-----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, WD9IMFUznyRJ2J2Al+aAIqFAYkCvCvAIINqgnkfT0e+3dBg0ksoXRoiEWalNSdvH I9/6uaTzorvxfiD1f5Twog== 0000897101-98-001175.txt : 19981125 0000897101-98-001175.hdr.sgml : 19981125 ACCESSION NUMBER: 0000897101-98-001175 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981124 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: SEC FILE NUMBER: 811-04032 FILM NUMBER: 98758257 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 CTR, 90 SOUTH SEVENTH ST 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 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: SEC FILE NUMBER: 811-04033 FILM NUMBER: 98758258 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 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: SEC FILE NUMBER: 811-04995 FILM NUMBER: 98758259 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 N-30D 1 BOND FUNDS SEMI-ANNUAL REPORT ----------------------------- SIX MONTHS ENDED SEPTEMBER 30, 1998 A FAMILY OF 100% NO-LOAD FUNDS ------------------------------ MONEY MARKET FUND U.S. GOVERNMENT SECURITIES FUND BOND FUND TAX-FREE INCOME FUND MINNESOTA TAX-FREE INCOME FUND [LOGO] SIT MUTUAL FUNDS SIT MUTUAL FUNDS BOND FUNDS SEMI-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...................... 34 Notes to Portfolios of Investments........................ 43 Statements of Assets and Liabilities...................... 44 Statements of Operations.................................. 45 Statements of Changes in Net Assets....................... 46 Notes to Financial Statements............................. 48 Financial Highlights...................................... 51 This document must be preceded or accompanied by a Prospectus. SIT MUTUAL FUNDS CHAIRMAN'S LETTER - SEPTEMBER 30, 1998 [PHOTO] Dear Fellow Shareholders: Lower U. S. interest rates led domestic fixed income markets to provide capital appreciation in addition to coupon income in each of the past two quarters. The Federal Reserve cut the federal funds rate by 0.25% September 29th in response to continued weakening in foreign economies and systemic pressures created by highly leveraged hedge funds. The September move was quickly followed by a 0.25% move on October 15th. We believe the Federal Reserve will make additional reductions in short-term interest rates but at a more gradual pace in light of the pickup in domestic economic growth during the third quarter. Economic Overview The domestic economy slowed to a +1.6% annualized rate of real GDP growth during the second quarter of 1998, and resumed a stronger path during the third quarter with a +3.3% growth rate. The spring slowdown followed six consecutive quarters with +3% or higher GDP growth. Given recent global events, we have reduced our forecast of growth for the U.S. economy through 1999 to about a +2% growth rate. We believe a recession can be avoided, but do not rule out the possibility of a quarter of negative real GDP growth sometime in 1999. We base this view on latest trends in year-over-year percentage change growth rates for the major components of GDP, along with recently observed pressures on net exports and corporate profits. The weakness in profits will ultimately impact business capital spending. While we cannot be absolutely precise on when these pressures will reach their maximum stress point, it is likely that we will see slower growth in 1999. The May through July year-over-year Consumer Price Index increases moved up to +1.7%, but in August receded to +1.6%, and in September receded to +1.5%. Inflation could stay low due to import price pressures, the inability of corporations to raise prices and docile commodity and producer prices. Monetary policy is rapidly reflecting changes in Federal Reserve attitudes concerning strength in the U.S. economy. With slower economic growth, inflation will likely remain low. Minutes of the August 18th FOMC meeting were released on October 1st and revealed that the committee had dropped its bias toward raising interest rates that had been in place since March 31, 1998. As justification, the minutes noted that "while inflation risks were still a concern, given the high level of output and strong domestic demand, the uncertainties bearing on the economic outlook remained substantial, and indeed the risk on the downside has increased. Even more serious disruptions in Asia, Russia, and Latin America could not be ruled out, and would have negative implications for the U.S. economy." The modest magnitude of the Federal Reserve's federal funds rate cuts prove to be a sound long-term policy move in not appearing to be a drastic reaction that would disrupt markets even more. Indeed, global financial markets seem to have stabilized since these Fed eases. It also provides leeway for a series of gradual rate cuts over time, which we believe will occur in order to re-establish a more positively sloped yield curve. The current position of the yield curve is similar to those associated with significant economic slowdowns in the past and we believe the Fed will continue to act to avoid a recession. We expect an additional federal funds rate cut during the fourth quarter and another rate reduction during the first quarter of 1999. Hedge Funds and "Flight to Quality" The highly publicized crises at Long-term Capital Management, D.E. Shaw and Company and other troubled hedge funds resulted in a "flight to quality" during September and continuing through October. The flight to U.S. Treasury issues (as the ultimate source of liquidity) had the effect of pushing U.S. Treasury bond yields to new lows. Specifically, the yield on the 2-year maturity Treasuries fell more 50 basis points during September to 4.29%, while the 30-year maturity dropped 32 basis points to yield 4.98% at September 30th. For the third quarter, the drop in 2 U.S. Treasury yields ranged from 0.64% to 1.23%, depending on maturity. The demand for liquidity caused a significant divergence in performance between Treasuries and all other sectors. For instance, the Lehman Government Index outperformed the Lehman Corporate Index by +1.90% during the third quarter, a feat not witnessed since the second quarter of 1984. Likewise, the Lehman Government Index outperformed the Lehman Mortgage Index by +2.89%, the poorest relative performance for mortgages since August of 1993. The flight to quality was even more obvious when comparing the Merrill Lynch High Yield Index return of -3.58% to the Lehman Government Index's +5.55% return for the third quarter. Worse yet was the -21.23% third quarter return for the J.P. Morgan Emerging Market Index Plus. Strategy Summary While it will be difficult for U.S. Treasuries to maintain their impressive outperformance of recent months, we expect demand for high quality securities to remain strong at least through year end. We also expect the Federal Reserve and other central banks to continue to lower short-term interest rates in order to help restore liquidity in the global credit markets. As a result, the Sit Mutual Funds' taxable bond portfolios are overweighted in short and intermediate duration securities to take advantage of anticipated yield curve steepening. Municipal yields continued to decline and also reached new lows during September. The yield on the Bond Buyer 40-Bond Revenue Bond Index decreased 7 basis points during September to 5.04% on September 30th. Municipals did not keep pace with the decline in Treasury yields. While new issuance activity has picked up somewhat with the continued decline in interest rates, municipal supply conditions remain very tight as increased price volatility in other financial markets has resulted in heavy cash inflows into municipal bond funds. In addition, municipal refunding activity has been limited by the relatively high cost of Treasury bonds that would be needed as escrow collateral. The rally in the Treasury market has caused Treasury yields to move below the yield levels for A-rated municipal bonds with maturities 10 years and beyond. The relative yield of long municipal bonds to long Treasury bonds increased from 97% to 101% on September 30th, and is at its cheapest level since the Tax Reform Act of 1986, which caused this ratio to reach 110%. We expect the relative valuation of municipals to Treasuries will return eventually to more normal levels (i.e., around 87%) once volatility in other financial market sectors subsides. We remain focused on purchasing bonds in the 10 to 20 year maturity range where the municipal yield curve is the steepest. We appreciate your continued interest and investment in Sit Mutual Funds and we look forward to assisting you in achieving your long-term investment goals. With best wishes, /s/ Eugene C. Sit Eugene C. Sit, CFA Chairman and Chief Investment Officer 3 SIT MUTUAL FUNDS SEPTEMBER 30, 1998 PERFORMANCE SUMMARY - BOND FUNDS BOND MARKET REVIEW The Federal Reserve signaled a shift to a more accommodative monetary policy on September 29th with a 25 basis points cut in the federal funds rate. That move was in response to continued weakening in foreign economies and systemic pressures created by highly leveraged hedge funds. Short-term interest rates fell sharply with the 90-day Treasury bill yields down to 4.37% on September 30, compared with 5.13% six months earlier, reflecting investor expectations for further reductions in rates by the Federal Reserve. Longer-term bond yields were relatively stable through the first five months of 1998 when the yield of the 30-year Treasury bond varied between 5.80% and 6.10%. Long-term Treasury bond yields fell sharply in the following four months to a September 30th low of 4.98%. Growing concerns over a domestic economic slowdown resulted in a much smaller decrease in long-term corporate bond yields, which declined by less than one-half that of Treasury yields. The resulting widening of yield spreads between corporates and Treasuries resulted in a sharp decline in the volume of newly issued corporate bonds beginning in late August. Sector selection was very important in the taxable market. U.S. Treasury securities posted the strongest returns while lesser rated corporates and mortgage pass through securities the lowest returns. Longer-term municipal bond yields, as measured by the Bond Buyer 40-Bond Index, remained above their early January low of 5.10% until the last day of September when the Index dropped to a 5.04% yield level. September 30th marked one of the occasions in history when long-term municipal bond yields were actually higher than 30-year Treasury bond yields. Unlike the taxable bond market, where credit quality spreads are quite wide, municipal quality spreads remain at historically narrow levels in part reflecting the fact that hedge funds typically avoid investing in municipal securities. Returns across various sectors of the municipal market, such as general obligations and the various sectors of municipal revenue markets, were within a narrow range for both the past three and six-month time periods with the exception of housing and resource recovery issues which lagged in return over the past six months. 1989 1990 ------------------ SIT MONEY MARKET FUND -- -- SIT U.S. GOV'T. SECURITIES FUND 11.04% 10.97% SIT BOND FUND -- -- SIT TAX-FREE INCOME FUND 8.38 7.29 SIT MINNESOTATAX-FREE INCOME FUND -- -- U.S. TREASURY BILL 8.73 8.04 LEHMAN INTER. GOVERNMENT BOND INDEX 12.68 9.56 LEHMAN AGGREGATE BOND INDEX 14.53 8.96 LEHMAN 5-YEAR MUNICIPAL BOND INDEX 9.07 7.70 SIT INVESTMENT RESERVE FUND 8.53% 7.59% (Inception date 1/25/85. Converted to Sit Money Market Fund on 11/1/93.) NASDAQ SYMBOL INCEPTION --------------------- SIT MONEY MARKET FUND SNIXX 11/01/93 SIT U.S. GOV'T. SECURITIES FUND SNGVX 06/02/87 SIT BOND FUND SIBOX 12/01/93 SIT TAX-FREE INCOME FUND SNTIX 09/29/88 SIT MINNESOTA TAX-FREE INCOME FUND SMTFX 12/01/93 3-MONTH U.S. TREASURY BILL 11/01/93 LEHMAN INTER. GOVERNMENT BOND INDEX 05/31/87 LEHMAN AGGREGATE BOND INDEX 11/30/93 LEHMAN 5-YEAR MUNICIPAL BOND INDEX 09/30/88 (1) Period from Fund inception through calendar year-end. (5) Period January 1, 1993, through October 31, 1993, at which time the Fund converted to the Sit Money Market Fund. (2) Based on the last 12 monthly distributions of net investment income and average (6) Figure represents 7-day compound effective yield. The 7-day simple yield as of 9/30/98 was 5.18%. NAV as of 9/30/98. (3) For Minnesota residents in the 28%, 31%, 36% and 39.6% federal tax brackets, the double exempt tax equivalent yields are 7.19%, 7.51%, 8.09% and 8.58%, respectively (Assumes the maximum Minnesota tax bracket of 8.5%). (4) For individuals in the 28%, 31%, 36%, and 39.6% federal tax brackets, the federal tax equivalent yields are 6.31%, 6.58%, 7.09% and 7.52%, respectively (Income subject to state tax, if any). 4 TOTAL RETURN - CALENDAR YEAR
YIELD YTD AS OF DISTRIBUTION 1991 1992 1993 1994 1995 1996 1997 9/30/98 9/30/98 RATE(2) --------------------------------------------------------------------------- ---------------------- -- -- 0.46%(1) 3.84% 5.58% 5.08% 5.22% 3.90% 5.31%(6) 12.87% 5.43% 7.34 1.77 11.50 4.99 8.19 5.53 5.48 5.55% -- -- 0.34(1) -1.31 16.83 4.25 9.44 6.49 5.73 5.80 9.25 7.71 10.42 -0.63 12.86 5.69 9.87 5.73 4.54(4) 5.10 -- -- 1.60(1) 0.63 11.90 5.89 8.19 5.23 4.74(3) 5.12 5.72 3.56 3.13 4.47 5.98 5.27 5.32 3.88 14.11 6.93 8.17 -1.75 14.41 4.06 7.72 8.22 16.00 7.40 0.54(1) -2.92 18.47 3.63 9.65 8.32 11.41 7.62 8.73 -1.28 11.65 4.22 6.38 4.98 6.14% 3.81% 2.34%(5)
AVERAGE ANNUAL TOTAL RETURNS FOR THE TOTAL RETURN PERIODS ENDED SEPTEMBER 30, 1998 QUARTER SIX MONTHS SINCE ENDED 9/30/98 ENDED 9/30/98 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION - ------------------------------ ----------------------------------------------------- 1.29% 2.59% 5.26% 5.19% -- -- 4.90% 2.34 4.08 7.58 7.26 6.61% 7.98% 8.22 3.12 5.25 8.73 8.07 -- -- 7.30 2.81 4.22 8.57 8.26 6.89 7.84 7.83 2.61 4.00 8.08 7.53 -- -- 6.88 1.24 2.54 5.24 5.29 5.11 -- 5.14 4.67 6.61 10.61 7.82 6.43 8.38 8.30 4.23 6.66 11.51 8.67 -- -- 7.58 2.63 3.78 6.76 5.90 5.36 7.06 7.05
(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 9/30/98 was 5.18% PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. 5 SIT MONEY MARKET FUND REVIEW SIX MONTHS ENDED SEPTEMBER 30, 1998 [PHOTO] MICHAEL C. BRILLEY SENIOR PORTFOLIO MANAGER PAUL J. JUNGQUIST, CFA PORTFOLIO MANAGER The Sit Money Market Fund provided investors with a +2.59% return for the six months ended September 30, 1998, compared to a +2.43% average return for the Lipper Analytical Services, Money Market Fund universe. The Fund's performance ranked 57th of 319 funds in its Lipper peer group category for the third quarter of 1998. The Fund's performance ranked 60th of 303 funds, 52nd of 264 funds and 44th of 198 funds in its Lipper peer group, respectively, for the year, three year and since inception (October 31, 1993) periods ended September 30, 1998, respectively. As of September 30, 1998, the Fund's 7-day compound yield was 5.31% and its average maturity was 25 days, compared to 5.20% and 28 days, respectively, at March 31, 1998. The Federal Reserve Board decreased the federal funds rate to 5.25% from 5.50% on September 29, in response to the economic and political turmoil roiling the global financial markets in the latter half of 1998. Three-month Treasury bill yields were volatile over the past six months, ranging from 5.23% in May to 4.36% on September 30th. Current yield levels imply that the market is expecting additional ease by the Fed in the fourth quarter of 1998. While we believe a recession can be avoided, slower domestic and global growth with still dormant inflation over the next year would support this Fed policy. Accordingly, the Fund will try to take advantage of current yield levels while extending its average maturity slightly. The Fund has produced competitive returns by focusing on credit research, optimizing average maturity and avoiding the use of risky derivatives. We intend to continue these conservative policies in the future. Despite the global financial turmoil and slowing economic activity, we do not foresee a significant impact on the short-term creditworthiness of top tier commercial paper issuers in general. However, given this backdrop, financial services and industrial companies are more likely to experience difficulties, so we will monitor the Fund's permissible credits in these sectors 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 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 9/30/98: $1.00 Per Share 3/31/98: $1.00 Per Share Total Net Assets: $46.94 Million PORTFOLIO STRUCTURE (% of total net assets) [BAR CHART] U.S. Government 23.9 Diversified Finance 15.1 Consumer Loan Finance 13.4 Captive Equipment Finance 10.7 Captive Auto Finance 9.0 Consumer Non-Durables 7.6 Insurance 5.5 Technology/Bus. Equipment 3.9 Retail 3.0 Captive Oil Finance 3.0 Capital Goods 2.8 Other Assets and Liabilities 2.1 6
