RULE 497(b)
Registration No. 2-65315
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SHORT TERM 600 FIFTH AVENUE
INCOME FUND, INC. NEW YORK, N.Y. 10020
(212) 830-5220
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PROSPECTUS
January 2, 1997
The objective of Short Term Income Fund, Inc. (the "Fund") is to seek as high a
level of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity. The Fund pursues this objective
through two separate portfolios. The Money Market Portfolio consists of
short-term money market obligations with maturities of 397 days or less,
including bank certificates of deposit, bankers' acceptances, high quality
commercial paper and securities issued or guaranteed by the United States
Government, its agencies or instrumentalities, and repurchase agreements with
maturities of 397 days or less covering the foregoing securities. The U.S.
Government Portfolio consists solely of securities with maturities of 397 days
or less issued or guaranteed by the United States Government and repurchase
agreements with maturities of 397 days or less covering securities issued or
guaranteed by the United States Government. Each Portfolio offers two classes of
shares to the general public. The Class A shares of each Portfolio are subject
to a service fee pursuant to each Portfolio's Rule 12b-1 Distribution and
Service Plan and are sold through financial intermediaries who provide servicing
to Class A shareholders for which they receive compensation from the Manager and
the Distributor. The Class B shares of each Portfolio are not subject to a
service fee and either are sold directly to the public or are sold through
financial intermediaries that do not receive compensation from the Manager and
the Distributor. In all other respects, the Class A and Class B shares represent
the same interest in the income and assets of each respective Portfolio.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information
dated January 2, 1997, containing additional and more detailed information about
the Fund, has been filed with the Securities and Exchange Commission and is
hereby incorporated by reference into this Prospectus. It is available without
charge and can be obtained by writing or telephoning the Fund's Distributor,
Reich & Tang Distributors L.P., (the "Distributor"), at the address or telephone
number set forth above.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES
GOVERNMENT. THE FUND INTENDS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE ALTHOUGH THERE CAN BE NO ASSURANCE THAT THIS VALUE WILL BE MAINTAINED.
SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THIS PROSPECTUS SHOULD BE READ AND RETAINED BY INVESTORS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
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TABLE OF FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Money Market U.S. Government
Portfolio Portfolio
Class A Class B Class A Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .28%* .28%* .26% .26%
12b-1 Fees .25% .00% .25% .00%
Other Expenses .45% .42% .30% .30%
Administration Fees .21% .21% .21% .21%
------ ------ ------- ------
Total Fund Operating Expenses .98% .70% .81% .56%
Example 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- --------
You would pay the following on a $1,000
investment, assuming 5% annual return
(cumulative through the end of each year):
Money Market Portfolio
Class A $10 $31 $54 $120
Class B $7 $22 $39 $87
U.S. Government Portfolio
Class A $8 $26 $45 $100
Class B $6 $18 $31 $70
* After fee waivers.
The purpose of the above fee table is to assist an investor in understanding the
various costs and expenses an investor in each Portfolio of the Fund will bear
directly or indirectly. For a further discussion of these fees see "Management
and Investment Management Contract" and "Distribution and Service Plan" herein.
With respect to the Class A and Class B shares of the Money Market Portfolio,
the Manager has voluntarily waived a portion of the Management Fee; absent such
waiver, the Management Fee would have been .30%. In addition, absent such
waiver, Total Fund Operating Expenses would have been 1.00% for Class A and .72%
for Class B.
THE FIGURES REFLECTED IN THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN ABOVE.
</TABLE>
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SELECTED FINANCIAL INFORMATION
(for a share outstanding throughout the period)
The following financial highlights of the respective classes of shares of the
Money Market Portfolio and the U.S. Government Portfolio of Short Term Income
Fund, Inc. have been audited by McGladrey & Pullen LLP, independent certified
public accountants, whose report thereon appears in the Statement of Additional
Information and may be obtained by shareholders upon request.
<TABLE>
<CAPTION>
Money Market Portfolio
CLASS A Year Ended August 31,
- ------- --------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------- ----------
Income from investment operations:
Net investment income........ 0.047 0.047 0.029 0.027 0.041
Less distributions:
Dividends from net investment income 0.047 0.047 0.029 0.027 0.041
------------ ------------ ------------ ------------- ----------
Net asset value, end of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============= ==========
Total Return.................... 4.71% 4.82%(c) 2.93% 2.69% 4.13%
Ratios/Supplemental Data
Net assets, end of period (000). $ 756,094 $ 661,795 $ 676,756 $ 706,074 $ 694,635
Ratios to average net assets:
Expenses..................... 0.98%(a)(b) 0.88%(a) 0.91% 0.91%(a) 0.83%
Net investment income........ 4.63%(a) 4.75%(a) 2.89% 2.59%(a) 4.03%
Money Market Portfolio
CLASS A Year Ended August 31,
- ------- --------------------------------------------------------------------------------
1991 1990 1989 1988 1987
------------ ------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------- ----------
Income from investment operations:
Net investment income........ 0.063 0.078 0.083 0.064 0.055
Less distributions:
Dividends from net investment income 0.063 0.078 0.083 0.064 0.055
------------ ------------ ------------ ------------- ----------
Net asset value, end of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============= ==========
Total Return.................... 6.48% 8.02% 8.63% 6.64% 5.63%
Ratios/Supplemental Data
Net assets, end of period (000). $ 676,604 $ 887,270 $ 818,181 $ 710,865 $ 748,899
Ratios to average net assets:
Expenses..................... 0.81% 0.76% 0.77% 0.78% 0.78%
Net investment income........ 6.34% 7.72% 8.34% 6.42% 5.52%
U.S. Government Portfolio
CLASS A Year Ended August 31,
- ------- -----------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ------------- ------------ ----------- --------
Income from investment operations:
Net investment income.......... 0.047 0.048 0.028 0.025 0.039
Less distributions:
Dividends from net investment income 0.047 0.048 0.028 0.025 0.039
----------- ------------ ----------- ----------- --------
Net asset value, end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ============= ============ =========== =========
Total Return...................... 4.81% 4.93% 2.79% 2.56% 3.98%
Ratios/Supplemental Data
Net assets, end of period (000)... $ 666,620 $ 469,592 $ 398,699 $ 429,164 $ 579,526
Ratios to average net assets:
Expenses....................... 0.81% 0.80% 0.85% 0.85% 0.77%
Net investment income.......... 4.68% 4.83% 2.75% 2.52% 3.92%
U.S. Government Portfolio
CLASS A Year Ended August 31,
- ------- -----------------------------------------------------------------------------
1991 1990 1989 1988 1987
----------- ------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ------------- ------------ ----------- --------
Income from investment operations:
Net investment income.......... 0.061 0.076 0.077 0.059 0.053
Less distributions:
Dividends from net investment income 0.061 0.076 0.077 0.059 0.053
----------- ------------ ----------- ----------- --------
Net asset value, end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ============= ============ =========== =========
Total Return...................... 6.25% 7.79% 7.94% 6.06% 5.44%
Ratios/Supplemental Data
Net assets, end of period (000)... $ 596,085 $ 350,088 $ 189,623 $ 225,268 $ 222,825
Ratios to average net assets:
Expenses....................... 0.76% 0.78% 0.73% 0.71% 0.74%
Net investment income.......... 5.96% 7.41% 7.62% 5.87% 5.32%
(a) Net of management and administration fees waived equivalent to 0.02%, 0.13%
and 0.01%. In addition, in 1993 shareholder servicing fees equivalent to
0.03% were waived.
(b) Includes expenses paid indirectly equivalent to .01% of average net assets.
(c) Includes the effect of a capital contribution from the Manager. Without the
capital contribution, the total return would have been 3.42%.
</TABLE>
3
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SELECTED FINANCIAL INFORMATION
(for a share outstanding throughout the period)
The following financial highlights of the respective classes of shares of the
Money Market Portfolio and the U.S. Government Portfolio of Short Term Income
Fund, Inc. have been audited by McGladrey & Pullen LLP, independent certified
public accountants, whose report thereon appears in the Statement of Additional
Information and may be obtained by shareholders upon request.
<TABLE>
<CAPTION>
Money Market Portfolio
CLASS B (a) Year Ended August 31,
- ------- ----------------------------------------------------------------
1996 1995 1994 1993
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ----------- ----------- ----------
Income from investment operations:
Net investment income........ 0.049 0.050 0.031 0.021
Less distributions:
Dividends from net investment income 0.049 0.050 0.031 0.021
------------ ----------- ----------- ----------
Net asset value, end of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ =========== =========== ==========
Total Return.................... 5.00% 5.08%(d) 3.19% 2.84%*
Ratios/Supplemental Data
Net assets, end of period (000). $ 219,810 $ 217,877 $ 422,005 $ 453,093
Ratios to average net assets:
Expenses..................... 0.70%(b)(c) 0.62%(b) 0.67% 0.71%*
Net investmentncome.......... 4.91%(b) 4.90%(b) 3.13% 2.75%*
<CAPTION>
U.S. Government Portfolio
CLASS B (a) Year Ended August 31,
- ------- ---------------------------------------------------------------
1996 1995 1994 1993
----------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------
Income from investment operations:
Net investment income.......... 0.050 0.051 0.030 0.021
Less distributions:
Dividends from net investment income 0.050 0.051 0.030 0.021
----------- ---------- ----------- ----------
Net asset value, end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ============= =========== ==========
Total Return...................... 5.07% 5.19% 3.04% 2.75%*
Ratios/Supplemental Data
Net assets, end of period (000)... $ 126,169 $ 306,799 $ 80,196 $ 101,391
Ratios to average net assets:
Expenses....................... 0.56% 0.55% 0.60% 0.63%*
Net investmentncome............ 5.04% 5.20% 2.98% 2.68%*
* Annualized
(a) Distribution of Class B shares commenced November 30, 1992.
(b) Net of management and administration fees waived equivalent to 0.02% and 0.13%.
(c) Includes expenses paid indirectly equivalent to .01% of average net assets.
(d) Includes the effect of a capital contribution from the Manager. Without the
capital contribution, the total return would have been 3.69%.
</TABLE>
4
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INVESTMENT OBJECTIVES,
POLICIES AND RISKS
Short Term Income Fund, Inc. (the "Fund") is a no-load, diversified, open-end
management investment company offering investors yields available from a managed
portfolio of money market instruments together with a high degree of liquidity.
The net asset value of each Fund share is expected to remain constant at $1.00,
although this cannot be assured.
The investment objective of the Fund is, in accordance with the investment
policies of each of the Fund's Portfolios, to provide as high a level of current
income to the extent consistent with the preservation of capital and the
maintenance of liquidity. There is no assurance that the Fund will achieve its
investment objective. The investment objective of the Fund may not be changed
without shareholder approval.
Though the Fund currently has two Portfolios, the Board of Directors of the Fund
may in the future determine to establish additional portfolios, each of which
will be consistent with the investment objective of the Fund. Set forth below
are the investment policies for each of the Fund's current Portfolios. The
investment policies for the Money Market Portfolio, as well as for any
portfolios which the Board of Directors may determine to establish in the
future, may be changed by the Board of Directors of the Fund without shareholder
approval. The investment policies for the U.S. Government Portfolio may not be
changed without shareholder approval.
The Fund may from time to time advertise its current yield and effective yield
for the two Classes of each Portfolio. The Fund's current yield is calculated by
dividing its average daily net income per share of each Class of each Portfolio
(excluding realized gains or losses) for a recent seven-day period by its
constant net asset value per share of $1.00 and annualizing the result on a
365-day basis. The Fund's effective yield is calculated by increasing its
current yield according to a formula that takes into account the compounding
effect of the reinvestment of dividends.
The Money Market Portfolio's Class A shares yield for the seven-day period ended
August 31, 1996 was 4.50%, which is equivalent to an effective yield of 4.60%.
The Money Market Portfolio's Class B shares yield for the seven-day period ended
August 31, 1996 was 4.83%, which is equivalent to an effective yield of 4.94%.
The U.S. Government Portfolio's Class A shares yield for the seven-day period
ended August 31, 1996 was 4.53%, which is equivalent to an effective yield of
4.64%. The U.S. Government Portfolio's Class B shares yield for the seven-day
period ended August 31, 1996 was 4.78%, which is equivalent to an effective
yield of 4.90%.
MONEY MARKET PORTFOLIO
The Money Market Portfolio of the Fund is intended to attain the Fund's
investment objective through investments in the following securities, provided
they are denominated in United States dollars and have a remaining maturity of
397 days or less or are subject to a repurchase agreement calling for resale in
397 days or less. Investments in short-term instruments may, in some
circumstances, result in a lower yield than would be available from investments
in instruments with a longer term.
United States Government Securities: the Fund may purchase for inclusion in the
Money Market Portfolio short-term obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities. These include issues of
the United States Treasury, such as bills, certificates of indebtedness, notes
and bonds, and issues of agencies and instrumentalities established under the
authority of an act of Congress. Some of these securities are supported by the
full faith and credit of the United States Treasury, others are supported by the
right
5
<PAGE>
of the issuer to borrow from the Treasury, and still others are supported only
by the credit of the agency or instrumentality.
Bank Obligations: the Fund may purchase for inclusion in the Money Market
Portfolio certificates of deposit, time deposits and bankers' acceptances issued
by domestic banks, foreign branches of domestic banks, foreign subsidiaries of
domestic banks, and domestic and foreign branches of foreign banks. (See
"Investment Risks" herein.) Certificates of deposit are certificates
representing the obligation of a bank to repay funds deposited with it for a
specified period of time. Time deposits are non-negotiable deposits maintained
in a bank for a specified period of time (in no event longer than seven days) at
a stated interest rate. Time deposits which may be held by the Fund will not
benefit from insurance from the Federal Deposit Insurance Corporation. Bankers'
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft drawn on it by a customer. These instruments reflect the obligation both
of the bank and of the drawer to pay the face amount of the instrument upon
maturity. The Money Market Portfolio limits its investments in obligations of
domestic banks, foreign branches of domestic banks and foreign subsidiaries of
domestic banks to banks having total assets in excess of one billion dollars or
the equivalent in other currencies. The Money Market Portfolio limits its
investments in obligations of domestic and foreign branches of foreign banks to
dollar denominated obligations of such banks which at the time of investment
have more than $5 billion, or the equivalent in other currencies, in total
assets and which are considered by the Fund's Board of Directors to be First
Tier Eligible Securities at the time of acquisition.
Commercial Paper and Certain Debt Obligations: the Fund may purchase for
inclusion in the Money Market Portfolio commercial paper or similar debt
obligations that have been determined by the Fund's Board of Directors to
present minimal credit risks and that are First Tier Eligible Securities at the
time of acquisition, so that the Fund is able to employ the amortized cost
method of valuation.
