<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 29, 2000.
The Fund had net assets of $24,474,117 and 215 active shareholders as of
February 29, 2000.
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 28, 2000
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- ------ ------- -------
Other Tax Exempt Investments (9.13%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,000,000 Detroit City School District, MI 06/01/00 3.15% $ 1,001,947 SP-1+
1,000,000 Michigan Municipal Bond Authority
(Local Loans for Qualified Schools) (c) 05/15/00 3.08 1,006,095
100,000 Pittsfield Township, MI(c)
Insured by MBIA Insurance Corp. 04/01/00 3.62 100,225
125,000 Portage Michigan Building Authority (c)
Insured by FSA 09/01/00 3.86 125,181
- ----------- -----------
2,225,000 Total Other Tax Exempt Investments 2,233,448
- ----------- -----------
<CAPTION>
Other Variable Rate Demand Instruments (b) (55.63%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 890,000 Birmingham, MI EDC IDRB Limited Obligation RB
(Brown Street Association Project) - Series 1983 (c)
LOC Michigan National Bank 12/01/18 4.22% $ 890,000
600,000 Commonwealth of Puerto Rico 07/30/00 3.50 600,000 VMIG-1
1,000,000 Delta County, MI EDC
(Mead Escanaba Paper Company) - Series C
LOC Bank of Nova Scotia 12/01/23 3.80 1,000,000 P1
1,200,000 Delta County, MI EDC (Mead Escanaba Paper Company)
LOC Credit Suisse First Boston 12/01/23 3.80 1,200,000 P1
400,000 Delta County, MI EDC (Mead Escanaba Paper Company)
LOC Union Bank of Switzerland 12/01/23 3.70 400,000 A1+
200,000 Michigan State HDA - Series 1997
LOC Landesbank Hessen 04/01/19 3.90 200,000 VMIG-1 A1+
725,000 Michigan State HEFA, Concordia College (Harbor Project) (c)
LOC Allied Irish Bank 09/01/14 3.90 725,000
1,400,000 Michigan State HFA RB (Mt. Clemens General Hospital)
LOC Comerica Bank - Detroit 08/15/15 3.90 1,400,000 VMIG-1
1,000,000 Michigan State Hospital Equipment Loan Program
LOC National City Bank 12/01/23 3.91 1,000,000 VMIG-1
200,000 Michigan State Strategic Fund (Detroit Edison Co.)
Insured by MBIA Insurance Corp. 09/01/25 3.98 200,000 A1+
1,000,000 Michigan State Strategic Fund (Detroit Edison Co.) - Series CC
LOC Barclays Bank PLC 09/01/30 3.85 1,000,000 P1 A1+
900,000 Michigan State Strategic Fund Limited Obligation RB
(Pioneer Metal Finishing Inc. Project) - Series 1996
LOC National City Bank 11/01/08 4.05 900,000 A1
</TABLE>
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The accompanying notes are an integral part of these 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>
$ 400,000 Michigan State Strategic Fund RB
(National Rubber Michigan Inc. Project)
LOC National Bank of Canada 09/01/11 3.90% $ 400,000 P1 A1
400,000 Michigan State Strategic Fund RB (Pilot Industry Inc. Project) (c)
LOC National Bank of Detroit 06/01/01 4.15 400,000
700,000 Midland County, MI Ltd Obligation RB
(Dow Chemical Project) - Series B 12/01/15 3.85 700,000 P1 A1
700,000 Royal Oak, MI HFA RB, (William Beaumont Hospital) 01/01/03 3.80 700,000 VMIG-1 A1+
1,100,000 Royal Oak, MI HFA RB, (William Beaumont Hospital) 01/01/27 3.80 1,100,000 VMIG-1 A1+
300,000 Township of Cornell, MI EDC (Mead Escanaba)
LOC Bank of America 11/01/16 3.65 300,000 A1+
500,000 University of Michigan University Medical Services 12/01/21 3.80 500,000 VMIG-1 A1+
- ----------- ------------
13,615,000 Total Other Variable Rate Demand Instruments 13,615,000
- ----------- ------------
<CAPTION>
Put Bonds (d) (10.21%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,500,000 Michigan Strategic Fund
(Donnelly Corporation Project) - Series 1988 (c)
LOC Dresdner Bank A.G. 04/01/00 3.85% $ 1,500,000 P1 A1+
1,000,000 Puerto Rico Industrial Medical & Environmental PCFA RB
(Abbott Laboratories) - Series 1983A 03/01/00 2.90 1,000,000 Aa1 AAA
- ----------- ------------
2,500,000 Total Put Bonds 2,500,000
- ----------- ------------
<CAPTION>
Revenue Bonds (2.53%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 600,000 Michigan State HFA (Oakwood Hospital Obligation Group)
Collateralized by U.S. Government Obligations 07/01/00 3.61% $ 618,516 Aaa AAA
- ----------- ------------
600,000 Total Revenue Bonds 618,516
- ----------- ------------
<CAPTION>
Tax Exempt Commercial Paper (11.44%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 900,000 Delta County, MI EDC (Mead Escanaba Paper) - Series B
LOC Union Bank of Switzerland 04/06/00 3.55% $ 900,000 P1
