<PAGE> 1
MATHERS FUND, INC.
100 Corporate North * Bannockburn, Illinois 60015
800-962-FUND * 847-295-7400
[email protected]
DIRECTORS
TYLER R. CAIN
CHARLES G. FREUND
JON P. HEDRICH
ROBERT E. KOHNEN
ANNE E. MORRISSY [LOGO]
ROBERT J. REYNOLDS
JACK O. VANCE
HENRY G. VAN DER EB, JR.
OFFICERS MATHERS
HENRY G. VAN DER EB, JR., CFA FUND
Chairman
ROBERT J. REYNOLDS, CFA
President
ANNE E. MORRISSY, CFA
Executive Vice President and Secretary
LAWRENCE A. KENYON, CPA
Senior Vice President and Chief Financial Officer
EDITH L. COOK
Vice President and Treasurer
MARY ANNE KINNUCAN
Vice President
HEIDI M. STUBNER
Vice President
Investment Adviser
MATHERS AND COMPANY, INC. ANNUAL REPORT
Bannockburn, Illinois
Custodian 1998
STATE STREET BANK AND TRUST CO.
Boston, Massachusetts
Transfer Agent
DST SYSTEMS, INC.
Kansas City, Missouri
Counsel
SIDLEY & AUSTIN
Chicago, Illinois
Auditors
ARTHUR ANDERSEN LLP
Chicago, Illinois
This report is submitted for the information of shareholders of the Fund. It is
not authorized for distribution to prospective investors unless preceded or
accompanied by a current prospectus.
<PAGE> 2
EXHIBIT I
[Contained here in paper format is a chart reflecting the Standard & Poors 500
stock index adjusted for inflation. The x-axis reflects the years from 1871
through 2000 and its Y-axis is on a logarithmic scale and extends from 15 to
250. The long-term least squares trend line from 1871 through 1998 is also on
the chart. The chart was prepared internally by The Bank Credit Analyst. A hard
copy is available by calling Mathers Fund at 800-962-3863. The chart is a line
chart with monthly data and shows the extreme overvaluation (measured as the
divergence above the trend line) in the S&P 500 Index.
Also contained within the chart is a table of data as follows:
S&P 500
1928 to 1999 Price/Book Dividend Yield P/E Ratio
- ------------ ---------- -------------- ----------
Avg. of Five
Major Bottoms 0.9 7.14 7.8
Long-term Average 1.9 3.82 14.7
Avg. of Six
Major Tops 2.4 2.94 20.2
Sept. 1929 Top 3.6 2.86 21.1
July '98 Top 6.3 1.35 30.0
Oct '98 Low 5.1 1.69 24.6
Jan. '99 High 6.8 1.27 33.6]
EXHIBIT II
[Contained here in paper format is a chart reflecting the Stock Market
Capitalization as a Percentage of Nominal GDP. This chart was prepared for
Mathers Fund by Topline Investment Graphics, Boulder CO. A hard copy is
available by calling the Fund at 800-962-3863. The line is the ratio of stock
market capitalization divided by nominal GDP. The chart's x-axis represents
years, from 1926 through 2000 and its y-axis shows percentage points, from 0 to
150. The average, since 1926, has been 50.5%. The high points (August 1929,
81.4%; November 1968, 77.8% and December 1972, 78.10%) were all followed by
severe bear markets. The current value is a record high, 151.3%.
Three smaller charts appear in a box inset in the main chart. Each of these
charts shows a parabolic price rise, a top and the following sharp decline. The
first of the three charts reflects gold prices from Jan 1978 at about $150,
through its peak in late 1979 at over $800, to its decline in February 1980 at
about $470. The second of the three charts reflects the price of the Tokyo
Nikkei stock index and begins in January 1985 at about 11,000 Yen, continues
through its peak in November 1989 near 39,000 Yen to its year-end 1992 level of
15,000 Yen. The last of the three charts shows the Dow Jones Industrial Average
from its 1925 level of 125, through the 1929 peak of around 375 to its year-end
1931 level of 80.]
