THE
(LOGO) YACKTMAN
FUNDS
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ANNUAL REPORT
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December 31, 1999
<PAGE>
This report is submitted for the general information of shareholders of The
Yacktman Funds. It is not authorized for distribution to prospective investors
unless accompanied or preceded by an effective Prospectus for the Funds, which
contains more information concerning the Funds' investment policies, as well as
fees and expenses and other pertinent information. Read the Prospectus
carefully.
<PAGE>
THE YACKTMAN FUNDS, INC.
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MESSAGE TO SHAREHOLDERS
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Dear Fellow Shareholder:
(PHOTO)
The December 27th Forbes magazine quoted, "A new study by Ibbotson Associates
going back to the depth of the Depression shows that with very few exceptions
buying companies selling at a low P/E provided significantly higher returns. The
1990s were a stunning counter-example to this long-term principle." It also
said, "But at some point the more exuberant sectors of the market take on the
look of that game show, Who Wants To Be A Millionaire, as the contestant moves
nervously past $32,000 and then $64,000 and then higher. The pile of money
mounts-but it could disappear in a flash."
"The market's average total return over any 10-year stretch largely depends on
how expensive stocks are at the beginning of the period," states the November
issue of Money from work done by The Leuthold Group:
THE MARKET'S AVERAGE TOTAL RETURN OVER 10 YEAR PERIODS
MARKET P/E AVERAGE ANNUAL RETURN
Below 9.9 16.9%
9.9 to 10.9 15.3%
10.9 to 12.1 14.4%
12.1 to 13.7 13.5%
13.7 to 15.1 11.0%
15.1 to 16.8 8.2%
16.8 to 17.9 8.2%
17.9 to 19.3 5.0%
19.3 to 20.9 7.5%
20.9 and above 4.8%
CAN A P/E RATIO
BE A PREDICTOR
OF PERFORMANCE?
Source: The Leuthold Group (Money, November 1999, page 108)
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<PAGE>
THE YACKTMAN FUNDS, INC.
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If those numbers have any validity, the Funds should be sitting in an
excellent position in both absolute and relative terms as shown by the following
statistics:
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THE DISCOUNT
YACKTMAN FROM THE
S&P 500 FUND S&P 500
TIME PRICE/ PRICE/ PRICE/
PERIOD EARNINGS EARNINGS EARNINGS
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December, 1997 19.0 14.9 22%
December, 1998 26.4 13.7 48%
December, 1999 29.1 10.6 64%
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THE DISCOUNT
YACKTMAN FROM THE
S&P 500 FOCUSED FUND S&P 500
TIME PRICE/ PRICE/ PRICE/
PERIOD EARNINGS EARNINGS EARNINGS
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December, 1997 19.0 14.2 25%
December, 1998 26.4 13.1 50%
December, 1999 29.1 9.8 66%
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The December, 1997 P/E ratios are based on estimates for 1998, the December,
1998 P/E ratios are based on estimates for 1999, and the December, 1999 P/E
ratios are based on estimates for 2000. The estimated earnings for the above P/E
ratios are provided by Zacks Investment Research, if available, or by internal
estimates.
While we have remained value investors, the market has continued to defy
gravity and levitates at historically high levels. We continue to feel strongly
that at some point in time the enormous gap between us and the S&P 500 will
narrow dramatically and we will be rewarded. As an example, if the gap were to
disappear, by an increase in the average P/E ratio of the stocks held by the
Funds, the Funds would now be selling at over $24/share or 160% higher than the
current price.
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<PAGE>
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Obviously the gap did not disappear in 1999 but actually got larger creating a
disappointing year. If the gap had merely stayed the same, we would have been
about 30% higher in price. Thus, the lag in performance was not caused by
declining earnings but by a declining P/E. (I've decided not to apply to be a
judge in any beauty contests.)
Two stocks, both very, very profitable and large investments, declined
dramatically during the year and caused the bulk of the decline. The first is
Department 56, Inc. It installed a new computer order, inventory and billing
system which created lots of problems for the Company. However, it reports that
orders for the village series of products continue strong and we feel the
company is dramatically undervalued.
The second is Philip Morris Co. which remains one of the most profitable
consumer companies in the world; but because of its tobacco operation is a
target for litigation. Frequently, when uncertainty enters, many investors step
aside creating bargains for investors willing to invest in profitable
businesses, notwithstanding the uncertainties. We feel the investment potential
of Philip Morris is dramatically slanted in our favor.
