-----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, AjbGOwxRawC38mc37woYQVLpmVheHV/LxO6jFwRerlNFLdJjh+V86BAcpcaGHuRu EnovNUImERwNxBFmxLgiNw== 0000897101-03-000494.txt : 20030529 0000897101-03-000494.hdr.sgml : 20030529 20030529151154 ACCESSION NUMBER: 0000897101-03-000494 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030529 EFFECTIVENESS DATE: 20030529 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT U S GOVERNMENT SECURITIES FUND INC CENTRAL INDEX KEY: 0000809981 IRS NUMBER: 411570831 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04995 FILM NUMBER: 03723426 BUSINESS ADDRESS: STREET 1: 4600 NORWEST CTR 90 S 7TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 6123323223 MAIL ADDRESS: STREET 1: 4600 NORWEST CENTER, 90 SOUTH SEVENTH ST STREET 2: 4600 NORWEST CENTER, 90 SOUTH SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4130 FORMER COMPANY: FORMER CONFORMED NAME: SIT NEW BEGINNING U S GOVERNMENT SECURITIES FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NEW BEGINNING U S GOVERNMENT SECURITIES FUND INC DATE OF NAME CHANGE: 19870601 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT MUTUAL FUNDS II INC CENTRAL INDEX KEY: 0000746601 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04033 FILM NUMBER: 03723425 BUSINESS ADDRESS: STREET 1: 4600 NORWEST CTR 90 S 7TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 612-332-3223 MAIL ADDRESS: STREET 2: 4600 NORWEST CTR, 90 SOUTH SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 FORMER COMPANY: FORMER CONFORMED NAME: SIT NEW BEGINNING TAX FREE INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SIT NEW BEGINNING YIELD FUND INC DATE OF NAME CHANGE: 19880929 FORMER COMPANY: FORMER CONFORMED NAME: NEW BEGINNING YIELD FUND INC DATE OF NAME CHANGE: 19870907 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT MONEY MARKET FUND INC CENTRAL INDEX KEY: 0000746603 IRS NUMBER: 411492046 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04032 FILM NUMBER: 03723427 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 N-30D 1 sit032319_n30d.txt SIT MUTUAL FUNDS - BOND FUNDS - ANNUAL REPORT SIT MUTUAL FUNDS BOND FUNDS ANNUAL REPORT MARCH 31, 2003 MONEY MARKET FUND U.S. GOVERNMENT SECURITIES FUND TAX-FREE INCOME FUND MINNESOTA TAX-FREE INCOME FUND BOND FUND [LOGO] SIT INVESTMENT ASSOCIATES ------------------------- SIT MUTUAL FUNDS SIT MUTUAL FUNDS BOND FUNDS ANNUAL REPORT TABLE OF CONTENTS PAGE ---- Chairman's Letter 2 Performance Summary 4 Average Annual Total Returns 6 FUND REVIEWS AND PORTFOLIOS OF INVESTMENTS Money Market Fund 8 U.S.Government Securities Fund 12 Tax-Free Income Fund 24 Minnesota Tax-Free Income Fund 40 Bond Fund 52 Notes to Portfolios of Investments 56 Statements of Assets and Liabilities 57 Statements of Operations 58 Statements of Changes in Net Assets 60 Notes to Financial Statements 62 Financial Highlights 66 Independent Auditors Report 71 Results of Shareholder Meeting 72 Information About Directors and Officers 74 Federal Tax Information 78 A Look at Sit Mutual Funds 79 This document must be preceded or accompanied by a Prospectus. SIT MUTUAL FUNDS ONE YEAR ENDED MARCH 31, 2003 [PHOTO]------------------------------------------------------------------------- CHAIRMAN'S LETTER Dear fellow shareholders: Interest rates declined over much of the year ended March 31, 2003, marking the third consecutive year of strong fixed-income returns. The Federal Reserve continued to lower short-term rates in an effort to protect the economy from slipping back into recession. While the Fed lowered the federal funds rate by only 0.50% over the past 12 months, the reduction in the federal funds rate totals 5.25%, from 6.50% to 1.25%, in a series of 21 moves from January 3, 2001 to November 6, 2002. The Fed is currently trying to assess the economic impact of the war with Iraq to determine if additional monetary stimulus is necessary. The third and final estimate of U.S. fourth quarter 2002 real GDP growth was unchanged at +1.4%. Among major component revisions,consumer expenditures were boosted approximately $4 billion but were essentially offset by weaker net exports, resulting in an unchanged aggregate growth rate. Importantly, after-tax corporate profits grew by +4.1% during that quarter, accelerating from +2.1% in the third quarter, and were up +10.3% on a year-over-year basis. While growth in corporate profits had been largely derived from cost cutting moves such as layoffs and expense controls, rising profits, improving balance sheets and lower corporate borrowing costs should pave the way for improved capital spending over the longer term. While domestic consumer spending continues to grow, the war in Iraq and difficult labor market conditions have been restraining factors. Personal income growth in February was once again positive at +0.3%, the sixth +0.3% gain over the past seven months, resulting in year-over-year growth of +3.6%. Wages and salaries increased at a +2.8% year-over-year rate, which should support modest spending growth going forward. The labor market continues to exhibit weakness. The March employment report indicated that nonfarm payrolls fell by 108,000 jobs, improvement from a significant contraction of 357,000 jobs in February. The unemployment rate is 5.8%. Consumer confidence was near 30-year lows immediately preceding the war, but has since rebounded modestly due to the rapid progress of coalition forces. The housing sector continues to benefit from record low mortgage rates and builder incentives. The strong issuance of building permits, combined with near-record levels of units under construction, suggest further strength in the months ahead. Inflation has risen modestly recently due to the sharp rise in energy prices over the past six months. The Consumer Price Index and Producer Price Index have increased to +3.0% and +3.5% year-over-year rates, respectively. While Congress debates a new fiscal stimulus package, estimates for the federal budget deficit continue to grow. The Treasury announced that the February budget deficit was $96.3 billion, bringing the current fiscal year 2003 budget deficit to $193.9 billion. The Congressional Budget Office (CBO) currently estimates that the fiscal deficit will total $287 billion in 2003 and $338 billion in 2004. These figures do not include costs of the war beyond the September 30th fiscal year end or the costs of reconstruction in Iraq. Private forecasts are much higher than the CBO figures. We are expecting the new fiscal stimulus plan to be near $400 billion, which is around 60% of what the Bush Administration's plan called for. Ultimately, once a bill is passed, we believe that the tax on dividends will either be reduced to the long-term capital gains rate of 18% or there will be a dividend exclusion of 50%. Even the low end of tax cut expectations would represent a considerable amount of additional fiscal stimulus in the near term. In summary, given the war's pervasive impact on consumer and manufacturing activity in the U.S. in March, our first quarter 2003 estimate for quarterly real GDP growth is +1.5%. We expect second quarter 2003 growth rate to be +2.0%, and we are forecasting +3.0% growth during the second half of 2003 as a result of the fiscal and monetary stimulus already in place. These rates of real GDP growth still equate to a +2.2% annual growth rate for 2003, nearly the same as achieved in 2002. Importantly, we do not expect that the economy will slip into a 'double-dip' recession, and these estimates could ultimately prove conservative given that the conflict in Iraq has been resolved quickly. 2 - --------------------------------------------------------------------------[LOGO] STRATEGY SUMMARY In the last 12 months, interest rates reached historical lows. Specifically, the yield of the 10-year U.S. Treasury note reached a 45-year low of 3.55% while the yield of the 2-year U.S. Treasury note achieved a new record low of 1.33%. These levels were reached just prior to the start of the war with Iraq. On March 31, 2002, the 10-year U.S. Treasury yield was 5.41%. The dramatic drop in yield was the result of increased demand by investors seeking safety. This flight to quality was fueled by corporate scandals, weak economic data, escalating tensions with North Korea, the spread of a virus causing severe acute respiratory syndrome (SARS), the Iraq war, and the potential for chemical weapons being unleashed. We expect the flight to quality will be at least partially reversed in the next 12 months. We have already seen the extraordinary progress of the coalition forces in Iraq without the occurrence of a chemical attack. We believe that the worst of the corporate accounting fraud has been discovered. We expect to see a peaceful resolution to the tensions with North Korea. We also expect the high degree of monetary and fiscal stimulus to result in a meaningful improvement in economic growth by the second half of 2003. While uncertainties remain regarding the containment of SARS and the risk of continuing hostilities in the Middle East, we expect bond yields to rise from their historically low levels. Given our expectations for higher interest rates, portfolio durations remain shorter than their benchmarks. We have been forecasting an increase in yields, coupled with a strengthening economy. As is typical during times of improving economic activity, investors become less risk averse and sell Treasuries in favor of higher yielding alternatives. As a result, we continue to underweight U.S. Treasuries in our taxable bond funds and emphasize higher yielding asset-backed, mortgage and corporate securities. The rise in interest rates should help slow refinancing activity in the mortgage sector, and the expectation of more stable prepayment rates should result in increased investor demand and narrower yield spreads. Corporate yield spreads should also narrow further as the economic recovery should lead investors to become more optimistic about corporate profitability. In the municipal market, the exceptionally low yields on U.S. Treasury securities have created an unusual phenomenon. Due to the tax-free aspect of interest generated by municipal bonds, municipals typically yield less than U.S.Treasuries, which are federally taxed. However, longer-term municipal bond yields reached levels 30% higher than comparable U.S. Treasuries. This provides further evidence of how overvalued U.S. Treasuries became. While we consider municipal yields attractive on a relative basis, we are concerned that they could rise over the course of this year albeit to a lesser extent than that experienced by U.S. Treasuries. As a result, municipal portfolio durations have been relatively short. Also, housing bonds continue to be the most heavily weighted sector. Due to the more stable price characteristics of housing bonds, we expect them to help protect against principal loss associated with rising interest rates. Also, given the continued cheap valuation of municipals to taxable bonds on both an absolute and relative yield basis, we expect any change in tax policy to have little negative impact on municipal bonds. Fixed-income investments are an important component of a well-diversified long-term portfolio. We believe that the Sit bond funds, with their dual objectives of high income with stability of principal, offer an attractive risk/reward profile to complement equity holdings. We appreciate your continued interest and investment in Sit Mutual Funds and 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 ONE YEAR ENDED MARCH 31,2003 - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY - BOND FUNDS Interest rates declined over much of the year ended March 31, 2003, marking the third consecutive year of strong fixed-income returns. For example, the Lehman Aggregate Bond Index earned an annualized total return for the three years ending March 31, 2003 of 9.81%. The strength in the bond market was helped by sharp reductions in short-term interest rates. While the Federal Reserve lowered the federal funds rate by a total of 5.25%, from 6.50% to 1.25%, from January 3, 2001 to November 6, 2002. U.S. Treasury yields declined the most of any sector and reached historically low levels during the year. Specifically, the yield of the 10-year U.S. Treasury note reached a 45-year low of 3.55% while the yield of the 2-year U.S.Treasury note achieved a new record low of 1.33%. The dramatic drop in yield was the result of increased demand by investors seeking safety. This flight to quality was fueled by corporate scandals, weak economic data, escalating tensions with North Korea, the spread of SARS, and the Iraq war. After U.S. Treasuries, corporate bonds were the next best performing taxable bond sector, while the mortgage and asset-backed sectors lagged due to their shorter durations and record levels of prepayments. Municipal yields also declined last year, resulting in longer, more call-protected municipal securities outperforming shorter bonds. However, municipal yields declined much less than U.S. Treasuries. Consequently, longer-term municipal bond yields reached levels 30% higher than comparable U.S. Treasuries. Municipal issuance in 2002 was the highest on record, and the pace of issuance has accelerated in early 2003. Refinancings and pent-up demand for capital projects are the primary drivers of this increased issuance. Many general obligation debt-rating downgrades have occurred to date, and more are likely due to budget crises being experienced by many state and local governments. Overall, the Funds should benefit from their underweighting of general obligation and U.S. Treasury debt as they continue to focus on higher-yielding high quality bonds. 1994 1995 ---- ---- SIT MONEY MARKET FUND 3.84% 5.58% - -------------------------------------------------------------------------------- SIT U.S. GOV'T. SECURITIES FUND 1.77 11.50 - -------------------------------------------------------------------------------- SIT TAX-FREE INCOME FUND -0.63 12.86 - -------------------------------------------------------------------------------- SIT MINNESOTA TAX-FREE INCOME FUND 0.63 11.90 - -------------------------------------------------------------------------------- SIT BOND FUND -1.31 16.83 - -------------------------------------------------------------------------------- 3-Month U.S. Treasury Bill 4.47 5.98 Lehman Inter. Government Bond Index -1.75 14.41 Lehman 5-Year Municipal Bond Index -1.28 11.65 Lehman Aggregate Bond Index -2.92 18.47 NASDAQ SYMBOL INCEPTION ------ --------- SIT MONEY MARKET FUND(1) SNIXX 11/01/93 - -------------------------------------------------------------------------------- SIT U.S. GOV'T. SECURITIES FUND SNGVX 06/02/87 - -------------------------------------------------------------------------------- SIT TAX-FREE INCOME FUND SNTIX 09/29/88 - -------------------------------------------------------------------------------- SIT MINNESOTA TAX-FREE INCOME FUND SMTFX 12/01/93 - -------------------------------------------------------------------------------- SIT BOND FUND SIBOX 12/01/93 - -------------------------------------------------------------------------------- 3-Month U.S. Treasury Bill 11/01/93 Lehman Inter. Government Bond Index 05/31/87 Lehman 5-Year Municipal Bond Index 09/30/88 Lehman Aggregate Bond Index 11/30/93 (1) Converted from Sit Investment Reserve Fund to Sit Money Market Fund on 11/1/93. (2) Based on the last 12 monthly distributions of net investment income and average NAV as of 3/31/03. (3) Figure represents 7-day compound effective yield. The 7-day simple yield as of 3/31/03 was 0.74%. (4) For individuals in the 27%, 30%, 35%, and 38.6% federal tax brackets, the federal tax equivalent yields are 6.55%, 6.83%, 7.35% and 7.79%, respectively (Income subject to state tax, if any). 4 - --------------------------------------------------------------------------[LOGO] TOTAL RETURN - CALENDAR YEAR
30-DAY SEC YIELD YTD AS OF DISTRIBUTION 1996 1997 1998 1999 2000 2001 2002 2003 3/31/03 RATE(2) ---- ---- ---- ---- ---- ---- ---- ---- ------- ------- 5.08% 5.22% 5.17% 4.79% 6.03% 3.67% 1.25% 0.19% 0.74%(3) - --------------------------------------------------------------------------------------------- 4.99 8.19 6.52 1.37 9.15 8.56 5.79 0.53 2.61 4.16% - --------------------------------------------------------------------------------------------- 5.69 9.87 6.29 -4.01 8.32 5.84 5.69 0.70 4.78(4) 4.53 - --------------------------------------------------------------------------------------------- 5.89 8.19 6.14 -3.82 8.09 5.85 7.06 1.01 4.55(5) 4.63 - --------------------------------------------------------------------------------------------- 4.25 9.44 6.52 -0.34 9.25 8.36 6.68 1.06 4.55 5.33 - --------------------------------------------------------------------------------------------- 5.27 5.32 5.01 4.88 6.16 3.50 1.67 0.29 4.06 7.72 8.49 0.49 10.47 8.42 9.64 0.93 4.22 6.38 5.84 0.74 7.72 6.21 9.27 1.11 3.63 9.65 8.69 -0.82 11.63 8.44 10.25 1.39
AVERAGE ANNUAL TOTAL RETURNS FOR THE TOTAL RETURN PERIODS ENDED MARCH 31, 2003 QUARTER SIX MONTHS SINCE ENDED 3/31/03 ENDED 3/31/03 1 YEAR 5 YEARS 10 YEARS INCEPTION - ------------- ------------- ------ ------- -------- --------- 0.19% 0.47% 1.13% 3.94% -- 4.37% - ---------------------------------------------------------------------------- 0.53 1.30 5.60 6.06 6.24% 7.53 - ---------------------------------------------------------------------------- 0.70 0.95 5.90 4.18 5.70 6.53 - ---------------------------------------------------------------------------- 1.01 1.81 7.14 4.53 -- 5.55 - ---------------------------------------------------------------------------- 1.06 1.41 7.74 6.01 -- 6.43 - ---------------------------------------------------------------------------- 0.29 0.63 1.51 4.02 -- 4.55 0.93 1.91 10.95 7.31 6.62 7.82 1.11 1.97 9.85 5.91 5.72 6.63 1.39 2.99 11.69 7.51 -- 7.22 (5) For Minnesota residents in the 27%, 30%, 35% and 38.6% federal tax brackets, the double exempt tax equivalent yields are 6.76%, 7.05%, 7.60% and 8.04%, respectively (Assumes the maximum Minnesota tax bracket of 7.85%). 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 MUTUAL FUNDS - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31,2002 The tables on the next page show the Funds' average annual total returns (before and after taxes) and the change in value of a broad-based market index over various periods ended December 31, 2002. The index information is intended to permit you to compare each Fund's performance to a broad measure of market performance. The after-tax returns are intended to show the impact of federal income taxes on an investment in a Fund. The highest individual federal marginal income tax rate in effect during the specified period is assumed, and the state and local tax impact is not reflected. A Fund's "Return After Taxes on Distributions" shows the effect of taxable distributions (dividends and capital gain distributions), but assumes that you still hold the fund shares at the end of the period and so do not have any taxable gain or loss on your investment in the Fund. A Fund's "Return After Taxes on Distributions and Sale of Fund Shares" shows the effect of both taxable distributions and any taxable gain or loss that would be realized if the Fund shares were purchased at the beginning and sold at the end of the specified period. The Funds' past performance, before and after taxes, is not an indication of how the Funds will perform in the future. Your actual after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns reflect past tax effects and are not predictive of future tax effects. After-tax returns are not relevant to investors who hold their Fund shares in a tax-deferred account (including a 401(k) or IRA account). 6 - --------------------------------------------------------------------------[LOGO] ================================================================================ SIT U.S.GOVERNMENT SECURITIES FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes 5.8% 6.2% 6.5% Return After Taxes on Distributions 3.9% 3.9% 4.0% Return After Taxes on Distributions and Sale of Fund Shares 3.7% 3.8% 3.9% Lehman Intermediate Government Bond Index* 9.6% 7.4% 6.9% ================================================================================ ================================================================================ SIT TAX-FREE INCOME FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes 5.7% 4.3% 5.9% Return After Taxes on Distributions 5.7% 4.3% 5.9% Return After Taxes on Distributions and Sale of Fund Shares 5.5% 4.4% 5.8% Lehman 5-Year Municipal Bond Index* 9.3% 5.9% 5.9% ================================================================================ ================================================================================ SINCE SIT MINNESOTA TAX-FREE INCOME FUND 1 YEAR 5 YEARS INCEPTION** Return Before Taxes 7.1% 4.6% 5.6% Return After Taxes on Distributions 7.1% 4.6% 5.6% Return After Taxes on Distributions and Sale of Fund Shares 6.6% 4.6% 5.6% Lehman 5-Year Municipal Bond Index* 9.3% 5.9% 5.7% ================================================================================ ================================================================================ SINCE SIT BOND FUND 1 YEAR 5 YEARS INCEPTION** Return Before Taxes 6.7% 6.0% 6.5% Return After Taxes on Distributions 4.4% 3.5% 3.9% Return After Taxes on Distributions and Sale of Fund Shares 4.2% 3.6% 3.9% Lehman Aggregate Bond Index* 10.3% 7.6% 7.3% ================================================================================ * Indices reflect no deduction for fees, expenses, or taxes. **Inception date 12/1/93 7 SIT MONEY MARKET FUND ONE YEAR ENDED MARCH 31, 2003 [PHOTO]------------------------------------------------------------------------- MICHAEL C. BRILLEY, SENIOR PORTFOLIO MANAGER PAUL J. JUNGQUIST, CFA, SENIOR PORTFOLIO MANAGER The Sit Money Market Fund returned +1.1% for the 1-year and +0.2% for the 3-month periods ended March 31, 2003. The U.S. Treasury Bill returned +0.3% and +1.5% for the 3-month and 1-year periods, respectively. The Fund outperformed its Lipper Category for all reported time periods(1). As of March 31, 2003, the Fund's 7-day compound yield was 0.74% and its average maturity was 28 days. POISED TO RESPOND TO RISING RATES The Federal Reserve reduced the federal funds rate once by 0.50% to 1.25% last fall. With a still-struggling economy and the uncertain economic impact of the war, a further Fed rate reduction, while not likely, is possible. If economic growth strengthens later this year as we expect, the Fed may begin raising rates in late 2003 or early 2004. The Fund has maintained its average maturity near the middle of its customary 20-40 day range with short-term rates stable over the past few months. As Fed tightening begins to appear imminent, the Fund will shorten its average maturity in anticipation of earning higher yields on future investments. ADDING ASSET-BACKED COMMERCIAL PAPER We have seen a further reduction in the amount of commercial paper issued recently due to companies' liquidity concerns and their willingness to lock in historically low interest rates. To mitigate this trend, the Fund has begun purchasing top-tier, asset-backed commercial paper to meet its investment needs. BETTER RESULTS THROUGH BETTER EXECUTION The Fund has performed well 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. We foresee a domestic economic rebound and a subsequent stabilization or improvement in the short-term creditworthiness of top-tier commercial paper issuers in general. We will increase our vigilance, however, as certain issuers have experienced liquidity challenges over the past several months and a few more may follow. We continue to diversify core holdings and industry exposure, including the addition of top-tier credits from the universe of asset-backed commercial paper to our list of permissible holdings. 