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MICHIGAN
DAILY
TAX FREE
INCOME
FUND, INC.
Annual Report
February 29, 1996
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<PAGE>
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MICHIGAN
DAILY TAX FREE
INCOME FUND, INC.
===============================================================================
Dear Shareholder:
We are pleased to present the annual report of Michigan Daily Tax Free Income
Fund, Inc. for the year ended February 29, 1996.
The Fund had net assets of $57,509,838 and 355 active shareholders as of
February 29, 1996. Dividends earned on a share held throughout the period were
$.032 which, when adjusted for the compounding effect of the reinvestment of
dividends, represents a 3.23% yield on an annual basis.
We thank you for your support and look forward to continuing to serve your cash
management needs.
Sincerely,
/s/Steven W. Duff
Steven W. Duff
President
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<PAGE>
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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS
FEBRUARY 29, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Other Tax Exempt Investments (7.40%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 1,250,000 Detroit, MI CSD State School Aid Notes 05/01/96 3.80% $ 1,251,316 SP-1+
1,000,000 Kalamazoo School District Kalamazoo County,
MI State Aid Anticipation Notes 04/01/96 3.54 1,000,743 SP-1+
1,000,000 Michigan Municipal Bond Authority RN - Series 1995B 07/03/96 3.74 1,002,284 SP-1+
1,000,000 Michigan Municipal Bond Authority RN - Series 1995C 09/06/96 3.89 1,002,729 SP-1+
- ----------- ----------
4,250,000 Total Other Tax Exempt Investments 4,257,072
- ----------- ----------
<CAPTION>
Other Variable Rate Demand Instruments (b) (69.52%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 945,000 Birmingham, MI EDC Limited Obligation RB
(Brown St. Assoc. Project) - Series 1983
LOC Bankers Trust Company 12/01/18 3.63% $ 945,000 Aa2
1,000,000 Dearborn, MI EDC
LOC Mellon Bank, N.A. 03/01/25 3.30 1,000,000 A1
1,500,000 Delta County, MI (Mead Paper) - Series 1985F
LOC Bank of Nova Scotia 12/01/13 3.55 1,500,000 P1
400,000 Delta County, MI EDC Environment Improvement RB
(Mead Escanaba Paper)
LOC Credit Suisse 12/01/23 3.45 400,000 P1
800,000 Detroit Water Bond 1993
FGIC Insured 07/01/13 3.30 800,000 VMIG-1 A1+
1,000,000 Detroit, MI (Central Industrial Park)
LOC Citibank 10/01/10 3.25 1,000,000 A1
200,000 Detroit, MI (Tax Finance Authority)
LOC Citibank 10/01/10 3.25 200,000 A1
2,000,000 EDC Farmington Hills - Carefour
LOC Bankers Trust Company 09/01/15 3.38 2,000,000 A1
600,000 Grand Rapids, MI (Water Supply)
LOC Societe Generale 01/01/20 3.35 600,000 VMIG-1
1,500,000 Holland, MI Economic Development
LOC Industrial Bank of Japan, Ltd. 03/01/13 3.50 1,500,000 A1
3,000,000 Jackson County, MI EDC (Thrifty Leoni)
LOC First Chicago 12/01/14 3.45 3,000,000 P1 A1
600,000 Melvindale, MI EDC (Des Jardin)
LOC National Bank of Detroit 09/01/00 3.40 600,000 P1
1,000,000 Michigan JDA (Gordon Food Services) - Series 1985
LOC Rabobank Nederland 08/01/15 3.15 1,000,000 Aaa
</TABLE>
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See Notes to Financial Statements.
