BOND FUNDS SEMI-ANNUAL REPORT
September 30, 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
[LOGO]
SIT MUTUAL FUNDS
A LOOK AT THE SIT MUTUAL FUNDS
Sit Mutual Funds is managed by Sit Investment Associates, Inc. Sit
Investment was founded by Eugene C. Sit in July 1981 and is dedicated to a
single purpose, to be one of the premier investment management firms in the
United States. Sit Investment currently manages more than $5.1 billion for some
of America's largest corporations, foundations and endowments.
Sit Mutual Funds is comprised of eleven 100% NO-LOAD funds. 100% NO-LOAD
means that the funds have no sales charges on purchases, no deferred sales
charges, no 12b-1 fees, no redemption fees and no exchange fees. Every dollar
you invest goes to work for you.
Some of the other features include:
* Free telephone exchange
* Dollar-cost averaging through automatic investment plan
* Electronic transfer of funds for purchases and redemptions
* Free check-writing privileges on bond funds
* Retirement accounts including IRAs, Keoghs and 401(k) Plans
OUR FAMILY OF FUNDS
[CHART OMITTED]
SIT MUTUAL FUNDS
BOND FUNDS SEMI-ANNUAL REPORT
TABLE OF CONTENTS
PAGE
Chairman's Letter.......................................... 2
Performance Review......................................... 4
Fund Reviews and Portfolios of Investments
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......................... 35
Statements of Assets and Liabilities....................... 36
Statements of Operations................................... 37
Statements of Changes in Net Assets........................ 38
Notes to Financial Statements.............................. 40
Financial Highlights....................................... 43
This document must be preceded or accompanied by a Prospectus.
SIT MUTUAL FUNDS
CHAIRMAN'S LETTER - SEPTEMBER 30, 1996
[PHOTO-CHAIRMAN]
Dear Fellow Shareholders:
Domestic financial assets provided positive results during the six-month
period ended September 30, 1996 amid mixed economic indicators and oscillating
interest rates, generally subdued inflation and healthy corporate profit growth.
ECONOMIC OVERVIEW
The domestic economy slowed during the third quarter of 1996 to a +2.2%
annualized rate of real GDP growth, down from the second quarter's hearty +4.7%
expansion. Personal consumption expenditures, a major component of the nation's
economy, grew at a +0.4% annual rate during the third quarter and slowed
considerably from the second quarter's +3.4% rate. A contraction in government
spending also contributed to the deceleration, as federal spending to compensate
for the temporary government shutdown peaked during the second quarter.
Contributing positively to third quarter growth, business inventories, a
typically volatile component of GDP, ballooned by roughly $20 billion.
Although the economy showed signs of softness during the third quarter,
several indicators point toward a slight uptick in fourth quarter growth. Strong
personal income gains and a continued low unemployment rate of 5.2% support the
notion that consumer spending could rebound during the fourth quarter.
Additionally, consumer confidence, despite drifting slightly lower in September,
remains at high levels. Durable equipment expenditures also continue to trend
higher on strength in the transportation and technology sectors. Overall, we
believe fourth quarter growth should approximate +2.5%, resulting in a growth
rate of roughly +2.7% for calendar 1996.
With economic growth trending near moderate levels, concern over mounting
inflationary pressures is minimal. Consumer inflation looks stable at +3.0%,
according to the year-over-year change in the CPI, while producer price
pressures, as shown by the PPI, are slightly less at +2.9%. Other indicators
such as the CRB (commodity) Index, producer indices like the NAPM (producer)
Price Component and decreased spot energy prices suggest modest price pressures.
An area of concern for fixed income investors this year, however, has been
potential wage pressures, particularly given exceptionally strong employment
reports. Recent decreases in the employment cost index, however, seem to
indicate a leveling-off in wage and benefit gains, although we will continue to
monitor these levels closely. Price competition at the consumer level,
particularly for non-durable goods like cereals and soda, appears sufficient to
keep inflationary pressures at bay over the near term.
Contrary to third quarter expectations, the Federal Reserve did not raise
short-term interest rates in September. With recent data pointing to a
deceleration in the third quarter, we believe the Fed will maintain its neutral
stance when it reconvenes in mid-November. The Fed will be closely monitoring
consumer and capital spending as well as wage levels as it considers any policy
shifts in 1997.
Although the U.S. dollar has risen in 1996 against the Japanese yen and the
German mark, it remains stable when viewed against an average of G-10 currencies
and should not impact the competitiveness of American industry. The European
economies appear to be rebounding modestly, although European monetary
authorities have expressed reluctance to ease short-term rates further. The
Japanese recovery has also been sluggish; although further monetary ease is
unlikely given deflationary pressures, already low short rates and generally
weak demand. These factors suggest that exports will not likely provide a
substantial boost to fourth quarter growth in the U.S.; however, the continued
moderate growth and heavy foreign interest in U.S. Treasuries should provide
support for the U.S. dollar.
In terms of U.S. fiscal policy, November's elections have ensured divided
government for at least the next two years, a period that will be critical in
terms of addressing the issue of entitlement spending growth. Even though
President Clinton won reelection, the Republican majority in Congress will
continue to push for fiscal discipline, particularly in containing national
health care costs given projections for Medicaid/Medicare insolvency by 2002.
The 1996 fiscal year deficit declined to $107 billion, $57 billion less than
that posted for fiscal year 1995. Key factors in the deficit improvement were
economic strength, higher tax receipts and lower defense spending. However,
unless they are soon addressed, entitlement spending mandates will likely
increase the deficit in the years ahead.
STRATEGY SUMMARY
Data released in October and early November reflected slower economic
growth and stable inflation, fueling a bond market rally and further supporting
the Federal Reserve's decision not to increase interest rates at their September
meeting. The 30-year Treasury yield dropped to 6.65% on October 31st and broke
through the narrow 6.75% to 7.25% range in which it had been trading since early
April. Whether this rally is sustainable will be determined by key future
economic releases related to consumer spending and inflation.
EMPLOYMENT COST CONCERNS ABATING
Employment Costs: Under Control
Year-to-year percentage change; quarterly data
[PLOT POINTS OMITTED]
SOURCE: BUREAU OF LABOR STATISTICS
Source: The Wall Street Journal, October 30, 1996
Given the current economic climate of moderating growth and stable
inflation and the status quo results in the elections, we expect no changes in
monetary policy over the near term. Our current interest rate forecast calls for
bond yields to remain fairly stable within a relatively narrow, but slightly
lower, trading range over the next year. This forecast is supported by
historical data which shows that since 1920, on average, percentage price moves
in the bond market in the year following a Presidential election have been quite
modest, +0.87% when a Democrat wins versus -2.03% when a Republican wins. In
addition, over the last 50 years, the bond market has produced stronger returns
when government was divided than when unified, primarily because regulatory
growth nearly grinds to a halt. The election results, then, should be fairly
positive for the bond market over the next two years.
Duration remains the key to sector performance, as it has been for much of
the year. With the bond market rally in October, all taxable bond sectors have
now produced positive returns on a year-to-date basis. Despite lagging the
recent rally, the mortgage sector is now the top performing sector for the year,
outperforming the Lehman Aggregate Bond Index by over 150 basis points. Given
our expectations for relatively stable interest rates, our taxable bond
investment strategies continue to emphasize securities that provide high levels
of income and relative principal stability, and portfolios continue to be
positioned with durations near their benchmarks.
Long-term municipal bonds have not kept pace with the rally in the
taxable bond market in recent weeks. Long municipal bond yields ended October at
approximately 88% of long Treasury bond yields compared with 85% at the
beginning of the month, in part due to higher relative supply. Municipal bonds
have lost a good part of the positive incremental return that they achieved
earlier in the year and now, on a year-to-date basis, are only slightly ahead of
taxable bonds. As we expect bond yields to remain within a narrow trading range
in the months ahead, we believe that municipal bonds will return to more normal
valuation levels relative to taxable bonds, particularly as investors seek to
reinvest proceeds from heavy seasonal coupon and principal payments over the
next few months. We continue to look for opportunities to reinvest in higher
yielding opportunities with greater call protection.
The Sit Mutual Fund fixed income funds remain focused on providing
attractive returns consistent with their dual objectives of high income and
principal stability. We appreciate your continued interest and support as
shareholders.
With best wishes,
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
SIT MUTUAL FUNDS
SEPTEMBER 30, 1996 PERFORMANCE SUMMARY - BOND FUNDS
BOND MARKET REVIEW
The Federal Reserve Board made no changes to short-term interest rates
during the six month period as the economy posted mixed signs of strength.
3-month Treasury bill yields increased from 5.14% on March 31, 1996 to a high of
5.36%, in anticipation of a possible tightening move by the Federal Reserve,
before decreasing to 5.06% on September 30, 1996 as these expectations
diminished. Longer term interest rates rose, however. The yield on the 30-year
Treasury increased approximately 25 basis points to 6.92% on September 30th
while intermediate maturity Treasury yields increased by approximately 35 basis
points during the period. Conflicting economic releases have kept bond yields in
their most narrow trading range in almost seven years, with the 30-year Treasury
bond yielding between 6.75% and 7.25% since early April. Within this narrow
range, the bond market has shown a great deal of volatility. September marked
the seventh time this year long bond yields rose over 7.0%, as data supporting a
strengthening economy once again took center stage.
Within the taxable bond market, the more defensive asset backed and
mortgage pass-through sectors provided the best returns during this period of
rising bond yields. While corporate bond yields rose less than Treasury yields,
corporates were the worst performing sector due to their relatively longer
durations. Performance in the Sit taxable bond funds benefited from their focus
on securities within those sectors that provided higher levels of income.
The municipal market experienced greater price stability during the period,
as reflected in the yield on the Bond Buyer 40-Bond Revenue Index which
decreased slightly from 5.96% on March 31, 1996, to 5.89% on September 30, 1996,
and remained in a narrower range between 5.80% and 6.22%. Long term municipal
yields ended the period at approximately 85% of long Treasury yields, compared
to 89% at the beginning of the period. Municipal bonds have returned to their
March 1995 relative valuation level, prior to any talk of tax reform and this
improvement in valuation is a primary reason why municipals have continued to
outperform taxable bonds on a year-to-date basis. Among revenue bonds, the
hospital sector earned the highest return, and was helped by its income
advantage as well as from narrowing incremental yield spreads.
<TABLE>
<CAPTION>
TOTAL RETURN - CALENDAR YEAR
YIELD
YTD AS OF DISTRIBUTION
1988 1989 1990 1991 1992 1993 1994 1995 1996 9/30/96 RATE(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SIT BOND FUND ---- ---- ---- ---- ---- 0.34%(1) -1.31% 16.83% 1.07% 6.61% 6.61%
SIT MINNESOTATAX-FREE
INCOME FUND ---- ---- ---- ---- ---- 1.60(1) 0.63 11.90 3.83 5.64(3) 5.67
(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 3.30 5.65(4) 5.67
(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 2.80 6.20 6.36
SIT MONEY MARKET FUND ---- ---- ---- ---- ---- 0.46(1) 3.84 5.58 3.79 5.06(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 0.61
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 2.20
LEHMAN INTER. GOVERNMENT BOND
INDEX 6.40 12.68 9.56 14.11 6.93 8.17 -1.75 14.41 1.71
3-MONTH U.S. TREASURY BILL 7.10 8.73 8.04 5.72 3.56 3.13 4.47 5.98 3.94
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.)
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN AVERAGE ANNUAL TOTAL RETURNS FOR
TOTAL RETURN SIX MONTHS THE PERIODS ENDED SEPTEMBER 30, 1996
QUARTER ENDED ENDED SINCE
INCEPTION 9/30/96 9/30/96 1 YEAR 3 YEARS 5 YEARS INCEPTION
<S> <C> <C> <C> <C> <C> <C> <C>
SIT BOND FUND 12/01/93 1.97% 2.45% 4.99% ---- ---- 5.68%
SIT MINNESOTA TAX-FREE INCOME FUND 12/01/93 2.56 3.81 7.08 ---- ---- 6.27
SIT TAX-FREE INCOME FUND 09/29/88 2.27 3.72 6.78 5.49% 7.12% 7.53
SIT U.S. GOV'T. SECURITIES FUND 06/02/87 1.69 2.36 5.83 5.70 6.54 8.27
SIT MONEY MARKET FUND 11/01/93 1.27 2.51 5.17 ---- ---- 4.69
LEHMAN AGGREGATE BOND INDEX 1.85 2.43 4.90 5.01 7.46 5.49
LEHMAN 5-YEAR MUNICIPAL BOND INDEX 1.65 2.19 4.30 4.46 6.39 7.15
LEHMAN INTER. GOVERNMENT BOND INDEX 1.72 2.40 5.10 4.62 6.75 8.10
3-MONTH U.S. TREASURY BILL 1.32 2.63 5.35 5.01 4.42 5.06
</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 9/30/96.
(3) For Minnesota residents in the 31%, 36% and 39.6% federal tax brackets, the
double exempt tax equivalent yields are 8.93%, 9.63% and 10.20%,
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 8.19%, 8.83% and 9.35%, 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 9/30/96 was 4.94%.
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
SEPTEMBER 30, 1996
[PHOTO]
MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
BRYCE A. DOTY, CFA
PORTFOLIO MANAGER
The Sit Bond Fund provided investors a +2.45% return for the six months
ended September 30, 1996 and a +2.43% return for the Lehman Aggregate Bond
Index. The Fund's cumulative return since inception of +16.93% ranks it in the
top 15% of the 103 funds in the Lipper Intermediate Investment Grade Bond Fund
universe.
The yield on the 10-year Treasury note ended the past six months 0.38%
higher at a yield of 6.70%. For most of the period, the yield remained in a
narrow range of 6.50% to 7.00%. The Fund maintained its effective duration near
that of the 4.8 year duration of the Lehman Aggregate Bond Index over the past
six months.
The Fund's performance benefited from the high level of interest income
that it earns as well as from the relative price stability of its mortgage
pass-through holdings. The Fund's longest duration holdings are its Treasury
securities which provided the lowest returns for the past six months due to
their greater price sensitivity to the rising interest rate trend.
The Fund's most significant sector shifts involved selling mortgage
pass-through securities and purchasing less defensive securities primarily in
the Treasury sector. Other activity was focused within the asset-backed sector.
The fund improved its average credit quality by selling its holdings of AA-rated
securities backed by manufactured housing loans and reinvesting the proceeds in
insured AAA-rated issues backed by home equity loans at comparable yield levels.
Conflicting economic data have caused uncertainty regarding the economy's
current and projected rate of growth. Consequently, interest rates have moved
within a narrow range for the past six months. We expect stable to declining
interest rates over the next six months as the economy's growth slows. The Fund
will continue to invest in securities that offer attractive total return
potential while maintaining its high average credit quality.
