SIT MUTUAL FUNDS
ANNUAL REPORT
STOCK FUNDS
June 30, 1996
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
A LOOK AT THE SIT MUTUAL FUNDS
The Sit Mutual Funds is managed by Sit Investment Associates, Inc. Sit
Investment was founded by Eugene C. Sit in July 1981 and is dedicated to a
single purpose, to be one of the premier investment management firms in the
United States. Sit Investment currently manages more than $4.8 billion for some
of America's largest corporations, foundations and endowments.
The Sit Mutual Funds 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
SIT FAMILY OF FUNDS
STABILITY: INCOME: GROWTH & INCOME: GROWTH:
Safety of principal Increased income Long-term capital Long-term capital
and current income appreciation and income appreciation
SIT MUTUAL FUNDS
STOCK FUNDS ANNUAL REPORT
TABLE OF CONTENTS
PAGE
Chairman's Letter................................................... 2
Performance Review.................................................. 4
Fund Reviews and Portfolios of Investments
Developing Markets Growth Fund................................ 6
Small Cap Growth Fund......................................... 10
International Growth Fund..................................... 14
Growth Fund................................................... 18
Growth & Income Fund.......................................... 22
Balanced Fund................................................. 26
Notes to Portfolios of Investments.................................. 31
Statements of Assets and Liabilities................................ 32
Statements of Operations............................................ 33
Statements of Changes in Net Assets................................. 34
Notes to Financial Statements....................................... 36
Financial Highlights................................................ 41
Independent Auditors' Report........................................ 47
Federal Income Tax Information...................................... 48
This document must be preceded or accompanied by a Prospectus.
SIT MUTUAL FUNDS
CHAIRMAN'S LETTER - JUNE 30, 1996
[PHOTO] EUGENE C. SIT, CFA
Dear Fellow Shareholders:
Global equity markets produced positive results for the fiscal year ended
June 30, 1996. Domestic stocks recorded significant gains amid increased
corporate profits and record cash flows into equity mutual funds, while
international equity performance was positive overall but varied on currency
translation.
ECONOMIC OVERVIEW
The domestic economy expanded during the second quarter at a robust annual
GDP growth rate of +4.2%. Expectations for heightened second quarter growth,
some as high as +5.0%, sparked volatility in the financial markets during the
second quarter. A series of strong monthly employment reports and signs of
sporadic wage pressures generated concerns that growth could be running near
levels typically associated with increased inflation, particularly in the labor
markets. Economic growth in the second quarter was aided by healthy spending on
durable goods, such as autos and furniture, as well as on residential
construction, which was surprising given recent increases in interest rates.
Government spending, which had been dormant for several quarters, also surged
during the quarter, particularly at the state and local levels.
Despite the second quarter's strong performance, signs of economic
deceleration have begun to emerge. A recent decline in the National Purchasing
Managers' Index and soft June personal consumer expenditures seem to suggest
more moderate activity. Evidence of the same was also found in slower
chain-store and auto sales during July as well as recently diminished housing
activity. Although the exact path of the economy is unclear at present, a
continuation of growth at the second quarter's rate clearly appears
unsustainable. We are presently forecasting that real GDP growth will decelerate
to +3.0% in the third quarter, +2.0% in the fourth quarter and eventually
approximate a +2.5% annual rate for calendar 1996. Growth at this level has
historically been regarded as well within a range of long run economic growth
consistent with generally contained inflation.
The strength of the domestic economy has not produced a material impact on
inflation, which remains contained with consumer prices and producer prices
registering +3.0% and +2.6% year-over-year gains, respectively, through July.
The inflationary jitters that rattled the markets during the second quarter
stemmed primarily from payroll employment data, particularly in the wholesale
and retail trade sector. Increased agricultural prices also raised concerns as
grain inventories hover near historic lows and current yield prospects are
mixed. On the positive side, though, other commodity prices, like copper, have
clearly peaked, and price reductions in the cereal and consumer electronics
areas lead us to believe that inflation should remain reasonably well
constrained. We expect the consumer price index will approximate a +3.0%
increase for 1996, but we are monitoring the wage component closely since it
represents nearly two thirds of consumer inflation.
Given the perceived deceleration of the economy and generally contained
inflation, monetary policy is neutral at the present time. Despite changing
labor conditions in certain markets, the Federal Reserve opted to leave
short-term rates constant at its latest FOMC meeting in July. In his recent
Humphrey Hawkins testimony, Chairman Greenspan stated that the Fed will closely
be observing several key economic indicators including the employment cost
index, vendor delivery performance, the core CPI and the consumption price
deflator. Clearly the Fed is attempting to accomplish the dual objectives of
prolonging a mature economic expansion while quelling any inflationary pressures
should they arise. We believe the FOMC is unlikely to raise rates in the near
term without clear indications of strengthening inflation or a surge in economic
activity.
With respect to fiscal policy, the budget deficit continues to improve with
the latest Congressional Budget Office (CBO) estimates approximating $130
billion for the current fiscal year. Much of this improvement, however, was a
byproduct of lower interest rates and the passage of the savings and loan
crisis. Looking ahead, CBO estimates show that growth in entitlement spending
could push the deficit back up to the $244 billion level in the absence of
significant policy actions. The Republicans have seized entitlement spending
reform as a major platform issue heading into the elections. Also to be debated
will be prospects for economic growth, fiscal responsibility and foreign policy,
issues that will certainly bring heated debate.
Having strengthened early in the year, the dollar remains within a fairly
stable range and should continue to do so over the near term. Internationally,
we are forecasting a more sustained recovery in Japan in 1996 to be followed by
a gradual pickup in Europe in 1997. In Japan, the deflationary threat appears
over, and profit expansion should power its equity market, while European
monetary authorities have ample room to ease monetary policies further. The
emerging market economies should benefit from increased capital spending and the
absence of meaningful inflation.
EQUITY STRATEGY SUMMARY
Domestic stocks corrected after mid year to relieve a portion of the
excessive speculation that had driven the markets during the first half.
However, corporate profit advances continue to be healthy and interest rates
have stabilized somewhat to improve the valuation case for domestic equities.
Based on newly revised estimates, the S&P 500 Index is currently valued at 17.4
times and 16.4 times 1996 and 1997 estimated earnings, respectively, valuations
which are not excessive for periods of low inflation and moderate growth.
Technically, the six-month price momentum of both the S&P 500 Index and the
NASDAQ Composite has retreated to more neutral levels from which these markets
could more readily build a base.
The Sit domestic equity funds continue to emphasize high growth investments
in the areas of technology, health care and business equipment and services as a
means of maximizing the earnings growth potential of these portfolios. The
environment for networking, software, health care information services and the
outsourcing of business services has remained favorable thus far in 1996 and
should provide ample opportunities for growth. These portfolios continue to
exhibit average earnings growth rates that vastly exceed the earnings
expectations for the market as a whole, a characteristic that should be viewed
favorably in an environment of economic moderation. Given the recent correction
of smaller- to medium-sized companies in general, we are presently deploying
modest opportunity cash reserves to capitalize on attractive buying
opportunities.
In the Sit International Growth Fund, we are seeking to take advantage of
corporate restructuring opportunities in Europe, export-oriented growth stocks
in Asia and consumer-related growth stocks in Japan with prospects for improved
profitability. The Sit Developing Markets Growth Fund continues to emphasize
investments in the high growth regions of the Pacific Rim and Latin America.
We are pleased with the performance of the Sit Equity Mutual Funds,
particularly since the recent favorable performance results add further to the
Funds' above-average, long-term records. We appreciate your continued interest
and support as shareholders in the Sit Mutual Funds.
With best wishes,
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
SIT MUTUAL FUNDS
JUNE 30, 1996 PERFORMANCE REVIEW - STOCK FUNDS
STOCK FUNDS REVIEW
Domestic equities advanced strongly during the twelve-month period ended
June 30, 1996, amid shifting expectations for the economy, continued increases
in corporate profits and substantial cash flows into equity mutual funds. Blue
chip issues led the way as the DJIA produced a +26.9% gain, edging slightly the
+26.0% broad market advance generated by the S&P 500 Index. Medium- and
small-sized companies also provided positive results. The S&P Midcap 400 Index
increased +21.6%, while the Russell 2000 Index, a widely recognized measure of
smaller company performance, rose by +23.9%.
Growth stocks generally outperformed value stocks across the equity
capitalization spectrum during the past year. Large cap growth issues provided
an incremental +3.1% as measured by the Russell 1000 Growth/Value Indices, while
small cap growth stocks outperformed by +5.1% according to the Russell 2000
Growth/Value Indices. Earlier in the year, cyclical areas such as the retail and
capital goods sectors reacted positively to economic data suggesting economic
acceleration. Recently, however, more defensive areas such as the consumer
non-durables and energy sectors have performed well, possibly reflecting a shift
in expectations.
Large cap stocks provided a +2.3% advantage over small cap stocks according
to the Russell 1000/2000 Indices. Investors were generally drawn to the relative
stability of large company issues, particularly in June as small company stocks
began to correct.
International equity performance in U.S. dollar terms was led by emerging
countries as the momentum of certain Latin American markets carried over into
the most recent quarter. European and Pacific markets also provided strong
results during the past year as seen in the +14.7% and +15.4% respective gains
in the MSCI Europe and Pacific Indices.
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SIT DEVELOPING MARKETS GROWTH ---- ---- ---- ---- ---- ---- ----
(NASDAQ Symbol: SDMGX)
SIT SMALL CAP GROWTH ---- ---- ---- ---- ---- ---- ----
(NASDAQ Symbol: SSMGX)
SIT INTERNATIONAL GROWTH ---- ---- ---- ---- ---- ---- 4.10%(1)
(NASDAQ Symbol: SNGRX)
SIT GROWTH 43.65% 10.33% 5.50% 9.77% 35.15% -2.04% 65.50
(NASDAQ Symbol: NBNGX)
SIT GROWTH & INCOME 23.48 21.83 5.32 5.33 32.02 -2.37 32.72
(NASDAQ Symbol: SNIGX)
SIT BALANCED ---- ---- ---- ---- ---- ---- ----
MCSI EMERGING MARKETS FREE INDEX(2) ---- ---- ---- ---- ---- ---- ----
RUSSELL 2000 INDEX(3) ---- ---- ---- ---- ---- ---- ----
EAFE INDEX(4) ---- ---- ---- ---- ---- ---- 0.26
NASDAQ OTC COMPOSITE INDEX 31.36 7.36 -5.26 15.41 19.26 -17.80 56.84
S&P 500 INDEX 31.60 18.64 5.28 16.55 31.61 -3.05 30.46
</TABLE>
WIDE TABLE CONTINUED FROM ABOVE
<TABLE>
<CAPTION>
YTD
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SIT DEVELOPING MARKETS GROWTH ---- ---- -2.02%(1) -4.29% 17.49%
(NASDAQ Symbol: SDMGX)
SIT SMALL CAP GROWTH ---- ---- 11.57(1) 52.16 15.11
(NASDAQ Symbol: SSMGX)
SIT INTERNATIONAL GROWTH 2.69% 48.37% -2.99 9.36 6.40
(NASDAQ Symbol: SNGRX)
SIT GROWTH -2.14 8.55 -0.47 33.64 12.41
(NASDAQ Symbol: NBNGX)
SIT GROWTH & INCOME 4.94 3.15 2.83 31.66 11.49
(NASDAQ Symbol: SNIGX)
SIT BALANCED ---- ---- -0.33 25.43 6.66
MCSI EMERGING MARKETS FREE INDEX(2) ---- ---- 2.80 -6.94 9.31
RUSSELL 2000 INDEX(3) ---- ---- 4.61 28.45 10.36
EAFE INDEX(4) -12.17 32.56 7.78 11.21 4.52
NASDAQ OTC COMPOSITE INDEX 15.45 14.75 -3.20 39.92 12.63
S&P 500 INDEX 7.64 10.07 1.32 37.58 10.10
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
QUARTER ENDED SIX MONTHS ENDED
INCEPTION 6/30/96 6/30/96
--------- ------- -------
<S> <C> <C> <C>
SIT DEVELOPING MARKETS GROWTH 07/01/94 7.67% 17.49%
SIT SMALL CAP GROWTH 07/01/94 11.13 15.11
SIT INTERNATIONAL GROWTH 11/01/91 2.84 6.40
SIT GROWTH 09/02/82 5.34 12.41
SIT GROWTH & INCOME 09/02/82 6.84 11.49
SIT BALANCED 12/31/93 4.46 6.66
MCSI EMERGING MARKETS FREE INDEX (2) 3.35 9.31
RUSSELL 2000 INDEX (3) 5.00 10.36
EAFE INDEX (4) 1.58 4.52
NASDAQ OTC COMPOSITE INDEX (5) 7.59 12.63
S&P 500 INDEX (5) 4.49 10.10
</TABLE>
WIDE TABLE CONTINUED FROM ABOVE
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIODS ENDED JUNE 30, 1996
-------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
SIT DEVELOPING MARKETS GROWTH 16.51% ---- ---- ---- 4.98%
SIT SMALL CAP GROWTH 44.13 ---- ---- ---- 39.92
SIT INTERNATIONAL GROWTH 10.21 14.19% ---- ---- 13.31
SIT GROWTH 33.00 17.67 16.03% 13.61% 19.21
SIT GROWTH & INCOME 24.48 16.06 14.56 11.77 14.94
SIT BALANCED 17.26 ---- ---- ---- 12.23
MCSI EMERGING MARKETS FREE INDEX (2) 6.29 ---- ---- ---- 2.26
RUSSELL 2000 INDEX (3) 23.89 ---- ---- ---- 21.84
EAFE INDEX (4) 13.28 10.45 ---- ---- 8.49
NASDAQ OTC COMPOSITE INDEX (5) 26.95 18.96 20.02 11.32 14.62
S&P 500 INDEX (5) 26.00 17.22 15.73 13.81 17.18
</TABLE>
(1) Period from Fund inception through calendar year-end.
