<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM
INCOME
FUND, INC.
Annual Report
August 31, 1997
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM
INCOME FUND, INC. 600 FIFTH AVENUE, NEW YORK, N.Y. 10020
212/830-5200
===============================================================================
Dear Shareholder:
We are pleased to present the annual report of Short Term Income Fund, Inc. for
the year ended August 31, 1997.
The Fund's Money Market Portfolio had 78,213 shareholders and net assets of
$1,068,440,114 as of August 31, 1997. The Government Portfolio had 12,820
shareholders and net assets of $804,547,598 as of August 31, 1997.
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
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- --------
Bankers' Acceptances (2.31%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 25,000,000 Bank of Tokyo - Mitsubishi 11/17/97 5.65% $ 24,706,028
- ------------ -------------
25,000,000 Total Bankers' Acceptances 24,706,028
- ------------ -------------
<CAPTION>
Certificates of Deposit (5.61%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 20,000,000 Chase Manhattan Bank (USA) 10/06/97 5.56% $ 20,000,000
20,000,000 PNC Bank, N.A. 05/27/98 5.67 19,994,148
20,000,000 Union Bank of California 10/20/97 5.59 20,000,000
- ------------ -------------
60,000,000 Total Certificates of Deposit 59,994,148
- ------------ -------------
<CAPTION>
Commercial Paper (15.48%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 20,000,000 Bank of America Corporation 02/17/98 5.70% $ 19,482,933
15,000,000 Bear Stearns Cos., Inc. 10/07/97 5.63 14,919,063
15,000,000 Bear Stearns Cos., Inc. 10/14/97 5.61 14,903,225
5,000,000 Campagnie Bancaire USA Finance Corp. 11/04/97 5.57 4,951,962
10,000,000 Cregem North America Inc. 10/14/97 5.61 9,935,483
37,000,000 Cregem North America Inc. 10/17/97 5.60 36,744,325
20,000,000 GE Capital Corp. 02/09/98 5.70 19,507,556
45,000,000 UBS Finance 09/02/97 5.63 45,000,000
- ------------ -------------
167,000,000 Total Commercial Paper 165,444,547
- ------------ -------------
<CAPTION>
LOC Commercial Paper (30.36%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 9,850,000 Banco Bandeirantes
LOC Barclays Bank PLC 06/08/98 5.84% $ 9,425,563
10,000,000 Banco Bandeirantes
LOC Barclays Bank PLC 06/18/98 5.81 9,556,867
10,000,000 Banco Bandeirantes
LOC Barclays Bank PLC 06/24/98 5.90 9,542,750
20,000,000 Banco Rio de La Plata, S.A.
LOC Bayerische Vereinsbank, A.G. 10/30/97 5.62 19,826,000
15,000,000 Bancomer S.A.
LOC Bank of Montreal 09/24/97 5.72 14,949,125
27,000,000 China International Marine Containers
LOC Societe Generale 10/08/97 5.57 26,850,960
42,000,000 Dean Health System Inc.
LOC Rabobank Nederland 10/23/97 5.75 41,660,850
20,000,000 Formosa Plastics Corp.
LOC ABN AMRO Bank N.V. 09/29/97 5.59 19,917,200
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- --------
LOC Commercial Paper (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 30,000,000 Garanti Funding Corp.
LOC Bayerische Vereinsbank, A.G. 04/01/98 5.71% $ 29,032,916
20,000,000 Generale Banking and Trust
LOC First Boston 02/02/98 5.67 19,531,650
15,000,000 Guandong Enterprise
LOC First Boston 11/06/97 5.62 14,849,958
25,000,000 Nacional Financiera S.N.C. Grand Cayman
LOC Societe Generale 11/17/97 5.60 24,708,667
20,000,000 Transportadora de Gas del Sur SA
LOC Dresdner Bank A.G. 10/21/97 5.60 19,849,733
10,000,000 Transportadora de Gas del Sur SA
LOC Dresdner Bank A.G. 10/24/97 5.60 9,920,267
20,000,000 Unifunding Inc.
LOC Unibank 10/22/97 5.60 19,846,667
10,000,000 Unifunding Inc.
