<PAGE>
- -------------------------------------------------------------------------------
DELAFIELD
FUND, INC. 600 FIFTH AVENUE, NEW YORK, N.Y. 10020
(212) 830-5200
===============================================================================
Dear Fellow Shareholders:
To those of you who received our January letter this one will be repetitious,
but for the benefit of those who did not we are reprinting it verbatim.
During the past quarter our Fund's asset value declined 1.67% versus an increase
of 2.87% in the Standard & Poor's 500, each on a total return basis. The Fund's
net asset value as of December 31st was $14.88, which was after taking into
account three dividends paid on December 29th amounting to $1.1712. The dividend
was composed of ordinary income of $0.1373, short term capital gain of $0.4028
and long term capital gain of $0.6311 per share. The long term portion was
divided roughly 67.34% at a 28% capital gain rate and 32.66% at a 20% rate.
For the year as a whole, the Fund's asset value appreciated 19.66% versus an
increase of 33.36% for the Standard & Poor's 500. At the beginning of the fourth
quarter our commitment to equities was 67.4%. This declined to the low 60's
early in the quarter when Greenfield Industries was taken over by Kennametal. At
year-end the Fund was invested 73.4% in equities and had grown to $146,623,972.
We are disappointed to have underperformed the market in 1997. However, a review
of our long term managed accounts shows that we trailed the market in four out
of the five years since 1975 in which the Standard & Poor's 500 increased more
than 30%. Given our style, this is not surprising.
For the benefit of our newer shareholders, let us reiterate our strategy which
we utilize to protect your capital and enhance its growth.
1. We search for companies that are selling at prices which seem modest in
relationship to the company's intrinsic value.
2. We meet with managements, visit plants, talk to competition, consider the
makeup of the Board of Directors and make a judgment as to whether we wish to
be in business with the management. In other words, we try to understand the
business of the companies in which we invest and the individuals who direct
the company's future.
3. We search for companies wherein something may change which will alter that
company's future for the better. These can be simple matters ranging from a
change in the management or management's attitude toward how they run the
business, to a change in control, to a change in business opportunity, or to
a change in the dynamics of a company's cash flow and its use.
4. If we perform our analysis correctly, the value added we bring to you is an
earlier and better understanding of the companies in our portfolio than other
investors have. Then, if the companies begin to improve, their earnings
should increase and they should be valued at a higher price earnings
multiple.
5. We have never worried about the profits that we did not make. We worry much
more about what we might lose. We believe that stock selection is much more
relevant to successful investing than total commitment to equities. In the
volatile markets which have developed over the last 15 to 20 years, we have
come to believe that the long term investors' best hedge against a violent
decline is to have cash with which to buy companies when prices seem unduly
depressed.
Our economic outlook continues sanguine. Inflation and interest rates are low,
the Federal deficit is diminishing and earnings are expected to increase in
1998, albeit at a very modest rate of perhaps 5%. A strong dollar gives relative
advantage to Europe and the Far East so competitive conditions will become more
difficult and multi-national profits will translate at a lower level. Pricing
power, particularly in commodity-like products, will be undermined by foreign
competition from Asia. This is likely to hurt metal, paper and electronic
companies, while demand for energy and agricultural commodities also may be
reduced.
Despite announced layoffs and the downsizing of large companies, our economy
continues to forge ahead and the labor pool is very tight with unemployment
reduced to 4.7% - a level not seen in many years. Moreover, labor's power is
increasing as was evident in the United
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<PAGE>
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Parcel Service settlement, and unions are committing far more money for
political purposes than has been the case in recent years. The recent defeat of
the President's proposal for fast track trade negotiation authority is testimony
to this. Hopefully this is not the precursor of a move toward protectionism.
Still as currency devaluations around the world lead to a pricing advantage for
our competitors, imports are likely to surge and exports to decline with the
inevitable result that companies suffering from such competition will call their
friendly politicians and ask for help. The steel industry is already compiling
information in the expectation of launching anti-dumping trade suits in the
spring. These issues are only clouds on the investment horizon, but there are
enough to be of some concern.
The stock market has weathered a rolling readjustment for sometime and this
reaction seems to be gathering steam as we write. We do not believe the market
to be sharply undervalued and hence would not expect it to soar. Thus our cash
reserves remain high although, as disappointments and tax loss selling drove
some of our companies to price levels we considered attractive, we increased our
commitment to equities by somewhat over 10 percentage points from the low point
reached after the takeover of Greenfield Industries.
