<PAGE> 1
As filed with the Securities and Exchange Commission on April 30, 1997
1933 Act Registration No. 2-23727
1940 Act Registration No. 811-1311
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 56 [x]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 17
(Check appropriate box or boxes.)
MATHERS FUND, INC.
(Exact Name of Registrant as Specified in Charter)
100 Corporate North
Bannockburn, Illinois 60015
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (847) 295-7400
Andrew H. Shaw, Sidley & Austin, One First National Plaza,
Chicago, Illinois 60603
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
_x_ on May 1, 1997 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940, and Registrant's Rule 24f-2 Notice for its most recent fiscal year was
filed on February 28, 1997.
<PAGE> 2
MATHERS FUND
100 CORPORATE NORTH, SUITE 201
BANNOCKBURN, ILLINOIS 60015
(800) 962-FUND (847) 295-7400
PROSPECTUS
MAY 1, 1997
Mathers Fund, Inc. is a pure no-load* mutual fund, the primary objective of
which 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 as described herein when, for instance,
the adviser believes that the risk of owning equity securities is high. See
"Investment Objective and Policies."
*A PURE NO-LOAD FUND
<TABLE>
<CAPTION>
<S> <C>
-No Sales Charges -No 12b-1 Charges
-No Redemption Charges -No Reinvestment Charges
</TABLE>
This Prospectus should be read carefully and retained for future reference.
It sets forth concisely the information about the Fund that an investor should
know before investing. A Statement of Additional Information dated May 1, 1997
containing additional information about the Fund has been filed electronically
with the Securities and Exchange Commission (the "Commission") and is
incorporated by reference into this Prospectus. The Statement of Additional
Information is available without charge upon request made to the Fund at the
address and telephone number set forth above. The Commission also maintains a
web site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference, and other information regarding
registrants (including the Fund) that file electronically with the Commission.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 3
SYNOPSIS OF EXPENSE INFORMATION
The following table illustrates the Fund's expenses. The amounts shown are
based on the actual expenses and average net assets of the Fund for the fiscal
year ended December 31, 1996.
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases or Reinvested
Dividends.............................................. None
Deferred Sales Load....................................... None
Redemption Fee............................................ None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................... .74%
12b-1 Fees................................................ None
Other Expenses (principally transfer agent, legal,
auditing, custodian, taxes, registration and
printing).............................................. .29%
----
Total Fund Operating Expenses................ 1.03%
====
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return, and (2)
redemption at the end of each time period. As noted in the
table above, the Fund charges no redemption fees of any
kind ....................................................... $11 $33 $57 $126
</TABLE>
The purpose of the preceding tables and example is to assist investors in
understanding the various costs and expenses that an investor in the Fund will
bear, directly and indirectly. They should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The primary investment objective of Mathers Fund, Inc. is capital appreciation
over the long term principally through investment in common stocks; however, the
Fund also gives significant consideration to the preservation of capital and may
invest all or any portion of its assets in other securities, including
fixed-income securities, as described below.
There are market risks inherent in any investment, and there is no assurance
that the primary objective of the Fund will be realized or that any income will
be earned. Nor is there any assurance that the Fund's portfolio will not decline
in value.
The policy of the Fund is generally to invest in securities which are believed
to offer the possibility of an increase in value. Current income is a secondary
consideration in the selection of equity investments. To the extent that the
Fund's portfolio consists principally of common stocks, its net asset value may
be subject to greater volatility than a portfolio containing a substantial
amount of fixed-income securities.
However, no minimum or maximum percentage of the Fund's assets is required to
be invested in any type of security. The Fund may invest all or any portion of
its assets in U.S. Treasury bills, notes or bonds or, subject to certain
limitations, certificates of deposit, prime-rated commercial paper or repurchase
agreements (agreements under which the seller of a security agrees at the time
of sale to repurchase it at an agreed time and price) when general conditions
are believed to warrant such action or during periods when the adviser believes
that the risk of owning equity securities
2
<PAGE> 4
FINANCIAL HIGHLIGHTS
The table below presents financial highlights for each of the ten years in the
period ended December 31, 1996 based on the average number of shares of capital
stock outstanding throughout each year. This table has been derived from the
Fund's financial statements which have been audited by the Fund's independent
public accountants. The Fund's Annual Report to Shareholders, which may be
obtained upon request from the Fund without charge, contains further information
about the performance of the Fund.
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value per share --
beginning of period................ $ 13.75 $ 13.55 $ 15.11 $ 15.02 $ 15.06 $ 14.95 $ 14.52
-------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income.............. 0.40 0.601 0.563 0.21 0.500 0.84 0.95
Net realized and unrealized gains
(losses) on investments.......... (0.41) 0.349 (1.448) 0.11 (0.035) 0.56 0.56
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations................... (0.01) 0.950 (0.885) 0.32 0.465 1.40 1.51
-------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income........................... (0.47) (0.719) (0.675) (0.23) (0.505) (0.74) (0.84)
Distributions from net realized
capital gains.................... 0.00 (0.031) 0.000 0.00 0.000 (0.55) (0.24)
-------- -------- -------- -------- -------- -------- --------
Total distributions............ (0.47) (0.750) (0.675) (0.23) (0.505) (1.29) (1.08)
-------- -------- -------- -------- -------- -------- --------
Net asset value per share --
end of period...................... $ 13.27 $ 13.75 $ 13.55 $ 15.11 $ 15.02 $ 15.06 $ 14.95
======== ======== ======== ======== ======== ======== ========
Ratio of total expenses to average
net assets......................... 1.03% 0.98% 0.93% 0.89% 0.88% 0.94% 0.98%
Ratio of net investment income
to average net assets.............. 2.96% 4.25% 3.86% 1.39% 3.33% 5.39% 6.29%
Portfolio turnover rate............. 38% 58% 211% 136% 212% 80% 190%
Average commission rate paid per
share.............................. $ 0.051 -- -- -- -- -- --
Total return........................ (0.07%) 7.01% (5.89%) 2.13% 3.11% 9.45% 10.43%
Net assets, end of period
(000s omitted)..................... $171,596 $232,303 $293,285 $435,862 $554,162 $516,670 $299,707
<CAPTION>
Year Ended December 31
1989 1988 1987
-------- -------- --------
<S> <C> <C> <C>
Net asset value per share --
beginning of period................ $ 15.60 $ 14.46 $ 16.96
-------- -------- --------
Income from investment operations:
Net investment income.............. 0.89 0.34 0.43
Net realized and unrealized gains
(losses) on investments.......... 0.73 1.63 3.92
-------- -------- --------
Total from investment
operations................... 1.62 1.97 4.35
-------- -------- --------
Less distributions:
Dividends from net investment
income........................... (0.97) (0.33) (0.88)
Distributions from net realized
capital gains.................... (1.73) (0.50) (5.97)
-------- -------- --------
Total distributions............ (2.70) (0.83) (6.85)
-------- -------- --------
Net asset value per share --
end of period...................... $ 14.52 $ 15.60 $ 14.46
======== ======== ========
Ratio of total expenses to average
net assets......................... 1.01% 0.98% 0.82%
Ratio of net investment income
to average net assets.............. 5.45% 2.18% 2.37%
Portfolio turnover rate............. 303% 148% 202%
Average commission rate paid per
share.............................. -- -- --
Total return........................ 10.41% 13.73% 27.04%
Net assets, end of period
(000s omitted)..................... $214,608 $201,035 $151,528
</TABLE>
Effective May 1, 1988, the Fund entered into a new investment advisory agreement
which revised the advisory fee previously payable to the adviser.
- --------------------------------------------------------------------------------
is high. At such times, which may continue for extended periods, equity
securities may represent a relatively low percentage of the Fund's assets. For
instance, during most of 1989 through 1996, a majority of the Fund's assets were
invested in U.S. Treasury securities. The equity portion of the Fund's portfolio
was hedged to varying extents by short sales of Standard & Poor's 500 stock
index futures contracts throughout this period for the purpose of protecting the
Fund's assets from potential loss in a declining market. Fixed income
investments are subject to loss of principal as interest rates rise and may
entail other risks.
Securities of unseasoned companies, where the risks are considerably greater
than with common stock of more established companies, and securities of foreign
issuers, may be acquired by the Fund from time to time when the adviser believes
such investments offer the possibility of capital growth. However, not more than
5% of the Fund's assets may be
3
<PAGE> 5
invested in securities of companies which have a record of less than three
years' continuous operation (including the operation of any predecessor
business of a company which came into existence as a result of a merger,
consolidation, reorganization or purchase of substantially all of the assets of
such predecessor business), and not more than 10% of the Fund's assets may be
invested in securities of foreign issuers which are not publicly traded in the
United States.
The Fund may vary its equity exposure by hedging through the purchase of
exchange-traded put and call options on stock indices and/or the purchase or
sale of stock index futures contracts and options on such contracts. Stock index
options confer upon the holder the right to receive an amount of cash upon
exercise if the closing level of the underlying stock index is greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option. A stock index futures contract provides that a person with an open
position in such a contract will be entitled to receive, or will be obligated to
pay, cash amounts on a daily basis during the period such position is held based
on the difference between the current price level of such contract and the price
at which the contract is originally made. An option on a stock index futures
contract gives the holder the right, but not the obligation, to acquire either a
long or short position in such futures contract at a specified price.
The percentage fluctuation in the value of the Fund's investments in stock
index options and futures may be many times greater than those of the underlying
index, and investments in such options and futures are subject to certain other
risk factors. However, the total cost of outstanding stock index options
(determined as of the time of purchase) held by the Fund may not exceed 5% of
the Fund's net assets, and the Fund will not enter into stock index futures
contracts or options on such contracts if immediately thereafter the aggregate
initial margin and premiums (less the amount by which any such options are
"in-the-money" at the time of purchase) would exceed 5% of the value of the
Fund's total assets after taking into account any unrealized profits and losses
on such instruments.
The Fund may also purchase corporate debentures or notes (without limitation
as to rating) and preferred stocks, particularly those which are convertible
into or carry rights to acquire common stock, and warrants when such investments
appear to offer the possibility of appreciation in value.
The Fund will not enter into repurchase agreements except with State Street
Bank and Trust Company or invest over 10% of its assets in repurchase agreements
with maturities of over seven days. Underlying securities subject to a
repurchase agreement between the Fund and State Street are held in a segregated
account in which State Street holds assets on behalf of the Fund and others. If
State Street fails to repurchase any such securities, the Fund could experience
losses that include possible decline in their value while the Fund seeks to
enforce its rights, possible loss of all or a part of the income or proceeds of
the repurchase, possible loss of rights in such securities, and additional
expenses to the Fund in enforcing its rights.
