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: June 30, 2006
ITEM 1. REPORTS TO STOCKHOLDERS
The following is a copy of the report transmitted to shareholders pursuant to
Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1)
THE YACKTMAN FUNDS
[LOGO]
SEMI-ANNUAL REPORT
June 30, 2006
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
[PHOTO]
Donald A. Yacktman
[PHOTO]
Stephen Yacktman
Dear Fellow Shareholder:
Since the stock market peak of
March 31, 2000, $10,000 invested in The Yacktman Fund and The Yacktman Focused
Fund would equal $24,793 and $23,726, respectively, while the same amount
invested in the S&P 500(R) Index would equal $9,377. We achieved these results
through our characteristic risk-averse methods. Patient, long-term investing
yields handsome rewards.
AVERAGE ANNUAL RETURNS THE YACKTMAN FUND S&P 500(R)*
- --------------------------------------------------------------------------------
One Year (6/30/05 - 6/30/06) 3.82% 8.63%
Five Years (6/30/01 - 6/30/06) 13.47% 2.49%
Ten Years (6/30/96 - 6/30/06) 9.63% 8.31%
THE CHART ASSUMES AN INITIAL GROSS INVESTMENT OF $10,000 MADE ON 6/30/96.
[LINE CHART]
The Yacktman S&P 500(R)
Fund Stock Index*
---- -----------
6/30/96 10,000 10,000
6/30/97 12,648 13,470
6/30/98 13,734 17,533
6/30/99 13,001 21,523
6/30/00 10,644 23,083
6/30/01 13,327 19,660
6/30/02 15,812 16,123
6/30/03 18,930 16,164
6/30/04 22,594 19,252
6/30/05 24,151 20,469
6/30/06 25,074 22,236
THE YACKTMAN FUNDS, INC.
AVERAGE ANNUAL RETURNS THE YACKTMAN FOCUSED FUND S&P 500(R)*
- --------------------------------------------------------------------------------
One Year (6/30/05 - 6/30/06) 3.68% 8.63%
Five Years (6/30/01 - 6/30/06) 14.51% 2.49%
Since Inception (5/1/97) 7.86% 6.81%
THE CHART ASSUMES AN INITIAL GROSS INVESTMENT OF $10,000 MADE ON 5/1/97
(INCEPTION).
[LINE CHART]
The Yacktman
Focused S&P 500(R)
Fund Stock Index*
------- -----------
5/1/97 10,000 10,000
6/30/97 10,920 11,084
6/30/98 12,732 14,427
6/30/99 11,799 17,710
6/30/00 8,232 18,994
6/30/01 10,276 16,177
6/30/02 12,965 13,267
6/30/03 15,254 13,301
6/30/04 17,488 15,843
6/30/05 19,405 16,844
6/30/06 20,145 18,297
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 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.
ROLLING TEN YEAR RETURNS AS OF JUNE 30
- --------------------------------------------------------------------------------
The Yacktman Fund S&P 500(R) Index
Ten Year Ten Year
Time Period Annualized Returns Annualized Returns
- --------------------------------------------------------------------------------
1993-2003 12.17% 10.04%
1994-2004 13.82% 11.83%
1995-2005 11.86% 9.94%
1996-2006 9.63% 8.31%
In the quarter ended June 30, 2006, the S&P 500(R) Index declined nearly 1.5%
while The Yacktman Fund and Focused Fund were lower by less than 0.5% each. For
the year, The Yacktman Fund has increased 3.82% and the Focused Fund is up 4.08%
with the S&P 500(R) Index rising by 2.71%. Despite the modest absolute returns,
we are happy. For the first time in years, many companies that we admire have
dropped to valuations which make our pipeline of new and potential investments
the strongest since early 2003.
For the last few years we have held substantial amounts of cash, preferring to
protect capital by avoiding fully priced sectors and securities, and to wait for
better opportunities to fill out portfolios. Playing defense to avoid losses is
critical during times when values are scarce; however, it is also important to
quickly capitalize on opportunities when they are available. We believe the
purchase of Microsoft during the last quarter has the potential to be a
significant addition to the Funds.
MICROSOFT
As you may recall, our ideal investment is a great business with outstanding
management at a low purchase price. If we were to score a company in each of
these categories, Microsoft would be one of the highest rated businesses we have
purchased in years.
Since 1999, Microsoft has more than doubled its earnings. Yet the stock price
has declined from nearly $60 to the low $20s. Doing some quick math, and
adjusting for the nearly $4 per share in dividends, the company now sells for
less than a quarter of the multiple that it did in 1999.
We believe Microsoft is a superb business that will continue to grow at an
above-average rate in the future. In the next twelve months, Microsoft expects
to release major product upgrades, including the highly anticipated Windows
Vista operating system and Office 2007.
THE YACKTMAN FUNDS, INC.