The term First Tier Eligible Securities means: (i) securities that have
remaining maturities of 397 days or less and are rated in the highest short-term
rating category by any two nationally recognized statistical rating
organizations ("NRSROs") or in such category by the only NRSRO that has rated
the securities (collectively, the "Requisite NRSROs") (acquisition in the latter
situation must also be ratified by the Board of Directors); (ii) securities that
have remaining maturities of 397 days or less but that at the time of issuance
were long-term securities and whose issuer has received from the Requisite
NRSROs a rating with respect to comparable short-term debt in the highest
short-term rating category; and (iii) unrated securities determined by the
Fund's Board of Directors to be of comparable quality. Where the issuer of a
long-term security with a remaining maturity which would otherwise qualify it as
a First Tier Eligible Security does not have rated short-term debt outstanding,
the long-term security is treated as unrated but may not be purchased if it has
a long-term rating from any NRSRO that is below the two highest long-term
categories. A determination of comparability by the Board of Directors is made
on the basis of its credit evaluation of the issuer, which may include an
evaluation of a letter of credit, guarantee, insurance or other credit facility
issued in support of the securities or participation certificates. While there
are several organizations that currently qualify as NRSROs, two examples of
NRSROs are Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies ("S&P") and Moody's Investors Service, Inc., ("Moody's"). The two
highest ratings of Moody's for debt securities are "Aaa" and "Aa" and of S&P are
"AAA" and "AA". The highest rating for domestic and foreign commercial paper is
"Prime-1" by Moody's and "A-1" by S&P and "SP-1/AA" by S&P or "VMIG-1" and
6
<PAGE>
"VMIG-2" by Moody's in the case of variable and floating rate demand notes. (See
"Description of Ratings" in the Statement of Additional Information.)
Subsequent to its purchase by the Fund, the quality of an investment may cease
to be rated or its rating may be reduced so that it ceases to be a First Tier
Eligible Security. If this occurs, the Board of Directors of the Fund shall
reassess promptly whether the security presents minimal credit risks and shall
cause the Fund to take such action as the Board of Directors determines is in
the best interest of the Fund and its shareholders. However, reassessment is not
required if the security is disposed of or matures within five business days of
the Manager becoming aware of the new rating and provided further that the Board
of Directors is subsequently notified of the Manager's actions.
In addition, in the event that a security (1) is in default, (2) ceases to be an
eligible investment under Rule 2a-7, or (3) is determined to no longer present
minimal credit risks, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interest of the Fund. In the event that the security is
disposed of, it shall be disposed of as soon as practicable, consistent with
achieving an orderly disposition by sale, exercise of any demand feature, or
otherwise. In the event of a default with respect to a security which
immediately before default accounted for 1/2 of 1% or more of the Fund's total
assets, the Fund shall promptly notify the Securities and Exchange Commission of
such fact and of the actions that the Fund intends to take in response to the
situation.
Repurchase Agreements: the Fund may enter into, for inclusion in the Money
Market Portfolio, repurchase agreements providing for resale in 397 days or less
covering any of the foregoing securities which may have maturities in excess of
397 days, provided that the instruments serving as collateral for the agreements
are eligible for inclusion in the Money Market Portfolio. A repurchase agreement
arises when a buyer purchases a security and simultaneously agrees with the
vendor to resell the security to the vendor at an agreed upon time and price.
The resale price of a repurchase agreement is greater than the purchase price,
reflecting an agreed upon market rate which is effective for the period of time
the buyer's funds are invested in the security and which is not related to the
coupon rate on the purchased security.
U.S. GOVERNMENT PORTFOLIO
The U.S. Government Portfolio is intended to attain the Fund's investment
objective through investments limited to obligations issued or guaranteed by the
United States Government including repurchase agreements covering those types of
obligations, provided that those obligations are denominated in United States
dollars and either have a remaining maturity of 397 days or less or are subject
to a repurchase agreement calling for resale in 397 days or less. The Fund will
enter into repurchase agreements for inclusion in the U.S. Government Portfolio
only if the instruments serving as collateral for the agreements are eligible
for inclusion in the U.S. Government Portfolio, and otherwise in accordance with
the restrictions and procedures described in the preceding paragraph.
The investment policies of the U.S. Government Portfolio may produce a lower
yield than a policy of investing in other types of instruments. The yield of the
U.S. Government Portfolio is likely to be lower than the yield of the Money
Market Portfolio.
INVESTMENT RISKS
Since the Money Market Portfolio may contain securities issued by foreign
governments, or any of their political subdivisions, agencies or
instrumentalities, and by foreign branches of domestic banks, foreign
subsidiaries of domestic
7
<PAGE>
banks, domestic and foreign branches of foreign banks, and commercial paper
issued by foreign issuers, the Money Market Portfolio may be subject to
additional investment risks with respect to those securities that are different
in some respects from those incurred by a fund which invests only in debt
obligations of United States domestic issuers, although such obligations may be
higher yielding when compared to the securities of United States domestic
issuers. In making foreign investments, therefore, the Money Market Portfolio
will give appropriate consideration to the following factors, among others.
Foreign securities markets generally are not as developed or efficient as those
in the United States. Securities of some foreign issuers are less liquid and
more volatile than securities of comparable United States issuers. Similarly,
volume and liquidity in most foreign securities markets are less than in the
United States and, at times, volatility of price can be greater than in the
United States. The issuers of some of these securities, such as bank
obligations, may be subject to less stringent or different regulation than are
United States issuers. In addition, there may be less publicly available
information about a non-United States issuer, and non-United States issuers
generally are not subject to uniform accounting and financial reporting
standards, practices and requirements comparable to those applicable to United
States issuers.
Because evidences of ownership of such securities usually are held outside the
United States, the Money Market Portfolio will be subject to additional risks
which include possible adverse political and economic developments, possible
seizure or nationalization of foreign deposits and possible adoption of
governmental restrictions which might adversely affect the payment of principal
and interest on the foreign securities or might restrict the payment of
principal and interest to investors located outside the country of the issuer,
whether from currency blockage or otherwise.
Furthermore, some of these securities may be subject to stamp or other excise
taxes levied by foreign governments, which have the effect of increasing the
cost of such securities and reducing the realized gain or increasing the
realized loss on such securities at the time of sale. Income earned or received
by the Money Market Portfolio from sources within foreign countries may be
reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States, however, may reduce
or eliminate such taxes. The Manager will attempt to minimize such taxes by
timing of transactions and other strategies, but there can be no assurance that
such efforts will be successful. All such taxes paid by the Money Market
Portfolio will reduce its net income available for distribution to shareholders.
The Manager will consider available yields, net of any required taxes, in
selecting foreign securities.
INVESTMENT RESTRICTIONS
The Fund operates under the following investment restrictions which, together
with the investment objective of the Fund, may not be changed without
shareholder approval and which apply to each of the Money Market Portfolio and
the U.S. Government Portfolio.
The Fund may not:
(a) invest more than 5% of the total market value of any Portfolio's assets
(determined at the time of the proposed investment and giving effect
thereto) in the securities of any one issuer other than the United States
Government, its agencies or instrumentalities;
(b) invest more than 25% of the total market value of any Portfolio's assets
(determined at the time of the proposed investment and giving effect
thereto) in the securities of issuers conducting their principal business
activities in any one industry; provided, however, there is no limitation
on the aggregate of a Portfolio's investment in obligations of domestic
commercial
8
<PAGE>
banks, savings banks and savings and loan associations and in instruments
secured by these obligations or in obligations of the United States
Government, its agencies or its instrumentalities and in instruments
secured by those obligations, and provided further, however, that a
Portfolio will not acquire securities that are not readily marketable or
repurchase agreements calling for resale within more than seven days if, as
a result thereof, more than 10% of the value of its net assets would be
invested in such securities. Not more than 5% of a Portfolio's assets may
be invested in securities that are subject to underlying puts from the same
institution, and no single bank shall issue its letter of credit and no
single financial institution shall issue a credit enhancement covering more
than 5% of the total assets of a Portfolio. However, if the puts are
exercisable by the Portfolio in the event of default on payment of
principal and interest on the underlying security, then the Portfolio may
invest up to 10% of its assets in securities underlying puts issued or
guaranteed by the same institution; additionally, a single bank can issue
its letter of credit or a single financial institution can issue a credit
enhancement covering up to 10% of the Portfolio's assets, where the puts
offer the Portfolio such default protection;
(c) make loans, except that the Fund may purchase for a Portfolio the debt
securities described above under "Investment Objectives, Policies and
Risks" and may enter into repurchase agreements as therein described;
(d) borrow money, unless the borrowing does not exceed 10% of the total market
value of the assets of the Portfolio with respect to which the borrowing is
made (determined at the time of borrowing but without giving effect
thereto) and the money is borrowed from one or more banks as a temporary
measure for extraordinary or emergency (not leveraging) purposes or to meet
unexpectedly heavy redemption requests. While borrowings exceed 5% of the
value of a Portfolio's total assets, a Portfolio will not make any
investments; and
(e) pledge, mortgage, assign or encumber any of a Portfolio's assets except to
the extent necessary to secure a borrowing permitted by clause (d) made
with respect to the Portfolio.
HOW TO PURCHASE AND REDEEM SHARES
Investors who have accounts with organizations which the Fund's Board of
Directors has determined are capable of maintaining automated data exchange
arrangements with the Fund and which have entered into agreements with the Fund
to do so ("Participating Organizations") may invest in the Fund through their
Participating Organizations. Certain Participating Organizations are compensated
by the Distributor from its shareholder servicing fee and by the Manager from
its management fee for the performance of these services. An investor who
purchases shares through a Participating Organization that receives payment from
the Manager or the Distributor will become a Class A shareholder. (See
"Investment Through Participating Organizations" herein.) All other investors,
and investors who have accounts with Participating Organizations but who do not
wish to invest in the Fund through their Participating Organizations, may invest
in the Fund directly as Class B shareholders of the Portfolios and not receive
the benefit of the servicing functions performed by a Participating
Organization. Class B shares may also be offered to investors who purchase their
shares through Participating Organizations who do not receive compensation from
the Distributor or the Manager because they may not be legally permitted to
receive such as fiduciaries. The Manager pays the expenses incurred in the
distribution of Class B shares. Participating Organizations whose clients become
Class B shareholders will not receive compensation from
9
<PAGE>
the Manager or Distributor for the servicing they may provide to their clients.
(See "Other Purchase and Redemption Procedures" herein.) With respect to both
Classes of shares, the minimum initial investment in the Fund with respect to
each Portfolio is $1,000 for Participating Organizations which are shareholders
in the Fund and shareholders who invest through Participating Organizations. The
minimum initial investment for securities brokers, financial institutions and
other industry professionals that are not Participating Organizations is also
$1,000. The minimum initial investment is $5,000 for other investors. The
minimum amount for subsequent investments is $100 for all shareholders.
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent which
accepts orders for purchases and redemptions from Participating Organizations
and from shareholders directly.
In order to maximize earnings on its Portfolios, the Fund normally has its
assets as fully invested as is practicable. Many securities in which the Fund
invests require immediate settlement in funds of Federal Reserve member banks on
deposit at a Federal Reserve bank (commonly known as "Federal Funds").
Shares will be issued as of the first determination of the Fund's net asset
value per share made upon receipt of the investor's purchase order at the net
asset value per share next determined after receipt of the purchase order.
Except as described below in the case of certain Participating Organizations
(see "Investment Through Participating Organizations" herein), an investor's
funds will not be invested by the Fund during the period before the Fund's
receipt of Federal Funds and its issuance of Fund shares. The Fund reserves the
right to reject any subscription to its shares.
Shares are issued as of 12 noon, New York City time, on any Fund Business Day,
as defined herein, on which an order for the shares and accompanying Federal
Funds are received by the Fund's transfer agent before 12 noon. Orders
accompanied by Federal Funds and received after 12 noon on a Fund Business Day
will not result in share issuance until the following Fund Business Day. Fund
shares begin accruing income on the day the shares are issued to an investor.
There is no redemption charge, no minimum period of investment and no
restriction on frequency of withdrawals. Proceeds of redemptions are paid by
check. If a shareholder elects to redeem all the shares of the Fund he owns, all
dividends credited to the shareholder up to the date of redemption are paid to
the shareholder in addition to the proceeds of the redemption.
The date of payment upon redemption may not be postponed for more than seven
days after shares are tendered for redemption, and the right of redemption may
not be suspended, except for any period during which the New York Stock
Exchange, Inc. is closed (other than customary weekend and holiday closings) or
during which the Securities and Exchange Commission determines that trading
thereon is restricted, or for any period during which an emergency (as
determined by the Securities and Exchange Commission) exists as a result of
which disposal by the Fund of its securities is not reasonably practicable or as
a result of which it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or for such other period as the
Securities and Exchange Commission may by order permit for the protection of the
shareholders of the Fund.
Redemption requests received by the Fund's transfer agent before 12 noon, New
York City time, on any day on which the New York Stock Exchange, Inc. is open
for trading become effective at 12 noon that day. A redemption request received
after 12 noon on any day on
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<PAGE>
which the New York Stock Exchange, Inc. is open for trading becomes effective on
the next Fund Business Day. Shares redeemed are not entitled to participate in
dividends declared on the day or after the day a redemption becomes effective.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in his account after a withdrawal is
less than $500. Written notice of any such mandatory redemption will be given at
least 30 days in advance to any shareholder whose account is to be redeemed or
the Fund may impose a monthly service charge of $10 on such accounts. During the
notice period any shareholder who receives such a notice may (without regard to
the normal $100 requirement for an additional investment) make a purchase of
additional shares to increase his total net asset value at least to the minimum
amount and thereby avoid such mandatory redemption.
MONEY MARKET PORTFOLIO AND
U.S. GOVERNMENT PORTFOLIO
At the time of initial investment in the Fund, investors must elect on their
subscription order form the Class of shares of the Portfolio in which they wish
to invest their funds. Subject to the Portfolios' initial investment minimums
investors may divide their investment in the Fund between the Portfolios in any
manner they choose by submitting a separate subscription order form for each
Portfolio. Investors who purchase shares of the Portfolios from a Participating
Organization that is compensated for its services by the Manager and the
Distributor may purchase Class A shares of the Portfolios. Subject to a $100
minimum, shareholders in the Fund may transfer all or a portion of their shares
from one open Portfolio account to another open Portfolio account at any time.
Any transfer into a Portfolio in which the shareholder does not have an open
account must satisfy the Portfolio's initial investment minimum. Shareholders
will have a separate account with the Fund for each Portfolio in which they
invest. Certificates for Fund shares will not be issued to an investor.
INVESTMENT THROUGH
PARTICIPATING ORGANIZATIONS
Persons who maintain accounts with Participating Organizations may, if they
wish, invest in the Fund through such Participating Organizations. When
instructed by its customer to purchase or redeem Fund shares, the Participating
Organization, on behalf of the customer, transmits to the Fund's transfer agent
a purchase or redemption order, and in the case of a purchase order, payment for
the shares being purchased.
Participating Organizations may confirm to their customers who are shareholders
in the Fund ("Participant Investors") each purchase and redemption of Fund
shares for the customers' accounts. Also, Participating Organizations may send
their customers periodic account statements showing the total number of Fund
shares owned by each customer as of the statement closing date, purchases and
redemptions of Fund shares by each customer during the period covered by the
statement and the income earned by Fund shares of each customer during the
statement period (including dividends paid in cash or reinvested in additional
Fund shares). Participant Investors whose Participating Organizations have not
undertaken to provide such confirmations and statements will receive them from
the Fund directly. Participating Organizations may charge Participant Investors
a fee in connection with their use of specialized purchase and redemption
procedures offered to Participant Investors by the Participating Organizations.