We appreciate your patience and want to assure you that my wife Carolyn, our
children, and I have a substantial investment in the Funds, so we treat the
money in the Funds with great care and look forward to a rewarding future.
Sincerely,
/s/Donald A. Yacktman
Donald A. Yacktman
President
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<PAGE>
THE YACKTMAN FUNDS, INC.
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THE YACKTMAN FUND AVERAGE ANNUAL RETURNS
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One Year (1/1/99 - 12/31/99) (16.9)%
Three Years (1/1/97 - 12/31/99) (0.4)%
Five Years (1/1/95 - 12/31/99) 10.2%
Since Inception (7/6/92) 7.6%
The Yacktman Fund S&P 500 Stock Index<F1>
--------------------- -----------------------
7/6/92 10,000 10,000
12/31/92 10,472 10,679
12/31/93 9,783 11,756
12/31/94 10,644 11,911
12/31/95 13,881 16,387
12/31/96 17,493 20,150
12/31/97 20,691 26,873
12/31/98 20,822 34,552
12/31/99 17,303 41,823
The chart assumes an initial gross investment of $10,000 made on 7/6/92
(inception).
THE YACKTMAN FOCUSED FUND AVERAGE ANNUAL RETURNS
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One Year (1/1/99 - 12/31/99) (22.0)%
Since Inception (5/1/97) (2.3)%
The Yacktman Focused Fund S&P 500 Stock Index<F1>
------------------------- -----------------------
5/1/97 10,000 10,000
12/31/97 11,538 12,256
12/31/98 12,067 15,759
12/31/99 9,409 19,075
The chart assumes an initial gross investment of $10,000 made on 5/1/97
(inception).
<F1> The S&P 500 is an unmanaged but commonly used measure of common stock total
return performance.
Returns shown include the reinvestment of all dividends. The above past
performance is not predictive of future results. The investment return and
principal value of the Funds will fluctuate so that your shares, when redeemed,
may be worth more or less than their original cost.
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<PAGE>
THE YACKTMAN FUND
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TOP TEN EQUITY HOLDINGS
December 31, 1999
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PERCENTAGE OF
NET ASSETS
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Department 56, Inc. 17.4%
Dentsply International, Inc. 13.6%
Philip Morris Cos., Inc. 12.3%
Franklin Covey Co. 6.2%
First Health Group Corp. 4.7%
United Asset Management Corp. 4.6%
First Data Corp. 4.5%
Block H&R, Inc. 4.3%
Jostens, Inc. 4.3%
Clorox Co. 3.7%
-----
TOTAL 75.6%
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<PAGE>
THE YACKTMAN FUND
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EQUITY PURCHASES & SALES
For the Quarter Ended December 31, 1999
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NET SHARES CURRENT
NEW PURCHASE PURCHASED SHARES HELD
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K-SWISS, INC., CLASS A
Designs, develops and makes
athletic footwear for sports
use, fitness activities and
casual wear. 123,900 123,900
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NET SHARES CURRENT
PURCHASES PURCHASED SHARES HELD
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Gartner Group, Inc., Class B 32,500 140,000
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NET SHARES CURRENT
SALES SOLD SHARES HELD
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Bandag, Inc., Class A 41,300 150,000
Block H&R, Inc. 10,000 110,000
Clorox Co. 20,000 80,000
Dentsply International, Inc. 129,000 630,000
Department 56, Inc. 25,000 840,000
First Data Corp. 270,000 100,000
First Health Group Corp. 85,000 190,000
Franklin Covey Co. 130,000 900,000
Fruit of the Loom, Inc. 384,100 -
Intimate Brands, Inc. 15,000 90,000
Jenny Craig, Inc. 68,000 682,000
Jostens, Inc. 68,700 195,000
Reebok International Ltd. 390,000 -
United Asset Management Corp. 110,000 270,000
Valassis Communications, Inc. 10,000 70,000
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<PAGE>
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PORTFOLIO OF INVESTMENTS
December 31, 1999
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NUMBER
OF SHARES VALUE
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COMMON STOCKS - 96.6%
APPAREL/SHOES - 2.1%
K-Swiss, Inc., Class A 123,900 $ 2,301,830
------------
CONSUMER GOODS - 1.6%
Luxottica Group ADR 100,000 1,756,250
------------
EDUCATIONAL SERVICES - 10.5%
Franklin Covey Co.<F1> 900,000 6,750,000
Jostens, Inc. 195,000 4,740,937
------------
11,490,937
------------
FINANCIAL SERVICES - 9.1%
First Data Corp. 100,000 4,931,250
United Asset Management Corp. 270,000 5,011,875
------------
9,943,125
------------
FOOD/TOBACCO - 12.3%
Philip Morris Cos., Inc. 580,000 13,448,750
------------
HOME FURNISHINGS - 17.4%
Department 56, Inc.<F1><F2> 840,000 19,005,000
------------
HOUSEHOLD PRODUCTS - 7.2%
Clorox Co. 80,000 4,030,000
Tupperware Corp. 230,000 3,895,625
------------
7,925,625
------------
MEDICAL SERVICES - 4.7%
First Health Group Corp.<F1> 190,000 5,106,250
------------
MEDICAL SUPPLIES - 13.6%
Dentsply International, Inc. 630,000 14,883,750
------------
RETAILING - 3.5%
Intimate Brands, Inc. 90,000 3,881,250
------------
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<PAGE>
THE YACKTMAN FUND
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PORTFOLIO OF INVESTMENTS (Cont'd.)
