BOND FUNDS
QUARTERLY REPORT
DECEMBER 31, 1999
MONEY MARKET FUND
U.S. GOVERNMENT SECURITIES FUND
TAX-FREE INCOME FUND
MINNESOTA TAX-FREE INCOME FUND
BOND FUND
[LOGO]
SIT MUTUAL FUNDS
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THE INVESTMENT IS MUTUAL (SM)
www.sitfunds.com
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SIT MUTUAL FUNDS
BOND FUNDS QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
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A Look at Sit Mutual Funds 2
Chairman's Letter 3
Performance Review 4
FUND REVIEWS
Money Market Fund 6
U.S. Government Securities Fund 8
Tax-Free Income Fund 10
Minnesota Tax-Free Income Fund 12
Bond Fund 14
Results of the Shareholder Meeting 16
This document must be preceded or accompanied by a Prospectus.
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SIT MUTUAL FUNDS
A LOOK AT SIT MUTUAL FUNDS
A LOOK AT THE SIT MUTUAL FUNDS
Sit Mutual funds are managed by Sit Investment Associates, Inc. Sit
Investment Associates 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 Associates currently manages approximately $7
billion for some of America's largest corporations, foundations and endowments.
Sit Mutual Funds are comprised of thirteen NO-LOAD funds. NO-LOAD means
that Sit Mutual 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.
Sit Mutual Funds Offer:
* Free telephone exchange
* Dollar-cost averaging through an automatic investment plan
* Electronic transfer for purchases and redemptions
* Free check writing privileges on bond funds
* Retirement accounts including IRAs 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
[LOGO]
SIT MUTUAL FUNDS
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THE INVESTMENT IS MUTUAL (SM)
2
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SIT MUTUAL FUNDS
[PHOTO] QUARTER ENDED DECEMBER 31, 1999
CHAIRMAN'S LETTER
Interest rates were in a steadily rising trend during 1999 as the economy
grew at a faster than expected pace. In response, the Federal Reserve increased
the federal funds rates 0.75% to 5.50% in a series of three moves during the
year, fully reversing the three easing moves made in the fall of 1998. Overall,
1999 was the second worst year for the U.S. bond market (after 1994) and was the
worst year ever for 30-year Treasury bonds. We expect bonds will be relatively
more stable this year and will provide attractive returns for bond holders.
Economic Overview
We expect that the domestic economy will grow at a real rate of 4.1% in 2000,
roughly the same as in 1999. Our forecast is based on continued strength in
personal consumption expenditures (PCE), which represent more than two-thirds of
GDP, and continue to outpace personal income gains. The most common explanation
for this phenomenon is the "wealth effect" created by rising asset prices and
high job market confidence with unemployment at 4.1%, its lowest level in 30
years. The net impact of higher interest rates on residential investment is
expected to be minor. If our growth forecast is achieved, it will represent our
country's ninth year of economic expansion, an admirable record.
Along with our growth forecast, we expect modestly higher inflation with the
Consumer Price Index (CPI) averaging +2.6% in 2000, compared to +2.2% in 1999.
Evidence of modest upward price pressures has primarily been commodity-related
(oil). Excluding food and energy, the "core" rates of both producer and consumer
price inflation in the U.S. have been rising at about a +2.0% rate. Assuming
that oil prices stabilize during the year, inflation should peak around +3.0%
during the first quarter and then subside in the second half of the year.
We believe the fiscal 2000 federal budget surplus will come in close to
$180-185 billion, which is considerably higher than the Clinton administration's
current forecast of $142.5 billion. President Clinton has advanced a number of
spending plans focused on education and health care, while Republican
presidential candidates are favoring a balanced package including tax cuts. We
expect the U.S. dollar exchange rate will again trade in a narrow range relative
to the basket of major currencies, but the trends of the euro and yen will most
likely reverse those experienced in 1999.
Strategy Summary
Now that Y2K concerns have abated, we believe that the Federal Reserve will
continue tightening, starting with an additional 0.25% increase in the federal
funds rate at the early February FOMC meeting. Another rate increase is likely
in March and possibly again thereafter until some moderation in economic growth
becomes evident. If inflation remains below +3.0%, we expect long-term interest
rates to rise only modestly from their current level. We also believe they will
reverse their rising trend with any sign of economic slowing. Our taxable bond
funds were positioned conservatively for much of the year, a key reason for
their strong relative results, and shorter duration sectors were the obvious
winners. We feel it is now safe to underweight U.S. Treasuries and overweight
all other sectors.
In the municipal market, the rise in interest rates caused premium coupon
bonds to extend in duration as they became current coupon or discount bonds,
while current coupon and discount bonds saw further adjustments for potential
capital gains taxes as their prices reached the de minimus threshold. Municipal
bonds were also negatively impacted by diminished demand. Property and casualty
insurers were net sellers during the year, and mutual funds became net sellers
later in the year as shareholders took advantage of the opportunity to offset
equity gains with bond market losses. Intermediate maturity municipals
outperformed similar duration Treasuries, however, reflecting increased demand
from individual buyers who returned as direct purchasers of municipals once
yields topped 5.0%.
