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 $5.2 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
[GRAPH]
SIT FAMILY OF FUNDS
Principal Stability & Current Income
STABILITY: INCOME: GROWTH & INCOME: GROWTH:
Safety of principal Increased income Long-term capital Long-term capital
and current income appreciation and appreciation
income
Growth Potential
* MONEY MARKET * U.S. GOVERNMENT * BALANCED * MID CAP GROWTH
SECURITIES * LARGE CAP GROWTH * INTERNATIONAL
* TAX-FREE INCOME GROWTH
* MINNESOTA * SMALL CAP
TAX-FREE INCOME GROWTH
* BOND * DEVELOPING
MARKETS GROWTH
SIT MUTUAL FUNDS
BOND FUNDS ANNUAL REPORT
TABLE OF CONTENTS
PAGE
Chairman's Letter......................................................... 2
Performance Review........................................................ 4
Fund Reviews and Portfolios of Investments
Money Market Fund................................................... 6
U.S. Government Securities Fund..................................... 10
Bond Fund........................................................... 14
Tax-Free Income Fund................................................ 18
Minnesota Tax-Free Income Fund...................................... 28
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
Independent Auditors' Report.............................................. 48
Federal Income Tax Information............................................ 49
This document must be preceded or accompanied by a Prospectus.
SIT MUTUAL FUNDS
CHAIRMAN'S LETTER - MARCH 31, 1997
[PHOTO]
Dear Fellow Shareholders:
Higher U.S. interest rates led domestic fixed income markets to provide
positive but below-coupon rates of return during the fiscal year ended March 31,
1997. While prospects for additional increases in short-term rates remain likely
in the near term, long-term yields are expected to decline by the latter half of
1997 as signs of economic slowing materialize.
Economic Overview
The domestic economy advanced at a remarkable +5.6% annualized rate of real
GDP growth during the first quarter of 1997, exceeding even the most bullish
forecasts of +4.5%. Consumer spending, which rose +6.4% during the quarter,
accounted for three-quarters of the rise in GDP, but increases in business
spending and inventory accumulation also contributed positively. We believe the
strength in consumer spending during the quarter was aided by the mild winter,
an early Easter and significant receipts of income tax refunds. Prospects for
domestic consumption remain healthy, albeit at a more moderate level, as
evidenced by the steady gains in personal income and personal consumption
expenditures. Moreover, consumer confidence has been bolstered by the strong
labor market, which recently posted a record low unemployment rate of 4.9%.
Given this momentum, our expectations for growth have increased slightly to
+3.0% for the second quarter and +3.2% for calendar 1997.
Despite the first quarter's rampant pace, several signs of moderation have
emerged in recent weeks. First, manufacturing activity has shown signs of
deceleration with decreases in durable goods orders and in the National
Association of Purchasing Managers Index, a widely followed measure of
industrial activity. Housing activity has also shown signs of slowing, partly
due to higher interest rates in early 1997, as evidenced by decreases in housing
starts and existing home sales. On the labor front, even though the unemployment
rate is near record low levels, April's payroll employment growth was
considerably less than January and February's levels, and March's figure was
revised lower. Finally, high levels of consumer debt, particularly among lower
income households, could serve to dampen future spending.
The strength of the economy has provided a windfall for Washington as it
strives to produce a balanced budget. Congress recently reached a framework
budget agreement that could produce the first balanced budget since 1969.
Elements of the budget include new spending for education, health insurance for
children, welfare benefits and a reduction in the capital gains tax. Although
the budget accord hints of legislative progress, it does nothing to address the
issue of rising entitlement spending with respect to Medicare, Medicaid and
Social Security programs, nor does it include any CPI "fix." On the positive
side, at $111.3 billion, the federal deficit through March is a $16.4 billion
improvement over last year.
Through March, inflation appears to remain contained as seen in the +2.8%
and +1.6% increases in the CPI and PPI, respectively. Wage inflation has also
been fairly stable as measured by the +2.9% rise in the Employment Cost Index, a
figure that is being closely monitored by the Federal Reserve. Recent data also
indicate that trends in benefit costs are favorable. We expect that inflation at
the consumer level should remain near +3% in 1997.
After exhibiting strength during the first quarter of 1997, the U.S. dollar
has retreated from the high end of its G-10 weighted trading range as a result
of foreign central bank intervention and modestly higher yields abroad. The
Japanese Ministry of Finance recently indicated that it would move to strengthen
the yen, which along with signs of improvement in its own economy, has led to
slightly higher Japanese government bond yields. Additionally, the transition to
the Labor Party in the U.K. could signal improved prospects for European
Monetary Union by the prescribed timeline, which could lower long-term yields
there even as monetary authorities seek to raise short-term rates in the face of
strong growth.
In light of the strong first quarter growth in the U.S., we believe that
monetary policy will remain moderately restrictive in the coming months. When
comparing the risk of thwarting continued economic growth versus higher
inflation, the Federal Reserve is much more likely to act preemptively to stave
off future price pressures. We expect the Federal Reserve will move to slow
growth by increasing short-term rates by +25 basis points at both the May and
July FOMC meetings, bringing the federal funds rate from 5 1/2% to 6%. These
rates, combined with approximately +3% inflation, would provide for real rates
of 2 1/2-3%, which is slightly higher than the 2% historical average. While
long-term yields are presently near 7%, we believe rates could inch higher in
the near term as potential Fed action draws near. Interest rates could move
lower in the latter part of 1997 as signs of more modest economic growth
materialize.
Strategy Summary
While short-term interest rates are likely to rise should the Fed tighten
further, our belief is that long-term yields are currently near their high for
the current economic cycle. We expect that 30-year government yields will remain
within a trading range between 6 1/2% to 7 1/2% as the market evaluates the
potential impact of monetary restraint. However, based on our expectations that
the Federal Reserve will be successful in its efforts to moderate economic
growth and contain inflation, our forecast is that interest rates will begin to
move lower by the end of the year. Thus, we continue to maintain the durations
of fixed income portfolios longer than their benchmarks.
Our taxable bond strategies remain focused on securities that provide
attractive value based on their ability to provide income as well as their
risk/reward characteristics. We continue to concentrate on seasoned pools of
high coupon mortgage pass-through securities, particularly those backed by
manufactured housing loans, as well as on asset-backed securities backed by home
equity loans. We have increased holdings in the corporate sector and shifted
maturities within the Treasury sector to lock in lengthened yields in times of
market weakness.
Municipal bonds performed well during the year as their valuations
continued to recover from the negative impact of threatened tax reform. A
comparison of the relative yields of long municipal bonds to long Treasury bonds
indicates that municipals are now fairly valued. The housing sector, in
particular, has experienced improved valuation relative to other market sectors.
In our municipal bond portfolios, we continue to emphasize securities in
the housing and health care sectors. We remain attracted to housing bonds based
on their characteristic high yields and low price volatility. Despite the
relatively low yield spreads currently offered by lower rated credits, the
health care sector has continued to provide selected value. As we expect lower
bond yields by the end of the year, we intend to keep our tax-free portfolios
fully invested and to reinvest cash flow into securities which offer greater
call protection while not materially affecting the portfolios' maturity
profiles.
We sincerely appreciate your interest and investment in the Sit Mutual
Funds, and we look forward to assisting you in achieving your long-term
investment goals.
With best wishes,
/s/ Eugene C. Sit, CFA
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
SIT MUTUAL FUNDS
MARCH 31, 1997 PERFORMANCE SUMMARY - BOND FUNDS
BOND MARKET REVIEW
After the last of three 25 basis point easing moves made in early 1996,
monetary policy was unchanged during most of the year until the Federal Reserve
increased the Federal funds rate by 25 basis points on March 25, 1997 in
response to strong economic data. 3-month Treasury bill yields increased from
5.14% on March 31, 1996 to 5.33% on March 31, 1997, and ranged between 4.92% and
5.40% during the year.
Longer term taxable bond yields rose during the year. The 30-year Treasury
bond yield increased from 6.67% on March 31, 1996 to 7.08% on March 31, 1997,
with a low of 6.35% in late November 1996 and several highs approaching 7.20%
during the year. Despite rising yields, bond markets provided modest positive
returns for the year. The asset-backed and mortgage sectors outperformed the
corporate and government sectors, due to their shorter durations. In addition,
these sectors outperformed other short and intermediate maturity benchmarks due
to their higher income.
Municipal bond yields remained in a much narrower range than taxable bond
yields and ended the year relatively unchanged from their levels of one year
ago. The Bond Buyer 40-Bond Index yield increased from 5.95% to 5.96% during the
year and remained between a range of 5.61% to 6.22%. Municipal market returns
remained ahead of taxable bond market returns for the year as their relative
valuation to Treasuries continued to improve with fading concerns over tax
reform. Among revenue bonds, the hospital sector maintained its lead, which was
primarily attained from narrowing incremental yield spreads and improved credit
quality during the year. Housing bonds, with their characteristic price
stability and income advantage, also outperformed.
Security selection was a strong component of the attractive returns earned
by the Sit Bond Funds during the past year. These results were consistent with
the Funds' dual objectives of high income and principal stability.
<TABLE>
<CAPTION>
TOTAL RETURN - CALENDAR YEAR
1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SIT MONEY MARKET FUND ---- ---- ---- ---- ---- 0.46%(1) 3.84% 5.58%
SIT U.S. GOV'T. SECURITIES FUND 7.86 11.04 10.97 12.87 5.43 7.34 1.77 11.50
SIT BOND FUND ---- ---- ---- ---- ---- 0.34(1) -1.31 16.83
SIT TAX-FREE INCOME FUND 2.19(1) 8.38 7.29 9.25 7.71 10.42 -0.63 12.86
SIT MINNESOTA TAX-FREE
INCOME FUND ---- ---- ---- ---- ---- 1.60(1) 0.63 11.90
U.S. TREASURY BILL 7.10 8.73 8.04 5.72 3.56 3.13 4.47 5.98
LEHMAN INTER. GOVERNMENT BOND INDEX 6.40 12.68 9.56 14.11 6.93 8.17 -1.75 14.41
LEHMAN AGGREGATE BOND INDEX 7.89 14.53 8.96 16.00 7.40 9.75/0.54(1) -2.92 18.47
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
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>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
YIELD
YTD AS OF DISTRIBUTION
1996 1997 3/31/97 RATE(2)
---- ---- ------- -------
<S> <C> <C> <C> <C>
SIT MONEY MARKET FUND 5.08% 1.21% 4.74%(6)
SIT U.S. GOV'T. SECURITIES FUND 4.99 0.00 6.65 6.29
SIT BOND FUND 4.25 -0.44 6.68 6.54
SIT TAX-FREE INCOME FUND 5.69 0.70 5.47(4) 5.64
SIT MINNESOTA TAX-FREE
INCOME FUND 5.89 0.36 5.54(3) 5.59
U.S. TREASURY BILL 5.27
LEHMAN INTER. GOVERNMENT BOND INDEX 4.06
LEHMAN AGGREGATE BOND INDEX 3.63
LEHMAN 5-YEAR MUNICIPAL BOND INDEX 4.22
SIT INVESTMENT RESERVE FUND
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
TOTAL RETURN PERIODS ENDED MARCH 31, 1997
NASDAQ QUARTER SIX MONTHS SINCE
SYMBOL INCEPTION ENDED 3/31/97 ENDED 3/31/97 1 YEAR 3 YEARS 5 YEARS INCEPTION
------ --------- ------------- ------------- ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SIT MONEY MARKET FUND SNIXX 11/01/93 1.21% 2.47% 5.04% 5.01% ---- 4.74%
SIT U.S. GOV'T. SECURITIES FUND SNGVX 06/02/87 0.00 2.13 4.55 5.94 6.32 8.07
SIT BOND FUND SIBOX 12/01/93 -0.44 2.69 5.21 6.73 ---- 5.65
SIT TAX-FREE INCOME FUND SNTIX 09/29/88 0.70 3.03 6.86 7.19 7.11 7.45
SIT MINNESOTA TAX-FREE INCOME FUND SMTFX 12/01/93 0.36 2.35 6.26 7.02 ---- 6.04
3-MONTH U.S. TREASURY BILL 11/01/93 1.30 2.60 5.30 5.35 4.51 5.10
LEHMAN INTER. GOVERNMENT BOND INDEX 05/31/87 -0.02 2.29 4.75 6.02 6.45 7.92
LEHMAN AGGREGATE BOND INDEX 11/30/93 -0.56 2.42 4.91 6.86 ---- 5.40
LEHMAN 5-YEAR MUNICIPAL BOND INDEX 09/30/88 -0.02 1.95 4.19 5.72 6.07 6.96
</TABLE>
(1) Period from Fund inception through calendar year-end.
(2) Based on the last 12 monthly distributions of net investment income and
average
(3) For Minnesota residents in the 31%, 36% and 39.6% federal tax brackets, the
double exempt tax equivalent yields are 8.77%, 9.46% and 10.02%,
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 7.93%, 8.55% and 9.06%, respectively
(Income subject to state tax, if any).
(5) Period January 1, 1993, through October 31, 1993, at which time the Fund
converted to the Sit Money Market Fund.
(6) Figure represents 7-day compound effective yield. The 7-day simple yield as
of 3/31/97 was 4.63%. NAV as of 3/31/97.
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 MONEY MARKET FUND REVIEW
MARCH 31, 1997
[PHOTO] MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
PAUL J. JUNGQUIST, CFA
PORTFOLIO MANAGER
The Sit Money Market Fund provided investors with a +5.04% return for the
year ended March 31, 1997, compared to a +4.76% average return for the Lipper
Analytical Services, Money Market Fund universe. The Fund's performance ranked
52nd of 292 funds in its Lipper peer group category for the twelve month period.
As of March 31, 1997, the Fund's 7-day compound yield was 4.74% and its average
maturity was 27 days, compared to 4.93% and 36 days, respectively, at March 31,
1996.
The Federal Reserve Board maintained the federal funds rate at 5.25% from
January 31, 1996 until March 25, 1997, when the Fed raised it to 5.50%.
Three-month Treasury bill yields were confined to a narrow range over the past
twelve months. After bottoming at 4.92% in late December of 1996, yields rose to
a high of 5.40% during March of 1997 as expectations for Fed tightening
increased. Current yield levels imply that the market is expecting at least one
additional tightening by the Fed in the second or third quarter of 1997. Strong
economic growth and signs of incipient wage inflation are the secular factors
supporting this expectation. Accordingly, the Fund will try to take advantage of
current yield levels and maintain the average maturity of the portfolio in a
range of 25 to 35 days over the near term in anticipation of an additional
interest rate hike by the Fed. The Fund will lengthen its average maturity when
evidence indicates that the Fed is near the end of its tightening cycle.
The Fund has produced competitive returns by focusing on credit research
and avoiding the use of risky derivatives. We intend to continue these
conservative policies in the future. As economic activity continues to be
strong, we do not foresee a significant impact on the short-term
creditworthiness of top tier commercial paper issuers in general. Consumer
finance companies may experience continued pressure, however, as consumer credit
exposure continues at relatively high levels, so we will monitor the Fund's
permissible credits in this industry particularly closely. The Fund continues to
diversify its core holdings and its industry exposure. In the months ahead, we
plan to add top tier credits in the technology, capital goods and consumer
non-durable industries.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to achieve maximum current income to the
extent consistent with the preservation of capital and maintenance of liquidity.
The Fund pursues this objective by investing in a diversified portfolio of high
quality short-term debt instruments. The Fund seeks to maintain a stable net
asset value of $1.00 per share. However, there is no assurance of a constant
share price.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share.
