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Inflation-Indexed Securities Fund
ANNUAL REPORT
October 31, 1997
<PAGE>
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
PORTFOLIO OF INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
Principal
Amount Value
--------- -----------
<C> <S> <C>
U.S. TREASURY NOTES (85.4%)
$5,596,953 3.375%, 1/15/2007.................................................. $ 5,521,730
6,203,531 3.625%, 7/15/2002.................................................. 6,215,131
-----------
Total U.S. Treasury Notes (identified cost $11,720,895) ...... 11,736,861
-----------
NEW ZEALAND GOVERNMENT NOTES (2.3%)
500,000 4.50%, 2/15/2016 (identified cost $329,710) ....................... 311,378
-----------
TENNESSEE VALLEY AUTHORITY NOTES (2.1%)
304,458 3.375%, 1/15/2007 (identified cost $295,363)....................... 296,816
-----------
1,100,000 REPURCHASE AGREEMENT (8.0%)
J.P. Morgan & Co., 5.65%, 10/3/97
(Agreement dated 5/31/97 collateralized by
$1,072,000 U.S. Treasury Notes 6.500%, due
5/31/2000; $1,100,518 to be received upon maturity)
(identified cost $1,100,000).................................. 1,100,000
-----------
TOTAL INVESTMENTS (identified cost $13,445,968) (a) .................. 97.8% 13,445,055
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ....................... 2.2 298,736
----- -----------
NET ASSETS ........................................................... 100.0% $13,743,791
===== ===========
</TABLE>
- --------------
(a) The aggregate cost for federal income tax purposes is $ 13,445,968, the
aggregate gross unrealized appreciation is $18,856 and the aggregate gross
unrealized depreciation is $19,769, resulting in net unrealized
depreciation of $913.
See Notes to Financial Statements.
<PAGE>
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
Ocotber 31, 1997
ASSETS:
Investments in securities, at value (identified cost
$13,445,968) (Note 1) ................................... $ 13,445,055
Cash (including $3,725 in foreign currency) ............... 97,642
Receivables for:
Interest ............................................... 128,749
Fund shares sold ....................................... 64,734
Expense payment reimbursement (Note 2) ................. 7,462
Forward foreign currency exchange contracts sold--
net (Notes 1 and 5) .................................. 2,703
------------
Total Assets ...................................... 13,746,345
------------
LIABILITIES:
Payable for Administrative fee (Note 2) ................... 2,554
------------
NET ASSETS ................................................... $ 13,743,791
============
Net Assets Consist of:
Paid-in capital ......................................... $ 14,346,995
Undistributed net investment income ..................... 40,018
Accumulated net realized loss ........................... (644,838)
Net unrealized appreciation ............................. 1,616
------------
Net Assets ................................................... $ 13,743,791
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($13,743,791 / 1,445,711 shares) .......................... $9.51
=====
See Notes to Financial Statements.
<PAGE>
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
INVESTMENT INCOME:
Income:
Interest ................................................ $ 828,503
---------
Expenses:
Expense payment fee (Note 2) ............................ 84,581
Administrative fee (Note 2) ............................. 17,260
Amortization of organization expense .................... 3,239
---------
Total Expenses ....................................... 105,080
---------
Net Investment Income ................................ 723,423
---------
NET REALIZED AND UNREALIZED LOSS (Notes 1 and 3):
Net realized gain (loss) on:
Investments .......................................... (171,848)
Foreign exchange transactions ........................ 36,487
---------
(135,361)
---------
Net change in unrealized appreciation/depreciation on:
Investments .......................................... (105,183)
Foreign currency translations ........................ 2,529
---------
(102,654)
---------
Net Realized and Unrealized Loss .................... (238,015)
---------
Net Increase in Net Assets Resulting from Operations .... $ 485,408
=========
See Notes to Financial Statements.
