QUARTERLY REPORT
STOCK FUNDS
September 30, 1995
[LOGO] SIT Mutual Fund Group
A FAMILY
OF 100%
NO-LOAD FUNDS
* Developing Markets Growth Fund
* Small Cap Growth Fund
* International Growth Fund
* Growth Fund
* Growth & Income Fund
* Balanced Fund
SIT MUTUAL FUND GROUP
STOCK FUNDS QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
Chairman's Letter......................................... 3
Performance Review........................................ 4
Fund Reviews
Developing Markets Growth Fund................... 6
Small Cap Growth Fund............................ 8
International Growth Fund........................ 10
Growth Fund...................................... 12
Growth & Income Fund............................. 14
Balanced Fund.................................... 16
A Look at the SIT Mutual Funds............................ 18
This document must be preceded or accompanied by a Prospectus.
SIT MUTUAL FUND GROUP
CHAIRMAN'S LETTER - SEPTEMBER 30, 1995
[PHOTO] Eugene C. Sit
Dear Fellow Shareholders:
Domestic financial assets, particularly equity securities, performed
strongly during the third quarter ended September 30, 1995, amid increases in
corporate earnings, stable interest rates, heightened merger and acquisition
activity, and generally contained inflation.
ECONOMIC REVIEW
The domestic economy decelerated modestly during the second quarter as
manufacturers scaled back production and retailers discounted to draw down
inventories, yielding a +1.3% final estimate of real GDP growth. Early third
quarter indicators, however, suggest that the economy could reaccelerate
slightly during the second half of the year. Low interest rates have stimulated
increases in housing activity, while industrial production has turned up after
several months of decline. Durable goods orders also strengthened slightly.
Consumer confidence surveys remain satisfactory, and the annualized change in
real personal consumption expenditures advanced a healthy +2.9% during the first
two months of the third quarter. We are, therefore, forecasting third quarter
economic growth of approximately +2.5% and calendar 1995 growth slightly above
+3.0%.
As the presidential campaign season draws near, fiscal policy, particularly
the passage of the federal budget, has taken center stage on Capitol Hill.
Congress recently approved a stopgap measure temporarily allowing operations to
continue through mid November; however, negotiations with the Administration are
intensifying over such budget-balancing issues as Medicare and Medicaid
spending, welfare and educational reform, and a potential reduction in the
capital gains tax rate. The conservative majority is determined to provide a
deficit reduction package which would balance the budget by 2002, although
pressure is building to reach a compromise by November 15th in order to avoid a
federal government shutdown. Once a compromise is reached, it seems virtually
certain that decreased federal government responsibilities will fall on the
shoulders of state and local government. The current federal deficit is targeted
to reach between $165-170 billion, which at 2.0% of GDP compares very favorably
to the deficits of many other developed nations and would be the lowest federal
deficit on this basis since 1988.
Domestic inflation continues to provide investors with little reason for
concern. Energy prices have provided downward pressure on inflation, although
slight increases in agricultural goods could have a modest impact on price
levels at some point. Inflation at the consumer and producer levels, as measured
by the year-over-year changes in the CPI and PPI, appear firmly in check at
+2.5% and +1.8%, respectively.
Broadly contained inflation was not enough, though, to induce the Federal
Reserve to further reduce short rates at its August or September FOMC meetings.
Fixed income markets appear to be discounting another rate cut prior to year
end. Additional reductions will likely hinge on a productive budget compromise
or a marked downturn in the domestic economy.
STRATEGY SUMMARY
Domestic equity funds continue to emphasize technology as a means of
capitalizing on the trend favoring a broad array of productivity-enhancing
products and services. Technology stocks have performed strongly thus far in
1995, although their valuations do not appear excessive and remain considerably
below the levels of prior peaks. We intend to remain fully invested and will
maintain our focus on non-commodity, value-added technology investments, but we
will attempt to reduce the sector's weight slightly in favor of certain
financial services and health care issues. We estimate the portfolios will grow
earnings at a rate better than three times the overall market, which augers well
for future performance.
International equity portfolios feature non-Japan Asian investments based
on the high absolute levels of economic growth in these regions and currently
favorable valuations. The International Growth Fund will increase Japanese
investments, particularly among multinational firms with significant dollar
earnings, as a means to benefit from a potential economic recovery in 1996 in
the face of a weaker yen. The Developing Markets Growth Fund will remain
primarily invested in non-Japan Asia but will shift toward Hong Kong, Thailand,
and Taiwan.
In addition to the third quarter's favorable investment results, we are
pleased to announce that the Small Cap Growth Fund recently exceeded $25 million
and will now be listed in newspapers daily with our other funds. We appreciate
your continued interest and support as investors in the SIT Mutual Fund Group.
With best wishes,
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
SIT MUTUAL FUND GROUP
September 30, 1995 Performance Review - Stock Funds
Stock Funds Review
Domestic equities continued to advance during the third quarter ended
September 30, 1995, driven higher by solid second quarter earnings gains and
generally stable interest rates. Larger company issues, as measured by the S&P
500 Index, advanced +8.0% during the quarter, while the NASDAQ OTC Composite
recorded a +11.8% gain as investors pushed technology issues higher. The DJIA
lagged somewhat, providing a +5.8% return, but is competitive on a 9-month
basis.
