<PAGE>
- --------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
STATEMENT OF NET ASSETS
JUNE 30, 1997
================================================================================
<TABLE>
<CAPTION>
(Unaudited)
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Tax Exempt Investments (12.09%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,000,000 County of Los Angeles 1997-8 - Series A 06/30/98 3.80 % $ 3,018,720 MIG-1 SP-1+
5,000,000 Michigan Municipal Bond Authority RN - Series 1996A 07/03/97 3.85 5,000,158 SP-1+
3,000,000 Ohio School District Cash Flow 06/30/98 3.83 3,016,980 MIG-1 SP-1+
3,000,000 School District of The City of Detroit State School Aid Notes
(Wayne County) 05/01/98 3.85 3,014,520 SP-1+
5,000,000 State of Texas TRAN - Series 1996 08/29/97 3.85 5,006,605 MIG-1 SP-1+
5,000,000 State of Texas TRAN - Series 1996 08/29/97 3.90 5,006,196 MIG-1 SP-1+
------------ ------------
24,000,000 Total Other Tax Exempt Investments 24,063,179
------------ ------------
<CAPTION>
Variable Demand Rate Instruments (c) (53.29%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,870,000 Alabama HFA (Windscape Project)
LOC Amsouth Bank N.A. 12/01/03 4.30% $ 3,870,000 VMIG-1
4,085,000 Bexar County, TX HFDC (Air Force Village II) - Series 1985B
LOC Rabobank Nederland 03/01/12 4.13 4,085,000 A1+
1,570,000 Bloomington, IL Normal Airport Authority - Series 1995A 01/01/13 4.20 1,570,000 VMIG-1
100,000 Burke County, GA Development Authority PCRB
(Georgia Power Co. Vogtle Project) 09/01/26 4.05 100,000 VMIG-1 A1
3,650,000 City & County of Denver, CO Refunding MHRB
(Cotton Wood Creek Project)
LOC General Electric Capital Corporation 04/15/14 4.40 3,650,000 A1+
6,000,000 City of Baltimore, MD (HM Investments, Ltd.) - Series 1993
LOC Barclays Bank PLC 02/01/00 4.15 6,000,000 A1+
2,000,000 City of Detroit, MI Water Supply System RB
Second Lien Bonds - Series 1995 07/01/25 4.30 2,000,000 A1+
2,000,000 Clayton County, GA MHRB (Rainwood Development Project)
LOC Bankers Trust Company 05/01/06 4.25 2,000,000 A1+
3,000,000 Connecticut State Development Authority
(CT Light & Power Company Project) - Series 1993A
LOC Deutsche Bank A.G. 09/01/28 4.05 3,000,000 VMIG-1 A1+
6,700,000 Connecticut State Special Tax Obligation RB
(Second Lien Transportation Infrastructure)
LOC Commerzbank A.G. 12/01/10 4.10 6,700,000 VMIG-1 A1+
2,800,000 County of Franklin, OH Hospital Facilities
(Lutheran Senior City, Inc. Project) - Series 1994
LOC First National Bank of Chicago 05/01/15 4.15 2,800,000 VMIG-1
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
JUNE 30, 1997
================================================================================
<TABLE>
<CAPTION>
(Unaudited)
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- ------ ------- ------
Variable Demand Rate Instruments (c) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,000,000 County of Hamilton Ohio Adjustable Rate
Hospital Facilities Revenue Bonds - 1997B
MBIA Insured 01/01/18 4.15% $ 5,000,000 VMIG-1 A1+
7,150,000 DeKalb County, GA Refunding MHRB - Series 1988
(Wood Hills Apartment Project)
LOC Bank of Montreal 12/01/07 4.20 7,150,000 A1+
1,400,000 Georgetown, KY Educational Institution Improvement
(Georgetown College)
LOC PNC Bank N.A. 06/01/04 4.25 1,400,000 VMIG-1
1,100,000 Greensboro, NC (Greensboro Coliseum) - Series A 12/01/15 4.20 1,100,000 A1+
1,750,000 Greensboro, NC Public Improvement - Series B 04/01/11 4.20 1,750,000 VMIG-1 A1+
1,950,000 Greensboro, NC Public Improvement - Series B 04/01/13 4.20 1,950,000 VMIG-1 A1+
5,400,000 Harris County, TX Health Facilities Hospital Revenue Bonds
(Memorial Hospital Systems) 06/01/24 4.15 5,400,000 VMIG-1 A1+
8,800,000 Idaho HFA (Holy Cross Health System) 12/01/23 4.15 8,800,000 VMIG-1 A1+
