THE
WALL
STREET
FUND INC.
ANNUAL REPORT
DECEMBER 31, 1999
A diversified mutual fund that
invests in common stocks of
growth-oriented companies.
<PAGE>
<TABLE>
<CAPTION>
THE WALL STREET FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1999
MARKET
SHARES VALUE
- ------ -----
COMMON STOCKS - 96.48%
AEROSPACE- 0.68%
<C> <S> <C>
5,000 Lockheed Martin Corp. ................................ $ 109,375
1,000 + L-3 Communications ................................... 41,625
----------
151,000
----------
BIOTECHNOLOGY - 10.95%
8,300 + Biochem Pharma Inc. .................................. 180,006
10,000 + Chiron Corp. ......................................... 423,437
8,000 + Corixa Corp. ......................................... 135,500
8,000 + Genzyme Corp. ........................................ 359,500
8,000 + Incyte Pharmaceutics Inc. ............................ 473,250
10,000 + Liposome Inc. ........................................ 121,563
4,000 + Martek Biosciences Corp. ............................. 48,750
3,000 + Sepracor Inc. ........................................ 298,125
5,000 + Transkaryotic Therapies Inc. ......................... 192,656
8,000 + Trimeris Inc. ........................................ 189,500
----------
2,422,287
----------
DRUGS - 0.51%
3,500 Pfizer Inc. .......................................... 113,531
----------
ENERGY - 1.74%
5,000 Andarko Petroleum Corporation ........................ 170,625
12,000 + Petroleum Geo- ADR ................................... 213,750
----------
384,375
----------
ENTERTAINMENT - 1.66%
4,000 + Pixar ................................................ 141,375
5,000 + Zomax Inc. ........................................... 226,094
----------
367,469
----------
FINANCIAL SERVICES - 0.77%
10,000 + First Sierra Financial Inc. .......................... 170,625
----------
FOOD SERVICES - 0.72%
4,000 Sysco Corp. .......................................... 158,250
----------
HEALTH CARE - 2.26%
10,000 + Caremark RX Inc. ..................................... 50,625
5,000 + First Health Group Corp. ............................. 135,312
1,400 Johnson & Johnson .................................... 130,375
1,500 + Millennium Pharmaceuticals Inc. ...................... 182,859
----------
499,171
----------
INSURANCE - 1.38%
3,000 Aflac Inc. ........................................... 141,562
1,500 American International Group Inc. .................... 162,187
----------
303,749
----------
METALS & MINING - 0.33%
3,000 Newmont Mining ....................................... 73,500
----------
MACHINERY - 3.07%
60,000 + Flow Intl. Corp. ..................................... 678,750
----------
MEDICAL TECHNOLOGY - 0.96%
3,000 + Alza Corp. ........................................... 103,875
2,500 + Inamed Corp. ......................................... 109,531
----------
213,406
OFFICE EQUIPMENT - 3.76%
5,000 + Dell Computer Corp. .................................. 254,844
3,000 + EMC Corp. ............................................ 327,750
3,000 + Network Appliance Inc. ............................... 249,094
----------
831,688
----------
PUBLISHING/ VIDEO/ BROADCAST - 2.55%
4,000 Comcast Corp - Class A Special ...................... 202,125
10,000 + Infinity Broadcast Corp. ............................. 361,875
----------
564,000
----------
RETAIL - 8.12%
3,000 + Bed Bath & Beyond Inc. ............................... 103,969
5,000 Gap Inc. ............................................. 230,000
10,500 Home Depot Inc. ...................................... 719,906
7,000 Tiffany & Co. ........................................ 624,750
4,000 Walgreen Co. ......................................... 117,000
----------
1,795,625
----------
SEMICONDUCTORS - 15.10%
6,000 + Analog Devices Inc. .................................. 558,000
4,000 Intel Corp. .......................................... 329,125
3,000 + Rambus Inc. .......................................... 202,219
10,000 + RF Micro Devices Inc. ................................ 682,813
3,000 Texas Instruments Inc. ............................... 290,625
7,500 + Transwitch Corp. ..................................... 544,219
14,000 + Vitesse Semi-Conductor Corp. ......................... 733,688
----------
3,340,689
----------
SERVICES - 15.12%
5,000 + America Online Inc. .................................. 377,187
6,666 + At Home Corp. ........................................ 286,430
5,000 + Cendant Corp. ........................................ 132,813
7,000 Cintas Corp. ......................................... 371,656