In addition, Participating Organizations offering purchase and redemption
procedures similar to those offered to shareholders who invest in the Fund
directly may impose charges, limitations, minimums and restrictions in addition
to or different from those applicable to shareholders who invest in the Fund
11
<PAGE>
directly. A Participant Investor should read this Prospectus in conjunction with
the materials provided by the Participating Organization describing the
procedures under which Fund shares may be purchased and redeemed through the
Participating Organization.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12 noon, New York City time, on a Fund Business Day
(as defined herein) without accompanying Federal Funds will result in the
issuance of shares on that day provided the Federal Funds required in connection
with the orders are received by the Fund's transfer agent before 4:00 P.M., New
York City time, on that day. If such Federal Funds are received by the Fund's
transfer agent after 4:00 P.M., New York City time, on that day, shares will be
issued on the next Fund Business Day. Participating Organizations are
responsible for instituting procedures to insure that purchase orders by their
respective clients are processed expeditiously.
OTHER PURCHASE AND
REDEMPTION PROCEDURES
The following purchase and redemption procedures apply to investors who wish to
invest in the Fund directly and not through Participating Organizations. These
investors may obtain the subscription order form necessary to open an account by
telephoning the Fund at either 212-830-5220 (within New York State) or at
800-221-3079 (toll free outside New York State).
All shareholders, other than certain Participant Investors, will receive from
the Fund individual confirmations of each purchase and redemption of Fund shares
(other than draft check redemptions) and a monthly statement listing the total
number of Fund shares owned as of the statement closing date, purchases and
redemptions of Fund shares during the month covered by the statement and the
dividends paid on Fund shares of each shareholder during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
INITIAL PURCHASE OF SHARES
Mail
Investors may send a check made payable to "Short Term Income Fund, Inc." along
with a completed subscription order form to:
Short Term Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member bank of the Federal Reserve
System can normally be converted into Federal Funds within two business days
after receipt of the check. Checks drawn on a non-member bank may take
substantially longer to convert into Federal Funds and to be invested in Fund
shares. An investor's subscription will not be accepted until the Fund receives
Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, an investor should first obtain a new account number by telephoning
the Fund at either 212-830-5220 (within New York State) or at 800-221-3079
(outside New York State) and then instruct a member commercial bank to wire
money immediately to:
For Money Market Portfolio
Investors Fiduciary Trust Company
ABA #101003621
Reich & Tang Funds
DDA #890752-953-8
For Short Term Income Fund, Inc.
Money Market Portfolio
Account of (Investor's Name)
Fund Account #
SS #/Tax I.D. #
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<PAGE>
For U.S. Government Portfolio
Investors Fiduciary Trust Company
ABA #101003621
Reich & Tang Funds
DDA #890752-953-8
For Short Term Income Fund, Inc.
U.S. Government Portfolio
Account of (Investor's Name)
Fund Account #
SS #/Tax I.D. #
The investor should then promptly complete and mail the subscription order form.
An investor planning to wire funds should instruct his bank to wire before 12
noon, New York City time, on the same day. There may be a charge by the
investor's bank for transmitting the money by bank wire, and there also may be a
charge for use of Federal Funds. The Fund does not charge investors in the Fund
for its receipt of wire transfers. Payment in the form of a "bank wire" received
prior to 12 noon, New York City time, on a Fund Business Day will be treated as
a Federal Funds payment received on that day.
Personal Delivery
Deliver a check made payable to "Short Term Income Fund, Inc." along with a
completed subscription order form to:
Reich & Tang Funds
600 Fifth Avenue - 9th Floor
New York, New York 10020
ELECTRONIC FUNDS TRANSFERS (EFT),
PRE-AUTHORIZED CREDIT AND DIRECT
DEPOSIT PRIVILEGE
You may purchase shares of the Fund (minimum of $100) by having salary, dividend
payments, interest payments or any other payments designated by you, or by
having federal salary, social security, or certain veteran's, military or other
payments from the federal government, automatically deposited into your Fund
account. You can also have money debited from your checking account. To enroll
in any one of these programs, you must file with the Fund a completed EFT
Application, Pre-authorized Credit Application, or a Direct Deposit Sign-Up Form
for each type of payment that you desire to include in the Privilege. The
appropriate form may be obtained from your broker or the Fund. You may elect at
any time to terminate your participation by notifying in writing the appropriate
depositing entity and/or federal agency. Death or legal incapacity will
automatically terminate your participation in the Privilege. Further, the Fund
may terminate your participation upon 30 days' notice to you.
SUBSEQUENT PURCHASES OF SHARES
There is a $100 minimum for each subsequent purchase. All payments should
clearly indicate the shareholder's account number. Provided that the information
on the subscription order form on file with the Fund is still applicable, a
shareholder may reopen an account without filing a new subscription order form
at any time during the year the shareholder's account is closed or during the
following calendar year.
Subsequent purchases can be made either by bank wire or by personal delivery, as
indicated above, or by mailing a check to the Fund's transfer agent at:
Short Term Income Fund, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
REDEMPTION OF SHARES
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share of each
Class of each Portfolio following receipt by the Fund's transfer agent of the
redemption order (and any supporting documentation which it may require).
Normally, payment for redeemed shares is made on the Fund Business Day the
redemption is effected, provided the redemption request is received prior to 12
noon, New York City time, and on the next Fund Business Day if the redemption
request is received after 12 noon, New York
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<PAGE>
City time. However, redemption requests will not be effected unless the check
(including a certified or cashier's check) used for investment has been cleared
for payment by the investor's bank, which could take up to 15 days after
investment.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature and guaranteed by an eligible guarantor
institution which includes a domestic bank, a domestic savings and loan
institution, a domestic credit union, a member bank of the Federal Reserve
system or a member firm of a national securities exchange, pursuant to the
Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written request
accompanied by any certificate that may have been previously issued to the
shareholder, to:
Short Term Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
All previously issued certificates submitted for redemption must be endorsed by
the shareholder and all written requests for redemption must be signed by the
shareholder, in each case with signature guaranteed. Normally the redemption
proceeds are paid by check mailed to the shareholder of record.
Checks
By making the appropriate election on the subscription order form, an individual
shareholder may request a supply of checks which may be used to effect
redemptions from any one or more of the Classes of shares of the Portfolios in
which the shareholder is invested. The checks will be issued in the
shareholder's name and the shareholder will receive a separate supply of checks
for each Class of shares of a Portfolio for which checks are requested. Checks
may be drawn in any amount of $250 or more and may be used like an ordinary
commercial bank check except that they may not be certified. The checks are
drawn on a special account maintained by the Fund with the agent bank. When a
check is presented to the Fund's agent bank, it instructs the transfer agent to
redeem a sufficient number of full and fractional shares in the shareholder's
account to cover the amount of the check. The cancelled check is usually
returned to the shareholder. The use of a check to make a withdrawal enables the
shareholder in the Fund to receive dividends on the shares to be redeemed up to
the Fund Business Day on which the check clears. Fund shares purchased by check
may not be redeemed by check until the check has cleared, which could take up to
15 days following the date of purchase.
There is no charge to the shareholder for checks provided by the Fund. The Fund
reserves the right to impose a charge or impose a different minimum check amount
in the future, if the Board of Directors determines that doing so is in the best
interests of the Fund and its shareholders.
Shareholders electing the checking option are subject to the procedures, rules
and regulations of the Fund's agent bank governing checking accounts. Checks
drawn on a jointly owned account may, at the shareholder's election, require
14
<PAGE>
only one signature. Checks in amounts exceeding the value of the shareholder's
account at the time the check is presented for payment will not be honored.
Since the dollar value of the account changes daily, the total value of the
account may not be determined in advance and the account may not be entirely
redeemed by check. In addition, the Fund reserves the right to charge the
shareholder's account a fee up to $20 for checks not honored as a result of an
insufficient account value, a check deemed not negotiable because it has been
held longer than six months, an unsigned check and a post-dated check. The Fund
reserves the right to terminate or modify the check redemption procedure at any
time or to impose additional fees following notification to the Fund's
shareholders.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option. The proceeds of a telephone redemption will be sent to the
shareholder at his address or to his bank account as set forth in the
subscription order form or in a subsequent signature guaranteed written
authorization. The Fund may accept telephone redemption instructions from any
person with respect to accounts of shareholders who elect this service, and thus
shareholders risk possible loss of dividends in the event of a telephone
redemption not authorized by them. Telephone requests to wire redemption
proceeds must be for amounts in excess of $1,000. The Fund will employ
reasonable procedures to confirm that telephone redemption instructions are
genuine, and will require that shareholders electing such option provide a form
of personal identification. The failure by the Fund to employ such reasonable
procedures may cause the Fund to be liable for any losses incurred by investors
due to telephone redemptions based upon unauthorized or fraudulent instructions.
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220; outside New York State at 800-221-3079 and state (i) the name of
the shareholder appearing on the Fund's records, (ii) his account number with
the Fund, (iii) the amount to be withdrawn and (iv) the name of the person
requesting the redemption. Usually, the proceeds are sent to the investor on the
same Fund Business Day the redemption is effected, provided the redemption
request is received prior to 12 noon, New York City time and on the next Fund
Business Day if the redemption request is received after 12 noon, New York City
time. The Fund reserves the right to terminate or modify the telephone
redemption service at any time and will notify shareholders accordingly.
SPECIFIED AMOUNT AUTOMATIC
WITHDRAWAL PLAN
Shareholders may elect to withdraw shares and receive payment from the Fund of a
specified amount of $50 or more automatically on a monthly or quarterly basis.
The monthly or quarterly withdrawal payments of the specified amount are made by
the Fund on the 23rd day of the month. Whenever such 23rd day of a month is not
a Fund Business Day, the payment date is the Fund Business Day preceding the
23rd day of the month. In order to make a payment, a number of shares equal in
aggregate net asset value to the payment amount are redeemed at their net asset
value on the Fund Business Day immediately preceding the date of payment. To the
extent that the redemptions to make plan payments exceed the number of shares
purchased through reinvestment of dividends and distributions, the redemptions
reduce the number of shares purchased on original investment, and may ultimately
liquidate a shareholder's investment.
The election to receive automatic withdrawal payments may be made at the time of
the original subscription by so indicating on the subscription order form. The
election may also be made, changed or terminated at any later time by sending a
signature guaranteed written request to the transfer agent.
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<PAGE>
EXCHANGE PRIVILEGE
Shareholders of the Fund are entitled to exchange some or all of a Class of
shares in the Fund for the same Class of shares of certain other investment
companies which retain Reich & Tang Asset Management L.P. as investment adviser
or manager and which participate in the exchange privilege program with the
Fund. If only one Class of shares is available in a particular fund, the
shareholder of the Fund is entitled to exchange his or her shares for the shares
available in that fund.
Currently the exchange privilege program has been established between the Fund
and California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free
Income Fund, Inc., Daily Tax Free Income Fund, Inc., Florida Daily Municipal
Income Fund, Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income
Fund and Reich & Tang Equity Fund, Inc. In the future, the exchange privilege
program may be extended to other investment companies which retain Reich & Tang
Asset Management L.P. as adviser or manager. An exchange of shares in the Fund
pursuant to the exchange privilege is, in effect, a redemption of Fund shares
(at net asset value) followed by the purchase of shares of the investment
company into which the exchange is made (at net asset value) and may result in a
shareholder realizing a taxable gain or loss for Federal income tax purposes.
There is no charge for the exchange privilege or limitation as to frequency of
exchanges. The minimum amount for an exchange is $1,000, except that
shareholders who are establishing a new account with an investment company
through the exchange privilege must insure that a sufficient number of shares
are exchanged to meet the minimum initial investment required for the investment
company into which the exchange is being made. Each Class of shares is exchanged
at its respective net asset value.
The exchange privilege provides shareholders of the Fund with a convenient
method to shift their investment among different investment companies when they
feel such a shift is desirable. The exchange privilege is available to
shareholders resident in any state in which shares of the investment company
being acquired may legally be sold. Shares may be exchanged only between
investment company accounts registered in identical names. Before making an
exchange, the investor should review the current prospectus of the investment
company into which the exchange is to be made. Prospectuses may be obtained by
contacting the Distributor at the address or telephone number set forth on the
cover page of this Prospectus.
Instructions for exchanges may be made by sending a signature guaranteed written
request to:
Short Term Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
or, for shareholders who have elected that option, by telephone. The Fund
reserves the right to reject any exchange request and may modify or terminate
the exchange privilege at any time.
INDIVIDUAL RETIREMENT ACCOUNTS
The Fund has available a form of individual retirement account ("IRA") for
investment in the Fund's shares. Individuals earning compensation generally may
make IRA contributions of up to $2,000 annually. However, the deductibility of
an individual's IRA contribution may be reduced or eliminated if the individual
or, in the case of a married individual filing jointly, either the individual or
the individual's spouse is an active participant in an employer-sponsored
retirement plan. Thus, in the case of an active participant, the deduction will
not be available for individuals with adjusted gross income above $35,000,
married couples filing a joint return with adjusted gross income above $50,000
and married couples filing separately if a
16
<PAGE>
spouse has adjusted gross income above $10,000. In addition, an individual with
a non-working spouse may establish a separate IRA for the spouse and annually
contribute a total of up to $4,000 to the two IRAs, provided that no more than
$2,000 may be contributed to the IRA of either spouse. The minimum investment
required to open an IRA is $250.
Withdrawals from an IRA, other than that portion, if any, of the withdrawal
considered to be a return of the investor's non-deductible IRA contribution, are
taxed as ordinary income when received. Such withdrawals may be made without
penalty after the participant reaches age 59 1/2 , and must commence shortly
after age 70 1/2. Withdrawals before age 59 1/2 or the failure to commence
withdrawals on a timely basis after age 70 1/2 may involve the payment of
certain penalties.
Fund shares may also be a suitable investment for assets of other types of
qualified pension or profit-sharing plans, including cash or deferred or salary
reduction "section 401(k) plans" which give participants the right to defer
portions of their compensation for investment on a tax-deferred basis until
distributions are made from the plans.
An investor should contact the Fund to obtain further information concerning a
Fund IRA and required disclosure statement. An investor should consult their tax
adviser as well, particularly in view of changes in the tax law.
MANAGEMENT AND INVESTMENT
MANAGEMENT CONTRACT
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Directors. The Fund's Board of Directors, which is responsible
for the overall management and supervision of the Fund, has employed Reich &
Tang Asset Management L.P. (the "Manager") to serve as investment manager of the
Fund. The Manager provides persons satisfactory to the Fund's Board of Directors
to serve as officers of the Fund. Such officers, as well as certain other
employees and directors of the Fund, may be directors or officers of Reich &
Tang Asset Management, Inc., the sole general partner of the Manager or
employees of the Manager or its affiliates. Due to the services performed by the
Manager, the Fund currently has no employees and its officers are not required
to devote full-time to the affairs of the Fund. The Statement of Additional
Information contains general background information regarding each director and
principal officer of the Fund .
The Manager is a Delaware limited partnership with its principal office at 600
Fifth Avenue, New York, New York 10020. As of November 30, 1996, the Manager was
investment manager, advisor or supervisor with respect to assets aggregating
approximately $8.9 billion. The Manager acts as manager or administrator of
fifteen other investment companies and also advises pension trusts, profit
sharing trusts and endowments.
