UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number 811-6628
--------
The Yacktman Funds, Inc.
6300 Bridgepoint Parkway
Building One, Suite 320
Austin, TX 78730
----------------------------------------
(Address of principal executive offices)
Yacktman Asset Management Co.
6300 Bridgepoint Parkway
Building One, Suite 320
Austin, TX 78730
--------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (512) 767-6700
--------------
Date of fiscal year end: December 31
-----------
Date of reporting period: December 31, 2005
-----------------
ITEM 1. REPORTS TO STOCKHOLDERS
The following is a copy of the report transmitted to shareholders pursuant to
Rule 30e-1 under the Act (17 CFR 270.30e-1).
THE YACKTMAN FUNDS[LOGO]
ANNUAL REPORT
December 31, 2005
This report is submitted for the general information of shareholders of The
Yacktman Funds. It is not authorized for distribution to prospective investors
unless accompanied or preceded by an effective Prospectus for the Funds, which
contains more information concerning the Funds' investment policies, as well as
fees and expenses and other pertinent information. Read the Prospectus
carefully.
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
MESSAGE TO SHAREHOLDERS
Donald A. Yacktman[PHOTO]
Stephen Yacktman[PHOTO]
Dear Fellow Shareholder:
Since the S&P 500(R) Index peaked in March 2000, the total return for the Index
has been negative. Ten thousand dollars invested in that Index on March 31, 2000
would now be worth $9,130. On that same date, ten thousand dollars placed in The
Yacktman Fund and The Yacktman Focused Fund would equal $23,882 and $23,792,
respectively. We achieved these results through our characteristic risk-averse
methods. Patient, long-term investing yields handsome rewards.
THE THE
YACKTMAN S&P 500(R) YACKTMAN S&P 500(R)
FUND(1) INDEX FOCUSED FUND(2) INDEX
TIME ANNUALIZED ANNUALIZED ANNUALIZED ANNUALIZED
PERIOD RETURNS RETURNS RETURNS RETURNS
One Year (1.30)% 4.91% (1.83)% 4.91%
Three Years 13.02% 14.39% 12.47% 14.39%
Five Years 13.95% 0.54% 13.89% 0.54%
Ten Years 10.51% 9.07% N/A 9.07%
Since Inception 10.34% 10.63% 7.83% 6.89%
(1) The Yacktman Fund Inception (7/6/92)
(2) The Yacktman Focused Fund Inception (5/1/97)
THE ABOVE PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. THE INVESTMENT
RETURN AND PRINCIPAL VALUE OF THE FUNDS WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE
PERFORMANCE QUOTED. TO OBTAIN PERFORMANCE CURRENT TO THE MOST RECENT
MONTH-END, PLEASE CALL 1-800-525-8258.
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
- --------------------------------------------------------------------------------
HOW DO YOU MEASURE A YEAR?
The song "Seasons of Love" from the musical "Rent" includes the lyrics "Five
hundred twenty-five thousand six hundred minutes. How do you measure, measure a
year?"
A year can seem like a long time, especially when 12 months pass with very
little activity. Last year, The Yacktman Fund was down 1.30% and The Yacktman
Focused Fund was down 1.83%. The S&P 500(R) Index was up 4.91%. Much of the
Index's performance was achieved via gains in energy stocks, a sector we tend to
avoid. While we were disappointed by the results, and some may perceive being
out of step with the Index as unsettling, we are not concerned with short-term
performance. In general, the underlying businesses of most of our holdings
performed well irrespective of the general lack of movement of the stock price.
During 2005, we continued to look for superior businesses with good management
at a price that reflected a discount to the valuation of the firm. We researched
many securities and added a few to the portfolio(s), including Wal-Mart Stores,
Inc., Anheuser-Busch Co., and some debt/convertible instruments. While
attractive, these became only small positions.
Including new additions and incremental purchases of securities already held,
throughout 2005 we made only a total of 52 separate purchase transactions
involving 14 individual securities in The Yacktman Fund and eight involving four
securities in The Yacktman Focused Fund. Sale transactions outnumbered
purchases, an indication of our thoughts on valuations.
This lack of new investments was a reflection of two factors: 1) overall
valuations and 2) relatively few material price declines in companies we find
attractive. When we couldn't find new opportunity, we considered cash a safe
alternative until real bargains became available. As we have shown in the past,
patience can be richly rewarded.
- --------------------------------------------------------------------------------
HOW DO YOU MEASURE A MANAGER?
We believe managers should be judged over long-term horizons (5- or 10-year
periods) or from market peaks where the "wheat is separated from the chaff." In
the above section, you can see how we have performed since the market peak.
During each of the four 10-year time frames of The Yacktman Fund's existence
(1992-2002, 1993-2003, 1994-2004, and 1995-2005), performance exceeded the S&P
500(R) Index and delivered strong absolute returns.
ROLLING TEN YEAR RETURNS
- --------------------------------------------------------------------------------
The Yacktman Fund S&P 500(R) Index
Ten Year Ten Year
Time Period Annualized Returns Annualized Returns
- --------------------------------------------------------------------------------
1992-2002 9.57% 9.34%
1993-2003 13.52% 11.07%
1994-2004 13.63% 12.07%
1995-2005 10.51% 9.07%
We have strengthened our investment team and process since we began, which is
why you will find that the latter half of the 10-year period produced even
better results than the first half. Our investment team has remained the same
since 2001, a claim few value investment firms can make. The people who
delivered the superior results are still here.
If you are disappointed by our Funds' lackluster performance in 2005, the good
news is that after each of the other two years in which one of the Funds
declined, we experienced years in which the Funds were up and greatly
outperformed the Index. We do not know if that will happen in 2006, considering
how unpredictable any given short-term period can be. Past performance does not
guarantee future results.
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
- --------------------------------------------------------------------------------
HOW DO YOU MEASURE INSANITY?
Benjamin Franklin said, "The definition of insanity is doing the same thing over
and over again and expecting different results." Overpaying for stocks in 2000
was not a good idea, yet after a period of sharp declines in 2000 to 2002,
prices are yet again at levels we believe will produce disappointing results.
Outside of the technology sector, which reached completely insane levels in
2000, much of the rest of the market is not appreciably cheaper than it was at
the prior market peak.
We often see quotes from reportedly respectable investors claiming, "It's
different this time." We heard this expression constantly in 1999, and we are
hearing it now again. Many managers seem to be crossing their fingers, chasing
high valuations, and joining the chorus. In 1999 to 2000, some were chasing
illusory growth prospects; today we believe they are chasing unsustainable
profit margins. Net U.S. corporate profits as a percent of GDP have been at a
level not seen since 1929, and today are more than 30% above average. Based on
history, we believe these abnormally high margins will not last. Why should it
be different this time? What are people going to think when the P/E ratio rises
even further as a result of the earnings part of the equation declining?
Furthermore, over the past year the market has continued to push more capital
into the energy sector and several other commodity type investments that are
enjoying their day in the sun and may continue to do so for a while. These
businesses require enormous amounts of fixed assets and historically have
struggled to earn high returns on assets over long periods of time. They are
also more vulnerable to the labor problems seen in the airline and automobile
industries.
We are committed to utilizing the same strategy that has worked since the Funds'
inception, and we continue to have a meaningful personal investment in the
Funds. We look forward to a future that has more volatility in either individual
companies or the entire market. The future looks brightest to us when we feel we
are scooping up the bargains that typically come from price dislocations. When
that happens, we will change from singing "How do you measure a year?" to "Happy
days are here again."