While the Fund's objective is to seek capital appreciation over the long term,
individual securities are not necessarily purchased or held to qualify for
long-term capital gains treatment. A variety of factors other than the holding
period, including but not limited to financial market conditions, corporate
developments, other investment opportunities, Fund redemptions, tax
considerations and changed expectations, may be considered in determining
whether to sell a security. As a result, turnover in the Fund's portfolio may be
high.
The primary investment objective and the other policies described under this
caption are not fundamental policies and may be changed without shareholder
approval, except that the policies with respect to entering into stock index
futures contracts and options on such contracts are fundamental policies which
may not be changed without shareholder approval.
4
<PAGE> 6
MANAGEMENT AND OPERATION OF THE FUND
The business and affairs of the Fund are managed under the direction of its
Board of Directors. MATHERS AND COMPANY, INC., 100 CORPORATE NORTH, SUITE 201,
BANNOCKBURN, ILLINOIS 60015, (847) 295-7400, serves as investment adviser to the
Fund. The adviser is an investment counselling firm which has served as
investment adviser to the Fund since its inception in 1965 and as investment
adviser to pension and profit sharing funds, charitable foundations, insurance
company separate accounts and others since 1961. Henry G. Van der Eb, Jr.,
President of the adviser and Chairman and a Director of the Fund, owns a
majority of the outstanding shares of the adviser and is thus the controlling
person of the adviser.
Mr. Van der Eb, CFA, has been primarily responsible for the day-to-day
management of the Fund's portfolio for more than the last ten years. Robert J.
Reynolds, CFA, Senior Vice President of the adviser and President and a Director
of the Fund, and, to a lesser extent, Anne E. Morrissy, CFA, Vice President of
the adviser and Senior Vice President and Secretary of the Fund, also play
significant roles in such management.
Under its investment advisory agreement with the Fund, the adviser furnishes
continuous investment advisory services and management to the Fund, subject to
the authority of the Fund's Board of Directors. The adviser receives an annual
fee of 0.75% of the first $200,000,000 of the Fund's average net asset value,
plus 0.625% of such value in excess of $200,000,000 but not exceeding
$500,000,000, plus 0.50% of such value in excess of $500,000,000, payable
monthly and determined by valuations made as of the close of the previous month.
For 1996, the fee approximated 0.74% of the Fund's average net assets.
The Fund's total operating expenses for 1996 were approximately 1.03% of its
average net assets.
DST SYSTEMS, INC., P.O. BOX 419103, KANSAS CITY, MISSOURI 64141, serves as
transfer agent and dividend paying agent and performs shareholder accounting
services for the Fund.
DETERMINATION OF NET ASSET VALUE
The per share net asset value of the Fund is determined by dividing the total
value of its net assets (meaning its assets less its liabilities excluding
capital) by the total number of its shares outstanding at that time. The net
asset value is determined as of the close of regular trading on the New York
Stock Exchange on each day it is open for trading and on any other day such
determination is required by the rules and regulations of the Commission. This
determination is applicable to all share transactions prior to that time and
after the previous time of determination of net asset value. Accordingly,
purchase orders accepted or shares tendered for redemption prior to the close of
trading on a day the Exchange is open for trading will be valued as of the close
of trading, and purchase orders accepted or shares tendered for redemption after
that time will be valued as of the close of the next trading day.
Securities traded on any stock exchange or in the NASDAQ National Market
System will ordinarily be valued on the basis of the last sale price as of the
close of the New York Stock Exchange on the date of valuation, or, in the
absence of any sale on that date, the last reported bid price. Other securities
will generally be valued at the current bid price, if market quotations are
readily available. Short-term securities are valued at amortized cost. 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
Board of Directors.
PURCHASE OF SHARES
Shares are issued directly by the Fund. The price per share is the next
determined net asset value after acceptance of an application. See
"Determination of Net Asset Value".
A purchase application is enclosed on page 9. (A special application is
required for IRA and Keogh Plan accounts. See "Retirement Plans.")
5
<PAGE> 7
Purchase applications should be mailed directly
to:
MATHERS FUND, INC.
C/O DST SYSTEMS, INC.
P.O. BOX 419103
KANSAS CITY, MISSOURI 64141
or, if next-day delivery is desired, express mailed to:
MATHERS FUND, INC.
C/O DST SYSTEMS, INC.
1004 BALTIMORE AVENUE
KANSAS CITY, MISSOURI 64105
All applications must be accompanied by payment and are subject to acceptance
by the Fund. Payment for shares may be made by check, payable to Mathers Fund,
Inc., or, if a completed purchase application has been received and an account
established, by Federal funds wire transfer. Funds may be wire transferred
directly to Investors Fiduciary Trust Company, Kansas City, MO., using the
following instructions: INV/FID/KC, ABA No. 101003621, Mathers Fund A/C No. 750-
123-4, for credit to (shareholder's name and account number). The Fund does not
accept telephone orders and reserves the right to reject applications in whole
or in part. The Board of Directors of the Fund has established $1,000 as the
minimum initial purchase and $200 as the minimum for any subsequent purchase
(except through dividend reinvestment or participation in the automatic
investment program); these minimum amounts are subject to change at any time.
Stock certificates are not issued unless requested in writing. Requests for
certificates should be directed to DST at the above address.
AUTOMATIC INVESTMENT PROGRAM
Once the minimum initial purchase requirement is satisfied, a shareholder may
establish an automatic investment program whereby periodic investments (minimum
$50) may be made in shares of the Fund by the automatic debit of the
shareholder's bank account. Shareholders will be notified of the number of
shares purchased and the price following each investment. There is no obligation
to continue periodic investments and the shareholder may withdraw from the plan
at any time by giving written notice to the Fund or DST at their respective
addresses. No charge is made in connection with this service. An application
form for participation in the automatic investment program may be obtained from
the Fund by calling (800) 962-FUND.
RETIREMENT PLANS
The Fund makes available a retirement plan for self-employed individuals
(Keogh Plan), simplified employee pension plans (SEPs), and individual
retirement accounts (IRAs) for all individuals. The minimum initial investment
to establish an IRA, SEP or Keogh Plan account is $200. Unless a different
custodian is specified, Investors Fiduciary Trust Company, Kansas City,
Missouri, provides the custodial service for these accounts for an annual
maintenance fee which is currently $12.00 per account and is payable by the
shareholder. If the fee is not prepaid, it will be deducted from the
shareholder's account.
Applications and additional information concerning these plans and accounts
may be obtained from the Fund by calling (800) 962-FUND.
HOW TO REDEEM SHARES
A shareholder may request the Fund to redeem his shares in whole or in part on
any business day prior to the close of the market on the New York Stock
Exchange. Redemption requests must be made in writing and mailed to:
MATHERS FUND, INC.
C/O DST SYSTEMS, INC.
P.O. BOX 419103
KANSAS CITY, MISSOURI 64141
or, if next-day delivery is desired, express mailed to:
MATHERS FUND, INC.
C/O DST SYSTEMS, INC.
1004 BALTIMORE AVENUE
KANSAS CITY, MISSOURI 64105
If a redemption request is inadvertently sent to the Fund at its Bannockburn,
Illinois address, such request will be forwarded to DST but the
6
<PAGE> 8
effective date of redemption will be delayed until the request is received by
DST. Requests for redemption by telephone, telegram or facsimile and requests
which are subject to any special conditions or which specify an effective date
other than as provided herein cannot be honored. A request for redemption must
be signed by each shareholder exactly as the shares are registered, including
the signature of each joint owner. Signatures must be guaranteed if (i) the
redemption request is received within 30 days after an address change, (ii) the
amount being redeemed is $25,000 or greater, or (iii) the proceeds of redemption
are requested to be paid or sent to a person other than the registered holder or
holders of the shares to be redeemed or to an address other than the address of
record. In such cases, each signature on the redemption request should be
guaranteed. A signature guarantee may be obtained from a commercial bank or
trust company in the United States or a member firm of the New York Stock
Exchange. If certificates have been issued for any of the shares to be redeemed,
the certificates, properly endorsed or accompanied by a properly executed stock
power, must accompany the request for redemption. Additional documentation may
be required for redemptions by corporations, executors, administrators,
trustees, guardians or others who hold shares in a fiduciary or representative
capacity or are not natural persons. In case of any question concerning the
nature of such documentation, please call DST at (800) 235-7458 or the Fund at
(800) 962-FUND. Redemptions will not be effective or complete until all of the
foregoing conditions have been satisfied and documents received.
The redemption price is the net asset value per share next determined after
receipt by DST of the written request in proper form with all required
documentation. The amount received will depend on the market value of the Fund's
investments at the time of determination of net asset value, and may be more or
less than the original cost of the shares redeemed. A check in payment for
shares redeemed will be mailed to the holder no later than the seventh day after
receipt by DST of the redemption request in proper form and all required
documentation. However, payment of redemption proceeds may be delayed for a
period of up to 20 days after purchase pending clearance of any check delivered
in connection with the purchase of such shares.
The right to redeem shares of the Fund will be suspended for any period during
which the New York Stock Exchange is closed because of financial conditions or
any other extraordinary reason and may be suspended for any period during which
(i) trading on the Exchange is restricted, (ii) the Commission has by order
permitted such suspension or (iii) an emergency, as defined by rules and
regulations of the Commission, exists as a result of which it is not reasonably
practicable for the Fund to dispose of its securities or fairly to determine the
value of its net assets.
If the value of a shareholder's account (other than a retirement account)
drops to less than $1,000 (except as a result of market fluctuations), the Fund
reserves the right to redeem the shares in that account at net asset value after
providing 30 days' written notice to the shareholder.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to any shareholder who wishes to
withdraw a fixed sum or percentage (minimum $200 except for IRA, SEP or Keogh
Plan accounts) monthly, quarterly, semiannually or annually. Shares are redeemed
at the net asset value per share on or about the fifteenth day of any month
specified for a withdrawal and sent by check to the shareholder's address of
record. Alternatively, the proceeds may be wired to the shareholder's bank
account on any business day of the month. The initial withdrawal request must
meet all requirements for redemption as described under "How to Redeem Shares".
There is no charge for this service.
A form for participating in this withdrawal plan may be obtained by calling
the Fund at (800) 962-FUND.