New England Investment Companies, L.P. ("NEICLP") is the limited partner and
owner of a 99.5% interest in the Manager. Reich & Tang Asset Management, Inc. (a
wholly-owned subsidiary of NEICLP) is the sole general partner and owner of the
remaining .5% interest of the Manager. New England Investment Companies, Inc.
("NEIC"), a Massachusetts corporation, serves as the sole general partner of
NEICLP. Reich & Tang Asset Management L.P. succeeded NEICLP as the Manager of
the Fund.
On August 30, 1996, The New England Mutual Life Insurance Company ("The New
England") and Metropolitan Life Insurance Company ("MetLife") merged, with
MetLife being the continuing company. The Manager remains a wholly-owned
subsidiary of NEICLP, but Reich & Tang Asset Management, Inc., its sole general
partner, is now an indirect subsidiary of MetLife. Also, MetLife New England
Holdings, Inc., a wholly-owned subsidiary of MetLife, owns approximately 55% of
the outstanding limited partnership interest of NEICLP and may be deemed a
"controlling
17
<PAGE>
person" of the Manager. Reich & Tang, Inc. owns approximately 17% of the
outstanding partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $142.2 billion at
March 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.2 trillion at March 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through eleven subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units include, AEW Capital Management, L.P.,
Back Bay Advisors, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Loomis, Sayles & Co., L.P., MC Management, L.P., New England Funds, L.P., New
England Funds Management L.P., Reich & Tang Asset Management, L.P.,
Vaughan-Nelson, Scarborough & McConnell L.P., and Westpeak Investment Advisors,
L.P. These affiliates in the aggregate are investment advisors or managers to 43
other registered investment companies.
The merger between The New England and MetLife resulted in an "assignment" of
the Investment Management Contract relating to the Fund. Under the 1940 Act,
such an assignment caused the automatic termination of this agreement. On
November 28, 1995, the Board of Directors, including a majority of the directors
who are not interested persons (as defined in the 1940 Act) of the Fund or the
Manager, approved a new Investment Management Contract effective August 30,
1996, which has a term which extends to April 30, 1998 and may be continued in
force thereafter for successive twelve-month periods beginning each May 1,
provided that such continuance is specifically approved annually by majority
vote of the Fund's outstanding voting securities or by its Board of Directors,
and in either case by a majority of the directors who are not parties to the
Investment Management Contract or interested persons of any such party, by votes
cast in person at a meeting called for the purpose of voting on such matter.
The new Investment Management Contract was approved by a majority of the
shareholders of the Fund on April 4, 1996 and contains the same terms and
conditions governing the Manager's investment management responsibilities as the
Fund's previous Investment Management Contract with the Manager, except as to
the date of execution and termination.
The merger and the change in control of the Manager is not expected to have any
impact upon the Manager's performance of its responsibilities and obligations
under the new Investment Management Contract.
Pursuant to the Investment Management Contract for each Portfolio, the Manager
manages each Portfolio's portfolio of securities and makes the decisions with
respect to the purchase and sale of investments, subject to the general control
of the Board of Directors of the Fund. Under the Investment Management Contract:
(i) the Money Market Portfolio will pay an annual management fee 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; and (ii) the U.S. Government
Portfolio will pay an annual management fee of .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.
18
<PAGE>
Pursuant to the Administrative Services Contract for each Portfolio, the Manager
performs clerical, accounting supervision and office service functions for the
Fund and provides the Fund with personnel to: (i) supervise the performance of
bookkeeping and related services by Investors Fiduciary Trust Company, the
Fund's bookkeeping agent; (ii) prepare reports to and filings with regulatory
authorities; and (iii) perform such other administrative services as the Fund
may from time to time request of the Manager. The personnel rendering such
services may be employees of the Manager or its affiliates. The Manager, at its
discretion, may voluntarily waive all or a portion of the administrative
services fee. For its services under the Administrative Services Contract, the
Manager receives 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. Any portion of the total fees received by the Manager
and its past profits may be used to provide shareholder services and for
distribution of Fund shares. (See "Distribution and Service Plan" herein.) In
addition, Reich & Tang Distributors L.P., the Distributor, receives a fee equal
to .25% per annum of the average daily net assets of the Class A shares of each
Portfolio under the Shareholder Servicing Agreement. The fees are accrued daily
and paid monthly.
Investment management fees and operating expenses, which are attributable to
both Classes of a Portfolio, will be allocated daily to each Class share based
on the percentage of outstanding shares at the end of the day.
DISTRIBUTION AND SERVICE PLAN
Rule 12b-1 under the 1940 Act (the "Rule") regulates the circumstances under
which an investment company may, directly or indirectly, bear the expenses of
distributing its shares. The Rule defines distribution expenses to include the
cost of "any activity which is primarily intended to result in the sale of fund
shares". The Rule provides, among other things, that an investment company may
bear distribution expenses only pursuant to a plan adopted in accordance with
the Rule. Because certain proposed expenditures, described below, by the Fund,
the Manager and the Distributor, could be deemed to involve payment of
distribution expenses by the Fund, the Fund's Board of Directors has adopted a
distribution and service plan (the "Plan") and, pursuant to the Plan, the Fund
with Reich & Tang Distributors L.P. (the "Distributor") has entered into a
distribution agreement and a Shareholder Servicing Agreement (with respect to
the Class A shares of each Portfolio only).
Reich & Tang Asset Management, Inc. serves as the sole general partner for both
Reich & Tang Asset Management L.P. and Reich & Tang Distributors L.P., and Reich
& Tang Asset Management L.P. serves as the sole limited partner of the
Distributor.
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
Under the Shareholder Servicing Agreement approved by the shareholders on
December 1, 1992, the Distributor receives from each Portfolio with respect to
the Class A shares, a service fee equal to .25% per annum of each Portfolio's
Class A shares average daily net assets (the "Service Fee") for providing
personal shareholder services and for the maintenance of shareholder accounts.
This fee is accrued daily and paid monthly and any portion of the fee may be
deemed to be used by the Distributor for payments to Participating Organizations
with respect to their provision of such services to their clients or customers
who are shareholders of the Class A shares of each Portfolio. The Class B
shareholders will not receive the benefit of such services from
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<PAGE>
Participating Organizations that are compensated by the Distributor or the
Manager and, therefore, will not be assessed a Service Fee.
The Plan and the Shareholder Servicing Agreement with respect to Class A shares
provide that, in addition to the Service Fee, each Portfolio will pay for (i)
telecommunications expenses including the cost of dedicated lines and CRT
terminals, incurred by the Distributor and Participating Organizations in
carrying out their obligations under the Shareholder Servicing Agreement and
(ii) preparing, printing and delivering the Fund's prospectus to existing
shareholders of each Portfolio and preparing and printing subscription
application forms for shareholder accounts.
The Plan provides that, with respect to Class A shares, the Manager may make
payments from time to time from its own resources, which may include the
management fee, and past profits for the following purposes: (i) to defray the
costs of, and to compensate others, including Participating Organizations with
whom the Distributor has entered into written agreements, for performing
shareholder servicing and related administrative functions on behalf of the
Fund; (ii) to compensate certain Participating Organizations for providing
assistance in distributing the Fund's shares; and (iii) to pay the costs of
printing and distributing the Fund's prospectus to prospective investors, and to
defray the cost of the preparation and printing of brochures and other
promotional materials, mailings to prospective shareholders, advertising, and
other promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Service Fee (with respect to Class A shares) and past
profits, for the purposes enumerated in (i) above. The Distributor will
determine the amount of such payments made pursuant to the Plan, provided that
such payments will not increase the amount which each Portfolio is required to
pay to the Manager and Distributor for any fiscal year under either the
Investment Management Contract in effect for that year or the Shareholder
Servicing Agreement in effect for that year.
The Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. However, in the opinion of the
Manager based on the advice of counsel, these laws and regulations do not
prohibit depository institutions from providing other services for investment
companies such as the shareholder servicing and related administrative functions
referred to above. The Fund's Board of Directors will consider appropriate
modifications in the Fund's operations, including discontinuance of any payments
then being made under the Plan to banks and other depository institutions, in
the event of any future change in such laws or regulations which may affect the
ability of such institutions to provide the above-mentioned services. It is not
anticipated that the discontinuance of payments to such an institution would
result in loss to shareholders or change in the Fund's net asset value. In
addition, state securities laws on this issue may differ from the
interpretations of Federal law expressed herein and bank and financial
institutions may be required to register as dealers pursuant to state law.
For the fiscal year ended August 31, 1996, the total amounts spent pursuant to
the Distribution Plan for the Class A shares for the Money Market Portfolio and
the U.S. Government Portfolio were .51% and .53%, respectively, of the average
daily net assets of the Class A shares of the particular Portfolio. Of these
amounts, .25% and .25% were paid by the Money Market Portfolio and the U.S
Government Portfolio, respectively, to the Distributor, pursuant to the
Shareholder Servicing Agreement and .26% and .28% were paid by the Manager's
predecessor for the Money Market
20
<PAGE>
Portfolio and the U.S. Government Portfolio, respectively (which may be deemed
indirect payments by the Fund).
DIVIDENDS AND FEDERAL
INCOME TAX MATTERS
Except as described herein, each Portfolio's net investment income (including
net realized short-term capital gains, if any) will be declared as a dividend on
each Fund Business Day. The Fund declares dividends for Saturdays, Sundays and
holidays on the previous Fund Business Day. The Fund generally pays dividends
monthly. Unless the Fund's transfer agent is otherwise instructed by the
shareholder, dividends will automatically be reinvested in additional full and
fractional shares of the same Class of shares of the Portfolio on the Fund
Business Day on which the dividends are paid. If a shareholder elects to redeem
all the shares of the Class of shares of the Portfolio he owns, all dividends
accrued to the date of the redemption will be paid to the shareholder on the
next Fund Business Day or no later than the next regular dividend payment date,
depending on the internal procedures of the Participating Organization, if any,
in question. Distributions of long-term capital gains, if any, are paid by both
Portfolios at least once a year and, at the shareholder's option, are reinvested
in additional shares of the Portfolio from which they were paid or are paid in
cash.
The Fund did for the fiscal year ended August 31, 1996 and intends for each year
thereafter to qualify for Federal income tax treatment as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves the Fund of liability for Federal income
tax on that part of its net investment income (including net realized short-term
capital gains, if any) and long-term capital gains, if any, paid out to its
shareholders in accordance with the applicable provisions of the Code.
Dividends declared by the Fund of its net investment income are taxable to a
shareholder of the Fund as ordinary income whether they are distributed to the
shareholder or reinvested in additional Fund shares. Dividends of long-term
capital gains which are designated by the Fund as such are taxable to
shareholders at capital gain rates. A shareholder will be subject to tax on
dividends of net investment income or capital gains paid shortly following the
shareholder's purchase of shares of the Fund even though the dividend might be
viewed economically as a return of capital to the shareholder.
It is expected that no portion of dividends to shareholders will qualify for the
dividends-received deduction for corporations. Since the Fund expects to
maintain the net asset value of each Class of shares of the Fund at a constant
$1.00, a shareholder will generally not realize any gain for Federal income tax
purposes upon a redemption of their Class of shares in the Fund.
In view of the continuous changes in the tax law and the regulations thereunder,
it is recommended that shareholders consult with counsel and other competent tax
advisors. Reports containing appropriate information with respect to the Federal
income tax status of dividends paid by the Fund during the year are mailed to
shareholders annually.
The Fund is required by Federal law to withhold 31% of reportable payments paid
to certain shareholders who have not complied with IRS regulations. In
connection with this withholding requirement, a shareholder will be asked to
certify on his application that the social security or tax identification number
provided is correct and that the shareholder is not subject to 31% backup
withholding for previous underreporting to the IRS.
Distributions from the U.S. Government Portfolio that are derived from interest
on certain obligations of the United States Government and agencies thereof may
be exempt from state and
21
<PAGE>
local taxes in certain states. Investors should consult their own tax advisors
regarding specific questions as to Federal, state or local taxes.
The Class A shares of each Portfolio will bear the Service Fees under the Plans.
As a result, the net income of and the dividends payable to the Class A shares
will be lower than the net income of and dividends payable to the Class B shares
within the same Portfolio. Dividends paid to each Class of shares of each
Portfolio will, however, be declared and paid on the same days at the same times
and, except as noted with respect to the Service Fees payable under the Plans,
will be determined in the same manner and paid in the same amounts.
NET ASSET VALUE
The Fund determines the net asset value of the shares of each Class of each
Portfolio of the Fund as of 12 noon, New York City time, by dividing the value
of each Class of the Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued but
excluding capital stock and surplus) by the number of shares outstanding of that
Class of Portfolio at the time the determination is made. The Fund determines
its net asset value on each Fund Business Day. Fund Business Day for this
purpose means weekdays (Monday through Friday) except customary national
business holidays and Good Friday. Purchases and redemptions will be effected at
the time of determination of net asset value next following the receipt of any
purchase or redemption order. (See "How to Purchase and Redeem Shares" and
"Other Purchase and Redemption Procedures" herein.)
In order to maintain a stable net asset value per share of $1.00, the Fund's
portfolio securities are valued at their amortized cost. Amortized cost
valuation involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, except that if
fluctuating interest rates cause the market value of the Fund's portfolio to
deviate more than 1/2 of 1% from the value determined on the basis of
amortized cost, the Board of Directors will consider whether any action should
be initiated to prevent any material dilutive effect on investors. Although the
amortized cost method provides certainty in valuation, it may result in periods
during which the stated value of an instrument is higher or lower than the price
an investment company would receive if the instrument were sold. There is no
assurance that the Fund will maintain a stable net asset value per share of
$1.00.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Fund, which was incorporated on August 22,
1979 in Maryland, consists of ten billion shares of stock having a par value of
one tenth of one cent ($.001) per share, currently divided into two separate
series, one for each of the Fund's two Portfolios. Except as noted below, each
share of either series has equal dividend, distribution, liquidation and voting
rights within the Portfolio for which it was issued, and a fractional share has
those rights in proportion to the percentage that the fractional share
represents of a whole share. Generally, shares will be voted in the aggregate
without reference to Portfolio or except if voting by Portfolio Class is
required by law or the matter involved affects only one Portfolio Class, in
which case shares will be voted separately by Portfolio Class. There are no
conversion or preemptive rights in connection with any shares of the Fund. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares of the Fund are redeemable at net asset value, at
the option of the shareholder. As of November 30, 1996, the amount of shares
owned by all officers and directors of the Fund, as a group, was less than 1% of
the outstanding shares of the Fund.
Each series of the Fund is subdivided into two classes of stock, Class A and
Class B. Each share in a series Portfolio, regardless of class, will represent
an interest in the same portfolio of
22
<PAGE>
investments and will have identical voting, dividend, liquidation and other
rights, preferences, powers, restrictions, limitations, qualifications,
designations and terms and conditions, except that: (i) the Class A and Class B
shares will have different class designations; (ii) Class A shares will bear the
Service Fees charged pursuant to the terms of the Plan applicable to that class;
(iii) the holders of the Class A shares would be entitled to vote on matters
pertaining to the Plan and any related agreements in accordance with provisions
of Rule 12b-1; and (iv) the exchange privilege will permit shareholders to
exchange their shares only for shares of the same class of a fund that
participates in an Exchange Privilege Program with the Fund. Payments that are
made under the Plans will be calculated and charged daily to the appropriate
class prior to determining daily net asset value per share and
dividends/distributions.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105 is custodian for the Fund's cash and securities. Reich & Tang Services
L.P., 600 Fifth Avenue, New York, New York 10020 is transfer agent and dividend
agent for the shares of the Fund. The Fund's transfer agent and custodian do not
assist in, and are not responsible for, investment decisions involving assets of
the Fund.
