<PAGE>
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REICH & TANG 600 FIFTH AVENUE, NEW YORK, N.Y. 10020
EQUITY FUND, INC. (212) 830-5200
================================================================================
January 15, 1997
Dear Shareholder:
We are pleased to report that the Reich & Tang Equity Fund closed out 1996 with
another year of strong absolute performance, recording a total return of 16.9%.
The Fund's net asset value on December 31, 1996 was $18.10 per share after
accounting for a quarterly distribution of $2.4952 per share, comprised of
$0.0340 in current dividends, $0.2688 in short term capital gains, and $2.1924
in long term capital gains. At year-end 1996, 96% of the portfolio was invested
in equities, with the top ten holdings accounting for 38.3% of assets. The
Fund's results as compared to the appropriate benchmarks are set forth in the
performance table.
During the year, the Fund's performance was driven by a number of companies
which appreciated in value by 30% or more. The top performing stock, Lands' End,
appreciated 71.3%, followed by Woolworth, + 61.4%, Food Lion, + 56.8%, Corning
Inc., + 43.0%, Steris, + 41.7%, Equifax, + 39.8%, Allied Signal, + 39.6%, Fruit
of the Loom, + 35.9%, Hasbro, + 31.9% and Dexter Corp., + 31.5%. Our policy of
concentrating assets in our best investment ideas paid off handsomely in 1996,
as two of the top five largest holdings at year-end 1995 -- Corning and Hasbro
- -- each appreciated more than 30%. While the Fund owned ten companies which
appreciated 30% or more during the year, there were only six which declined 5%
or more, with two of those companies -- Wausau Paper Mills and Rollins Inc. --
being relatively new positions.
For the vast majority of our holdings, valuations were driven higher by a
continuation of the positive fundamentals experienced over the last several
years, including strong revenue growth, margin expansion through value-added
products and services, cost cutting, and a business-friendly environment
characterized by low inflation and low interest rates.
In spite of the Fund's strong absolute total return, it still underperformed the
widely-followed S&P 500. Our style of investing in small- to mid-sized companies
has been out of favor in a market driven by the largest capitalization names in
the S&P 500 index. A recent article in Barron's illustrated this point by noting
that the top 30 stocks in the S&P 500, which include names such as Microsoft,
Coca Cola, Intel, Merck, and IBM, accounted for nearly one-half of the index's
return! The market's narrowing leadership may come back to haunt those who
ignore the risk of high valuation. Reminiscent of the "nifty-fifty" days of
1972-73, certain stocks appear to be valued quite irrationally, with P/E
multiples in the 25-40 range increasingly common. Once reserved for emerging
growth companies, these multiples are now accorded to some of the largest
enterprises in the U.S. We believe in most cases that they cannot possibly
sustain the sort of high growth rates needed to justify their valuations.
Rest assured that we plan to "stick to our knitting," continuing our search for
small- to medium-sized companies which have above-average growth prospects and
below-average risk. Other important criteria for stock selection include quality
characteristics such as niche market dominance, strong balance sheets, excellent
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<PAGE>
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================================================================================
management, and excess cash generation. As always, our goal is to provide
risk-adjusted returns which outperform the market during the course of a full
investment cycle, as opposed to the far riskier strategy of chasing the latest
fad or trend in the market.
Wishing you a healthy, happy and prosperous 1997.
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
<S> <C> <C>
01/09/85 10,000.00 10,000.00
12/31/85 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
12/31/96 65,780.00 56,130.00
</TABLE>
<TABLE>
<CAPTION>
Average Annual Return
One Year Five Year Since
1/9/1985
<S> <C> <C> <C>
Reich & Tang Equity Fund 16.87% 15.05% 15.48%
S & P 500 22.96% 15.19% 17.02%
</TABLE>
Past performance is not predictive of future performance.
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<PAGE>
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REICH & TANG EQUITY FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ --------
Common Stocks (96.42%)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aerospace/Defense (3.10%)
Sundstrand Corporation 66,500 $ 2,826,250
--------------
Agriculture (2.45%)
Pioneer Hi-Bred International, Inc. 32,000 2,240,000
--------------
Apparel (2.24%)
Fruit of the Loom, Inc.* 49,100 1,859,662
Land's End, Inc.* 7,000 185,500
--------------
2,045,162
--------------
Auto Parts - Replacements (2.43%)
Federal - Mogul Corporation 100,700 2,215,400
--------------
Telecommunications Equipment (1.45%)
General Instruments Corporation* 61,300 1,325,612
--------------
Chemical (Specialty) (3.24%)
Great Lakes Chemical Corporation 44,300 2,071,025
Hercules Incorporated 20,500 886,625
--------------
2,957,650
--------------
Commercial Services (11.45%)
Deluxe Corporation 104,900 3,435,475
Equifax Inc. 35,600 1,090,250
Manpower Inc. 84,300 2,739,750
Rollins Inc. 159,500 3,190,000
--------------
10,455,475
--------------
Computer and Computer Services (.86%)
Policy Management Systems* 17,000 784,125
--------------
Converted Paper Products (4.18%)
Sonoco Products Company 107,200 2,773,800
Wausau Paper Mills 56,600 1,047,100
--------------
3,820,900
--------------
Drugs (2.95%)
Allergan Inc. 75,600 2,693,250
--------------
Energy (4.74%)
Kerr-McGee Corporation 60,100 4,327,200
--------------
</TABLE>
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See Notes to Financial Statements.