Many individual stocks have suffered sharp declines. This has taken some risk
out of the market. Nevertheless market leadership has continued to narrow. From
the low point reached on October 27th when the Dow Jones Industrial Average was
up 11.1%, it recovered 11.6 percentage points to close the year up 22.77% (24.9%
on a total return basis). The Standard & Poor's 500 recovered 12.5 points, but
the NASDAQ recouped only 2.75 points and the Russell 2000 a little less than
4.75 points.
As measured by the Standard & Poor's 500, the market is selling at close to 20
times 1998 anticipated earnings. Its dividend yield is at a record low and long
term Treasury bond yields have declined to 5.72%. The public seems convinced
that the soundest long term investment opportunity remains common stocks. Thus
the glass is very much more than half full and there is little attention being
paid to the potential problems which lie ahead.
Eventually there will be disappointment which may well last for a lengthy period
of time. If we perform our task correctly, while we will not be immune to an
overall market decline, our investments, because they have been chosen for
special events which are occurring within the company or because they have been
unduly depressed, should appreciate within the market.
We will continue to search for special situations and we will invest in these
undervalued and unloved opportunities whenever we find them. Our cash reserves
are held to take advantage of market opportunities when they occur. We would not
be unhappy to uncover sufficient candidates to become fully or close to fully
invested, but we will not let the cash burn a hole in our pocket.
IMC Global acquired Freeport McMoRan, Inc. toward year-end. We received .9 of a
share of IMC Global for each of our Freeport shares on a non-taxable basis. In
addition we received .21130834 of a share of Freeport-McMoRan Sulphur, Inc. and
one-third of a three-year warrant to buy IMC Global at $44.50 per share. Both
Freeport-McMoRan Sulphur and the IMC Global warrants trade on the New York Stock
Exchange. The receipt of these two pieces was taxable. Also in the fourth
quarter IMC Global announced its intention to acquire Harris Chemical Group
(HCG) and its associated Australian affiliate. HCG has annual sales of $850
million, primarily salt, but also boron chemicals, soda ash and specialty potash
products. The cost will be roughly $1.3 billion including assumed debt. The
acquisition is expected to be accretive in its first full year and substantially
accretive thereafter. Savings are estimated at close to $75 million in 1999. We
are somewhat leery of making 1998 projections for IMC Global since IMC Global
exports a significant amount of phosphate product to Asia, but we tentatively
expect earnings in the vicinity of $2.40 per share and believe that IMC Global
will generate substantial free cash flow. IMC Global is committed to repurchase
5 million of its 115 million shares in the open market, and had been expected to
sharply increase this repurchase program. However, after the acquisition of HCG
we expect that excess cash flow above and beyond that needed for the 5 million
share repurchase will be devoted to debt repayment for the next several years.
We increased our position in Nine West Group Inc. as the shares came under heavy
selling pressure at year-end. Weak retail volumes, coupled with a new
SEC/customs department investigation, have clearly created considerable
apprehension in the marketplace. Management has been able to provide little
information regarding the investigation except to note that any impact should be
non-material. While it is difficult to fully assess the risks associated with
the external investigations, trading at 10 times fiscal year January 31, 1999
expectations, the market appears to be excessively discounting the company's
leading position in the women's footwear industry.
Allegheny Teledyne (ALT) has offered 1.296 shares of its stock for each share of
Oregon Metallurgical, a manufacturer of titanium products. While this
acquisition is subject to a second request for information from the Department
of Justice, we expect that it will eventually proceed. Since the Oremet deal was
announced, Allegheny Teledyne has also offered to acquire Lukens Steel, a
producer of heavy steel plate. Lukens would be a good fit for ALT and be
substantially accretive to earnings in the first year. Though ALT had been
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<PAGE>
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negotiating with Lukens for several months, Lukens agreed to be taken over by
Bethlehem Steel at $25 per share. ALT countered with an all cash offer of $28 a
share and then Bethlehem raised their bid to $30 per share. We think Lukens is a
better fit for Allegheny Teledyne than for Bethlehem and will await events.
