N-CSR 1 sit-bond042580_ncsr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR ---------- CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-04033 --------- Sit Mutual Funds II, Inc. (Exact name of registrant as specified in charter) 4600 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 (Address of principal executive offices) Paul E. Rasmussen, VP Treasurer Sit Mutual Funds, Inc. 4600 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 (Name and address of agent for service) Copy to: Mike Radmer, Esq. Dorsey & Whitney Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 Registrant's telephone number, including area code: (612) 334-5888 Date of fiscal year end: March 31, 2004 Date of reporting period: March 31, 2004 Item 1: Reports to Stockholders SIT MUTUAL FUNDS BOND FUNDS ANNUAL REPORT MARCH 31, 2004 MONEY MARKET FUND U.S. GOVERNMENT SECURITIES FUND TAX-FREE INCOME FUND MINNESOTA TAX-FREE INCOME FUND FLORIDA TAX-FREE INCOME FUND BOND FUND [LOGO] SIT INVESTMENT ASSOCIATES ------------------------- SIT MUTUAL FUNDS SIT MUTUAL FUNDS BOND FUNDS ANNUAL REPORT TABLE OF CONTENTS PAGE Chairman's Letter 2 Performance Summary 4 Average Annual Total Returns 6 FUND REVIEWS AND PORTFOLIOS OF INVESTMENTS Money Market Fund 8 U.S. Government Securities Fund 12 Tax-Free Income Fund 24 Minnesota Tax-Free Income Fund 40 Florida Tax-Free Income Fund 52 Bond Fund 56 Notes to Portfolios of Investments 60 Statements of Assets and Liabilities 62 Statements of Operations 64 Statements of Changes in Net Assets 66 Notes to Financial Statements 68 Financial Highlights 73 Independent Auditors Report 79 Results of Shareholder Meeting 80 Information About Directors and Officers 82 Federal Tax Information 86 A Look at Sit Mutual Funds 88 This document must be preceded or accompanied by a Prospectus. SIT MUTUAL FUNDS ONE YEAR ENDED MARCH 31, 2004 [PHOTO]------------------------------------------------------------------------- CHAIRMAN'S LETTER Dear fellow shareholders: Interest rates finished the 12 months ended March 31, 2004 relatively unchanged from March 31st of 2003. The Federal Reserve lowered the federal funds rate only once over that period, reducing the rate by 0.25% to 1.00% on June 25, 2003. The Fed's continued accommodative monetary policy has encouraged economic growth and recent economic data suggests the Fed will be poised to begin raising rates in the second half of the year. The U.S. economy has shown steady improvement from the depths reached in the third and fourth quarters of 2001, growing an estimated +4.3% in 2003. Two-thirds of GDP is comprised of the consumer sector. The trend of real personal expenditures has been steadily upward, fueled by low interest rates and tax cuts. Personal consumption for the first two months of 1Q04 showed a +3.0% annualized growth rate. Tax refunds, one of the elements widely projected to be a stimulus to spending in early 2004, have been weaker than expected. Various explanations have been cited to account for the shortfall and include higher tax payments required with bonuses, stock options and proprietors' income as well as more taxpayers being exposed to the alternative minimum tax. Attitudes concerning employment opportunities are also a factor impacting individuals' willingness to spend or save. On April 2nd, the consumer received a major boost with the announcement that nonfarm payrolls in March increased 308,000, which was more than 150,000 above consensus and a marked improvement over all recent figures. We believe the March report will be followed by more positive reports, although the path is likely to be bumpy, as it has been in the past. The current expansion has been very unique in terms of its weak job performance combined with top-quartile productivity gains measured by output per employee. The robust employment report released in early April clearly was a positive development favoring the sustainability of the economic expansion, and bond market participants now anticipate the first tightening move by the Fed at its meeting on August 10th, if not earlier. The trend in employment levels will be one of the key ingredients leading to the Committee's eventual decision to increase interest rates. In addition to the March payroll report, many other indicators reflect a generally strong level of business activity. The March ISM manufacturing index moved up slightly to remain at very high levels compared to prior expansions, corporate profits are continuing very strong, and the Conference Board reported that the confidence of corporate CEOs rose in the first quarter to the highest level in 20 years. Accelerating commodity prices were accompanied by an uptick in consumer price index (CPI) in March, however, year-over-year CPI remains at a low +1.7%. Many question whether the official statistics adequately portray real-life experience. We are forecasting a modestly rising trend for CPI in the remainder of 2004. In the first five months of the current fiscal year, the federal budget deficit increased $32.5 billion, or +16.7%. The current trend in the Federal deficit is currently running at about a -$415 billion pace. Fiscal policy will still have a stimulative effect on economic growth in 2004, but it will be substantially diminished from the impacts in 2002 and 2003. Given the sharp deterioration in the federal budget, the country's fiscal affairs will be a subject of intense debate in the election campaign. In summary, we have been expecting strong economic growth this year in the United States ranging between +4.5% and +5% real GDP growth. Consumer spending should be strong in the first half assisted by the tax cuts and the early-April announcement of stronger labor growth. Business capital spending trends are favorable which should be supplemented by inventory accumulation as demand is sustained. Consequently, inflation should accelerate in the second half of the year. The global geopolitical environment remains a major concern especially with respect to how the Iraq 2 --------------------------------------------------------------------------[LOGO] transition to self-rule will occur and the longer-term role that will be played by the United States in that country. STRATEGY SUMMARY Although record lows were set in June of 2003, interest rates finished March 2004 relatively unchanged from March of 2003. Among taxable bonds, the corporate sector led performance over the past 12 months, benefiting from expectations for continued strong earnings growth, while U.S. Treasury and Agency returns lagged in the low interest rate environment. The mortgage and asset-backed sectors also trailed corporates, reflecting the continued significant levels of homeowner prepayments caused by the prolonged low interest rate environment. Interest rates rose sharply after the March 2004 job report was announced on April 2nd, which validated our current defensive portfolio positioning. While Treasury yields have increased 30 to 40 basis points from the end of March, we believe there is more to come. Given our expectations for higher interest rates, we are continuing our strategy of focusing on securities that provide a strong yield advantage while maintaining shorter-than-benchmark durations. We have been forecasting an increase in yields, coupled with a strengthening economy. During times of improving economic activity, investors typically become less risk averse and sell Treasuries in favor of higher yielding alternatives. We continue to underweight U.S. Treasuries in our taxable bond funds and emphasize higher yielding asset-backed, mortgage and corporate securities. The rise in interest rates should help slow refinancing activity in the mortgage sector, and the expectation of more stable prepayment rates should result in increased investor demand and narrower yield spreads. Corporate yield spreads should also narrow further as the economic recovery should lead investors to become more optimistic about corporate profitability. In the municipal market, yields ended the 12-month period slightly lower, and just above historical lows reached in early March 2004. Municipal yields remained in a much narrower range than did Treasuries during the period and remain attractively valued compared to Treasuries on a relative yield basis. We continue to be concerned that municipal yields will rise over the course of the year, albeit to a lesser extent than that expected for U.S. Treasuries. Accordingly, municipal portfolio durations have been relatively short. Sit Investment Associates' municipal portfolios benefited from their defensive positioning during the month of March, and our continued focus will be on securities that provide high levels of tax-exempt income and relative price stability. We believe our focus on income will contribute to attractive relative returns as interest rates move higher. Fixed-income investments are an important component of a well-diversified long-term portfolio. We believe that the Sit bond funds, with their dual objectives of high income with stability of principal, offer an attractive risk/reward profile to complement equity holdings. We appreciate your continued interest and investment in Sit Mutual Funds and 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 SIT MUTUAL FUNDS ONE YEAR ENDED MARCH 31, 2004 -------------------------------------------------------------------------------- PERFORMANCE SUMMARY - BOND FUNDS Interest rates finished the 12 months ended March 31st, 2004 relatively unchanged from March 31st of 2003. The Federal Reserve lowered the federal funds rate only once over that period, reducing the rate by 0.25% to 1.00% on June 25, 2003. The Fed's continued accommodative monetary policy has encouraged economic growth and recent data suggests the Fed will be poised to begin raising rates in the second half of the year. While interest rates ended near where they began, the Treasury market experienced high volatility as interest rates shifted dramatically during this period. The 10-year Treasury yield began the period at 3.81%, reached as low as 3.11% and as high as 4.60%, while ending only 2 basis points higher at 3.83%. The corporate sector was by far the best performing taxable bond sector as historically high yield advantages and a strengthening economy increased investor demand for corporate bonds. Mortgages were the worst performing sector as record levels of refinancings boosted prepayment levels. Interestingly, the vast majority of the +5.40% return of the Lehman Aggregate Bond Index for the twelve months ended March 31st, 2004, was earned during the first six months as interest rates were declining and bonds were appreciating. Municipal yields remained in a much narrower range than Treasury securities during the year. Longer term yields ended the period slightly lower and just above record lows reached in early March 2004. The Bond Buyer 40-Bond Index yield fell 20 basis points to 4.79% on March 31, 2004. Longer duration sectors performed best and, as in the taxable sector, higher yielding sectors such as hospitals and industrial revenue bonds performed best, the latter buoyed by a rebound in the prices of tobacco settlement revenue bonds, while similarly the housing sector performed worst. Fixed-income portfolios remain defensively positioned in anticipation of higher rates next year and remain focused on generating high levels of income. TOTAL RETURN - CALENDAR YEAR 1995 1996 SIT MONEY MARKET FUND 5.58% 5.08% -------------------------------------------------------- SIT U.S. GOV'T. SECURITIES FUND 11.50 4.99 -------------------------------------------------------- SIT TAX-FREE INCOME FUND 12.86 5.69 -------------------------------------------------------- SIT MINNESOTA TAX-FREE INCOME FUND 11.90 5.89 -------------------------------------------------------- SIT FLORIDA TAX-FREE INCOME FUND -- -- -------------------------------------------------------- SIT BOND FUND 16.83 4.25 -------------------------------------------------------- 3-MONTH U.S. TREASURY BILL 5.98 5.27 LEHMAN INTER. GOVERNMENT BOND INDEX 14.41 4.06 LEHMAN 5-YEAR MUNICIPAL BOND INDEX 11.65 4.22 LEHMAN AGGREGATE BOND INDEX 18.47 3.63 NASDAQ SYMBOL INCEPTION ------ --------- SIT MONEY MARKET FUND(1) 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 FLORIDA TAX-FREE INCOME FUND SFLIX 12/31/03 -------------------------------------------------------- SIT BOND FUND SIBOX 12/01/93 -------------------------------------------------------- 3-MONTH U.S. TREASURY BILL 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) Based on the last 12 monthly distributions of net investment income and average NAV as of 3/31/04. (3) Figure represents 7-day compound effective yield. The 7-day simple yield as of 3/31/04 was 0.43%. (4) For individuals in the 25%, 28%, 33%, and 35% federal tax brackets, the federal tax equivalent yields are 5.79%, 6.03%, 6.48% and 6.68%, respectively (Income subject to state tax, if any). 4 --------------------------------------------------------------------------[LOGO]
TOTAL RETURN - CALENDAR YEAR 30-DAY SEC YIELD YTD AS OF DISTRIBUTION 1997 1998 1999 2000 2001 2002 2003 2004 3/31/04 RATE(2) 5.22% 5.17% 4.79% 6.03% 3.67% 1.25% 0.65% 0.14%(3) 0.43%(3) ------------------------------------------------------------------------------------------------- 8.19 6.52 1.37 9.15 8.56 5.79 1.19 1.52 3.52 2.54% ------------------------------------------------------------------------------------------------- 9.87 6.29 -4.01 8.32 5.84 5.69 2.87 1.70 4.34(4) 4.23 ------------------------------------------------------------------------------------------------- 8.19 6.14 -3.82 8.09 5.85 7.06 4.42 1.56 4.54(5) 4.48 ------------------------------------------------------------------------------------------------- -- -- -- -- -- -- -- 1.08 3.90(6) n/a ------------------------------------------------------------------------------------------------- 9.44 6.52 -0.34 9.25 8.36 6.68 5.08 2.58 4.66 4.66 ------------------------------------------------------------------------------------------------- 5.32 5.01 4.88 6.16 3.50 1.67 1.03 0.24 7.72 8.49 0.49 10.47 8.42 9.64 2.29 2.21 6.38 5.84 0.74 7.72 6.21 9.27 4.13 1.28 9.65 8.69 -0.82 11.63 8.44 10.25 4.10 2.66
AVERAGE ANNUAL TOTAL RETURNS FOR THE TOTAL RETURN PERIODS ENDED MARCH 31, 2004 QUARTER SIX MONTHS ENDED 3/31/04 ENDED 3/31/04 SINCE 1 YEAR 5 YEARS 10 YEARS INCEPTION 0.14% 0.28% 0.60% 3.06% 4.06% 4.00% ---------------------------------------------------------------------------- 1.52 1.95 2.19 5.48 5.99 7.20 ---------------------------------------------------------------------------- 1.70 2.70 3.89 3.90 5.68 6.35 ---------------------------------------------------------------------------- 1.56 3.02 4.99 4.42 5.77 5.49 ---------------------------------------------------------------------------- 1.08 -- -- -- -- 1.08* ---------------------------------------------------------------------------- 2.58 4.08 6.66 6.29 6.80 6.45 ---------------------------------------------------------------------------- 0.24 0.47 0.98 3.24 4.24 4.20 2.21 2.00 3.58 6.71 6.75 7.56 1.28 1.41 4.30 5.62 5.89 6.48 2.66 2.98 5.40 7.29 7.54 7.04 (5) For Minnesota residents in the 25%, 28%, 33% and 35% federal tax brackets, the double exempt tax equivalent yields are 6.57%, 6.84%, 7.35% and 7.58%, respectively (Assumes the maximum Minnesota tax bracket of 7.85%). (6) For individuals in the 25%, 28%, 33%, and 35% federal tax brackets, the tax equivalent yields are 5.20%, 5.42%, 5.82% and 6.00%, respectively (Income subject to state tax, if any). *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. 5 SIT MUTUAL FUNDS -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2003* The tables on the next page show the Funds' average annual total returns (before and after taxes) and the change in value of a broad-based market index over various periods ended December 31, 2003. The index information is intended to permit you to compare each Fund's performance to a broad measure of market performance. The after-tax returns are intended to show the impact of federal income taxes on an investment in a Fund. The highest individual federal marginal income tax rate in effect during the specified period is assumed, and the state and local tax impact is not reflected. A Fund's "Return After Taxes on Distributions" shows the effect of taxable distributions (dividends and capital gain distributions), but assumes that you still hold the fund shares at the end of the period and so do not have any taxable gain or loss on your investment in the Fund. A Fund's "Return After Taxes on Distributions and Sale of Fund Shares" shows the effect of both taxable distributions and any taxable gain or loss that would be realized if the Fund shares were purchased at the beginning and sold at the end of the specified period. The Funds' past performance, before and after taxes, is not an indication of how the Funds will perform in the future. Your actual after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns reflect past tax effects and are not predictive of future tax effects. After-tax returns are not relevant to investors who hold their Fund shares in a tax-deferred account (including a 401(k) or IRA account). 6 --------------------------------------------------------------------------[LOGO]
========================================================================================================= SIT U. S. GOVERNMENT SECURITIES FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes 1.19% 5.16% 5.85% Return After Taxes on Distributions 0.35% 3.19% 3.56% Return After Taxes on Distributions and Sale of Fund Shares 0.53% 3.15% 3.55% Lehman Intermediate Government Bond Index 2.29% 6.18% 6.32% ========================================================================================================= ========================================================================================================= SIT TAX-FREE INCOME FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes 2.87% 3.65% 5.18% Return After Taxes on Distributions 2.87% 3.65% 5.14% Return After Taxes on Distributions and Sale of Fund Shares 3.11% 3.81% 5.18% Lehman 5-Year Municipal Bond Index 4.13% 5.57% 5.42% ========================================================================================================= ========================================================================================================= SIT MINNESOTA TAX-FREE INCOME FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes 4.42% 4.23% 5.35% Return After Taxes on Distributions 4.42% 4.23% 5.35% Return After Taxes on Distributions and Sale of Fund Shares 4.44% 4.31% 5.33% Lehman 5-Year Municipal Bond Index 4.13% 5.57% 5.42% ========================================================================================================= ========================================================================================================= SIT BOND FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes 5.08% 5.75% 6.36% Return After Taxes on Distributions 3.39% 3.38% 3.82% Return After Taxes on Distributions and Sale of Fund Shares 3.34% 3.40% 3.82% Lehman Aggregate Bond Index 4.10% 6.62% 6.95% =========================================================================================================
(*) NOTES: --- ----- (1) After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. (2) Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. (3) Indices reflect no deduction for fees, expenses, or taxes. 7 SIT MONEY MARKET FUND ONE YEAR ENDED MARCH 31, 2004 -------------------------------------------------------------------------------- MICHAEL C. BRILLEY, SENIOR PORTFOLIO MANAGER PAUL J. JUNGQUIST, CFA, SENIOR PORTFOLIO MANAGER The Sit Money Market Fund provided investors with a +0.60% return for the fiscal year ended March 31, 2004, compared to a +0.98% return for the 3-Month U.S. Treasury Bill. The Fund again outperformed the Lipper money market fund universe(1) for all reported time periods (see chart). The Fund's 7-day compound yield was 0.43% and its average maturity was 25 days at the end of this period. STABLE SHORT-TERM RATE ENVIRONMENT The most significant factor affecting the Sit Money Market Fund's return over the past twelve months was the reduction of the federal funds rate by 25 basis points on June 25, 2003 which had the effect of lowering most short-term interest rates by about 0.25%. YIELD CURVE UNCHANGED, COMPRESSED There has been very little change in the yield curve for maturities of 120 days or less which is the maturity range in which the Fund invests. Furthermore, the yield differences among the various credits in which the Fund invests have been only slight. RISING YIELDS EXPECTED SOON We expect short-term interest rates to rise modestly (0.25% to 0.50%) in the second half of 2004, and the Fund's yield should rise commensurately. 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 3/31/04: $ 1.00 Per Share 3/31/03: $ 1.00 Per Share Total Net Assets: $44.6 Million PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) Asset-Backed Securities 18.1 Diversified Finance 12.8 Communications 9.0 Health Techology 9.0 Insurance 7.1 Consumer Non-Durables 6.6 Consumer Durables 6.3 Sectors less than 6.0% 27.7 Cash & Other Net Assets 3.4 8 --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT MONEY 3-MONTH LIPPER MARKET U.S. TREASURY MONEY FUND BILL MARKET AVG. --------- ------------- ----------- 3 Month** 0.14% 0.24% 0.09% 6 Month** 0.28 0.47 n/a 1 Year 0.60 0.98 0.38 5 Years 3.06 3.24 2.82 10 Years 4.06 4.24 3.87 Inception 4.00 4.20 3.84 (11/1/93) CUMULATIVE TOTAL RETURNS* SIT MONEY 3-MONTH LIPPER MARKET U.S. TREASURY MONEY FUND BILL MARKET AVG. --------- ------------- ----------- 1 Year 0.60% 0.98% 0.38% 5 Year 16.26 17.29 14.91 10 Year 48.83 51.41 46.28 Inception 50.53 53.48 48.04 (11/1/93) *AS OF 3/31/04 **NOT ANNUALIZED. 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. -------------------------------------------------------------------------------- (1) Lipper Analytical Services, Inc., a large independent evaluator of mutual funds, rankings reflect historical performance returns through 3/31/04. Sit Money Market Fund rankings for the 3-month, 5- and 10-year and since inception periods were 78th of 412 funds, 95th of 291 funds, 41st of 168 funds and 41st of 159 funds, respectively. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (11/1/93) and held until 3/31/04 would have grown to $15,053 in the Fund or $15,348 in the 3-Month U.S. Treasury Bill assuming reinvestment of all dividends and capital gains. SIT MONEY MARKET MATURITY RANGES 0-15 16-30 31-45 46-60 61+ Days Days Days Days Days -------------------------------------------------------------------------------- % of Assets 42.0% 27.1% 11.9% 12.7% 6.3% 9 SIT MONEY MARKET FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS QUANTITY ($) NAME OF ISSUER MARKET VALUE($)(1) --------------------------------------------------------------------------- COMMERCIAL PAPER (100.3%)(2) ASSET-BACKED (18.1%) Daimler-Chrysler Auto Conduit: 857,000 1.03%, 4/6/2004 856,877 1,100,000 1.02%, 4/7/2004 1,099,813 FCAR Owner Trust Series I: 1,300,000 1.04%, 4/2/2004 1,299,963 1,000,000 1.04%, 4/6/2004 999,856 Mortgage Interest Networking Trust: 1,400,000 1.03%, 4/22/2004 1,399,159 600,000 1.04%, 4/27/2004 599,549 New Center Asset Trust: 800,000 1.02%, 4/21/2004 799,547 1,016,000 1.01%, 4/27/2004 1,015,259 ------------- 8,070,023 ------------- CAPTIVE AUTO FINANCE (3.8%) Toyota Motor Credit Corp., 1,700,000 1.02%, 4/14/2004 1,699,374 ------------- CAPTIVE EQUIPMENT FINANCE (4.0%) Caterpillar Financial Services Corp.: 1,000,000 1.00%, 4/7/2004 999,833 800,000 1.05%, 6/21/2004 798,110 ------------- 1,797,943 ------------- COMMUNICATIONS (9.0%) 2,000,000 Bellsouth Corp., 1.01%, 4/23/04(5) 1,998,766 2,000,000 SBC International, 1.02%, 4/20/04 1,998,923 ------------- 3,997,689 ------------- CONSUMER DURABLES (6.3%) American Honda Finance: 1,400,000 1.02%, 5/7/2004 1,398,572 1,400,000 1.02%, 5/26/2004 1,397,818 ------------- 2,796,390 ------------- CONSUMER LOAN FINANCE (4.5%) American General Financial Corp.: 500,000 1.02%, 4/5/2004 499,943 611,000 1.03%, 4/5/2004 610,930 900,000 1.02%, 5/21/2004 898,731 ------------- 2,009,604 ------------- QUANTITY ($) NAME OF ISSUER MARKET VALUE($)(1) --------------------------------------------------------------------------- CONSUMER NON-DURABLES (6.6%) 1,000,000 Coca Cola Co., 1.00%, 5/6/2004 999,028 Coca Cola Enterprises: 1,300,000 1.01%, 5/4/2004 (5) 1,298,796 648,000 1.02%, 5/6/2004 (5) 647,357 ------------- 2,945,181 ------------- DIVERSIFIED FINANCE (12.8%) CIT Group Holdings: 1,035,000 1.03%, 5/18/2004 1,033,608 1,200,000 1.03%, 5/25/2004 1,198,146 GE Capital International Funding: 1,400,000 1.04%, 4/15/2004 (5) 1,399,434 1,100,000 1.04%, 4/21/2004 (5) 1,099,365 1,000,000 GE Capital Services, 1.01%, 4/16/04 999,579 ------------- 5,730,132 ------------- ELECTRONIC TECHNOLOGY (3.8%) 1,718,000 IBM Corp., 1.04%, 4/1/04 1,718,000 ------------- ENERGY (5.4%) 1,200,000 Chevron Texaco Funding Corp., 1.00%, 4/19/2004 1,199,400 1,227,000 Exxon Asset Management, 0.98%, 4/1/2004 (5) 1,227,000 ------------- 2,426,400 ------------- FINANCIAL SERVICES (5.4%) UBS Finance Corp.: 1,300,000 1.02%, 4/8/2004 1,299,742 600,000 1.03%, 4/8/2004 599,880 500,000 1.05%, 4/12/2004 499,840 ------------- 2,399,462 ------------- HEALTH TECHNOLOGY (9.0%) 2,000,000 Bristol-Myers Squibb Co., 1.01%, 4/12/2004 (5) 1,999,383 Pfizer, Inc.: 1,000,000 1.00%, 5/3/2004 (5) 999,111 1,000,000 1.00%, 6/3/2004 (5) 998,250 ------------- 3,996,744 ------------- 10 --------------------------------------------------------------------------[LOGO] QUANTITY ($) NAME OF ISSUER MARKET VALUE($)(1) --------------------------------------------------------------------------- INSURANCE (7.1%) 655,000 AIG Funding, Inc., 1.01%, 5/24/04 654,031 American Family Financial: 2,000,000 1.10%, 4/13/2004 1,999,270 500,000 1.05%, 5/20/2004 499,285 -------------- 3,152,586 -------------- PRODUCER MANUFACTURING (4.5%) Siemens Capital: 1,000,000 0.97%, 4/26/2004 999,326 1,000,000 1.02%, 6/1/2004 998,272 -------------- 1,997,598 -------------- Total Commercial Paper 44,737,126 (cost: $44,737,126) -------------- Total investments in securities (cost: $44,737,126)(7) $44,737,126 ============== See accompanying notes to portfolios of investments on page 60. 11 SIT U.S. GOVERNMENT SECURITIES FUND ONE YEAR ENDED MARCH 31, 2004 -------------------------------------------------------------------------------- SENIOR PORTFOLIO MANAGERS, MICHAEL C. BRILLEY AND BRYCE A. DOTY, CFA PORTFOLIO MANAGER, MARK H. BOOK, CFA The Sit U.S. Government Securities Fund provided investors with a +2.19% return during the fiscal year ending March 31, 2004, while the Lehman Intermediate Government Bond Index returned +3.58%. The Fund's 30-day SEC yield was 3.52% and its 12-month distribution rate was 2.54%. CMO AND TREASURY POSITIONS HELPED Two of the Fund's strategies aided performance during the 12-month period. The Fund's underweighting of U.S. Treasury securities boosted performance as intermediate Treasuries underperformed the benchmark. In addition, the use of collateralized mortgage obligations (CMOs) also benefited performance as these securities demonstrated favorable prepayment experience over the last twelve months. MORTGAGES OUT OF FAVOR Hindering performance was the Fund's use of high coupon mortgage pass-through securities, which underperformed the benchmark. The low yield earned on the low levels of cash equivalents also negatively affected performance. 