<TABLE>
<CAPTION>
THE WALL STREET FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1998
Market
Shares Value
- ----------------------------------------------------------------------
COMMON STOCKS - 94.97%
BASIC MATERIALS - 0.40%
<C> <S> <C>
15,000 + Arqule Inc. ................................. $ 73,594
-----------
CAPITAL GOODS - 5.34%
60,000 + Flow Intl. Corp. ............................ 575,625
2,000 Hewlett Packard Co. ......................... 136,625
6,000 + Oribtal Sciences Corp. ...................... 265,500
-----------
977,750
-----------
CONSUMER - CYCLICAL - 10.24%
4,000 + Abercrombie & Fitch Co. ..................... 283,000
1,000 Comcast Corp Class "A" Special .............. 58,719
7,000 Home Depot Inc. ............................. 428,313
10,000 + Infinity Broadcast .......................... 273,750
5,000 + Mossimo Inc. ................................ 50,313
7,000 + Office Depot Inc. ........................... 258,563
4,000 + Pixar ....................................... 139,500
3,000 Tiffany & Co. ............................... 155,625
2,500 Walgreen Co. ................................ 146,406
5,000 + Zomax Optical Media ......................... 81,563
-----------
1,875,752
-----------
CONSUMER NON-CYCLICAL - 21.22%
5,000 + Agouron Pharmaceuticals Inc. ................ 293,594
3,000 + Alza Corp. .................................. 156,750
10,000 + Biochem Pharma. Inc. ........................ 286,875
8,000 + Centocor Inc. ............................... 360,500
7,000 + Chiron Corp. ................................ 183,094
14,000 + Corixa Corp. ................................ 128,187
12,000 + Gene Logic Inc. ............................. 83,437
8,000 + Genzyme Corp. ............................... 397,750
5,000 + Gilead Sciences Inc. ........................ 205,156
10,000 HBO & Co. ................................... 287,187
7,000 + Incyte Pharmaceuticals Inc. ................. 261,187
8,000 + ISIS Pharmaceuticals ........................ 103,750
10,000 + Liposome Co. Inc. ........................... 154,062
8,000 + Ligand Pharmaceuticals - Class B ............ 92,750
20,000 + Martek Biosciences Corp. .................... 165,000
8,000 + Millennium Pharmaceuticals Inc. ............. 206,500
2,500 Pfizer Inc. ................................. 313,594
3,500 + Transkaryotic Therapies Inc. ................ 87,938
10,500 + Trimeris Inc. ............................... 120,750
-----------
3,888,061
-----------
DIVERSIFIED - 0.08%
230,000 International UNP Holdings Ltd. ............. 14,721
-----------
ENERGY - 1.51%
4,000 Halliburton Co. ............................. 118,500
10,000 + Petroleum Geo- ADR .......................... 157,500
-----------
276,000
-----------
FINANCIAL - 1.88%
3,000 Allmerica Financial Corp. ................... 173,625
10,000 + CCC Information Services Group .............. 170,625
-----------
344,250
-----------
THE WALL STREET FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1998
Market
Shares Value
- ----------------------------------------------------------------------
SERVICES - 17.79%
4,500 + America Online Inc. ......................... $ 720,000
3,000 + At Home Corp. ............................... 221,813
6,000 Cintas Corp. ................................ 422,437
10,000 + Electronic Processing ....................... 97,500
25,000 + Flexinternational Software .................. 57,812
7,000 + J.D. Edwards & Co. .......................... 198,844
5,000 + Labor Ready Inc. ............................ 98,437
7,000 + Learning Co. Inc. ........................... 181,562
5,000 + Lernout & Hauspie Speech .................... 163,594
3,000 + Network Solutions ........................... 391,313
6,000 Ogden Corp. ................................. 150,375
35,000 + Spacehab Inc. ............................... 369,688
4,000 Waste Management ............................ 186,500
-----------
3,259,875
-----------
TECHNOLOGY - 36.51%
4,000 + Analog Devices Inc. ......................... 125,500
