<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.
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.
- -------------------------------------------------------------------------------
---------------------------------------
LOGO
MATHERS
FUND
ANNUAL REPORT
1996
---------------------------------------
<PAGE> 2
MATHERS FUND
- -----------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT IN THE
MATHERS FUND SINCE AUGUST 19, 1965*
<TABLE>
<CAPTION>
Compound 12-31-96
Annual Return Value of
From 8-19-65 $1 Invested
To 12-31-96 8-19-65
<S> <C> <C> <C>
--------------------------------------------------------------------
MATHERS FUND....................... 12.39% $39.05
--------------------------------------------------------------------
--------------------------------------------------------------------
Standard & Poor's 500.............. 11.18 27.79
--------------------------------------------------------------------
Value Line Composite............... 7.34 9.22
Dow Jones Industrial Average....... 11.01 26.48
Long-Term U.S. Treasury Bonds...... 7.47 9.56
U.S. Treasury Bills................ 6.62 7.48
Consumer Price Index............... 5.28 5.02
* Date of public offering
Income Dividends and Capital Gains Distributions Reinvested
</TABLE>
- -----------------------------------------------------------------------
- ----------------------------------------
MATHERS FUND Long-Term Performance Rank
24th out of 158 Funds.......8-31-65 to
12-31-96
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 Analytical Source: Lipper Analytical
Services Services 6-30-88 "Growth
12-31-87 "Growth Fund" Fund" Category
Category Consists of 235 Funds.
Consists of 236 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
"1996" 390577 "1996" 277905
</TABLE>
<PAGE> 4
LETTER TO SHAREHOLDERS JANUARY 27, 1997
- --------------------------------------------------------------------------------
The stock market continued to set multiple historical overvaluation records in
1996 as the S&P 500 Composite rose 22.95%, despite decelerating earnings growth
and higher interest rates. Indexation and short-term momentum-based
strategies, driven by huge equity fund money inflows, appear to have eclipsed
fundamental valuation as the primary determinant of stock prices.
Institutionalized speculation has fostered runaway stock price inflation. In
short, except for the July crashette and the December sell off, the
historical-precedent bears got steamrolled by the liquidity-bubble bulls.
After multi-year uptrends, the Dow Jones Industrial Average, the S&P 500
Composite, and other capitalization-weighted indices are now in the late stages
of accelerating upside price patterns. These configurations have the
buying-panic characteristics typically found at the vertical blow-off ending of
a parabolic price rise, more often seen in commodities than financial assets.
Chart #1 illustrates this phenomenon and the table within this chart highlights
the current all-time record stock market overvaluation using three fundamental
benchmarks. In this century, only two other bull market price analogues are
comparable in scope, the late 1920s in the U.S. and the late 1980s in Japan.
CHART
#1
[Contained here in paper format is a chart reflecting the Standard & Poor's 500
Stock Index. The x-axis reflects the years from 1972 through 1996 and its
Y-axis is on an arithmetic scale and extends from 50 to 800. The chart was
prepared internally by Mathers Fund. A hard copy is available by calling
Mathers Fund at 800-962-3863. The chart is a bar chart with monthly data and
shows the parabolic rise in level of the S&P 500 Index since 1972.
Contained within the chart is a table of data as follows:
<TABLE>
<CAPTION>
1928 to 1997 Price/Book Dividend Yield P/E Ratio
- ------------ ---------- -------------- ----------
<S> <C> <C> <C>
Avg. of Six
Major Bottoms 0.9 7.14 7.8
Avg. of Five
Major Tops 2.4 2.94 20.2
Sept. 1929 Top 3.6 2.86 21.1
Current: 1/22/97 4.5 1.90 21.8]
</TABLE>
In a December speech, Federal Reserve Chairman Alan Greenspan made the
following statement:
" ... How do we know when irrational exuberance has unduly escalated asset
values, which then become subject to unexpected and prolonged contractions as
they have in Japan over the last decade? And how do we factor that assessment
into monetary policy? We as central bankers need not be concerned if a
collapsing financial asset bubble does not threaten to impair the real
economy, its production, jobs, and price stability. Indeed, the sharp stock
market break of 1987 had few negative consequences for the economy. But we
should not underestimate or become complacent about the complexity of the
interactions of asset markets and the economy. ..."