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 3/31/04: $ 10.79 Per Share 3/31/03: $ 10.83 Per Share Total Net Assets: $287.4 Million 30-day SEC Yield: 3.52% 12-Month Distribution Rate: 2.54% Average Maturity: 18.6 Years Effective Duration: 2.4 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) FNMA Pass-Through 37.3 Collateralized Mortgage Obligations 23.0 GNMA Pass-Through 16.3 FHLMC Pass-Through 13.7 U.S. Treasury/ Federal Agency 5.9 Taxable Municipal 0.9 Cash & Other Net Assets 2.9 12 --------------------------------------------------------------------------[LOGO] 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** 1.52% 2.21% 2.43% 6 Month** 1.95 2.00 n/a 1 Year 2.19 3.58 2.98 5 Year 5.48 6.71 5.95 10 Year 5.99 6.75 6.29 Inception 7.20 7.56 7.18 (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 2.19% 3.58% 2.98% 5 Year 30.55 38.33 33.57 10 Year 78.89 92.15 84.18 Inception 222.68 241.56 221.47 (6/2/87) *AS OF 3/31/04. **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 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] The sum of $10,000 invested at inception (6/2/87) and held until 3/31/04 would have grown to $32,268 in the Fund or $34,156 in the Lehman Intermediate Government Bond Index assuming reinvestment of all dividends and capital gains. ESTIMATED AVERAGE LIFE PROFILE [BAR CHART] 2.9% 89.3% 3.6% 1.0% 3.2% ------------------------------------------------------------------- 0-1 Year 1-5 Years 5-10 Years 10-20 Years 20+ Years -------------------------------------------------------------------------------- The Adviser's estimates of the dollar weighted average life of the portfolio's securities, which may vary from their stated maturities. -------------------------------------------------------------------------------- 13 SIT U.S. GOVERNMENT SECURITIES FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS MORTGAGE PASS-THROUGH SECURITIES (67.3%)(2) FEDERAL HOME LOAN MORTGAGE CORPORATION (13.7%): Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 150,030 5.50% 8/1/17 156,922 411,085 6.38% 12/1/26 429,584 129,751 6.38% 8/1/27 136,401 154,083 6.38% 12/1/27 161,979 305,275 7.50% 10/1/12 328,934 200,721 7.50% 4/1/21 216,080 97,376 7.50% 2/1/27 104,953 248,995 7.50% 4/1/27 268,370 5,360,560 7.50% 1/1/31 5,767,628 208,849 8.00% 10/1/16 227,710 1,263,839 8.00% 12/1/16 1,359,416 48,846 8.00% 5/1/17 53,304 363,574 8.00% 7/1/24 397,091 426,174 8.00% 9/1/24 465,513 802,335 8.00% 9/15/24 880,312 308,734 8.00% 11/1/25 336,643 125,606 8.00% 12/1/26 138,246 254,723 8.00% 1/1/27 277,409 555,611 8.00% 10/1/27 603,533 267,885 8.00% 1/1/28 291,740 187,995 8.00% 7/1/28 204,062 614,788 8.00% 6/1/30 674,415 281,619 8.00% 11/1/30 304,501 428,887 8.00% 2/1/32 463,599 59,234 8.25% 12/1/08 62,918 96,647 8.25% 12/1/17 105,729 636,791 8.50% 1/1/16 701,664 893,187 8.50% 5/1/16 983,622 11,778 8.50% 1/1/17 12,823 64,844 8.50% 4/1/17 71,612 88,951 8.50% 5/1/17 97,679 59,266 8.50% 7/1/17 65,082 354,923 8.50% 8/1/23 390,826 22,109 8.50% 7/1/24 24,168 163,711 8.50% 1/1/25 176,864 136,544 8.50% 4/1/25 147,515 164,889 8.50% 5/1/25 178,137 42,698 8.50% 6/1/25 46,128 88,719 8.50% 8/1/25 95,847 184,121 8.50% 10/1/26 200,749 1,114,355 8.50% 12/1/29 1,203,886 750,466 8.50% 8/1/30 819,650 88,582 8.50% 12/1/30 95,867 655,460 8.50% 4/1/31 708,306 100,887 8.50% 8/1/31 109,025 90,671 8.75% 1/1/17 99,336 2,770 9.00% 12/1/05 2,866 Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 4,614 9.00% 1/1/06 4,775 61,904 9.00% 2/1/06 64,062 44,883 9.00% 5/1/09 48,786 10,046 9.00% 6/1/09 11,199 50,683 9.00% 7/1/09 54,797 40,069 9.00% 7/1/09 43,553 166,555 9.00% 12/1/09 181,024 30,347 9.00% 10/1/13 33,735 614,097 9.00% 11/1/15 684,718 22,698 9.00% 5/1/16 25,228 106,542 9.00% 7/1/16 118,676 150,438 9.00% 10/1/16 167,289 23,621 9.00% 11/1/16 26,311 21,284 9.00% 1/1/17 23,707 16,831 9.00% 1/1/17 18,770 184,652 9.00% 2/1/17 205,656 27,010 9.00% 2/1/17 30,086 83,174 9.00% 2/1/17 91,033 124,130 9.00% 4/1/17 131,044 9,898 9.00% 4/1/17 11,006 115,786 9.00% 6/1/17 129,035 78,051 9.00% 6/1/17 87,134 138,098 9.00% 7/1/17 153,826 8,411 9.00% 9/1/17 9,373 98,981 9.00% 10/1/17 110,307 87,486 9.00% 6/1/18 97,253 294,121 9.00% 6/1/19 327,400 102,552 9.00% 10/1/19 114,358 90,910 9.00% 10/1/19 101,365 40,650 9.00% 10/1/19 45,321 637,106 9.00% 3/1/20 711,231 404,937 9.00% 9/1/20 438,810 68,663 9.00% 5/1/21 76,715 1,053,995 9.00% 6/1/21 1,153,623 35,038 9.00% 7/1/21 39,163 92,500 9.00% 7/1/21 103,377 77,802 9.00% 10/1/21 86,895 65,316 9.00% 3/1/22 72,950 113,527 9.00% 4/1/25 126,652 17,534 9.25% 7/1/08 19,043 51,623 9.25% 8/1/08 56,064 43,292 9.25% 8/1/09 46,104 102,509 9.25% 7/1/10 108,457 51,138 9.25% 3/1/11 54,891 45,203 9.25% 6/1/16 50,373 73,199 9.25% 3/1/17 81,570 741,956 9.25% 2/1/18 817,743 37,399 9.25% 1/1/19 40,144 297,889 9.25% 3/1/19 326,171 14 --------------------------------------------------------------------------[LOGO] Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 186,868 9.25% 3/1/19 206,956 52,574 9.50% 10/1/05 54,064 69,678 9.50% 10/1/08 75,891 88,950 9.50% 2/1/10 97,240 77,475 9.50% 5/1/10 80,116 35,320 9.50% 6/1/10 38,611 28,657 9.50% 1/1/11 31,693 236,014 9.50% 6/1/11 254,566 62,621 9.50% 6/1/16 70,040 16,198 9.50% 7/1/16 18,026 26,444 9.50% 9/1/16 29,045 69,704 9.50% 10/1/16 77,572 4,683 9.50% 10/1/16 5,238 94,197 9.50% 6/1/17 105,344 44,540 9.50% 9/1/17 49,794 51,949 9.50% 4/1/18 58,081 19,791 9.50% 10/1/18 22,132 231,997 9.50% 12/1/18 260,054 426,879 9.50% 2/1/19 477,414 18,184 9.50% 6/1/19 19,973 672,632 9.50% 6/17/19 749,565 158,166 9.50% 7/1/20 175,311 101,609 9.50% 8/1/20 113,888 21,840 9.50% 9/1/20 24,457 424,118 9.50% 8/1/21 460,571 2,523,359 9.50% 12/17/21 2,811,749 52,982 9.75% 12/1/08 57,921 25,303 9.75% 12/1/08 27,662 102,534 9.75% 11/1/09 112,093 21,890 9.75% 6/1/11 23,931 542,778 9.75% 12/1/16 602,784 46,205 9.75% 6/1/17 51,716 289,666 9.75% 12/1/17 323,748 18,902 9.85% 5/1/16 21,168 126,517 10.00% 11/1/10 138,709 173,071 10.00% 11/1/11 195,011 402,709 10.00% 6/1/20 455,897 266,736 10.00% 9/1/20 300,614 245,298 10.00% 3/1/21 275,184 121,025 10.00% 10/1/21 135,525 56,980 10.25% 6/1/10 62,988 48,985 10.25% 2/1/17 54,149 94,565 10.29% 9/1/16 105,056 47 10.50% 4/1/04 47 69,327 10.50% 10/1/13 77,727 147,356 10.50% 5/1/14 163,397 76,565 10.50% 9/1/15 86,303 68,808 10.50% 1/1/19 77,952 823,345 10.50% 6/1/19 928,322 Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 868 10.50% 7/1/20 984 22,079 11.00% 12/1/11 24,844 49,386 11.00% 6/1/15 55,899 67,555 11.00% 2/1/16 76,169 23,823 11.00% 2/1/18 27,113 45,623 11.00% 5/1/19 51,252 63,666 11.00% 7/1/19 72,005 20,393 11.25% 10/1/09 22,855 66,547 11.25% 8/1/11 75,771 50,246 13.00% 5/1/17 56,105 ----------- 39,317,739 ----------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (37.3%): Par ($) Coupon Maturity ------- ------ -------- 1,996,444 4.41% 2/1/34 2,040,066 8,801,497 5.00% 11/1/10 9,057,291 1,382,236 6.00% 9/1/17 1,468,230 50,895 6.86% 3/1/19 53,583 1,798,665 6.95% 8/1/21 1,915,385 103,014 7.00% 4/1/27 110,483 3,257,245 7.00% 6/1/32 3,456,618 239,540 7.24% 5/1/07 266,280 1,202,057 7.50% 3/1/16 1,293,376 2,628,294 7.50% 6/1/22 2,818,024 1,050,429 7.50% 6/1/25 1,135,120 56,048 7.50% 3/1/27 60,164 38,435 7.50% 9/1/27 41,666 78,126 7.50% 5/1/28 83,815 163,887 7.50% 11/1/29 176,435 160,147 7.50% 1/1/30 171,661 1,019,644 7.50% 12/1/30 1,092,612 1,420,218 7.50% 1/1/31 1,522,740 1,128,878 7.50% 3/1/32 1,209,664 1,270,502 7.50% 6/1/32 1,381,232 559,814 7.54% 6/1/16 615,432 2,272,093 7.87% 12/15/25 2,499,303 116,619 8.00% 8/1/09 125,084 126,501 8.00% 11/1/16 138,199 86,615 8.00% 6/1/18 94,086 226,806 8.00% 1/1/22 248,282 138,490 8.00% 2/1/23 151,660 201,808 8.00% 5/1/23 219,922 84,371 8.00% 9/1/23 91,569 1,237,248 8.00% 7/1/24 1,352,854 195,445 8.00% 8/1/24 213,585 47,842 8.00% 4/1/25 52,237 564,260 8.00% 6/1/27 616,101 281,713 8.00% 9/1/27 309,972 110,025 8.00% 10/1/27 120,237 See accompanying notes to portfolios of investments on page 60. 15 SIT U.S. GOVERNMENT SECURITIES FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 689,711 8.00% 6/1/28 748,336 470,876 8.00% 9/1/28 510,935 798,570 8.00% 9/1/29 875,142 149,193 8.00% 12/1/29 161,221 124,220 8.00% 2/1/30 135,009 89,434 8.00% 2/1/31 96,588 574,595 8.00% 2/1/31 622,717 491,450 8.00% 3/1/31 536,980 710,414 8.00% 3/1/32 767,247 1,417,612 8.00% 9/1/32 1,545,640 74,380 8.25% 4/1/22 81,190 1,798,966 8.29% 7/20/30 1,997,414 477,956 8.33% 7/15/20 540,099 617,615 8.38% 7/20/28 686,711 25,879 8.50% 8/1/06 27,470 164,543 8.50% 11/1/10 178,478 1,083,466 8.50% 2/1/16 1,203,325 65,995 8.50% 4/1/17 72,561 419,846 8.50% 6/1/17 446,611 51,855 8.50% 9/1/17 56,846 157,371 8.50% 8/1/18 174,879 44,128 8.50% 1/1/22 48,430 598,956 8.50% 5/1/22 658,836 236,844 8.50% 7/1/22 264,229 116,656 8.50% 11/1/23 127,775 41,485 8.50% 5/1/24 46,243 283,875 8.50% 2/1/25 312,255 129,800 8.50% 9/1/25 142,456 999,373 8.50% 12/1/25 1,093,214 601,565 8.50% 1/1/26 657,459 842,335 8.50% 1/1/26 920,599 374,664 8.50% 7/1/26 404,677 948,049 8.50% 9/1/26 1,036,929 2,097,638 8.50% 11/1/26 2,290,359 74,965 8.50% 12/1/26 81,852 322,844 8.50% 5/1/27 353,160 730,868 8.50% 6/1/27 798,775 1,784,531 8.50% 11/1/28 1,945,139 4,335,678 8.50% 12/1/28 4,734,018 470,531 8.50% 12/1/29 514,643 158,948 8.50% 1/1/30 171,962 537,148 8.50% 1/1/30 580,456 162,472 8.50% 8/1/30 175,488 85,975 8.50% 11/1/30 93,016 238,937 8.50% 11/1/30 258,052 734,840 8.50% 12/1/30 795,005 118,347 8.50% 1/1/31 127,815 516,303 8.50% 6/1/32 564,222 766,232 8.52% 9/15/30 855,546 Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 303,983 8.87% 12/15/25 342,258 257,099 9.00% 1/1/09 281,230 162,350 9.00% 5/1/09 175,364 48,314 9.00% 5/1/09 52,187 194,595 9.00% 5/1/09 208,668 114,696 9.00% 5/1/09 124,027 26,391 9.00% 4/1/10 28,739 101,397 9.00% 3/1/11 111,663 253,991 9.00% 8/1/16 283,336 334,525 9.00% 11/1/16 373,174 57,088 9.00% 6/1/17 60,329 117,278 9.00% 6/1/17 130,739 32,217 9.00% 7/1/17 35,915 62,137 9.00% 9/1/17 69,723 124,577 9.00% 12/1/17 138,876 45,693 9.00% 2/1/18 51,276 32,036 9.00% 9/1/19 34,887 26,492 9.00% 10/1/19 29,729 122,651 9.00% 12/15/19 136,985 107,466 9.00% 3/1/21 119,801 6,503 9.00% 9/1/21 7,260 64,638 9.00% 4/1/25 72,152 119,795 9.00% 4/1/25 133,439 155,176 9.00% 8/1/25 173,022 920,518 9.00% 11/1/25 1,027,528 3,594,591 9.00% 10/1/26 4,007,969 88,694 9.00% 12/1/26 98,743 668,239 9.00% 5/1/27 745,922 2,098,713 9.00% 5/1/28 2,337,754 141,083 9.00% 5/1/30 156,603 1,274,135 9.00% 7/1/30 1,423,050 331,233 9.00% 8/15/30 369,532 134,440 9.00% 11/1/30 146,538 105,787 9.00% 4/1/31 114,746 151,559 9.00% 6/1/31 164,426 30,311 9.00% 7/1/31 33,039 344,210 9.25% 10/1/09 373,241 84,424 9.25% 7/1/10 92,980 18,941 9.25% 4/1/12 19,581 60,860 9.25% 10/1/16 67,834 69,518 9.25% 12/1/16 77,485 253,537 9.25% 2/1/17 282,536 65,834 9.25% 3/1/17 73,379 672,600 9.34% 8/20/27 774,222 13,477 9.50% 1/1/06 14,556 43,616 9.50% 9/1/08 46,288 116,639 9.50% 12/1/09 127,640 37,457 9.50% 1/1/11 40,733 35,353 9.50% 10/1/13 38,954 16 --------------------------------------------------------------------------[LOGO] Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 33,360 9.50% 5/1/14 35,405 205,789 9.50% 4/1/16 228,514 18,590 9.50% 4/1/16 20,484 42,942 9.50% 9/1/16 48,044 117,207 9.50% 9/1/17 131,126 95,399 9.50% 11/1/18 107,739 106,000 9.50% 12/1/18 118,641 52,005 9.50% 5/1/19 58,771 100,292 9.50% 10/1/19 112,831 71,849 9.50% 12/1/19 80,411 77,381 9.50% 3/1/20 86,317 97,976 9.50% 6/1/20 110,650 319,977 9.50% 9/1/20 355,763 252,468 9.50% 9/1/20 282,555 359,324 9.50% 10/15/20 401,549 277,016 9.50% 12/15/20 310,063 57,841 9.50% 12/15/20 64,704 125,980 9.50% 3/1/21 142,128 81,710 9.50% 4/15/21 91,408 405,419 9.50% 7/1/21 453,435 363,158 9.50% 5/1/22 406,324 350,771 9.50% 4/1/25 392,604 443,847 9.50% 4/1/25 495,247 1,047,070 9.50% 11/1/25 1,170,458 611,544 9.50% 3/1/26 682,445 935,078 9.50% 9/1/26 1,043,366 829,148 9.50% 10/1/26 923,981 171,941 9.50% 8/1/30 192,306 3,000,000 9.55% 8/20/25 3,475,313 242,553 9.75% 1/15/13 270,241 219,634 9.75% 1/1/21 246,607 531,689 9.75% 10/1/21 600,975 457,275 9.75% 4/1/25 516,863 14,254 10.00% 3/1/11 15,629 92,602 10.00% 5/1/11 102,219 148,569 10.00% 7/1/13 166,908 155,287 10.00% 6/1/14 168,429 1,023,280 10.00% 2/1/15 1,145,234 1,129,189 10.00% 3/1/15 1,277,640 108,957 10.00% 11/1/16 121,350 50,123 10.00% 3/1/18 56,200 654,764 10.00% 7/1/19 732,721 67,113 10.00% 9/1/19 75,528 171,273 10.00% 12/1/19 190,757 472,440 10.00% 6/1/20 532,550 17,426 10.00% 11/1/20 19,729 88,245 10.00% 1/1/21 99,856 27,994 10.00% 2/1/21 31,472 510,224 10.00% 10/1/21 574,640 Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 284,946 10.00% 5/1/22 320,352 165,162 10.00% 5/1/22 186,893 270,843 10.00% 1/1/24 305,076 220,822 10.00% 7/1/28 249,408 653,363 10.25% 8/15/13 732,588 19,762 10.50% 5/1/09 21,804 49,192 10.50% 5/1/15 55,894 390,465 10.50% 1/1/16 447,028 47,651 10.50% 3/1/17 52,863 209,386 10.50% 12/1/17 234,708 21,230 10.75% 11/1/10 23,506 22,991 11.00% 10/1/06 23,457 94,661 11.00% 9/1/12 107,270 7,274 11.00% 4/1/14 8,224 65,895 11.00% 8/1/15 73,814 128,854 11.00% 9/1/15 143,511 58,947 11.00% 4/1/17 67,108 901,335 11.27% 8/15/20 1,038,142 485,812 11.75% 10/20/22 559,939 ------------ 107,170,750 ------------ GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (16.3%)(3): Par ($) Coupon Maturity ------- ------ -------- 80,672 6.00% 9/15/18 84,429 396,941 6.38% 12/15/27 419,145 386,162 6.38% 4/15/28 407,522 952,386 6.43% 9/15/33 1,062,262 155,365 6.75% 9/15/15 166,741 70,067 6.75% 8/15/28 74,468 44,160 7.00% 9/20/16 47,196 540,571 7.00% 1/15/30 576,153 664,765 7.00% 1/15/31 708,381 818,050 7.00% 11/15/32 871,223 50,129 7.05% 2/15/23 53,857 83,931 7.25% 8/15/10 89,911 289,814 7.25% 10/15/28 310,725 107,559 7.27% 7/20/22 115,592 383,561 7.38% 11/15/30 410,650 469,318 7.38% 3/15/31 502,463 20,643 7.50% 3/15/07 21,947 201,989 7.50% 5/15/16 220,286 1,547,550 7.50% 2/15/27 1,666,936 152,144 7.55% 7/20/22 165,570 346,801 7.55% 10/20/22 377,405 166,843 7.65% 10/20/21 181,976 210,720 7.65% 7/20/22 229,681 224,307 7.75% 6/15/20 246,737 370,592 7.75% 7/15/20 407,651 359,734 7.75% 8/15/20 395,708 See accompanying notes to portfolios of investments on page 60. 17 SIT U.S. GOVERNMENT SECURITIES FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 314,111 7.75% 8/15/20 345,522 119,056 7.75% 11/15/20 130,961 640,342 7.75% 10/15/22 709,779 95,188 7.90% 9/20/20 104,260 53,002 7.90% 11/20/20 58,054 44,281 7.90% 1/20/21 48,502 101,675 7.90% 1/20/21 111,366 32,421 7.90% 4/20/21 35,511 55,795 7.90% 8/20/21 61,113 341,410 7.95% 2/15/20 376,779 156,224 7.99% 2/20/21 171,358 98,085 7.99% 4/20/21 107,587 170,150 7.99% 7/20/21 186,634 172,195 7.99% 9/20/21 188,876 176,239 7.99% 10/20/21 193,313 288,865 7.99% 1/20/22 316,578 500,427 7.99% 6/20/22 548,437 46,389 8.00% 10/15/12 51,041 138,668 8.00% 5/15/16 153,695 430,004 8.00% 6/15/16 476,601 176,768 8.00% 9/15/16 195,923 148,765 8.00% 11/20/16 162,386 145,262 8.00% 7/15/17 159,996 54,010 8.00% 7/20/23 59,141 115,949 8.00% 8/15/23 127,833 343,178 8.00% 10/20/23 375,820 59,305 8.00% 12/20/23 64,939 33,683 8.00% 2/20/24 36,802 381,123 8.00% 2/20/26 415,114 90,145 8.00% 12/15/26 98,851 68,567 8.00% 12/20/26 74,682 215,979 8.00% 4/15/28 236,255 723,810 8.00% 4/15/28 792,357 88,635 8.00% 9/15/29 96,917 510,014 8.10% 5/20/19 559,741 294,480 8.10% 6/20/19 323,192 212,058 8.10% 7/20/19 232,734 232,326 8.10% 9/20/19 254,978 91,969 8.10% 9/20/19 100,936 131,767 8.10% 10/20/19 144,614 129,101 8.10% 1/20/20 141,607 106,527 8.10% 4/20/20 116,847 222,404 8.10% 7/20/20 243,950 217,079 8.25% 12/15/11 239,200 75,265 8.25% 1/15/12 83,178 156,777 8.25% 8/15/15 174,438 851,303 8.25% 4/15/19 942,761 61,202 8.25% 1/15/20 67,437 224,496 8.25% 2/15/20 248,489 Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 62,444 8.25% 4/15/27 68,318 179,081 8.25% 6/15/27 195,926 231,751 8.38% 10/15/19 257,099 226,803 8.40% 2/15/19 251,751 162,213 8.40% 4/15/19 180,056 136,024 8.40% 6/15/19 150,986 60,715 8.40% 6/15/19 67,394 62,071 8.40% 9/15/19 68,899 92,430 8.40% 9/15/19 102,598 61,486 8.40% 2/15/20 68,211 80,820 8.50% 12/15/11 89,373 222,866 8.50% 1/15/12 247,204 86,775 8.50% 4/15/15 96,937 58,190 8.50% 4/15/15 65,004 389,593 8.50% 9/15/16 436,670 270,868 8.50% 1/15/17 304,410 197,254 8.50% 12/15/21 219,024 66,309 8.50% 2/15/22 73,582 35,544 8.50% 7/20/22 39,181 214,998 8.50% 10/20/22 236,999 122,797 8.50% 9/20/24 135,034 267,799 8.50% 3/20/25 293,511 453,611 8.50% 12/20/26 495,638 77,157 8.50% 3/20/30 84,125 129,384 8.50% 8/15/30 141,556 62,733 8.60% 5/15/18 69,570 104,527 8.60% 6/15/18 115,920 106,318 8.63% 10/15/18 118,405 14,593 8.75% 5/15/06 15,553 20,438 8.75% 5/15/06 21,784 25,425 8.75% 10/15/06 27,099 33,241 8.75% 11/15/06 35,429 27,737 8.75% 2/15/07 30,443 12,166 8.75% 3/15/07 13,353 60,170 8.75% 11/15/09 67,203 75,776 8.75% 6/15/11 85,357 263,477 8.75% 11/15/11 296,792 89,192 8.75% 12/15/11 100,470 6,361 9.00% 10/15/04 6,454 59,600 9.00% 4/15/06 63,679 43,692 9.00% 4/15/06 46,677 62,208 9.00% 5/15/06 66,457 44,595 9.00% 5/15/06 47,647 20,847 9.00% 6/15/06 22,271 195,572 9.00% 6/15/06 208,956 118,449 9.00% 7/15/06 126,555 19,891 9.00% 10/15/06 21,250 85,130 9.00% 10/15/06 90,945 20,257 9.00% 6/15/07 22,290 18 --------------------------------------------------------------------------[LOGO] Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 49,137 9.00% 10/15/07 54,067 17,738 9.00% 9/15/08 19,350 43,951 9.00% 9/15/08 47,945 33,210 9.00% 10/15/08 36,227 3,013 9.00% 11/15/08 3,287 21,105 9.00% 11/15/08 23,023 56,767 9.00% 12/15/08 61,925 7,378 9.00% 2/15/09 8,104 5,462 9.00% 3/15/09 5,999 18,218 9.00% 4/15/09 20,011 36,855 9.00% 4/15/09 40,877 11,620 9.00% 5/15/09 12,763 43,490 9.00% 8/15/09 48,236 41,605 9.00% 9/15/09 46,145 22,289 9.00% 10/15/09 24,483 33,308 9.00% 11/15/09 37,318 16,664 9.00% 12/15/09 18,483 256,866 9.00% 7/15/10 283,535 199,812 9.00% 5/15/11 225,866 49,684 9.00% 5/15/11 56,158 122,438 9.00% 6/15/11 138,403 149,541 9.00% 7/15/11 169,041 122,358 9.00% 8/15/11 136,844 116,575 9.00% 8/15/11 131,775 100,134 9.00% 9/15/11 113,191 139,530 9.00% 9/15/11 157,724 133,885 9.00% 9/15/11 151,342 108,840 9.00% 10/15/11 123,032 73,905 9.00% 1/15/12 83,763 87,880 9.00% 5/20/15 97,766 204,489 9.00% 7/15/15 228,540 40,329 9.00% 8/15/15 45,072 154,953 9.00% 12/20/15 172,385 37,382 9.00% 5/20/16 41,646 35,335 9.00% 6/20/16 39,366 32,879 9.00% 7/20/16 36,631 29,948 9.00% 7/20/16 33,365 284,612 9.00% 1/15/17 325,108 23,341 9.00% 3/20/17 26,032 723,242 9.00% 6/15/17 826,149 597,858 9.00% 7/15/17 682,925 520,404 9.00% 8/20/17 580,392 55,952 9.00% 5/15/18 61,281 11,049 9.00% 12/15/19 12,397 487,682 9.00% 12/15/19 547,189 5,392 9.00% 7/20/21 6,020 7,241 9.00% 10/20/21 8,084 637,155 9.00% 11/15/24 714,898 110,056 9.00% 2/20/25 122,265 Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 109,187 9.00% 7/20/25 121,287 325,703 9.00% 4/15/26 363,851 86,716 9.10% 5/15/18 96,723 16,879 9.25% 3/15/05 17,495 179,290 9.25% 11/15/09 202,300 63,061 9.25% 1/15/10 71,452 47,491 9.25% 4/15/10 53,810 61,021 9.25% 11/15/10 69,141 117,497 9.25% 11/15/11 133,476 29,039 9.25% 4/15/12 33,058 76,233 9.25% 8/20/16 84,619 18,436 9.25% 9/15/16 20,522 4,927 9.25% 2/20/17 5,475 57,568 9.25% 7/20/17 63,964 435 9.50% 1/20/05 449 2,684 9.50% 3/15/05 2,789 22,658 9.50% 1/15/06 24,328 25,399 9.50% 7/15/09 28,049 46,771 9.50% 8/15/09 51,651 22,719 9.50% 8/15/09 25,089 23,403 9.50% 9/15/09 25,845 33,869 9.50% 9/15/09 37,403 46,756 9.50% 9/15/09 51,490 19,463 9.50% 10/15/09 21,494 25,740 9.50% 10/15/09 28,425 199,904 9.50% 10/15/09 220,144 10,102 9.50% 10/15/09 11,124 5,265 9.50% 10/15/09 5,798 74,605 9.50% 10/15/09 82,158 22,241 9.50% 10/15/09 24,562 47,955 9.50% 10/15/09 52,959 10,716 9.50% 10/15/09 11,835 58,164 9.50% 11/15/09 65,832 123,344 9.50% 1/15/10 140,217 63,666 9.50% 2/15/10 70,428 155,219 9.50% 4/15/10 173,996 38,017 9.50% 8/15/10 43,218 75,857 9.50% 11/15/10 86,234 29,652 9.50% 1/15/11 33,801 158,188 9.50% 3/15/11 180,319 17,530 9.50% 3/20/16 19,558 15,984 9.50% 6/15/16 17,913 79,876 9.50% 10/15/16 89,516 47,360 9.50% 10/15/16 53,076 41,050 9.50% 11/15/16 46,004 29,402 9.50% 11/15/16 32,951 50,115 9.50% 11/20/16 55,912 17,447 9.50% 1/15/17 19,573 32,794 9.50% 4/15/17 36,790 See accompanying notes to portfolios of investments on page 60. 19 SIT U.S. GOVERNMENT SECURITIES FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 57,357 9.50% 8/15/17 64,346 5,506 9.50% 8/20/17 6,150 41,096 9.50% 9/15/17 46,104 48,856 9.50% 9/15/17 54,809 299,743 9.50% 12/15/17 335,816 129,616 9.50% 12/15/17 145,413 128,578 9.50% 12/15/17 144,249 42,325 9.50% 12/15/17 47,433 8,797 9.50% 12/20/17 9,825 6,616 9.50% 4/15/18 7,427 13,418 9.50% 4/20/18 14,996 13,664 9.50% 5/15/18 15,339 6,851 9.50% 5/20/18 7,656 182,396 9.50% 6/15/18 204,758 90,843 9.50% 6/20/18 101,527 34,416 9.50% 7/20/18 38,463 13,942 9.50% 8/15/18 15,652 47,329 9.50% 8/20/18 52,895 72,461 9.50% 9/15/18 81,345 51,294 9.50% 9/15/18 57,583 83,322 9.50% 9/20/18 93,120 13,869 9.50% 9/20/18 15,500 309,186 9.50% 9/20/18 345,546 59,526 9.50% 10/15/18 66,741 34,312 9.50% 1/15/19 38,491 29,697 9.50% 4/15/19 33,314 14,992 9.50% 8/15/19 16,818 120,435 9.50% 8/20/19 134,499 68,197 9.50% 9/15/19 76,502 9,148 9.50% 10/20/19 10,216 29,837 9.50% 12/15/19 33,470 16,480 9.50% 1/15/20 18,490 30,056 9.50% 2/15/20 33,722 13,498 9.50% 10/15/20 15,144 15,547 9.50% 1/15/21 17,450 14,113 9.50% 2/15/21 15,841 66,751 9.50% 8/15/21 74,921 508,960 9.50% 8/15/22 571,286 11,599 9.75% 6/15/05 12,059 40,375 9.75% 6/15/05 41,976 31,162 9.75% 8/15/05 32,397 22,575 9.75% 9/15/05 23,470 20,724 9.75% 1/15/06 22,313 29,343 9.75% 2/15/06 31,593 139,927 9.75% 8/15/09 158,275 68,747 9.75% 9/15/09 77,762 221,686 9.75% 8/15/10 251,833 68,257 9.75% 11/15/10 77,540 308,523 9.75% 12/15/10 350,478 Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 149,398 9.75% 1/15/11 170,273 361,066 9.75% 1/15/11 411,517 29,018 9.75% 10/15/12 33,162 49,195 9.75% 10/15/12 56,220 24,173 9.75% 10/15/12 27,625 87,367 9.75% 11/15/12 99,844 58,282 9.75% 11/15/12 66,601 90,637 9.75% 11/15/12 103,573 32,923 9.75% 11/15/12 37,622 14,514 9.75% 12/15/12 16,585 32,198 9.75% 4/15/18 36,121 1,695 10.00% 5/15/04 1,724 28,247 10.00% 7/15/05 29,411 75,700 10.00% 7/15/05 78,819 833 10.00% 1/15/06 899 76,401 10.00% 11/15/08 86,180 8,173 10.00% 5/15/09 9,274 2,948 10.00% 11/15/09 3,263 6,699 10.00% 6/15/10 7,635 105,636 10.00% 6/15/10 120,396 13,130 10.00% 7/15/10 14,965 40,368 10.00% 7/15/10 46,008 19,208 10.00% 10/15/10 21,892 149,025 10.00% 11/15/10 169,847 32,247 10.00% 1/15/11 36,879 36,503 10.00% 3/20/16 40,967 20,677 10.00% 11/15/17 23,334 19,421 10.00% 10/15/18 21,936 35,081 10.00% 2/15/19 39,654 49,626 10.00% 2/20/19 55,847 60,905 10.00% 3/20/19 68,540 25,868 10.00% 5/15/19 29,240 52,610 10.00% 5/20/19 59,205 369,593 10.00% 10/15/19 427,920 68,378 10.00% 11/15/19 77,291 9,541 10.00% 7/15/20 10,792 34,169 10.00% 12/15/20 38,648 128,334 10.00% 6/15/21 145,235 75,312 10.00% 10/15/30 85,456 876 10.25% 5/15/04 892 1,478 10.25% 8/15/04 1,504 39,869 10.25% 7/15/05 41,547 60,793 10.25% 5/15/09 68,262 36,823 10.25% 11/15/11 41,679 48,837 10.25% 1/15/12 55,446 11,985 10.25% 2/15/12 13,607 69,853 10.25% 2/15/12 79,305 21,012 10.25% 7/15/12 23,856 47,062 10.50% 6/15/09 53,009 20 --------------------------------------------------------------------------[LOGO] Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 19,577 10.50% 7/15/10 22,156 11,155 10.50% 9/15/15 12,647 14,509 10.50% 11/15/15 16,449 5,576 10.50% 3/15/16 6,330 26,328 10.50% 12/15/16 29,890 32,058 10.50% 8/20/17 36,265 58,408 10.50% 11/15/18 66,446 97,279 10.50% 6/15/19 110,746 496,625 10.50% 2/15/20 564,673 280,257 10.50% 8/15/21 322,997 10,227 10.75% 9/15/05 10,690 25,876 10.75% 8/15/06 28,077 11,253 10.75% 1/15/10 12,764 1,983 10.75% 7/15/11 2,258 15,295 10.75% 8/15/11 17,414 98,548 11.00% 1/15/10 110,920 99,276 11.00% 1/15/10 111,740 85,445 11.00% 1/15/10 96,172 87,723 11.00% 3/15/10 98,743 14,381 11.00% 6/15/10 16,186 79,156 11.00% 9/15/10 89,100 15,697 11.25% 9/15/05 16,456 20,709 11.25% 10/15/05 21,711 87,835 11.25% 6/15/10 100,684 66,479 11.25% 9/15/10 76,204 7,296 11.25% 9/15/10 8,363 9,462 11.25% 2/15/11 10,899 13,429 11.25% 2/15/11 15,469 22,887 11.25% 3/15/11 26,363 47,538 11.25% 3/15/11 54,758 85,090 11.25% 4/15/11 98,014 35,051 11.25% 5/15/11 40,375 34,356 11.25% 7/15/11 39,574 9,056 11.25% 7/15/11 10,432 40,899 11.25% 7/15/11 47,112 59,117 11.25% 9/15/11 68,096 25,446 11.25% 10/15/11 29,311 8,828 11.25% 11/15/11 10,169 1,012 11.75% 6/15/04 1,034 521 11.75% 6/15/04 533 ------------ 46,936,556 ------------ Total mortgage pass-through securities 193,425,045 (cost: $189,736,640) ------------ QUANTITY NAME OF ISSUER MARKET VALUE($)(1) -------------------------------------------------------------------------------- TAXABLE MUNICIPAL SECURITIES (0.9%)(2) 249,000 Bernalillo Multifamily Rev. Series 1998A, 7.50%, 9/20/20 277,515 1,145,000 Boone County Hsg. Series 1999B, 6.95%, 12/20/16 1,283,499 13,000 California Comm. Dev. Auth. Rev. Series 2000, 7.50%, 5/20/04 13,098 80,000 Cuyahoga County Multifamily Rev. Series 2000B, 7.00%, 1/20/08 90,181 60,000 Dakota Multifamily Rev. Series 1999A, 6.50%, 12/20/05 62,098 160,000 Louisiana Comm. Dev. Auth Rev. Series 2002B, 5.25%, 12/20/07 167,541 460,000 Maplewood Multifamily Rev. Series 1998B, 6.75%, 7/20/15 504,206 30,000 Metro Govt. (TN) Series 2001 - A2, 7.00%, 6/20/04 30,274 186,000 Nortex Multifamily Rev. Series 1999T, 6.50%, 3/20/06 195,544 -------------- Total taxable municipal securities 2,623,956 (cost: $2,515,537) -------------- U.S. TREASURY/FEDERAL AGENCY SECURITIES (5.9%)(2) Federal Home Loan Bank: 5,000,000 2.50%, 6/30/09 4,989,995 2,170,000 5.62%, 8/6/18 2,192,455 31,300,000 U.S. Treasury Strips, Zero Coupon, 4.80% Effective Yield, 11/15/27 9,223,453 1,000,000 U.S. Treasury Strips, Zero Coupon, 4.88% Effective Yield, 5/15/16 578,249 -------------- Total U.S. Treasury/Federal Agency securities 16,984,152 (cost: $16,286,831) -------------- COLLATERALIZED MORTGAGE OBLIGATIONS (23.0%)(2) FEDERAL HOME LOAN MORTGAGE CORP.: Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 4,144,674 3.25% 4/15/32 4,134,228 1,171,072 4.00% 12/15/32 1,181,927 798,436 5.00% 4/15/18 811,022 790,812 7.50% 6/15/17 856,576 51,194 7.75% 3/18/25 54,817 102,416 9.15% 10/15/20 109,312 See accompanying notes to portfolios of investments on page 60. 