Management allocates capital very well, and has returned more than $90 billion
to shareholders over the last few years. Before that, the company piled up cash
and people complained; however, share repurchase was an unattractive option
because the stock was overpriced. Until 2003, dividends were also a bad idea
because they were taxed at ordinary income rates. So what did management do? It
let the cash build. When dividend tax rates were reduced and the share price
decline made repurchase attractive, the company pursued both aggressively.
Based on income from operations, Microsoft could pay a 6% dividend next year.
Not bad for a company that has increased its earnings at 18% annually for the
past five years and should be able to generate strong growth for some time to
come. In summary, despite selling at one of the lowest price-to-earnings
multiples in our portfolio, Microsoft possesses potentially the strongest
platform for growth of any company we own.
LIBERTY
Last quarter, the shares of Liberty Media became two securities: Liberty Capital
and Liberty Interactive. While we rarely attempt to predict shorter-term
movement in stock prices, we are excited by this move.
In our opinion, Liberty Capital is worth $120-$140 per share. Much of the value
is in highly appreciated public market securities such as NewsCorp, Time Warner,
Sprint and Motorola. The current stock price is in the low $80s.
The discount exists because of a tax liability that would be due if the public
securities were sold. Corporate capital gains would be nearly 40% of the
appreciation (the cost basis of many of the investments is near zero); however,
Section 355 of the tax code allows Liberty to trade shares of common stock for
operating businesses plus cash in what is called a "cash rich split-off."
Recent reports indicate that Liberty is deep into discussions to trade some of
its NewsCorp shares for television stations and cash, as well as exchange a
portion of its Time Warner holdings for the Atlanta Braves and cash. We believe
that either or both of these transactions could happen soon and would help close
the gap between the current price and the asset value we mentioned above.
Liberty Interactive is a tracking stock which has most of its value derived from
QVC. In 2003, Liberty Media became a 98% owner of QVC (the other 2% is owned by
employees). Since the acquisition, QVC has grown the top line more than 40%, and
its operating income even faster; however, the Liberty Interactive tracking
stock implies a value for QVC that is below the 2003 acquisition price. We
believe the current value is too low, and that management will aggressively
start repurchasing shares if this does not change.
LOOKING FORWARD
The first part of the third quarter has already presented several opportunities.
We think the next six months will bring more significant investments which could
enable us to invest more of our cash reserves. Having patiently built our
knowledge bank of good businesses, we are prepared to make purchases when the
prices come down to levels we feel represent good value.
Sincerely,
/s/Donald A. Yacktman /s/Stephen Yacktman
Donald A. Yacktman Stephen Yacktman
President & Co-Portfolio Manager Co-Portfolio Manager
THE YACKTMAN FUNDS, INC.
EXPENSE EXAMPLE
For the Six Months Ended June 30, 2006 (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 January 1, 2006 to June 30, 2006.
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.
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 1/1/06-
1/1/06 6/30/06 6/30/06(1)
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,038.20 $4.78
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 1/1/06-
1/1/06 6/30/06 6/30/06(1)
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,040.80 $6.32
Hypothetical
(5% return
before expenses) 1,000.00 1,018.80 6.26
1 Expenses are equal to the Funds' annualized expense ratios (0.95% for the
Yacktman Fund and 1.25% for the Yacktman Focused Fund), multiplied by the
average account value over the period, and multiplied by 0.4959 (to reflect
the one-half year period).
THE YACKTMAN FUND
TOP TEN EQUITY HOLDINGS (Unaudited)
June 30, 2006
PERCENTAGE OF
NET ASSETS
Coca-Cola Co. 9.7%
Kraft Foods, Inc. 5.6
Microsoft Corp. 5.2
Lancaster Colony Corp. 5.0
AmeriCredit Corp. 4.1
Pfizer, Inc. 3.5
Liberty Media Holding - Interactive Series A 3.1
Henkel KGaA 3.0
Liberty Media Holding - Capital Series A 3.0
Tyco International Ltd. 2.6
-----
TOTAL 44.8%
FUND DIVERSIFICATION (Unaudited)
June 30, 2006
[PIE CHART]
Banks - 1.8%
Beverages - 12.5%
Commercial Services & Supplies - 1.2%
Diversified Financials - 7.1%
Food Products - 14.3%
Household Products - 8.5%
Industrial Conglomerates - 2.6%
Insurance - 1.8%
IT Consulting & Services - 3.0%
Media - 9.8%
Pharmaceuticals - 7.3%
Real Estate - 0.5%
Software - 5.2%
Specialty Retail - 2.0%
Bonds - 1.4%
Tobacco - 1.0%
Short-Term Investments less Other Assets - 20.0%
EQUITY PURCHASES & SALES (Unaudited)
For the Six Months Ended June 30, 2006
- --------------------------------------------------------------------------------
NET SHARES CURRENT
NEW PURCHASES PURCHASED SHARES HELD
- --------------------------------------------------------------------------------
WM. WRIGLEY JR. CO.
