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Reich & Tang
EQUITY FUND, INC.
Annual Report
December 31, 1995
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<PAGE>
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Reich & Tang 600 Fifth Avenue, New York,10020
Equity Fund, Inc. (212) 830-5200
===============================================================================
January 17, 1996
Dear Shareholder,
1995 was an exceptional year for U.S. equity markets indeed. We are pleased to
report that the Reich & Tang Equity Fund achieved a total return of 28.2% for
the year. This strong performance was driven by excellent gains in most of the
portfolio holdings. Some of the best gains were recorded by the largest
positions in the portfolio which, in most cases, involved companies that had
been owned for a year or longer. Portfolio turnover remained low. The Fund's net
asset value on December 31, 1995 was $17.73 per share after accounting for a
quarterly distribution of $1.81 per share, comprised of $0.05 in current
dividends, $0.12 in short term capital gains, and $1.64 in long term capital
gains. At year end, 96% of the portfolio was invested in equities, with the top
ten holdings accounting for 39% of total assets.
Most of the strongest stocks benefited from positive earnings surprises and
increases in their price/earnings multiples relative to the market index. Only
two stocks in the portfolio declined more than 5% last year, while 26 holdings
advanced 20% or more. The top ten best gainers were: PennCorp Financial Group
(+79%), AMSCO International (+61%), Pioneer Hi-Bred International (+60%),
Equifax (+60%), Sundstrand (+57%), Becton, Dickinson (+50%), UNUM Corp. (+46%),
Universal Foods (+44%), Harsco (+43%), and Pitney Bowes (+43%). While
performance last year lagged the S&P 500 for the first time in the past four
years, this outcome was not surprising since the index experienced its best
advance in thirty seven years and market leadership grew much narrower as the
year progressed. The technology and interest sensitive sectors, in particular,
made enormous gains and were important factors in driving the index to
successive peaks. Still, by adhering to the disciplines of our "value"
investment philosophy and emphasizing small and medium sized companies, we were
able to achieve solid returns while maintaining a relatively low risk profile.
1995's performance was driven by several important strategies. First, in keeping
with our policy of doing our own "bottom up" research, we were able to develop
the understanding and conviction in our companies which is fundamental to a
policy of concentrating the most assets in our best ideas. The top ten holdings
generally accounted for about 35% - 40% of assets, and, on balance, these
positions added significant incremental value during the year. Second, last year
we saw inflationary pressures remaining low and triggering further declines in
interest rates. This resulted in earnings multiples expanding. Therefore, we
adjusted our price targets upward on our companies in order to reflect the
improvement in absolute valuation levels. Since the market was clearly rewarding
success, but punishing disappointment deeply, this allowed us to maintain our
holdings in companies reporting positive earnings surprises where their relative
valuation had flattened or fallen due to the run up in market prices. Third,
whereas some highly leveraged, marginal companies achieved outsized stock market
gains during most of the year as interest rates declined, we continued to
emphasize only companies with solid financial positions, strong business
franchises, good management and identifiable catalysts for positive change. We
believe that this strategy will pay off as the economy slows and management
finds it more and more difficult to offset volume shortfalls with asset
write-offs or expense reductions. Restructuring and cost cutting domestically
have become so widespread that operating margins are now very high. Since most
major cost reductions have already been taken, volume shortfalls will quickly
show up at the bottom line. Finally, we have been gradually reducing positions
in stocks that are approaching the end of their investment cycle and
re-investing the proceeds in companies whose stocks represent compelling value,
where we can earn the "discovery premium". We are
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confident that this recycling of the "old" into the "new" is both lowering the
portfolio's risk profile and, at the same time, building a sound foundation for
future gains.
Wishing you a healthy, happy and prosperous 1996.
Sincerely,
/s/ Robert F. Hoerle
Robert F. Hoerle
President
Comparison of change in value of $10,000 investment in the
Reich & Tang Equity Fund and the S&P 500 Index.
The chart below represents the omitted graph.