1,500 + CMG Information Services Inc. ........................ 415,266
10,000 + Electronic Processing ................................ 148,125
2,000 + Healtheon/Webmd ...................................... 75,250
1,000 + Lernout & Hauspie Speech ............................. 46,031
3,000 + Network Solutions .................................... 652,781
20,000 + Renaissance Worldwide Inc. ........................... 146,250
7,000 + Spacehab Inc. ........................................ 37,406
5,000 + USWeb Corp. .......................................... 222,344
1,000 + Yahoo Inc. ........................................... 432,719
----------
3,344,258
----------
SOFTWARE - 17.75%
21,000 + Aremissoft Corp. ..................................... 686,438
5,000 + Avant Corp. .......................................... 75,156
5,000 + Bottomline Technologies .............................. 180,313
7,000 + Claimsnet.com Inc. ................................... 69,781
8,000 + New Era of Networks Inc. ............................. 382,000
25,000 + Object Design Inc. ................................... 363,281
5,000 + Parametric Technologies .............................. 135,156
8,000 + Peoplesoft Inc. ...................................... 170,250
8,000 + Rational Software Corp. .............................. 393,750
2,000 Sap Ag- ADR .......................................... 104,125
5,000 + Spyglass Inc. ........................................ 189,219
3,000 + Synopsys Inc. ........................................ 199,781
4,000 + Verisign Inc. ........................................ 764,250
5,000 + Verity Inc. .......................................... 212,656
----------
3,926,156
----------
Page 1
See notes to financial statements.
<PAGE>
THE WALL STREET FUND, INC.
SCHEDULE OF INVESTMENTS (continued)
December 31, 1999
MARKET
SHARES VALUE
- ------ -----
TELECOMMUNICATIONS - 9.05%
1,000 + China Telecom ADR .................................... $ 128,563
4,000 + Ciena Corp. .......................................... 230,125
3,000 + Cisco Systems Inc. ................................... 321,281
3,500 + Leap Wireless Intl. Inc. ............................. 273,875
6,000 + MCI Worldcom Inc. .................................... 318,188
3,500 + Nextel Communications Inc. ........................... 360,828
5,000 + Open Text Corp. ...................................... 89,844
2,500 + Proxim Inc. .......................................... 278,594
----------
2,001,298
----------
TOTAL COMMON STOCKS
(Cost $9,841,605) ................................. 21,339,827
----------
PRINCIPAL MARKET
AMOUNT VALUE
- ------ -----
CONVERTIBLE BONDS - 3.29%
$800,000 Executone Information Systems, 7.50%, 03/15/2011
(Cost $348,463) ................................... 728,000
TOTAL INVESTMENTS
(Cost $10,190,068) 99.77% 22,067,827
OTHER ASSETS LESS LIABILITIES 0.23% 50,226
------- -----------
TOTAL NET ASSETS 100.00% $22,118,053
======= ===========
At December 31, 1999, the cost for federal tax purposes is $10,212,152.
Gross unrealized appreciation and depreciation of securities are as follows:
Gross unrealized appreciation $11,894,679
Gross unrealized depreciation (39,004)
-----------
Net unrealized appreciation $11,855,675
===========
<FN>
+ Non-income producing security.
</FN>
</TABLE>
<TABLE>
<CAPTION>
THE WALL STREET FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS:
<S> <C> <C>
Investments in securities, at value
(cost $10,190,068) (Note 1) .............. $ 22,067,827
Cash .............................................. 70,245
Receivables:
Interest and dividends ....................$ 17,687
17,687
Other assets ...................................... 2,185
Total Assets .............................. 22,157,944
LIABILITIES:
Payables:
Investment advisory fee ................... 14,429
Investment securities purchased ........... 15,996
Accrued expenses .......................... 9,466
------------
Total Liabilities ................. 39,891
------------
Net Assets ................ $ 22,118,053
============
Net Assets Consist of:
Paid in capital ........................... $ 10,268,238
Unrealized appreciation on
investments ....................... 11,877,759
Accumulated net realized loss
on investments .................... (27,944)
------------
Net Assets ................ $ 22,118,053
============
Net asset value and
redemption price per share
($22,118,053/1,779,139 shares
outstanding) (Note 4) ..................... $ 12.43
============
Maximum offering price per share
(100/96 of $12.43) ........................ $ 12.95
============
</TABLE>
See notes to financial statements.