21 SIT U.S. GOVERNMENT SECURITIES FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS FEDERAL NATIONAL MORTGAGE ASSOCIATION: Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 4,786,431 3.50% 2/25/33 4,738,965 3,565,042 4.00% 11/25/32 3,635,677 540,275 4.00% 1/25/33 544,790 472,351 5.00% 8/25/22 483,762 47,802 7.00% 1/25/21 50,832 1,338,950 7.00% 1/25/22 1,424,157 129,323 7.37% 1/17/13 133,912 129,041 7.70% 3/25/23 140,487 454,439 8.00% 7/25/22 496,357 279,810 8.20% 4/25/25 315,777 93,356 8.50% 1/25/21 102,501 169,075 8.50% 4/25/21 183,704 860,975 8.50% 9/25/21 946,691 246,403 8.50% 1/25/25 271,894 206,726 8.75% 9/25/20 225,459 423,677 8.95% 10/25/20 470,672 1,189,688 9.00% 7/25/19 1,316,012 995,753 9.00% 12/25/19 1,105,245 292,963 9.00% 5/25/20 321,724 174,824 9.00% 6/25/20 192,862 445,337 9.00% 6/25/20 500,916 56,899 9.00% 7/25/20 63,154 495,172 9.00% 9/25/20 550,399 279,813 9.00% 10/25/20 307,928 559,603 9.00% 3/1/24 633,248 2,699,898 9.00% 11/25/28 2,951,704 405,889 9.25% 1/25/20 452,071 357,702 9.50% 12/25/18 400,265 742,043 9.50% 3/25/20 838,271 184,750 9.50% 4/25/20 202,314 494,428 9.50% 5/25/20 551,976 606,737 9.50% 11/25/20 680,199 853,306 9.60% 3/25/20 956,293 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: Par ($) Coupon Maturity ------- ------ -------- 1,839,060 4.00% 10/17/29 1,854,907 2,000,000 5.00% 5/16/30 2,045,371 2,805,920 6.00% 4/16/28 2,827,181 828,141 7.00% 3/20/30 833,777 VENDEE MORTGAGE TRUST: Par ($) Coupon Maturity ------- ------ -------- 1,000,000 5.00% 8/15/28 1,012,669 1,000,000 5.00% 7/15/30 993,173 188,847 5.63% 2/15/24 195,961 2,000,000 6.00% 4/15/27 2,144,080 Par ($) Coupon Maturity Market Value($)(1) ------- ------ -------- ------------------ 2,000,000 6.00% 2/15/30 2,156,589 250,000 6.50% 10/15/25 267,381 7,281,839 6.50% 12/15/28 7,864,532 5,000,000 7.00% 9/15/27 5,413,688 3,701,923 7.50% 11/15/14 3,828,631 468,818 7.50% 5/15/24 470,414 835,928 8.29% 12/15/26 902,062 ------------ Total collateralized mortgage obligations 66,148,516 (cost: $65,185,936) ------------ QUANTITY($) NAME OF ISSUER MARKET VALUE($)(1) -------------------------------------------------------------------------------- SHORT-TERM SECURITIES (2.5%)(2) 2,500,000 FNMA, 0.99%, 4/1/04 2,500,000 4,797,161 Dreyfus Cash Mgmt. Fund, 0.90% 4,797,161 ------------ Total short-term securities 7,297,161 (cost: $7,297,161) ------------ Total investments in securities (cost: $281,022,105) (7) $286,478,830 ============ 22 See accompanying notes to portfolios of investments on page 60. --------------------------------------------------------------------------[LOGO] This page has been left blank intentionally. 23 SIT TAX-FREE INCOME FUND ONE YEAR ENDED MARCH 31, 2004 -------------------------------------------------------------------------------- MICHAEL C. BRILLEY, SENIOR PORTFOLIO MANAGER DEBRA A. SIT, CFA, SENIOR PORTFOLIO MANAGER The Tax Free Income Fund returned +3.89% for the fiscal year ended March 31, 2004 compared with a return of +4.30% for the Lehman 5-Year Municipal Bond Index (the Index). The Fund's 30-day SEC yield was 4.34% and its 12-month distribution rate was 4.23%. YIELD CURVE REMAINS VERY STABLE Interest rates on March 31, 2004 were only slightly lower across the entire yield curve from their levels twelve months earlier. Reflecting the stability of interest rates, the Fund's net asset value was $9.90 on March 31, 2004, down by -0.4% from the prior fiscal year end. The Fund's overall return was comprised almost entirely of tax-exempt interest income. WEAKNESS IN MULTI-FAMILY OFFSET ELSEWHERE The multifamily sector was the only sector to experience significant market value deterioration, with a price decline of about -3.7%. Substantially offsetting that weakness were market value gains of +0.9% or more from the Fund's investments in single family mortgages, industrial revenue, and other revenue issues. Weakness in the multifamily sector reflected lower occupancy rates, rental concessions, and weak rental pricing primarily caused by the affordability of single family homes. We believe there is some firming in the multifamily market, which should lead to improved performance from this sector over the next few years. FUND MAINTAINS DEFENSIVE STANCE Performance varied substantially between short and longer duration securities. Since the yield curve was very steep and prices were relatively stable, lower yielding shorter duration bonds earned considerably lower returns than higher yielding longer duration bonds over the twelve month period. The Fund's average life duration varied between 3.9 and 4.1 years, which was slightly shorter than the 4.2-year duration of the Index. The Fund's duration is considerably shorter than the average duration of funds in the Lipper General Municipal Funds category and was the primary reason why the Fund's return lagged the average return in its Lipper category. We expect higher interest rates over the coming twelve months, and believe the Fund's shorter duration should enable it to outperform most tax-exempt funds over the next year. 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 primarily in investment-grade municipal securities. Such municipal securities generate interest income that is exempt from both regular federal income tax and federal alternative minimum tax. During normal market conditions, the Fund invests 100% of its net assets in such tax-exempt municipal securities. PORTFOLIO SUMMARY Net Asset Value 3/31/04: $ 9.90 Per Share 3/31/03: $ 9.94 Per Share Total Net Assets: $352.3 Million 30-day SEC Yield: 4.34% Tax Equivalent Yield: 6.68%(1) 12-Month Distribution Rate: 4.23% Average Maturity: 12.9 Years Duration to Estimated Avg. Life: 3.9 Years(2) Implied Duration: 4.0 Years(2) (1) For individuals in the 35.0% federal tax bracket. (2) See next page. PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) Hospital/Health Care Revenue 20.9 Multifamily Mortgage 20.2 Insured 18.7 Other Revenue 12.1 Industrial/Pollution Control 12.0 Sectors less than 5.0% 14.3 Cash & Other Net Assets 1.8 24 --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT LIPPER TAX-FREE LEHMAN GENERAL INCOME 5-YEAR MUNI. MUNI. BOND FUND BOND INDEX FUND AVG. -------- ------------ ---------- 3 Month** 1.70% 1.28% 1.39% 6 Month** 2.70 1.41 n/a 1 Year 3.89 4.30 5.46 5 Year 3.90 5.62 4.70 10 Year 5.68 5.86 5.75 Inception 6.35 6.48 6.75 (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 3.89% 4.30% 5.46% 5 Year 21.07 31.44 25.87 10 Year 73.81 76.73 74.95 Inception 160.06 164.78 175.42 (9/29/88) *AS OF 3/31/04. **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 AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. (2) Duration is a measure which reflects estimated price sensitivity to a given change in interest rates. For example, for an interest rate change of 1%, a portfolio with a duration of 5 years would be expected to experience a price change of 5%. Estimated average life duration is based on current interest rates and the Adviser's assumptions regarding the expected average life of individual securities held in the portfolio. Implied duration is calculated based on historical price changes of securities held by the Fund. The Adviser believes that the portfolio's implied duration is a more accurate estimate of price sensitivity provided interest rates remain within their historical range. If interest rates exceed the historical range, the estimated average life duration may be a more accurate estimate of price sensitivity. GROWTH OF $10,000 [PLOT POINTS GRAPH] The sum of $10,000 invested at inception (9/29/88) and held until 3/31/04 would have grown to $26,006 in the Fund or $26,478 in the Lehman 5-Year Municipal Bond Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% OF TOTAL NET ASSETS) [PIE CHART] Other Assets and Liabilities 1.8% AAA 27.3% AA 5.3% A 28.3% Less Than BBB 5.8% BBB 31.5% LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED. 25 SIT TAX-FREE INCOME FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) MUNICIPAL BONDS (96.4%)(2) ALABAMA (0.8%) 500,000 Birmingham Baptist Med. Ctr. Special Care Facs. Financing Auth. Rev. Series 1993A, (Baptist Med. Ctr. Proj.)(MBIA insured), 5.50%, 8/15/23 506,260 435,000 Cullman Med. Park South Med. Clinic Board Rev. Series 1993A (Cullman Regional Medical Center Proj.), 6.50%, 2/15/13 439,241 Montgomery Med. Clinic Board Hlth. Care Fac. Rev. Series 1991: 495,000 7.00%, 3/1/15 496,168 225,000 7.375%, 3/1/06 225,713 890,000 Oxford Public Park and Rec Board Rev. Series 2001 (ACA insured), 6.00%, 12/1/21 961,627 -------------- 2,629,009 -------------- ALASKA (2.6%) 12,505,000 Alaska HFC Gen. Mtg. Rev. 1997 Series A, Zero Coupon, 6.15% Effective Yield on Purchase Date, 12/1/17 5,798,193 Northern Alaska Tobacco Securitization Corp. Asset-Backed Rev.: 2,375,000 Series 2000, 6.20%, 6/1/22 2,365,785 865,000 Series 2001, 4.75%, 6/1/15 851,186 -------------- 9,015,164 -------------- ARIZONA (0.5%) 410,000 AZ Muni Financing Program C.O.P. Refunding Series 1993-3 (MBIA insured), 5.25%, 8/1/23 419,200 230,000 Bullhead City Special Assessment Impt. Dist. Series 1993 (Bullhead Pkwy. Proj.), 6.10%, 1/1/10 236,049 500,000 Maricopa Co. Industrial Dev. Auth. Educ. Rev. Series 2000A (Arizona Charter Schools Proj. I), 6.50%, 7/1/12 526,990 Pima Co. Industrial Dev. Auth. Educ. Rev.: 145,000 Series 2004I (AZ Charter Schools Proj.), 5.00%, 7/1/12 144,796 250,000 Series 2004A (Noah Webster Basic School Proj.), 5.25%, 12/15/16 245,438 -------------- 1,572,473 -------------- ARKANSAS (0.8%) 74,339 Drew Co. Public Fac. Bd. Single Family Mtg. Rev. Refunding Series 1993-A2 (FNMA backed), 7.90%, 8/1/11 76,789 25,766 Jacksonville Res. Hsg. Fac. Bd. Single Family Mtg. Rev. Refunding Series 1993B, 7.75%, 1/1/11 26,544 1,095,000 Maumelle HDC First Lien Rev. Refunding 1992 Series A (Section 8), 7.875%, 7/1/09 1,101,318 North Little Rock Hlth. Facs. Bd. Health Care Rev. Series 2001 (Baptist Health Proj.): 555,000 5.00%, 7/1/06 590,298 300,000 5.00%, 7/1/07 323,844 490,000 5.00%, 7/1/08 531,660 265,000 Rogers Sales & Use Tax Rev. Series 1996, 5.35%, 11/1/11 265,912 -------------- 2,916,365 -------------- CALIFORNIA (6.3%) 300,000 ABAG Fin. Auth. For Nonprofit Corp. Rev Series 2002 (Redwood Sr. Homes & Svcs. Proj.), 4.10%, 11/15/07 312,684 Baldwin Park Public Fing. Auth. Sales Tax & Tax Alloc. Rev. Refunding Series 2003 (Merced Redev. Proj.): 150,000 1.70%, 8/1/04 150,108 120,000 2.00%, 8/1/05 120,408 1,000,000 Bell Cmty. Hsg. Auth. Rev. Series 1995A (Mobilehomes Park Acquisition Proj.), 6.40%, 10/1/15 1,038,270 5,245,000 CA Co. Tobacco Securitization Agy. Asset-Backed Rev. Series 2002 (Alameda Co.), 4.75%, 6/1/19 5,145,188 950,000 CA Cmnty. College Fin. Auth. Student Hsg. Rev. Series 2003A (Feather River Cmnty. District Proj.), 4.625%, 7/1/13 962,578 495,000 CA Govt. Fin. Auth. Lease Rev. Series 2003A (Placer Co. Transportation Proj.), 6.00%, 12/1/28 491,802
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) CA Public Works Board Lease Rev. Series 1993A (Various CA State Univ. Proj.): 130,000 4.90%, 12/1/04 132,978 300,000 5.25%, 12/1/13(5) 306,843 1,500,000 Chula Vista Redev. Agency Refunding Tax Allocation Senior Series 1994A (Bayfront-Town Center Redev. Proj.), 7.625%, 9/1/24 1,642,005 Glendale Hosp. Rev. Refunding Series 1994 (Verdugo Hills Hosp. Proj.)(Industrial Indemnity insured): 1,340,000 7.75%, 1/1/09 1,313,334 1,585,000 8.00%, 1/1/12 1,512,613 Golden State Tobacco Securitization Corp. Tobacco Settlement Asset-Backed Rev.: 250,000 Series 2003A1, 5.00%, 6/1/21 250,492 500,000 Enhanced Series 2003B, 5.25%, 6/1/16 509,720 165,000 Loma Linda Hosp. Rev. Refunding Series 1993C (Loma Linda Univ. Med. Ctr.)(MBIA insured), 5.375%, 12/1/22 169,158 500,000 Oceanside C.O.P. Refunding Series 1995 (Oceanside Civic Ctr. Proj.)(MBIA insured), 5.25%, 8/1/19 531,350 1,000,000 Rancho Cucamonga Redev. Agy. Tax Allocation Series 1996 (MBIA insured), 5.25%, 9/1/16 1,091,600 Ridgecrest Refunding C.O.P. Series 1999 (Ridgecrest Civic Center Proj.): 275,000 5.55%, 3/1/09 305,990 290,000 5.65%, 3/1/10 321,511 350,000 6.00%, 3/1/14 380,499 1,000,000 Sacramento Pwr. Auth. Rev. Series 1995 (Cogeneration Proj.) (MBIA insured), 6.00%, 7/1/22 1,106,660 2,000,000 Sacramento District Fing. Auth. Rev. Series 2000A, 5.875%, 12/1/27 2,140,560 300,000 San Jose Redev. Agy. Tax Alloc. Series 1993 (Merged Area Redev. Proj.)(MBIA insured), 5.00%, 8/1/20 306,684 Southern CA Tobacco Securitization Auth. Asset-Backed Senior Rev: 1,000,000 Series 2001B, 6.00%, 5/15/22 951,200 885,000 Series 2002A, 5.25%, 6/1/27 877,088 -------------- 22,071,323 -------------- COLORADO (3.2%) 345,000 Boulder Co. Hosp. Rev. Series 2000 (Longmont United Hosp. Proj.) (Radian insured), 5.05%, 12/1/05 352,876 1,910,000 CO E-470 Business Met. Dist. G.O. Series 1999 (ACA insured), 5.00%, 12/1/11 2,037,492 345,000 CO Educ. & Cultural Fac. Rev. Refunding Series 2003C (Cheyenne Mtn. Charter Sch. Proj.), 4.625%, 6/15/12 338,859 1,250,000 CO Hlth. Fac. Auth. Rev. Series 1995 (Covenant Retirement Cmty. Proj.), 6.75%, 12/1/15 1,307,062 CO HFA Single Family Program Senior Series: 275,000 1996B-2, 7.45%, 11/1/27 276,094 175,000 1997B-3, 6.80%, 11/1/28 175,607 2,550,000 CO Hlth. Fac. Auth. Rev. Refunding & Impt. Hosp. Series 1995 (Parkview Proj.), 6.125%, 9/1/25 2,667,682 CO Hlth. Fac. Auth. Rev. (Evangelical Lutheran Proj.): 1,000,000 Series 2000, 6.25%, 12/1/10 1,149,000 1,500,000 Series 2002, 5.90%, 10/1/27 1,562,205 400,000 CO Hlth. Fac. Auth. Rev. Series 2000A (Porter Place Proj.) (GNMA collateralized), 5.10%, 1/20/11 438,716 600,000 Denver Hsg. Corp. Multifamily Rev. Refunding Series 1997A (Section 8), 5.35%, 10/1/12 627,768 200,000 Denver Hlth. & Hosp. Auth. Rev Series 2001A, 5.00%, 12/1/04 203,756 65,000 Thornton Single Family Mtg. Rev. Refunding 1992 Series A, 8.05%, 8/1/09 65,265 -------------- 11,202,382 --------------
See accompanying notes to portfolios of investments on page 60. 27 SIT TAX-FREE INCOME FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) CONNECTICUT (0.9%) 750,000 Bristol Res. Recovery Fac. Operating Committee Solid Waste Rev. Refunding Series 1995 (Ogden Martin Sys. Proj.), 6.50%, 7/1/14 802,455 750,000 CT Airport Rev. Series 1992 (FGIC insured), 7.65%, 10/1/12 771,915 65,000 CT Hlth. & Educ. Fac. Auth. Rev. Series 1993A (Griffin Hosp. Proj.), 6.00%, 7/1/13 66,242 1,850,000 Mashantucket Western Pequot Tribe Subordinated Special Rev. Series 1999B, Zero Coupon, 5.05% Effective Yield on Purchase Date, 9/1/09 1,494,874 -------------- 3,135,486 -------------- DELAWARE (0.3%) 1,000,000 DE Health Facs. Auth. Rev. Series 1994 (Beebe Med. Ctr. Proj.), 6.80%, 6/1/24 1,027,939 -------------- FLORIDA (3.1%) 600,000 Capital Trust Agy. Multifamily Rev. Sr. Series 2003A (Golf Villas, Rivermill, and Village Square Apts. Proj.), 4.75%, 6/1/13 588,174 1,725,000 Collier Co. Health Fac. Auth. Rev. Refunding Series 1994 (Moorings, Inc. Proj.), 7.00%, 12/1/19 1,815,459 670,000 Collier Co. HFA Multifamily Hsg. Rev. Series 2002C (Goodlette Arms Proj.), 5.25%, 8/15/15 716,712 385,000 Dade Co. Hlth. Fac. Auth. Hosp. Rev. Refunding Series 1993A (Baptist Hosp. Miami Proj.) (MBIA insured), 5.25%, 5/15/21 389,774 125,000 Dunes Cmnty. Dev. Dist. Rev. Refunding Series 1993 (Intracoastal Waterway Bridge Proj.), 5.50%, 10/1/07 127,857 1,750,000 Escambia Hlth. Facs. Auth. Rev. Series 2000 (FL Hlth. Care Fac. Loan Pgm.) (Ambac insured), 5.95%, 7/1/20 1,837,745 750,000 FL HFC Hsg. Rev. Hsg. Series 2000D-1 (Augustine Club Apts. Proj.)(MBIA insured), 5.75%, 10/1/30 796,567 1,000,000 Highlands Co. Hlth. Fac. Auth. Rev. Series 2002 (Adventist Health Sys./Sunbelt Proj.), 3.35%, 11/15/32 1,022,130 150,000 Hillsborough Co. Indus. Dev. Auth. Hosp. Rev. Refunding Series 2003A (Tampa General Hosp. Proj.), 2.50%, 10/1/05 151,357 100,000 Jacksonville Elec. Auth Water & Sewer Rev. Series 2000A (MBIA-IBC insured), 5.30%, 10/1/30 106,031 Jacksonville Hlth. Fac. Auth. Industrial Dev. Rev. (Natl. Benevolent Assoc. - Cypress Village Proj.): 1,000,000 Refunding Series 1992, 7.00%, 12/1/14(8)(9) 723,500 450,000 Series 1993, 6.40%, 12/1/16(8)(9) 325,575 545,000 Lee Co. Indus. Dev. Auth. Hlth. Care Fac. Rev. Series 1999A (ShellPoint Village Proj.), 5.50%, 11/15/08: 594,257 200,000 Leesburg Hosp. Rev. Refunding Series 2003A (Leesburg Regl. Med. Ctr. Proj.), 3.00%, 7/1/05 202,926 135,000 Leon Co. Educ. Facs. Auth. Student Hsg. Rev. Series 2003 (Heritage Grove Proj.)(ACA insured), 3.00%, 8/1/05 137,626 385,000 Miami-Dade Co. Special Hsg. Rev. Refunding Series 1998 (Section 8), 5.30%, 10/1/05 383,633 200,000 Palm Beach Co. Hlth. Fac. Auth. Rev. Refunding Series 2003 (Abbey Delray South Proj.), 5.15%, 10/1/12 207,098 South Lake Co. Hosp. Dist. Rev. Series 2003 (South Lake Hosp. Inc.): 420,000 4.25%, 10/1/08 429,967 500,000 5.50%, 10/1/13 523,075 -------------- 11,079,463 -------------- GEORGIA (0.2%) 1,275,000 DeKalb Co. Hsg. Auth. Multifamily Hsg. Rev. (Regency Woods I & II) Subordinate Series 1996C, 7.25%, 1/1/26(8)(9) 255,000 500,000 Private Colleges & Univ. Auth. Rev. Refunding Series 1999A (Mercer Univ. Proj.), 5.25%, 10/1/14 525,500 70,000 Royston Hosp. Auth. Rev. Refunding Series 1999 (Ty Cobb Healthcare Sys., Inc. Proj.), 6.00%, 7/1/04 70,309 -------------- 850,809 -------------- HAWAII (0.3%) 1,165,000 Honolulu Mtg. Rev. Ref. Series 1996A (Hale-Pauahi Proj.)(FHA insured)(MBIA insured), 6.80%, 7/1/28 1,204,528 --------------
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) ILLINOIS (13.4%) Broadview Village of Cook Co. Tax Increment Rev. Series 1999: 750,000 4.90%, 7/1/06 781,545 1,000,000 5.00%, 7/1/07 1,051,930 1,085,000 5.05%, 7/1/08 1,140,530 2,030,000 5.10%, 7/1/09 2,156,408 Chicago Gas Supply Rev. Refunding Series 1995A (People's Gas, Light, & Coke Co. Proj.): 1,500,000 6.10%, 6/1/25 1,591,860 2,500,000 (Ambac insured), 6.10%, 6/1/25 2,671,500 450,000 Chicago Metro Hsg. Dev. Corp. Mtg. Rev. Refunding Series 1992A (FHA insured) (Section 8), 6.85%, 7/1/22 465,525 375,000 Collinsville (City of) Madison Co. Industrial Dev. Rev. Refunding (Drury Inn-Collinsville Proj.) Series 1993, 6.00%, 11/1/04 374,077 250,000 Hoffman Estates Tax Increment Rev. Jr. Lien Series1991, Zero Coupon, 4.15% effective yield, 5/15/07 227,567 450,000 IL DFA Rev. Series 2002A (Chicago Charter School Fdn. Proj.), 5.25%, 12/1/12 457,483 500,000 IL DFA Pollution Ctrl. Rev. Refunding Series 1993B2 (Central IL Public Svc. Co. Proj.) (MBIA insured), 5.90%, 6/1/28 505,485 IL DFA Pollution Ctrl. Rev. Refunding: 485,000 Series 1993C2 (Public Svc. Co. Proj.), 5.70%, 8/15/26 496,077 2,500,000 Series 2000A (American CIPS Proj.), 5.50%, 3/1/14 2,596,350 IL DFA Refunding & New Money Rev. (Cmty. Rehab. Providers Fac. Acquisition Program): 685,000 Series 1997A, 5.60%, 7/1/04 690,706 1,740,000 Series 1997A, 5.80%, 7/1/08 1,856,928 300,000 Series 1997A, 5.90%, 7/1/09 318,261 4,535,000 Series 1997A, 6.00%, 7/1/15 4,678,805 1,200,000 Series 1997C, 5.65%, 7/1/19 1,204,896 580,000 Series 1998A, 5.00%, 7/1/06 602,081 655,000 Series 1998A, 5.50%, 7/1/12 675,449 100,000 Series 1998A, 5.70%, 7/1/19 100,669 1,000,000 IL Educ. Fac. Auth. Rev. Series 1998 (Augustana College Proj.), 5.00%, 10/1/13 1,109,830 2,780,000 IL HDA Elderly Hsg. Rev. Series 1992C (Village Ctr.) (Section 8), 6.85%, 3/1/20 2,812,359 100,000 IL HDA Multifamily Rev. Series 1994-5 (Section 8), 6.75%, 9/1/23 103,280 IL Hlth. Fac. Auth. Rev.: 1,560,000 Refunding Series 1992 (Galesburg Cottage Hosp. Proj.)(Radian insured), 6.25%, 5/1/11 1,565,710 545,000 Refunding Series 1993 (Lutheran Social Svcs. IL), 6.10%, 8/15/04 550,325 750,000 Refunding Series 1993 (OSF Healthcare System), 5.75%, 11/15/07 766,935 1,405,000 Refunding Series 1993 (OSF Healthcare System), 6.00%, 11/15/23 1,433,114 1,250,000 Refunding Series 1994 (Passavant Memorial Area Hospital Assn.), 5.95%, 10/1/11 1,409,287 207,000 Refunding Series 1994 (Friendship Village of Schaumberg Proj.), 6.25%, 12/1/04 207,468 2,575,000 Refunding Series 1993A (Edward Hosp. Proj.), 6.00%, 2/15/19 2,635,667 250,000 Refunding Series 1996A (Advocate Hlth. Proj.)(MBIA insured), 5.80%, 8/15/16 277,728 400,000 Refunding Series 1999 (Silver Cross Hosp. Proj.), 5.25%, 8/15/15 424,360 970,000 Refunding Series 2001 (Decatur Memorial Hospital Proj.), 4.625%, 10/1/08 1,043,381 500,000 Series 2000 (IA Health System Proj.), 6.75%, 2/15/13 573,030 200,000 IL Sales Tax Rev. Series 1994U, 5.00%, 6/15/10 205,414 250,000 Melrose Park Tax Increment G.O. Series 1999A (FSA insured), 5.25%, 12/15/15 275,473 750,000 Onterie Ctr. Hsg. Fin. Corp. Mtg. Rev. Refunding Series 1992 (Onterie Ctr. Proj.) (MBIA - FHA insured), 7.05%, 7/1/27 775,313
See accompanying notes to portfolios of investments on page 60. 29 SIT TAX-FREE INCOME FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) 1,850,000 Roselle Multifamily Hsg. Rev. Refunding Series 1994A (GNMA collateralized) (Waterbury Apts.) (FHA insured), 7.00%, 1/1/25 1,911,809 3,550,000 Southwestern IL Dev. Auth. Local Govt. Prog. Rev. Series 1998-A (City of East St. Louis Tax Increment Financing Proj.), 6.00%, 4/1/10 3,500,939 495,000 Upper Illinois River Valley Dev. Auth. Rev. Series 2001 (Morris Hosp. Proj.), 6.05%, 12/1/11 549,806 500,000 Will Co. Student Hsg. Rev. Series 2002A (Joliet Junior College Proj.), 6.375%, 9/1/13 437,020 -------------- 47,212,380 -------------- INDIANA (6.8%) 1,975,000 IN Bond Bank Special Prgm. Series 1997C (Pittsboro Wastewater Treatment Plant Proj.), 5.70%, 8/1/17 2,094,804 2,175,000 IN DFA Educ. Fac. Rev. Series 1997 (Park Tudor Fdn. Proj.), 6.00%, 6/1/22 2,429,388 IN Hlth. Fac. Fin. Auth. Hosp. Rev.: 375,000 Series 1993 (Riverview Hosp. Proj.), 6.875%, 8/1/17 381,109 250,000 Series 1993 (Community Hosp. of Anderson Proj.), 6.00%, 1/1/23 253,135 Refunding Series 1998 (Floyd Memorial Hosp. & Hlth. Svcs. Proj.): 505,000 4.85%, 2/15/06 531,260 600,000 5.25%, 2/15/18 622,026 Series 2001A (Community Foundation Northwest IN): 780,000 5.50%, 8/1/05 800,366 1,100,000 5.50%, 8/1/06 1,142,317 1,000,000 6.00%, 8/1/07 1,057,610 1,000,000 6.00%, 8/1/08 1,067,550 1,120,000 5.50%, 8/1/13 1,141,493 500,000 IN HFA Single Family Mtg. Rev. Refunding Series 1992A, 6.80%, 1/1/17 502,735 IN Hlth. Fac. Fin. Auth. Rev. Refunding Series 1998: (Greenwood Village South Proj.): 140,000 5.15%, 5/15/04 140,175 150,000 5.25%, 5/15/06 150,089 170,000 5.35%, 5/15/08 170,047 1,875,000 (Marquette Manor Proj.), 5.00%, 8/15/18 1,861,612 1,000,000 IN Transportation Fin. Auth. Airport Facs. Lease Rev. Series 1992A, 6.25%, 11/1/16 1,013,519 2,545,000 Indianapolis Econ. Dev. Refunding & Imprv. Rev. Series 1992 (Natl. Benevolent Assn.-Robin Run Village Proj.), 7.25%, 10/1/10(8)(9) 1,841,307 400,000 Lawrenceburg Indus. Pollution Ctl. Rev. Refunding Series 1993E (Ind.-Mich. Pwr. Co. Proj.), 5.90%, 11/1/19 407,144 500,000 Petersburg Pollution Ctrl. Rev. Refunding Series 1993A (Indianapolis Pwr. & Light Proj.) (MBIA insured), 6.10%, 1/1/16 506,860 Sullivan Industrial Pollution Ctrl. Rev.: 615,000 Refunding Series 1991 (Hoosier Energy Corp. Proj.) (MBIA insured), 7.10%, 4/1/19 637,386 5,000,000 Refunding Series 1993C (Ind. Mich. Pwr. Co. Proj.), 5.95%, 5/1/09 5,108,500 -------------- 23,860,432 -------------- IOWA (1.2%) 1,305,000 IA Fin. Auth. Hlth. Care Fac. Rev. Series 1997 (Natl. Benevolent Assn.- Ramsey Home Proj), 6.15%, 5/1/17 (8) (9) 944,167 1,130,000 IA Fin. Auth. Multifamily Hsg. Rev. Refunding Series 1997A (Kingswood Apts. Proj.) (GNMA-collateralized), 6.15%, 5/1/32 1,193,574 IA Fin. Auth Single Family Rev. Series 2000D (GNMA/FNMA Mtg. Backed Securities Proj.): 185,000 5.65%, 7/1/07 198,248 220,000 5.75%, 7/1/09 234,588 1,345,000 Ottumwa Hosp. Rev. Refunding Series 1993 (Ottumwa Regional Hlth. Ctr.), 6.00%, 10/1/10 1,373,433 250,000 IA Tobacco Settlement Auth. Asset-Backed Rev. Series 2001B, 5.30%, 6/1/25 216,513 -------------- 4,160,523 --------------
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) KANSAS (1.1%) 3,750,000 Burlington Co. Pollution Ctrl. Rev. Refunding Series 1991 (KS Gas & Electric Co. Proj.) (MBIA insured), 7.00%, 6/1/31 3,947,999 200,000 Olathe & Labette Cos. Mtg. Loan Rev. 1991 Series B (GNMA collateralized) Zero Coupon, 7.56% Effective Yield on Purchase Date, 2/1/23 52,762 -------------- 4,000,761 -------------- KENTUCKY (0.1%) 500,000 Boone Co. Pollution Ctrl. Rev. Refunding Series 1992A (Dayton Pwr. & Light Co. Proj.), 6.50%, 11/15/22 509,850 -------------- LOUISIANA (1.5%) East Baton Rouge Single Family Mtg. Rev. Refunding: 1,415,000 Series 1997C-3 Subordinate Bonds, 5.65%, 10/1/18 1,486,203 7,200,000 Capital Appreciation Series 2000D1 (GNMA & FNMA collateralized) Zero Coupon, 6.46% Effective Yield on Purchase Date, 4/1/34 1,096,632 650,000 LA HFA Multifamily Mtg. Rev. Series 2003A (Section 8-202 Proj)(FSA insured), 4.40%, 6/1/33 672,380 500,000 LA PFA Multifamily Mtg. Rev. Refunding Series 1994A (Carlyle Apt. Proj.) (Axa Reinsurance Co. insured), 5.95%, 6/15/19 500,940 500,000 Monroe Sales Tax Increment Rev. Refunding Series 2003 (Garrett Rd. Dev. Area Proj.), 4.40%, 3/1/16 499,525 280,000 New Orleans HDC First Lien Rev. Refunding Series 1996A (Tivoli Place Apts. Proj.) (Section 8), 6.40%, 12/1/04 280,692 400,000 Orleans Levee Dist. Rev. Series 1995A (Tr. Rcpts.) (FSA insured), 5.95%, 11/1/14 440,152 515,000 Tobacco Settlement Financing Corp. Asset-Backed Rev. Series 2001B, 5.50%, 5/15/30 467,383 --------------- 5,443,907 --------------- MAINE (0.6%) 1,000,000 Skowhegan Pollution Ctrl. Rev. Refunding Series 1993 (Scott Paper Co. Proj.), 5.90%, 11/1/13 1,023,650 1,000,000 South Berwick Educ. Rev. Series 1998 (Berwick Academy Issue), 5.25%, 8/1/13 1,031,830 -------------- 2,055,480 -------------- MARYLAND (0.1%) 500,000 MD Hlth. & Higher Educ. Fac. Auth. Rev. Refunding Series 2003A (Adventist Healthcare Proj.), 5.00%, 1/1/12 519,485 -------------- MASSACHUSETTS (1.0%) MA Hlth. & Educ. Fac. Auth. Rev.: 200,000 Series 1993B (Lahey Clinic Med. Ctr. Proj.), 5.40%, 7/1/06 204,604 175,000 Series 1994B (Holyoke Hosp. Proj.), 6.25%, 7/1/04 175,772 250,000 Series 1996C (North Adams Regional Hosp. Proj.), 6.25%, 7/1/04 250,850 Series 1998B (Cape Cod Healthcare Obligated Group Issue): 320,000 5.00%, 11/15/05 331,610 520,000 5.00%, 11/15/06 546,692 430,000 5.00%, 11/15/07 455,624 175,000 5.125%, 11/15/08 186,410 500,000 Series 2001E (Berkshire Health Sys.), 4.50%, 10/1/05 511,695 10,000 MA HFA Hsg. Projs. Rev. Series 1993A, 6.375%, 4/1/21 10,113 400,000 MA Indus. Fin. Agy. Pollution Ctrl. Rev. Refunding Series 1993 (Eastern Edison Co. Proj.), 5.875%, 8/1/08 409,372 225,000 MA Indus. Fin. Agy. Resource Recovery Rev. Refunding Series 1992A (Ogden Haverhill Associates Proj.), 4.95%, 12/1/06 227,054 270,000 MA Indus. Fin. Agy. First Mtg. Rev. Series 1994A (Berkshire Retirement Proj.), 6.375%, 7/1/05 275,786 -------------- 3,585,582 --------------