7
<PAGE> 9
DIVIDEND REINVESTMENT
Unless a shareholder otherwise directs, all income dividends and capital gains
distributions are automatically reinvested in full and fractional shares of the
Fund, calculated to the nearest 1,000th of a share. Shares are purchased at the
net asset value per share next determined after the dividend declaration and are
credited to the shareholder's account. Stock certificates are not issued unless
requested in writing. Shareholders will be advised of the number of shares
purchased and the purchase price following each investment. A shareholder may
instead elect to receive all income dividends and capital gains distributions in
cash or to reinvest capital gains distributions and receive income dividends in
cash. Unless a Federal funds wire transfer is requested in writing, all cash
distributions will be made by check delivered by U.S. mail. If the U.S. Postal
Service cannot deliver the check, or if it remains uncashed for six months, it,
as well as future dividends and distributions, may at the option of the Fund
thereafter be reinvested in additional shares at the net asset value per share
on the day such shares are purchased. If a shareholder elects to have cash
distributions sent to an address other than the address of record or wire
transferred, a written request to such effect must be made (including wire
transfer instructions, if appropriate), and the shareholder's signature should
be guaranteed. A signature guarantee may be obtained from a commercial bank or
trust company in the United States or a member firm of the New York Stock
Exchange. An election to reinvest or receive dividends and distributions in cash
will apply to all shares of the Fund registered under the same account number,
including those previously purchased.
Shareholders may withdraw from the dividend reinvestment program and elect to
receive income dividends or all distributions in cash at any time. Any
shareholder who is not participating may elect to do so by giving written notice
to DST. If an election to withdraw from or participate in the dividend
reinvestment program is received between a dividend declaration date and payment
date, it will become effective on the day following the payment date. The Fund
may modify or terminate its dividend reinvestment program at any time on 30
days' notice to participants.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to distribute substantially all of its net investment income
(i.e., net income and gains exclusive of net long-term capital gains) and net
long-term capital gains, if any (computed after taking into account any
available capital loss carryover) to its shareholders each year. The Fund
qualified in 1996, and intends to remain qualified, as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. As a regulated
investment company, the Fund is not subject to Federal income tax on its income
and gains distributed to shareholders. If the Fund were to fail in any year to
so qualify under Subchapter M of the Code, it would become subject to a
corporate level tax and distributions to shareholders would generally be treated
as ordinary income.
Shareholders (except those who are not subject to tax on their income) are
subject to Federal income tax on distributions of net investment income and net
long-term capital gains, regardless of whether such distributions are paid in
cash or reinvested in shares of the Fund. Distributions by the Fund of its net
investment income will be taxable to shareholders as ordinary income, and will
qualify for the 70% dividends received deduction available to corporations to
the extent the Fund's net investment income consists of qualifying dividend
income from U.S. corporations. Distributions by the Fund of its net long-term
capital gains will be taxable to shareholders as long-term capital gain,
regardless of the length of time a shareholder has owned shares of the Fund, and
will not qualify for the dividends received deduction. There can be no assurance
that long-term capital gains treatment will be achieved with respect to any
portion of realized capital gains for any given tax year. Shareholders are
advised of the amount and nature of any income or gains. Distributions may also
be subject to state and local tax.
(Continued on p. 11)
8
<PAGE> 10
MATHERS FUND, INC. PURCHASE APPLICATION
(THIS APPLICATION IS NOT VALID FOR IRA OR KEOGH ACCOUNTS)
LOGO
<TABLE>
<CAPTION>
<S> <C> <C>
Regular mail: Express or overnight mail: Call (800) 962-FUND
Mathers Fund, Inc. Mathers Fund, Inc. with any questions
c/o DST Systems, Inc. c/o DST Systems, Inc.
P.O. Box 419103 1004 Baltimore Avenue Minimum Initial Investment $1,000
Kansas City, MO 64141 Kansas City, MO 64105
</TABLE>
I hereby apply for the purchase of $ ________ in full and fractional shares
of Mathers Fund, Inc. Capital Stock, in accordance with your current prospectus
dated May 1, 1997 (a copy of which I have received) and the terms and
instructions below and on the reverse side of this application (which I have
read). ALL
APPLICATIONS MUST BE ACCOMPANIED BY PAYMENT. CHECKS SHOULD BE MADE PAYABLE TO
MATHERS FUND, INC.
- --------------------------------------------------------------------------------
1. REGISTRATION--Please Print:
<TABLE>
<CAPTION>
<S><C>
[ ] Individual or
Joint Owners ----------------------------------------------------- ------------------------------
Name Social security number
-----------------------------------------------------
Name of joint owner (see note below)
[ ] Gift to
Minors ----------------------------------------------------- ------------------------------
Name of custodian (one name only) Minor's social security number
----------------------------------------------------- ------------------------------
Name of minor (one name only) Minor's state of residence
[ ] Corporation,
Partnership, ----------------------------------------------------- ------------------------------
Trust, Other Name of corporation or other entity Social security or tax I.D. number
(circle one)
----------------------------------------------------- ------------------------------
Name(s) of trustees If a trust, include date of trust
- -----------------------------------------------------------------------------
Street or P.O. Box [ ] U.S. citizen/resident alien
or
- -----------------------------------------------------------------------------
City State Zip Code [ ] Non-resident alien:
( )
- ----------------------------------------------------------------------------- ------------------------------
Daytime telephone number (Please specify country of tax
residency.)
</TABLE>
- --------------------------------------------------------------------------------
2. DISTRIBUTIONS--Please Check One:
[ ] Income dividends and capital gains distributions automatically
reinvested in additional shares.
[ ] Income dividends in cash with capital gains distributions
reinvested.
[ ] Income dividends and capital gains distributions in cash.
(If no election is checked, all income dividends and capital gains
distributions will be reinvested.)
- --------------------------------------------------------------------------------
3. SIGNATURES AND CERTIFICATIONS
NOTE: If shares are to be registered jointly, all owners must sign but only one
social security number should be given. Any registration in the names of two or
more co-owners will, unless otherwise specified, be as joint tenants with right
of survivorship and not as tenants in common. Shares may be registered in the
name of a custodian for a minor in accordance with the Uniform Gift to Minors
Act (UGMA) and any applicable state law. For a custodian registration, give
social security number of minor. If signing in other than individual capacity,
please indicate title or capacity.
Under penalties of perjury, I certify that: (1) The number shown on this
form is my correct social security number or taxpayer identification number, and
(2) I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
that I am subject to backup withholding as a result of a failure to report all
interest or dividends, or (c) the Internal Revenue Service has notified me that
I am no longer subject to backup withholding. (Cross out (2) above if you have
been notified by the Internal Revenue Service that you are currently subject to
backup withholding because of underreporting interest or dividends on your tax
return. The Internal Revenue Service does not require your consent to any
provision of this document other than certifications required to avoid backup
withholding.)
<TABLE>
<CAPTION>
<S><C>
Date
-------------- ---------------------------------------- ------------------------------------------
Signature Signature of Joint Owner (If Any)
</TABLE>
CONTINUED ON THE REVERSE SIDE.
9
<PAGE> 11
GENERAL TERMS
This application is subject to acceptance by the Fund in Bannockburn,
Illinois. The passage of title to and delivery of shares purchased (including
shares hereafter purchased through dividend reinvestment or otherwise), whether
or not certificates are issued, shall be deemed to take place in Illinois. The
applicant certifies that the applicant has full capacity to enter into this
subscription agreement. The purchase price shall be the net asset value next
determined after the time this application is accepted by the Fund.
INSTRUCTIONS RELATING TO IRS CERTIFICATIONS
The Fund is required by law to withhold Federal income tax at a rate of 31%
("backup withholding") from your dividends, capital gain distributions and
redemption payments if you do not provide the Fund with your social security or
other taxpayer identification number ("TIN") and certify that such number is
your correct TIN. In addition, the Fund is required to withhold from your
dividends and capital gain distributions (but not redemption payments) if you
fail to certify to the Fund that you are not subject to backup withholding.
Under the law, you are entitled to certify that you are not subject to backup
withholding unless the Internal Revenue Service (the "IRS") has notified you
that you are subject to backup withholding for failure to report interest or
dividends (and the IRS has not thereafter notified you that you are no longer
subject to backup withholding). Any such withholding applies to all dividends
and distributions, including those which would otherwise be invested in
additional shares of the Fund.
If you do not supply the Fund with your correct TIN, you may be subject to
a $50 penalty. If you falsify information on this form or make any other false
statement which results in a failure to implement backup withholding on an
account which should be subject to backup withholding, you may be subject to a
$500 penalty and to certain criminal penalties, including fines and
imprisonment.
10
<PAGE> 12
Any gain or loss realized upon the sale or exchange of shares of the Fund will
generally be treated as long-term capital gain or loss if the shares have been
held for more than one year, and otherwise as short-term capital gain or loss.
However, any loss realized by a shareholder upon the sale of shares held for six
months or less will be treated as long-term capital loss to the extent of any
distributions of net long-term capital gains received on such shares.
Additionally, any loss realized on the sale or exchange of shares of the Fund
will be disallowed to the extent the shares disposed of are replaced, through
the reinvestment of dividends or otherwise, during the 61-day period beginning
30 days before and ending 30 days after the shares are sold or exchanged.
PERFORMANCE INFORMATION
From time to time, the Fund may report its historical performance for various
periods on a total return basis in reports or other communications to
shareholders or in advertising material. Total return combines principal changes
and dividends for the periods shown. Principal changes are the difference
between the beginning and ending net asset values for a given period and assume
reinvestment of dividends. Dividends include income dividends and capital gains
distributions paid during the period. Percentage changes are determined by
subtracting the beginning net asset value from ending net asset value (computed
on a total return basis) and dividing the remainder by the beginning net asset
value.
The Fund's performance will vary from time to time and an investor's shares,
when redeemed, may be worth more or less than their original cost. Past results
should not be considered representative of future performance. Factors affecting
the Fund's performance include, among other things, general market conditions,
the composition of its portfolio, and operating expenses. See "Investment
Objective and Policies" and "Management and Operation of the Fund." No
adjustment is made in reporting performance for taxes payable by shareholders on
reinvested income dividends and capital gains distributions.
Comparative performance information or rankings may be used from time to time
in reports or other communications to shareholders or in advertising material.
CAPITAL STRUCTURE
The Fund is an open-end, diversified management investment company
incorporated in Maryland on March 31, 1965.
The Fund has only one class of authorized stock--Capital Stock, $1.00 par
value. Shareholders are entitled to one vote per full share, to such
distributions per share as may be declared by the Fund's Board of Directors out
of funds legally available therefor and upon liquidation to participate ratably
in the assets available for distribution. There are no conversion or sinking
fund provisions applicable to the shares, and the holders have no preemptive
rights and may not cumulate their votes in the election of directors. The shares
are redeemable (as described under "How to Redeem Shares" and "Determination of
Net Asset Value") and are transferable. All shares issued and sold by the Fund
will be fully paid and non-assessable.
The Fund is not required to hold annual meetings of shareholders in each year.
Under certain circumstances shareholders have the right to call for a meeting of
shareholders to consider the removal of one or more directors or for other
purposes.
SHAREHOLDER INQUIRIES
Shareholder inquiries relating to the status of a shareholder's account or to
the requirements for purchase or redemption of shares may be directed to:
MATHERS FUND, INC.
