<PAGE> 1
- - --------------------------------------------------------------------------------
MATHERS FUND, INC.
100 Corporate North - Bannockburn,
Illinois 60015
800-962-FUND - 847-295-7400
DIRECTORS
KARL M. BECKER
TYLER R. CAIN
CHARLES G. FREUND
ROBERT J. REYNOLDS
HENRY G. VAN DER EB, JR.
EDWIN H. WATKINS
OFFICERS
HENRY G. VAN DER EB, JR., CFA
Chairman
ROBERT J. REYNOLDS, CFA
President
ANNE E. MORRISSY, CFA
Senior Vice President
and Secretary
EDITH L. COOK
Vice President and
Treasurer
LAWRENCE A. KENYON
Vice President and
Controller
MARY ANNE KINNUCAN
Vice President
HEIDI M. STUBNER
Assistant Vice
President
Investment Adviser
MATHERS AND COMPANY, INC.
Bannockburn, Illinois
Custodian
STATE STREET BANK AND TRUST CO.
Boston, Massachusetts
Transfer Agent
DST SYSTEMS, INC.
Kansas City, Missouri
Counsel
SIDLEY & AUSTIN
Chicago, Illinois
Auditors
ARTHUR ANDERSEN LLP
Chicago, Illinois
This report is submitted for the
information of shareholders of the
Fund. It is not authorized for
distribution to prospective investors
unless preceded or accompanied by a
current prospectus.
- - --------------------------------------------------------------------------------
----------------------------------------
[COPY WHITE]
MATHERS
FUND
ANNUAL REPORT
1995
----------------------------------------
<PAGE> 2
MATHERS FUND
- - ----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT IN THE
MATHERS FUND SINCE AUGUST 19, 1965*
<TABLE>
<CAPTION>
Compound
Annual
Return
From 12-31-95
8-19-65 Value of
To $1 Invested
12-31-95 8-19-65
<S> <C> <C> <C>
----------------------------------------------------------
MATHERS FUND....................... 12.8% $ 39.09
----------------------------------------------------------
----------------------------------------------------------
Standard & Poor's 500.............. 10.8 22.60
----------------------------------------------------------
Value Line Composite............... 7.1 7.94
Dow Jones Industrial Average....... 10.5 20.55
Long-Term U.S. Treasury Bonds...... 7.8 9.75
U.S. Treasury Bills................ 6.7 7.12
Consumer Price Index............... 5.3 4.86
* Date of public offering
Income Dividends and Capital Gains Distributions Reinvested
</TABLE>
- - ----------------------------------------------------------------
- - ----------------------------------------
MATHERS FUND Long-Term Performance Rank
17th out of 161 Funds.......8-31-65 to
12-31-95
Source: Lipper Analytical
- - ----------------------------------------
<TABLE>
<S> <C>
- - ------------------ ------------------
MATHERS FUND MATHERS FUND
RANKED #1 RANKED #1
GROWTH FUND GROWTH FUND
1 YEAR ENDED 1 YEAR ENDED
12-31-87 6-30-88
Source: Lipper Source: Lipper
Analytical Analytical
Services Services 6-30-88
12-31-87 "Growth "Growth Fund"
Fund" Category Category
Consists of 236 Consists of 235
Funds. Funds.
- - ------------------ ------------------
- - ------------------
MATHERS FUND
RANKED #1
GROWTH FUND
1 YEAR ENDED
9-30-90
Source: Lipper
Analytical
Services
9-30-90 "Growth
Fund" Category
Consists of 257
Funds.
- - ------------------
</TABLE>
<PAGE> 3
Full Calendar years
ending December 31
MATHER FUND PLOTTING POINTS S&P 500 PLOTTING POINTS
<TABLE>
<S> <C> <C> <C>
10000 INITIAL INVESTMENT 8-19-65 10000
"1965" 12089 "1965" 10768
"1966" 12597 "1966" 9685
"1967" 24265 "1967" 12007
"1968" 30783 "1968" 13335
"1969" 28936 "1969" 12200
"1970" 29507 "1970" 12688
"1971" 35358 "1971" 14504
"1972" 41059 "1972" 17256
"1973" 25806 "1973" 14727
"1974" 17908 "1974" 10830
"1975" 28124 "1975" 14859
"1976" 40604 "1976" 18404
"1977" 46368 "1977" 17082
"1978" 53349 "1978" 18202
"1979" 78188 "1979" 21558
"1980" 109687 "1980" 28548
"1981" 101193 "1981" 27143
"1982" 116227 "1982" 32952
"1983" 135015 "1983" 40372
"1984" 131529 "1984" 42900
"1985" 167682 "1985" 56534
"1986" 191108 "1986" 67115
"1987" 242780 "1987" 70635
"1988" 276110 "1988" 82334
"1989" 304849 "1989" 108392
"1990" 336643 "1990" 105037
"1991" 368441 "1991" 136961
"1992" 379883 "1992" 147380
"1993" 387977 "1993" 162206
"1994" 365253 "1994" 164328
"1995" 390861 "1995" 226017
</TABLE>
<PAGE> 4
LETTER TO SHAREHOLDERS JANUARY 31, 1996
- - --------------------------------------------------------------------------------
New Era or grand finale for the biggest U.S. stock price bubble in history?
