BOND FUNDS ANNUAL REPORT
Year Ended March 31, 1998
A FAMILY OF 100% NO-LOAD FUNDS
------------------------------
MONEY MARKET FUND
U.S. GOVERNMENT SECURITIES FUND
BOND FUND
TAX-FREE INCOME FUND
MINNESOTA TAX-FREE INCOME FUND
[LOGO] SIT(SM) MUTUAL FUNDS
THE INVESTMENT IS MUTUAL.(SM)
<PAGE>
SIT MUTUAL FUNDS
BOND FUNDS ANNUAL REPORT
TABLE OF CONTENTS
PAGE
Chairman's Letter............................................. 2
Performance Summary........................................... 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....................... 32
Notes to Portfolios of Investments............................ 41
Statements of Assets and Liabilities.......................... 42
Statements of Operations...................................... 43
Statements of Changes in Net Assets........................... 44
Notes to Financial Statements................................. 46
Financial Highlights.......................................... 50
Independent Auditors' Report ................................ 55
Results of the Shareholder Meeting ........................... 56
Federal Income Tax Information ............................... 58
This document must be preceded or accompanied by a Prospectus.
<PAGE>
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 $5.9 billion as of
March 31, 1998, for some of America's largest corporations, foundations and
endowments.
Sit Mutual Funds is comprised of thirteen 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
[GRAPHIC]
SIT FAMILY OF FUNDS
STABILITY: INCOME: GROWTH: HIGH GROWTH:
Safety of principal Increased income Long-term capital Long-term capital
and current income appreciation appreciation
and income
MONEY MARKET U.S. GOVERNMENT BALANCED MID CAP GROWTH
SECURITIES LARGE CAP GROWTH INTERNATIONAL GROWTH
TAX-FREE INCOME REGIONAL GROWTH SMALL CAP GROWTH
MINNESOTA TAX-FREE SCIENCE AND
INCOME TECHNOLOGY GROWTH
BOND DEVELOPING MARKETS
GROWTH
<PAGE>
SIT MUTUAL FUNDS
CHAIRMAN'S LETTER - YEAR ENDED MARCH 31, 1998
[PHOTO]
Dear Fellow Shareholders:
U.S. interest rates declined steadily during the past twelve months,
generating strong returns for fixed income assets. Long-term bond yields reached
new lows in January 1998, reflecting continued expectations for moderating
economic activity and low inflation. Despite positive inflation reports, the
possibility of tighter monetary policy exists unless the economy slows to a more
sustainable rate of growth.
Economic Overview
The domestic economy continues to exhibit robust growth. Despite a -2.2%
impact from net exports, real GDP growth for the first calendar quarter of 1998
advanced at a +4.2% annual rate due to continued strength in the consumer sector
and in capital spending which increased +17.6%. Consumer spending increased
+5.7% during the quarter, reflecting healthy personal income growth and
near-record consumer confidence. The unemployment rate remained low, declining
to 4.3% in April. Consumers also benefited from low interest rates which
contributed to heavy mortgage refinancing in recent months. With buyers having
extra money to spend, April auto sales rose +6.3%. Despite a backup in mortgage
rates, continued favorable economic fundamentals bode well for continued
strength in the housing sector. The manufacturing sector continued to expand as
well, but at a slower pace. Several indicators showed signs of moderation during
first quarter 1998, including industrial production which grew only at a +0.9%
rate and factory orders which declined at a -3.1% rate, we expect economic
growth to moderate to a more sustainable +3.3% for calendar year 1998 compared
to +3.8% in 1997 probably reflecting the Asian drag.
Capital gains from the strong stock market have contributed to
higher-than-expected tax receipts. Thus, estimates of the federal government's
fiscal 1998 budget surplus, its first since 1969, have now increased to as large
as $63 billion. The good news only serves to intensify the debate on what to do
with surplus funds, and there are deep political divisions on the subject. Many
Republicans want bigger tax cuts, while President Clinton continues to assert
that any surpluses be left untouched until the Social Security system is fixed.
Through the first half of the federal fiscal year, the budget deficit stands at
$69.9 billion, a $41.3 billion improvement over last year. As a result of these
trends, the Treasury Department intends to pay off a record $110 billion of
government debt in the third quarter, eliminate its 3-year note offering after
May, and shift the current monthly auction of 5-year notes to a quarterly basis.
Inflation continues to remain remarkably restrained. The Producer Price
Index (PPI) dropped -0.3% in March, its fifth consecutive monthly decline and
was down -1.8% year over year. The Consumer Price Index (CPI) was flat in March
and increased +1.4% year over year. The Fed's latest Beige Book reaffirmed that
import competition, primarily from Asian countries, is one factor keeping goods
prices in check. However, labor costs remains one area of concern. The
Employment Cost Index (ECI) rose +0.7% in the first quarter of 1998, for a
year-over-year gain of +3.3%. This rate was slower than in recent quarters and
much less than expected, with surprisingly less pressure from benefit costs.
While labor costs currently remain under reasonable control, it is an area where
future inflation is most likely to be ignited. We expect that inflation at the
consumer level will remain below +2.0% during 1998.
The Federal Reserve's G-10 trade-weighted U.S. dollar exchange rate
increased in an uneven pattern as the year progressed but trended slightly
downward at the end of April, reflecting growing optimism over the latest
Japanese stimulus package and on European Monetary Union. Europe's new currency,
the euro, began trading on May 4th with an unofficial "gray market" being
offered by several leading U.S. and European banks. The dollar exchange rate is
near the high end of its 10-year historical range but remains within the trading
range important to maintain U.S. trade competitiveness. According to the
International Institute for Management Development (IMD), which assesses
competitiveness based on a combination of factors, the U.S. remains far ahead of
other countries for the seventh year in a row.
For weeks, Federal Reserve officials have suggested that the U.S. economy
is growing too fast and that unless it slows on its own, they would be forced to
raise short-term interest rates. Given the strength of the economy, the odds
have
<PAGE>
increased to 50-50 that the Fed will raise short-term interest rates at its next
FOMC meeting on May 19. Despite the reported strength in the economy, inflation
remains benign, as competitive pressures appear to be keeping most goods prices
under control. While the domestic economy is currently demonstrably strong, the
main impacts from the Asian turmoil still lie ahead. As a result, it seems
likely that the U.S. economy will exhibit slower growth as 1998 progresses,
precluding the need for Fed tightening. If the Fed does tighten, however, it
will simply serve to accelerate the forces of moderation.
Strategy Summary
We expect economic growth to moderate and that bond yields will remain in
the same relatively narrow range as they have in recent weeks. Our expectation
is for 30-year Treasury bonds to range approximately between 5.75% to 6.25%
during the year. In this environment, interest income is anticipated to be the
primary factor of portfolios' total returns in the months ahead. Our taxable
bond strategies are focused on seasoned mortgage pass-through securities that
provide high levels of interest income. Taxable bond portfolio durations are
being maintained slightly shorter than their relevant benchmarks.
Heavy supply has caused municipal bond yields to rise in recent weeks. The
relative yield of long municipal bonds to long Treasury bonds has increased to
over 90% and is at its cheapest level since 1995 when concerns over tax reform
caused the ratio to rise to almost 94%. The volume of new issuance is
approximately 40% higher year to date over one year ago due to increased advance
refunding activity and new issuance by municipalities that are now funding
capital projects that were deferred when the economy was less buoyant. In
addition, the forward calendar includes a large volume of bonds to be issued by
municipal power authorities to address their need for financial restructuring.
Thus, we expect heavy supply conditions to persist in the near term. Also
noteworthy is that advance refunding activity has increased the supply on
intermediate municipals, causing a slight flattening of the municipal yield
curve. In municipal portfolios, we remain focused on sector and security
selection. With the flattening of the yield curve, the incremental income
provided by longer maturity bonds has been reduced. In addition, the relative
yield spreads for lower rated credits remains narrow. Thus, we are seeking
opportunities to shorten portfolio maturities slightly or improve credit quality
without giving up much income.
We appreciate your interest and investment in Sit Mutual Funds, and we
look forward to assisting you in achieving your long-term investment goals.
Sincerely,
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
May 12, 1998
<PAGE>
SIT MUTUAL FUNDS
YEAR ENDED MARCH 31, 1998 PERFORMANCE SUMMARY - BOND FUNDS
BOND MARKET REVIEW
The Federal Reserve kept monetary policy steady over the past year after
its last 0.25% tightening on March 25, 1997. The Fed implemented a tightening
bias in May 1997 and shifted to a neutral bias in December due to uncertainties
surrounding Asia. 3-month Treasury bill yields declined from 5.33% to 5.13%
during the fiscal year ended March 31, 1998 and ranged between 4.84% and 5.47%.
With continued positive inflation news and the concerns over Asia, longer
term taxable bond yields fell steadily through early January and remained in a
narrow range since then. The 30-year Treasury bond yield decreased from 7.08% to
5.94% during the year and reached an historic low of 5.69% on January 12th,
breaking through its previous low of 5.79% on October 15, 1993. Bond markets
provided strong returns for the year with the decline in interest rates. Long
duration corporates, which benefited from continued narrowing incremental yield
spreads, performed best. Mortgage returns were also strong as higher income
returns offset the weaker price performance that resulted from increased
prepayment concerns and the sector's shorter duration. The asset-backed sector
lagged due to its shorter duration.
Municipal bond yields declined in a similar pattern. The Bond Buyer
40-Bond Index yield decreased from 5.95% to 5.27% during the year and reached
5.10% on January 15th, breaking through its prior low of 5.34% on October 15,
1993. Municipal indices posted strong returns last year but underperformed
taxable bond indices due to their lower income returns and lagging price
appreciation. The relative yield ratio of long municipals to long Treasury bonds
has risen from 84% to 89% since last fall. Hospitals remained the top performing
revenue sector, benefiting from continued advance refunding activity and
continued demand which caused incremental yield spreads to narrow further.
Housing bonds, with their characteristic price stability, lagged during the
rally.
Security selection remains a strong component of the attractive returns
earned by the Sit Bond Funds during the past year. These results were achieved
consistent with the Funds' dual objectives of high income and principal
stability.
<TABLE>
<CAPTION>
1989 1990
---- ----
<S> <C> <C>
SIT MONEY MARKET FUND ---- ----
SIT U.S. GOV'T. SECURITIES FUND 11.04% 10.97%
SIT BOND FUND ---- ----
SIT TAX-FREE INCOME FUND 8.38 7.29
SIT MINNESOTATAX-FREE
INCOME FUND ---- ----
U.S. TREASURY BILL 8.73 8.04
LEHMAN INTER. GOVERNMENT BOND INDEX 12.68 9.56
LEHMAN AGGREGATE BOND INDEX 14.53 8.96
LEHMAN 5-YEAR MUNICIPAL BOND INDEX 9.07 7.70
SIT INVESTMENT RESERVE FUND 8.53 7.59
(Inception date 1/25/85. Converted to Sit Money Market Fund on 11/1/93.)
</TABLE>
<TABLE>
<CAPTION>
NASDAQ
SYMBOL INCEPTION
------ ---------
<S> <C> <C>
SIT MONEY MARKET FUND SNIXX 11/01/93
SIT U.S. GOV'T. SECURITIES FUND SNGVX 06/02/87
SIT BOND FUND SIBOX 12/01/93
SIT TAX-FREE INCOME FUND SNTIX 09/29/88
SIT MINNESOTA TAX-FREE INCOME FUND SMTFX 12/01/93
3-MONTH U.S. TREASURY BILL 11/01/93
LEHMAN INTER. GOVERNMENT BOND INDEX 05/31/87
LEHMAN AGGREGATE BOND INDEX 11/30/93
LEHMAN 5-YEAR MUNICIPAL BOND INDEX 09/30/88
</TABLE>
(1) Period from Fund inception through calendar year-end.
(2) Based on the last 12 monthly distributions of net investment income and
average NAV as of 3/31/98.
(3) For Minnesota residents in the 28%, 31%, 36% and 39.6% federal tax
brackets, the double exempt tax equivalent yields are 7.62%, 7.95%, 8.57%
and 9.08%, respectively.
(Assumes the maximum Minnesota tax bracket of 8.5%.)
(4) For individuals in the 28%, 31%, 36%, and 39.6% federal tax brackets, the
federal tax equivalent yields are 6.53%, 6.81%, 7.34% and 7.78%,
respectively. (Income subject to state tax, if any.)
<PAGE>
TOTAL RETURN - CALENDAR YEAR
<TABLE>
<CAPTION>
YIELD
YTD AS OF DISTRIBUTION
1991 1992 1993 1994 1995 1996 1997 1998 3/31/98 RATE (2)
---- ---- ---- ---- ---- ---- ---- ---- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---- ---- 0.46% (1) 3.84% 5.58% 5.08% 5.22% 1.27% 5.20%(6)
12.87% 5.43% 7.34 1.77 11.50 4.99 8.19 1.39 5.61 5.93%
---- ---- 0.34 (1) -1.31 16.83 4.25 9.44 1.18 5.43 6.35
9.25 7.71 10.42 -0.63 12.86 5.69 9.87 1.45 4.70(4) 5.30
---- ---- 1.60 (1) 0.63 11.90 5.89 8.19 1.18 5.02(3) 5.31
5.72 3.56 3.13 4.47 5.98 5.27 5.32 1.30
14.11 6.93 8.17 -1.75 14.41 4.06 7.72 1.51
16.00 7.40 9.75/0.54 (1) -2.92 18.47 3.63 9.65 1.56
11.41 7.62 8.73 -1.28 11.65 4.22 6.38 1.16
6.14 3.81 2.34 (5)
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
TOTAL RETURN PERIODS ENDED MARCH 31, 1998
QUARTER SIX MONTHS SINCE
ENDED 3/31/98 ENDED 3/31/98 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
---------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.27% 2.60% 5.29% 5.25% ---- ---- 4.86%
1.39 3.36 9.70 7.68 6.42% 7.86% 8.22
1.18 3.31 11.22 8.96 ---- ---- 6.91
1.45 4.18 10.69 8.41 7.24 ---- 7.79
1.18 3.92 9.07 7.48 ---- ---- 6.73
1.30 2.63 5.31 5.40 ---- ---- 5.15
1.51 3.76 9.38 7.72 5.93 7.96 8.06
1.56 4.55 11.99 9.18 ---- ---- 6.89
1.16 2.87 7.64 6.36 5.54 ---- 7.03
</TABLE>
(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 3/31/98 was 5.08%.
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS.
<PAGE>
SIT MONEY MARKET FUND REVIEW
YEAR ENDED MARCH 31, 1998
[PHOTO]
MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
PAUL J. JUNGQUIST, CFA
PORTFOLIO MANAGER
The Sit Money Market Fund provided investors with a +5.29% return for the
year ended March 31, 1998 compared to a +4.96% average return for the Lipper
Analytical Services' Money Market Fund universe. The Fund's performance ranked
49th of 308 funds in its Lipper peer group category for the twelve month period.
The Fund's annual return of +4.86% since inception ranks 47th out of 205 funds
in the Lipper Money Market Average category (10/31/93). As of March 31, 1998,
the Fund's 7-day compound yield was 5.20% and its average maturity was 28 days
compared to 4.74% and 27 days, respectively, as of one year ago.
The Federal Reserve Board maintained the federal funds rate at 5.50% for
the entire fiscal year. Three-month Treasury bill yields were confined to a
narrow range over the past twelve months. After bottoming at 4.84% in early June
of 1997, Treasury bill yields rose to a high of 5.47% during December of 1997 as
expectations for Fed tightening increased. Current yield levels imply that the
market is expecting no policy change by the Fed in the second or third quarter
of 1998. Strong economic growth and signs of incipient wage inflation are offset
by the Asian crisis and reduced financing needs by the Treasury. Accordingly,
the Fund will take advantage of current yield levels and maintain the average
maturity of the portfolio in a range of 20 to 40 days in anticipation of no
near-term change in policy by the Fed.
The Fund has produced competitive returns by focusing on credit research
and avoiding the use of risky derivatives. We intend to continue these
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 and substantial consolidation is
occurring in the financial services sector. 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 sectors.