INVESTMENT OBJECTIVE AND STRATEGY
The investment objective of the Fund is to maximize total return, consistent
with preservation of capital. The Fund's "total return" is a combination of
income, changes in principal value and reinvested dividends.
The Fund will pursue its objective by investing in a diversified portfolio
of fixed-income securities which include, but are not limited to, the following:
U.S. government securities; corporate debt securities; corporate commercial
paper; mortgage and other asset-backed securities.
PORTFOLIO SUMMARY
Net Asset Value 9/30/96: $9.74 Per Share
3/31/96: $9.83 Per Share
Total Net Assets: $5.40 Million
30-Day SEC Yield: 6.61%
12-Month Distribution Rate: 6.61%
Average Maturity: 16.7 Years
Effective Duration: 4.8 Years(1)
(1) Effective duration is a measure which reflects estimated price sensitivity
to a given change in interest rates. For example, for an interest rate change of
1.0%, a portfolio with a duration of 5 years would be expected to experience a
price change of 5%. Effective duration is based on current interest rates and
the Adviser's assumptions regarding the expected average life of individual
securities held in the portfolio.
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Agency Mortgage 30.1
Pass-Through Securities
Asset-Backed Securities 18.7
Government & Agency 17.2
Corporate Bonds & Notes 14.4
Collateralized Mortgage 12.0
Obligations
Miscellaneous 5.1
Other Assets & Liabilities 2.5
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
Lipper Inter. Lehman Lipper Inter. Lehman
Bond Investment Grade Aggregate Bond Investment Grade Aggregate
Fund Bond Fund Avg. Bond Index Fund Bond Fund Avg. Bond Index
<S> <C> <C> <C> <C> <C> <C>
3 Months 1.97% 1.78% 1.85% 1.97% 1.78% 1.85%
(unannualized)
1 Year 4.99 4.30 4.90 4.99 4.30 4.90
Inception 5.68 4.66 5.49 16.93 13.79 16.35
(12/1/93)
</TABLE>
* As of 9/30/96
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
[PLOT POINT CHART OMITTED]
The sum of $10,000 invested at inception (12/1/93) and held until 9/30/96 would
have grown to $11,693 in the Fund or $11,635 in the Lehman Aggregate Bond Index
assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of total net assets)
LOWER OF MOODY'S OR S&P USED.
[PIE CHART]
Agency Mortgage-Backed Securities & CMO's 42.1%
Government & Agency 17.2%
AAA 18.7%
A 10.1%
BBB 9.4%
Other Assets & Liabilities 2.5%
SIT BOND FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1996 (UNAUDITED)
QUANTITY NAME OF ISSUER MARKET VALUE(1)
U.S. GOVERNMENT SECURITIES (17.2%) (2)
450,000 U.S. Treasury Note, 8.25%,
7/15/98 $466,173
250,000 U.S. Treasury Bond, 7.25%,
5/15/04 258,825
5 U.S. 30-yr. Treasury Put Option,
Expires 11/16/96 5,703
U.S. Treasury Coupon Strip:
150,000 6.93% Effective Yield on
Purchase Date, 11/15/04 87,276
150,000 7.17% Effective Yield on
Purchase Date, 5/15/09 62,787
250,000 U.S. Treasury Principal Strip,
7.14% Effective Yield on
Purchase Date, 2/15/19 50,813
Total U.S. government securities 931,577
(cost: $930,560)
ASSET-BACKED SECURITIES (18.7%)
250,000 Advanta Mortgage Loan Trust,
7.07%, 3/25/27 234,947
75,000 Cityscape Home Equity Loan Trust,
1996-3 A8, 7.65%, 9/25/25 74,397
ContiMortgage Home Equity Loan
Trust:
249,998 1996-1 A7, 7.00%, 3/15/27 235,711
100,000 1996-3 A7, 8.04%, 9/15/27 100,892
100,000 EQCC Home Equity Loan Trust,
Series 1996-1, 6.93%, 3/15/27 94,059
100,000 EquiVantage, 1996-3 A3, 7.70%,
9/25/27 99,501
75,000 Green Tree Corp., Series 1995-5,
7.25%, 9/15/26 72,989
100,000 Security Pacific Corp., Series 1995-1,
7.65%, 4/10/20 96,192
Total asset-backed securities
(cost: $1,032,324) 1,008,688
CORPORATE BONDS (14.4%)
250,000 Ford Motor Credit Corp., 9.14%,
12/30/14 270,665
275,000 Franchise Finance Corp. Medium
Term Note, 7.02%, 2/20/03 262,281
250,000 Nationwide Health Properties
Medium Term Note,
6.93%, 12/18/01 $243,437
Total corporate bonds & notes
(cost: $793,730) 776,383
MORTGAGE PASS-THROUGH SECURITIES (3)(30.1%)
Federal Home Loan Mortgage
Corp.:
54,283 10.25%, 9/1/09 58,599
38,059 10.75%, 3/1/11 41,549
Government National Mortgage
Association:
21,758 8.75%, 11/15/01 22,811
12,651 9.00%, 8/15/11 13,218
99,494 9.00%, 12/15/16 103,901
74,041 9.00%, 11/15/19 77,319
46,943 9.25%, 5/15/01 49,571
27,507 9.50%, 3/15/03 29,214
186,010 9.50%, 11/15/05 196,876
82,954 9.50%, 2/15/11 87,375
5,929 9.75%, 8/15/02 6,299
57,849 10.00%, 8/15/02 61,543
45,210 10.25%, 4/15/01 48,048
47,920 10.25%, 4/15/01 50,930
14,108 10.25%, 4/15/12 15,074
13,075 10.25%, 5/15/12 13,966
18,075 10.25%, 5/15/12 19,332
109,440 10.25%, 5/15/12 116,965
14,057 10.25%, 6/15/12 15,019
18,208 10.25%, 6/15/12 19,476
45,805 10.25%, 7/15/12 48,955
19,198 10.25%, 7/15/12 20,540
82,879 10.25%, 8/15/12 88,545
65,029 10.25%, 6/15/13 69,620
58,623 10.50%, 7/15/00 62,336
33,359 10.75%, 8/15/98 34,370
73,151 10.75%, 1/15/01 77,814
36,258 11.25%, 10/15/00 38,565
96,218 11.75%, 7/15/00 102,400
32,005 11.75%, 7/15/01 34,306
Total mortgage pass-through securities
(cost: $1,630,418) 1,624,536
COLLATERALIZED MORTGAGE OBLIGATIONS (12.0%)
250,000 Federal National Mortgage
Association, 1994-38, 6.65%,
12/25/23 $ 235,687
Vendee Mortgage Trust:
30,609 1992-1 2B, 7.75%, 9/15/10 30,852
75,000 1992-2 2D, 7.00%, 9/15/15 74,171
100,000 1994-1 2E, 6.50%, 1/15/17 93,481
75,000 1996-2 1D, 6.75%, 11/15/15 72,150
150,000 1996-2 1E, 6.75%, 5/15/20 140,888
Total collateralized mortgage obligations
(cost: $643,664) 647,229
CLOSED-END INVESTMENT COMPANIES (5.1%)
2,400 American Strategic Income
Portfolio 25,500
11,200 American Strategic Income
Portfolio II 120,400
12,500 American Strategic Income
Portfolio III 129,687
Total closed-end investment companies
(cost: $274,616) 275,587
SHORT-TERM SECURITIES (1.5%)
82,686 Cash Management Fund, 5.28% 82,686
(cost: $82,686)
Total investments in securities
(cost: $5,387,998) (6) $5,346,686
See accompanying notes to portfolios of investments on page 35.
SIT MINNESOTA TAX-FREE INCOME FUND REVIEW
SEPTEMBER 30, 1996
[PHOTO]
MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
DEBRA A. SIT, CFA
PORTFOLIO MANAGER
Long term municipal bond yields decreased slightly during the six month
period, as reflected in the yield of the Bond Buyer 40-Bond Revenue Index which
decreased from 5.96% to 5.89% and remained within a narrow range between 6.22%
and 5.80%. During the period, the Fund's per share net asset value ranged
between $9.98 and $10.18. The Fund provided shareholders a six month return of
+3.81%, compared to +2.19% for the Lehman 5-Year Municipal Index. The Fund's
performance ranked #4 of 46 Minnesota funds tracked by Lipper Analytical
Services for the most recent quarter, and #1 for the 12-month period (of 46
funds) and period since inception (of 27 funds). The Fund's ability to provide
high income and stability of principal is highlighted in its attractive longer
term returns. The Fund's 30-day SEC yield decreased slightly from 5.72% to 5.64%
while its 12-month distribution rate increased from 5.60% to 5.67% over the
semi-annual period.
The Fund's implied duration, which we began reporting in June, increased
from 3.6 years to 3.9 years during the most recent quarter as the Fund has
continued to focus on purchasing securities with greater call protection. The
most significant shifts in the Fund's portfolio structure included decreases in
single family housing, health care, and in industrial revenue. Increases
occurred in the education sector and other revenue bonds. New purchases in the
Fund focused primarily on securities rated "A" or "BBB." Thus Fund holdings in
securities rated A or better by the major ratings agencies remained relatively
constant while holdings rated BBB increased from 6.7% to 8.7%. The Fund's
performance continues to benefit from security selection, particularly within
the housing and health care sectors.
The relative valuation of municipal bonds has returned to more normal
levels as the tax-exempt market has recovered from the negative impact of last
year's threat of a flat tax. In the months ahead, we expect that municipal bond
yields will continue to follow the trading range of taxable yields as we
continue to see mixed indications on the strength of the economy. Within this
environment, we intend to reduce lower yielding holdings and find higher
yielding opportunities with greater call protection. We remain focused on
finding investments that help meet the Fund's dual objectives of high income and
stability of principal.
INVESTMENT OBJECTIVE AND STRATEGY
The investment objective of the Fund is to provide a high level of current
income exempt from federal regular income tax and Minnesota regular personal
income tax as is consistent with the preservation of capital.
The Fund will endeavor to invest 100% of its assets in municipal
securities, the income from which is exempt from federal regular income tax and
Minnesota regular personal income tax. The Fund anticipates that substantially
all of its distributions to its shareholders will be exempt as such. For
investors subject to the alternative minimum tax ("AMT"), up to 20% of the
Fund's income may be treated as an item of tax preference that is included in
the alternative minimum taxable income.
PORTFOLIO SUMMARY
Net Asset Value 9/30/96: $10.18 Per Share
3/31/96: $10.09 Per Share
Total Net Assets: $70.91 Million
30-Day SEC Yield: 5.64%
Tax Equivalent Yield: 10.20% (1)
12-Month Distribution Rate: 5.67%
Average Maturity: 18.5 Years
Duration to Estimated Avg. Life: 6.9 Years (2)
Implied Duration: 3.9 Years (2)
(1) For individuals in the 39.6% Federal and 8.5% MN tax brackets.
(2) See page 11.
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Multifamily Mortgage Revenue 36.3
Single Family Mortgage Revenue 17.3
Hospital/Health Care Revenue 15.7
Industrial Revenue/Pollution Control 11.9
Other Revenue Bonds 9.8
Education/Student Loan 2.2
General Obligation 1.6
Municipal Lease Rental 1.1
Other Assets & Liabilities 4.1
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
MN Tax-Free Lipper Lehman MN Tax-Free Lipper Lehman
Income MN Muni. 5-Year Muni. Income MN Muni. 5- Year Muni.
Fund Bond Fund Avg. Bond Index Fund Bond Fund Avg. Bond Index
<S> <C> <C> <C> <C> <C> <C>
3 Months 2.56% 2.11% 1.65% 2.56% 2.11% 1.65%
(unannualized)
1 Year 7.08 5.21 4.30 7.08 5.21 4.30
Inception 6.27 4.13 4.83 18.79 12.17 14.28
(12/1/93)
</TABLE>
* As of 9/30/96
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.
(2) Duration is a measure which reflects estimated price sensitivity to a given
change in interest rates. For example, for an interest rate change of 1%, a
portfolio with a duration of 5 years would be expected to experience a price
change of 5%. Estimated average life duration is based on current interest rates
and the Adviser's assumptions regarding the expected average life of individual
securities held in the portfolio. Implied duration is calculated based on
historical price changes of securities held by the Fund. The Adviser believes
that the portfolio's implied duration is a more accurate estimate of price
sensitivity provided interest rates remain within their historical range. If
interest rates exceed the historical range, the estimated average life duration
may be a more accurate estimate of price sensitivity.
GROWTH OF $10,000
The sum of $10,000 invested at inception (12/1/93) and held until 9/30/96 would
have grown to $11,879 in the Fund or $11,428 in the Lehman 5-Year Municipal Bond
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of total net assets)
LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED.
[PIE CHART]
AA 20.5%
AAA 20.6%
Other Assets % Liabilities 4.1%
Not Rated 35.7%
BBB 8.7%
A 10.4%
ADVISOR'S ASSESSMENT OF NOT-RATED SECURITIES
AA 0.9%
A 1.5
BBB 25.5
BB 6.3
B 1.5
Total 35.7%
<TABLE>
<CAPTION>
SIT MINNESOTA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1996 (UNAUDITED)
QUANTITY NAME OF ISSUER MARKET VALUE(1)
<S> <C> <C>
MUNICIPAL BONDS (95.9%) (2)
EDUCATION/STUDENT LOAN (2.2%)
Minnesota Higher Education Fac. Auth. Rev. Series 1996-4I (Hamline Univ.):
1,000,000 6.00%, 10/1/12 $1,000,740
585,000 6.00%, 10/1/16 578,957
1,579,697
GENERAL OBLIGATION (1.6%)
600,000 Carver Co. Hsg. & Redev. Auth. Hsg. & Dev. Gross Rev. Ltd.Tax G.O.
(Chanhassen Apts. Proj.), 7.00%, 1/1/25 612,558
500,000 Goodhue (City of) G.O. Gas Utility Series 1996, 6.75%, 1/1/26 508,690
1,121,248
HOSPITAL/HEALTH CARE (15.7%)
500,000 Brooklyn Center Hlth. Care Fac. Rev. Series 1993 (Maranatha Proj.), 7.50%, 12/1/10 523,280
215,000 Fergus Falls Hlth. Care Fac. Auth. Rev. Refunding Series 1993A
(Lake Region Hosp. Corp. Proj.), 6.25%, 9/1/04 217,662
650,000 Fergus Falls Hlth. Care Fac. Auth. Series 1995 (LRHC Long-Term Care Fac. Proj.),
6.40%,12/1/15 654,206
1,540,000 Hibbing Hlth. Care Facs. Rev. Series 1995A (St. Francis Hlth. Svcs. Proj.),
7.35%, 11/1/15 1,556,124
1,685,000 Maplewood Hlth. Care Fac. Rev. (VOA Care Ctrs. Proj.), 7.375%, 10/1/12 1,763,572
1,000,000 Minneapolis Hlth. Care Fac. Rev. Series 1993 (St. Olaf Res. Proj.), 7.00%,10/1/18 1,007,490
New Ulm Hlth. Care Fac. Rev. (Highland Manor Proj.):
1,100,000 Series 1994, 7.25%, 6/1/14 1,132,395
570,000 Series 1995A, 7.625%, 6/1/15 581,138
180,000 Puerto Rico Industrial, Tourist, Educ., Med. & Env. Ctrl. Fac. Fin. Auth. Hosp.
