Securities Act Registration No. 33-47044
Investment Company Act Reg. No. 811-6628
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 10 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 11 |X|
(Check appropriate box or boxes.)
-----------------------------------
THE YACKTMAN FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
303 West Madison Street
Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 201-1200
(Registrant's Telephone Number, including Area Code)
Copy to:
Donald A. Yacktman Richard L. Teigen
Yacktman Asset Mangement Co. Foley & Lardner
303 West Madison Street 777 East Wisconsin Avenue
Chicago, Illinois 60606 Milwaukee, Wisconsin 53202
---------------------------------------- --------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
It is proposed that this filing become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
|X| on April 30, 1999 pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
P R O S P E C T U S
April 30, 1999
The Yacktman Funds
The Yacktman Funds are no load mutual funds seeking long-term capital
appreciation and, to a lesser extent, current income. The Yacktman Funds are:
o The Yacktman Fund
o The Yacktman Focused Fund
Please read this Prospectus and keep it for future reference. It
contains important information, including information on how the Yacktman Funds
invest and the services they offer to shareholders.
- --------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The Yacktman Funds, Inc.
303 West Madison Street
Chicago, Illinois 60606
(800) 525-8258
TABLE OF CONTENTS
Questions Every Investor Should Ask
Before Investing in The Yacktman Funds
Fees and Expenses................................................
Investment Objective and Strategies..............................
Management of the Funds..........................................
The Funds' Share Price ..........................................
Purchasing Shares................................................
Redeeming Shares.................................................
Exchanging Shares................................................
Dividends, Distributions and Taxes...............................
Financial Highlights.............................................
<PAGE>
QUESTIONS EVERY INVESTOR SHOULD ASK BEFORE
INVESTING IN THE YACKTMAN FUNDS
1. What are the Funds' Goals?
Both Funds seek long-term capital appreciation and, to a lesser extent,
current income.
2. What are the Funds' Principal Investment Strategies?
The Funds mainly invest in common stocks of United States companies, some,
but not all of which, pay dividends. Our investment adviser employs a
simple, but disciplined investment strategy. We buy growth companies at
what we believe to be low prices. We think this conservative approach
combines the best features of "growth" and "value" investing. The Focused
Fund differs from The Yacktman Fund in that it holds fewer securities. The
Yacktman Focused Fund usually holds fewer than 20 securities, other than
money market investments. The Yacktman Fund typically will hold every
security held by the Focused Fund.
3. What are the Principal Risks in Investing in the Funds?
Investors in the Funds may lose money. There are risks associated with
investments in the types of securities in which the Funds invest. These
risks include:
o Market Risk: The prices of the securities in which the Funds invest
may decline for a number of reasons. The price declines of common
stocks, in particular, may be steep, sudden and/or prolonged.
o Smaller Capitalization Companies Risk: Smaller capitalization
companies typically have relatively lower revenues, limited product
lines and lack of management depth, and may have a smaller share of
the market for their products or services, than larger capitalization
companies. The stocks of smaller capitalization companies tend to have
less trading volume than stocks of larger capitalization companies.
Less trading volume may make it more difficult for our investment
adviser to sell securities of smaller capitalization companies at
quoted market prices. Finally, there are periods when investing in
smaller capitalization stocks falls out of favor with investors and
the stocks of smaller capitalization companies underperform.
o Value Investing Risk: From time to time "value" investing falls out of
favor with investors. When it does, there is the risk that the market
will not recognize a company's improving fundamentals as quickly as it
normally would. During these periods, the Funds' relative performance
may suffer.
-2-
<PAGE>
o Non-diversification Risk: The Focused Fund is a non-diversified
investment company. As such it likely will invest in fewer securities
than diversified investment companies and its performance may be more
volatile. If the securities in which the Focused Fund invests perform
poorly, the Focused Fund could incur greater losses than it would have
had it invested in a greater number of securities.
Because of these risks the Funds are a suitable investment only for those
investors who have long-term investment goals. Prospective investors who
are uncomfortable with an investment that will increase and decrease in
value should not invest in the Funds.
4. How have the Funds Performed?
The bar charts and tables that follow provide some indication of the risks
of investing in the Yacktman Funds by showing changes in each Fund's
performance from year to year and how its average annual returns over
various periods compare to the performance of the Standard & Poor's
Composite Index of 500 Stocks. Please remember that each Fund's past
performance is not necessarily an indication of its future performance. It
may perform better or worse in the future.
The Yacktman Fund
(Total Return per calendar year)
30.42%
30%
26.02%
20%
18.28%
10%
8.80%
0.64%
------------------------------------------------------
0%
-6.58%
-10%
1993 1994 1995 1996 1997 1998
- ---------------
Note: During the 6 year period shown on the bar chart, the Fund's highest
total return for a quarter was 16.09% (quarter ended December 31, 1998)
and the lowest total return for a quarter was -16.39% (quarter ended
September 30, 1998).
-3-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Returns
(for the periods ending December Since the inception date of
31, 1998) Past Year Past 5 Years the Fund (July 6, 1992)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Yacktman Fund 0.64% 16.31% 11.96%
S&P 500* 28.58% 24.06% 21.04%
- ---------------
*The S&P 500 is the Standard & Poor's Composite Index of 500 Stocks, a widely
recognized unmanaged index of common stock prices.
</TABLE>
The Yacktman Focused Fund
(Total Return per calendar year)
10%
4.58%
0%
----------------------------
-10%
1998
- ---------------
Note: During the one year period shown on the bar chart, the Fund's highest
total return for a quarter was 15.45% (quarter ended December 31, 1998)
and the lowest total return for a quarter was -16.28% (quarter ended
September 30, 1998).
Average Annual Total Returns
(for the periods ending December Since the inception date of the
31, 1998) Past Year Fund (May 1, 1997)
- --------------------------------------------------------------------------------
The Yacktman Focused Fund 4.58% 11.90%
S&P 500 28.58% 31.28%
-4-
<PAGE>
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you
buy and hold shares of the Yacktman Funds.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment)
The Yacktman Fund The Yacktman Focused Fund
<S> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price).................. No Sales Charge No Sales Charge
Maximum Deferred Sales Charge (Load)............. No Deferred Sales Charge No Deferred Sales Charge
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
And Distributions.............................. No Sales Charge No Sales Charge
Redemption Fee................................... None (1) None (1)
Exchange Fee..................................... None (2) None (2)
- ---------------------
(1) Our transfer agent charges a fee of $12.00 for each wire redemption.
(2) Our transfer agent charges a fee of $5.00 for each telephone exchange.
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<S> <C> <C>
Management Fees.................................. 0.63% 1.00%
Distribution and/or Service (12b-1) Fees......... 0.00% (1) 0.00%
Other Expenses................................... 0.45% 0.81%
Total Annual Fund Operating Expenses............. 1.08% 1.81%(2)
- ---------------
(1) We have restated "Distribution and/or Service (12b-1) Fees" to reflect the
fact that The Yacktman Fund's 12b-1 Plan terminated November 24, 1998.
(2) Since inception our Adviser has waived the advisory fee it receives from
The Yacktman Focused Fund to the extent necessary to ensure that its Total
Fund Operating Expenses do not exceed 1.25% of the Fund's average daily
net assets. Our Adviser may discontinue these waivers at any time, but
will not do so prior to December 31, 1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in
the Yacktman Funds with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in a Fund for the time
periods indicated and then redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
-5-
<PAGE>
1 Year 3 Years 5 Years 10 Years
The Yacktman Fund $110 $343 $595 $1,317
The Yacktman Focused Fund $184 $569 $980 $2,127
INVESTMENT OBJECTIVE AND STRATEGIES
Each of the Funds seeks long-term capital appreciation, and, to a
lesser extent, current income. Each Fund may change its investment objective
without obtaining shareholder approval. Please remember that an investment
objective is not a guarantee. An investment in the Yacktman Funds might not
appreciate and investors could lose money.
The Funds mainly invest in common stocks of United States companies,
some, but not all of which, pay dividends. However, each may, in response to
adverse market, economic, political or other conditions, take temporary
defensive positions. This means a Fund will invest some or all of its assets in
money market instruments (like U.S. Treasury Bills, commercial paper or
repurchase agreements). The Funds will not be able to achieve their investment
objective of capital appreciation to the extent that they invest in money market
instruments since these securities earn interest but do not appreciate in value.
When a Fund is not taking a temporary defensive position, it still will hold
some cash and money market instruments so that it can pay its expenses, satisfy
redemption requests or take advantage of investment opportunities.
Our investment adviser employs a simple, but disciplined investment
strategy. We buy growth companies at what we believe to be low prices. We think
this conservative approach combines the best features of "growth" and "value"
investing. When we purchase stocks we look for companies with the following
three attributes:
[insert logo - triangle with sides labeled "Good Business",
"Shareholder Oriented Management" and "Low Purchase Price"]
Good Business
A good business may contain one or more of the following:
o High market share in principal product and/or service lines
o A high cash return on tangible assets
o Relatively low capital requirements allowing a business to
generate cash while growing
o Short customer repurchase cycles and long product cycles
o Unique franchise characteristics
-6-
<PAGE>
Shareholder Oriented Management
We believe a shareholder-oriented management doesn't overcompensate
itself and allocates wisely the cash the company generates. We look for
companies that:
o Reinvest in the business and still have excess cash
o Make synergistic acquisitions
o Buy back stock Low Purchase Price
o We look for a stock that sells for less than what an investor
would pay to buy the whole company.
o The stock prices of many companies vary by 50% or more from
low to high each year so we wait for buying opportunities.
We follow many more companies than we actually buy. Since our
investment adviser is a disciplined investor, we will increase our cash position
if we cannot find companies that meet our investment requirements.
Each of the Funds will hold fewer stocks than the typical stock mutual
fund. In fact, the Focused Fund usually holds fewer than 20 stocks. We do this
because we are know something investors. We think it makes sense to invest more
in our top choices than in investments we think are less attractive.
We buy companies of any size market capitalization. If all else is
equal, we prefer larger companies to smaller companies.
The Focused Fund may purchase put options on specific stocks to hedge
against losses caused by declines in the prices of stocks in its portfolio. Also
the Focused Fund may write put options on specific stocks to generate income,
but only if it is willing to purchase the stock at the exercise price.
Our investment adviser is a patient investor. We do not attempt to
achieve our investment objectives by active and frequent trading of common
stocks.
-7-
<PAGE>
MANAGEMENT OF THE FUND
Yacktman Asset Management Co. manages the Funds' investments.
Yacktman Asset Management Co. (the "Adviser") is the investment adviser
to each of the Yacktman Funds. The Adviser's address is:
303 West Madison Street
Chicago, Illinois 60606
As the investment adviser to the Funds, the Adviser manages the
investment portfolio of each Fund. It makes the decisions as to which securities
to buy and which securities to sell. During the last fiscal year, each Fund paid
the Adviser an annual investment advisory fee equal to the following percentages
of average net assets:
The Yacktman Fund 0.63%
The Yacktman Focused Fund 1.00%
The investment advisory fee paid by the Yacktman Fund ranges from 0.65% to 0.50%
depending on asset levels.
Donald A. Yacktman is primarily responsible for the day-to-day
management of the portfolios of the Funds and has been so since their inception.
He is the portfolio manager. Mr. Yacktman has been President of the Adviser
since its organization in 1992. He was an officer and portfolio manager from
April 1982 through March 11, 1992 with Selective Financial Services, Inc., and a
portfolio manager from 1968 to 1982 with Stein Roe & Farnham, where he was also
a partner from 1974 to 1982.
Year 2000
The Funds are addressing the "Year 2000" issue. The "Year 2000" issue
stems from the use of a two-digit format to define the year in certain
date-sensitive computer application systems rather than the use of a four digit
format. As a result, date-sensitive software programs could recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
major systems or process failures or the generation of erroneous data, which
would lead to disruptions in the Funds' business operations.
The Funds have no application systems of their own and are entirely
dependent on their service providers' systems and software. The Funds are
working with their service providers (including the Adviser, their
administrator, transfer agent and custodian) to identify and remedy any Year
2000 issues. However, the Funds cannot guarantee that all Year 2000 issues will
be identified and remedied, and the failure to successfully identify and remedy
all Year 2000 issues could result in an adverse impact on the Funds.
-8-
<PAGE>
THE FUNDS' SHARE PRICE
The price at which investors purchase shares of each Fund and at which
shareholders redeem shares of each Fund is called its net asset value. Each Fund
calculates its net asset value as of the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m. Eastern Time) on each day the New York
Stock Exchange is open for trading. The New York Stock Exchange is closed on
holidays and weekends. Each Fund calculates its net asset value based on the
market prices of the securities (other than money market instruments) it holds.
Each Fund values most money market instruments it holds at their amortized cost.
Each Fund will process purchase orders that it receives and accepts and
redemption orders that it receives prior to the close of regular trading on a
day that the New York Stock Exchange is open at the net asset value determined
later that day. It will process purchase orders that it receives and accepts and
redemption orders that it receives after the close of regular trading at the net
asset value determined at the close of regular trading on the next day the New
York Stock Exchange is open.
PURCHASING SHARES
How to Purchase Shares from the Funds
1. Read this Prospectus carefully
2. Determine how much you want to invest keeping in mind the
following minimums:
a. New accounts
o Individual Retirement Accounts and $ 500
other retirement plans
o Automatic Investment Plan $ 500
o All other accounts $2,500
b. Existing accounts
o Dividend reinvestment No Minimum
o All Accounts $ 100
3. Complete the Share Purchase Application accompanying this
Prospectus, carefully following the instructions. For additional investments,
complete the reorder form attached to your Fund's confirmation statements (The
Fund has additional Purchase Applications and reorder forms if you need them.)
If you have any questions, please call 1-800-457-6033.
-9-
<PAGE>
4. Make your check payable to "The Yacktman Funds, Inc." All checks
must be drawn on U.S. banks. The Funds will not accept cash or third party
checks. Firstar Mutual Fund Services, LLC, the Funds' transfer agent, will
charge a $25 fee against a shareholder's account for any payment check returned
for insufficient funds. The shareholder will also be responsible for any losses
suffered by a Fund as a result.
5. Send the application and check to:
BY FIRST CLASS MAIL
The Yacktman Funds, Inc.
Shareholder Services Center
P.O. Box 701
Milwaukee, WI 53201-0701
BY OVERNIGHT DELIVERY SERVICE
OR REGISTERED MAIL
The Yacktman Funds, Inc.
615 East Michigan Street
Milwaukee, WI 53202-5207
Please do not send letters by overnight delivery service or registered mail to
the Post Office Box address.
If you wish to open an account by wire, please call 1-800-457-6033 or
1-414-765-4124 prior to wiring funds in order to obtain a confirmation number
and to ensure prompt and accurate handling of funds. You should wire Funds to:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA #075000022
Credit:
Firstar Mutual Fund Services, LLC
Account #112-952-137
Further Credit:
The Yacktman Funds, Inc.
(name of Fund to be purchased)
(shareholder registration)
(shareholder account number, if known)
-10-
<PAGE>
You should then send a properly signed Share Purchase Application
marked "FOLLOW-UP" to either of the addresses listed above. Please remember that
Firstar Bank Milwaukee, N.A. must receive your wired funds prior to the close of
regular trading on the New York Stock Exchange for you to receive same day
pricing. The Funds and Firstar Bank Milwaukee, N.A. are not responsible for the
consequences of delays resulting from the banking or Federal Reserve Wire
system, or from incomplete wiring instructions.
Purchasing Shares from Broker-dealers, Financial Institutions and Others
Some broker-dealers may sell shares of the Yacktman Funds. These
broker-dealers may charge investors a fee either at the time of purchase or
redemption. The fee, if charged, is retained by the broker-dealer and not
remitted to the Funds or the Adviser.
The Funds may enter into agreements with broker-dealers, financial
institutions or other service providers ("Servicing Agents") that may include
the Funds as investment alternatives in the programs they offer or administer.
Servicing agents may:
1. Become shareholders of record of the Funds. This means all requests
to purchase additional shares and all redemption requests must be sent
through the Servicing Agent. This also means that purchases made through
Servicing Agents are not subject to the Funds' minimum purchase
requirements.
2. Use procedures and impose restrictions that may be in addition to, or
different from, those applicable to investors purchasing shares directly
from the Funds.
3. Charge fees to their customers for the services they provide them.
Also, the Funds and/or the Adviser may pay fees to Servicing Agents to
compensate them for the services they provide their customers.
4. Be allowed to purchase shares by telephone with payment to follow the
next day. If the telephone purchase is made prior to the close of regular
trading on the New York Stock Exchange, it will receive same day pricing.
5. Be authorized to accept purchase orders on behalf of the Funds. This
means that a Fund will process the purchase order at the net asset value
which is determined following the Servicing Agent's acceptance of the
customer's order.
If you decide to purchase shares through Servicing Agents, please
carefully review the program materials provided to you by the Servicing Agent.
When you purchase shares of the Funds through a Servicing Agent, it is the
responsibility of the Servicing Agent to place your order with the Fund on a
timely basis. If the Servicing Agent does not, or if it does not pay the
purchase price to the Funds within the period specified in its agreement with
the Funds, it may be held liable for any resulting fees or losses.
-11-
<PAGE>
Other Information about Purchasing Shares of the Funds
The Funds may reject any share purchase applications for any reason.
The Funds will not accept initial purchase orders made by telephone unless they
are from a Servicing Agent which has an agreement with the Fund.
The Funds will issue certificates evidencing shares purchased only upon
request. The Funds will send investors a written confirmation for all purchases
of shares.
The Funds offer an automatic investment plan allowing shareholders to
make purchases on a regular and convenient basis. The Funds also offer a
telephone purchase option permitting shareholders to make additional purchases
by telephone. The Funds offer the following retirement plans:
o Traditional IRA
o Roth IRA
o SEP-IRA
o Simple IRA
o 401(k) Plan
o 403 (b)(7) Custodial Accounts
Investors can obtain further information about the automatic investment
plan, the telephone purchase plan and the retirement plans by calling the Funds
at 1-800-457-6033. The Funds recommend that investors consult with a competent
financial and tax advisor regarding the retirement plans before investing
through them.
REDEEMING SHARES
How to Redeem (Sell) Shares by Mail
1. Prepare a letter of instruction containing:
o the name of the Fund(s)
o account number(s)
o the amount of money or number of shares being redeemed
o the name(s) on the account
o daytime phone number
o additional information that the Funds may require for
redemptions by corporations, executors, administrators,
trustees, guardians, or others who hold shares in a fiduciary
or representative capacity. Please contact the Funds' transfer
-12-
<PAGE>
agent, Firstar Mutual Fund Services, LLC, in advance, at
1-800-457-6033 if you have any questions.