<PAGE> 3
LETTER TO SHAREHOLDERS JANUARY 29, 1999
- --------------------------------------------------------------------------------
The Chairman of the Federal Reserve must have winced during the State of the
Union speech when the President proposed that Social Security funds be invested
in the stock market. Since December '96, Mr. Greenspan has repeatedly warned
about the risks of the on-going "financial asset bubble" and the negative impact
its collapse would have on the "real economy". The minutes from the November
FOMC meeting reflect his apprehension: "Many members saw some risk that an
easing move at this point might trigger a strong further advance in stock market
prices that would not be justified on the basis of likely future earnings and
could, therefore, lead to a relatively sharp and disruptive market adjustment
later."
Despite this concern, the global financial crisis forced the Fed to lower
interest rates in an attempt to prevent the world economy from following Asia
and Japan into a prolonged deflationary contraction. The Fed's fear of reflating
the stock bubble was quickly realized. In January '99, stocks hit a new record
of "irrational exuberance" when buyers paid $78.74 (1.27% yield) for $1.00 of
S&P 500 dividends and $33.60 for $1.00 of falling earnings, plus a dizzy $95 for
$1.00 of low quality NASDAQ earnings.
Taking a long-term view, as shown by the graph on Exhibit I, the S&P 500's
current extreme elevation above its 127-year trend makes its 22.4% decline
during the Asian crisis look insignificant. Stocks were not cheap even after
this decline, since, at its October low, the S&P 500 remained substantially more
overvalued than at its September '29 benchmark high, prior to the Crash (table
on Exhibit I). Should the price of the S&P 500 drop to its 127-year long-term
trend, the loss would be approximately 65%. A plunge of about 85% would take
stocks back to the undervaluation equivalent of August '82, just sixteen years
ago.
The Great Baby Boomer Stock Market Mania of '95-'99 is the stock market version
of "Look, Ma, no hands!" This is illustrated by Exhibit II which shows the
market value of the U.S. stock bubble at 151% of GDP, almost double the '29
speculative top of 81%. If GDP stays constant during the decline, which is
unlikely, a drop to this ratio's 72-year average of 50.5%, would result in a 67%
stock market loss, while a 78% dive in stocks would return to its undervalued
'82 level, when this ratio was 33.5%.
A short list of overpriced, mega-capitalization stocks recently pushed the S&P
500 to new highs while the large majority of stocks, which topped out last
April, remain well below their highs. This is why the S&P 500 gained 28.7% for
'98 while its unweighted version advanced only 5%, excluding dividends.
Additionally, in '98, the average NYSE stock declined 4% and the ratio of
declining over advancing issues on the NYSE and NASDAQ combined was 3 to 2, both
symptoms of internal market weakness. Slowing equity mutual fund inflows, narrow
leadership, and excessive bullish sentiment are market negatives for '99.
During the market meltdown, from the July 20 top to the October 8 low, the
Mathers Fund gained 2.1% as the S&P 500 declined 22.4%. This increase placed the
Mathers Fund at or near the top of many performance screens run during the
financial crisis as well as for the third quarter. The Mathers Fund's proven
long-term record of out-performing in down markets ('87 and '90) is supported by
its Forbes magazine A+ bear market rating.
As the stock mania has gained momentum, prices have far surpassed all previous
long-term records of overvaluation in both degree and duration. Prices have
de-linked from fundamentals and are being driven by crowd psychology. In a March
'97 Business Week article, the Mathers Fund was named as one of six well-known
funds likely to outperform in a market decline. For the one and two year periods
ended 12-31-98, the total return of the other five peer group funds averaged
- -21.5% and -38.2% vs. -5.2% and -2.4% respectively for the Mathers Fund. Today's
pay-any-price-for-stocks craze has, for now, made the Fund's historic precedent
valuation discipline look inept.