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 short-term debt instruments which mature in 397 days or less and by maintaining a dollar-weighted portfolio maturity of 90 days or less. An investment in the Fund is neither insured nor guaranteed by the U.S. Government and there can be no assurance that the Fund will be able to maintain a stable net asset value of $1.00 per share. PORTFOLIO SUMMARY Net Asset Value 3/31/03: $1.00 Per Share 3/31/02: $1.00 Per Share Total Net Assets: $73.8 Million (1) See next page. PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) Diversified Finance 12.2 Consumer Non-Durables 12.2 Asset-backed Securities 11.6 Financial Services 8.6 Insurance 8.1 Communications 8.1 U.S.Govt.Securities 7.5 Sectors less than 7.0% 31.7 Cash and Other Net Assets 0.0 8 - --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT MONEY 3-MONTH LIPPER MARKET U.S.TREASURY MONEY FUND BILL MARKET AVG. --------- ------------ ----------- 3 Month** 0.19% 0.29% 0.14% 6 Month** 0.47 0.63 n/a 1 Year 1.13 1.51 0.86 3 Years 3.23 3.36 2.98 5 Years 3.94 4.02 3.69 Inception 4.37 4.55 4.20 (11/1/93) CUMULATIVE TOTAL RETURNS* SIT MONEY 3-MONTH LIPPER MARKET U.S.TREASURY MONEY FUND BILL MARKET AVG. --------- ------------ ----------- 1 Year 1.13% 1.51% 0.86 3 Year 10.01 10.43 9.20 5 Year 21.34 21.78 19.89 Inception 49.64 51.99 47.32 (11/1/93) *AS OF 3/31/03. **NOT ANNUALIZED. 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 3-MONTH U.S. TREASURY BILL. (1) Lipper Analytical Services, Inc., a large independent evaluator of mutual funds, rankings reflect historical performance returns through 3/31/03. Sit Money Market Fund rankings for the 3-month, 3- and 5-year and since inception periods were 119th of 404 funds, 122nd of 340 funds, 89th of 266 funds and 43rd of 164 funds, respectively. GROWTH OF $10,000 [PLOT POINTS GRAPH] The sum of $10,000 invested at inception (11/1/93)and held until 3/31/03 would have grown to $14,964 in the Fund or $15,199 in the 3-Month U.S.Treasury Bill assuming reinvestment of all dividends and capital gains. SIT MONEY MARKET MATURITY RANGES [BAR CHART] % OF ASSETS 33.8% 27.6% 19.1% 7.9% 11.6% - -------------------------------------------------------------------------------- 0-15 16-30 31-45 46-60 61+ Days Days Days Days Days 9 SIT MONEY MARKET FUND MARCH 31,2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- COMMERCIAL PAPER (92.5%)(2) ASSET-BACKED SECURITIES (11.6%) FCAR Owner Trust Series I: 2,000,000 1.23%, 6/3/2003 1,995,695 1,000,000 1.22%, 6/5/2003 997,797 Mortgage Interest Networking Trust: 1,200,000 1.26%, 4/3/2003 1,199,916 1,500,000 1.26%, 4/4/2003 1,499,843 New Center Asset Trust: 1,060,000 1.20%, 4/30/2003 1,058,975 1,808,000 1.25%, 5/16/2003 1,805,175 ----------- 8,557,401 ----------- BANKING (4.0%) Citicorp: 2,000,000 1.24%, 4/10/2003 1,999,380 1,000,000 1.23%, 5/14/2003 998,531 ----------- 2,997,911 ----------- CAPTIVE AUTO FINANCE (4.0%) Toyota Motor Credit Corp.: 1,000,000 1.18%, 4/17/2003 999,476 2,000,000 1.23%, 4/25/2003 1,998,360 ----------- 2,997,836 ----------- CAPTIVE EQUIPMENT FINANCE (4.2%) Caterpillar Financial Services Corp.: 1,000,000 1.20%, 4/1/2003 1,000,000 1,000,000 1.26%, 4/7/2003 999,790 1,073,000 1.19%, 4/22/2003 1,072,255 ----------- 3,072,045 ----------- COMMUNICATIONS (8.1%) Bellsouth Corp: 1,500,000 1.20%, 4/17/2003 1,499,200 1,500,000 1.23%, 4/28/2003 1,498,616 SBC International,Inc.: 1,000,000 1.23%, 5/5/2003 998,838 2,000,000 1.22%, 5/8/2003 1,997,492 ----------- 5,994,146 ----------- CONSUMER DURABLES (3.8%) American Honda Finance: 1,500,000 1.18%, 4/28/2003 1,498,673 1,300,000 1.23%, 5/13/2003 1,298,135 ----------- 2,796,808 ----------- CONSUMER LOAN FINANCE (6.2%) American Express Credit Corp.: 662,000 1.23%, 5/7/2003 661,186 1,000,000 1.23%, 5/23/2003 998,223 American General Financial Corp.: 1,700,000 1.24%, 4/2/2003 1,699,941 186,000 1.20%, 4/14/2003 185,919 1,000,000 1.24%, 4/14/2003 999,552 ----------- 4,544,821 ----------- QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- CONSUMER NON-DURABLES (12.2%) Coca Cola Co.: 2,000,000 1.24%, 4/21/2003 1,998,622 1,000,000 1.24%, 6/4/2003 997,796 Coca Cola Enterprises: 1,000,000 1.26%, 4/7/2003(5) 999,790 1,000,000 1.24%, 5/5/2003(5) 998,829 1,000,000 1.20%, 6/13/2003(5) 997,567 Kraft Foods,Inc.: 1,700,000 1.15%, 4/29/2003 1,698,479 1,300,000 1.16%, 5/6/2003 1,298,534 ----------- 8,989,617 ----------- CONSUMER SERVICES (2.7%) 2,000,000 McDonald's Corp., 1.20%, 4/9/03(5) 1,999,467 DIVERSIFIED FINANCE (12.2%) CIT Group Holdings,Inc.: 1,000,000 1.28%, 4/2/2003 999,965 2,000,000 1.25%, 5/9/2003 1,997,361 1,500,000 GE Capital International Funding, 1.27%, 4/18/2003(5) 1,499,100 General Electric Capital Services: 1,500,000 1.23%, 4/9/2003 1,499,590 1,000,000 1.21%, 5/19/2003 998,387 2,000,000 1.20%, 5/20/2003 1,996,733 ----------- 8,991,136 ----------- ENERGY (6.8%) Chevron UK Investment: 1,000,000 1.24%, 4/11/2003 999,656 2,000,000 1.24%, 4/23/2003 1,998,485 2,000,000 Exxon Project Investment Co., 1.20%, 4/2/2003 1,999,933 ----------- 4,998,074 ----------- FINANCIAL SERVICES (8.6%) Transamerica Finance Corp.: 1,200,000 1.28%, 4/8/2003 1,199,701 1,000,000 1.28%, 4/8/2003 999,751 842,000 1.22%, 4/21/2003 841,429 UBS Finance Corp.: 1,600,000 1.20%, 4/9/2003 1,599,573 700,000 1.25%, 4/15/2003 699,660 1,000,000 1.25%, 4/24/2003 999,201 ----------- 6,339,315 ----------- 10 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- INSURANCE (8.1%) AIG Funding, Inc.: 1,600,000 1.24%, 5/12/2003 1,597,740 1,400,000 1.24%, 5/15/2003 1,397,878 American Family Financial: 2,000,000 1.23%, 6/24/2003 1,994,260 1,000,000 1.22%, 7/10/2003 996,611 ----------- 5,986,489 ----------- Total Commercial Paper 68,265,066 (cost: $68,265,066) ----------- U.S. GOVERNMENT SECURITIES (7.5%)(2) 2,118,000 FHLB Discount Note, 1.23%, 4/16/2003 2,116,915 FNMA Discount Note: 924,000 1.23%, 5/7/2003 922,864 2,524,000 1.22%, 4/1/2003 2,524,000 ----------- Total U.S. Government Securities 5,563,779 (cost: $5,563,779) ----------- Total investments in securities (cost: $73,828,845)(7) $73,828,845 ----------- See accompanying notes to portfolios of investments on page 56. 11 SIT U.S.GOVERNMENT SECURITIES FUND ONE YEAR ENDED MARCH 31,2003 [PHOTO]------------------------------------------------------------------------- SENIOR PORTFOLIO MANAGERS,MICHAEL C.BRILLEY AND BRYCE A.DOTY,CFA PORTFOLIO MANAGER,MARK H.BOOK,CFA The Sit U.S.Government Securities Fund provided investors a +5.6% return for the past fiscal year versus a +11.0% return for the Lehman Intermediate Government Bond Index for the same period. The Fund's 30-day SEC yield was 2.61% and its 12-month distribution rate was 4.16%. FLIGHT TO QUALITY DOMINATES ENVIRONMENT U.S.Treasury yields declined significantly during the past fiscal year, and the yield curve steepened as the Federal Reserve lowered interest rates and the economy started to slow. More importantly, the "flight to quality" by investors caused heavy demand for Treasuries as the war with Iraq became a reality. TREASURIES PRODUCE UNSUSTAINABLE GAINS In this volatile environment, the U.S. Treasury sector led the taxable bond market last year. In fact, in 3Q 2002, 10-year Treasuries provided a +11.2% total return, which equates to a roughly 53% total annualized return. We believe that returns of this magnitude are not sustainable, and 10-year Treasury returns of -0.7% and +1.1% in the subsequent two quarters have begun to bear this out. Record mortgage refinance activity caused prepayments to spike for both collateralized mortgage obligations (CMO's) and mortgage pass-through securities. This caused these sectors to significantly lag Treasuries. INCREASED USE OF SEASONED MORTGAGES Investment activity for the year included increasing the allocation of seasoned high-coupon agency mortgage pass-through securities. These mortgages have more stable prepayments, as the homeowners on the underlying mortgages have consistently ignored opportunities to refinance. The Fund decreased its weighting of CMO's as these lower coupon securities did experience higher levels of prepayments during the year and we expect this to continue for the near term. POSITIONED TO OUTPERFORM IF RATES RISE Looking ahead, we expect the economy to slowly improve throughout the year as very low short-term rates, expected tax cuts, increased government spending, and cash provided by record mortgage refis, combine to stimulate the economy. We do not expect a near-term yield spike, but we also do not expect interest rates to return to their recent historic lows. The Fund will continue to focus on high quality securities that provide a high level of current income. INVESTMENT OBJECTIVE AND STRATEGY The objective of the U.S. Government Securities Fund is to provide high current income and safety of principal, which it seeks to attain by investing solely in debt obligations issues, 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 including those issued by Government National Mortgage Association (GNMA), Federal National Mortgage Asociation (FNMA), and Federal Home Loan Mortgage Corporation (FHLMC). PORTFOLIO SUMMARY Net Asset Value 3/31/03: $10.83 Per Share 3/31/02: $10.69 Per Share Total Net Assets: $408.8 Million 30-day SEC Yield: 2.61% 12-Month Distribution Rate: 4.16% Average Maturity: 19.4 Years Effective Duration: 1.6 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] FNMA Pass-Through 41.5 Collateralized Mortgage Obligations 19.5 GNMA Pass-Through 16.3 FHLMC Pass-Through 15.4 U.S. Treasury 4.2 Taxable Municipal 0.4 Cash & Other Net Assets 2.7 12 - --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT U.S. GOV'T. LEHMAN LIPPER SECURITIES INTER.GOV'T. U.S.GOV'T. FUND BOND INDEX FUND AVG. ----------- ------------ ---------- 3 Month** 0.53% 0.93% 0.74% 6 Month** 1.30 1.91 n/a 1 Year 5.60 10.95 10.87 5 Year 6.06 7.31 6.45 10 Year 6.24 6.62 6.20 Inception 7.53 7.82 7.41 (6/2/87) CUMULATIVE TOTAL RETURNS* SIT U.S. GOV'T. LEHMAN LIPPER SECURITIES INTER.GOV'T. U.S.GOV'T. FUND BOND INDEX FUND AVG. ----------- ------------ ---------- 1 Year 5.60% 10.95% 10.87% 5 Year 34.21 42.33 36.66 10 Year 83.20 89.84 82.52 Inception 215.78 229.74 210.20 (6/2/87) *AS OF 3/31/03. **NOT ANNUALIZED. 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 GRAPH] The sum of $10,000 invested at inception (6/2/87)and held until 3/31/03 would have grown to $31,578 in the Fund or $32,974 in the Lehman Intermediate Government Bond Index assuming reinvestment of all dividends and capital gains. ESTIMATED AVERAGE LIFE PROFILE The Adviser's estimates of the dollar weighted average life of the portfolio's securities, which may vary from their stated maturities. [BAR CHART] 5.8% 92.6% 0% 1.0% 0.6% - -------------------------------------------------------------------------------- 0-1 Year 1-5 Years 5-10 Years 10-20 Years 20+ Years 13 SIT U.S.GOVERNMENT SECURITIES FUND MARCH 31,2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS MORTGAGE PASS-THROUGH SECURITIES (73.2%)(2) FEDERAL HOME LOAN MORTGAGE CORPORATION (15.4%): Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 451,811 7.50% 4/1/2021 482,905 277,208 7.50% 2/1/2027 296,526 485,593 7.50% 4/1/2027 519,433 220,199 8.00% 10/1/2016 239,329 1,808,300 8.00% 12/1/2016 1,969,351 154,228 8.00% 5/1/2017 168,156 446,354 8.00% 7/1/2024 486,247 800,540 8.00% 9/1/2024 872,211 1,495,054 8.00% 9/15/2024 1,622,133 547,191 8.00% 11/1/2025 595,648 158,754 8.00% 12/1/2026 174,033 662,535 8.00% 1/1/2027 720,093 3,943,290 8.00% 7/1/2027 4,285,903 942,966 8.00% 10/1/2027 1,021,939 1,929,961 8.00% 12/1/2027 2,107,879 518,321 8.00% 1/1/2028 563,355 256,399 8.00% 7/1/2028 277,067 1,434,812 8.00% 6/1/2030 1,571,271 1,005,483 8.00% 2/1/2032 1,083,408 86,813 8.25% 12/1/2008 92,646 164,033 8.25% 12/1/2017 178,693 838,170 8.50% 1/1/2016 918,844 1,064,132 8.50% 5/1/2016 1,166,555 20,555 8.50% 1/1/2017 22,327 67,297 8.50% 4/1/2017 74,237 92,225 8.50% 5/1/2017 100,900 1,859,288 8.50% 5/1/2017 2,034,987 61,257 8.50% 7/1/2017 67,019 639,323 8.50% 8/1/2023 700,602 164,698 8.50% 7/1/2024 179,160 254,109 8.50% 1/1/2025 272,954 221,229 8.50% 4/1/2025 237,636 343,757 8.50% 5/1/2025 369,250 320,238 8.50% 6/1/2025 343,987 167,660 8.50% 8/1/2025 180,093 398,381 8.50% 10/1/2026 432,368 35,141 8.50% 11/1/2026 38,402 74,604 8.50% 7/1/2028 81,084 2,143,460 8.50% 12/1/2029 2,302,418 935,234 8.50% 8/1/2030 1,016,483 153,292 8.50% 12/1/2030 164,985 1,640,018 8.50% 4/1/2031 1,761,482 275,601 8.50% 8/1/2031 296,024 148,571 8.75% 1/1/2017 163,510 108 9.00% 4/1/2003 108 4,936 9.00% 10/1/2004 5,006 12,502 9.00% 12/1/2005 13,243 Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 16,551 9.00% 12/1/2005 17,532 6,914 9.00% 1/1/2006 7,323 119,051 9.00% 2/1/2006 126,107 61,326 9.00% 5/1/2009 66,456 30,088 9.00% 6/1/2009 33,577 67,184 9.00% 7/1/2009 73,152 48,197 9.00% 7/1/2009 52,229 227,850 9.00% 12/1/2009 246,932 43,637 9.00% 10/1/2013 48,497 876,833 9.00% 11/1/2015 972,737 36,204 9.00% 5/1/2016 40,290 148,739 9.00% 7/1/2016 165,961 231,417 9.00% 10/1/2016 256,846 271,000 9.00% 11/1/2016 302,379 23,457 9.00% 1/1/2017 26,173 54,116 9.00% 1/1/2017 60,195 31,417 9.00% 2/1/2017 35,055 100,105 9.00% 2/1/2017 109,209 191,645 9.00% 2/1/2017 213,864 22,229 9.00% 4/1/2017 24,669 169,010 9.00% 4/1/2017 180,443 127,375 9.00% 6/1/2017 141,773 120,092 9.00% 6/1/2017 134,047 143,319 9.00% 7/1/2017 159,913 8,722 9.00% 9/1/2017 9,735 242,111 9.00% 10/1/2017 270,245 140,637 9.00% 6/1/2018 156,298 46,294 9.00% 6/1/2018 51,674 487,576 9.00% 6/1/2019 543,489 105,927 9.00% 10/1/2019 118,262 64,001 9.00% 10/1/2019 71,341 118,151 9.00% 10/1/2019 131,923 999,744 9.00% 3/1/2020 1,116,748 663,494 9.00% 9/1/2020 723,241 112,561 9.00% 5/1/2021 125,753 1,777,860 9.00% 6/1/2021 1,957,400 76,912 9.00% 7/1/2021 85,947 126,823 9.00% 7/1/2021 141,751 104,029 9.00% 8/1/2021 116,221 73,682 9.00% 3/1/2022 82,335 186,704 9.00% 4/1/2025 208,345 29,711 9.25% 7/1/2008 32,144 79,244 9.25% 8/1/2008 85,734 72,720 9.25% 8/1/2009 73,824 125,958 9.25% 7/1/2010 133,995 101,719 9.25% 3/1/2011 109,205 149,505 9.25% 6/1/2016 165,921 76,430 9.25% 3/1/2017 84,822 903,541 9.25% 2/1/2018 992,294 14 - --------------------------------------------------------------------------[LOGO] Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 67,665 9.25% 1/1/2019 72,644 431,963 9.25% 3/1/2019 470,547 203,362 9.25% 3/1/2019 224,461 107,630 9.50% 10/1/2005 112,593 101,365 9.50% 10/1/2008 110,043 124,799 9.50% 2/1/2010 137,021 165,365 9.50% 5/1/2010 174,148 42,889 9.50% 6/1/2010 47,089 50,619 9.50% 1/1/2011 55,813 308,170 9.50% 6/1/2011 332,254 125,673 9.50% 6/1/2016 140,060 31,569 9.50% 7/1/2016 34,990 44,713 9.50% 9/1/2016 48,886 120,147 9.50% 10/1/2016 133,169 9,127 9.50% 10/1/2016 10,172 102,341 9.50% 6/1/2017 114,029 81,472 9.50% 8/1/2017 90,765 46,007 9.50% 9/1/2017 51,704 53,405 9.50% 4/1/2018 59,487 23,759 9.50% 10/1/2018 26,472 653,494 9.50% 2/1/2019 728,345 33,795 9.50% 6/1/2019 36,949 972,416 9.50% 6/17/2019 1,090,018 88,532 9.50% 11/1/2019 98,553 202,807 9.50% 7/1/2020 223,863 191,053 9.50% 8/1/2020 213,174 31,553 9.50% 9/1/2020 35,163 678,154 9.50% 8/1/2021 727,822 4,111,007 9.50% 12/17/2021 4,574,992 81,775 9.75% 12/1/2008 90,592 38,798 9.75% 12/1/2008 42,981 143,720 9.75% 11/1/2009 159,035 35,198 9.75% 6/1/2011 38,948 1,040,998 9.75% 12/1/2016 1,171,454 47,740 9.75% 6/1/2017 54,332 408,711 9.75% 12/1/2017 463,323 20,603 9.85% 5/1/2016 23,460 163,443 10.00% 11/1/2010 181,479 260,592 10.00% 11/1/2011 299,294 2,872,786 10.00% 6/15/2017 3,220,213 609,606 10.00% 6/1/2020 704,248 373,398 10.00% 9/1/2020 427,805 330,192 10.00% 3/1/2021 375,924 211,585 10.00% 10/1/2021 240,346 95,208 10.25% 6/1/2010 106,627 53,265 10.25% 2/1/2017 59,654 105,531 10.29% 9/1/2016 118,988 763 10.50% 4/1/2004 777 108,342 10.50% 10/1/2013 123,595 Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 268,192 10.50% 5/1/2014 301,459 80,539 10.50% 9/1/2015 92,670 150,038 10.50% 1/1/2019 173,897 127,656 10.50% 7/1/2020 148,124 28,978 11.00% 12/1/2011 33,215 53,907 11.00% 6/1/2015 62,335 123,632 11.00% 2/1/2016 141,868 25,557 11.00% 2/1/2018 29,768 59,083 11.00% 5/1/2019 67,443 152,164 11.00% 7/1/2019 175,283 35,505 11.25% 10/1/2009 40,412 196,680 11.25% 8/1/2011 229,023 75,920 13.00% 5/1/2017 86,770 ------------ 63,016,464 ------------ FEDERAL NATIONAL MORTGAGE ASSOCIATION (41.5%): 4,360,630 6.95% 8/1/2021 4,583,131 64,069 7.11% 3/1/2019 67,950 242,282 7.24% 5/1/2007 273,245 2,362,874 7.50% 3/1/2016 2,539,710 4,156,462 7.50% 6/1/2022 4,444,817 3,102,526 7.50% 6/1/2025 3,334,246 199,074 7.50% 3/1/2027 212,699 82,761 7.50% 9/1/2027 88,709 394,309 7.50% 5/1/2028 420,925 201,167 7.50% 11/1/2029 215,815 585,491 7.50% 1/1/2030 624,082 1,767,956 7.50% 3/1/2032 1,883,978 568,366 7.54% 6/1/2016 640,987 3,842,076 7.87% 12/15/2025 4,234,688 210,321 8.00% 8/1/2009 227,624 241,546 8.00% 11/1/2016 263,764 154,008 8.00% 6/1/2018 167,628 268,496 8.00% 1/1/2022 294,087 669,856 8.00% 1/1/2023 733,437 322,698 8.00% 2/1/2023 353,585 345,312 8.00% 5/1/2023 376,468 305,982 8.00% 9/1/2023 332,181 864,925 8.00% 6/1/2024 946,552 2,185,539 8.00% 7/1/2024 2,391,116 584,208 8.00% 8/1/2024 638,613 95,597 8.00% 4/1/2025 104,396 796,565 8.00% 6/1/2027 869,998 432,374 8.00% 9/1/2027 472,910 208,371 8.00% 10/1/2027 227,747 1,163,196 8.00% 6/1/2028 1,263,158 668,802 8.00% 9/1/2028 726,263 1,227,642 8.00% 9/1/2029 1,330,407 196,604 8.00% 12/1/2029 212,271 See accompanying notes to portfolios of investments on page 56. 15 SIT U.S. GOVERNMENT SECURITIES FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 431,997 8.00% 12/1/2029 466,422 278,056 8.00% 2/1/2030 302,194 223,897 8.00% 2/1/2031 242,552 1,116,893 8.00% 2/1/2031 1,211,130 718,777 8.00% 3/1/2031 786,672 2,509,727 8.00% 3/1/2032 2,716,779 116,484 8.25% 4/1/2022 126,713 2,955,732 8.29% 7/20/2030 3,252,229 725,977 8.33% 7/15/2020 807,500 1,012,253 8.38% 7/20/2028 1,115,692 50,474 8.50% 8/1/2006 54,068 235,182 8.50% 11/1/2010 254,511 1,740,848 8.50% 2/1/2016 1,923,637 112,418 8.50% 4/1/2017 123,226 1,321,966 8.50% 6/1/2017 1,400,044 82,346 8.50% 9/1/2017 90,349 233,316 8.50% 8/1/2018 258,033 45,128 8.50% 1/1/2022 49,373 907,448 8.50% 5/1/2022 995,256 342,390 8.50% 7/1/2022 378,662 43,147 8.50% 5/1/2024 47,678 343,119 8.50% 2/1/2025 376,321 182,229 8.50% 9/1/2025 199,370 1,270,155 8.50% 12/1/2025 1,384,963 1,256,651 8.50% 1/1/2026 1,369,273 1,262,666 8.50% 1/1/2026 1,375,827 771,883 8.50% 7/1/2026 830,543 4,152,609 8.50% 11/1/2026 4,519,855 7,179,422 8.50% 11/1/2026 7,823,326 122,605 8.50% 12/1/2026 133,447 420,046 8.50% 5/1/2027 458,014 9,175,725 8.50% 5/1/2027 9,998,673 782,534 8.50% 6/1/2027 852,665 401,337 8.50% 1/1/2030 432,566 1,387,367 8.50% 1/1/2030 1,492,720 157,957 8.50% 11/1/2030 170,268 364,459 8.50% 11/1/2030 392,477 379,359 8.50% 1/1/2031 408,522 1,327,642 8.52% 9/15/2030 1,459,991 5,850,457 8.56% 10/15/2029 6,455,614 489,107 8.87% 12/15/2025 546,849 317,028 9.00% 1/1/2009 344,390 74,450 9.00% 5/1/2009 81,299 185,784 9.00% 5/1/2009 200,259 274,350 9.00% 5/1/2009 297,418 327,863 9.00% 5/1/2009 358,022 52,175 9.00% 4/1/2010 57,288 141,420 9.00% 3/1/2011 154,634 337,385 9.00% 8/1/2016 376,697 350,320 9.00% 11/1/2016 391,139 Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 87,170 9.00% 1/1/2017 97,327 92,669 9.00% 6/1/2017 99,204 185,268 9.00% 6/1/2017 206,658 62,751 9.00% 7/1/2017 69,996 484 9.00% 9/1/2017 535 87,724 9.00% 9/1/2017 97,811 215,336 9.00% 12/1/2017 240,198 47,485 9.00% 2/1/2018 52,946 117,093 9.00% 7/1/2018 130,047 67,293 9.00% 9/1/2019 73,888 55,564 9.00% 10/1/2019 61,954 225,044 9.00% 12/15/2019 250,642 58,269 9.00% 9/1/2020 64,968 454,529 9.00% 3/1/2021 507,008 11,302 9.00% 9/1/2021 12,592 87,293 9.00% 11/1/2021 97,258 198,140 9.00% 4/1/2025 220,741 220,041 9.00% 4/1/2025 243,820 626,338 9.00% 8/1/2025 695,822 1,506,993 9.00% 11/1/2025 1,684,064 3,976,217 9.00% 10/1/2026 4,406,145 7,695,466 9.00% 10/1/2026 8,549,182 3,331,182 9.00% 11/1/2026 3,691,366 2,888,646 9.00% 11/1/2026 3,209,105 287,097 9.00% 12/1/2026 319,298 1,079,889 9.00% 5/1/2027 1,206,101 2,931,444 9.00% 5/1/2027 3,261,231 352,415 9.00% 5/1/2030 389,529 2,034,423 9.00% 7/1/2030 2,268,382 832,932 9.00% 8/15/2030 926,636 326,646 9.00% 11/1/2030 354,014 153,631 9.00% 4/1/2031 165,202 975,703 9.00% 6/1/2031 1,082,813 376,140 9.00% 7/1/2031 410,815 2,834,835 9.09% 10/15/2023 3,158,218 482,025 9.25% 10/1/2009 521,066 168,571 9.25% 7/1/2010 184,879 25,638 9.25% 4/1/2012 26,948 38,306 9.25% 10/1/2016 42,518 63,299 9.25% 10/1/2016 70,260 72,312 9.25% 12/1/2016 80,264 353,571 9.25% 2/1/2017 392,464 70,813 9.25% 3/1/2017 78,601 1,062,407 9.34% 8/20/2027 1,220,503 63,769 9.38% 5/1/2016 70,929 36,997 9.50% 1/1/2006 37,554 53,136 9.50% 9/1/2008 56,640 175,971 9.50% 12/1/2009 192,046 59,018 9.50% 1/1/2011 64,016 39,091 9.50% 10/1/2013 42,941 16 - --------------------------------------------------------------------------[LOGO] Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 50,247 9.50% 5/1/2014 53,560 25,793 9.50% 4/1/2016 28,333 283,682 9.50% 4/1/2016 314,082 49,162 9.50% 9/1/2016 54,804 125,581 9.50% 9/1/2017 139,983 135,845 9.50% 11/1/2018 153,029 166,500 9.50% 12/1/2018 185,681 53,417 9.50% 5/1/2019 60,210 156,258 9.50% 10/1/2019 175,549 44,553 9.50% 11/1/2019 50,150 123,883 9.50% 12/1/2019 138,120 136,071 9.50% 3/1/2020 151,313 101,534 9.50% 6/1/2020 114,378 413,720 9.50% 9/1/2020 461,267 680,046 9.50% 9/1/2020 753,469 511,387 9.50% 10/15/2020 574,390 87,713 9.50% 12/15/2020 98,646 457,684 9.50% 12/15/2020 514,942 167,262 9.50% 3/1/2021 188,272 133,503 9.50% 4/15/2021 150,305 639,352 9.50% 7/1/2021 712,678 746,773 9.50% 5/1/2022 832,354 496,614 9.50% 4/1/2025 553,825 2,442,460 9.50% 8/1/2026 2,716,473 1,652,737 9.50% 10/1/2026 1,835,571 328,354 9.50% 8/1/2030 365,910 366,308 9.75% 1/15/2013 415,848 564,247 9.75% 1/1/2021 643,948 741,652 9.75% 10/1/2021 846,179 586,242 9.75% 4/1/2025 668,866 27,289 10.00% 3/1/2011 30,253 156,820 10.00% 5/1/2011 174,846 225,559 10.00% 7/1/2013 252,485 209,933 10.00% 6/1/2014 230,729 1,281,218 10.00% 2/1/2015 1,453,425 1,376,882 10.00% 3/1/2015 1,575,399 127,788 10.00% 11/1/2016 144,361 127,360 10.00% 3/1/2018 144,833 954,344 10.00% 7/1/2019 1,082,585 163,387 10.00% 9/1/2019 186,819 241,786 10.00% 12/1/2019 272,584 723,652 10.00% 6/1/2020 829,673 139,449 10.00% 11/1/2020 160,584 122,864 10.00% 1/1/2021 137,883 64,204 10.00% 2/1/2021 73,267 798,685 10.00% 10/1/2021 914,494 262,398 10.00% 5/1/2022 294,473 467,916 10.00% 5/1/2022 533,965 373,941 10.00% 1/1/2024 428,116 1,584,199 10.00% 3/1/2025 1,822,324 Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 353,469 10.00% 7/1/2028 406,573 1,107,655 10.25% 8/15/2013 1,266,030 52,406 10.50% 5/1/2009 58,403 134,403 10.50% 5/1/2015 151,917 521,565 10.50% 1/1/2016 600,339 2,304,340 10.50% 1/1/2016 2,642,934 86,495 10.50% 3/1/2017 97,334 302,859 10.50% 12/1/2017 344,976 23,851 10.75% 11/1/2010 26,707 82,421 11.00% 10/1/2006 86,651 103,044 11.00% 9/1/2012 116,423 8,165 11.00% 4/1/2014 9,393 90,882 11.00% 8/1/2015 103,535 320,634 11.00% 9/1/2015 357,707 113,978 11.00% 4/1/2017 131,324 1,231,783 11.27% 8/15/2020 1,419,849 669,295 11.75% 10/20/2022 774,534 ------------ 169,719,344 ------------ GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (16.3%)(3): 143,022 6.00% 9/15/2018 150,396 162,560 6.75% 9/15/2015 172,375 47,291 7.00% 9/20/2016 50,365 79,909 7.05% 2/15/2023 85,553 94,393 7.25% 8/15/2010 101,414 106,725 7.25% 5/15/2022 112,033 466,452 7.25% 10/15/2028 497,934 175,492 7.27% 7/20/2022 187,173 474,266 7.38% 3/15/2031 505,241 34,521 7.50% 3/15/2007 36,845 212,279 7.50% 5/15/2016 227,291 302,338 7.55% 7/20/2022 326,618 369,171 7.55% 10/20/2022 398,819 317,966 7.65% 10/20/2021 344,273 385,734 7.65% 7/20/2022 417,462 273,622 7.75% 6/15/2020 299,616 441,495 7.75% 7/15/2020 483,437 400,888 7.75% 8/15/2020 438,972 532,719 7.75% 8/15/2020 583,327 225,878 7.75% 11/15/2020 247,336 828,746 7.75% 10/15/2022 901,779 128,583 7.75% 7/15/2027 139,392 280,539 7.90% 9/20/2020 305,174 166,967 7.90% 11/20/2020 181,629 132,845 7.90% 11/20/2020 144,511 107,146 7.90% 1/20/2021 116,555 47,519 7.90% 1/20/2021 51,691 169,806 7.90% 4/20/2021 184,717 57,946 7.90% 8/20/2021 63,034 519,919 7.95% 2/15/2020 571,330 See accompanying notes to portfolios of investments on page 56. 