2. Sign the letter of instruction exactly as the shares are registered.
Joint ownership accounts must be signed by all owners.
3. If there are certificates representing your shares, endorse the
certificates or execute a stock power. Again you must endorse
certificates and sign stock powers exactly as your shares are
registered.
4. Have the signatures guaranteed by a commercial bank or trust company in
the United States, a member firm of the New York Stock Exchange or other
eligible guarantor institution in the following situations:
o The redemption request exceeds $25,000
o The redemption proceeds are to be sent to a person other than
the person in whose name the shares are registered
o The redemption proceeds are to be sent to an address other
than the address of record
o The Funds receive the redemption request within 10 business
days of an address change.
A notarized signature is not an acceptable substitute for a signature
guarantee.
5. Send the letter of instruction and certificates, if any, to:
BY FIRST CLASS MAIL
The Yacktman Funds, Inc.
Shareholder Services Center
P. O. Box 701
Milwaukee, WI 53201-0701
BY OVERNIGHT DELIVERY SERVICE
OR REGISTERED MAIL
The Yacktman Funds, Inc.
Shareholder Services Center
615 East Michigan Street
Milwaukee, WI 53202-5207
Please do not send letters of instruction by overnight delivery service or
registered mailed to the Post Office Box address.
-13-
<PAGE>
How to Redeem (Sell) Shares by Telephone
1. Instruct Firstar Mutual Fund Services, LLC that you want the option of
redeeming shares by telephone. This can be done by completing the
appropriate section on the Share Purchase Application. If you have
already opened an account, you may write to Firstar Mutual Fund
Services, LLC requesting this option. When you do so, please sign the
request exactly as your account is registered and have the signatures
guaranteed. Shares held in retirement plans and shares represented by
certificates cannot be redeemed by telephone.
2. Assemble the same information that you would include in the letter of
instruction for a written redemption request.
3. Call Firstar Mutual Fund Services, LLC at 1-800-457-6033. Please do not
call the Fund or the Adviser.
4. Telephone redemptions must be in amounts of $1,000 or more.
5. You may not make a telephone redemption within 10 business days of an
address change.
How to Redeem (Sell) Shares through Servicing Agents
If your shares are held by a Servicing Agent, you must redeem your
shares through the Servicing Agent. Contact the Servicing Agent for instructions
on how to do so.
Payment of Redemption Proceeds
The redemption price per share you receive for redemption requests is
the next determined net asset value after:
1. Firstar Mutual Fund Services, LLC receives your written request in
proper form with all required information.
2. Firstar Mutual Fund Services, LLC receives your authorized telephone
request with all required information.
3. A Servicing Agent that has been authorized to accept redemption requests
on behalf of the Funds receives your request in accordance with its
procedures.
For those shareholders who redeem shares by mail or by telephone,
Firstar Mutual Fund Services, LLC will mail a check in the amount of the
redemption proceeds no later than the seventh day after it receives the
redemption request in proper form with all required information. For those
shareholders who redeem by telephone, Firstar Mutual Fund Services, LLC normally
will transfer the redemption proceeds to your designated bank account if you
have elected to receive redemption proceeds by either Electronic Funds Transfer
or wire. An Electronic Funds Transfer generally takes up to 3 business days to
reach the
-14-
<PAGE>
shareholder's account whereas Firstar Mutual Fund Services, LLC generally wires
redemption proceeds on the business day following the calculation of the
redemption price. However, the Funds may direct Firstar Mutual Fund Services,
LLC to pay the proceeds of a telephone redemption on a date no later than the
seventh day after the redemption request. Firstar Mutual Fund Services, LLC
currently charges $12 for each wire redemption but does not charge a fee for
Electronic Funds Transfers. Those shareholders who redeem shares through
Servicing Agents will receive their redemption proceeds in accordance with the
procedures established by the Servicing Agent.
Other Redemption Considerations
When redeeming shares of the Funds, shareholders should consider the
following:
1. The redemption may result in a taxable gain.
2. Shareholders who redeem shares held in an IRA must indicate on their
redemption request whether or not to withhold federal income taxes. If
not, these redemptions, as well as redemptions of other retirement plans
not involving a direct rollover to an eligible plan, will be subject to
federal income tax withholding.
3. The Funds may delay the payment of redemption proceeds for up to seven
days in all cases.
4. If you purchased shares by check, the Funds may delay the payment of
redemption proceeds until they are reasonably satisfied the check has
cleared (which may take up to 15 days from the date of purchase).
5. Firstar Mutual Fund Services, LLC will send the proceeds of telephone
redemptions to an address or account other than that shown on its
records only if the shareholder has sent in a written request with
signatures guaranteed.
6. The Funds reserve the right to refuse a telephone redemption request if
they believe it is advisable to do so. The Funds and Firstar Mutual Fund
Services, LLC may modify or terminate their procedures for telephone
redemptions at any time. Neither the Funds nor Firstar Mutual Fund
Services, LLC will be liable for following instructions for telephone
redemption transactions that they reasonably believe to be genuine,
provided they use reasonable procedures to confirm the genuineness of
the telephone instructions. They may be liable for unauthorized
transactions if they fail to follow such procedures. These procedures
include requiring some form of personal identification prior to acting
upon the telephone instructions and recording all telephone calls.
During periods of substantial economic or market change, you may find
telephone redemptions difficult to implement. If a shareholder cannot
contact Firstar Mutual Fund Services, LLC by telephone, he or she should
make a redemption request in writing in the manner described earlier.
-15-
<PAGE>
7. If your account balance falls below $1,000 because you redeem shares,
you will be given 60 days to make additional investments so that your
account balance is $1,000 or more. If you do not, the Funds may close
your account and mail the redemption proceeds to you.
8. The Funds may pay redemption requests "in kind." This means that the
Funds will pay redemption requests entirely or partially with securities
rather than with cash.
EXCHANGING SHARES
Eligible Funds
Shares of The Yacktman Funds may be exchanged for shares of
o The other Yacktman Fund
o Or the following Firstar Money Market Funds
- Firstar Money Market Fund
- Firstar U.S. Government Money Market Fund
- Firstar Tax-Exempt Money Market Fund
at their relative net asset values. (An affiliate of Firstar Mutual Fund
Services, LLC advises the Firstar Money Market Funds. Please call 1-800-457-6033
for a prospectus describing the Firstar Money Market Funds.) You may have a
taxable gain or loss as a result of an exchange because the Internal Revenue
Code treats an exchange as a sale of shares.
How to Exchange Shares
1. Read this Prospectus and, if applicable, the prospectus for the Firstar
Money Market Funds.
2. Determine the number of shares you want to exchange keeping in mind that
exchanges are subject to a $1,000 minimum.
3. Call Firstar Mutual Fund Services, LLC at 1-800-457-6033. You may also
make an exchange by writing to The Yacktman Funds, Inc., Shareholder
Services Center, P. O. Box 701, Milwaukee, Wisconsin 53201-0701. Firstar
Mutual Fund Services, LLC charges a fee of $5.00 for each telephone
exchange. There is no charge for a written exchange.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund distributes substantially all of its net investment income
quarterly and substantially all of its capital gains annually. You have two
distribution options:
-16-
<PAGE>
o Automatic Reinvestment Option - Both dividend and capital gains
distributions will be reinvested in additional Fund Shares.
o All Cash Option - Both dividend and capital gains distributions will
be paid in cash.
You may make this election on the Share Purchase Application. You may change
your election by writing to Firstar Mutual Fund Services, LLC or by calling
1-800-457-6033.
Each Fund's distributions, whether received in cash or additional
shares of the Fund, may be subject to federal and state income tax. These
distributions may be taxed as ordinary income and capital gains (which may be
taxed at different rates depending on the length of time the Fund holds the
assets generating the capital gains). In managing the Funds, our Adviser
considers the tax effects of its investment decisions to be of secondary
importance.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand a
Fund's financial performance for the past five years of The Yacktman Fund's
operations and for the period of the Focused Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the tables represent the rate that an investor would have earned on
an investment in a Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the Funds' financial statements, are included in the
Annual Report which is available upon request.
-17-
<PAGE>
<TABLE>
<CAPTION>
The Yacktman Fund
For the Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <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 (1) 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%
====== ====== ====== ====== ======
- ---------------
(1) The Adviser has directed certain portfolio trades of The Yacktman Fund
to brokers at best price and execution and has generated directed
brokerage credits to be used against sub-transfer agency fees.
Shareholders benefited under this arrangement as the net expenses of
The Yacktman Fund do not include such sub-transfer agency fees.
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
The Yacktman Focused Fund
Year May 1, 1997(1)
Ended Through
Dec. 31, 1998 Dec. 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
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 gain 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%(2)
===== =======
Supplemental data and ratios:
Net assets, end of period (000s) ................. $27,407 $58,446
======= =======
Ratio of net expenses to average net assets....... 1.25%(4) 1.25%(3)(4)
==== ====
Ratio of net investment income to average net
assets ........................................... 0.48%(4) 1.02%(3)(4)
====== ======
Portfolio turnover rate .......................... 49.26% 60.43%
===== =====
- ---------------
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
(4) Net of reimbursements. Without fee waivers, the ratio of expenses to
average net assets would have been 1.81% and 1.71% and the ratio of net
investment income to average net assets would have been (0.08%) and
0.56% for the periods ended December 31, 1998 and 1997, respectively.
</TABLE>
-19-
<PAGE>
To learn more about the Yacktman Funds you may want to read the
Yacktman Funds' Statement of Additional Information (or "SAI") which contains
additional information about the Funds. The Yacktman Funds have incorporated by
reference the SAI into the Prospectus. This means that you should consider the
contents of the SAI to be part of the Prospectus.
You also may learn more about the Yacktman Funds' investments by
reading the Yacktman Funds' annual and semi-annual reports to shareholders. The
annual report includes a discussion of the market conditions and investment
strategies that significantly affected the performance of the Funds during their
last fiscal year.
The SAI and the annual and semi-annual reports are all available to
shareholders and prospective investors without charge, simply by calling
1-800-525-8258.
Prospective investors and shareholders who have questions about the
Yacktman Funds may also call the above number or write to the following address:
The Yacktman Funds, Inc.
303 West Madison Street
Chicago, IL 60606-3308
The general public can review and copy information about the Yacktman
Funds (including the SAI) at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. (Please call 1-800-SEC-0330 for information
on the operations of the Public Reference Room.) Reports and other information
about the Yacktman Funds are also available at the Securities and Exchange
Commission's Internet site at http://www.sec.gov and copies of this information
may be obtained, upon payment of a duplicating fee, by writing to:
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
Please refer to the Yacktman Funds' Investment Company Act File No.
811-6628, when seeking information about the Yacktman Funds from the Securities
and Exchange Commission.
-20-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION April 30, 1999
for THE YACKTMAN FUNDS
THE YACKTMAN FUND
THE YACKTMAN FOCUSED FUND
THE YACKTMAN FUNDS, INC.
303 West Madison Street
Chicago, Illinois 60606
Call Toll-Free 1-800-525-8258
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of The Yacktman Funds, Inc. (the
"Company") dated April 30, 1999 (the "Prospectus"), for The Yacktman Fund and
The Yacktman Focused Fund (each referred to individually as a "Fund" and
collectively as the "Funds"). Requests for copies of the Prospectus should be
made by writing to The Yacktman Funds, Inc., 303 West Madison Street, Chicago,
Illinois 60606, Attention: Corporate Secretary, or by calling 1-800-525-8258.
The following financial statements are incorporated by reference to the
Annual Report, dated December 31, 1998, of The Yacktman Funds, Inc. (File No.
811-6628) as filed with the Securities and Exchange Commission on February 24,
1999:
Portfolio of Investments
The Yacktman Fund
The Yacktman Focused Fund
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to the Financial Statements
Report of Independent Accountants
<PAGE>
THE YACKTMAN FUNDS, INC.
TABLE OF CONTENTS
Page
FUND HISTORY AND CLASSIFICATION................................................1
INVESTMENT RESTRICTIONS AND CONSIDERATIONS.....................................1
DETERMINATION OF NET ASSET VALUE..............................................10
DIRECTORS AND OFFICERS OF THE COMPANY.........................................10
INVESTMENT ADVISER AND ADMINISTRATOR..........................................13
EXCHANGE PRIVILEGE............................................................15
REDEMPTIONS ..................................................................16
SYSTEMATIC WITHDRAWAL PLAN....................................................16
AUTOMATIC INVESTMENT PLAN, TELEPHONE PURCHASES AND RETIREMENT PLANS..........17
CUSTODIAN ....................................................................19
INDEPENDENT ACCOUNTANTS.......................................................19
DISTRIBUTION PLAN ............................................................20
ALLOCATION OF PORTFOLIO BROKERAGE.............................................20
TAXES ........................................................................22
STOCKHOLDER MEETINGS..........................................................23
CAPITAL STRUCTURE ............................................................24
PERFORMANCE INFORMATION.......................................................25
LEGAL PROCEEDINGS............................................................26
DESCRIPTION OF SECURITIES RATINGS.............................................26
(i)
<PAGE>
FUND HISTORY AND CLASSIFICATION
The Yacktman Funds, Inc. (the "Company") is an open-end management
investment company consisting of a diversified portfolio, The Yacktman Fund, and
a nondiversified portfolio, The Yacktman Focused Fund. The Company is registered
under the Investment Company Act of 1940 (the "Act"). The Company was
incorporated as a Maryland corporation on April 6, 1992.
INVESTMENT RESTRICTIONS AND CONSIDERATIONS
THE YACKTMAN FUND
The Yacktman Fund has adopted the following investment restrictions
which are matters of fundamental policy and cannot be changed without approval
of the holders of the lesser of: (i) 67% of The Yacktman Fund's shares present
or represented at a stockholder's meeting at which the holders of more than 50%
of such shares are present or represented; or (ii) more than 50% of the
outstanding shares of The Yacktman Fund.
1. The Yacktman Fund will diversify its assets in different
companies and will not purchase securities of any issuer if, as a result
of such purchase, The Yacktman Fund would own more than 10% of the
outstanding voting securities of such issuer or more than 5% of The
Yacktman Fund's assets would be invested in securities of such issuer
(except that up to 25% of the value of The Yacktman Fund's total assets
may be invested without regard to this limitation). This restriction does
not apply to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities.
2. The Yacktman Fund will not sell securities short, buy
securities on margin, purchase warrants, participate in a joint-trading
account, or deal in options.
3. The Yacktman Fund will not borrow money, except for temporary
or emergency purposes, and then only from banks, in an amount not
exceeding 10% of the value of The Yacktman Fund's total assets. The
Yacktman Fund will not borrow money for the purpose of investing in
securities, and The Yacktman Fund will not purchase any portfolio
securities for so long as any borrowed amounts remain outstanding.
4. The Yacktman Fund will not pledge or hypothecate its assets,
except to secure borrowings for temporary or emergency purposes.
5. The Yacktman Fund will not invest more than 5% of The Yacktman
Fund's total assets in securities of any issuer which has a record of
less than three (3) years of continuous operation, including the
operation of any predecessor business of a company which came into
existence as a result of a merger, consolidation, reorganization or
purchase of substantially all of the assets of such predecessor business.
<PAGE>
6. The Yacktman Fund will not purchase securities of other
investment companies (as defined in the Act), except as part of a plan of
merger, consolidation, reorganization or acquisition of assets.
7. The Yacktman Fund will not act as an underwriter or distributor
of securities other than shares of The Yacktman Fund (except to the
extent that The Yacktman Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), in the disposition of restricted securities).
8. The Yacktman Fund will not purchase securities for which there
is no established market if, as a result of such purchase, more than 5%
of the value of its total assets would be invested in such securities.
9. The Yacktman Fund will not make loans, except it may acquire
debt securities from the issuer or others which are publicly distributed
or are of a type normally acquired by institutional investors and except
that it may make loans of portfolio securities if any such loans are
secured continuously by collateral at least equal to the market value of
the securities loaned in the form of cash and/or securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
provided that no such loan will be made if upon the making of that loan
more than 30% of the value of The Yacktman Fund's total assets would be
the subject of such loans.
10. The Yacktman Fund will not concentrate 25% or more of its
total assets in securities of any one industry. This restriction does not
apply to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities.
11. The Yacktman Fund will not make investments for the purpose of
exercising control or management of any company.
12. The Yacktman Fund will not purchase or sell real estate or
real estate mortgage loans and will not make any investments in real
estate limited partnerships.
13. The Yacktman Fund will not purchase or sell commodities or
commodity contracts, including futures contracts.
14. The Yacktman Fund will not purchase or sell any interest in
any oil, gas or other mineral exploration or development program,
including any oil, gas or mineral leases.
The Yacktman Fund has adopted certain other investment
restrictions which are not fundamental policies and which may be changed by the
Company's Board of Directors without stockholder approval. These additional
restrictions are as follows:
-2-
<PAGE>
1. The Yacktman Fund will not acquire or retain any security
issued by a company, an officer or director of which is an officer or
director of The Yacktman Funds, Inc. or an officer, director or other
affiliated person of the investment adviser to The Yacktman Fund or The
Yacktman Focused Fund, without authorization of the Board of Directors of
the Company.
The aforementioned percentage restrictions on investment or
utilization of assets refer to the percentage at the time an investment is made.
If these restrictions are adhered to at the time an investment is made, and such
percentage subsequently changes as a result of changing market values or some
similar event, no violation of The Yacktman Fund's fundamental restrictions will
be deemed to have occurred. Any changes in The Yacktman Fund's investment
restrictions made by the Board of Directors will be communicated to stockholders
prior to their implementation, which communication may be made in an amendment
to the Statement of Additional Information incorporated by reference into the
Prospectus.
THE YACKTMAN FOCUSED FUND
The Yacktman Focused Fund has adopted the following investment
restrictions which are matters of fundamental policy and cannot be changed
without approval of the holders of the lesser of: (i) 67% of The Yacktman
Focused Fund's shares present or represented at a stockholder's meeting at which
the holders of more than 50% of such shares are present or represented; or (ii)
more than 50% of the outstanding shares of The Yacktman Focused Fund.
1. The Yacktman Focused Fund may issue senior securities to the
extent permitted under the Act.
2. The Yacktman Focused Fund will not sell securities short, buy
securities on margin, purchase warrants or participate in a joint trading
account. The Yacktman Focused Fund may invest in and commit its assets to
writing and purchasing put and call options on securities and stock
indexes to the extent permitted by the Act.
3. The Yacktman Focused Fund may borrow money to the extent
permitted by the Act. The Yacktman Focused Fund may pledge or hypothecate
its assets to secure its borrowings.
4. The Yacktman Focused Fund will not act as an underwriter or
distributor of securities other than shares of The Yacktman Focused Fund
(except to the extent that The Yacktman Focused Fund may be deemed to be
an underwriter within the meaning of the Securities Act in the
disposition of restricted securities).