Sector weightings had a mixed impact on municipal performance. The housing
sector outperformed other revenue bond sectors, benefitting from its more stable
price characteristics, higher income return and high credit quality as yield
spreads for lower-rated credits widened. The hospital sector underperformed due
to concerns over weakening operating trends, which we expect will stabilize. Our
focus in this sector remains on hospitals with financial flexibility and which
operate as dominant market providers. While the hospital sector also lagged in
the bear market of 1994, it was the top performer in 1993, 1995, 1996 and 1997,
and was the second-best performer in 1998. Although yield spreads could widen
further as interest rates move higher, we believe that maintaining exposure to
the sector over a full interest cycle will prove to be beneficial. As a whole,
municipal bonds were cheaply valued on an after-tax basis for most of 1999 and
remain so today. Given our economic outlook, bonds in the 8-year to 15-year
maturity range offer the most attractive risk/reward opportunities.
We believe our continued focus on high current income and relative stability
of principal value will help provide positive incremental returns over
longer-term periods. We appreciate your continued interest in the Sit Mutual
Funds and look forward to helping you achieve your long-term investment goals.
With best wishes,
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
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SIT MUTUAL FUNDS
QUARTER ENDED DECEMBER 31, 1999
PERFORMANCE SUMMARY - BOND FUNDS
Interest rates rose steadily during 1999 as the economy continued to expand.
The Federal Reserve increased the federal funds rate a third time to 5.50% on
November 16th for a total increase of 0.75% for the year. Rates were left
unchanged at the December 21st FOMC meeting due to Y2K concerns. The 30-year
Treasury bond yield rose by 0.42% during the quarter and 1.36% for the year,
ending at 6.48% on December 31st. The taxable bond yield curve flattened
significantly as 2-year to 10-year Treasury yields increased by approximately
1.75% during the year.
Within the taxable bond market, shorter duration sectors outperformed longer
duration sectors. Although the asset-backed sector has the shortest duration,
the mortgage sector had the best return for 1999. Both sectors outperformed
Treasuries and the corporate sector by more than 3.5%. The mortgage sector's
success was primarily due to yield spread tightening as prepayment rates slowed
from 1998's record pace. The corporate sector, which also benefitted from
tightening yield spreads, outperformed Treasuries but still lost nearly 2.0% for
the year due to its relatively longer duration. Overall, 1999 was the second
worst year for the U.S. bond market (after 1994) and was the worst year ever for
30-year Treasury bonds.
Municipal yields also rose, with the yield on the Bond Buyer 40-Bond Index
rising 1.06% to 6.22% on December 31st. The municipal yield curve remains
steeper than the taxable yield curve as shorter maturity municipal yields rose
less. The relative yield ratio of long municipals to long Treasury bonds
decreased from 101.3% to 96.0% during the year, yet municipal bonds remain
cheaply valued on an after-tax basis.
Municipal bond indices underperformed taxable bond indices due to their
longer duration and lower income return. Increased demand from retail buyers
helped intermediate maturity municipals outperform similar duration Treasury
bonds. The housing sector was the best performing revenue bond sector,
benefitting from its more stable price characteristics, higher income return and
high credit quality. Hospital bonds underperformed due to increased credit
concerns. While the hospital sector also lagged in the bear market of 1994, it
was the top-performing revenue bond sector in 1993, 1995, 1996 and 1997, and the
second-best-performing sector in 1998. Given our expectations that interest
rates will continue to trend higher in the first half of the year, we believe
municipals in the 8-year to 15-year maturity range offer the most attractive
risk/reward opportunities.
1990 1991
SIT MONEY MARKET FUND(1) -- --
SIT U.S. GOV'T. SECURITIES FUND 10.97% 12.87%
SIT TAX-FREE INCOME FUND 7.29 9.25
SIT MINNESOTA TAX-FREE INCOME FUND -- --
SIT BOND FUND -- --
3-MONTH U.S. TREASURY BILL INDEX -- --
LEHMAN INTER. GOVERNMENT BOND INDEX 9.56 14.11
LEHMAN 5-YEAR MUNICIPAL BOND INDEX 7.70 11.41
LEHMAN AGGREGATE BOND INDEX -- --
NASDAQ
SYMBOL INCEPTION
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SIT MONEY MARKET FUND SNIXX 11/01/93
SIT U.S. GOV'T. SECURITIES FUND SNGVX 06/02/87
SIT TAX-FREE INCOME FUND SNTIX 09/29/88
SIT MINNESOTA TAX-FREE INCOME FUND SMTFX 12/01/93
SIT BOND FUND SIBOX 12/01/93
3-MONTH U.S. TREASURY BILL INDEX 11/01/93
LEHMAN INTER. GOVERNMENT BOND INDEX 05/31/87
LEHMAN 5-YEAR MUNICIPAL BOND INDEX 09/30/88
LEHMAN AGGREGATE BOND INDEX 11/30/93
(1) Converted from Sit Investment Reserve Fund to Sit Money Market Fund on
11/1/93.
(2) Period from Fund inception through calendar year-end.
(3) Based on the last 12 monthly distributions of net investment income and
average NAV as of 12/31/99.
(4) Figure represents 7-day compound effective yield. The 7-day simple yield as
of 12/31/99 was 5.22%.