MANUFACTURES AND SELLS
CHEWING GUM IN THE UNITED
STATES AND OVERSEAS. 140,000 140,000
- --------------------------------------------------------------------------------
NET SHARES CURRENT
PURCHASES PURCHASED SHARES HELD
- --------------------------------------------------------------------------------
Interpublic Group of Cos., Inc. 1,155 481,155
Johnson & Johnson 60,000 130,000
Microsoft Corp. 678,000 818,000
- --------------------------------------------------------------------------------
NET SHARES CURRENT
SALES SOLD SHARES HELD
- --------------------------------------------------------------------------------
AmeriCredit Corp. 200,000 530,000
Bristol-Myers Squibb Co. 150,000 230,000
Electronic Data Systems Corp. 150,000 150,000
National Beverage Corp. 107,900 --
Henkel KGaA 104,828 105,879
Kraft Foods, Inc. 185,000 660,000
Lancaster Colony Corp. 16,288 460,000
Marsh & McLennan Cos., Inc. 23,500 80,000
Pfizer, Inc. 80,000 550,000
Trizec Properties, Inc. 180,000 60,000
Unilever N.V. 10,000 390,000
THE YACKTMAN FUND
PORTFOLIO OF INVESTMENTS
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS - 78.6%
BANKS - 1.8%
U.S. Bancorp 150,000 $ 4,632,000
Washington Mutual, Inc.(1) 40,000 1,823,200
-----------
6,455,200
-----------
BEVERAGES - 12.5%
Anheuser-Busch Cos., Inc.(1) 110,000 5,014,900
Coca-Cola Co.(1) 820,000 35,276,400
PepsiCo, Inc.(1) 90,000 5,403,600
-----------
45,694,900
-----------
COMMERCIAL SERVICES & SUPPLIES - 1.2%
H&R Block, Inc.(1) 180,000 4,294,800
-----------
DIVERSIFIED FINANCIALS - 7.1%
AmeriCredit Corp.*(1) 530,000 14,797,600
Federal Home Loan
Mortgage Corp.(1) 110,000 6,271,100
Federal National Mortgage
Association(1) 100,000 4,810,000
-----------
25,878,700
-----------
FOOD PRODUCTS - 14.3%
Cadbury Schweppes plc(1) 180,000 6,987,600
Kraft Foods, Inc.(1) 660,000 20,394,000
Lancaster Colony Corp.(1) 460,000 18,156,200
Wm. Wrigley Jr. Co.(1) 140,000 6,350,400
-----------
51,888,200
-----------
HOUSEHOLD PRODUCTS - 8.5%
Clorox Co.(1) 110,000 6,706,700
Colgate-Palmolive Co.(1) 75,000 4,492,500
Henkel KGaA 105,879 11,037,886
Unilever N.V 390,000 8,794,500
-----------
31,031,586
-----------
INDUSTRIAL CONGLOMERATES - 2.6%
Tyco International Ltd. 350,000 9,625,000
-----------
INSURANCE - 1.8%
Marsh & McLennan Cos., Inc. 80,000 2,151,200
MBIA, Inc.(1) 40,000 2,342,000
MGIC Investment Corp.(1) 30,000 1,950,000
-----------
6,443,200
-----------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
IT CONSULTING & SERVICES - 3.0%
Electronic Data Systems Corp.(1) 150,000 $ 3,609,000
First Data Corp. 160,000 7,206,400
-----------
10,815,400
MEDIA - 9.8%
CBS Corp., Class B(1) 90,000 2,434,500
Discovery Holding Co., Class A* 260,000 3,803,800
Interpublic Group of Cos., Inc.*(1) 481,155 4,017,644
Liberty Media Holding Corp.,
Interactive Series A* 650,000 11,219,000
Liberty Media Holding Corp.,
Capital Series A*(1) 130,000 10,890,100
Viacom, Inc., Class B*(1) 90,000 3,225,600
-----------
35,590,644
PHARMACEUTICALS - 7.3%
Bristol-Myers Squibb Co. 230,000 5,947,800
Johnson & Johnson(1) 130,000 7,789,600
Pfizer, Inc. 550,000 12,908,500
-----------
26,645,900
REAL ESTATE - 0.5%
Trizec Properties, Inc. 60,000 1,718,400
-----------
SOFTWARE - 5.2%
Microsoft Corp.(1) 818,000 19,059,400
-----------
SPECIALTY RETAIL - 2.0%
Wal-Mart Stores, Inc. 150,000 7,225,500
-----------
TOBACCO - 1.0%
Altria Group, Inc.(1) 50,000 3,671,500
-----------
Total Common Stocks
(cost $222,583,778) 286,038,330
-----------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
CORPORATE BONDS - 1.4%
Athena Nuero Financial, LLC,(1)
7.25%, 2/21/08 $5,000,000 4,987,500
----------
Total Corporate Bonds
(cost $4,541,340) 4,987,500
----------
THE YACKTMAN FUND
PORTFOLIO OF INVESTMENTS (Cont'd.)