Smaller company issues, propelled by an uptick in the dollar and renewed
rhetoric over a capital gains tax cut, led the way during the quarter, providing
a +9.9% total return according to the Russell 2000 Index.
Growth stocks outperformed value issues once again in the third quarter as
prospects for decelerating S&P 500 earnings became more evident. Smaller-sized
growth stocks outperformed by +3.1%, as measured by the difference between the
Russell 2000 Growth and Value Indices, while large company growth stocks
provided a +0.4% incremental return. As 1996 approaches and economic forecasts
continue to suggest a slowing in broad market earnings gains, the cycle favoring
growth stocks should remain intact.
International markets performed positively despite concerns over slowing
economic growth overseas. The MSCI World Index provided a +5.6% total return,
but non-Japan Asian markets lagged at +2.6% according to the MSCI Pacific
Ex-Japan Index. Japan's Nikkei Index surged ahead by +23.4% as its government
initiated an economic stimulus package; however, when adjusted for the weakness
in the yen, the index in U.S. dollars rose considerably less at +4.8%.
TOTAL RETURN - CALENDAR YEAR
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SIT DEVELOPING MARKETS GROWTH FUND ---- ---- ---- ---- ---- ---- ---- ----
(NASDAQ Symbol: SDMGX)
SIT SMALL CAP GROWTH FUND ---- ---- ---- ---- ---- ---- ---- ----
(NASDAQ Symbol: SSMGX)
SIT INTERNATIONAL GROWTH FUND ---- ---- ---- ---- ---- ---- 4.10%(2) 2.69%
(NASDAQ Symbol: SNGRX)
SIT GROWTH FUND 43.65% 10.33% 5.50% 9.77% 35.15% -2.04% 65.50 -2.14
(NASDAQ Symbol: NBNGX)
SIT GROWTH & INCOME FUND 23.48 21.83 5.32 5.33 32.02 -2.37 32.72 4.94
(NASDAQ Symbol: SNIGX)
SIT BALANCED FUND ---- ---- ---- ---- ---- ---- ---- ----
International Emerging Markets Free Index(3) ---- ---- ---- ---- ---- ---- ---- ----
Russell 2000 Index (3) ---- ---- ---- ---- ---- ---- ---- ----
EAFE Index (4) ---- ---- ---- ---- ---- ---- 0.26 -12.17
NASDAQ OTC Composite Index 31.36 7.36 -5.26 15.41 19.26 -17.80 56.84 15.45
S&P 500 Index 31.60 18.64 5.28 16.55 31.61 -3.05 30.46 7.64
</TABLE>
(table continued)
YTD
1993 1994 1995
SIT DEVELOPING MARKETS GROWTH FUND ---- -2.02%(1) -3.38%
(NASDAQ Symbol: SDMGX)
SIT SMALL CAP GROWTH FUND ---- 11.57(1) 46.13
(NASDAQ Symbol: SSMGX)
SIT INTERNATIONAL GROWTH FUND 48.37% -2.99 9.95
(NASDAQ Symbol: SNGRX)
SIT GROWTH FUND 8.55 -0.47 34.14
(NASDAQ Symbol: NBNGX)
SIT GROWTH & INCOME FUND 3.15 2.83 30.34
(NASDAQ Symbol: SNIGX)
SIT BALANCED FUND ---- -0.33 22.04
International Emerging Markets Free Index(3) ---- 2.80 -5.31
Russell 2000 Index (3) ---- 4.61 25.73
EAFE Index (4) 32.56 7.78 6.88
NASDAQ OTC Composite Index 14.75 -3.20 38.78
S&P 500 Index 10.07 1.32 29.76
<TABLE>
<CAPTION>
QUARTERLY AVERAGE ANNUAL TOTAL RETURNS FOR
RETURN THE PERIODS ENDED SEPTEMBER 30, 1995
SINCE
INCEPTION 3 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C> <C> <C>
SIT DEVELOPING MARKETS GROWTH FUND 07/01/94 0.11% -14.10% ---- ---- ---- -4.29%
SIT SMALL CAP GROWTH FUND 07/01/94 20.24 50.54 ---- ---- ---- 47.88
SIT INTERNATIONAL GROWTH FUND 11/01/91 4.14 5.78 17.49% ---- ---- 14.37
SIT GROWTH FUND 09/02/82 18.77 34.79 17.80 21.29% 17.05% 19.37
SIT GROWTH & INCOME FUND 09/02/82 10.53 31.38 13.28 15.41 14.39 14.81
SIT BALANCED FUND 12/31/93 6.97 22.70 ---- ---- ---- 11.86
International Emerging Markets Free Index (3) -1.06 -19.21 ---- ---- ---- -2.13
Russell 2000 Index (3) 9.88 23.40 ---- ---- ---- 24.52
EAFE Index (4) 4.17 5.79 13.65 ---- ---- 7.85
NASDAQ OTC Composite Index (5) 11.79 36.53 21.40 24.81 14.05 14.40
S&P 500 Index (5) 7.95 29.74 14.98 17.22 16.03 16.85
</TABLE>
(1) Period from inception (7/1/94) through 12/31/94.