After a brief burst of selling the following morning, stocks resumed their
frenzied ascent.
<PAGE> 5
CHART
#2
[Contained here in paper format is a chart with two lines. The top line
reflects the Dow Jones Industrial Average from the year 1790 through 1996 on a
logarithmic scale, excluding dividends. The bottom line reflects a 15-year
moving average of the same index for the same period. The chart shows that, in
all cases, 15-year periods in which the Dow has returned more that 10%
annually have been followed by periods of below average returns in the
subsequent 15-year period. Average return for the entire period was 3.8%
annually. Additionally, the annualized return for the 15-year period ending
12/31/96, is a record high 14.2%, suggesting a future 15-year period of below
3.8%, and perhaps below 0% returns. This chart was obtained by Mathers Fund
from The Zweig Forecast, P. O. Box 360, Bellmore NY 11710, 516-223-3800. A
hard copy is available by calling Mathers Fund at 800-962-3863. ]
The following italicized text and chart #2 are courtesy of the Zweig Forecast.
"The above chart shows the Dow's 15-year returns on an annualized basis back
to 1790, with 1805 being the first 15-year reading. Actually, the index uses
earlier data prior to the formation of the Dow in 1885. Dividends are not
included. The most noteworthy aspect is that in more than two centuries the
price appreciation of stocks has averaged only some 3.8% a year. Dividends
have actually provided a greater return than appreciation ... but few today
can conceive of that with dividend yields less than 2% on the Dow.
What is also startling is that the most recent 15-year price return (since
1982) is a staggering 14.2% per annum, the greatest in the history of the
United States. That even tops the prior record of 13.3% set in 1929.
Long-term investors might not want to know that over the subsequent 15 years
the Dow produced an annualized loss of 6.1% excluding dividends.
Over the past 200-odd years, whenever the 15-year returns moved above 10% a
year, returns in the subsequent 5, 10 and 15-year periods averaged -2.6%,
-0.1% and +0.1% a year, respectively. Conversely, when 15-year returns have
been negative, as they were in 1982, returns in the subsequent 5, 10 and
15-year periods averaged +7.3%, +5.2% and +5.3% a year, respectively vs. the
two-century norm of 3.8% a year. This mother of all Bull Markets has led to
unrealistically high long-term expectations."
"New Era" stock valuations make downside risk substantial since current levels
are more extreme than in 1929 and 1987, and far above historical medians. At
present, the U.S. stock market has surpassed all previous bull market
record-high valuations, and accordingly there is significant downside risk and
<PAGE> 6
negligible statistical upside potential. A move back to the 70-year (1926 to
1996) median valuation level implies a decline of 45%, a return to low quartile
valuation implies a decline of 58%, and a return to the bottom of the historical
valuation range a decline of 76% from 1/22/97 levels. Since stock valuations
are stretched far above intrinsic value, the inevitable regression back to the
mean will likely start with an abrupt and intense decline.
ESTIMATING THE DOWNSIDE: BACK TO THE MEDIANS*
<TABLE>
<CAPTION>
1926 To Date Implied Downside
S&P 400 INDUSTRIALS 1/22/97 Median S&P 400 Risk %
------------------- ------- ------ ------- ------
<S> <C> <C> <C> <C>
Normalized "Adjusted EPS" P/E 27.5 15.4 516 -44
Non-Normalized Operating EPS P/E 22.5 15.0 611 -34
Return On Sales Implied EPS P/E 26.9 15.3 523 -43
Dividend Yield 1.7% 4.0% 400 -57
Price To Book (Adjusted) 3.7 1.5 384 -58
Price To Cash Flow 12.4 7.8 579 -37
Price To Sales 1.2 0.8 624 -32
--------- --------
AVG. 520 -44%
<CAPTION>
1926 To Date Implied Downside
DOW JONES INDUSTRIAL AVERAGE 1/22/97 Median Dow Jones Risk %
---------------------------- ------- ------ --------- ------
<S> <C> <C> <C> <C>
Normalized "Adjusted EPS" P/E 25.4 15.0 4064 -41
Non-Normalized Operating EPS P/E 19.4 13.4 4744 -31
Dividend Yield 1.9% 4.4% 2977 -57
Price To Book (Adjusted) 3.3 1.5 3075 -55
--------- --------
AVG. 3715 -46%
</TABLE>
<TABLE>
<S> <C>
NORMALIZED "ADJUSTED Five year arithmetically averaged annual earnings looking six
EPS" P/E months ahead and 54 months back (6/30/92 - 6/30/97).