5. The Yacktman Focused Fund will not concentrate 25% or more of
its total assets in securities of any one industry. This restriction does
not apply to
-3-
<PAGE>
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities.
6. The Yacktman Focused Fund will not purchase or sell real estate
or real estate mortgage loans and will not make any investments in real
estate limited partnerships.
7. The Yacktman Focused Fund will not purchase or sell commodities
or commodity contracts, including futures contracts.
8. The Yacktman Focused Fund will not make loans, except it may
acquire debt securities from the issuer or others which are publicly
distributed or are of a type normally acquired by institutional investors
and except that it may make loans of portfolio securities if any such
loans are secured continuously by collateral at least equal to the market
value of the securities loaned in the form of cash and/or securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and provided that no such loan will be made if upon the
making of that loan more than 30% of the value of The Yacktman Focused
Fund's total assets would be the subject of such loans.
9. The Yacktman Focused Fund will not purchase securities of any
issuer if, as a result of such purchase, The Yacktman Focused Fund would
own more than 10% of the outstanding voting securities of such issuer or
more than 5% of The Yacktman Focused Fund's assets would be invested in
securities of such issuer, except that up to 50% of the value of The
Yacktman Focused Fund's total assets may be invested without regard to
this limitation. This restriction does not apply to obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities.
10. The Yacktman Focused Fund will not purchase securities for
which there is no established market if, as a result of such purchase,
more than 5% of the value of its total assets would be invested in such
securities.
11. The Yacktman Focused Fund will not make investments for the
purpose of exercising control or management of any company.
12. The Yacktman Focused Fund will not purchase or sell any
interest in any oil, gas or other mineral exploration or development
program, including any oil, gas or mineral leases.
The Yacktman Focused Fund has adopted certain other investment
restrictions which are not fundamental policies and which may be changed by the
Company's Board of Directors without stockholder approval. These additional
restrictions are as follows:
1. The Yacktman Focused Fund will not purchase securities of other
investment companies (as defined in the Act), except: (a) as part of a
plan of merger, consolidation, reorganization or acquisition of assets;
(b) securities of
-4-
<PAGE>
registered open-end investment companies that invest exclusively in high
quality, short-term debt securities; or (c) securities of registered
investment companies on the open market where no commission results,
other than the usual and customary broker's commission. No purchase
described in (b) and (c) will be made if as a result of such purchases
(i) The Yacktman Focused Fund and its affiliated persons would hold more
than 3% of any class of securities, including voting securities, of any
registered investment company; (ii) more than 5% of The Yacktman Focused
Fund's net assets would be invested in shares of any one registered
investment company; and (iii) more than 10% of The Yacktman Focused
Fund's net assets would be invested in shares of registered investment
companies.
2. The Yacktman Focused Fund will not acquire or retain any
security issued by a company, an officer or director of which is an
officer or director of The Yacktman Funds, Inc. or an officer, director
or other affiliated person of the investment adviser to The Yacktman Fund
or The Yacktman Focused Fund, without authorization of the Board of
Directors of the Company.
The aforementioned percentage restrictions on investment or
utilization of assets refer to the percentage at the time an investment is made.
If these restrictions are adhered to at the time an investment is made, and such
percentage subsequently changes as a result of changing market values or some
similar event, no violation of The Yacktman Focused Fund's fundamental
restrictions will be deemed to have occurred. Any changes in The Yacktman
Focused Fund's investment restrictions made by the Board of Directors will be
communicated to stockholders prior to their implementation, which communication
may be made in an amendment to the Statement of Additional Information
incorporated by reference into the Prospectus.
Money Market Instruments
Each Fund may invest in money market instruments such as United
States Treasury bills, certificates of deposit of U.S. banks, commercial paper,
and commercial paper master notes, which are demand instruments without a fixed
maturity bearing interest at rates that are fixed to known lending rates and
automatically adjusted when such lending rates change, rated A-2 or better by
Standard & Poor's Corporation ("Standard & Poor's") or Prime-2 by Moody's
Investors Service, Inc. ("Moody's"). The Yacktman Focused Fund may also invest
in securities issued by other investment companies that invest in high-quality,
short-term debt securities (i.e., money market funds). In addition to the
advisory fees and other expenses The Yacktman Focused Fund bears directly in
connection with its own operations, as a shareholder of another investment
company, The Yacktman Focused Fund would bear its pro rata portion of the other
investment company's advisory fees and other expenses and such fees and other
expenses will be borne indirectly by The Yacktman Focused Fund's stockholders.
-5-
<PAGE>
Fixed Income Funds
Both Funds may invest in U.S. government securities and publicly
distributed corporate bonds and debentures to generate current income and
possible capital gains at those times when Yacktman Asset Management Co. (the
"Adviser") believes such securities offer opportunities for long-term growth of
capital, such as during periods of declining interest rates when the market
value of such securities generally rises. The Yacktman Fund will limit its
investments in non-convertible bonds and debentures to those which have been
assigned one of the two highest ratings of either Standard & Poor's (AAA and AA)
or Moody's (Aaa and Aa). In the event a bond or debenture is downgraded after
investment, The Yacktman Fund may retain such security unless it is rated less
than investment grade (i.e., less than BBB by Standard & Poor's or Baa by
Moody's). The Yacktman Focused Fund will limit its investments in
non-convertible bonds and debentures to those which have been assigned a rating
of at least investment grade. Securities rated BBB by Standard & Poor's or Baa
by Moody's, although investment grade, exhibit speculative characteristics and
are more sensitive than higher rated securities to changes in economic
conditions. If a bond or debenture is downgraded below investment grade, both
Funds will promptly dispose of such bond or debenture, unless the Adviser
believes it disadvantageous to the Fund to do so. A description of the foregoing
ratings is included at the end of the Statement of Additional Information. Both
Funds may invest in fixed income securities of any length maturity. The value of
fixed income securities will tend to decrease when interest rates rise and
increase when interest rates fall. Fixed income securities with shorter
maturities, while generally offering lower yields, generally provide greater
price stability than longer-term securities and are less affected by changes in
interest rates.
Foreign Securities
The Funds may also invest in U.S. dollar-denominated securities of
foreign issuers in the form of American Depositary Receipts ("ADRs") that are
regularly traded on recognized U.S. exchanges or in the U.S. over-the-counter
("OTC") market. Investments in securities of foreign issuers may involve risks
which are in addition to the usual risks inherent in domestic investments. In
many countries, there is less publicly available information about issuers than
is available in the reports and ratings published about companies in the United
States. Additionally, foreign companies may not be subject to uniform
accounting, auditing and financial reporting standards.
Convertible Securities
The Funds may also invest in convertible securities (debt
securities or preferred stocks of corporations which are convertible into or
exchangeable for common stocks). The Adviser will select only those convertible
securities for which it believes (a) the underlying common stock is a suitable
investment for each Fund and (b) a greater potential for total return exists by
purchasing the convertible security because of its higher yield and/or favorable
market valuation. Each Fund may invest up to 5% of its net assets in convertible
debt securities rated less than investment grade. Debt securities rated less
than investment grade are commonly referred to as "junk bonds."
-6-
<PAGE>
Investments in convertible securities rated less than investment
grade ("high yield convertible securities") are subject to a number of risk
factors . The market for high yield convertible securities is subject to
substantial volatility. Issuers of high yield convertible securities may be of
low creditworthiness and the high yield convertible securities are likely to be
subordinated to the claims of senior lenders. The secondary market for high
yield convertible debt securities may at times become less liquid or respond to
adverse publicity or investor perceptions making it more difficult for the Funds
to value accurately such securities or dispose of them.
Options on Securities
The Yacktman Fund may not purchase or write (sell) put or call
options, but The Yacktman Focused Fund may purchase and write put (but not call)
options on stocks. The Yacktman Focused Fund may purchase put options on
specific stocks to hedge against losses caused by declines in the prices of
stocks in its portfolio. The Yacktman Focused Fund may write (sell) put options
on stocks to generate income. The Yacktman Focused Fund will only write put
options if it is willing to purchase the stock at the exercise price.
When writing a put option and receiving a premium payment, The
Yacktman Focused Fund may become obligated during the term of the option to
purchase the securities underlying the option at a specific price (exercise
price). This event is unlikely to occur unless the market price of such
securities is less than the exercise price. To cover its obligation, The
Yacktman Focused Fund will maintain with its custodian in a segregated account
cash or liquid securities equal in value to the exercise price. When purchasing
a put option, The Yacktman Focused Fund has the right, in return for a premium
paid, during the term of the option, to sell the securities underlying the
option at the exercise price. If a put option which The Yacktman Focused Fund
has purchased is not exercised, the option will become worthless on the
expiration date, and The Yacktman Focused Fund will realize a loss in the amount
of the premium paid, plus commission costs. The stocks underlying put options
purchased by The Yacktman Focused Fund need not be stocks in The Yacktman
Focused Fund's portfolio if the Adviser believes that the put options purchased
can provide an effective hedge for stocks held by The Yacktman Focused Fund.
However in such situations, there may be an imperfect correlation between
movements in the prices of the stocks underlying the put options and movements
in the prices of the stocks held by The Yacktman Focused Fund. It is possible
that The Yacktman Focused Fund could suffer losses on both the put options it
purchases and on the stocks held in its portfolio. No assurances can be given
that a market will exist at all times for all outstanding put options purchased
or sold by The Yacktman Focused Fund. If no such market exists, The Yacktman
Focused Fund would be unable to realize its profits or limit its losses until it
could exercise the put options it holds and it would remain obligated until the
put options it wrote were exercised or had expired.
When The Yacktman Focused Fund wishes to terminate The Yacktman
Focused Fund's obligation with respect to a put option it has written, The
Yacktman Focused Fund may effect a "closing purchase transaction." The Yacktman
Focused Fund accomplishes this by buying a put option of the same series as the
put option previously written by The Yacktman Focused Fund. The effect of the
purchase is that the writer's position will be canceled.
-7-
<PAGE>
However, a writer may not effect a closing purchase transaction after the writer
has been notified of the exercise of an option. When The Yacktman Focused Fund
is the holder of a put option, it may liquidate its position by effecting a
"closing sale transaction." The Yacktman Focused Fund accomplishes this by
selling a put option of the same series as the put option previously purchased
by The Yacktman Focused Fund. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
The Yacktman Focused Fund will realize a gain (or a loss) on a
closing purchase transaction with respect to a put option previously written by
it if the premium, plus commission costs, paid by The Yacktman Focused Fund to
purchase the put option is less (or greater) than the premium, less commission
costs, received by The Yacktman Focused Fund on the sale of the put option. The
Yacktman Focused Fund will realize a gain (or a loss) on a closing sale
transaction with respect to a put option previously purchased by it if the
premium, less commission costs, received by The Yacktman Focused Fund on the
sale of the put option is greater (or less) than the premium, plus commission
costs, paid by The Yacktman Focused Fund to purchase the put option.
Exchanges generally have established limitations governing the
maximum number of call or put options on the same index which may be bought or
written (sold) by a single investor, whether acting alone or in concert with
others (regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). Under these limitations, options positions of certain other accounts
advised by the same investment adviser are combined for purposes of these
limits. Pursuant to these limitations, an exchange may order the liquidation of
positions and may impose other sanctions or restrictions. These position limits
may restrict the number of listed options which The Yacktman Focused Fund may
buy or sell; however, the Adviser intends to comply with all limitations.
Portfolio Turnover
The Funds do not trade actively for short-term profits. However,
if the objectives of the Funds would be better served, short-term profits or
losses may be realized from time to time. The annual portfolio turnover rate
indicates changes in a Fund's portfolio and is calculated by dividing the lesser
of purchases or sales of portfolio securities (excluding securities having
maturities at acquisition of one year or less) for the fiscal year by the
monthly average of the value of the portfolio securities (excluding securities
having maturities at acquisition of one year or less) owned by the Fund during
the fiscal year. The annual portfolio turnover rate may vary widely from year to
year depending upon market conditions and prospects. Increased portfolio
turnover necessarily results in correspondingly heavier transaction costs (such
as brokerage commissions or mark-ups or mark-downs) which the Fund must pay and
increased realized gains (or losses) to investors. Distributions to stockholders
of realized gains, to the extent that they consist of net short-term capital
gains, will be considered ordinary income for federal income tax purposes.
-8-
<PAGE>
Lending Securities
For income purposes, a Fund may lend its portfolio securities. The
Funds' investment restrictions provide that no such loan may be made if
thereafter more than 30% of the value of a Fund's total assets would be subject
to such loans. Income may be earned on collateral received to secure the loans.
Cash collateral would be invested in money market instruments. U.S. government
securities collateral would yield interest or earn discount. Part of this income
might be shared with the borrower. Alternatively, a Fund could allow the
borrower to receive the income from the collateral and charge the borrower a
fee. In either event, the Fund would receive the amount of dividends or interest
paid on the loaned securities.
Usually these loans would be made to brokers, dealers or financial
institutions. Loans would be fully secured by collateral deposited with the
Funds' custodian in the form of cash and/or securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities. This collateral must be
increased within one business day in the event that its value shall become less
than the market value of the loaned securities. Because there may be delays in
recovery or even loss of rights in the collateral should the borrower fail
financially, the loans will be made only to firms deemed by the Adviser to be of
good standing. Loans will not be made unless, in the judgment of the Adviser,
the consideration which can be earned from such loans justifies the risk.
The borrower, upon notice, must deliver the loaned securities
within three business days. In the event that voting rights with respect to the
loaned securities pass to the borrower and a material proposal affecting the
securities arises, the loan may be called or the Fund will otherwise secure or
be granted a valid proxy in time for it to vote on the proposal. In making such
loans, a Fund may utilize the services of a loan broker and pay a fee for these
services. A Fund may incur additional custodian fees for services in connection
with the lending of securities.
Borrowing
The Yacktman Focused Fund may borrow money for investment
purposes. Borrowing for investment purposes is known as leveraging. Leveraging
investments, by purchasing securities with borrowed money, is a speculative
technique which increases investment risk, but also increases investment
opportunity. Since substantially all of The Yacktman Focused Fund's assets will
fluctuate in value, whereas the interest obligations on borrowings may be fixed,
the net asset value per share of The Yacktman Focused Fund when it leverages its
investments will increase more when The Yacktman Focused Fund's assets increase
in value and decrease more when the portfolio assets decrease in value than
would otherwise be the case. Interest costs on borrowings may partially offset
or exceed the returns on the borrowed funds. Under adverse conditions, The
Yacktman Focused Fund might have to sell portfolio securities to meet interest
or principal payments at a time investment considerations would not favor such
sales. As required by the Act, The Yacktman Focused Fund must maintain
continuous asset coverage (total assets, including assets acquired with borrowed
funds, less liabilities exclusive of borrowings) of 300% of all amount borrowed.
If,
-9-
<PAGE>
at any time, the value of The Yacktman Focused Fund's assets should fail to meet
this 300% coverage test, The Yacktman Focused Fund within three business days
will reduce the amount of The Yacktman Focused Fund's borrowings to the extent
necessary to meet this 300% coverage. Maintenance of this percentage limitation
may result in the sale of portfolio securities as a time when investment
considerations otherwise indicate that it would be disadvantageous to do so.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Funds will be determined as of the
close of regular trading (normally 4:00 p.m. Eastern time) on each day the New
York Stock Exchange is open for trading. The New York Stock Exchange is open for
trading Monday through Friday except New Year's Day, Martin Luther King, Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, if any of the aforementioned
holidays falls on a Saturday, the New York Stock Exchange will not be open for
trading on the succeeding Monday, unless unusual business conditions exist, such
as the ending of a monthly or the yearly accounting period.
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 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. Put
options are valued at the last sales price on the valuation date if the last
sales price is between the closing bid and asked prices. Otherwise, put options
are valued at the mean of the closing bid and asked prices. Debt securities
(other than short-term instruments) are valued at prices furnished by a national
pricing service, subject to review by the Adviser and determination of the
appropriate price whenever a furnished price is significantly different from the
previous day's furnished price. Debt instruments maturing within 60 days are
valued by the amortized cost method. 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.
DIRECTORS AND OFFICERS OF THE COMPANY
As a Maryland corporation, the business and affairs of the Company
are managed by its officers under the direction of its Board of Directors. The
name, age, address, principal occupations during the past five years, and other
information with respect to each of the directors and officers of the Company
are as follows:
*Ronald W. Ball - Director , Vice President and Secretary. Mr.
Ball, 58, has been Senior Vice President of Yacktman Asset Management Co. (the
"Adviser") since April, 1992. Prior to that time, he was a Senior Vice President
and portfolio manager at Selected
- ------------------
*Messrs. Ball and Yacktman are directors who are "interested persons" of the
Funds (as defined in the Act.)
-10-
<PAGE>
Financial Services, Inc., a Chicago, Illinois investment advisory firm, (since
October, 1983) and President and portfolio manager of Selected Special Shares,
an investment company (since October, 1986). Mr. Ball holds a B.S. in Business
Administration from The Ohio State University. His address is c/o Yacktman Asset
Management Co., 303 West Madison Street, Chicago, Illinois 60606.
Bruce B. Bingham -- Director. Mr. Bingham, 50, has been a partner
in Hamilton Partners, a real estate development firm, for more than five years.
His address is c/o Yacktman Asset Management Co., 303 West Madison Street,
Chicago, Illinois 60606.
Albert J. Malwitz -- Director. Mr. Malwitz, 62, has been owner and
chief executive officer of Arlington Fastener Co., a manufacturer and
distributor of industrial fasteners, for more than five years. His address is
c/o Yacktman Asset Management Co., 303 West Madison Street, Chicago, Illinois
60606.
George J. Stevenson, III -- Director. Mr. Stevenson, 59, has been
President of Stevenson & Company, a registered business broker, and President of
Healthmate Products Co., a fruit juice concentrate manufacturing company, for
more than five years. His address is c/o Yacktman Asset Management Co., 303 West
Madison Street, Chicago, Illinois 60606.
*Donald A. Yacktman -- Director, President and Treasurer. Mr.
Yacktman, 57, has been the President of the Adviser since April 24, 1992. Prior
to that time, he was Senior Vice President of Selected Asset Management, Inc., a
Chicago, Illinois investment advisory firm, and the President and portfolio
manager from January 1, 1983 through March 11, 1992 of the Selected American
Shares mutual fund. Prior to joining the predecessor firm of Selected Asset
Management, Inc., Mr. Yacktman was a partner and portfolio manager for fourteen
years at Stein Roe & Farnham, an independent investment counseling firm based in
Chicago. Mr. Yacktman has served as a Bishop in the Church of Jesus Christ of
Latter-Day Saints and is a member of the Financial Analysts Society of Chicago.