Sincerely,
/s/Donald A. Yacktman
Donald A. Yacktman
President & Co-Portfolio Manager
/s/Stephen Yacktman
Stephen Yacktman
Co-Portfolio Manager
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
- --------------------------------------------------------------------------------
THE YACKTMAN FUND AVERAGE ANNUAL RETURNS
- ----------------------------------------------------
One Year (1/1/05 - 12/31/05) -1.30%
Five Years (1/1/00 - 12/31/05) 13.95%
Ten Years (1/1/96 - 12/31/05) 10.51%
Since Inception (7/6/92) 10.34%
[CHART]
The
Yacktman S&P 500(R)
Fund Stock Index*
- ----------------------------------------------------
12/31/95 10,000 10,000
12/31/96 12,602 12,296
12/31/97 14,906 16,398
12/31/98 15,001 21,084
12/31/99 12,466 25,521
12/31/00 14,144 23,196
12/31/01 16,896 20,438
12/31/02 18,824 15,923
12/31/03 25,042 20,490
12/31/04 27,528 22,719
12/31/05 27,170 23,835
THE CHART ASSUMES AN INITIAL GROSS
INVESTMENT OF $10,000 MADE ON 12/31/95.
THE YACKTMAN FOCUSED FUND AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
One Year (1/1/05 - 12/31/05) -1.83%
Five Years (1/1/00 - 12/31/05) 13.89%
Since Inception (5/1/97) 7.83%
[CHART]
The
Yacktman S&P 500(R)
Focused Stock Index*
- ----------------------------------------------------
5/1/97 10,000 10,000
12/31/97 11,538 12,256
12/31/98 12,067 15,759
12/31/99 9,409 19,075
12/31/00 10,031 17,338
12/31/01 11,749 15,278
12/31/02 13,511 11,901
12/31/03 17,805 15,315
12/31/04 19,578 16,981
12/31/05 19,220 17,815
THE CHART ASSUMES AN INITIAL GROSS INVESTMENT OF $10,000 MADE ON 5/1/97
(INCEPTION).
* The S&P 500(R) is an unmanaged but commonly used measure of common stock total
return performance.
Returns shown include the reinvestment of all dividends, but do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the
redemption of Fund shares. The above past performance is not predictive of
future results. The investment return and principal value of the Funds will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX
INVESTMENT IDEA AND IMPORTANCE OF TIME HORIZON
Since 1992, we have held a position in Phillip Morris, now called Altria. As
many of you may recall, in 1999 we held outsized positions of Phillip Morris (to
the dismay of many, we might add). You also may have noticed that by the end of
2005, the position in Altria was less than 1% of each Fund's assets. Now, you
may be wondering what changes in Altria prompted us to alter our view of the
company and decrease its size in the portfolio.
Domestic tobacco, which represents approximately 25% of profits, has declined
since 1999; the food business, approximately 30% of profits, has shown low to
mid single-digit earnings growth over this period. International tobacco, which
represents approximately 45% of profits, has grown at a healthy 8% clip. The net
result is that these businesses have increased their collective profits by a few
percent per year.
So what is the big difference? The simple answer is valuation. We take a
generally less optimistic view toward paying three times as much for essentially
the same thing. The argument now is that the tobacco liability risk has been
mitigated and all is well. Of course, this has happened before, only for us to
see the risk "reappear."
We have sold much of the Altria held in our Funds. However, Altria's food
division Kraft now trades separately and we have positions in Kraft. Kraft now
trades relatively in line with the tobacco business.
Kraft gives you a food business growing in the low to mid single-digits minus
the liability of Altria, the same food business PLUS a tobacco business that
does not appear to be growing faster than the food business over the next 10+
years. In fact, yearly cigarette consumption on a global scale is in decline. On
the other hand, population growth means increased food consumption. So, Altria
could only grow faster than Kraft if it
- --------------------------------------------------------------------------------
THE YACKTMAN FUND, INC.
- --------------------------------------------------------------------------------
rapidly gained share from competitors, increased smoking worldwide, and thwarted
efforts to quit smoking. That's a pretty tall order! The one benefit the tobacco
business does have over food is that it requires less capital to grow. However,
without growth there is little advantage.
So, by essentially selling Altria and buying Kraft at the same price, we feel we
have secured a stream of earnings that grows at about the same pace or slightly
quicker without the potential "liability" shock, thereby improving our position.
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
EXPENSE EXAMPLE
For the Six Months Ended December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
As a shareholder of the Yacktman Funds (the "Funds"), you incur ongoing costs,
including management fees and other Fund expenses. If you invest through a
financial intermediary, you may also incur additional costs such as a
transaction fee charged on the purchase or sale of the Fund or an asset-based
management fee. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first line of the table on the next page provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested, to estimate the expenses you paid over
the period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table on the next page provides information about
hypothetical account values and hypothetical expenses based on the Funds' actual
expense ratios and an assumed rate of return of 5% per year before expenses,
which is not the Funds'actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
EXPENSE EXAMPLE (Cont'd.)
For the Six Months Ended December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any costs that may be associated with
investing in the Fund through a financial intermediary. Therefore, the second
line of the table is useful in comparing the ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if any costs associated with investing through a financial
intermediary were included, your costs would have been higher.
THE YACKTMAN FUND
- --------------------------------------------------------------------------------
Expenses
Beginning Ending paid during
account account period
value value 7/1/05-
7/1/05 12/31/05 12/31/05(1)
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,000.10 $4.69
Hypothetical
(5% return
before expenses) 1,000.00 1,020.31 4.74
THE YACKTMAN FOCUSED FUND
- --------------------------------------------------------------------------------
Expenses
Beginning Ending paid during
account account period
value value 7/1/05-
7/1/05 12/31/05 12/31/05(1)
- --------------------------------------------------------------------------------
Actual $1,000.00 $996.20 $6.29
Hypothetical
(5% return
before expenses) 1,000.00 1,018.70 6.36
(1) Expenses are equal to the Funds' annualized expense ratios (0.93% for The
Yacktman Fund and 1.25% for The Yacktman Focused Fund), multiplied by the
average account value over the period, multiplied by 184/365 (to reflect
the one-half year period).
- --------------------------------------------------------------------------------
THE YACKTMAN FUND
TOP TEN EQUITY HOLDINGS (Unaudited)
December 31, 2005
- --------------------------------------------------------------------------------
PERCENTAGE OF
NET ASSETS
- --------------------------------------------------------------------------------
Coca-Cola Co. 7.5%
Kraft Foods, Inc. 5.4
Liberty Media Corp. 4.7
Henkel Ltd Partnership 4.4
AmeriCredit Corp. 4.3
Lancaster Colony Corp. 4.0
Pfizer, Inc. 3.3
Tyco International Ltd. 2.3
Unilever N.V. 2.2
Bristol-Myers Squibb Co. 2.0
-----
TOTAL 40.1%
- --------------------------------------------------------------------------------
FUND DIVERSIFICATION (Unaudited)
December 31, 2005
- --------------------------------------------------------------------------------
[CHART]
Banks - 1.4%
Beverages - 10.1%
Commercial Services & Supplies - 1.0%
Diversified Financials - 7.0%
Food Products - 11.0%
Household Products - 9.0%
Industrial Conglomerates - 2.3%
Insurance - 1.7%
IT Consulting & Services - 3.2%
Media - 8.0%
Pharmaceuticals - 6.3%
Real Estate - 1.3%
Software - 0.8%
Specialty Retail - 1.6%
Bonds - 1.1%
Tobacco - 0.9%
Short-Term Investments less Other Assets - 33.3%
- --------------------------------------------------------------------------------
THE YACKTMAN FUND
EQUITY PURCHASES & SALES (Unaudited)
For the Six Months Ended December 31, 2005
- --------------------------------------------------------------------------------
NET SHARES CURRENT
NEW PURCHASES PURCHASED SHARES HELD
- --------------------------------------------------------------------------------
NATIONAL BEVERAGE CORP.