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 56.3%
COMMERCIAL PAPER - 19.8%
Abbey National plc,
5.13%(2), 7/5/06 $14,500,000 $ 14,491,751
Chesham Finance, Ltd.,
5.17%(2), 7/3/06 14,300,000 14,295,893
Prudential Funding, LLC,
5.14%(2), 7/5/06 14,500,000 14,491,735
Toyota Motor Corp.,
5.13%(2), 7/5/06 14,500,000 14,491,751
UBS Americas, Inc.,
5.17%(2), 7/3/06 14,300,000 14,295,893
-------------
Total Commercial Paper
(cost $72,067,023) 72,067,023
-------------
DEMAND NOTE (VARIABLE RATE) - 0.1%
U.S. Bancorp, 5.10%(3) 451,174 451,174
-------------
Total Demand Note
(cost $451,174) 451,174
-------------
OTHER SHORT-TERM INVESTMENT - 36.4%
Securities Lending Investment Account
(cost $132,206,450) 132,206,450
-------------
Total Short-Term Investments
(cost $204,724,647 ) 204,724,647
-------------
TOTAL INVESTMENTS - 136.3%
(cost $431,849,765) 495,750,477
Other Assets Less Liabilities - 0.1% 231,078
Less Liability for Collateral
on Securities Loaned - (36.4)% (132,206,450)
-------------
Net Assets - 100% (equivalent
to $15.23 per share based on
23,880,234 shares outstanding) $363,775,105
=============
* NON-INCOME PRODUCING
(1) ALL OR A PORTION OF THE SECURITIES HAVE BEEN COMMITTED FOR SECURITIES
LENDING
(2) YIELD TO MATURITY
(3) RATE DISCLOSED AT JUNE 30, 2006
SEE NOTES TO FINANCIAL STATEMENTS
THE YACKTMAN FOCUSED FUND
FUND DIVERSIFICATION (Unaudited)
June 30, 2006
[PIE CHART]
Beverages - 11.1%
Commercial Services & Supplies - 2.3%
Diversified Financials - 9.9%
Food Products - 13.3%
Household Products - 10.2%
Industrial Conglomerates - 3.5%
Media - 11.6%
Pharmaceuticals - 7.3%
Software - 6.2%
Specialty Retail - 2.4%
Short-Term Investments less Other Assets - 22.2%
THE YACKTMAN FOCUSED FUND
EQUITY PURCHASES & SALES (Unaudited)
For the Six Months Ended June 30, 2006
- --------------------------------------------------------------------------------
NET SHARES CURRENT
PURCHASES PURCHASED SHARES HELD
- --------------------------------------------------------------------------------
Johnson & Johnson 25,000 25,000
Microsoft Corp. 190,000 190,000
Wm. Wrigley Jr. Co. 25,000 25,000
- --------------------------------------------------------------------------------
NET SHARES CURRENT
SALES SOLD SHARES HELD
- --------------------------------------------------------------------------------
AmeriCredit Corp. 100,000 180,000
Bristol-Myers Squibb Co. 75,000 55,000
Electronic Data Systems Corp. 70,000 --
Federal Home Loan Mortgage Corp. 23,000 37,000
Henkel KGaA 25,000 25,000
Kraft Foods, Inc. 30,000 145,000
Marsh & McLennan Cos., Inc. 26,200 --
Pfizer, Inc. 30,000 100,000
Trizec Properties, Inc. 40,000 --
Unilever N.V. 15,000 75,000
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS - 77.8%
BEVERAGES - 11.1%
Coca-Cola Co.(1) 185,000 $ 7,958,700
---------------
COMMERCIAL SERVICES & SUPPLIES - 2.3%
H&R Block, Inc.(1) 70,000 1,670,200
---------------
DIVERSIFIED FINANCIALS - 9.9%
AmeriCredit Corp.*(1) 180,000 5,025,600
Federal Home Loan Mortgage Corp. 37,000 2,109,370
---------------
7,134,970
---------------
FOOD PRODUCTS - 13.3%
Kraft Foods, Inc. 145,000 4,480,500
Lancaster Colony Corp.(1) 100,000 3,947,000
Wm. Wrigley Jr. Co.(1) 25,000 1,134,000
---------------
9,561,500
---------------
HOUSEHOLD PRODUCTS - 10.2%
Clorox Co.(1) 30,000 1,829,100
Colgate-Palmolive Co.(1) 20,000 1,198,000
Henkel KGaA 25,000 2,606,250
Unilever N.V 75,000 1,691,250
---------
7,324,600
---------------
INDUSTRIAL CONGLOMERATES - 3.5%
Tyco International Ltd. 90,000 2,475,000
---------------
MEDIA - 11.6%
Discovery Holdings Co., Class A* 67,000 980,210
Interpublic Group of Cos., Inc.*(1) 193,100 1,612,385
Liberty Media Holding Corp.,
Interactive Series A* 167,500 2,891,050
Liberty Media Holding Corp.,
Capital Series A* 33,500 2,806,295
---------------
8,289,940
---------------
PHARMACEUTICALS - 7.3%
Bristol-Myers Squibb Co. 55,000 1,422,300
Johnson & Johnson 25,000 1,498,000
Pfizer, Inc. 100,000 2,347,000
---------------
5,267,300
---------------
THE YACKTMAN FOCUSED FUND
PORTFOLIO OF INVESTMENTS (Cont'd.)
