[LOGO]
PROSPECTUS
May 1, 2000
A diversified mutual fund that
invests in common stocks of
growth-oriented companies.
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PROSPECTUS
------------------
May 1, 2000
THE WALL STREET FUND, INC.
230 Park Avenue, Suite 1635, New York, New York 10169
The Fund seeks to produce growth of capital by investing principally in a
diversified portfolio of growth-oriented common stocks.
Please read this Prospectus and keep it for future reference. It contains
important information, including information on how The Wall Street Fund invests
and the services it offers to shareholders.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed upon the adequacy of this
Prospectus. Any representation to the contrary is a criminal offense.
THE WALL STREET FUND, INC.
230 Park Avenue, Suite 1635
[LOGO] New York, New York 10169
(212) 856-8250(Y)1-800-443-4693
http://www.thewallstreetfund.com
e-mail: [email protected]
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TABLE OF CONTENTS
Page
Investment Objective and Policies ......................................... 3
Risk Factors .............................................................. 4
Past Performance .......................................................... 5
Fees & Expenses ........................................................... 6
How to Purchase Shares .................................................... 6
How to Redeem Shares ...................................................... 7
Conducting Business With the Fund ......................................... 8
Additional Policies About Transactions .................................... 8
Shareholder Services ...................................................... 10
How Share Price is Determined ............................................. 10
Management of the Fund .................................................... 11
Dividends, Distributions and Their Taxation ............................... 11
Dealer Compensation ....................................................... 12
Additional Policies ....................................................... 13
Financial Highlights ...................................................... 13
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INVESTMENT OBJECTIVE AND POLICIES
The Wall Street Fund, Inc.'s (the "Fund") primary investment objective is to
produce growth of capital by investing principally in a diversified portfolio of
common stocks considered by Wall Street Management Corporation (the "Adviser" or
"WSMC") to offer prospects of sustained growth in value. The Fund may also hold
convertible securities, preferred stocks, U.S. government securities corporate
bonds and foreign securities as deemed appropriate by the Adviser. Realization
of current income through the receipt of interest or dividends from investments
is a secondary objective, although receipt of income may accompany capital
appreciation. The Fund seeks to achieve its secondary objective of income
generation through selection of dividend-paying and convertible securities.
There can be no assurance that the Fund's investment objectives will be
achieved.
Investments in general will be made in securities of companies which have been
in business for at least three years, but without regard to the period of time
the securities may have been publicly traded. Common stock investments may be
traded on listed securities exchanges or over the counter without restriction.
There is no restriction as to the size of businesses invested in, but the
investment adviser intends to maintain a growth-oriented style of investing in a
portfolio mixture of small, medium and large capitalization companies, subject
to the Fund's investment restrictions and diversification status.
Analytical emphasis is focused on financial ratios such as pre-tax margins,
return on equity and cash flow which are actually or expected to be superior to
those of the average company. While price earnings ("P/E") ratios are important
valuation criteria, there is no limitation or emphasis on high or low P/E
stocks. In the opinion of the investment adviser, P/E ratios are important in
relation to the aforementioned financial ratios. In addition, the Fund selects
convertible securities based on future growth potential and high current income
at the time of purchase.
In practical application, the Fund attempts to attain its investment objectives
by relying on three fundamental practices:
- -- Careful selection of securities - based on the performance and position of
individual companies and their industries relative to alternative
investments.
- -- Broad diversification among industries and their companies - fundamental to
spreading the risk that is inherent in any single investment while
recognizing that such risk cannot be eliminated.
- -- Continuous scrutiny of investments - realization of security values depends
upon many factors, including timing, trends of the market, and the economy.
TEMPORARY INVESTMENTS
The manager may take a temporary defensive position when the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist. Under these circumstances,
the Fund may be unable to pursue its investment goal because it may not invest
or may invest less in securities of companies that the manager believes are
undervalued in the marketplace relative to underlying asset values.
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RISK FACTORS
The Fund is not designed to offer a complete or balanced investment program and
is not suitable for all investors. Common stocks fluctuate in price. This means
that the value of your investment in the Fund will go up and down and you could
lose money over short or extended periods of time. The Adviser in order to help
achieve diversification of risk, rarely makes investments of more than 3% of the
Fund's net asset value at cost in any one security.
STOCKS
While stocks have historically outperformed other asset classes over the long
term, they tend to go up and down more dramatically over the shorter term. These
price movements may result from factors affecting individual companies,
industries or the securities market as a whole.
SMALLER COMPANIES
Historically, smaller company securities have been more volatile in price than
larger company securities, especially over the short-term. Among the reasons for
the greater price volatility are the less certain growth prospects of smaller
companies, the lower degree of liquidity in the markets for such securities, and
the greater sensitivity of smaller companies to changing economic conditions. In
addition, small companies may lack depth of management, they may be unable to
generate funds necessary for growth or development, or they may be developing or
marketing new products or services for which markets are not yet established and
may never become established. Therefore, while smaller companies may offer
greater opportunities for capital growth than larger, more established
companies, they also involve greater risks and should be considered speculative.
The Fund may also choose to hold investments in companies that were once small
and have become larger due to growth in their business.
More detailed information about the Fund, its policies and risks can be found in
the Fund's Statement of Additional Information (SAI).
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PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The bar chart shows how the Fund's return has changed from year to
year. The second table shows how the Fund's average annual returns for certain
periods compare with those of the Russell 2000 Index, a widely recognized index
of small stock performance. The bar chart does not reflect sales charges. If it
did, returns would be lower. Both tables assume that all dividends and capital
gain distributions have been reinvested in new shares of the Fund. Past
performance is not necessarily an indication of how the Fund will perform in the
future.
[GRAPH OMITTED]
1990 -20.36%
1991 54.36%
1992 7.61%
1993 13.17%
1994 - 4.86%
1995 36.50%
1996 11.45%
1997 - 2.37%
1998 31.40%
1999 62.88%
Best Quarter Q4 `99 = 40.83 %
Worst Quarter Q3 `90 = (28.23)%
Average Annual Total Return as of December 31, 1999 (after deducting sales
charges at the beginning of each period):
1 YEAR 5 YEARS 10 YEARS LIFE OF FUND+
------ ------- -------- -------------
Fund 56.36% 25.00% 15.83% 9.82%
Russell 2000 Index* 21.11% 16.44% 11.59% N/A
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+ The Fund was launched on December 23, 1945.
* Source: Frank Russell Company. The Russell 2000 Index measures the
performances of the 2,000 smallest companies in the Russell 3000 Index, which
represents approximately 11% of the total market capitalization of the Russell
3000 Index. The Russell 3000 Index itself measures the performance of the 3,000
largest U.S. companies or 98% of the U.S. equity market.
-5-
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FEES & EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ....... 4.00%
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees ........................................ 0.75%
Distribution [and/or Service] (12b-1) Fees ............. None
Other Expenses ......................................... 1.05%
Total Annual Operating Expenses ........ 1.80%
The Example below is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$576 $944 $1,336 $2,431
HOW TO PURCHASE SHARES
There are no redemption or Rule 12b-1 distribution charges. You do pay a sales
charge when you buy shares of the Fund. If you use the services of any other
broker to purchase or redeem shares of the Fund, that broker may also charge you
a fee.
MINIMUM INITIAL INVESTMENT
You may open a Fund account in the following amounts:
-- $2,000 or more for most accounts
-- $500 or more for payroll deduction arrangements
MINIMUM ADDITIONAL INVESTMENT
You may add to your Fund account at any time in the following amounts:
-- $100 or more for purchases by mail
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SALES CHARGES
A sales charge will be imposed on the purchase of your shares of the Fund as
follows:
SALES CHARGE AS SALES CHARGE AS
PERCENTAGE OF THE PERCENTAGE OF THE NET
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED
Less than $100,000 4.00% 4.17%
$100,000 or more
but less than $175,000 3.00 3.09
$175,000 or more,
but less than $250,000 2.00 2.04
$250,000 or more,
but less than $500,000 1.00 1.01
$500,000 and over 0.00 0.00
SALES CHARGE REDUCTIONS AND WAIVERS
If you qualify for any of the sales charge reductions or waivers below, please
let us know at the time you make your investment to help ensure you receive the
lower sales charge.
QUANTITY DISCOUNTS
We offer several ways for you to combine your purchases in the Fund to take
advantage of the lower sales charges for large purchases.
-- CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your share
purchases in the Fund for purposes of calculating the sales charge.
Certain company and retirement plan accounts may also be included.
-- LETTER OF INTENT - expresses your intent to buy a stated dollar amount
of shares over a 13-month period and lets you receive the same sales
charge as if all shares had been purchased at one time. We will
reserve a portion of your shares to cover any additional sales charge
that may apply if you do not buy the amount stated in your letter of
intent.
WAIVERS FOR CERTAIN INVESTORS
Shares also may be purchased without an initial sales charge by the following
individuals and institutions:
-- employees and other associated persons or entities of the Adviser or
of certain dealers
-- any trust, pension or profit-sharing or other benefit plan for
employees and other associated persons or entities of the Adviser or
of certain brokers or dealers
-- investment advisory clients of Morse, Williams & Co., Inc.
-- purchases of shares by fee paid registered investment advisers
purchasing on behalf of their clients
HOW TO REDEEM SHARES
You may withdraw from your Fund account at any time in the following amounts:
-- any amount for redemptions requested by mail
-- $200 or more for redemptions by Automatic Withdrawal Plan
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CONDUCTING BUSINESS WITH THE FUND
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HOW TO HOW TO HOW TO REDEEM OR
BY MAIL OPEN AN ACCOUNT ADD TO AN ACCOUNT SELL SHARES
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<S> <C> <C> <C>
The Wall Street Complete and sign Make your check In a letter, include
Fund, Inc., c/o the application ($100 minimum) the genuine
American Data which accompanies payable to The Wall signature of each
Services, Inc., 150 this Prospectus Street Fund, Inc., registered owner
Motor Parkway, Suite (special forms are c/o American Data (exactly as
109, Hauppauge, NY required to open a Services, Inc., 150 registered), the
11788 regular or ROTH IRA Motor Parkway, Suite name of each account
account and can be 109, Hauppauge, NY owner, the account
obtained by writing 11788. Always number and the
American Data identify your number of shares or
Services, Inc. at account number or the dollar amount to
the address below or include the be redeemed. A
by calling the toll detachable reminder proper signature
free number below). stub (from your guarantee from a
Your initial confirmation financial
investment must meet statement). institution is also
the minimum amount. required. We will
Make your check send funds only to
payable to The Wall the address of
Street Fund, Inc., record.
c/o American Data
Services, Inc., 150
Motor Parkway, Suite
109, Hauppauge, NY
11788.