PORTFOLIO SUMMARY
Net Asset Value 3/31/97: $1.00 Per Share
3/31/96: $1.00 Per Share
Total Net Assets: $32.67 Million
PORTFOLIO STRUCTURE
(% OF TOTAL NET ASSETS)
[BAR CHART]
U.S. Government 18.7
Consumer Loan Finance 17.8
Diversified Finance 17.1
Captive Equipment 13.3
Finance
Utilities 10.8
Captive Auto Finance 6.9
Retail 4.7
Consumer Non-Durables 4.3
Technology/Business Equip. 3.1
Captive Oil Finance 0.4
Other Assets & Liabilities 2.9
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
----------------------------- -------------------------
Money Lipper Money U.S. Treasury Money Lipper Money U.S. Treasury
Market Market Bill Market Market Bill
Fund Average (3-Month) Fund Average (3-Month)
---- ------- --------- ---- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
3 Months 1.21% 1.15% 1.30% 1.21% 1.15% 1.30%
(unannualized)
1 Year 5.04 4.76 5.30 5.04 4.76 5.30
3 Year 5.01 4.81 5.35 15.81 15.13 16.91
Inception 4.74 4.54 5.10 17.13 16.38 18.51
(11/1/93)
</TABLE>
* As of 3/31/97
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 CHART]
The sum of $10,000 invested at inception (11/1/93) and held until 3/31/97 would
have grown to $11,713 in the Fund or $11,851 in the 3-Month U.S. Treasury Bill
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of Net Assets)
AS RATED BY MOODY'S, S&P AND FITCH
First Tier Securities
100%
[PIE CHART]
First Tier Securities 100%
Second Tier Securities 0%
SIT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS - MARCH 31, 1997
QUANTITY NAME OF ISSUER MARKET VALUE (1)
- ---------------------------------------------------------------------
COMMERCIAL PAPER (78.4%) (2)
CAPTIVE AUTO FINANCE (6.9%)
Ford Motor Credit Corp.:
264,000 5.31%, 4/7/97 $263,766
542,000 5.32%, 4/14/97 540,959
330,000 5.30%, 5/12/97 328,008
General Motors Acceptance Corp.:
200,000 5.37%, 4/3/97 199,940
484,000 5.35%, 5/2/97 481,770
200,000 5.25%, 5/6/97 198,979
250,000 5.53%, 7/18/97 245,853
2,259,275
CAPTIVE EQUIPMENT FINANCE (13.3%)
IBM Credit Corp.:
425,000 5.30%, 4/25/97 423,498
225,000 5.48%, 6/16/97 222,397
500,000 5.37%, 6/20/97 494,033
John Deere Capital Corp.:
158,000 5.30%, 4/3/97 157,954
344,000 5.30%, 4/9/97 343,595
560,000 5.22%, 4/11/97 559,188
100,000 5.50%, 5/29/97 99,106
Pitney Bowes Credit Corp.:
700,000 5.27%, 4/7/97 699,385
500,000 5.35%, 4/11/97 499,257
Xerox Credit Corp.,
850,000 5.30%, 5/13/97 844,744
4,343,157
CAPTIVE OIL FINANCE (0.4%)
Chevron Oil Finance:
121,000 5.50%, 5/22/97 120,057
CONSUMER LOAN FINANCE (17.8%)
American Express Credit Corp.:
380,000 5.25%, 4/28/97 378,504
260,000 5.27%, 4/23/97 259,163
333,000 5.40%, 5/15/97 330,802
193,000 5.30%, 5/29/97 191,281
American General Financial:
200,000 5.31%, 4/17/97 199,528
400,000 5.25%, 4/21/97 398,833
140,000 5.27%, 4/29/97 139,426
181,000 5.54%, 5/21/97 179,607
290,000 5.57%, 6/18/97 286,205
Beneficial Corp.:
430,000 5.35%, 4/4/97 429,808
340,000 5.37%, 4/17/97 339,189
169,000 5.28%, 4/23/97 168,455
230,000 5.51%, 6/2/97 227,817
Household Finance Corp.:
422,000 5.30%, 4/15/97 421,130
292,000 5.23%, 5/1/97 290,727
280,000 5.30%, 5/7/97 278,516
150,000 5.39%, 6/17/97 148,271
Norwest Financial, Inc.:
400,000 5.27%, 4/11/97 399,414
250,000 5.24%, 4/17/97 249,418
244,000 5.35%, 5/20/97 242,223
275,000 5.56%, 6/26/97 271,347
5,829,664
CONSUMER NON-DURABLES (4.3%)
Coca Cola Co.:
940,000 5.20%, 4/21/97 937,284
200,000 5.28%, 5/14/97 198,739
Gillette Co.:
250,000 5.50%, 4/25/97(5) 249,083
1,385,106
DIVERSIFIED FINANCE (17.1%)
Associates Corp. N.A.:
400,000 5.31%, 4/1/97 400,000
440,000 5.32%, 4/16/97 439,025
200,000 5.34%, 4/29/97 199,169
144,000 5.50%, 5/21/97 142,900
CIT Group Holdings, Inc.:
378,000 5.36%, 5/19/97 375,299
221,000 5.25%, 5/28/97 219,163
570,000 5.54%, 6/27/97 562,365
General Electric Capital Corp.:
276,000 5.30%, 4/2/97 275,959
500,000 5.34%, 6/13/97 494,586
225,000 5.47%, 7/18/97 221,308
General Electric Capital Services:
350,000 5.31%, 4/10/97 349,535
550,000 5.35%, 4/18/97 548,611
250,000 5.56%, 6/3/97 247,568
Transamerica Finance Corp.:
350,000 5.29%, 4/21/97 348,971
500,000 5.29%, 5/8/97 497,281
275,000 5.32%, 6/11/97 272,115
5,593,855
TECHNOLOGY/BUSINESS EQUIPMENT (3.1%)
International Business Machines Corp.:
500,000 5.28%, 4/22/97 498,460
517,000 5.31%, 5/16/97 513,568
1,012,028
RETAIL (4.7%)
Sears Roebuck & Co.:
356,000 5.38%, 4/8/97 355,632
385,000 5.24%, 4/30/97 383,375
261,000 5.26%, 5/5/97 259,703
544,000 5.38%, 5/9/97 540,951
1,539,661
UTILITIES (10.8%)
Ameritech Capital Funding Corp.:
972,000 5.24%, 4/14/97(5) 970,161
200,000 5.23%, 4/25/97(5) 199,303
AT&T Corp.:
500,000 5.33%, 5/23/97 496,151
BellSouth Telecommunications, Inc.:
690,000 5.25%, 5/27/97 684,365
Southwestern Bell Capital Corp.,
500,000 5.30%, 4/11/97(5) 499,271
200,000 5.28%, 4/17/97(5) 199,534
470,000 5.37%, 4/24/97(5) 468,409
3,517,194
Total commercial paper
(cost: $25,599,997) 25,599,997
U.S. GOVERNMENT SECURITIES (18.7%)(2)
6,100,000 Federal Home Loan Mtg. Corp.:
6.35%, 4/1/97 6,100,000
(cost: $6,100,000)
Total investments in securities
(cost: $31,699,997)(7) $31,699,997
See accompanying notes to portfolios of investments on page 35.
SIT U.S. GOVERNMENT SECURITIES FUND REVIEW
MARCH 31, 1997
[PHOTO] MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
BRYCE A. DOTY, CFA
PORTFOLIO MANAGER
The Sit U.S. Government Securities Fund provided investors a +4.55% return
for the past 12 months. As of March 31, 1997, the Fund's 30-day SEC yield was
6.65% and the Fund's 12-month distribution rate was 6.29%. The Fund ranked #23
out of 123 funds in the Lipper U.S. Government Bond Fund universe for its
12-month return. In addition, Morningstar, a nationally recognized firm which
evaluates mutual funds, ranked the Fund #1 in their latest review of the
universe of 26 short-term government bond funds for having the highest return
and rated the Fund #2 for its low risk and high return characteristics for the
five years ended March 31, 1997.
The Fund has achieved its superior results by continuing to focus on
securities that provide a high level of income. The yield on the 3-year U.S.
Treasury note rose by 0.68% over the past year and by 0.55% over the past
quarter. The rise in interest rates resulted in lower prices for the Fund's
Treasury and collateralized mortgage obligation (CMO's) holdings as a result of
their longer effective durations(1). However, the Fund's holdings in seasoned,
high coupon mortgage and mobile home loan pass-through securities, which are
relatively more stable in price because of their shorter average lives, provided
the highest income and total return compared to the other market sectors in
which the Fund invests. During the past year, the Fund received over $22 million
net cashflows, most of which were used to purchase high coupon pass-through
securities and collateralized mortgage obligations (CMO's). The Fund also
extended its average duration beginning December 1996 to take advantage of the
higher interest rate levels.
In the near term, we expect that strong economic growth will cause the
Federal Reserve to further raise short-term interest rates. However, we believe
that current yield levels already reflect an anticipated 0.25% increase by the
Federal Reserve. Our longer term forecast continues to be for moderate economic
growth and contained inflation, resulting in relatively stable to declining
intermediate and longer maturity interest rates. This outlook adds increased
importance to the Fund's somewhat extended effective duration(1) and continued
emphasis on interest income.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to provide high current income and safety of
principal. The Fund invests solely in securities issued, guaranteed or insured
by the U.S. government or its agencies or its instrumentalities.
Agency mortgage securities and U.S. Treasury securities will be the
principal holdings in the Fund. The mortgage securities that the Fund will
purchase consist of pass-through securities (Government National Mortgage
Association (GNMA), Federal National Mortgage Association (FNMA), and Federal
Home Loan Mortgage Corporation (FHLMC)).
PORTFOLIO SUMMARY
Net Asset Value 3/31/97: $10.28 Per Share
3/31/96: $10.47 Per Share
Total Net Assets: $73.39 Million
30-Day SEC Yield: 6.65%
12-Month Distribution Rate: 6.29%
Average Maturity: 15.2 Years
Effective Duration: 4.0 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 54.9
Securities
U.S. Treasury 14.9
Bonds
Collateralized 12.3
Mortgage Obligations
FNMA Pass-Through 10.0
Securities
FHLMC Pass-Through 3.5
Securities
Other Assets & Liabilities 4.4
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
----------------------------- -------------------------
U.S. Gov't. Lipper Lehman Inter. U.S. Gov't. Lipper Lehman Inter.
Securities U.S. Gov't. Gov't. Bond Securities U.S. Gov't. Bond Fund
Fund Fund Average Index Fund Fund Average Index
---- ------------ ----- ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
3 Months 0.00% -1.01% -0.02% 0.00% -1.01% -0.02%
(unannualized)
1 Year 4.55 3.48 4.75 4.55 3.48 4.75
3 Years 5.94 5.27 6.02 18.90 16.66 19.16
5 Years 6.32 6.06 6.45 35.86 34.22 36.71
Inception 8.07 7.30 7.92 114.48 100.09 111.81
(6/2/87)
</TABLE>
* As of 3/31/97
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 GRAPH]
The sum of $10,000 invested at inception (6/2/87) and held until 3/31/97 would
have grown to $21,448 in the Fund or $21,181 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 4.4%
1-5 72.8%
5-10 13.4%
10-20 5.8%
20+ 3.6%
SIT U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS - MARCH 31, 1997
QUANTITY NAME OF ISSUER MARKET VALUE (1)
- ----------------------------------------------------------------------
MORTGAGE PASS-THROUGH SECURITIES (68.4%)(2)
FEDERAL HOME LOAN MORTGAGE CORPORATION (3.5%):
37,807 8.75%, 12/1/01 $38,722
335,254 9.00%, 12/1/05 346,897
92,519 9.00%, 1/1/06 95,732
637,652 9.00%, 10/1/16 666,762
584,178 9.00%, 6/1/17 610,977
80,713 9.50%, 6/1/16 85,803
138,048 9.75%, 6/1/17 147,821
473,170 10.25%, 6/1/10 512,746
32,887 10.50%, 4/1/04 34,527
5,981 11.00%, 10/1/00 6,279
2,546,266
FEDERAL NATIONAL MORTGAGE ASSOCIATION (10.0%):
211,680 9.00%, 4/1/10 220,529
133,642 9.00%, 9/1/17 139,208
267,936 9.00%, 9/1/20 279,375
1,912,043 9.00%, 2/1/25 1,998,977
82,819 9.375%, 5/1/16 87,844
384,011 9.50%, 4/1/20 409,954
1,042,721 9.50%, 12/1/24 1,086,004
2,488,260 9.50%, 1/1/25 2,591,547
196,430 10.00%, 9/1/20 212,921
294,460 11.00%, 4/1/14 327,574
7,353,933
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (54.9%)(3):
223,009 7.50%, 3/15/07 226,312
494,071 7.50%, 5/15/16 496,846
55,608 8.00%, 7/15/03 57,351
300,178 8.00%, 10/15/12 306,723
1,865,480 8.00%, 5/15 - 6/15/16 1,907,750
244,236 8.25%, 1/15/12 250,867
743,866 8.25%, 8/15/15 764,827
390,146 8.50%, 12/15/11 403,025
894,708 8.50%, 9/15/16 925,719
846,902 8.50%, 1/15/17 876,272
246,316 8.75%, 5/15/03 257,561
805,166 8.75%, 5/15 - 11/15/06 842,675
312,336 8.75%, 2/15 - 3/15/07 323,758
231,406 8.75%, 11/15/09 240,028
647,528 8.75%, 6/15 - 12/15/11 671,830
475,451 8.75%, 8/15/19 491,352
189,695 9.00%, 10/15/04 199,314
380,004 9.00%, 4/15/06 399,275
289,402 9.00%, 10/15/07 301,129
151,956 9.00%, 11/15/09 158,278
1,917,799 9.00%, 6/15 - 10/15/11 1,997,676
180,712 9.00%, 1/15/12 188,146
2,695,061 9.00%, 4/20 - 12/20/16 2,839,794
997,872 9.00%, 1/15/17 1,041,831
71,370 9.00%, 5/15/18 74,497
105,974 9.00%, 11/15/19 110,581
330,883 9.00%, 7/20 - 10/20/21 342,919
114,387 9.25%, 4/15 - 9/15/01 120,906
377,458 9.25%, 3/15/05 399,480
434,717 9.25%, 11/15/11 456,289
275,099 9.25%, 4/15/12 288,792
46,652 9.50%, 1/15 - 1/20/05 49,537
216,291 9.50%, 1/15/06 230,626
1,290,063 9.50%, 1/15 - 8/15/10 1,371,937
680,463 9.50%, 1/15 - 3/15/11 719,226
906,816 9.50%, 11/20 - 12/15/16 963,188
222,228 9.50%, 8/20/17 235,885
557,282 9.50%, 5/15 - 12/15/18 596,084
133,007 9.50%, 6/15/20 142,082
322,811 9.75%, 3/15 - 10/15/99 329,476
66,350 9.75%, 5/15/01 70,632
200,285 9.75%, 11/15/02 213,299
194,073 9.75%, 7/15/03 206,553
59,563 9.75%, 3/15/04 63,461
457,189 9.75%, 8/15/05 487,483
257,118 9.75%, 2/15/06 273,429
2,416,032 9.75%, 8/15 - 12/15/10 2,588,072
1,068,206 9.75%, 11/15 - 12/15/12 1,146,093
234,237 10.00%, 8/15/02 249,753
178,333 10.00%, 5/15/04 189,945
1,086,348 10.00%, 7/15/05 1,158,495
175,521 10.00%, 1/15/06 186,945
189,209 10.00%, 11/15/08 202,536
134,873 10.00%, 5/15 - 11/15/09 145,071
217,661 10.00%, 6/15 - 7/15/10 233,132
149,186 10.00%, 1/15/11 159,851
47,026 10.00%, 9/15/16 51,265
237,657 10.00%, 2/20/20 257,065
75,166 10.25%, 11/15/00 80,027
120,417 10.25%, 2/15 - 4/15/01 128,208
93,959 10.25%, 8/15/04 100,194
438,276 10.25%, 7/15/05 467,293
188,617 10.25%, 5/15/09 201,465
3,383,760 10.25%, 3/15 - 8/15/12 3,629,753
819,951 10.25%, 2/15 - 7/15/13 878,250
8,714 10.50%, 9/15/00 9,197
66,304 10.50%, 9/15/01 70,637
105,485 10.50%, 12/15/02 112,442
126,129 10.50%, 7/15/10 134,772
362,814 10.50%, 8/15 - 11/15/15 396,736
141,997 10.50%, 3/15 - 12/15/16 155,236
10,092 10.75%, 7/15 - 10/15/98 10,313
36,343 10.75%, 11/15/00 38,714
111,016 10.75%, 9/15/03 118,340
108,128 10.75%, 9/15/05 115,256
56,984 10.75%, 1/15/10 60,995
223,128 10.75%, 7/15 - 8/15/11 238,648
628,202 11.00%, 1/15 - 6/15/10 693,856
18,237 11.00%, 7/15/13 19,942
22,089 11.25%, 4/15 - 5/15/98 22,524
309,427 11.25%, 8/15 - 12/15/00 329,742
45,569 11.25%, 1/15/01 48,545
32,012 11.25%, 5/15/03 34,106
1,021,180 11.25%, 2/15 - 10/15/11 1,112,444
74,806 11.75%, 1/15/99 77,561
81,542 11.75%, 5/15/00 86,911
221,415 11.75%, 5/15 - 6/15/04 238,044
110,647 12.75%, 1/15/00 117,294
45,388 13.25%, 10/15/99 46,735
68,961 13.75%, 9/15/99 71,371
135 14.75%, 4/15/97 137
40,328,612
Total mortgage pass-through securities
(cost: $50,480,599) 50,228,811
U.S. GOVERNMENT SECURITIES (14.9%) (2)
U.S. Treasury Coupon Strip:
6,750,000 6.925% Effective Yield on Purchase
Date, 11/15/04 3,998,159
10,075,000 6.54% Effective Yield on Purchase
Date, 5/15/09 4,254,168
13,000,000 U.S. Treasury Principal Strip, 7.08% Effective
Yield on Purchase Date, 2/15/19
2,658,369
Total U.S. government securities
(cost: $11,529,595) 10,910,696
COLLATERALIZED MORTGAGE OBLIGATIONS (12.3%) (2)
268,208 Federal Home Loan Mortgage Corporation,
1006-C, 9.15%, 10/15/20 279,064
Vendee Mortgage Trust:
3,000,000 Series 1996-2 1B, 6.75%, 9/15/09 2,966,017
4,300,000 Series 1992-2 1F, 7.00%, 2/15/18 4,137,878
200,000 Series 1996-2 1D, 6.75%, 11/15/15 190,205
500,000 Series 1996-2 1E, 6.75%, 5/15/20 468,259
1,000,000 Series 1992-1 2K, 7.75%, 5/15/08 1,005,593
Total collateralized mortgage obligations
(cost: $9,166,161) 9,047,016
SHORT-TERM SECURITIES (4.3%)(2)
2,500,000 Federal Home Loan Bank, 6.35%, 4/1/97 2,500,000
655,015 Dreyfus Cash Management Fund, 5.31%
655,015
Total short-term securities 3,155,015
(cost: $3,155,015)
Total investments in securities
(cost: $74,331,370)(7) $73,341,538
See accompanying notes to portfolios of investments on page 35.