(5) For individuals in the 28%, 31%, 36%, and 39.6% federal tax brackets, the
federal tax equivalent yields are 7.69%, 8.03%, 8.66% and 9.17%,
respectively (Income subject to state tax, if any).
4
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<TABLE>
<CAPTION>
TOTAL RETURN -- CALENDAR YEAR
YIELD
AS OF DISTRIBUTION
1992 1993 1994 1995 1996 1997 1998 1999 12/31/99 RATE (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- 0.46%(2) 3.84% 5.58% 5.08% 5.22% 5.17% 4.79% 5.35%(4)
5.43% 7.34 1.77 11.50 4.99 8.19 6.52 1.37 6.09 5.38%
7.71 10.42 -0.63 12.86 5.69 9.87 6.29 -4.01 5.54(5) 5.00
-- 1.60(2) 0.63 11.90 5.89 8.19 6.14 -3.82 5.54(6) 4.96
-- 0.34(2) -1.31 16.83 4.25 9.44 6.52 -0.34 6.54 5.78
-- 0.53(2) 4.47 5.98 5.27 5.32 5.01 4.88
6.93 8.17 -1.75 14.41 4.06 7.72 8.49 0.49
7.62 8.73 -1.28 11.65 4.22 6.38 5.84 0.74
-- 0.54(2) -2.92 18.47 3.63 9.65 8.69 -0.82
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
TOTAL RETURN PERIODS ENDED DECEMBER 31, 1999
QUARTER SIX MONTHS SINCE
ENDED 12/31/99 ENDED 12/31/99 1 YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C> <C>
1.29% 2.50% 4.79% 5.17% -- 4.88%
0.47 1.33 1.37 6.46 7.03% 7.57
-1.64 -3.23 -4.01 5.98 6.36 6.59
-2.24 -3.76 -3.82 5.53 -- 4.90
-0.10 0.30 -0.34 7.19 -- 5.70
1.30 2.52 4.88 5.26 -- 5.07
-0.05 0.97 0.49 6.93 7.10 7.51
0.01 0.95 0.74 5.71 6.23 6.39
-0.12 0.56 -0.82 7.73 -- 5.89
</TABLE>
(6) For Minnesota residents in the 28%, 31%, 36% and 39.6% federal tax
brackets, the double exempt tax equivalent yields are 8.36%, 8.73%, 9.41%
and 9.97%, respectively (Assumes the maximum Minnesota tax bracket of
8.0%).
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
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SIT MONEY MARKET FUND
[PHOTO] QUARTER ENDED DECEMBER 31, 1999
MICHAEL C. BRILLEY, SENIOR PORTFOLIO MANAGER
PAUL J. JUNGQUIST, CFA, SENIOR PORTFOLIO MANAGER
The Sit Money Market Fund provided investors with a +1.29% return for the
three months ended December 31, 1999 compared to a +1.22% average return for the
Lipper Analytical Services Money Market Fund average. The Fund's performance
ranked 98th of 363 funds in its Lipper peer group category for the fourth
quarter of 1999. For the 1-year, 3-year, 5-year and since inception periods
ended December 31, 1999, the Fund's performance ranked 74th of 339, 52nd of 274,
50th of 220 and 41st of 189 funds, respectively, in its Lipper peer group. As of
December 31st, the Fund's 7-day compound yield was 5.35% and its average
maturity was 21 days, compared to 4.98% and 28 days, respectively, on September
30th.
The Federal Reserve Board increased the federal funds rate by 0.25% during
the quarter to 5.50% in response to continued strong growth in the economy as
well as tightness in labor markets. Three-month Treasury bill yields rose
steadily over the past quarter, ranging from 4.8% in October to 5.5% in
December, finishing at 5.32% on December 31st. Current yield levels imply that
the market is expecting additional tightening by the Fed in the first quarter of
2000, probably at the early February FOMC meeting and perhaps at a subsequent
meeting as well. Concerns about Y2K and tax-loss selling resulted in a
substantial increase in the size of the Fund in the fourth quarter. The Fund
shortened its average maturity as a result. Now that these unusual events are
behind us, and given our outlook for interest rates, the Fund will try to
lengthen its average maturity to take advantage of more attractive yields
expected later in the quarter.
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. As domestic economic activity continues
to be strong and global economic activity appears to be strengthening, we do not
foresee a significant impact on the short-term creditworthiness of top-tier
commercial paper issuers in general. Y2K problems were not disruptive to these
top-tier commercial paper issuers. 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 financial services and consumer non-durable industries to our
list of permissible holdings.
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 short-term debt instruments
which mature in 397 days or less and by maintaining a dollar-weighted portfolio
maturity of 90 days or less.
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 12/31/99: $ 1.00 Per Share
9/30/99: $ 1.00 Per Share
Total Net Assets: $112.6 Million
PORTFOLIO STRUCTURE
(% OF TOTAL NET ASSETS)
Diversified Finance 15.3
Consumer Loan Finance 13.5
Energy 9.3
Captive Auto Finance 8.9
Consumer Non-Durables 8.9
Captive Equip. Finance 7.8
U.S. Government 6.2
Auto Manufacturer 5.7
Utilities 4.9
Banking 3.1
Sectors Under 3.0% 4.8
Cash & Other Net Assets 11.6
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AVERAGE ANNUAL TOTAL RETURNS*
SIT MONEY 3-MONTH LIPPER
MARKET U.S. MONEY
FUND TREASURY BILL MARKET AVG.