A HOLDING COMPANY FOR SUBSIDIARIES
THAT MARKET, MANUFACTURE, AND
DISTRUBUTE A FULL LINE OF BEVERAGE
PRODUCTS. NATIONAL'S BRANDS INCLUDE
SHASTA, FAYGO, EVERFRESH AND LACROIX. 107,900 107,900
- --------------------------------------------------------------------------------
NET SHARES CURRENT
PURCHASES PURCHASED SHARES HELD
- --------------------------------------------------------------------------------
Anheuser-Busch Cos. 10,000 110,000
Kraft Foods, Inc. 145,000 845,000
Lancaster Colony Corp. 39,700 476,288
Pfizer, Inc. 210,000 630,000
Wal-Mart Stores, Inc. 65,000 150,000
- --------------------------------------------------------------------------------
NET SHARES CURRENT
SALES SOLD SHARES HELD
- --------------------------------------------------------------------------------
Altria Group, Inc. 40,000 50,000
Cardinal Health, Inc. 100,000 -
Friedman's, Inc. 465,000 -
Henkel KGaA 54,293 210,707
Interstate Bakeries Corp. 80,000 -
Trizec Properties, Inc. 70,000 240,000
- --------------------------------------------------------------------------------
THE YACKTMAN FUND
PORTFOLIO OF INVESTMENTS
December 31, 2005
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS - 65.6%
BANKS - 1.4%
U.S. Bancorp 150,000 $ 4,483,500
Washington Mutual, Inc.(1) 40,000 1,740,000
-----------
6,223,500
-----------
BEVERAGES - 10.1%
Anheuser-Busch Cos., Inc.(1) 110,000 4,725,600
Coca-Cola Co. 820,000 33,054,200
National Beverage Corp.* 107,900 1,054,183
PepsiCo, Inc. 90,000 5,317,200
-----------
44,151,183
-----------
COMMERCIAL SERVICES & SUPPLIES - 1.0%
H&R Block, Inc. 180,000 4,419,000
-----------
DIVERSIFIED FINANCIALS - 7.0%
AmeriCredit Corp.*(1) 730,000 18,709,900
Federal Home Loan Mortgage Corp. 110,000 7,188,500
Federal National
Mortgage Association(1) 100,000 4,881,000
-----------
30,779,400
-----------
FOOD PRODUCTS - 11.0%
Cadbury Schweppes plc(1) 180,000 6,892,200
Kraft Foods, Inc. 845,000 23,778,300
Lancaster Colony Corp. 476,288 17,646,470
-----------
48,316,970
-----------
HOUSEHOLD PRODUCTS - 9.0%
Clorox Co.(1) 110,000 6,257,900
Colgate-Palmolive Co.(1) 75,000 4,113,750
Henkel KGaA 210,707 19,520,318
Unilever N.V 140,000 9,611,000
-----------
39,502,968
-----------
INDUSTRIAL CONGLOMERATES - 2.3%
Tyco International Ltd. 350,000 10,101,000
-----------
INSURANCE - 1.7%
Marsh & McLennan Cos., Inc.(1) 103,500 3,287,160
MBIA, Inc.(1) 40,000 2,406,400
MGIC Investment Corp.(1) 30,000 1,974,600
-----------
7,668,160
-----------
THE YACKTMAN FUND
PORTFOLIO OF INVESTMENTS (Cont'd.)
December 31, 2005
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
IT CONSULTING & SERVICES - 3.2%
Electronic Data Systems Corp.(1) 300,000 $ 7,212,000
First Data Corp. 160,000 6,881,600
-----------
14,093,600
-----------
MEDIA - 8.0%
Discovery Holding Co., Class A*(1) 260,000 3,939,000
Interpublic Group of Cos., Inc.*(1) 480,000 4,632,000
Liberty Media Corp.*(1) 2,600,000 20,462,000
Viacom, Inc., Class B* 180,000 5,868,000
-----------
34,901,000
-----------
PHARMACEUTICALS - 6.3%
Bristol-Myers Squibb Co. 380,000 8,732,400
Johnson & Johnson 70,000 4,207,000
Pfizer, Inc. 630,000 14,691,600
-----------
27,631,000
-----------
REAL ESTATE - 1.3%
Trizec Properties, Inc. 240,000 5,500,800
-----------
SOFTWARE - 0.8%
Microsoft Corp.(1) 140,000 3,661,000
-----------
SPECIALTY RETAIL - 1.6%
Wal-Mart Stores, Inc.(1) 150,000 7,020,000
-----------
TOBACCO - 0.9%
Altria Group, Inc. 50,000 3,736,000
-----------
Total Common Stocks
(cost $221,893,634) 287,705,581
-----------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
CORPORATE BONDS - 1.1%
Athena Nuero Financial, LLC,(1)
7.25%, 2/21/08 $5,000,000 4,906,250
-----------
Total Corporate Bonds
(cost $4,420,426) 4,906,250
-----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 52.7%
COMMERCIAL PAPER - 33.5%
Abbey National plc,
4.21%(2), 1/4/06 $ 21,400,000 $ 21,392,492
American General Financial Services,
4.18%(2), 1/4/06 21,400,000 21,392,546
American Express Co.,
3.85%(2), 1/3/06 20,000,000 19,995,722
Chesham Finance, Ltd.,
4.10%(2), 1/3/06 20,000,000 19,995,444
Citigroup, Inc.,
4.18%(2), 1/4/06 21,400,000 21,392,546
Toyota Motor Corp.,
4.17%(2), 1/4/06 21,400,000 21,392,564
UBS AG,
4.16%(2), 1/4/06 21,400,000 21,392,528
-------------
Total Commercial Paper
(cost $146,953,842) 146,953,842
-------------
DEMAND NOTE (VARIABLE RATE) - 0.0%
U.S. Bancorp, 4.13%(3) 192,934 192,934
-------------
Total Demand Note
(cost $192,934) 192,934
-------------
OTHER SHORT-TERM INVESTMENT - 19.2%
Securities Lending Investment Account
(cost $84,280,631) 84,280,631
-------------
Total Short-Term Investments
(cost $231,427,407) 231,427,407
-------------
TOTAL INVESTMENTS - 119.4%
(cost $457,741,467) 524,039,238
Liabilities less Other Assets - (0.2)% (846,527)
Less Liability for Collateral
on Securities Loaned - (19.2)% (84,280,631)
-------------
Net Assets - 100% (equivalent to $14.67
per share based on 29,916,607
shares outstanding) $ 438,912,080
=============
* NON-INCOME PRODUCING
(1) ALL OR A PORTION OF THE SECURITIES HAVE BEEN COMMITTED FOR SECURITIES
LENDING (SEE NOTE 5)
(2) YIELD TO MATURITY (3) RATE DISCLOSED AT DECEMBER 31, 2005
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
THE YACKTMAN FOCUSED FUND
FUND DIVERSIFICATION (Unaudited)
December 31, 2005
- --------------------------------------------------------------------------------
[CHART]
Beverages - 8.8%
Commercial Services & Supplies - 2.0%
Diversified
Financials - 13.1%
Food Products - 10.2%
Household Products - 12.0%
Industrial Conglomerates - 3.1%
Insurance - 1.0%
IT Consulting & Services - 2.0%
Media - 9.6%
Pharmaceuticals - 7.1%
Real Estate - 1.1%
Specialty Retail - 2.0%
Short-Term Investments less Other Assets - 28.0%
- --------------------------------------------------------------------------------
THE YACKTMAN FOCUSED FUND
EQUITY PURCHASES & SALES (Unaudited)
For the Six Months Ended December 31, 2005
- --------------------------------------------------------------------------------
NET SHARES CURRENT
PURCHASES PURCHASED SHARES HELD
- --------------------------------------------------------------------------------
Kraft Foods, Inc. 15,000 175,000
Pfizer 20,000 130,000
Wal-Mart Stores, Inc. 35,000 35,000
- --------------------------------------------------------------------------------
NET SHARES CURRENT
SALES SOLD SHARES HELD
- --------------------------------------------------------------------------------
Altria Group, Inc. 25,000 -
Cardinal Health, Inc. 25,000 -
Electronic Data Systems Corp. 10,000 70,000
Friedman's, Inc. 260,000 -