LOC Unibank 10/29/97 5.56 9,913,075
25,000,000 Western Finance
LOC Federal Home Loan Bank 09/03/97 5.55 24,996,146
- ------------ -------------
328,850,000 Total LOC Commercial Paper 324,378,394
- ------------ -------------
<CAPTION>
U.S. Government Agencies (0.94%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10,000,000 Federal Farm Credit Bank (f) 03/03/98 5.30% $ 10,000,000
- ------------ -------------
10,000,000 Total U.S. Government Agencies 10,000,000
- ------------ -------------
<CAPTION>
Japanese Eurodollar Certificates of Deposit (2.25%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10,000,000 Norinchukin Bank 10/21/97 5.63% $ 10,000,135
14,000,000 Sumitomo Bank 10/07/97 5.65 14,001,678
- ------------ -------------
24,000,000 Total Japanese Eurodollar Certificates of Deposit 24,001,813
- ------------ -------------
<CAPTION>
Loan Participations (5.62%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 15,000,000 Ford Motor Company with Morgan Guaranty (g) 09/15/98 5.00% $ 15,000,000
20,000,000 Marsh & McLennan Companies with Chase Manhattan Bank (j) 02/24/98 5.70 20,000,000
25,000,000 Marsh & McLennan Companies with Chase Manhattan Bank (i) 08/24/98 5.72 25,000,000
- ------------ -------------
60,000,000 Total Loan Participation 60,000,000
- ------------ -------------
<CAPTION>
Master Notes (16.38%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 45,000,000 Donaldson, Lufkin & Jenrette, Inc. (a) 02/06/98 5.71% $ 45,000,000
45,000,000 J.P. Morgan Securities Inc. (c) 04/02/98 5.69 45,000,000
40,000,000 The Goldman Sachs Group L.P. (b) 04/28/98 5.79 40,000,000
45,000,000 Williamette Industries Incorporated (d) 07/09/98 5.66 45,000,000
- ------------ -------------
175,000,000 Total Master Notes 175,000,000
- ------------ -------------
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- --------
Other Notes (16.94%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 4,040,000 Bollman Capital, LLC Taxable VRD Note (e)
(Bollman Project) - Series 1996 A
LOC First of America/Michigan National Bank 12/15/26 5.64% $ 4,040,000
2,360,000 Carriage Inn Retirement, Community of Cadiz (e)
LOC Key Bank, N.A. 10/01/17 5.67 2,360,000
2,820,000 Carriage Inn Retirement Community of Dayton, Inc. - Series 1996 (e)
LOC Key Bank, N.A. 10/01/16 5.67 2,820,000
5,500,000 City & County of Denver (e)
LOC Canadian Imperial Bank of Commerce 05/01/11 5.65 5,500,000
7,695,000 Dickson Press, Inc. Taxable VRD Notes - Series 1997 (e)
LOC First Michigan Bank 01/01/27 5.75 7,695,000
5,000,000 First Metropolitan Title Company Taxable Variable Rate Demand Notes (e)
LOC Michigan National Bank 05/01/22 5.62 5,000,000
3,130,000 Greensboro, NC Public Improvement - Series C (e) 04/01/14 5.65 3,130,000
4,755,000 Growth Properties I, Ltd L.P. 1997 (e)
LOC Columbus Bank & Trust Company 07/01/12 5.70 4,755,000
2,400,000 Hamburg NY, IDA (Rosewood Senior Village Project) (e)
LOC Key Bank, N.A. 12/20/38 5.75 2,400,000
7,000,000 Illinois Health Facilities (Loyola University) (e)
MBIA Insured 07/01/24 5.65 7,000,000
1,725,000 KBL Capital Fund Floating Rate Note (e)
LOC Old Kent Bank & Trust Co. 07/01/15 5.64 1,725,000
4,000,000 LKWP Investments, LLC (e)
LOC First Michigan Bank 03/01/27 5.75 4,000,000
1,015,000 Labelle Capital Funding Floating Rate Note (e)
LOC First of America/Michigan National Bank 09/01/26 5.64 1,015,000
2,000,000 Miami Valley Realty Floating Rate Demand Taxable Notes (e)
LOC Key Bank, N.A. 06/01/12 5.67 2,000,000
1,000,000 Mt. Carmel East Professional Office Building (e)
LOC National City Bank 01/01/14 5.65 1,000,000
500,000 New Orleans Aviation Board Taxable Refunding Bonds - Series 1993A (e)
MBIA Insured 08/01/00 5.71 500,000