<TABLE>
<CAPTION>
REICH & TANG EQUITY FUND, INC.
Performance Comparison Chart
INCEPTION S&P 500 R&T Equity
<C> <C> <C>
01/09/85 10,000.00 10,000.00
12/31/95 13,374.30 13,766.20
12/31/86 15,876.30 15,783.30
12/31/87 16,708.50 16,590.00
12/31/88 19,470.20 20,378.60
12/31/89 25,641.10 24,019.50
12/31/90 24,848.40 22,618.60
12/31/91 32,240.00 27,832.00
12/31/92 34,870.00 32,380.20
12/31/93 38,380.40 36,851.20
12/31/94 38,887.00 37,477.00
12/31/95 53,500.00 48,029.00
</TABLE>
<TABLE>
<CAPTION>
Average Annual Return
One Year Five Year Since
1/9/1985
<S> <C> <C> <C>
Reich & Tang Equity Fund 28.16% 16.25% 15.37%
S & P 500 37.58% 16.58% 16.51%
</TABLE>
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REICH & TANG EQUITY FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
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<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ------
Common Stocks (95.52%)
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<S> <C> <C>
Aerospace/Defense (2.86%)
Sundstrand Corporation 45,600 $ 3,209,100
----------------
Agriculture (3.86%)
Pioneer Hi-Bred International, Inc. 78,000 4,338,750
----------------
Apparel (3.14%)
Land's End, Inc.* 84,900 1,156,763
Fruit of the Loom, Inc.* 97,300 2,371,687
----------------
3,528,450
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Banking/Financial Services (1.59%)
Marshall & Ilsley Corporation 68,500 1,781,000
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Business Services & Products (.98%)
West Co. Inc. 47,000 1,104,500
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Chemical (Specialty) (6.69%)
Great Lakes Chemical Corporation 65,000 4,680,000
Hercules Incorporated 25,500 1,437,563
Lubrizol Corporation (The) 50,000 1,393,750
----------------
7,511,313
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Consumer Products (2.89%)
Avon Products, Inc. 15,000 1,130,625
Bausch & Lomb Incorporated 21,500 851,938
Sunbeam Corporation 83,000 1,265,750
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3,248,313
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Converted Paper Products (3.95%)
Sonoco Products Company 169,000 4,436,250
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Electronics (1.50%)
Polaroid Corp. 35,600 1,686,550
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Energy (8.52%)
Equitable Resources, Inc. 114,750 3,585,937
Kerr-McGee Corporation 76,100 4,832,350
Union Texas Petroleum Holdings, Inc. 59,500 1,152,813
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9,571,100
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</TABLE>
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See Notes to Financial Statements.
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REICH & TANG EQUITY FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1995
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<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ------
Common Stocks (Continued)
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<S> <C> <C>
Food Processing (2.96%)
Universal Foods Corp. 82,800 $ 3,322,350
---------------
Industrial Products (19.02%)
Albany International Corp. Class A 126,500 2,292,812
Allied-Signal Inc. 43,500 2,066,250
Corning Incorporated 155,000 4,960,000
Dexter Corporation (The) 70,700 1,670,288
Harsco Corp. 74,000 4,301,250
Snap-On Tools Corp. 70,000 3,167,500
Teleflex Inc. 42,000 1,722,000
Varian Associates 24,800 1,184,200
---------------
21,364,300
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Industrial Services (3.63%)
Deluxe Corporation 98,000 2,842,000
Equifax Inc. 58,000 1,239,750
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4,081,750
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Insurance (Prop/Casualty)(6.57%)
AMBAC Indemnity Corporation 16,500 773,438
PennCorp Financial Group 27,500 807,812
UNUM Corporation 75,500 4,152,500
Zurich Reinsurance Centre Holdings, Inc. 54,300 1,649,362
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7,383,112
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Medical Supplies (8.79%)
AMSCO International, Inc.* 119,400 1,776,075
Allergan Inc. 110,000 3,575,000
Becton, Dickinson & Co. 60,300 4,522,500
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9,873,575
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Newspaper (2.83%)
Lee Enterprises, Inc. 138,000 3,174,000
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Office Equipment & Supplies (3.39%)
Herman Miller, Inc. 29,000 870,000
Pitney Bowes, Inc. 62,500 2,937,500
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3,807,500
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Protective Services (2.97%)
Rollins Inc. 151,000 3,340,875
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</TABLE>
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See Notes to Financial Statements.
