<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM 600 FIFTH AVENUE, NEW YORK, NY 10020
INCOME FUND, INC. (212) 830-5200
================================================================================
Dear Shareholder:
We are pleased to present the annual report of Short Term Income Fund, Inc. for
the year ended August 31, 1998.
The Fund's Money Market Portfolio had 72,141 shareholders and net assets of
$1,281,553,694 as of August 31, 1998. The Government Portfolio had 13,603
shareholders and net assets of $822,664,536 as of August 31, 1998.
We thank you for your support and look forward to continuing to serve your cash
management needs.
Sincerely,
\s\Steven W. Duff
Steven W. Duff
President
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1998
================================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- ------
Commercial Paper (10.50%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 32,000,000 Banco Santander Puerto Rico 09/11/98 5.59% $ 31,950,714
18,200,000 Island Finance Puerto Rico, Inc. 09/03/98 5.58 18,194,429
15,000,000 Island Finance Puerto Rico, Inc. 09/16/98 5.57 14,965,437
20,000,000 Lehman Brothers Holdings, Inc. 09/15/98 5.59 19,956,911
15,000,000 Merrill Lynch & Co., Inc. 03/09/99 5.70 14,569,238
20,000,000 Paine Webber Group 09/08/98 5.66 19,978,105
15,000,000 Paine Webber Group 09/11/98 5.66 14,976,542
-------------- --------------
135,200,000 Total Commercial Paper 134,591,376
-------------- --------------
<CAPTION>
Domestic Certificates of Deposit (3.12%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 15,000,000 Bankers Trust Company 05/13/99 5.83% $ 14,996,868
25,000,000 Chase Manhattan Bank (USA) 01/15/99 5.62 25,000,000
-------------- --------------
40,000,000 Total Domestic Certificates of Deposit 39,996,868
-------------- --------------
<CAPTION>
Letter of Credit Commercial Paper (26.70%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 20,000,000 Banco Bozano Simonsen S.A.
LOC Banco Santander 06/18/99 5.81% $ 19,113,889
5,000,000 Banco Bradesco S.A.
LOC Barclays Bank PLC 06/17/99 5.81 4,779,236
10,000,000 Banco De Credito Nacional, S.A.
LOC Barclays Bank PLC 11/20/98 5.55 9,881,556
5,000,000 Banco Mercantil Del Norte, S.A.
LOC Bayerische Vereinsbank, A.G. 11/06/98 5.56 4,951,050
20,000,000 Banco Rio de La Plata S.A.
LOC Bayerische Vereinsbank, A.G./Banco Santander 12/08/98 5.68 19,703,278
25,000,000 Bancomer, S.A
LOC Bank of Montreal 10/16/98 5.60 24,826,875
15,000,000 Cemex S.A. de C.V.
LOC Credit Suisse First Boston 10/22/98 5.58 14,882,488
20,000,000 China International Marine Containers
LOC Societe Generale 10/14/98 5.60 19,868,014
17,500,000 Contifinancial Corporation
LOC Dresdner Bank 11/19/98 5.61 17,287,633
5,477,000 County of Riverside Teeter Obligation
LOC Westdeutsche Landesbank 10/14/98 5.59 5,440,692
25,000,000 Dean Health System, Inc.
LOC Rabobank Nederland 12/16/98 5.58 24,596,611
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- ------
Letter of Credit Commercial Paper (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 17,000,000 Dean Health System, Inc.
LOC Rabobank Nederland 09/21/98 5.58% $ 16,947,583
15,000,000 Finans Funding Corporation II
LOC Rabobank Nederland 02/19/99 5.69 14,610,262
5,000,000 Formosa Plastics Corporation, U.S.A.
LOC ABN AMRO Bank N.V. 09/18/98 5.62 4,986,943
20,000,000 Guandong Enterprises (Holdings) Ltd.
LOC Credit Suisse First Boston 09/04/98 5.62 19,990,883
10,000,000 Minmetals Capitals & Securities Inc.
LOC Credit Suisse First Boston 02/23/99 5.60 9,735,069
18,750,000 Pactual Overseas
LOC Barclays Bank PLC 02/11/99 5.72 18,283,073
10,000,000 Pemex Capital Inc.