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 3/31/98: $1.00 Per Share
3/31/97: $1.00 Per Share
Total Net Assets: $43.11 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
U.S. Government 28.4
Diversified Finance 19.0
Consumer Loan Finance 16.3
Captive Equipment Finance 13.9
Captive Auto Finance 9.7
Consumer Non-Durables 6.9
Other Assets & Liabilities 5.8
<PAGE>
<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 1.27% 1.20% 1.30% 1.27% 1.20% 1.30%
(unannualized)
1 Year 5.29 4.96 5.31 5.29 4.96 5.31
3 Year 5.25 5.01 5.40 16.60 15.78 17.09
Inception 4.86 4.65 5.15 23.32 22.22 24.81
(11/1/93)
</TABLE>
* As of 3/31/98
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE 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
3 MONTH U.S SIT MONEY
TREASURY BILL INDEX MARKET FUND
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (11/1/93) and held until 3/31/98 would
have grown to $12,332 in the Fund or $12,481 in the 3-Month U.S. Treasury Bill
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of Net Assets)
AS RATED BY MOODY'S, DUFF & PHELPS AND FITCH
First Tier Securities
100%
[PIE CHART]
First Tier Securities 100%
Second Tier Securities 0%
<PAGE>
SIT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED MARCH 31, 1998
- -----------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------
COMMERCIAL PAPER (89.6%) (2)
CAPITAL GOODS (3.3%)
1,400,000 Deere & Co., 5.53%, 4/9/98 $1,398,283
-----------
CAPTIVE AUTO FINANCE (9.7%)
Ford Motor Credit Corp.:
700,000 5.53%, 4/8/98 699,254
700,000 5.55%, 5/7/98 696,150
General Motors Acceptance Corp.:
235,000 5.52%, 4/6/98 234,822
530,000 5.55%, 5/13/98 526,599
650,000 5.58%, 6/12/98 642,837
Toyota Motor Credit Corp.:
440,000 5.56%, 5/21/98 436,639
450,000 5.56%, 6/2/98 445,737
500,000 5.57%, 6/15/98 494,271
-----------
4,176,309
-----------
CAPTIVE EQUIPMENT FINANCE (13.9%)
Caterpillar Finance, Inc.:
500,000 5.55%, 6/24/98 493,618
750,000 5.55%, 7/17/98 737,851
IBM Credit Corp.:
500,000 5.48%, 4/24/98 498,269
300,000 5.54%, 5/6/98 298,399
600,000 5.54%, 5/20/98 595,525
John Deere Capital Corp.:
500,000 5.57%, 4/10/98 499,307
400,000 5.58%, 4/13/98 399,261
500,000 5.55%, 6/1/98 495,349
600,000 Pitney Bowes Credit Corp.,
5.52%, 4/24/98 597,892
Xerox Credit Corp.:
1,000,000 5.50%, 4/23/98 996,685
400,000 5.52%, 6/11/98 395,701
-----------
6,007,857
-----------
CAPTIVE OIL FINANCE (3.1%)
Chevron Oil Finance:
400,000 5.47%, 4/3/98 399,879
550,000 5.53%, 4/29/98 547,656
400,000 5.52%, 6/8/98 395,875
-----------
1,343,410
-----------
CONSUMER LOAN FINANCE (16.3%)
American Express Credit Corp.:
1,120,000 5.54%, 4/22/98 1,116,413
300,000 5.55%, 5/15/98 297,987
320,000 American General Financial,
5.50%, 4/13/98 319,421
Beneficial Corp.:
645,000 5.49%, 4/17/98 643,441
325,000 5.55%, 4/27/98 323,716
470,000 5.53%, 5/5/98 467,567
1,065,000 Commercial Credit Corp.,
5.55%, 5/19/98 1,057,204
Household Finance Corp.:
465,000 5.51%, 4/15/98 464,013
300,000 5.55%, 5/6/98 298,393
661,000 5.55%, 5/29/98 655,164
Norwest Financial, Inc.:
300,000 5.51%, 4/6/98 299,773
750,000 5.48%, 4/21/98 747,737
350,000 5.52%, 5/12/98 347,820
-----------
7,038,649
-----------
CONSUMER NON-DURABLES (6.9%)
Coca Cola Co.:
340,000 5.45%, 4/7/98 339,693
900,000 5.49%, 4/20/98 897,411
266,000 5.55%, 5/11/98 264,374
Walt Disney Co.:
1,000,000 5.48%, 5/22/98 992,322
500,000 5.50%, 6/4/98 495,164
-----------
2,988,964
-----------
DIVERSIFIED FINANCE (19.0%)
Associates Corp. N.A.:
450,000 5.54%, 4/30/98 448,017
490,000 5.55%, 5/15/98 486,706
500,000 5.56%, 5/27/98 495,722
Avco Financial Services, Inc.:
1,000,000 5.50%, 4/28/98 995,897
300,000 5.59%, 5/14/98 298,018
CIT Group Holdings, Inc.:
500,000 5.49%, 4/3/98 499,849
266,000 5.49%, 4/7/98 265,759
215,000 5.55%, 4/16/98 214,506
<PAGE>
- -----------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------
400,000 5.53%, 6/3/98 $396,171
General Electric Capital Corp.:
300,000 5.52%, 4/16/98 299,316
500,000 5.57%, 5/4/98 497,470
500,000 5.58%, 5/8/98 497,163
500,000 5.58%, 6/9/98 494,720
General Electric Capital Services:
400,000 5.48%, 4/2/98 399,940
500,000 5.57%, 6/5/98 495,035
Transamerica Finance Corp.:
660,000 5.50%, 4/15/98 658,599
750,000 5.55%, 4/23/98 747,475
-----------
8,190,363
-----------
ENERGY (1.9%)
Texaco, Inc.:
500,000 5.48%, 4/1/98 500,000
300,000 5.50%, 4/20/98 299,137
-----------
799,137
-----------
INSURANCE (4.6%)
900,000 American Family Financial,
5.57%, 4/14/98 898,232
American General Corp.:
300,000 5.50%, 4/13/98 299,457
556,000 5.57%, 5/1/98 553,442
250,000 5.56%, 5/11/98 248,469
-----------
1,999,600
-----------
RETAIL (3.2%)
Sears Roebuck & Co.:
300,000 5.60%, 5/19/98 297,784
550,000 5.57%, 5/26/98 545,370
550,000 5.59%, 6/10/98 544,097
-----------
1,387,251
-----------
TECHNOLOGY/BUSINESS EQUIPMENT (3.2%)
International Business Machines Corp.:
350,000 5.55%, 5/11/98 347,861
450,000 5.56%, 5/18/98 446,769
600,000 5.54%, 5/28/98 594,793
-----------
1,389,423
-----------
UTILITIES (4.5%)
BellSouth Telecommunications, Inc.:
300,000 5.49%, 4/2/98 299,954
800,000 5.48%, 4/9/98 799,035
330,000 5.53%, 4/21/98 328,992
500,000 SBC Communications,
5.53%, 4/27/98 498,021
-----------
1,926,002
-----------
Total commercial paper
(cost: $38,645,248) 38,645,248
-----------
U.S. GOVERNMENT SECURITIES (28.4%) (2)
11,257,000 FHLB Disc. Note,
5.75%, 4/1/98 11,257,000
1,000,000 FHLMC Disc. Note,
5.48%, 4/30/98 995,618
-----------
(cost: $12,252,618) 12,252,618
-----------
Total investments in securities
(cost: $50,897,866) (6) $50,897,866
===========
9
See accompanying notes to portfolios of investments on page 41.
<PAGE>
SIT U.S. GOVERNMENT SECURITIES FUND REVIEW
YEAR ENDED MARCH 31, 1998
[PHOTO]
MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
BRYCE A, DOTY, CFA
PORTFOLIO MANAGER
The Sit U.S. Government Securities Fund provided investors a +9.70% return
for the past 12 months compared to a +9.38% return for its benchmark, the Lehman
Intermediate Government Bond Index. As of March 31, 1998, the Fund's 30-day SEC
yield was 5.61% and the Fund's 12-month distribution rate was 5.93%. Morningstar
rated the Fund #1 of 84 short-term bond funds in their latest Short-Term
Government Overview (1/23/98) in the Best 5-Year Return category. The Fund was
rated #2 for Highest 5-Year Morningstar Rating category for its combined low
risk and high return characteristics and #4 in the Lowest 5-Year Morningstar
Risk category.
The Fund's traditionally high income return was enhanced by significant
price appreciation from its longer duration U.S. Treasury and CMO holdings.
Interest rates declined over the past 12 months. Specifically, the yield on the
five-year maturity U.S. Treasury dropped -1.14% over the past 12 months.
Activity for the year involved investing cash flow in U.S. Treasuries and
agency pass-through securities as the Fund enjoyed growth of approximately $30
million. The U.S. Treasuries that were purchased early in the fiscal year had
long durations that appreciated the greatest in price of all the Fund's
holdings. The agency pass-throughs were purchased, particularly in the first
quarter of 1998, to take advantage of the widening yield spreads in mortgages
due to increased prepayment concerns. The pass-through securities that were
purchased are high coupon seasoned single family and mobile home loans that have
relatively stable prepayments and offer a high level of interest income. The
Fund's duration was maintained slightly longer than that of its benchmark, the
Lehman Intermediate Government Bond Index, for most of the past 12 months. Once
interest rates declined, the Fund shortened its duration to slightly less than
that of its benchmark.
We expect economic growth to moderate and continued low inflation over the
near term resulting in stable interest rates. This outlook adds increased
importance to the Fund's 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 3/31/98: $10.63 Per Share
3/31/97: $10.28 Per Share
Total Net Assets: $103.87 Million
30-Day SEC Yield: 5.61%
12-Month Distribution Rate: 5.93%
Average Maturity: 14.8 Years
Effective Duration: 2.7 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 57.0
U.S. Treasury 15.7
Collateralized Mortgage Obligations 12.3
FNMA Pass-Through 8.6
FHLMC Pass-Through 3.1
Closed-End Mutual Funds 0.7
Other Assets & Liabilities 2.6
<PAGE>
<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 1.39% 1.29% 1.51% 1.39% 1.29% 1.51%
(unannualized)
1 Year 9.70 11.46 9.38 9.70 11.46 9.38
5 Years 6.42 5.77 5.93 36.51 32.37 33.38
10 Years 7.86 7.72 7.96 113.13 110.27 115.03
Inception 8.22 7.70 8.06 135.29 123.35 131.68
(6/2/87)
</TABLE>
* As of 3/31/98
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN INTERMEDIATE
GOVERNMENT BOND INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER
ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
MORNINGSTAR'S PROPRIETARY RATINGS ARE OBTAINED FROM MORNINGSTAR, INC. AND
REFLECT HISTORICAL RISK ADJUSTED PERFORMANCE.
GROWTH OF $10,000
SIT U.S. GOV'T LEHMAN INTER. GOV'T
SECURITIES FUND BOND FUND
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (6/2/87) and held until 3/31/98 would
have grown to $23,529 in the Fund or $23,168 in the Lehman Intermediate
Government Bond Index assuming reinvestment of all dividends and capital gains.
ESTIMATED AVERAGE LIFE PROFILE
[BAR CHART]
The Adviser's estimates of the dollar weighted
average life of the portfolio's securities, which
may vary from their stated maturities.
YEARS
0-1 2.6%
1-5 80.2%
5-10 10.9%
10-20 3.8%
20+ 2.5%
<PAGE>
SIT U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED MARCH 31, 1998
- ----------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- ----------------------------------------------------------------------------
MORTGAGE PASS-THROUGH SECURITIES (68.7%) (2)
FEDERAL HOME LOAN MORTGAGE CORPORATION (3.1%):
99,313 8.50%, 1/1/17 $104,102
26,372 8.75%, 12/1/01 27,157
283,252 9.00%, 12/1/05 294,920
72,632 9.00%, 1/1/06 75,621
558,995 9.00%, 10/1/16 591,880
673,121 9.00%, 4/15 - 6/1/17 712,640
247,196 9.50%, 6/1 - 9/1/16 262,830
241,150 9.50%, 6/1 - 9/1/17 256,595
174,803 9.50%, 12/1/18 185,884
135,746 9.75%, 6/1/17 145,587
413,485 10.25%, 6/1/10 447,698
139,797 10.50%, 4/1 - 7/1/04 148,141
3,487 11.00%, 10/1/00 3,666
-----------
3,256,721
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (8.6%):
152,096 8.875%, 3/1/17 161,365
163,859 9.00%, 4/1/10 172,832
329,874 9.00%, 1/1/17 348,080
74,597 9.00%, 4/1/17 78,668
120,728 9.00%, 9/1/17 127,331
88,196 9.00%, 11/1/19 93,488
196,611 9.00%, 9/1/20 207,537
802,167 9.00%, 9/1 - 11/1/21 848,747
1,208,347 9.00%, 2/1/25 1,278,021
166,764 9.25%, 4/1/12 178,021
81,445 9.375%, 5/1/16 86,502
296,412 9.50%, 1/1/11 317,161
451,687 9.50%, 5/1/14 485,846
154,933 9.50%, 4/1/16 165,778
906,010 9.50%, 12/1/18 974,527
377,520 9.50%, 4/1/20 402,027
2,580,155 9.50%, 9/1/20 2,759,899
55,308 10.00%, 3/1/11 59,940
153,985 10.00%, 9/1/20 165,891
42,304 11.00%, 4/1/14 46,474
-----------
8,958,135
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (57.0%) (3):
149,950 7.50%, 3/15/07 156,153
390,153 7.50%, 5/15/16 403,264
37,928 8.00%, 7/15/03 39,652
206,276 8.00%, 10/15/12 213,716
1,582,019 8.00%, 5/15 - 6/15/16 1,641,557
316,810 8.25%, 2/15 - 6/15/02 329,111
203,238 8.25%, 1/15/12 211,152
531,408 8.25%, 8/15/15 552,550
351,807 8.50%, 12/15/11 367,528
155,520 8.50%, 4/15/15 160,915
859,571 8.50%, 9/15/16 897,804
805,109 8.50%, 1/15/17 840,901
182,069 8.75%, 7/15/02 191,642
176,056 8.75%, 5/15/03 185,396
675,983 8.75%, 5/15 - 11/15/06 712,597
269,900 8.75%, 2/15 - 3/15/07 281,836
182,676 8.75%, 11/15/09 190,856
602,360 8.75%, 6/15 - 12/15/11 629,708
1,405,552 8.75%, 6/15 - 8/15/19 1,486,280
142,804 9.00%, 10/15/04 150,885
315,367 9.00%, 4/15/06 333,269
246,556 9.00%, 10/15/07 258,070
438,054 9.00%, 10/15 - 12/15/08 468,717
146,404 9.00%, 11/15/09 153,433
1,970,929 9.00%, 5/15 - 10/15/11 2,074,260
148,775 9.00%, 1/15/12 155,805
2,339,568 9.00%, 4/20 - 12/20/16 2,487,757
4,895,501 9.00%, 1/15 - 12/15/17 5,266,327
1,768,431 9.00%, 4/15 - 10/15/18 1,882,167
1,619,236 9.00%, 10/15 - 11/15/19 1,730,115
2,452,960 9.00%, 1/15 - 5/15/20 2,623,621
1,840,614 9.00%, 1/15 - 11/15/21 1,970,147
129,608 9.00%, 6/15/22 137,974
50,208 9.00%, 10/15/27 53,722
79,445 9.25%, 4/15 - 9/15/01 83,459
298,982 9.25%, 3/15/05 317,147
190,978 9.25%, 11/15/10 204,705
362,354 9.25%, 11/15/11 381,243
204,376 9.25%, 4/15/12 215,001
122,260 9.50%, 1/15 - 3/15/05 129,296
185,014 9.50%, 1/15/06 197,141
2,869,788 9.50%, 6/15 - 11/15/09 3,105,180
1,010,406 9.50%, 1/15 - 8/15/10 1,073,367
575,880 9.50%, 1/15 - 3/15/11 608,282
1,077,550 9.50%, 4/15 - 12/15/16 1,157,149
1,297,497 9.50%, 1/15 - 12/15/17 1,404,034
1,050,527 9.50%, 5/15 - 12/15/18 1,132,202
508,541 9.50%, 8/15/19 547,461
2,111,495 9.50%, 1/15 - 10/15/20 2,275,493
204,211 9.50%, 1/15 - 8/15/21 221,303
96,478 9.75%, 3/15 - 10/15/99 98,493
46,832 9.75%, 5/15/01 49,197
153,116 9.75%, 11/15/02 163,101
127,374 9.75%, 7/15/03 135,604
42,855 9.75%, 3/15/04 45,661
<PAGE>
- ----------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- ----------------------------------------------------------------------------
349,136 9.75%, 8/15/05 $372,250
206,051 9.75%, 2/15/06 219,996
154,408 9.75%, 9/15/09 165,307
1,973,449 9.75%, 8/15 - 12/15/10 2,113,867
831,402 9.75%, 11/15 - 12/15/12 890,984
189,426 10.00%, 8/15/02 202,216
133,822 10.00%, 5/15/04 142,722
827,538 10.00%, 7/15/05 883,430
136,215 10.00%, 1/15/06 145,276
154,728 10.00%, 11/15/08 165,835
113,617 10.00%, 5/15 - 11/15/09 122,201
168,981 10.00%, 6/15 - 7/15/10 181,182
119,882 10.00%, 1/15/11 128,588
31,861 10.00%, 9/15/16 34,572
188,168 10.00%, 2/20/20 202,589
39,378 10.25%, 11/15/00 41,367
64,733 10.25%, 2/15 - 4/15/01 68,004
70,753 10.25%, 8/15/04 75,512
322,843 10.25%, 7/15/05 344,506
140,377 10.25%, 5/15/09 150,077
2,543,198 10.25%, 1/15 - 8/15/12 2,729,219
864,216 10.25%, 2/15 - 7/15/13 937,716
3,276 10.50%, 9/15/00 3,462
53,877 10.50%, 9/15/01 56,598
75,444 10.50%, 12/15/02 80,495
216,227 10.50%, 6/15/09 240,661
115,804 10.50%, 7/15/10 123,889
323,598 10.50%, 8/15 - 11/15/15 352,149
124,437 10.50%, 3/15 - 12/15/16 135,372
2,912 10.75%, 7/15 - 10/15/98 2,969
23,944 10.75%, 11/15/00 25,154
64,816 10.75%, 9/15/03 69,161
95,658 10.75%, 9/15/05 102,112
44,650 10.75%, 1/15/10 47,836
174,979 10.75%, 7/15 - 8/15/11 187,343
530,807 11.00%, 1/15 - 6/15/10 589,705
17,834 11.00%, 7/15/13 19,617
203 11.25%, 4/15 - 5/15/98 204
181,988 11.25%, 8/15 - 12/15/00 191,182
24,025 11.25%, 1/15/01 25,238
18,982 11.25%, 5/15/03 20,252
462,148 11.25%, 9/15 - 10/15/05 500,056
653,134 11.25%, 6/15 - 9/15/10 722,436
1,807,415 11.25%, 2/15 - 10/15/11 1,985,483
23,326 11.75%, 1/15/99 24,234
275,932 11.75%, 5/15 - 7/15/00 289,873
142,866 11.75%, 5/15 - 6/15/04 153,766
53,655 12.75%, 1/15/00 56,366
26,327 13.25%, 10/15/99 27,163
37,431 13.75%, 9/15/99 38,818
------------
59,172,416
------------
Total mortgage pass-through securities
(cost: $71,384,204) 71,387,272
------------
U.S. GOVERNMENT SECURITIES (15.7%) (2)
7,000,000 U.S. Treasury Note,
5.875%, 2/15/00 7,031,989
U.S. Treasury Coupon Strip:
4,000,000 6.925% effective yield, 11/15/04 2,750,640
7,500,000 5.95% effective yield, 2/15/09 3,974,399
9,000,000 U.S. Treasury Principal Strip,
7.08% effective yield, 2/15/19 2,568,599
------------
Total U.S. government securities
(cost: $15,703,723) 16,325,627
------------
CLOSED-END MUTUAL FUNDS (0.7%) (2)
110,700 American Gov't Income Portfolio 747,225
------------
(cost: $749,546)
COLLATERALIZED MORTGAGE OBLIGATIONS (12.3%) (2)
Federal Home Loan Mortgage Corporation:
213,600 1006-C, 9.15%, 10/15/20 226,922
1,000,000 6.50%, 11/15/21 990,963
Vendee Mortgage Trust:
3,000,000 Series 1996-2 1B, 6.75%, 9/15/09 3,017,630
7,300,000 Series 1992-2 1F, 7.00%, 2/15/18 7,442,660
1,000,000 Series 1992-1 2K, 7.75%, 5/15/08 1,063,944
------------
Total collateralized mortgage obligations
(cost: $12,446,139) 12,742,119
------------
SHORT-TERM SECURITIES (1.2%) (2)
1,277,514 Dreyfus Gov't Cash Management
Fund, 5. 1,277,514
------------
(cost: $1,277,514)
Total investments in securities
(cost: $101,561,126) (6) $102,479,757
============
See accompanying notes to portfolios of investments on page 41.
<PAGE>
SIT BOND FUND REVIEW
YEAR ENDED MARCH 31, 1998
[PHOTO]
MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
BRYCE A. DOTY, CFA
PORTFOLIO MANAGER
The Sit Bond Fund provided investors a +11.22% return for the past 12
months. The Fund's return ranked in the top 40% of the Lipper Intermediate
Investment Grade Bond Fund universe for the past 12 months (out of 207 funds)
and in the top 15% since inception on 12/1/93 (out of 105 funds).
U.S. Treasury yields fell substantially during the past six months
providing significant price appreciation in the Fund's longer duration U.S.
Treasury, asset-backed, and Real Estate Investment Trust (REIT) bond holdings.
The average return for those holdings was more than +13.00% for the past twelve
months, making them the highest return sectors in the Fund. Although the agency
pass-through sector produced high levels of interest income, it had the weakest
total return due to its relatively shorter duration.
Investment activity during the past twelve months initially involved
increasing the Fund's holdings of relatively high yielding agency pass-through
and corporate securities. Once yields had fallen substantially, the Fund
shortened its effective duration by selling longer maturity Treasuries and
purchasing shorter maturity Treasuries. Recent activity involved the completion
of a sector rotation to increase pass-through securities from a 32% weighting to
a 50% weighting. The Fund's remaining sector weightings were reduced on a
proportionate basis. This shift was made to take advantage of the widening yield
spreads in mortgages due to increased prepayment concerns. The pass-through
securities that were purchased are high coupon seasoned single family and mobile
home loans that have relatively stable prepayments in contrast to more recently
originated mortgage loans and offer a higher level of interest income.