December 31, 1999
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NUMBER
OF SHARES VALUE
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SERVICES - 11.7%
Block H&R, Inc. 110,000 $ 4,812,500
Gartner Group, Inc., Class B<F1> 140,000 1,933,750
Jenny Craig, Inc.<F1> 682,000 2,472,250
Servicemaster Co. 50,000 615,625
Valassis Communications, Inc.<F1> 70,000 2,957,500
------------
12,791,625
------------
TIRES AND RUBBER - 2.9%
Bandag, Inc., Class A 150,000 3,187,500
------------
Total Common Stocks
(cost $98,552,802) 105,721,892
------------
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PRINCIPAL
AMOUNT VALUE
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DEMAND NOTES
(VARIABLE RATE) - 0.8%
General Mills, Inc. $857,630 857,630
Wisconsin Corp. Central Credit Union 14,260 14,260
------------
Total Demand Notes
(cost $871,890) 871,890
------------
Total Investments - 97.4%
(cost $99,424,692) 106,593,782
Other Assets less Liabilities - 2.6% 2,836,318
------------
Net Assets - 100.0% (equivalent
to $9.40 per share based on
11,635,723 shares outstanding) $109,430,100
============
<F1> Non-income producing
<F2> Affiliated company - See Note 6
See notes to financial statements
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<PAGE>
THE YACKTMAN FOCUSED FUND
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EQUITY PURCHASES & SALES
For the Quarter Ended December 31, 1999
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NET SHARES CURRENT
NEW PURCHASES PURCHASED SHARES HELD
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K-Swiss, Inc., Class A 12,000 12,000
Servicemaster Co. 15,000 15,000
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NET SHARES CURRENT
PURCHASES PURCHASED SHARES HELD
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Franklin Covey Co. 65,000 161,900
Franklin Covey Co., Series A Preferred 2,250 2,250
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NET SHARES CURRENT
SALES SOLD SHARES HELD
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Block H&R, Inc. 1,000 9,000
Dentsply International, Inc. 8,000 18,000
Department 56, Inc. 37,000 93,000
First Data Corp. 32,000 8,000
First Health Group Corp. 10,000 15,000
Fruit of the Loom, Inc. 50,000 -
Intimate Brands, Inc. 3,500 7,000
Jostens, Inc. 12,500 17,500
Philip Morris Cos., Inc. 11,000 39,000
Reebok International Ltd. 30,000 -
United Asset Management Corp. 8,000 22,000
<PAGE>
THE YACKTMAN FOCUSED FUND
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PORTFOLIO OF INVESTMENTS
December 31, 1999
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NUMBER
OF SHARES VALUE
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COMMON STOCKS - 85.8%
APPAREL/SHOES - 2.5%
K-Swiss, Inc., Class A 12,000 $ 222,938
------------
EDUCATIONAL SERVICES - 18.2%
Franklin Covey Co.<F1> 161,900 1,214,250
Jostens, Inc. 17,500 425,469
------------
1,639,719
------------
FINANCIAL SERVICES - 8.9%
First Data Corp. 8,000 394,500
United Asset Management Corp. 22,000 408,375
------------
802,875
------------
FOOD/TOBACCO - 10.0%
Philip Morris Cos., Inc. 39,000 904,312
------------
HOME FURNISHINGS - 23.4%
Department 56, Inc.<F1> 93,000 2,104,125
------------
MEDICAL SERVICES - 4.5%
First Health Group Corp.<F1> 15,000 403,125
------------
MEDICAL SUPPLIES - 4.7%
Dentsply International, Inc. 18,000 425,250
------------
RETAILING - 3.4%
Intimate Brands, Inc. 7,000 301,875
------------
SERVICES - 10.2%
Block H&R, Inc. 9,000 393,750
Gartner Group, Inc., Class B<F1> 25,000 345,313
Servicemaster Co. 15,000 184,687
------------
923,750
------------
Total Common Stocks
(cost $9,230,797) 7,727,969
------------
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<PAGE>
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NUMBER
OF SHARES VALUE
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PREFERRED STOCK - 2.5%
Franklin Covey Co., Series A<F2> 2,250 $ 225,000
------------
Total Preferred Stock
(cost $225,000) 225,000
------------
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PRINCIPAL
AMOUNT VALUE
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DEMAND NOTES
(VARIABLE RATE) - 11.2%
American Family Financial Services $191,071 191,071
General Mills, Inc. 277,189 277,189
Pitney Bowes Credit Corp. 163,270 163,270
