(LOGO)
THE YACKTMAN FUNDS
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ANNUAL REPORT
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December 31, 1998
<PAGE>
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.
<PAGE>
THE YACKTMAN FUNDS, INC.
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MESSAGE TO SHAREHOLDERS
- ----------------------------------------
Dear Fellow 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 $20.82 by the end of the fourth quarter of
1998 - representing an average annual return of about 12%.
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 $12.07 by the end of the fourth quarter
of 1998 - representing an average annual return of about 11.9%.
1998 was an eventful year. For the first time in history the S&P 500 rose over
20% for the fourth year in a row. However, the increase was very unbalanced with
the very large, marketable, growth stocks rising dramatically while many stocks
actually declined. The median stock of the S&P 500 was only up 3.5%.
An example of the unbalanced nature of the current stock market is to compare
Franklin Covey with Amazon.com. While they are close in size as measured by
revenues, Amazon.com is valued at about $25 billion and Franklin Covey about
$500 million. Yet Franklin Covey has much better margins and makes an excellent
return on tangible assets. Amazon.com is losing money.
The total rise in the S&P 500 was caused by a rise in the multiplier or
price/earnings (P/E) ratio. (Price is a function of earnings X price/earnings.)
The improvement in estimated earnings of the businesses in the Funds from the
beginning of 1998 to the beginning of 1999 was better than those of the S&P 500.
However, the P/E ratio of the S&P went from 19.0 to 26.4 while the P/E ratios of
the companies in the Funds, on average, went down. Thus, our Funds are now
selling at 48% and 50% discounts to the S&P.
<PAGE>
THE YACKTMAN FUNDS, INC.
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DISCOUNT DISCOUNT
12/97 FROM THE 12/98 FROM THE
P/E<F1> S&P 500 P/E<F1> S&P 500
RATIOS P/E<F1> RATIOS P/E<F1>
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The Yacktman Fund 14.9 22% 13.7 48%
The Yacktman Focused Fund 14.2 25% 13.1 50%
S&P 500 19.0 - 26.4 -
<F1>P/E is Price/Earnings
- --------------------------------------------------------------------------------
12/97 P/E ratios are based on estimates for 1998 and 12/98 P/E ratios are based
on estimates for 1999. The estimated earnings for the above P/E ratios are
provided by Zacks Investment Research, if available, or by internal estimates.
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We feel such discounts are simply not sustainable since the businesses we own
are both more profitable than and are growing faster than the S&P 500. To put
this gap in valuations in perspective, had our Funds' P/E ratios discount to the
S&P merely remained steady at 22% and 25%, the Funds' net asset values would be
more than 40% higher today. If our Funds' P/E ratios went to parity with the S&P
500, their net asset values would be about 100% higher. Thus, we remain highly
confident in our investment strategy of buying very profitable, unpopular
businesses which have excellent long-term potential.
I want to apologize for the many mailings we had to send out to complete the
recent proxy solicitation. Having about twelve accounts in our household, I know
what our mailbox looked like. We also got calls at dinnertime like you probably
did. We want to thank you for your support in selecting new directors for the
Funds. I have known each of these men for at least twenty years and can vouch
for their integrity. They are outstanding men and will serve us all well.
Sincerely,
/s/Donald A. Yacktman
Donald A. Yacktman
President
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<PAGE>
THE YACKTMAN FUND AVERAGE ANNUAL RETURNS
- ----------------------------------------
One Year (1/1/98 - 12/31/98) 0.6%
Three Years (1/1/96 - 12/31/98) 14.5%
Five Years (1/1/94 - 12/31/98) 16.3%
Since Inception (7/6/92) 12.0%
The Yacktman S&P 500 Stock
Fund Index <F1>
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7/6/92 10,000 10,000
12/31/92 10,472 10,679
12/31/93 9,783 11,756
12/31/94 10,644 11,911
12/31/95 13,881 16,387
12/31/96 17,493 20,150
12/31/97 20,691 26,873
12/31/98 20,822 34,552
THE YACKTMAN FOCUSED FUND AVERAGE ANNUAL RETURNS
- ------------------------------------------------
One Year (1/1/98 - 12/31/98) 4.6%
Since Inception (5/1/97) 11.9%
The Yacktman S&P 500 Stock
Focused Fund Index <F1>
------------ -------------
5/1/97 10,000 10,000
12/31/97 11,538 12,256
12/31/98 12,067 15,759
<F1> The S&P 500 is an unmanaged but commonly used measure of common stock total
return performance.