(2) Figures assume an inception date of 6/30/94.
(3) Figures assume an inception date of 7/1/94.
(4) Figures assume an inception date of 10/31/91.
(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
JUNE 30, 1996
[PHOTO] EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
ANDREW B. KIM, CFA
SENIOR PORTFOLIO MANAGER
The Sit Developing Markets Growth Fund's investment return for the year
ended June 30, 1996 was +16.5%, which compares favorably to the MSCI Emerging
Markets Free Index return of +6.3%. The Fund's outperformance is attributable to
its minimal exposure to South Africa, (which was up only +1%) as well as stock
selection in Brazil, Thailand, Philippines and Hong Kong.
During the quarter, the Fund's allocation to Asia Pacific decreased from
56% to 50%. We sold all of the Fund's Indian holdings (which previously
accounted for 6% of the portfolio) due to the precarious political situations,
as well as falling earnings estimates. We recently added to our holdings in
Korea and Thailand as we expect these markets to recover from their depressed
valuations.
The Fund's allocation to Latin America remained relatively unchanged at
28%. Peru has lagged the region during the past six months, and we have taken
advantage of some attractive valuations by adding two new Peruvian holdings
- --Credicorp (financial) and Backus & Johnston (Brewery). In Brazil, real
interest rates continue to decline, and we are maintaining the Fund's
significant allocation to consumer-oriented stocks. Additionally, Telebras
continues to benefit from a more favorable rate environment as well as
increasing prospects of privatization.
Although there are concerns with regard to the risk of higher bond yields
in the U.S., we believe emerging markets are now less prone to severe market
swings. In Asia, inflation is ebbing while economic growth is slowing to a more
manageable level. In Latin America the Fund has relatively little invested in
Mexico and Argentina, which are the countries most impacted by the potentially
adverse U.S. interest rate environment. Emerging markets' valuations are not
stretched and we envision the remainder of 1996 will continue to be favorable
for investors in these markets.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Developing Markets Growth Fund is to maximize
long-term capital appreciation. The Fund pursues this objective by investing in
equity securities of companies located 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 flucuations, high
volatility, illiquidity and the possibility of political instability.
PORTFOLIO SUMMARY
Net Asset Value 6/30/96: $10.95 Per Share
6/30/95: $ 9.41 Per Share
Total Net Assets: $ 8.65 Million
PORTFOLIO STRUCTURE - BY REGION
(% of total net assets)
[BAR CHART]
SIT DEVELOPING MARKETS MSCI Emerging
GROWTH FUND Markets Free Index
Pacific Basin 49.9 46.4
Latin America 27.6 32.2
Africa/Middle East 7.5 15.9
Europe 6.4 5.6
Other Assets & Liabilities 8.6 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 7.67% 3.35% 4.86% 7.67% 3.35% 4.86%
(unannualized)
1 Year 16.51 6.29 10.49 16.51 6.29 10.49
Inception 4.98 2.26 4.22 10.18 4.56 8.61
(7/1/94)
</TABLE>
* As of 6/30/96
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 EMERGING MARKETS FREE INDEX. THE LIPPER AVERAGES AND
INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT
EVALUATOR OF MUTUAL FUNDS.
[BAR CHART]
PORTFOLIO STRUCTURE - BY SECTOR
( % of total net assets)
Utilities 24.3
Consumer Non-Durables 13.5
Financial 9.7
Retail 9.7
Consumer Services 8.8
Multi-Industry 6.8
Technology 6.4
Shelter 5.1
Capital Goods 4.4
Consumer Durables 2.7
Other Assets & Liabilities 8.6
[LINE GRAPH]
GROWTH OF $10,000
The sum of $10,000 invested at inception (7/1/94) and held until 6/30/96 would
have grown to $11,018 in the Fund or $10,456 in the Morgan Stanley Capital Int'l
Emerging Markets Free Index assuming reinvestment of all dividends and capital
gains.
SIT DEVELOPING MARKETS GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1996
10 LARGEST HOLDINGS
* Datacraft Asia Ltd.
* Banco Latinoamericano
* Multibras
* Tadiran Telecom, A.D.R.
* First Pacific
* President Enterprises, G.D.R.
* Nice Systems Ltd., A.D.R.
* Grammy Entertainment
* Portugal Telecom, A.D.R.
* Genting Berhad
Total number of holdings: 59
QUANTITY NAME OF ISSUER MARKET VALUE(1)
-------- -------------- ---------------
COMMON & PREFERRED STOCKS (90.6%)(2)
AFRICA/ MIDDLE EAST (7.5%)
ISRAEL (6.1%)
14,700 Home Centers, A.D.R. (Retail) (3) $ 95,320
11,000 Nice Systems Ltd., A.D.R.
(Utilities) (3) 209,000
14,000 Tadiran Telecom, A.D.R.
(Utilities) (3) 224,000
528,320
SOUTH AFRICA (1.4%)
9,800 Morgan Stanley Africa Investment
Fund (Multi-Industry) 123,725
ASIA (49.1%)
HONG KONG (6.8%)
164,000 China-Hong Kong Photo
(Consumer Services) 93,751
23,000 Citic Pacific Ltd. (Utilities) 93,001
138,627 First Pacific Co. (Multi-Industry) 213,114
18,500 Hutchison Whampoa (Multi-Industry) 116,391
414,000 Nanjing Panda (Technology) (3) 71,133
587,390
INDONESIA (5.9%)
2,800 Indosat, A.D.R. (Utilities) 93,800
28,000 PT Indofood Sukses (Consumer
Non-Durables) (5) 126,316
136,000 PT Dynaplast (Consumer
Non-Durables) (5) 128,550
37,000 PT Modern Photo (Consumer
Services) (5) 158,969
507,635
KOREA (1.8%)
4,200 Korea Electric Power (Utilities) (3) 101,850
496 Samsung Electronics G.D.R., Bonus
Issue (Technology) (4) 9,222
1,648 Samsung Electronics, G.D.R.
(Technology) (4) 41,260
152,332
MALAYSIA (4.5%)
23,000 Genting Berhad (Consumer
Services) 179,796
44,000 IJM Berhad Corp. (Capital Goods) 76,200
48,000 Leader Universal Cables (Capital
Goods) 135,658
391,654
PHILIPPINES (7.5%)
83,750 Ayala Land 'B' (Shelter) 150,239
215,500 DMCI Holdings, Inc. (Shelter) (3) 154,222
353,000 JG Summit, Inc. (Multi-Industry) 132,038
8,270 Manila Electric Company (Utilities) 86,803
2,100 Philippine Long Distance, A.D.R.
(Utilities) 122,062
645,364
SINGAPORE (10.9%)
13,000 Cerebos Pacific Ltd. (Consumer
Non-Durables) 117,009
17,200 City Developments (Shelter) 134,089
61,000 Clipsal Industries (Capital Goods)(4) 171,410
234,000 Datacraft Asia Ltd. (Technology) 252,720
330,000 Informatics Holdings (Consumer
Services) (3) 133,310
14,000 United Overseas Bank (Financial) 133,948
942,486
TAIWAN (3.7%)
10,262 President Enterprises, G.D.R.
(Consumer Non-Durables) (3) (4) 212,937
14,280 Yageo, G.D.R. (Technology) (3) 111,027
323,964
THAILAND (8.0%)
9,000 Advanced Info Services
(Technology) 141,090
8,000 Bangkok Bank (Financial) 108,398
14,000 Grammy Entertainment (Consumer
Services) (3) 194,107
22,700 Krung Thai Bank (Financial) 106,401
28,000 Siam Makro (Retail) 143,375
693,371
EUROPE (6.4%)
CZECH REPUBLIC (1.4%)
1,000 SPT Telecom (Utilities) (3) 121,658
NETHERLANDS (2.0%)
3,279 Ceteco Holdings, A.D.S.(Retail)(4) 178,410
POLAND (0.8%)
111,000 Pan Smak Pizza (Consumer
Non-Durables) (3) (5) 66,669
PORTUGAL (2.2%)
7,100 Portugal Telecom, A.D.R.(Utilities) 186,375
LATIN AMERICA (27.6%)
ARGENTINA (1.5%)
5,100 Banco de Galicia, A.D.R.
(Financial) 131,963
BRAZIL (12.1%)
285,000 Brahma (Preferred) (Consumer
Non-Durables) 170,009
5,980 Cemig, A.D.R. (Utilities) (3) (4) 156,975
5,600,000 Lojas Americanos (Preferred)
(Retail) 110,422
178,000 Makro Brazil (Retail) (3) 168,401
174,000 Multibras (Preferred) (Consumer
Durables) 233,929
1,000 Telebras, A.D.R. (Utilities) 69,625
2,250,000 Telecom Brasileiras, S.A.(Utilities) 132,201
1,041,562
CHILE (3.1%)
4,300 Enersis, A.D.R. (Utilities) 133,300
5,000 Santa Isabel, A.D.S. (Retail) 138,750
272,050
MEXICO (2.5%)
4,100 Grupo Casa Autrey, A.D.R.
(Consumer Non-Durables) 88,150
2,800 Panamerican Beverage, Inc.
(Consumer Non-Durables) 125,300
213,450
PANAMA (2.7%)
4,200 Banco Latinoamericano
(Financial) 236,250
PERU (5.7%)
106,195 Backus & Johnston (Consumer
Non-Durables) 134,320
6,300 Credicorp, A.D.R. (Financial) 125,213
48,050 Telefonos Del Peru - B (Utilities)(3) 97,555
74,704 Tele 2000 (Utilities) (3) 132,711
489,799
Total common and preferred stocks
(cost: $6,601,289) 7,834,427
CONVERTIBLE BONDS (0.8%)
50,000 United Microelectronics, 1.25%,
6/8/04 (Taiwan) (5) 64,125
(cost $83,350)
SHORT-TERM SECURITIES (7.5%)
325,000 American General Finance,
5.38%, 7/3/96 324,903
325,000 Ford Motor Credit, 5.38%, 7/5/96 324,806
Total short-term securities
(cost $649,709) 649,709
Total investments in securities
(cost $7,334,348) (7) $8,548,261
See accompanying notes to portfolios of investments on page 31.
SIT SMALL CAP GROWTH FUND REVIEW
JUNE 30, 1996
[PHOTO] EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
The Sit Small Cap Growth Fund provided its investors with a total return of
+44.1% for the fiscal year ended June 30, 1996, surpassing the benchmark Russell
2000 Index's +23.9% advance. The Fund also outperformed the Lipper Small Company
Growth Index return of +30.3% and the Russell 2000 Growth Index return of
+26.5%.
Stock selection in the technology sector, a key area of emphasis for the
Fund, contributed significantly to the Fund's outperformance. Stock selection in
the health care and financial services areas, as well as sector selection in the
business equipment and services groups, added to the Fund's positive returns.
Although portfolio weights in the technology and health care sectors were
trimmed modestly during the most recent quarter, we will continue to focus on
these sectors since they provide the greatest number of opportunities to augment
the portfolio's earnings growth potential.
We believe our emphasis on small cap growth companies able to consistently
generate higher-than-average earnings growth will produce attractive long-term
results, although the market's enthusiasm for small cap stocks had spurred some
valuation concerns. We expect that the companies in the Fund's portfolio will
increase earnings on a weighted average basis by +38.7% in 1997 and by +29.6%
over the long term, vastly above comparable levels of expected earnings growth
for the market as a whole. At 19.1 times 1997 earnings, the Fund is presently
valued at significant discounts to both its near-term and long-term estimated
growth rates.
Since June, the equity market has been in a corrective mode that has
measurably impacted the performance of small cap stocks, particularly those that
had recorded significant gains during the first half of the year. Although the
increased market volatility has generated investor concerns, we believe this is
an opportunity to capitalize on some compelling growth opportunities at
relatively attractive valuations. We feel that our commitment to our
growth-oriented investment philosophy will reward investors over the
intermediate to long term based on the outstanding long-term growth prospects of
the companies in the Fund's portfolio.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit 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 6/30/96: $19.27 Per Share
6/30/95: $13.49 Per Share
Total Net Assets: $50.85 Million
[BAR CHART]
PORTFOLIO STRUCTURE
(% of total net assets)
Technology 27.3
Health Care 22.6
Financial 11.8
Consumer Services 9.9
Business Equipment & Services 8.9
Energy 4.5
Capital Goods 2.7
Retail 2.2
Transportation 2.0
Utilities 1.5
Other Assets & Liabilities 6.6
<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 11.13% 5.00% 8.12% 11.13% 5.00% 8.12%
(unannualized)
1 Year 44.13 23.89 30.27 44.13 23.89 30.27
Inception 39.92 21.84 28.14 95.43 48.29 64.10
(7/1/94)
</TABLE>
* As of 6/30/96
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.
[LINE GRAPH]
GROWTH OF $10,000
The sum of $10,000 invested at inception (7/1/94) and held until 6/30/96 would
have grown to $19,543 in the Fund or $14,829 in the Russell 2000 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* American Radio Systems Corp.
* HCIA, Inc.
* Cycare Systems, Inc.
* Commodore Applied Technologies, Inc.
* BDM International, Inc.
* HA-LO Industries, Inc.
* Anadigics, Inc.
* Technomatic Technologies, Ltd.
* Transaction Network Services, Inc.
* Regeneron Pharmaceuticals, Inc.