Sara Lee Corp. 134,327 134,327
Warner Lambert Co. 152,250 152,250
Wisconsin Electric Power Co. 89,027 89,027
------------
Total Demand Notes
(cost $1,007,134) 1,007,134
------------
Total Investments - 99.5%
(cost $10,462,931) 8,960,103
Other Assets less Liabilities - 0.5% 48,387
------------
Net Assets - 100.0% (equivalent
to $8.96 per share based on
1,005,622 shares outstanding) $9,008,490
============
<F1> Non-income producing
<F2> Restricted security. Purchased in a private placement transaction; resale
to the public may require registration or sale only to qualified
institutional buyers. This security is valued at fair value, which at
December 31, 1999, is equal to cost.
See notes to financial statements
<PAGE>
THE YACKTMAN FUNDS, INC.
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STATEMENTS OF ASSETS & LIABILITIES
December 31, 1999
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THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
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ASSETS:
Investments at value
(cost $83,226,132, and
$10,462,931, respectively) $87,588,782 $8,960,103
Affiliated issuers
(cost $16,198,560, and
$0, respectively) 19,005,000 -
Cash 243,022 44,416
Short-term investments of
collateral received for
securities loaned 4,061,200 180,000
Receivable for securities sold 2,615,393 225,702
Dividends and interest receivable 518,209 32,902
Receivable for fund shares issued 19,303 88
Prepaid expenses 15,798 9,463
Receivable from Adviser - 5,455
------------ ------------
Total Assets 114,066,707 9,458,129
------------ ------------
LIABILITIES:
Collateral for securities loaned 4,061,200 180,000
Payable for fund shares redeemed 464,297 17,688
Accrued investment advisory fees 542 -
Payable for securities purchased - 225,000
Other accrued expenses 110,568 26,951
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Total Liabilities 4,636,607 449,639
------------ ------------
NET ASSETS $109,430,100 $9,008,490
============ ============
NET ASSETS CONSIST OF:
Capital stock $102,244,801 $13,970,387
Undistributed net investment
income 15,968 37
Undistributed net realized
gains (losses) 241 (3,459,106)
Net unrealized appreciation
(depreciation) on investments 7,169,090 (1,502,828)
------------ ------------
Total Net Assets $109,430,100 $9,008,490
============ ============
CAPITAL STOCK, $.0001 par value
Authorized 500,000,000 500,000,000
Issued and outstanding 11,635,723 1,005,622
NET ASSET VALUE,
REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $9.40 $8.96
===== =====
See notes to financial statements
<PAGE>
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STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1999
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THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
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INVESTMENT INCOME:
Dividend income $2,960,617<F1> $210,209
Interest income 142,491 104,077
Securities lending income
(See Note 9) 11,023 1,115
------------ ------------
3,114,131 315,401
------------ ------------
EXPENSES:
Investment advisory fees 1,218,012 163,405
Shareholder servicing fees
(See Note 5) 374,450 2,398
Administration and
accounting fees 150,585 50,000
Federal and state
registration fees 52,277 34,976
Custody fees 29,274 4,552
Directors' fees and expenses 9,028 1,158
Professional fees (See Note 7) (195,370) (31,507)
Reports to shareholders
(See Note 7) (303,241) (32,703)
Miscellaneous costs 21,556 2,723
------------ ------------
Total expenses before
reductions 1,356,571 195,002
Expense reductions (See Note 5) (30,909) (472)
------------ ------------
Net expenses 1,325,662 194,530
------------ ------------
NET INVESTMENT INCOME 1,788,469 120,871
------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized gain (loss) on
investments (See Notes 6 and 8) 2,125,339 (2,736,086)
Change in unrealized appreciation
(depreciation) on investments (39,430,731) (1,694,652)
------------ ------------
Net realized and unrealized loss
on investments (37,305,392) (4,430,738)
------------ ------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(35,516,923) $(4,309,867)
============= ============
<F1> Net of $14,201 in foreign withholding taxes
See notes to financial statements
<PAGE>
THE YACKTMAN FUNDS, INC.