Last year's stunning continuation of the stock market's multi-year parabolic
rise, particularly in large capitalization and technology stocks, produced an
expanding list of record-breaking benchmark extremes, defying probabilities
well-defined by long-term market history.
The Mathers Fund, in deference to an historically high-risk stock market
background, maintained a relatively defensive portfolio structure throughout
1995, posting a total return of 7.01%, which was no match for the 37.5%
increase in the Standard & Poor's 500 Composite Index. During the year the
portfolio averaged 26.4% in stocks, 69.5% in U.S. Treasury securities and 4.1%
in cash equivalents. The equity portion of the portfolio remained hedged
throughout the year for the purpose of protecting the Fund's assets from
potential loss had a decline in the stock market occurred.
[ Contained here in paper format is a chart reflecting the Standard &
Poor's 500 Stock Index-Trend Channel. The chart's X-axis reflects years from
1926 to 1995, and its Y-axis is on a log scale and extends from 5 to 562. The
chart was prepared for Mathers Fund by Ned Davis Research, Atlanta GA, and
appeared in Stock Market Chart Watch, page S7 on January 4, 1996. A hard copy
is available by calling the Fund at 800-962-3863. The chart depicts the level
of the S&P 500. Trend lines have been drawn. The bottom (support) line
begins at the market low in 1932 and is formed by the market low in 1982. The
top (resistance) line extends from 1932 through the present and is formed by
market highs in 1937 and 1966.
Various market tops and bottoms that approach the two lines have been lettered,
A through J, and for each of these points, the valuation measures Price/Book,
Price/Dividend and Price/Earnings has been calculated. A table within the
chart reflects the following data:
<TABLE>
<CAPTION>
Price/ Price/ Price/
Book Dividend Earnings
<S> <C> <C> <C>
Average of Market Tops 2.2 33.8 20.0
Avg. of Market Bottoms 0.9 14.0 7.8
September 1929 Top 3.6 34.9 21.1
Current 12/31/95 3.7 43.5 17.7]
</TABLE>
As economic growth slowed in 1995 from 1994's pace and secular deflationary
forces kept inflation in check, interest rates fell, enabling the coupon U.S.
Treasury segment of the portfolio to contribute both income and an increase in
market value to returns. At year-end 1995, the average maturity of the fixed
income portfolio segment was 7.83 years, the weighted average duration 5.82
years, the current yield 6.58% and the yield to maturity 5.50%. The common
stock segment, excluding the effect of the hedge, ranged from a low of 14.3% to
a high of 38.4% of the portfolio. Stocks made a positive contribution to
performance but were more than offset by the hedge position. With the
exception of attractively priced initial public and secondary offerings, most
stocks purchased during the year had previously undergone substantial price
declines, and at the time of purchase were oversold and appeared to have
limited downside risk. Generally, most stocks held in the portfolio during the
year could be described by one or more of the following: turn-around
candidates, out of favor issues lacking Wall Street sponsorship, potential
takeovers, or contrarian picks such as the gold stocks. These securities were
selected to potentially outperform both relatively and absolutely in a down
market, but the opportunity to do so did not materialize.
<PAGE> 5
- - --------------------------------------------------------------------------------
"We think there are no new eras, only old eras that go to new extremes", writes
Bob Farrell for Merrill Lynch. The new extremes reached in 1995 include:
first time the S&P 500 and Dow Jones Industrial Average current dividend yields
(inverse of price/dividend ratio) have been less than 2.5% (see charts #1 and
#3), a record ratio of total consumer debt to disposable personal income of
92.7% (see chart #2), first time the S&P 400's price/book value multiple has
exceeded four times (see chart #4), a record ratio of stock market
capitalization to nominal GDP of 88.1% (see chart #5), the twelfth consecutive
year without the Dow Jones Industrials selling below the prior year's low
(which surpassed the old eight-year record, ended by the 1929 crash), and the
fifth consecutive year without an interim decline of greater than 10% in the
S&P 500 (the prior record was shattered by the 1987 crash). In addition,
absurd IPO pricing and aftermarket valuations, such as the internet group
selling at approximately 20 times revenues, booming equity mutual fund inflows,
a high level of merger and acquisition activity, large corporate stock
repurchases, intense media coverage and investor interest in the market, the
elevation of a select group of high-profile money managers and corporate
executives to cult hero status, and complacency caused by the universal
acceptance of 'buy and hold' as a guaranteed formula for investment success,
are symptomatic of speculative excess and a high-risk stock market.