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SOFTWARE - 6.2%
Microsoft Corp.(1) 190,000 $ 4,427,000
---------------
SPECIALTY RETAIL - 2.4%
Wal-Mart Stores, Inc. 35,000 1,685,950
---------------
Total Common Stocks
(cost $45,060,748) 55,795,160
---------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 58.8%
COMMERCIAL PAPER - 21.6%
Abbey National plc,
5.13%(2), 7/5/06 $3,090,000 3,088,242
Chesham Finance, Ltd.,
5.17%(2), 7/3/06 3,100,000 3,099,110
Prudential Funding, LLC,
5.14%(2), 7/5/06 3,090,000 3,088,239
Toyota Motor Corp.,
5.13%(2), 7/5/06 3,090,000 3,088,242
UBS Americas, Inc.,
5.17%(2), 7/3/06 3,100,000 3,099,109
---------------
Total Commercial Paper
(cost $15,462,942) 15,462,942
---------------
DEMAND NOTE (VARIABLE RATE) - 0.3%
U.S. Bancorp, 5.10%(3) 254,235 254,235
---------------
Total Demand Note
(cost $254,235) 254,235
---------------
- --------------------------------------------------------------------------------
VALUE
- --------------------------------------------------------------------------------
OTHER SHORT-TERM INVESTMENT - 36.9%
Securities Lending Investment Account
(cost $26,468,491) $ 26,468,491
---------------
Total Short-Term Investments
(cost $42,185,668) 42,185,668
---------------
TOTAL INVESTMENTS - 136.6%
(cost $87,246,416) 97,980,828
Other Assets Less Liabilities - 0.3% 209,381
Less Liability for Collateral
on Securities Loaned - (36.9)% (26,468,491)
---------------
Net Assets - 100% (equivalent to $15.57
per share based on 4,605,336
shares outstanding) $ 71,721,718
===============
*NON-INCOME PRODUCING
(1) ALL OR A PORTION OF THE SECURITIES HAVE BEEN COMMITTED
FOR SECURITIES LENDING
(2) YIELD TO MATURITY
(3) RATE DISCLOSED AT JUNE 30, 2006
SEE NOTES TO FINANCIAL STATEMENTS
THE YACKTMAN FUNDS, INC.
STATEMENTS OF ASSETS & LIABILITIES
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
- --------------------------------------------------------------------------------
ASSETS:
Investments at value
(cost $431,849,765 and
$87,246,416, respectively) $495,750,477 $ 97,980,828
Receivable for fund shares sold 129,519 221,526
Dividends and interest receivable 748,061 113,414
Prepaid expenses 29,843 9,150
------------ ------------
Total Assets 496,657,900 98,324,918
------------ ------------
LIABILITIES:
Collateral for securities loaned 132,206,450 26,468,491
Payable for fund shares redeemed 442,529 42,248
Accrued investment advisory fees 194,239 48,442
Other accrued expenses 39,577 44,019
------------ ------------
Total Liabilities 132,882,795 26,603,200
------------ ------------
NET ASSETS $363,775,105 $ 71,721,718
============ ============
NET ASSETS CONSIST OF:
Capital stock $281,172,522 $ 55,253,112
Undistributed net
investment income 4,118,361 580,671
Undistributed net realized
gains 14,583,510 5,153,523
Net unrealized appreciation
on investments 63,900,712 10,734,412
------------ ------------
Total Net Assets $363,775,105 $ 71,721,718
============ ============
CAPITAL STOCK, $.0001 par value
Authorized 500,000,000 500,000,000
Issued and Outstanding 23,880,234 4,605,336
NET ASSET VALUE,
REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $ 15.23 $ 15.57
============ ============
SEE NOTES TO FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income $ 3,176,577(1)$ 567,517(2)
Interest income 2,692,710 477,295
Securities lending income
(See Note 5) 32,429 7,941
------------ ------------
5,901,716 1,052,753
------------ ------------
EXPENSES:
Investment advisory fees 1,280,881 386,383
Shareholder servicing fees 293,567 64,963
Administration and accounting fees 106,228 24,795
Custody fees 40,663 9,917
Federal and state registration fees 37,192 19,626
Professional fees 30,993 15,868
Reports to shareholders 27,273 8,927
Directors' fees and expenses 12,645 3,967
Miscellaneous costs 36,170 8,957
------------ ------------
Total expenses before
reimbursements 1,865,612 543,403
------------ ------------
Expense reimbursements
(See Note 4) -- (60,425)
------------ ------------
Net expenses 1,865,612 482,978
------------ ------------
NET INVESTMENT INCOME 4,036,104 569,775
------------ ------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 14,582,666 5,411,472
Change in unrealized depreciation
on investments (2,397,059) (2,630,873)
------------ ------------
Net realized and unrealized gain