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TO RECEIVE ADDITIONAL FORMS OR INFORMATION
PLEASE CALL TOLL-FREE 1-800-443-4693
ADDITIONAL POLICIES ABOUT TRANSACTIONS
We will not be responsible for the consequences of delays, including delays in
the banking or Federal Reserve systems. We cannot process transaction requests
that are not complete and in good order. Call us if you have any questions about
these procedures.
PURCHASES - We may reject purchase orders when not accompanied by payment or
when we believe such rejection is in the best interest of the Fund and its
shareholders. At any time, we may waive or increase the minimum investment
requirements with respect to any person or class of persons, which include
shareholders of the Fund's special investment programs. At our discretion, we
may accept individual stocks as payment for Fund shares, if the Fund's Adviser
believes such stocks are appropriate for the Fund's portfolio.
REDEMPTIONS - We will try to send redemption proceeds, as instructed, as soon as
practicable after we have received your redemption request directly or through
your securities dealer. For a repurchase through your securities dealer, we will
make payment to such securities dealer. In any event, we will send proceeds by
the seventh calendar day after we receive your request in good order. We must
receive an endorsed share certificate where a certificate has been issued. We
cannot accept requests that contain special conditions or an effective date
other than as described in this prospectus.
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For your protection, your direct redemption request must be in writing. The
request must be signed by each owner listed on the account, and all signatures
must be guaranteed (see "Signature Guarantees" below). For redemption through a
securities dealer, a stock power with signatures guarantee is required.
If you request a redemption within 15 days of the date of purchase, we will
delay sending your proceeds until we are certain that we have collected
unconditional payment in federal funds for the purchase of the shares being
redeemed, or until 15 days from the date of purchase.
When the New York Stock Exchange is closed or under emergency circumstances as
determined by the Securities and Exchange Commission, we may suspend your right
to redeem shares or postpone the date of payment beyond the normal seven-day
period. Also, under certain circumstances, we reserve the right to pay
redemption proceeds with portfolio securities owned by the Fund. If you receive
securities instead of cash, you may incur brokerage costs when converting into
cash.
We reserve the right to request additional documentation which we believe is
necessary to insure that a redemption is genuine. For your protection,
redemption instructions can only be changed by filing with us new instructions
on a form obtainable from us. The form must be properly signed with signature(s)
guaranteed.
SIGNATURE GUARANTEES - For your protection, we require a guaranteed signature
for direct redemptions or those made by securities dealers on your behalf. You
can have your signature guaranteed at a:
-- bank
-- savings association
-- trust company
-- broker/dealer
-- credit union (if authorized under state law)
-- securities exchange/association
-- clearing agency
Please note that a notary public cannot provide a signature guarantee.
We may waive these requirements in certain instances where it appears reasonable
to do so and it will not unduly affect the interests of other shareholders.
CORPORATIONS, TRUSTS AND OTHER ENTITIES - Additional documentation is normally
required in the case of corporations, fiduciaries and others who hold shares in
a representative or nominee capacity. Such documentation may include certified
copies of corporate resolutions, or certificates of incumbency, or such other
documentation as may be required under the Uniform Commercial Code or other
applicable laws or regulations. For authorization of redemptions by a
corporation, it will also be necessary to have an appropriate certified copy of
resolutions on file with the Fund. Your redemption will not become effective
until we have received all documents in the form required. It is your
responsibility as the shareholder to maintain such documentation on file and in
a current status. If you have questions concerning redemption requirements,
please write or telephone us well ahead of an anticipated redemption in order to
avoid any possible delay.
ALL TELEPHONE SERVICES - During periods of increased market activity, you may
have difficulty reaching us by telephone. If this happens you should contact us
by mail or overnight courier.
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AUTOMATIC WITHDRAWAL PLAN - To participate in this service, you must own a total
of $15,000 or more of shares of the Fund and your dividends and capital gains
distributions must be reinvested in additional shares of the Fund without a
sales charge. Under the automatic withdrawal plan, you will receive a fixed
amount on either a monthly, quarterly or other designated time period from
redemptions of the Fund. A minimal withdrawal amount of $200 has been
established by the Fund. Under all withdrawal programs, if your shares are
liquidated in excess of dividends and distributions reinvested in your account,
your account will decrease and may be exhausted, particularly during a period of
declining share values.
You may revoke or change your automatic withdrawal plan or redeem all of your
remaining shares at any time. We will continue withdrawal payments until your
shares are gone or until the Fund or you cancel the plan by written notice to
the other.
SHAREHOLDER SERVICES
The following services are also available to shareholders through the Fund's
Adviser:
-- Uniform Transfers (Gifts) to Minors accounts
-- Accounts for corporations or partnerships
-- Sub-Accounting Services for Keogh and corporate tax qualified
retirement plans, as well as certain other investors who must maintain
separate participant accounting records.
-- Prototype Retirement Plans suitable for the self-employed, including
sole proprietors, partnerships and corporations.
-- Traditional IRA
-- Roth IRA
-- Educational IRA
-- Simplified Employee Pensions (SEPs)
HOW SHARE PRICE IS DETERMINED
Shares of the Fund are purchased or redeemed at the net asset value per share
next calculated after your purchase order and payment or redemption order is
received in good order.
The net asset value per share is computed once daily, Monday through Friday, at
4:00 p.m. (Eastern Time) except on days on which the New York Stock Exchange,
Inc. is closed for trading.
The per share calculation is made by subtracting from the Fund's total assets
any liabilities and then dividing into this amount the total outstanding shares
as of the date of the calculation.
Each security owned by the Fund that is listed on an Exchange is valued at its
last sale price on that exchange on the date as of which assets are valued.
Where the security is listed on more than one exchange, the Fund will use the
price of that exchange which it generally considers to be the principal exchange
on which the stock is traded. Lacking sales, the security is valued at the mean
between the last current closing bid and asked prices. An unlisted security for
which over-the-counter market quotations are readily available is valued at the
mean between the last current bid and asked prices. When market quotations are
not readily available, any security or other asset is valued at its fair value
as determined in good faith by the Board of Directors.
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If applicable, trading in foreign securities markets is generally completed each
day at various times prior to the close of the NYSE. The values of foreign
securities held by the Fund will be determined as of such times for purposes of
determining the net asset value of the Fund. If events which materially affect
the value of foreign securities held by the Fund occur subsequent to the close
of the securities market on which such securities are primarily traded, the
investments affected thereby will be valued at "fair value" as described above.
MANAGEMENT OF THE FUND
The Fund's investment adviser and principal underwriter, WSMC located at 230
Park Avenue, New York, NY 10169, was founded in 1954. Together the Adviser and
its affiliates manage over $635 million assets consisting of approximately $235
million in institutional accounts and approximately $400 million for high net
worth individuals. The Adviser provides research, statistical, advisory and
managerial services to the Fund in return for an advisory fee paid monthly.
The person responsible for the Fund's management is Robert P. Morse, President
and Sole Director of the Adviser. Mr. Morse has been responsible for the day to
day management of the Fund since 1984 and has more than thirty (30) years
experience in the investment business with an extensive background in both
domestic and international equity and fixed-income markets. Mr. Morse is a
co-founder of Morse, Williams & Company, a broker-dealer established in 1981. In
addition to his responsibilities as President and portfolio management, Mr.
Morse serves as the Firm's chief investment strategist. Prior to founding Morse,
Williams & Company and managing the Fund, Mr. Morse was a divisional
vice-president at American Express and a partner at William G. Campbell & Co.
As compensation for all the foregoing services, the Fund pays the Adviser a fee
at the annual rate of 3/4 of one percent (0.75%) of the first $125 million, 5/8
of one percent (0.625%) of the next $75 million and 1/2 of 1% (.50%) for amounts
in excess over $200 million of its average daily net assets. The advisory fee
paid for 1999 as a percentage of average net assets was 0.75%.
DIVIDENDS, DISTRIBUTIONS AND THEIR TAXATION
The Fund pays its shareholders distributions from its net investment income and
from any net capital gains that it has realized on the sale of securities. Each
of these distributions will be declared annually on or before December 31. Your
distributions will be reinvested automatically in additional shares of the Fund,
unless you have elected on your original application, or by written instructions
filed with the Fund, to have them paid in cash. There are no fees or sales
charges on reinvestments.
Dividends from net investment income or net short-term gains will be taxable to
those investors who are subject to income taxes as ordinary income, whether
received in cash or in additional shares. Whether paid in cash or additional
shares of the Fund, and regardless of the length of time Fund shares have been
owned by the shareholder, distributions from long-term capital gains are taxable
to shareholders as such, but are not eligible for the dividends-received
deduction for corporations. Fund distributions will generally also be subject to
state and municipal tax. Also, for those investors subject to tax, if purchases
of shares in a Fund are made shortly before a record date for a dividend or
capital gains distribution, a portion of the investment will be returned as a
taxable distribution. If the Fund invests more than 50% of its assets in foreign
securities, any foreign taxes paid by the Fund may be passed through to you as a
foreign tax credit.
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<PAGE>
Distributions declared in October, November or December and made payable to
shareholders of record in such a month are deemed to have been received by
shareholders on December 31 of such year, so long as the distributions are
actually paid before February 1 of the following year. You will be notified each
January as to the federal tax status of distributions paid by the Fund. Such
distributions may also be subject to state and local taxes.
TAXES ON TRANSACTIONS - A redemption of Fund shares is a taxable event for
federal income tax purposes. When you sell your shares of the Fund, you may have
a capital gain or loss. The individual tax rate on any gain from a sale of your
shares depends on how long you have held your shares. Any loss incurred on a
sale of the Fund's shares held for six months or less will be treated as a
long-term capital loss to the extent of capital gains received with respect to
such shares. Starting January 1, 2001, you may be eligible for special lower
capital gain rates on sales of securities held for more than five years. You may
also be subject to state and municipal taxes on such exchanges and redemptions.
Non-U.S. investors may be subject to U.S. withholding and estate tax.
Because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS - If you are a corporate
shareholder, you should note that some portion of the dividends paid by the Fund
may qualify for the dividends-received deduction. The Fund will send to
shareholders a statement each year advising the amount of the dividend income
which qualifies for such treatment.
WITHHOLDING - In order to avoid backup withholding, you must certify on your
application, or on a separate form supplied by the Fund, that your Social
Security or Taxpayer Identification Number provided is correct and that you are
not currently subject to backup withholding, or that you are exempt from backup
withholding. Otherwise, the Fund is required by federal law to withhold 31% of
reportable payments (which may include income dividends, capital gains
distributions and redemptions) paid to you.
DEALER COMPENSATION
Qualifying dealers who sell fund shares may receive sales commissions and other
payments. These are paid by WSMC, the Distributor, from sales charges and its
other resources.
