THE
WALL
STREET
FUND INC.
ANNUAL REPORT
December 31, 1997
<PAGE>
THE WALL STREET FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
COMMON STOCKS AND WARRANTS - 93.19%
MARKET
SHARES VALUE
------ -----
BASIC MATERIALS - 2.60%
10,000 +Arqule Inc. ............................ $ 230,312
135,000 +International Precious Metals Corp...... 175,078
---------
405,390
---------
CAPITAL GOODS - 7.49%
75,000 +Flow Intl. Corp. ....................... 714,844
2,500 Hewlett Packard Co. .................... 156,250
6,000 Telxon Corp. ........................... 144,000
8,000 +Zygo Corp. ............................. 152,000
---------
1,167,094
---------
CONSUMER - CYCLICAL - 6.98%
6,000 +Abercrombie & Fitch Co. ................ 187,500
3,500 Home Depot Inc. ........................ 206,062
5,500 +North Face Inc. ........................ 121,172
5,000 +Office Depot Inc. ...................... 119,687
6,000 +Pixar .................................. 130,875
5,000 +Play by Play Toys & Novelties Inc.. .... 90,000
5,000 +Polo Ralph Lauren Corp. - Class A ...... 121,563
12,000 +Zomax Optical Media .................... 110,250
---------
1,087,109
---------
CONSUMER NON-CYCLICAL - 19.16%
5,000 +Alza Corp. ............................. 159,062
7,000 +Biochem Pharma. Inc. ................... 146,125
5,000 +Biogen Inc. ............................ 182,187
8,000 +Centocor Inc. .......................... 267,000
7,000 +Chiron Corp. ........................... 119,219
5,000 +Corixa Corp. ........................... 45,156
5,000 +Genzyme Corp. .......................... 138,437
5,000 +Genzyme Tissue Repair .................. 34,063
5,000 +Healthcare Compare Corp. ............... 256,875
5,000 +Healthsouth Rehabilitation Corp. ....... 138,750
8,000 +Incyte Pharmaceutics Inc. .............. 357,000
10,000 +ISIS Pharmaceuticals ................... 124,375
15,000 +Ligand Pharmaceuticals - Class B ....... 194,063
4,000 +Liposome Co. Inc. ...................... 18,625
5,000 +Martek Biosciences Corp. ............... 40,938
15,000 +Perclose Inc. .......................... 288,750
4,000 Pfizer Inc. ............................ 298,250
5,000 +Transkaryotic Therapies Inc. ........... 175,313
---------
2,984,188
---------
DIVERSIFIED - 0.27%
500,000 +International UNP Holdings Ltd. ........ 41,928
---------
ENERGY - 1.27%
20,000 +Gulf Canada Resources .................. 140,000
1,500 Unocal Corp ............................ 58,219
---------
198,219
---------
FINANCIAL 3.82%
8,000 Allmerica Financial Corp. .............. 399,500
10,000 +CCC Information Services Group ......... 195,625
---------
595,125
---------
REAL ESTATE 0.82%
5,000 New Plan Realty Trust .................. 127,500
---------
COMMON STOCKS AND WARRANTS (continued)
MARKET
SHARES VALUE
------ -----
SERVICES - 16.16%
10,000 +At Home Corp. .......................... $ 250,625
6,500 +Cendant Corp. .......................... 223,438
6,000 Cintas Corp. ........................... 234,375
15,000 +Electronic Processing .................. 174,375
100,000 +Executone Information Systems .......... 220,312
10,000 +Faxsav Inc. ............................ 25,312
6,000 First Data Corp. ....................... 175,500
20,000 +Flexinternational Software ............. 315,000
5,000 +Lernout & Hauspie Speech ............... 230,625
16,000 +Network Solutions ...................... 210,500
5,000 Ogden Corp. ............................ 140,938
15,000 +Spacehab Inc. .......................... 158,438
4,000 +USA Waste Services Inc. ................ 157,000
---------
2,516,438
---------
TECHNOLOGY - 34.62%
5,500 +Adaptec Inc. ........................... 204,531
8,000 +Analog Devices Inc. .................... 221,500
5,000 +Ascend Communications Inc. ............. 122,969
8,000 +Celeritek Inc. ......................... 111,500
5,000 +Ciena Corp. ............................ 306,250
7,000 +Cybermedia Inc. ........................ 104,781
15,000 +Excite Inc. ............................ 450,469
8,500 +Harbinger Corp. ........................ 239,062