---- ------------- -----------
3 Month** 1.29% 1.30% 1.22%
1 Year 4.79 4.88 4.49
3 Year 5.06 5.07 4.78
5 Year 5.17 5.26 4.95
Inception 4.88 5.07 4.70
(11/1/93)
CUMULATIVE TOTAL RETURNS*
SIT MONEY 3-MONTH LIPPER
MARKET U.S. MONEY
FUND TREASURY BILL MARKET AVG.
---- ------------- -----------
1 Year 4.79% 4.88% 4.49%
3 Year 15.96 16.00 15.04
5 Year 28.65 29.21 27.32
Inception 34.20 35.70 32.73
(11/1/93)
*AS OF 12/31/99. **NOT ANNUALIZED.
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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 3-MONTH U.S. TREASURY
BILL. THE LIPPER AVERAGES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A
LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[GRAPH]
The sum of $10,000 invested at inception (11/1/93) and held until 12/31/99 would
have grown to $13,420 in the Fund or $13,570 in the 3-Month U.S. Treasury Bill
assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% OF TOTAL NET ASSETS)
LOWER OF MOODY'S, S&P,
FITCH OR DUFF & PHELPS
RATINGS USED.
[PIE CHART]
FIRST TIER SECURITIES 100%
SECOND TIER SECURITIES 0%
7
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SIT U.S. GOVERNMENT SECURITIES FUND
[PHOTO] QUARTER ENDED DECEMBER 31, 1999
MICHAEL C. BRILLEY, SENIOR PORTFOLIO MANAGER
BRYCE A. DOTY, CFA, SENIOR PORTFOLIO MANAGER
The Sit U.S. Government Securities Fund ranked #1 out of 179 funds in its
Lipper U.S. Government fund universe for the year and exceeded the universe
average return by +4.38%. The Fund provided investors with a 0.5% gain for the
three months ended December 31st compared to a 0.1% loss for the Lehman
Intermediate Government Bond Index. For the twelve months ending December 31st,
the Fund's total return was +1.4% versus +0.5% for the Lehman Index. The Fund
holds a 5-star overall rating by Morningstar(1) out of 1617 funds in the taxable
bond category for the 3-year period ended December 31st.
Bond yields rose significantly last quarter, which made 1999 the second worst
year in bond market history. The Fund continued to focus on securities that
offer high levels of interest income and relatively stable prices. The Fund's
conservative strategy explains why it was one of few bond funds to achieve a
positive return for the three- and twelve-month periods ending December 31st.
The rise in interest rates continued to slow the rate of prepayments in the
mortgage pass-through sector, which raised the yield the Fund earned on its
mortgage holdings. As a result, mortgage pass-through holdings provided the
highest source of return in the Fund for the quarter. Conversely, the rise in
bond yields caused prices to decline significantly in the Fund's longer duration
collateralized mortgage obligation and U.S. Treasury holdings. Rising interest
rates, combined with lower mortgage refinancing activity, helped the Fund's
30-day SEC yield to climb from 5.25% on December 31, 1998 to 6.09% on December
31, 1999.
Last quarter's rise in interest rates reflected that the recent economic
strength shows few signs of weakening. Investors have become convinced that the
Federal Reserve will raise short-term rates in February by at least 0.25%. We
expect the Federal Reserve to raise short-term rates by at least 0.50% this
year. If inflation remains below 3.0%, however, we expect long-term yields will
rise only modestly from their current level. Also, we believe interest rates
will reverse their rising trend with any hint of slowing economic growth. As a
result, we intend to keep the Fund's duration near that of its benchmark and
will continue to invest in securities that offer high levels of interest income.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the U.S. Government Securities Fund is to provide high
current income and safety of principal, which it seeks to attain by investing
solely in debt obligations issues, 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 including those issued by Government
National Mortgage Association (GNMA), Federal National Mortgage Asociation
(FNMA), and Federal Home Loan Mortgage Corporation (FHLMC).
PORTFOLIO SUMMARY
Net Asset Value 12/31/99: $ 10.22 Per Share
9/30/99: $ 10.32 Per Share
Total Net Assets: $151.1 Million
30-day SEC Yield: 6.09%
12-Month Distribution Rate: 5.38%
Average Maturity: 15.0 Years
Effective Duration: 3.1 Years(2)
(2) 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 39.6
U.S. Treasury 15.2
FHLMC Pass-Through 15.0
Collateralized Mortgage Obligations 14.8
FNMA Pass-Through 14.4
Cash & Other Net Assets 1.0
8
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
SIT
U.S. GOV'T. LEHMAN LIPPER
SECURITIES INTER. GOV'T. U.S. GOV'T.
FUND BOND INDEX FUND AVG.
---- ---------- ---------
3 Month** 0.47% -0.05% -0.66%
1 Year 1.37 0.49 -3.01
5 Year 6.46 6.93 6.52
10 Year 7.03 7.10 6.64
Inception 7.57 7.51 6.97
(6/2/87)
CUMULATIVE TOTAL RETURNS*
SIT
U.S. GOV'T. LEHMAN LIPPER
SECURITIES INTER. GOV'T. U.S. GOV'T.