We expect economic growth to moderate and continued low inflation over the
near term resulting in stable interest rates, thereby causing income to be the
key component of the Fund's total return.
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 3/31/98: $10.03 Per Share
3/31/97: $9.62 Per Share
Total Net Assets: $10.71 Million
30-Day SEC Yield: 5.43%
12-Month Distribution Rate: 6.35%
Average Maturity: 18.2 Years
Effective Duration: 3.9 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]
Government Agency Pass-Through Securities 50.0
Corporate Bonds & Notes 14.5
U.S. Treasury 14.0
Asset-Backed Securities 10.8
Collateralized Mortgage Obligations 3.7
Closed-End Mutual Funds 3.7
Trust Preferred Securities 1.4
Other Assets & Liabilities 1.9
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
------------------------------------------ -----------------------------------------
Lipper Inter. Lehman Lipper Inter. Lehman
Bond Investment Grade Aggregate Bond Investment Grade Aggregate
Fund Bond Fund Avg. Bond Index Fund Bond Fund Avg. Bond Index
------------------------------------------ -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 1.18% 1.52% 1.56% 1.18% 1.52% 1.56%
(unannualized)
1 Year 11.22 10.78 11.99 11.22 10.78 11.99
3 Year 8.96 8.37 9.18 29.38 27.27 30.16
Inception 6.91 6.06 6.89 33.56 29.04 33.45
(12/1/93)
</TABLE>
* As of 3/31/98
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN 5-YEAR MUNICIPAL
BOND INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL
SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
SIT BOND FUND LEHMAN AGGREGATE
BOND INDEX
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/1/93) and held until 3/31/98 would
have grown to $13,356 in the Fund or $13,345 in the Lehman Aggregate Bond Index
assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of Net Assets)
LOWER OF MOODY'S OR S&P USED.
[PIE CHART]
Government Agency Backed Securities & CMO's 53.7%
AAA 10.8%
AA 1.3%
A 13.7%
BBB 4.6%
Other Assets & Liabilities 1.9%
U.S. Government 14.0%
<PAGE>
SIT BOND FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED MARCH 31, 1998
- --------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- --------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (14.0%) (2)
U.S. Treasury Strip:
1,400,000 5.61% effective yield, 5/15/04 $991,536
950,000 5.95% effective yield,
2/15/09 503,424
-----------
Total U.S. government securities 1,494,960
-----------
(cost: $1,501,682)
ASSET-BACKED SECURITIES (10.8%) (2)
Advanta Mortgage Loan Trust:
200,000 1995-3 A5, 7.37%, 2/25/27 205,670
250,000 1996-1 A7, 7.07%, 3/25/27 257,264
75,000 Cityscape Home Equity Loan Trust,
1996-3 A8, 7.65%, 9/25/25 77,190
249,998 ContiMortgage Home Equity Loan Trust,
1996-1 A7, 7.00%, 3/15/27 256,500
100,000 EQCC Home Equity Loan Trust,
Series 1996-1, 6.93%, 3/15/27 99,421
100,000 EquiVantage, 1996-3 A3,
7.70%, 9/25/27 102,860
75,000 Green Tree Corp., Series 1995-5,
7.25%, 9/15/26 77,215
75,000 Money Store Home Equity Mortgage,
7.265%, 7/15/38 75,890
-----------
Total asset-backed securities 1,152,010
-----------
(cost: $1,105,452)
CORPORATE BONDS & NOTES (14.5%) (2)
400,000 American Express Credit Co.,
6.25%, 8/10/05 401,024
50,000 AT & T, 8.625%, 12/01/31 55,000
250,000 Ford Motor Credit Corp.,
9.14%, 12/30/14 282,188
50,000 Ford Motor Co., 8.875%, 11/15/22 55,063
300,000 Security Capital Indl. Trust,
8.65%, 5/15/16 339,375
100,000 Summit Properties, Inc.,
7.20%, 8/15/07 100,625
72,000 Toys R Us, Inc., 8.25%, 2/1/17 74,430
50,000 Trinet Corp. Realty Trust.,
7.70%, 7/15/17 52,000
175,000 Washington Mutual Capital,
8.375%, 6/1/27 189,875
-----------
Total corporate bonds & notes 1,549,580
-----------
(cost: $1,499,940)
MORTGAGE PASS-THROUGH SECURITIES (50.0%) (2)(3)
Federal Home Loan Mortgage Corp.:
243,800 9.00%, 12/1/17 257,974
39,799 10.25%, 9/1/09 43,093
33,943 10.75%, 3/1/11 37,072
Federal National Mortgage Association:
264,678 9.00%, 12/1/19 279,270
127,935 11.00%, 11/1/20 140,918
Government National Mortgage Association:
14,216 8.75%, 11/15/01 14,934
170,624 8.75%, 5/15/19 180,295
75,185 9.00%, 10/15/06 79,446
86,076 9.00%, 9/15/08 91,647
109,307 9.00%, 4/15/09 116,301
85,395 9.00%, 4/15/09 90,897
139,524 9.00%, 4/15/09 148,505
9,037 9.00%, 8/15/11 9,468
34,031 9.00%, 12/15/16 36,186
203,127 9.00%, 01/15/17 213,399
96,947 9.00%, 8/20/19 102,498
287,731 9.00%, 10/20/19 309,667
11,716 9.00%, 11/15/19 12,456
81,575 9.00%, 11/15/19 86,839
96,031 9.00%, 12/15/19 102,293
109,098 9.00%, 3/15/21 116,141
80,756 9.00%, 6/15/21 85,989
367,090 9.00%, 5/20/21 390,568
97,699 9.00%, 6/20/21 103,266
167,381 9.00%, 8/15/21 179,098
117,027 9.00%, 12/20/21 123,724
28,296 9.25%, 5/15/01 29,726
22,781 9.50%, 3/15/03 24,265
122,413 9.50%, 11/15/05 130,400
106,271 9.50%, 10/15/09 114,436
53,297 9.50%, 2/15/11 56,272
118,131 9.50%, 4/15/16 (5) 128,874
188,210 9.50%, 5/20/16 201,504
46,939 9.50%, 7/15/16 50,541
100,136 9.50%, 9/15/17 (5) 109,242
99,683 9.50%, 9/15/17 (5) 108,748
18,459 9.50%, 9/15/18 19,875
108,216 9.50%, 3/15/19 116,533
13,887 9.50%, 4/15/20 14,955
94,551 9.50%, 8/15/20 101,779
58,651 9.50%, 9/15/20 63,120
50,801 9.50%, 11/15/21 55,337
<PAGE>
- --------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- --------------------------------------------------------------------------
4,142 9.75%, 8/15/02 $4,413
31,492 10.00%, 8/15/02 33,592
120,057 10.00%, 6/15/19 129,877
19,711 10.25%, 4/15/01 20,707
31,475 10.25%, 4/15/01 33,065
8,337 10.25%, 4/15/12 8,923
10,075 10.25%, 5/15/12 10,789
12,883 10.25%, 5/15/12 13,806
71,277 10.25%, 5/15/12 76,321
10,937 10.25%, 6/15/12 11,715
12,863 10.25%, 6/15/12 13,784
34,103 10.25%, 7/15/12 36,531
12,561 10.25%, 7/15/12 13,460
58,911 10.25%, 8/15/12 63,078
40,629 10.25%, 6/15/13 43,548
23,982 10.50%, 7/15/00 25,193
5,305 10.75%, 8/15/98 5,414
40,424 10.75%, 1/15/01 42,466
22,355 11.25%, 10/15/00 23,484
49,372 11.75%, 7/15/00 51,866
16,912 11.75%, 7/15/01 17,766
-----------
Total mortgage pass-through securities 5,357,349
-----------
(cost: $5,377,159)
COLLATERALIZED MORTGAGE OBLIGATIONS (3.7%) (2)
150,000 Federal Home Loan Mortgage Corp.,
(Remic) Series 1173,
6.50%, 11/15/21 148,644
250,000 Federal National Mortgage Association,
1994-38, 6.65%, 12/25/23 250,694
-----------
Total collateralized mortgage obligations 399,338
-----------
(cost: $384,851)
CLOSED-END MUTUAL FUNDS (3.7%) (2)
13,000 American Opportunity Income Fund 84,500
6,299 American Strategic Income Portfolio (I) 75,194
9,490 American Strategic Income
Portfolio (II) 113,880
10,309 American Strategic Income
Portfolio (III) 119,198
-----------
Total closed-end mutual funds 392,772
-----------
(cost: $364,968)
TRUST PREFERRED SECURITIES (1.4%) (2)
4,000 Allstate Financing I, 7.95%, 12/1/26 102,750
50,000 Allstate Financing II, 7.83%, 12/1/45 50,544
-----------
Total trust preferred securities 153,294
-----------
(cost: $149,320)
SHORT-TERM SECURITIES (0.6%) (2)
69,379 Dreyfus Cash Management
Fund, 5.46% 69,379
-----------
(cost: $69,379)
Total investments in securities
(cost: $10,452,751) (6) $10,568,682
===========
See accompanying notes to portfolios of investments on page 41.
<PAGE>
SIT TAX-FREE INCOME FUND REVIEW
YEAR ENDED MARCH 31, 1998
[PHOTO]
MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
DEBRA A. SIT, CFA
PORTFOLIO MANAGER
The Fund provided investors a total return of +10.69% for the year ended
March 31, 1998. The Fund's return ranked #98 of 237 general municipal funds
tracked by Lipper Analytical Services for the year. The Fund's returns ranked
#31 of 190 funds for the three year period, #7 of 120 funds for the five year
period and #45 of 76 funds since its inception on September 29, 1988. The Fund's
share price was $10.41 on March 31, 1998 which compares with $9.98 one year ago,
and reached an all time high of $10.48 in early January 1998. The Fund's 30-day
SEC yield was 4.70% on March 31, 1998, compared with 5.47% one year ago. The
Fund's 12-month distribution rate was 5.30% on March 31, 1998, compared with
5.64% one year ago.
Fund net assets increased to $519.6 million on March 31, 1998 from $342.5
million one year ago. During the year, a number of the Fund's holdings,
primarily in the hospital and transportation sectors, were prerefunded and then
sold so that proceeds could be reinvested in higher yielding securities. Over
the year, health care holdings increased from 19.6% to 23.5% and other revenue
bonds increased from 4.2% to 6.0%. Closed-end municipal bond funds were
increased to 5.8% due to their attractive relative yields. Purchases were also
made in other sectors but weightings were diluted by cash flow. Single family
decreased from 17.3% to 15.5% and industrial revenue decreased from 5.3% to
4.3%. Transportation decreased from 6.8% to 2.2% as prerefunded bonds were sold.
Securities rated "A" or better continued to increase and now comprise
approximately two-thirds of the portfolio, compared to 61.7% one year ago. The
Fund's implied duration lengthened from 5.0 to 5.7 years, reflecting efforts to
increase call protection in the declining interest environment. The Fund's
average maturity has remained at approximately 18 years.
The Fund's performance was driven by its emphasis on securities which
provide higher coupon income and its hospital holdings, as relative yield
spreads continued to narrow. The Fund also benefited from a number of issues
that were prerefunded during the year. We expect economic activity to moderate
in the second half of the calendar year and interest rates to remain relatively
stable. Thus, we remain focused on securities that provide incremental yield as
interest income will likely be the primary source of return in this environment.
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 3/31/98: $10.41 Per Share
3/31/97: $9.98 Per Share
Total Net Assets: $519.58 Million
30-Day SEC Yield: 4.70%
Tax Equivalent Yield: 7.78% (1)
12-Month Distribution Rate: 5.30%
Average Maturity: 18.7 Years
Duration to Estimated Avg. Life: 8.0 Years (2)
Implied Duration: 5.7 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 29.4
Hospital/Health Care Revenue 23.5
Single Family Mortgage Revenue 15.5
Other Revenue 6.0
Closed-End Mutual Funds 5.8
Industrial Revenue/Pollution Control 4.3
Escrowed to Maturity/Pre-Refund 3.6
Transportation 2.2
Education/Student Loan 1.8
Municipal Lease Rental 1.4
Public Facilities 0.8
General Obligation 0.8
Sales Tax Revenue 0.6
Utility 0.5
Other Assets & Liabilities 3.8
<PAGE>
<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 1.45% 0.91% 1.16% 1.45% 0.91% 1.16%
(unannualized)
1 Year 10.69 10.61 7.64 10.69 10.61 7.64
3 Years 8.41 7.55 6.36 27.41 24.39 20.33
5 Years 7.24 6.19 5.54 41.84 35.02 30.96
Inception 7.79 7.91 7.03 103.98 106.14 90.72
(9/29/88)
</TABLE>
* As of 3/31/98
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN 5-YEAR MUNICIPAL
BOND INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL
SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
(2) Duration is a measure which reflects estimated price sensitivity to a given
change in interest rates. For example, for an interest rate change of 1%, a
portfolio with a duration of 5 years would be expected to experience a price
change of 5%. Estimated average life duration is based on current interest rates
and the Adviser's assumptions regarding the expected average life of individual
securities held in the portfolio. Implied duration is calculated based on
historical price changes of securities held by the Fund. The Adviser believes
that the portfolio's implied duration is a more accurate estimate of price
sensitivity provided interest rates remain within their historical range. If
interest rates exceed the historical range, the estimated average life duration
may be a more accurate estimate of price sensitivity.
GROWTH OF $10,000
SIT TAX FREE LEHMAN 5-YEAR
INCOME FUND MUNI. BOND FUND
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (9/29/88) and held until 3/31/98 would
have grown to $20,398 in the Fund or $19,072 in the Lehman 5-Year Municipal Bond
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of Net Assets)
LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED.
[PIE CHART]
A 29.9%
AA 12.9%
AAA 21.2%
Other Assets & Liabilities 3.8%
BBB 32.2%
<PAGE>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (90.6%) (2)
ALASKA (1.1%)
Alaska HFC:
7,000,000 Gen. Mtg. Rev. 1997 Series A, Zero Coupon, 6.15% Effective Yield on Purchase Date, 12/1/17 $2,180,500
2,150,000 Hsg. Dev. Series 1997A (Multifamily pooled loans), 5.65%, 12/1/20 2,188,270
5,680,000 Mtg. Rev. 1996 Series A, Zero Coupon, 6.45% Effective Yield on Purchase Date, 12/1/27 921,466
330,000 AK Industrial Dev. & Export Auth. Rev. Refunding Revolving Fund Series 1993A,5.60%, 4/1/03 345,041
-----------
5,635,277
-----------
ARIZONA (1.6%)
Maricopa Co. Industrial Dev. Auth. Multifamily Hsg. Rev.:
3,000,000 Series 1995A, 6.50%, 10/1/25 3,169,680
560,000 Series 1995B, 7.15%, 10/1/25 578,295
1,400,000 Senior Series 1996A Escrowed to Maturity (Advantage Pt. Arrowood Village), 6.50%, 7/1/16 1,585,794
2,000,000 Series 1997A (Mercy Bond Prop. AZ-I Proj.), 6.25%, 7/1/27 2,069,100
325,000 Series 1997B (Mercy Bond Prop. AZ-I Proj.), 7.25%, 1/1/17 335,914
1,070,000 Valley HDC Phoenix Hsg. Rev. 1979 (Roosevelt Plaza) (Section 8), 8.00%, 10/1/20 1,083,899
-----------
8,822,682
-----------
ARKANSAS (0.9%)
Drew Co. Public Fac. Bd. Single Family Mtg. Rev. Refunding:
153,058 Series 1993B, 7.75%, 8/1/11 163,775
310,167 Series 1993-A2 (FNMA backed), 7.90%, 8/1/11 334,832
225,319 Jacksonville Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1993B,7.75%, 1/1/11 244,755
206,838 Lonoke Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding 1993B, 7.375%, 4/1/11 223,452
1,975,000 Maumelle HDC First Lien Rev. Refunding 1992 Series A (Section 8), 7.875%, 7/1/09 2,121,762
1,490,000 Saline Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1992, 7.875%, 3/1/11 1,594,658
-----------
4,683,234
-----------
CALIFORNIA (4.2%)
1,500,000 ABAG Fin. Auth. Certificates of Participation Refunding Series 1997A
(American Baptist Homes of the West Proj.), 5.85%, 10/1/27 1,543,020
1,000,000 Bell Cmnty. Hsg. Auth. Rev. Series 1995A (Mobilehomes Park Acquisition Proj.), 6.40%, 10/1/15 1,072,790
1,000,000 Chula Vista Redev. Agency Refunding Tax Allocation Senior Series 1994A (Bayfront-Town
Center Redev. Proj.), 7.625%, 9/1/24 1,164,630
Corona Single Family Mtg Rev.:
1,200,000 Senior Series 1996A, 6.05%, 5/1/27 1,268,136
800,000 Subordinate Series 1996B, 6.30%, 11/1/28 850,784
Foothill / Eastern Transportation Corridor Agy. Toll Rd. Rev Series 1995A Sr. Lien:
5,000,000 Zero Coupon, 6.04% Effective Yield on Purchase Date, 1/1/15 2,011,750
18,770,000 Zero Coupon, 6.45% Effective Yield on Purchase Date, 1/1/26 4,097,679
2,000,000 Zero Coupon Convertible Bond, 6.10% Effective Yield on Purchase Date, 1/1/07 1,482,260
5,000,000 Zero Coupon Convertible Bond, 7.10% Effective Yield on Purchase Date, 1/1/11 3,910,650
2,000,000 Glendale Hosp. Rev. Refunding Series 1994 (Verdugo Hills Hosp.), 8.00%, 1/1/12 2,395,400
15,000 Sacramento Public Television Fac. Rev. 1989 Series A Prerefunded (KVIE, Inc.) (LOC Wells Fargo
& Co.), 7.50%, 7/1/20 15,332
1,000,000 San Bernardino Assoc. Communities Fin. Auth. Certificates of Participation Series 1997A
(Granada Cmty. Hosp. Proj.), 6.25%, 5/1/09 1,065,420
990,000 Upland Hsg. Auth. Multifamily Rev. 1990 Issue A, 7.85%, 7/1/20 1,021,373
-----------
21,899,224
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COLORADO (2.0%)
1,000,000 Adams Co. HA Mtg. Rev. Series 1996 (Village of Greenbriar Proj.), 6.75%, 7/1/21 $1,070,920
550,000 Aurora Single Family Mtg. Rev. Refunding Series 1993B, 7.50%, 5/1/11 582,813
CO HFA Single Family Program Senior:
2,200,000 Series 1996B-2, 7.45%, 11/1/27 2,517,856
1,000,000 Series 1997B-3, 6.80%, 11/1/28 1,119,750
3,000,000 Jefferson Co. School District No. R-1 G.O. Series 1998A (FGIC insured), 5.125%, 12/15/15 3,001,440
260,000 LaPlata Co. Southwestern CO Single Family Mtg. Participation Rev. Refunding 1991 Series A,
7.375%, 9/1/11 272,470
305,000 Thornton Single Family Mtg. Rev. Refunding 1992 Series A, 8.05%, 8/1/09 326,280
370,000 Vail Single Family Mtg. Rev. Refunding Series 1992, 8.125%, 6/1/10 400,273
1,195,000 Westminster Multifamily Hsg. Rev. Refunding Series 1992 (Ironwood at the Ranch Proj.),
7.45%, 12/1/10 1,241,019
-----------
10,532,821
-----------
CONNECTICUT (2.2%)
CT Dev. Auth. First Mtg. Gross Rev. Hlth. Care. Proj. Series 1997 (Church Homes Inc. Avery Proj.):
640,000 5.70%, 4/1/12 658,176
3,000,000 5.80%, 4/1/21 3,084,780
525,000 CT Resource Recovery Auth. Series 1985A (Bridgeport Resco Proj.), 7.625%, 1/1/09 543,375
Waterbury HA Mtg. Rev. Refunding (FHA/AMBAC insured):
3,000,000 Series 1998A (NSA-I Sec. 8 Proj.), 5.45%, 7/1/23 3,008,550
4,000,000 Series 1998C (NSA-II Sec. 8 Proj.), 5.45%, 7/1/23 4,010,360
-----------
11,305,241
-----------
DELAWARE (0.3%)
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 1,366,862
-----------
DISTRICT OF COLUMBIA (0.3%)
1,500,000 District of Columbia HFA Multifamily Hsg. Refunding Rev. Series 1992C (FHA
insured) (Chastleton Dev.), 6.95%, 7/1/27 1,577,955
-----------
GEORGIA (1.0%)
800,000 Cobb Co. HA Multifamily Rev. Refunding Series 1992A (Signature Place Project), 6.875%, 10/1/17 836,784
1,295,000 Dekalb Co. Multifamily Hsg. Rev. Series 1998 (Spring Chase Apts. Proj.)(FNMA backed),
5.25%, 11/1/19 1,296,088
Dekalb Co. Hsg. Auth. Multifamily Hsg. Rev. (Regency Woods I & II):
1,700,000 Senior Series 1996A, 6.375%, 1/1/11 1,786,037
1,365,000 Subordinate Series 1996C, 7.25%, 1/1/26 1,394,416
-----------
5,313,325
-----------
HAWAII (0.8%)
1,170,000 Hawaii Dept. of Budget and Finance Special Purpose Rev. Series 1998,
(Wilcox Memorial Hosp. Proj.), 5.25%, 7/1/13 (5) 1,159,002
1,400,000 Hawaii St. Hsg. Fin. & Dev. Corp. Single Family Mtg. Purchase Series 1997B, 5.45%, 7/1/17 (5) 1,422,246
1,235,000 Honolulu Mtg. Rev. Ref. Series 1996A (Hale-Pauahi Proj.)(FHA insured)
(MBIA insured), 6.80%, 7/1/28 1,322,165
-----------
3,903,413
-----------
</TABLE>
See accompanying notes to portfolios of investments on page 41.
