QUARTERLY REPORT
BOND FUNDS
June 30, 1995
SIT Mutual Fund Group
A FAMLY
OF 100%
NO-LOAD FUNDS
* BOND FUND
* MINNESOTA TAX-FREE INCOME FUND
* TAX-FREE INCOME FUND
* U.S. GOVERNMENT SECURITIES FUND
* MONEY MARKET FUND
SIT MUTUAL FUND GROUP
BOND FUNDS QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
A Look at the SIT Mutual Funds............................... 2
Chairman's Letter............................................ 3
Performance Review........................................... 4
Fund Reviews
Bond Fund....................................... 6
Minnesota Tax-Free Income Fund.................. 8
Tax-Free Income Fund............................ 10
U.S. Government Securities Fund................. 12
Money market Fund............................... 14
This document must be preceded or accompanied by a Prospectus.
A LOOK AT THE SIT MUTUAL FUNDS
The SIT Mutual Fund Group is managed by Sit Investment Associates, Inc.
Sit Investment was founded by Eugene C. Sit in July 1981 and is dedicated to a
single purpose, to be one of the premier investment management firms in the
United States. Sit Investment currently manages more than $4.0 billion for some
of America's largest corporations, foundations and endowments.
The SIT Mutual Fund Group is comprised of eleven 100% no-load funds.
100% no-load means that the funds have no sales charges on purchases, no
deferred sales charges, no 12b-1 fees, no redemption fees and no exchange fees.
Every dollar you invest goes to work for you.
Some of the other features include:
* Free telephone exchange
* Dollar-cost averaging through automatic investment plan
* Electronic transfer of funds for purchases and redemptions
* Free check-writing privileges on bond funds
* Retirement accounts including IRAs, Keoghs and 401(k) Plans
[GRAPH]--describing: 1)principal stability and current income and 2) growth
potential.
SIT FAMILY OF FUNDS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
STABILITY: INCOME: GROWTH & INCOME: GROWTH:
SAFETY OF PRINCIPAL INCREASED INCOME LONG-TERM CAPITAL LONG-TERM CAPITAL
AND CURRENT INCOME APPRECIATION AND INCOME APPRECIATION
FUNDS:
MONEY MARKET U.S. GOVT. SECURITIES BALANCED GROWTH
TAX-FREE INCOME GROWTH & INCOME INT'L GROWTH
MN TAX-FREE INCOME SMALL CAP GROWTH
BOND DEVELOPING MARKETS GROWTH
</TABLE>
SIT MUTUAL FUND GROUP
CHAIRMAN'S LETTER - JUNE 30, 1995
([PHOTO] - Eugene C. Sit)
Dear Fellow Shareholders:
Market expectations for lower short-term interest rates and relatively
dormant inflation paved the way for domestic financial assets to provide
investors with solid returns during the quarter ended June 30, 1995.
ECONOMIC REVIEW
The domestic economy showed signs of deceleration during the first
quarter of 1995 as unemployment claims rose, capacity utilization fell, and
manufacturers scaled back production to pare down inventories. Effects on the
consumer were mixed, though, as growth in personal income declined somewhat, but
personal consumption expenditures, the largest component of GDP, accelerated at
an annualized rate of slightly better than +3.0%. Amidst mixed economic signals,
the final estimate of first quarter real GDP growth was lowered slightly to
+2.7%. Although some are leaning toward the possibility of recession, consensus
expectations are that the economic soft landing will be achieved. We estimate
the economy expanded modestly by +1.0% during the second quarter. Looking ahead,
recent upticks in durable goods orders and home sales suggest a more active
economy during the latter half of the year, and we expect economic growth will
trend slightly higher during this period, resulting in a growth rate of
approximately +3.0% for calendar 1995.
As recessionary fears mounted during the quarter, equity and fixed
income markets began to discount an impending reduction in short-term interest
rates as a means of economic stimulus. These expectations were confirmed on July
6th when the Federal Reserve lowered the federal funds rate by 25 basis points
at the FOMC meeting, citing an absence of inflationary threats as reasonable
justification. Although the Fed has adopted a slightly more accommodative
monetary posture, we believe additional reductions in short-term rates will
depend primarily on signs of continued economic weakness. Based on the solid
performance of fixed income markets during the first half of 1995 as well as our
prospects for renewed but moderate economic growth, we believe interest rates
will remain stable to slightly higher for the duration of 1995.