[ Contained here in paper format is a chart reflecting Total Consumer Debt as
a percentage of Disposable Personal Income. This single chart was prepared
for Mathers Fund by ISI Group, New York, NY. A hard copy is available by
calling the Fund at 800-962-3863. The chart's X-axis reflects the years from
1955 through 1995 and its Y-axis is from 40 to 100. The line begins around
44% and ends at 92.7%, a record high. This chart shows that the consumer is
leveraged more than at any time in the past and suggests that further economic
growth will not be fueled by the consumer.]
No one yet knows whether a lasting "paradigm shift" in equity valuation has
actually occurred, and we will not know the answer at least until the next bear
market and recession are over. We do know that previous 'new era' thinking,
which occurred in the U.S. in the late 1920's and Japan in the late 1980's,
turned out to be "new excess", not "new era". During the last 100 years, both
high and low stock market valuation extremes have ultimately regressed to the
mean despite compelling rationalizations supporting them at the major turning
points. Speculative psychology makes it very difficult to see the bubble when
you are inside of it, and easy to treat those on the outside with derision for
not participating. Perhaps reality is somewhere between the 'new era' and
'speculative bubble' extremes, at least for the moment. Investors must weigh
current versus historical data and adjust portfolio risk levels accordingly.
<PAGE> 6
- - --------------------------------------------------------------------------------
[ Contained here in paper format is a chart reflecting the Standard & Poors
500 Index (consists of 2 clips). The x- axis of each represents the years
from 1925 to 1995, monthly data. Chart was prepared for Mathers Fund by Ned
Davis Research, Atlanta GA, and appeared in Stock Market Chart Watch, page S628
on January 4, 1996. A hard copy is available by calling the Fund at
800-962-3863.
Top Clip: S&P 500 index, Y-axis is on a log scale and ranges from 6 to 555.
The solid line is the price data for the S&P 500. The dashed line is the
actual dividend multiplied by 24.9, which is the average price/dividend ratio
for the 70-year period. The solid line currently exceeds the dashed line by a
wider margin than ever before.
Bottom Clip: charts price/dividend ratio of the S&P 500. The y-axis ranges
from 9 to 42. High price/dividend ratios indicate high prices and low price
to dividend ratios indicate bargains. Clip shows that the average
price/dividend ratio over the 70 years is 24.9 and that as of 12/31/95 the
ratio stood at an all time high of 43.5.]
[ Contained here in paper format is a chart reflecting the Standard & Poors
Industrial Index (consists of 2 clips). The x-axis of each represents the
years from 1928 to 1995, monthly data. The chart was prepared for Mathers Fund
by Ned Davis Research, Atlanta GA, and appeared in Stock Market Chart Watch,
page S605 on January 4, 1996. A hard copy is available by calling the Fund at
800-962-3863.
Top Clip: S&P Industrial Index, Y-axis is on a log scale and ranges from 4 to
628. The solid line is the price data for the S&P Industrials. The dashed
line is the book value for the S&P Industrials.
Bottom Clip: charts the ratio of the price/book ratio of the S&P Industrials.
The y-axis ranges from .40 to 4.10. Low price/book value indicate bargains and
high price/book values indicate high prices. Shows that the average over the
68 years is 1.74, the average from 1950 to present is 1.96, that the average
from 1970 to present is 2.08 and that as of 12/31/95 the ratio stood at an all
time high of 4.10.]
<PAGE> 7
- - --------------------------------------------------------------------------------
The stock market has sustained off-the-chart readings in several traditional
valuation measures for a long enough time period that some credible theories
for this phenomenon have gained acceptance. Probably the most intuitively
appealing and currently popular theory explaining the persistent demand for
financial assets and, hence, high stock market valuation levels is based on
demographic trends of the U.S. population. This rationale is predicated on
the continuing increase of individuals over 35 years old as a percentage of the
total working age population, and their transition from young, credit-hungry
consumers and first-time home buyers to middle-aged savers and
retirement-oriented investors. Reduced consumption and moderating credit
demands argue for low economic growth, low inflation and low interest rates,
and an increasing demand for stocks and bonds as savings grow, creating
theoretically ideal conditions for appreciating financial asset prices.