LOC Societe Generale 10/20/98 5.60 9,924,867
20,000,000 Pemex Capital Inc.
LOC Societe Generale 12/15/98 5.60 19,679,167
15,000,000 Petroleo Brasileiro, S.A.
LOC Barclays Bank PLC 12/21/98 5.60 14,751,175
10,000,000 Unibanco-Uniao De Bancos Brasilieros
LOC Bayerische Vereinsbank, A.G. 04/16/99 5.80 9,654,140
40,000,000 Unibanco-Uniao De Bancos Brasilieros
LOC Westdeutsche Landesbank 06/28/99 5.71 38,191,458
-------------- --------------
348,727,000 Total Letter of Credit Commercial Paper 342,085,942
-------------- --------------
<CAPTION>
Loan Participations (7.02%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 20,000,000 Boeing Capital Corporation with Chase Manhattan Bank (i) 08/24/99 5.72% $ 20,000,000
40,000,000 GMAC Mortgage Corporation with Bank One Ohio (d) 09/01/98 5.96 40,000,000
20,000,000 Marsh & McLennan Companies with Chase Manhattan Bank 11/24/98 5.59 20,000,000
10,000,000 Marsh & McLennan Companies with Chase Manhattan BanK 11/24/98 5.64 10,000,000
-------------- --------------
90,000,000 Total Loan Participations 90,000,000
-------------- --------------
<CAPTION>
Master Notes (5.46%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,000,000 Donaldson, Lufkin & Jenrette (a) 02/05/99 5.70% $ 5,000,000
20,000,000 The Goldman Sachs Group L.P. (b) 01/22/99 5.61 20,000,000
45,000,000 Williamette Industries Incorporated (c) 07/09/99 5.68 45,000,000
-------------- --------------
70,000,000 Total Master Notes 70,000,000
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1998
================================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- ------
Medium Term Note (1.56%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 20,000,000 The Bear Stearns Companies, Inc. (g) 06/07/99 5.63% $ 20,000,000
-------------- --------------
20,000,000 Total Medium Term Notes 20,000,000
-------------- --------------
<CAPTION>
Other Notes (24.84%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,000,000 Allegheny Co, PA (Union Electric Steel Corp.)
LOC PNC Bank, N.A. 11/01/27 5.65% $ 5,000,000
13,000,000 Bayerische Landesbank 05/05/99 5.63 13,052,539
1,740,000 B & V Land Company, L.L.C.
LOC First Michigan Bank 09/01/27 5.62 1,740,000
3,955,000 Bollman Capital, L.L.C. - Series 1996A (e)
LOC First of America/Michigan National Bank 12/15/26 5.62 3,955,000
3,000,000 California PCFA Environmental Improvement Bonds
(Shell Oil Company Project) (e) 06/01/38 5.61 3,000,000
9,076,000 Capital One Funding Corporation
Floating Rate Option Notes - Series 1997D
LOC Bank One Ohio 07/02/18 5.61 9,076,000
2,360,000 Carriage Inn Retirement Community of Cadiz, Inc. - Series 1996 (e)
LOC Key Bank, N.A. 10/01/17 5.66 2,360,000
2,740,000 Carriage Inn Retirement Community of Dayton, Inc. - Series 1996 (e)
LOC Key Bank, N.A. 10/01/16 5.66 2,740,000
15,000,000 Caterpillar Financial Services Corporation (j) 07/07/99 5.61 15,000,000
11,000,000 Development Authority of Douglas County, GA
LOC NationsBank 11/01/18 5.75 11,000,000
7,285,000 Dickenson Press, Inc. - Series 1997 (e)
LOC First Michigan Bank 01/01/27 5.62 7,285,000
1,000,000 Dormont Manufacturing Company, Inc. (e)
LOC PNC Bank, N.A. 03/01/08 5.70 1,000,000
4,700,000 DP Fox Capital, L.L.C. (e)
LOC Michigan National Bank 05/01/28 5.62 4,700,000
4,830,000 First Metropolitan Title Company (e)