SIT BOND FUND REVIEW
MARCH 31, 1997
[PHOTO] MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
BRYCE A, DOTY, CFA
PORTFOLIO MANAGER
The Sit Bond Fund provided investors a +5.21% return for the past 12
months. The Fund ranked in the top 20% of the Lipper Intermediate Investment
Grade Bond Fund universe for the past 12 months (out of 176 funds) and since
inception (out of 102 funds).
The yield on the 5-Year U.S. Treasury note rose by 0.67% over the past year
and by 0.54% over the past three months. The rise in interest rates caused most
bond prices to fall. The Fund's holdings in high coupon pass-through securities
were relatively stable in price and provided high levels of interest income. As
a result, the pass-through sector provided the most favorable impact on the
portfolio's return. The Fund's holdings in the asset-backed and U.S. Treasury
sectors are relatively more price sensitive to changes in interest rates.
Consequently, the sharp rise in yields caused these sectors to provide the
lowest returns for the year.
The Fund's most significant sector shift involved selling agency
pass-through securities and purchasing corporate bonds to better lock in the
higher yield levels. Approximately three percent of the portfolio was invested
in a corporate security whose return is linked to the rate of inflation.
Specifically, the maturity value of the security increases at the same rate of
change as the Consumer Price Index (CPI). As a result, the bond's return is
protected from rising inflation. The bond also earns a coupon of 3.65%.
Therefore, if inflation was 3.0% for the year, the bond would yield 6.65%. We
believe 3.65% is an attractive spread over inflation and that the inflation
protection will add to the price stability of the bond.
In the near term, we expect that strong economic growth will cause the
Federal Reserve to further raise short-term interest rates. However, we believe
that current yield levels already reflect a 0.25% increase by the Federal
Reserve. Our longer term forecast continues to be for moderate economic growth
and contained inflation, resulting in relatively stable to declining interest
rates. As a result, we are maintaining the Fund's duration at 5.0 years(1),
slightly longer than the 4.7 year duration of its benchmark, the Lehman
Aggregate Bond Index. The Fund will continue to invest in high quality
securities that offer attractive total returns.
INVESTMENT OBJECTIVE AND STRATEGY
The investment objective of the Fund is to maximize total return,
consistent with preservation of capital. The Fund's "total return" is a
combination of income, changes in principal value and reinvested dividends.
The Fund will pursue its objective by investing in a diversified portfolio
of fixed-income securities which include, but are not limited to, the following:
U.S. government securities; corporate debt securities; corporate commercial
paper; mortgage and other asset-backed securities.
PORTFOLIO SUMMARY
Net Asset Value 3/31/97: $9.62 Per Share
3/31/96: $9.83 Per Share
Total Net Assets: $6.40 Million
30-Day SEC Yield: 6.68%
12-Month Distribution Rate: 6.54%
Average Maturity: 15.9 Years
Effective Duration: 5.0 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 26.6
Pass-Through Securities
Corporate Bonds & Notes 24.2
Asset-Backed Securities 15.5
U.S. Treasury 12.6
Collateralized Mortgage 8.7
Obligations
Mutual Funds 4.5
Trust Preferred Securities 2.3
Other Assets & Liabilities 5.6
<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 -0.44% -0.55% -0.56% -0.44% -0.55% -0.56%
(unannualized)
1 Year 5.21 4.46 4.91 5.21 4.46 4.91
3 Year 6.73 5.98 6.86 21.57 19.04 22.03
Inception 5.65 4.61 5.40 20.08 16.23 19.17
(12/1/93)
</TABLE>
As of 3/31/97
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 POINTS CHART]
The sum of $10,000 invested at inception (12/1/93) and held until 3/31/97 would
have grown to $12,008 in the Fund or $11,917 in the Lehman Aggregate Bond Index
assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of Net Assets)
LOWER OF MOODY'S OR S&P USED.
[PIE CHART]
Other Assets & Liabilities 5.6%
Agency Backed Securities & CMO's 35.3%
U.S. Government 12.6%
AAA 15.5%
A 16.1%
BBB 14.9%
SIT BOND FUND
PORTFOLIO OF INVESTMENTS - MARCH 31, 1997
QUANTITY NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (12.6%)(2)
U.S. Treasury Note:
100,000 5.875%, 11/15/05 $93,164
300,000 7.25%, 5/15/04 306,285
150,000 8.25%, 7/15/98 153,693
150,000 U.S. Treasury Coupon Strip, 6.93% Effective
Yield on Purchase Date, 11/15/04 88,848
100,000 U.S. Treasury Coupon Strip, 6.86% Effective
Yield on Purchase Date, 05/15/09 42,225
600,000 U.S. Treasury Principal Strip, 7.14% Effective
Yield on Purchase Date, 2/15/19 122,694
Total U.S. government securities 806,909
(cost: $824,850)
ASSET-BACKED SECURITIES (15.5%)(2)
Advanta Mortgage Loan Trust:
200,000 1995-3 A5, 7.37%, 2/25/27 191,095
250,000 1996-1 A7, 7.07%, 3/25/27 233,444
75,000 Cityscape Home Equity Loan Trust,
1996-3 A8, 7.65%, 9/25/25 72,518
249,998 ContiMortgage Home Equity Loan Trust:
1996-1 A7, 7.00%, 3/15/27 232,658
100,000 EQCC Home Equity Loan Trust,
Series 1996-1, 6.93%, 3/15/27 92,579
100,000 EquiVantage, 1996-3 A3, 7.70%, 8/1/27 98,073
75,000 Green Tree Corp., Series 1995-5,
7.25%, 9/15/26 71,887
Total asset-backed securities 992,254
(cost: $1,027,423)
CORPORATE BONDS (24.2%)(2)
250,000 Ford Motor Credit Corp., 9.14%, 12/30/14 269,375
275,000 Franchise Finance Corp., 7.875%, 11/30/05 274,312
225,000 Martin Marietta/Lockheed, 7.00%, 03/15/11 209,250
Nationwide Health Properties:
100,000 8.67%, 3/10/05 104,125
150,000 Series B, 7.23%, 11/08/06 142,875
225,000 Salomon CPI Index Bond, 3.65%, 02/14/02 219,598
200,000 Security Capital Indl. Trust, 8.65%, 05/15/16 208,250
125,000 Security Capital Pacific Trust, 7.55%, 8/1/08 123,750
Total corporate bonds & notes 1,551,535
(cost: $1,607,107)
MORTGAGE PASS-THROUGH SECURITIES (26.6%)(2)(3)
Federal Home Loan Mortgage Corp.:
49,494 10.25%, 9/1/09 53,637
35,707 10.75%, 3/1/11 39,142
Government National Mortgage Association:
18,815 8.75%, 11/15/01 19,668
98,397 9.00%, 10/15/06 103,394
11,725 9.00%, 8/15/11 12,215
98,514 9.00%, 12/15/16 102,765
218,432 9.00%, 01/15/17 228,055
40,527 9.00%, 11/15/19 42,263
34,741 9.25%, 5/15/01 36,700
26,026 9.50%, 3/15/03 27,737
161,614 9.50%, 11/15/05 170,451
69,660 9.50%, 2/15/11 73,609
5,577 9.75%, 8/15/02 5,940
42,880 10.00%, 8/15/02 45,683
33,580 10.25%, 4/15/01 35,750
41,293 10.25%, 4/15/01 43,965
12,407 10.25%, 4/15/12 13,276
12,880 10.25%, 5/15/12 13,784
16,498 10.25%, 5/15/12 17,673
89,624 10.25%, 5/15/12 95,902
11,790 10.25%, 6/15/12 12,613
17,982 10.25%, 6/15/12 19,271
45,286 10.25%, 7/15/12 48,493
16,456 10.25%, 7/15/12 17,628
76,190 10.25%, 8/15/12 81,532
51,900 10.25%, 6/15/13 55,610
46,948 10.50%, 7/15/00 50,007
24,611 10.75%, 8/15/98 25,095
61,360 10.75%, 1/15/01 65,366
31,982 11.25%, 10/15/00 34,079
74,474 11.75%, 7/15/00 79,374
29,237 11.75%, 7/15/01 31,018
Total mortgage pass-through securities 1,701,695
(cost: $1,706,966)
COLLATERALIZED MORTGAGE OBLIGATIONS (8.7%)(2)
Federal National Mortgage Association,
250,000 1994-38, 6.65%, 12/25/23 233,213
Vendee Mortgage Trust:
21,177 1992-1 2B, 7.75%, 9/15/10 21,291
75,000 1996-2 1D, 6.75%, 11/15/15 71,327
100,000 1994-1 2E, 6.50%, 1/15/17 93,098
150,000 1996-2 1E, 6.75%, 5/15/20 140,478
Total collateralized mortgage obligations 559,407
(cost: $565,749)
MUTUAL FUNDS (4.5%)(2)
2,400 American Strategic Income Portfolio (I) 26,400
11,200 American Strategic Income Portfolio (II) 124,600
12,500 American Strategic Income Portfolio (III) 135,937
Total mutual funds 286,937
(cost: $274,616)
TRUST PREFERRED SECURITIES (2.3%)(2)
4,000 Allstate Financing I, 7.95%, 12/1/26 97,000
50,000 Allstate Financing II, 7.83%, 12/1/45 46,812
Total trust preferred securities 143,812
(cost: $149,319)
SHORT-TERM SECURITIES (4.6%)(2)
200,000 American Express Credit Corp.,
5.76%, 04/02/97 199,968
97,779 Dreyfus Cash Management Fund, 5.31% 97,779
Total short-term securities 297,747
(cost: $297,747)
Total investments in securities
(cost: $6,453,777)(7) $6,340,296
See accompanying notes to financial statements on page 35.
SIT TAX-FREE INCOME FUND REVIEW
MARCH 31, 1997
[PHOTO] MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
DEBRA A. SIT, CFA
PORTFOLIO MANAGER
The Fund provided shareholders with a total return of +0.66% for the 3
months and +6.86% for the 12 months ended March 31, 1997. The Fund's quarterly
performance ranked #1 of 242 general municipal funds tracked by Lipper
Analytical Services. The Fund ranked #4 (of 228 funds) based on its one year
return and 11th (of 165 funds) based on its three year return. The Fund's price
per share was $9.98 as of March 31, 1997, compared with $10.05 on December 31,
1996 and $9.88 on March 31, 1996. During the year, the Fund's share price varied
between $9.78 and $10.13, a range of 3.6%. The Fund's 30-day SEC yield was
unchanged during the quarter at 5.47% as of March 31, 1997, and decreased from
5.71% as of March 31, 1996. The Fund's 12-month distribution rate has remained
relatively stable over the last year.
Fund assets increased to $342.5 million from $309.7 on December 31 and from
$279.8 million one year ago. Significant industry shifts during the year
included an increase in multi-family housing from 24.2% to 34.3%, reflecting
attractive yields found in the non-subsidized, affordable housing area, and a
decrease in health care from 23.5% to 19.6%. In addition, transportation
increased from 4.4% to 6.8%, and decreases occurred in industrial revenue bonds
from 9.8% to 5.3%, and in public facilities bonds from 3.6% to 2.3%. The Fund's
weighting in securities rated "A" or better increased from 58.3% to 61.7% as the
Fund reduced emphasis on lower rated credits.
The Fund's duration to average life increased from 6.1 to 7.3 years during
the year as the Fund continued to focus on securities with greater call
protection. The Fund's implied duration, which more closely represents the
Fund's historical price sensitivity to changes in interest rates and which was
not available one year ago, increased from 4.4 to 5.0 years during the most
recent quarter. The Fund's average maturity increased to 17.9 years as of March
31, 1997 from 16.9 years on December 31 and from 15.6 years on March 31, 1996.
The Fund's performance was helped by its continued emphasis on bonds which
provide higher income and greater stability of principal value, particularly
those in the housing sector. In addition, the Fund benefited from the narrowing
yield spreads of lower rated credits. As we expect economic growth to moderate
by the end of the year with inflation remaining contained, we will continue to
seek current opportunities to lock in higher yields over the longer term.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to provide a high level of current income that
is exempt from federal income tax, consistent with the preservation of capital,
by investing in investment-grade municipal securities.
Such municipal securities generate interest that is exempt from regular
federal income taxes. Of the municipal securities in which the Fund invests,
100% will be rated investment grade at time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 3/31/97: $9.98 Per Share
3/31/96: $9.88 Per Share
Total Net Assets: $342.54 Million
30-Day SEC Yield: 5.47%
Tax Equivalent Yield: 9.06%(1)
12-Month Distribution Rate: 5.64%
Average Maturity: 17.9 Years
Duration to Estimated Avg. Life: 7.3 Years(2)
Implied Duration: 5.0 Years(2)
(1) For individuals in the 39.6% federal tax bracket.
(2) See page 19.
PORTFOLIO STRUCTURE
(% OF TOTAL NET ASSETS)
[BAR CHART]
Multifamily Mortgage Revenue 34.3
Hospital/Health Care Revenue 19.6
Single Family Mortgage Revenue 17.3
Transportation 6.8
Industrial Revenue/Pollution Control 5.3
Other Revenue 4.2
Public Facilities 2.3
Municipal Lease Rental 1.9
Education/Student Loan 1.8
Escrowed to Maturity/Pre-Refund 1.7
Sales Tax Revenue 1.2
General Obligation 0.7
Utility 0.3
Other Assets & Liabilities 2.6
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
----------------------------- -------------------------
Tax-Free Lipper General Lehman Tax-Free Lipper General Lehman
Income Muni. Bond 5-Year Muni. Income Muni. Bond 5-Year Muni.
Fund Fund Avg. Bond Index Fund Fund Avg. Bond Index
---- --------- ---------- ---- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
3 Months 0.70% -0.44% -0.02% 0.70% -0.44% -0.02%
(unannualized)
1 Year 6.86 4.81 4.19 6.86 4.81 4.19
3 Years 7.19 6.13 5.72 23.17 19.53 18.16
5 Years 7.11 6.68 6.07 40.97 38.16 34.29
Inception 7.45 7.53 6.96 84.29 85.45 77.19
(9/29/88)
</TABLE>
* As of 3/31/97
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 CHART]
The sum of $10,000 invested at inception (9/29/88) and held until 3/31/97 would
have grown to $18,429 in the Fund or $17,719 in the Lehman 5-Year Municipal Bond
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of Net Assets)
LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED.