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<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ------
Common Stocks (Continued)
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<S> <C> <C> <C>
Retail Store (5.37%)
The Limited, Inc. 183,500 $ 3,188,312
Woolworth Corporation 90,000 1,170,000
Food Lion, Inc. Class A 292,000 1,669,890
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6,028,202
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Toy/School Supplies (4.01%)
Hasbro, Inc. 145,400 4,507,400
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Total Common Stocks (Cost $77,868,153) 107,298,390
--------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
Short-Term Investments (4.11%)
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<S> <C> <C>
Repurchase Agreements (4.11%)
Morgan (J.P.) Securities Inc., 5.80%, due 01/02/96
(Collateralized by $4,305,000
U.S. Treasury Notes, 9.00%, due 05/15/98) $4,612,000 4,612,000
---------------
Total Short-Term Investments (Cost $4,612,000) 4,612,000
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Total Investments (99.63%) (Cost $82,480,153+) 111,910,390
Cash and Other Assets, Net of Liabilities (.37%) 422,271
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Net Assets (100.00%) 6,335,760 shares outstanding $ 112,332,661
===============
Net asset value, offering and redemption price per share $ 17.73
===============
* Non-income producing.
+ Aggregate cost for federal income tax purposes is $82,606,586. Aggregate
unrealized appreciation and depreciation are, based on cost for Federal
income tax purposes, $30,507,706 and $1,203,902 respectively.
</TABLE>
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See Notes to Financial Statements.
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REICH & TANG EQUITY FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
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<TABLE>
<CAPTION>
INVESTMENT INCOME
Income:
Dividends...................................................................... $ 2,072,646
Interest....................................................................... 411,477
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Total income............................................................. 2,484,123
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Expenses: (Note 2)
Investment management fee...................................................... 839,005
Administration fee............................................................. 209,771
Distribution expenses.......................................................... 7,610
Custodian fees................................................................. 13,941
Shareholder servicing and related shareholder expenses......................... 69,764
Legal, compliance and filing fees.............................................. 24,358
Audit and accounting........................................................... 35,002
Directors' fees and expenses................................................... 13,770
Other.......................................................................... 3,895
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Total expenses................................................................. 1,217,116
Expenses paid indirectly....................................................... ( 4,591)
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Net expenses................................................................... 1,212,525
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Net investment income.............................................................. 1,271,598
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<CAPTION>
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
<S> <C>
Net realized gain on investments................................................... 10,086,724
Net unrealized appreciation of investments......................................... 14,343,018
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Net gain on investments............................................. 24,429,742
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Increase in net assets from operations............................................. $ 25,701,340
===============
</TABLE>
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See Notes to Financial Statements.
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REICH & TANG EQUITY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1995 AND 1994
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<TABLE>
<CAPTION>
1995 1994
----------------- ------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
<S> <C> <C>
Net investment income.................................................. $ 1,271,598 $ 1,263,024
Net realized gain on investments....................................... 10,086,724 11,723,466
Change in unrealized appreciation (depreciation) of investments........ 14,343,018 ( 11,304,004)
----------------- ----------------
Increase in net assets from operations................................. 25,701,340 1,682,486
Distributions from:
Net investment income.................................................. ( 1,271,598) ( 1,263,024)
Return of capital...................................................... --- ( 1,234)
Net realized gain on investments....................................... ( 10,086,724) ( 11,723,466)
In excess of net realized gain......................................... ( 659) ( 107,955)
Capital share transactions (Note 3).................................... 7,351,166 ( 3,128,833)
---------------- ----------------
Total increase (decrease).............................................. 21,693,525 ( 14,542,026)
Net Assets:
Beginning of year................................................ 90,639,136 105,181,162
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End of year...................................................... $ 112,332,661 $ 90,639,136
================ ================
</TABLE>
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See Notes to Financial Statements.