LOC Michigan National Bank 05/01/22 5.60 4,830,000
20,000,000 First Union National Bank of North Carolina (k) 07/16/99 5.60 20,000,000
3,015,000 Greensboro, NC Public Improvement - Series C (e) 04/01/14 5.65 3,015,000
4,605,000 Growth Properties I, Ltd L.P. 1997 (e)
LOC Columbus Bank & Trust Company 08/01/12 5.75 4,605,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- ------
Other Notes (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 6,900,000 Illinois Health Facilities (Loyola University) (e)
MBIA Insured 07/01/24 5.65% $ 6,900,000
9,000,000 Illinois Student Assistance Commission (e)
MBIA Insured 09/01/32 5.59 9,000,000
18,600,000 Jacksonville Health Charity Group (Baptist/St. Vincent) (e)
MBIA Insured 08/15/19 5.65 18,600,000
15,000,000 John Hancock Mutual Life Insurance Company (l) 08/19/00 5.77 15,000,000
1,685,000 KBL Capital Fund, Inc. (e)
LOC Old Kent Bank & Trust Co. 07/01/15 5.62 1,685,000
3,845,000 LKWP Investments, L.L.C. (e)
LOC First Michigan Bank 03/01/27 5.65 3,845,000
2,275,000 Labelle Capital Funding - Series A (e)
LOC First of America/Michigan National Bank 09/01/26 5.62 2,275,000
1,750,000 Labelle Capital Funding - Series B (e)
LOC First of America/Michigan National Bank 09/01/26 5.60 1,750,000
5,000,000 Lam Funding, L.L.C.
LOC First of America 12/15/27 5.60 5,000,000
1,700,000 Machining Center
LOC Comerica Bank 10/01/27 5.57 1,700,000
4,265,000 Massachusetts IFA (E. Nazarene College)
LOC State Street Bank & Trust Co. 10/01/13 5.59 4,265,000
1,910,000 Miami Valley Realty Associates (e)
LOC Key Bank, N.A. 06/01/12 5.66 1,910,000
965,000 Mt. Carmel East Professional Office Building - Series 1994 (e)
LOC National City Bank, Northwest 01/01/14 5.63 965,000
1,455,000 Mt. Carmel Partnership Project
LOC National City Bank, Northwest 08/01/14 5.63 1,455,000
3,000,000 Mubea, Inc. Project
LOC Fifth Third Bank 12/01/04 5.63 3,000,000
4,890,000 New Federal Cold Storage
LOC National City Bank, PA 11/01/12 5.63 4,890,000
25,000,000 New York City GO Bonds
FGIC Insured 11/19/98 5.74 25,000,000
13,000,000 New York State HFA (250 West 50th Street Project) - Series 1997B (e)
LOC Fleet National Bank 05/01/13 5.65 13,000,000
1,145,000 Oak Crest Homes, Inc. (e)
LOC First of America 11/01/26 5.62 1,145,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1998
================================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- ------
Other Notes (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 3,660,000 Opportunity Aviation, Ltd. Project
LOC National City Bank, Northwest 12/02/02 5.63% $ 3,660,000
9,750,000 PRD Financial L.L.C.
LOC First of America 04/01/27 5.60 9,750,000
900,000 Pennsylvania EDFA (CEO Deux, Inc.) (e)
LOC PNC Bank, N.A. 08/01/08 5.65 900,000
1,300,000 Pennsylvania EDFA (Cambria Rowe Business Col.)
LOC PNC Bank, N.A. 12/01/14 5.65 1,300,000
1,300,000 Pennsylvania EDFA (Southstar Canal Road Ltd.)
LOC PNC Bank, N.A. 12/01/10 5.65 1,300,000
4,300,000 Polar Plastics, Inc. (e)
LOC PNC Bank, N.A. 08/01/17 5.63 4,300,000
2,470,000 SDR Capital, L.L.C. (e)
LOC First Michigan Bank 10/15/01 5.62 2,470,000
2,200,000 SSM Health Care Systems - Series 1995D (e)
MBIA Insured 06/01/24 5.60 2,200,000
4,500,000 Seven Z Enterprises (h)
LOC PNC Bank, N.A. 06/03/13 5.70 4,500,000
2,000,000 Soaring Eagle Partners L.P.