Total number of holdings: 65
SIT SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1996
QUANTITY NAME OF ISSUER MARKET VALUE(1)
-------- -------------- ---------------
COMMON STOCKS (93.4%) (2)
BUSINESS EQUIPMENT & SERVICES (8.9%)
238,000 Commodore Applied
Technologies, Inc. (3) $1,323,875
238,000 Commodore Applied
Technologies, Inc.,
(warrants) (3) 416,500
27,000 Dendrite International, Inc. (3) 931,500
17,500 Employee Solutions, Inc. (3) 551,250
4,500 On Assignment, Inc. (3) 167,625
52,500 Transaction Network Services,
Inc. (3) 1,128,750
4,519,500
CAPITAL GOODS (2.7%)
12,500 Molten Metal Technology, Inc. (3) 368,750
47,500 Rohr Industries, Inc. (3) 991,563
1,360,313
CONSUMER SERVICES (9.9%)
37,000 American Radio Systems
Corp. (3) 1,591,000
30,000 Central European Media
Enterprises, Ltd. (3) 750,000
20,000 Chancellor Broadcasting
Class A (3) 625,000
47,250 HA-LO Industries, Inc. (3) 1,228,500
15,000 Heritage Media Corp. (3) 598,125
14,000 York Group, Inc. (The) 241,500
5,034,125
ENERGY (4.5%)
14,500 Newfield Exploration Co. (3) 563,688
18,500 Newpark Resources, Inc. (3) 679,875
32,000 Oceaneering International, Inc. (3) 484,000
30,000 Swift Energy Co. (3) 540,000
2,267,563
FINANCIAL (11.8%)
FINANCIAL SERVICES (5.5%)
35,000 Community First Bankshares, Inc. 822,500
28,000 Imperial Credit Industries, Inc. (3) 847,000
18,375 Provident Bankshares Corp. 606,375
10,500 Queens County Bankcorp, Inc. 514,500
2,790,375
INSURANCE (6.3%)
18,500 Allied Group, Inc. 804,750
22,000 Amerin Corp. (3) 588,500
8,300 CMAC Investment Corp. 477,250
51,000 Crop Growers Corp. (3) 484,500
36,000 Dignity Partners, Inc. (3) 333,000
17,200 Meadowbrook Insurance Group 528,900
3,216,900
HEALTH CARE (22.6%)
BIOTECHNOLOGY/ PHARMACEUTICALS (6.6%)
43,500 Collaborative Clinical Research,
Inc. (3) 505,688
14,000 Dura Pharmaceuticals, Inc. (3) 784,000
63,500 Genzyme Corp. - "Tissue
Repair" (3) 746,125
30,000 Life Medical Sciences, Inc. (3) 262,500
62,000 Regeneron Pharmaceuticals,
Inc. (3) 1,077,250
3,375,563
MEDICAL EQUIPMENT/ SUPPLIES (6.5%)
22,000 Cantel Industries, Inc. (3) 176,000
42,000 FemRx Inc. (3) 454,125
29,000 I-Stat Corp. (3) 547,375
181,000 Innerdyne, Inc. (3) 724,000
12,000 InControl, Inc. (3) 141,000
46,500 Neuromedical Systems, Inc. (3) 697,500
43,000 Resound Corp. (3) 548,250
3,288,250
MEDICAL FACILITIES MANAGEMENT (9.5%)
25,500 Cycare Systems, Inc. (3) 1,329,188
57,500 GMIS, Inc. (3) 690,000
21,500 HCIA, Inc. (3) 1,354,500
48,000 Physician Computer Network,
Inc. (3) 555,000
28,500 Sierra Health Services, Inc. (3) 897,750
4,826,438
RETAIL (2.2%)
16,500 Apple South, Inc. 441,375
28,500 Sonic Corp. (3) 691,125
1,132,500
TECHNOLOGY (27.3%)
COMPUTER RELATED (1.3%)
9,200 Electronics For Imaging, Inc. (3) 638,250
COMPUTER SOFTWARE/ SERVICES (16.4%)
28,000 Alternative Resources Corp. (3) 1,029,000
16,500 Aspen Technology, Inc. (3) 907,500
27,900 BDM International, Inc. (3) 1,297,350
20,500 Business Objects, S. A., A.D.R.(3) 825,125
66,500 Datalogix International, Inc. (3) 482,125
10,500 Legato Systems, Inc. (3) 577,500
69,000 Novadigm, Inc. (3) 1,035,000
63,000 Scopus Technology (3) 976,500
63,500 Technomatix Technologies,
Ltd.(3) 1,206,500
8,336,600
SEMICONDUCTORS & RELATED (3.4%)
49,500 Integrated Process Equipment
Corp. (3) 1,027,125
20,000 Uniphase Corp. (3) 710,000
1,737,125
TELECOMMUNICATIONS & EQUIPMENT (6.2%)
41,500 Anadigics, Inc. (3) 1,208,688
51,000 Arch Communications Group,
Inc. (3) 949,875
26,500 Colonial Data Technologies
Corp. (3) 394,188
25,000 Intelcom Group, Inc. (3) 625,000
3,177,751
TRANSPORTATION (2.0%)
46,500 ABC Rail Products Corp. (3) 1,005,560
UTILITIES (1.5%)
37,000 Tel-Save Holdings, Inc. (3) 786,250
Total common stocks
(cost: $37,628,071) 47,493,063
SHORT-TERM SECURITIES (10.4%)
673,000 American Express Credit
Corp., 5.29%, 7/2/96 672,901
310,000 American General Financial
Corp., 5.38%, 7/8/96 309,676
Ford Motor Credit Corp.:
948,000 5.33%, 7/3/96 947,720
700,500 5.41%, 7/9/96 699,659
652,000 IBM Corp., 5.35%, 7/1/96 652,000
990,000 Norwest Financial Corp., 5.36%,
7/5/96 989,412
509,000 General Electric Capital Corp.,
5.38%, 7/5/96 508,696
510,000 Sit Money Market Fund,
5.10%(6) 510,000
Total short-term securities
(cost: $5,290,064) 5,290,064
Total investments in securities
(cost: $42,918,135) (7) $52,783,127
See accompanying notes to portfolios of investments on page 31.
SIT INTERNATIONAL GROWTH FUND REVIEW
JUNE 30, 1996
[PHOTO] EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
ANDREW B. KIM, CFA
SENIOR PORTFOLIO MANAGER
The Sit International Growth Fund's investment return for the year ended
June 30, 1996 was +10.2% compared to the EAFE index return of +13.3%. The Fund's
underperformance was attributable to a lower allocation to Europe which was up
+15.2%. Additionally, stock selection in Japan lagged the Index as cyclical
stocks outperformed growth stocks during the period.
With four consecutive quarters of solid GDP growth, the outlook for Japan
is favorable. Exports should continue to improve due to the weaker yen and
should be accompanied by firmer growth in consumption and housing. Additionally,
the Bank of Japan continues to keep short-term interest rates at their extremely
low levels. Thus, non-financial corporate profit growth should increase nearly
+20% for fiscal year 1996.
Outside Japan, Asian monetary authorities are preparing to ease by cutting
interest rates and increasing money supply growth in view of the constrained
state of inflation and the evidence of moderate economic growth. We continue to
believe that the greater China markets (Taiwan and Hong Kong) will be important
beneficiaries of China's easing of credit policy. We also look for a substantial
recovery in the depressed stock markets of Korea and Thailand.
In Europe, we believe several long-term secular trends will have
significant positive portfolio implications. First, companies are in the infant
stages of reforming their pay-as-you-go pension plans, which will lead to
greater demand for equities. Second, certain European governments have embarked
on privatization programs which should further the cause for increased
competitiveness. Finally, currently listed companies are beginning to focus on
enhancing shareholder value.
In light of these changes, we are increasing the Fund's European allocation
to 45%, with corresponding decreases in selected Asian holdings. We remain
underweighted in Japan while still overweighted in the Pacific Basin markets.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit 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 6/30/96: $16.29 Per Share
6/30/95: $15.71 Per Share
Total Net Assets: $88.71 Million
PORTFOLIO STRUCTURE - BY REGION
( % of total net assets)
[BAR CHART]
SIT INTERNATIONAL Morgan Stanley
GROWTH FUND EAFE Index
Japan 27.0 39.7
Pacific Basin 25.0 10.4
Other Europe 18.5 20.5
France, Germany & UK 16.7 29.4
Latin America 5.2 0.0
Africa/Middle East 0.7 0.0
Other Assets & Liabilities 6.9 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
----------- ---------- ---------- ----------- ---------- ----------
<C> <C> <C> <C> <C> <C> <C>
3 Months 2.84% 1.58% 3.88% 2.84% 1.58% 3.88%
(unannualized)
1 Year 10.21 13.28 16.44 10.21 13.28 16.44
3 Years 14.19 10.45 12.91 48.90 34.73 43.94
Inception 13.31 8.49 10.90 79.04 46.22 62.03
(11/1/91)
</TABLE>
* As of 6/30/96
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.
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Utilities 17.5
Financial 12.6
Health Care 10.1
Consumer Services 10.0
Retail 9.8
Technology 6.7
Multi-Industry 6.2
Consumer Non-Durables 6.0
Business Equip. & Services 4.6
Capital goods 3.9
Miscellaneous 3.6
Transportation 2.1
Other Assets & Liabilities 6.9
GROWTH OF $10,000
[LINE GRAPH]
The sum of $10,000 invested at inception (11/1/91) and held until 6/30/96 would
have grown to $17,904 in the Fund or $14,622 in the Morgan Stanley EAFE Index
assuming reinvestment of all dividends and capital gains.
SIT INTERNATIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1996
10 LARGEST HOLDINGS
* Aegon N.V., A.D.R.
* Carrefour
* Gehe AG
* Canon, Inc., A.D.R.
* Reuters Holdings, p.l.c., A.D.S.
* Societe Generale de Surveillance
* First Pacific Co.
* Hutchison Whampoa
* Wolters Kluwer
* Secom Co.
Total number of holdings: 71
QUANTITY NAME OF ISSUER MARKET VALUE(1)
-------- -------------- ---------------
COMMON & PREFERRED STOCKS (92.2%)(2)
AFRICA/MIDDLE EAST (0.7%)
ISRAEL (0.7%)
41,000 Tadiran Telecom Corp, A.D.R.
(Utilities) (3) $ 656,000
ASIA (51.1%)
AUSTRALIA (1.7%)
192,416 News Corp. Ltd. (Preferred)
(Consumer Services) 937,503
167,183 Village Roadshow Ltd.
(Consumer Services) 584,645
1,522,148
HONG KONG (6.3%)
84,200 Concordia Paper, A.D.R.
(Raw Materials) (3) 599,925
318,000 Citic Pacific Ltd. (Multi-Industry) 1,285,844
1,224,000 First Pacific Co. (Multi-Industry) 1,881,678
296,000 Hutchison Whampoa
(Multi-Industry) 1,862,248
5,629,695
INDONESIA (2.0%)
30,500 Indosat, A.D.R. (Technology) 1,021,750
170,000 PT Modern Photo (Consumer
Services) (5) 730,397
1,752,147
JAPAN (27.0%)
40,100 AFLAC, Inc. (Financial) 1,197,987
27,000 Amway Japan Ltd. (Consumer
Non-Durables) 1,357,404
13,400 Amway Japan, A.D.R. (Consumer
Non-Durables) 333,325
8,300 Autobacs Seven (Retail) 804,205
109,000 Banyu Pharmaceutical
(Health Care) 1,544,333
20,100 Canon, Inc., A.D.R. (Business
Equipment & Service) 2,095,425
161 DDI Corp. (Utilities) 1,406,910
6,000 Ito Yokado A.D.R. (Retail) 1,446,000
23,000 Mabuchi Motor (Capital Goods) 1,467,459
65,000 Matsushita Kotobuki (Technology) 1,699,269
27,000 Murata Manufacturing Co., Ltd.
(Capital Goods) 1,024,223
82 Nippon Telephone & Telegraph
(Utilities) 608,629
77,000 Nomura Securities (Financial) 1,506,216
38 NTT Data Communications
Systems Co. (Utilities) 1,139,305
47,300 Rinnai Corp. (Consumer Durables) 1,124,132
50,600 Santen Pharmaceutical
(Health Care) 1,179,433
26,000 Secom Co. (Consumer Services) 1,720,658
23,600 Seven Eleven Japan (Retail) 1,507,898
16,300 Sony Music Entertainment
(Consumer Non-Durables) 759,872
23,922,683
KOREA (1.3%)
18,500 Kookmin Bank (Financial) 342,086
17,010 Housing and Commercial Bank
(Financial) (3) 396,313
11,865 Samsung Electronics G.D.R.
(Technology) (4) 300,281
7,101 Samsung Electronics G.D.R.,
Bonus Issue (Technology) (4) 130,758
1,169,438
MALAYSIA (2.4%)
152,500 Genting Berhad (Consumer
Services) 1,192,123
540,000 IJM Berhad Corp. (Capital Goods) 935,177
2,127,300
PHILIPPINES (1.6%)
135,290 Manila Electric Co. (Utilities) 1,420,029
NEW ZEALAND (1.7%)
23,100 Telecom Corp. New Zealand,
A.D.R. (Utilities) 1,541,925
SINGAPORE (2.4%)
185,000 City Developments (Shelter) 1,442,240
72,500 United Overseas Bank (Financial) 693,657
2,135,897
TAIWAN (2.3%)
50,909 President Enterprises, G.D.R.
(Consumer Non-Durables)(3)(4) 1,056,362
121,800 Yageo, G.D.R. (Technology) 946,995
2,003,357
THAILAND (2.4%)
55,000 Advanced Info Services (Utilities) 862,218
95,000 Bangkok Bank (Financial) 1,287,222
2,149,440
EUROPE (35.2%)
FRANCE (5.4%)
3,765 Carrefour (Retail) 2,110,757
5,900 Cetelem (Financial) 1,326,977
10,200 Christian Dior (Retail) 1,328,473
4,766,207
GERMANY (5.7%)
37,200 Bayer, A.G. (Health Care) 1,314,898
3,125 Gehe, A.G. (Health Care) 2,100,253
30,000 Veba A.G. (Utilities) 1,595,436
5,010,587
ITALY (1.7%)
661,000 Telecom Italia Mobile Spa
(Utilities) (3) 1,477,999
NETHERLANDS (6.4%)
52,614 Aegon, N.V., A.D.R. (Financial) 2,426,812
13,209 Nutricia (Consumer Non-Durables) 1,397,980
16,228 Wolters Kluwer (Consumer
Services) 1,845,024
5,669,816
POLAND (0.5%)
1,245,113 International UNP Holdings Ltd.