(2) Period from inception (11/1/91) through 12/31/91.
(3) Figures assume an inception date of 7/1/94.
(4) Figures assume an inception date of 11/1/91.
(5) Figures assume an inception date of 9/2/82.
Please remember that past performance is not a guarantee of future results
and is only one of the factors to consider in choosing a fund. As with all
investments, the share price and return may vary and you may have a gain or loss
at the time of sale.
SIT DEVELOPING MARKETS GROWTH FUND REVIEW
SEPTEMBER 30, 1995
[PHOTO] Andrew B. Kim, CFA, Senior Portfolio Manager
The SIT Developing Markets Growth Fund's investment return for the three
months ended September 30, 1995 was +0.11%, compared to the MSCI Emerging
Markets Free Index decline of -1.06%. The Brazilian market was up +25% in US
dollar terms, but this was neutralized by market declines in almost all the
Asian developing markets, as well as Chile and Peru.
Following the nine months of adjustment to the "Tequila Effect," developing
markets appear poised for healthy gains in 1996.
As of September 30, Asian holdings represented 55% of the portfolio. Our
optimistic outlook for most Asian developing markets is based on the following:
(i) the market's sanguine fundamental view regarding earnings growth in 1996;
(ii) moderate valuations relative to previous norms; (iii) easing of concerns
about the region's economic overheating; and (iv) a refocusing on the
attractions of high absolute economic growth. Asian economies should grow by 7%
or more in 1996 and firm domestic monetary policy should continue to cool down
inflationary pressures. Additionally, a possible Fed easing as well as new
Japanese investment into the region spurred by the yen's weakness would bode
well for these markets. We are tilting our intra-regional weightings in favor of
Hong Kong, Thailand and Taiwan.
In Latin America, our strategy has not changed significantly. We recently
increased the Fund's allocation to Chile and Peru, and remain underweight in
both Argentina and Mexico. As of September 30, Latin America represented
approximately 30% of the total portfolio.
We plan to increase the Fund's European holdings, possibly in Poland.
Africa continues to represent approximately 3% of the portfolio, compared to the
index weighting of around 15%.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Developing Markets Growth Fund is to maximize
long-term capital appreciation. The Fund pursues this objective by investing in
equity securities of companies deemed to be domiciled or otherwise operating in
a developing market.
Developing markets tend to be less economically developed regions of the
world. General characteristics also include a high demand for capital
investment, a high dependence on export markets for their major industries, a
need to develop basic economic infrastructures, rapid economic growth and lower
degrees of political stability. Investors should carefully consider the risks
associated with developing markets such as currency fluctuations, high
volatility, illiquidity and the possibility of political instability.
PORTFOLIO SUMMARY
Net Asset Value 9/30/95: $9.42 Per Share
6/30/95: $9.41 Per Share
Total Net Assets: $4.65 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR GRAPH]
SIT Developing International Emerging
Markets Growth Fund Markets Free Index
Pacific Basin 55.0 47.8
Latin America 29.5 32.1
Europe 8.8 5.2
Middle East/Africa 2.6 17.9
Other Assets & Liabilities 4.1 N/A
<TABLE>
<CAPTION>
Average Annual Total Returns* Cumulative Total Returns*
Morgan Stanley Morgan Stanley
Developing International Lipper Developing International Lipper
Markets Emerging Markets Emerging Markets Emerging Markets Emerging
Growth Fund Free Index Markets Index Growth Fund Free Index Markets
Index
<S> <C> <C> <C> <C> <C> <C>
3 Months 0.11% -1.06% 0.27% 0.11% -1.06% 0.27%
(unannualized)
1 Year -14.10 -19.21 -16.60 -14.10 -19.21 -16.60
Inception -4.29 -2.13 -1.07 -5.34 -2.67 -1.34
(12/31/93)
</TABLE>
* AS OF 9/30/95
Performance is historical and assumes reinvestment of all dividends and capital
gains. Share price and return will vary so that a gain or loss may be realized
when shares are sold. Total return should not be taken as a representation of
future performance. Management fees and administrative expenses are included in
the Fund's performance; however, fees and expenses are not incorporated in the
International Emerging Markets Free Index. The Lipper averages and indices are
obtained from Lipper Analytical Services, Inc., a large independent evaluator of
mutual funds.
GROWTH OF $10,000
[LINE GRAPH]
SIT Developing Markets Growth Fund
International Emerging Markets Free Index
The sum of $10,000 invested at inception (7/1/94) and held until 9/30/95 would
have declined to $9,466 in the Fund or $9,734 in the International Emerging
Markets Free Index assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Multibras
* Advanced Info Services
* Hutchison Whampoa
* Genting Berhad
* Lojas Americanos
* Cemig, A.D.R.
* LG Electronics
* President Enterprises
* Morgan Stanley So. Africa Inv. Fund
* Autoliv AB
TOTAL NUMBER OF HOLDINGS: 46
SIT SMALL CAP GROWTH FUND REVIEW
SEPTEMBER 30, 1995
[PHOTO] Eugene C. Sit, CFA, Senior Portfolio Manager
Small cap stocks accelerated during the third quarter as the U.S. dollar
strengthened and rhetoric intensified over a potential capital gains tax cut,
propelling the SIT Small Cap Growth Fund to new highs. The Fund posted a +20.2%
gain in the quarter, well ahead of the +9.9% recorded by the Russell 2000 Index.