LOC PNC Bank, N.A. 10/01/12 5.63 2,000,000
3,000,000 Sojourn Project
LOC First National Bank of Ohio 07/01/12 5.73 3,000,000
1,990,000 UAI Technologies, Inc. - Series 1998 (e)
LOC First Union 05/01/18 5.65 1,990,000
1,775,000 Valley City Linen Co. (e)
LOC First Michigan Bank 02/15/02 5.62 1,775,000
3,000,000 Van Wert County, OH
LOC Bank One Ohio 11/01/17 5.66 3,000,000
11,620,000 Washington State HFC (Country Manor One Project) (e)
LOC U.S. Bank of Washington 01/01/12 5.85 11,620,000
4,500,000 Windsor Medical Center, Inc. (e)
LOC First National Bank of Ohio 12/03/18 5.73 4,500,000
14,000,000 Winston - Salem, NC COP (m) 09/03/98 5.58 14,000,000
6,000,000 Winston - Salem, NC COP (m) 09/01/98 5.56 6,000,000
1,500,000 Wulfeck Family Partnership Project
LOC Star Bank, N.A. 09/01/17 5.68 1,500,000
4,840,000 Zylstra Funding, Inc. (e)
LOC First Michigan Bank 06/01/27 5.62 4,840,000
-------------- --------------
318,296,000 Total Other Notes 318,348,539
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- ------
Repurchase Agreements, Overnight (14.28%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 183,000,000 The Goldman Sachs Group L.P. (Collateralized by $192,771,374,
GNMA, 6.5000% to 8.0000, due 04/15/13 to 08/15/28) 09/01/98 5.79% $ 183,000,000
-------------- --------------
183,000,000 Total Repurchase Agreements, Overnight 183,000,000
-------------- --------------
<CAPTION>
Short Term Bank Notes (1.56%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 20,000,000 NationsBank 12/22/98 5.53% $ 20,016,214
-------------- --------------
20,000,000 Total Short Term Bank Notes 20,016,214
-------------- --------------
<CAPTION>
Yankee Certificates of Deposit (4.68%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10,000,000 ABN AMRO Bank N.V. 03/12/99 5.72% $ 9,994,867
15,000,000 ABN AMRO Bank N.V. 04/05/99 5.77 14,995,750
20,000,000 Bayerische Vereinsbank, A.G. (f) 02/26/99 5.66 19,995,324
15,000,000 Swiss Bank Corporation 03/22/99 5.68 14,996,419
-------------- --------------
60,000,000 Total Yankee Certificates of Deposit 59,982,360
-------------- --------------
Total Investments (99.72%) (Cost$1,278,021,299+) 1,278,021,299
Cash and Other Assets, Net of Liabilities (0.28%) 3,532,395
--------------
Net Assets (100.00%) $1,281,553,694
==============
Net Assets Value, offering and redemption price per share:
Class A Shares, 986,719,741 shares outstanding (Note 3) $ 1.00
==============
Class B Shares, 296,580,982 shares outstanding (Note 3) $ 1.00
==============
+ Aggregate cost for federal tax purposes is identical.
</TABLE>
FOOTNOTES:
(a) The interest rate is adjusted monthly based on 1 month LIBOR +0.05% (30 day
put).
(b) The interest rate is adjusted daily based on opening Federal Funds rate
+.10% (daily put).
(c) The interest rate is adjusted monthly based on 1 month LIBOR +0.03% (daily
put).
(d) The interest rate is adjusted monthly based on Federal Funds rate +0.15%.
(e) Securities payable on demand at par including accrued interest (with 7 days
notice). Interest is adjusted weekly.
(f) The interest rate is adjusted quarterly based on 3 month LIBOR flat.
(g) The interest rate is adjusted monthly based on 1 month LIBOR - 0.03% (daily
put).
(h) This security can be put on the first business day of the month at par.
Interest is adjusted weekly.
(i) The interest rate is adjusted quarterly based on 3 month LIBOR +3 basis
points.
(j) The interest rate is adjusted quarterly based on 3 month LIBOR -0.07%.