Federal-Mogul Corporation will likely not close its acquisition of T&N plc until
early March. While it has received 95% of the T&N plc common shares through its
tender offering, Federal-Mogul is still awaiting regulatory approval. The
company remains confident of receiving the necessary clearances, both in the
U.S. and Europe, but does not expect them before the end of February. At this
point the closing of the transaction is conditional only upon receiving such
approvals.
CommScope, Inc., which is the #1 supplier worldwide of coaxial cable for
broadband communications, became a public entity in 1997 when it was spun out of
General Instruments Corporation. It provides coaxial product for cable and
satellite television applications with about 35% of its revenues coming from
international markets. Sales are approximately $600 million.
Business has been weak in recent months reflecting a slowdown in the capital
spending programs of their major cable customers. This has led to a more
difficult pricing environment which will likely persist for much of the current
year. Earnings expectations have been revised downward to $0.70 per share for
the coming year. It was this revision which triggered the sharp pullback which
allowed us the opportunity to acquire our position in the company. CommScope has
a low cost position with strong technology. Business should rebound once the
cable companies settle on the next generation of product and step up their
rebuilding programs.
BMC Industries is a $350 million in sales company, which manufactures aperture
masks for television and computer monitors, lenses for the optical market, as
well as producing precision etched products. The mask segment, which accounts
for greater than 60% of sales, is the main driver of the company. BMC has spent
aggressively to expand both their TV mask capacity, as well as to enter the
computer monitor mask business. Outside of Asia, BMC is the only independent
manufacturer of masks, making it the principal supplier to non-Japanese tube
manufacturers. The company has benefited by the industry trend toward larger
TVs, which require a more complex and higher margin mask per screen. Reflecting
both the internal and external positive dynamics, the company posted 26
consecutive record quarters. This record came to an abrupt halt in the recent
fourth quarter as the company pre-announced an earnings shortfall of 50% to 60%.
This reflects both an order slow down from some customers, as well as production
inefficiency as the company ramped up its new capacity. Quality issues
developed, which are in the process of being rectified. However, it is likely
that it will take at least another 2 to 3 quarters before the issues are fully
resolved.
On the heels of the earnings shortfall announcement, the stock declined by more
than 45%. These shares are now selling at a reasonable valuation. The company
possesses a strong balance sheet and good market position to take advantage of
the positive secular trend for their products.
Another company in which we have increased our holdings, as it came under
selling pressure late in the quarter, was O'Sullivan Industries. O'Sullivan,
which is a leading ready-to-assemble (RTA) furniture manufacturer, announced
that results for the second quarter, ending December 31, 1997, would be below
street estimates. Somewhat slower sales through office superstores and higher
integration costs as they roll out a new management information system are the
primary reasons. It is likely that these factors will carry over into the second
half of the year as the information system is installed in the remaining
facilities. The new programs should increase production flexibility and allow
them to more efficiently handle shorter production runs. This should better
position the company to take advantage of the growing opportunities within the
RTA markets as they expand their product line assortment.
By this time next year Great Lakes Chemical will be a much changed company. This
spring we expect Great Lakes to spin off its tetraethyl lead business Octel.
Prior to the spin-off Octel will distribute roughly $300 million to Great Lakes
which will emerge as a specialty chemical company with an impeccable balance
sheet (more cash than debt) and an attractive flame retardant business. Great
Lakes has announced that it will discontinue several marginal businesses. We
believe the new and streamlined Great Lakes will be attractive in its own right
as a rapidly growing specialty chemical company. Its internal earnings growth
will be enhanced by a commitment to repurchase 7 million of its 59 million share
base. A cleaned up Great Lakes could even become an attractive acquisition
candidate. We expect Octel to be a cash flow story. Octel will add specialty
products to the secularly declining tetraethyl lead business, use its free cash
flow to pay off debt and set about transforming itself into a growing business.
We expect Octel to sell at a relatively depressed valuation due to the declining
nature of the tetraethyl lead business. Nevertheless, the cash flows will be so
positive that we think Octel, too, may provide an attractive investment
opportunity.
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<PAGE>
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Kennametal Inc. (KMT) recently completed its $38 per share cash acquisition of
Greenfield Industries. Greenfield will round out KMT's product offering,
especially with high-speed steel drills. It will also strengthen their position
in the independent distributor channel. Historically, Kennametal's strength has
been selling direct through their in-house technical sales force, as well as
through their majority owned JLK distribution operation. It is likely that the
cost benefits to be derived from this purchase should be in excess of $25
million annually, resulting from the reduction of duplicative costs, as well as
savings from the added purchasing power of the combined entity.