[PIE CHART]
A 35.0%
AA 10.8%
AAA 13.3%
Other Assets and Liabilities 2.6%
BBB 38.3%
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - MARCH 31, 1997
<TABLE>
<CAPTION>
QUANTITY NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (97.4%)(2)
<S> <C> <C>
ALASKA (0.5%)
Alaska Hsg. Finance Corp.:
4,000,000 Gen. Mtg. Rev. 1997 Series A, Zero Coupon, 6.15% Effective Yield on Purchase Date, 12/1/17(7) $1,132,480
2,000,000 Mtg. Rev. 1996 Series A, Zero Coupon, 6.45% Effective Yield on Purchase Date, 12/1/27 285,540
345,000 AK Industrial Dev. & Export Auth. Rev. Refunding Revolving Fund Series 1993A,
5.60%, 4/1/03 347,267
1,765,287
ARIZONA (3.5%)
AZ Hlth. Fac. Auth. Hosp. System Refunding Rev. Series 1991 (Phoenix Mem. Hosp.):
1,120,000 8.00%, 6/1/06 1,213,856
1,500,000 8.125%, 6/1/12 1,618,035
770,000 8.20%, 6/1/21
829,459
Maricopa Co. Industrial Dev. Auth. Multifamily Hsg. Rev.:
3,000,000 Series 1995A, 6.50%, 10/1/25 3,045,570
565,000 Series 1995B, 7.15%, 10/1/25 565,000
1,400,000 Senior Series 1996A (Advantage Pt. Arrowood Village), 6.50%, 7/1/16 1,422,148
2,000,000 Series 1997A (Mercy Bond Prop. AZ-I Proj.), 6.25%, 7/1/27 1,978,320
325,000 Series 1997B (Mercy Bond Prop. AZ-I Proj.), 7.25%, 1/1/17 322,563
1,070,000 Valley HDC Phoenix Hsg. Rev. 1979 (Roosevelt Plaza) (Section 8), 8.00%, 10/1/20 1,091,464
12,086,415
ARKANSAS (1.5%)
Drew Co. Public Fac. Bd. Single Family Mtg. Rev. Refunding:
180,259 Series 1993B, 7.75%, 8/1/11 191,206
372,584 Series 1993-A2 (FNMA backed), 7.90%, 8/1/11 397,424
283,944 Jacksonville Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1993B,
7.75%, 1/1/11 303,405
272,750 Lonoke Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding 1993B, 7.375%, 4/1/11 291,373
2,075,000 Maumelle HDC First Lien Rev. Refunding 1992 Series A (Section 8), 7.875%, 7/1/09 2,219,980
1,780,000 Saline Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1992, 7.875%, 3/1/11 1,888,669
5,292,057
CALIFORNIA (5.4%)
1,200,000 Bell Cmnty. Hsg. Auth. Rev. Series 1995A (Mobilehomes Park Acquisition Proj.), 6.40%, 10/1/15 1,222,956
1,000,000 Chula Vista Redev. Agency Refunding Tax Allocation Senior Series 1994A (Bayfront-Town
Center Redev. Proj.), 7.625%, 9/1/24 1,109,820
Corona Single Family Mtg Rev.:
1,200,000 Senior Series 1996A, 6.05%, 5/1/27 1,201,908
800,000 Subordinate Series 1996B, 6.30%, 11/1/28 807,808
Foothill / Eastern Transportation Corridor Agy. Toll Rd. Rev Series 1995A Sr. Lien:
31,900,000 Zero Coupon, 6.45% Effective Yield on Purchase Date, 1/1/26 4,918,342
2,000,000 Zero Coupon Convertible Bond, 6.10% Effective Yield on Purchase Date, 1/1/07 1,305,460
5,000,000 Zero Coupon Convertible Bond, 7.10% Effective Yield on Purchase Date, 1/1/11 3,273,950
2,000,000 Glendale Hosp. Rev. Refunding Series 1994 (Verdugo Hills Hosp.), 8.00%, 1/1/12 2,283,440
1,335,000 Sacramento Public Television Fac. Rev. 1989 Series A (KVIE inc.) (LOC Wells Fargo & Co.),
7.50%, 7/1/20 1,377,053
990,000 Upland Hsg. Auth. Multifamily Rev. 1990 Issue A, 7.85%, 7/1/20 1,025,185
18,525,922
COLORADO (6.1%)
1,000,000 Adams Co. HA Mtg. Rev. Series 1996 (Village of Greenbriar Proj.), 6.75%, 7/1/21 974,280
Arapahoe Co. Cap. Improvement Tr. Fund Highway Rev. (E-470 Project) Senior Capital
Appreciation Zero Coupon:
9,500,000 5.99% Effective Yield on Purchase Date, 8/31/11 3,793,635
2,000,000 7.08% Effective Yield on Purchase Date, 8/31/04 1,304,080
18,495,000 7.40% Effective Yield on Purchase Date, 8/31/09 8,660,839
1,065,000 Aurora Single Family Mtg. Rev. Refunding Series 1993B, 7.50%, 5/1/11 $1,102,019
2,200,000 CO HFA Single Family Program Senior Series 1996B-2, 7.45%, 11/1/27 2,455,112
335,000 LaPlata Co. Southwestern CO Single Family Mtg. Participation Rev. Refunding 1991 Series A,
7.375%, 9/1/11 350,561
435,000 Thornton Single Family Mtg. Rev. Refunding 1992 Series A, 8.05%, 8/1/09 462,683
430,000 Vail Single Family Mtg. Rev. Refunding Series 1992, 8.125%, 6/1/10 462,977
1,195,000 Westminster Multifamily Hsg. Rev. Refunding Series 1992 (Ironwood at the Ranch Proj.),
7.45%, 12/1/10 1,231,758
20,797,944
CONNECTICUT (1.8%)
1,000,000 CT Hlth. & Educ. Fac. Auth. Rev. Series 1990C (St. Mary's Hosp.) 7.375%, 7/1/20 1,041,630
5,000,000 CT HFA Hsg. Mtg. Fin. Pgm. Series 1996A3, 5.95%, 5/15/17 (7) 4,959,100
6,000,730
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 1,263,557
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 1,551,450
GEORGIA (1.1%)
800,000 Cobb Co. Hsg. Auth. Multifamily Rev. Refunding Series 1992A (Signature Place Project),
6.875%, 10/1/17 821,400
Dekalb Co. Hsg. Auth. Multifamily Hsg. Rev. (Regency Woods I & II):
1,700,000 Senior Series 1996A, 6.375%, 1/1/11 1,721,828
1,365,000 Subordinate Series 1996C, 7.25%, 1/1/26 1,354,995
3,898,223
HAWAII (0.4%)
1,250,000 Honolulu Mtg. Rev. Ref. Series 1996A (Hale-Pauahi Proj.)(FHA insured)
(MBIA insured), 6.80%, 7/1/28 1,293,937
ILLINOIS (11.7%)
2,655,000 Chicago Metropolitan Hsg. Dev. Corp. Mtg. Rev. Refunding Series 1992A
(FHA insured) (Section 8), 6.70%, 7/1/12 2,735,924
4,260,000 Chicago Res. Mtg. Rev. Refunding Series 1992B (MBIA insured) Zero Coupon, 7.30% Effective
Yield on Purchase Date, 10/1/09 1,785,281
2,000,000 Collinsville (City of) Madison Co. Industrial Dev. Rev. Refunding (Drury Inn-Collinsville Proj.)
Series 1993, 6.00%, 11/1/04 2,022,180
1,790,000 IL DFA Elderly Hsg. Rev. Refunding Series 1995A (Pontiac Towers Proj.)
(Section 8), 6.65%, 10/1/09 1,861,761
1,250,000 IL Educ. Fac. Auth. Rev. Series 1997 (Augustana College)(Connie Lee insured), 5.875%, 10/1/17(7) 1,220,200
3,000,000 IL HDA Elderly Hsg. Rev. Series 1992C (Village Ctr.) (Section 8), 6.85%, 3/1/20 3,097,620
IL HDA Multifamily Hsg. Rev.:
Refunding 1992 Series A (Section 8):
2,150,000 6.65%, 7/1/04 2,260,553
1,545,000 7.00%, 7/1/10 1,637,345
Refunding 1991 Series C (Section 8):
260,000 7.35%, 7/1/11 272,659
100,000 7.40%, 7/1/23 103,925
IL Hlth. Fac. Auth. Rev.:
Refunding Series 1993 (Lutheran Social Svcs. IL):
610,000 5.70%, 8/15/00 606,639
475,000 5.80%, 8/15/01 471,713
525,000 6.00%, 8/15/03 518,952
545,000 6.10%, 8/15/04 538,035
1,350,000 Refunding Series 1992 (Mercy Ctr. for Hlth. Care Svcs.), 6.625%, 10/1/12 1,371,479
5,740,000 Refunding Series 1992 (Galesburg Cottage Hosp.) (Asset Guaranty insured), 6.25%, 5/1/11 5,851,241
1,000,000 Refunding Series 1994 (Passavant Memorial Area Hospital Assn.), 5.95%, 10/1/11 987,590
1,000,000 Refunding Series 1994 (Friendship Village Schamburg), 6.25%, 12/1/04 1,032,850
Refunding Series 1994 (St. Elizabeth's Hosp. of Chicago, Inc.):
2,160,000 7.25%, 7/1/05 2,279,232
1,000,000 7.625%, 7/1/10 1,088,480
Series 1996 (St. Elizabeth's Hosp. of Chicago, Inc.):
700,000 6.25%, 7/1/10 698,355
1,215,000 6.25%, 7/1/16 1,198,148
2,500,000 Metropolitan Pier & Exposition Auth. McCormick Place Convention Complex
Hospitality Fac. Rev. Series 1996A, 6.25%, 7/1/17 2,511,525
2,000,000 Roselle Multifamily Hsg. Rev. Refunding Series 1994A (GNMA Collateralized)
(Waterbury Apts.) (FHA insured), 7.00%, 1/1/25 2,123,020
1,140,000 Springfield Community Improvement Rev. 1985 (Garden Court Proj. - FHA insured)
(Section 8) (MBIA insured), 10.50%, 4/1/26 1,272,149
1,275,000 Urbana Res. Mtg. Rev. Refunding 1991 Series B Zero Coupon, 7.39% Effective Yield on
Purchase Date, 3/1/07 623,220
40,170,076
INDIANA (8.5%)
1,000,000 East Chicago Multi School Bldg. Corp. First Mtg. Series 1996, 6.50%, 1/15/16 1,033,000
1,800,000 Elkhart Co. Hosp. Auth. Rev. Series 1992 (Goshen Hosp. Proj.), 7.25%, 7/1/05 1,925,118
2,165,000 Elkhart HFC Multifamily Mtg. Rev. Series 1996A (Section 8 Assisted
Proj.) (Stratford Commons), 6.00%, 11/1/10 2,162,878
1,095,000 IN Bond Bank Special Prgm. Series 1993B (Gary Sanitary Dist.), 6.15%, 2/1/08 1,142,534
2,850,000 IN DFA Educ. Fac. Rev. Series 1997 (Park Tudor Foundation Proj.), 6.00%, 6/1/22 2,820,531
IN Educ. Fac. Auth. Educ. Fac. Rev. Series 1992 (Manchester College Proj.):
250,000 6.50%, 10/1/05 258,833
305,000 6.60%, 10/1/06 316,669
1,000,000 6.85%, 10/1/18 1,038,520
IN Hlth. Fac. Fin. Auth. Hosp. Rev.:
Series 1991 (Jackson Co. Schneck Mem. Hosp. Proj.):
1,200,000 7.50%, 2/15/05 1,302,864
2,000,000 7.50%, 2/15/22 2,130,880
Series 1992 (Fayette Mem. Hosp. Proj.):
250,000 7.00%, 10/1/02 261,008
295,000 7.10%, 10/1/03 310,364
315,000 7.20%, 10/1/04 335,711
340,000 7.25%, 10/1/05 361,219
365,000 7.25%, 10/1/06 386,210
390,000 7.30%, 10/1/07 412,148
420,000 7.30%, 10/1/08 442,063
Series 1992 (Floyd Mem. Hosp. Proj.):
460,000 6.75%, 2/15/06 486,036
595,000 6.80%, 2/15/07 626,898
2,000,000 Series 1992 (Mem. Hosp. & Hlth. Care Ctr. Proj.), 7.35%, 3/1/12 2,113,260
830,000 IN HFA Home Mtg. Prog. 1990 Series F1 (GNMA collateralized), 7.50%, 1/1/16 874,422
2,750,000 Indianapolis Econ. Dev. Refunding & Imprv. Rev. Series 1992 (Natl. Benevolent
Assn.-Robin Run Village Proj.), 7.25%, 10/1/10 2,916,897
Indianapolis Econ. Dev. Rev. (Willowbrook Apts. Proj.):
2,000,000 Senior Series 1996A, 6.50%, 7/1/16 2,026,820
1,365,000 Subordinate Series 1996C, 7.125%, 7/1/26 1,371,074
895,000 Marion HC Mtg. Rev. Refunding Series 1994 (Hilltop Towers Project)
(Section 8), 6.90%, 10/1/10 929,601
4,120,000 New Castle Econ. Dev. Rev. Series 1988C Escrowed to Maturity Zero Coupon, 6.20% Effective
Yield on Purchase Date, 3/1/18 1,095,549
29,081,107
IOWA (1.9%)
1,500,000 IA Fin. Auth. SF Mtg. Series 1997A, 5.80%, 7/1/16 1,479,330
1,500,000 IA Fin. Auth. Small Business Dev. Refunding Rev. Series 1992 (University Civic Ctr. Court
Assn. Proj.), 7.40%, 3/1/17 1,607,955
1,500,000 Ottumwa Hosp. Rev. Refunding Series 1993 (Ottumwa Regional Hlth. Ctr.), 6.00%, 10/1/10 1,465,470
Polk Co. Hlth. Svcs. Residential Care Fac. Rev. Series 1991:
460,000 7.25%, 2/1/06 494,905
1,500,000 7.50%, 2/1/16 1,628,790
6,676,450
KANSAS (0.4%)
310,000 Geary Co. Single Family Mtg. Rev. 1980 (FGIC insured), 10.75%, 4/1/12 317,930
4,655,000 Kansas City Single Family Mtg. Rev. Series 1982A Zero Coupon, 11.23% Effective Yield on
Purchase Date, 11/1/14 693,129
2,170,000 Olathe & Labette Cos. Mtg. Loan Rev. 1991 Series B (GNMA collateralized) Zero Coupon, 7.56%
Effective Yield on Purchase Date, 2/1/23 331,229
1,342,288
KENTUCKY (0.8%)
1,500,000 Jefferson Co. First Mtg. Rev. Series 1994 (Christian Church Homes Proj.), 6.00%, 11/15/09 1,492,665
1,200,000 KY DFA Hosp. Rev. Series 1989 (Sisters of Charity of Nazareth Hlth. Corp.) (BIG insured),
6.25%, 11/1/19 1,213,860
2,706,525
LOUISIANA (4.1%)
715,000 Calcasieu Parish Industrial Dev. Rev. 1975 (Cities Service Co. Proj.), 7.80%, 12/1/05 717,538
505,000 Calcasieu Parish Public Trust Auth. Mtg. Rev. Refunding 1992 Series B, 6.875%, 11/1/12 528,073
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 1,583,978
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 1,137,040
1,550,000 LA HFA Residual Lien Refunding Mtg. Rev. Series 1992, 7.375%, 9/1/13 1,603,661
341,839 LA PFA Single Family Mtg. Purchase Rev. Series 1992 (Lafayette PTFA Mtg. Acquisition),
7.50%, 10/1/15 362,671
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 1,387,343
3,000,000 Series 1991 (Volunteers of America Natl. Hsg. Corp.) (Asset Guaranty insured), 7.75%, 11/1/16 3,193,560
730,000 Series Sr. Lien 1994A (VOA Willows Affordable Hsg. Corp.), 7.00%, 6/1/24 783,064
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 1,029,080
1,550,000 Orleans Levee Dist. Improvement Serial and Term Receipts Series 1995A (FSA insured),
5.95%, 11/1/14 1,578,582
13,904,590
MAINE (0.1%)
250,000 ME HA Mtg. Purchase 1987 Series A-2, 7.65%, 11/15/15 257,047
MASSACHUSETTS (0.8%)
1,000,000 Boston Industrial Dev. Fin. Auth. Series 1997A (FHA insured-Boston
Alzheimers Center Proj.), 5.90%, 2/1/22 973,240
MA Hlth. & Educ. Fac. Auth. Rev.:
655,000 Series 1982 (Malden Hosp.) (FHA insured), 9.50%, 8/1/08 656,926
1,000,000 Series 1991C (New England Deaconess Hosp.), 7.20%, 4/1/22 1,070,810
2,700,976
MICHIGAN (4.8%)
1,305,000 Detroit Econ. Dev. Corp. Limited Obligation Rev. Refunding Series 1992 (E.H. Associates
Ltd. Partnership Proj.), 7.00%, 6/1/12 1,352,463
4,500,000 MI HDA Rental Hsg. Rev. Series 1992A, 6.60%, 4/1/12 4,677,120
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 1,399,034
4,000,000 Saginaw Hosp. Fin. Auth. Rev. Refunding Series 1989 (Saginaw Gen. Hosp.), 7.625%, 10/1/19 4,217,200
1,665,000 Tri City Village Hsg. Corp. Mtg. Refunding Multifamily Tri City Apts. Series 1992A (Section 8)
(FNMA backed), 7.75%, 8/15/23 1,802,396
2,750,000 Troy City EDC Econ. Dev. Rev. Refunding Series 1992 (Drury Inn-Troy Proj.)