He holds a B.S. Magna Cum Laude and Phi Beta Kappa from The University of Utah
and an MBA with distinction from Harvard University. His address is c/o Yacktman
Asset Management Co., 303 West Madison Street, Chicago, Illinois 60606.
The Funds' standard method of compensating directors is to pay
each disinterested director an annual fee of $8,000 for services rendered,
including attending meetings of the Board of Directors. The Funds also may
reimburse their directors for travel expenses incurred in order to attend
meetings of the Board of Directors. For the fiscal year ended December 31, 1998
the disinterested directors received aggregate fees of $18,000. The table below
sets forth the compensation paid by the Funds to each of the then directors of
the Company during the fiscal year ended December 31, 1998:
- ------------------
*Messrs. Ball and Yacktman are directors who are "interested persons" of the
Funds (as defined in the Act.)
-11-
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Total
Aggregate Pension or Retirement Estimated Annual Compensation
Name of Compensation Benefits Accrued As Benefits Upon from Company
Person from Company Part of Fund Expenses Retirement Paid to Directors
------ ------------ --------------------- ---------- -----------------
<S> <C> <C> <C> <C>
Ronald W. Ball(1) $0 $0 $0 $0
Bruce B. Bingham (2) $0 $0 $0 $0
Albert J. Malwitz(2) $0 $0 $0 $0
George J. Stevenson, III(2) $0 $0 $0 $0
Donald A. Yacktman $0 $0 $0 $0
Jon D. Carlson(3) $0 $0 $0 $0
Thomas R. Hanson(3) $6,000 $0 $0 $6,000
Stanislaw Maliszewski(3) $6,000 $0 $0 $6,000
Stephen E. Upton(3) $6,000 $0 $0 $6,000
- ------------
(1)Mr. Ball was elected as a director of the Company on February 13, 1998.
(2)Messrs. Bingham, Malwitz and Stevenson were elected as directors of the
Company on November 24, 1998.
(3)Messrs. Carlson, Hanson, Maliszewski and Upton were removed as directors
by the Company's stockholders on November 24, 1998.
</TABLE>
As of January 31, 1999 , all officers and directors of the Company
as a group beneficially owned 267,698 shares of The Yacktman Fund or 1.11% of
the then outstanding shares. At such date, Charles Schwab & Co., 101 Montgomery
Street, San Francisco, California 94104, owned of record 7,523,133 shares of The
Yacktman Fund, or 31.21% of the then outstanding shares, and National Financial
Services Corp., c/o Fidelity Investments, 82 Devonshire Street R20A, Boston,
Massachusetts 02109, owned of record 1,990,032 shares of The Yacktman Fund, or
8.26% of the then outstanding shares. All of the shares owned by Charles Schwab
& Co. and National Financial Services Corp. were owned of record only. Other
than the foregoing, The Yacktman Fund was not aware of any person who, as of
January 31, 1999, owned of record or beneficially 5% or more of the shares of
The Yacktman Fund.
As of January 31, 1999, all officers and directors of the Company
as a group beneficially owned 213,747 shares of The Yacktman Focused Fund or
9.55% of the then outstanding shares. At such date Charles Schwab & Co. owned of
record 685,858 shares of The Yacktman Focused Fund , or 30.65% of the then
outstanding shares, Donaldson Lufkin Jenrette Securities Corporation Inc., P.O.
Box 2052, Jersey City, New Jersey 07303, owned of record 325,205 shares of The
Yacktman Focused Fund, or 14.53% of the then outstanding shares, Donald A.
Yacktman, 303 West Madison Street, Chicago, Illinois 60606, owned of
-12-
<PAGE>
record 200,789 shares of The Yacktman Focused Fund, or 8.97% of the then
outstanding shares, National Financial Services Corp. owned of record 139,513
shares of The Yacktman Focused Fund, or 6.24% of the then outstanding shares,
and Saxon & Co., P.O. Box 7780-1888, Philadelphia, Pennsylvania 19182, owned of
record 118,296 shares of The Yacktman Focused Fund, or 5.29% of the outstanding
shares. All of the shares owned by Charles Schwab & Co., National Financial
Services Corp. and Donaldson Lufkin Jenrette Securities Corporation Inc. were
owned of record only. Other than the foregoing, The Yacktman Focused Fund was
not aware of any person who, as of January 31, 1999, owned of record or
beneficially 5% or more of the shares of The Yacktman Focused Fund.
INVESTMENT ADVISER AND ADMINISTRATOR
The investment adviser to the Funds is Yacktman Asset Management
Co., 303 West Madison Street, Chicago, Illinois 60606 (the "Adviser"). Pursuant
to the investment advisory agreements entered into between the Company, on
behalf of each of the Funds, and the Adviser (the "Advisory Agreements"), the
Adviser furnishes continuous investment advisory services to each of the Funds.
The Adviser is controlled by Donald A. Yacktman, its President and sole
stockholder.
The Adviser supervises and manages the investment portfolios of
the Funds and, subject to such policies as the Board of Directors of the Company
may determine, directs the purchase or sale of investment securities in the
day-to-day management of the Funds' investment portfolios. Under the Advisory
Agreements, the Adviser, at its own expense and without reimbursement from the
Funds, furnishes office space and all necessary office facilities, equipment and
executive personnel for managing the investments of the Funds and pays the
salaries and fees of all officers and directors of the Funds (except the fees
paid to directors who are not interested persons of the Adviser). For the
foregoing, the Adviser receives a monthly fee from The Yacktman Fund based on
The Yacktman Fund's average daily net assets at the annual rate of .65 of 1% on
the first $500,000,000 of average daily net assets, .60 of 1% on the next
$500,000,000 of average daily net assets and .55 of 1% on average daily net
assets in excess of $1,000,000,000, and a monthly fee from The Yacktman Focused
Fund based on The Yacktman Focused Fund's average daily net assets at the annual
rate of 1% on average daily net assets.
The Funds pay all of their own expenses, including, without
limitation, the cost of preparing and printing the registration statement
required under the Securities Act of 1933 and any amendments thereto, the
expense of registering shares with the Securities and Exchange Commission and in
the various states, the printing and distribution costs of prospectuses mailed
to existing investors, reports to investors, reports to government authorities
and proxy statements, fees paid to directors who are not interested persons of
the Adviser, interest charges, taxes, legal expenses, association membership
dues, auditing services, insurance premiums, brokerage commissions and expenses
in connection with portfolio transactions, fees and expenses of the custodian of
the Funds' assets, printing and mailing expenses and charges and expenses of
dividend disbursing agents, accounting services agents, registrars and stock
transfer agents.
-13-
<PAGE>
The Adviser has undertaken to reimburse each Fund to the extent
that the aggregate annual operating expenses, including the investment advisory
fee and the administration fee but excluding interest, taxes, brokerage
commissions and other costs incurred in connection with the purchase or sale of
portfolio securities, and extraordinary items, exceed that percentage of the
average net assets of such Fund for such year, as determined by valuations made
as of the close of each business day of the year, which is the most restrictive
percentage provided by the state laws of the various states in which the shares
of such Fund are qualified for sale. As of the date of this Statement of
Additional Information, no such state law provision was applicable to the Funds.
Additionally, the Adviser has voluntarily agreed to reimburse The Yacktman
Focused Fund to the extent aggregate annual operating expenses as described
above exceed specified percentages of such Fund's daily net assets as set forth
in the Prospectus. For the fiscal year ended December 31, 1998 such specified
percentage was 1.25%. The Funds monitor their expense ratios on a monthly basis.
If the accrued amount of the expenses of either Fund exceeds the expense
limitation, the Fund creates an account receivable from the Adviser for the
amount of such excess. In such a situation the monthly payment of the Adviser's
fee will be reduced by the amount of such excess (and if the amount of such
excess in any month is greater than the monthly payment of the Adviser's fee,
the Adviser will pay each Fund the amount of such difference), subject to
adjustment month by month during the balance of each Fund's fiscal year if
accrued expenses thereafter fall below this limit.
For services provided by the Adviser under the applicable Advisory
Agreement for the fiscal years ended December 31, 1998, 1997 and 1996 The
Yacktman Fund paid the Adviser $4,644,643, $6,360,037 and $4,086,939
respectively. The Adviser was not required to reimburse The Yacktman Fund for
excess expenses during such years. During the fiscal years ended December 31,
1998 and 1997 for services provided under the applicable Advisory Agreement The
Yacktman Focused Fund paid the Adviser $584,540 and $218,380, respectively, and
the Adviser reimbursed The Yacktman Focused Fund $328,543 and $101,060,
respectively, for excess expenses.
Each Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Company or by the vote of a majority (as defined in the Act) of
the outstanding shares of the applicable Fund, and (ii) by the vote of a
majority of the directors of the Company who are not parties to the Advisory
Agreement or interested persons of the Adviser, cast in person at a meeting
called for the purpose of voting on such approval. Each Advisory Agreement
provides that it may be terminated at any time without the payment of any
penalty, by the Board of Directors of the Company or by vote of the majority of
the applicable Fund's stockholders on sixty (60) days' written notice to the
Adviser, and by the Adviser on the same notice to the applicable Fund, and that
it shall be automatically terminated if it is assigned.
The administrator to the Funds is Sunstone Financial Group, Inc.
(the "Administrator"), 207 East Buffalo Street, Suite 400, Milwaukee, Wisconsin
53202-5712. As administrator, the Administrator provides clerical, compliance,
regulatory and other administrative services. As fund accountant, the
Administrator calculates each Fund's net asset value. For administrative
services, the Administrator receives from The Yacktman Fund
-14-
<PAGE>
a fee, computed daily and payable monthly, based on The Yacktman Fund's average
daily net assets at the annual rate of .15 of 1% on the first $50,000,000 of
average daily net assets, .05 of 1% on the next $50,000,000 of average daily net
assets and .025 of 1% on average daily net assets in excess of $100,000,000. And
for fund accounting services, the Administrator receives from The Yacktman Fund
a fee, computed daily and payable monthly, based on The Yacktman Fund's average
daily net assets at the annual rate of $20,000 on the first $100,000,000 of
average daily net assets, .010% on the next $100,000,000 of average daily net
assets, and .005% of average daily net assets in excess of $200,000,000.
For administrative and fund accounting services, The Yacktman
Focused Fund pays the Administrator a fee, computed daily and payable monthly,
at the annual rate of .05% of The Yacktman Focused Fund's average daily net
assets, subject to a minimum annual fee of $50,000.
The administration agreement entered into between the Funds and
the Administrator (the "Administration Agreement") will remain in effect as long
as its continuance is approved at least annually by the Board of Directors of
the Company and the Administrator. The Administration Agreement may be
terminated on not less than 90 days' notice, without the payment of any penalty,
by the Board of Directors of the Company or by the Administrator. For the fiscal
years ended December 31, 1998, 1997 and 1996 , The Yacktman Fund paid the
Administrator $314,789, $401,002 and $287,053 , respectively, pursuant to the
Administration Agreement. For the fiscal years ended December 31, 1998 and 1997
The Yacktman Focused Fund paid the Administrator $50,000 and $33,563,
respectively, pursuant to the Administration Agreement.
The Advisory Agreements and the Administration Agreement provide
that the Adviser and Administrator, as the case may be, shall not be liable to
the Funds or its stockholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations or duties. The
Advisory Agreements and the Administration Agreement also provide that the
Adviser and Administrator, as the case may be, and their officers, directors and
employees may engage in other businesses, devote time and attention to any other
business whether of a similar or dissimilar nature, and render services to
others.
EXCHANGE PRIVILEGE
Investors may exchange shares of either Fund having a value of
$1,000 or more for shares of the Firstar Money Market Fund, the Firstar U.S.
Government Money Market Fund or the Firstar Tax-Exempt Money Market Fund
(collectively the "Firstar Money Funds") at their net asset value and at a later
date exchange such shares and shares purchased with reinvested dividends for
shares of the Funds at net asset value. Investors who are interested in
exercising the exchange privilege should first contact the Funds to obtain
instructions and any necessary forms. The exchange privilege does not in any way
constitute an offering of, or recommendation on the part of the Funds or the
Adviser of, an investment in any of the Firstar Money Funds. Any investor who
considers making such an investment
-15-
<PAGE>
through the exchange privilege should obtain and review the Prospectus of the
applicable Firstar Money Fund before exercising the exchange privilege.
The exchange privilege will not be available if (i) the proceeds
from a redemption of shares are paid directly to the investor or at his or her
discretion to any persons other than the Funds or (ii) the proceeds from
redemption of the shares of the Firstar Money Market Fund are not immediately
reinvested in shares of the Funds or another Firstar Money Fund through a
subsequent exercise of the exchange privilege. There is currently no limitation
on the number of exchanges an investor may make. The exchange privilege may be
terminated by the Funds upon at least 60 days prior notice to investors.
For federal income tax purposes, a redemption of shares of a Fund
pursuant to the exchange privilege will result in a capital gain if the proceeds
received exceed the investor's tax-cost basis of the shares redeemed. Such a
redemption may also be taxed under state and local tax laws, which may differ
from the Internal Revenue Code of 1986 (the "Code").
REDEMPTIONS
The Funds reserve the right to suspend redemptions during any
period when the New York Stock Exchange is closed because of financial
conditions or any other extraordinary reason and to postpone redemptions for any
period during which (a) trading on the New York Stock Exchange is restricted
pursuant to rules and regulations of the Securities and Exchange Commission, (b)
the Securities and Exchange Commission has by order permitted such suspension or
(c) an emergency, as defined by rules and regulations of the Securities and
Exchange Commission, exists as a result of which it is not reasonably
practicable for a Fund to dispose of its securities or fairly to determine the
value of its net assets.
Each of the Funds has reserved the right to pay the redemption
price of its shares in assets other than cash. In accordance with Rule 18f-1
under the Act, the Company has filed Form N-18F-1 with the Securities and
Exchange Commission pursuant to which each Fund has committed to pay in cash all
requests for redemption by any shareholder of record, limited in amount with
respect to each shareholder during any ninety-day period to the lesser of (i)
$250,000, or (ii) 1% of the net asset value of the Fund at the beginning of the
ninety-day period.
SYSTEMATIC WITHDRAWAL PLAN
An investor who owns shares of a Fund worth at least $10,000 at
the current net asset value may, by completing an application which may be
obtained from the Funds or Firstar Mutual Fund Services, LLC create a Systematic
Withdrawal Plan from which a fixed sum will be paid to the investor at regular
intervals through redemption of shares of such Fund. To establish the Systematic
Withdrawal Plan, the investor deposits shares of the Funds with the Company and
appoints it as agent to effect redemptions of Fund shares held in the account
for the purpose of making monthly or quarterly withdrawal payments of a fixed
amount to the investor out of the account. Fund shares deposited by the investor
in the
-16-
<PAGE>
account need not be endorsed or accompanied by a stock power if registered in
the same name as the account; otherwise, a properly executed endorsement or
stock power, obtained from any bank, broker-dealer or the Funds is required. The
investor's signature should be guaranteed by a bank, a member firm of a national
stock exchange or other eligible guarantor.
The minimum amount of a withdrawal payment is $100. These payments
will be made from the proceeds of periodic redemptions of shares in the account
at net asset value. Redemptions can be made monthly or quarterly on any day the
investor chooses or, if that day is a weekend day or a holiday, on the following
business day. Establishment of a Systematic Withdrawal Plan constitutes an
election by the investor to reinvest in additional shares of the Funds, at net
asset value, all income dividends and capital gains distributions payable by the
applicable Fund on shares held in such account, and shares so acquired will be
added to such account. The investor may deposit additional shares in his account
at any time.
Withdrawal payments cannot be considered as yield or income on the
investor's investment, since portions of each payment will normally consist of a
return of capital. Depending on the size or the frequency of the disbursements
requested, and the fluctuation in the value of the applicable Fund's portfolio,
redemptions for the purpose of making such disbursements may reduce or even
exhaust the investor's account.
The investor may vary the amount or frequency of withdrawal
payments, temporarily discontinue them, or change the designated payee or
payee's address, by notifying Firstar Mutual Fund Services, LLC in writing prior
to the 15th day of the month preceding the next payment.
AUTOMATIC INVESTMENT PLAN, TELEPHONE
PURCHASES AND RETIREMENT PLANS
Automatic Investment Plan
The Funds offer an Automatic Investment Plan whereby an investor
may automatically make purchases of shares of the Funds on a regular, convenient
basis ($100 minimum per transaction). A $500 minimum initial investment must be
met before the Automatic Investment Plan may be established. Under the Automatic
Investment Plan, an investor's designated bank or other financial institution
debits a preauthorized amount on the investor's account each month and applies
the amount to the purchase of shares of the Funds. The Automatic Investment Plan
must be implemented with a financial institution that is a member of the
Automated Clearing House ("ACH"). No service fee is currently charged by the
Funds for participating in the Automatic Investment Plan. A $20 fee will be
imposed by Firstar Mutual Fund Services, LLC if sufficient funds are not
available in the investor's account at the time of the automatic transaction.
Applications to establish the Automatic Investment Plan are available from the
Funds. Investors who wish to make a change in investments made through an
automatic investment plan may do so by calling Firstar Mutual Fund Services, LLC
at 1-800-457-6033.
-17-
<PAGE>
Telephone Purchases
An investor may make additions to the investor's account by
telephone ($100 minimum) using the investor's bank account to clear the purchase
via electronic funds transfer ("EFT"). Only bank accounts held at domestic
financial institutions that are ACH members can be used for telephone
transactions. Telephone transactions may not be used for initial purchases of
shares of the Funds. Fund shares will be purchased at the net asset value
determined as of the close of trading on the date that Firstar Mutual Fund
Services, LLC receives payment for shares purchased by EFT through the ACH
system. Most transfers are completed within three business days. No fee is
currently charged for this service. To establish the telephone purchase option,
please complete the appropriate section of the purchase application. Inquiries
concerning this option may be directed to Firstar Mutual Fund Services, LLC at
1-800-457-6033.
Retirement Plans
The Funds offer the following retirement plans that may be funded
with purchases of shares of the Funds and may allow investors to shelter some of
their income from taxes:
Individual Retirement Account ("IRA")
Individual stockholders may establish their own tax-sheltered
Individual Retirement Accounts ("IRA"). The minimum initial investment for an
IRA is $500. The Funds currently offer a prototype IRA plan and a prototype Roth
IRA plan. There is currently no charge for establishing an account, although
there is an annual maintenance fee. (See the applicable IRA Custodial Agreement
and Disclosure Statement for a discussion of the annual maintenance fee, other
fees associated with the account, eligibility requirements and related tax
consequences.)