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 1.29% 1.21% 1.24% 1.29% 1.21% 1.24% (not annualized) 1 Year 5.26 4.93 5.24 5.26 4.93 5.24 3 Year 5.19 4.91 5.29 16.40 15.47 16.73 Inception 4.90 4.69 5.14 26.52 25.29 27.98 (11/1/93)
* As of 9/30/98 PERFORMANCE IS HISTORICAL AND ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MONEY FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT A FUND WILL MAINTAIN A $1 SHARE VALUE. YIELD FLUCTUATES. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. 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] 3-MONTH U.S. SIT MONEY TREASURY BILL INDEX MARKET FUND The sum of $10,000 invested at inception (11/1/93) and held until 9/30/98 would have grown to $12,652 in the Fund or $12,798 in the 3-Month U.S. Treasury Bill Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% of Net Assets) AS RATED BY MOODY'S, S&P AND FITCH [PIE CHART] First Tier Securities 100% First Tier Securities 100% Second Tier Securities 0% 7 SIT MONEY MARKET FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------------------- QUANTITY ($) NAME OF ISSUER MARKET VALUE(1) - --------------------------------------------------------------------------------------------- COMMERCIAL PAPER (78.8%) (2) CAPITAL GOODS (2.8%) Deere & Co.: 500,000 5.54%, 11/4/98 $497,412 400,000 5.50%, 11/6/98 397,820 425,000 5.53%, 11/9/98 422,482 -------------- 1,317,714 -------------- CAPTIVE AUTO FINANCE (9.0%) Ford Motor Credit Corp.: 475,000 5.57%, 10/6/98 474,636 730,000 5.58%, 10/7/98 729,328 640,000 5.50%, 11/5/98 636,609 General Motors Acceptance Corp.: 400,000 5.55%, 10/30/98 398,234 500,000 5.52%, 11/3/98 497,498 Toyota Motor Credit Co.: 500,000 5.55%, 10/1/98 500,000 500,000 5.55%, 10/5/98 499,694 500,000 5.47%, 11/19/98 496,318 -------------- 4,232,317 -------------- CAPTIVE EQUIPMENT FINANCE (10.7%) 1,425,000 Caterpillar Finance, Inc., 5.42%, 1/4/99 1,404,937 1,400,000 IBM Credit Corp., 5.54%, 10/8/98 1,398,500 John Deere Capital Corp.: 500,000 5.58%, 10/20/98 498,546 500,000 5.46%, 11/4/98 497,441 400,000 5.45%, 11/17/98 397,180 850,000 Xerox Credit Corp., 5.53%, 10/23/98 847,143 -------------- 5,043,747 -------------- CAPTIVE OIL FINANCE (3.0%) Chevron Oil Finance: 900,000 5.44%, 10/6/98 899,321 500,000 5.49%, 10/14/98 499,012 -------------- 1,398,333 -------------- CONSUMER LOAN FINANCE (13.4%) American Express Credit Corp.: 325,000 5.56%, 10/14/98 324,355 800,000 5.45%, 11/18/98 794,240 350,000 5.14%, 11/27/98 347,174 American General Financial: 550,000 5.58%, 10/13/98 548,990 300,000 5.50%, 11/10/98 298,187 1,300,000 Commercial Credit Corp., 5.51%, 10/22/98 1,295,852 Household Finance Corp.: 200,000 5.56%, 10/14/98 199,602 500,000 5.56%, 10/22/98 498,396 600,000 5.48%, 11/16/98 595,837 Norwest Financial, Inc.: 625,000 5.58%, 10/23/98 622,895 750,000 5.46%, 11/30/98 743,250 -------------- 6,268,778 -------------- CONSUMER NON-DURABLES (7.6%) Coca Cola Co.: 400,000 5.51%, 11/5/98 397,881 400,000 5.51%, 11/6/98 397,820 600,000 5.39%, 11/24/98 595,194 800,000 Coca Cola Enterprises, 5.58%, 10/19/98 (5) 797,803 1,000,000 Gillette Company, 5.56%, 10/09/98 (5) 998,777 400,000 Walt Disney Co., 5.51, 10/23/98 398,660 -------------- 3,586,135 -------------- DIVERSIFIED FINANCE (15.1%) Associates Corp.: 435,000 5.22%, 11/25/98 431,557 500,000 5.59%, 10/27/98 498,007 500,000 5.59%, 10/28/98 497,930 1,000,000 Avco Financial Services, Inc., 5.24%, 12/2/98 991,062 CIT Group Holdings, Inc.: 450,000 5.52%, 11/12/98 447,134 950,000 5.55%, 11/13/98 943,769 General Electric Capital Corp.: 500,000 5.59%, 10/26/98 498,083 500,000 5.53%, 10/29/98 497,861 400,000 5.56%, 11/10/98 397,591 General Electric Capital Services: 400,000 5.51%, 11/12/98 397,452 500,000 5.58%, 11/20/98 496,181 500,000 5.56%, 11/25/98 495,814 500,000 Transamerica Finance Corp., 5.56%, 10/21/98 498,478 -------------- 7,090,919 -------------- ENERGY (2.3%) Texaco, Inc.: 600,000 5.50%, 11/9/98 596,458 460,000 5.49%, 11/10/98 457,220 -------------- 1,053,678 --------------
8
- --------------------------------------------------------------------------------------------- QUANTITY ($) NAME OF ISSUER MARKET VALUE(1) - --------------------------------------------------------------------------------------------- INSURANCE (5.5%) American Family Financial: 500,000 5.58%, 10/16/98 498,860 850,000 5.56%, 10/28/98 846,507 500,000 American General Corp., 5.56%, 11/2/98 497,556 750,000 Liberty Mutual Capital Corp., 5.45%, 11/16/98 (5) 744,825 -------------- 2,587,748 -------------- RETAIL (3.0%) Sears Roebuck & Co.: 900,000 5.56%, 10/29/98 896,149 500,000 5.59%, 11/23/98 495,944 -------------- 1,392,093 -------------- TECHNOLOGY/BUSINESS EQUIPMENT (3.9%) International Business Machines Corp.: 700,000 5.56%, 10/2/98 699,893 600,000 5.54%, 10/16/98 598,630 550,000 Xerox Corp., 5.52%, 10/15/98 548,830 -------------- 1,847,353 -------------- UTILITIES (2.5%) BellSouth Telecommunications, Inc.: 500,000 5.71%, 10/6/98 499,622 258,000 5.44%, 11/10/98 256,452 425,000 5.23%, 11/12/98 422,422 -------------- 1,178,496 -------------- Total commercial paper (cost: $36,997,311) 36,997,311 -------------- U.S. GOVERNMENT SECURITIES (23.9%) (2) 11,222,000 FHLB Disc. Note, 5.15%, 10/1/98 11,222,000 -------------- 11,222,000 -------------- (cost: $11,222,000) Total investments in securities (cost: $48,219,311) (6) $48,219,311 ==============
See accompanying notes to portfolios of investments on page 43. 9 SIT U.S. GOVERNMENT SECURITIES FUND REVIEW SIX MONTHS ENDED SEPTEMBER 30, 1998 [PHOTO] MICHAEL C. BRILLEY SENIOR PORTFOLIO MANAGER BRYCE A. DOTY, CFA PORTFOLIO MANAGER Dear Fellow Shareholders: The Sit U.S. Government Securities Fund provided investors with a +4.08% return for six months ended September 30, 1998 compared to a +6.61% return of the Lehman Intermediate Government Bond Index. For the twelve months ending September 30, 1998, the Fund's total return was +7.58% versus +10.61% return for the Lehman Index. As of September 30, 1998, the Fund's 30-day SEC yield was 5.48% and its 12-month distribution rate was 5.55%, compared to 5.61% and 5.93%, respectively, at March 31, 1998. U. S. Treasury yields fell sharply during the period, particularly in recent months as investors sought a safe haven from the volatility of global financial markets. The rally provided significant price appreciation in the Fund's longer duration Collateralized Mortgage Obligation and U.S. Treasury holdings. The decline in yields renewed concerns of accelerated prepayments in the mortgage pass-through sector. As a result, the pass-through holdings provided the lowest return in the Fund for the quarter. Investment activity involved the successful combination of smaller mortgage-backed securities into one large security. This combination increases the value of the assets due to the greater demand that exists for larger-sized pools. Recent activity involved increasing the Fund's weighting in shorter to intermediate average life securities. This was done in anticipation of reductions in short-term rates by the Federal Reserve. Continued easing by the Federal Reserve should result in price appreciation for short and intermediate average life securities. Looking forward, we believe that economic growth will slow moderately through the first half of next year. We also expect the demand for high quality securities to remain strong at least through year end. Lastly, we believe that the Federal Reserve and other central banks will continue to lower short-term interest rates in order to help stabilize financial markets. The Fund will continue to focus on securities that have relatively stable prices and provide high 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 9/30/98: $10.78 Per Share 3/31/98: $10.63 Per Share Total Net Assets: $129.61 Million 30-Day SEC Yield: 5.48% 12-Month Distribution Rate: 5.55% Average Maturity: 16.1 Years Effective Duration: 1.9 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 56.8 U.S. Treasury 16.4 FNMA Pass-Through 10.3 Collateralized Mortgage Obligations 9.9 FHLMC Pass-Through 4.8 Other Assets and Liabilities 1.8 10
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 2.34% 4.57% 4.67% 2.34% 4.57% 4.67% (not annualized) 1 Year 7.58 11.64 10.61 7.58 11.64 10.61 5 Years 6.61 6.12 6.43 37.70 34.56 36.58 10 Years 7.98 8.22 8.38 115.52 120.32 123.54 Inception 8.22 8.06 8.30 144.89 140.84 146.98 (6/2/87)
* As of 9/30/98 PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. 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 CHART] SIT U.S. GOV'T. LEHMAN INTER. SECURITIES FUND GOV'T. BOND INDEX The sum of $10,000 invested at inception (6/2/87) and held until 9/30/98 would have grown to $24,489 in the Fund or $24,698 in the Lehman Intermediate Government Bond Index assuming reinvestment of all dividends and capital gains. ESTIMATED AVERAGE LIFE PROFILE The Adviser's estimates of the dollar weighted average life of the portfolio's securities, which may vary from their stated maturities. [BAR CHART] YEARS 0-1 1.9% 1-5 76.6% 5-10 16.0% 10-20 5.4% 11 SIT U.S. GOVERNMENT SECURITIES FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- ----------------------------------------------------------------------------------------- QUANTITY ($) NAME OF ISSUER MARKET VALUE(1) - ----------------------------------------------------------------------------------------- MORTGAGE PASS-THROUGH SECURITIES (71.9%) (2) FEDERAL HOME LOAN MORTGAGE CORPORATION (4.8%): 79,456 8.50%, 1/1/17 $83,100 19,581 8.75%, 12/1/01 20,218 628,755 8.75%, 1/1/17 660,796 236,035 9.00%, 12/1/05 246,402 69,298 9.00%, 1/1/06 72,345 328,940 9.00%, 5/1 - 7/1/09 347,241 176,571 9.00%, 10/1/13 186,284 681,925 9.00%, 5/1 - 10/1/16 719,915 939,806 9.00%, 1/1 - 6/1/17 991,614 547,053 9.00%, 10/1/19 575,437 756,544 9.50%, 2/1 - 6/1/10 804,010 229,387 9.50%, 1/1/11 243,678 332,661 9.50%, 6/1 - 9/1/16 353,067 238,179 9.50%, 6/1 - 9/1/17 253,357 109,362 9.50%, 12/1/18 116,213 70,049 9.75%, 6/1/17 75,022 347,329 10.25%, 6/1/10 376,438 111,900 10.50%, 4/1 - 7/1/04 118,897 2,372 11.00%, 10/1/00 2,501 ---------------- 6,246,535 ---------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (10.3%): 316,213 8.50%, 8/1/06 328,030 135,323 8.875%, 3/1/17 143,019 138,511 9.00%, 4/1/10 145,488 514,562 9.00%, 1/1 - 9/1/17 540,636 1,262,854 9.00%, 11/1 - 12/1/19 1,356,348 167,031 9.00%, 9/1/20 175,551 584,413 9.00%, 9/1 - 11/1/21 615,194 156,271 9.25%, 4/1/12 166,183 80,700 9.375%, 5/1/16 85,454 101,352 9.50%, 9/1/08 107,472 244,255 9.50%, 1/1/11 260,588 388,807 9.50%, 5/1/14 416,996 454,689 9.50%, 4/1 - 7/1/16 483,160 757,602 9.50%, 12/1/18 812,528 271,521 9.50%, 12/1/19 288,263 2,238,305 9.50%, 4/1 - 9/1/20 2,383,285 1,059,317 9.75%, 1/1/13 1,154,984 138,601 10.00%, 3/1/11 150,121 152,666 10.00%, 9/1/20 164,379 3,045,903 10.25%, 8/15/13 3,368,555 109,592 10.75%, 11/1/10 119,988 41,403 11.00%, 4/1/14 45,601 ---------------- 13,311,823 ---------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (56.8%) (3): 132,426 7.50%, 3/15/07 138,035 289,336 7.50%, 5/15/16 299,205 30,919 8.00%, 7/15/03 32,242 176,513 8.00%, 10/15/12 182,430 1,860,273 8.00%, 5/15 - 9/15/16 1,925,440 255,373 8.25%, 2/15 - 6/15/02 264,990 516,901 8.25%, 12/15/11 541,133 190,470 8.25%, 1/15/12 197,645 446,935 8.25%, 8/15/15 464,017 94,427 8.50%, 11/15/01 96,933 299,820 8.50%, 12/15/11 313,312 547,363 8.50%, 1/15/12 570,566 102,298 8.50%, 4/15/15 105,878 747,502 8.50%, 9/15/16 780,564 692,462 8.50%, 1/15/17 723,048 148,715 8.75%, 7/15/02 156,518 149,880 8.75%, 5/15/03 157,807 629,438 8.75%, 5/15 - 11/15/06 663,431 241,954 8.75%, 2/15 - 3/15/07 252,623 154,392 8.75%, 11/15/09 161,263 1,229,787 8.75%, 6/15 - 12/15/11 1,284,873 123,976 8.75%, 2/20/17 129,703 1,042,889 8.75%, 10/15/19 1,101,552 122,904 9.00%, 10/15/04 129,828 270,639 9.00%, 4/15/06 285,927 345,080 9.00%, 6/15 - 10/15/07 362,366 818,077 9.00%, 9/15 - 12/15/08 869,871 549,170 9.00%, 2/15 - 9/15/09 581,795 2,444,084 9.00%, 5/15 - 10/15/11 2,581,403 131,620 9.00%, 1/15/12 137,818 86,942 9.00%, 8/15/15 92,184 330,561 9.00%, 9/15 - 12/20/16 349,782 8,030,798 9.00%, 1/15 - 12/15/17 8,606,431 9,580,024 9.00%, 12/15/19 10,184,479 3,259,506 9.00%, 7/20 - 12/15/21 3,491,093 309,654 9.10%, 5/15/18 329,559 59,123 9.25%, 4/15 - 9/15/01 62,311 151,219 9.25%, 4/15/03 159,722 245,533 9.25%, 3/15/05 259,511 296,878 9.25%, 4/15 - 11/15/10 317,164 334,963 9.25%, 11/15/11 351,181 151,926 9.25%, 4/15/12 159,208 1,333,572 9.25%, 2/20 - 11/20/17 1,408,639 87,953 9.50%, 1/15 - 3/15/05 92,293 167,035 9.50%, 1/15/06 176,725 2,460,418 9.50%, 12/15/09 2,664,534 1,179,554 9.50%, 1/15 - 11/15/10 1,242,418 481,202 9.50%, 1/15 - 3/15/11 504,630 2,723,070 9.50%, 2/15 - 12/15/16 2,917,226
12
- ----------------------------------------------------------------------------------------- QUANTITY ($) NAME OF ISSUER MARKET VALUE(1) - ----------------------------------------------------------------------------------------- 3,973,552 9.50%, 1/15 - 12/15/17 4,303,621 1,993,377 9.50%, 4/15 - 10/20/18 2,136,332 2,027,993 9.50%, 4/15 - 12/15/19 2,191,914 123,811 9.50%, 6/15 - 10/15/20 132,745 300,131 9.50%, 1/15 - 8/15/21 322,990 33,739 9.75%, 3/15 - 10/15/99 34,445 34,171 9.75%, 5/15/01 36,013 133,937 9.75%, 11/15/02 141,735 197,773 9.75%, 7/15 - 12/15/03 209,691 36,460 9.75%, 3/15/04 38,589 517,585 9.75%, 8/15 - 11/15/05 548,065 173,005 9.75%, 2/15/06 185,249 460,876 9.75%, 8/15 - 9/15/09 490,777 1,759,804 9.75%, 8/15 - 12/15/10 1,872,338 745,914 9.75%, 11/15 - 12/15/12 793,811 160,176 10.00%, 8/15/02 169,832 155,383 10.00%, 11/15/03 164,171 126,329 10.00%, 5/15/04 133,860 701,448 10.00%, 7/15/05 743,746 122,633 10.00%, 1/15/06 129,938 151,250 10.00%, 11/15/08 161,054 89,453 10.00%, 5/15 - 11/15/09 95,608 347,225 10.00%, 6/15 - 10/15/10 369,723 105,901 10.00%, 1/15/11 112,821 10,957 10.00%, 9/15/16 11,863 23,911 10.25%, 11/15/00 25,200 49,776 10.25%, 2/15 - 4/15/01 52,459 111,963 10.25%, 12/15/02 118,714 173,760 10.25%, 8/15/04 184,270 278,784 10.25%, 7/15/05 295,589 137,543 10.25%, 5/15/09 146,137 2,573 10.50%, 9/15/00 2,703 40,440 10.50%, 9/15/01 42,620 60,379 10.50%, 12/15/02 64,011 194,879 10.50%, 6/15/09 217,565 113,013 10.50%, 7/15/10 120,149 201,288 10.50%, 8/15 - 11/15/15 218,563 116,255 10.50%, 3/15 - 12/15/16 126,228 207 10.75%, 10/15/98 207 16,841 10.75%, 11/15/00 17,749 42,998 10.75%, 9/15/03 45,586 91,722 10.75%, 9/15/05 97,299 127,670 10.75%, 8/15/06 138,559 36,233 10.75%, 1/15/10 38,554 154,438 10.75%, 7/15 - 8/15/11 164,278 196,317 11.00%, 6/15/04 208,246 496,776 11.00%, 1/15 - 6/15/10 553,231 17,614 11.00%, 7/15/13 19,425 134,001 11.25%, 8/15 - 12/15/00 141,225 20,166 11.25%, 1/15/01 21,253 17,591 11.25%, 5/15/03 18,654 407,787 11.25%, 9/15 - 10/15/05 438,098 517,855 11.25%, 6/15 - 9/15/10 574,562 1,611,280 11.25%, 2/15 - 10/15/11 1,767,255 7,562 11.75%, 1/15/99 7,838 208,470 11.75%, 5/15 - 7/15/00 219,708 127,250 11.75%, 5/15 - 6/15/04 136,151 37,887 12.75%, 1/15/00 39,929 16,527 13.25%, 10/15/99 17,108 22,039 13.75%, 9/15-10/15/99 22,931 622,000 Bernalillo Multifamily Series 1998A, 7.50%, 9/20/20 663,985 Maplewood, Mn. Multifamily Revenue: 579,100 Series 1998B, 6.75%, 7/20/15 629,580 1,605,000 Series 1998A, 6.75%, 7/20/30 1,611,420 ---------------- 73,599,276 ---------------- Total mortgage pass-through securities (cost: $93,147,175) 93,157,634 ---------------- U.S. GOVERNMENT SECURITIES (16.4%) (2) 5,000,000 U.S. Treasury Note, 5.875%, 2/15/00 5,090,150 U.S. Treasury Strips: 4,000,000 6.93% effective yield, 11/15/04 3,057,000 12,600,000 4.72% effective yield, 5/15/06 8,948,646 7,000,000 5.82% effective yield, 11/15/09 4,152,750 ---------------- Total U.S. government securities 21,248,546 ---------------- (cost: $20,227,328) COLLATERALIZED MORTGAGE OBLIGATIONS (9.9%) (2) Federal Home Loan Mortgage Corporation: 176,868 1006-C, 9.15%, 10/15/20 190,358 1,000,000 6.50%, 11/15/21 1,050,980 Vendee Mortgage Trust: 2,875,418 Series 1996-2 1B, 6.75%, 9/15/09 2,883,210 7,300,000 Series 1992-2 1F, 7.00%, 2/15/18 7,613,973 1,045,000 Series 1992-1 2K, 7.75%, 5/15/08 1,122,090 ---------------- Total collateralized mortgage obligations 12,860,611 ---------------- (cost: $12,328,774) SHORT-TERM SECURITIES (1.0%) (2) 1,248,895 Dreyfus Gov't Cash Management Fund, 5.46% 1,248,895 ---------------- (cost: $1,248,895) Total investments in securities (cost: $126,952,172) (6) $128,515,686 ----------------