3,300,000 Illinois Educational Facilities Authority RB
(Chicago Children's Museum) - Series 1994
LOC First National Bank of Chicago 02/01/28 4.15 3,300,000 VMIG-1 A1+
4,000,000 Illinois HFA RB (Northwestern Memorial Hospital) - Series 1995 08/15/25 4.25 4,000,000 VMIG-1
2,500,000 Indiana HFA (Rehabilitation Hospital of Indiana)
LOC First National Bank of Chicago 11/01/20 4.20 2,500,000 VMIG-1
3,100,000 Jacksonville, FL IDRB
(University of Florida Health Science Center) - Series 1989
LOC Barnett Bank of Jacksonville 07/01/19 4.38 3,100,000 VMIG-1
2,500,000 Maryland State IDA RB (Johnson Control Incorporation) 12/01/03 4.35 2,500,000 VMIG-1 A1
6,950,000 Michigan State Hospital Financial Authority RB
(Chelsea Community Hospital)
LOC Comerica Bank 11/15/19 4.15 6,950,000 VMIG-1
3,000,000 Michigan State Strategic Fund PCRB
(Consumers Power Company Project) - Series 1993A
LOC Canadian Imperial Bank Of Commerce 06/15/10 4.25 3,000,000 A1+
4,420,000 Montgomery County MD, Housing Opportunities Commission MHRB
LOC General Electric Capital Corporation 11/01/07 4.35 4,420,000 A1+
4,285,000 New Hampshire HEFA RB - Series 1995
(Franklin Regional Hospital Association)
LOC Bank of Ireland 09/01/05 4.40 4,285,000 VMIG-1
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
(Unaudited)
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poors
------ ---- ----- ------ ------- -----
Variable Demand Rate Instruments (c) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,200,000 New Hampshire HEFA RB (Alice Peck Day Memorial Hospital)
LOC Corestates Bank, N.A. 11/01/05 4.20% $ 2,200,000 VMIG-1
1,500,000 Pitkin County, CO IDRB (Aspen Skiing Company Project) - Series B
LOC First National Bank of Chicago 04/01/16 4.25 1,500,000 A1+
----------- ------------
106,080,000 Total Variable Demand Rate Instruments 106,080,000
----------- ------------
<CAPTION>
Put Bonds (10.51%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 7,500,000 Connecticut State Special Assessment Unemployment
Compensation Advance Fund RB - Series 93C
SBPA - FGIC Securities Purchase, Inc. (b) 07/01/98 3.90% $ 7,500,000 VMIG-1 A1+
2,360,000 Illinois Housing Development Authority Homeowner
Mortgage RB 1996 Sub Series F-1 12/18/97 3.65 2,360,000 VMIG-1 A1+
5,000,000 Intermountain Power Agency RB - Series 1985F
LOC Morgan Guaranty Trust Company 06/15/98 3.80 5,000,000 VMIG-1 A1+
6,060,000 Vermont State Educational & Health Building Finance Agency
(Middlebury College) 11/01/97 3.75 6,060,000 A1+
----------- -----------
20,920,000 Total Put Bonds 20,920,000
----------- -----------
<CAPTION>
Tax Exempt Commercial Paper (25.42%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,800,000 Burlington, KS PCRB Refunding & Improvement Revenue Bonds
(Kansas City Power & Light Company Project) - Series B
LOC Deutsche Bank A.G. 08/14/97 3.80% $ 2,800,000 P1 A1+
5,300,000 Burlington, KS PCRB Refunding & Improvement Revenue Bonds
(Kansas City Power & Light Company Project)
LOC Toronto-Dominion Bank 07/10/97 3.85 5,300,000 A1+
3,000,000 City of New York, N.Y. GO Bonds Fiscal 1996 - Series J-2
LOC Commerzbank A.G. 09/17/97 3.75 3,000,000 P1 A1+
4,000,000 Connecticut Municipal Electric Energy
Co-operative Power Supply Systems - Series A
LOC Fleet National Bank 07/02/97 3.95 4,000,000 P1 A1
3,000,000 Illinois Educational Facility Authority Revenue Notes
(Pooled Financing Program)
LOC Northern Trust 07/10/97 3.75 3,000,000 A1+
3,100,000 Intermountain Power Agency
Variable Rate Revenue & Refunding Bond - Series 1985F
LOC Swiss Bank Corp. 09/18/97 3.75 3,100,000 VMIG-1 A1+
10,000,000 Intermountain Power Authority
LOC Swiss Bank Corp. 08/20/97 3.45 10,000,000 VMIG-1 A1+
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
JUNE 30, 1997
================================================================================