3,000 Intel Corp. ............................ 210,656
4,000 +Manugistics Group Inc. ................. 177,750
10,000 +Metacreations Corp. .................... 110,625
8,050 Netscape Communications Corp. .......... 195,716
15,000 +Network Imagaing Corp. ................. 13,828
45,000 +Object Design Inc. ..................... 381,094
3,500 +Peoplesoft Inc. ........................ 136,062
7,000 +Qualcomm Inc. .......................... 353,719
20,000 +Rogue Wave Software Inc. ............... 221,250
7,000 +Sawtek Inc. ............................ 184,187
30,000 +Select Software Tools Ltd. Sponsored ADR 172,500
5,000 +Sequent Computer Systems Inc. .......... 100,313
2,000 +Tellabs Inc. ........................... 105,563
4,000 +The Registry Inc. ...................... 185,000
5,000 +Vantive Corp. .......................... 125,625
10,000 +Vitesse Semi-Conductor Corp. ........... 380,625
7,500 +Worldcom Inc. .......................... 227,109
10,000 +Xilinx Inc. ............................ 350,000
---------
5,392,684
---------
WARRANTS - 0.00%
875 +American Satellite Network
Inc. Warrants ........................ 0
---------
TOTAL COMMON STOCKS AND WARRANTS
(Cost $13,068,457) 14,515,675
----------
See notes to financial statements.
Page 1
<PAGE>
THE WALL STREET FUND, INC.
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1997
BONDS - 5.56%
PRINCIPAL MARKET
VALUE VALUE
----- -----
CONVERTIBLE BONDS - 5.56%
100,000 Alza Corp., Subordinated Debentures, 5.00%
05/01/2006 ............................. $ 105,875
150,000 +^Bonneville Pacific Corp., Subordinated
Debentures, 7.75% 08/15/2009 .......... 216,000
500,000 Executone Information Systems 7.50% 03/15 442,500
100,000 VLSI Technology Inc., Subordinated Notes,
8.25% 10/01/2005 ....................... 101,875
----------
TOTAL BONDS
(Cost $360,266) ........................ 866,250
----------
TOTAL INVESTMENTS
(Cost $13,428,723) 98.75% .. 15,381,925
OTHER ASSETS LESS LIABILITIES 1.25% .. 194,902
-----------
TOTAL NET ASSETS 100.00% ..$15,576,827
===========
(1) Federal Tax Information: At December 31, 1997 the net unrealized
appreciation based on cost for Federal Income tax purposes of $13,442,893 was as
follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over cost ........ $ 3,491,719
-----------
Aggregate gross unrealized depreciation for all investments in
which there was an excess of cost over value ............. (1,552,687)
-----------
Net unrealized appreciation .............................. $ 1,939,032
===========
+ Non-income producing security.
^ Priced at fair value as determined by the Board of Directors.
THE WALL STREET FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
ASSETS:
Investments in securities, at value
(cost $13,428,723) (Note 1) ... $ 15,381,925
Receivables:
Investment securities sold ...... $ 324,273
Receivable from custodian ....... 35,000
Fund shares sold ................ 4,076
Interest and dividends .......... 21,528
------
384,877
Other assets ...................... 4,837
------------
Total Assets .................... 15,771,639
LIABILITIES:
Cash Overdraft .................... 84,398
Payables:
Investment securities purchased . 79,844
Investment adviser fee .......... 22,562
Other payables and accrued
expenses .................... 8,008
-------
110,414
------------
Total Liabilities ........... 194,812
------------
Net Assets ................ $ 15,576,827
============
Net Assets Consist of:
Capital stock at par value ...... $ 2,122,796
Additional paid in capital ...... 11,513,674
Unrealized appreciation on
investments ................. 1,953,202
Accumulated net realized loss
on investments .............. (12,845)
Net Assets ................ $ 15,576,827
============
Net asset value and
redemption price per share
($15,576,827/2,122,796 shares
of capital stock outstanding)
(Note 4) ........................ $ 7.34
============
Maximum offering price per share
(100/96 of $7.34) ............... $ 7.65
============
See notes to financial statements.