See accompanying notes to portfolios of investments on page 43. 13 SIT BOND FUND REVIEW SIX MONTHS ENDED SEPTEMBER 30, 1998 [PHOTO] MICHAEL C. BRILLEY SENIOR PORTFOLIO MANAGER BRYCE A, DOTY, CFA PORTFOLIO MANAGER Dear Fellow Shareholders: The Sit Bond Fund provided investors with a +5.25% return for the six months ended September, 1998, compared to a +6.66% return for the Lehman Aggregate Bond Index. For the three years ended September 30, 1998, the Fund's annualized total return of +8.07% exceeded the +7.75% average return for its Lipper universe, ranking it 51st of 158 funds. Also, the Fund's performance since inception (December 1, 1993) ranked it 19th of 102 funds. As of September 30, 1998, the Fund's 30-day SEC yield was 5.73% and its 12-month distribution rate was 5.80%, compared to 5.43% and 6.35%, respectively, at March 31, 1998. U. S. Treasury yields fell sharply during the period, particularly in recent months as investors sought a safe haven from the volatility of global financial markets. The rally provided significant price appreciation in the Fund's longer duration U.S. Treasury and asset-backed bond holdings, making them the highest return sectors in the Fund. Although the agency pass-through sector produced high levels of interest income, it had the weakest total return as it experienced less price appreciation due to its relatively short duration. Earlier in the period, investment activity included selling corporate securities. Later, as interest rates continued to fall, corporate issuance of debt rose substantially as corporations rushed to lock in lower rates. The heavy supply caused corporate yield spreads to reach their widest level in five years. The Fund took advantage of this opportunity by purchasing corporate bonds. More recently, the Fund has increased its weighting in shorter to intermediate average life securities. This was done in anticipation of cuts in short-term rates by the Federal Reserve. Continued easing by the Federal Reserve should result in price appreciation for short and intermediate average life securities. Looking forward, we believe that economic growth will slow moderately through the first half of next year. We also expect the demand for high quality securities to remain strong at least through year end. Lastly, we believe that the Federal Reserve and other central banks will continue to lower short-term interest rates in order to help stabilize financial markets. The Fund will continue to focus on high quality securities that offer attractive total return opportunities. 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 9/30/98: $10.28 Per Share 3/31/98: $10.03 Per Share Total Net Assets: $11.62 Million 30-Day SEC Yield: 5.73% 12-Month Distribution Rate: 5.80% Average Maturity: 17.3 Years Effective Duration: 4.2 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] Mortgage Pass Through 44.2 Corporate Bonds & Notes 16.4 U.S. Treasury 15.4 Asset-Backed Securities 11.8 Closed-End Mutual Funds 3.7 Collateralized Mortgage Obligations 3.6 Trust Preferred Securities 1.8 Other Assets and Liabilities 3.1 14
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 3.12% 3.67% 4.23% 3.12% 3.67% 4.23% (not annualized) 1 Year 8.73 10.02 11.51 8.73 10.02 11.51 3 Year 8.07 7.75 8.67 26.21 25.10 28.34 Inception 7.30 6.68 7.58 40.56 36.70 42.35 (12/1/93)
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. 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 [CHART] The sum of $10,000 invested at inception (12/1/93) and held until 9/30/98 would have grown to $14,056 in the Fund or $14,235 in the Lehman Aggregate Bond Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% of Net Assets) LOWER OF MOODY'S OR S&P USED. [PIE CHART] Government Agency Backed Securites & CMO's 47.6% U.S. Government 15.4% Other Assets & Liabilities 3.1% BBB 11.8% A 8.1% AA 1.8% AAA 12.2% 15
SIT BOND FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED) - ------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------ U.S. GOVERNMENT SECURITIES (15.4%) (2) U.S. Treasury Strip: 1,400,000 5.61% effective yield, 5/15/04 $1,094,898 400,000 4.75% effective yield, 5/15/06 284,084 700,000 5.82% effective yield, 11/15/09 415,275 ------------ Total U.S. government securities 1,794,257 ------------ (cost: $1,674,622) ASSET-BACKED SECURITIES (11.8%) (2) Advanta Mortgage Loan Trust: 200,000 1995-3 A5, 7.37%, 2/25/27 213,016 250,000 1996-1 A7, 7.07%, 3/25/27 265,688 75,000 Cityscape Home Equity Loan Trust, 1996-3 A8, 7.65%, 9/25/25 82,565 ContiMortgage Home Equity Loan Trust: 249,998 1996-1 A7, 7.00%, 3/15/27 276,615 75,000 1998-3 A6, 6.08%, 9/15/27 74,989 100,000 EQCC Home Equity Loan Trust, Series 1996-1, 6.93%, 3/15/27 107,468 100,000 EquiVantage, 1996-3 A3, 7.70%, 9/25/27 104,777 Green Tree Financial Corp.: 75,000 1995-5, 7.25%, 9/15/25 81,037 75,000 1997-4, 7.03%, 2/15/29 78,586 75,000 Money Store Home Equity Mortgage, 7.265%, 7/15/38 82,944 ------------ Total asset-backed securities 1,367,685 ------------ (cost: $1,258,788) CORPORATE BONDS & NOTES (16.4%) (2) 400,000 American Express Credit Co., 6.25%, 8/10/05 408,592 50,000 AT & T, 8.625%, 12/01/31 56,625 150,000 Bank One Texas, 6.25%, 2/15/08 156,563 150,000 Nationwide Health Properties, 7.00%, 9/18/01 150,000 100,000 Omega Health Care Investors, 6.95%, 6/15/02 103,000 500,000 Security Cap. Industrial Tr., 8.65%, 05/15/16 561,875 100,000 Summit Properties, Inc., 7.20%, 8/15/07 105,875 100,000 Tenneco, Inc., 6.70%, 12/15/05 101,690 20,000 Toys R Us, Inc., 8.25%, 2/1/17 20,675 50,000 Trinet Corp. Realty Trust, 7.70%, 7/15/17 52,563 175,000 Washington Mutual Capital, 8.375%, 6/1/27 192,281 ------------ Total corporate bonds & notes 1,909,739 ------------ (cost: $1,844,275) - ------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------ MORTGAGE PASS-THROUGH SECURITIES (44.2%) (2)(3) Federal Home Loan Mortgage Corp.: 177,655 9.00%, 12/1/17 187,461 35,619 10.25%, 9/1/09 38,606 33,024 10.75%, 3/1/11 36,162 Federal National Mortgage Association: 221,434 9.00%, 12/1/19 232,650 294,959 9.75%, 1/1/13 321,597 247,738 10.25%, 8/15/13 273,981 112,273 11.00%, 11/1/20 123,934 Government National Mortgage Association: 10,943 8.75%, 11/15/01 11,529 168,930 8.75%, 10/15/19 178,432 64,942 9.00%, 10/15/06 68,607 75,503 9.00%, 9/15/08 80,113 106,359 9.00%, 4/15/09 112,797 64,884 9.00%, 4/15/09 68,818 125,265 9.00%, 4/15/09 132,880 7,701 9.00%, 8/15/11 8,066 190,260 9.00%, 01/15/17 199,825 9,075 9.00%, 12/15/17 9,750 76,109 9.00%, 8/20/19 80,190 142,542 9.00%, 12/15/19 151,985 73,190 9.00%, 6/20/21 77,098 570,951 9.00%, 12/15/21 612,168 93,283 9.00%, 12/20/21 98,283 24,770 9.25%, 5/15/01 26,106 82,381 9.25%, 5/15/10 86,305 18,217 9.50%, 3/15/03 19,264 100,336 9.50%, 11/15/05 106,479 98,508 9.50%, 12/15/09 106,681 50,505 9.50%, 2/15/11 52,953 167,543 9.50%, 5/20/16 178,629 276,864 9.50%, 12/15/17 301,558 86,222 9.50%, 9/15/17 92,529 189,361 9.50%, 12/15/19 205,241 13,659 9.50%, 4/15/20 14,652 38,451 9.50%, 9/15/20 41,214 41,656 9.50%, 11/15/21 45,159 3,012 9.75%, 8/15/02 3,188 26,831 10.00%, 8/15/02 28,432 97,585 10.00%, 6/15/19 105,380 16,457 10.25%, 4/15/01 17,344 25,990 10.25%, 4/15/01 27,391 14,502 10.50%, 7/15/00 15,283 32,302 10.75%, 1/15/01 34,043 16 - ------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------ 15,731 11.25%, 10/15/00 16,579 35,655 11.75%, 7/15/00 37,577 14,345 11.75%, 7/15/01 15,123 50,000 Bernalillo Multifamily Series 1998A, 7.50%, 9/20/20 53,375 Maplewood, Mn. Multifamily Revenue: 275,000 Series 1998C-2, 10.00%, 11/1/30 275,712 118,850 Series 1998D, 6.75%, 4/21/99 119,325 ------------ Total mortgage pass-through securities 5,130,454 ------------ (cost: $5,135,864) COLLATERALIZED MORTGAGE OBLIGATIONS (3.6%) (2) 150,000 Federal Home Loan Mortgage Corp., (Remic) Series 1173, 6.50%, 11/15/21 157,647 250,000 Federal National Mortgage Association, 1994-38, 6.65%, 12/25/23 257,180 ------------ Total collateralized mortgage obligations (cost: $384,800) 414,827 ------------ CLOSED-END MUTUAL FUNDS (3.7%) (2) 10,000 American Select Portfolio 120,625 6,299 American Strategic Income Portfolio (I) 75,588 9,490 American Strategic Income Portfolio (II) 113,880 10,309 American Strategic Income Portfolio (III) 119,842 ------------ Total closed-end mutual funds (cost: $401,084) 429,935 ------------ TRUST PREFERRED SECURITIES (1.8%) (2) 6,000 Allstate Financing I, 7.95%, 12/1/26 154,500 50,000 Allstate Financing II, 7.83%, 12/1/45 53,438 ------------ Total trust preferred securities (cost: $200,735) 207,938 ------------ SHORT-TERM SECURITIES (2.3%) (2) 262,686 Dreyfus Gov't Cash Mgmt. Fund, 5.32% 262,686 ------------ Total short term securities (cost: $262,686) Total investments in securities (cost: $11,162,854) (6) $11,517,521 ============
See accompanying notes to portfolios of investments on page 43. 17 SIT TAX-FREE INCOME FUND REVIEW SIX MONTHS ENDED SEPTEMBER 30, 1998 [PHOTO] MICHAEL C. BRILLEY SENIOR PORTFOLIO MANAGER DEBRA A. SIT, CFA PORTFOLIO MANAGER Dear Fellow Shareholders: Municipal bond yields declined to new lows in September. The Sit Tax-Free Income Fund provided shareholders a total return of +2.81% for the quarter and +4.22% for the six-month period ended September 30, 1998. The Fund's total return ranked 148th of 253 general municipal funds tracked by Lipper Analytical Services for the quarter and 75th of 237 funds for the last twelve months. In addition, the Fund's returns ranked 34th of 194 funds for the three-year period, 4th of 134 funds for the five-year period and 43rd of 73 funds for the ten-year period. The Fund's price per share increased $0.17 during the semi-annual period to $10.58 on September 30, 1998, surpassing its all-time high of $10.48 reached in early January 1998. As of September 30th, the Fund's 30-day SEC yield was 4.54% and its 12-month distribution rate was 5.10%, compared to 4.70% and 5.30%, respectively, on March 31,1998. Fund assets increased from $519.6 million to $684.8 million during the semi-annual period, which contributed to an increase in cash from 3.8% to 11.5%. Approximately two-thirds of the cash flow was used to purchase bonds across several industry and ratings categories. Education bonds increased from 1.8% to 3.2% and other revenue issues increased from 1.8% to 3.2% and other revenue issues increased from 6.0% to 7.8%, while closed-end bond funds remained fairly constant. Weightings decreased in hospital bonds from 23.5% to 22.2%, in multifamily housing from 29.4% to 25.0%, and in single family housing from 15.5% to 14.5%. Prerefunded bonds decreased from 3.6% to 2.4% as holdings were either retired or sold. Securities rated BBB decreased from 32.2% to 28.5% and securities rated "A" or better comprised well over two-thirds of the Fund. Recently the Fund has focused on purchasing bonds in the 8 to 20 year maturity range, which we consider to be the most attractive part of the yield curve in an environment of Fed ease. This activity, along with the increase in cash, has contributed to the Fund's average maturity decreasing from 18.7 years to 17.0 years. The Fund's implied duration decreased from 5.7 years to 5.6 years. The Fund's performance continues to be driven by its emphasis on securities which provide higher coupon income and principal stability. The increase in municipal bond prices has lagged the recent rally in Treasury bonds, thus causing municipal yields to be very attractively valued on an historical basis. In this environment, we will continue to focus on purchasing securities that provide incremental yield and relative price stability. 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 9/30/98: $10.58 Per Share 3/31/98: $10.41 Per Share Total Net Assets: $684.79 Million 30-Day SEC Yield: 4.54% Tax Equivalent Yield: 7.52% (1) 12-Month Distribution Rate: 5.10% Average Maturity: 17.0 Years Duration to Estimated Avg. Life: 6.8 Years (2) Implied Duration: 5.6 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 25.0 Hospital/Health Care Revenue 22.2 Single Family Mortgage Revenue 14.5 Other Revenue 7.8 Closed-End Mutual Funds 5.5 Industrial Revenue/Pollution Control 3.4 Education/Student Loan 3.2 Escrowed to Maturity/Pre-Refund 2.4 Transportation 1.9 Public Facilities 0.9 Municipal Lease Rental 0.8 Sales Tax Revenue 0.6 Gen. Obligation 0.2 Utility 0.1 Other Assets and Liabilities 11.5 18
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 2.81% 2.91% 2.63% 2.81% 2.91% 2.63% (not annualized) 1 Year 8.57 8.20 6.76 8.57 8.20 6.76 5 Years 6.89 5.67 5.36 39.53 31.74 29.83 10 Years 7.84 n/a 7.06 112.80 n/a 97.76 Inception 7.83 7.98 7.05 112.58 115.52 97.76 (9/29/88)
* As of 9/30/98 PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS.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 [GRAPH] The sum of $10,000 invested at inception (9/29/88) and held until 9/30/98 would have grown to $21,258 in the Fund or $19,793 in the Lehman 5-Year Municipal Bond Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% of Net Assets) [PIE CHART] LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED. AA 15.1% AAA 21.3% 11.5% BBB 28.5% A 23.6% Total number of holdings: 357 19 SIT TAX-FREE INCOME FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ MUNICIPAL BONDS (82.3%) (2) ALABAMA (0.1%) 500,000 Valley Special Care Fac. Fin. Auth. Rev. Series 1997A Lanier Mem. Hosp. Proj. , 5.50%, 11/1/07 528,905 ------------ ALASKA (1.1%) Alaska HFC: 7,000,000 Gen. Mtg. Rev. 1997 Series A, Zero Coupon, 6.15% Effective Yield on Purchase Date, 12/1/17 2,242,380 2,150,000 Hsg. Dev. Series 1997A (Multifamily pooled loans), 5.65%, 12/1/20 2,216,521 5,680,000 Mtg. Rev. 1996 Series A, Zero Coupon, 6.45% Effective Yield on Purchase Date, 12/1/27 955,092 1,550,000 Series 1998A-1, 5.30%, 12/1/17 1,579,636 330,000 AK Industrial Dev. & Export Auth. Rev. Refunding Revolving Fund Series 1993A, 5.60%, 4/1/03 350,024 ------------ 7,343,653 ------------ ARIZONA (1.0%) Maricopa Co. Industrial Dev. Auth. Multifamily Hsg. Rev.: 3,000,000 Series 1995A, 6.50%, 10/1/25 3,215,160 560,000 Series 1995B, 7.15%, 10/1/25 586,846 2,000,000 Series 1997A (Mercy Bond Prop. AZ-I Proj.), 6.25%, 7/1/27 2,108,920 320,000 Series 1997B (Mercy Bond Prop. AZ-I Proj.), 7.25%, 1/1/17 344,301 450,000 Series 1998A (Pines at Camelback Apts. Proj.)(Asset Guaranty insured), 5.40%, 5/1/18 458,132 1,070,000 Valley HDC Phoenix Hsg. Rev. 1979 (Roosevelt Plaza) (Section 8), 8.00%, 10/1/20 1,085,247 ------------ 7,798,606 ------------ ARKANSAS (0.9%) Drew Co. Public Fac. Bd. Single Family Mtg. Rev. Refunding: 134,155 Series 1993B, 7.75%, 8/1/11 144,393 242,922 Series 1993-A2 (FNMA backed), 7.90%, 8/1/11 263,845 192,370 Jacksonville Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1993B, 7.75%, 1/1/11 211,371 192,437 Lonoke Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding 1993B, 7.375%, 4/1/11 210,060 1,920,000 Maumelle HDC First Lien Rev. Refunding 1992 Series A (Section 8), 7.875%, 7/1/09 2,067,840 2,000,000 Pulaski Co. Public Fac. Board Multifamily Mtg. Rev. Refunding Series 1998A (GNMA collateralized), 5.45%, 12/20/18 2,033,020 1,320,000 Saline Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1992, 7.875%, 3/1/11 1,418,868 ------------ 6,349,397 ------------ CALIFORNIA (4.2%) 1,500,000 ABAG Fin. Auth. Certificates of Participation Refunding Series 1997A (American Baptist Homes of the West Proj.), 5.85%, 10/1/27 1,568,745 1,000,000 Bell Cmnty. Hsg. Auth. Rev. Series 1995A (Mobilehomes Park Acquisition Proj.), 6.40%, 10/1/15 1,085,490 2,000,000 CA Statewide Cmty. Dev. Auth. Apt. Dev. Rev. Refunding Series 1998A4 (Irvine Apts. Proj.) Mandatory Put 5/15/13, 5.25%, 5/15/25 2,058,220 3,654,000 Camarillo Hsg. Rev. Series 1998A (GNMA collateralized)(Heritage House Proj.), 5.65%, 5/20/33 3,805,714 1,000,000 Chula Vista Redev. Agency Refunding Tax Allocation Senior Series 1994A (Bayfront-Town Center Redev. Proj.), 7.625%, 9/1/24 1,180,960 Corona Single Family Mtg Rev.: 1,200,000 Senior Series 1996A, 6.05%, 5/1/27 1,248,144 800,000 Subordinate Series 1996B, 6.30%, 11/1/28 864,432 Foothill / Eastern Transportation Corridor Agy. Toll Rd. Rev Series 1995A Sr. Lien: 5,000,000 Zero Coupon, 6.04% Effective Yield on Purchase Date, 1/1/15 2,208,950 18,770,000 Zero Coupon, 6.45% Effective Yield on Purchase Date, 1/1/26 4,645,387 2,000,000 Zero Coupon Convertible Bond, 6.10% Effective Yield on Purchase Date, 1/1/07 1,580,340 5,000,000 Zero Coupon Convertible Bond, 7.10% Effective Yield on Purchase Date, 1/1/11 4,162,750 2,000,000 Glendale Hosp. Rev. Refunding Series 1994 (Verdugo Hills Hosp.), 8.00%, 1/1/12 2,442,300 20 - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ 1,000,000 San Bernardino Assoc. Communities Fin. Auth. Certificates of Participation Series 1997A (Granada Cmty. Hosp. Proj.), 6.25%, 5/1/09 1,078,680 990,000 Upland Hsg. Auth. Multifamily Rev. 1990 Issue A, 7.85%, 7/1/20 1,022,234 ------------ 28,952,346 ------------ COLORADO (1.4%) 1,000,000 Adams Co. HA Mtg. Rev. Series 1996 (Village of Greenbriar Proj.), 6.75%, 7/1/21 1,085,760 275,000 Aurora Single Family Mtg. Rev. Refunding Series 1993B, 7.50%, 5/1/11 293,780 CO HFA Single Family Program Senior: 2,200,000 Series 1996B-2, 7.45%, 11/1/27 2,543,420 1,000,000 Series 1997B-3, 6.80%, 11/1/28 1,133,870 230,000 LaPlata Co. Southwestern CO Single Family Mtg. Participation Rev. Refunding 1991 Series A, 7.375%, 9/1/11 241,373 280,000 Thornton Single Family Mtg. Rev. Refunding 1992 Series A, 8.05%, 8/1/09 300,488 295,000 Vail Single Family Mtg. Rev. Refunding Series 1992, 8.125%, 6/1/10 319,939 Westminster Golf Course Activity Enterprise Rev. Series 1998: 1,500,000 5.55%, 12/1/23 1,522,335 1,025,000 5.40%, 12/1/13 1,040,385 1,195,000 Westminster Multifamily Hsg. Rev. Refunding Series 1992 (Ironwood at the Ranch Proj.), 7.45%, 12/1/10 1,245,668 ------------ 9,727,018 ------------ CONNECTICUT (0.6%) CT Dev. Auth. First Mtg. Gross Rev. Hlth. Care. Proj. Series 1997 (Church Homes Inc. Avery Proj.): 640,000 5.70%, 4/1/12 666,490 3,000,000 5.80%, 4/1/21 3,126,990 525,000 CT Resource Recovery Auth. Series 1985A (Bridgeport Resco Proj.), 7.625%, 1/1/09 544,005 ------------ 4,337,485 ------------ DELAWARE (0.2%) 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 1,426,591 ------------ DISTRICT OF COLUMBIA (0.2%) 1,500,000 District of Columbia HFA Multifamily Hsg. Refunding Rev. Series 1992C (FHA insured) (Chastleton Dev.), 6.95%, 7/1/27 1,586,670 ------------ FLORIDA (0.6%) 820,000 Escambia Co. Hlth. Fac. Auth. Rev. Series 1997 (Azalea Trace, Inc. Proj.), 5.60%, 11/1/05 866,789 3,000,000 Miami-Dade Co. Special Hsg. Rev. Refunding Series 1998 (Section 8), 5.30%, 10/1/05 3,108,150 ------------ 3,974,939 ------------ GEORGIA (1.5%) 790,000 Cobb Co. HA Multifamily Rev. Refunding Series 1992A (Signature Place Project), 6.875%, 10/1/17 835,133 1,295,000 Dekalb Co. Multifamily Hsg. Rev. Series 1998 (Spring Chase Apts. Proj.)