GENERAL INFORMATION
All shareholder inquiries should be directed to Short Term Income Fund, Inc.,
600 Fifth Avenue, New York, New York 10020 (telephone: 212-830-5220).
The Fund prepares semi-annual unaudited and annual audited reports which include
a list of investment securities held by the Fund and which are sent to
shareholders.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of revised
investment advisory contracts with respect to a particular class or series of
stock, (c) for approval of the Fund's distribution agreement with respect to a
particular class or series o f stock, and (d) upon the written request of
holders of shares entitled to cast not less than 25% of all the votes entitled
to be cast at such meeting. Annual and other meetings may be required with
respect to such additional matters relating to the Fund as may be required by
the 1940 Act including the removal of Fund director(s) and communication among
shareholders, any registration of the Fund with the Securities and Exchange
Commission or any state, or as the Directors may consider necessary or
desirable. Each Director serves until the next meeting of the shareholders
called for the purpose of considering the election or reelection of such
Director or of a successor to such Director, and until the election and
qualification of his or her successor, elected at such a meeting, or until such
Director sooner dies, resigns, retires or is removed by the vote of the
shareholders.
For further information with respect to the Fund and the shares offered hereby,
reference is made to the Fund's Registration Statement filed with the Securities
and Exchange Commission, including the exhibits thereto. The Registration
Statement and the exhibits thereto may be examined at the Commission and copies
thereof may be obtained upon payment of certain duplicating fees.
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<PAGE>
Table of Contents
Table of Fees and Expenses...........................2 SHORT
Selected Financial Information.......................3 TERM
Investment Objectives, INCOME
Policies and Risks..................................5 FUND, INC.
Money Market Portfolio.............................5
U.S. Government Portfolio..........................6
Investment Risks...................................7
Investment Restrictions..............................8
How to Purchase and Redeem Shares....................9
Money Market Portfolio and
U.S. Government Portfolio..........................11
Investment Through
Participating Organizations......................11
Other Purchase and
Redemption Procedures..............................12 PROSPECTUS
Initial Purchase of Shares.........................12 January 2, 1997
Electronic Funds Transfers,
Pre-Authorized Credit and
Direct Deposit Privilege.........................13
Subsequent Purchases of Shares.....................13
Redemption of Shares...............................13
Specified Amount Automatic
Withdrawal Plan..................................15
Exchange Privilege.................................16
Individual Retirement Accounts.......................16
Management and Investment
Management Contract...............................17
Distribution and Service Plan........................19
Dividends and Federal Income Tax Matters.............21
Net Asset Value......................................22
Description of Common Stock..........................22
Custodian and Transfer Agent.........................23
General Information..................................23
<PAGE>
RULE 497(b)
Registration No. 2-65315
- --------------------------------------------------------------------------------
SHORT TERM 600 Fifth Avenue, New York, NY 10020
INCOME FUND, INC. (212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 2, 1997
Short Term Income Fund, Inc. (the "Fund") is a no-load, open-end, diversified
management investment company. The Fund's investment objective is to provide as
high a level of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity. The Fund is presently comprised of two
separate Portfolios and each Portfolio offers two classes of shares to the
general public.
This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Fund's
prospectus dated January 2, 1997 (the "Prospectus"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus, additional copies of which may be obtained without charge by writing
& calling the Fund's distributor, Reich & Tang Distributors L.P., at the address
or telephone number set forth above.
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Investment Objectives,
Policies and Risk.........................................2 Redemption of Shares.................................10
Investment Restrictions....................................2 Distribution and Service Plan........................10
Portfolio Transactions.....................................3 Counsel and Auditors.................................11
Yield Quotations...........................................5 Description of Ratings...............................12
Management and Management Contract.........................5 Independent Auditor's Report.........................13
Compensation Table.........................................7 Financial Statements.................................14
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK
Money Market Portfolio
Bank Obligations
Domestic banks organized under Federal law are supervised and examined by the
Comptroller of the Currency and are required to be members of the Federal
Reserve System and to be insured by the Federal Deposit Insurance Corporation
("FDIC"). Domestic banks organized under state law are supervised and examined
by state banking authorities; in addition, state banks whose certificates of
deposit may be purchased by the Fund are insured by the FDIC and are subject to
Federal examination and to a substantial body of Federal law and regulation.
Obligations of foreign branches of domestic banks, foreign subsidiaries of
domestic banks and domestic and foreign branches of foreign banks, such as
certificates of deposit ("CDs") and time deposits ("TDs") may be general
obligations of the parent banks in addition to the issuing branch, or may be
limited by the terms of a specific obligation and governmental regulation. Such
obligations are subject to different risks than are those of domestic banks.
These risks include foreign economic and political developments, foreign
governmental restrictions that may adversely affect payment of principal and
interest on the obligations, foreign exchange controls and foreign withholding
and other taxes on interest income. Foreign branches and subsidiaries are not
necessarily subject to the same or similar regulatory requirements that apply to
domestic banks, such as mandatory reserve requirements, loan limitations, and
accounting, auditing and financial recordkeeping requirements. In addition, less
information may be publicly available about a foreign branch of a domestic bank
or about a foreign subsidiary of a domestic bank or about a domestic or foreign
branch of a foreign bank than about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal and State
regulation as well as governmental action in the country in which the foreign
bank has its head office. In addition, branches licensed by the Comptroller of
the Currency and branches licensed by certain states ("State Branches") may or
may not be required to: (1) pledge to the regulator, by depositing assets with a
designated bank within the state, an amount of its assets equal to 5% of its
total liabilities; and (2) maintain assets within the state of an amount equal
to a specified percentage of the aggregate amount of liabilities of the foreign
bank payable at or through all of its agencies or branches within the state. The
deposits of State Branches may not necessarily be insured by the FDIC.
In view of the foregoing factors associated with the purchase of CDs and the TDs
issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Manager carefully evaluates such investments on a case by
case basis.
REPURCHASE AGREEMENTS
Investments by the Fund in repurchase agreements are made in accordance with
procedures established by the Fund providing that the securities serving as
collateral for each repurchase agreement are delivered to the Fund's custodian
either physically or in book entry form and that the collateral is marked to the
market with sufficient frequency to ensure that each repurchase agreement is
fully collateralized at all times. A buyer of a repurchase agreement runs the
risk of loss with respect to his investment in the event of a default by the
issuer if, at the time of default, the value of the collateral securing the
agreement is less than the price paid for the repurchase agreement. Were a
default to occur, the Fund would look to the collateral securing the repurchase
agreement to recover its entire investment. In the event that a vendor defaults
on its repurchase obligation, the Fund might suffer a loss to the extent that
the proceeds from the sale of the collateral are less than the repurchase price.
If the vendor becomes bankrupt, the Fund might be delayed, or may incur costs or
possible losses in selling the collateral. The Fund enters into repurchase
agreements only with member banks of the Federal Reserve System and "primary
dealers" (as designated by the Federal Reserve Bank of New York) in United
States government securities. In the view of the management of the Fund, the
restrictions and procedures described above which govern the Fund's investments
in repurchase agreements substantially minimize the Fund's risk of losses in
making those investments. Repurchase agreements may be considered to be loans
under the Investment Company Act of 1940, as amended (the "1940 Act").
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions which are in addition
to those described in the Prospectus. Under the following restrictions, which
may not be changed without the approval by a majority vote of the Fund's
outstanding shares and which apply to each of the Money Market Portfolio and the
U.S. Government Portfolio, the Fund may not:
(a) invest in securities of companies that have conducted operations for less
than three years, including the operations of predecessors;
2
<PAGE>
(b) invest in or hold securities of any issuer if officers and directors of the
Fund or Reich & Tang Asset Management, Inc., the general partner of its
investment manager, individually owning beneficially more than 1/2 of 1% of
the securities of the issuer, in the aggregate own more than 5% of the
issuer's securities; and
(c) make investments for the purpose of exercising control over any issuer or
other person; (2) purchase securities having voting rights at the time of
purchase; (3) purchase securities of other investment companies, except in
connection with a merger, acquisition, consolidation or reorganization
involving the Fund; (4) invest in real estate (other than debt obligations
secured by real estate or interests therein or debt obligations issued by
companies which invest in real estate or interests therein), commodities,
commodity contracts, commodity options, interests in oil or gas or
interests in other mineral exploration or development programs; (5)
purchase restricted securities or purchase securities on margin; (6) make
short sales of securities or intentionally maintain a short position in any
security or write, purchase or sell puts, calls, straddles, spreads or any
combination thereof; (7) act as an underwriter of securities or (8) issue
senior securities, except insofar as the Fund may be deemed to have issued
a senior security in connection with any permitted borrowings.
PORTFOLIO TRANSACTIONS
The Fund's purchases and sales of securities usually are principal transactions.
Portfolio securities are generally purchased directly from the issuer or from an
underwriter or market maker for the securities. There usually are no brokerage
commissions paid for such purchases and the Fund at present does not anticipate
paying brokerage commissions. Should the Fund pay a brokerage commission on a
particular transaction, the Fund would seek to effect the transaction at the
most favorable available combination of best execution and lowest commission.
Purchases from underwriters of portfolio securities include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and asked price.
No portfolio transactions are executed with the Manager, or with an affiliate of
the Manager, acting either as principal or as paid broker.
The frequency of transactions and their allocation to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund. The primary consideration is prompt
execution of orders in an effective manner at the most favorable price.
Investment decisions for the Fund will be made independently from those for any
other accounts or investment companies that may be or become advised or managed
by the Manager or its affiliates. If, however, the Fund and other investment
companies or accounts advised or managed by the Manager are contemporaneously
engaged in the purchase or sale of the same security, the transactions may be
averaged as to price and allocated equitably to each account. In some cases,
this policy might adversely affect the price paid or received by the Fund or the
size of the position obtainable for the Fund. In addition, when purchases or
sales of the same security for the Fund and for other investment companies
managed by the Manager occur contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantages available to large
denomination purchasers or sellers.
The Fund does not determine net asset value per share on the following holidays:
New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas.
Pursuant to rules of the Securities and Exchange Commission, the Fund's Board of
Directors has established procedures to stabilize the Fund's net asset value at
$1.00 per share. These procedures include a review of the extent of any
deviation of net asset value per share, of each Class based on available market
rates, from $1.00. Should that deviation exceed 1/2 of 1%, the Board will
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redemption of shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends and utilizing a net asset value per share as
determined by using available market quotations. The Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less, will not purchase
any instrument with a remaining maturity greater than 397 days or subject to a
repurchase agreement having a duration of greater than one year, will limit
portfolio investments, including repurchase agreements, to those United States
dollar-denominated instruments that the Fund's Board of Directors determines
present minimal credit risks, and will comply with certain reporting and
record-keeping procedures. The Fund has also established procedures to ensure
that portfolio securities meet the quality criteria as provided in Rule 2a-7 of
the 1940 Act. (See "Investment Objectives, Policies and Risks" in the
Prospectus.)
On November 30, 1996, there were 789,555,975.150 Money Market Portfolio - Class
A shares outstanding, 232,621,453.940 Money Market Portfolio - Class B shares
outstanding, 592,924,934.780 U.S. Government Portfolio -Class A shares
outstanding and 125,425,468.850 U.S. Government Portfolio - Class B shares
outstanding. As of
3
<PAGE>
November 30, 1996, the amount of shares owned by all officers and directors of
the Fund, as a group, was less than 1% of the outstanding shares. Set forth
below is certain information as to persons who owned 5% or more of the Fund's
outstanding shares as of November 30, 1996:
Money Market Portfolio - Class A
Nature of
Name and address % of Class Ownership
Reich & Tang Services L.P. 66.6% Record
as agent for various
beneficial owners
600 Fifth Avenue
New York, N.Y. 10020
Money Market Portfolio - Class B
As of November 30, 1996 there are no persons owning 5% or more of the Portfolios
Class B Shares
U.S. Government Portfolio - Class A
Reich & Tang Services L.P. 50.0% Record
as agent for various
beneficial owners
600 Fifth Avenue
New York, N.Y. 10020
U.S. Government Portfolio - Class B
Reich & Tang Services L.P. 50.0% Record
as agent for various
beneficial owners
600 Fifth Avenue
New York, N.Y. 10020
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. The Fund will not issue
certificates evidencing Fund shares. The Fund's By-laws provide that the holders
of one-third of the outstanding shares of the Fund present at the meeting in
person or proxy will constitute a quorum for the transaction of business at a
meeting.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of revised
investment advisory contracts with respect to a particular class or series of
stock, (c) for approval of the Fund's distribution agreement with respect to a
particular class or series of stock, and (d) upon the written request of holders
of shares entitled to cast not less than 25% of all the votes entitled to be
cast at such meeting. Annual and other meetings
4
<PAGE>
may be required with respect to such additional matters relating to the Fund as
may be required by the 1940 Act including the removal of Fund director(s) and
communication among shareholders, any registration of the Fund with the
Securities and Exchange Commission or any state, or as the Directors may
consider necessary or desirable. Each Director serves until the next meeting of
shareholders called for the purpose of considering the election or reelection of
such Director or of a successor to such Director, and until the election and
qualification of his or her successor, elected at such meeting, or until such
Director sooner dies, resigns, retires or is removed by the vote of the
shareholders.
YIELD QUOTATIONS
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the Securities and Exchange Commission. Under that
method, the Fund's yield figure, which is based on a chosen seven-day period, is
computed as follows: the Fund's return for the seven-day period (which is
obtained by dividing the net change in the value of a hypothetical account
having a balance of one share at the beginning of the period by the value of
such account at the beginning of the period (expected to always be $1.00) is
multiplied by (365/7) with the resulting annualized yield figure carried to the
nearest hundredth of one percent. For purposes of the foregoing computation, the
determination of the net change in account value during the seven-day period
reflects (i) dividends declared on the original share and on any additional
shares, including the value of any additional shares purchased with dividends
paid on the original share, and (ii) fees charged to all shareholder accounts.
Realized capital gains or losses and unrealized appreciation or depreciation of
the Fund's portfolio securities are not included in the computation.
The Fund also compiles a compound effective yield quotation for a seven-day
period by using a formula prescribed by the Securities and Exchange Commission.
Under that formula, the Fund's unannualized return for the seven-day period
(described in the preceding paragraph) is compounded by adding one to the base
period return, raising the sum to a power equal to 365/7 and subtracting one
from the result (i.e., effective yield = (base return +1)365/7-1).
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield for each
Portfolio fluctuates from day to day and that the Fund's yield for any given
period for a Portfolio is not an indication, or representation by the Fund, of
future yields or rates of return on the Fund's shares. The Fund's yields are not
fixed or guaranteed, and an investment in the Fund is not insured. Accordingly,
the Fund's yield information may not necessarily be used to compare Fund shares
with investment alternatives which, like money market instruments or bank
accounts, may provide a fixed rate of interest. In addition, investments in the
Fund may not necessarily be used to compare with investment alternatives which
are insured or guaranteed.