Since price increases continue to advance within a contained range, the
Fed's policy move was probably justified. Consumer price inflation, as measured
by the year-over-year change in the CPI, remains moderate at +3.0%, and
inflation at the producer level is even more subdued, showing a +2.2% annual
increase. Although labor and energy prices appear completely in check at the
present time, wheat prices, which are now flirting with 25-year highs because of
dwindling inventories created by this year's extreme weather, could produce a
slight uptick in consumer prices.
Congress continues to aggressively pursue deficit reduction. House and
Senate Republicans compromised on nearly $983 billion in spending cuts, most of
which would be derived by slowing increases in Medicare and Medicaid spending,
to balance the budget by 2002. Since President Clinton has vowed to veto any
severe cuts in taxes or in spending, it appears the details may not be resolved
until the fall. The current fiscal deficit, at $173.3 billion, is down 15% on a
12-month rolling basis from fiscal 1994.
STRATEGY SUMMARY
During the quarter, corporate and U.S. Treasury bonds outperformed
mortgage securities as investors grew wary of prepayment risks associated with
potential increases in mortgage refinancing activity in a lower interest rate
environment. Should 30-year Treasury yields rise back up to approximately the
6.75% level, we intend to modestly lengthen the durations in the taxable
portfolios based on our outlook for moderate economic expansion in the second
half of 199.
Municipal bonds lagged taxable issues during the quarter on concerns
over tax reform and difficulties in resolving issues surrounding the Orange
County bankruptcy. Long-maturity municipal revenue bond yields currently provide
approximately 95% of comparable U.S. Treasury security yields, which is at the
cheaper end of their 15-year relative valuation range. Since significant tax
reform will likely not be enacted in the short term, the Tax-Free and Minnesota
Tax-Free Income Funds will seek to capitalize on these opportunities.
We appreciate your continued interest and support as investors in the
SIT Mutual Fund Group.
With best wishes,
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
SIT MUTUAL FUND GROUP
JUNE 30, 1995 PERFORMANCE SUMMARY - BOND FUNDS
BOND MARKET REVIEW
Bond yields continued to decline during the second quarter of 1995 with
30-year Treasury yields declining from 7.43% to 6.62% and 3-month Treasury bills
declining from 5.85% to 5.57%. Treasury bill yields remained stable for most of
the quarter and then declined in early June with increased anticipation of
Federal Reserve ease in response to slowing economic activity and contained
inflation. Long treasury bonds achieved most of their positive price return in
April, and stabilized in June. Mortgage pass-through securities, which lagged in
price performance earlier in the quarter, offered relatively attractive yields
at quarter end.
Municipal bond yields also declined during the quarter but moved up in
June. The yield of the Bond Buyer 40-Bond Index decreased from 6.37% on March
31, 1995 to a low of 5.99% on June 7, 1995 and ended the quarter at 6.28%. The
divergent performance of tax-exempt versus taxable bonds reflected increased
concerns over possible significant tax reform as well as the Orange County
bankruptcy. As of June 30, 1995, long municipal revenue bond yields were 90 to
95% of comparable maturity Treasury bond yields. Given our economic outlook and
low expectations for significant tax reform in the near-term, we consider
municipal bonds to be attractively priced.
[TABLE]
<TABLE>
<CAPTION>
TOTAL RETURN - CALENDAR YEAR
DISTRI-
YIELD BUTION
YTD AS OF RATE
1988 1989 1990 1991 1992 1993 1994 1995 6/30/95 (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SIT BOND FUND -- -- -- -- -- 0.34%(1) -1.31% 10.50% 6.58% 6.58%
SIT MINNESOTA TAX-FREE
INCOME FUND -- -- -- -- -- 1.60(1) 0.63 6.58 5.63(3) 5.72
(NASDAQ Symbol: SMTFX)
SIT TAX-FREE INCOME FUND 2.19%(1) 8.38% 7.29% 9.25% 7.71% 10.42 -0.63 6.80 5.69(4) 5.79
(NASDAQ Symbol: SNTIX)
SIT U.S. GOV'T. SECURITIES FUND
(NASDAQ Symbol: SNGVX) 7.86 11.04 10.97 12.87 5.43 7.34 1.77 6.20 7.06 6.75
SIT MONEY MARKET FUND -- -- -- -- -- 0.46(1) 3.84 2.80 5.53
(NASDAQ Symbol: SNIXX)
Lehman Aggregate Bond Index -- -- -- -- -- 0.54 -2.92 11.44
Lehman 5-Year Municipal Bond Index 0.75 9.07 7.70 11.41 7.62 8.73 -1.28 6.85
Lehman Inter. Government Bond Index 6.40 12.68 9.56 14.11 6.93 8.17 -1.75 9.03
3-Month U.S. Treasury Bill 7.10 8.73 8.04 5.72 3.56 3.13 4.47 2.97
SIT Investment Reserve Fund 6.65 8.53 7.59 6.14 3.81 2.34(5)
</TABLE>
(Inception date 1/25/85. Converted to SIT Money Market Fund on 11/1/93.)