COMMISSION (%)
Investment under $100,000 ............ 3.75
$100,000 but under $175,000 .......... 2.75
$175,000 but under $250,000 .......... 1.75
$250,000 but under $500,000 .......... 0.75
$500,000 and over .................... 0.00
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ADDITIONAL POLICIES
Please note that the Fund maintains additional policies and reserves certain
rights, including:
-- The Fund may refuse any order to purchase shares.
-- At any time, the Fund may change its investment minimums or waive or
lower its minimums for certain purchases.
-- You may only buy shares eligible for sale in your state or
jurisdiction.
-- In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities
laws.
-- For redemptions over a certain amount, the Fund reserves the right to
make payments in securities or other assets of the Fund, in the case
of an emergency or if payment by check would be harmful to existing
shareholders.
-- To permit investors to obtain the current price, brokers or dealers
are responsible for transmitting all orders to the Fund promptly.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past nine years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). The information
has been audited by PricewaterhouseCoopers LLP for the years ended December 31,
1999 and the years prior to 1998. The year ended December 31, 1998 was audited
by other independent accountants. The Fund's audit report, along with the
financial statements, are included in the annual report, which is available upon
request.
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<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Year Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $ 9.39 $ 7.34 $ 7.96 $ 8.19 $ 7.42
Income from investment operations
Net investment income (loss) ...................... (.10) (.11) (0.08) (0.06) (0.03)
Net realized and unrealized gains (losses)
on investments ............................ 5.73 2.39 (0.13) 0.98 2.60
Total from investment operations .................. 5.63 2.28 (0.21) 0.92 2.57
Less distributions
Dividends from net investment income .............. 0.00 0.00 0.00 0.00 0.00
Distribution from realized gains
from security transactions ................ (2.59) (0.23) (0.41) (1.15) (1.80)
Return of capital distribution .................... 0.00 0.00 0.00 0.00 0.00
Total distributions ............................... (2.59) (0.23) (0.41) (1.15) (1.80)
Net asset value, end of period .................... $ 12.43 $ 9.39 $ 7.34 $ 7.96 $ 8.19
Total return** .................................... 62.88% 31.40% (2.37%) 11.45% 36.50%
Ratios/supplemental data
Net assets, end of period (in 000's) .............. 22,118 18,319 15,577 15,939 14,383
Ratio of expenses to average net assets ........... 1.92% 1.89% 1.82% 1.84% 2.02%
Ratio of expenses to average net assets,
net of reimbursement ...................... 1.80% 1.89%* 1.82% 1.82% 1.90%
Ratio of net investment income (loss) to
average net assets ....................... (1.32%) (1.33%) (0.96%) (0.70%) (0.50%)
Ratio of net investment income (loss)
to average net assets, net of reimbursement (1.20%) (1.33%)* (0.96%) (0.68%) (0.38%)
Portfolio turnover rate ........................... 104.18% 165.84% 121.12% 142.11% 143.27%
1994 1993 1992 1991
---- ---- ---- ----
Net asset value, beginning of period .............. $ 8.03 $ 7.60 $ 7.27 $ 5.54
Income from investment operations
Net investment income (loss) ...................... (0.02) (0.02) 0.01 0.03
Net realized and unrealized gains (losses)
on investments ............................ (0.38) 1.00 0.54 2.95
Total from investment operations .................. (0.40) 0.98 0.55 2.98
Less distributions
Dividends from net investment income .............. 0.00 0.00 (0.01) (0.03)
Distribution from realized gains
from security transactions ................ (0.21) (0.55) (0.21) (1.21)
Return of capital distribution .................... 0.00 0.00 (0.01) (.01)
Total distributions ............................... (0.21) (0.55) (0.22) (1.25)
Net asset value, end of period .................... $ 7.42 $ 8.03 $ 7.60 $ 7.27
Total return** .................................... (4.86%) 13.17% 7.61% 54.36%
Ratios/supplemental data
Net assets, end of period (in 000's) .............. 11,080 11,561 11,202 11,032
Ratio of expenses to average net assets ........... 2.12% 2.04% 2.15% 2.10%
Ratio of expenses to average net assets,
net of reimbursement ...................... 1.96% 1.96% 1.97% 1.98%
Ratio of net investment income (loss) to
average net assets ....................... (0.47%) (0.31%) (0.08%) 0.30%
Ratio of net investment income (loss)
to average net assets, net of reimbursement (0.31%) (0.23%) 0.09% 0.43%
Portfolio turnover rate ........................... 89.01% 107.22% 112.47% 159.52%
<FN>
* These ratios would have been 0.09% lower with the reimbursement of 1998
expenses included therein.
** Excluding sales charge.
</FN>
</TABLE>
<PAGE>
INVESTMENT ADVISER AND DISTRIBUTOR:
Wall Street Management Corporation
230 Park Avenue, Suite 1635
New York, New York 10169
DIRECTORS:
Clifton H.W. Maloney
Edward J. McCann
Robert P. Morse, Chairman
Sharon A. Queeney
Harlan K. Ullman
OFFICERS:
Robert P. Morse, President
Laurence R. Golding, Vice President
Michael R. Linburn, Vice President
Jian H. Wang, Vice President
Michael Miola, Secretary and Treasurer
CUSTODIAN:
The Bank of New York
100 Church Street
New York, NY 10286
TRANSFER AGENT:
American Data Services, Inc.
150 Motor Parkway
Hauppauge, NY 11788
INDEPENDENT ACCOUNTANTS:
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
<PAGE>
ADDITIONAL INFORMATION
The Statement of Additional Information (SAI) contains additional information
about the Fund and is incorporated by reference into this Prospectus. The Fund's
annual and semi-annual reports to shareholders contain additional information
about the Fund's investments. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
You may obtain a free copy of these documents by calling, writing or e-mailing
the Fund as shown below. You also may call the toll free number given below to
request other information about the Fund and to make shareholder inquiries.
You may review and copy the SAI and other information about the Fund by visiting
the Securities and Exchange Commission's Public Reference Room in Washington, DC
(202-942-8090) or by visiting the Commission's Internet site at
http://www.sec.gov. Copies of this information also may be obtained, upon
payment of a duplicating fee, by writing to the Public Reference Section of the
Commission, Washington, DC 20549-6009.
Investment Company Act File No. 811-00515
THE WALL STREET FUND, INC.
230 Park Avenue, Suite 1635
New York, New York 10169
(212) 856-8250
1-800-443-4693
http://www.thewallstreetfund.com
e-mail: [email protected]
<PAGE>
THE WALL STREET FUND, INC
STATEMENT OF ADDITIONAL INFORMATION
230 Park Avenue, New York, New York 10169
Telephone: (212) 856-8250
(800) 443-4693
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Prospectus of The Wall Street Fund, Inc.
(the "Fund"), dated May 1, 2000. The Prospectus may be obtained by writing to
the above address or by calling the above phone number.
The date of this Statement of Additional Information is May 1, 2000.
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES AND POLICIES............................................2
RISKS.........................................................................5
INVESTMENT RESTRICTIONS.......................................................8
MANAGEMENT OF THE FUND........................................................9
PRINCIPAL HOLDERS OF SECURITIES...............................................11
PORTFOLIO TRANSACTIONS........................................................12
TAX STATUS....................................................................14
UNDERWRITER...................................................................16
PURCHASE AND REDEMPTION SERVICES..............................................16
SHARE PURCHASES...............................................................16
REDEMPTION OF SHARES..........................................................19
PERFORMANCE MEASURES..........................................................21
CALCULATION OF TOTAL RETURN...................................................22
HOLIDAYS......................................................................23
INVESTMENT ADVISORY AND OTHER SERVICES........................................23
GENERAL INFORMATION...........................................................26
FINANCIAL STATEMENTS..........................................................26
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund is a diversified open-end, management investment company. In order to
achieve the "growth of capital" stated as the primary investment objective in
the section of the Prospectus entitled "Investment Objective and Policies," the
management of the Fund looks for undervalued investments in economic areas
experiencing lasting growth, i.e., those that are inefficiently priced and have
outstanding characteristics relative to alternative investments. Further, the
companies whose stocks are purchased must, whether small or large, be quality
companies run by able and motivated management teams, have sustainable earnings
growth, appropriate dividend policies, minimal or moderate debt, and valuable
products or services. Also, such financial ratios as superior profit margins,
return on equity, and cash flow are essential criteria. Growth characteristics
of the Fund's portfolio of investments are vital to meet the Fund's primary
investment objective. So is the ability to control risk. Accordingly, prudent
portfolio diversification is stressed. Seldom is more than 3% of the Fund's net
asset value invested at cost in any one security.
Investment Policies. It is the investment policy of the Fund to invest in common
stocks, convertible securities, preferred stocks, corporate bonds and securities
of the United States Government or its agencies without restrictions as to the
proportions of its assets invested in any type of security, subject to its
investment restrictions and diversification status. However, the Fund may invest
more or less broadly than as stated above, including acquisition of debt
securities, i.e. corporate bonds, convertible bonds and convertible preferreds.
The Fund will purchase corporate bonds rated no lower than investment grade, BBB
by Standard & Poor's Corporation and Baa by Moody's Investment Services, Inc..
Investment grade bonds possess some speculative characteristics. The Fund may
also purchase unrated bonds when in the opinion of the investment adviser such
investments are of comparable quality. Investments in general will be made in
securities of companies which have been in business for at least three years,
but without regard to the period of time the securities may have been publicly
traded. Common stock investments may be traded on listed securities exchanges or
over the counter without restriction. There is no restriction as to the size of
businesses invested in, but the investment adviser intends to maintain an
investment portfolio mixture of small, medium and large size companies, subject
to the Fund's investment restrictions and diversification status.
Equity securities. Generally entitle the holder to participate in a company's
general operating results. The purchaser of an equity security typically
receives an ownership interest in the company as well as certain voting rights.
The owner of an equity security may participate in a company's success through
the receipt of dividends which are distributions of earnings by the company to
its owners. Equity security owners may also participate in a company's success
or lack of success through increases or decreases in the value of the company's
shares as traded in the public trading market for such shares. Equity securities
generally take the form of common
<PAGE>
stock or preferred stock, as well as securities convertible into common
stocks. Preferred stockholders typically receive greater dividends but
may receive less appreciation than common stockholders and may have greater
voting rights as well.
Corporate Bonds. Represent an obligation of the corporate issuer to repay a loan
of money to it, and generally, provides for the payment of interest. A corporate
bond or debt security typically has a fixed payment schedule that obligates the
issuer to pay interest to the lender and to return the lender's money over a
certain time period. A company typically meets its payment obligations
associated with its outstanding bonds before it declares and pays any dividend
to holders of its equity securities. Bonds and other debt securities, such as
notes, debentures, and commercial paper differ in the length of the issuer's
payment schedule, with bonds carrying the longest repayment schedule and
commercial paper the shortest.