1,000,000 Delta County, MI EDC (Mead Escanaba Paper) - Series A
LOC Morgan Guaranty Trust Company 04/13/00 3.55 1,000,000 P1
900,000 Puerto Rico Government Development Bank 04/13/00 3.25 900,000 A1+
- ----------- ------------
2,800,000 Total Tax Exempt Commercial Paper 2,800,000
- ----------- ------------
</TABLE>
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The accompanying notes are an integral part of these financial statements.
<PAGE>
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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
FEBRUARY 29, 2000
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- ------ ------- -------
Variable Rate Demand Instruments - Private Placements (b) (10.21%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,500,000 Kalamazoo County, MI Limited Obligation RB
(WBC Properties Limited Partnership Project) - Series 1985
LOC Old Kent Bank & Trust Co. 09/01/15 3.95% $ 2,500,000 P1 A1
- ----------- -----------
2,500,000 Total Variable Rate Demand Instruments - Private Placements 2,500,000
- ----------- -----------
Total Investments (99.15%) (Cost $24,266,964+) $24,266,964
Cash and Other Assets, Net of Liabilities (0.85%) 207,153
-----------
Net Assets (100.00%), 24,494,309 shares outstanding - Class A (Note 3) $24,474,117
===========
Net Asset Value, offering and redemption price per share: $ 1.00
===========
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
FOOTNOTES:
(a) Unless the variable rate demand instruments are assigned their own ratings,
the ratings are those of the holding company of the bank whose letter of
credit guarantees the issue or the insurance company who insures the issue.
All letters of credit and insurance are irrevocable and direct pay covering
both principal and interest. Certain issuers have either a line of credit,
a liquidity facility, a standby purchase agreement or some other financing
mechanism to ensure the remarketing of the securities. This is not a
guarantee and does not serve to insure or collateralize the issue.
(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 IDRB = Industrial Development Revenue Bond
FSA = Financial Security Assurance LOC = Letter of Credit
HDA = Health Development Authority PCFA = Pollution Control Finance Authority
HEFA = Health and Education Facilities Authority RB = Revenue Bond
HFA = Hospital Finance Authority
</TABLE>
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The accompanying notes are an integral part of these financial statements
<PAGE>
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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 2000
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Income:
Interest...................................................................... $ 692,692
---------------------
Expenses: (Note 2)
Investment management fee..................................................... 61,712
Administration fee............................................................ 43,199
Shareholder servicing fee (Class A)........................................... 41,142
Custodian expenses............................................................ 3,286
Shareholder servicing and related shareholder expenses........................ 17,650
Legal, compliance and filing fees............................................. 19,196
Audit and accounting.......................................................... 45,825
Directors' fees............................................................... 6,362
Other......................................................................... 2,455
---------------------
Total expenses.............................................................. 240,827
Less: Fees waived........................................................ ( 74,055)
Expense paid indirectly (Note 2)................................... ( 217)
---------------------
Net expenses............................................................. 166,555
---------------------
Net investment income........................................................... 526,137
<CAPTION>
REALIZED GAIN (LOSS) ON INVESTMENTS
<S> <C>
Net realized gain (loss) on investments......................................... -0-
---------------------
Increase in net assets from operations.......................................... $ 526,137
=====================
</TABLE>
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The accompanying notes are an integral part of these financial statements.