17 SIT U.S. GOVERNMENT SECURITIES FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 254,460 7.99% 2/20/2021 277,202 100,611 7.99% 4/20/2021 109,603 267,599 7.99% 7/20/2021 291,516 195,976 7.99% 9/20/2021 213,491 181,377 7.99% 10/20/2021 197,588 297,520 7.99% 1/20/2022 324,018 553,611 7.99% 6/20/2022 602,917 51,638 8.00% 10/15/2012 56,239 145,893 8.00% 5/15/2016 159,716 625,098 8.00% 6/15/2016 684,325 204,471 8.00% 9/15/2016 223,845 155,144 8.00% 11/20/2016 169,203 256,923 8.00% 7/15/2017 282,867 1,414,575 8.00% 2/15/2022 1,554,779 161,028 8.00% 4/15/2022 176,174 714,260 8.00% 1/15/2023 784,648 117,953 8.00% 7/20/2023 128,385 256,412 8.00% 8/15/2023 281,653 618,542 8.00% 10/20/2023 673,306 79,914 8.00% 12/20/2023 86,982 85,068 8.00% 2/20/2024 92,563 677,217 8.00% 2/20/2026 732,170 262,070 8.00% 12/15/2026 285,963 136,557 8.00% 12/20/2026 147,639 1,889,059 8.00% 4/15/2028 2,057,672 1,459,677 8.00% 4/15/2028 1,584,548 702,569 8.10% 5/20/2019 766,459 485,735 8.10% 6/20/2019 529,906 384,613 8.10% 7/20/2019 419,589 473,824 8.10% 9/20/2019 516,912 203,770 8.10% 9/20/2019 222,300 135,807 8.10% 10/20/2019 148,157 267,634 8.10% 1/20/2020 291,721 263,858 8.10% 4/20/2020 287,605 335,684 8.10% 7/20/2020 365,896 272,726 8.25% 12/15/2011 296,152 90,762 8.25% 1/15/2012 98,820 205,061 8.25% 8/15/2015 224,170 1,352,557 8.25% 4/15/2019 1,489,657 63,033 8.25% 1/15/2020 69,041 302,027 8.25% 2/15/2020 332,324 104,438 8.25% 4/15/2027 113,544 207,060 8.25% 6/15/2027 225,113 72,863 8.25% 1/15/2028 78,897 422,165 8.38% 10/15/2019 465,965 385,191 8.40% 2/15/2019 425,396 200,824 8.40% 4/15/2019 221,785 62,682 8.40% 6/15/2019 69,224 140,552 8.40% 6/15/2019 155,222 122,564 8.40% 9/15/2019 135,356 Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 95,446 8.40% 9/15/2019 105,408 180,071 8.40% 2/15/2020 198,641 106,624 8.50% 12/15/2011 116,261 300,675 8.50% 1/15/2012 328,770 111,864 8.50% 4/15/2015 122,843 63,738 8.50% 4/15/2015 69,994 423,961 8.50% 9/15/2016 465,989 404,335 8.50% 1/15/2017 444,659 308,242 8.50% 12/15/2021 340,326 67,763 8.50% 2/15/2022 74,709 63,112 8.50% 7/20/2022 69,121 369,088 8.50% 10/20/2022 404,231 230,047 8.50% 9/20/2024 251,551 405,047 8.50% 3/20/2025 441,785 55,665 8.50% 5/20/2025 60,714 263,935 8.50% 8/20/2025 287,874 852,999 8.50% 12/20/2026 926,757 76,933 8.50% 3/20/2030 83,328 239,444 8.50% 6/15/2030 259,049 180,063 8.50% 8/15/2030 195,713 153,094 8.60% 3/15/2018 169,028 64,946 8.60% 5/15/2018 71,705 191,691 8.60% 6/15/2018 211,641 144,837 8.63% 10/15/2018 160,689 2,305 8.75% 5/15/2003 2,340 34,702 8.75% 5/15/2006 37,427 49,389 8.75% 5/15/2006 53,268 41,915 8.75% 10/15/2006 45,206 65,281 8.75% 11/15/2006 70,407 37,396 8.75% 2/15/2007 39,930 20,152 8.75% 3/15/2007 21,517 73,578 8.75% 11/15/2009 79,667 99,039 8.75% 6/15/2011 108,270 321,839 8.75% 11/15/2011 351,834 105,201 8.75% 12/15/2011 115,006 78,427 8.75% 7/15/2021 86,963 21,053 9.00% 10/15/2004 21,918 91,592 9.00% 4/15/2006 99,062 74,193 9.00% 4/15/2006 80,254 75,475 9.00% 5/15/2006 81,631 99,308 9.00% 5/15/2006 107,421 44,406 9.00% 6/15/2006 48,034 279,770 9.00% 6/15/2006 302,588 188,740 9.00% 7/15/2006 204,135 30,666 9.00% 10/15/2006 33,172 144,391 9.00% 10/15/2006 156,188 26,400 9.00% 6/15/2007 28,278 80,765 9.00% 10/15/2007 86,513 60,172 9.00% 9/15/2008 65,441 21,339 9.00% 9/15/2008 23,208 18 - --------------------------------------------------------------------------[LOGO] Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 40,425 9.00% 10/15/2008 43,965 25,166 9.00% 11/15/2008 27,370 3,516 9.00% 11/15/2008 3,824 86,250 9.00% 12/15/2008 93,802 10,368 9.00% 2/15/2009 11,351 14,390 9.00% 3/15/2009 15,754 31,529 9.00% 4/15/2009 34,519 64,678 9.00% 4/15/2009 71,701 22,895 9.00% 5/15/2009 25,066 50,920 9.00% 8/15/2009 56,449 58,096 9.00% 9/15/2009 64,404 33,617 9.00% 10/15/2009 36,806 63,421 9.00% 11/15/2009 68,929 44,311 9.00% 12/15/2009 49,122 403,121 9.00% 7/15/2010 443,433 118,913 9.00% 5/15/2011 130,545 303,000 9.00% 5/15/2011 332,626 150,920 9.00% 6/15/2011 165,676 161,553 9.00% 7/15/2011 177,349 141,302 9.00% 8/15/2011 155,118 169,759 9.00% 8/15/2011 189,592 167,150 9.00% 9/15/2011 183,493 131,682 9.00% 9/15/2011 144,557 172,196 9.00% 9/15/2011 189,032 130,257 9.00% 10/15/2011 142,993 81,296 9.00% 1/15/2012 89,534 303,220 9.00% 7/15/2015 338,150 42,270 9.00% 8/15/2015 47,139 203,267 9.00% 12/20/2015 225,944 65,643 9.00% 5/20/2016 73,028 36,837 9.00% 6/20/2016 40,985 34,222 9.00% 7/20/2016 38,076 31,200 9.00% 7/20/2016 34,714 352,132 9.00% 1/15/2017 390,494 37,105 9.00% 3/20/2017 41,310 861,920 9.00% 6/15/2017 955,820 703,591 9.00% 7/15/2017 780,243 903,530 9.00% 8/20/2017 1,005,932 132,752 9.00% 5/15/2018 144,338 792,353 9.00% 12/15/2019 885,155 29,777 9.00% 12/15/2019 33,265 12,687 9.00% 7/20/2021 14,117 14,518 9.00% 10/20/2021 16,155 1,068,864 9.00% 11/15/2024 1,193,966 37,124 9.00% 12/15/2024 41,324 111,700 9.00% 2/20/2025 123,638 189,150 9.00% 7/20/2025 209,380 545,982 9.00% 4/15/2026 607,210 782,415 9.00% 12/15/2030 853,566 153,973 9.10% 5/15/2018 172,482 Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 55,617 9.25% 3/15/2005 59,429 218,756 9.25% 11/15/2009 239,933 80,141 9.25% 1/15/2010 88,376 74,606 9.25% 4/15/2010 82,272 114,803 9.25% 11/15/2010 126,598 150,945 9.25% 11/15/2011 167,123 33,932 9.25% 4/15/2012 37,587 77,035 9.25% 5/15/2016 86,182 79,203 9.25% 8/20/2016 88,360 19,176 9.25% 9/15/2016 21,453 16,293 9.25% 10/15/2016 18,227 17,181 9.25% 2/20/2017 19,181 44,000 9.25% 6/20/2017 49,121 59,538 9.25% 7/20/2017 66,468 23,931 9.25% 9/20/2017 26,717 18,871 9.25% 11/20/2017 21,067 925 9.50% 1/20/2005 986 5,642 9.50% 3/15/2005 6,049 33,117 9.50% 1/15/2006 35,993 21,195 9.50% 6/15/2009 23,547 55,112 9.50% 7/15/2009 61,227 37,243 9.50% 8/15/2009 41,375 62,645 9.50% 8/15/2009 69,597 21,266 9.50% 9/15/2009 23,626 52,001 9.50% 9/15/2009 57,771 32,500 9.50% 9/15/2009 36,106 109,997 9.50% 9/15/2009 121,862 30,837 9.50% 10/15/2009 34,259 66,973 9.50% 10/15/2009 74,405 108,787 9.50% 10/15/2009 120,520 29,562 9.50% 10/15/2009 32,842 44,766 9.50% 10/15/2009 49,594 6,289 9.50% 10/15/2009 6,967 44,860 9.50% 10/15/2009 49,837 13,062 9.50% 10/15/2009 14,512 11,660 9.50% 10/15/2009 12,918 290,216 9.50% 10/15/2009 321,519 65,532 9.50% 11/15/2009 72,149 156,070 9.50% 1/15/2010 172,790 74,071 9.50% 2/15/2010 82,517 240,043 9.50% 4/15/2010 268,806 43,133 9.50% 8/15/2010 47,754 95,983 9.50% 11/15/2010 106,266 46,161 9.50% 1/15/2011 51,319 196,391 9.50% 3/15/2011 218,338 101,611 9.50% 3/20/2016 114,095 20,607 9.50% 6/15/2016 23,221 57,779 9.50% 9/15/2016 65,109 83,169 9.50% 10/15/2016 93,720 49,176 9.50% 10/15/2016 55,414 See accompanying notes to portfolios of investments on page 56. 19 Sit U.S. Government Securities Fund MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 77,068 9.50% 11/15/2016 86,844 42,747 9.50% 11/15/2016 48,170 52,179 9.50% 11/20/2016 58,590 18,099 9.50% 1/15/2017 20,411 59,085 9.50% 4/15/2017 66,633 83,618 9.50% 8/15/2017 94,300 18,727 9.50% 8/20/2017 21,044 81,418 9.50% 9/15/2017 91,819 65,075 9.50% 9/15/2017 73,388 23,448 9.50% 11/15/2017 26,443 206,950 9.50% 12/15/2017 233,401 453,065 9.50% 12/15/2017 510,435 210,187 9.50% 12/15/2017 237,052 67,347 9.50% 12/15/2017 75,891 14,101 9.50% 12/20/2017 15,846 6,821 9.50% 4/15/2018 7,697 19,691 9.50% 4/20/2018 22,141 20,055 9.50% 5/15/2018 22,630 15,743 9.50% 5/15/2018 17,765 10,447 9.50% 5/20/2018 11,747 224,953 9.50% 6/15/2018 253,842 179,297 9.50% 6/20/2018 201,605 43,814 9.50% 7/20/2018 49,266 14,360 9.50% 8/15/2018 16,204 195,719 9.50% 8/20/2018 220,069 103,160 9.50% 8/20/2018 115,995 35,059 9.50% 8/20/2018 39,421 106,325 9.50% 9/15/2018 119,980 74,603 9.50% 9/15/2018 84,184 15,259 9.50% 9/20/2018 17,157 572,368 9.50% 9/20/2018 643,579 86,359 9.50% 9/20/2018 97,104 92,951 9.50% 10/15/2018 104,779 73,357 9.50% 1/15/2019 82,812 58,968 9.50% 4/15/2019 66,569 14,151 9.50% 7/15/2019 15,975 25,295 9.50% 8/15/2019 28,555 153,486 9.50% 8/20/2019 172,655 91,857 9.50% 9/15/2019 103,697 13,220 9.50% 10/20/2019 14,871 81,571 9.50% 12/15/2019 92,086 33,885 9.50% 1/15/2020 38,266 30,861 9.50% 2/15/2020 34,851 14,294 9.50% 10/15/2020 16,143 15,890 9.50% 1/15/2021 17,948 14,421 9.50% 2/15/2021 16,289 107,520 9.50% 8/15/2021 121,446 808,909 9.50% 8/15/2022 913,760 6,230 9.75% 12/15/2003 6,341 Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 3,908 9.75% 3/15/2004 4,088 81,613 9.75% 6/15/2005 87,318 22,871 9.75% 6/15/2005 24,470 60,634 9.75% 8/15/2005 64,873 49,787 9.75% 9/15/2005 53,272 36,073 9.75% 1/15/2006 39,246 57,522 9.75% 2/15/2006 62,581 156,769 9.75% 8/15/2009 173,670 76,887 9.75% 9/15/2009 85,176 260,312 9.75% 8/15/2010 290,289 77,091 9.75% 11/15/2010 85,969 337,645 9.75% 12/15/2010 376,528 180,896 9.75% 1/15/2011 202,831 402,038 9.75% 1/15/2011 450,789 68,455 9.75% 10/15/2012 77,055 40,360 9.75% 10/15/2012 45,430 39,657 9.75% 10/15/2012 44,639 130,816 9.75% 11/15/2012 147,250 129,272 9.75% 11/15/2012 145,523 43,170 9.75% 11/15/2012 48,597 98,514 9.75% 11/15/2012 110,899 45,138 9.75% 12/15/2012 50,812 33,264 9.75% 4/15/2018 37,932 9,506 10.00% 11/15/2003 9,683 18,460 10.00% 5/15/2004 19,340 180,739 10.00% 7/15/2005 193,817 54,715 10.00% 7/15/2005 58,674 24,458 10.00% 1/15/2006 26,687 88,348 10.00% 11/15/2008 97,377 14,920 10.00% 5/15/2009 16,591 4,649 10.00% 11/15/2009 5,216 115,878 10.00% 6/15/2010 129,737 12,174 10.00% 6/15/2010 13,630 14,374 10.00% 7/15/2010 16,093 59,129 10.00% 7/15/2010 66,201 22,102 10.00% 10/15/2010 24,745 199,263 10.00% 11/15/2010 223,096 36,383 10.00% 1/15/2011 40,965 54,904 10.00% 10/15/2015 62,913 37,949 10.00% 3/20/2016 43,348 72,669 10.00% 11/15/2017 83,435 20,036 10.00% 10/15/2018 23,013 36,038 10.00% 2/15/2019 41,407 100,719 10.00% 2/20/2019 115,220 100,544 10.00% 3/20/2019 115,020 27,018 10.00% 5/15/2019 31,043 77,390 10.00% 5/20/2019 88,531 448,496 10.00% 10/15/2019 510,865 70,993 10.00% 11/15/2019 81,569 20 - --------------------------------------------------------------------------[LOGO] Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 21,649 10.00% 7/15/2020 24,878 34,881 10.00% 12/15/2020 40,084 135,032 10.00% 6/15/2021 155,205 189,738 10.00% 10/15/2030 215,827 9,585 10.25% 5/15/2004 10,059 8,311 10.25% 8/15/2004 8,722 74,404 10.25% 7/15/2005 79,980 68,627 10.25% 5/15/2009 75,610 66,094 10.25% 1/15/2012 73,964 94,257 10.25% 2/15/2012 105,479 57,869 10.25% 2/15/2012 64,759 33,305 10.25% 7/15/2012 37,270 74,582 10.50% 6/15/2009 82,486 46,814 10.50% 7/15/2010 52,129 11,637 10.50% 9/15/2015 13,473 17,206 10.50% 11/15/2015 19,919 15,120 10.50% 11/15/2015 17,504 21,289 10.50% 3/15/2016 24,691 28,375 10.50% 12/15/2016 32,908 76,706 10.50% 8/20/2017 88,691 87,140 10.50% 11/15/2018 101,343 148,055 10.50% 6/15/2019 172,392 799,321 10.50% 2/15/2020 928,938 370,227 10.50% 8/15/2021 422,406 24,333 10.75% 9/15/2005 26,280 40,737 10.75% 8/15/2006 44,912 12,642 10.75% 1/15/2010 14,120 3,434 10.75% 7/15/2011 3,855 24,748 10.75% 8/15/2011 27,783 18,177 11.00% 6/15/2004 19,164 167,795 11.00% 1/15/2010 192,354 95,781 11.00% 1/15/2010 109,799 111,091 11.00% 1/15/2010 127,351 139,206 11.00% 3/15/2010 159,565 16,035 11.00% 6/15/2010 18,382 120,462 11.00% 9/15/2010 138,080 35,508 11.25% 9/15/2005 38,491 44,570 11.25% 10/15/2005 48,314 105,111 11.25% 6/15/2010 118,228 102,550 11.25% 9/15/2010 115,346 8,145 11.25% 9/15/2010 9,162 31,500 11.25% 2/15/2011 35,619 30,824 11.25% 2/15/2011 34,855 57,279 11.25% 3/15/2011 64,769 29,548 11.25% 3/15/2011 33,412 101,383 11.25% 4/15/2011 114,641 45,423 11.25% 5/15/2011 51,363 62,897 11.25% 7/15/2011 71,122 41,061 11.25% 7/15/2011 46,430 Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 46,939 11.25% 7/15/2011 53,078 83,078 11.25% 9/15/2011 93,942 48,470 11.25% 10/15/2011 54,808 18,270 11.25% 11/15/2011 20,660 2,487 11.75% 6/15/2004 2,631 6,888 11.75% 6/15/2004 7,287 ------------ 66,683,193 ------------ Total mortgage pass-through securities 299,419,001 (cost: $295,557,199) ------------ Quantity Name of Issuer Market Value($)(1) - ---------------------------------------------------------------------- TAXABLE MUNICIPAL SECURITIES (0.4%)(2) 15,000 Alabama Hsg. Fin. Auth. Multifamily Series 1999B, 5.70%, 9/1/03 15,254 263,000 Bernalillo Multifamily Rev. Series 1998A, 7.50%, 9/20/20 290,281 38,000 California Comm. Dev. Auth. Rev. Series 2000, 7.50%, 5/20/04 39,253 95,000 Cuyahoga County Multifamily Rev. Series 2000B, 7.00%, 1/20/08 107,175 90,000 Dakota Multifamily Rev. Series 1999A, 6.50%, 12/20/05 94,943 195,000 Louisiana Comm. Dev. Auth Rev. Series 2002B, 5.25%, 12/20/07 205,130 485,000 Maplewood Multifamily Rev. Series 1998B, 6.75%, 7/20/15 534,392 100,000 Metro Govt. (TN) Series 2001 - A2, 7.00%, 6/20/04 104,528 284,000 Nortex Multifamily Rev. Series 1999T, 6.50%, 3/20/06 303,960 ------------ Total taxable municipal securities 1,694,916 (cost: $1,564,999) ------------ U.S. TREASURY SECURITIES (4.2%)(2) 9,300,000 U.S. Treasury Strips, Zero Coupon, 5.94% Effective Yield, 11/15/27 2,534,603 U.S. Treasury Note: 5,000,000 4.375%, 8/15/12 5,226,955 5,000,000 5.00%, 8/15/11 5,482,420 3,700,000 U.S Treasury Bond, 5.50%, 8/15/28 3,988,341 ------------ Total U.S. Treasury securities 17,232,319 (cost: $16,231,021) ------------ See accompanying notes to portfolios of investments on page 56. 21 SIT U.S. GOVERNMENT SECURITIES FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS COLLATERALIZED MORTGAGE OBLIGATIONS (19.5%)(2) FEDERAL HOME LOAN MORTGAGE CORP.: Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- 267,709 6.25% 10/15/2031 267,726 94,243 7.75% 3/18/2025 100,599 222,500 8.50% 12/15/2012 223,414 760,440 8.50% 9/15/2031 763,250 2,480,965 8.50% 3/15/2032 2,509,102 74,879 8.50% 3/15/2032 75,035 1,598,172 8.50% 5/15/2032 1,622,498 238,625 8.50% 5/15/2032 240,317 167,632 9.15% 10/15/2020 175,113 FEDERAL NATIONAL MORTGAGE ASSOCIATION: 7,383,916 4.00% 11/25/2032 7,518,505 295,678 6.00% 5/25/2032 295,614 84,464 7.00% 1/25/2021 91,732 2,277,250 7.00% 1/25/2022 2,433,285 285,066 7.37% 1/17/2013 304,633 140,000 7.70% 3/25/2023 155,611 4,528,065 8.00% 7/25/2016 4,916,185 766,483 8.00% 7/25/2022 857,713 482,798 8.20% 4/25/2025 514,473 124,916 8.50% 1/25/2021 138,314 294,064 8.50% 4/25/2021 320,788 1,426,052 8.50% 9/25/2021 1,561,263 420,481 8.50% 1/25/2025 459,221 354,319 8.75% 9/25/2020 388,395 719,574 8.95% 10/25/2020 805,355 1,927,344 9.00% 7/25/2019 2,168,968 1,760,001 9.00% 12/25/2019 1,987,926 541,576 9.00% 5/25/2020 586,527 707,473 9.00% 6/25/2020 799,027 278,496 9.00% 6/25/2020 312,260 101,226 9.00% 7/25/2020 113,739 696,150 9.00% 9/25/2020 779,363 420,972 9.00% 10/25/2020 467,987 1,124,367 9.00% 3/1/2024 1,253,795 5,832,784 9.00% 11/25/2028 6,297,049 671,911 9.25% 1/25/2020 754,550 587,636 9.50% 12/25/2018 669,362 1,142,480 9.50% 3/25/2020 1,296,158 359,283 9.50% 4/25/2020 408,137 859,203 9.50% 5/25/2020 969,843 1,001,917 9.50% 11/25/2020 1,139,552 1,440,265 9.60% 3/25/2020 1,642,820 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: 820,793 6.00% 5/20/2014 820,099 4,038,000 6.50% 9/20/2030 4,266,982 1,865,000 7.00% 3/20/2030 1,967,387 Par ($) Coupon Maturity Market Value ($)(1) ------- ------ -------- ------------------- VENDEE MORTGAGE TRUST: 142,284 5.63% 2/15/2024 140,799 2,000,000 6.00% 4/15/2027 2,067,360 2,000,000 6.00% 2/15/2030 2,108,429 2,739,224 6.50% 2/15/2020 2,799,302 250,000 6.50% 10/15/2025 272,864 5,000,000 7.00% 9/15/2027 5,336,109 1,526,476 7.50% 4/15/2008 1,554,701 5,500,000 7.50% 11/15/2014 5,925,884 3,529,299 7.50% 5/15/2024 3,602,060 206,272 7.75% 5/15/2008 206,860 ------------ Total collateralized mortgage obligations 79,454,040 (cost: $78,547,136) ------------ Quantity Name of Issuer Market Value($)(1) - ---------------------------------------------------------------------- SHORT-TERM SECURITIES(1.9%)(2) 2,200,000 FNMA, 1.22%, 4/4/03 2,199,776 5,504,769 Dreyfus Cash Mgmt. Fund, 1.17% 5,504,769 ------------ Total short-term securities 7,704,545 (cost: $7,704,545) ------------ Total investments in securities (cost: $399,604,900)(7) $405,504,821 ============ 22 See accompanying notes to portfolios of investments on page 56. - --------------------------------------------------------------------------[LOGO] This page has been left blank intentionally. 23 SIT TAX-FREE INCOME FUND ONE YEAR ENDED MARCH 31, 2003 [PHOTO]------------------------------------------------------------------------- MICHAEL C. BRILLEY, SENIOR PORTFOLIO MANAGER DEBRA A. SIT, CFA, SENIOR PORTFOLIO MANAGER The Tax Free Income Fund returned +5.9% for the year ended March 31, 2003 compared to a 9.9% return for the Lehman 5-Year Municipal Bond Index. YIELDS REMAIN ATTRACTIVE The Fund's 30-day SEC yield was 4.78% as of March 31st and its 12-month distribution rate was 4.53%. Our after-tax yields are particularly attractive. Yields declined through September 2002, but have been relatively stable since then. STRUCTURED TO RESPOND TO HIGHER RATES The Fund's duration is very close to our benchmark and has been relatively stable over the past 12 months. The Fund's structure has also been relatively stable with the exception of the sector reclassification of tobacco settlement bonds from "other revenue" to industrial/pollution control. HOSPITAL RETURNS OFFSET OTHER SOFT SPOTS Our holdings in the hospital and other revenue sectors have been very strong in recent periods. Prices have improved in the hospital sector, despite heavy issuance, as issues have improved profitability rather than increasing bed capacity. The lowest total returns were earned by the multi-family and industrial/ pollution control sectors. The industrial/ pollution control sector was hampered by falling prices for excess electric capacity. In addition, our 6% weighting in tobacco settlement revenue bonds has been hurt by heavy issuance and by an adverse court decision in Illinois during late March, which we expect to be resolved with only a minor impact on the portfolio. The multi-family sector was adversely affected by growing vacancy rates caused by weaker economic growth and the decision of many renters to purchase homes in the current low interest rate environment. POSITIONED FOR MODERATE RATE INCREASES Our defensive structure anticipates improving economic growth during the second half of 2003. We believe that the combination of diminished war worries, recent government spending, and very low interest rates will begin to stimulate modest growth. We expect short-term interest rates to remain stable throughout 2003. However, we expect enough growth to begin to cause intermediate and longer-term municipal bond yields to begin rising later this year as investors anticipate a Federal Reserve shift to an upward rate bias next year. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Tax-Free Income Fund is to provide a high level of current income that is exempt from federal income tax, consistent with preservation of capital, by investing primarily in investment-grade municipal securities. Such municipal securities generate interest income that is exempt from both regular federal income tax and federal alternative minimum tax. During normal market conditions, the Fund invests 100% of its net assets in such tax-exempt municipal securities. PORTFOLIO SUMMARY Net Asset Value 3/31/03: $ 9.94 Per Share 3/31/02: $ 9.82 Per Share Total Net Assets: $414.4 Million 30-day SEC Yield: 4.78% Tax Equivalent Yield: 7.79%(1) 12-Month Distribution Rate: 4.53% Average Maturity: 13.0 Years Duration to Estimated Avg. Life: 4.2 Years(2) Implied Duration: 4.0 Years(2) (1) For individuals in the 38.6% federal tax bracket. (2) See next page. PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) [BAR CHART] Multifamily Mortage Revenue 24.6 Hospital/Health Care Revenue 17.3 Insured 13.7 Industrial/Pollution Control 12.7 Other Revenue 12.1 Single Family Mortgage 5.6 Sectors less than 4.0% 12.3 Cash & Other Net Assets 1.7 24 - --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT LIPPER TAX-FREE LEHMAN GENERAL INCOME 5-YEAR MUNI. MUNI. BOND FUND BOND INDEX FUND AVG. -------- ------------ ---------- 3 Month** 0.70% 1.11% 0.72% 6 Month** 0.95 1.97 n/a 1 Year 5.90 9.85 8.30 5 Year 4.18 5.91 4.59 10 Year 5.70 5.72 5.43 Inception 6.53 6.63 6.81 (9/29/88) CUMULATIVE TOTAL RETURNS* SIT LIPPER TAX-FREE LEHMAN GENERAL INCOME 5-YEAR MUNI. MUNI. BOND FUND BOND INDEX FUND AVG. -------- ------------ ---------- 1 Year 5.90% 9.85% 8.30% 5 Year 22.71 33.23 25.13 10 Year 74.05 74.47 69.72 Inception 150.31 153.87 160.05 (9/29/88) *AS OF 3/31/03. **NOT ANNUALIZED. 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 MUNI. BOND INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. (2) Duration is a measure which reflects estimated price sensitivity to a given change in interest rates. For example, for an interest rate change of 1%, a portfolio with a duration of 5 years would be expected to experience a price change of 5%. Estimated average life duration is based on current interest rates and the Adviser's assumptions regarding the expected average life of individual securities held in the portfolio. Implied duration is calculated based on historical price changes of securities held by the Fund. The Adviser believes that the portfolio's implied duration is a more accurate estimate of price sensitivity provided interest rates remain within their historical range. If interest rates exceed the historical range, the estimated average life duration may be a more accurate estimate of price sensitivity. GROWTH OF $10,000 [PLOT POINT CHART] The sum of $10,000 invested at inception (9/29/88) and held until 3/31/03 would have grown to $25,031 in the Fund or $25,387 in the Lehman 5-Year Municipal Bond Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% OF TOTAL NET ASSETS) [PIE CHART] BBB 26.9% Less Than BBB 5.4% Other Assets and Liabilities 1.7% AAA 24.3% AA 5.5% A 36.2% LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USE 25 SIT TAX-FREE INCOME FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- MUNICIPAL BONDS(96.3%)(2) ALABAMA (0.7%) 470,000 Cullman Med. Park South Med. Clinic Board Rev. Series 1993A (Cullman Regional Medical Center Proj.), 6.50%, 2/15/13 475,701 500,000 DCH Hlth. Care Auth. Hlth. Care Facs. Rev. Series 2002, 3.00%, 6/1/03 501,050 360,000 Fort Payne G.O. Sewer Refunding Warrants Series 1993B, 5.00%, 6/1/04 361,076 Montgomery Med. Clinic Board Hlth. Care Fac. Rev. Series 1991: 495,000 7.00%, 3/1/15 495,990 325,000 7.375%, 3/1/06 326,105 900,000 Oxford Public Park and Rec Board Rev. Series 2001 (ACA insured), 6.00%, 12/1/21 954,090 ---------- 3,114,012 ---------- ALASKA (1.8%) 12,505,000 Alaska HFC Gen. Mtg. Rev. 1997 Series A, Zero Coupon, 6.15% Effective Yield on Purchase Date, 12/1/17 5,474,314 190,000 AK Industrial Dev. & Export Auth. Rev. Refunding Revolving Fund Series 1993A, 5.60%, 4/1/03 190,000 Northern Alaska Tobacco Securitization Corp. Asset-Backed Rev.: 985,000 Series 2000, 6.20%, 6/1/22 975,101 1,000,000 Series 2001, 4.75%, 6/1/15 981,820 ---------- 7,621,235 ---------- ARIZONA (0.5%) 250,000 Bullhead City Special Assessment Impt. Dist. Series 1993 (Bullhead Pkwy. Proj.), 6.10%, 1/1/10 258,823 500,000 Maricopa Co. Industrial Dev. Auth. Educ. Rev. Series 2000A (Arizona Charter Schools Proj. I), 6.50%, 7/1/12 513,210 500,000 Maricopa Co. Industrial Dev. Auth. Hlth. Fac. Rev. Series 1992A (Catholic Hlthcare West Proj.)(MBIA insured), 5.75%, 7/1/11 511,630 600,000 Show Low Industrial Dev. Auth. Hosp. Rev. Series 1998A (Navapache Regl. Med. Ctr. Proj.)(ACA insured), 5.125%, 12/1/04 631,914 310,000 Tucson Airport Auth. Inc. Rev. Refunding Series 1993 (MBIA insured), 5.70%, 6/1/13 318,571 ---------- 2,234,148 ---------- ARKANSAS (0.9%) 105,129 Drew Co. Public Fac. Bd. Single Family Mtg. Rev. Refunding Series 1993-A2 (FNMA backed), 7.90%, 8/1/11 106,803 57,046 Jacksonville Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1993B, 7.75%, 1/1/11 59,593 42,395 Lonoke Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding 1993B, 7.375%, 4/1/11 43,757 1,250,000 Maumelle HDC First Lien Rev. Refunding 1992 Series A (Section 8), 7.875%, 7/1/09 1,277,413 North Little Rock Hlth. Facs. Bd. Health Care Rev. Series 2001 (Baptist Health Proj.): 555,000 5.00%, 7/1/06 596,769 300,000 5.00%, 7/1/07 324,009 490,000 5.00%, 7/1/08 529,582 730,000 Rogers Sales & Use Tax Rev. Series 1996, 5.35%, 11/1/11 730,000 ---------- 3,667,926 ---------- CALIFORNIA (3.4%) 300,000 ABAG Fin. Auth. For Nonprofit Corp. Rev Series 2002 (Redwood Sr. Homes & Svcs. Proj.), 4.10%, 11/15/07 308,358 1,000,000 Bell Cmty. Hsg. Auth. Rev. Series 1995A (Mobilehomes Park Acquisition Proj.), 6.40%, 10/1/15 1,023,860 6,250,000 CA Co. Tobacco Securitization Agy. Asset-Backed Rev. Series 2002 (Alameda Co.), 4.75%, 6/1/19 5,892,375 1,000,000 Chula Vista Redev. Agency Refunding Tax Allocation Senior Series 1994A (Bayfront-Town Center Redev. Proj.), 7.625%, 9/1/24 1,136,480 Glendale Hosp. Rev. Refunding Series 1994 (Verdugo Hills Hosp. Proj.)