Moreover, Lipper and USA Today recognized the Fund as one of the nation's top
twenty funds in terms of quarterly and yearly performance.
The Fund's primary concentration in technology holdings, particularly among
semiconductor and telecommunications issues, provided slightly better than half
of its incremental return, with financial services and consumer non-durables
stocks also contributing significantly. Even though the Fund's technology
holdings have performed well thus far in 1995, their valuations appear
reasonable relative to their estimated long-term growth rates, and the demand
for information processing and communications equipment remains strong. Although
we continue to emphasize technology, financial services and health care holdings
will be increased slightly to balance the portfolio's growth prospects.
The Fund recently exceeded $25 million in total net assets, allowing it to
be listed in the daily newspapers. New positions acquired in the quarter
include: Community First Bankshares (financial services), Risk Capital Holdings
(reinsurance), I-Stat (medical equipment), Books-A-Million (book retailer),
Alternative Resources (technology support services), and Mattson Technology
(semiconductors). The Fund's weighted average market capitalization of $392
million is less than most small cap indices, and the Fund's earnings growth rate
exceeds 30%.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Small Cap Growth Fund is to maximize long-term capital
appreciation. The Fund pursues this objective by investing primarily in the
common stocks of small companies that have a capitalization of under $500
million at the time of purchase.
In addition, the Fund may purchase securities convertible into common
stocks, preferred stocks and warrants. The Fund may invest in securities not
listed on a national securities exchange but generally such securities will have
an established over-the-counter market.
PORTFOLIO SUMMARY
Net Asset Value 9/30/95: $16.22 Per Share
6/30/95: $13.49 Per Share
Total Net Assets: $25.56 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR GRAPH]
Technology 40.6
Health Care 16.9
Financial 10.4
Business Equipment & Services 6.7
Retail 4.6
Capital Goods 4.0
Consumer Services 2.7
Transportation 1.8
Consumer Non-Durables 1.6
Energy 1.5
Consumer Durables 1.1
Other Assets & Liabilities 8.1
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
Lipper Lipper
Small Cap Russell 2000 Small Co. Small Cap Russell 2000 Small Co.
Growth Fund Index Growth Growth Fund Index Growth
<S> <C> <C> <C> <C> <C> <C>
3 Months 20.24% 9.88% 12.50% 20.24% 9.88% 12.50%
(unannualized)
1 Year 50.54 23.40 29.65 50.54 23.40 29.65
Inception 47.88 24.52 32.13 63.03 31.52 41.74
(12/31/93)
</TABLE>
* As of 9/30/95
Performance is historical and assumes reinvestment of all dividends and capital
gains. Share price and return will vary so that a gain or loss may be realized
when shares are sold. Total return should not be taken as a representation of
future performance. Management fees and administrative expenses are included in
the Fund's performance; however, fees and expenses are not incorporated in the
Russell 2000 Index. The Lipper averages and indices are obtained from Lipper
Analytical Services, Inc., a large independent evaluator of mutual funds.
GROWTH OF $10,000
[LINE GRAPH]
SIT Small Cap Growth Fund
Russell 2000 Index
The sum of $10,000 invested at inception (7/1/94) and held until 9/30/95
would have grown to $16,303 in the Fund or $13,152 in the Russell 2000 Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Advanced Semiconductor Material Intl. N.V.
* Transaction Network Services, Inc.
* Aspen Technology, Inc.
* Sierra Health Services, Inc.
* Hyperion Software Corp.
* Community First Bankshares
* Centennial Cellular Corp.
* Molten Metal Technology, Inc.
* GMIS, Inc.
* Integrated Process Equipment Corp.
Total number of holdings: 55
SIT International Growth Fund Review
September 30, 1995
[PHOTO] Andrew B. Kim, CFA, Senior Portfolio Manager
The SIT International Growth Fund's investment return for the three months
ended September 30, 1995 was +4.14%, compared to the EAFE Index return of
+4.17%. Year-to-date the Fund's return was 9.95%, in contrast to +6.88% for the
benchmark index.
In anticipation of an economic recovery in 1996, the Japanese market
rebounded +23.4% (local currency) during the quarter. The yen's depreciation of
- -15%, however, resulted in an increase in US dollar terms of only +4.8%. Given
the structural trend of the dollar's strengthening against the yen, we intend to
hedge our Japanese portfolio as well as increase our emphasis on multinationals
with significant dollar earnings. We are projecting a recovery in Japan's growth
rate of 2.5% to 3.0% in 1996, from -0.5% in the last two years. Accordingly, we
plan to increase the Fund's Japanese allocation from 24% at September 30 to
approximately 30%.
Looking ahead, the fastest growth in 1996 is again expected to come from
the non-Japan Asian economies. These countries continue their large capital
outlays based on high domestic savings and direct foreign investment. The
resultant rapid corporate earnings growth should increase equity valuations.