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STATEMENTS OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
THE YACKTMAN
THE YACKTMAN FUND FOCUSED FUND
- ----------------------------------------- --------------------------------- ---------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
- ----------------------------------------- --------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $1,788,469 $6,385,540 $120,871 $281,534
Net realized gain (loss) on investments
and written put options 2,125,339 117,189,782 (2,736,086) (453,371)
Change in net unrealized appreciation
(depreciation) on investments (39,430,731) (140,832,711) (1,694,652) (150,767)
------------ ------------ ------------ ------------
Net decrease in net assets
resulting from operations (35,516,923) (17,257,389) (4,309,867) (322,604)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 41,386,878 86,130,974 1,864,934 32,292,848
Proceeds from reinvestment of dividends 3,231,289 56,952,842 140,403 326,022
------------ ------------ ------------ ------------
44,618,167 143,083,816 2,005,337 32,618,870
Payments for shares redeemed (203,767,926) (839,635,901) (15,948,264) (62,964,728)
------------ ------------ ------------ ------------
Net decrease (159,149,759) (696,552,085) (13,942,927) (30,345,858)
------------ ------------ ------------ ------------
DIVIDENDS PAID FROM:
Net investment income (1,544,769) (6,409,477) (125,562) (249,256)
Net realized gains (1,788,789) (54,490,030) (20,480) (121,017)
------------ ------------ ------------ ------------
(3,333,558) (60,899,507) (146,042) (370,273)
------------ ------------ ------------ ------------
TOTAL DECREASE IN NET ASSETS (198,000,240) (774,708,981) (18,398,836) (31,038,735)
------------ ------------ ------------ ------------
NET ASSETS:
Beginning of period 307,430,340 1,082,139,321 27,407,326 58,446,061
------------ ------------ ------------ ------------
End of period (including
undistributed net investment income
of $15,968, $0, $37 and
$4,341, respectively) $109,430,100 $307,430,340 $9,008,490 $27,407,326
============ ============ ============ ============
TRANSACTIONS IN SHARES:
Shares sold 3,769,743 6,142,954 172,657 2,782,296
Issued in reinvestment of dividends 327,409 4,821,905 14,381 28,033
Shares redeemed (18,951,365) (61,477,171) (1,540,854) (5,663,019)
------------ ------------ ------------ ------------
Net decrease (14,854,213) (50,512,312) (1,353,816) (2,852,690)
============ ============ ============ ============
</TABLE>
See notes to financial statements
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<PAGE>
THE YACKTMAN FUNDS, INC.
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FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THE YACKTMAN FUND THE YACKTMAN FUND
- ----------------------------------------------------------------------------- --------------------------------------
For a Fund share outstanding YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
throughout each period 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $11.61 $14.05 $13.34 $12.09 $10.05
Income from investment
operations:
Net investment income 0.12 0.11 0.22 0.24 0.22
Net realized and unrealized
gains (losses) on investments (2.07) (0.04) 2.21 2.90 2.81
----------- ----------- ----------- ----------- -----------
Total from investment
operations (1.95) 0.07 2.43 3.14 3.03
----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends from net
investment income (0.10) (0.11) (0.22) (0.24) (0.22)
Distributions from net
realized gains (0.16) (2.40) (1.50) (1.65) (0.77)
----------- ----------- ----------- ----------- -----------
Total distributions (0.26) (2.51) (1.72) (1.89) (0.99)
----------- ----------- ----------- ----------- -----------
Net asset value, end of
period $9.40 $11.61 $14.05 $13.34 $12.09
=========== =========== =========== =========== ===========
Total Return (16.90%) 0.64% 18.28% 26.02% 30.42%
=========== =========== =========== =========== ===========
Supplemental data and ratios:
Net assets, end of period (000s) $109,430 $307,430 $1,082,139 $755,617 $566,723
=========== =========== =========== =========== ===========
Ratio of expenses before expense
reductions to average net assets
(See Note 5) 0.72% 1.16% 0.90% 0.96% 0.99%
=========== =========== =========== =========== ===========
Ratio of net expenses to average
net assets 0.71% 1.14% 0.86% 0.90% 0.91%
=========== =========== =========== =========== ===========
Ratio of net investment income to
average net assets 0.95% 0.87% 1.54% 1.80% 2.02%
=========== =========== =========== =========== ===========
Portfolio turnover rate 4.80% 14.32% 69.13% 58.54% 55.37%
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements
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<PAGE>
THE YACKTMAN FUNDS, INC.