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REICH & TANG EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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1. Summary of Accounting Policies
Reich & Tang Equity Fund, Inc. is a no-load, diversified, open-end management
investment company registered under the Investment Company Act of 1940. The
investment objective of the Fund is to seek growth of capital by investing
primarily in equity securities which management of the Fund believes to be
undervalued. Its financial statements are prepared in accordance with generally
accepted accounting principles for investment companies as follows:
a) Valuation of Securities -
Securities traded on a national securities exchange or admitted to trading
on the National Association of Securities Dealers Inc. Automated Quotations
National List are valued at the last reported sales price on the last
business day of the fiscal period. Common stocks for which no sale was
reported on that date and over-the-counter securities, are valued at the
mean between the last reported bid and asked prices. United States
Government obligations and other debt instruments having sixty days or less
remaining until maturity are stated at amortized cost. Debt instruments
having a remaining maturity of more than sixty days will be valued at the
highest bid price obtained from a dealer maintaining an active market in
that security or on the basis of prices obtained from a pricing service
approved as reliable by the Board of Directors. All other investment
assets, including restricted and not readily marketable securities, are
valued in such manner as the Board of Directors in good faith deems
appropriate to reflect their fair market value.
b) Federal Income Taxes -
It is the Fund'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. Therefore, no provision for
federal income tax is required.
c) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
d) General -
Securities transactions are recorded on the trade date basis. Interest
income is accrued as earned and dividend income is recorded on the
ex-dividend date. Realized gains and losses from securities transactions
are recorded on the identified cost basis. Dividends and capital gain
distributions to shareholders, which are determined in accordance with
income tax regulations, are recorded on the ex-dividend date. Distributions
which exceed net realized capital gains for financial reporting purposes
but not for tax purposes are reported as distributions in excess of net
realized gains. It is the Fund's policy to take possession of securities as
collateral under repurchase agreements and to determine on a daily basis
that the value of such securities plus accrued interest are sufficient to
cover the value of the repurchase agreements.
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2. Investment Management Fees and Other Transactions with Affiliates
Under the Investment Management Contract, the Fund pays an investment management
fee to Reich & Tang Asset Management, L.P. ("The Manager") equal to .80% of the
Fund's average daily net assets. The Manager is required to reimburse the Fund
for its expenses (exclusive of interest, taxes, brokerage, and extraordinary
expenses) to the extent that such expenses, including the management fee, for
any fiscal year exceed 2 1/2% of the first $30 million of its average net
assets, 2% of the next $70 million of its average net assets and 1 1/2% of its
average net assets in excess of $100 million. No such reimbursement was required
for the year ended December 31, 1995.
The Manager is a wholly-owned subsidiary of New England Investment Companies,
L.P. ("NEIC"). On August 16, 1995, New England Mutual Life Insurance Company
("The New England"), the owner of NEIC's general partner and a majority owner of
the limited partnership interest in NEIC, entered into an agreement to merge
with Metropolitan Life Insurance Company ("MetLife"), with MetLife to be the
survivor of the merger. The merger is subject to several conditions, including
the required approval, by shareholders of the Fund of a proposed new investment
advisory agreement, intended to take effect at the time of the merger. The new
agreement will be substantially similar to the existing agreement.
Pursuant to an Administrative Services Agreement, the Fund pays to the Manager
an annual fee of .20% of the Fund's average daily net assets.
Pursuant to a Distribution and Service Plan adopted under Securities and
Exchange Commission Rule 12b-1, the Fund may pay certain costs associated with
the distribution of the Fund's shares subject to a limit of 0.05% of the Fund's
average net assets.
Brokerage commissions paid during the year to Reich & Tang Distributors L.P.
amounted to $22,919.
Fees are paid to Directors who are unaffiliated with the Manager on the basis of
$2,000 per annum plus $500 per meeting attended.