Rev. 1994 Series A (Ryder Mem. Hosp. Proj.), 5.75%, 5/1/99 182,531
Red Wing Hlth. Care Ctr. Fac. Rev. Refunding (River Region Obligated Group):
125,000 Series 1993A, 6.20%, 9/1/05 129,430
130,000 Series 1993A, 6.30%, 9/1/06 134,313
200,000 Series 1993B, 6.20%, 9/1/05 207,088
Sherburne Co. Nursing Home Fac. Rev. Series 1994 (Guardian Angels Care Ctr. Proj.):
75,000 7.30%, 6/1/07 77,896
80,000 7.35%, 6/1/08 83,083
90,000 7.40%, 6/1/09 93,735
555,000 7.50%, 6/1/14 576,268
140,000 7.75%, 6/1/15 146,747
150,000 7.75%, 6/1/16 157,500
95,000 St. Paul Hsg. & Redev. Auth. Comm. Dev. Rev. Refunding Series 1992
(Beverly Enterprises Proj.), 7.75%, 11/1/02 97,579
960,000 St. Paul Hsg. & Redev. Auth. Nursing Home Dev. Rev. Refunding Series 1996C
(Franciscan Hlth. Cmmty. Proj., St. Mary's Home), 7.00%, 7/1/21 939,005
820,000 Wadena Co. Hlth. Care Fac. Rev. Series 1994B, 7.45%, 9/1/15 856,310
11,117,352
INDUSTRIAL /POLLUTION CONTROL (11.9%)
500,000 Anoka Industrial Dev. Rev. Series 1994 (Lund Industries Inc. Proj.), 6.50%,
9/1/04 (4) 514,340
Cloquet Pollution Control Rev. (Potlach Corp. Proj.):
110,000 Series 1978, 6.50%, 6/1/08 110,288
635,000 Series 1979, 6.75%, 6/1/09 636,746
1,055,000 Duluth Commercial Dev. Rev. Refunding Series 1995A (Radisson Hotel Proj.),
7.00%, 12/1/00 1,050,506
MN Agricultural & Econ. Dev. Board Small Business Dev. Ln. Prgm. Rev.:
390,000 Series 1989A Lot 1, 8.25%, 8/1/09 (4) 399,344
105,000 Series 1995A Lot 1, 6.40%, 8/1/04 (4) 102,779
1,000,000 Series 1990B Lot1(May Printing Co.), 8.375%, 8/1/10 (4) 1,052,040
3,155,000 Plymouth Rev. Refunding Series 1992 (Carlson Ctr. Proj.) (LOC First Bank, N.A.),
7.00%, 4/1/12 3,302,970
200,000 Richfield Cmty. Dev. Rev. Refunding 1994 (Richfield Shoppes Proj.), 8.375% 10/1/05 215,332
1,105,000 St. Paul Port Authority Hotel Facility Senior Rev. Series 1996A (Radisson
Kellogg Project), 7.00%, 8/1/01 1,091,276
8,475,621
MULTIFAMILY MORTGAGE (36.3%)
Austin Hsg. & Redev. Auth. Governmental Hsg. Gross Rev. Series 1995A (Courtyard
Res. Proj.):
220,000 7.00%, 1/1/15 220,986
500,000 7.25%, 1/1/26 500,300
Burnsville Multifamily Hsg. Rev. Refunding:
425,000 Series 1991 (Atrium Proj.) (Trygg-Hansa insured), 7.20%, 5/1/11 442,557
960,000 Series 1994 (Bridgeway Apts. Proj.), 7.25%, 2/1/14 982,992
405,000 Chisago City Health Fac. Rev. Refunding Series 1995A (Pleasant Heights Proj.),
7.30%, 7/1/18 409,534
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) 1,907,009
270,000 Series 1995C Subordinate, 9.00%, 1/20/15 (4) 269,457
Eden Prairie Multifamily Hsg. Rev. Refunding :
60,000 Series 1990A (Welsh Parkway Apts. Ltd. Proj.)(FHA insured), 8.00%, 7/1/26 64,690
700,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.00%, 11/1/06 747,278
1,500,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.10%, 11/1/17 1,570,245
1,505,000 Eagan Multifamily Rental Hsg. Refunding Rev. Series 1996 (Wescott Apts. Proj.)
(FHA insured), 6.00%, 12/1/27 1,508,492
Hopkins Elderly Hsg. Rev. Refunding (St. Therese Southwest Proj.):
1,600,000 Series 1994A (Asset Gty. insured), 6.25%, 3/1/14 1,627,216
360,000 Series 1994B, 9.00%, 11/1/19 381,233
1,015,000 Hopkins Hsg. Facs. Rev. Refunding Series 1995 (Augustana Chapel View Homes Proj.),
7.00%, 12/1/15 1,003,277
580,000 Hopkins Subordinate Multifamily Hsg. Rev. Refunding Series 1996C
(Auburn Apts. Proj.), 8.00%, 6/20/31 586,038
450,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.), 6.25%, 4/1/15 460,589
500,000 Hutchinson Hsg. Facs. Rev. Series 1994 (Prince of Peace Proj.), 7.375%, 10/1/12 516,895
565,000 Minneapolis Multifamily Hsg. Rev. Series 1994 (Findley Place Townhomes Proj)
(Section 8), 7.00%, 12/1/16 (4) 592,572
75,000 Minneapolis Multifamily Rev. Series 1991 (Trinity Hsg. Proj.) (Section 8),
7.875%, 2/1/06 76,955
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) 368,442
MN HFA Multifamily Hsg. Dev. Rev.:
45,000 Series 1977, 6.25%, 2/1/08 45,516
140,000 Series 1977, 6.375%, 2/1/20 141,558
25,000 Series 1988A, 7.70%, 8/1/08 26,112
135,000 MN HFA Rental Hsg. Rev. Refunding Series 1993E, 6.00%, 2/1/14 136,184
Minnetonka Hsg. Fac. Rev. Series 1994 (Beacon Hill Housing Proj.):
890,000 7.00%, 6/1/04 914,270
1,000,000 7.50%, 6/1/14 1,036,690
525,000 Minnetonka Multifamily Hsg. Rev. Refunding Subordinate Series 1994C (Brier
Creek Proj.), 8.00%, 12/20/16 551,061
500,000 Monticello Senior Hsg. Rev. Series 1995 (Mississippi Shores Proj.), 7.25%, 7/1/16 503,880
385,000 Mora Multifamily Rev. Refunding Hsg. Alternatives Partnership Series 1995,
6.50%, 6/1/02 386,040
750,000 Plymouth Multifamily Hsg. Rev. Refunding Series 1996A (Fox Forest Apts. Proj.)
(GNMA collateralized), 8.05%, 6/20/31 864,300
2,500,000 Puerto Rico Housing Finance Corp. Rev. Multifamily Mtg. Portfolio Series 1990 A-I,
7.50%, 10/1/15 2,649,400
325,000 Sandstone Econ. Dev. Auth. Hsg. & Dev. Rev. Series 1994A (Family Apts. Proj.),
8.00%, 1/1/12 339,732
1,000,000 Spring Lake Park Sr. Hsg. Rev. Series 1996 (Noah's Ark Affordable Hsg. Inc.),
7.25%, 9/1/16 1,002,290
650,000 St. Louis Park Multifamily Hsg. Rev. Refunding Series 1995 (Knollwood Cmty.
Hsg. Proj.) (FHA insured), 6.15%, 12/1/16 656,208
500,000 St. Paul Hsg. & Redev. Auth. Multifamily Hsg. Refunding Series 1992 (Point of
St. Paul Proj.) (FNMA backed), 6.60%, 10/1/12 519,810
200,000 St. Paul Hsg. & Redev. Auth. Multifamily Hsg. Refunding Series 1995 (Sun Cliffe
Apts. Proj.) (GNMA collateralized), 5.875%, 7/1/15 200,878
440,000 St. Paul Port Auth. Commercial Dev. Rev. Refunding Series 1990-1 (Fort Rd.
Med./ Irvine Pk. Proj.) (Asset Gty. insured), 7.50%, 9/1/02 468,833
1,055,000 Washington Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding Series 1994
(White Bear Lake Transitional Hsg. Proj.), 6.625%, 8/1/24 1,094,457
25,773,976
MUNICIPAL LEASE RENTAL (1.1%)
585,000 Burnsville Solid Waste Rev. Series 1990 (Freeway Transfer Inc. Proj.),
9.00%, 4/1/10 (4) 648,086
100,000 Rice Co. Certificates of Participation 1996A, 5.85%, 12/1/14 99,526
747,612
SINGLE FAMILY MORTGAGE (17.3%)
656,589 Brooklyn Center/Columbia Heights/Moorhead/Robbinsdale Econ. Dev. Auth. Residual
Interest Rev. Series 1992B (FNMA backed), 7.15%, 11/1/14 674,133
Dakota County Hsg. & Redev. Auth. Single Family Mtg. Rev.:
1,000,000 Series 1994A (FNMA backed), 6.70%, 10/1/09 (4) 1,052,360
400,000 Series 1995 (FNMA & GNMA backed), 6.25%, 10/1/09 (4) 411,476
795,000 Dakota/Wash./Stearns Cos. Hsg. & Redev. Auth. Single Family Rev. Refunding
Series 1994A (FNMA backed), 6.50%, 9/1/10 (4) 825,552
Minneapolis Redev. Mtg. Rev. Series 1987A (Riverplace Proj.) (LOC Bk. of Tokyo):
210,000 7.00%, 1/1/07 216,800
500,000 7.10%, 1/1/20 514,485
2,100,000 Minneapolis Residual Interest Mtg. Rev. Series 1995 Convertible Capital
Appreciation Bonds, 7.00% Effective Yield on Purchase Date, 10/1/12 712,194
35,000 Minneapolis/ St. Paul Hsg. Fin. Bd. Single Family Mtg. Rev. Series 1989A
(GNMA backed), 7.65%, 12/1/00 (4) 36,561
MN HFA Single Family Mtg. Rev.:
120,000 Series 1988D, 8.25%, 8/1/20 (4) 126,078
15,000 Series 1989B, 7.05%, 1/1/03 15,871
55,000 Series 1989B, 7.05%, 7/1/03 58,193
20,000 Series 1990A, 7.95%, 7/1/22 (4) 21,140
290,000 Series 1990C, 7.70%, 7/1/14 306,342
240,000 Series 1991A, 7.05%, 7/1/22 (4) 249,278
600,000 Series 1991A, 7.45%, 7/1/22 (4) 628,506
1,735,000 Series 1992B-1, 6.75%, 1/1/26 (4) 1,786,668
55,000 Series 1992G, 6.10%, 1/1/11 55,538
1,000,000 Series 1994F, 6.30%, 7/1/25 1,023,800
95,000 Series 1994K, 5.90%, 1/1/07 96,042
345,000 Series 1994L, 6.70%, 7/1/20 (4) 355,740
655,000 Minneapolis Single Family Mtg. Rev. Series 1995V (FNMA & GNMA backed), 6.25%, 4/1/22 666,463
3,800,000 Moorhead Single Family Mtg. Rev. Refunding Series 1992B Zero Coupon, 7.00%
Effective Yield on Purchase Date, 8/1/11 1,382,478
670,000 St. Paul Hsg. & Redev. Auth. Single Family Mtg. Rev. Refunding Series 1995
(FNMA backed), 6.125%, 3/1/17 688,713
966,042 St. Paul Residual Interest Rev. Series 1995 Convertible Capital Appreciation
Bonds, Zero Coupon, 7.23% Effective Yield on Purchase Date, 9/1/11 337,719
12,242,130
OTHER REVENUE BONDS (9.8%)
1,500,000 Commissioner of Iron Range Resources and Rehabilitation Gross Rev. Bonds
Series 1996 (Giants Ridge Rec. Area Proj.), 7.25%, 10/1/11 1,505,490
640,000 Minneapolis Cmty. Dev. Agy. Common Bond Fund, Series 1995-1, 6.625%, 12/1/09 (4) 658,733
3,000,000 St. Paul Hsg. & Redev. Sales Tax Rev. Refunding Series 1996 (FSA insured)
(Civic Center Proj.), 7.10%, 11/1/23 3,525,510
1,245,000 St. Paul Recreational Facs. Gross Rev. Series 1996D 5.875%, 6/1/18 1,248,975
6,938,708
Total municipal bonds (cost: $66,502,566) 67,996,344
SHORT-TERM SECURITIES (2.1%)
1,500,000 University of Minnesota Regents, 3.35%, 10/2/96 1,500,000
(cost: $1,500,000)
Total investments in securities (cost: $68,002,566) (6) $69,496,344
See accompanying notes to portfolios of investments on page 35.
</TABLE>
SIT TAX-FREE INCOME FUND REVIEW
SEPTEMBER 30, 1996
[PHOTO]
MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
DEBRA A. SIT, CFA
PORTFOLIO MANAGER
Long term municipal bond yields decreased slightly during the six month
period, as reflected in the yield of the Bond Buyer 40-Bond Revenue Index which
decreased from 5.96% to 5.89% and remained within a narrow range between 6.22%
and 5.80%. During the period the Fund's per share net asset value ranged between
$9.78 and $9.98. The Fund provided shareholders a six month return of +3.72%,
compared to +2.19% for the Lehman 5-Year Municipal Index. The Fund's 12-month
return of +6.78% continues to rank among the top 15% of 230 funds in its
category. While the Fund's quarterly return of +2.27% was comparable to the
average for the Lipper General Municipal Fund universe, the Fund's ability to
provide high income and stability of principal is highlighted in its attractive
longer term returns.
Fund assets increased from $279.8 million to $294.9 million during the last
six months. The Fund's implied duration, which we began reporting in June,
increased from 3.8 years to 4.1 years during the most recent quarter as the Fund
has continued to focus on purchasing securities with greater call protection.