(k) The interest is adjusted daily based on prime -2.90%.
(l) The interest rate is adjusted yearly based on 1 year LIBOR +0.06%. (one
year put).
(m) Maturity date indicated is the next put date.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
U.S. GOVERNMENT PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1998
================================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 1)
------ ---- ----- ------
Repurchase Agreements, Overnight (85.21%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 160,000,000 Canadian Imperial Bank of Commerce (Collateralized by $172,718,930,
GNMA, 6.0000%, due 11/20/27) 09/01/98 5.80% $ 160,000,000
61,000,000 Fuji Bank, Ltd. (Collateralized by $62,569,000,
U.S. Treasury Bills, due 11/27/98 to 01/07/99) 09/01/98 5.75 61,000,000
220,000,000 The Goldman Sachs Group L.P. (Collateralized by $277,212,296,
GNMA, 6.5000% to 9.0000%, due 07/15/09 to 08/15/28) 09/01/98 5.79 220,000,000
220,000,000 Morgan Stanley (Collateralized by $346,753,759,
GNMA, 4.5000% to 8.5000%, due 03/20/11 to 06/20/28) 09/01/98 5.80 220,000,000
40,000,000 The Goldman Sachs Group L.P. (Collateralized by $45,324,791,
GNMA 5.5000% to 8.0000%, due 02/15/12 to 08/15/28) 09/14/98 5.52 40,000,000
-------------- --------------
701,000,000 Total Repurchase Agreements, Overnight 701,000,000
-------------- --------------
<CAPTION>
U.S. Government Obligations (14.63%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 35,000,000 U.S. Treasury Notes, 6.00% 09/30/98 5.49% $ 35,010,723
20,000,000 U.S. Treasury Notes, 5.87% 10/31/98 5.39 20,006,800
20,000,000 U.S. Treasury Notes, 6.25% 03/31/99 5.29 20,077,942
30,000,000 U.S. Treasury Notes, 6.37% 04/30/99 5.28 30,150,967
15,000,000 U.S. Treasury Notes, 6.25% 05/31/99 5.36 15,068,896
-------------- --------------
120,000,000 Total U.S. Government Obligations 120,315,328
-------------- --------------
Total Investments (99.84%)(Cost $821,315,328+) 821,315,328
Cash and Other Assets, Net of Liabilities (0.16%) 1,349,208
--------------
Net Assets (100.00%) $ 822,664,536
==============
Net asset value, offering and redemption price per share:
Class A Shares, 752,496,857 shares outstanding (Note 3) $ 1.00
==============
Class B Shares, 70,167,679 shares outstanding (Note 3) $ 1.00
==============
+ Aggregate cost for federal income tax purposes is identical
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1998
================================================================================
<TABLE>
<CAPTION>
Money Market U.S. Government
Portfolio Portfolio
---------------- -----------------
INVESTMENT INCOME
Income:
<S> <C> <C>
Interest............................................................. $ 67,328,387 $ 44,640,312
-------------- --------------
Expenses: (Note 2)
Investment management fee............................................ 3,491,263 2,060,639
Administration fee................................................... 2,487,557 1,678,581
Distribution fee (Class A)........................................... 2,309,663 1,793,205
Custodian expenses................................................... 91,856 55,803
Shareholder servicing and related shareholder expenses............... 2,053,108 943,109
Legal, compliance and filing fees.................................... 218,154 90,656
Audit and accounting................................................. 94,374 60,003
Directors' fees...................................................... 27,083 15,083
Miscellaneous........................................................ 50,957 27,859
-------------- --------------
Total expenses.................................................. 10,824,015 6,724,938
Less:
Fees waived................................................ ( 286,000) --
Expenses paid indirectly................................... ( 5,439) --
-------------- --------------
Net expenses.......................................... 10,532,576 6,724,938
-------------- --------------
Net investment income.................................................... 56,795,811 37,915,374
-------------- --------------
REALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments................................... 69,854 -0-
-------------- --------------
Increase in net assets from operations.................................... $ 56,865,665 $ 37,915,374
============== ==============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED AUGUST 31, 1998 AND 1997
================================================================================
<TABLE>
<CAPTION>
Money Market Portfolio U.S. Government Portfolio
----------------------------------- -----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
<S> <C> <C> <C> <C>
Net investment income........................ $ 56,795,811 $ 47,631,811 $ 37,915,374 $ 35,413,961
Net realized gain (loss) on investments...... 69,854 52,064 -0- 187,048
--------------- --------------- --------------- ---------------