[ Contained here in paper format is a chart reflecting the Stock Market
Capitalization as a Percentage of Nominal GDP. This single chart was prepared
for Mathers Fund by Topline Investment Graphics, Boulder CO. A hard copy is
available by calling the Fund at 800-962-3863. The line is the ratio of stock
market capitalization divided by nominal GDP. The chart's X-axis represents
years, from 1926 thru 1995 and its Y-axis shows percentage points, from 0 to
100. The average, since 1926, has been 48.5%. The high points (August 1929,
81.4%; November 1968, 79.7% and December 1972, 80.0%) were all followed by
severe bear markets. The current value is a record high, 88.1%.]
While anecdotal evidence of slow, non-inflationary growth, declining interest
rates and a hot stock market support the demographics concept, quantitative
evidence is mixed. For example, Federal Reserve flow of funds data show that
households have sold more dollars of directly owned stocks than they have used
to purchase equity mutual funds, the savings rate is historically low, and over
the last five years household sector indebtedness has steadily increased to a
record high of 68% of GDP. Thus, a slowdown in borrowing by the business and
government sectors, not households, has produced the slight decline in total
non-financial debt as a percent of GDP over the last four years from 193% to
189%. While households are consuming less, they are increasing total debt to
record levels in a risky attempt to maintain their standard of living. These
observations do not necessarily refute the demographic case, which is
reinforced by economic and financial market conditions, however, low savings
and increasing consumer debt do not fit the model. Additionally, the theory
does not attempt to explain diverse global economic and market behavior.
Clearly, there has been an extraordinary confluence of powerful forces at work
driving stock prices higher. Should recent moderate growth and benign
inflationary conditions persist, valuations could remain elevated. The key
questions are how much longer these circumstances can prevail and what factors
will cause a major change in trend to occur. The most likely catalyst to
effect this change is a cyclical economic contraction.
<PAGE> 8
Regardless of one's rationale for current valuation levels, incipient
recession, leading to a substantial decline in corporate profits, presents the
greatest threat to stock prices. After relatively weak expansions, economic
growth rates in the U.S. and many other countries have fallen sharply over the
last six months to the brink of recessionary levels. In the U.S.,
manufacturing and retailing have been in recession for several months and
confidence is eroding as employment growth falters and corporate America
continues to fire its customers to control costs. The primary cause for
contracting economic activity appears to be that final demand, generated for
decades by debt-financed over-consumption, is no longer sustainable at recent
growth rates. As recessionary forces continue to build, the financially
fragile U.S. consumer, already experiencing accelerating credit delinquencies,
will be the critical variable for the economy, as will falling corporate
profits for the stock market. In addition, until consumers can significantly
reliquify their balance sheets, lower interest rates will have little
stimulative economic impact relative to past cycles. History demonstrates that
recessions are bearish for stocks and that interest rates and stock prices can
fall simultaneously.
Except for those willing to accept the risk that this time will continue to be
different, at least for a while longer, prudence continues to call for a very
conservative approach to one's financial affairs.
