BOND FUNDS SEMI-ANNUAL REPORT
-----------------------------
SIX MONTHS ENDED SEPTEMBER 30, 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 MUTUAL FUNDS
<PAGE>
SIT MUTUAL FUNDS
BOND FUNDS SEMI-ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
Chairman's Letter......................................... 2
Performance Review........................................ 4
Fund Reviews and Portfolios of Investments
Money Market Fund................................... 6
U.S. Government Securities Fund..................... 10
Bond Fund........................................... 14
Tax-Free Income Fund................................ 18
Minnesota Tax-Free Income Fund...................... 34
Notes to Portfolios of Investments........................ 43
Statements of Assets and Liabilities...................... 44
Statements of Operations.................................. 45
Statements of Changes in Net Assets....................... 46
Notes to Financial Statements............................. 48
Financial Highlights...................................... 51
This document must be preceded or accompanied by a Prospectus.
<PAGE>
SIT MUTUAL FUNDS
CHAIRMAN'S LETTER - SEPTEMBER 30, 1998
[PHOTO]
Dear Fellow Shareholders:
Lower U. S. interest rates led domestic fixed income markets to provide capital
appreciation in addition to coupon income in each of the past two quarters. The
Federal Reserve cut the federal funds rate by 0.25% September 29th in response
to continued weakening in foreign economies and systemic pressures created by
highly leveraged hedge funds. The September move was quickly followed by a 0.25%
move on October 15th. We believe the Federal Reserve will make additional
reductions in short-term interest rates but at a more gradual pace in light of
the pickup in domestic economic growth during the third quarter.
Economic Overview
The domestic economy slowed to a +1.6% annualized rate of real GDP growth during
the second quarter of 1998, and resumed a stronger path during the third quarter
with a +3.3% growth rate. The spring slowdown followed six consecutive quarters
with +3% or higher GDP growth. Given recent global events, we have reduced our
forecast of growth for the U.S. economy through 1999 to about a +2% growth rate.
We believe a recession can be avoided, but do not rule out the possibility of a
quarter of negative real GDP growth sometime in 1999. We base this view on
latest trends in year-over-year percentage change growth rates for the major
components of GDP, along with recently observed pressures on net exports and
corporate profits. The weakness in profits will ultimately impact business
capital spending. While we cannot be absolutely precise on when these pressures
will reach their maximum stress point, it is likely that we will see slower
growth in 1999.
The May through July year-over-year Consumer Price Index increases moved up to
+1.7%, but in August receded to +1.6%, and in September receded to +1.5%.
Inflation could stay low due to import price pressures, the inability of
corporations to raise prices and docile commodity and producer prices. Monetary
policy is rapidly reflecting changes in Federal Reserve attitudes concerning
strength in the U.S. economy. With slower economic growth, inflation will likely
remain low.
Minutes of the August 18th FOMC meeting were released on October 1st and
revealed that the committee had dropped its bias toward raising interest rates
that had been in place since March 31, 1998. As justification, the minutes noted
that "while inflation risks were still a concern, given the high level of output
and strong domestic demand, the uncertainties bearing on the economic outlook
remained substantial, and indeed the risk on the downside has increased. Even
more serious disruptions in Asia, Russia, and Latin America could not be ruled
out, and would have negative implications for the U.S. economy."
The modest magnitude of the Federal Reserve's federal funds rate cuts prove to
be a sound long-term policy move in not appearing to be a drastic reaction that
would disrupt markets even more. Indeed, global financial markets seem to have
stabilized since these Fed eases. It also provides leeway for a series of
gradual rate cuts over time, which we believe will occur in order to
re-establish a more positively sloped yield curve. The current position of the
yield curve is similar to those associated with significant economic slowdowns
in the past and we believe the Fed will continue to act to avoid a recession. We
expect an additional federal funds rate cut during the fourth quarter and
another rate reduction during the first quarter of 1999.
Hedge Funds and "Flight to Quality"
The highly publicized crises at Long-term Capital Management, D.E. Shaw and
Company and other troubled hedge funds resulted in a "flight to quality" during
September and continuing through October. The flight to U.S. Treasury issues (as
the ultimate source of liquidity) had the effect of pushing U.S. Treasury bond
yields to new lows.
Specifically, the yield on the 2-year maturity Treasuries fell more 50 basis
points during September to 4.29%, while the 30-year maturity dropped 32 basis
points to yield 4.98% at September 30th. For the third quarter, the drop in
2
<PAGE>
U.S. Treasury yields ranged from 0.64% to 1.23%, depending on maturity. The
demand for liquidity caused a significant divergence in performance between
Treasuries and all other sectors. For instance, the Lehman Government Index
outperformed the Lehman Corporate Index by +1.90% during the third quarter, a
feat not witnessed since the second quarter of 1984. Likewise, the Lehman
Government Index outperformed the Lehman Mortgage Index by +2.89%, the poorest
relative performance for mortgages since August of 1993. The flight to quality
was even more obvious when comparing the Merrill Lynch High Yield Index return
of -3.58% to the Lehman Government Index's +5.55% return for the third quarter.
Worse yet was the -21.23% third quarter return for the J.P. Morgan Emerging
Market Index Plus.
Strategy Summary
While it will be difficult for U.S. Treasuries to maintain their impressive
outperformance of recent months, we expect demand for high quality securities to
remain strong at least through year end. We also expect the Federal Reserve and
other central banks to continue to lower short-term interest rates in order to
help restore liquidity in the global credit markets. As a result, the Sit Mutual
Funds' taxable bond portfolios are overweighted in short and intermediate
duration securities to take advantage of anticipated yield curve steepening.
Municipal yields continued to decline and also reached new lows during
September. The yield on the Bond Buyer 40-Bond Revenue Bond Index decreased 7
basis points during September to 5.04% on September 30th. Municipals did not
keep pace with the decline in Treasury yields. While new issuance activity has
picked up somewhat with the continued decline in interest rates, municipal
supply conditions remain very tight as increased price volatility in other
financial markets has resulted in heavy cash inflows into municipal bond funds.
In addition, municipal refunding activity has been limited by the relatively
high cost of Treasury bonds that would be needed as escrow collateral. The rally
in the Treasury market has caused Treasury yields to move below the yield levels
for A-rated municipal bonds with maturities 10 years and beyond. The relative
yield of long municipal bonds to long Treasury bonds increased from 97% to 101%
on September 30th, and is at its cheapest level since the Tax Reform Act of
1986, which caused this ratio to reach 110%. We expect the relative valuation of
municipals to Treasuries will return eventually to more normal levels (i.e.,
around 87%) once volatility in other financial market sectors subsides. We
remain focused on purchasing bonds in the 10 to 20 year maturity range where the
municipal yield curve is the steepest.
We appreciate your continued interest and investment in Sit Mutual Funds and we
look forward to assisting you in achieving your long-term investment goals.
With best wishes,
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
3
<PAGE>
SIT MUTUAL FUNDS
SEPTEMBER 30, 1998 PERFORMANCE SUMMARY - BOND FUNDS
BOND MARKET REVIEW
The Federal Reserve signaled a shift to a more accommodative monetary
policy on September 29th with a 25 basis points cut in the federal funds rate.
That move was in response to continued weakening in foreign economies and
systemic pressures created by highly leveraged hedge funds. Short-term interest
rates fell sharply with the 90-day Treasury bill yields down to 4.37% on
September 30, compared with 5.13% six months earlier, reflecting investor
expectations for further reductions in rates by the Federal Reserve.
Longer-term bond yields were relatively stable through the first five
months of 1998 when the yield of the 30-year Treasury bond varied between 5.80%
and 6.10%. Long-term Treasury bond yields fell sharply in the following four
months to a September 30th low of 4.98%. Growing concerns over a domestic
economic slowdown resulted in a much smaller decrease in long-term corporate
bond yields, which declined by less than one-half that of Treasury yields. The
resulting widening of yield spreads between corporates and Treasuries resulted
in a sharp decline in the volume of newly issued corporate bonds beginning in
late August.
Sector selection was very important in the taxable market. U.S. Treasury
securities posted the strongest returns while lesser rated corporates and
mortgage pass through securities the lowest returns.
Longer-term municipal bond yields, as measured by the Bond Buyer 40-Bond
Index, remained above their early January low of 5.10% until the last day of
September when the Index dropped to a 5.04% yield level. September 30th marked
one of the occasions in history when long-term municipal bond yields were
actually higher than 30-year Treasury bond yields. Unlike the taxable bond
market, where credit quality spreads are quite wide, municipal quality spreads
remain at historically narrow levels in part reflecting the fact that hedge
funds typically avoid investing in municipal securities. Returns across various
sectors of the municipal market, such as general obligations and the various
sectors of municipal revenue markets, were within a narrow range for both the
past three and six-month time periods with the exception of housing and resource
recovery issues which lagged in return over the past six months.
1989 1990
------------------
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.)
NASDAQ
SYMBOL INCEPTION
---------------------
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
(1) Period from Fund inception through calendar year-end. (5) Period January 1,
1993, through October 31, 1993, at which time the Fund converted to the Sit
Money Market Fund.
(2) Based on the last 12 monthly distributions of net investment income and
average (6) Figure represents 7-day compound effective yield. The 7-day
simple yield as of 9/30/98 was 5.18%.
NAV as of 9/30/98.
(3) For Minnesota residents in the 28%, 31%, 36% and 39.6% federal tax brackets,
the double exempt tax equivalent yields are 7.19%, 7.51%, 8.09% and 8.58%,
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 6.31%, 6.58%, 7.09% and 7.52%,
respectively (Income subject to state tax, if any).
4
<PAGE>
TOTAL RETURN - CALENDAR YEAR
<TABLE>
<CAPTION>
YIELD
YTD AS OF DISTRIBUTION
1991 1992 1993 1994 1995 1996 1997 9/30/98 9/30/98 RATE(2)
--------------------------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 0.46%(1) 3.84% 5.58% 5.08% 5.22% 3.90% 5.31%(6)
12.87% 5.43% 7.34 1.77 11.50 4.99 8.19 5.53 5.48 5.55%
-- -- 0.34(1) -1.31 16.83 4.25 9.44 6.49 5.73 5.80
9.25 7.71 10.42 -0.63 12.86 5.69 9.87 5.73 4.54(4) 5.10
-- -- 1.60(1) 0.63 11.90 5.89 8.19 5.23 4.74(3) 5.12
5.72 3.56 3.13 4.47 5.98 5.27 5.32 3.88
14.11 6.93 8.17 -1.75 14.41 4.06 7.72 8.22
16.00 7.40 0.54(1) -2.92 18.47 3.63 9.65 8.32
11.41 7.62 8.73 -1.28 11.65 4.22 6.38 4.98
6.14% 3.81% 2.34%(5)
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
TOTAL RETURN PERIODS ENDED SEPTEMBER 30, 1998
QUARTER SIX MONTHS SINCE
ENDED 9/30/98 ENDED 9/30/98 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- ------------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.29% 2.59% 5.26% 5.19% -- -- 4.90%
2.34 4.08 7.58 7.26 6.61% 7.98% 8.22
3.12 5.25 8.73 8.07 -- -- 7.30
2.81 4.22 8.57 8.26 6.89 7.84 7.83
2.61 4.00 8.08 7.53 -- -- 6.88
1.24 2.54 5.24 5.29 5.11 -- 5.14
4.67 6.61 10.61 7.82 6.43 8.38 8.30
4.23 6.66 11.51 8.67 -- -- 7.58
2.63 3.78 6.76 5.90 5.36 7.06 7.05
</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 9/30/98 was 5.18%
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.
5
<PAGE>
SIT MONEY MARKET FUND REVIEW
SIX MONTHS ENDED SEPTEMBER 30, 1998
[PHOTO] MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
PAUL J. JUNGQUIST, CFA
PORTFOLIO MANAGER
The Sit Money Market Fund provided investors with a +2.59% return for the
six months ended September 30, 1998, compared to a +2.43% average return for the
Lipper Analytical Services, Money Market Fund universe. The Fund's performance
ranked 57th of 319 funds in its Lipper peer group category for the third quarter
of 1998. The Fund's performance ranked 60th of 303 funds, 52nd of 264 funds and
44th of 198 funds in its Lipper peer group, respectively, for the year, three
year and since inception (October 31, 1993) periods ended September 30, 1998,
respectively. As of September 30, 1998, the Fund's 7-day compound yield was
5.31% and its average maturity was 25 days, compared to 5.20% and 28 days,
respectively, at March 31, 1998.
The Federal Reserve Board decreased the federal funds rate to 5.25% from
5.50% on September 29, in response to the economic and political turmoil roiling
the global financial markets in the latter half of 1998. Three-month Treasury
bill yields were volatile over the past six months, ranging from 5.23% in May to
4.36% on September 30th. Current yield levels imply that the market is expecting
additional ease by the Fed in the fourth quarter of 1998. While we believe a
recession can be avoided, slower domestic and global growth with still dormant
inflation over the next year would support this Fed policy. Accordingly, the
Fund will try to take advantage of current yield levels while extending its
average maturity slightly.
The Fund has produced competitive returns by focusing on credit research,
optimizing average maturity and avoiding the use of risky derivatives. We intend
to continue these conservative policies in the future. Despite the global
financial turmoil and slowing economic activity, we do not foresee a significant
impact on the short-term creditworthiness of top tier commercial paper issuers
in general. However, given this backdrop, financial services and industrial
companies are more likely to experience difficulties, so we will monitor the
Fund's permissible credits in these sectors particularly closely. The Fund
continues to diversify its core holdings and its industry exposure. In the
months ahead, we plan to add top tier credits in the technology and consumer
non-durable industries.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to achieve maximum current income to the
extent consistent with the preservation of capital and maintenance of liquidity.
The Fund pursues this objective by investing in a diversified portfolio of high
quality short-term debt instruments. The Fund seeks to maintain a stable net
asset value of $1.00 per share. However, there is no assurance of a constant
share price.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share.
PORTFOLIO SUMMARY
Net Asset Value 9/30/98: $1.00 Per Share
3/31/98: $1.00 Per Share
Total Net Assets: $46.94 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
U.S. Government 23.9
Diversified Finance 15.1
Consumer Loan Finance 13.4
Captive Equipment Finance 10.7
Captive Auto Finance 9.0
Consumer Non-Durables 7.6
Insurance 5.5
Technology/Bus. Equipment 3.9
Retail 3.0
Captive Oil Finance 3.0
Capital Goods 2.8
Other Assets and Liabilities 2.1
6
<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 1.29% 1.21% 1.24% 1.29% 1.21% 1.24%
(not annualized)
1 Year 5.26 4.93 5.24 5.26 4.93 5.24
3 Year 5.19 4.91 5.29 16.40 15.47 16.73
Inception 4.90 4.69 5.14 26.52 25.29 27.98
(11/1/93)
</TABLE>
* As of 9/30/98
PERFORMANCE IS HISTORICAL AND ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL
GAINS. MONEY FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
THERE IS NO ASSURANCE THAT A FUND WILL MAINTAIN A $1 SHARE VALUE. YIELD
FLUCTUATES. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE U.S. TREASURY BILL. THE
LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC.,
A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
3-MONTH U.S. SIT MONEY
TREASURY BILL INDEX MARKET FUND
The sum of $10,000 invested at inception (11/1/93) and held until 9/30/98 would
have grown to $12,652 in the Fund or $12,798 in the 3-Month U.S. Treasury Bill
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of Net Assets)
AS RATED BY MOODY'S, S&P AND FITCH
[PIE CHART]
First Tier Securities 100%
First Tier Securities 100%
Second Tier Securities 0%
7
<PAGE>
SIT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE(1)
- ---------------------------------------------------------------------------------------------
<S> <C>
COMMERCIAL PAPER (78.8%) (2)
CAPITAL GOODS (2.8%)
Deere & Co.:
500,000 5.54%, 11/4/98 $497,412
400,000 5.50%, 11/6/98 397,820
425,000 5.53%, 11/9/98 422,482
--------------
1,317,714
--------------
CAPTIVE AUTO FINANCE (9.0%)
Ford Motor Credit Corp.:
475,000 5.57%, 10/6/98 474,636
730,000 5.58%, 10/7/98 729,328
640,000 5.50%, 11/5/98 636,609
General Motors Acceptance Corp.:
400,000 5.55%, 10/30/98 398,234
500,000 5.52%, 11/3/98 497,498
Toyota Motor Credit Co.:
500,000 5.55%, 10/1/98 500,000
500,000 5.55%, 10/5/98 499,694
500,000 5.47%, 11/19/98 496,318
--------------
4,232,317
--------------
CAPTIVE EQUIPMENT FINANCE (10.7%)
1,425,000 Caterpillar Finance, Inc., 5.42%, 1/4/99 1,404,937
1,400,000 IBM Credit Corp., 5.54%, 10/8/98 1,398,500
John Deere Capital Corp.:
500,000 5.58%, 10/20/98 498,546
500,000 5.46%, 11/4/98 497,441
400,000 5.45%, 11/17/98 397,180
850,000 Xerox Credit Corp., 5.53%, 10/23/98 847,143
--------------
5,043,747
--------------
CAPTIVE OIL FINANCE (3.0%)
Chevron Oil Finance:
900,000 5.44%, 10/6/98 899,321
500,000 5.49%, 10/14/98 499,012
--------------
1,398,333
--------------
CONSUMER LOAN FINANCE (13.4%)
American Express Credit Corp.:
325,000 5.56%, 10/14/98 324,355
800,000 5.45%, 11/18/98 794,240
350,000 5.14%, 11/27/98 347,174
American General Financial:
550,000 5.58%, 10/13/98 548,990
300,000 5.50%, 11/10/98 298,187
1,300,000 Commercial Credit Corp., 5.51%, 10/22/98 1,295,852
Household Finance Corp.:
200,000 5.56%, 10/14/98 199,602
500,000 5.56%, 10/22/98 498,396
600,000 5.48%, 11/16/98 595,837
Norwest Financial, Inc.:
625,000 5.58%, 10/23/98 622,895
750,000 5.46%, 11/30/98 743,250
--------------
6,268,778
--------------
CONSUMER NON-DURABLES (7.6%)
Coca Cola Co.:
400,000 5.51%, 11/5/98 397,881
400,000 5.51%, 11/6/98 397,820
600,000 5.39%, 11/24/98 595,194
800,000 Coca Cola Enterprises, 5.58%, 10/19/98 (5) 797,803
1,000,000 Gillette Company, 5.56%, 10/09/98 (5) 998,777
400,000 Walt Disney Co., 5.51, 10/23/98 398,660
--------------
3,586,135
--------------
DIVERSIFIED FINANCE (15.1%)
Associates Corp.:
435,000 5.22%, 11/25/98 431,557
500,000 5.59%, 10/27/98 498,007
500,000 5.59%, 10/28/98 497,930
1,000,000 Avco Financial Services, Inc., 5.24%, 12/2/98 991,062
CIT Group Holdings, Inc.:
450,000 5.52%, 11/12/98 447,134
950,000 5.55%, 11/13/98 943,769
General Electric Capital Corp.:
500,000 5.59%, 10/26/98 498,083
500,000 5.53%, 10/29/98 497,861
400,000 5.56%, 11/10/98 397,591
General Electric Capital Services:
400,000 5.51%, 11/12/98 397,452
500,000 5.58%, 11/20/98 496,181
500,000 5.56%, 11/25/98 495,814
500,000 Transamerica Finance Corp., 5.56%, 10/21/98 498,478
--------------
7,090,919
--------------
ENERGY (2.3%)
Texaco, Inc.:
600,000 5.50%, 11/9/98 596,458
460,000 5.49%, 11/10/98 457,220
--------------
1,053,678
--------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE(1)
- ---------------------------------------------------------------------------------------------
<S> <C>
INSURANCE (5.5%)
American Family Financial:
500,000 5.58%, 10/16/98 498,860
850,000 5.56%, 10/28/98 846,507
500,000 American General Corp., 5.56%, 11/2/98 497,556
750,000 Liberty Mutual Capital Corp., 5.45%, 11/16/98 (5) 744,825
--------------
2,587,748
--------------
RETAIL (3.0%)
Sears Roebuck & Co.:
900,000 5.56%, 10/29/98 896,149
500,000 5.59%, 11/23/98 495,944
--------------
1,392,093
--------------
TECHNOLOGY/BUSINESS EQUIPMENT (3.9%)
International Business Machines Corp.:
700,000 5.56%, 10/2/98 699,893
600,000 5.54%, 10/16/98 598,630
550,000 Xerox Corp., 5.52%, 10/15/98 548,830
--------------
1,847,353
--------------
UTILITIES (2.5%)
BellSouth Telecommunications, Inc.:
500,000 5.71%, 10/6/98 499,622
258,000 5.44%, 11/10/98 256,452
425,000 5.23%, 11/12/98 422,422
--------------
1,178,496
--------------
Total commercial paper
(cost: $36,997,311) 36,997,311
--------------
U.S. GOVERNMENT SECURITIES (23.9%) (2)
11,222,000 FHLB Disc. Note, 5.15%, 10/1/98 11,222,000
--------------
11,222,000
--------------
(cost: $11,222,000)
Total investments in securities
(cost: $48,219,311) (6) $48,219,311
==============
</TABLE>
See accompanying notes to portfolios of investments on page 43.