NON-NORMALIZED Based on estimated operating (not reported) earnings for the 12
OPERATING EPS P/E months ending 6/30/97 ... the most positive P/E measure.
RETURN ON SALES Based on five year arithmetically averaged return on sales,
IMPLIED EPS P/E multiplied by estimated sales for the 12 months ending 6/30/97.
DIVIDEND YIELD Based on indicated 12 months' dividends as calculated by Barrons.
PRICE TO BOOK Based on Leuthold "adjusted" book value calculation which adds back
(ADJUSTED) about 25% of big write-offs (1985 to present) to improve comparability.
PRICE TO CASH FLOW Based on estimated 12 months' cash flow for the period ending
6/30/97. Net income plus depreciation.
PRICE TO SALES Based on 12 months' estimated sales for the period ending 6/30/97.
</TABLE>
*Source: Leuthold Group. 1/22/97 closing prices: S&P 400 Industrials 923,
Dow Jones Industrial Average 6850
<PAGE> 7
According to a recent study by Arbor Trading, the total market value of all
publicly traded U.S. stocks now exceeds 100% of U.S. GDP for the first time
ever (chart #3), more than twice the 70-year average of 48%. In the past,
major secular stock market tops have occurred at an average of 79%, and bottoms
at an average of 28%, of GDP. Stocks would have to decline over 20% just to
return to the area of previous tops, over 50% to return to the 70-year mean and
over 70% to reach undervaluation.
CHART
#3
[Contained here in paper format is a chart reflecting the Stock Market
Capitalization as a Percentage of Nominal GDP. This 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 through 1996 and its Y-axis shows percentage points, from 0 to
100. The average, since 1926, has been 48.4% The high points (August 1929,
81.4%; November 1968, 77.8% and December 1972, 78.1%) were all followed by
severe bear markets. The current value is a record high, 105.6%.]
Extraordinary double-digit appreciation and high valuations have decoupled the
stock market from its underlying macroeconomic fundamentals as measured by
single-digit nominal GDP growth, creating an unsustainable divergence. The
current economic expansion is relatively extended and corporate profit growth
is decelerating, after having been temporarily boosted over the last several
years by special factors, including lower taxes, interest expense and
depreciation. Corporate pricing power is negligible, easy cost reductions
completed and the dollar shows continued strength, all of which will further
pressure profit margins as sales growth slows. With the market value of U.S.
stocks now bigger than the U.S. economy, any sustained break in stock prices
could clearly "threaten to impair the real economy."
Paradoxically, as a stock price bubble inflates, it becomes increasingly likely
to burst since it requires progressively greater amounts of money inflows to
support its larger size. A stock with a $100 billion market value requires
more money to remain aloft than a stock with a $100 million capitalization.
Last year, approximately 39% of the S&P 500's gain was accounted for by just 15
mega-cap stocks, including the four listed in the table below. These stocks
and many others are analogous to the "Nifty Fifty" of 1972, since valuations,
at the January highs, are very difficult to justify by rational fundamental
standards.
<TABLE>
<CAPTION>
MKT. VAL '96 REVS MKT. VAL/ BK. VAL PRICE/ 1996 P/E DIVIDEND
BILL $ BILL $ REVS PER SH $ BOOK EPS $ RATIO YIELD %
------ -------- -------- -------- ------ ----- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COCA-COLA 150 19 7.9 3 24.1 1.40 43 0.83
GENERAL ELECTRIC 178 47 3.8 19 5.7 4.40 25 1.75
INTEL 128 21 6.1 20 7.9 5.80 27 0.12
MICROSOFT 119 9 13.2 6 17.0 1.92 52 0.00
AVERAGE 7.8 13.7 37 0.68%
</TABLE>
<PAGE> 8
Currently, 63 million individuals own mutual funds, a 66% increase from four
years ago. A record net inflow of $200 billion went into U.S. domestic equity
mutual funds in 1996. Approximately 90% of all equity mutual fund money has
arrived since 1990 with 73% since year-end 1992. A recent Lou Harris poll of
mutual fund investor "expectations" found that 85% expect stock market
performance to meet or beat the past 10 years, 78% expect no declines of over
- -20%, and 41% expect no annual declines of -10% over the next decade.