(Multi-Industry) (3) (4) (5) 456,002
SPAIN (1.8%)
25,300 Empresa Nacional De
Electricidad, A.D.R. (Utilities) 1,584,412
SWEDEN (2.7%)
32,000 Astra "B" Free (Health Care) 1,396,768
48,400 L.M. Ericsson Telephone Co.
(Technology) 1,040,600
2,437,368
SWITZERLAND (5.4%)
186 Roche Holdings, A.G.
(Health Care) 1,420,296
795 Societe Generale de Surveillance
(Transportation) 1,904,820
5,460 Zurich Insurance (Financial) 1,489,488
4,814,604
UNITED KINGDOM (5.6%)
69,000 Electrocomponents, p.l.c.
(Consumer Services) 409,159
152,935 Powergen, p.l.c. (Utilities) 1,114,881
230,000 Rentokil Group, p.l.c.
(Consumer Services) 1,460,389
27,800 Reuters Holdings p.l.c., A.D.S.
(Business Equip. & Service) 2,015,500
4,999,929
LATIN AMERICA (5.2%)
BRAZIL (1.4%)
33,300,000 Lojas Americanos (Retail) 656,615
9,500,000 Telecom Brasileiras,S.A.(Utilities) 558,184
1,214,799
CHILE (1.9%)
25,500 Enersis, A.D.R. (Utilities) 790,500
31,000 Santa Isabel, A.D.R. (Retail) (3) 860,250
1,650,750
MEXICO (0.5%)
10,400 Panamerican Beverage, Inc.
(Consumer Non-Durables) 465,400
PANAMA (0.5%)
8,000 Banco Latinoamericano
(Financial) 450,000
PERU (0.9%)
382,600 Telefonos Del Peru - B (Utilities) 776,773
Total common and preferred stocks
(cost: $63,031,686) 81,804,705
CONVERTIBLE BONDS (0.9%)
590,000 United Microelectronics, 1.25%,
6/8/04 (Taiwan) (5) 756,675
(cost: $955,056)
SHORT TERM SECURITIES (6.7%)
1,021,000 American Express Credit. 5.29%,
7/1/96 1,021,000
728,000 American General Corp., 5.38%,
7/5/96 727,566
1,868,000 Ford Motor Credit Co., 5.33%,
7/2/96 1,867,724
940,000 General Electric Cap. Corp.,
5.36%, 7/8/96 939,022
858,000 Norwest Financial, 5.36%, 7/3/96 857,745
510,000 Sit Money Market Fund, 5.10%(6) 510,000
Total short-term securities
(cost: $5,923,057) 5,923,057
Total investments in securities
(cost: $69,909,799) (7) $88,484,437
See accompanying notes to portfolios of investments on page 31.
SIT GROWTH FUND REVIEW
JUNE 30, 1996
[PHOTO] EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
ERIK S. ANDERSON, CFA
PORTFOLIO MANAGER
The Sit Growth Fund ended the fiscal year on a strong note, providing
investors with a total return of +33.0%. During this twelve-month period, the
Fund outperformed its broad market benchmark indices, including the +27.0% gain
by the NASDAQ Composite and the +26.0% increase in the S&P 500 Index. The Fund
also outperformed mid cap stocks as shown by the +21.6% gain in the S&P Midcap
400 Index, a widely recognized measure of medium-sized company performance.
Stock selection in the health care and technology sectors were the primary
contributors to the Fund's outperformance during the past twelve months. In
particular, companies providing productivity-enhancing tools to corporate
markets and the health care industry recorded strong earnings increases which
led to strong performance for the year. The Fund continues to emphasize these
two sectors as its primary avenues for obtaining superior earnings growth
through its investments in networking, software and health care information
systems and services companies. The Fund's overweight position in financial
services issues and its underweight in raw materials stocks also factored
positively in the Fund's performance.
The Fund remains focused on companies with prospects for superior long-term
earnings growth. We estimate that the companies in the Fund's portfolio will
generate weighted average earnings increases of +32.3% in 1996 and +30.7% in
1997, considerably higher than the estimated earnings growth of the market as a
whole. Additionally, more than 80% of the Fund's portfolio is currently invested
in stocks that are estimated to produce long-term earnings growth of better than
16%. In light of the Fund's valuation at 28.5 times 1996 estimates and 20.8
times 1997 estimates, it is currently valued at an average 22% discount to its
near-term growth rates.
Although near-term volatility has increased, there are a number of growth
companies valued at levels we find attractive. We remain solidly committed to
our growth-oriented investment philosophy and believe that the Fund's investors
will ultimately be rewarded by the outstanding growth prospects of the companies
in the Fund's portfolio.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit 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 6/30/96: $ 15.58 Per Share
6/30/95: $ 13.00 Per Share
Total Net Assets: $ 356.32 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR GRAPH]
Technology 28.8
Health Care 17.2
Business Equipment & Services 14.5
Financial 12.7
Energy 6.3
Consumer Services 4.3
Retail 3.0
Capital Goods 2.9
Consumer Durables 1.8
Utilities 1.6
Raw Materials 1.0
Other Assets & Liabilities 5.9
<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 5.34% 7.59% 4.49% 5.34% 7.59% 4.49%
(unannualized)
1 Year 33.00 26.95 26.00 33.00 26.95 26.00
5 Years 16.03 20.02 15.73 110.32 149.00 107.58
10 Years 13.61 11.32 13.81 258.22 192.23 264.68
Inception 19.21 14.62 17.18 1,035.73 560.18 795.52
(9/2/82)
</TABLE>
* As of 6/30/96
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
The sum of $10,000 invested at inception (9/2/82) and held until 6/30/96 would
have grown to $113,573 in the Fund or $66,018 in the NASDAQ OTC Composite Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Parametric Technology, Inc.
* HBO & Co.
* Peoplesoft, Inc.
* Oxford Health Plans, Inc.
* TCF Financial Corp.
* Ceridian Corp.
* MGIC Investment Corp.
* 3Com Corp.
* Healthsouth Rehabilitation Corp.
* Mercury General Corp.
Total number of holdings: 63
SIT GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1996
QUANTITY NAME OF ISSUER MARKET VALUE(1)
-------- -------------- ---------------
COMMON STOCKS (94.1%) (2)
BUSINESS EQUIPMENT & SERVICE (14.5%)
62,500 CDI Corp. (3) $ 2,109,375
48,500 Career Horizons, Inc. (3) 1,697,500
207,100 Ceridian Corp. (3) 10,458,550
48,500 Computer Sciences Corp. (3) 3,625,375
24,400 Corestaff, Inc. (3) 1,091,900
148,000 Danka Business Systems,
Inc., A.D.R. 4,329,000
150,000 Dendrite International, Inc. (3) 5,175,000
240,100 Fiserv, Inc. (3) 7,203,000
41,000 Interim Services, Inc. (3) 1,763,000
78,500 National Data Corp. 2,688,625
160,500 Office Depot, Inc. (3) 3,270,187
171,000 Paychex, Inc. 8,229,375
51,640,887
CAPITAL GOODS (2.9%)
114,800 Crane Co. 4,706,800
151,000 Sundstrand Corp. 5,530,375
10,237,175
CONSUMER DURABLES (1.8%)
159,500 Harley-Davidson, Inc. 6,559,437
CONSUMER SERVICES (4.3%)
158,200 Loewen Group, Inc. 4,785,550
94,500 Promus Hotel Corp. (3) 2,799,562
247,500 Stewart Enterprises, Inc. 7,734,375
15,319,487
ENERGY (6.3%)
111,500 Camco International, Inc. 3,777,063
224,500 Parker & Parsley Petroleum Co. 6,229,875
123,000 Petroleum Geo-Services,
A.D.R. (3) 3,490,125
121,700 Sonat Offshore Drilling, Inc. 6,145,850
58,000 Triton Energy Corp. (3) 2,820,250
22,463,163
FINANCIAL (12.7%)
BANKING (3.1%)
330,000 TCF Financial Corp. 10,972,500
FINANCIAL SERVICES (3.3%)
116,300 Green Tree Financial Corp. 3,634,375
266,000 T. Rowe Price & Associates 8,179,500
11,813,875
INSURANCE (6.3%)
67,800 CMAC Investment Corp. 3,898,500
205,000 Mercury General Corp. 8,968,750
170,000 MGIC Investment Corp. 9,541,250
22,408,500
HEALTH CARE (17.2%)
BIOTECHNOLOGY/PHARMACEUTICALS (4.4%)
120,000 Biogen, Inc. (3) 6,585,000
194,600 Cephalon, Inc. (3) 3,843,350
91,000 Elan Corp., p.l.c., A.D.R. (3) 5,198,375
15,626,725
MEDICAL EQUIPMENT/SUPPLIES (0.4%)
52,000 Sofamor Danek Group, Inc. (3) 1,443,000
MEDICAL FACILITIES MANAGEMENT (12.4%)
231,000 Cerner Corp. (3) 4,937,625
202,000 HBO & Co. 13,685,500
28,500 HCIA, Inc. (3) 1,795,500
254,000 HEALTHSOUTH Rehabilitation
Corp. (3) 9,144,000
44,100 Medic Computer Systems,
Inc. (3) 3,577,612
271,500 Oxford Health Plans, Inc. (3) 11,165,438
44,305,675
RAW MATERIALS (1.0%)
91,500 IMC Global, Inc. 3,442,688
RETAIL (3.0%)
196,500 Kohls Corp. (3) 7,196,813
75,600 PETsMART, Inc. (3) 3,609,900
10,806,713
TECHNOLOGY (28.8%)
COMPUTER RELATED (4.7%)
202,000 3Com Corp. (3) 9,241,500
84,500 Electronics For Imaging, Inc. (3) 5,862,187
123,000 Madge N.V. (3) 1,783,500
16,887,187
COMPUTER SOFTWARE/SERVICES (14.1%)
21,800 Aspen Technology, Inc. (3) 1,199,000
139,000 Baan Co N.V. (3) 4,726,000
160,000 Business Objects, S. A.,A.D.R.(3) 6,440,000
121,500 Hyperion Software, Inc. (3) 1,503,562
123,000 Informix Corp. (3) 2,767,500
85,500 Intuit, Inc. (3) 4,039,875
37,500 Legato Systems, Inc. (3) 2,062,500
332,000 Parametric Technology, Inc. (3) 14,400,500
184,500 Peoplesoft, Inc. (3) 13,145,625
50,284,562
SEMICONDUCTORS & RELATED (4.7%)
288,500 Analog Devices, Inc. (3) 7,356,750
138,000 KLA Instruments Corp. (3) 3,208,500
190,500 Xilinx, Inc. (3) 6,048,375
16,613,625
TELECOMMUNICATIONS & EQUIPMENT (5.3%)
55,500 ADC Telecommunications,
Inc.(3) 2,497,500
121,000 Cellular Communications,
Inc. (3) 6,428,125
214,500 Paging Network, Inc. (3) 5,148,000
59,500 Picturetel Corp. (3) 2,342,813
43,500 Premisys Communications,
Inc. (3) 2,653,500
19,069,938
UTILITIES (1.6%)
176,500 LCI International, Inc. (3) 5,537,688
Total common stocks
(cost: $225,044,538) 335,432,825
SHORT-TERM SECURITIES (4.9%)
5,000,000 Bellsouth Telecom, 5.40%,
7/3/96 4,998,500
Ford Motor Credit Co.:
3,000,000 5.33%, 7/1/96 3,000,000
3,136,000 5.33%, 7/2/96 3,135,536
5,929,000 General Electric Capital Corp.,
5.36%, 7/5/96 5,925,476
510,000 Sit Money Market Fund,
5.10% (6) 510,000
Total short-term securities
(cost: $17,569,512) 17,569,512
Total investments in securities
(cost: $242,614,050) (7) $353,002,337
See accompanying notes to portfolios of investments on page 31.
SIT GROWTH & INCOME FUND REVIEW
JUNE 30, 1996
[PHOTO] PETER L. MITCHELSON, CFA
SENIOR PORTFOLIO MANAGER
RONALD D. SIT, CFA
PORTFOLIO MANAGER
The Sit Growth & Income Fund posted a strong performance during the fiscal
year ended June 30, 1996. The Fund's total return of +24.5% compared favorably
with the +22.1% return of the Lipper Growth & Income Index. Despite a strong
performance in the most recent quarter, the Fund lagged the S&P 500 Index for
the year due to weakness in some technology stocks during the fourth calendar
quarter of 1995.
As of June 30, 1996, the Growth & Income Fund was 94% invested in equities,
an increase of four percentage points compared to the end of the previous
quarter. Significant industry weighting increases included technology, where we
added U.S. Robotics, Ascend Communications, Analog Devices and Stratacom;
business equipment and services, where we made an entry into the independent
staffing business; and capital goods, where we acquired positions in General
Electric, Sundstrand Corporation and Tyco International. Reductions occurred in
health care, where we trimmed positions in Pfizer, Amgen, Stryker and United
Healthcare, as well as in financial services, where partial sales were made of
Federal Home Loan Mortgage, American International Group and Citicorp. The first
two of these sectors, in particular, provide very significant exposure to major
companies that are achieving very strong earnings growth.
We believe the relative attractiveness of companies with strong and
predictable earnings growth rates will stand out as the economy slows in coming
quarters and have positioned the Growth & Income Fund accordingly. Assets in the
Fund totaled $53.0 million at the end of June, up from $45.2 million a year ago.
We appreciate shareholders' continued confidence and participation.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Growth & Income Fund is to achieve long-term
capital appreciation and, secondarily, current income. The Fund pursues this
objective by investing primarily in common stocks of medium to large size growth
companies. As of June 30, 1996, the Fund was invested exclusively in such
securities.