9
<PAGE>
SIT U.S. GOVERNMENT SECURITIES FUND REVIEW
SIX MONTHS ENDED SEPTEMBER 30, 1998
[PHOTO] MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
BRYCE A. DOTY, CFA
PORTFOLIO MANAGER
Dear Fellow Shareholders:
The Sit U.S. Government Securities Fund provided investors with a +4.08%
return for six months ended September 30, 1998 compared to a +6.61% return of
the Lehman Intermediate Government Bond Index. For the twelve months ending
September 30, 1998, the Fund's total return was +7.58% versus +10.61% return for
the Lehman Index. As of September 30, 1998, the Fund's 30-day SEC yield was
5.48% and its 12-month distribution rate was 5.55%, compared to 5.61% and 5.93%,
respectively, at March 31, 1998.
U. S. Treasury yields fell sharply during the period, particularly in
recent months as investors sought a safe haven from the volatility of global
financial markets. The rally provided significant price appreciation in the
Fund's longer duration Collateralized Mortgage Obligation and U.S. Treasury
holdings. The decline in yields renewed concerns of accelerated prepayments in
the mortgage pass-through sector. As a result, the pass-through holdings
provided the lowest return in the Fund for the quarter.
Investment activity involved the successful combination of smaller
mortgage-backed securities into one large security. This combination increases
the value of the assets due to the greater demand that exists for larger-sized
pools.
Recent activity involved increasing the Fund's weighting in shorter to
intermediate average life securities. This was done in anticipation of
reductions in short-term rates by the Federal Reserve. Continued easing by the
Federal Reserve should result in price appreciation for short and intermediate
average life securities.
Looking forward, we believe that economic growth will slow moderately
through the first half of next year. We also expect the demand for high quality
securities to remain strong at least through year end. Lastly, we believe that
the Federal Reserve and other central banks will continue to lower short-term
interest rates in order to help stabilize financial markets. The Fund will
continue to focus on securities that have relatively stable prices and provide
high 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 9/30/98: $10.78 Per Share
3/31/98: $10.63 Per Share
Total Net Assets: $129.61 Million
30-Day SEC Yield: 5.48%
12-Month Distribution Rate: 5.55%
Average Maturity: 16.1 Years
Effective Duration: 1.9 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]
GNMA Pass-Through 56.8
U.S. Treasury 16.4
FNMA Pass-Through 10.3
Collateralized Mortgage Obligations 9.9
FHLMC Pass-Through 4.8
Other Assets and Liabilities 1.8
10
<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 2.34% 4.57% 4.67% 2.34% 4.57% 4.67%
(not annualized)
1 Year 7.58 11.64 10.61 7.58 11.64 10.61
5 Years 6.61 6.12 6.43 37.70 34.56 36.58
10 Years 7.98 8.22 8.38 115.52 120.32 123.54
Inception 8.22 8.06 8.30 144.89 140.84 146.98
(6/2/87)
</TABLE>
* As of 9/30/98
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.
GROWTH OF $10,000
[PLOT POINTS CHART]
SIT U.S. GOV'T. LEHMAN INTER.
SECURITIES FUND GOV'T. BOND INDEX
The sum of $10,000 invested at inception (6/2/87) and held until 9/30/98 would
have grown to $24,489 in the Fund or $24,698 in the Lehman Intermediate
Government Bond Index assuming reinvestment of all dividends and capital gains.
ESTIMATED AVERAGE LIFE PROFILE
The Adviser's estimates of the dollar weighted average life of the portfolio's
securities, which may vary from their stated maturities.
[BAR CHART]
YEARS
0-1 1.9%
1-5 76.6%
5-10 16.0%
10-20 5.4%
11
<PAGE>
SIT U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE(1)
- -----------------------------------------------------------------------------------------
<S> <C>
MORTGAGE PASS-THROUGH SECURITIES (71.9%) (2)
FEDERAL HOME LOAN MORTGAGE CORPORATION (4.8%):
79,456 8.50%, 1/1/17 $83,100
19,581 8.75%, 12/1/01 20,218
628,755 8.75%, 1/1/17 660,796
236,035 9.00%, 12/1/05 246,402
69,298 9.00%, 1/1/06 72,345
328,940 9.00%, 5/1 - 7/1/09 347,241
176,571 9.00%, 10/1/13 186,284
681,925 9.00%, 5/1 - 10/1/16 719,915
939,806 9.00%, 1/1 - 6/1/17 991,614
547,053 9.00%, 10/1/19 575,437
756,544 9.50%, 2/1 - 6/1/10 804,010
229,387 9.50%, 1/1/11 243,678
332,661 9.50%, 6/1 - 9/1/16 353,067
238,179 9.50%, 6/1 - 9/1/17 253,357
109,362 9.50%, 12/1/18 116,213
70,049 9.75%, 6/1/17 75,022
347,329 10.25%, 6/1/10 376,438
111,900 10.50%, 4/1 - 7/1/04 118,897
2,372 11.00%, 10/1/00 2,501
----------------
6,246,535
----------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (10.3%):
316,213 8.50%, 8/1/06 328,030
135,323 8.875%, 3/1/17 143,019
138,511 9.00%, 4/1/10 145,488
514,562 9.00%, 1/1 - 9/1/17 540,636
1,262,854 9.00%, 11/1 - 12/1/19 1,356,348
167,031 9.00%, 9/1/20 175,551
584,413 9.00%, 9/1 - 11/1/21 615,194
156,271 9.25%, 4/1/12 166,183
80,700 9.375%, 5/1/16 85,454
101,352 9.50%, 9/1/08 107,472
244,255 9.50%, 1/1/11 260,588
388,807 9.50%, 5/1/14 416,996
454,689 9.50%, 4/1 - 7/1/16 483,160
757,602 9.50%, 12/1/18 812,528
271,521 9.50%, 12/1/19 288,263
2,238,305 9.50%, 4/1 - 9/1/20 2,383,285
1,059,317 9.75%, 1/1/13 1,154,984
138,601 10.00%, 3/1/11 150,121
152,666 10.00%, 9/1/20 164,379
3,045,903 10.25%, 8/15/13 3,368,555
109,592 10.75%, 11/1/10 119,988
41,403 11.00%, 4/1/14 45,601
----------------
13,311,823
----------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (56.8%) (3):
132,426 7.50%, 3/15/07 138,035
289,336 7.50%, 5/15/16 299,205
30,919 8.00%, 7/15/03 32,242
176,513 8.00%, 10/15/12 182,430
1,860,273 8.00%, 5/15 - 9/15/16 1,925,440
255,373 8.25%, 2/15 - 6/15/02 264,990
516,901 8.25%, 12/15/11 541,133
190,470 8.25%, 1/15/12 197,645
446,935 8.25%, 8/15/15 464,017
94,427 8.50%, 11/15/01 96,933
299,820 8.50%, 12/15/11 313,312
547,363 8.50%, 1/15/12 570,566
102,298 8.50%, 4/15/15 105,878
747,502 8.50%, 9/15/16 780,564
692,462 8.50%, 1/15/17 723,048
148,715 8.75%, 7/15/02 156,518
149,880 8.75%, 5/15/03 157,807
629,438 8.75%, 5/15 - 11/15/06 663,431
241,954 8.75%, 2/15 - 3/15/07 252,623
154,392 8.75%, 11/15/09 161,263
1,229,787 8.75%, 6/15 - 12/15/11 1,284,873
123,976 8.75%, 2/20/17 129,703
1,042,889 8.75%, 10/15/19 1,101,552
122,904 9.00%, 10/15/04 129,828
270,639 9.00%, 4/15/06 285,927
345,080 9.00%, 6/15 - 10/15/07 362,366
818,077 9.00%, 9/15 - 12/15/08 869,871
549,170 9.00%, 2/15 - 9/15/09 581,795
2,444,084 9.00%, 5/15 - 10/15/11 2,581,403
131,620 9.00%, 1/15/12 137,818
86,942 9.00%, 8/15/15 92,184
330,561 9.00%, 9/15 - 12/20/16 349,782
8,030,798 9.00%, 1/15 - 12/15/17 8,606,431
9,580,024 9.00%, 12/15/19 10,184,479
3,259,506 9.00%, 7/20 - 12/15/21 3,491,093
309,654 9.10%, 5/15/18 329,559
59,123 9.25%, 4/15 - 9/15/01 62,311
151,219 9.25%, 4/15/03 159,722
245,533 9.25%, 3/15/05 259,511
296,878 9.25%, 4/15 - 11/15/10 317,164
334,963 9.25%, 11/15/11 351,181
151,926 9.25%, 4/15/12 159,208
1,333,572 9.25%, 2/20 - 11/20/17 1,408,639
87,953 9.50%, 1/15 - 3/15/05 92,293
167,035 9.50%, 1/15/06 176,725
2,460,418 9.50%, 12/15/09 2,664,534
1,179,554 9.50%, 1/15 - 11/15/10 1,242,418
481,202 9.50%, 1/15 - 3/15/11 504,630
2,723,070 9.50%, 2/15 - 12/15/16 2,917,226
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
QUANTITY ($) NAME OF ISSUER MARKET VALUE(1)
- -----------------------------------------------------------------------------------------
<S> <C>
3,973,552 9.50%, 1/15 - 12/15/17 4,303,621
1,993,377 9.50%, 4/15 - 10/20/18 2,136,332
2,027,993 9.50%, 4/15 - 12/15/19 2,191,914
123,811 9.50%, 6/15 - 10/15/20 132,745
300,131 9.50%, 1/15 - 8/15/21 322,990
33,739 9.75%, 3/15 - 10/15/99 34,445
34,171 9.75%, 5/15/01 36,013
133,937 9.75%, 11/15/02 141,735
197,773 9.75%, 7/15 - 12/15/03 209,691
36,460 9.75%, 3/15/04 38,589
517,585 9.75%, 8/15 - 11/15/05 548,065
173,005 9.75%, 2/15/06 185,249
460,876 9.75%, 8/15 - 9/15/09 490,777
1,759,804 9.75%, 8/15 - 12/15/10 1,872,338
745,914 9.75%, 11/15 - 12/15/12 793,811
160,176 10.00%, 8/15/02 169,832
155,383 10.00%, 11/15/03 164,171
126,329 10.00%, 5/15/04 133,860
701,448 10.00%, 7/15/05 743,746
122,633 10.00%, 1/15/06 129,938
151,250 10.00%, 11/15/08 161,054
89,453 10.00%, 5/15 - 11/15/09 95,608
347,225 10.00%, 6/15 - 10/15/10 369,723
105,901 10.00%, 1/15/11 112,821
10,957 10.00%, 9/15/16 11,863
23,911 10.25%, 11/15/00 25,200
49,776 10.25%, 2/15 - 4/15/01 52,459
111,963 10.25%, 12/15/02 118,714
173,760 10.25%, 8/15/04 184,270
278,784 10.25%, 7/15/05 295,589
137,543 10.25%, 5/15/09 146,137
2,573 10.50%, 9/15/00 2,703
40,440 10.50%, 9/15/01 42,620
60,379 10.50%, 12/15/02 64,011
194,879 10.50%, 6/15/09 217,565
113,013 10.50%, 7/15/10 120,149
201,288 10.50%, 8/15 - 11/15/15 218,563
116,255 10.50%, 3/15 - 12/15/16 126,228
207 10.75%, 10/15/98 207
16,841 10.75%, 11/15/00 17,749
42,998 10.75%, 9/15/03 45,586
91,722 10.75%, 9/15/05 97,299
127,670 10.75%, 8/15/06 138,559
36,233 10.75%, 1/15/10 38,554
154,438 10.75%, 7/15 - 8/15/11 164,278
196,317 11.00%, 6/15/04 208,246
496,776 11.00%, 1/15 - 6/15/10 553,231
17,614 11.00%, 7/15/13 19,425
134,001 11.25%, 8/15 - 12/15/00 141,225
20,166 11.25%, 1/15/01 21,253
17,591 11.25%, 5/15/03 18,654
407,787 11.25%, 9/15 - 10/15/05 438,098
517,855 11.25%, 6/15 - 9/15/10 574,562
1,611,280 11.25%, 2/15 - 10/15/11 1,767,255
7,562 11.75%, 1/15/99 7,838
208,470 11.75%, 5/15 - 7/15/00 219,708
127,250 11.75%, 5/15 - 6/15/04 136,151
37,887 12.75%, 1/15/00 39,929
16,527 13.25%, 10/15/99 17,108
22,039 13.75%, 9/15-10/15/99 22,931
622,000 Bernalillo Multifamily Series
1998A, 7.50%, 9/20/20 663,985
Maplewood, Mn. Multifamily Revenue:
579,100 Series 1998B, 6.75%, 7/20/15 629,580
1,605,000 Series 1998A, 6.75%, 7/20/30 1,611,420
----------------
73,599,276
----------------
Total mortgage pass-through securities
(cost: $93,147,175) 93,157,634
----------------
U.S. GOVERNMENT SECURITIES (16.4%) (2)
5,000,000 U.S. Treasury Note, 5.875%, 2/15/00 5,090,150
U.S. Treasury Strips:
4,000,000 6.93% effective yield, 11/15/04 3,057,000
12,600,000 4.72% effective yield, 5/15/06 8,948,646
7,000,000 5.82% effective yield, 11/15/09 4,152,750
----------------
Total U.S. government securities 21,248,546
----------------
(cost: $20,227,328)
COLLATERALIZED MORTGAGE OBLIGATIONS (9.9%) (2)
Federal Home Loan Mortgage Corporation:
176,868 1006-C, 9.15%, 10/15/20 190,358
1,000,000 6.50%, 11/15/21 1,050,980
Vendee Mortgage Trust:
2,875,418 Series 1996-2 1B, 6.75%, 9/15/09 2,883,210
7,300,000 Series 1992-2 1F, 7.00%, 2/15/18 7,613,973
1,045,000 Series 1992-1 2K, 7.75%, 5/15/08 1,122,090
----------------
Total collateralized mortgage obligations 12,860,611
----------------
(cost: $12,328,774)
SHORT-TERM SECURITIES (1.0%) (2)
1,248,895 Dreyfus Gov't Cash Management Fund, 5.46% 1,248,895
----------------
(cost: $1,248,895)
Total investments in securities
(cost: $126,952,172) (6) $128,515,686
----------------
</TABLE>
See accompanying notes to portfolios of investments on page 43.
13
<PAGE>
SIT BOND FUND REVIEW
SIX MONTHS ENDED SEPTEMBER 30, 1998
[PHOTO]
MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
BRYCE A, DOTY, CFA
PORTFOLIO MANAGER
Dear Fellow Shareholders:
The Sit Bond Fund provided investors with a +5.25% return for the six months
ended September, 1998, compared to a +6.66% return for the Lehman Aggregate Bond
Index. For the three years ended September 30, 1998, the Fund's annualized total
return of +8.07% exceeded the +7.75% average return for its Lipper universe,
ranking it 51st of 158 funds. Also, the Fund's performance since inception
(December 1, 1993) ranked it 19th of 102 funds. As of September 30, 1998, the
Fund's 30-day SEC yield was 5.73% and its 12-month distribution rate was 5.80%,
compared to 5.43% and 6.35%, respectively, at March 31, 1998.
U. S. Treasury yields fell sharply during the period, particularly in recent
months as investors sought a safe haven from the volatility of global financial
markets. The rally provided significant price appreciation in the Fund's longer
duration U.S. Treasury and asset-backed bond holdings, 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 as it
experienced less price appreciation due to its relatively short duration.
Earlier in the period, investment activity included selling corporate
securities. Later, as interest rates continued to fall, corporate issuance of
debt rose substantially as corporations rushed to lock in lower rates. The heavy
supply caused corporate yield spreads to reach their widest level in five years.
The Fund took advantage of this opportunity by purchasing corporate bonds. More
recently, the Fund has increased its weighting in shorter to intermediate
average life securities. This was done in anticipation of cuts in short-term
rates by the Federal Reserve. Continued easing by the Federal Reserve should
result in price appreciation for short and intermediate average life securities.
Looking forward, we believe that economic growth will slow moderately through
the first half of next year. We also expect the demand for high quality
securities to remain strong at least through year end. Lastly, we believe that
the Federal Reserve and other central banks will continue to lower short-term
interest rates in order to help stabilize financial markets. The Fund will
continue to focus on high quality securities that offer attractive total return
opportunities.
INVESTMENT OBJECTIVE AND STRATEGY
The investment objective of the Fund is to maximize total return,
consistent with preservation of capital. The Fund's "total return" is a
combination of income, changes in principal value and reinvested dividends.
The Fund will pursue its objective by investing in a diversified portfolio
of fixed-income securities which include, but are not limited to, the
following: U.S. government securities; corporate debt securities; corporate
commercial paper; mortgage and other asset-backed securities.
PORTFOLIO SUMMARY
Net Asset Value 9/30/98: $10.28 Per Share
3/31/98: $10.03 Per Share
Total Net Assets: $11.62 Million
30-Day SEC Yield: 5.73%
12-Month Distribution Rate: 5.80%
Average Maturity: 17.3 Years
Effective Duration: 4.2 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]
Mortgage Pass Through 44.2
Corporate Bonds & Notes 16.4
U.S. Treasury 15.4
Asset-Backed Securities 11.8
Closed-End Mutual Funds 3.7
Collateralized Mortgage Obligations 3.6
Trust Preferred Securities 1.8
Other Assets and Liabilities 3.1
14
<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 3.12% 3.67% 4.23% 3.12% 3.67% 4.23%
(not annualized)
1 Year 8.73 10.02 11.51 8.73 10.02 11.51
3 Year 8.07 7.75 8.67 26.21 25.10 28.34
Inception 7.30 6.68 7.58 40.56 36.70 42.35
(12/1/93)
</TABLE>
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.
GROWTH OF $10,000
[CHART]
The sum of $10,000 invested at inception (12/1/93) and held until 9/30/98 would
have grown to $14,056 in the Fund or $14,235 in the Lehman Aggregate Bond Index
assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of Net Assets)
LOWER OF MOODY'S OR S&P USED.
