THE YACKTMAN FUNDS
(LOGO)
ANNUAL REPORT
December 31, 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
(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 $20.69 by the end of the fourth quarter. The
Yacktman Fund had a -2.8% return for the fourth quarter of 1997 as compared to a
2.9% return for the S&P 500.
THE S&P 500
YACKTMAN FUND ANNUALIZED
TIME PERIOD ANNUALIZED RETURNS RETURNS
- -----------------------------------------------------------------
One Year (1/1/97 - 12/31/97) 18.3% 33.4%
Since low price for Fund
(8/12/93 - 12/31/97) 21.9% 22.1%
Five Years (1/1/93 - 12/31/97) 14.6% 20.3%
Since Inception (7/6/92 - 12/31/97) 14.2% 19.7%
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 12/97
THE YACKTMAN
FUND $10,000 $10,472 $9,783 $10,644 $13,881 $17,493 $20,691
S&P 500 Stock
Index $10,000 $10,679 $11,756 $11,911 $16,387 $20,150 $26,873
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.
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 $11.54 by the end of the fourth quarter.
This represents a cumulative return of 15.4%, which compares to a 22.6%
cumulative return for the S&P 500 for the same period. The Yacktman Focused
Fund had a -3.1% return for the fourth quarter of 1997.
5/1/97 8/97 12/97
The Yacktman Focused Fund $10,000 $11,461 $11,538
S&P 500 Stock Index $10,000 $11,296 $12,256
The chart assumes an initial gross investment of $10,000 made on 5/1/97
(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.
Since July, 1992, the stock market has had only one down quarter. For the
first time in the 101-year history of the Dow Jones Industrial Average, the
index rose by over 20% in three consecutive years. It is also the second biggest
cumulative three-year rise in the Dow's history. In view of the current market
valuations for many stocks, which are high by historical standards, I doubt
seriously whether the returns for the remainder of the millennium will come
close to those of the past three years.
We believe this may be an opportune time for our shareholders. As the chart to
the right suggests, we should be well-positioned on a relative basis for both
downside protection and capital appreciation in market advances. This is true
because of the fundamental quality of our companies (as reflected in their
comparatively high cash returns on tangible assets) and their relatively low P/E
ratios.
PRICE/EARNINGS DISCOUNT FROM
(P/E) RATIOS S&P 500 P/E
- -----------------------------------------------------------
The Yacktman Fund 14.9 21.6%
The Yacktman Focused Fund 14.2 25.3%
S&P 500 19.0 -
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.
In 1997, we earned a good absolute return for our shareholders but still
trailed the overall market, as measured by the S&P 500. This shortfall in
performance was largely due to a higher than normal cash position throughout the
year and the popularity of the higher P/E companies in the S&P 500. It was not
the result of earnings and cash flow problems with our companies. In fact, the
P/E spread between our Funds and the S&P 500 may be approaching historically its
widest point. We would expect to see the spread narrow in 1998, which could mean
good relative performance for our Funds. While we clearly want to beat the index
over longer periods of time, we are even more concerned about reaching our
ultimate performance objective of earning competitive returns while also seeking
to reduce portfolio risk.
One way to reduce risk is to buy good businesses, which we define as
businesses with high returns on tangible assets and high EVAs (Economic Value
Added). An EVA-oriented management attempts to earn the highest possible returns
with a given amount of assets. When businesses earn returns above their cost of
capital, as we hope ours will continue to do, they create added economic value
(EVA), which ultimately should be reflected in the stock price.
We have typically owned the shares of larger companies with multiple divisions
that can spread the underlying business risk over several operating areas.
However, we believe the profitability of a business over a long time frame is
even more important than company size. While the smaller companies may be
somewhat more vulnerable to competition and industry changes, the profitable
ones are often more focused and aggressively managed, and are capable of
generating outstanding results.
The shares of many of the supersized companies (e.g., pharmaceutical firms),
which were in our portfolio in the earlier years of The Yacktman Fund, were sold
last year because of price risk (i.e., we believed their market prices had gone
well above reasonable valuations), and the proceeds of the sales were recycled
into the shares of somewhat smaller (but hardly small) businesses.
Notwithstanding the lower median market capitalization of the holdings in our
two Funds, it is important to know that our purchases continue to be consistent
with our long-standing investment objectives. Moreover, I must confess that I
really cannot understand how companies with annual operating cash flows of
almost $100 million can be categorized by independent evaluators as "small."