(Lincoln Natl. Corp.), 6.75%, 10/1/12 2,881,560
16,329,773
MINNESOTA (2.0%)
1,430,000 Dakota Co. Hsg. & Redev. Auth. Multifamily Mtg. Rev. Refunding Series 1997A
(Park Place Apts. Proj.)(GNMA Collateralized), 6.875%, 2/20/32 1,524,008
740,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.)(Section 8), 6.375%, 4/1/20 752,417
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 1,702,199
2,500,000 Plymouth Multifamily Hsg. Dev. Rev. Refunding Series 1996A (GNMA collateralized)
(Fox Forest Apts. Proj.), 8.05%, 6/20/31 2,861,525
6,840,149
MISSISSIPPI (0.7%)
6,435,000 MS Home Corp. Residual Rev. Series 1992-II Zero Coupon, 7.38% Effective Yield on Purchase
Date, 4/15/12 2,234,618
MISSOURI (0.4%)
1,090,000 St. Louis Co. Industrial Dev. Auth. Hsg. Rev. Refunding Series 1995 (South Point Apts. and
Hunter's Ridge Apts. Proj.), 7.875%, 1/1/25 1,162,452
65,000 St. Louis Co. Single Family Res. Mtg. Series 1984 (MBIA insured), 9.75%, 4/1/10 66,750
1,229,202
NEVADA (2.5%)
1,475,000 Humboldt General Hosp. Dist. Series 1993, 6.125%, 6/1/13 1,419,997
1,645,000 NV Hsg. Div. SF Program Sr. Series 1995A1, 6.45%, 10/1/18 1,691,356
Reno Redev. Agency Subordinate Tax Allocation and Rev. Refunding Series 1995A:
400,000 6.00%, 6/1/08 397,072
1,000,000 6.10%, 6/1/11 983,170
1,000,000 6.125%, 6/1/12 980,090
3,000,000 Reno-Sparks Indian Colony Public Fac. Fin. Auth. Sales & Excise Tax Rev.
Series 1995A, 7.50%, 7/1/07 3,047,250
8,518,935
NEW HAMPSHIRE (0.3%)
540,000 NH Higher Educ. & Hlth. Fac. Auth. Series 1991 (St. Joseph's Hosp.), 7.25%, 1/1/02 574,339
3,480,000 NH HFA Single Family Res. Mtg. 1982 Series A Zero Coupon, 11.75% Effective Yield on
Purchase Date, 1/1/14 563,342
1,137,681
NEW MEXICO (1.1%)
714,000 Hobbs Single Family Mtg. Rev. Refunding Series 1992, 8.75%, 7/1/11 791,212
1,350,000 New Mexico MFA Single Family Mtg. Purchase Refunding Senior Series 1992-A2, 6.85%, 7/1/12 1,406,835
960,000 San Miguel Co. Gross Receipts Tax Refunding & Imprv. Rev. Series 1997A, 5.95%, 3/1/18 937,517
525,000 Sante Fe Educ. Fac. Imprv. & Refunding Rev. Series 1997 (College of Sante Fe Proj.), 6.00%, 10/1/13 513,188
3,648,752
NEW YORK (1.1%)
4,000,000 New York City HDC Multifamily Hsg. Rev. Series 1993B (FHA insured)
(Section 8), 5.85%, 5/1/26 3,890,880
NORTH DAKOTA (2.1%)
1,890,000 Oliver Co. Pollution Control Rev. Series 1976 (Sq. Butte Elec. Coop. Proj.), 7.00%, 12/31/10 1,899,167
Ward Co. Hlth. Care Fac. Rev.:
1,370,000 Series 1994 (St. Joseph Hosp.), 8.00%, 11/15/04 1,441,692
2,000,000 Series 1994 (St. Joseph Hosp.), 8.875%, 11/15/14 2,205,900
1,600,000 Series 1991A (St. Joseph Hosp.), 7.50%, 11/1/15 1,613,696
7,160,455
OHIO (1.3%)
Akron Certificates of Participation Series 1996 (Akron Municipal Baseball Stadium Proj.):
3,000,000 Zero Coupon Convertible, 6.504% Effective Yield on Purchase Date, 12/1/16 2,241,270
1,000,000 Zero Coupon Convertible, 6.15% Effective Yield on Purchase Date, 12/1/07 763,220
1,570,000 OH Capital Corp. Hsg. Mtg. Rev. Refunding Series 1995G (FHA insured)(Section 8)
(MBIA insured), 6.35%, 7/1/22 1,605,403
4,609,893
OKLAHOMA (2.1%)
1,440,000 Cleveland Co. Home Loan Auth. Single Family Mtg. Rev. Refunding Series 1991, 8.00%, 8/1/12 1,526,717
Midwest City Mem. Hosp. Auth. Hosp. Rev. Series 1992:
115,000 7.25%, 4/1/06 Prerefunded 128,445
365,000 8.75%, 4/1/03 Prerefunded 430,868
325,000 10.00%, 4/1/01 Escrowed to Maturity 384,420
345,000 10.00%, 4/1/02 Escrowed to Maturity 419,975
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, 6/1/11 699,960
340,000 Muskogee Co. Industrial Pollution Rev. Series 1987A (Oklahoma G&E Proj.), 7.00%, 3/1/17 347,337
565,000 Payne Co. Home Loan Auth. Single Family Rev. Refunding Series 1993A, 8.625%, 3/1/11 602,510
2,540,000 Tulsa Public Facilities Auth. Recreational Facs. Rev. Series 1985, 6.20%, 11/1/12 2,563,368
7,103,600
PENNSYLVANIA (4.6%)
Horizon Hosp. System Auth. Hosp. Rev. Series 1996 (Horizon Hosp. Sys.):
600,000 5.95%, 5/15/06 602,046
715,000 6.15%, 5/15/08 719,054
710,000 6.25%, 5/15/09 714,459
3,800,000 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 1,221,966
6,000,000 Montgomery Co. Industrial Dev. Auth. Resource Recovery Rev. Series 1989 (LOC Banque
Paribas), 7.50%, 1/1/12 6,398,460
1,240,000 Montgomery Co. Redev. Auth. Multifamily Hsg. Rev. 1993 Series A (KBF Assoc. L.P.),
6.375%, 7/1/12 1,230,898
Pittsburgh Urban Redev. Auth. (Center Triangle Tax Increment Fin. District) (LOC PNC Bank):
3,000,000 Series 1995A, 6.00%, 12/1/11 2,942,430
2,100,000 Series 1995B, 6.25%, 3/15/15 2,075,388
15,904,701
RHODE ISLAND (0.7%)
2,500,000 RI Hlth. & Educ. Bldg. Corp. Hosp. Fin. Rev. Series 1997 (South Co. Hosp.),
6.00%, 11/15/17 2,391,650
SOUTH CAROLINA (0.4%)
1,455,000 Myrtle Beach PFC Certificates of Participation Series 1992 (Myrtle Beach Convention Ctr. Proj.),
6.75%, 7/1/02 1,531,388
SOUTH DAKOTA (0.6%)
2,000,000 SD HDA Multifamily Hsg. Rev. 1992 Series B (Section 8), 7.00%, 4/1/12 2,127,560
TENNESSEE (4.7%)
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 1,743,993
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 1,005,210
425,000 Subordinate Series 1995C, 7.50%, 9/1/25 428,621
(Raleigh Forest & Sherwood Apts. Proj.):
2,885,000 Senior Series 1996A, 6.60%, 1/1/26 2,917,802
800,000 Subordinate Series 1996C, 7.25%, 1/1/26 808,792
(Raleigh Woods Apts. Proj.):
6,000,000 Series 1997A (GNMA collateralized), 7.75%, 3/20/27 6,780,600
(The Corners Apts. Proj.)
1,055,000 Senior Series 1996A, 6.25%, 1/1/27 1,040,842
400,000 Subordinate Series 1996C, 6.375%, 1/1/27 378,368
830,000 TN HDA Homeownership Program Series 1991 Issue U, 7.35%, 7/1/11 872,239
15,976,467
TEXAS (13.4%)
2,165,000 Baytown HFC Single Family Mtg. Rev. Refunding Series 1992B, 8.50%, 9/1/11 2,394,144
Beaumont Hsg. Auth. Multifamily Mtg. Rev. Series 1993A (Section 8):
1,365,000 6.65%, 11/1/07 1,418,781
650,000 6.75%, 11/1/10 669,344
1,765,000 Bexar Co. HFC Residual Rev. Series 1993 Zero Coupon, 6.50% Effective Yield on Purchase
Date, 3/1/15 570,872
290,000 Brazos Co. HFC Single Family Mtg. Rev. 1985 (MBIA insured) Zero Coupon, 10.55% Effective
Yield on Purchase Date, 9/1/11 65,781
1,800,000 Cleveland Ind. School Dist. Public Fac. Corp. Lease Rev. Series 1996, 6.10%, 2/15/11 1,794,852
Dallas Hsg. Corp. Capital Program Revenue Bonds:
1,715,000 Series 1995A (Estell Village Apts.) (Section 8), 7.875%, 12/1/09 1,763,826
1,630,000 Series 1995 (Cedar Glen Apts.) (Section 8), 7.75%, 12/1/09 1,674,678
1,000,000 Dallas HFC Cap. Proj. Refunding 1990 (Section 8), 7.85%, 8/1/13 1,062,080
540,000 Harris Co. HFC Single Family Mtg. Rev. Series 1983A, 10.125%, 7/15/03 541,166
1,500,000 Houston HFC Single Family Mtg. Rev. Refunding Series 1996B-1, 8.00%, 6/1/14 1,609,725
1,725,000 Lubbock HFC Multifamily Hsg. Rev. Refunding Series 1992A (Los Colinas, Park Ridge Place &
Quail Creek), 7.75%, 1/1/22 1,774,335
Midland Co. Hosp. Dist. Hosp. Rev. Series 1992 Zero Coupon:
6,350,000 7.61% Effective Yield Purchase Date, 6/1/07 3,376,549
2,500,000 6.50% Effective Yield Purchase Date, 6/1/11 998,300
Midland HFC Single Family Mtg. Rev. Refunding:
527,222 Series 1992 B-2, 8.15%, 12/1/11 559,836
711,949 Series 1992 A-2, 8.45%, 12/1/11 759,493
900,036 Series 1992, 9.00%, 9/1/01 948,575
Mesquite Hlth. Fac. Dev. Corp. Retirement Fac. Rev. Series 1996A (Christian Care Ctrs. Proj.):
1,000,000 6.30%, 2/15/12 996,570
1,000,000 6.40%, 2/15/16 999,360
North Central Hlth. Fac. Dev. Corp. Rev. Series 1996 (C.C. Young Memorial Home Proj.):
495,000 5.90%, 2/15/04 493,302
155,000 6.10%, 2/15/06 154,986
1,300,000 6.30%, 2/15/15 1,295,047
3,000,000 Northeast Hosp. Authority Rev. Series 1993B (NE Med. Ctr. Hosp.), 7.25%, 7/1/22 3,167,520
1,751,995 Odessa HFC Single Family Mtg. Rev. Refunding Series 1992B Class B-2, 8.125%, 11/1/11 1,870,482
755,000 Richardson Hosp. Auth. Hosp. Refunding Rev. Series 1993 (Richardson Med. Ctr.), 6.75%, 12/1/23 774,049
650,000 San Marcos HA Multifamily Mtg. Rev. Series 1993A (FHA insured) (Section 8), 5.80%,
11/1/10 636,233
Southeast TX HFC Residual Revenue:
1,555,000 Series 1995A Zero Coupon, 6.50% Effective Yield on Purchase Date, 11/1/14 535,138
3,000,000 Series 1992A Zero Coupon, 7.63% Effective Yield on Purchase Date, 9/1/17 659,790
940,000 TX HA Single Family Mtg. Refunding Series 1991A, 7.00%, 3/1/05 987,865
TX Dept. Hsg. & Cmnty. Affairs Single Family Rev. Refunding Junior Lien Series 1994A
3,320,000 Zero Coupon 6.93% Effective Yield on Purchase Date, 3/1/15 994,572
TX Dept. Hsg. & Cmnty. Affairs Multifamily Hsg. Rev.:
1,500,000 Senior Series 1996A (Dallas - Ft. Worth Apts. Pool Proj.), 6.50%, 7/1/16 1,535,880
2,500,000 Senior Series 1996A (Dallas - Ft. Worth Apts. Pool Proj.), 6.50%, 7/1/26 2,549,650
1,060,000 Subordinated Series 1996C (Harbors & Plumtree Apts. Proj.), 7.375%, 7/1/26 1,069,084
2,820,000 Senior Series 1996A (Harbors & Plumtree Apts. Proj.), 6.45%, 7/1/26 2,853,389
2,500,000 Series 1996A (NHP Foundation - Asmara Apts. Proj.), 6.40%, 1/1/27 2,530,575
46,085,829
UTAH (0.8%)
1,000,000 Davis Co. Solid Waste Mgmt. & Energy Recovery Rev. Refunding Series 1993, 6.125%, 6/15/09 1,004,040
1,850,000 Utah HFA Single Family Mtg. 1996 Issue E-1 Senior Bonds, 6.00%, 7/1/16 1,833,128
2,837,168
WASHINGTON (1.9%)
WA HFC Nonprofit Housing Revenue:
2,500,000 Series 1993 (CRISTA Shores Proj.)(LOC US Bk. Wash.), 6.20%, 7/1/14 2,516,400
1,000,000 Series 1995A (Judson Park Project)(LOC US Bk. Wash.), 6.90%, 7/1/16 1,038,000
1,390,000 Series 1996A (Presbyterian Ministries) (LOC US Bk. Wash.), 6.85%, 7/1/21 1,408,292
1,500,000 WA Hlth. Care Fac. Auth. Rev. Series 1996 (Grays Harbor Hosp. Proj.)(Asset Guaranty insured),
5.70%, 7/1/16 1,455,540
6,418,232
WEST VIRGINIA (1.0%)
5,000 Berkeley, Brooke & Fayette Cos., etc. (21 Municipalities) Single Family Mtg. 1984 Series A,
(MBIA insured), 10.125%, 9/1/10 5,229
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 1,997,308
2,000,000 Mason Co. Residual Rev. Series 1992C Zero Coupon, 7.58% Effective Yield on Purchase Date,
7/10/14 563,760
3,000,000 Ohio Co. Residual Rev. Series 1992C Zero Coupon, 7.43% Effective Yield on Purchase Date,
7/10/14 849,540
3,415,837
WISCONSIN (0.8%)
1,300,000 WI HEDA Hsg. Rev. Series 1992A (Section 8), 6.85%, 11/1/12 1,355,315
1,500,000 WI Hlth. & Educ. Fac. Auth. Rev. Series 1996 (Meriter Hospital Inc.), 6.00%, 12/1/17 1,443,210
2,798,525
WYOMING (0.6%)
2,000,000 WY CDA Hsg. Rev. 1995 Series 6, 6.10%, 12/1/25 2,004,460
Total municipal bonds (cost: $327,054,983) 333,510,336
SHORT-TERM SECURITIES (3.4%) (2)
6,387,813 Tax-Exempt Cash Management Fund, 3.30% 6,387,813
5,240,845 Tax-Exempt Cash Management Fund, 3.31% 5,240,845
Total short-term securities (cost: $11,628,658) 11,628,658
Total investments in securities (cost: $338,683,641)(7) $345,138,994
</TABLE>
See accompanying notes to portfolios of investments on page 35.
SIT MINNESOTA TAX-FREE INCOME FUND REVIEW
MARCH 31, 1997
[PHOTO] MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
DEBRA A. SIT, CFA
PORTFOLIO MANAGER
The Fund provided shareholders with a total return of +0.36% for the 3
months and +6.26% for the 12 months ended March 31, 1997. The Fund's quarterly
performance ranked #1 of 44 Minnesota municipal funds tracked by Lipper
Analytical Services. The Fund ranked #4 (of 44 funds) based on its one year
return and #2 (of 28 funds) based on its three year return. The Fund's price per
share was $10.14 as of March 31, 1997, compared with $10.24 on December 31, 1996
and $10.09 on March 31, 1996. During the year, the Fund's share price varied
between $9.98 and $10.28, a range of 3.0%. The Fund's 30-day SEC yield was 5.54%
as of March 31, 1997, relatively unchanged from 5.48% as of December 31 and
compared with 5.72% as of March 31, 1996. The Fund's 12-month distribution rate
has remained relatively stable over the last year.
Fund assets increased to $94.0 million from $82.7 on December 31 and from
$63.0 million one year ago. Significant industry shifts during the year included
increases in multi-family housing from 36.1% to 40.0%, and in lease bonds from
1.1% to 3.1%, and decreases in single family bonds from 23.4% to 17.8%, in
health care from 17.8% to 12.2% and in industrial revenue bonds from 13.8% to
8.1%. The Fund's weighting in securities rated "A" or better increased from
55.0% to 60.8% during the year as the Fund reduced emphasis on lower rated
credits as relative yield spreads narrowed. The Fund's holdings in non-rated
securities decreased from 38.3% to 33.1%.
The Fund's duration to estimated average life increased from 6.9 to 7.2
years. The Fund's implied duration, which more closely represents the Fund's
historical price sensitivity to changes in interest rates and which was not
available one year ago, was unchanged at 4.1 years during the most recent
quarter. The Fund's average maturity was also unchanged during the quarter, and,
at 18.8 years, is slightly shorter than its 19.2 year average maturity of one
year ago.