[PIE CHART]
Government Agency Backed
Securites & CMO's 47.6%
U.S. Government 15.4%
Other Assets & Liabilities 3.1%
BBB 11.8%
A 8.1%
AA 1.8%
AAA 12.2%
15
<PAGE>
<TABLE>
<CAPTION>
SIT BOND FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE(1)
- ------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES (15.4%) (2)
U.S. Treasury Strip:
1,400,000 5.61% effective yield, 5/15/04 $1,094,898
400,000 4.75% effective yield, 5/15/06 284,084
700,000 5.82% effective yield, 11/15/09 415,275
------------
Total U.S. government securities 1,794,257
------------
(cost: $1,674,622)
ASSET-BACKED SECURITIES (11.8%) (2)
Advanta Mortgage Loan Trust:
200,000 1995-3 A5, 7.37%, 2/25/27 213,016
250,000 1996-1 A7, 7.07%, 3/25/27 265,688
75,000 Cityscape Home Equity Loan Trust,
1996-3 A8, 7.65%, 9/25/25 82,565
ContiMortgage Home Equity Loan Trust:
249,998 1996-1 A7, 7.00%, 3/15/27 276,615
75,000 1998-3 A6, 6.08%, 9/15/27 74,989
100,000 EQCC Home Equity Loan Trust,
Series 1996-1, 6.93%, 3/15/27 107,468
100,000 EquiVantage, 1996-3 A3, 7.70%, 9/25/27 104,777
Green Tree Financial Corp.:
75,000 1995-5, 7.25%, 9/15/25 81,037
75,000 1997-4, 7.03%, 2/15/29 78,586
75,000 Money Store Home Equity Mortgage,
7.265%, 7/15/38 82,944
------------
Total asset-backed securities 1,367,685
------------
(cost: $1,258,788)
CORPORATE BONDS & NOTES (16.4%) (2)
400,000 American Express Credit Co., 6.25%, 8/10/05 408,592
50,000 AT & T, 8.625%, 12/01/31 56,625
150,000 Bank One Texas, 6.25%, 2/15/08 156,563
150,000 Nationwide Health Properties, 7.00%, 9/18/01 150,000
100,000 Omega Health Care Investors, 6.95%, 6/15/02 103,000
500,000 Security Cap. Industrial Tr., 8.65%, 05/15/16 561,875
100,000 Summit Properties, Inc., 7.20%, 8/15/07 105,875
100,000 Tenneco, Inc., 6.70%, 12/15/05 101,690
20,000 Toys R Us, Inc., 8.25%, 2/1/17 20,675
50,000 Trinet Corp. Realty Trust, 7.70%, 7/15/17 52,563
175,000 Washington Mutual Capital, 8.375%, 6/1/27 192,281
------------
Total corporate bonds & notes 1,909,739
------------
(cost: $1,844,275)
- ------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE(1)
- ------------------------------------------------------------------------------
MORTGAGE PASS-THROUGH SECURITIES (44.2%) (2)(3)
Federal Home Loan Mortgage Corp.:
177,655 9.00%, 12/1/17 187,461
35,619 10.25%, 9/1/09 38,606
33,024 10.75%, 3/1/11 36,162
Federal National Mortgage Association:
221,434 9.00%, 12/1/19 232,650
294,959 9.75%, 1/1/13 321,597
247,738 10.25%, 8/15/13 273,981
112,273 11.00%, 11/1/20 123,934
Government National Mortgage Association:
10,943 8.75%, 11/15/01 11,529
168,930 8.75%, 10/15/19 178,432
64,942 9.00%, 10/15/06 68,607
75,503 9.00%, 9/15/08 80,113
106,359 9.00%, 4/15/09 112,797
64,884 9.00%, 4/15/09 68,818
125,265 9.00%, 4/15/09 132,880
7,701 9.00%, 8/15/11 8,066
190,260 9.00%, 01/15/17 199,825
9,075 9.00%, 12/15/17 9,750
76,109 9.00%, 8/20/19 80,190
142,542 9.00%, 12/15/19 151,985
73,190 9.00%, 6/20/21 77,098
570,951 9.00%, 12/15/21 612,168
93,283 9.00%, 12/20/21 98,283
24,770 9.25%, 5/15/01 26,106
82,381 9.25%, 5/15/10 86,305
18,217 9.50%, 3/15/03 19,264
100,336 9.50%, 11/15/05 106,479
98,508 9.50%, 12/15/09 106,681
50,505 9.50%, 2/15/11 52,953
167,543 9.50%, 5/20/16 178,629
276,864 9.50%, 12/15/17 301,558
86,222 9.50%, 9/15/17 92,529
189,361 9.50%, 12/15/19 205,241
13,659 9.50%, 4/15/20 14,652
38,451 9.50%, 9/15/20 41,214
41,656 9.50%, 11/15/21 45,159
3,012 9.75%, 8/15/02 3,188
26,831 10.00%, 8/15/02 28,432
97,585 10.00%, 6/15/19 105,380
16,457 10.25%, 4/15/01 17,344
25,990 10.25%, 4/15/01 27,391
14,502 10.50%, 7/15/00 15,283
32,302 10.75%, 1/15/01 34,043
16
<PAGE>
- ------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE(1)
- ------------------------------------------------------------------------------
15,731 11.25%, 10/15/00 16,579
35,655 11.75%, 7/15/00 37,577
14,345 11.75%, 7/15/01 15,123
50,000 Bernalillo Multifamily Series 1998A,
7.50%, 9/20/20 53,375
Maplewood, Mn. Multifamily Revenue:
275,000 Series 1998C-2, 10.00%, 11/1/30 275,712
118,850 Series 1998D, 6.75%, 4/21/99 119,325
------------
Total mortgage pass-through securities 5,130,454
------------
(cost: $5,135,864)
COLLATERALIZED MORTGAGE OBLIGATIONS (3.6%) (2)
150,000 Federal Home Loan Mortgage Corp.,
(Remic) Series 1173, 6.50%, 11/15/21 157,647
250,000 Federal National Mortgage Association,
1994-38, 6.65%, 12/25/23 257,180
------------
Total collateralized mortgage obligations
(cost: $384,800) 414,827
------------
CLOSED-END MUTUAL FUNDS (3.7%) (2)
10,000 American Select Portfolio 120,625
6,299 American Strategic Income Portfolio (I) 75,588
9,490 American Strategic Income Portfolio (II) 113,880
10,309 American Strategic Income Portfolio (III) 119,842
------------
Total closed-end mutual funds
(cost: $401,084) 429,935
------------
TRUST PREFERRED SECURITIES (1.8%) (2)
6,000 Allstate Financing I, 7.95%, 12/1/26 154,500
50,000 Allstate Financing II, 7.83%, 12/1/45 53,438
------------
Total trust preferred securities
(cost: $200,735) 207,938
------------
SHORT-TERM SECURITIES (2.3%) (2)
262,686 Dreyfus Gov't Cash Mgmt. Fund, 5.32% 262,686
------------
Total short term securities
(cost: $262,686)
Total investments in securities
(cost: $11,162,854) (6) $11,517,521
============
</TABLE>
See accompanying notes to portfolios of investments on page 43.
17
<PAGE>
SIT TAX-FREE INCOME FUND REVIEW
SIX MONTHS ENDED SEPTEMBER 30, 1998
[PHOTO]
MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
DEBRA A. SIT, CFA
PORTFOLIO MANAGER
Dear Fellow Shareholders:
Municipal bond yields declined to new lows in September. The Sit Tax-Free
Income Fund provided shareholders a total return of +2.81% for the quarter and
+4.22% for the six-month period ended September 30, 1998. The Fund's total
return ranked 148th of 253 general municipal funds tracked by Lipper Analytical
Services for the quarter and 75th of 237 funds for the last twelve months. In
addition, the Fund's returns ranked 34th of 194 funds for the three-year period,
4th of 134 funds for the five-year period and 43rd of 73 funds for the ten-year
period.
The Fund's price per share increased $0.17 during the semi-annual period to
$10.58 on September 30, 1998, surpassing its all-time high of $10.48 reached in
early January 1998. As of September 30th, the Fund's 30-day SEC yield was 4.54%
and its 12-month distribution rate was 5.10%, compared to 4.70% and 5.30%,
respectively, on March 31,1998.
Fund assets increased from $519.6 million to $684.8 million during the
semi-annual period, which contributed to an increase in cash from 3.8% to 11.5%.
Approximately two-thirds of the cash flow was used to purchase bonds across
several industry and ratings categories. Education bonds increased from 1.8% to
3.2% and other revenue issues increased from 1.8% to 3.2% and other revenue
issues increased from 6.0% to 7.8%, while closed-end bond funds remained fairly
constant. Weightings decreased in hospital bonds from 23.5% to 22.2%, in
multifamily housing from 29.4% to 25.0%, and in single family housing from 15.5%
to 14.5%. Prerefunded bonds decreased from 3.6% to 2.4% as holdings were either
retired or sold. Securities rated BBB decreased from 32.2% to 28.5% and
securities rated "A" or better comprised well over two-thirds of the Fund.
Recently the Fund has focused on purchasing bonds in the 8 to 20 year maturity
range, which we consider to be the most attractive part of the yield curve in an
environment of Fed ease. This activity, along with the increase in cash, has
contributed to the Fund's average maturity decreasing from 18.7 years to 17.0
years. The Fund's implied duration decreased from 5.7 years to 5.6 years.
The Fund's performance continues to be driven by its emphasis on securities
which provide higher coupon income and principal stability. The increase in
municipal bond prices has lagged the recent rally in Treasury bonds, thus
causing municipal yields to be very attractively valued on an historical basis.
In this environment, we will continue to focus on purchasing securities that
provide incremental yield and relative price stability.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to provide a high level of current income
that is exempt from federal income tax, consistent with the preservation of
capital, by investing in investment-grade municipal securities.
Such municipal securities generate interest that is exempt from regular
federal income taxes. Of the municipal securities in which the Fund invests,
100% will be rated investment grade at time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 9/30/98: $10.58 Per Share
3/31/98: $10.41 Per Share
Total Net Assets: $684.79 Million
30-Day SEC Yield: 4.54%
Tax Equivalent Yield: 7.52% (1)
12-Month Distribution Rate: 5.10%
Average Maturity: 17.0 Years
Duration to Estimated Avg. Life: 6.8 Years (2)
Implied Duration: 5.6 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 25.0
Hospital/Health Care Revenue 22.2
Single Family Mortgage Revenue 14.5
Other Revenue 7.8
Closed-End Mutual Funds 5.5
Industrial Revenue/Pollution Control 3.4
Education/Student Loan 3.2
Escrowed to Maturity/Pre-Refund 2.4
Transportation 1.9
Public Facilities 0.9
Municipal Lease Rental 0.8
Sales Tax Revenue 0.6
Gen. Obligation 0.2
Utility 0.1
Other Assets and Liabilities 11.5
18
<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 2.81% 2.91% 2.63% 2.81% 2.91% 2.63%
(not annualized)
1 Year 8.57 8.20 6.76 8.57 8.20 6.76
5 Years 6.89 5.67 5.36 39.53 31.74 29.83
10 Years 7.84 n/a 7.06 112.80 n/a 97.76
Inception 7.83 7.98 7.05 112.58 115.52 97.76
(9/29/88)
</TABLE>
* As of 9/30/98
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
[GRAPH]
The sum of $10,000 invested at inception (9/29/88) and held until 9/30/98 would
have grown to $21,258 in the Fund or $19,793 in the Lehman 5-Year Municipal Bond
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of Net Assets)
[PIE CHART]
LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED.
AA 15.1%
AAA 21.3%
11.5%
BBB 28.5%
A 23.6%
Total number of holdings: 357
19
<PAGE>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (82.3%) (2)
ALABAMA (0.1%)
500,000 Valley Special Care Fac. Fin. Auth. Rev. Series 1997A Lanier Mem. Hosp. Proj. ,
5.50%, 11/1/07 528,905
------------
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 2,242,380
2,150,000 Hsg. Dev. Series 1997A (Multifamily pooled loans), 5.65%, 12/1/20 2,216,521
5,680,000 Mtg. Rev. 1996 Series A, Zero Coupon, 6.45% Effective Yield on Purchase Date, 12/1/27 955,092
1,550,000 Series 1998A-1, 5.30%, 12/1/17 1,579,636
330,000 AK Industrial Dev. & Export Auth. Rev. Refunding Revolving Fund Series 1993A, 5.60%, 4/1/03 350,024
------------
7,343,653
------------
ARIZONA (1.0%)
Maricopa Co. Industrial Dev. Auth. Multifamily Hsg. Rev.:
3,000,000 Series 1995A, 6.50%, 10/1/25 3,215,160
560,000 Series 1995B, 7.15%, 10/1/25 586,846
2,000,000 Series 1997A (Mercy Bond Prop. AZ-I Proj.), 6.25%, 7/1/27 2,108,920
320,000 Series 1997B (Mercy Bond Prop. AZ-I Proj.), 7.25%, 1/1/17 344,301
450,000 Series 1998A (Pines at Camelback Apts. Proj.)(Asset Guaranty insured), 5.40%, 5/1/18 458,132
1,070,000 Valley HDC Phoenix Hsg. Rev. 1979 (Roosevelt Plaza) (Section 8), 8.00%, 10/1/20 1,085,247
------------
7,798,606
------------
ARKANSAS (0.9%)
Drew Co. Public Fac. Bd. Single Family Mtg. Rev. Refunding:
134,155 Series 1993B, 7.75%, 8/1/11 144,393
242,922 Series 1993-A2 (FNMA backed), 7.90%, 8/1/11 263,845
192,370 Jacksonville Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1993B, 7.75%, 1/1/11 211,371
192,437 Lonoke Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding 1993B, 7.375%, 4/1/11 210,060
1,920,000 Maumelle HDC First Lien Rev. Refunding 1992 Series A (Section 8), 7.875%, 7/1/09 2,067,840
2,000,000 Pulaski Co. Public Fac. Board Multifamily Mtg. Rev. Refunding Series 1998A
(GNMA collateralized), 5.45%, 12/20/18 2,033,020
1,320,000 Saline Co. Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1992, 7.875%, 3/1/11 1,418,868
------------
6,349,397
------------
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 1,568,745
1,000,000 Bell Cmnty. Hsg. Auth. Rev. Series 1995A (Mobilehomes Park Acquisition Proj.), 6.40%, 10/1/15 1,085,490
2,000,000 CA Statewide Cmty. Dev. Auth. Apt. Dev. Rev. Refunding Series 1998A4 (Irvine Apts. Proj.)
Mandatory Put 5/15/13, 5.25%, 5/15/25 2,058,220
3,654,000 Camarillo Hsg. Rev. Series 1998A (GNMA collateralized)(Heritage House Proj.), 5.65%, 5/20/33 3,805,714
1,000,000 Chula Vista Redev. Agency Refunding Tax Allocation Senior Series 1994A (Bayfront-Town
Center Redev. Proj.), 7.625%, 9/1/24 1,180,960
Corona Single Family Mtg Rev.:
1,200,000 Senior Series 1996A, 6.05%, 5/1/27 1,248,144
800,000 Subordinate Series 1996B, 6.30%, 11/1/28 864,432
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 2,208,950
18,770,000 Zero Coupon, 6.45% Effective Yield on Purchase Date, 1/1/26 4,645,387
2,000,000 Zero Coupon Convertible Bond, 6.10% Effective Yield on Purchase Date, 1/1/07 1,580,340
5,000,000 Zero Coupon Convertible Bond, 7.10% Effective Yield on Purchase Date, 1/1/11 4,162,750
2,000,000 Glendale Hosp. Rev. Refunding Series 1994 (Verdugo Hills Hosp.), 8.00%, 1/1/12 2,442,300
20
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
1,000,000 San Bernardino Assoc. Communities Fin. Auth. Certificates of Participation Series 1997A
(Granada Cmty. Hosp. Proj.), 6.25%, 5/1/09 1,078,680
990,000 Upland Hsg. Auth. Multifamily Rev. 1990 Issue A, 7.85%, 7/1/20 1,022,234
------------
28,952,346
------------
COLORADO (1.4%)
1,000,000 Adams Co. HA Mtg. Rev. Series 1996 (Village of Greenbriar Proj.), 6.75%, 7/1/21 1,085,760
275,000 Aurora Single Family Mtg. Rev. Refunding Series 1993B, 7.50%, 5/1/11 293,780
CO HFA Single Family Program Senior:
2,200,000 Series 1996B-2, 7.45%, 11/1/27 2,543,420
1,000,000 Series 1997B-3, 6.80%, 11/1/28 1,133,870
230,000 LaPlata Co. Southwestern CO Single Family Mtg. Participation Rev. Refunding 1991 Series A,
7.375%, 9/1/11 241,373
280,000 Thornton Single Family Mtg. Rev. Refunding 1992 Series A, 8.05%, 8/1/09 300,488
295,000 Vail Single Family Mtg. Rev. Refunding Series 1992, 8.125%, 6/1/10 319,939
Westminster Golf Course Activity Enterprise Rev. Series 1998:
1,500,000 5.55%, 12/1/23 1,522,335
1,025,000 5.40%, 12/1/13 1,040,385
1,195,000 Westminster Multifamily Hsg. Rev. Refunding Series 1992 (Ironwood at the Ranch Proj.),
7.45%, 12/1/10 1,245,668
------------
9,727,018
------------
CONNECTICUT (0.6%)
CT Dev. Auth. First Mtg. Gross Rev. Hlth. Care. Proj. Series 1997
(Church Homes Inc. Avery Proj.):
640,000 5.70%, 4/1/12 666,490
3,000,000 5.80%, 4/1/21 3,126,990
525,000 CT Resource Recovery Auth. Series 1985A (Bridgeport Resco Proj.), 7.625%, 1/1/09 544,005
------------
4,337,485
------------
DELAWARE (0.2%)
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 1,426,591
------------
DISTRICT OF COLUMBIA (0.2%)
1,500,000 District of Columbia HFA Multifamily Hsg. Refunding Rev. Series 1992C (FHA
insured) (Chastleton Dev.), 6.95%, 7/1/27 1,586,670
------------
FLORIDA (0.6%)
820,000 Escambia Co. Hlth. Fac. Auth. Rev. Series 1997 (Azalea Trace, Inc. Proj.), 5.60%, 11/1/05 866,789
3,000,000 Miami-Dade Co. Special Hsg. Rev. Refunding Series 1998 (Section 8), 5.30%, 10/1/05 3,108,150
------------
3,974,939
------------
GEORGIA (1.5%)
790,000 Cobb Co. HA Multifamily Rev. Refunding Series 1992A (Signature Place Project),
6.875%, 10/1/17 835,133
1,295,000 Dekalb Co. Multifamily Hsg. Rev. Series 1998 (Spring Chase Apts. Proj.)(FNMA backed),
5.25%, 11/1/19 1,320,861
Dekalb Co. Hsg. Auth. Multifamily Hsg. Rev. (Regency Woods I & II):
1,685,000 Senior Series 1996A, 6.375%, 1/1/11 1,804,500
1,345,000 Subordinate Series 1996C, 7.25%, 1/1/26 1,424,678
4,250,000 Fulton Co. Non-Profit Elderly Rev. Series 1998 (GNMA collateralized) (Campbell Stone Buckhead
Personal Care Fac. Proj.), 7.75%, 11/20/39 5,118,658
------------
10,503,830
------------
See accompanying notes to portfolios of investments on page 43.
21
<PAGE>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
HAWAII (0.6%)
1,170,000 Hawaii Dept. of Budget and Finance Special Purpose Rev. Series 1998,
(Wilcox Memorial Hosp. Proj.), 5.25%, 7/1/13 1,175,511
1,400,000 Hawaii St. Hsg. Fin. & Dev. Corp. Single Family Mtg. Purchase Series 1997B, 5.45%, 7/1/17 1,449,434
1,225,000 Honolulu Mtg. Rev. Ref. Series 1996A (Hale-Pauahi Proj.)(FHA insured)
(MBIA insured), 6.80%, 7/1/28 1,330,361
------------
3,955,306
------------
ILLINOIS (7.5%)
2,365,000 Chicago Metropolitan HDC Mtg. Rev. Refunding Series 1992A
(FHA insured) (Section 8), 6.70%, 7/1/12 2,530,834
2,805,000 Chicago Res. Mtg. Rev. Refunding Series 1992B (MBIA insured) Zero Coupon, 7.30% Effective
Yield on Purchase Date, 10/1/09 1,331,197
2,000,000 Collinsville (City of) Madison Co. Industrial Dev. Rev. Refunding
(Drury Inn-Collinsville Proj.) Series 1993, 6.00%, 11/1/04 2,094,340
1,790,000 IL DFA Elderly Hsg. Rev. Refunding Series 1995A (Pontiac Towers Proj.)