Increase in net assets from operations....... 56,865,665 47,683,875 37,915,374 35,601,009
Dividends to shareholders:
Net investment income
Class A.................................... ( 43,410,231) ( 35,478,855) ( 33,787,099) ( 29,587,255)
Class B.................................... ( 13,154,934) ( 12,152,956) ( 4,128,275) ( 5,826,706)
Net realized gain on investments
Class A.................................... -- -- -- ( 154,608)*
Class B.................................... -- -- -- ( 32,440)*
Capital share transactions (Note 3):
Class A.................................... 184,183,496 44,913,178 16,916,289 68,960,418
Class B.................................... 28,629,584 47,570,497 1,200,649 ( 57,202,131)
--------------- --------------- --------------- ---------------
Total increase (decrease).................. 213,113,580 92,535,739 18,116,938 11,758,287
Net assets:
Beginning of period........................ 1,068,440,114 975,904,375 804,547,598 792,789,311
--------------- --------------- --------------- ---------------
End of period (including undistributed net
investment income of $414,267 and
183,621 for the Money Market Portfolio)... $ 1,281,553,694 $ 1,068,440,114 $ 822,664,536 $ 804,547,598
=============== =============== =============== ===============
* Represents a Long Term Capital Gain distribution of .000262202 per share declared to shareholders of
record as of October 22, 1996 and paid on November 15,1996.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. Summary of Accounting Policies.
Short Term Income Fund, Inc. is a no-load, diversified, open-end management
investment company registered under the Investment Company Act of 1940. The Fund
is presently comprised of two Portfolios, Money Market Portfolio and U.S.
Government Portfolio, with each Portfolio having two classes of stock
authorized, Class A and Class B. The Class A shares of each Portfolio are
subject to a service fee pursuant to each Portfolio's Distribution and Service
Plan. The Class B shares are not subject to a service fee. Additionally, the
Portfolio may allocate among its classes certain expenses, to the extent
allowable to specific classes, including transfer agent fees, government
registration fees, certain printing and postage costs, and administrative and
legal expenses. Class specific expenses of the Fund were limited to distribution
fees and transfer agent expenses. In all other respects, the Class A and Class B
shares represent the same interest in the income and assets of each respective
Portfolio. The Fund's financial statements are prepared in accordance with
generally accepted accounting principles for investment companies as follows.
a) Valuation of Securities -
Investments are valued at amortized cost. Under this valuation method, a
portfolio instrument is valued at cost and any discount or premium is
amortized on a constant basis to the maturity of the instrument.
b) Federal Income Taxes -
It is the policy of each Portfolio to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no
provision for federal income tax is required.
c) Dividends and Distributions -
Dividends from investment income (including realized capital gains and
losses), determined on a class level, are declared daily and paid monthly.
With respect to the Money Market Portfolio, realized capital gains and
losses are excluded.
d) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
e) General -
Securities transactions are recorded on a trade date basis. Interest income
is accrued as earned. Realized gains and losses from securities
transactions are recorded on the identified cost basis. It is the Fund's
policy to take possession of securities as collateral under repurchase
agreements and to determine on a daily basis that the value of such
securities are sufficient to cover the value of the repurchase agreements.
2. Investment Management Fees and Other Transactions with Affiliates.
Under the Management Contract, the Money Market Portfolio pays a management fee
to Reich & Tang Asset Management, L.P. (the Manager) at the annual rate of .30%
of the Portfolio's average daily net assets not in excess of $750 million, plus
.29% of such assets in excess of $750 million but not in excess of $1 billion,
plus .28% of such assets in excess of $1 billion but not in excess of $1.5
billion, plus .27% of such assets in excess of $1.5 billion. The U.S. Government
Portfolio pays a management fee to the Manager equal to .275% of the Portfolios
average daily net assets not in excess of $250 million, plus .25% of such assets
in excess of $250 million. The Manager has agreed to reimburse the Fund for its
net operating expenses (exclusive of taxes, brokerage, interest and
extraordinary expenses) to the extent that such expenses, including the
management fee, for any fiscal year exceed 1% of the average daily net assets of
each Portfolio for such fiscal year. No such reimbursement was required for the
year ended August 31, 1998.