FUND BOND INDEX FUND AVG.
---- ---------- ---------
1 Year 1.37% 0.49% -3.01%
5 Year 36.76 39.81 37.16
10 Year 97.27 98.64 90.27
Inception 150.57 148.80 133.64
(6/2/87)
*AS OF 12/31/99. **NOT ANNUALIZED.
- ----------
(1)Morningstar proprietary ratings reflect historical risk-adjusted performance
through 12/31/99. These ratings are subject to change monthly and are calculated
from the fund's 3-, 5-, and 10-year average annual returns in excess of 90-day
Treasury bill returns with appropriate fee adjustments and a risk factor that
reflects fund performance below 90-day Treasury bill returns. Ten percent of the
funds in an investment category receive 5 stars. In the taxable bond category,
Sit U.S. Government Securities Fund received a 5-star rating for the 3-year
period out of 1617 funds, and a 4-star rating for the 5- and 10- year periods
out of 1221 and 387 funds, respectively.
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 ARE OBTAINED FROM LIPPER ANALYTICAL
SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[GRAPH]
The sum of $10,000 invested at inception (6/2/87) and held until 12/31/99 would
have grown to $25,057 in the Fund or $24,880 in the Lehman Intermediate
Government Bond Index assuming reinvestment of all dividends and capital gains.
ESTIMATED AVERAGE LIFE PROFILE
[BAR CHART]
The Adviser's estimates of the dollar weighted average life of the portfolio's
securities, which may vary from their stated maturities.
0 - 1 Year 1.1%
1 - 5 Years 82.2%
5 - 10 Years 16.5%
10 - 20 Years 0.2%
9
<PAGE>
SIT U.S. TAX-FREE INCOME FUND
[PHOTO] QUARTER ENDED DECEMBER 31, 1999
MICHAEL C. BRILLEY, SENIOR PORTFOLIO MANAGER
DEBRA A. SIT, CFA, SENIOR PORTFOLIO MANAGER
Municipal bond yields were in a steadily rising trend during 1999 as the
yield on the Bond Buyer 40-Bond Index rose by 1.13% from a low of 5.09% on
January 29th to 6.22% on December 31st. The rise in interest rates resulted in
lower market valuations for bonds and a decline in the Fund's price by $0.91, or
8.7%. That market value decline, combined with a +4.7% income return, resulted
in a -4.01% total return for the year.
Consistent with the rise in interest rates, the Fund's 30-day SEC yield rose
from 4.58% at the beginning of the year to 5.54% at year-end. The rising
interest rate trend caused the duration of bonds to lengthen, as bonds that were
expected to be called under early refunding or mortgage prepayment provisions
are now less likely to be refunded early.
Given the rule-of-thumb that a 1.0% change in interest rates will result in a
change in market value equivalent to the portfolio's duration, the decline in
the Fund's price per share in 1999 can principally be explained by the
portfolio's average duration. The Fund's implied duration lengthened from 7.0
years at the beginning of the year to 7.6 years at year-end and averaged 7.3
years.
The municipal market, as represented by the Lehman Municipal Bond Index,
lengthened in duration by 22.0%. In contrast, the Fund's duration lengthened by
only 9.0% - less than half that of the broader market index. We have resisted
the lengthening trend by selling some longer duration bonds and by purchasing
some shorter and intermediate duration bonds. Both actions were designed to
limit the Fund's price sensitivity.
Sectors within the Fund had significant variation in annual return. Money
market instruments provided the most favorable total returns of +3.1%. The worst
performing sectors were the hospital health care sector, with a -5.8% total
return, and the closed-end mutual funds sector, with a -10.5% total return.
From September 30, 1998, when interest rates reached their low, to March 31,
1999, the Fund's total net assets grew from $684.8 million to $895.4 million due
to substantial inflows from investors, but subsquent withdrawals have left
current total net assets at $666.4 million. Throughout this time period,
however, quality ratings and industry sector weightings have remained largely
unchanged.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Tax-Free Income fund is to provide a high level of
current income that is exempt from federal income tax, consistent with
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. The Adviser does not
intend to invest in securities that generate interest income treated as a tax
preference for alternative minimum taxable income puposes.
PORTFOLIO SUMMARY
Net Asset Value 12/31/99: $ 9.55 Per Share
9/30/99: $ 9.84 Per Share
Total Net Assets: $666.4 Million
30-day SEC Yield: 5.54%
Tax Equivalent Yield: 9.17%(1)
12-Month Distribution Rate: 5.00%
Average Maturity: 18.0 Years
Duration to Estimated Avg. Life: 7.8 Years(2)
Effective Duration: 7.6 Years(2)
(1) For individuals in the 39.6% federal tax bracket.
(2) See next page.
PORTFOLIO STRUCTURE
(% OF TOTAL NET ASSETS)
[BAR CHART]
Multifamily Mortgage Revenue 30.2
Hospital/Health Care Revenue 25.4
Single Family Mortgage Revenue 14.5
Other Revenue Bonds 10.6
Education/Student Loan 5.4
Closed-End Mutual Funds 4.8
Sectors Under 3.0% 8.0
Cash & Other Net Assets 1.1
10
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
SIT LIPPER
TAX-FREE LEHMAN GENERAL
INCOME 5-YEAR MUNI. MUNI. BOND
FUND BOND INDEX FUND AVG.
