-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J93cVwyqMcxI1N7m0NEO99Nmry/vY4sBEg275BPNdwf27Zn/E/y11DLzzImyKyYN rtIlbWf1DE4IZoGGMmzluQ== 0000897101-97-000631.txt : 19970529 0000897101-97-000631.hdr.sgml : 19970529 ACCESSION NUMBER: 0000897101-97-000631 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970528 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT U S GOVERNMENT SECURITIES FUND INC CENTRAL INDEX KEY: 0000809981 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 411570831 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04995 FILM NUMBER: 97615367 BUSINESS ADDRESS: STREET 1: 4600 NORWEST CTR 90 S 7TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 6123323223 MAIL ADDRESS: STREET 1: 4600 NORWEST CENTER, 90 SOUTH SEVENTH ST STREET 2: 4600 NORWEST CENTER, 90 SOUTH SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4130 FORMER COMPANY: FORMER CONFORMED NAME: SIT NEW BEGINNING U S GOVERNMENT SECURITIES FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NEW BEGINNING U S GOVERNMENT SECURITIES FUND INC DATE OF NAME CHANGE: 19870601 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT MUTUAL FUNDS II INC CENTRAL INDEX KEY: 0000746601 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04033 FILM NUMBER: 97615368 BUSINESS ADDRESS: STREET 1: 4600 NORWEST CTR 90 S 7TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 612-332-3223 MAIL ADDRESS: STREET 2: 4600 NORWEST CTR, 90 SOUTH SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 FORMER COMPANY: FORMER CONFORMED NAME: SIT NEW BEGINNING TAX FREE INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SIT NEW BEGINNING YIELD FUND INC DATE OF NAME CHANGE: 19880929 FORMER COMPANY: FORMER CONFORMED NAME: NEW BEGINNING YIELD FUND INC DATE OF NAME CHANGE: 19870907 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT MONEY MARKET FUND INC CENTRAL INDEX KEY: 0000746603 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 411492046 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04032 FILM NUMBER: 97615369 BUSINESS ADDRESS: STREET 1: 4600 NORWEST CTR 90 S 7TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 6123323223 MAIL ADDRESS: STREET 2: 4600 NORWEST CTR, 90 SOUTH SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4130 FORMER COMPANY: FORMER CONFORMED NAME: SIT NEW BEGINNING INVESTMENT RESERVE FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NEW BEGINNING INVESTMENT RESERVE FUND INC DATE OF NAME CHANGE: 19870907 N-30D 1 ANNUAL REPORT A LOOK AT THE SIT MUTUAL FUNDS Sit Mutual Funds is managed by Sit Investment Associates, Inc. Sit Investment was founded by Eugene C. Sit in July 1981 and is dedicated to a single purpose, to be one of the premier investment management firms in the United States. Sit Investment currently manages more than $5.2 billion for some of America's largest corporations, foundations and endowments. Sit Mutual Funds is comprised of eleven 100% NO-LOAD funds. 100% NO-LOAD means that the funds have no sales charges on purchases, no deferred sales charges, no 12b-1 fees, no redemption fees and no exchange fees. Every dollar you invest goes to work for you. Some of the other features include: * Free telephone exchange * Dollar-cost averaging through automatic investment plan * Electronic transfer of funds for purchases and redemptions * Free check-writing privileges on bond funds * Retirement accounts including IRAs, Keoghs and 401(k) Plans [GRAPH] SIT FAMILY OF FUNDS Principal Stability & Current Income STABILITY: INCOME: GROWTH & INCOME: GROWTH: Safety of principal Increased income Long-term capital Long-term capital and current income appreciation and appreciation income Growth Potential * MONEY MARKET * U.S. GOVERNMENT * BALANCED * MID CAP GROWTH SECURITIES * LARGE CAP GROWTH * INTERNATIONAL * TAX-FREE INCOME GROWTH * MINNESOTA * SMALL CAP TAX-FREE INCOME GROWTH * BOND * DEVELOPING MARKETS GROWTH SIT MUTUAL FUNDS BOND FUNDS ANNUAL REPORT TABLE OF CONTENTS PAGE Chairman's Letter......................................................... 2 Performance Review........................................................ 4 Fund Reviews and Portfolios of Investments Money Market Fund................................................... 6 U.S. Government Securities Fund..................................... 10 Bond Fund........................................................... 14 Tax-Free Income Fund................................................ 18 Minnesota Tax-Free Income Fund...................................... 28 Notes to Portfolios of Investments........................................ 35 Statements of Assets and Liabilities...................................... 36 Statements of Operations.................................................. 37 Statements of Changes in Net Assets....................................... 38 Notes to Financial Statements............................................. 40 Financial Highlights...................................................... 43 Independent Auditors' Report.............................................. 48 Federal Income Tax Information............................................ 49 This document must be preceded or accompanied by a Prospectus. SIT MUTUAL FUNDS CHAIRMAN'S LETTER - MARCH 31, 1997 [PHOTO] Dear Fellow Shareholders: Higher U.S. interest rates led domestic fixed income markets to provide positive but below-coupon rates of return during the fiscal year ended March 31, 1997. While prospects for additional increases in short-term rates remain likely in the near term, long-term yields are expected to decline by the latter half of 1997 as signs of economic slowing materialize. Economic Overview The domestic economy advanced at a remarkable +5.6% annualized rate of real GDP growth during the first quarter of 1997, exceeding even the most bullish forecasts of +4.5%. Consumer spending, which rose +6.4% during the quarter, accounted for three-quarters of the rise in GDP, but increases in business spending and inventory accumulation also contributed positively. We believe the strength in consumer spending during the quarter was aided by the mild winter, an early Easter and significant receipts of income tax refunds. Prospects for domestic consumption remain healthy, albeit at a more moderate level, as evidenced by the steady gains in personal income and personal consumption expenditures. Moreover, consumer confidence has been bolstered by the strong labor market, which recently posted a record low unemployment rate of 4.9%. Given this momentum, our expectations for growth have increased slightly to +3.0% for the second quarter and +3.2% for calendar 1997. Despite the first quarter's rampant pace, several signs of moderation have emerged in recent weeks. First, manufacturing activity has shown signs of deceleration with decreases in durable goods orders and in the National Association of Purchasing Managers Index, a widely followed measure of industrial activity. Housing activity has also shown signs of slowing, partly due to higher interest rates in early 1997, as evidenced by decreases in housing starts and existing home sales. On the labor front, even though the unemployment rate is near record low levels, April's payroll employment growth was considerably less than January and February's levels, and March's figure was revised lower. Finally, high levels of consumer debt, particularly among lower income households, could serve to dampen future spending. The strength of the economy has provided a windfall for Washington as it strives to produce a balanced budget. Congress recently reached a framework budget agreement that could produce the first balanced budget since 1969. Elements of the budget include new spending for education, health insurance for children, welfare benefits and a reduction in the capital gains tax. Although the budget accord hints of legislative progress, it does nothing to address the issue of rising entitlement spending with respect to Medicare, Medicaid and Social Security programs, nor does it include any CPI "fix." On the positive side, at $111.3 billion, the federal deficit through March is a $16.4 billion improvement over last year. Through March, inflation appears to remain contained as seen in the +2.8% and +1.6% increases in the CPI and PPI, respectively. Wage inflation has also been fairly stable as measured by the +2.9% rise in the Employment Cost Index, a figure that is being closely monitored by the Federal Reserve. Recent data also indicate that trends in benefit costs are favorable. We expect that inflation at the consumer level should remain near +3% in 1997. After exhibiting strength during the first quarter of 1997, the U.S. dollar has retreated from the high end of its G-10 weighted trading range as a result of foreign central bank intervention and modestly higher yields abroad. The Japanese Ministry of Finance recently indicated that it would move to strengthen the yen, which along with signs of improvement in its own economy, has led to slightly higher Japanese government bond yields. Additionally, the transition to the Labor Party in the U.K. could signal improved prospects for European Monetary Union by the prescribed timeline, which could lower long-term yields there even as monetary authorities seek to raise short-term rates in the face of strong growth. In light of the strong first quarter growth in the U.S., we believe that monetary policy will remain moderately restrictive in the coming months. When comparing the risk of thwarting continued economic growth versus higher inflation, the Federal Reserve is much more likely to act preemptively to stave off future price pressures. We expect the Federal Reserve will move to slow growth by increasing short-term rates by +25 basis points at both the May and July FOMC meetings, bringing the federal funds rate from 5 1/2% to 6%. These rates, combined with approximately +3% inflation, would provide for real rates of 2 1/2-3%, which is slightly higher than the 2% historical average. While long-term yields are presently near 7%, we believe rates could inch higher in the near term as potential Fed action draws near. Interest rates could move lower in the latter part of 1997 as signs of more modest economic growth materialize. Strategy Summary While short-term interest rates are likely to rise should the Fed tighten further, our belief is that long-term yields are currently near their high for the current economic cycle. We expect that 30-year government yields will remain within a trading range between 6 1/2% to 7 1/2% as the market evaluates the potential impact of monetary restraint. However, based on our expectations that the Federal Reserve will be successful in its efforts to moderate economic growth and contain inflation, our forecast is that interest rates will begin to move lower by the end of the year. Thus, we continue to maintain the durations of fixed income portfolios longer than their benchmarks. Our taxable bond strategies remain focused on securities that provide attractive value based on their ability to provide income as well as their risk/reward characteristics. We continue to concentrate on seasoned pools of high coupon mortgage pass-through securities, particularly those backed by manufactured housing loans, as well as on asset-backed securities backed by home equity loans. We have increased holdings in the corporate sector and shifted maturities within the Treasury sector to lock in lengthened yields in times of market weakness. Municipal bonds performed well during the year as their valuations continued to recover from the negative impact of threatened tax reform. A comparison of the relative yields of long municipal bonds to long Treasury bonds indicates that municipals are now fairly valued. The housing sector, in particular, has experienced improved valuation relative to other market sectors. In our municipal bond portfolios, we continue to emphasize securities in the housing and health care sectors. We remain attracted to housing bonds based on their characteristic high yields and low price volatility. Despite the relatively low yield spreads currently offered by lower rated credits, the health care sector has continued to provide selected value. As we expect lower bond yields by the end of the year, we intend to keep our tax-free portfolios fully invested and to reinvest cash flow into securities which offer greater call protection while not materially affecting the portfolios' maturity profiles. We sincerely appreciate your interest and investment in the Sit Mutual Funds, and we look forward to assisting you in achieving your long-term investment goals. With best wishes, /s/ Eugene C. Sit, CFA Eugene C. Sit, CFA Chairman and Chief Investment Officer SIT MUTUAL FUNDS MARCH 31, 1997 PERFORMANCE SUMMARY - BOND FUNDS BOND MARKET REVIEW After the last of three 25 basis point easing moves made in early 1996, monetary policy was unchanged during most of the year until the Federal Reserve increased the Federal funds rate by 25 basis points on March 25, 1997 in response to strong economic data. 3-month Treasury bill yields increased from 5.14% on March 31, 1996 to 5.33% on March 31, 1997, and ranged between 4.92% and 5.40% during the year. Longer term taxable bond yields rose during the year. The 30-year Treasury bond yield increased from 6.67% on March 31, 1996 to 7.08% on March 31, 1997, with a low of 6.35% in late November 1996 and several highs approaching 7.20% during the year. Despite rising yields, bond markets provided modest positive returns for the year. The asset-backed and mortgage sectors outperformed the corporate and government sectors, due to their shorter durations. In addition, these sectors outperformed other short and intermediate maturity benchmarks due to their higher income. Municipal bond yields remained in a much narrower range than taxable bond yields and ended the year relatively unchanged from their levels of one year ago. The Bond Buyer 40-Bond Index yield increased from 5.95% to 5.96% during the year and remained between a range of 5.61% to 6.22%. Municipal market returns remained ahead of taxable bond market returns for the year as their relative valuation to Treasuries continued to improve with fading concerns over tax reform. Among revenue bonds, the hospital sector maintained its lead, which was primarily attained from narrowing incremental yield spreads and improved credit quality during the year. Housing bonds, with their characteristic price stability and income advantage, also outperformed. Security selection was a strong component of the attractive returns earned by the Sit Bond Funds during the past year. These results were consistent with the Funds' dual objectives of high income and principal stability.
TOTAL RETURN - CALENDAR YEAR 1988 1989 1990 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- ---- ---- ---- SIT MONEY MARKET FUND ---- ---- ---- ---- ---- 0.46%(1) 3.84% 5.58% SIT U.S. GOV'T. SECURITIES FUND 7.86 11.04 10.97 12.87 5.43 7.34 1.77 11.50 SIT BOND FUND ---- ---- ---- ---- ---- 0.34(1) -1.31 16.83 SIT TAX-FREE INCOME FUND 2.19(1) 8.38 7.29 9.25 7.71 10.42 -0.63 12.86 SIT MINNESOTA TAX-FREE INCOME FUND ---- ---- ---- ---- ---- 1.60(1) 0.63 11.90 U.S. TREASURY BILL 7.10 8.73 8.04 5.72 3.56 3.13 4.47 5.98 LEHMAN INTER. GOVERNMENT BOND INDEX 6.40 12.68 9.56 14.11 6.93 8.17 -1.75 14.41 LEHMAN AGGREGATE BOND INDEX 7.89 14.53 8.96 16.00 7.40 9.75/0.54(1) -2.92 18.47 LEHMAN 5-YEAR MUNICIPAL BOND INDEX 6.39/0.75(1) 9.07 7.70 11.41 7.62 8.73 -1.28 11.65 SIT INVESTMENT RESERVE FUND 6.65% 8.53% 7.59% 6.14% 3.81% 2.34(5) (Inception date 1/25/85. Converted to Sit Money Market Fund on 11/1/93.)