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<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.
Pursuant to a Distribution and Service Plan adopted under Securities and
Exchange Commission Rule 12b-1, the Fund and Reich & Tang Distributors Inc. (the
Distributor) entered into a Distribution Agreement and a Shareholder Servicing
Agreement, only with respect to the Class A shares of each Portfolio. For its
services under the Shareholder Servicing Agreement, the Distributor receives
from each Portfolio with respect only to the Class A shares, a service fee equal
to .25% per annum of each Portfolio's average daily net assets.
During the year ended August 31, 1998, the Manager voluntarily waived investment
management fees and administration fees of $276,258 and $9,742, respectively on
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 $1,056,627 and $400,792
for the Money Market Portfolio and the U.S. Government Portfolio, respectively,
paid to Reich & Tang Services Inc., an affiliate of the Manager as servicing
agent for the Fund.
Included under the caption "Shareholder servicing and related shareholder
expenses" are expense offsets of $5,439 for the Money Market Portfolio.
- --------------------------------------------------------------------------------
<PAGE>
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================================================================================
3. Capital Stock.
At August 31, 1998, 10,000,000,000 shares of $.001 par value stock were
authorized and capital paid in for the Money Market Portfolio and the U.S.
Government Portfolio amounted to $1,283,300,723 and $822,664,536, respectively.
Transactions in capital stock, all at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
Money Market Portfolio U.S. Government Portfolio
----------------------------------- -----------------------------------
Year Ended Year Ended Year Ended Year Ended
8/31/98 8/31/97 8/31/98 8/31/97
------------- ------------- ------------- -------------
Class A
<S> <C> <C> <C> <C>
Sold............................... 957,881,430 762,333,045 867,760,740 673,017,142
Issued on reinvestment of dividends 39,324,620 32,106,578 32,991,750 29,037,928
Redeemed........................... ( 813,022,554) ( 749,526,445) ( 883,836,201) ( 633,094,652)
------------- ------------- ------------- -------------
Net increase (decrease)............ 184,183,496 44,913,178 16,916,289 68,960,418
============= ============= ============= =============
Class B
Sold............................... 897,301,951 794,418,253 494,551,691 422,620,917
Issued on reinvestment of dividends 12,863,930 11,723,232 3,422,930 5,304,650
Redeemed........................... ( 881,536,297) ( 758,570,988) ( 496,773,972) ( 485,127,698)
------------- ------------- ------------- -------------
Net increase (decrease)............ 28,629,584 47,570,497 1,200,649 ( 57,202,131)
============= ============= ============= =============
</TABLE>
4. Sales of Securities.
Accumulated undistributed realized losses of the Money Market Portfolio at
August 31, 1998 amounted to $2,161,296. Such amount represents tax basis capital
losses which may be carried forward to offset future capital gains through
August 31, 2004.
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<PAGE>
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SHORT TERM INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