Henkel KGaA 35,000 50,000
Interstate Bakeries Corp. 50,000 -
Trizec Properties, Inc. 50,000 40,000
- --------------------------------------------------------------------------------
THE YACKTMAN FOCUSED FUND
PORTFOLIO OF INVESTMENTS
December 31, 2005
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS - 72.0%
BEVERAGES - 8.8%
Coca-Cola Co. 185,000 $ 7,457,350
-----------
COMMERCIAL SERVICES & SUPPLIES - 2.0%
H&R Block, Inc. 70,000 1,718,500
-----------
DIVERSIFIED FINANCIALS - 13.1%
AmeriCredit Corp.*(1) 280,000 7,176,400
Federal Home Loan Mortgage Corp. 60,000 3,921,000
-----------
11,097,400
-----------
FOOD PRODUCTS - 10.2%
Kraft Foods, Inc. 175,000 4,924,500
Lancaster Colony Corp. 100,000 3,705,000
-----------
8,629,500
-----------
HOUSEHOLD PRODUCTS - 12.0%
Clorox Co.(1) 30,000 1,706,700
Colgate-Palmolive Co.(1) 20,000 1,097,000
Henkel KGaA 50,000 4,632,100
Unilever N.V.(1) 40,000 2,746,000
-----------
10,181,800
-----------
INDUSTRIAL CONGLOMERATES - 3.1%
Tyco International Ltd. 90,000 2,597,400
-----------
INSURANCE - 1.0%
Marsh & McLennan Cos., Inc. 26,200 832,112
-----------
IT CONSULTING & SERVICES - 2.0%
Electronic Data Systems Corp.(1) 70,000 1,682,800
-----------
MEDIA - 9.6%
Discovery Holdings Co., Class A*(1) 67,000 1,015,050
Interpublic Group of Cos., Inc.*(1) 193,100 1,863,415
Liberty Media Corp.*(1) 670,000 5,272,900
-----------
8,151,365
-----------
PHARMACEUTICALS - 7.1%
Bristol-Myers Squibb Co. 130,000 2,987,400
Pfizer, Inc. 130,000 3,031,600
-----------
6,019,000
-----------
REAL ESTATE - 1.1%
Trizec Properties, Inc. 40,000 916,800
-----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SPECIALTY RETAIL - 2.0%
Wal-Mart Stores, Inc. 35,000 $ 1,638,000
-----------
Total Common Stocks
(cost $47,556,742) 60,922,027
-----------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 47.1%
COMMERCIAL PAPER - 28.4%
Abbey National plc,
4.21%(2), 1/4/06 $ 4,100,000 4,098,562
American General Financial Services,
4.18%(2), 1/4/06 4,100,000 4,098,572
American Express Co.,
3.85%(2), 1/3/06 3,800,000 3,799,187
Chesham Finance, Ltd.,
4.10%(2), 1/3/06 3,800,000 3,799,134
Citigroup, Inc.,
4.18%(2), 1/4/06 4,100,000 4,098,572
Toyota Motor Corp.,
4.17%(2), 1/4/06 4,100,000 4,098,575
-----------
Total Commercial Paper
(cost $23,992,602) 23,992,602
-----------
DEMAND NOTE (VARIABLE RATE) - 0.1%
U.S. Bancorp, 4.13%(3) 88,325 88,325
-----------
Total Demand Note
(cost $88,325) 88,325
-----------
- --------------------------------------------------------------------------------
THE YACKTMAN FOCUSED FUND
PORTFOLIO OF INVESTMENTS (Cont'd.)
December 31, 2005
- --------------------------------------------------------------------------------
VALUE
- --------------------------------------------------------------------------------
OTHER SHORT-TERM INVESTMENT - 18.6%
Securities Lending Investment Account
(cost $15,724,000) $ 15,724,000
-------------
Total Short-Term Investments
(cost $39,804,927) 39,804,927
-------------
Total Investments - 119.1%
(cost $87,361,669) 100,726,954
Liabilities Less Other Assets - (0.5)% (395,257)
Less Liability for Collateral
on Securities Loaned - (18.6)% (15,724,000)
-------------
Net Assets - 100% (equivalent to $14.96
per share based on 5,657,214
shares outstanding) $ 84,607,697
=============
* NON-INCOME PRODUCING
(1)ALL OR A PORTION OF THE SECURITIES HAVE BEEN COMMITTED FOR SECURITIES
LENDING (SEE NOTE 5)
(2)YIELD TO MATURITY
(3)RATE DISCLOSED AT DECEMBER 31, 2005
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
STATEMENTS OF ASSETS & LIABILITIES
December 31, 2005
- --------------------------------------------------------------------------------
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
- --------------------------------------------------------------------------------
ASSETS
Investments at value
(cost $457,741,467 and
$87,361,669, respectively) $524,039,238 $100,726,954
Receivable for fund shares sold 1,618,586 285,997
Dividends and interest receivable 613,446 75,857
Prepaid expenses 47,789 9,231
------------ -------------
Total Assets 526,319,059 101,098,039
------------ -------------
LIABILITIES
Collateral for securities loaned 84,280,631 15,724,000
Payable for fund shares redeemed 2,784,487 637,442
Accrued investment advisory fees 248,254 82,083
Other accrued expenses 93,607 46,817
------------ -------------
Total Liabilities 87,406,979 16,490,342
------------ -------------
NET ASSETS $ 438,912,080 $ 84,607,697
============= =============
NET ASSETS CONSIST OF:
Capital stock $ 372,531,208 $ 71,489,465
Undistributed net
investment income 82,257 10,896
Undistributed net
realized gains (losses) 844 (257,949)
Net unrealized appreciation
on investments 66,297,771 13,365,285
------------ -------------
Total Net Assets $ 438,912,080 $ 84,607,697
============= =============
CAPITAL STOCK, $.0001 par value
Authorized 500,000,000 500,000,000
Issued and Outstanding 29,916,607 5,657,214
NET ASSET VALUE,
REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $14.67 $14.96
====== ======
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2005
- --------------------------------------------------------------------------------
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income $ 6,433,684(1) $ 1,440,693(2)
Interest income 5,933,264 977,759
Securities lending income
(See Note 5) 63,948 17,230
Other 148 --
----------- -----------
12,431,044 2,435,682
----------- -----------
EXPENSES:
Investment advisory fees 2,906,523 956,361
Shareholder servicing fees 591,545 127,708
Administration and accounting fees 229,147 50,000
Custody fees 82,325 18,591
Reports to shareholders 54,510 17,562
Federal and state registration fees 83,547 39,576
Professional fees 82,069 33,302
Directors' fees and expenses 25,338 7,916
Miscellaneous costs 38,857 11,513
----------- -----------
Total expenses before
reimbursements 4,093,861 1,262,529
----------- -----------
Expense reimbursements
(See Note 4) -- (67,042)
----------- -----------
Net expenses 4,093,861 1,195,487
----------- -----------
NET INVESTMENT INCOME 8,337,183 1,240,195
----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain on investments 5,536,066 1,994,356
Change in unrealized depreciation
on investments (19,038,159) (5,284,051)
----------- -----------
Net realized and unrealized loss
on investments (13,502,093) (3,289,695)
----------- -----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(5,164,910) $(2,049,500)
=========== ===========
(1) NET OF $146,041 IN FOREIGN WITHHOLDING TAXES