<TABLE>
<CAPTION>
QUARTER SIX MONTH AVERAGE ANNUAL TOTAL RETURNS FOR
RETURN ENDED RETURN ENDED THE PERIODS ENDED JUNE 30, 1995
INCEPTION 6/30/95 6/30/95 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C> <C>
SIT BOND FUND 12/01/93 5.99% 10.50% 11.97% -- -- 5.87%
SIT MINNESOTA TAX-FREE INCOME FUND 12/01/93 2.02 6.58 7.58 -- -- 5.60
SIT TAX-FREE INCOME FUND 09/29/88 2.35 6.80 7.61 6.76% 7.42% 7.59
SIT U.S. GOV'T. SECURITIES FUND 06/02/87 3.26 6.20 7.89 6.00 7.98 8.58
SIT MONEY MARKET FUND 11/01/93 1.40 2.80 5.11 -- -- 4.30
Lehman Aggregate Bond Index 6.09 11.44 12.55 -- -- 5.47
Lehman 5-Year Municipal Bond Index 2.67 6.85 7.38 6.07 7.57 7.48
Lehman Inter. Government Bond Index 4.67 9.03 9.75 6.43 8.50 8.54
3-Month U.S. Treasury Bill 1.45 2.97 5.59 -- -- 4.82
</TABLE>
(1) Period from inception through calendar year-end.
(2) Based on the last 12 monthly distributions of net investment income and
average NAV as of 6/30/95.
(3) For Minnesota residents in the 31%, 36% and 39.6% federal tax brackets, the
double exempt tax equivalent yields are 8.92%, 9.61% and 10.19%
respectively. (Assumes the maximum Minnesota tax bracket of 8.5%.)
(4) For individuals in the 31%, 36%, and 39.6% federal tax brackets, the
federal tax equivalent yields are 8.25%, 8.89% and 9.42% respectively.
(Income subject to state tax, if any.)
(5) Period January 1, 1993, through October 31, 1993, at which time the Fund
converted to the SIT Money Market Fund.
Please remember that past performance is not a guarantee of future results and
is only one of the factors to consider in choosing a fund. As with all
investments, the share price and return may vary and you may have a gain or loss
at the time of sale.
SIT BOND FUND REVIEW
JUNE 30, 1995
[PHOTO] Michael C. Brilley, Senior Portfolio Manager
Douglas S. Rogers, CFA, Portfolio Manager
The SIT Bond Fund achieved a return of +5.99% for the second quarter of
1995, as compared to a +5.60% average return for the Lipper Analytical Services,
Inc. intermediate investment grade bond fund universe. As of June 30, 1995, the
Fund's 30-day SEC yield and 12-month distribution rate were both 6.58%.
Yields on intermediate U.S. Treasury securities fell by approximately 1%
during the quarter, resulting in meaningful price appreciation for intermediate
and long maturity securities. The Fund's government, corporate, asset-backed and
collateralized mortgage obligations performed well in this bond market rally.
The Fund's mortgage pass-through holdings lagged in price movement, but when
compared to similar effective maturity U.S. Treasuries, remain attractively
valued.
During the quarter, the allocation to governments and mortgage
pass-through securities was reduced to increase weightings in asset-backed and
collateralized mortgage obligations (CMO's). We continue to hold only small
positions in corporate bonds, as they typically underperform during periods of
slowing economic growth. Asset-backs supported by manufactured housing loans and
VA Vendee CMO's have historically demonstrated stable mortgage prepayment
characteristics and we believe offer superior return potential at current
valuations.
We believe signs of a resurgence in economic strength will offer
attractive buying opportunities ahead and thus, plan on lengthening the
effective maturity of the Fund as yields move above their quarter-end levels.
INVESTMENT OBJECTIVE AND STRATEGY
The investment objective of the Fund is to maximize total return, consistent
with preservation of capital. The Fund's "total return" is a combination of
income, changes in principal value and reinvested dividends.
The Fund will pursue its objective by investing in a diversified portfolio of
fixed-income securities which include, but are not limited to, the following:
U.S. government securities; corporate debt securities; corporate commercial
paper; mortgage and other asset-backed securities.