Since opening our doors for business in 1992, we are pleased to report that we
have not been forced to sell any of our holdings because of difficult business
problems. We believe the true strength of our stock selection will show up
when the economy slows down, as it inevitably will sometime in the future.
More importantly, we remain focused on buying excellent businesses at low
prices even if some of these companies are unpopular in the short term.
Our experience clearly indicates that if we "stick to our knitting," the
longer term will take care of itself.
Sincerely,
/S/ Donald A. Yacktman
Donald A. Yacktman
THE YACKTMAN FUND
TOP TWELVE EQUITY HOLDINGS
December 31, 1997
PERCENTAGE OF
NET ASSETS
- -----------------------------------------------------------
Philip Morris Cos., Inc. 14.2%
First Data Corp. 8.6%
Whitman Corp. 4.8%
Department 56, Inc. 4.8%
Reebok International Ltd. 4.7%
Franklin Covey Co. 4.6%
Intimate Brands, Inc. 4.6%
Fruit of the Loom, Inc. 4.6%
United Asset Management Corp. 4.5%
Clorox Co. 4.2%
Bandag, Inc., Class A 3.3%
Healthcare COMPARE Corp. 3.0%
-----
TOTAL 65.9%
THE YACKTMAN FUND
PURCHASES & SALES
For the Quarter Ended December 31, 1997
NET SHARES CURRENT
NEW PURCHASES PURCHASED SHARES HELD
- ------------------------------------------------------------------------
DE BEERS CONSOLIDATED MINES
LIMITED ADR
Owns several diamond mines
and the South African elements
of the Central Selling Organiza-
tion (CSO), which markets 70%
of the world's diamond
production. 495,300 495,300
THE YACKTMAN FUND
PURCHASES & SALES (cont'd.)
For the Quarter Ended December 31, 1997
NET SHARES CURRENT
NEW PURCHASES PURCHASED SHARES HELD
- ------------------------------------------------------------------------
JOSTENS, INC.
A leading maker of school
products (i.e., class rings, grad-
uation products, yearbooks,
and school pictures) and
recognition products (i.e.,
customized and personalized
jewelry, plaques, and
certificates). 505,000 505,000
LUXOTTICA GROUP ADR
An Italian company engaged
in the design, manufacture,
and worldwide distribution
(LensCrafters) of about 1,700
different eyeglass frames
and sunglasses. 66,200 66,200
THE PMI GROUP, INC.
Through its subsidiary, PMI
Mortgage Insurance Co.,
provides private mortgage
insurance that insures
mortgage lenders against
potential losses in the event
of borrower default. 100,000 100,000
NET SHARES CURRENT
OTHER PURCHASES PURCHASED SHARES HELD
- ------------------------------------------------------------------------
AnnTaylor Stores Corp. 15,300 861,000
Dentsply International, Inc.+ 25,000 387,000
First Data Corp. 2,505,000 3,193,900
Franklin Covey Co. 250,000 2,270,000
THE YACKTMAN FUND
PURCHASES & SALES (cont'd.)
For the Quarter Ended December 31, 1997
NET SHARES CURRENT
OTHER PURCHASES (cont'd.) PURCHASED SHARES HELD
- ------------------------------------------------------------------------
Healthcare COMPARE Corp. 71,700 634,300
Intimate Brands, Inc. 275,000 2,065,000
Philip Morris Cos., Inc. 1,030,000 3,400,000
Reebok International Ltd. 885,000 1,760,000
Tupperware Corp. 328,400 480,000
United Asset Management Corp. 80,000 2,000,000
NET SHARES CURRENT
SALES SOLD SHARES HELD
- ------------------------------------------------------------------------
Clorox Co. 140,000 570,000
Columbia/HCA Healthcare Corp. 75,000 1,000,000
Department 56, Inc. 360,000 1,790,000
Fruit of the Loom, Inc. 75,000 1,925,000
King World Productions, Inc. 163,500 200,000
Lincare Holdings, Inc. 100,000 -