Page 2
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<TABLE>
<CAPTION>
THE WALL STREET FUND, INC.
STATEMENT OF OPERATIONS
For the year ended December 31, 1999
INVESTMENT INCOME:
Income:
<S> <C>
Dividends ........................................... $ 24,872
Interest ............................................ 75,748
-----------
Total income ................................................ 100,620
-----------
Expenses:
Investment adviser fees
(Note 3) .................................... 125,325
Accounting services (Note 3) ........................ 48,917
Professional fees ................................... 34,172
Directors fees and expenses ......................... 29,200
Transfer agent fees and
dividend paying expenses (Note 3) ........... 25,400
Custodian fees ...................................... 18,465
Registration fees ................................... 14,050
Reports to shareholders ............................. 12,472
Miscellaneous ....................................... 12,373
-----------
Total Expenses .............................................. 320,374
Less:
Reimbursed expenses (Note 3) ................ (35,232)
-----------
Net expenses ................................ 285,142
-----------
Net investment loss ......................................... (184,522)
-----------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS
Net realized gains from
investment transactions ............................. 3,928,244
Net increase in unrealized
appreciation of investments ......................... 5,284,830
-----------
Net realized and unrealized gains
on investments ...................................... 9,213,074
-----------
Net increase in net assets
resulting from operations ........................... $ 9,028,552
===========
</TABLE>
<TABLE>
<CAPTION>
THE WALL STREET FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
---- ----
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
<S> <C> <C>
Net investment loss ........................ $ (184,522) $ (223,701)
Net realized gains from
investment transactions ............ 3,928,244 428,546
Net increase in unrealized
appreciation of investments ........ 5,284,830 4,639,727
------------ ------------
Net increase in net assets
resulting from operations .......... 9,028,552 4,844,572
Distributions to shareholders from:
Net realized gains from
investment transactions
($2.59 and $0.23 per share,
respectively) ...................... (3,751,785) (435,983)
Net capital share transactions
(Note 4) ........................... (1,478,136) (1,665,994)
------------ ------------
Total increase in net assets ............... 3,798,631 2,742,595
NET ASSETS:
Beginning of period ........................ 18,319,422 15,576,827
------------ ------------
End of period .............................. $ 22,118,053 $ 18,319,422
============ ============
</TABLE>
Page 3
See notes to financial statements.
<PAGE>
THE WALL STREET FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The primary objective of
the Fund is growth of capital. To achieve this objective the Fund normally
invests in common stocks, which, in the opinion of the investment adviser offer
prospects of sustained growth. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements. These policies are in conformity with generally accepted
accounting principles for investment companies. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(A) SECURITIES VALUATIONS - The fair value of investments is based on the
published last sale prices on national securities exchanges, or, in the absence
of recorded sales, at the mean between the closing bid and asked prices on such
exchanges or over-the-counter. When market quotations are not readily available
securities will be valued at fair value as determined in good faith by the
Fund's Board of Directors.
(B) FEDERAL INCOME TAXES - No provision for federal income taxes has been made
in the accompanying financial statements, since the Fund intends to continue to
comply with the provisions of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders substantially all of
its net investment income and net realized gains on investments.
(C) OTHER - Security transactions are accounted for on the date securities are
purchased or sold. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. The net realized gains and losses are
determined on the identified cost basis. The Fund may periodically make
reclassifications among certain of its capital accounts as a result of the
timing and characterization of certain income and capital gains distributions
determined annually in accordance with federal tax regulations which may differ
from generally accepted accounting principles.
(2) PURCHASES AND SALES OF SECURITIES:
Purchases and sales of investment securities, during the year ended December 31,
1999 aggregated $17,190,750 and $22,368,153, respectively.