<PAGE>
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===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 2,500,000 Michigan JDA (Kentwood Residence Association)
LOC First Bank Systems 11/01/14 3.40% $ 2,500,000 A1
1,000,000 Michigan JDA (Mazda Motors)
LOC Sumitomo Bank, Ltd. 10/01/08 3.40 1,000,000 VMIG-1
2,435,000 Michigan State (Allied Signal) 04/01/99 3.35 2,435,000 A1
1,000,000 Michigan State HDA (Harbortown LTD Dividend)
LOC Bankers Trust Company 06/01/04 3.38 1,000,000 VMIG-1
1,000,000 Michigan State HDA Rental Housing RB - Series 1994C
LOC Credit Suisse 04/01/19 3.25 1,000,000 A1+
2,000,000 Michigan State Strategic Fund Ltd. Obligation
(Louisiana Pacific Corporation)
LOC Wachovia Bank & Trust Co., N.A. 12/01/09 3.30 2,000,000 Aa2
1,000,000 Michigan Strategic Fund (Grayling Generating Project)
LOC Barclays Bank PLC 01/01/14 3.40 1,000,000 VMIG-1
700,000 Michigan Strategic Fund (Natech Group)
LOC National Bank of Detroit 08/01/02 3.40 700,000 P1 A1+
2,000,000 Michigan Strategic Fund
(National Rubber Michigan Incorporated Project)
LOC National Bank of Canada 09/01/11 3.45 2,000,000 P1
800,000 Michigan Strategic Fund (Pilot Industry Incorporated Project)
LOC National Bank of Detroit 06/01/99 3.75 800,000 P1 A1+
2,000,000 Michigan Strategic Fund (Sugar Company)
LOC Trust Co. Bank of Georgia 11/01/03 3.30 2,000,000 Aa3
700,000 Michigan Strategic Fund (Uniflow Capital Project) (c)
LOC National Bank of Detroit 06/01/02 3.75 700,000
800,000 Michigan Strategic Fund (Wayne Disposal Project)
LOC Comerica Bank 04/01/99 3.50 800,000 A1
1,000,000 Michigan Strategic Fund Limit Obligation RB
(Mechanics Uniform Rental Co. Proj.) - Series 95 (c)
LOC Comerica Bank 08/01/15 3.40 1,000,000
3,000,000 University of Michigan HRB
(Regents of the University of Michigan) - Series 92 12/01/19 3.45 3,000,000 VMIG-1
1,500,000 University of Michigan RB (Hospital Series A) 12/01/27 3.45 1,500,000 VMIG-1
2,000,000 Van Buren, MI (Daiken Clutch)
LOC Sanwa Bank, Ltd. 03/01/97 3.75 2,000,000 Aa3
- ----------- -----------
39,980,000 Total Other Variable Rate Demand Instruments 39,980,000
- ----------- -----------
</TABLE>
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See Notes to Financial Statements.
<PAGE>
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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
FEBRUARY 29, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Put Bonds (d) (6.08%)
- ------------------------------------------------------------------------------- --------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 2,500,000 Michigan Strategic Fund (Donnelly Corporation Project)-Series 1988
LOC ABN AMRO Bank N.V. 04/01/96 4.25% $ 2,500,000 P1 A1+
1,000,000 Puerto Rico Industrial Medical & Environmental PCFA RB
(Reynolds Metals Corporation)
LOC ABN AMRO Bank N.V. 09/01/96 3.96 998,778 VMIG-1 A1+
- ----------- -----------
3,500,000 Total Put Bonds 3,498,778
- ----------- -----------
<CAPTION>
Revenue Bonds (4.44%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 1,550,000 Michigan Municipal Bond Authority - Series 1995A 05/03/96 4.18% $ 1,551,918 SP-1+
1,000,000 Puerto Rico Industrial Medical & Environmental PCFA RB
(Abbot Laboratories) 03/01/96 5.10 1,000,000 Aa1 AAA
- ----------- -----------
2,550,000 Total Revenue Bonds 2,551,918
- ----------- -----------
<CAPTION>
Tax Exempt Commercial Paper (7.30%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 2,100,000 Delta County, MI EDC (Mead Paper) - Series A
LOC Swiss Bank Corp. 03/05/96 3.05% $ 2,100,000 P1
1,100,000 Delta County, MI EDC (Mead Paper) - Series B
LOC Union Bank of Switzerland 05/09/96 3.15 1,100,000 P1
1,000,000 Puerto Rico Government Development Bank 04/03/96 3.15 1,000,000 A1+
- ----------- -----------
4,200,000 Total Tax Exempt Commercial Paper 4,200,000
- ----------- -----------
<CAPTION>
Variable Rate Demand Instruments - Private Placements (b) (4.73%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 220,000 Charlevoix, MI (Hoskins)
LOC Chemical Bank 11/01/99 5.36% $ 220,000 P1 A1
2,500,000 EDC Kalamazoo
(WBC Properties Limited Partnership Project) - Series 1985
LOC Old Kent Bank & Trust Co. 09/01/15 3.65 2,500,000 P1 A1+
- ----------- -----------
2,720,000 Total Variable Rate Demand Instruments - Private Placements 2,720,000
- ----------- -----------
Total Investments (99.47%) Cost ($57,207,768+) 57,207,768
Cash and Other Assets, In Excess of Liabilities (0.53%) 302,070
-----------
Net Assets, (100%) 57,529,850 Shares Outstanding (Note 3) $57,509,838
===========
Net Asset Value, Offering and Redemption Price Per Share $ 1.00
===========
+ Aggregate cost for federal income tax purposes is $57,206,560.