Liz Claiborne, Inc. 40,000 236,000
NIKE, Inc., Class B 175,000 -
Reuters Holdings ADS 2,500 197,500
Reynolds & Reynolds, Class A 330,000 95,000
Rollins, Inc. 46,100 1,124,900
Selective Insurance Group+ 40,000 570,000
Tootsie Roll Industries 297,221 -
UST, Inc. 900,000 -
Valassis Communications, Inc. 50,000 750,000
Wells Fargo & Company 40,000 -
Whitman Corp. 485,000 2,000,000
+ Adjusted for 2 for 1 stock split
THE YACKTMAN FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS - 93.0%
APPAREL/SHOES - 10.2%
Fruit of the Loom, Inc.* 1,925,000 $ 49,328,125
Liz Claiborne, Inc. 236,000 9,867,750
Reebok International Ltd.* 1,760,000 50,710,000
-------------
109,905,875
-------------
CONGLOMERATES - 4.8%
Whitman Corp. 2,000,000 52,125,000
-------------
CONSUMER GOODS - 5.9%
Department 56, Inc.*+ 1,790,000 51,462,500
Jostens, Inc. 505,000 11,646,563
Topps Co. (The)* 500,000 1,109,375
-------------
64,218,438
-------------
FINANCIAL SERVICES - 13.2%
First Data Corp. 3,193,900 93,421,575
United Asset Management Corp. 2,000,000 48,875,000
-------------
142,296,575
-------------
FOOD/TOBACCO - 14.2%
Philip Morris Cos., Inc. 3,400,000 154,062,500
-------------
HOUSEHOLD PRODUCTS - 5.4%
Clorox Co. 570,000 45,065,625
Tupperware Corp. 480,000 13,380,000
-------------
58,445,625
-------------
INSURANCE - 2.1%
The PMI Group, Inc. 100,000 7,231,250
Selective Insurance Group 570,000 15,390,000
-------------
22,621,250
-------------
MEDIA - 6.1%
A.C. Nielsen Corp.* 1,330,000 32,418,750
American Media, Inc., Class A*+ 1,200,000 9,300,000
King World Productions, Inc.* 200,000 11,550,000
THE YACKTMAN FUND
PORTFOLIO OF INVESTMENTS (cont'd)
December 31, 1997
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------
MEDIA - 6.1% (cont'd.)
Reuters Holdings ADS 197,500 $ 13,084,375
-------------
66,353,125
-------------
MEDICAL SERVICES - 5.7%
Columbia/HCA Healthcare Corp. 1,000,000 29,625,000
HealthCare COMPARE Corp.* 634,300 32,428,587
-------------
62,053,587
-------------
MEDICAL SUPPLIES - 1.1%
Dentsply International, Inc. 387,000 11,803,500
-------------
METALS MINING - 0.9%
De Beers Consolidated Mines
Limited ADR 495,300 10,122,694
-------------
RETAILING - 8.0%
AnnTaylor Stores Corp.* 861,000 11,515,875
International Dairy Queen, Inc.*+ 795,000 21,291,094
Intimate Brands, Inc. 2,065,000 49,689,062
Luxottica Group ADR 66,200 4,137,500
-------------
86,633,531
-------------
SERVICES - 12.1%
Block H&R, Inc. 483,400 21,662,362
Franklin Covey Co.*+ 2,270,000 49,940,000
Jenny Craig, Inc.* 843,800 6,381,238
Reynolds & Reynolds, Class A 95,000 1,751,563
Rollins, Inc. 1,124,900 22,849,531
Valassis Communications, Inc.* 750,000 27,750,000
-------------
130,334,694
-------------
TIRES AND RUBBER - 3.3%
Bandag, Inc., Class A+ 734,700 35,173,763
-------------
Total Common Stocks
(cost $818,717,479) 1,006,150,157
-------------
THE YACKTMAN FUND
PORTFOLIO OF INVESTMENTS (cont'd)
December 31, 1997
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------
US GOVERNMENT AGENCIES - 0.4%
Federal Home Loan Bank
6.01%, 07/29/98 $ 500,000 $ 501,115
6.25%, 11/12/99 2,000,000 1,999,920
6.68%, 9/21/01 1,000,000 1,001,180
6.78%, 2/12/03 1,000,000 1,000,010
------------
Total US Government Agencies
(cost $4,502,371) 4,502,225
------------
COMMERCIAL PAPER - 5.5%
American Express
6.25%, 1/02/98 23,000,000 23,000,000
6.01%, 1/06/98 6,750,000 6,750,000
Ford Motor Credit Co.,
5.95%, 1/06/98 30,000,000 30,000,000
------------
Total Commercial Paper