(2) NET OF $45,069 IN FOREIGN WITHHOLDING TAXES
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE YACKTMAN FUND THE YACKTMAN FOCUSED FUND
----------------- -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
2005 2004 2005 2004
OPERATIONS:
Net investment income $ 8,337,183 $ 2,516,328 $ 1,240,195 $ 163,603
Net realized gain on investments 5,536,066 28,595,140 1,994,356 10,091,812
Change in unrealized appreciation
on investments (19,038,159) 1,096,699 (5,284,051) (2,699,839)
------------ ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations (5,164,910) 32,208,167 (2,049,500) 7,555,576
------------ ------------ ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 267,195,629 161,689,854 49,628,717 67,230,026
Proceeds from reinvestment of distributions 12,283,531 27,685,525 2,870,353 10,357,231
Redemption fees 68 -- 89 --
------------ ------------ ----------- -----------
279,479,228 189,375,379 52,499,159 77,587,257
Payments for shares redeemed (186,939,415) (150,792,024) (59,901,687) (103,982,061)
------------ ------------ ----------- -----------
Net increase (decrease) 92,539,813 38,583,355 (7,402,528) (26,394,804)
------------ ------------ ----------- -----------
DISTRIBUTIONS PAIDFROM:
Net investment income (8,211,462) (2,514,053) (1,216,086) (163,233)
Net realized gains (5,559,012) (28,398,069) (1,987,207) (11,089,138)
------------ ------------ ----------- -----------
Total distributions (13,770,474) (30,912,122) (3,203,293) (11,252,371)
------------ ------------ ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 73,604,429 39,879,400 (12,655,321) (30,091,599)
NET ASSETS:
Beginning of year 365,307,651 325,428,251 97,263,018 127,354,617
------------ ------------ ----------- -----------
End of year (including undistributed net
investment income of $82,256, $2,131, $10,896
and $305, respectively) $438,912,080 $365,307,651 $84,607,697 $97,263,018
============ ============ =========== ===========
TRANSACTIONS IN SHARES:
Shares sold 17,654,730 10,503,672 3,182,602 4,071,851
Issued in reinvestment of distributions 835,614 1,802,438 191,496 653,453
Shares redeemed (12,380,546) (9,858,635) (3,860,169) (6,406,640)
------------ ------------ ----------- -----------
Net increase (decrease) 6,109,798 2,447,475 (486,071) (1,681,336)
============ ============ =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
FINANCIAL HIGHLIGHTS
THE YACKTMAN FUND
- ---------------------------------------------------------------------------------------------------------------------------
For a Fund share outstanding YEAR ENDED DECEMBER 31,
throughout each year 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of year $15.34 $15.24 $12.33 $11.16 $9.80
Income from investment
operations:
Net investment income 0.28 0.12 0.23 0.13 0.08
Net realized and unrealized
gain (loss) on investments (0.48) 1.40 3.84 1.14 1.83
Total from investment -------- -------- -------- -------- --------
operations (0.20) 1.52 4.07 1.27 1.91
-------- -------- -------- -------- --------
Less distributions:
From net investment income (0.28) (0.12) (0.17) (0.10) (0.05)
From net realized gains (0.19) (1.30) (0.99) -- (0.50)
-------- -------- -------- -------- --------
Total distributions (0.47) (1.42) (1.16) (0.10) (0.55)
-------- -------- -------- -------- --------
Net asset value, end
of year $14.67 $15.34 $15.24 $12.33 $11.16
======== ======== ======== ======== ========
Total Return (1.30)% 9.93% 33.03% 11.41% 19.47%
======== ======== ======== ======== ========
Supplemental data and ratios:
Net assets, end of year (000s) $438,912 $365,308 $325,428 $421,292 $113,199
Ratio of net expenses to average ======== ======== ======== ======== ========
net assets 0.92% 0.95% 0.94% 0.99% 1.17%
Ratio of net investment income to ======== ======== ======== ======== ========
average net assets 1.86% 0.73% 1.25% 2.01% 1.06%
======== ======== ======== ======== ========
Portfolio turnover rate 8.64% 23.82% 40.01% 39.19% 42.79%
======== ======== ======== ======== ========
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
FINANCIAL HIGHLIGHTS (Cont'd.)
THE YACKTMAN FOCUSED FUND
- ---------------------------------------------------------------------------------------------------------------------
For a Fund share outstanding YEAR ENDED DECEMBER 31,
throughout each year 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of year $ 15.83 $ 16.28 $ 12.48 $ 10.92 $ 9.40
Income from investment
operations
Net investment income 0.22 0.03 0.07 0.08 0.09
Net realized and unrealized
gain (loss) on investments (0.51) 1.59 3.90 1.56 1.52
Total from investment ------- ------- -------- -------- ------
operations (0.29) 1.62 3.97 1.64 1.61
------- ------- -------- -------- ------
Less distributions:
From net investment income (0.22) (0.03) (0.07) (0.08) (0.09)
From net realized gains (0.36) (2.04) (0.10) -- --
------- ------- -------- -------- ------
Total distributions (0.58) (2.07) (0.17) (0.08) (0.09)
------- ------- -------- -------- ------
Net asset value, end
of year $ 14.96 $ 15.83 $ 16.28 $ 12.48 $10.92
======= ======= ======== ======== ======
Total Return (1.83)% 9.96% 31.79% 14.99% 17.14%
======= ======= ======== ======== ======
Supplemental data and ratios:
Net assets, end of year (000s) $84,608 $97,263 $127,355 $115,250 $9,356
Ratio of expenses before expense ======= ======= ======== ======== ======
reimbursements to average net
assets (See Note 4) 1.32% 1.33% 1.36%(1) 1.45% 2.32%
======= ======= ======== ======== ======
Ratio of net expenses to average
net assets 1.25% 1.25% 1.26%(2) 1.25% 1.25%
======= ======= ======== ======== ======
Ratio of net investment income to
average net assets 1.30% 0.16% 0.51% 1.68% 1.06%
======= ======= ======== ======== ======
Portfolio turnover rate 5.62% 19.26% 71.38% 49.95% 51.33%
======= ======= ======== ======== ======
(1) THE RATIO OF EXPENSES BEFORE EXPENSE REIMBURSEMENTS TO AVERAGE NET ASSETS,
EXCLUDING INTEREST EXPENSE, WAS 1.35%
(2) THE RATIO OF EXPENSES TO AVERAGE NET
ASSETS, EXCLUDING INTEREST EXPENSE, WAS 1.25%
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Yacktman Funds, Inc. (comprised of The Yacktman Fund and The Yacktman
Focused Fund, hereafter referred to as the "Funds") is registered as an open-end
management investment company under the Investment Company Act of 1940 (the
"1940 Act"). The Funds consist of two investment portfolios: The Yacktman Fund
is a diversified fund that commenced operations July 6, 1992 and The Yacktman
Focused Fund is a non-diversified fund that commenced operations May 1, 1997.