The Money Market Portfolio's Class A shares yield for the seven-day period ended
August 31, 1996 was 4.50%, which is equivalent to an effective yield of 4.60%.
The Money Market Portfolio's Class B shares yield for the seven-day period ended
August 31, 1996 was 4.83%, which is equivalent to an effective yield of 4.94%.
The U.S. Government Portfolio's Class A shares yield for the seven-day period
ended August 31, 1996 was 4.53% which is equivalent to an effective yield of
4.64%. The U.S. Government Portfolio's Class B shares yield for the seven-day
period ended August 31, 1996 was 4.78% which is equivalent to an effective yield
of 4.90%.
MANAGEMENT AND MANAGEMENT CONTRACT
Directors and Officers
The Directors and Officers of the Fund and their principal occupations during
the past five years are set forth below. Unless otherwise specified, the address
of each of the following persons is 600 Fifth Avenue, New York, New York 10020.
Directors deemed to be "interested persons" of the Fund for purposes of the 1940
Act are indicated by an asterisk.
Steven W. Duff, 43:* President and Director of the Fund, is President of the
Mutual Funds Division of the Manager since September 1994. Mr. Duff was formerly
Director of Mutual Fund Administration of NationsBank with which he was
associated from 1981 to August 1994. Mr. Duff is also President and a Director
of California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free
Income Fund, Inc., Daily Tax Free Income Fund, Inc., Michigan Daily Tax Free
Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York Daily
Tax Free Income Fund, Inc. and North Carolina Daily Municipal Income Fund, Inc.;
President and Trustee of Florida Daily Municipal Income Fund, Institutional
Daily Income Fund, and Pennsylvania Daily Municipal Income Fund; President and
Chief Executive Officer of Tax Exempt Proceeds Fund, Inc. and Executive Vice
President of Reich & Tang Equity Fund, Inc.
W. Giles Mellon, 65: Director of the Fund, is Professor of Business
Administration and Area Chairman of Economics and Finance in the Graduate School
of Management, Rutgers University with which he has been associated since
5
<PAGE>
1966. His address is Rutgers University Graduate School of Management, 92 New
Street, Newark, New Jersey 07102. Dr. Mellon is also a Director of California
Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Michigan Daily Tax Free
Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., North Carolina
Daily Municipal Income Fund, Inc. and Reich & Tang Equity Fund, Inc., a Trustee
of Florida Daily Municipal Income Fund, Institutional Daily Income Fund and
Pennsylvania Daily Municipal Income Fund.
Robert Straniere, 55: Director of the Fund, is a member of the New York State
Assembly and a partner in the Straniere Law Firm since 1981. His address is 182
Rose Avenue, Staten Island, New York 10306. Mr. Straniere is also a Director of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Life Cycle
Funds, Inc., Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.
and Reich & Tang Equity Fund, Inc., a Trustee of Florida Daily Municipal Income
Fund, Institutional Daily Income Fund and Pennsylvania Daily Municipal Income
Fund.
Dr. Yung Wong, 58: Director of the Fund, was Director of Shaw Investment
Management (UK) Limited from 1994 to October 1995 and formerly General Partner
of Abacus Partners Limited Partnership (a general partner of a venture capital
investment firm) from 1984 to 1994. Dr. Wong is a Director of Republic Telecom
Systems Corporation (provider of telecommunications equipment) since January
1989, and of TelWatch, Inc. (provider of network management software) since
August 1989. His address is 29 Alden Road, Greenwich, Connecticut 06831. Dr.
Wong is also a Director of California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New Jersey
Daily Municipal Income Fund, Inc., North Carolina Daily Municipal Income Fund,
Inc. and Reich & Tang Equity Fund, Inc., a Trustee of Florida Daily Municipal
Income Fund, Institutional Daily Income Fund and Pennsylvania Daily Municipal
Income Fund.
Bernadette N. Finn, 49: Vice President and Secretary of the Fund, is Vice
President of the Mutual Fund Division of the Manager since September 1993. Ms.
Finn was formerly Vice President and Assistant Secretary of Reich & Tang, Inc.
with which she was associated from September 1970 to September 1993. Ms. Finn is
also a Vice President and Secretary of Delafield Fund, Inc., Institutional Daily
Income Fund and Reich & Tang Equity Fund, Inc., Secretary of California Daily
Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Florida Daily Municipal
Income Fund, Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income
Fund and Tax Exempt Proceeds Fund, Inc.
Molly Flewharty, 45: Vice President of the Fund, is Vice President of the Mutual
Funds Division of the Manager since September 1993. Ms. Flewharty was formerly
Vice President of Reich & Tang, Inc. with which she was associated from December
1977 to September 1993. Ms. Flewharty is also Vice President of California Daily
Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Florida Daily Municipal Fund, Institutional Daily Income Fund, Michigan Daily
Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New
York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc. and Tax Exempt Proceeds Fund, Inc.
Lesley M. Jones, 48: Vice President of the Fund, is Senior Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Jones was
formerly Senior Vice President of Reich & Tang, Inc. with which she was
associated from April 1973 to September 1993. Ms. Jones is also a Vice President
of California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free
Income Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Florida Daily Municipal Income Fund, Institutional Daily Income Fund, Michigan
Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pennsylvania Daily Municipal Income Fund and Reich & Tang Equity
Fund, Inc.
Dana E. Messina, 40: Vice President of the Fund, is Executive Vice President of
the Mutual Funds Division of the Manager since January 1995 and was Vice
President from September 1993 to January 1995. Ms. Messina was formerly Vice
President of Reich & Tang, Inc. with which she was associated from December 1980
to September 1993. Ms. Messina is also Vice President of California Daily Tax
Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland
Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Florida
Daily Municipal Income Fund, Institutional Daily Income Fund, Michigan Daily Tax
Free Income Fund, Inc., New Jersey Daily Municipal Income
6
<PAGE>
Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich &
Tang Equity Fund, Inc. and Tax Exempt Proceeds Fund, Inc.
Richard De Sanctis, 40: Treasurer of the Fund, is Assistant Treasurer of NEIC
since September 1993. Mr. De Sanctis was formerly Controller of Reich & Tang,
Inc. from January 1991 to September 1993, Vice President and Treasurer of
Cortland Financial Group, Inc. and Vice President of Cortland Distributors, Inc.
from 1989 to December 1990. He is also Treasurer of California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free
Income Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily
Municipal Income Fund, Reich & Tang Equity Fund, Inc. and Tax Exempt Proceeds
Fund, Inc. and is Vice President and Treasurer of Cortland Trust, Inc.
The Fund paid an aggregate remuneration of $173,945 to its officers and
directors and to certain employees of the Manager with respect to its fiscal
year ended August 31, 1996, consisting of $42,000 in aggregate directors' fees
to the three disinterested directors, and salaries and benefits aggregating
$131,945 paid to certain employees of the Manager pursuant to the terms of the
Investment Management Contract. (See "Management and Investment Management
Contract" in the Prospectus and "Manager and Investment Management Contract"
below.) See Compensation Table below.
<TABLE>
<CAPTION>
COMPENSATION TABLE
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Aggregate Pension or Estimated Total Compensation
Name of Person, Compensation from Retirement Annual Benefits from Fund and Fund
Position Registrant for Benefits Accrued upon Retirement Complex Paid to
Fiscal Year as Part of Fund Directors*
Expenses
W. Giles Mellon,
Director $14,000 0 0 $51,000 (13 Funds)
Robert Straniere,
Director $14,000 0 0 $51,000 (13 Funds)
Dr. Yung Wong,
Director $14,000 0 0 $51,000 (13 Funds)
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ending August 31, 1996 (and, with respect to certain of the
funds in the Fund Complex, estimated to be paid during the fiscal year ending
August 31, 1996). The parenthetical number represents the number of investment
companies (including the Fund) from which such person receives compensation that
are considered part of the same Fund complex as the Fund, because, among other
things, they have a common investment advisor.
Manager and Investment Management Contract
The Investment Manager for the Fund is Reich & Tang Asset Management L.P. a
Delaware limited partnership with principal offices at 600 Fifth Avenue, New
York, New York 10020 (the "Manager"). As of November 30, 1996, the Manager was
investment manager, adviser or supervisor with respect to assets aggregating
approximately $8.9 billion. The Manager acts as manager or administrator of
fifteen other investment companies and also advises pension trust, profit
sharing trusts and endowments.
New England Investment Companies, L.P. ("NEICLP"), is the limited partner and
owner of a 99.5% interest in the limited partnership, Reich & Tang Asset
Management L.P., the Manager. Reich & Tang Asset Management, Inc. (a
wholly-owned subsidiary of NEICLP) is the general partner and owner of the
remaining .5% interest of the Manager. New England Investment Companies, Inc.
("NEIC"), a Massachusetts corporation, serves as the sole general partner of
NEICLP. Reich & Tang Asset Management L.P. succeeded NEICLP as the Manager of
the Fund.
On August 30, 1996, The New England Mutual Life Insurance Company ("The New
England") and Metropolitan Life Insurance Company ("MetLife") merged, with
MetLife being the continuing company. The Manager remains a wholly-owned
subsidiary of NEICLP, but Reich & Tang Asset Management, Inc., its sole general
partner, is now an indirect subsidiary of MetLife. Also, MetLife New England
Holdings, Inc., a wholly-owned subsidiary of MetLife, owns
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<PAGE>
approximately 55% of the outstanding limited partnership interest of NEICLP and
may be deemed a "controlling person" of the Manager. Reich & Tang, Inc. owns
approximately 17% of the outstanding partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $142.2 billion at
March 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.2 trillion at March 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through eleven subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units include, AEW Capital Management, L.P.,
Back Bay Advisors, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Loomis, Sayles & Co., L.P., MC Management, L.P., New England Funds, L.P., New
England Funds Management L.P., Reich & Tang Asset Management, L.P.,
Vaughan-Nelson, Scarborough & McConnell L.P., and Westpeak Investment Advisors,
L.P. These affiliates in the aggregate are investment advisors or managers to 43
other registered investment companies.
In addition to the Fund, the Manager's advisory clients include, among others,
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily Income
Fund, Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal
Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina
Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund,
Reich & Tang Equity Fund, Inc. and Tax Exempt Proceeds Fund, Inc. The Manager
also advises pension trusts, profit-sharing trusts and endowments.
The merger between The New England and MetLife resulted in an "assignment" of
the Investment Management Contract relating to the Fund. Under the 1940 Act,
such an assignment caused the automatic termination of this agreement. On
November 28, 1995, the Board of Directors, including a majority of the directors
who are not interested persons (as defined in the 1940 Act) of the Fund or the
Manager, approved a new Investment Management Contract effective August 30,
1996, which has a term which extends to April 30, 1998 and may be continued in
force thereafter for successive twelve-month periods beginning each May 1,
provided that such continuance is specifically approved annually by majority
vote of the Fund's outstanding voting securities or by its Board of Directors,
and in either case by a majority of the directors who are not parties to the
Investment Management Contract or interested persons of any such party, by votes
cast in person at a meeting called for the purpose of voting on such matter.
The new Investment Management Contract was approved by a majority of the
shareholders of the Fund on April 4, 1996 and contains the same terms and
conditions governing the Manager's investment management responsibilities as the
Fund's previous Investment Management Contract with the Manager, except as to
the date of execution and termination.
The merger and the change in control of the Manager is not expected to have any
impact upon the Manager's performance of its responsibilities and obligations
under the new Investment Management Contract.
Pursuant to the Investment Management Contract for each Portfolio, the Manager
manages each Portfolio's portfolio of securities and makes decisions with
respect to the purchase and sale of investments, subject to the general control
of the Board of Directors of the Fund.
The Manager provides persons satisfactory to the Board of Directors of the Fund
to serve as officers of the Fund. Such officers, as well as certain other
employees and directors of the Fund, may be directors or officers of Reich &
Tang Asset Management, Inc., the sole general partner of the Manager, or
employees of the Manager or its affiliates.
The Investment Management Contract is terminable without penalty by each
Portfolio on sixty days' written notice when authorized either (1) by majority
vote of its outstanding voting shares or (2) by a vote of a majority of its
Board of Directors or (3) by the Manager on sixty days' written notice, and will
automatically terminate in the event of its assignment. The Investment
Management Contract provides that in the absence of willful misfeasance, bad
faith or gross negligence on the part of the Manager, or of reckless disregard
of its obligations thereunder, the Manager shall not be liable for any action or
failure to act in accordance with its duties thereunder.
Under the Investment Management Contract, (i) the Money Market Portfolio will
pay an annual management fee 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,
8
<PAGE>
plus .27% of such assets in excess of $1.5 billion and (ii) the U.S. Government
Portfolio will pay an annual management fee of .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, at its discretion, may voluntarily waive
all or a portion of the management fee. The fees are accrued daily and paid
monthly. Any portion of the total fees received by the Manager may be used by
the Manager to provide shareholder services and for distribution of Fund shares.
(See "Distribution and Service Plan" herein.)
Pursuant to an Administrative Services Contract with the Fund, the Manager also
performs clerical, accounting supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of bookkeeping related services by Investors Fiduciary Trust
Company, the Fund's bookkeeping agent, (ii) prepare reports to and filings with
regulatory authorities, and (iii) perform such other services as the Fund may
from time to time request of the Manager. The personnel rendering such services
may be employees of the Manager, of its affiliates or of other organizations.
The Manager, at its discretion, may voluntarily waive all or a portion of the
administrative services fee. For its services under the Administrative Services
Contract, the Manager receives from the Fund an annual fee equal to .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.
The Manager at its discretion may waive its rights to any portion of the
management fee or the administrative services fee and may use any portion of the
management fee and the administrative services fee for purposes of shareholder
and administrative services and distribution of the Fund's shares. There can be
no assurance that such fees will be waived in the future.
Investment management fees and operating expenses which are attributable to both
Classes of a Portfolio will be allocated daily to each Class share based on the
percentage of outstanding shares at the end of the day. Additional shareholder
services provided by Participating Organizations to Class A shareholders
pursuant to the Plan shall be compensated by the Distributor from its
shareholder servicing fee, and the Manager from its management fee. Expenses
incurred in the distribution of Class B shares shall be paid by the Manager.
EXPENSE LIMITATION
The Manager has agreed, pursuant to the Investment Management Contract, to
reimburse the Fund for its expenses (exclusive of interest, taxes, brokerage and
extraordinary expenses) which in any year exceed the limits on investment
company expenses prescribed by any state in which the Fund's shares are
qualified for sale. For the purpose of this obligation to reimburse expenses,
the Fund's annual expenses are estimated and accrued daily, and any appropriate
estimated payments are made to it on a monthly basis. Subject to the obligations
of the Manager to reimburse the Fund for its excess expenses as described above,
the Fund has, under the Investment Management Contract, confirmed its obligation
for payment of all its other expenses, including all operating expenses, taxes,
brokerage fees and commissions, commitment fees, certain insurance premiums,
interest charges and expenses of the custodian, transfer agent and dividend
disbursing agent's fees, telecommunications expenses, auditing and legal
expenses, bookkeeping agent fees, costs of forming the corporation and
maintaining corporate existence, compensation of Directors, officers and
employees of the Fund and costs of other personnel performing services for the
Fund who are not officers of the Manager or its affiliates, costs of investor
services, shareholders' reports and corporate meetings, Securities and Exchange
Commission registration fees and expenses, state securities laws registration
fees and expenses, expenses of preparing and printing the Fund's prospectus for
delivery to existing shareholders and of printing application forms for
shareholder accounts, and the fees and reimbursements payable to the Manager
under the Investment Management Contract and the Distributor under the
Shareholder Servicing Agreement.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein, and the management of the Fund intends to do
so whenever it appears advantageous to the Fund. The Fund's expenses for
employees and for such services are among the expenses subject to the expense
limitation described above.