(Industrial Indemnity insured): 1,340,000 7.75%, 1/1/09 1,326,962 1,585,000 8.00%, 1/1/12 1,569,039 26 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- Ridgecrest Refunding Certificates of Participation Series 1999 (Ridgecrest Civic Center Proj.): 275,000 5.55%, 3/1/09 303,262 290,000 5.65%, 3/1/10 318,640 350,000 6.00%, 3/1/14 380,744 Southern CA Tobacco Securitization Auth. Asset-Backed Senior Rev: 1,000,000 Series 2001B, 6.00%, 5/15/22 938,360 1,000,000 Series 2002A, 5.25%, 6/1/27 984,980 ----------- 14,183,060 ----------- COLORADO (3.3%) 500,000 Boulder Co. Hosp. Rev. Series 2000 (Longmont United Hosp. Proj.) (Radian Asset Assurance), 5.05%, 12/1/05 526,575 1,910,000 CO E-470 Business Met. Dist. G.O. Series 1999 (ACA insured), 5.00%, 12/1/11 2,007,238 1,250,000 CO Hlth. Fac. Auth. Rev. Series 1995 (Covenant Retirement Cmty. Proj.), 6.75%, 12/1/15 1,324,238 CO HFA Single Family Program Senior Series: 530,000 1996B-2, 7.45%, 11/1/27 545,036 365,000 1997B-3, 6.80%, 11/1/28 374,067 4,300,000 CO Hlth. Fac. Auth. Rev. Series 1993 (Rocky Mtn. Adventist Health Care Proj.), 6.625%, 2/1/13 4,409,736 1,000,000 CO Hlth. Fac. Auth. Rev. Series 2000 (Evangelical Lutheran Proj.), 6.25%, 12/1/10 1,123,220 CO Hlth. Fac. Auth. Rev. (Natl. Benevolent Assoc. Proj.): 45,000 Series 2000, 6.05%, 3/1/07 45,068 530,000 Series 1998A, 5.20%, 1/1/18 417,470 1,400,000 Series 1998B, 5.25%, 2/1/18 1,140,902 400,000 CO Hlth. Fac. Auth. Rev. Series 2000A (Porter Place Proj.) (GNMA collateralized), 5.10%, 1/20/11 431,964 600,000 Denver Hsg. Corp. Multifamily Rev. Refunding Series 1997A (Section 8), 5.35%, 10/1/12 621,756 Denver Hlth. & Hosp. Auth. Rev Series 2001A: 200,000 5.00%, 12/1/04 206,834 150,000 5.25%, 12/1/05 159,123 220,000 5.25%, 12/1/08 234,406 95,000 Thornton Single Family Mtg. Rev. Refunding 1992 Series A, 8.05%, 8/1/09 96,754 ----------- 13,664,387 ----------- CONNECTICUT (0.7%) CT Hsg. Finance Auth. Hsg. Mtg. Fin. Program: 200,000 Series 1993A, 5.70%, 5/15/06 204,738 500,000 Series 1993B, 5.65%, 5/15/06 511,845 1,850,000 Mashantucket Western Pequot Tribe Subordinated Special Rev. Series 1999B, Zero Coupon, 5.05% Effective Yield on Purchase Date, 9/1/09 1,378,306 700,000 Mohegan Tribe of Indians Gaming Auth. Priority Distribution Payment Public Impt., 5.50%, 1/1/06 729,722 ----------- 2,824,611 ----------- DELAWARE (0.1%) 490,000 Quaker Hill Hsg. Corp. Inc. Multifamily Rev. Refunding Series 1990A (FNMA collateralized), 7.55%, 8/1/21 511,819 ----------- FLORIDA (2.1%) 700,000 Charlotte Co. Utility Rev. Refunding Series 1993 (FGIC insured), 5.50%, 10/1/09 728,987 715,000 Collier Co. HFA Multifamily Hsg. Rev. Series 2002C (Goodlette Arms Proj.), 5.25%, 8/15/15 753,832 820,000 Escambia Co. Hlth. Fac. Auth. Rev. Series 1997 (Azalea Trace, Inc. Proj.), 5.60%, 1/1/05 839,811 1,210,000 FL HFC Hsg. Rev. Refunding Series 2000D2 (Augustine Club Atps. Proj.), 8.25%, 10/1/30 1,129,692 790,000 Hialeah Hsg. Auth. Mtg. Rev. Refunding Series 1996B1 (Russ Allen Plaza Proj.)(Section 8), 5.80%, 9/1/11 800,926 1,000,000 Highlands Co. Hlth. Fac. Auth. Rev. Series 2002 (Adventist Health Sys./Sunbelt Proj.), 3.35%, 11/15/32 1,021,690 See accompanying notes to portfolios of investments on page 56. 27 SIT TAX-FREE INCOME FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- Jacksonville Hlth. Fac. Auth. Industrial Dev. Rev. (Natl. Benevolent-Cypress Village Proj.): 700,000 Refunding Series 1992, 7.00%, 12/1/14 653,198 100,000 Refunding Series 1992, 7.00%, 12/1/22 89,885 250,000 Series 1993, 6.40%, 12/1/16 229,280 320,000 Series 1994, 7.55%, 12/1/07 331,661 1,100,000 Series 1994, 8.00%, 12/1/15 1,124,739 35,000 Series 2000, 6.05%, 3/1/07 34,813 545,000 Lee Co. Indus. Dev. Auth. Hlth. Care Fac. Rev. Series 1999A (ShellPoint Village Proj., 5.50%, 11/15/08: 581,079 570,000 Miami-Dade Co. Special Hsg. Rev. Refunding Series 1998 (Section 8), 5.30%, 10/1/05 572,246 ----------- 8,891,839 ----------- GEORGIA (1.5%) Conyers Hsg. Auth. Rev. Senior Lien Series 1999A (RHA/Affordable Hsg., Inc. Proj.) (QBE insured), Mandatory Put 10/1/09: 1,000,000 5.60%, 10/1/39 1,080,400 1,530,000 5.95%, 10/1/39 1,672,520 Dekalb Rev. (Regency Woods I & II): 1,185,000 Senior Series 1996A, 6.375%, 1/1/11 888,750 1,400,000 Senior Series 1996A, 6.375%, 1/1/16 1,050,000 1,275,000 Subordinate Series 1996C, 7.25%, 1/1/26 701,250 145,000 Royston Hosp. Auth. Rev. Refunding Series 1999 (Ty Cobb Healthcare Sys., Inc. Proj.), 6.00%, 7/1/04 146,969 500,000 Savannah Econ. Dev. Auth. Rev. Series 1999 (College of Art & Design Inc. Proj.), 6.00%, 10/1/03 508,935 ----------- 6,048,824 ----------- HAWAII (0.3%) 1,175,000 Honolulu Mtg. Rev. Ref. Series 1996A (Hale-Pauahi Proj.)(FHA insured)(MBIA insured), 6.80%, 7/1/28 1,233,397 ----------- ILLINOIS (10.0%) Broadview Village of Cook Co. Tax Increment Rev. Series 1999: 750,000 4.90%, 7/1/06 790,305 1,000,000 5.00%, 7/1/07 1,058,300 1,085,000 5.05%, 7/1/08 1,138,404 2,030,000 5.10%, 7/1/09 2,128,252 645,000 Chicago Park District Capital Improvement G.O. Series 1993 (FGIC insured), 6.05%, 1/1/13 660,286 235,000 Chicago Res. Mtg. Rev. Refunding Series 1992B (MBIA insured) Zero Coupon, 7.30% Effective Yield on Purchase Date, 10/1/09 148,851 715,000 Collinsville (City of) Madison Co. Industrial Dev. Rev. Refunding (Drury Inn-Collinsville Proj.) Series 1993, 6.00%, 11/1/04 711,089 350,000 Hoffman Estates Tax Increment Rev. Jr. Lien Series1991, zero coupon, 4.15% effective yield, 5/15/07 291,938 450,000 IL DFA Rev. Series 2002A (Chicago Charter School Fdn. Proj.), 5.25%, 12/1/12 444,267 1,000,000 IL DFA Rev. Refunding Series 2002A (Olin Corp. Proj.), 4.50%, 6/1/04 1,001,070 500,000 IL DFA Pollution Ctrl. Rev. Refunding Series 1993B2 (Central IL Public Svc. Co. Proj.) (MBIA insured), 5.90%, 6/1/28 506,185 IL DFA Refunding & New Money Rev. (Cmty. Rehab. Providers Fac. Acquisition Program): 1,000,000 Series 1997A, 5.60%, 7/1/03 1,004,920 685,000 Series 1997A, 5.60%, 7/1/04 700,625 1,690,000 Series 1997A, 5.80%, 7/1/08 1,768,670 300,000 Series 1997A, 5.90%, 7/1/09 312,045 4,305,000 Series 1997A, 6.00%, 7/1/15 4,213,347 28 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- 1,200,000 Series 1997C, 5.65%, 7/1/19 1,125,300 750,000 Series 1998A, 5.00%, 7/1/06 763,327 1,000,000 IL Educ. Fac. Auth. Rev. Series 1998 (Augustana College Proj.), 5.00%, 10/1/13 1,115,200 2,780,000 IL HDA Elderly Hsg. Rev. Series 1992C (Village Ctr.) (Section 8), 6.85%, 3/1/20 2,838,297 IL Hlth. Fac. Auth. Rev.: Refunding Series 1992 (Galesburg Cottage Hosp. Proj.)(Radian insured), 6.25%, 5/1/11 1,534,680 1,500,000 Refunding Series 1993 (Lutheran Social Svcs. IL): 525,000 6.00%, 8/15/03 528,843 545,000 6.10%, 8/15/04 559,165 750,000 Refunding Series 1993 (OSF Healthcare System), 5.75%, 11/15/07 776,828 1,000,000 Refunding Series 1994 (Passavant Memorial Area Hospital Assn.), 5.95%, 10/1/11 1,126,760 400,000 Refunding Series 1994 (Friendship Village of Schaumberg Proj.), 6.25%, 12/1/04 404,640 2,575,000 Refunding Series 1993A (Edward Hosp. Proj.), 6.00%, 2/15/19 2,663,580 300,000 Refunding Series 2000 (Riverside Hlth. Sys. Proj.), 6.00%, 11/15/03 307,863 Refunding Series 2001 (Decatur Memorial Hospital Proj.): 350,000 4.20%, 10/1/05 366,674 970,000 4.625%, 10/1/08 1,026,008 500,000 Series 2000 (IA Health System Proj.), 6.75%, 2/15/13 571,110 200,000 Refunding Series 2002 (Elmhurst Mem. Health Care Proj.), 5.00%, 1/1/04 204,528 1,600,000 IL Industrial Pollution Control Financing Auth. Rev. Series 1979 (Olin Corp. Proj.), 6.875%, 3/1/04 1,625,136 1,850,000 Roselle Multifamily Hsg. Rev. Refunding Series 1994A (GNMA collateralized) (Waterbury Apts.) (FHA insured), 7.00%, 1/1/25 1,939,596 3,950,000 Southwestern IL Dev. Auth. Local Govt. Prog. Rev. Series 1998-A (City of East St. Louis Tax Increment Financing Proj.), 6.00%, 4/1/10 3,912,277 545,000 Upper Illinois River Valley Dev. Auth. Rev. Series 2001 (Morris Hosp. Proj.), 6.05%, 12/1/11 583,777 500,000 Will Co. Student Hsg. Rev. Series 2002A (Joliet Junior College Proj.), 6.375%, 9/1/13 499,965 ----------- 41,352,108 ----------- INDIANA (6.3%) 1,975,000 IN Bond Bank Special Prgm. Series 1997C (Pittsboro Wastewater Treatment Plant Proj.), 5.70%, 8/1/17 2,094,981 2,175,000 IN DFA Educ. Fac. Rev. Series 1997 (Park Tudor Fdn. Proj.), 6.00%, 6/1/22 2,472,953 250,000 IN Hlth. Fac. Fin. Auth. Hosp. Rev.: Series 1993 (Community Hosp. of Anderson Proj.), 6.00%, 1/1/23 255,620 600,000 Refunding Series 1998 (Floyd Memorial Hosp. & Hlth. Svcs. Proj.), 5.25%, 2/15/18 602,298 1,850,000 Refunding Series 1998 (Marquette Manor Proj.), 5.00%, 8/15/18 1,739,740 1,000,000 Series 1999D (Charity Obligated Group), 5.50%, 11/15/11 1,096,790 Series 2001A (Community Foundation Northwest IN): 780,000 5.50%, 8/1/05 804,562 1,100,000 5.50%, 8/1/06 1,137,752 1,000,000 6.00%, 8/1/07 1,049,680 1,000,000 6.00%, 8/1/08 1,051,290 1,000,000 5.50%, 8/1/13 985,380 500,000 IN HFA Single Family Mtg. Rev. Refunding Series 1992A, 6.80%, 1/1/17 510,785 750,000 IN Office Bldg. Comm. Cap Complex Rev. Series 1993B (Govt. Ctr. Proj.)(Ambac insured), 5.25%, 7/1/15 766,530 IN Hlth. Fac. Fin. Auth. Rev. Refunding Series 1998 (Greenwood Village South Proj.): 135,000 5.00%, 5/15/03 135,131 140,000 5.15%, 5/15/04 140,138 150,000 5.25%, 5/15/06 150,035 170,000 5.35%, 5/15/08 169,455 See accompanying notes to portfolios of investments on page 56. 29 SIT TAX-FREE INCOME FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- 1,000,000 IN Transportation Fin. Auth. Airport Facs. Lease Rev. Series 1992A, 6.25%, 11/1/16 1,023,339 2,545,000 Indianapolis Econ. Dev. Refunding & Imprv. Rev. Series 1992 (Natl. Benevolent Assn.-Robin Run Village Proj.), 7.25%, 10/1/10 2,576,659 1,075,000 Indianapolis Econ. Dev. Rev. (Willowbrook Apts. Proj.): Senior Series 1996A, 6.50%, 7/1/16(8)(9) 430,000 1,290,000 Subordinate Series 1996C, 7.125%, 7/1/26(8)(9) 64,500 1,000,000 Petersburg Pollution Ctrl. Rev. Refunding Series 1993A (Indianapolis Pwr. & Light Proj.) (MBIA insured), 6.10%, 1/1/16 1,031,090 Sullivan Industrial Pollution Ctrl. Rev.: 615,000 Refunding Series 1991 (Hoosier Energy Corp. Proj.) (MBIA-IBC insured), 7.10%, 4/1/19 637,201 5,000,000 Refunding Series 1993C (Ind. Mich. Pwr. Co. Proj.), 5.95%, 5/1/09 5,106,700 ----------- 26,032,609 ----------- IOWA (1.4%) 1,405,000 IA Fin. Auth. Hlth. Care Fac. Rev. Series 1997 (Natl. Benevolent Assn.- Ramsey Home Proj), 6.15%, 5/1/17 1,255,901 1,130,000 IA Fin. Auth. Multifamily Hsg. Rev. Refunding Series 1997A (Kingswood Apts. Proj.) (GNMA-collateralized), 6.15%, 5/1/32 1,198,376 IA Fin. Auth Single Family Rev. Series 2000D (GNMA/FNMA Mtg. Backed Securities Proj.): 435,000 5.65%, 7/1/07 469,291 510,000 5.75%, 7/1/09 562,892 1,190,000 Ottumwa Hosp. Rev. Refunding Series 1993 (Ottumwa Regional Hlth. Ctr.), 6.00%, 10/1/10 1,195,962 1,500,000 IA Tobacco Settlement Auth. Asset-Backed Rev. Series 2001B, 5.30%, 6/1/25 1,214,835 ----------- 5,897,257 ----------- KANSAS (1.0%) 3,695,000 Burlington Co. Pollution Ctrl. Rev. Refunding Series 1991 (KS Gas & Electric Co. Proj.) (MBIA insured), 7.00%, 6/1/31 3,874,207 445,000 Olathe & Labette Cos. Mtg. Loan Rev. 1991 Series B (GNMA collateralized) Zero Coupon, 7.56% Effective Yield on Purchase Date, 2/1/23 113,431 ----------- 3,987,638 ----------- KENTUCKY (0.1%) 500,000 Boone Co. Pollution Ctrl. Rev. Refunding Series 1992A (Dayton Pwr. & Light Co. Proj.), 6.50%, 11/15/22 507,719 ----------- LOUISIANA (3.8%) 5,235,000 Denham Springs/Livingston HMFA Residual Rev. Series 1992C Zero Coupon, 7.65% Effective Yield on Purchase Date, 7/10/14 2,257,175 1,415,000 East Baton Rouge Single Family Mtg. Rev. Refunding: Series 1997C-3 Subordinate Bonds, 5.65%, 10/1/18 1,459,969 7,200,000 Capital Appreciation Series 2000D1 (GNMA & FNMA collateralized) Zero Coupon, 6.46% Effective Yield on Purchase Date, 4/1/34 1,124,496 3,705,000 Houma-Terrebonne Public Trust Fin. Auth. Residual Rev. Series 1992C Zero Coupon, 7.60% Effective Yield on Purchase Date, 7/10/14 1,621,382 500,000 LA PFA Hospital Rev. Refunding Series 1989A (General Health, Inc.) (MBIA insured), 6.50%, 11/1/14 508,500 21,641 LA PFA Single Family Mtg. Rev. Series 1992 (Lafayette PTFA Mtg. Acquisition), 7.50%, 10/1/15 22,281 500,000 LA PFA Multifamily Mtg. Rev. Refunding Series 1994A (Carlyle Apt. Proj.) (Axa Reinsurance Co. insured), 5.95%, 6/15/19 503,910 280,000 New Orleans HDC First Lien Rev. Refunding Series 1996A (Tivoli Place Apts. Proj.) (Section 8), 6.40%, 12/1/04 282,428 400,000 Orleans Levee Dist. Rev. Series 1995A (Tr. Rcpts.) (FSA insured), 5.95%, 11/1/14 454,460 9,255,000 Tobacco Settlement Financing Corp. Asset-Backed Rev. Series 2001B, 5.50%, 5/15/30 7,674,616 ----------- 15,909,217 ----------- 30 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- MAINE (0.5%) 1,000,000 Skowhegan Pollution Ctrl. Rev. Refunding Series 1993 (Scott Paper Co. Proj.), 5.90%, 11/1/13 1,044,790 1,000,000 South Berwick Educ. Rev. Series 1998 (Berwick Academy Issue), 5.25%, 8/1/13 1,019,420 ----------- 2,064,210 ----------- MARYLAND (0.6%) MD Econ. Dev. Corp. Student Hsg. Rev.: 470,000 Series 1999A (Collegiate Hsg. Fdn. - University Courtyard Proj.), 5.20%, 6/1/07 470,837 245,000 Senior Series 2003A (University of Maryland-Baltimore Proj.), 2.50%, 10/1/05 245,502 1,800,000 MD Hlth. & Higher Educ. Fac. Auth. Rev. Refunding Series 2003A (Adventist Healthcare Proj.), 5.00%, 1/1/12 1,813,824 ----------- 2,530,163 ----------- MASSACHUSETTS (1.5%) MA Hlth. & Educ. Fac. Auth. Rev.: 525,000 Series 1992G (Beth Israel Hosp. Proj.) (MBIA insured), 5.75%, 7/1/12 536,991 345,000 Series 1994B (Holyoke Hosp. Proj.), 6.25%, 7/1/04 349,713 500,000 Series 1996C (North Adams Regional Hosp. Proj.), 6.25%, 7/1/04 503,820 2,000,000 Series 2001E (Berkshire Health Sys.), 4.50%, 10/1/05 2,079,080 2,565,000 MA HFA Hsg. Projs. Rev. Series 1993A, 6.375%, 4/1/21 2,618,403 225,000 MA Industrial Finance Agency Resource Recovery Rev. Refunding Series 1992A (Ogden Haverhill Associates Proj.), 4.95%, 12/1/06 220,721 ----------- 6,308,728 ----------- MICHIGAN (3.5%) John Tolfree Hlth. System, Mtg. Rev. & Refunding Series 1999: 295,000 5.25%, 9/15/04 299,670 395,000 5.30%, 9/15/05 402,434 665,000 MI Hosp. Fin. Auth. Hosp. Rev. and Refunding Series 1998 (Chelsea Cmty. Hosp. Proj.), 5.35%, 5/15/13 657,446 365,000 MI Hosp. Fin. Auth. Rev. Series 1997 (Presbyterian Vlgs. of Mich. Oblig. Group Proj.), 6.375%, 1/1/15 352,251 MI Strategic Fund Ltd. Obligation Rev. Refunding: 1,550,000 Series 1991A (Ford Motor Co. Proj.), 7.10%, 2/1/06 1,654,888 1,250,000 Series 2003A (Dow Chemical Proj.), 3.80%, 6/1/14 1,253,837 2,500,000 Series 2003 (Dow Chemical Proj.), 4.60%, 6/1/14 2,506,700 2,095,000 Southfield Econ. Dev. Corp. Ltd. Obligation Rev. Series 1998A (Lawrence Tech. Univ. Proj.), 5.25%, 2/1/13 2,154,016 1,873,912 Suburban Mobility Auth. Regl. Transportation Certificates of Participation Series 2002, 4.90%, 2/15/09(5) 1,905,188 Summit Academy North Public School Certificates of Participation Series 2001: 115,000 5.40%, 7/1/03 115,790 130,000 5.60%, 7/1/05 136,714 135,000 5.70%, 7/1/06 143,273 145,000 5.95%, 7/1/07 154,447 2,545,000 Troy City EDC Econ. Dev. Rev. Refunding Series 1992 (Drury Inn-Troy Proj.) (Lincoln Natl. Corp.), 6.75%, 10/1/12 2,604,553 ----------- 14,341,207 ----------- MINNESOTA (1.8%) 3,410,000 Dakota Co. HRA Multifamily Mtg. Rev. Refunding Series 1997A (Park Place Apts. Proj.)(GNMA Collateralized), 6.875%, 2/20/32 3,689,688 740,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.)(Section 8), 6.375%, 4/1/20 781,714 286,946 Moorhead Single Family Mtg. Rev. Refunding Series 1992B, 7.00%, 8/1/11 290,424 2,315,000 Plymouth Multifamily Hsg. Dev. Rev. Refunding Series 1996A (GNMA collateralized) (Fox Forest Apts. Proj.), 8.05%, 6/20/31 2,538,536 ----------- 7,300,362 ----------- See accompanying notes to portfolios of investments on page 56. 31 SIT TAX-FREE INCOME FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- MISSISSIPPI (0.1%) 350,000 MS Home Corp. Residual Rev. Capital Appreciation Series 1992I Zero Coupon, Escrowed to Maturity, 2.82% Yield on Purchase Date, 9/15/16 142,776 415,000 Lincoln Co. Hosp. Rev. Refunding Series 1998A (Kings Daughter Hosp. Proj.), 5.20%, 4/1/08 449,694 ----------- 592,470 ----------- MISSOURI (2.1%) 175,000 Boone Co. Hosp. Rev. Refunding Series 2002, 2.10%, 8/1/03 175,348 1,000,000 Cameron Industrial Dev. Auth. Rev. Refunding Series 2000 (Cameron Cmnty. Hosp. Proj.) (ACA Insured), 5.80%, 12/1/09 1,102,310 300,000 Cass Co. Industrial Dev. Auth. Rev. Refunding Series 1992 (Natl. Benevolent-Foxwood Proj.), 7.375%, 10/1/22 294,684 750,000 Chesterfield Rev. Refunding & Impt. Series 2002 (Chesterfield Vy. Projs.), 4.50%, 4/15/16 773,205 MO Dev. Finance Board Infrastructure Fac. Rev.: Series 2000A (Eastland Ctr. Proj. Phase 1): 1,450,000 5.75%, 4/1/09 1,612,183 550,000 5.75%, 4/1/12 593,742 1,000,000 Series 2000B (Eastland Ctr. Proj. Phase 2), 6.00%, 4/1/15 1,059,250 775,000 MO Hlth. & Educ. Fac. Auth. Educ. Fac. Rev. Series 1999 (Park College Proj.), 5.55%, 6/1/09 836,163 150,000 MO Environmental Impt. & Energy Res. Auth. Water Fac. Rev. Refunding Series 1999 (Tri-Co. Water Auth Proj.) (Radian Asset Assurance), 5.50%, 4/1/07 166,184 1,010,000 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 1,032,604 15,000 St. Louis Co. Single Family Res. Mtg. Series 1984 (MBIA insured), 6.75%, 4/1/10 16,159 1,000,000 St. Louis Industrial Dev. Auth. Tax-Exempt Impt. Rev. Series 1998 (St. Louis Zoo Fdn.) (LOC Nationsbank), 5.10%, 8/15/12 1,053,840 ----------- 8,715,672 ----------- MONTANA (0.4%) 1,000,000 Crow Finance Auth. Tribal Purpose Revenue Series 1997A, 5.70%, 10/1/27 1,013,910 425,000 Forsyth Pollution Ctrl. Rev. Refunding Series 1993 (Montana Power Co. Proj.): 5.90%, 12/1/23 374,110 85,000 (MBIA insured), 6.125%, 5/1/23 87,020 ----------- 1,475,040 ----------- NEVADA (3.5%) 2,500,000 Clark Co. Industrial Dev. Rev. Refunding Series 1992C (Nevada Power Co.)(Ambac insured), 7.20%, 10/1/22 2,624,625 490,000 Clark Co. Passenger Fac. Charge Rev. Series 1992A (Las Vegas McCarran Intl. Airport Proj.) (Ambac insured), 5.80%, 7/1/03 495,522 3,115,000 Clark Co. Pollution Ctrl. Rev. Refunding Series 1992B (Nevada Pwr. Co. Proj.) (FGIC insured), 6.60%, 6/1/19 3,235,239 3,000,000 Humboldt Co. Pollution Ctrl. Rev. Series 1984 (Idaho Power Co. Proj.), 8.30%, 12/1/14 3,220,650 NV Hsg. Dev. SF Mtg. Program: 755,000 Sr. Series 1995A-1, 6.45%, 10/1/18 781,259 885,000 Mezzanine Series 1998B-1, 5.30%, 4/1/16 932,710 400,000 6.00%, 6/1/08 417,548 1,000,000 6.125%, 6/1/12 1,026,670 1,750,000 Washoe Co. Gas & Water Fac. Rev. Refunding Series 1987 (AMBAC insured), 6.30%, 12/1/14 1,810,550 ----------- 14,544,773 ----------- 32 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- NEW HAMPSHIRE (1.6%) NH Higher Educ. & Hlth. Fac. Auth. Rev.: 750,000 Series 1993 (Nashua Memorial Hosp. Proj.), 6.00%, 10/1/23 758,123 750,000 Series 1993 (Nashua Memorial Hosp. Proj.), 6.25%, 10/1/08 774,750 1,500,000 Series 1993 (Frisbie Memorial Hosp. Proj.), 6.125%, 10/1/13 1,547,775 690,000 Series 1997 (Catholic Charities Issue), 5.75%, 8/1/12 702,786 5,080,000 NH HFA Single Family Res. Mtg. 1982 Series A Zero Coupon, 11.75% Effective Yield on Purchase Date, 1/1/14 1,992,173 730,000 NH Higher Educ. & Hlth. Fac. Auth. Rev. Series 1998 (New Hampton School), 5.00%, 10/1/08 765,719 ----------- 6,541,326 ----------- NEW JERSEY (0.5%) 1,460,000 NJ Hsg. & Mtg. Finance Agy. Multifamily Hsg. Rev. Series 1995A (AMBAC insured), 6.00%, 11/1/14 1,536,212 215,000 NJ Tobacco Settlement Financing Corp. Asset-Backed Rev.: 500,000 Series 2002, 5.75%, 6/1/32 194,010 Series 2003, 6.125%, 6/1/24 470,355 ----------- 2,200,577 ----------- NEW MEXICO (0.9%) 2,955,000 NM MFA Forward Mortgage-Backed Series 1995E (GNMA collateralized), 6.95%, 1/1/26 3,166,519 NM Hsg. Auth. Region III Multifamily Hsg. Rev. Series 2003A (Villa Del Oso Apts. Proj.): 65,000 2.55%, 7/1/04 65,006 500,000 6.00%, 7/1/17 500,360 ----------- 3,731,885 ----------- NEW YORK (0.4%) 500,000 Brookhaven Industrial Dev. Agy. Civic Fac. Rev. Series 2001 (Methodist Retirement Cmty. Proj.) (LOC North Fork Bank), 4.375%, 11/1/31 524,825 170,000 Monroe Co. Industrial Dev. Agy. Student Hsg. Rev. Series 1999A (Collegiate Hsg. Fdn. - Rochester Institute of Technology Proj.), 4.90%, 4/1/09 168,955 700,000 NY Dorm Auth. Court Fac. Rev. Series 1993A, 5.375%, 5/15/16(5) 713,419 150,000 NY Dorm Auth. Rev. Series 2002 (FHA insured), 4.00%, 2/1/12 150,648 ----------- 1,557,847 ----------- NORTH CAROLINA (0.2%) NC Muni Power Agy. Rev. Refunding Series 1992-1 (Catawba Elec. Proj.): 350,000 6.00%, 1/1/04 357,094 250,000 (MBIA insured), 6.00%, 1/1/04 255,068 265,000 Wilkes Co. G.O. Refunding Series 1993, 5.20%, 6/1/05 269,386 ----------- 881,548 ----------- NORTH DAKOTA (0.2%) 750,000 Mercer Co. Pollution Ctl. Rev. Refunding Series 1992 (Montana-Dakota Utils. Co. Proj.) (FGIC insured), 6.65%, 6/1/22 768,188 ----------- See accompanying notes to portfolios of investments on page 56. 33 SIT TAX-FREE INCOME FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- OHIO (2.0%) Akron Certificates of Participation Series 1996 (Akron Municipal Baseball Stadium Proj.): 1,000,000 6.50%, 12/1/07(5) 1,094,530 2,780,000 6.90%, 12/1/16(5) 3,086,189 295,000 Cleveland-Cuyahoga Port. Auth. Dev. Rev. Series 1999A (Port of Cleveland Bond Fund Capital Imprv. Proj.), 5.375%, 5/15/19 282,439 750,000 Columbus School Dist. Energy Conservation Impt. G.O. Series 1994, 4.25%, 8/1/03 751,913 1,000,000 Lucas Co. Hlth. Care Fac. Rev. Series 2002 (Franciscan Care Ctr. Proj.)(LOC Bank One), 4.10%, 3/1/27 1,030,260 600,000 Mahoning Co. Hlth. Care Fac. Rev. Refunding Series 2002 (Copeland Oaks Proj.) (LOC Sky Bank), 4.00%, 4/1/22 600,618 1,250,000 OH Air Quality Dev. Auth. Rev. Series 1985A (Columbus Southern Pwr. Co. Proj.), 6.375%, 12/1/20 1,280,013 ----------- 8,125,962 ----------- OKLAHOMA (1.2%) 1,115,000 Muskogee Co. HFA Single Family Mtg. Rev. Refunding 1990 Series A (FGIC insured) Zero Coupon, 7.65% Effective Yield on Purchase Date, 6/1/11 611,132 500,000 OK Co. Industrial Auth. Health Care Rev. Series 1999 (Natl. Benevolent Assoc.), 5.50%, 2/1/29 369,910 140,000 Payne Co. Home Loan Auth. Single Family Rev. Refunding Series 1993A, 8.625%, 3/1/11 143,454 1,320,000 Tulsa Industrial Auth. Educ. Fac. Rev. Refunding Series 1999B (Holland Hall School Proj.), 5.00%, 12/1/14 1,376,879 2,355,000 Tulsa Public Facilities Auth. Recreational Fac. Rev. Series 1985, 6.20%, 11/1/12 2,464,555 ----------- 4,965,930 ----------- OREGON (1.4%) 3,705,000 Cow Creek Band Umpqua Tribe of Indians Rev. Series 1998B (Ambac insured), 5.10%, 7/1/12 3,825,709 Klamath Falls Intercmnty. Hosp. Auth. Rev. Refunding Series 2002 (Merle West Med. Ctr. Proj.): 250,000 4.80%, 9/1/07 263,605 200,000 5.20%, 9/1/09 210,680 500,000 Portland Hydroelectric Power Rev. Series 1979 (MBIA Insured), 7.00%, 10/1/16 501,165 1,000,000 OR Hsg. & Cmty. Svcs. Dept. Mtg. Rev. Series 2000K, 5.70%, 7/1/22 1,052,700 95,000 OR G.O. Refunding Series 1992B, 6.375%, 8/1/24 97,280 ----------- 5,951,139 ----------- PENNSYLVANIA (7.4%) 7,000,000 Armstrong Co. Hosp. Auth. Rev. Refunding Series 1992A (St. Francis Med. Ctr. Proj.) (Ambac insured), 6.25%, 6/1/13 7,166,320 Beaver Co. Industrial Dev. Auth. Pollution Ctrl. Rev.: 160,000 Series 1977 (St. Joe Minerals Corp. Proj.), 6.00%, 5/1/07 157,744 1,150,000 Refunding Series 1995A (Toledo Edison Proj.), 7.75%, 5/1/20 1,253,603 Columbia Co. Hosp. Auth. Hlth. Care Rev. Series 1999 (Bloomsburg Hosp. Obligated Group Proj.): 455,000 5.00%, 6/1/04 452,102 810,000 4.75%, 7/1/06 806,809 2,750,000 5.25%, 7/1/12 2,615,250 1,000,000 Hazleton Hlth. Svc. Auth. Hosp. Rev. Series 1997 (Hazleton General Hosp. Proj.), 5.625%, 7/1/17 972,230 Horizon Hosp. System Auth. Hosp. Rev. Series 1996 (Horizon Hosp. Sys.): 715,000 6.15%, 5/15/08 776,683 710,000 6.25%, 5/15/09 767,411 1,145,000 6.30%, 5/15/11 1,220,536 250,000 Lancaster Industrial Dev. Auth. Rev. Refunding Series 1992 (Union Camp Corp. Proj.), 6.50%, 3/1/04 258,305 425,000 Lehigh Co. Gen. Purpose Auth. Hosp. Rev. Series 1992 (St. Lukes Bethlehem Hosp. Proj.) (Ambac insured), 6.25%, 7/1/22 435,098 34 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- 500,000 McKean Co. Hosp. Auth. Rev. Refunding Series 1994 (Bradford Hosp. Proj.) (ACA insured), 6.00%, 10/1/13 521,230 1,320,000 New Wilmington Muni. Auth. College Rev. Series 1998 (Westminister College), 5.05%, 3/1/12 1,358,518 PA Econ. Dev. Fin. Auth. Rev. Series 1998A (Northwestern Human Services Proj.): 2,265,000 5.25%, 6/1/09 2,118,115 2,370,000 5.30%, 6/1/10 2,175,376 2,485,000 5.35%, 6/1/11 2,244,005 PA Hgr. Educ. Fac. Auth. Hlth. Svcs. Rev. Series 1996A (Allegheny Delaware Valley Obligated Group, Inc.)(MBIA insured): 150,000 5.500%, 11/15/08 167,781 3,890,000 5.875%, 11/15/16 4,383,447 270,000 PA Hgr. Educ. Fac. Auth. Rev. Series 2002 (Geneva College Proj.), 4.25%, 4/1/05 277,457 500,000 Philadelphia Muni Auth. Rev. Refunding Lease Series 1993D, 6.30%, 7/15/17(5) 512,325 ----------- 30,640,345 ----------- PUERTO RICO (0.1%) 250,000 Children's Tr. Fund Tobacco Securitization Corp. Asset-Backed Rev. Series 2002, 5.375%, 5/15/33 229,299 ----------- RHODE ISLAND (0.3%) 1,000,000 RI Hsg. & Mtg. Fin. Corp. Rental Hsg. Program Rev. Series 1993A (Section 8), 5.65%, 10/1/08 1,021,380 300,000 RI Hlth. & Educ. Bldg. Corp. Rev. Series 1992 (Johnson & Wales Univ.)