The objective of each of the Funds is to produce long-term capital appreciation
with current income as a secondary objective. Yacktman Asset Manage ment Co. is
the Funds' investment adviser (the "Adviser").
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America, which require management to
make certain estimates and assumptions during the reporting period. Actual
results could differ from those estimates.
A) INVESTMENT VALUATION - Securities which are traded on a national stock
exchange are valued at the last sale price on the securities exchange on which
such securities are primarily traded. Securities that are traded on the Nasdaq
National Market or the Nasdaq Smallcap Market are valued at the Nasdaq Official
Closing Price. Exchange-traded securities for which there were no transactions
are valued at the current bid prices. Securities traded on only over-the-counter
markets are valued on the basis of closing over-the-counter bid prices.
Short-term debt instruments maturing within 60 days are valued by the amortized
cost method, which approximates fair value. Debt securities (other than
short-term instruments) are valued at the mean price 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. Options written or purchased by The Yacktman
Focused Fund are valued at the last sales price if such last sales price is
between the current bid and asked prices. Otherwise, options are valued at the
mean between the current bid and asked prices. Any securities for which there
are no readily available market quotations and other assets will be valued at
their
- --------------------------------------------------------------------------------
fair value as determined in good faith by the Adviser pursuant to procedures
established by and under the supervision of the Board of Directors. The fair
value of a security is the amount which a Fund might reasonably expect to
receive upon a current sale. Valuing securities at fair value involves greater
reliance on judgment than valuing securities that have readily available market
quotations. There can be no assurance that the Funds could obtain the fair value
assigned to a security if they were to sell the security at approximately the
time at which the Funds determine their net asset value per share.
B) OPTIONS - Premiums received by The Yacktman Focused Fund upon writing options
are recorded as an asset with a corresponding liability which is subsequently
adjusted to the current market value of the option. Changes between the initial
premiums received and the current value of the options are recorded in
unrealized gains and losses. When an option expires, is exercised, or is closed,
the Fund realizes a gain or loss, and the liability is eliminated. The Fund
continues to bear the risk of adverse movements in the price of the underlying
security during the period of the option, although any potential loss would be
reduced by the amount of option premium received. The Yacktman Focused Fund had
no activity in written options for the fiscal year ended December 31, 2005.
C) FEDERAL INCOME TAXES - It is each Fund's policy to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all investment company net taxable income and net
capital gains to its shareholders in a manner which results in no tax cost to
the Fund. Therefore, no federal income tax provision is required.
D) DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income and
distributions of net realized capital gains, if any, are declared and paid at
least annually. Distri bu tions to shareholders are recorded on the ex-dividend
date. The character of distributions made during the year from net investment
income or net realized gains may differ from the characterization for federal
income tax purposes due to differences in the recognition of income, expense and
gain items for financial statement and tax purposes. Additionally, the Funds may
utilize earnings and profits distributed to shareholders on redemption of shares
as part of the dividends paid deduction for income tax purposes. Where
appropriate, reclassifications between capital accounts are made for such
differences that are permanent in nature.
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS (Cont'd.)
December 31, 2005
- --------------------------------------------------------------------------------
Accordingly, at December 31, 2005, reclassifications were recorded to increase
(decrease) undistributed net investment income by $(45,595) and $(13,518), and
increase (decrease) undistributed net realized gains (losses) by $45,595 and
$13,518, for The Yacktman Fund and The Yacktman Focused Fund, respectively.
E) GUARANTEES AND INDEMNIFICATIONS - In the normal course of business, the Funds
enter into contracts with service providers that contain general indemnification
clauses. The Funds' maximum exposure under these arrangements is unknown as this
would involve future claims against the Funds that have not yet occurred. Based
on experience, the Funds expect the risk of loss to be remote.
F) REDEMPTION FEE - Effective April 1, 2005, those who buy and sell the Funds
within thirty calendar days will incur a 2% redemption fee, retained for the
benefit of long-term shareholders, recorded as additional capital in the
statement of changes in net assets. Please see the Prospectus for more
information.
G) OTHER - Investment transactions and shareholder transactions are accounted
for on the trade date. Net realized gains and losses on securities are computed
on the basis of specific security lot identification. Dividend income is
recognized on the ex-dividend date and interest income is recognized on an
accrual basis.
3. INVESTMENT TRANSACTIONS
For the year ended December 31, 2005, the aggregate purchases and sales of
securities, excluding short-term securities, were $61,714,015 and $25,070,191
for The Yacktman Fund and $3,837,581 and $11,043,423 for The Yacktman Focused
Fund, respectively. For the year ended December 31, 2005, there were no
purchases or sales of U.S. Government securities for The Yacktman Fund and The
Yacktman Focused Fund.
4. INVESTMENT ADVISORY AGREEMENT
The Funds have agreements with the Adviser, with whom certain officers and
directors of the Funds are affiliated, to furnish investment advisory services
to the Funds. Under the terms of these agreements, The Yacktman Fund will pay
the Adviser a monthly fee at the annual rate of 0.65% on the first $500,000,000
of average
- --------------------------------------------------------------------------------
daily net assets, 0.60% on the next $500,000,000 of average daily net assets and
0.55% on average daily net assets in excess of $1,000,000,000, and The Yacktman
Focused Fund will pay the Adviser a monthly fee at the annual rate of 1% of its
average daily net assets. The Adviser has voluntarily agreed to reimburse The
Yacktman Focused Fund for all expenses exceeding 1.25% of its average daily net
assets (exclusive of interest, taxes, brokerage commissions and extraordinary
expenses).
5. SECURITIES LENDING
The Funds have entered into a securities lending arrangement with the custodian.
Under the terms of the agreement, the custodian is authorized to loan securities
on behalf of the Funds to approved brokers against the receipt of cash
collateral at least equal to the value of the securities loaned. The cash
collateral is invested by the custodian in a money market pooled account
approved by the Adviser. Each Fund has an individual interest of cash collateral
contributed, although risk is mitigated by the collateral, the Funds could
experience a delay in recovering their securities and possible loss of income or
value if the borrower fails to return them. The agreement provides that after
predetermined rebates to the brokers, the income generated from lending
transactions is allocated 60% to the Funds and 40% to the custodian. As of
December 31, 2005, The Yacktman Fund had on loan securities valued at
$81,338,040 and collateral of $84,280,631 and The Yacktman Focused Fund had on
loan securities valued at $15,011,621 and collateral of $15,724,000.