3,000 + Ascend Communications Inc. .................. 197,343
4,000 + Check Point Software ........................ 182,875
1,500 + Cisco Systems Inc. .......................... 139,266
1,500 + CMGI Inc. ................................... 159,797
7,000 Compaq Computer ............................. 293,562
3,000 + Compuware Corp. ............................. 234,281
6,000 + Excite Inc. ................................. 252,750
1,000 Intel Corp. ................................. 118,531
10,000 + Leap Wireless intl. ......................... 72,187
6,500 + MCI Worldcom Inc. ........................... 466,578
3,000 + Metro One Telecommunication Inc. ............ 39,000
5,000 + Netscape Communications Corp. ............... 302,344
6,000 + Network Associates .......................... 398,063
14,000 + New Era of Networks, Inc. ................... 614,250
75,000 + Object Design Inc. .......................... 494,531
4,000 + Qualcomm Inc. ............................... 207,000
3,000 + Rambus Inc. ................................. 289,875
10,000 + Rational Software Corp. ..................... 265,000
8,000 + RF Micro Devices ............................ 367,750
5,000 + Rogue Wave Software Inc. .................... 43,359
6,000 + Seagate Technology .......................... 181,500
1,500 + Siebel Systems Inc. ......................... 50,906
1,500 + Sterling Commerce ........................... 67,500
4,000 Texas Instruments ........................... 342,250
3,000 + Verisign Inc. ............................... 177,563
11,500 + Vitesse Semi-Conductor Corp. ................ 523,969
10,000 + Wavephore Inc. .............................. 80,469
-----------
6,687,999
-----------
TOTAL COMMON STOCKS AND WARRANTS
(Cost $11,021,614) ..........................17,398,002
-----------
CONVERTIBLE PREFERRED STOCKS - 0.80%
5,500 Metromedia International (Cost $130,960) .... 145,750
-----------
See notes to financial statements.
Page 1
THE WALL STREET FUND, INC.
SCHEDULE OF INVESTMENTS (continued)
December 31, 1998
Principal Market
Amount Value
- ----------------------------------------------------------------------
CONVERTIBLE BONDS - 2.66%
$713,000 Executone Information Systems 7.50% 03/15/2011
(Cost $286,654) .......................... $ 488,405
-----------
TOTAL INVESTMENTS
(Cost $11,439,228) ......... 98.43% 18,032,157
OTHER ASSETS LESS LIABILITIES . 1.57% 287,265
-----------
TOTAL NET ASSETS .............. 100.00% $18,319,422
===========
At December 31, 1998, the cost for federal tax purposes is $11,473,333.
Gross unrealized appreciation and depreciation of securities are as
follows:
Gross unrealized appreciation ................. $ 6,811,331
Gross unrealized depreciation ................. (252,507)
------------
Net unrealized appreciation ................... $ 6,558,824
============
<FN>
+ Non-income producing security.
</FN>
</TABLE>
<TABLE>
<CAPTION>
THE WALL STREET FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
ASSETS:
<S> <C> <C>
Investments in securities, at value
(cost $11,439,228) (Note 1) $ 18,032,157
Cash 339,985
Receivables:
Investment securities sold $ 231,093
Fund shares sold 20,297
Interest and dividends 19,278
----------
270,668
Other assets 1,212
--------------
Total Assets 18,644,022
LIABILITIES:
Payables:
Investment adviser fee 12,498
Investment securities purchased 303,640
Fund shares repurchased 4,609
Accrued expenses 3,853
----------
Total Liabilities 324,600
--------------
Net Assets $ 18,319,422
==============
Net Assets Consist of:
Paid in capital 11,746,775
Unrealized appreciation on
investments 6,592,929
Accumulated net realized loss
on investments (20,282)
--------------
Net Assets $ 18,319,422
==============
Net asset value and
redemption price per share
($18,319,422/1,949,972 shares
outstanding) (Note 4) $ 9.39
==============
Maximum offering price per share
(100/96 of $9.39) $ 9.78
==============
</TABLE>
See notes to financial statements.
Page 2
<PAGE>
<TABLE>
<CAPTION>
THE WALL STREET FUND, INC.