The Fund's performance was helped by its emphasis on bonds which provide
higher income and greater stability of principal value, particularly those in
the housing sector. In addition, the Fund benefited from the narrowing yield
spreads of lower rated and non-rated credits. As we expect economic growth to
moderate by the end of the year with inflation remaining contained, we will
continue to seek current opportunities to lock in higher yields over the longer
term.
INVESTMENT OBJECTIVE AND STRATEGY
The investment objective of the Fund is to provide a high level of current
income exempt from federal regular income tax and Minnesota regular personal
income tax as is consistent with the preservation of capital.
The Fund will endeavor to invest 100% of its assets in municipal
securities, the income from which is exempt from federal regular income tax and
Minnesota regular personal income tax. The Fund anticipates that substantially
all of its distributions to its shareholders will be exempt as such. For
investors subject to the alternative minimum tax ("AMT"), up to 20% of the
Fund's income may be treated as an item of tax preference that is included in
the alternative minimum taxable income.
PORTFOLIO SUMMARY
Net Asset Value 3/31/97: $10.14 Per Share
3/31/96: $10.09 Per Share
Total Net Assets: $93.98 Million
30-Day SEC Yield: 5.54%
Tax Equivalent Yield: 10.02%(1)
12-Month Distribution Rate: 5.59%
Average Maturity: 18.8 Years
Duration to Estimated Avg. Life: 7.2 Years(2)
Implied Duration: 4.1 Years(2)
(1) For individuals in the 39.6% Federal and 8.5% MN tax brackets.
(2) See page 29.
PORTFOLIO STRUCTURE
(% OF TOTAL NET ASSETS)
[BAR CHART]
Multifamily Mortgage Revenue 40.0
Single Family Mortgage Revenue 17.8
Hospital/Health Care Revenue 12.2
Other Revenue Bonds 8.7
Industrial Revenue/ 8.1
Pollution Control
Municipal Lease Rental 3.1
Education/Student Loan 1.7
Public Facilities 2.1
General Obligation 1.2
Other Assets & Liabilities 5.1
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
----------------------------- -------------------------
MN Tax-Free Lipper MN Lehman MN Tax-Free Lipper MN Lehman
Income Muni. Bond 5-Year Muni. Income Muni. Bond 5- Year Muni.
Fund Fund Avg. Bond Index Fund Fund Avg. Bond Index
---- --------- ---------- ---- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
3 Months 0.36% -0.34% -0.02% 0.36% -0.34% -0.02%
(unannualized)
1 Year 6.26 4.77 4.19 6.26 4.77 4.19
3 Year 7.02 5.86 5.72 22.57 18.62 18.16
Inception 6.04 4.08 4.69 21.59 14.27 16.51
(12/1/93)
</TABLE>
* As of 3/31/97
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 CHART]
The sum of $10,000 invested at inception (12/1/93) and held until 3/31/97 would
have grown to $12,159 in the Fund or $11,651 in the Lehman 5-Year Municipal Bond
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of Net Assets)
LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED.
[PIE CHART]
AA 20.5%
AAA 22.5%
Other Assets & Liabilities 5.1%
Not Rated 33.1%
BBB 6.1%
A 12.7%
ADVISER'S ASSESSMENT OF
NOT-RATED SECURITIES
AA 0.7%
A 1.2
BBB 23.1
BB 7.1
B 1.0%
Total 33.1%
<TABLE>
<CAPTION>
SIT MINNESOTA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - MARCH 31, 1997
QUANTITY NAME OF ISSUER MARKET VALUE (1)
- ----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (94.9%)(2)
<S> <C> <C>
EDUCATION/STUDENT LOAN (1.7%)
Minnesota Higher Education Fac. Auth. Rev. Series 1996-4I (Hamline Univ.):
1,000,000 6.00%, 10/1/12 $1,003,590
585,000 6.00%, 10/1/16 581,677
1,585,267
GENERAL OBLIGATION (1.2%)
600,000 Carver Co. Hsg. & Redev. Auth. Hsg. & Dev. Gross Rev. Ltd.Tax G.O.
(Chanhassen Apts. Proj.), 7.00%, 1/1/25 611,250
500,000 Goodhue (City of) G.O. Gas Utility Series 1996, 6.75%, 1/1/26 509,680
1,120,930
HOSPITAL/HEALTH CARE (12.2%)
Brooklyn Center Hlth. Care Fac. Rev. Series 1993 (Maranatha Proj.):
50,000 6.75%, 12/1/05 51,012
500,000 7.50%, 12/1/10 524,335
1,290,000 Cokato Sr. Hsg. Rev. Series 1996 (Cokato Charitable Trust Proj.), 7.00%, 12/1/19 1,281,138
215,000 Fergus Falls Hlth. Care Fac. Auth. Rev. Refunding Series 1993A
(Lake Region Hosp. Corp. Proj.), 6.25%, 9/1/04 218,423
650,000 Fergus Falls Hlth. Care Fac. Auth. Series 1995 (LRHC Long-Term Care Fac. Proj.),
6.40%, 12/1/15 655,928
1,540,000 Hibbing Hlth. Care Facs. Rev. Series 1995A (St. Francis Hlth. Svcs. Proj.),
7.35%, 11/1/15 1,560,405
750,000 Mankato Hlth. Care Facs. Rev. Series 1996A (Lutheran Home Proj.), 6.75%, 10/1/16 741,203
1,685,000 Maplewood Hlth. Care Fac. Rev. (VOA Care Ctrs. Proj.), 7.375%, 10/1/12 1,767,969
1,000,000 Minneapolis Hlth. Care Fac. Rev. Series 1993 (St. Olaf Res. Proj.), 7.00%,10/1/18 1,011,020
180,000 Puerto Rico Industrial, Tourist, Educ., Med. & Env. Ctrl. Fac. Fin. Auth. Hosp.
Rev. 1994 Series A (Ryder Mem. Hosp. Proj.), 5.75%, 5/1/99 181,942
Red Wing Hlth. Care Ctr. Fac. Rev. Refunding (River Region Obligated Group):
125,000 Series 1993A, 6.20%, 9/1/05 130,714
130,000 Series 1993A, 6.30%, 9/1/06 135,918
200,000 Series 1993B, 6.20%, 9/1/05 209,142
Sherburne Co. Nursing Home Fac. Rev. Series 1994 (Guardian Angels Care Ctr. Proj.):
75,000 7.30%, 6/1/07 78,006
80,000 7.35%, 6/1/08 83,201
90,000 7.40%, 6/1/09 93,855
555,000 7.50%, 6/1/14 577,089
140,000 7.75%, 6/1/15 146,885
150,000 7.75%, 6/1/16 157,637
95,000 St. Paul Hsg. & Redev. Auth. Comm. Dev. Rev. Refunding Series 1992
(Beverly Enterprises Proj.), 7.75%, 11/1/02 96,793
960,000 St. Paul Hsg. & Redev. Auth. Nursing Home Dev. Rev. Refunding Series 1996C
(Franciscan Hlth. Cmmty. Proj., St. Mary's Home), 7.00%, 7/1/21 945,658
820,000 Wadena Co. Hlth. Care Fac. Rev. Series 1994B, 7.45%, 9/1/15 851,357
11,499,630
INDUSTRIAL/POLLUTION CONTROL (8.1%)
500,000 Anoka Industrial Dev. Rev. Series 1994 (Lund Industries Inc. Proj.), 6.50%, 9/1/04(4) 514,575
955,000 Duluth Commercial Dev. Rev. Refunding Series 1995A (Radisson Hotel Proj.), 7.00%, 12/1/00 952,316
MN Agricultural & Econ. Dev. Board Small Business Dev. Ln. Prgm. Rev.:
390,000 Series 1989A Lot 1, 8.25%, 8/1/09(4) 398,081
105,000 Series 1995A Lot 1, 6.40%, 8/1/04(4) 102,417
1,000,000 Series 1990B Lot1 (May Printing Co.), 8.375%, 8/1/10(4) 1,044,010
3,155,000 Plymouth Rev. Refunding Series 1992 (Carlson Ctr. Proj.) (LOC First Bank, N.A.),
7.00%, 4/1/12 3,280,537
200,000 Richfield Cmty. Dev. Rev. Refunding 1994 (Richfield Shoppes Proj.), 8.375% 10/1/05 215,130
1,105,000 St. Paul Port Authority Hotel Facility Senior Rev. Series 1996A (Radisson Kellogg Project),
7.00%, 8/1/01 1,093,762
7,600,828
MULTIFAMILY MORTGAGE (40.0%)
500,000 Aurora Hsg. & Redev. Auth. Multifamily Rev. (Irongate Apts. Proj.) (Section 8),
6.10%, 10/1/19 498,180
Austin Hsg. & Redev. Auth. Governmental Hsg. Gross Rev. Series 1995A
(Courtyard Res. Proj.):
220,000 7.00%, 1/1/15 220,625
500,000 7.25%, 1/1/26 498,720
Burnsville Multifamily Hsg. Rev. Refunding:
425,000 Series 1991 (Atrium Proj.) (Trygg-Hansa insured), 7.20%, 5/1/11 442,595
960,000 Series 1994 (Bridgeway Apts. Proj.), 7.25%, 2/1/14 980,141
405,000 Chisago City Health Fac. Rev. Refunding Series 1995A (Pleasant Heights Proj.),
7.30%, 7/1/18 411,148
3,000,000 Dakota Cnty. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding Series 1997A,
(Park Place Apts. Proj.) (GNMA collateralized) 6.875%, 2/20/32 3,197,220
Dakota Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding
(Walnut Trails Apts. Proj.):
1,700,000 Series 1995A (GNMA collateralized), 7.90%, 1/20/31(4) 1,897,183
265,000 Series 1995C Subordinate, 9.00%, 1/20/15(4) 263,776
Eden Prairie Multifamily Hsg. Rev. Refunding:
60,000 Series 1990A (Welsh Parkway Apts. Ltd. Proj.)(FHA insured), 8.00%, 7/1/26 63,991
450,000 Series 1995A (Olympic Ridge Proj.) (GNMA collateralized) 6.20%, 1/20/16 458,825
700,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.00%, 11/1/06 743,239
1,500,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.10%, 11/1/17 1,562,925
1,500,000 Eagan Multifamily Rental Hsg. Refunding Rev. Series 1996 (Wescott Apts. Proj.)
(FHA insured), 6.00%, 12/1/27 1,497,765
Hopkins Elderly Hsg. Rev. Refunding (St. Therese Southwest Proj.):
1,600,000 Series 1994A (Asset Gty. insured), 6.25%, 3/1/14 1,620,608
360,000 Series 1994B, 9.00%, 11/1/19 379,793
1,015,000 Hopkins Hsg. Facs. Rev. Refunding Series 1995 (Augustana Chapel View Homes Proj.),
7.00%, 12/1/15 1,003,937
575,000 Hopkins Subordinate Multifamily Hsg. Rev. Refunding Series 1996C
(Auburn Apts. Proj.), 8.00%, 6/20/31 591,612
450,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.),
6.25%, 4/1/15 460,301
500,000 Hutchinson Hsg. Facs. Rev. Series 1994 (Prince of Peace Proj.), 7.375%, 10/1/12 515,200
800,000 Little Canada Multifamily Hsg. Rev. Series 1997A (Cedars Lakeside Proj.)
(GNMA collateralized), 5.90%, 8/1/20 790,936
Minneapolis Multifamily Hsg. Rev.:
565,000 Series 1994 (Findley Place Townhomes Proj) (Section 8), 7.00%, 12/1/16(4) 589,917
75,000 Series 1991 (Trinity Hsg. Proj.) (Section 8), 7.875%, 2/1/06 78,233
355,000 Series 1996 (Belmont Apts.), 7.25%, 11/1/16 351,312
645,000 Series 1996 (Belmont Apts.), 7.625%, 11/1/27 637,408
2,000,000 Series 1996A (Nicollet Towers) (Section 8), 6.00%, 12/01/19 1,968,180
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) 365,750
MN HFA Multifamily Hsg. Dev. Rev.:
45,000 Series 1977, 6.25%, 2/1/08 45,588
140,000 Series 1977, 6.375%, 2/1/20 141,557
25,000 Series 1988A, 7.70%, 8/1/08 25,878
MN HFA Rental Hsg. Rev. Refunding:
175,000 Series 1993C, 6.15%, 2/1/14 176,110
135,000 Series 1993E, 6.00%, 2/1/14 135,865
Minnetonka Hsg. Fac. Rev. Series 1994 (Beacon Hill Housing Proj.):
890,000 7.00%, 6/1/04 917,118
1,000,000 7.50%, 6/1/14 1,032,590
525,000 Minnetonka Multifamily Hsg. Rev. Refunding Subordinate Series 1994C (Brier Creek Proj.),
8.00%, 12/20/16 548,688
500,000 Monticello Senior Hsg. Rev. Series 1995 (Mississippi Shores Proj.), 7.25%, 7/1/16 502,945
385,000 Mora Multifamily Rev. Refunding Hsg. Alternatives Partnership Series 1995, 6.50%, 6/1/02 385,624
750,000 Plymouth Multifamily Hsg. Rev. Refunding Series 1996A (Fox Forest Apts. Proj.)
(GNMA collateralized), 8.05%, 6/20/31 858,458
2,500,000 Puerto Rico Housing Finance Corp. Rev. Multifamily Mtg. Portfolio Series 1990 A-I,
7.50%, 10/1/15 2,639,225
960,000 Robbinsdale Multifamily Hsg. Rev. Series 1996A (Copperfield Hill Proj.),
7.20%, 12/1/16 946,973
325,000 Sandstone Econ. Dev. Auth. Hsg. & Dev. Rev. Series 1994A (Family Apts. Proj.),
8.00%, 1/1/12 338,546
1,000,000 Spring Lake Park Sr. Hsg. Rev. Series 1996 (Noah's Ark Affordable Hsg. Inc.),
7.25%, 9/1/16 1,000,790
300,000 Spring Park Hlth. Care Fac. Rev. Series 1991 (Twin Birch Hlth. Care Ctr. Proj.),
8.25%, 8/1/11 319,086
1,500,000 St. Anthony Hsg. Dev. Rev. Refunding (Autumn Woods Proj.) (Asset Gty. insured),
6.875%, 7/1/22 1,567,110
650,000 St. Louis Park Multifamily Hsg. Rev. Refunding Series 1995 (Knollwood Cmty. Hsg. Proj.)
(FHA insured), 6.15%, 12/1/16 654,479
500,000 St. Paul Hsg. & Redev. Auth. Multifamily Hsg. Refunding Series 1992 (Point of St. Paul Proj.)
(FNMA backed), 6.60%, 10/1/12 519,130
200,000 St. Paul Hsg. & Redev. Auth. Multifamily Hsg. Refunding Series 1995 (Sun Cliffe Apts. Proj.)
(GNMA collateralized), 5.875%, 7/1/15 198,982
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 1,086,302
1,385,000 White Bear Lake Multifamily Hsg. Rev. Refunding Series 1996A (Lake Sq. Partners Proj.)