<PAGE>
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the years ended October 31,
-------------------------------
1997 1996
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ..................................... $ 723,423 $ 662,482
Net realized loss on investments and
foreign exchange transactions .......................... (135,361) (38,209)
Net change in unrealized appreciation/depreciation
on investments and foreign currency translations ....... (102,654) (14,892)
------------ ------------
Net increase in net assets resulting from operations .... 485,408 609,381
------------ ------------
Dividends declared from net investment income (Note 1) ........ (721,857) (662,076)
------------ ------------
Capital stock transactions (Note 4):
Net proceeds from sales of capital stock .................... 9,346,679 10,617,969
Net asset value of capital stock issued to shareholders
in reinvestment of dividends and distributions ........... 442,542 376,190
Net cost of capital stock redeemed .......................... (12,629,700) (4,950,751)
------------ ------------
Net increase (decrease) in net assets resulting from capital
stock transactions ..................................... (2,840,479) 6,043,408
------------ ------------
Total increase (decrease) in net assets ................. (3,076,928) 5,990,713
NET ASSETS:
Beginning of period ........................................... 16,820,719 10,830,006
------------ ------------
End of period (including undistributed net investment income
of $40,018 and $406, respectively) ......................... $ 13,743,791 $ 16,820,719
============ ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a share outstanding throughout each year
<TABLE>
<CAPTION>
For the years ended October 31,
--------------------------------------------------
1997 1996 1995 1994 1993
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............... $9.67 $9.76 $9.37 $10.17 $ 9.93
Income from investment operations:
Net investment income.......................... 0.48 0.55 0.54 0.52 0.50
Net realized and unrealized gain (loss)........ (0.16) (0.09) 0.39 (0.74) 0.26
Less dividends and distributions (Note 1):
From net investment income..................... (0.48) (0.55) (0.54) (0.52) (0.52)
Net realized gains ............................ -- -- -- (0.05) --
In excess of net realized gains................ -- -- -- (0.01) --
----- ----- ----- ------ ------
Net asset value, end of year..................... $9.51 $9.67 $9.76 $ 9.37 $10.17
===== ===== ===== ====== ======
Total Return..................................... 3.40%(1) 4.88%(1) 10.26%(1) (2.23)%(1) 7.85%(1)
Ratios/Supplemental Data:
Net assets, end of year (000's omitted)........ $13,744 $16,821 $10,830 $10,328 $9,729
Expenses as a percentage of average
net assets................................... 0.73%(1) 0.85%(1) 0.85%(1) 0.85%(1) 0.85%(1)
Ratio of net investment income
to average net assets........................ 4.99% 5.73% 5.66% 5.29% 5.32%
Portfolio turnover rate........................ 372% 114% 228% 129% 149%
</TABLE>
- --------------------
(1) Had the expense payment agreement not been in place, the ratio of expenses
to average net assets and total return would have been as follows:
Ratio of expenses to average net
assets ............................. 1.24% 1.40% 1.40% 1.46% 1.46%
Total return.......................... 2.89% 4.33% 9.71% (2.84)% 7.24%
Furthermore, the ratio of expenses to average net assets for the year ended
October 31, 1997, 1996 and 1995 reflects fees paid with brokerage
commissions and fees reduced in connection with specific agreements. Had
these arrangements not been in place, the ratio would have been 1.26%,
1.42% and 1.43%, respectively.
See Notes to Financial Statements.
<PAGE>
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies. The 59 Wall Street
Inflation-Indexed Securities Fund (formerly The 59 Wall Street
Short/Intermediate Fixed Income Fund) (the "Fund") is a separate diversified
series of The 59 Wall Street Fund, Inc. (the "Corporation") which is registered
under the Investment Company Act of 1940, as amended. The Corporation is an
open-end management investment company organized under the laws of the State of
Maryland on July 16, 1990. The Fund commenced operations on July 23, 1992.
Effective March 1, 1997, the Fund changed its name to The 59 Wall Street
Inflation-Indexed Securities Fund.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles, which require management to make certain
estimates and assumptions at the date of the financial statements and are based,
in part, on the following accounting policies. Actual results could differ from
those estimates.
A. Valuation of Investments. Bonds and other fixed income securities
(other than short-term obligations but including listed issues) are valued
on the basis of valuations furnished by a pricing service, use of which
has been approved by the Board of Directors. In making such valuations,
the pricing service utilizes both dealer-supplied valuations and
electronic data processing techniques which take into account appropriate
factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of such
securities.