Page 2
<PAGE>
THE WALL STREET FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
INVESTMENT INCOME:
Income:
Dividends ..................... $ 40,143
Interest ...................... 95,207
-----------
Total income ..................... 135,350
Expenses:
Investment adviser fees
(Note 3) .................... 118,476
Transfer agent fees and
dividend paying expenses ... 23,501
Custodian fees ................ 14,650
Accounting services ........... 49,000
Reports to shareholders ....... 13,075
Professional fees ............. 20,247
Directors fees and expenses ... 27,615
Registration fees ............. 8,500
Miscellaneous ................. 11,720
-----------
Total Expenses ................... 286,784
-----------
Net investment loss ........... (151,434)
-----------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
(Note 1)
Net realized gains from
investment transactions ....... 868,636
Net decrease in unrealized
appreciation of investments ... (1,054,196)
-----------
Net realized and unrealized losses
on investments ................ (185,560)
-----------
Net decrease in net assets
resulting from operations ..... $ (336,994)
===========
THE WALL STREET FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
---- ----
Net investment loss ................... $ (151,434) $ (105,420)
Net realized gains from
investment transactions ........... 868,636 2,067,893
Net decrease in unrealized
appreciation of investments ....... (1,054,196) (333,671)
------------ ------------
Net increase (decrease) in net assets
resulting from operations ......... (336,994) 1,628,802
Distributions to shareholders
from:
Net realized gains from
investment transactions
($0.41 and $1.15 per share,
respectively) ..................... (834,155) (2,009,946)
Net capital share transactions
(Note 4) .......................... 808,663 1,937,669
------------ ------------
Total increase (decrease) in net assets (362,486) 1,556,525
NET ASSETS:
Beginning of year ..................... 15,939,313 14,382,788
------------ ------------
End of year ........................... $ 15,576,827 $ 15,939,313
============ ============
See notes to financial statements Page 3
<PAGE>
THE WALL STREET FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The following
is a summary of significant accounting policies consistently followed by the
Fund in the preparation of its financial statements. These policies are in
conformity with generally accepted accounting principles for investment
companies. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(A) SECURITIES VALUATIONS - The value of investments is based on the published
last sale prices on national securities exchanges, or, in the absence of
recorded sales, at the mean between the closing bid and asked prices on such
exchanges or over-the-counter. At December 31, 1997, the Fund held a security
for which a market quotation was not readily available and which was valued in
good faith by the Board of Directors. This security had a value of $216,000
representing 1.39% of the Fund's net assets.
(B) FEDERAL INCOME TAXES - No provision for federal income taxes has been made
in the accompanying financial statements, since the Fund intends to continue to
comply with the provisions of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders substantially all of
its net investment income and net realized gains on investments.
(C) OTHER - Security transactions are accounted for on the date securities are
purchased or sold. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. The net realized gains and losses are
determined on the identified cost basis. The Fund may periodically make
reclassifications among certain of its capital accounts as a result of the
timing and characterization of certain income and capital gains distributions
determined annually in accordance with federal tax regulations which may differ
from generally accepted accounting principles. During the year ended December
31, 1997, the Fund decreased additional paid-in-capital by $151,581, decreased
accumulated net investment loss by $151,434 and decreased accumulated net
realized loss by $147.
(2) PURCHASES AND SALES OF SECURITIES:
Purchases and sales of investment securities, during the year ended
December 31, 1997 aggregated $18,842,238 and $19,098,540, respectively.
(3) INVESTMENT ADVISORY FEES AND OTHER:
The advisory agreement provides for advisory fees of 1/16 of 1% monthly
(equivalent to 3/4 of 1% per annum) of the first $125,000,000 of average net
assets of the Fund. The present advisory agreement also provides for the adviser
to reimburse the Fund for any expenses (including the advisory fee but excluding
taxes, interest and brokerage fees and extraordinary expenses incurred in
connection with any matter not in the ordinary course of business of the Fund)
over 2% of the first $10,00,000, 1 1/2% of the next $20,000,000 and 1% of any
balance of the average daily net asset value.
For the year ended December 31, 1997, Wall Street Management Corporation
(WSMC) earned investment advisory fees of $118,476 with no reimbursement to the
Fund for expenses.
The adviser also serves as the Fund's principal underwriter. For the year
ended December 31, 1997, WSMC received $4,084 as its portion of the sales charge
on sales of shares of the Fund. Certain of the officers and directors of the
Fund are officers and directors of WSMC.