(FHA insured), 6.10%, 2/1/26 1,386,011
37,516,575
LEASE (3.1%)
1,015,000 Beltrami Co. Hsg. & Redev. Auth. Lease Rev., 6.25%, 2/1/16 993,046
585,000 Burnsville Solid Waste Rev. Series 1990 (Freeway Transfer Inc. Proj.), 9.00%, 4/1/10(4) 642,938
Hibbing Econ. Dev. Auth. Public Proj. Rev. Series 1997 (Hibbing Lease Obligations Proj.):
655,000 6.10%, 2/1/08 645,666
535,000 6.40%, 2/1/12 527,895
100,000 Rice Co. Certificates of Participation 1996A, 5.85%, 12/1/14 98,157
2,907,702
SINGLE FAMILY MORTGAGE (17.8%)
507,590 Brooklyn Center/Columbia Heights/Moorhead/Robbinsdale Econ. Dev. Auth. Residual Interest
Rev. Series 1992B (FNMA backed), 7.15%, 11/1/14 521,132
Dakota County Hsg. & Redev. Auth. Single Family Mtg. Rev.:
995,000 Series 1994A (FNMA backed), 6.70%, 10/1/09(4) 1,042,193
400,000 Series 1995 (FNMA & GNMA backed), 6.25%, 10/1/09(4) 411,376
795,000 Dakota/Wash./Stearns Cos. Hsg. & Redev. Auth. Single Family Rev. Refunding
Series 1994A (FNMA backed), 6.50%, 9/1/10(4) 822,642
Minneapolis Redev. Mtg. Rev. Series 1987A (Riverplace Proj.) (LOC Bk. of Tokyo):
70,000 7.00%, 1/1/07 72,080
500,000 7.10%, 1/1/20 512,035
2,100,000 Minneapolis Residual Interest Mtg. Rev. Series 1995 Convertible Capital Appreciation Bonds,
7.00% Effective Yield on Purchase Date, 10/1/12 757,302
30,000 Minneapolis/ St. Paul Hsg. Fin. Bd. Single Family Mtg. Rev. Series 1989A (GNMA backed),
7.65%, 12/1/00(4) 31,155
900,000 Minneapolis/ St. Paul Hsg. Fin. Bd. Single Family Mtg. Rev. Series 1994 (FNMA backed),
7.25%, 5/1/12(4) 934,002
MN HFA Single Family Mtg. Rev.:
120,000 Series 1988D, 8.25%, 8/1/20(4) 125,266
15,000 Series 1989B, 7.05%, 1/1/03 15,763
50,000 Series 1989B, 7.05%, 7/1/03 52,542
20,000 Series 1990A, 7.95%, 7/1/22(4) 21,033
290,000 Series 1990C, 7.70%, 7/1/14 305,327
240,000 Series 1991A, 7.05%, 7/1/22(4) 248,304
600,000 Series 1991A, 7.45%, 7/1/22(4) 628,650
1,770,000 Series 1992B-1, 6.75%, 1/1/26(4) 1,824,587
1,000,000 Series 1994F, 6.30%, 7/1/25 1,024,860
95,000 Series 1994K, 5.90%, 1/1/07 95,325
530,000 Series 1994L, 6.70%, 7/1/20(4) 546,902
2,830,000 Series 1995M, 5.875%, 1/1/1 2,818,255
800,000 Series 1996D, 6.00%, 1/1/16 801,792
655,000 Minneapolis Single Family Mtg. Rev. Series 1995V (FNMA & GNMA backed),
6.25%, 4/1/22 662,539
3,800,000 Moorhead Single Family Mtg. Rev. Refunding Series 1992B Zero Coupon, 7.00% Effective
Yield on Purchase Date, 8/1/11 1,418,350
670,000 St. Paul Hsg. & Redev. Auth. Single Family Mtg. Rev. Refunding Series 1995 (FNMA backed),
6.125%, 3/1/17 685,497
966,042 St. Paul Residual Interest Rev. Series 1995 Convertible Capital Appreciation
Bonds, Zero Coupon, 7.23% Effective Yield on Purchase Date, 9/1/11 356,672
16,735,581
OTHER REVENUE BONDS (8.7%)
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 1,508,835
Minneapolis Cmty. Dev. Agy. Common Bond Fund:
100,000 Series 1993-5 (Winslow Printing), 6.125%, 12/1/06(4) 100,888
640,000 Series 1995-1, 6.625%, 12/1/09(4) 657,523
1,310,000 Series 1995-1, 7.25%, 12/1/15(4) 1,375,932
2,870,000 St. Paul Hsg. & Redev. Sales Tax Rev. Refunding Series 1996 (FSA insured)
(Civic Center Proj.), 7.10%, 11/1/23 3,324,149
1,245,000 St. Paul Recreational Facs. Gross Rev. Series 1996D 5.875%, 6/1/18 1,238,157
8,205,484
PUBLIC FACILITIES (2.1%)
2,000,000 Minneapolis Public Hsg. Auth. Series 1997 (General Credit Energy Savings Proj.),
6.00%, 7/1/08 1,998,160
Total municipal bonds (cost: $87,972,683) 89,170,157
SHORT-TERM SECURITIES (4.0%)(2)
3,744,859 Minnesota Municipal Cash Fund, 3.31% 3,744,859
(cost: 3,744,859)
Total investments in securities (cost: $91,717,542)(7) $92,915,016
See accompanying notes to financial statements on page 35.
</TABLE>
(This page has been left blank intentionally.)
SIT MUTUAL FUNDS
NOTES TO PORTFOLIOS OF INVESTMENTS
(1) Securities are valued by procedures described in note 1 to the
financial statements.
(2) Percentage figures indicate percentage of total net assets.
(3) At March 31, 1997, 44.9% of the net assets in the U.S. Government
Securities Fund and 22.9% of the net assets in the Bond Fund was
invested in GNMA mobile home pass-through securities.
(4) Securities the income from which is treated as a tax preference that is
included in alternative minimum taxable income for purposes of
computing federal alternative minimum tax (AMT). At March 31, 1997,
approximately 15.5% of the net assets in the Minnesota Tax-Free Income
Fund was invested in such securities.
(5) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under Section 4(2) of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "accredited investors." This security has been determined to be
liquid under the guidelines established by the Board of Directors.
(6) On March 31, 1997 the total cost of investments purchased on a
when-issued basis was $7,383,343.
(7) At March 31, 1997, 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>
U.S.
MONEY GOVERNMENT
MARKET SECURITIES BOND
FUND FUND FUND
------------- ------------- -------------
<S> <C> <C> <C>
Cost for federal income tax purposes $ 31,699,997 $ 74,397,655 $ 6,471,360
============= ============= =============
Unrealized appreciation (depreciation) on investments:
Gross unrealized appreciation -- $ 122,537 $ 6,925
Gross unrealized depreciation -- (1,056,117) (137,989)
------------- ------------- -------------
Net unrealized appreciation (depreciation) -- ($ 1,056,117) ($ 131,064)
============= ============= =============
MINNESOTA
TAX-FREE TAX-FREE
INCOME INCOME
FUND FUND
------------- -------------
Cost for federal income tax purposes $ 338,683,641 $ 91,720,375
============= =============
Unrealized appreciation (depreciation) on investments:
Gross unrealized appreciation $ 7,690,053 $ 1,437,125
Gross unrealized depreciation (1,234,703) (242,484)
------------- -------------
Net unrealized appreciation (depreciation) $ 6,455,350 $ 1,197,474
============= =============
</TABLE>
SIT MUTUAL FUNDS
STATEMENTS OF ASSETS & LIABILITIES -- MARCH 31, 1997
<TABLE>
<CAPTION>
U.S. MINNESOTA
MONEY GOVERNMENT TAX-FREE TAX-FREE
MARKET SECURITIES BOND INCOME INCOME
FUND FUND FUND FUND FUND
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at
identified cost ................ $ 31,699,997 $ 74,331,370 $ 6,453,777 $ 338,683,641 $ 91,717,542
=============== =============== =============== =============== ===============
Investments in securities, at
market value - see
accompanying schedules for
detail ......................... $ 31,699,997 $ 73,341,538 $ 6,340,296 $ 345,138,994 $ 92,915,016
Cash in bank on demand
deposit ........................ 842 -- -- -- --
Accrued interest
receivable ..................... -- 453,885 71,886 5,550,149 1,873,750
Receivable for principal
paydowns ....................... -- 6,817 1,049 -- --
Receivable for Fund shares
sold ........................... 1,052,287 111,503 1,635 853,832 615,419
--------------- --------------- --------------- --------------- ---------------
Total assets ........... 32,753,126 73,913,743 6,414,866 351,542,975 95,404,185
--------------- --------------- --------------- --------------- ---------------
LIABILITIES
Disbursements in excess of
cash balances .................. -- -- 400 7,410 6,029
Payable for investment securities
purchased - when issued (note 1) -- -- -- 7,383,343 --
Payable for investment securities
purchased ...................... -- -- -- 285,200 1,137,396
Payable for Fund shares
redeemed ....................... 58,254 420,432 -- 678,011 136,715
Cash portion of dividends
payable to shareholders ........ 13,809 49,872 6,660 426,316 85,131
Accrued investment management
and advisory services fee ...... 12,965 49,568 4,344 222,489 63,010
--------------- --------------- --------------- --------------- ---------------
Total liabilities ...... 85,028 519,872 11,404 9,002,769 1,428,281
--------------- --------------- --------------- --------------- ---------------
Net assets applicable to
outstanding capital stock ...... $ 32,668,098 $ 73,393,871 $ 6,403,462 $ 342,540,206 $ 93,975,904
=============== =============== =============== =============== ===============
Capital stock
Par ............................ $ 0.001 $ 0.01 $ 0.001 $ 0.001 $ 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 ............. 32,671,098 7,138,283 665,705 34,338,517 9,265,489
=============== =============== =============== =============== ===============
Net asset value per share of
outstanding capital stock ...... $ 1.00 $ 10.28 $ 9.62 $ 9.98 $ 10.14
=============== =============== =============== =============== ===============
</TABLE>
See accompanying notes to financial statements on pages 40-47.
SIT MUTUAL FUNDS
STATEMENTS OF OPERATIONS -- YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
U.S. MINNESOTA
MONEY GOVERNMENT TAX-FREE TAX-FREE
MARKET SECURITIES BOND INCOME INCOME
FUND FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Interest ............................ 1,409,689 4,113,325 399,892 18,996,651 4,685,615
------------ ------------ ------------ ------------ ------------
Total income ................... 1,409,689 4,113,325 399,892 18,996,651 4,685,615
------------ ------------ ------------ ------------ ------------
EXPENSES (NOTE 3):
Investment management and
advisory services fee ............. 208,145 564,216 43,801 2,374,577 590,061
Less fees and expenses absorbed
by investment adviser .......... (78,042) (99,999) -- (46,819) --
------------ ------------ ------------ ------------ ------------
Total net expenses ................ 130,103 464,217 43,801 2,327,758 590,061
------------ ------------ ------------ ------------ ------------
Net investment income ............. 1,279,586 3,649,108 356,091 16,668,893 4,095,554
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS :
Net realized gain (loss) (note 2) ... -- (354,419) (26,666) 1,239,489 (54,294)
Net change in unrealized appreciation
or depreciation on investments .... -- (903,875) (64,569) 1,148,455 225,585
------------ ------------ ------------ ------------ ------------
Net gain (loss) on investments ...... -- (1,258,294) (91,235) 2,387,944 171,291
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations ............................. $ 1,279,586 $ 2,390,814 $ 264,856 $ 19,056,837 $ 4,266,845
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements on pages 40-47.
SIT MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET U.S. GOVERNMENT
FUND SECURITIES FUND
------------------------------ ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ........................ $ 1,279,586 $ 1,188,260 $ 3,649,108 $ 2,991,108
Net realized gain (loss) on investments ...... -- -- (354,419) 466,171
Net change in unrealized appreciation
(depreciation) of investments ............. -- -- (903,875) 162,827
------------- ------------- ------------- -------------
Net increase in net assets resulting from
operations .............................. 1,279,586 1,188,260 2,390,814 3,620,106
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................ (1,279,586) (1,188,260) (3,649,108) (2,991,108)
Net realized gains on investments ............ -- -- -- --
------------- ------------- ------------- -------------
Total distributions ....................... (1,279,586) (1,188,260) (3,649,108) (2,991,108)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold .................... 248,117,061 107,451,651 37,499,822 31,591,518
Reinvested distributions ..................... 1,094,430 1,076,722 3,183,829 2,618,331
Payments for shares redeemed ................. (237,803,699) (117,090,139) (18,481,485) (19,842,777)
------------- ------------- ------------- -------------
Increase (decrease) in net assets from
capital share transactions .............. 11,407,792 (8,561,766) 22,202,166 14,367,072
------------- ------------- ------------- -------------
Total increase (decrease) in net assets . 11,407,792 (8,561,766) 20,943,872 14,996,070
NET ASSETS
Beginning of period .......................... 21,260,306 29,822,072 52,449,999 37,453,929
------------- ------------- ------------- -------------
End of period ................................ $ 32,668,098 $ 21,260,306 $ 73,393,871 $ 52,449,999
============= ============= ============= =============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ...... $ 32,668,098 $ 21,260,306 $ 74,903,163 $ 52,700,997
Undistributed (distributions in excess of) net
investment income ......................... -- -- -- --
Accumulated net realized gain (loss) from
security transactions ..................... -- -- (519,460) (165,041)
Unrealized appreciation (depreciation)
on investments ............................ -- -- (989,832) (85,957)
------------- ------------- ------------- -------------
$ 32,668,098 $ 21,260,306 $ 73,393,871 $ 52,449,999
============= ============= ============= =============
CAPITAL TRANSACTIONS IN SHARES:
Sold ......................................... 248,117,061 107,451,651 3,598,212 3,015,296
Reinvested distributions ..................... 1,094,430 1,076,722 306,370 249,905
Redeemed ..................................... (237,803,699) (117,090,140) (1,777,514) (1,895,812)
------------- ------------- ------------- -------------
Net increase (decrease) ........................ 11,407,792 (8,561,767) 2,127,068 1,369,389
============= ============= ============= =============
</TABLE>
(wide table continued from above)
<TABLE>
<CAPTION>
BOND TAX-FREE MINNESOTA TAX-FREE
FUND INCOME FUND INCOME FUND
------------------------------ ------------------------------ ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 356,091 $ 314,579 $ 16,668,893 $ 14,969,020 $ 4,095,554 $ 3,066,188
(26,666) 154,186 1,239,489 1,047,369 (54,294) 29,311
(64,569) 742 1,148,455 3,528,518 225,585 515,415
------------- ------------- ------------- ------------- ------------- -------------
264,856 469,507 19,056,837 19,544,907 4,266,845 3,610,914
------------- ------------- ------------- ------------- ------------- -------------
(356,091) (314,579) (16,676,319) (14,968,966) (4,095,554) (3,075,266)
(38,869) -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
(394,960) (314,579) (16,676,319) (14,968,966) (4,095,554) (3,075,266)
------------- ------------- ------------- ------------- ------------- -------------
1,935,754 2,009,736 155,421,758 131,895,973 53,475,364 32,851,258
327,137 270,336 12,524,280 11,117,875 3,198,228 2,334,848
(951,712) (745,612) (107,554,950) (122,978,226) (25,849,251) (16,622,975)
------------- ------------- ------------- ------------- ------------- -------------
1,311,179 1,534,460 60,391,088 20,035,622 30,824,341 18,563,131
------------- ------------- ------------- ------------- ------------- -------------
1,181,075 1,689,388 62,771,606 24,611,563 30,995,632 19,098,779
5,222,387 3,532,999 279,768,600 255,157,037 62,980,272 43,881,493
------------- ------------- ------------- ------------- ------------- -------------
$ 6,403,462 $ 5,222,387 $ 342,540,206 $ 279,768,600 $ 93,975,904 $ 62,980,272
============= ============= ============= ============= ============= =============
$ 6,566,079 $ 5,254,900 $ 337,323,322 $ 276,932,234 $ 93,258,565 $ 62,434,224
-- -- (7,426) -- (9,078) (9,078)
(49,136) 16,399 (1,231,043) (2,470,532) (471,057) (416,763)
(113,481) (48,912) 6,455,353 5,306,898 1,197,474 971,889
------------- ------------- ------------- ------------- ------------- -------------
$ 6,403,462 $ 5,222,387 $ 342,540,206 $ 279,768,600 $ 93,975,904 $ 62,980,272
============= ============= ============= ============= ============= =============
198,683 205,474 15,592,536 13,320,566 5,256,072 3,250,281
33,549 27,247 1,256,626 1,122,623 314,798 231,001
(97,629) (74,482) (10,828,540) (12,420,344) (2,547,449) (1,644,655)
------------- ------------- ------------- ------------- ------------- -------------
134,603 158,239 6,020,622 2,022,845 3,023,421 1,836,627
============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements on pages 40-47.
SIT MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Sit Mutual Funds (the Funds) are 100% no-load funds, and are
registered under the Investment Company Act of 1940 (as amended) as
diversified (except Minnesota Tax-Free Income Fund which is
non-diversified), open-end management investment companies, or series
thereof. The Sit Bond Fund, Sit Minnesota Tax-Free Income Fund, and the
Sit Tax-Free Income Fund are series funds of Sit Mutual Funds II, Inc.
This report covers the bond funds of the Sit Mutual Funds. The
investment objective for each Fund is as follows:
FUND INVESTMENT OBJECTIVE
---- --------------------
Money Market Maximum current income with the
preservation of capital and maintenance
of liquidity.
U.S. Government Securities High current income and safety of
principal.
Bond Maximize total return, consistent with
the preservation of capital.
Tax-Free Income High level of current income that is
exempt from federal income tax,
consistent with the preservation of
capital.
Minnesota Tax-Free Income High level of current income that is
exempt from federal income tax and
Minnesota regular personal income tax,
consistent with the preservation of
capital.
Significant accounting policies followed by the Funds are summarized
below:
INVESTMENTS IN SECURITIES
Securities maturing more than 60 days from the valuation date, with the
exception of those in Money Market Fund, are valued at the market price
supplied by an independent pricing vendor; those securities with
maturities of less than 60 days when acquired, or which subsequently
are within 60 days of maturity, are valued at amortized cost, which
approximates market value. When market quotations are not readily
available, securities are valued at fair value based on procedures
determined in good faith by the Boards of Directors. Such fair values
are determined using prices quoted by independent brokers or pricing
services. Pursuant to Rule 2a-7 of the Investment Company Act of 1940,
all securities in the Money Market Fund are valued at amortized cost,
which approximates market value, in order to maintain a constant net
asset value of $1 per share.