PORTFOLIO SUMMARY
Net Asset Value 6/30/95: $9.89 Per Share
3/31/95: $9.48 Per Share
Total Net Assets: $4.10 Million
30-Day SEC Yield: 6.58%
Average Maturity: 17.21 Years
Modified Adjusted Duration: 4.83 Years (1)
(1) 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%. Duration is based on the Adviser's assumptions regarding future
changes in interest rates and the expected average life of individual securities
held in the portfolio.
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR GRAPH]
Agency Mortgage Pass-Through Securities 35.7
Collateralized Mortgage Obligations 21.8
Government & Agency 14.1
Asset-Backed Securities 12.1
Corporate Bonds & Notes 11.9
Other Assets & Liabilites 4.4
[TABLE]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
Lipper Inter. Lehman Lipper Inter. Lehman
Bond Investment Grade Aggregate Bond Investment Grade Aggregate
Fund Bond Fund Avg. Bond Index Fund Bond Fund Avg. Bond Index
<S> <C> <C> <C> <C> <C> <C>
3 Months 5.99% 5.60% 6.09% 5.99% 5.60% 6.09%
(unannualized)
1 Year 11.97 10.91 12.55 11.97 10.91 12.55
Inception 5.87 4.45 5.47 9.42 7.12 8.78
(12/1/93)
</TABLE>
* As of 6/30/95
Performance is historical and assumes reinvestment of all dividends and capital
gains. Share price and return will vary so that a gain or loss may be realized
when shares are sold. Total return should not be taken as a representation of
future performance. Management fees and administrative expenses are included in
the Fund's performance; however, fees and expenses are not incorporated in the
Lehman Aggregate Bond Index. The Lipper averages and indices are obtained from
Lipper Analytical Services, Inc., a large independent evaluator of mutual funds
GROWTH OF $10,000
[LINE GRAPH]
SIT BOND FUND
LEHMAN AGGREGATE BOND INDEX
The sum of $10,000 invested at inception (12/1/93) and held until 6/30/95 would
have grown to $10,942 in the Fund or $10,878 in the Lehman Aggregate Bond Index
assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of total net assets)
LOWER OF MOODY'S OR S&P USED.
[PIE CHART]
Agency Mortgage-Backed Securities & CMO's 57.5%
Government & Agency 14.1
AAA 7.5
AA 4.6
A 6.9
BBB 5.0
Other Assets & Liabilities 4.4
SIT MINNESOTA TAX-FREE INCOME FUND REVIEW
JUNE 30, 1995
[PHOTO] Michael C. Brilley, Senior Portfolio Manager
Debra A. Sit, CFA, Portfolio Manager
Municipal bond yields continued their declining trend from late November
1994 when the Bond Buyer 40-Bond Municipal Index peaked at 7.37% until June 7,
1995 when that index reached a recent low of 5.99%. Reflecting this declining
trend, the SIT Minnesota Tax-Free Income Fund's net asset value rose by $.06 per
share or +0.6% for the quarter. Fund shareholders received dividends for the
quarter of 14.05 cents per share representing a +1.41% income return on the
Fund's March 31, 1994 net asset value. The Fund's +2.02% total return for the
quarter compares with a +2.67% quarterly return for the Lehman 5-year Municipal
Index and a +1.63% average return for Minnesota bond funds according to Lipper
Analytical Services, Inc. As of June 30, 1995, the Fund's 30-day SEC yield was
5.63% and the Fund's 12-month distribution rate was 5.72%.
The Fund's sector weightings were relatively unchanged during the quarter,
with few substantial sector shifts except for the "Other" revenue bond category
which increased from 0.5% to 7.9% of assets. The "Other" category shift was
caused by the purchase of a $3 million St. Paul Housing and Redevelopment
Authority sales tax revenue refunding bond insured by Capital Guaranty. Others
changes include an increase in multifamily housing from 23.5% to 27.6%, a
decrease in single family housing from 25.8% to 24.3%, and an increase in health
care from 19.3% to 20.4%. The decrease in other assets and liabilities from
14.1% to 3.0% reflects primarily a decrease in cash.
INVESTMENT OBJECTIVE AND STRATEGY
The investment objective of the Fund is to provide a high level of current
income exempt from federal regular income tax and Minnesota regular personal
income tax as is consistent with the preservation of capital.