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 Funds will fluctuate so that your shares, when redeemed,
may be worth more or less than their original cost.
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<PAGE>
THE YACKTMAN FUND
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TOP TWELVE EQUITY HOLDINGS
December 31, 1998
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PERCENTAGE OF
NET ASSETS
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Philip Morris Cos., Inc. 11.0%
First Data Corp. 10.9%
Department 56, Inc. 10.6%
Dentsply International, Inc. 9.0%
Franklin Covey Co. 7.8%
First Health Group Corp. 5.0%
United Asset Management Corp. 4.9%
Reebok International Ltd. 4.5%
Intimate Brands, Inc. 4.3%
Jostens, Inc. 4.3%
Bandag, Inc., Class A 3.9%
Block H&R, Inc. 3.4%
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TOTAL 79.6%
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<PAGE>
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PURCHASES & SALES
For the Quarter Ended December 31, 1998
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NET SHARES CURRENT
PURCHASES PURCHASED SHARES HELD
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Luxottica Group ADR 91,000 400,000
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NET SHARES CURRENT
SALES SOLD SHARES HELD
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American Media, Inc., Class A 203,200 996,800
Bandag, Inc., Class A 380,100 347,700
Block H&R, Inc. 170,000 230,000
Clorox Co. 150,000 50,000
Dentsply International, Inc. 681,700 1,070,000
Department 56, Inc. 540,000 870,000
First Data Corp. 1,590,000 1,060,000
First Health Group Corp. 80,000 920,000
Franklin Covey Co. 670,500 1,429,500
Fruit of the Loom, Inc. 250,000 650,000
Intimate Brands, Inc. 711,800 445,200
Jenny Craig, Inc. 93,800 750,000
Jostens, Inc. 400,000 500,000
King World Productions, Inc. 50,000 200,000
Nielsen Media Research 57,900 -
Philip Morris Cos., Inc. 870,000 630,000
Reebok International Ltd. 527,500 922,500
Reuters Holdings ADS 100,000 -
Rollins, Inc. 490,700 450,000
Selective Insurance Group 570,000 -
Tupperware Corp. 480,000 300,000
United Asset Management Corp. 412,900 580,000
Valassis Communications, Inc. 146,400 189,000
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<PAGE>
THE YACKTMAN FUND
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PORTFOLIO OF INVESTMENTS
December 31, 1998
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NUMBER
OF SHARES VALUE
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COMMON STOCKS - 98.4%
APPAREL/SHOES - 7.4%
Fruit of the Loom, Inc.<F1> 650,000 $ 8,978,125
Reebok International Ltd.<F1> 922,500 13,722,187
------------
22,700,312
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CONSUMER GOODS - 1.6%
Luxottica Group ADR 400,000 4,800,000
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EDUCATIONAL SERVICES - 12.0%
Franklin Covey Co.<F1><F2> 1,429,500 23,944,125
Jostens, Inc. 500,000 13,093,750
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37,037,875
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FINANCIAL SERVICES - 15.8%
First Data Corp. 1,060,000 33,588,750
United Asset Management Corp. 580,000 15,080,000
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48,668,750
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FOOD/TOBACCO - 11.0%
Philip Morris Cos., Inc. 630,000 33,705,000
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HOME FURNISHINGS - 10.6%
Department 56, Inc.<F1><F2> 870,000 32,679,375
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HOUSEHOLD PRODUCTS - 3.5%
Clorox Co. 50,000 5,840,625
Tupperware Corp. 300,000 4,931,250
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10,771,875
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MEDIA - 3.7%
American Media, Inc., Class A<F1><F2> 996,800 5,544,700
King World Productions, Inc.<F1> 200,000 5,887,500
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11,432,200
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MEDICAL SERVICES - 5.0%
First Health Group Corp.<F1> 920,000 15,237,500
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<PAGE>