The cash collateral received by the Funds was pooled and at December 31, 2005,
was pooled and invested in the following:
SECURITY TYPE SECURITY NAME MARKET VALUE
- --------------------------------------------------------------------------------
Repurchase Agreement Credit Suisse First Boston $ 5,000,000
Repurchase Agreement Lehman Brothers 35,000,000
Commercial Paper Thornburg Management 4,981,529
Commercial Paper Lakeside FDG LLC 6,000,000
Commercial Paper RAMS Funding LLC 5,981,708
Commercial Paper Concord 5,000,000
Commercial Paper Laguana ABS 5,963,025
Commercial Paper Morgan Stanley 5,000,000
Commercial Paper Leafs LLC 3,994,210
Commercial Paper CCN Orchard Park 4,950,485
Commercial Paper CCN Independent 4,000,000
Corporate Note Premium Asset Trust 6,000,000
Corporate Note Metlife Global Funding 7,000,000
Corporate Bond Bayerische Landes 3,000,000
Money Markets Merrill Lynch Premier Inst. 465
Cash (1,866,791)
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS (Cont'd.)
December 31, 2005
- --------------------------------------------------------------------------------
MATURITY MATURITY
SECURITY TYPE SECURITY NAME RATE DATE
- --------------------------------------------------------------------------------
Repurchase Agreement Credit Suisse First Boston 4.25% 01/03/06
Repurchase Agreement Lehman Brothers 4.37% 01/03/06
Commercial Paper Thornburg Management 4.31% 01/06/06
Commercial Paper Lakeside FDG LLC 4.36% 01/09/06
Commercial Paper RAMS Funding LLC 4.40% 01/10/06
Commercial Paper Concord 4.33% 01/11/06
Commercial Paper Laguana ABS 4.38% 01/25/06
Commercial Paper Morgan Stanley 4.33% 03/01/06
Commercial Paper Leafs LLC 4.37% 04/20/06
Commercial Paper CCN Orchard Park 4.42% 10/06/06
Commercial Paper CCN Independent 4.44% 10/16/06
Corporate Note Premium Asset Trust 4.40% 06/01/07
Corporate Note Metlife Global Funding 4.45% 04/28/08
Corporate Bond Bayerische Landes 3.40% 12/24/15
Money Markets Merrill Lynch Premier Inst.
6. LINE OF CREDIT
The Yacktman Fund and The Yacktman Focused Fund have
established a line of credit ("LOC") with U.S. Bank, N.A. to be
used for temporary or emergency purposes, primarily for financing redemption
payments. The LOC will mature, unless renewed, on March 31, 2006; the interest
rate paid on borrowings is the Prime Rate minus 1/2%. For The Yacktman Fund,
borrowing under the LOC is limited to the lesser of $15,000,000, 10% of the
pre-borrowing net assets of the Fund, 10% of the market value of the assets of
the Fund, or 10% of the sum of the fair market value of certain assets of the
Fund. For The Yacktman Focused Fund, borrowing under the LOC is limited to the
lesser of $35,000,000, 50% of the pre-borrowing net assets of the Fund, 50% of
the market value of the assets of the Fund, or 50% of the sum of the fair market
value of certain assets of the Fund. During the year ending December 31, 2005,
The Yacktman Fund and The Yacktman Focused Fund had no outstanding borrowings
under the LOC and incurred no interest expense.
- --------------------------------------------------------------------------------
7. TAX INFORMATION
The following information for the Funds is presented on an income tax basis as
of December 31, 2005:
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
Tax cost of investments $457,740,623 $87,619,618
============ ===========
Gross unrealized appreciation $ 74,719,633 $15,322,809
Gross unrealized depreciation (8,421,018) (2,215,473)
------------ -----------
Net tax unrealized appreciation $ 66,298,615 $13,107,336
============ ===========
As of December 31, 2005, the components of accumulated earnings were as follows:
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
Undistributed ordinary income $ 82,257 $ 10,896
Undistributed long-term
capital gains -- --
----------- -----------
Accumulated earnings 82,257 10,896
Net unrealized appreciation
on investments 66,298,615 13,107,336
----------- -----------
Total accumulated earnings $66,380,872 $13,118,232
=========== ===========
The tax character of distributions paid during the fiscal years ended December
31, 2005 and December 31, 2004 were as follows:
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
2005
Ordinary income $ 9,235,326 $1,532,907
Long-term capital gains $ 4,535,148 $1,670,386
2004
Ordinary income $ 7,462,696 $1,722,255
Long-term capital gains $23,449,426 $9,530,116
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THE YACKTMAN FUNDS, INC.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Yacktman Fund and The Yacktman
Focused Fund (constituting The Yacktman Funds, Inc., hereafter referred to as
the "Funds") at December 31, 2005, and the results of their operations for the
year then ended, the changes in their net assets for each of the two years in
the period then ended and their financial highlights for each of the five years
in the period then ended in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2005 by correspondence with the
custodian, provide a reasonable basis for our opinion.
/s/PricewaterhouseCooper LLP
Milwaukee, Wisconsin
February 20, 2006
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
ADDITIONAL INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
For the year ended December 31, 2005, 53.84% and 74.67% of the
dividends paid from net investment income, including short-term capital gains,
for The Yacktman Fund and The Yacktman Focused Fund, respectively, qualify for
the dividends received deduction available to corporate shareholders.
For the year ended December 31, 2005, 65.60% and 83.71% of the dividends paid
from net investment income, including short-term capital gains, for The Yacktman
Fund and The Yacktman Focused Fund, respectively, are designated as qualified
dividend income.
The Funds hereby designate approximately, $4,535,148 and $1,670,386 as capital
gain distributions for The Yacktman Fund and The Yacktman Focused Fund,
respectively, for the purposes of the dividends paid deduction.
On February 18, 2005, the Board of Directors of The Yacktman Funds, Inc.
approved the continuation of each Fund's investment advisory agreement with
Yacktman Asset Management Co. (the "Adviser"). Prior to approving the
continuation of the agreements, the Board considered:
o the nature, extent and quality of the services provided by the Adviser
o the investment performance of the Funds
o the costs of the services to be provided and profits to be realized by
the Adviser from its relationship with the Funds
o the extent to which economies of scale would be realized as the Funds
grow and whether fee levels reflect those economies of scale
o the expense ratios of the Funds
In considering the nature, extent and quality of the services provided by the
Adviser, the Board considered an oral presentation by the Adviser describing the
portfolio management, shareholder communication, and regulatory compliance
services provided by the Adviser to the Funds. The Directors concluded that the
Adviser was providing essential services to the Funds.
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
ADDITIONAL INFORMATION (Unaudited) (Cont'd.)
- --------------------------------------------------------------------------------
The Directors compared the performance of the Funds to benchmark indices over
various periods of time and concluded that the performance of the Funds
warranted the continuation of the advisory agreements. The Directors noted that
in addition to the absolute performance of the Funds, they also noted that the
Funds adhered to their investment style.
In concluding that the advisory fees payable by the Funds were reasonable, the
Directors reviewed a report of the costs of services provided by, and the
profits realized by the Adviser, from its relationship with the Funds and
concluded that such profits were reasonable and not excessive. As part of its
analysis, the Board considered the value of the research the Adviser received
from broker-dealers executing securities transactions for the Funds. The
Directors also reviewed reports comparing the expense ratios and advisory fees
paid by the Funds to those paid by other comparable mutual funds and concluded
that the advisory fees paid by the Funds and the expense ratios of the Funds
were in the range of comparable mutual funds.