Kennametal will be coming to the marketplace within the next month to secure
permanent financing. This will take the form of common equity, a convertible
security and senior debentures.
Sheldahl has been a disappointing investment. We have followed this company for
a decade during which Sheldahl has made enormous progress in building its
automotive related businesses. Sheldahl's flexible circuits primarily are used
in automobile dashboards. There is the possibility that in the future Sheldahl
will be able to provide a flexible circuit which will replace wire harness
applications, a huge opportunity, but quite far out. In the meantime, Sheldahl
has developed a flexible semiconductor substrate, which could revolutionize
microchip packaging. A plant to produce this material has been built in
Longmont, Colorado. While Sheldahl is producing various prototypes of substrate
at the plant, as yet no significant firm orders have been received, although the
company has been providing product to such technological giants as ASAT,
Motorola and Texas Instruments. Needless to say, semiconductor companies do not
change technology without being sure that there is a certain and substantial
advantage in doing so. Hence, testing is ubiquitous at every stage of the cycle
and with every potential product. Recently, the final test of one such package
failed though the failure was not attributable to Sheldahl's material. After
modification a new test cycle has started.
Sheldahl is an unusual investment for us, but the market potential of its
products is so vast that we have been willing to make a small investment while
awaiting the outcome of their efforts. In the meantime, the cost of the new
Longmont plant, which to date has had little or no revenue, is causing Sheldahl
to report losses. We expect the situation will be rectified with orders in the
coming year, but if it is not we believe Sheldahl could survive the write-off of
the Longmont plant and prosper with its basic growing flexible circuit business
serving both the automotive and the communications industries.
We feel it would be advantageous for the Fund to continue to grow moderately, so
we would welcome inquiries from potential investors, large or small. Anyone
interested is encouraged to call Cindy Jeran at (212) 830-5455 or either of us.
The Delafield Fund is now available through Charles Schwab's Mutual Fund
Marketplace, Fidelity Investments Fund Network, Jack White & Company and
National Investor Services Corp. (Waterhouse Securities).
We wish all of you a healthy and happy New Year.
With very best wishes.
Sincerely,
/s/J. Dennis Delafield /s/Vincent Sellecchia
J. Dennis Delafield Vincent Sellecchia
Chairman President
Tel. (212) 830-5454 Tel. (212) 830-5456
P.S. The net asset value per share of the Fund is determined as of 4:00P.M.,
New York City time on each Fund Business Day (as fully described on page
16 of the Fund Prospectus). In addition to the Fund's published NASDAQ
listing, you may check its net asset value at any time by calling
1-800-221-3079 (or, 212-830-5220) to speak directly to a Fund
representative during the normal business hours of 8:30A.M. - 5:30P.M.,
NYC time. During off business hours, you may use the same 800 number (or,
212-830-5225) for a pre-recorded message. The new 3-digit number for The
Delafield Fund is 819.
Our Website address is: www.delafieldfund.com.
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<PAGE>
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CUMULATIVE TOTAL RETURN WITH INCOME*
<TABLE>
<CAPTION>
Index
-----
S & P
Delafield Fund** 500
-------------- -----
<S> <C> <C>
Quarter ended December 31, 1997 (1.7)% 2.9%
Year ended December 31, 1997 19.7 33.4
Inception, November 19, 1993 to December 31, 1997 106.8 131.1
<CAPTION>
Annual Average Total Return with Income*
S & P
Delafield Fund** 500
-------------- -----
<S> <C> <C>
Three years ended December 31, 1997 24.4% 31.2%
Inception, November 19, 1993 to December 31, 1997 19.3 22.6
<CAPTION>
ASSET MIX
12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Equities 72.1% 68.0% 64.5% 67.4% 73.4%
U.S. Government Obligations 13.0 10.3 7.9 0.0 0.0
Corporate Bonds 1.6 1.3 1.0 0.3 0.2
Cash Equivalents 13.3 20.4 26.6 32.3 26.4
-------- ------- ------- ------- --------
100% 100% 100% 100% 100%
<CAPTION>
TEN LARGEST HOLDINGS
% of Total
Company Portfolio
- ------- ---------
<S> <C>
BancTec, Inc. 4.3%
Nine West Group 3.8
Varian Associates, Inc. 3.6
Polaroid Corporation 3.5
Fruit of the Loom, Inc. 3.0
Allegheny Teledyne, Inc. 2.5
IMC Global Inc. 2.5
Federal-Mogul Corporation 2.2
Shaw Industries, Inc. 2.1
Sunglass Hut International 2.1
----
29.6%
----
</TABLE>
* The performance data quoted above represents past performance. The investment
return and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the orginal cost.
