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SIGNATURE BERNADETTE N. FINN
TITLE SECRETARY
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
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schedules as of the end of the most current period and is
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<NAME> Short Term Income Fund, Inc.
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<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
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<CIK> 0000312669
<NAME> Short Term Income Fund, Inc.
<SERIES>
<NUMBER> 2
<NAME> U.S. Government Portfolio
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</TABLE>
McGLADREY & PULLEN, L.L.P.
Certified Public Accountants & Consultants
The Board of Directors and Shareholders
Short Term Income Fund, Inc.
In planning and performing our audit of the financial statements of the Money
Market Portfolio and the U.S. Government Portfolio of Short Term Income Fund,
Inc. for the year ended August 31, 1996, we considered its internal control
structure, including procedures for safeguarding securities, in order to
determine our auditing procedures for the purpose of expressing our opinion on
the financial statements and to comply with the requirements of Form N-SAR, not
to provide assurance on the internal control structure.
The management of Short Term Income Fund, Inc. is responsible for establishing
and maintaining an internal control structure. In fulfilling this
responsibility, estimates and judgments by management are required to assess the
expected benefits and related costs of internal control structure policies and
procedures. Two of the objectives of an internal control structure are to
provide management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition and that
transactions are executed in accordance with management's authorization and
recorded properly to permit preparation of financial statements in confirmity
with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors and
irregularities may occur and not be detected. Also, projection of any evaluation
of the structure to future periods is subject to the risk that it may become
inadequate because of changes in conditions or that the effectiveness of the
design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce to
a relatively low level the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above as of
August 31, 1996.
This report is intended solely for the information and use of management and the
Securities and Exchange Commission.
McGladrey & Pullen, LLP
New York, New York
October 2, 1996
To the Board of Directors and Trustees of
Short Term Income Fund, Inc.
North Carolina Daily Municipal Income Fund, Inc.
Florida Daily Municipal Income Fund
We have examined the accompanying description of the operations and the specific
control objectives, and the procedures that achieve those objectives, of the
Funds referred to above (the "Funds") related to those portions of their system
for calculating the net asset value and dividends and distributions which are
unique to the allocation of income and expenses to the multiple classes of
shares of the Funds as of August 31, 1996. Our examination included procedures
to obtain reasonable assurance about whether (1) the accompanying description
presents fairly, in all material respects, the aspects of the Funds' policies
and procedures that may be relevant to the Funds' internal control structure,
(2) the control structure policies and procedures included in the description
were suitably designed to achieve the control objectives specified in the
description, if those policies and procedures were complied with satisfactorily,
and (3) such policies and procedures had been placed in operation as of August
31, 1996. The control objectives were specified by the Funds. Our examination
was performed in accordance with standards established by the American Institute
of Certified Public Accountants and included those procedures we considered
necessary in the circumstances to obtain a reasonable basis for rendering our
opinion.
In our opinion, the accompanying description of the aforementioned operations
presents fairly, in all material respects, the relevant aspects of the Funds'
policies and procedures that have been placed in operation. Also, in our
opinion, the policies and procedures, as described, are suitably designed to
provide reasonable assurance that the specified control objectives would be
achieved if the described policies and procedures were complied with
satisfactorily.
In addition to the procedures we considered necessary to render our opinion as
expressed in the previous paragraph, we applied tests to specific policies and
procedures listed in Exhibit B, to obtain evidence about their effectiveness in
meeting the control objectives, described in Exhibit B, during the year ended
August 31, 1996. The specific policies and procedures and the nature, timing,
extent, and the results of the tests are listed in Exhibit B. This information
has been provided to the Securities and Exchange Commission to be taken into
consideration, when evaluating the Funds' compliance with the original exemptive
ruling request. In our opinion, the policies and procedures that were tested, as
described in Exhibit B, were operating with sufficient effectiveness to provide
reasonable, but not absolute assurance that the control objectives specified in
Exhibit B were achieved during the year ended August 31, 1996.
<PAGE>
The description of policies and procedures at the Funds is as of August 31, 1996
and any projection of such information to the future is subject to the risk
that, because of change, the description may no longer portray the system in
existence. The potential effectiveness of specific policies and procedures at
the Funds is subject to inherent limitations and, accordingly, errors or
irregularities may occur and not be detected. Furthermore, the projection of any
conclusions, based on our findings, to future periods is subject to the risk
that changes may alter the validity of such conclusions.
This report is intended solely for use by the management of Short Term Income
Fund, Inc., North Carolina Daily Municipal Income Fund, Inc., and Florida Daily
Municipal Income Fund, and the Securities and Exchange Commission.
McGladrey & Pullen, LLP
New York, New York
October 2, 1996
<PAGE>
EXHIBIT A
DUAL PRICING
NET ASSET VALUE AND DIVIDEND/DISTRIBUTION DETERMINATION
The Funds intend to implement a plan which would allow any Fund to issue two
separate classes of shares. Under the plan, Class A shares will be subject to a
12b-1 fee while Class B shares would not. Since two classes of shares exist,
separate Net Asset Value ("NAV") and dividends/distributions must be calculated
for each class of shares.
The Funds are required to maintain records that account for income, expenses,
dividends and distributions for each share class. The procedures for calculating
NAV and dividends/ distributions depend upon the type of Fund. For Money Funds,
investment income, unrealized and realized gains or losses will be allocated
daily to each share class based on the percentage of outstanding shares at the
end of each day. These balances, as well as share activity, will be accumulated
by share class. For Non-Money Funds, investment income, unrealized and realized
gains or losses will be allocated daily to each share class based on its
relative percentage of net assets at the beginning of the day after reflecting
the current day's sale and redemption activity ("adjusted net assets").
