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Inflation-Indexed Securities Fund
ANNUAL REPORT
October 31, 1998
<PAGE>
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
PORTFOLIO OF INVESTMENTS
October 31, 1998
Principal
Amount Value
- --------- -----------
U.S. TREASURY NOTES AND BONDS (91.2%)
$2,335,872 3.375%, 1/15/2007............................. $ 2,297,190
1,494,622 3.625%, 7/15/2002............................. 1,493,681
4,702,917 3.625%, 1/15/2008............................. 4,694,076
3,002,374 3.625%, 4/15/2028............................. 3,004,235
-----------
Total U.S. Treasury Notes and Bonds
(identified cost $11,456,201) ..... 11,489,182
-----------
CANADIAN GOVERNMENT NOTES (4.1%)
4.250%, 12/1/2026
CAD780,765 (identified cost $517,377).................... 515,983
-----------
TENNESSEE VALLEY AUTHORITY NOTES (2.4%)
3.375%, 1/7/2015
309,387 (identified cost $300,292).................... 295,947
-----------
200,000 REPURCHASE AGREEMENT (1.6%)
J.P. Morgan & Co., 5.30%, 11/2/98
(Agreement dated 10/30/98
collateralized by $184,000
Treasury Notes 7.875%, due
8/15/2001; $200,087 to be
received upon maturity)
(identified cost $200,000)............... 200,000
-----------
TOTAL INVESTMENTS
(identified cost $12,473,870) (a)................ 99.3% 12,501,112
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .... 0.7 92,732
----- -----------
NET ASSETS ........................................ 100.0% $12,593,844
===== ===========
- ----------
(a)The aggregate cost for federal income tax purposes is $ 12,502,293, the
aggregate gross unrealized appreciation is $31,178, and the aggregate gross
unrealized depreciation is $32,359, resulting in net unrealized depreciation
of $1,181.
CAD Canadian dollars
See Notes to Financial Statements.
<PAGE>
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
ASSETS:
Investments in securities, at value
(identified cost $12,473,870) (Note 1)....................... $12,501,112
Cash (including $2,668 in foreign currency).................... 68,503
Receivables for:
Interest .................................................... 107,124
Fund shares sold............................................. 15,123
-----------
Total Assets ........................................... 12,691,862
-----------
LIABILITIES:
Payable for:
Administrative fee (Note 2).................................. 1,082
Fund shares purchased........................................ 90,495
Expense payment fee (Note 2)................................. 5,685
Forward foreign currency exchange
contracts sold (Note 1).................................... 756
-----------
Total Liabilities ...................................... 98,018
-----------
NET ASSETS ...................................................... $12,593,844
===========
Net Assets Consist of:
Paid-in capital ............................................. $13,141,583
Undistributed net investment income ......................... 45,127
Accumulated net realized loss ............................... (619,329)
Net unrealized appreciation ................................. 26,463
-----------
Net Assets....................................................... $12,593,844
===========
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($12,593,844 / 1,322,867 shares)............................. $9.52
=====
See Notes to Financial Statements.