See accompanying notes to portfolios of investments on page 60. 31 SIT TAX-FREE INCOME FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) MICHIGAN (2.9%) 520,000 Central Wayne Co. Sanitation Auth. Incinerator Rev. Series 2003VII, 4.375%, 7/1/06 526,978 395,000 John Tolfree Hlth. System, Mtg. Rev. & Refunding Series 1999, 5.30%, 9/15/05 402,248 760,000 MI Hosp. Fin. Auth. Rev. Refunding Series 1993A (McLaren Oblig. Group), 5.25%, 10/15/07 776,849 MI Strategic Fund Ltd. Obligation Rev. Refunding: 1,250,000 Series 2003A (Dow Chemical Proj.)(Mandatory Put 6/1/06), 3.80%, 6/1/14 1,291,788 2,500,000 Series 2003 (Dow Chemical Proj.)(Mandatory Put 6/1/08), 4.60%, 6/1/14 2,695,125 2,095,000 Southfield Econ. Dev. Corp. Ltd. Obligation Rev. Series 1998A (Lawrence Tech. Univ. Proj.), 5.25%, 2/1/13 2,175,322 1,873,912 Suburban Mobility Auth. Regl. Transportation C.O.P. Series 2002, 4.90%, 2/15/09(5) 1,899,098 Summit Academy North Public School C.O.P. Series 2001: 130,000 5.60%, 7/1/05 134,550 135,000 5.70%, 7/1/06 142,324 145,000 5.95%, 7/1/07 154,776 -------------- 10,199,058 -------------- MINNESOTA (2.1%) 3,410,000 Dakota Co. HRA Multifamily Mtg. Rev. Refunding Series 1997A (Park Place Apts. Proj.)(GNMA Collateralized), 6.875%, 2/20/32 3,713,831 740,000 Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.) (Section 8), 6.375%, 4/1/20 780,678 500,000 Minneapolis & St. Paul HRA Hlth. Care Sys. Rev. Series 2003(Healthpartners Oblig. Grp. Proj.), 4.00%, 12/1/05 515,450 2,315,000 Plymouth Multifamily Hsg. Dev. Rev. Refunding Series 1996A (GNMA collateralized) (Fox Forest Apts. Proj.), 8.05%, 6/20/31 2,500,061 -------------- 7,510,020 -------------- MISSISSIPPI (0.2%) 350,000 MS Home Corp. Residual Rev. Capital Appreciation Series 1992I Zero Coupon, Escrowed to Maturity, 2.82% Yield on Purchase Date, 9/15/16 146,853 235,000 MS Hosp. Equip. & Fac. Auth. Rev. Refunding Series 2003 (SW Miss. Regl. Med. Proj.), 2.30%, 4/1/04 235,000 400,000 Lincoln Co. Hosp. Rev. Refunding Series 1998A (Kings Daughter Hosp. Proj.), 5.20%, 4/1/08 427,768 -------------- 809,621 -------------- MISSOURI (2.4%) 1,000,000 Cameron Industrial Dev. Auth. Rev. Refunding Series 2000 (Cameron Cmnty. Hosp. Proj.) (ACA Insured), 5.80%, 12/1/09 1,106,660 300,000 Cass Co. Industrial Dev. Auth. Rev. Refunding Series 1992 (Natl. Benevolent Proj.), 7.375%, 10/1/22(8)(9) 217,050 645,000 Chesterfield Rev. Refunding & Impt. Series 2002 (Chesterfield Vy. Projs.), 4.50%, 4/15/16 659,467 MO Dev. Finance Board Infrastructure Fac. Rev.: Series 2000A (Eastland Ctr. Proj. Phase 1): 1,275,000 5.75%, 4/1/09 1,390,171 550,000 5.75%, 4/1/12 596,470 1,000,000 Series 2000B (Eastland Ctr. Proj. Phase 2), 6.00%, 4/1/15 1,078,090 1,230,000 MO Hlth. & Educ. Fac. Auth. Educ. Fac. Rev. Series 1999 (Park College Proj.), 5.55%, 6/1/09 1,279,950 150,000 MO Environmental Impt. & Energy Res. Auth. Water Fac. Rev. Refunding Series 1999 (Tri-Co. Water Auth Proj.) (Radian Asset Assurance), 5.50%, 4/1/07 164,387 990,000 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 1,020,928 10,000 St. Louis Co. Single Family Res. Mtg. Series 1984 (MBIA insured), 6.75%, 4/1/10 10,131 St. Louis Industrial Dev. Auth. Tax-Exempt Impt. Rev. Series 1998 (St. Louis Zoo 1,000,000 Fdn.) (LOC Nationsbank), 5.10%, 8/15/12 1,058,400 -------------- 8,581,704 --------------
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) MONTANA (0.4%) 1,000,000 Crow Finance Auth. Tribal Purpose Revenue Series 1997A, 5.70%, 10/1/27 1,018,920 Forsyth Pollution Ctrl. Rev. Refunding Series 1993 (Montana Power Co. Proj.) 130,000 (Ambac insured), 5.90%, 12/1/23 133,009 85,000 (MBIA insured), 6.125%, 5/1/23 86,998 -------------- 1,238,927 -------------- NEVADA (2.5%) 2,500,000 Clark Co. Industrial Dev. Rev. Refunding Series 1992C (Nevada Power Co.)(Ambac insured), 7.20%, 10/1/22 2,600,225 2,750,000 Clark Co. Pollution Ctrl. Rev. Refunding Series 1992B (Nevada Pwr. Co. Proj.)(FGIC insured), 6.60%, 6/1/19 2,846,800 NV Hsg. Dev. SF Mtg. Program: 215,000 Sr. Series 1995A-1, 6.45%, 10/1/18 215,000 675,000 Mezzanine Series 1998B-1, 5.30%, 4/1/16 714,859 400,000 6.00%, 6/1/08 414,804 1,000,000 6.125%, 6/1/12 1,020,340 1,000,000 Washoe Co. Gas & Water Fac. Rev. Refunding Series 1987 (AMBAC insured), 6.30%, 12/1/14 1,028,300 -------------- 8,840,328 -------------- NEW HAMPSHIRE (2.4%) 300,000 Manchester Hsg. & Redev. Auth. Cap. Appreciation Rev. Series 2000 (Radian insured), zero coupon, 5.25% effective yield, 1/1/19 136,512 275,000 NH Hlth. & Educ. Fac. Auth. Rev. Series 2004A (So. NH Med. Ctr. Proj.), 3.00%, 10/1/04 277,156 NH Higher Educ. & Hlth. Fac. Auth. Rev.: 1,020,000 Series 1993 (Nashua Memorial Hosp. Proj.), 6.00%, 10/1/23 1,044,235 750,000 Series 1993 (Nashua Memorial Hosp. Proj.), 5.80%, 10/1/04 767,700 750,000 Series 1993 (Nashua Memorial Hosp. Proj.), 6.25%, 10/1/08 767,963 1,575,000 Series 1993 (Frisbie Memorial Hosp. Proj.), 6.125%, 10/1/13 1,611,729 690,000 Series 1997 (Catholic Charities Issue), 5.75%, 8/1/12 722,685 5,080,000 NH HFA Single Family Res. Mtg. 1982 Series A Zero Coupon, 11.75% Effective Yield on Purchase Date, 1/1/14 2,316,124 625,000 NH Higher Educ. & Hlth. Fac. Auth. Rev. Series 1998 (New Hampton School), 5.00%, 10/1/08 665,544 -------------- 8,309,648 -------------- NEW JERSEY (1.2%) 1,155,000 NJ Econ. Dev. Auth Dist. Heating & Cooling Rev. Series 1993A (Trenton Proj.), 6.20%, 12/1/10 1,180,549 1,460,000 NJ Hsg. & Mtg. Finance Agy. Multifamily Hsg. Rev. Series 1995A (AMBAC insured), 6.00%, 11/1/14 1,517,933 NJ Tobacco Settlement Financing Corp. Asset-Backed Rev. Series 2003: 1,170,000 4.375%, 6/1/19 1,151,959 500,000 6.125%, 6/1/24 491,715 -------------- 4,342,156 -------------- NEW MEXICO (0.8%) 1,720,000 NM MFA Forward Mortgage-Backed Series 1995E (GNMA collateralized), 6.95%, 1/1/26 1,775,384 NM Hsg. Auth. Region III Multifamily Hsg. Rev. Series 2003A (Villa Del Oso Apts. Proj.): 65,000 2.55%, 7/1/04 64,976 500,000 6.00%, 7/1/17 500,730 500,000 NM Hosp. Equip. Rev. Series 2003 (St. Vincent's Hosp.), 3.00%, 7/1/04 502,070 -------------- 2,843,160 --------------
See accompanying notes to portfolios of investments on page 60. 33 SIT TAX-FREE INCOME FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) NEW YORK (1.2%) 170,000 Monroe Co. Industrial Dev. Agy. Student Hsg. Rev. Series 1999A (Collegiate Hsg. Fdn. - Rochester Institute of Technology Proj.), 4.90%, 4/1/09 174,009 200,000 NY Dorm Auth. Rev. Series 1992A (Upstate Cmnty. Colleges)(Connie Lee insured), 5.75%, 7/1/22 202,356 125,000 NY Dorm Auth. Rev. Series 2002 (FHA insured), 4.00%, 2/1/12 126,756 400,000 NY Urban Dev. Corp. Rev. Series 1996 (Pine Barrens Proj.), 5.375%, 4/1/17 420,156 NY Tobacco Settlement Fing. Corp Asset-Backed Rev.: 325,000 Series 2003A-1, 5.00%, 6/1/09 326,827 160,000 Series 2003C-1, 5.00%, 6/1/11 168,242 500,000 Series 2003A-1, 5.00%, 6/1/11 525,755 2,100,000 Series 2003C-1, 5.50%, 6/1/10 2,194,479 -------------- 4,138,580 -------------- NORTH CAROLINA (0.1%) 200,000 Currituck Co. G.O. Series 1995 (MBIA insured), 5.40%, 4/1/14 211,820 250,000 NC Hlth. Care Fac. First Mtg. Rev. Refunding Series 2004B (Deerfield Episcopal Retirement Cmty. Proj.), 3.80%, 11/1/24 249,583 -------------- 461,403 -------------- NORTH DAKOTA (0.2%) Mercer Co. Pollution Ctl. Rev. Refunding: 500,000 Series 1992 (Montana-Dakota Utils. Co. Proj.) (FGIC insured), 6.65%, 6/1/22 504,200 200,000 Series 1995 (Basin Elec. Pwr. Proj.)(Ambac insured), 6.05%, 1/1/19 210,648 -------------- 714,848 -------------- OHIO (2.6%) 2,780,000 Akron C.O.P. Series 1996 (Akron Baseball Stadium Proj.), 6.90%, 12/1/16 (5) 3,033,314 1,445,000 Bellefontaine Hosp. Rev. Refunding Series 1993 (Mary Rutan Hlth. Assoc.), 6.00%, 12/1/13 1,477,903 295,000 Cleveland-Cuyahoga Port. Auth. Dev. Rev. Series 1999A (Port of Cleveland Bond Fund Capital Imprv. Proj.), 5.375%, 5/15/19 291,705 450,000 Dayton Airport Rev. Refunding Series 1995 (Cox-Dayton Intl. Proj.)(Ambac insured), 5.25%, 12/1/15 477,306 1,000,000 Lucas Co. Hlth. Care Fac. Rev. Series 2002 (Franciscan Care Ctr. Proj.)(LOC Bank One), 4.10%, 3/1/27 1,021,290 600,000 Mahoning Co. Hlth. Care Fac. Rev. Refunding Series 2002 (Copeland Oaks Proj.)(Mandatory Put 3/31/05) (LOC Sky Bank), 4.00%, 4/1/22 610,146 1,250,000 OH Air Quality Dev. Auth. Rev. Series 1985A (Columbus Southern Pwr. Co. Proj.), 6.375%, 12/1/20 1,267,275 950,000 OH Water Dev. Auth. Rev. Refunding Series 1992A (Dayton Pwr. & Light Co. Proj.), 6.40%, 8/15/27 956,394 -------------- 9,135,333 -------------- OKLAHOMA (1.6%) 250,000 Comanche Co. Hosp. Auth. Rev. Series 1993A (Connie Lee insured), 5.375%, 7/1/23 250,585 785,000 Muskogee Co. HFA Single Family Mtg. Rev. Refunding 1990 Series A (FGIC insured) Zero Coupon, 7.65% Effective Yield on Purchase Date, 6/1/11 468,928 OK Dev. Fin. Auth. Hosp. Rev. Series 2003A (Duncan Regl. Hosp. Proj.): 250,000 2.50%, 12/1/04 252,578 670,000 4.00%, 12/1/05 694,844 800,000 4.00%, 12/1/06 835,952 200,000 5.00%, 10/1/05 208,264 1,500,000 Shawnee Hosp. Auth. Rev. Refunding Rev. Series 1993 (MidAmerica HealthCare Inc. Proj.), 6.125%, 10/1/14 1,530,000 1,320,000 Tulsa Industrial Auth. Educ. Fac. Rev. Refunding Series 1999B (Holland Hall School Proj.), 5.00%, 12/1/14 1,388,891 -------------- 5,630,042 --------------
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) OREGON (1.4%) 3,705,000 Cow Creek Band Umpqua Tribe of Indians Rev. Series 1998B (Ambac insured), 5.10%, 7/1/12 3,826,228 200,000 Klamath Falls Intercmnty. Hosp. Auth. Rev. Refunding Series 2002 (Merle West Med. Ctr. Proj.), 5.20%, 9/1/09 216,054 775,000 OR Hsg. & Cmty. Svcs. Dept. Mtg. Rev. Series 2000K, 5.70%, 7/1/22 813,355 25,000 OR G.O. Refunding Series 1992B, 6.375%, 8/1/24 25,347 -------------- 4,880,984 -------------- PENNSYLVANIA (5.7%) Allegheny Co. Hosp. Dev. Auth. Rev. Series 2003A (Ohio Valley Gen. Hosp. Proj.): 200,000 2.50%, 4/1/05 201,004 245,000 3.30%, 4/1/08 247,134 135,000 3.875%, 4/1/10 136,790 250,000 Allegheny Co. Redev. Auth. Tax Alloc. Rev. Series 2000B (Waterfront Proj.), 5.75%, 12/15/05 259,852 Beaver Co. Industrial Dev. Auth. Pollution Ctrl. Rev.: 455,000 Series 1977 (St. Joe Minerals Corp. Proj.), 6.00%, 5/1/07 464,373 1,150,000 Refunding Series 1995A (Toledo Edison Proj.), 7.75%, 5/1/20 1,267,334 730,000 Berks Co. Muni Auth. College Rev. Series 2004 (Albright College Proj.), 2.50%, 10/1/04 732,570 325,000 Bucks Co. Redev. Auth. Mtg. Rev. Refunding Series 1992A (Warminster Hts. Proj.) (FHA insured)(Section 8), 6.875%, 8/1/23 336,862 565,000 Chartiers Valley Industrial & Commercial Dev. Auth. Rev. Refuning Series 2003A (Friendship Village South Proj.), 4.75%, 8/15/11 564,972 235,000 Columbia Co. Hosp. Auth. Hlth. Care Rev. Series 1999 (Bloomsburg Hosp. Oblig. Grp. Proj.), 5.00%, 6/1/04 235,059 500,000 Delaware Co. Auth. Hosp. Rev. Series 1993 (Crozer-Chester Proj.), 6.00%, 12/15/20 505,345 150,000 Erie Higher Educ. Bldg. Auth. College Rev. Series 1993B (Mercyhurst College Proj.), 5.75%, 3/15/13 152,835 2,750,000 Grove City Area Hosp. Auth. Rev. Series 1998 (United Cmnty. Hosp. Proj.), 5.25%, 7/1/12 2,793,697 Horizon Hosp. System Auth. Hosp. Rev. Series 1996 (Horizon Hosp. Sys.): 715,000 6.15%, 5/15/08 772,422 710,000 6.25%, 5/15/09 764,507 1,145,000 6.30%, 5/15/11 1,232,764 175,000 Jenks Township G.O. Series 2004A (Radian insured), 2.00%, 7/1/05 176,468 500,000 Lehigh Co. General Purpose Auth. Rev. Refunding Series 1996B (Cedar Crest College), 6.65%, 4/1/17 530,580 500,000 McKean Co. Hosp. Auth. Rev. Refunding Series 1994 (Bradford Hosp. Proj.) (ACA insured), 6.00%, 10/1/13 514,625 1,750,000 Montgomery Co. Industrial Dev. Auth. Retirement Cmnty. Rev. Series 1996B (ACTS Retirement Life Cmntys. Proj.), 5.75%, 11/15/17 1,817,340 PA Hgr. Educ. Fac. Auth. Hlth. Svcs. Rev. Series 1996A (Allegheny Delaware Valley Obligated Group, Inc.)(MBIA insured): 150,000 5.500%, 11/15/08 164,270 3,890,000 5.875%, 11/15/16 4,267,369 590,000 PA Hgr. Educ. Fac. Auth. Rev. Series 2000 (Univ. of the Arts Proj.)(Radian insured), 5.75%, 3/15/30 624,604 270,000 PA Hgr. Educ. Fac. Auth. Rev. Series 2002 (Geneva College Proj.), 4.25%, 4/1/05 275,090 1,050,000 Pittsburgh G.O. Series 1995B (FGIC insured), 5.00%, 3/1/08 1,099,497 -------------- 20,137,363 -------------- RHODE ISLAND (0.8%) 1,100,000 RI Hsg. & Mtg. Fin. Corp. Rental Hsg. Program Rev. Series 1993A (Section 8), 5.65%, 10/1/08 1,112,947 260,000 RI Hlth. & Educ. Bldg. Corp. Rev. Series 1997 (Steere House Proj.), 5.375%, 7/1/07 265,944 1,500,000 RI Tobacco Settlement Financing Corp. Asset-Backed Rev. Series 2002A, 6.00%, 6/1/23 1,430,940 -------------- 2,809,831 --------------
See accompanying notes to portfolios of investments on page 60. 35 SIT TAX-FREE INCOME FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) SOUTH CAROLINA (0.2%) 600,000 Darlington Co. Annual Tender Pollution Ctl. Rev. Series 1983, (Carolina Pwr. & Light Co. Proj.), 6.60%, 11/1/10 617,322 -------------- SOUTH DAKOTA (0.9%) Deadwood C.O.P. Series 2003 (ACA insured): 170,000 3.00%, 11/1/04 171,494 250,000 3.00%, 11/1/05 254,750 2,250,000 SD Hlth. & Educ. Fac. Auth. Rev Series 2001C (Sioux Valley Hosp. & Health Sys. Proj.) (LOC US Bank) (Mandatory Put 11/1/06), 4.85%, 11/1/19 2,380,185 400,000 SD Hlth. & Educ. Fac. Auth. Rev. Series 1994 (Huron Regional Med. Ctr. Proj.), 7.25%, 4/1/20 409,328 -------------- 3,215,757 -------------- TENNESSEE (2.3%) Shelby Co. Hlth., Educ. & Hsg. Fac. Board Multifamily Hsg. Rev.: (CME Memphis Apts. Proj.): 1,850,000 Senior Series 1998A, 5.35%, 1/1/19(8)(9) 7,875,000 Senior Series 1998A, 5.55%, 1/1/29(8)(9) 1,630,000 Subordinate Series 1998C, 6.00%, 1/1/29(8)(9) 934,250 3,976,875 28,525 (Eastwood Park Apts. Proj.): 15,000 Series 1995A, 6.00%, 9/1/05(8)(9) 10,500 1,000,000 Senior Series 1995 A2, 6.40%, 9/1/25(8)(9) 700,000 405,000 Subordinate Series 1995C, 7.50%, 9/1/25(8)(9) 162,000 (Raleigh Forest & Sherwood Apts. Proj.): 2,670,000 Senior Series 1996A, 6.60%, 1/1/26(8)(9) 2,276,175 610,000 Subordinate Series 1996C, 7.25%, 1/1/26(8)(9) 122,000 --------------- 8,210,325 --------------- TEXAS (11.8%) Austin Convention Enterprises, Inc. (Convention Ctr.) Revenue: 750,000 Series 2001A (Convention Center), 6.375%, 1/1/16 798,765 850,000 Series 2001B (ZC Specialty Ins. Co.), 5.75%, 1/1/16 913,240 250,000 Series 2001B (ZC Specialty Ins. Co.), 6.00%, 1/1/23 264,150 500,000 Austin Utilities System Rev. Series 1994 (FGIC insured), 5.75%, 5/15/24 511,335 Bell Co. Hlth. Fac. Dev. Corp. Retirement Fac. Rev. Series 1998 (Buckner 1,000,000 Retirement Services, Inc. Obligated Group, Proj.), 5.00%, 11/15/11 1,057,740 Beaumont HA Multifamily Mtg. Rev. Series 1993A (Section 8): 500,000 6.65%, 11/1/07 487,425 590,000 6.75%, 11/1/10 559,674 995,000 Bexar Co. Rev. Series 2000 (Venue Proj.)(MBIA insured), 5.75%, 8/15/22 1,066,869 Bexar Co. HFC Multifamily Hsg. Rev.: 580,000 Subordinated Series 2000C (Honey Creek Apts. Proj.), 8.00%, 4/1/30 578,492 180,000 Subordinated Series 2001B (American Oppty. Hsg. Dublin Kingswood & Waterford Apts. Proj.), 7.50%, 12/1/14 182,563 250,000 Bluebonnet Trails Cmty. Mental Hlth. & Mental Retardation Rev. Series 2001, 5.50%, 12/1/09 269,265 650,000 Brazos River Hbr. Nav. Dist Rev. Series 2002B-2 (Dow Chemical Co. Proj.), 4.75%, 5/15/33 696,481 Dallas Hsg. Corp. Capital Program Revenue Bonds: 965,000 Series 1995A (Estell Village Apts.) (Section 8), 7.875%, 12/1/09 977,381 945,000 Series 1995 (Cedar Glen Apts.) (Section 8), 7.75%, 12/1/09 968,152 6,343,000 Dallas HFC Multifamily Mtg. Rev. Series 1998A (GNMA collateralized) (Towne Ctr. Apts. Proj.), 6.75%, 10/20/32 7,000,071 1,250,000 Matagorda Co. Nav. Dist. No. 1 Rev. Refunding Series 2001A (Central Pwr. & Light Co.) (Mandatory Put 11/1/06), 4.55%, 11/1/29 1,301,113
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) Midland HFC Single Family Mtg. Rev. Refunding: 125,926 Series 1992 A-2, 8.45%, 12/1/11 133,039 26,290 Series 1992 B2, 8.15%, 12/1/11 27,330 Mesquite Hlth. Fac. Dev. Corp. Retirement Fac. Rev. (Christian Care Ctr. Proj.): 1,000,000 Series 1996A, 6.30%, 2/15/12 1,018,970 880,000 Series 2000A, 7.00%, 2/15/10 939,726 7,272,000 Nortex Hsg. Fin. Corp. Multifamily Hsg. Rev. Series 1999 (GNMA collateralized) (Highland Oaks Apts. Proj.), 6.75%, 9/20/32 7,925,462 266,760 Odessa HFC Single Family Mtg. Rev. Refunding Series 1992B Class B-2, 8.125%, 11/1/11 267,851 725,000 Richardson Hosp. Auth. Rev. Series 1993 (Richardson Med Ctr.), 6.75%, 12/1/23 740,153 700,000 Rio Grande Valley Hlth. Fac. Dev. Corp. Hosp. Rev. Series 1992A (Valley Baptist Med. Ctr. Proj.) (MBIA insured), 6.375%, 8/1/22 709,688 1,000,000 Rio Grande Valley Hlth. Fac. Dev. Corp. Retirement Fac. Rev. Series 1992B (Golden Palms Retirement & Hlth. Ctr. Proj.)(MBIA insured), 6.40%, 8/1/12 1,013,810 Tarrant Co. Hlth. Fac. Dev. Corp. Hosp. Rev. Series 2000 (Adventist Hlth. Sys. Proj.): 490,000 5.75%, 11/15/04 504,568 515,000 5.80%, 11/15/05 549,567 Tarrant Co. HFC Multifamily Hsg. Rev: 530,000 Senior Series 2001A (Westridge Apts. Proj.), 5.50%, 6/1/11 493,075 490,000 Subordinate Series 2001C (Crossroads Apt. Proj.), 7.25%, 12/1/36 423,086 TX Affordable Hsg. Corp. Multifamily Hsg. Rev: 1,170,000 Senior Series 2001A (NHT / GTEX Proj.)(MBIA insured), 4.10%, 10/1/08 1,244,131 785,000 Junior Series 2001B (NHT / GTEX Proj.), 6.75%, 10/1/16 518,100 TX Dept. Hsg. & Cmnty. Affairs Multifamily Hsg. Rev.: 850,000 Senior Series 1996A (Harbors & Plumtree Apts. Proj.), 6.35%, 7/1/16 890,010 3,610,000 Senior Series 1996A (Harbors & Plumtree Apts. Proj.), 6.45%, 7/1/26 3,747,974 880,000 Subordinate Series 1996C (Harbors & Plumtree Apts. Proj.), 7.375%, 7/1/26 862,444 900,000 TX Public Property Fin. Corp. Mental Hlth. & Mental Retardation Rev. Series 1996, 6.20%, 9/1/16 947,700 805,000 Weslaco Hlth. Fac. Rev. Series 1994B (Knapp Med. Ctr. Proj.), 5.375%, 6/1/23 824,827 -------------- 41,414,227 -------------- UTAH (1.4%) 725,000 Eagle Mountain Water & Sewer Rev. Refunding Series 2000 (ACA insured), 5.60%, 11/15/13 795,180 Ogden Neighborhood Dev. Agency Tax Increment Rev: 3,265,000 Series 1990A (25th Street Proj.) (LOC Sumitomo Bank), Zero Coupon, 5.55% Effective Yield on Purchase Date, 12/30/05 3,097,146 120,000 Series 1990B (Wash. Blvd Proj.)(LOC Sumitomo Bank), Zero Coupon, 4.255% Effective Yield on Purchase Date, 12/30/05 113,831 Salt Lake Co. College Rev. Series 1999 (Westminister College Proj.): 120,000 5.15%, 10/1/11 126,916 125,000 5.20%, 10/1/12 131,104 130,000 5.25%, 10/1/13 135,889 405,000 UT Hsg. Finance Agy. Multifamily Refunding Rev. Series 1996A (Section 8) (FHA insured), 6.10%, 7/1/22 426,218 -------------- 4,826,284 --------------
See accompanying notes to portfolios of investments on page 60. 37 SIT TAX-FREE INCOME FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) VERMONT (0.3%) VT Educ. & Hlth. Bldgs. Financing Agency Rev.: 420,000 Series 1998 (Norwich Univ. Proj.), 5.13%, 7/1/09 450,509 235,000 Series 2002A (Developmental & Mental Hlth. Proj.), 4.375%, 6/15/07 236,988 400,000 Series 2003A (Vermont Law School Proj.), 5.00%, 1/1/13 410,520 -------------- 1,098,017 -------------- VIRGINIA (1.4%) 300,000 Alexandria Industrial Dev. Auth. Rev. Pollution Control Refunding Series 1994 (Potomac Electric Proj.) (MBIA insured), 5.375%, 2/15/24 306,786 Arlington Co. Indus. Dev. Auth. Multifamily Rev. Refunding Series 1998A (Woodbury 480,000 Parks Apts. Proj.) 5.45%, 1/1/29 490,243 250,000 Chesterfield Co. Industrial Dev. Auth. Pollution Ctrl. Rev. Series 1987A Rmktg. (VA Elec. & Power Co. Proj.), 5.875%, 6/1/17 273,172 2,000,000 Norfolk Industrial Dev. Auth. Hosp. Rev. Refunding Series 1994A (Sentara Hosp. Proj.), 6.50%, 11/1/13 2,093,400 Prince William Co. Indus. Dev. Auth. Educ. Fac. Rev. Series 2003 (Catholic Diocese Arlington): 1,000,000 4.375%, 10/1/13 1,027,560 100,000 5.00%, 10/1/18 102,882 500,000 VA Hsg. Dev. Auth. Commonwealth Mtg. Series 2000B-B5, 5.45%, 7/1/15 542,240 -------------- 4,836,283 -------------- WASHINGTON (0.3%) 200,000 Energy Northwest Wind Proj. Rev. Series 2001B, 4.55%, 7/1/06 208,686 Skagit Co. Public Hosp. Rev Refunding Series 2003: 350,000 3.50%, 12/1/04 353,119 350,000 3.75%, 12/1/05 356,216 -------------- 918,021 -------------- WEST VIRGINIA (1.0%) 3,200,000 Pleasants Co. Pollution Ctrl. Rev. Series 1995C (Monongahela Pwr. Co.), 6.15%, 5/1/15 3,422,368 -------------- WISCONSIN (3.3%) 100,000 WI Hsg. & Econ. Dev. Auth. Home Ownership Rev. Series 1997A, 6.00%, 3/1/17 106,149 1,000,000 WI HEDA Hsg. Rev. Series 1993C (MBIA insured)(Section 8), 5.80%, 11/1/13 1,021,430 520,000 WI Hlth. & Educ. Fac. Auth. Rev. Series 1999 (FH Hlth. Care Dev. Inc Proj.), 5.625%, 11/15/09 557,060 WI Hlth. & Educ. Fac. Auth. Rev.: 2,000,000 Series 1993 (Medical College of WI Inc. Proj.), 5.95%, 12/1/15 2,047,000 490,000 Series 1996 (Meriter Hosp., Inc. Proj.), 6.00%, 12/1/06 513,427 750,000 Refunding Series 1997B, (United Hlth. Grp., Inc. Proj.), 5.50%, 12/15/20 810,698 Series 1999 (Kenosha Hosp. & Med. Ctr., Inc. Proj.): 670,000 5.00%, 5/15/06 708,833 705,000 5.10%, 5/15/07 759,377 740,000 5.15%, 5/15/08 805,549 820,000 5.35%, 5/15/10 900,319 865,000 5.45%, 5/15/11 942,686 500,000 Series 1999B (Aurora Hlth. Care Proj)(ACA insured), 5.625%, 2/15/29 515,445 Series 2001 (Agnesian Healthcare, Inc. Proj.): 110,000 5.00%, 7/1/04 111,077 125,000 5.00%, 7/1/05 129,983 150,000 5.00%, 7/1/06 159,438
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) 100,000 5.00%, 7/1/07 107,948 550,000 6.00%, 7/1/17 598,736 340,000 6.00%, 7/1/21 364,058 575,000 Series 2003A (Franciscan Sisters of Christian Charity HealthCare Ministry, Inc. Proj.), 3.00%, 9/1/06 584,079 -------------- 11,743,292 -------------- WYOMING (0.2%) 500,000 Sweetwater Co. Pollution Ctrl. Rev. Refunding Series 1996A (Idaho Pwr. Co. Proj.), 6.05%, 7/15/26 532,670 -------------- Total municipal bonds (cost: $341,500,497) 339,470,913 -------------- CLOSED-END MUTUAL FUNDS (1.8%)(2) 46,900 Blackrock CA Insured Municipal Term Trust 2008 805,742 280,000 Blackrock Insured Municipal Term Trust 2008 4,866,400 56,700 Blackrock Insured Municipal Term Trust 2010 658,287 -------------- Total closed-end mutual funds (cost: $5,627,562) 6,330,429 -------------- SHORT-TERM SECURITIES (1.0%)(2) 3,676,299 Dreyfus Tax-Exempt Cash Management Fund, 0.85% 3,676,299 10,000 Northern Institutional Tax-Exempt, 0.71% 10,000 -------------- Total short-term securities (cost: $3,686,299) 3,686,299 -------------- Total investments in securities (cost: $350,814,358)(7) $349,487,641 ==============
See accompanying notes to portfolios of investments on page 60. 39 SIT MINNESOTA TAX-FREE INCOME FUND ONE YEAR ENDED MARCH 31, 2004 -------------------------------------------------------------------------------- SENIOR PORTFOLIO MANAGERS MICHAEL C. BRILLEY o DEBRA A. SIT, CFA o PAUL J. JUNGQUIST, CFA The Minnesota Tax Free Income Fund returned +4.99% for the fiscal year ended March 31, 2004 and compared with a return of +4.30% for the Lehman 5-Year Municipal Bond Index (the Index). The Fund's 30-day SEC yield was 4.54% and its 12-month distribution rate was 4.48%. TOTAL RETURN ALMOST ENTIRELY INCOME Interest rates on March 31, 2004 were only slightly lower across the entire yield curve from their levels twelve months earlier. Reflecting the stability of interest rates, the Fund's net asset value was $10.26 on March 31, 2004, up by +0.4% from the prior fiscal year end. While the Fund's overall return was composed almost entirely of tax-exempt interest income, four market sectors experienced market value deterioration of -1% to -2% including general obligation bonds, single family mortgages, municipal leases, and public facility revenue issues. Offsetting that market weakness, the Fund's investments in education, hospitals, and escrowed issues saw price appreciation of +1% to +2%. MAINTAINING A DEFENSIVE POSTURE Performance varied substantially between short and longer duration securities. Since the yield curve was very steep and prices were relatively stable, lower yielding shorter duration bonds earned considerably lower returns than higher yielding longer duration bonds over the twelve month period. The Fund's average life duration varied between 4.7 and 4.9 years, which was somewhat longer than the 4.2-year duration of the Index and was a positive factor for the Fund's return in comparison to that index. The Fund's duration is shorter than most other Minnesota tax-exempt funds and was the primary reason for its somewhat lower return compared to other Minnesota funds over the last twelve months. WE BELIEVE HIGHER RATES ARE NEAR We expect higher interest rates over the coming twelve months, and believe the Fund's shorter duration should enable it to outperform most other Minnesota tax-exempt funds over the next year. 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. During normal market conditions, the Fund invests 100% of its net assets in municipal securities that generate interest income that is exempt from regular federal 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 3/31/04: $ 10.26 Per Share 3/31/03: $ 10.22 Per Share Total Net Assets: $217.8 Million 30-day SEC Yield: 4.54% Tax Equivalent Yield: 7.58%(1) 12-Month Distribution Rate: 4.48% Average Maturity: 13.5 Years Duration to Estimated Avg. Life: 4.7 Years(2) Implied Duration: 4.6 Years(2) (1) For individuals in the 35.0% federal tax and 7.85% MN tax brackets. (2) See next page. PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) Multifamily MortgageRevenue 33.6 Hospital/Health Care Revenue 19.1 Industrial/Polution Control 9.1 Other Revenue Bonds 8.5 General Obligations 6.5 Sectors less than 6.0% 20.6 Cash & Other Net Assets 2.6 40 -------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT LEHMAN LIPPER MN TAX-FREE 5-YEAR MUNI. MN MUNI. BOND INCOME FUND BOND INDEX FUND AVG. ----------- ------------ ------------- 3 Month** 1.56% 1.28% 1.51% 6 Month** 3.02 1.41 n/a 1 Year 4.99 4.30 5.32 5 Years 4.42 5.62 4.74 10 Years 5.77 5.86 5.68 Inception 5.49 5.52 5.17 (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 4.99% 4.30% 5.32% 5 Years 24.12 31.44 26.07 10 Years 75.19 76.73 73.80 Inception 73.79 74.26 68.42 (12/1/93) *AS OF 3/31/04. **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 AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. (2) Duration is a measure which reflects estimated price sensitivity to a given change in interest rates. For example, for an interest rate change of 1%, a portfolio with a duration of 5 years would be expected to experience a price change of 5%. Estimated average life duration is based on current interest rates and the Adviser's assumptions regarding the expected average life of individual securities held in the portfolio. Implied duration is calculated based on historical price changes of securities held by the Fund. The Adviser believes that the portfolio's implied duration is a more accurate estimate of price sensitivity provided interest rates remain within their historical range. If interest rates exceed the historical range, the estimated average life duration may be a more accurate estimate of price sensitivity. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (12/1/93) and held until 3/31/04 would have grown to $17,379 in the Fund or $17,426 in the Lehman 5-Year Municipal Bond Index assuming reinvestment of all dividends and capital gains QUALITY RATINGS (% OF TOTAL NET ASSETS) Other Assets and Liabilities 2.6% AAA 12.0% AA 11.7% A 19.5% BBB 14.3% Less Than BBB 2.4% Not Rated 37.5% LOWER OF MOODY'S, S&P, FITCH OR DUFF & PHELPS RATINGS USED. ASSESSMENT OF NON-RATED SECURITIES AAA 5.0% AA 0.7 A 6.3 BBB 17.0 BB 8.5 Less than BB 0.0 ---- Total 37.5% 41 SIT MINNESOTA TAX-FREE INCOME FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) MUNICIPAL BONDS (97.4%) (2) EDUCATION/STUDENT LOAN (4.5%) Minnesota Higher Educ. Fac. Auth. Rev. : 425,000 Series 1996-4F1 (Augsburg College), 6.25%, 5/1/23 445,103 750,000 Series 1997-4L (St. John's University), 5.35%, 10/1/17 778,845 750,000 Series 1998-4T (College of St. Benedict), 5.35%, 3/1/20 762,255 458,000 Lease Rev. Series 1999-5A (Concordia University), 5.25%, 4/25/14 462,978 700,000 Series 1999-4Y (Augsburg College), 5.05%, 10/1/13 734,454 100,000 Series 1999-4Z (Northwestern Hlth. Services University), 4.875%, 10/1/09 104,151 275,000 Series 1999-4Z (Northwestern Hlth. Services University), 5.20%, 10/1/13 280,794 100,000 Series 2000-5D (College Art & Design), 5.75%, 5/1/08 109,939 110,000 Refunding Series 2001-5J (St. Scholastica), 4.625%, 12/1/05 115,014 500,000 Rev. Series 1993-3Q (St. Mary's Univ.), 6.10%, 10/1/16 505,000 25,000 Rev. Series 1993-3Q (St. Mary's Univ.), 6.15%, 10/1/23 25,250 50,000 Rev. Series 1996-4A1 (University of St. Thomas), 5.625%, 10/1/21 51,639 50,000 Rev. Series 1994-3W (College of St. Benedict), 5.90%, 3/1/05 50,172 420,000 Series 2002-5N1 (St. Catherine), 3.00%, 10/1/04 423,104 Rev. Series 2004-5U (St. Mary's Univ.): 200,000 2.00%, 10/1/04 200,626 200,000 2.00%, 10/1/05 201,596 270,000 3.75%, 10/1/13 265,294 650,000 4.80%, 10/1/23 642,057 310,000 Northfield Lease Rev. Series 1999A (Village School Proj.), 7.50%, 12/1/24 271,873 550,000 Ramsey Lease Rev. Series 2004A (Pact Charter School Proj.), 5.65%, 12/1/13 547,124 St. Paul Hsg. & Redev. Auth. Lease Rev.: 830,000 Series 2001A (Cmty. of Peace Academy Proj.), 6.375%, 12/1/11 869,574 750,000 Series 2001A (Cmty. of Peace Academy Proj.), 7.00%, 12/1/15 805,028 350,000 Series 2001A (Cmty. of Peace Academy Proj.), 7.375%, 12/1/19 379,796 415,000 Series 2002A (New Spirit Charter School Proj.), 6.50%, 12/1/12 409,829 100,000 Victoria Private School Fac. Rev. Series 1999A (Holy Family Catholic H.S. Proj.), 5.20%, 9/1/11 101,076 165,000 Winona Port. Auth. Lease Rev. Series 1999A (Bluffview Montessori School Proj.), 8.00%, 12/1/24 175,440 -------------- 9,718,011 -------------- ESCROWED TO MATURITY/PREREFUNDED (0.9%) 500,000 Hutchison Hsg. Fac. Rev. Series 1994 (Prince of Peace Proj.), 7.375%, 10/1/12 515,280 790,000 Puerto Rico Childrens Trust Fund Tobacco Settlement Rev. Series 2000, 5.75%, 7/1/20 880,834 200,000 Red Wing Hlth. Care Ctr. Fac. Rev. Refunding Series 1993B (River Region Oblig. Group), 6.20%, 9/1/05 213,640 325,000 Sandstone Econ. Dev. Auth. Hsg. & Dev. Rev. Series 1994A (Family Apts. Proj.), 8.00%, 1/1/12 348,166 -------------- 1,957,920 -------------- GENERAL OBLIGATION (6.5%) 1,500,000 Appleton Temporary Hlths. Facs. G.O. Series 2003, 1.40%, 6/15/04 1,500,015 150,000 Brainerd ISD No. 181 G.O. Series 1995A, 5.50%, 2/1/15 155,209 530,000 Carver Co. Hsg. & Redev. Auth. Hsg. & Dev. Gross Rev. Ltd.Tax G.O. (Chanhassen Apts. Proj.), 7.00%, 1/1/25 559,049 100,000 Hopkins Redev. Refunding G.O. Series 1993C, 4.60%, 2/1/09 100,169 120,000 Jackson Co. G.O. Series 2001, 3.25%, 12/1/04 121,660 100,000 Luverne ISD No. 2184 G.O. Series 1997, 5.45%, 2/1/14 103,432 50,000 Minneapolis Refunding G.O. Series 1993A, 5.10%, 12/1/08 52,879
