<PAGE>
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MICHIGAN
DAILY TAX FREE 600 FIFTH AVENUE, NEW YORK, NY 10020
INCOME FUND, INC. (212) 830-5200
================================================================================
Dear Shareholder:
We are pleased to present the annual report of Michigan Daily Tax Free Income
Fund, Inc. for the year ended February 28, 1998.
The Fund had net assets of $51,593,047 and 330 active shareholders as of
February 28, 1998.
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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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS
FEBRUARY 28, 1998
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- ------ ------- -------
Other Tax Exempt Investments (14.79%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,000,000 Oak Park, MI School District GO
Collateralized By U.S. Government Securities 06/01/98 3.71% $ 1,017,797 AA
1,000,000 Michigan Municipal Bond Authority 09/18/98 3.85 1,003,161 SP-1+
2,595,000 Michigan Municipal Bond Authority 09/18/98 4.34 2,603,162 SP-1+
1,000,000 Michigan Municipal Bond Authority - Series B 07/02/98 3.75 1,002,253 SP-1+
2,000,000 Michigan Municipal Bond Authority - Series B 07/02/98 3.78 2,004,312 SP-1+
----------- -------------
7,595,000 Total Other Tax Exempt Investments 7,630,685
----------- -------------
<CAPTION>
Other Variable Rate Demand Instruments (b) (63.62%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 920,000 Birmingham, MI EDC Limited Obligation RB
(Brown St. Assoc. Project) - Series 1983
LOC Michigan National Bank 12/01/18 3.48% $ 920,000 A1
1,000,000 Charity Obligated Group 1997 E Bonds
(Daughters of Charity) 11/01/11 3.35 1,000,000 VMIG-1 A1+
1,000,000 Dearborn, MI EDC
LOC Mellon Bank, N.A. 03/01/25 3.40 1,000,000 A1
2,000,000 EDC Farmington Hills - Carefour
LOC Bankers Trust Company 09/01/15 3.23 2,000,000 A1
1,500,000 Holland, MI Economic Development
LOC Industrial Bank of Japan, Ltd. 03/01/13 3.65 1,500,000 A1
2,500,000 Jackson County, MI EDC (Thrifty Leoni)
LOC First National Bank of Chicago 12/01/14 3.23 2,500,000 Aa3
400,000 Meridian, MI EDC (Hannah Research & Technology Center)
LOC Comerica Bank 11/15/14 3.45 400,000 A1+
1,000,000 Michigan JDA (Gordon Food Services) - Series 1985
LOC Rabobank Nederland 08/01/15 3.35 1,000,000 Aaa
2,500,000 Michigan JDA (Kentwood Residence Association)
LOC First Bank Systems 11/01/14 3.50 2,500,000 A1
1,000,000 Michigan JDA (Mazda Motors)
LOC Sumitomo Bank, Ltd. 10/01/08 3.98 1,000,000 VMIG-1
1,000,000 Michigan JDA - Series 1985 (c)
LOC Trust Co. Bank of Atlanta 09/01/00 3.50 1,000,000
2,435,000 Michigan State (Allied Signal) 04/01/99 3.45 2,435,000 A1
870,000 Michigan State Strategic Fund (260 Brown Street)
LOC Comerica Bank 10/01/15 3.70 870,000 VMIG-1
1,500,000 Michigan State Strategic Fund Limited Obligation RB
(Advance Plastics Corp. Project) (c)
LOC Comerica Bank 09/01/16 3.60 1,500,000
</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)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,400,000 Michigan State Strategic Fund Limited Obligation RB
(Detroit Edison Company)
LOC Barclays Bank PLC 09/01/30 3.70% $ 2,400,000 P1 A1+
1,000,000 Michigan State Strategic Fund Limited Obligation RB
(Morrell Inc. Project) (c)
LOC Comerica Bank 05/01/22 3.60 1,000,000
2,000,000 Michigan State Strategic Fund Limited Obligation
(Louisiana Pacific Corporation)