(Section 8), 6.65%, 10/1/09 1,923,355
IL DFA Refunding & New Money Rev. (Cmty. Rehab. Providers Fac. Acquisition Program):
9,575,000 Series 1997A, 6.00%, 7/1/15 10,081,996
1,000,000 Series 1997A, 6.05%, 7/1/19 1,056,050
1,200,000 Series 1997C, 5.65%, 7/1/19 1,237,344
2,175,000 Series 1998A, 5.50%, 7/1/12 2,227,809
1,115,000 IL Educ. Fac. Auth. Rev. Series 1998B (Midwestern University Proj.), 5.50%, 5/15/18 1,135,059
3,000,000 IL HDA Elderly Hsg. Rev. Series 1992C (Village Ctr.) (Section 8), 6.85%, 3/1/20 3,186,990
IL HDA Multifamily Hsg. Rev.:
Refunding 1992 Series A (Section 8):
2,150,000 6.65%, 7/1/04 2,328,622
1,545,000 7.00%, 7/1/10 1,691,760
Refunding 1991 Series C (Section 8):
260,000 7.35%, 7/1/11 274,732
100,000 7.40%, 7/1/23 105,530
IL Hlth. Fac. Auth. Rev.:
Refunding Series 1993 (Lutheran Social Svcs. IL):
610,000 5.70%, 8/15/00 624,805
475,000 5.80%, 8/15/01 492,357
525,000 6.00%, 8/15/03 556,973
545,000 6.10%, 8/15/04 585,183
1,350,000 Refunding Series 1992 Prerefunded (Mercy Ctr. for Hlth. Care Svcs.), 6.625%, 10/1/12 1,512,797
1,000,000 Refunding Series 1994 (Passavant Memorial Area Hospital Assn.), 5.95%, 10/1/11 1,109,260
Series 1994-1996 (St. Elizabeth's Hosp. of Chicago, Inc.):
1,000,000 Series 1994 Prerefunded, 7.625%, 7/1/10 1,201,050
700,000 Series 1996, 6.25%, 7/1/10 758,597
1,215,000 Series 1996, 6.25%, 7/1/16 1,312,479
5,500,000 Series 1997A (Friendship Village of Schaumburg Proj.), 5.25%, 12/1/18 5,527,280
1,500,000 Refunding Series 1998 (Midwest Physician Group Ltd. Proj.), 5.375%, 11/15/08 1,548,990
970,000 IL Industrial Control Fin. Auth. Rev. Series 1977 (Commonwealth Edison Co. Proj.),
5.875%, 5/15/07 971,601
2,000,000 Roselle Multifamily Hsg. Rev. Refunding Series 1994A (GNMA collateralized)
(Waterbury Apts.) (FHA insured), 7.00%, 1/1/25 2,206,000
22
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
1,140,000 Springfield Community Improvement Rev. 1985 (Garden Court Proj. - FHA insured)
(Section 8) (MBIA insured), 10.50%, 4/1/26 1,225,945
795,000 Urbana Res. Mtg. Rev. Refunding 1991 Series B Zero Coupon, 7.39% Effective Yield on
Purchase Date, 3/1/07 439,683
------------
51,278,618
------------
INDIANA (6.5%)
1,000,000 East Chicago Multi School Bldg. Corp. First Mtg. Series 1996 Prerefunded, 6.50%, 1/15/16 1,176,800
1,800,000 Elkhart Co. Hosp. Auth. Rev. Series 1992 (Goshen Hosp. Proj.), 7.25%, 7/1/05 1,981,386
2,165,000 Elkhart HFC Multifamily Mtg. Rev. Series 1996A (Section 8 Assisted
Proj.) (Stratford Commons), 6.00%, 11/1/10 2,280,957
IN Bond Bank Special Prgm.:
2,130,000 Series 1997C (Pittsboro Wastewater Treatment Plant Proj.), 5.70%, 8/1/17 2,275,479
1,500,000 Series 1997B (Hendrick's Co. Redev. Auth.-Pittsboro Proj.)(LOC Canadian Imperial Bank),
6.20%, 2/1/23 1,660,770
2,850,000 IN DFA Educ. Fac. Rev. Series 1997 (Park Tudor Foundation Proj.), 6.00%, 6/1/22 3,104,391
IN Educ. Fac. Auth. Educ. Fac. Rev. Series 1992 (Manchester College Proj.):
250,000 6.50%, 10/1/05 271,068
305,000 6.60%, 10/1/06 330,638
175,000 6.85%, 10/1/18 189,884
IN Hlth. Fac. Fin. Auth. Hosp. Rev.:
Series 1991 Prerefunded (Jackson Co. Schneck Mem. Hosp. Proj.):
1,200,000 7.50%, 2/15/05 1,360,044
2,000,000 7.50%, 2/15/22 2,266,740
Series 1992 (Fayette Mem. Hosp. Proj.):
250,000 7.00%, 10/1/02 266,808
295,000 7.10%, 10/1/03 319,535
315,000 7.20%, 10/1/04 343,098
340,000 7.25%, 10/1/05 371,725
365,000 7.25%, 10/1/06 398,365
390,000 7.30%, 10/1/07 426,348
420,000 7.30%, 10/1/08 459,144
Series 1992 Prerefunded (Floyd Mem. Hosp. Proj.):
460,000 6.75%, 2/15/06 510,370
595,000 6.80%, 2/15/07 661,045
2,000,000 Series 1992 (Mem. Hosp. & Hlth. Care Ctr. Proj.), 7.35%, 3/1/12 2,169,840
1,500,000 Refunding Series 1998 (Floyd Mem. Hosp. & Hlth. Svcs. Proj.), 5.40%, 2/15/18 1,546,230
3,750,000 Refunding Series 1998 (Jackson Co. Schneck Proj.), 5.125%, 2/15/17 3,697,125
710,000 IN HFA Home Mtg. Prog. Series 1990F-1 (GNMA collateralized), 7.50%, 1/1/16 752,650
IN Hlth. Fac. Fin. Auth. Rev. Refunding Series 1998 (Greenwood Village South Proj.):
600,000 5.00%, 5/15/03 613,878
140,000 5.15%, 5/15/04 143,695
150,000 5.25%, 5/15/06 153,635
170,000 5.35%, 5/15/08 173,685
900,000 IN HFA Single Family Mtg. Rev. Series 1997C-2 (GNMA/FNMA collateralized), 5.70%, 7/1/16 949,824
2,750,000 Indianapolis Econ. Dev. Refunding & Imprv. Rev. Series 1992 (Natl. Benevolent
Assn.-Robin Run Village Proj.), 7.25%, 10/1/10 3,023,404
Indianapolis Econ. Dev. Rev. (Willowbrook Apts. Proj.):
2,000,000 Senior Series 1996A, 6.50%, 7/1/16 2,146,080
1,350,000 Subordinate Series 1996C, 7.125%, 7/1/26 1,423,022
See accompanying notes to portfolios of investments on page 43.
23
<PAGE>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
4,000,000 La Porte Co. Hosp. Auth. Fac. Rev. Refunding Series 1993, 6.00%, 3/1/23 4,195,880
855,000 Marion HC Mtg. Rev. Refunding Series 1994 (Hilltop Towers Project)(Section 8), 6.90%, 10/1/10 915,850
2,250,000 St. Joseph Co. Econ. Dev. Rev. Refunding Series 1997 (Madison Center, Inc. Proj.),
5.445%, 2/15/17 2,281,005
------------
44,840,398
------------
IOWA (1.5%)
1,500,000 IA Fin. Auth. SF Mtg. Series 1997A, 5.80%, 7/1/16 1,586,580
1,500,000 IA Fin. Auth. Small Business Dev. Refunding Rev. Series 1992 (University Civic Ctr. Court
Assn. Proj.), 7.40%, 3/1/17 1,659,105
IA Fin. Auth. Hlth. Care Fac. Rev. Series 1997 (Natl. Benevolent Assn.- Ramsey Home Proj.):
1,430,000 6.15%, 5/1/17 1,531,030
2,420,000 6.35%, 5/1/27 2,620,666
1,130,000 IA Fin. Auth. Multifamily Hsg. Rev. Refunding Series 1997A (Kingswood Apts. Proj.)
(GNMA-collateralized), 6.15%, 5/1/32 1,203,224
1,500,000 Ottumwa Hosp. Rev. Refunding Series 1993 (Ottumwa Regional Hlth. Ctr.), 6.00%, 10/1/10 1,577,040
------------
10,177,645
------------
KANSAS (0.4%)
145,000 Geary Co. Single Family Mtg. Rev. 1980 (FGIC insured), 10.75%, 4/1/12 150,778
2,810,000 Kansas City Single Family Mtg. Rev. Series 1982A Zero Coupon, 11.23% Effective Yield on
Purchase Date, 11/1/14 498,100
Newton Hosp. Rev. Refunding Series 1998A (Newton Medical Ctr. Proj.):
425,000 5.13%, 11/15/06 439,088
445,000 5.20%, 11/15/07 461,331
250,000 5.25%, 11/15/08 259,532
300,000 5.70%, 11/15/18 308,105
1,915,000 Olathe & Labette Cos. Mtg. Loan Rev. 1991 Series B (GNMA collateralized) Zero Coupon, 7.56%
Effective Yield on Purchase Date, 2/1/23 334,876
------------
2,451,810
------------
KENTUCKY (0.4%)
1,500,000 Jefferson Co. First Mtg. Rev. Series 1994 (Christian Church Homes Proj.), 6.00%, 11/15/09 1,598,535
1,000,000 KY Econ Dev. Fin. Auth. Hosp. Sys. Rev. Refunding & Impt. Series 1997
(Appalachian Regl. Healthcare, Inc.), 5.80%, 10/1/12 1,065,190
------------
2,663,725
------------
LOUISIANA (3.6%)
700,000 Calcasieu Parish Industrial Dev. Rev. 1975 (Cities Service Co. Proj.), 7.80%, 12/1/05 703,787
405,000 Calcasieu Parish Public Trust Auth. Mtg. Rev. Refunding 1992 Series B, 6.875%, 11/1/12 434,067
5,650,000 Denham Springs/Livingston HMFA Residual Rev. Series 1992C Zero Coupon,
7.65% Effective Yield on Purchase Date, 7/10/14 1,787,095
East Baton Rouge MFA Single Family Mtg. Rev. Refunding:
23,045,000 Series 1997C-1 Senior Bonds, Zero Coupon, 5.85% Effective Yield on Purchase Date, 10/1/30 3,788,368
1,415,000 Series 1997C-3 Subordinate Bonds, 5.65%, 10/1/18 1,466,633
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 1,273,640
995,000 LA HFA Residual Lien Refunding Mtg. Rev. Series 1992, 7.375%, 9/1/13 1,061,466
252,877 LA PFA Single Family Mtg. Purchase Rev. Series 1992 (Lafayette PTFA Mtg. Acquisition),
7.50%, 10/1/15 272,751
LA PFA Rev. Multifamily Hsg. Rev.:
1,290,000 Series 1991 (VOA Hsg. Corp.) (Asset Guaranty insured), 7.25%, 11/1/04 1,391,820
3,890,000 Series 1991 (VOA Natl. Hsg. Corp.) (Asset Guaranty insured), 7.75%, 11/1/16 4,214,270
24
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
LA PFA Single Family Mtg. Rev. Refunding:
1,000,000 Series 1997B (GNMA collateralized), 5.625%, 8/1/17 1,045,760
3,080,000 Series 1997B (GNMA collateralized), 5.75%, 8/1/31 3,213,549
830,000 Series Sr. Lien 1994A (VOA Willows Affordable Hsg. Corp.), 7.00%, 6/1/24 927,957
945,000 Monroe - McKeen Plaza HDC Multifamily Hsg. Rev. Refunding Series
1994A (Murray Plaza Apts.) (Section 8), 6.80%, 2/1/12 1,008,542
1,550,000 Orleans Levee Dist. Improvement Serial and Term Receipts Series 1995A (FSA insured),
5.95%, 11/1/14 1,724,980
------------
24,314,685
------------
MAINE (0.1%)
1,000,000 South Berwick Educ. Rev. Series 1998 (Berwick Academy Issue), 5.25%, 8/1/13 1,015,800
------------
MASSACHUSETTS (0.9%)
1,000,000 Boston Industrial Dev. Fin. Auth. Series 1997A (FHA insured-Boston
Alzheimers Center Proj.), 5.90%, 2/1/22 1,075,220
1,000,000 MA Hlth. & Educ. Fac. Auth. Rev. Series 1998C (Milford-Whitinsville Regional Hosp. Issue),
5.75%, 7/15/13 1,061,540
MA Industrial Finance Agency:
750,000 Rev. Refunding Series 1992A (Ogden Haverhill Proj.), 4.95%, 12/1/06 767,145
1,000,000 Rev. Refunding Series 1997A (Chelsea Jewish Nursing Home Proj.)(FHA insured), 6.50%, 8/1/37 1,134,420
1,000,000 Rev. Series 1998A (University Commons Nursing Care Ctr. Proj.)(FHA insured), 6.65%, 8/1/38 1,133,820
700,000 Rev. Series 1998 (Belmont Hill School Issue) 5.15%, 9/1/13 714,357
------------
5,886,502
------------
MICHIGAN (3.1%)
1,305,000 Detroit Econ. Dev. Corp. Limited Obligation Rev. Refunding Series 1992 (E.H. Associates
Ltd. Partnership Proj.), 7.00%, 6/1/12 1,383,639
1,585,000 Flint Hosp. Bldg. Auth. Rev. Refunding Series 1998A (Hurley Medical Ctr. Proj.), 5.25%, 7/1/16 1,597,315
4,500,000 MI HDA Rental Hsg. Rev. Series 1992A, 6.60%, 4/1/12 4,879,980
665,000 MI Hosp. Fin. Auth. Hosp. Rev. and Refunding Series 1998 (Chelsea Cmty. Hosp.
Proj.), 5.35%, 5/15/13 666,955
3,000,000 MI Higher Educ. Fac. Auth. Ltd. Obligation Rev. & Rev. Refunding Series 1998 (Thomas M.
Cooley Law School Proj.) (LOC First of America Bank), 5.35%, 5/1/15 3,086,190
700,000 MI State Hosp. Fin. Auth. Rev. Series 1997 (Presbyterian Vlgs. of Mich. Oblig. Group Proj.),
6.375%, 1/1/15 761,005
1,600,000 MI Strategic Fund Ltd. Obligation Rev. Series 1997A (NSF Intl. Proj.)
(LOC First Bank of America), 5.75%, 8/1/19 1,703,344
2,260,000 Southfield Econ. Dev. Corp. Ltd. Obligation Rev. Series 1998A (Lawrence Tech. Univ. Proj.),
5.25%, 2/1/13 2,296,544
1,650,000 Tri City Village HC Mtg. Refunding Multifamily Tri City Apts. Series 1992A (Section 8)
(FNMA backed), 7.75%, 8/15/23 1,811,535
2,750,000 Troy City EDC Econ. Dev. Rev. Refunding Series 1992 (Drury Inn-Troy Proj.)
(Lincoln Natl. Corp.), 6.75%, 10/1/12 2,996,565
------------
21,183,072
------------
MINNESOTA (1.6%)
1,000,000 Carver Co. HRA Multifamily Rev. Series 1997A (Waybury Apts. Proj.), 5.875%, 8/1/27 1,039,330
1,430,000 Dakota Co. HRA Multifamily Mtg. Rev. Refunding Series 1997A
(Park Place Apts. Proj.)(GNMA Collateralized), 6.875%, 2/20/32 1,590,446
740,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.)(Section 8),
6.375%, 4/1/20 796,033
1,250,000 MN HFA Single Family Mtg. Series 1998A, 5.20%, 1/1/17 1,277,500
See accompanying notes to portfolios of investments on page 43.
25
<PAGE>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
1,786,557 Moorhead Single Family Mtg. Rev. Refunding Series 1992B, 7.00%, 8/1/11 1,804,423
2,500,000 Plymouth Multifamily Hsg. Dev. Rev. Refunding Series 1996A (GNMA collateralized)
(Fox Forest Apts. Proj.), 8.05%, 6/20/31 2,921,475
1,755,000 South Washington Co. ISD #833, (Cottage Grove) Lease Refunding Series 1998
(Asset Guaranty insured), 5.25%, 12/1/14 1,816,127
------------
11,245,334
------------
MISSISSIPPI (1.7%)
1,685,000 Jones Co. Hosp. Rev. Series 1997 (South Central Regional Med. Ctr. Proj.), 5.50%, 12/1/17 1,701,901
500,000 Lincoln Co. Hosp. Rev. Refunding Series 1998A (Kings Daughter Hosp. Proj.),
5.20%, 4/1/08 524,455
2,000,000 MS Business Fin. Corp. Hlth. Fac. Rev. Series 1998 (Rush Medical Fdn., Inc.), 5.125%, 7/1/08 2,021,260
MS Hosp. Equip. and Fac. Auth. Rev. (Rush Medical Fdn. Proj.):
3,045,000 Refunding Series 1997A, 6.00%, 1/1/16 3,178,584
1,500,000 Series 1997B, 6.00%, 1/1/16 1,565,805
6,435,000 MS Home Corp. Residual Rev. Series 1992-II Zero Coupon, 7.38% Effective Yield on Purchase
Date, 4/15/12 2,502,572
------------
11,494,577
------------
MISSOURI (2.0%)
1,000,000 Kansas City Port Hlth. Series 1995A (Riverfront Park Proj.), 5.75%, 10/1/00 1,032,580
545,000 MO. Hlth. & Educ. Fac. Auth. Rev. Series 1998 (Southwest Baptist University Proj.)
(ACA insured), 5.40%, 10/1/14 566,844
MO. HDC Single Family Rev. (GNMA collateralized):
3,000,000 Series 1999B-1, 5.30%, 3/1/19 3,062,490
1,980,000 Series 1997C-1, 6.55%, 9/1/28 2,215,481
1,075,000 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 1,172,857
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 3,912,254
45,000 St. Louis Co. Single Family Res. Mtg. Series 1984 (MBIA insured), 6.75%, 4/1/10 48,509
St. Louis Industrial Dev. Auth. Tax-Exempt Impt. Rev. Series 1998 (St. Louis Zoo Fdn.)
(LOC Nationsbank):
1,000,000 5.10%, 8/15/12 1,026,330
800,000 5.15%, 8/15/13 821,520
------------
13,858,865
------------
MONTANA (0.3%)
Crow Finance Auth. Tribal Purpose Revenue Series 1997A:
1,000,000 5.70%, 10/1/27 1,038,940
870,000 5.65%, 10/1/17 902,486
------------
1,941,426
------------
NEBRASKA (0.7%)
Madison Co. Hosp. Auth. No. 1 Hosp. Rev. & Refunding Series 1998
(Faith Reg'l. Hlth. Svcs. Proj.) (Asset Guaranty insured):
1,000,000 5.20%, 7/1/13 1,020,740
4,000,000 5.35%, 7/1/18 4,094,960
------------
5,115,700
------------
NEVADA (1.1%)
NV Hsg. Div. SF Mtg. Program:
1,615,000 Sr. Series 1995A1, 6.45%, 10/1/18 1,742,730
1,050,000 Mezzanine Series 1998B-1, 5.30%, 4/1/16 1,077,300
Reno Redev. Agency Subordinate Tax Allocation and Rev. Refunding Series 1995A:
400,000 6.00%, 6/1/08 437,160
26
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
1,000,000 6.125%, 6/1/12 1,083,280
3,000,000 Reno-Sparks Indian Colony Public Fac. Fin. Auth. Sales & Excise Tax Rev.