<PAGE>
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REICH & TANG EQUITY FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ --------
Common Stocks (Continued)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Food Processing (3.08%)
Universal Foods Corp. 79,900 $ 2,816,475
-------------
Grocery (1.02%)
Food Lion, Inc. Class A 94,900 928,241
-------------
Imaging (3.24%)
Polaroid Corp. 67,900 2,953,650
-------------
Industrial Products (21.44%)
Albany International Corp. Class A 100,200 2,317,125
AlliedSignal Inc. 26,100 1,748,700
Corning Incorporated 99,200 4,588,000
Dexter Corporation (The) 27,700 882,938
Snap-On Tools Corp. 83,100 2,960,438
Teleflex Inc. 51,800 2,700,075
Tyco International 22,500 1,189,687
Varian Associates 62,700 3,189,862
-------------
19,576,825
-------------
Industrial Services (4.39%)
Harsco Corp. 58,500 4,007,250
-------------
Insurance (Prop/Casualty) (4.15%)
UNUM Corporation 33,900 2,449,275
Zurich Reinsurance Centre Holdings, Inc. 42,900 1,340,625
-------------
3,789,900
-------------
Medical Supplies & Equipment (7.33%)
Becton, Dickinson & Co. 3,900 169,163
St. Jude Medical Inc.* 84,000 3,580,500
STERIS Corporation* 43,424 1,888,944
West Co., Inc. 37,200 1,050,900
-------------
6,689,507
-------------
Newspaper (2.78%)
Lee Enterprises, Inc. 109,200 2,538,900
-------------
Office Equipment & Supplies (1.04%)
Pitney Bowes, Inc. 17,500 953,750
-------------
</TABLE>
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See Notes to Financial Statements.
<PAGE>
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REICH & TANG EQUITY FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ --------
Common Stocks (Continued)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Packaging and Containers (2.15%)
Ball Corporation 75,600 $ 1,965,600
-------------
Publishing (1.45%)
Reader's Digest Association 32,800 1,320,200
-------------
Retail Store (1.59%)
The Limited, Inc. 79,005 1,451,717
-------------
Steel (General) (1.43%)
Allegheny Teledyne, Inc. 57,000 1,311,000
-------------
Toy/School Supplies (2.24%)
Hasbro, Inc. 52,600 2,044,825
-------------
Total Common Stocks (Cost $64,409,139) 88,038,864
-------------
<CAPTION>
Face
Amount
------
Short-Term Investments (5.73%)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements (5.73%)
Morgan (J.P.) Securities Inc., 6.65%, due 01/02/97
(Collateralized by $5,481,000, 6.25%,
U.S. Treasury Bonds, due 08/15/23) $5,228,000 5,228,000
-------------
Total Short-Term Investments (Cost $5,228,000) 5,228,000
-------------
Total Investments (102.15%) (Cost $69,637,139 +) 93,266,864
Liabilities in Excess of Cash and Other Assets (-2.15%) ( 1,966,410)
-------------
Net Assets (100.00%) 5,044,178 shares outstanding (Note 3) $ 91,300,454
=============
Net asset value, offering and redemption price per share $ 18.10
=============
</TABLE>
* Non-income producing.
+ Aggregate cost for federal income tax purposes is $69,644,418. Aggregate
unrealized appreciation and depreciation are, based on cost for Federal
income tax purposes, $24,809,345 and $1,186,899 respectively.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
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REICH & TANG EQUITY FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Income:
Dividends...................................................................... $ 1,905,747
Interest....................................................................... 312,923
---------------
Total income............................................................. 2,218,670
---------------
Expenses: (Note 2)
Investment management fee...................................................... 888,522
Administration fee............................................................. 222,130
Distribution expenses.......................................................... 55,281
Custodian fees................................................................. 18,452
Shareholder servicing and related shareholder expenses......................... 79,429
Legal, compliance and filing fees.............................................. 22,925
Audit and accounting........................................................... 51,240
Directors' fees and expenses................................................... 10,830
Other.......................................................................... 4,694
---------------
Total expenses................................................................. 1,353,503
Expenses paid indirectly....................................................... ( 9,762)
---------------
Net expenses................................................................... 1,343,741
---------------
Net investment income.............................................................. 874,929
---------------
<CAPTION>
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments................................................... 22,512,273
Net unrealized depreciation of investments......................................... ( 5,800,512)
--------------
Net gain on investments........................................................ 16,711,761
--------------
Increase in net assets from operations............................................. $ 17,586,690
==============
</TABLE>
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See Notes to Financial Statements.