Given the chaotic financial market conditions that prevailed during the
late-summer crisis and the stock market's multi-year high-risk overvaluation, it
was difficult to anticipate the extent of the rally following the October low.
In retrospect, during the early July and late October rallies, the Fund's
portfolio was positioned to profit from a decline in equities for several weeks
after the upturn began, and this was the primary factor impacting its '98
performance. Modest declines in the equity segments of the portfolio (long,
short and hedge) offset the positive return from the U.S. Treasury security
segment, which averaged about 90% of the Fund's assets during the year. At year
end, the Fund paid a $.65 dividend per share, generating a 5.54% yield.
Regional financial crises are far from over, so the global growth slowdown
continues to spread. Asia and Japan remain in severe recessions, Latin America
is following suit, China is on the brink and Europe is softening. The U.S.
economy is staying aloft by riding the bubble, since the savings rate is zero
and consumer spending is too dependent on the wealth effect from continually
rising stock prices. When confidence that this precarious U.S. situation can
persist cracks, the stock market's ability to sustain unprecedented levels of
overvaluation will be tested again.
Chairman
<PAGE> 4
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS COMMON STOCKS
Shares Market Value Shares Market Value
- ------ ------------ ------ ------------
<S> <C> <C> <C> <C>
AIR TRANSPORT 0.8% PHARMACEUTICALS 0.1%
5,000 AMR Corp. *.................... $ 296,875 5,000 ICN Pharmaceuticals, Inc. .... $ 113,125
20,000 KLM Royal Dutch Airlines ...... 600,000
-----------
896,875 RAILROAD 0.3%
15,000 Canadian Pacific Ltd.......... 283,125
COMPUTER SERVICES 0.2% TELECOMMUNICATIONS 0.2%
10,000 Cambridge Technology, Inc. *... 221,250 10,000 Alcatel ...................... 244,375
-------------
ENERGY 0.5%
5,000 Texaco, Inc.................... 264,375
20,000 USEC, Inc...................... 277,500 Total Common Stocks (Cost $4,396,181) - 4.2%.... $ 4,587,500
----------- -------------
541,875
FARM MACHINERY 0.1% SHORT-TERM NOTES
5,000 Deere & Co. ................... 165,625 Par Value
------------
FERTILIZER & RELATED MATERIALS 0.3% $ 3,623,000 State Street Bank Repurchase
15,000 Agrium Inc. ................... 130,312 Agreement, 4.00%, due 1-4-99**
10,000 IMC Global Inc. ............... 213,750 (Cost $3,623,000) - 3.3%. $ 3,623,000
----------- -------------
344,062
FINANCIAL SERVICES 0.7%
5,000 Fleet Financial Group Inc...... 223,437 U.S. TREASURIES
5,000 J.P. Morgan & Co., Inc......... 525,313
----------- $ 90,000,000 U.S. Treasury Bills
748,750 due 7-22-99+............. $ 87,777,150
FOOD PROCESSING 0.3% 16,000,000 U.S. Treasury Bills
10,000 Corn Products Intl. Inc........ 303,750 due 1-14-99................ 15,973,680
-------------
HEALTH SERVICES 0.3% Total U.S. Treasuries
30,000 Beverly Enterprises, Inc. *.... 202,500 (Amortized Cost $103,477,414) - 95.6%......... $ 103,750,830
10,000 Integrated Health Services Inc. * 141,250 -------------
-----------
343,750 TOTAL INVESTMENTS (Cost $111,496,595)......... $ 111,961,330
INSURANCE 0.3% -------------
10,000 Conseco, Inc. ................. 305,625
OTHER ASSETS (Net) - (3.1%) ................... (3,413,745)
METALS 0.1% -------------
5,000 Asarco, Inc.................... 75,313 TOTAL NET ASSETS - 100% ....................... $ 108,547,585
=============
* Non-Income Producing ** Collateralized by a U.S. Treasury Note + Portion pledged to broker for open short positions
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE OF SECURITIES SOLD SHORT December 31, 1998
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS COMMON STOCKS
Shares Market Value Shares Market Value
- ------ ------------ ------ -------------
<S> <C> <C> <C> <C> <C>
BEVERAGES 0.6% SPECIALTY RETAIL 0.4%
10,000 Coca Cola Co. ................. $ 668,750 10,000 Books-a-Million Inc. *..................... $ 130,000
25,000 Sharper Image Corp. *...................... 296,875
-------------
426,875
SOFTWARE 0.4% TOTAL INVESTMENTS IN COMMON STOCK -------------
20,000 Egghead.com, Inc. *........... . 416,250 SOLD SHORT (Proceeds $1,664,314) - 1.4%............ $ 1,511,875
=============
</TABLE>
Securities sold short are generally held for very short time periods, thus,
this schedule may not be representative of the Fund's short position after
12-31-98.