The market value of corporate bonds and other debt securities generally varies
in response to changes in interest rates and the financial condition of each
issuer. During periods of declining interest rates, the value of a bond
generally increases. Conversely, during periods of rising interest rates, the
value of such securities generally declines. These changes in market value will
be reflected in the Fund's net asset value per share.
Convertible securities. The Fund may invest in convertible securities. A
convertible security is generally a debt obligation or preferred stock that may
be converted within a specified period of time into a certain amount of common
stock of the same or a different issuer. A convertible security provides a
fixed-income stream and the opportunity, through its conversion feature, to
participate in the capital appreciation resulting from a market price advance in
its underlying common stock. As with a straight fixed-income security, a
convertible security tends to increase in market value when interest rates
decline and decrease in value when interest rates rise. Like a common stock, the
value of a convertible security also tends to increase as the market value of
the underlying stock rises, and it tends to decrease as the market value of the
underlying stock declines. Because its value can be influenced by both interest
rate and market movements, a convertible security is not as sensitive to
interest rates as a similar fixed-income security, nor is it as sensitive to
changes in share price as its underlying stock.
A convertible security is usually issued either by an operating company or by an
investment bank. When issued by an operating company, a convertible security
tends to be senior to common stock, but subordinate to other types of
fixed-income securities issued by that company. When a convertible security
issued by an operating company is "converted," the operating company often
issues new stock to the holder of the convertible security but, if the parity
price of the convertible security is less than the call price, the operating
company may pay out cash instead of common stock. If the convertible security is
issued by an investment bank, the security is an obligation of and is
convertible through the issuing investment bank.
The issuer of a convertible security may be important in determining the
security's true value. This is because the holder of a convertible security will
have recourse only to the issuer. In addition, a convertible security may be
subject to redemption by the issuer, but only after a specified date and under
circumstances established at the time the security is issued.
<PAGE>
While the Fund uses the same criteria to rate a convertible debt security that
it uses to rate a more conventional debt security, a convertible preferred stock
is treated like a preferred stock for the fund's financial reporting, credit
rating, and investment limitation purposes. A preferred stock is subordinated to
all debt obligations in the event of insolvency, and an issuer's failure to make
a dividend payment is generally not an event of default entitling the preferred
shareholder to take action. A preferred stock generally has no maturity date, so
that its market value is dependent on the issuer's business prospects for an
indefinite period of time. In addition, distributions from preferred stock are
dividends, rather than interest payments, and are usually treated as such for
corporate tax purposes.
Foreign securities. The Fund may purchase securities issued by companies
organized in foreign countries provided that, as a result of any such purchase,
not more than 20% of the value of the Fund's total assets will be represented by
such securities. The Fund does not anticipate having as a principal investment
strategy investment in foreign securities. However, securities of companies
located outside of the U.S. may offer significant profit opportunities, and
therefore, the Fund may invest in foreign securities if these investments are
consistent with the Fund's investment objectives and policies.
The Fund may buy sponsored or unsponsored American Depositary Receipts (ADRs).
ADRs are certificates issued by U.S. banks representing the right to receive
securities of a foreign issuer deposited with that bank or a correspondent bank.
The Fund may also buy the securities of foreign issuers directly in foreign
markets, and may buy the securities of issuers in developing nations. Foreign
securities and ADRs may involve additional risks that can increase the potential
for losses. Please see "Risks - Foreign securities risk" for more information.
American Depositary Receipts (ADRs). Many securities of foreign issuers are
represented by ADRs. ADRs evidence ownership of, and represent the right to
receive, securities of foreign issuers deposited in a domestic bank or trust
company or a foreign correspondent bank. Generally, ADRs in registered form are
designed for use in the U.S. securities market and ADRs in bearer form are
designed for use in securities markets outside the U.S. Please see "Risks -
American Depositary Receipts risk" for more information.
Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. on
exchanges or over-the-counter. While ADRs do not eliminate all the risk
associated with foreign investments, by investing in ADRs rather than directly
in the stock of foreign issuers, the Fund will avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the U.S. for ADRs quoted on a national securities exchange or
on NASDAQ. The information available for ADRs is subject to the accounting,
auditing and financial reporting standards of the U.S. market or exchange on
which they are traded, which standards are more uniform and more exacting than
those to which many foreign issuers may be subject.
ADRs may be issued under sponsored or unsponsored programs. In sponsored
programs, an issuer has made arrangements to have its securities traded in the
form of an ADR. In unsponsored programs, the issuer may not be directly involved
in the creation of the program. Although regulatory requirements with respect to
sponsored and unsponsored programs are generally similar, in some cases it may
be easier to obtain financial information from an issuer that has participated
in the creation of a sponsored program. Accordingly, there may be less
information available regarding issuers of securities underlying unsponsored
programs and there may not be a correlation between this information and the
market value of the ADR.
<PAGE>
Temporary investments. In anticipation of and during temporary defensive periods
or when investments of the type in which the Fund intends to invest are not
available at prices that the manager believes are attractive, the Fund may
invest up to 100% of its total assets in: (1) securities of the U.S. government
and certain of its agencies and instrumentalities that mature in one year or
less from the date of purchase, including U.S. Treasury bills, notes and bonds,
and securities of the Government National Mortgage Association, the Federal
Housing Administration and other agency or instrumentality issues or guarantees
that are supported by the full faith and credit of the U.S. government; (2)
obligations issued or guaranteed by other U.S. government agencies or
instrumentalities, some of which are supported by the right of the issuer to
borrow from the U.S. government (e.g., obligations of the Federal Home Loan
Banks) and some of which are backed by the credit of the issuer itself (e.g.,
obligations of the Student Loan Marketing Association); (3) bank obligations,
including negotiable or non-negotiable CDs (subject to the 10% aggregate limit
on the fund's investment in illiquid securities), letters of credit and bankers'
acceptances, or instruments secured by these types of obligations, issued by
banks and savings institutions that are subject to regulation by the U.S.
government, its agencies or instrumentalities and that have assets of over $1
billion, unless these types of obligations are guaranteed by a parent bank that
has total assets in excess of $5 billion; (4) commercial paper considered by the
manager to be of high quality, which must be rated within the two highest rating
categories by S&P or Moody's or, if unrated, issued by a company having an
outstanding debt issue rated at least AA by S&P or Aa by Moody's; (5) corporate
obligations including, but not limited to, corporate notes, bonds and debentures
considered by the manager to be high grade or that are rated within the two
highest rating categories by S&P or Moody's; and (6) money market funds.
RISKS
There is no assurance that the Fund will meet its investment objectives.
Investments in securities that have potential to increase in value may be
subject to a greater degree of risk and may be more volatile than other types of
investments.
The value of your shares will increase as the value of the securities owned by
the Fund increases and will decrease as the value of the Fund's investments
decrease. In this way, you participate in any change in the value of the
securities owned by the Fund. In addition to the factors that affect the value
of any particular security that the Fund owns, the value of Fund shares may also
change with movements in the stock market as a whole.
<PAGE>
Foreign securities risk. The value of foreign (and U.S.) securities is affected
by general economic conditions and individual company and industry earnings
prospects. While foreign securities may offer significant opportunities for
gain, they also involve additional risks that can increase the potential for
losses in the Fund. These risks can be significantly greater for investments in
emerging markets. Investments in ADRs also involve some or all of the risks
described below.
There is the possibility of cessation of trading on national exchanges,
expropriation, nationalization of assets, confiscatory or punitive taxation,
withholding and other foreign taxes on income or other amounts, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), restrictions on removal of assets, political or social
instability, or diplomatic developments that could affect investments in
securities of issuers in foreign nations.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The Fund, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing its
portfolio and calculating its net asset value.
Certain countries' financial markets and services are less developed than those
in the U.S. or other major economies. In many foreign countries there is less
government supervision and regulation of stock exchanges, brokers, and listed
companies than in the U.S. Foreign markets have substantially less volume than
the New York Stock Exchange and securities of some foreign companies are less
liquid and more volatile than securities of comparable U.S. companies.
Commission rates in foreign countries, which are generally fixed rather than
subject to negotiation as in the U.S., are likely to be higher. Settlement
practices may be cumbersome and result in delays that may affect portfolio
liquidity. The Fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies, and obtaining judgments with
respect to foreign investments in foreign courts than with respect to domestic
issuers in U.S. courts.
The Fund's investments in foreign securities may increase the risks with respect
to the liquidity of the fund's portfolio. This could inhibit the Fund's ability
to meet a large number of shareholder redemption requests in the event of
economic or political turmoil in a country in which the Fund has a substantial
portion of its assets invested or deterioration in relations between the U.S.
and the foreign country.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less economic stability; (ii) political and social uncertainty (for
example, regional conflicts and risk of war); (iii) pervasiveness of corruption
and crime; (iv) the small current size of the markets for such securities and
the currently low or nonexistent volume of trading, which result in a lack of
<PAGE>
liquidity and in greater price volatility; (v) delays in settling portfolio
transactions; (vi) risk of loss arising out of the system of share registration
and custody; (vii) certain national policies that may restrict the fund's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (viii) foreign taxation; (ix)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (x)
the absence of a capital market structure or market-oriented economy; and (xi)
the possibility that recent favorable economic developments may be slowed or
reversed by unanticipated political or social events.
In addition, many countries in which the Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency, and balance of payments position.
Currency risk. From time to time, a small minority of the Fund's investments may
be denominated in foreign currencies. Changes in foreign currency exchange rates
will affect the value of what the Fund owns and the Fund's share price.
Generally, when the U.S. dollar rises in value against a foreign currency, an
investment in that country loses value because that currency is worth fewer U.S.
dollars.
Euro risk. On January 1, 1999, the European Monetary Union (EMU) introduced a
new single currency, the euro, which will replace the national currency for
participating member countries. If the Fund holds investments in countries with
currencies replaced by the euro, the investment process, including trading,
foreign exchange, payments, settlements, cash accounts, custody and accounting
will be impacted. The transition and the elimination of currency risk among EMU
countries may change the economic environment and behavior of investors,
particularly in European markets.
Because this change to a single currency is new and untested, the establishment
of the euro may result in market volatility. For the same reason, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the Fund may hold in its portfolio, and
their impact on the value of Fund shares. To the extent the Fund holds non-U.S.
dollar (euro or other) denominated securities, it will still be exposed to
currency risk due to fluctuations in those currencies versus the U.S.
dollar.
While the implementation of the euro could have a negative effect on the Fund,
the Fund's Adviser and its other services providers are taking steps they
believe are reasonably designed to address the euro issue.
American Depositary Receipts (ADR) risk. ADRs reduce but do not eliminate all
the risk inherent in investing in the securities of foreign issuers. To the
extent that the Fund acquires ADRs through banks that do not have a contractual
relationship with the foreign issuer of the security underlying the ADR to issue
and service such ADRs, there may be an increased possibility that the Fund would
not become aware of and be able to respond to corporate actions such as stock
splits or rights offerings involving the foreign issuer in a timely manner.