on investments 12,185,607 2,780,599
------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 16,221,711 $ 3,350,374
============ ============
(1) NET OF $80,603 IN FOREIGN WITHHOLDING TAXES
(2) NET OF $17,582 IN FOREIGN WITHHOLDING TAXES
SEE NOTES TO FINANCIAL STATEMENTS
THE YACKTMAN FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
THE YACKTMAN
THE YACKTMAN FUND FOCUSED FUND
--------------------------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2006 YEAR ENDED JUNE 30, 2006 YEAR ENDED
(UNAUDITED) DEC. 31, 2005 (UNAUDITED) DEC. 31, 2005
--------------------------------------------------------------------
OPERATIONS:
Net investment income $4,036,104 $8,337,183 $569,775 $1,240,195
Net realized gain on investments 14,582,666 5,536,066 5,411,472 1,994,356
Change in unrealized depreciation
on investments (2,397,059) (19,038,159) (2,630,873) (5,284,051)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations 16,221,711 (5,164,910) 3,350,374 (2,049,500)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 33,528,386 267,195,629 10,992,918 49,628,717
Proceeds from reinvestment of distributions -- 12,283,531 -- 2,870,353
Redemption fees 107 68 84 89
------------ ------------ ------------ ------------
33,528,493 279,479,228 10,993,002 52,499,159
Payments for shares redeemed (124,887,179) (186,939,415) (27,229,355) (59,901,687)
------------ ------------ ------------ ------------
Net increase (decrease) (91,358,686) 92,539,813 (16,236,353) (7,402,528)
------------ ------------ ------------ ------------
DISTRIBUTIONS PAIDFROM:
Net investment income -- (8,211,462) -- (1,216,086)
Net realized gains -- (5,559,012) -- (1,987,207)
------------ ------------ ------------ ------------
Total distributions -- (13,770,474) -- (3,203,293)
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (75,136,975) 73,604,429 (12,885,979) (12,655,321)
NET ASSETS:
Beginning of period 438,912,080 365,307,651 84,607,697 97,263,018
------------ ------------ ------------ ------------
End of period (including undistributed net investment income of
$4,118,361, $82,256, $580,671 and $10,896, respectively) $363,775,105 $438,912,080 $71,721,718 $84,607,697
============ ============ ============ ============
TRANSACTIONS IN SHARES:
Shares sold 2,214,694 17,654,730 709,527 3,182,602
Issued in reinvestment of distributions -- 835,614 -- 191,496
Shares redeemed (8,251,067) (12,380,546) (1,761,405) (3,860,169)
------------ ------------ ------------ ------------
Net increase (decrease) (6,036,373) 6,109,798 (1,051,878) (486,071)
============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS
THE YACKTMAN FUNDS, INC.
FINANCIAL HIGHLIGHTS
THE YACKTMAN FUND THE YACKTMAN FUND
- ---------------------------------------------------------------- -------------------------------------------------------
SIX MONTHS ENDED
For a Fund share outstanding JUNE 30, 2006 YEAR ENDED DECEMBER 31,
throughout each period (UNAUDITED) 2005 2004 2003 2002 2001
- ---------------------------------------------------------------- -------------------------------------------------------
Net asset value, beginning
of period $14.67 $15.34 $15.24 $12.33 $11.16 $9.80
Income from investment
operations:
Net investment income 0.17 0.28 0.12 0.23 0.13 0.08
Net realized and unrealized
gain (loss) on investments 0.39 (0.48) 1.40 3.84 1.14 1.83
-------- -------- -------- -------- -------- --------
Total from investment
operations 0.56 (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 period $15.23 $14.67 $15.34 $15.24 $12.33 $11.16
======== ======== ======== ======== ======== ========
Total Return 3.82%(1) (1.30)% 9.93% 33.03% 11.41% 19.47%
======== ======== ======== ======== ======== ========
Supplemental data and ratios:
Net assets, end of period (000s) $363,775 $438,912 $365,308 $325,428 $421,292 $113,199
======== ======== ======== ======== ======== ========
Ratio of net expenses to average
net assets 0.95%(2) 0.92% 0.95% 0.94% 0.99% 1.17%
======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets 2.05%(2) 1.86% 0.73% 1.25% 2.01% 1.06%
======== ======== ======== ======== ======== ========
Portfolio turnover rate 9.05%(1) 8.64% 23.82% 40.01% 39.19% 42.79%
======== ======== ======== ======== ======== ========
(1) NOT ANNUALIZED
(2) ANNUALIZED
SEE NOTES TO FINANCIAL STATEMENTS
THE YACKTMAN FUNDS, INC.