[WIDE TABLE CONTINUED FROM ABOVE]
YIELD YTD AS OF DISTRIBUTION 1996 1997 3/31/97 RATE(2) ---- ---- ------- ------- SIT MONEY MARKET FUND 5.08% 1.21% 4.74%(6) SIT U.S. GOV'T. SECURITIES FUND 4.99 0.00 6.65 6.29 SIT BOND FUND 4.25 -0.44 6.68 6.54 SIT TAX-FREE INCOME FUND 5.69 0.70 5.47(4) 5.64 SIT MINNESOTA TAX-FREE INCOME FUND 5.89 0.36 5.54(3) 5.59 U.S. TREASURY BILL 5.27 LEHMAN INTER. GOVERNMENT BOND INDEX 4.06 LEHMAN AGGREGATE BOND INDEX 3.63 LEHMAN 5-YEAR MUNICIPAL BOND INDEX 4.22 SIT INVESTMENT RESERVE FUND
AVERAGE ANNUAL TOTAL RETURNS FOR THE TOTAL RETURN PERIODS ENDED MARCH 31, 1997 NASDAQ QUARTER SIX MONTHS SINCE SYMBOL INCEPTION ENDED 3/31/97 ENDED 3/31/97 1 YEAR 3 YEARS 5 YEARS INCEPTION ------ --------- ------------- ------------- ------ ------- ------- --------- SIT MONEY MARKET FUND SNIXX 11/01/93 1.21% 2.47% 5.04% 5.01% ---- 4.74% SIT U.S. GOV'T. SECURITIES FUND SNGVX 06/02/87 0.00 2.13 4.55 5.94 6.32 8.07 SIT BOND FUND SIBOX 12/01/93 -0.44 2.69 5.21 6.73 ---- 5.65 SIT TAX-FREE INCOME FUND SNTIX 09/29/88 0.70 3.03 6.86 7.19 7.11 7.45 SIT MINNESOTA TAX-FREE INCOME FUND SMTFX 12/01/93 0.36 2.35 6.26 7.02 ---- 6.04 3-MONTH U.S. TREASURY BILL 11/01/93 1.30 2.60 5.30 5.35 4.51 5.10 LEHMAN INTER. GOVERNMENT BOND INDEX 05/31/87 -0.02 2.29 4.75 6.02 6.45 7.92 LEHMAN AGGREGATE BOND INDEX 11/30/93 -0.56 2.42 4.91 6.86 ---- 5.40 LEHMAN 5-YEAR MUNICIPAL BOND INDEX 09/30/88 -0.02 1.95 4.19 5.72 6.07 6.96
(1) Period from Fund inception through calendar year-end. (2) Based on the last 12 monthly distributions of net investment income and average (3) For Minnesota residents in the 31%, 36% and 39.6% federal tax brackets, the double exempt tax equivalent yields are 8.77%, 9.46% and 10.02%, respectively (Assumes the maximum Minnesota tax bracket of 8.5%). (4) For individuals in the 31%, 36%, and 39.6% federal tax brackets, the federal tax equivalent yields are 7.93%, 8.55% and 9.06%, respectively (Income subject to state tax, if any). (5) Period January 1, 1993, through October 31, 1993, at which time the Fund converted to the Sit Money Market Fund. (6) Figure represents 7-day compound effective yield. The 7-day simple yield as of 3/31/97 was 4.63%. NAV as of 3/31/97. PLEASE REMEMBER THAT PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS AND IS ONLY ONE OF THE FACTORS TO CONSIDER IN CHOOSING A FUND. AS WITH ALL INVESTMENTS, THE SHARE PRICE AND RETURN MAY VARY AND YOU MAY HAVE A GAIN OR LOSS AT THE TIME OF SALE. SIT MONEY MARKET FUND REVIEW MARCH 31, 1997 [PHOTO] MICHAEL C. BRILLEY SENIOR PORTFOLIO MANAGER PAUL J. JUNGQUIST, CFA PORTFOLIO MANAGER The Sit Money Market Fund provided investors with a +5.04% return for the year ended March 31, 1997, compared to a +4.76% average return for the Lipper Analytical Services, Money Market Fund universe. The Fund's performance ranked 52nd of 292 funds in its Lipper peer group category for the twelve month period. As of March 31, 1997, the Fund's 7-day compound yield was 4.74% and its average maturity was 27 days, compared to 4.93% and 36 days, respectively, at March 31, 1996. The Federal Reserve Board maintained the federal funds rate at 5.25% from January 31, 1996 until March 25, 1997, when the Fed raised it to 5.50%. Three-month Treasury bill yields were confined to a narrow range over the past twelve months. After bottoming at 4.92% in late December of 1996, yields rose to a high of 5.40% during March of 1997 as expectations for Fed tightening increased. Current yield levels imply that the market is expecting at least one additional tightening by the Fed in the second or third quarter of 1997. Strong economic growth and signs of incipient wage inflation are the secular factors supporting this expectation. Accordingly, the Fund will try to take advantage of current yield levels and maintain the average maturity of the portfolio in a range of 25 to 35 days over the near term in anticipation of an additional interest rate hike by the Fed. The Fund will lengthen its average maturity when evidence indicates that the Fed is near the end of its tightening cycle. The Fund has produced competitive returns by focusing on credit research and avoiding the use of risky derivatives. We intend to continue these conservative policies in the future. As economic activity continues to be strong, we do not foresee a significant impact on the short-term creditworthiness of top tier commercial paper issuers in general. Consumer finance companies may experience continued pressure, however, as consumer credit exposure continues at relatively high levels, so we will monitor the Fund's permissible credits in this industry particularly closely. The Fund continues to diversify its core holdings and its industry exposure. In the months ahead, we plan to add top tier credits in the technology, capital goods and consumer non-durable industries. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Fund is to achieve maximum current income to the extent consistent with the preservation of capital and maintenance of liquidity. The Fund pursues this objective by investing in a diversified portfolio of high quality short-term debt instruments. The Fund seeks to maintain a stable net asset value of $1.00 per share. However, there is no assurance of a constant share price. An investment in the Fund is neither insured nor guaranteed by the U.S. government and there can be no assurance that the Fund will be able to maintain a stable net asset value of $1.00 per share. PORTFOLIO SUMMARY Net Asset Value 3/31/97: $1.00 Per Share 3/31/96: $1.00 Per Share Total Net Assets: $32.67 Million PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) [BAR CHART] U.S. Government 18.7 Consumer Loan Finance 17.8 Diversified Finance 17.1 Captive Equipment 13.3 Finance Utilities 10.8 Captive Auto Finance 6.9 Retail 4.7 Consumer Non-Durables 4.3 Technology/Business Equip. 3.1 Captive Oil Finance 0.4 Other Assets & Liabilities 2.9
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ----------------------------- ------------------------- Money Lipper Money U.S. Treasury Money Lipper Money U.S. Treasury Market Market Bill Market Market Bill Fund Average (3-Month) Fund Average (3-Month) ---- ------- --------- ---- ------- --------- 3 Months 1.21% 1.15% 1.30% 1.21% 1.15% 1.30% (unannualized) 1 Year 5.04 4.76 5.30 5.04 4.76 5.30 3 Year 5.01 4.81 5.35 15.81 15.13 16.91 Inception 4.74 4.54 5.10 17.13 16.38 18.51 (11/1/93)
* As of 3/31/97 PERFORMANCE IS HISTORICAL AND ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. SHARE PRICE AND RETURN WILL VARY SO THAT A GAIN OR LOSS MAY BE REALIZED WHEN SHARES ARE SOLD. TOTAL RETURN SHOULD NOT BE TAKEN AS A REPRESENTATION OF FUTURE PERFORMANCE. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE U.S. TREASURY BILL. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (11/1/93) and held until 3/31/97 would have grown to $11,713 in the Fund or $11,851 in the 3-Month U.S. Treasury Bill Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% of Net Assets) AS RATED BY MOODY'S, S&P AND FITCH First Tier Securities 100% [PIE CHART] First Tier Securities 100% Second Tier Securities 0% SIT MONEY MARKET FUND PORTFOLIO OF INVESTMENTS - MARCH 31, 1997 QUANTITY NAME OF ISSUER MARKET VALUE (1) - --------------------------------------------------------------------- COMMERCIAL PAPER (78.4%) (2) CAPTIVE AUTO FINANCE (6.9%) Ford Motor Credit Corp.: 264,000 5.31%, 4/7/97 $263,766 542,000 5.32%, 4/14/97 540,959 330,000 5.30%, 5/12/97 328,008 General Motors Acceptance Corp.: 200,000 5.37%, 4/3/97 199,940 484,000 5.35%, 5/2/97 481,770 200,000 5.25%, 5/6/97 198,979 250,000 5.53%, 7/18/97 245,853 2,259,275 CAPTIVE EQUIPMENT FINANCE (13.3%) IBM Credit Corp.: 425,000 5.30%, 4/25/97 423,498 225,000 5.48%, 6/16/97 222,397 500,000 5.37%, 6/20/97 494,033 John Deere Capital Corp.: 158,000 5.30%, 4/3/97 157,954 344,000 5.30%, 4/9/97 343,595 560,000 5.22%, 4/11/97 559,188 100,000 5.50%, 5/29/97 99,106 Pitney Bowes Credit Corp.: 700,000 5.27%, 4/7/97 699,385 500,000 5.35%, 4/11/97 499,257 Xerox Credit Corp., 850,000 5.30%, 5/13/97 844,744 4,343,157 CAPTIVE OIL FINANCE (0.4%) Chevron Oil Finance: 121,000 5.50%, 5/22/97 120,057 CONSUMER LOAN FINANCE (17.8%) American Express Credit Corp.: 380,000 5.25%, 4/28/97 378,504 260,000 5.27%, 4/23/97 259,163 333,000 5.40%, 5/15/97 330,802 193,000 5.30%, 5/29/97 191,281 American General Financial: 200,000 5.31%, 4/17/97 199,528 400,000 5.25%, 4/21/97 398,833 140,000 5.27%, 4/29/97 139,426 181,000 5.54%, 5/21/97 179,607 290,000 5.57%, 6/18/97 286,205 Beneficial Corp.: 430,000 5.35%, 4/4/97 429,808 340,000 5.37%, 4/17/97 339,189 169,000 5.28%, 4/23/97 168,455 230,000 5.51%, 6/2/97 227,817 Household Finance Corp.: 422,000 5.30%, 4/15/97 421,130 292,000 5.23%, 5/1/97 290,727 280,000 5.30%, 5/7/97 278,516 150,000 5.39%, 6/17/97 148,271 Norwest Financial, Inc.: 400,000 5.27%, 4/11/97 399,414 250,000 5.24%, 4/17/97 249,418 244,000 5.35%, 5/20/97 242,223 275,000 5.56%, 6/26/97 271,347 5,829,664 CONSUMER NON-DURABLES (4.3%) Coca Cola Co.: 940,000 5.20%, 4/21/97 937,284 200,000 5.28%, 5/14/97 198,739 Gillette Co.: 250,000 5.50%, 4/25/97(5) 249,083 1,385,106 DIVERSIFIED FINANCE (17.1%) Associates Corp. N.A.: 400,000 5.31%, 4/1/97 400,000 440,000 5.32%, 4/16/97 439,025 200,000 5.34%, 4/29/97 199,169 144,000 5.50%, 5/21/97 142,900 CIT Group Holdings, Inc.: 378,000 5.36%, 5/19/97 375,299 221,000 5.25%, 5/28/97 219,163 570,000 5.54%, 6/27/97 562,365 General Electric Capital Corp.: 276,000 5.30%, 4/2/97 275,959 500,000 5.34%, 6/13/97 494,586 225,000 5.47%, 7/18/97 221,308 General Electric Capital Services: 350,000 5.31%, 4/10/97 349,535 550,000 5.35%, 4/18/97 548,611 250,000 5.56%, 6/3/97 247,568 Transamerica Finance Corp.: 350,000 5.29%, 4/21/97 348,971 500,000 5.29%, 5/8/97 497,281 275,000 5.32%, 6/11/97 272,115 5,593,855 TECHNOLOGY/BUSINESS EQUIPMENT (3.1%) International Business Machines Corp.: 500,000 5.28%, 4/22/97 498,460 517,000 5.31%, 5/16/97 513,568 1,012,028 RETAIL (4.7%) Sears Roebuck & Co.: 356,000 5.38%, 4/8/97 355,632 385,000 5.24%, 4/30/97 383,375 261,000 5.26%, 5/5/97 259,703 544,000 5.38%, 5/9/97 540,951 1,539,661 UTILITIES (10.8%) Ameritech Capital Funding Corp.: 972,000 5.24%, 4/14/97(5) 970,161 200,000 5.23%, 4/25/97(5) 199,303 AT&T Corp.: 500,000 5.33%, 5/23/97 496,151 BellSouth Telecommunications, Inc.: 690,000 5.25%, 5/27/97 684,365 Southwestern Bell Capital Corp., 500,000 5.30%, 4/11/97(5) 499,271 200,000 5.28%, 4/17/97(5) 199,534 470,000 5.37%, 4/24/97(5) 468,409 3,517,194 Total commercial paper (cost: $25,599,997) 25,599,997 U.S. GOVERNMENT SECURITIES (18.7%)(2) 6,100,000 Federal Home Loan Mtg. Corp.: 6.35%, 4/1/97 6,100,000 (cost: $6,100,000) Total investments in securities (cost: $31,699,997)(7) $31,699,997 See accompanying notes to portfolios of investments on page 35. SIT U.S. GOVERNMENT SECURITIES FUND REVIEW MARCH 31, 1997 [PHOTO] MICHAEL C. BRILLEY SENIOR PORTFOLIO MANAGER BRYCE A. DOTY, CFA PORTFOLIO MANAGER The Sit U.S. Government Securities Fund provided investors a +4.55% return for the past 12 months. As of March 31, 1997, the Fund's 30-day SEC yield was 6.65% and the Fund's 12-month distribution rate was 6.29%. The Fund ranked #23 out of 123 funds in the Lipper U.S. Government Bond Fund universe for its 12-month return. In addition, Morningstar, a nationally recognized firm which evaluates mutual funds, ranked the Fund #1 in their latest review of the universe of 26 short-term government bond funds for having the highest return and rated the Fund #2 for its low risk and high return characteristics for the five years ended March 31, 1997. The Fund has achieved its superior results by continuing to focus on securities that provide a high level of income. The yield on the 3-year U.S. Treasury note rose by 0.68% over the past year and by 0.55% over the past quarter. The rise in interest rates resulted in lower prices for the Fund's Treasury and collateralized mortgage obligation (CMO's) holdings as a result of their longer effective durations(1). However, the Fund's holdings in seasoned, high coupon mortgage and mobile home loan pass-through securities, which are relatively more stable in price because of their shorter average lives, provided the highest income and total return compared to the other market sectors in which the Fund invests. During the past year, the Fund received over $22 million net cashflows, most of which were used to purchase high coupon pass-through securities and collateralized mortgage obligations (CMO's). The Fund also extended its average duration beginning December 1996 to take advantage of the higher interest rate levels. In the near term, we expect that strong economic growth will cause the Federal Reserve to further raise short-term interest rates. However, we believe that current yield levels already reflect an anticipated 0.25% increase by the Federal Reserve. Our longer term forecast continues to be for moderate economic growth and contained inflation, resulting in relatively stable to declining intermediate and longer maturity interest rates. This outlook adds increased importance to the Fund's somewhat extended effective duration(1) and continued emphasis on interest income. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Fund is to provide high current income and safety of principal. The Fund invests solely in securities issued, guaranteed or insured by the U.S. government or its agencies or its instrumentalities. Agency mortgage securities and U.S. Treasury securities will be the principal holdings in the Fund. The mortgage securities that the Fund will purchase consist of pass-through securities (Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA), and Federal Home Loan Mortgage Corporation (FHLMC)). PORTFOLIO SUMMARY Net Asset Value 3/31/97: $10.28 Per Share 3/31/96: $10.47 Per Share Total Net Assets: $73.39 Million 30-Day SEC Yield: 6.65% 12-Month Distribution Rate: 6.29% Average Maturity: 15.2 Years Effective Duration: 4.0 Years(1) (1) Effective duration is a measure which reflects estimated price sensitivity to a given change in interest rates. For example, for an interest rate change of 1.0%, a portfolio with a duration of 5 years would be expected to experience a price change of 5%. Effective duration is based on current interest rates and the Adviser's assumptions regarding the expected average life of individual securities held in the portfolio. PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) [BAR CHART] GNMA Pass-Through 54.9 Securities U.S. Treasury 14.9 Bonds Collateralized 12.3 Mortgage Obligations FNMA Pass-Through 10.0 Securities FHLMC Pass-Through 3.5 Securities Other Assets & Liabilities 4.4
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ----------------------------- ------------------------- U.S. Gov't. Lipper Lehman Inter. U.S. Gov't. Lipper Lehman Inter. Securities U.S. Gov't. Gov't. Bond Securities U.S. Gov't. Bond Fund Fund Fund Average Index Fund Fund Average Index ---- ------------ ----- ---- ------------ ----- 3 Months 0.00% -1.01% -0.02% 0.00% -1.01% -0.02% (unannualized) 1 Year 4.55 3.48 4.75 4.55 3.48 4.75 3 Years 5.94 5.27 6.02 18.90 16.66 19.16 5 Years 6.32 6.06 6.45 35.86 34.22 36.71 Inception 8.07 7.30 7.92 114.48 100.09 111.81 (6/2/87)