Since March 31, 1996, the Fund's weighting in multifamily housing bonds has
increased. Two bond issues held by the Fund were prerefunded, thus resulting in
decreased weightings in the health care sector and in lease bonds, and an
increase in AAA-rated securities. Within BBB-rated holdings, which decreased
slightly, selected health care issues were sold as their yields declined
relative to other sectors and proceeds were reinvested in multifamily housing
bonds. Other significant shifts included decreases in single family housing
bonds, and in industrial revenue bonds. The Fund's performance continues to
benefit from security selection, particularly within the housing sector.
The relative valuation of municipal bonds has returned to more normal
levels as the tax-exempt market has recovered from the negative impact of last
year's threat of a flat tax. In the months ahead, we expect that municipal bond
yields will continue to follow the trading range of taxable yields as we
continue to see mixed indications on the strength of the economy. Within this
environment, we intend to take advantage of opportunities to reduce BBB-rated
credits as yield spreads narrow. We remain focused on finding investments that
help meet the Fund's dual objectives of high income and stability of principal.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to provide a high level of current income that
is exempt from federal income tax, consistent with the preservation of capital,
by investing in investment-grade municipal securities.
Such municipal securities generate interest that is exempt from regular
federal income taxes. Of the municipal securities in which the Fund invests,
100% will be rated investment grade at time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 9/30/96: $9.96 Per Share
3/31/96: $9.88 Per Share
Total Net Assets: $294.86 Million
30-Day SEC Yield: 5.65%
Tax Equivalent Yield: 9.35% (1)
12-Month Distribution Rate: 5.67%
Average Maturity: 16.6 Years
Duration to Estimated Avg. Life: 6.3 Years (2)
Implied Duration: 4.1 Years (2)
(1) For individuals in the 39.6% federal tax bracket.
(2) See page 17.
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Multifamily Mortgage Revenue 32.0
Hospital/Health Care Revenue 20.2
Single Family Mortgage Revenue 15.9
Industrial Revenue/Pollution Control 6.4
Other Revenue 6.3
Transportation 5.0
Escrowed to Maturity/Pre-Refund 3.6
Public Facilities 2.8
Miscellaneous 2.4
Municipal Lease Rental 1.1
Sales Tax Revenue 1.0
Other Assets & Liabilities 3.3
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
Lipper Lehman Lipper Lehman
Tax-Free General Muni. 5-Year Muni. Tax-Free General Muni. 5-Year Muni.
Income Fund Bond Fund Avg. Bond Index Income Fund Bond Fund Avg. Bond Index
<S> <C> <C> <C> <C> <C> <C>
3 Months 2.27% 2.27% 1.65% 2.27% 2.27% 1.65%
(unannualized)
1 Year 6.78 5.61 4.30 6.78 5.61 4.30
3 Years 5.49 3.72 4.46 17.40 11.59 14.00
5 Years 7.12 6.97 6.39 41.03 40.04 36.31
Inception 7.53 7.72 7.15 78.87 81.40 73.80
(9/29/88)
</TABLE>
* As of 9/30/96
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.
(2) Duration is a measure which reflects estimated price sensitivity to a given
change in interest rates. For example, for an interest rate change of 1%, a
portfolio with a duration of 5 years would be expected to experience a price
change of 5%. Estimated average life duration is based on current interest rates
and the Adviser's assumptions regarding the expected average life of individual
securities held in the portfolio. Implied duration is calculated based on
historical price changes of securities held by the Fund. The Adviser believes
that the portfolio's implied duration is a more accurate estimate of price
sensitivity provided interest rates remain within their historical range. If
interest rates exceed the historical range, the estimated average life duration
may be a more accurate estimate of price sensitivity.
GROWTH OF $10,000
[PLOT POINTS OMITTED]
The sum of $10,000 invested at inception (9/29/88) and held until 9/30/96 would
have grown to $17,887 in the Fund or $17,380 in the Lehman 5-Year Municipal Bond
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of total net assets)
LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED.
[PIE CHART]
A 35.2%
AA 9.5%
AAA 11.4%
Other Assets & Liabilities 3.3%
BB 0.5%
BBB 40.1%
Total number of holdings: 218
<TABLE>
<CAPTION>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1996 (UNAUDITIED)
QUANTITY NAME OF ISSUER MARKET VALUE(1)
<S> <C> <C>
MUNICIPAL BONDS (96.7%) (2)
ALASKA (0.1%)
350,000 AK Industrial Dev. & Export Auth. Rev. Refunding Revolving Fund Series 1993A,
5.60%, 4/1/03 $ 355,079
ARIZONA (3.3%)
AZ Hlth. Fac. Auth. Hosp. System Refunding Rev. Series 1991 (Phoenix Mem. Hosp.):
1,120,000 8.00%, 6/1/06 1,210,485
1,500,000 8.125%, 6/1/12 1,612,935
770,000 8.20%, 6/1/21 828,659
Maricopa Co. Industrial Dev. Auth. Multifamily Hsg. Rev.:
3,000,000 Series 1995A, 6.50%, 10/1/25 3,068,610
575,000 Series 1995B, 7.15%, 10/1/25 576,300
1,400,000 Senior Series 1996A (Advantage Pt. Arrowood Village), 6.50%, 7/1/16 1,420,510
1,070,000 Valley HDC Phoenix Hsg. Rev. 1979 (Roosevelt Plaza) (Section 8), 8.00%, 10/1/20 1,091,732
9,809,231
ARKANSAS (1.9%)
Drew Co. Public Fac. Bd. Single Family Mtg. Rev. Refunding:
191,488 Series 1993B, 7.75%, 8/1/11 203,437
393,038 Series 1993-A2 (FNMA backed), 7.90%, 8/1/11 421,400
293,863 Jacksonville Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1993B,
7.75%, 1/1/11 314,049
303,848 Lonoke Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding 1993B,
7.375%, 4/1/11 324,764
2,100,000 Maumelle HDC First Lien Rev. Refunding 1992 Series A (Section 8), 7.875%, 7/1/09 2,259,222
1,905,000 Saline Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1992,
7.875%, 3/1/11 2,022,462
5,545,334
CALIFORNIA (3.9%)
1,200,000 Bell Cmnty. Hsg. Auth. Rev. Series 1995A (Mobilehomes Park Acquisition Proj.),
6.40%, 10/1/15 1,211,316
1,000,000 Chula Vista Redev. Agency Refunding Tax Allocation Senior Series 1994A
(Bayfront-Town Center Redev. Proj.), 7.625%, 9/1/24 1,115,350
Foothill / Eastern Transportation Corridor Agy. Toll Rd. Rev Series 1995A Sr. Lien:
2,000,000 Zero Coupon Convertible Bond, 6.10% Effective Yield on Purchase Date, 1/1/07 1,244,000
5,000,000 Zero Coupon Convertible Bond, 7.10% Effective Yield on Purchase Date, 1/1/11 3,096,700
2,000,000 Glendale Hosp. Rev. Refunding Series 1994 (Verdugo Hills Hosp.), 8.00%, 1/1/12 2,302,880
1,505,000 Sacramento Public Television Fac. Rev. 1989 Series A (KVIE inc.) (LOC
Wells Fargo & Co.), 7.50%, 7/1/20 1,579,197
990,000 Upland Hsg. Auth. Multifamily Rev. 1990 Issue A, 7.85%, 7/1/20 1,027,818
11,577,261
COLORADO (6.0%)
1,000,000 Adams Co. HA Mtg. Rev. Series 1996 (Village of Greenbriar Proj.), 6.75%, 7/1/21 971,790
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 1,228,660
2,500,000 7.13% Effective Yield on Purchase Date, 8/31/05 1,431,725
18,495,000 7.40% Effective Yield on Purchase Date, 8/31/09 7,942,123
1,250,000 Aurora Single Family Mtg. Rev. Refunding Series 1993B, 7.50%, 5/1/11 1,292,738
2,000,000 CO HFA Single Family Program Senior Series 1996 B-2, 7.45%, 11/1/27 2,221,120
365,000 LaPlata Co. Southwestern CO Single Family Mtg. Participation Rev. Refunding 1991
Series A, 7.375%, 9/1/11 383,725
510,000 Thornton Single Family Mtg. Rev. Refunding 1992 Series A, 8.05%, 8/1/09 544,935
470,000 Vail Single Family Mtg. Rev. Refunding Series 1992, 8.125%, 6/1/10 506,604
1,195,000 Westminster Multifamily Hsg. Rev. Refunding Series 1992 (Ironwood at the
Ranch Proj.), 7.45%, 12/1/10 1,237,028
17,760,448
CONNECTICUT (0.4%)
1,000,000 CT Hlth. & Educ. Fac. Auth. Rev. Series 1990C (St. Mary's Hosp.) 7.375%, 7/1/20 1,034,670
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 1,209,381
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 1,556,085
FLORIDA (0.5%)
295,000 Brevard Co. HFA Single Family Mtg. Rev. Refunding Series 1993 Zero Coupon, 7.38%
Effective Yield on Purchase Date, 5/20/12 95,067
10,055,000 FL HFA Residential Mtg. Rev. 1983 Series Zero Coupon, 9.90% Effective
Yield on Purchase Date, 11/1/16 1,449,730
1,544,797
GEORGIA (1.3%)
800,000 Cobb Co. Hsg. Auth. Multifamily Rev. Refunding Series 1992A (Signature
Place Project), 6.875%, 10/1/17 823,512
Dekalb Co. Hsg. Auth. Multifamily Hsg. Rev. (Regency Woods I & II):
1,700,000 Senior Series 1996A, 6.375%, 1/1/11 1,726,673
1,370,000 Subordinate Series 1996C, 7.25%, 1/1/26 1,280,498
3,830,683
HAWAII (0.4%)
1,250,000 Honolulu Mtg. Rev. Ref. Series 1996A (Hale-Pauahi Proj.)(FHA insured)
(MBIA insured), 6.80%, 7/1/28 1,299,388
ILLINOIS (14.4%)
1,000,000 Alton (Madison Co.) Hosp. Fac. Rev. Refunding Series 1996 (Saint
Anthony's Hlth. Ctr.), 5.875%, 9/1/06 987,250
2,745,000 Chicago Metropolitan Hsg. Dev. Corp. Mtg. Rev. Refunding Series 1992A
(FHA insured) (Section 8), 6.70%, 7/1/12 2,829,821
5,065,000 Chicago Res. Mtg. Rev. Refunding Series 1992B (MBIA insured) Zero Coupon,
7.30% Effective Yield on Purchase Date, 10/1/09 2,052,237
2,000,000 Collinsville (City of) Madison Co. Industrial Dev. Rev. Refunding (Drury
Inn-Collinsville Proj.)
Series 1993, 6.00%, 11/1/04 2,019,240
Edwardsville Elderly Hsg. Corp. 1978 (Section 8):
50,000 7.75%, 6/1/97 50,150
60,000 7.75%, 6/1/99 60,180
65,000 7.75%, 6/1/00 65,195
75,000 7.75%, 6/1/02 75,225
85,000 7.75%, 6/1/04 85,255
95,000 7.75%, 6/1/05 95,285
110,000 7.75%, 6/1/07 110,330
1,000,000 IL DFA Econ. Dev. Rev. Refunding Series 1992 (Drury Inn-Schaumberg Proj.) (NWNL),
7.125%, 9/15/12 1,016,010
1,790,000 IL DFA Elderly Hsg. Rev. Refunding Series 1995A (Pontiac Towers Proj.)