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
INVESTMENT INCOME:
Income:
<S> <C>
Dividends $ 25,444
Interest 68,985
----------
Total income 94,429
----------
Expenses:
Investment adviser fees
(Note 3) 126,063
Transfer agent fees and
dividend paying expenses (Note 3) 22,823
Custodian fees 24,870
Accounting services (Note 3) 49,000
Reports to shareholders 20,458
Professional fees 23,951
Directors fees and expenses 28,220
Registration fees 7,000
Miscellaneous 15,745
----------
Total Expenses 318,130
----------
Net investment loss (223,701)
----------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS
Net realized gains from
investment transactions 428,546
Net increase in unrealized
appreciation of investments 4,639,727
----------
Net realized and unrealized gains
on investments 5,068,273
----------
Net increase in net assets
resulting from operations $ 4,844,572
===========
</TABLE>
<TABLE>
<CAPTION>
THE WALL STREET FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
increase (decrease) in net assets
from operations:
<S> <C> <C>
Net investment loss $ (223,701) $ (151,434)
Net realized gains from
investment transactions 428,546 868,636
Net increase(decrease) in unrealized
appreciation of investments 4,639,727 (1,054,196)
------------- -------------
Net increase (decrease) in net assets
resulting from operations 4,844,572 (336,994)
Distributions to shareholders from:
Net realized gains from
investment transactions
($0.23 and $0.41 per share,
respectively) (435,983) (834,155)
Net capital share transactions
(Note 4) (1,665,994) 808,663
------------- -------------
Total increase (decrease) in net assets 2,742,595 (362,486)
NET ASSETS:
Beginning of period 15,576,827 15,939,313
------------- -------------
End of period $ 18,319,422 $ 15,576,827
============= =============
</TABLE>
See notes to financial statements.
Page 3
<PAGE>
THE WALL STREET FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
(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 primary objective of
the Fund is growth of capital. To achieve this objective the Fund normally
invests in common stocks, which, in the opinion of the investment adviser offer
prospects of sustained growth. 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 fair 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. When market quotations are not readily available
securities will be valued at fair value as determined in good faith by the
Fund's Board of Directors.
(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.
(2) PURCHASES AND SALES OF SECURITIES:
Purchases and sales of investment securities, during the year ended December 31,
1998 aggregated $27,068,722 and $29,450,359, 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 $10,000,000, 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, 1998, Wall Street Management Corporation (WSMC)
earned investment advisory fees of $126,063 with no reimbursement to the Fund
for expenses.
The adviser also serves as the Fund's principal underwriter. For the year ended
December 31, 1998, WSMC received $5,358 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 $71,823 for the year ended December 31, 1998.
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, 1998, no
remuneration was paid by the Fund to MWC.
(4) CAPITAL STOCK:
At December 31, 1998 there were 5,000,000 shares of $1 par value capital stock
authorized. Transactions in capital stock during the year ended December 31,
1998 and the year ended December 31, 1997 were as follows:
1998 1997
----------------------- -----------------------
Shares Amount Shares Amount
--------- ----------- -------- ------------
Shares sold ................ 322,128 $ 2,443,294 293,230 $ 2,360,707
Shares issued for
reinvestment of
distribution from
realized gains ........ 46,364 393,171 100,096 705,679
Shares redeemed ........... (541,316) (4,502,459) (273,575) (2,257,723)
-------- ----------- -------- ---------
Net increase(decrease) ... (172,824) ($1,665,994) 119,751 $ 808,663
======== =========== ======== =========
Page 4
<PAGE>
THE WALL STREET FUND, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
(5) CHANGE IN CERTIFYING ACCOUNTANT:
The Fund terminated the service of PriceWaterhouseCoopers (PWC) as independent
auditor of the Fund on January 8, 1999.