LOC Wachovia Bank & Trust Co., N.A. 09/01/09 3.50 2,000,000 Aa2
400,000 Michigan Strategic Fund
(National Rubber Michigan Incorporated Project)
LOC National Bank of Canada 09/01/11 3.50 400,000 P1
700,000 Michigan Strategic Fund
(Pilot Industry Incorporated Project)
LOC First National Bank of Chicago 06/01/01 3.75 700,000 P1 A1+
2,000,000 Michigan Strategic Fund (Sugar Company)
LOC Trust Co. Bank of Atlanta 11/01/03 3.50 2,000,000 Aa3
1,000,000 Michigan Strategic Fund Limited Obligation RB
(Mechanics Uniform Rental Co. Proj.) - Series 1995 (c)
LOC First National Bank of Chicago 08/01/15 3.60 1,000,000
700,000 Michigan Strategic Fund PCRB
(Consumers Power Company Project) - Series 1993A
LOC Canadian Imperial Bank of Commerce 06/15/10 3.70 700,000 A1+
2,400,000 Michigan Strategic Fund, Limited Obligation RB
(Pioneer Metal Finishing Mich. Inc. Proj.)
LOC National City Bank, Northwest 11/01/08 3.55 2,400,000 P1 A1
600,000 Monroe County, MI EDC (Detroit Edison) - Series CC
LOC Barclays Bank PLC 10/01/24 3.70 600,000 P1
----------- -----------
32,825,000 Total Other Variable Rate Demand Instruments 32,825,000
----------- -----------
<CAPTION>
Put Bonds (d) (8.72%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,500,000 Michigan Strategic Fund
(Donnelly Corporation Project) - Series 1988
LOC Dresdner Bank A.G. 04/01/98 4.00% $ 2,500,000 P1 A1+
1,000,000 Puerto Rico Industrial Medical & Environmental PCFA RB
(Abbott Laboratories) - Series 1983A 03/01/98 3.75 1,000,000 Aa1 AAA
1,000,000 Puerto Rico Industrial Medical & Environmental PCFA RB
(Reynolds Metals Corporation)
LOC ABN AMRO Bank N.V. 09/01/98 3.80 1,000,000 VMIG-1 A1+
----------- -------------
4,500,000 Total Put Bonds 4,500,000
----------- -------------
</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 28, 1998
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- ------ ------- -------
Tax Exempt Commercial Paper (8.24%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,650,000 Delta County, MI EDC (Mead Escanaba) - Series B
LOC Union Bank of Switzerland 04/07/98 3.50% $ 1,650,000 P1
2,600,000 EDC Delta Michigan (Mead Escanaba) - Series A
LOC Swiss Bank Corporation 04/07/98 3.50 2,600,000 P1
----------- -----------
4,250,000 Total Tax Exempt Commercial Paper 4,250,000
----------- -----------
<CAPTION>
Variable Rate Demand Instruments - Private Placements (b) (5.06%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 108,000 Charlevoix, MI (Hoskins)
LOC Chase Manhattan Bank, N.A. 11/01/99 5.53% $ 108,000 P1 A1
2,500,000 EDC Kalamazoo
(WBC Properties Limited Partnership Project) - Series 1985
LOC Old Kent Bank & Trust Co. 09/01/15 3.55 2,500,000 P1 A1+
----------- -----------
2,608,000 Total Variable Rate Demand Instruments - Private Placements 2,608,000
----------- -----------
Total Investments (100.43%) (Cost $51,813,685+) 51,813,685
Liabilities in Excess of Cash and Other Assets (-0.43%) ( 220,638)
-----------
Net Assets (100.00%), 51,611,795 shares outstanding - Class A (Note 3) $51,593,047
===========
Net assets value, offering and redemption price per share $ 1.00
===========
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
FOOTNOTES:
(a) The ratings noted for variable rate demand instruments are those of the
bank whose letter of credit secures such instruments or the guarantor of
the bond. P1 and A1+ are the highest ratings assigned for tax exempt
commercial paper.