Securities or other assets for which market quotations are not
readily available are valued at fair value in accordance with procedures
established by and under the general supervision and responsibility of the
Corporation's Board of Directors. Such procedures include the use of
independent pricing services, which use prices based upon yields or prices
of securities of comparable quality, coupon, maturity and type;
indications as to the value from dealers; and general market conditions.
Short-term investments which mature in 60 days or less are valued at
amortized cost if their original maturity was 60 days or less, or by
amortizing their value on the 61st day prior to maturity, if their
original maturity when acquired by the Fund was more than 60 days, unless
this is determined not to represent fair value by the Board of Directors.
B. Accounting for Investments. Investment transactions are accounted
for on the trade date. Realized gains and losses, if any, from investment
transactions are determined on the basis of identified cost. Interest
income is accrued daily and consists of interest accrued, discount earned
(including both original issue and market discount) and premium
amortization on the investments of the Fund.
C. Deferred Organization Expenses. Expenses incurred by the Fund in
connection with its organization and initial public offering of its shares
are being amortized on a straight-line basis over a five-year period.
D. Forward Foreign Currency Exchange Contracts. The Fund may enter
into forward foreign currency exchange contracts ("contracts") in
connection with planned purchases or sales of securities or to hedge the
U.S. dollar value of portfolio securities denominated in a particular
currency. The Fund has no specific limitation on the percentage of assets
which may be committed to these types of contracts. The Fund could be
exposed to risks if the counterparties to the contracts are unable to meet
the terms of their contracts or if the value of the foreign currency
changes unfavorably. The U.S. dollar values of foreign currency underlying
all contractual commitments held by the Funds are determined using forward
currency exchange rates supplied by a quotation service.
E. Federal Income Taxes. It is the Corporation's policy to comply
with the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
The Fund files a tax return
<PAGE>
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (continued)
annually using tax accounting methods required under provisions of the
Internal Revenue Code which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the amount of net investment income and net realized gain
reported on these financial statements may differ from that reported on
the Fund's tax return due to certain book-to tax timing differences such
as losses deferred due to "wash sale" transactions and utilization of
capital loss carryforwards. These timing differences may result in
temporary over-distributions for financial statement purposes and are
classified as distributions in excess of accumulated net realized gains or
net investment income. As such, the character of distributions to
shareholders reported in the Financial Highlights table may differ from
that reported to shareholders on Form 1099-DIV. These distributions do not
constitute a return of capital.
F. Dividends and Distributions to Shareholders. Dividends to
shareholders from net investment income are paid monthly and are recorded
on the ex-dividend date. Distributions from net capital gains, if any, are
paid annually and are recorded on the ex-dividend date.
2. Transactions with Affiliates.
Investment Advisory Fee. The Corporation has an investment advisory
agreement with Brown Brothers Harriman & Co. (the "Adviser") for which the
Adviser receives a fee from the Fund calculated daily and paid monthly at an
annual rate equivalent to 0.25% of the Fund's average daily net assets. Prior to
March 1, 1997, the Adviser received from the Fund a fee accrued daily, and paid
monthly at an annual rate equal to 0.40% of the Fund's average daily net assets,
on an annualized basis.
Administrative Fee. The Corporation has an administration agreement with
Brown Brothers Harriman & Co. (the "Administrator") for which the Administrator
receives a fee from the Fund calculated daily and paid monthly at an annual rate
equivalent to 0.10% of the Fund's average daily net assets. Prior to March 1,
1997, the Administrator received from the Fund a fee accrued daily, and paid
monthly at an annual rate equal to 0.15% of the Fund's average net assets, on an
annualized basis. The Administrator has a subadministration services agreement
with 59 Wall Street Administrators, Inc. for which 59 Wall Street
Administrators, Inc. receives such compensation as is from time to time agreed
upon, but not in excess of the amount paid to the Administrator. For the year
ended October 31, 1997, the Fund incurred $17,260 for administrative services.
Shareholder Servicing/Eligible Institution Agreement. The Corporation has
a shareholder servicing agreement and an eligible institution agreement with
Brown Brothers Harriman & Co. for which Brown Brothers Harriman & Co. receives a
fee from the Fund calculated daily and paid monthly at an annual rate equivalent
to 0.25% of the Fund's average daily net assets.
