ANNUAL REPORT [LOGO] SIT
BOND FUNDS MUTUAL FUND GROUP
MARCH 31, 1996
A FAMILY
OF 100%
NO-LOAD FUNDS
* BOND FUND
* MINNESOTA TAX-FREE INCOME FUND
* TAX-FREE INCOME FUND
* U.S. GOVERNMENT SECURITIES FUND
* MONEY MARKET FUND
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 $4.5 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
SIT FAMILY OF FUNDS
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 & INCOME:
LONG-TERM CAPITAL
APPRECIATION AND INCOME
BALANCED
GROWTH & INCOME
GROWTH:
LONG-TERM CAPITAL
APPRECIATION
DEVELOPING MARKETS GROWTH
SMALL CAP GROWTH
INTERNATIONAL GROWTH
GROWTH
PRINCIPAL STABILITY GROWTH
& CURRENT INCOME POTENTIAL
SIT MUTUAL FUND GROUP
BOND FUNDS ANNUAL REPORT
TABLE OF CONTENTS
PAGE
Chairman's Letter............................................ 2
Performance Review........................................... 4
Fund Reviews and Portfolios of Investments
Bond Fund.............................................. 6
Minnesota Tax-Free Income Fund......................... 10
Tax-Free Income Fund................................... 16
U.S. Government Securities Fund........................ 26
Money Market Fund...................................... 30
Notes to Portfolios of Investments........................... 33
Statements of Assets and Liabilities......................... 34
Statements of Operations..................................... 35
Statements of Changes in Net Assets.......................... 36
Notes to Financial Statements................................ 38
Financial Highlights......................................... 41
Independent Auditors' Report................................. 46
Federal Income Tax Information............................... 47
This document must be preceded or accompanied by a Prospectus.
SIT MUTUAL FUND GROUP
CHAIRMAN'S LETTER - MARCH 31, 1996
[PHOTO]
Dear Fellow Shareholders:
Domestic financial markets provided strong results during the twelve months
ended March 31, 1996 amid moderate economic growth, fluctuating interest rates,
contained inflation and healthy but decelerating advances in corporate profits.
ECONOMIC OVERVIEW
Market expectations for economic slowing in late 1995 changed abruptly
during the first quarter of 1996 as large employment gains in February and
March, combined with increased retail spending, signaled renewed economic
strength. Investors had originally perceived that first quarter growth would be
hampered by adverse weather conditions combined with federal and corporate work
interruptions. According to recently released real GDP figures, the economy
expanded beyond expectations at a +2.8% annual rate during the first quarter of
1996. Personal consumption expenditures, the largest component of GDP, increased
noticeably on rising consumer confidence, larger than normal tax refunds and
substantial mortgage refinancing activity caused by declining interest rates in
the second half of 1995. Growth in nonresidential fixed investments was also up,
suggesting sustained momentum in the capital spending cycle. Despite the
economy's strength during the first quarter, we believe that relatively higher
interest rates will eventually impact consumer and business spending during the
second half of the year. Accordingly, we believe the economy will grow at a
moderate rate slightly exceeding +2.0% for calendar 1996.
Economic strength in the first calendar quarter of 1996 fueled inflationary
concerns that negatively impacted the bond market. Although job creation tapered
off in April, the nation's unemployment rate fell to 5.4%, a level that some
economists have associated with upticks in wage pressures. In addition, certain
commodity prices, particularly those for crude oil, gasoline and some
agricultural commodities, rose considerably during the quarter. Despite these
rising commodity prices, the Consumer Price Inflation and Producer Price
Inflation Indices remained fairly stable, showing year-over-year gains of +2.9%
and +2.5%, respectively, as seen in the charts on the accompanying page. We
believe that a portion of the commodity price increases are the result of
seasonal factors. More recently, prices for raw materials like crude oil and
grains have actually decreased. We would expect the consumer to begin seeing the
benefits of lower prices for finished goods, particularly for gasoline, in
coming weeks. We are keeping a close watch over broad price levels, in general,
and wage levels, in particular, since they represent the largest component of
consumer inflation. Our forecast for inflation, as measured by the CPI, remains
in the +2.5% to +3.0% range for 1996.
In light of increased economic activity and rising commodity prices, the
Federal Reserve did not change short-term interest rates at its most recent FOMC
meeting in March. Having expressed concern over a slowing economy as recently as
January, the Fed has indicated that a reversal of last year's inventory
correction could sustain the economy over the near term. Moreover, in its most
recent Beige Book release, the Fed stated that it is forecasting economic growth
and inflation at moderate levels, reducing the likelihood of near-term
adjustments to short-term interest rates. We believe that the Fed is likely to
remain neutral for the time being until further evidence unfolds on the progress
of the economy. Barring any significant change in economic data, long-term
interest rates should remain within a fairly constrained trading range between 6
1/2% and 7 1/4%.
On the fiscal policy front, the balanced budget debate appears to have been
put on hold as November's elections draw near. Both President Clinton and
Senator Dole have recently drawn attention to the minimum wage issue as well as
to the repeal of a federal gasoline tax as a means of appealing to the
electorate. As the campaign progresses, broader issues, such as entitlement
spending on health care, welfare, and Social Security, should come to the fore.
In recent months, both parties finally came to an agreement on the fiscal 1996
budget, enacted a presidential line-item veto and passed a major farm bill. For
the first six months of fiscal 1996, the federal deficit showed an improvement
of $18.4 billion over the previous year, and estimates for the 1996 fiscal year
are now in the $138 to $145 billion range.
The U.S. dollar has exhibited signs of strength during the course of the
past year after bottoming against a basket of G-10 currencies in April 1995, and
it has strengthened considerably against the yen and the mark. While European
monetary authorities have room to lower short-term rates further to bolster
their ailing economies, the Bank of Japan actually raised short-term rates
slightly on evidence that the Japanese economy may finally be turning in a
positive direction. We believe that the dollar will show continued signs of
improvement, but export growth should not be affected negatively by its gradual
rise.
BROAD-BASED INFLATION MEASURES REMAIN AT ACCEPTABLY LOW LEVELS
CONSUMER PRICE INFLATION
Year-over-year change in prices paid by consumers
[LINE CHART]
PRODUCER PRICE INFLATION
Year-over-year change in prices paid for finished goods by manufacturers
[LINE CHART]
SOURCE: ISI GROUP & DEPARTMENT OF COMMERCE, MAY 10 & 14, 1996.
STRATEGY SUMMARY
Fixed income markets reacted negatively to the first quarter's economic
strength, sending 30-year U.S. Treasury bond yields up 100 basis points since
December 1995 to the 7.0% level. Despite this increase, long-term yields remain
below their March 1995 level of 7.4%. Based on our outlook for moderate economic
growth and generally stable inflation in 1996, we believe long-term yields
should remain within a fairly contained range of 6 1/2% to 7 1/4% and that any
prospects for reductions in short-term rates will depend on evidence of
moderating economic momentum.
In line with our expectations for steady economic growth, our longer range
forecast calls for somewhat lower long-term interest rates compared to current
levels. Our taxable investment strategy continues to emphasize securities that
provide high levels of income and relative principal stability. In the U.S.
Government Securities Fund, seasoned pools of high coupon mortgage-backed
securities performed well. We have shifted a portion of the Bond
Fund's portfolio to corporate bonds and asset-backed securities to take
advantage of attractive yields in these areas. Taxable portfolios are currently
positioned with durations slightly longer than their benchmark indices, and we
are looking to capitalize on opportunities to extend durations slightly on bond
market weakness.
Tax-exempt securities underperformed taxable securities during much of
the past year but have performed well recently relative to taxable bonds as the
debate over the flat tax has subsided. Long mu- nicipal bonds are now yielding
approximately 89% of the yield offered on long Treasury bonds, compared with
over 93% for much of the past year. We expect that any action on tax reform will
not come until after the elections, so municipals should maintain their current
valuation relative to taxable issues. We continue to focus on high coupon
securities with generally stable price characteristics, such as those in the
housing sector. As bond yields increase, we will pursue opportunities to reduce
lower yielding holdings in favor of higher yielding securities with greater call
protection.
We appreciate your continued interest and support as shareholders 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
MARCH 31, 1996 PERFORMANCE SUMMARY - BOND FUNDS
BOND MARKET REVIEW
Interest rates declined throughout much of 1995 in anticipation of slower
economic growth and moderate inflation during the year. The Federal Reserve
lowered the Fed Funds rate 75 basis points to 5.25% in a series of three easing
moves starting in July. However, during the first quarter of 1996, the bond
market reversed its bullish trend and experienced one of its worst quarters in
history as expectations for further Fed ease diminished with signs of economic
strength. Yields on 3-month Treasury bills and 30-year Treasury bonds increased
in the first quarter of 1996 to 5.14% and 6.67%, respectively. These yields,
however, remained below their respective levels of 5.88% and 7.43% from one year
ago.
In the taxable market, corporates were the best performing sector over the
year. Mortgage-backed securities lagged as interest rates declined but relative
performance improved as yields moved higher in early 1996. Our taxable bond
funds' share prices were relatively stable throughout this past year, primarily
due to their continued emphasis on securities which provide stable prepayment
characteristics and a high level of interest income.
Concerns over tax reform caused municipals to miss part of the rally in
bond prices during 1995. Yields on long term municipals approximated over 93% of
comparable maturity Treasury yields, an historically attractive valuation, for
much of the year, but moved closer to 89% in recent months. Municipals finished
the first quarter of 1996 stronger than taxable bonds, helped by lack of supply
and by renewed interest from individual buyers. The housing bond sector, with
its relative price stability, underperformed as interest rates declined in 1995
but strengthened in relative performance as interest rates increased in early
1996.
Throughout the interest rate volatility of the past year, our funds have
consistently generated a high level of income. In addition, SIT bond funds were
able to provide shareholders competitive total returns with less volatility.
These results were consistent with the Fund's dual objectives of high income and
principal stability.
<TABLE>
<CAPTION>
TOTAL RETURN - CALENDAR YEAR YIELD DISTRI-
YTD AS OF BUTION
1988 1989 1990 1991 1992 1993 1994 1995 1996 3/31/96 RATE (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SIT BOND FUND ---- ---- ---- ---- ---- 0.34% (1) -1.31% 16.83% -1.34% 7.01% 6.45%
SIT MINNESOTATAX-FREE
INCOME FUND ---- ---- ---- ---- ---- 1.60 (1) 0.63 11.90 0.02 5.72(3) 5.60
(NASDAQ Symbol: SMTFX)
SIT TAX-FREE INCOME FUND 2.19% (1) 8.38% 7.29% 9.25% 7.71% 10.42 -0.63 12.86 -0.40 5.71(4) 5.62
(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 11.50 0.42 6.87 6.69
SIT MONEY MARKET FUND ---- ---- ---- ---- ---- 0.46 (1) 3.84 5.58 1.25 4.93(6)
(NASDAQ Symbol: SNIXX)
Lehman Aggregate Bond Index 7.89 14.53 8.96 16.00 7.40 9.75/0.54(1) -2.92 18.47 -1.77
Lehman 5-Year Municipal Bond Index 6.39/0.75 (1) 9.07 7.70 11.41 7.62 8.73 -1.28 11.65 0.01
Lehman Inter. Government Bond Index 6.40 12.68 9.56 14.11 6.93 8.17 -1.75 14.41 -0.68
3-Month U.S. Treasury Bill 7.10 8.73 8.04 5.72 3.56 3.13 4.47 5.98 1.27
SIT Investment Reserve Fund 6.65 8.53 7.59 6.14 3.81 2.34(5)
(Inception date 1/25/85. Converted to SIT Money Market Fund on 11/1/93.)
TOTAL RETURN
TOTAL RETURN SIX MONTHS AVERAGE ANNUAL TOTAL RETURNS FOR
QUARTER ENDED ENDED THE PERIODS ENDED MARCH 31, 1996
INCEPTION 3/31/96 3/31/96 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION
SIT BOND FUND 12/01/93 -1.34% 2.49% 10.57% ---- ---- 5.85%
SIT MINNESOTA TAX-FREE INCOME FUND 12/01/93 0.02 3.14 7.12 ---- ---- 5.97
SIT TAX-FREE INCOME FUND 09/29/88 -0.40 2.95 7.73 6.24% 7.38% 7.54
SIT U.S. GOV'T. SECURITIES FUND 06/02/87 0.42 3.39 8.87 5.98 7.26 8.48
SIT MONEY MARKET FUND 11/01/93 1.25 2.60 5.44 ---- ---- 4.63
Lehman Aggregate Bond Index -1.77 2.41 10.78 5.99 8.49 5.62
Lehman 5-Year Municipal Bond Index 0.01 2.05 7.29 5.31 7.05 7.34
Lehman Inter. Government Bond Index -0.68 2.64 9.10 5.20 7.59 8.30
3-Month U.S. Treasury Bill 1.27 2.65 5.59 4.64 4.47 5.02
</TABLE>
(1) Period from Fund inception through calendar year-end.
(2) Based on the last 12 monthly distributions of net investment income and
average NAV as of 3/31/96.
(3) For Minnesota residents in the 31%, 36% and 39.6% federal tax brackets,
the double exempt tax equivalent yields are 9.06%, 9.77% and 10.35%,
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 8.28%, 8.92% and 9.45%, respectively
(Income subject to state tax, if any).
(5) Period January 1, 1993, through October 31, 1993, at which time the
Fund converted to the SIT Money Market Fund.
(6) Figure represents 7-day compound effective yield. The 7-day simple
yield as of 3/31/96 was 4.82%.
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
MARCH 31, 1996
[PHOTO] MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
BRYCE A, DOTY, CFA
PORTFOLIO MANAGER
The SIT Bond Fund provided investors a +10.57% total return for the past 12
months. As of March 31, 1996, the Fund's 30-day SEC yield was 7.01% and the
Fund's 12-month distribution rate was 6.45%. The Fund ranked in the top 30th
percentile of the Lipper Intermediate Investment Grade Bond Fund universe for
its twelve month return. The Fund's cumulative return since its inception of
14.14% ranks in the top 10% of its Lipper universe.
Yields on intermediate treasuries rose +0.70% over the past quarter
resulting in lower prices for most fixed income securities. The Fund's duration
was near that of the Lehman Aggregate Index throughout the year. However, the
Fund outperformed as a result of the price stability of its high coupon,
seasoned mortgage-backed holdings which constituted approximately 40% of the
portfolio.
The Fund's most significant sector shifts during the past year included a
reduction in U.S. Treasuries to purchase additional corporate and asset-backed
securities which provide a higher level of income. The corporate purchases
included two real estate investment trust bonds which offered incremental yields
of +1.10% and +1.60% over comparable duration U.S. Treasuries. The asset-backed
purchases included two securities backed by home equity loans. Like the Fund's
mobile home pass-through and VA Vendee holdings, these securities are
characterized by relatively stable prepayments within a wide range of interest
rates, although they do prepay faster than mobile home and VA Vendee loans. The
stable prepayment experience of these types of securities results in relatively
high price stability. The home equity loans are insured to give them a Aaa/AAA
rating and offer incremental yields of +1.50% over comparable duration U.S.
Treasury notes.
The recent rise in interest rates reflects market expectations that the
Federal Reserve will maintain short-term interest rates at current levels for
the remainder of this year. A more stable trend of bond market yields is likely
for the balance of the year as we believe economic growth of about 2% will be
maintained with contained inflation. The Fund will continue to invest in
securities that offer attractive total return potential while maintaining the
high credit quality of the Fund's investments.
INVESTMENT OBJECTIVE AND STRATEGY
The investment objective of the Fund is to maximize total return,
consistent with preservation of capital. The Fund's "total return" is a
combination of income, changes in principal value and reinvested dividends.
The Fund will pursue its objective by investing in a diversified portfolio
of fixed-income securities which include, but are not limited to, the following:
U.S. government securities; corporate debt securities; corporate commercial
paper; mortgage and other asset-backed securities.