* As of 3/31/97 PERFORMANCE IS HISTORICAL AND ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. SHARE PRICE AND RETURN WILL VARY SO THAT A GAIN OR LOSS MAY BE REALIZED WHEN SHARES ARE SOLD. TOTAL RETURN SHOULD NOT BE TAKEN AS A REPRESENTATION OF FUTURE PERFORMANCE. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. GROWTH OF $10,000 [PLOT POINTS GRAPH] The sum of $10,000 invested at inception (6/2/87) and held until 3/31/97 would have grown to $21,448 in the Fund or $21,181 in the Lehman Intermediate Government Bond Index assuming reinvestment of all dividends and capital gains. ESTIMATED AVERAGE LIFE PROFILE The Adviser's estimates of the dollar weighted average life of the portfolio's securities, which may vary from their stated maturities. [BAR CHART] Years ----- 0-1 4.4% 1-5 72.8% 5-10 13.4% 10-20 5.8% 20+ 3.6% SIT U.S. GOVERNMENT SECURITIES FUND PORTFOLIO OF INVESTMENTS - MARCH 31, 1997 QUANTITY NAME OF ISSUER MARKET VALUE (1) - ---------------------------------------------------------------------- MORTGAGE PASS-THROUGH SECURITIES (68.4%)(2) FEDERAL HOME LOAN MORTGAGE CORPORATION (3.5%): 37,807 8.75%, 12/1/01 $38,722 335,254 9.00%, 12/1/05 346,897 92,519 9.00%, 1/1/06 95,732 637,652 9.00%, 10/1/16 666,762 584,178 9.00%, 6/1/17 610,977 80,713 9.50%, 6/1/16 85,803 138,048 9.75%, 6/1/17 147,821 473,170 10.25%, 6/1/10 512,746 32,887 10.50%, 4/1/04 34,527 5,981 11.00%, 10/1/00 6,279 2,546,266 FEDERAL NATIONAL MORTGAGE ASSOCIATION (10.0%): 211,680 9.00%, 4/1/10 220,529 133,642 9.00%, 9/1/17 139,208 267,936 9.00%, 9/1/20 279,375 1,912,043 9.00%, 2/1/25 1,998,977 82,819 9.375%, 5/1/16 87,844 384,011 9.50%, 4/1/20 409,954 1,042,721 9.50%, 12/1/24 1,086,004 2,488,260 9.50%, 1/1/25 2,591,547 196,430 10.00%, 9/1/20 212,921 294,460 11.00%, 4/1/14 327,574 7,353,933 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (54.9%)(3): 223,009 7.50%, 3/15/07 226,312 494,071 7.50%, 5/15/16 496,846 55,608 8.00%, 7/15/03 57,351 300,178 8.00%, 10/15/12 306,723 1,865,480 8.00%, 5/15 - 6/15/16 1,907,750 244,236 8.25%, 1/15/12 250,867 743,866 8.25%, 8/15/15 764,827 390,146 8.50%, 12/15/11 403,025 894,708 8.50%, 9/15/16 925,719 846,902 8.50%, 1/15/17 876,272 246,316 8.75%, 5/15/03 257,561 805,166 8.75%, 5/15 - 11/15/06 842,675 312,336 8.75%, 2/15 - 3/15/07 323,758 231,406 8.75%, 11/15/09 240,028 647,528 8.75%, 6/15 - 12/15/11 671,830 475,451 8.75%, 8/15/19 491,352 189,695 9.00%, 10/15/04 199,314 380,004 9.00%, 4/15/06 399,275 289,402 9.00%, 10/15/07 301,129 151,956 9.00%, 11/15/09 158,278 1,917,799 9.00%, 6/15 - 10/15/11 1,997,676 180,712 9.00%, 1/15/12 188,146 2,695,061 9.00%, 4/20 - 12/20/16 2,839,794 997,872 9.00%, 1/15/17 1,041,831 71,370 9.00%, 5/15/18 74,497 105,974 9.00%, 11/15/19 110,581 330,883 9.00%, 7/20 - 10/20/21 342,919 114,387 9.25%, 4/15 - 9/15/01 120,906 377,458 9.25%, 3/15/05 399,480 434,717 9.25%, 11/15/11 456,289 275,099 9.25%, 4/15/12 288,792 46,652 9.50%, 1/15 - 1/20/05 49,537 216,291 9.50%, 1/15/06 230,626 1,290,063 9.50%, 1/15 - 8/15/10 1,371,937 680,463 9.50%, 1/15 - 3/15/11 719,226 906,816 9.50%, 11/20 - 12/15/16 963,188 222,228 9.50%, 8/20/17 235,885 557,282 9.50%, 5/15 - 12/15/18 596,084 133,007 9.50%, 6/15/20 142,082 322,811 9.75%, 3/15 - 10/15/99 329,476 66,350 9.75%, 5/15/01 70,632 200,285 9.75%, 11/15/02 213,299 194,073 9.75%, 7/15/03 206,553 59,563 9.75%, 3/15/04 63,461 457,189 9.75%, 8/15/05 487,483 257,118 9.75%, 2/15/06 273,429 2,416,032 9.75%, 8/15 - 12/15/10 2,588,072 1,068,206 9.75%, 11/15 - 12/15/12 1,146,093 234,237 10.00%, 8/15/02 249,753 178,333 10.00%, 5/15/04 189,945 1,086,348 10.00%, 7/15/05 1,158,495 175,521 10.00%, 1/15/06 186,945 189,209 10.00%, 11/15/08 202,536 134,873 10.00%, 5/15 - 11/15/09 145,071 217,661 10.00%, 6/15 - 7/15/10 233,132 149,186 10.00%, 1/15/11 159,851 47,026 10.00%, 9/15/16 51,265 237,657 10.00%, 2/20/20 257,065 75,166 10.25%, 11/15/00 80,027 120,417 10.25%, 2/15 - 4/15/01 128,208 93,959 10.25%, 8/15/04 100,194 438,276 10.25%, 7/15/05 467,293 188,617 10.25%, 5/15/09 201,465 3,383,760 10.25%, 3/15 - 8/15/12 3,629,753 819,951 10.25%, 2/15 - 7/15/13 878,250 8,714 10.50%, 9/15/00 9,197 66,304 10.50%, 9/15/01 70,637 105,485 10.50%, 12/15/02 112,442 126,129 10.50%, 7/15/10 134,772 362,814 10.50%, 8/15 - 11/15/15 396,736 141,997 10.50%, 3/15 - 12/15/16 155,236 10,092 10.75%, 7/15 - 10/15/98 10,313 36,343 10.75%, 11/15/00 38,714 111,016 10.75%, 9/15/03 118,340 108,128 10.75%, 9/15/05 115,256 56,984 10.75%, 1/15/10 60,995 223,128 10.75%, 7/15 - 8/15/11 238,648 628,202 11.00%, 1/15 - 6/15/10 693,856 18,237 11.00%, 7/15/13 19,942 22,089 11.25%, 4/15 - 5/15/98 22,524 309,427 11.25%, 8/15 - 12/15/00 329,742 45,569 11.25%, 1/15/01 48,545 32,012 11.25%, 5/15/03 34,106 1,021,180 11.25%, 2/15 - 10/15/11 1,112,444 74,806 11.75%, 1/15/99 77,561 81,542 11.75%, 5/15/00 86,911 221,415 11.75%, 5/15 - 6/15/04 238,044 110,647 12.75%, 1/15/00 117,294 45,388 13.25%, 10/15/99 46,735 68,961 13.75%, 9/15/99 71,371 135 14.75%, 4/15/97 137 40,328,612 Total mortgage pass-through securities (cost: $50,480,599) 50,228,811 U.S. GOVERNMENT SECURITIES (14.9%) (2) U.S. Treasury Coupon Strip: 6,750,000 6.925% Effective Yield on Purchase Date, 11/15/04 3,998,159 10,075,000 6.54% Effective Yield on Purchase Date, 5/15/09 4,254,168 13,000,000 U.S. Treasury Principal Strip, 7.08% Effective Yield on Purchase Date, 2/15/19 2,658,369 Total U.S. government securities (cost: $11,529,595) 10,910,696 COLLATERALIZED MORTGAGE OBLIGATIONS (12.3%) (2) 268,208 Federal Home Loan Mortgage Corporation, 1006-C, 9.15%, 10/15/20 279,064 Vendee Mortgage Trust: 3,000,000 Series 1996-2 1B, 6.75%, 9/15/09 2,966,017 4,300,000 Series 1992-2 1F, 7.00%, 2/15/18 4,137,878 200,000 Series 1996-2 1D, 6.75%, 11/15/15 190,205 500,000 Series 1996-2 1E, 6.75%, 5/15/20 468,259 1,000,000 Series 1992-1 2K, 7.75%, 5/15/08 1,005,593 Total collateralized mortgage obligations (cost: $9,166,161) 9,047,016 SHORT-TERM SECURITIES (4.3%)(2) 2,500,000 Federal Home Loan Bank, 6.35%, 4/1/97 2,500,000 655,015 Dreyfus Cash Management Fund, 5.31% 655,015 Total short-term securities 3,155,015 (cost: $3,155,015) Total investments in securities (cost: $74,331,370)(7) $73,341,538 See accompanying notes to portfolios of investments on page 35. SIT BOND FUND REVIEW MARCH 31, 1997 [PHOTO] MICHAEL C. BRILLEY SENIOR PORTFOLIO MANAGER BRYCE A, DOTY, CFA PORTFOLIO MANAGER The Sit Bond Fund provided investors a +5.21% return for the past 12 months. The Fund ranked in the top 20% of the Lipper Intermediate Investment Grade Bond Fund universe for the past 12 months (out of 176 funds) and since inception (out of 102 funds). The yield on the 5-Year U.S. Treasury note rose by 0.67% over the past year and by 0.54% over the past three months. The rise in interest rates caused most bond prices to fall. The Fund's holdings in high coupon pass-through securities were relatively stable in price and provided high levels of interest income. As a result, the pass-through sector provided the most favorable impact on the portfolio's return. The Fund's holdings in the asset-backed and U.S. Treasury sectors are relatively more price sensitive to changes in interest rates. Consequently, the sharp rise in yields caused these sectors to provide the lowest returns for the year. The Fund's most significant sector shift involved selling agency pass-through securities and purchasing corporate bonds to better lock in the higher yield levels. Approximately three percent of the portfolio was invested in a corporate security whose return is linked to the rate of inflation. Specifically, the maturity value of the security increases at the same rate of change as the Consumer Price Index (CPI). As a result, the bond's return is protected from rising inflation. The bond also earns a coupon of 3.65%. Therefore, if inflation was 3.0% for the year, the bond would yield 6.65%. We believe 3.65% is an attractive spread over inflation and that the inflation protection will add to the price stability of the bond. In the near term, we expect that strong economic growth will cause the Federal Reserve to further raise short-term interest rates. However, we believe that current yield levels already reflect a 0.25% increase by the Federal Reserve. Our longer term forecast continues to be for moderate economic growth and contained inflation, resulting in relatively stable to declining interest rates. As a result, we are maintaining the Fund's duration at 5.0 years(1), slightly longer than the 4.7 year duration of its benchmark, the Lehman Aggregate Bond Index. The Fund will continue to invest in high quality securities that offer attractive total returns. INVESTMENT OBJECTIVE AND STRATEGY The investment objective of the Fund is to maximize total return, consistent with preservation of capital. The Fund's "total return" is a combination of income, changes in principal value and reinvested dividends. The Fund will pursue its objective by investing in a diversified portfolio of fixed-income securities which include, but are not limited to, the following: U.S. government securities; corporate debt securities; corporate commercial paper; mortgage and other asset-backed securities. PORTFOLIO SUMMARY Net Asset Value 3/31/97: $9.62 Per Share 3/31/96: $9.83 Per Share Total Net Assets: $6.40 Million 30-Day SEC Yield: 6.68% 12-Month Distribution Rate: 6.54% Average Maturity: 15.9 Years Effective Duration: 5.0 Years(1) (1) Effective duration is a measure which reflects estimated price sensitivity to a given change in interest rates. For example, for an interest rate change of 1.0%, a portfolio with a duration of 5 years would be expected to experience a price change of 5%. Effective duration is based on current interest rates and the Adviser's assumptions regarding the expected average life of individual securities held in the portfolio. PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) [BAR CHART] Agency Mortgage 26.6 Pass-Through Securities Corporate Bonds & Notes 24.2 Asset-Backed Securities 15.5 U.S. Treasury 12.6 Collateralized Mortgage 8.7 Obligations Mutual Funds 4.5 Trust Preferred Securities 2.3 Other Assets & Liabilities 5.6
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ----------------------------- ------------------------- Lipper Inter. Lehman Lipper Inter. Lehman Bond Investment Grade Aggregate Bond Investment Grade Aggregate Fund Bond Fund Avg. Bond Index Fund Bond Fund Avg. Bond Index ---- -------------- ---------- ---- -------------- ---------- 3 Months -0.44% -0.55% -0.56% -0.44% -0.55% -0.56% (unannualized) 1 Year 5.21 4.46 4.91 5.21 4.46 4.91 3 Year 6.73 5.98 6.86 21.57 19.04 22.03 Inception 5.65 4.61 5.40 20.08 16.23 19.17 (12/1/93)
As of 3/31/97 PERFORMANCE IS HISTORICAL AND ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. SHARE PRICE AND RETURN WILL VARY SO THAT A GAIN OR LOSS MAY BE REALIZED WHEN SHARES ARE SOLD. TOTAL RETURN SHOULD NOT BE TAKEN AS A REPRESENTATION OF FUTURE PERFORMANCE. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN AGGREGATE BOND INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (12/1/93) and held until 3/31/97 would have grown to $12,008 in the Fund or $11,917 in the Lehman Aggregate Bond Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% of Net Assets) LOWER OF MOODY'S OR S&P USED. [PIE CHART] Other Assets & Liabilities 5.6% Agency Backed Securities & CMO's 35.3% U.S. Government 12.6% AAA 15.5% A 16.1% BBB 14.9% SIT BOND FUND PORTFOLIO OF INVESTMENTS - MARCH 31, 1997 QUANTITY NAME OF ISSUER MARKET VALUE (1) - ----------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES (12.6%)(2) U.S. Treasury Note: 100,000 5.875%, 11/15/05 $93,164 300,000 7.25%, 5/15/04 306,285 150,000 8.25%, 7/15/98 153,693 150,000 U.S. Treasury Coupon Strip, 6.93% Effective Yield on Purchase Date, 11/15/04 88,848 100,000 U.S. Treasury Coupon Strip, 6.86% Effective Yield on Purchase Date, 05/15/09 42,225 600,000 U.S. Treasury Principal Strip, 7.14% Effective Yield on Purchase Date, 2/15/19 122,694 Total U.S. government securities 806,909 (cost: $824,850) ASSET-BACKED SECURITIES (15.5%)(2) Advanta Mortgage Loan Trust: 200,000 1995-3 A5, 7.37%, 2/25/27 191,095 250,000 1996-1 A7, 7.07%, 3/25/27 233,444 75,000 Cityscape Home Equity Loan Trust, 1996-3 A8, 7.65%, 9/25/25 72,518 249,998 ContiMortgage Home Equity Loan Trust: 1996-1 A7, 7.00%, 3/15/27 232,658 100,000 EQCC Home Equity Loan Trust, Series 1996-1, 6.93%, 3/15/27 92,579 100,000 EquiVantage, 1996-3 A3, 7.70%, 8/1/27 98,073 75,000 Green Tree Corp., Series 1995-5, 7.25%, 9/15/26 71,887 Total asset-backed securities 992,254 (cost: $1,027,423) CORPORATE BONDS (24.2%)(2) 250,000 Ford Motor Credit Corp., 9.14%, 12/30/14 269,375 275,000 Franchise Finance Corp., 7.875%, 11/30/05 274,312 225,000 Martin Marietta/Lockheed, 7.00%, 03/15/11 209,250 Nationwide Health Properties: 100,000 8.67%, 3/10/05 104,125 150,000 Series B, 7.23%, 11/08/06 142,875 225,000 Salomon CPI Index Bond, 3.65%, 02/14/02 219,598 200,000 Security Capital Indl. Trust, 8.65%, 05/15/16 208,250 125,000 Security Capital Pacific Trust, 7.55%, 8/1/08 123,750 Total corporate bonds & notes 1,551,535 (cost: $1,607,107) MORTGAGE PASS-THROUGH SECURITIES (26.6%)(2)(3) Federal Home Loan Mortgage Corp.: 49,494 10.25%, 9/1/09 53,637 35,707 10.75%, 3/1/11 39,142 Government National Mortgage Association: 18,815 8.75%, 11/15/01 19,668 98,397 9.00%, 10/15/06 103,394 11,725 9.00%, 8/15/11 12,215 98,514 9.00%, 12/15/16 102,765 218,432 9.00%, 01/15/17 228,055 40,527 9.00%, 11/15/19 42,263 34,741 9.25%, 5/15/01 36,700 26,026 9.50%, 3/15/03 27,737 161,614 9.50%, 11/15/05 170,451 69,660 9.50%, 2/15/11 73,609 5,577 9.75%, 8/15/02 5,940 42,880 10.00%, 8/15/02 45,683 33,580 10.25%, 4/15/01 35,750 41,293 10.25%, 4/15/01 43,965 12,407 10.25%, 4/15/12 13,276 12,880 10.25%, 5/15/12 13,784 16,498 10.25%, 5/15/12 17,673 89,624 10.25%, 5/15/12 95,902 11,790 10.25%, 6/15/12 12,613 17,982 10.25%, 6/15/12 19,271 45,286 10.25%, 7/15/12 48,493 16,456 10.25%, 7/15/12 17,628 76,190 10.25%, 8/15/12 81,532 51,900 10.25%, 6/15/13 55,610 46,948 10.50%, 7/15/00 50,007 24,611 10.75%, 8/15/98 25,095 61,360 10.75%, 1/15/01 65,366 31,982 11.25%, 10/15/00 34,079 74,474 11.75%, 7/15/00 79,374 29,237 11.75%, 7/15/01 31,018 Total mortgage pass-through securities 1,701,695 (cost: $1,706,966) COLLATERALIZED MORTGAGE OBLIGATIONS (8.7%)(2) Federal National Mortgage Association, 250,000 1994-38, 6.65%, 12/25/23 233,213 Vendee Mortgage Trust: 21,177 1992-1 2B, 7.75%, 9/15/10 21,291 75,000 1996-2 1D, 6.75%, 11/15/15 71,327 100,000 1994-1 2E, 6.50%, 1/15/17 93,098 150,000 1996-2 1E, 6.75%, 5/15/20 140,478 Total collateralized mortgage obligations 559,407 (cost: $565,749) MUTUAL FUNDS (4.5%)(2) 2,400 American Strategic Income Portfolio (I) 26,400 11,200 American Strategic Income Portfolio (II) 124,600 12,500 American Strategic Income Portfolio (III) 135,937 Total mutual funds 286,937 (cost: $274,616) TRUST PREFERRED SECURITIES (2.3%)(2) 4,000 Allstate Financing I, 7.95%, 12/1/26 97,000 50,000 Allstate Financing II, 7.83%, 12/1/45 46,812 Total trust preferred securities 143,812 (cost: $149,319) SHORT-TERM SECURITIES (4.6%)(2) 200,000 American Express Credit Corp., 5.76%, 04/02/97 199,968 97,779 Dreyfus Cash Management Fund, 5.31% 97,779 Total short-term securities 297,747 (cost: $297,747) Total investments in securities (cost: $6,453,777)(7) $6,340,296 See accompanying notes to financial statements on page 35. SIT TAX-FREE INCOME FUND REVIEW MARCH 31, 1997 [PHOTO] MICHAEL C. BRILLEY SENIOR PORTFOLIO MANAGER DEBRA A. SIT, CFA PORTFOLIO MANAGER The Fund provided shareholders with a total return of +0.66% for the 3 months and +6.86% for the 12 months ended March 31, 1997. The Fund's quarterly performance ranked #1 of 242 general municipal funds tracked by Lipper Analytical Services. The Fund ranked #4 (of 228 funds) based on its one year return and 11th (of 165 funds) based on its three year return. The Fund's price per share was $9.98 as of March 31, 1997, compared with $10.05 on December 31, 1996 and $9.88 on March 31, 1996. During the year, the Fund's share price varied between $9.78 and $10.13, a range of 3.6%. The Fund's 30-day SEC yield was unchanged during the quarter at 5.47% as of March 31, 1997, and decreased from 5.71% as of March 31, 1996. The Fund's 12-month distribution rate has remained relatively stable over the last year. Fund assets increased to $342.5 million from $309.7 on December 31 and from $279.8 million one year ago. Significant industry shifts during the year included an increase in multi-family housing from 24.2% to 34.3%, reflecting attractive yields found in the non-subsidized, affordable housing area, and a decrease in health care from 23.5% to 19.6%. In addition, transportation increased from 4.4% to 6.8%, and decreases occurred in industrial revenue bonds from 9.8% to 5.3%, and in public facilities bonds from 3.6% to 2.3%. The Fund's weighting in securities rated "A" or better increased from 58.3% to 61.7% as the Fund reduced emphasis on lower rated credits. The Fund's duration to average life increased from 6.1 to 7.3 years during the year as the Fund continued to focus on securities with greater call protection. The Fund's implied duration, which more closely represents the Fund's historical price sensitivity to changes in interest rates and which was not available one year ago, increased from 4.4 to 5.0 years during the most recent quarter. The Fund's average maturity increased to 17.9 years as of March 31, 1997 from 16.9 years on December 31 and from 15.6 years on March 31, 1996. The Fund's performance was helped by its continued emphasis on bonds which provide higher income and greater stability of principal value, particularly those in the housing sector. In addition, the Fund benefited from the narrowing yield spreads of lower rated credits. As we expect economic growth to moderate by the end of the year with inflation remaining contained, we will continue to seek current opportunities to lock in higher yields over the longer term. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Fund is to provide a high level of current income that is exempt from federal income tax, consistent with the preservation of capital, by investing in investment-grade municipal securities. Such municipal securities generate interest that is exempt from regular federal income taxes. Of the municipal securities in which the Fund invests, 100% will be rated investment grade at time of purchase. PORTFOLIO SUMMARY Net Asset Value 3/31/97: $9.98 Per Share 3/31/96: $9.88 Per Share Total Net Assets: $342.54 Million 30-Day SEC Yield: 5.47% Tax Equivalent Yield: 9.06%(1) 12-Month Distribution Rate: 5.64% Average Maturity: 17.9 Years Duration to Estimated Avg. Life: 7.3 Years(2) Implied Duration: 5.0 Years(2) (1) For individuals in the 39.6% federal tax bracket. (2) See page 19. PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) [BAR CHART] Multifamily Mortgage Revenue 34.3 Hospital/Health Care Revenue 19.6 Single Family Mortgage Revenue 17.3 Transportation 6.8 Industrial Revenue/Pollution Control 5.3 Other Revenue 4.2 Public Facilities 2.3 Municipal Lease Rental 1.9 Education/Student Loan 1.8 Escrowed to Maturity/Pre-Refund 1.7 Sales Tax Revenue 1.2 General Obligation 0.7 Utility 0.3 Other Assets & Liabilities 2.6
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ----------------------------- ------------------------- Tax-Free Lipper General Lehman Tax-Free Lipper General Lehman Income Muni. Bond 5-Year Muni. Income Muni. Bond 5-Year Muni. Fund Fund Avg. Bond Index Fund Fund Avg. Bond Index ---- --------- ---------- ---- --------- ---------- 3 Months 0.70% -0.44% -0.02% 0.70% -0.44% -0.02% (unannualized) 1 Year 6.86 4.81 4.19 6.86 4.81 4.19 3 Years 7.19 6.13 5.72 23.17 19.53 18.16 5 Years 7.11 6.68 6.07 40.97 38.16 34.29 Inception 7.45 7.53 6.96 84.29 85.45 77.19 (9/29/88)
* As of 3/31/97 PERFORMANCE IS HISTORICAL AND ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. SHARE PRICE AND RETURN WILL VARY SO THAT A GAIN OR LOSS MAY BE REALIZED WHEN SHARES ARE SOLD. TOTAL RETURN SHOULD NOT BE TAKEN AS A REPRESENTATION OF FUTURE PERFORMANCE. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN 5-YEAR MUNICIPAL BOND INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. (2) Duration is a measure which reflects estimated price sensitivity to a given change in interest rates. For example, for an interest rate change of 1%, a portfolio with a duration of 5 years would be expected to experience a price change of 5%. Estimated average life duration is based on current interest rates and the Adviser's assumptions regarding the expected average life of individual securities held in the portfolio. Implied duration is calculated based on historical price changes of securities held by the Fund. The Adviser believes that the portfolio's implied duration is a more accurate estimate of price sensitivity provided interest rates remain within their historical range. If interest rates exceed the historical range, the estimated average life duration may be a more accurate estimate of price sensitivity. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (9/29/88) and held until 3/31/97 would have grown to $18,429 in the Fund or $17,719 in the Lehman 5-Year Municipal Bond Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% of Net Assets) LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED. [PIE CHART] A 35.0% AA 10.8% AAA 13.3% Other Assets and Liabilities 2.6% BBB 38.3% SIT TAX-FREE INCOME FUND PORTFOLIO OF INVESTMENTS - MARCH 31, 1997
QUANTITY NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ MUNICIPAL BONDS (97.4%)(2) ALASKA (0.5%) Alaska Hsg. Finance Corp.: 4,000,000 Gen. Mtg. Rev. 1997 Series A, Zero Coupon, 6.15% Effective Yield on Purchase Date, 12/1/17(7) $1,132,480 2,000,000 Mtg. Rev. 1996 Series A, Zero Coupon, 6.45% Effective Yield on Purchase Date, 12/1/27 285,540 345,000 AK Industrial Dev. & Export Auth. Rev. Refunding Revolving Fund Series 1993A, 5.60%, 4/1/03 347,267 1,765,287 ARIZONA (3.5%) AZ Hlth. Fac. Auth. Hosp. System Refunding Rev. Series 1991 (Phoenix Mem. Hosp.): 1,120,000 8.00%, 6/1/06 1,213,856 1,500,000 8.125%, 6/1/12 1,618,035 770,000 8.20%, 6/1/21 829,459 Maricopa Co. Industrial Dev. Auth. Multifamily Hsg. Rev.: 3,000,000 Series 1995A, 6.50%, 10/1/25 3,045,570 565,000 Series 1995B, 7.15%, 10/1/25 565,000 1,400,000 Senior Series 1996A (Advantage Pt. Arrowood Village), 6.50%, 7/1/16 1,422,148 2,000,000 Series 1997A (Mercy Bond Prop. AZ-I Proj.), 6.25%, 7/1/27 1,978,320 325,000 Series 1997B (Mercy Bond Prop. AZ-I Proj.), 7.25%, 1/1/17 322,563 1,070,000 Valley HDC Phoenix Hsg. Rev. 1979 (Roosevelt Plaza) (Section 8), 8.00%, 10/1/20 1,091,464 12,086,415 ARKANSAS (1.5%) Drew Co. Public Fac. Bd. Single Family Mtg. Rev. Refunding: 180,259 Series 1993B, 7.75%, 8/1/11 191,206 372,584 Series 1993-A2 (FNMA backed), 7.90%, 8/1/11 397,424 283,944 Jacksonville Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1993B, 7.75%, 1/1/11 303,405 272,750 Lonoke Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding 1993B, 7.375%, 4/1/11 291,373 2,075,000 Maumelle HDC First Lien Rev. Refunding 1992 Series A (Section 8), 7.875%, 7/1/09 2,219,980 1,780,000 Saline Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1992, 7.875%, 3/1/11 1,888,669 5,292,057 CALIFORNIA (5.4%) 1,200,000 Bell Cmnty. Hsg. Auth. Rev. Series 1995A (Mobilehomes Park Acquisition Proj.), 6.40%, 10/1/15 1,222,956 1,000,000 Chula Vista Redev. Agency Refunding Tax Allocation Senior Series 1994A (Bayfront-Town Center Redev. Proj.), 7.625%, 9/1/24 1,109,820 Corona Single Family Mtg Rev.: 1,200,000 Senior Series 1996A, 6.05%, 5/1/27 1,201,908 800,000 Subordinate Series 1996B, 6.30%, 11/1/28 807,808 Foothill / Eastern Transportation Corridor Agy. Toll Rd. Rev Series 1995A Sr. Lien: 31,900,000 Zero Coupon, 6.45% Effective Yield on Purchase Date, 1/1/26 4,918,342 2,000,000 Zero Coupon Convertible Bond, 6.10% Effective Yield on Purchase Date, 1/1/07 1,305,460 5,000,000 Zero Coupon Convertible Bond, 7.10% Effective Yield on Purchase Date, 1/1/11 3,273,950 2,000,000 Glendale Hosp. Rev. Refunding Series 1994 (Verdugo Hills Hosp.), 8.00%, 1/1/12 2,283,440 1,335,000 Sacramento Public Television Fac. Rev. 1989 Series A (KVIE inc.) (LOC Wells Fargo & Co.), 7.50%, 7/1/20 1,377,053 990,000 Upland Hsg. Auth. Multifamily Rev. 1990 Issue A, 7.85%, 7/1/20 1,025,185 18,525,922 COLORADO (6.1%) 1,000,000 Adams Co. HA Mtg. Rev. Series 1996 (Village of Greenbriar Proj.), 6.75%, 7/1/21 974,280 Arapahoe Co. Cap. Improvement Tr. Fund Highway Rev. (E-470 Project) Senior Capital Appreciation Zero Coupon: 9,500,000 5.99% Effective Yield on Purchase Date, 8/31/11 3,793,635 2,000,000 7.08% Effective Yield on Purchase Date, 8/31/04 1,304,080 18,495,000 7.40% Effective Yield on Purchase Date, 8/31/09 8,660,839 1,065,000 Aurora Single Family Mtg. Rev. Refunding Series 1993B, 7.50%, 5/1/11 $1,102,019 2,200,000 CO HFA Single Family Program Senior Series 1996B-2, 7.45%, 11/1/27 2,455,112 335,000 LaPlata Co. Southwestern CO Single Family Mtg. Participation Rev. Refunding 1991 Series A, 7.375%, 9/1/11 350,561 435,000 Thornton Single Family Mtg. Rev. Refunding 1992 Series A, 8.05%, 8/1/09 462,683 430,000 Vail Single Family Mtg. Rev. Refunding Series 1992, 8.125%, 6/1/10 462,977 1,195,000 Westminster Multifamily Hsg. Rev. Refunding Series 1992 (Ironwood at the Ranch Proj.), 7.45%, 12/1/10 1,231,758 20,797,944 CONNECTICUT (1.8%) 1,000,000 CT Hlth. & Educ. Fac. Auth. Rev. Series 1990C (St. Mary's Hosp.) 7.375%, 7/1/20 1,041,630 5,000,000 CT HFA Hsg. Mtg. Fin. Pgm. Series 1996A3, 5.95%, 5/15/17 (7) 4,959,100 6,000,730 DELAWARE (0.4%) 16,825,000 DE EDA Multifamily Rev. 1985 (GNMA collateralized) (Valley Stream Apts. Proj.) Zero Coupon, 8.10% Effective Yield on Purchase Date, 12/20/27 1,263,557 DISTRICT OF COLUMBIA (0.5%) 1,500,000 District of Columbia HFA Multifamily Hsg. Refunding Rev. Series 1992C (FHA insured) (Chastleton Dev.), 6.95%, 7/1/27 1,551,450 GEORGIA (1.1%) 800,000 Cobb Co. Hsg. Auth. Multifamily Rev. Refunding Series 1992A (Signature Place Project), 6.875%, 10/1/17 821,400 Dekalb Co. Hsg. Auth. Multifamily Hsg. Rev. (Regency Woods I & II): 1,700,000 Senior Series 1996A, 6.375%, 1/1/11 1,721,828 1,365,000 Subordinate Series 1996C, 7.25%, 1/1/26 1,354,995 3,898,223 HAWAII (0.4%) 1,250,000 Honolulu Mtg. Rev. Ref. Series 1996A (Hale-Pauahi Proj.)(FHA insured) (MBIA insured), 6.80%, 7/1/28 1,293,937 ILLINOIS (11.7%) 2,655,000 Chicago Metropolitan Hsg. Dev. Corp. Mtg. Rev. Refunding Series 1992A (FHA insured) (Section 8), 6.70%, 7/1/12 2,735,924 4,260,000 Chicago Res. Mtg. Rev. Refunding Series 1992B (MBIA insured) Zero Coupon, 7.30% Effective Yield on Purchase Date, 10/1/09 1,785,281 2,000,000 Collinsville (City of) Madison Co. Industrial Dev. Rev. Refunding (Drury Inn-Collinsville Proj.) Series 1993, 6.00%, 11/1/04 2,022,180 1,790,000 IL DFA Elderly Hsg. Rev. Refunding Series 1995A (Pontiac Towers Proj.) (Section 8), 6.65%, 10/1/09 1,861,761 1,250,000 IL Educ. Fac. Auth. Rev. Series 1997 (Augustana College)(Connie Lee insured), 5.875%, 10/1/17(7) 1,220,200 3,000,000 IL HDA Elderly Hsg. Rev. Series 1992C (Village Ctr.) (Section 8), 6.85%, 3/1/20 3,097,620 IL HDA Multifamily Hsg. Rev.: Refunding 1992 Series A (Section 8): 2,150,000 6.65%, 7/1/04 2,260,553 1,545,000 7.00%, 7/1/10 1,637,345 Refunding 1991 Series C (Section 8): 260,000 7.35%, 7/1/11 272,659 100,000 7.40%, 7/1/23 103,925 IL Hlth. Fac. Auth. Rev.: Refunding Series 1993 (Lutheran Social Svcs. IL): 610,000 5.70%, 8/15/00 606,639 475,000 5.80%, 8/15/01 471,713 525,000 6.00%, 8/15/03 518,952 545,000 6.10%, 8/15/04 538,035 1,350,000 Refunding Series 1992 (Mercy Ctr. for Hlth. Care Svcs.), 6.625%, 10/1/12 1,371,479 5,740,000 Refunding Series 1992 (Galesburg Cottage Hosp.) (Asset Guaranty insured), 6.25%, 5/1/11 5,851,241 1,000,000 Refunding Series 1994 (Passavant Memorial Area Hospital Assn.), 5.95%, 10/1/11 987,590 1,000,000 Refunding Series 1994 (Friendship Village Schamburg), 6.25%, 12/1/04 1,032,850 Refunding Series 1994 (St. Elizabeth's Hosp. of Chicago, Inc.): 2,160,000 7.25%, 7/1/05 2,279,232 1,000,000 7.625%, 7/1/10 1,088,480 Series 1996 (St. Elizabeth's Hosp. of Chicago, Inc.): 700,000 6.25%, 7/1/10 698,355 1,215,000 6.25%, 7/1/16 1,198,148 2,500,000 Metropolitan Pier & Exposition Auth. McCormick Place Convention Complex Hospitality Fac. Rev. Series 1996A, 6.25%, 7/1/17 2,511,525 2,000,000 Roselle Multifamily Hsg. Rev. Refunding Series 1994A (GNMA Collateralized) (Waterbury Apts.) (FHA insured), 7.00%, 1/1/25 2,123,020 1,140,000 Springfield Community Improvement Rev. 1985 (Garden Court Proj. - FHA insured) (Section 8) (MBIA insured), 10.50%, 4/1/26 1,272,149 1,275,000 Urbana Res. Mtg. Rev. Refunding 1991 Series B Zero Coupon, 7.39% Effective Yield on Purchase Date, 3/1/07 623,220 40,170,076 INDIANA (8.5%) 1,000,000 East Chicago Multi School Bldg. Corp. First Mtg. Series 1996, 6.50%, 1/15/16 1,033,000 1,800,000 Elkhart Co. Hosp. Auth. Rev. Series 1992 (Goshen Hosp. Proj.), 7.25%, 7/1/05 1,925,118 2,165,000 Elkhart HFC Multifamily Mtg. Rev. Series 1996A (Section 8 Assisted Proj.) (Stratford Commons), 6.00%, 11/1/10 2,162,878 1,095,000 IN Bond Bank Special Prgm. Series 1993B (Gary Sanitary Dist.), 6.15%, 2/1/08 1,142,534 2,850,000 IN DFA Educ. Fac. Rev. Series 1997 (Park Tudor Foundation Proj.), 6.00%, 6/1/22 2,820,531 IN Educ. Fac. Auth. Educ. Fac. Rev. Series 1992 (Manchester College Proj.): 250,000 6.50%, 10/1/05 258,833 305,000 6.60%, 10/1/06 316,669 1,000,000 6.85%, 10/1/18 1,038,520 IN Hlth. Fac. Fin. Auth. Hosp. Rev.: Series 1991 (Jackson Co. Schneck Mem. Hosp. Proj.): 1,200,000 7.50%, 2/15/05 1,302,864 2,000,000 7.50%, 2/15/22 2,130,880 Series 1992 (Fayette Mem. Hosp. Proj.): 250,000 7.00%, 10/1/02 261,008 295,000 7.10%, 10/1/03 310,364 315,000 7.20%, 10/1/04 335,711 340,000 7.25%, 10/1/05 361,219 365,000 7.25%, 10/1/06 386,210 390,000 7.30%, 10/1/07 412,148 420,000 7.30%, 10/1/08 442,063 Series 1992 (Floyd Mem. Hosp. Proj.): 460,000 6.75%, 2/15/06 486,036 595,000 6.80%, 2/15/07 626,898 2,000,000 Series 1992 (Mem. Hosp. & Hlth. Care Ctr. Proj.), 7.35%, 3/1/12 2,113,260 830,000 IN HFA Home Mtg. Prog. 1990 Series F1 (GNMA collateralized), 7.50%, 1/1/16 874,422 2,750,000 Indianapolis Econ. Dev. Refunding & Imprv. Rev. Series 1992 (Natl. Benevolent Assn.