Additionally, domestic equity mutual fund cash is at a 20-year low of 5.68% and
the NASDAQ Composite price/earnings ratio as of year-end 1996 was 50.3X.
Excessive optimism?
The following table shows the history of the "ANNUAL RISK" of loss for the Dow
Jones Industrials as measured from "ONE YEAR'S HIGH TO THE NEXT YEAR'S LOW
SINCE 1900 ". The 1987 Crash was the last 30% decline and the 1973-1974 bear
market the last loss of over 40%. Data is courtesy of InvesTech.
<TABLE>
<CAPTION>
DJIA LOSS # YRS. OCCURRED FREQUENCY CURRENTLY
--------- --------------- --------- ---------
<S> <C> <C> <C>
-10% 65 every 1.5 yrs. over 6 yrs. since last
-20% 39 every 2.5 yrs. over 6 yrs. since last
-30% 21 every 4.6 yrs. over 9 yrs. since last
-40% 11 every 8.7 yrs. over 22 yrs. since last
</TABLE>
The unprecedented extremes reached by stock prices over the last several years
raise the question of whether it would have been prudent, in view of historical
probabilities and record overvaluation, to have reasonably expected an
uninterrupted continuation of rising prices. For those who have the fiduciary
responsibility of managing other people's money, one must also ask if it is
prudent to expose more than a modest percentage of this capital to today's
extraordinary risks.
The Mathers Fund, in deference to the foregoing discussion and analysis,
maintained a relatively defensive portfolio structure throughout 1996, posting
an essentially breakeven total return of -.07%. Although flat for the year,
the Fund outperformed the S&P 500 both absolutely and relatively in July and
December, the two down months of the year, as well as during many other
shorter-term market declines.
During the year the portfolio averaged 43.2% in stocks, 48.0% in U.S. Treasury
securities and 8.8% 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 in a market decline. The common stock segment
ranged from a low of 30.2% to a high of 51.9% of the portfolio and posted a
total return of 16.02%, which was offset by the hedge position. Generally,
most stocks held in the portfolio during the year were selected to potentially
outperform in a down market. The U.S. Treasury segment of the portfolio earned
a positive return, but a decline in market value due to a slight rise in
interest rates during the year reduced the number. At year-end 1996, the
weighted average maturity of the fixed income portfolio segment was 6.66 years,
the duration 4.95 years, the current yield 6.85% and the yield to maturity
6.04%. The Fund is currently positioned to potentially outperform in a
recessionary U.S. economy, with falling interest rates, corporate profits and
stock prices.
Over the last several years, the Fund's conservative stance has proven
expensive in terms of opportunity cost. However, it has provided investors
with a way to potentially outperform in a bear market, which has been and is
long overdue. During the years of the '87 crash and the '90 market decline,
the Fund returned a cumulative 37.5%. The relevant question now is, what is
most likely to happen to stock prices this year?