---- ---------- ---------
3 Month** -1.64% 0.01% -1.55%
1 Year -4.01 0.74 -4.63
5 Year 5.98 5.71 5.77
10 Year 6.36 6.23 6.19
Inception 6.59 6.39 6.62
(9/29/88)
CUMULATIVE TOTAL RETURNS*
SIT LIPPER
TAX-FREE LEHMAN GENERAL
INCOME 5-YEAR MUNI. MUNI. BOND
FUND BOND INDEX FUND AVG.
---- ---------- ---------
1 Year -4.01% 0.74% -4.63%
5 Year 33.72 31.98 32.39
10 Year 85.24 82.93 82.38
Inception 105.15 100.84 105.70
(9/29/88)
*AS OF 12/31/99. **NOT ANNUALIZED.
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 MUNI. BOND
INDEX. THE LIPPER AVERAGES 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
[CHART]
The sum of $10,000 invested at inception (9/29/88) and held until 12/31/99 would
have grown to $20,515 in the Fund or $20,084 in the Lehman 5-Year Municipal Bond
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% OF TOTAL NET ASSETS)
LOWER OF MOODY'S, S&P,
FITCH OR DUFF & PHELPS
RATINGS USED.
[PIE CHART]
A 26.3%
AA 15.2%
AAA 21.4%
Cash & Other Net Assets 1.1%
BBB 36.0%
Total number of holdings: 470
11
<PAGE>
SIT MINNESOTA TAX-FREE INCOME FUND
[PHOTO] QUARTER ENDED DECEMBER 31, 1999
MICHAEL C. BRILLEY, SENIOR PORTFOLIO MANAGER
DEBRA A. SIT, CFA, SENIOR PORTFOLIO MANAGER
Municipal bond yields were in a steadily rising trend during 1999 as the
yield on the Bond Buyer 40-Bond Index rose by 1.13% from a low of 5.09% on
January 29th to 6.22% on December 31st. The rise in interest rates resulted in
lower market valuations for bonds and a decline in the Fund's price by $0.90, or
8.5%. That market value decline, combined with a +4.7% income return, resulted
in a -3.82% total return for the year.
Consistent with the rise in interest rates, the Fund's 30-day SEC yield rose
from 4.67% at the beginning of the year to 5.54% at year-end. The rising
interest rate trend caused the duration of bonds to lengthen, as bonds that were
expected to be called under early refunding or mortgage prepayment provisions
are now less likely to be refunded early.
Given the rule-of-thumb that a 1.0% change in interest rates will result in a
change in market value equivalent to the portfolio's duration, the decline in
the Fund's price per share in 1999 can principally be explained by the
portfolio's average duration. The Fund's implied duration lengthened from 6.9
years at the beginning of the year to 7.4 years at year-end and averaged 7.2
years.
The municipal market, as represented by the Lehman Municipal Bond Index,
lengthened in duration by 22.0%. In contrast, the Fund's duration lengthened by
only 7.2% - about one third of the broader market index. We have resisted the
lengthening trend by selling some longer duration bonds and by purchasing some
shorter and intermediate duration bonds. Both actions were designed to limit the
Fund's price sensitivity.
Sectors within the Fund had significant variation in annual return. Money
market instruments provided the most favorable total returns of +3.2%. The worst
performing sectors were the hospital health care sector, with a -5.2% total
return, and the closed-end mutual funds sector, with a -11.1% total return.
From September 30, 1998, when interest rates reached their low, to March 31,
1999, the Fund's total net assets grew from $194.3 million to $271.2 million due
to substantial inflows from investors, but subsquent withdrawals have left
current total net assets at $179.9 million. Throughout this time period,
however, quality ratings and industry sector weightings have remained largely
unchanged.
INVESTMENT OBJECTIVE AND STRATEGY
The investment objective of the Minnesota Tax-Free Income 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 alternative minimum taxable income.
PORTFOLIO SUMMARY
Net Asset Value 12/31/99: $ 9.70 Per Share
9/30/99: $ 10.06 Per Share
Total Net Assets: $179.9 Million
30-day SEC Yield: 5.54%
Tax Equivalent Yield: 9.97%(1)
12-Month Distribution Rate: 4.96%
Average Maturity: 19.4 Years
Duration to Estimated Avg. Life: 7.9 Years(2)
Effective Duration: 7.4 Years(2)
(1) For individuals in the 39.6% federal tax and 8.0% MN tax brackets.
(2) See next page.
PORTFOLIO STRUCTURE
(% OF TOTAL NET ASSETS)
[BAR CHART]
Multifamily Mortgage Revenue 42.6
Hospital/Health Care Revenue 24.4
Single Family Mortgage Revenue 9.1
Other Revenue Bonds 6.2
Industrial Revenue/Pollution Control 4.2
Lease 3.5
Education/Student Loan 3.2
Sectors under 3.0% 6.3
Cash & Other Net Assets 0.5
12
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
SIT LEHMAN LIPPER
MN TAX-FREE 5-YEAR MUNI. MN MUNI. BOND
INCOME FUND BOND INDEX FUND AVG.