The following fees were paid to the predecessor investment managers under the
previous Investment Management Contracts. For the Fund's fiscal year ended
August 31, 1994, Reich & Tang L.P. and its successor, NEICLP, received
investment management fees totaling $3,479,792 and $1,383,715 from the Money
Market Portfolio and the U.S. Government Portfolio, respectively. For the Fund's
fiscal year ended August 31, 1995 the Manager received investment management
fees totaling $1,459,899 and $1,717,027 from the Money Market Portfolio and the
U.S. Government Portfolio, respectively. For the Fund's fiscal year ended August
31, 1996 the Manager received investment management fees totaling $2,627,181 and
$1,960,693 from the Money Market Portfolio and the U.S. Government Portfolio,
9
<PAGE>
respectively. For the Fund's fiscal year ended August 31, 1994, Reich & Tang
L.P. and its successor, NEICLP, received administration fees in the aggregate of
$2,360,565 and $1,056,972 from the Money Market Portfolio and the U.S.
Government Portfolio, respectively. For the Fund's fiscal year ended August 31,
1995, the Manager received administration fees in the aggregate of $1,602,115
and $1,323,622 from the Money Market Portfolio and the U.S. Government
Portfolio, respectively. For the Fund's fiscal year ended August 31, 1996 the
Manager received administration fees in the aggregate of $1,970,196 and
$1,573,195 from the Money Market Portfolio and the U.S. Government Portfolio,
respectively.No reimbursements were payable to the Fund by the predecessor
managers pursuant to the expense limitation described above with respect to the
fiscal years ended August 31, 1994, 1995 and 1996.
The Manager now acts as investment manager or adviser for other persons and
entities and may under the Investment Management Contract act as investment
manager or adviser to other registered investment companies. At present, the
Manager is investment manager or administrator to fifteen other registered
investment companies.
REDEMPTION OF SHARES
The material relating to the redemption of shares in the prospectus is herein
incorporated by reference. Payment of the redemption price for shares redeemed
may be made either in cash or in portfolio securities (selected at the
discretion of the Board of Directors of the Fund and taken at their value used
in determining the Fund's net asset value per share of each Class as described
under "Net Asset Value" herein), or partly in cash and partly in portfolio
securities. However, payments will be made wholly in cash unless the Board of
Directors believes that economic conditions exist which would make such a
practice detrimental to the best interests of the Fund. If payment for shares
redeemed is made wholly or partly in portfolio securities, brokerage costs may
be incurred by the investor in converting the securities to cash. The Fund will
not distribute in kind portfolio securities that are not readily marketable. The
Fund has filed a formal election with the Securities and Exchange Commission
pursuant to which the Fund will only effect a redemption in portfolio securities
where $250,000 or 1% of the Fund's total net assets, whichever is less, during a
90 day period. In the opinion of the Fund's management, however, the amount of
redemption request would have to be significantly greater than $250,000 or 1% of
total net assets before a redemption wholly or partly in portfolio securities
was made.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by the Rule. The Fund's Board of Directors has adopted a
distribution and service plan (the "Plan") and, pursuant to the Plan, the Fund
and the Manager have entered into a Distribution Agreement and a Shareholder
Servicing Agreement with Reich & Tang Distributors L.P. (the "Distributor") as
distributor of the Fund's shares.
Reich & Tang Asset Management, Inc. serves as the sole general partner for both
Reich & Tang Asset Management L.P. and Reich & Tang Distributors L.P., and Reich
& Tang Asset Management L.P. serves as the sole limited partner of the
Distributor.
Under each Plan, the Portfolios and the Distributor will enter a Shareholder
Servicing Agreement with respect to the Class A shares. Under the Shareholder
Servicing Agreements, the Distributor receives from each Portfolio a service fee
equal to .25% per annum of each Portfolio's Class A shares average daily net
assets, (the "Service Fee") for providing, with respect to the Class A shares,
personal shareholder services and for the maintenance of shareholder accounts.
The Service Fee is accrued daily and paid monthly and any portion of the Service
Fee may be deemed to be used by the Distributor for payments to Participating
Organizations with respect to servicing their clients or customers who are
shareholders of the Fund.
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
The Plan and the Shareholder Servicing Agreements provide, with respect to the
Class A shares, that, in addition to the Service Fee, each Portfolio will pay
for (i) telecommunications expenses including the cost of dedicated lines and
CRT terminals, incurred by the Participating Organizations and Distributor in
carrying out their obligations under the Shareholder Servicing Agreements with
respect to the Class A shares and (ii) preparing, printing and delivering the
Fund's prospectus to existing shareholders of the Fund and preparing and
printing subscription application forms for shareholder accounts.
10
<PAGE>
The Plan provides, with respect to Class A shares, that the Manager may make
payments from time to time from its own resources, which may include the
management fee and past profits for the following purposes: (i) to defray the
costs of, and to compensate others, including Participating Organizations with
whom the Distributor has entered into written agreements for performing
shareholder servicing and related administrative functions on behalf of the
Fund; (ii) to compensate certain Participating Organizations for providing
assistance in distributing the Fund's shares; and (iii) to pay the costs of
printing and distributing the Fund's prospectus to prospective investors, and to
defray the cost of the preparation and printing of brochures and other
promotional materials, mailings to prospective shareholders, advertising, and
other promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Service Fee with respect to Class A shares and past
profits for the purpose enumerated in (i) above. The Distributor will determine
the amount of such payments made pursuant to the Plan, provided that such
payments will not increase the amount which each Portfolio is required to pay to
the Manager and the Distributor for any fiscal year under either the Investment
Management Contract in effect for that year, the Administrative Services
Contract in effect for that year or under the Shareholder Servicing Agreements
in effect for that year.
In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into between either the Fund or the Distributor and
Participating Organizations or other organizations must be in a form
satisfactory to the Fund's Board of Directors. In addition, the Plan requires
the Fund and the Distributor to prepare, at least quarterly, written reports
setting forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the Plan and identifying the distribution activities for
which those expenditures were made.
The following information applies only to the Class A shares of the Portfolios.
For the fiscal year ended August 31, 1996, the Fund paid a Service Fee for
expenditures pursuant to the Plan in amounts aggregating $1,788,166 with respect
to the Money Market Portfolio and $1,448,043 with respect to the U.S. Government
Portfolio. During such period, the Manager and Distributor made payments
pursuant to the Plan to or on behalf of Participating Organizations of
$3,629,296 with respect to the Money Market Portfolio and $2,969,730 with
respect to the U.S. Government Portfolio. For the fiscal year ended August 31,
1995, the Fund paid a Service Fee for expenditures pursuant to the Plan in
amounts aggregating $$1,533,545 with respect to the Money Market Portfolio and
$1,065,325 with respect to the U.S. Government Portfolio. During such period,
the Manager and Distributor made payments pursuant to the Plan to or on behalf
of Participating Organizations of $3,100,084 with respect to the Money Market
Portfolio and $2,501,431 with respect to the U.S. Government Portfolio. For the
fiscal year ended August 31, 1994, the Fund paid a Service Fee for expenditures
pursuant to the Plan in amounts aggregating $1,752,570 with respect to the Money
Market Portfolio and $1,068,325 with respect to the U.S. Government Portfolio.
During such period, the Manager's predecessor and Distributor made payments
pursuant to the Plan to or on behalf of Participating Organizations of
$3,604,492 with respect to the Money Market Portfolio and $2,010,531 with
respect to the U.S. Government Portfolio. The excess of such payments over the
total payments the predecessor managers and Distributor received from the Fund
represents distribution and servicing expenses funded by the Manager's
predecessors and Distributor from their own resources including the management
fee.
The Plan was approved by the shareholders of the Fund at a special meeting held
on December 1, 1992. The continuance of the amended Plan was most recently
approved at a meeting of the Board of Directors held on January 26, 1996. Each
Plan for each Class of shares of each Portfolio provides that it will remain in
effect until April 30, 1997, and thereafter may continue in effect for
successive annual periods beginning May 1st, provided it is approved by each
Class of each Portfolio's shareholders or by the Board of Directors, including a
majority of directors who are not interested persons of the Fund and who have no
direct or indirect interest in the operation of the Plan or in any agreement
related to the Plan. Each Plan further provides that it may not be amended to
increase materially the costs which may be spent by the Fund for distribution
pursuant to the Plan without shareholder approval, and that other material
amendments of the Plan must be approved by the directors in the manner described
in the preceding sentence. The Plan may be terminated at any time by a vote of
the Board of Directors or of the Fund's stockholders.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Messrs. Battle Fowler LLP 75 East 55th Street, New York, New York
10020.
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, have been selected as auditors for the Fund.
11
<PAGE>
DESCRIPTION OF RATINGS
COMMERCIAL PAPER AND CORPORATE BOND RATINGS
Description of Prime-1 and A1 Commercial Paper Ratings
The rating Prime-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations.
Commercial paper rated A by Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies ("S&P") has the following characteristics. Liquidity
ratios are adequate to meet cash requirements. Long-term senior debt rating
should be A or better. In some cases BBB credits may be allowed if other factors
outweigh the BBB rating. The issuer should have access to at least two
additional channels of borrowing. Basic earnings and cash flow should have an
upward trend with allowances made for unusual circumstances. Typically the
issuer's industry should be well established and the issuer should have a strong
position within its industry and the reliability and quality of management
should be unquestioned. Issuers rated A are further referred by use of numbers
1, 2 and 3 to denote relative strength within this highest classification.
Description of Aa and AA Corporate Bond Ratings
Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with bonds rated Aaa (Moody's highest rating) they comprise
what are generally known as high-grade bonds. Aa bonds are rated lower than the
best bonds because margins of protection may not be as large as Aaa securities
or fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
Bonds rated AA by S&P are judged to be high-quality debt obligations. Their
capacity to pay principal and interest is considered very strong, and in the
majority of instances they differ from AAA issues only in small degree. Bonds
rated AAA are considered by S&P to be highest grade obligations and indicate an
extremely strong capacity to pay principal and interest.
12
<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, 1996, 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 selected financial information for each of the five
years in the period then ended. These financial statements and selected
financial information are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
selected financial information 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 selected
financial information 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, 1996, 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 selected financial information
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, 1996, 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
October 2, 1996, except for Note 5 as
to which the date is October 23, 1996
13
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- --------
Bankers' Acceptances (3.06%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 30,000,000 Trust Company Bank of Georgia 09/30/96 5.49% $ 29,878,275
----------- ------------
30,000,000 Total Bankers' Acceptances 29,878,275
----------- ------------
<CAPTION>
Commercial Paper (27.00%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 15,000,000 ANZ Finance, Delaware 11/12/96 5.37% $ 14,845,417
20,000,000 Bank of America 12/20/96 5.40 19,682,000
15,000,000 Banque Internationale A Luxembourg (BIL) North America 10/10/96 5.56 14,915,517
10,000,000 Banque Internationale A Luxembourg (BIL) North America 11/21/96 5.37 9,883,694
20,000,000 Banque Internationale A Luxembourg (BIL) North America 10/17/96 5.56 19,866,044
40,000,000 Bear Stearns Companies, Inc. 09/11/96 5.47 39,951,822
13,000,000 Compaigne Bancaire 10/23/96 5.51 12,901,958
8,000,000 Compaigne Bancaire 11/05/96 5.53 7,923,700
15,000,000 Ford Motor Credit 09/16/96 5.43 14,970,804
14,000,000 Island Finance of Puerto Rico 11/04/96 5.42 13,871,247
15,000,000 J.P. Morgan & Company, Incorporated 12/10/96 5.65 14,775,825
20,000,000 Morgan Stanley Group, Incorporated 09/19/96 5.43 19,952,178
15,000,000 Raytheon Corporation 09/30/96 5.30 14,940,600
45,000,000 UBS Finance, Delaware 09/03/96 5.30 45,000,000
----------- -----------
265,000,000 Total Commercial Paper 263,480,806
----------- -----------
<CAPTION>
LOC Commercial Paper (24.61%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 15,000,000 Banamex
LOC Barclays Bank 09/18/96 5.50% $ 14,966,125
10,000,000 Banco Bradesco
LOC Barclays Bank 12/23/96 5.65 9,830,417
5,000,000 Banco Bradesco
LOC Barclays Bank 02/24/97 5.62 4,867,808
5,000,000 Banco National de Comercial
LOC Societe Generale 12/06/96 5.47 4,929,892
10,000,000 Banco National de Comerico Exterior, S.N.C.
LOC Societe Generale 12/06/96 5.44 9,860,306
15,000,000 Banco Real Grand Cayman
LOC Barclays Bank 10/02/96 5.43 14,935,958
25,000,000 Banco Rio de La Plata
LOC Bayerische Vereinsbank, A.G. 01/23/97 5.55 24,464,542
25,000,000 Bancomer S.A.
LOC Bank of Montreal 10/04/96 5.34 24,885,903
20,000,000 Bancomer S.A.
LOC Bank of Montreal 10/10/96 5.56 19,887,356
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
14
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- -------
LOC Commercial Paper (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10,000,000 Cemex S.A.