FINANCIAL HIGHLIGHTS (Cont'd.)
THE YACKTMAN FOCUSED FUND THE YACKTMAN FOCUSED FUND
- ---------------------------------------------------------------- -------------------------------------------------------
SIX MONTHS ENDED
For a Fund share outstanding JUNE 30, 2006 YEAR ENDED DECEMBER 31,
throughout each period (UNAUDITED) 2005 2004 2003 2002 2001
- ---------------------------------------------------------------- -------------------------------------------------------
Net asset value, beginning
of period $14.96 $15.83 $16.28 $12.48 $10.92 $9.40
Income from investment
operations:
Net investment income 0.12 0.22 0.03 0.07 0.08 0.09
Net realized and unrealized
gain (loss) on investments 0.49 (0.51) 1.59 3.90 1.56 1.52
-------- -------- -------- -------- -------- --------
Total from investment
operations 0.61 (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 period $15.57 $14.96 $15.83 $16.28 $12.48 $10.92
======== ======== ======== ======== ======== ========
Total Return 4.08%(1) (1.83)% 9.96% 31.79% 14.99% 17.14%
======== ======== ======== ======== ======== ========
Supplemental data and ratios:
Net assets, end of period (000s) $71,722 $84,608 $97,263 $127,355 $115,250 $9,356
======== ======== ======== ======== ======== ========
Ratio of expenses before expense
reimbursements to average net
assets (See Note 4) 1.41%(2) 1.32% 1.33% 1.36%(3) 1.45% 2.32%
======== ======== ======== ======== ======== ========
Ratio of net expenses to average
net assets 1.25%(2) 1.25% 1.25% 1.26%(4) 1.25% 1.25%
======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets 1.32%(2) 1.30% 0.16% 0.51% 1.68% 1.06%
======== ======== ======== ======== ======== ========
Portfolio turnover rate 12.55%(1) 5.62% 19.26% 71.38% 49.95% 51.33%
======== ======== ======== ======== ======== ========
(1) NOT ANNUALIZED
(2) ANNUALIZED
(3) THE RATIO OF EXPENSES BEFORE EXPENSE REIMBURSEMENTS TO AVERAGE NET ASSETS,
EXCLUDING INTEREST EXPENSE, WAS 1.35%
(4) 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
June 30, 2006 (Unaudited)
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 Management Co. is
the Funds' investment adviser (the "Adviser").
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
financial statements have been prepared in conformity with 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 ask
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 period ended June 30, 2006.
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. Distributions to shareholders are recorded on the ex-dividend
date. The character of distributions made during the year from net investment
income or net realized gains may differ from the characterization for federal
income tax purposes due to the differences in the recognition of income, expense
and gain items for financial statements and tax purposes. Additionally, the
Funds may utilize earnings and profits distributed to shareholders on redemption
of shares as part of the dividends paid reduction 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.)
June 30, 2006 (Unaudited)
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 period ended June 30, 2006, the aggregate purchases and sales of
securities, excluding short-term securities, were $26,271,559 and $40,081,949
for The Yacktman Fund and $7,148,435 and $15,039,334 for The Yacktman Focused
Fund, respectively. For the period ended June 30, 2006, 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 agreement 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 June
30, 2006, The Yacktman Fund had on loan securities valued at $128,253,747 and
collateral of $132,206,450 and The Yacktman Focused Fund had on loan securities
valued at $25,526,473 and collateral of $26,468,491.