<TABLE>
<CAPTION>
(Unaudited)
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- ------ ------- ------
Tax Exempt Commercial Paper (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,000,000 Maricopa County, AZ PCRB
(Southern California Edison) - Series 1985 07/10/97 3.85% $ 5,000,000 P1 A1
3,400,000 Rochester, MN Health Care Facility
(Mayo Foundation - Mayo Medical Center) - Series 1992C 07/10/97 3.40 3,400,000 P1 A1+
6,000,000 Sunshine State Government Finance Commission RB - Series 1986
LOC Union Bank of Switzerland/Morgan Guaranty/
National Westminster 07/16/97 3.45 6,000,000 VMIG-1
5,000,000 The Board of Regents of Texas
A & M University System - Series 1993 B 07/22/97 3.50 5,000,000 P1 A1+
----------- ------------
50,600,000 Total Tax Exempt Commercial Paper 50,600,000
----------- ------------
Total Investments (101.31%) (Cost $201,663,179+) 201,663,179
Liabilities in Excess of Cash and Other Assets (-1.31%) ( 2,613,018)
-----------
Net Assets (100.00%) 199,053,407 Shares Outstanding (Note 3) $ 199,050,161
============
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.
(b) 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.
(c) Interest rates are adjustable on a daily, weekly or monthly basis. The rate
shown is the rate in effect at the date of this statement.
<TABLE>
<CAPTION>
KEY:
<S> <C> <C> <C> <C> <C>
FGIC = Financial Guaranteed Insurance Company MBIA = Municipal Bond Insurance Association
GO = General Obligation MHRB = Multifamily Housing Revenue Bond
HEFA = Health and Education Facilities Authority PCRB = Pollution Control Revenue Bond
HFA = Housing Finance Authority RB = Revenue Bond
HFDC = Health Facilities Development Corporation RN = Revenue Note
IDA = Industrial Development Authority SBPA = Standby Purchase Agreement
IDRB = Industrial Development Revenue Bond TRAN = Tax and Revenue Anticipation Note
LOC = Letter of Credit
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Interest income.............................................................. $ 8,192,103
Expenses (Note 2)............................................................ ( 916,263)
------------
Net investment income........................................................ 7,275,840
REALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments...................................... ( 1,065)
------------
Net increase in net assets from operations................................... $ 7,274,775
=============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Year
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C>
Operations:
Net investment income............................................ $ 7,275,840 $ 7,736,883
Net realized gain (loss) on investments.......................... ( 1,065) -0-
-------------- --------------
Net increase in net assets from operations....................... 7,274,775 7,736,883
Dividends to shareholders from net investment income................ ( 7,275,840) ( 7,736,883)
Net increase (decrease) from capital share transactions (Note 3) ( 55,199,971) 41,118,888
-------------- --------------
Total increase (decrease) in net assets...................... ( 55,201,036) 41,118,888
Net assets:
Beginning of year................................................ 254,251,197 213,132,309
--------------- --------------
End of year...................................................... $ 199,050,161 $ 254,251,197
=============== ==============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. Summary of Accounting Policies
Tax Exempt Proceeds Fund, Inc. is a no-load, diversified, open-end management
investment company registered under the Investment Company Act of 1940. This
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, if any, to its shareholders.