The Fund will endeavor to invest 100% of its assets in municipal securities, the
income from which is exempt from federal regular income tax and Minnesota
regular personal income tax. The Fund anticipates that substantially all of its
distributions to its shareholders will be exempt as such. For investors subject
to the alternative minimum tax ("AMT"), up to 20% of the Fund's income may be
treated as an item of tax preference that is included in the alternative minimum
taxable income.
PORTFOLIO SUMMARY
Net Asset Value 6/30/95: $10.02 Per Share
3/31/95: $ 9.96 Per Share
Total Net Assets: $49.96 Million
30-Day SEC Yield: 5.63%
Tax Equivalent Yield: 10.19% (1)
Average Maturity: 17.77 Years
Duration to Estimated Avg. Life: 6.52 Years (2)
(1) For individuals in the 39.6% Federal and 8.5% MN tax brackets.
(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 1.0%, a
portfolio with a duration of 5 years would be expected to experience a price
change of 5%. Duration is based on the Adviser's assumptions regarding future
changes in interest rates and the expected average life of individual securities
held in the portfolio.
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR GRAPH]
Multifamily Mortgage Revenue 27.6
Single Family Mortgage Revenue 24.3
Hospital/Health Care Revenue 20.4
Industrial Revenue/Pollution Control 12.1
Other Revenue Bonds 7.9
Municipal Lease Rental 2.8
General Obligation 1.9
Other Assets & Liabilities 3.0
[TABLE]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
MN Tax-Free Lipper Lehman MN Tax-Free Lipper Lehman
Income MN Muni. 5-Year Muni. Income MN Muni. 5-Year Muni.
Fund Bond Fund Avg. Bond Index Fund Bond Fund Avg. Bond Index
<S> <C> <C> <C> <C> <C> <C>
3 Months 2.02% 1.63% 2.67% 2.02% 1.63% 2.67%
(unannualized)
1 Year 7.58 6.91 7.38 7.58 6.91 7.38
Inception 5.60 2.37 4.39 8.97 3.78 7.02
(12/1/93)
</TABLE>
* As of 6/30/95
Performance is historical and assumes reinvestment of all dividends and capital
gains. Share price and return will vary so that a gain or loss may be realized
when shares are sold. Total return should not be taken as a representation of
future performance. Management fees and administrative expenses are included in
the Fund's performance; however, fees and expenses are not incorporated in the
Lehman 5-Year Municipal Bond Index. The Lipper averages and indices are obtained
from Lipper Analytical Services, Inc., a large independent evaluator of mutual
funds.
GROWTH OF $10,000
[LINE GRAPH]
SIT MINNESOTA TAX-FREE INCOME FUND
LEHMAN 5-YEAR MUNI BOND INDEX
The sum of $10,000 invested at inception (12/1/93) and held until 6/30/95 would
have grown to $10,897 in the Fund or $10,702 in the Lehman 5-Year Municipal Bond
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of total net assets)
LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED.
[PIE CHART]
AAA 19.2%
AA 15.8
A 19.8
BBB 8.1
Not Rated 34.1
Other Assets & Liabilities 3.0
ADVISER'S ASSESSMENT OF NOT-RATED SECURITIES
AA 1.3%
A 2.0
BBB 24.9
BB 5.9
Total 34.1%
SIT TAX-FREE INCOME FUND REVIEW
JUNE 30, 1995
[PHOTO] Michael C. Brilley, Senior Portfolio Manager
Debra A. Sit, CFA, Portfolio Manager
Municipal bond yields continued to decline during the quarter, as reflected
in the increase in per share net asset value of the SIT Tax-Free Income Fund
from $9.70 to $9.79 during the period. The Fund provided shareholders with a
+2.35% total return for the quarter which compares with +2.67% for the Lehman
5-year Municipal Bond Index and an average return of +1.91% for the Lipper
Analytical Services, Inc. universe of general municipal bond funds. As of June
30, 1995, the Fund's 30-day SEC yield was 5.69% and its 12-month distribution
rate was 5.79%.
Changes in portfolio sector weightings included increases in health care
from 22.7% to 25.8% and in multifamily housing from 21.2% to 22.9%. All other
industry sectors remained relatively unchanged. Other assets and liabilities,
which includes cash, decreased from 12.3% to 4.9%, thus resulting in a
lengthening of the Fund's estimated duration (price sensitivity to changes in
interest rates) from 5.4 years to 5.9 years. With regard to portfolio quality,
the Fund's weighting in BBB-rated securities increased from 33.3% to 38.3%.