PORTFOLIO SUMMARY
Net Asset Value 3/31/96: $9.83 Per Share
3/31/95: $9.48 Per Share
Total Net Assets: $5.22 Million
30-Day SEC Yield: 7.01%
Average Maturity: 16.13 Years
Modified Adjusted Duration: 5.12 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 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 GRAPH]
Agency Mortgage
Pass-Through Securities 38.9
Asset-Backed Securities 17.3
Corporate Bonds & Notes 13.3
Government & Agency 11.1
Collateralized
Mortgage Obligations 11.1
Foreign Government 4.6
Miscellaneous 2.9
Other Assets & Liabilities 0.8
AVERAGE ANNUAL TOTAL RETURNS*
Lipper Inter. Lehman
Bond Investment Grade Aggregate
Fund Bond Fund Avg. Bond Index
3 Months -1.34% -1.74% -1.77%
(unannualized)
1 Year 10.57 9.74 10.78
Inception 5.85 4.70 5.62
(12/1/93)
(table continued from above)
CUMULATIVE TOTAL RETURNS*
Lipper Inter. Lehman
Bond Investment Grade Aggregate
Fund Bond Fund Avg. Bond Index
-1.34% -1.74% -1.77%
10.57 9.74 10.78
14.14 11.32 13.59
* As of 3/31/96
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 CHART]
The sum of $10,000 invested at inception (12/1/93) and held until 3/31/96 would
have grown to $11,414 in the Fund or $11,359 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 GRAPH]
Agency Mortgage-Backed
Securities & CMO's 50.0%
Government & Agency 11.1%
BBB 13.3%
AAA 12.5%
AA 4.8%
A 7.5%
Other Assets & Liabilities 0.8%
SIT BOND FUND
PORTFOLIO OF INVESTMENTS -- MARCH 31, 1996
QUANTITY NAME OF ISSUER MARKET VALUE (1)
U.S. GOVERNMENT SECURITIES (11.1%) (2)
1,400,000 U.S. Treasury Coupon Strip,
6.83% Effective Yield on
Purchase Date, 5/15/09 $582,148
(cost: $580,119)
ASSET-BACKED SECURITIES (17.3%)
250,000 Advanta Mortgage Loan Trust,
1996-1, Class A-7, 7.07%,
3/25/27 237,344
150,000 American Housing Trust, 8.25%,
6/25/20 147,393
100,000 EQCC Home Equity Loan Trust,
1996-1 A5, 6.93%, 3/15/27 93,511
250,000 Green Tree Financial Corp.,
1996-2 M1, 7.60%, 4/15/27 251,250
75,000 Green Tree Financial Corp.,
1995-5 A6, 7.25%, 9/15/26 74,336
100,000 Security Pacific Corp., 1995-1 A4,
7.65%, 4/10/20 97,785
Total asset-backed securities
(cost: $927,192) 901,619
CORPORATE BONDS (13.3%)
275,000 Franchise Finance Corp.,
7.02%, 2/20/03 262,625
250,000 Nationwide Health Properties,
6.93%, 12/18/01 245,000
200,000 Price/ Costco Inc., Convertible
Deb., 5.75%, 5/15/02 187,000
Total corporate bonds
(cost: $717,895) 694,625
FOREIGN GOVERNMENT SECURITIES (4.6%)
250,000 Quebec Province, 6.50%,
1/17/06 240,020
(cost: $238,577)
MORTGAGE PASS-THROUGH SECURITIES (38.9%)
Federal Home Loan Mortgage
Corp.:
64,545 10.25%, 9/1/09 70,540
50,123 10.75%, 3/1/11 55,226
91,987 Federal National Mortgage
Association, 10.50%, 10/1/15 100,724
Government National Mortgage
Association (3):
24,886 8.75%, 11/15/01 26,361
61,175 9.00%, 11/15/08 64,232
13,462 9.00%, 8/15/11 14,257
63,297 9.25%, 5/15/01 67,447
28,899 9.50%, 3/15/03 30,857
174,687 9.50%, 9/15/10 185,048
93,539 9.50%, 2/15/11 99,085
6,260 9.75%, 8/15/02 6,678
219,949 9.75%, 11/15/10 235,975
66,923 10.00%, 8/15/02 71,452
54,962 10.25%, 4/15/01 58,591
65,678 10.25%, 4/15/01 70,024
17,323 10.25%, 4/15/12 18,582
15,201 10.25%, 5/15/12 16,296
19,235 10.25%, 5/15/12 20,645
138,252 10.25%, 5/15/12 148,380
16,647 10.25%, 6/15/12 17,853
18,934 10.25%, 6/15/12 20,319
53,640 10.25%, 7/15/12 57,548
21,755 10.25%, 7/15/12 23,365
105,398 10.25%, 8/15/12 113,067
69,378 10.25%, 6/15/13 74,542
78,964 10.50%, 7/15/00 84,241
90,986 10.50%, 5/15/19 100,238
45,472 10.75%, 8/15/98 46,836
81,965 10.75%, 1/15/01 87,191
41,951 11.25%, 10/15/00 44,755
Total mortgage pass-through securities
(cost: $2,039,463) 2,030,355
COLLATERALIZED MORTGAGE OBLIGATIONS (11.1%)
250,000 Federal National Mortgage
Association, 1994-38, 6.65%,
12/25/23 238,565
Vendee Mortgage Trust:
41,980 1992-1 2B, 7.75%, 9/15/10 42,209
150,000 1992-1 2D, 7.75%, 12/15/14 150,916
75,000 1992-2 2D, 7.00%, 9/15/15 73,355
75,000 1994-3 2D, 7.75%, 5/15/18 74,363
Total collateralized mortgage obligations
(cost: $573,764) 579,408
CLOSED-END INVESTMENT COMPANIES (2.9%)
2,400 American Strategic Income
Portfolio 25,800
5,600 American Strategic Income
Portfolio II 60,200
6,200 American Strategic Income
Portfolio III 64,325
Total closed-end investment companies
(cost: $150,402) 150,325
SHORT-TERM SECURITIES (0.7%)
39,015 Cash Management Fund, 5.23% 39,015
(cost: $39,015)
Total investments in securities
(cost: $5,266,427) (6) $5,217,515
See accompanying notes to portfolios of investments on page 33.
SIT MINNESOTA TAX-FREE INCOME FUND REVIEW
MARCH 31, 1996
[PHOTO] MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
DEBRA A. SIT, CFA
PORTFOLIO MANAGER
The SIT Minnesota Tax-Free Income Fund provided shareholders with a total
return of +0.02% for the three months and + 7.12% for the twelve months ended
March 31, 1996. The Fund's quarterly performance ranked #1 of 45 Minnesota
municipal funds tracked by Lipper Analytical Services and was the only positive
fund return posted for that period, while the Fund's 12-month return ranked
among the top quintile of funds in its Lipper universe. In addition, the Fund
was the top performer in the period since its inception, providing an average
annual total return of +5.97% versus the +3.63% average for the Lipper Minnesota
fund universe.
The Fund's price per share ranged from a low of $9.93 on May 2, 1995 to a
high of $10.25 on February 14, 1996, varying less than the price of a 3-year
maturity Treasury security. These trends were in line with the general decline
in bond yields during most of 1995 and the upturn in interest rates in early
1996. The Fund's 30-day SEC yield decreased from 5.59% as of March 31, 1995 to
5.52% as of December 31, 1995 and then increased to 5.72% as of March 29, 1996,
more immediately reflecting the increase in bond yields in recent months.
The most significant change in portfolio composition was an increase in
multi-family housing from 23.5% to 36.1%. Sectors experiencing decreased
weightings included single family housing from 25.8% to 23.4%, health care from
19.3% to 17.8% and lease bonds from 2.7% to 1.1%. The Fund's holdings in
securities rated A or better by the major ratings services increased from 45.4%
to 55.4%, primarily reflecting the investment of the Fund's 14.1% weighting in
cash at the beginning of the year. Non-rated securities increased from 34.7% to
38.3% during the year. In addition, the Fund's duration to estimated average
life gradually increased from 5.5 years to 6.9 years during the year as cash
flow was invested in more intermediate maturity securities.
As we expect economic growth and inflation to remain moderate through the
end of the year, we will continue to seek opportunities to reduce lower-yielding
holdings and extend duration by reinvesting proceeds in securities which offer
higher coupons and greater call protection.
INVESTMENT OBJECTIVE AND STRATEGY
The investment objective of the Fund is to provide a high level of current
income exempt from federal regular income tax and Minnesota regular personal
income tax as is consistent with the preservation of capital.
The Fund will endeavor to invest 100% of its assets in municipal
securities, the income from which is exempt from federal regular income tax and
Minnesota regular personal income tax. The Fund anticipates that substantially
all of its distributions to its shareholders will be exempt as such. For
investors subject to the alternative minimum tax ("AMT"), up to 20% of the
Fund's income may be treated as an item of tax preference that is included in
the alternative minimum taxable income.
PORTFOLIO SUMMARY
Net Asset Value 3/31/96: $10.09 Per Share
3/31/95: $ 9.96 Per Share
Total Net Assets: $62.98 Million
30-Day SEC Yield: 5.72%
Tax Equivalent Yield: 10.35% (1)
Average Maturity: 19.16 Years
Duration to Estimated Avg. Life: 6.91 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 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 GRAPH]
Multifamily Mortgage Revenue 36.1
Single Family Mortgage Revenue 23.4
Hospital/Health Care Revenue 17.8
Industrial Revenue/Pollution Control 13.8
Other Revenue Bonds 6.8
General Obligation 1.4
Municipal Lease Rental 1.1
Other Assets & Liabilities -0.4
AVERAGE ANNUAL TOTAL RETURNS*
MN Tax-Free Lipper Lehman
Income MN Muni. 5-Year Muni.
Fund Bond Fund Avg. Bond Index
3 Months 0.02% -1.87% 0.01%
(unannualized)
1 Year 7.12 6.17 7.29
Inception 5.97 3.63 4.92
(12/1/93)
(table continued from above)
CUMULATIVE TOTAL RETURNS*
MN Tax-Free Lipper Lehman
Income MN Muni. 5- Year Muni.
Fund Bond Fund Avg. Bond Index
0.02% -1.87% 0.01%
7.12 6.17 7.29
14.43 8.67 11.83
* As of 3/31/96
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 CHART]
The sum of $10,000 invested at inception (12/1/93) and held until 3/31/96 would
have grown to $11,443 in the Fund or $11,183 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.
AA 24.4%
AAA 22.2%
Other Assets
& Liabilities -0.4%
Not Rated 38.3%
BBB 6.7%
A 8.8%
ADVISER'S ASSESSMENT OF
NOT-RATED SECURITIES
AA 1.0%
A 0.8
BBB 27.9
BB 6.9
B 1.7
Total 38.3%
SIT MINNESOTA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - MARCH 31, 1996
<TABLE>
<CAPTION>
QUANTITY NAME OF ISSUER MARKET VALUE (1)
<S> <C>
MUNICIPAL BONDS (100.4%) (2)
GENERAL OBLIGATION (1.4%)
600,000 Carver Co. Hsg. & Redev. Auth. Hsg. & Dev. Gross Rev. Ltd.Tax G.O.
(Chanhassen Apts. Proj.), 7.00%, 1/1/25 $ 599,172
275,000 Southeastern MN Multi-Co. Hsg. & Redev. Auth. Hsg. Dev. Series 1994 (Lake City G.O.),
6.00%, 8/1/10 278,570
877,742
HOSPITAL/HEALTH CARE (17.8%)
500,000 Brooklyn Center Hlth. Care Fac. Rev. Series 1993 (Maranatha Proj.), 7.50%, 12/1/10 522,280
215,000 Fergus Falls Hlth. Care Fac. Auth. Rev. Refunding Series 1993A,
(Lake Region Hosp. Corp. Proj.), 6.25%, 9/1/04 216,664
650,000 Fergus Falls Hlth. Care Fac. Auth. Series 1995 (LRHC Long-Term Care Fac. Proj.),
6.40%, 12/1/15 628,088
1,540,000 Hibbing Hlth. Care Facs. Rev. Series 1995A (St. Francis Hlth. Svcs. Proj.),
7.35%, 11/1/15 1,535,103
1,685,000 Maplewood Health Care Fac. Rev. (VOA Care Ctrs. Proj.), 7.375%, 10/1/12 1,759,460
Minneapolis Hlth. Care Fac. Rev.:
945,000 Series 1991 (Jones-Harrison Residence Proj.), 8.35%, 9/1/21 1,012,076
1,000,000 Series 1993 (St. Olaf Res. Proj.), 7.00%, 10/1/18 1,004,120
New Ulm Hlth. Care Fac. Rev. (Highland Manor Proj.):
1,100,000 Series 1994, 7.25%, 6/1/14 1,129,271
570,000 Series 1995A, 7.625%, 6/1/15 579,371
230,000 Puerto Rico Industrial, Tourist, Educ., Med. & Env. Ctrl. Fac. Fin. Auth. Hosp.