** Delafield Fund Performance is stated after fees.
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<PAGE>
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Comparison of change in value of $10,000 investment in the
Delafield Fund, Inc. and the S&P Index.
The Table below represents the omitted line graph which compares the change in
value of $10,000 investment in the Delafield Fund, Inc. and the S&P Index.
<TABLE>
<CAPTION>
INCEPTION S&P 500 DELAFIELD
- --------- --------- ---------
<C> <C> <C>
11/19/93 10,000.00 10,000.00
12/31/93 10,112.00 10,170.00
06/30/94 9,630.67 10,361.20
12/31/94 10,099.68 10,739.38
06/30/95 12,140.83 12,350.29
12/31/95 13,895.18 13,680.41
06/30/96 15,298.59 15,566.94
12/31/96 17,085.47 17,285.53
06/30/97 20,606.78 19,631.18
12/31/97 22,786.98 20,683.41
</TABLE>
The following table was embedded in the line graph represented above.
<TABLE>
<CAPTION>
Average Annual Return
-------------------------------------------
Since
One Year Five Year 11/19/1993
------------ ------------- ------------
<S> <C> <C> <C>
Delafield Fund, Inc. 19.66% N/A 19.31%
S&P 500 33.36% N/A 22.58%
</TABLE>
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<PAGE>
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DELAFIELD FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ------
Common Stocks (73.35%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automotive/Auto Parts (2.21%)
Federal-Mogul Corporation 80,000 $ 3,240,000
--------------
Chemicals (4.05%)
Great Lakes Chemical Corporation 50,000 2,243,750
IMC Global Inc. 110,500 3,618,875
IMC Global Inc. - Warrants* 21,666 83,956
--------------
5,946,581
Consumer Products & Services (6.18%) --------------
Bush Industries Inc. 50,000 1,300,000
O'Sullivan Industries Holdings* 265,000 2,650,000
Polaroid Corporation 105,000 5,112,187
--------------
9,062,187
Electronics (4.93%) --------------
BMC Industries, Inc. 155,000 2,499,375
Bell Industries* 114,700 1,577,125
International Rectifier Corporation* 150,000 1,771,875
Sheldahl Inc.* 100,000 1,387,500
--------------
7,235,875
Energy (0.46%) --------------
EEX Corporation 74,975 679,461
--------------
Financial Products and Services (6.27%)
BancTec, Inc.* 235,000 6,300,938
Deluxe Corporation 35,000 1,207,500
Harland (John H.) Company 80,000 1,680,000
--------------
9,188,438
Industrial Products (14.40%) --------------
AMETEK, Inc. 90,000 2,430,000
Atchison Casting Corporation* 100,000 1,625,000
Corning Inc. 65,000 2,413,125
Elsag Bailey Process Automation, N.V.* 120,000 1,980,000
Flowserve Corporation 104,520 2,920,027
Furon Company 99,000 2,066,625
Greif Brothers Corporation Class A 11,500 385,250
Kennametal Inc. 25,000 1,295,312
Stimsonite Corporation* 135,000 687,656
Varian Associates Inc. 105,000 5,309,063
--------------
21,112,058
--------------
</TABLE>
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See Notes to Financial Statements.