/s/ Henry G. Van Der Eb, Chairman
---------------------------------
<PAGE> 9
SCHEDULE OF INVESTMENTS December 31, 1996
- --------------------------------------------------------------------------------
COMMON STOCKS 39.9%
<TABLE>
<CAPTION>
Shares Market Value
- ------- ------------
<S> <C> <C>
CONSUMER PRODUCTS 0.7%
50,000 Silicon Graphics, Inc.* .............. $1,275,000
FOODS 3.3%
300,000 Chiquita Brands International, Inc. .. 3,825,000
100,000 International Multifoods Corp. ....... 1,812,500
----------
5,637,500
GOLD 6.3%
1,000,000 Battle Mountain Gold Co. ............. 6,875,000
275,000 Homestake Mining Co. ................. 3,918,750
----------
10,793,750
HEALTH FOODS 5.0%
70,000 NBTY, Inc.* .......................... 1,330,000
600,000 Twinlab Corp.* ....................... 7,275,000
----------
8,605,000
INSURANCE 15.3%
350,000 Conseco, Inc. ........................ 22,312,500
200,000 Western National Corp. ............... 3,850,000
----------
26,162,500
MARITIME 3.1%
245,000 Avondale Industries, Inc.* ........... 5,267,500
MEDICAL PRODUCTS 1.5%
365,000 Isolyser, Inc.* ...................... 2,555,000
PAGING SYSTEMS 0.5%
100,000 Arch Communications
Group, Inc.* ........................ 937,500
RESTAURANTS 0.4%
100,000 Ryan's Family Steak Houses, Inc.* .... 687,500
SPECIALTY RETAIL 0.4%
50,000 Claire's Stores, Inc. ................ 650,000
</TABLE>
<TABLE>
<CAPTION>
Shares Market Value
- ------- ------------
<S> <C> <C>
TECHNOLOGY 3.4%
2,700,000 Aura Systems, Inc.* ........................ $ 5,906,250
-------------
Total Common Stocks (Cost $65,932,641) ................. $ 68,477,500
-------------
SHORT-TERM NOTES 1.4%
Par Value
- ---------
$2,336,000 State Street Bank Repo,
4.75%, due 1-2-97**
Total Short-Term Notes (Cost $2,336,000) ............... $ 2,336,000
-------------
U.S. TREASURIES 59.6%
Par Value
- ---------
$ 80,000,000 U.S. Treasury Notes
7 7/8% due 11-15-04 ......... $ 87,350,000
10,000,000 U.S. Treasury Bills
due 1-9-97 ................. 9,932,353
5,000,000 U.S. Treasury Bills
due 2-6-97+ ................ 4,963,055
-------------
Total U.S. Treasuries (Cost $94,820,408) ............... $ 102,245,408
-------------
TOTAL INVESTMENTS (Cost $163,089,049) ................. $ 173,058,908
-------------
FUTURES (0.2%)
Contracts
- ---------
160 Short, S&P 500 Stock
Index Futures, Expiration
3-21-97 .................... (346,011)
OTHER ASSETS (Net) (0.7%) .............................. (1,117,233)
TOTAL NET ASSETS - 100% ................................ $171,595,664
=============
</TABLE>
* Non-Income Producing ** Collateralized by a U.S. Treasury Bond
+Pledged to cover S&P Futures margin
The accompanying Notes to Financial Statements are an integral part of this
schedule.
<PAGE> 10
BALANCE SHEET
December 31, 1996
- --------------------------------------------------------------------------------
ASSETS:
INVESTMENTS AT MARKET VALUE:
<TABLE>
<S> <C> <C>
Common Stocks
(Cost $65,932,641) ..... $68,477,500
U.S. Treasuries:
Notes
(Cost $79,925,000) ..... 87,350,000
Bills (Amortized
Cost $14,895,408) ...... 14,895,408
Repurchase Agreement
(Cost $2,336,000) ...... 2,336,000 $173,058,908
----------- ------------
CASH ........................... 193
RECEIVABLES FOR:
Subscriptions to Capital
Stock ..................... $ 3,902,372
Dividends and Accrued
Interest .................. 910,185
Other Assets .................. 1,168,000 5,980,557
----------- ------------
TOTAL ASSETS ................... $179,039,658
============
LIABILITIES:
PAYABLES FOR:
Redemptions of Capital Stock................ $ 4,226,955
Investments Purchased ...................... 2,602,880
Dividends Payable .......................... 485,159
Accrued Expenses ........................... 129,000
------------
TOTAL LIABILITIES ........................... $ 7,443,994
------------
CAPITAL:
Capital Stock, $1.00 par value;
12,929,841 shares outstanding
(100 million shares authorized) ........ $ 12,929,841
Paid-In Surplus ............................ 185,941,333
Accumulated Undistributed Net Investment
Income ................................. 242,940
Accumulated Undistributed Net Realized
Loss on Investments .................... (37,142,298)
Net Unrealized Appreciation on Investments .. 9,623,848
------------
TOTAL CAPITAL (NET ASSETS) .................. $171,595,664
------------
TOTAL LIABILITIES AND CAPITAL ............... $179,039,658
============
Net Asset Value (Capital) Per Share at
December 31, 1996 ................... $ 13.27
=======
</TABLE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
INCOME:
<TABLE>
<S> <C>
Interest .................... $7,518,482
Dividends ................... 340,355
Other ....................... 12,871 $7,871,708