Therefore, no provision for federal income tax is required. At June 30,
1997, the Fund had a capital loss carryforward of $2,181 and $1,065
available to offset future capital gains expiring June 30, 2001, and June
30, 2005, respectively.
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
.40 of 1% per annum of the Fund's average daily net assets up to $250 million;
.35 of 1% per annum of the average daily net assets between $250 million and
$500 million; and .30 of 1% per annum of the average daily net assets over $500
million. The Management Contract also provides that the Manager will bear the
cost of all other expenses of the Fund. Therefore, the fee payable under the
Management Contract will be the only expense of the Fund.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS 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 the Manager have entered into a Distribution Agreement.
The Fund's Board of Directors has adopted the plan in case certain expenses of
the Fund are deemed to constitute indirect payments by the Fund for distribution
expenses.
3. Capital Stock
At June 30, 1997, 20,000,000,000 shares of $.001 par value stock were authorized
and paid in capital amounted to $199,053,407. Transactions in capital stock, all
at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Sold.................................... 395,065,691 524,691,635
Issued on reinvestment of dividends..... 2,142,906 2,123,017
Redeemed................................ ( 452,408,568) ( 485,695,764)
-------------- --------------
Net increase (decrease)................. ( 55,199,971) 41,118,888
============== ==============
At June 30, 1997, the Fund had an accumulated net realized loss of $3,246.
4. Liabilities
At June 30, 1997, the Fund had the following liabilities:
Payables for securities purchases....... $ 9,050,220
Accrued management fee.................. 68,891
Dividends payable....................... 408,926
--------------
Total liabilities...................... $ 9,528,037
==============
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
5. Financial Highlights
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- --------- --------- -------- --------
<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................ 0.032 0.033 0.032 0.021 0.022
Less distributions:
Dividends from net investment income. 0.032 0.033 0.032 0.021 0.022
-------- --------- --------- -------- --------
Net asset value, end of year............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========= ========= ======== ========
Total Return............................ 3.23% 3.31% 3.22% 2.14% 2.27%
Ratios/Supplemental Data
Net assets, end of year (000)........... $199,050 $254,251 $ 213,134 $133,927 $133,230
Ratios to average net assets:
Expenses.............................. 0.40% 0.40% 0.40% 0.40% 0.40%
Net investment income................. 3.18% 3.26% 3.22% 2.13% 2.25%
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To The Board of Directors and Shareholders of
Tax Exempt Proceeds Fund, Inc.
We have audited the accompanying statement of net assets of Tax Exempt Proceeds
Fund, Inc. as of June 30, 1997 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 June
30, 1997 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 financial highlights referred to
above present fairly, in all material respects, the financial position of Tax
Exempt Proceeds Fund, Inc. as of June 30, 1997, the results of its operations
for the year then ended, the changes in its 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, in conformity with generally accepted accounting
principles.
[GRAPHIC OMITTED]
New York, New York
July 31, 1997
- --------------------------------------------------------------------------------
<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.
- ------------------------------------------------------
Tax Exempt Proceeds 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
127 West 10th Street
Kansas City, Missouri 64105
Transfer Agent &
Dividend Disbursing Agent
Reich & Tang Services L.P.
600 Fifth Avenue
New York, New York 10020
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
TAX EXEMPT
PROCEEDS
FUND, INC.
Annual Report
June 30, 1997
- --------------------------------------------------------------------------------
<PAGE>