Expense Payment Fee. 59 Wall Street Administrators, Inc. pays certain
expenses of the Fund and receives a fee from the Fund, computed and paid
monthly, such that after such fee the aggregate expenses will not exceed 0.65%
of the Fund's average daily net assets. Prior to March 1, 1997, under an
agreement dated February 22, 1995, 59 Wall Street Administrators, Inc. received
a fee from the Fund such that after such payment the aggregate expenses of the
Fund did not exceed an agreed upon annual rate of 0.85% of the average daily net
assets of the Fund. For the year ended October 31, 1997, 59 Wall Street
Administrators, Inc. incurred $159,382 in expenses, including investment
advisory fees of $44,539 and shareholder servicing/eligible institution fees of
$36,213, on behalf of the Fund. The Fund's expense payment fee agreement will
terminate on July 1, 2000.
3. Investment Transactions. For the year ended October 31, 1997, the cost
of purchases and the proceeds of sales of investment securities other than
short-term investments were $49,297,738 and $52,463,789, respectively. Custody
fees for the Fund paid pursuant to the expense payment agreement (see Note 2)
were reduced by approximately $2,630 as a result of an expense offset
arrangement with the Fund's custodian.
<PAGE>
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (continued)
4. Capital Stock. The Corporation is permitted to issue 2,500,000,000
shares of capital stock, par value $.001 per share, of which 25,000,000 shares
have been classified as shares of the Fund. Transactions in shares of capital
stock were as follows:
For the years ended October 31,
-------------------------------
1997 1996
---------- ---------
Capital stock sold.......................... 979,948 1,102,127
Capital stock issued in connection with
reinvestment of dividends................. 46,533 38,983
Capital stock repurchased................... (1,320,039) (511,651)
---------- ---------
Net increase (decrease)..................... (293,558) 629,459
========== =========
5. Financial Instruments with Off-Balance Sheet Risk. At October 31, 1997,
the Inflation-Indexed Securities Fund had outstanding forward currency contracts
as a hedge to protect against possible changes in foreign currency exchange
rates that would adversely affect a portfolio position or an anticipated
portfolio position. Forward contracts involve elements of market risk in excess
of the amount reflected in the Statement of Assets and Liabilities. The Fund
bears risk of an unfavorable change in the foreign exchange rate underlying the
forward contracts.
Forward foreign currency exchange contracts open at October 31, 1997:
Contracts In Exchange Deliver Unrealized
to deliver For Date Appreciation
---------- ----------- -------- ------------
$793,187 CAD 1,085,477 12/2/97 $(21,754)
CAD 1,085,477 $787,719 12/2/97 16,286
NZD 482,118 $307,784 12/2/97 8,171
--------
$ 2,703
========
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The 59 Wall Street Inflation-Indexed Securities Fund (a series of
The 59 Wall Street Fund, Inc.):
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of The 59 Wall Street Inflation-Indexed
Securities Fund (formerly The 59 Wall Street Short/Intermediate Fixed Income
Fund) (a series of The 59 Wall Street Fund, Inc.) as of October 31, 1997, the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended October 31, 1997 and 1996, and the
financial highlights for each of the years in the five-year period ended October
31, 1997. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1997 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The 59 Wall Street
Inflation-Indexed Securities Fund at October 31, 1997, the results of its
operations, the changes in its net assets, and its financial highlights for
respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Boston, Massachusetts
December 12, 1997
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The following investment management strategies and techniques have
materially affected the Fund's performance for the fiscal year ended October 31,
1997.
Inflation-Indexed Securities Fund
For the year ending October 31, 1997, interest rates declined 5-50 basis
points. A combination of lower inflation, a much lower federal government budget
deficit, and global equity market volatility caused long bond yields to drop to
their lowest levels in over 18 months. Long term Treasuries closed the fiscal
year at 6.15%.
The Fund's maturity structure began the year slightly longer than the
index. During the year, the Fund's investment strategy was changed from a
short/intermediate orientation to an inflation indexed orientation. To implement
the new strategy, we sold the current holdings and bought securities with
inflation protection. 1997 marked the first time the US Treasury has issued
inflation protected securities. The securities have a fixed coupon and a
fluctuating inflation adjustment to principal. In addition to US Inflation
Indexed Bonds, the Fund owns Canadian and New Zealand Real Return Bonds. All
foreign bond currencies are hedged back into the US Dollar. The holdings of
foreign bonds have benefited the fund as foreign inflation protected securities
have outperformed US securities. Within the US Treasury holdings there are
currently 2 inflation protected securities, a five and ten year security. The
portfolio has traded between the two when the spreads have been attractive.