(Section 8), 6.65%, 10/1/09 1,868,760
3,000,000 IL HDA Elderly Hsg. Rev. Series 1992C (Village Ctr.) (Section 8), 6.85%, 3/1/20 3,118,230
IL HDA Multifamily Hsg. Rev.:
Refunding 1992 Series A (Section 8):
2,150,000 6.65%, 7/1/04 2,292,954
1,495,000 7.00%, 7/1/10 1,578,840
Refunding 1991 Series C (Section 8):
260,000 7.35%, 7/1/11 276,887
100,000 7.40%, 7/1/23 105,623
1,090,000 IL HDA Res. Mtg. 1987 Series A, 7.00%, 8/1/17 1,128,433
IL Hlth. Fac. Auth. Rev.:
Refunding Series 1993 (Lutheran Social Svcs. IL):
610,000 5.70%, 8/15/00 601,643
475,000 5.80%, 8/15/01 466,288
525,000 6.00%, 8/15/03 506,362
545,000 6.10%, 8/15/04 523,581
1,250,000 6.125%, 8/15/20 1,120,275
850,000 Refunding Series 1992 (Mercy Ctr. for Hlth. Care Svcs.), 6.625%, 10/1/12 854,395
5,740,000 Refunding Series 1992 (Galesburg Cottage Hosp.) (Asset Guaranty insured),
6.25%, 5/1/11 5,850,552
1,000,000 Refunding Series 1994 (Passavant Memorial Area Hospital Assn.), 5.95%, 10/1/11 994,120
1,000,000 Refunding Series 1994 (Friendship Village Schamburg), 6.25%, 12/1/04 1,040,850
Refunding Series 1994 (St. Elizabeth's Hosp. of Chicago, Inc.):
2,160,000 7.25%, 7/1/05 2,274,329
1,000,000 7.625%, 7/1/10 1,068,480
2,500,000 Metropolitan Pier & Exposition Auth. McCormick Place Convention Complex
Hospitality Fac. Rev. Series 1996A, 6.25%, 7/1/17 2,508,775
540,000 Rochelle Water & Sewer Rev. Refunding Series 1992, 7.15%, 5/1/14 584,053
2,000,000 Roselle Multifamily Hsg. Rev. Refunding Series 1994A (GNMA Collateralized)
(Waterbury Apts.) (FHA insured), 7.00%, 1/1/25 2,133,880
1,140,000 Springfield Community Improvement Rev. 1985 (Garden Court Proj. - FHA insured)
(Section 8) (MBIA insured), 10.50%, 4/1/26 1,288,177
1,445,000 Urbana Res. Mtg. Rev. Refunding 1991 Series B Zero Coupon, 7.39% Effective
Yield on Purchase Date, 3/1/07 681,823
42,313,488
INDIANA (8.5%)
1,000,000 East Chicago Multi School Bldg. Corp. First Mtg. Series 1996, 6.50%, 1/15/16 1,043,430
1,800,000 Elkhart Co. Hosp. Auth. Rev. Series 1992 (Goshen Hosp. Proj.), 7.25%, 7/1/05 1,913,904
2,165,000 Elkhart HFC Multifamily Mtg. Rev. Series 1996A (Section 8 Assisted
Proj.) (Stratford Commons), 6.00%, 11/1/10 2,170,239
1,095,000 IN Bond Bank Special Prgm. Series 1993B (Gary Sanitary Dist.), 6.15%, 2/1/08 1,139,019
IN Educ. Fac. Auth. Educ. Fac. Rev. Series 1992 (Manchester College Proj.):
515,000 6.45%, 10/1/04 539,545
250,000 6.50%, 10/1/05 262,382
305,000 6.60%, 10/1/06 318,859
350,000 6.75%, 10/1/08 368,077
1,000,000 6.85%, 10/1/18 1,038,610
IN Hlth. Fac. Fin. Auth. Hosp. Rev.:
Series 1991 (Jackson Co. Schneck Mem. Hosp. Proj.):
1,200,000 7.50%, 2/15/05 1,293,156
1,000,000 7.50%, 2/15/22 1,050,170
Series 1992 (Fayette Mem. Hosp. Proj.):
250,000 7.00%, 10/1/02 261,080
295,000 7.10%, 10/1/03 310,119
315,000 7.20%, 10/1/04 335,516
340,000 7.25%, 10/1/05 360,784
365,000 7.25%, 10/1/06 385,666
390,000 7.30%, 10/1/07 411,540
420,000 7.30%, 10/1/08 441,323
Series 1992 (Floyd Mem. Hosp. Proj.):
460,000 6.75%, 2/15/06 488,713
595,000 6.80%, 2/15/07 630,242
2,000,000 Series 1992 (Mem. Hosp. & Hlth. Care Ctr. Proj.), 7.35%, 3/1/12 2,101,420
830,000 IN HFA Home Mtg. Prog. 1990 Series F1 (GNMA collateralized), 7.50%, 1/1/16 878,970
2,750,000 Indianapolis Econ. Dev. Refunding & Imprv. Rev. Series 1992 (Natl. Benevolent
Assn.-Robin Run Village Proj.), 7.25%, 10/1/10 2,891,625
Indianapolis Econ. Dev. Rev. (Willowbrook Apts. Proj.):
2,000,000 Senior Series 1996A, 6.50%, 7/1/16 2,011,160
1,365,000 Subordinate Series 1996C, 7.125%, 7/1/26 1,374,500
935,000 Marion HC Mtg. Rev. Refunding Series 1994 (Hilltop Towers Project) (Section 8),
6.90%, 10/1/10 975,336
24,995,385
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 1,612,920
1,500,000 Ottumwa Hosp. Rev. Refunding Series 1993 (Ottumwa Regional Hlth. Ctr.),
6.00%, 10/1/10 1,449,480
Polk Co. Hlth. Svcs. Residential Care Fac. Rev. Series 1991:
460,000 7.25%, 2/1/06 498,649
1,500,000 7.50%, 2/1/16 1,640,325
5,201,374
KANSAS (0.5%)
380,000 Geary Co. Single Family Mtg. Rev. 1980 (FGIC insured), 10.75%, 4/1/12 399,676
5,455,000 Kansas City Single Family Mtg. Rev. Series 1982A Zero Coupon, 11.23% Effective
Yield on Purchase Date, 11/1/14 763,918
2,170,000 Olathe & Labette Cos. Mtg. Loan Rev. 1991 Series B (GNMA collateralized)
Zero Coupon, 7.56% Effective Yield on Purchase Date, 2/1/23 323,417
1,487,011
KENTUCKY (0.9%)
1,500,000 Jefferson Co. First Mtg. Rev. Series 1994 (Christian Church Homes Proj.),
6.00%, 11/15/09 1,480,200
1,200,000 KY DFA Hosp. Rev. Series 1989 (Sisters of Charity of Nazareth Hlth. Corp.)
(BIG insured), 6.25%, 11/1/19 1,221,420
2,701,620
LOUISIANA (4.8%)
715,000 Calcasieu Parish Industrial Dev. Rev. 1975 (Cities Service Co. Proj.),
7.80%, 12/1/05 717,560
535,000 Calcasieu Parish Public Trust Auth. Mtg. Rev. Refunding 1992 Series B,
6.875%, 11/1/12 561,654
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 1,506,120
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 1,101,840
1,665,000 LA HFA Residual Lien Refunding Mtg. Rev. Series 1992, 7.375%, 9/1/13 1,722,542
399,770 LA PFA Single Family Mtg. Purchase Rev. Series 1992 (Lafayette PTFA Mtg.
Acquisition), 7.50%, 10/1/15 424,428
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 1,396,502
3,000,000 Series 1991 (Volunteers of America Natl. Hsg. Corp.) (Asset Guaranty insured),
7.75%, 11/1/16 3,211,380
735,000 Series Sr. Lien 1994A (VOA Willows Affordable Hsg. Corp.), 7.00%, 6/1/24 769,214
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 1,038,360
1,550,000 Orleans Levee Dist. Improvement Serial and Term Receipts Series 1995A
(FSA insured), 5.95%, 11/1/14 1,576,722
14,026,322
MAINE (0.1%)
250,000 ME HA Mtg. Purchase 1987 Series A-2, 7.65%, 11/15/15 258,780
MASSACHUSETTS (2.4%)
MA Hlth. & Educ. Fac. Auth. Rev.:
655,000 Series 1982 (Malden Hosp.) (FHA insured), 9.50%, 8/1/08 656,919
1,850,000 Series 1990B (Goddard Mem. Hosp.), 9.00%, 7/1/15 2,151,624
2,980,000 Series 1990B Prerefunded (Goddard Mem. Hosp.), 9.00%, 7/1/15 3,298,562
1,000,000 Series 1991C (New England Deaconess Hosp.), 7.20%, 4/1/22 1,071,890
7,178,995
MICHIGAN (5.6%)
1,305,000 Detroit Econ. Dev. Corp. Limited Obligation Rev. Refunding Series 1992
(E.H. Associates Ltd. Partnership Proj.), 7.00%, 6/1/12 1,374,243
4,500,000 MI HDA Rental Hsg. Rev. Series 1992A, 6.60%, 4/1/12 4,649,400
1,300,000 Romulus Econ. Dev. Corp. Ltd. Obligation Rev. Refunding Series 1992 Escrowed to
Maturity (Romulus HIR Ltd. Partnership Proj.) (ITT Lyndon), 7.00%, 11/1/15 1,444,729
4,000,000 Saginaw Hosp. Fin. Auth. Rev. Refunding Series 1989 (Saginaw Gen. Hosp.),
7.625%, 10/1/19 4,235,600
1,675,000 Tri City Village Hsg. Corp. Mtg. Refunding Multifamily Tri City Apts. Series
1992A (Section 8) (FNMA backed), 7.75%, 8/15/23 1,824,879
2,750,000 Troy City EDC Econ. Dev. Rev. Refunding Series 1992 (Drury Inn-Troy Proj.)
(Lincoln Natl. Corp.), 6.75%, 10/1/12 2,884,007
16,412,858
MINNESOTA (1.8%)
740,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.)
(Section 8), 6.375%,4/1/20 755,348
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 1,659,148
2,500,000 Plymouth Multifamily Hsg. Dev. Rev. Refunding Series 1996A (GNMA collateralized)
(Fox Forest Apts. Proj.), 8.05%, 6/20/31 2,881,000
5,295,496
MISSISSIPPI (0.7%)
5,750,000 MS Home Corp. Residual Rev. Series 1992-II Zero Coupon, 7.38% Effective Yield
on Purchase Date, 4/15/12 1,938,268
MISSOURI (0.1%)
235,000 MO HDC Single Family Mtg. Rev. Series 1985, 9.25%, 4/1/05 243,538
70,000 St. Louis Co. Single Family Res. Mtg. Series 1984 (MBIA insured), 9.75%, 4/1/10 71,995
315,533
NEVADA (2.3%)
1,475,000 Humboldt General Hosp. Dist. Series 1993, 6.125%, 6/1/13 1,446,945
Reno Redev. Agency Subordinate Tax Allocation and Revenue Refunding Series 1995A:
400,000 6.00%, 6/1/08 392,732
1,000,000 6.10%, 6/1/11 980,930
1,000,000 6.125%, 6/1/12 977,760
3,000,000 Reno-Sparks Indian Colony Public Fac. Fin. Auth. Sales & Excise Tax Rev.
Series 1995A, 7.50%, 7/1/07 3,072,330
6,870,697
NEW HAMPSHIRE (0.4%)
540,000 NH Higher Educ. & Hlth. Fac. Auth. Series 1991 (St. Joseph's Hosp.), 7.25%, 1/1/02 577,471
3,480,000 NH HFA Single Family Res. Mtg. 1982 Series A Zero Coupon, 11.75% Effective Yield on
Purchase Date, 1/1/14 529,900
1,107,371
NEW MEXICO (0.5%)
500,000 Farmington Pollution Control. Rev., Series 1978 (Public Service Co. New Mexico)
(MBIA insured), 6.00%, 3/1/08 500,180
779,000 Hobbs Single Family Mtg. Rev. Refunding Series 1992, 8.75%, 7/1/11 840,003
1,340,183
NEW YORK (1.6%)
3,000,000 New York City Hsg. Dev. Corp. Multifamily Hsg. Rev. Series 1993B (FHA insured)
(Section 8), 5.85%, 5/1/26 2,937,870
1,580,000 NY State Mtg. Agy. Homeowner Mtg. Rev. 1994 Series 43 (MBIA insured), 6.45%,
10/1/17 1,648,193 4,586,063
NORTH DAKOTA (2.4%)
1,950,000 Oliver Co. Pollution Control Rev. Series 1976 (Sq. Butte Elec. Coop. Proj.),
7.00%, 12/31/10 1,959,379
Ward Co. Hlth. Care Fac. Rev.:
1,490,000 Series 1994 (St. Joseph Hosp.), 8.00%, 11/15/04 1,566,184
2,000,000 Series 1994 (St. Joseph Hosp.), 8.875%, 11/15/14 2,161,840
1,400,000 Series 1991A (St. Joseph Hosp.), 7.50%, 11/1/15 1,424,486
7,111,889
OHIO (0.8%)
2,055,000 Cleveland Parking Fac. Imprv. Rev. Series 1992 Prerefunded, 7.60%, 9/15/03 2,379,875
OKLAHOMA (2.5%)
1,555,000 Cleveland Co. Home Loan Auth. Single Family Mtg. Rev. Refunding Series 1991,
8.00%, 8/1/12 1,656,806
Midwest City Mem. Hosp. Auth. Hosp. Rev. Series 1992:
115,000 Prerefunded, 7.25%, 4/1/06 128,948
365,000 Prerefunded, 8.75%, 4/1/03 434,923
325,000 Escrowed to Maturity, 10.00%, 4/1/01 389,799
345,000 Escrowed to Maturity, 10.00%, 4/1/02 425,599
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, 6/1/11 675,300
340,000 Muskogee Co. Industrial Pollution Rev. Series 1987A (Oklahoma G&E Proj.),
7.00%, 3/1/17 349,527
625,000 Payne Co. Home Loan Auth. Single Family Rev. Refunding Series 1993A, 8.625%,
3/1/11 669,425
2,540,000 Tulsa Public Facilities Auth. Recreational Facs. Rev. Series 1985, 6.20%, 11/1/12 2,562,631
7,292,958
PENNSYLVANIA (6.4%)
Horizon Hosp. System Auth. Hosp. Rev. Series 1996 (Horizon Hosp. Sys.):
600,000 5.95%, 5/15/06 596,484
715,000 6.15%, 5/15/08 710,839
710,000 6.25%, 5/15/09 709,936
4,030,000 Mercer Co. Industrial Dev. Auth. Rev. Refunding Series 1991 (FHA insured)
(Hillcrest Nursing Industrial Ctr. Proj.) Zero Coupon, 6.85% Effective
Yield on Purchase Date, 1/15/13 1,253,088
6,000,000 Montgomery Co. Industrial Dev. Auth. Resource Recovery Rev. Series 1989
(LOC Banque Paribas), 7.50%, 1/1/12 6,419,220
2,240,000 Montgomery Co. Redev. Auth. Multifamily Hsg. Rev. 1993 Series A (KBF Assoc. L.P.),
6.375%, 7/1/12 2,218,899
Pittsburgh Urban Redev. Auth. (Center Triangle Tax Increment Fin. District)
(LOC PNC Bank):
3,000,000 Series 1995A, 6.00%, 12/1/11 2,993,790
2,100,000 Series 1995B, 6.25%, 3/15/15 2,101,407
Sharon Regional Hlth. Sys. Auth. Hosp. Rev. Refunding (Sharon Regional Hlth.