The accompanying Notes to Financial Statements are
an integral part of these schedules.
<PAGE> 5
<TABLE>
<CAPTION>
BALANCE SHEET STATEMENT OF OPERATIONS
December 31, 1998 Year Ended December 31, 1998
- ----------------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C>
ASSETS INVESTMENT INCOME
INVESTMENTS AT MARKET VALUE INCOME
Common Stocks (Cost $4,396,181).......... $ 4,587,500 Interest................................. $ 6,889,738
U.S. Treasuries Bills (Amortized
Cost $103,477,414)................... 103,750,830 Dividends................................ 73,825
Repurchase Agreement (Cost $3,623,000)... 3,623,000
------------- Other.................................... 31,928
TOTAL INVESTMENTS ....................... $ 111,961,330 -------------
------------- GROSS INCOME............................. $ 6,995,491
CASH ...................................... 789 -------------
RECEIVABLES FOR
EXPENSES
Subscriptions to Capital Stock .......... $ 3,980,495
Proceeds on Securities Sold Short ....... 1,664,314 Gross Management Fee........... $907,217
Dividends and Accrued Interest .......... 1,635
------------- Less: Expense Reimbursement.... (41,301)
TOTAL RECEIVABLES ....................... $ 5,646,444 ---------
------------- Net Management Fee..................... 865,916
TOTAL ASSETS .............................. $ 117,608,563 Transfer Agent........................... 160,542
=============
LIABILITIES Legal and Auditing....................... 133,041
PAYABLES FOR Dividends on Securities Sold Short....... 46,700
Redemptions of Capital Stock............. $ 4,373,366 Custodian................................ 34,661
Investments Purchased.................... 2,435,756
Securities Sold Short, at market value Printing................................. 33,766
(Proceeds $1,664,314).................. 1,511,875
Dividend To Shareholders ................ 563,603 Registration............................. 22,432
Accrued Expenses......................... 96,000
Variation Margin on Open Short Positions 80,378 Taxes.................................... 8,344
-------------
TOTAL LIABILITIES ......................... $ 9,060,978 Other.................................... 110,284
------------- -------------
TOTAL EXPENSES........................... $ 1,415,686
-------------
CAPITAL
NET INVESTMENT INCOME...................... $ 5,579,805
-------------
Capital Stock, $1.00 par value;
9,252,443 shares outstanding
(100 million shares authorized)...... $ 9,252,443 REALIZED AND UNREALIZED GAINS/(LOSSES) ON
Paid-In Surplus.......................... 140,176,143 INVESTMENTS AND SECURITIES SOLD SHORT
Accumulated Undistributed Net Investment
Income............................... 251,081 Net Realized Loss on Investments Sold...... $ (51,633)
Accumulated Undistributed Net Realized
Loss on Investments.................. (41,749,256) Net Realized Loss on Securities Sold Short. (7,643,718)
Net Unrealized Appreciation on Investments
and Securities Sold Short............ 617,174 Net Change in Unrealized Appreciation on
------------- Investments and Securities Sold Short.. (4,390,362)
TOTAL CAPITAL (NET ASSETS)................. $ 108,547,585 -------------
------------- Net Realized and Unrealized Loss on
TOTAL LIABILITIES AND CAPITAL.............. $ 117,608,563 Investments and Securities Sold Short.. (12,085,713)
============= -------------
Net Asset Value (Capital) Per Share at Net Decrease in Net Assets Resulting from
December 31, 1998...................... $11.73 Operations............................. $ (6,505,908)
====== =============
</TABLE>
The accompanying Notes to Financial Statements are an
integral part of these statements.