-Robin Run Village Proj.), 7.25%, 10/1/10 2,916,897 Indianapolis Econ. Dev. Rev. (Willowbrook Apts. Proj.): 2,000,000 Senior Series 1996A, 6.50%, 7/1/16 2,026,820 1,365,000 Subordinate Series 1996C, 7.125%, 7/1/26 1,371,074 895,000 Marion HC Mtg. Rev. Refunding Series 1994 (Hilltop Towers Project) (Section 8), 6.90%, 10/1/10 929,601 4,120,000 New Castle Econ. Dev. Rev. Series 1988C Escrowed to Maturity Zero Coupon, 6.20% Effective Yield on Purchase Date, 3/1/18 1,095,549 29,081,107 IOWA (1.9%) 1,500,000 IA Fin. Auth. SF Mtg. Series 1997A, 5.80%, 7/1/16 1,479,330 1,500,000 IA Fin. Auth. Small Business Dev. Refunding Rev. Series 1992 (University Civic Ctr. Court Assn. Proj.), 7.40%, 3/1/17 1,607,955 1,500,000 Ottumwa Hosp. Rev. Refunding Series 1993 (Ottumwa Regional Hlth. Ctr.), 6.00%, 10/1/10 1,465,470 Polk Co. Hlth. Svcs. Residential Care Fac. Rev. Series 1991: 460,000 7.25%, 2/1/06 494,905 1,500,000 7.50%, 2/1/16 1,628,790 6,676,450 KANSAS (0.4%) 310,000 Geary Co. Single Family Mtg. Rev. 1980 (FGIC insured), 10.75%, 4/1/12 317,930 4,655,000 Kansas City Single Family Mtg. Rev. Series 1982A Zero Coupon, 11.23% Effective Yield on Purchase Date, 11/1/14 693,129 2,170,000 Olathe & Labette Cos. Mtg. Loan Rev. 1991 Series B (GNMA collateralized) Zero Coupon, 7.56% Effective Yield on Purchase Date, 2/1/23 331,229 1,342,288 KENTUCKY (0.8%) 1,500,000 Jefferson Co. First Mtg. Rev. Series 1994 (Christian Church Homes Proj.), 6.00%, 11/15/09 1,492,665 1,200,000 KY DFA Hosp. Rev. Series 1989 (Sisters of Charity of Nazareth Hlth. Corp.) (BIG insured), 6.25%, 11/1/19 1,213,860 2,706,525 LOUISIANA (4.1%) 715,000 Calcasieu Parish Industrial Dev. Rev. 1975 (Cities Service Co. Proj.), 7.80%, 12/1/05 717,538 505,000 Calcasieu Parish Public Trust Auth. Mtg. Rev. Refunding 1992 Series B, 6.875%, 11/1/12 528,073 5,650,000 Denham Springs/Livingston Hsg. & Mtg. Fin. Auth. Residual Rev. Series 1992C Zero Coupon, 7.65% Effective Yield on Purchase Date, 7/10/14 1,583,978 4,000,000 Houma-Terrebonne Public Trust Fin. Auth. Residual Rev. Series 1992C Zero Coupon, 7.60% Effective Yield on Purchase Date, 7/10/14 1,137,040 1,550,000 LA HFA Residual Lien Refunding Mtg. Rev. Series 1992, 7.375%, 9/1/13 1,603,661 341,839 LA PFA Single Family Mtg. Purchase Rev. Series 1992 (Lafayette PTFA Mtg. Acquisition), 7.50%, 10/1/15 362,671 LA PFA Rev. Multifamily Hsg. Rev.: 1,290,000 Series 1991 (Volunteers of America Natl. Hsg. Corp.) (Asset Guaranty insured), 7.25%, 11/1/04 1,387,343 3,000,000 Series 1991 (Volunteers of America Natl. Hsg. Corp.) (Asset Guaranty insured), 7.75%, 11/1/16 3,193,560 730,000 Series Sr. Lien 1994A (VOA Willows Affordable Hsg. Corp.), 7.00%, 6/1/24 783,064 1,000,000 Monroe - McKeen Plaza Hsg. Dev. Corp. Multifamily Hsg. Rev. Refunding Series 1994A (Murray Plaza Apts.) (Section 8), 6.80%, 2/1/12 1,029,080 1,550,000 Orleans Levee Dist. Improvement Serial and Term Receipts Series 1995A (FSA insured), 5.95%, 11/1/14 1,578,582 13,904,590 MAINE (0.1%) 250,000 ME HA Mtg. Purchase 1987 Series A-2, 7.65%, 11/15/15 257,047 MASSACHUSETTS (0.8%) 1,000,000 Boston Industrial Dev. Fin. Auth. Series 1997A (FHA insured-Boston Alzheimers Center Proj.), 5.90%, 2/1/22 973,240 MA Hlth. & Educ. Fac. Auth. Rev.: 655,000 Series 1982 (Malden Hosp.) (FHA insured), 9.50%, 8/1/08 656,926 1,000,000 Series 1991C (New England Deaconess Hosp.), 7.20%, 4/1/22 1,070,810 2,700,976 MICHIGAN (4.8%) 1,305,000 Detroit Econ. Dev. Corp. Limited Obligation Rev. Refunding Series 1992 (E.H. Associates Ltd. Partnership Proj.), 7.00%, 6/1/12 1,352,463 4,500,000 MI HDA Rental Hsg. Rev. Series 1992A, 6.60%, 4/1/12 4,677,120 1,300,000 Romulus Econ. Dev. Corp. Ltd. Obligation Rev. Refunding Series 1992 Escrowed to Maturity (Romulus HIR Ltd. Partnership Proj.) (ITT Lyndon), 7.00%, 11/1/15 1,399,034 4,000,000 Saginaw Hosp. Fin. Auth. Rev. Refunding Series 1989 (Saginaw Gen. Hosp.), 7.625%, 10/1/19 4,217,200 1,665,000 Tri City Village Hsg. Corp. Mtg. Refunding Multifamily Tri City Apts. Series 1992A (Section 8) (FNMA backed), 7.75%, 8/15/23 1,802,396 2,750,000 Troy City EDC Econ. Dev. Rev. Refunding Series 1992 (Drury Inn-Troy Proj.) (Lincoln Natl. Corp.), 6.75%, 10/1/12 2,881,560 16,329,773 MINNESOTA (2.0%) 1,430,000 Dakota Co. Hsg. & Redev. Auth. Multifamily Mtg. Rev. Refunding Series 1997A (Park Place Apts. Proj.)(GNMA Collateralized), 6.875%, 2/20/32 1,524,008 740,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.)(Section 8), 6.375%, 4/1/20 752,417 4,560,480 Moorhead Single Family Mtg. Rev. Refunding Series 1992B (FNMA backed), Zero Coupon, 7.00% Effective Yield on Purchase Date, 8/1/11 1,702,199 2,500,000 Plymouth Multifamily Hsg. Dev. Rev. Refunding Series 1996A (GNMA collateralized) (Fox Forest Apts. Proj.), 8.05%, 6/20/31 2,861,525 6,840,149 MISSISSIPPI (0.7%) 6,435,000 MS Home Corp. Residual Rev. Series 1992-II Zero Coupon, 7.38% Effective Yield on Purchase Date, 4/15/12 2,234,618 MISSOURI (0.4%) 1,090,000 St. Louis Co. Industrial Dev. Auth. Hsg. Rev. Refunding Series 1995 (South Point Apts. and Hunter's Ridge Apts. Proj.), 7.875%, 1/1/25 1,162,452 65,000 St. Louis Co. Single Family Res. Mtg. Series 1984 (MBIA insured), 9.75%, 4/1/10 66,750 1,229,202 NEVADA (2.5%) 1,475,000 Humboldt General Hosp. Dist. Series 1993, 6.125%, 6/1/13 1,419,997 1,645,000 NV Hsg. Div. SF Program Sr. Series 1995A1, 6.45%, 10/1/18 1,691,356 Reno Redev. Agency Subordinate Tax Allocation and Rev. Refunding Series 1995A: 400,000 6.00%, 6/1/08 397,072 1,000,000 6.10%, 6/1/11 983,170 1,000,000 6.125%, 6/1/12 980,090 3,000,000 Reno-Sparks Indian Colony Public Fac. Fin. Auth. Sales & Excise Tax Rev. Series 1995A, 7.50%, 7/1/07 3,047,250 8,518,935 NEW HAMPSHIRE (0.3%) 540,000 NH Higher Educ. & Hlth. Fac. Auth. Series 1991 (St. Joseph's Hosp.), 7.25%, 1/1/02 574,339 3,480,000 NH HFA Single Family Res. Mtg. 1982 Series A Zero Coupon, 11.75% Effective Yield on Purchase Date, 1/1/14 563,342 1,137,681 NEW MEXICO (1.1%) 714,000 Hobbs Single Family Mtg. Rev. Refunding Series 1992, 8.75%, 7/1/11 791,212 1,350,000 New Mexico MFA Single Family Mtg. Purchase Refunding Senior Series 1992-A2, 6.85%, 7/1/12 1,406,835 960,000 San Miguel Co. Gross Receipts Tax Refunding & Imprv. Rev. Series 1997A, 5.95%, 3/1/18 937,517 525,000 Sante Fe Educ. Fac. Imprv. & Refunding Rev. Series 1997 (College of Sante Fe Proj.), 6.00%, 10/1/13 513,188 3,648,752 NEW YORK (1.1%) 4,000,000 New York City HDC Multifamily Hsg. Rev. Series 1993B (FHA insured) (Section 8), 5.85%, 5/1/26 3,890,880 NORTH DAKOTA (2.1%) 1,890,000 Oliver Co. Pollution Control Rev. Series 1976 (Sq. Butte Elec. Coop. Proj.), 7.00%, 12/31/10 1,899,167 Ward Co. Hlth. Care Fac. Rev.: 1,370,000 Series 1994 (St. Joseph Hosp.), 8.00%, 11/15/04 1,441,692 2,000,000 Series 1994 (St. Joseph Hosp.), 8.875%, 11/15/14 2,205,900 1,600,000 Series 1991A (St. Joseph Hosp.), 7.50%, 11/1/15 1,613,696 7,160,455 OHIO (1.3%) Akron Certificates of Participation Series 1996 (Akron Municipal Baseball Stadium Proj.): 3,000,000 Zero Coupon Convertible, 6.504% Effective Yield on Purchase Date, 12/1/16 2,241,270 1,000,000 Zero Coupon Convertible, 6.15% Effective Yield on Purchase Date, 12/1/07 763,220 1,570,000 OH Capital Corp. Hsg. Mtg. Rev. Refunding Series 1995G (FHA insured)(Section 8) (MBIA insured), 6.35%, 7/1/22 1,605,403 4,609,893 OKLAHOMA (2.1%) 1,440,000 Cleveland Co. Home Loan Auth. Single Family Mtg. Rev. Refunding Series 1991, 8.00%, 8/1/12 1,526,717 Midwest City Mem. Hosp. Auth. Hosp. Rev. Series 1992: 115,000 7.25%, 4/1/06 Prerefunded 128,445 365,000 8.75%, 4/1/03 Prerefunded 430,868 325,000 10.00%, 4/1/01 Escrowed to Maturity 384,420 345,000 10.00%, 4/1/02 Escrowed to Maturity 419,975 2,000,000 Muskogee Co. HFA Single Family Mtg. Rev. Refunding 1990 Series A (FGIC insured) Zero Coupon, 7.65% Effective Yield on Purchase Date, 6/1/11 699,960 340,000 Muskogee Co. Industrial Pollution Rev. Series 1987A (Oklahoma G&E Proj.), 7.00%, 3/1/17 347,337 565,000 Payne Co. Home Loan Auth. Single Family Rev. Refunding Series 1993A, 8.625%, 3/1/11 602,510 2,540,000 Tulsa Public Facilities Auth. Recreational Facs. Rev. Series 1985, 6.20%, 11/1/12 2,563,368 7,103,600 PENNSYLVANIA (4.6%) Horizon Hosp. System Auth. Hosp. Rev. Series 1996 (Horizon Hosp. Sys.): 600,000 5.95%, 5/15/06 602,046 715,000 6.15%, 5/15/08 719,054 710,000 6.25%, 5/15/09 714,459 3,800,000 Mercer Co. Industrial Dev. Auth. Rev. Refunding Series 1991 (FHA insured) (Hillcrest Nursing Industrial Ctr. Proj.) Zero Coupon, 6.85% Effective Yield on Purchase Date, 1/15/13 1,221,966 6,000,000 Montgomery Co. Industrial Dev. Auth. Resource Recovery Rev. Series 1989 (LOC Banque Paribas), 7.50%, 1/1/12 6,398,460 1,240,000 Montgomery Co. Redev. Auth. Multifamily Hsg. Rev. 1993 Series A (KBF Assoc. L.P.), 6.375%, 7/1/12 1,230,898 Pittsburgh Urban Redev. Auth. (Center Triangle Tax Increment Fin. District) (LOC PNC Bank): 3,000,000 Series 1995A, 6.00%, 12/1/11 2,942,430 2,100,000 Series 1995B, 6.25%, 3/15/15 2,075,388 15,904,701 RHODE ISLAND (0.7%) 2,500,000 RI Hlth. & Educ. Bldg. Corp. Hosp. Fin. Rev. Series 1997 (South Co. Hosp.), 6.00%, 11/15/17 2,391,650 SOUTH CAROLINA (0.4%) 1,455,000 Myrtle Beach PFC Certificates of Participation Series 1992 (Myrtle Beach Convention Ctr. Proj.), 6.75%, 7/1/02 1,531,388 SOUTH DAKOTA (0.6%) 2,000,000 SD HDA Multifamily Hsg. Rev. 1992 Series B (Section 8), 7.00%, 4/1/12 2,127,560 TENNESSEE (4.7%) 1,675,000 Metro. Govt. of Nashville & Davison Cos. TN Industrial Dev. Board Rev. Refunding Multifamily Mtg. Rev. 92C (FHA insured) (Picadilly Apts.), 6.95%, 7/1/27 1,743,993 Shelby Co. Hlth., Educ. & Hsg. Fac. Board Multifamily Hsg. Rev.: (Eastwood Park Apts. Proj.): 1,000,000 Senior Series 1995 A2, 6.40%, 9/1/25 1,005,210 425,000 Subordinate Series 1995C, 7.50%, 9/1/25 428,621 (Raleigh Forest & Sherwood Apts. Proj.): 2,885,000 Senior Series 1996A, 6.60%, 1/1/26 2,917,802 800,000 Subordinate Series 1996C, 7.25%, 1/1/26 808,792 (Raleigh Woods Apts. Proj.): 6,000,000 Series 1997A (GNMA collateralized), 7.75%, 3/20/27 6,780,600 (The Corners Apts. Proj.) 1,055,000 Senior Series 1996A, 6.25%, 1/1/27 1,040,842 400,000 Subordinate Series 1996C, 6.375%, 1/1/27 378,368 830,000 TN HDA Homeownership Program Series 1991 Issue U, 7.35%, 7/1/11 872,239 15,976,467 TEXAS (13.4%) 2,165,000 Baytown HFC Single Family Mtg. Rev. Refunding Series 1992B, 8.50%, 9/1/11 2,394,144 Beaumont Hsg. Auth. Multifamily Mtg. Rev. Series 1993A (Section 8): 1,365,000 6.65%, 11/1/07 1,418,781 650,000 6.75%, 11/1/10 669,344 1,765,000 Bexar Co. HFC Residual Rev. Series 1993 Zero Coupon, 6.50% Effective Yield on Purchase Date, 3/1/15 570,872 290,000 Brazos Co. HFC Single Family Mtg. Rev. 1985 (MBIA insured) Zero Coupon, 10.55% Effective Yield on Purchase Date, 9/1/11 65,781 1,800,000 Cleveland Ind. School Dist. Public Fac. Corp. Lease Rev. Series 1996, 6.10%, 2/15/11 1,794,852 Dallas Hsg. Corp. Capital Program Revenue Bonds: 1,715,000 Series 1995A (Estell Village Apts.) (Section 8), 7.875%, 12/1/09 1,763,826 1,630,000 Series 1995 (Cedar Glen Apts.) (Section 8), 7.75%, 12/1/09 1,674,678 1,000,000 Dallas HFC Cap. Proj. Refunding 1990 (Section 8), 7.85%, 8/1/13 1,062,080 540,000 Harris Co. HFC Single Family Mtg. Rev. Series 1983A, 10.125%, 7/15/03 541,166 1,500,000 Houston HFC Single Family Mtg. Rev. Refunding Series 1996B-1, 8.00%, 6/1/14 1,609,725 1,725,000 Lubbock HFC Multifamily Hsg. Rev. Refunding Series 1992A (Los Colinas, Park Ridge Place & Quail Creek), 7.75%, 1/1/22 1,774,335 Midland Co. Hosp. Dist. Hosp. Rev. Series 1992 Zero Coupon: 6,350,000 7.61% Effective Yield Purchase Date, 6/1/07 3,376,549 2,500,000 6.50% Effective Yield Purchase Date, 6/1/11 998,300 Midland HFC Single Family Mtg. Rev. Refunding: 527,222 Series 1992 B-2, 8.15%, 12/1/11 559,836 711,949 Series 1992 A-2, 8.45%, 12/1/11 759,493 900,036 Series 1992, 9.00%, 9/1/01 948,575 Mesquite Hlth. Fac. Dev. Corp. Retirement Fac. Rev. Series 1996A (Christian Care Ctrs. Proj.): 1,000,000 6.30%, 2/15/12 996,570 1,000,000 6.40%, 2/15/16 999,360 North Central Hlth. Fac. Dev. Corp. Rev. Series 1996 (C.C. Young Memorial Home Proj.): 495,000 5.90%, 2/15/04 493,302 155,000 6.10%, 2/15/06 154,986 1,300,000 6.30%, 2/15/15 1,295,047 3,000,000 Northeast Hosp. Authority Rev. Series 1993B (NE Med. Ctr. Hosp.), 7.25%, 7/1/22 3,167,520 1,751,995 Odessa HFC Single Family Mtg. Rev. Refunding Series 1992B Class B-2, 8.125%, 11/1/11 1,870,482 755,000 Richardson Hosp. Auth. Hosp. Refunding Rev. Series 1993 (Richardson Med. Ctr.), 6.75%, 12/1/23 774,049 650,000 San Marcos HA Multifamily Mtg. Rev. Series 1993A (FHA insured) (Section 8), 5.80%, 11/1/10 636,233 Southeast TX HFC Residual Revenue: 1,555,000 Series 1995A Zero Coupon, 6.50% Effective Yield on Purchase Date, 11/1/14 535,138 3,000,000 Series 1992A Zero Coupon, 7.63% Effective Yield on Purchase Date, 9/1/17 659,790 940,000 TX HA Single Family Mtg. Refunding Series 1991A, 7.00%, 3/1/05 987,865 TX Dept. Hsg. & Cmnty. Affairs Single Family Rev. Refunding Junior Lien Series 1994A 3,320,000 Zero Coupon 6.93% Effective Yield on Purchase Date, 3/1/15 994,572 TX Dept. Hsg. & Cmnty. Affairs Multifamily Hsg. Rev.: 1,500,000 Senior Series 1996A (Dallas - Ft. Worth Apts. Pool Proj.), 6.50%, 7/1/16 1,535,880 2,500,000 Senior Series 1996A (Dallas - Ft. Worth Apts. Pool Proj.), 6.50%, 7/1/26 2,549,650 1,060,000 Subordinated Series 1996C (Harbors & Plumtree Apts. Proj.), 7.375%, 7/1/26 1,069,084 2,820,000 Senior Series 1996A (Harbors & Plumtree Apts. Proj.), 6.45%, 7/1/26 2,853,389 2,500,000 Series 1996A (NHP Foundation - Asmara Apts. Proj.), 6.40%, 1/1/27 2,530,575 46,085,829 UTAH (0.8%) 1,000,000 Davis Co. Solid Waste Mgmt. & Energy Recovery Rev. Refunding Series 1993, 6.125%, 6/15/09 1,004,040 1,850,000 Utah HFA Single Family Mtg. 1996 Issue E-1 Senior Bonds, 6.00%, 7/1/16 1,833,128 2,837,168 WASHINGTON (1.9%) WA HFC Nonprofit Housing Revenue: 2,500,000 Series 1993 (CRISTA Shores Proj.)(LOC US Bk. Wash.), 6.20%, 7/1/14 2,516,400 1,000,000 Series 1995A (Judson Park Project)(LOC US Bk. Wash.), 6.90%, 7/1/16 1,038,000 1,390,000 Series 1996A (Presbyterian Ministries) (LOC US Bk. Wash.), 6.85%, 7/1/21 1,408,292 1,500,000 WA Hlth. Care Fac. Auth. Rev. Series 1996 (Grays Harbor Hosp. Proj.)(Asset Guaranty insured), 5.70%, 7/1/16 1,455,540 6,418,232 WEST VIRGINIA (1.0%) 5,000 Berkeley, Brooke & Fayette Cos., etc. (21 Municipalities) Single Family Mtg. 1984 Series A, (MBIA insured), 10.125%, 9/1/10 5,229 5,435,000 Huntington Res. Mtg. Rev. Refunding Series 1991 Zero Coupon Escrowed to Maturity, 7.37% Effective Yield on Purchase Date, 9/1/12 1,997,308 2,000,000 Mason Co. Residual Rev. Series 1992C Zero Coupon, 7.58% Effective Yield on Purchase Date, 7/10/14 563,760 3,000,000 Ohio Co. Residual Rev. Series 1992C Zero Coupon, 7.43% Effective Yield on Purchase Date, 7/10/14 849,540 3,415,837 WISCONSIN (0.8%) 1,300,000 WI HEDA Hsg. Rev. Series 1992A (Section 8), 6.85%, 11/1/12 1,355,315 1,500,000 WI Hlth. & Educ. Fac. Auth. Rev. Series 1996 (Meriter Hospital Inc.), 6.00%, 12/1/17 1,443,210 2,798,525 WYOMING (0.6%) 2,000,000 WY CDA Hsg. Rev. 1995 Series 6, 6.10%, 12/1/25 2,004,460 Total municipal bonds (cost: $327,054,983) 333,510,336 SHORT-TERM SECURITIES (3.4%) (2) 6,387,813 Tax-Exempt Cash Management Fund, 3.30% 6,387,813 5,240,845 Tax-Exempt Cash Management Fund, 3.31% 5,240,845 Total short-term securities (cost: $11,628,658) 11,628,658 Total investments in securities (cost: $338,683,641)(7) $345,138,994
See accompanying notes to portfolios of investments on page 35. SIT MINNESOTA TAX-FREE INCOME FUND REVIEW MARCH 31, 1997 [PHOTO] MICHAEL C. BRILLEY SENIOR PORTFOLIO MANAGER DEBRA A. SIT, CFA PORTFOLIO MANAGER The Fund provided shareholders with a total return of +0.36% for the 3 months and +6.26% for the 12 months ended March 31, 1997. The Fund's quarterly performance ranked #1 of 44 Minnesota municipal funds tracked by Lipper Analytical Services. The Fund ranked #4 (of 44 funds) based on its one year return and #2 (of 28 funds) based on its three year return. The Fund's price per share was $10.14 as of March 31, 1997, compared with $10.24 on December 31, 1996 and $10.09 on March 31, 1996. During the year, the Fund's share price varied between $9.98 and $10.28, a range of 3.0%. The Fund's 30-day SEC yield was 5.54% as of March 31, 1997, relatively unchanged from 5.48% as of December 31 and compared with 5.72% as of March 31, 1996. The Fund's 12-month distribution rate has remained relatively stable over the last year. Fund assets increased to $94.0 million from $82.7 on December 31 and from $63.0 million one year ago. Significant industry shifts during the year included increases in multi-family housing from 36.1% to 40.0%, and in lease bonds from 1.1% to 3.1%, and decreases in single family bonds from 23.4% to 17.8%, in health care from 17.8% to 12.2% and in industrial revenue bonds from 13.8% to 8.1%. The Fund's weighting in securities rated "A" or better increased from 55.0% to 60.8% during the year as the Fund reduced emphasis on lower rated credits as relative yield spreads narrowed. The Fund's holdings in non-rated securities decreased from 38.3% to 33.1%. The Fund's duration to estimated average life increased from 6.9 to 7.2 years. The Fund's implied duration, which more closely represents the Fund's historical price sensitivity to changes in interest rates and which was not available one year ago, was unchanged at 4.1 years during the most recent quarter. The Fund's average maturity was also unchanged during the quarter, and, at 18.8 years, is slightly shorter than its 19.2 year average maturity of one year ago. The Fund's performance was helped by its emphasis on bonds which provide higher income and greater stability of principal value, particularly those in the housing sector. In addition, the Fund benefited from the narrowing yield spreads of lower rated and non-rated credits. As we expect economic growth to moderate by the end of the year with inflation remaining contained, we will continue to seek current opportunities to lock in higher yields over the longer term. INVESTMENT OBJECTIVE AND STRATEGY The investment objective of the Fund is to provide a high level of current income exempt from federal regular income tax and Minnesota regular personal income tax as is consistent with the preservation of capital. The Fund will endeavor to invest 100% of its assets in municipal securities, the income from which is exempt from federal regular income tax and Minnesota regular personal income tax. The Fund anticipates that substantially all of its distributions to its shareholders will be exempt as such. For investors subject to the alternative minimum tax ("AMT"), up to 20% of the Fund's income may be treated as an item of tax preference that is included in the alternative minimum taxable income. PORTFOLIO SUMMARY Net Asset Value 3/31/97: $10.14 Per Share 3/31/96: $10.09 Per Share Total Net Assets: $93.98 Million 30-Day SEC Yield: 5.54% Tax Equivalent Yield: 10.02%(1) 12-Month Distribution Rate: 5.59% Average Maturity: 18.8 Years Duration to Estimated Avg. Life: 7.2 Years(2) Implied Duration: 4.1 Years(2) (1) For individuals in the 39.6% Federal and 8.5% MN tax brackets. (2) See page 29. PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) [BAR CHART] Multifamily Mortgage Revenue 40.0 Single Family Mortgage Revenue 17.8 Hospital/Health Care Revenue 12.2 Other Revenue Bonds 8.7 Industrial Revenue/ 8.1 Pollution Control Municipal Lease Rental 3.1 Education/Student Loan 1.7 Public Facilities 2.1 General Obligation 1.2 Other Assets & Liabilities 5.1