PORTFOLIO SUMMARY
Net Asset Value 6/30/96: $32.75 Per Share
6/30/95: $28.38 Per Share
Total Net Assets: $53.02 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Technology 24.7
Health Care 15.3
Financial 10.8
Consumer Non-Durables 9.6
Business Equip. & Services 9.4
Retail 4.6
Energy 4.4
Consumer Services 4.3
Capital Goods 4.2
Raw Materials 2.6
Multi-Industry 1.5
Consumer Durables 1.3
Utilities 1.1
Other Assets & Liabilities 6.2
<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 6.84% 2.77% 4.49% 6.84% 2.77% 4.49%
(unannualized)
1 Year 24.48 22.12 26.00 24.48 22.12 26.00
5 Years 14.56 14.88 15.73 97.28 100.09 107.58
10 Years 11.77 12.25 13.81 204.34 217.58 264.68
Inception 14.94 15.59 17.18 585.89 641.44 795.52
(9/2/82)
</TABLE>
* As of 6/30/96
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]
The sum of $10,000 invested at inception (9/2/82) and held until 6/30/96 would
have grown to $68,589 in the Fund, $74,144 in the Lipper Growth & Income Fund
Index or $89,552 in the S&P 500 Index assuming reinvestment of all dividends and
capital gains. Total number of holdings: 74
10 LARGEST HOLDINGS
* Cisco Systems, Inc.
* Microsoft Corp.
* First Data Corp.
* Philip Morris Cos., Inc.
* Johnson & Johnson
* Pfizer, Inc.
* Coca Cola Co.
* Amgen, Inc.
* Oracle Systems Corp.
* Gillette Co. (The)
Total number of holdings: 74
SIT GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1996
QUANTITY NAME OF ISSUER MARKET VALUE(1)
-------- -------------- ---------------
COMMON STOCKS (93.8%) (2)
BUSINESS EQUIPMENT & SERVICES (9.4%)
20,500 Ceridian Corp. (3) $1,035,250
7,000 Computer Sciences Corp. (3) 523,250
14,500 Danka Business Systems p.l.c,
A.D.R. 424,125
9,000 Electronic Data Systems Corp. 483,750
17,000 First Data Corp. 1,353,625
7,000 Manpower, Inc. 274,750
9,000 Olsten Corp. (The) 264,375
12,750 Paychex, Inc. 613,594
4,972,719
CAPITAL GOODS (4.2%)
10,500 General Electric Co. 908,250
12,500 Owens Corning Corp. (3) 537,500
14,500 Sundstrand Corp. 531,063
7,000 Tyco International Ltd. 285,250
2,262,063
CONSUMER DURABLES (1.3%)
6,500 AutoZone, Inc. (3) 225,875
11,500 Harley-Davidson, Inc. 472,938
698,813
CONSUMER NON-DURABLES (9.6%)
25,000 Coca Cola Co. 1,221,875
18,500 Gillette Co. (The) 1,153,938
3,000 Nike, Inc. Class B 308,250
13,000 Philip Morris Cos., Inc. 1,352,000
4,500 Pioneer Hi-Bred International, Inc. 237,938
9,000 Proctor & Gamble Co. 815,625
5,089,626
CONSUMER SERVICES (4.3%)
29,000 CUC International, Inc. (3) 1,029,500
20,500 Marriot International, Inc. 1,101,875
5,000 Promus Hotel Corp. (3) 148,125
2,279,500
ENERGY (4.4%)
10,500 Baker Hughes, Inc. 345,188
6,075 British Petroleum Co., p.l.c, A.D.R. 649,266
18,500 McDermott International, Inc. 386,188
9,000 Schlumberger Ltd. 758,250
4,000 Sonat Offshore Drilling Co. 202,000
2,340,892
FINANCIAL (10.8%)
BANKING (2.5%)
10,000 Citicorp 826,250
14,500 Norwest Corp. 505,688
1,331,938
FINANCIAL SERVICES (2.8%)
10,500 Federal Home Loan Mortgage
Corp. 897,750
7,500 Franklin Resources, Inc. 457,500
5,000 T. Rowe Price and Associates 153,750
1,509,000
INSURANCE (5.5%)
8,500 American International Group, Inc. 838,313
11,000 EXEL Ltd. 775,500
17,000 Mercury General Corp. 743,750
9,500 MGIC Investment Corp. 533,188
2,890,751
HEALTH CARE (15.3%)
BIOTECHNOLOGY/ PHARMACEUTICALS (7.2%)
22,500 Amgen, Inc. (3) 1,215,000
18,500 Medtronic, Inc. 1,036,000
18,000 Pfizer, Inc. 1,284,750
5,000 Smithkline Beecham, A.D.R. 271,875
3,807,625
MEDICAL EQUIPMENT/ SUPPLIES (3.4%)
27,000 Johnson & Johnson 1,336,500
21,000 Stryker Corp. 477,750
1,814,250
MEDICAL FACILITIES MANAGEMENT (4.7%)
14,000 HBO & Co. 948,500
20,500 HEALTHSOUTH Rehabilitation
Corp. (3) 738,000
6,000 Oxford Health Plans, Inc. (3) 246,750
11,000 United HealthCare Corp. (3) 555,500
2,488,750
MULTI-INDUSTRY (1.5%)
8,500 Alco Standard Corp. 384,625
17,000 Whitman Corp. 410,125
794,750
RAW MATERIALS (2.6%)
27,500 Monsanto Co. 893,750
7,500 Potash Corp. Saskatchewan, Inc. 496,875
1,390,625
RETAIL (4.6%)
24,000 Federated Department Stores,
Inc. (3) 819,000
12,500 Gap, Inc. 401,563
16,500 Home Depot, Inc. (The) 891,000
8,500 Kohl's Corp. (3) 311,313
2,422,876
TECHNOLOGY (24.7%)
AEROSPACE/ DEFENSE (2.0%)
12,000 Boeing Company 1,045,500
COMPUTER RELATED (5.0%)
43,500 Cisco Systems, Inc. (3) 2,463,188
3,000 Stratacom, Inc. (3) 168,750
2,631,938
COMPUTER SOFTWARE/ SERVICES (10.2%)
11,250 Computer Associates
International, Inc. 779,063
7,000 Hewlett Packard Co. 697,375
11,500 Microsoft Corp. (3) 1,381,438
30,000 Oracle Systems Corp. (3) 1,183,125
25,000 Parametric Technology Corp. (3) 1,084,375
6,000 SAP, A.D.S. (4) 296,160
5,421,536
SEMICONDUCTORS & RELATED (3.7%)
7,000 Applied Materials, Inc. (3) 213,500
7,500 Analog Devices, Inc. (3) 191,250
13,500 Intel Corp. 991,406
22,500 LSI Logic Corp. (3) 585,000
1,981,156
TELECOMMUNICATIONS & EQUIPMENT (3.8%)
25,500 Airtouch Communications, Inc.(3) 720,375
4,000 Ascend Communications, Inc. (3) 225,000
9,000 DSC Communications Corp. (3) 271,125
6,500 Tellabs, Inc. (3) 434,681
4,000 U.S. Robotics Corp. (3) 342,000
1,993,181
UTILITIES (1.1%)
22,000 MCI Communications, Inc. 563,750
Total common stocks
(cost: $34,168,997) 49,731,239
SHORT-TERM SECURITIES (4.1%)
477,000 American General Financial
Corp., 5.38%,7/5/96 476,715
437,000 Ford Motor Credit Corp, 7/1/96 437,000
General Electric Capital Corp.:
250,000 5.38%, 7/3/96 249,925
628,000 5.36%, 7/8/96 627,347
375,000 Norwest Financial Corp.,
5.36%, 7/2/96 374,944
Total short-term securities
(cost: $2,165,931) 2,165,931
Total investments in securities
(cost: $36,334,928) (7) $51,897,170
See accompanying notes to portfolios of investments on page 31.
SIT BALANCED FUND REVIEW
JUNE 30, 1996
[PHOTO] PETER L. MITCHELSON, CFA
SENIOR PORTFOLIO MANAGER
BRYCE A. DOTY, CFA
PORTFOLIO MANAGER
The Sit Balanced Fund posted a strong performance during the fiscal year
ended June 30, 1996. The Fund's total return of +17.3% compared favorably with
the +15.0% return of the Lipper Balanced Fund Index. This ranked 14th out of 64
similar sized balanced funds in the Lipper survey.
During the latest quarter, the asset mix of the Balanced Fund was changed
to obtain a higher exposure to equities, which as of June 30 represented 60% of
total assets, up from 51% at the end of March. Bonds stayed relatively constant
at 37% of assets and cash reserve instruments were reduced to a relatively small
3% of assets.
The equity component of the Fund invests in companies with above-average
earnings growth in the belief that, over the long term, superior earnings growth
will protect investors from the inroads of inflation. To generate above average
earnings growth, we typically invest in the dynamic sectors of technology and
health care. These remained the two most heavily weighted groups at the end of
June, though both were trimmed back slightly during the quarter. By contrast,
business equipment and services was increased with the introduction of two
temporary help companies, Manpower and Olsten. Capital goods was also increased
with the addition of General Electric, Sundstrand Corporation and Tyco
International. As a result, the aggregate 1996 projected earnings growth rate of
the companies in the Fund's portfolio increased from +20.6% at the end of March
to +22.4% at the end of June. This expected rate of improvement in earnings is
considerably higher than for the average American company.
In general, fixed income markets have been weaker in 1996 as economic
growth, particularly in the second quarter, has been strong. The Balanced Fund
benefitted from its emphasis on mortgage backed securities with greater price
stability and higher income returns than other bond sectors.
Total net assets of the Balanced Fund totaled $4.1 million at the end of
June, up from $2.4 million a year ago. We appreciate shareholders' continued
confidence and participation in the Fund.
INVESTMENT OBJECTIVE AND STRATEGY
The Sit 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 6/30/96: $12.57 Per Share
6/30/95: $10.99 Per Share
Total Net Assets: $ 4.06 Million
Total Dividend: $ 0.29 Per Share
PORTFOLIO STRUCTURE
(% of total net assets)
[PIE CHART]
Fixed Income 40%
(Bonds & Cash)
Stocks 60%
<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 4.46% 0.57% 4.49% 4.46% 0.57% 4.49%
(unannualized)
1 Year 17.26 5.02 26.00 17.26 5.02 26.00
Inception 12.23 5.26 18.74 33.34 13.62 53.47
(12/31/93)
</TABLE>
* As of 6/30/96
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]
The sum of $10,000 invested at inception (12/31/93) and held until 6/30/96 would
have grown to $13,334 in the Fund, $11,362 in the Lehman Aggregate Bond Index or
$15,347 in the S&P 500 Index assuming reinvestment of all dividends and capital
gains.
TOP HOLDINGS
STOCKS:
* Cisco Systems, Inc.
* Philip Morris Cos., Inc.
* Microsoft Corp.
* Home Depot, Inc.
* Pfizer, Inc.