<TABLE>
<CAPTION>
5. Financial Highlights.
Money Market Portfolio
CLASS A Year Ended August 31,
- ------- ----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Per Share Operating Performance:
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income......................... 0.047 0.046 0.047 0.047 0.029
Less distributions:
Dividends from net investment income.......... ( 0.047) ( 0.046) ( 0.047) ( 0.047) ( 0.029)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Return...................................... 4.80% 4.66% 4.71% 4.82%(b) 2.93%
Ratios/Supplemental Data
Net assets, end of year (000)..................... $ 985,377 $ 801,001 $ 756,094 $ 661,795 $ 676,756
Ratios to average net assets:
Expenses (net of fees waived)................. 0.97% 0.99% 0.98% 0.88% 0.91%
Net investment income......................... 4.72% 4.57% 4.63% 4.75% 2.89%
Management, administration and shareholder
servicing fees waived....................... 0.02% -- 0.02% 0.13% --
Expenses paid indirectly...................... -- 0.01% 0.01% -- --
Money Market Portfolio
CLASS B(a) Year Ended August 31,
- ---------- ----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Per Share Operating Performance:
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income......................... 0.050 0.049 0.049 0.050 0.031
Less distributions:
Dividends from (net investment income......... ( 0.050) ( 0.049) ( 0.049) ( 0.050) ( 0.031)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Return...................................... 5.16% 5.01% 5.00% 5.08%(b) 3.19%
Ratios/Supplemental Data
Net assets, end of period (000)................... $ 296,177 $ 267,439 $ 219,810 $ 217,877 $ 422,005
Ratios to average net assets:
Expenses (net of fees waived)................. 0.62% 0.66% 0.70% 0.62% 0.67%
Net investment income......................... 5.07% 4.90% 4.91% 4.90% 3.13%
Management, administration and shareholder
servicing fees waived....................... 0.02% -- 0.02% 0.13% --
Expenses paid indirectly...................... -- 0.01% 0.01% -- --
(a) Distribution of Class B shares commenced November 30, 1992.
(b) Includes the effect of a capital contribution from the Manager. Without the capital contribution, the total return would
have been 3.42% for Class A and 3.69% for Class B.
</TABLE>
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<PAGE>
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================================================================================
<TABLE>
<CAPTION>
5. Financial Highlights. (Continued)
U.S. Government Portfolio
CLASS A Year Ended August 31,
- ------- ----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Per Share Operating Performance:
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income...................... 0.047 0.046 0.047 0.048 0.028
Less distributions:
Dividends from net investment income....... ( 0.047) ( 0.046) ( 0.047) ( 0.048) ( 0.028)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Return................................... 4.82% 4.73% 4.81% 4.93% 2.79%
Ratios/Supplemental Data
Net assets, end of year (000).................. $ 752,497 $ 735,581 $ 666,620 $ 469,592 $ 398,699
Ratios to average net assets:
Expenses................................... 0.87% 0.81% 0.81% 0.80% 0.85%
Net investment income...................... 4.71% 4.61% 4.68% 4.83% 2.75%
U.S. Government Portfolio
CLASS B Year Ended August 31,
- ------- ----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Per Share Operating Performance:
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income...................... 0.050 0.049 0.050 0.051 0.030
Less distributions:
Dividends from net investment income....... ( 0.050) ( 0.049) ( 0.050) ( 0.051) ( 0.030)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Return................................... 5.15% 5.00% 5.07% 5.19% 3.04%
Ratios/Supplemental Data
Net assets, end of year (000).................. $ 70,168 $ 68,967 $ 126,169 $ 306,799 $ 80,196
Ratios to average net assets:
Expenses................................... 0.55% 0.55% 0.56% 0.55% 0.60%
Net investment income...................... 5.03% 4.86% 5.04% 5.20% 2.98%
</TABLE>
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<PAGE>
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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, 1998, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Money Market Portfolio and the U.S. Government Portfolio of Short Term Income
Fund, Inc. as of August 31, 1998, the results of its operations, the changes in
its net assets and the selected financial information for the periods indicated,
in conformity with generally accepted accounting principles.
\s\McGladrey & Pullen,LLP
September 25, 1998
New York, New York
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM
INCOME
FUND, INC.
Annual Report
August 31, 1998
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- -----------------------------------------------------
This report is submitted for the general
information of the shareholders of the Fund. It is
not authorized for distribution to prospective
investors in the Fund unless preceded or
accompanied by an effective prospectus, which
includes information regarding the Fund's
objectives and policies, experience of its
management, marketability of shares, and other
information.
- -----------------------------------------------------
Short Term Income Fund, Inc.
600 Fifth Avenue
New York, New York 10020
Manager
Reich & Tang Asset Management, L.P.
600 Fifth Avenue
New York, New York 10020
Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Transfer Agent &
Dividend Disbursing Agent
Reich & Tang Services, Inc.
600 Fifth Avenue
New York, New York 10020
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<PAGE>
