STATEMENT OF ADDITIONAL INFORMATION April 28, 2000
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 28, 2000 (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, 1999, of The Yacktman Funds, Inc. (File
No. 811-6628) as filed with the Securities and Exchange Commission on February
14, 2000:
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
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THE YACKTMAN FUNDS, INC.
TABLE OF CONTENTS
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FUND HISTORY AND CLASSIFICATION...............................................1
INVESTMENT RESTRICTIONS AND CONSIDERATIONS....................................1
DETERMINATION OF NET ASSET VALUE.............................................10
DIRECTORS AND OFFICERS OF THE COMPANY........................................11
INVESTMENT ADVISER AND ADMINISTRATOR.........................................13
EXCHANGE PRIVILEGE...........................................................16
REDEMPTIONS..................................................................16
SYSTEMATIC WITHDRAWAL PLAN...................................................17
AUTOMATIC INVESTMENT PLAN, TELEPHONE PURCHASES AND RETIREMENT PLANS..........17
CUSTODIAN....................................................................19
INDEPENDENT ACCOUNTANTS......................................................20
ALLOCATION OF PORTFOLIO BROKERAGE............................................20
TAXES........................................................................21
STOCKHOLDER MEETINGS.........................................................22
CAPITAL STRUCTURE............................................................24
PERFORMANCE INFORMATION......................................................24
DESCRIPTION OF SECURITIES RATINGS............................................26
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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.
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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:
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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
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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
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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.
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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."
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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 and 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, and may purchase call options on specific stocks to
realize gains if the prices of the stocks increase. The Yacktman Focused Fund
may write (sell) put options on specific 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. The Yacktman Focused Fund may write call options on
specific stocks to generate income and to hedge against losses caused by
declines in the prices of stocks in its portfolio.
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 security underlying the option at a specific price (exercise
price). This event is unlikely to occur unless the market price of such security
is less than the exercise price. To cover its obligation, The Yacktman Focused
Fund will maintain with its custodian 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 security 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.
When writing a call option and receiving a premium payment, The
Yacktman Focused Fund may become obligated during the term of the option to sell
the security underlying the option at a specific price (exercise price). This
event is unlikely to occur unless the market price of such security is greater
than the exercise price. If the call is exercised, The Yacktman Focused Fund
forgoes any gain from an increase in the market price over the exercise price.
Writing calls is a profitable strategy if prices remain the same or fall.
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Through receipt of the option premium, The Yacktman Focused Fund mitigates the
effects of a price decline. To cover its obligation The Yacktman Focused Fund
will maintain with its custodian the security subject to the call option. When
purchasing a call option, The Yacktman Focused Fund has the right, in return for
a premium paid, during the term of the option to purchase the security
underlying the option at the exercise price. If a call option which The Yacktman
Focused Fund has purchased is not exercised, the option will become worthless on
the expiration date.
No assurances can be given that a market will exist at all times for
all outstanding 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 options it holds and it
would remain obligated until the 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 or call option it has written,
The Yacktman Focused Fund may effect a "closing purchase transaction." The
Yacktman Focused Fund accomplishes this by buying a put or call option, as
applicable, of the same series as the put or call option previously written by
The Yacktman Focused Fund. The effect of the purchase is that the writer's
position will be canceled. 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 or call option, it may
liquidate its position by effecting a "closing sale transaction." The Yacktman
Focused Fund accomplishes this by selling a put or call option, as applicable,
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 an option previously written by it if the
premium, plus commission costs, paid by The Yacktman Focused Fund to purchase
the option is less (or greater) than the premium, less commission costs,
received by The Yacktman Focused Fund on the sale of the option. The Yacktman
Focused Fund will realize a gain (or a loss) on a closing sale transaction with
respect to an option previously purchased by it if the premium, less commission
costs, received by The Yacktman Focused Fund on the sale of the option is
greater (or less) than the premium, plus commission costs, paid by The Yacktman
Focused Fund to purchase the 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
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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.
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
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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, 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 preceding Friday and when any such holiday falls on a Sunday, the
New York Stock Exchange will not be open on the succeeding Monday, unless
unusual business conditions exist, such as the ending of a monthly or the yearly
accounting period. Each Fund's net asset value is equal to the quotient obtained
by dividing the value of its net assets (its assets less its liabilities) by the
number of shares outstanding.
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
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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,
59, 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 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, 51, 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, 63, 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, 60, 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, 58, 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
- ---------------
*Messrs. Ball and Yacktman are directors who are "interested persons" of the
Funds (as defined in the Act).
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<PAGE>
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, 1999 the disinterested
directors received aggregate fees of $24,000. 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, 1999:
<TABLE>
COMPENSATION TABLE
<CAPTION>
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 $0 $0 $0 $0
Bruce B. Bingham $8,000 $0 $0 $8,000
Albert J. Malwitz $8,000 $0 $0 $8,000
George J. Stevenson, III $8,000 $0 $0 $8,000
Donald A. Yacktman $0 $0 $0 $0
</TABLE>
The Company and the Adviser have adopted a code of ethics pursuant to
Rule 17j-1 under the Act. This code of ethics permits personnel subject thereto
to invest in securities, including securities that may be purchased or held by
the Funds. This code of ethics generally prohibits, among other things, persons
subject thereto from purchasing or selling securities if they know at the time
of such purchase or sale that the security is being considered for purchase or
sale by a Fund or is being purchased or sold by a Fund until the Funds have
completed their purchases or sales.