C/O DST SYSTEMS, INC.
P.O. BOX 419103
KANSAS CITY, MISSOURI 64141
(800) 235-7458
Other inquiries may be directed to:
MATHERS FUND, INC.
100 CORPORATE NORTH, SUITE 201
BANNOCKBURN, ILLINOIS 60015
(800) 962-FUND
Those shareholders who wish to obtain a Mathers Fund daily price and asset mix
via recorded message may call (800) 962-FUND after 4:30 p.m., Central time,
Monday through Friday.
11
<PAGE> 13
- --------------------------------------------------------------------------------
MATHERS FUND, INC.
100 Corporate North, Suite 201
Bannockburn, Illinois 60015
Investment Adviser
MATHERS AND COMPANY, INC.
Bannockburn, Illinois
Custodian
STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts
Transfer Agent
DST SYSTEMS, INC.
Kansas City, Missouri
Counsel
SIDLEY & AUSTIN
Chicago, Illinois
Auditors
ARTHUR ANDERSEN LLP
Chicago, Illinois
MATHERS FUND LOGO
PROSPECTUS
MAY 1, 1997
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
Synopsis of Expense Information........ 2
Investment Objective and Policies...... 2
Financial Highlights................... 3
Management and Operation of the Fund.. 5
Determination of Net Asset Value....... 5
Purchase of Shares..................... 5
Automatic Investment Program........... 6
Retirement Plans....................... 6
How to Redeem Shares................... 6
Systematic Withdrawal Plan............. 7
Dividend Reinvestment.................. 8
Dividends, Distributions and Taxes..... 8
Purchase Application................... 9
Performance Information................ 11
Capital Structure...................... 11
Shareholder Inquiries.................. 11
</TABLE>
<PAGE> 14
MATHERS FUND, INC.
Suite 201
100 Corporate North
Bannockburn, Illinois 60015
(800) 962-FUND
(847) 295-7400
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. A copy of
the Prospectus dated May 1, 1997 (the "Prospectus") of the Fund may be obtained
without charge by writing or telephoning the Fund at the address and telephone
number set forth above. The Prospectus provides basic information about the
Fund. This Statement of Additional Information contains information in
addition to and more detailed than that set forth in the Prospectus, and should
be read in conjunction with the Prospectus.
TABLE OF CONTENTS
Investment Practices and Restrictions..................... 2
Fixed-Income Securities............................. 2
Stock Index Options................................. 2
Stock Index Futures Contracts and Options on
Such Contracts................................... 3
Fundamental Policies................................ 6
Nonfundamental Policies............................. 7
General............................................. 8
Directors and Officers of the Fund........................ 9
Code of Ethics............................................ 11
Principal Holders of the Fund's Shares.................... 12
Investment Adviser........................................ 12
Investment Advisory Agreement............................. 12
Brokerage................................................. 13
Purchase, Redemption and Pricing of Shares................ 15
Retirement Programs....................................... 16
Tax Status................................................ 18
Description of Shares..................................... 21
Custodian and Independent Accountants..................... 21
Performance Information................................... 21
Financial Statements...................................... 22
May 1, 1997
<PAGE> 15
INVESTMENT PRACTICES AND RESTRICTIONS
A general discussion of the Fund's investment objective and policies
appears in the Prospectus under "Investment Objective and Policies."
Fixed-Income Securities
As discussed on pages 2-4 of the Prospectus, the Fund may, subject to the
limitation described in paragraph 3 under "Fundamental Policies" below, invest
all or any portion of its assets in high quality fixed-income securities which
may include the following: (1) U.S. treasury bills, notes or bonds; (2)
banker's acceptances and certificates of deposit of the 50 largest commercial
banks in the United States, measured by total assets as shown by their most
recent annual financial statements; (3) commercial paper rated A-l or A-2 by
Standard & Poor's, Inc. ("S&P") or P-l or P-2 by Moody's Investors Service,
Inc. ("Moody's"), or, if not rated, issued by companies having an outstanding
debt issue rated AA or better by S&P or Aa or better by Moody's; and (4)
repurchase agreements with respect to the foregoing.
Stock Index Options
As discussed on page 4 of the Prospectus, the Fund may, subject to the
limitation described in paragraph 7 under "Nonfundamental Policies" below,
purchase put and call options on stock indices for hedging purposes in
circumstances believed appropriate by the adviser. Stock index options are
issued by the Options Clearing Corporation ("OCC"). The Fund will only
purchase stock index options which are traded on a national securities exchange
such as the Chicago Board Options Exchange, Inc. Upon purchase of a stock
index option, the Fund will pay a purchase price (the "premium") and brokerage
commissions and fees (collectively, together with the premium, "transaction
costs"). Such options confer upon the holder the right to receive upon
exercise an amount of cash which is based on the difference between the
exercise price of the option and the closing level of the underlying stock
index on the exercise date multiplied by a specified dollar amount. The right
to receive any cash amount depends on the closing level of the stock index upon
which the option is based being greater than (in the case of a call) or less
than (in the case of a put) the exercise price of the option.
A stock index option may be exercised only during its remaining life and
may be sold prior to expiration. The value of an option will generally vary
directly in the case of a call, and inversely in the case of a put, with
movements in the underlying index, and the percentage fluctuations in the value
of an option may be many times greater than those of the underlying index. The
adviser may purchase call index options as a hedge against an
2
<PAGE> 16
increase in the price of securities generally in connection with either sales
of portfolio securities or deferrals to a later date of purchases of securities
it may desire to purchase. Put index options may be purchased as a hedge
against a decline in the price of securities generally rather than selling
portfolio securities.
Any protection provided by stock index options is effective only against
changes in the level of a stock index and not necessarily against a change in
the value of individual securities. Thus, the effectiveness of the use of
stock index options as a hedge is dependent on the extent to which price
movements of individual securities which are being hedged correlate with price
movements in the underlying stock index. Unless a stock index option can be
sold or can be exercised at a profit prior to expiration, the Fund will forfeit
the entire amount of its transaction costs, often in a relatively short period
of time. Any profit that may be realized from the sale or exercise of stock
index options will be reduced by related transaction costs.
Stock Index Futures Contracts and Options on Such Contracts
As discussed on pages 3-4 of the Prospectus, the Fund may, subject to the
limitation described in paragraph 8 under "Nonfundamental Policies" below,
invest in stock index futures contracts and options on such contracts for
hedging purposes in circumstances believed to be appropriate by the adviser. A
stock index futures contract provides that a person with an open position in
such a contract will be entitled to receive, or will be obligated to pay, cash
amounts on a daily basis during the period such position is held based on the
daily changes in the difference between the price at which the contract is
originally made and the current level of the underlying stock index multiplied
by a specified dollar amount. An option on a stock index futures contract
gives the holder (purchaser) the right, but not the obligation, in return for
payment of the premium (option price), to acquire either a long or a short
position (a long position if the option is a call and a short position if the
option is a put) in such futures contract at a specified exercise price at any
time during the option exercise period. The writer of the stock index futures
option is required upon exercise to assume the opposite position on the stock
index futures contract.
The Fund's transactions in stock index futures contracts will be executed
on U.S. boards of trade designated by the Commodity Futures Trading Commission
("CFTC") as contract markets ("contract markets") through a futures commission
merchant (an "FCM") which is a member of the relevant contract market. The
contract markets, through their clearing houses, effectively guarantee that the
payments due with respect to stock index futures contracts will be made so that
traders need not rely solely on the solvency of individual traders or brokers
for
3
<PAGE> 17
the satisfaction of the obligations under open positions. However, in the
event of a bankruptcy of the Fund's broker, the Fund may be unable to recover
its assets -- even assets directly traceable to the Fund -- from such broker.
At the time the Fund enters into a stock index futures contract, it is
required to deposit as "initial margin" a specified amount of cash or cash
equivalents per contract. Thereafter, subsequent payments of "variation
margin" are made daily to or from the FCM based upon daily changes in the value
of the contract (a process known as "marking to market"). Initial margin is in
the nature of a performance deposit which is returned to the Fund unless it
defaults in making variation margin payments. Variation margin is the
settlement made each day between the Fund and the FCM based upon fluctuations
in the price level of such contracts, which under normal market conditions
directly reflect fluctuations in the level of the stock index on which the
contract is based. A person with a long position in a stock index futures
contract (purchaser) will be entitled to receive payments to the extent that
the market price level of such futures contract increases above the level at
which he acquired his long position, and will be obligated to make payments to
the extent that such market price level falls below the acquisition price
level. The converse is the case for a person with a short position in a stock
index futures contract (seller).
Upon exercise of a stock index futures option, the simultaneous
acquisition of open positions in the underlying stock index futures contract by
the person exercising the option and the writer is accomplished by delivery for
the account of the person exercising the option of the accumulated cash balance
in the writer's futures margin account which represents the amount by which the
market price of the stock index futures contract, at exercise, exceeds (in the
case of a call) or is less than (in the case of a put) the strike price of the
stock index futures option. If the stock index futures option is exercised on
the last trading day for such option, the writer delivers to the holder cash in
an amount equal to the difference between the option strike price and the
closing level of the relevant stock index on the date the option expires.
Pursuant to limitations imposed by the Securities and Exchange Commission
("SEC"), the Fund will not sell stock index futures contracts if, immediately
thereafter, the aggregate underlying value of all such stock index futures
contracts would exceed the total market value (or, if higher, a
volatility-adjusted value) of the Fund's portfolio securities (although it is
possible that the value of all such futures contracts could exceed such total
market value or such volatility-adjusted value of portfolio securities due to
subsequent market movements), and the Fund will not purchase stock index
futures contracts unless it maintains with its custodian in a segregated
account cash or
4
<PAGE> 18
cash equivalents in an amount equal to the market value of all such stock index
futures contracts (less the amount of initial margin deposits with respect
thereof).
The Fund has obtained from the Commodity Futures Trading Commission (the
"CFTC") an exclusion from registration as a "commodity pool operator" pursuant
to the regulations under the Commodity Exchange Act.
The Fund may purchase and sell stock index futures contracts and options
on such contracts as a hedge against market fluctuations in its portfolio of
equity investments or as a means of quickly and efficiently converting the
Fund's cash into an equity position. For example, the Fund might use stock
index futures contracts to hedge against fluctuations in the general level of
stock prices which might adversely affect either the value of the Fund's
portfolio securities or the price of securities which the Fund intends to
purchase. The Fund's hedging may include sales of stock index futures
contracts as an offset against the effect of expected declines in stock prices
and purchases of stock index futures contracts as an offset against the effect
of expected increases in stock prices.