(cost $59,750,000) 59,750,000
------------
DEMAND NOTES
(VARIABLE RATE) - 0.6%
Johnson Controls, Inc. 1,000,000 1,000,000
Sara Lee Corp. 2,316,128 2,316,128
Warner-Lambert, Inc. 3,449,583 3,449,583
------------
Total Demand Notes
(cost $6,765,711) 6,765,711
------------
Total Investments - 99.5%
(cost $889,735,561) 1,077,168,093
Other Assets less Liabilities - 0.5% 4,971,228
------------
Net Assets - 100% (equivalent
to $14.05 per share based on
77,002,248 shares outstanding) $1,082,139,321
=============
* Non-income producing
+ Affiliated company - See Note 7
See notes to financial statements
THE YACKTMAN FOCUSED FUND
PURCHASES & SALES
For the Quarter Ended December 31, 1997
NET SHARES CURRENT
NEW PURCHASES PURCHASED SHARES HELD
- --------------------------------------------------------------------------
The PMI Group, Inc. 32,600 32,600
Rollins, Inc. 106,000 106,000
NET SHARES CURRENT
OTHER PURCHASES PURCHASED SHARES HELD
- --------------------------------------------------------------------------
AnnTaylor Stores Corp. 25,000 135,000
Department 56, Inc. 68,500 400,000
First Data Corp. 150,000 180,000
Franklin Covey Co. 56,300 171,300
Fruit of the Loom, Inc. 43,000 100,000
Intimate Brands, Inc. 30,000 110,000
Philip Morris Cos., Inc. 20,000 160,000
Reebok International Ltd. 75,800 91,300
United Asset Management Corp. 35,000 100,000
Whitman Corp. 30,000 100,000
NET SHARES CURRENT
SALES SOLD SHARES HELD
- ---------------------------------------------------------------------------
Columbia/HCA Healthcare Corp. 20,000 25,000
Healthcare COMPARE Corp. 6,000 -
Lincare Holdings, Inc. 11,000 -
Tootsie Roll Industries 18,000 -
Wells Fargo & Company 1,700 -
THE YACKTMAN FOCUSED FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS - 81.7%
APPAREL/SHOES - 8.9%
Fruit of the Loom, Inc.* 100,000 $ 2,562,500
Reebok International Ltd.* 91,300 2,630,581
------------
5,193,081
------------
CONGLOMERATES - 4.5%
Whitman Corp.++ 100,000 2,606,250
------------
CONSUMER GOODS - 19.7%
Department 56, Inc.*++ 400,000 11,500,000
------------
FINANCIAL SERVICES - 13.2%
First Data Corp. 180,000 5,265,000
United Asset Management Corp. 100,000 2,443,750
------------
7,708,750
------------
FOOD/TOBACCO - 12.4%
Philip Morris Cos., Inc.++ 160,000 7,250,000
------------
INSURANCE - 4.0%
The PMI Group, Inc. 32,600 2,357,388
------------
MEDICAL SERVICES - 1.3%
Columbia/HCA Healthcare Corp. 25,000 740,625
------------
RETAILING - 7.6%
AnnTaylor Stores Corp.* 135,000 1,805,625
Intimate Brands, Inc. 110,000 2,646,875
------------
4,452,500
------------
SERVICES - 10.1%
Franklin Covey Co.* 171,300 3,768,600
Rollins, Inc. 106,000 2,153,125
------------
5,921,725
------------
Total Common Stocks
(cost $47,025,868) 47,730,319
------------
THE YACKTMAN FOCUSED FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------
DEMAND NOTES
(variable rate) - 18.9%
American Family Financial Services $2,437,553 $ 2,437,553
General Mills, Inc. 783,412 783,412
Johnson Controls, Inc. 2,700,000 2,700,000
Pitney Bowes Credit Corp. 1,131,829 1,131,829
Sara Lee Corp. 39,000 39,000
Warner-Lambert, Inc. 1,831,018 1,831,018
Wisconsin Electric Power Company 2,130,467 2,130,467
------------
Total Demand Notes
(cost $11,053,279) 11,053,279
------------
NUMBER
OF CONTRACTS VALUE
- --------------------------------------------------------------------------
PUT OPTIONS PURCHASED - 0.2%
Philip Morris Cos., Inc.
Expiring Jan. 1999 @ $26.625 320 8,000
Philip Morris Cos., Inc.