<PAGE>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ILLINOIS (10.3%)
2,465,000 Chicago Metropolitan HDC Mtg. Rev. Refunding Series 1992A
(FHA insured) (Section 8), 6.70%, 7/1/12 $2,609,819
3,240,000 Chicago Res. Mtg. Rev. Refunding Series 1992B (MBIA insured) Zero Coupon, 7.30% Effective
Yield on Purchase Date, 10/1/09 1,483,402
2,000,000 Collinsville (City of) Madison Co. Industrial Dev. Rev. Refunding (Drury Inn-Collinsville Proj.)
Series 1993, 6.00%, 11/1/04 2,102,680
1,790,000 IL DFA Elderly Hsg. Rev. Refunding Series 1995A (Pontiac Towers Proj.)
(Section 8), 6.65%, 10/1/09 1,895,968
IL DFA Refunding & New Money Rev. (Cmty. Rehab. Providers Fac. Acquisition Program):
9,575,000 Series 1997A, 6.00%, 7/1/15 9,971,692
1,000,000 Series 1997A, 6.05%, 7/1/19 1,045,040
1,200,000 Series 1997C, 5.65%, 7/1/19 1,208,328
1,250,000 IL Educ. Fac. Auth. Rev. Series 1997 (Augustana College)(Connie Lee insured), 5.875%, 10/1/17 1,313,587
3,000,000 IL HDA Elderly Hsg. Rev. Series 1992C (Village Ctr.) (Section 8), 6.85%, 3/1/20 3,163,230
IL HDA Multifamily Hsg. Rev.:
Refunding 1992 Series A (Section 8):
2,150,000 6.65%, 7/1/04 2,305,273
1,545,000 7.00%, 7/1/10 1,676,974
Refunding 1991 Series C (Section 8):
260,000 7.35%, 7/1/11 274,401
100,000 7.40%, 7/1/23 104,989
IL Hlth. Fac. Auth. Rev.:
Refunding Series 1993 (Lutheran Social Svcs. IL):
610,000 5.70%, 8/15/00 623,780
475,000 5.80%, 8/15/01 489,450
525,000 6.00%, 8/15/03 549,182
545,000 6.10%, 8/15/04 574,294
1,350,000 Refunding Series 1992 (Mercy Ctr. for Hlth. Care Svcs.), 6.625%, 10/1/12 1,448,024
5,740,000 Refunding Series 1992 (Galesburg Cottage Hosp.) (Asset Guaranty insured), 6.25%, 5/1/11 6,172,853
1,000,000 Refunding Series 1994 (Passavant Memorial Area Hospital Assn.), 5.95%, 10/1/11 1,077,150
1,000,000 Refunding Series 1994 (Friendship Village Schamburg), 6.25%, 12/1/04 1,068,090
Series 1994-1996 (St. Elizabeth's Hosp. of Chicago, Inc.):
1,000,000 Series 1994 Prerefunded, 7.625%, 7/1/10 1,190,910
700,000 Series 1996, 6.25%, 7/1/10 739,578
1,215,000 Series 1996, 6.25%, 7/1/16 1,279,711
5,500,000 Series 1997A (Friendship Village of Schaumburg Proj.), 5.25%, 12/1/18 5,344,240
2,000,000 Roselle Multifamily Hsg. Rev. Refunding Series 1994A (GNMA collateralized)
(Waterbury Apts.) (FHA insured), 7.00%, 1/1/25 2,159,440
1,140,000 Springfield Community Improvement Rev. 1985 (Garden Court Proj. - FHA insured)
(Section 8) (MBIA insured), 10.50%, 4/1/26 1,236,569
995,000 Urbana Res. Mtg. Rev. Refunding 1991 Series B Zero Coupon, 7.39% Effective Yield on
Purchase Date, 3/1/07 530,464
-----------
53,639,118
-----------
INDIANA (8.6%)
1,000,000 East Chicago Multi School Bldg. Corp. First Mtg. Series 1996, 6.50%, 1/15/16 1,101,750
1,800,000 Elkhart Co. Hosp. Auth. Rev. Series 1992 (Goshen Hosp. Proj.), 7.25%, 7/1/05 1,980,144
2,165,000 Elkhart HFC Multifamily Mtg. Rev. Series 1996A (Section 8 Assisted
Proj.) (Stratford Commons), 6.00%, 11/1/10 2,244,412
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
IN Bond Bank Special Prgm.:
1,095,000 Series 1993B (Gary Sanitary Dist.), 6.15%, 2/1/08 $1,187,790
2,130,000 Series 1997C (Pittsboro Wastewater Treatment Plant Proj.), 5.70%, 8/1/17 2,212,772
1,500,000 Series 1997B (Hendrick's Co. Redev. Auth.-Pittsboro Proj.)(LOC Canadian Imperial Bank),
6.20%, 2/1/23 1,617,765
2,850,000 IN DFA Educ. Fac. Rev. Series 1997 (Park Tudor Foundation Proj.), 6.00%, 6/1/22 3,013,818
IN Educ. Fac. Auth. Educ. Fac. Rev. Series 1992 (Manchester College Proj.):
250,000 6.50%, 10/1/05 269,895
305,000 6.60%, 10/1/06 329,205
175,000 6.85%, 10/1/18 188,865
IN Hlth. Fac. Fin. Auth. Hosp. Rev.:
Series 1991 Prerefunded (Jackson Co. Schneck Mem. Hosp. Proj.):
1,200,000 7.50%, 2/15/05 1,358,664
2,000,000 7.50%, 2/15/22 2,264,440
Series 1992 (Fayette Mem. Hosp. Proj.):
250,000 7.00%, 10/1/02 266,038
295,000 7.10%, 10/1/03 317,924
315,000 7.20%, 10/1/04 342,131
340,000 7.25%, 10/1/05 370,824
365,000 7.25%, 10/1/06 397,328
390,000 7.30%, 10/1/07 425,311
420,000 7.30%, 10/1/08 458,027
Series 1992 Prerefunded (Floyd Mem. Hosp. Proj.):
460,000 6.75%, 2/15/06 508,797
595,000 6.80%, 2/15/07 659,082
2,000,000 Series 1992 (Mem. Hosp. & Hlth. Care Ctr. Proj.), 7.35%, 3/1/12 2,168,000
1,500,000 Refunding Series 1998 (Floyd Mem. Hosp. & Hlth. Svcs. Proj.), 5.40%, 2/15/18 (5) 1,494,465
3,750,000 Refunding Series 1998 (Jackson Co. Schneck Proj.), 5.125%, 2/15/17 3,609,338
810,000 IN HFA Home Mtg. Prog. Series 1990F-1 (GNMA collateralized), 7.50%, 1/1/16 860,188
900,000 IN HFA Single Family Mtg. Rev. Series 1997C-2 (GNMA/FNMA collateralized), 5.70%, 7/1/16 934,299
2,750,000 Indianapolis Econ. Dev. Refunding & Imprv. Rev. Series 1992 (Natl. Benevolent
Assn.-Robin Run Village Proj.), 7.25%, 10/1/10 3,017,849
Indianapolis Econ. Dev. Rev. (Willowbrook Apts. Proj.):
2,000,000 Senior Series 1996A, 6.50%, 7/1/16 2,098,940
1,355,000 Subordinate Series 1996C, 7.125%, 7/1/26 1,403,103
4,000,000 La Porte Co. Hosp. Auth. Fac. Rev. Refunding Series 1993, 6.00%, 3/1/23 4,186,080
855,000 Marion HC Mtg. Rev. Refunding Series 1994 (Hilltop Towers Project)
(Section 8), 6.90%, 10/1/10 907,223
2,250,000 St. Joseph Co. Econ. Dev. Rev. Refunding Series 1997 (Madison Center, Inc. Proj.),
5.45%, 2/15/17 2,247,210
-----------
44,441,677
-----------
IOWA (3.5%)
1,500,000 IA Fin. Auth. SF Mtg. Series 1997A, 5.80%, 7/1/16 1,559,475
1,000,000 IA Fin. Auth. Hlth. Care Fac. Rev. Series 1997 (Genesis Medical Ctr. Proj.) (MBIA-Insured),
5.20%, 7/1/22 977,010
5,000,000 IA Fin. Auth. Hosp. Fac. Rev. Series 1998A (Iowa Health System Proj.) (MBIA insured),
5.125%, 7/1/20 (5) 4,841,600
1,500,000 IA Fin. Auth. Small Business Dev. Refunding Rev. Series 1992 (University Civic Ctr. Court
Assn. Proj.), 7.40%, 3/1/17 1,651,425
</TABLE>
See accompanying notes to portfolios of investments on page 41.
<PAGE>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
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QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
IA Fin. Auth. Hlth. Care Fac. Rev. Series 1997 (Natl. Benevolent Assn.- Ramsey Home Proj.):
1,430,000 6.15%, 5/1/17 $1,511,767
2,420,000 6.35%, 5/1/27 2,608,687
1,130,000 IA Fin. Auth. Multifamily Hsg. Rev. Refunding Series 1997A (Kingswood Apts. Proj.)
(GNMA-collateralized), 6.15%, 5/1/32 1,182,647
1,500,000 Ottumwa Hosp. Rev. Refunding Series 1993 (Ottumwa Regional Hlth. Ctr.), 6.00%, 10/1/10 1,574,700
Polk Co. Hlth. Svcs. Residential Care Fac. Rev. Series 1991:
460,000 7.25%, 2/1/06 499,698
1,500,000 7.50%, 2/1/16 1,640,985
-----------
18,047,994
-----------
KANSAS (0.2%)
275,000 Geary Co. Single Family Mtg. Rev. 1980 (FGIC insured), 10.75%, 4/1/12 285,560
3,260,000 Kansas City Single Family Mtg. Rev. Series 1982A Zero Coupon, 11.23% Effective Yield on
Purchase Date, 11/1/14 549,505
2,170,000 Olathe & Labette Cos. Mtg. Loan Rev. 1991 Series B (GNMA collateralized) Zero Coupon, 7.56%
Effective Yield on Purchase Date, 2/1/23 366,188
-----------
1,201,253
-----------
KENTUCKY (0.5%)
1,500,000 Jefferson Co. First Mtg. Rev. Series 1994 (Christian Church Homes Proj.), 6.00%, 11/15/09 1,586,700
1,000,000 Pike Co. Mtg. Rev. Refunding Series 1997 ) (Phelps Regional Hlth. Proj.)(GNMA collateralized),
5.65%, 9/20/27 1,028,040
-----------
2,614,740
-----------
LOUISIANA (4.3%)
700,000 Calcasieu Parish Industrial Dev. Rev. 1975 (Cities Service Co. Proj.), 7.80%, 12/1/05 703,451
440,000 Calcasieu Parish Public Trust Auth. Mtg. Rev. Refunding 1992 Series B, 6.875%, 11/1/12 468,939
5,650,000 Denham Springs/Livingston HMFA Residual Rev. Series 1992C Zero Coupon,
7.65% Effective Yield on Purchase Date, 7/10/14 1,723,532
East Baton Rouge MFA Single Family Mtg. Rev. Refunding:
16,045,000 Series 1997C-1 Senior Bonds, Zero Coupon, 5.85% Effective Yield on Purchase Date, 10/1/30 2,455,366
1,415,000 Series 1997C-3 Subordinate Bonds, 5.65%, 10/1/18 1,438,942
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 1,231,080
1,215,000 LA HFA Residual Lien Refunding Mtg. Rev. Series 1992, 7.375%, 9/1/13 1,290,792
293,216 LA PFA Single Family Mtg. Purchase Rev. Series 1992 (Lafayette PTFA Mtg. Acquisition),
7.50%, 10/1/15 315,225
LA PFA Rev. Multifamily Hsg. Rev.:
1,290,000 Series 1991 (VOA Hsg. Corp.) (Asset Guaranty insured), 7.25%, 11/1/04 1,392,426
3,000,000 Series 1991 (VOA Natl. Hsg. Corp.) (Asset Guaranty insured), 7.75%, 11/1/16 3,240,570
LA PFA Single Family Mtg. Rev. Refunding:
1,000,000 Series 1997B (GNMA collateralized), 5.625%, 8/1/17 1,026,490
3,080,000 Series 1997B (GNMA collateralized), 5.75%, 8/1/31 3,167,595
835,000 Series Sr. Lien 1994A (VOA Willows Affordable Hsg. Corp.), 7.00%, 6/1/24 925,264
965,000 Monroe - McKeen Plaza HDC Multifamily Hsg. Rev. Refunding Series
1994A (Murray Plaza Apts.) (Section 8), 6.80%, 2/1/12 1,017,525
1,550,000 Orleans Levee Dist. Improvement Serial and Term Receipts Series 1995A (FSA insured),
5.95%, 11/1/14 1,684,912
-----------
22,082,109
-----------
</TABLE>
<PAGE>
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MASSACHUSETTS (0.6%)
1,000,000 Boston Industrial Dev. Fin. Auth. Series 1997A (FHA insured-Boston
Alzheimers Center Proj.), 5.90%, 2/1/22 $1,046,370
1,000,000 MA Hlth. & Educ. Fac. Auth. Rev. Series 1998C (Milford-Whitinsville Regional Hosp. Issue),
5.75%, 7/15/13 1,046,160
1,000,000 MA Industrial Finance Agency Rev. Refunding Series 1997A (FHA Insured) (Chelsea Jewish
Nursing Home Proj.), 6.50%, 8/1/37 1,105,530
-----------
3,198,060
-----------
MICHIGAN (3.7%)
1,305,000 Detroit Econ. Dev. Corp. Limited Obligation Rev. Refunding Series 1992 (E.H. Associates
Ltd. Partnership Proj.), 7.00%, 6/1/12 1,386,393
1,000,000 Flint Hosp. Bldg. Auth. Rev. Refunding Series 1998A (Hurley Medical Ctr. Proj.),5.25%, 7/1/16 (5) 972,460
4,500,000 MI HDA Rental Hsg. Rev. Series 1992A, 6.60%, 4/1/12 4,866,615
700,000 MI State Hosp. Fin. Auth. Rev. Series 1997 (Presbyterian Vlgs. of Mich. Oblig. Group Proj.),
6.375%, 1/1/15 752,675
1,000,000 MI Strategic Fund Ltd. Obligation Rev. Series 1997A (NSF Intl. Proj.) (LOC First Bank of America),
5.75%, 8/1/19 1,037,350
1,675,000 MI Strategic Fund Ltd. Obligation Rev. Series 1998 (Porter Hills Presbyterian Village Proj.),
5.375%, 7/1/28 1,646,575
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 1,407,692
2,260,000 Southfield Econ. Dev. Corp. Ltd. Obligation Rev. Series 1998A (Lawrence Tech. Univ. Proj.),
5.25%, 2/1/13 2,203,025
1,655,000 Tri City Village HC Mtg. Refunding Multifamily Tri City Apts. Series 1992A (Section 8)
(FNMA backed), 7.75%, 8/15/23 1,806,333
2,750,000 Troy City EDC Econ. Dev. Rev. Refunding Series 1992 (Drury Inn-Troy Proj.)
(Lincoln Natl. Corp.), 6.75%, 10/1/12 2,979,240
-----------
19,058,358
-----------
MINNESOTA (2.1%)
1,000,000 Carver Co. HRA Multifamily Rev. Series 1997A (Waybury Apts. Proj.), 5.875%, 8/1/27 1,020,230
1,430,000 Dakota Co. HRA Multifamily Mtg. Rev. Refunding Series 1997A
(Park Place Apts. Proj.)(GNMA Collateralized), 6.875%, 2/20/32 1,562,618
740,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.)(Section 8), 6.375%, 4/1/20 782,890
1,250,000 MN HFA Single Family Mtg. Series 1998A, 5.20%, 1/1/17 1,251,013
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 1,841,841
2,500,000 Plymouth Multifamily Hsg. Dev. Rev. Refunding Series 1996A (GNMA collateralized)
(Fox Forest Apts. Proj.), 8.05%, 6/20/31 2,895,850
1,755,000 South Washington Co. ISD #833, (Cottage Grove) Lease Refunding Series 1998
(Asset Guaranty insured), 5.25%, 12/1/14 (5) 1,759,721
-----------
11,114,163
-----------
MISSISSIPPI (1.2%)
1,685,000 Jones Co. Hosp. Rev. Series 1997 (South Central Regional Med. Ctr. Proj.) 5.50%, 12/1/17 1,682,051
Mississippi Hosp. Equip. and Fac. Auth. Rev. (Rush Medical Fdn. Proj.):
1,000,000 Refunding Series 1997A, 6.00%, 1/1/16 1,047,520
1,000,000 Series 1997B, 6.00%, 1/1/16 1,047,520
</TABLE>
See accompanying notes to portfolios of investments on page 41.