</TABLE>
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See Notes to Financial Statements.
<PAGE>
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===============================================================================
FOOTNOTES:
(a) Unless the variable rate demand instruments are assigned their own ratings,
the ratings noted are those of the bank whose letter of credit
collateralized such instruments. P1 and A1+ are the highest ratings for tax
exempt commercial paper.
(b) Securities payable on demand at par including accrued interest (usually
with seven days notice) and where indicated unconditionally secured as to
principal and interest by a bank letter of credit. The interest rates are
adjustable and are based on bank prime rates or other interest rate
adjustment indices. The rate shown is the rate in effect at the date of
this statement.
(c) Securities that are not rated which the Fund's Board of Directors have
determined to be of comparable quality to those rated securities in which
the Fund invests.
(d) The maturity date indicated is the next put date.
<TABLE>
<CAPTION>
KEY:
<C> <C> <C> <C> <C> <C>
EDC = Export Development Corporation JDA = Job Development Authority
HDA = Health Development Authority PCFA = Pollution Control Finance Authority
HRB = Hospital Revenue Bond RB = Revenue Bond
</TABLE>
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See Notes to Financial Statements.
<PAGE>
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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996
===============================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME
<C> <C>
Income:
Interest...................................................................... $ 2,328,364
---------------------
Expenses: (Note 2)
Investment management fee..................................................... 176,234
Administration fee............................................................ 118,971
Shareholder servicing fee..................................................... 117,489
Custodian expenses............................................................ 7,637
Shareholder servicing and related shareholder expenses........................ 52,063
Legal, compliance and filing fees............................................. 9,391
Audit and accounting.......................................................... 46,348
Directors' fees............................................................... 6,910
Other......................................................................... 3,497
---------------------
Total expenses.............................................................. 538,540
Less fees waived......................................................... ( 57,857)
Expenses paid indirectly................................................. ( 14,461)
--------------------
Net expenses............................................................. 466,222
---------------------
Net investment income........................................................... 1,862,142
<CAPTION>
REALIZED GAIN (LOSS) ON INVESTMENTS
<C> <C>
Net realized gain (loss) on investments......................................... 1,208
---------------------
Increase in net assets from operations.......................................... $ 1,863,350
=====================
</TABLE>
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See Notes to Financial Statements.
<PAGE>
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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED FEBRUARY 29, 1996 AND 1995
===============================================================================
<TABLE>
1996 1995
---- ----
<C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
Operations:
Net investment income..................................... $ 1,862,142 $ 1,448,873
Net realized gain (loss) on investments................... 1,208 7,920
------------------ ----------------
Increase in net assets from operations.................... 1,863,350 1,456,793
Dividends to shareholders from net investment income........ ( 1,862,142)* ( 1,448,873)*
Capital share transactions (Note 3)......................... 2,184,435 ( 13,084,637)
------------------ ----------------
Total increase (decrease)............................. 2,185,643 ( 13,076,717)
Net assets:
Beginning of year......................................... 55,324,195 68,400,912
------------------ ----------------
End of year............................................... $ 57,509,838 $ 55,324,195
================== ================
* Designated as exempt-interest dividends for Federal income tax purposes.
</TABLE>
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See Notes to Financial Statements.
<PAGE>
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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. Summary of Accounting Policies.
Michigan Daily Tax Free Income Fund, Inc. is a no-load, non-diversified,
open-end management investment company registered under the Investment Company
Act of 1940. The Fund is a short-term, tax exempt money market fund. Its
financial statements are prepared in accordance with generally accepted
accounting principles for investment companies as follows:
a) Valuation of Securities -
Investments are valued at amortized cost. Under this valuation method, a
portfolio instrument is valued at cost and any discount or premium is
amortized on a constant basis to the maturity of the instrument. The
maturity of variable rate demand instruments is deemed to be the longer of
the period required before the Fund is entitled to receive payment of the
principal amount or the period remaining until the next interest rate
adjustment.
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 tax exempt and taxable income to its shareholders. Therefore, no
provision for federal income tax is required.
c) Dividends and Distributions -
Dividends from investment income (excluding capital gains and losses, if
any, and amortization of market discount) are declared daily and paid
monthly. Distributions of net capital gains, if any, realized on sales of
investments are made after the close of the Fund's fiscal year, as declared
by the Fund's Board of Directors.
d) 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.
e) General -
Securities transactions are recorded on a trade date basis. Interest income
is accrued as earned. Realized gains and losses from securities
transactions are recorded on the identified cost basis.