Expiring Jan. 1999 @ $33.375 1,080 94,500
------------
Total Put Options Purchased
(cost $301,536) 102,500
------------
Total Investments - 100.8%
(cost $58,380,683) 58,886,098
------------
THE YACKTMAN FOCUSED FUND
PORTFOLIO OF INVESTMENTS (cont'd)
December 31, 1997
NUMBER
OF CONTRACTS VALUE
- --------------------------------------------------------------------------
PUT OPTIONS WRITTEN - (0.8)%
Healthcare COMPARE Corp.
Expiring Feb. 1998 @ $55.00 450 $ (216,563)
Lincare Holdings, Inc.
Expiring Feb. 1998 @ $45.00 250 (9,375)
NIKE, Inc., Class B
Expiring Jan. 1999 @ $37.50 550 (233,750)
------------
Total Put Options Written
(premiums received $296,864) (459,688)
------------
Other Assets less Other Liabilities - 0.0% 19,651
------------
Net Assets - 100% (equivalent
to $11.21 per share based on
5,212,128 shares outstanding) $58,446,061
===========
* Non-income producing
++ All or a portion of security pledged as collateral to cover written put
options
See notes to financial statements
This page intentionally left blank.
THE YACKTMAN FUNDS, INC.
STATEMENTS OF ASSETS & LIABILITIES
December 31, 1997
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
- ---------------------------------------------------------------------------
ASSETS:
Investments at value
Nonaffiliated issuers
(cost $747,176,081, and
$58,380,683, respectively) $ 910,000,737 $58,886,098
Affiliated issuers
(cost $142,559,480, and
$0, respectively) 167,167,356 -
Receivable for fund shares issued 3,962,765 30,607
Dividends and interest receivable 2,636,270 144,300
Prepaid expenses 34,557 21,389
Cash 2,243 -
Due from adviser - 44,131
------------- -----------
Total Assets 1,083,803,928 59,126,525
------------- -----------
LIABILITIES:
Put options written at value
(premiums received $0 and
$296,864, respectively) - 459,688
Payable for securities purchased - 36,316
Payable for fund shares redeemed 610,383 87,178
Accrued investment advisory fees 588,751 47,392
Accrued expenses 450,715 49,595
Shareholder distributions payable 14,758 295
------------- -----------
Total Liabilities 1,664,607 680,464
------------- -----------
NET ASSETS $1,082,139,321 $58,446,061
============= ===========
NET ASSETS CONSIST OF:
Capital stock $ 895,128,743 $58,091,443
Undistributed net
investment income 23,937 1,476
Undistributed net realized gains - 10,551
Distribution in excess of book
realized gains (445,891) -
Net unrealized appreciation on
investments and written
put options 187,432,532 342,591
------------- -----------
Total Net Assets $1,082,139,321 $58,446,061
============= ===========
CAPITAL STOCK, $.0001 par value
Authorized 500,000,000 500,000,000
Issued and outstanding 77,002,248 5,212,128
NET ASSET VALUE,
REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $14.05 $11.21
====== ======
See notes to financial statements
STATEMENTS OF OPERATIONS
For the Periods Ended December 31, 1997
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND<F1>
- ---------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income $ 13,188,134<F2> $ 239,293
Interest income 11,278,899 257,303
------------- -----------
24,467,033 496,596
------------- -----------
EXPENSES:
Investment advisory fees 6,360,037 218,380
Shareholder servicing fees 1,309,626 21,248
12b-1 plan distribution fees 484,861 -
Administration and
accounting fees 401,002 33,563
Federal and state
registration fees 179,542 35,055
Reports to shareholders 168,375 8,818
Custody fees 157,047 11,593
Professional fees 65,298 44,043
Directors' fees and expenses 28,199 511
Miscellaneous costs 11,573 660
------------- -----------
Total expenses before reductions
and reimbursements 9,165,560 373,871
Expense reductions (See Note 6) (364,752) -
Expense reimbursements
(See Note 4) - (101,060)
------------- -----------
Net expenses 8,800,808 272,811
------------- -----------
NET INVESTMENT INCOME 15,666,225 223,785
------------- -----------
REALIZED AND UNREALIZED GAIN:
Net realized gain (loss) on:
Investments 105,107,464 1,360,593
Written put options - (35,042)
Change in unrealized appreciation
(depreciation) on:
Investments 43,289,598 505,415
Written put options - (162,824)
------------- -----------
Net gain 148,397,062 1,668,142
------------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $164,063,287 $1,891,927
============= ===========
<F1> Commenced operations May 1, 1997
<F2> Net of $11,298 in foreign withholding taxes.