Series 1995A, 7.50%, 7/1/07 3,177,210
------------
7,517,680
------------
NEW HAMPSHIRE (2.2%)
NH Higher Educ. & Hlth. Fac. Auth. Rev.:
620,000 Series 1997 (Catholic Charities Issue), 5.75%, 8/1/12 640,658
6,500,000 Series 1993 (Nashua Memorial Hosp. Proj.), 6.00%, 10/1/23 6,951,815
2,500,000 Series 1997 (Androscoggin Valley Hosp.Proj.), 5.80%, 11/1/27 2,672,900
5,110,000 NH HFA Single Family Res. Mtg. 1982 Series A Zero Coupon, 11.75% Effective Yield on
Purchase Date, 1/1/14 1,464,986
NH Higher Educ. & Hlth. Fac. Auth. Rev. Series 1998:
1,085,000 (New Hampton School), 5.00%, 10/1/08 1,085,000
2,170,000 (River College Proj.), 5.55%, 1/1/18 2,219,042
------------
15,034,401
------------
NEW JERSEY (0.4%)
NJ EDA Rev. Refunding Bonds Series 1997A (Harrogate, Inc. Proj.):
400,000 5.55%, 12/1/07 432,808
1,225,000 5.875%, 12/1/26 1,280,970
800,000 NJ Hlth. Care Fac. Financing Auth. Rev. Refunding Series 1997A
(Christian Hlth. Care Center Proj.), 5.50%, 7/1/18 816,200
------------
2,529,978
------------
NEW MEXICO (0.6%)
365,000 Chaves Co. Hosp. Rev. Series 1992 Prerefunded (Eastern NM Med. Ctr. Proj.), 7.25%, 12/1/10 417,852
514,000 Hobbs Single Family Mtg. Rev. Refunding Series 1992, 8.75%, 7/1/11 573,197
1,180,000 New Mexico MFA Single Family Mtg. Purchase Refunding Senior Series 1992-A2, 6.85%, 7/1/12 1,258,694
1,215,000 Sante Fe Educ. Fac. Rev. Series 1998 (St. Johns College Proj.), 5.40%, 3/1/17 1,234,671
525,000 Sante Fe Educ. Fac. Imprv. & Refunding Rev. Series 1997 (College of Sante Fe Proj.),
6.00%, 10/1/13 571,016
------------
4,055,430
------------
NEW YORK (0.7%)
1,045,000 Allegany Co. Industrial Dev. Agency Civic Fac. Rev. Series 1998
(Alfred Univ. Civic Facility Proj.), (MBIA insured), 5.25%, 8/1/09 1,126,447
1,000,000 NY Dorm Auth. Hosp. Rev. Series 1998 (FHA insured) (St. James Mercy
Hosp. Proj.), 5.25%, 2/1/18 1,021,360
1,385,000 Ulster Co. Industrial Dev. Agency Civic Fac. Rev. Series 1998A (Mid-Hudson Family Hlth. 1,420,982
Svcs. Inst., Inc. Proj.), 5.30%, 7/1/16
1,000,000 Westchester Co. Industrial Dev. Agency Civic Fac. Rev. Series 1998A
(Lawrence Hosp. Proj.), 5.125%, 1/1/18 1,002,890
------------
4,571,679
------------
NORTH CAROLINA (0.1%)
970,000 NC Muni Power Agency No. 1 Catawba Elec. Rev. Series 1995B, 6.00%, 1/1/20 971,950
------------
NORTH DAKOTA (0.6%)
Ward Co. Hlth. Care Fac. Rev.:
1,240,000 Series 1994 Escrowed to Maturity (St. Joseph Hosp.), 8.00%, 11/15/04 1,393,239
2,000,000 Series 1994 Prerefunded (St. Joseph Hosp.), 8.875%, 11/15/14 2,550,600
------------
3,943,839
------------
See accompanying notes to portfolios of investments on page 43.
27
<PAGE>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
OHIO (1.7%)
Akron Certificates of Participation Series 1996 (Akron Municipal Baseball Stadium Proj.):
3,000,000 Zero Coupon Convertible, 6.50% Effective Yield on Purchase Date, 12/1/16 2,864,400
1,000,000 Zero Coupon Convertible, 6.15% Effective Yield on Purchase Date, 12/1/07 960,270
1,000,000 Hamilton CO. Hlth. Care Fac. Refunding & Impt. Series 1998A (Twin Towers Proj.),
5.125%, 10/1/18 993,200
Franklin Co. Hlth. Care Fac. Rev. & Impt.:
1,000,000 Series 1997 (Friendship Village of Dublin Proj.), 5.50%, 11/1/16 1,011,690
530,000 Series 1998 (Friendship Village of Columbus Proj.), 5.25%, 8/13/12 532,295
300,000 Series 1998 (Friendship Village of Columbus Proj.), 5.25%, 8/15/18 293,820
1,500,000 Franklin Co. Mtg. Rev. Series 1997E (GNMA collateralized)(The Villas of St. Therese Proj.),
5.90%, 6/20/39 1,651,665
OH Capital Corp. for Hsg. Mtg. Rev. Refunding (FHA insured)(Section 8):
1,570,000 Series 1995G, 6.35%, 7/1/22 1,698,426
1,535,000 Series 1998E, 5.40%, 2/1/23 1,541,386
------------
11,547,152
------------
OKLAHOMA (1.4%)
1,110,000 Cleveland Co. Home Loan Auth. Single Family Mtg. Rev. Refunding Series 1991, 8.00%, 8/1/12 1,185,746
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, 6/1/11 800,460
OK Ind. Auth. Hosp. Rev. Bonds Series 1997A (Deaconess Hlth. Care Proj.):
2,190,000 5.50%, 10/1/12 2,248,210
2,000,000 5.75%, 10/1/17 2,089,580
440,000 Payne Co. Home Loan Auth. Single Family Rev. Refunding Series 1993A, 8.625%, 3/1/11 474,659
2,540,000 Tulsa Public Facilities Auth. Recreational Fac. Rev. Series 1985, 6.20%, 11/1/12 2,755,392
------------
9,554,047
------------
OREGON (0.8%)
4,000,000 Cow Creek Band Umpqua Tribe of Indians Rev. Series 1998B (AMBAC insured), 5.10%, 7/1/12 4,104,760
1,070,000 Portland Hsg. Auth. Multifamily Rev. Series 1997A (Civic Apts. Proj.), 5.70%, 1/1/28 1,101,672
------------
5,206,432
------------
PENNSYLVANIA (6.9%)
3,030,000 Cumberland Co. Muni Auth. Rev. Series 1996 (Presbyterian Homes Proj.), 6.00%, 12/1/26 3,194,559
Grove City Area Hosp. Auth. Rev. Series 1998 (United Cmmty. Hosp. Proj.):
810,000 4.75%, 7/1/06 827,869
1,970,000 5.25%, 7/1/12 2,019,723
1,000,000 Hazleton Svcs. Auth. Hosp. Rev. Series 1997 (Hazleton General Hosp. Proj.), 5.625%, 7/1/17 1,031,670
Horizon Hosp. System Auth. Hosp. Rev. Series 1996 (Horizon Hosp. Sys.):
600,000 5.95%, 5/15/06 655,596
715,000 6.15%, 5/15/08 793,221
710,000 6.25%, 5/15/09 788,505
1,145,000 6.30%, 5/15/11 1,236,589
1,905,000 McKean Co. Hosp. Rev. Refunding Series 1994 (Bradford Hosp. Proj.), 6.10%, 10/1/20 2,010,975
3,165,000 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 1,174,373
6,000,000 Montgomery Co. Industrial Dev. Auth. Resource Recovery Rev. Series 1989 (LOC Banque
Paribas), 7.50%, 1/1/12 6,581,340
250,000 Montgomery Co. Redev. Auth. Multifamily Hsg. Rev. 1993 Series A (KBF Assoc. L.P.),
6.375%, 7/1/12 262,893
28
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
PA Econ. Dev. Fin. Auth. Rev. Series 1998A (Northwestern. Human Services Proj.):
2,445,000 5.25%, 6/1/09 2,506,321
2,560,000 5.30%, 6/1/10 2,614,195
2,685,000 5.30%, 6/1/10 2,733,491
PA Hgr. Educ. Fac. Auth. Hlth. Svcs. Rev. Series 1996A (Allegheny Delaware Valley),
(Obligated Group, Inc.)(MBIA insured):
4,595,000 5.60%, 11/15/10 4,669,117
5,000,000 5.875%, 11/15/16 5,080,850
1,000,000 5.875%, 11/15/21 1,016,170
1,250,000 Philadelphia Auth. for Industrial Dev. Rev. Refunding Series 1998A (FHA Insured)
(Elmira Jeffries Mem. Home Proj.), 5.30%, 2/1/22 1,272,313
1,275,000 Philadelphia Redevelopment Auth. Multifamily Hsg. Rev. Refunding Series 1998
(FHA insured - Woodstock Mutual Homes Inc. Proj.), 5.45%, 2/1/23 1,290,581
Pittsburgh Urban Redev. Auth. (Center Triangle Tax Increment Fin. District) (LOC PNC Bank):
3,000,000 Series 1995A, 6.00%, 12/1/11 3,291,690
2,100,000 Series 1995B, 6.25%, 3/15/15 2,283,477
------------
47,335,518
------------
RHODE ISLAND (1.0%)
RI Hlth. & Educ. Bldg. Corp. Hosp. Fin. Rev.:
2,000,000 Series 1997 (Steere House Proj.), 5.70%, 7/1/15 2,056,480
2,500,000 Series 1997 (South Co. Hosp. Proj.), 6.00%, 11/15/17 2,765,575
1,925,000 RI HMFC Homeownership Opportunity Series 1998 -27A, 5.20%, 4/1/17 1,940,727
------------
6,762,782
------------
SOUTH CAROLINA (0.4%)
1,180,000 Myrtle Beach PFC Certificates of Participation Series 1992 Escrowed to Maturity
(Myrtle Beach Convention Ctr. Proj.), 6.75%, 7/1/02 1,251,071
1,390,000 SC Jobs Econ. Dev. Auth. Econ. Dev. & Rev. Refunding Series 1998A
(Westminister Presbyterian Center Inc. Project), 5.25%, 11/15/16 1,369,150
------------
2,620,221
------------
SOUTH DAKOTA (1.6%)
2,000,000 SD HDA Multifamily Hsg. Rev. 1992 Series B (Section 8), 7.00%, 4/1/12 2,148,680
SD Hlth. & Educ. Fac. Auth. Rev. Refunding Series 1998 (Prairie Lakes Hlth. Care System):
2,000,000 5.45%, 4/1/13 2,071,620
5,500,000 5.65%, 4/1/22 5,616,655
1,150,000 SD HDA Homeownership Mtg. Series 1998D, 5.20%, 5/1/20 1,155,911
------------
10,992,866
------------
TENNESSEE (3.7%)
1,725,000 Metro. Govt. of Nashville & Davidson Cos. Industrial Dev. Board Rev. Refunding,
Multifamily Mtg. Rev. 92C (FHA insured) (Picadilly Apts.), 6.95%, 7/1/27 1,858,136
3,840,000 Metro. Govt. of Nashville & Davidson Cos. Hlth. & Educ. Series 1998 (Asset Guaranty insured),
(Open Arms Dev. Ctrs. Proj.), 5.00%, 8/1/12 3,887,386
Shelby Co. Hlth., Educ. & Hsg. Fac. Board Multifamily Hsg. Rev.:
1,500,000 (Cameron Hsg. Proj.) Senior Series 1997A, 5.90%, 7/1/18 1,579,200
(Eastwood Park Apts. Proj.):
1,000,000 Senior Series 1995 A2, 6.40%, 9/1/25 1,054,070
420,000 Subordinate Series 1995C, 7.50%, 9/1/25 439,673
See accompanying notes to portfolios of investments on page 43.
29
<PAGE>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
(Raleigh Forest & Sherwood Apts. Proj.):
2,885,000 Senior Series 1996A, 6.60%, 1/1/26 3,065,111
760,000 Subordinate Series 1996C, 7.25%, 1/1/26 799,604
(Raleigh Woods Apts. Proj.):
6,000,000 Series 1997A (GNMA collateralized), 7.75%, 3/20/27 6,977,640
(The Corners Apts. Proj.):
1,055,000 Senior Series 1996A, 6.25%, 1/1/27 1,104,479
375,000 Subordinate Series 1996C, 6.375%, 1/1/27 381,589
1,500,000 TN HDA Mtg. Finance Series 1995B (MBIA insured), 6.20%, 7/1/18 1,609,710
7,500,000 TN HDA Homeownership Program Series 1997 Issue 3B
Zero coupon, 5.725% Effective Yield on Purchase Date, 7/1/16 2,865,600
------------
25,622,198
------------
TEXAS (9.7%)
1,690,000 Baytown HFC Single Family Mtg. Rev. Refunding Series 1992B, 8.50%, 9/1/11 1,905,019
5,735,000 Bell Co. Hlth. Fac. Dev. Corp. Retirement Fac. Rev. Series 1998 (Buckner
Retirement Services, Inc. Obligated Group Proj.), 5.25%, 11/15/19 5,744,864
Beaumont HA Multifamily Mtg. Rev. Series 1993A (Section 8):
1,365,000 6.65%, 11/1/07 1,469,245
650,000 6.75%, 11/1/10 697,970
1,765,000 Bexar Co. HFC Residual Rev. Series 1993 Zero Coupon, 6.50% Effective Yield on Purchase
Date, 3/1/15 632,082
225,000 Brazos Co. HFC Single Family Mtg. Rev. 1985 (MBIA insured) Zero Coupon, 10.55% Effective
Yield on Purchase Date, 9/1/11 60,383
1,005,000 Brazos Co. Hlth. Fac. Dev. Corp. Rev. Series 1997A (Franciscan Svcs. Corp.) (MBIA insured),
5.375%, 1/1/17 1,053,883
Cleburne Co. Tax & Waterworks & Sewer Sys. (Ltd. Pledge) Rev. Series 1998 (FSA insured):
1,595,000 Zero Coupon, 5.45% Effective Yield on Purchase Date, 2/15/13 777,355
1,845,000 Zero Coupon, 5.50% Effective Yield on Purchase Date, 5/15/14 844,586
545,000 Columbus Cmty. Industrial Dev. Corp. Sales Tax Rev. Series 1998 (Bank Qualified),
5.70%, 11/1/18 556,876
Dallas Hsg. Corp. Capital Program Revenue Bonds:
1,715,000 Series 1995A (Estell Village Apts.) (Section 8), 7.875%, 12/1/09 1,785,246
1,555,000 Series 1995 (Cedar Glen Apts.) (Section 8), 7.75%, 12/1/09 1,618,040
1,000,000 Dallas HFC Cap. Proj. Refunding 1990 (Section 8), 7.85%, 8/1/13 1,054,180
6,848,000 Dallas HFC Multifamily Mtg. Rev. Series 1998A (GNMA collateralized) (Towne
Ctr. Apts. Proj.), 6.75%, 10/20/32 7,686,195
2,000,000 Galveston Special Contract Refunding Rev. Series 1998 (Farmland Industries, Inc. Proj.),
5.50%, 5/1/15 2,025,200
385,000 Harris Co. HFC Single Family Mtg. Rev. Series 1983A, 10.125%, 7/15/03 386,494
1,600,000 Harrison Co. Hlth. Fac. Dev. Corp. Rev. Series 1998 (Marshall Regional Med. Ctr. Proj.)
(ACA insured), 5.50%, 1/1/18 1,638,992
1,500,000 Houston HFC Single Family Mtg. Rev. Refunding Series 1996B-1, 8.00%, 6/1/14 1,627,185
1,170,000 Leander ISD (Williamson & Travis Cos.) Unltd. Tax School Bldg & Refunding General Obligation
Series 1998, 5.00%, 8/15/13 1,191,189
1,740,000 Lubbock HFC Multifamily Hsg. Rev. Refunding Series 1992A (Los Colinas, Park Ridge Place &
Quail Creek), 7.75%, 1/1/22 1,829,001
6,000,000 Lufkin Hlth. Sys. Rev. Series 1998 (Memorial Hlth. Sys. Of East Texas), 5.70%, 2/15/28 6,134,700
Midland HFC Single Family Mtg. Rev. Refunding:
367,798 Series 1992 B-2, 8.15%, 12/1/11 402,812
499,599 Series 1992 A-2, 8.45%, 12/1/11 548,759
30
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
496,375 Series 1992, 9.00%, 9/1/01 521,834
Mesquite Hlth. Fac. Dev. Corp. Retirement Fac. Rev. Series 1996A (Christian Care Ctrs. Proj.):
1,000,000 6.30%, 2/15/12 1,075,030
1,000,000 6.40%, 2/15/16 1,081,100
North Central Hlth. Fac. Dev. Corp. Rev. (C.C. Young Memorial Home Proj.):
495,000 Series 1996, 5.90%, 2/15/04 531,640
155,000 Series 1996, 6.10%, 2/15/06 170,409
1,300,000 Series 1996, 6.30%, 2/15/15 1,406,470
1,135,000 Series 1998A, 5.375%, 2/15/14 1,142,616
1,384,485 Odessa HFC Single Family Mtg. Rev. Refunding Series 1992B Class B-2, 8.125%, 11/1/11 1,522,242
650,000 San Marcos HA Multifamily Mtg. Rev. Series 1993A (FHA insured) (Section 8), 5.80%, 11/1/10 671,548
Southeast TX HFC Residual Revenue:
1,555,000 Series 1995A Zero Coupon, 6.50% Effective Yield on Purchase Date, 11/1/14 638,234
3,000,000 Series 1992A Zero Coupon, 7.63% Effective Yield on Purchase Date, 9/1/17 741,930
2,585,000 TX Dept. Hsg. & Cmnty. Affairs Single Family Rev. Refunding Junior Lien Series 1994A
Zero Coupon, 6.93% Effective Yield on Purchase Date, 3/1/15 862,253
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 1,611,900
2,500,000 Senior Series 1996A (Dallas - Ft. Worth Apts. Pool Proj.), 6.50%, 7/1/26 2,680,650
970,000 Subordinated Series 1996C (Harbors & Plumtree Apts. Proj.), 7.375%, 7/1/26 1,019,024
2,820,000 Senior Series 1996A (Harbors & Plumtree Apts. Proj.), 6.45%, 7/1/26 3,002,313
3,050,000 Series 1996A (NHP Foundation - Asmara Apts. Proj.), 6.40%, 1/1/27 3,311,019
950,000 Travis Co. HFC Residential Mtg. Rev. Series 1991A (GNMA/FNMA collateralized), 7.05%, 12/1/25 1,017,630
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 1,517,535
------------
66,195,633
------------
UTAH (0.6%)
1,000,000 Davis Co. Solid Waste Mgmt. & Energy Recovery Rev. Refunding Series 1993, 6.125%, 6/15/09 1,060,710
1,000,000 Provo HA Multifamily Series 1997 (Lookout Point Apts. Proj.) (GNMA collateralized),
5.80%, 7/20/22 1,049,880
1,795,000 UT HFA Single Family Mtg. 1996 Issue E-1 Senior Bonds, 6.00%, 7/1/16 1,918,137
------------
4,028,727
------------
VERMONT (0.2%)
VT Educ. & Hlth. Bldgs. Financing Agency Rev. Series 1998 (Norwich Univ. Proj.):
420,000 5.13%, 7/1/09 436,699
780,000 5.75%, 7/1/13 822,050
------------
1,258,749
------------
VIRGINIA (1.1%)
VA Hsg. Dev. Auth. Commonwealth Mtg. Rev:
750,000 Series 1992A, 7.10%, 1/1/22 779,632
1,510,000 Series 1995D3, 6.05%, 1/1/13 1,621,151
1,555,000 Series 1995D3, 6.05%, 7/1/13 1,669,464
3,500,000 Series 1996H2, 5.20%, 7/1/17 3,562,440
------------
7,632,687
------------
WASHINGTON (2.8%)
2,500,000 King Co. Hsg. Auth. Pooled Hsg. Refunding Rev. Series 1998A (Asset Guaranty insured),
5.05%, 7/1/13 2,522,825
3,000,000 Kitsap Co. Consolidated Hsg. Auth. Pooled Hsg. Refunding Rev. Series 1998A,
5.50%, 12/1/18 3,032,340
See accompanying notes to portfolios of investments on page 43.