(b) Securities payable on demand at par including accrued interest (usually
with seven days notice) and 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:
<S> <C><C> <C> <C><C>
EDC = Export Development Corporation PCFA = Pollution Control Finance Authority
GO = General Obligation PCRB = Pollution Control Revenue Bond
HFA = Hospital Finance Authority RB = Revenue Bond
JDA = Job Development Authority
</TABLE>
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See Notes to Financial Statements.
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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1998
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Income:
Interest.................................................................... $ 1,885,048
---------------------
Expenses: (Note 2)
Investment management fee..................................................... 150,005
Administration fee............................................................ 105,004
Shareholder servicing fee (Class A)........................................... 99,998
Custodian expenses............................................................ 10,079
Shareholder servicing and related shareholder expenses........................ 42,829
Legal, compliance and filing fees............................................. 27,148
Audit and accounting.......................................................... 65,061
Directors' fees............................................................... 6,226
Other......................................................................... 4,363
---------------------
Total expenses.............................................................. 510,713
Less fees waived......................................................... ( 105,004)
Less expenses paid indirectly............................................ ( 702)
---------------------
Net expenses............................................................. 405,007
---------------------
Net investment income.......................................................... 1,480,041
<CAPTION>
REALIZED GAIN (LOSS) ON INVESTMENTS
<S> <C>
Net realized gain (loss) on investments........................................ 43
---------------------
Increase in net assets from operations......................................... $ 1,480,084
=====================
</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 28, 1998 AND 1997
================================================================================
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C>
Operations:
Net investment income......................................... $ 1,480,041 $ 1,527,663
Net realized gain (loss) on investments....................... 43 1,221
--------------- ---------------
Increase in net assets from operations........................ 1,480,084 1,528,884
Dividends to shareholders from net investment income
Class A....................................................... ( 1,479,951)* ( 1,527,603)*
Class B....................................................... ( 90)* ( 60)*
Capital share transactions (Note 3)
Class A....................................................... 6,450,450 ( 12,368,505)
Class B....................................................... ( 5,055) 5,055
--------------- ---------------
Total increase (decrease)................................. 6,445,438 ( 12,362,229)
Net assets:
Beginning of year............................................. 45,147,609 57,509,838
--------------- ---------------
End of year................................................... $ 51,593,047 $ 45,147,609
=============== ===============
* 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 has two classes of stock authorized, Class A and Class B.
The Class A shares are subject to a service fee pursuant to the Distribution and
Service Plan. The Class B shares are not subject to a service fee. Additionally,
the Fund may allocate among its classes certain expenses, to the extent
allowable to specific classes, including transfer agent fees, government
registration fees, certain printing and postage costs, and administrative and
legal expenses. Class Specific expenses of the Fund were limited to distribution
fees and transfer agent expenses. In all other respects the Class A and Class B
shares represent the same interest in the income and assets of the Fund.
Distribution of Class B shares commenced on October 10, 1996 and all Fund shares
outstanding before October 10, 1996 were designated as Class A shares. 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.
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.
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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
2. Investment Management Fees and Other Transactions with Affiliates.
(Continued)
Pursuant to a Distribution Plan adopted under Securities and Exchange Commission
Rule 12b-1, the Fund and Reich & Tang Distributors, Inc. (the Distributor) have
entered into a Distribution Agreement and a Shareholder Servicing Agreement,
only with respect to Class A shares of the Fund. For its services under the
Shareholder Servicing Agreement, the Distributor receives from the Fund with
respect only to the Class A shares 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 28, 1998, the Manager voluntarily waived
investment management fees of $105,004.
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 $25,059 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 "Shareholder servicing
and related shareholder expenses" are expense offsets of $702.