----------- ---------- ---------
3 Month** -2.24% 0.01% -1.49%
1 Year -3.82 0.74 -4.11
3 Year 3.36 4.29 3.04
5 Year 5.53 5.71 5.47
Inception 4.90 4.69 3.87
(12/1/93)
CUMULATIVE TOTAL RETURNS*
SIT LEHMAN LIPPER
MN TAX-FREE 5-YEAR MUNI. MN MUNI. BOND
INCOME FUND BOND INDEX FUND AVG.
----------- ---------- ---------
1 Year -3.82% 0.74% -4.11%
3 Year 10.44 13.42 9.40
5 Year 30.86 31.98 30.54
Inception 33.80 32.18 26.02
(12/1/93)
*AS OF 12/31/99. **NOT ANNUALIZED.
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 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
[CHART]
The sum of $10,000 invested at inception (12/1/93) and held until 12/31/99 would
have grown to $13,380 in the Fund or $13,218 in the Lehman 5-Year Municipal Bond
Index assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% OF TOTAL NET ASSETS)
LOWER OF MOODY'S,
S&P, FITCH OR DUFF &
PHELPS RATINGS USED.
[PIE CHART]
A 11.1%
AA 13.6%
AAA 22.0%
Cash & Other Net Assets 0.5%
Not Rated 45.2%
BBB 7.6%
ASSESSMENT OF
NON-RATED
SECURITIES
AAA 0.4
AA 0.3
A 3.6
BBB 27.3
BB 12.6
B 1.0
- --------------
TOTAL 45.2
13
<PAGE>
SIT BOND FUND
[PHOTO] QUARTER ENDED DECEMBER 31, 1999
MICHAEL C. BRILLEY, SENIOR PORTFOLIO MANAGER
BRYCE A. DOTY, CFA, SENIOR PORTFOLIO MANAGER
The Sit Bond Fund provided investors with a -0.1% return for the
three months ended December 31, 1999, compared to a -0.1% return for
the Lehman Aggregate Bond Index. For the twelve months ending December
31st, the Fund's total return was -0.3% versus -0.8% for the Lehman
Index. The Fund's 1999 return ranked it in the top 25% of its Lipper
Intermediate Investment Grade Bond Fund universe and in the top 30% for
the 5-year period.
Bond yields rose significantly last quarter which made 1999 the
second worst year in bond market history. The rise in interest rates
continued to slow the rate of prepayments in the mortgage pass-through
sector, which raised the yield that the Fund earned on its mortgage
holdings. As a result, mortgage pass-through holdings provided the
highest source of return in the Fund for the quarter. Conversely, the
rise in bond yields caused prices to decline significantly in the
Fund's longer duration collateralized mortgage obligation and U.S.
Treasury holdings. Rising interest rates, combined with lower mortgage
refinancing activity, helped the Fund's 30-day SEC yield to climb from
5.25% on December 31, 1998 to 6.54% on December 31,1999.
Most of the activity in the Fund occurred early in the quarter, when
the Fund reduced its U.S. Treasury holdings and increased its weighting
in corporate securities. This shift was made to take advantage of
relatively higher yields offered by corporate securities due to Y2K
concerns. In fact, September marked the end of five months of weakness
for most sectors as investors anticipated concerns of illiquidity at
year-end. The Fund's corporate purchases were also an attempt to beat
the rush of investor demand as the desire for yield began to outweigh
the desire for quality.
Last quarter's rise in interest rates reflected that the recent
economic strength shows few signs of weakening. Investors have become
convinced that the Federal Reserve will raise short-term rates in
February by at least 0.25%. We expect the Federal Reserve to raise
short-term rates by at least 0.50% this year. If inflation remains
below 3.0%, however, we expect that long-term yields will rise only
modestly from their current level. Also, we believe interest rates will
reverse their rising trend with any hint of slowing economic growth. As
a result, we intend to keep the Fund's duration near that of its
benchmark and will continue to invest in 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 pursues this objective by
investing in a diversified portfolio of fixed-income securities.
The Fund will pursue its objective by investing in a diversified portfolio
or 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 12/31/99: $ 9.46 Per Share
9/30/99: $ 9.64 Per Share
Total Net Assets: $12.4 Million
30-day SEC Yield: 6.54%
12-Month Distribution Rate: 5.78%
Average Maturity: 16.7 Years
Effective Duration: 5.0 Years(1)
(1) Effective duration is a measure which reflects estimated price sensitivity
to a given change in interest rates. For example, for an interest rate change of
1.0%, a portfolio with a duration of 5 years would be expected to experience a
price change of 5%. Effective duration is based on current interest rates and
the Adviser's assumptions regarding the expected average life of individual
securities held in the portfolio.
PORTFOLIO STRUCTURE
(% OF TOTAL NET ASSETS)
[BAR CHART]
Corporate Bonds & Notes 31.5
Mortgage Pass Through 25.5
U.S. Treasury 18.9
Asset-Backed Securities 12.2
Closed-End Mutual Funds 4.5
Collateralized Mortgage Obligations 4.1
Cash & Other Net Assets 3.3
14
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
LIPPER INTER.
SIT LEHMAN INVESTMENT
BOND AGGREGATE GRADE BOND
FUND BOND INDEX FUND AVG.