31
<PAGE>
SIT TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Vancouver (Clark Co.) H.A. Pooled Hsg. Refunding Rev. Series 1998A Senior Bonds :
1,000,000 5.40%, 3/1/18 1,017,680
3,500,000 5.50%, 3/1/28 3,561,600
WA HFC Nonprofit Housing Revenue:
1,000,000 Series 1995A (Judson Park Project)(LOC US Bk. Wash.), 6.90%, 7/1/16 1,060,290
1,390,000 Series 1996A (Presbyterian Ministries) (LOC US Bk. Wash.), 6.85%, 7/1/21 1,482,449
WA Hlth. Care Fac. Auth. Rev.:
2,000,000 Series 1996 (Grays Harbor Hosp. Proj.)(Asset Guaranty insured), 5.70%, 7/1/16 2,133,900
1,850,000 Series 1998 (Highline Cmmty. Hosp. Proj.)(Asset Guaranty insured), 5.25%, 8/15/17 1,895,935
WA Hsg. Finance Commission Nonprofit Rev.:
1,000,000 Series 1997A (Virginia Mason Research Center Proj.)(LOC US Bank), 5.70%, 1/1/24 1,069,380
1,500,000 Series 1998 (Cmty. Colleges of Spokane Fdn. Proj.)(LOC US Bank), 5.20%, 7/1/18 1,510,140
------------
19,286,539
------------
WEST VIRGINIA (0.6%)
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 2,425,912
2,000,000 Mason Co. Residual Rev. Series 1992C Zero Coupon, 7.58% Effective Yield on
Purchase Date, 7/10/14 655,800
3,000,000 Ohio Co. Residual Rev. Series 1992C Zero Coupon, 7.43% Effective Yield on
Purchase Date, 7/10/14 989,670
------------
4,071,382
------------
WISCONSIN (1.0%)
1,300,000 WI HEDA Hsg. Rev. Series 1992A (Section 8), 6.85%, 11/1/12 1,407,679
2,645,000 WI Hsg. EDA Home Ownership Rev. Series 1998A, 5.38%, 9/1/17 2,702,132
WI Hlth. & Educ. Fac. Auth. Rev. :
750,000 Series 1996 (Meriter Hosp. Inc.), 6.00%, 12/1/17 813,450
1,750,000 Series 1997 (St. John's Home & Sunrise Care), 5.625%, 12/15/22 1,769,547
------------
6,692,808
------------
WYOMING (0.3%)
2,000,000 WY CDA Hsg. Rev. 1995 Series 6, 6.10%, 12/1/25 2,132,799
------------
Total municipal bonds (cost: $536,816,897) 563,518,400
--------------
CLOSED-END MUTUAL FUNDS (5.5%) (2)
341,700 American Municipal Term Trust 2001 3,972,263
112,600 American Municipal Term Trust III 2003 1,273,788
153,700 Blackrock Insured Municipal Term Trust 2008 2,459,200
662,500 Blackrock Insured Municipal Term Trust 2010 7,535,938
57,700 Blackrock Investment Quality Municipal Trust 876,319
1,117,700 Blackrock Municipal Target Term Trust 2006 12,643,981
261,300 Van Kampen Merritt Municipal Opp. 4,360,444
347,200 Van Kampen Merritt Strategic 4,795,700
--------------
37,917,633
--------------
Total closed-end mutual funds (cost: $36,282,336)
32
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES (12.2%) (2)
9,000,000 Austin TX Util. Sys. CP (Travis & Williamson Cos.) (LOC Morgan Guaranty), 3.10%, 10/2/98 9,000,000
8,913,000 Austin TX Util. Sys. CP (Travis & Williamson Cos.) (LOC Morgan Guaranty), 3.10%, 10/14/98 8,913,000
5,000,000 Burke Co. GA Olgethorpe Pwr. Corp. CP, 3.60%, 10/6/98 5,000,000
7,100,000 City of Lincoln NE CP (Lincoln Electric) (LIQ Morgan Guranty), 3.00%, 10/19/98 7,100,000
3,000,000 City of Philadelphia PA Gas Works CP (LOC Imperial Bank), 3.40%, 10/6/98 3,000,000
10,571,926 Dreyfus Tax-Exempt Cash Management Fund, 3.33% 10,571,926
5,000,000 Fort Worth TX CP (Water & Sewer System)(IPA-US Bank), 3.50%, 11/2/98 5,000,000
5,000,000 Intermountain Power Agy. UT CP, 3.60%, 10/8/98 5,000,000
3,700,000 Intermountain Power Agy. UT CP (LOC Bank of America), 3.50%, 10/16/98 3,700,000
2,400,000 LA Co. CA Metro Trans. Auth. CP Sales Tax. Rev. Series A, 4.10%, 10/7/98 2,400,000
4,500,000 NC Muni Power Agy. No. 1 CP (Catawba Proj.), 3.60%, 10/16/98 4,500,000
12,113,890 Northern Trust Tax-Exempt Cash Management Fund, 3.70% 12,113,890
5,000,000 Sarasota Co. FL Public Hosp. Dist. CP (Sarasota Memorial Hosp. 96A)(LOC Sun Trust Bk.),
3.80%, 10/1/98 5,000,000
2,484,000 Univ. of Texas Board of Regents CP (Self Liquidating), 4.20%, 10/7/98 2,484,000
--------------
Total short-term securities (cost: $83,782,816) 83,782,816
--------------
Total investments in securities (cost: $656,882,049) (6) 685,218,849
==============
See accompanying notes to portfolios of investments on page 43.
33
</TABLE>
<PAGE>
SIT MINNESOTA TAX-FREE INCOME FUND REVIEW
SIX MONTHS ENDED SEPTEMBER 30, 1998
[PHOTO]
MICHAEL C. BRILLEY
SENIOR PORTFOLIO MANAGER
DEBRA A. SIT, CFA
PORTFOLIO MANAGER
Dear Fellow Shareholders:
Municipal bond yields declined to new lows in September. The Sit Minnesota
Tax-Free Income Fund provided shareholders a total return of +2.61% for the
quarter and +4.00% for the six-month period ended September 30, 1998. The Fund's
total return ranked 28th of 47 Minnesota municipal funds tracked by Lipper
Analytical Services for the quarter and 16th of 47 funds for twelve-month
period. In addition, the Fund's returns ranked 9th of 45 funds for the three
year period and 1st overall of 25 funds since its inception on December 1, 1993.
The Fund's price per share increased $0.15 during the semi-annual period to
$10.64 on September 30, 1998, surpassing its all-time high of $10.56 reached in
early January 1998. As of September 30th, the Fund's 30-day SEC yield was 4.74%
and its 12-month distribution rate was 5.12%, compared to 5.02% and 5.31%,
respectively, on March 31, 1998.
Fund assets increased from $143.6 million to $194.3 million during the
semi-annual period. Cash flow was used to purchase bonds across several industry
and ratings categories. Weightings increased in hospital bonds from 12.5% to
15.9%, industrial revenue bonds from 3.6% to 5.1% and education bonds from 1.1%
to 2.6%. Weightings decreased in multifamily housing from 42.3% to 41.5% and
single family housing from 13.9% to 12.0%. Other revenue bonds decreased from
7.0% to 5.7%. Cash decreased slightly from 7.0% to 6.0%. Non-rated holdings
increased from 33.4% to 36.3% while securities rated "A" or better decreased
from 61.4% to 57.7%. We expect that the Fund's quality profile will remain
steady in the months ahead. The Fund's average maturity was unchanged at
approximately 19.8 years. The Fund's implied duration increased from 5.0 years
to 6.2 years as we purchased securities with greater call protection. Recently
the Fund has focused on adding bonds in the 8 to 20 year maturity range, which
we consider to be the most attractive part of the yield curve in an environment
of Fed ease.
The Fund's performance continues to be driven by its emphasis on securities
that provide higher coupon income and principal stability. The increase in
municipal bond prices has lagged the recent rally in Treasury bonds, thus
causing municipal yields to be very attractively valued on an historical basis.
In this environment, we will continue to focus on purchasing securities that
provide incremental yield and relative price stability.
INVESTMENT OBJECTIVE AND STRATEGY
The investment objective of the Fund is to provide a high level of current
income exempt from federal regular income tax and Minnesota regular personal
income tax as is consistent with the preservation of capital.
The Fund will endeavor to invest 100% of its assets in municipal
securities, the income from which is exempt from federal regular income tax and
Minnesota regular personal income tax. The Fund anticipates that substantially
all of its distributions to its shareholders will be exempt as such. For
investors subject to the alternative minimum tax ("AMT"), up to 20% of the
Fund's income may be treated as an item of tax preference that is included in
the alternative minimum taxable income.
PORTFOLIO SUMMARY
Net Asset Value 9/30/98: $10.64 Per Share
3/31/98: $10.49 Per Share
Total Net Assets: $194.30 Million
30-Day SEC Yield: 4.74%
Tax Equivalent Yield: 8.58% (1)
12-Month Distribution Rate: 5.12%
Average Maturity: 19.8 Years
Duration to Estimated Avg. Life: 7.6 Years (2)
Implied Duration: 6.2 Years (2)
(1) For individuals in the 39.6% Federal and 8.5% MN tax brackets.
(2) See opposite page.
PORTFOLIO STRUCTURE
(% of total net assets)
Multifamily Mortgage Revenue 41.5
Hospital/Health Care Revenue 15.9
Single Family Mortgage Revenue 12.0
Other Revenue Bonds 5.7
Industrial Revenue/
Pollution Control 5.1
Closed-End Mutual Funds 4.7
General Obligation 3.6
Education/Student Loan 2.6
Lease 2.0
Public Facilities 0.9
Other Assets and Liabilities 6.0
34
<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 2.61% 2.71% 2.63% 2.61% 2.71% 2.63%
(not annualized)
1 Year 8.08 7.74 6.76 8.08 7.74 6.76
3 Year 7.53 6.89 5.90 24.33 22.13 18.78
Inception 6.88 5.71 5.60 37.93 30.82 30.15
(12/1/93)
</TABLE>
* As of 9/30/98
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
[GRAPH]
The sum of $10,000 invested at inception (12/1/93) and held until 9/30/98 would
have grown to $13,793 in the Fund or $13,015 in the Lehman 5-Year Municipal Bond
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% of Net Assets)
LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED.
[PIE CHART]
AAA 21.7%
AA 20.5%
A 9.5%
BBB 6.0%
Not Rated 36.3%
Other Assets
& Liabilities 6.0%
ASSESSMENT OF
NON-RATED SECURITIES
AA 0.3%
A 2.7
BBB 19.7
BB 12.3
B 1.3
----- -----
Total 36.3%
35
<PAGE>
SIT MINNESOTA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (89.3%) (2)
EDUCATION/STUDENT LOAN (2.6%)
Minnesota Higher Educ. Fac. Auth. Rev. :
Series 1996-4I (Hamline Univ.):
1,000,000 6.00%, 10/1/12 1,072,100
585,000 6.00%, 10/1/16 620,820
2,600,000 Series 1998-4T (College of St. Benedict), 5.35%, 3/1/20 2,636,998
701,000 Lease Financing Series 1998-4V (Gustavus Adolphus College) Energy Impts., 4.90%, 2/15/09 712,279
------------
5,042,197
------------
GENERAL OBLIGATION (3.6%)
590,000 Carver Co. Hsg. & Redev. Auth. Hsg. & Dev. Gross Rev. Ltd.Tax G.O.
(Chanhassen Apts. Proj.), 7.00%, 1/1/25 633,955
1,600,000 Chaska Independent School Dist. No. 112 G.O. Refunding Series 1998A, 5.00%, 2/1/15 1,640,288
1,025,000 Elk River Independent School Dist. No. 728 G.O. Series 1997A, 5.375%, 2/1/17 1,079,417
500,000 Goodhue (City of) G.O. Gas Utility Series 1996, 6.75%, 1/1/26 545,955
1,040,000 Maple Grove G.O. Improvement Series 1996A, 5.20%, 2/1/13 1,090,440
1,000,000 Rochester ISD No. 535, G.O. Series 1996A, 5.25%, 2/1/14 1,044,450
1,000,000 Todd, Morrison & Stearns Cos. ISD No. 2753, G.O. Series 1996, 5.00%, 4/1/17 1,013,290
------------
7,047,795
------------
HOSPITAL/HEALTH CARE (15.9%)
1,000,000 Albert Lea Hsg. & Hlth. Care Fac. Rev. Refunding Series 1996 (St. Johns Lutheran Home Proj.),
7.00%, 11/1/19 1,075,740
1,030,000 Bloomington Hsg. & Redev. Auth. Senior Hsg. Rev. Bonds Series 1998 (Summerhouse Proj.),
5.875%, 11/1/11 1,047,901
Brooklyn Center Hlth. Care Fac. Rev. Series 1993 (Maranatha Proj.):
50,000 6.75%, 12/1/05 53,905
500,000 7.50%, 12/1/10 544,390
1,290,000 Cokato Sr. Hsg. Rev. Series 1996 (Cokato Charitable Trust Proj.), 7.00%, 12/1/19 1,326,146
1,645,000 Columbia Heights Multifamily & Health Care Fac. Rev. Series 1998 (Crest View Corp. Proj.),
5.75%, 9/1/11 1,673,623
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 1,041,200
500,000 Duluth Econ. Dev. Auth. Hlth. Care Fac. Rev. Series 1998A (BSM Properties Inc. Proj.),
5.875%, 12/1/28 510,535
715,000 Eden Prairie Hlth. Care Fac. Rev. Bonds Series 1998 (Castle Ridge Care Proj.),
5.70%, 7/1/18 722,107
140,000 Edina Hlth. Care Fac. Rev. Series 1995 (Volunteers of America Care Proj.),
7.875%, 3/1/19 145,454
Elk River Rev. Series 1998 (Care Choice Member Proj.):
1,500,000 5.60%, 8/1/13 1,508,175
1,595,000 5.70%, 8/1/18 1,600,343
215,000 Fergus Falls Hlth. Care Fac. Auth. Rev. Refunding Series 1993A
(Lake Region Hosp. Corp. Proj.), 6.25%, 9/1/04 236,225
650,000 Fergus Falls Hlth. Care Fac. Auth. Series 1995 (LRHC Long-Term Care Fac. Proj.),
6.40%, 12/1/15 711,067
36
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
565,000 Hastings Hlth. Care Fac. Rev. Series 1998 (Regina Med. Ctr.)(ACA insured), 5.25%, 9/15/18 566,288
1,540,000 Hibbing Hlth. Care Fac. Rev. Series 1995A (St. Francis Hlth. Svcs. Proj.),
7.35%, 11/1/15 1,646,183
750,000 Mankato Hlth. Care Fac. Rev. Series 1996A (Lutheran Home Proj.), 6.75%, 10/1/16 793,140
1,685,000 Maplewood Hlth. Care Fac. Rev. (VOA Care Ctrs. Proj.), 7.375%, 10/1/12 1,850,753
1,000,000 Minneapolis Hlth. Care Fac. Rev. Series 1993 (St. Olaf Res. Proj.), 7.00%,10/1/18 1,061,960
1,885,000 Minneapolis Hsg. & Hlth. Care Fac. Rev. Series 1997 (Augustana Chapel View Homes Proj.),
6.70%, 6/1/22 2,004,811
350,000 Minneapolis Skilled Nursing & Assisted Living Rev. Series 1998B
(Catholic Eldercare Assisted), 7.25%, 5/1/24 360,272
750,000 Monticello/Big Lake Cmty. Hosp. Dist. Gross Rev. Series 1998
(Asset Guaranty insured), 5.75%, 12/1/19 804,945
Olmsted Co. Hlth. Care Fac. Rev. Series 1998 (Olmsted Medical Ctr. Proj.):
650,000 5.45%, 7/1/13 665,197
1,125,000 5.55%, 7/1/19 1,137,566
Red Wing Hlth. Care Ctr. Fac. Rev. Refunding (River Region Obligated Group):
125,000 Series 1993A, 6.20%, 9/1/05 135,883
130,000 Series 1993A, 6.30%, 9/1/06 141,583
200,000 Series 1993B, 6.20%, 9/1/05 217,412
2,500,000 Shakopee - St. Francis Regional Medical Center Tax-Exempt Loan, 5.633%, 7/1/13 2,541,750
Sherburne Co. Nursing Home Fac. Rev. Series 1994 (Guardian Angels Care Ctr. Proj.):
75,000 7.30%, 6/1/07 80,882
80,000 7.35%, 6/1/08 86,266
90,000 7.40%, 6/1/09 97,264
555,000 7.50%, 6/1/14 602,336
140,000 7.75%, 6/1/15 153,474
150,000 7.75%, 6/1/16 164,436
300,000 Spring Park Hlth. Care Fac. Rev. Series 1991 (Twin Birch Hlth. Care Ctr. Proj.), 8.25%, 8/1/11 324,156
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 1,033,795
820,000 Wadena Co. Hlth. Care Fac. Rev. Series 1994B, 7.45%, 9/1/15 901,426
1,350,000 Zumbrota Hlth. Care Fac. Rev. Series 1998A (Zumbrota Cmty. Fdn.), 5.80%, 12/1/18 1,356,156
------------
30,924,745
------------
INDUSTRIAL /POLLUTION CONTROL (5.1%)
500,000 Anoka Industrial Dev. Rev. Series 1994 (Lund Industries Inc. Proj.), 6.50%, 9/1/04 (4) 536,490
1,075,000 Bass Brook Pollution Control Rev. Series 1992 (Minnesota Power & Light Corp. Proj.),
6.00%, 7/1/22 1,134,168
275,000 Sauk Centre Industrial Dev. Rev. Series 1998 (Seluemed LLP Proj.)(LOC US Bank),
5.75%, 4/1/18 (4) 277,745
740,000 Duluth Commercial Dev. Rev. Refunding Series 1995A (Radisson Hotel Proj.), 7.00%, 12/1/00 731,164
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) 110,120
500,000 Series 1997C Lot 3 (DynaGraphics), 6.20%, 8/1/09 (4) 526,445
400,000 Series 1998A Lot 1 (Formative Engineering Corp.), 5.75%, 8/1/18 (4) 407,072
1,525,000 Series 1998B Lot 2 (Merrill Corp.), 5.50%, 8/1/10 (4) 1,549,187
Medina Industrial Dev. Rev. Refunding Series 1998 (Temroc Metals, Inc. Proj.):
210,000 5.10%, 10/1/05 209,805
705,000 5.25%, 10/1/08 703,104
See accompanying notes to portfolios of investments on page 43.