Given our anticipation for slightly higher interest rates as the economy
strengthens and low expectations for significant tax reform in the near term, we
consider municipal bonds to be very attractively valued. Thus, we continue to
seek investment opportunities to meet our shareholders' objectives of high
income and relative stability of principal.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to provide a high level of current income that is
exempt from federal income tax, consistent with the preservation of capital, by
investing in investment-grade municipal securities.
Such municipal securities generate interest that is exempt from regular federal
income taxes. Of the municipal securities in which the Fund invests, 100% will
be rated investment grade at time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 6/30/95: $9.79 Per Share
3/31/95: $9.70 Per Share
Total Net Assets: $247.30 Million
30-Day SEC Yield: 5.69%
12 Month Distribution Rate: 5.79%
Tax Equivalent Yield: 9.42% (1)
Average Maturity: 14.44 Years
Duration to Estimated Avg. Life: 5.90 Years (2)
(1) For individuals in the 39.6% federal tax bracket.
(2) Duration is a measure which reflects estimated price sensitivity to a given
change in inteest 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%. Duration is based on the Adviser's assumptions regarding future
changes in interest rates and the expected average life of individual securities
held in the portfolio.
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR GRAPH]
Hospital/Health Care Revenue 25.8%
Multifamily Mortgage Revenue 22.9
Single Family Mortgage Revenue 19.9
Industrial Revenue/Pollution Control 12.6
Municipal Lease Rental 4.3
Other Municipal Bonds 3.9
Public Facilities 2.6
Education/Student Loan 1.2
Utilities 1.2
Escrowed to Maturity/Pre-Refund 0.7
Other Assets & Liabilities 4.9
[TABLE]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
Lipper Lehman Lipper Lehman
Tax-Free General Muni. 5-Year Muni Tax-Free General Muni. 5-Year Muni
Income Fund Bond Fund Avg. Bond Index Income Fund Bond Fund Avg. Bond Index
<S> <C> <C> <C> <C> <C> <C>
3 Months 2.35% 1.91% 2.67% 2.35% 1.91% 2.67%
(unannualized)
1 Year 7.61 7.68 7.38 7.61 7.68 7.38
3 Years 6.76 6.19 6.07 21.69 19.73 19.34
5 Years 7.42 7.78 7.57 43.06 45.42 44.03
Inception 7.59 7.91 7.48 63.85 67.17 62.75
(9/29/88)
</TABLE>
*As of 6/30/95
Performance is historical and assumes reinvestment of all dividends and capital
gains. Share price and return will vary so that a gain or loss may be realized
when shares are sold. Total return should not be taken as a representation of
future performance. Management fees and administrative expenses are included in
the Fund's performance; however, fees and expenses are not incorporated in the
Lehman 5-Year Municipal Bond Index. The Lipper averages and indices are obtained
from Lipper Analytical Services, Inc., a large independent evaluator of mutual
funds.
GROWTH OF $10,000
[LINE GRAPH]
SIT TAX-FREE INCOME FUND
LEHMAN 5-YEAR MUNI. BOND INDEX
The sum of $10,000 invested at inception (9/29/88) and held until 6/30/95 would
have grown to $16,385 in the Fund or $16,275 in the Lehman 5-Year Municipal Bond
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of total net assets)
LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED.
[PIE CHART]
AAA 7.9%
AA 9.8
A 38.2
BBB 38.3
BB 0.9
Other Assets & Liabilities 4.9
TOTAL NUMBER OF HOLDINGS: 210
SIT U.S. GOVERNMENT SECURITIES FUND REVIEW
JUNE 30, 1995
[PHOTO] Michael C. Brilley, Senior Portfolio Manager
Douglas S. Rogers, CFA, Portfolio Manager
The SIT U.S. Government Securities Fund provided investors a +3.26% return
for the second quarter of 1995. As of June 30, 1995, the Fund's 30-day SEC yield
was an attractive 7.06%, and the Fund's 12-month distribution rate was 6.75%.
The Fund has continued to focus on securities that provide a high level of
income and relative price stability. During the quarter, price performance of
our pass-through securities lagged that of similar duration U.S. Treasuries. The
Fund's holdings in this sector now offers a +1.5% incremental yield advantage
over intermediate term U.S. Treasury Notes. Given that mortgage rates have
declined by more than 1% since a year ago, we believe our 61.9% allocation to
GNMA manufactured housing installment loans will prove to be especially
advantageous as they are far less susceptible to increasing prepayment risk as
traditional home owners once again have renewed incentive to refinance their
mortgages. Another portion of the portfolio that is also less susceptible to
refinancing are the VA Vendee collateralized mortgage obligations which now
represent 7.4% of the portfolio. The Fund's long Treasury position performed
extremely well, appreciating approximately 10% during the quarter as long bond
yields fell by -0.8%.