BONDS:
* U.S. Treasury Coupon Strip,
6.93% Effective Yield, 11/15/04
* FNMA, 9.00%, 1/1/17
* U.S. Treasury Note, 8.25%, 7/15/98
* Franchise Finance MTN, 7.02%, 2/20/03
* GNMA, 9.50%, 11/15/04
Total number of holdings: 97
SIT BALANCED FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1996
QUANTITY NAME OF ISSUER MARKET VALUE(1)
-------- -------------- ---------------
COMMON STOCKS (60.4%) (2)
BUSINESS EQUIPMENT & SERVICES (6.0%)
800 Ceridian Corp. (3) $ 40,400
1,000 Danka Business Systems p.l.c,
A.D.R. 29,250
700 Electronic Data Systems Corp. 37,625
800 First Data Corp. 63,700
500 Manpower, Inc. 19,625
500 Office Depot, Inc. (3) 10,188
500 Olsten Corp. (The) 14,688
600 Paychex, Inc. 28,875
244,351
CAPITAL GOODS (3.1%)
600 General Electric Co. 51,900
500 Owens Corning Corp. (3) 21,500
500 Sundstrand Corp. 18,313
800 Tyco International Ltd. 32,600
124,313
CONSUMER DURABLES (0.4%)
500 AutoZone, Inc. (3) 17,375
CONSUMER NON-DURABLES (7.2%)
1,200 Coca Cola Co. 58,650
1,000 Gillette Co. (The) 62,375
200 Nike, Inc. Class B 20,550
800 Philip Morris Cos., Inc. 83,200
400 Pioneer Hi-Bred International, Inc. 21,150
500 Proctor & Gamble Co. 45,313
291,238
CONSUMER SERVICES (3.1%)
1,400 CUC International, Inc. (3) 49,700
1,000 Marriot International, Inc. 53,750
600 Viacom Inc., Class B (3) 23,325
126,775
ENERGY (3.2%)
500 Baker Hughes, Inc. 16,438
503 British Petroleum p.l.c., A.D.R. 53,758
900 McDermott International, Inc. 18,788
500 Schlumberger Ltd. 42,125
131,109
FINANCIAL (7.1%)
BANKING (1.9%)
500 Citicorp 41,313
1,000 Norwest Corp. 34,875
76,188
FINANCIAL SERVICES (1.5%)
500 Federal Home Loan Mortgage Corp. 42,750
300 Franklin Resources, Inc. 18,300
61,050
INSURANCE (3.7%)
500 American International Group, Inc. 49,313
600 EXEL Ltd. 42,300
700 Mercury General Corp. 30,625
500 MGIC Investment Corp. 28,063
150,301
HEALTH CARE (9.2%)
BIOTECHNOLOGY/ PHARMACEUTICALS (4.3%)
1,000 Amgen, Inc. (3) 54,000
800 Medtronic, Inc. 44,800
900 Pfizer, Inc. 64,237
200 Smithkline Beecham, A.D.R. 10,875
173,912
MEDICAL EQUIPMENT/ SUPPLIES (2.0%)
1,200 Johnson & Johnson 59,400
1,000 Stryker Corp. 22,750
82,150
MEDICAL FACILITIES MANAGEMENT (2.9%)
600 HBO & Co. 40,650
1,000 HEALTHSOUTH Rehabilitation
Corp. (3) 36,000
100 Oxford Health Plans, Inc. (3) 4,112
700 United HealthCare Corp. (3) 35,350
116,112
MULTI-INDUSTRY (0.4%)
400 Alco Standard Corp. 18,100
RAW MATERIALS (1.5%)
1,000 Monsanto Co. 32,500
400 Potash Corp. Saskatchewan, Inc. 26,500
59,000
RETAIL (4.0%)
1,300 Federated Department Stores,
Inc. (3) 44,362
500 Gap, Inc. 16,062
1,200 Home Depot, Inc. (The) 64,800
1,000 Kohl's Corp. (3) 36,625
161,849
TECHNOLOGY (14.6%)
AEROSPACE/ DEFENSE (1.5%)
700 Boeing Company 60,987
COMPUTER RELATED (3.2%)
1,800 Cisco Systems, Inc. (3) 101,925
500 Stratacom, Inc. (3) 28,125
130,050
COMPUTER SOFTWARE/ SERVICES (6.0%)
500 Computer Associates
International, Inc. 34,625
400 Hewlett Packard Co. 39,850
600 Microsoft Corp. (3) 72,075
1,600 Oracle Systems Corp. (3) 63,100
800 Parametric Technology Corp. (3) 34,700
244,350
SEMICONDUCTORS & RELATED (2.2%)
600 Applied Materials, Inc. (3) 18,300
600 Intel Corp. 44,062
1,100 LSI Logic Corp. (3) 28,600
90,962
TELECOMMUNICATIONS EQUIPMENT (1.7%)
1,200 Airtouch Communications, Inc. (3) 33,900
600 DSC Communications Corp. (3) 18,075
200 U.S. Robotics Corp. (3) 17,100
69,075
UTILITIES (0.6%)
1,000 MCI Communications, Inc. 25,625
Total common stocks (cost: $1,817,948) 2,454,872
BONDS (36.7%)
U.S. TREASURY (7.1%)
100,000 U.S. Treasury Note, 8.25%,
7/15/98 104,001
325,000 U.S. Treasury Coupon Strip,
6.93% Effective Yield on
Purchase Date, 11/15/04 185,819
289,820
ASSET-BACKED SECURITIES (5.3%)
50,000 Advanta Mortgage Loan Trust,
7.07%, 5/25/27 46,725
25,000 EQCC Home Equity Loan Trust,
Series 1996-1, 6.93%, 3/15/27 23,163
Green Tree Corp.:
20,000 Series 1995-5, 7.25%, 9/15/26 19,417
75,000 Series 1996-2, 7.60%, 4/15/27 73,798
50,000 Series 1996-3, 7.70%, 5/15/27 49,426
212,529
CLOSED-END FUNDS (1.8%)
600 American Strategic Income Fund I 6,225
2,700 American Strategic Income Fund II 29,362
3,600 American Strategic Income Fund III 36,900
72,487
CORPORATE BONDS (3.5%)
100,000 Franchise Finance Corp. Medium
Term Note, 7.02%, 2/20/03 94,875
50,000 Nationwide Health Properties
Medium Term Note, 6.93%,
12/18/01 48,563
143,438
MORTGAGE PASS-THROUGH SECURITIES (19.0%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (2.6%)
102,658 9.00%, 1/1/17 106,703
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (10.6%)
52,054 9.00%, 6/15/11 54,455
34,994 9.00%, 12/15/18 36,497
50,827 9.00%, 10/15/19 53,029
63,745 9.25%, 9/15/01 67,391
60,632 9.50%, 1/15/04 64,442
72,908 9.50%, 11/15/04 77,408
7,052 9.75%, 2/20/01 7,433
26,501 11.25%, 10/15/00 28,227
27,378 11.25%, 10/15/11 28,772
12,604 11.75%, 3/15/00 13,425
431,079
COLLATERALIZED MORTGAGE OBLIGATIONS (5.8%)
25,000 American Housing Trust Corp.,
8.25%, 6/25/20 25,336
50,000 FNMA 1994-38 Pac, 6.65%,
12/25/23 46,856
Vendee Mortgage Trust:
18,114 1992-1 2B, 7.75%, 9/15/10 18,292
25,000 1992-1 2D, 7.75%, 12/15/14 25,221
25,000 1992-2 2D, 7.00%, 9/15/15 24,576
25,000 1996-2 1D, 6.75%, 11/15/15 23,986
24,000 1994-3 2D, 7.75%, 5/15/18 23,524
50,000 1996-2 1E, 6.75%, 5/15/20 46,793
234,584
Total bonds (cost: $1,494,748) 1,490,640
SHORT-TERM SECURITIES (2.8%)
115,000 Sit Money Market Fund,
5.10% (6) 115,000
(cost: $115,000)
Total investments in securities
(cost: $3,427,696) (7) $4,060,512
See accompanying notes to portfolios of investments on page 31.
SIT MUTUAL FUNDS
NOTES TO PORTFOLIOS OF INVESTMENTS
(1) Securities are valued by procedures described in note 1 to the financial
statements.
(2) Percentage figures indicate percentage of total net assets.
(3) Presently non-income producing securities.
(4) Common stock sold within terms of a private placement memorandum, exempt
from registration under section 144A of the Securities Act of 1933, as
amended, and sold only to dealers in that program or other "accredited
investors". This security has been determined liquid under the guidelines
established by the Board of Directors.
(5) These securities have been identified by the investment adviser as
illiquid securities. The aggregate value of these securities at June 30,
1996 is $544,629 and $1,943,074 in Developing Markets Growth Fund and
International Growth Fund, respectively, which represents 6.3% and 2.2% of
the Fund's net assets, respectively. The following table summarizes the
purchase date and cost basis of these securities:
<TABLE>
<CAPTION>
Purchase
Fund Security Date(s) Shares/Par Cost Basis
---- -------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Developing Markets Growth Fund PT Modern Photo 4/3/95-5/8/96 37,000 $160,171
Developing Markets Growth Fund United Micro. (1.25%, 6/8/04) 6/27/95 50,000 83,051
Developing Markets Growth Fund Pan Smak Pizza 12/22/95-1/2/96 111,000 71,179
Developing Markets Growth Fund PT Indofood Sukses 11/30/95-3/8/96 28,000 132,931
Developing Markets Growth Fund PTDynaplast 1/17/96 136,000 115,953
International Growth Fund PT Modern Photo 3/17/93-1/25/96 170,000 635,467
International Growth Fund International UNP Holdings 1/26/94 1,245,113 856,075
International Growth Fund United Micro. (1.25%, 6/8/04) 6/27/95 590,000 955,056
</TABLE>
(6) This security represents an investment in an affiliated party and
comprises 1.0%, .6%, .1%, and 2.8% of the Small Cap Growth, International
Growth, Growth and Balanced Fund's net assets, respectively. See note 3 to
the accompanying financial statements.
(7) At June 30, 1996, the cost of securities for federal income tax purposes
and the aggregate gross unrealized appreciation and depreciation based on
that cost were as follows:
<TABLE>
<CAPTION>
DEVELOPING SMALL
MARKETS CAP INTERNATIONAL
GROWTH GROWTH GROWTH
FUND FUND FUND
---- ---- ----
<S> <C> <C> <C>
Cost for federal income tax purposes $ 7,334,348 $ 42,934,135 $ 70,045,102
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $ 1,448,075 $ 11,884,672 $ 20,721,254
Gross unrealized depreciation (234,162) (2,035,680) (2,281,919)
Net unrealized appreciation $ 1,213,913 $ 9,848,992 $ 18,439,335
</TABLE>
<TABLE>
<CAPTION>
GROWTH &
GROWTH INCOME BALANCED
FUND FUND FUND
---- ---- ----
<S> <C> <C> <C>
Cost for federal income tax purposes $242,735,911 $ 36,348,509 $ 3,429,667
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $115,818,938 $ 15,742,369 $ 669,307
Gross unrealized depreciation (5,552,512) (193,708) (38,462)
Net unrealized appreciation $110,266,426 $ 15,548,661 $ 630,845
</TABLE>
SIT MUTUTAL FUNDS
STATEMENTS OF ASSETS & LIABILITIES - JUNE 30, 1996
<TABLE>
<CAPTION>
DEVELOPING SMALL
MARKETS CAP INTERNATIONAL
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
---- ---- ---- ----
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at
identified cost $ 7,334,348 $ 42,918,135 $ 69,909,799 $ 242,614,050
Investments in securities, at
market value - see
accompanying schedule for
detail $ 8,548,261 $ 52,783,127 $ 88,484,437 $ 353,002,337
Cash in bank on demand
deposit 78,014 70 -- 17,123
Other Receivables:
Dividends and accrued interest 17,824 3,094 330,554 50,292
Fund shares sold 2,097 85,121 157,435 744,035
Investment securities sold -- 1,435,379 895,470 5,903,367
Foreign withholding taxes
receivable 17,327 -- 69,369 --
Total assets 8,663,523 54,306,791 89,937,265 359,717,154
LIABILITIES
Payables:
Bank overdraft -- -- 195,457 --
Investment securities purchased -- 3,395,599 858,582 3,111,092
Fund shares redeemed -- 2,709 19,521 96,299
Accrued investment management
and advisory services fee 13,848 62,386 107,985 177,766
Foreign withholding taxes payable 3,950 -- 39,320 --
Other payables -- -- 3,617 --
Other accrued expenses -- -- -- 15,000
Total liabilities 17,798 3,460,694 1,224,482 3,400,157
Net assets applicable to
outstanding capital stock 8,645,725 50,846,097 88,712,783 356,316,997
Capital stock
Par $ 0.001 $ 0.001 $ 0.001 $ 0.001
Authorized shares 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000
Outstanding shares 789,343 2,638,254 5,444,465 22,865,794
Net asset value per share of
outstanding capital stock $ 10.95 $ 19.27 $ 16.29 $ 15.58
</TABLE>
WIDE TABLE CONTINUED FROM ABOVE
GROWTH &
INCOME BALANCED
FUND FUND
---- ----
ASSETS
Investments in securities, at
identified cost $ 36,334,928 $ 3,427,696
Investments in securities, at
market value - see
accompanying schedule for
detail $ 51,897,170 $ 4,060,512
Cash in bank on demand
deposit 4,403 1,845
Other Receivables:
Dividends and accrued interest 41,272 14,418
Fund shares sold 20,482 --
Investment securities sold 1,538,787 21,397
Foreign withholding taxes
receivable -- --
Total assets 53,502,114 4,098,172
LIABILITIES
Payables:
Bank overdraft -- --
Investment securities purchased 431,197 32,444
Fund shares redeemed 10,764 557
Accrued investment management
and advisory services fee 38,866 3,309
Foreign withholding taxes payable -- --
Other payables -- --
Other accrued expenses 4,760 --
Total liabilities 485,587 36,310
Net assets applicable to
outstanding capital stock 53,016,527 4,061,862
Capital stock
Par $ 0.001 $ 0.001
Authorized shares 10,000,000,000 10,000,000,000
Outstanding shares 1,618,610 323,154
Net asset value per share of
outstanding capital stock $ 32.75 $ 12.57
See accompanying notes to financial statements on pages 36-46.
<TABLE>
<CAPTION>
SIT MUTUAL FUNDS
STATEMENTS OF OPERATIONS - YEAR ENDED JUNE 30, 1996
DEVELOPING SMALL
MARKETS CAP INTERNATIONAL
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends* $ 105,652 $ 62,505 $ 999,548 $ 1,361,493
Interest 16,861 125,326 257,143 642,478
Total income 122,513 187,831 1,256,691 2,003,971
EXPENSES (NOTE 3):
Investment management and
advisory services fee 118,946 477,179 1,424,797 2,152,618
Custodian, transfer agent
and accounting services fees -- -- -- 483,663
Auditing and legal fees -- -- -- 23,352
Printing costs -- -- -- 40,619
Postage -- -- -- 21,727
Registration fees -- -- -- 67,749
Directors' fees and expenses -- -- -- 9,684
Other -- -- -- 36,106
Total expenses 118,946 477,179 1,424,797 2,835,518
Less fees and expenses absorbed
by investment adviser -- -- (269,556) --
Total net expenses 118,946 477,179 1,155,241 2,835,518
Net investment income (loss) 3,567 (289,348) 101,450 (831,547)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS :
Net realized gain (loss) (note 2) (111,020) 2,792,536 5,630,000 68,471,876
Net change in unrealized appreciation
(depreciation) on investments 1,161,148 7,785,867 1,920,031 34,843,137
Realized loss on foreign
currency transactions (3,915) -- (24,337) --
Net change in unrealized appreciation
(depreciation) on foreign currency
transactions (253) -- (13,980) --
Net gain on investments 1,045,960 10,578,403 7,511,714 103,315,013
Net increase in net assets
resulting from operations $ 1,049,527 $ 10,289,055 $ 7,613,164 $ 102,483,466
</TABLE>
WIDE TABLE CONTINUED FROM ABOVE
GROWTH &
INCOME BALANCED
FUND FUND
---- ----
INVESTMENT INCOME:
INCOME:
Dividends* $ 419,096 $ 20,126
Interest 126,492 105,886
Total income 545,588 126,012
EXPENSES (NOTE 3):
Investment management and
advisory services fee 433,174 34,853
Custodian, transfer agent
and accounting services fees 72,309 --
Auditing and legal fees 18,761 --
Printing costs 6,083 --
Postage 7,534 --
Registration fees 25,778 --
Directors' fees and expenses 9,747 --
Other 14,141 --
Total expenses 587,527 34,853
Less fees and expenses absorbed
by investment adviser (110,099) --
Total net expenses 477,428 34,853
Net investment income (loss) 68,160 91,159
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS :
Net realized gain (loss) (note 2) 5,081,899 76,955
Net change in unrealized appreciation
(depreciation) on investments 5,103,022 358,571
Realized loss on foreign
currency transactions (1) --
Net change in unrealized appreciation
(depreciation) on foreign currency
transactions (4) --
Net gain on investments 10,184,916 435,526
Net increase in net assets
resulting from operations $ 10,253,076 $ 526,685
* Dividends are net of foreign withholding tax of $4,973 and $53,320 in the
Developing Markets Growth Fund and International Growth Fund,
respectively.