(FNMA backed), 5.25%, 11/1/19 1,320,861 Dekalb Co. Hsg. Auth. Multifamily Hsg. Rev. (Regency Woods I & II): 1,685,000 Senior Series 1996A, 6.375%, 1/1/11 1,804,500 1,345,000 Subordinate Series 1996C, 7.25%, 1/1/26 1,424,678 4,250,000 Fulton Co. Non-Profit Elderly Rev. Series 1998 (GNMA collateralized) (Campbell Stone Buckhead Personal Care Fac. Proj.), 7.75%, 11/20/39 5,118,658 ------------ 10,503,830 ------------ See accompanying notes to portfolios of investments on page 43. 21 SIT TAX-FREE INCOME FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ HAWAII (0.6%) 1,170,000 Hawaii Dept. of Budget and Finance Special Purpose Rev. Series 1998, (Wilcox Memorial Hosp. Proj.), 5.25%, 7/1/13 1,175,511 1,400,000 Hawaii St. Hsg. Fin. & Dev. Corp. Single Family Mtg. Purchase Series 1997B, 5.45%, 7/1/17 1,449,434 1,225,000 Honolulu Mtg. Rev. Ref. Series 1996A (Hale-Pauahi Proj.)(FHA insured) (MBIA insured), 6.80%, 7/1/28 1,330,361 ------------ 3,955,306 ------------ ILLINOIS (7.5%) 2,365,000 Chicago Metropolitan HDC Mtg. Rev. Refunding Series 1992A (FHA insured) (Section 8), 6.70%, 7/1/12 2,530,834 2,805,000 Chicago Res. Mtg. Rev. Refunding Series 1992B (MBIA insured) Zero Coupon, 7.30% Effective Yield on Purchase Date, 10/1/09 1,331,197 2,000,000 Collinsville (City of) Madison Co. Industrial Dev. Rev. Refunding (Drury Inn-Collinsville Proj.) Series 1993, 6.00%, 11/1/04 2,094,340 1,790,000 IL DFA Elderly Hsg. Rev. Refunding Series 1995A (Pontiac Towers Proj.) (Section 8), 6.65%, 10/1/09 1,923,355 IL DFA Refunding & New Money Rev. (Cmty. Rehab. Providers Fac. Acquisition Program): 9,575,000 Series 1997A, 6.00%, 7/1/15 10,081,996 1,000,000 Series 1997A, 6.05%, 7/1/19 1,056,050 1,200,000 Series 1997C, 5.65%, 7/1/19 1,237,344 2,175,000 Series 1998A, 5.50%, 7/1/12 2,227,809 1,115,000 IL Educ. Fac. Auth. Rev. Series 1998B (Midwestern University Proj.), 5.50%, 5/15/18 1,135,059 3,000,000 IL HDA Elderly Hsg. Rev. Series 1992C (Village Ctr.) (Section 8), 6.85%, 3/1/20 3,186,990 IL HDA Multifamily Hsg. Rev.: Refunding 1992 Series A (Section 8): 2,150,000 6.65%, 7/1/04 2,328,622 1,545,000 7.00%, 7/1/10 1,691,760 Refunding 1991 Series C (Section 8): 260,000 7.35%, 7/1/11 274,732 100,000 7.40%, 7/1/23 105,530 IL Hlth. Fac. Auth. Rev.: Refunding Series 1993 (Lutheran Social Svcs. IL): 610,000 5.70%, 8/15/00 624,805 475,000 5.80%, 8/15/01 492,357 525,000 6.00%, 8/15/03 556,973 545,000 6.10%, 8/15/04 585,183 1,350,000 Refunding Series 1992 Prerefunded (Mercy Ctr. for Hlth. Care Svcs.), 6.625%, 10/1/12 1,512,797 1,000,000 Refunding Series 1994 (Passavant Memorial Area Hospital Assn.), 5.95%, 10/1/11 1,109,260 Series 1994-1996 (St. Elizabeth's Hosp. of Chicago, Inc.): 1,000,000 Series 1994 Prerefunded, 7.625%, 7/1/10 1,201,050 700,000 Series 1996, 6.25%, 7/1/10 758,597 1,215,000 Series 1996, 6.25%, 7/1/16 1,312,479 5,500,000 Series 1997A (Friendship Village of Schaumburg Proj.), 5.25%, 12/1/18 5,527,280 1,500,000 Refunding Series 1998 (Midwest Physician Group Ltd. Proj.), 5.375%, 11/15/08 1,548,990 970,000 IL Industrial Control Fin. Auth. Rev. Series 1977 (Commonwealth Edison Co. Proj.), 5.875%, 5/15/07 971,601 2,000,000 Roselle Multifamily Hsg. Rev. Refunding Series 1994A (GNMA collateralized) (Waterbury Apts.) (FHA insured), 7.00%, 1/1/25 2,206,000 22 - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ 1,140,000 Springfield Community Improvement Rev. 1985 (Garden Court Proj. - FHA insured) (Section 8) (MBIA insured), 10.50%, 4/1/26 1,225,945 795,000 Urbana Res. Mtg. Rev. Refunding 1991 Series B Zero Coupon, 7.39% Effective Yield on Purchase Date, 3/1/07 439,683 ------------ 51,278,618 ------------ INDIANA (6.5%) 1,000,000 East Chicago Multi School Bldg. Corp. First Mtg. Series 1996 Prerefunded, 6.50%, 1/15/16 1,176,800 1,800,000 Elkhart Co. Hosp. Auth. Rev. Series 1992 (Goshen Hosp. Proj.), 7.25%, 7/1/05 1,981,386 2,165,000 Elkhart HFC Multifamily Mtg. Rev. Series 1996A (Section 8 Assisted Proj.) (Stratford Commons), 6.00%, 11/1/10 2,280,957 IN Bond Bank Special Prgm.: 2,130,000 Series 1997C (Pittsboro Wastewater Treatment Plant Proj.), 5.70%, 8/1/17 2,275,479 1,500,000 Series 1997B (Hendrick's Co. Redev. Auth.-Pittsboro Proj.)(LOC Canadian Imperial Bank), 6.20%, 2/1/23 1,660,770 2,850,000 IN DFA Educ. Fac. Rev. Series 1997 (Park Tudor Foundation Proj.), 6.00%, 6/1/22 3,104,391 IN Educ. Fac. Auth. Educ. Fac. Rev. Series 1992 (Manchester College Proj.): 250,000 6.50%, 10/1/05 271,068 305,000 6.60%, 10/1/06 330,638 175,000 6.85%, 10/1/18 189,884 IN Hlth. Fac. Fin. Auth. Hosp. Rev.: Series 1991 Prerefunded (Jackson Co. Schneck Mem. Hosp. Proj.): 1,200,000 7.50%, 2/15/05 1,360,044 2,000,000 7.50%, 2/15/22 2,266,740 Series 1992 (Fayette Mem. Hosp. Proj.): 250,000 7.00%, 10/1/02 266,808 295,000 7.10%, 10/1/03 319,535 315,000 7.20%, 10/1/04 343,098 340,000 7.25%, 10/1/05 371,725 365,000 7.25%, 10/1/06 398,365 390,000 7.30%, 10/1/07 426,348 420,000 7.30%, 10/1/08 459,144 Series 1992 Prerefunded (Floyd Mem. Hosp. Proj.): 460,000 6.75%, 2/15/06 510,370 595,000 6.80%, 2/15/07 661,045 2,000,000 Series 1992 (Mem. Hosp. & Hlth. Care Ctr. Proj.), 7.35%, 3/1/12 2,169,840 1,500,000 Refunding Series 1998 (Floyd Mem. Hosp. & Hlth. Svcs. Proj.), 5.40%, 2/15/18 1,546,230 3,750,000 Refunding Series 1998 (Jackson Co. Schneck Proj.), 5.125%, 2/15/17 3,697,125 710,000 IN HFA Home Mtg. Prog. Series 1990F-1 (GNMA collateralized), 7.50%, 1/1/16 752,650 IN Hlth. Fac. Fin. Auth. Rev. Refunding Series 1998 (Greenwood Village South Proj.): 600,000 5.00%, 5/15/03 613,878 140,000 5.15%, 5/15/04 143,695 150,000 5.25%, 5/15/06 153,635 170,000 5.35%, 5/15/08 173,685 900,000 IN HFA Single Family Mtg. Rev. Series 1997C-2 (GNMA/FNMA collateralized), 5.70%, 7/1/16 949,824 2,750,000 Indianapolis Econ. Dev. Refunding & Imprv. Rev. Series 1992 (Natl. Benevolent Assn.-Robin Run Village Proj.), 7.25%, 10/1/10 3,023,404 Indianapolis Econ. Dev. Rev. (Willowbrook Apts. Proj.): 2,000,000 Senior Series 1996A, 6.50%, 7/1/16 2,146,080 1,350,000 Subordinate Series 1996C, 7.125%, 7/1/26 1,423,022 See accompanying notes to portfolios of investments on page 43. 23 SIT TAX-FREE INCOME FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ 4,000,000 La Porte Co. Hosp. Auth. Fac. Rev. Refunding Series 1993, 6.00%, 3/1/23 4,195,880 855,000 Marion HC Mtg. Rev. Refunding Series 1994 (Hilltop Towers Project)(Section 8), 6.90%, 10/1/10 915,850 2,250,000 St. Joseph Co. Econ. Dev. Rev. Refunding Series 1997 (Madison Center, Inc. Proj.), 5.445%, 2/15/17 2,281,005 ------------ 44,840,398 ------------ IOWA (1.5%) 1,500,000 IA Fin. Auth. SF Mtg. Series 1997A, 5.80%, 7/1/16 1,586,580 1,500,000 IA Fin. Auth. Small Business Dev. Refunding Rev. Series 1992 (University Civic Ctr. Court Assn. Proj.), 7.40%, 3/1/17 1,659,105 IA Fin. Auth. Hlth. Care Fac. Rev. Series 1997 (Natl. Benevolent Assn.- Ramsey Home Proj.): 1,430,000 6.15%, 5/1/17 1,531,030 2,420,000 6.35%, 5/1/27 2,620,666 1,130,000 IA Fin. Auth. Multifamily Hsg. Rev. Refunding Series 1997A (Kingswood Apts. Proj.) (GNMA-collateralized), 6.15%, 5/1/32 1,203,224 1,500,000 Ottumwa Hosp. Rev. Refunding Series 1993 (Ottumwa Regional Hlth. Ctr.), 6.00%, 10/1/10 1,577,040 ------------ 10,177,645 ------------ KANSAS (0.4%) 145,000 Geary Co. Single Family Mtg. Rev. 1980 (FGIC insured), 10.75%, 4/1/12 150,778 2,810,000 Kansas City Single Family Mtg. Rev. Series 1982A Zero Coupon, 11.23% Effective Yield on Purchase Date, 11/1/14 498,100 Newton Hosp. Rev. Refunding Series 1998A (Newton Medical Ctr. Proj.): 425,000 5.13%, 11/15/06 439,088 445,000 5.20%, 11/15/07 461,331 250,000 5.25%, 11/15/08 259,532 300,000 5.70%, 11/15/18 308,105 1,915,000 Olathe & Labette Cos. Mtg. Loan Rev. 1991 Series B (GNMA collateralized) Zero Coupon, 7.56% Effective Yield on Purchase Date, 2/1/23 334,876 ------------ 2,451,810 ------------ KENTUCKY (0.4%) 1,500,000 Jefferson Co. First Mtg. Rev. Series 1994 (Christian Church Homes Proj.), 6.00%, 11/15/09 1,598,535 1,000,000 KY Econ Dev. Fin. Auth. Hosp. Sys. Rev. Refunding & Impt. Series 1997 (Appalachian Regl. Healthcare, Inc.), 5.80%, 10/1/12 1,065,190 ------------ 2,663,725 ------------ LOUISIANA (3.6%) 700,000 Calcasieu Parish Industrial Dev. Rev. 1975 (Cities Service Co. Proj.), 7.80%, 12/1/05 703,787 405,000 Calcasieu Parish Public Trust Auth. Mtg. Rev. Refunding 1992 Series B, 6.875%, 11/1/12 434,067 5,650,000 Denham Springs/Livingston HMFA Residual Rev. Series 1992C Zero Coupon, 7.65% Effective Yield on Purchase Date, 7/10/14 1,787,095 East Baton Rouge MFA Single Family Mtg. Rev. Refunding: 23,045,000 Series 1997C-1 Senior Bonds, Zero Coupon, 5.85% Effective Yield on Purchase Date, 10/1/30 3,788,368 1,415,000 Series 1997C-3 Subordinate Bonds, 5.65%, 10/1/18 1,466,633 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 1,273,640 995,000 LA HFA Residual Lien Refunding Mtg. Rev. Series 1992, 7.375%, 9/1/13 1,061,466 252,877 LA PFA Single Family Mtg. Purchase Rev. Series 1992 (Lafayette PTFA Mtg. Acquisition), 7.50%, 10/1/15 272,751 LA PFA Rev. Multifamily Hsg. Rev.: 1,290,000 Series 1991 (VOA Hsg. Corp.) (Asset Guaranty insured), 7.25%, 11/1/04 1,391,820 3,890,000 Series 1991 (VOA Natl. Hsg. Corp.) (Asset Guaranty insured), 7.75%, 11/1/16 4,214,270 24 - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ LA PFA Single Family Mtg. Rev. Refunding: 1,000,000 Series 1997B (GNMA collateralized), 5.625%, 8/1/17 1,045,760 3,080,000 Series 1997B (GNMA collateralized), 5.75%, 8/1/31 3,213,549 830,000 Series Sr. Lien 1994A (VOA Willows Affordable Hsg. Corp.), 7.00%, 6/1/24 927,957 945,000 Monroe - McKeen Plaza HDC Multifamily Hsg. Rev. Refunding Series 1994A (Murray Plaza Apts.) (Section 8), 6.80%, 2/1/12 1,008,542 1,550,000 Orleans Levee Dist. Improvement Serial and Term Receipts Series 1995A (FSA insured), 5.95%, 11/1/14 1,724,980 ------------ 24,314,685 ------------ MAINE (0.1%) 1,000,000 South Berwick Educ. Rev. Series 1998 (Berwick Academy Issue), 5.25%, 8/1/13 1,015,800 ------------ MASSACHUSETTS (0.9%) 1,000,000 Boston Industrial Dev. Fin. Auth. Series 1997A (FHA insured-Boston Alzheimers Center Proj.), 5.90%, 2/1/22 1,075,220 1,000,000 MA Hlth. & Educ. Fac. Auth. Rev. Series 1998C (Milford-Whitinsville Regional Hosp. Issue), 5.75%, 7/15/13 1,061,540 MA Industrial Finance Agency: 750,000 Rev. Refunding Series 1992A (Ogden Haverhill Proj.), 4.95%, 12/1/06 767,145 1,000,000 Rev. Refunding Series 1997A (Chelsea Jewish Nursing Home Proj.)(FHA insured), 6.50%, 8/1/37 1,134,420 1,000,000 Rev. Series 1998A (University Commons Nursing Care Ctr. Proj.)(FHA insured), 6.65%, 8/1/38 1,133,820 700,000 Rev. Series 1998 (Belmont Hill School Issue) 5.15%, 9/1/13 714,357 ------------ 5,886,502 ------------ MICHIGAN (3.1%) 1,305,000 Detroit Econ. Dev. Corp. Limited Obligation Rev. Refunding Series 1992 (E.H. Associates Ltd. Partnership Proj.), 7.00%, 6/1/12 1,383,639 1,585,000 Flint Hosp. Bldg. Auth. Rev. Refunding Series 1998A (Hurley Medical Ctr. Proj.), 5.25%, 7/1/16 1,597,315 4,500,000 MI HDA Rental Hsg. Rev. Series 1992A, 6.60%, 4/1/12 4,879,980 665,000 MI Hosp. Fin. Auth. Hosp. Rev. and Refunding Series 1998 (Chelsea Cmty. Hosp. Proj.), 5.35%, 5/15/13 666,955 3,000,000 MI Higher Educ. Fac. Auth. Ltd. Obligation Rev. & Rev. Refunding Series 1998 (Thomas M. Cooley Law School Proj.) (LOC First of America Bank), 5.35%, 5/1/15 3,086,190 700,000 MI State Hosp. Fin. Auth. Rev. Series 1997 (Presbyterian Vlgs. of Mich. Oblig. Group Proj.), 6.375%, 1/1/15 761,005 1,600,000 MI Strategic Fund Ltd. Obligation Rev. Series 1997A (NSF Intl. Proj.) (LOC First Bank of America), 5.75%, 8/1/19 1,703,344 2,260,000 Southfield Econ. Dev. Corp. Ltd. Obligation Rev. Series 1998A (Lawrence Tech. Univ. Proj.), 5.25%, 2/1/13 2,296,544 1,650,000 Tri City Village HC Mtg. Refunding Multifamily Tri City Apts. Series 1992A (Section 8) (FNMA backed), 7.75%, 8/15/23 1,811,535 2,750,000 Troy City EDC Econ. Dev. Rev. Refunding Series 1992 (Drury Inn-Troy Proj.) (Lincoln Natl. Corp.), 6.75%, 10/1/12 2,996,565 ------------ 21,183,072 ------------ MINNESOTA (1.6%) 1,000,000 Carver Co. HRA Multifamily Rev. Series 1997A (Waybury Apts. Proj.), 5.875%, 8/1/27 1,039,330 1,430,000 Dakota Co. HRA Multifamily Mtg. Rev. Refunding Series 1997A (Park Place Apts. Proj.)(GNMA Collateralized), 6.875%, 2/20/32 1,590,446 740,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.)(Section 8), 6.375%, 4/1/20 796,033 1,250,000 MN HFA Single Family Mtg. Series 1998A, 5.20%, 1/1/17 1,277,500 See accompanying notes to portfolios of investments on page 43. 25 SIT TAX-FREE INCOME FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ 1,786,557 Moorhead Single Family Mtg. Rev. Refunding Series 1992B, 7.00%, 8/1/11 1,804,423 2,500,000 Plymouth Multifamily Hsg. Dev. Rev. Refunding Series 1996A (GNMA collateralized) (Fox Forest Apts. Proj.), 8.05%, 6/20/31 2,921,475 1,755,000 South Washington Co. ISD #833, (Cottage Grove) Lease Refunding Series 1998 (Asset Guaranty insured), 5.25%, 12/1/14 1,816,127 ------------ 11,245,334 ------------ MISSISSIPPI (1.7%) 1,685,000 Jones Co. Hosp. Rev. Series 1997 (South Central Regional Med. Ctr. Proj.), 5.50%, 12/1/17 1,701,901 500,000 Lincoln Co. Hosp. Rev. Refunding Series 1998A (Kings Daughter Hosp. Proj.), 5.20%, 4/1/08 524,455 2,000,000 MS Business Fin. Corp. Hlth. Fac. Rev. Series 1998 (Rush Medical Fdn., Inc.), 5.125%, 7/1/08 2,021,260 MS Hosp. Equip. and Fac. Auth. Rev. (Rush Medical Fdn. Proj.): 3,045,000 Refunding Series 1997A, 6.00%, 1/1/16 3,178,584 1,500,000 Series 1997B, 6.00%, 1/1/16 1,565,805 6,435,000 MS Home Corp. Residual Rev. Series 1992-II Zero Coupon, 7.38% Effective Yield on Purchase Date, 4/15/12 2,502,572 ------------ 11,494,577 ------------ MISSOURI (2.0%) 1,000,000 Kansas City Port Hlth. Series 1995A (Riverfront Park Proj.), 5.75%, 10/1/00 1,032,580 545,000 MO. Hlth. & Educ. Fac. Auth. Rev. Series 1998 (Southwest Baptist University Proj.) (ACA insured), 5.40%, 10/1/14 566,844 MO. HDC Single Family Rev. (GNMA collateralized): 3,000,000 Series 1999B-1, 5.30%, 3/1/19 3,062,490 1,980,000 Series 1997C-1, 6.55%, 9/1/28 2,215,481 1,075,000 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 1,172,857 3,265,000 St. Louis Co. Industrial Dev. Auth. Residential Care Fac. Rev. Series 1997A1 (Richmond Terrace Ctr. Proj.)