<PAGE>
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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
================================================================================
<TABLE>
<CAPTION>
2000 1999
-------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C>
Operations:
Net investment income......................................... $ 526,137 $ 736,172
Net realized gain (loss) on investments....................... -- ( 1,444)
-------------- ---------------
Increase in net assets from operations........................ 526,137 734,728
Dividends to shareholders from net investment income
Class A....................................................... ( 526,137)* ( 736,172)*
Capital share transactions (Note 3)
Class A....................................................... 4,304,963 ( 31,422,449)
-------------- ---------------
Total increase (decrease)................................. 4,304,963 ( 31,423,893)
Net assets:
Beginning of year............................................. 20,169,154 51,593,047
-------------- --------------
End of year................................................... $ 24,474,117 $ 20,169,154
============== ==============
</TABLE>
* Designated as exempt-interest dividends for federal income tax purposes.
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The accompanying notes are an integral part of these 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 accounting
principles generally accepted in the United States 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 29, 2000, the Manager voluntarily waived
investment management fees and administration fees of $30,856 and $43,199,
respectively.
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 $6,175 paid to Reich & Tang
Services, Inc., an affiliate of the Manager, as servicing agent for the Fund.
Included under the captions "Shareholder servicing and related shareholder
expenses" are expense offsets of $217.
3. Capital Stock.
At February 29, 2000, 20,000,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $24,477,174. Transactions in capital
stock, all at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
Class A February 29, 2000 February 28, 1999
----------------- -----------------
<S> <C> <C>
Sold...................................... 51,158,068 41,985,901
Issued on reinvestment of dividends....... 482,812 739,801
Redeemed.................................. ( 47,335,917) ( 74,148,151)
---------------- ---------------
Net increase (decrease)................... 4,304,963 ( 31,422,449)
================ ===============
There were no Class B shares outstanding as of February 29, 2000 and February 28, 1999.
</TABLE>
4. Sales of Securities.
Accumulated undistributed realized losses at February 29, 2000 amounted to
$3,057. This amount represents tax basis capital losses which may be carried
forward to offset future capital gains. Such losses expire between February 28,
2001 and February 28, 2007.
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 75% 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.
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<PAGE>
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6. Financial Highlights.
<TABLE>
<CAPTION>
Year Ended Year Ended
Class A Year February 28, February 29,
- ------- Ended ------------------------------------ ------------
February 29, 2000 1999 1998 1997 1996
----------------- -------- -------- -------- --------
<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.................... 0.026 0.027 0.030 0.028 0.032
Less distributions:
Dividends from net investment income ( 0.026) ( 0.027) ( 0.030) ( 0.028) ( 0.032)
------- ------- ------- ------- -------
Net asset value, end of year................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return................................ 2.58% 2.72% 3.00% 2.82% 3.23%
Ratios/Supplemental Data
Net assets, end of year (000)............... $ 24,474 $ 20,169 $ 51,593 $ 45,143 $ 57,510
Ratios to average net assets:
Expenses (net of fees waived)............ 0.81% 0.81% 0.81% 0.82% 0.82%
Net investment income.................... 2.56% 2.72% 2.96% 2.79% 3.17%
Management, administration and
shareholder servicing fees waived ..... 0.36% 0.39% 0.21% 0.08% 0.10%
Expenses paid indirectly................. 0.00% 0.00% 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 (net of fees waived)....................... 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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MICHIGAN DAILY TAX FREE INCOME FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Board of Directors and Shareholders of
Michigan Daily Tax Free Income Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Michigan Daily Tax Free Income Fund, Inc. (the "Fund") at February 29, 2000, and
the results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at February 29, 2000 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above. The financial statements for the year ended February 28, 1999,
including the financial highlights for each of the periods prior to February 29,
2000 were audited by other independent accountants whose report dated March 26,
1999 expressed an unqualified opinion on those financial statements.
PricewaterhouseCoopers LLP
New York, New York
March 17, 2000
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<PAGE>
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MICHIGAN
DAILY
TAX FREE
INCOME
FUND, INC.
Annual Report
February 29, 2000
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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
State Street Kansas City
801 Pennsylvania
Kansas City, Missouri 64105
Transfer Agent &
Dividend Disbursing Agent
Reich & Tang Services, Inc.
600 Fifth Avenue
New York, New York 10020
MICH2/00A
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<PAGE>