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) at the annual rate of
.30% 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) which in any year exceed the limits on investment
company expenses prescribed by any state in which the Fund's shares are
qualified for sale. No such reimbursement was required for the year ended
February 29, 1996.
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<PAGE>
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===============================================================================
2. Investment Management Fees and Other Transactions with Affiliates
(Continued).
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 Contract the Fund pays to the Manager an
annual fee of .21% of the Fund's average daily net assets. Prior to December 1,
1995, the administration fee was .20%.
Pursuant to a Distribution Plan adopted under Securities and Exchange Commission
Rule 12b-1, the Fund and Reich & Tang Distributors L.P. (the Distributor) have
entered into a Distribution Agreement and a Shareholder Servicing Agreement. For
its services under the Shareholder Servicing Agreement, the Distributor receives
from the Fund a fee equal to .20% of the Fund's average daily net assets. There
were no additional expenses borne by the Fund pursuant to the Distribution Plan.
During the year ended February 29, 1996, the Distributor voluntarily waived
shareholder servicing fees of $57,857.
Fees are paid to Directors who are unaffiliated with the Manager on the basis of
$1,000 per annum plus $250 per meeting attended.
Included in the Statement of Operations under the caption "Shareholder servicing
and related shareholder expenses" are fees of $891 paid to Reich & Tang Services
L.P., an affiliate of the Manager, as servicing agent for the Fund.
Included in the Statement of Operations under the caption "Custodian expenses"
and "Shareholder servicing and related shareholder expenses" are expense offsets
of $14,461.
3. Capital Stock.
At February 29, 1996, 20,000,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $57,529,850. Transactions in capital
stock, all at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
----------------- -----------------
<C> <C> <C>
Sold........................................ 142,903,415 134,147,344
Issued on investment of dividends........... 1,817,407 1,369,892
Redeemed.................................... ( 142,536,387) ( 148,601,873)
------------------ ------------------
Net increase (decrease)..................... 2,184,435 ( 13,084,637)
================== ==================
</TABLE>
4. Sales of Securities.
Accumulated undistributed realized losses at February 29, 1996 amounted to
$20,012. At February 29, 1996 the Fund had tax basis capital losses of $21,220
which may be carried forward to offset future capital gains. Such losses expire
between February 29, 2000 and February 28, 2001.
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<PAGE>
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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
5. Concentration of Credit Risk.
The Fund invests primarily in obligations of political subdivisions of the State
of Michigan and, accordingly, is subject to the credit risk associated with the
non-performance of such issuers. Approximately 77% of these investments are
further secured, as to principal and interest, by letters of credit issued by
financial institutions. The Fund maintains a policy of monitoring its exposure
by reviewing the creditworthiness of the issuers, as well as that of the
financial institutions issuing the letters of credit, and by limiting the amount
of holdings with letters of credit from one financial institution.
6. Selected Financial Information.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
February 29, February 28, February 29,
----------- --------------------------------- -----------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income..................... 0.032 0.025 0.019 0.023 0.038
Dividends from net investment income...... ( 0.032) ( 0.025) ( 0.019) ( 0.023) ( 0.038)
-------- -------- -------- -------- --------
Net asset value, end of period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return.............................. 3.23% 2.56% 1.88% 2.33% 3.82%
Ratios/Supplemental Data
Net assets, end of year (000)............. $ 57,510 $ 55,324 $ 68,401 $ 83,101 $ 119,535
Ratios to average net assets:
Expenses.................................. 0.82%+* 0.75%+ 0.74%+ 0.68%+ 0.64%+
Net investment income..................... 3.17%+ 2.53%+ 1.86%+ 2.32%+ 3.73%+
* Includes custodian and shareholder servicing fees paid indirectly.
+ Net of investment management, administration and shareholder servicing fees
waived equivalent to .10%, .28%, .30%, .25%, and .25% of average net assets.
</TABLE>
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<PAGE>
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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
INDEPENDENT AUDITOR'S REPORT
===============================================================================
The Board of Directors and Shareholders
Michigan Daily Tax Free Income Fund, Inc.
We have audited the accompanying statement of net assets of Michigan Daily Tax
Free Income Fund, Inc. as of February 29, 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 February 29, 1996, 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 Michigan Daily Tax Free Income Fund, Inc. as of February 29, 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
March 20, 1996
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<PAGE>
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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.
- -------------------------------------------------------------------------------
Michigan Daily Tax Free Income 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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