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) MN G.O.: 1,925,000 Refunding Series 2003, 2.00%, 8/1/05 1,947,754 2,000,000 Series 1995, 5.50%, 8/1/09 2,102,980 6,200,000 Series 1995, 5.70%, 8/1/11 6,535,544 1,000,000 St. Paul ISD No. 625 G.O. Series 1997A, 5.125%, 2/1/15 1,025,470 -------------- 14,204,161 -------------- HOSPITAL/HEALTH CARE (19.1%) Aitkin Hlth. Care Fac. Rev. Series 2001 (Riverwood Hlth. Care Ctr. Proj.): 250,000 6.00%, 2/1/06 253,987 250,000 6.25%, 2/1/07 255,687 Alexandria Hlth. Care Fac. Rev. Series 2002B (BSM Property - Bethany Home Proj.): 375,000 4.65%, 7/1/06 375,551 375,000 4.95%, 7/1/07 375,517 Bemidji Hosp. Fac. Rev. Refunding Series 1996 (North Country Hlth. Proj.): 60,000 4.90%, 9/1/04 60,964 1,000,000 5.625%, 9/1/21 1,049,760 150,000 Breckenridge Hlth. Facs. Rev. Series 1993 (Catholic Hlth. Corp.), 5.25%, 11/15/08 153,291 Brooklyn Center Hlth. Care Fac. Rev. Series 1993 (Maranatha Proj.): 50,000 6.75%, 12/1/05 50,173 500,000 7.50%, 12/1/10 501,700 200,000 7.60%, 12/1/18 200,648 375,000 Cambridge Hsg. & Hlth. Care Fac. Rev. Series 1998C (Grandview West Proj.), 5.25%, 10/1/08 365,490 1,290,000 Cokato Sr. Hsg. Rev. Series 1996 (Cokato Charitable Trust Proj.), 7.00%, 12/1/19 1,243,586 1,090,000 Columbia Heights Multifamily & Health Care Fac. Rev. Series 1998 (Crest View Corp. Proj.), 5.75%, 9/1/11 1,072,538 Crookston Nursing Home & Multifamily Hsg. Rev Series 2002A (Villa St. Vincent Proj.): 100,000 4.75%, 9/1/08 99,917 75,000 5.50%, 9/1/11 76,551 1,000,000 Cuyuna Range Hosp. Dist. Hlth. Fac. Gross Rev. Series 1999A, 6.00%, 6/1/19 980,420 2,810,000 Duluth Econ. Dev. Auth. Hlth. Care Fac. Rev. Series 2002 (St. Luke's Hosp. Proj.), 6.00%, 6/15/12 2,921,641 1,000,000 Elk River Rev. Series 1998 (Care Choice Member Proj.), 5.60%, 8/1/13 948,370 800,000 Fergus Falls Hlth. Care Fac. Auth. Rev. Series 1995 (Lake Region Hosp. Corp.), 6.40%, 12/1/15 841,080 Hastings Hlth. Care Fac. Rev. Series 1998 (Augustana Home of Hastings Proj.): 115,000 5.10%, 11/1/09 110,830 120,000 5.20%, 11/1/10 115,024 135,000 5.40%, 11/1/12 128,145 140,000 5.50%, 11/1/13 132,314 505,000 Hopkins Hlth. Care Fac. Rev. Series 1999 (Augustana Chapel View Homes, Inc. Proj.), 6.00%, 3/1/14 502,364 1,685,000 Maplewood Hlth. Care Fac. Rev. (Volunteers of America Care Ctrs. Proj.), 7.375%, 10/1/12 1,699,272 Marshall Medical Center Gross Rev. (Weiner Memorial Medical Center Proj.): 305,000 Series 1999, 5.65%, 11/1/13 315,516 320,000 Series 1999, 5.70%, 11/1/14 329,242 430,000 Series 2003B, 2.00%, 11/1/04 432,374 150,000 Series 2003B, 4.85%, 11/1/11 161,701 Minneapolis & St. Paul Hsg. & Redev. Auth. Hlth. Care Sys. Rev. Series 2003 (Healthpartners Proj.): 500,000 4.00%, 12/1/05 515,450 750,000 5.25%, 12/1/12 802,897 700,000 5.25%, 12/1/13 746,627
See accompanying notes to portfolios of investments on page 60. 43 SIT MINNESOTA TAX-FREE INCOME FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) 1,150,000 5.00%, 12/1/14 1,188,306 500,000 5.875%, 12/1/29 518,805 100,000 Minneapolis Hsg. & Hlth. Care Facs. Rev. Series 1997 (Augustana Chapel View Homes Proj.), 6.75%, 6/1/27 98,720 1,313,786 Minneapolis CDA Promissory Note (Augustana Chapel View Proj.), 4.25%, 5/23/09 1,300,517 1,045,000 Minneapolis Hlth. Care Fac. Rev. Series 1993 (St. Olaf Res. Proj.), 7.00%,10/1/18 876,389 1,000,000 Minneapolis Hlth. Care Fac. Rev. Series 1998A (Benchmark Hlth. Care Proj.), 6.625%, 12/1/28(8)(9) 608,450 1,055,000 Minneapolis Hlth. Care Fac. Rev. Series 1999 (Shelter Care Foundation Proj.), 6.00%, 4/1/10 1,041,971 Minneapolis Hlth. Care Fac. Rev. Series 2004A (Augustana Chapel View Homes Proj.): 115,000 3.00%, 1/1/05 115,217 270,000 3.50%, 1/1/06 270,354 280,000 4.00%, 1/1/07 280,566 315,000 5.20%, 1/1/11 316,399 500,000 5.75%, 1/1/19 502,165 500,000 5.80%, 1/1/24 498,785 MN Agr. & Econ. Dev. Board Hlth. Care Rev.: Series 1999 (Benedictine Care Centers Proj.): 115,000 5.45%, 2/1/09 118,697 120,000 5.45%, 8/1/09 123,983 120,000 5.50%, 2/1/10 123,974 125,000 5.50%, 8/1/10 129,033 MN Agr. & Econ. Dev. Board Rev. Series 2000 (Evangelical Lutheran Good Samaritan Society Proj.): 410,000 5.80%, 8/1/08 454,456 750,000 6.55%, 8/1/16 837,413 MN Agr. & Econ. Dev. Board Rev. Series 2002 (Evangelical Lutheran Good Samaritan Society Proj.): 230,000 4.35%, 2/1/05 234,432 220,000 5.50%, 2/1/12 240,398 MN Agr. & Econ. Dev. Board Rev. Series 2000A (Fairview Hlth. Care Sys. Proj.): 500,000 5.625%. 11/15/04 514,255 645,000 5.625%. 11/15/05 685,571 590,000 5.70%, 11/15/06 645,006 90,000 6.375%, 11/15/22 100,018 New Hope Hlth. Care Facs. Rev. (St. Therese Home, Inc. Proj.): 45,000 Series 2003B, 3.00%, 10/1/06 45,487 300,000 Series 2003A, 5.90%, 10/1/23 309,324 Northfield Hospital Rev. Series 2001C: 1,080,000 6.00%, 11/1/13 1,199,016 1,600,000 6.00%, 11/1/26 1,693,664 650,000 Olmsted Co. Hlth. Care Fac. Rev. Series 1998 (Olmsted Medical Ctr. Proj.), 5.45%, 7/1/13 679,120 240,000 Pine Island Hlth. Care Facs. Rev. Series 2001 (Olmsted Med. Ctr. Proj.), 5.00%, 7/1/10 252,230 Plymouth Hlth. Facs. Rev. Series 2003 (Mission Farm Nursing Home Proj.): 100,000 3.25%, 8/1/04 100,355 100,000 3.25%, 8/1/05 100,494 Rochester Hlth. Care & Hsg. Rev. Series 2003A (Samaritan Bethany Inc. Proj.): 160,000 3.25%, 8/1/06 161,840 500,000 6.25%, 8/1/19 518,440
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) St. Paul Hsg. & Redev. Auth. Hlth. Care Rev. Series 1998 (Regions Hosp. Proj.): 800,000 5.00%, 5/15/08 862,672 250,000 5.00%, 5/15/10 267,098 1,340,000 5.20%, 5/15/13 1,405,647 2,000,000 5.25%, 5/15/18 2,047,620 960,000 St. Paul Hsg. & Redev. Auth. Nursing Home Dev. Rev. Refunding Series 1996C (Franciscan Hlth. Cmmty. Proj., St. Mary's Home), 7.00%, 7/1/21 933,677 400,000 St. Paul Hsg. & Redev. Auth. Hlth. Care Rev. Series 2001A (Model Cities Hlth. Ctr. Proj.), 6.50%, 11/1/11 410,108 820,000 Wadena Co. Hlth. Care Fac. Rev. Series 1994B, 7.45%, 9/1/15 831,808 150,000 White Bear Lake First Mtg. Rev. Series 2004 (Healtheast Care Ctr. Proj.), 2.75%, 11/1/06(10) 150,438 -------------- 41,611,545 -------------- INDUSTRIAL/POLLUTION CONTROL (9.1%) 140,000 Anoka Co. Res. Recovery Rev. Refunding Series 1999 (Northern States Power Co.), 4.35%, 12/1/04 141,949 2,635,000 Anoka Co. Solid Waste Disp. Rev. Series 1987A (Natl. Rural Util. Proj.), 6.95%, 12/1/08(4) 2,655,658 735,000 Bass Brook Pollution Ctrl. Rev. Refunding Series 1992 (MN Power & Light Co. Proj.), 6.00%, 7/1/22 750,141 1,610,000 Burnsville Solid Waste Rev. Refunding Series 2003A (Freeway Transfer Inc. Proj.), 4.15%, 4/1/10(4) 1,609,147 830,000 East Grand Forks Industrial Dev. Rev. Refunding Series 2001B (Am. Crystal Sugar Proj.), 5.40%, 4/1/11 903,928 325,000 Guam Economic Dev. Auth. Tobacco Settlement Asset-Backed Series 2001A, 5.00%, 5/15/22 325,484 1,000,000 Guam Econ. Dev. Auth. Tobacco Settlement Asset-Backed Rev. Series 2001B, Zero Coupon, 5.20% Effective Yield on Purchase Date, 5/15/15 801,420 1,500,000 Hugo Industial Dev. Rev. Refunding Series 2002 (MN Union Builders Proj.), 7.75%, 3/1/17(4) 1,325,550 MN Agricultural & Econ. Dev. Board Small Business Dev. Loan Program Rev.: 150,000 Series 2002A Lot 1, 3.15%, 8/1/04(4) 150,647 155,000 Series 2002A Lot 1, 3.65%, 8/1/05(4) 158,005 210,000 Medina Industrial Dev. Rev. Refunding Series 1998 (Temroc Metals, Inc. Proj.), 5.10%, 10/1/05(4) 217,999 Owatonna Industrial Dev. Rev. Series 1997: 280,000 7.25%, 5/1/14(4) 235,822 505,000 7.375%, 5/1/17(4) 424,523 20,000 7.375%, 5/1/20(4) 16,788 10,000 7.50%, 5/1/24 8,383 525,000 Puerto Rico Indus. Tourist, Educ., Medical and Environmental Control Facs. Financing Auth. Industrial Rev. Series 1998A (Guaynabo Warehouse for Emergencies Proj.), 4.35%, 7/1/06 552,237 Puerto Rico Childrens Trust Fund Tobacco Settlement Rev. : 300,000 Series 2002, 4.00%, 5/15/10 295,983 2,730,000 Series 2002, 5.375%, 5/15/33 2,688,340 200,000 Richfield Cmty. Dev. Rev. Refunding 1994 (Richfield Shoppes Proj.), 8.375%, 10/1/05 204,000 Sauk Centre Industrial Dev. Rev. Series 1998 (Seluemed LLP Proj.)(LOC First Trust): 75,000 4.95%, 4/1/10(4) 76,292 275,000 5.75%, 4/1/18(4) 275,369 Seaway Port Auth. (Duluth) Industrial Dev. Dock & Wharf Rev. Refunding: 1,500,000 Series 1992B (Cargill, Inc. Proj.), 6.80%, 5/1/12 1,543,350 1,400,000 Series 1993A (Cargill, Inc. Proj.), 5.75%, 12/1/16 1,429,932 St. Paul Hsg. & Redev. Auth. District Cooling Rev. Series 1998J: 95,000 5.125%, 3/1/12 101,086 500,000 5.35%, 3/1/18 522,955 Virgin Islands Tobacco Settlement Financing Corp. Asset-Backed Rev. Series 2001: 750,000 Zero Coupon, 4.95% Effective Yield on Purchase Date, 5/15/14 596,798 1,805,000 5.00%, 5/15/21 1,715,201 -------------- 19,726,987 --------------
See accompanying notes to portfolios of investments on page 60. 45 SIT MINNESOTA TAX-FREE INCOME FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) INSURED (5.2%) 50,000 Bemidji ISD No. 031 G.O. Series 1998 (FSA insured), 5.00%, 4/1/19 53,043 Dakota Co. Hsg. Dev. G.O. Series 1995 (Ambac insured): 95,000 5.10%, 1/1/11 97,551 235,000 5.125%, 1/1/17 240,558 50,000 East Bethel G.O. Refunding Series 1998 (MBIA insured), 4.30%, 2/1/05 50,514 Hastings Hlth. Care Fac. Rev. Series 1998 (Regina Med. Ctr.)(ACA insured): 565,000 5.25%, 9/15/18 582,153 200,000 5.30%, 9/15/28 204,188 Minneapolis & St. Paul Hsg. & Redev. Auth. Hlth. Care Sys. Rev. Series 1993A (Healthspan Proj.)(Ambac insured): 70,000 5.00%, 11/15/13 71,591 110,000 4.75%, 11/15/18 111,244 1,650,000 Minneapolis & St. Paul Metro Airport Comm. Airport Rev. Series 1998B (Ambac insured), 5.25%, 1/1/13(4) 1,788,220 250,000 New Ulm ISD No. 088 G.O. Series 1996 (FSA insured), 5.50%, 2/1/15 258,683 200,000 Puerto Rico Indus. Tourist Educ. Med. & Environmental Ctl. Facs. Rev. Series 1995A (Hosp. Auxilio Oblig. Group Proj.), 6.25%, 7/1/16 211,070 300,000 Scott Co. Hsg. & Redev. Auth. Ltd. Special Benefits Tax Series 1997B (River City Centre Proj.), (Ambac insured), 5.45%, 2/1/20 325,950 45,000 St. Cloud Multifamily Rev. Refunding Series 1993B (St. Cloud Hosp. Proj.), 5.40%, 10/1/23 46,008 2,545,000 St. Paul Hsg. & Redev. Sales Tax Rev. Refunding Series 1996 (Civic Center Proj.) (FSA insured), 7.10%, 11/1/23 3,200,287 400,000 St. Paul Hsg. & Redev. Auth. Hosp. Rev. Series 1993 (St. Paul-Ramsey Med. Ctr. Proj.) (Ambac insured), 5.15%, 5/15/04 401,952 500,000 St. Paul Port Auth. Tax Increment Rev. Refunding Series 2003-16 (Energy Park Dist. Proj.) (Radian insured), 2.00%, 2/1/05 502,815 765,000 Waconia Hlth. Care Facs. Rev. Series 1999A (Ridgeview Med. Ctr. Proj.) 6.125%, 1/1/29 850,244 100,000 Wayzata ISD No. 284 G.O. Series 1995B (FSA insured), 5.95%, 2/1/13 103,862 200,000 White Bear Lake ISD No. 624 G.O. Series 2004-4A (FSA insured), 2.00%, 2/1/05 201,610 1,750,000 White Earth Band of Chippewa Indians Rev. Series 2000A (ACA insured), 7.00%, 12/1/11 2,019,343 -------------- 11,320,886 -------------- MULTIFAMILY MORTGAGE (33.6%) 1,520,000 Apple Valley Multifamily Hsg. Rev. Refunding Series 1998A (Mtg. Loan/Apple Valley Villa Proj.) (GNMA collateralized), 5.25%, 8/1/18 1,581,317 Austin Hsg. & Redev. Auth. Governmental Hsg. Gross Rev. Series 1995A (Courtyard Res. Proj.): 50,000 7.00%, 1/1/15 50,335 500,000 7.25%, 1/1/26 503,330 1,160,000 Brooklyn Center Multifamily Hsg. Rev. Series 1993 (Ponds Family Hsg. Proj.), 5.90%, 1/1/20 1,165,220 Buffalo Rev. Refunding Series 1998 (Covenant Retirement Cmtys. Proj.): 250,000 4.45%, 12/1/04 254,292 250,000 4.55%, 12/1/05 258,507 Burnsville Multifamily Hsg. Rev. Refunding Series 1991 (Oak Leaf Apts. Proj.)(GNMA collateralized): 800,000 7.05%, 1/1/12 805,088 780,000 7.125%, 1/1/17 784,618 860,000 7.125%, 1/1/21 864,704 150,000 7.15%, 1/1/27 150,729 530,000 7.15%, 1/1/23 532,735 425,000 7.15%, 1/1/25 427,108
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) Carver Co. Hsg. & Redev. Auth. Multifamily Hsg.: 1,200,000 Gross Rev. & Ltd. Tax Refunding Series 1997A (Lake Grace Apts. Proj.), 6.00%, 7/1/28 1,217,640 650,000 Rev. Refunding Series 1997A (Waybury Apts. Proj.), 5.875%, 8/1/27 673,978 400,000 Subordinate Rev. Refunding Series 1997C (Waybury Apts. Proj.), 8.00%, 8/1/27 403,540 Chaska Multifamily Hsg. Rev. Series 1999 (West Suburban Hsg. Partners Proj.): 235,000 5.00%, 9/1/09(4) 229,012 495,000 5.375%, 9/1/14(4) 465,785 405,000 Chisago City Hlth. Fac. Rev. Refunding Series 1995A (Pleasant Heights Proj.), 7.30%, 7/1/18 422,002 Cloquet Multifamily Hsg. Rev. Refunding Series 2001A (HADC Proj.): 55,000 6.00%, 2/1/05 55,428 60,000 6.25%, 2/1/06 60,902 60,000 6.50%, 2/1/07 61,249 75,000 7.10%, 2/1/10 76,950 700,000 Coon Rapids Multifamily Hsg. Rev. Refunding Series 1997A (Margaret Place Apts. Proj.), 6.50%, 5/1/25 649,348 Coon Rapids Senior Hsg. Rev. Refunding Series 1998 (Epiphany Sr. Citizens Hsg. Corp. Proj.): 115,000 5.30%, 11/1/07 115,674 115,000 5.40%, 11/1/08 115,597 170,000 5.50%, 11/1/10 169,713 545,000 5.80%, 11/1/18 534,313 Dakota Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding (Walnut Trails Apts. Proj.): 4,375,000 Series 1995A (GNMA collateralized), 7.90%, 1/20/31(4) 4,761,881 195,000 Subordinate Series 1995C, 9.00%, 1/20/15(4) 192,188 Dakota Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev.: 1,000,000 Series 1999 (View Pointe Apts. Proj.), 6.125%, 11/1/17 944,070 92,000 Series 1999 (Dakota Station Proj.), 5.65%, 1/20/24 97,951 800,000 Dakota Co. Cmty. Dev. Agy. Hsg. Fac. Rev. Subordinate Series 2002B (HADC Apple Valley Sr. Apts. Proj.), 7.50%, 8/15/43 786,976 Eden Prairie Multifamily Hsg. Rev. Refunding : 510,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.00%, 11/1/06 511,622 2,000,000 Series 1991 (Windslope Apts. Proj.)(Section 8), 7.10%, 11/1/17 2,003,060 300,000 Series 1997A (Preserve Place Proj.) (GNMA collateralized), 5.50%, 1/20/18 317,154 410,000 Series 1997A (Preserve Place Proj.) (GNMA collateralized), 5.60%, 7/20/28 425,822 420,000 Senior Series 2001A (Rolling Hills Proj.) (GNMA collateralized), 6.00%, 8/20/21 464,961 675,000 Senior Series 2001A (Rolling Hills Proj.) (GNMA collateralized), 6.15%, 8/20/31 739,442 540,000 Series 2001A (Rolling Hills Proj.) (GNMA collateralized), 6.20%, 2/20/43 589,383 1,100,000 Subordinate Series 2001C (Rolling Hills Proj.), 9.00%, 4/1/43 1,052,304 Fairmont Hsg. Fac. Rev. Series 2002-A1 (Homestead-GEAC Proj.): 1,100,000 6.625%, 10/1/11 1,149,676 295,000 6.875%, 10/1/14 297,885 500,000 Golden Valley Rev. Series 1999A (Covenant Retirement Cmntys. Proj.), 5.50%, 12/1/25 512,840 Grand Rapids Hsg. & Redev. Auth. (Lakeshore Place and Forest Park West Apts. Proj.): 60,000 Series 1999B, 5.00%, 10/1/09 57,577 500,000 Series 1999A, 5.20%, 10/1/19 513,640 1,660,000 Series 1999A, 5.30%, 10/1/29 1,677,812 110,000 Series 1999B, 5.70%, 10/1/29 96,398 505,000 Hopkins Subordinate Multifamily Hsg. Rev. Refunding Series 1996C (Auburn Apts. Proj.), 8.00%, 6/20/31 497,748
See accompanying notes to portfolios of investments on page 60. 47 SIT MINNESOTA TAX-FREE INCOME FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) Hopkins Multifamily Hsg. Rev. Series 1996 (Hopkins Renaissance Proj.) (Section 8): 100,000 5.85%, 4/1/09 108,058 450,000 6.25%, 4/1/15 477,396 Hutchinson Hsg. Fac. Rev. (Prince of Peace Apts. Proj.): 50,000 Series 2003A, 3.50%, 10/1/06 50,131 115,000 Series 2003A, 4.00%, 10/1/07 115,411 120,000 Series 2003A, 4.50%, 10/1/08 120,534 Inver Grove Heights Senior Hsg. Rev. (PHM/Inver Grove, Inc Proj): 10,000 Series 2001, 6.375%, 5/1/31 10,009 105,000 Series 2001A, 5.50%, 5/1/08 104,995 110,000 Series 2001A, 5.50%, 11/1/08 109,994 65,000 Series 2001B, 5.00%, 5/1/06 66,338 70,000 Series 2001B, 5.25%, 5/1/07 71,521 75,000 Series 2001B, 5.50%, 5/1/08 76,630 80,000 Series 2001B, 5.60%, 5/1/09 81,698 70,000 Series 2001B, 5.00%, 11/1/06 71,725 75,000 Series 2001B, 5.50%, 11/1/08 76,885 80,000 Series 2001B, 5.60%, 11/1/09 81,618 3,265,000 Little Canada Multifamily Hsg. Rev. Series 1997A (Hsg. Alt. Dev. Co. Proj.), 6.10%, 12/1/17 3,211,258 1,400,000 Maplewood Multifamily Hsg. Rev. Series 1998 (Park Edge Apts. Proj.), 6.50%, 5/1/29(4) 1,276,338 Maplewood Multifamily Refunding Rev. (Village on Woodlyn Proj.): 1,605,000 Series 1999A (GNMA collateralized), 6.75%, 7/20/30(4) 1,722,117 100,000 Subordinate Series 1999C-1, 8.00%, 11/1/30(4) 96,583 275,000 Subordinate Series 1999C-2, 8.00%, 11/1/30(4) 265,603 Minneapolis Multifamily Hsg. Rev.: 500,000 Series 2002A (Keeler Apts. Proj.), 7.00%, 10/1/17 492,300 355,000 Series 1996 (Belmont Apts.), 7.25%, 11/1/16 355,923 Series 1994 (Findley Place Townhomes Proj.) (Section 8): 50,000 6.00%, 12/1/05(4) 50,475 1,465,000 7.00%, 12/1/16(4) 1,465,161 5,020,000 Series 1996A (Nicollet Towers) (Section 8), 6.00%, 12/01/19 5,222,005 1,000,000 Series 1998 (Riverside Plaza Proj.) (GNMA collateralized), 5.10%, 12/20/18(4) 1,041,230 340,000 Series 2000 (Garr Scott Loft Proj.)(LOC U.S. Bank), 5.95%, 5/1/30(4) 367,907 50,000 Series 2003A (Sumner Proj.) (GNMA collateralized), 3.00%, 8/20/08(4) 51,197 4,445,000 Series 2003 (Sumner Field Phase II Proj.), 2.60%, 8/20/08(4) 4,481,093 Minneapolis Student Hsg. Rev. Series 2000 (Riverton Community Hsg. Proj.): 100,000 6.80%, 7/1/10 104,742 240,000 6.90%, 7/1/11 249,571 50,000 MN HFA Rental Hsg. Rev. Series 1996A, 6.10%, 8/1/27(4) 52,247 105,000 Minnetonka Hsg. Fac. Rev. Series 1994 (Beacon Hill Housing Proj.), 7.00%, 6/1/04 105,114 340,000 Minnetonka Multifamily Hsg. Rev. Refunding Subordinate Series 1994C (Brier Creek Proj.), 8.00%, 12/20/16 354,287 Minnetonka Multifamily Hsg. Rev. Refunding Series 1999A (GNMA collateralized) (Archer Height s Apts. Proj.): 540,000 5.10%, 7/20/13(4) 582,514 975,000 5.20%, 1/20/18(4) 1,038,492 Minnetonka Senior Hsg. Rev. Series 1997 (Westridge Sr. Hsg. Proj.): 110,000 6.30%, 9/1/08 109,992 185,000 6.50%, 9/1/12 184,395
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) New Ulm Multifamily Rev. Series 1999 (HADC Ridgeway Proj.): 95,000 5.35%, 12/1/08 93,528 100,000 5.40%, 12/1/09 96,355 105,000 5.50%, 12/1/10 100,639 110,000 5.60%, 12/1/11 105,042 Plymouth Multifamily Hsg. Rev. Refunding Series 1996A (Fox Forest Apts. Proj.) (GNMA collateralized): 1,650,000 Series 1996A, 8.05%, 6/20/31 1,781,901 645,000 Series 1996C, 8.00%, 6/20/31 635,738 2,800,000 Rochester Multifamily Rev. Refunding Series 2000A (Weatherstone Apts. Proj.) (LOC Household Finance) (Mandatory Put 9/1/17) 6.375%, 9/1/37(4) 3,092,796 2,820,000 Roseville Hsg. Fac. Rev. Refunding Bonds Series 1998 (College Properties Inc. Proj.), 5.60%, 10/1/13 2,864,077 520,000 Shoreview Sr. Hsg. Rev. Series 1996 (Shoreview Sr. Residence Proj.), 7.25%, 2/1/26 543,800 St. Cloud Hsg. & Redev. Auth. Multifamily Hsg. Rev.: Series 1993 (Germain Towers Proj.) (Section 8): 90,000 5.00%, 9/1/04 89,288 1,650,000 5.90%, 9/1/20 1,303,269 Series 1999A (Parkview Terrace Apts. Proj.) (Section 8): 85,000 5.00%, 6/1/09 79,296 1,029,000 5.50%, 6/1/18 887,430 St. Louis Park Multifamily Hsg. Rev. Refunding: 650,000 Series 1995 (FHA insured) (Knollwood Cmty. Hsg. Proj.), 6.15%, 12/1/16 678,308 500,000 Series 1998A (Park Ridge Apts. Proj.) (GNMA collateralized), 5.25%, 11/1/20 522,880 200,000 St. Paul Hsg. & Redev. Auth. Multifamily Refunding Rev. Series 1995 (Sun Cliffe Apts. Proj.)(GNMA collateralized), 5.875%, 7/1/15 209,874 3,285,000 St. Paul Port Authority Multifamily Hsg. Refunding (Jackson Towers Apts. Proj.) Senior Series 1998-1A (GNMA collateralized), 6.95%, 4/20/33 3,548,326 880,000 Washington Co. Hsg. & Redev. Auth. Multifamily Hsg. Rev. Refunding Series 1994 (White Bear Lake Transitional Hsg. Proj.), 6.625%, 8/1/24 887,154 755,000 Washington Co. Hsg. & Redev. Auth. Governmental Hsg. Rev. Refunding Series 1999A (Briar Pond Apts. Proj.) (GNMA collateralized), 5.50%, 2/20/14 786,687 -------------- 73,129,379 -------------- MUNICIPAL LEASE (2.5%)(5) 40,000 Anoka Co. C.O.P. Series 1998, 5.40%, 6/1/28 40,576 75,776 Brooklyn Park C.O.P. Series 1996, 5.45%, 9/27/06 76,953 110,000 Burnsville Econ. Dev. Auth. Lease Rev. Series 1994A, 5.90%, 12/1/05 113,272 50,000 Chaska Econ. Dev. Auth. ISD No. 112 Sch. Facs. Lease Rev. Series 1999A, 5.125%, 12/1/09 55,820 104,000 Hennepin Co. Hsg. & Redev. Auth. Rev. Series 1993A (Community Provider Program), 5.70%, 8/1/13 104,147 535,000 Hibbing Econ. Dev. Auth. Public Proj. Rev. Series 1997 (Hibbing Lease Obligations Proj.), 6.10%, 2/1/08 566,881 125,000 Mountain Iron Hsg. & Redev. Auth. Rev. Series 2001A (Arrowhead Library Sys. Proj.), 5.00%, 9/1/09 135,891 North St. Paul Maplewood ISD No. 622 C.O.P. Series 2004: 250,000 3.00%, 2/1/05(10) 253,285 580,000 4.00%, 2/1/15(10) 571,944 300,000 4.125%, 2/1/16(10) 295,704 Shorewood Econ. Dev. Auth. Public Safety Fire Fac. Lease Rev. Series 2002A: 135,000 3.00%, 2/1/05 136,050 140,000 3.50%, 2/1/06 142,551 800,000 St. Cloud C.O.P. Series 1997, 5.90%, 12/1/17 818,944 1,431,825 St. Paul Lease Series 1998 (City Hall Annex Building), 5.71%, 10/1/18 1,394,683 400,000 St. Paul Hsg. & Redev. Auth. Lease Rev. Series 2000 (Rivercentre Pkg. Ramp Proj.), 5.70%, 5/1/08 446,320 399,254 University of Puerto Rico C.O.P. Series 2001, 6.25%, 1/10/05(8)(9) 355,336 -------------- 5,508,357 --------------
See accompanying notes to portfolios of investments on page 60. 49 SIT MINNESOTA TAX-FREE INCOME FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) PUBLIC FACILITIES (1.5%) 1,000,000 Minneapolis Cmty. Dev. Agy. Ltd. Tax Supported Dev. Rev. Common Bond Fund Series 2001G3 (LOC-U.S. Bank), 5.35%, 12/1/21 1,054,540 MN Agric. Society State Fair Rev. Series 2003: 250,000 3.00%, 9/15/04 251,535 395,000 3.00%, 9/15/05 401,932 St. Paul Recreational Fac. Gross Rev. Series 1996D: 160,000 5.50%, 6/1/08 164,240 1,245,000 5.875%, 6/1/18 1,278,491 -------------- 3,150,738 -------------- SINGLE FAMILY MORTGAGE (5.6%) Dakota County Hsg. & Redev. Auth. Single Family Mtg. Rev.: 160,000 Series 1994A (FNMA backed), 6.70%, 10/1/09(4) 162,318 80,000 Series 1995 (FNMA & GNMA backed), 6.25%, 10/1/09(4) 81,395 885,000 Minneapolis Redev. Mtg. Rev. Series 1987A (Riverplace Proj.) (LOC Bk. of Tokyo), 7.10%, 1/1/20 888,885 1,082,067 Minneapolis Residual Interest Mtg. Rev. Series 1995, 7.00%, 10/1/12 1,121,952 MN HFA Single Family Mtg. Rev.: 205,000 Series 1994E, 5.90%, 7/1/25 210,851 90,000 Series 1994F, 5.45%, 7/1/04 90,832 95,000 Series 1994F, 5.55%, 7/1/05 97,189 380,000 Series 1994F, 6.30%, 7/1/25 388,026 1,205,000 Series 1994I, 6.90%, 7/1/22(4) 1,230,546 20,000 Series 1994K, 5.90%, 1/1/07 20,454 140,000 Series 1994L, 6.70%, 7/1/20(4) 143,014 15,000 Series 1995K, 6.20%, 7/1/20(4) 15,479 215,000 Series 1996D, 6.00%, 1/1/16 225,595 160,000 Series 1997A, 5.60%, 7/1/09 170,651 355,000 Series 1996H, 6.00%, 1/1/21 370,957 1,035,000 Series 1997D, 5.85%, 7/1/19(4) 1,088,044 55,000 Series 1997E, 5.90%, 7/1/29(4) 57,417 125,000 Series 1997G, 6.00%, 1/1/18 131,675 1,615,000 Series 1998C, 5.25%, 1/1/17 1,701,548 115,000 Series 1998F-1, 4.75%, 7/1/07 119,195 75,000 Series 1998F, 4.95%, 7/1/08 79,481 510,000 Series 1998F-1, 5.45%, 1/1/17 532,430 130,000 Series 1998F, 5.70%, 1/1/17 136,925 620,000 Series 1999B, 5.25%, 1/1/20 646,821 480,000 Series 1999C, 4.25%, 7/1/04(4) 483,437 765,000 Series 1999C, 4.40%, 7/1/05(4) 792,953 225,000 Series 2000C, 6.10%, 7/1/30(4) 230,632 500,000 Series 2003H, 1.00%, 7/1/36(4) 499,425 966,042 St. Paul Residual Interest Rev. Series 1995 Convertible Capital Appreciation Bonds, Zero Coupon, 7.23% Effective Yield on Purchase Date, 9/1/11 583,663 -------------- 12,301,790 --------------
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) UTILITY (0.4%) Glencoe Light & Power Commission Elec. Rev. Series 2004: 300,000 2.00%, 12/1/04 301,758 255,000 2.00%, 12/1/05 257,619 Lake Crystal Public Utilities Comm. Electric Rev. Series 1998: 130,000 5.45%, 12/1/13 133,295 120,000 5.50%, 12/1/16 121,434 70,000 MN Public Facs. Auth. Water Pollution Ctrl. Rev. Series 1996B, 5.00%, 3/1/17 73,795 -------------- 887,901 -------------- OTHER REVENUE BONDS (8.5%) Columbia Heights Commercial Dev. Refunding Rev. Series 1999 (Columbia Park Properties - Medical Clinic Proj.): 250,000 5.15%, 12/1/08 241,567 1,750,000 5.60%, 12/1/15 1,594,372 Commissioner of Iron Range Resources and Rehab. Gross Rev. (Giant's Ridge Rec. Area Proj.): 200,000 Series 2000, 6.25%, 11/1/05 207,360 900,000 Series 2000, 7.25%, 11/1/16 928,944 Minneapolis Cmty. Dev. Agy. Ltd. Tax Common Bond Fund: 170,000 Series 1997-1 (Halper Corrugated Box Mfg. Co.), 5.90%, 6/1/07(4) 187,104 500,000 Series 1999-1A (Discount Steel), 5.25%, 6/1/19(4) 514,300 1,025,000 Minneapolis Public Hsg. Auth. Series 1997 (General Credit Energy Savings Proj.), 6.00%, 7/1/08 1,009,461 Minneapolis Tax Increment Rev. Refunding Series 2004 (St. Anthony Falls Proj.): 100,000 2.35%, 2/1/05 99,907 600,000 4.50%, 2/1/13 593,076 200,000 Renville Gross Rev. Golf Course Bond Series 1997, 6.50%, 2/1/19 204,052 St. Paul Hsg. & Redev. Auth. Tax Increment Rev.: 700,000 Series 2001 (US Bank Operations Ctr. Proj.), 6.125%, 8/1/19 719,866 1,140,000 Series 2002 (North Quadrant Owner Occupied Proj. Phase 2), 7.00%, 2/15/28 1,173,277 1,076,000 Series 2002 (North Quadrant Owner Occupied Proj. Phase 1), 7.50%, 2/15/28 1,164,146 3,000,000 Series 2002A (Upper Landing Proj.), 6.80%, 3/1/29 3,024,570 2,000,000 Series 2002B-2 (Upper Landing Proj.), 6.90%, 3/1/29 1,995,120 1,300,000 Series 2002 (Drake Marble Proj.), 6.75%, 3/1/28 1,306,513 1,335,000 Series 2004 (9th St. Lofts Proj.), 6.375%, 2/15/28(10) 1,335,841 875,000 Steele Co. Hlth. Care Fac. Rev. Series 2000 (Elderly Hsg. Proj.), 6.625%, 6/1/20 953,453 Victoria Recreational Facility Gross Rev. Series 2002: 70,000 4.75%, 2/1/12 71,715 75,000 4.75%, 8/1/12 76,838 85,000 5.10%, 8/1/15 87,208 Virgin Islands Public Fin. Auth. Rev.: 800,000 Senior Lien Fund Series 1998C, 5.50%, 10/1/04 816,056 200,000 Gross Receipts Taxes Loan Note Series 1999A, 5.625%, 10/1/10 217,750 -------------- 18,522,496 -------------- Total municipal bonds (cost: $209,497,632) 212,040,171 -------------- SHORT-TERM SECURITIES (2.9%) (2) 3,321,744 Federated Minnesota Municipal Cash Fund, 0.74% 3,321,744 1,100,000 Hennepin Co. G.O. Series 2000B, variable rate, 12/1/20 1,100,000 1,520,000 Minneapolis Convention Ctr. Rev. Series 2000, variable rate, 12/1/18 1,520,000 293,292 Wells Fargo Minnesota Municipal Cash Fund, 0.23% 293,292 -------------- Total Short-Term Securities (cost: $6,235,036) 6,235,036 -------------- Total investments in securities (cost: $215,732,668)(7) $218,275,207 ==============