/s/ Henry G. Van der Eb, Chairman
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS December 31, 1995
<TABLE>
<C> <C> <S> <C>
COMMON STOCKS 37.8%
Market Value
Shares
CONTAINERS 0.6%
50,000 Ball Corp. ............... $ 1,375,000
ELECTRONICS 7.1%
2,700,000 * Aura Systems, Inc. ....... 15,187,500
200,000 * Compression Labs, Inc. ... 1,250,000
------------
16,437,500
ENVIRONMENTAL SERVICES 11.3%
1,400,000 * Air and Water Technologies
Corp. .................. 8,575,000
2,090,000 * ICF Kaiser International,
Inc..................... 8,882,500
3,357,000 * International Technology
Corp. .................. 8,812,125
------------
26,269,625
GOLD 5.1%
900,000 Battle Mountain Gold
Co. .................... 7,650,000
270,000 Homestake Mining Co. ..... 4,218,750
------------
11,868,750
HEALTH CARE 0.3%
50,000 * Sun Healthcare Group,
Inc. ................... 675,000
HEALTH FOODS 3.6%
1,744,000 * NBTY, Inc. ............... 8,284,000
INSURANCE 3.4%
75,000 Conseco, Inc. ............ 4,696,875
200,000 Western National Corp. ... 3,225,000
------------
7,921,875
PHARMACEUTICAL 6.1%
734,204 ICN Pharmaceuticals,
Inc. ................... 14,133,427
Market Value
Shares
TELECOMMUNICATIONS 0.3%
100,000 * Interdigital
Communications.......... $ 737,500
------------
Total Common Stocks (Cost $109,745,108)..... $ 87,702,677
------------
SHORT-TERM NOTES 1.6%
Par Value
- - -------------
$ 3,858,000 State Street Bank Repo,
5.00%, due 1-2-96**
Total Short-Term Notes (Cost $3,858,000).... $ 3,858,000
------------
U.S. GOVERNMENTS 60.7%
$ 100,000,000 U.S. Treasury Notes,
7 7/8%, due 11-15-04.... $115,781,250
20,000,000 U.S. Treasury Notes,
5 7/8%, due 6-30-00..... 20,387,500
5,000,000 U.S. Treasury Bills
due 1-11-96............. 4,958,622
------------
Total U.S. Governments (Cost $124,774,247).. 141,127,372
------------
TOTAL INVESTMENTS (Cost $238,377,355)...... $232,688,049
------------
FUTURES 0.7%
Contracts
- - -------------
300 Short, S&P 500 Stock Index
Futures, Expiration
3-15-96+................ 1,563,729
OTHER ASSETS (Net) (0.8)%................... (1,948,887)
------------
TOTAL NET ASSETS -- 100%.................... $232,302,891
=============
* Non-Income Producing ** Collateralized by a U.S.
Treasury Note
+ $5 million U.S. T-Bills pledged to cover S&P Futures
margin
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
schedule.
<PAGE> 9
BALANCE SHEET
December 31, 1995
- - ---------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
INVESTMENTS AT MARKET VALUE:
Common Stocks
(Cost $109,745,108)..... $ 87,702,677
U.S. Treasuries:
Notes
(Cost $119,815,625)... 136,168,750
Bills (Amortized
Cost $4,958,622)...... 4,958,622
Repurchase Agreement
(Cost $3,858,000)....... 3,858,000 $ 232,688,049
------------- -------------
CASH........................ 744
RECEIVABLES FOR:
Subscriptions to Capital
Stock................... $ 3,253,955
Dividends and Accrued
Interest................ 1,618,514 4,872,469
------------- -------------
TOTAL ASSETS................ $ 237,561,262
=============
LIABILITIES:
PAYABLES FOR:
Redemptions of Capital Stock............ $ 4,045,484
Dividends Payable....................... 917,887
Accrued Expenses........................ 190,000
Other................................... 105,000
-------------
TOTAL LIABILITIES......................... $ 5,258,371
-------------
CAPITAL:
Capital Stock, $1.00 par value;
16,895,834 shares outstanding
(100 million shares authorized)....... $ 16,895,834
Paid-In Surplus......................... 236,196,205
Accumulated Undistributed Net Investment
Income................................ 161,582
Accumulated Undistributed Net Realized
Loss on Investments................... (16,825,153)
Net Unrealized Depreciation on
Investments........................... (4,125,577)
-------------
TOTAL CAPITAL (NET ASSETS)................ $ 232,302,891
-------------
TOTAL LIABILITIES AND CAPITAL............. $ 237,561,262
=============
Net Asset Value (Capital) Per Share at
December 31, 1995..................... $13.75
======
</TABLE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
- - ---------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
INCOME:
Interest.................... $ 13,647,418
Dividends................... 289,045
Other....................... 60,145 $ 13,996,608
------------ ------------
OPERATING EXPENSES:
Management Fee.............. $ 1,906,941
Transfer Agent.............. 360,533
Legal and Auditing.......... 121,172
Other....................... 78,546
Custodian................... 49,950
Registration................ 44,937
Printing.................... 42,431
Taxes....................... 23,787 2,628,297
------------ ------------
NET INVESTMENT INCOME......... $ 11,368,311
------------
REALIZED AND UNREALIZED
GAINS ON INVESTMENTS:
Net Realized Loss on Investments Sold....... $(16,420,847)
Net Change in Unrealized Depreciation on
Investments............................... 24,137,764
------------
Net Realized and Unrealized Gain on
Investments............................... 7,716,917
------------
Net Increase in Net Assets Resulting from
Operations................................ $ 19,085,228
============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
<PAGE> 10
STATEMENTS OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1995 1994
------------ -------------
<S> <C> <C>
OPERATIONS:
Net Investment Income....................................................... $ 11,368,311 $ 13,894,034
Net Realized Gains/(Losses) on Investments Sold............................. (16,420,847) 3,991,531