Sys. Proj.) Series 1993A:
705,000 6.40%, 12/1/00 730,944
255,000 6.50%, 12/1/01 265,850
800,000 6.60%, 12/1/02 834,816
18,835,273
SOUTH CAROLINA (0.5%)
1,455,000 Myrtle Beach PFC Certificates of Participation Series 1992 (Myrtle Beach
Convention Ctr. Proj.), 6.75%, 7/1/02 1,539,826
SOUTH DAKOTA (0.7%)
2,000,000 SD HDA Multifamily Hsg. Rev. 1992 Series B (Section 8), 7.00%, 4/1/12 2,099,720
TENNESSEE (2.5%)
1,675,000 Metro. Govt. of Nashville & Davison Cos. TN Industrial Dev. Board Rev. Refunding
Multifamily Mtg. Rev. 92C (FHA insured) (Picadilly Apts.), 6.95%, 7/1/27 1,767,912
Shelby Co. Hlth., Educ. & Hsg. Fac. Board Multifamily Hsg. Rev.:
(Eastwood Park Apts. Proj.):
1,000,000 Senior Series 1995 A2, 6.40%, 9/1/25 1,004,840
425,000 Subordinate Series 1995C, 7.50%, 9/1/25 429,692
(Raleigh Forest & Sherwood Apts. Proj.):
2,885,000 Senior Series 1996A, 6.60%, 1/1/26 2,914,283
800,000 Subordinate Series 1996C, 7.25%, 1/1/26 810,920
830,000 TN HDA Homeownership Program Series 1991 Issue U, 7.35%, 7/1/11 876,380
7,804,027
TEXAS (12.5%)
2,360,000 Baytown HFC Single Family Mtg. Rev. Refunding Series 1992B, 8.50%, 9/1/11 2,557,013
Beaumont Hsg. Auth. Multifamily Mtg. Rev. Series 1993A (Section 8):
1,365,000 6.65%, 11/1/07 1,423,968
650,000 6.75%, 11/1/10 670,078
1,765,000 Bexar Co. HFC Residual Rev. Series 1993 Zero Coupon, 6.50% Effective Yield on
Purchase Date, 3/1/15 555,993
365,000 Brazos Co. HFC Single Family Mtg. Rev. 1985 (MBIA insured) Zero Coupon,
10.55% Effective Yield on Purchase Date, 9/1/11 79,176
1,800,000 Cleveland Ind. School Dist. Public Fac. Corp. Lease Rev. Series 1996,
6.10%, 2/15/11 1,791,342
Dallas Hsg. Corp. Capital Program Revenue Bonds:
1,715,000 Series 1995A (Estell Village Apts.) (Section 8), 7.875%, 12/1/09 1,769,863
1,700,000 Series 1995 (Cedar Glen Apts.) (Section 8), 7.75%, 12/1/09 1,752,479
1,000,000 Dallas HFC Cap. Proj. Refunding 1990 (Section 8), 7.85%, 8/1/13 1,069,140
3,000,000 Denison Hospital Auth. Rev. Refunding Series 1986 (Texoma Med. Ctr. Proj.),
8.00%, 9/1/16 3,064,110
50,000 Ft. Worth HFC Home Mtg. Rev. Refunding 1991, 8.50%, 10/1/11 54,560
580,000 Harris Co. HFC Single Family Mtg. Rev. Series 1983A, 10.125%, 7/15/03 581,317
1,735,000 Lubbock HFC Multifamily Hsg. Rev. Refunding Series 1992A (Los Colinas, Park
Ridge Place & Quail Creek), 7.75%, 1/1/22 1,790,208
3,250,000 Midland Co. Hosp. Dist. Hosp. Rev. Series 1992 Zero Coupon 7.61% Effective
Yield on Purchase Date, 6/1/07 1,685,417
Midland HFC Single Family Mtg. Rev. Refunding:
564,405 Series 1992 B-2, 8.15%, 12/1/11 602,762
766,859 Series 1992 A-2, 8.45%, 12/1/11 821,973
1,021,700 Series 1992, 9.00%, 9/1/01 1,083,288
Mesquite Hlth. Fac. Dev. Corp. Retirement Fac. Rev. Series 1996A (Christian
Care Ctrs. Proj.):
1,000,000 6.30%, 2/15/12 983,980
1,000,000 6.40%, 2/15/16 981,960
3,000,000 Northeast Hosp. Authority Rev. Series 1993B (NE Med. Ctr. Hosp.), 7.25%, 7/1/22 3,117,300
1,881,615 Odessa HFC Single Family Mtg. Rev. Refunding Series 1992B Class B-2,
8.125%, 11/1/11 2,017,073
650,000 San Marcos HA Multifamily Mtg. Rev. Series 1993A (FHA insured) (Section 8),
5.80%, 11/1/10 638,319
Southeast TX HFC Residual Revenue:
1,555,000 Series 1995A Zero Coupon, 6.50% Effective Yield on Purchase Date, 11/1/14 506,308
3,000,000 Series 1992A Zero Coupon, 7.63% Effective Yield on Purchase Date, 9/1/17 638,670
950,000 TX HA Single Family Mtg. Refunding Series 1991A, 7.00%, 3/1/05 1,001,994
3,670,000 TX Dept. Hsg. & Cmnty. Affairs Single Family Rev. Refunding Junior Lien
Series 1994A Zero Coupon 6.93% Effective Yield on Purchase Date, 3/1/15 1,068,704
1,500,000 TX Dept. Hsg. & Cmnty. Affairs Multifamily Hsg. Rev. Senior Series 1996A
(Dallas - Ft. Worth Apt. Pool Proj.), 6.50%, 7/1/16 1,508,370
3,000,000 Washington Co. Hlth. Fac. Dev. Corp. Rev. 1994 (Lutheran Soc. Svcs.),
7.50%, 8/15/15 3,068,190
36,883,555
WASHINGTON (1.7%)
WA HFC Nonprofit Housing Revenue:
2,500,000 Series 1993 (CRISTA Shores Proj.)(LOC US Bk. Wash.), 6.20%, 7/1/14 2,521,625
1,000,000 Series 1995A (Judson Park Project)(LOC US Bk. Wash.), 6.90%, 7/1/16 1,042,630
1,390,000 Series 1996A (Presbyterian Ministries) (LOC US Bk. Wash.), 6.85%, 7/1/21 1,411,100
4,975,355
WEST VIRGINIA (1.1%)
60,000 Berkeley, Brooke & Fayette Cos., etc. (21 Municipalities) Single Family Mtg.
1984 Series A, (MBIA insured), 10.125%, 9/1/10 62,991
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 1,951,111
2,000,000 Mason Co. Residual Rev. Series 1992C Zero Coupon, 7.58% Effective Yield on
Purchase Date, 7/10/14 547,000
3,000,000 Ohio Co. Residual Rev. Series 1992C Zero Coupon, 7.43% Effective Yield on
Purchase Date, 7/10/14 824,280
3,385,382
WISCONSIN (0.5%)
1,300,000 WI HEDA Hsg. Rev. Series 1992A (Section 8), 6.85%, 11/1/12 1,356,290
Total municipal bonds (cost: $277,591,568) 285,215,951
SHORT-TERM SECURITIES (3.5%)
9,235,385 Tax-Exempt Cash Management Fund, 3.58% 9,235,385
1,071,066 Tax-Exempt Cash Management Fund, 3.56% 1,071,066
Total short-term securities (cost: $10,306,451) 10,306,451
Total investments in securities (cost: $287,898,019) (6) $295,522,402
</TABLE>
See accompanying notes to portfolios of investments on page 35.
SIT U.S. GOVERNMENT SECURITIES FUND REVIEW
SEPTEMBER 30, 1996
[PHOTO]
MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
BRYCE A, DOTY, CFA
PORTFOLIO MANAGER
The Sit U.S. Government Securities Fund provided investors a +2.36% total
return for the six months and a +5.83% return for the 12 months ended September
30, 1996. The Fund ranked #1 out of 173 funds within the Lipper U.S. Government
Bond Fund universe for its 12 month return. The Fund also ranked #1 out of 110
funds for its cumulative 3-year return of +18.08% for the period ended September
30, 1996 within the same universe. In addition, Morningstar, a nationally
recognized firm which evaluates mutual funds, recently reviewed 181 government
bond funds. They ranked the Fund #1 for having the lowest risk and ranked the
Fund #2 for its risk and return characteristics for the five years ended
September 30, 1996. The Fund's continued recognition for its competitive and
stable performance has resulted in steady asset growth. The Fund's net assets
have grown from $52.45 million as of March 31, 1996 to $55.11 million as of
September 30, 1996.
The Fund has achieved its superior results by continuing to focus on
securities that provide a high level of income and relative price stability. The
Fund's holdings in seasoned, high coupon mortgage pass-through securities
provided the highest income return compared to the other market sectors in which
the Fund invests. The Fund also invests in collateralized mortgage obligations
(CMO's) that provide attractive levels of income. The Fund's U.S. Treasury
holdings provide the lowest levels of income and typically consist of less than
20% of the portfolio's assets.
Conflicting economic data have caused uncertainty regarding the economy's
current and projected rate of growth. Consequently, interest rates have moved
within a narrow range for the past six months. We expect stable to declining
interest rates over the next six months as the economy's growth slows. The Fund
will continue to invest in securities that offer consistently high levels of
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 9/30/96: $10.39 Per Share
3/31/96: $10.47 Per Share
Total Net Assets: $55.11 Million
30-Day SEC Yield: 6.20%
12-Month Distribution Rate: 6.36%
Average Maturity: 13.4 Years
Effective Duration: 3.1 Years (1)
(1) Effective duration is a measure which reflects estimated price sensitivity
to a given change in interest rates. For example, for an interest rate change of
1.0%, a portfolio with a duration of 5 years would be expected to experience a
price change of 5%. Effective duration is based on current interest rates and
the Adviser's assumptions regarding the expected average life of individual
securities held in the portfolio.
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
GNMA Pass-Through 60.3
Securities
U.S. Treasury 19.3
Bonds
Collateralized 11.4
Mortgage Obligations
FHLMC Pass-Through 4.3
Securities
FNMA Pass-Through 2.7
Securities
Other Assets & Liabilities 2.0
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
U.S. Gov't. Lipper U.S. Gov't. Lehman Inter. U.S. Gov't. Lipper U.S. Gov't. Lehman Inter.
Securities Fund Fund Average Gov't. Bond Index Securities Fund Fund Average Gov't. Bond Index
<C> <C> <C> <C> <C> <C> <C>
3 Months 1.69% 1.52% 1.72% 1.69% 1.52% 1.72%
(unannualized)
1 Year 5.83 3.24 5.10 5.83 3.24 5.10
3 Years 5.70 3.38 4.62 18.08 10.50 14.51
5 Years 6.54 6.34 6.75 37.30 35.98 38.62
Inception 8.27 7.50 8.10 110.01 96.50 107.08
(6/2/87)
</TABLE>
* As of 9/30/96
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
[PLOT POINTS OMITTED]
The sum of $10,000 invested at inception (6/2/87) and held until 9/30/96 would
have grown to $21,001 in the Fund or $20,708 in the Lehman Intermediate
Government Bond Index assuming reinvestment of all dividends and capital gains.
ESTIMATED AVERAGE LIFE PROFILE
The Adviser's estimates of the dollar weighted average life of the portfolio's
securities, which may vary from their stated maturities.
[BAR CHART]
Years
0-1 2.2%
1-5 82.1%
5-10 14.6%
10-20 1.1%
SIT U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1996 (UNAUDITED)
QUANTITY NAME OF ISSUER MARKET VALUE(1)
MORTGAGE PASS-THROUGH SECURITIES (67.3%) (2)
FEDERAL HOME LOAN MORTGAGE CORPORATION (4.3%):
41,736 8.75%, 12/1/01 $ 42,878
681,137 9.00%, 10/1/16 709,316
719,738 9.00%, 6/1/17 749,883
81,376 9.50%, 6/1/16 86,438
139,047 9.75%, 6/1/17 148,530
536,920 10.25%, 6/1/10 579,580
41,888 10.50%, 4/1/04 43,898
7,427 11.00%, 10/1/00 7,787
2,368,310
FEDERAL NATIONAL MORTGAGE ASSOCIATION (2.7%):
217,572 9.00%, 4/1/10 226,361
138,922 9.00%, 9/1/17 144,513
447,489 9.00%, 9/1/20 466,411
386,950 9.50%, 4/1/20 411,526
197,756 10.00%, 9/1/20 213,442
1,462,253
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (3) (60.3%):
1,415,358 8.00%, 6/15/16 1,450,235
397,697 8.50%, 12/15/11 412,024
901,734 8.50%, 9/15/16 935,829
260,174 8.75%, 5/15/03 272,823
534,554 8.75%, 10/15 - 11/15/06 561,178
258,492 8.75%, 2/15/07 268,773
252,469 8.75%, 11/15/09 262,667
690,448 8.75%, 6/15 - 12/15/11 718,519
208,447 9.00%, 10/15/04 219,673
410,725 9.00%, 4/15/06 432,829
347,099 9.00%, 10/15/07 362,227
154,489 9.00%, 11/15/09 161,377
1,355,888 9.00%, 6/15 - 9/15/11 1,416,638
262,104 9.00%, 1/15/12 273,840
3,006,711 9.00%, 4/20 - 12/20/16 3,163,623
76,687 9.00%, 5/15/18 80,144
115,417 9.00%, 11/15/19 120,577
175,013 9.00%, 7/20/21 181,587
132,741 9.25%, 4/15 - 9/15/01 140,252
466,101 9.25%, 11/15/11 489,042
302,103 9.25%, 4/15/12 317,041
50,155 9.50%, 1/15 - 1/20/05 53,047
1,329,243 9.50%, 1/15 - 8/15/10 1,408,395
740,529 9.50%, 1/15 - 3/15/11 780,040
858,627 9.50%, 11/20/16 909,675
245,185 9.50%, 8/20/17 259,716
51,855 9.75%, 5/15/99 53,572
220,289 9.75%, 11/15/02 234,000
67,045 9.75%, 3/15/04 71,253
491,893 9.75%, 8/15/05 523,141
272,307 9.75%, 2/15/06 290,345
2,620,381 9.75%, 8/15 - 12/15/10 2,799,753
1,199,912 9.75%, 11/15 - 12/15/12 1,284,489
185,615 10.00%, 5/15/04 197,338
1,190,376 10.00%, 7/15/05 1,267,277
197,640 10.00%, 1/15/06 210,137
218,915 10.00%, 11/15/08 233,960
137,790 10.00%, 5/15 - 11/15/09 147,764
261,793 10.00%, 6/15 - 7/15/10 280,040
179,188 10.00%, 1/15/11 191,740
47,404 10.00%, 9/15/16 51,338
334,731 10.00%, 2/20/20 355,810
101,812 10.25%, 11/15/00 108,214
110,046 10.25%, 8/15/04 117,166
487,566 10.25%, 7/15/05 518,966
3,449,307 10.25%, 1/15 - 8/15/12 3,688,197
963,900 10.25%, 2/15 - 7/15/13 1,031,101
13,940 10.50%, 9/15/00 14,688
71,909 10.50%, 9/15/01 76,469
114,878 10.50%, 12/15/02 122,238
168,958 10.50%, 7/15/10 180,298
365,974 10.50%, 8/15 - 11/15/15 399,986
151,958 10.50%, 3/15 - 12/15/16 166,067
13,328 10.75%, 7/15 - 10/15/98 13,765
226,092 10.75%, 7/15 - 8/15/11 241,428
705,239 11.00%, 1/15 - 6/15/10 781,754
18,422 11.00%, 7/15/13 20,045
6,138 11.25%, 5/15/98 6,355
228,237 11.25%, 8/15 - 12/15/00 242,859
50,129 11.25%, 1/15/01 53,304
33,726 11.25%, 5/15/03 35,867
1,195,582 11.25%, 2/15 - 10/15/11 1,317,002
99,048 11.75%, 5/15/00 105,414
109,584 11.75%, 5/15/04 116,719
29,389 12.75%, 1/15/00 31,111
909 14.75%, 4/15/97 937
33,233,678
Total mortgage pass-through securities
(cost: $37,172,516) 37,064,241
U.S. GOVERNMENT SECURITIES (19.3%)
U.S. Treasury Note:
1,000,000 7.125%, 2/29/00 1,022,740
2,500,000 7.25%, 5/15/04 2,588,250
2,500,000 8.25%, 7/15/98 2,589,850
6,500,000 U.S. Treasury Coupon Strip,
6.925% Effective Yield on
Purchase Date, 11/15/04 3,781,959
3,000,000 U.S. Treasury Principal Strip,
7.08% Effective Yield on
Purchase Date, 2/15/19 609,750
25 U.S. 30-yr. Treasury Put Option,
Expires 11/15/96 28,516
Total U.S. government securities
(cost: $10,597,008) 10,621,065
COLLATERALIZED MORTGAGE OBLIGATIONS (11.4%)
295,847 Federal Home Loan Mortgage
Corporation, 1006-C, 9.15%,
10/15/20 308,831
Vendee Mortgage Trust:
3,000,000 Series 1996-2 1B, 6.75%,
9/15/09 2,979,365
200,000 Series 1996-2 1D, 6.75%,
11/15/15 192,400
500,000 Series 1996-2 1E, 6.75%,
5/15/20 469,626
1,000,000 Series 1992-1 2K, 7.75%,
5/15/08 1,005,848
1,350,000 Series 1992-2D, 7.00%,
9/15/15 1,335,082
Total collateralized mortgage obligations
(cost: $6,199,837) 6,291,152
SHORT-TERM SECURITIES (0.8%)
426,172 Government Cash Management
Fund, 5.23% 426,172
(cost: $426,172)
Total investments in securities
(cost: $54,395,533) (6) $54,402,630
See accompanying notes to portfolios of investments on page 35.