Rev. 1994 Series A (Ryder Mem. Hosp. Proj.), 5.75%, 5/1/99 232,314
Red Wing Hlth. Care Ctr. Fac. Rev. Refunding (River Region Obligated Group):
125,000 Series 1993A, 6.20%, 9/1/05 129,870
130,000 Series 1993A, 6.30%, 9/1/06 134,469
200,000 Series 1993B, 6.20%, 9/1/05 207,792
Sherburne Co. Nursing Home Fac. Rev. Series 1994 (Guardian Angels Care Ctr. Proj.):
75,000 7.30%, 6/1/07 77,787
80,000 7.35%, 6/1/08 82,966
90,000 7.40%, 6/1/09 93,616
555,000 7.50%, 6/1/14 575,457
140,000 7.75%, 6/1/15 146,608
150,000 7.75%, 6/1/16 157,365
95,000 St. Paul Hsg. & Redev. Auth. Comm. Dev. Rev. Refunding Series 1992,
(Beverly Enterprises Proj.), 7.75%, 11/1/02 98,224
820,000 Wadena Co. Hlth. Care Fac. Rev. Series 1994B, 7.45%, 9/1/15 854,301
11,177,202
INDUSTRIAL /POLLUTION CONTROL (13.8%)
500,000 Anoka Industrial Dev. Rev. Series 1994 (Lund Industries Inc. Proj.), 6.50%, 9/1/04(4) 513,650
Baxter Industrial Dev. Rev. Series 1979 (Kmart Corp. Proj.):
90,000 6.75%, 2/1/98 87,793
100,000 6.75%, 2/1/99 96,366
Cloquet Pollution Control Rev. (Potlach Corp. Proj.):
110,000 Series 1978, 6.50%, 6/1/08 110,253
635,000 Series 1979, 6.75%, 6/1/09 636,543
1,055,000 Duluth Commercial Dev. Rev. Refunding Series 1995A (Radisson Hotel Proj.), 7.00%,
12/1/00 1,048,332
MN Agricultural & Econ. Dev. Board Small Business Dev. Ln. Prgm. Rev.:
390,000 Series 1989A Lot 1, 8.25%, 8/1/09 (4) 400,339
105,000 Series 1995A Lot 1, 6.40%, 8/1/04 (4) 104,161
1,000,000 Series 1996 Lot 1, 6.50%, 8/1/11 (4) 973,340
1,965,000 Plymouth Rev. Refunding Series 1992 (Carlson Ctr. Proj.) (LOC First Bank, N.A.),
7.00%, 4/1/12 2,075,079
Richfield Cmty. Dev. Rev. Refunding 1994 (Richfield Shoppes Proj.):
1,290,000 7.50%, 10/1/04 1,360,782
200,000 8.375%, 10/1/05 215,334
1,105,000 St. Paul Port Authority Hotel Facility Senior Rev. Series 1996A (Radisson Kellogg
Project), 7.00%, 8/1/01 1,088,116
8,710,088
MULTIFAMILY MORTGAGE (36.1%)
Austin Hsg. & Redev. Auth. Governmental Hsg. Gross Rev. Series 1995A
(Courtyard Res. Proj.):
220,000 7.00%, 1/1/15 219,058
500,000 7.25%, 1/1/26 495,700
Burnsville Multifamily Hsg. Rev. Refunding:
425,000 Series 1991 (Atrium Proj.) (Trygg-Hansa insured), 7.20%, 5/1/11 442,646
960,000 Series 1994 (Bridgeway Apts. Proj.), 7.25%, 2/1/14 977,894
405,000 Chisago City Health Fac. Rev. Refunding Series 1995A (Pleasant Heights Proj.),
7.30%, 7/1/18 408,021
Dakota Cnty. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding
(Walnut Trails Apts. Proj.):
1,700,000 Series 1995A (GNMA collateralized), 7.90%, 1/20/31 (4) 1,889,227
275,000 Series 1995C Subordinate, 9.00%, 1/20/15 (4) 273,213
Eden Prairie Multifamily Hsg. Rev. Refunding :
60,000 Series 1990A, (Welsh Parkway Apts. Ltd. Proj.)(FHA insured), 8.00%, 7/1/26 64,558
700,000 Series 1991, (Windslope Apts. Proj.)(Section 8), 7.00%, 11/1/06 739,501
1,500,000 Series 1991, (Windslope Apts. Proj.)(Section 8), 7.10%, 11/1/17 1,567,725
1,505,000 Eagan Multifamily Rental Hsg. Refunding Rev. Series 1996 (FHA insured),
(Wescott Apts. Proj.), 6.00%, 12/1/27 1,469,422
Hopkins Elderly Hsg. Rev. Refunding (St. Therese Southwest Proj.):
1,600,000 Series 1994A (Asset Gty. insured), 6.25%, 3/1/14 1,623,520
360,000 Series 1994B, 9.00%, 11/1/19 381,910
1,015,000 Hopkins Hsg. Facs. Rev. Refunding Series 1995 (Augustana Chapel View Homes Proj.),
7.00%, 12/1/15 992,629
500,000 Hutchinson Hsg. Facs. Rev. Series 1994 (Prince of Peace Proj.), 7.375%, 10/1/12 518,665
565,000 Minneapolis Multifamily Hsg. Rev. Series 1994 (Findley Place Townhomes Proj)
(Section 8), 7.00%, 12/1/16 (4) 588,193
75,000 Minneapolis Multifamily Hsg. Rev. Series 1991 (Trinity Hsg. Proj.) (Section 8),
7.875%, 2/1/06 76,793
350,000 Minneapolis/ St. Paul Hsg. Fin. Board Multifamily Rev. Series 1988 (Riverside
Place Proj.), (FHA insured) (GNMA collateralized), 8.20%, 12/20/18 (4) 370,286
MN HFA Multifamily Hsg. Dev. Rev.:
45,000 Series 1977, 6.25%, 2/1/08 45,650
25,000 Series 1988A, 7.70%, 8/1/08 26,413
135,000 MN HFA Rental Hsg. Rev. Refunding Series 1993E, 6.00%, 2/1/14 135,082
Minnetonka Hsg. Fac. Rev. Series 1994 (Beacon Hill Housing Proj.):
890,000 7.00%, 6/1/04 910,968
1,000,000 7.50%, 6/1/14 1,032,870
525,000 Minnetonka Multifamily Hsg. Rev. Refunding Subordinate Series 1994C (Brier Creek
Proj.) 8.00%, 12/20/16 549,528
500,000 Monticello Senior Hsg. Rev. Series 1995, (Mississippi Shores Proj.), 7.25%, 7/1/16 502,160
415,000 Mora Multifamily Rev. Refunding Hsg. Alternatives Partnership Series 1995, 6.50%,
6/1/02 415,996
2,500,000 Puerto Rico Housing Finance Corp. Rev. Multifamily Mtg. Portfolio Series 1990 A-I,
7.50%, 10/1/15 2,652,875
325,000 Sandstone Econ. Dev. Auth. Hsg. & Dev. Rev. Series 1994A (Family Apts. Proj.)
8.00%, 1/1/12 338,741
650,000 St. Louis Park Multifamily Hsg. Rev. Refunding Series 1995 (FHA insured) (Knollwood
Cmty. Hsg. Proj.), 6.15%, 12/1/16 649,929
500,000 St. Paul Hsg. & Redev. Auth. Multifamily Hsg. Refunding Series 1992 (Point of St. Paul
Proj.) (FNMA-backed), 6.60%, 10/1/12 515,730
200,000 St. Paul Hsg. & Redev. Auth. Multifamily Hsg. Refunding Series 1995 (Sun Cliffe Apts.
Proj.), (GNMA collateralized), 5.875%, 7/1/15 196,698
540,000 St. Paul Port Auth. Commercial Dev. Rev. Refunding Series 1990-1 (Fort Rd.
Med./ Irvine Pk. Proj.), (Asset Gty. Insured), 7.50%, 9/1/02 579,220
1,075,000 Washington Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding Series 1994
(White Bear Lake Transitional Hsg. Proj.), 6.625%, 8/1/24 1,079,257
22,730,078
MUNICIPAL LEASE RENTAL (1.1%)
585,000 Burnsville Solid Waste Rev. Series 1990 (Freeway Transfer Inc. Proj.), 9.00%,
4/1/10 (4) 652,655
SINGLE FAMILY MORTGAGE (23.4%)
1,049,070 Brooklyn Center/Columbia Heights/Moorhead/Robbinsdale Econ. Dev. Auth. Residual Interest
Rev. Series 1992B (FNMA backed), 7.15%, 11/1/14 1,064,807
Dakota County Hsg. & Redev. Auth. Single Family Mtg. Rev.:
1,000,000 Series 1994A, (FNMA backed), 6.70%, 10/1/09 (4) 1,045,960
400,000 Series 1995, (FNMA & GNMA backed), 6.25%, 10/1/09 (4) 407,004
795,000 Dakota/Wash./Stearns Cos. Hsg. & Redev. Auth. Single Family Rev. Refunding
Series 1994A (FNMA backed), 6.50%, 9/1/10 (4) 820,154
Minneapolis CDA & St. Paul HRA Homeownership Mtg. Family Hsg. Prog. Series 1984:
160,000 7.50%, 7/1/98 164,618
2,420,000 7.875%, 7/1/17 2,485,727
Minneapolis Redev. Mtg. Rev. Series 1987A (Riverplace Proj.) (LOC Bk. of Tokyo):
260,000 7.00%, 1/1/07 269,615
500,000 7.10%, 1/1/20 515,140
2,100,000 Minneapolis Residual Interest Mtg. Rev. Series 1995 Convertible Capital Appreciation
Bonds, Zero Coupon, 7.00% Effective Yield on Purchase Date, 10/1/12 689,115
35,000 Minneapolis/ St. Paul Hsg. Fin. Bd. Single Family Mtg. Rev. Series 1989A (GNMA backed),
7.65%, 12/1/00 (4) 36,642
MN HFA Single Family Mtg. Rev.:
120,000 Series 1988D, 8.25%, 8/1/20 (4) 126,611
15,000 Series 1989B, 7.05%, 1/1/03 15,939
60,000 Series 1989B, 7.05%, 7/1/03 63,755
20,000 Series 1990A, 7.95%, 7/1/22 (4) 21,063
300,000 Series 1990C, 7.70%, 7/1/14 317,493
45,000 Series 1991A, 7.05%, 7/1/22 (4) 46,603
600,000 Series 1991A, 7.45%, 7/1/22 (4) 624,372
1,770,000 Series 1992B-1, 6.75%, 1/1/26 (4) 1,810,799
80,000 Series 1992G, 6.10%, 1/1/11 80,402
1,000,000 Series 1994F, 6.30%, 7/1/25 1,013,250
100,000 Series 1994K, 5.90%, 1/1/07 100,667
655,000 Minneapolis Single Family Mtg. Rev. Series 1995V (FNMA & GNMA backed),
6.25%, 4/1/22 660,345
3,800,000 Moorhead Single Family Mtg. Rev. Refunding Series 1992B Zero Coupon, 7.00% Effective
Yield on Purchase Date, 8/1/11 1,282,158
700,000 St. Paul Hsg. & Redev. Auth. Single Family Mtg. Rev. Refunding Series 1995 (FNMA backed),
6.125%, 3/1/17 715,113
966,042 St. Paul Residual Interest Rev. Series 1995 Convertible Capital Appreciation
Bonds, Zero Coupon, 7.23% Effective Yield on Purchase Date, 9/1/11 326,938
50,000 Vadnais Heights Hsg. Dev. Rev. Series 1979A, 7.50%, 8/1/09 50,169
14,754,459
OTHER REVENUE BONDS (6.8%)
Minneapolis Cmty. Dev. Agy. Common Bond Fund:
230,000 Series 1993-5, 6.125%, 12/1/06 (4) 231,638
640,000 Series 1995-1, 6.625%, 12/1/09 (4) 652,038
3,000,000 St. Paul Hsg. & Redev. Sales Tax Rev. Refunding Series 1996 (Civic Center Proj.),
7.10%, 11/1/23 3,417,420
4,301,096
Total municipal bonds (cost: $62,231,431) 63,203,320
SHORT-TERM SECURITIES (4.4%)
1,566,987 Federated Minnesota Municipal Cash Management Fund, 3.32% 1,566,987
1,200,000 St. Paul HRA District Heating Variable Rate Put Bond, (LOC Sumitomo Bank),
3.85%, 4/7/96 1,200,000
Total short-term securities (cost: $2,766,987) 2,766,987
Total investments in securities (cost: $64,998,418) (6) $65,970,307
</TABLE>
See accompanying notes to portfolios of investments on page 33.
SIT TAX-FREE INCOME FUND REVIEW
MARCH 31, 1996
[PHOTO] MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
DEBRA A. SIT, CFA
PORTFOLIO MANAGER
The SIT Tax-Free Income Fund provided shareholders with a total return of
- -0.40% for the three months and +7.73% for the 12 months ended March 31, 1996.
The Fund's quarterly performance ranked #3 of 239 general municipal funds
tracked by Lipper Analytical Services, while its 12-month return ranked among
the top third of funds in its category. The Fund's performance was helped by its
emphasis on bonds which provide higher income and greater stability of principal
value, such as those in the housing sector. The Fund's returns over the past
three year interest rate cycle ranked among the top decile of its Lipper peer
group, and on a longer term basis remain attractive, even as interest rates have
generally trended downward.
The Fund's per share price ranged from a low of $9.68 on May 5, 1995 to a
high of $10.09 on February 14, 1996, varying less than the price of a 3-year
maturity Treasury security. These trends were in line with the general decline
in bond yields during most of 1995 and the upturn in interest rates in early
1996. The Fund's 30-day SEC yield decreased from 5.73% as of March 31, 1995 to
5.52% as of December 31, 1995 and then increased to 5.71% as of March 29, 1996,
more immediately reflecting the increase in bond yields in recent months.
The Fund's portfolio composition remained relatively unchanged. The most
significant sector changes included slight increases in multi-family housing,
public facilities, and health care, and decreases in industrial development
bonds, single family housing and lease bonds. The Fund's weighting in holdings
rated A or better decreased from 65.8% to 58.3%, primarily reflecting the
reduction in cash from 12.3% to 4.7%. The Fund's duration to estimated average
life gradually increased from 5.4 years to 6.1 years during the year as cash
flow from bond refundings and prepayments was reinvested in more intermediate
maturity securities
As we expect economic growth and inflation to remain moderate through the
end of the year, we will continue to seek opportunities to reduce lower-yielding
holdings and extend duration by reinvesting proceeds in securities which offer
higher coupons and greater call protection.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to provide a high level of current income that
is exempt from federal income tax, consistent with the preservation of capital,
by investing in investment-grade municipal securities.
Such municipal securities generate interest that is exempt from regular
federal income taxes. Of the municipal securities in which the Fund invests,
100% will be rated investment grade at time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 3/31/96: $9.88 Per Share
3/31/95: $9.70 Per Share
Total Net Assets: $279.77 Million
30-Day SEC Yield: 5.71%
12 Month Distribution Rate: 5.62%
Tax Equivalent Yield: 9.45% (1)
Average Maturity: 15.60 Years
Duration to Estimated Avg. Life: 6.09 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 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 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 GRAPH]
Multifamily Mortgage Revenue 24.2
Hospital/Health Care Revenue 23.5
Single Family Mortgage Revenue 17.3
Industrial Revenue/Pollution Control 9.8
Other Revenue 7.1
Transportation 4.4
Public Facilities 3.6
Municipal Lease Rental 2.7
Education/Student Loan 1.0
Escrowed to Maturity/Pre-Refund 0.7
Utilities 0.6
General Obligation 0.4
Other Assets & Liabilities 4.7
AVERAGE ANNUAL TOTAL RETURNS*
Lipper Lehman
Tax-Free General Muni. 5-Year Muni.
Income Fund Bond Fund Avg. Bond Index
3 Months -0.40% -1.91% 0.01%
(unannualized)
1 Year 7.73 7.17 7.29
3 Years 6.24 5.14 5.31
5 Years 7.38 7.67 7.05
Inception 7.54 7.84 7.34
(9/29/88)
(table continued from above)
CUMULATIVE TOTAL RETURNS*
Lipper Lehman
Tax-Free General Muni. 5-Year Muni.
Income Fund Bond Fund Avg. Bond Index
-0.40% -1.91% 0.01%
7.73 7.17 7.29
19.92 16.21 16.78
42.77 44.70 40.57
72.46 76.23 70.07
* As of 3/31/96
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]
The sum of $10,000 invested at inception (9/29/88) and held until 3/31/96 would
have grown to $17,246 in the Fund or $17,007 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.