See notes to financial statements
THE YACKTMAN FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
THE YACKTMAN
THE YACKTMAN FUND FOCUSED FUND
------------------ --------------
YEAR YEAR MAY 1, 1997<F1>
ENDED ENDED THROUGH
DEC. 31, 1997 DEC. 31, 1996 DEC. 31, 1997
----------------------------- --------------
OPERATIONS:
Net investment income $ 15,666,225 $ 11,539,662 $ 223,785
Net realized gain on
investments
and written put options 105,107,464 83,892,326 1,325,551
Change in net unrealized
appreciation
on investments and written
put options 43,289,598 55,159,313 342,591
------------ ------------ -----------
Net increase in net assets
resulting from operations 164,063,287 150,591,301 1,891,927
------------ ------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 519,726,430 287,165,904 62,749,613
Proceeds from reinvestment
of dividends 111,934,459 116,149,089 1,425,206
------------ ------------ -----------
631,660,889 403,314,993 64,174,819
------------ ------------ -----------
Payments for shares
redeemed (348,444,175) (269,716,485) (6,062,180)
------------ ------------ -----------
Net increase 283,216,714 133,598,508 58,112,639
------------ ------------ -----------
DIVIDENDS PAID FROM:
Net investment income (15,657,189) (11,548,136) (243,505)
Net realized gains (105,100,153) (83,748,151) (1,315,000)
------------ ------------ -----------
(120,757,342) (95,296,287) (1,558,505)
------------ ------------ -----------
TOTAL INCREASE IN NET ASSETS 326,522,659 188,893,522 58,446,061
NET ASSETS:
Beginning of period 755,616,662 566,723,140 -
------------ ------------ -----------
End of period (including
undistributed
net investment income
of $23,937,
$14,901 and $1,476,
respectively) $1,082,139,321 $755,616,662 $58,446,061
============= ============ ===========
TRANSACTIONS IN SHARES:
Shares sold 35,997,446 21,423,865 5,618,285
Issued in reinvestment
of dividends 7,895,132 8,904,831 125,719
Shares redeemed (23,525,455) (20,586,820) (531,876)
------------ ------------ -----------
Net increase 20,367,123 9,741,876 5,212,128
============ ============ ===========
<F1> Commencement of operations
See notes to financial statements
<TABLE>
THE YACKTMAN FUNDS, INC.
FINANCIAL HIGHLIGHTS
<CAPTION>
THE YACKTMAN
THE YACKTMAN FUND THE YACKTMAN FUND FOCUSED FUND
--------------------------- -------------------------------------------- ----------------
YEAR YEAR YEAR YEAR YEAR MAY 1, 1997<F1>
ENDED ENDED ENDED ENDED ENDED THROUGH
DEC. 31, 1997 DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1993 DEC. 31, 1997
---------------------------- --------------------------------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $13.34 $12.09 $10.05 $9.56 $10.39 $10.00
Income from investment
operations:
Net investment income 0.22 0.24 0.22 0.22 0.14 0.07
Net realized and unrealized
gains (losses) on investments 2.21 2.90 2.81 0.61 (0.83) 1.47
------- ------- ------- ------- ------- -------
Total from investment
operations 2.43 3.14 3.03 0.83 (0.69) 1.54
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.22) (0.24) (0.22) (0.22) (0.14) (0.07)
Distributions from net
realized gains (1.50) (1.65) (0.77) (0.12) - (0.26)
------- ------- ------- ------- ------- -------
Total distributions (1.72) (1.89) (0.99) (0.34) (0.14) (0.33)
------- ------- ------- ------- ------- -------
Net asset value, end of period $14.05 $13.34 $12.09 $10.05 $9.56 $11.21
======= ======= ======= ======= ======= =======
Total Return 18.28% 26.02% 30.42% 8.80% (6.58)% 15.38%<F2>
======= ======= ======= ======= ======= =======
Supplemental data and ratios:
Net assets, end of
period (000s) $1,082,139 $755,617 $566,723 $295,133 $143,024 $58,446
========== ======== ======== ======== ======== =======
Ratio of expenses to
average net assets
(See Note 6) 0.90% 0.96% 0.99% 1.07% 1.18% N/A
======= ======= ======= ======= ======= =======
Ratio of net expenses
to average
net assets 0.86% 0.90% 0.91% 1.07% 1.18% 1.25%<F3><F4>
======= ======= ======= ======= ======= =======
Ratio of net investment
income to
average net assets 1.54% 1.80% 2.02% 2.49% 1.61% 1.02%<F3><F4>
======= ======= ======= ======= ======= =======
Portfolio turnover rate 69.13% 58.54% 55.37% 49.44% 61.14% 60.43%
======= ======= ======= ======= ======= =======
Average commission rate paid
per share $0.0549 $0.0550 N/A N/A N/A $0.0553
======= ======= ======= ======= ======= =======
<FN>
<F1> Commencement of operations
<F2> Not annualized
<F3> Annualized
<F4> Net of reimbursements. Without the reimbursements, the ratio of net expenses to average net assets would have been 1.71% and
the ratio of net investment income to average net assets would have been 0.56%.