---------- ----------
OPERATING EXPENSES:
Management Fee .............. $1,451,059
Transfer Agent .............. 257,102
Legal and Auditing .......... 131,839
Other ....................... 75,469
Custodian ................... 39,444
Printing .................... 38,589
Registration ................ 26,492
Taxes ....................... 13,580 2,033,574
------- ----------
NET INVESTMENT INCOME ............................ $5,838,134
----------
REALIZED AND UNREALIZED
GAINS ON INVESTMENTS:
Net Realized Loss on Investments Sold ..... $(20,317,145)
Net Change in Unrealized Appreciation on
Investments ............................. 13,749,425
------------
Net Realized and Unrealized Loss on
Investments ............................. (6,567,720)
------------
Net Decrease in Net Assets Resulting from
Operations .............................. $( 729,586)
============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
<PAGE> 11
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
------------ ------------
<S> <C> <C>
OPERATIONS:
Net Investment Income ........................................................... $ 5,838,134 $ 11,368,311
Net Realized Losses on Investments Sold ......................................... (20,317,145) (16,420,847)
Net Change in Unrealized Appreciation ........................................... 13,749,425 24,137,764
------------ ------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ............... (729,586) 19,085,228
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from Net Investment Income ............................................ (5,756,774) (11,425,632)
Distribution of Realized Capital Gains .......................................... 0 (492,591)
------------ ------------
Total Distributions to Shareholders ........................................... (5,756,774) (11,918,223)
------------ ------------
CAPITAL STOCK ISSUED AND REDEEMED:
Net Proceeds from Sales of Shares, 620,300 and 643,947 shares, respectively ..... 8,338,600 9,020,429
Net Proceeds from Dividend Reinvestment Plan, 397,258 and 799,972 shares,
respectively .................................................................. 5,271,615 10,999,615
Cost of Shares Redeemed, 4,983,552 and 6,199,475 shares, respectively ........... (67,831,082) (88,169,337)
------------ ------------
Decrease in Net Assets Derived from Capital Stock Transactions, (3,965,994) and
(4,755,556) shares, respectively ............................................ (54,220,867) (68,149,293)
------------ ------------
Net Decrease in Net Assets .................................................... (60,707,227) (60,982,288)
TOTAL NET ASSETS:
Beginning of Year ............................................................... 232,302,891 293,285,179
------------ ------------
End of Year (including undistributed net investment income of $242,940 and
$161,582 respectively) ........................................................ $171,595,664 $232,302,891
============ ============
</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, 1996, the Fund had total
capital loss carryforwards of $37,494,305, of which $15,267,420 expire
on December 31, 2003 and $22,226,885 expire on December 31, 2004.
(b) Common stocks traded on securities exchanges and stocks traded on the
NASDAQ National Market are valued at the last sales price as of
the close of the New York Stock Exchange on the day of valuation. 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, 1996, 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 estimates and
assumptions that affect the reported amounts in these financial
statements. Actual results could differ from those estimates.
<PAGE> 12
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. Treasury obligations and of other investment securities
purchased during the year ended December 31, 1996, amounted to $99,400,417
and $68,342,611, respectively. Proceeds of U.S. Treasury obligations and
other investment securities sold or matured during the year were
$132,372,140 and $100,133,752, respectively. The cost of investments is
the same for financial statement and Federal income tax purposes. At
December 31, 1996, gross unrealized appreciation on investments was
$23,386,825 and gross unrealized depreciation on investments was
$13,762,977.
4. During 1996, the Board of Directors declared a distribution of $0.47 per
share from net investment income. The ex-dividend and record date were
December 31,1996. The dividend reinvestment price was $13.27 per share,
which was the Net Asset Value per share on December 31, 1996. The payable
date was December 31,1996, and the dividend is taxable income for 1996.