Simplified Employee Pension Plan ("SEP-IRA")
The Funds also offer a Simplified Employee Pension (SEP) plan for
employers, including self-employed individuals, who wish to purchase shares of
the Funds with tax-deductible contributions. Under the SEP plan, employer
contributions are made directly to the IRA accounts of eligible participants.
Savings Incentive Match Plan for Employees of Small Employers ("SIMPLE")
The Funds also offer a SIMPLE plan for employers, including
self-employed individuals, with 100 or fewer employees who wish to purchase
shares of the Funds with tax-deductible contributions. A SIMPLE plan allows
employees to elect to reduce their compensation and have such amounts
contributed to the plan. Under the SIMPLE plan, employer and employee
contributions are made directly to the SIMPLE IRA accounts of eligible
participants.
-18-
<PAGE>
Defined Contribution Retirement Plan (Keogh or Corporate Profit-sharing and
Money-Purchase Plans)
A prototype defined contribution retirement plan is available for
employers, including self-employed individuals, who wish to purchase shares of
the Funds with tax-deductible contributions.
Cash or Deferred 401(k) Plan
A prototype cash or deferred 401(k) arrangement is also available
as part of the Defined Contribution Retirement Plan for employers who wish to
allow employees to elect to reduce their compensation and have such amounts
contributed to the plan.
Model 403(b)(7) Plan
A model 403(b)(7) plan is available for employees of certain
charitable, educational and governmental entities.
A description of applicable service fees and certain limitations
on contributions and withdrawals, as well as application forms, are available
from the Funds upon request. The IRA documents contain a disclosure statement
which the Internal Revenue Service requires to be furnished to individuals who
are considering adopting the IRA. Because a retirement program involves
commitments covering future years, it is important that the investment
objectives of the Funds be consistent with the participant's retirement
objectives. Premature withdrawals from a retirement plan will result in adverse
tax consequences. Consultation with a competent financial and tax adviser
regarding the foregoing retirement plans is recommended.
CUSTODIAN
Firstar Bank Milwaukee, N.A., 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as custodian for the Funds. As such, Firstar Bank
Milwaukee, N.A. holds all securities and cash of the Funds, delivers and
receives payment for securities sold, receives and pays for securities
purchased, collects income from investments and performs other duties, all as
directed by officers of the Company. Firstar Bank Milwaukee, N.A. does not
exercise any supervisory function over the management of the Funds, the purchase
and sale of securities or the payment of distributions to stockholders. Firstar
Mutual Fund Services, LLC, an affiliate of Firstar Bank Milwaukee, N.A., acts as
each Fund's transfer agent and dividend disbursing agent.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Suite 1500,
Milwaukee, Wisconsin 53202, serves as the independent accountants for the Funds.
-19-
<PAGE>
DISTRIBUTION PLAN
The Yacktman Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. The Plan was terminated effective November
24, 1998. The Plan permitted The Yacktman Fund to employ one or more
distributors of its shares. Payments under the Plan could be made only to
distributors so employed by The Yacktman Fund. Payments under the Plan in any
year were limited to 0.25% of the average daily net assets of The Yacktman Fund.
Under the Plan, The Yacktman Fund paid distributors fees for the fiscal year
ended December 31, 1998 totaling $405,796, representing 0.06% of The Yacktman
Fund's average net assets.
The Yacktman Fund would pay to each distributor a monthly fee for
distribution of The Yacktman Fund's shares at the rate of 0.65% per annum of the
aggregate average daily net asset value of The Yacktman Fund shares beneficially
owned by such distributor's existing brokerage clients who established their
Yacktman Fund accounts prior to December 31, 1992. For purposes of the Plan, a
client included (a) with respect to individuals, the individual's spouse,
children, trust or retirement accounts for the benefit of any of the foregoing,
the individual's estate and any corporation of which the individual is an
affiliate, (b) with respect to corporations, its retirement plans and its
affiliates, and (c) with respect to clients who are investment advisers,
financial planners or others who exercise investment discretion or make
recommendations concerning the purchase or sale of securities, accounts for
which they exercise investment discretion or make recommendations concerning the
purchase or sale of securities. Beneficial ownership did not include ownership
solely as a nominee. If after December 31, 1992, a client ceased to be a client
of a distributor and thereafter became a client of another distributor, such
client could continue to be considered a client whose Yacktman Fund account was
established prior to December 31, 1992 if the client beneficially owned shares
of The Yacktman Fund at all times after ceasing to be a client of the former
distributor and prior to becoming a client of the latter distributor except as
may be necessary to affect a transfer of the account. The Yacktman Fund shares
owned by a client would be deemed to include all shares purchased and not
redeemed; provided, however, that if at any time no shares of The Yacktman Fund
were beneficially owned by a client whose Yacktman Fund account was established
prior to December 31, 1992, no distribution fees thereafter would be paid with
respect to shares beneficially owned by such client. The Plan was adopted in
anticipation that The Yacktman Fund would benefit from the Plan through
increased sales of its shares, thereby reducing The Yacktman Fund's expense
ratio and providing an asset size that allows the Adviser greater flexibility in
management.
ALLOCATION OF PORTFOLIO BROKERAGE
The Funds' securities trading and brokerage policies and
procedures are reviewed by and subject to the supervision of the Board of
Directors of the Company. Decisions to buy and sell securities for each Fund are
made by the Adviser subject to review by the Company's Board of Directors. In
placing purchase and sale orders for portfolio securities for the Funds, it is
the policy of the Adviser to seek the best execution of orders at the most
favorable price in light of the overall quality of brokerage and research
services provided, as described in this and the following paragraph. Many of
these transactions
-20-
<PAGE>
involve payment of a brokerage commission by the Funds. In some cases,
transactions are with firms who act as principals of their own accounts. In
selecting brokers to effect portfolio transactions, the determination of what is
expected to result in best execution at the most favorable price involves a
number of largely judgmental considerations. Among these are the Adviser's
evaluation of the broker's efficiency in executing and clearing transactions,
block trading capability (including the broker's willingness to position
securities) and the broker's reputation, financial strength and stability. The
most favorable price to a Fund means the best net price without regard to the
mix between purchase or sale price and commission, if any. Over-the-counter
securities are generally purchased and sold directly with principal market
makers who retain the difference in their cost in the security and its selling
price (i.e. "markups" when the market maker sells a security and "markdowns"
when the market maker buys a security). In some instances, the Adviser feels
that better prices are available from non-principal market makers who are paid
commissions directly. The Funds may place portfolio orders with broker-dealers
who place orders for, or recommend the purchase of, shares of the Funds to
clients (if the Adviser believes the commissions and transaction quality are
comparable to that available from other brokers) and may allocate portfolio
brokerage on that basis.
In allocating brokerage business for the Funds, the Adviser also
takes into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, computer hardware and software, market quotations,
reports or analyses of particular companies or industry groups, market timing
and technical information, and the availability of the brokerage firm's analysts
for consultation. While the Adviser believes these services have substantial
value, they are considered supplemental to the Adviser's own efforts in the
performance of its duties under the Advisory Agreements. Other clients of the
Adviser may indirectly benefit from the availability of these services to the
Adviser, and the Funds may indirectly benefit from services available to the
Adviser as a result of transactions for other clients. The Advisory Agreements
provide that the Adviser may cause the Fund to pay a broker which provides
brokerage and research services to the Adviser a commission for effecting a
securities transaction in excess of the amount another broker would have charged
for effecting the transaction, if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of brokerage and
research services provided by the executing broker viewed in terms of either the
particular transaction or the Adviser's overall responsibilities with respect to
the Fund and the other accounts as to which he exercises investment discretion.
For the fiscal years ended December 31, 1998, 1997 and 1996 , The Yacktman Fund
paid brokerage commissions of $1,365,757, $1,821,839 and $998,728 ,
respectively, on total transactions of $711,404,460, $1,074,679,740 and
$652,310,636 , respectively. During the fiscal year ended December 31, 1998, The
Yacktman Fund paid brokerage commissions of $697,494 on transactions of
$335,955,983 to brokers who provided research services to the Adviser. For the
fiscal years ended December 31, 1998 and 1997, The Yacktman Focused Fund paid
brokerage commissions of $96,612 and $112,677, respectively, on total
transactions of $60,843,314 and $58,538,149, respectively. During the fiscal
year ended December 31, 1998, the Yacktman Focused Fund paid brokerage
commissions of $26,160 on transactions of $13,058,872 to brokers who provided
research services to the Adviser.
-21-
<PAGE>
In the fiscal year ended December 31, 1998, 1997 and 1996 , the
Adviser allocated brokerage to a broker that provides sub-transfer agency
services to The Yacktman Fund. Pursuant to a directed brokerage arrangement,
this broker reduced its sub-transfer agency fees by $144,424, $364,752 and
$363,016 , respectively, in the fiscal years ended December 31, 1998, 1997 and
1996 , as a result of The Yacktman Fund brokerage allocated to it.
TAXES
Each Fund annually will endeavor to qualify for and elect tax
treatment applicable to a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Each Fund has so qualified in each
of its fiscal years. If a Fund fails to qualify as a regulated investment
company under Subchapter M in any fiscal year, it will be treated as a
corporation for federal income tax purposes. As such the Fund would be required
to pay income taxes on its net investment income and net realized capital gains,
if any, at the rates generally applicable to corporations. Stockholders of a
Fund that did not qualify as a regulated investment company under Subchapter M
would not be liable for income tax on the Fund's net investment income or net
realized capital gains in their individual capacities. Distributions to
stockholders, whether from the Fund's net investment income or net realized
capital gains, would be treated as taxable dividends to the extent of current or
accumulated earnings and profits of the Fund.
Each Fund intends to distribute all of its net investment income
and net capital gain each fiscal year. Dividends from net investment income
(including short-term capital gain) are taxable to investors as ordinary income,
whereas distributions of net realized long-term capital gains are taxable as
long-term capital gains regardless of the stockholder's holding period for the
shares. Such dividends and distributions are taxable to stockholders, whether
received in cash or in additional shares of the respective Funds. A portion of
the Funds' income distributions may be eligible for the 70% dividends-received
deduction for domestic corporate stockholders.
Any dividend or capital gain distribution paid shortly after a
purchase of shares of a Fund will have the effect of reducing the per share net
asset value of such shares by the amount of the dividend or distribution.
Furthermore, if the net asset value of the shares of a Fund immediately after a
dividend or distribution is less than the cost of such shares to the investor,
the dividend or distribution will be taxable to the investor.
Redemption of shares will generally result in a capital gain or
loss for income tax purposes. The tax treatment of such capital gain or loss
will depend upon the stockholder's holding period. However, if a loss is
realized on shares held for six months or less, and the stockholder received a
capital gain distribution during that period, then such loss is treated as a
long-term capital loss to the extent of the capital gain distribution received.
Investors may also be subject to state and local taxes.
Each Fund will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividend payments and redemption and
exchange proceeds if an
-22-
<PAGE>
investor fails to furnish such Fund with his social security number or other tax
identification number or fails to certify under penalty of perjury that such
number is correct or that he is not subject to backup withholding due to the
underreporting of income. The certification form is included as part of the
share purchase application and should be completed when the account is opened.
This section is not intended to be a full discussion of present or
proposed federal income tax laws and the effect of such laws on an investor.
Investors are urged to consult with their respective tax advisers for a complete
review of the tax ramifications of an investment in a Fund.
STOCKHOLDER MEETINGS
The Maryland General Corporation Law permits registered investment
companies, such as the Funds, to operate without an annual meeting of
stockholders under specified circumstances if an annual meeting is not required
by the Act. The Company has adopted the appropriate provisions in its Bylaws and
may, at its discretion, not hold an annual meeting in any year in which the
election of directors is not required to be acted on by stockholders under the
Act.
The Company's Bylaws also contain procedures for the removal of
directors by its stockholders. At any meeting of stockholders, duly called and
at which a quorum is present, the stockholders may, by the affirmative vote of
the holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors to
fill any resulting vacancies for the unexpired terms of removed directors.
Upon the written request of the holders of shares entitled to not
less than ten percent (10%) of all the votes entitled to be cast at such
meeting, the Secretary of the Company shall promptly call a special meeting of
stockholders for the purpose of voting upon the question of removal of any
director. Whenever ten or more stockholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at least
one percent (1%) of the total outstanding shares, whichever is less, shall apply
to the Company's Secretary in writing, stating that they wish to communicate
with other stockholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five business
days after such application either: (1) afford to such applicants access to a
list of the names and addresses of all stockholders as recorded on the books of
the Funds; or (2) inform such applicants as to the approximate number of
stockholders of record and the approximate cost of mailing to them the proposed
communication and form of request.
If the Secretary elects to follow the course specified in clause
(2) of the last sentence of the preceding paragraph, the Secretary, upon the
written request of such applicants, accompanied by a tender of the material to
be mailed and of the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all stockholders
-23-
<PAGE>
of record at their addresses as recorded on the books unless within five
business days after such tender the Secretary shall mail to such applicants and
file with the Securities and Exchange Commission, together with a copy of the
material to be mailed, a written statement signed by at least a majority of the
Board of Directors to the effect that in their opinion either such material
contains untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the Securities and Exchange Commission may, and if
demanded by the Board of Directors or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the Securities and Exchange Commission shall enter an order refusing to
sustain any of such objections, or if, after the entry of an order sustaining
one or more of such objections, the Securities and Exchange Commission shall
find, after notice and opportunity for hearing, that all objections so sustained
have been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all stockholders with reasonable promptness after the
entry of such order and the renewal of such tender.
CAPITAL STRUCTURE
The Company's authorized capital consists of 1,000,000,000 shares
of Common Stock, $0.0001 par value. The Common Stock is divisible into an
unlimited number of "series," each of which is a separate Fund. Stockholders are
entitled: (i) to one vote per full share of Common Stock; (ii) to such
distributions as may be declared by the Company's Board of Directors out of
funds legally available; and (iii) upon liquidation, to participate ratably in
the assets available for distribution. There are no conversion or sinking fund
provisions applicable to the shares, and the holders have no preemptive rights
and may not cumulate their votes in the election of directors. Consequently the
holders of more than 50% of the shares of Common Stock voting for the election
of directors can elect the entire Board of Directors and, in such event, the
holders of the remaining shares voting for the election of directors will not be
able to elect any person or persons to the Board of Directors.
Shares of Common Stock are redeemable and are transferable. All
shares issued and sold by the Funds will be fully paid and nonassessable.
Fractional shares of Common Stock entitle the holder to the same rights as whole
shares of Common Stock.
Pursuant to the Company's Articles of Incorporation, the Board of
Directors may classify or reclassify any unissued shares of the Funds and may
designate or redesignate the name of any outstanding class of shares of the
Funds. As a general matter, shares are voted in the aggregate and not by class,
except where class voting is required by Maryland law or the Act (e.g., a change
in investment policy or approval of an investment advisory agreement). All
consideration received from the sale of shares of any class of the Funds'
shares, together with all income, earnings, profits and proceeds thereof, belong
to that class and are charged with the liabilities in respect of that class and
of that class' share of the general liabilities of the Funds in the proportion
that the total net assets of the class bear to the
-24-
<PAGE>
total net assets of all classes of the Funds' shares. The net asset value of a
share of any class is based on the assets belonging to that class less the
liabilities charged to that class, and dividends may be paid on shares of any
class of Common Stock only out of lawfully available assets belonging to that
class. In the event of liquidation or dissolution of the Funds, the holders of
each class would be entitled, out of the assets of the Funds available for
distribution, to the assets belonging to that class.
PERFORMANCE INFORMATION
Each of the Funds may provide from time to time in advertisements,
reports to stockholders and other communications with investors its average
annual total return and its total return. Average annual total return measures
both the net investment income generated by, and the effect of any realized or
unrealized appreciation or depreciation of, the underlying investments in a
Fund's investment portfolio. A Fund's average annual total return figures are
computed in accordance with the standardized method prescribed by the Securities
and Exchange Commission by determining the average annual compounded rates of
return over the periods indicated, that would equate the initial amount invested
to the ending redeemable value, according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of
the period of a hypothetical $1,000 payment
made at the beginning of such period
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the applicable reinvestment dates , and (ii) deducts all
recurring fees, such as advisory fees, charged as expenses to all investor
accounts.
Total return is the cumulative rate of investment growth which
assumes that income dividends and capital gains are reinvested. It is determined
by assuming a hypothetical investment at the net asset value at the beginning of
the period, adding in the reinvestment of all income dividends and capital
gains, calculating the ending value of the investment at the net asset value as
of the end of the specified time period, subtracting the amount of the original
investment, and dividing this amount by the amount of the original investment.
This calculated amount is then expressed as a percentage by multiplying by 100.
The Yacktman Fund's average annual compounded returns for the
one-year period ended December 31, 1998, for the five year period ended December
31, 1998 and for the period from the Fund's commencement of operations (July 6,
1992) through December 31, 1998 were 0.64%, 16.31% and 11.96%, respectively.
Such performance results reflect reimbursements made by the Adviser during the
fiscal year ended December 31, 1993 and the
-25-
<PAGE>
period from July 6, 1992 through December 31, 1992 to keep aggregate annual
operating expenses at or below 1.2% of average daily net assets.
The Yacktman Focused Fund's average annual compounded returns for
the one-year period ended December 31, 1998 and for the period May 1, 1997
through December 31, 1998 were 4.58% and 11.90%, respectively. Such performance
results reflect reimbursements made by the Adviser during these periods to keep
aggregate annual operating expenses at or below 1.25% of average daily net
assets. The foregoing performance results are based on historical earnings and
should not be considered as representative of the performance of the Funds in
the future. An investment in either Fund will fluctuate in value and at
redemption its value may be more or less than the initial investment.
The Funds may compare their performance to the Consumer Price
Index, the Dow Jones Industrial Average, the Standard & Poor's 500 Stock Index
and to the performance of mutual fund indexes as reported by Lipper Analytical
Services, Inc. ("Lipper"), CDA Investment Technologies, Inc. ("CDA") or
Morningstar, Inc. ("Morningstar"), three widely recognized independent mutual
fund reporting services. Lipper, CDA and Morningstar performance calculations
include reinvestment of all capital gain and income dividends for the periods
covered by the calculations. The Consumer Price Index is generally considered to
be a measure of inflation. The Dow Jones Industrial Average and the Standard &
Poor's 500 Stock Index are unmanaged indices of common stocks which are
considered to be generally representative of the United States stock market. The
market prices and yields of these stocks will fluctuate. A Fund may also quote
performance information from publications such as The Wall Street Journal,
Kiplinger's Personal Finance Magazine, Money Magazine, Forbes, Smart Money,
Barron's, Worth Magazine, USA Today, and local newspapers.