Unlike Japan, long-term currency gains in several of these countries could be an
added contributor to overall gains. As of September 30, the investments in this
region represented about 26% of the portfolio.
The recent easy money policy of Germany, which resulted in lower market
interest rates, should have a stimulative effect on European economies and
liquidity conditions in 1996. As economic growth continues, corporate profits
should trend upward. Based on improved financial conditions, such as
historically low real interest rates and reasonable equity valuations, we plan
to maintain our European portfolio weighting at approximately 40%. In Latin
America our diversification strategy includes holdings in Brazil, Peru, Chile
and Mexico.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the International Growth Fund is to achieve long-term
growth of capital by investing in equity securities of issuers domiciled outside
the United States. The Fund's investment objective reflects the belief that
long-term investment planning should include the investment opportunities that
exist outside the U.S.
The Fund selects its investments based on the characteristics of the
particular markets and economies of the countries in which it invests. Emphasis
is placed on identifying securities of companies believed to be undervalued in
the marketplace in relation to factors such as the company's revenues, earnings,
assets and long-term competitive position which over time will enhance the
equity value of the company.
PORTFOLIO SUMMARY
Net Asset Value 9/30/95: $16.36 Per Share
6/30/95: $15.71 Per Share
Total Net Assets: $71.31 Million
Portfolio Structure
( % of total net assets)
[BAR GRAPH]
SIT Int'l Morgan Stanley
Growth Fund EAFE Index
Pacific Basin 26.2 9.6
Other Europe 24.4 19.7
Japan 24.1 40.8
France, Germany & UK 14.8 29.9
Latin America 4.7 0.0
Other Assets & Liabilities 5.8 N/A
<TABLE>
<CAPTION>
Average Annual Total Returns* Cumulative Total Returns*
Morgan Stanley Morgan Stanley
International Capital Int'l Lipper International Capital Int'l Lipper
Growth Fund EAFE Index Int'l Fund Growth Fund EAFE Index Int'l Fund
<S> <C> <C> <C> <C> <C> <C>
3 Months 4.14% 4.17% 5.44% 4.14% 4.17% 5.44%
(unannualized)
1 Year 5.78 5.79 3.31 5.78 5.79 3.31
3 Years 17.49 13.65 13.76 62.19 46.81 47.22
Inception 14.37 7.85 9.76 69.17 34.46 44.05
(11/1/91)
</TABLE>
* As of 9/30/95
Performance is historical and assumes reinvestment of all dividends and capital
gains. Share price and return will vary so that a gain or loss may be realized
when shares are sold. Total return should not be taken as a representation of
future performance. Management fees and administrative expenses are included in
the Fund's performance; however, fees and expenses are not incorporated in the
Morgan Stanley Capital International EAFE (Europe, Australia, Far East) Index.
The Lipper averages and indices are obtained from Lipper Analytical Services,
Inc., a large independent evaluator of mutual funds.
GROWTH OF $10,000
[LINE GRAPH]
SIT International Growth Fund
Morgan Stanley EAFE Index
The sum of $10,000 invested at inception (11/1/91) and held until 9/30/95 would
have grown to $16,917 in the Fund or $13,446 in the Morgan Stanley EAFE Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Autoliv AB
* Nokia Series A
* Aegon N.V., A.D.R.
* SAP Preferred
* Hutchison Whampoa
* Astra "B" Free
* Wolters Kluwer
* Reuters Holdings, p.l.c., A.D.S.
* Telecom Corp. New Zealand, A.D.R.
* Bangkok Bank
Total number of holdings: 66
SIT Growth Fund Review
September 30, 1995
[PHOTO] Eugene C. Sit, CFA, Senior Portfolio Manager
Erik S. Anderson, CFA, Portfolio Manager
Smaller-to medium-sized growth stocks performed well in the third quarter
of 1995 as the SIT Growth Fund posted a +18.8% total return, exceeding the
+11.8% increase of the NASDAQ Composite. Incremental returns were derived
throughout the portfolio but were highlighted by relative strength in the Fund's
technology and health care holdings. High growth issues, particularly those
whose earnings estimates were revised upward by market analysts, appreciated
considerably, an indication of the market's confidence in their future
prospects.
The Fund is essentially fully invested with 84% of the portfolio positioned
in securities with estimated long-term growth rates of better than 16%, which is
considerably more than most midcap and broad stock market indices. The earnings
of the portfolio's equity holdings are projected to grow faster than 30% over
the next two years, while consensus estimates for the S&P 500's earnings growth
approximate only +8%.
Technology holdings are a significant portion of the Fund's portfolio,
although they are diversified across the networking, semiconductor-related,
software, and telecommunications industries. Recent additions have been software
related, because of their higher profit margins and their lower reliance on
capital investment. Two examples are Business Objects (decision support
software) and Legato Systems (network storage management software).
The Growth Fund recently celebrated its 14th anniversary, and we would like
to thank all of our long-term holders for their interest and support.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Growth Fund is to maximize long-term capital
appreciation. The Fund pursues this objective by investing primarily in the
common stocks of small and medium-size emerging growth companies before they
become well recognized.
The Fund may invest in larger companies which offer improved growth
possibilities because of rejuvenated management, changes in product or some
other development that might stimulate earnings
growth.