(GNMA collateralized), 8.00%, 12/20/37 3,912,254 45,000 St. Louis Co. Single Family Res. Mtg. Series 1984 (MBIA insured), 6.75%, 4/1/10 48,509 St. Louis Industrial Dev. Auth. Tax-Exempt Impt. Rev. Series 1998 (St. Louis Zoo Fdn.) (LOC Nationsbank): 1,000,000 5.10%, 8/15/12 1,026,330 800,000 5.15%, 8/15/13 821,520 ------------ 13,858,865 ------------ MONTANA (0.3%) Crow Finance Auth. Tribal Purpose Revenue Series 1997A: 1,000,000 5.70%, 10/1/27 1,038,940 870,000 5.65%, 10/1/17 902,486 ------------ 1,941,426 ------------ NEBRASKA (0.7%) Madison Co. Hosp. Auth. No. 1 Hosp. Rev. & Refunding Series 1998 (Faith Reg'l. Hlth. Svcs. Proj.) (Asset Guaranty insured): 1,000,000 5.20%, 7/1/13 1,020,740 4,000,000 5.35%, 7/1/18 4,094,960 ------------ 5,115,700 ------------ NEVADA (1.1%) NV Hsg. Div. SF Mtg. Program: 1,615,000 Sr. Series 1995A1, 6.45%, 10/1/18 1,742,730 1,050,000 Mezzanine Series 1998B-1, 5.30%, 4/1/16 1,077,300 Reno Redev. Agency Subordinate Tax Allocation and Rev. Refunding Series 1995A: 400,000 6.00%, 6/1/08 437,160 26 - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ 1,000,000 6.125%, 6/1/12 1,083,280 3,000,000 Reno-Sparks Indian Colony Public Fac. Fin. Auth. Sales & Excise Tax Rev. Series 1995A, 7.50%, 7/1/07 3,177,210 ------------ 7,517,680 ------------ NEW HAMPSHIRE (2.2%) NH Higher Educ. & Hlth. Fac. Auth. Rev.: 620,000 Series 1997 (Catholic Charities Issue), 5.75%, 8/1/12 640,658 6,500,000 Series 1993 (Nashua Memorial Hosp. Proj.), 6.00%, 10/1/23 6,951,815 2,500,000 Series 1997 (Androscoggin Valley Hosp.Proj.), 5.80%, 11/1/27 2,672,900 5,110,000 NH HFA Single Family Res. Mtg. 1982 Series A Zero Coupon, 11.75% Effective Yield on Purchase Date, 1/1/14 1,464,986 NH Higher Educ. & Hlth. Fac. Auth. Rev. Series 1998: 1,085,000 (New Hampton School), 5.00%, 10/1/08 1,085,000 2,170,000 (River College Proj.), 5.55%, 1/1/18 2,219,042 ------------ 15,034,401 ------------ NEW JERSEY (0.4%) NJ EDA Rev. Refunding Bonds Series 1997A (Harrogate, Inc. Proj.): 400,000 5.55%, 12/1/07 432,808 1,225,000 5.875%, 12/1/26 1,280,970 800,000 NJ Hlth. Care Fac. Financing Auth. Rev. Refunding Series 1997A (Christian Hlth. Care Center Proj.), 5.50%, 7/1/18 816,200 ------------ 2,529,978 ------------ NEW MEXICO (0.6%) 365,000 Chaves Co. Hosp. Rev. Series 1992 Prerefunded (Eastern NM Med. Ctr. Proj.), 7.25%, 12/1/10 417,852 514,000 Hobbs Single Family Mtg. Rev. Refunding Series 1992, 8.75%, 7/1/11 573,197 1,180,000 New Mexico MFA Single Family Mtg. Purchase Refunding Senior Series 1992-A2, 6.85%, 7/1/12 1,258,694 1,215,000 Sante Fe Educ. Fac. Rev. Series 1998 (St. Johns College Proj.), 5.40%, 3/1/17 1,234,671 525,000 Sante Fe Educ. Fac. Imprv. & Refunding Rev. Series 1997 (College of Sante Fe Proj.), 6.00%, 10/1/13 571,016 ------------ 4,055,430 ------------ NEW YORK (0.7%) 1,045,000 Allegany Co. Industrial Dev. Agency Civic Fac. Rev. Series 1998 (Alfred Univ. Civic Facility Proj.), (MBIA insured), 5.25%, 8/1/09 1,126,447 1,000,000 NY Dorm Auth. Hosp. Rev. Series 1998 (FHA insured) (St. James Mercy Hosp. Proj.), 5.25%, 2/1/18 1,021,360 1,385,000 Ulster Co. Industrial Dev. Agency Civic Fac. Rev. Series 1998A (Mid-Hudson Family Hlth. 1,420,982 Svcs. Inst., Inc. Proj.), 5.30%, 7/1/16 1,000,000 Westchester Co. Industrial Dev. Agency Civic Fac. Rev. Series 1998A (Lawrence Hosp. Proj.), 5.125%, 1/1/18 1,002,890 ------------ 4,571,679 ------------ NORTH CAROLINA (0.1%) 970,000 NC Muni Power Agency No. 1 Catawba Elec. Rev. Series 1995B, 6.00%, 1/1/20 971,950 ------------ NORTH DAKOTA (0.6%) Ward Co. Hlth. Care Fac. Rev.: 1,240,000 Series 1994 Escrowed to Maturity (St. Joseph Hosp.), 8.00%, 11/15/04 1,393,239 2,000,000 Series 1994 Prerefunded (St. Joseph Hosp.), 8.875%, 11/15/14 2,550,600 ------------ 3,943,839 ------------ See accompanying notes to portfolios of investments on page 43. 27 SIT TAX-FREE INCOME FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ OHIO (1.7%) Akron Certificates of Participation Series 1996 (Akron Municipal Baseball Stadium Proj.): 3,000,000 Zero Coupon Convertible, 6.50% Effective Yield on Purchase Date, 12/1/16 2,864,400 1,000,000 Zero Coupon Convertible, 6.15% Effective Yield on Purchase Date, 12/1/07 960,270 1,000,000 Hamilton CO. Hlth. Care Fac. Refunding & Impt. Series 1998A (Twin Towers Proj.), 5.125%, 10/1/18 993,200 Franklin Co. Hlth. Care Fac. Rev. & Impt.: 1,000,000 Series 1997 (Friendship Village of Dublin Proj.), 5.50%, 11/1/16 1,011,690 530,000 Series 1998 (Friendship Village of Columbus Proj.), 5.25%, 8/13/12 532,295 300,000 Series 1998 (Friendship Village of Columbus Proj.), 5.25%, 8/15/18 293,820 1,500,000 Franklin Co. Mtg. Rev. Series 1997E (GNMA collateralized)(The Villas of St. Therese Proj.), 5.90%, 6/20/39 1,651,665 OH Capital Corp. for Hsg. Mtg. Rev. Refunding (FHA insured)(Section 8): 1,570,000 Series 1995G, 6.35%, 7/1/22 1,698,426 1,535,000 Series 1998E, 5.40%, 2/1/23 1,541,386 ------------ 11,547,152 ------------ OKLAHOMA (1.4%) 1,110,000 Cleveland Co. Home Loan Auth. Single Family Mtg. Rev. Refunding Series 1991, 8.00%, 8/1/12 1,185,746 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, 6/1/11 800,460 OK Ind. Auth. Hosp. Rev. Bonds Series 1997A (Deaconess Hlth. Care Proj.): 2,190,000 5.50%, 10/1/12 2,248,210 2,000,000 5.75%, 10/1/17 2,089,580 440,000 Payne Co. Home Loan Auth. Single Family Rev. Refunding Series 1993A, 8.625%, 3/1/11 474,659 2,540,000 Tulsa Public Facilities Auth. Recreational Fac. Rev. Series 1985, 6.20%, 11/1/12 2,755,392 ------------ 9,554,047 ------------ OREGON (0.8%) 4,000,000 Cow Creek Band Umpqua Tribe of Indians Rev. Series 1998B (AMBAC insured), 5.10%, 7/1/12 4,104,760 1,070,000 Portland Hsg. Auth. Multifamily Rev. Series 1997A (Civic Apts. Proj.), 5.70%, 1/1/28 1,101,672 ------------ 5,206,432 ------------ PENNSYLVANIA (6.9%) 3,030,000 Cumberland Co. Muni Auth. Rev. Series 1996 (Presbyterian Homes Proj.), 6.00%, 12/1/26 3,194,559 Grove City Area Hosp. Auth. Rev. Series 1998 (United Cmmty. Hosp. Proj.): 810,000 4.75%, 7/1/06 827,869 1,970,000 5.25%, 7/1/12 2,019,723 1,000,000 Hazleton Svcs. Auth. Hosp. Rev. Series 1997 (Hazleton General Hosp. Proj.), 5.625%, 7/1/17 1,031,670 Horizon Hosp. System Auth. Hosp. Rev. Series 1996 (Horizon Hosp. Sys.): 600,000 5.95%, 5/15/06 655,596 715,000 6.15%, 5/15/08 793,221 710,000 6.25%, 5/15/09 788,505 1,145,000 6.30%, 5/15/11 1,236,589 1,905,000 McKean Co. Hosp. Rev. Refunding Series 1994 (Bradford Hosp. Proj.), 6.10%, 10/1/20 2,010,975 3,165,000 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 1,174,373 6,000,000 Montgomery Co. Industrial Dev. Auth. Resource Recovery Rev. Series 1989 (LOC Banque Paribas), 7.50%, 1/1/12 6,581,340 250,000 Montgomery Co. Redev. Auth. Multifamily Hsg. Rev. 1993 Series A (KBF Assoc. L.P.), 6.375%, 7/1/12 262,893 28 - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ PA Econ. Dev. Fin. Auth. Rev. Series 1998A (Northwestern. Human Services Proj.): 2,445,000 5.25%, 6/1/09 2,506,321 2,560,000 5.30%, 6/1/10 2,614,195 2,685,000 5.30%, 6/1/10 2,733,491 PA Hgr. Educ. Fac. Auth. Hlth. Svcs. Rev. Series 1996A (Allegheny Delaware Valley), (Obligated Group, Inc.)(MBIA insured): 4,595,000 5.60%, 11/15/10 4,669,117 5,000,000 5.875%, 11/15/16 5,080,850 1,000,000 5.875%, 11/15/21 1,016,170 1,250,000 Philadelphia Auth. for Industrial Dev. Rev. Refunding Series 1998A (FHA Insured) (Elmira Jeffries Mem. Home Proj.), 5.30%, 2/1/22 1,272,313 1,275,000 Philadelphia Redevelopment Auth. Multifamily Hsg. Rev. Refunding Series 1998 (FHA insured - Woodstock Mutual Homes Inc. Proj.), 5.45%, 2/1/23 1,290,581 Pittsburgh Urban Redev. Auth. (Center Triangle Tax Increment Fin. District) (LOC PNC Bank): 3,000,000 Series 1995A, 6.00%, 12/1/11 3,291,690 2,100,000 Series 1995B, 6.25%, 3/15/15 2,283,477 ------------ 47,335,518 ------------ RHODE ISLAND (1.0%) RI Hlth. & Educ. Bldg. Corp. Hosp. Fin. Rev.: 2,000,000 Series 1997 (Steere House Proj.), 5.70%, 7/1/15 2,056,480 2,500,000 Series 1997 (South Co. Hosp. Proj.), 6.00%, 11/15/17 2,765,575 1,925,000 RI HMFC Homeownership Opportunity Series 1998 -27A, 5.20%, 4/1/17 1,940,727 ------------ 6,762,782 ------------ SOUTH CAROLINA (0.4%) 1,180,000 Myrtle Beach PFC Certificates of Participation Series 1992 Escrowed to Maturity (Myrtle Beach Convention Ctr. Proj.), 6.75%, 7/1/02 1,251,071 1,390,000 SC Jobs Econ. Dev. Auth. Econ. Dev. & Rev. Refunding Series 1998A (Westminister Presbyterian Center Inc. Project), 5.25%, 11/15/16 1,369,150 ------------ 2,620,221 ------------ SOUTH DAKOTA (1.6%) 2,000,000 SD HDA Multifamily Hsg. Rev. 1992 Series B (Section 8), 7.00%, 4/1/12 2,148,680 SD Hlth. & Educ. Fac. Auth. Rev. Refunding Series 1998 (Prairie Lakes Hlth. Care System): 2,000,000 5.45%, 4/1/13 2,071,620 5,500,000 5.65%, 4/1/22 5,616,655 1,150,000 SD HDA Homeownership Mtg. Series 1998D, 5.20%, 5/1/20 1,155,911 ------------ 10,992,866 ------------ TENNESSEE (3.7%) 1,725,000 Metro. Govt. of Nashville & Davidson Cos. Industrial Dev. Board Rev. Refunding, Multifamily Mtg. Rev. 92C (FHA insured) (Picadilly Apts.), 6.95%, 7/1/27 1,858,136 3,840,000 Metro. Govt. of Nashville & Davidson Cos. Hlth. & Educ. Series 1998 (Asset Guaranty insured), (Open Arms Dev. Ctrs. Proj.), 5.00%, 8/1/12 3,887,386 Shelby Co. Hlth., Educ. & Hsg. Fac. Board Multifamily Hsg. Rev.: 1,500,000 (Cameron Hsg. Proj.) Senior Series 1997A, 5.90%, 7/1/18 1,579,200 (Eastwood Park Apts. Proj.): 1,000,000 Senior Series 1995 A2, 6.40%, 9/1/25 1,054,070 420,000 Subordinate Series 1995C, 7.50%, 9/1/25 439,673 See accompanying notes to portfolios of investments on page 43. 29 SIT TAX-FREE INCOME FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ (Raleigh Forest & Sherwood Apts. Proj.): 2,885,000 Senior Series 1996A, 6.60%, 1/1/26 3,065,111 760,000 Subordinate Series 1996C, 7.25%, 1/1/26 799,604 (Raleigh Woods Apts. Proj.): 6,000,000 Series 1997A (GNMA collateralized), 7.75%, 3/20/27 6,977,640 (The Corners Apts. Proj.): 1,055,000 Senior Series 1996A, 6.25%, 1/1/27 1,104,479 375,000 Subordinate Series 1996C, 6.375%, 1/1/27 381,589 1,500,000 TN HDA Mtg. Finance Series 1995B (MBIA insured), 6.20%, 7/1/18 1,609,710 7,500,000 TN HDA Homeownership Program Series 1997 Issue 3B Zero coupon, 5.725% Effective Yield on Purchase Date, 7/1/16 2,865,600 ------------ 25,622,198 ------------ TEXAS (9.7%) 1,690,000 Baytown HFC Single Family Mtg. Rev. Refunding Series 1992B, 8.50%, 9/1/11 1,905,019 5,735,000 Bell Co. Hlth. Fac. Dev. Corp. Retirement Fac. Rev. Series 1998 (Buckner Retirement Services, Inc. Obligated Group Proj.), 5.25%, 11/15/19 5,744,864 Beaumont HA Multifamily Mtg. Rev. Series 1993A (Section 8): 1,365,000 6.65%, 11/1/07 1,469,245 650,000 6.75%, 11/1/10 697,970 1,765,000 Bexar Co. HFC Residual Rev. Series 1993 Zero Coupon, 6.50% Effective Yield on Purchase Date, 3/1/15 632,082 225,000 Brazos Co. HFC Single Family Mtg. Rev. 1985 (MBIA insured) Zero Coupon, 10.55% Effective Yield on Purchase Date, 9/1/11 60,383 1,005,000 Brazos Co. Hlth. Fac. Dev. Corp. Rev. Series 1997A (Franciscan Svcs. Corp.) (MBIA insured), 5.375%, 1/1/17 1,053,883 Cleburne Co. Tax & Waterworks & Sewer Sys. (Ltd. Pledge) Rev. Series 1998 (FSA insured): 1,595,000 Zero Coupon, 5.45% Effective Yield on Purchase Date, 2/15/13 777,355 1,845,000 Zero Coupon, 5.50% Effective Yield on Purchase Date, 5/15/14 844,586 545,000 Columbus Cmty. Industrial Dev. Corp. Sales Tax Rev. Series 1998 (Bank Qualified), 5.70%, 11/1/18 556,876 Dallas Hsg. Corp. Capital Program Revenue Bonds: 1,715,000 Series 1995A (Estell Village Apts.) (Section 8), 7.875%, 12/1/09 1,785,246 1,555,000 Series 1995 (Cedar Glen Apts.) (Section 8), 7.75%, 12/1/09 1,618,040 1,000,000 Dallas HFC Cap. Proj. Refunding 1990 (Section 8), 7.85%, 8/1/13 1,054,180 6,848,000 Dallas HFC Multifamily Mtg. Rev. Series 1998A (GNMA collateralized) (Towne Ctr. Apts. Proj.), 6.75%, 10/20/32 7,686,195 2,000,000 Galveston Special Contract Refunding Rev. Series 1998 (Farmland Industries, Inc. Proj.), 5.50%, 5/1/15 2,025,200 385,000 Harris Co. HFC Single Family Mtg. Rev. Series 1983A, 10.125%, 7/15/03 386,494 1,600,000 Harrison Co. Hlth. Fac. Dev. Corp. Rev. Series 1998 (Marshall Regional Med. Ctr. Proj.) (ACA insured), 5.50%, 1/1/18 1,638,992 1,500,000 Houston HFC Single Family Mtg. Rev. Refunding Series 1996B-1, 8.00%, 6/1/14 1,627,185 1,170,000 Leander ISD (Williamson & Travis Cos.) Unltd. Tax School Bldg & Refunding General Obligation Series 1998, 5.00%, 8/15/13 1,191,189 1,740,000 Lubbock HFC Multifamily Hsg. Rev. Refunding Series 1992A (Los Colinas, Park Ridge Place & Quail Creek), 7.75%, 1/1/22 1,829,001 6,000,000 Lufkin Hlth. Sys. Rev. Series 1998 (Memorial Hlth. Sys. Of East Texas), 5.70%, 2/15/28 6,134,700 Midland HFC Single Family Mtg. Rev. Refunding: 367,798 Series 1992 B-2, 8.15%, 12/1/11 402,812 499,599 Series 1992 A-2, 8.45%, 12/1/11 548,759 30 - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ 496,375 Series 1992, 9.00%, 9/1/01 521,834 Mesquite Hlth. Fac. Dev. Corp. Retirement Fac. Rev. Series 1996A (Christian Care Ctrs. Proj.): 1,000,000 6.30%, 2/15/12 1,075,030 1,000,000 6.40%, 2/15/16 1,081,100 North Central Hlth. Fac. Dev. Corp. Rev. (C.C. Young Memorial Home Proj.): 495,000 Series 1996, 5.90%, 2/15/04 531,640 155,000 Series 1996, 6.10%, 2/15/06 170,409 1,300,000 Series 1996, 6.30%, 2/15/15 1,406,470 1,135,000 Series 1998A, 5.375%, 2/15/14 1,142,616 1,384,485 Odessa HFC Single Family Mtg. Rev. Refunding Series 1992B Class B-2, 8.125%, 11/1/11 1,522,242 650,000 San Marcos HA Multifamily Mtg. Rev. Series 1993A (FHA insured) (Section 8), 5.80%, 11/1/10 671,548 Southeast TX HFC Residual Revenue: 1,555,000 Series 1995A Zero Coupon, 6.50% Effective Yield on Purchase Date, 11/1/14 638,234 3,000,000 Series 1992A Zero Coupon, 7.63% Effective Yield on Purchase Date, 9/1/17 741,930 2,585,000 TX Dept. Hsg. & Cmnty. Affairs Single Family Rev. Refunding Junior Lien Series 1994A Zero Coupon, 6.93% Effective Yield on Purchase Date, 3/1/15 862,253 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 1,611,900 2,500,000 Senior Series 1996A (Dallas - Ft. Worth Apts. Pool Proj.), 6.50%, 7/1/26 2,680,650 970,000 Subordinated Series 1996C (Harbors & Plumtree Apts. Proj.), 7.375%, 7/1/26 1,019,024 2,820,000 Senior Series 1996A (Harbors & Plumtree Apts. Proj.), 6.45%, 7/1/26 3,002,313 3,050,000 Series 1996A (NHP Foundation - Asmara Apts. Proj.), 6.40%, 1/1/27 3,311,019 950,000 Travis Co. HFC Residential Mtg. Rev. Series 1991A (GNMA/FNMA collateralized), 7.05%, 12/1/25 1,017,630 1,500,000 Tyler Hlth. Fac. Dev. Corp. Hosp. Rev. Series 1997A (Mother Frances Hosp. Regional Hlth. Care Center Proj.), 5.625%, 7/1/13 1,517,535 ------------ 66,195,633 ------------ UTAH (0.6%) 1,000,000 Davis Co. Solid Waste Mgmt. & Energy Recovery Rev. Refunding Series 1993, 6.125%, 6/15/09 1,060,710 1,000,000 Provo HA Multifamily Series 1997 (Lookout Point Apts. Proj.) (GNMA collateralized), 5.80%, 7/20/22 1,049,880 1,795,000 UT HFA Single Family Mtg. 1996 Issue E-1 Senior Bonds, 6.00%, 7/1/16 1,918,137 ------------ 4,028,727 ------------ VERMONT (0.2%) VT Educ. & Hlth. Bldgs. Financing Agency Rev. Series 1998 (Norwich Univ. Proj.): 420,000 5.13%, 7/1/09 436,699 780,000 5.75%, 7/1/13 822,050 ------------ 1,258,749 ------------ VIRGINIA (1.1%) VA Hsg. Dev. Auth. Commonwealth Mtg. Rev: 750,000 Series 1992A, 7.10%, 1/1/22 779,632 1,510,000 Series 1995D3, 6.05%, 1/1/13 1,621,151 1,555,000 Series 1995D3, 6.05%, 7/1/13 1,669,464 3,500,000 Series 1996H2, 5.20%, 7/1/17 3,562,440 ------------ 7,632,687 ------------ WASHINGTON (2.8%) 2,500,000 King Co. Hsg. Auth. Pooled Hsg. Refunding Rev. Series 1998A (Asset Guaranty insured), 5.05%, 7/1/13 2,522,825 3,000,000 Kitsap Co. Consolidated Hsg. Auth. Pooled Hsg. Refunding Rev. Series 1998A, 5.50%, 12/1/18 3,032,340 See accompanying notes to portfolios of investments on page 43. 31 SIT TAX-FREE INCOME FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ Vancouver (Clark Co.) H.A. Pooled Hsg. Refunding Rev. Series 1998A Senior Bonds : 1,000,000 5.40%, 3/1/18 1,017,680 3,500,000 5.50%, 3/1/28 3,561,600 WA HFC Nonprofit Housing Revenue: 1,000,000 Series 1995A (Judson Park Project)(LOC US Bk. Wash.), 6.90%, 7/1/16 1,060,290 1,390,000 Series 1996A (Presbyterian Ministries) (LOC US Bk. Wash.), 6.85%, 7/1/21 1,482,449 WA Hlth. Care Fac. Auth. Rev.: 2,000,000 Series 1996 (Grays Harbor Hosp. Proj.)(Asset Guaranty insured), 5.70%, 7/1/16 2,133,900 1,850,000 Series 1998 (Highline Cmmty. Hosp. Proj.)(Asset Guaranty insured), 5.25%, 8/15/17 1,895,935 WA Hsg. Finance Commission Nonprofit Rev.: 1,000,000 Series 1997A (Virginia Mason Research Center Proj.)(LOC US Bank), 5.70%, 1/1/24 1,069,380 1,500,000 Series 1998 (Cmty. Colleges of Spokane Fdn. Proj.)(LOC US Bank), 5.20%, 7/1/18 1,510,140 ------------ 19,286,539 ------------ WEST VIRGINIA (0.6%) 5,435,000 Huntington Res. Mtg. Rev. Refunding Series 1991 Escrowed to Maturity, Zero Coupon, 7.37% Effective Yield on Purchase Date, 9/1/12 2,425,912 2,000,000 Mason Co. Residual Rev. Series 1992C Zero Coupon, 7.58% Effective Yield on Purchase Date, 7/10/14 655,800 3,000,000 Ohio Co. Residual Rev. Series 1992C Zero Coupon, 7.43% Effective Yield on Purchase Date, 7/10/14 989,670 ------------ 4,071,382 ------------ WISCONSIN (1.0%) 1,300,000 WI HEDA Hsg. Rev. Series 1992A (Section 8), 6.85%, 11/1/12 1,407,679 2,645,000 WI Hsg. EDA Home Ownership Rev. Series 1998A, 5.38%, 9/1/17 2,702,132 WI Hlth. & Educ. Fac. Auth. Rev. : 750,000 Series 1996 (Meriter Hosp. Inc.), 6.00%, 12/1/17 813,450 1,750,000 Series 1997 (St. John's Home & Sunrise Care), 5.625%, 12/15/22 1,769,547 ------------ 6,692,808 ------------ WYOMING (0.3%) 2,000,000 WY CDA Hsg. Rev. 1995 Series 6, 6.10%, 12/1/25 2,132,799 ------------ Total municipal bonds (cost: $536,816,897) 563,518,400 -------------- CLOSED-END MUTUAL FUNDS (5.5%) (2) 341,700 American Municipal Term Trust 2001 3,972,263 112,600 American Municipal Term Trust III 2003 1,273,788 153,700 Blackrock Insured Municipal Term Trust 2008 2,459,200 662,500 Blackrock Insured Municipal Term Trust 2010 7,535,938 57,700 Blackrock Investment Quality Municipal Trust 876,319 1,117,700 Blackrock Municipal Target Term Trust 2006 12,643,981 261,300 Van Kampen Merritt Municipal Opp. 4,360,444 347,200 Van Kampen Merritt Strategic 4,795,700 -------------- 37,917,633 -------------- Total closed-end mutual funds (cost: $36,282,336) 32 - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM SECURITIES (12.2%) (2) 9,000,000 Austin TX Util. Sys. CP (Travis & Williamson Cos.) (LOC Morgan Guaranty), 3.10%, 10/2/98 9,000,000 8,913,000 Austin TX Util. Sys. CP (Travis & Williamson Cos.) (LOC Morgan Guaranty), 3.10%, 10/14/98 8,913,000 5,000,000 Burke Co. GA Olgethorpe Pwr. Corp. CP, 3.60%, 10/6/98 5,000,000 7,100,000 City of Lincoln NE CP (Lincoln Electric) (LIQ Morgan Guranty), 3.00%, 10/19/98 7,100,000 3,000,000 City of Philadelphia PA Gas Works CP (LOC Imperial Bank), 3.40%, 10/6/98 3,000,000 10,571,926 Dreyfus Tax-Exempt Cash Management Fund, 3.33% 10,571,926 5,000,000 Fort Worth TX CP (Water & Sewer System)(IPA-US Bank), 3.50%, 11/2/98 5,000,000 5,000,000 Intermountain Power Agy. UT CP, 3.60%, 10/8/98 5,000,000 3,700,000 Intermountain Power Agy. UT CP (LOC Bank of America), 3.50%, 10/16/98 3,700,000 2,400,000 LA Co. CA Metro Trans. Auth. CP Sales Tax. Rev. Series A, 4.10%, 10/7/98 2,400,000 4,500,000 NC Muni Power Agy. No. 1 CP (Catawba Proj.), 3.60%, 10/16/98 4,500,000 12,113,890 Northern Trust Tax-Exempt Cash Management Fund, 3.70% 12,113,890 5,000,000 Sarasota Co. FL Public Hosp. Dist. CP (Sarasota Memorial Hosp. 96A)(LOC Sun Trust Bk.), 3.80%, 10/1/98 5,000,000 2,484,000 Univ. of Texas Board of Regents CP (Self Liquidating), 4.20%, 10/7/98 2,484,000 -------------- Total short-term securities (cost: $83,782,816) 83,782,816 -------------- Total investments in securities (cost: $656,882,049) (6) 685,218,849 ============== See accompanying notes to portfolios of investments on page 43. 33