See accompanying notes to financial statements on pages 36-46.
<TABLE>
<CAPTION>
SIT MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
DEVELOPING MARKETS SMALL CAP
GROWTH FUND GROWTH FUND
----------- -----------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) $ 3,567 $ 1,068 ($ 289,348) ($ 16,690)
Net realized gain (loss) on investments (111,020) (346,290) 2,792,536 79,816
Net change in unrealized appreciation
(depreciation) on investments 1,161,148 52,765 7,785,867 2,079,125
Net realized loss on foreign currency transactions (3,915) (749) -- --
Net change in unrealized appreciation (depreciation) on
foreign currency transactions (253) (13) -- --
Net increase (decrease) in net assets resulting from
operations 1,049,527 (293,219) 10,289,055 2,142,251
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (413) -- -- --
Net realized gains on investments (5,518) (17,476) (250,045) (17,840)
Total distributions (5,931) (17,476) (250,045) (17,840)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 4,847,931 6,135,667 35,164,082 10,375,386
Reinvested distributions 5,758 17,122 246,163 17,806
Payments for shares redeemed (1,869,993) (1,223,761) (6,618,421) (502,440)
Increase (decrease) in net assets from
capital share transactions 2,983,696 4,929,028 28,791,824 9,890,752
Total increase in net assets 4,027,292 4,618,333 38,830,834 12,015,163
NET ASSETS
Beginning of period 4,618,433 100 12,015,263 100
End of period $ 8,645,725 $ 4,618,433 $ 50,846,097 $ 12,015,263
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 7,912,382 $ 4,929,021 $ 38,682,676 $ 9,890,852
Undistributed (distributions in excess of) net
investment income -- 426 -- --
Accumulated net realized gain (loss) from
security transactions and foreign
currency transactions (480,304) (363,766) 2,298,429 45,286
Unrealized appreciation (depreciation) on investments 1,213,913 52,765 9,864,992 2,079,125
Unrealized appreciation (depreciation) on foreign
currency transactions (266) (13) -- --
$ 8,645,725 $ 4,618,433 $ 50,846,097 $ 12,015,263
CAPITAL TRANSACTIONS IN SHARES:
Sold 486,886 606,755 2,120,150 931,351
Reinvested distributions 630 1,723 15,578 1,696
Redeemed (189,064) (117,597) (387,897) (42,634)
Net increase (decrease) 298,452 490,881 1,747,831 890,413
</TABLE>
WIDE TABLE CONTINUED FROM ABOVE
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH GROWTH & BALANCED
GROWTH FUND FUND INCOME FUND FUND
----------- ---- ----------- ----
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C> <C>
$ 101,450 $ 405,689 ($ 831,547) $ 50,605 $ 68,160 $ 159,215 $ 91,159 $ 50,937
5,630,000 1,189,544 68,471,876 25,409,872 5,081,899 1,917,168 76,955 (48,392)
1,920,031 3,216,287 34,843,137 52,036,551 5,103,022 7,081,827 358,571 327,093
(24,337) (17,082) -- -- (1) -- -- --
(13,980) 3,632 -- -- (4) -- -- --
7,613,164 4,798,070 102,483,466 77,497,028 10,253,076 9,158,210 526,685 329,638
(390,572) (171,445) (50,975) -- (68,302) (131,512) (80,680) (42,750)
(3,758,362) (1,158,084) (35,900,021) (25,299,507) (3,279,734) (2,040,000) -- --
(4,148,934) (1,329,529) (35,950,996) (25,299,507) (3,348,036) (2,171,512) (80,680) (42,750)
29,862,086 18,209,502 94,477,676 56,655,364 8,919,140 7,686,224 1,430,436 1,160,193
3,946,122 1,271,854 34,550,208 23,722,299 3,266,526 2,113,345 78,415 42,696
(16,684,601) (18,523,460) (167,122,012) (89,871,342) (11,285,026) (6,187,506) (337,378) (341,220)
17,123,607 957,896 (38,094,128) (9,493,679) 900,640 3,612,063 1,171,473 861,669
20,587,837 4,426,437 28,438,342 42,703,842 7,805,680 10,598,761 1,617,478 1,148,557
68,124,946 63,698,509 327,878,655 285,174,813 45,210,847 34,612,086 2,444,384 1,295,827
$ 88,712,783 $ 68,124,946 $ 356,316,997 $ 327,878,655 $ 53,016,527 $ 45,210,847 $ 4,061,862 $ 2,444,384
$ 68,048,339 $ 50,924,732 $ 192,362,652 $ 230,456,780 $ 34,274,698 $ 33,374,058 $ 3,393,788 $ 2,222,315
73,804 387,263 -- 50,605 30,175 30,317 27,177 16,698
2,025,022 153,384 53,566,058 21,826,120 3,149,416 1,347,252 8,081 (68,874)
18,574,638 16,654,607 110,388,287 75,545,150 15,562,242 10,459,220 632,816 274,245
(9,020) 4,960 -- -- (4) -- -- --
$ 88,712,783 $ 68,124,946 $ 356,316,997 $ 327,878,655 $ 53,016,527 $ 45,210,847 $ 4,061,862 $ 2,444,384
1,891,318 1,195,496 6,311,934 4,757,900 290,926 303,028 122,024 115,099
265,196 86,580 2,607,555 2,160,501 112,216 89,220 6,742 4,375
(1,047,893) (1,229,768) (11,272,708) (7,435,697) (377,404) (248,087) (27,962) (33,817)
1,108,621 52,308 (2,353,219) (517,296) 25,738 144,161 100,804 85,657
</TABLE>
See accompanying notes to financials on pages 36-46.
SIT MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
NOTE 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,
open-end management investment companies, or series thereof. The Sit
Developing Markets Growth Fund, Sit Small Cap Growth Fund, Sit
International Growth Fund and Sit Balanced Fund are series funds of Sit
Mutual Funds, Inc.
The Developing Markets Growth and Small Cap Growth Funds commenced
operations on July 1, 1994. The only transactions for the Funds prior to
this date was the sale of 10 shares for $100 in each of the funds to Sit
Investment Associates, Inc. on March 31, 1994.
This report covers the equity funds of the Sit Mutual Funds. The investment
objective for each Fund is as follows:
FUND INVESTMENT OBJECTIVE
Developing Markets Growth Maximize long-term capital appreciation.
Small Cap Growth Maximize long-term capital appreciation.
International Growth Maximize long-term capital appreciation.
Growth Maximize long-term capital appreciation.
Growth & Income Maximize long-term capital appreciation and,
secondarily current income.
Balanced Long-term capital appreciation consistent with
the preservation of principal and to provide
regular income.
Significant accounting policies followed by the Funds are summarized below:
INVESTMENTS IN SECURITIES
Investments in securities traded on national or international securities
exchanges or on the NASDAQ National Market System are valued at the last
quoted sales price prior to the time when assets are valued; securities
traded in the over-the-counter market and listed securities for which no
sale was reported on that date are valued at the last bid price; foreign
securities that are purchased in the form of American Depository Receipts
(ADRs) are valued in United States dollars at the latest quoted price on
the national securities exchange on which the ADR is traded. When market
quotations are not readily available, securities are valued at fair value
based on procedures determined in good faith by the Board of Directors.
Such fair values are determined using prices quoted by independent brokers
or pricing services. Securities maturing more than 60 days from the
valuation date are valued at the market price or approximate market value
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.
Security transactions are accounted for on the date the securities are
purchased or sold. Securities gains and losses are calculated on the
identified-cost basis. Dividend income is recorded on the ex-dividend date
or upon the receipt of ex-dividend notification in the case of certain
foreign securities. Interest, including level-yield amortization of
long-term bond premium and discount, is recorded on the accrual basis.
ILLIQUID SECURITIES
Each Fund currently limits investments in illiquid securities to 15% of net
assets. At June 30, 1996, the Developing Markets Growth Fund and
International Growth Fund held investments in securities deemed illiquid by
the investment adviser. The aggregate value of such securities at June 30,
1996 was $544,629 and $1,943,074, representing 6.3% and 2.2% of the Fund's
net assets, respectively.
Pursuant to the guidelines adopted by the Board of Directors, certain
unregistered securities are determined to be liquid and are not included
within the limitation specified above.
FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS
The market value of securities and other assets and liabilities denominated
in foreign currencies for Developing Markets Growth Fund and International
Growth Fund are translated daily into U.S. dollars at the closing rate of
exchange. Purchases and sales of securities, income and expenses are
translated at the exchange rate on the transaction date. Dividend and
interest income includes currency exchange gains (losses) realized between
the accrual and payment dates on such income. Exchange gains (losses) may
also be realized between the trade and settlement dates on security and
forward contract transactions. For securities denominated in foreign
currencies, the effect of changes in foreign exchange rates on realized and
unrealized gains or losses is reflected as a component of such gains or
losses.
The Developing Markets Growth and International Growth Funds may enter into
forward foreign currency exchange contracts for operational purposes and to
protect against adverse exchange rate fluctuation. The net U.S. dollar
value of foreign currency underlying all contractual commitments held by
the Funds and the resulting unrealized appreciation or depreciation are
determined using foreign currency exchange rates from an independent
pricing service. The Funds are subject to the credit risk that the other
party will not complete the obligations of the contract.
At June 30, 1996 the International Growth Fund had entered into four
foreign currency exchange contracts in the course of completing ordinary
equity transactions that obligate the Fund to deliver currencies at
specified future dates. The unrealized appreciation and/or depreciation on
these contracts is included in the accompanying financial statements. The
terms of the open contracts are as follows:
<TABLE>
<CAPTION>
Unrealized
Currency to be Currency to be appreciation
Exchange date delivered received (depreciation)
------------- --------- -------- --------------
<S> <C> <C> <C> <C>
July 1, 1996 548,146 541,647 $ (4,234)
Brazilian Real U.S. Dollar
July 1, 1996 2,314,630 348,852 (735)
Swedish Krona U.S. Dollar
July 2, 1996 445,980 686,998 (777)
U.S. Dollar German Deutsche Mark
July 6, 1996 413,524 265,949 (159)
U.S. Dollar British Pound
$ (5,905)
</TABLE>
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 intend to 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. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gain (losses) were
recorded by the fund.
Undistributed net investment income and accumulated net realized gains
(losses) from the Statement of Changes in Net Assets have been increased
(decreased) by current permanent book-to-tax differences resulting in
reclassification of additional paid-in capital as follows:
<TABLE>
<CAPTION>
Developing Markets Small Cap International
Growth Fund Growth Fund Growth Fund Growth Fund
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Undistributed net investment income (3,580) 289,348 (24,337) 831,917
Accumulated net realized gains (losses) 3,915 (289,348) 24,337 (831,917)
Additional paid-in capital (335) -- -- --
</TABLE>
For federal income tax purposes the Developing Markets Growth Fund has a
capital loss carryover of $480,304 at June 30, 1996 which, if not offset by
subsequent capital gains, will begin to expire in 2004. It is unlikely that
the Board of Directors will authorize a distribution of net realized gains
until the available capital loss carryover is offset or expires.
DISTRIBUTIONS
Distributions to shareholders are recorded as of the close of business on
the record date. Such distributions are payable in cash or reinvested in
additional shares of the Funds' capital stock. Distributions from net
investment income, if any, are declared and paid quarterly for Growth &
Income and Balanced Funds and declared and paid annually for Developing
Markets Growth, Small Cap Growth, International Growth, and Growth Funds.
Distributions from net realized gains, if any, will be made annually for
each of the Funds.
CONCENTRATION OF INVESTMENTS
The Developing Markets Growth Fund may concentrate investments in countries
with limited or developing capital markets which may involve greater risks
than investments in more developed markets and the prices of such
investments may be volatile. The consequences of political, social or
economic changes in these markets may have disruptive effects on the market
prices of the Fund's investments and the income it generates, as well as
the Fund's ability to repatriate such amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported results.
Actual results could differ from those estimates.
NOTE 2 - INVESTMENT SECURITY TRANSACTIONS
Purchases of and proceeds from sales and maturities of investment
securities, other than short-term securities, for the period ended June
30, 1996, were as follow:
<TABLE>
<CAPTION>
Purchases Proceeds
--------- --------
<S> <C> <C>
Developing Markets Growth Fund $ 5,110,569 $ 2,610,214
Small Cap Growth Fund 46,191,692 21,055,390
International Growth Fund 39,018,560 27,772,856
Growth Fund 177,642,903 271,085,345
Growth & Income Fund 22,689,195 26,684,418
Balanced Fund 4,390,855 3,240,884
</TABLE>
NOTE 3 - EXPENSES
INVESTMENT ADVISER
The Funds each have entered into an investment management agreement
with Sit Investment Associates Inc. (SIA), under which SIA manages the
Fund's assets and provides research, statistical and advisory services,
and pays related office rental, executive expenses and executive
salaries. The fee for investment management and advisory services is
based on the average daily net assets of the Funds at the annual rate
of:
<TABLE>
<CAPTION>
First Next Over
$30 Million $70 Million $100 Million
----------- ----------- ------------
<S> <C> <C> <C>
Developing Markets Growth Fund 2.00% 2.00% 2.00%
Small Cap Growth Fund 1.50% 1.50% 1.50%
International Growth Fund 1.85% 1.85% 1.85%
Growth Fund 1.00% .75% .50%
Growth & Income Fund 1.00% .75% .50%
Balanced Fund 1.00% 1.00% 1.00%
</TABLE>
SIA is obligated to pay all of Developing Markets Growth, Small Cap
Growth, International Growth and Balanced Funds' expenses (excluding
extraordinary expenses, stock transfer taxes, interest, brokerage
commissions and other transaction charges relating to investing
activities).