<PAGE>
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REICH & TANG EQUITY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1996 AND 1995
================================================================================
<TABLE>
<CAPTION>
1996 1995
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C>
Operations:
Net investment income................................................... $ 874,929 $ 1,271,598
Net realized gain on investments........................................ 22,512,273 10,086,724
Change in unrealized appreciation (depreciation) of investments......... ( 5,800,512) 14,343,018
------------- ------------
Increase in net assets from operations.................................. 17,586,690 25,701,340
Distributions from:
Net investment income................................................... ( 874,270) ( 1,271,598)
Return of capital....................................................... ( 728) ---
Net realized gain on investments........................................ ( 13,865,880) ( 10,086,724)
In excess of net realized gain.......................................... -- ( 659)
Capital share transactions (Note 3)........................................ ( 23,878,019) 7,351,166
-------------- ------------
Total increase (decrease)............................................... ( 21,032,207) 21,693,525
Net Assets:
Beginning of year....................................................... 112,332,661 90,639,136
--------------- ------------
End of year............................................................. $ 91,300,454 $ 112,332,661
=============== ============
</TABLE>
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<PAGE>
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REICH & TANG EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
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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<PAGE>
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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.
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 $23,623.
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 caption "Shareholder servicing
and related shareholder expenses" are expense offsets of $9,762. Included under
the same caption are fees of $36,849 paid to Reich & Tang Services, L.P. an
affiliate of the Manager as servicing agent for the Fund.
3. Capital Stock
At December 31, 1996 100,000,000 shares of $.001 par value stock were authorized
and capital paid in amounted to $67,678,008. Transactions in capital stock were
as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
------------------------------- --------------------------------
Shares Amount Shares Amount
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Sold........................................ 3,234,560 $61,060,226 5,901,454 $ 94,756,038
Issued on reinvestment of dividends......... 604,573 10,976,919 611,044 10,838,908
Redeemed.................................... ( 5,130,715) ( 95,915,164) ( 6,067,405) ( 98,243,780)
------------ ------------- ----------- -----------
Net increase (decrease)..................... ( 1,291,582) ( $23,878,019) 445,093 $ 7,351,166
============ ============= =========== ===========
</TABLE>
4. Investment Transactions
Purchases and sales of investment securities, other than U.S. Government direct
and agency obligations and short-term investments, totaled $32,918,486 and
$68,889,773, respectively. Accumulated undistributed net realized losses at
December 31, 1996 amounted to $7,279. Included in proceeds of sale is
$23,194,428 representing the value of securities disposed of in payment of a
redemption in-kind resulting in a realized gain of $8,527,238.
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<PAGE>
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REICH & TANG EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
5. Selected Financial Information
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the year)
Net asset value, beginning of year... $ 17.73 $ 15.39 $ 17.61 $ 16.92 $ 15.64
---------- ---------- --------- ---------- ---------
Income from investment operations:
Net investment income.............. 0.15 0.22 0.24 0.21 0.23
Net realized and unrealized
gains (losses) on investments... 2.83 4.10 0.05 2.12 2.31
---------- ---------- --------- --------- ---------
Total from investment operations... 2.98 4.32 0.29 2.33 2.54
---------- ---------- --------- --------- ---------
Less distributions:
Dividends from net investment income (0.15) ( 0.22) ( 0.24) ( 0.21) ( 0.23)
Distributions from net realized gains (2.46) ( 1.76) ( 2.27) ( 1.43) ( 1.03)
---------- ---------- --------- --------- ---------
Total distributions................ ( 2.61) ( 1.98) ( 2.51) ( 1.64) ( 1.26)
---------- ---------- --------- --------- ---------
Net asset value, end of year....... $ 18.10 $ 17.73 $ 15.39 $ 17.61 $ 16.92
========== ========== ========= ========= =========
Total Return....................... 16.9% 28.2% 1.7% 13.8% 16.3%
Ratios/Supplemental Data
Net assets, end of year (000)...... $ 91,300 $ 112,333 $ 90,639 $ 105,181 $ 92,702
Ratios to average net assets:
Expenses........................ 1.22%(a) 1.15% 1.17% 1.15% 1.15%
Net investment income........... 0.79% 1.21% 1.35% 1.15% 1.35%
Portfolio turnover rate............ 31.70% 27.69% 25.80% 26.69% 27.37%
Average commission rate paid (per share) $ .0455(b)
</TABLE>
(a) Includes expenses paid indirectly, equivalent to .01% of average net assets.
(b) Required by regulations issued in 1995.
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<PAGE>
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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, 1996 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, 1996 by correspondence with the custodian and brokers.
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, 1996, 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.
\s\McGladrey & Pullen,LLP
New York, New York
February 10, 1997
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<PAGE>
- -----------------------------------------------------
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.
- -----------------------------------------------------
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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<PAGE>
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REICH & TANG
EQUITY FUND, INC.
Annual Report
December 31, 1996
- --------------------------------------------------------------------------------
