14.05 $13.34 $12.09 $10.05 $9.56
======= ======= ======= ======= ======= =======
Total Return 3.68%<F1> 18.28% 26.02% 30.42% 8.80% (6.58)%
======= ======= ======= ======= ======= =======
Supplemental data and ratios:
Net assets, end of period (000s) $795,960 $1,082,139 $755,617 $566,723 $295,133 $143,024
======= ======= ======= ======= ======= =======
Ratio of expenses before expense
reductions to average net assets
(See Note 6) 0.93%<F2> 0.90% 0.96% 0.99% 1.07% 1.18%
======= ======= ======= ======= ======= =======
Ratio of net expenses to average
net assets 0.91%<F2> 0.86% 0.90% 0.91% 1.07% 1.18%
======= ======= ======= ======= ======= =======
Ratio of net investment income to
average net assets 1.47%<F2> 1.54% 1.80% 2.02% 2.49% 1.61%
======= ======= ======= ======= ======= =======
Portfolio turnover rate 8.87% 69.13% 58.54% 55.37% 49.44% 61.14%
======= ======= ======= ======= ======= =======
<F1> Not annualized
<F2> Annualized
See notes to financial statements
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</TABLE>
THE YACKTMAN FUNDS, INC.
- ----------------------------------------------
FINANCIAL HIGHLIGHTS (cont'd.)
THE YACKTMAN
FOCUSED FUND
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED MAY 1, 1997<F1>
JUNE 30, 1998 THROUGH
(UNAUDITED) DEC. 31, 1997
- --------------------------------------------------------------------------------
Net asset value, beginning
of period $11.21 $10.00
Income from investment
operations:
Net investment income 0.04 0.07
Net realized and unrealized
gains on investments 0.88 1.47
------- -------
Total from investment
operations 0.92 1.54
------- -------
Less distributions:
Dividends from net
investment income (0.03) (0.07)
Distributions from net
realized gains _ (0.26)
------- -------
Total distributions (0.03) (0.33)
------- -------
Net asset value, end of
period $12.10 $11.21
======= =======
Total Return 8.20%<F2> 15.38%<F2>
======= =======
Supplemental data and ratios:
Net assets, end of period (000s) $69,687 $58,446
======= =======
Ratio of net expenses to average
net assets 1.25%<F3><F4> 1.25%<F3><F4>
======= =======
Ratio of net investment income
to average net assets 0.60%<F3><F4> 1.02%<F3><F4>
======= =======
Portfolio turnover rate 23.51% 60.43%
======= =======
<F1> Commencement of operations
<F2> Not annualized
<F3> Annualized
<F4> Net of reimbursements. Without the fee waiver, the ratio of expenses to
average net assets would have been 1.31% and 1.71% and the ratio of net
investment income to average net assets would have been 0.54% and 0.56% for
the periods ended June 30, 1998 and December 31, 1997, respectively.
See notes to financial statements
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THE YACKTMAN FUNDS, INC.
- -----------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
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1. ORGANIZATION
The Yacktman Funds, Inc. (the "Funds") is registered as an open-end management
investment company under the Investment Company Act of 1940 (the "1940 Act").
The Funds consist of two investment portfolios: The Yacktman Fund is a
diversified fund and commenced operations July 6, 1992 and The Yacktman Focused
Fund is a non-diversified fund that commenced operations May 1, 1997. The
objective of each of the Funds is to produce long-term growth of capital with
current income as a secondary objective. Yacktman Asset Management Co. is the
Funds' investment adviser (the "Adviser").
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their 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 the 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. Put options written or purchased by The Yacktman
Focused Fund are valued at the last sales price if such last sales price is
between the current bid and asked prices. Otherwise, put options are valued at
the mean between the current bid and asked prices. 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.
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THE YACKTMAN FUNDS, INC.
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NOTES TO THE FINANCIAL STATEMENTS (cont'd.)
June 30, 1998 (Unaudited)
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B) PUT OPTIONS - Premiums received by The Yacktman Focused Fund upon writing
put options are recorded as an asset with a corresponding liability which is
subsequently adjusted to the current market value of the option. When an option
expires or is closed, the Fund realizes a gain or loss, and the liability is
eliminated. The Fund continues to bear the risk of adverse movements in the
price of the underlying asset during the period of the option, although any
potential loss, which is limited to the strike price of the option, would be
reduced by the amount of the option premium received. The Yacktman Focused
Fund's activity in written put options for the six months ended June 30, 1998
was as follows:
NUMBER OF
CONTRACTS PREMIUMS
Options outstanding at 12/31/97 1,250 $296,864
Options written 800 122,371
Options closed (500) (70,623)
Options exercised (450) (111,683)
Options expired (250) (35,311)
Options outstanding at 6/30/98 850 $201,618
=== =========
C) FEDERAL INCOME TAXES - It is each Fund's policy to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all investment company net taxable income and net
capital gains to its shareholders in a manner which results in no tax cost to
the Fund. Therefore, no federal income tax provision is required.
D) DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income are
declared and paid quarterly. Distributions of net realized capital gains, if
any, are declared and paid at least annually. Distributions to shareholders are
recorded on the ex-dividend date. The Funds 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. Accordingly, at June 30, 1998
reclassifications were recorded to
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increase (decrease) undistributed net investment income by $5,075 and ($1,293)
and increase (decrease) undistributed net realized gains by ($5,075) and $1,293
for The Yacktman Fund and The Yacktman Focused Fund, respectively.
E) OTHER - Investment transactions are accounted for on the trade date. The
Funds determine 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, excluding short-term
securities, for the Funds for the six months ended June 30, 1998 were as
follows:
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
Purchases
U.S. Government _ _
Other $ 80,651,813 $23,315,333
Sales
U.S. Government 4,500,000 _
Other 344,412,544 13,656,444
At June 30, 1998 gross unrealized appreciation and depreciation on investments
on a tax basis were as follows:
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
Appreciation $179,767,057 $7,344,182
Depreciation (34,717,802) (3,875,547)
------------ ------------
Net appreciation on investments $145,049,255 $3,468,635
============ ============
The cost of investments for federal income tax purposes was $651,975,731 and
$66,283,707 for The Yacktman Fund and The Yacktman Focused Fund, respectively.
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THE YACKTMAN FUNDS, INC.
- -----------------------------------------
NOTES TO THE FINANCIAL STATEMENTS (cont'd.)
June 30, 1998 (Unaudited)
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4. INVESTMENT ADVISORY AGREEMENT
The Funds have agreements with the Adviser, with whom certain officers and
directors of the Fund are affiliated, to furnish investment advisory services to
the Funds. Under the terms of these agreements, The Yacktman Fund will pay the
Adviser a monthly fee at the annual rate of 0.65% on the first $500,000,000 of
average daily net assets, 0.60% on the next $500,000,000 of average daily net
assets and 0.55% on average daily net assets in excess of $1,000,000,000, and
The Yacktman Focused Fund will pay the Adviser a monthly fee at the annual rate
of 1% of its average daily net assets. The agreements further stipulate that
the Adviser will reimburse the Funds for annual expenses exceeding certain
specified levels. In addition to the reimbursements required under the
agreements, the Adviser has voluntarily agreed to reimburse The Yacktman Focused
Fund for all expenses exceeding 1.25% of its average daily net assets.
5. DISTRIBUTION PLAN
The Yacktman Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. For the six months ended June 30, 1998, payments
under the Plan represented 0.05% 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 such distributor's brokerage
clients who established their Fund accounts PRIOR TO December 31, 1992.
6. EXPENSE REDUCTIONS
The Adviser has directed certain of The Yacktman Fund portfolio trades to
brokers at best price and execution and has generated directed brokerage credits
to be used against sub-transfer agency fees. Shareholders benefit under this
arrangement as the net expenses of The Yacktman Fund do not include such sub-
transfer agency fees. For the six months ended June 30, 1998, The Yacktman
Fund's expenses were reduced $84,088 by utilizing directed brokerage credits
resulting in an expense ratio of 0.91% being charged to shareholders. In
accordance with Securities and Exchange Commission requirements, 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 six months ended June 30,
1998 for The Yacktman Fund with "affiliated companies" (an affiliated company is
defined by the 1940 Act as a company in which a Fund owns 5% or more of that
company's outstanding voting shares):
<TABLE>
<CAPTION>
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 12/31/97 Purchases Sales 6/30/98 1998 1998
- --------------- --------- ---------- ------- --------- ---------- ----------
<C> <C> <C> <C> <C> <C>
American Media,
Inc., Class A 1,200,000 _ _ 1,200,000 __ _
Bandag, Inc.,
Class A 734,700 _ _ 734,700 $404,085 _
Department 56, Inc. 1,790,000 70,000 450,000 1,410,000 _ $4,227,942
Franklin Covey Co. 2,270,000 86,400 230,000 2,126,400 __ (39,848)
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</TABLE>
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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-410-0798