PORTFOLIO SUMMARY
Net Asset Value 9/30/95: $ 15.44 Per Share
6/30/95: $ 13.00 Per Share
Total Net Assets: $ 384.73 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR GRAPH]
Technology 34.6
Financial 15.4
Health Care 14.9
Business Equipment & Services 14.9
Energy 3.8
Consumer Services 2.9
Consumer Durables 2.4
Capital Goods 2.1
Retail 1.7
Transportation 1.3
Raw Materials 1.2
Other Assets & Liabilities 4.8
<TABLE>
<CAPTION>
Average Annual Total Returns* Cumulative Total Returns*
Growth NASDAQ OTC S&P Growth NASDAQ OTC S&P
Fund Composite Index 500 Index Fund Composite Index 500 Index
<S> <C> <C> <C> <C> <C> <C>
3 Months 18.77% 11.79% 7.95% 18.77% 11.79% 7.95%
(unannualized)
1 Year 34.79 36.53 29.74 34.79 36.53 29.74
5 Years 21.29 24.81 17.22 162.48 202.91 121.32
10 Years 17.05 14.05 16.03 382.71 272.25 342.10
Inception 19.37 14.40 16.85 914.20 481.36 667.20
(9/2/82)
</TABLE>
* As of 9/30/95
Performance is historical and assumes reinvestment of all dividends and capital
gains. Share price and return will vary so that a gain or loss may be realized
when shares are sold. Total return should not be taken as a representation of
future performance. Management fees and administrative expenses are included in
the Fund's performance; however, fees and expenses are not incorporated in the
NASDAQ OTC Composite Index nor the S&P 500 Index.
GROWTH OF $10,000
[LINE GRAPH]
SIT Growth Fund
NASDAQ OTC Composite Index
The sum of $10,000 invested at inception (9/2/82) and held until 9/30/95 would
have grown to $101,420 in the Fund or $58,136 in the NASDAQ OTC Composite Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* 3Com Corp.
* Xilinx, Inc.
* Paychex, Inc.
* TCF Financial Corp.
* MGIC Investment Corp.
* DSC Communications Corp.
* Ceridian Corp.
* Peoplesoft, Inc.
* Oxford Health Plans, Inc.
* Parametric Technology, Inc.
Total number of holdings: 60
SIT Growth & Income Fund Review
September 30, 1995
[PHOTO] Peter L. Mitchelson, CFA, Senior Portfolio Manager
Ronald D. Sit, CFA, Portfolio Manager
Continuing the strong positive trend of the previous quarter, the total
return achieved by the SIT Growth & Income Fund was +10.53% for the three months
ended September 30, 1995. As shown in the accompanying tables, this strong
performance exceeded the gains of other comparable funds as well as the return
of the Standard & Poor's 500 Index, an unmanaged benchmark not subject to
management fees or expenses. Your Fund's managers have always encouraged
investors to focus on the longer term and it is encouraging that the Fund's
strong performance beginning in the second half of 1994 has moved its 10-year
record slightly ahead of its peer group with an annualized return of +14.39%.
The principal driving force supporting the Fund's improving results has
been a marked strengthening in the growth stock component of the broad stock
market since the middle of 1994. Growth stocks typically begin to outperform
when the economy begins to slow, and this has certainly been the case in 1995.
Corporate profit trends for the broad spectrum of American industry are
decelerating sharply, making the consistently high earnings growth rates of the
average company held in the Growth & Income Fund increasingly attractive by
comparison.
Our confidence that the cycle favoring growth stocks is likely to be
sustained is evidenced by the continued low levels of cash reserves being
maintained. As of September 30, cash reserves represented less than 3% of total
net assets. Technology and health care continue to be the two most heavily
weighted sectors in the portfolio and, in aggregate, represent nearly 47% of
total equities held.
Most encouragingly, the projected earnings growth rates of the portfolio's
equity holdings are being maintained. For 1996, weighted average earnings are
estimated to grow +25.8%, which is up by more than three percentage points
compared to a similar calculation made at the end of June.
The Fund's net assets over the past 12 months have grown from $36.4 million
to $45.2 million and shareholders' confidence and participation are greatly
appreciated.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Growth & Income Fund is to achieve long-term capital
appreciation and, secondarily, current income. The Fund invests in common
stocks, preferred stocks, convertible stocks and bonds, corporate bonds,
debentures and government securities.
Currently, the fund invests exclusively in common and preferred stocks and
securities convertible into common stock. In making common stock investments,
effort is directed toward the selection of "blue-chip" common stocks that pay
dividends, particularly those with which have provided stable and growing
dividend rates on an historical basis.