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- --------
Other Notes (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 25,000,000 New York City GO Bonds
FGIC Insured 11/21/97 5.77% $ 25,000,000
13,000,000 New York State HFA (Housing RB) - Series 1997 B (e)
LOC Fleet Bank 05/01/13 5.65 13,000,000
36,000,000 Oregon State (Georgia Pacific) - Series 1995 B
LOC Commerzbank A.G. 11/05/97 5.73 36,000,000
1,100,000 Pennsylvania EDFA (CEO Deux, Inc.) (e)
LOC PNC Bank 08/01/08 5.55 1,100,000
4,500,000 Polar Plastics, Inc. (e)
LOC PNC Bank 08/01/17 5.63 4,500,000
1,290,000 SDR Capital, L.L.C. (e)
LOC First Michigan Bank 10/01/26 5.75 1,290,000
3,000,000 Sojourn Project (e)
LOC First National Bank of Ohio 07/01/12 5.80 3,000,000
8,800,000 Southeast Atlantic Properties LLC Taxable - Series 1996 (e)
LOC Columbus Bank & Trust Company 09/01/26 5.70 8,800,000
1,625,000 City of Pelham IDB IDRB (e)
(Pelham Industrial Enterprenuer, LLC)
LOC Columbus Bank & Trust Company 09/01/06 5.81 1,625,000
1,850,000 Valley City Linen Co. (e)
LOC First Michigan Bank 02/01/27 5.75 1,850,000
6,370,000 Washington State Housing Finance Commission (e)
(Country Manor One Project)
LOC U.S. Bank of Washington 01/01/12 5.70 6,370,000
4,500,000 Windsor Medical Center, Inc. Variable Taxable Demand Notes (e)
LOC First National Bank of Ohio 12/03/08 5.80 4,500,000
14,000,000 Winston - Salem, NC COP (e) 11/01/12 5.60 14,000,000
5,000,000 Zylstra Funding, Inc. (e)
LOC First Michigan Bank 06/01/27 5.75 5,000,000
- ------------ -------------
180,975,000 Total Other Notes 180,975,000
- ------------ -------------
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- --------
Repurchase Agreement, Overnight (4.49%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 48,000,000 Donaldson, Lufkin & Jenrette Securities Corporation
(Collateralized by $47,756,000,
U.S. Treasury Notes, 5.625% to 9.000%, due 05/15/98 to 02/28/01,
U.S. Treasury Bond, 7.125%, due 02/15/23,
Fannie Mae, 6.090%, due 06/14/99,
Farm Credit Systemwide Bonds, 6.250% to 6.480%,
due 05/17/97 to 11/12/99) 09/02/97 5.57% $ 48,000,000
- ------------ -------------
48,000,000 Total Repurchase Agreements, Overnight 48,000,000
- ------------ -------------
<CAPTION>
Yankee Certificates of Deposit (0.94%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10,000,000 Barclays Bank PLC Floating Rate (h) 04/16/98 5.65% $ 10,000,000
- ------------ --------------
10,000,000 Total Yankee Certificates of Deposit 10,000,000
- ------------ --------------
Total Investments (101.32%) (Cost $1,082,499,930+) 1,082,499,930
Liabilities in Excess of Cash and Other Assets (-1.32%) ( 4,059,816)
--------------
Net Assets (100.00%) $1,068,440,114
==============
Net asset value, offering and redemption price per share:
Class A Shares, 802,536,245 shares outstanding (Note 3) $ 1.00
==============
Class B Shares, 267,951,398 shares outstanding (Note 3) $ 1.00
==============
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
FOOTNOTES:
(a) The interest rate is adjusted monthly based on 1 month LIBOR +.05% (30 day
put).
(b) The interest rate is adjusted daily based on opening Federal Funds rate
+.10% (daily put).
(c) The interest rate is adjusted monthly based on 1 month LIBOR (daily put).
(d) The interest rate is adjusted monthly based on 1 month LIBOR +.03% (7 day
put).
(e) Securities payable on demand at par including accrued interest (with 7 days
notice). Interest is adjusted weekly.
(f) The interest rate is adjusted monthly based on a 3 month T-Bill +.23%.
(g) The interest rate is adjusted monthly based on 1 month LIBOR +.08%.
(h) The interest rate changes daily based on prime minus 2.87%.