None of the reports of PWC on the financial statements of the Fund for either
of the past two fiscal years contained an adverse opinion or a disclaimer of
opinion, or was qualified or modified as to uncertainty, audit scope or
accounting principles. During the Fund's two most recent fiscal years and
subsequent interim period preceding the termination of PWC, there were no
disagreements with PWC on any matter of accounting principle or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PWC would have caused it
to make reference to the subject matter of disagreement in connection with its
report. None of the reportable events listed in Item 304(a)(1)(v) of Regulation
S-K occurred with respect to the Fund during the Fund's two most recent fiscal
years and the subsequent interim period preceding the termination of PWC.
On January 8, 1999, the Fund upon the recommendation of the Audit Committee of
the Board of Directors, engaged McGladrey & Pullen, LLP (M&P) as its
independent auditor.
During the Fund's two most recent fiscal years and the subsequent
interim period preceding the engagement of M&P, neither the Fund nor anyone on
its behalf consulted M&P regarding the application of accounting principles to
a specified completed or contemplated transaction or the type of audit opinion
that might be rendered on the Fund's financial statements, and no written or
oral advice concerning same was provided to the Fund that was an important
factor considered by the Fund in reaching a decision as to any accounting,
auditing or financial reporting issue.
Page 5
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a fund share outstanding throughout each period)
Year Ended December 31,
1998 1997 1996 1995 1994 1993 1992 1991
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.34 $ 7.96 $ 8.19 $ 7.42 $ 8.03 $ 7.60 $ 7.27 $ 5.54
------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income (loss) (.11) (0.08) (0.06) (0.03) (0.02) (0.02) 0.01 0.03
Net realized and unrealized gains (losses)
on investments 2.39 (0.13) 0.98 2.60 (0.38) 1.00 0.54 2.95
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations 2.28 (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 0.00 (0.01) (0.03)
Distribution from realized gains
from security transactions (0.23) (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) (0.01)
------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.23) (0.41) (1.15) (1.80) (0.21) (0.55) (0.22) (1.25)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $ 9.39 $ 7.34 $ 7.96 $ 8.19 $ 7.42 $ 8.03 $ 7.60 $ 7.27
====== ====== ====== ====== ====== ====== ====== ======
Total return** 31.40% (2.37%) 11.45% 36.50% (4.86%) 13.17% 7.61% 54.36%
Ratios/supplemental data
Net assets, end of period (in 000's) 18,319 15,577 15,939 14,383 11,080 11,561 11,202 11,032
Ratio of expenses to average net assets 1.89% 1.82% 1.84% 2.02% 2.12% 2.04% 2.15% 2.10%
Ratio of expenses to average net assets,
net of reimbursement 1.89% 1.82% 1.82% 1.90% 1.96% 1.96% 1.97% 1.98%
Ratio of net investment income (loss) to
average net assets (1.33%) (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 (1.33%) (0.96%) (0.68%) (0.38%) (0.31%) (0.23%) 0.09% 0.43%
Portfolio turnover rate 165.84% 121.12% 142.11% 143.27% 89.01% 107.22% 112.47% 159.52%
<FN>
**Excluding Sales Charge
</FN>
</TABLE>
See notes to financial statements.
Page 6
<PAGE>
PRINCIPAL INVESTMENT CHANGES
For the year ended December 31, 1998
NEW POSITIONS
Agouron Pharmaceuticals Inc., America Online, Inc., Check Point Software,
Comcast Corp. Class "A" Special, CMG Information Services, Inc., Compaq
Computer, Compuware Corp., Gilead Sciences, Inc., Gene Logic, Inc., Halliburton
Co., HBO & Co., Infinity Broadcast, J.D. Edwards & Co., Labor Ready Inc., Leap
Wireless Intl., Mossimo, Inc., Millennium Pharmaceuticals Inc., Metromedia Intl.
Conv. Preferred, Metro One Telecommunication Inc., New Era of Networks, Inc.,
Orbital Sciences, Petroleum Geo, RF Micro Devices, Rambus, Inc., Sterling
Commerce, Learning Co., Inc., Trimeris, Inc., Texas Instruments, Verisign, Inc.,
Wavephore, Inc., Waste Management.