Several risk factors are associated with trading stock index futures
contracts and options on such contracts. These risks include: (i) an imperfect
correlation, limiting the effectiveness of any hedge the Fund may attempt in
the futures markets, between the change in market value of the stocks in the
Fund's portfolio and the prices of stock index futures contracts and options on
such contracts in the Fund's portfolio due to the stocks held by the Fund not
fully replicating the stocks underlying the relevant stock index; (ii) possible
illiquidity in the markets for stock index futures contracts and options on
such contracts which could result in the Fund's inability to close out an
existing position resulting in a continuing exposure to adverse price
movements; (iii) the highly leveraged nature of stock index futures contracts
and options on such contracts, resulting in extreme volatility in the value of
such contracts as a percentage of the Fund's assets committed to such positions
in the form of futures margins or option premiums; (iv) the fact that the
decision of whether, when and how to hedge involves the exercise of skill and
judgment, and unless the Fund's investment adviser correctly predicts market
movements it is possible that as to a particular hedge the Fund would have been
better off had a decision to hedge not been made; and (v) the possibility that
a stock index futures option purchased by the Fund may expire worthless, in
which case the Fund would lose the premium paid for it as well as related
transaction costs. In addition, in response to the market turbulence in
October 1987, certain contract markets have adopted rules requiring the
cessation of trading for specified periods in the event of certain substantial
intra-day price changes and overall daily price fluctuation
5
<PAGE> 19
limits (the maximum amount that the price of a stock index futures contract may
vary up or down from the previous day's settlement price). The Federal Reserve
Board has the authority to oversee the levels of required margin on stock index
futures and options. The Federal Reserve Board or the CFTC, acting pursuant to
delegated authority, could require that minimum margin levels be set at levels
which exceed those historically applied by the contract markets.
The price level of a stock index futures contract should be determined by
the current level of the related stock index, after adjustment to reflect that
a person with a long open futures position will receive interest on the funds
he otherwise would have had to use to acquire the stocks which comprise such
index but, at the same time, will receive no dividends on his futures position
as he would have if he had actually acquired such stocks. In turbulent market
conditions, however, the price level of stock index futures contracts can
become disassociated from the level of the related stock index (as, in fact,
happened during October 1987), materially impairing the usefulness of the stock
index futures markets for hedging stock positions.
Fundamental Policies
The Fund has adopted certain fundamental investment restrictions which may
not be changed without approval of the holders of the lesser of: (i) 67% of
the Fund's shares present or represented at a shareholders meeting at which the
holders of more than 50% of such shares are present or represented, or (ii)
more than 50% of the outstanding shares of the Fund. Under its fundamental
investment restrictions, the Fund may not:
1. Purchase securities on margin (except that the Fund may make margin
payments in connection with transactions in stock index futures contracts and
options on such contracts), participate in a joint-trading account (the
bunching of securities transaction orders with orders of other accounts managed
by the adviser not being considered participation in a joint-trading account
for this purpose), sell securities short (except that the Fund may purchase or
sell stock index futures contracts and options on such contracts), act as an
underwriter or distributor of securities other than shares of the Fund, lend
money (except by purchasing publicly distributed debt securities or entering
into repurchase agreements) or purchase or sell commodities or commodity
futures (except that the Fund may purchase or sell stock index futures
contracts and options on such contracts) or real estate (marketable securities
of companies whose business involves the purchase or sale of real estate,
including real estate investment trusts, not being considered real estate for
this purpose).
2. Borrow money or issue senior securities, except for temporary bank
borrowings (not in excess of 5% of the value
6
<PAGE> 20
of its assets) for emergency or extraordinary purposes, or pledge any of its
assets (collateral arrangements with respect to margin for stock index futures
contracts and options on such contracts not being considered a pledge of assets
for this purpose), except to secure such borrowings and only to an extent not
greater than 10% of the value of the Fund's net assets. The Fund has not,
however, employed the practices of borrowing money, issuing senior securities
or pledging any of its assets nor does it intend to employ such practices in
the absence of unforeseen circumstances.
3. Purchase debt securities other than those which are publicly held
(repurchase agreements not being considered debt securities for this purpose).
4. Purchase securities of other investment companies, except on the open
market where no profit or commission results other than the broker's
commission, or as part of a plan of merger, consolidation or reorganization
approved by the shareholders of the Fund.
5. Make investments for the purpose of exercising control or management of
any company.
6. Purchase securities of any issuer (other than the United States or an
instrumentality of the United States) if, as a result of such purchase, the
Fund would hold more than 10% of the voting securities of any class of such
issuer or more than 5% of the Fund's assets would be invested in securities of
such issuer.
7. Concentrate more than 25% of the value of its assets, exclusive of
government securities, in securities issued by companies primarily engaged in
the same industry.
8. Acquire or retain any security issued by a company, an officer or
director of which is an officer or director of the Fund or an officer, director
or other affiliated person of its investment adviser.
Nonfundamental Policies
The Fund has adopted the following nonfundamental policies which may be
changed without shareholder approval. The Fund will not:
1. Purchase any securities which are restricted from sale to the public
without registration under the Securities Act of 1933.
2. Purchase any interest in any oil, gas or any other mineral exploration
or development program or, except for options
7
<PAGE> 21
on stock indices as set forth in paragraph 7 below, invest in put and call
options.
3. Purchase any security if, as a result of such purchase, the Fund would
hold more than 10% of any class of the securities of an issuer.
4. Acquire or retain any security issued by a company if the directors or
officers of the Fund or directors, officers or other affiliated persons of its
investment adviser beneficially owning more than 1/2% of such company's
securities together own more than 5% of its securities.
5. Enter into repurchase agreements, except with State Street Bank and
Trust Company, or invest over 10% of its assets in repurchase agreements with
maturities of more than seven days.
6. Invest over 10% of its net assets in securities of foreign issuers
which are not publicly traded in the United States.
7. Purchase put and call options on stock indices if the total cost
(determined as of the time of purchase) of all such options held by the Fund
would exceed 5% of the value of the Fund's net assets considered each time such
an option is acquired.
8. Enter into stock index futures contracts or options on such contracts
if immediately thereafter the aggregate initial margin and premiums (less the
amount by which any such options are "in-the-money" at the time of purchase)
would exceed 5% of the value of the Fund's total assets after taking into
account any unrealized profits and losses on such instruments.
9. Invest more than 5% of its net assets in warrants (valued at the lower
of cost or market value) or more than 2% of its net assets in warrants not
listed on the New York or American Stock Exchange (warrants acquired by the
Fund in units or attached to securities to be considered without value for
these purposes).
General
Any percentage limitations referred to in the above investment
restrictions are determined at the time a purchase or initial investment is
made and any subsequent change in any applicable percentage resulting from
market fluctuations does not require elimination of any security from the
Fund's portfolio.
The Fund's fundamental investment restriction as to concentration
described in paragraph 7 under "Fundamental Policies" above, does not apply to
investments in government
8
<PAGE> 22
securities (e.g., U.S. Treasury securities) since their issuers are not members
of any industry. The Fund includes government securities in determining the
value of all of its assets for purposes of calculating the percentage of the
value of its assets invested in issuers primarily engaged in an industry.
The Fund may invest, without limitation under the nonfundamental policy
described in paragraph 6 under "Nonfundamental Policies" above, in foreign
securities that are U.S. dollar denominated and are publicly traded in the
United States and in U.S. dollar denominated American Depositary Receipts
(receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer). As of December 31, 1996,
none of the Fund's net assets were invested in securities of foreign issuers.
Dividends and interest on securities of foreign issuers may be subject to
foreign withholding tax, which would reduce the Fund's income without providing
a tax credit for the Fund's shareholders. Other risks of investing in foreign
securities include political, social or economic instability in the country
where the issuer is domiciled, the difficulty of predicting international trade
patterns, exchange rate fluctuations, and, in certain countries, the
possibility of expropriation or diplomatic developments that could affect
investments in those countries. In addition, less information may be publicly
available about a foreign company than about a domestic company, foreign
companies may not be subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies, and
securities of some foreign companies may be less liquid and more volatile than
securities of comparable U.S. companies.
The Fund may purchase securities in underwritten prospectus offerings,
including so-called "hot" initial public offerings, but will generally do so on
the basis of fundamental investment considerations, not supply and demand
considerations.
DIRECTORS AND OFFICERS OF THE FUND
Name and Address Position(s) held with Fund
- ------------------------------ ----------------------------
Henry G. Van der Eb, Jr., CFA Chairman and Director*
100 Corporate North
Bannockburn, Illinois 60015
Robert J. Reynolds, CFA President and Director*
100 Corporate North
Bannockburn, Illinois 60015
Karl M. Becker Director
31 Hearthwood Drive
Hilton Head Island, SC 29928
9
<PAGE> 23
Tyler R. Cain Director
3 Market Square Court
Lake Forest, Illinois 60045
Charles G. Freund Director
30 Plymouth Court
Lincolnshire, Illinois 60069
Anne E. Morrissy, CFA Senior Vice President
100 Corporate North and Secretary
Bannockburn, Illinois 60015
Lawrence A. Kenyon, CPA Senior Vice President and
100 Corporate North Chief Financial Officer
Bannockburn, Illinois 60015
Edith L. Cook Vice President and Treasurer
100 Corporate North
Bannockburn, Illinois 60015
Mary Anne Kinnucan Vice President
100 Corporate North
Bannockburn, Illinois 60015
Heidi M. Stubner Vice President
100 Corporate North
Bannockburn, Illinois 60015
* Interested director under the Investment Company Act of 1940.
Mr. Van der Eb and Mr. Reynolds have been employed by Mathers and Company, Inc.
since 1970 and 1982, respectively. Ms. Morrissy, Mr. Kenyon, Ms. Cook and Ms.
Kinnucan have each been employed by Mathers and Company, Inc. for more than
five years. Ms. Stubner has been employed by Mathers and Company, Inc. since
January 1994. For more than four years prior thereto, she was an
administrative assistant with Video Jet Systems International, a manufacturer
of ink-jet equipment.
Mr. Becker is an attorney. He served as Senior Vice President and General
Counsel of Beatrice Company, a food company, from 1988 to 1990. Mr. Cain has
been president and sole shareholder of TRC Trading, Inc., a private investment
company, for more than the last five years. For more than five years
10
<PAGE> 24
prior to his retirement in 1986, Mr. Freund was Vice President, Secretary and
Treasurer of MidCon Corp., a natural gas pipeline company.
The Fund does not pay any fees to its directors who are considered
"interested persons" of the Fund or the adviser, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). The aggregate compensation
paid by the Fund during its fiscal year ended December 31, 1996 to the members
of the board who are non-interested directors is set forth below. The adviser
does not provide investment advisory services to any other registered
investment company, and therefore the Fund's directors receive compensation
only from the Fund. The Fund does not maintain any deferred compensation,
pension or retirement plans, and no pension or retirement benefits are accrued
as part of Fund expenses.