As of March 31, 2000, all officers and directors of the Company as a
group beneficially owned 12,903 shares of The Yacktman Fund or 0.16% of the then
outstanding shares. At such date, Charles Schwab & Co., 101 Montgomery Street,
San Francisco, California 94104, owned of record 1,997,943 shares of The
Yacktman Fund, or 25.04% of the then outstanding shares, TDS 401(k) Savings
Plan, Bank of New York Trust, 1 Wall
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<PAGE>
Street, New York, New York 10005, owned beneficially and of record 716,582
shares of The Yacktman Fund, or 9.07% of the then outstanding shares, and
National Financial Services Corp., c/o Fidelity Investments, 82 Devonshire
Street R20A, Boston, Massachusetts 02109, owned of record 591,485 shares of The
Yacktman Fund, or 7.49% 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 March 31, 2000, owned of record or beneficially 5% or more of
the shares of The Yacktman Fund.
As of March 31, 2000, all officers and directors of the Company as a
group beneficially owned 386,325 shares of The Yacktman Focused Fund or 43.99%
of the then outstanding shares. At such date Donald A. Yacktman, 303 West
Madison Street, Chicago, Illinois 60606, owned of record and beneficially
370,325 shares of The Yacktman Focused Fund, or 42.17% of the then outstanding
shares and Charles Schwab & Co. owned of record 152,131 shares of The Yacktman
Focused Fund, or 17.32% of the then outstanding shares. All of the shares owned
by Charles Schwab & Co. were owned of record only. Other than the foregoing, The
Yacktman Focused Fund was not aware of any person who, as of March 31, 2000,
owned of record or beneficially 5% or more of the shares of The Yacktman Focused
Fund. By virtue of his share ownership, Donald A. Yacktman "controls" (as such
term is defined in the Act) 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.
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<PAGE>
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.
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, 1999 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, 1999, 1998 and 1997 The
Yacktman Fund paid the Adviser $1,218,012, $4,644,643 and $6,360,037,
respectively. The Adviser was not required to reimburse The Yacktman Fund for
excess expenses during such years. During the fiscal years ended December 31,
1999, 1998 and 1997 for services provided under the applicable Advisory
Agreement The Yacktman Focused Fund paid the Adviser $163,405, $584,540 and
$218,380, respectively, and the Adviser reimbursed The Yacktman Focused Fund $0,
$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
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<PAGE>
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 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, 1999, 1998 and 1997, The Yacktman Fund paid the Administrator
$150,585, $314,789 and $401,002, respectively, pursuant to the Administration
Agreement. For the fiscal years ended December 31, 1999, 1998 and 1997 The
Yacktman Focused Fund paid the Administrator $50,000, $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.
-15-
<PAGE>
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 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.
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<PAGE>
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 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 (up to four
times per month as long as there are seven days
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<PAGE>
between each debit) 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.
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 one business day. 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.
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<PAGE>
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.
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, N.A., 615 East Michigan Street, Milwaukee, Wisconsin
53202, acts as custodian for the Funds. As such, Firstar Bank, 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, 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, N.A., acts as each Fund's transfer agent and dividend
disbursing agent.
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<PAGE>
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Suite 1500,
Milwaukee, Wisconsin 53202, serves as the independent accountants for the Funds.
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 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
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<PAGE>
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, 1999, 1998 and 1997, The Yacktman Fund paid brokerage
commissions of $351,072, $1,365,757 and $1,821,839, respectively, on total
transactions of $144,309,116, $711,404,460 and $1,074,679,740, respectively.
During the fiscal year ended December 31, 1999, The Yacktman Fund paid brokerage
commissions of $131,772 on transactions of $49,043,540 to brokers who provided
research services to the Adviser. For the fiscal years ended December 31, 1999,
1998 and 1997, The Yacktman Focused Fund paid brokerage commissions of $34,668,
$96,612 and $112,677, respectively, on total transactions of $14,075,752,
$60,843,314 and $58,538,149, respectively. During the fiscal year ended December
31, 1999, the Yacktman Focused Fund paid brokerage commissions of $7,350 on
transactions of $2,840,822 to brokers who provided research services to the
Adviser.
In each of the fiscal years ended December 31, 1999, 1998 and 1997,
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 $30,909, $144,424 and
$364,752, respectively, in the fiscal years ended December 31, 1999, 1998 and
1997, as a result of The Yacktman Fund brokerage allocated to it. In the fiscal
year ended December 31, 1999, the Adviser allocated brokerage to a broker that
provides sub-transfer agency services to The Yacktman Focused Fund. Pursuant to
a directed brokerage arrangement, this broker reduced its sub-transfer agency
fees by $472 as a result of The Yacktman Focused 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'
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income distributions may be eligible for the 70% dividends-received deduction
for domestic corporate stockholders.
From time to time the Funds may elect to treat a portion of earnings
and profits included in shareholder redemptions as part of the Funds' dividends
paid deduction.
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 Yacktman Focused Fund realizes future net capital gains, those gains will be
offset by any unused capital loss carryforwards.
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 even though it
results in a return of capital 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 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 complete 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.
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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 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.
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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 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:
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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, 1999, for the five year period ended December 31, 1999
and for the period from the Fund's commencement of operations (July 6, 1992)
through December 31, 1999 were -16.90%, 10.21% and 7.59%, respectively. Such
performance results reflect reimbursements made by the Adviser during the fiscal
year ended December 31, 1993 and the 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, 1999 and for the period May 1, 1997 through
December 31, 1999 were -22.02% and -2.25%, 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
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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.
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 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;
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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, 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.
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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.
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.
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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.
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.
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