(3) INVESTMENT ADVISORY FEES AND OTHER:
The advisory agreement provides for advisory fees of 1/16 of 1% monthly
(equivalent to 3/4 of 1% per annum) of the first $125,000,000 of average net
assets of the Fund. The present advisory agreement also provides for the adviser
to reimburse the Fund for any expenses (including the advisory fee but excluding
taxes, interest and brokerage fees and extraordinary expenses incurred in
connection with any matter not in the ordinary course of business of the Fund)
over 2% of the first $10,000,000, 1 1/2% of the next $20,000,000 and 1% of any
balance of the average daily net asset value.
For the year ended December 31, 1999, Wall Street Management Corporation (WSMC)
earned investment advisory fees of $125,325 with $35,232 reimbursed to the Fund
for expenses, of which $15,245 related to the reimbursement of 1998 expenses.
The adviser also serves as the Fund's principal underwriter. For the year ended
December 31, 1999, WSMC received $70 as its portion of the sales charge on sales
of shares of the Fund. Certain of the officers and directors of the Fund are
officers and directors of WSMC.
The Fund has arranged for American Data Services, Inc., of which the Fund's
Secretary and Treasurer is an officer, to prepare the accounting records and
perform administrative and transfer agent services for the Fund. Costs incurred
totaled $74,317 for the year ended December 31, 1999.
(4) CAPITAL STOCK:
At December 31, 1999 there were 5,000,000 shares of $1 par value capital stock
authorized. Transactions in capital stock during the year ended December 31,
1999 and the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ............. 130,096 $ 1,390,145 322,128 $ 2,443,294
Shares issued for
reinvestment of
distribution from
realized gains .. 321,220 3,610,507 46,364 393,171
Shares redeemed ......... (622,149) (6,478,788) (541,316) (4,502,459)
-------- ----------- -------- -----------
Net (decrease) .......... (170,833) ($1,478,136) (172,824) ($1,665,994)
======== =========== ======== ===========
</TABLE>
Page 4
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a fund share outstanding throughout each year)
Year Ended December 31,
1999 1998 1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......$ 9.39 $ 7.34 $ 7.96 $ 8.19 $ 7.42 $ 8.03 $ 7.60 $ 7.27 $ 5.54
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations
Net investment income (loss) ............. (0.10) (0.11) (0.08) (0.06) (0.03) (0.02) (0.02) 0.01 0.03
Net realized and unrealized gains (losses)
on investments ................... 5.73 2.39 (0.13) 0.98 2.60 (0.38) 1.00 0.54 2.95
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations ......... 5.63 2.28 (0.21) 0.92 2.57 (0.40) 0.98 0.55 2.98
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions
Dividends from net investment income ..... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.01) (0.03)
Distribution from realized gains
from security transactions ....... (2.59) (0.23) (0.41) (1.15) (1.80) (0.21) (0.55) (0.21) (1.21)
Return of capital distribution ........... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.01) (0.01)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions ...................... (2.59) (0.23) (0.41) (1.15) (1.80) (0.21) (0.55) (0.22) (1.25)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of year .............$ 12.43 $ 9.39 $ 7.34 $ 7.96 $ 8.19 $ 7.42 $ 8.03 $ 7.60 $ 7.27
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return** ........................... 62.88% 31.40% (2.37%) 11.45% 36.50% (4.86%) 13.17 7.61% 54.36%
Ratios/supplemental data
Net assets, end of period (in 000's) ..... 22,118 18,319 15,577 15,939 14,383 11,080 11,561 11,202 11,032
Ratio of expenses to average net assets .. 1.92% 1.89% 1.82% 1.84% 2.02% 2.12% 2.04% 2.15% 2.10%
Ratio of expenses to average net assets,
net of reimbursement ............. 1.80%* 1.89%* 1.82% 1.82% 1.90% 1.96% 1.96% 1.97% 1.98%
Ratio of net investment income (loss) to
average net assets ............... (1.23%) (1.33%) (0.96%) (0.70%) (0.50%) (0.47%) (0.31%) (0.08%) 0.30%
Ratio of net investment income (loss)
to average net assets, net of
reimbursement (1.11%)* (1.33%)* (0.96%) (0.68%) (0.38%) (0.31%) (0.23%) 0.09% 0.43%
Portfolio turnover rate .................. 104.18% 165.84% 121.12% 142.11% 143.27% 89.01% 107.22% 112.47% 159.52%
<FN>
* These ratios would have been .09% lower with the reimbursement of 1998
expenses included therein.