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FINANCIAL HIGHLIGHTS (Cont'd.)
THE YACKTMAN
FOCUSED FUND
- --------------------------------------------------------------------------------
For a Fund share MAY 1, 1997 <F1>
outstanding throughout YEAR ENDED DECEMBER 31, THROUGH
each period 1999 1998 DEC. 31, 1997
- --------------------------------------------------------------------------------
Net asset value,
beginning of period $11.62 $11.21 $10.00
Income from investment
operations:
Net investment income 0.09 0.05 0.07
Net realized and
unrealized gains (losses)
on investments (2.64) 0.46 1.47
------------ ------------ ------------
Total from investment
operations (2.55) 0.51 1.54
------------ ------------ ------------
Less distributions:
Dividends from net
investment income (0.09) (0.05) (0.07)
Distributions from net
realized gains (0.02) (0.05) (0.26)
------------ ------------ ------------
Total distributions (0.11) (0.10) (0.33)
------------ ------------ ------------
Net asset value, end
of period $8.96 $11.62 $11.21
============ ============ ============
Total Return (22.02%) 4.58% 15.38%<F2>
============ ============ ============
Supplemental data and ratios:
Net assets, end of
period (000s) $9,008 $27,407 $58,446
============ ============ ============
Ratio of expenses before
expense reductions to
average net assets
(See Note 5) 1.19% 1.81% 1.71%<F3>
============ ============ ============
Ratio of net expenses to
average net assets 1.19% 1.25% 1.25%<F3>
============ ============ ============
Ratio of net investment
income to average
net assets 0.74% 0.48% 1.02%<F3>
============ ============ ============
Portfolio turnover rate 25.36% 49.26% 60.43%
============ ============ ============
<F1> Commencement of operations
<F2> Not annualized
<F3> Annualized
See notes to financial statements
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<PAGE>
THE YACKTMAN FUNDS, INC.
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999
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1. ORGANIZATION
The Yacktman Funds, Inc. (the "Funds") is registered as an open-end management
investment company under the Investment Company Act of 1940 (the "1940 Act").
The Funds consist of two investment portfolios: The Yacktman Fund is a
diversified fund that commenced operations July 6, 1992 and The Yacktman Focused
Fund is a non-diversified fund that commenced operations May 1, 1997. The
objective of each of the Funds is to produce long-term growth of capital with
current income as a secondary objective. Yacktman Asset Management Co. is the
Funds' investment adviser (the "Adviser").
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
financial statements have been prepared in conformity with generally accepted
accounting principles which require management to make certain estimates and
assumptions at the date of the financial statements. Actual results could
differ from those estimates.
A) INVESTMENT VALUATION - Securities which are traded on a recognized stock
exchange are valued at the last sale price on the securities exchange on which
such securities are primarily traded or at the last sale price on the national
securities market. Exchange-traded securities for which there were no
transactions are valued at the current bid prices. Securities traded on only
over-the-counter markets are valued on the basis of closing over-the-counter bid
prices. Short-term debt instruments maturing within 60 days are valued by the
amortized cost method. Variable rate demand notes are valued at cost which
approximates market value. Put options written or purchased by The Yacktman
Focused Fund are valued at the last sales price if such last sales price is
between the current bid and asked prices. Otherwise, put options are valued at
the mean between the current bid and asked prices. Any securities for which
market quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Directors.
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THE YACKTMAN FUNDS, INC.
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NOTES TO THE FINANCIAL STATEMENTS (Cont'd.)