The U.S. Government Securities Fund has received a great deal of media
attention for its unique approach, and most recently, the advantages of the
Fund's holdings of GNMA pass-throughs backed by manufactured housing loans were
recognized by nationally syndicated columnist Scott Burns. These securities have
contributed to the Fund's ability to maintain a 5-star rating over the past 60
months from Morningstar Inc. for superior risk-adjusted returns. It is our
intention to continue to differentiate this Fund from other products by
emphasizing securities that are consistent with the objectives of more
conservative investors who seek high current income and relative stability of
principal.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to provide high current income and safety of
principal. The Fund invests solely in securities issued, guaranteed or insured
by the U.S. government or its agencies or its instrumentalities.
Agency mortgage securities and U.S. Treasury securities will be the principal
holdings in the Fund. The mortgage securities that the Fund will purchase
consist of pass-through securities (Government National Mortgage Association
(GNMA), Federal National Mortgage Association (FNMA), and Federal Home Loan
Mortgage Corporation (FHLMC)).
PORTFOLIO SUMMARY
Net Asset Value 6/30/95: $10.43 Per Share
3/31/95: $10.28 Per Share
Total Net Assets: $40.80 Million
30-Day SEC Yield: 7.06%
12 Month Distribution Rate: 6.75%
Average Maturity: 15.66 Years
Modified Adjusted Duration: 2.66 Years (1)
(1) 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%. Duration is based on the Adviser's assumptions regarding future
changes in interest rates and the expected average life of individual securities
held in the portfolio.
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR GRAPH]
GNMA Pass-Through Securities 64.8%
Collateralized Mortgage Obligations 8.4
FHLMC Pass-Through Securities 8.3
U.S. Treasury Bonds 7.7
FNMA Pass-Through Securities 5.4
Other Assets & Liabiliaties 5.4
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
U.S. Gov't. Lipper U.S. Gov't. Lehman Inter. U.S. Gov't. Lipper U.S. Gov't. Lehman Inter.
Securities Fund Fund Average Gov't. Bond Index Securities Fund Fund Average Gov't. Bond Index
<S> <C> <C> <C> <C> <C> <C>
3 Months 3.26% 5.69% 4.67% 3.26% 5.69% 4.67%
(unannualized)
1 Year 7.89 10.85 9.75 7.89 10.85 9.75
3 Years 6.00 6.45 6.43 19.09 20.62 20.54
5 Years 7.98 8.26 8.50 46.80 48.74 50.39
Inception 8.58 8.06 8.54 94.58 87.14 94.01
(6/2/87)
</TABLE>
* As of 6/30/95
Performance is historical and assumes reinvestment of all dividends and capital
gains. Share price and return will vary so that a gain or loss may be realized
when shares are sold. Total return should not be taken as a representation of
future performance. Management fees and administrative expenses are included in
the Fund's performance; however, fees and expenses are not incorporated in the
Lehman Intermediate Government Bond Index. The Lipper averages and indices are
obtained from Lipper Analytical Services, Inc., a large independent evaluator of
mutual funds.
GROWTH OF $10,000
[LINE GRAPH]
SIT U.S. GOVT. SECURITIES FUND
LEHMAN INTER. GOV'T BOND INDEX
The sum of $10,000 invested at inception (6/2/87) and held until 6/30/95 would
have grown to $19,458 in the Fund or $19,401 in the Lehman Intermediate
Government Bond Index assuming reinvestment of all dividends and capital gains.
ESTIMATED AVERAGE LIFE PROFILE
[BAR GRAPH]
The Adviser's estimates of the dollar weighted average life of the portfolio's
securities, which may vary from their stated maturities.
0-1 Years 5.5%
1-5 Years 81.9
5-10 Years 2.4
10-20 Years 2.5
20+ Years 7.7
SIT MONEY MARKET FUND REVIEW
JUNE 30, 1995
[PHOTO] Michael C. Brilley, Senior Portfolio Manager
Douglas S. Rogers, CFA, Portfolio Manager
The SIT Money Market Fund provided investors with a +1.40% return for the
second quarter of 1995 compared to +1.35% average return for the Lipper
Analytical Services, Inc. Money Market Fund universe. As of June 30, 1995, the
Fund's 7-day compound yield was 5.70%.