<PAGE>
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DELAFIELD FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ------
Common Stocks (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Insurance (Brokers) (1.06%)
Gallagher (Arthur J.) 45,000 $ 1,549,688
--------------
Insurance (Life) (2.19%)
Leucadia National Corporation 37,000 1,276,500
Provident Companies Inc. 50,000 1,931,250
--------------
3,207,750
Insurance (Property/Casualty) (2.56%) --------------
Highlands Insurance Group* 41,000 1,163,375
Orion Capital Corporation 30,000 1,393,125
Terra Nova (Bermuda) Holding 15,000 393,750
20th Century Industries 30,700 798,200
--------------
3,748,450
Insurance (Reinsurance) (2.45%) --------------
Risk Capital Holding Inc.* 90,000 2,053,125
Trenwick Group, Inc. 41,000 1,542,625
--------------
3,595,750
Metals/Mining (4.30%) --------------
Allegheny Teledyne Inc. 140,000 3,622,500
Cleveland Cliffs 55,000 2,519,688
Freeport McMoRan Sulphur* 13,735 161,386
--------------
6,303,574
Real Estate (2.39%) --------------
Kimco Realty Corporation 75,000 2,643,750
Ramco-Gershenson Properties Trust 43,750 861,328
--------------
3,505,078
Retail (7.27%) --------------
B.J.'s Wholesale Club, Inc.* 50,000 1,568,750
HomeBase, Inc.* 50,000 393,750
Nine West Group, Inc.* 215,000 5,576,562
Sunglass Hut International, Inc.* 493,500 3,115,219
--------------
10,654,281
Telecommunications (2.47%) --------------
CommScope, Inc.* 195,000 2,620,312
Salient 3 Communications 81,000 1,002,375
--------------
3,622,687
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
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================================================================================
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ------
Common Stocks (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Textile/Apparel (8.21%)
Burlington Industries Inc.* 100,000 $ 1,381,250
Delta Woodside Industries Inc. 438,900 2,139,637
Farah Inc.* 185,000 1,029,063
Fruit of the Loom, Inc.* 170,000 4,356,250
Shaw Industries, Inc. 270,000 3,138,750
--------------
12,044,950
Miscellaneous (1.95%) --------------
Dames & Moore Group 86,900 1,151,425
St. Jude Medical, Inc.* 56,000 1,708,000
--------------
2,859,425
--------------
Total Common Stocks (Cost $95,722,427) 107,556,233
--------------
<CAPTION>
Face Value
Amount (Note 1)
------ ------
Corporate Bonds (0.24%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Industrial Products (0.15%)
AMETEK, Inc., 9.750%
debentures, due 03/15/2004 $200,000 214,000
--------------
Insurance (Life) (0.09%)
PennCorp Financial Group, 9.250%,
due 12/15/2003 125,000 131,250
--------------
Total Corporate Bonds (Cost $325,100) 345,250
--------------
<CAPTION>
Short-Term Investments (26.73%)
Repurchase Agreements (26.73%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
J.P. Morgan Securities Inc., 6.300%, due 01/02/98
(Collateralized by $38,010,000
U.S. Treasury Bond, 9.875%, due 11/15/15
U.S. Treasury Note, 6.500%, due 05/31/02) $39,190,000 39,190,000
---------------
Total Short-Term Investments (Cost $39,190,000) 39,190,000
---------------
Total Investments (100.32%) (Cost $135,237,527+) 147,091,483
Liabilities In Excess of Cash and Other Assets (-0.32%) ( 467,511)
---------------
Net Assets (100.00%), 9,853,137 shares outstanding (Note 3) $ 146,623,972
===============
Net asset value, offering and redemption price per share $ 14.88
===============
* Non-income producing.
+ Aggregate cost for federal income tax purposes is identical. Aggregate unrealized appreciation and
depreciation, based on cost for Federal income tax purposes, are $15,181,419 and $3,327,463, respectively.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
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DELAFIELD FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
===============================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Income:
Interest....................................................................... $ 2,018,066
Dividends...................................................................... 1,054,948
----------------
Total income................................................................ 3,073,014
----------------
Expenses: (Note 2)
Investment management fee...................................................... 839,165
Administration fee............................................................. 220,281
Shareholder servicing fee...................................................... 262,239
Custodian expenses............................................................. 15,175
Shareholder servicing and related shareholder expenses......................... 88,150
Legal, compliance and filing fees.............................................. 70,199
Audit and accounting........................................................... 51,217
Directors' fees and expenses................................................... 7,775
Amortization of organization costs............................................. 8,694
Other.......................................................................... 4,438
----------------
Total expenses.............................................................. 1,567,333
Less:
Fees waived................................................................. ( 209,791)
Expenses paid indirectly.................................................... ( 925)
----------------
Net expenses................................................................ 1,356,617
----------------
Net investment income....................................................... 1,716,397
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments............................................ 9,364,322
Net change in unrealized appreciation (depreciation) of investments................ 4,562,649
----------------
Net gain (loss) on investments...................................... 13,926,971
----------------
Increase (decrease) in net assets from operations.................................. $ 15,643,368
================
</TABLE>
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See Notes to Financial Statements.