<PAGE>
Interest rate risk. To the extent the Fund invests in bonds or other debt
securities, changes in interest rates will affect the value of the Fund's
portfolio and its share price. Rising interest rates, which often occur during
times of inflation or a growing economy, are likely to have a negative effect on
the value of the Fund's shares. Of course, interest rates have increased and
decreased, sometimes very dramatically, in the past. These changes are likely to
occur again in the future at unpredictable times.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions as fundamental
policies which may not be changed without the vote of a majority of the Fund's
outstanding voting securities. Pursuant to such policies, the Fund may not:
1. Invest more than 5% of its total assets (at the time of purchase) in
any issuer (other than the U.S. Government, its agencies and
instrumentalities).
2. Invest in the securities of any single issuer, if immediately after and
as a result of such investment, the Fund owns more than 10% of the
outstanding securities, or more than 10% of the outstanding voting
securities of any such issuer.
3. Concentrate more than 25% of the value of its assets in any one
industry or any small group of related industries.
4. Invest in other companies for the purpose of exercising control or
management.
5. Purchase or sell real estate or real estate mortgage loans; provided
that the Fund may invest in securities issued by companies which invest
in real estate or interests therein.
6. Purchase or sell commodities or commodity contracts.
7. Make loans to other persons; provided that the acquisition of bonds,
debentures or other corporate debt securities and investment in
government obligations, short-term commercial paper, certificates of
deposit and bankers' acceptances shall not be deemed to be the making
of a loan.
8. Underwrite the securities of other issuers except insofar as the Fund
may technically be deemed an "underwriter" under the Securities Act of
1933, as amended, in selling portfolio securities.
9. Invest in securities which cannot be readily resold to the public
because of legal or contractual restrictions on resale or for which no
readily available market exists or in the securities of any company
which has, together with any predecessor, a record of less than three
years' continuing operation.
10. Purchase securities on margin (except for short-term credit necessary
for clearance of portfolio transactions) or sell securities short or
write, sell or buy puts or calls, or any combination thereof.
11. Purchase the securities of other investment companies except as an
incident of a merger or consolidation or by purchase on the open market
without sales commissions other than customary brokers' commissions.
12. Purchase or hold securities of any issuer any of whose officers,
directors, trustees or security holders is an officer or director of
the Fund or its investment adviser, if after such purchase one or more
of such persons owns beneficially more than .5 of 1% of such securities
and all of them own beneficially more than 5% of the securities of such
company.
13. Borrow money except as a temporary measure for extraordinary or
emergency purposes and then only to an amount not exceeding 5% of the
cost value of all its assets and for a period not exceeding 60 days.
14. Pledge, mortgage or hypothecate its assets taken at market to an extent
greater than 15% of its gross assets taken at cost.
15. Permit its officers or directors or the officers or directors of its
investment adviser to take long or short trading positions in Shares.
16. Issue senior securities.
<PAGE>
MANAGEMENT OF THE FUND
The property, business and affairs of the Fund are managed by a Board of
Directors that currently consists of five (5) members. In addition, the
day-to-day operation of the Fund is directed by the Fund's officers with
oversight by the Board. The names, ages, addresses and information as to their
principal business occupations during the last five years for each director and
officer is set forth below in alphabetical order.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Principal Occupations
Positions Held for Last Five Years
Name and Address (Age) With Fund and Other Directorships
- - ------------------------------------------- -------------------------- -----------------------------------------------
Michael R. Linburn (66) Vice President Director of Marketing, Morse, Williams & Co.,
230 Park Avenue Inc., a broker-dealer affiliate of the Fund,
New York, NY 10169 since 1992.
Clifton H.W. Maloney (62) Director President, C.H.W. Maloney & Co., Inc., an
Suite 2010 investment banking firm, since 1981;
708 Third Avenue Director, Chromium Industries, Inc., and
New York, NY 10017 Liberty Pittsburgh Systems, Inc.
Michael Miola (47) Secretary/Treasurer President, American Data Services, Inc., a
150 Motor Parkway mutual fund administrator since 1984;
Hauppauge, NY 11788 Chairman, AmeriMutual Funds Distributors, Inc.,
a brokerage firm since 1997.
Robert P. Morse* (54) Chairman, President and President and a Director, Morse Williams &
230 Park Avenue Director Co., Inc., investment counselors, a
New York, NY 10169 broker-dealer affliate of the Fund, since
1981; President and sole Director of Wall
Street Management Corporation ("WSMC") since
1984 and Morse Williams Holding Co., Inc.
since 1986.
Jian H. Wang (36) Vice President Senior Trader, Morse, Williams & Co., Inc., a
230 Park Avenue broker-dealer affiliate of the Fund, since
New York, NY 10169 1998.
<PAGE>
Sharon A. Queeney (57) Director President, Queeney Enterprises since 1988, a
2175 Ibis Isle marketing/media production company.
Palm Beach, FL 33480
Harlan K. Ullman, Ph.D. (59) Director Chairman, Killoven Group, a consulting firm;
1245 29th Street, N.W. Senior Fellow, The Center for Naval Analyses;
Washington, DC 20007 Senior Associate, of Center for Strategic and
International Studies, since 1987.
Edward F. McCann* (55) Director President, Enterprise Resolution, Inc. since
293 Boston Post Road 1998; Managing Director, Advest Investment
Weston, MA 02493 Banking 1997-1998; Principal, Investment
Banking, Hambrecht and Quist 1989-1997.
</TABLE>
*Denotes a director who is an "interested person" as that term is defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended (the "1940
Act").
Set forth below is a Compensation Table listing, for each director, the
aggregate compensation received from the Fund for the calendar year ended
December 31, 1999. The Fund has no bonus, profit sharing, or retirement plans.
<TABLE>
<CAPTION>
COMPENSATION TABLE
<S> <C>
Total Compensation Received
Director From Fund
- - --------------------------------------------------------------------------------------- ------------------------------
Clifton H.W. Maloney............................................................ $6,000
Robert P. Morse................................................................. $6,000
Sharon A. Queeney............................................................... $6,000
Harlan K. Ullman................................................................ $6,000
Edward McCann .................................................................. $3,000
</TABLE>
In addition, the Fund's Directors were reimbursed for expenses of $3,835 in
connection with the four Board Meetings held during the year. The Fund makes no
payments of salary to any officer in such capacity.
As of April 21, 2000, all officers and directors of the Fund as a group owned
(according to information supplied by them) of record or beneficially a total of
67,159 shares or 3.75% of the Fund.
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
The following is the only person(s) known to the Fund who, on April 21, 2000,
owned of record or beneficially more than five percent of the outstanding
Shares:
<TABLE>
<S> <C> <C>
Name Shares Percent
Donaldson, Lufkin 123,501 6.90%
& Jennrette Securities Corp.
</TABLE>
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund are made by Wall Street
Management Corporation ("Adviser" or "WSMC"). Officers of the Fund are generally
responsible for implementing or supervising these decisions, including
allocation of portfolio brokerage and principal business as well as the
negotiation of commissions and/or the price of the securities. Portfolio
turnover will be no more than is necessary to meet the Fund's investment
objectives. Under normal circumstances, it is anticipated that the Fund's
portfolio turnover will exceed 100%.
Portfolio changes will be made promptly in the event that the Fund's investment
adviser shall consider such action appropriate, without regard to the length of
time any security involved was held or the impact of such changes on turnover
consistent with the Fund's objectives.
During the years 1999 and 1998, the rates of turnover of the Fund's portfolio
were 104.18% and 165.84%, respectively. The portfolio turnover ratio for 1998
reflected the volitality of securities markets during the year. The portfolio
turnover rate is calculated by dividing the lesser of the annual sales or
purchases of portfolio securities by the monthly average value of the portfolio
securities held by the Fund during the year (excluding all securities whose
maturities or expiration dates at the time of acquisition were one year or
less). A high portfolio turnover may result in higher brokerage costs and
additional capital gains taxes.
<PAGE>
When considering prospective investments, the Fund anticipates retaining
securities purchased over a period of time. However, surveillance of the
portfolio relative to alternative investments may lead to disposition of a
security in a short period of time.
In instances where securities are purchased on a commission basis, the Fund will
seek competitive and reasonable commission rates based on circumstances of the
trade involved and to the extent that they do not detract from the quality of
the execution. The Fund, in purchasing and selling portfolio securities, will
seek the best available combination of execution and overall price (which shall
include the cost of the transaction) consistent with the circumstances which
exist at the time. The Fund does not intend to solicit competitive bids on each
transaction.
The Fund believes it is in its best interest and that of its shareholders to
have a stable and continuous relationship with a diverse group of financially
strong and technically qualified broker-dealers who will provide quality
executions at competitive rates. Broker-dealers meeting these qualifications
also will be selected for their demonstrated loyalty to the Fund, when acting on
its behalf, as well as for any research or other services provided to the Fund.
Substantially all of the portfolio transactions are through brokerage firms
which are members of the New York Stock Exchange which is typically the most
active market in the size of the Fund's transactions and for the types of
securities predominant in the Fund's portfolio. When buying securities in the
over-the-counter market, the Fund will select a broker who maintains a primary
market for the security unless it appears that a better combination of price and
execution may be obtained elsewhere. The Fund normally will not pay a higher
commission rate to broker-dealers providing benefits or services to it than it
would pay to broker-dealers who do not provide it such benefits or services.
However, the Fund reserves the right to do so within the principles set out in
Section 28(e) of the Securities Exchange Act of 1934, as amended, when it
appears that this would be in the best interests of the shareholders.
No commitment is made to any broker or dealer with regard to placing of orders
for the purchase or sale of Fund portfolio securities, and no specific formula
is used in placing such business. Brokerage allocation is reviewed regularly by
both the Board of Directors of the Fund and the Adviser.
It is not the Fund's practice to allocate brokerage or principal business on the
basis of sales of its shares which may be made through various brokers or
dealers. However, the Fund may place portfolio orders with qualified
broker-dealers who recommend the Fund to other clients, or who act as agents in
the purchase of the Fund's shares for their clients.
Research services furnished by broker-dealers may be useful to the Adviser in
serving other clients, as well as the Fund. Conversely, the Fund may benefit
from research services obtained by the Adviser from the placement of portfolio
brokerage of other clients.
When it appears to be in the best interests of its shareholders, the Fund may
join with other clients of the Adviser in acquiring or disposing of a portfolio
holding. Securities acquired or proceeds obtained will be equitably distributed
between the Fund and other clients participating in the transaction. In some
instances, this investment procedure may affect the price paid or received by
the Fund or the size of the position obtained by the Fund.
<PAGE>
During the years 1999, 1998 and 1997, the Fund paid brokerage commissions of
$52,365, $70,209, and $51,851, respectively, to brokerage firms in connection
with its purchases and sales of portfolio securities.