Increase/(Decrease) in Unrealized Appreciation.............................. 24,137,764 (40,882,454)
------------ -------------
Net Increase/(Decrease) in Net Assets Resulting from
Operations..................................................... 19,085,228 (22,996,889)
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from Net Investment Income........................................ (11,425,632) (13,831,140)
Distribution of Realized Capital Gains...................................... (492,591) 0
------------ -------------
Total Distributions to Shareholders.............................. (11,918,223) (13,831,140)
------------ -------------
CAPITAL STOCK ISSUED AND REDEEMED:
Net Proceeds from Sales of Shares, 643,947 and 2,415,650 shares,
respectively.............................................................. 9,020,429 35,406,345
Net Proceeds from Dividend Reinvestment Plan, 799,972 and 944,108 shares,
respectively.............................................................. 10,999,615 12,792,667
Cost of Shares Redeemed, 6,199,475 and 10,562,144 shares, respectively...... (88,169,337) (153,947,936)
------------ -------------
Decrease in Net Assets Derived from Capital Stock Transactions,
(4,755,556) and (7,202,386) shares, respectively............... (68,149,293) (105,748,924)
------------ -------------
Net Decrease in Net Assets....................................... (60,982,288) (142,576,953)
TOTAL NET ASSETS:
Beginning of Year........................................................... 293,285,179 435,862,132
------------ -------------
End of Year (including undistributed net investment income of $161,582 and
$218,902, respectively)................................................... $232,302,891 $ 293,285,179
============ =============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
1. The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end investment company. The primary objective of the Fund
is capital appreciation over the long term principally through investment in
common stocks. However, the Fund may invest all or any portion of its assets
in securities other than common stocks when the adviser believes that the
risk of owning equity securities is high. The following is a summary of the
significant accounting policies of the Fund:
(a) The Fund intends to distribute all taxable income to its shareholders
and otherwise comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies. Therefore, no
provision has been made for Federal income taxes since the Fund has
elected to be taxed as a regulated investment company. The Fund intends
to utilize provisions of the Federal income tax laws which allow it
to carry a realized capital loss forward to eight years following the
year of the loss and offset such losses against any future realized
gains. At December 31, 1995, the Fund had capital loss carryforwards of
$15,267,420 which expire December 31, 2003.
(b) Investments in common stock are reflected at market value, based on the
last reported sale on December 29, 1995, on a national securities
exchange. In the event a security does not trade on a given date,
the current bid price is used as the valuation. Fixed income securities
with a maturity of greater than 60 days are valued at the current bid
price, and those of 60 days or less are carried at amortized cost which
approximates market value. Financial futures are valued at the
settlement price established each day by the exchange on which they are
traded.
(c) During the year ended December 31, 1995, the Fund entered into S&P 500
index futures contracts to hedge against possible declines of its
portfolio securities. Risks of entering into futures contracts include
the possibility that changes in the value of the futures contract may
not correlate with changes in the value of the portfolio securities
being hedged. Upon entering into a futures contract, the Fund deposits
with its custodian, in a segregated account, a U.S. Treasury Bill to
cover margin requirements. Subsequent payments are made or received by
the Fund equal to the daily change in the contract value and are
recorded as unrealized gains or losses. The Fund recognizes a realized
gain or loss when the contract is closed or expires.
(d) Realized gains or losses are determined on the specific identification
method. Dividends from investments are recognized as income on the
ex-dividend date.
(e) Dividends to shareholders are recorded on the declaration date which
coincides with the ex-dividend date.
(f) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in these financial
statements. Actual results could differ from those estimates.
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
2. The Fund has an agreement dated May 1, 1988 with Mathers and Company, Inc.,
of which certain officers and directors of the Fund are officers, directors
and shareholders, to serve as its investment adviser and manager. Under the
agreement, the Fund pays an annual management fee of 0.75% of the first
$200,000,000 of the Fund's average monthly net asset value plus 0.625% of
any excess over $200,000,000 but not exceeding $500,000,000, plus 0.50% of
any excess over $500,000,000. The adviser is required to reimburse the Fund
to the extent expenses, other than taxes but including the management fee,
in any year exceed the sum of 1 1/2% of the first $30,000,000 of the Fund's
average monthly net asset value plus 1% of such value in excess of
$30,000,000. Under the agreement, Mathers and Company, Inc. also provides
office facilities and bookkeeping services to the Fund.