<PAGE> 6
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS
Net Investment Income....................................................... $ 5,579,805 $ 5,991,494
Net Realized Gain/(Loss) on Investments Sold................................ (51,633) 3,088,393
Net Realized Loss on Securities Sold Short.................................. (7,643,718) 0
Net Change in Unrealized Appreciation on Investments and Securities Sold Short (4,390,362) (4,616,313)
------------ ------------
Net Increase/(Decrease) in Net Assets Resulting from Operations........... (6,505,908) 4,463,574
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS, Dividends from Net Investment Income............. (5,529,990) (6,033,168)
------------ ------------
CAPITAL STOCK ISSUED AND REDEEMED
Net Proceeds from Sales of Shares, 920,644 and 752,707 shares, respectively 11,377,820 9,989,029
Net Proceeds from Dividend Reinvestment Plan, 423,392 and 419,098 shares,
respectively............................................................... 4,966,387 5,473,417
Cost of Shares Redeemed, 2,686,199 and 3,507,039 shares, respectively....... (34,164,539) (47,084,701)
------------ ------------
Decrease in Net Assets Derived from Capital Stock Transactions, (1,342,163)
and (2,335,234) shares, respectively .................................. (17,820,332) (31,622,255)
------------ ------------
Net Decrease in Net Assets................................................ (29,856,230) (33,191,849)
TOTAL NET ASSETS
Beginning of Year .......................................................... 138,403,815 171,595,664
------------ ------------
End of Year (including undistributed net investment income of $251,081 and
$201,267 respectively) ................................................... $108,547,585 $138,403,815
============ ============
</TABLE>
The accompanying Notes to Financial Statements are an
integral part of these statements.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end investment company. The investment objective is capital
appreciation over the long term. The Fund may pursue its objective by
investing in common stocks and other equity securities and by engaging in
certain investment strategies designed to capitalize on potential declines in
the prices of equity securities, such as short sales. The following is a
summary of the significant accounting policies of the Fund:
(a) The Fund intends to distribute all taxable income to its shareholders
and otherwise comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies. Therefore, no provision
has been made for Federal income taxes since the Fund has elected to be
taxed as a regulated investment company. The Fund intends to utilize
provisions of the Federal income tax laws which allow it to carry a
realized capital loss forward to eight years following the year of the
loss and offset such losses against any future realized gains. At
December 31, 1998, the Fund had total capital loss carryforwards of
$41,755,252, of which $11,658,398 expire on December 31, 2003,
$22,226,886 expire on December 31, 2004, and $7,869,968 expire on
December 31, 2006.
(b) Common stocks traded on securities exchanges and stocks traded on the
NASDAQ National Market are valued at the last sales price as of the
close of the New York Stock Exchange on the day of valuation. Fixed
income securities with a maturity of greater than 60 days are valued at
the current bid price, and those of 60 days or less are carried at
amortized cost which approximates market value. Financial futures are
valued at the settlement price established each day by the exchange on
which they are traded.
(c) During the year ended December 31, 1998, the Fund entered into S&P 500
index futures contracts to hedge against possible declines of its
portfolio securities. Risks of entering into futures contracts include
the possibility that changes in the value of the futures contract may
not correlate with changes in the value of the portfolio securities
being hedged. Upon entering into a futures contract, the Fund deposits
with its custodian, in a segregated account, a U.S. Treasury Bill to
cover margin requirements. Subsequent payments are made or received by
the Fund equal to the daily change in the contract value and are
recorded as unrealized gains or losses. The Fund recognizes a realized
gain or loss when the contract is closed or expires.