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NUMBER
OF SHARES VALUE
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MEDICAL SUPPLIES - 9.0%
Dentsply International, Inc. 1,070,000 $27,552,500
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RETAILING - 4.3%
Intimate Brands, Inc. 445,200 13,300,350
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SERVICES - 10.6%
Block H&R, Inc. 230,000 10,350,000
Jenny Craig, Inc.<F1> 750,000 4,500,000
Rollins, Inc. 450,000 7,875,000
Valassis Communications, Inc.<F1> 189,000 9,757,125
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32,482,125
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TIRES AND RUBBER - 3.9%
Bandag, Inc., Class A<F2> 347,700 12,126,038
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Total Common Stocks
(cost $255,894,079) 302,493,900
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Other Assets less Liabilities - 1.6% 4,936,440
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Net Assets - 100% (equivalent
to $11.61 per share based on
26,489,936 shares outstanding) $307,430,340
============
<F1> Non-income producing
<F2> Affiliated company - See Note 7
See notes to financial statements
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<PAGE>
THE YACKTMAN FOCUSED FUND
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PURCHASES & SALES
For the Quarter Ended December 31, 1998
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NET SHARES CURRENT
PURCHASES PURCHASED SHARES HELD
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No equity securities were purchased during the quarter ended December 31, 1998.
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NET SHARES CURRENT
SALES SOLD SHARES HELD
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Dentsply International, Inc. 60,000 50,000
Department 56, Inc. 190,000 160,000
First Data Corp. 135,000 75,000
First Health Group Corp. 24,000 81,000
Franklin Covey Co. 90,000 130,000
Fruit of the Loom, Inc. 28,000 72,000
Intimate Brands, Inc. 55,200 44,800
Jostens, Inc. 55,000 45,000
Philip Morris Cos., Inc. 115,000 50,000
Reebok International Ltd. 12,500 87,500
Rollins, Inc. 90,000 50,000
United Asset Management Corp. 60,000 50,000
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<PAGE>
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PORTFOLIO OF INVESTMENTS
December 31, 1998
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NUMBER
OF SHARES VALUE
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COMMON STOCKS - 83.4%
APPAREL/SHOES - 8.4%
Fruit of the Loom, Inc.<F1> 72,000 $ 994,500
Reebok International Ltd.<F1> 87,500 1,301,563
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2,296,063
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EDUCATIONAL SERVICES - 12.2%
Franklin Covey Co.<F1> 130,000 2,177,500
Jostens, Inc. 45,000 1,178,437
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3,355,937
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FINANCIAL SERVICES - 13.4%
First Data Corp. 75,000 2,376,562
United Asset Management Corp. 50,000 1,300,000
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3,676,562
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FOOD/TOBACCO - 9.8%
Philip Morris Cos., Inc. 50,000 2,675,000
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HOME FURNISHINGS - 21.9%
Department 56, Inc.<F1> 160,000 6,010,000
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MEDICAL SERVICES - 4.9%
First Health Group Corp.<F1> 81,000 1,341,563
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MEDICAL SUPPLIES - 4.7%
Dentsply International, Inc. 50,000 1,287,500
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RETAILING - 4.9%
Intimate Brands, Inc. 44,800 1,338,400
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SERVICES - 3.2%
Rollins, Inc. 50,000 875,000
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Total Common Stocks
(cost $22,476,539) 22,856,025
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<PAGE>
THE YACKTMAN FOCUSED FUND
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PORTFOLIO OF INVESTMENTS (Cont'd.)