3. Cost of U.S. Government obligations and of other securities purchased during
the year ended December 31, 1995, amounted to $452,857,559 and $85,766,749,
respectively. Proceeds of U.S. Government obligations and other investment
securities sold or matured during the year were $572,564,710 and
$51,744,761, respectively. The cost of investments is the same for financial
statement and Federal income tax purposes. At December 31, 1995, gross
unrealized appreciation on investments was $23,946,348 and gross unrealized
depreciation of investments was $28,071,925.
4. During 1995, the Board of Directors declared a distribution of $0.75 per
share ($0.719 from net investment income and $0.031 from long-term capital
gains). The ex-dividend and record date were December 29, 1995. The dividend
reinvestment price was $13.75 per share, which was the Net Asset Value per
share on December 29, 1995. The payable date was December 29, 1995, and the
dividend is taxable income for 1995. The aggregate dividend was $11,918,223.
5. Financial highlights based on the average number of shares of capital stock
outstanding throughout each year are presented below:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE - BEGINNING OF PERIOD........ $13.55 $15.11 $15.02 $15.06 $14.95
------ ------ ------ ------ ------
Net investment income.................................. 0.601 0.563 0.21 0.500 0.84
Net realized and unrealized gains (losses) on
investments.......................................... 0.349 (1.448) 0.11 (0.035) 0.56
------ ------ ------ ------ ------
Total from investment operations..................... 0.950 (0.885) 0.32 0.465 1.40
------ ------ ------ ------ ------
Dividends from net investment income................... (0.719) (0.675) (0.23) (0.505) (0.74)
Distribution from net realized capital gains........... (0.031) 0.000 0.00 0.000 (0.55)
------ ------ ------ ------ ------
Total distributions.................................. (0.750) (0.675) (0.23) (0.505) (1.29)
------ ------ ------ ------ ------
NET ASSET VALUE PER SHARE - END OF PERIOD.............. $13.75 $13.55 $15.11 $15.02 $15.06
====== ====== ====== ====== ======
Ratio of total expenses to average net assets.......... 0.98% 0.93% 0.89% 0.88% 0.94%
Ratio of net investment income to average net assets... 4.25% 3.86% 1.39% 3.33% 5.39%
Portfolio turnover..................................... 58% 211% 136% 212% 80%
Total return........................................... 7.01% (5.89%) 2.13% 3.11% 9.45%
Net assets, end of period (000s omitted)............... $232,303 $293,285 $435,862 $554,162 $516,670
Number of shares outstanding (000s omitted)............ 16,896 21,651 28,854 36,896 34,313
</TABLE>
- - --------------------------------------------------------------------------------
AUDITORS' REPORT
To the Board of Directors and Shareholders of Mathers Fund, Inc.:
We have audited the accompanying balance sheet of Mathers Fund, Inc. (a
Maryland corporation), including the schedule of investments, as of December 31,
1995, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Mathers Fund, Inc. as of December 31, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
Chicago, Illinois
January 12, 1996 ARTHUR ANDERSEN LLP
<PAGE> 12
MATHERS FUND
HISTORICAL RECORD
Income Dividends and Capital Gains Distributions
<TABLE>
<CAPTION>
On a Per Share Basis
------------------------------------------------------
Record Capital Total Reinvestment
and Payment Income Gains Amount Price
Ex Date Date Dividend Distribution Paid Per Share
---------------- -------- --------- ------------ ------ ------------
<S> <C> <C> <C> <C> <C>
09-21-65........ 10-21-65 $ .015 $ .015 $ .03 $ 5.32
01-04-66........ 01-27-66 .015 -- .015 6.26
04-11-66........ 04-29-66 .015 .025 .04 6.57
07-20-66........ 07-29-66 .015 -- .015 6.05
10-19-66........ 10-31-66 .015 -- .015 5.21
02-10-67........ 02-24-67 .005 -- .005 7.36
05-02-67........ 05-12-67 .0075 .5875 .595 8.40
11-15-67........ 11-30-67 .015 -- .015 9.74
04-24-68........ 05-14-68 .02 .44 .46 10.35
04-28-69........ 05-15-69 .04 .67 .71 13.63