LEGAL PROCEEDINGS
The Company is a defendant in litigation brought on January 20,
1999 by Shareholder Communications Corporation in the United States District
Court for the Northern District of Illinois (Case No: 99C 0288). In this
litigation the plaintiff seeks damages in the amount of $247,310.06, exclusive
of interests and costs. The plaintiff has alleged that the Company breached a
Solicitation Agreement pursuant to which it acted as the Company's proxy
solicitor in connection with a proxy solicitation for a Special Meeting of
Stockholders held on November 24, 1998 by failing to pay invoices submitted by
the plaintiff. The plaintiff has also alleged that the failure to pay such
invoices resulted in the Company being unjustly enriched. The Company is
currently evaluating the claims made by the plaintiff. The Company has until
March 1, 1999 to file an answer or otherwise plead.
DESCRIPTION OF SECURITIES RATINGS
The Yacktman Fund may invest in non-convertible bonds and
debentures assigned one of the two highest ratings of either Standard & Poor's
Corporation ("Standard & Poor's") or Moody's Investors Service, Inc.
("Moody's"). The Yacktman Focused Fund may invest in non-convertible bonds and
debentures assigned at least an investment grade by Standard & Poor's or Moody's
(or unrated but deemed by the Adviser to be of comparable
-26-
<PAGE>
quality), and up to 5% of the assets of each of The Yacktman Fund and The
Yacktman Focused Fund may be invested in convertible bonds and debentures rated
below investment grade. The Funds may invest in commercial paper and commercial
paper master notes rated A-2 or better by Standard & Poor's or P-2 by Moody's. A
brief description of the ratings symbols and their meanings follows.
Standard & Poor's Debt Ratings. A Standard & Poor's corporate debt
rating is a current assessment of the creditworthiness of an obligor with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold
a security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform any audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of the obligation in
the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights;
Investment Grade
AAA - Debt rated 'AAA' has the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated 'AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only in small
degree.
A - Debt rated 'A' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated 'BBB' is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters,
-27-
<PAGE>
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Speculative Grade
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation and
'C' the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated 'BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-` rating.
B - Debt rated 'B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The 'B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'BB' or 'BB-` rating.
CCC - Debt rated 'CCC' has a currently identifiable vulnerability
to default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The 'CCC' rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied 'B' or 'B-` rating.
CC - Debt rated 'CC' typically is applied to debt subordinated to
senior debt that is assigned an actual or implied 'CCC' rating.
C - Debt rated 'C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied 'CCC-' debt rating. The `C'
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI - The rating 'CI' is reserved for income bonds on which no
interest is being paid.
D - Debt rated 'D' is in payment default. The 'D' rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such period. The 'D' rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
-28-
<PAGE>
Moody's Bond Ratings.
Investment Grade
Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large, or by
an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Speculative Grade
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
-29-
<PAGE>
C - Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each of the
foregoing generic rating classifications. The modifier 1 indicates that the
company ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the company
ranks in the lower end of its generic rating category.
Standard & Poor's Commercial Paper Ratings. A Standard & Poor's
commercial paper rating is a current assessment of the likelihood of timely
payment of debt considered short-term in the relevant market. Ratings are graded
into several categories, ranging from A-1 for the highest quality obligations to
D for the lowest. The three highest categories are as follows:
A-1. This highest category indicates that the degree of safety
regarding timely payment is strong. Those issuers determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2. Capacity for timely payment on issues with this designation
is satisfactory. However the relative degree of safety is not as high as for
issuers designated "A-1".
A-3. Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying a higher designation.
Moody's Commercial Paper Ratings. Among the factors considered by
Moody's in assigning ratings are the following: (1) evaluation of the management
of the issuer; (2) economic evaluation of the issuer's industry or industries
which may be inherent in certain areas; (3) evaluation of the issuer's products
in relation to competition and customer acceptance; (4) liquidity; (5) amount
and quality of long-term debt; (6) trend of earnings over a period of ten years;
(7) financial strength of a parent company and the relationships which exist
with the issuer; and (8) recognition by the management of obligations which may
be present or may arise as a result of public interest questions and
preparations to meet such obligations. Relative differences in these factors
determine whether the issuer's commercial is rated P-1, P-2 or P-3.
-30-
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Registrant's Articles of Incorporation, as amended. (2)
(b) Registrant's Bylaws.
(c) None.
(d)(i) Investment Advisory Agreement with Yacktman Asset Management Co.
on behalf of The Yacktman Fund . (2)
(d)(ii)Investment Advisory Agreement with Yacktman Asset Management Co.
on behalf of The Yacktman Focused Fund . (1)
(e) None.
(f) None.
(g) Custodian Agreement with First Wisconsin Trust Company
(predecessor to Firstar Mutual Fund Services, LLC).(1)
(h)(i) Amended and Restated Administration Agreement and Fund Accounting
Agreement with Sunstone Financial Group, Inc.(1)
(h)(ii)Transfer Agent Agreement with First Wisconsin Trust Company
(predecessor to Firstar Mutual Fund Services, LLC).(2)
(i) Opinion of Foley & Lardner, counsel for Registrant.
(j) Consent of PricewaterhouseCoopers LLP.
(k) None.
(l) Subscription Agreement. (2)
(m) None.
(n) Financial Data Schedule.
(o) None.
- --------------------------
(1) Previously filed as an exhibit to Post-Effective Amendment No. 6 to the
Registration Statement and incorporated by reference thereto. Post-Effective
Amendment No. 6 was filed on February 13, 1997 and its accession number is
0000897069-97-000076.
S-1
<PAGE>
(2) Previously filed as an exhibit to Post-Effective Amendment No. 8 to the
Registration Statement and incorporated by reference thereto. Post-Effective
Amendment No. 8 was filed on October 30, 1997 and its accession number is
0000897069-97-000425.
Item 24. Persons Controlled by or under Common Control with Registrant
Registrant is not controlled by any person. Registrant neither controls
any person nor is under common control with any other person.
Item 25. Indemnification
Pursuant to the authority of the Maryland General Corporation Law,
particularly Section 2-418 thereof, Registrant's Board of Directors has adopted
the following bylaw which is in full force and effect and has not been modified
or canceled:
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
The corporation shall indemnify directors, officers, employees and agents
of the corporation against judgments, fines, settlements and expenses to the
fullest extent authorized, and in the manner permitted by applicable federal and
state law.
The corporation shall advance the expenses of its directors, officers,
employees and agents who are parties to any Proceeding to the fullest extent
authorized, and in the manner permitted, by applicable federal and state law.
For purposes of this paragraph, "Proceeding" means any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal,
administrative, or investigative.
This Section 7 of Article VII constitutes vested rights in favor of all
directors, officers, employees and agents of the corporation. Neither the
amendment nor repeal of this Article, nor the adoption or amendment of any other
provision of the Bylaws or charter of the corporation inconsistent with this
Article, shall apply to or affect in any respect the applicability of this
Article with respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption. For purposes of this Section 7, the terms
"director" and "officer" have the same meaning ascribed to such terms in Section
2-418 of the Maryland General Corporation Law.
Insofar as indemnification for and with respect to liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling person or
Registrant in the
S-2
<PAGE>
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 26. Business and Other Connections of Investment Adviser
Incorporated by reference to pages 10 through 14 of the Statement of
Additional Information pursuant to Rule 411 under the Securities Act of 1933.
Item 27. Principal Underwriters
Not Applicable.
Item 28. Location of Accounts and Records
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the physical possession of Registrant
and Registrant's Administrator as follows: the documents required to be
maintained by paragraphs (5), (6), (7), (10) and (11) of Rule 31a-1(b) will be
maintained by the Registrant; and all other records will be maintained by the
Registrant's Administrator.
Item 29. Management Services
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 30. Undertakings
Registrant undertakes to provide its Annual Report to Shareholders upon
request without charge to each person to whom a prospectus is delivered.
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amended
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago and State of Illinois on the 19th day of
February, 1999.
THE YACKTMAN FUNDS, INC.
(Registrant)
By: /s/ Donald A. Yacktman
Donald A. Yacktman,
President
Pursuant to the requirements of the Securities Act of 1933, this Amended
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Donald A. Yacktman President and Treasurer (Principal February 19, 1999
- -------------------------------------- Executive, Financial and Accounting
Donald A. Yacktman Officer) and a Director
/s/ Ronald W. Ball Director February 19, 1999
- --------------------------------------
Ronald W. Ball
/s/ Bruce B. Bingham Director February 19, 1999
- --------------------------------------
Bruce B. Bingham
/s/ Albert J. Malwitz Director February 19, 1999
Albert J. Malwitz
/s/ George J. Stevenson III Director February 19, 1999
- --------------------------------------
George J. Stevenson III
</TABLE>
S-4
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
(a) Registrant's Articles of Incorporation, as amended*
(b) Registrant's Bylaws
(c) None
(d)(i) Investment Advisory Agreement with Yacktman Asset Management Co. on
behalf of The Yacktman Fund*
(d)(ii) Investment Advisory Agreement with Yacktman Asset Management Co., on
behalf of The Yacktman Focused Fund*
(e) None
(f) None
(g) Custodian Agreement with First Wisconsin Trust Company (predecessor to
Firstar Bank Milwaukee, N.A.)*
(h)(i) Amended and Restated Administration and Fund Accounting Agreement with
Sunstone Financial Group, Inc. *
(h)(ii) Transfer Agent Agreement with First Wisconsin Trust Company
(predecessor to Firstar Mutual Fund Services, LLC)*
(i) Opinion of Foley & Lardner, counsel for Registrant
(j) Consent of PricewaterhouseCoopers LLP
(k) None
(l) Subscription Agreement*
(m) None
(n) Financial Data Schedule
(o) None
BYLAWS
OF
THE YACKTMAN FUNDS, INC.
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. Place of Meetings. All meetings of stockholders shall be
held at such location as the Board of Directors shall direct.
Section 2. Annual Meeting.
(a) The annual meeting of stockholders for the election of directors
and the transaction of such other business as may properly come before it, if
the annual meeting shall be held, shall be held during the month of May of each
year (or during such other month as the Board of Directors shall determine),
commencing in 1993, at such date and time as shall be fixed by the Board of
Directors and stated in the notice of such meeting, but in no event more than
one hundred twenty (120) days after the occurrence of the event requiring the
meeting to elect directors. Any business of the corporation may be transacted at
the annual meeting without being specifically designated in the notice, except
such business as is specifically required by statute to be stated in the notice.
(b) The corporation shall not be required to hold an annual meeting in
any year in which the election of directors is not required to be acted on by
stockholders under the Investment Company Act of 1940.
Section 3. Special Meeting. Special meetings of the stockholders may
be called by the board of directors, the president, any vice president, or the
secretary, and shall be called by the secretary upon the written request of the
holders of shares entitled to not less than ten percent (10%) of all the votes
entitled to be cast at such meeting; provided that such holders prepay the costs
to the corporation of preparing and mailing the notice of the meeting. The
business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
Section 4. Notice of Meeting. Not less than ten (10) days nor more
than ninety (90) days before the date of every stockholders' meeting, the
secretary shall give to each stockholder entitled to vote at such meeting and to
each other stockholder entitled to notice of such meeting under applicable law,
written or printed notice stating the time and place of the meeting, and in the
case of a special meeting (or where required by applicable law) the purpose or
purposes for which the meeting is called, either by mail, by presenting it to
him personally or by leaving it at his residence or usual place of business. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail addressed to the stockholder at his post office address as it
appears on the records of the corporation, with postage thereon prepaid.
<PAGE>
Section 5. Quorum. At any meeting of stockholders the presence in
person or by proxy of stockholders entitled to cast a majority of the votes
thereat shall constitute a quorum; but this section shall not affect any
requirement under statute or under the charter for the vote necessary for the
adoption of any measure. If at any meeting a quorum is not present or
represented, the chairman of the meeting or the holders of a majority of the
stock present or represented may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted which might have been transacted at
the meeting as originally called.
Section 6. Stock Entitled to Vote. Each issued share of each class of
stock shall be entitled to vote at any meeting of stockholders except shares
owned, other than in a fiduciary capacity, by the corporation or by another
corporation in which the corporation owns shares entitled to cast a majority of
all the votes entitled to be cast by all shares outstanding and entitled to vote
of such corporation.
Section 7. Voting. Each outstanding share of each class of stock
entitled to vote at a meeting of stockholders shall be entitled to one vote on
each matter submitted to a vote. In all elections for directors every
stockholder shall have the right to vote the shares of each class owned of
record by him for as many persons as there are directors to be elected, but
shall not be entitled to exercise any right of cumulative voting. A stockholder
may vote the shares owned of record by him either in person or by proxy executed
in writing by the stockholder or by his authorized attorney-in-fact. No proxy
shall be valid after eleven (11) months from its date unless otherwise provided
in the proxy. At all meetings of stockholders, unless the voting is conducted by
inspectors, all questions relating to the qualification of voters, the validity
of proxies and the acceptance or rejection of votes shall be decided by the
chairman of the meeting. A majority of the votes cast at a meeting of
stockholders, duly called and at which a quorum is present, shall be sufficient
to take or authorize any action which may properly come before the meeting,
unless a greater number is required by statute or by the charter.
Section 8. Informal Action. Any action required or permitted to be
taken at any meeting of stockholders may be taken without a meeting, if a
consent in writing, setting forth such action, is signed by all the stockholders
entitled to vote on the subject matter thereof and such consent is filed with
the records of the corporation.
ARTICLE II
DIRECTORS
Section 1. Number. The number of directors of the corporation shall be
five (5). By vote of a majority of the entire board of directors, the number of
directors fixed by the charter or by these bylaws may be increased or decreased
from time to time to not more than fifteen nor less than three, but the tenure
of office of a director shall not be affected by any decrease in the number of
directors so made by the board.
-2-
<PAGE>
Section 2. Election and Qualification. Until the first annual meeting
of stockholders and until successors are duly elected and qualify, the board of
directors shall consist of the persons named as such in the charter. At the
first annual meeting of stockholders, the stockholders shall elect directors to
hold office until their successors are elected and qualify. A director need not
be a stockholder of the corporation, but must be eligible to serve as a director
of a registered investment company under the Investment Company Act of 1940.
Section 3. Vacancies. Any vacancy on the board of directors occurring
between stockholders' meetings called for the purpose of electing directors may
be filled, if immediately after filling any such vacancy at least two-thirds of
the directors then holding office shall have been elected to such office at an
annual or special meeting of stockholders, in the following manner: (i) for a
vacancy occurring other than by reason of an increase in directors, by a
majority of the remaining members of the board, although such majority is less
than a quorum; and (ii) for a vacancy occurring by reason of an increase in the
number of directors, by action of a majority of the entire board. A director
elected by the board to fill a vacancy shall be elected to hold office until the
next annual meeting of stockholders or until his successor is elected and
qualifies. If by reason of the death, disqualification or bona fide resignation
of any director or directors, more than sixty percent (60%) of the members of
the board of directors are interested persons of the corporation, as defined in
the Investment Company Act of 1940, such vacancy shall be filled within thirty
(30) days if it may be filled by the board, or within sixty (60) days if a vote
of stockholders is required to fill such vacancy; provided that such vacancy may
be filled within such longer period as the Securities and Exchange Commission
may prescribe by rules and regulations, upon its own motion or by order upon
application. In the event that at any time less than a majority of the directors
were elected by the stockholders, the board or proper officer shall forthwith
cause to be held as promptly as possible, and in any event within sixty (60)
days, a meeting of the stockholders for the purpose of electing directors to
fill any existing vacancies in the board, unless the Securities and Exchange
Commission shall by order extend such period.
Section 4. Powers. The business and affairs of the corporation shall
be managed under the direction of the board of directors, which may exercise all
of the powers of the corporation, except such as are by law or by the charter or
by these bylaws conferred upon or reserved to the stockholders.
Section 5. Removal.
(a) At any meeting of stockholders, duly called and at which a quorum
is present, the stockholders may, by the affirmative vote of the holders of a
majority of the votes entitled to be cast thereon, remove any director or
directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of removed directors.
(b) Notwithstanding any other provisions of these bylaws, the
secretary of the corporation shall promptly call a special meeting of
stockholders for the purpose of voting
-3-
<PAGE>
upon the question of removal of any director upon the written request of the
holders of shares entitled to not less than ten percent (10%) of all the votes
entitled to be cast at such meeting.
(c) Whenever ten or more stockholders of record who have been such for
at least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at least
one percent (1%) of the total outstanding shares, whichever is less, shall apply
to the corporation's secretary in writing, stating that they wish to communicate
with other stockholders with a view to obtaining signatures to a request for a
meeting pursuant to subsection (b) above and accompanied by a form of
communication and request which they wish to transmit, the secretary shall
within five business days after such application either: (1) afford to such
applicants access to a list of the names and addresses of all stockholders as
recorded on the books of the corporation; or (2) inform such applicants as to
the approximate number of stockholders of record and the approximate cost of
mailing to them the proposed communication and form of request.
(d) If the secretary elects to follow the course specified in clause
(2) of subsection (c) above, the secretary, upon the written request of such
applicants, accompanied by a tender of the material to be mailed and of the
reasonable expenses of mailing, shall, with reasonable promptness, mail such
material to all stockholders of record at their addresses as recorded on the
books, unless within five (5) business days after such tender the secretary
shall mail to such applicants and file with the Securities and Exchange
Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the board of directors to the effect
that in their opinion either such material contains untrue statements of fact or
omits to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the Securities and Exchange Commission may, and if
demanded by the board of directors or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the Securities and Exchange Commission shall enter an order refusing to
sustain any of such objections, or if, after the entry of an order sustaining
one or more of such objections, the Securities and Exchange Commission shall
find, after notice and opportunity for hearing, that all objections so sustained
have been met, and shall enter an order so declaring, the secretary shall mail
copies of such material to all shareholders with reasonable promptness after the
entry of such order and the renewal of such
Section 6. Place of Meetings. Meetings of the board of directors,
regular or special, may be held at any place in or out of the State of Maryland
as the board may from time to time determine or as may be specified in the
notice of meeting.
Section 7. First Meeting of Newly Elected Board. The first meeting of
each newly elected board of directors shall be held without notice immediately
after and at the same general place as the annual meeting of the stockholders,
for the purpose of organizing the board, electing officers and transacting any
other business that may properly come before the meeting.
-4-
<PAGE>
Section 8. Regular Meetings. Regular meetings of the board of
directors may be held without notice at such time and place as shall from time
to time be determined by the board.
Section 9. Special Meetings. Special meetings of the board of
directors may be called at any time either by the board, the president, a vice
president or a majority of the directors in writing with or without a meeting.
Notice of special meetings shall either be sent via U.S. mail by the secretary
to each director, at such director's business address, at least three (3) days
before the meeting or shall be given personally or telegraphed or sent by
facsimile to each director, at such director's business address, at least one
(1) day before the meeting. Such notice shall set forth the time and place of
such meeting but need not, unless otherwise required by law, state the purposes
of the meeting.