December 31, 1998
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PRINCIPAL
AMOUNT VALUE
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DEMAND NOTES
(VARIABLE RATE) - 13.8%
American Family Financial Services $313,463 $ 313,463
General Mills, Inc. 593,596 593,596
Pitney Bowes Credit Corp. 765,816 765,816
Sara Lee Corp. 700,058 700,058
Warner-Lambert, Inc. 549,533 549,533
Wisconsin Corp. Central Credit Union 194,452 194,452
Wisconsin Electric Power Co. 676,611 676,611
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Total Demand Notes
(cost $3,793,529) 3,793,529
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NUMBER
OF CONTRACTS VALUE
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PUT OPTIONS PURCHASED - 0.2%
Philip Morris Cos., Inc.
Expiring Jan. 1999 @ $33.375 600 15,000
Expiring Jan. 2000 @ $30.00 200 10,000
Expiring Jan. 2000 @ $35.00 200 16,250
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Total Put Options Purchased
(cost $228,912) 41,250
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Total Investments - 97.4%
(cost $26,498,980) 26,690,804
Other Assets less Liabilities - 2.6% 716,522
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Net Assets - 100% (equivalent
to $11.62 per share based on
2,359,438 shares outstanding) $27,407,326
============
<F1> Non-income producing
See notes to financial statements
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This page intentionally left blank.
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<PAGE>
THE YACKTMAN FUNDS, INC.
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STATEMENTS OF ASSETS & LIABILITIES
December 31, 1998
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THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
- --------------------------------------------------------------------------------
ASSETS:
Investments at value
Nonaffiliated issuers
(cost $189,681,991, and
$26,498,980, respectively) $228,199,662 $26,690,804
Affiliated issuers
(cost $66,212,088, and
$0, respectively) 74,294,238 -
Receivable for securities sold 4,542,080 605,789
Receivable for fund shares issued 1,249,610 20,659
Dividends and interest receivable 742,506 52,441
Other assets 36,868 22,933
Due from adviser - 205,023
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Total Assets 309,064,964 27,597,649
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LIABILITIES:
Payable for fund shares redeemed 543,682 31,863
Accrued printing expense 434,425 45,048
Accrued professional fees 289,315 64,164
Accrued investment
advisory fees 182,362 -
Other accrued expenses 184,840 49,248
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Total Liabilities 1,634,624 190,323
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NET ASSETS $307,430,340 $27,407,326
============ ============
NET ASSETS CONSIST OF:
Capital stock $260,020,640 $27,913,701
Undistributed net
investment income - 4,341
Undistributed net realized
gains (losses) 809,879 (702,540)
Net unrealized appreciation
on investments 46,599,821 191,824
------------ ------------
Total Net Assets $307,430,340 $27,407,326
============ ============
CAPITAL STOCK, $.0001 par value
Authorized 500,000,000 500,000,000
Issued and outstanding 26,489,936 2,359,438
NET ASSET VALUE,
REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $11.61 $11.62
====== ======
See notes to financial statements
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<PAGE>
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STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1998
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THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
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INVESTMENT INCOME:
Dividend income (See Note 7) $ 13,494,477<F1> $ 587,313
Interest income 1,275,882 424,897
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14,770,359 1,012,210
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EXPENSES:
Investment advisory fees 4,644,643 584,540
Professional fees 1,077,715 173,328
Shareholder servicing fees 1,015,908 111,855
Reports to shareholders 786,114 84,434
12b-1 plan distribution fees 405,796 -
Administration and
accounting fees 314,789 50,000
Custody fees 137,915 16,822
Federal and state
registration fees 39,795 27,193
Directors' fees and expenses 35,941 3,244
Miscellaneous costs 70,627 7,803
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Total expenses before reductions
and reimbursements 8,529,243 1,059,219
Expense reductions (See Note 6) (144,424) -
Expense reimbursements
(See Note 4) - (328,543)
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Net expenses 8,384,819 730,676
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NET INVESTMENT INCOME 6,385,540 281,534
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REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized gain (loss) on:
Investments (See Note 7) 117,189,782 (468,328)
Written put options - 14,957
Change in unrealized
appreciation on
investments (140,832,711) (150,767)
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Net loss (23,642,929) (604,138)
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NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(17,257,389) $ (322,604)
============= ============
<F1> Net of $62,527 in foreign withholding taxes
See notes to financial statements
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<PAGE>
THE YACKTMAN FUNDS, INC.