<PAGE>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
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QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
6,435,000 MS Home Corp. Residual Rev. Series 1992-II Zero Coupon, 7.38% Effective Yield on Purchase
Date, 4/15/12 $2,421,233
-----------
6,198,324
-----------
MISSOURI (1.4%)
2,000,000 Missouri Hsg. Dev. Commission Single Family Rev. Series 1997C-1 (Home Ownership Loan
Program Proj.)(GNMA collateralized), 6.55%, 9/1/28 2,197,820
1,080,000 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 1,167,080
3,265,000 St. Louis Co. Industrial Dev. Auth. Residential Care Fac. Rev. Series 1997A1 (Richmond
Terrace Ctr. Proj.)(GNMA collateralized), 8.00%, 12/20/37 3,858,610
50,000 St. Louis Co. Single Family Res. Mtg. Series 1984 (MBIA insured), 6.75%, 4/1/10 52,995
-----------
7,276,505
-----------
MONTANA (0.4%)
Crow Finance Auth. Tribal Purpose Revenue Series 1997A:
1,000,000 5.70%, 10/1/27 1,010,930
870,000 5.65%, 10/1/17 876,586
-----------
1,887,516
-----------
NEVADA (1.4%)
NV Hsg. Div. SF Mtg. Program:
1,645,000 Sr. Series 1995A1, 6.45%, 10/1/18 1,754,771
1,050,000 Mezzanine Series 1998B-1, 5.30%, 4/1/16 1,050,924
Reno Redev. Agency Subordinate Tax Allocation and Rev. Refunding Series 1995A:
400,000 6.00%, 6/1/08 429,128
1,000,000 6.125%, 6/1/12 1,060,380
3,000,000 Reno-Sparks Indian Colony Public Fac. Fin. Auth. Sales & Excise Tax Rev.
Series 1995A, 7.50%, 7/1/07 3,158,670
-----------
7,453,873
-----------
NEW HAMPSHIRE (2.2%)
NH Higher Educ. & Hlth. Fac. Auth. Rev.:
620,000 Series 1997 (Catholic Charities Issue), 5.75%, 8/1/12 631,582
6,500,000 Series 1993 (Nashua Memorial Hosp. Proj.), 6.00%, 10/1/23 6,848,400
2,500,000 Series 1997 (Androscoggin Valley Hosp.Proj.), 5.80%, 11/1/27 2,598,250
4,525,000 NH HFA Single Family Res. Mtg. 1982 Series A Zero Coupon, 11.75% Effective Yield on
Purchase Date, 1/1/14 1,150,934
-----------
11,229,166
-----------
NEW JERSEY (0.8%)
NJ EDA Rev. Refunding Bonds Series 1997A (Harrogate, Inc. Proj.):
400,000 5.55%, 12/1/07 420,116
1,225,000 5.875%, 12/1/26 1,266,087
1,450,000 NJ EDA First Mtg. Rev. Refunding Series 1998A (Fellowship Village Proj.), 5.50%, 1/1/18 (5) 1,449,174
800,000 NJ Hlth. Care Fac. Financing Auth. Rev. Refunding Series 1997A (Christian Hlth. Care Center Proj.),
5.50%, 7/1/18 806,272
-----------
3,941,649
-----------
NEW MEXICO (0.8%)
365,000 Chaves Co. Hosp. Rev. Series 1992 (Eastern NM Med. Ctr. Proj.), 7.25%, 12/1/10 400,642
579,000 Hobbs Single Family Mtg. Rev. Refunding Series 1992, 8.75%, 7/1/11 645,880
1,285,000 New Mexico MFA Single Family Mtg. Purchase Refunding Senior Series 1992-A2, 6.85%, 7/1/12 1,365,685
1,215,000 Sante Fe Educ. Fac. Rev. Series 1998 (St. Johns College Proj.), 5.40%, 3/1/17 1,196,556
525,000 Sante Fe Educ. Fac. Imprv. & Refunding Rev. Series 1997 (College of Sante Fe Proj.), 6.00%, 10/1/13 556,458
-----------
4,165,221
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
NEW YORK (0.8%)
1,300,000 Lockport HDC Mtg. Rev. Refunding Series 1997A (Urban Park Tower Apts. Section 8 Proj.),
6.00%, 10/1/18 $1,323,790
2,810,000 New York City HDC Multifamily Hsg. Rev. Series 1993B (FHA insured)
(Section 8), 5.85%, 5/1/26 2,886,797
-----------
4,210,587
-----------
NORTH DAKOTA (1.4%)
1,770,000 Oliver Co. Pollution Control Rev. Series 1976 (Sq. Butte Elec. Coop. Proj.), 7.00%, 12/31/10 1,782,231
Ward Co. Hlth. Care Fac. Rev.:
1,240,000 Series 1994 Escrowed to Maturity (St. Joseph Hosp.), 8.00%, 11/15/04 1,394,603
2,000,000 Series 1994 Prerefunded (St. Joseph Hosp.), 8.875%, 11/15/14 2,526,800
1,600,000 Series 1991A Prerefunded (St. Joseph Hosp.), 7.50%, 11/1/15 1,785,392
-----------
7,489,026
-----------
OHIO (1.8%)
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 2,660,250
1,000,000 Zero Coupon Convertible, 6.15% Effective Yield on Purchase Date, 12/1/07 896,500
1,000,000 Franklin Co. Hlth. Care Fac. Rev. Refunding Series 1997 (Friendship Village of Dublin Proj.),
5.50%, 11/1/16 1,006,690
1,500,000 Franklin Co. Mtg. Rev. Series 1997E (GNMA collateralized)(The Villas of St. Therese Proj.),
5.90%, 6/20/39 1,598,295
OH Capital Corp. for Hsg. Mtg. Rev. Refunding (FHA insured)(Section 8):
1,570,000 Series 1995G, 6.35%, 7/1/22 1,669,083
1,535,000 Series 1998E, 5.40%, 2/1/23 (5) 1,521,615
-----------
9,352,433
-----------
OKLAHOMA (1.8%)
1,240,000 Cleveland Co. Home Loan Auth. Single Family Mtg. Rev. Refunding Series 1991, 8.00%, 8/1/12 1,324,816
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, 6/1/11 770,240
OK Ind. Auth. Hosp. Rev. Bonds Series 1997A (Deaconess Hlth. Care Proj.):
2,000,000 5.50%, 10/1/12 2,011,000
2,000,000 5.75%, 10/1/17 2,044,760
470,000 Payne Co. Home Loan Auth. Single Family Rev. Refunding Series 1993A, 8.625%, 3/1/11 504,761
2,540,000 Tulsa Public Facilities Auth. Recreational Fac. Rev. Series 1985, 6.20%, 11/1/12 2,717,622
-----------
9,373,199
-----------
OREGON (0.2%)
1,070,000 Portland Hsg. Auth. Multifamily Rev. Series 1997A (Civic Apts. Proj.), 5.70%, 1/1/28 1,084,274
-----------
PENNSYLVANIA (5.1%)
3,030,000 Cumberland Co. Muni Auth. Rev. Series 1996 (Presbyterian Homes Proj.), 6.00%, 12/1/26 3,177,743
1,970,000 Grove City Area Hosp. Auth. Rev. Series 1998 (United Cmmty. Hosp. Proj.), 5.25%, 7/1/12 (5) 1,972,935
1,000,000 Hazleton Svcs. Auth. Hosp. Rev. Series 1997 (Hazleton General Hosp. Proj.), 5.625%, 7/1/17 1,017,430
Horizon Hosp. System Auth. Hosp. Rev. Series 1996 (Horizon Hosp. Sys.):
600,000 5.95%, 5/15/06 640,104
715,000 6.15%, 5/15/08 776,361
710,000 6.25%, 5/15/09 770,158
1,145,000 6.30%, 5/15/11 1,223,078
1,905,000 McKean Co. Hosp. Rev. Refunding Series 1994 (Bradford Hosp. Proj.), 6.10%, 10/1/20 1,983,086
</TABLE>
See accompanying notes to portfolios of investments on page 41.
<PAGE>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
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QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3,365,000 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 $1,199,219
6,000,000 Montgomery Co. Industrial Dev. Auth. Resource Recovery Rev. Series 1989 (LOC Banque
Paribas), 7.50%, 1/1/12 6,635,400
250,000 Montgomery Co. Redev. Auth. Multifamily Hsg. Rev. 1993 Series A (KBF Assoc. L.P.),
6.375%, 7/1/12 260,030
1,250,000 Philadelphia Auth. for Industrial Dev. Rev. Refunding Series 1998A (FHA Insured)
(Elmira Jeffries Mem. Home Proj.), 5.30%, 2/1/22 1,234,900
Pittsburgh Urban Redev. Auth. (Center Triangle Tax Increment Fin. District) (LOC PNC Bank):
3,000,000 Series 1995A, 6.00%, 12/1/11 3,191,310
2,100,000 Series 1995B, 6.25%, 3/15/15 2,232,279
-----------
26,314,033
-----------
RHODE ISLAND (0.8%)
RI Hlth. & Educ. Bldg. Corp. Hosp. Fin. Rev.:
1,500,000 Series 1997 (Steere House Proj.), 5.70%, 7/1/15 1,520,370
2,500,000 Series 1997 (South Co. Hosp. Proj.), 6.00%, 11/15/17 2,630,275
-----------
4,150,645
-----------
SOUTH CAROLINA (0.3%)
1,395,000 Myrtle Beach PFC Certificates of Participation Series 1992 Escrowed to Maturity
(Myrtle Beach Convention Ctr. Proj.), 6.75%, 7/1/02 1,530,887
-----------
SOUTH DAKOTA (1.8%)
2,000,000 SD HDA Multifamily Hsg. Rev. 1992 Series B (Section 8), 7.00%, 4/1/12 2,138,620
SD Hlth. & Educ. Fac. Auth. Rev. Refunding Series 1998 (Prairie Lakes Hlth. Care System):
2,000,000 5.45%, 4/1/13 1,950,040
5,500,000 5.65%, 4/1/22 5,496,425
-----------
9,585,085
-----------
TENNESSEE (4.3%)
1,725,000 Metro. Govt. of Nashville & Davidson Cos. TN Industrial Dev. Board Rev. Refunding,
Multifamily Mtg. Rev. 92C (FHA insured) (Picadilly Apts.), 6.95%, 7/1/27 1,842,542
Shelby Co. Hlth., Educ. & Hsg. Fac. Board Multifamily Hsg. Rev.:
1,500,000 (Cameron Hsg. Proj.) Senior Series 1997A, 5.90%, 7/1/18 1,539,555
(Eastwood Park Apts. Proj.):
1,000,000 Senior Series 1995 A2, 6.40%, 9/1/25 1,038,590
425,000 Subordinate Series 1995C, 7.50%, 9/1/25 438,553
(Raleigh Forest & Sherwood Apts. Proj.):
2,885,000 Senior Series 1996A, 6.60%, 1/1/26 3,019,701
790,000 Subordinate Series 1996C, 7.25%, 1/1/26 818,906
(Raleigh Woods Apts. Proj.):
6,000,000 Series 1997A (GNMA collateralized), 7.75%, 3/20/27 6,895,860
(The Corners Apts. Proj.):
1,055,000 Senior Series 1996A, 6.25%, 1/1/27 1,085,658
395,000 Subordinate Series 1996C, 6.375%, 1/1/27 394,692
1,500,000 TN HDA Mtg. Finance Series 1995B (MBIA insured), 6.20%, 7/1/18 1,587,435
TN HDA Homeownership Program:
830,000 Series 1991 Issue U, 7.35%, 7/1/11 877,742
7,500,000 Series 1997 Issue 3B Zero coupon, 5.725% Effective Yield on Purchase Date, 7/1/16 2,715,675
-----------
22,254,909
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
TEXAS (9.4%)
1,850,000 Baytown HFC Single Family Mtg. Rev. Refunding Series 1992B, 8.50%, 9/1/11 $2,086,855
Beaumont HA Multifamily Mtg. Rev. Series 1993A (Section 8):
1,365,000 6.65%, 11/1/07 1,447,228
650,000 6.75%, 11/1/10 688,545
1,765,000 Bexar Co. HFC Residual Rev. Series 1993 Zero Coupon, 6.50% Effective Yield on Purchase
Date, 3/1/15 613,690
230,000 Brazos Co. HFC Single Family Mtg. Rev. 1985 (MBIA insured) Zero Coupon, 10.55% Effective
Yield on Purchase Date, 9/1/11 58,753
1,800,000 Cleveland Ind. School Dist. Public Fac. Corp. Lease Rev. Series 1996, 6.10%, 2/15/11 1,940,814
Dallas Hsg. Corp. Capital Program Revenue Bonds:
1,715,000 Series 1995A (Estell Village Apts.) (Section 8), 7.875%, 12/1/09 1,779,124
1,555,000 Series 1995 (Cedar Glen Apts.) (Section 8), 7.75%, 12/1/09 1,611,757
1,000,000 Dallas HFC Cap. Proj. Refunding 1990 (Section 8), 7.85%, 8/1/13 1,057,470
Galveston Special Contract Refunding Rev. Series 1998 (Farmland Industries, Inc. Proj.),
2,000,000 5.50%, 5/1/15 (5) 1,999,460
460,000 Harris Co. HFC Single Family Mtg. Rev. Series 1983A, 10.125%, 7/15/03 461,444
1,600,000 Harrison Co. Hlth. Fac. Dev. Corp. Rev. Series 1998 (Marshall Regional Med. Ctr. Proj.)(ACA insured),
5.50%, 1/1/18 1,612,256
1,500,000 Houston HFC Single Family Mtg. Rev. Refunding Series 1996B-1, 8.00%, 6/1/14 1,646,280
1,740,000 Lubbock HFC Multifamily Hsg. Rev. Refunding Series 1992A (Los Colinas, Park Ridge Place &
Quail Creek), 7.75%, 1/1/22 1,809,931
Midland Co. Hosp. Dist. Hosp. Rev. Series 1992 Zero Coupon, 7.61% Effective Yield
5,000,000 at Purchase Date, 6/1/07 3,067,950
Midland HFC Single Family Mtg. Rev. Refunding:
430,947 Series 1992 B-2, 8.15%, 12/1/11 466,987
589,941 Series 1992 A-2, 8.45%, 12/1/11 641,302
631,848 Series 1992, 9.00%, 9/1/01 664,616
Mesquite Hlth. Fac. Dev. Corp. Retirement Fac. Rev. Series 1996A (Christian Care Ctrs. Proj.):
1,000,000 6.30%, 2/15/12 1,066,240
1,000,000 6.40%, 2/15/16 1,072,600
North Central Hlth. Fac. Dev. Corp. Rev. (C.C. Young Memorial Home Proj.):
495,000 Series 1996, 5.90%, 2/15/04 522,804
155,000 Series 1996, 6.10%, 2/15/06 166,599
1,300,000 Series 1996, 6.30%, 2/15/15 1,392,638
1,135,000 Series 1998A, 5.375%, 2/15/14 (5) 1,123,582
1,507,278 Odessa HFC Single Family Mtg. Rev. Refunding Series 1992B Class B-2, 8.125%, 11/1/11 1,640,069
650,000 San Marcos HA Multifamily Mtg. Rev. Series 1993A (FHA insured) (Section 8), 5.80%,11/1/10 661,830
Southeast TX HFC Residual Revenue:
1,555,000 Series 1995A Zero Coupon, 6.50% Effective Yield on Purchase Date, 11/1/14 603,449
3,000,000 Series 1992A Zero Coupon, 7.63% Effective Yield on Purchase Date, 9/1/17 716,280
880,000 TX HA Single Family Mtg. Refunding Series 1991A, 7.00%, 3/1/05 939,717
2,860,000 TX Dept. Hsg. & Cmnty. Affairs Single Family Rev. Refunding Junior Lien Series 1994A
Zero Coupon, 6.93% Effective Yield on Purchase Date, 3/1/15 924,495
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 1,587,240
2,500,000 Senior Series 1996A (Dallas - Ft. Worth Apts. Pool Proj.), 6.50%, 7/1/26 2,639,450
1,055,000 Subordinated Series 1996C (Harbors & Plumtree Apts. Proj.), 7.375%, 7/1/26 1,091,229
2,820,000 Senior Series 1996A (Harbors & Plumtree Apts. Proj.), 6.45%, 7/1/26 2,955,388
</TABLE>
See accompanying notes to portfolios of investments on page 41.