December 31, 1999
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B) PUT OPTIONS - Premiums received by The Yacktman Focused Fund upon writing
put options are recorded as an asset with a corresponding liability which is
subsequently adjusted to the current market value of the option. When an option
expires or is closed, the Fund realizes a gain or loss, and the liability is
eliminated. When an option is exercised, the premium originally received
decreases the cost basis of the security acquired. The Fund continues to bear
the risk of adverse movements in the price of the underlying asset during the
period of the option, although any potential loss, which is limited to the
strike price of the option, would be reduced by the amount of the option premium
received. The Yacktman Focused Fund had no activity in written put options for
the year ended December 31, 1999.
C) FEDERAL INCOME TAXES - It is each Fund's policy to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all investment company net taxable income and net
capital gains to its shareholders in a manner which results in no tax cost to
the Fund. Therefore, no federal income tax provision is required.
D) DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income are
declared and paid quarterly. Distributions of net realized capital gains, if
any, are declared and paid at least annually. Distributions to shareholders are
recorded on the ex-dividend date. The character of distributions made during
the year from net investment income or net realized gains may differ from the
characterization for federal income tax purposes due to differences in the
recognition of income, expense and gain items for financial statement and tax
purposes. Additionally, the Funds may utilize earnings and profits distributed
to shareholders on redemption of shares as part of the dividends paid deduction
for income tax purposes. Where appropriate, reclassifications between capital
accounts are made for such differences that are permanent in nature.
Accordingly, at December 31, 1999 reclassifications were recorded to (decrease)
increase undistributed net investment income by $(227,732) and $387, decrease
undistributed net realized gains (losses) by $1,146,188 and $0, and increase
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(decrease) capital stock by $1,373,920 and $(387) for The Yacktman Fund and The
Yacktman Focused Fund, respectively.
E) OTHER - Investment transactions are accounted for on the trade date. The
Funds determine gain or loss realized from investment transactions by comparing
the original cost of the security lot sold with the net sale proceeds. Dividend
income is recognized on the ex-dividend date and interest income is recognized
on an accrual basis.
3. INVESTMENT TRANSACTIONS
For the year ended December 31, 1999, the aggregate purchases and sales of
securities, excluding short-term securities, were $8,942,313 and $168,107,326
for The Yacktman Fund and $3,591,887 and $14,046,575 for The Yacktman Focused
Fund, respectively. There were no purchases or sales of U.S. Government
securities for the year ended December 31, 1999.
4. INVESTMENT ADVISORY AGREEMENT
The Funds have agreements with the Adviser, with whom certain officers and
directors of the Funds are affiliated, to furnish investment advisory services
to the Funds. Under the terms of these agreements, The Yacktman Fund will pay
the Adviser a monthly fee at the annual rate of 0.65% on the first $500,000,000
of average daily net assets, 0.60% on the next $500,000,000 of average daily net
assets and 0.55% on average daily net assets in excess of $1,000,000,000, and
The Yacktman Focused Fund will pay the Adviser a monthly fee at the annual rate
of 1% of its average daily net assets. The agreements further stipulate that
the Adviser will reimburse the Funds for annual expenses exceeding certain
specified levels. In addition to the reimbursements required under the
agreements, the Adviser has voluntarily agreed to reimburse The Yacktman Focused
Fund for all expenses exceeding 1.25% of its average daily net assets.
5. EXPENSE REDUCTIONS
The Adviser has directed certain of the Funds' portfolio trades to brokers at
best price and execution and has generated directed brokerage credits to be used
against sub-transfer agency fees.
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THE YACKTMAN FUNDS, INC.
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NOTES TO THE FINANCIAL STATEMENTS (Cont'd.)
December 31, 1999
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Shareholders benefit under this arrangement as the net expenses of the Funds do
not include such sub-transfer agency fees. For the year ended December 31,
1999, The Yacktman Fund's expenses were reduced $30,909 by utilizing directed
brokerage credits resulting in an expense ratio of 0.71% being charged to
shareholders. For the year ended December 31, 1999, The Yacktman Focused Fund's
expenses were reduced $472 by utilizing directed brokerage credits resulting in
an expense ratio of 1.19% being charged to shareholders. In accordance with
Securities and Exchange Commission requirements, such amount is required to be
shown as an expense and has been included in shareholder servicing fees in the
Statement of Operations.