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ----------------------------- ------------------------- MN Tax-Free Lipper MN Lehman MN Tax-Free Lipper MN Lehman Income Muni. Bond 5-Year Muni. Income Muni. Bond 5- Year Muni. Fund Fund Avg. Bond Index Fund Fund Avg. Bond Index ---- --------- ---------- ---- --------- ---------- 3 Months 0.36% -0.34% -0.02% 0.36% -0.34% -0.02% (unannualized) 1 Year 6.26 4.77 4.19 6.26 4.77 4.19 3 Year 7.02 5.86 5.72 22.57 18.62 18.16 Inception 6.04 4.08 4.69 21.59 14.27 16.51 (12/1/93)
* As of 3/31/97 PERFORMANCE IS HISTORICAL AND ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. SHARE PRICE AND RETURN WILL VARY SO THAT A GAIN OR LOSS MAY BE REALIZED WHEN SHARES ARE SOLD. TOTAL RETURN SHOULD NOT BE TAKEN AS A REPRESENTATION OF FUTURE PERFORMANCE. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN 5-YEAR MUNICIPAL BOND INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. (2) Duration is a measure which reflects estimated price sensitivity to a given change in interest rates. For example, for an interest rate change of 1%, a portfolio with a duration of 5 years would be expected to experience a price change of 5%. Estimated average life duration is based on current interest rates and the Adviser's assumptions regarding the expected average life of individual securities held in the portfolio. Implied duration is calculated based on historical price changes of securities held by the Fund. The Adviser believes that the portfolio's implied duration is a more accurate estimate of price sensitivity provided interest rates remain within their historical range. If interest rates exceed the historical range, the estimated average life duration may be a more accurate estimate of price sensitivity. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (12/1/93) and held until 3/31/97 would have grown to $12,159 in the Fund or $11,651 in the Lehman 5-Year Municipal Bond Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% of Net Assets) LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED. [PIE CHART] AA 20.5% AAA 22.5% Other Assets & Liabilities 5.1% Not Rated 33.1% BBB 6.1% A 12.7% ADVISER'S ASSESSMENT OF NOT-RATED SECURITIES AA 0.7% A 1.2 BBB 23.1 BB 7.1 B 1.0% Total 33.1%
SIT MINNESOTA TAX-FREE INCOME FUND PORTFOLIO OF INVESTMENTS - MARCH 31, 1997 QUANTITY NAME OF ISSUER MARKET VALUE (1) - ---------------------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS (94.9%)(2) EDUCATION/STUDENT LOAN (1.7%) Minnesota Higher Education Fac. Auth. Rev. Series 1996-4I (Hamline Univ.): 1,000,000 6.00%, 10/1/12 $1,003,590 585,000 6.00%, 10/1/16 581,677 1,585,267 GENERAL OBLIGATION (1.2%) 600,000 Carver Co. Hsg. & Redev. Auth. Hsg. & Dev. Gross Rev. Ltd.Tax G.O. (Chanhassen Apts. Proj.), 7.00%, 1/1/25 611,250 500,000 Goodhue (City of) G.O. Gas Utility Series 1996, 6.75%, 1/1/26 509,680 1,120,930 HOSPITAL/HEALTH CARE (12.2%) Brooklyn Center Hlth. Care Fac. Rev. Series 1993 (Maranatha Proj.): 50,000 6.75%, 12/1/05 51,012 500,000 7.50%, 12/1/10 524,335 1,290,000 Cokato Sr. Hsg. Rev. Series 1996 (Cokato Charitable Trust Proj.), 7.00%, 12/1/19 1,281,138 215,000 Fergus Falls Hlth. Care Fac. Auth. Rev. Refunding Series 1993A (Lake Region Hosp. Corp. Proj.), 6.25%, 9/1/04 218,423 650,000 Fergus Falls Hlth. Care Fac. Auth. Series 1995 (LRHC Long-Term Care Fac. Proj.), 6.40%, 12/1/15 655,928 1,540,000 Hibbing Hlth. Care Facs. Rev. Series 1995A (St. Francis Hlth. Svcs. Proj.), 7.35%, 11/1/15 1,560,405 750,000 Mankato Hlth. Care Facs. Rev. Series 1996A (Lutheran Home Proj.), 6.75%, 10/1/16 741,203 1,685,000 Maplewood Hlth. Care Fac. Rev. (VOA Care Ctrs. Proj.), 7.375%, 10/1/12 1,767,969 1,000,000 Minneapolis Hlth. Care Fac. Rev. Series 1993 (St. Olaf Res. Proj.), 7.00%,10/1/18 1,011,020 180,000 Puerto Rico Industrial, Tourist, Educ., Med. & Env. Ctrl. Fac. Fin. Auth. Hosp. Rev. 1994 Series A (Ryder Mem. Hosp. Proj.), 5.75%, 5/1/99 181,942 Red Wing Hlth. Care Ctr. Fac. Rev. Refunding (River Region Obligated Group): 125,000 Series 1993A, 6.20%, 9/1/05 130,714 130,000 Series 1993A, 6.30%, 9/1/06 135,918 200,000 Series 1993B, 6.20%, 9/1/05 209,142 Sherburne Co. Nursing Home Fac. Rev. Series 1994 (Guardian Angels Care Ctr. Proj.): 75,000 7.30%, 6/1/07 78,006 80,000 7.35%, 6/1/08 83,201 90,000 7.40%, 6/1/09 93,855 555,000 7.50%, 6/1/14 577,089 140,000 7.75%, 6/1/15 146,885 150,000 7.75%, 6/1/16 157,637 95,000 St. Paul Hsg. & Redev. Auth. Comm. Dev. Rev. Refunding Series 1992 (Beverly Enterprises Proj.), 7.75%, 11/1/02 96,793 960,000 St. Paul Hsg. & Redev. Auth. Nursing Home Dev. Rev. Refunding Series 1996C (Franciscan Hlth. Cmmty. Proj., St. Mary's Home), 7.00%, 7/1/21 945,658 820,000 Wadena Co. Hlth. Care Fac. Rev. Series 1994B, 7.45%, 9/1/15 851,357 11,499,630 INDUSTRIAL/POLLUTION CONTROL (8.1%) 500,000 Anoka Industrial Dev. Rev. Series 1994 (Lund Industries Inc. Proj.), 6.50%, 9/1/04(4) 514,575 955,000 Duluth Commercial Dev. Rev. Refunding Series 1995A (Radisson Hotel Proj.), 7.00%, 12/1/00 952,316 MN Agricultural & Econ. Dev. Board Small Business Dev. Ln. Prgm. Rev.: 390,000 Series 1989A Lot 1, 8.25%, 8/1/09(4) 398,081 105,000 Series 1995A Lot 1, 6.40%, 8/1/04(4) 102,417 1,000,000 Series 1990B Lot1 (May Printing Co.), 8.375%, 8/1/10(4) 1,044,010 3,155,000 Plymouth Rev. Refunding Series 1992 (Carlson Ctr. Proj.) (LOC First Bank, N.A.), 7.00%, 4/1/12 3,280,537 200,000 Richfield Cmty. Dev. Rev. Refunding 1994 (Richfield Shoppes Proj.), 8.375% 10/1/05 215,130 1,105,000 St. Paul Port Authority Hotel Facility Senior Rev. Series 1996A (Radisson Kellogg Project), 7.00%, 8/1/01 1,093,762 7,600,828 MULTIFAMILY MORTGAGE (40.0%) 500,000 Aurora Hsg. & Redev. Auth. Multifamily Rev. (Irongate Apts. Proj.) (Section 8), 6.10%, 10/1/19 498,180 Austin Hsg. & Redev. Auth. Governmental Hsg. Gross Rev. Series 1995A (Courtyard Res. Proj.): 220,000 7.00%, 1/1/15 220,625 500,000 7.25%, 1/1/26 498,720 Burnsville Multifamily Hsg. Rev. Refunding: 425,000 Series 1991 (Atrium Proj.) (Trygg-Hansa insured), 7.20%, 5/1/11 442,595 960,000 Series 1994 (Bridgeway Apts. Proj.), 7.25%, 2/1/14 980,141 405,000 Chisago City Health Fac. Rev. Refunding Series 1995A (Pleasant Heights Proj.), 7.30%, 7/1/18 411,148 3,000,000 Dakota Cnty. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding Series 1997A, (Park Place Apts. Proj.) (GNMA collateralized) 6.875%, 2/20/32 3,197,220 Dakota Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding (Walnut Trails Apts. Proj.): 1,700,000 Series 1995A (GNMA collateralized), 7.90%, 1/20/31(4) 1,897,183 265,000 Series 1995C Subordinate, 9.00%, 1/20/15(4) 263,776 Eden Prairie Multifamily Hsg. Rev. Refunding: 60,000 Series 1990A (Welsh Parkway Apts. Ltd. Proj.)(FHA insured), 8.00%, 7/1/26 63,991 450,000 Series 1995A (Olympic Ridge Proj.) (GNMA collateralized) 6.20%, 1/20/16 458,825 700,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.00%, 11/1/06 743,239 1,500,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.10%, 11/1/17 1,562,925 1,500,000 Eagan Multifamily Rental Hsg. Refunding Rev. Series 1996 (Wescott Apts. Proj.) (FHA insured), 6.00%, 12/1/27 1,497,765 Hopkins Elderly Hsg. Rev. Refunding (St. Therese Southwest Proj.): 1,600,000 Series 1994A (Asset Gty. insured), 6.25%, 3/1/14 1,620,608 360,000 Series 1994B, 9.00%, 11/1/19 379,793 1,015,000 Hopkins Hsg. Facs. Rev. Refunding Series 1995 (Augustana Chapel View Homes Proj.), 7.00%, 12/1/15 1,003,937 575,000 Hopkins Subordinate Multifamily Hsg. Rev. Refunding Series 1996C (Auburn Apts. Proj.), 8.00%, 6/20/31 591,612 450,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.), 6.25%, 4/1/15 460,301 500,000 Hutchinson Hsg. Facs. Rev. Series 1994 (Prince of Peace Proj.), 7.375%, 10/1/12 515,200 800,000 Little Canada Multifamily Hsg. Rev. Series 1997A (Cedars Lakeside Proj.) (GNMA collateralized), 5.90%, 8/1/20 790,936 Minneapolis Multifamily Hsg. Rev.: 565,000 Series 1994 (Findley Place Townhomes Proj) (Section 8), 7.00%, 12/1/16(4) 589,917 75,000 Series 1991 (Trinity Hsg. Proj.) (Section 8), 7.875%, 2/1/06 78,233 355,000 Series 1996 (Belmont Apts.), 7.25%, 11/1/16 351,312 645,000 Series 1996 (Belmont Apts.), 7.625%, 11/1/27 637,408 2,000,000 Series 1996A (Nicollet Towers) (Section 8), 6.00%, 12/01/19 1,968,180 350,000 Minneapolis/ St. Paul Hsg. Fin. Board Multifamily Rev. Series 1988 (Riverside Place Proj.), (FHA insured) (GNMA collateralized), 8.20%, 12/20/18(4) 365,750 MN HFA Multifamily Hsg. Dev. Rev.: 45,000 Series 1977, 6.25%, 2/1/08 45,588 140,000 Series 1977, 6.375%, 2/1/20 141,557 25,000 Series 1988A, 7.70%, 8/1/08 25,878 MN HFA Rental Hsg. Rev. Refunding: 175,000 Series 1993C, 6.15%, 2/1/14 176,110 135,000 Series 1993E, 6.00%, 2/1/14 135,865 Minnetonka Hsg. Fac. Rev. Series 1994 (Beacon Hill Housing Proj.): 890,000 7.00%, 6/1/04 917,118 1,000,000 7.50%, 6/1/14 1,032,590 525,000 Minnetonka Multifamily Hsg. Rev. Refunding Subordinate Series 1994C (Brier Creek Proj.), 8.00%, 12/20/16 548,688 500,000 Monticello Senior Hsg. Rev. Series 1995 (Mississippi Shores Proj.), 7.25%, 7/1/16 502,945 385,000 Mora Multifamily Rev. Refunding Hsg. Alternatives Partnership Series 1995, 6.50%, 6/1/02 385,624 750,000 Plymouth Multifamily Hsg. Rev. Refunding Series 1996A (Fox Forest Apts. Proj.) (GNMA collateralized), 8.05%, 6/20/31 858,458 2,500,000 Puerto Rico Housing Finance Corp. Rev. Multifamily Mtg. Portfolio Series 1990 A-I, 7.50%, 10/1/15 2,639,225 960,000 Robbinsdale Multifamily Hsg. Rev. Series 1996A (Copperfield Hill Proj.), 7.20%, 12/1/16 946,973 325,000 Sandstone Econ. Dev. Auth. Hsg. & Dev. Rev. Series 1994A (Family Apts. Proj.), 8.00%, 1/1/12 338,546 1,000,000 Spring Lake Park Sr. Hsg. Rev. Series 1996 (Noah's Ark Affordable Hsg. Inc.), 7.25%, 9/1/16 1,000,790 300,000 Spring Park Hlth. Care Fac. Rev. Series 1991 (Twin Birch Hlth. Care Ctr. Proj.), 8.25%, 8/1/11 319,086 1,500,000 St. Anthony Hsg. Dev. Rev. Refunding (Autumn Woods Proj.) (Asset Gty. insured), 6.875%, 7/1/22 1,567,110 650,000 St. Louis Park Multifamily Hsg. Rev. Refunding Series 1995 (Knollwood Cmty. Hsg. Proj.) (FHA insured), 6.15%, 12/1/16 654,479 500,000 St. Paul Hsg. & Redev. Auth. Multifamily Hsg. Refunding Series 1992 (Point of St. Paul Proj.) (FNMA backed), 6.60%, 10/1/12 519,130 200,000 St. Paul Hsg. & Redev. Auth. Multifamily Hsg. Refunding Series 1995 (Sun Cliffe Apts. Proj.) (GNMA collateralized), 5.875%, 7/1/15 198,982 1,055,000 Washington Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding Series 1994 (White Bear Lake Transitional Hsg. Proj.), 6.625%, 8/1/24 1,086,302 1,385,000 White Bear Lake Multifamily Hsg. Rev. Refunding Series 1996A (Lake Sq. Partners Proj.) (FHA insured), 6.10%, 2/1/26 1,386,011 37,516,575 LEASE (3.1%) 1,015,000 Beltrami Co. Hsg. & Redev. Auth. Lease Rev., 6.25%, 2/1/16 993,046 585,000 Burnsville Solid Waste Rev. Series 1990 (Freeway Transfer Inc. Proj.), 9.00%, 4/1/10(4) 642,938 Hibbing Econ. Dev. Auth. Public Proj. Rev. Series 1997 (Hibbing Lease Obligations Proj.): 655,000 6.10%, 2/1/08 645,666 535,000 6.40%, 2/1/12 527,895 100,000 Rice Co. Certificates of Participation 1996A, 5.85%, 12/1/14 98,157 2,907,702 SINGLE FAMILY MORTGAGE (17.8%) 507,590 Brooklyn Center/Columbia Heights/Moorhead/Robbinsdale Econ. Dev. Auth. Residual Interest Rev. Series 1992B (FNMA backed), 7.15%, 11/1/14 521,132 Dakota County Hsg. & Redev. Auth. Single Family Mtg. Rev.: 995,000 Series 1994A (FNMA backed), 6.70%, 10/1/09(4) 1,042,193 400,000 Series 1995 (FNMA & GNMA backed), 6.25%, 10/1/09(4) 411,376 795,000 Dakota/Wash./Stearns Cos. Hsg. & Redev. Auth. Single Family Rev. Refunding Series 1994A (FNMA backed), 6.50%, 9/1/10(4) 822,642 Minneapolis Redev. Mtg. Rev. Series 1987A (Riverplace Proj.) (LOC Bk. of Tokyo): 70,000 7.00%, 1/1/07 72,080 500,000 7.10%, 1/1/20 512,035 2,100,000 Minneapolis Residual Interest Mtg. Rev. Series 1995 Convertible Capital Appreciation Bonds, 7.00% Effective Yield on Purchase Date, 10/1/12 757,302 30,000 Minneapolis/ St. Paul Hsg. Fin. Bd. Single Family Mtg. Rev. Series 1989A (GNMA backed), 7.65%, 12/1/00(4) 31,155 900,000 Minneapolis/ St. Paul Hsg. Fin. Bd. Single Family Mtg. Rev. Series 1994 (FNMA backed), 7.25%, 5/1/12(4) 934,002 MN HFA Single Family Mtg. Rev.: 120,000 Series 1988D, 8.25%, 8/1/20(4) 125,266 15,000 Series 1989B, 7.05%, 1/1/03 15,763 50,000 Series 1989B, 7.05%, 7/1/03 52,542 20,000 Series 1990A, 7.95%, 7/1/22(4) 21,033 290,000 Series 1990C, 7.70%, 7/1/14 305,327 240,000 Series 1991A, 7.05%, 7/1/22(4) 248,304 600,000 Series 1991A, 7.45%, 7/1/22(4) 628,650 1,770,000 Series 1992B-1, 6.75%, 1/1/26(4) 1,824,587 1,000,000 Series 1994F, 6.30%, 7/1/25 1,024,860 95,000 Series 1994K, 5.90%, 1/1/07 95,325 530,000 Series 1994L, 6.70%, 7/1/20(4) 546,902 2,830,000 Series 1995M, 5.875%, 1/1/1 2,818,255 800,000 Series 1996D, 6.00%, 1/1/16 801,792 655,000 Minneapolis Single Family Mtg. Rev. Series 1995V (FNMA & GNMA backed), 6.25%, 4/1/22 662,539 3,800,000 Moorhead Single Family Mtg. Rev. Refunding Series 1992B Zero Coupon, 7.00% Effective Yield on Purchase Date, 8/1/11 1,418,350 670,000 St. Paul Hsg. & Redev. Auth. Single Family Mtg. Rev. Refunding Series 1995 (FNMA backed), 6.125%, 3/1/17 685,497 966,042 St. Paul Residual Interest Rev. Series 1995 Convertible Capital Appreciation Bonds, Zero Coupon, 7.23% Effective Yield on Purchase Date, 9/1/11 356,672 16,735,581 OTHER REVENUE BONDS (8.7%) 1,500,000 Commissioner of Iron Range Resources and Rehabilitation Gross Rev. Bonds Series 1996 (Giants Ridge Rec. Area Proj.), 7.25%, 10/1/11 1,508,835 Minneapolis Cmty. Dev. Agy. Common Bond Fund: 100,000 Series 1993-5 (Winslow Printing), 6.125%, 12/1/06(4) 100,888 640,000 Series 1995-1, 6.625%, 12/1/09(4) 657,523 1,310,000 Series 1995-1, 7.25%, 12/1/15(4) 1,375,932 2,870,000 St. Paul Hsg. & Redev. Sales Tax Rev. Refunding Series 1996 (FSA insured) (Civic Center Proj.), 7.10%, 11/1/23 3,324,149 1,245,000 St. Paul Recreational Facs. Gross Rev. Series 1996D 5.875%, 6/1/18 1,238,157 8,205,484 PUBLIC FACILITIES (2.1%) 2,000,000 Minneapolis Public Hsg. Auth. Series 1997 (General Credit Energy Savings Proj.), 6.00%, 7/1/08 1,998,160 Total municipal bonds (cost: $87,972,683) 89,170,157 SHORT-TERM SECURITIES (4.0%)(2) 3,744,859 Minnesota Municipal Cash Fund, 3.31% 3,744,859 (cost: 3,744,859) Total investments in securities (cost: $91,717,542)(7) $92,915,016 See accompanying notes to financial statements on page 35.