A 34.0%
AA 11.0%
AAA 8.6%
Other Assets
& Liabilities 4.7%
BB 1.1%
BBB 40.6%
Total number of holdings: 220
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - MARCH 31, 1996
<TABLE>
<CAPTION>
QUANTITY NAME OF ISSUER MARKET VALUE (1)
<S> <C>
MUNICIPAL BONDS (95.3%) (2)
ALASKA (0.7%)
AK Industrial Dev. & Export Auth. Rev. Refunding Revolving Fund Series 1993A:
350,000 5.60%, 4/1/03 $ 350,942
1,510,000 5.95%, 4/1/06 1,524,662
1,875,604
ARIZONA (3.0%)
AZ Hlth. Fac. Auth. Hosp. System Refunding Rev. Series 1991 (Phoenix Mem. Hosp.):
1,120,000 8.00%, 6/1/06 1,183,549
1,500,000 8.30%, 6/1/12 1,610,055
770,000 8.20%, 6/1/21 819,958
Maricopa Co. Industrial Dev. Auth. MultiFamily Hsg. Rev.:
3,000,000 Series 1995A, 6.50%, 10/1/25 3,036,330
575,000 Series 1995B, 7.15%, 10/1/25 571,498
1,070,000 Valley HDC Phoenix Hsg. Rev. 1979 (Roosevelt Plaza) (Section 8), 8.00%, 10/1/20 1,077,683
8,299,073
ARKANSAS (2.1%)
Drew Co. Public Fac. Bd. Single Family Mtg. Rev. Refunding:
219,162 Series 1993B, 7.75%, 8/1/11 235,686
425,063 Series 1993-A2 (FNMA backed), 7.90%, 8/1/11 463,770
332,572 Jacksonville Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1993B,
7.75%, 1/1/11 361,729
367,036 Lonoke Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding 1993B, 7.375%, 4/1/11 394,703
2,100,000 Maumelle HDC First Lien Rev. Refunding 1992 Series A (Section 8), 7.875%, 7/1/09 2,260,839
2,110,000 Saline Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1992, 7.875%,
3/1/11 2,250,927
5,967,654
CALIFORNIA (5.0%)
1,200,000 Bell Cmnty. Hsg. Auth. Rev. Series 1995A (Mobilehomes Park Acquisition Proj.),
6.40%, 10/1/15 1,182,792
1,000,000 Chula Vista Redev. Agency Refunding Tax Allocation Senior Series 1994A
(Bayfront-Town Center Redev. Proj.), 7.625%, 9/1/24 1,095,900
2,070,000 Escondido Joint Powers Fin. Auth. Lease Rev. Refunding 1995 (Center For The Arts)
(AMBAC insured) Zero Coupon, 6.02% Effective Yield on Purchase Date, 9/1/08 1,025,954
5,000,000 Foothill / Eastern Transportation Corridor Agy. Toll Rd. Rev Series 1995A Sr. Lien
Zero Coupon Convertible Bond, 7.10% Effective Yield on Purchase Date, 1/1/11 2,942,000
2,000,000 Glendale Hosp. Rev. Refunding Series 1994 (Verdugo Hills Hosp.), 8.00%, 1/1/12 2,236,140
255,000 Los Angeles Home Mtg. Rev. 1983 Zero Coupon, 10.84% Effective Yield on Purchase
Date, 6/1/16 28,848
Los Angeles Co. Certificates of Participation 1993 (Disney Parking Proj.) Zero Coupon:
900,000 6.50% Effective Yield on Purchase Date, 3/1/06 480,771
1,000,000 6.49% Effective Yield on Purchase Date, 3/1/07 501,480
Martinez Unified School Dist. General Obligation Series 1995 (AMBAC insured) Zero Coupon:
1,475,000 6.35% Effective Yield on Purchase Date, 8/1/11 597,331
1,295,000 6.45% Effective Yield on Purchase Date, 8/1/12 485,612
1,000,000 Paramount Unified School Dist. Convertible Capital Appreciation Certificates of
Participation (Land Acquisition Program) 1994 Series B (FSA insured) Zero Coupon,
6.85% Effective Yield on Purchase Date, 9/1/14 683,490
1,530,000 Sacramento Public Television Fac. Rev. 1989 Series A (KVIE inc.) (LOC First
Interstate Bank), 7.50%, 7/1/20 1,602,048
990,000 Upland Hsg. Auth. Multifamily Rev. 1990 Issue A, 7.85%, 7/1/20 1,028,541
13,890,907
COLORADO (5.0%)
Arapahoe Co. Cap. Improvement Tr. Fund Highway Rev. (E-470 Project) Senior Capital
Appreciation Zero Coupon:
2,000,000 7.08% Effective Yield on Purchase Date, 8/31/04 1,183,480
2,500,000 7.13% Effective Yield on Purchase Date, 8/31/05 1,384,900
17,000,000 7.40% Effective Yield on Purchase Date, 8/31/09 7,015,220
1,405,000 Aurora Single Family Mtg. Rev. Refunding Series 1993B, 7.50%, 5/1/11 1,448,007
395,000 LaPlata Co. Southwestern CO Single Family Mtg. Participation Rev. Refunding 1991
Series A, 7.375%, 9/1/11 415,560
670,000 Thornton Single Family Mtg. Rev. Refunding 1992 Series A, 8.05%, 8/1/09 717,041
535,000 Vail Single Family Mtg. Rev. Refunding Series 1992, 8.125%, 6/1/10 577,238
1,195,000 Westminster Multifamily Hsg. Rev. Refunding Series 1992 (Ironwood at the Ranch
Proj.), 7.45%, 12/1/10 1,240,326
13,981,772
CONNECTICUT (1.0%)
1,000,000 CT Hlth. & Educ. Fac. Auth. Rev. Series 1990C (St. Mary's Hosp.) 7.375%, 7/1/20 1,032,860
1,620,000 CT HFA Hsg. Mtg. Fin. Prgm. Series 1985A, 7.625%, 11/15/17 1,681,625
2,714,485
DELAWARE (0.4%)
16,825,000 DE EDA Multifamily Rev. 1985 (GNMA collateralized) (Valley Stream Apts. Proj.)
Zero Coupon, 8.10% Effective Yield on Purchase Date, 12/20/27 1,118,190
DISTRICT OF COLUMBIA (0.5%)
1,500,000 District of Columbia HFA Multifamily Hsg. Refunding Rev. Series 1992C (FHA
insured) (Chastleton Dev.), 6.95%, 7/1/27 1,549,155
FLORIDA (0.4%)
295,000 Brevard Co. HFA Single Family Mtg. Rev. Refunding Series 1993 Zero Coupon, 7.38%
Effective Yield on Purchase Date, 5/20/12 91,639
1,000,000 Miami Beach First Mortgage Elderly Hsg. Rev. Refunding Series 1995 (Rebecca
Towers North) (Section 8), 6.625%, 1/15/09 1,031,570
1,123,209
GEORGIA (0.3%)
800,000 Cobb Co. Hsg. Auth. Multifamily Rev. Refunding Series 1992A (Signature Place Project),
6.875%, 10/1/17 817,272
ILLINOIS (14.5%)
1,000,000 Alton (Madison Co.) Hosp. Facilities Rev. Refunding Series 1996 (Saint
Anthony's Hlth. Ctr.), 5.875%, 9/1/06 972,800
2,805,000 Chicago Metropolitan Hsg. Development Corp. Mtg. Rev. Refunding Series 1992A
(FHA insured) (Section 8), 6.70%, 7/1/12 2,872,376
5,780,000 Chicago Res. Mtg. Rev. Refunding Series 1992B (MBIA insured) Zero Coupon, 7.30%
Effective Yield on Purchase Date, 10/1/09 2,258,015
2,000,000 Collinsville (City of) Madison Co. Industrial Dev. Rev. Refunding
(Drury Inn-Collinsville Proj.) Series 1993, 6.00%, 11/1/04 2,014,540
Edwardsville Elderly Hsg. Corp. 1978 (Section 8):
50,000 7.75%, 6/1/97 50,148
60,000 7.75%, 6/1/99 60,177
65,000 7.75%, 6/1/00 65,192
75,000 7.75%, 6/1/02 75,221
85,000 7.75%, 6/1/04 85,251
95,000 7.75%, 6/1/05 95,280
110,000 7.75%, 6/1/07 110,325
1,000,000 IL DFA Econ. Dev. Rev. Refunding Series 1992 (Drury Inn-Schaumberg Proj.) (NWNL),
7.125%, 9/15/12 1,020,870
1,440,000 IL DFA Elderly Hsg. Rev. Refunding Series 1995A (Pontiac Towers Proj.)
(Section 8), 6.65%, 10/1/09 1,483,934
3,000,000 IL HDA Elderly Hsg. Rev. Series 1992C (Village Ctr.) (Section 8), 6.85%, 3/1/20 3,096,660
IL HDA Multifamily Hsg. Rev.:
Refunding 1992 Series A (Section 8):
2,150,000 6.65%, 7/1/04 2,288,589
1,495,000 7.00%, 7/1/10 1,574,130
Refunding 1991 Series C (Section 8):
260,000 7.35%, 7/1/11 277,215
100,000 7.40%, 7/1/23 104,189
1,090,000 IL HDA Res. Mtg. 1987 Series A, 7.00%, 8/1/17 1,121,359
IL Hlth. Fac. Auth. Rev.:
Refunding Series 1993 (Lutheran Social Svcs. IL):
610,000 5.70%, 8/15/00 602,997
475,000 5.80%, 8/15/01 467,490
525,000 6.00%, 8/15/03 511,555
545,000 6.10%, 8/15/04 530,013
1,250,000 6.125%, 8/15/20 1,129,563
850,000 Refunding Series 1992 (Mercy Ctr. for Hlth. Care Svcs.), 6.625%, 10/1/12 861,832
5,540,000 Refunding Series 1992 (Galesburg Cottage Hosp.) (Asset Guaranty insured), 6.25%,
5/1/11 5,680,827
1,000,000 Refunding Series 1994 (Passavant Memorial Area Hospital Assn.), 5.95%, 10/1/11 977,260
1,000,000 Refunding Series 1994 (Friendship Village Schamburg), 6.25%, 12/1/04 1,041,890
Refunding Series 1994 (St. Elizabeth's Hosp. of Chicago, Inc.):
2,160,000 7.25%, 7/1/05 2,264,933
1,000,000 7.625%, 7/1/10 1,068,430
2,500,000 Metropolitan Pier & Exposition Auth. McCormick Place Convention Complex
Series 1996A Hospitality Facilities Rev., 6.25%, 7/1/17 2,426,825
540,000 Rochelle Water & Sewer Rev. Refunding Series 1992, 7.15%, 5/1/14 577,066
720,000 Rock Island Res. Mtg. Rev. Refunding Series 1992, 7.70%, 9/1/08 762,725
1,140,000 Springfield Community Improvement Rev. 1985 (Garden Court Proj. - FHA insured)
(Section 8) (MBIA insured), 10.50%, 4/1/26 1,299,805
1,830,000 Urbana Res. Mtg. Rev. Refunding 1991 Series B Zero Coupon, 7.39% Effective Yield on
Purchase Date, 3/1/07 822,292
40,651,774
INDIANA (7.6%)
1,800,000 Elkhart Co. Hosp. Auth. Rev. Series 1992 (Goshen Hosp. Proj.), 7.25%, 7/1/05 1,908,522
2,165,000 Elkhart HFC Multifamily Mtg. Rev. Series 1996A (Section 8 Assisted
Proj.) (Stratford Commons), 6.00%, 11/1/10 2,113,560
1,095,000 IN Bond Bank Special Prgm. Series 1993B (Gary Sanitary Dist.), 6.15%, 2/1/08 1,128,737
IN Educ. Fac. Auth. Educ. Fac. Rev. Series 1992 (Manchester College Proj.):
515,000 6.45%, 10/1/04 530,604
250,000 6.50%, 10/1/05 262,473
305,000 6.60%, 10/1/06 322,248
350,000 6.75%, 10/1/08 372,074
370,000 6.80%, 10/1/09 392,019
1,000,000 6.85%, 10/1/18 1,029,160
IN Hlth. Fac. Fin. Auth. Hosp. Rev.:
Series 1991 (Jackson Co. Schneck Mem. Hosp. Proj.):
300,000 7.25%, 2/15/00 320,097
1,200,000 7.50%, 2/15/05 1,293,432
1,000,000 7.50%, 2/15/22 1,048,240
Series 1992 (Fayette Mem. Hosp. Proj.):
250,000 7.00%, 10/1/02 256,810
295,000 7.10%, 10/1/03 311,647
315,000 7.20%, 10/1/04 334,725
340,000 7.25%, 10/1/05 359,870
365,000 7.25%, 10/1/06 384,619
390,000 7.30%, 10/1/07 410,401
420,000 7.30%, 10/1/08 440,013
Series 1992 (Floyd Mem. Hosp. Proj.):
460,000 6.75%, 2/15/06 493,516
595,000 6.80%, 2/15/07 636,109
2,000,000 Series 1992 (Mem. Hosp. & Hlth. Care Ctr. Proj.), 7.35%, 3/1/12 2,098,780
830,000 IN HFA Home Mtg. Prog. 1990 Series F1 (GNMA collateralized), 7.50%, 1/1/16 880,339
2,750,000 Indianapolis Econ. Dev. Refunding & Imprv. Rev. Series 1992 (Natl. Benevolent
Assn.-Robin Run Village Proj.), 7.25%, 10/1/10 2,899,820
970,000 Marion HC Mtg. Rev. Refunding Series 1994 (Hilltop Towers Project) (Section 8),
6.90%, 10/1/10 1,006,152
21,233,967
IOWA (1.8%)
1,500,000 IA Fin. Auth. Small Business Dev. Refunding Rev. Series 1992 (University Civic Ctr.
Court Assn. Proj.), 7.40%, 3/1/17 1,603,095
1,500,000 Ottumwa Hospital Rev. Refunding Series 1993 (Ottumwa Regional Hlth. Ctr.), 6.00%,
10/1/10 1,412,790
Polk Co. Hlth. Svcs. Residential Care Fac. Rev. Series 1991:
460,000 7.25%, 2/1/06 491,298
1,500,000 7.50%, 2/1/16 1,619,595
5,126,778
KANSAS (0.7%)
380,000 Geary Co. Single Family Mtg. Rev. 1980 (FGIC insured), 10.75%, 4/1/12 400,136
6,010,000 Kansas City Single Family Mtg. Rev. Series 1982A Zero Coupon, 11.23% Effective Yield
on Purchase Date, 11/1/14 754,616
2,170,000 Olathe & Labette Cos. Mtg. Loan Rev. 1991 Series B (GNMA collateralized) Zero Coupon,
7.56% Effective Yield on Purchase Date, 2/1/23 293,861
540,000 Sedgwick Co. Mtg. Loan Rev. Series 1987C (GNMA collateralized), 8.625%, 11/1/18 574,009
2,022,622
KENTUCKY (0.5%)
1,500,000 Jefferson Co. First Mtg. Rev. Series 1994 (Christian Church Homes Proj.), 6.00%,
11/15/09 1,483,395
LOUISIANA (5.7%)
715,000 Calcasieu Parish Industrial Dev. Rev. 1975 (Cities Service Co. Proj.), 7.80%,
12/1/05 717,417
585,000 Calcasieu Parish Public Trust Auth. Mtg. Rev. Refunding 1992 Series B, 6.875%,
11/1/12 611,460
5,650,000 Denham Springs/Livingston Hsg. & Mtg. Fin. Auth. Residual Rev. Series 1992C Zero
Coupon, 7.65% Effective Yield on Purchase Date, 7/10/14 1,450,072
4,000,000 Houma-Terrebonne Public Trust Fin. Auth. Residual Rev. Series 1992C Zero Coupon,
7.60% Effective Yield on Purchase Date, 7/10/14 1,035,680
1,855,000 LA HFA Residual Lien Refunding Mtg. Rev. Series 1992 Zero Coupon, 7.27% Effective
Yield on Purchase Date, 9/1/13 1,905,660
408,498 LA PFA Single Family Mtg. Purchase Rev. Series 1992 (Lafayette PTFA Mtg. Acquisition),
7.50%, 10/1/15 440,198
LA PFA Rev. Multifamily Hsg. Rev.:
1,290,000 Series 1991 (Volunteers of America Natl. Hsg. Corp.) (Asset Guaranty insured),
7.25%, 11/1/04 1,399,431
3,000,000 Series 1991 (Volunteers of America Natl. Hsg. Corp.) (Asset Guaranty insured),
7.75%, 11/1/16 3,228,270
740,000 Series Sr. Lien 1994A (VOA Willows Affordable Hsg. Corp.), 7.00%, 6/1/24 767,565
1,000,000 Monroe - McKeen Plaza Hsg. Dev. Corp. Multifamily Hsg. Rev. Refunding Series
1994A (Murray Plaza Apts. - Section 8), 6.80%, 2/1/12 1,031,320
3,500,000 Orleans Levee Dist. Improvement Serial and Term Receipts Series 1995A (FSA insured),
5.95%, 11/1/14 3,476,445
16,063,518
MAINE (0.1%)
320,000 ME HA Mtg. Purchase 1987 Series A-2, 7.65%, 11/15/15 332,854
MASSACHUSETTS (2.6%)
MA Hlth. & Educ. Fac. Auth. Rev.:
655,000 Series 1982 (Malden Hosp.) (FHA insured), 9.50%, 8/1/08 657,161
4,915,000 Series 1990B (Goddard Mem. Hosp.), 9.00%, 7/1/15 5,449,162
1,000,000 Series 1991C (New England Deaconess Hosp.), 7.20%, 4/1/22 1,065,210
7,171,533
MICHIGAN (6.9%)
1,305,000 Detroit Econ. Dev. Corp. Limited Obligation Rev. Refunding Series 1992 (E.H.