ELIMINATIONS
Barrick Gold Corp., Adaptec, Inc., Applied Materials, Inc., Anadarko Petroleum
Corporation, Automatic Data Processing, Avant Corporation, Biogen Inc., Bristol
Myers Squibb, Cendant Corp., Ciena Corp., Celeritek Inc., 3 Com Corp.,
Cybermedia, Inc., Faxsav Inc., First Data Corp., First Health Group Corp.,
Genzyme Tissue Repair, Gulf Canada Resources, Gateway 2000, Inc., Harbinger
Corp., Healthsouth Rehabilitation Corp., International Precious Metal Corp.,
Jilin Chemical Ind., Johnson & Johnson, Manugistics Group Inc., Metacreations
Corp., Metromedia International Group, Mariner Post-Acute Network Inc., Merck &
Co., Micron Technology Inc., Newmont Mining, New Plan Realty Trust, Play By Play
Toys & Novelties, Perclose Inc., Parametric Technologies, Peoplesoft Inc.,
Renaissance Worldwide Inc., Polo Ralph Lauren, Sawtek Inc., SCM Microsystems,
Select Software Tools Ltd. Spon ADR, Solectron Corp., SONY Corp., Sequent
Computer Systems Inc., Tellabs Inc., Telxon Corp., North Face Inc., Treev Inc.,
Unocal Corp., USA Waste Services Inc., Vantive, Inc., Xilinx Inc., Executone
Information Systems, Zygo Corp. Convertible Bonds: Alza Corp., 5.00%,
05/01/2006, Bonneville Pacific Corp., 7.75%, 08/15/2009, VLSI Technology Inc.,
8.25%, 10/01/2005.
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: 26.14% 5 YEAR: 12.26% 10 YEAR: 12.37%
DATE WALL STREET FUND RUSSELL GROWTH INDEX
1988 $ 9,450 $10,000
1989 11,546 11,421
1990 9,195 8,971
1991 14,194 12,889
1992 16,274 14,997
1993 17,285 17,548
1994 16,445 16,989
1995 22,450 21,442
1996 25,020 24,607
1997 24,428 29,656
1998 32,099 28,634
The maximum initial sales charge payable on an investment in the Fund was 5.50%
at December 31, 1988. 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.
MANAGEMENT'S 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 1998.
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. The Federal Reserves actions of lowering short
term interest rates and adding liquidity changed market perceptions concerning
future growth during the last quarter of 1998. Your fund includes small, medium
as well as large capitalization issues but is weighted in the faster growing
smaller companies.
Page 7
<PAGE>
February 15, 1999
Dear Shareholders:
What a year 1998 turned out to be! Corporate earnings did slow, the President
got himself impeached, Russia did essentially default, Brazil hit the wall, and
Japan remains a mystery. "Euro"land has as many negatives as positives. Looking
at the year ago report and mid-year letters to you, the information turned out
fairly prophetic for direction but understated the magnitude of price changes in
the marketplace. Since we are fundamental investors because we believe (and
practice) that 80% of the investment challenge is getting the fundamentals right
we will leave the other 20% to price changes and happily accept that we were
able to steer your fund to a 31.4% return. Net asset value per share increased
from $7.34 to $9.39 in addition to a $0.23 per share long term capital gain
distribution. The vast majority of shareholders reinvested their capital gain in
the fund.
Your growth fund places emphasis on making investments in mid cap, small cap and
micro-cap companies. Real growth throughout history starts with smaller
companies. Shareholders also benefit by participating not only in the earlier
stages of corporate revenue growth but also by your fund management's choice to
hold winners as their continued earnings make them larger size companies. This
strategy proved its value during last year's price volatility and contributed to
your funds outperforming the S&P 500, the Dow Jones Industrials, the S&P Mid
Cap, and the benchmark Russell 2000 Indexes.