(Connie Lee insured), 6.375%, 4/1/12 306,000 ----------- 1,327,380 ----------- SOUTH CAROLINA (1.2%) 500,000 Darlington Co. Annual Tender Pollution Ctl. Rev. Series 1983, (Carolina Pwr. & Light Co. Proj.), 6.60%, 11/1/10 517,055 1,405,000 North Charleston Muni. Golf Course Mtg. Rev. Series 1998, 5.00%, 5/1/09 1,495,763 3,000,000 Oconee Co. Pollution Control Rev. Refunding Series 1993 (Duke Power Co. Proj.), 5.80%, 4/1/14 3,070,230 ----------- 5,083,048 ----------- SOUTH DAKOTA (0.7%) SD Hlth. & Educ. Fac. Auth. Rev (Sioux Valley Hosp. & Health Sys. Proj.): 2,250,000 Series 2001C (LOC US Bank), 4.85%, 11/1/19 2,377,102 500,000 Series 2001E, 5.00%, 11/1/06 541,435 ----------- 2,918,537 ----------- TENNESSEE (3.5%) Shelby Co. Hlth., Educ. & Hsg. Fac. Board Multifamily Hsg. Rev.: (CME Memphis Apts. Proj.): 1,850,000 Senior Series 1998A, 5.35%, 1/1/19(8)(9) 922,687 7,875,000 Senior Series 1998A, 5.55%, 1/1/29(8)(9) 3,927,656 1,630,000 Subordinate Series 1998C, 6.00%, 1/1/29(8)(9) 32,600 1,000,000 (Eastwood Park Apts. Proj.): Senior Series 1995 A2, 6.40%, 9/1/25(8)(9) 650,000 405,000 Subordinate Series 1995C, 7.50%, 9/1/25(8)(9) 202,500 (Raleigh Forest & Sherwood Apts. Proj.): 2,670,000 Senior Series 1996A, 6.60%, 1/1/26(8)(9) 2,269,500 610,000 Subordinate Series 1996C, 7.25%, 1/1/26(8)(9) 396,500 5,530,000 (Raleigh Woods Apts. Proj.) Series 1997A (GNMA collateralized), 7.75%, 3/20/27 6,147,590 ----------- 14,549,033 ----------- See accompanying notes to portfolios of investments on page 56. 35 SIT TAX-FREE INCOME FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- TEXAS (15.0%) Austin Convention Enterprises, Inc. (Convention Ctr.) Revenue: 1,350,000 Series 2001A (Convention Center), 6.375%, 1/1/16 1,392,147 850,000 Series 2001B (ZC Specialty Ins. Co.), 5.75%, 1/1/16 919,386 1,000,000 Bell Co. Hlth. Fac. Dev. Corp. Retirement Fac. Rev. Series 1998 (Buckner Retirement Services, Inc. Obligated Group, Proj.), 5.00%, 11/15/11 1,029,700 500,000 Beaumont HA Multifamily Mtg. Rev. Series 1993A (Section 8): 6.65%, 11/1/07 498,020 590,000 6.75%, 11/1/10 583,085 Bexar Co. HFC Multifamily Hsg. Rev.: 585,000 Subordinated Series 2000C (Honey Creek Apts. Proj.), 8.00%, 4/1/30 582,438 190,000 Subordinated Series 2001B (American Oppty. Hsg. Dublin Kingswood & Waterford Apts. Proj.), 7.50%, 12/1/14 193,317 635,000 Subordinated Series 2001C (American Oppty. Hsg. Colinas Proj.), 7.50%, 1/1/13 648,075 200,000 Senior Series 2002A1 (American Oppty. Hsg. Cinnamon Creek Proj.), 5.75%, 12/1/13 199,824 145,000 Subordinated Series 2002B (American Oppty. Hsg. Cinnamon Creek Proj.), 7.25%, 1/1/14 144,980 250,000 Bluebonnet Trails Cmty. Mental Hlth. & Mental Retardation Rev. Series 2001, 5.50%, 12/1/09 262,513 500,000 Brazos River Auth. Rev. Refunding Series 1995 (Houston Light & Pwr. Co.)(MBIA insured), 5.80%, 8/1/15 501,715 1,090,000 Dallas Hsg. Corp. Capital Program Revenue Bonds: Series 1995A (Estell Village Apts.) (Section 8), 7.875%, 12/1/09 1,092,071 1,070,000 Series 1995 (Cedar Glen Apts.) (Section 8), 7.75%, 12/1/09 1,071,819 6,343,000 Dallas HFC Multifamily Mtg. Rev. Series 1998A (GNMA collateralized) (Towne Ctr. Apts. Proj.), 6.75%, 10/20/32 7,040,603 1,000,000 Galveston Special Contract Refunding Rev. Series 1998 (Farmland Industries, Inc. Proj.), 5.50%, 5/1/15 673,400 500,000 Gregg Co. Hlth. Fac. Dev. Corp. Hosp. Rev. Series 2002A (Good Shepherd Med Ctr. Proj.), 5.00%, 10/1/07 517,595 130,000 Houston HFC Single Family Mtg. Rev. Refunding Series 1996B-1, 8.00%, 6/1/14 133,826 Houston Water & Sewer Sys. Rev. Series 1991B: 440,000 6.75%, 12/1/08 446,332 6,920,000 6.375%, 12/1/10 7,126,908 1,300,000 Matagorda Co. Nav. Dist. No. 1 Rev. Refunding Series 1995 (Houston Light & Power Co.) (MBIA insured), 5.80%, 10/15/15 1,329,250 Midland HFC Single Family Mtg. Rev. Refunding: 169,785 Series 1992 A-2, 8.45%, 12/1/11 182,755 81,196 Series 1992 B2, 8.15%, 12/1/11 85,441 Mesquite Hlth. Fac. Dev. Corp. Retirement Fac. Rev. (Christian Care Ctr. Proj.): Series 1996A: 1,000,000 6.30%, 2/15/12 991,480 1,000,000 6.40%, 2/15/16 988,440 1,000,000 Series 2000A, 7.00%, 2/15/10 1,033,170 7,272,000 Nortex Hsg. Fin. Corp. Multifamily Hsg. Rev. Series 1999 (GNMA collateralized) (Highland Oaks Apts. Proj.), 6.75%, 9/20/32 8,091,118 408,965 Odessa HFC Single Family Mtg. Rev. Refunding Series 1992B Class B-2, 8.125%, 11/1/11 425,638 Panhandle Regional HFC Multifamily Hsg. Rev. (Canterbury, Puckett Place, River Falls and Three Fountains Proj.): 475,000 Senior Series 2000A, 6.25%, 3/1/10 489,735 500,000 Senior Series 2000A, 6.625%, 3/1/20 514,355 1,720,000 Subordinate Series 2000C, 8.125%, 3/1/31 1,700,168 420,000 Rio Grande Valley Hlth. Fac. Dev. Corp. Hosp. Rev. Series 1992A (Valley Baptist Med. Ctr. Proj.) (MBIA insured), 6.375%, 8/1/22 429,836 36 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- 1,500,000 Rio Grande Valley Hlth. Fac. Dev. Corp. Retirement Fac. Rev. Series 1992B (Golden Palms Retirement & Hlth. Ctr. Proj.)(MBIA insured), 6.40%, 8/1/12 1,535,160 Tarrant Co. Hlth. Fac. Dev. Corp. Hosp. Rev. Series 2000 (Adventist Hlth. Sys. Proj.): 460,000 5.70%, 11/15/03 470,948 490,000 5.75%, 11/15/04 517,396 515,000 5.80%, 11/15/05 557,941 Tarrant Co. HFC Multifamily Hsg. Rev: 530,000 Senior Series 2001A (Westridge Apts. Proj.), 5.50%, 6/1/11 543,976 500,000 Subordinate Series 2001C (Crossroads Apt. Proj.), 7.25%, 12/1/36 497,430 TX Affordable Hsg. Corp. Multifamily Hsg. Rev: 345,000 Senior Series 2001A (Ashton Place & Woodstock Apts. Proj.), 5.50%, 8/1/11 353,777 1,375,000 Senior Series 2001A (NHT / GTEX Proj.) (MBIA insured), 4.10%, 10/1/08 1,450,804 870,000 Junior Series 2001B (NHT / GTEX Proj.), 6.75%, 10/1/16 866,198 Senior Series 2001A (HIC 1,205,000 Arborstone/Baybrook Crescent Oaks Dev. Proj.), 4.00%, 11/1/06 1,220,075 445,000 Junior Series 2002B (American Oppty. Hsg. Proj.), 7.375%, 9/1/14 447,002 TX Dept. Hsg. & Cmnty. Affairs Multifamily Hsg. Rev.: 850,000 Senior Series 1996A (Harbors & Plumtree Apts. Proj.), 6.35%, 7/1/16 894,965 3,610,000 Senior Series 1996A (Harbors & Plumtree Apts. Proj.), 6.45%, 7/1/26 3,749,851 900,000 Subordinate Series 1996C (Harbors & Plumtree Apts. Proj.), 7.375%, 7/1/26 897,372 2,965,000 Senior Series 1996A (NHP Foundation - Asmara Apts. Proj.), 6.40%, 1/1/27 3,074,023 600,000 TX Public Property Fin. Corp. Mental Hlth. & Mental Retardation Rev. Series 1996, 6.20%, 9/1/16 611,850 TX Student Hsg. Corp. Senior Rev. Series 2001 (Univ. of North Texas Proj.): 750,000 5.00%, 7/1/07 751,080 600,000 6.00%, 7/1/11 601,482 Victoria Hosp. Rev. Series 1999 (Citizens Med. Ctr. Proj.): 870,000 4.80%, 2/15/06 881,736 1,020,000 5.00%, 2/15/08 1,033,393 ----------- 62,275,599 ----------- UTAH (1.3%) 725,000 Eagle Mountain Water & Sewer Rev. Refunding Series 2000 (ACA insured), 5.60%, 11/15/13 787,952 Ogden Neighborhood Dev. Agency Tax Increment Rev: 3,245,000 Series 1990A (25th Street Proj.) (LOC Sumitomo Bank), Zero Coupon, 5.55% Effective Yield on Purchase Date, 12/30/05 2,972,193 120,000 Series 1990B (Wash. Blvd Proj.)(LOC Sumitomo Bank), Zero Coupon, 4.255% Effective Yield on Purchase Date, 12/30/05 109,912 Salt Lake Co. College Rev. Series 1999 (Westminister College Proj.): 120,000 5.15%, 10/1/11 124,997 125,000 5.20%, 10/1/12 129,551 130,000 5.25%, 10/1/13 134,226 1,160,000 UT Hsg. Finance Agy. Multifamily Refunding Rev. Series 1996A (Section 8) (FHA insured), 6.10%, 7/1/22 1,199,568 ----------- 5,458,399 ----------- VERMONT (0.2%) VT Educ. & Hlth. Bldgs. Financing Agency Rev.: 420,000 Series 1998 (Norwich Univ. Proj.), 5.13%, 7/1/09 440,899 250,000 Series 2002A (Developmental & Mental Hlth. Proj.), 4.375%, 6/15/07 250,032 ----------- 690,931 ----------- See accompanying notes to portfolios of investments on page 56. 37 SIT TAX-FREE INCOME FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- VIRGINIA (0.7%) 250,000 Chesterfield Co. Industrial Dev. Auth. Pollution Ctrl. Rev. Series 1987A Rmktg. (VA Elec. & Power Co. Proj.), 5.875%, 6/1/17 264,342 350,000 Louisa Industrial Dev. Auth. Pollution Ctrl. Rev. Series 1985 Rmktg. (VA Elec. & Power Co. Proj.), 5.25%, 12/1/08 368,613 2,000,000 Norfolk Industrial Dev. Auth. Hosp. Rev. Refunding Series 1994A (Sentara Hosp. Proj.), 6.50%, 11/1/13 2,179,280 ----------- 2,812,235 ----------- WASHINGTON (0.6%) Energy Northwest Wind Proj. Rev.: 500,000 Series 2001A, 4.75%, 7/1/07 521,445 200,000 Series 2001B, 4.55%, 7/1/06 208,388 400,000 Grant Co. Public Hosp. Dist. #1 Rev. Series 1998 (Samaritan Hosp. Proj.) (Radian Asset Assurance), 5.25%, 9/1/13 421,688 275,000 Kitsap Co. Consolidated Hsg. Auth. Rev. Series 1994 (Vikings Crest Proj.), 6.25%, 5/1/24 275,778 1,000,000 WA HFC Nonprofit Housing Revenue Series 1995A (Judson Park Proj.)(LOC US Bk. Wash.), 6.90%, 7/1/16 1,015,600 ----------- 2,442,899 ----------- WEST VIRGINIA (0.6%) 1,850,000 Mason Co. Residual Rev. Series 1992C Zero Coupon, 7.58% Effective Yield on Purchase Date, 7/10/14 810,004 2,780,000 Ohio Co. Residual Rev. Series 1992C Zero Coupon, 7.43% Effective Yield on Purchase Date, 7/10/14 1,216,055 500,000 Putnam Co. Pollution Ctrl. Rev. Series 1992C (Appalachian Pwr. Co. Proj.), 6.60%, 7/1/19 508,175 ----------- 2,534,234 ----------- WISCONSIN (4.3%) 4,825,000 Badger Tobacco Asset Securitization Corp. Asset-Backed Rev. Series 2002, 6.125%, 6/1/27 4,335,697 100,000 WI Hsg. & Econ. Dev. Auth. Home Ownership Rev. Series 1997A, 6.00%, 3/1/17 106,635 2,335,000 WI G.O. Unlimited TaxRefunding Series 1995-2, 5.50%, 11/1/11 2,544,660 1,000,000 WI HEDA Hsg. Rev. Series 1993C (MBIA insured)(Section 8), 5.80%, 11/1/13 1,028,360 WI Hlth. & Educ. Fac. Auth. Rev. (FH Hlth. Care Dev. Inc Proj.): 1,395,000 Series 1999, 5.25%, 11/15/04 1,439,542 1,020,000 Series 1999, 5.625%, 11/15/09 1,092,583 WI Hlth. & Educ. Fac. Auth. Rev.: 140,000 Series 1992 (Mercy Hosp. Of Janesville Proj.), 6.60%, 8/15/22 142,801 1,440,000 Series 1996 (Meriter Hosp., Inc. Proj.), 6.00%, 12/1/06 1,523,765 Series 1999 (Kenosha Hosp. & Med. Ctr., Inc. Proj.): 670,000 5.00%, 5/15/06 717,302 705,000 5.10%, 5/15/07 759,285 740,000 5.15%, 5/15/08 796,018 820,000 5.35%, 5/15/10 879,196 865,000 5.45%, 5/15/11 918,993 Series 2001 (Agnesian Healthcare, Inc. Proj.): 110,000 5.00%, 7/1/04 114,119 125,000 5.00%, 7/1/05 132,469 150,000 5.00%, 7/1/06 161,047 200,000 5.00%, 7/1/07 215,344 550,000 Series 2001 (Froedert & Cmnty Hlth. Oblig.), 5.125%, 10/1/06 595,793 500,000 Series 2001B (Marshfield Clinic), 5.25%, 2/15/05 522,735 ----------- 18,026,344 ----------- Total municipal bonds (cost: $404,435,919) 399,267,116 ----------- 38 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- CLOSED-END MUTUAL FUNDS (2.0%)(2) 70,900 American Municipal Term Trust III 2003 753,667 37,100 Blackrock CA Insured Municipal Term Trust 2008 614,005 311,800 Blackrock Insured Municipal Term Trust 2008 5,269,420 18,100 Blackrock Insured NY Municipal Term Trust 2008 296,478 56,700 Blackrock Insured Municipal Term Trust 2010 628,803 65,000 Blackrock Municipal Target Term Trust 2006 709,150 ------------ Total closed-end mutual funds (cost: $7,663,928) 8,271,523 ------------ SHORT-TERM SECURITIES (1.0%)(2) 4,100,381 Dreyfus Tax-Exempt Cash Management Fund, 0.97% 4,100,381 10,000 Northern Institutional Tax-Exempt, 0.90% 10,000 ------------ Total short-term securities (cost: $4,110,381) 4,110,381 ------------ Total investments in securities (cost: $416,210,228)(7) $411,649,020 ============ See accompanying notes to portfolios of investments on page 56. 39 SIT MINNESOTA TAX-FREE INCOME FUND ONE YEAR ENDED MARCH 31, 2003 [PHOTO]------------------------------------------------------------------------- SENIOR PORTFOLIO MANAGERS MICHAEL C. BRILLEY o DEBRA A. SIT, CFA o PAUL J. JUNGQUIST, CFA The Minnesota Tax Free Income Fund earned a +7.1% total return over the past fiscal year and a return of +1.0 % for the three-month period, compared to the Lehman 5-Year Municipal Bond Index returns of +9.9% and +1.1% and for the one-year and three-month periods, respectively, ended March 31, 2003. YIELDS REMAIN ATTRACTIVE The Fund's 30-day SEC yield was 4.55% as of March 31st and its 12-month distribution rate was 4.63%. Our after-tax yields are particularly attractive. Yields declined through September 2002, but have been relatively stable since then. POISED TO OUTPERFORM IF RATES RISE The Fund's duration is slightly shorter than our benchmarks and has been relatively stable over the past 12 months. The Fund's structure has also been relatively stable. Unlike recent record supply in the national market, municipal bond issuance in Minnesota has been relatively light. As a result, the Fund's cash position has increased over the past year. This defensive positioning will allow us to exploit anticipated higher-yielding opportunities in the coming year. STRONG RETURNS ACROSS MOST SECTORS Our holdings in the hospital and other revenue sectors have been strong in recent periods. Prices have improved in the hospital sector, despite heavy issuance, as issues have improved profitability rather than increasing bed capacity. The lowest total returns were earned in the industrial/ pollution control sectors, which was hampered by falling prices for excess electric capacity. In addition, our 4% weighting in tobacco settlement revenue bonds has been hurt by heavy issuance and by an adverse court decision in Illinois during late March, which we expect to be resolved with only a minor impact on the portfolio. POSITIONED FOR MODERATE RATE INCREASES Our defensive structure anticipates improving economic growth during the second half of 2003. We believe that the combination of diminished war worries, recent government spending, and very low interest rates will begin to stimulate modest growth. We expect short-term interest rates to remain stable throughout 2003. However, we expect enough growth to cause intermediate and longer-term municipal bond yields to begin rising later this year as investors anticipate a Federal Reserve shift to an upward rate bias next year. INVESTMENT OBJECTIVE AND STRATEGY The investment objective of the Minnesota Tax-Free Income 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. During normal market conditions, the Fund invests 100% of its net assets in municipal securities that generate interest income that is exempt from regular federal 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 alternative minimum taxable income. PORTFOLIO SUMMARY Net Asset Value 3/31/03: $10.22 Per Share 3/31/02: $9.99 Per Share Total Net Assets: $219.4 Million 30-day SEC Yield: 4.55% Tax Equivalent Yield: 8.04%(1) 12-Month Distribution Rate: 4.63% Average Maturity: 13.4 Years Duration to Estimated Avg. Life: 4.8 Years(2) Implied Duration: 3.7 Years(2) (1) For individuals in the 38.6% federal tax and 7.85% MN tax brackets. (2) See next page. PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) [BAR CHART] Multifamily Mortgage Revenue 33.7 Hospital/Health Care Revenue 14.1 Industrial Revenue/ Pollution Control 8.5 Single Family Mortgage Revenue 8.3 Other Revenue Bonds 6.8 Insured 5.7 Sectors less than 4.0% 10.2 Cash & Other Net Assets 12.7 40 - --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT LEHMAN LIPPER MN TAX-FREE 5-YEAR MUNI. MN MUNI. BOND INCOME FUND BOND INDEX FUND AVG. ----------- ---------- --------- 3 Month** 1.01% 1.11% 1.26% 6 Month** 1.81 1.97 n/a 1 Year 7.14 9.85 8.42 3 Years 6.76 7.70 6.97 5 Years 4.53 5.91 4.70 Inception 5.55 5.65 5.16 (12/1/93) CUMULATIVE TOTAL RETURNS* SIT LEHMAN LIPPER MN TAX-FREE 5-YEAR MUNI. MN MUNI. BOND INCOME FUND BOND INDEX FUND AVG. ----------- ---------- --------- 1 Year 7.14% 9.85% 8.42% 3 Years 21.68 24.91 22.41 5 Years 24.82 33.23 25.81 Inception 65.53 67.08 59.99 (12/1/93) *AS OF 3/31/03. **NOT ANNUALIZED. - -------------------------------------------------------------------------------- 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 [PLOT POINT CHART] The sum of $10,000 invested at inception (12/1/93) and held until 3/31/03 would have grown to $16,553 in the Fund or $16,708 in the Lehman 5-year Municipal Bond Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% OF TOTAL NET ASSETS) [PIE CHART] Other Assets and Liabilities 12.7% AAA 13.6% AA 9.6% A 21.0% Not Rated 33.5% Less Than BBB 1.9% BBB 7.7% Assessment of Non-Rated Securities AAA 3.9% AA 2.5 A 4.7 BBB 12.9 BB 8.9 Less Than BB 0.6 ---- Total 33.5% LOWER OF MOODY'S S&P, FITCH OR DUFF & PHELPS RATINGS USED. 41 SIT MINNESOTA TAX-FREE INCOME FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- MUNICIPAL BONDS (86.8%)(2) EDUCATION/STUDENT LOAN (3.5%) Minnesota Higher Educ. Fac. Auth. Rev.: 425,000 Series 1996-4F1 (Augsburg College), 6.25%, 5/1/23 446,786 750,000 Series 1997-4L (St. John's University), 5.35%, 10/1/17 779,363 750,000 Series 1998-4T (College of St. Benedict), 5.35%, 3/1/20 758,617 458,000 Lease Rev. Series 1999-5A (Concordia University), 5.25%, 4/25/14 462,887 700,000 Series 1999-4Y (Augsburg College), 5.05%, 10/1/13 727,888 275,000 Series 1999-4Z (Northwestern Hlth. Services University), 5.20%, 10/1/13 280,184 100,000 Series 2000-5D (College Art & Design), 5.75%, 5/1/08 109,562 110,000 Refunding Series 2001-5J (St. Scholastica), 4.625%, 12/1/05 116,312 450,000 Series 2002-5N1 (St. Catherine), 3.00%, 10/1/03 453,123 420,000 Series 2002-5N1 (St. Catherine), 3.00%, 10/1/04 427,804 St. Paul Hsg. & Redev. Auth. Lease Rev.: 930,000 Series 1999 (ACORN Dual Language Academy Proj.), 6.30%, 11/1/17 881,584 400,000 Series 2001A (Cmty. of Peace Academy Proj.), 6.375%, 12/1/11 409,708 750,000 Series 2001A (Cmty. of Peace Academy Proj.), 7.00%, 12/1/15 778,695 350,000 Series 2001A (Cmty. of Peace Academy Proj.), 7.375%, 12/1/19 364,420 415,000 Series 2002A (New Spirit Charter School Proj.), 6.50%, 12/1/12 412,896 100,000 Victoria Private School Fac. Rev. Series 1999A (Holy Family Catholic H.S. Proj.), 5.20%, 9/1/11 99,457 165,000 Winona Port. Auth. Lease Rev. Series 1999A (Bluffview Montessori School Proj.), 8.00%, 12/1/24 175,268 ----------- 7,684,554 ----------- ESCROWED TO MATURITY/PREREFUNDED (1.0%) 100,000 Anoka Industrial Dev. Rev. Series 1994 (Lund Industries Inc. Proj.), 6.40%, 9/1/03(4) 102,026 Fergus Falls Health Care Facs. Rev. (Lake Region Hosp. Corp. Proj.): 215,000 Refunding Series 1993A, 6.25%, 9/1/04 223,710 10,000 Refunding Series 1993A, 6.50%, 9/1/18 10,415 10,000 Series 1993B, 6.50%, 9/1/18 10,415 945,000 Puerto Rico Childrens Trust Fund Tobacco Settlement Rev. Series 2000, 5.75%, 7/1/20 1,054,828 Red Wing Hlth. Care Ctr. Fac. Rev. Refunding (River Region Obligated Group): 125,000 Series 1993A, 6.20%, 9/1/05 130,075 130,000 Series 1993A, 6.30%, 9/1/06 135,333 200,000 Series 1993B, 6.20%, 9/1/05 221,872 300,000 St. Paul Sewer Rev. Refunding Series 1993 (Ambac insured), 5.60%, 12/1/08 302,256 ----------- 2,190,930 ----------- GENERAL OBLIGATION (0.8%) 540,000 Carver Co. Hsg. & Redev. Auth. Hsg. & Dev. Gross Rev. Ltd.Tax G.O. (Chanhassen Apts. Proj.), 7.00%, 1/1/25 554,126 100,000 Hopkins Redev. Refunding G.O. Series 1993C, 4.60%, 2/1/09 100,128 60,000 MN G.O. Series 1993, 5.30%, 4/1/07 61,257 1,000,000 St. Paul ISD No. 625 G.O. Series 1997A, 5.125%, 2/1/15 1,058,370 ----------- 1,773,881 ----------- 42 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- HOSPITAL/HEALTH CARE (14.1%) Aitkin Hlth. Care Fac. Rev. Series 2001 (Riverwood Hlth. Care Ctr. Proj.): 250,000 6.00%, 2/1/06 252,610 250,000 6.25%, 2/1/07 253,425 Alexandria Hlth. Care Fac. Rev. Series 2002B (BSM Property - Bethany Home Proj.): 375,000 4.65%, 7/1/06 375,109 375,000 4.95%, 7/1/07 375,060 700,000 Bemidji Hosp. Fac. Rev. Refunding Series 1996 (North Country Hlth. Proj.), 5.625%, 9/1/21 704,011 Brooklyn Center Hlth. Care Fac. Rev. Series 1993 (Maranatha Proj.): 50,000 6.75%, 12/1/05 49,778 500,000 7.50%, 12/1/10 494,780 200,000 7.60%, 12/1/18 194,106 440,000 Cambridge Hsg. & Hlth. Care Fac. Rev. Series 1998C (Grandview West Proj.), 5.25%, 10/1/08 425,132 1,290,000 Cokato Sr. Hsg. Rev. Series 1996 (Cokato Charitable Trust Proj.), 7.00%, 12/1/19 1,274,855 1,205,000 Columbia Heights Multifamily & Health Care Fac. Rev. Series 1998 (Crest View Corp. Proj.), 5.75%, 9/1/11 1,184,467 Crookston Nursing Home & Multifamily Hsg. Rev Series 2002A (Villa St. Vincent Proj.): 100,000 4.75%, 9/1/08 100,091 75,000 5.50%, 9/1/11 74,434 1,000,000 Cuyuna Range Hosp. Dist. Hlth. Fac. Gross Rev. Series 1999A, 6.00%, 6/1/19 978,660 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(8)(9) 583,350 3,000,000 Duluth Econ. Dev. Auth. Hlth. Care Fac. Rev. Series 2002 (St. Luke's Hosp. Proj.), 6.00%, 6/15/12 2,990,670 1,000,000 Elk River Rev. Series 1998 (Care Choice Member Proj.), 5.60%, 8/1/13 945,150 400,000 Fergus Falls Hlth. Care Fac. Auth. Rev. Series 1995 (Lake Region Hosp. Corp.), 6.40%, 12/1/15 411,888 Hastings Hlth. Care Fac. Rev. Series 1998 (Augustana Home of Hastings Proj.): 115,000 5.10%, 11/1/09 112,625 120,000 5.20%, 11/1/10 116,098 135,000 5.40%, 11/1/12 130,278 140,000 5.50%, 11/1/13 134,947 540,000 Hopkins Hlth. Care Fac. Rev. Series 1999 (Augustana Chapel View Homes, Inc. Proj.), 6.00%, 3/1/14 499,608 1,685,000 Maplewood Hlth. Care Fac. Rev. (Volunteers of America Care Ctrs. Proj.), 7.375%, 10/1/12 1,704,832 Marshall Medical Center Gross Rev. Series 1999 (Weiner Memorial Medical Center Proj.): 305,000 5.65%, 11/1/13 310,615 320,000 5.70%, 11/1/14 324,570 150,000 Minneapolis & St. Paul Hsg. & Redev. Auth. Hlth. Care System Series 1992 (Group Health Plan, Inc. Proj.), 6.90%, 10/15/22 152,037 1,045,000 Minneapolis Hlth. Care Fac. Rev. Series 1993 (St. Olaf Res. Proj.), 7.00%,10/1/18 1,012,427 1,000,000 Minneapolis Hlth. Care Fac. Rev. Series 1998A (Benchmark Hlth. Care Proj.), 6.625%, 12/1/28(8)(9) 607,760 945,000 Minneapolis Hlth. Care Fac. Rev. Series 1999 (Shelter Care Foundation Proj.), 6.00%, 4/1/10 932,290 MN Agr. & Econ. Dev. Board Hlth. Care Rev. Series 1999 (Benedictine Care Centers Proj.): 115,000 5.45%, 2/1/09 116,612 120,000 5.45%, 8/1/09 121,547 See accompanying notes to portfolios of investments on page 56. 43 SIT MINNESOTA TAX-FREE INCOME FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- 120,000 5.50%, 2/1/10 120,948 125,000 5.50%, 8/1/10 125,634 MN Agr. & Econ. Dev. Board Rev. Series 2000 (Evangelical Lutheran Good Samaritan Society Proj.): 410,000 5.80%, 8/1/08 449,807 750,000 6.55%, 8/1/16 825,465 MN Agr. & Econ. Dev. Board Rev. Series 2002 (Evangelical Lutheran Good Samaritan Society Proj.): 320,000 3.85%, 2/1/04 324,355 230,000 4.35%, 2/1/05 237,705 220,000 5.50%, 2/1/12 232,947 MN Agr. & Econ. Dev. Board Rev. Series 2000A (Fairview Hlth. Care Sys. Proj.): 500,000 6.00%, 11/15/03 513,010 500,000 5.625%. 11/15/04 527,625 645,000 5.625%. 11/15/05 697,368 590,000 5.70%, 11/15/06 649,342 1,080,000 Northfield Hospital Rev. Series 2001C, 6.00%, 11/1/13 1,133,060 650,000 Olmsted Co. Hlth. Care Fac. Rev. Series 1998 (Olmsted Medical Ctr. Proj.), 5.45%, 7/1/13 673,010 St. Paul Hsg. & Redev. Auth. Hlth. Care Rev. Series 1998 (Regions Hosp. Proj.): 800,000 5.00%, 5/15/08 841,568 250,000 5.00%, 5/15/10 257,058 1,340,000 5.20%, 5/15/13 1,356,589 2,000,000 5.25%, 5/15/18 1,949,580 960,000 St. Paul Hsg. & Redev. Auth. Nursing Home Dev. Rev. Refunding Series 1996C (Franciscan Hlth. Cmmty. Proj., St. Mary's Home), 7.00%, 7/1/21 933,878 400,000 St. Paul Hsg. & Redev. Auth. Hlth. Care Rev. Series 2001A (Model Cities Hlth. Ctr. Proj.), 6.50%, 11/1/11 397,976 820,000 Wadena Co. Hlth. Care Fac. Rev. Series 1994B, 7.45%, 9/1/15 835,941 ----------- 31,026,688 ----------- INDUSTRIAL/POLLUTION CONTROL (8.5%) 140,000 Anoka Co. Res. Recovery Rev. Refunding Series 1999 (Northern States Power Co.), 4.35%, 12/1/04 142,394 2,710,000 Anoka Co. Solid Waste Disp. Rev. Series 1987A (Natl. Rural Util. Proj.), 6.95%, 12/1/08(4) 2,745,853 300,000 Bass Brook Pollution Ctrl. Rev. Refunding Series 1992 (MN Power & Light Co. Proj.), 6.00%, 7/1/22 304,581 910,000 East Grand Forks Industrial Dev. Rev. Refunding Series 2001B (Am. Crystal Sugar Proj.), 5.40%, 4/1/11 975,438 445,000 Guam Economic Dev. Auth. Tobacco Settlement Asset-Backed Series 2001A, 5.00%, 5/15/22 436,914 1,000,000 Guam Econ. Dev. Auth. Tobacco Settlement Asset-Backed Rev. Series 2001B, Zero Coupon, 5.20% Effective Yield on Purchase Date, 5/15/15 753,150 1,500,000 Hugo Industial Dev. Rev. Refunding Series 2002 (MN Union Builders Proj.), 7.75%, 3/1/17(4) 1,490,790 MN Agricultural & Econ. Dev. Board Small Business Dev. Loan Program Rev.: 500,000 Series 1997C Lot 3 (DynaGraphics), 6.20%, 8/1/09(4) 508,160 200,000 Series 2002A Lot 1, 2.75%, 8/1/03(4) 200,424 150,000 Series 2002A Lot 1, 3.15%, 8/1/04(4) 151,721 155,000 Series 2002A Lot 1, 3.65%, 8/1/05(4) 158,531 210,000 Medina Industrial Dev. Rev. Refunding Series 1998 (Temroc Metals, Inc. Proj.), 5.10%, 10/1/05(4) 220,907 Owatonna Industrial Dev. Rev. Series 1997: 280,000 7.25%, 5/1/14(4) 263,847 505,000 7.375%, 5/1/17(4) 476,740 44 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- 525,000 Puerto Rico Tourist, Educational, Medical and Environmental Control Fac. Financing Auth. Industrial Rev. Series 1998A (Guaynabo Warehouse for Emergencies Proj.), 4.35%, 7/1/06 556,301 Puerto Rico Childrens Trust Fund Tobacco Settlement Rev.: 4,000,000 Series 2002, 5.375%, 5/15/33 3,668,800 1,000,000 Series 2002, 5.50%, 5/15/39 892,910 80,000 Ramsey & Washington Cos. Res. Recovery Refunding Rev. Series 1999 (NSP Co. Proj.), 3.75%, 12/1/03 80,293 200,000 Richfield Cmty. Dev. Rev. Refunding 1994 (Richfield Shoppes Proj.), 8.375%, 10/1/05 204,386 275,000 Sauk Centre Industrial Dev. Rev. Series 1998 (Seluemed LLP Proj.)