During the years 1999, 1998, and 1997 none of the brokers employed by the Fund
(i) was an "affiliated person" (as defined in Section 2(a)(3) of the 1940 Act)
of the Fund; (ii) was an affiliated person of such an affiliated person; or
(iii) had an affiliated person who was also an affiliated person of the Fund or
the Adviser.
The Adviser may act as one of the Fund's brokers in the purchase and sale of
portfolio securities. The Adviser may be used as a broker where, in the judgment
of Fund management, such firm would be able to obtain a price and execution at
least as favorable as other qualified brokers. In 1999, the Adviser did not act
as an executing broker for any portfolio transactions of the Fund.
TAX STATUS
The following information supplements the information set forth in the
Prospectus under the heading "TAXATION".
The Fund receives income generally in the form of dividends and interest on its
investments. This income, less expenses incurred in the operation of the Fund,
constitutes the Fund's net investment income from which dividends may be paid to
you. Any distributions by the Fund from such income will be taxable to you as
ordinary income, whether you take them in cash or in additional shares.
The Fund may derive capital gains and losses in connection with sales or other
dispositions of its portfolio securities. Distributions from net short-term
capital gains will be taxable to you as ordinary income. Distributions from net
long-term capital gains will be taxable to you as long-term capital gain,
regardless of how long you have held your shares in the Fund. Any net capital
gains realized by the Fund generally will be distributed once each year, and may
be distributed more frequently, if necessary, in order to reduce or eliminate
excise or income taxes on the Fund.
<PAGE>
Most foreign exchange gains realized on the sale of debt securities are treated
as ordinary income by the Fund. Similarly, foreign exchange losses realized by
the Fund on the sale of debt securities are generally treated as ordinary losses
by the Fund. These gains when distributed will be taxable to you as ordinary
dividends, and any losses will reduce the Fund's ordinary income otherwise
available for distribution to you. This treatment could increase or reduce the
Fund's ordinary income distributions to you, and may cause some or all of the
Fund's previously distributed income to be classified as a return of capital.
The Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the Fund's total assets at the end
of the fiscal year are invested in securities of foreign corporations, the Fund
may elect to pass-through to you your pro rata share of foreign taxes paid by
the Fund. If this election is made, the year-end statement you receive from the
Fund will show more taxable income than was actually distributed to you.
However, you will be entitled to either deduct your share of such taxes in
computing your taxable income or (subject to limitations) claim a foreign tax
credit for such taxes against your U.S. federal income tax. The Fund will
provide you with the information necessary to complete your individual income
tax return if it makes this election.
The Fund will inform you of the amount of your ordinary income dividends and
capital gains distributions at the time they are paid, and will advise you of
their tax status for federal income tax purposes shortly after the close of each
calendar year. If you have not held Fund shares for a full year, the Fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund.
The Fund has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code, has qualified as such for its most
recent fiscal year, and intends to so qualify during the current fiscal year. As
a regulated investment company, the Fund generally pays no federal income tax on
the income and gains it distributes to you. The Board reserves the right not to
maintain the qualification of the Fund as a regulated investment company if it
determines such course of action to be beneficial to shareholders. In such case,
the Fund will be subject to federal, and possibly state, corporate taxes on its
taxable income and gains, and distributions to you will be taxed as ordinary
dividend income to the extent of the Fund's earnings and profits.
To avoid federal excise taxes, the Internal Revenue Code requires the Fund to
distribute to you by December 31 of each year, at a minimum, the following
amounts: 98% of its taxable ordinary income earned during the calendar year; 98%
of its capital gain net income earned during the twelve month period ending
October 31; and 100% of any undistributed amounts from the prior year. The Fund
intends to declare and pay these amounts in December (or in January that are
treated by you as received in December) to avoid these excise taxes, but can
give no assurances that its distributions will be sufficient to eliminate all
taxes.
<PAGE>
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. If you redeem your Fund shares the IRS will
require that you report a gain or loss on your redemption. If you hold your
shares as a capital asset, the gain or loss that you realize will be capital
gain or loss and will be long-term or short-term, generally depending on how
long you hold your shares. Any loss incurred on the redemption or exchange of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any long-term capital gains distributed to you by the Fund on
those shares.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you buy other shares in the Fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you buy.
Many states grant tax-free status to dividends paid to you from interest earned
on direct obligations of the U.S. government, subject in some states to minimum
investment requirements that must be met by the Fund. Investments in Government
National Mortgage Association or Federal National Mortgage Association
securities, bankers' acceptances, commercial paper and repurchase agreements
collateralized by U.S. government securities do not generally qualify for
tax-free treatment. The rules on exclusion of this income are different for
corporations.
If you are a corporate shareholder, you should note that some percentage of the
dividends paid by the Fund might qualify for the dividends-received deduction.
In some circumstances, you will be allowed to deduct these qualified dividends,
thereby reducing the tax that you would otherwise be required to pay on these
dividends. The dividends-received deduction will be available only with respect
to dividends designated by the Fund as eligible for such treatment. All
dividends (including the deducted portion) must be included in your alternative
minimum taxable income calculation.
UNDERWRITER
WSMC, the Fund's principal underwriter or distributor, offers Shares of the Fund
on a continuous basis, has entered into dealer agreements with various
broker/dealer firms located in jurisdictions where the Fund has registered its
Shares for public sale. The dealer agreements require dealers to act as agent
for WSMC for consideration, which is set forth in the Prospectus under the
subheading, "Purchase of Shares" in the column captioned "Allowance to Selected
Dealers as Percentage of the Offering Price." The dealer agreements also require
that the dealers be registered as brokers and dealers pursuant to Section 15 of
the Securities Exchange Act of 1934 and that they be members in good standing of
the National Association of Securities Dealers, Inc.
<PAGE>
Set forth below is a Table listing all commissions and other aggregate
compensation received by WSMC from the Fund for the calendar year ended December
31, 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net Underwriting Compensation on
Discounts and Redemptions and Brokerage
Name of Principal Underwriter Commissions Repurchases Commissions Other Compensation
- - ----------------------------------- -------------------- ------------------- -------------------- --------------------
Wall Street Management Corp. $70 None $413 $125,325 (1)
- -------------------------------
(1) Other compensation is comprised of advisory fees earned by WSMC during the calendar year ended December 31, 1999.
</TABLE>
PURCHASE AND REDEMPTION SERVICES
The Fund reserves the right in certain circumstances to:
o Waive or increase the minimum investment requirements with respect
to any person or class of persons, which include shareholders of the
Fund's special investment programs.
o Begin charging a fee for certain redemption services and to
change the service upon 60 days written notice to you.
o Begin charging a fee for the automatic withdrawal plan upon
30 days written notice to you.
o Waive signature guarantee requirements in certain instances where it
appears reasonable to do so and will not unduly affect the interests of
other shareholders.
SHARE PURCHASES
The Fund will not be responsible for the consequences of delays, including
delays in the banking or Federal Reserve wire systems. We cannot process
transaction requests that are not complete and in good order. If you use the
services of any other broker to purchase or redeem shares of the Fund, that
broker may charge you a fee. Each order accepted will be fully invested in whole
and fractional shares, unless the purchase of a certain number of whole shares
is specified, at the net asset value per share next effective after the order is
received by the Fund.
Each investment is confirmed by a year-to-date statement which provides the
details of the immediate transaction, plus all prior transactions in your
account during the current year. This includes the dollar amount invested, the
number of shares purchased or redeemed, the price per share, and the aggregate
shares owned. A transcript of all activity in your account during the previous
year will be furnished each January. By retaining each annual summary and the
last year-to-date statement, you have a complete detailed history of your
account which provides necessary tax information.
<PAGE>
Upon purchase, the proper number of full and fractional shares are credited to
your account and confirmed by the Fund's transfer agent, American Data Services,
Inc. ("ADS"). In the event you fail to make payment for shares purchased, the
Adviser will complete the transaction as to avoid a reduction in the Fund's net
asset value. Normally, the shares which you purchase are held by the Fund in
open account, thereby relieving you of the responsibility of providing for the
safekeeping of a negotiable share certificate. Should you have a special need
for a certificate, one will be issued on request for all or a portion of the
whole shares in your account. There is no charge for the first certificate
issued. In order to protect the interests of the other shareholders, share
certificates will be sent to those shareholders who request them only after the
Fund has determined that unconditional payment for the shares represented by the
certificate has been received by The Bank of New York.
All such net asset value purchases are made upon the written assurance that the
purchase is made for investment purposes and will not be resold except through
redemption by the Fund. The term "purchase" as used above refers to (i) a single
purchase by an individual, or concurrent purchases, which in the aggregate are
at least equal to the prescribed amounts, by an individual, his or her spouse
and their children under the age of 21, purchasing Shares for his, her or their
own account; (ii) single purchases by a trustee or other fiduciary purchasing
Shares for a single trust estate or single fiduciary account (including pension,
profit-sharing, or other employee benefit trust created pursuant to a plan
qualified under Section 401 of the Internal Revenue Code of 1986, as amended
(the "Code")) although more than one beneficiary is involved; (iii) purchases by
tax-exempt organizations enumerated in Sections 501(c)(3) or (13) of the Code;
(iv) purchases by any "company", as that term is defined in Section 2(a)(8) of
the 1940 Act, but not including purchases by any such company which has not been
in existence for at least six months or which has no purpose other than the
purchases of Shares or shares of other registered investment companies at a
discount; and (v) purchases by employee benefit plans not qualified under
Section 401 of the Code, including plans or arrangements which provide a means
for employees, or an employer ("employer" being defined as a single employer or
two or more employers, each of which is an affiliated person of the other under
Section 2(a)(3)(C) of the 1940 Act), on behalf of employees, to purchase shares
of a registered open-end investment company or companies by means of a payroll
deduction plan or otherwise.
The term "purchase" does not include purchases by (A) any group of individuals
whose funds are combined, directly or indirectly, for the purchase of redeemable
securities of a registered investment company jointly or through a trustee,
agent, custodian, or other representative; (B) a trustee, agent, custodian, or
other representative of such a group of individuals; or (C) any group of
individuals whose sole organizational nexus is that the participants therein are
credit-card holders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer, or clients of any investment
adviser. Purchases by a company or a non-qualified employee benefit plan, as
described in clauses (iv) and (v) above, will qualify for the quantity discounts
described in the Prospectus and below only if the Fund and WSMC are able to
realize economies of scale in the sales effort and sale-related expense by means
of the companies, employers, or plans making the Fund's Prospectus available to
individual investors or employees and forwarding investments by such persons to
the Fund and by any such employers or plans bearing the expense of any payroll
deduction plan.