<PAGE>
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DELAFIELD FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 AND 1996
===============================================================================
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C>
Operations:
Net investment income............................................ $ 1,716,397 $ 616,554
Net realized gain on investments................................. 9,364,322 7,345,183
Net change in unrealized appreciation (depreciation) ............ 4,562,649 4,380,986
-------------- ---------------
Increase (decrease) in net assets from operations............... 15,643,368 12,342,723
Distributions from:
Net investment income............................................ ( 1,710,095) ( 616,554)
Net realized gain on investments................................. ( 9,359,513) ( 7,293,283)
Return of capital................................................ ( -- ) ( 516)
Capital share transactions (Note 3)............................... 80,770,780 11,117,028
-------------- ---------------
Total increase (decrease)....................................... 85,344,540 15,549,398
Net Assets:
Beginning of year................................................ 61,279,432 45,730,034
-------------- ---------------
End of year (including undistributed net investment
income of $6,303 & 0, respectively).......................... $ 146,623,972 $ 61,279,432
============== ===============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
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DELAFIELD FUND, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. Summary of Accounting Policies
Delafield Fund, Inc. is a no-load, diversified, open-end management investment
company registered under the Investment Company Act of 1940. The investment
objectives of the Fund are to seek long-term preservation of capital and growth
of capital by investing primarily in equity securities of domestic companies.
Its financial statements are prepared in accordance with generally accepted
accounting principles for investment companies as follows:
a) Valuation of Securities -
Securities traded on a national securities exchange or admitted to trading
on the National Association of Securities Dealers Inc. Automated Quotations
National List are valued at the last reported sales price on the last
business day of the fiscal period. Common stocks for which no sale was
reported on that date and over-the-counter securities, are valued at the
mean between the last reported bid and asked prices. United States
Government obligations and other debt instruments having sixty days or less
remaining until maturity are stated at amortized cost. Debt instruments
having a remaining maturity of more than sixty days are valued at the
highest bid price obtained from a dealer maintaining an active market in
that security or on the basis of prices obtained from a pricing service
approved as reliable by the Board of Directors. All other investment
assets, including restricted and not readily marketable securities, are
valued in such manner as the Board of Directors in good faith deems
appropriate to reflect their fair market value.
b) Federal Income Taxes -
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its taxable income to its shareholders. Therefore, no provision for
federal income tax is required.
c) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
d) General -
Securities transactions are recorded on the trade date basis. Interest
income is accrued as earned and dividend income is recorded on the
ex-dividend date. Realized gains and losses from securities transactions
are recorded on the identified cost basis. Dividends and capital gain
distributions to shareholders, which are determined in accordance with
income tax regulations, are recorded on the ex-dividend date. It is the
Fund's policy to take possession of securities as collateral under
repurchase agreements and to determine on a daily basis that the value of
such securities plus accrued interest are sufficient to cover the value of
the repurchase agreements.
2. Investment Management Fees and Other Transactions with Affiliates
Under the Investment Management Contract, the Fund pays an investment management
fee to Reich & Tang Asset Management, L.P. (the "Manager") equal to .80% of the
Fund's average daily net assets.
Pursuant to an Administrative Services Agreement, the Fund pays to the Manager
an annual fee of .21% of the Fund's average daily net assets.
- --------------------------------------------------------------------------------
<PAGE>
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================================================================================
2. Investment Management Fees and Other Transactions with Affiliates
Pursuant to a Distribution Plan adopted under Securities 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 an annual fee equal to .25% 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 December 31, 1997, the Distributor voluntarily waived
shareholder servicing fees of $209,791.
Brokerage commissions paid during the period to the Distributor amounted to
$96,011.
Fees are paid to Directors who are unaffiliated with the Manager on the basis of
$1,500 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 $52,338 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 captions "Custodian expenses"
and "Shareholder servicing and related shareholder expenses" are expense offsets
of $925.