03-12-70........ 04-10-70 .11 -- .11 11.46
01-20-71........ 02-15-71 .19 -- .19 12.56
01-24-72........ 02-14-72 .32 -- .32 13.90
01-24-73........ 02-15-73 .17 1.07 1.24 14.15
01-24-74........ 02-15-74 .25 -- .25 9.45
01-29-75........ 02-14-75 .31 -- .31 7.09
01-29-76........ 02-13-76 .24 -- .24 10.47
01-27-77........ 02-14-77 .33 -- .33 13.28
01-26-78........ 02-14-78 .41 .32 .73 13.74
01-29-79........ 02-15-79 .70 1.88 2.58 14.56
01-29-80........ 02-14-80 .74 1.06 1.80 19.36
01-28-81........ 02-13-81 .78 1.64 2.42 22.69
01-27-82........ 02-12-82 .65 1.00 1.65 18.08
01-27-83........ 02-14-83 .63 1.49 2.12 20.73
01-27-84........ 02-14-84 .86 2.68 3.54 20.32
02-01-85........ 02-15-85 .55 1.82 2.37 19.11
02-03-86........ 02-17-86 .81 5.01 5.82 17.29
12-18-86........ 12-29-86 -- 2.37 2.37 17.08
02-04-87........ 02-13-87 .42 1.82 2.24 17.86
12-28-87........ 01-14-88 .46 4.15 4.61 14.23
12-28-88........ 01-13-89 .33 .50 .83 15.32
12-28-89........ 12-29-89 .97 1.73 2.70 14.50
12-28-90........ 01-02-91 .84 .24 1.08 14.89
12-30-91........ 12-31-91 .74 .55 1.29 14.92
12-30-92........ 12-31-92 .505 -- .505 14.94
12-31-93........ 12-31-93 .23 -- .23 15.11
12-30-94........ 12-30-94 .675 -- .675 13.55
12-29-95........ 12-29-95 .719 .031 .75 13.75
</TABLE>
All figures have been adjusted, where applicable, to reflect a 2 for 1 stock
split in February 1969.
<PAGE> 13
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
MATHERS FUND
TOTAL RETURN INVESTMENT PERFORMANCE
(All Periods Ended 12-31-95)
PERCENT CHANGE
<TABLE>
<CAPTION>
1 YR. 5 YR. 10 YR. 20 YR. 30 YR.+
------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
MATHERS FUND............................................... 7.01 16.07 133.02 1289.44 3808.61
Standard & Poor's 500...................................... 37.53 115.19 299.55 1427.68 2160.17
Value Line Composite*...................................... 22.26 93.22 104.50 862.67 693.90
Dow Jones Industrial Average............................... 36.94 124.49 360.85 1335.46 1954.80
Long-Term U.S. Treasury Bonds.............................. 32.62 86.43 210.67 635.01 875.21
30-Day U.S. Treasury Bills................................. 5.37 23.13 71.30 306.49 612.20
Consumer Price Index....................................... 2.54 14.72 40.45 176.49 385.75
</TABLE>
COMPOUND ANNUAL RETURNS
<TABLE>
<CAPTION>
1 YR. 5 YR. 10 YR. 20 YR. 30 YR.+
------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
MATHERS FUND............................................... 7.01 3.03 8.83 14.06 12.83
Standard & Poor's 500...................................... 37.53 16.56 14.86 14.60 10.81
Value Line Composite*...................................... 22.26 14.08 7.42 11.99 7.06
Dow Jones Industrial Average............................... 36.94 17.55 16.51 14.25 10.47
Long-Term U.S. Treasury Bonds.............................. 32.62 13.27 12.00 10.49 7.79
30-Day U.S. Treasury Bills................................. 5.37 4.25 5.53 7.26 6.68
Consumer Price Index....................................... 2.54 2.78 3.46 5.22 5.34
</TABLE>
* Unweighted average of 1,627 stocks + From date of initial
public offering: 8-19-65
10 YEAR TOTAL RETURN COMPARISON
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) MATHERS FUND S&P 500 INDEX
<S> <C> <C>
'85 10000 10000
'86 11400 11870
'87 14478 12452
'88 16461 14519
'89 18173 19106
'90 20064 18514
'91 21970 24142
'92 22651 25977
'93 23133 28601
'94 21768 28973
'95 23294 39846
</TABLE>
THE FUND'S DAILY PRICE AND ASSET MIX PERCENTAGES ARE AVAILABLE
VIA RECORDED MESSAGE
(AFTER 4:30 P.M. CENTRAL TIME) MONDAY THROUGH FRIDAY AT
800-962-FUND.
SHAREHOLDER ACCOUNT BALANCES MAY BE OBTAINED FROM THE FUND'S
TRANSFER AGENT AT
800-235-7458 BETWEEN 8:00 A.M. AND 4:30 P.M. CENTRAL TIME.
The results shown reflect past performance and should not be
considered representative of future performance. The
investment return and principal value of an investment in the
Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Results reflect income dividends reinvested and capital gains
distributions accepted in shares.