PORTFOLIO SUMMARY
Net Asset Value 9/30/95: $31.35 Per Share
6/30/95: $28.38 Per Share
Total Net Assets: $45.21 Million
Quarterly Dividend: $ 0.00 Per Share
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR GRAPH]
Technology 28.8
Health Care 16.5
Financial 12.8
Business Equipment & Services 9.5
Consumer Non-Durables 8.4
Energy 4.5
Consumer Services 4.4
Capital Goods 3.9
Retail 3.5
Raw Materials 2.3
Utilities 1.5
Shelter 1.0
Multi-Industry 0.4
Other Assets & Liabilities 2.5
<TABLE>
<CAPTION>
Average Annual Total Returns* Cumulative Total Returns*
Growth & Lipper Growth S&P Growth & Lipper Growth S&P
Income Fund & Income Index 500 Index Income Fund & Income Index 500 Index
<S> <C> <C> <C> <C> <C> <C>
3 Months 10.53% 7.45% 7.95% 10.53% 7.45% 7.95%
(unannualized)
1 Year 31.38 22.96 29.74 31.38 22.96 29.74
5 Years 15.41 16.50 17.22 104.76 114.58 121.32
10 Years 14.39 14.37 16.03 283.75 282.81 342.10
Inception 14.81 15.39 16.85 509.06 550.65 667.20
(9/2/82)
</TABLE>
* As of 9/30/95
Performance is historical and assumes reinvestment of all dividends and
capital gains. Share price and return will vary so that a gain or loss may be
realized when shares are sold. Total return should not be taken as a
representation of future performance. Management fees and administrative
expenses are included in the Fund's performance; however, fees and expenses are
not incorporated in the S&P 500 Index. The Lipper Index figures are obtained
from Lipper Analytical Services, Inc., a large independent evaluator of mutual
funds.
On 6/6/93, the Fund's investment objective changed to allow for a portfolio
of 100% stocks. Prior to that time, the portfolio was required to contain no
more than 80% stocks.
GROWTH OF $10,000
[LINE GRAPH]
SIT Growth & Income Fund
Lipper Growth & Income Fund Index
S&P 500 Index
The sum of $10,000 invested at inception (9/2/82) and held until 9/30/95 would
have grown to $60,906 in the Fund, $65,065 in the Lipper Growth & Income Fund
Index or $76,720 in the S&P 500 Index assuming reinvestment of all dividends and
capital gains.
10 LARGEST HOLDINGS
* Cisco Systems, Inc.
* Citicorp
* Pfizer, Inc.
* Intel Corp.
* LSI Logic Corp.
* Motorola, Inc.
* Amgen, Inc.
* DSC Communications Corp.
* Oracle Systems Corp.
* Philip Morris Cos., Inc.
Total number of holdings: 60
SIT Balanced Fund Review
September 30, 1995
[PHOTO] Peter L. Mitchelson, CFA, Senior Portfolio Manager
During the third quarter of calendar 1995, the SIT Balanced Fund's total
return was +7.0% and on a latest 12-month basis the total return was +22.7%. The
Fund's 12-month return ranked 6th out of 47 funds in its Lipper* style and size
grouping.
As of September 30, the asset allocation of the Fund was 51% in equities,
40% in bonds and approximately 9% in cash reserves instruments. Partly due to
cash inflows, the equity ratio of the Fund declined by approximately 8
percentage points and it currently rests near the midpoint of the Fund's normal
40% to 60% equity operating range.
Within the equity component of the Fund, industry weighting shifts were
relatively minor during the latest quarter. Technology and health care stocks
remain the dominant industries held, although financial services were increased
by over two percentage points during the period, representing the largest
sectoral change.
High earnings growth remains the dominant characteristic of the equity
holdings. At the end of September, the average projected 1996 earnings growth
rate for the companies held was +24.7%, up from +22.3% when the calculation was
prepared at the end of June. Both of these growth rates compare very favorably
to earnings trends for corporate America as a whole. The outlook for growth
stocks, which are the focus of the Fund's equity holdings, remains favorable.
In the fixed income portion of the portfolio, new cash flow has been
invested in intermediate and long maturity Treasury securities to help maintain
the portfolio's slightly more aggressive posture relative to the investment
grade bond universe. We anticipate decreasing the portfolio's holdings in
intermediate maturity bonds as opportunities in higher yielding sectors arise.
We continue to emphasize high coupon pass-through securities with stable
prepayment characteristics.
The Fund's net assets over the past 12 months have grown from $1.5 million
to $3.2 million and we are most appreciative of investors' increasing interest
and participation.
*The Lipper Index figures are obtained from Lipper Analytical Services, Inc., a
large independent evaluator of mutual funds.
INVESTMENT OBJECTIVE AND STRATEGY
The Balanced Fund's dual objectives are to seek long-term growth of capital
consistent with the preservation of principal and to provide regular income. It
pursues its objectives by investing in a diversified portfolio of stocks, bonds
and short-term instruments. The Fund may emphasize either equity securities,
fixed-income securities, or short-term instruments or hold equal amounts of
each, dependent upon the Adviser's analysis of market, financial and economic
conditions.
The Fund's permissible investment allocation is: 40-60% in equity
securities, 40-60% in fixed-income securities, and up to 20% in short-term
fixed-income instruments. At all times at least 25% of the assets will be
invested in fixed-income senior securities.