<PAGE>
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
STATEMENT OF OPERATIONS
For the year ended October 31, 1998
INVESTMENT INCOME:
Income:
Interest ................................................. $633,240
--------
Expenses:
Expense payment fee (Note 2) ............................. 67,847
Administrative fee (Note 2) .............................. 12,337
--------
Total Expenses ........................................ 80,184
--------
Net Investment Income ................................. 553,056
--------
NET REALIZED AND UNREALIZED GAIN (Notes 1 and 3):
Net realized gain on investments and
foreign exchange transactions .......................... 25,456
Net change in unrealized appreciation
on investments and foreign currency
translations ........................................... 24,847
--------
Net Realized and Unrealized Gain ..................... 50,303
--------
Net Increase in Net Assets Resulting
from Operations ........................................ $603,359
========
See Notes to Financial Statements
<PAGE>
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31,
-------------------------------
1998 1997
--------- ----------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................. $ 553,056 $ 723,423
Net realized gain (loss)
on investments and
foreign exchange transactions...... 25,456 (135,361)
Net change in unrealized
appreciation (depreciation)
on investments and foreign
currency translation............... 24,847 (102,654)
---------- -----------
Net increase in net assets
resulting from operations ...... 603,359 485,408
---------- -----------
Dividends declared (Note 1):
From net investment income ........... (547,932) (721,857)
---------- -----------
Capital stock transactions (Note 4):
Net proceeds from sales of
capital stock......................... 3,457,484 9,346,679
Net asset value of capital stock
issued to shareholders
in reinvestment of dividends
and distributions .................... 80,808 442,542
Net cost of capital stock redeemed...... (4,743,666) (12,629,700)
---------- -----------
Net decrease in net assets
resulting from capital
stock transactions .................. (1,205,374) (2,840,479)
---------- -----------
Total decrease in net assets........ (1,149,947) (3,076,928)
NET ASSETS:
Beginning of year......................... 13,743,791 16,820,719
---------- -----------
End of year (including undistributed net
investment income of $45,127 and
$40,018, respectively)................ $12,593,844 $13,743,791
=========== ===========
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,
-----------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...................... $ 9.51 $ 9.67 $ 9.76 $ 9.37 $10.17
Income from investment operations:
Net investment income................................. 0.45 0.48 0.55 0.54 0.52
Net realized and unrealized gain (loss)............... 0.01 (0.16) (0.09) 0.39 (0.74)
Less dividends and distributions (Note 1):
From net investment income............................ (0.45) (0.48) (0.55) (0.54) (0.52)
Net realized gains ................................... -- -- -- -- (0.05)
In excess of net realized gains....................... -- -- -- -- (0.01)
------ ------ ------ ------ ------
Net asset value, end of year............................ $ 9.52 $ 9.51 $ 9.67 $ 9.76 $ 9.37
====== ====== ====== ====== ======
Total Return............................................ 4.98%(1) 3.40%(1) 4.88%(1) 10.26%(1) (2.23)%
Ratios/Supplemental Data:
Net assets, end of period (000's omitted)............. $12,594 $13,744 $16,821 $10,830 $10,328
Expenses as a percentage of average
net assets.......................................... 0.65%(1) 0.73%(1) 0.85%(1) 0.85%(1) 0.85%
Ratio of net investment income
to average net assets............................... 4.48% 4.99% 5.73% 5.66% 5.29%
Portfolio turnover rate............................... 305% 372% 114% 228% 129%
</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:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of expenses to average net assets........... 1.15% 1.24% 1.40% 1.40% 1.46%
Total return...................................... 4.45% 2.89% 4.33% 9.71% (2.84)%
</TABLE>
Furthermore, the ratio of expenses to average net assets for the year ended
October 31, 1998, 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 1.15%,
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 (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.
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. 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 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 investment income and net realized gains. 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.
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
<PAGE>
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (continued)
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. 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.
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. 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, 1998, the Fund incurred $12,337
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 annual rate of 0.85% of the average daily net
assets of the fund. For the year ended October 31, 1998, 59 Wall Street
Administrators, Inc. incurred $141,797 in expenses, including investment
advisory fees of $30,843 and shareholder servicing/eligible institution fees of
$30,843, 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, 1998, the cost
of purchases and the proceeds of sales of investment securities other than
short-term investments were $34,693,826 and $34,894,439, respectively. Custody
fees for the Fund paid pursuant to the expense payment agreement (see Note 2)
were reduced by approximately $3,684 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,
------------------------------
1998 1997
--------- ------------
Capital stock sold ....................... 367,554 979,948
Capital stock issued in connection
with reinvestment of dividends ....... 8,593 46,533
Capital stock repurchased ................ (498,991) (1,320,039)
--------- ------------
Net decrease ............................. (122,844) (293,558)
========= ============
5. Financial Instruments with Off-Balance Sheet Risk. At October 31, 1998,
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, 1998:
Contracts In Exchange Deliver Unrealized
to deliver For Date Depreciation
---------- ----------- -------- ------------
CAD 813,103 $526,195 12/2/98 $756
----
<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 (a series of The 59 Wall Street Fund, Inc.) as of October 31,
1998, the related statement of operations for the year then ended, the statement
of changes in net assets for the years ended October 31, 1998 and 1997, and the
financial highlights for each of the years in the five-year period ended October
31, 1998. 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, 1998 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, 1998, 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 11, 1998
<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,
1998.