Associates Ltd. Partnership Proj.), 7.00%, 6/1/12 1,383,509
MI Hosp. Fin. Auth. Rev. Refunding Series 1994A (Pontiac Osteopathic Hosp.):
500,000 5.20%, 2/1/00 486,420
5,000,000 6.00%, 2/1/14 4,599,350
1,000,000 MI Strategic Fund Pollution Control Rev. Refunding Series 1995 (General Motors
Corp.), 6.20%, 9/1/20 1,002,780
1,500,000 Pontiac Hosp. Fin. Auth. Hosp. Rev. Series 1993 (NOMC Obligated Group), 6.00%,
8/1/07 1,425,345
1,300,000 Romulus Econ. Dev. Corp. Ltd. Obligation Rev. Refunding Series 1992 (Romulus HIR
Ltd. Partnership Proj.) (ITT Lyndon), 7.00%, 11/1/15 1,391,455
4,000,000 Saginaw Hosp. Fin. Auth. Rev. Refunding Series 1989 (Saginaw Gen. Hosp.),
7.625%, 10/1/19 4,239,120
1,685,000 Tri City Village Hsg. Corp. Mtg. Refunding Multifamily Tri City Apts. Series 1992A
(Section 8) (FNMA backed), 7.75%, 8/15/23 1,824,889
2,750,000 Troy City EDC Econ. Dev. Rev. Refunding Series 1992 (Drury Inn-Troy Proj.)
(Lincoln Natl. Corp.), 6.75%, 10/1/12 2,851,557
19,204,425
MINNESOTA (1.1%)
1,580,000 MN HFA Single Family Mtg. Rev. Series 94F, 6.30%, 7/1/25 1,600,935
4,560,480 Moorhead Single Family Mtg. Rev. Refunding Series 1992B (FNMA backed), Zero Coupon,
7.00% Effective Yield on Purchase Date, 8/1/11 1,538,752
3,139,687
MISSISSIPPI (0.6%)
5,750,000 MS Home Corp. Residual Rev. Series 1992-II Zero Coupon, 7.38% Effective Yield on
Purchase Date, 4/15/12 1,817,287
MISSOURI (0.2%)
270,000 MO HDC Single Family Mtg. Rev. Series 1985, 9.25%, 4/1/05 279,563
150,000 MO Hlth. & Educ. Fac. Auth. Hlth. Fac. Rev. Series 1993 (Jefferson Mem. Hosp. Assn.
Proj.), 5.125%, 8/15/02 147,235
85,000 St. Louis Co. Single Family Res. Mtg. Series 1984 (MBIA insured), 9.75%, 4/1/10 86,379
513,177
MONTANA (0.2%)
505,000 Lewis & Clark Co. Pollution Control Rev. Series 1976 (Asarco, Inc. Proj.), 6.75%,
12/1/06 505,126
NEVADA (1.9%)
Reno Redev. Agency Subordinate Tax Allocation and Revenue Refunding Series 1995A:
400,000 6.00%, 6/1/08 391,524
1,000,000 6.10%, 6/1/11 967,460
1,000,000 6.125%, 6/1/12 968,530
3,000,000 Reno-Sparks Indian Colony Public Fac. Fin. Auth. Sales & Excise Tax Rev.
Series 1995A, 7.50%, 7/1/07 3,042,090
5,369,604
NEW HAMPSHIRE (0.4%)
540,000 NH Higher Educ. & Hlth. Fac. Auth. Series 1991 (St. Joseph's Hosp.), 7.25%, 1/1/02 581,828
3,480,000 NH HFA Single Family Res. Mtg. 1982 Series A Zero Coupon, 11.75% Effective Yield on
Purchase Date, 1/1/14 439,489
1,021,317
NEW JERSEY (0.3%)
900,000 NJ Hsg. & Mtg. Fin. Agy. Rev. Refunding 1992 Series One (Section 8), 6.45%, 11/1/07 937,224
NEW MEXICO (0.9%)
Farmington Pollution Control. Rev. :
500,000 Series 1978 (Public Service Co. New Mexico) (MBIA insured), 6.00%, 3/1/08 500,000
1,000,000 Series 1978 (Tucson Gas & Electric)(AMBAC insured), 6.10%, 1/1/08 1,001,690
839,000 Hobbs Single Family Mtg. Rev. Refunding Series 1992, 8.75%, 7/1/11 913,017
2,414,707
NEW YORK (0.9%)
1,725,000 Niagara Co. Dev. Agency Industrial Dev. Rev. Refunding Series 1993 (Rainbow Square
LTD Proj.), 5.80%, 2/1/02 1,728,053
800,000 NY HFA Multifamily Hsg. Rev. Series 1989A (AMBAC insured), 7.45%, 11/1/28 845,320
2,573,373
NORTH CAROLINA (0.2%)
9,860,000 NC HFA Multifamily Hsg. Rev. (FHA insured) 1985 Series C Zero Coupon,
9.97% Effective Yield on Purchase Date, 7/1/27 420,430
NORTH DAKOTA (1.3%)
2,000,000 Oliver Co. Pollution Control Rev. Series 1976 (Sq. Butte Elec. Coop. Proj.),
7.00%, 12/31/10 2,008,960
1,490,000 Ward Co. Hlth. Care Fac. Rev. Series 1994 (St. Joseph Hosp. Proj.), 8.00%, 11/15/04 1,561,535
3,570,495
OHIO (1.7%)
1,060,000 Cleveland Certificate of Participation Motor Vehicle Motorized Equipment Series
1992, 6.50%, 1/1/98 1,094,408
2,055,000 Cleveland Parking Fac. Imprv. Rev. Series 1992, 7.60%, 9/15/03 2,198,542
1,275,000 Franklin Co. Hosp. Fac. Rev. Refunding & Imprv. Series 1993 (Doctors Hosp.),
5.90%, 12/1/06 1,273,674
205,000 Richland Co. Industrial Dev. Rev. 1978 Series (Kmart Corp.), 7.25%, 8/15/04 186,242
4,752,866
OKLAHOMA (2.7%)
1,680,000 Cleveland Co. Home Loan Auth. Single Family Mtg. Rev. Refunding Series 1991,
8.00%, 8/1/12 1,804,068
Midwest City Mem. Hosp. Auth. Hosp. Rev. Series 1992:
115,000 7.25%, 4/1/06 122,306
365,000 8.75%, 4/1/03 425,444
150,000 10.00%, 4/1/96 150,051
325,000 10.00%, 4/1/01 386,909
345,000 10.00%, 4/1/02 420,831
2,000,000 Muskogee Co. HFA Single Family Mtg. Rev. Refunding 1990 Series A (FGIC insured) Zero
Coupon, 7.65% Effective Yield on Purchase Date, 6/1/11 652,540
340,000 Muskogee Co. Industrial Pollution Rev. Series 1987A (Oklahoma G&E Proj.), 7.00%,
3/1/17 351,672
670,000 Payne Co. Home Loan Auth. Single Family Rev. Refunding Series 1993A, 8.625%, 3/1/11 712,552
2,540,000 Tulsa Public Facilities Auth. Recreational Facs. Rev. Series 1985, 6.20%, 11/1/12 2,567,254
7,593,627
PENNSYLVANIA (6.4%)
1,220,000 Beaver Co. Industrial Dev. Auth. Pollution Control Rev. Series 1976 (Cleveland Elec.
Illuminating Corp.) (AMBAC insured), 6.70%, 11/1/06 1,222,489
4,265,000 Mercer Co. Indus. Dev. Auth. Rev. Refunding Series 1991 (FHA insured) (Hillcrest
Nursing Industrial Ctr. Proj.) Zero Coupon, 6.85% Effective Yield on Purchase
Date, 1/15/13 1,259,966
6,000,000 Montgomery Co. Industrial Dev. Auth. Resource Recovery Rev. Series 1989 (LOC Banque
Paribas), 7.50%, 1/1/12 6,375,120
2,240,000 Montgomery Co. Redev. Auth. Multifamily Hsg. Rev. 1993 Series A (KBF Assoc. L.P.),
6.375%, 7/1/12 2,200,867
Pittsburgh Urban Redev. Auth. (Center Triangle Tax Increment Fin. District) (LOC
PNC Bank):
3,000,000 Series 1995A, 6.00%, 12/1/11 2,963,730
2,100,000 Series 1995B, 6.25%, 3/15/15 2,083,809
Sharon Regional Hlth. Sys. Auth. Hosp. Rev. Refunding (Sharon Regional Hlth. Sys.
Proj.) Series 1993A:
705,000 6.40%, 12/1/00 727,835
255,000 6.50%, 12/1/01 263,871
800,000 6.60%, 12/1/02 829,544
17,927,231
SOUTH CAROLINA (0.6%)
1,500,000 Myrtle Beach PFC Certificates of Participation Series 1992 (Myrtle Beach
Convention Ctr. Proj.), 6.75%, 7/1/02 1,584,150
SOUTH DAKOTA (1.5%)
2,000,000 SD HDA Multifamily Hsg. Rev. 1992 Series B (Section 8), 7.00%, 4/1/12 2,106,200
2,000,000 SD HDA Homeownership Mtg. Bonds 1996 Series A , 6.10%, 5/1/15 1,995,400
4,101,600
TENNESSEE (1.4%)
1,675,000 Metro. Govt. of Nashville & Davison Cos. TN Indus. Dev. Board Rev. Refunding
Multifamily Mtg. Rev. 92C (FHA insured) (Picadilly Apts.), 6.95%, 7/1/27 1,761,045
Shelby Co. Hlth., Educ. & Hsg. Fac. Board Multifamily Hsg. Rev. (Eastwood Park
Apts. Proj.):
1,000,000 Series 1995 A2, 6.40%, 9/1/25 1,004,760
425,000 Series 1995C Subordinate, 7.50%, 9/1/25 427,550
830,000 TN HDA Homeownership Program Series 1991 Issue U, 7.35%, 7/1/11 876,165
4,069,520
TEXAS (10.7%)
2,610,000 Baytown HFC Single Family Mtg. Rev. Refunding Series 1992B, 8.50%, 9/1/11 2,856,410
Beaumont Hsg. Auth. Multifamily Mtg. Rev. Series 1993A (Section 8):
1,365,000 6.65%, 11/1/07 1,412,065
650,000 6.75%, 11/1/10 664,248
1,765,000 Bexar Co. HFC Residual Rev. Series 1993 Zero Coupon, 6.50% Effective Yield on
Purchase Date, 3/1/15 526,641
385,000 Brazos Co. HFC Single Family Mtg. Rev. 1985 (MBIA insured) Zero Coupon, 10.55%
Effective Yield on Purchase Date, 9/1/11 74,482
Dallas Housing Corp. Capital Program Revenue Bonds:
1,715,000 Series 1995A (Estell Village Apts.) (Section 8), 7.875%, 12/1/09 1,755,217
1,700,000 Series 1995 (Cedar Glen Apts.) (Section 8), 7.75%, 12/1/09 1,728,832
1,000,000 Dallas HFC Cap. Proj. Refunding 1990 (Section 8), 7.85%, 8/1/13 1,072,410
3,000,000 Denison Hospital Auth. Rev. Refunding Series 1986 (Texoma Med. Ctr. Proj.),
8.00%, 9/1/16 3,081,600
610,000 Ft. Worth HFC Home Mtg. Rev. Refunding 1991, 8.50%, 10/1/11 663,887
1,735,000 Lubbock HFC Multifamily Hsg. Rev. Refunding Series 1992A (Los Colinas, Park Ridge
Place & Quail Creek), 7.75%, 1/1/22 1,784,222
3,000,000 Midland Co. Hosp. Dist. Hosp. Rev. Series 1992 Zero Coupon 7.61% Effective Yield on
Purchase Date, 6/1/07 1,514,940
Midland HFC Single Family Mtg. Rev. Refunding:
602,795 Series 1992 B-2, 8.15%, 12/1/11 658,981
850,801 Series 1992 A-2, 8.45%, 12/1/11 930,334
1,218,468 Series 1992, 9.00%, 9/1/01 1,310,596
3,000,000 Northeast Hospital Authority Rev. Series 1993B (NE Med. Ctr. Hosp.), 7.25%, 7/1/22 3,165,420
2,000,000 Odessa HFC Single Family Mtg. Rev. Refunding Series 1992B Class B-2, 8.125%,
11/1/11 2,179,080
650,000 San Marcos HA Multifamily Mtg. Rev. Series 1993A (FHA insured) (Section 8), 5.80%,
11/1/10 630,688
Southeast TX HFC Residual Revenue:
1,555,000 Series 1995A Zero Coupon, 6.50% Effective Yield on Purchase Date, 11/1/14 469,936
3,000,000 Series 1992A Zero Coupon, 7.63% Effective Yield on Purchase Date, 9/1/17 601,950
950,000 TX HA Single Family Mtg. Refunding Series 1991A, 7.00%, 3/1/05 1,002,107
5,985,000 TX Dept. Hsg. & Community Affairs Single Family Rev. Refunding Junior Lien Series
1994A Zero Coupon 6.93% Effective Yield on Purchase Date, 3/1/15 1,637,855
710,000 West Central TX HFC Single Family Mtg. Rev. 1985 (MBIA insured) Zero Coupon, 10.56%
Effective Yield on Purchase Date, 9/1/11 138,975
29,860,876
UTAH (0.2%)
475,000 UT HFA Single Family Mtg. Rev. Senior Series 1988C, 8.25%, 7/1/08 483,293
WASHINGTON (1.6%)
1,000,000 King Co. HA Pooled Hsg. Multifamily Refunding Rev. Series 1995A (Senior),
6.80%, 3/1/26 1,038,190
WA HFC Nonprofit Housing Revenue:
2,500,000 Series 1993 (CRISTA Shores Proj.), 6.20%, 7/1/14 2,506,925
1,000,000 Series 1995A (Judson Park Project), 6.90%, 7/1/16 1,058,850
4,603,965
WEST VIRGINIA (1.2%)
100,000 Berkeley, Brooke & Fayette Cos., etc. (21 Municipalities) Single Family Mtg. 1984
Series A, (MBIA insured), 10.125%, 9/1/10 104,670
5,435,000 Huntington Res. Mtg. Rev. Refunding Series 1991 Zero Coupon Escrowed to Maturity,
7.37% Effective Yield on Purchase Date, 9/1/12 1,841,541
2,000,000 Mason Co. Residual Rev. Series 1992C Zero Coupon, 7.58% Effective Yield on Purchase
Date, 7/10/14 530,660
3,000,000 Ohio Co. Residual Rev. Series 1992C Zero Coupon, 7.43% Effective Yield on Purchase
Date, 7/10/14 761,850
3,238,721
WISCONSIN (0.0%)
55,000 WI HEDA Homeownership Rev. 1985 Series I Zero Coupon, 7.99% Effective Yield on
Purchase Date, 12/1/96 51,953
WYOMING (0.5%)
1,435,000 Cheyenne Industrial Dev. First Mtg. Rev. Refunding Series 1992 (Cheyenne Plaza
Proj.) (NWNL), 6.90%, 2/1/00 1,461,203
Total municipal bonds (cost: $261,332,721) 266,639,619
SHORT-TERM SECURITIES (4.9%)
3,000,000 Lee Co. FL Hosp. Board of Directors Hosp. Rev. 95A(Lee Memorial Hosp.) (Sun Bank
LOC) Tax-Exempt C.P., 3.45%, 4/3/96 3,000,000
3,000,000 Metro. Govt. of Nashville & Davison Cos. TN Hlth & Educ. Facs. Board Rev. Series
1992 (Baptist Hosp.) (Nations Bank, GA Liquidity) Tax-Exempt C.P., 3.35%, 4/17/96 3,000,000
7,739,203 Tax-Exempt Cash Management Fund, 3.16% 7,739,203
Total short-term securities (cost: $13,739,203) 13,739,203
Total investments in securities (cost: $275,071,924) (6) $280,378,822
</TABLE>
See accompanying notes to portfolios of investments on page 33.
SIT U.S. GOVERNMENT SECURITIES FUND REVIEW
MARCH 31, 1996
[PHOTO] MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
BRYCE A. DOTY, CFA
PORTFOLIO MANAGER
The SIT U.S. Government Securities Fund provided investors a +8.87% total
return for the past 12 months. As of March 31, 1996, the Fund's 30-day SEC yield
was 6.87% and the Fund's 12-month distribution rate was 6.69%. The Fund ranked
#2 out of 184 funds within the Lipper U.S. Government bond fund universe for the
past quarter and its cumulative return since inception ranks in the top 20% of
its Lipper universe. Also, Morningstar, a nationally recognized firm which rates
mutual funds, ranked the Fund #1 in their latest review of 198 government bond
funds for having the lowest risk and rated the Fund #4 for its overall risk and
return characteristics for the five years ended December 31, 1995.