PORTFOLIO SUMMARY
Net Asset Value 9/30/95: $11.68 Per Share
6/30/95: $10.99 Per hare
Total Net Assets: $ 3.18 Million
Quarterly Dividend: $ 0.06 Per Share
PORTFOLIO STRUCTURE
(% of total net assets)
[PIE CHART]
Stocks 51.3%
Fixed Income (Bonds & Cash) 48.7%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
Balanced Lehman Aggregate S&P Balanced Lehman Aggregate S&P
Fund Bond Index 500 Index Fund Bond Index 500 Index
<S> <C> <C> <C> <C> <C> <C>
3 Months 6.97% 1.96% 7.95% 6.97% 1.96 7.95%
(unannualized)
1 Year 22.70 14.06 29.74 22.70 14.06 29.74
Inception 11.86 5.78 16.95 21.65 10.32 31.48
(9/2/82)
</TABLE>
* As of 9/30/95
Performance is historical and assumes reinvestment of all dividends and capital
gains. Share price and return will vary so that a gain or loss may be realized
when shares are sold. Total return should not be taken as a representation of
future performance. Management fees and administrative expenses are included in
the Fund's performance; however, fees and expenses are not incorporated in the
Lehman Aggregate Bond Index nor the S&P 500 Index.
GROWTH OF $10,000
[LINE GRAPH]
SIT Balanced Fund
Lehman Aggregate Bond Index
S&P 500 Index
The sum of $10,000 invested at inception (12/31/93) and held until 9/30/95 would
have grown to $12,165 in the Fund, $11,032 in the Lehman Aggregate Bond Index or
$13,148 in the S&P 500 Index assuming reinvestment of all dividends and capital
gains.
TOP HOLDINGS
Stocks:
* Citicorp
* Pfizer, Inc.
* American International Group, Inc.
* Amgen, Inc.
* First Financial Management Corp.
Bonds:
* U.S. Treasury Note, 7.875%, 8/15/01
* U.S. Treasury Bond, 7.125%, 2/15/23
* FNMA 10.00%, 10/1/19
* GNMA 9.25%, 9/15/01
* GNMA 9.00%, 6/15/11
Total number of holdings: 75
A LOOK AT THE SIT MUTUAL FUNDS
The SIT Mutual Fund Group is managed by Sit Investment Associates, Inc. Sit
Investment was founded by Eugene C. Sit in July 1981 and is dedicated to a
single purpose, to be one of the premier investment management firms in the
United States. Sit Investment currently manages more than $4.0 billion for some
of America's largest corporations, foundations and endowments.
The SIT Mutual Fund Group is comprised of eleven 100% no-load funds. 100%
no-load means that the funds have no sales charges on purchases, no deferred
sales charges, no 12b-1 fees, no redemption fees and no exchange fees. Every
dollar you invest goes to work for you.
Some of the other features include:
* Free telephone exchange
* Dollar-cost averaging through automatic investment plan
* Electronic transfer of funds for purchases and redemptions
* Free check-writing privileges on bond funds
* Retirement accounts including IRAs, Keoghs and 401(k) Plans
[CHART]
<TABLE>
<CAPTION>
OUR FAMILY OF FUNDS
<S> <C> <C> <C>
Stability: Income: Growth & Income: Growth:
Safety of principal Increased income Long-term capital Long-term capital
and current income appreciation and appreciation
income
Funds:
Money Market U.S. Govt. Securities Balanced Growth
Tax-Free Income Growth & Income Int'l Growth
MN Tax-Free Income Small Cap Growth
Bond Dev Markets Growth
Principal Stability Growth
& Current Income Potential
</TABLE>
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
Melvin C. Bahle
Sidney L. Jones
Donald W. Phillips
William E. Frenzel
Officers:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Mary K. Stern President
Erik S. Anderson, CFA (1) Vice President - Investments
Ronald D. Sit, CFA (2) Vice President - Investments
Paul E. Rasmussen Vice President & Treasurer
Michael P. Eckert Vice President
Michael J. Radmer Secretary
Parnell M. Kingsley Assistant Secretary
Carla J. Rose Assistant Secretary
Debra A. Sit, CFA Assistant Treasurer
(1) Growth Fund only.
(2) Growth & Income Fund only.
QUARTERLY REPORT
STOCK FUNDS
September 30, 1995
INVESTMENT ADVISER INVESTMENT SUB-ADVISER
Sit Investment Associates, Inc. (Developing Markets Growth Fund and
4600 Norwest Center International Growth Fund)
Minneapolis, MN 55402 Sit/Kim International Investment
612-334-5888 (Metro Area) Associates, Inc.
800-332-5580 4600 Norwest Center
Minneapolis, MN 55402
612-334-5888 (Metro Area)
800-332-5580
DISTRIBUTOR
SIA Securities Corp.
4600 Norwest Center
Minneapolis, MN 55402
612-334-5888 (Metro Area)
800-332-5580
CUSTODIAN, TRANSFER AGENT
AND DISBURSING AGENT
Norwest Bank Minnesota, N.A.
733 Marquette Avenue, Fourth Floor
Minneapolis, MN 55479
612-667-9678 (Metro Area)
800-626-4836
AUDITORS
KPMG Peat Marwick LLP
4200 Norwest Center
Minneapolis, MN 55402
LEGAL COUNSEL
Dorsey & Whitney P.L.L.P.
220 South Sixth Street
Minneapolis, MN 55402
MEMBER OF
100% NO-LOAD
MUTUAL FUND
COUNCIL