Included in the statement of operations under the captions "Custodian fees" and
"Shareholder servicing and related shareholder expenses" are expense offsets of
$4,591.
3. Capital Stock
At December 31, 1995 100,000,000 shares of $.001 par value stock were authorized
and capital paid in amounted to $83,029,517. Transactions in capital stock were
as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------------------- ------------------------------
Shares Amount Shares Amount
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Sold........................................ 5,901,454 $94,756,038 6,479,849 $114,659,362
Issued on reinvestment of dividends......... 611,044 10,838,908 800,793 12,430,834
Redeemed.................................... (6,067,405) ( 98,243,780) ( 7,361,171) ( 130,219,029)
---------- ------------- ---------- ------------
Net increase (decrease)..................... 445,093 $ 7,351,166 ( 80,529) ($ 3,128,833)
========== ============= ========== ============
</TABLE>
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REICH & TANG EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
4. Investment Transactions
Purchases and sales of investment securities, other than U.S. Government direct
and agency obligations and short-term investments, totaled $27,188,720 and
$29,821,803, respectively. Accumulated undistributed net realized losses at
December 31, 1995 amounted to $127,093.
5. Selected Financial Information
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Per Share Operating Performance
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year. $ 15.39 $ 17.61 $ 16.92 $ 15.64 $ 13.05
---------- ---------- --------- ---------- ----------
Income from investment operations:
Net investment income.............. 0.22 0.24 0.21 0.23 0.36
Net realized and unrealized
gains (losses) on investments... 4.10 0.05 2.12 2.31 2.63
---------- ---------- --------- ---------- ----------
Total from investment operations... 4.32 0.29 2.33 2.54 2.99
---------- ---------- --------- ---------- ----------
Less distributions:
Dividends from net investment income ( 0.22) ( 0.24) ( 0.21) ( 0.23) ( 0.37)
Distributions from net realized gains ( 1.76) ( 2.27) ( 1.43) ( 1.03) ( 0.03)
---------- ---------- --------- ---------- ----------
Total distributions................ ( 1.98) ( 2.51) ( 1.64) ( 1.26) ( 0.40)
---------- ---------- --------- ---------- ----------
Net asset value, end of year....... $ 17.73 $ 15.39 $ 17.61 $ 16.92 $ 15.64
========== ========== ========= ========== ==========
Total Return....................... 28.2% 1.7% 13.8% 16.3% 23.1%
Ratios/Supplemental Data
Net assets, end of year (000)...... $ 112,333 $ 90,639 $ 105,181 $ 92,702 $ 83,151
Ratios to average net assets:
Expenses........................ 1.15% 1.17% 1.15% 1.15% 1.14%
Net investment income........... 1.21% 1.35% 1.15% 1.35% 2.33%
Portfolio turnover rate............ 27.69% 25.80% 26.69% 27.37% 43.41%
</TABLE>
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REICH & TANG EQUITY FUND, INC.
INDEPENDENT AUDITOR'S REPORT
===============================================================================
The Board of Directors and Shareholders
Reich & Tang Equity Fund, Inc.
We have audited the accompanying statement of net assets of Reich & Tang Equity
Fund, Inc. as of December 31, 1995 and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the selected financial information for each
of the five years in the period then ended. These financial statements and
selected financial information are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
selected financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995 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, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of Reich & Tang Equity Fund, Inc. as of December 31, 1995, the results
of its operations, the changes in its net assets and the selected financial
information for the periods indicated, in conformity with generally accepted
accounting principles.
McGladrey & Pullen, LLP
New York, New York
January 26, 1996
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This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors in the Fund
unless preceded or accompanied by an effective prospectus, which includes
information regarding the Fund's objectives and policies, experience of its
management, marketability of shares, and other information.
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Reich & Tang Equity Fund, Inc.
600 Fifth Avenue
New York, New York 10020
Manager
Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
Custodian, Transfer Agent &
Dividend Disbursing Agent
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
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