Section 10. Quorum and Vote Required for Action. At all meetings of
the board of directors a majority of the entire board shall constitute a quorum
for the transaction of business, and the action of a majority of the directors
present at any meetings at which a quorum is present shall be the action of the
board of directors unless the concurrence of a greater proportion is required
for such action by statute, the articles of incorporation or these bylaws. If at
any meeting a quorum is not present, a majority of the directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present. Members of the board of directors or a
committee of the board may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time; provided, however, that a
director may not participate in a meeting by means of a conference telephone or
similar communications equipment if the purpose of the meeting is to approve the
corporation's investment advisory agreement and/or to approve the selection of
the corporation's auditors, or if participation in such a manner would otherwise
violate the Investment Company Act of 1940 or other applicable laws. Except as
set forth in the preceding sentence, participation in a meeting by these means
constitutes presence in person at the meeting.
Section 11. Executive and Other Committees. The board of directors may
appoint from among its members an executive and other committees composed of two
(2) or more directors. The board may delegate to such committees in the
intervals between meetings of the board any of the powers of the board to manage
the business and affairs of the corporation, except the power to: (i) declare
dividends or distributions upon the stock of the corporation; (ii) issue stock
of the corporation; (iii) recommend to the stockholders any action which
requires stockholder approval; (iv) amend the bylaws; (v) approve any merger or
share exchange which does not require stockholder approval; or (vi) take any
action required by the Investment Company Act of 1940 to be taken by the
independent directors of the corporation or by the full board of directors.
Section 12. Informal Action. Except as set forth in the following
sentence, any action required or permitted to be taken at any meeting of the
board of directors or of a committee of the board may be taken without a
meeting, if a written consent to such action is
-5-
<PAGE>
signed by all members of the board or the committee, as the case may be, and
such written consent is filed with the minutes of proceedings of the board or
committee. Notwithstanding the preceding sentence, no action may be taken by the
board of directors pursuant to a written consent with respect to the approval of
the corporation's investment advisory agreement, the approval of the selection
of the corporation's auditors, or any action required by the Investment Company
Act of 1940 or other applicable law to be taken at a meeting of the board of
directors to be held in person.
ARTICLE III
OFFICERS AND EMPLOYEES
Section 1. Election and Qualification. At the first meeting of each
newly elected board of directors there shall be elected a president, one or more
vice presidents, a secretary and a treasurer. The board may also elect one or
more assistant secretaries and assistant treasurers. No officer need be a
director. Any two or more offices, except the offices of president and vice
president, may be held by the same person but no officer shall execute,
acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law, charter or these bylaws to be executed,
acknowledged or verified by two or more officers. Each officer must be eligible
to serve as an officer of a registered investment company under the Investment
Company Act of 1940. Nothing herein shall preclude the employment of other
employees or agents by the corporation from time to time without action by the
board.
Section 2. Term, Removal and Vacancies. The officers shall be elected
to serve until the next first meeting of a newly elected board of directors and
until their successors are elected and qualify. Any officer may be removed by
the board, with or without cause, whenever in its judgment the best interests of
the corporation will be served thereby, but such removal shall be without
prejudice to the contractual rights, if any, of the person so removed. A vacancy
in any office shall be filled by the board for the unexpired term.
Section 3. Bonding. Each officer and employee of the corporation who
singly or jointly with others has access to securities or funds of the
corporation, either directly or through authority to draw upon such funds, or to
direct generally the disposition of such securities shall be bonded against
larceny and embezzlement by a reputable fidelity insurance company authorized to
do business in Illinois and Wisconsin. Each such bond, which may be in the form
of an individual bond, a schedule or blanket bond covering the corporation's
officers and employees and the officers and employees of the investment adviser
to the corporation and other corporations to which said investment adviser also
acts as investment adviser, shall be in such form and for such amount
(determined at least annually) as the board of directors shall determine in
compliance with the requirements of Section 17(g) of the Investment Company Act
of 1940, as amended from time to time, and the rules, regulations or orders of
the Securities and Exchange Commission thereunder.
-6-
<PAGE>
Section 4. President. The president shall be the principal executive
officer of the corporation. He shall preside at all meetings of the stockholders
and directors, have general and active management of the business of the
corporation, see that all orders and resolutions of the board of directors are
carried into effect, and execute in the name of the corporation all authorized
instruments of the corporation, except where the signing shall be expressly
delegated by the board to some other officer or agent of the corporation.
Section 5. Vice Presidents. The vice president, or if there be more
than one, the vice presidents in the order determined by the board of directors,
shall, in the absence or disability of the president, perform the duties and
exercise the powers of the president, and shall have such other duties and
powers as the board may from time to time prescribe or the president delegate.
Section 6. Secretary and Assistant Secretaries. The secretary shall
give notice of, attend and record the minutes of meetings of stockholders and
directors, keep the corporate seal and, when authorized by the board, affix the
same to any instrument requiring it, attesting to the same by his signature, and
shall have such further duties and powers as are incident to his office or as
the board may from time to time prescribe. The assistant secretary, if any, or,
if there be more than one, the assistant secretaries in the order determined by
the board, shall in the absence or disability of the secretary, perform the
duties and exercise the powers of the secretary, and shall have such other
duties and powers as the board may from time to time prescribe or the secretary
delegate.
Section 7. Treasurer and Assistant Treasurers. The treasurer shall be
the principal financial and accounting officer of the corporation. He shall be
responsible for the custody and supervision of the corporation's books of
account and subsidiary accounting records, and shall have such further duties
and powers as are incident to his office or as the board of directors may from
time to time prescribe. The assistant treasurer, if any, or, if there be more
than one, the assistant treasurers in the order determined by the board, shall
in the absence or disability of the treasurer, perform all duties and exercise
the powers of the treasurer, and shall have such other duties and powers as the
board may from time to time prescribe or the treasurer delegate.
ARTICLE IV
RESTRICTIONS ON COMPENSATION
TRANSACTIONS AND INVESTMENTS
Section 1. Salary and Expenses. Directors and executive officers as
such shall not receive any salary for their services or reimbursement for
expenses from the corporation; provided that the corporation may pay fees in
such amounts and at such times as the board of directors shall determine to
directors who are not interested persons of any investment adviser of, or
principal underwriter for, if any, the corporation for attendance at meetings of
the board of directors. Clerical employees shall receive compensation for their
services from the corporation in such amounts as are determined by the board of
directors.
-7-
<PAGE>
Section 2. Compensation and Profit from Purchase and Sales. No
affiliated person of the corporation, as defined in the Investment Company Act
of 1940, or affiliated person of such person, shall, except as permitted by
Section 17(e) of the Act, or the rules, regulations or orders of the Securities
and Exchange Commission thereunder, (i) acting as agent, accept from any source
any compensation for the purchase or sale of any property or securities to or
for the corporation or any controlled company of the corporation, as defined in
such Act, or (ii) acting as a broker, in connection with the sale of securities
to or by the corporation or any controlled company of the corporation, receive
from any source a commission, fee or other remuneration for effecting such
transaction. The investment adviser to the corporation shall not profit directly
or indirectly from sales of securities to or from the corporation.
Section 3. Transactions with Affiliated Person. No affiliated person
of the corporation, as defined in the Investment Company Act of 1940, or
affiliated person of such person shall knowingly (i) sell any security or other
property to the corporation or to any company controlled by the corporation, as
defined in the Act, except shares of stock of the corporation or securities of
which such person is the issuer and which are part of a general offering to the
holders of a class of its securities, (ii) purchase from the corporation or any
such controlled company any security or property except shares of stock of the
corporation or securities of which such person is the issuer, (iii) borrow money
or other property from the corporation or any such controlled company, or (iv)
acting as a principal effect any transaction in which the corporation or
controlled company is a joint or joint and several participant with such person;
provided, however, that this section shall not apply to any transaction
permitted by Sections 17(a), (b), (c), (d) or 21(b) of the Investment Company
Act of 1940 or the rules, regulations or orders of the Securities and Exchange
Commission thereunder, and shall not prohibit the joint participation by the
corporation and an affiliate in a fidelity bond arrangement.
Section 4. Investment Adviser. The corporation shall employ only one
investment adviser, the employment of which shall be pursuant to a written
agreement in accordance with Section 15 of the Investment Company Act of 1940,
as amended from time to time.
ARTICLE V
STOCK CERTIFICATES AND TRANSFER BOOKS
Section 1. Certificates. Each holder of shares of any class of stock
of the corporation shall be entitled to a certificate or certificates, in such
form as the board of directors shall from time to time approve, representing and
certifying the number of shares of such class of stock owned by him in the
corporation. Each certificate shall be signed, manually or by facsimile
signature, by the president or a vice president, countersigned, manually or by
facsimile signature, by the secretary, an assistant secretary, the treasurer or
an assistant treasurer and sealed with the corporate seal or facsimile thereof.
In case any officer who has signed any certificate, or whose facsimile signature
appears thereon, ceases to be an
-8-
<PAGE>
officer of the corporation before the certificate is issued, the certificate may
nevertheless be issued with the same effect as if the officer had not ceased to
be such officer as of the date of its issue. Each certificate shall contain on
its face or back a full statement or summary of the designations and any
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms of each class of stock of
the corporation or shall state that the corporation will furnish such
information to the stockholder on request and without charge. Any certificate
representing stock which is restricted or limited as to transferability also
shall have a full statement of such restriction or limitation plainly stated
thereon or shall state that the corporation will furnish such information to the
stockholder on request and without charge.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen, destroyed or mutilated (or may delegate such authority to one or more
officers of the corporation) upon the making of an affidavit of that fact by the
person claiming the certificate to be lost, stolen, destroyed or mutilated. The
board or such officer may, in its or his discretion, require the owner of such
certificate or his legal representative to give bond with sufficient surety to
the corporation to indemnify it against any loss or claim which may arise or
expense which may be incurred by reason of the issuance of a new certificate.
Section 3. Stock Ledger. The corporation shall maintain at its office
in Chicago, Illinois, or at the office of its principal transfer agent, if any,
an original or duplicate stock ledger containing the names and addresses of all
stockholders and the number of shares of each class of stock held by each
stockholder.
Section 4. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as such, as
the owner of shares for all purposes, and shall not be bound to recognize any
equitable or other claim to or interest in such shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
other provided by the laws of Maryland.
Section 5. Transfer Agent and Registrar. The corporation may maintain
one or more transfer offices or agencies, each in charge of a transfer agent
designated by the board of directors, where the shares of each class of stock of
the corporation shall be transferable. The corporation may also maintain one or
more registry offices, each in charge of a registrar designated by the board,
where the shares of such classes of stock shall be registered.
Section 6. Transfers of Stock. Upon surrender to the corporation or a
transfer agent of a certificate for shares of any class duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 7. Fixing of Record Dates and Closing of Transfer Books. The
board of directors may fix, in advance, a date as the record date for the
purpose of determining
-9-
<PAGE>
stockholders entitled to notice of, or to vote at, any meeting of stockholders,
or stockholders entitled to receive payment of any dividend or the allotment of
any rights, or in order to make a determination of stockholders for any other
proper purpose. Such date, in any case, shall be not more than ninety (90) days,
and in case of a meeting of stockholders not less than ten (10) days, prior to
the date on which the particular action requiring such determination of
stockholders is to be taken. In lieu of fixing a record date, the board may
provide that the stock transfer books shall be closed for a stated period but
not to exceed, in any case, twenty (20) days. If the stock transfer books are
closed or a record date is fixed for the purpose of determining stockholders
entitled to vote at a meeting of stockholders, such books shall be closed for at
least ten (10) days immediately preceding such action.
ARTICLE VI
ACCOUNTS, REPORTS, CUSTODIAN AND INVESTMENT ADVISER
Section 1. Inspection of Books. The board of directors shall determine
from time to time whether, and, if allowed, when and under what conditions and
regulations the accounts and books of the corporation (except such as may by
statute be specifically open to inspection) or any of them, shall be open to the
inspection of the stockholders, and the stockholders' rights in this respect are
and shall be limited accordingly.
Section 2. Reliance on Records. Each director and officer shall, in
the performance of his duties, be fully protected in relying in good faith on
the books of account or reports made to the corporation by any of its officials
or by an independent public accountant.
Section 3. Preparation and Maintenance of Accounts, Records and
Statements. The president, a vice president or the treasurer shall prepare or
cause to be prepared annually, a full and correct statement of the affairs of
the corporation, including a balance sheet or statement of financial condition
and a financial statement of operations for the preceding fiscal year, which
shall be submitted at the annual meeting of the stockholders and filed within
twenty (20) days thereafter at the principal office of the corporation in the
State of Illinois. If the corporation is not required to hold an annual meeting
of stockholders, the statement of affairs shall be placed on file at the
corporation's principal office within one hundred twenty (120) days after the
end of the fiscal year. The proper officers of the corporation shall also
prepare, maintain and preserve or cause to be prepared, maintained and preserved
the accounts, books and other documents required by Section 2-111 of the
Maryland General Corporation Law and Section 31 of the Investment Company Act of
1940 and shall prepare and file or cause to be prepared and filed the reports
required by Section 30 of such Act. No financial statement shall be filed with
the Securities and Exchange Commission unless the officers or employees who
prepared or participated in the preparation of such financial statement have
been specifically designated for such purpose by the board of directors.
Section 4. Auditors. No independent public accountant shall be
retained or employed by the corporation to examine, certify or report on its
financial statements for any fiscal year unless such selection: (i) shall have
been approved by a majority of the entire board
-10-
<PAGE>
of directors within thirty (30) days before or after the beginning of such
fiscal year or before the annual ratification by the stockholders; (ii) shall
have been ratified by the stockholders, provided that any vacancy occurring
between such annual ratification due to the death or resignation of such
accountant may be filled by the board of directors; and (iii) shall otherwise
meet the requirements of Section 32 of the Investment Company Act of 1940.
Section 5. Custodianship. All securities owned by the corporation and
all cash, including, without limiting the generality of the foregoing, the
proceeds from sales of securities owned by the corporation and from the issuance
of shares of the capital stock of the corporation, payments of principal upon
securities owned by the corporation, and distributions in respect of securities
owned by the corporation which at the time of payment are represented by the
distributing corporation to be capital distributions, shall be held by a
custodian or custodians which shall be a bank, as that term is defined in the
Investment Company Act of 1940, having capital, surplus and undivided profits
aggregating not less than $2,000,000. The terms of custody of such securities
and cash shall include provisions to the effect that the custodian shall deliver
securities owned by the corporation only (a) upon sales of such securities for
the account of the corporation and receipt by the custodian of payment therefor,
(b) when such securities are called, redeemed or retired or otherwise become
payable, (c) for examination by any broker selling any such securities in
accordance with "street delivery" custom, (d) in exchange for or upon conversion
into other securities alone or other securities and cash whether pursuant to any
plan of merger, consolidation, reorganization, recapitalization or readjustment,
or otherwise, (e) upon conversion of such securities pursuant to their terms
into other securities, (f) upon exercise of subscription, purchase or other
similar rights represented by such securities, (g) for the purpose of exchanging
interim receipts or temporary securities for definitive securities, (h) for the
purpose of redeeming in kind shares of the capital stock of the corporation, or
(i) for other proper corporate purposes. Such terms of custody shall also
include provisions to the effect that the custodian shall hold the securities
and funds of the corporation in a separate account or accounts and shall have
sole power to release and deliver any such securities and draw upon any such
account, any of the securities or funds of the corporation only on receipt by
such custodian of written instruction from one or more persons authorized by the
board of directors to give such instructions on behalf of the corporation, and
that the custodian shall deliver cash of the corporation required by this
Section 5 to be deposited with the custodian only upon the purchase of
securities for the portfolio of the corporation and the delivery of such
securities to the custodian, for the purchase or redemption of shares of the
capital stock of the corporation, for the payment of interest, dividends, taxes,
management or supervisory fees or operating expenses, for payments in connection
with the conversion, exchange or surrender of securities owned by the
corporation, or for other proper corporate purposes. Upon the resignation or
inability to serve of any such custodian the corporation shall (a) use its best
efforts to obtain a successor custodian, (b) require the cash and securities of
the corporation held by the custodian to be delivered directly to the successor
custodian, and (c) in the event that no successor custodian can be found, submit
to the stockholders of the corporation, before permitting delivery of such cash
and securities to anyone other than a successor custodian, the question whether
the corporation shall be dissolved or shall function without a custodian;
provided, however, that nothing herein contained shall prevent the termination
of any agreement between the
-11-
<PAGE>
corporation and any such custodian by the affirmative vote of the holders of a
majority of all the shares of the capital stock of the corporation at the time
outstanding and entitled to vote. Upon its resignation or inability to serve,
the custodian may deliver any assets of the corporation held by it to a
qualified bank or trust company selected by it, such assets to be held subject
to the terms of custody which governed such retiring custodian, pending action
by the corporation as set forth in this Section 5.
Section 6. Termination of Custodian Agreement. Any employment
agreement with a custodian shall be terminable on not more than sixty (60) days'
notice in writing by the board of directors or the custodian and upon any such
termination the custodian shall turn over only to the succeeding custodian
designated by the board of directors all funds, securities and property and
documents of the corporation in its possession.
Section 7. Checks and Requisitions. Except as otherwise authorized by
the board of directors, all checks and drafts for the payment of money shall be
signed in the name of the corporation by a custodian, and all requisitions or
orders for the payment of money by a custodian or for the issue of checks and
drafts therefore, all promissory notes, all assignments of stock or securities
standing in the name of the corporation, and all requisitions or orders for the
assignment of stock or securities standing in the name of a custodian or its
nominee, or for the execution of powers to transfer the same, shall be signed in
the name of the corporation by not less than two persons (who shall be among
those persons, not in excess of five, designated for this purpose by the board
of directors) at least one of which shall be an officer. Promissory notes,
checks or drafts payable to the corporation may be endorsed only to the order of
a custodian or its nominee by the treasurer or president or by such other person
or persons as shall be thereto authorized by the board of directors.