SIT MINNESOTA TAX-FREE INCOME FUND REVIEW SIX MONTHS ENDED SEPTEMBER 30, 1998 [PHOTO] MICHAEL C. BRILLEY SENIOR PORTFOLIO MANAGER DEBRA A. SIT, CFA PORTFOLIO MANAGER Dear Fellow Shareholders: Municipal bond yields declined to new lows in September. The Sit Minnesota Tax-Free Income Fund provided shareholders a total return of +2.61% for the quarter and +4.00% for the six-month period ended September 30, 1998. The Fund's total return ranked 28th of 47 Minnesota municipal funds tracked by Lipper Analytical Services for the quarter and 16th of 47 funds for twelve-month period. In addition, the Fund's returns ranked 9th of 45 funds for the three year period and 1st overall of 25 funds since its inception on December 1, 1993. The Fund's price per share increased $0.15 during the semi-annual period to $10.64 on September 30, 1998, surpassing its all-time high of $10.56 reached in early January 1998. As of September 30th, the Fund's 30-day SEC yield was 4.74% and its 12-month distribution rate was 5.12%, compared to 5.02% and 5.31%, respectively, on March 31, 1998. Fund assets increased from $143.6 million to $194.3 million during the semi-annual period. Cash flow was used to purchase bonds across several industry and ratings categories. Weightings increased in hospital bonds from 12.5% to 15.9%, industrial revenue bonds from 3.6% to 5.1% and education bonds from 1.1% to 2.6%. Weightings decreased in multifamily housing from 42.3% to 41.5% and single family housing from 13.9% to 12.0%. Other revenue bonds decreased from 7.0% to 5.7%. Cash decreased slightly from 7.0% to 6.0%. Non-rated holdings increased from 33.4% to 36.3% while securities rated "A" or better decreased from 61.4% to 57.7%. We expect that the Fund's quality profile will remain steady in the months ahead. The Fund's average maturity was unchanged at approximately 19.8 years. The Fund's implied duration increased from 5.0 years to 6.2 years as we purchased securities with greater call protection. Recently the Fund has focused on adding bonds in the 8 to 20 year maturity range, which we consider to be the most attractive part of the yield curve in an environment of Fed ease. The Fund's performance continues to be driven by its emphasis on securities that provide higher coupon income and principal stability. The increase in municipal bond prices has lagged the recent rally in Treasury bonds, thus causing municipal yields to be very attractively valued on an historical basis. In this environment, we will continue to focus on purchasing securities that provide incremental yield and relative price stability. 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 9/30/98: $10.64 Per Share 3/31/98: $10.49 Per Share Total Net Assets: $194.30 Million 30-Day SEC Yield: 4.74% Tax Equivalent Yield: 8.58% (1) 12-Month Distribution Rate: 5.12% Average Maturity: 19.8 Years Duration to Estimated Avg. Life: 7.6 Years (2) Implied Duration: 6.2 Years (2) (1) For individuals in the 39.6% Federal and 8.5% MN tax brackets. (2) See opposite page. PORTFOLIO STRUCTURE (% of total net assets) Multifamily Mortgage Revenue 41.5 Hospital/Health Care Revenue 15.9 Single Family Mortgage Revenue 12.0 Other Revenue Bonds 5.7 Industrial Revenue/ Pollution Control 5.1 Closed-End Mutual Funds 4.7 General Obligation 3.6 Education/Student Loan 2.6 Lease 2.0 Public Facilities 0.9 Other Assets and Liabilities 6.0 34
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 2.61% 2.71% 2.63% 2.61% 2.71% 2.63% (not annualized) 1 Year 8.08 7.74 6.76 8.08 7.74 6.76 3 Year 7.53 6.89 5.90 24.33 22.13 18.78 Inception 6.88 5.71 5.60 37.93 30.82 30.15 (12/1/93)
* As of 9/30/98 PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. 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 [GRAPH] The sum of $10,000 invested at inception (12/1/93) and held until 9/30/98 would have grown to $13,793 in the Fund or $13,015 in the Lehman 5-Year Municipal Bond Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% of Net Assets) LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED. [PIE CHART] AAA 21.7% AA 20.5% A 9.5% BBB 6.0% Not Rated 36.3% Other Assets & Liabilities 6.0% ASSESSMENT OF NON-RATED SECURITIES AA 0.3% A 2.7 BBB 19.7 BB 12.3 B 1.3 ----- ----- Total 36.3% 35 SIT MINNESOTA TAX-FREE INCOME FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ MUNICIPAL BONDS (89.3%) (2) EDUCATION/STUDENT LOAN (2.6%) Minnesota Higher Educ. Fac. Auth. Rev. : Series 1996-4I (Hamline Univ.): 1,000,000 6.00%, 10/1/12 1,072,100 585,000 6.00%, 10/1/16 620,820 2,600,000 Series 1998-4T (College of St. Benedict), 5.35%, 3/1/20 2,636,998 701,000 Lease Financing Series 1998-4V (Gustavus Adolphus College) Energy Impts., 4.90%, 2/15/09 712,279 ------------ 5,042,197 ------------ GENERAL OBLIGATION (3.6%) 590,000 Carver Co. Hsg. & Redev. Auth. Hsg. & Dev. Gross Rev. Ltd.Tax G.O. (Chanhassen Apts. Proj.), 7.00%, 1/1/25 633,955 1,600,000 Chaska Independent School Dist. No. 112 G.O. Refunding Series 1998A, 5.00%, 2/1/15 1,640,288 1,025,000 Elk River Independent School Dist. No. 728 G.O. Series 1997A, 5.375%, 2/1/17 1,079,417 500,000 Goodhue (City of) G.O. Gas Utility Series 1996, 6.75%, 1/1/26 545,955 1,040,000 Maple Grove G.O. Improvement Series 1996A, 5.20%, 2/1/13 1,090,440 1,000,000 Rochester ISD No. 535, G.O. Series 1996A, 5.25%, 2/1/14 1,044,450 1,000,000 Todd, Morrison & Stearns Cos. ISD No. 2753, G.O. Series 1996, 5.00%, 4/1/17 1,013,290 ------------ 7,047,795 ------------ HOSPITAL/HEALTH CARE (15.9%) 1,000,000 Albert Lea Hsg. & Hlth. Care Fac. Rev. Refunding Series 1996 (St. Johns Lutheran Home Proj.), 7.00%, 11/1/19 1,075,740 1,030,000 Bloomington Hsg. & Redev. Auth. Senior Hsg. Rev. Bonds Series 1998 (Summerhouse Proj.), 5.875%, 11/1/11 1,047,901 Brooklyn Center Hlth. Care Fac. Rev. Series 1993 (Maranatha Proj.): 50,000 6.75%, 12/1/05 53,905 500,000 7.50%, 12/1/10 544,390 1,290,000 Cokato Sr. Hsg. Rev. Series 1996 (Cokato Charitable Trust Proj.), 7.00%, 12/1/19 1,326,146 1,645,000 Columbia Heights Multifamily & Health Care Fac. Rev. Series 1998 (Crest View Corp. Proj.), 5.75%, 9/1/11 1,673,623 1,000,000 Dakota Co. Hsg. & Redev. Auth. Hlth. Care Fac. Rev. Refunding Series 1997 (South Suburban Medical Ctr. Proj.), 6.75%, 8/1/17 1,041,200 500,000 Duluth Econ. Dev. Auth. Hlth. Care Fac. Rev. Series 1998A (BSM Properties Inc. Proj.), 5.875%, 12/1/28 510,535 715,000 Eden Prairie Hlth. Care Fac. Rev. Bonds Series 1998 (Castle Ridge Care Proj.), 5.70%, 7/1/18 722,107 140,000 Edina Hlth. Care Fac. Rev. Series 1995 (Volunteers of America Care Proj.), 7.875%, 3/1/19 145,454 Elk River Rev. Series 1998 (Care Choice Member Proj.): 1,500,000 5.60%, 8/1/13 1,508,175 1,595,000 5.70%, 8/1/18 1,600,343 215,000 Fergus Falls Hlth. Care Fac. Auth. Rev. Refunding Series 1993A (Lake Region Hosp. Corp. Proj.), 6.25%, 9/1/04 236,225 650,000 Fergus Falls Hlth. Care Fac. Auth. Series 1995 (LRHC Long-Term Care Fac. Proj.), 6.40%, 12/1/15 711,067 36 - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ 565,000 Hastings Hlth. Care Fac. Rev. Series 1998 (Regina Med. Ctr.)(ACA insured), 5.25%, 9/15/18 566,288 1,540,000 Hibbing Hlth. Care Fac. Rev. Series 1995A (St. Francis Hlth. Svcs. Proj.), 7.35%, 11/1/15 1,646,183 750,000 Mankato Hlth. Care Fac. Rev. Series 1996A (Lutheran Home Proj.), 6.75%, 10/1/16 793,140 1,685,000 Maplewood Hlth. Care Fac. Rev. (VOA Care Ctrs. Proj.), 7.375%, 10/1/12 1,850,753 1,000,000 Minneapolis Hlth. Care Fac. Rev. Series 1993 (St. Olaf Res. Proj.), 7.00%,10/1/18 1,061,960 1,885,000 Minneapolis Hsg. & Hlth. Care Fac. Rev. Series 1997 (Augustana Chapel View Homes Proj.), 6.70%, 6/1/22 2,004,811 350,000 Minneapolis Skilled Nursing & Assisted Living Rev. Series 1998B (Catholic Eldercare Assisted), 7.25%, 5/1/24 360,272 750,000 Monticello/Big Lake Cmty. Hosp. Dist. Gross Rev. Series 1998 (Asset Guaranty insured), 5.75%, 12/1/19 804,945 Olmsted Co. Hlth. Care Fac. Rev. Series 1998 (Olmsted Medical Ctr. Proj.): 650,000 5.45%, 7/1/13 665,197 1,125,000 5.55%, 7/1/19 1,137,566 Red Wing Hlth. Care Ctr. Fac. Rev. Refunding (River Region Obligated Group): 125,000 Series 1993A, 6.20%, 9/1/05 135,883 130,000 Series 1993A, 6.30%, 9/1/06 141,583 200,000 Series 1993B, 6.20%, 9/1/05 217,412 2,500,000 Shakopee - St. Francis Regional Medical Center Tax-Exempt Loan, 5.633%, 7/1/13 2,541,750 Sherburne Co. Nursing Home Fac. Rev. Series 1994 (Guardian Angels Care Ctr. Proj.): 75,000 7.30%, 6/1/07 80,882 80,000 7.35%, 6/1/08 86,266 90,000 7.40%, 6/1/09 97,264 555,000 7.50%, 6/1/14 602,336 140,000 7.75%, 6/1/15 153,474 150,000 7.75%, 6/1/16 164,436 300,000 Spring Park Hlth. Care Fac. Rev. Series 1991 (Twin Birch Hlth. Care Ctr. Proj.), 8.25%, 8/1/11 324,156 960,000 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 1,033,795 820,000 Wadena Co. Hlth. Care Fac. Rev. Series 1994B, 7.45%, 9/1/15 901,426 1,350,000 Zumbrota Hlth. Care Fac. Rev. Series 1998A (Zumbrota Cmty. Fdn.), 5.80%, 12/1/18 1,356,156 ------------ 30,924,745 ------------ INDUSTRIAL /POLLUTION CONTROL (5.1%) 500,000 Anoka Industrial Dev. Rev. Series 1994 (Lund Industries Inc. Proj.), 6.50%, 9/1/04 (4) 536,490 1,075,000 Bass Brook Pollution Control Rev. Series 1992 (Minnesota Power & Light Corp. Proj.), 6.00%, 7/1/22 1,134,168 275,000 Sauk Centre Industrial Dev. Rev. Series 1998 (Seluemed LLP Proj.)(LOC US Bank), 5.75%, 4/1/18 (4) 277,745 740,000 Duluth Commercial Dev. Rev. Refunding Series 1995A (Radisson Hotel Proj.), 7.00%, 12/1/00 731,164 MN Agricultural & Econ. Dev. Board Small Business Dev. Ln. Prgm. Rev.: 105,000 Series 1995A Lot 1 (New Morning Windows, Inc.), 6.40%, 8/1/04 (4) 110,120 500,000 Series 1997C Lot 3 (DynaGraphics), 6.20%, 8/1/09 (4) 526,445 400,000 Series 1998A Lot 1 (Formative Engineering Corp.), 5.75%, 8/1/18 (4) 407,072 1,525,000 Series 1998B Lot 2 (Merrill Corp.), 5.50%, 8/1/10 (4) 1,549,187 Medina Industrial Dev. Rev. Refunding Series 1998 (Temroc Metals, Inc. Proj.): 210,000 5.10%, 10/1/05 209,805 705,000 5.25%, 10/1/08 703,104 See accompanying notes to portfolios of investments on page 43. 37 SIT MINNESOTA TAX-FREE INCOME FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ 400,000 5.60%, 10/1/12 402,020 1,000,000 Minneapolis Commercial Dev. Rev. Refunding Series 1997 (Holiday Inn Metrodome Proj.), 6.00%, 12/1/01 1,020,850 Owatonna Industrial Dev. Rev. Series 1997: 280,000 7.25%, 5/1/14 (4) 296,839 505,000 7.375%, 5/1/17 (4) 535,356 200,000 Richfield Cmty. Dev. Rev. Refunding 1994 (Richfield Shoppes Proj.), 8.375%, 10/1/05 223,276 500,000 St. Paul Hsg. & Redev. Auth. District Cooling Rev. Series 1998J, 5.35%, 3/1/18 514,055 705,000 St. Paul Port Authority Hotel Fac. Senior Rev. Series 1996A (Radisson Kellogg Project), 7.00%, 8/1/01 724,959 ------------ 9,902,655 ------------ MULTIFAMILY MORTGAGE (41.5%) 1,520,000 Apple Valley Multifamily Hsg. Rev. Refunding Series 1998A (Mtg. Loan/Apple Valley Villa Proj.) (GNMA collateralized), 5.25%, 8/1/18 1,543,226 500,000 Aurora Hsg. & Redev. Auth. Multifamily Rev. (Irongate Apts. Proj.) (Section 8), 6.10%, 10/1/19 527,170 Austin Hsg. & Redev. Auth. Governmental Hsg. Gross Rev. Series 1995A (Courtyard Res. Proj.): 220,000 7.00%, 1/1/15 237,514 500,000 7.25%, 1/1/26 542,460 960,000 Burnsville Multifamily Hsg. Rev. Refunding Series 1994 (Bridgeway Apts. Proj.), 7.25%, 2/1/14 1,015,776 Carver Co. Hsg. & Redev. Auth. Multifamily Hsg.: 1,440,000 Gross Rev. & Ltd. Tax Refunding Series 1997A (Lake Grace Apts. Proj.), 6.00%, 7/1/28 1,502,467 650,000 Rev. Refunding Series 1997A (Waybury Apts. Proj.), 5.875%, 8/1/27 675,564 2,630,000 Series 1998 (GNMA collateralized)(Jonathan Acres Proj.), 5.30%, 4/20/33 2,678,892 400,000 Subordinate Rev. Refunding Series 1997C (Waybury Apts. Proj.), 8.00%, 8/1/27 411,012 405,000 Chisago City Hlth. Fac. Rev. Refunding Series 1995A (Pleasant Heights Proj.), 7.30%, 7/1/18 446,274 Coon Rapids Multifamily Hsg. Rev.: 280,000 Refunding Series 1997 (GNMA collateralized) (Pine Point Apts.), 6.125%, 5/1/32 300,630 700,000 Refunding Series 1997A (Margaret Place Apts. Proj.), 6.50%, 5/1/25 721,133 3,000,000 Dakota Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding Series 1997A, (Park Place Apts. Proj.) (GNMA collateralized), 6.875%, 2/20/32 3,336,600 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) 1,954,796 250,000 Series 1995C Subordinate, 9.00%, 1/20/15 (4) 264,128 1,470,000 Eagan Multifamily Rental Hsg. Refunding Rev. Series 1996 (Wescott Apts. Proj.) (FHA insured), 6.00%, 12/1/27 1,549,307 Eden Prairie Multifamily Hsg. Rev. Refunding : 55,000 Series 1990A (Welsh Parkway Apts. Ltd. Proj.)(FHA insured), 8.00%, 7/1/26 58,806 700,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.00%, 11/1/06 746,578 1,500,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.10%, 11/1/17 1,584,660 450,000 Series 1995A (Olympic Ridge Proj.) (GNMA collateralized), 6.20%, 1/20/16 484,547 300,000 Series 1997A (Preserve Place Proj.) (GNMA collateralized), 5.50%, 1/20/18 310,191 1,035,000 Series 1997A (Preserve Place Proj.) (GNMA collateralized), 5.60%, 7/20/28 1,069,962 38 - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ Harmony Multifamily Hsg. Rev. Refunding Series 1997A (Zedakah Fdn. Proj.) (Section 8): 300,000 5.40%, 9/1/08 314,448 280,000 5.75%, 9/1/12 294,123 275,000 5.80%, 9/1/13 288,835 3,500,000 Hopkins Elderly Hsg. Rev. Refunding (St. Therese Southwest Proj.), Series 1997 (GNMA collateralized), 5.70%, 11/20/32 3,655,330 1,015,000 Hopkins Hsg. Fac. Rev. Refunding Series 1995 (Augustana Chapel View Homes Proj.), 7.00%, 12/1/15 1,084,578 560,000 Hopkins Subordinate Multifamily Hsg. Rev. Refunding Series 1996C (Auburn Apts. Proj.), 8.00%, 6/20/31 596,893 450,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.), 6.25%, 4/1/15 484,096 500,000 Hutchinson Hsg. Fac. Rev. Series 1994 (Prince of Peace Proj.), 7.375%, 10/1/12 527,795 Little Canada Multifamily Hsg. Rev.: 800,000 Refunding Series 1997A (GNMA collateralized)(Cedars Lakeside Proj.), 5.90%, 8/1/20 850,856 3,455,000 Series 1997A (Hsg. Alt. Dev. Co. Proj.), 6.10%, 12/1/17 3,517,743 1,000,000 Series 1997A (Hsg. Alt. Dev. Proj.), 6.25%, 12/1/27 1,018,040 1,650,000 Maplewood Multifamily Hsg. Rev. Series 1998 (Park Edge Apts. Proj.), 6.50%, 5/1/29 (4) 1,689,006 Maplewood Multifamily Refunding Rev. (Village on Woodlyn Proj.): 1,605,000 Series 1999A (GNMA collateralized), 6.75%, 7/20/30 (4) 1,723,850 100,000 Subordinate Series 1998C-1, 8.00%, 11/1/30 (4) 100,868 375,000 Subordinate Series 1999C-1, 8.00%, 11/1/30 (4) 375,000 Minneapolis Multifamily Hsg. Rev.: 75,000 Series 1991 (Trinity Hsg. Proj.) (Section 8), 7.875%, 2/1/06 79,001 355,000 Series 1996 (Belmont Apts.), 7.25%, 11/1/16 373,371 565,000 Series 1994 (Findley Place Townhomes Proj) (Section 8), 7.00%, 12/1/16 (4) 570,266 2,000,000 Series 1996A (Nicollet Towers) (Section 8), 6.00%, 12/01/19 2,107,200 4,190,000 Series 1998A (University Village) (GNMA collateralized), 5.30%, 8/1/23 4,282,180 645,000 Series 1996 (Belmont Apts.), 7.625%, 11/1/27 678,998 350,000 Minneapolis/ St. Paul Hsg. Fin. Board Multifamily Rev. Series 1988 (Riverside Place Proj.), (FHA insured) (GNMA collateralized), 8.20%, 12/20/18 (4) 359,376 2,000,000 MN HFA Multifamily Hsg. Dev. Rev. Series 1997I, 5.50%, 1/1/17 2,077,160 MN HFA Rental Hsg. Rev.: 175,000 Series 1993C, 6.15%, 2/1/14 177,109 135,000 Series 1993E, 6.00%, 2/1/14 142,325 230,000 Series 1995D (MBIA insured), 6.00%, 2/1/22 243,897 4,005,000 Series 1998A, 5.375%, 8/1/28 4,101,681 Minnetonka Hsg. Fac. Rev. Series 1994 (Beacon Hill Housing Proj.): 890,000 7.00%, 6/1/04 940,445 1,000,000 7.50%, 6/1/14 1,093,710 510,000 Minnetonka Multifamily Hsg. Rev. Refunding Subordinate Series 1994C (Brier Creek Proj.), 8.00%, 12/20/16 548,087 550,000 Minnetonka Multifamily Hsg. Rev. Series 1985 (Cedar Hills East)(FHA insured), 7.50%, 12/1/17 578,364 Minnetonka Senior Hsg. Rev. Series 1997 (Westridge Senior Hsg. Proj.): 285,000 6.75%, 9/1/17 296,001 650,000 7.00%, 9/1/27 682,500 500,000 Monticello Senior Hsg. Rev. Series 1995 (Mississippi Shores Proj.), 7.25%, 7/1/16 513,410 270,000 Mora Multifamily Rev. Refunding Hsg. Alternatives Partnership Series 1995, 6.50%, 6/1/02 275,246 See accompanying notes to portfolios of investments on page 43. 