<PAGE>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3,050,000 Series 1996A (NHP Foundation - Asmara Apts. Proj.), 6.40%, 1/1/27 $3,259,749
1,010,000 Travis Co. HFC Residential Mtg. Rev. Series 1991A (GNMA/FNMA collateralized),
7.05%, 12/1/25 1,079,438
1,500,000 Tyler Hlth. Fac. Dev. Corp. Hosp. Rev. Series 1997A (Mother Frances Hosp. Regional
Hlth. Care Center Proj.), 5.625%, 7/1/13 1,509,135
-----------
48,606,394
-----------
UTAH (0.8%)
1,000,000 Davis Co. Solid Waste Mgmt. & Energy Recovery Rev. Refunding Series 1993, 6.125%, 6/15/09 1,058,170
1,000,000 Provo HA Multifamily Series 1997 (Lookout Point Apts. Proj.) (GNMA collateralized),
5.80%, 7/20/22 1,030,860
1,835,000 Utah HFA Single Family Mtg. 1996 Issue E-1 Senior Bonds, 6.00%, 7/1/16 1,928,310
-----------
4,017,340
-----------
VIRGINIA (0.8%)
Virginia Hsg. Dev. Auth. Commonwealth Mtg. Rev:
750,000 Series 1992A, 7.10%, 1/1/22 786,225
3,500,000 Series 1996H2, 5.20%, 7/1/17 (5) 3,478,650
-----------
4,264,875
-----------
WASHINGTON (3.4%)
Kitsap Co. Consolidated Hsg. Auth. Pooled Hsg. Refunding Rev. Series 1998A,
3,000,000 5.50%, 12/1/18 (5) 2,966,910
Vancouver (Clark Co.) H.A. Pooled Hsg. Refunding Rev. Series 1998A Senior Bonds :
1,000,000 5.40%, 3/1/18 1,000,710
3,500,000 5.50%, 3/1/28 3,502,485
WA HFC Nonprofit Housing Revenue:
2,500,000 Series 1993 (CRISTA Shores Proj.)(LOC US Bk. Wash.), 6.20%, 7/1/14 2,611,000
1,000,000 Series 1995A (Judson Park Project)(LOC US Bk. Wash.), 6.90%, 7/1/16 1,057,480
1,390,000 Series 1996A (Presbyterian Ministries) (LOC US Bk. Wash.), 6.85%, 7/1/21 1,459,764
WA Hlth. Care Fac. Auth. Rev.:
2,000,000 Series 1996 (Grays Harbor Hosp. Proj.)(Asset Guaranty insured), 5.70%, 7/1/16 2,077,540
1,850,000 Series 1998 (Highline Cmmty. Hosp. Proj.)(Asset Guaranty insured), 5.25%, 8/15/17 1,825,543
1,250,000 WA Public Power Supply Rev. Refunding Series 1993B (Nuclear Project #1), 5.70%, 7/1/10 1,306,113
-----------
17,807,545
-----------
WEST VIRGINIA (0.7%)
5,435,000 Huntington Res. Mtg. Rev. Refunding Series 1991 Escrowed to Maturity, Zero Coupon,
7.37% Effective Yield on Purchase Date, 9/1/12 2,282,320
2,000,000 Mason Co. Residual Rev. Series 1992C Zero Coupon, 7.58% Effective Yield on Purchase Date,
7/10/14 627,840
3,000,000 Ohio Co. Residual Rev. Series 1992C Zero Coupon, 7.43% Effective Yield on Purchase Date,
7/10/14 946,080
-----------
3,856,240
-----------
WISCONSIN (0.4%)
1,300,000 WI HEDA Hsg. Rev. Series 1992A (Section 8), 6.85%, 11/1/12 1,384,370
750,000 WI Hlth. & Educ. Fac. Auth. Rev. Series 1996 (Meriter Hosp. Inc.), 6.00%, 12/1/17 787,928
-----------
2,172,298
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
WYOMING (0.4%)
2,000,000 WY CDA Hsg. Rev. 1995 Series 6, 6.10%, 12/1/25 $2,101,099
-----------
Total municipal bonds (cost: $450,502,600) 470,760,629
-----------
CLOSED-END MUTUAL FUNDS (5.5%) (2)
244,700 American Municipal Term Trust 2001 2,783,462
93,200 American Municipal Term Trust III 2003 1,019,375
60,000 Blackrock Insured Municipal Term Trust 2008 922,500
578,300 Blackrock Insured Municipal Term Trust 2010 6,216,725
58,700 Blackrock Investment Quality Municipal Trust 810,794
939,200 Blackrock Municipal Target Term Trust 2006 9,920,300
231,800 Van Kampen Merritt Municipal Opportunity Trust 3,621,875
267,900 Van Kampen Merritt Strategic Sector Municipal Trust 3,532,931
-----------
Total closed-end mutual funds (cost: $29,124,030) 28,827,962
-----------
SHORT-TERM SECURITIES (7.6%) (2)
2,000,000 Becker, MN PCR Series 1993B CP (NSP Sherburne Co. Generating Stn.), 3.20%, 4/3/98 2,000,000
7,000,000 Intermountain Power Agency UT Series 1997B CP Notes (LOC BankAmerica), 3.55%, 4/3/98 7,000,000
9,000,000 Salt River, AZ Project Agric. Impt. & Power Dist. CP (LOC Wells Fargo)(FNCB), 3.20%, 4/2/98 9,000,000
6,985,000 Salt River, AZ Project Agric. Impt. & Power Dist. CP (LOC Wells Fargo)(FNCB), 3.50%, 4/3/98 6,985,000
3,300,000 Texas Municipal Power Agency Bond Anticipation Notes (LOC Morgan Gty.), 3.25%, 4/1/98 3,300,000
8,461,809 Dreyfus Tax-Exempt Cash Management Fund, 3.49% 8,461,809
2,520,886 Northern Trust Tax-Exempt Cash Management Fund, 3.41% 2,520,886
-----------
Total short-term securities (cost: $39,267,695) 39,267,695
-----------
Total investments in securities (cost: $518,894,325) (6) $538,856,286
============
</TABLE>
See accompanying notes to portfolios of investments on page 41.
<PAGE>
SIT MINNESOTA TAX-FREE INCOME FUND REVIEW
YEAR ENDED MARCH 31, 1998
[PHOTO]
MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
DEBRA A. SIT, CFA
PORTFOLIO MANAGER
The Fund provided investors a total return of +9.07% for the year ended
March 31, 1998. The Fund's return ranked #29 of 45 Minnesota municipal funds for
the year tracked by Lipper Analytical Services. In addition, the Fund's returns
ranked #3 of 42 funds for the three year period and #1 of 25 funds since its
inception on December 1, 1993. The Fund's share price was $10.49 on March 31,
1998 which compares with $10.14 one year ago, and reached an all time high of
$10.56 in early January 1998. The Fund's 30-day SEC yield was 5.02% on March 31,
1998, compared with 5.14% on December 31 and 5.54% one year ago. The Fund's
12-month distribution rate was 5.31% on March 31, 1998, compared with 5.38% on
December 31 and 5.59% one year ago.
Fund net assets increased to $143.6 million on March 31, 1998 from $94.0
million one year ago. During the year, multi-family housing bonds increased from
40.0% to 42.3%. General obligation bonds and Minnesota closed-end bond funds
were each increased to 4.1% weightings, primarily during the past quarter, due
to their attractive relative yields. Purchases were also made in health care
bonds, resulting in a steady weighting, while other sector weightings were
diluted by cash flow. Single family holdings decreased from 17.8% to 13.9%,
industrial revenue bonds decreased from 8.1% to 3.6% and other revenue bonds
decreased from 8.7% to 7.0%. The Fund's 1.7% holding in bonds which were
prerefunded were sold during the past quarter. Securities rated "A" or better
remain at approximately 60% while non-rated issues continue to represent
approximately one-third of Fund holdings. The Fund's implied duration lengthened
from 4.1 to 5.0 years, reflecting efforts to increase call protection in the
declining interest environment. The Fund's average maturity has remained at
approximately 19 years.
The Fund's performance was driven by its emphasis on securities which
provide higher coupon income. We expect economic activity to moderate in the
second half of the calendar year and interest rates to remain in a relatively
stable range. Thus, we remain focused on securities that provide incremental
yield as interest income will likely be the primary source of return in this
environment.
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 3/31/98: $10.49 Per Share
3/31/97: $10.14 Per Share
Total Net Assets: $143.63 Million
30-Day SEC Yield: 5.02%
Tax Equivalent Yield: 9.08% (1)
12-Month Distribution Rate: 5.31%
Average Maturity: 19.5 Years
Duration to Estimated Avg. Life: 7.9 Years (2)
Implied Duration: 5.0 Years (2)
(1) For individuals in the 39.6% Federal and 8.5% MN tax brackets.
(2) See page 33.
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Multifamily Mortgage Revenue 42.3
Single Family Mortgage Revenue 13.9
Hospital/Health Care Revenue 12.5
Other Revenue Bonds 7.0
Closed-End Mutual Funds 4.1
General Obligation 4.1
Industrial Revenue/Pollution Control 3.6
Lease 2.6
Public Facilities 1.8
Education/Student Loan 1.1
Other Assets & Liabilities 7.0
<PAGE>
<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 1.18% 0.96% 1.16% 1.18% 0.96% 1.16%
(unannualized)
1 Year 9.07 9.54 7.64 9.07 9.54 7.64
3 Year 7.48 6.84 6.36 24.15 21.96 20.33
Inception 6.73 5.40 5.37 32.62 25.59 25.41
(12/1/93)
</TABLE>
* As of 3/31/98
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN AGGREGATE BOND
INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL
SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
(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
SIT MN TAX-FREE LEHMAN 5-YEAR
INCOME FUND MUNI. BOND INDEX
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/1/93) and held until 3/31/98 would
have grown to $13,262 in the Fund or $12,541 in the Lehman 5-Year Municipal Bond
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of Net Assets)
LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED.
[PIE CHART]
A 12.4%
AA 21.6%
AAA 20.4%
Other Assets & Liabilities 7.0%
Not Rated 33.4%
BBB 5.2%
ADVISER'S ASSESSMENT OF
NOT-RATED SECURITIES
--------------------
AA 0.4
A 2.0
BBB 19.8
BB 10.4
B 0.8
-----
Total 33.4%
<PAGE>
SIT MINNESOTA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (88.9%) (2)
EDUCATION/STUDENT LOAN (1.1%)
Minnesota Higher Education Fac. Auth. Rev. Series 1996-4I (Hamline Univ.):
1,000,000 6.00%, 10/1/12 $1,053,000
585,000 6.00%, 10/1/16 609,892
-----------
1,662,892
-----------
GENERAL OBLIGATION (4.1%)
590,000 Carver Co. Hsg. & Redev. Auth. Hsg. & Dev. Gross Rev. Ltd.Tax G.O.
(Chanhassen Apts. Proj.), 7.00%, 1/1/25 624,957
1,600,000 Chaska Independent School Dist. No. 112 G.O. Refunding Series 1998A, 5.00%, 2/1/15 1,576,624
1,025,000 Elk River Independent School Dist. No. 728 G.O. Series 1997A, 5.375%, 2/1/17 1,041,851
500,000 Goodhue (City of) G.O. Gas Utility Series 1996, 6.75%, 1/1/26 540,035
1,040,000 Maple Grove G.O. Improvement Series 1996A, 5.20%, 2/1/13 1,056,713
1,000,000 Rochester Independent School Dist. No. 535 G.O., 5.25%, 2/1/14 1,019,210
-----------
5,859,390
-----------
HOSPITAL/HEALTH CARE (12.5%)
1,000,000 Albert Lea Hsg. & Hlth Care Fac. Rev. Refunding Series 1996 (St Johns Lutheran Home Proj.),
7.00%, 11/1/19 1,049,540
Brooklyn Center Hlth. Care Fac. Rev. Series 1993 (Maranatha Proj.):
50,000 6.75%, 12/1/05 53,498
500,000 7.50%, 12/1/10 540,770
1,290,000 Cokato Sr. Hsg. Rev. Series 1996 (Cokato Charitable Trust Proj.), 7.00%, 12/1/19 1,311,749
1,680,000 Columbia Heights Multifamily & Health Care Fac. Rev. Series 1998 (Crest View Corp. Proj.),
5.75%, 9/1/11 1,679,899
1,000,000 Dakota Co. Hsg. & Redev. Auth. Hlth. Care Fac. Rev. Refunding Series 1997 (South Suburban
Medical Ctr. Proj.), 6.75%, 8/1/17 1,036,030
140,000 Edina Hlth. Care Fac. Rev. Series 1995 (VOA Care Ctrs. Proj.), 7.875%, 3/1/19 146,142
215,000 Fergus Falls Hlth. Care Fac. Auth. Rev. Refunding Series 199 3A
(Lake Region Hosp. Corp. Proj.), 6.25%, 9/1/04 232,155
650,000 Fergus Falls Hlth. Care Fac. Auth. Series 1995 (LRHC Long-Term Care Fac. Proj.),
6.40%, 12/1/15 705,789
1,540,000 Hibbing Hlth. Care Fac. Rev. Series 1995A (St. Francis Hlth. Svcs. Proj.), 7.35%, 11/1/15 1,633,447
750,000 Mankato Hlth. Care Fac. Rev. Series 1996A (Lutheran Home Proj.), 6.75%, 10/1/16 777,487
1,685,000 Maplewood Hlth. Care Fac. Rev. (VOA Care Ctrs. Proj.), 7.375%, 10/1/12 1,831,528
1,000,000 Minneapolis Hlth. Care Fac. Rev. Series 1993 (St. Olaf Res. Proj.), 7.00%,10/1/18 1,050,100
1,885,000 Minneapolis Hsg. & Hlth. Care Fac. Rev. Series 1997 (Augustana Chapel View Homes Proj.),
6.70%, 6/1/22 1,957,309
Red Wing Hlth. Care Ctr. Fac. Rev. Refunding (River Region Obligated Group):
125,000 Series 1993A, 6.20%, 9/1/05 135,033
130,000 Series 1993A, 6.30%, 9/1/06 140,722
200,000 Series 1993B, 6.20%, 9/1/05 216,052
Sherburne Co. Nursing Home Fac. Rev. Series 1994 (Guardian Angels Care Ctr. Proj.):
75,000 7.30%, 6/1/07 80,290
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
80,000 7.35%, 6/1/08 $85,634
90,000 7.40%, 6/1/09 96,567
555,000 7.50%, 6/1/14 597,025
140,000 7.75%, 6/1/15 151,633
150,000 7.75%, 6/1/16 162,464
300,000 Spring Park Hlth. Care Fac. Rev. Series 1991 (Twin Birch Hlth. Care Ctr. Proj.), 8.25%, 8/1/11 324,630
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 1,004,794
820,000 Wadena Co. Hlth. Care Fac. Rev. Series 1994B, 7.45%, 9/1/15 888,691
-----------
17,888,978
-----------
INDUSTRIAL /POLLUTION CONTROL (3.6%)
500,000 Anoka Industrial Dev. Rev. Series 1994 (Lund Industries Inc. Proj.), 6.50%, 9/1/04 (4) 533,310
250,000 Bass Brook Pollution Control Rev. Series 1992 (Minnesota Power & Light Corp. Proj.), 6.00%, 7/1/22 261,060
740,000 Duluth Commercial Dev. Rev. Refunding Series 1995A (Radisson Hotel Proj.), 7.00%, 12/1/00 751,722
MN Agricultural & Econ. Dev. Board Small Business Dev. Ln. Prgm. Rev.:
105,000 Series 1995A Lot 1, (New Morning Windows, Inc.), 6.40%, 8/1/04 (4) 109,825
500,000 Series 1997C Lot 3, (DynaGraphics), 6.20%, 8/1/09 (4) 519,805
1,000,000 Minneapolis Commercial Dev. Rev. Refunding Series 1997 (Holiday Inn Metrodome Proj.),
6.00%, 12/1/01 1,015,870
Owatonna Industrial Dev. Rev. Series 1997:
280,000 7.25%, 5/1/14 (4) 293,530
505,000 7.375%, 5/1/17 (4) 529,412
200,000 Richfield Cmty. Dev. Rev. Refunding 1994 (Richfield Shoppes Proj.), 8.375%, 10/1/05 223,174
910,000 St. Paul Port Authority Hotel Fac. Senior Rev. Series 1996A (Radisson Kellogg Project),
7.00%, 8/1/01 934,206
-----------
5,171,914
-----------
MULTIFAMILY MORTGAGE (42.3%)
500,000 Aurora Hsg. & Redev. Auth. Multifamily Rev. (Irongate Apts. Proj.) (Section 8), 6.10%, 10/1/19 518,440
Austin Hsg. & Redev. Auth. Governmental Hsg. Gross Rev. Series 1995A (Courtyard Res. Proj.):
220,000 7.00%, 1/1/15 233,035
500,000 7.25%, 1/1/26 529,660
Burnsville Multifamily Hsg. Rev. Refunding:
425,000 Series 1991 (Atrium Proj.) (Trygg-Hansa insured), 7.20%, 5/1/11 438,638
960,000 Series 1994 (Bridgeway Apts. Proj.), 7.25%, 2/1/14 1,002,451
Carver Co. Hsg. & Redev. Auth. Multifamily Hsg.:
1,440,000 Gross Rev. & Ltd. Tax Refunding Series 1997A (Lake Grace Apts. Proj.), 6.00%, 7/1/28 1,475,366
650,000 Rev. Refunding Series 1997A (Waybury Apts. Proj.), 5.875%, 8/1/27 663,149
400,000 Subordinate Rev. Refunding Series 1997C (Waybury Apts. Proj.), 8.00%, 8/1/27 404,084
405,000 Chisago City Hlth. Fac. Rev. Refunding Series 1995A (Pleasant Heights Proj.), 7.30%, 7/1/18 434,184
Coon Rapids Multifamily Hsg. Rev.:
280,000 Refunding Series 1997 (GNMA collateralized) (Pine Point Apts.), 6.125%, 5/1/32 293,180
700,000 Refunding Series 1997A (Margaret Place Apts. Proj.), 6.50%, 5/1/25 707,896
3,000,000 Dakota Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding Series 1997A,
(Park Place Apts. Proj.) (GNMA collateralized), 6.875%, 2/20/32 3,278,220
</TABLE>
See accompanying notes to portfolios of investments on page 41.
<PAGE>
SIT MINNESOTA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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) $1,930,350
255,000 Series 1995C Subordinate, 9.00%, 1/20/15 (4) 259,952
1,480,000 Eagan Multifamily Rental Hsg. Refunding Rev. Series 1996 (Wescott Apts. Proj.)
(FHA insured), 6.00%, 12/1/27 1,531,415
Eden Prairie Multifamily Hsg. Rev. Refunding :
55,000 Series 1990A (Welsh Parkway Apts. Ltd. Proj.)(FHA insured), 8.00%, 7/1/26 58,764
700,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.00%, 11/1/06 745,682
1,500,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.10%, 11/1/17 1,580,640
450,000 Series 1995A (Olympic Ridge Proj.) (GNMA collateralized), 6.20%, 1/20/16 475,677
300,000 Series 1997A (Preserve Place Proj.) (GNMA collateralized), 5.50%, 1/20/18 301,527
Harmony Multifamily Hsg. Rev. Refunding Series 1997A (Zedakah Fdn. Proj.) (Section 8):
300,000 5.40%, 9/1/08 309,441
280,000 5.75%, 9/1/12 288,739
275,000 5.80%, 9/1/13 283,558
3,500,000 Hopkins Elderly Hsg. Rev. Refunding (St. Therese Southwest Proj.),
Series 1997 (GNMA collateralized), 5.70%, 11/20/32 3,586,555
1,015,000 Hopkins Hsg. Fac. Rev. Refunding Series 1995 (Augustana Chapel View Homes Proj.),
7.00%, 12/1/15 1,065,212
565,000 Hopkins Subordinate Multifamily Hsg. Rev. Refunding Series 1996C
(Auburn Apts. Proj.), 8.00%, 6/20/31 593,453
450,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.),
6.25%, 4/1/15 476,055
500,000 Hutchinson Hsg. Fac. Rev. Series 1994 (Prince of Peace Proj.), 7.375%, 10/1/12 523,165
Little Canada Multifamily Hsg. Rev.:
800,000 Refunding Series 1997A (GNMA collateralized)(Cedars Lakeside Proj.), 5.90%, 8/1/20 833,080
3,500,000 Series 1997A (Hsg. Alt. Dev. Co. Proj.), 6.10%, 12/1/17 3,504,690
1,000,000 Series 1997A (Hsg. Alt. Dev. Proj.), 6.25%, 12/1/27 1,001,330
Minneapolis Multifamily Hsg. Rev.:
75,000 Series 1991 (Trinity Hsg. Proj.) (Section 8), 7.875%, 2/1/06 79,010
355,000 Series 1996 (Belmont Apts.), 7.25%, 11/1/16 367,429
565,000 Series 1994 (Findley Place Townhomes Proj) (Section 8), 7.00%, 12/1/16 (4) 601,510
2,000,000 Series 1996A (Nicollet Towers) (Section 8), 6.00%, 12/01/19 2,071,540
645,000 Series 1996 (Belmont Apts.), 7.625%, 11/1/27 668,388
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) 362,155
MN HFA Multifamily Hsg. Dev. Rev.:
35,000 Series 1977, 6.25%, 2/1/08 35,505
105,000 Series 1977, 6.375%, 2/1/20 106,562
2,000,000 Series 1997I, 5.50%, 1/1/17 2,038,480
MN HFA Rental Hsg. Rev. Refunding:
175,000 Series 1993C, 6.15%, 2/1/14 177,072
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
135,000 Series 1993E, 6.00%, 2/1/14 $140,752
Minnetonka Hsg. Fac. Rev. Series 1994 (Beacon Hill Housing Proj.):
890,000 7.00%, 6/1/04 931,946
1,000,000 7.50%, 6/1/14 1,078,850
515,000 Minnetonka Multifamily Hsg. Rev. Refunding Subordinate Series 1994C (Brier Creek Proj.),
8.00%, 12/20/16 547,759
Minnetonka Senior Hsg. Rev. Series 1997 (Westridge Senior Hsg. Proj.):
285,000 6.75%, 9/1/17 292,872
500,000 7.00%, 9/1/27 517,140
500,000 Monticello Senior Hsg. Rev. Series 1995 (Mississippi Shores Proj.), 7.25%, 7/1/16 510,690
330,000 Mora Multifamily Rev. Refunding Hsg. Alternatives Partnership Series 1995, 6.50%, 6/1/02 334,396
Plymouth Multifamily Hsg. Rev. Refunding Series 1996A (Fox Forest Apts. Proj.) (GNMA collateralized):
750,000 Series 1996A, 8.05%, 6/20/31 868,755
705,000 Series 1996C, 8.00%, 6/20/31 740,504
2,500,000 Puerto Rico Housing Finance Corp. Rev. Multifamily Mtg. Portfolio Series 1990 A-I, 7.50%, 10/1/15 2,653,025
960,000 Robbinsdale Multifamily Hsg. Rev. Series 1996A (Copperfield Hill Proj.), 7.20%, 12/1/16 977,011
325,000 Sandstone Econ. Dev. Auth. Hsg. & Dev. Rev. Series 1994A (Family Apts. Proj.), 8.00%, 1/1/12 338,400
1,250,000 Spring Lake Park Sr. Hsg. Rev. Series 1996 (Noah's Ark Affordable Hsg. Inc.), 7.25%, 9/1/16 1,268,200
1,500,000 St. Anthony Hsg. Dev. Rev. Refunding (Autumn Woods Proj.) (Asset Gty. insured), 6.875%, 7/1/22 1,604,415
1,000,000 St. Cloud Hsg. & Redev. Auth. Hsg. Rev. Refunding Series 1998 (Northway Manor Apts. Section 8
Assisted Proj.), 5.15%, 12/1/14 999,930
650,000 St. Louis Park Multifamily Hsg. Rev. Refunding Series 1995 (Knollwood Cmty. Hsg. Proj.) (FHA insured),
6.15%, 12/1/16 687,284
500,000 St. Paul Hsg. & Redev. Auth. Multifamily Hsg. Refunding Series 1992 (Point of St. Paul Proj.)