37
<PAGE>
SIT MINNESOTA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
400,000 5.60%, 10/1/12 402,020
1,000,000 Minneapolis Commercial Dev. Rev. Refunding Series 1997 (Holiday Inn Metrodome Proj.),
6.00%, 12/1/01 1,020,850
Owatonna Industrial Dev. Rev. Series 1997:
280,000 7.25%, 5/1/14 (4) 296,839
505,000 7.375%, 5/1/17 (4) 535,356
200,000 Richfield Cmty. Dev. Rev. Refunding 1994 (Richfield Shoppes Proj.), 8.375%, 10/1/05 223,276
500,000 St. Paul Hsg. & Redev. Auth. District Cooling Rev. Series 1998J, 5.35%, 3/1/18 514,055
705,000 St. Paul Port Authority Hotel Fac. Senior Rev. Series 1996A (Radisson Kellogg Project),
7.00%, 8/1/01 724,959
------------
9,902,655
------------
MULTIFAMILY MORTGAGE (41.5%)
1,520,000 Apple Valley Multifamily Hsg. Rev. Refunding Series 1998A (Mtg. Loan/Apple Valley
Villa Proj.) (GNMA collateralized), 5.25%, 8/1/18 1,543,226
500,000 Aurora Hsg. & Redev. Auth. Multifamily Rev. (Irongate Apts. Proj.) (Section 8),
6.10%, 10/1/19 527,170
Austin Hsg. & Redev. Auth. Governmental Hsg. Gross Rev. Series 1995A (Courtyard Res. Proj.):
220,000 7.00%, 1/1/15 237,514
500,000 7.25%, 1/1/26 542,460
960,000 Burnsville Multifamily Hsg. Rev. Refunding Series 1994 (Bridgeway Apts. Proj.), 7.25%, 2/1/14 1,015,776
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 1,502,467
650,000 Rev. Refunding Series 1997A (Waybury Apts. Proj.), 5.875%, 8/1/27 675,564
2,630,000 Series 1998 (GNMA collateralized)(Jonathan Acres Proj.), 5.30%, 4/20/33 2,678,892
400,000 Subordinate Rev. Refunding Series 1997C (Waybury Apts. Proj.), 8.00%, 8/1/27 411,012
405,000 Chisago City Hlth. Fac. Rev. Refunding Series 1995A (Pleasant Heights Proj.),
7.30%, 7/1/18 446,274
Coon Rapids Multifamily Hsg. Rev.:
280,000 Refunding Series 1997 (GNMA collateralized) (Pine Point Apts.), 6.125%, 5/1/32 300,630
700,000 Refunding Series 1997A (Margaret Place Apts. Proj.), 6.50%, 5/1/25 721,133
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 3,336,600
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) 1,954,796
250,000 Series 1995C Subordinate, 9.00%, 1/20/15 (4) 264,128
1,470,000 Eagan Multifamily Rental Hsg. Refunding Rev. Series 1996 (Wescott Apts. Proj.)
(FHA insured), 6.00%, 12/1/27 1,549,307
Eden Prairie Multifamily Hsg. Rev. Refunding :
55,000 Series 1990A (Welsh Parkway Apts. Ltd. Proj.)(FHA insured), 8.00%, 7/1/26 58,806
700,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.00%, 11/1/06 746,578
1,500,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.10%, 11/1/17 1,584,660
450,000 Series 1995A (Olympic Ridge Proj.) (GNMA collateralized), 6.20%, 1/20/16 484,547
300,000 Series 1997A (Preserve Place Proj.) (GNMA collateralized), 5.50%, 1/20/18 310,191
1,035,000 Series 1997A (Preserve Place Proj.) (GNMA collateralized), 5.60%, 7/20/28 1,069,962
38
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Harmony Multifamily Hsg. Rev. Refunding Series 1997A (Zedakah Fdn. Proj.) (Section 8):
300,000 5.40%, 9/1/08 314,448
280,000 5.75%, 9/1/12 294,123
275,000 5.80%, 9/1/13 288,835
3,500,000 Hopkins Elderly Hsg. Rev. Refunding (St. Therese Southwest Proj.),
Series 1997 (GNMA collateralized), 5.70%, 11/20/32 3,655,330
1,015,000 Hopkins Hsg. Fac. Rev. Refunding Series 1995 (Augustana Chapel View Homes Proj.),
7.00%, 12/1/15 1,084,578
560,000 Hopkins Subordinate Multifamily Hsg. Rev. Refunding Series 1996C (Auburn Apts. Proj.),
8.00%, 6/20/31 596,893
450,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.), 6.25%, 4/1/15 484,096
500,000 Hutchinson Hsg. Fac. Rev. Series 1994 (Prince of Peace Proj.), 7.375%, 10/1/12 527,795
Little Canada Multifamily Hsg. Rev.:
800,000 Refunding Series 1997A (GNMA collateralized)(Cedars Lakeside Proj.), 5.90%, 8/1/20 850,856
3,455,000 Series 1997A (Hsg. Alt. Dev. Co. Proj.), 6.10%, 12/1/17 3,517,743
1,000,000 Series 1997A (Hsg. Alt. Dev. Proj.), 6.25%, 12/1/27 1,018,040
1,650,000 Maplewood Multifamily Hsg. Rev. Series 1998 (Park Edge Apts. Proj.), 6.50%, 5/1/29 (4) 1,689,006
Maplewood Multifamily Refunding Rev. (Village on Woodlyn Proj.):
1,605,000 Series 1999A (GNMA collateralized), 6.75%, 7/20/30 (4) 1,723,850
100,000 Subordinate Series 1998C-1, 8.00%, 11/1/30 (4) 100,868
375,000 Subordinate Series 1999C-1, 8.00%, 11/1/30 (4) 375,000
Minneapolis Multifamily Hsg. Rev.:
75,000 Series 1991 (Trinity Hsg. Proj.) (Section 8), 7.875%, 2/1/06 79,001
355,000 Series 1996 (Belmont Apts.), 7.25%, 11/1/16 373,371
565,000 Series 1994 (Findley Place Townhomes Proj) (Section 8), 7.00%, 12/1/16 (4) 570,266
2,000,000 Series 1996A (Nicollet Towers) (Section 8), 6.00%, 12/01/19 2,107,200
4,190,000 Series 1998A (University Village) (GNMA collateralized), 5.30%, 8/1/23 4,282,180
645,000 Series 1996 (Belmont Apts.), 7.625%, 11/1/27 678,998
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) 359,376
2,000,000 MN HFA Multifamily Hsg. Dev. Rev. Series 1997I, 5.50%, 1/1/17 2,077,160
MN HFA Rental Hsg. Rev.:
175,000 Series 1993C, 6.15%, 2/1/14 177,109
135,000 Series 1993E, 6.00%, 2/1/14 142,325
230,000 Series 1995D (MBIA insured), 6.00%, 2/1/22 243,897
4,005,000 Series 1998A, 5.375%, 8/1/28 4,101,681
Minnetonka Hsg. Fac. Rev. Series 1994 (Beacon Hill Housing Proj.):
890,000 7.00%, 6/1/04 940,445
1,000,000 7.50%, 6/1/14 1,093,710
510,000 Minnetonka Multifamily Hsg. Rev. Refunding Subordinate Series 1994C (Brier Creek Proj.),
8.00%, 12/20/16 548,087
550,000 Minnetonka Multifamily Hsg. Rev. Series 1985 (Cedar Hills East)(FHA insured), 7.50%, 12/1/17 578,364
Minnetonka Senior Hsg. Rev. Series 1997 (Westridge Senior Hsg. Proj.):
285,000 6.75%, 9/1/17 296,001
650,000 7.00%, 9/1/27 682,500
500,000 Monticello Senior Hsg. Rev. Series 1995 (Mississippi Shores Proj.), 7.25%, 7/1/16 513,410
270,000 Mora Multifamily Rev. Refunding Hsg. Alternatives Partnership Series 1995, 6.50%, 6/1/02 275,246
See accompanying notes to portfolios of investments on page 43.
39
<PAGE>
SIT MINNESOTA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Plymouth Multifamily Hsg. Rev. Refunding Series 1996A (Fox Forest Apts. Proj.)
(GNMA collateralized):
750,000 Series 1996A, 8.05%, 6/20/31 876,443
700,000 Series 1996C, 8.00%, 6/20/31 746,116
960,000 Robbinsdale Multifamily Hsg. Rev. Series 1996A (Copperfield Hill Proj.),
7.20%, 12/1/16 993,427
Roseville Hsg. Fac. Rev. Refunding Bonds Series 1998 (College Properties Inc. Proj.),
2,820,000 5.60%, 10/1/13 2,836,243
400,000 5.625%, 10/1/18 402,300
325,000 Sandstone Econ. Dev. Auth. Hsg. & Dev. Rev. Series 1994A (Family Apts. Proj.),
8.00%, 1/1/12 325,907
1,250,000 Spring Lake Park Sr. Hsg. Rev. Series 1996 (Noah's Ark Affordable Hsg. Inc.), 7.25%, 9/1/16 1,276,700
1,500,000 St. Anthony Hsg. Dev. Rev. Refunding (Autumn Woods Proj.) (Asset Gty. insured), 6.875%, 7/1/22 1,619,925
500,000 St. Cloud Hsg. & Redev. Auth. Hsg. Rev. Refunding Series 1998 (Northway Manor Apts. Section 8
Assisted Proj.), 5.15%, 12/1/14 509,480
650,000 St. Louis Park Multifamily Hsg. Rev. Refunding Series 1995 (Knollwood Cmty. Hsg. Proj.)
(FHA insured), 6.15%, 12/1/16 699,439
St. Paul Hsg. & Redev. Auth. Multifamily Refunding Rev.:
500,000 Series 1992 (Point of St. Paul Proj.)(FNMA backed), 6.60%, 10/1/12 537,280
200,000 Series 1995 (Sun Cliffe Apts. Proj.)(GNMA collateralized), 5.875%, 7/1/15 211,302
1,170,000 Series 1998 (Superior Street Cottages Proj.), Lyngblomsten, Inc., 6.00%, 3/15/24 1,183,221
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 3,968,176
408,000 Subordinate Series 1998-1B, 8.00%, 4/20/33 415,352
2,000,000 Virginia Hsg. & Redev. Auth. Governmental Hsg. Rev. Refunding Series 1998A
(Laurentian Manor Proj.), 5.75%, 5/1/32 2,025,000
1,015,000 Washington Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding Series 1994
(White Bear Lake Transitional Hsg. Proj.), 6.625%, 8/1/24 1,084,984
1,385,000 White Bear Lake Multifamily Hsg. Rev. Refunding Series 1996A (Lake Sq. Partners Proj.)
(FHA insured), 6.10%, 2/1/26 1,483,584
770,000 Willmar Hsg. & Redev. Auth. Multifamily Rev. Series 1993 (Highland Apts)
(Section 8), 5.85%, 6/1/19 792,607
------------
80,590,967
------------
LEASE (2.0%)
1,015,000 Beltrami Co. Hsg. & Redev. Auth. Lease Rev., 6.25%, 2/1/16 1,074,063
585,000 Burnsville Solid Waste Rev. Series 1990 (Freeway Transfer Inc. Proj.), 9.00%, 4/1/10 (4) 636,018
250,000 Goodhue Co. Econ. Dev. Auth. Courts Building Proj. Lease Rev. Series 1997A, 5.75%, 2/1/13 264,680
125,000 Hennepin Co. Hsg. & Redev. Auth. Rev. Series 1993A (Community Provider Program), 5.70%, 8/1/13 129,034
Hibbing Econ. Dev. Auth. Public Proj. Rev. Series 1997 (Hibbing Lease Obligations Proj.):
655,000 6.10%, 2/1/08 701,453
535,000 6.40%, 2/1/12 565,666
100,000 Rice Co. Certificates of Participation Series 1996A, 5.85%, 12/1/14 108,072
400,000 St. Cloud Certificate of Participation Series 1997, 5.90%, 12/1/17 411,508
------------
3,890,494
------------
40
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
SINGLE FAMILY MORTGAGE (12.0%)
Dakota County Hsg. & Redev. Auth. Single Family Mtg. Rev.:
750,000 Series 1994A (FNMA backed), 6.70%, 10/1/09 (4) 805,440
380,000 Series 1995 (FNMA & GNMA backed), 6.25%, 10/1/09 (4) 406,064
440,000 Dakota/Wash./Stearns Cos. Hsg. & Redev. Auth. Single Family Rev. Refunding
Series 1994A (FNMA backed), 6.50%, 9/1/10 (4) 470,549
930,000 Minneapolis Redev. Mtg. Rev. Series 1987A (Riverplace Proj.) (LOC Bk. of Tokyo),
7.10%, 1/1/20 942,267
2,100,000 Minneapolis Residual Interest Mtg. Rev. Series 1995 Convertible Capital Appreciation Bonds,
7.00% Effective Yield on Purchase Date, 10/1/12 890,526
655,000 Minneapolis Single Family Mtg. Rev. Series 1995V (FNMA & GNMA backed), 6.25%, 4/1/22 699,579
Minneapolis/ St. Paul Hsg. Fin. Bd. Single Family Mtg. Rev.:
20,000 Series 1989A (GNMA backed), 7.65%, 12/1/00 (4) 20,613
885,000 Series 1994 (FNMA backed), 7.25%, 5/1/12 (4) 945,746
MN HFA Single Family Mtg. Rev.:
120,000 Series 1988D, 8.25%, 8/1/20 (4) 123,334
15,000 Series 1989B, 7.05%, 1/1/03 15,526
50,000 Series 1989B, 7.05%, 7/1/03 51,753
1,000,000 Series 1989D, 7.35%, 7/1/16 1,028,150
45,000 Series 1990A, 7.95%, 7/1/22 (4) 45,028
265,000 Series 1990C, 7.70%, 7/1/14 265,159
240,000 Series 1991A, 7.05%, 7/1/22 (4) 251,741
575,000 Series 1991A, 7.45%, 7/1/22 (4) 611,777
1,695,000 Series 1992B-1, 6.75%, 1/1/26 (4) 1,803,751
995,000 Series 1994F, 6.30%, 7/1/25 1,069,844
90,000 Series 1994K, 5.90%, 1/1/07 94,311
515,000 Series 1994L, 6.70%, 7/1/20 (4) 552,018
2,830,000 Series 1995M, 5.875%, 1/1/17 3,007,837
700,000 Series 1996D, 6.00%, 1/1/16 743,820
235,000 Series 1997D, 5.85%, 7/1/19, (4) 246,618
2,280,000 Series 1997E, 5.90%, 7/1/29 (4) 2,405,377
710,000 Series 1997K, 5.75%, 1/1/26 (4) 734,687
2,450,000 Series 1998C, 5.25%, 1/1/17 2,498,216
1,488,639 Moorhead Single Family Mtg. Rev. Refunding Series 1992B, 7.00%, 8/1/11 1,503,526
585,000 St. Paul Hsg. & Redev. Auth. Single Family Mtg. Rev. Refunding Series 1995 (FNMA backed),
6.125%, 3/1/17 618,585
966,042 St. Paul Residual Interest Rev. Series 1995 Convertible Capital Appreciation
Bonds, Zero Coupon, 7.23% Effective Yield on Purchase Date, 9/1/11 405,747
------------
23,257,589
------------
OTHER REVENUE BONDS (5.7%)
1,440,000 Commissioner of Iron Range Resources and Rehabilitation Gross Rev.
Series 1996 (Giants Ridge Rec. Area Proj.), 7.25%, 10/1/11 1,520,107
Minneapolis Cmty. Dev. Agy. Ltd. Tax Common Bond Fund:
100,000 Series 1993-5 (Winslow Printing), 6.125%, 12/1/06 (4) 104,405
170,000 Series 1997-1 (Halper Corrugated Box Mfg. Co.), 5.90%, 6/1/07 (4) 188,462
See accompanying notes to portfolios of investments on page 43.
41
<PAGE>
SIT MINNESOTA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY($) NAME OF ISSUER MARKET VALUE (1)
- ------------------------------------------------------------------------------------------------------------------------------------
640,000 Series 1995-1 (Microtron, Inc.), 6.625%, 12/1/09 (4) 701,958
1,310,000 Series 1995-1 (Microtron, Inc.), 7.25%, 12/1/15 (4) 1,467,226
750,000 Series 1997-2 (Ambassador Press), 6.20%, 6/1/17 (4) 815,430
2,000,000 Minneapolis Public Hsg. Auth. Series 1997 (General Credit Energy Savings Proj.), 6.00%, 7/1/08 2,088,320
200,000 Renville Gross Rev. Golf Course Bond Series 1997, 6.50%, 2/1/19 209,342
300,000 Scott Co. Hsg. & Redev. Auth. Ltd. Special Benefits Tax Series 1997B (River City Centre Proj.),
(AMBAC insured), 5.45%, 2/1/20 315,204
2,835,000 St. Paul Hsg. & Redev. Sales Tax Rev. Refunding Series 1996 (FSA insured)
(Civic Center Proj.), 7.10%, 11/1/23 3,607,566
------------
11,018,020
------------
PUBLIC FACILITIES (0.9%)
480,000 Eagan Ice Arena Gross Rev. Series 1998B, 5.50%, 4/1/19 488,390
1,245,000 St. Paul Recreational Fac. Gross Rev. Series 1996D, 5.875%, 6/1/18 1,328,291
------------
1,816,681
------------
Total municipal bonds (cost: $166,500,664) 173,491,143
-------------
CLOSED-END MUTUAL FUNDS (4.7%) (2)
385,000 Minnesota Municipal Term Trust 2002 4,283,125
267,800 Minnesota Municipal Term Trust II 2003 2,929,062
115,600 Voyageur Minnesota Municipal Income Fund II 1,683,425
22,200 Voyageur Minnesota Municipal Income Fund III 305,250
-------------
Total closed-end mutual funds (cost: $9,029,929) 9,200,862
-------------
SHORT-TERM SECURITIES (6.3%) (2)
3,000,000 Becker PCR Series 1993B Commercial Paper, 3.35%, 10/6/98 3,000,000
2,062,721 Federated Minnesota Municipal Cash Fund, 3.31% 2,062,721
2,155,000 Hennepin Co. G.O. Series 1997 Variable Rate Weekly Putable, 12/1/10 2,155,000
2,000,000 Minneapolis Convention Center Series 1997B Variable Rate (LOC Norwest Bank), 12/1/17 2,000,000
3,080,000 Olmstead Co. Variable Rate (Human Svcs. Campus Infrastructure) (LOC Toronto
Dominion Bank), 8/1/05 3,080,000
-------------
Total short-term securities (cost: $12,297,721) 12,297,721
-------------
Total investments in securities (cost: $187,828,314) (6) $194,989,726
=============
</TABLE>
42
<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 September 30, 1998, 25.1% of net assets in the U.S. Government Securities
Fund and 6.7% 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 September 30, 1998, approximately
12.7% of net assets in the Minnesota Tax-Free Income Fund was invested in
such securities.
(5) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as
amended, and may be sold only to dealers in that program or other
"accredited investors." This security has been determined to be liquid under
the guidelines established by the Board of Directors.