Daily expenses of the Fund will be allocated to each share class depending upon
the nature of the expense item. For Money Funds, investment management fees and
operating expenses, which are attributable to both classes, will be allocated
daily to each share class based on the percentage of outstanding shares at the
end of the day. For Non-Money Funds, investment management fees and operating
expenses, which are attributable to both classes, will be allocated daily to
each share class based on adjusted net assets. For all Funds, certain expenses
that have a greater cost for one class versus the other will be calculated and
charged to the appropriate class prior to determining the daily NAV or
dividends/distributions.
Prior to determining the day's NAV or dividends/distributions, the following
expense items will be calculated as indicated:
(a) Investment management fee:
The current day's accrual will be calculated and allocated to each class
based on its percentage of outstanding shares at the end of each day for
Money Funds or based on its relative adjusted net assets for Non-Money
Funds. The effective rate used will be based on the combined net assets of
both classes of shares (i.e., total net assets of the Fund).
(b) Shareholder servicing and administration fee:
The current day's accrual will be calculated and charged to the applicable
class based on its effective rate.
<PAGE>
(c) Other expenses:
The daily accrual will be calculated from the current expense budget for
the entire Fund and will be allocated to each class based on its percentage
of outstanding shares at the end of each day for Money Funds or based on
its relative adjusted net assets for Non-Money Funds.
In designing accounting procedures and controls regarding the allocation of
income, expenses and dividends/distributions for these classes of shares, the
following objectives have been identified:
o To ascertain that the direct expenses charged to each class of shares
are correctly recorded in the Fund's accounting records and are
correctly allocated to each share class.
o To ascertain that income, other operating expenses, unrealized and
realized gains or losses are allocated properly to each share class
based on the appropriate percentage of each class (i.e., relative shares
outstanding for Money Funds; relative adjusted net assets for Non-Money
Funds).
o To ascertain that the NAV and dividend/distribution rates for each class
of shares reflects the proper allocation of income, operating expenses,
unrealized and realized gains or losses as well as the full amount of
direct expenses charged to each class of shares.
Set forth below are the additional procedures which will be implemented to
satisfy the objectives described above for the calculation of NAV and
dividends/distributions. These procedures presume that the normal procedures and
controls remain in effect for all other daily fund accounting. The procedures
are described for the Funds based upon their respective dividend policies:
I. Dividends are declared daily and distributed daily or monthly. Net realized
gains on security transactions are distributed at least annually.
The dividend rate for net investment income will be determined by
dividing the daily net investment income for each share class by
the outstanding shares for each class on that date.
The distribution rate for net realized gains will be determined at
a Fund level using the Fund's undistributed net realized gains and
dividing by the Fund's total shares outstanding as of the record
date. The rates so calculated will be multiplied by the
outstanding shares of each class to determine the amount of
distribution applicable to each class.
<PAGE>
II. Dividends from net investment income are declared at least annually. Net
realized gains on security transactions are distributed at least annually.
The dividend rate for net investment income will be determined by
dividing the accumulated net investment income for each share
class by the outstanding shares for each class on the record date.
The distribution rate for net realized gains will be determined at
a Fund level using the Fund's undistributed net realized gains and
dividing by the Fund's total shares outstanding as of the record
date. The rates so calculated will be multiplied by the
outstanding shares of each class to determine the amount of
distribution applicable to each class.
Daily, the fund accountant will prepare a "Net Asset Rollforward" to determine
the NAV by class. The allocated expenses, calculated expenses by classes and
calculated dividends per share will be reviewed and verified by a manager for
accuracy and agreed to the appropriate underlying accounting records, including
the trial balance and transfer agency records. After completion of review, the
manager will sign off on the "Net Asset Rollforward."
<PAGE>
EXHIBIT B
DESCRIPTION OF TESTS PERFORMED
The following information pertains to tests of operating effectiveness performed
by McGladrey & Pullen, LLP. Tests were performed only of those policies and
procedures specifically identified. All tests performed were performed without
exception.
Testing of the operating effectiveness of identified policies and procedures
were performed during the year ended August 31, 1996. The nature, timing and
extent of tests performed along with the specific control objective they were
designed to achieve follow.
SYSTEM OF CALCULATING NET ASSET VALUE
AND DIVIDENDS AND DISTRIBUTIONS
UNIQUE TO THE MULTIPLE CLASSES OF SHARES
<TABLE>
<CAPTION>
Control Objective Test Performed
<C> <C>
The direct expenses charged to each class of Determined that distribution fees and other
shares are correctly recorded in the Fund's class specific expenses were allocated to
accounting records and are correctly the respective class of shares.
allocated to each share class.
Income, other operating expenses, Agreed opening net assets and shares
unrealized and realized gains or losses are outstanding to daily price makeup sheet.
allocated properly to each share class based
on the appropriate percentage of each class
(i.e. relative shares outstanding). Agreed share subscription and redemption
activity for each class of share to transfer agent
records.
Recalculated the allocation of income and
expenses between classes based on shares
outstanding of each class.
Traced and agreed the allocation percentage
utilized on the net asset rollforward to the
calculation in the previous procedure.
Recalculated daily expenses accruals for
selected expense categories.
Agreed ending net assets for each class and in
total to the monthly schedule of average net
assets.
<PAGE>
Control Objective Tests Performed
<C> <C>
The NAV and distribution/dividend rates Totaled net investment income for each class of
for each share reflects the proper shares and compared to daily price makeup
allocation of income, operating expenses, sheet.
and realized gains or losses as well as the
full amount of direct expenses charged to Recalculated dividend factors and agreed them
each class of shares. to dividend factor sheets.
Recalculated the NAV by dividing net assets by
outstanding shares for each share class.
Agreed total net assets to the fund level trial
balance.
</TABLE>
The above testing procedures were performed in detail for four days selected at
random during the period.