<PAGE>
Cumulative Quantity Discounts. Any investor who first acquired Shares on or
after June 1, 1976 may accumulate "purchases" (as defined above) of Shares to
take advantage of the reduced sales charges listed above. Such cumulative
quantity discounts are based upon the aggregate public offering price of Shares
previously purchased or acquired and then owned by such person plus the
aggregate public offering price of the Shares being purchased. Thus, for
example, if any investor purchased Shares in any year or years since June 1,
1976 at an aggregate public offering price of $25,000, a purchase of $75,000
worth of additional Shares in 1997 or any subsequent year will be subject to the
3.00% sales charge applicable to transactions of more than $100,000 but less
than $175,000. WSMC must be notified when a sale takes place which would qualify
for the reduced charges on the basis of previous purchases and reduction will be
granted when the aggregate holdings are confirmed through a check of the records
of the Fund.
Letters of Intent. The method of achieving reduced sales charges described in
the preceding paragraph also applies to all "purchases" of Shares based upon the
aggregate public offering price of Shares purchased within a 13-month period
pursuant to a written statement of intention (a "Letter of Intent"), which form
may be obtained from WSMC at 230 Park Avenue, New York, NY 10169. Upon
completion of a Letter of Intent, it must be returned to the Fund c/o American
Data Services, Inc.,150 Motor Parkway, Suite 109, Hauppauge, New York 11788.
The form Letter of Intent provides that out of the initial purchase, or
subsequent purchases if necessary, 5% of the dollar amount specified for
purchase over the 13-month period shall be held in escrow by The Bank of New
York in the form of unissued Shares in an account in the investor's name. All
dividends and any capital gains distributions on the escrowed shares will be
paid directly to the investor's account. When the total minimum investment
specified under the Letter of Intent is completed by the investor within the
13-month period, the escrowed Shares will be released from escrow. If the
intended investment is not completed, the investor will be asked to pay the Fund
an amount equal to the difference between the sales charge he has paid pursuant
to the Letter of Intent and sales charge applicable to the Shares he has
actually purchased, in accordance with the table set forth above. If the
investor does not pay the difference in sales charge within 20 days after
written request therefore by the Fund or his investment dealer, the Fund will
cause to be redeemed an appropriate number of the escrowed Shares in order to
realize the difference.
Retirement Plans. Shares may be purchased by virtually all types of tax
deferred retirement plans. Please contact the Fund at 1-800-443-4693 to
obtain plan forms and/or custody agreements for the following:
o Individual Retirement Accounts
o Roth IRA Accounts
o Educational IRA Accounts
o Simplified Employee Pension Plans
<PAGE>
Firstar Bank, N.A. serves as fiduciary and custodian of the above-mentioned
retirement plans. Dividends and distributions will be automatically reinvested
without a sales charge. For further details, including rights of revocation,
fees charged, tax consequences and redemption information, see the specific plan
documents which can be obtained from the Fund. Investors should consult with
their tax advisor before establishing any of the tax-deferred retirement plans
listed above.
The Fund reserves the right in its sole discretion to withdraw all or any part
of the offering made by the prospectus or to reject purchase orders when, in the
judgment of management, such withdrawal or rejection is in the best interest of
the Fund and its shareholders.
The Fund may accept investments in kind of stocks based on judgments as to
whether, in each case, acceptance of stock will allow the Fund to acquire the
stock at no more than the net cost of acquiring it through normal channels, and
whether the stock has restrictions on its sale by the Fund under the Securities
Act of 1933. Fund shares purchased in exchange for stocks are issued at net
asset value.
The Fund reserves the right to refuse to accept orders for Fund shares unless
accompanied by payment. In the event that the Fund sustains a loss as the result
of failure by a purchaser to make payment, the Fund's Distributor will cover the
loss.
REDEMPTION OF SHARES
We will not be responsible for the consequences of delays, including delays in
the banking or Federal Reserve wire systems. We cannot process transaction
requests that are not complete and in good order. We must receive an endorsed
share certificate with a signature guarantee, where a certificate has been
issued.
To participate in the Automatic Withdrawal Plan your dividends and capital gains
distributions must be reinvested in additional shares of the Fund.
The right of redemption may be suspended, or the date of payment postponed
beyond the normal seven-day period by the Fund's Board of Directors under the
following conditions authorized by the 1940 Act: (1) for any period (a) during
which the New York Stock Exchange is closed, other than customary weekend and
holiday closing, or (b) during which trading on the New York Stock Exchange is
restricted; (2) for any period during which an emergency exists as a result of
which (a) disposal by the Fund of securities owned by it is not reasonably
practicable or (b) it is not reasonably practicable for the Fund to determine
the fair value of its net assets; or (3) for such other periods as the
Securities and Exchange Commission may by order permit for the protection of the
Fund's shareholders.
<PAGE>
All redemption and repurchase payments will be made by check, except that if the
Board determines that it is in the best interest of the remaining Stockholders,
redemptions and repurchases may be made in kind from the portfolio of the Fund,
in lieu of cash, taking such securities at their value employed in determining
net asset value, and selecting the securities in such manner as the Board may
deem fair and equitable. Redemptions made in kind are taxable transactions. In
such event, the Fund may comply with Rule 18f-1 promulgated by the SEC under
Section 18(f) of the 1940 Act, pursuant to which the Fund, upon filing a
notification of election with the SEC, would redeem and repurchase Shares solely
in cash during any 90-day period for any one Stockholder up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of such
90-day period. In the event of redemptions or repurchases in kind, a stockholder
may incur brokerage commissions in realizing cash thereon.
Because the net asset value of a Share fluctuates as a result of changes in the
value of securities owned by the Fund, the amount received upon redemption may
be more or less than the amount paid for such Shares.
Procedure for Direct Redemption. A Stockholder wishing to redeem Shares may do
so by tendering certificates evidencing ownership of such Shares (endorsing the
stock power on the reverse side) to the Fund's Transfer Agent, American Data
Services, Inc., 150 Motor Parkway, Suite 109, Hauppauge, New York 11788, as
agent for the Fund. If Share certificates are not held, a letter to the Fund's
Transfer Agent requesting redemption is all that is required. In either case,
however, the Stockholder's signature must be guaranteed by an "eligible
guarantor institution". An eligible guarantor institution is defined as an
institution that is a member of a Medallion Program, located in or having a
correspondent in New York City. Such institutions generally include national or
state banks, savings associations, savings and loan associations, trust
companies, savings banks, credit unions and members of a recognized stock
exchange. In certain instances, the Transfer Agent may require additional
documents such as, but not limited to, trust instruments, death certificates,
appointments as executor or administrator, or certificates of corporate
authority. Payment for Shares redeemed will be made by the Fund to the
Stockholder within the time period described above.
Procedure For Repurchase From Securities Dealers. A Stockholder may request his
or her securities dealer to place an order with the Fund to repurchase such
Stockholder's Shares; such orders may be placed with the Fund by telephone,
telegraph or letter. These repurchase arrangements are for the convenience of
Stockholders and, as mentioned above, the Fund does not presently impose a
charge on such orders. However, a securities dealer may impose a charge on the
Stockholder for transmitting the repurchase order to the Fund. For a Stockholder
requesting repurchase through his or her securities dealer, payment will be made
by the Fund to such securities dealer within the time period described above
after proper tender of the certificates for the Shares, if any, and stock power
with signatures guaranteed, to the Fund's Transfer Agent in the manner described
under "Procedure for Direct Redemption" above.
<PAGE>
Automatic Withdrawal Plan. Investors owning or purchasing a total of $15,000 or
more of Shares, valued at the current public offering price, may establish an
Automatic Withdrawal Plan account. Under an Automatic Withdrawal Plan account,
an investor requests a check either monthly, as of the twenty-fifth or nearest
business day, or quarterly for a fixed amount, specified by the investor
(minimum amount of $200). The minimum amount of $200 per withdrawal is, of
course, not a recommended amount and may not be suitable in all instances.
The payments specified by an investor will be made out of the proceeds of
redemption of Shares credited to his account. Accordingly, since the withdrawal
payments represent the proceeds for Share redemptions, an investor's invested
capital will be reduced to the extent that withdrawal payments exceed the income
dividends and capital gains distributions paid and reinvested on his Shares.
Continued withdrawals in excess of current income risk the exhaustion of
invested capital.
All dividends and distributions of Shares are reinvested in additional Shares at
net asset value per Share, that is, without sales charge.
PERFORMANCE MEASURES
The Fund may advertise "average annual total return" over various periods of
time. Such total return figures show the average percentage change in value of
an investment in the Fund from the beginning date of the measuring period to the
end of the measuring period. These figures reflect changes in the price of the
Fund's shares and assume that any income dividends and/or capital gains
distributions made by the Fund during the period were reinvested in shares of
the Fund. Figures will be given for recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis). When
considering "average" total return figures for periods longer than one year, it
is important to note that a Fund's annual total return for any one year in the
period might have been greater or less than the average for the entire period.
Performance Comparisons. In advertisements or in reports to shareholders, the
Fund may compare its performance to that of other mutual funds with similar
investment objectives and to stock or other relevant indices. For example, it
may compare its performance to rankings prepared by Lipper Analytical Services,
Inc. (Lipper), a widely recognized independent service which monitors the
performance of mutual funds. The Fund may compare its performance to the Russell
2000 Index, an index of the 2,000 smallest companies in the Russell 3000 Index,
a measure of small company performance; Standard & Poor's 500 Stock Index (S&P
500), an index of unmanaged groups of common stocks; the Dow Jones Industrial
Average, a recognized unmanaged index of common stocks of 30 industrial
companies listed on the NYSE; or the Consumer Price Index. Performance
information, rankings, ratings, published editorial comments and listings as
<PAGE>
reported in national financial publications such as Kiplinger's Personal Finance
Magazine, Business Week, Morningstar Mutual Funds, Investor's Business Daily,
Institutional Investor, The Wall Street Journal, Mutual Fund Forecaster, Money,
Forbes, Fortune and Barron's may also be used in comparing performance of the
Fund. Performance comparisons should not be considered as representative of the
future performance of any Fund.
Performance rankings, recommendations, published editorial comments and listings
reported in Money, Barron's, Kiplinger's Personal Finance Magazine, Financial
World, Forbes, U.S. News & World Report, Business Week, The Wall Street Journal,
Investors Business Daily, USA Today, Fortune and Stanger's may also be cited (if
the Fund is listed in any such publication) or used for comparison, as well as
performance listings and rankings from Morningstar Mutual Funds, Personal
Finance, Income and Safety, The Mutual Fund Letter, United Mutual Fund Selector,
Louis Rukeyser's Wall Street newsletter, Donoghue's Money Letter, CDA,
Wiesenberger Investment Companies Service and Donoghue's Mutual Fund Almanac.