6. TRANSACTIONS WITH AFFILIATES
The following is an analysis of transactions for the year ended December 31,
1999 for The Yacktman Fund with "affiliated companies" (an affiliated company is
defined by the 1940 Act as a company in which a Fund owns 5% or more of that
company's outstanding voting shares):
Amount
of Gain
Amount of (Loss)
Share Activity Dividends Realized
-------------------------------------- Credited on Sale
Balance Balance to Income of Shares
Security Name 12/31/98 Purchases Sales 12/31/99 in 1999 in 1999
- ------------------- --------- --------- --------- --------- --------- ---------
Department 56, Inc. 870,000 - 30,000 840,000 - $ 113,855
Franklin Covey Co. 1,429,500 - 529,500 900,000 - (6,795,669)
As of December 31, 1999, Franklin Covey Co. was not an affiliated company.
7. PROXY - RELATED EXPENSES
As a result of negotiated reductions in fees and costs, together with vendor
reimbursements and other adjustments, certain expenses estimated and accrued in
1998, related to the 1998 proxy solicitation, have been reduced in 1999.
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8. ADVISER REIMBURSEMENT
In December 1999, each Fund sold a debt security, which was acquired earlier in
the month, immediately upon determining that the debt security was not in
compliance with the Funds' investment restrictions as set forth in the Funds'
Prospectus and Statement of Additional Information. The Adviser reimbursed The
Yacktman Fund and The Yacktman Focused Fund in December 1999 for their net
realized losses on the debt security of $301,603 and $58,880, respectively. The
reimbursements have been recorded as offsets to the net realized losses in the
statement of operations.
9. SECURITIES LENDING
The Funds have entered into a securities lending arrangement with the custodian.
Under the terms of the agreement, the custodian is authorized to loan securities
on behalf of the Funds to approved brokers against the receipt of cash
collateral at least equal to the value of the securities loaned. The cash
collateral is invested by the custodian in a money market pooled account
approved by the Adviser. Although risk is mitigated by the collateral, the Funds
could experience a delay in recovering their securities and possible loss of
income or value if the borrower fails to return them. The agreement provides
that after predetermined rebates to the brokers, the income generated from
lending transactions is allocated 60% to the Funds and 40% to the custodian. As
of December 31, 1999, The Yacktman Fund had on loan securities valued at
$3,934,288 and collateral of $4,061,200 and The Yacktman Focused Fund had on
loan securities valued at $175,000 and collateral of $180,000.
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THE YACKTMAN FUNDS, INC.
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NOTES TO THE FINANCIAL STATEMENTS (Cont'd.)
December 31, 1999
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10. TAX INFORMATION
At December 31, 1999, gross unrealized appreciation and depreciation on
investments on a tax basis were as follows:
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
Appreciation $24,078,965 $ 694,976
Depreciation (16,909,875) (2,286,261)
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Net appreciation on investments $ 7,169,090 $ (1,591,285)
============= =============
Tax cost basis $99,424,692 $10,551,388
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The Yacktman Focused Fund realized post-October capital losses in 1999 of
$2,037,454, which for tax purposes, are deferred and will be recognized in the
following year.
At December 31, 1999, The Yacktman Focused Fund had accumulated capital loss
carryforwards of $1,333,190 expiring in the year 2007. To the extent that the
Fund realizes future net capital gains, those gains will be offset by any unused
capital loss carryforward.
For the year ended December 31, 1999, 100% of dividends paid from net investment
income, excluding short-term capital gains, for The Yacktman Fund and The
Yacktman Focused Fund qualify for the dividends received deduction available to
corporate shareholders. The Yacktman Fund hereby designates $579,710 as a long-
term capital gain distribution for purposes of the dividends paid deduction
(unaudited).
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THE YACKTMAN FUNDS, INC.
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REPORT OF INDEPENDENT ACCOUNTANTS
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TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THE YACKTMAN FUNDS, INC.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Yacktman Fund and The Yacktman
Focused Fund (constituting The Yacktman Funds, Inc., hereafter referred to as
the "Funds") at December 31, 1999, the results of each of their operations, the
changes in each of their net assets and the financial highlights for each of the
periods indicated, in conformity with accounting principles generally accepted
in the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where broker confirmations were not received, provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
January 28, 2000
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FOR FUND INFORMATION AND
SHAREHOLDER SERVICES, CALL
1-800-525-8258
WEB SITE: WWW.YACKTMAN.COM
THE YACKTMAN FUNDS, INC.
Shareholder Services Center
615 East Michigan Street, 3rd Floor
Milwaukee, Wisconsin 53201-5207
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YA-408-0200