3. Capital Stock
At December 31, 1997, 20,000,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $134,763,713. Transactions in capital
stock were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------------------- -----------------------------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sold........................................ 5,631,514 $ 86,536,997 486,042 $ 6,686,946
Issued on reinvestment of dividends......... 729,075 10,714,899 584,374 7,889,402
Redeemed.................................... ( 1,049,645) ( 16,481,116) ( 259,075) ( 3,459,320)
----------- ----------- ----------- -----------
Net increase (decrease)..................... 5,310,944 $ 80,770,780 811,341 $ 11,117,028
=========== =========== =========== ===========
</TABLE>
4. Investment Transactions
Purchases and sales of investment securities, other than U.S. Government direct
and agency obligations and short-term investments, totaled $90,151,788 and
$41,311,603, respectively.
- --------------------------------------------------------------------------------
<PAGE>
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DELAFIELD FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
5. Financial Highlights
<TABLE>
<CAPTION>
Year Year Period from
Ended Ended October 1, 1995 to
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period........ $ 13.49 $ 12.26 $ 11.95
---------- --------- ----------
Income from investment operations:
Net investment income................... .21 .16 .05
Net realized and unrealized
gains (losses) on investments............. 2.42 3.07 .50
---------- --------- ----------
Total from investment operations............ 2.63 3.23 .55
---------- --------- ----------
Less distributions:
Dividends from net investment income.... ( .21) ( .16) ( .05)
Distributions from net realized gains...
on investments........................ ( 1.03) ( 1.84) ( .18)
In excess of net realized gain.......... -- -- ( .01)
----------- --------- ----------
Total distributions......................... ( 1.24) ( 2.00) ( .24)
----------- --------- ----------
Net asset value, end of period.............. $ 14.88 $ 13.49 $ 12.26
========== ========= ==========
Total Return................................ 19.66% 26.35% 4.62%(a)
========== ========= ==========
Ratios/Supplemental Data
Net assets, end of period (000).............. $ 146,624 $ 61,279 $ 45,730
Ratios to average net assets:
Expenses................................ 1.29% 1.29% 1.67%*
Net investment income................... 1.64% 1.18% 1.57%*
Management, administration and shareholder
servicing fees waived................. .20% .20% .20%*
Expenses paid indirectly................ -- .01% .07%*
Portfolio turnover rate..................... 55.43% 75.54% 20.49%
Average commission rate paid (per share)(b) $ .0305 $ .0378 $ .0343
</TABLE>
* Annualized
(a) Not Annualized
(b) Required by regulations issued in 1995.
<TABLE>
<CAPTION>
Year November 19, 1993
Ended (Inception) to
September 30, 1995 September 30, 1994
------------------ ------------------
<S> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period........ $ 10.82 $ 10.00
---------- ---------
Income from investment operations:
Net investment income................... .13 .07
Net realized and unrealized
gains (losses) on investments............. 1.99 .82
---------- ---------
Total from investment operations............ 2.12 .89
---------- ---------
Less distributions:
Dividends from net investment income.... ( .13) ( .07)
Distributions from net realized gains...
on investments........................ ( .86) --
In excess of net realized gain.......... -- --
---------- ---------
Total distributions......................... ( .99) ( .07)
---------- ---------
Net asset value, end of period.............. $ 11.95 $ 10.82
========== =========
Total Return................................ 20.05% 8.93%(a)
========== =========
Ratios/Supplemental Data
Net assets, end of period (000).............. $ 42,316 $ 9,658
Ratios to average net assets:
Expenses................................ 1.65% 1.78%*
Net investment income................... 1.35% 0.96%*
Management, administration and shareholder
servicing fess waived................. .71% 1.12%
Expenses paid indirectly................ -- --
Portfolio turnover rate..................... 70.36% 42.84%
Average commission rate paid (per share) (b) -- --
</TABLE>
* Annualized
(a) Not Annualized
(b) Required by regulations issued in 1995.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
DELAFIELD FUND, INC.
INDEPENDENT AUDITOR'S REPORT
===============================================================================
The Board of Directors and Shareholders
Delafield Fund, Inc.
We have audited the accompanying statement of net assets of Delafield Fund, Inc.
as of December 31, 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 the periods indicated in
the accompanying financial statements. 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
December 31, 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
Delafield Fund, Inc. as of December 31, 1997, 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
January 23, 1998
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
DELAFIELD
FUND, INC.
Annual Report
December 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.
- -----------------------------------------------------
Delafield 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>