(j) The interest rate is adjusted monthly based on 1 month LIBOR +.07%.
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
U.S. GOVERNMENT PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- --------
Repurchase Agreements (75.45%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 130,000,000 Canadian Imperial Bank of Commerce (Collateralized by $128,993,000,
U.S. Treasury Bond, 6.875%, due 08/15/25
U.S. Treasury Notes, 5.375% to 6.375%, due 10/31/97 to 04/30/99) 09/02/97 5.55% $ 130,000,000
150,000,000 Donaldson, Lufkin & Jenrette (Collateralized by $246,236,000
U.S. Strips, due 11/15/02 to 05/15/16
U.S. Treasury Notes, 5.125% to 6.875%, due 12/31/98 to 08/15/07
U.S. Treasury Bill, due 02/05/98
Resolution Funding Corporation, due 04/15/99 to 04/15/30) 09/02/97 5.57 150,000,000
87,000,000 Fuji Bank (Collateralized by $85,885,000,
U.S. Treasury Notes, 5.750%, due 09/30/97) 09/02/97 5.55 87,000,000
200,000,000 Goldman Sachs (Collateralized by $278,247,795,
GNMA 2.813% to 7.500%, due 01/01/00 to 08/20/27) 09/02/97 5.60 200,000,000
40,000,000 Goldman Sachs (Collateralized by $48,528,203,
GNMA 5.500% to 7.000%, due 02/20/25 to 08/20/26) 09/08/97 5.53 40,000,000
- ------------- ---------------
607,000,000 Total Repurchase Agreements 607,000,000
- ------------- ---------------
<CAPTION>
U.S. Government Obligations (20.46%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 10,000,000 U.S. Treasury Bill 03/05/98 5.67% $ 9,725,917
10,000,000 U.S. Treasury Bill 03/05/98 5.74 9,721,955
10,000,000 U.S. Treasury Note, 5.75% 09/30/97 5.35 10,001,651
10,000,000 U.S. Treasury Note, 5.75% 09/30/97 5.39 10,001,346
10,000,000 U.S. Treasury Note, 5.75% 09/30/97 5.39 10,001,346
10,000,000 U.S. Treasury Note, 5.62% 10/31/97 5.29 10,002,064
10,000,000 U.S. Treasury Note, 5.62% 10/31/97 5.37 10,000,392
10,000,000 U.S. Treasury Note, 5.38% 11/30/97 5.48 9,993,538
10,000,000 U.S. Treasury Note, 6.00% 11/30/97 5.34 10,011,589
10,000,000 U.S. Treasury Note, 6.12% 03/31/98 5.49 10,025,032
10,000,000 U.S. Treasury Note, 5.87% 04/30/98 5.39 10,018,815
10,000,000 U.S. Treasury Note, 5.87% 04/30/98 5.39 10,018,619
10,000,000 U.S. Treasury Note, 6.12% 05/15/98 5.36 10,037,880
10,000,000 U.S. Treasury Note, 6.12% 05/15/98 5.43 10,033,085
10,000,000 U.S. Treasury Note, 6.00% 05/31/98 5.52 10,023,246
15,000,000 U.S. Treasury Note, 6.00% 05/31/98 5.55 15,031,433
- ------------- ---------------
165,000,000 Total U.S. Government Obligations 164,647,908
- ------------- ---------------
Total Investments (95.91%)(Cost $771,647,908+) 771,647,908
Cash and Other Assets in Excess of Liabilities (4.09%) 32,899,690
---------------
Net Assets (100.00%) $ 804,547,598
===============
Net asset value, offering and redemption price per share:
Class A Shares, 735,580,568 shares outstanding (Note 3) $ 1.00
===============
Class B Shares, 68,967,030 shares outstanding (Note 3) $ 1.00
===============
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED AUGUST 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Money Market U.S. Government
Portfolio Portfolio
------------------- ------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest.............................................................. $ 56,885,759 $ 41,299,929
------------------ ------------------
Expenses: (Note 2)
Investment management fee............................................. 3,041,228 1,968,002
Administration fee.................................................... 2,150,030 1,600,765
Distribution fee (Class A)............................................ 1,940,126 1,606,151
Custodian expenses.................................................... 91,926 54,351
Shareholder servicing and related shareholder expenses................ 1,868,305 548,297
Legal, compliance and filing fees..................................... 72,194 32,710
Audit and accounting.................................................. 87,370 60,320
Directors' fees ...................................................... 28,612 16,223
Miscellaneous......................................................... 25,177 14,743
------------------ ------------------
Total expenses.................................................... 9,304,968 5,901,562
Less:
Expenses paid indirectly....................................... ( 51,020) ( 15,594)
----------------- -----------------
Net expenses.............................................. 9,253,948 5,885,968
------------------ -------------------
Net investment income..................................................... 47,631,811 35,413,961
------------------ ------------------
<CAPTION>
<S> <C> <C>
REALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments................................... 52,064 187,048
------------------ ------------------