(FNMA backed), 6.60%, 10/1/12 530,730
200,000 St. Paul Hsg. & Redev. Auth. Multifamily Hsg. Refunding Series 1995 (Sun Cliffe Apts. Proj.)
(GNMA collateralized), 5.875%, 7/1/15 207,262
St. Paul Port Authority Multifamily Hsg. Refunding (Jackson Towers Apts. Proj.):
3,432,500 Senior Series 1998-1A (GNMA collateralized), 6.95%, 4/20/33 3,912,261
408,000 Subordinate Series 1998-1B, 8.00%, 4/20/33 407,971
2,000,000 Virginia Hsg. & Redev. Auth. Governmental Hsg. Rev. Refunding Series 1998A
(Laurentian Manor Proj.), 5.75%, 5/1/32 2,005,640
1,035,000 Washington Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding Series 1994
(White Bear Lake Transitional Hsg. Proj.), 6.625%, 8/1/24 1,093,488
1,385,000 White Bear Lake Multifamily Hsg. Rev. Refunding Series 1996A (Lake Sq. Partners Proj.)
(FHA insured), 6.10%, 2/1/26 1,445,123
770,000 Willmar Hsg. & Redev. Auth. Multifamily Rev. Series 1993 (Highland Apts)
(Section 8), 5.85%, 6/1/19 782,274
-----------
60,711,917
-----------
LEASE (2.6%)
1,015,000 Beltrami Co. Hsg. & Redev. Auth. Lease Rev., 6.25%, 2/1/16 1,061,893
585,000 Burnsville Solid Waste Rev. Series 1990 (Freeway Transfer Inc. Proj.), 9.00%, 4/1/10 (4) 642,190
250,000 Goodhue Co. Econ. Dev. Auth. Courts Building Proj. Lease Rev. Series 1997A, 5.75%, 2/1/13 258,410
</TABLE>
See accompanying notes to portfolios of investments on page 41.
<PAGE>
SIT MINNESOTA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hibbing Econ. Dev. Auth. Public Proj. Rev. Series 1997 (Hibbing Lease Obligations Proj.):
655,000 6.10%, 2/1/08 $698,662
535,000 6.40%, 2/1/12 559,300
100,000 Rice Co. Certificates of Participation Series 1996A, 5.85%, 12/1/14 105,107
400,000 St. Cloud Certificate of Participation Series 1997, 5.90%, 12/1/17 405,396
-----------
3,730,958
-----------
SINGLE FAMILY MORTGAGE (13.9%)
155,520 Brooklyn Center/Columbia Heights/Moorhead/Robbinsdale Econ. Dev. Auth. Residual Interest
Rev. Series 1992B (FNMA backed), 7.15%, 11/1/14 162,493
Dakota County Hsg. & Redev. Auth. Single Family Mtg. Rev.:
835,000 Series 1994A (FNMA backed), 6.70%, 10/1/09 (4) 888,933
400,000 Series 1995 (FNMA & GNMA backed), 6.25%, 10/1/09 (4) 421,652
565,000 Dakota/Wash./Stearns Cos. Hsg. & Redev. Auth. Single Family Rev. Refunding
Series 1994A (FNMA backed), 6.50%, 9/1/10 (4) 598,239
475,000 Minneapolis Redev. Mtg. Rev. Series 1987A (Riverplace Proj.) (LOC Bk. of Tokyo), 7.10%, 1/1/20 484,262
2,100,000 Minneapolis Residual Interest Mtg. Rev. Series 1995 Convertible Capital Appreciation Bonds,
7.00% Effective Yield on Purchase Date, 10/1/12 856,275
655,000 Minneapolis Single Family Mtg. Rev. Series 1995V (FNMA & GNMA backed), 6.25%, 4/1/22 689,486
Minneapolis/ St. Paul Hsg. Fin. Bd. Single Family Mtg. Rev.:
25,000 Series 1989A (GNMA backed), 7.65%, 12/1/00 (4) 25,891
900,000 Series 1994 (FNMA backed), 7.25%, 5/1/12 (4) 951,984
MN HFA Single Family Mtg. Rev.:
120,000 Series 1988D, 8.25%, 8/1/20 (4) 124,493
15,000 Series 1989B, 7.05%, 1/1/03 15,627
50,000 Series 1989B, 7.05%, 7/1/03 52,090
45,000 Series 1990A, 7.95%, 7/1/22 (4) 47,448
265,000 Series 1990C, 7.70%, 7/1/14 278,388
240,000 Series 1991A, 7.05%, 7/1/22 (4) 251,659
575,000 Series 1991A, 7.45%, 7/1/22 (4) 607,948
1,695,000 Series 1992B-1, 6.75%, 1/1/26 (4) 1,793,378
995,000 Series 1994F, 6.30%, 7/1/25 1,061,973
90,000 Series 1994K, 5.90%, 1/1/07 93,167
515,000 Series 1994L, 6.70%, 7/1/20 (4) 547,507
2,830,000 Series 1995M, 5.875%, 1/1/17 2,957,067
800,000 Series 1996D, 6.00%, 1/1/16 837,176
280,000 Series 1997D, 5.85%, 7/1/19, (4) 290,842
2,710,000 Series 1997E, 5.90%, 7/1/29 (4) 2,810,189
710,000 Series 1997K, 5.75%, 1/1/26 (4) 728,268
3,800,000 Moorhead Single Family Mtg. Rev. Refunding Series 1992B Zero Coupon, 7.00% Effective
Yield on Purchase Date, 8/1/11 1,534,706
615,000 St. Paul Hsg. & Redev. Auth. Single Family Mtg. Rev. Refunding Series 1995 (FNMA backed),
6.125%, 3/1/17 642,607
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 $387,682
-----------
20,141,430
-----------
OTHER REVENUE BONDS (7.0%)
1,440,000 Commissioner of Iron Range Resources and Rehabilitation Gross Rev.
Series 1996 (Giants Ridge Rec. Area Proj.), 7.25%, 10/1/11 1,506,902
Minneapolis Cmty. Dev. Agy. Ltd. Tax Common Bond Fund:
100,000 Series 1993-5 (Winslow Printing), 6.125%, 12/1/06 (4) 104,062
170,000 Series 1997-1 (Halper Corrugated Box Mfg. Co.), 5.90%, 6/1/07 (4) 183,855
640,000 Series 1995-1 (Microtron, Inc.), 6.625%, 12/1/09 (4) 690,291
1,310,000 Series 1995-1 (Microtron, Inc.), 7.25%, 12/1/15 (4) 1,442,244
750,000 Series 1997-2 (Ambassador Press), 6.20%, 6/1/17 (4) 796,260
200,000 Renville Gross Rev. Golf Course Bond Series 1997, 6.50%, 2/1/19 204,154
300,000 Scott Co. Hsg. & Redev. Auth. Ltd. Special Benefits Tax Series 1997B (River City Centre Proj.),
(AMBAC insured), 5.45%, 2/1/20 306,156
2,835,000 St. Paul Hsg. & Redev. Sales Tax Rev. Refunding Series 1996 (FSA insured)
(Civic Center Proj.), 7.10%, 11/1/23 3,485,122
1,245,000 St. Paul Recreational Fac. Gross Rev. Series 1996D, 5.875%, 6/1/18 1,301,087
-----------
10,020,133
-----------
PUBLIC FACILITIES (1.8%)
470,000 Eagan Ice Arena Gross Rev. Series 1998B, 5.50%, 4/1/19 (5) 470,000
2,000,000 Minneapolis Public Hsg. Auth. Series 1997 (General Credit Energy Savings Proj.), 6.00%, 7/1/08 2,055,260
-----------
2,525,260
-----------
Total municipal bonds (cost: $123,205,748) 127,712,872
-----------
CLOSED-END MUTUAL FUNDS (4.1%) (2)
321,400 Minnesota Municipal Term Trust 2002 3,455,050
203,400 Minnesota Municipal Term Trust II 2003 2,173,837
12,900 Voyageur Minnesota Municipal Income Fund II 178,988
10,700 Voyageur Minnesota Municipal Income Fund III 143,113
-----------
Total closed-end mutual funds (cost: $5,950,988) 5,950,988
-----------
SHORT-TERM SECURITIES (5.8%) (2)
1,786,549 Federated Minnesota Municipal Cash Fund, 3.50% 1,786,549
6,500,000 Southern MN Power Agy. Series B (LOC Credit Suisse), 3.50%, 4/13/98 6,500,000
-----------
Total short-term securities (cost: $8,286,549) 8,286,549
-----------
Total investments in securities (cost: $137,443,285) (6) $141,950,409
============
</TABLE>
See accompanying notes to portfolios of investments on page 41.
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
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, 1998, 33.4% of net assets in the U.S. Government Securities
Fund and 11.5% of 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, 1998, approximately
13.3% of net assets in the Minnesota Tax-Free Income Fund was invested in
such securities.
(5) At March 31, 1998, the total cost of investments purchased on a
when-issued basis was $348,710, $25,691,284, and $471,077 for the Bond
Fund, Tax-Free Income Fund, and the Minnesota Tax-Free Income Fund,
respectively.
(6) At March 31, 1998, 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 $50,897,866 $101,561,126 $10,469,126
=========== ============ ===========
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation -- $1,231,491 $144,738
Gross unrealized depreciation -- (312,860) (45,182)
----------- ------------ -----------
Net unrealized appreciation (depreciation) -- $918,631 $99,556
=========== ============ ===========
MINNESOTA
TAX-FREE TAX-FREE
INCOME INCOME
FUND FUND
------------ ------------
Cost for federal income tax purposes $518,894,325 $137,446,118
============ ============
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $20,646,837 $4,648,814
Gross unrealized depreciation (684,876) (143,723)
------------ ------------
Net unrealized appreciation (depreciation) $19,961,961 $4,504,291
============ ============
</TABLE>
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF ASSETS & LIABILITIES - MARCH 31, 1998
<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 ............... $ 50,897,866 $ 101,561,126 $ 10,452,751 $ 518,894,325 $ 137,443,285
=============== =============== =============== =============== ===============
Investments in securities, at
market value - see accompanying
schedules for detail .......... $ 50,897,866 $ 102,479,757 $ 10,568,682 $ 538,856,286 $ 141,950,409
Cash in bank on demand
deposit ....................... 1,007 -- -- -- --
Accrued interest receivable ...... -- 717,929 83,754 7,270,924 2,308,698
Receivable for principal
paydowns ...................... -- 15,210 37,542 -- --
Receivable for investment
securities sold ............... -- -- 373,758 -- --
Other receivables ................ -- -- 258 11,876 1,552
Receivable for Fund shares
sold .......................... 375,351 935,883 5,360 1,509,718 285,432
--------------- --------------- --------------- --------------- ---------------
Total assets ....... 51,274,224 104,148,779 11,069,354 547,648,804 144,546,091
--------------- --------------- --------------- --------------- ---------------
LIABILITIES
Disbursements in excess of
cash balances ................. -- 33,292 1,987 120,865 32,897
Payable for investment securities
purchased - when issued (note 1) -- -- 348,710 25,691,284 471,077
Payable for investment securities
purchased ..................... -- -- -- -- 149,030
Payable for Fund shares
redeemed ...................... 8,122,873 109,185 646 1,431,620 64,565
Cash portion of dividends
payable to shareholders ....... 20,991 64,618 4,589 502,595 103,129
Other payables ................... 307 4,791 -- 317 --
Accrued investment management
and advisory services fee ..... 19,279 68,677 7,171 323,470 91,723
--------------- --------------- --------------- --------------- ---------------
Total liabilities .. 8,163,450 280,563 363,103 28,070,151 912,421
--------------- --------------- --------------- --------------- ---------------
Net assets applicable to
outstanding capital stock ..... $ 43,110,774 $ 103,868,216 $ 10,706,251 $ 519,578,653 $ 143,633,670
=============== =============== =============== =============== ===============
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 ............ 43,113,793 9,767,850 1,067,125 49,932,471 13,697,612
=============== =============== =============== =============== ===============
Net asset value per share of
outstanding capital stock ...... $ 1.00 $ 10.63 $ 10.03 $ 10.41 $ 10.49
=============== =============== =============== =============== ===============
</TABLE>
See accompanying notes to financial statements on pages 46-54.
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF OPERATIONS - YEAR ENDED MARCH 31, 1998
<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 ............................ $ 1,853,440 $ 5,879,659 $ 558,923 $ 25,474,441 $ 7,091,886
------------ ------------ ------------ ------------ ------------
Total income ................ 1,853,440 5,879,659 558,923 25,474,441 7,091,886
------------ ------------ ------------ ------------ ------------
EXPENSES (NOTE 3):
Investment management and
advisory services fee ........... 263,629 797,954 62,780 3,365,321 926,184
Less fees and expenses absorbed
by investment adviser ....... (98,857) (100,000) -- (171,504) --
------------ ------------ ------------ ------------ ------------
Total net expenses .............. 164,772 697,954 62,780 3,193,817 926,184
------------ ------------ ------------ ------------ ------------
Net investment income ........... 1,688,668 5,181,705 496,143 22,280,624 6,165,702
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) (note 2) ... -- 751,953 49,321 5,643,332 378,832
Net change in unrealized appreciation
or depreciation on investments .. -- 1,908,463 229,412 13,506,608 3,309,650
------------ ------------ ------------ ------------ ------------
Net gain (loss) on investments ...... -- 2,660,416 278,733 19,149,940 3,688,482
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations .......................... $ 1,688,668 $ 7,842,121 $ 774,876 $ 41,430,564 $ 9,854,184
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements on pages 46-54.
<PAGE>
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,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................ $ 1,688,668 $ 1,279,586 $ 5,181,705 $ 3,649,108
Net realized gain (loss) on investments ...... -- -- 751,953 (354,419)
Net change in unrealized appreciation
(depreciation) of investments ............. -- -- 1,908,463 (903,875)
------------- ------------- ------------- -------------
Net increase in net assets resulting from
operations ................................ 1,688,668 1,279,586 7,842,121 2,390,814
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................ (1,688,687) (1,279,586) (5,181,705) (3,649,108)
Net realized gains on investments ............ -- -- -- --
------------- ------------- ------------- -------------
Total distributions ....................... (1,688,687) (1,279,586) (5,181,705) (3,649,108)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold .................... 421,731,957 248,117,061 54,323,377 37,499,822
Reinvested distributions ..................... 1,490,762 1,094,430 4,543,928 3,183,829
Payments for shares redeemed ................. (412,780,024) (237,803,699) (31,053,376) (18,481,485)
------------- ------------- ------------- -------------
Increase (decrease) in net assets from
capital share transactions ............. 10,442,695 11,407,792 27,813,929 22,202,166
------------- ------------- ------------- -------------
Total increase (decrease) in net assets 10,442,676 11,407,792 30,474,345 20,943,872
NET ASSETS
Beginning of period .......................... 32,668,098 21,260,306 73,393,871 52,449,999
------------- ------------- ------------- -------------
End of period ................................ $ 43,110,774 $ 32,668,098 $ 103,868,216 $ 73,393,871
============= ============= ============= =============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ...... $ 43,110,774 $ 32,668,098 $ 102,717,092 $ 74,903,163
Undistributed (distributions in excess of) net
investment income ......................... -- -- -- --
Accumulated net realized gain (loss) from
security transactions ..................... -- -- 232,493 (519,460)
Unrealized appreciation (depreciation)
on investments ............................ -- -- 918,631 (989,832)
------------- ------------- ------------- -------------
$ 43,110,774 $ 32,668,098 $ 103,868,216 $ 73,393,871
============= ============= ============= =============
CAPITAL TRANSACTIONS IN SHARES:
Sold ......................................... 421,731,641 248,117,061 5,135,153 3,598,212
Reinvested distributions ..................... 1,490,762 1,094,430 429,944 306,370
Redeemed ..................................... (412,779,708) (237,803,699) (2,935,530) (1,777,514)
------------- ------------- ------------- -------------
Net increase (decrease) .......................... 10,442,695 11,407,792 2,629,567 2,127,068
============= ============= ============= =============
</TABLE>
<PAGE>
<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,
1998 1997 1998 1997 1998 1997
- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 496,143 $ 356,091 $ 22,280,624 $ 16,668,893 $ 6,165,702 $ 4,095,554
49,321 (26,666) 5,643,332 1,239,489 378,832 (54,294)
229,412 (64,569) 13,506,608 1,148,455 3,309,650 225,585
- ------------- ------------- ------------- ------------- ------------- -------------
774,876 264,856 41,430,564 19,056,837 9,854,184 4,266,845
- ------------- ------------- ------------- ------------- ------------- -------------
(496,143) (356,091) (22,265,772) (16,676,319) (6,147,546) (4,095,554)
(15,500) (38,869) (2,923,000) -- -- --
- ------------- ------------- ------------- ------------- ------------- -------------
(511,643) (394,960) (25,188,772) (16,676,319) (6,147,546) (4,095,554)
- ------------- ------------- ------------- ------------- ------------- -------------
5,732,530 1,935,754 289,918,088 155,421,758 95,953,859 53,475,364
444,858 327,137 19,434,042 12,524,280 5,000,624 3,198,228
(2,137,832) (951,712) (148,555,475) (107,554,950) (55,003,355) (25,849,251)
- ------------- ------------- ------------- ------------- ------------- -------------
4,039,556 1,311,179 160,796,655 60,391,088 45,951,128 30,824,341
- ------------- ------------- ------------- ------------- ------------- -------------
4,302,789 1,181,075 177,038,447 62,771,606 49,657,766 30,995,632
6,403,462 5,222,387 342,540,206 279,768,600 93,975,904 62,980,272
- ------------- ------------- ------------- ------------- ------------- -------------
$ 10,706,251 $ 6,403,462 $ 519,578,653 $ 342,540,206 $ 143,633,670 $ 93,975,904
============= ============= ============= ============= ============= =============
$ 10,605,635 $ 6,566,079 $ 498,119,977 $ 337,323,322 $ 139,209,693 $ 93,258,565
-- -- 7,426 (7,426) 9,078 (9,078)
(15,315) (49,136) 1,489,289 (1,231,043) (92,225) (471,057)
115,931 (113,481) 19,961,961 6,455,353 4,507,124 1,197,474
- ------------- ------------- ------------- ------------- ------------- -------------
$ 10,706,251 $ 6,403,462 $ 519,578,653 $ 342,540,206 $ 143,633,670 $ 93,975,904
============= ============= ============= ============= ============= =============
571,626 198,683 28,152,545 15,592,536 9,257,296 5,256,072
44,515 33,549 1,884,655 1,256,626 481,164 314,798
(214,721) (97,629) (14,443,246) (10,828,540) (5,306,337) (2,547,449)
- ------------- ------------- ------------- ------------- ------------- -------------
401,420 134,603 15,593,954 6,020,622 4,432,123 3,023,421
============= ============= ============= ============= ============= =============
</TABLE>
45
See accompanying notes to financial statements on pages 46-54.