3. Capital Stock.
At February 28, 1998, 20,000,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $51,611,795. Transactions in capital
stock, all at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
Year Year
Ended Ended
Class A February 28, 1998 February 28, 1997
- ------- ----------------- -----------------
<S> <C> <C>
Sold...................................... 82,174,625 122,798,906
Issued on reinvestment of dividends....... 1,437,833 1,492,802
Redeemed.................................. ( 77,162,008) ( 136,660,213)
-------------- --------------
Net increase (decrease)................... 6,450,450 ( 12,368,505)
============== ==============
<CAPTION>
Year October 10, 1996
Ended (Commencement of Sales) to
Class B February 28, 1998 February 28, 1997
- ------- ----------------- -----------------
<S> <C> <C>
Sold...................................... -- 5,000
Issued on reinvestment of dividends....... 92 55
Redeemed.................................. ( 5,147) --
-------------- --------------
Net increase (decrease)................... ( 5,055) 5,055
============== ==============
</TABLE>
There were no Class B shares outstanding as of February 28, 1998.
4. Sales of Securities.
Accumulated undistributed realized losses at February 28, 1998 amounted to
$18,748. This amount represents tax basis capital losses which may be carried
forward to offset future capital gains. Such losses expire between February 29,
2000 and February 28, 2001.
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
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<PAGE>
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================================================================================
5. Concentration of Credit Risk. (Continued)
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. Financial Highlights.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Class A February 28, February 29, February 28,
- ------- ------------------------- -------------- -------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <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................... 0.030 0.028 0.032 0.025 0.019
Less distributions:
Dividends from net investment income.... ( 0.030) ( 0.028) ( 0.032) ( 0.025) ( 0.019)
--------- ---------- --------- --------- ---------
Net asset value, end of year................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========== ========= ========= =========
Total Return................................ 3.00% 2.82% 3.23% 2.56% 1.88%
Ratios/Supplemental Data
Net assets, end of year (000)............... $ 51,593 $ 45,143 $ 57,510 $ 55,324 $ 68,401
Ratios to average net assets:
Expenses............................... 0.81% 0.82% 0.82% 0.75% 0.74%
Net investment income.................. 2.96% 2.79% 3.17% 2.53% 1.86%
Management, administration and shareholder
servicing fees waived............... 0.21% 0.08% 0.10% 0.28% 0.30%
Expenses paid indirectly............... 0.00% 0.01% 0.02% -- --
<CAPTION>
Year October 10, 1996
Class B Ended (Commencement of Sales) to
- ------- February 28, 1998 February 28, 1997
----------------- -----------------
<S> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period................... $ 1.00 $ 1.00
--------- ---------
Income from investment operations:
Net investment income 0.018 0.012
Less distributions:
Dividends from net investment income ( 0.018) ( 0.012)
--------- ---------
Net asset value, end of period......................... $ 1.00 $ 1.00
========= =========
Total Return........................................... 3.19%* 3.08%*
Ratios/Supplemental Data
Net assets, end of period (000)........................ -0- 5
Ratios to average net assets:
Expenses........................................... 0.62%* 0.60%*
Net investment income.............................. 3.15%* 3.04%*
Management and administration fees waived.......... 0.21%* 0.08%*
Expenses paid indirectly........................... 0.00% 0.01%*
* Annualized
</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 28, 1998, 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 financial highlights for
each of the five years in the period then ended. 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 auditing
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 as of
February 28, 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Michigan Daily Tax Free Income Fund, Inc. as of February 28, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles.
\s\McGladrey & Pullen, LLP
New York, New York
March 31, 1998
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[This Page Intentionally Left Blank]
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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
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Transfer Agent &
Dividend Disbursing Agent
Reich & Tang Services L.P.
600 Fifth Avenue
New York, New York 10020
- --------------------------------------------------------------------------------
<PAGE>
MICHIGAN
DAILY
TAX FREE
INCOME
FUND, INC.
Annual Report
February 28, 1998
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<PAGE>