Aggregate
Name of Non-Interested Compensation
Director of the Fund from the Fund
---------------------- -------------
Karl M. Becker $9,000
Tyler R. Cain $8,000
Charles G. Freund $9,000
As of March 31, 1997, the directors and officers of the Fund, as a group,
beneficially owned 284,756, or 2.39% of the Fund's outstanding shares,
including the shares held in the Employees' Profit Sharing and Savings Trust of
the adviser.
CODE OF ETHICS
The Fund and the adviser have adopted a Code of Ethics which is designed
to restrict their affiliated personnel from engaging in personal investment
activities in conflict with the interests of the Fund. The Code of Ethics
complies in all material respects with the recommendations set forth in the
May 9, 1994 Report of the Advisory Group on Personal Investing of the
Investment Company Institute.
11
<PAGE> 25
PRINCIPAL HOLDERS OF THE FUND'S SHARES
As of March 31, 1997, no person owned of record or was known by the Fund
to own beneficially more than 5% of the Fund's outstanding shares except for
Edward Pauls, who owned of record 11.4% of the Fund's outstanding shares as of
such date.
INVESTMENT ADVISER
Under an investment advisory agreement with the Fund, Mathers and Company,
Inc., 100 Corporate North, Suite 201, Bannockburn, Illinois, furnishes
continuous investment advisory services and management to the Fund. The
adviser receives an annual fee of 0.75% of the first $200,000,000 of the Fund's
average net asset value, plus 0.625% of such value in excess of $200,000,000
but not exceeding $500,000,000, plus 0.50% of such value in excess of
$500,000,000, payable monthly and determined by valuations made as of the close
of the previous month. The fees paid by the Fund to the adviser for 1996, 1995
and 1994 were $1,451,059, $1,906,941 and $2,465,719, respectively.
Mr. Van der Eb, CFA, an officer and director of the Fund, is President and
a director of the adviser, and Mr. Reynolds, CFA, is Senior Vice President and
Secretary, Ms. Morrissy, CFA, is Vice President, Mr. Kenyon, CPA, is Vice
President, Treasurer and Assistant Secretary, and Ms. Cook is Vice President
and Assistant Treasurer of the adviser. Mr. Van der Eb owns a majority of the
outstanding shares of the adviser and is the controlling person of the adviser.
Gabelli Funds, Inc. ("Gabelli") owns a non-controlling interest in the
adviser. Such interest is subject to certain put and call options between
Gabelli and the adviser which may be exercised at future dates.
Mr. Van der Eb has been primarily responsible for the day-to-day
management of the Fund's portfolio for more than the last ten years. Mr.
Reynolds and, to a lesser extent, Ms. Morrissy also play significant roles in
such management.
INVESTMENT ADVISORY AGREEMENT
The investment advisory agreement was approved by the shareholders of the
Fund on April 20, 1988. The directors last approved the continuation of the
investment advisory agreement on April 14, 1997, by the votes of directors
described in the following paragraph. Under the agreement, the adviser, at its
own expense and without reimbursement from the Fund, furnishes office space,
office facilities, equipment, personnel (including executive officers but
excluding the services of directors who are not affiliated persons of the
adviser) and clerical and bookkeeping services for managing the assets of the
Fund, and bears all sales and promotional expenses of the Fund, other than
12
<PAGE> 26
expenses incurred in complying with laws regulating the issuance or sale of
securities. The Fund bears all other expenses of its operations (principally
transfer agent, legal, auditing, custodian, taxes, shareholder communication
expenses, registration and printing proxy material, shareholder reports,
prospectuses sent to existing shareholders and filed with regulatory
authorities, and toll-free telephone expense for use by existing shareholders),
but is entitled to be reimbursed annually by the adviser for any expenses,
other than taxes, in excess of 1-1/2% of the first $30,000,000 of its average
net asset value plus 1% of such value in excess of $30,000,000 for each year,
in each case as determined by evaluations made as of the close of each month
of the year. Brokerage commissions are not treated as expenses for purposes of
this limitation.
The agreement is not assignable and may be terminated by either party,
without penalty, on 60 days' notice. Otherwise, the agreement will continue in
effect until April 30, 1998 (unless sooner terminated), and thereafter from
year to year so long as it is approved annually (a) by vote of a majority of
the directors of the Fund who are not "interested persons" of the Fund or of
the adviser, as defined in the 1940 Act, cast in person at a meeting called for
the purpose of voting on such approval, and (b) either by the Board of
Directors or by the vote of shareholders described in the first paragraph under
"Investment Practices and Restrictions -- Fundamental Policies."
The agreement provides that the services of the adviser to the Fund are
not to be deemed exclusive and that the adviser may furnish similar services to
others so long as the services to the Fund are not impaired thereby. The
adviser currently serves as investment adviser to other accounts, primarily
long-term investment accounts, including pension funds, insurance company
separate accounts, individuals and others. The adviser maintains investment
allocation policies intended to afford each of its accounts fair treatment over
time.
BROKERAGE
In placing purchase and sale orders of portfolio securities for the Fund,
the adviser's policy is to seek the best execution of orders at the most
favorable prices in light of the overall quality of brokerage and research
services provided, as described in this and the following paragraphs. In
selecting brokers to effect portfolio transactions, the determination of what
is expected to result in best execution at the most favorable price involves a
number of largely judgmental considerations. Among these are the adviser's
evaluation of the broker's efficiency and reliability in executing and clearing
transactions, block trading capability (including the broker's willingness to
position securities) and the broker's financial strength and stability. The
most favorable price to the Fund
13
<PAGE> 27
means the best net price without regard to the mix between purchase or sale
price and commission, if any. Primary market makers are generally used for
transactions in the over-the-counter market except in those instances where the
adviser believes better execution or a more favorable price is obtainable
elsewhere, such as through Instinet or other non-NASDAQ execution services.
The Fund's orders for the purchase and sale of a particular security may be
aggregated with contemporaneous orders for the accounts of other clients of the
adviser for execution as a single transaction with a broker or a dealer.
In allocating brokerage business for the Fund, the adviser also takes into
consideration the research, analytical, statistical and other information and
services provided by the broker, including but not limited to general economic
reports, performance measurement and portfolio analysis reports, computer-based
equity valuation models, reports or analyses of particular companies or
industry groups, market timing and technical information and the availability
of the brokerage firm's analysts for consultation. Consistent with the safe
harbor provided by Section 28(e) of the Securities Exchange Act of 1934, a
higher brokerage commission than might be negotiated or be available from
another broker may be paid where the adviser believes the amount is reasonable
in recognition of the overall quality and value of the brokerage and research
services provided by the broker. While the adviser believes these services
have substantial value, they are considered supplemental to the adviser's own
efforts in the performance of its duties under the investment advisory
agreement.
Arrangements exist with broker-dealers whereby the adviser obtains
computerized stock quotation and news services, performance and ranking
services, portfolio analysis services and other research services in exchange
for the direction of portfolio transactions which generate dealer concessions
or brokerage (agency) commissions for such broker-dealers. From time
to time, the adviser may make other similar arrangements with brokers or
dealers which agree to provide research services in consideration of dealer
concessions or brokerage commissions. Although the adviser has not done so in
the past, the adviser may also allocate brokerage to brokers or dealers who
recommend the purchase of shares of the Fund to their clients. Consistent with
the adviser's fiduciary duties to the Fund, brokerage will be directed to such
brokers or dealers pursuant to any such arrangement only when the adviser
believes that the commissions charged are reasonable in relation to the value
and overall quality of the brokerage and research services provided. During
1996, the total amount of Fund brokerage transactions and related brokerage
commissions directed in consideration of research services provided to the
adviser were $20,989,230 and $69,634, respectively, exclusive of dealer
concessions from underwritten offerings.
14
<PAGE> 28
Some research services furnished by brokers and dealers through whom the
adviser effects securities transactions may be used in servicing all of its
accounts and not all such services may be used in connection with the accounts
which paid commissions to the broker providing such services.
During 1996, 1995 and 1994, the Fund paid total brokerage commissions of
$532,849, $376,212 and $1,000,484, respectively, virtually all of which was
paid to firms providing research as well as brokerage services. The Fund's
annual portfolio turnover rate is set forth in the Prospectus under "Financial
Highlights." Portfolio turnover has tended to be high in certain years over
the past decade. Several factors have contributed to this, including (i) a
volatile market, combined with a willingness of the adviser to respond to
certain market conditions believed by the adviser to warrant holding a security
for a period shorter than the long-term, (ii) the adviser's willingness to
invest in fixed income securities with maturities greater than one year (which,
unlike short-term debt instruments, are included in calculating portfolio
turnover) under the circumstances described in the Prospectus and (iii) the
requirement that more than 70% of the Fund's gains from the sale of securities
be from securities held three months or more (see "Tax Status"), together with
the fact that the Fund has made use of hedging techniques the gains (if any)
from which generally do not satisfy such requirement.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For a general discussion of how shares of the Fund are purchased and
redeemed and how the Fund values such shares for such purposes, see
"Determination of Net Asset Value," "Purchase of Shares," "Automatic Investment
Program," "How to Redeem Shares" and "Systematic Withdrawal Plan" in the
Prospectus. Such discussions are incorporated herein by reference.
Stock index futures contracts held by the Fund are valued at the
close-of-trading settlement price established each day by the exchange on which
they are traded, and options on stock index futures and options on cash stock
indices are valued at their daily end-of-trading closing prices on the
exchanges on which they are traded.
The Fund does not consider the U.S. Postal Service or express mail
delivery services to be its agents. Therefore, deposit in the mail or with
such services, or receipt at the post office box of DST Systems Inc., the
Fund's transfer agent, of purchase applications (or redemption requests) does
not constitute receipt by DST or the Fund.
The Fund, at its discretion, may permit an investor to purchase shares of
the Fund at net asset value in exchange for
15
<PAGE> 29
securities held by the investor, provided that the Fund's acquisition of such
securities is consistent with its investment policies. For purposes of
determining the number of Fund shares to be received in exchange for any
accepted securities, the Fund will value such securities in the same manner as
is used by the Fund to value its own assets. For more information on this
method of purchase, please contact the Fund at 100 Corporate North, Suite 201,
Bannockburn, Illinois 60015, (800) 962-FUND.
Broker-dealers which effect purchases or sales of shares of the Fund on
behalf of their customers may impose a transaction charge on such customers for
performing such services. No such transaction charge is imposed if shares are
purchased directly from the Fund, without the employment of the services of a
broker-dealer.