The aggregate dividend was $5,756,774.
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
---------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE - BEGINNING OF PERIOD ............ $ 13.75 $ 13.55 $ 15.11 $ 15.02 $ 15.06
-------- -------- -------- -------- --------
Net investment income ...................................... 0.40 0.601 0.563 0.21 0.500
Net realized and unrealized gains (losses) on investments .. (0.41) 0.349 (1.448) 0.11 (0.035)
-------- -------- -------- -------- --------
Total from investment operations ........................ (0.01) (0.950) (0.885) 0.32 0.465
-------- -------- -------- -------- --------
Dividends from net investment income ....................... (0.47) (0.719) (0.675) (0.23) (0.505)
Distribution from net realized capital gains ............... 0.00 (0.031) 0.000 0.00 0.000
-------- -------- -------- -------- --------
Total distributions ..................................... (0.47) (0.750) (0.675) (0.23) (0.505)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE - END OF PERIOD .................. $ 13.27 $ 13.75 $ 13.55 $ 15.11 $ 15.02
======== ======== ======== ======== ========
Ratio of total expenses to average net assets .............. 1.03% 0.98% 0.93% 0.89% 0.88%
Ratio of net investment income to average net assets ....... 2.96% 4.25% 3.86% 1.39% 3.33%
Portfolio turnover ......................................... 38% 58% 211% 136% 212%
Average commission rate paid per share ..................... $ 0.051 -- -- -- --
Total return ............................................... (0.07%) 7.01% (5.89%) 2.13% 3.11%
Net assets, end of period (000s omitted) ................... $171,596 $232,303 $293,285 $435,862 $554,162
Number of shares outstanding (000s omitted) ................ 12,930 16,896 21,651 28,854 36,896
</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,
1996, 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, 1996 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, 1996, 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, conformity with generally accepted
accounting principles.
Chicago Illinois
January 17, 1997 ARTHUR ANDERSEN LLP
<PAGE> 13
MATHERS FUND
TOTAL RETURN INVESTMENT PERFORMANCE
(All Periods Ended 12-31-96)
PERCENT CHANGE
<TABLE>
<CAPTION>
1 YR. 5 YR. 10 YR. 20 YR. 31 YR.+
------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
MATHERS FUND .................. (0.07) 5.98 104.32 861.74 3805.76
Standard & Poor's 500 ......... 22.95 102.89 314.08 1414.46 2679.05
Value Line Composite* ......... 16.17 70.81 119.97 706.88 822.29
Dow Jones Industrial Average .. 28.91 132.88 366.81 1405.30 2548.47
Long-Term U.S. Treasury Bonds.. (1.47) 52.87 144.04 515.82 856.68
30-Day U.S. Treasury Bills .... 4.95 22.64 69.70 306.90 647.52
Consumer Price Index .......... 3.32 15.01 43.49 172.57 401.86
</TABLE>
COMPOUND ANNUAL RETURNS
<TABLE>
<CAPTION>
1 YR. 5 YR. 10 YR. 20 YR. 31 YR.+
------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
MATHERS FUND .................. (0.07) 1.17 7.41 11.98 12.39
Standard & Poor's 500 ......... 22.95 15.20 15.27 14.55 11.18
Value Line Composite * ........ 16.17 11.30 8.20 11.00 7.34
Dow Jones Industrial Average .. 28.91 18.42 16.66 14.52 11.01
Long-Term U.S. Treasury Bonds.. (1.47) 8.86 9.33 9.51 7.47
30-Day U.S. Treasury Bills .... 4.95 4.17 5.43 7.27 6.62
Consumer Price Index .......... 3.32 2.84 3.68 5.14 5.28
* Unweighted average of 1600 stocks + From date of initial public offering: 8-19-65
</TABLE>
10 YEAR TOTAL RETURN COMPARISON
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered)
Mathers
Year Fund S&P 500 Index
<S> <C> <C>
1986 10000 10000
1987 12700 10490
1988 14440 12231
1989 15942 16096
1990 17600 15597
1991 19272 20339
1992 19869 21885
1993 20292 24095
1994 19095 24408
1995 20433 33569
1996 20329 41273
</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.