(This page has been left blank intentionally.) SIT MUTUAL FUNDS NOTES TO PORTFOLIOS OF INVESTMENTS (1) Securities are valued by procedures described in note 1 to the financial statements. (2) Percentage figures indicate percentage of total net assets. (3) At March 31, 1997, 44.9% of the net assets in the U.S. Government Securities Fund and 22.9% of the net assets in the Bond Fund was invested in GNMA mobile home pass-through securities. (4) Securities the income from which is treated as a tax preference that is included in alternative minimum taxable income for purposes of computing federal alternative minimum tax (AMT). At March 31, 1997, approximately 15.5% of the net assets in the Minnesota Tax-Free Income Fund was invested in such securities. (5) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under the guidelines established by the Board of Directors. (6) On March 31, 1997 the total cost of investments purchased on a when-issued basis was $7,383,343. (7) At March 31, 1997, the cost of securities for federal income tax purposes and the aggregate gross unrealized appreciation and depreciation based on that cost were as follows:
U.S. MONEY GOVERNMENT MARKET SECURITIES BOND FUND FUND FUND ------------- ------------- ------------- Cost for federal income tax purposes $ 31,699,997 $ 74,397,655 $ 6,471,360 ============= ============= ============= Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation -- $ 122,537 $ 6,925 Gross unrealized depreciation -- (1,056,117) (137,989) ------------- ------------- ------------- Net unrealized appreciation (depreciation) -- ($ 1,056,117) ($ 131,064) ============= ============= ============= MINNESOTA TAX-FREE TAX-FREE INCOME INCOME FUND FUND ------------- ------------- Cost for federal income tax purposes $ 338,683,641 $ 91,720,375 ============= ============= Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $ 7,690,053 $ 1,437,125 Gross unrealized depreciation (1,234,703) (242,484) ------------- ------------- Net unrealized appreciation (depreciation) $ 6,455,350 $ 1,197,474 ============= =============
SIT MUTUAL FUNDS STATEMENTS OF ASSETS & LIABILITIES -- MARCH 31, 1997
U.S. MINNESOTA MONEY GOVERNMENT TAX-FREE TAX-FREE MARKET SECURITIES BOND INCOME INCOME FUND FUND FUND FUND FUND --------------- --------------- --------------- --------------- --------------- ASSETS Investments in securities, at identified cost ................ $ 31,699,997 $ 74,331,370 $ 6,453,777 $ 338,683,641 $ 91,717,542 =============== =============== =============== =============== =============== Investments in securities, at market value - see accompanying schedules for detail ......................... $ 31,699,997 $ 73,341,538 $ 6,340,296 $ 345,138,994 $ 92,915,016 Cash in bank on demand deposit ........................ 842 -- -- -- -- Accrued interest receivable ..................... -- 453,885 71,886 5,550,149 1,873,750 Receivable for principal paydowns ....................... -- 6,817 1,049 -- -- Receivable for Fund shares sold ........................... 1,052,287 111,503 1,635 853,832 615,419 --------------- --------------- --------------- --------------- --------------- Total assets ........... 32,753,126 73,913,743 6,414,866 351,542,975 95,404,185 --------------- --------------- --------------- --------------- --------------- LIABILITIES Disbursements in excess of cash balances .................. -- -- 400 7,410 6,029 Payable for investment securities purchased - when issued (note 1) -- -- -- 7,383,343 -- Payable for investment securities purchased ...................... -- -- -- 285,200 1,137,396 Payable for Fund shares redeemed ....................... 58,254 420,432 -- 678,011 136,715 Cash portion of dividends payable to shareholders ........ 13,809 49,872 6,660 426,316 85,131 Accrued investment management and advisory services fee ...... 12,965 49,568 4,344 222,489 63,010 --------------- --------------- --------------- --------------- --------------- Total liabilities ...... 85,028 519,872 11,404 9,002,769 1,428,281 --------------- --------------- --------------- --------------- --------------- Net assets applicable to outstanding capital stock ...... $ 32,668,098 $ 73,393,871 $ 6,403,462 $ 342,540,206 $ 93,975,904 =============== =============== =============== =============== =============== Capital stock Par ............................ $ 0.001 $ 0.01 $ 0.001 $ 0.001 $ 0.001 Authorized shares .............. 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000 Outstanding shares ............. 32,671,098 7,138,283 665,705 34,338,517 9,265,489 =============== =============== =============== =============== =============== Net asset value per share of outstanding capital stock ...... $ 1.00 $ 10.28 $ 9.62 $ 9.98 $ 10.14 =============== =============== =============== =============== ===============
See accompanying notes to financial statements on pages 40-47. SIT MUTUAL FUNDS STATEMENTS OF OPERATIONS -- YEAR ENDED MARCH 31, 1997
U.S. MINNESOTA MONEY GOVERNMENT TAX-FREE TAX-FREE MARKET SECURITIES BOND INCOME INCOME FUND FUND FUND FUND FUND ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: INCOME: Interest ............................ 1,409,689 4,113,325 399,892 18,996,651 4,685,615 ------------ ------------ ------------ ------------ ------------ Total income ................... 1,409,689 4,113,325 399,892 18,996,651 4,685,615 ------------ ------------ ------------ ------------ ------------ EXPENSES (NOTE 3): Investment management and advisory services fee ............. 208,145 564,216 43,801 2,374,577 590,061 Less fees and expenses absorbed by investment adviser .......... (78,042) (99,999) -- (46,819) -- ------------ ------------ ------------ ------------ ------------ Total net expenses ................ 130,103 464,217 43,801 2,327,758 590,061 ------------ ------------ ------------ ------------ ------------ Net investment income ............. 1,279,586 3,649,108 356,091 16,668,893 4,095,554 ------------ ------------ ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS : Net realized gain (loss) (note 2) ... -- (354,419) (26,666) 1,239,489 (54,294) Net change in unrealized appreciation or depreciation on investments .... -- (903,875) (64,569) 1,148,455 225,585 ------------ ------------ ------------ ------------ ------------ Net gain (loss) on investments ...... -- (1,258,294) (91,235) 2,387,944 171,291 ------------ ------------ ------------ ------------ ------------ Net increase in net assets resulting from operations ............................. $ 1,279,586 $ 2,390,814 $ 264,856 $ 19,056,837 $ 4,266,845 ============ ============ ============ ============ ============
See accompanying notes to financial statements on pages 40-47. SIT MUTUAL FUNDS STATEMENTS OF CHANGES IN NET ASSETS
MONEY MARKET U.S. GOVERNMENT FUND SECURITIES FUND ------------------------------ ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31, MARCH 31, MARCH 31, MARCH 31, 1997 1996 1997 1996 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income ........................ $ 1,279,586 $ 1,188,260 $ 3,649,108 $ 2,991,108 Net realized gain (loss) on investments ...... -- -- (354,419) 466,171 Net change in unrealized appreciation (depreciation) of investments ............. -- -- (903,875) 162,827 ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations .............................. 1,279,586 1,188,260 2,390,814 3,620,106 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ........................ (1,279,586) (1,188,260) (3,649,108) (2,991,108) Net realized gains on investments ............ -- -- -- -- ------------- ------------- ------------- ------------- Total distributions ....................... (1,279,586) (1,188,260) (3,649,108) (2,991,108) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold .................... 248,117,061 107,451,651 37,499,822 31,591,518 Reinvested distributions ..................... 1,094,430 1,076,722 3,183,829 2,618,331 Payments for shares redeemed ................. (237,803,699) (117,090,139) (18,481,485) (19,842,777) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions .............. 11,407,792 (8,561,766) 22,202,166 14,367,072 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets . 11,407,792 (8,561,766) 20,943,872 14,996,070 NET ASSETS Beginning of period .......................... 21,260,306 29,822,072 52,449,999 37,453,929 ------------- ------------- ------------- ------------- End of period ................................ $ 32,668,098 $ 21,260,306 $ 73,393,871 $ 52,449,999 ============= ============= ============= ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) ...... $ 32,668,098 $ 21,260,306 $ 74,903,163 $ 52,700,997 Undistributed (distributions in excess of) net investment income ......................... -- -- -- -- Accumulated net realized gain (loss) from security transactions ..................... -- -- (519,460) (165,041) Unrealized appreciation (depreciation) on investments ............................ -- -- (989,832) (85,957) ------------- ------------- ------------- ------------- $ 32,668,098 $ 21,260,306 $ 73,393,871 $ 52,449,999 ============= ============= ============= ============= CAPITAL TRANSACTIONS IN SHARES: Sold ......................................... 248,117,061 107,451,651 3,598,212 3,015,296 Reinvested distributions ..................... 1,094,430 1,076,722 306,370 249,905 Redeemed ..................................... (237,803,699) (117,090,140) (1,777,514) (1,895,812) ------------- ------------- ------------- ------------- Net increase (decrease) ........................ 11,407,792 (8,561,767) 2,127,068 1,369,389 ============= ============= ============= =============
(wide table continued from above)
BOND TAX-FREE MINNESOTA TAX-FREE FUND INCOME FUND INCOME FUND ------------------------------ ------------------------------ ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, 1997 1996 1997 1996 1997 1996 ------------- ------------- ------------- ------------- ------------- ------------- $ 356,091 $ 314,579 $ 16,668,893 $ 14,969,020 $ 4,095,554 $ 3,066,188 (26,666) 154,186 1,239,489 1,047,369 (54,294) 29,311 (64,569) 742 1,148,455 3,528,518 225,585 515,415 ------------- ------------- ------------- ------------- ------------- ------------- 264,856 469,507 19,056,837 19,544,907 4,266,845 3,610,914 ------------- ------------- ------------- ------------- ------------- ------------- (356,091) (314,579) (16,676,319) (14,968,966) (4,095,554) (3,075,266) (38,869) -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- (394,960) (314,579) (16,676,319) (14,968,966) (4,095,554) (3,075,266) ------------- ------------- ------------- ------------- ------------- ------------- 1,935,754 2,009,736 155,421,758 131,895,973 53,475,364 32,851,258 327,137 270,336 12,524,280 11,117,875 3,198,228 2,334,848 (951,712) (745,612) (107,554,950) (122,978,226) (25,849,251) (16,622,975) ------------- ------------- ------------- ------------- ------------- ------------- 1,311,179 1,534,460 60,391,088 20,035,622 30,824,341 18,563,131 ------------- ------------- ------------- ------------- ------------- ------------- 1,181,075 1,689,388 62,771,606 24,611,563 30,995,632 19,098,779 5,222,387 3,532,999 279,768,600 255,157,037 62,980,272 43,881,493 ------------- ------------- ------------- ------------- ------------- ------------- $ 6,403,462 $ 5,222,387 $ 342,540,206 $ 279,768,600 $ 93,975,904 $ 62,980,272 ============= ============= ============= ============= ============= ============= $ 6,566,079 $ 5,254,900 $ 337,323,322 $ 276,932,234 $ 93,258,565 $ 62,434,224 -- -- (7,426) -- (9,078) (9,078) (49,136) 16,399 (1,231,043) (2,470,532) (471,057) (416,763) (113,481) (48,912) 6,455,353 5,306,898 1,197,474 971,889 ------------- ------------- ------------- ------------- ------------- ------------- $ 6,403,462 $ 5,222,387 $ 342,540,206 $ 279,768,600 $ 93,975,904 $ 62,980,272 ============= ============= ============= ============= ============= ============= 198,683 205,474 15,592,536 13,320,566 5,256,072 3,250,281 33,549 27,247 1,256,626 1,122,623 314,798 231,001 (97,629) (74,482) (10,828,540) (12,420,344) (2,547,449) (1,644,655) ------------- ------------- ------------- ------------- ------------- ------------- 134,603 158,239 6,020,622 2,022,845 3,023,421 1,836,627 ============= ============= ============= ============= ============= =============
See accompanying notes to financial statements on pages 40-47. SIT MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Sit Mutual Funds (the Funds) are 100% no-load funds, and are registered under the Investment Company Act of 1940 (as amended) as diversified (except Minnesota Tax-Free Income Fund which is non-diversified), open-end management investment companies, or series thereof. The Sit Bond Fund, Sit Minnesota Tax-Free Income Fund, and the Sit Tax-Free Income Fund are series funds of Sit Mutual Funds II, Inc. This report covers the bond funds of the Sit Mutual Funds. The investment objective for each Fund is as follows: FUND INVESTMENT OBJECTIVE ---- -------------------- Money Market Maximum current income with the preservation of capital and maintenance of liquidity. U.S. Government Securities High current income and safety of principal. Bond Maximize total return, consistent with the preservation of capital. Tax-Free Income High level of current income that is exempt from federal income tax, consistent with the preservation of capital. Minnesota Tax-Free Income High level of current income that is exempt from federal income tax and Minnesota regular personal income tax, consistent with the preservation of capital. Significant accounting policies followed by the Funds are summarized below: INVESTMENTS IN SECURITIES Securities maturing more than 60 days from the valuation date, with the exception of those in Money Market Fund, are valued at the market price supplied by an independent pricing vendor; those securities with maturities of less than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued at amortized cost, which approximates market value. When market quotations are not readily available, securities are valued at fair value based on procedures determined in good faith by the Boards of Directors. Such fair values are determined using prices quoted by independent brokers or pricing services. Pursuant to Rule 2a-7 of the Investment Company Act of 1940, all securities in the Money Market Fund are valued at amortized cost, which approximates market value, in order to maintain a constant net asset value of $1 per share. Security transactions are accounted for on the date the securities are purchased or sold. Gains and losses are calculated on the identified-cost basis. Interest, including level-yield amortization of long-term bond premium and discount, is recorded on the accrual basis. Delivery and payment for securities which have been purchased by the Minnesota Tax-Free Income, Tax-Free Income, and U.S. Government Securities Funds on a forward commitment or when-issued basis can take place a month or more after the transaction date. During this period, such securities are subject to market fluctuations and may increase or decrease in value prior to their delivery, and each Fund maintains, in a segregated account with its custodian, assets with a market value equal to the amount of its purchase commitments. As of March 31, 1997, the Tax-Free Income Fund that entered into when-issued or forward commitments of $7,383,343. The Minnesota Tax-Free Income Fund concentrates its investments in Minnesota, and therefore may have more credit risk related to the economic conditions in the state of Minnesota than a portfolio with broader geographical diversification. FEDERAL TAXES The Funds' policy is to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no income tax provision is required. Also, in order to avoid the payment of any federal excise taxes, the Funds will distribute substantially all of their net investment income and net realized gains on a calendar year basis. Net investment income and net realized gains may differ for financial statement and tax purposes. The character of distributions made during the year for net investment income or net realized gains may also differ from its ultimate characterization for tax purposes. For federal income tax purposes the U.S. Government Securities, Bond, Tax-Free Income, and Minnesota Tax-Free Income Fund has a capital loss carryover of $453,176, $31,553, $1,233,011, and $468,224, respectively, at March 31, 1997 which, if not offset by subsequent capital gains, will begin to expire in 2003. It is unlikely the Board of Directors will authorize a distribution of any net realized gains until the available capital loss carryover is offset or expires. DISTRIBUTIONS Distributions to shareholders are recorded as of the close of business on the record date. Such distributions are payable in cash or reinvested in additional shares of the Funds' capital stock. Distributions from net investment income are declared daily and paid monthly for the Funds. Distributions from net realized gains, if any, will be made annually for each of the Funds. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires manage ment to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported results. Actual results could differ from those estimates. (2) INVESTMENT SECURITY TRANSACTIONS Purchases of and proceeds from sales and maturities of investment securities, other than short-term securities, for the year ended March 31, 1997, were as follows: Purchases Proceeds --------- -------- U.S. Government Securities Fund 68,856,991 48,795,114 Bond Fund 7,763,357 6,791,487 Tax-Free Income Fund 134,607,002 72,282,515 Minnesota Tax-Free Income Fund 37,988,010 12,216,495 For Money Market Fund during the year ended March 31, 1997, purchases of and proceeds from sales and maturities of investment securities aggregated $565,904,049 and $556,055,974, respectively. (3) EXPENSES INVESTMENT ADVISER The Funds each have entered into an investment management agreement with Sit Investment Associates Inc. (SIA), under which SIA manages the Funds' assets and provides research, statistical and advisory services, and pays related office rental, executive expenses and executive salaries. SIA also is obligated to pay all of Money Market, U.S. Government Securities, Bond, Tax-Free Income, and Minnesota Tax Free Income Funds' expenses (excluding extraordinary expenses, stock transfer taxes, interest, brokerage commissions, and other transaction charges relating to investing activities). The fee for investment management and advisory services is based on the average daily net assets of the Funds at the annual rate of: Average Daily Net Assets ---------- Bond Fund .80% Tax-Free Income Fund .80% Minnesota Tax-Free Income Fund .80% First Over $50 Million $50 Million ----------- ----------- Money Market Fund .80% .60% U.S. Government Securities Fund 1.00% .80% For the period April 1, 1995, through December 31, 1997, the Adviser has voluntarily agreed to limit the flat monthly fee (and, thereby, all Fund expenses, except extraordinary expenses, interest, brokerage commissions and other transaction charges not payable by the Adviser) paid by the Tax-Free Income Fund to an annual rate of .70% of the Fund's average daily net assets in excess of $250 million and .60% of the Fund's average daily net assets in excess of $500 million. After December 31, 1997, this voluntary fee waiver may be discontinued by the Adviser in its sole discretion. For the period April 1, 1995, through December 31, 1997, the Adviser has voluntarily agreed to limit the flat monthly fee (and, thereby, all Fund expenses, except extraordinary expenses, interest, brokerage commissions and other transaction charges not payable by the Adviser) paid by the U.S. Government Securities Fund and Money Market Fund to an annual rate of .80% and .50%, respectively of the Fund's average daily net assets. After December 31, 1997, this voluntary fee waiver may be discontinued by the Adviser in its sole discretion. TRANSACTIONS WITH AFFILIATES The investment adviser, affiliates of the investment adviser, directors and officers of the Funds as a whole owned the following shares as of March 31, 1997: % Shares Shares Outstanding ------ ----------- Money Market Fund 7,246,410 22.18 U.S. Government Securities Fund 470,533 6.59 Bond Fund 77,193 11.60 Tax-Free Income Fund 1,730,991 5.04 Minnesota Tax-Free Income Fund 373,457 4.03 (4) FINANCIAL HIGHLIGHTS Per share data for a share of capital stock outstanding during the period and selected supplemental and ratio information for each period(s), are indicated as follows: SIT MONEY MARKET FUND FINANCIAL HIGHLIGHTS As of November 1, 1993, the Fund's name was changed to Sit Money Market Fund, Inc. from Sit Investment Reserve Fund, Inc. Effective on this date, the Fund's primary investment policy was amended to comply with Rule 2a-7 of the Investment Company Act of 1940 governing money market funds. The Fund's investment objective, however, remains the achievement of maximum current income to the extent consistent with the preservation of capital and maintenance of liquidity. Per share amounts prior to November 1, 1993 have been restated to reflect the 9.98 to 1 stock split.