CALCULATION OF TOTAL RETURN
Following are quotations of the Fund's average annual total return for the
indicated periods using the standardized method of calculation required by the
Securities and Exchange Commission ("SEC"):
for the one-year period ended December 31, 1999: 56.36%
for the five-year period ended December 31, 1999: 25.00%
for the ten-year period ended December 31, 1999: 15.83%
Average annual total return is calculated according to the following SEC
formula:
P(1+T)n =ERV
where P= a hypothetical initial payment of $1,000; T= average annual total
return; n= number of years; and ERV= ending redeemable value of the hypothetical
initial payment of $1,000 made at the beginning of the 1,5, and 10-year periods
at the end of the 1,5 and 10-year periods. The maximum sales load was deducted
from the initial $1,000 investment and all dividends and distributions were
assumed to have been reinvested at the appropriate net asset value per share.
<PAGE>
HOLIDAYS
The net asset value per share is computed once daily, Monday through Friday, at
4:00 p.m. (Eastern Time) except: days on which the New York Stock Exchange, Inc.
is closed for trading; days on which changes in the value of portfolio
securities will not materially affect the net asset value; and days during which
no purchase or redemption order is received by the Fund.
The Fund does not compute its net asset value on the following customary
holidays:
New Year's Day January 1
Martin Luther King, Jr. Day Third Monday in January
Presidents' Holiday Third Monday in February
Good Friday Friday before Easter
Memorial Day Last Monday in May
Independence Day July 4
Labor Day First Monday in September
Thanksgiving Day Fourth Thursday in November
Christmas Day December 25
INVESTMENT ADVISORY AND OTHER SERVICES
Information About Adviser. WSMC, the Fund's investment adviser and principal
underwriter, with principal offices at 230 Park Avenue, New York, NY 10169 is a
Massachusetts corporation organized on September 15, 1954. It has served as the
Fund's investment adviser since its organization.
WSMC has 6,520 shares of capital stock outstanding. 100% of which are owned by
Morse, Williams & Co., Inc. ("MWC"). Morse Williams Holding Co., Inc.
("Holding"), a Delaware corporation, owns all of the issued and outstanding
shares of capital stock of MWC. Robert P. Morse is the sole director of Holding
and owns 100% of the outstanding Common Stock of Holding and 100% of the
Preferred A Voting Stock of Holding. Such ownership of the Preferred A Voting
Stock gives Mr. Morse sole management control of Holding. The principal
business address of Holding and Robert P. Morse is 230 Park Avenue, New York,
NY 10169. Mr. Morse is the President and sole Director of WSMC and Holding and
also is President and a Director of MWC and the Fund. Mr. Morse has been
responsible for the day-to-day management of the Fund's portfolio since 1984.
The Advisory Agreement. WSMC furnishes investment advisory research, statistical
and managerial services and provides the Fund with a continuous investment
program pursuant to an Investment Advisory Contract with the Fund dated April
26, 1990 and continued by the Board on February 10, 2000 (the "Advisory
Agreement").
<PAGE>
Under the Advisory Agreement the Fund pays its own expenses including interest
charges; taxes; costs of purchasing and selling securities for its portfolio;
rent; expenses of redemption of shares; auditing and legal expenses; expenses
attributable to setting the type for and printing only such copies of
prospectuses as are filed with any federal or state agency, regulatory authority
or governmental department; directors' fees and expenses necessarily incurred by
directors in attendance at directors' meetings; expenses of administrative
personnel and administrative services; custodian fees; fees of the transfer
agent, the registrar and the dividend disbursing agent; cost of stock
certificates and corporate reports; all other printing expenses not specifically
allocated to WSMC under the Agreement; costs in connection with Board meetings
and meetings of Stockholders, including proxy material preparation and
distribution, filing fees, dues, insurance premiums, miscellaneous management
and operating expenses and expenses of an extraordinary and nonrecurring nature.
The Advisory Agreement provides that it shall continue in effect for a period of
two years from its effective date and that it may be continued from year to year
thereafter only if specifically approved at least annually by a vote of a
majority of the Board, or by the vote of a majority of the Fund's outstanding
voting securities. In either case, each continuance must be approved by a
majority vote of the directors who are not parties to such contract or
"interested persons" of any such party to such contract (other than as directors
of the Fund) cast in person at a meeting called for that purpose. The Advisory
Agreement will be effective through April 26, 2001.
The Advisory Agreement may be amended or modified only by the vote of a majority
of the Fund's outstanding voting securities and a majority of the Board,
including a majority of such directors who are not parties of the Agreement or
"interested persons" of any such party (other than as directors of the Fund).
The Advisory Agreement may be terminated, without penalty, on 60 days' written
notice to WSMC, by the Board or by the vote of a majority of the Fund's
outstanding voting securities. It automatically terminates upon its "assignment"
within the meaning of Section 2(a)(4) of the 1940 Act.
Description of the Advisory Fee. The Advisory Agreement provides for an advisory
fee based upon a fixed percentage of the Fund's net asset value. Such advisory
fee is calculated and paid monthly by applying the following monthly rates to
the average daily net asset value of the Fund during the preceding month:
<TABLE>
<S> <C> <C> <C>
Equivalent Average Daily
Monthly Rate Annual Rate Net Asset Value
1/16 of 1% 3/4 of 1% On the first $125 million
5/96 of 1% 5/8 of 1% On the next $75 million
1/24 of 1% 1/2 of 1% On amounts over $200 million
</TABLE>
<PAGE>
The aggregate management fees paid to the Adviser during the three most recent
fiscal years ended December 31, 1999, 1998 and 1997 were $125,325, $126,063 and
$118,476, respectively. The advisory fees paid for 1999 as a percentage of the
Fund's average net assets was 0.75%.
Expense Limitation. The Advisory Agreement provides an overall limitation of the
total expenses of the Fund as follows: if the normal operating expenses of the
Fund for any year, including the advisory fee computed above (but excluding
taxes, interest, brokerage fees, and extraordinary legal , auditing or other
expenses incurred in connection with or as a result of any matter not in the
ordinary course of business of the Fund), exceed 2% of the first $10,000,000,
1.5% of the next $20,000,000 and 1% of the balance, of the average daily net
asset value, then the excess of the expenses will be refunded by WSMC to the
Fund. WSMC will waive collection of any or all of its advisory fee to reflect
any required expense reimbursement.
The expenses of the Fund for 1999 as a percentage of net assets was 1.80%.
The Underwriting Agreement. WSMC also acts as the principal underwriter for the
Fund pursuant to an Underwriting Agreement with the Fund most recently approved
by the Board on February 10, 2000 (the "Underwriting Agreement"), which
Agreement provides that WSMC shall use its best efforts to find purchasers for
authorized but unissued Shares, with WSMC paying all expenses in connection
therewith.
The Underwriting Agreement provides that it shall continue in effect for a
period of more than two years from the date thereof only so long as such
continuance is specifically approved at least annually by the Board including
the vote of a majority of the directors who are not parties to such contract or
"interested persons" of any such party to the contract (other than as directors
of the Fund) cast in person at a meeting called for that purpose.
Either the Fund or WSMC may terminate the Underwriting Agreement on any date by
giving the other party at least six months' prior written notice of such
termination and the Fund may terminate the Underwriting Agreement at any time
upon any failure by WSMC to fulfill its obligations as underwriter under such
agreement. The Underwriting Agreement also provides that it shall automatically
terminate in the event of its assignment within the meaning of Section 2(a)(4)
of the 1940 Act.
During the years 1999, 1998, and 1997, the total amount of underwriting
commissions paid or accrued to WSMC under the Underwriting Agreement were $70,
$5,358, and $4,849, respectively, after deducting dealer allowances withheld of
$413, $98, and $49,806, respectively. WSMC received net remuneration (i.e. net
advisory fees paid under the Advisory Agreement plus net underwriting
commissions) from the Fund in 1999, 1998, and 1997, of $125,395, $131,421, and
$123,325, respectively.
Administrator. Pursuant to an Administrative Services Agreement with the Fund,
American Data Services, Inc. ("ADS") provides the Fund with the necessary office
space, communication facilities and personnel to perform certain services to the
Fund, including; monitoring services provided to the Fund by other service
providers; furnishing financial data and management reports; preparing all
shareholder financial statements; preparing the Fund's federal state and local
tax returns; preparing periodic reports to the SEC on Form N-SAR and amendments
to the Fund's registration statement; monitoring all regulatory restrictions for
compliance; and answering inquiries from Fund shareholders and broker-dealers. A
principal of ADS is the Secretary and Treasurer of the Fund.
<PAGE>
For services rendered pursuant to the Administrative Services Agreement, the
Fund pays ADS, Inc. a monthly fee equal to the greater of (i) $2,083 or (ii)
1/12th of 0.1% of the first $75 million of average monthly net assets, plus
1/12th of 0.05% of the next $50 million of average monthly net assets, plus
1/12th of 0.04% of average monthly net assets in excess of $125 million.
Custodian, Transfer and Dividend Disbursing Agent. The Bank of New York, 100
Church Street, New York, NY 10286 is custodian for the Fund and it holds in
safekeeping all of the portfolio securities and cash of the Fund pursuant to the
terms of a Custodian Agreement. The Custodian performs no managerial or
policy-making functions with or for the Fund. The services of the custodian do
not provide protection to Stockholders against possible depreciation of assets.
ADS serves as the Fund's Transfer Agent and Dividend Disbursing Agent.
Independent Accountants. PricewaterhouseCoopers LLP, 1177 Avenue of the
Americas, New York, NY 10036, is the Fund's independent accountant. The Fund's
financial statements are audited annually by PricewaterhouseCoopers LLP and
approved by the Board of Directors each year, and in years in which a
shareholder meeting is held the Directors may submit their selection of
independent accountants to shareholders for notification.
GENERAL INFORMATION
Description of Shares. The Fund was organized as a Maryland corporation on
December 26, 1945 and has an authorized capital of 5,000,000 Shares. Each Share
has equal voting, dividend, redemption and liquidation rights. There is no
limitation on transferability, and no Share is subject to further call by the
Fund. The Shares have non-cumulative voting rights, which means that the holders
of more than 50 percent of the Shares voting for the election of directors can
elect 100 percent of the directors if they choose to do so, and, in such event,
the holders of the remaining Shares voting for the election of directors will
not be able to elect any person or persons to the Board. In addition, directors
of the Fund elected by the shareholders serve until a successor is elected and
assumes office. The Fund, consistent with applicable Maryland law, does not hold
an annual meeting of shareholders in any year in which such a meeting is not
required under state law or the 1940 Act. The fiscal year of the Fund ends on
December 31 of each year.
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Fund for the year ended December 31, 1999 are
incorporated herein by reference to the Fund's Annual Report, filed
electronically with the SEC on February 28, 2000. These financial statements
include the schedules of investments, statements of assets and liabilities,
statements of operations, statement of changes in net assets, financial
highlights, notes and the report of the Fund's independent auditors,
PricewaterhouseCoopers LLP.