The Fund has continued to focus on securities that provide a high level of
income and relative price stability. The yield on the 3-year U.S. Treasury Note
rose +0.70% over the past quarter resulting in lower prices for most fixed
income securities. While the Fund's intermediate maturity U.S. Treasury notes
declined in price, the Fund's high coupon seasoned mortgage-backed holdings were
much more stable in price and generated sufficient interest income to provide
the portfolio with a positive total return for the quarter. During the past
year, the Fund received over $14 million in inflows, most of which were used to
purchase additional mortgage pass-through securities. The Fund also extended its
average maturity slightly to take advantage of the higher interest rate levels.
The recent rise in interest rates reflects the market's expectations that
the Federal Reserve will maintain short-term interest rates at current levels
for the remainder of this year. A more stable trend of bond market yields is
most likely for the balance of the year as we believe economic growth of about
2% will be maintained with contained inflation. The Fund will continue to invest
in securities that provide high levels of interest income and price stability.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to provide high current income and safety of
principal. The Fund invests solely in securities issued, guaranteed or insured
by the U.S. government or its agencies or its instrumentalities.
Agency mortgage securities and U.S. Treasury securities will be the
principal holdings in the Fund. The mortgage securities that the Fund will
purchase consist of pass-through securities (Government National Mortgage
Association (GNMA), Federal National Mortgage Association (FNMA), and Federal
Home Loan Mortgage Corporation (FHLMC)).
PORTFOLIO SUMMARY
Net Asset Value 3/31/96: $10.47 Per Share
3/31/95: $10.28 Per Share
Total Net Assets: $52.45 Million
30-Day SEC Yield: 6.87%
12 Month Distribution Rate: 6.69%
Average Maturity: 14.91 Years
Modified Adjusted Duration: 3.11 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 current interest rates and the Adviser's
assumptions regarding the expected average life of individual securities held in
the portfolio.
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
GNMA Pass-Through
Securities 71.6
U.S. Treasury Bonds 13.4
FHLMC Pass-Through
Securities 4.9
Collaterized Mortgage
Obligations 4.4
FNMA Pass-Through
Securities 4.1
Other Assets & Liabilities 1.6
AVERAGE ANNUAL TOTAL RETURNS*
U.S. Gov't. Lipper U.S. Gov't. Lehman Inter.
Securities Fund Fund Average Gov't. Bond Index
3 Months 0.42% -2.69% -0.68%
(unannualized)
1 Year 8.87 9.28 9.10
3 Years 5.98 4.62 5.20
5 Years 7.26 7.36 7.59
Inception 8.48 7.77 8.30
(6/2/87)
(table continued from above)
CUMULATIVE TOTAL RETURNS*
U.S. Gov't. Lipper U.S. Gov't. Lehman Inter.
Securities Fund Fund Average Gov't. Bond Index
0.42% -2.69% -0.68%
8.87 9.28 9.10
19.03 14.50 16.42
41.95 42.62 44.19
105.16 93.80 102.22
* As of 3/31/96
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]
The sum of $10,000 invested at inception (6/2/87) and held until 3/31/96 would
have grown to $20,516 in the Fund or $20,222 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.
YEARS
0-1 1.5%
1-5 82.9%
5-10 1.9%
10-20 13.7%
SIT U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS -- MARCH 31, 1996
QUANTITY NAME OF ISSUER MARKET VALUE (1)
MORTGAGE PASS-THROUGH SECURITIES (80.6%) (2)
FEDERAL HOME LOAN MORTGAGE CORPORATION (4.9%):
48,879 8.75%, 12/1/01 $ 50,610
752,147 9.00%, 10/1/16 789,604
727,902 9.00%, 6/1/17 764,465
82,005 9.50%, 6/1/16 87,418
139,994 9.75%, 6/1/17 150,920
607,203 10.25%, 6/1/10 663,552
44,035 10.50%, 4/1/04 46,086
9,254 11.00%, 10/1/00 9,757
2,562,412
FEDERAL NATIONAL MORTGAGE ASSOCIATION (4.1%):
243,784 9.00%, 4/1/10 254,842
251,251 9.00%, 9/1/17 262,713
743,493 9.00%, 9/1/20 780,170
552,360 9.50%, 4/1/20 587,242
251,744 10.00%, 9/1/20 275,502
2,160,469
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (3) (71.6%):
881,233 8.50%, 12/15/11 923,833
302,765 8.75%, 5/15/03 320,808
586,526 8.75%, 10/15 - 11/15/06 622,353
301,595 8.75%, 2/15/07 316,950
285,277 8.75%, 11/15/09 300,038
300,297 8.75%, 6/15 - 12/15/11 315,940
238,665 9.00%, 10/15/04 254,921
2,181,461 9.00%, 4/15 - 9/15/06 2,331,166
353,813 9.00%, 10/15/07 374,041
156,872 9.00%, 11/15/09 166,049
1,614,835 9.00%, 6/15 - 9/15/11 1,712,271
328,062 9.00%, 1/15/12 347,573
3,248,316 9.00%, 4/20 - 12/20/16 3,469,610
93,876 9.00%, 5/15/18 98,607
130,928 9.00%, 11/15/19 137,446
202,318 9.00%, 7/20/21 210,929
150,537 9.25%, 4/15 - 9/15/01 160,510
543,236 9.25%, 11/15/11 575,625
352,998 9.25%, 4/15/12 374,160
1,580,487 9.50%, 1/15 - 1/20/05 1,688,683
1,574,194 9.50%, 1/15 - 8/15/10 1,677,998
894,357 9.50%, 1/15 - 3/15/11 947,652
926,132 9.50%, 11/20/16 981,015
303,470 9.50%, 8/20/17 321,442
75,558 9.75%, 5/1/99 80,488
243,327 9.75%, 11/15/02 259,562
83,408 9.75%, 3/15/04 89,050
605,249 9.75%, 8/15/05 646,781
282,321 9.75%, 2/15/06 301,723
2,954,766 9.75%, 8/15 - 12/15/10 3,171,406
1,369,087 9.75%, 11/15 - 12/15/12 1,472,906
267,998 10.00%, 5/14/04 286,008
1,310,301 10.00%, 7/15/05 1,399,939
259,223 10.00%, 1/15/06 276,622
222,478 10.00%, 11/15/08 238,553
162,397 10.00%, 5/15 - 11/15/09 174,977
300,321 10.00%, 6/15 - 7/15/10 322,461
193,006 10.00%, 1/15/11 207,270
47,757 10.00%, 1/20 - 9/20/16 52,186
433,440 10.00%, 2/20/20 465,359
118,099 10.25%, 11/15/00 125,908
127,697 10.25%, 8/15/04 136,424
605,954 10.25%, 7/15/05 647,262
3,921,314 10.25%, 1/15 - 8/15/12 4,208,385
1,031,433 10.25%, 2/15 - 7/15/13 1,107,088
15,394 10.50%, 9/15/00 16,268
110,075 10.50%, 9/15/01 117,461
133,163 10.50%, 12/15/02 142,153
199,473 10.50%, 7/15/10 213,592
384,926 10.50%, 8/15 - 11/15/15 424,242
195,018 10.50%, 3/15 - 12/15/16 214,908
18,653 10.75%, 7/15 - 10/15/98 19,213
254,894 10.75%, 7/15 - 8/15/11 273,030
730,926 11.00%, 1/15 - 6/15/10 815,571
18,597 11.00%, 7/15/13 20,367
8,947 11.25%, 5/15/98 9,261
297,910 11.25%, 8/15 - 12/15/00 318,035
54,374 11.25%, 1/15/01 57,990
35,325 11.25%, 5/15/03 37,679
254,984 11.25%, 10/15/11 268,425
127,552 11.75%, 5/15/00 136,175
135,300 11.75%, 5/15/04 144,589
32,805 12.75%, 1/15/00 34,806
1,617 14.75%, 4/15/97 1,667
37,565,410
Total mortgage pass-through securities
(cost: $42,217,384) 42,288,291
U.S. GOVERNMENT SECURITIES (13.4%)
2,000,000 U.S. Treasury Bond, 12%,
8/15/13 2,888,960
10,000,000U.S. Treasury Coupon Strip,
6.77% Effective Yield on
Purchase Date, 5/15/09 4,158,200
Total U.S. government securities
(cost: $7,222,176) 7,047,160
COLLATERALIZED MORTGAGE OBLIGATIONS (4.4%)
346,375 Federal Home Loan Mortgage
Corporation, 1006-C, 9.15%,
10/15/20 359,548
Vendee Mortgage Trust:
1,000,000 Series 1992-1 2K, 7.75%,
5/15/08 979,120
1,000,000 Series 1992-2D, 7.00%,
9/15/15 978,070
Total collateralized mortgage obligations
(cost: $2,298,586) 2,316,738
SHORT-TERM SECURITIES (0.8%)
399,154 Government Cash Management
Fund, 5.23% 399,154
(cost: $399,154)
Total investments in securities
(cost: $52,137,300) (6) $52,051,343
See accompanying notes to portfolios of investments on page 33.
SIT MONEY MARKET FUND REVIEW
MARCH 31, 1996
[PHOTO] MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
PAUL J. JUNGQUIST
PORTFOLIO MANAGER
The SIT Money Market Fund provided investors with a +5.44% return for the
year ended March 31, 1996, compared to a +5.23% average return for the Lipper
Analytical Services Money Market Fund universe. The Fund's performance ranked
78th of 272 funds in its Lipper peer group category. As of March 31, 1996, the
Fund's 7-day compound yield was 4.93% and its average maturity was 36 days.
The Federal Reserve Board lowered the federal funds rate by 75 basis points
to 5.25% during the year ended March 31, 1996. Three-month Treasury bill yields
decreased from 5.88% to 5.14% over the past twelve months. After bottoming at
4.96% in late December, yields rose during the first quarter of 1996 as
expectations for further Fed ease diminished. Current yield levels imply that
the market is expecting no changes in Fed policy in the second quarter of 1996.
Moderate to strengthening economic growth and controlled inflation are the
secular factors supporting this expectation. Accordingly, the Fund will try to
take advantage of current yield levels and maintain the average maturity of the
portfolio in a range of 35 to 45 days over the near term in anticipation of no
interest rate action by the Fed.
The Fund has produced competitive returns by focusing on credit research
and avoiding the use of risky derivatives. We intend to continue these policies
in the future. As economic activity picks up, we do not foresee a significant
impact on the short-term creditworthiness of top tier commercial paper issuers
in general. Consumer finance companies may experience some pressure, however, as
consumer credit exposure continues at relatively high levels, so we will monitor
the Fund's permissible credits in this industry particularly closely. The Fund
continues to diversify its core holdings and its industry exposure. In the
months ahead, we plan to add top tier credits in the technology and consumer
non-durable industries.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to achieve maximum current income to the
extent consistent with the preservation of capital and maintenance of liquidity.
The Fund pursues this objective by investing in a diversified portfolio of high
quality short-term debt instruments. The Fund seeks to maintain a stable net
asset value of $1.00 per share. However, there is no assurance of a constant
share price.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share.
PORTFOLIO SUMMARY
Net Asset Value 3/31/96: $1.00 Per Share
3/31/95: $1.00 Per Share
Total Net Assets: $21.26 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR GRAPH]
Diversified Finance 20.3
Consumer Loan Finance 20.3
Captive Equipment Finance 14.0
Utilities 12.8
Captive Auto Finance 9.2
Retail 4.4
Insurance 3.8
Consumer Non-Durables 3.7
U.S. Government 3.2
Capital Goods 2.3
Captive Oil Finance 2.2
Other Assets & Liabilities 3.8
AVERAGE ANNUAL TOTAL RETURNS*
Money Lipper Money U.S. Treasury
Market Fund Market Avg. Bill (3-Month)
3 Months 1.25% 1.19% 1.27%
(unannualized)
1 Year 5.44 5.23 5.59
Inception 4.63 4.42 5.02
(11/1/93)
(table continued from above)
CUMULATIVE TOTAL RETURNS*
Money Lipper Money U.S. Treasury
Market Fund Market Avg. Bill (3-Month)
1.25% 1.19% 1.27%
5.44 5.23 5.59
11.51 11.02 12.55
* As of 3/31/96
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]
The sum of $10,000 invested at inception (11/1/93) and held until 3/31/96 would
have grown to $11,151 in the Fund or $11,255 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, S&P AND FITCH
[PIE GRAPH]
First Tier Securities
100%
First Tier Securities 100%
Second Tier Securities 0%
SIT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS -- MARCH 31, 1996
QUANTITY NAME OF ISSUER MARKET VALUE (1)
COMMERCIAL PAPER (93.0%) (2)
CAPITAL GOODS (2.3%)
500,000 Deere & Company, 5.25%,
4/15/96 $ 498,985
CAPTIVE AUTO FINANCE (9.2%)
Ford Motor Credit Corp.:
237,000 5.22%, 4/11/96 236,660
295,000 5.15%, 4/29/96 293,830
203,000 5.29%, 5/28/96 201,319
225,000 5.33%, 6/25/96 222,206
General Motors Acceptance Corp.:
300,000 5.19%, 4/18/96 299,270
215,000 5.26%, 4/25/96 214,255
385,000 5.20%, 5/13/96 382,696
100,000 5.42%, 7/23/96 98,330
1,948,566
CAPTIVE EQUIPMENT FINANCE (14.0%)
IBM Credit Corp:
161,000 5.12%, 5/8/96 160,161
211,000 5.28%, 5/10/96 209,802
400,000 5.28%, 5/17/96 397,327
221,000 5.34%, 5/23/96 219,311
John Deere Capital Corp.:
400,000 5.18%, 4/17/96 399,086
105,000 5.34%, 4/19/96 104,723
450,000 5.35%, 7/25/96 442,439
Pitney Bowes Credit Corp.:
400,000 5.17%, 4/11/96 399,431
400,000 5.17%, 4/16/96 399,147
240,000 5.19%, 5/2/96 238,938
2,970,365
CAPTIVE OIL FINANCE (2.2%)
Chevron Oil Finance:
220,000 5.29%, 5/14/96 218,620
242,000 5.29%, 5/16/96 240,412
459,032
CONSUMER LOAN FINANCE (20.3%)
American Express Credit Corp.:
175,000 5.19%, 4/12/96 174,725
225,000 5.40%, 5/7/96 223,808
200,000 5.11%, 5/15/96 198,766
American General Financial:
316,000 5.42%, 4/4/96 315,859
607,000 5.17%, 5/9/96 603,719
Beneficial Corp.:
500,000 5.30%, 4/26/96 498,184
400,000 5.29%, 6/7/96 396,114
Household Finance Corp.:
325,000 5.39%. 4/10/96 324,568
160,000 5.34%, 4/12/96 159,740
200,000 5.15%, 5/6/96 199,008
300,000 5.17%, 5/8/96 298,421
Norwest Financial, Inc.:
300,000 5.25%, 4/18/96 299,260
400,000 5.15%, 5/3/96 398,187
234,000 5.26%, 5/31/96 231,972
4,322,331
CONSUMER NON-DURABLES (3.7%)
400,000 Coca Cola Co., 5.12%, 4/2/96 399,943
400,000 Coca Cola Enterprises, 5.12%,
5/20/96 (5) 397,251
797,194
DIVERSIFIED FINANCE (20.3%)
Associates Corp. N.A.:
200,000 5.18%, 4/3/96 199,943
200,000 5.15%, 5/1/96 199,150
290,000 5.34%, 6/18/96 286,689
220,000 5.35%, 7/26/96 216,271
CIT Group Holdings, Inc.:
490,000 5.42%, 4/8/96 489,490
390,000 5.66%, 4/12/96 389,337
770,000 General Electric Capital
Services, 5.18%, 4/15/96 768,461
General Electric Capital Corp.:
325,000 5.35%, 4/19/96 324,142
250,000 5.14%, 4/26/96 249,118
225,000 5.10%, 5/10/96 223,771
Transamerica Finance Corp.:
250,000 5.17%, 4/23/96 249,218
200,000 5.15%, 5/2/96 199,122
200,000 5.10%, 5/20/96 198,631
325,000 5.33%, 6/27/96 320,877
4,314,220
INSURANCE (3.8%)
800,000 American Family Financial,
5.21%, 4/30/96 796,675
RETAIL (4.4%)
Sears Roebuck & Co.:
137,000 5.22%, 4/4/96 136,941
200,000 5.23%, 4/17/96 199,539
304,000 5.34%, 4/24/96 302,976
300,000 5.37%, 6/11/96 296,864
936,320
UTILITIES (12.8%) A T & T Corp.:
400,000 5.14%, 4/3/96 399,886
575,000 5.28%, 7/9/96 566,777
Ameritech Capital Funding.:
265,000 5.18%, 4/9/96 (5) 264,698
300,000 5.34%, 4/12/96 (5) 299,512
BellSouth Telecommincations, Inc:
200,000 5.40%, 4/2/96 199,970
200,000 5.27%, 4/17/96 199,533
Southwestern Bell Capital Corp.:
300,000 5.35%, 6/17/96 (5) 296,612
500,000 5.32%, 6/19/96 (5) 494,240
2,721,228
Total commercial paper
(cost: $19,764,916) 19,764,916
U.S. GOVERNMENT SECURITIES (3.2%)
Federal Home Loan Mtg. Assoc.:
260,000 5.11%, 4/1/96 260,000
420,000 5.29%, 4/22/96 418,721
Total U.S. government securities
(cost: $678,721) 678,721
Total investments in securities
(cost: $20,443,637) (6) $20,443,637
See accompanying notes to portfolios of investments on page 33.