(LOC US Bank), 5.75%, 4/1/18(4) 276,441 1,500,000 Seaway Port Auth. (Duluth) Industrial Dev. Dock & Wharf Rev. Refunding Series 1992B (Cargill Inc. Proj.), 6.80%, 5/1/12 1,548,300 500,000 St. Paul Hsg. & Redev. Auth. District Cooling Rev. Series 1998J, 5.35%, 3/1/18 520,945 380,000 St. Paul Port Authority Hotel Fac. Rev. Series 1999-2 (Radisson Kellogg Proj.), 6.375%, 8/1/03 379,920 1,960,000 Virgin Islands Tobacco Settlement Financing Corp. Asset-Backed Rev. Series 2001, 5.00%, 5/15/21 1,787,500 ----------- 18,745,246 ----------- INSURED (5.7%) 2,500,000 Duluth Econ. Dev. Auth. Hlth. Care Fac. Rev. Series 1993C (Benedictine Health System - St. Mary Medical Ctr. Proj.)(Connie Lee insured), 5.875%, 2/15/08 2,556,125 565,000 Hastings Hlth. Care Fac. Rev. Series 1998 (Regina Med. Ctr.)(ACA insured), 5.25%, 9/15/18 576,249 195,000 MN HFA Rental Hsg. Series 1995D (MBIA insured), 5.15%, 2/1/04 200,318 45,000 MN HFA Single Family Mtg. Rev. Series 1994D (Ambac insured), 4.70%, 7/1/03 45,395 1,650,000 Minneapolis & St. Paul Metro Airport Comm. Airport Rev. Series 1998B (Ambac insured), 5.25%, 1/1/13(4) 1,750,699 1,250,000 Plymouth Multifamily Hsg. Series 1993 (Harbor Lanes Apts. Proj.)(Radian insured), 5.90%, 9/1/13(4) 1,282,775 200,000 Puerto Rico Public Bldgs. Auth. Gtd. Public Educ. & Health Facs. Rev. Series 1993 (MBIA insured), 5.70%, 7/1/16 205,034 300,000 Scott Co. Hsg. & Redev. Auth. Ltd. Special Benefits Tax Series 1997B (River City Centre Proj.), (Ambac insured), 5.45%, 2/1/20 316,365 2,600,000 St. Paul Hsg. & Redev. Sales Tax Rev. Refunding Series 1996 (Civic Center Proj.) (FSA insured), 7.10%, 11/1/23 3,249,844 400,000 St. Paul Hsg. & Redev. Auth. Hosp. Rev. Series 1993 (St. Paul - Ramsey Med. Ctr. Proj.) (Ambac insured), 5.15%, 5/15/04 409,824 1,750,000 White Earth Band of Chippewa Indians Rev. Series 2000A (ACA insured), 7.00%, 12/1/11 1,981,333 ----------- 12,573,961 ----------- MULTIFAMILY MORTGAGE (33.7%) 1,520,000 Apple Valley Multifamily Hsg. Rev. Refunding Series 1998A (Mtg. Loan/Apple Valley Villa Proj.) (GNMA collateralized), 5.25%, 8/1/18 1,574,158 Austin Hsg. & Redev. Auth. Governmental Hsg. Gross Rev. Series 1995A (Courtyard Res. Proj.): 50,000 7.00%, 1/1/15 50,736 500,000 7.25%, 1/1/26 507,315 1,000,000 Brooklyn Center Multifamily Hsg. Rev. Series 1993 (Ponds Family Hsg. Proj.), 5.90%, 1/1/20 1,007,700 Buffalo Rev. Refunding Series 1998 (Covenant Retirement Cmtys. Proj.): 350,000 4.35%, 12/1/03 354,931 250,000 4.45%, 12/1/04 257,517 250,000 4.55%, 12/1/05 260,745 See accompanying notes to portfolios of investments on page 56. 45 SIT MINNESOTA TAX-FREE INCOME FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- Burnsville Multifamily Hsg. Rev. Refunding Series 1991 (Oak Leaf Apts. Proj.)(GNMA collateralized): 870,000 7.05%, 1/1/12 888,940 780,000 7.125%, 1/1/17 796,926 860,000 7.125%, 1/1/21 878,550 530,000 7.15%, 1/1/23 541,384 425,000 7.15%, 1/1/25 434,103 960,000 Burnsville Multifamily Hsg. Rev. Refunding Series 1994 (Bridgeway Apts. Proj.), 7.25%, 2/1/14 965,261 Carver Co. Hsg. & Redev. Auth. Multifamily Hsg.: 1,200,000 Gross Rev. & Ltd. Tax Refunding Series 1997A (Lake Grace Apts. Proj.), 6.00%, 7/1/28 1,207,308 650,000 Rev. Refunding Series 1997A (Waybury Apts. Proj.), 5.875%, 8/1/27 665,619 400,000 Subordinate Rev. Refunding Series 1997C (Waybury Apts. Proj.), 8.00%, 8/1/27 400,420 Chaska Multifamily Hsg. Rev. Series 1999 (West Suburban Hsg. Partners Proj.): 235,000 5.00%, 9/1/09(4) 227,597 495,000 5.375%, 9/1/14(4) 464,221 405,000 Chisago City Hlth. Fac. Rev. Refunding Series 1995A (Pleasant Heights Proj.), 7.30%, 7/1/18 411,039 Cloquet Multifamily Hsg. Rev. Refunding Series 2001A (HADC Proj.): 55,000 6.00%, 2/1/05 55,448 60,000 6.25%, 2/1/06 60,545 60,000 6.50%, 2/1/07 60,674 75,000 7.10%, 2/1/10 75,778 700,000 Coon Rapids Multifamily Hsg. Rev. Refunding Series 1997A (Margaret Place Apts. Proj.), 6.50%, 5/1/25 668,437 Coon Rapids Senior Hsg. Rev. Refunding Series 1998 (Epiphany Sr. Citizens Hsg. Corp. Proj.): 115,000 5.30%, 11/1/07 114,519 115,000 5.40%, 11/1/08 114,056 170,000 5.50%, 11/1/10 164,451 545,000 5.80%, 11/1/18 492,533 Dakota Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding (Walnut Trails Apts. Proj.): 4,420,000 Series 1995A (GNMA collateralized), 7.90%, 1/20/31(4) 4,830,043 205,000 Subordinate Series 1995C, 9.00%, 1/20/15(4) 205,568 Dakota Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev.: 1,000,000 Series 1999 (View Pointe Apts. Proj.), 6.125%, 11/1/17 955,880 95,000 Series 1999 (Dakota Station Proj.), 5.65%, 1/20/24 99,990 800,000 Dakota Co. Cmty. Dev. Agy. Hsg. Fac. Rev. Subordinate Series 2002B (HADC Apple Valley Sr. Apts. Proj.), 7.50%, 8/15/43 801,496 Eden Prairie Multifamily Hsg. Rev. Refunding: 660,000 Series 1991 (Windslope Apts. Proj.) (Section 8), 7.00%, 11/1/06 667,636 1,500,000 Series 1991 (Windslope Apts. Proj.) (Section 8), 7.10%, 11/1/17 1,513,845 300,000 Series 1997A (Preserve Place Proj.) (GNMA collateralized), 5.50%, 1/20/18 314,703 410,000 Series 1997A (Preserve Place Proj.) (GNMA collateralized), 5.60%, 7/20/28 423,575 420,000 Senior Series 2001A (Rolling Hills Proj.) (GNMA collateralized), 6.00%, 8/20/21 467,603 1,100,000 Subordinate Series 2001C (Rolling Hills Proj.), 9.00%, 4/1/43 1,082,466 Fairmont Hsg. Fac. Rev. Series 2002-A1 (Homestead-GEAC Proj.): 1,100,000 6.625%, 10/1/11 1,118,194 295,000 6.875%, 10/1/14 298,348 46 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- Grand Rapids Hsg. & Redev. Auth. (Lakeshore Place and Forest Park West Apts. Proj.): 70,000 Series 1999B, 5.00%, 10/1/09 67,332 500,000 Series 1999A, 5.20%, 10/1/19 506,940 1,660,000 Series 1999A, 5.30%, 10/1/29 1,660,614 110,000 Series 1999B, 5.70%, 10/1/29 98,186 515,000 Hopkins Subordinate Multifamily Hsg. Rev. Refunding Series 1996C (Auburn Apts. Proj.), 8.00%, 6/20/31 517,941 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.) (Section 8): 100,000 5.85%, 4/1/09 107,865 450,000 6.25%, 4/1/15 478,395 500,000 Hutchinson Hsg. Fac. Rev. Series 1994 (Prince of Peace Proj.), 7.375%, 10/1/12 502,910 Inver Grove Heights Hsg. Rev. (PHM/Inver Grove, Inc Proj): 105,000 Series 2001A, 5.50%, 5/1/08 105,062 110,000 Series 2001A, 5.50%, 11/1/08 110,065 65,000 Series 2001B, 5.00%, 5/1/06 65,963 70,000 Series 2001B, 5.25%, 5/1/07 70,956 75,000 Series 2001B, 5.50%, 5/1/08 75,929 80,000 Series 2001B, 5.60%, 5/1/09 81,066 70,000 Series 2001B, 5.00%, 11/1/06 71,248 75,000 Series 2001B, 5.50%, 11/1/08 76,282 80,000 Series 2001B, 5.60%, 11/1/09 80,960 3,415,000 Little Canada Multifamily Hsg. Rev. Series 1997A (Hsg. Alt. Dev. Co. Proj.), 6.10%, 12/1/17 3,302,373 1,400,000 Maplewood Multifamily Hsg. Rev. Series 1998 (Park Edge Apts. Proj.), 6.50%, 5/1/29(4) 1,316,504 Maplewood Multifamily Refunding Rev. (Village on Woodlyn Proj.): 1,605,000 Series 1999A (GNMA collateralized), 6.75%, 7/20/30(4) 1,705,505 100,000 Subordinate Series 1999C-1, 8.00%, 11/1/30(4) 99,438 275,000 Subordinate Series 1999C-2, 8.00%, 11/1/30(4) 273,454 Minneapolis Multifamily Hsg. Rev.: 500,000 Series 2002A (Keeler Apts. Proj.), 7.00%, 10/1/17 500,000 355,000 Series 1996 (Belmont Apts.), 7.25%, 11/1/16 358,688 Series 1994 (Findley Place Townhomes Proj.) (Section 8): 50,000 6.00%, 12/1/05(4) 50,117 1,215,000 7.00%, 12/1/16(4) 1,178,550 4,630,000 Series 1996A (Nicollet Towers) (Section 8), 6.00%, 12/01/19 4,791,031 1,000,000 Series 1998 (Riverside Plaza Proj.) (GNMA collateralized), 5.10%, 12/20/18(4) 1,025,940 345,000 Series 2000 (Garr Scott Loft Proj.) (LOC U.S. Bank), 5.95%, 5/1/30(4) 369,164 2,500,000 Series 2002B Mandatory Put 5/20/04 (Sumner Field Partners Proj.), 3.75%, 5/20/07(4) 2,525,025 Minneapolis Student Hsg. Rev. Series 2000 (Riverton Community Hsg. Proj.): 100,000 6.80%, 7/1/10 105,415 240,000 6.90%, 7/1/11 250,800 MN HFA Rental Hsg. Rev.: 175,000 Series 1993C, 6.15%, 2/1/14 175,236 110,000 Series 1993E, 6.00%, 2/1/14 110,141 50,000 Series 1996A, 6.10%, 8/1/27(4) 52,121 295,000 Minnetonka Hsg. Fac. Rev. Series 1994 (Beacon Hill Housing Proj.), 7.00%, 6/1/04 297,906 See accompanying notes to portfolios of investments on page 56. 47 SIT MINNESOTA TAX-FREE INCOME FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- 360,000 Minnetonka Multifamily Hsg. Rev. Refunding Subordinate Series 1994C (Brier Creek Proj.), 8.00%, 12/20/16 371,434 Minnetonka Multifamily Hsg. Rev. Refunding Series 1999A (GNMA collateralized) (Archer Heights Apts. Proj.): 540,000 5.10%, 7/20/13(4) 565,061 975,000 5.20%, 1/20/18(4) 1,014,517 Minnetonka Senior Hsg. Rev. Series 1997 (Westridge Sr. Hsg. Proj.): 110,000 6.30%, 9/1/08 110,228 185,000 6.50%, 9/1/12 185,259 New Ulm Multifamily Rev. Series 1999 (HADC Ridgeway Proj.): 95,000 5.35%, 12/1/08 93,352 100,000 5.40%, 12/1/09 95,939 105,000 5.50%, 12/1/10 100,251 110,000 5.60%, 12/1/11 104,696 Plymouth Multifamily Hsg. Rev. Refunding Series 1996A (Fox Forest Apts. Proj.) (GNMA collateralized): 1,650,000 Series 1996A, 8.05%, 6/20/31 1,809,324 655,000 Series 1996C, 8.00%, 6/20/31 658,740 960,000 Robbinsdale Multifamily Hsg. Rev. Series 1996A (Copperfield Hill Proj.), 7.20%, 12/1/16 935,501 2,800,000 Rochester Multifamily Rev. Refunding Series 2000A (Weatherstone Apts. Proj.) (LOC Household Finance) (Mandatory Put 9/1/17) 6.375%, 9/1/37(4) 3,045,336 2,820,000 Roseville Hsg. Fac. Rev. Refunding Bonds Series 1998 (College Properties Inc. Proj.), 5.60%, 10/1/13 2,828,432 325,000 Sandstone Econ. Dev. Auth. Hsg. & Dev. Rev. Series 1994A (Family Apts. Proj.), 8.00%, 1/1/12 333,678 500,000 St. Cloud Hsg. & Redev. Auth. Hsg. Rev. Refunding Series 1998 (Northway Manor Apts. Section 8 Assisted Proj.), 5.15%, 12/1/14 486,295 St. Cloud Hsg. & Redev. Auth. Multifamily Hsg. Rev.: 1,300,000 Series 1993 (Germain Towers Proj.) (Section 8), 5.90%, 9/1/20 1,084,044 Series 1999A (Parkview Terrace Apts. Proj.) (Section 8): 200,000 5.00%, 6/1/09 195,426 1,029,000 5.50%, 6/1/18 977,159 300,000 St. Louis Park Rental Hsg. Dev. Rev. Refunding Series 1993 (FNMA-Tamarind Proj.), 5.50%, 11/1/13 308,334 St. Louis Park Multifamily Hsg. Rev. Refunding: 650,000 Series 1995 (FHA insured) (Knollwood Cmty. Hsg. Proj.), 6.15%, 12/1/16 683,560 500,000 Series 1998A (Park Ridge Apts. Proj.) (GNMA collateralized), 5.25%, 11/1/20 515,745 St. Paul Hsg. & Redev. Auth. Multifamily Refunding Rev.: Series 1992 (Point of St. Paul Proj.)(FNMA backed), 6.60%, 500,000 10/1/12 510,930 Series 1995 (Sun Cliffe Apts. Proj.)(GNMA collateralized), 200,000 5.875%, 7/1/15 211,498 3,315,000 St. Paul Port Authority Multifamily Hsg. Refunding (Jackson Towers Apts. Proj.) Senior Series 1998-1A (GNMA collateralized), 6.95%, 4/20/33 3,639,505 1,750,000 Virginia Hsg. & Redev. Auth. Governmental Hsg. Rev. Refunding Series 1998A (Laurentian Manor Proj.), 5.75%, 5/1/32 1,611,383 910,000 Washington Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding Series 1994 (White Bear Lake Transitional Hsg. Proj.), 6.625%, 8/1/24 928,500 755,000 Washington Co. Hsg. & Redev. Auth. Governmental Hsg. Rev. Refunding Series 1999A (Briar Pond Apts. Proj.) (GNMA collateralized), 5.50%, 2/20/14 780,376 ----------- 73,829,883 ----------- 48 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- MUNICIPAL LEASE (2.6%)(5) 505,000 Burnsville Solid Waste Rev. Series 1990 (Freeway Transfer, Inc. Proj.), 9.00%, 4/1/10(4) 505,934 75,000 Goodhue Co. Econ. Dev. Auth. Rev. Series 1997A (Courts Bldg. Proj.), 5.75%, 2/1/13 79,116 125,000 Hennepin Co. Hsg. & Redev. Auth. Rev. Series 1993A (Community Provider Program), 5.70%, 8/1/13 125,509 655,000 Hibbing Econ. Dev. Auth. Public Proj. Rev. Series 1997 (Hibbing Lease Obligations Proj.), 6.10%, 2/1/08 693,082 125,000 Mountain Iron Hsg. & Redev. Auth. Rev. Series 2001A (Arrowhead Library Sys. Proj.), 5.00%, 9/1/09 134,424 Shorewood Econ. Dev. Auth. Public Safety Fire Fac. Lease Rev. Series 2002A: 135,000 3.00%, 2/1/05 136,085 140,000 3.50%, 2/1/06 141,816 800,000 St. Cloud Certificates of Participation Series 1997, 5.90%, 12/1/17 825,072 1,490,902 St. Paul Lease Series 1998 (City Hall Annex Building), 5.71%, 10/1/18 1,483,328 400,000 St. Paul Hsg. & Redev. Auth. Lease Rev. Series 2000 (Rivercentre Pkg. Ramp Proj.), 5.70%, 5/1/08 448,152 774,677 University of Puerto Rico Certificates of Participation Series 2001, 6.25%, 1/10/05 777,930 350,000 Washington Co. Hsg. & Redev. Auth Jail Facility Rev. Refunding Series 1993, 5.00%, 2/1/06 351,050 ----------- 5,701,498 ----------- PUBLIC FACILITIES (1.2%) 1,000,000 Minneapolis Cmty. Dev. Agy. Ltd. Tax Supported Dev. Rev. Common Bond Fund Series 2001G3 (LOC-U.S. Bank), 5.35%, 12/1/21 1,038,550 St. Paul Recreational Fac. Gross Rev. Series 1996D: 160,000 5.50%, 6/1/08 170,566 1,245,000 5.875%, 6/1/18 1,325,701 ----------- 2,534,817 ----------- SINGLE FAMILY MORTGAGE (8.3%) Dakota County Hsg. & Redev. Auth. Single Family Mtg. Rev.: 390,000 Series 1994A (FNMA backed), 6.70%, 10/1/09(4) 398,989 210,000 Series 1995 (FNMA & GNMA backed), 6.25%, 10/1/09(4) 215,815 830,000 Minneapolis Redev. Mtg. Rev. Series 1987A (Riverplace Proj.) (LOC Bk. of Tokyo), 7.10%, 1/1/20 833,220 2,100,000 Minneapolis Residual Interest Mtg. Rev. Series 1995 Convertible Capital Appreciation Bonds, Zero Coupon, 7.00% Effective Yield on Purchase Date, 10/1/12 1,120,266 735,000 Minneapolis Single Family Mtg. Rev. Series 1995V (FNMA & GNMA backed), 6.25%, 4/1/22 771,993 MN HFA Single Family Mtg. Rev.: 145,000 Series 1994F, 5.45%, 7/1/04 151,600 155,000 Series 1994F, 5.55%, 7/1/05 161,946 635,000 Series 1994F, 6.30%, 7/1/25 653,732 2,240,000 Series 1994I, 6.90%, 7/1/22(4) 2,305,834 30,000 Series 1994K, 5.90%, 1/1/07 31,246 230,000 Series 1994L, 6.70%, 7/1/20(4) 237,201 95,000 Series 1994T, 5.20%, 7/1/03 95,920 25,000 Series 1995K, 6.20%, 7/1/20(4) 25,987 360,000 Series 1996D, 6.00%, 1/1/16 381,125 260,000 Series 1997A, 5.60%, 7/1/09 277,181 600,000 Series 1996H, 6.00%, 1/1/21 629,934 1,700,000 Series 1997D, 5.85%, 7/1/19(4) 1,781,787 85,000 Series 1997E, 5.90%, 7/1/29(4) 88,562 See accompanying notes to portfolios of investments on page 56. 49 SIT MINNESOTA TAX-FREE INCOME FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- 225,000 Series 1997G, 6.00%, 1/1/18 244,031 2,130,000 Series 1998C, 5.25%, 1/1/17 2,230,217 90,000 Series 1998F, 4.95%, 7/1/08 98,737 690,000 Series 1998F-1, 5.45%, 1/1/17 737,175 150,000 Series 1998F, 5.70%, 1/1/17 163,541 780,000 Series 1999B, 5.25%, 1/1/20 807,643 850,000 Series 1999C, 4.10%, 7/1/03(4) 855,738 660,000 Series 1999C, 4.25%, 7/1/04(4) 680,711 1,050,000 Series 1999C, 4.40%, 7/1/05(4) 1,104,296 300,000 Series 2000C, 6.10%, 7/1/30(4) 313,605 239,096 Moorhead Single Family Mtg. Rev. Refunding Series 1992B, 7.00%, 8/1/11 241,994 966,042 St. Paul Residual Interest Rev. Series 1995 Convertible Capital Appreciation Bonds, Zero Coupon, 7.23% Effective Yield on Purchase Date, 9/1/11 551,243 ----------- 18,191,269 ----------- TRANSPORTATION REVENUE (0.1%) 250,000 Minneapolis & St. Paul Metro Airport Comm. Special Fac. Rev. Series 2001B (Northwest Airlines), 6.50%, 4/1/25(4) 207,760 ----------- UTILITY (0.5%) 1,060,000 Western MN Muni. Power Agy. Rev. Refunding Series 1987A, 5.50%, 1/1/15 1,061,028 ----------- OTHER REVENUE BONDS (6.8%) Columbia Heights Commercial Dev. Refunding Rev. Series 1999 (Columbia Park Properties - Medical Clinic Proj.): 250,000 5.15%, 12/1/08 239,585 1,750,000 5.60%, 12/1/15 1,580,267 Commissioner of Iron Range Resources and Rehab. Gross Rev. (Giant's Ridge Rec. Area Proj.): 205,000 Series 2000, 5.90%, 11/1/03 208,764 200,000 Series 2000, 6.25%, 11/1/05 214,232 Minneapolis Cmty. Dev. Agy. Ltd. Tax Common Bond Fund: 100,000 Series 1993-5 (Winslow Printing), 6.125%, 12/1/06(4) 100,496 170,000 Series 1997-1 (Halper Corrugated Box Mfg. Co.), 5.90%, 6/1/07(4) 188,583 500,000 Series 1999-1A (Discount Steel), 5.25%, 6/1/19(4) 507,055 1,180,000 Minneapolis Public Hsg. Auth. Series 1997 (General Credit Energy Savings Proj.), 6.00%, 7/1/08 1,172,542 200,000 Renville Gross Rev. Golf Course Bond Series 1997, 6.50%, 2/1/19 204,688 St. Paul Hsg. & Redev. Auth. Tax Increment Rev.: 700,000 Series 2001 (US Bank Operations Ctr. Proj.), 6.125%, 8/1/19 713,783 1,140,000 Series 2002 (North Quadrant Owner Occupied Proj. Phase 2), 7.00%, 2/15/28 1,161,022 1,089,000 Series 2002 (North Quadrant Owner Occupied Proj. Phase 1), 7.50%, 2/15/28 1,183,002 3,000,000 Series 2002A (Upper Landing Proj.), 6.80%, 3/1/29 3,014,250 2,000,000 Series 2002B-2 (Upper Landing Proj.), 6.90%, 3/1/29 1,980,780 1,300,000 Series 2002 (Drake Marble Proj.), 6.75%, 3/1/28 1,301,690 St. Paul Port Auth. Tax Increment Rev. Series 2000-6 (Great Northern Bus. Ctr. 100,000 Proj.), 4.40%, 9/1/03 100,276 750,000 Steele Co. Hlth. Care Fac. Rev. Series 2000 (Elderly Hsg. Proj.), 6.625%, 6/1/20 816,465 50 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- Victoria Recreational Facility Gross Rev. Series 2002: 70,000 4.75%, 2/1/12 70,995 75,000 4.75%, 8/1/12 76,066 85,000 5.10%, 8/1/15 86,555 ------------ 14,921,096 ------------ Total municipal bonds (cost: $189,296,040) 190,442,611 ------------ CLOSED-END MUTUAL FUNDS (0.5%)(2) 96,000 Minnesota Municipal Term Trust II 2003 984,000 ------------ (cost: $1,018,159) SHORT-TERM SECURITIES (11.6%)(2) 5,623,202 Federated Minnesota Municipal Cash Fund, 0.92% 5,623,202 1,450,000 Hennepin Co. G.O. Series 2000B, variable rate, 12/1/20 1,450,000 4,850,000 Minneapolis CDA Pollution Ctrl. Agy. Rev. Series 1985 (NSP Co. Proj.), variable rate, 3/1/11 4,850,000 4,000,000 Minneapolis Convention Ctr. Rev. Series 2000, variable rate, 12/1/18 4,000,000 3,000,000 So. MN Muni Power Agy. Rev Series B, 1.05%, 4/5/03 3,000,000 3,000,000 So. MN Muni Power Agy. Rev Series B, 1.00%, 4/8/03 3,000,000 500,000 So. MN Muni Power Agy. Rev Series B, 1.00%, 4/10/03 500,000 1,000,000 So. MN Muni Power Agy. Rev Series B, 1.00%, 4/10/03 1,000,000 2,000,000 So. MN Muni Power Agy. Rev Series B, 1.05%, 4/10/03 2,000,000 50,766 Wells Fargo Minnesota Municipal Cash Fund, 0.41% 50,766 ------------ Total Short-Term Securities (cost: $25,473,968) 25,473,968 ------------ Total investments in securities (cost: $215,788,167)(7) $216,900,579 ============ See accompanying notes to portfolios of investments on page 56. 51 SIT BOND FUND ONE YEAR ENDED MARCH 31, 2003 [PHOTO]------------------------------------------------------------------------- SENIOR PORTFOLIO MANAGERS, MICHAEL C. BRILLEY AND BRYCE A. DOTY, CFA PORTFOLIO MANAGER, MARK H. BOOK, CFA The Sit Bond Fund provided investors a 1-year return of +7.7% and a +1.1% 3-month return for the period ended March 31, 2003. The Lehman Aggregate Bond Index returned +11.7% and +1.4% for the 1-year and 3-month periods, respectively. The Fund's 30-day SEC yield was +4.55% and its 12-month distribution rate was +5.33%. DRAMATIC YIELD CHANGES DRIVE PERFORMANCE U.S. Treasury yields declined sharply during the past fiscal year, and the yield curve steepened as the Federal Reserve lowered interest rates and the economy began to slow. More importantly, the "flight to quality" by investors caused heavy demand for Treasuries as the war became a reality. U.S. TREASURY SECTOR LED THE WAY IN 2002 In this volatile environment, the U.S. Treasury sector led the taxable bond market over the past 12 months. In fact, in 3Q 2002, 10-year Treasuries provided a +11.2% total return, which equates to roughly a +53% total annualized return. We believe that returns of this magnitude are not sustainable, and 10-year Treasury returns of -0.7% and +1.1% in the subsequent two quarters have begun to bear this out. Corporate bonds were the next best sector, while the mortgage and asset-backed sectors lagged due to their shorter durations and record levels of prepayments. Non-Treasury sectors currently provide historically high yield advantages over Treasuries and we have weighted the portfolio to take advantage of these attractive yields. While the Fund's weightings and relatively short duration hindered performance last year, causing it to lag the price appreciation of the Lehman Aggregate Bond Index, we expect those factors to change in our favor. WELL-POSITIONED FOR THE BUMPY ROAD AHEAD Looking ahead, we expect the economy to improve slowly throughout the year as very low short-term rates, expected tax cuts, increased government spending, and cash provided by record levels of mortgage refis, combine to stimulate the economy. While we do not anticipate a near-term spike in yields, we also do not expect interest rates to return to their historically low levels of last year. The Fund will continue to focus on securities that provide the most attractive total return opportunities, particularly those offering high current income. INVESTMENT OBJECTIVE AND STRATEGY The investment objective of the Fund is to maximize total return, consistent with preservation of capital. The Fund will pursue its objective by investing in a diversified portfolio of fixed-income securities which include, but are not limited to, the following: U.S. government securities; corporate debt securities; corporate commercial paper; mortgage and other asset-backed securities. PORTFOLIO SUMMARY Net Asset Value 3/31/03: $9.89 Per Share 3/31/02: $9.68 Per Share Total Net Assets: $19.7 Million 30-day SEC Yield: 4.55% 12-Month Distribution Rate: 5.33% Average Maturity: 18.3 Years Effective Duration: 3.6 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 28.1 Corporate Bonds and Notes 24.0 Asset-Backed Securities 22.3 Taxable Municipal 6.5 U.S.Treasury 5.7 Sectors less than 4.0% 7.3 Cash & Other Net Assets 6.1 52 - --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* LIPPER INTER. SIT LEHMAN INVESTMENT BOND AGGREGATE GRADE BOND FUND BOND INDEX FUND AVG. ---- ---------- --------- 3 Month** 1.06% 1.39% 1.51% 6 Month** 1.41 2.99 n/a 1 Year 7.74 11.69 9.97 3 Years 8.01 9.81 8.48 5 Years 6.01 7.51 6.38 Inception 6.43 7.22 6.31 (12/1/93) CUMULATIVE TOTAL RETURNS* LIPPER INTER. SIT LEHMAN INVESTMENT BOND AGGREGATE GRADE BOND FUND BOND INDEX FUND AVG. ---- ---------- --------- 1 Year 7.74% 11.69% 9.97% 3 Years 26.00 32.40 27.65 5 Years 33.90 43.64 36.23 Inception 78.84 91.69 76.99 (12/1/93) *AS OF 3/31/03. **NOT ANNUALIZED. - -------------------------------------------------------------------------------- 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 [PLOT POINT CHART] The sum of $10,000 invested at inception (12/1/93) and held until 3/31/03 would have grown to $17,884 in the Fund or $19,169 in the Lehman Aggregate Bond Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% OF TOTAL NET ASSETS) Other Assets and Liabilities 6.1% U.S. Treasury 5.7% Govt. Agency Backed Securities 32.3% AAA 21.2% AA 5.5% A 22.6% BBB 5.8% BB 0.8% LOWER OF MOODY'S OR S&P RATING USED. 53 SIT BOND FUND MARCH 31, 2003 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES (5.7%)(2) 200,000 U.S. Treasury Note, 3.00%, 2/15/08 202,344 200,000 U.S. Treasury Strips, Zero Coupon, 6.04% Effective Yield, 11/15/27 54,508 800,000 U.S. Treasury Bond, 5.50%, 8/15/28 862,344 ----------- Total U.S. Government securities 1,119,196 (cost: $1,064,441) ----------- ASSET-BACKED SECURITIES (22.3%)(2) 300,000 Advanta Mortgage Loan Trust Series 1999-3 A4, 7.75%, 10/25/26 321,237 470,000 Amresco Residential Securities Mtg. Loan Trust Series 1998-1 A5, 7.07%, 10/25/27 507,672 Conseco Finance Series: 200,000 2000-4 A4, 7.73%, 4/1/32 209,345 400,000 2002-A A5, 7.05%, 4/15/32 429,770 Conseco Mfg. Housing Series: 