39 SIT MINNESOTA TAX-FREE INCOME FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ Plymouth Multifamily Hsg. Rev. Refunding Series 1996A (Fox Forest Apts. Proj.) (GNMA collateralized): 750,000 Series 1996A, 8.05%, 6/20/31 876,443 700,000 Series 1996C, 8.00%, 6/20/31 746,116 960,000 Robbinsdale Multifamily Hsg. Rev. Series 1996A (Copperfield Hill Proj.), 7.20%, 12/1/16 993,427 Roseville Hsg. Fac. Rev. Refunding Bonds Series 1998 (College Properties Inc. Proj.), 2,820,000 5.60%, 10/1/13 2,836,243 400,000 5.625%, 10/1/18 402,300 325,000 Sandstone Econ. Dev. Auth. Hsg. & Dev. Rev. Series 1994A (Family Apts. Proj.), 8.00%, 1/1/12 325,907 1,250,000 Spring Lake Park Sr. Hsg. Rev. Series 1996 (Noah's Ark Affordable Hsg. Inc.), 7.25%, 9/1/16 1,276,700 1,500,000 St. Anthony Hsg. Dev. Rev. Refunding (Autumn Woods Proj.) (Asset Gty. insured), 6.875%, 7/1/22 1,619,925 500,000 St. Cloud Hsg. & Redev. Auth. Hsg. Rev. Refunding Series 1998 (Northway Manor Apts. Section 8 Assisted Proj.), 5.15%, 12/1/14 509,480 650,000 St. Louis Park Multifamily Hsg. Rev. Refunding Series 1995 (Knollwood Cmty. Hsg. Proj.) (FHA insured), 6.15%, 12/1/16 699,439 St. Paul Hsg. & Redev. Auth. Multifamily Refunding Rev.: 500,000 Series 1992 (Point of St. Paul Proj.)(FNMA backed), 6.60%, 10/1/12 537,280 200,000 Series 1995 (Sun Cliffe Apts. Proj.)(GNMA collateralized), 5.875%, 7/1/15 211,302 1,170,000 Series 1998 (Superior Street Cottages Proj.), Lyngblomsten, Inc., 6.00%, 3/15/24 1,183,221 St. Paul Port Authority Multifamily Hsg. Refunding (Jackson Towers Apts. Proj.): 3,432,500 Senior Series 1998-1A (GNMA collateralized), 6.95%, 4/20/33 3,968,176 408,000 Subordinate Series 1998-1B, 8.00%, 4/20/33 415,352 2,000,000 Virginia Hsg. & Redev. Auth. Governmental Hsg. Rev. Refunding Series 1998A (Laurentian Manor Proj.), 5.75%, 5/1/32 2,025,000 1,015,000 Washington Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding Series 1994 (White Bear Lake Transitional Hsg. Proj.), 6.625%, 8/1/24 1,084,984 1,385,000 White Bear Lake Multifamily Hsg. Rev. Refunding Series 1996A (Lake Sq. Partners Proj.) (FHA insured), 6.10%, 2/1/26 1,483,584 770,000 Willmar Hsg. & Redev. Auth. Multifamily Rev. Series 1993 (Highland Apts) (Section 8), 5.85%, 6/1/19 792,607 ------------ 80,590,967 ------------ LEASE (2.0%) 1,015,000 Beltrami Co. Hsg. & Redev. Auth. Lease Rev., 6.25%, 2/1/16 1,074,063 585,000 Burnsville Solid Waste Rev. Series 1990 (Freeway Transfer Inc. Proj.), 9.00%, 4/1/10 (4) 636,018 250,000 Goodhue Co. Econ. Dev. Auth. Courts Building Proj. Lease Rev. Series 1997A, 5.75%, 2/1/13 264,680 125,000 Hennepin Co. Hsg. & Redev. Auth. Rev. Series 1993A (Community Provider Program), 5.70%, 8/1/13 129,034 Hibbing Econ. Dev. Auth. Public Proj. Rev. Series 1997 (Hibbing Lease Obligations Proj.): 655,000 6.10%, 2/1/08 701,453 535,000 6.40%, 2/1/12 565,666 100,000 Rice Co. Certificates of Participation Series 1996A, 5.85%, 12/1/14 108,072 400,000 St. Cloud Certificate of Participation Series 1997, 5.90%, 12/1/17 411,508 ------------ 3,890,494 ------------ 40 - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ SINGLE FAMILY MORTGAGE (12.0%) Dakota County Hsg. & Redev. Auth. Single Family Mtg. Rev.: 750,000 Series 1994A (FNMA backed), 6.70%, 10/1/09 (4) 805,440 380,000 Series 1995 (FNMA & GNMA backed), 6.25%, 10/1/09 (4) 406,064 440,000 Dakota/Wash./Stearns Cos. Hsg. & Redev. Auth. Single Family Rev. Refunding Series 1994A (FNMA backed), 6.50%, 9/1/10 (4) 470,549 930,000 Minneapolis Redev. Mtg. Rev. Series 1987A (Riverplace Proj.) (LOC Bk. of Tokyo), 7.10%, 1/1/20 942,267 2,100,000 Minneapolis Residual Interest Mtg. Rev. Series 1995 Convertible Capital Appreciation Bonds, 7.00% Effective Yield on Purchase Date, 10/1/12 890,526 655,000 Minneapolis Single Family Mtg. Rev. Series 1995V (FNMA & GNMA backed), 6.25%, 4/1/22 699,579 Minneapolis/ St. Paul Hsg. Fin. Bd. Single Family Mtg. Rev.: 20,000 Series 1989A (GNMA backed), 7.65%, 12/1/00 (4) 20,613 885,000 Series 1994 (FNMA backed), 7.25%, 5/1/12 (4) 945,746 MN HFA Single Family Mtg. Rev.: 120,000 Series 1988D, 8.25%, 8/1/20 (4) 123,334 15,000 Series 1989B, 7.05%, 1/1/03 15,526 50,000 Series 1989B, 7.05%, 7/1/03 51,753 1,000,000 Series 1989D, 7.35%, 7/1/16 1,028,150 45,000 Series 1990A, 7.95%, 7/1/22 (4) 45,028 265,000 Series 1990C, 7.70%, 7/1/14 265,159 240,000 Series 1991A, 7.05%, 7/1/22 (4) 251,741 575,000 Series 1991A, 7.45%, 7/1/22 (4) 611,777 1,695,000 Series 1992B-1, 6.75%, 1/1/26 (4) 1,803,751 995,000 Series 1994F, 6.30%, 7/1/25 1,069,844 90,000 Series 1994K, 5.90%, 1/1/07 94,311 515,000 Series 1994L, 6.70%, 7/1/20 (4) 552,018 2,830,000 Series 1995M, 5.875%, 1/1/17 3,007,837 700,000 Series 1996D, 6.00%, 1/1/16 743,820 235,000 Series 1997D, 5.85%, 7/1/19, (4) 246,618 2,280,000 Series 1997E, 5.90%, 7/1/29 (4) 2,405,377 710,000 Series 1997K, 5.75%, 1/1/26 (4) 734,687 2,450,000 Series 1998C, 5.25%, 1/1/17 2,498,216 1,488,639 Moorhead Single Family Mtg. Rev. Refunding Series 1992B, 7.00%, 8/1/11 1,503,526 585,000 St. Paul Hsg. & Redev. Auth. Single Family Mtg. Rev. Refunding Series 1995 (FNMA backed), 6.125%, 3/1/17 618,585 966,042 St. Paul Residual Interest Rev. Series 1995 Convertible Capital Appreciation Bonds, Zero Coupon, 7.23% Effective Yield on Purchase Date, 9/1/11 405,747 ------------ 23,257,589 ------------ OTHER REVENUE BONDS (5.7%) 1,440,000 Commissioner of Iron Range Resources and Rehabilitation Gross Rev. Series 1996 (Giants Ridge Rec. Area Proj.), 7.25%, 10/1/11 1,520,107 Minneapolis Cmty. Dev. Agy. Ltd. Tax Common Bond Fund: 100,000 Series 1993-5 (Winslow Printing), 6.125%, 12/1/06 (4) 104,405 170,000 Series 1997-1 (Halper Corrugated Box Mfg. Co.), 5.90%, 6/1/07 (4) 188,462 See accompanying notes to portfolios of investments on page 43. 41 SIT MINNESOTA TAX-FREE INCOME FUND PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY($) NAME OF ISSUER MARKET VALUE (1) - ------------------------------------------------------------------------------------------------------------------------------------ 640,000 Series 1995-1 (Microtron, Inc.), 6.625%, 12/1/09 (4) 701,958 1,310,000 Series 1995-1 (Microtron, Inc.), 7.25%, 12/1/15 (4) 1,467,226 750,000 Series 1997-2 (Ambassador Press), 6.20%, 6/1/17 (4) 815,430 2,000,000 Minneapolis Public Hsg. Auth. Series 1997 (General Credit Energy Savings Proj.), 6.00%, 7/1/08 2,088,320 200,000 Renville Gross Rev. Golf Course Bond Series 1997, 6.50%, 2/1/19 209,342 300,000 Scott Co. Hsg. & Redev. Auth. Ltd. Special Benefits Tax Series 1997B (River City Centre Proj.), (AMBAC insured), 5.45%, 2/1/20 315,204 2,835,000 St. Paul Hsg. & Redev. Sales Tax Rev. Refunding Series 1996 (FSA insured) (Civic Center Proj.), 7.10%, 11/1/23 3,607,566 ------------ 11,018,020 ------------ PUBLIC FACILITIES (0.9%) 480,000 Eagan Ice Arena Gross Rev. Series 1998B, 5.50%, 4/1/19 488,390 1,245,000 St. Paul Recreational Fac. Gross Rev. Series 1996D, 5.875%, 6/1/18 1,328,291 ------------ 1,816,681 ------------ Total municipal bonds (cost: $166,500,664) 173,491,143 ------------- CLOSED-END MUTUAL FUNDS (4.7%) (2) 385,000 Minnesota Municipal Term Trust 2002 4,283,125 267,800 Minnesota Municipal Term Trust II 2003 2,929,062 115,600 Voyageur Minnesota Municipal Income Fund II 1,683,425 22,200 Voyageur Minnesota Municipal Income Fund III 305,250 ------------- Total closed-end mutual funds (cost: $9,029,929) 9,200,862 ------------- SHORT-TERM SECURITIES (6.3%) (2) 3,000,000 Becker PCR Series 1993B Commercial Paper, 3.35%, 10/6/98 3,000,000 2,062,721 Federated Minnesota Municipal Cash Fund, 3.31% 2,062,721 2,155,000 Hennepin Co. G.O. Series 1997 Variable Rate Weekly Putable, 12/1/10 2,155,000 2,000,000 Minneapolis Convention Center Series 1997B Variable Rate (LOC Norwest Bank), 12/1/17 2,000,000 3,080,000 Olmstead Co. Variable Rate (Human Svcs. Campus Infrastructure) (LOC Toronto Dominion Bank), 8/1/05 3,080,000 ------------- Total short-term securities (cost: $12,297,721) 12,297,721 ------------- Total investments in securities (cost: $187,828,314) (6) $194,989,726 =============
42 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 September 30, 1998, 25.1% of net assets in the U.S. Government Securities Fund and 6.7% of 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 September 30, 1998, approximately 12.7% of 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) At September 30, 1998, 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 $48,219,311 $129,952,172 $11,162,854 =========== ============ =========== Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation ----- $2,023,615 $381,483 Gross unrealized depreciation ----- (460,102) (26,816) ----------- ------------ ----------- Net unrealized appreciation (depreciation) ----- $1,563,513 $354,667 =========== ============ ===========
MINNESOTA TAX-FREE TAX-FREE INCOME INCOME FUND FUND ------------ ------------ Cost for federal income tax purposes $656,882,049 $187,828,314 ============ ============ Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $28,359,079 $7,232,101 Gross unrealized depreciation (22,279) (70,689) ----------- ---------- Net unrealized appreciation (depreciation) $28,336,800 $7,161,412 =========== ==========
43 SIT MUTUAL FUNDS STATEMENTS OF ASSETS & LIABILITIES - SEPTEMBER 30, 1998 (UNAUDITED)
U.S. MINNESOTA MONEY GOVERNMENT TAX-FREE TAX-FREE MARKET SECURITIES BOND INCOME INCOME ASSETS FUND FUND FUND FUND FUND ------------ ------------ ------------ ------------ ------------ Investments in securities, at identified cost ................ $ 48,219,311 $129,952,172 $ 11,162,854 $656,882,049 $187,828,314 ============ ============ ============ ============ ============ Investments in securities, at market value - see accompanying schedules for detail ........... $ 48,219,311 $128,515,686 $ 11,517,521 $685,218,849 $194,989,726 Cash in bank on demand deposit ........................ 525 56,846 -- -- -- Accrued interest receivable ..................... -- 819,140 85,598 8,816,518 3,026,782 Receivable for principal paydowns ....................... -- 41,079 3,341 -- -- Receivable for investment securities sold ................ -- -- -- -- -- Other receivables .................... -- 50,602 2,981 -- -- Receivable for Fund shares sold ........................... 92,026 368,300 26,277 803,231 233,567 ------------ ------------ ------------ ------------ ------------ Total assets ........ 48,311,862 129,851,653 11,635,718 694,838,598 198,250,075 ------------ ------------ ------------ ------------ ------------ LIABILITIES Disbursements in excess of cash balances .................. -- -- 2,742 25,969 10,470 Payable for investment securities purchased - when issued (note 1) -- -- -- -- -- Payable for investment securities purchased ...................... -- -- -- 8,375,562 2,141,124 Payable for Fund shares redeemed ....................... 1,330,622 106,188 704 372,465 1,535,980 Cash portion of dividends payable to shareholders ........ 17,660 50,358 5,036 399,122 123,082 Other payables ....................... 507 820 -- 486,754 18,000 Accrued investment management and advisory services fee ...... 18,398 82,905 7,510 384,792 126,571 ------------ ------------ ------------ ------------ ------------ Total liabilities ... 1,367,187 240,271 15,992 10,044,664 3,955,227 ------------ ------------ ------------ ------------ ------------ Net assets applicable to outstanding capital stock ...... $ 46,944,675 $129,611,382 $ 11,619,726 $684,793,934 $194,294,848 ============ ============ ============ ============ ============ Capital stock Par ............................ $ 0.001 $ 0.01 $ 0.001 $ 0.001 $ 0.001 Authorized shares (000's) ...... 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 Outstanding shares ............. 46,947,698 12,028,207 1,130,237 64,750,325 18,256,568 ============ ============ ============ ============ ============ Net asset value per share of outstanding capital stock ...... $ 1.00 $ 10.78 $ 10.28 $ 10.58 $ 10.64 ============ ============ ============ ============ ============
44 See accompanying notes to financial statements on pages 48 - 55. SIT MUTUAL FUNDS STATEMENTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
U.S. MINNESOTA MONEY GOVERNMENT TAX-FREE TAX-FREE MARKET SECURITIES BOND INCOME INCOME FUND FUND FUND FUND FUND ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: INCOME: Interest 1,127,972 3,414,397 336,643 16,497,249 4,854,065 ------------ ------------ ------------ ------------ ------------ Total income 1,127,972 3,414,397 336,643 16,497,249 4,854,065 ------------ ------------ ------------ ------------ ------------ EXPENSES (NOTE 3): Investment management and advisory services fee 161,490 504,699 43,990 2,299,298 668,553 Less fees and expenses absorbed by investment adviser (60,556) (50,137) -- (198,796) -- ------------ ------------ ------------ ------------ ------------ Total net expenses 100,934 454,562 43,990 2,100,502 668,553 ------------ ------------ ------------ ------------ ------------ Net investment income 1,027,038 2,959,835 292,653 14,396,747 4,185,512 ------------ ------------ ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS : Net realized gain (loss) (note 2) -- 937,079 34,179 1,976,582 42,661 Net change in unrealized appreciation or depreciation on investments -- 644,882 238,736 8,374,839 2,654,288 ------------ ------------ ------------ ------------ ------------ Net gain (loss) on investments -- 1,581,961 272,915 10,351,421 2,696,949 ------------ ------------ ------------ ------------ ------------ Net increase in net assets resulting from operations $ 1,027,038 $ 4,541,796 $ 565,568 $ 24,748,168 $ 6,882,461 ============ ============ ============ ============ ============
45 See accompanying notes to financial statements on pages 48 - 55. SIT MUTUAL FUNDS STATEMENTS OF CHANGES IN NET ASSETS
MONEY MARKET U.S. GOVERNMENT FUND SECURITIES FUND -------------------------------- -------------------------------- SIX MONTHS SIX MONTHS ENDED ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED 1998 MARCH 31, 1998 MARCH 31, (UNAUDITED) 1998 (UNAUDITED) 1998 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income ...................... $ 1,027,038 $ 1,688,668 $ 2,959,835 $ 5,181,705 Net realized gain (loss) on investments ...... ---- ---- 937,079 751,953 Net change in unrealized appreciation (depreciation) of investments .............. ---- ---- 644,882 1,908,463 ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations ................................... 1,027,038 1,688,668 4,541,796 7,842,121 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ........................ (1,027,038) (1,688,687) (2,959,835) (5,181,705) Net realized gains on investments ............ ---- ---- ---- --- ------------- ------------- ------------- ------------- Total distributions ......................... (1,027,038) (1,688,687) (2,959,835) (5,181,705) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold .................... 274,852,782 421,731,957 44,131,949 54,323,377 Reinvested distributions ..................... 867,124 1,490,762 2,666,745 4,543,928 Payments for shares redeemed.................. (271,886,005) (412,780,024) (22,637,489) (31,053,376) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions ............... 3,833,901 10,442,695 24,161,205 27,813,929 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets... 3,833,901 10,442,676 25,743,166 30,474,345 NET ASSETS Beginning of period........................... 43,110,774 32,668,098 103,868,216 73,393,871 ------------- ------------- ------------- ------------- End of period ................................ $ 46,944,675 $ 43,110,774 $ 129,611,382 $ 103,868,216 ============= ============= ============= ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus)....... $ 46,944,675 $ 43,110,774 $ 126,878,297 $ 102,717,092 Undistributed (distributions in excess of) net investment income .......................... ---- ---- ---- ---- Accumulated net realized gain (loss) from security transactions ...................... ---- ---- 1,169,572 232,493 Unrealized appreciation (depreciation) on investments ............................. ---- ---- 1,563,513 918,631 ------------- ------------- ------------- ------------- $ 46,944,675 $ 43,110,774 $ 129,611,382 $ 103,868,216 ============= ============= ============= ============= CAPITAL TRANSACTIONS IN SHARES: Sold ......................................... 274,852,782 421,731,641 4,130,517 5,135,153 Reinvested distributions ..................... 864,655 1,490,762 249,395 429,944 Redeemed ..................................... (271,883,532) (412,779,708) (2,119,555) (2,935,530) ------------- ------------- ------------- ------------- Net increase (decrease) ........................ 3,833,905 10,442,695 2,260,357 2,629,567 ============= ============= ============= =============