The Directors also considered whether the investment advisory agreement fee
schedules should be adjusted for an increase in assets under management. They
concluded that "breakpoints" embodied in the investment advisory agreement for
The Yacktman Fund were appropriate, and breakpoints for The Yacktman Focused
Fund were not warranted at this time given the anticipated growth of that Fund
in the next year and the other factors considered.
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
PROXY VOTING POLICIES AND PROCEDURES
- --------------------------------------------------------------------------------
For a description of the policies and procedures that the Funds use to determine
how to vote proxies relating to portfolio securities, please call 1-800-525-8258
and request a Statement of Additional Information. One will be mailed to you
free of charge. The Statement of Additional Information is also available on the
Web site of the Securities and Exchange Commission at http://www.sec.gov.
Information on how the Funds voted proxies relating to portfolio securities
during the twelve month period ended June 30, 2005, is available without charge,
upon request, by calling 1-800-525-8258 or by accessing the Web site of the
Securities and Exchange Commission.
- --------------------------------------------------------------------------------
DISCLOSURE OF PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
The Funds will file complete schedules of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. Each Fund's Form N-Q will be available on the Web site of the
Securities and Exchange Commission at http://www.sec.gov.
- --------------------------------------------------------------------------------
THE YACKTMAN FUNDS, INC.
DIRECTOR AND OFFICER INFORMATION (Unaudited)
INDEPENDENT DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OTHER
PORTFOLIOS DIRECTORSHIPS
CURRENT TERM OF PRINCIPAL OVERSEEN HELD
POSITION OFFICE OCCUPATION WITHIN OUTSIDE
HELD WITH AND LENGTH OF DURING THE PAST THE FUND THE FUND
NAME AGE ADDRESS THE FUNDS TIME SERVED FIVE YEARS COMPLEX COMPLEX
Bruce B. Bingham 57 c/o Yacktman Asset Management Co. Director Indefinite, Mr. Bingham has 2 None
6300 Bridgepoint Parkway until been a partner in
Building One, Suite 320 successor Hamilton Partners,
Austin, TX 78730 elected a real estate
development firm,
7 years for more than
five years
- ------------------------------------------------------------------------------------------------------------------------------------
Albert J. Malwitz 69 c/o Yacktman Asset Management Co. Director Indefinite, Mr. Malwitz has been 2 None
6300 Bridgepoint Parkway until owner and chief
Building One, Suite 320 successor executive officer of
Austin, TX 78730 elected Arlington Fastener Co.,
a manufacturer
7 years and distributor
of industrial fasteners,
for more than
five years
- ------------------------------------------------------------------------------------------------------------------------------------
George J. Stevenson 66 c/o Yacktman Asset Management Co. Director Indefinite, Mr. Stevenson has been 2 None
6300 Bridgepoint Parkway until President of Stevenson
Building One, Suite 320 successor & Company, a registered
Austin, TX 78730 elected business broker, and
President of Healthmate
7 years Products Co., a fruit
juice concentrate
manufacturing company,
for more than five years
INTERESTED DIRECTOR*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald A. Yacktman 64 c/o Yacktman Asset Management Co. Director Indefinite, Mr. Yacktman has been 2 None
6300 Bridgepoint Parkway President until President of Yacktman Asset
Building One, Suite 320 Treasurer successor Management Co.
Austin, TX 78730 elected since April, 1992
13 years
OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen Yacktman 35 c/o Yacktman Asset Management Co. Vice Indefinite, Mr. Yacktman has been N/A None
6300 Bridgepoint Parkway President until Vice President of
Building One, Suite 320 Secretary successor Yacktman Asset
Austin, TX 78730 elected Management Co. for
more than five years
3 years
OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
Kent A. Arnett 64 c/o Yacktman Asset Management Co. Vice Indefinite, Mr. Arnett has been Vice N/A None
6300 Bridgepoint Parkway President until President and Chief
Building One, Suite 320 Chief successor Compliance Officer of
Austin, TX 78730 Compliance elected Yacktman Asset
Officer Management Co.
1 years for 1 year, and Vice
President of JPMorgan
Chase Bank for more
than five years
*The Interested Director serves as director and officer of The Yacktman Funds.
Additional information about the Funds' directors is available in the Statement
of Additional Information and is available, without charge, upon request, by
calling 1-800-525-8258.
- --------------------------------------------------------------------------------
FOR FUND INFORMATION AND
SHAREHOLDER SERVICES, CALL
1-800-525-8258
WEB SITE: WWW.YACKTMAN.COM
THE YACKTMAN FUNDS, INC.
Shareholder Services Center
615 East Michigan Street, 3rd Floor
Milwaukee, Wisconsin 53202-5207
- --------------------------------------------------------------------------------
YA-408-0206
ITEM 2. CODE OF ETHICS
The Registrant has adopted a code of ethics (the "Code") that applies to its
principal executive officer and principal financial officer. A copy of the
Code is filed as an exhibit to this Form N-CSR. During the period covered by
this report, there were no amendments to the provisions of the Code, nor were
there any implicit or explicit waivers to the provisions of the Code.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
While The Yacktman Funds, Inc. believes that each of the members of
its audit committee has sufficient knowledge of accounting principles and
financial statements to serve on the audit committee, none has the requisite
experience to qualify as an "audit committee financial expert" as such term is
defined by the Securities and Exchange Commission.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees for each of the last two fiscal years for professional
services rendered by the principal accountant for the audit of the Registrant's
annual financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
are listed below.
(a) Audit Fees.
Fiscal year ended December 31, 2005 $40,700
Fiscal year ended December 31, 2004 $38,400
(b) Audit-Related Fees.
None.
(c) Tax Fees.
Fiscal year ended December 31, 2005 $7,100
Fiscal year ended December 31, 2004 $6,700
(d) All Other Fees.
None.
(e) (1) The Registrant's audit committee has adopted an Audit Committee
Charter that requires that the Audit Committee review the scope and plan of the
independent public accountants' annual and interim examinations, approve the
services (other than the annual audit) to be performed for the Registrant by the
independent public accountants and approve the fees and other compensation
payable to the independent accountants.
(2) During 2005, all of the non-audit services provided by the
Registrant's principal accountant were pre-approved by the audit committee.
(f) None.
(g) See item 4(c).
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Included as part of the report to shareholders filed under Item I of this Form
N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 9. PURCHASE OF EQUITY SECURITIES OF CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES
(a) The Principal Executive and Financial Officers concluded that the
Registrant's Disclosure Controls and Procedures are effective based on
their evaluation of the Disclosure Controls and Procedures as of a date
within 90 days of the filing date of this report.
(b) There were no changes in Registrant's internal control over financial
reporting that occurred during the Registrant's last fiscal half-year that
have materially affected or are reasonably likely to materially affect
Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS
(a) Code of Ethics.
(b) Certifications required pursuant to Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
The Yacktman Funds, Inc.
- ------------------------
/s/Donald A. Yacktman
- ------------------------------
Donald A. Yacktman
Principal Executive Officer
March 8, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/Donald A. Yacktman
- ------------------------------
Donald A. Yacktman
Principal Executive Officer
March 8, 2005
/s/Donald A. Yacktman
- ------------------------------
Donald A. Yacktman
Principal Financial Officer
March 8, 2005