**These returns do not include the effect of the Fund's sales charge.
</FN>
</TABLE>
<PAGE>
PRINCIPAL INVESTMENT CHANGES
For the year ended December 31, 1999
NEW POSITIONS
Actuate Corp., ADC Telecommunications, ADForce Inc., Advanced Fibre
Communication, American International Group, Aremissoft Corp., Bed Bath & Beyond
Inc., First Sierra Financial Inc., Claimsnet.com Inc., Caremark RX Inc.,
Bottomline Technologies, Healtheon/WebMD, Inamed Corp., L-3 Communications,
Lockheed Martin Corp., Network Appliance Inc., Nextel Communication Inc-A, Open
Text Corp., Proxim Inc., Sepracor Inc., Sap Ag ADR, Spyglass Inc., Sysco Corp.,
USWeb Corp., Verity Inc., Yahoo Inc.
ELIMINATIONS
Apple Computer Inc., Barrick Gold Corp., Actuate Corp., ADC Telecommunication,
ADForce Inc., Allmerica Financial Corp., Advanced Fibre Communication, Agouron
Pharmaceuticals Inc., Altera Corp., Amazon.Com Inc., Abercrombie & Fitch Co. -
CL A, Arquile Inc., Ascend Communications Inc., Best Software, Burlington
Resource Inc., CCC Information Services Group Inc., Check Point Software,
Centocor Inc., Compaq Computer Corp., Compuware Corp., Flexinternational
Software Inc., Gilead Sciences Inc., Gene Logic Inc., Halliburton Co., HBO &
Co., Hewlett Packard Co., ISIS Pharmaceuticals, International UNP Holdings Ltd.,
J.D. Edwards & Co., Ligand Pharmaceuticals - CL B, Labor Ready Inc., Mossimo
Inc., Metromedia Intl Cvts Preferred, Merck & Co., Metro One Telecommunication
Inc., Network Associates Inc., Netscape Communications Corp., Office Depot Inc.,
Ogden Corp., OfficeMax, Inc., Orbital Sciences, Qualcomm Inc., Reader's Digest
PFD, Polo Ralph Lauren Corp. - CL A, Rogue Wave Software Inc., Sterling
Commerce, Siebel Systems Inc., Seagate Technology Inc., Segue Software Inc.,
Saks Holdings Inc., Learning Co. Inc., Unocal Corp., Wavephore Inc., Waste
Management Inc., Excite Inc., Zygo Corp.
AVERAGE ANNUAL TOTAL RETURN
AFTER SALES CHARGE AT THE BEGINNING OF EACH PERIOD
INCLUDING REINVESTMENT OF DIVIDENDS
1 YEAR: 56.36% 5 YEAR: 25.00% 10 YEAR: 15.83%
RUSSEL 2000 WALL STREET
YEAR END INDEX FUND INC.
-------- ------ -----------
1989 10,000.00 9,600.00
1990 7,854.53 7,645.27
1991 11,285.10 11,801.51
1992 13,131.09 12,699.09
1993 15,363.87 14,371.04
1994 14,874.89 13,672.67
1995 18,773.04 18,665.84
1996 21,544.11 20,802.73
1997 25,965.11 20,310.50
1998 25,070.33 26,687.78
1999 29,989.22 43,468.42
The current maximum initial sales charge payable on an investment in the Fund is
4.00%. At public offering price of $10,000, the net investment in the Fund would
be $9,600, assuming no waiver or reduction of sales charges. The performance
information shown represents past performance and should not be interpreted as
indicative of the Fund's future performance. Return and share price will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The Fund's diversification policy combined with Fund Management's stock
selection were significant factors contributing to Fund performance in 1999.