Increase in net assets from operations.................................... $ 47,683,875 $ 35,601,009
================== ==================
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED AUGUST 31, 1997 AND 1996
===============================================================================
<TABLE>
<CAPTION>
Money Market Portfolio U.S. Government Portfolio
---------------------------------- ----------------------------------
1997 1996 1997 1996
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income.................. $ 47,631,811 $ 44,540,143 $ 35,413,961 $ 36,157,464
Net realized gain (loss) on investments 52,064 130,223 187,048 160,896
--------------- -------------- -------------- ---------------
Increase in net assets from operations. 47,683,875 44,670,366 35,601,009 36,318,360
Dividends to shareholders:
Net investment income
Class A.............................. ( 35,478,855) ( 33,451,731) ( 29,587,255) ( 27,085,557)
Class B.............................. ( 12,152,956) ( 11,087,370) ( 5,826,706) ( 9,071,907)
Net realized gain on investments
Class A.............................. -- -- ( 154,608)** ( 133,784)*
Class B.............................. -- -- ( 32,440)** ( 27,112)*
Capital share transactions (Note 3):
Class A.............................. 44,913,178 94,199,071 68,960,418 197,028,406
Class B.............................. 47,570,497 1,902,497 ( 57,202,131) ( 180,629,804)
--------------- -------------- -------------- ---------------
Total increase (decrease)............ 92,535,739 96,232,833 11,758,287 16,398,602
Net assets:
Beginning of year.................... 975,904,375 879,671,542 792,789,311 776,390,709
--------------- -------------- -------------- ---------------
End of year.......................... $ 1,068,440,114 $ 975,904,375 $ 804,547,598 $ 792,789,311
=============== ============== ============== ===============
</TABLE>
* Represents a Long Term Capital Gain distribution of $0.000202949 per share
declared to shareholders of record as of August 30, 1996 and paid on September
15, 1996.
** Represents a Long Term Capital Gain distribution of .000262202 per share
declared to shareholders of record as of October 22, 1996 and paid on November
15,1996.
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. Summary of Accounting Policies.
Short Term Income Fund, Inc. is a no-load, diversified, open-end management
investment company registered under the Investment Company Act of 1940. The Fund
is presently comprised of two Portfolios, Money Market Portfolio and U.S.
Government Portfolio, with each Portfolio having two classes of stock
authorized, Class A and Class B. The Class A shares of each Portfolio are
subject to a service fee pursuant to each Portfolio's Distribution and Service
Plan. The Class B shares are not subject to a service fee. Additionally, the
Portfolio 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 each respective
Portfolio. The Fund's 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.
b) Federal Income Taxes -
It is the policy of each Portfolio 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) Dividends and Distributions -
Dividends from investment income (including realized capital gains and
losses), determined on a class level, are declared daily and paid monthly.
With respect to the Money Market Portfolio, realized capital gains and
losses are excluded.
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. 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 are sufficient to cover the value of the repurchase agreements.
2. Investment Management Fees and Other Transactions with Affiliates
Under the Management Contract, the Money Market Portfolio pays a management fee
to Reich & Tang Asset Management, L.P. (the Manager) at the annual rate of .30%
of the Portfolio's average daily net assets not in excess of $750 million, plus
.29% of such assets in excess of $750 million but not in excess of $1 billion,
plus .28% of such assets in excess of $1 billion but not in excess of $1.5
billion, plus .27% of such assets in excess of $1.5 billion. The U.S. Government
Portfolio pays a management fee to the Manager equal to .275% of the Portfolio's
average daily net assets not in excess of $250 million, plus .25% of such assets
in excess of $250 million. The Manager has agreed to reimburse the Fund for its
net operating expenses (exclusive of taxes, brokerage, interest and
extraordinary expenses) to the extent that such expenses, including the
management fee, for any fiscal year exceed 1% of the average daily net assets of
each Portfolio for such fiscal year. No such reimbursement was required for the
year ended August 31 , 1997.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
2. Investment Management Fees and Other Transactions with Affiliates
(Continued).