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- ----------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
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THE YACKTMAN
THE YACKTMAN FUND FOCUSED FUND
- --------------------------------------------- ------------------------------------- ---------------------------------------
YEAR YEAR YEAR MAY 1, 1997 <F1>
ENDED ENDED ENDED THROUGH
DEC. 31, 1998 DEC. 31, 1997 DEC. 31, 1998 DEC. 31, 1997
- --------------------------------------------- ------------------------------------- -----------------------------------------
<C> <C> <C> <C>
OPERATIONS:
Net investment income $ 6,385,540 $ 15,666,225 $ 281,534 $ 223,785
Net realized gain (loss) on investments
and written put options 117,189,782 105,107,464 (453,371) 1,325,551
Change in net unrealized appreciation
on investments and written put options (140,832,711) 43,289,598 (150,767) 342,591
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations (17,257,389) 164,063,287 (322,604) 1,891,927
-------------- -------------- -------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 86,130,974 519,726,430 32,292,848 62,749,613
Proceeds from reinvestment of dividends 56,952,842 111,934,459 326,022 1,425,206
-------------- -------------- -------------- --------------
143,083,816 631,660,889 32,618,870 64,174,819
Payments for shares redeemed (839,635,901) (348,444,175) (62,964,728) (6,062,180)
-------------- -------------- -------------- --------------
Net increase (decrease) (696,552,085) 283,216,714 (30,345,858) 58,112,639
-------------- -------------- -------------- --------------
DIVIDENDS PAID FROM:
Net investment income (6,409,477) (15,657,189) (249,256) (243,505)
Net realized gains (54,490,030) (105,100,153) (121,017) (1,315,000)
-------------- -------------- -------------- --------------
(60,899,507) (120,757,342) (370,273) (1,558,505)
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (774,708,981) 326,522,659 (31,038,735) 58,446,061
NET ASSETS:
Beginning of period 1,082,139,321 755,616,662 58,446,061 -
-------------- -------------- -------------- --------------
End of period (including undistributed
net investment income of $0, $23,937,
$4,341 and $1,476, respectively) $ 307,430,340 $1,082,139,321 $27,407,326 $58,446,061
============== ============== ============== ==============
TRANSACTIONS IN SHARES:
Shares sold 6,142,954 35,997,446 2,782,296 5,618,285
Issued in reinvestment of dividends 4,821,905 7,895,132 28,033 125,719
Shares redeemed (61,477,171) (23,525,455) (5,663,019) (531,876)
-------------- -------------- -------------- --------------
Net increase (decrease) (50,512,312) 20,367,123 (2,852,690) 5,212,128
============== ============== ============== ==============
<F1> Commencement of operations
See notes to financial statements
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</TABLE>
<PAGE>
THE YACKTMAN FUNDS, INC.
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FINANCIAL HIGHLIGHTS
For a fund share outstanding throughout each period.