See accompanying notes to portfolios of investments on page 60. 51 SIT FLORIDA TAX-FREE INCOME FUND PERIOD ENDED MARCH 31, 2004 -------------------------------------------------------------------------------- FIXED-INCOME MANAGEMENT TEAM The Florida Tax Free Income Fund returned +1.08% for the quarter ended March 31, 2004 and compared with a return of +1.28% for the Lehman 5-Year Municipal Bond Index (the Index). The Fund's 30-day SEC yield was 3.90%. NEW FUND LAUNCHED AT YEAR-END The Sit Florida Tax Free Income Fund commenced operation on December 31, 2003 at $10.00 per share. The Fund appreciated in value to $10.05 per share on March 31, 2004, providing shareholders a +0.50% price gain and a +0.58% income return for a +1.08% total return for the quarter. The Fund's investments in insured, multifamily revenue, and other revenue bonds earned returns quite close to the Fund's overall return. The Fund's investments in hospital bonds enhanced the Fund's overall performance, with price appreciation of over +1%. STABLE RATES DURING THE QUARTER Interest rates were relatively stable during the quarter. Short to intermediate maturity bond prices were relatively unchanged, while longer maturity bond prices rose modestly. DEFENSIVELY POSITIONED FOR RISING RATES The Fund's duration of 2.1 years is considerable shorter than the Index duration of 4.2 years and substantially shorter than most other Florida tax-exempt funds. We expect higher interest rates over the coming twelve months and believe the Fund is well positioned for future reinvestment in longer duration and higher yielding bonds. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Florida Tax-Free Income Fund is to provide a high level of current income that is exempt from federal regular income tax by investing in securities that are exempt from the Florida intangibles tax. The Fund seeks to achieve its objective by investing primarily in municipal securities that generate interest income that is exempt from regular federal income tax and that are exempt from the Florida intangible personal property tax. During normal market conditions, the Fund invests 100% (and, as a fundamental policy, no less than 80%) of its net assets in such tax-exempt municipal securities. The Fund may invest up to 10% of its assets in securities that generate interest income subject to federal alternative minimum tax. PORTFOLIO SUMMARY Net Asset Value 3/31/04: $10.05 Per Share Total Net Assets: $ 2.6 Million 30-day SEC Yield: 3.90% Tax Equivalent Yield: 6.00%(1) 12-Month Distribution Rate: n/a Average Maturity: 10.3 Years Duration to Estimated Avg. Life: 2.1 Years(2) Implied Duration: 2.6 Years(2) (1) For individuals in the 35.0% federal tax bracket. (2) See next page. PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) Insured 51.1 Multifamily Mortgage Revenue 16.4 Other Revenue Bonds 15.1 Hospital/Health Care Revenue 11.1 Sectors less than 5.0% 4.9 Cash & Other Net Assets 1.4 52 --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT LEHMAN FL TAX-FREE 5-YEAR MUNI. INCOME FUND BOND INDEX ----------- ----------- 3 Month** 1.08% 1.28% 6 Month** n/a n/a 1 Year n/a n/a 3 Years n/a n/a 5 Years n/a n/a Inception** 1.08 1.28 (12/31/03) CUMULATIVE TOTAL RETURNS* SIT LEHMAN FL TAX-FREE 5-YEAR MUNI. INCOME FUND BOND INDEX ----------- ----------- 1 Year n/a n/a 3 Years n/a n/a 5 Years n/a n/a Inception 1.08% 1.28% (12/31/03) *AS OF 3/31/04. **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. (2) Duration is a measure which reflects estimated price sensitivity to a given change in interest rates. For example, for an interest rate change of 1%, a portfolio with a duration of 5 years would be expected to experience a price change of 5%. Estimated average life duration is based on current interest rates and the Adviser's assumptions regarding the expected average life of individual securities held in the portfolio. Implied duration is calculated based on historical price changes of securities held by the Fund. The Adviser believes that the portfolio's implied duration is a more accurate estimate of price sensitivity provided interest rates remain within their historical range. If interest rates exceed the historical range, the estimated average life duration may be a more accurate estimate of price sensitivity. GROWTH OF $10,000 [PLOT POINTS GRAPH] The sum of $10,000 invested at inception (12/31/03) and held until 3/31/04 would have grown to $10,108 in the Fund or $10,128 in the Lehman 5-Year Municipal Bond Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% OF TOTAL NET ASSETS) [PIE CHART] Other Assets and Liabilities 1.4% AAA 40.9% AA 7.4% A 17.7% BBB 17.5% Not Rated 15.1% LOWER OF MOODY'S S&P, FITCH OR DUFF & PHELPS RATINGS USED. ASSESSMENT OF NON-RATED SECURITIES AAA 0.0% AA 0.0 A 0.0 BBB 4.0 BB 11.1 ---- Total 15.1% 53 SIT FLORIDA TAX-FREE INCOME FUND -------------------------------------------------------------------------------- MARCH 31, 2004 PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) MUNICIPAL BONDS (98.6%)(2) HOSPITAL/HEALTH CARE (11.1%) Highlands Co. Hlth. Facs. Auth. Rev.: 40,000 Series 2002 (Adventist Health Sys./Sunbelt Proj.), 3.35%, 11/15/32 40,885 25,000 Series 2003D (Adventist Health Sys. Proj.), 5.875%, 11/15/29 26,791 25,000 Hillsborough Co. Industrial Dev. Auth. Hosp. Rev. Refunding Series 2003A (Tampa General Hosp. Proj.), 2.50%, 10/1/05 25,226 65,000 Martin Co. Hlth. Fac. Auth. Hosp. Rev. Refunding Series 2002B (Martin Memorial Medical Center Proj.), 3.35%, 11/15/04 65,646 50,000 Miami Hlth. Fac. Auth. Rev. Series 2003B (Catholic Hlth. East Proj.), 2.50%, 11/15/05 50,687 80,000 South Lake Co. Hosp. Dist. Rev. Series 2003 (South Lake Hosp., Inc. Proj.), 5.50%, 10/1/13 83,692 -------------- 292,927 -------------- INDUSTRIAL / POLLUTION CONTROL (1.7%) 45,000 Dunes Cmnty. Dev. Dist. Rev. Refunding Series 1993 (Intracoastal Waterway Bridge Proj.), 5.50%, 10/1/07 46,029 -------------- INSURED (51.1%) 90,000 Brevard Co. School Board C.O.P. Series 1996B (Ambac insured), 5.50%, 7/1/21 97,645 50,000 Clearwater Hsg. Auth. Rev. Refunding Series 1997 (Hamptons at Clearwater Proj.) (ACA insured), 5.40%, 5/1/13 54,146 210,000 Dade Co. Hlth. Fac. Auth. Hosp. Rev. Refunding Series 1993A (Baptist Hosp. Miami Proj.) (MBIA insured), 5.25%, 5/15/21 212,604 50,000 Dade Co. Public Fac. Rev. Series 1993 (Jackson Mem. Hosp. Proj.)(MBIA insured), 5.25%, 6/1/23 51,119 50,000 Escambia Co. Hlth. Fac. Auth. Rev. Series 2000 (Ambac insured), 5.95%, 7/1/20 52,507 50,000 FL HFC Hsg. Rev. Hsg. Series 2000D-1 (Augustine Club Apts. Proj.)(Ambac insured), 5.75%, 10/1/30 53,105 75,000 Fort Myers Impt. Rev. Series 1992C (Ambac Insured), 5.70%, 12/1/05 75,271 100,000 Halifax Hosp. Med. Ctr. Health Care Fac. Rev. Series 1998A (Halifax Mgmt. Sys. Proj.) (ACA insured), 5.00%, 4/1/12 104,989 100,000 Hillsborough Co. Educ. Fac. Auth. Rev. Refunding Series 1998 (Univ. of Tampa Proj.) (Radian insured), 5.75%, 4/1/18 112,704 60,000 Hillsborough Co. Industrial Dev. Auth. Rev. Series 1994 (Univ. Cmnty. Hosp. Proj.) (MBIA insured), 5.80%, 8/15/24 61,998 30,000 Lee Co. Transportation Fac. Rev. Series 1995 (MBIA Insured), 5.75%, 10/1/27 32,205 65,000 Osceola Co. School Board C.O.P. Series 1995A Ambac insured), 5.25%, 6/1/10 68,448 90,000 Polk Co. Cap Impt. Rev. Refunding Series 1994 (FGIC insured), 5.00%, 12/1/11 93,875 150,000 Port Everglades Auth. Rev. Refunding & Impt. Series 1989A (MBIA-IBC insured), 5.00%, 9/1/16 150,369 50,000 Univ. of South FL Rev. Hsg. Fac. Series 1997A (MBIA insured), 5.35%, 7/1/15 54,005 25,000 Venice Hlth. Care Rev. Series 1996 (Bon Secours Hlth. Sys. Proj.)(MBIA insured), 5.625%, 8/15/26 27,118 50,000 Volusia Co. Hlth. Fac. Auth. Rev. Refunding & Impt. Series 1994 (Hosp. Fac.- Memorial Hlth. Proj) (Ambac insured), 5.75%, 11/15/13 52,250 -------------- 1,354,358 --------------
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) MULTIFAMILY MORTGAGE (16.4%) 45,000 Capital Trust Agy. Multifamily Rev. Sr. Series 2003A (Golf Villas, Rivermill, and Village Square Apts. Proj.), 4.75%, 6/1/13 44,113 75,000 Collier Co. Health Fac. Auth. Rev. Refunding Series 1994 (Moorings, Inc. Proj.), 7.00%, 12/1/19 78,933 45,000 Collier Co. HFA Multifamily Hsg. Rev. Series 2002C (Goodlette Arms Proj.), 5.25%, 8/15/15 48,137 60,000 FL HFC Rev. Series 1999-K1 (Sunset Place Proj.), 5.50%, 10/1/09 64,410 60,000 Lee Co. Industrial Dev. Auth. Hlth. Care Fac. Rev. Series 1999A (Shell Point Village Proj.), 5.25%, 11/15/04 61,287 75,000 Miami-Dade Co. Special Hsg. Rev. Refunding Series 1998 (Section 8), 5.30%, 10/1/05 74,734 60,000 Palm Beach Co. Hlth. Fac. Auth. Rev. Series 1996 (ACTS Retirement Cmnty. Proj.), 5.625%, 11/15/20 61,951 -------------- 433,565 -------------- UTILITY (3.2%) Jacksonville Elec. Auth Rev.: 50,000 Refunding Series 1997-2-14 (St. John's River Proj.), 4.90%, 10/1/08 52,995 30,000 Water & Sewer Series 2000A, 4.50%, 10/1/09 31,454 -------------- 84,449 -------------- OTHER REVENUE BONDS (15.1%) 100,000 Capital Trust Agy. Rev. Series 2002A (Seminole Tribe Convention Proj.), 8.50%, 10/1/07 106,847 30,000 Capital Region Cmnty. Dev. Dist. Rev. Series 2001B, 5.95%, 5/1/06 30,103 100,000 Fiddlers Creek Cmnty. Dev. Dist. No. 2 Rev. Series 2003B, 5.75%, 5/1/13 101,620 50,000 Mediterra North Cmnty. Dev. Dist. Impt. Rev. Series 2001B, 6.00%, 5/1/08 50,176 60,000 Parklands West Cmnty. Dev. Dist. Rev. Series 2001B, 6.00%, 5/1/06 60,136 50,000 Reunion East Cmnty. Dev. Dist. Series 2002B, 5.90%, 11/1/07 50,253 -------------- 399,135 -------------- Total municipal bonds (cost: $2,602,489) 2,610,463 -------------- Total investments in securities (cost: $2,602,489) (7) $2,610,463 ==============
See accompanying notes to portfolios of investments on page 60. 55 SIT BOND FUND ONE YEAR ENDED MARCH 31, 2004 -------------------------------------------------------------------------------- SENIOR PORTFOLIO MANAGERS, MICHAEL C. BRILLEY AND BRYCE A. DOTY, CFA PORTFOLIO MANAGER, MARK H. BOOK, CFA The Sit Bond Fund returned +6.66% for the fiscal year ended March 31, 2004 while the Lehman Aggregate Bond Index (the Index) returned +5.40%. The Fund's 30-day SEC yield was 4.66% and its 12-month distribution rate was 4.66%. UNDERWEIGHT UNDERPERFORMING TREASURIES Several of the Fund's strategies contributed to its strong outperformance versus the Index during the 12-month period. The Fund's underweighting of U.S. Treasury securities boosted performance as Treasuries underperformed the benchmark. CORPORATES PROPEL OUTPERFORMANCE In addition, overweighting corporate bonds, the best performing sector of the taxable bond market, aided the Fund's performance as strong corporate profits increased demand, causing yield spreads to narrow relative to Treasury securities. The Fund also benefited from security selection within the corporate and mortgage-backed sectors. The Fund's corporate bond holdings, which emphasize issuers that benefit from a strengthening economy, also outperformed the Lehman Credit Index. OTHER SECTORS PROVIDE MIXED RESULTS While the overall sector hindered performance, the mortgage securities in the portfolio exhibited more stable prepayment characteristics than the overall market, allowing the Fund's mortgage securities to outperform the Lehman MBS Index. Low yields earned on the small amounts of cash and cash equivalents in the Fund hindered performance. INVESTMENT OBJECTIVE AND STRATEGY The investment objective of the Fund is to maximize total return, consistent with preservation of capital. The Fund will pursue its objective by investing in a diversified portfolio of fixed-income securities which include, but are not limited to, the following: U.S. government securities; corporate debt securities; corporate commercial paper; mortgage and other asset-backed securities. PORTFOLIO SUMMARY Net Asset Value 3/31/04: $10.07 Per Share 3/31/03: $ 9.89 Per Share Total Net Assets: $14.9 Million 30-day SEC Yield: 4.66% 12-Month Distribution Rate: 4.66% Average Maturity: 19.1 Years Effective Duration: 3.9 Years(1) (1) Effective duration is a measure which reflects estimated price sensitivity to a given change in interest rates. For example, for an interest rate change of 1.0%, a portfolio with a duration of 5 years would be expected to experience a price change of 5%. Effective duration is based on current interest rates and the Adviser's assumptions regarding the expected average life of individual securities held in the portfolio. PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) [BAR CHART] Corporate Bonds & Notes 30.9 Mortgage Pass-Through 27.5 Asset-Backed Securities 21.5 Closed-End Mutual Funds 8.6 Collateralized Mortgage Obligations 5.3 Sectors less than 5.0% 4.7 Cash & Other Net Assets 1.5 56 --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* LIPPER INTER. SIT LEHMAN INVESTMENT BOND AGGREGATE GRADE BOND FUND BOND INDEX FUND AVG. ----- ---------- ------------- 3 Month** 2.58% 2.66% 2.36% 6 Month** 4.08 2.98 n/a 1 Year 6.66 5.40 5.43 5 Years 6.29 7.29 6.45 10 Years 6.80 7.54 6.73 Inception 6.45 7.04 6.28 (12/1/93) CUMULATIVE TOTAL RETURNS* LIPPER INTER. SIT LEHMAN INVESTMENT BOND AGGREGATE GRADE BOND FUND BOND INDEX FUND AVG. ----- ---------- ------------- 1 Year 6.66% 5.40% 5.43% 5 Years 35.64 42.17 36.76 10 Years 93.11 106.89 91.86 Inception 90.75 102.05 87.77 (12/1/93) *AS OF 3/31/04 **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 AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. GROWTH OF $10,000 [PLOT POINTS GRAPH] The sum of $10,000 invested at inception (12/1/93) and held until 3/31/04 would have grown to $19,075 in the Fund or $20,205 in the Lehman Aggregate Bond Index assuming reinvestment of all dividends and capital gains. QUALITY RATINGS (% OF TOTAL NET ASSETS) [PIE CHART] U.S. Treasury 0.8% Govt. Agency Backed Securities 30.7% Other Assets and Liabilities 1.5% A 21.4% AA 6.9% BBB 16.8% Less Than BBB 2.2% AAA 19.7% LOWER OF MOODY'S OR S&P RATING USED. 57 SIT BOND FUND MARCH 31, 2004 -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS
QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) U.S. GOVERNMENT SECURITIES (0.8%)(2) 400,000 U.S. Treasury Strips, Zero Coupon, 6.04% Effective Yield, 11/15/27 117,872 -------------- (cost: $107,602) ASSET-BACKED SECURITIES (21.5%) (2) 156,802 Advanta Mortgage Loan Trust Series 1999-3 A4, 7.75%, 10/25/26 164,584 86,951 Bear Stearns Securities, Inc. Series 2000-1 AF, 7.52%, 3/25/30 89,784 150,000 Chase Funding Mtg. Series 2002-1, 6.595%, 2/25/32 161,968 400,000 Conseco Home Equity Loan Series 2002-A A5, 7.05%, 4/15/32 439,751 Conseco Mfg. Housing Series: 100,000 2000-6 A5, 7.27%, 9/1/32 103,181 200,931 2002-2 A2, 6.03%, 3/1/33 208,285 144,564 Deutsche Financial Capital Securitization Series 1997-I A3, 6.75%, 9/15/27 153,316 173,795 EQCC Home Equity Loan Trust Series 1998-2 5F, 6.64%, 7/15/29 180,736 195,146 FMAC Trust Series 1997C, 6.75%, 12/15/19 191,346 189,068 Greenpoint Manufactured Hsg. Series 2000-1 A5, 7.84%, 12/20/29 187,788 Green Tree Financial Corp.: 49,600 1995-5 A6, 7.25%, 9/15/26 52,324 208,263 1998-1 A6, 6.33%, 11/1/29 214,767 200,000 1999-1 A5, 6.11%, 9/1/23 205,626 214,640 1999-4 A5, 6.97%, 5/1/31 225,419 71,301 Green Tree Home Equity Loan Trust Series 1999-D A5, 7.88%, 9/15/30 72,519 Indymac Manufactured Housing Contract: 190,061 1998-2 A3, 6.20%, 9/25/17 181,926 142,546 1998-2 A4, 6.64%, 12/25/27 137,917 75,062 Oakwood Mortgage Investors, Inc. Series 1997-D A4, 6.725%, 2/15/28 78,347 150,000 Origen Mfg. Housing Series 2001A, 7.08%, 3/15/32 157,377 -------------- Total asset-backed securities 3,206,961 (cost: $3,142,160) -------------- COLLATERALIZED MORTGAGE OBLIGATIONS (5.3%)(2) 137,344 Countrywide Home Loans Series 2002-27 A8, 4.00%, 12/25/32 138,908 141,265 FNMA Series 1990 45J, 9.50%, 5/25/20 157,707 Vendee Mortgage Trust: 17,300 Series 1997-2 E, 7.50%, 5/15/24 17,358 278,062 Series 1999-1 2Z, 6.50%, 12/15/28 300,312 165,150 Washington Mutual Series 2002-S8 A7, 5.25%, 1/25/18 170,822 -------------- Total collateralized mortgage obligations 785,107 (cost: $769,528) -------------- CORPORATE BONDS & NOTES (30.9%)(2) 200,000 Barnett Capital (BOA), 8.06%, 12/1/26 233,345 297,181 Canadian Natl. Railway Co. Series 1997-A2, 7.195%, 1/2/16 353,660 Conoco Philips: 100,000 8.125%, 2/15/30 132,089 100,000 8.00%, 1/15/37 116,744 347,582 Continental Airlines Series 2000-2, 7.707%, 4/2/21 352,902 100,000 Delta Air Lines Series 2002-1, 6.417%, 7/2/12 107,720 276,000 Dow Capital BV, 8.70%, 5/15/22 284,301 300,000 First Hawaiian Capital Trust, 8.343%, 7/1/27 352,567 300,000 Ford Motor Credit Co., 7.20%, 6/15/07 329,334 150,000 General Motors Accept. Corp., 6.875%, 9/15/11 162,737 100,000 General Motors Corp., 8.80%, 3/1/21 116,789 100,000 Great Western Financial Trust, 8.206%, 2/1/27 118,033 50,000 McDonald's Corp., 7.31%, 9/15/27 55,844 100,000 Narragansett Electric Co., 7.39%, 10/1/27 108,093 Northwest Airlines Corp.: 167,214 7.935%, 10/1/20 183,323 363,692 8.072%, 10/1/19 405,573 200,000 Pacific Bell Corp. (SBC), 7.25%, 11/1/27 220,587 50,000 Prologis Trust, 7.625%, 7/1/17 62,081 360,108 Southwest Air Co., 7.67%, 1/2/14 425,893 200,000 Sunamerica, Inc. (AIG), 8.125%, 4/28/23 258,638 100,000 Union Pacific Corp., 7.00%, 2/1/16 118,163 100,000 US Bancorp Capital, 8.27%, 12/15/26 120,472 ----------- Total corporate bonds & notes 4,618,888 (cost: $4,416,602) -----------
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QUANTITY ($) NAME OF ISSUER MARKET VALUE ($)(1) MORTGAGE PASS-THROUGH SECURITIES (27.5%)(2)(3) Federal Home Loan Mortgage Corporation: 300,000 8.00%, 11/15/29 331,875 211,198 8.375%, 5/17/20 232,912 120,391 9.00%, 3/1/21 134,236 34,230 9.00%, 7/1/22 38,231 24,383 9.00%, 7/1/30 26,707 208,077 9.00%, 8/1/30 227,910 58,040 9.50%, 8/1/16 64,807 76,803 9.50%, 12/1/22 86,092 54,808 9.50%, 12/1/22 61,436 6,864 10.25%, 9/1/09 7,587 12,009 10.75%, 3/1/11 13,354 Federal National Mortgage Association: 150,000 4.028%, 4/1/34 154,383 321,711 7.00%, 5/1/32 341,415 220,957 7.50%, 6/1/32 240,214 50,867 8.50%, 2/1/25 55,875 111,145 9.00%, 1/1/15 124,027 94,580 9.00%, 12/1/19 105,436 32,534 9.50%, 4/1/25 36,306 66,916 9.75%, 1/15/13 74,555 53,141 10.25%, 8/15/13 59,585 99,609 10.50%, 5/1/19 111,969 54,168 11.00%, 9/1/19 61,392 51,176 11.00%, 11/1/20 57,863 Government National Mortgage Association: 83,132 7.90%, 8/20/21 91,056 60,797 8.00%, 4/15/17 66,971 94,585 8.50%, 10/15/24 104,706 173,389 8.50%, 11/20/26 189,454 53,208 8.50%, 10/15/24 58,901 58,021 8.75%, 11/15/09 64,802 10,268 9.00%, 10/15/06 10,969 13,132 9.00%, 9/15/08 14,325 11,907 9.00%, 4/15/09 13,079 25,767 9.00%, 4/15/09 28,303 173,094 9.00%, 6/15/09 190,132 2,656 9.00%, 8/15/11 3,002 62,301 9.00%, 1/15/17 71,165 7,063 9.00%, 8/20/19 7,889 6,970 9.00%, 6/20/21 7,782 9,447 9.00%, 12/20/21 10,548 67,851 9.00%, 2/20/27 74,963 14,107 9.25%, 5/15/10 15,984 201,120 9.25%, 10/15/11 228,471 13,223 9.50%, 11/15/05 13,726 20,925 9.50%, 2/15/11 23,853 55,537 9.50%, 5/20/16 61,962 7,618 9.50%, 5/20/18 8,514 56,465 9.50%, 7/20/18 63,105 20,308 9.50%, 7/20/18 22,696 541 9.50%, 4/15/20 607 6,110 9.50%, 11/15/21 6,858 ----------- Total mortgage pass-through securities 4,101,990 (cost: $4,021,552) ----------- TAXABLE MUNICIPAL SECURITIES (3.9%)(2) 20,000 Bernalillo Multifamily. Series 1998A, 7.50%, 9/20/20 22,290 CA Rural HMFA Single Family Mtg. Rev.: 133,365 Series 2002C, 6.75%, 3/1/24 142,621 106,000 Series 2003A, 5.25%, 12/1/24 107,291 150,000 Series 2004A, 5.375%, 6/1/29 153,283 95,000 Reeves Co. TX C.O.P., 7.25%, 6/1/11 96,827 66,878 Tobacco Settlement Series 2001A, 7.67%, 5/15/16 67,447 ----------- Total taxable municipal securities 589,759 ----------- (cost: $576,967) CLOSED-END MUTUAL FUNDS (8.6%)(2) 9,925 American Select Portfolio 140,042 8,145 American Strategic Income Portfolio (I) 109,958 38,394 American Strategic Income Portfolio (II) 536,364 37,672 American Strategic Income Portfolio (III) 499,907 ----------- Total closed-end mutual funds 1,286,271 (cost: $1,128,649) ----------- SHORT-TERM SECURITIES (0.9%)(2) 39,534 Dreyfus Gov't Cash Mgmt. Fund, 0.90% 39,534 91,000 Sit Money Market Fund, 0.43%(6) 91,000 ----------- Total short-term securities 130,534 (cost: $130,534) ----------- Total investments in securities (cost: $14,293,594)(7) $14,837,382 ===========
See accompanying notes to portfolios of investments on page 60. 59 SIT MUTUAL FUNDS MARCH 31, 2004 -------------------------------------------------------------------------------- NOTES TO PORTFOLIOS OF INVESTMENTS (1) Securities are valued by procedures described in note 1 to the financial statements. (2) Percentage figures indicate percentage of total net assets. (3) At March 31, 2004, 5.0% of net assets in the U.S. Government Securities Fund and 2.9% of net assets in the Bond Fund were invested in GNMA mobile home pass-through securities. (4) Securities the income from which is treated as a tax preference that is included in alternative minimum taxable income for purposes of computing federal alternative minimum tax (AMT). At March 31, 2004, 16.5% of net assets in the Minnesota Tax-Free Income Fund was invested in such securities. (5) Rule 144A Securities, Section 4(2) Commercial Paper, and Municipal Lease Securities ("Restricted Securities") held by the Funds which have been determined to be liquid by the Adviser in accordance to guidelines established by the Board of Directors. (6) This security represents an investment in an affiliated party. See notes to the accompanying financial statements. (7) At March 31, 2004 the cost of securities for federal income tax purposes and the aggregate gross unrealized appreciation and depreciation based on that cost were as follows:
U.S. MONEY GOVERNMENT TAX-FREE MARKET SECURITIES INCOME FUND FUND FUND ------------- ------------- ------------- Cost for federal income tax purposes $ 44,737,126 $ 281,022,105 $ 350,814,358 ============= ============= ============= Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation -- $ 5,994,385 $ 10,120,921 Gross unrealized depreciation -- (537,660) (11,447,638) ------------- ------------- ------------- Net unrealized appreciation (depreciation) -- $ 5,456,725 ($ 1,326,717) ============= ============= ============= MINNESOTA FLORIDA TAX-FREE TAX-FREE INCOME INCOME BOND FUND FUND FUND ------------- ------------- ------------- Cost for federal income tax purposes $ 215,732,668 $ 2,602,489 $ 14,293,594 ============= ============= ============= Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $ 4,928,157 $ 11,371 $ 571,737 Gross unrealized depreciation (2,385,618) (3,397) (27,949) ------------- ------------- ------------- Net unrealized appreciation (depreciation) $ 2,542,539 $ 7,974 $ 543,788 ============= ============= =============
(8) These securities have been identified by the investment adviser as illiquid securities. The aggregate value of these securities at March 31, 2004, is $12,516,924 and $963,786 in the Tax-Free Income and Minnesota Tax-Free Income Funds respectively, which represents 3.6% and 0.4% of the Fund's net assets, respectively. (9) Presently non-income producing securities. Items identified are in default as to payment of interest. (10) At March 31, 2004, the total cost of investments purchased on a when-issued or forward-commitment basis was $2,609,896 for the Minnesota Tax-Free Income Fund. 60 --------------------------------------------------------------------------[LOGO] This page has been intentionally left blank. 61 SIT MUTUAL FUNDS MARCH 31, 2004 -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES
U.S. MONEY GOVERNMENT TAX-FREE MARKET SECURITIES INCOME ASSETS FUND FUND FUND ------------ ------------ ------------ Investments in securities, at identified cost ................ $ 44,737,126 $281,022,105 $350,814,358 ============ ============ ============ Investments in securities, at market value - see accompanying schedules for detail ......................... $ 44,737,126 $286,478,830 $349,487,641 Cash in bank on demand deposit ........................ 33 -- -- Accrued interest and dividends receivable ..................... -- 1,715,001 5,443,513 Receivable for investment securities sold ................ -- -- 1,624,680 Receivable for principal paydowns ....................... -- 230,879 -- Other receivables .................... -- -- -- Receivable for Fund shares sold ........................... -- 157,407 153,658 ------------ ------------ ------------ Total assets ............ 44,737,159 288,582,117 356,709,492 ------------ ------------ ------------ LIABILITIES Disbursements in excess of cash balances .................. -- -- -- Payable for investment securities purchased - when issued (note 1) -- -- -- Payable for investment securities purchased ...................... -- -- 2,823,877 Payable for Fund shares redeemed ....................... 82,741 36,499 246,677 Cash portion of dividends payable to shareholders ........ 23,311 905,893 1,115,514 Other payables ....................... -- 2,221 10,646 Accrued investment management and advisory services fee ...... 21,132 195,873 231,720 ------------ ------------ ------------ Total liabilities ....... 127,184 1,140,486 4,428,434 ------------ ------------ ------------ Net assets applicable to outstanding capital stock ...... $ 44,609,975 $287,441,631 $352,281,058 ============ ============ ============ Capital Stock Par .............. $ 0.001 $ 0.01 $ 0.001 Authorized shares (000's) ...... 10,000,000 10,000,000 10,000,000 Outstanding shares ............. 44,613,060 26,628,683 35,584,890 ============ ============ ============ Net asset value per share of outstanding capital stock ...... $ 1.00 $ 10.79 $ 9.90 ============ ============ ============
62 --------------------------------------------------------------------------[LOGO] MINNESOTA FLORIDA TAX-FREE TAX-FREE INCOME INCOME BOND FUND FUND FUND ------------ ------------ ------------ $215,732,668 $ 2,602,489 $ 14,293,594 ============ ============ ============ $218,275,207 $ 2,610,463 $ 14,837,382 -- 20,505 604 3,424,965 51,779 152,971 2,915,363 -- -- -- -- 2,715 1,269 -- -- 56,300 -- 838 ------------ ------------ ------------ 224,673,104 2,682,747 14,994,510 ------------ ------------ ------------ ------------ ------------ ------------ 2,609,896 -- -- 3,331,611 26,922 -- 3,888 -- 1,038 806,287 6,253 59,615 -- -- 191 148,271 1,799 10,218 ------------ ------------ ------------ 6,899,953 34,974 71,062 ------------ ------------ ------------ $217,773,151 $ 2,647,773 $ 14,923,448 ============ ============ ============ $ 0.001 $ 0.001 $ 0.001 10,000,000 10,000,000 10,000,000 21,223,101 263,560 1,482,180 ============ ============ ============ $ 10.26 $ 10.05 $ 10.07 ============ ============ ============ See accompanying notes to financial statements on pages 68 - 72. 63 SIT MUTUAL FUNDS ONE YEAR ENDED MARCH 31, 2004 -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS
U.S. MONEY GOVERNMENT TAX-FREE MARKET SECURITIES INCOME ASSETS FUND FUND FUND ------------ ------------ ------------ INVESTMENT INCOME: INCOME: Interest $ 666,803 $ 11,087,930 $ 18,981,418 ------------ ------------ ------------ Total income 666,803 11,087,930 18,981,418 ------------ ------------ ------------ EXPENSES (NOTE 3): Investment management and advisory services fee 462,406 2,801,849 3,036,296 Less fees and expenses absorbed by investment adviser (160,167) (100,000) (129,537) ------------ ------------ ------------ Total net expenses 302,239 2,701,849 2,906,759 ------------ ------------ ------------ Net investment income 364,564 8,386,081 16,074,659 ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) -- (1,912,803) (5,180,250) Net change in unrealized appreciation (or depreciation) on investments -- (443,196) 3,234,491 ------------ ------------ ------------ Net gain (loss) on investments -- (2,355,999) (1,945,759) ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations $ 364,564 $ 6,030,082 $ 14,128,900 ============ ============ ============
(*) Period from commencement of operations, December 31, 2003 64 --------------------------------------------------------------------------[LOGO] MINNESOTA FLORIDA TAX-FREE TAX-FREE INCOME INCOME BOND FUND FUND(*) FUND ------------ ------------ ------------ $ 11,335,791 $ 18,064 $ 957,808 ------------ ------------ ------------ 11,335,791 18,064 957,808 ------------ ------------ ------------ 1,716,463 4,386 140,648 ------------ ------------ ------------ 1,716,463 4,386 140,648 ------------ ------------ ------------ 9,619,328 13,678 817,160 ------------ ------------ ------------ (566,405) 249 106,213 1,430,127 7,974 177,221 ------------ ------------ ------------ 863,722 8,223 283,434 ------------ ------------ ------------ $ 10,483,050 $ 21,901 $ 1,100,594 ============ ============ ============ See accompanying notes to financial statements on pages 68 - 72. 65 SIT MUTUAL FUNDS -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
MONEY MARKET U.S. GOVERNMENT FUND SECURITIES FUND ---------------------------------- ---------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31, MARCH 31, MARCH 31, MARCH 31, 2004 2003 2004 2003 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income ............................ $ 364,564 $ 827,964 $ 8,386,081 $ 12,773,972 Net realized gain (loss) on investments .......... -- -- (1,912,803) 191,850 Net change in unrealized appreciation (depreciation) of investments .................. -- -- (443,196) 2,579,600 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ........................... 364,564 827,964 6,030,082 15,545,422 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ............................ (364,564) (827,964) (8,386,081) (12,773,972) Net realized gains on investments ................ -- -- -- -- ------------- ------------- ------------- ------------- Total distributions ........................... (364,564) (827,964) (8,386,081) (12,773,972) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold ........................ 293,752,413 455,807,319 138,253,374 375,452,226 Reinvested distributions ......................... 253,263 560,232 7,544,075 11,592,130 Payments for shares redeemed ..................... (323,238,848) (476,309,083) (264,839,538) (192,923,331) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions .................. (29,233,172) (19,941,532) (119,042,089) 194,121,025 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets .... (29,233,172) (19,941,532) (121,398,088) 196,892,475 NET ASSETS Beginning of period .............................. 73,843,147 93,784,679 408,839,719 211,947,244 ------------- ------------- ------------- ------------- End of period .................................... $ 44,609,975 $ 73,843,147 $ 287,441,631 $ 408,839,719 ============= ============= ============= ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) .......... $ 44,609,975 $ 73,843,147 $ 286,424,977 $ 405,467,066 Undistributed (distributions in excess of) net investment income .............................. -- -- -- -- Accumulated net realized gain (loss) from security transactions .......................... -- -- (4,440,071) (2,527,268) Unrealized appreciation (depreciation) on investments ................................. -- -- 5,456,725 5,899,921 ------------- ------------- ------------- ------------- $ 44,609,975 $ 73,843,147 $ 287,441,631 $ 408,839,719 ============= ============= ============= ============= CAPITAL TRANSACTIONS IN SHARES: Sold ............................................. 293,752,412 455,807,360 12,864,871 34,677,651 Reinvested distributions ......................... 253,263 560,232 702,008 1,071,578 Redeemed ......................................... (323,238,848) (476,309,083) (24,694,458) (17,827,236) ------------- ------------- ------------- ------------- Net increase (decrease) ............................. (29,233,173) (19,941,491) (11,127,579) 17,921,993 ============= ============= ============= =============
66 --------------------------------------------------------------------------[LOGO]
TAX-FREE MINNESOTA TAX-FREE FLORIDA TAX-FREE BOND INCOME FUND INCOME FUND INCOME FUND FUND ------------------------------ ------------------------------ ---------------------------- ------------------------------- THREE MONTHS YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, 2004 2003 2004 2003 2004 2003 2004 2003 ------------- ------------- ------------- ------------- ------------- ----------- ------------- ------------- $ 16,074,659 $ 19,371,555 $ 9,619,328 $ 9,589,605 $ 13,678 -- $ 817,160 $ 923,071 (5,180,250) 881,329 (566,405) (997,718) 249 -- 106,213 88,365 3,234,491 4,490,386 1,430,127 5,502,200 7,974 -- 177,221 251,470 ------------- ------------- ------------- ------------- ------------- ----------- ------------- ------------- 14,128,900 24,743,270 10,483,050 14,094,087 21,901 -- 1,100,594 1,262,906 ------------- ------------- ------------- ------------- ------------- ----------- ------------- ------------- (16,074,659) (19,371,555) (9,619,328) (9,589,605) (13,678) -- (817,160) (923,005) -- -- -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ----------- ------------- ------------- (16,074,659) (19,371,555) (9,619,328) (9,589,605) (13,678) -- (817,160) (923,005) ------------- ------------- ------------- ------------- ------------- ----------- ------------- ------------- 78,962,625 122,526,104 61,673,832 77,074,420 2,632,125 -- 4,564,417 12,874,720 13,966,051 16,287,715 7,727,688 7,783,102 7,425 -- 801,760 867,206 (153,120,558) (170,198,305) (71,860,224) (65,269,259) -- -- (10,423,529) (9,121,542) ------------- ------------- ------------- ------------- ------------- ----------- ------------- ------------- (60,191,882) (31,384,486) (2,458,704) 19,588,263 2,639,550 -- (5,057,352) 4,620,384 ------------- ------------- ------------- ------------- ------------- ----------- ------------- ------------- (62,137,641) (26,012,771) (1,594,982) 24,092,745 2,647,773 -- (4,773,918) 4,960,285 414,418,699 440,431,470 219,368,133 195,275,388 -- -- 19,697,366 14,737,081 ------------- ------------- ------------- ------------- ------------- ----------- ------------- ------------- $ 352,281,058 $ 414,418,699 $ 217,773,151 $ 219,368,133 $ 2,647,773 -- $ 14,923,448 $ 19,697,366 ============= ============= ============= ============= ============= =========== ============= ============= $ 383,433,584 $ 443,625,466 $ 222,359,281 $ 224,853,762 $ 2,639,550 -- $ 14,688,844 $ 19,746,196 -- -- -- -- -- -- -- -- (29,825,809) (24,645,559) (7,128,669) (6,598,041) 249 -- (309,184) (415,397) (1,326,717) (4,561,208) 2,542,539 1,112,412 7,974 -- 543,788 366,567 ------------- ------------- ------------- ------------- ------------- ----------- ------------- ------------- $ 352,281,058 $ 414,418,699 $ 217,773,151 $ 219,368,133 $ 2,647,773 -- $ 14,923,448 $ 19,697,366 ============= ============= ============= ============= ============= =========== ============= ============= 8,012,221 12,327,611 6,042,923 7,586,422 262,821 -- 460,510 1,305,543 1,414,778 1,637,735 757,985 766,203 739 -- 80,921 87,771 (15,522,405) (17,112,887) (7,049,298) (6,428,863) -- -- (1,051,186) (923,618) ------------- ------------- ------------- ------------- ------------- ----------- ------------- ------------- (6,095,406) (3,147,541) (248,390) 1,923,762 263,560 -- (509,755) 469,696 ============= ============= ============= ============= ============= =========== ============= =============
See accompanying notes to financial statements on pages 68 - 72. 67 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 and Florida Tax-Free Income Funds which are 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. The Sit Florida Tax-Free Income Fund is a series fund of Sit Mutual Funds Trust. This report covers the bond funds of the Sit Mutual Funds. The investment objective for each Fund is as follows: --------------------------------------------------------------------------- FUND INVESTMENT OBJECTIVES --------------------------------------------------------------------------- Money Market Maximum current income with the preservation of capital and maintenance of liquidity. --------------------------------------------------------------------------- U.S. Government High current income and safety of principal. Securities --------------------------------------------------------------------------- Tax-Free Income High current income that is exempt from federal income tax, consistent with the preservation of capital. --------------------------------------------------------------------------- Minnesota High current income that is exempt from federal income Tax-Free Income tax and Minnesota regular personal income tax, consistent with the preservation of capital. --------------------------------------------------------------------------- Florida High current income that is exempt from federal regular Tax-Free Income income tax by investing in securities that are exempt from the Florida intangibles tax. --------------------------------------------------------------------------- Bond Maximize total return, consistent with the preservation of capital. --------------------------------------------------------------------------- Significant accounting policies followed by the Funds are summarized below: INVESTMENTS IN SECURITIES Securities maturing more than 60 days from the valuation date, with the exception of those in Money Market Fund, are valued at the market price supplied by an independent pricing vendor based on current interest rates; those securities with maturities of less than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued at amortized cost, which approximates market value. When market quotations are not readily available, securities are valued at fair value based on procedures determined in good faith by the Boards of Directors. 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. Dividends received from closed-end fund holdings are included in Interest Income and are generated from the underlying investments. 68 --------------------------------------------------------------------------[LOGO] Delivery and payment for securities which have been purchased by the Funds on a forward commitment or when-issued basis can take place two weeks 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 the Funds maintain, in a segregated account with their custodian, assets with a market value greater than the amount of their purchase commitments. As of March 31, 2004, the Minnesota Tax-Free Income Fund had entered into when-issued or forward commitments of $2,609,896. 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. The Florida Tax-Free Income Fund concentrates its investments in Florida, and therefore may have more credit risk related to the economic conditions in the state of Florida than a portfolio with broader geographical diversification. FEDERAL TAXES The Funds' policy is to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no income tax provision is required. Also, in order to avoid the payment of any federal excise taxes, the Funds will distribute substantially all of their net investment income and net realized gains on a calendar year basis. Net investment income and net realized gains may differ for financial statement and tax purposes. The character of distributions made during the year for net investment income or net realized gains may also differ from its ultimate characterization for tax purposes. The tax character of distributions paid during the fiscal years ended March 31, was as follows: YEAR ENDED MARCH 31, 2004: Long Term Ordinary Income Capital Gain Total --------------- ------------ ----------- Money Market $364,564 ----- $364,564 U.S. Government Securities $8,386,081 ----- $8,386,081 Tax-Free Income (*) $16,074,659 ----- $16,074,659 MN Tax-Free Income (*) $9,619,328 ----- $9,619,328 FL Tax-Free Income (*) $13,678 ----- $13,678 Bond $817,160 ----- $817,160 (*) 100% of dividends were derived from interest on tax-exempt securities. 69 SIT MUTUAL FUNDS -------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED MARCH 31, 2003: Long Term Ordinary Income Capital Gain Total --------------- ------------ ----------- Money Market $827,964 ----- $827,964 U.S. Government Securities $12,773,972 ----- $12,773,972 Tax-Free Income (*) $19,371,555 ----- $19,371,555 MN Tax-Free Income (*) $9,589,605 ----- $9,589,605 FL Tax-Free Income (*) N/A ----- N/A Bond $923,005 ----- $923,005 (*) 100% of dividends were derived from interest on tax-exempt securities. As of March 31, 2004, the components of distributable earnings on a tax basis were as follows: Unrealized Undistributed Accumulated Appreciation Ordinary Income Gain (Loss) (Depreciation) --------------- ----------- -------------- Money Market $23,311 ----- ----- U.S. Government Securities 905,893 ($4,440,071) $5,456,725 Tax-Free Income 1,115,514 (29,825,809) (1,326,717) MN Tax-Free Income 806,287 (7,128,669) 2,542,539 FL Tax-Free Income 6,253 249 7,974 Bond 59,615 (309,184) 543,788 Accumulated net realized gains (losses) from the Statement of Changes in Net Assets have been increased (decreased) by permanent book-to-tax differences resulting in reclassification of additional paid-in-capital as follows: Accumulated Net Additional Realized Gains (Losses) Paid-In-Capital ----------------------- --------------- MN Tax-Free Income $35,777 ($35,777) As of March 31, 2004, for federal income tax purposes, some Funds have capital loss carryovers which, if not offset by subsequent gains will begin to expire as follows: Loss Carryover Expiration Year -------------- --------------- U.S. Government Securities $4,440,071 2007 Tax-Free Income $29,825,809 2008 MN Tax-Free Income $7,128,669 2008 Bond $309,184 2008 DISTRIBUTIONS Distributions to shareholders are recorded as of the close of business on the record date. Such distributions are payable in cash or reinvested in additional shares of the Funds' capital stock. Distributions from net investment income are declared daily and paid monthly for the Funds. Distributions from net realized gains, if any, will be made annually for each of the Funds. 70 --------------------------------------------------------------------------[LOGO] USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported results. Actual results could differ from those estimates. PROXY VOTING POLICIES AND PROCEDURES Each Fund follows certain policies and procedures for voting proxies for securities held in each portfolio. A description of the Funds' proxy voting policies and procedures is available without charge, upon request, by calling 1-800-332-5580. Beginning in August, 2004, each Fund will file its proxy voting record with the SEC and that record will be available on the SEC's website and from the Fund. (2) INVESTMENT SECURITY TRANSACTIONS Purchases of and proceeds from sales and maturities of investment securities, other than short-term securities, for the period ended March 31, 2004, were as follows: Purchases ($) Proceeds ($) ------------- ------------ U.S. Government Securities Fund 198,373,455 314,354,417 Tax-Free Income Fund 119,924,037 178,821,438 Minnesota Tax-Free Income Fund 75,337,785 54,963,113 Florida Tax-Free Income Fund 2,688,646 78,875 Bond Fund 11,863,325 15,890,495 For the Money Market Fund during the period ended March 31, 2004 purchases of and proceeds from sales and maturities of investment securities aggregated $981,574,157 and $1,011,332,000, 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 Funds' assets and provides research, statistical and advisory services, and pays related office rental, executive expenses and executive salaries. SIA also is obligated to pay all of the 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% Florida Tax-Free Income Fund .80% 71 SIT MUTUAL FUNDS -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) First Over $50 Million $50 Million ----------- ----------- Money Market Fund .80% .60% U.S. Government Securities Fund 1.00% .80% For the period October 1, 1993, through December 31, 2004, 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, 2004, this voluntary fee waiver may be discontinued by the Adviser in its sole discretion. For the period October 1, 1993, through December 31, 2004, 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, 2004, this voluntary fee waiver may be discontinued by the Adviser in its sole discretion. As of March 31, 2004, the Bond Fund had invested $91,000 in the Sit Money Market Fund. The terms of such transactions were identical to those of non-related entities except that, to avoid duplicate investment advisory fees, SIA remits to the Fund an amount equal to all fees otherwise due to them under its investment management agreement for the assets invested in the Sit Money Market Fund. TRANSACTIONS WITH AFFILIATES The investment adviser, affiliates of the investment adviser, directors and officers of the Funds as a whole owned the following shares as of March 31, 2004: Shares % Outstanding ---------- ------------- Money Market Fund 11,966,811 26.8 U.S. Government Securities Fund 302,147 1.1 Tax-Free Income Fund 2,171,039 6.1 Minnesota Tax-Free Income Fund 1,088,258 5.1 Florida Tax-Free Income Fund 207,061 78.6 Bond Fund 140,765 9.5 (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 on pages 73 through 78. 72 SIT MONEY MARKET FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Years Ended March 31, ------------------------------------------------------------ 2004 2003 2002 2001 2000 =================================================================================================================== NET ASSET VALUE: Beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income 0.01 0.01 0.03 0.06 0.05 ------------------------------------------------------------------------------------------------------------------- Total from operations 0.01 0.01 0.03 0.06 0.05 ------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (0.01) (0.01) (0.03) (0.06) (0.05) ------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------------------------------------------------------------------------------------------------------------------- Total investment return(1) 0.60% 1.13% 2.63% 6.00% 5.05% ------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 44,610 $ 73,843 $ 93,785 $110,505 $150,897 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 0.60%(2) 1.14%(2) 2.65%(2) 5.88%(2) 5.05%(2)
--------- (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) 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 years ended March 31, 2004, 2003, 2002, 2001, and 2000, the investment adviser voluntarily absorbed expenses that were otherwise payable by the Fund. Had the Fund incurred these expenses, the ratio of expenses to average average daily net assets would have been .76%, .74%, .70%, .67%, and .71% for each of these periods and the ratio of net investment income to average daily net assets would have been .34%, .90%, 2.45%, 5.71%, and 4.84%, respectively. 73 SIT U.S. GOVERNMENT SECURITIES FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Years Ended March 31, ------------------------------------------------------------ 2004 2003 2002 2001 2000 ========================================================================================================================== NET ASSET VALUE: Beginning of period $ 10.83 $ 10.69 $ 10.59 $ 10.22 $ 10.51 -------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .27 .45 .58 .65 .59 Net realized and unrealized gains (losses) on investments (.04) .14 .10 .37 (.29) -------------------------------------------------------------------------------------------------------------------------- Total from operations .23 .59 .68 1.02 .30 -------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.27) (.45) (.58) (.65) (.59) From realized gains -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Total Distributions (.27) (.45) (.58) (.65) (.59) -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 10.79 $ 10.83 $ 10.69 $ 10.59 $ 10.22 -------------------------------------------------------------------------------------------------------------------------- Total investment return(1) 2.19% 5.60% 6.53% 10.34% 2.92% -------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $287,442 $408,840 $211,947 $154,356 $135,841 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 2.48%(2) 3.98%(2) 5.40%(2) 6.30%(2) 5.66%(2) Portfolio turnover rate (excluding short-term securities) 61.99% 77.06% 54.69% 55.53% 98.17%
--------- (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) 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 for Fund net assets exceeding $50 million. However, during the years ended March 31, 2004, 2003, 2002, 2001, and 2000 the investment adviser voluntarily absorbed 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 .83%, .83%, .85%, .87%, and .86% for each of these periods and the ratio of net investment income to average daily net assets would have been 2.45%, 3.95%, 5.35%, 6.23%, and 5.60%, respectively. 74 SIT TAX-FREE INCOME FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Years Ended March 31, ------------------------------------------------------------ 2004 2003 2002 2001 2000 ========================================================================================================================== NET ASSET VALUE: Beginning of period $ 9.94 $ 9.82 $ 9.90 $ 9.57 $ 10.39 -------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .42 .45 .48 .51 .51 Net realized and unrealized gains (losses) on investments (.04) .12 (.08) .33 (.82) -------------------------------------------------------------------------------------------------------------------------- Total from operations .38 .57 .40 .84 (.31) -------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.42) (.45) (.48) (.51) (.51) From realized gains -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Total distributions (.42) (.45) (.48) (.51) (.51) -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 9.90 $ 9.94 $ 9.82 $ 9.90 $ 9.57 -------------------------------------------------------------------------------------------------------------------------- Total investment return(1) 3.89% 5.90% 4.05% 9.02% (2.98%) -------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $352,281 $414,419 $440,431 $502,184 $582,549 RATIOS: Expenses to average daily net assets 0.76%(2) 0.76%(2) 0.75%(2) 0.74%(2) 0.70%(2) Net investment income to average daily net assets 4.23%(2) 4.53%(2) 4.79%(2) 5.27%(2) 5.15%(2) Portfolio turnover rate (excluding short-term securities) 32.33% 37.98% 40.02% 12.14% 24.72%
--------- (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) Total Fund expenses are contractually limited to .80% of average daily net assets. However, during the years ended March 31, 2004, 2003, 2002, 2001, and 2000, the investment adviser voluntarily absorbed 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 4.19%, 4.49%, 4.74%, 5.21%, and 5.05%, respectively. 75 SIT MINNESOTA TAX-FREE INCOME FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Years Ended March 31, ------------------------------------------------------------ 2004 2003 2002 2001 2000 ========================================================================================================================== NET ASSET VALUE: Beginning of period $ 10.22 $ 9.99 $ 10.01 $ 9.73 $ 10.55 -------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .46 .47 .49 .52 .52 Net realized and unrealized gains (losses) on investments .04 .23 (.02) .28 (.82) -------------------------------------------------------------------------------------------------------------------------- Total from operations .50 .70 .47 .80 (.30) -------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.46) (.47) (.49) (.52) (.52) -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 10.26 $ 10.22 $ 9.99 $ 10.01 $ 9.73 -------------------------------------------------------------------------------------------------------------------------- Total investment return(1) 4.99% 7.14% 4.74% 8.43% (2.84%) -------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $217,773 $219,368 $195,275 $181,182 $172,905 RATIOS: Expenses to average daily net assets 0.80% 0.80% 0.80% 0.80% 0.80% Net investment income to average daily net assets 4.47% 4.62% 4.87% 5.27% 5.16% Portfolio turnover rate (excluding short-term securities) 27.31% 19.51% 23.81% 14.59% 18.50%
--------- (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. 76 SIT FLORIDA TAX-FREE INCOME FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Three months ended March 31, 2004 -------------- ============================================================================= NET ASSET VALUE: Beginning of period $10.00 ----------------------------------------------------------------------------- OPERATIONS: Net investment income .06 Net realized and unrealized gains (losses) on investments .05 ----------------------------------------------------------------------------- Total from operations .11 ----------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.06) ----------------------------------------------------------------------------- NET ASSET VALUE: End of period $10.05 ----------------------------------------------------------------------------- Total investment return (1) 1.08% ----------------------------------------------------------------------------- Net assets at end of period (000's omitted) $2,648 RATIOS: Expenses to average daily net assets 0.80%(2) Net investment income to average daily net assets 2.49%(2) Portfolio turnover rate (excluding short-term securities) 3.45% --------- (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. 77 SIT BOND FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Years Ended March 31, ------------------------------------------------------------ 2004 2003 2002 2001 2000 -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 9.89 $ 9.68 $ 9.80 $ 9.43 $ 9.95 -------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .46 .53 .62 .64 .58 Net realized and unrealized gains (losses) on investments .18 .21 (.12) .37 (.50) -------------------------------------------------------------------------------------------------------------------------- Total from operations .64 .74 .50 1.01 .08 -------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.46) (.53) (.62) (.64) (.58) From realized gains -- -- -- -- (.02) -------------------------------------------------------------------------------------------------------------------------- Total distributions (.46) (.53) (.62) (.64) (.60) -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 10.07 $ 9.89 $9.68 $ 9.80 $ 9.43 -------------------------------------------------------------------------------------------------------------------------- Total investment return(1) 6.66% 7.74% 5.18% 11.18% 0.93% -------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 14,923 $ 19,697 $14,737 $ 13,281 $ 12,162 RATIOS: Expenses to average daily net assets 0.80% 0.80% 0.80% 0.80% 0.80% Net investment income to average daily net assets 4.64% 5.30% 6.34% 6.79% 6.06% Portfolio turnover rate (excluding short-term securities) 70.43% 76.19% 91.23% 89.65% 131.67%