RETIREMENT PROGRAMS
The Fund makes available a Retirement Plan for Self-Employed Individuals
("Keogh Plan") with both money purchase pension plan and profit sharing plan
options, Simplified Employee Pension Plans ("SEPs") and Individual Retirement
Accounts ("IRAs"). Contributions to each are invested, and dividends and
distributions are automatically reinvested, in shares of the Fund. Generally,
the maximum contribution allowable each year to an IRA is the lesser of $2,000
and 100% of compensation includible in gross income for the year, and the
maximum annual contribution allowable to a Keogh Plan is the lesser of (i)
$30,000 and (ii) 25% of an employee's compensation or a self-employed
individual's earned income (net earnings reduced by Keogh Plan contributions)
for the year. Additionally, the maximum deduction allowable each year for
contributions to the profit sharing plan option of a Keogh Plan is, generally,
15% of an employee's compensation or a self-employed individual's earned income
(net earnings reduced by Keogh Plan contributions) for the year. Under a SEP,
an employer, or self-employed individual, is permitted to contribute a
discretionary amount each year up to the lesser of $30,000 or 15% of an
employee's compensation for the year, or a self-employed individual's earned
income (net earnings reduced by SEP contributions) for the year, into an
individual IRA for each employee or self-employed individual. The annual
compensation of each employee and the earned income of each self-employed
individual which can be taken into account under the Keogh Plan and a SEP
cannot exceed $160,000 for 1997 as increased by the cost-of-living adjustments
for the calendar years after 1997 as determined by the Internal Revenue
Service. A self-employed individual may contribute to either a Keogh Plan or a
SEP and, in either case, may also contribute to an IRA. The custodial
agreements for the Keogh Plan and IRAs provide that Investors Fiduciary Trust
Company, Kansas City, Missouri, will provide the custodial service unless a
different custodian is specified.
16
<PAGE> 30
Investors Fiduciary Trust Company receives as compensation from the
participant under the Keogh Plan an annual maintenance fee of $12.00 per
participant. Special services not contemplated in the annual maintenance fee
will be rendered by Investors Fiduciary Trust Company for such additional
charges as will reasonably compensate it for the services provided. Fees may
be changed with at least 45 days' prior written notice. The annual maintenance
fee payable to Investors Fiduciary Trust Company with respect to an IRA,
including each individual IRA established under a SEP, is presently $12.00 per
IRA and may be changed at any time. Fees under any of these types of accounts
remaining unpaid may be charged against the accounts. If a custodian other
than Investors Fiduciary Trust Company is specified, fees will be determined by
such custodian.
The Keogh Plan has been approved by the Internal Revenue Service for use
by self-employed persons as a plan qualified under Section 401(a) of the
Internal Revenue Code. The Internal Revenue Service has also approved the money
purchase pension plan and profit sharing plan options of the Keogh Plan as
paired plans with the result that self-employed persons may adopt either or
both of such plans. Copies of the Keogh Plan may be obtained from the Fund at
the address indicated below. The IRA Custodial Agreement has not been
submitted to the IRS for approval because it incorporates IRS Form 5305-A which
makes such submission unnecessary. The Fund makes available IRS Form 5305-SEP
for employers or self-employed persons who want to establish a SEP.
The employer or individual, as the case may be, should consult his or her
tax adviser or attorney as to the applicability of the Keogh Plan, SEP or IRA
to his particular circumstances. Additionally, since these retirement programs
involve commitments covering future years, the investment objectives of the
Fund, as described in the Prospectus and in this Statement of Additional
Information, should be carefully considered.
For further details, including the right to appoint a successor custodian,
see the Keogh Plan, Keogh Custodial Agreement and Keogh Application Form and
the IRA Application Form, IRA Custodial Agreement and IRA Disclosure Statement
which are available from the Fund, 100 Corporate North, Suite 201, Bannockburn,
Illinois 60015, (800) 962-FUND.
For a discussion of income tax withholding on certain distributions from
qualified retirement plans or tax-sheltered annuity plans, see "Tax Status"
below.
17
<PAGE> 31
TAX STATUS
The Fund has qualified, and intends to remain qualified, as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Fund is generally
not subject to U.S. Federal income tax on its income and gains distributed to
shareholders, provided the Fund distributes to its shareholders at least 90% of
its net investment income (i.e., net income and gains exclusive of net
long-term capital gains) each year.
To qualify for favorable tax treatment as a regulated investment company,
the Fund must, among other things, (i) derive in each taxable year at least 90%
of its gross income from dividends, interest, gains from the sale or other
disposition of stock or securities and certain other income (including, but not
limited to, gains from options and futures contracts) derived with respect to
its business of investing in stocks and securities, (ii) derive in each taxable
year less than 30% of its gross income from gains (without, in most cases,
deduction for losses) from the sale or other disposition of stock, securities,
options, and futures contracts, held for less than three months and (iii)
diversify its holdings so that, at the end of each quarter of its taxable year,
(a) at least 50% of the value of its assets is represented by cash, cash items,
U.S. Government securities, and other securities limited, in respect of any one
issuer, to a value not greater than 5% of the value of the Fund's total assets
and 10% of the outstanding voting securities of such issuer and (b) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than the U.S. Government).
The risk of the Fund failing the 30% test described in the preceding
paragraph is increased to some extent by the Fund's relatively high portfolio
turnover and its trading in stock index options, stock index futures contracts
and options on such contracts. For example, in certain publicized cases,
regulated investment companies holding "short" positions in stock index futures
contracts on October 19, 1987 (at which time there was a sharp drop in the
values of publicly traded equity securities) unexpectedly realized large gains
on those contracts, some of which had been held for less than three months.
For purposes of the 30% test described above, losses on offsetting positions
with respect to those contracts would not have been taken into account.
Therefore, although those contracts might have effectively hedged a company's
loss on the offsetting positions, the resulting gain on those contracts could
have caused the company to lose its status as a regulated investment company
under Subchapter M of the Code.
In the event the Fund does not qualify in any year as a regulated
investment company under Subchapter M of the Code, its
18
<PAGE> 32
income would be taxed to the Fund whether or not distributed, and distributions
to shareholders would generally be treated as ordinary dividend income.
Under the "mark-to-market" rules of the Code, most stock index options,
stock index futures contracts and options on such contracts will be treated for
Federal income tax purposes as having been sold for their fair market value on
the last business day of the Fund's taxable year. Any gain or loss resulting
from such deemed sales, and from actual sales of such options and futures
contracts, will be treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss. The mark-to-market rules of the Code may
cause the Fund to have taxable gains which, due to subsequent declines in
value, are never actually realized.
Gains or losses recognized by the Fund on sales of its securities will be
long-term or short-term capital gains or losses, depending on the Fund's
holding period for its securities. Similarly, gains or losses realized by the
Fund from transactions in options not subject to the mark-to-market rules of
the Code will be long-term or short-term capital gains or losses depending on
the nature of the transaction and the length of time the option is held by the
Fund.
If the net asset value of shares is reduced below a shareholder's cost by
a distribution, such distribution would be taxable as described in the
Prospectus even though it might be viewed in economic terms as a return of
capital. For Federal income tax purposes the shareholder's original cost
continues as his tax basis and on redemption his gain or loss is the difference
between such basis and the redemption price. At December 31, 1996, an amount
equal to approximately 5.6% of the net asset value of the Fund's shares
represented net unrealized appreciation.
A non-deductible 4% excise tax will be imposed on the Fund to the extent
the Fund does not distribute during each calendar year (i) 98% of its ordinary
income for such calendar year, (ii) 98% of its capital gain net income for the
one-year period ending October 31 of such calendar year (or the Fund's actual
taxable year ending December 31, if elected) and (iii) certain other amounts
not distributed in previous years. The Fund intends to distribute its income
and gains in a manner so as to avoid the imposition of such 4% excise tax.
For purposes of applying the distribution requirements described above,
and for purposes of determining the taxable income of shareholders each year,
dividends declared by the Fund in October, November or December of a year,
payable to shareholders as of a record date in any such month, and paid during
the following January, will be treated for Federal income
19
<PAGE> 33
tax purposes as paid by the Fund and received by shareholders as of December 31
of the calendar year declared.
Income tax withholding at a rate of 20% is applicable to any distribution
from a qualified retirement plan, such as the Keogh Plan, or a tax-sheltered
annuity plan where the distribution is eligible for tax-free rollover treatment
but is not transferred directly to a specified retirement vehicle such as
another qualified plan or an IRA. Also, all qualified plans must provide
participants and certain other distributees with an election to have an eligible
rollover distribution transferred directly to certain specified retirement
vehicles. If a shareholder receives a distribution which is subject to the 20%
withholding requirement and wishes to roll the distribution into another
vehicle such as an IRA within 60 days, the shareholder will have to contribute
to the IRA the amount of the distribution (after withholding) plus an amount
equal to the amount withheld. The amount withheld can be applied to reduce the
shareholder's Federal income tax liability and may be refunded to the
shareholder upon filing a Federal income tax return if it exceeds such tax
liability. If the amount withheld is not rolled over into the IRA, it will be
subject to income taxes and, if the shareholder has not attained age 59 1/2, an
additional 10% penalty tax may apply.
The rules broadly define distributions which qualify for rollover
treatment. Shareholders who expect to receive distributions which may qualify
for rollover treatment and therefore may be subject to 20% withholding should
consult their own tax advisers for a complete discussion on the impact of these
rules on such distributions.
The foregoing is only a general summary of the certain provisions of the
Internal Revenue Code and current Treasury regulations applicable to the Fund
and its shareholders. The Internal Revenue Code and such regulations are
subject to change by legislative or administrative action.
The tax consequences to a foreign shareholder of the Fund may be different
from those described herein. Foreign shareholders are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.
Distributions to shareholders may also be subject to state and local
taxes. Investors are urged to consult their own tax advisers regarding the
application of Federal, state and local tax laws.
20
<PAGE> 34
DESCRIPTION OF SHARES
As a general matter, the Fund is not required to hold annual meetings of
shareholders. Under the Fund's By-Laws, an annual meeting of shareholders is
not required to be held in any year in which the Fund is not required under the
Investment Company Act of 1940 to submit for shareholder approval (i) the
election of directors, (ii) any investment advisory agreement, (iii) the
selection of the Fund's independent public accountants or (iv) any distribution
agreement. Each director serves until the next meeting of shareholders called
for the purpose of electing directors and until the election and qualification
of his successor. Under certain circumstances, shareholders have the right to
call for a meeting of shareholders to consider the removal of one or more
directors. The Fund will assist in shareholder communication in such matters.
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, acts as Custodian of the Fund. As such, the Bank holds
all securities and cash of the Fund, delivers and receives payment for
securities sold, receives and pays for securities purchased, collects income
from investments and performs other duties, all as directed by officers of the
Fund. The Bank does not exercise any supervisory function over the management
of the Fund, the purchase and sale of securities or the payment of
distributions to shareholders.