<PAGE>
<TABLE>
<CAPTION>
THE YACKTMAN FUND
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YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, 1998 DEC. 31, 1997 DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Net asset value, beginning
of period $14.05 $13.34 $12.09 $10.05 $9.56
Income from investment
operations:
Net investment income 0.11 0.22 0.24 0.22 0.22
Net realized and unrealized
gain (loss) on investments (0.04) 2.21 2.90 2.81 0.61
---------- ---------- ---------- ---------- ----------
Total from investment
operations 0.07 2.43 3.14 3.03 0.83
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net
investment income (0.11) (0.22) (0.24) (0.22) (0.22)
Distributions from net
realized gains (2.40) (1.50) (1.65) (0.77) (0.12)
---------- ---------- ---------- ---------- ----------
Total distributions (2.51) (1.72) (1.89) (0.99) (0.34)
---------- ---------- ---------- ---------- ----------
Net asset value, end of
period $11.61 $14.05 $13.34 $12.09 $10.05
========== ========== ========== ========== ==========
Total Return 0.64% 18.28% 26.02% 30.42% 8.80%
========== ========== ========== ========== ==========
Supplemental data and ratios:
Net assets, end of period (000s) $307,430 $1,082,139 $755,617 $566,723 $295,133
========== ========== ========== ========== ==========
Ratio of expenses before expense
reductions to average net assets
(See Note 6) 1.16% 0.90% 0.96% 0.99% 1.07%
========== ========== ========== ========== ==========
Ratio of net expenses to average
net assets 1.14% 0.86% 0.90% 0.91% 1.07%
========== ========== ========== ========== ==========
Ratio of net investment income
to average net assets 0.87% 1.54% 1.80% 2.02% 2.49%
========== ========== ========== ========== ==========
Portfolio turnover rate 14.32% 69.13% 58.54% 55.37% 49.44%
========== ========== ========== ========== ==========
See notes to financial statements
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</TABLE>
<PAGE>
THE YACKTMAN FUNDS, INC.
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- ----------------------------------------
FINANCIAL HIGHLIGHTS (Cont'd.)
For a fund share outstanding throughout each period.
THE YACKTMAN
FOCUSED FUND
- -------------------------------------------------------------------------------
YEAR MAY 1, 1997 <F1>
ENDED THROUGH
DEC. 31, 1998 DEC. 31, 1997
- --------------------------------------------------------------------------------
Net asset value, beginning
of period $11.21 $10.00
Income from investment
operations:
Net investment income 0.05 0.07
Net realized and unrealized
gains on investments 0.46 1.47
---------- ----------
Total from investment
operations 0.51 1.54
---------- ----------
Less distributions:
Dividends from net
investment income (0.05) (0.07)
Distributions from net
realized gains (0.05) (0.26)
---------- ----------
Total distributions (0.10) (0.33)
---------- ----------
Net asset value, end of
period $11.62 $11.21
========== ==========
Total Return 4.58% 15.38%<F2>
========== ==========
Supplemental data and ratios:
Net assets, end of period (000s) $27,407 $58,446
========== ==========
Ratio of expenses before expense
reimbursements to average net
assets (See Note 4) 1.81% 1.71%
========== ==========
Ratio of net expenses to average
net assets 1.25% 1.25%<F3>
========== ==========
Ratio of net investment income
to average net assets 0.48% 1.02%<F3>
========== ==========
Portfolio turnover rate 49.26% 60.43%
========== ==========
<F1> Commencement of operations
<F2> Not annualized
<F3> Annualized
See notes to financial statements
<PAGE>
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NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
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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 Manage ment 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.
<PAGE>
THE YACKTMAN FUNDS, INC.
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- ----------------------------------------
NOTES TO THE FINANCIAL STATEMENTS (Cont'd.)
December 31, 1998
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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. When an option is exercised, the premium originally received
decreases the cost basis of the security acquired. 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
year ended December 31, 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 (1,350) (272,241)
Options exercised (450) (111,683)
Options expired (250) (35,311)
---------- ----------
Options outstanding at 12/31/98 - $ -
========== ==========
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. The Funds also utilize earn-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ings and profits distributed to shareholders on redemption of shares as a part
of the dividends paid deduction for income tax purposes. Accordingly, at
December 31, 1998 reclassifications were recorded to decrease undistributed net
investment income by $0 and $29,413, decrease undistributed net realized gains
by $61,443,982 and $138,703 and increase capital stock by $61,443,982 and
$168,116 for The Yacktman Fund and The Yacktman Focused Fund, respectively. For
the year ended December 31, 1998, The Yacktman Fund designated $116,622,514 as
capital gain distributions for purposes of the dividends paid deduction.