SIT MONEY MARKET FUND REVIEW
SEPTEMBER 30, 1996
[PHOTO]
MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
PAUL J. JUNGQUIST, CFA
PORTFOLIO MANAGER
The Sit Money Market Fund provided investors with a +2.51% return for the
six months ended September 30, 1996, compared to a +2.36% average return for the
Lipper Analytical Services, Inc. Money Market Fund universe. Within its Lipper
peer group category, the Fund's performance ranked 33rd of 295 funds and 57th of
287 funds, respectively, for the three and twelve month periods ended September
30, 1996. As of September 30, 1996, the Fund's 7-day compound yield was 5.06%
and its average maturity was 31 days, compared to 4.93% and 36 days,
respectively, at March 31, 1996.
Three-month Treasury bill rates were somewhat volatile over the past six
months, as considerable uncertainty about the direction of Federal Reserve
policy existed during the period. In the end, the Fed left the federal funds
rate unchanged during the period, and the three-month Treasury bill rate
decreased from 5.14% at March 31 to 5.04% at September 30. The Fund shortened
its average maturity during the period without sacrificing yield to take
advantage of the somewhat volatile market conditions. Economic growth appears to
be slowing from the rapid pace of the second quarter, with inflation remaining
moderate. Given this data, most market analysts now expect no change in Fed
policy over the near term. We are continuing to take advantage of current yield
levels, and expect to maintain the average maturity of the portfolio in a range
of 30 to 40 days in anticipation of no short-term change in policy by the Fed.
While economic activity has slowed in the third quarter, we do not foresee
a significant impact on the creditworthiness of top tier commercial paper
issuers. We remain concerned about the relatively high levels of consumer
bankruptcies and debt, however, and will continue to monitor our eligible
consumer finance credits closely. The Fund continues to diversify its core
holdings and its industry exposure. In the months ahead, we plan to add Tier I
credits in the captive finance, technology and consumer non-durable industries.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to achieve maximum current income to the
extent consistent with the preservation of capital and maintenance of liquidity.
The Fund pursues this objective by investing in a diversified portfolio of high
quality short-term debt instruments. The Fund seeks to maintain a stable net
asset value of $1.00 per share. However, there is no assurance of a constant
share price.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share.
PORTFOLIO SUMMARY
Net Asset Value 9/30/96: $1.00 Per Share
3/31/96: $1.00 Per Share
Total Net Assets: $27.66 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Consumer Loan Finance 19.0
Diversified Finance 18.8
U.S. Government 11.9
Utilities 11.8
Captive Equipment Finance 10.2
Captive Auto Finance 8.1
Insurance 6.1
Retail 4.2
Captive Oil Finance 3.2
Consumer Non-Durables 3.0
Technology/Business Equip. 0.9
Other Assets & Liabilities 2.8
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
Money Lipper Money U.S. Treasury Money Lipper Money U.S. Treasury
Market Fund Market Avg. Bill (3-Month) Market Fund Market Avg. Bill (3-Month)
<S> <C> <C> <C> <C> <C> <C>
3 Months 1.27% 1.19% 1.32% 1.27% 1.19% 1.32%
(unannualized)
1 Year 5.17 4.89 5.35 5.17 4.89 5.35
Inception 4.69 4.49 5.06 14.31 13.66 15.50
(11/1/93)
</TABLE>
* As of 9/30/96
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
[PLOT POINTS OMITTED]
The sum of $10,000 invested at inception (11/1/93) and held until 9/30/96 would
have grown to $11,431 in the Fund or $11,550 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 CHART]
First Tier Securities 100%
Second Tier Securities 0%
SIT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1996 (UNAUDITED)
QUANTITY NAME OF ISSUER MARKET VALUE(1)
COMMERCIAL PAPER (85.3%) (2)
CAPTIVE AUTO FINANCE (8.1%)
Ford Motor Credit Corp.:
441,000 5.37%, 10/9/96 $ 440,479
475,000 5.33%, 11/5/96 472,566
325,000 5.46%, 11/19/96 322,611
General Motors Acceptance Corp.:
250,000 5.49%, 10/7/96 249,774
200,000 5.58%, 11/22/96 199,361
158,000 5.64%, 11/7/96 157,100
400,000 5.50%, 12/9/96 395,837
2,237,728
CAPTIVE EQUIPMENT FINANCE (10.2%)
IBM Credit Corp.:
185,000 5.31%, 10/7/96 184,837
340,000 5.42%, 11/25/96 337,216
450,000 5.39%, 12/3/96 445,803
John Deere Capital Corp.:
500,000 5.47%, 10/4/96 499,777
450,000 5.45%, 11/22/96 446,496
255,000 5.33%, 12/4/96 252,606
Pitney Bowes Credit Corp.,
652,000 5.35%, 11/8/96 648,364
2,815,099
CAPTIVE OIL FINANCE (3.2%)
Chevron Oil Finance:
440,000 5.33%, 10/24/96 438,518
460,000 5.32%, 10/31/96 457,972
896,490
CONSUMER LOAN FINANCE (19.0%)
American Express Credit Corp.:
365,000 5.37%, 10/10/96 364,513
200,000 5.36%, 10/23/96 199,352
183,000 5.40%, 10/29/96 182,237
490,000 5.36%, 11/1/96 487,764
327,000 American General Financial,
5.35%, 10/31/96 325,558
Beneficial Corp.:
600,000 5.36%, 11/6/96 596,820
175,000 5.38%, 12/2/96 173,394
233,000 5.53%, 12/18/96 230,249
225,000 5.47%, 12/19/96 222,334
Household Finance Corp.:
287,000 5.35%, 10/16/96 286,367
334,000 5.35%, 10/21/96 332,998
389,000 5.34%, 10/30/96 387,345
230,000 5.47%, 12/2/96 227,857
Norwest Financial, Inc.:
288,000 5.35%, 10/2/96 287,958
475,000 5.46%, 11/13/96 471,936
475,000 5.43%, 11/26/96 471,025
5,247,707
CONSUMER NON-DURABLES (3.0%)
390,000 Coca Cola Co., 5.29%, 10/15/96 389,204
200,000 Coca Cola Enterprises, 5.34%,
10/21/96 (5) 199,413
231,000 Sara Lee Corp., 5.34%, 10/24/96230,215
818,832
DIVERSIFIED FINANCE (18.8%)
Associates Corp. N.A.:
417,000 5.52%, 10/15/96 416,118
210,000 5.36%, 10/23/96 209,320
200,000 5.36%, 10/29/96 199,176
423,000 5.35%, 11/18/96 420,022
CIT Group Holdings, Inc.:
514,000 5.47%, 10/18/96 512,697
556,000 5.44%, 11/15/96 552,261
General Electric Capital Corp.:
202,000 5.35%, 10/10/96 201,732
225,000 5.48%, 11/20/96 223,306
610,000 5.45%, 11/29/96 604,624
General Electric Capital Services:
500,000 5.52%, 10/11/96 499,244
631,000 5.35%, 11/4/96 627,847
Transamerica Finance Corp.:
400,000 5.37%, 11/14/96 397,404
350,000 5.47%, 11/27/96 346,996
5,210,747
INSURANCE (6.1%)
American Family Financial:
600,000 5.47%, 11/12/96 596,206
500,000 5.53%, 12/13/96 494,474
American General Corp.:
400,000 5.42%, 10/1/96 400,000
200,000 5.50%, 10/3/96 199,940
1,690,620
TECHNOLOGY/BUSINESS EQUIPMENT (0.9%)
245,000 IBM Corp., 5.36%, 10/28/96 244,026
RETAIL (4.2%)
Sears Roebuck & Co.:
235,000 5.51%, 10/8/96 234,751
201,000 5.36%, 10/28/96 200,201
151,000 5.37%, 11/7/96 150,176
307,000 5.46%, 11/12/96 305,066
289,000 5.48%, 11/21/96 286,781
1,176,975
UTILITIES (11.8%)
Ameritech Corp.:
122,000 5.44%, 10/2/96 121,982
200,000 5.31%, 11/6/96 198,944
A T & T Corp.:
450,000 5.52%, 10/25/96 448,371
200,000 5.43%, 11/12/96 198,747
BellSouth Telecommincations, Inc:
217,000 5.32%, 10/4/96 216,904
400,000 5.42%, 11/4/96 397,965
505,000 5.40%, 11/19/96 501,323
1,169,000 Southwestern Bell Capital Corp.,
5.33%, 10/22/96 (5) 1,165,395
3,249,631
Total commercial paper
(cost: $23,587,855) 23,587,855
U.S. GOVERNMENT SECURITIES (11.9%)
2,900,000 Federal Home Loan Mtg. Corp.,
5.65%, 10/1/96 2,900,000
400,000 Federal National Mtg. Assoc.,
5.35%, 10/17/96 399,045
Total U.S. government securities
(cost: $3,299,045) 3,299,045
Total investments in securities
(cost: $26,886,900) (6) $26,886,900
NOTES TO PORTFOLIO OF INVESTMENTS
See accompanying notes to portfolios of investments on page 35.
(This page has been left blank intentionally.)
SIT MUTUAL FUNDS
NOTES TO PORTFOLIO OF INVESTMENTS
(1) Securities are valued by procedures described in note 1 to the financial
statements.
(2) Percentage figures indicate percentage of total net assets.
(3) At September 30, 1996, 48.4% of the U.S. Government Securities Fund and
24.9% 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 September 30, 1996, approximately
16.9% 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 September 30, 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 $5,387,998 $68,002,566 $287,898,019
Unrealized appreciation (depreciation)on
investments:
Gross unrealized appreciation $25,475 $1,570,973 $8,276,303
Gross unrealized depreciation (66,787) (77,195) (651,920)
Net unrealized appreciation (depreciation) ($41,312) $1,493,778 $7,624,383
U.S.
GOVERNMENT MONEY
SECURITIES MARKET
FUND FUND
Cost for federal income tax purposes $54,395,533 $26,886,900
Unrealized appreciation (depreciation)on
investments:
Gross unrealized appreciation $295,226 None
Gross unrealized depreciation (288,129) None
Net unrealized appreciation (depreciation) $7,097 None
</TABLE>
SIT MUTUAL FUNDS
STATEMENTS OF ASSETS & LIABILITIES - SEPTEMBER 30, 1996 (UNAUDITED)
<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................... $5,387,998 $68,002,566 $287,898,019 $54,395,533 $26,886,900
Investments in securities, at
market value - see
accompanying schedules for
detail............................ $5,346,686 $69,496,344 $295,522,402 $54,402,630 $26,886,900
Cash in bank on demand
deposit........................... ------ ------ ------ ------ 674
Accrued interest
receivable........................ 62,830 1,401,184 6,469,385 575,621 ------
Receivable for principal
paydowns.......................... 1,768 ------ ------ 32,206 ------
Receivable for Fund shares
sold.............................. ------ 205,255 782,767 352,648 1,071,240
Total assets.................... 5,411,284 71,102,783 302,774,554 55,363,105 27,958,814
LIABILITIES
Payable for investment securities
purchased......................... ------ ------ 5,368,076 ------ ------
Disbursements in excess of
cash balances..................... 90 51,593 1,426,992 90,790 ------
Payable for Fund shares
redeemed.......................... ------ 20,234 567,245 84,278 279,512
Cash portion of dividends
payable to shareholders........... 6,102 74,519 360,020 42,212 12,870
Accrued investment management
and advisory services fee......... 3,516 45,577 188,457 35,265 11,077
Total liabilities.................... 9,708 191,923 7,910,790 252,545 303,459
Net assets applicable to
outstanding capital stock......... $5,401,576 $70,910,860 $294,863,764 $55,110,560 $27,655,355
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................ 554,784 6,965,254 29,591,264 5,306,261 27,658,360
Net asset value per share of
outstanding capital stock......... $9.74 $10.18 $9.96 $10.39 $1.00
See accompanying notes to financial statements on pages 40-47.
</TABLE>
SIT MUTUAL FUNDS
STATEMENTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<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............................... $191,480 $2,086,225 $8,954,493 $1,791,035 $652,274
Total income....................... 191,480 2,086,225 8,954,493 1,791,035 652,274
EXPENSES (NOTE 3):
Investment management and
advisory services fee.............. 20,755 258,676 1,116,779 256,962 96,283
Less fees and expenses absorbed
by investment adviser............ ---- ---- (14,232) (50,133) (36,072)
Total net expenses................. 20,755 258,676 1,102,547 206,829 60,211
Net investment income.............. 170,725 1,827,549 7,851,946 1,584,206 592,063
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS :
Net realized gain (loss) (note 2)...... (54,652) 101,925 39,020 (493,546) ----
Net change in unrealized appreciation.. 7,600 521,889 2,317,485 93,054 ----
Net gain (loss) on investments..... (47,052) 623,814 2,356,505 (400,492) ----
Net increase in net assets resulting from
operations.............................. $123,673 $2,451,363 $10,208,451 $1,183,714 $592,063
See accompanying notes to financial statements on pages 40-47.