The strong performance in the last quarter of the year led to some impressive
full year numbers, with the S&P 500 total return and the Dow Jones Industrials
increasing 28.6% and 18.1%, respectively. On the other hand, the Russell 2000
index of smaller capitalization companies still finished the year in negative
territory, down 2.5%. Nevertheless an apparent sea change in 1998's fourth
quarter portends interesting developments for 1999-2003. We believe there is a
strong probability the low point in the US equity markets of October 8, 1998
marked the beginning of a major bull market in small and mid cap stocks and the
beginning of a relative out-performance over the very large cap companies and
indexes. While the full, calendar fourth quarter numbers show the S&P 500 ahead
of the small and mid cap indexes, from the October low, both small and mid cap
indexes have outperformed the large caps by about ten percentage points through
the end of January 1999. Even more impressive is that despite the early February
down draft, both the mid and small cap indexes remain ahead of the S&P 500 since
last October 8th.
This broadening out of trend is important to the health of the equity market.
While popular averages were strong in 1998, the average NYSE stock was down 8%
for the year. Fully half of the percentage gain in the S&P 500 can be attributed
to just twelve extremely large companies. At any rate, we are glad to see more
marketplace interest in a broader number of stocks: it makes us feel more useful
as stock pickers and as liquidity premiums diminish, even a little, the enormous
amount of cash that has come into the markets will seek higher growth and better
values. Some investors are beginning to perceive that the very large
capitalization multinational companies may have a greater relative difficulty in
growing themselves in a world of so much international financial turmoil and
economic uncertainty. Ample liquidity and relative safety in a growing number of
mid-capitalization names may be the hallmark of the last year of the decade. The
emerging Internet area has grown to have an overall market capitalization that
is larger than the hundred year old energy sector. No wonder that recognized
market researchers estimate over 20% of the US Gross Domestic Product will be
handled by Internet commerce within three to five years. Our domestic economy's
growth seems surer and US mid-caps the safer place to estimate earnings growth.
All large cap companies were once small and we believe that's where the value is
for the next several years. Which of the midcap, small cap, microcap or large
cap sectors will prove to be the best performers in 1999, is uncertain. The best
course for investors pursuing superior value and superior earnings growth is to
focus on small businesses that with the combination of management, product, and
adaptable business sense have the ability to become large. One of your
investments, America On-line, Inc. is the most recent example of such success.
This is where investors optimize risk/reward.
We continue to position your fund with a strong diversification, having no more
than 3% in any one equity at invested cost. The common thread is that these are
growing businesses in different industries with what we believe are first class
managements - the basis for fundamental success. While nothing is a sure bet, we
believe that superior earnings growth and inherent business values in our
portfolio names will be the key to investment performance. Our greatest
challenge and our greatest value is being able to identify unassailable earnings
growth in investment opportunities for the assets you have entrusted to our
management.
You should know that CDA/Weisenberger's January 31, 1999 report on 9,670 mutual
funds ranks the Wall Street Fund in the top 3% for the last 12 months, the top
20% for the last three years and the top 30% of all funds for the past 10 years.
Please don't hesitate to communicate with us by phone, letter, or email and of
course visit the fund's web site at www.thewallstreetfund.com.
Sincerely,
/s/ Robert P. Morse
Robert P. Morse
President
Page 8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors of
The Wall Street Fund, Inc.
We have audited the accompanying statement of assets and liabilities including
the schedule of investments of The Wall Street Fund, Inc. as of December 31,
1998, and the related statement of operations, the statement of changes in net
assets, and the financial highlights for the year 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 audit. The statement of changes
in net assets and financial highlights for periods ended prior to December 31,
1998 were audited by other auditors whose report thereon dated February 20, 1998
expressed an unqualified opinion with respect thereto.
We conducted our audit 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, 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 audit provides 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, 1998, the results of its operations,
the changes in its net assets and the financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
/s/ MC GLADREY & PULLEN LLP
New York, New York
February 19, 1999
Page 9
<PAGE>
DIRECTORS
Clifton H.W. Maloney
Robert P. Morse, Chairman
Sharon A. Queeney
Harlan K. Ullman
OFFICERS
Robert P. Morse, President
Michael R. Linburn, Vice President
Allen C. Post, Vice President
Jian H. Wang, 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
McGLADREY & PULLEN, LLP
555 Fifth Avenue
New York, New York 10017
THE
WALL
STREET
FUND
INC.
ANNUAL REPORT
December 31, 1998