---- ---------- ---------
3 Month** -0.10% -0.12% -0.20%
1 Year -0.34 -0.82 -1.31
3 Year 5.12 5.73 4.83
5 Year 7.19 7.73 6.81
Inception 5.70 5.89 5.07
(12/1/93)
CUMULATIVE TOTAL RETURNS*
LIPPER INTER.
SIT LEHMAN INVESTMENT
BOND AGGREGATE GRADE BOND
FUND BOND INDEX FUND AVG.
---- ---------- ---------
1 Year -0.34% -0.82% -1.31%
3 Year 16.18 18.20 15.19
5 Year 41.50 45.12 39.02
Inception 40.12 41.65 35.10
(12/1/93)
*AS OF 12/31/99. **NOT ANNUALIZED.
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 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 12/31/99 would
have grown to $14,012 in the Fund or $14,165 in the Lehman Aggregate Bond Index
assuming reinvestment of all dividends and capital gains.
QUALITY RATINGS
(% OF TOTAL NET ASSETS)
[PIE CHART]
LOWER OF MOODY'S
OR S&P RATING USED.
U.S. Government 18.9%
Government Agency Backed Securities 25.5%
AAA 20.1%
AA 2.9%
A 16.7%
BBB 12.6%
Cash & Other Net Assets 3.3%
15
<PAGE>
SIT MUTUAL FUNDS
RESULTS OF SHAREHOLDER MEETING
The annual meeting of the shareholders of the Funds was held on October 26,
1999. Directors elected by the shareholders at the meeting were as follows:
Eugene C. Sit, Peter L. Mitchelson, William E. Frenzel, John E. Hulse, Sidney L.
Jones, and Donald W. Phillips for all Funds and Michael C. Brilley for the Sit
Bond Funds only.
The matters voted on by the shareholders of record as of August 25, 1999 and the
results of the shareholders' vote at the October 26, 1999 meeting were as
follows:
1. Election of Directors:
For Withheld
--- --------
Eugene C. Sit
U.S. Government Securities 7,942,278 46,800
Money Market 50,549,200 138,529
Tax-Free Income 47,843,299 406,167
MN Tax-Free Income 14,695,955 68,166
Bond 983,959 1,127
William E. Frenzel
U.S. Government Securities 7,923,090 65,988
Money Market 50,453,644 234,085
Tax-Free Income 47,769,840 479,626
MN Tax-Free Income 14,693,288 70,833
Bond 983,959 1,127
John E. Hulse
U.S. Government Securities 7,938,497 50,581
Money Market 50,549,200 138,529
Tax-Free Income 47,797,621 461,845
MN Tax-Free Income 14,693,012 71,109
Bond 983,959 1,127
Sidney L. Jones
U.S. Government Securities 7,937,809 51,269
Money Market 50,548,084 139,645
Tax-Free Income 47,824,024 425,442
MN Tax-Free Income 14,694,797 69,324
Bond 983,959 1,127
16
<PAGE>
For Withheld
--- --------
Peter L. Mitchelson
U.S. Government Securities 7,937,331 51,747
Money Market 50,549,200 138,529
Tax-Free Income 47,832,998 416,469
MN Tax-Free Income 14,695,617 68,504
Bond 983,959 1,127
Donald W. Phillips
U.S. Government Securities 7,941,726 47,352
Money Market 50,549,200 138,529
Tax-Free Income 47,797,787 451,679
MN Tax-Free Income 14,695,617 68,504
Bond 983,959 1,127
Michael C. Brilley
U.S. Government Securities 7,936,077 53,001
Money Market 50,549,200 138,529
Tax-Free Income 47,809,132 440,334
MN Tax-Free Income 14,694,558 69,563
Bond 983,959 1,127
2. Ratification of KPMG LLP as independent auditors for the Funds:
For Against Abstain
--- ------- -------
U.S. Government Securities 7,912,744 21,200 55,134
Money Market 50,351,799 0 335,930
Tax-Free Income 47,602,709 291,933 354,824
MN Tax-Free Income 14,628,623 27,193 108,305
Bond 982,679 0 2,407
17
<PAGE>
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
<TABLE>
Bond Funds Officers:
<S> <C>
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Mary K. Stern, CFA President
Michael C. Brilley 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
Michael P. Eckert Vice President
Michael J. Radmer Secretary
Paul E. Rasmussen Vice President & Treasurer
Carla J. Rose Assistant Secretary
</TABLE>
(1) Bond and U.S. Government Securities Funds only.
(2) Money Market Fund only.
18
<PAGE>
QUARTERLY REPORT BOND FUNDS
Quarter Ended December 31, 1999
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 Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
TRANSFER AGENT AND
DISBURSING AGENT
First Data Investor Services
P.O. Box 5166
Westboro, MA 01581-5166
AUDITORS
KPMG LLP
4200 Norwest Center
Minneapolis, MN 55402
LEGAL COUNSEL
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
INVESTMENT SUB-ADVISER
(Developing Markets Growth Fund and
International Growth Fund)
Sit/Kim International Investment Associates, Inc.
4600 Norwest Center
Minneapolis, MN 55402
612-334-5888 (Metro Area)
800-332-5580
[LOGO]
SIT MUTUAL FUNDS
----------------------------
THE INVESTMENT IS MUTUAL(SM)