Security transactions are accounted for on the date the securities are
purchased or sold. Gains and losses are calculated on the
identified-cost basis. Interest, including level-yield amortization of
long-term bond premium and discount, is recorded on the accrual basis.
Delivery and payment for securities which have been purchased by the
Minnesota Tax-Free Income, Tax-Free Income, and U.S. Government
Securities Funds on a forward commitment or when-issued basis can take
place a month or more after the transaction date. During this period,
such securities are subject to market fluctuations and may increase or
decrease in value prior to their delivery, and each Fund maintains, in
a segregated account with its custodian, assets with a market value
equal to the amount of its purchase commitments. As of March 31, 1997,
the Tax-Free Income Fund that entered into when-issued or forward
commitments of $7,383,343.
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 U.S. Government Securities, Bond,
Tax-Free Income, and Minnesota Tax-Free Income Fund has a capital loss
carryover of $453,176, $31,553, $1,233,011, and $468,224, respectively,
at March 31, 1997 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 manage ment to make certain
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported results. Actual
results could differ from those estimates.
(2) INVESTMENT SECURITY TRANSACTIONS
Purchases of and proceeds from sales and maturities of investment
securities, other than short-term securities, for the year ended March
31, 1997, were as follows:
Purchases Proceeds
--------- --------
U.S. Government Securities Fund 68,856,991 48,795,114
Bond Fund 7,763,357 6,791,487
Tax-Free Income Fund 134,607,002 72,282,515
Minnesota Tax-Free Income Fund 37,988,010 12,216,495
For Money Market Fund during the year ended March 31, 1997, purchases
of and proceeds from sales and maturities of investment securities
aggregated $565,904,049 and $556,055,974, respectively.
(3) EXPENSES
INVESTMENT ADVISER
The Funds each have entered into an investment management agreement
with Sit Investment Associates Inc. (SIA), under which SIA manages the
Funds' assets and provides research, statistical and advisory services,
and pays related office rental, executive expenses and executive
salaries. SIA also is obligated to pay all of Money Market, U.S.
Government Securities, Bond, Tax-Free Income, and Minnesota Tax Free
Income Funds' expenses (excluding extraordinary expenses, stock
transfer taxes, interest, brokerage commissions, and other transaction
charges relating to investing activities). The fee for investment
management and advisory services is based on the average daily net
assets of the Funds at the annual rate of:
Average
Daily
Net Assets
----------
Bond Fund .80%
Tax-Free Income Fund .80%
Minnesota Tax-Free Income Fund .80%
First Over
$50 Million $50 Million
----------- -----------
Money Market Fund .80% .60%
U.S. Government Securities Fund 1.00% .80%
For the period April 1, 1995, through December 31, 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
December 31, 1997, this voluntary fee waiver may be discontinued by the
Adviser in its sole discretion.
For the period April 1, 1995, through December 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 December 31, 1997, this voluntary fee waiver may be
discontinued by the Adviser in its sole discretion.
TRANSACTIONS WITH AFFILIATES
The investment adviser, affiliates of the investment adviser, directors
and officers of the Funds as a whole owned the following shares as of
March 31, 1997:
% Shares
Shares Outstanding
------ -----------
Money Market Fund 7,246,410 22.18
U.S. Government Securities Fund 470,533 6.59
Bond Fund 77,193 11.60
Tax-Free Income Fund 1,730,991 5.04
Minnesota Tax-Free Income Fund 373,457 4.03
(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 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
----------------------------------------------- -------------------------
Period From Period From
November 1, July 1,
Years Ended March 31, 1993 to 1993 to Year Ended
---------------------------------- March 31, October 31, June 30
1997 1996 1995 1994 1993 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
OPERATIONS:
Net investment income 0.05 0.05 0.04 0.01 0.01 0.03
-------- -------- -------- -------- -------- --------
Total from operations 0.05 0.05 0.04 0.01 0.01 0.03
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.05) (0.05) (0.04) (0.01) (0.01) (0.03)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE:
End of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Total investment return (1) 5.04% 5.44% 4.57% 1.14% 0.92% 3.02%
-------- -------- -------- -------- -------- --------
Net assets at end of period (000's omitted) $ 32,668 $ 21,260 $ 29,822 $ 17,864 $ 12,626 $ 10,869
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)
Net investment income to average
daily net assets 4.93%(3) 5.35%(3) 4.63%(3) 2.76%(3) 2.67%(3) 2.98%(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 year ended June 30, 1993, the investment
adviser voluntarily absorbed $16,480 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 the ratio of net
investment income to average daily net assets would have been 2.87%.
(3) Percentages for the periods ended March 31, 1994, and October 31, 1993,
are adjusted to an annual rate. Total Fund expenses are contractually
limited to .80% of average daily net assets for the first $50 million
in Fund net assets and .60% of average daily net assets for Fund net
assets exceeding $50 million. However, during the periods ended March
31, 1997, 1996, 1995 and 1994, and October 31, 1993, the investment
adviser voluntarily absorbed $78,042, $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 4.63%, 5.05%, 4.33%, 2.46%, and 2.59%, respectively.
SIT U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Nine Months
Years Ended March 31, Ended Year Ended
---------------------------------- March 31, June 30,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 10.47 $ 10.28 $ 10.50 $ 10.73 $ 10.81
-------- -------- -------- -------- --------
OPERATIONS:
Net investment income .65 .70 .67 .47 .71
Net realized and unrealized gains
(losses) on investments (.19) .19 (.22) (.18) .07
-------- -------- -------- -------- --------
Total from operations .46 .89 .45 .29 .78
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.65) (.70) (.67) (.47) (.71)
From realized gains -- -- -- (.05) (.15)
-------- -------- -------- -------- --------
Total Distributions (.65) (.70) (.67) (.52) (.86)
-------- -------- -------- -------- --------
NET ASSET VALUE:
End of period $ 10.28 $ 10.47 $ 10.28 $ 10.50 $ 10.73
Total investment return (1) 4.55% 8.87% 4.47% 2.70% 7.50%
-------- -------- -------- -------- --------
Net assets at end of period (000's omitted) $ 73,394 $ 52,450 $ 37,454 $ 38,683 $ 31,538
-------- -------- -------- -------- --------
RATIOS:
Expenses to average daily net assets 0.80%(3) 0.80%(3) 0.80%(3) 0.86%(3) 0.89%(2)
Net investment income to average daily net assets 6.30%(3) 6.72%(3) 6.48%(3) 5.79%(3) 6.60%(2)
Portfolio turnover rate (excluding short-term securities) 85.21% 51.37% 38.51% 73.87% 76.66%
</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 year ended June 30,
1993, the investment adviser voluntarily absorbed an additional $72,628
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 the ratio of net investment income to
average daily net assets would have been 6.38%.
(3) Percentages for the period March 31, 1994, are adjusted to an annual
rate. Total Fund expenses are contractually limited to 1.00% of average
daily net assets for the first $50 million in Fund net assets and .80%
of average daily net assets exceeding $50 million However, during the
periods ended March 31, 1997, 1996, 1995 and 1994, the investment
adviser voluntarily absorbed $99,999, $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 .97% for the period ended March 31, 1997 and 1.00% for the
periods ended March 31, 1996, 1995, and 1994 and the ratio of net
investment income to average daily net assets would have been 6.13%,
6.52%, 6.28% and 5.65%, respectively.
SIT BOND FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Period from
December 1,
Years Ended March 31, 1993 (1) to
------------------------------------- March 31,
1997 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 .64 .64 .62 .19
Net realized and unrealized
gains (losses) on investments (.14) .35 (.21) (.31)
--------- --------- --------- ---------
Total from operations .50 .99 .41 (.12)
--------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.64) (.64) (.62) (.19)
From realized gains (.07) -- -- --
--------- --------- --------- ---------
Total distributions (.71) (.64) (.62) (.19)
--------- --------- --------- ---------
NET ASSET VALUE:
End of period $ 9.62 $ 9.83 $ 9.48 $ 9.69
--------- --------- --------- ---------
Total investment return (2) 5.21% 10.57% 4.51% (1.22%)
--------- --------- --------- ---------
Net assets at end of period (000's omitted) $ 6,403 $ 5,222 $ 3,533 $ 3,403
RATIOS:
Expenses to average daily net assets 0.80% 0.80% 0.80% 0.80%(3)
Net investment income to average daily net assets 6.52% 6.49% 6.63% 6.24%(3)
Portfolio turnover rate (excluding short-term securities) 128.06% 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 TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Nine Months
Years Ended March 31, Ended Year Ended
------------------------------------- March 31, June 30,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 9.88 $ 9.70 $ 9.63 $ 10.02 $ 9.74
--------- --------- --------- --------- ---------
OPERATIONS:
Net investment income .56 .56 .56 .43 .60
Net realized and unrealized gains
(losses) on investments .10 .18 .09 (.30) .32
--------- --------- --------- --------- ---------
Total from operations .66 .74 .65 .13 .92
--------- --------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.56) (.56) (.56) (.43) (.60)
From realized gains -- -- (.02) (.09) (.04)
--------- --------- --------- --------- ---------
Total distributions (.56) (.56) (.58) (.52) (.64)
--------- --------- --------- --------- ---------
NET ASSET VALUE:
End of period $ 9.98 $ 9.88 $ 9.70 $ 9.63 $ 10.02
--------- --------- --------- --------- ---------
Total investment return (1) 6.86% 7.73% 7.00% 1.19% 9.81%
--------- --------- --------- --------- ---------
Net assets at end of period (000's omitted) $ 342,540 $ 279,769 $ 255,157 $ 324,691 $ 338,977
RATIOS:
Expenses to average daily net assets 0.79%(2) 0.80%(2) 0.79%(2) 0.77%(2) 0.80%
Net investment income to average daily net assets 5.63%(2) 5.65%(2) 5.84%(2) 5.68%(2) 6.17%
Portfolio turnover rate (excluding short-term securities) 25.34% 25.50% 13.13% 47.56% 58.29%
</TABLE>
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at
net asset value.
(2) Percentages for the period ended March 31, 1994, are adjusted to an
annual rate. Total Fund expenses are contractually limited to .80% of
average daily net assets. However, during the periods ended March 31,
1997, 1996, 1995 and 1994, the investment adviser voluntarily absorbed
$46,819, $15,540, $24,991 and $77,029 in expenses that were otherwise
payable by the Fund. Had the Fund incurred these expenses, the ratio of
expenses to average daily net assets would have been .80% for the
periods ended March 31, 1997, 1996, 1995 and 1994, and the ratio of net
investment income to average daily net assets would have been 5.62%,
5.65%, 5.83% and 5.65%, respectively.
SIT MINNESOTA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Period from
December 1,
Years Ended March 31, 1993 (1) to
---------------------------------------- March 31,
1997 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 .57 .57 .56 .17
Net realized and unrealized gains
(losses) on investments .05 .13 .17 (.21)
---------- ---------- ---------- ----------
Total from operations .62 .70 .73 (.04)
---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.57) (.57) (.56) (.17)
---------- ---------- ---------- ----------
NET ASSET VALUE:
End of period $ 10.14 $ 10.09 $ 9.96 $ 9.79
---------- ---------- ---------- ----------
Total investment return (2) 6.26% 7.12% 7.68% (0.80%)
---------- ---------- ---------- ----------
Net assets at end of period (000's omitted) $ 93,976 $ 62,980 $ 43,881 $ 18,105
RATIOS:
Expenses to average daily net assets 0.80% 0.80% 0.80% 0.80%(3)
Net investment income to average daily net assets 5.56% 5.62% 5.72% 5.23%(3)
Portfolio turnover rate (excluding short-term securities) 17.16% 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.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Sit Money Market Fund, Inc.
Sit U.S. Government Securities Fund, Inc.
Sit Mutual Funds II, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of portfolios of investments, of Sit Money Market Fund,
Inc., Sit U.S. Government Securities Fund, Inc., Sit Bond Fund (a series of Sit
Mutual Funds II, Inc.), Sit Tax-Free Income Fund (a series of Sit Mutual Funds
II, Inc.), and Sit Minnesota Tax-Free Income Fund (a series of Sit Mutual Funds
II, Inc.), as of March 31, 1997 the related statements of operations for the
year then ended March 31, 1997; the statements of changes in net assets for each
of the years in the two-year period then ended March 31, 1997; and the financial
highlights as presented in note 4 to the financial statements. These financial
statements and the financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Sit
Money Market Fund, Sit U.S. Government Securities Fund, Sit Bond Fund, Sit
Tax-Free Income Fund, and Sit Minnesota Tax-Free Income Fund as of March 31,
1997 and the results of their operations, the changes in their net assets, and
their financial highlights for the periods stated in the first paragraph above,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 16, 1997
SIT MUTUAL FUNDS
FEDERAL INCOME TAX INFORMATION
We are required by Federal tax regulations to provide shareholders with certain
information regarding dividend distributions on an annual fiscal year basis. The
figures are for informational purposes only and should not be used for reporting
to federal or state revenue agencies. All necessary tax information will be
mailed in January each year.
<TABLE>
<CAPTION>
LONG-TERM LONG-TERM
ORDINARY CAPITAL ORDINARY CAPITAL
FUND AND PAYABLE DATE INCOME (a) GAIN (b) FUND AND PAYABLE DATE INCOME (a) GAIN (b)
<S> <C> <C> <C> <C> <C>
Money Market Fund U.S. Government Securities Fund
April 30, 1996 $0.00423 $ ---- April 30, 1996 $0.06008 $ ----
May 31, 1996 0.00415 ---- May 31, 1996 0.05121 ----
June 30, 1996 0.00374 ---- June 30, 1996 0.04687 ----
July 31, 1996 0.00444 ---- July 31, 1996 0.05896 ----
August 30, 1996 0.00399 ---- August 30, 1996 0.05044 ----
September 30, 1996 0.00426 ---- September 30, 1996 0.05508 ----
October 31, 1996 0.00424 ---- October 31, 1996 0.05367 ----
November 30, 1996 0.00386 ---- November 30, 1996 0.05127 ----
December 31, 1996 0.00427 ---- December 31, 1996 0.05654 ----
January 31, 1997 0.00423 ---- January 31, 1997 0.05705 ----
February 28, 1997 0.00373 ---- February 28, 1997 0.05483 ----
March 31, 1997 0.00413 ---- March 31, 1997 0.05821 ----
-------- -------- -------- --------
$0.04927(c) $0.00000 $0.65419(c) $0.00000
Bond Fund Tax-Free Income Fund
April 30, 1996 $0.06149 $ ---- April 30, 1996 $0.04881 $ ----
May 31, 1996 0.05656 ---- May 31, 1996 0.04792 ----
June 30, 1996 0.04680 ---- June 30, 1996 0.04233 ----
July 31, 1996 0.05834 ---- July 31, 1996 0.05004 ----
August 30, 1996 0.04910 ---- August 30, 1996 0.04532 ----
September 30, 1996 0.05166 ---- September 30, 1996 0.04719 ----
October 31, 1996 0.04982 ---- October 31, 1996 0.04746 ----
November 30, 1996 0.04751 ---- November 30, 1996 0.04374 ----
December 12, 1996 ---- 0.06942 December 31, 1996 0.04862 ----
December 31, 1996 0.05891 ---- January 31, 1997 0.04648 ----
January 31, 1997 0.04863 ---- February 28, 1997 0.04127 ----
February 28, 1997 0.05203 ---- March 31, 1997 0.05233 ----
March 31, 1997 0.05707 ---- $0.56151(d) $0.00000
-------- -------- -------- --------
$0.63792(c) $0.06942
Minnesota Tax-Free Income Fund
April 30, 1996 $0.04922 $ ----
May 31, 1996 0.04859 ----
June 30, 1996 0.04482 ----
July 31, 1996 0.05159 ----
August 30, 1996 0.04648 ----
September 30, 1996 0.04794 ----
October 31, 1996 0.04794 ----
November 30, 1996 0.04435 ----
December 31, 1996 0.04958 ----
January 31, 1997 0.04764 ----
February 28, 1997 0.04146 ----
March 31, 1997 0.04749 ----
-------- --------
$0.56710(d) $0.00000
</TABLE>
(a) Includes distributions of short-term gains, if any, which are taxable
as ordinary income.
(b) Taxable as long-term gain.
(c) Taxable as dividend income and does not qualify for deduction by
corporations
(d) 100% of dividends were derived from interest on tax-exempt securities.
This portion of exempt-interest dividends is exempt from federal taxes
and should not be included in shareholders' gross income.
Exempt-interest dividends may be subject to state and local taxes. Each
shareholder should consult a tax advisor about reporting this income
for state and local tax purposes.
[SIT LOGO]
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
Michael C. Brilley
John E. Hulse
Sidney L. Jones
Donald W. Phillips
William E. Frenzel
Director Emeritus:
Melvin C. Bahle
Officers:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
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
Carla J. Rose Assistant Secretary
(1) Bond, Balanced and U.S. Government Securities Funds only.
(2) Money Market Fund Only.