350,000 2000-1 A5, 8.06%, 5/1/31 331,618 200,000 2000-4 A5, 7.97%, 5/1/32 197,765 300,000 2000-4 A6, 8.31%, 5/1/32 263,276 100,000 2000-6 A5, 7.27%, 9/1/32 96,063 200,000 GE Capital Corp Series 1996-HE4 A7, 7.495%, 10/25/26 208,808 200,000 Greenpoint Manufactured Hsg. Series 2000-1 A5, 7.84%, 12/20/29 202,711 Green Tree Financial Corp.: 70,192 1995-5 A6, 7.25%, 9/15/26 73,151 73,641 1997-4 A6, 7.03%, 2/15/29 74,500 273,333 1997-3 A6, 7.32%, 3/15/28 278,130 89,210 1997-2 A7, 7.62%, 6/15/28 90,606 252,394 1998-1 A6, 6.33%, 11/1/29 253,675 200,000 1999-1 A5, 6.11%, 9/1/23 187,890 150,000 Green Tree Home Equity Loan Trust Series 1999-D A5, 7.88%, 9/15/30 161,159 500,000 Residential Asset Securitization Trust Series 2001-A A4, 6.86%, 8/25/29 513,161 ----------- Total asset-backed securities 4,400,537 (cost: $4,373,257) ----------- COLLATERALIZED MORTGAGE OBLIGATIONS (4.2%) (2) 35,600 FHLMC Series 2448 CK, 8.50%, 12/15/12 35,746 245,487 FNMA Series 1990 45J, 9.50%, 5/25/20 277,098 300,000 GNMA Series 2001-41 PB, 6.50%, 9/20/30 317,012 PNC Mortgage Securities Corp.: 4,045 Series 1998-6 4A, 6.75%, 8/25/13 4,039 Series 1998-14 1A, 6.25%, 15,260 1/25/29 15,324 QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- Vendee Mortgage Trust: Series 2000-3 2B, 7.50%, 47,628 4/15/08 48,509 Series 1997-2 E, 7.50%, 130,232 5/15/24 132,917 ------------ Total collateralized mortgage obligations 830,645 (cost: $815,969) ------------ CORPORATE BONDS & NOTES (24.0%)(2) 100,000 American General Capital, 8.50%, 7/1/30 130,245 297,181 Canadian Natl. Railway Co. Series 1997-A2, 7.195%, 1/2/16 349,066 300,000 CIT Group, Inc. (Tyco), 6.50%, 2/7/06 319,716 368,387 Continental Airlines Series 2000-2, 7.707%, 4/2/21 301,483 94,322 Delta Airlines, 6.72%, 1/2/23 99,341 300,000 Dow Capital BV, 8.70%, 5/15/22 310,134 200,000 El Paso Electric Co., 9.40%, 5/1/11 222,874 250,000 Everest Reinsurance Hldgs., 8.50%, 3/15/05 274,213 300,000 First Hawaiian Capital Trust, 8.343%, 7/1/27 341,340 Ford Motor Credit Co.: 200,000 7.50%, 3/15/05 203,176 200,000 9.14%, 12/30/14 204,596 50,000 General Electric Capital Corp., 6.75%, 3/15/32 56,317 150,000 General Motors Accept. Corp., 6.875%, 9/15/11 148,220 100,000 McDonald's Corp., 7.31%, 9/15/27 106,904 Northwest Airlines Corp.: 185,501 7.935%, 4/1/19 194,339 374,868 8.072%, 10/1/19 393,335 Shaw Communications, Inc.: 50,000 8.25%, 4/11/10 51,500 100,000 7.20%, 12/15/11 98,000 250,000 Susa Partnership, 7.50%, 12/1/27 285,896 250,000 Weingarten Realty, 7.00%, 7/15/11 284,010 300,000 Wells Fargo (First Sec.), 8.41%, 12/15/26 350,958 ------------ Total corporate bonds & notes 4,725,663 (cost: $4,649,366) ------------ MORTGAGE PASS-THROUGH SECURITIES (28.1%)(2)(3) Federal Home Loan Mortgage Corporation: 469,656 8.00%, 7/1/27 510,462 300,000 8.375%, 5/17/20 337,219 142,757 9.00%, 3/1/21 159,129 57,306 9.00%, 7/1/22 64,039 50,587 9.00%, 7/1/30 55,171 86,034 9.50%, 8/1/16 95,560 10,101 10.25%, 9/1/09 11,333 18,453 10.75%, 3/1/11 20,814 54 - --------------------------------------------------------------------------[LOGO] QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- Federal National Mortgage Association: 77,350 8.50%, 2/1/25 84,712 150,952 9.00%, 1/1/15 168,144 108,896 9.00%, 12/1/19 121,469 182,272 9.00%, 5/1/25 202,178 400,000 9.00%, 3/25/26(10) 445,500 67,077 9.50%, 4/1/25 74,603 345,084 9.50%, 6/1/21 384,639 101,058 9.75%, 1/15/13 114,725 90,091 10.25%, 8/15/13 102,972 140,854 10.50%, 5/1/19 161,085 79,130 11.00%, 9/1/19 91,330 68,750 11.00%, 11/1/20 79,090 Government National Mortgage Association: 196,706 7.90%, 8/20/21 213,979 96,182 8.50%, 10/15/24 105,883 344,400 8.50%, 11/20/26 374,180 105,565 8.50%, 10/15/24 116,212 73,880 8.75%, 11/15/09 79,995 15,830 9.00%, 10/15/06 17,123 19,829 9.00%, 9/15/08 21,565 21,467 9.00%, 4/15/09 23,503 44,479 9.00%, 4/15/09 48,698 265,198 9.00%, 6/15/09 290,308 3,206 9.00%, 8/15/11 3,520 52,244 9.00%, 11/20/15 58,074 77,081 9.00%, 1/15/17 85,478 13,806 9.00%, 8/20/19 15,373 10,864 9.00%, 6/20/21 12,089 16,987 9.00%, 12/20/21 18,903 112,744 9.00%, 2/20/27 124,119 20,241 9.25%, 5/15/10 22,321 231,225 9.25%, 10/15/11 256,007 26,791 9.50%, 11/15/05 28,693 23,743 9.50%, 2/15/11 26,396 57,841 9.50%, 5/20/16 64,947 11,618 9.50%, 5/20/18 13,063 81,672 9.50%, 7/20/18 91,834 99,619 9.50%, 7/20/18 112,013 4,310 9.50%, 4/15/20 4,868 9,626 9.50%, 11/15/21 10,873 14,571 10.00%, 6/15/19 16,668 ----------- Total mortgage pass-through securities 5,540,859 (cost: $5,437,331) ----------- QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- TAXABLE MUNICIPAL SECURITIES (6.5%)(2) 20,000 Bernalillo Multifamily. Series 1998A, 7.50%, 9/20/20 22,075 287,120 CA Rural HMFA Single Family Mtg. Rev.: 500,000 Series 2002C, 6.75%, 3/1/24 304,600 100,000 Series 2003A, 5.25%, 12/1/24 503,525 Reeves Co. TX C.O.P., 7.25%, 6/1/11 107,587 Tobacco Settlement Series 2001A: 84,195 7.67%, 5/15/16 84,755 256,867 6.36%, 5/15/25 255,352 ----------- Total taxable municipal securities 1,277,894 (cost: $1,262,782) ----------- CLOSED-END MUTUAL FUNDS (3.1%)(2) 4,925 American Select Portfolio 64,813 2,145 American Strategic Income Portfolio (I) 26,362 32,394 American Strategic Income Portfolio (II) 428,249 American Strategic Income Portfolio (III) 95,363 ----------- Total closed-end mutual funds 614,787 (cost: $539,868) ----------- SHORT-TERM SECURITIES (7.2%)(2) 237,999 Dreyfus Gov't Cash Mgmt. Fund, 1.17% 237,999 1,178,000 Sit Money Market Fund, 0.74%(6) 1,178,000 ----------- Total short-term securities 1,415,999 (cost: $1,415,999) ----------- Total investments in securities (cost: $19,559,013)(7) $19,925,580 =========== See accompanying notes to portfolios of investments on page 56. 55 SIT MUTUAL FUNDS MARCH 31, 2003 - -------------------------------------------------------------------------------- NOTES TO PORTFOLIOS OF INVESTMENTS (1) Securities are valued by procedures described in note 1 to the financial statements. (2) Percentage figures indicate percentage of total net assets. (3) At March 31, 2003, 4.6% of net assets in the U.S. Government Securities Fund and 2.6% of net assets in the Bond Fund were invested in GNMA mobile home pass-through securities. (4) Securities the income from which is treated as a tax preference that is included in alternative minimum taxable income for purposes of computing federal alternative minimum tax (AMT). At March 31, 2003, 17.4% of net assets in the Minnesota Tax-Free Income Fund was invested in such securities. (5) Rule 144A Securities, Section 4(2) Commercial Paper, and Municipal Lease Securities ('Restricted Securities') held by the Funds which have been determined to be liquid by the Adviser in accordance with guidelines established by the Board of Directors. (6) This security represents an investment in an affiliated party. See notes to the accompanying financial statements. (7) At March 31, 2003 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 $ 73,828,845 $399,604,900 $ 19,559,013 ============ ============ ============ Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation ----- $ 7,531,085 $ 524,184 Gross unrealized depreciation ----- (1,631,164) (157,617) ------------ ------------ ------------ Net unrealized appreciation (depreciation) ----- $ 5,899,921 $ 366,567 ============ ============ ============ MINNESOTA TAX-FREE TAX-FREE INCOME INCOME FUND FUND ------------ ------------ Cost for federal income tax purposes $416,230,667 $215,788,952 ============ ============ Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $ 10,298,653 $ 3,914,026 Gross unrealized depreciation (14,880,300) (2,802,399) ------------ ------------ Net unrealized appreciation (depreciation) ($4,581,647) $ 1,111,627 ============ ============
(8) These securities have been identified by the investment adviser as illiquid securities. The aggregate value of these securities at March 31, 2003, is $8,895,943 and $1,191,110 in the Tax-Free Income and Minnesota Tax-Free Income Funds respectively, which represents 2.1% and 0.5% of the Fund's net assets, respectively. (9) Presently non-income producing securities. Items identified are in default as to payment of interest. (10) At March 31, 2003, the total cost of investments purchased on a when-issued or forward-commitment basis was $446,050 for the Bond Fund. 56 SIT MUTUAL FUNDS MARCH 31, 2003 - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES
U.S. MINNESOTA MONEY GOVERNMENT TAX-FREE TAX-FREE MARKET SECURITIES INCOME INCOME BOND FUND FUND FUND FUND FUND ------------ ------------ ------------ ------------ ------------ ASSETS Investments in securities, at identified cost .................. $ 73,828,845 $399,604,900 $416,210,228 $215,788,167 $ 19,559,013 ============ ============ ============ ============ ============ Investments in securities, at market value - see accompanying schedules for detail ....................... $ 73,828,845 $405,504,821 $411,649,020 $216,900,579 $ 19,925,580 Cash in bank on demand deposit ..... 87,123 299 1 1 112,894 Accrued interest and dividends receivable ....................... -- 2,661,317 6,675,279 3,399,276 187,183 Receivable for investment securities sold .................. -- 1,009,817 507,306 -- -- Receivable for principal paydowns .. -- 451,805 -- -- 4,410 Other receivables .................. -- -- -- 5,434 -- Receivable for Fund shares sold .... 1,800 463,513 922,236 72,000 616 ------------ ------------ ------------ ------------ ------------ Total assets ............. 73,917,768 410,091,572 419,753,842 220,377,290 20,230,683 ------------ ------------ ------------ ------------ ------------ LIABILITIES Payable for investment securities purchased - when issued (note 1) . -- -- -- -- 446,050 Payable for investment securities purchased ........................ -- -- 3,486,833 -- -- Payable for Fund shares redeemed ... -- 137,588 8,358 39,795 -- Cash portion of dividends payable to shareholders .......... 44,851 836,988 1,563,353 820,714 73,399 Other payables ..................... -- 2,051 7,813 -- 408 Accrued investment management and advisory services fee ........ 29,770 275,226 268,786 148,648 13,460 ------------ ------------ ------------ ------------ ------------ Total liabilities ........ 74,621 1,251,853 5,335,143 1,009,157 533,317 ------------ ------------ ------------ ------------ ------------ Net assets applicable to outstanding capital stock ........ $ 73,843,147 $408,839,719 $414,418,699 $219,368,133 $ 19,697,366 ============ ============ ============ ============ ============ 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 ............... 73,846,233 37,756,262 41,680,296 21,471,491 1,991,935 ============ ============ ============ ============ ============ Net asset value per share of outstanding capital stock ........ $ 1.00 $ 10.83 $ 9.94 $ 10.22 $ 9.89 ============ ============ ============ ============ ============
See accompanying notes to financial statements on pages 62 - 65. 57 SIT MUTUAL FUNDS ONE YEAR ENDED MARCH 31, 2003 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS
U.S. MINNESOTA MONEY GOVERNMENT TAX-FREE TAX-FREE MARKET SECURITIES INCOME INCOME BOND FUND FUND FUND FUND FUND ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: INCOME: Interest ............................ $ 1,194,303 $ 15,348,477 $ 22,643,436 $ 11,258,067 $ 1,063,255 ------------ ------------ ------------ ------------ ------------ Total income ................. 1,194,303 15,348,477 22,643,436 11,258,067 1,063,255 ------------ ------------ ------------ ------------ ------------ EXPENSES (NOTE 3): Investment management and advisory services fee ............ 540,429 2,675,327 3,451,230 1,668,462 140,184 Less fees and expenses absorbed by investment adviser ........ (174,090) (100,822) (179,349) -- -- ------------ ------------ ------------ ------------ ------------ Total net expenses ............... 366,339 2,574,505 3,271,881 1,668,462 140,184 ------------ ------------ ------------ ------------ ------------ Net investment income ............ 827,964 12,773,972 19,371,555 9,589,605 923,071 ------------ ------------ ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS : Net realized gain (loss) ............ -- 191,850 881,329 (997,718) 88,365 Net change in unrealized appreciation or depreciation) on investments ... -- 2,579,600 4,490,386 5,502,200 251,470 ------------ ------------ ------------ ------------ ------------ Net gain (loss) on investments .. -- 2,771,450 5,371,715 4,504,482 339,835 ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations .............. $ 827,964 $ 15,545,422 $ 24,743,270 $ 14,094,087 $ 1,262,906 ============ ============ ============ ============ ============
See accompanying notes to financial statements on pages 62 - 65. 58 - --------------------------------------------------------------------------[LOGO] This page has been left blank intentionally. 59 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
MONEY MARKET U.S. GOVERNMENT FUND SECURITIES FUND ---------------------------------- --------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31, MARCH 31, MARCH 31, MARCH 31, 2003 2002 2003 2002 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income ....................... $ 827,964 $ 2,551,390 $ 12,773,972 $ 9,984,285 Net realized gain (loss) on investments ..... -- -- 191,850 54,723 Net change in unrealized appreciation (depreciation) of investments ............ -- -- 2,579,600 799,262 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ............ 827,964 2,551,390 15,545,422 10,838,270 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ....................... (827,964) (2,551,390) (12,773,972) (9,985,451) Net realized gains on investments ........... -- -- -- -- ------------- ------------- ------------- ------------- Total distributions ...................... (827,964) (2,551,390) (12,773,972) (9,985,451) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold ................... 455,807,319 724,976,703 375,452,226 165,954,965 Reinvested distributions .................... 560,232 1,743,863 11,592,130 9,382,043 Payments for shares redeemed ................ (476,309,083) (743,440,998) (192,923,331) (118,598,483) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions ............ (19,941,532) (16,720,432) 194,121,025 56,738,525 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets (19,941,532) (16,720,432) 196,892,475 57,591,344 NET ASSETS Beginning of period ......................... 93,784,679 110,505,111 211,947,244 154,355,900 ------------- ------------- ------------- ------------- End of period ............................... $ 73,843,147 $ 93,784,679 $ 408,839,719 $ 211,947,244 ============= ============= ============= ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) ..... $ 73,843,147 $ 93,784,679 $ 405,467,066 $ 211,346,041 Undistributed (distributions in excess of) net investment income .................... -- -- -- -- Accumulated net realized gain (loss) from security transactions .................... -- -- (2,527,268) (2,719,118) Unrealized appreciation (depreciation) on investments ........................... -- -- 5,899,921 3,320,321 ------------- ------------- ------------- ------------- $ 73,843,147 $ 93,784,679 $ 408,839,719 $ 211,947,244 ============= ============= ============= ============= CAPITAL TRANSACTIONS IN SHARES: Sold ........................................ 455,807,360 724,976,703 34,677,651 15,443,904 Reinvested distributions .................... 560,232 1,743,863 1,071,578 875,121 Redeemed .................................... (476,309,083) (743,440,998) (17,827,236) (11,055,874) ------------- ------------- ------------- ------------- Net increase (decrease) ........................ (19,941,491) (16,720,432) 17,921,993 5,263,151 ============= ============= ============= =============
60 - --------------------------------------------------------------------------[LOGO]
TAX-FREE MINNESOTA TAX-FREE INCOME FUND INCOME FUND --------------------------------- --------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31, MARCH 31, MARCH 31, MARCH 31, 2003 2002 2003 2002 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income ....................... $ 19,371,555 $ 22,107,800 $ 9,589,605 $ 8,800,200 Net realized gain (loss) on investments ..... 881,329 (6,718,514) (997,718) (854,310) Net change in unrealized appreciation (depreciation) of investments ............ 4,490,386 3,298,902 5,502,200 299,328 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ............ 24,743,270 18,688,188 14,094,087 8,245,218 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ....................... (19,371,555) (22,115,843) (9,589,605) (8,800,200) Net realized gains on investments ........... -- -- -- -- ------------- ------------- ------------- ------------- Total distributions ...................... (19,371,555) (22,115,843) (9,589,605) (8,800,200) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold ................... 122,526,104 127,901,019 77,074,420 75,664,026 Reinvested distributions .................... 16,287,715 19,025,644 7,783,102 7,181,639 Payments for shares redeemed ................ (170,198,305) (205,251,877) (65,269,259) (68,197,349) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions ............ (31,384,486) (58,325,214) 19,588,263 14,648,316 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets (26,012,771) (61,752,869) 24,092,745 14,093,334 NET ASSETS Beginning of period ......................... 440,431,470 502,184,339 195,275,388 181,182,054 ------------- ------------- ------------- ------------- End of period ............................... $ 414,418,699 $ 440,431,470 $ 219,368,133 $ 195,275,388 ============= ============= ============= ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) ..... $ 443,625,466 $ 475,009,952 $ 224,853,762 $ 205,265,499 Undistributed (distributions in excess of) net investment income .................... -- -- -- -- Accumulated net realized gain (loss) from security transactions .................... (24,645,559) (25,526,888) (6,598,041) (5,600,323) Unrealized appreciation (depreciation) on investments ........................... (4,561,208) (9,051,594) 1,112,412 (4,389,788) ------------- ------------- ------------- ------------- $ 414,418,699 $ 440,431,470 $ 219,368,133 $ 195,275,388 ============= ============= ============= ============= CAPITAL TRANSACTIONS IN SHARES: Sold ........................................ 12,327,611 12,884,486 7,586,422 7,526,906 Reinvested distributions .................... 1,637,735 1,916,446 766,203 714,530 Redeemed .................................... (17,112,887) (20,685,935) (6,428,863) (6,796,275) ------------- ------------- ------------- ------------- Net increase (decrease) ........................ (3,147,541) (5,885,003) 1,923,762 1,445,161 ============= ============= ============= =============
[WIDE TABLE CONTINUED FROM ABOVE]
BOND FUND --------------------------------- YEAR ENDED YEAR ENDED MARCH 31, MARCH 31, 2003 2002 ------------- ------------- OPERATIONS: Net investment income ....................... $ 923,071 $ 872,071 Net realized gain (loss) on investments ..... 88,365 (2,815) Net change in unrealized appreciation (depreciation) of investments ............ 251,470 (204,003) ------------- ------------- Net increase (decrease) in net assets resulting from operations ............ 1,262,906 665,253 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ....................... (923,005) (872,071) Net realized gains on investments ........... -- -- ------------- ------------- Total distributions ...................... (923,005) (872,071) ------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold ................... 12,874,720 3,992,824 Reinvested distributions .................... 867,206 837,262 Payments for shares redeemed ................ (9,121,542) (3,167,676) ------------- ------------- Increase (decrease) in net assets from capital share transactions ............ 4,620,384 1,662,410 ------------- ------------- Total increase (decrease) in net assets 4,960,285 1,455,592 NET ASSETS Beginning of period ......................... 14,737,081 13,281,489 ------------- ------------- End of period ............................... $ 19,697,366 $ 14,737,081 ============= ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) ..... $ 19,746,196 $ 15,125,812 Undistributed (distributions in excess of) net investment income .................... -- (66) Accumulated net realized gain (loss) from security transactions .................... (415,397) (503,762) Unrealized appreciation (depreciation) on investments ........................... 366,567 115,097 ------------- ------------- $ 19,697,366 $ 14,737,081 ============= ============= CAPITAL TRANSACTIONS IN SHARES: Sold ........................................ 1,305,543 405,694 Reinvested distributions .................... 87,771 85,310 Redeemed .................................... (923,618) (323,576) ------------- ------------- Net increase (decrease) ........................ 469,696 167,428 ============= =============
See accompanying notes to financial statements on pages 62 - 65. 61 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 OBJECTIVES --------------------------------------------------------------------------- Money Market Maximum current income with the preservation of capital and maintenance of liquidity. --------------------------------------------------------------------------- U.S. Government High current income and safety of principal. Securities --------------------------------------------------------------------------- Tax-Free Income High current income that is exempt from federal income tax, consistent with the preservation of capital. --------------------------------------------------------------------------- Minnesota High current income that is exempt from federal Tax-Free Income income tax and Minnesota regular personal income tax, consistent with the preservation of capital. --------------------------------------------------------------------------- Bond Maximize total return, 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. 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. Dividends received from closed-end fund holdings are included in Interest Income and are generated from the underlying investments. Delivery and payment for securities which have been purchased by the Funds on a forward commitment or when-issued basis can take place two weeks 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 the Funds maintain, in a segregated account with their custodian, assets with a market value greater than the amount of their purchase commitments. As of March 31, 2003, the Bond Fund had entered into when-issued or forward commitments of $446,050. 62 - --------------------------------------------------------------------------[LOGO] The Minnesota Tax-Free Income Fund concentrates its investments in Minnesota, and therefore may have more credit risk related to the economic conditions in the state of Minnesota than a portfolio with broader geographical diversification. FEDERAL TAXES The Funds' policy is to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no income tax provision is required. Also, in order to avoid the payment of any federal excise taxes, the Funds will distribute substantially all of their net investment income and net realized gains on a calendar year basis. Net investment income and net realized gains may differ for financial statement and tax purposes. The character of distributions made during the year for net investment income or net realized gains may also differ from its ultimate characterization for tax purposes. The tax character of distributions paid during the fiscal years ended March 31, was as follows:
YEAR ENDED MARCH 31, 2003: Ordinary Income Long Term Capital Gain Total --------------- ---------------------- ----- Money Market $ 827,964 ----- $ 827,964 U.S. Government Securities $12,773,972 ----- $12,773,972 Tax-Free Income* $19,371,555 ----- $19,371,555 MN Tax-Free Income* $ 9,589,605 ----- $ 9,589,605 Bond $ 923,005 ----- $ 923,005 *100% of dividends were derived from interest on tax-exempt securities.
YEAR ENDED MARCH 31, 2002: Ordinary Income Long Term Capital Gain Total --------------- ---------------------- ----- Money Market $ 2,551,390 ----- $ 2,551,390 U.S. Government Securities $ 9,985,451 ----- $ 9,985,451 Tax-Free Income* $22,115,843 ----- $22,115,843 MN Tax-Free Income* $ 8,800,200 ----- $ 8,800,200 Bond $ 872,071 ----- $ 872,071 *100% of dividends were derived from interest on tax-exempt securities.