The Fund has arranged for American Data Services, Inc., of which the Fund's
Secretary and Treasurer is a principal, to prepare the accounting records and
perform administrative and transfer agent services for the Fund. Costs incurred
totalled $72,501 for the year ended December 31, 1997.
Morse, Williams & Co., Inc. (MWC), 100% owner of WSMC, performs
administrative services for the Fund. This includes costs of shared office
expenses, rent, telephone charges and supply expenses. For the year ended
December 31, 1997, no remuneration was paid by the Fund to MWC.
(4) CAPITAL STOCK:
At December 31, 1997 there were 5,000,000 shares of $1 par value capital stock
authorized. Transactions in capital stock during the year ended December 31,
1997 and the year ended December 31, 1996 were as follows:
1997 1996
-------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold .......... 293,230 $ 2,360,707 78,951 $ 698,614
Shares issued for
reinvestment of
distribution from
realized gains .... 100,096 705,679 243,015 1,905,236
Shares redeemed ...... (273,575) (2,257,723) (76,029) (666,181)
------- ----------- ------- ----------
Net increase ......... 119,751 $ 808,663 245,937 $1,937,669
======= =========== ======= ==========
Page 4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR)
Year Ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ..................... $ 7.96 $ 8.19 $ 7.42 $ 8.03 $ 7.60 $ 7.27 $ 5.54
--------- --------- -------- -------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) ........................... (0.08) (0.06) (0.03) (0.02) (0.02) 0.01 0.03
Net realized and unrealized gains (losses)
on investments ...................................... (0.13) 0.98 2.60 (0.38) 1.00 0.54 2.95
--------- --------- -------- -------- -------- -------- ---------
Total from investment operations ....................... (0.21) 0.92 2.57 (0.40) 0.98 0.55 2.98
--------- --------- -------- -------- -------- -------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income ................... 0.00 0.00 0.00 0.00 0.00 (0.01) (0.03)
Distribution from realized gains
from security transactions .......................... (0.41) (1.15) (1.80) (0.21) (0.55) (0.21) (1.21)
Return of capital distribution ......................... 0.00 0.00 0.00 0.00 0.00 0.00 (0.01)
--------- --------- -------- -------- -------- -------- ---------
Total distributions .................................... (0.41) (1.15) (1.80) (0.21) (0.55) (0.22) (1.25)
--------- --------- -------- -------- -------- -------- ---------
Net asset value, end of year ........................... $ 7.34 $ 7.96 $ 8.19 $ 7.42 $ 8.03 $ 7.60 $ 7.27
========= ========= ======== ======== ======== ======== =========
Total return** ......................................... (2.37%) 11.45% 36.50% (4.86%) 13.17% 7.61% 54.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) ..................... 15,577 15,939 14,383 11,080 11,561 11,202 11,032
Ratio of expenses to average net assets ................ 1.82% 1.84% 2.02% 2.12% 2.04% 2.15% 2.10%
Ratio of expenses to average net assets,
net of reimbursement ................................ 1.82% 1.82% 1.90% 1.96% 1.96% 1.97% 1.98%
Ratio of net investment income (loss)
to average net assets . ............................. (0.96%) (0.70%) (0.50%) (0.47%) (0.31%) (0.08%) 0.30%
Ratio of net investment income (loss)
to average net assets, net of reimbursement ......... (0.96%) (0.68%) (0.38%) (0.31%) (0.23%) 0.09% 0.43%
Portfolio turnover rate ................................ 121.12% 142.11 143.27% 89.01% 107.22% 112.47% 159.52
Average commission rate paid+ .......................... .0513 .0666 -- -- -- -- --
<FN>
** Excluding sales charge.
+ For fiscal years beginning on or after September 1, 1996, a fund is required
to disclose its average commission rate per share for trades on which a
commission is charged.