Since the inception of inflation indexed securities the bonds have
exhibited lower volatility than fixed rate bonds, but have also under performed
fixed U.S. rate bonds. The under performance has been a result of actual
inflation coming in lower than anticipated. This in turn led market participants
to lower their expectation of future inflation which led to superior performance
in non-inflation indexed securities. As a result of this under performance, we
believe that inflation indexed securities currently represent a very inexpensive
protection against rising inflation.
Inflation-Indexed Securities Fund Growth of $10,000
[The following table was represented as a line graph in the printed material.]
Inflation-Indexed Three Year
Date Securities Fund* Treasury Note
---- --------------- -------------
6/30/92 $10,000 $10,000
7/31/92 $9,950 $9,972
8/31/92 $10,060 $10,095
9/30/92 $10,191 $10,216
10/31/92 $10,049 $10,114
11/30/92 $9,989 $10,066
12/31/92 $10,109 $10,186
1/31/93 $10,313 $10,347
2/28/93 $10,467 $10,478
3/31/93 $10,485 $10,518
4/30/93 $10,568 $10,598
5/31/93 $10,526 $10,547
6/30/93 $10,650 $10,664
7/31/93 $10,671 $10,682
8/31/93 $10,791 $10,805
9/30/93 $10,823 $10,840
10/31/93 $10,839 $10,857
11/30/93 $10,804 $10,842
12/31/93 $10,817 $10,890
1/31/94 $10,916 $10,969
2/28/94 $10,797 $10,853
3/31/94 $10,627 $10,733
4/30/94 $10,533 $10,654
5/31/94 $10,538 $10,659
6/30/94 $10,539 $10,674
7/31/94 $10,667 $10,788
8/31/94 $10,691 $10,822
9/30/94 $10,605 $10,741
10/31/94 $10,596 $10,767
11/30/94 $10,531 $10,694
12/31/94 $10,561 $10,717
1/31/95 $10,714 $10,902
2/28/95 $10,899 $11,089
3/31/95 $10,952 $11,150
4/30/95 $11,072 $11,269
5/31/95 $11,348 $11,547
6/30/95 $11,412 $11,603
7/31/95 $11,413 $11,620
8/31/95 $11,507 $11,699
9/30/95 $11,584 $11,762
10/31/95 $11,683 $11,889
11/30/95 $11,807 $12,026
12/31/95 $11,911 $12,143
1/31/96 $11,995 $12,253
2/29/96 $11,901 $12,149
3/31/96 $11,837 $12,098
4/30/96 $11,798 $12,064
5/31/96 $11,791 $12,067
6/30/96 $11,893 $12,176
7/31/96 $11,926 $12,213
8/31/96 $11,933 $12,239
9/30/96 $12,066 $12,387
10/31/96 $12,253 $12,575
11/29/96 $12,383 $12,699
12/31/96 $12,325 $12,652
1/31/97 $12,383 $12,708
2/28/97 $12,392 $12,718
3/31/97 $12,259 $12,675
4/30/97 $12,351 $12,798
5/30/97 $12,384 12890
6/30/97 $12,372 13000
7/31/97 $12,498 13208
8/31/97 $12,506 $13,183
9/30/97 $12,527 $13,328
10/31/97 $12,670 $13,448
* net of fees and expenses
Past performance is not predictive of future performance.
<PAGE>
The 59 Wall Street Fund, Inc.
Investment Adviser and
Administrator
Brown Brothers Harriman & Co.
59 Wall Stree
New York, New York 10005
Distributor
59 Wall Street Distributors, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
Shareholder Servicing Agent
Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
(800) 625-5759
This report is submitted for the general information of
shareholders and is not authorized for distribution to
prospective investors unless preceded or accompanied by an
effective prospectus. Nothing herein contained is to be
considered an offer of sale or a solicitation of an offer to buy
shares of the Funds. Such offering is made only by prospectus,
which includes details as to offering price and other material
information.