SIT MUTUAL FUND GROUP
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, 1996, 57.8% of the U.S. Government Securities Fund and 31.4%
of the Bond Fund was invested in GNMA mobile home pass-through securities.
(4) Securities the income from which is treated as a tax preference that is
included in alternative minimum taxable income for purposes of computing
federal alternative minimum tax (AMT). At March 31, 1996, approximately
18.4% of the Minnesota Tax-Free Income Fund was invested in such
securities.
(5) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"accredited investors." This security has been determined to be liquid
under the guidelines established by the Board of Directors.
(6) At March 31, 1996, the cost of securities for federal income tax purposes
and the aggregate gross unrealized appreciation and depreciation based on
that cost were as follows:
<TABLE>
<CAPTION>
MINNESOTA
TAX-FREE TAX-FREE
BOND INCOME INCOME
FUND FUND FUND
<S> <C> <C> <C>
Cost for federal income tax purposes $5,284,010 $64,998,418 $275,071,924
Unrealized appreciation (depreciation)
on investments:
Gross unrealized appreciation $24,114 $1,234,039 $6,765,681
Gross unrealized depreciation (90,609) (262,150) (1,458,783)
Net unrealized appreciation (depreciation) ($66,495) $971,889 $5,306,898
U.S.
GOVERNMENT MONEY
SECURITIES MARKET
FUND FUND
Cost for federal income tax purposes $52,203,584 $20,443,637
Unrealized appreciation (depreciation)
on investments:
Gross unrealized appreciation $287,724 None
Gross unrealized depreciation (439,965) None
Net unrealized appreciation (depreciation) ($152,241) None
</TABLE>
SIT MUTUAL FUND GROUP
STATEMENTS OF ASSETS & LIABILITIES -- MARCH 31, 1996
<TABLE>
<CAPTION>
MINNESOTA U.S.
TAX-FREE TAX-FREE GOVERNMENT MONEY
BOND INCOME INCOME SECURITIES MARKET
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at
identified cost................... $5,266,427 $64,998,418 $275,071,924 $52,137,300 $20,443,637
Investments in securities,
at market value -see
accompanying schedules for detail. $5,217,515 $65,970,307 $280,378,822 $52,051,343 $20,443,637
Accrued interest
receivable........................ 39,582 1,263,720 4,371,124 389,404 ------
Receivable for investment
securities sold................... 226,038 ------ ------ 114,147 ------
Receivable for Fund shares
sold.............................. 623 11,924 266,163 3,695 871,392
Total assets.................... 5,483,758 67,245,951 285,016,109 52,558,589 21,315,029
LIABILITIES
Payable for investment securities
purchased - when issued (note 2).. ------ 3,122,730 2,015,589 ------ ------
Payable for investment securities
purchased......................... 250,468 ------ 2,597,971 ------ ------
Payable for Fund shares
redeemed.......................... ------ 1,009,367 52,594 11,717 29,065
Cash portion of dividends
payable to shareholders........... 7,389 90,487 396,380 61,401 16,720
Accrued investment management
and advisory services fee......... 3,514 43,095 184,975 35,472 8,938
Total liabilities............... 261,371 4,265,679 5,247,509 108,590 54,723
Net assets applicable to
outstanding capital stock......... $5,222,387 $62,980,272 $279,768,600 $52,449,999 $21,260,306
Capital stock
Par............................... $0.001 $0.001 $0.001 $0.01 $0.001
Authorized shares................10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000
Outstanding shares................ 531,102 6,242,068 28,317,895 5,011,215 21,263,306
Net asset value per share of
outstanding capital stock......... $9.83 $10.09 $9.88 $10.47 $1.00
</TABLE>
See accompanying notes to financial statements on pages 38-45.
SIT MUTUAL FUND GROUP
STATEMENTS OF OPERATIONS -- YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
MINNESOTA U.S.
TAX-FREE TAX-FREE GOVERNMENT MONEY
BOND INCOME INCOME SECURITIES MARKET
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Interest............................... 353,382 3,503,180 17,077,265 3,347,787 1,299,695
Total income....................... 353,382 3,503,180 17,077,265 3,347,787 1,299,695
EXPENSES (NOTE 3):
Investment management and
advisory services fee.............. 38,803 436,992 2,123,785 445,304 178,297
Less fees and expenses voluntarily
absorbed by investment adviser. ---- ---- (15,540) (88,625) (66,862)
Total net expenses................. 38,803 436,992 2,108,245 356,679 111,435
Net investment income.............. 314,579 3,066,188 14,969,020 2,991,108 1,188,260
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS :
Net realized gain on investments (note 2) 154,186 29,311 1,047,369 466,171 ----
Net change in unrealized appreciation
or depreciation of investments..... 742 515,415 3,528,518 162,827 ----
Net gain on investments................ 154,928 544,726 4,575,887 628,998 ----
Net increase in net assets resulting from
operations.............................. $469,507 $3,610,914 $19,544,907 $3,620,106 $1,188,260
</TABLE>
See accompanying notes to financial statements on pages 38-45.
SIT MUTUAL FUND GROUP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BOND MINNESOTA TAX-FREE
FUND INCOME FUND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.............................. $314,579 $221,136 $3,066,188 $1,839,661
Net realized gain (loss) on investments............ 154,186 (117,419) 29,311 (419,772)
Net change in unrealized appreciation
(depreciation) of investments..................... 742 47,225 515,415 979,887
Net increase in net assets resulting from
operations...................................... 469,507 150,942 3,610,914 2,399,776
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................. (314,579) (221,136) (3,075,266) (1,839,661)
Net realized gains on investments.................. ---- ---- ---- ----
Total distributions............................... (314,579) (221,136) (3,075,266) (1,839,661)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold.......................... 2,009,736 304,160 32,851,258 37,614,894
Reinvested distributions........................... 270,336 212,345 2,334,848 1,475,259
Payments for shares redeemed....................... (745,612) (315,970) (16,622,975) (13,873,710)
Increase (decrease) in net assets from
capital share transactions...................... 1,534,460 200,535 18,563,131 25,216,443
Total increase (decrease) in net assets......... 1,689,388 130,341 19,098,779 25,776,558
NET ASSETS
Beginning of period................................ 3,532,999 3,402,658 43,881,493 18,104,935
End of period...................................... $5,222,387 $3,532,999 $62,980,272 $43,881,493
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)............ $5,254,900 $3,720,440 $62,434,224 $43,871,093
Distributions in excess of net
investment income................................. ---- ---- (9,078) ----
Accumulated net realized gain (loss) from
security transactions............................. 16,399 (137,787) (416,763) (446,074)
Unrealized appreciation (depreciation)
on investments.................................... (48,912) (49,654) 971,889 456,474
$5,222,387 $3,532,999 $62,980,272 $43,881,493
CAPITAL TRANSACTIONS IN SHARES:
Sold............................................... 205,474 32,543 3,250,281 3,830,816
Reinvested distributions........................... 27,247 22,594 231,001 150,326
Redeemed........................................... (74,482) (33,547) (1,644,655) (1,425,007)
Net increase (decrease).............................. 158,239 21,590 1,836,627 2,556,135
(table continued from above)
TAX-FREE U.S. GOVERNMENT MONEY MARKET
INCOME FUND SECURITIES FUND FUND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996 1995 1996 1995
$14,969,020 $16,011,411 $2,991,108 $2,374,448 $1,188,260 $984,892
1,047,369 (3,519,873) 466,171 (631,212) ---- ----
3,528,518 5,481,190 162,827 (150,786) ---- ----
19,544,907 17,972,728 3,620,106 1,592,450 1,188,260 984,892
(14,968,966) (16,000,200) (2,991,108) (2,384,177) (1,188,260) (985,117)
---- (560,435) ---- ---- ---- ----
(14,968,966) (16,560,635) (2,991,108) (2,384,177) (1,188,260) (985,117)
131,895,973 129,607,190 31,591,518 16,243,728 107,451,651 77,036,008
11,117,875 12,481,182 2,618,331 2,180,030 1,076,722 935,224
(122,978,226) (213,034,707) (19,842,777) (18,861,210) (117,090,139) (66,012,623)
20,035,622 (70,946,335) 14,367,072 (437,452) (8,561,766) 11,958,609
24,611,563 (69,534,242) 14,996,070 (1,229,179) (8,561,766) 11,958,384
255,157,037 324,691,279 37,453,929 38,683,108 29,822,072 17,863,688
$279,768,600 $255,157,037 $52,449,999 $37,453,929 $21,260,306 $29,822,072
$276,932,234 $256,896,612 $52,700,997 $38,333,925 $21,260,306 $29,822,072
---- (54) ---- ---- ---- ----
(2,470,532) (3,517,901) (165,041) (631,212) ---- ----
5,306,898 1,778,380 (85,957) (248,784) ---- ----
$279,768,600 $255,157,037 $52,449,999 $37,453,929 $21,260,306 $29,822,072
13,320,566 13,463,623 3,015,296 1,582,314 107,451,651 77,036,009
1,122,623 1,298,812 249,905 211,762 1,076,722 935,322
(12,420,344) (22,177,813) (1,895,812) (1,836,057) (117,090,140) (66,012,623)
2,022,845 (7,415,378) 1,369,389 (41,981) (8,561,767) 11,958,708
</TABLE>
See accompanying notes to financial statements on pages 38-45.
SIT MUTUAL FUND GROUP
NOTES TO FINANCIAL STATEMENTS
NOTE 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 within
the SIT Mutual Fund Group. The investment objective for each Fund is as
follows:
FUND INVESTMENT OBJECTIVE
Bond Maximize total return, consistent with the preservation
of capital.
Minnesota Tax- High level of current income that is exempt from federal
Free Income income tax and Minnesota regular personal income tax,
consistent with the preservation of capital.
Tax-Free Income High level of current income that is exempt from federal
income tax, consistent with the preservation of capital.
U.S. Government High current income and safety of principal.
Securities
Money Market Maximum current income with the preservation of capital
and maintenance of liquidity.
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 or
approximate market value 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 according to methods
selected in good faith by the Board of Directors. Such fair values are
determined using prices quoted by independent brokers or pricing services.
Pursuant to Rule 2a-7 of the Investment Company Act of 1940, all securities
in the Money Market Fund are valued at amortized cost, which approximates
market value, in order to maintain a constant net asset value of $1 per
share.
Security transactions are accounted for on the date the securities are
purchased or sold. Securities gains and losses are calculated on the
identified-cost basis. Interest, including level-yield amortization of
long-term bond premium and discount, is recorded on the accrual basis.
Delivery and payment for securities which have been purchased by the
Minnesota Tax-Free Income, Tax-Free Income, and U.S. Government Securities
Funds on a forward commitment or when-issued basis can take place a month
or more after the transaction date. During this period, such securities are
subject to market fluctuations and each Fund maintains, in a segregated
account with its custodian, assets with a market value equal to the amount
of its purchase commitments.
The Minnesota Tax-Free Income Fund concentrates its investments in
Minnesota, and therefore may have more credit risk related to the economic
conditions in the state of Minnesota than a portfolio with broader
geographical diversification.
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. Also due to the timing of
dividend distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gains (losses) are
recorded by the portfolios.
For federal income tax purposes the Minnesota Tax-Free Income Fund,
Tax-Free Income Fund, and U.S. Government Securities Fund has a capital
loss carryover of $416,763, $2,472,504, and $98,757, respectively, at March
31, 1996 which, if not offset by subsequent capital gains, will begin to
expire in 2003. It is unlikely the Board of Directors will authorize a
distribution of any net realized gains until the available capital loss
carryover is offset or expires.
DISTRIBUTIONS
Distributions to shareholders are recorded as of the close of business on
the record date. Such distributions are payable in cash or reinvested in
additional shares of the Funds' capital stock. Distributions from net
investment income are declared daily and paid monthly for the Funds.
Distributions from net realized gains, if any, will be made annually for
each of the Funds.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported results of operations during
the reporting period. Actual results could differ from those estimates.
NOTE 2 - INVESTMENT SECURITY TRANSACTIONS
Purchases of and proceeds from sales and maturities of investment
securities, other than short-term securities, for the year ended March 31,
1996, were as follows:
Purchases Proceeds
Bond Fund $ 9,101,412 $ 7,372,721
Minnesota Tax-Free Income Fund 33,152,006 8,347,349
Tax-Free Income Fund 100,348,155 64,003,218
U.S. Government Securities Fund 38,488,527 22,005,537
For Money Market Fund during the year ended March 31, 1996, purchases of
and proceeds from sales and maturities of investment securities aggregated
$225,352,433 and $235,082,664, respectively.
NOTE 3 - EXPENSES
INVESTMENT ADVISER
The Funds each have entered into an investment management agreement with
Sit Investment Associates Inc. (SIA), under which SIA manages the Fund's
assets and provides research, statistical and advisory services, and pays
related office rental, executive expenses and executive salaries. SIA also
is obligated to pay all of Bond, Minnesota Tax-Free Income, Tax Free
Income, U.S. Government Securities, and Money Market Funds' expenses
(excluding extraordinary expenses, stock transfer taxes, interest,
brokerage commissions, and other transaction charges relating to investing
activities). The fee for investment management and advisory services is
based on the average daily net assets of the Funds at the annual rate of:
Average
Daily
Net Assets
Bond Fund .80%
Minnesota Tax-Free Income Fund .80%
Tax-Free Income Fund .80%
First Over
$50 Million $50 Million
U.S. Government Securities Fund 1.00% .80%
Money Market Fund .80% .60%
For the period April 1, 1995, through March 31, 1997, the Adviser has
voluntarily agreed to limit the flat monthly fee (and, thereby, all Fund
expenses, except extraordinary expenses, interest, brokerage commissions
and other transaction charges not payable by the Adviser) paid by the
Tax-Free Income Fund to an annual rate of .70% of the Fund's average daily
net assets in excess of $250 million and .60% of the Fund's average daily
net assets in excess of $500 million. After March 31, 1997, this voluntary
fee waiver may be discontinued by the Adviser in its sole discretion.