</FN>
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Directors of
The Wall Street Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of The
Wall Street Fund, Inc., including the schedule of investments, as of December
31, 1997, 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 seven years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, 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 The
Wall Street Fund, Inc. as of December 31, 1997, 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 seven
years in the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 20, 1998
Page 5
<PAGE>
PRINCIPAL INVESTMENT CHANGES
For the year ended December 31, 1997
NEW POSITIONS
Advanced Digital Information Corp., Abercrombie & Fitch Co., Arqule, Inc., At
Home Corp., CCC Information Services Group, Cendant Corp., Ciena Corp.,
Crescendo Pharmaceuticals, Corixa Corp., Cybermedia Inc., Electronic Processing,
Faxsav Inc., Flexinternational Software Inc., Healthsouth Rehabilitation Corp.,
Network Imaging, Incyte Pharmaceutics Inc., Ligand Pharmaceuticals, Lernout &
Hauspie Speech, Manugistics Group Inc., Network Solutions, Object Design Inc.,
Play by Play Toys & Novelties, Perclose Inc., Peoplesoft Inc., Qualcomm Inc.,
The Registry Inc., Polo Ralph Lauren Corp., Spacehab Inc., USA Waste Services
Inc., Vantive Inc.
ELIMINATIONS
Alpha-Beta Technology Inc., Barrick Gold Corp., Adobe Systems Inc., Advanced
Digital Information Corp., Amway Japan Ltd ADR, Altera Corp., Amgen Inc., Apac
Teleservices, Anadarko Petroleum Corporation, Astea International Inc., Avant
Corporation, Boeing Co., Crescendo Pharmaceuticals, Cellpro Inc., Comp USA Inc.,
Cisco Systems Inc., Digital Equipment Corp., Dresser Industries, Delia*s, Inc.,
Electronics For Imaging Inc., ESS Technology, Executive Telecard Ltd.,
Federation Resources, Federal National Mortgage Assoc., Fusion Systems Corp.,
Gap Inc., GTE Corp., ICC Technologies Inc., Idexx Laboratories Inc., IMC Global
Inc., Jilin Chemical Ind., Johnson & Johnson, Kasten Chase Applied Research,
McDonalds Corp., Millicom Int'l. Cellular S.A., Metromedia International Group,
Minnesota Mining & Manufacturing Co., Motorola Inc., Merck & Co., Nematron
Corp., Nucor, Octel Communications Corp., On Technology Corp., Oracle Systems
Corporation, Paging Network Inc., Premis Corporation, Parametric Technologies,
Qualmark Corporation, Raptor Systems Inc., Rational Software Corp., Retirement
Care Associates Inc., Renaissance Solutions Inc., Structural Dynamics, Seagate
Technology, Search Financial Services Inc., Stevens International CL A Warrants,
Saks Holdings Inc., Synopsys Inc., Sport-Haley Inc., Strategic Distribution
Inc., Stevens Graphics Series A, Tiffany & Co., U-Ship Inc., Vencor Inc.,
Wisconsin Central Trans, Zoltek Companies Inc. Convertible Bonds: Air & Water
Technologies 8.00%, 05/15/2015.
This report is not to be construed as an offering for the sale of The Wall
Street Fund, Inc., or as a solicitation of an offer to buy any such shares,
unless accompanied by an effective prospectus setting forth details of the Fund
including the sales charge and other material information.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN++
AVERAGE ANNUAL TOTAL RETURN
After Sales Charge at the Beginning of each period
including Reinvestment of Dividends.
1 YEAR: (6.25%) 5 YEAR: 8.95% 10 YEAR: 11.25%
[Graph omitted here]
Graph depicts the performance of an initial investment of $10,000 in the Wall
Street Fund versus the Russell 2000 Index for the periods 1987 through 1997.
Wall Street Russell 2000
Fund Index
---- -----
Initial
Investment 1987 $10,000.00 $10,000.00
1988 11,230.77 12,237.22
1989 13,722.41 13,976.97
1990 10,928.29 10,978.28
1991 16,869.28 15,773.19
1992 18,152.30 18,353.33
1993 20,642.21 21,474.09
1994 19,543.94 20,790.65
1995 26,681.27 26,239.10
1996 29,735.78 30,112.22
1997 29,032.18 36,291.45
The maximum initial sales charge payable on an investment in the Fund was 5.50%
at December 31, 1987. At public offering price of $10,000, the net investment in
the Fund would be $9,450, assuming no waiver or reduction of sales charges.
Currently, the maximum sales charge is 4.0%. The performance information shown
represents past performance and should not be interpreted as indicative of the
Fund's future performance. Return and share price will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost.
++ Not covered by report of independent accountants.