--------- (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. 78 SIT MUTUAL FUNDS -------------------------------------------------------------------------------- INDEPENDENT AUDITORS REPORT The Board of Directors and Shareholders Sit Money Market Fund, Inc. Sit U.S. Government Securities Fund, Inc. Sit Mutual Funds II, Inc. Sit Mutual Funds Trust: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Sit Money Market Fund, Inc., Sit U.S. Government Securities Fund, Inc., Sit Bond Fund (a series of Sit Mutual Funds II, Inc.), Sit Tax-Free Income Fund (a series of Sit Mutual Funds II, Inc.), Sit Minnesota Tax-Free Income Fund (a series of Sit Mutual Funds II, Inc.), and Sit Florida Tax-Free Income Fund (a series of Sit Mutual Funds Trust), as of March 31, 2004, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2004, by correspondence with the custodian or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Sit Money Market Fund, Sit U.S. Government Securities Fund, Sit Bond Fund, Sit Tax-Free Income Fund, Sit Minnesota Tax-Free Income Fund, and Sit Florida Tax-Free Income Fund as of March 31, 2004, and the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP May 7, 2004 79 SIT MUTUAL FUNDS -------------------------------------------------------------------------------- RESULTS OF SHAREHOLDER MEETING The annual meeting of the shareholders of the Funds was held on October 20, 2003. Directors elected by the shareholders were as follows: Eugene C. Sit, William E. Frenzel, John E. Hulse, Sidney L. Jones, Bruce C. Lueck, and Donald W. Phillips. The matters voted on by the shareholders of record as of August 21, 2003 and results of the shareholders' vote at the October 20, 2003 meeting were as follows:
PROPOSAL ONE: ELECTION OF DIRECTORS ================================================================================================================================= SIT JONES FRENZEL LUECK -------------- -------------- -------------- -------------- US GOVERNMENT SECURITIES For 26,249,380.672 26,454,450.054 26,210,703.305 26,438,895.148 Against 472,228.349 267,158.967 510,905.716 282,713.873 Abstain 0.000 0.000 0.000 0.000 TAX-FREE INCOME For 28,128,126.860 28,184,773.804 28,081,071.378 28,210,184.583 Against 361,466.781 304,819.837 408,522.263 279,409.058 Abstain 0.000 0.000 0.000 0.000 MONEY MARKET For 47,556,740.734 47,551,270.254 47,546,946.954 47,556,740.734 Against 154,976.090 160,446.570 164,769.870 154,976.090 Abstain 0.000 0.000 0.000 0.000 MN TAX-FREE INCOME For 13,528,412.960 13,671,963.666 13,488,388.755 13,680,571.686 Against 239,087.801 95,537.095 279,112.006 86,929.075 Abstain 0.000 0.000 0.000 0.000 BOND For 1,088,343.294 1,088,343.294 1,088,343.294 1,088,343.294 Against 9,618.930 9,618.930 9,618.930 9,618.930 Abstain 0.000 0.000 0.000 0.000
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PROPOSAL TWO: RATIFY KPMG LLP AS THE FUNDS' AUDITORS =========================================== ============================================================= HULSE PHILLIPS -------------- -------------- US GOVERNMENT SECURITIES 26,415,668.884 26,473,702.606 For 26,209,141.860 305,940.137 247,906.415 Against 163,256.479 0.000 0.000 Abstain 349,210.682 TAX-FREE INCOME 28,113,449.413 28,128,673.768 For 27,913,534.695 376,144.228 360,919.873 Against 276,719.629 0.000 0.000 Abstain 299,339.317 MONEY MARKET 47,556,740.734 47,556,740.734 For 47,589,019.174 154,976.090 154,976.090 Against 116,077.910 0.000 0.000 Abstain 6,619.740 MN TAX-FREE INCOME 13,671,963.666 13,677,194.340 For 13,500,575.224 95,537.095 90,306.417 Against 72,021.326 0.000 0.000 Abstain 194,904.211 BOND 1,088,343.294 1,088,343.294 For 1,095,171.792 9,618.930 9,618.930 Against 2,790.432 0.000 0.000 Abstain 0.000
81 SIT MUTUAL FUNDS -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND OFFICERS The Sit Mutual Funds are a family of 14 no-load mutual funds. The six Bond Funds described in this Bond Funds Annual Report are the Sit Money Market Fund, Sit U.S. Government Securities Fund, Sit Tax-Free Income Fund, Sit Minnesota Tax-Free Income Fund, Sit Florida Tax-Free Income Fund, and the Sit Bond Fund (the "Funds" or individually, a "Fund"). The eight stock funds within the Sit Mutual Fund family are described in a Stock Funds Statement of Additional Information (SAI). The Sit Money Market Fund, Sit U.S. Government Securities Fund, the corporate issuer of the Sit Florida Tax-Free Income Fund and the corporate issuer of the Sit Bond Fund, Sit Tax-Free Income Fund and the Sit Minnesota Tax-Free Income Fund have a Board of Directors and officers. Pursuant to Minnesota law, the Boards of Directors are responsible for the management of the Funds and the establishment of the Funds' policies. The officers of the Funds manage the day-to-day operation of the Funds. Information pertaining to the directors and officers of the Funds is set forth below. The business address, unless otherwise noted below, is that of the Funds' investment adviser - 4600 Wells Fargo Center, 90 South Seventh Street, Minneapolis, Minnesota 55402. The Boards have a separate Audit Committee. The Bond Funds SAI has additional information about the fund's directors and is available without charge upon request by calling the Sit Funds at 800-332-5580.
------------------- ------------------ ------------------ ------------------ ------------------ ----------------- NUMBER OF PRINCIPAL FUNDS IN OTHER NAME, POSITION TERM OF OFFICE(1) OCCUPATIONS FUND COMPLEX DIRECTORSHIPS ADDRESS HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY HELD BY AND AGE THE FUNDS TIME SERVED FIVE YEARS DIRECTOR DIRECTOR(4) ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- INTERESTED DIRECTORS: -------------------------------------- ------------------ ------------------ ------------------ ----------------- Eugene C. Sit(2) Director and Director since Chairman, CEO 14 None. Age: 65 Chairman inception. and CIO of Sit Investment Associates, Inc. (the "Adviser") and Sit/Kim International Investment Associates, Inc. ("Sit/Kim"); Director of SIA Securities Corp. (the "Distributor"), and Chairman and CEO of Sit Investment Fixed Income Advisors, Inc. ("SF"). ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- William E. Director Director since Guest Scholar at 14 None. Frenzel(2) 1991 or the The Brookings Age: 75 Fund's inception Institution and if later. member of several government policy committees, foundations and organizations; Advisory Director of the Adviser; Director of Sit/Kim and SF. ------------------- ------------------ ------------------ ------------------ ------------------ -----------------
82
------------------- ------------------ ------------------ ------------------ ------------------ ----------------- NUMBER OF PRINCIPAL FUNDS IN OTHER NAME, POSITION TERM OF OFFICE(1) OCCUPATIONS FUND COMPLEX DIRECTORSHIPS ADDRESS HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY HELD BY AND AGE THE FUNDS TIME SERVED FIVE YEARS DIRECTOR DIRECTOR(4) ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- INDEPENDENT DIRECTORS: -------------------------------------- ------------------ ------------------ ------------------ ----------------- John E. Hulse Director Director since Trustee, Pacific 14 None. Age: 70 1995. Gas & Electric Nuclear Decommissioning Master Trust. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Sidney L. Jones Director Director from Lecturer, 14 None. Age: 70 1988 to 1989 and Washington from 1993 or the Campus Fund's inception Consortium of 17 if later. Universities; Senior Advisor to Lawrence and Company, Toronto, Canada. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Bruce C. Lueck Director Director since President & CIO, 14 None. Age: 63 2004. Okabena Investment Services, Inc. from 1985 to 2003; Board Member, Okabena Company from 1985 to 2003: Board Member, Zephyr Management, L.P., from 1995 to present. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Donald W. Phillips Director Director of the CEO and CIO of 14 None. Age: 55 International WestLB Asset Fund since 1993, Management (USA) and since 1990 LLC, 4/00 to or the Fund's present; inception if President of later for all Forstmann-Leff other Funds. International, Inc. (an investment adviser) from 1997 to 4/00. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Melvin C. Bahle Director Emeritus Director Director and/or 14 None. Age: 84 Emeritus officer of since 1995. several foundations and charitable organizations. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- OFFICERS: ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Peter L. Vice Chairman Re-Elected by Director and N/A N/A Mitchelson the Boards President of the Age: 62 annually; Adviser; Officer since Director and inception. Executive Vice President of Sit/Kim; Director of the Distributor; and Vice Chairman of SF. Director of the Sit Funds through 4/30/02. ------------------- ------------------ ------------------ ------------------ ------------------ -----------------
83 SIT MUTUAL FUNDS -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND OFFICERS (CONTINUED)
------------------- ------------------ ------------------ ------------------ ------------------ ----------------- NUMBER OF PRINCIPAL FUNDS IN OTHER NAME, POSITION TERM OF OFFICE(1) OCCUPATIONS FUND COMPLEX DIRECTORSHIPS ADDRESS HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY HELD BY AND AGE THE FUNDS TIME SERVED FIVE YEARS DIRECTOR DIRECTOR(4) ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- OFFICERS (CONTINUED): -------------------------------------- ------------------ ------------------ ------------------ ----------------- Roger J. Sit(3) Executive Vice Re-Elected by Executive Vice N/A N/A Age: 42 President the Boards President - annually; Research and Officer since Investment 1998. Management of the Adviser; Director, President, COO, and Deputy CIO of Sit/Kim. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Michael C. Brilley Senior Vice Re-Elected by Senior Vice N/A N/A Age: 58 President the Boards President and annually; Senior Fixed Officer since Income Officer 1985. of the Adviser; Director and President and Chief Fixed Income Officer of SF. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- G. Todd Berkley Chief Operating Re-Elected by COO of the N/A N/A Age: 42 Officer the Boards Funds; Sr. Vice annually; President, US Officer since Bancorp 12/00 to 2002. 2/01; Vice President, US Bank 5/95 to 12/99. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Debra A. Sit(3) Vice President, Re-Elected by Vice President - N/A N/A Age: 43 Investments the Boards Bond Investments annually; of the Adviser; Officer since Assistant 1994. Treasurer and Assistant Secretary of Sit/Kim and SF; and Senior Vice President - Investments of SF. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Mark H. Book Vice President - Re-Elected by the Vice President and N/A N/A Age: 40 Investments. Boards annually; Fixed Income U.S. Government Officer since Portfolio Manager and Bond Funds 2002. of SF. only. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Bryce A. Doty Vice President - Re-Elected by the Vice President and N/A N/A Age: 37 Investments. Boards annually; Fixed Income U.S. Government Officer since Portfolio Manager and Bond Funds 1996. of SF. only. ------------------- ------------------ ------------------ ------------------ ------------------ -----------------
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------------------- ------------------ ------------------ ------------------ ------------------ ----------------- NUMBER OF PRINCIPAL FUNDS IN OTHER NAME, POSITION TERM OF OFFICE(1) OCCUPATIONS FUND COMPLEX DIRECTORSHIPS ADDRESS HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY HELD BY AND AGE THE FUNDS TIME SERVED FIVE YEARS DIRECTOR DIRECTOR(4) ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- OFFICERS (CONTINUED): ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Paul J. Junquist VicePresident - Re-Elected by Vice President N/A N/A Age: 42 Investments. the Boards and Fixed Income Money Market, MN annually; Portfolio Tax-Free Income, Officer since Manager of SF. and FL Tax-Free 1996. Income Funds only. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Michael P. Eckert Vice President - Re-Elected by Mutual Fund N/A N/A Age: 48 Institutional the Boards Institutional Client Group. annually; Client Group of Officer since Adviser 1989. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Paul E. Rasmussen Vice President Re-Elected by Vice President, N/A N/A Age: 43 and Treasurer the Boards Secretary, annually; Controller and Officer since Chief Compliance 1994. Officer of the Adviser; Vice President, Secretary, and Chief Compliance Officer of Sit/Kim and SF; Presi-dent of the Distributor. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Michael J. Radmer Secretary Re-Elected by Partner of the N/A N/A Age: 59 the Boards Funds' general annually; counsel, Dorsey Officer since & Whitney, LLP 1984. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Carla J. Rose Vice President, Re-Elected by Vice President, N/A N/A Age: 37 Assistant the Boards Administration Secretary & annually; and Deputy Assistant Officer since Controller of Treasurer 2000. the Adviser; Vice President, Administration and Controller of Sit/Kim; Controller and Treasurer of SF. ------------------- ------------------ ------------------ ------------------ ------------------ ----------------- Kelly K. Boston Assistant Re-Elected by Staff Attorney N/A N/A Age: 35 Secretary & the Boards of the Adviser. Assistant annually; Treasurer Officer since 2000. ------------------- ------------------ ------------------ ------------------ ------------------ -----------------
(1) Each Director serves until their resignation, removal or the next meeting of the shareholders at which election of directors is an agenda item and until his successor is duly elected and shall qualify. (2) Directors who are deemed to be "interested persons" of the Funds as that term is defined by the Investment Company Act of 1940. Mr. Sit is considered an "interested person" because he is an officer of Sit Investment Associates, Inc., the Fund's investment adviser. Mr. Frenzel is deemed to be an interested person because he is an advisory director and shareholder of the Fund's investment adviser. (3) Mr. Roger Sit is the son of Eugene C. Sit. Ms. Debra Sit is the daughter of Eugene C. Sit. (4) Includes only directorships of companies required to report under the Securities Exchange Act of 1934 (i.e. public companies) or other investment companies registered under the 1940 Act. 85 FEDERAL TAX INFORMATION -------------------------------------------------------------------------------- We are required by Federal tax regulations to provide shareholders with certain information regarding dividend distrituions on an annual fiscal year basis. The figures are for informational purposes only and should not be used for reporting to federal or state revenue agencies. All necessary tax information will be mailed in January each year.
LONG-TERM LONG-TERM ORDINARY CAPITAL ORDINARY CAPITAL FUND AND PAYABLE DATE INCOME (A) GAIN (B) FUND AND PAYABLE DATE INCOME (A) GAIN (B) -------------------------- ------------ ------------ ------------------------------ ------------- ------------ Money Market Fund U.S. Government Securities Fund April 30, 2003 $0.00061 $ ---- April 30, 2003 $0.02484 $ ---- May 31, 2003 0.00063 ---- May 31, 2003 0.01296 ---- June 30, 2003 0.00058 ---- June 30, 2003 0.01769 ---- July 31, 2003 0.00048 ---- July 31, 2003 0.01939 ---- August 31, 2003 0.00042 ---- August 31, 2003 0.01733 ---- September 30, 2003 0.00047 ---- September 30, 2003 0.02282 ---- October 31, 2003 0.00047 ---- October 31, 2003 0.01947 ---- November 30, 2003 0.00042 ---- November 30, 2003 0.01822 ---- December 31, 2003 0.00050 ---- December 31, 2003 0.02702 ---- January 31, 2004 0.00047 ---- January 31, 2004 0.02824 ---- February 28, 2004 0.00041 ---- February 28, 2004 0.03045 ---- March 31, 2004 0.00048 ---- March 31, 2004 0.03400 ---- ------------ ------------ ------------- ------------ $0.00595(c) $0.00000 $0.27241(c) $0.00000 ============ ============ ============= ============ Bond Fund Tax-Free Income Fund April 30, 2003 $0.03494 $ ---- April 30, 2003 $0.03691 $ ---- May 31, 2003 0.03784 ---- May 31, 2003 0.03513 ---- June 30, 2003 0.03733 ---- June 30, 2003 0.03614 ---- July 31, 2003 0.04216 ---- July 31, 2003 0.03594 ---- August 31, 2003 0.03090 ---- August 31, 2003 0.03359 ---- September 30, 2003 0.03971 ---- September 30, 2003 0.03619 ---- October 31, 2003 0.03807 ---- October 31, 2003 0.03518 ---- November 30, 2003 0.03639 ---- November 30, 2003 0.03186 ---- December 31, 2003 0.04989 ---- December 31, 2003 0.03970 ---- January 31, 2004 0.03679 ---- January 31, 2004 0.03393 ---- February 28, 2004 0.03820 ---- February 28, 2004 0.03162 ---- March 31, 2004 0.03986 ---- March 31, 2004 0.03132 ---- ------------ ------------ ------------- ------------ $0.46206(c) $0.00000 $0.41750(d) $0.00000 ============ ============ ============= ============
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LONG-TERM LONG-TERM ORDINARY CAPITAL ORDINARY CAPITAL FUND AND PAYABLE DATE INCOME (A) GAIN (B) FUND AND PAYABLE DATE INCOME (A) GAIN (B) -------------------------- ------------ ------------ ------------------------------ ------------- ------------ Minnesota Tax-Free Income Fund Florida Tax-Free Income Fund April 30, 2003 0.03884 ---- April 30, 2003 $0.00000 $ ---- May 31, 2003 0.03772 ---- May 31, 2003 0.00000 ---- June 30, 2003 0.03929 ---- June 30, 2003 0.00000 ---- July 31, 2003 0.03877 ---- July 31, 2003 0.00000 ---- August 31, 2003 0.03714 ---- August 31, 2003 0.00000 ---- September 30, 2003 0.04117 ---- September 30, 2003 0.00000 ---- October 31, 2003 0.03929 ---- October 31, 2003 0.00000 ---- November 30, 2003 0.03517 ---- November 30, 2003 0.00000 ---- December 31, 2003 0.04091 ---- December 31, 2003 0.00000 ---- January 31, 2004 0.03683 ---- January 31, 2004 0.01487 ---- February 28, 2004 0.03426 ---- February 28, 2004 0.01924 ---- March 31, 2004 0.03811 ---- March 31, 2004 0.02378 ---- ------------ ------------ ------------ ------------ $0.45749(d) $0.00000 $0.05789(d) $0.00000 ============ ============ ============ ============
(a) Includes distributions of short-term gains, if any, which are taxable as ordinary income. (b) Taxable as long-term gain. (c) Taxable as dividend income and does not qualify for deduction by corporations or reduced dividend income tax rate for individuals. (d) 100% of dividends were derived from interest on tax-exempt securities. This portion of exempt-interest dividends is exempt from federal taxes and should not be included in shareholders' gross income. Exempt-interest dividends may be subject to state and local taxes. Each shareholder should consult a tax adviser about reporting this income for state and local tax purposes. 87 A LOOK AT 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 $6.4 billion for some of America's largest corporations, foundations and endowments. Sit Mutual Funds are comprised of fourteen NO-LOAD funds. NO-LOAD means that Sit Mutual Funds have no sales charges on purchases, no deferred sales charges, no 12b-1 fees and 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 checkwriting privileges on bond funds * Retirement accounts including IRAs and 401(k) plans SIT FAMILY OF FUNDS [GRAPH] STABILITY: INCOME: GROWTH: HIGH GROWTH: SAFETY OF PRINCIPAL INCREASED INCOME LONG-TERM CAPITAL LONG-TERM CAPITAL AND CURRENT INCOME APPRECIATION APPRECIATION AND INCOME MONEY MARKET U.S. GOVERNMENT BALANCED MID-CAP GROWTH SECURITIES DIVIDEND GROWTH INTERNATIONAL GROWTH TAX-FREE INCOME LARGE CAP GROWTH SMALL CAP GROWTH MINNESOTA TAX-FREE SCIENCE AND INCOME TECHNOLOGY GROWTH FLORIDA TAX-FREE DEVELOPING MARKETS INCOME GROWTH BOND 88 ANNUAL REPORT BOND FUNDS Year Ended March 31, 2004 INVESTMENT ADVISER AUDITORS Sit Investment Associates, Inc. KPMG LLP 90 South Seventh Street 90 South Seventh Street Suite 4600 Suite 4200 Minneapolis, MN 55402 Minneapolis, MN 55402 612-334-5888 (Metro Area) 800-332-5580 LEGAL COUNSEL DISTRIBUTOR Dorsey & Whitney LLP 50 South Sixth Street, Suite 1500 SIA Securities Corp. Minneapolis, MN 55402 90 South Seventh Street Suite 4600 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 PFPC, Inc. P.O. Box 5166 Westboro, MA 01581-5166 [LOGO] SIT INVESTMENT ASSOCIATES ------------------------- SIT MUTUAL FUNDS Item 2: Code of Ethics. The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions. The registrant's Board of Directors adopted an amendment to the Code of Ethics which requires the registrant's principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions, to report transactions in the registrant's shares quarterly. The amendment also prohibits such persons from purchasing or selling shares of the registrant's common stock for the purpose of arbitrage or market timing. A copy of the registrant's code of ethics is available without charge upon request by calling the registrant at 612-334-5888 or 1-800-332-5580, or by mail at Sit Mutual Funds, 4600 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402. Item 3: Audit Committee Financial Expert. The registrant's Board of Directors has determined that Mr. John E. Hulse, Mr. Sidney L. Jones and Mr. Donald W. Phillips are audit committee financial experts serving on its audit committee. Mr. Hulse, Mr. Jones and Mr. Phillips are independent for purposes of this item. Item 4: Principal Accountant Fees and Services. (a) - (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrant's principal accountant were as follows: Audit Audit Related Tax Other Fees Fees Fees Fees ------ ------- ------ ----- Fiscal year ended March 31, 2004 51,000 0 11,250 0 Fiscal year ended March 31, 2003 49,200 0 10,440 0 Audit fees include amounts related to the audit of the registrant's annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrant's financial statements, and/or are traditionally performed by the auditor. Tax fees include amounts related to tax compliance, tax planning, and tax advice. (e) (1) The Audit Committee is required to pre-approve audit and non-audit services performed for the registrant by the independent auditor in order to assure that the provision of such services does not impair the auditor's independence. The audit committee also is required to pre-approve certain non-audit services performed by the registrant's independent auditor for the registrant's investment adviser and certain of the adviser's affiliates if the services relate directly to the operations and financial reporting of the registrant. Services to be provided by the auditor must receive general pre-approval or specific pre-approval by the audit committee. Any proposed services exceeding pre-approved cost levels will require separate pre-approval by the audit committee. The audit committee may delegate pre-approval authority to the audit committee chairman. The chairman shall report any pre-approval decisions to the audit committee at its next scheduled meeting. The audit committee does not delegate its responsibility to pre-approve services performed by the independent auditor to management. (2) Services included in (b) - (d) for which the auditors were engaged prior to the effective date of SEC rules relating to the pre-approval of non-audit services (May 6, 2003) were not approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. Services included in (b) - (d) for which the auditors were engaged after the effective date of SEC rules relating to the pre-approval of non-audit services were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Not applicable. (g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant's principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $108,200.00 and $121,300.00, respectively. (h) The registrant's audit committee has determined that the provision of non-audit services rendered to the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant, that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is considered compatible with maintaining the principal accountant's independence. Item 5: Audit Committee of Listed Registrants. Not applicable to open-end investment companies. Item 6: Schedule of Investments. The schedule of investments is included as part of the report to shareholders filed under Item 1 of this Form. Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable to open-end investment companies. Item 8: Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable to open-end investment companies. Item 9. Submission of Matters to a vote of Security Holders. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors. Item 10: Controls and Procedures - (a) Based on their evaluation of the Registrant's Disclosure Controls and Procedures as of a date within 90 days of the Filing Date, the Registrant's Chairman and Treasurer have determined that the Disclosure Controls and Procedures (as defined in Rule 30a-2(c) under the Act) are designed to ensure that information required to be disclosed by the Registrant is recorded, processed, summarized and reported by the filing Date, and that information required to be disclosed in the report is communicated to the Registrant's management, as appropriate, to allow timely decisions regarding required disclosure. (b) There were no significant changes in the Registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses. Item 11: Exhibits: (a) The following exhibits are attached to this Form N-CSR: (2) A separate certification for each principal executive and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2) (certification required by Section 302 of the Sarbanes-Oxley Act of 2002). (b) Certification required by Rule 30a-2(b) under the Act (certification required by Section 906 of the Sarbanes-Oxley Act of 2002). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIT MUTUAL FUNDS II, INC. ------------------------- By (Signature and Title)* /s/ Paul E. Rasmussen --------------------------------------- Paul E. Rasmussen Vice President, Treasurer Date May 27, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIT MUTUAL FUNDS II, INC. ------------------------- By (Signature and Title)* /s/ Eugene C. Sit --------------------------------------- Eugene C. Sit Chairman Date May 27, 2004