Pursuant to an Administrative Services Agreement, each Portfolio pays to the
Manager an annual fee of .21% of each Portfolio's average daily net assets not
in excess of $1.25 billion, plus .20% of such assets in excess of $1.25 billion
but not in excess of $1.5 billion, plus .19% of such assets in excess of $1.5
billion.
Pursuant to a Distribution and Service Plan adopted under Securities and
Exchange Commission Rule 12b-1, the Fund and Reich & Tang Distributors L.P. (the
Distributor) entered into a Distribution Agreement and a Shareholder Servicing
Agreement, only with respect to the Class A shares of each Portfolio. For its
services under the Shareholder Servicing Agreement, the Distributor receives
from each Portfolio with respect only to the Class A shares, a service fee equal
to .25% per annum of each Portfolio's average daily net assets.
Fees are paid to Directors who are unaffiliated with the Manager on the basis of
$9,000 per annum plus $1,250 per meeting attended.
Included in the Statements of Operations under the caption "Shareholder
servicing and related shareholder expenses" are fees of $902,331 and $382,242
for the Money Market Portfolio and the U.S. Government Portfolio, respectively,
paid to Reich & Tang Services L.P., an affiliate of the Manager as servicing
agent for the Fund. Included under the captions "Custodian expenses" and
"Shareholder servicing and related shareholder expenses" are expense offsets of
$51,020 and $15,594 for the Money Market Portfolio and the U.S. Government
Portfolio, respectively.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
3. Capital Stock.
At August 31, 1997, 10,000,000,000 shares of $.001 par value stock were
authorized and capital paid in for the Money Market Portfolio and the U.S.
Government Portfolio amounted to $1,070,487,643 and $804,547,598, respectively.
Transactions in capital stock, all at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
Money Market Portfolio U.S. Government Portfolio
---------------------------------- ------------------------------------
Year Ended Year Ended Year Ended Year Ended
8/31/97 8/31/96 8/31/97 8/31/96
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Class A
Sold................................ 762,333,045 750,205,484 673,017,142 784,780,227
Issued on reinvestment of dividends. 32,106,578 29,962,057 29,037,928 26,088,090
Redeemed............................ ( 749,526,445) ( 685,968,470) ( 633,094,652) ( 613,839,911)
------------- ------------- -------------- --------------
Net increase (decrease)............. 44,913,178 94,199,071 68,960,418 197,028,406
============= ============= ============== ==============
Class B
Sold................................ 794,418,253 635,780,156 422,620,917 752,064,206
Issued on reinvestment of dividends. 11,723,232 10,765,783 5,304,650 8,117,333
Redeemed............................ ( 758,570,988) ( 644,643,442) ( 485,127,698) ( 940,811,343)
------------- ------------- -------------- --------------
Net increase (decrease)............. 47,570,497 1,902,497 ( 57,202,131) ( 180,629,804)