- --------------------------------------------------------------------------------
MANAGEMENTS DISCUSSION OF
FUND PERFORMANCE
The Fund's broad diversification policy combined with Fund Management's
stock selection were significant factors contributing to Fund performance in
1997. Management's strategy of investing in companies selected from a variety of
broad industry groups and investing in a large number of different companies
with strong fundamental growth characteristics provides protection from long
term fundamental portfolio risk. Fund Management's analytical emphasis on a
company's future sustainable earnings growth and the quality of corporate
management are also important to Fund performance.
Market prices for your Fund's investments generally increase due to strong
corporate earnings and the perception of future earnings. The very high inflow
of new funds into the US market increased the prices of large capitalization
businesses as investors bought these names and ignored many excellent smaller
and medium capitalization issues. Events in Asia changed market perceptions
concerning future growth during the last quarter of 1997. Your fund includes
small, medium as well as large capitalization issues but is weighted in the
faster growing smaller companies.
Page 6
<PAGE>
February 20, 1998
Dear Shareholders:
The perception of financial events across Asia, an area the world had come
to anticipate as a major geographic area of present and future growth, had an
impact on the funds performance. The impact of these events on most of your
stocks was unwarranted with the "baby being thrown out with the bath water".
The positive return we had through September was taken away by an external
event, the Asian financial crisis. The subsequent rebound we are experiencing in
1998 attests to the markets short term misperception that impacted our
investments. Despite this difficulty your fund has enjoyed an average return of
15% per annum since the end of 1990. To date in 1998 the Fund is up 10% as
compared with the Russell 2000 index, which is up 4%.
While we are constructive on the equity market for the next several years it
has become apparent that money flows last year went into larger capitalization
stocks and index related securities. This created an anomaly in 1997 where the
overvalued stocks became more overvalued and the undervalued stocks more
undervalued. The basic law of investments, that money flows to the higher rates
of return, has been delayed during this period of intense money flows and, in
our opinion, will reassert itself in 1998. Funds will, at this point, begin to
seek the higher earnings potential investments such as those in the fund's
portfolio.
While we may have been "early" in some of the investment selections, we
strongly believe in our methodology and perceptions of dynamic, persistent
future growth. We have exceptionally good, high growth opportunities in the
information, telecommunications, and high technology areas - drivers of
productivity increases. Life science investments in biotechnology and health
care are, additionally, solid opportunities. In fact, the biotechnology
companies are now being called "biopharmas" as more and more effective products
are coming to market. Selected investments in the services area with dynamic and
proven managements are taking advantage of this aspect of economic growth, from
outsourcing to internet companies. These businesses are where the real growth is
and will be experienced. Sooner or later the vast amounts of funds in the
markets will turn to these high earnings potential investments to provide above
average returns. The trigger points are likely to be the recognition that the
Asian issues are perceived soluble and, more importantly, that the investments
deliver their earnings. We expect this to occur in 1998.
The overall economy in the U.S. is strong and likely to continue at a real
GDP growth of 3%. The Asian impact is anticipated to have minimum consequences
to our growth rate as the European recovery is taking up any slack in demand.
The Federal Reserve's purchases of U.S. debt from overseas holders has created
an above average growth rate in the U.S. monetary base, which ensures above
average liquidity and is stimulative to economic activity.
In the past when your investments have had a lagging performance due to
external events, such as during the Kuwait Desert Storm period, the rebound has
been impressive. We look forward to higher portfolio values this year and over
the visible horizon. Please don't hesitate to contact me if you have any
questions.
Sincerely,
/s/ Robert P. Morse
Robert P. Morse
President
Page 7
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DIRECTORS
Clifton H.W. Maloney
Robert P. Morse, Chairman
Sharon A. Queeney
Harlan K. Ullman
ADVISORY BOARD
Peter Bruno
OFFICERS
Robert P. Morse, President
Michael R. Linburn, Vice President
Allen C. Post, Vice President
Michael Miola, Secretary, Treasurer
INVESTMENT ADVISER
WALL STREET MANAGEMENT CORPORATION
230 Park Avenue
New York,
New York 10169
CUSTODIAN
THE BANK OF NEW YORK
90 Washington Street, 11th Floor
New York, New York 10286
TRANSFER AGENT
AMERICAN DATA SERVICES
150 Motor Parkway
Hauppauge, New York 11788
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York 10019