Three-month Treasury bill rates fell by approximately 1/4% in early June. In
anticipation, we lengthened the portfolio's average maturity during June. The
Federal Reserve did lower the federal funds rate by 25 basis points on July 6
and we believe it will lower the fund's rate at least one more time before
calendar year end. Thus, we believe it will prove to be beneficial to take
advantage of current yield levels and maintain the portfolio's average maturity
in a range of 40 to 50 days.
Even though economic activity has softened, we do not foresee a significant
impact on the creditworthiness of commercial paper issuers. The Fund continues
to diversify its core holdings of its universe and diversify its industry
exposure of permissible credits. In the months ahead, we plan to add Tier 1
credits in retail, business equipment, technology and consumer non-durable
industries.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to achieve maximum current income to the extent
consistent with the preservation of capital and maintenance of liquidity. The
Fund pursues this objective by investing in a diversified portfolio of high
quality short-term debt instruments. The Fund seeks to maintain a stable net
asset value of $1.00 per share. However, there is no assurance of a constant
share price.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share.
PORTFOLIO SUMMARY
Net Asset Value 6/30/95: $1.00 Per Share
3/31/95: $1.00 Per Share
Total Net Assets: $22.25 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR GRAPH]
Captive Equipment Finance 23.7%
Consumer Loan Finance 23.6
Diversified Finance 20.3
Utilities 11.8
Insurance 10.5
Energy & Miscellaneous 10.1
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
Money Lipper Money U.S. Treasury Money Lipper Money U.S. Treasury
Market Fund Market Avg. Bill (3-Month) Market Fund Market Avg. Bill (3-Month)
<S> <C> <C> <C> <C> <C> <C>
3 Months 1.40% 1.35% 1.45% 1.40% 1.35% 1.45%
(unannualized)
1 Year 5.11 4.91 5.59 5.11 4.91 5.59
Inception 4.30 4.11 4.82 7.24 6.92 8.14
(11/1/93)
</TABLE>
* As of 6/30/95
Performance is historical and assumes reinvestment of all dividends and capital
gains. Share price and return will vary so that a gain or loss may be realized
when shares are sold. Total return should not be taken as a representation of
future performance. Management fees and administrative expenses are included in
the Fund's performance; however, fees and expenses are not incorporated in the
U.S. Treasury Bill. The Lipper averages and indices are obtained from Lipper
Analytical Services, Inc., a large independent evaluator of mutual funds.
GROWTH OF $10,000
[LINE GRAPH]
SIT MONEY MARKET FUND
3-MONTH U S. TREASURY BILL INDEX
The sum of $10,000 invested at inception (11/1/93) and held until 6/30/95 would
have grown to $10,724 in the Fund or $10,814 in the 3-Month U.S. Treasury Bill
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of total net assets)
As rated by Moody's and S&P
[PIE CHART]
A1, P1 100%
First Tier Securities 100%
Second Tier Securities 0%
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
Michael C. Brilley
Melvin C. Bahle
Sidney L. Jones
Donald W. Phillips
William E. Frenzel
Officers:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Michael C. Brilley Senior Vice President
Mary K. Stern President
Douglas S. Rogers, CFA (1) Vice President - Investments
Debra A. Sit, CFA (2) Vice President - Investments
Paul E. Rasmussen Vice President & Treasurer
Michael P. Eckert Vice President
Michael J. Radmer Secretary
Parnell M. Kingsley Assistant Secretary
Carla J. Rose Assistant Secretary
(1) U. S. Government Securities, Money Market and Bond Funds only
(2) Assistant Treasurer of all Funds, Vice President - Investments of the
Tax-Free Income and Minnesota Tax-Free Income Funds only
QUARTERLY REPORT
BOND FUNDS
June 30, 1995
INVESTMENT ADVISER
Sit Investment Associates, Inc.
4600 Norwest Center
Minneapolis, MN 55402
612-334-5888 (Metro Area)
800-332-5580
DISTRIBUTOR
SIA Securities Corp.
4600 Norwest Center
Minneapolis, MN 55402
612-334-5888 (Metro Area)
800-332-5580
CUSTODIAN, TRANSFER AGENT
AND DISBURSING AGENT
Norwest Bank Minnesota, N.A.
733 Marquette Avenue, Fourth Floor
Minneapolis, MN 55479
612-667-9678 (Metro Area)
800-626-4836
AUDITORS
KPMG Peat Marwick LLP
4200 Norwest Center
Minneapolis, MN 55402
LEGAL COUNSEL
Dorsey & Whitney
220 South Sixth Street
Minneapolis, MN 55402