Management's strategy of investing in companies selected from a variety of broad
industry groups and investing in a large number of different companies with
strong fundamental growth characteristics provides protection from long term
fundamental portfolio risk. Fund Management's analytical emphasis on a company's
future sustainable earnings growth and the quality of corporate management are
also important to Fund performance.
Market prices for your Fund's investments generally increase due to strong
corporate earnings and the perception of future earnings. The inflow of new
funds into the US market increased the prices of technology businesses as
investors bought these names and to a lesser extent many excellent smaller and
medium capitalization issues. The Federal Reserve's actions of raising short
term interest rates modestly as well as adding liquidity in anticipation of Y2K
issues changed market perceptions concerning future growth during the last
quarter of 1999. Your Fund includes small, medium as well as large
capitalization issues but is weighted toward the faster growing smaller
entities. These faster growing companies attracted a great deal of investment
funds which benefited your Fund's performance.
Page 6
<PAGE>
Dear Stockholders,
We are pleased to report a total return for your fund of 63% for 1999, including
December capital gain distributions of $2.59 per share.
Let me see: your company doesn't make any money, right?
-Jay Leno to Jeff Bezos, CEO of Amazon.com,
The Internet Age will truly usher in a new way of doing business, and only those
companies that adapt to this new environment, and lead the charge into this vast
unknown, will prosper and thrive in the new paradigm. That being said, we do not
believe that the laws of investing are entering into some brave new world. We
believe that now, as in the past, earnings and cash flow do matter, as does
revenue growth. We are struck by the ability of investors to "blue sky" the
future in many cases, while simultaneously becoming quite disenchanted when
reality strikes. Take Amazon.com, for instance. When it started, it immediately
revolutionized the Internet as a retail sales and distribution medium. AMZN's
market cap quickly surpassed that of the bricks and mortar retailers. It
mattered not that AMZN plowed back every dollar of sales and then some into
marketing expenses as it developed new product lines. Management even
incredulously suggested at a conference that we attended that the company should
be valued on an EBITMA basis: that is, earnings before interest, taxes,
marketing expenses and amortization. But reality began to set in during 1999;
the company is no longer a virtual marketer, as it has had to make massive
investments in the bricks and mortar and systems that any distribution company
requires. Profits are not foreseen, and although management may claim that
certain product lines are "profitable", this argument is dubious at best. The
stock is down 50% from its high.
The uncertainty reflected in the market action immediately following the
AOL-Time Warner merger announcement is further reflective of this clash between
the new paradigm and the fundamentals of investing. Content, bandwidth,
distribution, marriage of new and traditional media are among the terms bandied
about to explain the synergy of the deal. AOL is buying a large company with a
much slower growth rate and writing off a significant amount of goodwill paid in
the acquisition. The reality is that at the closing, AOL will own Daffy Duck and
Bugs Bunny; the rest of the benefits will have to be developed over time. In
short, AOL must now be viewed as a real company. While we are constructive on
this stock, which returned 108% last year, we do recognize the risks inherent in
this position.
The year just ended was very good for some, but not all investors. For the fifth
year in a row, which is a record in and of itself, the market delivered
double-digit returns. The updated DJIA gained a strong 25.2%. The S&P 500 Index
returned a healthy 19.5% and the Russell 2000 index of smaller company stocks
likewise advanced 19.6%, as the value in mid-cap names finally began to be
recognized. Although the real strength in the small and mid-cap names that
developed in the fourth quarter is a pleasing development, the overall
narrowness of the market's advance continues to distress us. The average stock,
excluding technology, was up only 2%; technology now accounts for almost 30% of
the market capitalization of the entire U.S. equity market. This suggests that
stock-picking has become preeminent in investment success. In fact, 54% of S&P
500 issues were actually down for the year, as were 61% of all NYSE issues.
The fixed income markets turned in their worst performance in some time, with
the long bond ending the year at 6.48%, up from 5.09% at the start of the year.