(6) At September 30, 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 $48,219,311 $129,952,172 $11,162,854
=========== ============ ===========
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation ----- $2,023,615 $381,483
Gross unrealized depreciation ----- (460,102) (26,816)
----------- ------------ -----------
Net unrealized appreciation (depreciation) ----- $1,563,513 $354,667
=========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA
TAX-FREE TAX-FREE
INCOME INCOME
FUND FUND
------------ ------------
<S> <C> <C>
Cost for federal income tax purposes $656,882,049 $187,828,314
============ ============
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $28,359,079 $7,232,101
Gross unrealized depreciation (22,279) (70,689)
----------- ----------
Net unrealized appreciation (depreciation) $28,336,800 $7,161,412
=========== ==========
</TABLE>
43
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF ASSETS & LIABILITIES - SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
U.S. MINNESOTA
MONEY GOVERNMENT TAX-FREE TAX-FREE
MARKET SECURITIES BOND INCOME INCOME
ASSETS FUND FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investments in securities, at
identified cost ................ $ 48,219,311 $129,952,172 $ 11,162,854 $656,882,049 $187,828,314
============ ============ ============ ============ ============
Investments in securities, at market
value - see accompanying
schedules for detail ........... $ 48,219,311 $128,515,686 $ 11,517,521 $685,218,849 $194,989,726
Cash in bank on demand
deposit ........................ 525 56,846 -- -- --
Accrued interest
receivable ..................... -- 819,140 85,598 8,816,518 3,026,782
Receivable for principal
paydowns ....................... -- 41,079 3,341 -- --
Receivable for investment
securities sold ................ -- -- -- -- --
Other
receivables .................... -- 50,602 2,981 -- --
Receivable for Fund shares
sold ........................... 92,026 368,300 26,277 803,231 233,567
------------ ------------ ------------ ------------ ------------
Total assets ........ 48,311,862 129,851,653 11,635,718 694,838,598 198,250,075
------------ ------------ ------------ ------------ ------------
LIABILITIES
Disbursements in excess of
cash balances .................. -- -- 2,742 25,969 10,470
Payable for investment securities
purchased - when issued (note 1) -- -- -- -- --
Payable for investment securities
purchased ...................... -- -- -- 8,375,562 2,141,124
Payable for Fund shares
redeemed ....................... 1,330,622 106,188 704 372,465 1,535,980
Cash portion of dividends
payable to shareholders ........ 17,660 50,358 5,036 399,122 123,082
Other
payables ....................... 507 820 -- 486,754 18,000
Accrued investment management
and advisory services fee ...... 18,398 82,905 7,510 384,792 126,571
------------ ------------ ------------ ------------ ------------
Total liabilities ... 1,367,187 240,271 15,992 10,044,664 3,955,227
------------ ------------ ------------ ------------ ------------
Net assets applicable to
outstanding capital stock ...... $ 46,944,675 $129,611,382 $ 11,619,726 $684,793,934 $194,294,848
============ ============ ============ ============ ============
Capital stock
Par ............................ $ 0.001 $ 0.01 $ 0.001 $ 0.001 $ 0.001
Authorized shares (000's) ...... 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
Outstanding shares ............. 46,947,698 12,028,207 1,130,237 64,750,325 18,256,568
============ ============ ============ ============ ============
Net asset value per share of
outstanding capital stock ...... $ 1.00 $ 10.78 $ 10.28 $ 10.58 $ 10.64
============ ============ ============ ============ ============
</TABLE>
44 See accompanying notes to financial statements on pages 48 - 55.
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<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 1,127,972 3,414,397 336,643 16,497,249 4,854,065
------------ ------------ ------------ ------------ ------------
Total income 1,127,972 3,414,397 336,643 16,497,249 4,854,065
------------ ------------ ------------ ------------ ------------
EXPENSES (NOTE 3):
Investment management and
advisory services fee 161,490 504,699 43,990 2,299,298 668,553
Less fees and expenses absorbed
by investment adviser (60,556) (50,137) -- (198,796) --
------------ ------------ ------------ ------------ ------------
Total net expenses 100,934 454,562 43,990 2,100,502 668,553
------------ ------------ ------------ ------------ ------------
Net investment income 1,027,038 2,959,835 292,653 14,396,747 4,185,512
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS :
Net realized gain (loss) (note 2) -- 937,079 34,179 1,976,582 42,661
Net change in unrealized appreciation
or depreciation on investments -- 644,882 238,736 8,374,839 2,654,288
------------ ------------ ------------ ------------ ------------
Net gain (loss) on investments -- 1,581,961 272,915 10,351,421 2,696,949
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations $ 1,027,038 $ 4,541,796 $ 565,568 $ 24,748,168 $ 6,882,461
============ ============ ============ ============ ============
</TABLE>
45
See accompanying notes to financial statements on pages 48 - 55.
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET U.S. GOVERNMENT
FUND SECURITIES FUND
-------------------------------- --------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED
1998 MARCH 31, 1998 MARCH 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ...................... $ 1,027,038 $ 1,688,668 $ 2,959,835 $ 5,181,705
Net realized gain (loss) on investments ...... ---- ---- 937,079 751,953
Net change in unrealized appreciation
(depreciation) of investments .............. ---- ---- 644,882 1,908,463
------------- ------------- ------------- -------------
Net increase in net assets resulting from
operations ................................... 1,027,038 1,688,668 4,541,796 7,842,121
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................ (1,027,038) (1,688,687) (2,959,835) (5,181,705)
Net realized gains on investments ............ ---- ---- ---- ---
------------- ------------- ------------- -------------
Total distributions ......................... (1,027,038) (1,688,687) (2,959,835) (5,181,705)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold .................... 274,852,782 421,731,957 44,131,949 54,323,377
Reinvested distributions ..................... 867,124 1,490,762 2,666,745 4,543,928
Payments for shares redeemed.................. (271,886,005) (412,780,024) (22,637,489) (31,053,376)
------------- ------------- ------------- -------------
Increase (decrease) in net assets from
capital share transactions ............... 3,833,901 10,442,695 24,161,205 27,813,929
------------- ------------- ------------- -------------
Total increase (decrease) in net assets... 3,833,901 10,442,676 25,743,166 30,474,345
NET ASSETS
Beginning of period........................... 43,110,774 32,668,098 103,868,216 73,393,871
------------- ------------- ------------- -------------
End of period ................................ $ 46,944,675 $ 43,110,774 $ 129,611,382 $ 103,868,216
============= ============= ============= =============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)....... $ 46,944,675 $ 43,110,774 $ 126,878,297 $ 102,717,092
Undistributed (distributions in excess of) net
investment income .......................... ---- ---- ---- ----
Accumulated net realized gain (loss) from
security transactions ...................... ---- ---- 1,169,572 232,493
Unrealized appreciation (depreciation)
on investments ............................. ---- ---- 1,563,513 918,631
------------- ------------- ------------- -------------
$ 46,944,675 $ 43,110,774 $ 129,611,382 $ 103,868,216
============= ============= ============= =============
CAPITAL TRANSACTIONS IN SHARES:
Sold ......................................... 274,852,782 421,731,641 4,130,517 5,135,153
Reinvested distributions ..................... 864,655 1,490,762 249,395 429,944
Redeemed ..................................... (271,883,532) (412,779,708) (2,119,555) (2,935,530)
------------- ------------- ------------- -------------
Net increase (decrease) ........................ 3,833,905 10,442,695 2,260,357 2,629,567
============= ============= ============= =============
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
BOND TAX-FREE MINNESOTA TAX-FREE
FUND INCOME FUND INCOME FUND
- -------------------------------- -------------------------------- --------------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED
1998 MARCH 31, 1998 MARCH 31, 1998 MARCH 31,
(UNAUDITED) 1998 (UNAUDITED) 1998 (UNAUDITED) 1998
- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 292,653 $ 496,143 $ 14,396,747 $ 22,280,624 $ 4,185,512 $ 6,165,702
34,179 49,321 1,976,582 5,643,332 42,661 378,832
238,736 229,412 8,374,839 13,506,608 2,654,288 3,309,650
- ------------- ------------- ------------- ------------- ------------- -------------
565,568 774,876 24,748,168 41,430,564 6,882,461 9,854,184
- ------------- ------------- ------------- ------------- ------------- -------------
(292,653) (496,143) (14,404,173) (22,265,772) (4,194,591) (6,147,546)
---- (15,500) ---- (2,923,000) ---- ----
- ------------- ------------- ------------- ------------- ------------- -------------
(292,653) (511,643) (14,404,173) (25,188,772) (4,194,591) (6,147,546)
- ------------- ------------- ------------- ------------- ------------- -------------
2,009,109 5,732,530 257,404,869 289,918,088 79,399,612 95,953,859
278,978 444,858 11,727,466 19,434,042 3,536,991 5,000,624
(1,647,527) (2,137,832) (114,261,049) (148,555,475) (34,963,295) (55,003,355)
- ------------- ------------- ------------- ------------- ------------- -------------
640,560 4,039,556 154,871,286 160,796,655 47,973,308 45,951,128
- ------------- ------------- ------------- ------------- ------------- -------------
913,475 4,302,789 165,215,281 177,038,447 50,661,178 49,657,766
10,706,251 6,403,462 519,578,653 342,540,206 143,633,670 93,975,904
- ------------- ------------- ------------- ------------- ------------- -------------
$ 11,619,726 $ 10,706,251 $ 684,793,934 $ 519,578,653 $ 194,294,848 $ 143,633,670
============= ============= ============= ============= ============= =============
$ 11,246,195 $ 10,605,635 $ 652,991,263 $ 498,119,977 $ 187,183,000 $ 139,209,693
---- ---- ---- 7,426 ---- 9,078
18,864 (15,315) 3,465,871 1,489,289 (49,564) (92,225)
354,667 115,931 28,336,800 19,961,961 7,161,412 4,507,124
- ------------- ------------- ------------- ------------- ------------- -------------
$ 11,619,726 $ 10,706,251 $ 684,793,934 $ 519,578,653 $ 194,294,848 $ 143,633,670
============= ============= ============= ============= ============= =============
198,727 571,626 24,649,571 28,152,545 7,542,713 9,257,296
27,531 44,515 1,122,535 1,884,655 335,809 481,164
(163,146) (214,721) (10,954,252) (14,443,246) (3,319,566) (5,306,337)
- ------------- ------------- ------------- ------------- ------------- -------------
63,112 401,420 14,817,854 15,593,954 4,558,956 4,432,123
============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements on pages 48 - 55.
47
<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:
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
<S> <C>
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.
</TABLE>
Significant accounting policies followed by the Funds are summarized
below:
INVESTMENTS IN SECURITIES
Securities maturing more than 60 days from the valuation date, with
the exception of those in Money Market Fund, are valued at the
market price 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.
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.
48
<PAGE>
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 $89,392 at March 31, 1998, which, if
not offset by subsequent capital gains, will begin to expire in
2003. It is unlikely the Board of Directors will authorize a
distribution of any net realized gains until the available capital
loss carryover is offset or expires.
DISTRIBUTIONS
Distributions to shareholders are recorded as of the close of
business on the record date. Such distributions are payable in cash
or reinvested in additional shares of the Funds' capital stock.
Distributions from net investment income are declared daily and paid
monthly for the Funds. Distributions from net realized gains, if
any, will be made annually for each of the Funds.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported results.
Actual results could differ from those estimates.
(2) INVESTMENT SECURITY TRANSACTIONS
Purchases of and proceeds from sales and maturities of investment
securities, other than short-term securities, for the period ended
September 30,1998, were as follows:
Purchases ($) Proceeds ($)
------------- ------------
U.S. Government Securities Fund 86,153,153 60,952,394
Bond Fund 5,009,997 4,494,179
Tax-Free Income Fund 153,905,577 64,362,582
Minnesota Tax-Free Income Fund 69,342,888 12,849,203
For Money Market Fund during the period ended September 30, 1998
purchases of and proceeds from sales and maturities of investment
securities aggregated $793,822,036 and $797,627,000 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 Fund's assets and provides research, statistical and advisory
services, and pays related office
49
<PAGE>
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.
TRANSACTIONS WITH AFFILIATES
The investment adviser, affiliates of the investment adviser,
directors and officers of the Funds as a whole owned the following
shares as of September 30, 1998:
%Shares
Shares Outstanding
------ -----------
Money Market Fund 6,997,085 14.9
U.S. Government Securities Fund 586,214 4.9
Bond Fund 73,048 6.5
Tax-Free Income Fund 2,384,008 3.7
Minnesota Tax-Free Income Fund 1,017,453 5.6
(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:
50
<PAGE>
SIT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
September 30, Years Ended March 31,
1998 ---------------------------------------------------------
(Unaudited) 1998 1997 1996 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income 0.03 0.05 0.05 0.05 0.04
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations 0.03 0.05 0.05 0.05 0.04
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.03) (0.05) (0.05) (0.05) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 2.59% 5.29% 5.04% 5.44% 4.57%
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 46,945 $ 43,111 $ 32,668 $ 21,260 $ 29,822
RATIOS:
Expenses to average daily net assets 0.50(2) 0.50(2) 0.50(2) 0.50(2) 0.50(2)
Net investment income to average daily net assets 5.09(2) 5.12(2) 4.93(2) 5.35(2) 4.63(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) Percentages for the period ended September 30, 1998 are adjusted to an
annual rate. Total Fund expenses are contractually limited to .80% of
average daily net assets for the first $50 million in Fund net assets
and .60% of average daily net assets for Fund net assets exceeding $50
million. However, during the periods ended September 30, 1998, and
March 31, 1998, 1997, 1996, and 1995, the investment adviser
voluntarily absorbed $60,556, $98,857, $78,042, $66,862, and $63,828,
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 4.79%, 4.82%, 4.63%, 5.05%, and 4.33%, respectively.
51
<PAGE>
SIT U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
September 30, Years Ended March 31,
1998 -------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 10.63 $ 10.28 $ 10.47 $ 10.28 $ 10.50
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .28 .63 .65 .70 .67
Net realized and unrealized gains
(losses) on investments .15 .35 (.19) .19 (.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from operations .43 .98 .46 .89 .45
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.28) (.63) (.65) (.70) (.67)
From realized gains ---- ---- ---- ---- ----
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (.28) (.63) (.65) (.70) (.67)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 10.78 $ 10.63 $ 10.28 $ 10.47 $ 10.28
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 4.08% 9.70% 4.55% 8.87% 4.47%
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 129,611 $ 103,868 $ 73,394 $ 52,450 $ 37,454
RATIOS:
Expenses to average daily net assets 0.80%(2) 0.80%(2) 0.80%(2) 0.80%(2) 0.80%(2)
Net investment income to average daily net assets 5.20%(2) 5.93%(2) 6.30%(2) 6.72%(2) 6.48%(2)
Portfolio turnover rate (excluding short-term securities) 55.27% 50.67% 85.21% 51.37% 38.51%
</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 September 30, 1998 are adjusted to an
annual rate. Total Fund expenses are contractually limited to 1.00% of
average daily net assets for the first $50 million in Fund net assets
and .80% of average daily net assets exceeding $50 million. However,
during the periods ended September 30, 1998 and March 31, 1998, 1997,
1996, and 1995, the investment adviser voluntarily absorbed $50,137,
$100,000, $99,999, $88,625, and $73,460 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 .89%, .91%, .97%,
1.00%, and 1.00% for these periods and the ratio of net investment
income to average daily net assets would have been 5.11%, 5.82%, 6.13%,
6.52%, and 6.28%, respectively.
52
<PAGE>
SIT BOND FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
September 30, Years Ended March 31,
1998 ------------------------------------------------------
(Unaudited) 1998 1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 10.03 $ 9.62 $ 9.83 $ 9.48 $ 9.69
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .27 .63 .64 .64 .62
Net realized and unrealized
gains (losses) on investments .25 .43 (.14) .35 (.21)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations .52 1.06 .50 .99 .41
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.27) (.63) (.64) (.64) (.62)
From realized gains ---- (.02) (.07) ---- ----
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.27) (.65) (.71) (.64) (.62)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 10.28 $ 10.03 $ 9.62 $ 9.83 $ 9.48
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 5.25% 11.22% 5.21% 10.57% 4.51%
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 11,620 $ 10,706 $ 6,403 $ 5,222 $ 3,533
RATIOS:
Expenses to average daily net assets 0.80%(2) 0.80% 0.80% 0.80% 0.80%
Net investment income to average daily net assets 5.32%(2) 6.31% 6.52% 6.49% 6.63%
Portfolio turnover rate (excluding short-term securities) 42.32% 76.15% 128.06% 159.45% 41.25%
</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) Adjusted to an annual rate.
53
<PAGE>
SIT TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
September 30, Years Ended March 31,
1998 ------------------------------------------------------
(Unaudited) 1998 1997 1996 1995
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 10.41 $ 9.98 $ 9.88 $ 9.70 $ 9.63
- -------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .26 .54 .56 .56 .56
Net realized and unrealized gains
(losses) on investments .17 .50 .10 .18 .09
- -------------------------------------------------------------------------------------------------------------------------------
Total from operations .43 1.04 .66 .74 .65
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.26) (.54) (.56) (.56) (.56)
From realized gains ---- (.07) ---- ---- (.02)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.26) (.61) (.56) (.56) (.58)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 10.58 $ 10.41 $ 9.98 $ 9.88 $ 9.70
- -------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 4.22% 10.69% 6.82% 7.73% 7.00%
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 684,794 $ 519,579 $ 342,540 $ 279,769 $ 255,157
RATIOS:
Expenses to average daily net assets 0.73%(2) 0.76%(2) 0.79%(2) 0.80%(2) 0.79%(2)
Net investment income to average daily net assets 5.00%(2) 5.29%(2) 5.63%(2) 5.65%(2) 5.84%(2)
Portfolio turnover rate (excluding short-term securities) 11.91% 21.40% 25.34% 25.50% 13.13%
</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 September 30, 1998 are adjusted to an
annual rate. Total Fund expenses are contractually limited to .80% of
average daily net assets. However, during the periods ended September
30, 1998, and March 31, 1998, 1997, 1996, and 1995, the investment
adviser voluntarily absorbed $198,796, $171,504, $46,819, $15,540, and
$24,991 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 these periods, and the ratio of net
investment income to average daily net assets would have been 4.93%,
5.25%, 5.62%, 5.65%, and 5.83%, respectively.
54
<PAGE>
SIT MINNESOTA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
September 30, Years Ended March 31,
1998 ---------------------------------------------------
(Unaudited) 1998 1997 1996 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 10.49 $ 10.14 $ 10.09 $ 9.96 $ 9.79
- --------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .26 .55 .57 .57 .56
Net realized and unrealized gains
(losses) on investments .15 .35 .05 .13 .17
- --------------------------------------------------------------------------------------------------------------------------------
Total from operations .41 .90 .62 .70 .73
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.26) (.55) (.57) (.57) (.56)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 10.64 $ 10.49 $ 10.14 $ 10.09 $ 9.96
- --------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 4.00% 9.07% 6.26% 7.12% 7.68%
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 194,295 $ 143,634 $ 93,976 $ 62,980 $ 43,881
RATIOS:
Expenses to average daily net assets 0.80%(2) 0.80% 0.80% 0.80% 0.80%
Net investment income to average daily net assets 5.00%(2) 5.32% 5.56% 5.62% 5.72%
Portfolio turnover rate (excluding short-term securities) 8.01% 17.58% 17.16% 15.85% 34.20%
</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) Adjusted to an annual rate.
55
<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 $6 billion 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:
o Free telephone exchange
o Dollar-cost averaging through automatic investment plan
o Electronic transfer of funds for purchases and
redemptions o Free check-writing privileges on bond funds
o Retirement accounts including IRAs, Keoghs and 401(k)
Plans
SIT FAMILY OF FUNDS
[CHART]
STABILITY: SAFETY OF PRINCIPAL AND CURRENT INCOME
MONEY MARKET
INCOME: INCREASED INCOME
U.S. GOVERNMENT SECURITIES
TAX-FREE INCOME
MINNESOTA TAX-FREE INCOME
BOND
GROWTH: LONG-TERM CAPITAL APPRECIATION AND INCOME
BALANCED
LARGE CAP GROWTH
REGIONAL GROWTH
HIGH GROWTH: LONG-TERM CAPITAL APPRECIATION
MID CAP GROWTH
INTERNATIONAL GROWTH
SMALL CAP GROWTH
SCIENCE AND TECHNOLOGY GROWTH
DEVELOPING MARKETS GROWTH
<PAGE>
[LOGO]
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
Michael C. Brilley
John E. Hulse
Sidney L. Jones
Donald W. Phillips
William E. Frenzel
Director Emeritus:
Melvin C. Bahle
Officers:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Mary K. Stern, CFA President
Michael C. Brilley Senior Vice President
Roger J. Sit Senior Vice President
Debra A. Sit, CFA Vice President - Investments,
Assistant Treasurer
Bryce A. Doty, CFA (1) Vice President - Investments
Paul J. Jungquist, CFA (2) Vice President - Investments
Paul E. Rasmussen Vice President & Treasurer
Michael P. Eckert Vice President
Michael J. Radmer Secretary
Carla J. Rose Assistant Secretary
(1) Bond Fund and U.S. Government Securities Fund only.
(2) Money Market Fund only.
<PAGE>
SEMI-ANNUAL REPORT
BOND FUNDS
SEPTEMBER 30, 1998
INVESTMENT ADVISER
SIT INVESTMENT ASSOCIATES, INC.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
DISTRIBUTOR
SIA SECURITIES CORP.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
CUSTODIAN
THE NORTHER TRUST COMPANY
50 SOUTH LASALLE STREET
CHICAGO, ILL 60675
TRANSFER AGENT AND
DISBURSING AGENT
FIRST DATA INVESTOR SERVICES
P.O. BOX 5166
WESTBORO, MA 01581-5166
AUDITORS
KPMG PEAT MARWICK LLP
4200 NORWEST CENTER
MINNEAPOLIS, MN 55402
LEGAL COUNSEL
DORSEY & WHITNEY LLP
220 SOUTH SIXTH STREET
MINNEAPOLIS, MN 55402
MEMBER OF
100% NO-LOAD
MUTUAL FUND
COUNCIL