LOC Credit Suisse 09/10/96 5.26% $ 9,989,791
33,000,000 Dean Health System, Incorporated
LOC Rabobank Nederland 11/27/96 5.51 32,576,757
10,000,000 Garanti Funding Corporation
LOC Bayerische Vereinsbank, A.G. 02/06/97 5.55 9,766,000
10,000,000 Garanti Funding Corporation
LOC Bayerische Vereinsbank, A.G. 02/07/97 5.55 9,764,500
5,000,000 Guangdong Enterprise
LOC Credit Suisse 12/18/96 5.67 4,918,733
15,000,000 Louis Dreyfus Corporation
LOC Credit Agricole 09/16/96 5.33 14,971,292
15,000,000 Minmetals Capital & Securities, Incorporated
(Owned by China National Metals & Minerals Import & Export)
LOC Credit Suisse 02/25/97 5.66 14,598,958
15,000,000 National Bank of Pakistan
LOC Credit Suisse 09/20/96 5.39 14,962,458
----------- -----------
243,000,000 Total LOC Commercial Paper 240,176,796
----------- -----------
<CAPTION>
U.S. Government Agencies (3.70%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 21,150,000 Federal Home Loan Bank 02/07/97 5.18% $ 21,148,582
5,000,000 Federal Home Loan Bank (a) 11/18/97 5.75 5,000,000
10,000,000 Federal National Mortgage Association (b) 04/04/97 5.31 9,996,048
----------- ------------
36,150,000 Total U.S. Government Agencies 36,144,630
----------- ------------
<CAPTION>
Master Notes (11.89%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 36,000,000 Goldman Sachs (c) 11/04/96 5.41% $ 36,000,000
35,000,000 Morgan (J.P.) Securities Incorporated (d) 10/11/96 5.47 35,000,000
45,000,000 Williamette Industries Incorporated (e) 07/18/97 5.46 45,000,000
- ------------ ------------
116,000,000 Total Master Notes 116,000,000
- ------------ ------------
<CAPTION>
Other Notes (8.71%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 15,000,000 City of New York
LOC Societe Generale 01/29/97 5.75% $ 15,000,000
3,325,000 Greensboro, NC Public Improvement - Series C (f) 04/01/14 5.45 3,325,000
6,600,000 Methodist Hospital Taxable Healthcare Notes - Series 1994A 02/24/97(h) 5.70 6,600,000
6,900,000 New Orleans Aviation Board Taxable Refunding Bonds - Series 1993A (f)
MBIA Insured 08/01/00 5.55 6,900,000
25,000,000 State of Oregon Taxable EDRB (Georgia Pacific Corporation 1995 B) - Series 169
LOC Commerzbank A.G. 10/10/96(h) 5.70 25,000,000
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
15
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- -------
Other Notes (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 15,200,000 The City of New York Taxable Municipal Fiscal 1996 - Series A2
LOC Societe Generale 02/10/97(h) 5.70% $ 15,200,000
6,000,000 Winston Salem, NC Certificate of Participation 09/11/96(h) 5.35 6,000,000
7,000,000 Winston Salem, NC Certificate of Participation 09/24/96(h) 5.35 7,000,000
- ------------ ------------
85,025,000 Total Other Notes 85,025,000
- ------------ ------------
<CAPTION>
Repurchase Agreement, Overnight (9.94%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 97,000,000 Donaldson, Lufkin & Jenrette Securities Corporation
(Collateralized by $92,210,000 U.S. Treasury Notes, 5.375% to 8.500%,
due 11/30/97 to 11/15/05 and U.S. Treasury Bonds, 6.000% to 13.875%,
due 05/15/10 to 02/15/26) 09/03/96 5.25% $ 97,000,000
- ------------ ------------
97,000,000 Total Repurchase Agreement, Overnight 97,000,000
- ------------ ------------
<CAPTION>
Eurodollar Certificates of Deposit (4.10%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 15,000,000 ABN-AMRO 11/15/96 5.45% $ 15,000,000
25,000,000 National Westminster 09/10/96 5.51 24,999,421
- ------------ ------------
40,000,000 Total Eurodollar Certificates of Deposit 39,999,570
- ------------ ------------
<CAPTION>
Yankee Certificates of Deposit (6.66%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 20,000,000 Banque Nationale de Paris 09/19/96 5.66% $ 20,000,168
25,000,000 Canadian Imperial Bank 09/05/96 5.50 25,000,000
20,000,000 Royal Bank of Canada (g) 09/25/96 5.36 19,999,764
- ------------ ------------
65,000,000 Total Yankee Certificates of Deposit 64,999,932
- ------------ ------------
Total Investments (99.67%) (Cost $972,705,009+) 972,705,009
Cash and Other Assets Net of Liabilities (0.33%) 3,199,366
------------
Net Assets (100.00%) $975,904,375
============
Net asset value, offering and redemption price per share:
Class A shares, 757,623,067 shares outstanding (Note 3) $ 1.00
============
Class B shares, 220,380,901 shares outstanding (Note 3) $ 1.00
============
+ Aggregate cost for federal income tax purposes is identical.
FOOTNOTES:
(a) The interest rate is adjusted daily based on federal funds effective rate.
(b) The interest rate is adjusted daily based on prime -2.50%.
(c) The interest rate is adjusted daily based on opening federal funds +.10% (daily put).
(d) The interest rate is adjusted monthly based on one month LIBOR (daily put).
(e) The interest rate is adjusted monthly based on one month LIBOR + .03% (seven day put).
(f) Securities payable on demand at par including accrued interest (with 7 days notice). Interest rate is adjusted weekly.
(g) The interest rate is adjusted daily based on federal funds +.10%.
(h) The maturity date indicated is next put date.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
16
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
U.S. GOVERNMENT PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- -------
Repurchase Agreements, Overnight (70.38%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 30,000,000 CIBC (Collateralized by $31,125,000 U.S Treasury Bills, due 02/27/97,
U.S. Treasury Note, 6.250% due 08/31/00) 09/03/96 5.20% $ 30,000,000
183,000,000 Fuji Securities, Inc. (Collateralized by $180,854,000 U.S. Treasury Bills,
and U.S. Treasury Notes, 6.250% to 8.875%, due 10/19/96 to 8/31/00) 09/03/96 5.22 183,000,000
75,000,000 CS First Boston (Collateralized by $59,352,000 U.S. Treasury Bonds,
10.375% to 12.000%, due 08/15/03 to 11/15/12) 09/03/96 5.25 75,000,000
70,000,000 CIBC (Collateralized by $72,140,000 U.S. Treasury Bills and U.S. Treasury Bonds
7.250% to 11.250%, due 11/14/96 to 05/15/96) 09/03/96 5.25 70,000,000
130,000,000 Goldman Sachs (Collateralized by $194,260,040 GNMA's, 5.500% to
10.000%, due 09/15/01 to 08/15/26) 09/03/96 5.30 130,000,000
50,000,000 CIBC (Collateralized by $50,085,000 U.S. Treasury Bills, due 07/24/97,
U.S. Treasury Note, 6.125%, due 05/31/97) 09/12/96 5.25 50,000,000
20,000,000 Goldman Sachs (Collateralized by $29,724,000 GNMA'S, 6.500% to 10.500%,
due 12/15/07 to 08/15/26) 09/23/96 5.25 20,000,000
----------- ------------
558,000,000 Total Repurchase Agreements, Overnight 558,000,000
----------- ------------
<CAPTION>
U.S. Government Agencies (1.16%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 9,216,023 Small Business Administration Variable Loan 05/25/14(a) 6.64% $ 9,208,381
- ------------ ------------
9,216,023 Total U.S. Government Agencies 9,208,381
- ------------ ------------
<CAPTION>
U.S. Government Obligations (30.68%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10,000,000 U.S. Treasury Bills 09/19/96 5.17% $ 9,977,600
10,000,000 U.S. Treasury Bills 09/19/96 5.18 9,977,556
10,000,000 U.S. Treasury Bills 10/10/96 5.23 9,947,583
10,000,000 U.S. Treasury Bills 10/17/96 5.35 9,937,422
10,000,000 U.S. Treasury Bills 10/17/96 5.29 9,937,056
15,000,000 U.S. Treasury Bills 11/14/96 5.24 14,847,300
10,000,000 U.S. Treasury Bills 11/21/96 5.25 9,887,644
10,000,000 U.S. Treasury Bills 11/29/96 5.30 9,875,300
15,000,000 U.S. Treasury Bills 12/12/96 5.46 14,778,750
10,000,000 U.S. Treasury Bills 01/02/97 5.50 9,820,181
10,000,000 U.S. Treasury Bills 01/09/97 5.51 9,809,422
10,000,000 U.S. Treasury Bills 02/06/97 5.50 9,768,600
20,000,000 U.S. Treasury Bills 03/06/97 5.43 19,466,133
10,000,000 U.S. Treasury Notes, 7.00% 09/30/96 5.06 10,012,132
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
17
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
U.S. GOVERNMENT PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- -------
U.S. Government Obligations (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10,000,000 U.S. Treasury Notes, 8.00% 10/15/96 5.25% $ 10,029,594
5,000,000 U.S. Treasury Notes, 6.87% 10/31/96 5.08 5,011,600
15,000,000 U.S. Treasury Notes, 6.87% 10/31/96 5.07 15,034,888
10,000,000 U.S. Treasury Notes, 4.37% 11/15/96 5.18 9,980,334
10,000,000 U.S. Treasury Notes, 4.37% 11/15/96 5.25 9,980,783
10,000,000 U.S. Treasury Notes, 7.25% 11/15/96 5.28 10,035,723
10,000,000 U.S. Treasury Notes, 7.25% 11/30/96 5.20 10,041,754
15,000,000 U.S. Treasury Notes, 7.25% 11/30/96 5.49 15,057,928
- ------------ ------------
245,000,000 Total U.S. Government Obligations 243,215,283
- ------------ ------------
Total Investments (102.22%) (Cost $810,423,664+) 810,423,664
Liabilities in Excess of Cash and Other Assets (-2.22%) (17,634,353)
------------
Net Assets (100.00%) $792,789,311
============
Net asset value, offering and redemption price per share:
Class A shares, 666,620,150 shares outstanding (Note 3) $ 1.00
============
Class B shares, 126,169,161 shares outstanding (Note 3) $ 1.00
============
+ Aggregate cost for federal income tax purposes is identical.
FOOTNOTES:
(a) This is a small business administration variable pool certificate. The
interest rate is adjusted periodically based upon the prime rate.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
18
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED AUGUST 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Money Market U.S. Government
Portfolio Portfolio
------------------- ------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest............................................................ $ 53,088,941 $ 41,866,422
------------------ ------------------
Expenses: (Note 2)
Investment management fee........................................... 2,827,181 1,960,693
Administration fee.................................................. 1,970,196 1,573,195
Distribution fee (Class A).......................................... 1,808,166 1,448,043
Custodian expenses.................................................. 107,238 95,458
Shareholder servicing and related shareholder expenses.............. 1,938,400 469,689
Legal, compliance and filing fees................................... 60,583 53,109
Audit and accounting................................................ 91,705 88,048
Directors' fees .................................................... 29,318 16,842
Miscellaneous....................................................... 21,156 17,926
------------------ ------------------
Total expenses.................................................. 8,853,943 5,723,003
Less:
Fees waived (Note 2)...................................... ( 220,000) --
Expenses paid indirectly.................................. ( 85,145) ( 14,045)
------------------ ------------------
Net expenses.......................................... 8,548,798 5,708,958
------------------ ------------------
Net investment income................................................... 44,540,143 36,157,464
------------------ ------------------
<CAPTION>
<S> <C> <C>
REALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments................................. 130,223 160,896
------------------ ------------------
Increase in net assets from operations.................................. $ 44,670,366 $ 36,318,360
================== ==================
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
19
<PAGE>
- -------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED AUGUST 31, 1996 AND 1995
===============================================================================
<TABLE>
<CAPTION>
Money Market Portfolio U.S. Government Portfolio
---------------------------------- ----------------------------------
1996 1995 1996 1995
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income................... $ 44,540,143 $ 40,399,994 $ 36,157,464 $ 32,852,430
Net realized gain (loss) on investments. 130,223 ( 11,438,610) 160,896 19,188
---------------- --------------- --------------- ----------------
Increase in net assets from operations.. 44,670,366 28,961,384 36,318,360 32,871,618
Dividends to shareholders:
Net investment income
Class A............................... ( 33,451,731) ( 28,998,644) ( 27,085,557) ( 20,587,273)
Class B............................... ( 11,087,370) ( 11,207,955) ( 9,071,907) ( 12,265,157)
Net realized gain on investments
Class A............................... -- -- ( 133,784)* ( 11,606)
Class B............................... -- -- ( 27,112)* ( 7,582)
Capital share transactions (Note 3):
Class A............................... 94,199,071 ( 13,625,381) 197,028,406 70,892,796
Class B............................... 1,902,497 ( 203,707,058) ( 180,629,804) 226,602,774
Contribution of capital from
investment manager (Note 2)...... -- 9,488,117 -- --
---------------- --------------- --------------- ----------------
Total increase (decrease)............. 96,232,833 ( 219,089,537) 16,398,602 297,495,570
Net assets:
Beginning of year..................... 879,671,542 1,098,761,079 776,390,709 478,895,139
---------------- --------------- --------------- ----------------
End of year........................... $ 975,904,375 $ 879,671,542 $ 792,789,311 $ 776,390,709
================ =============== =============== ================
* 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.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
20
<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. 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 theidentified 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 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,
1996.
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21
<PAGE>
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SHORT TERM INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
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. Prior to December 1, 1995 the administration fee was .20%, .19% and
18%.
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% of 1% per annum of each Portfolio's average daily net assets.
For the year ended August 31, 1996 the Manager voluntarily waived investment
management fees and shareholder servicing fees of $200,000 and $20,000,
respectively, of the Money Market Portfolio.
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 $786,362 and $228,495
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
$85,145 and $14,045 for the Money Market Portfolio and the U.S. Government
Portfolio, respectively.
On November 4, 1994, in order to maintain the net asset value of the Money
Market Portfolio at $1.00, the Manager purchased U.S. Government Agency
Securities, from the Money Market Portfolio for $130,750,000 which was equal to
the Money Market Portfolio's amortized cost or carrying value on that date. The
securities had a fair value of $121,261,883 on this date. The excess over fair
value ($9,488,117) that was paid by the Manager has been classified by the Money
Market Portfolio as a realized loss in the Statement of Operations and a capital
contribution in the Statement of Changes in Net Assets.
3. Capital Stock.
At August 31, 1996, 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 $978,003,968 and $792,789,311, respectively.
Transactions in capital stock, all at $1.00 per share, were as follows:
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22
<PAGE>
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CAPITAL STOCK. (CONTINUED)
===============================================================================
<TABLE>
<CAPTION>
3. Capital Stock. (Continued)
Money Market Portfolio U.S. Government Portfolio
---------------------------------- ------------------------------------
Year Ended Year Ended Year Ended Year Ended
8/31/96 8/31/95 8/31/96 8/31/95
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Class A
Sold................................... 750,205,484 697,072,360 784,780,227 564,854,707
Issued on reinvestment of dividends.... 29,962,057 25,911,372 26,088,090 19,605,821
Redeemed............................... ( 685,968,470) ( 736,609,113) ( 613,839,911) ( 513,567,732)
-------------- -------------- -------------- --------------
Net increase (decrease)................ 94,199,071 ( 13,625,381) 197,028,406 70,892,796
============== ============== ============== ==============
<CAPTION>
<S> <C> <C> <C> <C>
Class B
Sold................................... 635,780,156 515,705,468 752,064,206 1,119,846,439
Issued on reinvestment of dividends.... 10,765,783 11,057,107 8,117,333 10,643,618
Redeemed............................... ( 644,643,442) ( 730,469,633) ( 940,811,343) ( 903,887,283)
-------------- -------------- -------------- --------------
Net increase (decrease)................ 1,902,497 ( 203,707,058) ( 180,629,804) 226,602,774
============== ============== ============== ==============
</TABLE>
4. Sales of Securities.
Accumulated undistributed realized losses of the Money Market Portfolio at
August 31, 1996 amounted to $2,294,030. At August 31, 1996 the Fund had tax
basis capital losses of $2,283,215 which may be carried forward to offset future
capital gains through August 31, 2002.
5. Subsequent Event.
On October 22, 1996 the U.S. Government Portfolio declared a Long Term Capital
Gain distribution of $.000262202 per share to shareholders of record as of
October 22, 1996. The dividend will be paid on November 15, 1996.
6. SELECTED FINANCIAL INFORMATION.
Reference is made to page 3 of the Prospectus for the Selected Financial
Information.
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23