The cash collateral received by the Funds was pooled and at June 30, 2006, was
pooled and invested in the following:
SECURITY TYPE SECURITY NAME MARKET VALUE
- --------------------------------------------------------------------------------
Repurchase Agreement Credit Suisse First Boston $50,000,000
Repurchase Agreement Credit Suisse First Boston 20,000,000
Repurchase Agreement Lehman Brothers 10,000,000
Commercial Paper FenWay Funding LLC 6,994,799
Commercial Paper Mortgage Interest 2,991,333
Commercial Paper Park Granada 5,993,816
Commercial Paper Thornburg Mortgage 4,979,378
Commercial Paper Lakeside Funding 5,000,000
Commercial Paper Concord 5,000,000
Commercial Paper Rams Funding 4,980,125
Commercial Paper Duke Funding 3,720,985
Commercial Paper Laguana ABS 3,979,428
Commercial Paper CCN Independent 4,000,000
Corporate Note Toronto Dominion 5,000,000
Corporate Note Leafs LLC 5,437,758
Corporate Note Premium Asset Trust 6,000,000
Corporate Note Metlife Global Funding 7,000,000
Corporate Note Bayerische Landes 3,000,000
Money Markets Merrill Lynch Premier Inst 300,000
Money Markets AIM Short Term 4,297,318
Cash 1
THE YACKTMAN FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS (Cont'd.)
June 30, 2006 (Unaudited)
SECURITY TYPE SECURITY NAME MATURITY MATURITY
RATE DATE
- --------------------------------------------------------------------------------
Repurchase Agreement Credit Suisse First Boston 5.25% 07/03/06
Repurchase Agreement Credit Suisse First Boston 5.36% 07/03/06
Repurchase Agreement Lehman Brothers 5.43% 07/03/06
Commercial Paper FenWay Funding LLC 5.35% 07/05/06
Commercial Paper Mortgage Interest 5.22% 07/06/06
Commercial Paper Park Granada 5.31% 07/07/06
Commercial Paper Thornburg Mortgage 5.14% 07/07/06
Commercial Paper Lakeside Funding 5.17% 07/10/06
Commercial Paper Concord 5.18% 07/14/06
Commercial Paper Rams Funding 5.32% 07/17/06
Commercial Paper Duke Funding 5.34% 07/27/06
Commercial Paper Laguana ABS 5.32% 07/27/06
Commercial Paper CCN Independent 5.27% 04/16/07
Corporate Note Toronto Dominion 5.17% 09/18/06
Corporate Note Leafs LLC 5.27% 04/20/07
Corporate Note Premium Asset Trust 5.26% 06/01/07
Corporate Note Metlife Global Funding 5.44% 04/28/08
Corporate Note Bayerische Landes 5.37% 12/24/15
Money Markets Merrill Lynch Premier Inst 4.92%
Money Markets AIM Short Term 5.10%
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, 2007; the interest rate paid on borrowings 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 $15,000,000,
50% of the pre-borrowing net assets of the Fund, or 50% of the sum of the fair
market value of certain assets of the Fund. During the period ending June 30,
2006, 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 June 30, 2006:
THE YACKTMAN THE YACKTMAN
FUND FOCUSED FUND
Tax cost of investments $ 431,878,842 $87,506,786
============= ===========
Gross unrealized appreciation $ 70,202,990 $11,998,781
Gross unrealized depreciation (6,331,355) (1,524,739)
------------- -----------
Net tax unrealized appreciation $ 63,871,635 $10,474,042
============= ===========
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
In July 2006, the Financial Accounting Standards Board issued Interpretation No.
48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB
Statement No. 109" (the "Interpretation"). The Interpretation establishes for
all entities, including pass-through entities such as the Fund, a minimum
threshold for financial statement recognition of the benefit of positions taken
in filing tax returns (including whether an entity is taxable in a particular
jurisdiction), and requires certain expanded tax disclosures. The Interpretation
is effective for fiscal years beginning after December 15, 2006, and is to be
applied to all open tax years as of the date of effectiveness. Management has
recently begun to evaluate the application of the Interpretation to the Fund,
and is not in a position at this time to estimate the significance of its
impact, if any, on the Fund's financial statements.
THE YACKTMAN FUNDS, INC.
ADDITIONAL INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY AGREEMENT
- --------------------------------------------------------------------------------
On March 3, 2006, 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 and its affiliates from the relationship with
the Funds
o the extent to which economies of scale would be realized as the mutual fund
grows and whether fee levels reflect these economies of scale for the
benefit of mutual fund investors
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 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.
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
website 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, 2006, will be available without
charge, upon request, by calling 1-800-525-8258 or by accessing the website of
the Securities and Exchange Commission.
DISCLOSURE OF PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
The Funds will file its complete schedule 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 website
of the Securities and Exchange Commission at http://www.sec.gov.
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-410-0806
ITEM 2. CODE OF ETHICS
Not applicable for semi-annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not applicable for semi-annual reports
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 the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d))
that occurred during the Registrant's second fiscal quarter of the period
covered by this report that has materially affected, or is reasonably
likely to materially affect, the Registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS
(a) Code of Ethics. Not applicable for semi-annual reports.
(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
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Donald A. Yacktman
Principal Executive Officer
September 1, 2006
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
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Donald A. Yacktman
Principal Executive Officer
September 1, 2006
/s/Donald A. Yacktman
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Donald A. Yacktman
Principal Financial Officer
September 1, 2006