See notes to financial statements
</TABLE>
THE YACKTMAN FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997
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.
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 eight months ended December 31,
1997 was as follows:
NUMBER OF
CONTRACTS PREMIUMS
Options outstanding at 5/1/97 - -
Options written 2,810 $ 844,795
Options closed (1,560) (547,931)
Options exercised - -
Options expired - -
------- ---------
Options outstanding at 12/31/97 1,250 $ 296,864
======= =========
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. Dividends differ from book net
investment income due to the
THE YACKTMAN FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS (cont'd.)
December 31, 1997
nondeductible tax treatment of organization costs. Accordingly, at December 31,
1997 reclassifications were recorded to undistributed net investment income to
reduce capital stock by $21,196 for The Yacktman Focused Fund.
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 period ended December 31, 1997 were as
follows:
THE YACKMAN THE YACKTMAN
FUND FOCUSED FUND
Purchases
U.S. Government $ 93,422,321 $ 8,712,969
Other 698,406,056 53,877,640
Sales
U.S. Government 88,750,938 8,706,401
Other 485,843,002 7,923,516
At December 31, 1997 gross unrealized appreciation and depreciation on
investments on a tax basis were as follows:
THE YACKMAN THE YACKTMAN
FUND FOCUSED FUND
Appreciation $215,593,644 $3,059,816
(Depreciation) (28,762,101) (2,554,401)
------------ -----------
Net appreciation
on investments $186,831,543 $ 505,415
============ ===========
The cost of investments for federal income tax purposes was $890,336,550 and
$58,380,683 for The Yacktman Fund and The Yacktman Focused Fund, respectively.
For distributions paid during the taxable year ended December 31, 1997, The
Yacktman Fund designates $39,400,000 as a 28% rate capital gain distribution and
$29,999,993 as a 20% rate capital gain distribution. For the year ended December
31, 1997, 84% and 51% of dividends paid from net investment income, excluding
short-term capital gains, for The Yacktman Fund and The Yacktman Focused Fund,
respectively, qualify for the dividends received deduction available to
corporate shareholders.
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 year ended December 31, 1997, 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.
THE YACKTMAN FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS (cont'd.)
December 31, 1997
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 year ended December 31, 1997, The Yacktman Fund's
expenses were reduced $364,752 by utilizing directed brokerage credits resulting
in an expense ratio of 0.86% 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 period ended December 31,
1997 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
Dividends Realized
Share Activity Credited on Sale
---------------------------------------------------- to Income of Shares
Balance Balance in Fiscal in Fiscal
Security Name 12/31/96 Purchases Sales 12/31/97 1997 1997
- -------------- -------- ---------- ----- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
American Media,
Inc., Class A 1,200,000 - - 1,200,000 - -
Bandag, Inc.,
Class A 418,500 316,200 - 734,700 $674,018 -
Department 56, Inc. 767,500 1,448,800 426,300 1,790,000 - $3,073,464
Franklin Covey Co. 1,530,000 750,000 10,000 2,270,000 - 4,026
International Dairy
Queen, Inc. 609,200 228,300 42,500 795,000 - 196,561
</TABLE>
THE YACKTMAN FUNDS, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THE YACKTMAN FUNDS, INC.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios 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 and The Yacktman
Focused Fund (constituting The Yacktman Funds, Inc., hereafter referred to as
the "Funds") at December 31, 1997, the results of each of their operations, the
changes in each of their net assets and the financial highlights for each of 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 Funds' 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, 1997 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
/S/Price Waterhouse LLP
Chicago, Illinois
January 28,1998
This page intentionally left blank.
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 53202-5207