Arthur Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603,
Certified Public Accountants, serves as the auditors of the Fund. The auditors
are responsible for auditing the financial statements of the Fund. The
independent accountants are selected by the vote of a majority of directors of
the Fund who are not interested persons of the Fund or the adviser. Such
selection is subject to ratification by the Fund's shareholders in such years
as the Fund is required to hold a meeting of shareholders. See "Description of
Shares."
PERFORMANCE INFORMATION
The compound annual rates of return of the Fund for the one, five and ten
year periods ended December 31, 1996 were -0.07%, 1.17% and 7.41%,
respectively, computed in accordance with the rules for standardized
computation of performance as established by the SEC. Such rules for
standardized computation of performance provide for determining compound annual
rates of return by taking the total return of the Fund over the period in
question calculated as described under "Performance Information" in the
Prospectus and "annualizing" such total return -- i.e., computing the annual
rate of return which, if earned in each year
21
<PAGE> 35
of such period, would produce the total return actually earned over such
period.
Inasmuch as the Fund has no sales load on purchases or reinvested
dividends, no deferred sales load or redemption fee and no 12b-1 fees, no
adjustments are made for such items in calculating performance.
FINANCIAL STATEMENTS
The Fund's audited balance sheet and schedule of investments as of
December 31, 1996, and the related statement of operations for the year then
ended and statements of changes in net assets for each of the two years in the
period ended December 31, 1996, and the auditors' report of Arthur Andersen LLP
dated January 17, 1997 relating to such financial statements, are incorporated
herein by reference to the Fund's 1996 Annual Report to Shareholders. No other
portion of such Annual Report is incorporated by reference herein or is a part
of the registration statement of which this Statement of Additional Information
is a part. A copy of the Annual Report to Shareholders referred to above is
provided herewith to each person who is not a shareholder of the Fund and has
not otherwise received a copy of such Report. Shareholders of the Fund may
obtain a copy of the Report without charge by writing or telephoning the Fund
at the address and telephone number set forth on the cover page of this
Statement of Additional Information.
22
<PAGE> 36
[Letterhead of Arthur Andersen LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheets and schedules of investments of MATHERS FUND,
INC. as of December 31 for each of the years 1987 through 1996 and the related
statements of operations and changes in net assets for each of the 10 years in
the period ended December 31, 1996 (none of which are presented herein), and
expressed an unqualified opinion on those statements. The information set
forth in the table entitled "Financial Highlights" for each of the 10 years in
the period ended December 31, 1996, as presented in the Prospectus of Mathers
Fund, Inc. dated May 1, 1997, is fairly stated in all material respects in
relation to the financial statements from which it has been derived.
/s/ Arthur Andersen LLP
Chicago, Illinois,
April 24, 1997
<PAGE> 37
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The following financial statements are included in Part B (by
incorporation by reference):
Report of Independent Public Accountants
Balance Sheet--December 31, 1996
Schedule of Investments--December 31, 1996
Statement of Operations for the Year Ended December 31, 1996
Statements of Changes in Net Assets for the Years Ended
December 31, 1996 and 1995
(b) Exhibits:
1.1 Articles of Incorporation***
1.2 Articles of Amendment, filed July 21, 1967***
1.3 Articles of Amendment, filed July, 1968***
1.4 Articles of Amendment, filed December 26, 1968***
1.5 Articles of Amendment, filed July 22, 1969***
1.6 Change of Principal Office and Change of Address
of Resident Agent***
1.7 Notice of Change of Resident Agent's Address and
Principal Office***
1.8 Articles Supplementary***
1.9 Articles Supplementary***
2.1 Amended and Restated By-Laws of the Registrant***
2.2 Amendment to Amended and Restated By-Laws,
adopted March 4, 1991***
2.3 Amendment to Amended and Restated By-Laws,
adopted November 2, 1992***
2.4 Amendment to Amended and Restated By-Laws,
adopted April 27, 1993***
2.5 Amendment to Amended and Restated By-Laws,
adopted August 9, 1993***
2.6 Amendment to Amended and Restated By-Laws,
adopted April 21, 1995***
2.7 Amendment to Amended and Restated By-Laws,
adopted February 4, 1997
3. Not Applicable
4. Not Applicable
5. Investment Advisory Agreement between the
Registrant and Mathers and Company, Inc.***
6. Not Applicable
7. Not Applicable
8. Custodian Agreement between the Registrant and
State Street Bank and Trust Company and the Schedule of
Remuneration***
C-1
<PAGE> 38
9. Service Agreement between the Registrant and DST,
Inc.***
10. Opinion and Consent of Leibman, Williams,
Bennett, Baird and Minow*
11. Consent of Independent Accountants
12. Not Applicable
13. Not Applicable
14.1 Revised Individual Retirement Account Package**
14.2 Revised Retirement Plan for Self-Employed
Individuals and related documents**
15. Not Applicable
16. Schedule for Computation of Performance Quotations
17. Financial Data Schedule
18. Not Applicable
- ---------
* Previously filed
** Previously filed in Post-Effective Amendment No. 53 on April 29, 1994 and
hereby incorporated by reference.
*** Previously filed in Post-Effective Amendment No. 55 on April 30, 1996 and
hereby incorporated by reference.
(c) Consents:
The consent of Arthur Andersen LLP is filed herewith.
Item 25. Persons Controlled by or under
Common Control with Registrant
None.
Item 26. Number of Holders of Securities
(2)
(1) Number of Record
Title of Class as of March 31, 1997
-------------- --------------------
Capital Stock,
$1 par value 8,827
Item 27. Indemnification
As authorized by Section 2-418 of the General Corporation Law
of the State of Maryland, directors and officers of the Registrant
are indemnified against liability under certain circumstances.
Reference is made to Section 7 of Article VII of the Registrant's
By-Laws.
C-2
<PAGE> 39
The Registrant has obtained an investment trust errors and
omissions policy, effective May 15, 1996, which (subject to
certain limits and deductibles) insures the Registrant and its
officers and directors against loss arising from certain claims
if made against them for actions taken as such.
Item 28. Business and Other Connections
of Investment Adviser
Mathers and Company, Inc., Registrant's investment adviser
(the "Adviser"), provides investment advisory services to pension
and profit-sharing funds, charitable foundations, insurance
company separate accounts and others, as well as to Registrant.
Item 29. Principal Underwriters
Inapplicable.
Item 30. Location of Accounts and Records
Such records are located at:
1. Mathers Fund, Inc.
100 Corporate North
Suite 201
Bannockburn, IL 60015
2. State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02101
3. DST Systems, Inc.
1004 Baltimore Avenue
Kansas City, MO 64105
4. Sidley & Austin
One First National Plaza
Chicago, IL 60603
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom
a prospectus is delivered with a copy of Registrant's latest
annual report to shareholders, upon request and without charge.
C-3
<PAGE> 40
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in Bannockburn, Illinois, on the
30th day of April, 1997.
MATHERS FUND, INC.
By /s/ Henry G. Van der Eb, Jr.
-------------------------------
Henry G. Van der Eb, Jr.
Chairman
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below on April 30, 1997 by the
following persons in the capacities indicated:
Signature Capacity
/s/ Henry G. Van der Eb, Jr. Chairman and Director,
- -------------------------------- principal executive officer
Henry G. Van der Eb, Jr.
/s/ Lawrence A. Kenyon Senior Vice President and
- -------------------------------- Chief Financial Officer
Lawrence A. Kenyon
* Director
- --------------------------------
Karl M. Becker
* Director
- --------------------------------
Tyler R. Cain
* Director
- --------------------------------
Charles G. Freund
* Director
- --------------------------------
Robert J. Reynolds
*By /s/ Henry G. Van der Eb, Jr.
----------------------------
Henry G. Van der Eb, Jr.
Attorney-in-Fact
<PAGE> 41
INDEX TO EXHIBITS
EDGAR
Exhibit Exhibit
Number Description of Document Number
- ------- --------------------------------- -------
2.7 Amendment to Amended and Restated
By-Laws, adopted February 4, 1997
11. Consent of Independent Accountants
16. Schedule for Computation of
Performance Quotations
17. Financial Data Schedule
<PAGE> 1
EXHIBIT 2.7
MATHERS FUND, INC.
AMENDMENT TO AMENDED
AND RESTATED BY-LAWS
RESOLVED, that the first sentence of Article II, Section 1 of the
Amended and Restated By-laws of the corporation be, and hereby is, amended to
read as follows:
"The number of directors of the corporation shall be five."
Adopted February 4, 1997
<PAGE> 1
EXHIBIT 11
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated January 17, 1997, and to all references to our Firm included in or made a
part of this Registration Statement on Form N-1A of Mathers Fund, Inc.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 24, 1997
<PAGE> 1
Exhibit 16
SCHEDULE FOR COMPUTATION
OF PERFORMANCE QUOTATIONS
(Unaudited)
One Year:
- --------- 1
$1,000 $1,000(1+(.0007)) = $999.30
Five Years:
- -----------
5
$1,000 $1,000(1+.0117) = $1,059.89
Ten Years:
- ----------
10
$1,000 $1,000(1+.0741) = $2,043.84
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EXHIBIT 27
OF N-SAR FILING FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH N-SAR.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 163,089,049
<INVESTMENTS-AT-VALUE> 173,058,908
<RECEIVABLES> 5,980,557
<ASSETS-OTHER> 193
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 179,039,658
<PAYABLE-FOR-SECURITIES> 2,602,880
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,841,114
<TOTAL-LIABILITIES> 7,443,994
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185,941,333
<SHARES-COMMON-STOCK> 12,929,841
<SHARES-COMMON-PRIOR> 16,895,834
<ACCUMULATED-NII-CURRENT> 242,940
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (37,142,298)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,623,848
<NET-ASSETS> 171,595,664
<DIVIDEND-INCOME> 340,355
<INTEREST-INCOME> 7,518,482
<OTHER-INCOME> 12,871
<EXPENSES-NET> 2,033,574
<NET-INVESTMENT-INCOME> 5,838,134
<REALIZED-GAINS-CURRENT> (20,317,145)
<APPREC-INCREASE-CURRENT> 13,749,425
<NET-CHANGE-FROM-OPS> (729,586)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,756,774
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 620,300
<NUMBER-OF-SHARES-REDEEMED> 4,983,552
<SHARES-REINVESTED> 397,258
<NET-CHANGE-IN-ASSETS> (60,707,227)
<ACCUMULATED-NII-PRIOR> 161,582
<ACCUMULATED-GAINS-PRIOR> (16,825,153)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,451,059
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,033,574
<AVERAGE-NET-ASSETS> 196,969,900
<PER-SHARE-NAV-BEGIN> 13.75
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> (0.41)
<PER-SHARE-DIVIDEND> (0.47)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.27
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