As of March 31, 2003, the components of distributable earnings on a tax basis were as follows:
U.S. Minnesota Money Government Tax-Free Tax-Free Market Securities Income Income Bond ---------------------------------------------------------------------- Undistributed ordinary income $ 44,851 $ 836,988 $ 1,563,353 $ 820,714 $ 73,399 Accumulated gain(loss) ----- (2,527,268) (24,625,120) (6,597,256) (415,397) Unrealized appreciation (depreciation) ----- 5,899,921 (4,581,647) 1,111,627 366,567
63 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) As of March 31, 2003, for federal income tax purposes, some Funds have capital loss carryovers which, if not offset by subsequent gains will begin to expire as follows: Loss Carryover Expiration Year --------------------------------------------------------------------------- U.S. Government Securities $ 2,527,268 2007 Tax-Free Income $24,625,120 2008 MN Tax-Free Income $ 6,597,256 2004 Bond $ 415,397 2008 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 accounting principles generally accepted in the United States of America 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 March 31, 2003, were as follows: Purchases ($) Proceeds ($) ------------- ------------ U.S. Government Securities Fund 426,837,960 232,896,892 Tax-Free Income Fund 158,400,017 184,865,294 Minnesota Tax-Free Income Fund 44,123,031 36,327,904 Bond Fund 17,064,187 12,422,513 For the Money Market Fund during the period ended March 31, 2003 purchases of and proceeds from sales and maturities of investment securities aggregated $1,404,333,573 and $1,425,608,541, respectively. (3) EXPENSES INVESTMENT ADVISER The Funds each have entered into an investment management agreement with Sit Investment Associates Inc. (SIA), under which SIA manages the Funds' assets and provides research, statistical and advisory services, and pays related office rental, executive expenses and executive salaries. SIA also is obligated to pay all of Money Market, U.S. Government Securities, Bond, Tax-Free Income, and Minnesota Tax Free Income Funds' expenses (excluding extraordinary expenses, stock transfer taxes, interest, brokerage commissions, and other transaction charges relating to investing activities). The fee for investment management and advisory services is based on the average daily net assets of the Funds at the annual rate of: 64 - --------------------------------------------------------------------------[LOGO] Average Daily Net Assets ---------- Bond Fund .80% Tax-Free Income Fund .80% Minnesota Tax-Free Income Fund .80% First $50 Million Over $50 Million ----------------- ---------------- Money Market Fund .80% .60% U.S. Government Securities Fund 1.00% .80% For the period October 1, 1993, through December 31, 2003, 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, 2003, this voluntary fee waiver may be discontinued by the Adviser in its sole discretion. For the period October 1, 1993, through December 31, 2003, 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, 2003, this voluntary fee waiver may be discontinued by the Adviser in its sole discretion. As of March 31, 2003, the Bond Fund had invested $1,178,000 in the Sit Money Market Fund. The terms of such transactions were identical to those of non-related entities except that, to avoid duplicate investment advisory fees, SIA remits to the Fund an amount equal to all fees otherwise due to them under its investment management agreement for the assets invested in the Sit Money Market Fund. TRANSACTIONS WITH AFFILIATES The investment adviser, affiliates of the investment adviser, directors and officers of the Funds as a whole owned the following shares as of March 31, 2003: % Shares Shares Outstanding ------ ----------- Money Market Fund 33,268,490 45.1 U.S. Government Securities Fund 394,966 1.0 Tax-Free Income Fund 1,982,813 4.8 Minnesota Tax-Free Income Fund 1,127,271 5.3 Bond Fund 191,339 9.6 (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 on pages 66 through 70. 65 SIT MONEY MARKET FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Years Ended March 31, ---------------------------------------------------------------------- 2003 2002 2001 2000 1999 ===================================================================================================================== NET ASSET VALUE: Beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income 0.01 0.03 0.06 0.05 0.05 - --------------------------------------------------------------------------------------------------------------------- Total from operations 0.01 0.03 0.06 0.05 0.05 - --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (0.01) (0.03) (0.06) (0.05) (0.05) - --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------------------------------------------------------------------------------- Total investment return(1) 1.13% 2.63% 6.00% 5.05% 4.99% - --------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 73,843 $ 93,785 $110,505 $150,897 $ 61,442 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 1.14%(2) 2.65%(2) 5.88%(2) 5.05%(2) 4.84%(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) 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 years ended March 31, 2003, 2002, 2001, 2000, and 1999, the investment adviser voluntarily absorbed expenses that were otherwise payable by the Fund. Had the Fund incurred these expenses, the ratio of expenses to average average daily net assets would have been .74%, .70%, .67%, .71%, and .80% for each of these periods and the ratio of net investment income to average daily net assets would have been .90%, 2.45%, 5.71%, 4.84%, and 4.54%, respectively. 66 SIT U.S. GOVERNMENT SECURITIES FUND - --------------------------------------------------------------------------[LOGO] FINANCIAL HIGHLIGHTS
Years Ended March 31, -------------------------------------------------------------------- 2003 2002 2001 2000 1999 ===================================================================================================================== NET ASSET VALUE: Beginning of period $ 10.69 $ 10.59 $ 10.22 $ 10.51 $ 10.63 - --------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .45 .58 .65 .59 .54 Net realized and unrealized gains (losses) on investments .14 .10 .37 (.29) (.01) - --------------------------------------------------------------------------------------------------------------------- Total from operations .59 .68 1.02 .30 .53 - --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.45) (.58) (.65) (.59) (.54) From realized gains -- -- -- -- (.11) - --------------------------------------------------------------------------------------------------------------------- Total Distributions (.45) (.58) (.65) (.59) (.65) - --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 10.83 $ 10.69 $ 10.59 $ 10.22 $ 10.51 - --------------------------------------------------------------------------------------------------------------------- Total investment return (1) 5.60% 6.53% 10.34% 2.92% 5.05% - --------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $408,840 $211,947 $154,356 $135,841 $159,330 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 3.98%(2) 5.40%(2) 6.30%(2) 5.66%(2) 5.06%(2) Portfolio turnover rate (excluding short-term securities) 77.06% 54.69% 55.53% 98.17% 86.16%
- --------- (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) 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 for Fund net assets exceeding $50 million. However, during the years ended March 31, 2003, 2002, 2001, 2000, and 1999 the investment adviser voluntarily absorbed 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 .83%, .85%, .87%, .86%, and .87% for each of these periods and the ratio of net investment income to average daily net assets would have been 3.95%, 5.35%, 6.23%, 5.60%, and 4.99%, respectively. 67 SIT TAX-FREE INCOME FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Years Ended March 31, ------------------------------------------------------------------- 2003 2002 2001 2000 1999 ===================================================================================================================== NET ASSET VALUE: Beginning of period $ 9.82 $ 9.90 $ 9.57 $ 10.39 $ 10.41 - --------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .45 .48 .51 .51 .51 Net realized and unrealized gains (losses) on investments .12 (.08) .33 (.82) .03 - --------------------------------------------------------------------------------------------------------------------- Total from operations .57 .40 .84 (.31) .54 - --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.45) (.48) (.51) (.51) (.51) From realized gains -- -- -- -- (.05) - --------------------------------------------------------------------------------------------------------------------- Total distributions (.45) (.48) (.51) (.51) (.56) - --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 9.94 $ 9.82 $ 9.90 $ 9.57 $ 10.39 - --------------------------------------------------------------------------------------------------------------------- Total investment return (1) 5.90% 4.05% 9.02% (2.98%) 5.30% - --------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $414,419 $440,431 $502,184 $582,549 $895,353 RATIOS: Expenses to average daily net assets 0.76%(2) 0.75%(2) 0.74%(2) 0.70%(2) 0.71%(2) Net investment income to average daily net assets 4.53%(2) 4.79%(2) 5.27%(2) 5.15%(2) 4.90%(2) Portfolio turnover rate (excluding short-term securities) 37.98% 40.02% 12.14% 24.72% 14.27%
- --------- (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) Total Fund expenses are contractually limited to .80% of average daily net assets. However, during the years ended March 31, 2003, 2002, 2001, 2000, and 1999, the investment adviser voluntarily absorbed 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 4.49%, 4.74%, 5.21%, 5.05%, and 4.81%, respectively. 68 SIT MINNESOTA TAX-FREE INCOME FUND - --------------------------------------------------------------------------[LOGO] FINANCIAL HIGHLIGHTS
Years Ended March 31, ---------------------------------------------------------------- 2003 2002 2001 2000 1999 ================================================================================================================= NET ASSET VALUE: Beginning of period $ 9.99 $ 10.01 $ 9.73 $ 10.55 $ 10.49 - ----------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .47 .49 .52 .52 .51 Net realized and unrealized gains (losses) on investments .23 (.02) .28 (.82) .06 - ----------------------------------------------------------------------------------------------------------------- Total from operations .70 .47 .80 (.30) .57 - ----------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.47) (.49) (.52) (.52) (.51) - ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 10.22 $ 9.99 $ 10.01 $ 9.73 $ 10.55 - ----------------------------------------------------------------------------------------------------------------- Total investment return (1) 7.14% 4.74% 8.43% (2.84%) 5.58% - ----------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $219,368 $195,275 $181,182 $172,905 $271,275 RATIOS: Expenses to average daily net assets 0.80% 0.80% 0.80% 0.80% 0.80% Net investment income to average daily net assets 4.62% 4.87% 5.27% 5.16% 4.83% Portfolio turnover rate (excluding short-term securities) 19.51% 23.81% 14.59% 18.50% 13.67%
- -------- (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. 69 SIT BOND FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Years Ended March 31, ---------------------------------------------------------------- 2003 2002 2001 2000 1999 ================================================================================================================= NET ASSET VALUE: Beginning of period $ 9.68 $ 9.80 $ 9.43 $ 9.95 $ 10.03 - ----------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .53 .62 .64 .58 .54 Net realized and unrealized gains (losses) on investments .21 (.12) .37 (.50) (.02) - ----------------------------------------------------------------------------------------------------------------- Total from operations .74 .50 1.01 .08 .52 - ----------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.53) (.62) (.64) (.58) (.54) From realized gains -- -- -- (.02) (.06) - ----------------------------------------------------------------------------------------------------------------- Total distributions (.53) (.62) (.64) (.60) (.60) - ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 9.89 $ 9.68 $ 9.80 $ 9.43 $ 9.95 - ----------------------------------------------------------------------------------------------------------------- Total investment return(1) 7.74% 5.18% 11.18% 0.93% 5.30% - ----------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 19,697 $ 14,737 $ 13,281 $ 12,162 $ 11,920 RATIOS: Expenses to average daily net assets 0.80% 0.80% 0.80% 0.80% 0.80% Net investment income to average daily net assets 5.30% 6.34% 6.79% 6.06% 5.34% Portfolio turnover rate (excluding short-term securities) 76.19% 91.23% 89.65% 131.67% 89.29%
- ---------- (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of distributions at net asset value. 70 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS REPORT The Board of Directors and Shareholders Sit Money Market Fund, Inc. Sit U.S. Government Securities Fund, Inc. Sit Mutual Funds II, Inc.: We have audited the accompanying statements of assets and liabilities, including the schedules of portfolios of investments, of Sit Money Market Fund, Inc., Sit U.S. Government Securities Fund, Inc., Sit Bond Fund (a series of Sit Mutual Funds II, Inc.), Sit Tax-Free Income Fund (a series of Sit Mutual Funds II, Inc.), and Sit Minnesota Tax-Free Income Fund (a series of Sit Mutual Funds II, Inc.), as of March 31, 2003, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2003, by correspondence with the custodian or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Sit Money Market Fund, Sit U.S. Government Securities Fund, Sit Bond Fund, Sit Tax-Free Income Fund, and Sit Minnesota Tax-Free Income Fund as of March 31, 2003, the results of their operations, the changes in their net assets, and their financial highlights for the periods stated in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP May 9, 2003 71 Sit Mutual Funds RESULTS OF SHAREHOLDER MEETING The annual meeting of the shareholders of the Funds was held on October 23, 2002. Directors elected by the shareholders at the meeting were as follows: Eugene C. Sit, William E. Frenzel, John E. Hulse, Sidney L. Jones and Donald W. Phillips. The matters voted on by the shareholders of record as of August 16, 2002 and the results of the shareholders' vote at the October 23, 2002 meeting were as follows: 1. Election of Directors: For Withheld --- -------- Eugene C. Sit U.S. Government Securities 23,870,849 226,206 Money Market 48,998,252 106,833 Tax-Free Income 31,691,454 307,859 MN Tax-Free Income 12,605,896 157,195 Bond 960,673 4,667 William E. Frenzel U.S. Government Securities 23,866,765 230,289 Money Market 48,922,698 182,387 Tax-Free Income 31,661,305 338,008 MN Tax-Free Income 12,405,517 357,574 Bond 957,471 7,868 John E. Hulse U.S. Government Securities 23,899,867 197,188 Money Market 49,007,525 97,560 Tax-Free Income 31,623,219 376,094 MN Tax-Free Income 12,470,125 292,966 Bond 957,471 7,868 Sidney L. Jones U.S. Government Securities 23,860,247 236,807 Money Market 49,007,538 97,547 Tax-Free Income 31,586,158 413,155 MN Tax-Free Income 12,600,498 162,592 Bond 958,937 6,402 72 - --------------------------------------------------------------------------[LOGO] For Withheld --- -------- Donald W. Phillips U.S. Government Securities 23,923,060 173,995 Money Market 49,007,538 97,547 Tax-Free Income 31,645,777 353,537 MN Tax-Free Income 12,606,027 157,063 Bond 958,937 6,403 2. Ratification of KPMG LLP as independent auditors for the Funds: For Against Abstain --- ------- ------- U.S. Government Securities 23,817,237 117,111 162,707 Money Market 48,914,490 136,015 54,580 Tax-Free Income 31,446,602 176,025 376,686 MN Tax-Free Income 12,482,528 42,564 237,999 Bond 963,015 0 2,324 73 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND OFFICERS The Sit Mutual Funds are a family of 12 no-load mutual funds. The five Bond Funds described in this Bond Funds Annual Report are the Sit Money Market Fund, Sit U.S. Government Securities Fund, Sit Bond Fund, Sit Tax-Free Income Fund and the Sit Minnesota Tax-Free Income Fund (the "Funds" or individually, a "Fund"). The seven stock funds within the Sit Mutual Fund family are described in a Stock Funds Statement of Additional Information (SAI). The Sit Money Market Fund, Sit U.S. Government Securities Fund, and the corporate issuer of the Sit Bond Fund, Sit Tax-Free Income Fund and the Sit Minnesota Tax-Free Income Fund have a Board of Directors and officers. Pursuant to Minnesota law, the Boards of Directors are responsible for the management of the Funds and the establishment of the Funds' policies. The officers of the Funds manage the day-to-day operation of the Funds. Information pertaining to the directors and officers of the Funds is set forth below. The Boards do not have standing committees. The Bond Funds' SAI has additional information about the Funds' directors and is available without charge upon request by calling the Sit Funds at 800-332-5580.
- --------------------------------------------------------------------------------------------------------------------- NUMBER OF PRINCIPAL FUNDS IN OTHER NAME, POSITION TERM OF OFFICE(1) OCCUPATIONS FUND COMPLEX DIRECTORSHIPS ADDRESS HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY HELD BY AND AGE THE FUNDS TIME SERVED FIVE YEARS DIRECTOR DIRECTOR(4) - --------------------------------------------------------------------------------------------------------------------- INDEPENDENT DIRECTORS: - --------------------------------------------------------------------------------------------------------------------- John E. Hulse Director Director since 1995. Trustee, Pacific Gas 12 None. Suite 4600 & Electric Nuclear 90 South Seventh Street Decommissioning Trust. Minneapolis, MN 55402 Age: 69 - --------------------------------------------------------------------------------------------------------------------- Sidney L. Jones Director Director from 1988 Lecturer, Washington 12 None. Suite 4600 to 1989 and from Campus Consortium of 90 South Seventh Street 1993 or the Fund's 17 Universities; Minneapolis, MN 55402 inception if later. Senior Advisor to Age: 69 Lawrence and Company, Toronto, Canada. - --------------------------------------------------------------------------------------------------------------------- Donald W. Phillips Director Director of the CEO and CIO of West LB 12 None. Suite 4600 International Fund Asset Management (USA) 90 South Seventh Street since 1993, and LLC,4/00 to present; Minneapolis, MN 55402 since 1990 or the President of Forstmann- Age: 54 Fund's inception if Leff International, later for all other Inc. from 1997 to 4/00. Funds. - --------------------------------------------------------------------------------------------------------------------- Melvin C. Bahle Director Director Emeritus Director and/or officer 12 None. Suite 4600 Emeritus since 1995. of several foundations 90 South Seventh Street and charitable Minneapolis, MN 55402 organizations. Age: 83 - ---------------------------------------------------------------------------------------------------------------------
74 - --------------------------------------------------------------------------[LOGO]
- --------------------------------------------------------------------------------------------------------------------- NUMBER OF PRINCIPAL FUNDS IN OTHER NAME, POSITION TERM OF OFFICE(1) OCCUPATIONS FUND COMPLEX DIRECTORSHIPS ADDRESS HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY HELD BY AND AGE THE FUNDS TIME SERVED FIVE YEARS DIRECTOR DIRECTOR(4) - --------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTORS: - --------------------------------------------------------------------------------------------------------------------- Eugene C. Sit(2) Director Director since Chairman, CEO and CIO of 12 None. Suite 4600 and inception. Sit Investment 90 South Seventh Street Chairman Associates, Inc.(the Minneapolis, MN 55402 "Adviser") and Sit/Kim Age: 64 International Investment Associates, Inc. ("Sit/ Kim "); Director of SIA Securities Corp. (the "Distributor"), and Chairman and CEO of Sit Investment Fixed Income Advisors, Inc.("SF "). - --------------------------------------------------------------------------------------------------------------------- William E. Frenzel(2) Director Director since 1991 Guest Scholar at The 12 None. Suite 4600 or the Fund's Brookings Institution and 90 South Seventh Street inception if later. member of several Minneapolis, MN 55402 government policy Age: 74 committees, foundations and organizations; Advisory Director of the Adviser; Director of Sit/ Kim and SF. - --------------------------------------------------------------------------------------------------------------------- OFFICERS: - --------------------------------------------------------------------------------------------------------------------- Peter L. Mitchelson Vice Re-Elected by the Director and President of N/A N/A Suite 4600 Chairman Boards annually; the Adviser; Director and 90 South Seventh Street Officer since Executive Vice President Minneapolis, MN 55402 inception. of Sit/Kim; Director of Age: 61 the Distributor; and Vice Chairman of SF. Director of the Sit Funds through 4/30/02. - --------------------------------------------------------------------------------------------------------------------- Roger J. Sit(3) Executive Re-Elected by the Executive Vice President- N/A N/A Suite 4600 Vice Boards annually; Research and Investment 90 South Seventh Street President Officer since 1998. Management of the Adviser; Minneapolis, MN 55402 Director, President, COO, Age:41 and Deputy CIO of Sit/Kim. - ---------------------------------------------------------------------------------------------------------------------
75 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND OFFICERS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------- NUMBER OF PRINCIPAL FUNDS IN OTHER NAME, POSITION TERM OF OFFICE(1) OCCUPATIONS FUND COMPLEX DIRECTORSHIPS ADDRESS HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY HELD BY AND AGE THE FUNDS TIME SERVED FIVE YEARS DIRECTOR DIRECTOR(4) - --------------------------------------------------------------------------------------------------------------------- OFFICERS (CONTINUED): - --------------------------------------------------------------------------------------------------------------------- Michael C. Brilley Senior Re-Elected by the Senior Vice President and N/A N/A Suite 4600 Vice Boards annually; Senior Fixed Income 90 South Seventh Street President Officer since 1985. Officer of the Adviser; Minneapolis, MN 55402 Director and President Age: 57 and Chief Fixed Income Officer of SF. - --------------------------------------------------------------------------------------------------------------------- G. Todd Berkley Chief Re-Elected by the COO of the Funds; Sr. N/A N/A Suite 4600 Operating Boards annually; Vice President, US 90 South Seventh Street Officer Officer since 2002. Bancorp 12/00 to 2/01; Minneapolis, MN 55402 Vice President, US Bank Age: 41 5/95 to 12/99. - --------------------------------------------------------------------------------------------------------------------- Debra A. Sit(3) Vice Re-Elected by the Vice President - Bond N/A N/A Suite 4600 President, Boards annually; Investments of the 90 South Seventh Street Invest- Officer since Adviser; Assistant Minneapolis, MN 55402 ments 1994. Treasurer and Assistant Age: 42 Secretary of Sit/Kim and SF; and Senior Vice President - Investments of SF. - --------------------------------------------------------------------------------------------------------------------- Mark H. Book Vice Re-Elected by the Vice President and Fixed N/A N/A Suite 4600 President, Boards annually; Income Portfolio Manager 90 South Seventh Street Invest- Officer since 2002. of SF. Bond Analyst, U.S. Minneapolis, MN 55402 ments Bancorp Piper Jaffray Age: 39 U.S. 2/98 to 8/00. Govern- ment and Bond Funds only. - --------------------------------------------------------------------------------------------------------------------- Bryce A. Doty Vice Re-Elected by the Vice President and Fixed N/A N/A Suite 4600 President, Boards annually; Income Portfolio Manager 90 South Seventh Street Invest- Officer since 1996. of SF. Minneapolis, MN 55402 ments Age: 36 U.S. Govern- ment and Bond Funds only. - --------------------------------------------------------------------------------------------------------------------- Paul J. Junquist Vice Re-Elected by the Vice President and Fixed N/A N/A Suite 4600 President, Boards annually; Income Portfolio 90 South Seventh Street Invest- Officer since 1996. Manager of SF. Minneapolis,MN 55402 ments Age: 41 of Money Market and MN Tax- Free Income Funds only. - ---------------------------------------------------------------------------------------------------------------------
76 - --------------------------------------------------------------------------[LOGO]
- --------------------------------------------------------------------------------------------------------------------- NUMBER OF PRINCIPAL FUNDS IN OTHER NAME, POSITION TERM OF OFFICE(1) OCCUPATIONS FUND COMPLEX DIRECTORSHIPS ADDRESS HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY HELD BY AND AGE THE FUNDS TIME SERVED FIVE YEARS DIRECTOR DIRECTOR(4) - --------------------------------------------------------------------------------------------------------------------- OFFICERS (CONTINUED): - --------------------------------------------------------------------------------------------------------------------- Michael P. Eckert Vice Re-Elected by the Mutual Fund Institutional N/A N/A Suite 4600 President Boards annually; Client Group of Adviser 90 South Seventh Street Institu- Officer since 1989. Minneapolis, MN 55402 tional Age: 47 Client Group - --------------------------------------------------------------------------------------------------------------------- Paul E. Rasmussen Vice Re-Elected by the Vice President, Secretary, N/A N/A Suite 4600 President Boards annually; Controller and Chief 90 South Seventh Street and Officer since 1994. Compliance Officer of the Minneapolis, MN 55402 Treasurer Adviser; Vice President, Age: 42 Secretary, and Chief Compliance Officer of Sit/Kim and SF; President of the Distri- butor. - --------------------------------------------------------------------------------------------------------------------- Michael J. Radmer Secretary Re-Elected by the Partner of the Funds' N/A N/A Suite 1500 Boards annually; general counsel, Dorsey 50 South Sixth Street Officer since 1984. & Whitney, LLP Minneapolis, MN 55402 Age: 58 - --------------------------------------------------------------------------------------------------------------------- Carla J. Rose Vice Re-Elected by the Vice President, Adminis- N/A N/A Suite 4600 President, Boards annually; tration &Deputy 90 South Seventh Street Assistant Officer since 2000. Controller of the Adviser; Minneapolis, MN 55402 Secretary Vice President, Adminis- Age: 37 & Assistant tration and Controller of Treasurer Sit/Kim; Controller and Treasurer of SF. - --------------------------------------------------------------------------------------------------------------------- Kelly K. Boston Assistant Re-Elected by the Staff Attorney of the N/A N/A Suite 4600 Secretary Boards annually; Adviser. 90 South Seventh Street & Officer since 2000. Minneapolis, MN 55402 Assistant Age: 34 Treasurer - ---------------------------------------------------------------------------------------------------------------------
(1) Each Director serves until their resignation, removal or the next meeting of the shareholders at which election of directors is an agenda item and until his successor is duly elected and shall qualify. (2) Directors who are deemed to be "interested persons " of the Funds as that term is defined by the Investment Company Act of 1940.Mr.Sit is considered an "interested person "because he is an officer of Sit Investment Associates, Inc., the Fund 's investment adviser. Mr. Frenzel is deemed to be an interested person because he is an advisory director and shareholder of the Fund 's investment adviser. (3) Mr. Roger Sit is the son of Eugene C. Sit. Ms. Debra Sit is the daughter of Eugene C. Sit. (4) Includes only directorships of companies required to report under the Securities Exchange Act of 1934 (i.e. public companies)or other investment companies registered under the 1940 Act. 77 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- FEDERAL TAX INFORMATION We are required by Federal tax regulations to provide shareholders with certain information regarding dividend distributions on an annual fiscal year basis. The figures are for informational purposes only and should not be used for reporting to federal or state revenue agencies. All necessary tax information will be mailed in January each year. LONG-TERM ORDINARY CAPITAL FUND AND PAYABLE DATE INCOME(a) GAIN(b) - --------------------- --------- --------- Money Market Fund April 30, 2002 $ 0.00118 $ ---- May 31, 2002 0.00112 ---- June 30, 2002 0.00099 ---- July 31, 2002 0.00117 ---- August 31, 2002 0.00105 ---- September 30, 2002 0.00106 ---- October 31, 2002 0.00107 ---- November 30, 2002 0.00091 ---- December 31, 2002 0.00077 ---- January 31, 2003 0.00068 ---- February 28, 2003 0.00059 ---- March 31, 2003 0.00064 ---- --------- --------- $ 0.01124(c) $ 0.00000 ========= ========= Bond Fund April 30, 2002 $ 0.05126 $ ---- May 31, 2002 0.04783 ---- June 30, 2002 0.03712 ---- July 31, 2002 0.04808 ---- August 31, 2002 0.04528 ---- September 30, 2002 0.04898 ---- October 31, 2002 0.04669 ---- November 30, 2002 0.03963 ---- December 31, 2002 0.04772 ---- January 31, 2003 0.04104 ---- February 28, 2003 0.03628 ---- March 31, 2003 0.03691 ---- --------- --------- $ 0.52682(c) $ 0.00000 ========= ========= Minnesota Tax-Free Income Fund April 30, 2002 0.04631 ---- May 31, 2002 0.03933 ---- June 30, 2002 0.03510 ---- July 31, 2002 0.04086 ---- August 31, 2002 0.03732 ---- September 30, 2002 0.03913 ---- October 31, 2002 0.03959 ---- November 30, 2002 0.03851 ---- December 31, 2002 0.04228 ---- January 31, 2003 0.03942 ---- February 28, 2003 0.03499 ---- March 31, 2003 0.03833 ---- --------- --------- $ 0.47117(d) $ 0.00000 ========= ========= LONG-TERM ORDINARY CAPITAL FUND AND PAYABLE DATE INCOME(a) GAIN(b) - --------------------- --------- --------- U.S. Government Securities Fund April 30, 2002 $ 0.04951 $ ---- May 31, 2002 0.04448 ---- June 30, 2002 0.04444 ---- July 31, 2002 0.04825 ---- August 31, 2002 0.04103 ---- September 30, 2002 0.04175 ---- October 31, 2002 0.03899 ---- November 30, 2002 0.03159 ---- December 31, 2002 0.03203 ---- January 31, 2003 0.02671 ---- February 28, 2003 0.02834 ---- March 31, 2003 0.02265 ---- --------- --------- $ 0.44976(c) $ 0.00000 ========= ========= Tax-Free Income Fund April 30, 2002 $ 0.04017 $ ---- May 31, 2002 0.03699 ---- June 30, 2002 0.03398 ---- July 31, 2002 0.04013 ---- August 31, 2002 0.03681 ---- September 30, 2002 0.03891 ---- October 31, 2002 0.03814 ---- November 30, 2002 0.03554 ---- December 31, 2002 0.04015 ---- January 31, 2003 0.03777 ---- February 28, 2003 0.03417 ---- March 31, 2003 0.03769 ---- --------- --------- $ 0.45045(d) $ 0.00000 ========= ========= (a) Includes distributions of short-term gains, if any, which are taxable as ordinary income. (b) Taxable as long-term gain (20%). (c) Taxable as dividend income and does not qualify for deduction by corporations. (d) 100% of dividends were derived from interest on tax-exempt securities. This portion of exempt-interest dividends is exempt from federal taxes and should not be included in shareholders' gross income. Exempt-interest dividends may be subject to state and local taxes. Each shareholder should consult a tax adviser about reporting this income for state and local tax purposes. 78 - --------------------------------------------------------------------------[LOGO] A LOOK AT SIT MUTUAL FUNDS Sit Mutual Funds are managed by Sit Investment Associates, Inc. Sit Investment Associates was founded by Eugene C. Sit in July 1981 and is dedicated to a single purpose, to be one of the premiere investment management firms in the United States. Sit Investment Associates currently manages approximately $6.1 billion for some of America's largest corporations, foundations and endowments. Sit Mutual Funds are comprised of twelve NO-LOAD funds. NO-LOAD means that Sit Mutual 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. Sit Mutual Funds offer: o Free telephone exchange o Dollar-cost averaging through an automatic investment plan o Electronic transfer for purchases and redemptions o Free checkwriting privileges on bond funds o Retirement accounts including IRAs and 401(k) plans SIT FAMILY OF FUNDS [PLOT POINTS 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 HIGH GROWTH: LONG-TERM CAPITAL APPRECIATION MID CAP GROWTH INTERNATIONAL GROWTH SMALL CAP GROWTH SCIENCE AND TECHNOLOGY GROWTH DEVELOPING MARKETS GROWTH 79 ANNUAL REPORT BOND FUNDS Year Ended March 31, 2003 INVESTMENT ADVISER AUDITORS Sit Investment Associates, Inc. KPMG LLP 90 South Seventh Street 90 South Seventh Street Suite 4600 Suite 4200 Minneapolis, MN 55402 Minneapolis, MN 55402 612-334-5888 (Metro Area) 800-332-5580 LEGAL COUNSEL DISTRIBUTOR Dorsey & Whitney LLP 50 South Sixth Street, Suite 1500 SIA Securities Corp. Minneapolis, MN 55402 90 South Seventh Street Suite 4600 Minneapolis, MN 55402 612-334-5888 (Metro Area) 800-332-5580 CUSTODIAN The Northern Trust Company 50 South LaSalle Street Chicago, IL 60675 TRANSFER AGENT AND DISBURSING AGENT PFPC, Inc. P.O. Box 5166 Westboro, MA 01581-5166 [LOGO] SIT INVESTMENT ASSOCIATES ------------------------- SIT MUTUAL FUNDS -----END PRIVACY-ENHANCED MESSAGE-----