MONEY MARKET FUND SIT INVESTMENT RESERVE FUND ----------------------------------------------- ------------------------- Period From Period From November 1, July 1, Years Ended March 31, 1993 to 1993 to Year Ended ---------------------------------- March 31, October 31, June 30 1997 1996 1995 1994 1993 1993 -------- -------- -------- -------- -------- -------- NET ASSET VALUE: Beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- -------- -------- -------- -------- -------- OPERATIONS: Net investment income 0.05 0.05 0.04 0.01 0.01 0.03 -------- -------- -------- -------- -------- -------- Total from operations 0.05 0.05 0.04 0.01 0.01 0.03 -------- -------- -------- -------- -------- -------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (0.05) (0.05) (0.04) (0.01) (0.01) (0.03) -------- -------- -------- -------- -------- -------- NET ASSET VALUE: End of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- -------- -------- -------- -------- -------- Total investment return (1) 5.04% 5.44% 4.57% 1.14% 0.92% 3.02% -------- -------- -------- -------- -------- -------- Net assets at end of period (000's omitted) $ 32,668 $ 21,260 $ 29,822 $ 17,864 $ 12,626 $ 10,869 RATIOS: Expenses to average daily net assets 0.50%(3) 0.50%(3) 0.50%(3) 0.50%(3) 0.72%(3) 0.80%(2) Net investment income to average daily net assets 4.93%(3) 5.35%(3) 4.63%(3) 2.76%(3) 2.67%(3) 2.98%(2)
(1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of distributions at net asset value. (2) Prior to January 1, 1993, total Fund expenses were contractually limited to 1.00% of average daily net assets for the first $30 million of Fund net assets. Subsequent to January 1, 1993 total Fund expenses are contractually limited to .80% of the first $50 million of Fund net assets. However, during the year ended June 30, 1993, the investment adviser voluntarily absorbed $16,480 of expenses that were otherwise payable by the Fund. Had the Fund incurred these expenses, the ratio of expenses to daily net assets would have been 0.91% and the ratio of net investment income to average daily net assets would have been 2.87%. (3) Percentages for the periods ended March 31, 1994, and October 31, 1993, are adjusted to an annual rate. Total Fund expenses are contractually limited to .80% of average daily net assets for the first $50 million in Fund net assets and .60% of average daily net assets for Fund net assets exceeding $50 million. However, during the periods ended March 31, 1997, 1996, 1995 and 1994, and October 31, 1993, the investment adviser voluntarily absorbed $78,042, $66,862, $63,828, $17, 565, and $3,224, respectively, in expenses that were otherwise payable by the Fund. Had the Fund incurred these expenses, the ratio of expenses to average daily net assets would have been .80% for each of these periods and the ratio of net investment income to average daily net assets would have been 4.63%, 5.05%, 4.33%, 2.46%, and 2.59%, respectively. SIT U.S. GOVERNMENT SECURITIES FUND FINANCIAL HIGHLIGHTS
Nine Months Years Ended March 31, Ended Year Ended ---------------------------------- March 31, June 30, 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- NET ASSET VALUE: Beginning of period $ 10.47 $ 10.28 $ 10.50 $ 10.73 $ 10.81 -------- -------- -------- -------- -------- OPERATIONS: Net investment income .65 .70 .67 .47 .71 Net realized and unrealized gains (losses) on investments (.19) .19 (.22) (.18) .07 -------- -------- -------- -------- -------- Total from operations .46 .89 .45 .29 .78 -------- -------- -------- -------- -------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.65) (.70) (.67) (.47) (.71) From realized gains -- -- -- (.05) (.15) -------- -------- -------- -------- -------- Total Distributions (.65) (.70) (.67) (.52) (.86) -------- -------- -------- -------- -------- NET ASSET VALUE: End of period $ 10.28 $ 10.47 $ 10.28 $ 10.50 $ 10.73 Total investment return (1) 4.55% 8.87% 4.47% 2.70% 7.50% -------- -------- -------- -------- -------- Net assets at end of period (000's omitted) $ 73,394 $ 52,450 $ 37,454 $ 38,683 $ 31,538 -------- -------- -------- -------- -------- RATIOS: Expenses to average daily net assets 0.80%(3) 0.80%(3) 0.80%(3) 0.86%(3) 0.89%(2) Net investment income to average daily net assets 6.30%(3) 6.72%(3) 6.48%(3) 5.79%(3) 6.60%(2) Portfolio turnover rate (excluding short-term securities) 85.21% 51.37% 38.51% 73.87% 76.66%
(1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of distributions at net asset value. (2) Prior to January 1, 1993, total Fund expenses were contractually limited to 1.25% of average daily net assets for the first $30 million of Fund net assets and 1.00% of average daily net assets exceeding $30 million of Fund net assets. However, during the year ended June 30, 1993, the investment adviser voluntarily absorbed an additional $72,628 of expenses that were otherwise payable by the Fund. Had the Fund incurred these expenses, the ratio of expenses to average daily net assets would have been 1.11% and the ratio of net investment income to average daily net assets would have been 6.38%. (3) Percentages for the period March 31, 1994, are adjusted to an annual rate. Total Fund expenses are contractually limited to 1.00% of average daily net assets for the first $50 million in Fund net assets and .80% of average daily net assets exceeding $50 million However, during the periods ended March 31, 1997, 1996, 1995 and 1994, the investment adviser voluntarily absorbed $99,999, $88,625, $73,460 and $39,324 of expenses that were otherwise payable by the Fund. Had the Fund incurred these expenses, the ratio of expenses to average daily net assets would have been .97% for the period ended March 31, 1997 and 1.00% for the periods ended March 31, 1996, 1995, and 1994 and the ratio of net investment income to average daily net assets would have been 6.13%, 6.52%, 6.28% and 5.65%, respectively. SIT BOND FUND FINANCIAL HIGHLIGHTS
Period from December 1, Years Ended March 31, 1993 (1) to ------------------------------------- March 31, 1997 1996 1995 1994 --------- --------- --------- --------- NET ASSET VALUE: Beginning of period $ 9.83 $ 9.48 $ 9.69 $ 10.00 --------- --------- --------- --------- OPERATIONS: Net investment income .64 .64 .62 .19 Net realized and unrealized gains (losses) on investments (.14) .35 (.21) (.31) --------- --------- --------- --------- Total from operations .50 .99 .41 (.12) --------- --------- --------- --------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.64) (.64) (.62) (.19) From realized gains (.07) -- -- -- --------- --------- --------- --------- Total distributions (.71) (.64) (.62) (.19) --------- --------- --------- --------- NET ASSET VALUE: End of period $ 9.62 $ 9.83 $ 9.48 $ 9.69 --------- --------- --------- --------- Total investment return (2) 5.21% 10.57% 4.51% (1.22%) --------- --------- --------- --------- Net assets at end of period (000's omitted) $ 6,403 $ 5,222 $ 3,533 $ 3,403 RATIOS: Expenses to average daily net assets 0.80% 0.80% 0.80% 0.80%(3) Net investment income to average daily net assets 6.52% 6.49% 6.63% 6.24%(3) Portfolio turnover rate (excluding short-term securities) 128.06% 159.45% 41.25% 43.49%
(1) Commencement of operations. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of distributions at net asset value. (3) Adjusted to an annual rate. SIT TAX-FREE INCOME FUND FINANCIAL HIGHLIGHTS
Nine Months Years Ended March 31, Ended Year Ended ------------------------------------- March 31, June 30, 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- NET ASSET VALUE: Beginning of period $ 9.88 $ 9.70 $ 9.63 $ 10.02 $ 9.74 --------- --------- --------- --------- --------- OPERATIONS: Net investment income .56 .56 .56 .43 .60 Net realized and unrealized gains (losses) on investments .10 .18 .09 (.30) .32 --------- --------- --------- --------- --------- Total from operations .66 .74 .65 .13 .92 --------- --------- --------- --------- --------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.56) (.56) (.56) (.43) (.60) From realized gains -- -- (.02) (.09) (.04) --------- --------- --------- --------- --------- Total distributions (.56) (.56) (.58) (.52) (.64) --------- --------- --------- --------- --------- NET ASSET VALUE: End of period $ 9.98 $ 9.88 $ 9.70 $ 9.63 $ 10.02 --------- --------- --------- --------- --------- Total investment return (1) 6.86% 7.73% 7.00% 1.19% 9.81% --------- --------- --------- --------- --------- Net assets at end of period (000's omitted) $ 342,540 $ 279,769 $ 255,157 $ 324,691 $ 338,977 RATIOS: Expenses to average daily net assets 0.79%(2) 0.80%(2) 0.79%(2) 0.77%(2) 0.80% Net investment income to average daily net assets 5.63%(2) 5.65%(2) 5.84%(2) 5.68%(2) 6.17% Portfolio turnover rate (excluding short-term securities) 25.34% 25.50% 13.13% 47.56% 58.29%
(1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of distributions at net asset value. (2) Percentages for the period ended March 31, 1994, are adjusted to an annual rate. Total Fund expenses are contractually limited to .80% of average daily net assets. However, during the periods ended March 31, 1997, 1996, 1995 and 1994, the investment adviser voluntarily absorbed $46,819, $15,540, $24,991 and $77,029 in expenses that were otherwise payable by the Fund. Had the Fund incurred these expenses, the ratio of expenses to average daily net assets would have been .80% for the periods ended March 31, 1997, 1996, 1995 and 1994, and the ratio of net investment income to average daily net assets would have been 5.62%, 5.65%, 5.83% and 5.65%, respectively. SIT MINNESOTA TAX-FREE INCOME FUND FINANCIAL HIGHLIGHTS
Period from December 1, Years Ended March 31, 1993 (1) to ---------------------------------------- March 31, 1997 1996 1995 1994 ---------- ---------- ---------- ---------- NET ASSET VALUE: Beginning of period $ 10.09 $ 9.96 $ 9.79 $ 10.00 ---------- ---------- ---------- ---------- OPERATIONS: Net investment income .57 .57 .56 .17 Net realized and unrealized gains (losses) on investments .05 .13 .17 (.21) ---------- ---------- ---------- ---------- Total from operations .62 .70 .73 (.04) ---------- ---------- ---------- ---------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.57) (.57) (.56) (.17) ---------- ---------- ---------- ---------- NET ASSET VALUE: End of period $ 10.14 $ 10.09 $ 9.96 $ 9.79 ---------- ---------- ---------- ---------- Total investment return (2) 6.26% 7.12% 7.68% (0.80%) ---------- ---------- ---------- ---------- Net assets at end of period (000's omitted) $ 93,976 $ 62,980 $ 43,881 $ 18,105 RATIOS: Expenses to average daily net assets 0.80% 0.80% 0.80% 0.80%(3) Net investment income to average daily net assets 5.56% 5.62% 5.72% 5.23%(3) Portfolio turnover rate (excluding short-term securities) 17.16% 15.85% 34.20% 12.23%
(1) Commencement of operations. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of distributions at net asset value. (3) Adjusted to an annual rate. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Sit Money Market Fund, Inc. Sit U.S. Government Securities Fund, Inc. Sit Mutual Funds II, Inc.: We have audited the accompanying statements of assets and liabilities, including the schedules of portfolios of investments, of Sit Money Market Fund, Inc., Sit U.S. Government Securities Fund, Inc., Sit Bond Fund (a series of Sit Mutual Funds II, Inc.), Sit Tax-Free Income Fund (a series of Sit Mutual Funds II, Inc.), and Sit Minnesota Tax-Free Income Fund (a series of Sit Mutual Funds II, Inc.), as of March 31, 1997 the related statements of operations for the year then ended March 31, 1997; the statements of changes in net assets for each of the years in the two-year period then ended March 31, 1997; and the financial highlights as presented in note 4 to the financial statements. These financial statements and the financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and the 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 our 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. Investment securities held in custody are confirmed to us by the custodian. As to securities purchased and sold but not received or delivered, we request confirmations from brokers and where replies are not received, we carry out other appropriate auditing procedures. 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 Sit Money Market Fund, Sit U.S. Government Securities Fund, Sit Bond Fund, Sit Tax-Free Income Fund, and Sit Minnesota Tax-Free Income Fund as of March 31, 1997 and the results of their operations, the changes in their net assets, and their financial highlights for the periods stated in the first paragraph above, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Minneapolis, Minnesota May 16, 1997 SIT MUTUAL FUNDS FEDERAL INCOME TAX INFORMATION We are required by Federal tax regulations to provide shareholders with certain information regarding dividend distributions on an annual fiscal year basis. The figures are for informational purposes only and should not be used for reporting to federal or state revenue agencies. All necessary tax information will be mailed in January each year.
LONG-TERM LONG-TERM ORDINARY CAPITAL ORDINARY CAPITAL FUND AND PAYABLE DATE INCOME (a) GAIN (b) FUND AND PAYABLE DATE INCOME (a) GAIN (b) Money Market Fund U.S. Government Securities Fund April 30, 1996 $0.00423 $ ---- April 30, 1996 $0.06008 $ ---- May 31, 1996 0.00415 ---- May 31, 1996 0.05121 ---- June 30, 1996 0.00374 ---- June 30, 1996 0.04687 ---- July 31, 1996 0.00444 ---- July 31, 1996 0.05896 ---- August 30, 1996 0.00399 ---- August 30, 1996 0.05044 ---- September 30, 1996 0.00426 ---- September 30, 1996 0.05508 ---- October 31, 1996 0.00424 ---- October 31, 1996 0.05367 ---- November 30, 1996 0.00386 ---- November 30, 1996 0.05127 ---- December 31, 1996 0.00427 ---- December 31, 1996 0.05654 ---- January 31, 1997 0.00423 ---- January 31, 1997 0.05705 ---- February 28, 1997 0.00373 ---- February 28, 1997 0.05483 ---- March 31, 1997 0.00413 ---- March 31, 1997 0.05821 ---- -------- -------- -------- -------- $0.04927(c) $0.00000 $0.65419(c) $0.00000 Bond Fund Tax-Free Income Fund April 30, 1996 $0.06149 $ ---- April 30, 1996 $0.04881 $ ---- May 31, 1996 0.05656 ---- May 31, 1996 0.04792 ---- June 30, 1996 0.04680 ---- June 30, 1996 0.04233 ---- July 31, 1996 0.05834 ---- July 31, 1996 0.05004 ---- August 30, 1996 0.04910 ---- August 30, 1996 0.04532 ---- September 30, 1996 0.05166 ---- September 30, 1996 0.04719 ---- October 31, 1996 0.04982 ---- October 31, 1996 0.04746 ---- November 30, 1996 0.04751 ---- November 30, 1996 0.04374 ---- December 12, 1996 ---- 0.06942 December 31, 1996 0.04862 ---- December 31, 1996 0.05891 ---- January 31, 1997 0.04648 ---- January 31, 1997 0.04863 ---- February 28, 1997 0.04127 ---- February 28, 1997 0.05203 ---- March 31, 1997 0.05233 ---- March 31, 1997 0.05707 ---- $0.56151(d) $0.00000 -------- -------- -------- -------- $0.63792(c) $0.06942 Minnesota Tax-Free Income Fund April 30, 1996 $0.04922 $ ---- May 31, 1996 0.04859 ---- June 30, 1996 0.04482 ---- July 31, 1996 0.05159 ---- August 30, 1996 0.04648 ---- September 30, 1996 0.04794 ---- October 31, 1996 0.04794 ---- November 30, 1996 0.04435 ---- December 31, 1996 0.04958 ---- January 31, 1997 0.04764 ---- February 28, 1997 0.04146 ---- March 31, 1997 0.04749 ---- -------- -------- $0.56710(d) $0.00000
(a) Includes distributions of short-term gains, if any, which are taxable as ordinary income. (b) Taxable as long-term gain. (c) Taxable as dividend income and does not qualify for deduction by corporations (d) 100% of dividends were derived from interest on tax-exempt securities. This portion of exempt-interest dividends is exempt from federal taxes and should not be included in shareholders' gross income. Exempt-interest dividends may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. [SIT LOGO] Directors: Eugene C. Sit, CFA Peter L. Mitchelson, CFA Michael C. Brilley John E. Hulse Sidney L. Jones Donald W. Phillips William E. Frenzel Director Emeritus: Melvin C. Bahle Officers: Eugene C. Sit, CFA Chairman Peter L. Mitchelson, CFA Vice Chairman Michael C. Brilley Senior Vice President Mary K. Stern President Debra A. Sit, CFA Vice President - Investments, Assistant Treasurer Bryce A. Doty, CFA (1) Vice President - Investments Paul J. Jungquist, CFA (2) Vice President - Investments Paul E. Rasmussen Vice President & Treasurer Michael P. Eckert Vice President - Group Manager Michael J. Radmer Secretary Carla J. Rose Assistant Secretary (1) Bond, Balanced and U.S. Government Securities Funds only. (2) Money Market Fund Only. -----END PRIVACY-ENHANCED MESSAGE-----