Section 8. Investment Advisory Contract. Any investment advisory
contract in effect after the first annual meeting of stockholders of the
corporation, to which the corporation is or shall become a party, whereby,
subject to the control of the board of directors of the corporation, the
investment portfolio with respect to any class of Common Stock of the
corporation shall be managed or supervised by the other party to such contract,
shall be effective and binding only upon the affirmative vote of a majority of
the outstanding voting securities of such class of Common Stock of the
corporation (as defined in the Investment Company Act of 1940), and the
investment advisory contract currently in effect with respect to any class of
Common Stock shall be submitted to the holders of shares of such class of Common
Stock for ratification by the affirmative vote of such majority. Any investment
advisory contract to which the corporation shall be a party whereby, subject to
the control of the board of directors of the corporation, the investment
portfolio with respect to any class of Common Stock of the corporation shall be
managed or supervised by the other party to such contract, shall provide, among
other things, that such contract cannot be assigned. Such investment advisory
contract shall prohibit the other party thereto from making short sales of
shares of capital stock of the corporation; and such investment advisory
contract shall prohibit such other party from purchasing shares otherwise than
for investment, and shall require such other party to advise the corporation of
any sales of shares of the capital stock of the corporation made by such person
or organization less than two months after the date of any
-12-
<PAGE>
purchase by him or it of shares of the capital stock of the corporation. Unless
any such contract shall expressly otherwise provide, any provisions therein for
the termination thereof by action of the board of directors of the corporation
shall be construed to require that such termination can be accomplished only
upon the vote of a majority of the entire board.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Offices. The registered office of the corporation in the
State of Maryland shall be in the City of Baltimore. The corporation shall also
have an office in Chicago, Illinois. The corporation may also have offices at
such other places within and without the State of Maryland as the board of
directors may from time to time determine. Except as otherwise required by
statute, the books and records of the corporation may be kept outside the State
of Maryland.
Section 2. Seal. The corporate seal shall have inscribed thereon the
name of the corporation, and the words "Corporate Seal" and "Maryland". The seal
may be used by causing it or a facsimile thereof to be impressed, affixed,
reproduced or otherwise.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
fixed by the board of directors.
Section 4. Notice of Waiver of Notice. Whenever any notice of the
time, place or purpose of any meeting of stockholders or directors is required
to be given under the statute, the charter or these bylaws, a waiver thereof in
writing, signed by the person or persons entitled to such notice and filed with
the records of the meeting, either before or after the holding thereof, or
actual attendance at the meeting of stockholders in person or by proxy or at the
meeting of directors in person, shall be deemed equivalent to the giving of such
notice to such person. No notice need be given to any person with whom
communication is made unlawful by any law of the United States or any rule,
regulation, proclamation or executive order issued by any such law.
Section 5. Voting of Stock. Unless otherwise ordered by the board of
directors, the president shall have full power and authority, in the name and on
behalf of the corporation, (i) to attend, act and vote at any meeting of
stockholders of any company in which the corporation may own shares of stock of
record, beneficially (as the proxy or attorney-in-fact of the record holder) or
of record and beneficially, and (ii) to give voting directions to the record
stockholder of any such stock beneficially owned. At any such meeting, he shall
possess and may exercise any and all rights and powers incident to the ownership
of such shares which, as the holder or beneficial owner and proxy of the holder
thereof, the corporation might possess and exercise if personally present, and
may delegate such power and authority to any officer, agent or employee of the
corporation.
Section 6. Dividends. Dividends upon any class of stock of the
corporation, subject to the provisions of the charter, if any, may be declared
by the board of directors in
-13-
<PAGE>
any lawful manner. The source of each dividend payment shall be disclosed to the
stockholders receiving such dividend, to the extent required by the laws of the
State of Maryland and by Section 19 of the Investment Company Act of 1940 and
the rules and regulations of the Securities and Exchange Commission thereunder.
Section 7. Indemnification.
The corporation shall indemnify directors, officers, employees and
agents of the corporation against judgments, fines, settlements and expenses to
the fullest extent authorized, and in the manner permitted, by applicable
federal and state law. The corporation shall advance the expenses of its
directors, officers, employees and agents who are parties to any Proceeding to
the fullest extent authorized, and in the manner permitted, by applicable
federal and state law. For purposes of this paragraph, "Proceeding" means any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative. This Section 7 of Article VII
constitutes vested rights in favor of all directors, officers, employees and
agents of the corporation. Neither the amendment nor repeal of this Article, nor
the adoption or amendment of any other provision of the Bylaws or charter of the
corporation inconsistent with this Article, shall apply to or affect in any
respect the applicability of this Article with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption. For purposes of
this Section 7, the term "director" and "officer" have the same meaning ascribed
to such terms in Section 2-418 of the Maryland General Corporation Law.
Section 8. Amendments.
(a) These bylaws may be altered, amended or repealed and new bylaws
may be adopted by the stockholders by affirmative vote of not less than a
majority of the shares of all classes of stock present or represented at any
annual or special meeting of the stockholders at which a quorum is in
attendance.
(b) These bylaws may also be altered, amended or repealed and new
bylaws may be adopted by the Board of Directors by affirmative vote of a
majority of the number of directors present at any meeting at which a quorum is
in attendance; but no bylaw adopted by the stockholders shall be amended or
repealed by the Board of Directors if the bylaws so adopted so provides.
(c) Any action taken or authorized by the stockholders or by the Board
of Directors, which would be inconsistent with the bylaws then in effect but is
taken or authorized by affirmative vote of not less than the number of shares or
the number of directors required to amend the bylaws so that the bylaws would be
consistent with such action, shall be given the same effect as though the bylaws
had been temporarily amended or suspended so far, but only so far, as was
necessary to permit the specific action so taken or authorized.
Section 9. Reports to Stockholders. The books of account of the
corporation shall be examined by an independent firm of public accountants at
the close of each annual fiscal period of the corporation and at such other
times, if any, as may be directed by the
-14-
<PAGE>
Board of Directors of the corporation. A report to the stockholders based upon
each such examination shall be mailed to each stockholder of the corporation of
record on such date with respect to each report as may be determined by the
Board of Directors at his address as the same appears on the books of the
corporation. Each such report shall include the financial information required
to be transmitted to stockholders by rules or regulations of the Securities and
Exchange Commission under the Investment Company Act of 1940 and shall be in
such form as the Board of Directors shall determine pursuant to rules and
regulations of the Securities and Exchange Commission.
Section 10. Information to Accompany Dividends. At the time of the
payment by the corporation of any dividend to the holders of any class of stock
of the corporation, each stockholder to whom such dividend is paid shall be
notified of the account or accounts from which it is paid and the amount thereof
paid from each such account.
ARTICLE VIII
SALES, REDEMPTION AND
NET ASSET VALUE OF SHARES
Section 1. Sales of Shares. Shares of any class of Common Stock of the
corporation shall be sold by it for the net asset value per share of such class
of Common Stock outstanding at the time as of which the computation of said net
asset value shall be made as hereinafter provided in these bylaws.
Section 2. Periodic Investment and Dividend Reinvestment Plans. The
corporation acting by and through the Board of Directors shall have the right to
adopt and to offer to the holders of each class of stock and to the public a
periodic investment plan and an automatic reinvestment of dividend plan subject
to the limitations and restrictions imposed thereon and as set forth in the
Investment Company Act of 1940 and any rule or regulation adopted or issued
thereunder.
Section 3. Shares Issued for Securities. In the case of shares of any
class of stock of the corporation issued in whole or in part in exchange for
securities, there may, at the discretion of the board of directors of the
corporation, be included in the value of said securities, for the purpose of
determining the number of shares of such class stock of the corporation issuable
in exchange therefor, the amount, if any, of brokerage commissions (not
exceeding an amount equal to the rates payable in connection with the purchase
of comparable securities on the New York Stock Exchange) or other similar costs
of acquisition of such securities paid by the holder of said securities in
acquiring the same.
Section 4. Redemption of Shares. Each share of each class of Common
Stock of the corporation now or hereafter issued shall be subject to redemption,
as provided in the Articles of Incorporation of the corporation.
-15-
<PAGE>
Section 5. Suspension of Right of Redemption. The Board of Directors
of the corporation may suspend the right of the holders of any class of Common
Stock of the corporation to require the corporation to redeem shares of such
class:
(a) for any period (a) during which the New York Stock Exchange is
closed other than customary weekend and holiday closings, or (b) during which
trading on the New York Stock Exchange is restricted;
(b) for any period during which an emergency, as defined by rules of
the Securities and Exchange Commission or any successor thereto, exists as a
result of which (a) disposal by the corporation of securities owned by it is not
reasonably practicable, or (b) it is not reasonably practicable for the
corporation fairly to determine the value of its net assets; or
(c) for such other periods as the Securities and Exchange Commission
or any successor thereto may by order permit for the protection of security
holders of the corporation.
Section 6. Computation of Net Asset Value. For purposes of these
bylaws, the following rules shall apply:
(a) The net asset value of each share of each class of Common Stock of
the corporation shall be determined at such time or times as may be disclosed in
the then currently effective Prospectus relating to such class of Common Stock
of this corporation. The Board of Directors may also, from time to time by
resolution, designate a time or times intermediate of the opening and closing of
trading on the New York Stock Exchange on each day that said Exchange is open
for trading as of which the net asset value of each share of each class of
Common Stock of the corporation shall be determined or estimated.
Any determination or estimation of net asset value as provided in this
subparagraph A shall be effective at the time as of which such determination or
estimation is made.
The net asset value of each share of each class of Common Stock of the
corporation for purposes of the issue of such class of Common Stock shall be the
net asset value which becomes effective as provided in this Subparagraph A, next
succeeding receipt of the subscription to such share of such class Common Stock.
The net asset value of each share of each class of Common Stock of the
corporation tendered for redemption shall be the net asset value which becomes
effective as provided in this Subparagraph A, next succeeding the tender of such
share of such class of Common Stock for redemption.
(b) The net asset value of each share of each class of Common Stock of
the corporation, as of the close of business on any day, shall be the quotient
obtained by dividing the value at such close of the net assets belonging to such
class (meaning the assets belonging to such class and any other assets allocated
to such class less the liabilities belonging to such class and any other
liabilities allocated to such class excluding capital and surplus) of the
corporation by the total number of shares of such class outstanding at such
close.
-16-
<PAGE>
(i) The assets belonging to any class of Common Stock shall be that
portion of the total assets of the corporation as determined in accordance with
the provisions of Article IV of the Articles of Incorporation of the
corporation. The assets of the corporation shall be deemed to include (a) all
cash on hand, on deposit, or on call, (b) all bills and notes and accounts
receivable, (c) all shares of stock and subscription rights and other securities
owned or contracted for by the corporation, other than its own common stock, (d)
all stock and cash dividends and cash distributions, to be received by the
corporation, and not yet received by it but declared to stockholders of record
on a date on or before the date as of which the net asset value is being
determined, (e) all interest accrued on any interest-bearing securities owned by
the corporation, and (f) all other property of every kind and nature including
prepaid expenses; the value of such assets to be determined as follows: In
determining the value of any assets of the corporation for the purpose of
obtaining the net asset value of each share of a particular class of Common
Stock, securities traded over the counter or on a national securities exchange
are valued on the basis of market value in their principal and most
representative market. Securities where the principal and most representative
market is a national securities exchange are valued at the latest reported sale
price on such exchange. If there is no such sale price reported for the
valuation date, then such securities are valued at the latest reported bid price
on such exchange. Securities, other than debt securities, where the
over-the-counter market is the principal and most representative market are
valued at the mean between the latest bid and asked price quotations. Debt
securities (other than short-term instruments) are valued at prices furnished by
a national brokerage firm's pricing service, subject to review by the
corporation's investment adviser and determination of the appropriate price
whenever a furnished price is significantly different from the previous day's
furnished price. When market quotations are not readily available, or when
restricted securities are being valued, such securities are valued at fair value
as determined in good faith by the Board of Directors. All other assets of the
corporation shall be valued at fair value as determined in good faith by the
Board of Directors, except that debt securities having maturities of less than
60 days may be valued by the amortized cost method.
(ii) The liabilities belonging to any class of Common Stock shall be
that portion of the total liabilities of the corporation as determined in
accordance with the provisions of Article IV of the Articles of Incorporation of
the corporation. The liabilities of the corporation shall be deemed to include
(a) all bills and notes and accounts payable, (b) all administration expenses
payable and/or accrued (including investment advisory fees), (c) all contractual
obligations for the payment of money or property including the amount of any
unpaid dividend declared upon the corporation's stock and payable to
stockholders of record on or before the day as of which the value of the
corporation's stock is being determined, (d) all reserves, if any, authorized or
approved by the Board of Directors for taxes, including reserves for taxes at
current rates based on any unrealized appreciation in the value of the assets of
the corporation, and (e) all other liabilities of the corporation of whatever
kind and nature except liabilities represented by outstanding capital stock and
surplus of the corporation.
(iii) For the purposes hereof: (a) shares of each class of Common
Stock subscribed for shall be deemed to be outstanding as of the time of
acceptance of any subscription and the entry thereof on the books of the
corporation and the net price thereof
-17-
<PAGE>
shall be deemed to be an asset belonging to such class; and (b) shares of each
class of Common Stock surrendered for redemption by the corporation shall be
deemed to be outstanding until the time as of which the net asset value for
purposes of such redemption is determined or estimated.
(c) The net asset value of each share of each class of Common Stock of
the corporation, as of any time other than the close of business on any day, may
be determined by applying to the net asset value as of the close of business on
the preceding business day, computed as provided in Paragraph C of this Section
of these bylaws, such adjustments as are authorized by or pursuant to the
direction of the Board of Directors and designed reasonably to reflect any
material changes in the market value of securities and other assets held and any
other material changes in the assets or liabilities of the corporation and in
the number of its outstanding shares which shall have taken place since the
close of business on such preceding business day.
(d) In addition to the foregoing, the Board of Directors is empowered,
in its absolute discretion, to establish other bases or times, or both, for
determining the net asset value of each share of each class of the Common Stock
of the corporation.
-18-
CHICAGO FIRSTAR CENTER SACRAMENTO
DENVER 777 EAST WISCONSIN AVENUE SAN DIEGO
JACKSONVILLE MILWAUKEE, WISCONSIN 53202-5367 SAN FRANCISCO
LOS ANGELES TELEPHONE (414) 271-2400 TALLAHASSEE
MADISON FACSIMILE (414) 297-4900 TAMPA
MILWAUKEE WASHINGTON, D.C.
ORLANDO WEST PALM BEACH
February 25, 1999
The Yacktman Funds, Inc.
303 West Madison Street
Chicago, IL 60606
Gentlemen:
We have acted as counsel for you in connection with the preparation of
an Amended Registration Statement on Form N-1A relating to the sale by you of an
indefinite amount of The Yacktman Funds, Inc. Common Stock (such Common Stock
being hereinafter referred to as the "Stock") in the manner set forth in the
Amended Registration Statement to which reference is made. In this connection we
have examined: (a) the Amended Registration Statement on Form N-1A; (b) your
Articles of Incorporation and Bylaws, as amended to date; (c) corporate
proceedings relative to the authorization for issuance of the Stock; and (d)
such other proceedings, documents and records as we have deemed necessary to
enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the shares of
Stock when sold as contemplated in the Amended Registration Statement will be
legally issued, fully paid and nonassessable
We hereby consent to the use of this opinion as an exhibit to the
Amended Registration Statement on Form N-1A. In giving this consent, we do not
admit that we are experts within the meaning of Section 11 of the Securities Act
of 1933, as amended, or within the category of persons whose consent is required
by Section 7 of said Act.
Very truly yours,
/s/Foley & Lardner
Foley & Lardner
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 10 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated January 28, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 Annual
Report to Shareholders of The Yacktman Funds, Inc., which is also incorporated
by reference into the Registration Statement. We also consent to the references
to us under the heading "Financial Highlights" in the Prospectus and under the
heading "Independent Accountants" in the Statement of Additional Information.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
FINANCIAL STATEMENTS OF THE YACKTMAN FUND, INC. AS OF AND FOR THE PERIOD ENDED
JANUARY 1, 199b AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> THE YACKTMAN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 255,894,079
<INVESTMENTS-AT-VALUE> 302,493,900
<RECEIVABLES> 6,534,196
<ASSETS-OTHER> 36,868
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 309,064,964
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,634,624
<TOTAL-LIABILITIES> 1,634,624
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 260,020,640
<SHARES-COMMON-STOCK> 26,489,936
<SHARES-COMMON-PRIOR> 77,002,248
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 809,879
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 46,599,821
<NET-ASSETS> 307,430,340
<DIVIDEND-INCOME> 13,494,477
<INTEREST-INCOME> 1,275,882
<OTHER-INCOME> 84
<EXPENSES-NET> (8,348,819)
<NET-INVESTMENT-INCOME> 6,385,540
<REALIZED-GAINS-CURRENT> 117,189,782
<APPREC-INCREASE-CURRENT> (140,832,711)
<NET-CHANGE-FROM-OPS> (17,257,389)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,409,477)
<DISTRIBUTIONS-OF-GAINS> (54,490,030)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,142,954
<NUMBER-OF-SHARES-REDEEMED> 61,477,171
<SHARES-REINVESTED> 4,821,905
<NET-CHANGE-IN-ASSETS> (774,708,981)
<ACCUMULATED-NII-PRIOR> 23,937
<ACCUMULATED-GAINS-PRIOR> (445,891)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,644,643
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,529,243
<AVERAGE-NET-ASSETS> 727,029,144
<PER-SHARE-NAV-BEGIN> 14.05
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> (.04)
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> (2.40)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.61
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
FINANCIAL STATEMENTS OF THE YACKTMAN FUND, INC. AS OF AND FOR THE PERIOD ENDED
JANUARY 1, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> THE YACKTMAN FOCUS FUNDS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 26,498,980
<INVESTMENTS-AT-VALUE> 26,690,804
<RECEIVABLES> 883,912
<ASSETS-OTHER> 22,933
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,597,649
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 190,323
<TOTAL-LIABILITIES> 190,323
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,913,701
<SHARES-COMMON-STOCK> 2,359,438
<SHARES-COMMON-PRIOR> 5,212,128
<ACCUMULATED-NII-CURRENT> 4,341
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (702,540)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 191,824
<NET-ASSETS> 27,407,326
<DIVIDEND-INCOME> 587,313
<INTEREST-INCOME> 424,897
<OTHER-INCOME> 0
<EXPENSES-NET> (730,676)
<NET-INVESTMENT-INCOME> 281,534
<REALIZED-GAINS-CURRENT> (453,371)
<APPREC-INCREASE-CURRENT> (150,767)
<NET-CHANGE-FROM-OPS> (322,604)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (249,256)
<DISTRIBUTIONS-OF-GAINS> (121,017)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,782,296
<NUMBER-OF-SHARES-REDEEMED> 5,663,019
<SHARES-REINVESTED> 28,033
<NET-CHANGE-IN-ASSETS> (31,038,735)
<ACCUMULATED-NII-PRIOR> 1,476
<ACCUMULATED-GAINS-PRIOR> 10,551
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 584,540
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,059,219
<AVERAGE-NET-ASSETS> 57,541,867
<PER-SHARE-NAV-BEGIN> 11.21
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> (.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.62
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