============= ============= ============== ==============
</TABLE>
4. Sales of Securities.
Accumulated undistributed realized losses of the Money Market Portfolio at
August 31, 1997 amounted to $2,231,151. Such amount represents tax basis capital
losses which may be carried forward to offset future capital gains through
August 31, 2004.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
<TABLE>
<CAPTION>
5. Financial Highlights.
Money Market Portfolio
CLASS A Year Ended August 31,
- ------- --------------------------------------------------------------------------------
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....................... 0.046 0.047 0.047 0.029 0.027
Less distributions:
Dividends from net investment income......... ( 0.046) ( 0.047) ( 0.047) ( 0.029) ( 0.027)
--------- -------- -------- -------- --------
Net asset value, end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Return.................................... 4.66% 4.71% 4.82%(b) 2.93% 2.69%
Ratios/Supplemental Data
Net assets, end of year (000).................. $ 801,001 $ 756,094 $ 661,795 $ 676,756 $ 706,074
Ratios to average net assets:
Expenses..................................... 0.99% 0.98% 0.88% 0.91% 0.91%
Net investment income........................ 4.57% 4.63% 4.75% 2.89% 2.59%
Management, administration and shareholder
servicing fees waived.................... -- 0.02% 0.13% -- 0.04%
Expenses paid indirectly..................... 0.01% 0.01% -- -- --
<CAPTION>
Money Market Portfolio
CLASS B (a) Year Ended August 31,
- ------- --------------------------------------------------------------------------------
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....................... 0.049 0.049 0.050 0.031 0.021
Less distributions:
Dividends from net investment income......... ( 0.049) ( 0.049) ( 0.050) ( 0.031) ( 0.021)
-------- -------- -------- -------- --------
Net asset value, end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Return.................................... 5.01% 5.00% 5.08%(b) 3.19% 2.84%*
Ratios/Supplemental Data
Net assets, end of year (000).................. $ 267,439 $ 219,810 $ 217,877 $ 422,005 $ 453,093
Ratios to average net assets:
Expenses..................................... 0.66% 0.70% 0.62% 0.67% 0.71%*
Net investment income........................ 4.90% 4.91% 4.90% 3.13% 2.75%*
Management, administration and shareholder
servicing fees waived.................... -- 0.02% 0.13% -- 0.01%
Expenses paid indirectly..................... 0.01% 0.01% -- -- --
</TABLE>
* Annualized
(a) Distribution of Class B shares commenced November 30, 1992.
(b) Includes the effect of a capital contribution from the Manager. Without
the capital contribution, the total return would have been 3.42% for Class
A and 3.69% for Class B.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
<TABLE>
<CAPTION>
5. Financial Highlights. (Continued)
U.S. Government Portfolio
CLASS A Year Ended August 31,
- ------- --------------------------------------------------------------------------------
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...................... 0.046 0.047 0.048 0.028 0.025
Less distributions:
Dividends from net investment income....... ( 0.046) ( 0.047) ( 0.048) ( 0.028) ( 0.025)
-------- -------- --------- --------- --------
Net asset value, end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Return.................................... 4.73% 4.81% 4.93% 2.79% 2.56%
Ratios/Supplemental Data
Net assets, end of year (000).................. $ 735,581 $ 666,620 $ 469,592 $ 398,699 $ 429,164
Ratios to average net assets:
Expenses..................................... 0.81% 0.81% 0.80% 0.85% 0.85%
Net investment income........................ 4.61% 4.68% 4.83% 2.75% 2.52%
<CAPTION>
U.S. Government Portfolio
CLASS B (a) Year Ended August 31,
- ------- --------------------------------------------------------------------------------
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: 0.049 0.050 0.051 0.030 0.021
Net investment income......................
Less distributions:
Dividends from net investment income....... ( 0.049) ( 0.050) ( 0.051) ( 0.030) ( 0.021)
-------- -------- -------- --------- --------
Net asset value, end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Return.................................... 5.00% 5.07% 5.19% 3.04% 2.75%*
Ratios/Supplemental Data
Net assets, end of year (000).................. $ 68,967 $ 126,169 $ 306,799 $ 80,196 $ 101,391
Ratios to average net assets:
Expenses..................................... 0.55% 0.56% 0.55% 0.60% 0.63%*
Net investment income........................ 4.86% 5.04% 5.20% 2.98% 2.68%*
</TABLE>
* Annualized
(a) Distribution of Class B shares commenced November 30, 1992.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
INDEPENDENT AUDITOR'S REPORT
===============================================================================
The Board of Directors and Shareholders
Short Term Income Fund, Inc.
We have audited the accompanying statements of net assets of Money Market
Portfolio and the U.S. Government Portfolio of Short Term Income Fund, Inc. as
of August 31, 1997, and the related statements of operations for the year then
ended, the statements 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
August 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 the
Money Market Portfolio and the U.S. Government Portfolio of Short Term Income
Fund, Inc. as of August 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
September 30, 1997
New York, New York
- -------------------------------------------------------------------------------
<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.
- -------------------------------------------------------------------------------
Short Term Income Fund, Inc.
600 Fifth Avenue
New York, New York 10020
Manager
Reich & Tang Asset Management, L.P.
600 Fifth Avenue
New York, New York 10020
Custodian
Investors Fiduciary Trust Company
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
- -------------------------------------------------------------------------------