The Growth and Growth & Income Funds will bear certain other expenses
including outside directors' fees, custodian and transfer agent fees,
registration fees, printing and shareholder reports, legal, auditing
and accounting services and other miscellaneous expenses. SIA is
obligated to pay all expenses (excluding stock transfer taxes,
interest, and brokerage commissions) in any fiscal year which exceed
the following limitations:
First Over
$30 Million $30 Million
----------- -----------
Growth Fund 1.50% 1.00%
Growth & Income Fund 1.50% 1.00%
Under the agreements, SIA directly incurs and pays the above expenses
relating to the Growth and Growth & Income Funds and the Funds in turn
reimburse SIA to the extent of the lower of the actual expenses
(including the investment management and advisory services fee) or the
expense limitation.
During the period ended June 30, 1996, for the International Growth and
Growth & Income Funds, SIA voluntarily absorbed an additional $269,556
and $110,099, respectively, in expenses that were otherwise payable by
the Funds.
As of June 30, 1996, the Small Cap Growth Fund, International Growth
Fund, Growth Fund, and Balanced Fund had invested $510,000, $510,000,
$510,000, and $115,000, respectively, 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 each Fund an amount equal to all fees otherwise due to them
under their investment management agreement for the assets invested in
the Sit Money Market Fund.
INVESTMENT SUB-ADVISER
SIA has entered into a sub-advisory arrangement with an affiliated
international investment adviser, Sit/Kim International Investment
Associates, Inc. ("SKI"). SKI provides investment research information
and portfolio management service for the Developing Markets Growth Fund
and International Growth Fund. Generally, as compensation for its
services under the sub-advisory agreement, SIA pays SKI a monthly fee
of 1/12 of .75% on the first $100 million of each Fund's average daily
net assets, 1/12 of .50% on the next $100 million of average daily net
assets and 1/12 of .40% of average daily net assets in excess of $200
million. SKI has agreed to waive any fees under the agreement to the
extent that cumulative out of pocket expenses of each Fund borne by SIA
exceed the cumulative fees received by SIA pursuant to each Fund's
investment management agreement. In accordance with the Agreement, fees
of $527,362 were paid or payable to SKI for the year ended June 30,
1996.
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
June 30, 1996:
% Shares
Shares Outstanding
------ -----------
Developing Markets Growth Fund 324,247 41.08%
Small Cap Growth Fund 952,110 36.09
International Growth Fund 970,428 17.82
Growth Fund 2,477,126 10.83
Growth & Income Fund 344,940 21.31
Balanced Fund 125,242 38.76
Legal fees are paid by Growth and Growth & Income Funds to a law firm
of which the Funds' secretary is a partner. The total legal fees paid
by these Funds for the year ended June 30, 1996 were $763.
NOTE 4 - FINANCIAL HIGHLIGHTS
Per share data for a share of capital stock outstanding during the
period and selected supplemental and ratio information for each
period(s), are indicated as follows:
SIT DEVELOPING MARKETS GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
1996 1995
---- ----
<S> <C> <C>
NET ASSET VALUE:
Beginning of year $ 9.41 $ 10.00
OPERATIONS:
Net investment income (loss) -- --
Net realized and unrealized gains
(losses) on investments 1.55 (.54)
Total from operations 1.55 (.54)
DISTRIBUTIONS TO SHAREHOLDERS:
From realized gains (.01) (.05)
Total distributions (.01) (.05)
NET ASSET VALUE:
End of year $ 10.95 $ 9.41
Total investment return (1) 16.51% (5.44%)
Net assets at end of period (000's omitted) $ 8,646 $ 4,618
RATIOS:
Expenses to average daily net assets 2.00% 2.00%
Net investment income (loss) to average daily net assets 0.06% 0.03%
Portfolio turnover rate (excluding short-term securities) 46.22% 56.35%
</TABLE>
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
SIT SMALL CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
1996 1995
---- ----
<S> <C> <C>
NET ASSET VALUE:
Beginning of year $ 13.49 $ 10.00
OPERATIONS:
Net investment loss (.11) (.02)
Net realized and unrealized gains
on investments 6.03 3.56
Total from operations 5.92 3.54
DISTRIBUTIONS TO SHAREHOLDERS:
From realized gains (.14) (.05)
Total distributions (.14) (.05)
NET ASSET VALUE:
End of year $ 19.27 $ 13.49
Total investment return (1) 44.13% 35.59%
Net assets at end of period (000's omitted) $ 50,846 $ 12,015
RATIOS:
Expenses to average daily net assets 1.50% 1.50%
Net investment income (loss) to average daily net assets (0.91%) (0.30%)
Portfolio turnover rate (excluding short-term securities) 69.92% 49.39%
</TABLE>
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
<TABLE>
<CAPTION>
SIT INTERNATIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS
Years Ended June 30,
--------------------
1996 1995 1994 1993 1992 (1)
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 15.71 $ 14.87 $ 11.99 $ 10.70 $ 10.00
OPERATIONS:
Net investment income (loss) .02 .09 (.04) (.03) .03
Net realized and unrealized gains
on investments 1.50 1.06 3.08 1.35 .67
Total from operations 1.52 1.15 3.04 1.32 .70
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.09) (.04) (.10) (.03) --
From realized gains (.85) (.27) (.06) -- --
Total distributions (.94) (.31) (.16) (.03) --
NET ASSET VALUE:
End of period $ 16.29 $ 15.71 $ 14.87 $ 11.99 $ 10.70
Total investment return (2) 10.21% 7.86% 25.26% 12.37% 7.00%
Net assets at end of period (000's omitted) $ 88,712 $ 68,125 $ 63,699 $ 34,549 $ 24,631
RATIOS:
Expenses to average daily net assets 1.50%(3) 1.50%(3) 1.65%(3) 1.85% 1.85%(4)
Net investment income (loss) to
average daily net assets 0.13%(3) 0.62%(3) (0.16%)(3) (0.29%) 0.67%(4)
Portfolio turnover rate
(excluding short-term securities) 38.55% 40.42% 42.48% 52.50% 18.62%
</TABLE>
(1) Period from November 1, 1991 (commencement of operations), to June 30,
1992.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(3) Total Fund expenses are contractually limited to 1.85% of average daily
net assets. However, during the years ended June 30, 1996, 1995 and 1994,
the investment adviser voluntarily absorbed $269,556, $228,795, and
$111,320, respectively, in expenses that were otherwise payable by the
Fund. Had the Fund incurred these expenses, the ratio of expenses to
average daily net assets would have been 1.85% for the years ended June
30, 1996, 1995 and 1994, and the ratio of net investment income (loss) to
average daily net assets would have been (0.22%), 0.27%, and (0.36%),
respectively.
(4) Adjusted to an annual rate.
<TABLE>
<CAPTION>
SIT GROWTH FUND
FINANCIAL HIGHLIGHTS
Per share amounts prior to December 10, 1993 have been restated to reflect the 4
to 1 stock split.
Years Ended June 30,
--------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of year $ 13.00 $ 11.08 $ 11.91 $ 10.52 $ 9.35
OPERATIONS:
Net investment income (loss) (.04) -- (.01) .03 .04
Net realized and unrealized gains
(losses) on investments 4.07 2.96 (.51) 1.43 1.22
Total from operations 4.03 2.96 (.52) 1.46 1.26
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- (.02) (.05) (.06)
From realized gains (1.45) (1.04) (.29) (.02) (.03)
Total distributions (1.45) (1.04) (.31) (.07) (.09)
NET ASSET VALUE:
End of year $ 15.58 $ 13.00 $ 11.08 $ 11.91 $ 10.52
Total investment return (1) 33.00% 28.44% (4.62%) 13.88% 13.34%
Net assets at end of year (000's omitted) $ 356,317 $ 327,879 $ 285,175 $ 341,702 $ 241,831
RATIOS:
Expenses to average daily net assets 0.77% 0.83% 0.82% 0.80% 0.83%
Net investment income (loss) to
average daily net assets (0.23%) 0.02% (0.08%) 0.35% 0.52%
Portfolio turnover rate (excluding
short-term securities) 50.38% 75.40% 46.71% 45.18% 24.74%
</TABLE>
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
<TABLE>
<CAPTION>
SIT GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
Years Ended June 30,
--------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of year $ 28.38 $ 23.89 $ 25.61 $ 24.22 $ 21.89
OPERATIONS:
Net investment income .04 .11 .23 .33 .38
Net realized and unrealized gains
(losses) on investments 6.61 5.88 (.33) 1.94 2.91
Total from operations 6.65 5.99 (.10) 2.27 3.29
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.04) (.09) (.23) (.34) (.43)
From realized gains (2.24) (1.41) (1.39) (.54) (.53)
Total distributions (2.28) (1.50) (1.62) (.88) (.96)
NET ASSET VALUE:
End of year $ 32.75 $ 28.38 $ 23.89 $ 25.61 $ 24.22
Total investment return (1) 24.48% 26.33% (0.58%) 9.52% 15.22%
Net assets at end of year (000's omitted) $ 53,017 $ 45,211 $ 34,612 $ 37,602 $ 32,040
RATIOS:
Expenses to average daily net assets 1.00%(2) 1.00%(2) 1.10%(2) 1.42% 1.50%
Net investment income to average
daily net assets 0.14%(2) 0.42%(2) 0.89%(2) 1.31% 1.92%
Portfolio turnover rate (excluding
short-term securities) 49.99% 67.14% 73.62% 47.82% 73.40%
</TABLE>
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) During the years ended June 30, 1996, 1995 and 1994, the investment
adviser voluntarily absorbed $110,099, $132,305, and $112,191,
respectively, in expenses that were otherwise payable by the Fund. Had the
Fund incurred these expenses, the ratio of expenses to average daily net
assets would have been 1.23%, 1.35% and 1.40% for the years ended June 30,
1996, 1995 and 1994, respectively, and the ratio of net investment
income(loss) to average daily net assets would have been (.09%), 0.07%,
and 0.59%, respectively.
<TABLE>
<CAPTION>
SIT BALANCED FUND
FINANCIAL HIGHLIGHTS
Years Ended June 30, Period Ended
-------------------- June 30,
1996 1995 1994 (1)
---- ---- --------
<S> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 10.99 $ 9.48 $ 10.00
OPERATIONS:
Net investment income .30 .28 .13
Net realized and unrealized gains
(losses) on investments 1.57 1.50 (.59)
Total from operations 1.87 1.78 (.46)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.29) (.27) (.06)
Total distributions (.29) (.27) (.06)
NET ASSET VALUE:
End of period $ 12.57 $ 10.99 $ 9.48
Total investment return (2) 17.26% 19.16% (4.56%)
Net assets at end of period (000's omitted) $ 4,062 $ 2,444 $ 1,296
RATIOS:
Expenses to average daily net assets 1.00% 1.00% 1.00%(3)
Net investment income to average daily net assets 2.61% 2.97% 2.87%(3)
Portfolio turnover rate (excluding short-term securities) 101.37% 50.61% 52.53%
</TABLE>
(1) Period from December 31, 1993 (commencement of operations), to June 30,
1994.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(3) Adjusted to an annual rate.
SIT MUTUAL FUNDS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Sit Mutual Funds, Inc.
Sit Growth Fund, Inc.
Sit Growth & Income Fund, Inc.:
We have audited the accompanying and liabilities, including the schedules
of portfolios of investments in securities of Sit Developing Markets Growth Fund
(a series of Sit Mutual Funds, Inc.), Sit Small Cap Growth Fund (a series of Sit
Mutual Funds, Inc.), Sit International Growth Fund (a series of Sit Mutual
Funds, Inc.), Sit Growth Fund, Inc., Sit Growth & Income Fund, Inc. and Sit
Balanced Fund (a series of Sit Mutual Funds, Inc.) as of June 30, 1996; the
related statements of operations for the year ended June 30, 1996; the
statements of changes in net assets for each of the years in the two-year period
ended June 30, 1996; and the financial highlights as presented in footnote 4 to
the financial statements. These financial statements and the financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of Sit Developing Markets Growth Fund, Sit Small Cap Growth Fund, Sit
International Growth Fund, Sit Growth Fund, Inc., Sit Growth & Income Fund, Inc.
and Sit Balanced Fund as of June 30, 1996 and the results of their operations,
the changes in their net assets, and the financial highlights for the periods
stated in the first paragraph above, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 16, 1996
SIT MUTUAL FUNDS
FEDERAL INCOME TAX INFORMATION
We are required by Federal tax regulations to provide shareholders with certain
information regarding dividend distributions on an annual fiscal year basis. The
figures are for informational purposes only and should not be used for reporting
to federal or state revenue agencies. All necessary tax information will be
mailed in January each year.
LONG-TERM
ORDINARY CAPITAL
FUND AND PAYABLE DATE INCOME (a) GAIN (b)
- --------------------- ---------- --------
Developing Markets Growth Fund
December 19, 1995 $0.01165 (c) $0.00000
Small Cap Growth Fund
December 19, 1995 $0.14185 (d) $0.00000
International Growth Fund
December 19, 1995 $0.08846 (c) $0.84730
Growth Fund
December 19, 1995 $0.00205 (e) $1.45239
Growth & Income Fund
December 19, 1995 $0.01026 $2.24395
April 9, 1996 0.01538 ----
July 9, 1996 0.01854 ----
$0.04418 (f) $2.24395
Balanced Fund
October 9, 1995 $0.05777 $ ----
December 19, 1995 0.08302 ----
April 9, 1996 0.07563 ----
July 9, 1996 0.08221 ----
$0.29863 (g) $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 dividends-received
deduction by corporations.
(d) Taxable as dividend income, 7.96% qualifying for dividends-received
deduction by corporations.
(e) Taxable as dividend income, 27.68% qualifying for dividends-received
deduction by corporations.
(f) Taxable as dividend income, 100% qualifying for dividends-received
deduction by corporations.
(g) Taxable as dividend income, 20.52% qualifying for dividends-received
deduction by corporations.
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
William E. Frenzel
John E. Hulse
Sidney L. Jones
Donald W. Phillips
Director Emeritus:
Melvin C. Bahle
Officers:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Mary K. Stern President
Erik S. Anderson, CFA Vice President - Investments
Ronald D. Sit, CFA 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