(d) Realized gains or losses are determined on the specific identification
method. Dividends associated with common stocks are recognized as income
or expense on the ex-dividend date. Dividends to shareholders are
recorded on the declaration date which coincides with the ex-dividend
date.
(e) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in these financial
statements. Actual results could differ from those estimates.
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. The Fund has an agreement dated May 1, 1988 with Mathers and Company, Inc.,
of which certain officers and directors of the Fund are officers, directors
and shareholders, to serve as its investment adviser and manager. Under the
agreement, the Fund pays an annual management fee of 0.75% of the first
$200,000,000 of the Fund's average monthly net asset value plus 0.625% of
any excess over $200,000,000 but not exceeding $500,000,000, plus 0.50% of
any excess over $500,000,000. The adviser is required to reimburse the Fund
to the extent expenses, other than taxes and dividends on securities sold
short, but including the management fee, in any year exceed the sum of 1.5%
of the first $30,000,000 of the Fund's average monthly net asset value plus
1% of such value in excess of $30,000,000. Under the agreement, Mathers and
Company, Inc. also provides office facilities and bookkeeping services to
the Fund.
3. Cost of U.S. Treasury obligations and of other investment securities
purchased during the year ended December 31, 1998, amounted to $224,009,364
and $254,646,801, respectively. Proceeds from U.S. Treasury obligations and
other investment securities sold or matured during the year were
$232,658,913 and $266,812,905, respectively. The cost of investments is the
same for financial statement and Federal income tax purposes. At December
31, 1998, gross unrealized appreciation on investments was $624,537 and
gross unrealized depreciation on investments was $7,363.
4. During 1998, the Board of Directors declared a distribution of $0.65 per
share from net investment income. The ex-dividend and record dates were
December 31,1998. The dividend reinvestment price was $11.73 per share,
which was the Net Asset Value per share on December 31, 1998. The payable
date was December 31,1998, and the dividend is taxable income for 1998. The
aggregate dividend was $5,529,990.
5. Financial highlights based on the average number of shares of capital stock
outstanding throughout each year are presented below:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE - BEGINNING OF PERIOD............ $13.06 $13.27 $13.75 $13.55 $15.11
------ ------ ------ ------ ------
Net investment income...................................... 0.58 0.53 0.40 0.601 0.563
Net realized and unrealized gains/(losses) ................ (1.26) (0.13) (0.41) 0.349 (1.448)
------ ------ ------ ------- -------
Total from investment operations ...................... (0.68) 0.40 (0.01) 0.950 (0.885)
------- ------ ------- ------- -------
Dividends from net investment income ...................... (0.65) (0.61) (0.47) (0.719) (0.675)
Distribution from net realized capital gains .............. 0.00 0.00 (0.00) (0.031) 0.000
------ ------ ------ ------- -------
Total distributions ................................... (0.65) (0.61) (0.47) (0.750) (0.675)
------ ------ ------ ------- -------
NET ASSET VALUE PER SHARE - END OF PERIOD ................. $11.73 $13.06 $13.27 $13.75 $13.55
====== ====== ====== ====== ======
Ratio of total expenses to average net assets.............. 1.16% 1.07% 1.03% 0.98% 0.93%
Ratio of net investment income to average net assets ...... 4.56% 3.96% 2.96% 4.25% 3.86%
Portfolio turnover ........................................ 67% 50% 38% 58% 211%
Average commission rate paid per share..................... 4.2c 4.8c 5.1c - -
Total return .............................................. (5.21%) 3.01% (0.07%) 7.01% (5.89%)
Net assets, end of period (000s omitted) .................. $108,548 $138,404 $171,596 $232,303 $293,285
Number of shares outstanding (000s omitted)................ 9,252 10,595 12,930 16,896 21,651
</TABLE>
AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Mathers Fund, Inc.:
We have audited the accompanying balance sheet of Mathers Fund, Inc. (a
Maryland corporation), including the schedules of investments and securities
sold short, as of December 31, 1998, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned and
securities sold short as of December 31, 1998 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Mathers Fund, Inc. as of December 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
Chicago, Illinois
January 15, 1999 ARTHUR ANDERSEN LLP
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------- -----------------------------------
COMPARATIVE LONG-TERM GROWTH OF A $1 INVESTMENT MATHERS FUND
IN MATHERS FUND RANKED #1
GROWTH FUND
Compound 12-31-98 1 YEAR ENDED
Annual Return Value of 12-31-87
From 8-19-65 $1 Invested Source: Lipper Analytical Services
To 12-31-98 8-19-65 * 12-31-87 "Growth Fund" Category
Consists of 236 Funds.