Most long-term bond indexes showed declines of 10% for the year. We believe that
developments in the fixed income arena will truly set the tone for the
year-ahead market performance. Rates rose during the past year for several
reasons. Corporate borrowings increased dramatically during the summer; we
likened this increase in supply to cash hoarding by individuals. Our evidence
that this was in fact short-term borrowing comes from examining the call
provisions on much of the debt issued. We also believe that the Federal Reserve,
while maintaining an overall accommodative stance, did have a bias towards
higher rates for much of the year. While some maintain that the discount rate
hikes were to "take back" the liquidity pumped into the system during 1998's
international meltdown, we believe that the Fed tightened up in anticipation of
major injections of liquidity at year end. This increase in the money supply, as
evidenced by a 21% or $108 billion increase in currency in circulation, was
geared towards easing the transition in the event of a Y2K rollover calamity. As
we discovered, by some combination of judicious spending and cautionary
exaggeration, we have made it through the night, as it were.
The Federal Reserve now faces a task perhaps as daunting as that of the New York
City Sanitation Department in cleaning up Times Square the morning after New
Year's eve. There is a lot of excess liquidity that needs to be mopped up, and
fast. We are aware that the Federal Reserve System has been aggressive as it
begins this clean-up process; at the current rate of operations, we estimate ten
weeks to the restoration of normalized monetary growth. We anticipate modest
rate hikes as well, since this is what the market expects, and we believe that
there may be a high correlation between the Federal Reserve's finesse in
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handling this operation and the overall direction of the equity market. If
confidence is maintained, the pressure on interest rates should ease gradually,
and we think that the equity markets can resume their upward trend, which should
be reasonably expected in an election year. We do believe, however, that if it
were not for all of these financial machinations on the part of the Federal
Reserve, market interest rates would be at least 1% to 1.5% lower today.
We are maintaining our investments in high quality names, across the
capitalization spectrum. We believe that superior earnings growth and inherent
value in our portfolio names will be the key to investment success. A
high-quality growth stock portfolio, with a broad diversity of sector and
capitalization weightings would appear to be the most appropriate posture to
assume at this time. We are holding adequate cash to meet the volatility that
may be reasonably anticipated at this time. We think that the ability to
identify unassailable earnings growth in our investment opportunities will be
both our greatest challenge and our greatest value that we add in the management
of your assets.
January 13, 2000
Sincerely,
/S/ ROBERT P. MORSE
-------------------
Robert P. Morse
President
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Independent Auditor's Report
To The Board of Directors and Shareholders of
The Wall Street Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Wall Street Fund, Inc. (the
"Fund") at December 31, 1999, and the results of its operations, the changes in
its net assets and the financial highlights for the year then ended, and the
financial highlights for each of the years in the periods ended December 31,
1997, in conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
broker, provides a reasonable basis for the opinion expressed above. The
financial statements for the year ended December 31, 1998, including financial
highlights for the periods indicated, were audited by other independent
accountants whose report dated February 19, 1999 expressed an unqualified
opinion on those financial statements.
PricewaterhouseCoopers LLP
New York, New York
February 11, 2000
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Change in Independent Accountant
On August 27, 1999, McGladrey & Pullen, LLP ("McGladrey") resigned as
independent auditors of the Fund pursuant to an agreement by
PricewaterhouseCoopers LLP ("PwC") to acquire McGladrey's investment company
practice. The McGladrey partners and professionals serving the Fund at the time
of the acquisition joined PwC.
The reports of McGladrey on the financial statements of the Fund during the
prior fiscal year contained no adverse opinion or disclaimer of opinion, and
were not qualified or modified as to uncertainty, audit scope or accounting
principles.
In connection with its audit for the year ended December 31, 1998 and through
August 27, 1999, there were no disagreements with McGladrey on any matter of
accounting principle or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
McGladrey would have caused it to make reference to the subject matter of
disagreement in connection with its report.
Effective for December 31, 1999 the Fund, with the approval of its Board of
Directors and its Audit Committee, engaged PwC as its independent auditors.
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This Page is Intentionally Left Blank
<PAGE>
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, Treasurer
INVESTMENT ADVISER
WALL STREET MANAGEMENT CORPORATION
230 Park Avenue
New York, New York 10169
CUSTODIAN
THE BANK OF NEW YORK
90 Washington Street, 11th Floor
New York, New York 10286
TRANSFER AGENT AMERICAN DATA SERVICES
150 Motor Parkway
Hauppauge, New York 11788
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of Americas
New York, New York 10036
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]