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 year ended December 31, 1998 were as follows:
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
Purchases
U.S. Government - -
Other $100,694,119 $24,365,326
Sales
U.S. Government 4,500,000 -
Other 780,686,766 48,190,108
At December 31, 1998 gross unrealized appreciation and depreciation on
investments on a tax basis were as follows:
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
Appreciation $78,943,387 $4,198,297
Depreciation (32,377,287) (4,100,071)
------------ ------------
Net appreciation on investments $46,566,100 $ 98,226
============ ============
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<PAGE>
THE YACKTMAN FUNDS, INC.
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- ----------------------------------------
NOTES TO THE FINANCIAL STATEMENTS (Cont'd.)
December 31, 1998
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The cost of investments for federal income tax purposes was $255,927,800 and
$26,592,578 for The Yacktman Fund and The Yacktman Focused Fund, respectively.
For the year ended December 31, 1998, 100% of dividends paid from net investment
income, excluding short-term capital gains, for The Yacktman Fund and The
Yacktman Focused Fund qualify for the dividends received deduction available to
corporate shareholders (unaudited).
4. INVESTMENT ADVISORY AGREEMENT
The Funds have agreements with the Adviser, with whom certain officers and
directors of the Funds 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. The Plan, however, was terminated November 24, 1998,
as a result of a special meeting of shareholders. For the year ended December
31, 1998, payments under the Plan represented 0.06% 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 were 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.
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<PAGE>
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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, 1998, The Yacktman Fund's
expenses were reduced $144,424 by utilizing directed brokerage credits resulting
in an expense ratio of 1.14% 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,
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
Gain
Amount of (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 12/31/98 1998 1998
- ------------------ ----------- ----------- ----------- ----------- ----------- -----------
<C> <C> <C> <C> <C> <C> <C>
American Media,
Inc., Class A 1,200,000 -- 203,200 996,800 -- $ (479,812)
Bandag, Inc.,
Class A 734,700 -- 387,000 347,700 $705,222 (6,858,696)
Department 56, Inc. 1,790,000 70,000 990,000 870,000 -- 9,924,193
Franklin Covey Co. 2,270,000 86,400 926,900 1,429,500 -- (2,938,276)
International Dairy
Queen, Inc. 795,000 -- 795,000 -- -- 6,105,751
------------ ------------
$705,222 $5,753,160
============ ============
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE YACKTMAN FUNDS, INC.
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REPORT OF INDEPENDENT ACCOUNTANTS
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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, 1998, 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, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
January 28, 1999
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<PAGE>
- ----------------------------------------
- ----------------------------------------
RESULTS OF A SPECIAL
MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A special meeting of the shareholders of the Funds was held on November 24,
1998.
The matters voted on by the shareholders of record as of October 12, 1998 and
the results of the vote at the shareholder meeting held November 24, 1998 were
as follows:
1. PROPOSAL TO REMOVE ALL CURRENT DIRECTORS OF THE FUNDS OTHER THAN RONALD BALL
AND DONALD YACKTMAN
For Against Abstain
---------- ---------- ----------
21,391,378 2,717,048 180,877
2. PROPOSAL TO AMEND THE FUNDS' BYLAWS TO REDUCE THE NUMBER OF DIRECTORS OF THE
FUNDS FROM SIX TO FIVE
For Against Abstain
---------- ---------- ----------
21,210,980 2,821,739 256,586
3. ELECTION OF DIRECTORS<F1>
For Withheld
---------- ----------
Bruce B. Bingham 21,279,348 3,009,957
Albert J. Malwitz 21,279,348 3,009,957
George J. Stevenson III 21,277,946 3,011,359
<F1> The term of office as Directors of Donald A. Yacktman and Ronald W. Ball
continued after the meeting.
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<PAGE>
FOR FUND INFORMATION AND
SHAREHOLDER SERVICES, CALL
1-800-525-8258
WEB SITE: WWW.YACKTMAN.COM
THE YACKTMAN FUNDS, INC.
Shareholder Services Center
615 East Michigan Street, 3rd Floor
Milwaukee, Wisconsin 53201-5207
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YA-408-0299