MATHERS FUND..................................11.53% $38.14 -----------------------------------
Standard & Poor's 500.........................12.28 47.70 -----------------------------------
Value Line Composite...........................7.50 11.16 MATHERS FUND
Dow Jones Industrial Average..................11.61 39.07 RANKED #1
Long Term U.S. Treasury Bonds..................7.91 12.69 GROWTH FUND
U.S. Treasury Bills............................6.88 9.20 1 YEAR ENDED
Consumer Price Index...........................5.06 5.19 6-30-88
Source: Lipper Analytical Services
* Date of public offering 6-30-88 "Growth Fund" Category
Consists of 235 Funds.
Income Dividends and Capital Gains Distributions Reinvested -----------------------------------
- ---------------------------------------------------------------------- -----------------------------------
MATHERS FUND
RANKED #1
GROWTH FUND
1 YEAR ENDED
9-30-90
Source: Lipper Analytical Services
9-30-90 "Growth Fund" Category
Consists of 257 Funds.
-----------------------------------
</TABLE>
GROWTH OF A $10,000 INVESTMENT IN MATHERS FUND
[contained here in paper format is a chart reflecting the hypothetical value of
$10,000 invested in Mathers Fund vs. the same amount invested in the benchmark
S&P 500 index on August 19, 1965 (the date of the Fund's public offering.) The
x-axis shows years from 1965 through 2000. The Y axis show dollar amounts from 0
to $500,000. The terminal values for Mathers Fund and the S&P 500 are $381,271
and $477,724, respectively. This chart was prepared by Mathers Fund and is
available in paper format by calling 800-962-3863.]
COMPOUND ANNUAL RETURNS
<TABLE>
<CAPTION>
1 YR 5 YRS 10 YRS 33 YRS*
---- ----- ------ ------
<S> <C> <C> <C> <C>
MATHERS FUND (5.21) (0.35) 3.28 11.53
Standard & Poor's 500 28.72 24.09 19.21 12.28
* From date of public offering 8-19-65
</TABLE>
THE FUND'S DAILY PRICE AND ASSET MIX PERCENTAGES ARE AVAILABLE VIA RECORDED
MESSAGE (AFTER 4:30 P.M. CENTRAL TIME) MONDAY THROUGH FRIDAY AT 800-962-FUND.
THE FUND'S PRICE CAN BE E-MAILED TO YOU DAILY. PLEASE PROVIDE YOUR E-MAIL
ADDRESS BY CALLING 800-962-FUND OR VIA E-MAIL AT [email protected].
SHAREHOLDER ACCOUNT BALANCES MAY BE OBTAINED FROM THE FUND'S TRANSFER AGENT AT
800-235-7458 BETWEEN 8:00 A.M. AND 4:30 P.M. CENTRAL TIME.
The results shown reflect past performance and should not be considered
representative of future performance. The investment return and principal value
of an investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Results reflect
income dividends and capital gains distributions reinvested.