46
BOND TAX-FREE MINNESOTA TAX-FREE FUND INCOME FUND INCOME FUND - -------------------------------- -------------------------------- -------------------------------- SIX MONTHS SIX MONTHS SIX MONTHS ENDED ENDED ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED 1998 MARCH 31, 1998 MARCH 31, 1998 MARCH 31, (UNAUDITED) 1998 (UNAUDITED) 1998 (UNAUDITED) 1998 - ------------- ------------- ------------- ------------- ------------- ------------- $ 292,653 $ 496,143 $ 14,396,747 $ 22,280,624 $ 4,185,512 $ 6,165,702 34,179 49,321 1,976,582 5,643,332 42,661 378,832 238,736 229,412 8,374,839 13,506,608 2,654,288 3,309,650 - ------------- ------------- ------------- ------------- ------------- ------------- 565,568 774,876 24,748,168 41,430,564 6,882,461 9,854,184 - ------------- ------------- ------------- ------------- ------------- ------------- (292,653) (496,143) (14,404,173) (22,265,772) (4,194,591) (6,147,546) ---- (15,500) ---- (2,923,000) ---- ---- - ------------- ------------- ------------- ------------- ------------- ------------- (292,653) (511,643) (14,404,173) (25,188,772) (4,194,591) (6,147,546) - ------------- ------------- ------------- ------------- ------------- ------------- 2,009,109 5,732,530 257,404,869 289,918,088 79,399,612 95,953,859 278,978 444,858 11,727,466 19,434,042 3,536,991 5,000,624 (1,647,527) (2,137,832) (114,261,049) (148,555,475) (34,963,295) (55,003,355) - ------------- ------------- ------------- ------------- ------------- ------------- 640,560 4,039,556 154,871,286 160,796,655 47,973,308 45,951,128 - ------------- ------------- ------------- ------------- ------------- ------------- 913,475 4,302,789 165,215,281 177,038,447 50,661,178 49,657,766 10,706,251 6,403,462 519,578,653 342,540,206 143,633,670 93,975,904 - ------------- ------------- ------------- ------------- ------------- ------------- $ 11,619,726 $ 10,706,251 $ 684,793,934 $ 519,578,653 $ 194,294,848 $ 143,633,670 ============= ============= ============= ============= ============= ============= $ 11,246,195 $ 10,605,635 $ 652,991,263 $ 498,119,977 $ 187,183,000 $ 139,209,693 ---- ---- ---- 7,426 ---- 9,078 18,864 (15,315) 3,465,871 1,489,289 (49,564) (92,225) 354,667 115,931 28,336,800 19,961,961 7,161,412 4,507,124 - ------------- ------------- ------------- ------------- ------------- ------------- $ 11,619,726 $ 10,706,251 $ 684,793,934 $ 519,578,653 $ 194,294,848 $ 143,633,670 ============= ============= ============= ============= ============= ============= 198,727 571,626 24,649,571 28,152,545 7,542,713 9,257,296 27,531 44,515 1,122,535 1,884,655 335,809 481,164 (163,146) (214,721) (10,954,252) (14,443,246) (3,319,566) (5,306,337) - ------------- ------------- ------------- ------------- ------------- ------------- 63,112 401,420 14,817,854 15,593,954 4,558,956 4,432,123 ============= ============= ============= ============= ============= =============
See accompanying notes to financial statements on pages 48 - 55. 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 regular 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 based on current interest rates; 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 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. 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. 48 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 Minnesota Tax-Free Income Fund has a capital loss carryover of $89,392 at March 31, 1998, which, if not offset by subsequent capital gains, will begin to expire in 2003. It is unlikely the Board of Directors will authorize a distribution of any net realized gains until the available capital loss carryover is offset or expires. DISTRIBUTIONS Distributions to shareholders are recorded as of the close of business on the record date. Such distributions are payable in cash or reinvested in additional shares of the Funds' capital stock. Distributions from net investment income are declared daily and paid monthly for the Funds. Distributions from net realized gains, if any, will be made annually for each of the Funds. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported results. Actual results could differ from those estimates. (2) INVESTMENT SECURITY TRANSACTIONS Purchases of and proceeds from sales and maturities of investment securities, other than short-term securities, for the period ended September 30,1998, were as follows: Purchases ($) Proceeds ($) ------------- ------------ U.S. Government Securities Fund 86,153,153 60,952,394 Bond Fund 5,009,997 4,494,179 Tax-Free Income Fund 153,905,577 64,362,582 Minnesota Tax-Free Income Fund 69,342,888 12,849,203 For Money Market Fund during the period ended September 30, 1998 purchases of and proceeds from sales and maturities of investment securities aggregated $793,822,036 and $797,627,000 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 Fund's assets and provides research, statistical and advisory services, and pays related office 49 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, 1998, 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, 1998, this voluntary fee waiver may be discontinued by the Adviser in its sole discretion. For the period April 1, 1995, through December 31, 1998, 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, 1998, 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 September 30, 1998: %Shares Shares Outstanding ------ ----------- Money Market Fund 6,997,085 14.9 U.S. Government Securities Fund 586,214 4.9 Bond Fund 73,048 6.5 Tax-Free Income Fund 2,384,008 3.7 Minnesota Tax-Free Income Fund 1,017,453 5.6 (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: 50 SIT MONEY MARKET FUND FINANCIAL HIGHLIGHTS
Six Months Ended September 30, Years Ended March 31, 1998 --------------------------------------------------------- (Unaudited) 1998 1997 1996 1995 ================================================================================================================================= NET ASSET VALUE: Beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income 0.03 0.05 0.05 0.05 0.04 - --------------------------------------------------------------------------------------------------------------------------------- Total from operations 0.03 0.05 0.05 0.05 0.04 - --------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (0.03) (0.05) (0.05) (0.05) (0.04) - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) 2.59% 5.29% 5.04% 5.44% 4.57% - --------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 46,945 $ 43,111 $ 32,668 $ 21,260 $ 29,822 RATIOS: Expenses to average daily net assets 0.50(2) 0.50(2) 0.50(2) 0.50(2) 0.50(2) Net investment income to average daily net assets 5.09(2) 5.12(2) 4.93(2) 5.35(2) 4.63(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) Percentages for the period ended September 30, 1998 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 September 30, 1998, and March 31, 1998, 1997, 1996, and 1995, the investment adviser voluntarily absorbed $60,556, $98,857, $78,042, $66,862, and $63,828, 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 4.79%, 4.82%, 4.63%, 5.05%, and 4.33%, respectively. 51 SIT U.S. GOVERNMENT SECURITIES FUND FINANCIAL HIGHLIGHTS
Six Months Ended September 30, Years Ended March 31, 1998 ------------------------------------------------------------- (Unaudited) 1998 1997 1996 1995 ================================================================================================================================= NET ASSET VALUE: Beginning of period $ 10.63 $ 10.28 $ 10.47 $ 10.28 $ 10.50 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income .28 .63 .65 .70 .67 Net realized and unrealized gains (losses) on investments .15 .35 (.19) .19 (.22) - ------------------------------------------------------------------------------------------------------------------------------------ Total from operations .43 .98 .46 .89 .45 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.28) (.63) (.65) (.70) (.67) From realized gains ---- ---- ---- ---- ---- - ------------------------------------------------------------------------------------------------------------------------------------ Total Distributions (.28) (.63) (.65) (.70) (.67) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE: End of period $ 10.78 $ 10.63 $ 10.28 $ 10.47 $ 10.28 - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return (1) 4.08% 9.70% 4.55% 8.87% 4.47% - ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of period (000's omitted) $ 129,611 $ 103,868 $ 73,394 $ 52,450 $ 37,454 RATIOS: Expenses to average daily net assets 0.80%(2) 0.80%(2) 0.80%(2) 0.80%(2) 0.80%(2) Net investment income to average daily net assets 5.20%(2) 5.93%(2) 6.30%(2) 6.72%(2) 6.48%(2) Portfolio turnover rate (excluding short-term securities) 55.27% 50.67% 85.21% 51.37% 38.51%
- ------------ (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 September 30, 1998 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 September 30, 1998 and March 31, 1998, 1997, 1996, and 1995, the investment adviser voluntarily absorbed $50,137, $100,000, $99,999, $88,625, and $73,460 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 .89%, .91%, .97%, 1.00%, and 1.00% for these periods and the ratio of net investment income to average daily net assets would have been 5.11%, 5.82%, 6.13%, 6.52%, and 6.28%, respectively. 52 SIT BOND FUND FINANCIAL HIGHLIGHTS
Six Months Ended September 30, Years Ended March 31, 1998 ------------------------------------------------------ (Unaudited) 1998 1997 1996 1995 ==================================================================================================================================== NET ASSET VALUE: Beginning of period $ 10.03 $ 9.62 $ 9.83 $ 9.48 $ 9.69 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .27 .63 .64 .64 .62 Net realized and unrealized gains (losses) on investments .25 .43 (.14) .35 (.21) - ----------------------------------------------------------------------------------------------------------------------------------- Total from operations .52 1.06 .50 .99 .41 - ----------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.27) (.63) (.64) (.64) (.62) From realized gains ---- (.02) (.07) ---- ---- - ----------------------------------------------------------------------------------------------------------------------------------- Total distributions (.27) (.65) (.71) (.64) (.62) - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 10.28 $ 10.03 $ 9.62 $ 9.83 $ 9.48 - ----------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) 5.25% 11.22% 5.21% 10.57% 4.51% - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 11,620 $ 10,706 $ 6,403 $ 5,222 $ 3,533 RATIOS: Expenses to average daily net assets 0.80%(2) 0.80% 0.80% 0.80% 0.80% Net investment income to average daily net assets 5.32%(2) 6.31% 6.52% 6.49% 6.63% Portfolio turnover rate (excluding short-term securities) 42.32% 76.15% 128.06% 159.45% 41.25%
- --------- (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) Adjusted to an annual rate. 53 SIT TAX-FREE INCOME FUND FINANCIAL HIGHLIGHTS
Six Months Ended September 30, Years Ended March 31, 1998 ------------------------------------------------------ (Unaudited) 1998 1997 1996 1995 =============================================================================================================================== NET ASSET VALUE: Beginning of period $ 10.41 $ 9.98 $ 9.88 $ 9.70 $ 9.63 - ------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .26 .54 .56 .56 .56 Net realized and unrealized gains (losses) on investments .17 .50 .10 .18 .09 - ------------------------------------------------------------------------------------------------------------------------------- Total from operations .43 1.04 .66 .74 .65 - ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.26) (.54) (.56) (.56) (.56) From realized gains ---- (.07) ---- ---- (.02) - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (.26) (.61) (.56) (.56) (.58) - ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 10.58 $ 10.41 $ 9.98 $ 9.88 $ 9.70 - ------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) 4.22% 10.69% 6.82% 7.73% 7.00% - ---------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 684,794 $ 519,579 $ 342,540 $ 279,769 $ 255,157 RATIOS: Expenses to average daily net assets 0.73%(2) 0.76%(2) 0.79%(2) 0.80%(2) 0.79%(2) Net investment income to average daily net assets 5.00%(2) 5.29%(2) 5.63%(2) 5.65%(2) 5.84%(2) Portfolio turnover rate (excluding short-term securities) 11.91% 21.40% 25.34% 25.50% 13.13%
- --------- (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 September 30, 1998 are adjusted to an annual rate. Total Fund expenses are contractually limited to .80% of average daily net assets. However, during the periods ended September 30, 1998, and March 31, 1998, 1997, 1996, and 1995, the investment adviser voluntarily absorbed $198,796, $171,504, $46,819, $15,540, and $24,991 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 these periods, and the ratio of net investment income to average daily net assets would have been 4.93%, 5.25%, 5.62%, 5.65%, and 5.83%, respectively. 54 SIT MINNESOTA TAX-FREE INCOME FUND FINANCIAL HIGHLIGHTS
Six Months Ended September 30, Years Ended March 31, 1998 --------------------------------------------------- (Unaudited) 1998 1997 1996 1995 ================================================================================================================================= NET ASSET VALUE: Beginning of period $ 10.49 $ 10.14 $ 10.09 $ 9.96 $ 9.79 - -------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .26 .55 .57 .57 .56 Net realized and unrealized gains (losses) on investments .15 .35 .05 .13 .17 - -------------------------------------------------------------------------------------------------------------------------------- Total from operations .41 .90 .62 .70 .73 - -------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.26) (.55) (.57) (.57) (.56) - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 10.64 $ 10.49 $ 10.14 $ 10.09 $ 9.96 - -------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) 4.00% 9.07% 6.26% 7.12% 7.68% - -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 194,295 $ 143,634 $ 93,976 $ 62,980 $ 43,881 RATIOS: Expenses to average daily net assets 0.80%(2) 0.80% 0.80% 0.80% 0.80% Net investment income to average daily net assets 5.00%(2) 5.32% 5.56% 5.62% 5.72% Portfolio turnover rate (excluding short-term securities) 8.01% 17.58% 17.16% 15.85% 34.20%
- --------- (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) Adjusted to an annual rate. 55 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 $6 billion for some of America's largest corporations, foundations and endowments. Sit Mutual Funds is comprised of thirteen 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: o Free telephone exchange o Dollar-cost averaging through automatic investment plan o Electronic transfer of funds for purchases and redemptions o Free check-writing privileges on bond funds o Retirement accounts including IRAs, Keoghs and 401(k) Plans SIT FAMILY OF FUNDS [CHART] STABILITY: SAFETY OF PRINCIPAL AND CURRENT INCOME MONEY MARKET INCOME: INCREASED INCOME U.S. GOVERNMENT SECURITIES TAX-FREE INCOME MINNESOTA TAX-FREE INCOME BOND GROWTH: LONG-TERM CAPITAL APPRECIATION AND INCOME BALANCED LARGE CAP GROWTH REGIONAL GROWTH HIGH GROWTH: LONG-TERM CAPITAL APPRECIATION MID CAP GROWTH INTERNATIONAL GROWTH SMALL CAP GROWTH SCIENCE AND TECHNOLOGY GROWTH DEVELOPING MARKETS GROWTH [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 Mary K. Stern, CFA President Michael C. Brilley Senior Vice President Roger J. Sit Senior Vice 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 Michael J. Radmer Secretary Carla J. Rose Assistant Secretary (1) Bond Fund and U.S. Government Securities Fund only. (2) Money Market Fund only. SEMI-ANNUAL REPORT BOND FUNDS SEPTEMBER 30, 1998 INVESTMENT ADVISER SIT INVESTMENT ASSOCIATES, INC. 4600 NORWEST CENTER MINNEAPOLIS, MN 55402 612-334-5888 (METRO AREA) 800-332-5580 DISTRIBUTOR SIA SECURITIES CORP. 4600 NORWEST CENTER MINNEAPOLIS, MN 55402 612-334-5888 (METRO AREA) 800-332-5580 CUSTODIAN THE NORTHER TRUST COMPANY 50 SOUTH LASALLE STREET CHICAGO, ILL 60675 TRANSFER AGENT AND DISBURSING AGENT FIRST DATA INVESTOR SERVICES P.O. BOX 5166 WESTBORO, MA 01581-5166 AUDITORS KPMG PEAT MARWICK LLP 4200 NORWEST CENTER MINNEAPOLIS, MN 55402 LEGAL COUNSEL DORSEY & WHITNEY LLP 220 SOUTH SIXTH STREET MINNEAPOLIS, MN 55402 MEMBER OF 100% NO-LOAD MUTUAL FUND COUNCIL -----END PRIVACY-ENHANCED MESSAGE-----