</TABLE>
SIT MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BOND MINNESOTA TAX-FREE TAX-FREE
FUND INCOME FUND INCOME FUND
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
1996 MARCH 31, 1996 MARCH 31, 1996
(UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income.............................. $170,725 $314,579 $1,827,549 $3,066,188 $7,851,946
Net realized gain (loss) on investments............ (54,652) 154,186 101,925 29,311 39,020
Net change in unrealized appreciation
(depreciation) of investments..................... 7,600 742 521,889 515,415 2,317,485
Net increase in net assets resulting from
operations...................................... 123,673 469,507 2,451,363 3,610,914 10,208,451
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................. (170,725) (314,579) (1,827,549) (3,075,266) (7,859,372)
Net realized gains on investments.................. ---- ---- ---- ---- ----
Total distributions............................... (170,725) (314,579) (1,827,549) (3,075,266) (7,859,372)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold.......................... 808,280 2,009,736 17,458,350 32,851,258 71,302,780
Reinvested distributions........................... 139,482 270,336 1,403,246 2,334,848 5,893,542
Payments for shares redeemed....................... (721,521) (745,612) (11,554,822) (16,622,975) (64,450,237)
Increase (decrease) in net assets from
capital share transactions...................... 226,241 1,534,460 7,306,774 18,563,131 12,746,085
Total increase (decrease) in net assets......... 179,189 1,689,388 7,930,588 19,098,779 15,095,164
NET ASSETS
Beginning of period................................ 5,222,387 3,532,999 62,980,272 43,881,493 279,768,600
End of period...................................... $5,401,576 $5,222,387 $70,910,860 $62,980,272 $294,863,764
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)............ $5,481,141 $5,254,900 $69,740,998 $62,434,224 $289,678,319
Undistributed (distributions in excess of) net
investment income................................. ---- ---- (9,078) (9,078) (7,426)
Accumulated net realized gain (loss) from
security transactions............................. (38,253) 16,399 (314,838) (416,763) (2,431,512)
Unrealized appreciation (depreciation)
on investments.................................... (41,312) (48,912) 1,493,778 971,889 7,624,383
................................................ $5,401,576 $5,222,387 $70,910,860 $62,980,272 $294,863,764
CAPITAL TRANSACTIONS IN SHARES:
Sold............................................... 83,434 205,474 1,731,329 3,250,281 7,211,990
Reinvested distributions........................... 14,403 27,247 139,044 231,001 596,074
Redeemed........................................... (74,155) (74,482) (1,147,187) (1,644,655) (6,534,695)
Net increase (decrease).............................. 23,682 158,239 723,186 1,836,627 1,273,369
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
TAX-FREE U.S. GOVERNMENT MONEY MARKET
INCOME FUND SECURITIES FUND FUND
SIX MONTHS SIX MONTHS
ENDED ENDED
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED
MARCH 31, 1996 MARCH 31, 1996 MARCH 31,
1996 (UNAUDITED) 1996 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income.............................. $14,969,020 $1,584,206 $2,991,108 $592,063 $1,188,260
Net realized gain (loss) on investments............ 1,047,369 (493,546) 466,171 ---- ----
Net change in unrealized appreciation
(depreciation) of investments..................... 3,528,518 93,054 162,827 ---- ----
Net increase in net assets resulting from
operations...................................... 19,544,907 1,183,714 3,620,106 592,063 1,188,260
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................. (14,968,966) (1,584,203) (2,991,108) (592,068) (1,188,260)
Net realized gains on investments.................. ---- ---- ---- ---- ----
Total distributions............................... (14,968,966) (1,584,203) (2,991,108) (592,068) (1,188,260)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold.......................... 131,895,973 12,131,202 31,591,518 98,332,262 107,451,651
Reinvested distributions........................... 11,117,875 1,389,854 2,618,331 514,514 1,076,722
Payments for shares redeemed....................... (122,978,226) (10,460,006) (19,842,777) (92,451,722) (117,090,139)
Increase (decrease) in net assets from
capital share transactions...................... 20,035,622 3,061,050 14,367,072 6,395,054 (8,561,766)
Total increase (decrease) in net assets......... 24,611,563 2,660,561 14,996,070 6,395,049 (8,561,766)
NET ASSETS
Beginning of period................................ 255,157,037 52,449,999 37,453,929 21,260,306 29,822,072
End of period...................................... $279,768,600 $55,110,560 $52,449,999 $27,655,355 $21,260,306
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)............ $276,932,234 $55,762,050 $52,700,997 $27,655,355 $21,260,306
Undistributed (distributions in excess of) net
investment income................................. ---- ---- ---- ---- ----
Accumulated net realized gain (loss) from
security transactions............................. (2,470,532) (658,587) (165,041) ---- ----
Unrealized appreciation (depreciation)
on investments.................................... 5,306,898 7,097 (85,957) ---- ----
................................................ $279,768,600 $55,110,560 $52,449,999 $27,655,355 $21,260,306
CAPITAL TRANSACTIONS IN SHARES:
Sold............................................... 13,320,566 1,169,119 3,015,296 98,332,262 107,451,651
Reinvested distributions........................... 1,122,623 134,119 249,905 514,514 1,076,722
Redeemed........................................... (12,420,344) (1,008,192) (1,895,812) (92,451,722) (117,090,140)
Net increase (decrease).............................. 2,022,845 295,046 1,369,389 6,395,054 (8,561,767)
See accompanying notes to financial statements on pages 40-47.
</TABLE>
SIT MUTUAL FUNDS
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 of the Sit Mutual Funds. The
investment objective for each Fund is as follows:
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
<S> <C>
Bond Maximize total return, consistent with the preservation of capital.
Minnesota Tax-Free Income High level of current income that is exempt from federal
income tax and Minnesota regular personal income tax, consistent with the
preservation of capital.
Tax-Free Income High level of current income that is exempt from federal
income tax, consistent with the preservation of capital.
U.S. Government Securities High current income and safety of principal.
Money Market Maximize current income with the preservation of capital and
maintenance of liquidity.
</TABLE>
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 based on
procedures determined in good faith by the Boards of Directors. Such
fair values are determined using prices quoted by independent brokers
or pricing services. Pursuant to Rule 2a-7 of the Investment Company
Act of 1940, all securities in the Money Market Fund are valued at
amortized cost, which approximates market value, in order to maintain a
constant net asset value of $1 per share.
Security transactions are accounted for on the date the securities are
purchased or sold. 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.
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 $446,763, $2,470,532, and $165,041, 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. 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
September 30, 1996, were as follows:
Purchases Proceeds
Bond Fund $ 4,583,152 $ 4,447,576
Minnesota Tax-Free Income Fund 11,752,729 7,605,076
Tax-Free Income Fund 55,790,266 40,524,497
U.S. Government Securities Fund 34,748,290 31,812,668
For Money Market Fund during the six months ended September 30, 1996,
purchases of and proceeds from sales and maturities of investment
securities aggregated $203,101,638 and $197,309,974, 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
September 30, 1996:
% Shares
Shares Outstanding
Bond Fund 61,764 11.13
Minnesota Tax-Free Income Fund 316,521 4.54
Tax-Free Income Fund 1,621,939 5.48
U.S. Government Securities Fund 499,022 9.40
Money Market Fund 3,129,136 11.31
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>
Six Months Period from
Ended December 1,
September 30, 1993 (1) to
1996 Years Ended March 31, March 31,
(Unaudited) 1996 1995 1994
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $9.83 $9.48 $9.69 $10.00
OPERATIONS:
Net investment income .32 .64 .62 .19
Net realized and unrealized
gains (losses) on investments (.09) .35 (.21) (.31)
Total from operations .23 .99 .41 (.12)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.32) (.64) (.62) (.19)
NET ASSET VALUE:
End of period $9.74 $9.83 $9.48 $9.69
Total investment return (2) 2.45% 10.57% 4.51% (1.22%)
Net assets at end of period (000's omitted) $5,402 $5,222 $3,533 $3,403
RATIOS:
Expenses to average daily net assets 0.80%(3) 0.80% 0.80% 0.80%(3)
Net investment income to average daily net assets 6.58%(3) 6.49% 6.63% 6.24%(3)
Portfolio turnover rate (excluding short-term securities) 88.85% 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>
Six Months Period from
Ended December 1,
September 30, 1993 (1) to
1996 Years Ended March 31, March 31,
(Unaudited) 1996 1995 1994
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $10.09 $9.96 $9.79 $10.00
OPERATIONS:
Net investment income .29 .57 .56 .17
Net realized and unrealized gains
(losses) on investments .09 .13 .17 (.21)
Total from operations .38 .70 .73 (.04)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.29) (.57) (.56) (.17)
NET ASSET VALUE:
End of period $10.18 $10.09 $9.96 $9.79
Total investment return (2) 3.81% 7.12% 7.68% (0.80%)
Net assets at end of period (000's omitted) $70,911 $62,980 $43,881 $18,105
RATIOS:
Expenses to average daily net assets 0.80%(3) 0.80% 0.80% 0.80%(3)
Net investment income to average daily net assets 5.65%(3) 5.62% 5.72% 5.23%(3)
Portfolio turnover rate (excluding short-term securities) 12.14% 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>
Six Months
Ended Nine Months
September 30, Ended
1996 Years Ended March 31, March 31, Years Ended June 30,
(Unaudited) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $9.88 $9.70 $9.63 $10.02 $9.74 $9.59
OPERATIONS:
Net investment income .28 .56 .56 .43 .60 .69
Net realized and unrealized gains
(losses) on investments .08 .18 .09 (.30) .32 .15
Total from operations .36 .74 .65 .13 .92 .84
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.28) (.56) (.56) (.43) (.60) (.69)
From realized gains ---- ---- (.02) (.09) (.04) ----
Total distributions (.28) (.56) (.58) (.52) (.64) (.69)
NET ASSET VALUE:
End of period $9.96 $9.88 $9.70 $9.63 $10.02 $9.74
Total investment return (1) 3.72% 7.73% 7.00% 1.19% 9.81% 9.09%
Net assets at end of period (000's omitted) $294,864 $279,769 $255,157 $324,691 $338,977 $192,808
RATIOS:
Expenses to average daily net assets 0.79%(2) 0.80%(2) 0.79%(2) 0.77%(2) 0.80% 0.80%
Net investment income to average daily net
assets 5.62%(2) 5.65%(2) 5.84%(2) 5.68%(2) 6.17% 7.02%
Portfolio turnover rate (excluding short-term
securities) 15.15% 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 periods ended September 30, 1996 and 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 September 30, 1996, and March 31, 1996, 1995 and 1994, the investment
adviser voluntarily absorbed $14,232, $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 September 30, 1996, and March 31,
1996, 1995 and 1994, and the ratio of net investment income to average
daily net assets would have been 5.61%, 5.65%, 5.83% and 5.65%,
respectively.
SIT U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended Nine Months
September 30, Ended
1996 Years Ended March 31, March 31, Years Ended June 30,
(Unaudited) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $10.47 $10.28 $10.50 $10.73 $10.81 $10.54
OPERATIONS:
Net investment income .32 .70 .67 .47 .71 .77
Net realized and unrealized gains
(losses) on investments (.08) .19 (.22) (.18) .07 .44
Total from operations .24 .89 .45 .29 .78 1.21
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.32) (.70) (.67) (.47) (.71) (.77)
From realized gains ---- ---- ---- (.05) (.15) (.17)
Total distributions (.32) (.70) (.67) (.52) (.86) (.94)
NET ASSET VALUE:
End of period $10.39 $10.47 $10.28 $10.50 $10.73 $10.81
Total investment return (1) 2.36% 8.87% 4.47% 2.70% 7.50% 11.87%
Net assets at end of period (000's omitted) $55,111 $52,450 $37,454 $38,683 $31,538 $35,353
RATIOS:
Expenses to average daily net assets 0.80%(3) 0.80%(3) 0.80%(3) 0.86%(3 ) 0.89%(2) 0.80%(2)
Net investment income to average daily
net assets 6.13%(3) 6.72%(3) 6.48%(3) 5.79%(3 ) 6.60%(2) 7.28%(2)
Portfolio turnover rate (excluding short-term
securities) 62.76% 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 periods ended September 30, 1996 and 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 September 30, 1996, and March 31, 1996,
1995 and 1994, the investment adviser voluntarily absorbed $50,133,
$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 5.93%, 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 Act of 1940 governing money market funds. The Fund's
investment objective, however, remains the achievement of maximum current income
to the extent consistent with the preservation of capital and maintenance of
liquidity. Per share amounts prior to November 1, 1993 have been restated to
reflect the 9.98 to 1 stock split.
<TABLE>
<CAPTION>
MONEY MARKET FUND SIT INVESTMENT RESERVE FUND
Six Months Period From Period From
Ended November 1, July 1,
September 30, 1993 to 1993 to
1996 Years Ended March 31, March 31, October 31, Years Ended June 30,
(Unaudited) 1996 1995 1994 1993 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
OPERATIONS:
Net investment income 0.02 0.05 0.04 0.01 0.01 0.03 0.05
Total from operations 0.02 0.05 0.04 0.01 0.01 0.03 0.05
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.02) (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 $1.00
Total investment return (1) 2.51% 5.44% 4.57% 1.14% 0.92% 3.02% 5.03%
Net assets at end of period
(000's omitted)$27,655 $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) 0.50%(3) 0.72%(3) 0.80%(2) 0.80%(2)
Net investment income to average
daily net assets 4.91%(3) 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 September 30, 1996, 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
September 30, 1996, and March 31, 1996, 1995 and 1994, and October 31,
1993, the investment adviser voluntarily absorbed $36,072, $66,862,
$63,828, $17, 565 and $3,224, respectively, in expenses that were otherwise
payable by the Fund. Had the Fund incurred these expenses, the ratio of
expenses to average daily net assets would have been .80% for each of these
periods and the ratio of net investment income to average daily net assets
would have been 4.61%, 5.05%, 4.33%, 2.46%, and 2.59%, respectively.
(This page has been left blank intentionally.)
[LOGO]
<TABLE>
<CAPTION>
<S> <C> <C>
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
Michael C. Brilley
John E. Hulse
Sidney L. Jones
Donald W. Phillips
William E. Frenzel
Director Emeritus:
Melvin C. Bahle
Officers:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Michael C. Brilley Senior Vice President
Mary K. Stern President
Debra A. Sit, CFA Vice President - Investments, Assistant Treasurer
Bryce A. Doty, CFA (1) Vice President - Investments
Paul J. Jungquist, CFA (2) Vice President - Investments
Paul E. Rasmussen Vice President & Treasurer
Michael P. Eckert Vice President - Group Manager
Michael J. Radmer Secretary
Parnell M. Kingsley Assistant Secretary
Carla J. Rose Assistant Secretary
</TABLE>
(1) Bond, Balanced and U.S. Government Securities Funds only.
(2) Money Market Fund only.
SEMI-ANNUAL REPORT BOND FUNDS
SEPTEMBER 30, 1996
INVESTMENT ADVISOR
SIT INVESTMENT ASSOCIATES, INC.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
DISTRIBUTOR
SIA SECURITIES CORP.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
CUSTODIAN
THE NORTHERN TRUST COMPANY
50 SOUTH LaSALLE STREET
CHICAGO, IL 60675
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 COUNCEL
DORSEY & WHITNEY LLP
220 SOUTH SIXTH STREET
MINNEAPOLIS, MN 55402
MEMBER OF 100% NO-LOAD MUTUAL FUND COUNCIL