<PAGE>
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 regular 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 based on current interest rates;
those securities with maturities of less than 60 days when acquired, or
which subsequently are within 60 days of maturity, are valued at amortized
cost, which approximates market value. When market quotations are not
readily available, securities are valued at fair value based on procedures
determined in good faith by the Boards of Directors. Such fair values are
determined using prices quoted by independent brokers or pricing services.
Pursuant to Rule 2a-7 of the Investment Company Act of 1940, all
securities in the Money Market Fund are valued at amortized cost, which
approximates market value, in order to maintain a constant net asset value
of $1 per share.
Security transactions are accounted for on the date the securities are
purchased or sold. 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 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, 1998, the Minnesota Tax-Free Income,
Tax-Free Income, and Bond Funds had entered into when-issued or forward
commitments of $471,077, $25,691,284, and $348,710, respectively.
<PAGE>
The Minnesota Tax-Free Income Fund concentrates its investments in
Minnesota, and therefore may have more credit risk related to the economic
conditions in the state of Minnesota than a portfolio with broader
geographical diversification.
FEDERAL TAXES
The Funds' policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders. Therefore, no income
tax provision is required. Also, in order to avoid the payment of any
federal excise taxes, the Funds will distribute substantially all of their
net investment income and net realized gains on a calendar year basis.
Net investment income and net realized gains may differ for financial
statement and tax purposes. The character of distributions made during the
year for net investment income or net realized gains may also differ from
its ultimate characterization for tax purposes.
For federal income tax purposes the Minnesota Tax-Free Income Fund has a
capital loss carryover of $89,392 at March 31, 1998, which, if not offset
by subsequent capital gains, will begin to expire in 2003. It is unlikely
the Board of Directors will authorize a distribution of any net realized
gains until the available capital loss carryover is offset or expires.
DISTRIBUTIONS
Distributions to shareholders are recorded as of the close of business on
the record date. Such distributions are payable in cash or reinvested in
additional shares of the Funds' capital stock. Distributions from net
investment income are declared daily and paid monthly for the Funds.
Distributions from net realized gains, if any, will be made annually for
each of the Funds.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported results. Actual results
could differ from those estimates.
(2) INVESTMENT SECURITY TRANSACTIONS
Purchases of and proceeds from sales and maturities of investment
securities, other than short-term securities, for the year ended March 31,
1998, were as follows:
Purchases ($) Proceeds ($)
------------- ------------
U.S. Government Securities Fund 71,958,220 43,074,603
Bond Fund 9,983,592 5,793,637
Tax-Free Income Fund 229,699,693 85,602,790
Minnesota Tax-Free Income Fund 60,153,172 19,399,064
<PAGE>
For Money Market Fund during the year ended March 31, 1998, purchases of
and proceeds from sales and maturities of investment securities aggregated
$1,070,486,112 and $1,053,140,850 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, 1998, 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, 1998, this
voluntary fee waiver may be discontinued by the Adviser in its sole
discretion.
For the period April 1, 1995, through December 31, 1998, 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, 1998, this voluntary fee waiver may be discontinued by the
Adviser in its sole discretion.
<PAGE>
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, 1998:
% Shares
Shares Outstanding
------ -----------
Money Market Fund 8,101,909 18.79
U.S. Government Securities Fund 534,423 5.47
Bond Fund 55,372 5.19
Tax-Free Income Fund 1,590,824 3.19
Minnesota Tax-Free Income Fund 481,803 3.52
(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:
<PAGE>
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 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,
1998 1997 1996 1995 1994 1993 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income 0.05 0.05 0.05 0.04 0.01 0.01 0.03
- --------------------------------------------------------------------------------------------------------------------------------
Total from operations 0.05 0.05 0.05 0.04 0.01 0.01 0.03
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.05) (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 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 5.29% 5.04% 5.44% 4.57% 1.14% 0.92% 3.02%
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $43,111 $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) 0.50%(3) 0.72%(3) 0.80%(2)
Net investment income to average daily
net assets 5.12%(3) 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 period 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, 1998, 1997, 1996,
1995 and 1994, and October 31, 1993 the investment adviser voluntarily
absorbed $98,857, $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 4.82%,
4.63%, 5.05%, 4.33%, 2.46%, and 2.59%, respectively.
<PAGE>
SIT U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Nine Months
Years Ended March 31, Ended Year Ended
-------------------------------------------------- March 31, June 30,
1998 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 10.28 $ 10.47 $ 10.28 $ 10.50 $ 10.73 $ 10.81
- --------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .63 .65 .70 .67 .47 .71
Net realized and unrealized gains
(losses) on investments .35 (.19) .19 (.22) (.18) .07
- --------------------------------------------------------------------------------------------------------------------------------
Total from operations .98 .46 .89 .45 .29 .78
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.63) (.65) (.70) (.67) (.47) (.71)
From realized gains -- -- -- -- (.05) (.15)
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (.63) (.65) (.70) (.67) (.52) (.86)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 10.63 $ 10.28 $ 10.47 $ 10.28 $ 10.50 $ 10.73
- --------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 9.70% 4.55% 8.87% 4.47% 2.70% 7.50%
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $103,868 $ 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) 0.80%(3) 0.86%(3) 0.89%(2)
Net investment income to average daily net assets 5.93%(3) 6.30%(3) 6.72%(3) 6.48%(3) 5.79%(3) 6.60%(2)
Portfolio turnover rate (excluding
short-term securities) 50.67% 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 ended March 31, 1994, are adjusted to an annual
rate. Total Fund expenses are contractually limited to 1.00% of average
daily net assets for the first $50 million in Fund net assets and .80% of
average daily net assets exceeding $50 million However, during the periods
ended March 31, 1998, 1997, 1996, 1995 and 1994, the investment adviser
voluntarily absorbed $100,000, $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 .91% and .97% for the periods ended March 31, 1998, and 1997,
respectively 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 5.82%, 6.13%, 6.52%, 6.28%, and 5.65%, respectively.
<PAGE>
SIT BOND FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Period from
December 1,
Years Ended March 31, 1993 (1) to
-------------------------------------------- March 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 9.62 $ 9.83 $ 9.48 $ 9.69 $ 10.00
- --------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .63 .64 .64 .62 .19
Net realized and unrealized
gains (losses) on investments .43 (.14) .35 (.21) (.31)
- --------------------------------------------------------------------------------------------------------------------
Total from operations 1.06 .50 .99 .41 (.12)
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.63) (.64) (.64) (.62) (.19)
From realized gains (.02) (.07) -- -- --
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.65) (.71) (.64) (.62) (.19)
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 10.03 $ 9.62 $ 9.83 $ 9.48 $ 9.69
- --------------------------------------------------------------------------------------------------------------------
Total investment return (2) 11.22% 5.21% 10.57% 4.51% (1.22%)
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 10,706 $ 6,403 $ 5,222 $ 3,533 $ 3,403
RATIOS:
Expenses to average daily net assets 0.80% 0.80% 0.80% 0.80% 0.80%(3)
Net investment income to average daily net assets 6.31% 6.52% 6.49% 6.63% 6.24%(3)
Portfolio turnover rate (excluding short-term securities) 76.15% 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.
<PAGE>
SIT TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Nine Months
Years Ended March 31, Ended Year Ended
----------------------------------------------- March 31, June 30,
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 9.98 $ 9.88 $ 9.70 $ 9.63 $ 10.02 $ 9.74
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .54 .56 .56 .56 .43 .60
Net realized and unrealized gains
(losses) on investments .50 .10 .18 .09 (.30) .32
- ------------------------------------------------------------------------------------------------------------------------------------
Total from operations 1.04 .66 .74 .65 .13 .92
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.54) (.56) (.56) (.56) (.43) (.60)
From realized gains (.07) -- -- (.02) (.09) (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.61) (.56) (.56) (.58) (.52) (.64)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 10.41 $ 9.98 $ 9.88 $ 9.70 $ 9.63 $ 10.02
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 10.69% 6.82% 7.73% 7.00% 1.19% 9.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $519,579 $342,540 $279,769 $255,157 $324,691 $338,977
RATIOS:
Expenses to average daily net assets 0.76%(2) 0.79%(2) 0.80%(2) 0.79%(2) 0.77%(2) 0.80%
Net investment income to average daily net assets 5.29%(2) 5.63%(2) 5.65%(2) 5.84%(2) 5.68%(2) 6.17%
Portfolio turnover rate (excluding short-term securities) 21.40% 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, 1998, 1997,
1996, 1995 and 1994, the investment adviser voluntarily absorbed $171,504,
$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, 1998, 1997, 1996, 1995 and 1994, and the ratio of net
investment income to average daily net assets would have been 5.25%,
5.62%, 5.65%, 5.83% and 5.65%, respectively.
<PAGE>
SIT MINNESOTA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Period from
December 1,
Years Ended March 31, 1993 (1) to
-------------------------------------------- March 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 10.14 $ 10.09 $ 9.96 $ 9.79 $ 10.00
- --------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .55 .57 .57 .56 .17
Net realized and unrealized gains
(losses) on investments .35 .05 .13 .17 (.21)
- --------------------------------------------------------------------------------------------------------------------
Total from operations .90 .62 .70 .73 (.04)
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.55) (.57) (.57) (.56) (.17)
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 10.49 $ 10.14 $ 10.09 $ 9.96 $ 9.79
- --------------------------------------------------------------------------------------------------------------------
Total investment return (2) 9.07% 6.26% 7.12% 7.68% (0.80%)
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $143,634 $ 93,976 $ 62,980 $ 43,881 $ 18,105
RATIOS:
Expenses to average daily net assets 0.80% 0.80% 0.80% 0.80% 0.80(3)
Net investment income to average daily net assets 5.32% 5.56% 5.62% 5.72% 5.23(3)
Portfolio turnover rate (excluding short-term securities) 17.58% 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.
<PAGE>
SIT MUTUAL FUNDS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
SIT Money Market Fund, Inc.
SIT U.S. Government Securities Fund, Inc.
SIT Mutual Funds II, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of portfolios of investments, of Sit Money Market Fund,
Inc., Sit U.S. Government Securities Fund, Inc., Sit Bond Fund (a series of Sit
Mutual Funds II, Inc.), Sit Tax-Free Income Fund (a series of Sit Mutual Funds
II, Inc.), and Sit Minnesota Tax-Free Income Fund (a series of Sit Mutual Funds
II, Inc.), as of March 31, 1998; the related statements of operations for the
year then ended; the statements of changes in net assets for each of the years
in the two-year period then ended; and the financial highlights 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,
1998 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 8, 1998
<PAGE>
SIT MUTUAL FUNDS
RESULTS OF THE SHAREHOLDER MEETING
The annual meeting of the shareholders of the Funds was held on October 21,
1997. Directors elected by the shareholders at the meeting were as follows:
Eugene C. Sit, Peter L. Mitchelson, William E. Frenzel, John E. Hulse, Sidney L.
Jones, and Donald W. Phillips for all Funds and Michael C. Brilley for the Sit
Bond Funds only.
The matters voted on by the shareholders of record as of August 25, 1997 and the
results of the shareholders' vote at the October 21, 1997 meeting were as
follows:
1. Election of Directors:
For Withheld
--- --------
Eugene C. Sit
U.S. Government Securities 4,410,088 14,065
Money Market 17,579,022 97,609
Tax-Free Income 22,310,717 40,911
MN Tax-Free Income 6,647,332 25,079
Bond 603,932 467
William E. Frenzel
U.S. Government Securities 4,398,224 25,930
Money Market 17,548,676 127,955
Tax-Free Income 22,291,462 60,166
MN Tax-Free Income 6,560,887 111,523
Bond 603,932 467
John E. Hulse
U.S. Government Securities 4,393,493 30,661
Money Market 17,538,508 138,123
Tax-Free Income 22,247,578 104,050
MN Tax-Free Income 6,620,430 51,981
Bond 603,932 467
Sidney L. Jones
U.S. Government Securities 4,409,264 14,889
Money Market 17,552,892 123,739
Tax-Free Income 22,304,594 47,034
MN Tax-Free Income 6,622,814 49,597
Bond 603,932 467
Peter L. Mitchelson
U.S. Government Securities 4,405,525 18,629
Money Market 17,579,022 97,609
Tax-Free Income 22,306,617 45,011
MN Tax-Free Income 6,647,332 25,079
Bond 603,932 467
Donald W. Phillips
U.S. Government Securities 4,397,307 26,846
Money Market 17,549,986 126,645
Tax-Free Income 22,262,176 89,452
MN Tax-Free Income 6,620,517 51,893
Bond 603,932 467
<PAGE>
For Withheld
--- --------
Michael C. Brilley
U.S. Government Securities 4,405,645 18,508
Money Market 17,579,022 97,609
Tax-Free Income 22,290,768 60,860
MN Tax-Free Income 6,647,332 25,079
Bond 603,932 467
2. Ratification of KPMG Peat Marwick as independent auditors for the
Funds:
For Against Abstain
--- ------- -------
U.S. Government Securities 4,369,893 14,438 39,822
Money Market 17,455,744 15,236 205,651
Tax-Free Income 22,118,834 46,020 186,773
MN Tax-Free Income 6,616,270 18,130 38,010
Bond 603,932 467 000
3. Amendment of each Fund's fundamental investment policy to eliminate
restrictions on each Fund's ability to pledge Fund assets and allow
each Fund to temporarily borrow money for emergency or extraordinary
purposes:
For Against Abstain
--- ------- -------
U.S. Government Securities 3,305,013 487,552 153,536
Money Market 14,416,383 3,080,849 179,399
Tax-Free Income 18,077,417 1,702,160 978,938
MN Tax-Free Income 5,865,391 573,853 106,342
Bond 584,734 1,055 6,317
<PAGE>
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 FUND AND PAYABLE DATE INCOME (a) GAIN
<S> <C> <C> <C> <C> <C>
Money Market Fund U.S. Government Securities Fund
April 30, 1997 $0.00416 ---- April 30, 1997 $0.05231 ----
May 30, 1997 0.00428 ---- May 30, 1997 0.05298 ----
June 30, 1997 0.00447 ---- June 30, 1997 0.05131 ----
July 31, 1997 0.00434 ---- July 31, 1997 0.05298 ----
August 29, 1997 0.00405 ---- August 29, 1997 0.04853 ----
September 30, 1997 0.00456 ---- September 30, 1997 0.05478 ----
October 31, 1997 0.00429 ---- October 31, 1997 0.05212 ----
November 28, 1997 0.00397 ---- November 28, 1997 0.04682 ----
December 31, 1997 0.00483 ---- December 31, 1997 0.05644 ----
January 30, 1998 0.00438 ---- January 30, 1998 0.05030 ----
February 27, 1998 0.00387 ---- February 27, 1998 0.05392 ----
March 31, 1998 0.00442 ---- March 31, 1998 0.05325 ----
-------- -------- -------- --------
$0.05162(c) $0.00000 $0.62573(c) $0.00000
Bond Fund Tax-Free Income Fund
April 30, 1997 $0.05250 ---- April 30, 1997 $0.04653 ----
May 30, 1997 0.05575 ---- May 30, 1997 0.04641 ----
June 30, 1997 0.05501 ---- June 30, 1997 0.04686 ----
July 31, 1997 0.05196 ---- July 31, 1997 0.04647 ----
August 29, 1997 0.04840 ---- August 29, 1997 0.04300 ----
September 30, 1997 0.05394 ---- September 30, 1997 0.04726 ----
October 31, 1997 0.05198 ---- October 31, 1997 0.04602 ----
November 28, 1997 0.04830 ---- November 28, 1997 0.04224 ----
December 15, 1997 0.01218 $0.0058(b) December 15, 1997 0.00000 $0.06793(e)
December 31, 1997 0.06222 ---- December 31, 1997 0.04970 ----
January 30, 1998 0.04543 ---- January 30, 1998 0.04391 ----
February 27, 1998 0.04989 ---- February 27, 1998 0.04079 ----
March 31, 1998 0.05297 ---- March 31, 1998 0.04563 ----
-------- ------- -------- --------
$0.64052(c) $0.0058 $0.54482(d) $0.06793
Minnesota Tax-Free Income Fund
April 30, 1997 $0.04654 ----
May30, 1997 0.04646 ----
June 30, 1997 0.04593 ----
July 31, 1997 0.04760 ----
August 29, 1997 0.04393 ----
September 30, 1997 0.04793 ----
October 31, 1997 0.04584 ----
November 28, 1997 0.04186 ----
December 31, 1997 0.05091 ----
January 30, 1998 0.04388 ----
February 27, 1998 0.04209 ----
March 31, 1998 0.04765 ----
-------- -------
$0.55062(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 (28%).
(c) Taxable as dividend income and does not qualify for deduction by
corporations.
(d) 100% of dividends were derived from interest on tax-exempt securities.
This portion of exempt-interest dividends is exempt from federal taxes and
should not be included in shareholders' gross income. Exempt-interest
dividends may be subject to state and local taxes. Each shareholder should
consult a tax adviser about reporting this income for state and local tax
purposes.
(e) $.062469 taxable as mid-term gain (20%) and $.005456 taxable as long-term
gain (28%).
<PAGE>
[LOGO] SIT(SM) MUTUAL FUNDS
THE INVESTMENT IS MUTUAL.(SM)
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, CFA President
Debra A. Sit, CFA Vice President -
Investments, Assistant
Treasurer
Bryce A. Doty, CFA Vice President -
Investments (1)
Paul J. Jungquist, CFA Vice President -
Investments (2)
Paul E. Rasmussen Vice President &
Treasurer
Michael P. Eckert Vice President - Group
Manager
Michael J. Radmer Secretary
Carla J. Rose Assistant Secretary
(1) Bond and U.S. Government Securities Funds only.
(2) Money Market Fund only.