Inflation-Indexed Securities Fund
For the year ending October 31, 1998 US interest rates declined 60-140
basis points. The main investment theme for 1998 was a global repricing of risk.
The US bond market became the main beneficiary of the risk reduction. Throughout
the year, the higher yielding higher risk markets came under strong selling
pressure. Also benefiting the bond market was a slow down in global growth, a
weakening in global commodity prices, and a decline in inflation. All of these
factors provided strong support for the bond market, which closed the fiscal
year with the long bond yielding 5.23%
The portfolio finished the fiscal year with a 12-month return of 4.98%
outperforming the inflation-linked index, which returned 4.76%. Contributing to
the return were security selection, international investing, and a repeatable
yield curve trading strategy that took advantage of supply imbalances.
We continue to be very optimistic on inflation indexed securities. The
securities are currently trading at very low break-even inflation levels. At
these levels the securities represent very cheap insurance against rising
inflation. Historically, no other fixed income security has offered the real
return protections that inflation indexed securities are currently offering.
Although with falling oil and commodity prices investors are asking why they
should be interested in inflation protection, we feel strongly that they will be
rewarded in the long run. One of the continuing factors influencing TIPS
performance should be Federal Reserve policy. If the Federal Reserve continues
to lower interest rates they are reducing the risk of recession and increasing
the risk of inflation, both of the factors should increase the attractiveness
and performance of inflation linked securities.
Inflation-Indexed Securities Fund Growth of $10,000
[The following information was depicted as a line graph in the printed material]
- --------------------------------------------------------------------------------
Total Return
- --------------------------------------------------------------------------------
One Year Five Years Inception
Ended Ended to 10/31/98
10/31/98 10/31/98 (Annualized)
(Annualized)
- --------------------------------------------------------------------------------
4.98% 4.18% 4.75%
- --------------------------------------------------------------------------------
Inflation-Indexed Three Year
Date Securities Fund* Treasury Note SB Inflation Index**
------ ------------------ ------------- --------------------
1/31/93 $10,313 $10,347 $12,392
2/28/93 $10,467 $10,478 $12,222
3/31/93 $10,485 $10,518 $12,307
4/30/93 $10,568 $10,598 $12,372
5/31/93 $10,526 $10,547 $12,333
6/30/93 $10,650 $10,664 $12,448
7/31/93 $10,671 $10,682 $12,487
8/31/93 $10,791 $10,805 $12,511
9/30/93 $10,823 $10,840 $12,647
10/31/93 $10,839 $10,857 $12,714
11/30/93 $10,804 $10,842 $12,656
12/31/93 $10,817 $10,890 $12,720
1/31/94 $10,916 $10,969 $12,709
2/28/94 $10,797 $10,853 $12,702
3/31/94 $10,627 $10,733 $12,747
4/30/94 $10,533 $10,654 $12,830
5/31/94 $10,538 $10,659 $12,866
6/30/94 $10,539 $10,674 $12,926
7/31/94 $10,667 $10,788 $12,948
8/31/94 $10,691 $10,822 $13,226
9/30/94 $10,605 $10,741 $13,249
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 $12,890
6/30/97 $12,372 $13,000
7/31/97 $12,498 $13,208
8/31/97 $12,506 $13,183
9/30/97 $12,527 $13,328
10/31/97 $12,670 $13,448
11/30/97 $12,723 $13,473
12/31/97 $12,607 $13,581
1/31/98 $12,701 $13,764
2/28/98 $12,701 $13,739
3/31/98 $12,711 $13,786
4/30/98 $12,840 $13,841
5/31/98 $12,888 $13,922
6/30/98 $12,943 $13,998
7/31/98 $12,986 $14,072
8/31/98 $13,017 $14,397
9/30/98 $13,259 $14,616
10/31/98 $13,301 $14,670
- --------------------------------------------------------------------------------
Inflation-Indexed Securities Fund* Three Year Treasury Note
SB Inflation Linked Securities Index**
- --------------------------------------------------------------------------------
* net of fees and expenses
** The Salomon Brothers Inflation Linked
Securities Index started 2/28/97. Therefore, for
performance purposes the starting point used
is the same amount as the Fund.
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 Street
New York, New York 10005
Distributor
59 Wall Street Distributors, Inc.
21 Milk Street
Boston, Massachusetts 02109
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.