For the period April 1, 1995, through March 31, 1997, the Adviser has
voluntarily agreed to limit the flat monthly fee (and, thereby, all Fund
expenses, except extraordinary expenses, interest, brokerage commissions
and other transaction charges not payable by the Adviser) paid by the U.S.
Government Securities Fund and Money Market Fund to an annual rate of .80%
and .50%, respectively of the Fund's average daily net assets. After March
31, 1997, this voluntary fee waiver may be discontinued by the Adviser in
its sole discretion.
TRANSACTIONS WITH AFFILIATES
The investment adviser, affiliates of the investment adviser, directors and
officers of the Funds as a whole owned the following shares as of March 31,
1996:
% Shares
Shares Outstanding
Bond Fund 102,829 19.36
Minnesota Tax-Free Income Fund 274,856 4.40
Tax-Free Income Fund 1,340,470 4.73
U.S. Government Securities Fund 467,586 9.33
Money Market Fund 3,252,488 15.30
NOTE 4 - FINANCIAL HIGHLIGHTS
Per share data for a share of capital stock outstanding during the period
and selected supplemental and ratio information for each period(s), are
indicated as follows:
SIT BOND FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Period from
December 1,
1993 (1) to
Years Ended March 31, March 31,
1996 1995 1994
<S> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $9.48 $9.69 $10.00
OPERATIONS:
Net investment income .64 .62 .19
Net realized and unrealized
gains (losses) on investments .35 (.21) (.31)
Total from operations .99 .41 (.12)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.64) (.62) (.19)
NET ASSET VALUE:
End of period $9.83 $9.48 $9.69
Total investment return (2) 10.57% 4.51% (1.22%)
Net assets at end of period (000's omitted) $5,222 $3,533 $3,403
RATIOS:
Expenses to average daily net assets 0.80% 0.80% 0.80% (3)
Net investment income to average daily net assets 6.49% 6.63% 6.24% (3)
Portfolio turnover rate (excluding short-term securities) 159.45% 41.25% 43.49%
</TABLE>
(1) Commencement of operations.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(3) Adjusted to an annual rate.
SIT MINNESOTA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Period from
December 1,
1993 (1) to
Years Ended March 31, March 31,
1996 1995 1994
<S> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $9.96 $9.79 $10.00
OPERATIONS:
Net investment income .57 .56 .17
Net realized and unrealized gains
(losses) on investments .13 .17 (.21)
Total from operations .69 .73 (.04)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.57) (.56) (.17)
NET ASSET VALUE:
End of period $10.09 $9.96 $9.79
Total investment return (2) 7.12% 7.68% (0.80%)
Net assets at end of period (000's omitted) $62,980 $43,881 $18,105
RATIOS:
Expenses to average daily net assets 0.80% 0.80% 0.80% (3)
Net investment income to average daily net assets 5.62% 5.72% 5.23% (3)
Portfolio turnover rate (excluding short-term securities) 15.85% 34.20% 12.23%
</TABLE>
(1) Commencement of operations.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(3) Adjusted to an annual rate.
SIT TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Nine Months
Ended
Years Ended March 31, March 31, Years Ended June 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $9.70 $9.63 $10.02 $9.74 $9.59
OPERATIONS:
Net investment income .56 .56 .43 .60 .69
Net realized and unrealized gains
(losses) on investments .18 .09 (.30) .32 .15
Total from operations .74 .65 .13 .92 .84
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.56) (.56) (.43) (.60) (.69)
From realized gains ---- (.02) (.09) (.04) ----
Total distributions (.56) (.58) (.52) (.64) (.69)
NET ASSET VALUE:
End of period $9.88 $9.70 $9.63 $10.02 $9.74
Total investment return (1) 7.73% 7.00% 1.19% 9.81% 9.09%
Net assets at end of period (000's omitted) $279,769 $255,157 $324,691 $338,977 $192,808
RATIOS:
Expenses to average daily net assets 0.80% (2) 0.79% (2) 0.77% (2) 0.80% 0.80%
Net investment income to average daily net assets 5.65% (2) 5.84% (2) 5.68% (2) 6.17% 7.02%
Portfolio turnover rate (excluding short-term
securities) 25.50% 13.13% 47.56% 58.29% 80.27%
</TABLE>
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Percentages for the period ended March 31, 1994, are adjusted to an annual
rate. Total Fund expenses are contractually limited to .80% of average
daily net assets. However, during the periods ended March 31, 1996, 1995
and 1994, the investment adviser voluntarily absorbed $15,540, $24,991 and
$77,029 in expenses that were otherwise payable by the Fund. Had the fund
incurred these expenses, the ratio of expenses to average daily net assets
would have been .80% for the periods ended March 31, 1996, 1995 and 1994,
and the ratio of net investment income to average daily net assets would
have been 5.65%, 5.83% and 5.65%, respectively.
SIT U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Nine Months
Ended
Years Ended March 31, March 31, Years Ended June 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $10.28 $10.50 $10.73 $10.81 $10.54
OPERATIONS:
Net investment income .70 .67 .47 .71 .77
Net realized and unrealized gains
(losses) on investments .19 (.22) (.18) .07 .44
Total from operations .89 .45 .29 .78 1.21
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.70) (.67) (.47) (.71) (.77)
From realized gains ---- ---- (.05) (.15) (.17)
Total Distributions (.70) (.67) (.52) (.86) (.94)
NET ASSET VALUE:
End of period $10.47 $10.28 $10.50 $10.73 $10.81
Total investment return (1) 8.87% 4.47% 2.70% 7.50% 11.87%
Net assets at end of period (000's omitted) $52,450 $37,454 $38,683 $31,538 $35,353
RATIOS:
Expenses to average daily net assets 0.80% (3) 0.80% (3) 0.86% (3) 0.89% (2) 0.80%(2)
Net investment income to average daily net assets 6.72% (3) 6.48% (3) 5.79% (3) 6.60% (2) 7.28%(2)
Portfolio turnover rate (excluding short-term
securities) 51.37% 38.51% 73.87% 76.66% 133.86%
</TABLE>
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Prior to January 1, 1993, total Fund expenses were contractually limited to
1.25% of average daily net assets for the first $30 million of Fund net
assets and 1.00% of average daily net assets exceeding $30 million of Fund
net assets. However, during the years ended June 30, 1993 and 1992, the
investment adviser voluntarily absorbed an additional $72,628 and $134,559
of expenses that were otherwise payable by the Fund. Had the Fund incurred
these expenses, the ratio of expenses to average daily net assets would
have been 1.11% and 1.21%, respectively for these periods, and the ratio of
net investment income to average daily net assets would have been 6.38% and
6.87%, respectively.
(3) Percentages for the period ended March 31, 1994, are adjusted to an annual
rate. Total Fund expenses are contractually limited to 1.00% of average
daily net assets for the first $50 million in Fund net assets and .80% of
average daily net assets exceeding $50 million. However, during the periods
ended March 31, 1996, 1995 and 1994, the investment adviser voluntarily
absorbed $88,625, $73,460 and $39,324 of expenses that were otherwise
payable by the Fund. Had the Fund incurred these expenses, the ratio of
expenses to average daily net assets would have been 1.00% for each of
these periods, and the ratio of net investment income to average daily net
assets would have been 6.52%, 6.28% and 5.65%, respectively.
SIT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
As of November 1, 1993, the Fund's name was changed to Sit Money Market
Fund, Inc. from Sit Investment Reserve Fund, Inc. Effective on this date, the
Fund's primary investment policy was amended to comply with Rule 2a-7 of the
Investment Company ct of 1940 governing money market funds. The Fund's
investment objective, however, remains the achievement of maximum current income
to the extent consistent with the preservation of capital and maintenance of
liquidity. Per share amounts prior to November 1, 1993 have been restated to
reflect the 9.98 to 1 stock split.
<TABLE>
<CAPTION>
MONEY MARKET FUND SIT INVESTMENT RESERVE FUND
Period from Period from
November 1, July 1,
1993 to 1993 to
Years Ended March 31, March 31, October 31, Years Ended June 30,
1996 1995 1994 1993 1993 1992
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
OPERATIONS:
Net investment income 0.05 0.04 0.01 0.01 0.03 0.05
Total from operations 0.05 0.04 0.01 0.01 0.03 0.05
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.05) (0.04) (0.01) (0.01) (0.03) (0.05)
NET ASSET VALUE:
End of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total investment return (1) 5.44% 4.57% 1.14% 0.92% 3.02% 5.03%
Net assets at end of period (000's omitted) $21,260 $29,822 $17,864 $12,626 $10,869 $16,234
RATIOS:
Expenses to average daily net assets 0.50%(3) 0.50%(3) 0.50%(3) 0.72%(3) 0.80%(2) 0.80%(2)
Net investment income to average daily net
assets 5.35%(3) 4.63%(3) 2.76%(3) 2.67%(3) 2.98%(2) 4.74%(2)
</TABLE>
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Prior to January 1, 1993, total Fund expenses were contractually limited to
1.00% of average daily net assets for the first $30 million of Fund net
assets. Subsequent to January 1, 1993 total Fund expenses are contractually
limited to .80% of the first $50 million of Fund net assets. However,
during the years ended June 30, 1993 and 1992, the investment adviser
voluntarily absorbed $16,480 and $20,635 of expenses that were otherwise
payable by the Fund. Had the Fund incurred these expenses, the ratio of
expenses to daily net assets would have been 0.91% and 1.00%, repectively,
for these periods, and the ratio of net investment income to average daily
net assets would have been 2.87% and 4.54%, respectively.
(3) Percentages for the periods ended March 31, 1994, and October 31, 1993, are
adjusted to an annual rate. Total Fund expenses are contractually limited
to .80% of average daily net assets for the first $50 million in Fund net
assets and .60% of average daily net assets for Fund net assets exceeding
$50 million. However, during the periods ended March 31, 1996, 1995 and
1994, and October 31, 1993, the investment adviser voluntarily absorbed
$66,862, $63,828, $17,565, and $3,224, respectively, in expenses that were
otherwise payable by the Fund. Had the Fund incurred these expenses, the
ratio of expenses to average daily net assets would have been .80% for each
of these periods and the ratio of net investment income to average daily
net assets would have been 5.05%, 4.33%, 2.46%, and 2.59%, respectively.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
SIT Mutual Funds II, Inc.
SIT U.S. Government Securities Fund, Inc.
SIT Money Market Fund, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of portfolios of investments in securities, of SIT Bond
Fund (a series of SIT Mutual Funds II, Inc.), SIT Minnesota Tax-Free Income Fund
(a series of SIT Mutual Funds II, Inc.), SIT Tax-Free Income Fund (a series of
SIT Mutual Funds II, Inc.), U.S. Government Securities Fund, Inc., and SIT Money
Market Fund, Inc. as of March 31, 1996; the related statements of operations for
the year ended March 31, 1996; the statements of changes in net assets for each
of the years in the two-year period ended March 31, 1996; and the financial
highlights as presented in footnote 4 to the financial statements. These
financial statements and the financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of SIT Bond Fund, SIT Minnesota Tax-Free Income Fund, SIT Tax-Free
Income Fund, SIT U.S. Government Securities Fund, Inc. and SIT Money Market Fund
as of March 31, 1996 and the results of their operations, the changes in their
net assets, and the financial highlights for the periods stated in the first
paragraph above, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 10, 1996
SIT MUTUAL FUND GROUP
FEDERAL INCOME TAX INFORMATION
We are required by Federal tax regulations to provide shareholders with
certain information regarding dividend distributions on an annual fiscal year
basis. The figures are for informational purposes only and should not be used
for reporting to federal or state revenue agencies. All necessary tax
information will be mailed in January each year.
<TABLE>
<CAPTION>
LONG-TERM LONG-TERM
ORDINARY CAPITAL ORDINARY CAPITAL
FUND AND PAYABLE DATE INCOME GAIN (a) FUND AND PAYABLE DATE INCOME GAIN (a)
<S> <C> <C> <C> <C> <C>
Bond Fund Minnesota Tax-Free Income Fund
April 28, 1995 $0.04655 $---- April 28, 1995 $0.04304 $----
May 31, 1995 0.05583 ---- May 31, 1995 0.05151 ----
June 30, 1995 0.05301 ---- June 30, 1995 0.04595 ----
July 31, 1995 0.05214 ---- July 31, 1995 0.04722 ----
August 31, 1995 0.05433 ---- August 31, 1995 0.04748 ----
September 30, 1995 0.04876 ---- September 30, 1995 0.04509 ----
October 31, 1995 0.05100 ---- October 31, 1995 0.05016 ----
November 30, 1995 0.05096 ---- November 30, 1995 0.04741 ----
December 29, 1995 0.05058 ---- December 29, 1995 0.04560 ----
January 31, 1996 0.06250 ---- January 31, 1996 0.05108 ----
February 29, 1996 0.05875 ---- February 29, 1996 0.04534 ----
March 29, 1996 0.05427 ---- March 29, 1996 0.04556 ----
$0.63868(b) $0.00000 $0.56544(c) $0.00000
Tax-Free Income Fund U.S. Government Securities Fund
April 28, 1995 $0.04218 $---- April 28, 1995 $0.05726 $----
May 31, 1995 0.04928 ---- May 31, 1995 0.06648 ----
June 30, 1995 0.04518 ---- June 30, 1995 0.05918 ----
July 31, 1995 0.04723 ---- July 31, 1995 0.06039 ----
August 31, 1995 0.04633 ---- August 31, 1995 0.05828 ----
September 30, 1995 0.04477 ---- September 30, 1995 0.05652 ----
October 31, 1995 0.04930 ---- October 31, 1995 0.05821 ----
November 30, 1995 0.04656 ---- November 30, 1995 0.05586 ----
December 29, 1995 0.04460 ---- December 29, 1995 0.05311 ----
January 31, 1996 0.05112 ---- January 31, 1996 0.06286 ----
February 29, 1996 0.04490 ---- February 29, 1996 0.05691 ----
March 29, 1996 0.04452 ---- March 29, 1996 0.05507 ----
$0.55597(c) $0.00000 $0.70013(b) $0.00000
Money Market Fund
April 28, 1995 $0.00429 $----
May 31, 1995 0.00505 ----
June 30, 1995 0.00456 ----
July 31, 1995 0.00467 ----
August 31, 1995 0.00457 ----
September 30, 1995 0.00424 ----
October 31, 1995 0.00464 ----
November 30, 1995 0.00436 ----
December 29, 1995 0.00422 ----
January 31, 1996 0.00465 ----
February 29, 1996 0.00399 ----
March 29, 1996 0.00383 ----
$0.05307(b) $0.00000
</TABLE>
(a) Taxable as long-term gain.
(b) Taxable as dividend income and does not qualify for deduction by
corporations.
(c) 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.
(This page has been left blank intentionally.)
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
Michael C. Brilley
John E. Hulse
Sidney L. Jones
Donald W. Phillips
William E. Frenzel
Director Emeritus:
Melvin C. Bahle
Officers:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Michael C. Brilley Senior Vice President
Mary K. Stern President
Debra A. Sit, CFA Vice President - Investments,
Assistant Treasurer
Paul E. Rasmussen Vice President & Treasurer
Michael P. Eckert Vice President - Group Manager
Michael J. Radmer Secretary
Parnell M. Kingsley Assistant Secretary
Carla J. Rose Assistant Secretary
ANNUAL REPORT
BOND FUNDS
MARCH 31, 1996
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
Norwest Bank Minnesota, N.A.
733 Marquette Avenue
Minneapolis, MN 55479
TRANSFER AGENT AND
DISBURSING AGENT
First Data Investor Services
P.O. Box 9763
Providence, RI 02940-9763
AUDITORS
KPMG Peat Marwick LLP
4200 Norwest Center
Minneapolis, MN 55402
LEGAL COUNSEL
Dorsey & Whitney P.L.L.P.
220 South Sixth Street
Minneapolis, MN 55402
MEMBER OF
100% NO-LOAD
MUTUAL FUND
COUNCIL
