QUARTERLY REPORT [SIT LOGO]
STOCK FUNDS MUTUAL FUND GROUP
MARCH 31, 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
SIT MUTUAL FUND GROUP
STOCK FUNDS QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
Chairman's Letter..................................... 3
Performance Review.................................... 4
Fund Reviews
Developing Markets Growth Fund.................. 6
Small Cap Growth Fund........................... 8
International Growth Fund....................... 10
Growth Fund..................................... 12
Growth & Income Fund............................ 14
Balanced Fund................................... 16
A Look at the SIT Mutual Funds........................ 18
This document must be preceded or accompanied by a Prospectus.
SIT MUTUAL FUND GROUP
CHAIRMAN'S LETTER - MARCH 31, 1996
Dear Fellow Shareholders:
Domestic financial markets provided diverse returns during the first
quarter ended March 31, 1996, as signs of economic strength created a negative
reaction in the fixed income markets, while domestic stocks rebounded from a
brief correction to provide investors with positive returns.
ECONOMIC OVERVIEW
The domestic economy, which had moderated to a +0.5% level of real GDP
growth during the fourth quarter of 1995, displayed signs of renewed strength
during the first quarter and this negatively impacted the bond market and led to
group leadership changes in the stock market. Surprisingly strong employment
reports for February and March altered investors' perceptions that first quarter
economic growth would be weak as a result of adverse weather conditions combined
with federal and corporate work interruptions. In addition to the strong
employment reports, consumer expenditures and personal income continued in their
rising patterns, while retail and auto sales picked up noticeably during the
month of March. The non-residential fixed investment component of GDP, however,
continues to exhibit signs of slower growth as businesses anticipate the effects
of higher interest rates on their capital spending plans and sales forecasts.
Considering the first quarter data, we have raised our forecast for first
quarter real GDP growth to +1.5%, although strength in consumer spending could
push this figure slightly higher. We continue to believe, however, that the
economy will expand at an approximate +2.0% rate for the entire calendar year.
Indications of renewed economic strength, in turn, led to inflationary
concerns that negatively impacted the bond market. Certain commodity prices,
including those for oil and agricultural commodities, rose considerably during
the quarter. While a portion of these price increases may have been more the
result of seasonal factors than increasing demand, we are keeping a close watch
over these areas. The major price measures, such as the CPI and PPI, continue to
reflect generally stable price increases not unlike the experience of the
previous four years. Our own forecast for inflation, as measured by the CPI,
remains in the +2 1/2% to +3% range.
In light of the increasing economic activity and rising commodity prices,
the Federal Reserve did not change short-term interest rates at its most recent
FOMC meeting in late March. Having expressed concern over a slowing economy as
recently as January, the Fed now believes that a reversal of last year's
inventory correction could sustain the economy in the near term. Therefore, the
Fed is likely to remain neutral for the time being until further evidence
unfolds on the progress of the economy. Barring any significant change in
economic data, long-term interest rates should remain within a near-term trading
range between 6 1/2% to 7%.
STRATEGY SUMMARY
Even though economically-sensitive stocks, such as those in the consumer
durables and retail sectors, performed well during the first quarter, our
expectations for a modestly expanding economy and decelerating corporate profit
growth in 1996 correlate historically with favorable growth stock performance.
In domestic growth portfolios, we continue to seek out stocks with above-average
prospects for long-term earnings growth within secular growth themes like the
outsourcing of business and consumer services, health care information
technology, and financial services. We are also increasing portfolio
diversification by increasing exposure to smaller- and medium-sized growth
companies. This strategic move is based on their attractive valuations and
favorable earnings outlook.
International growth portfolios are positioned to take advantage of
corporate consolidations in Europe and the economic recovery in Japan. Moreover,
the developing nations in the Asia Pacific region, where we have significant
participation, continue to exhibit strong economic growth characteristics, which
should produce above-average earnings growth rates and eventually attractive
market returns.
We appreciate your continued interest and support as shareholders in the
SIT Mutual Fund Group.
With best wishes,
/s/ Eugene C. Sit, CFA
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
SIT MUTUAL FUND GROUP
MARCH 31, 1996 PERFORMANCE REVIEW - STOCK FUNDS
Domestic stocks performed strongly during the first quarter of 1996. The
U.S. equity market, as measured by the S&P 500 Index, rose by +5.4% during the
first quarter of 1996. Despite a one-day, 171-point sell-off in March, the DJIA
advanced by +9.8% during the first quarter as investors continued their interest
in blue chip issues. The NASDAQ Composite was hindered slightly by the
underperformance of certain technology issues in March but still provided a
+4.7% return during this period.
As measured by the Russell 1000/2000 Indices, large company stocks slightly
outperformed smaller company issues by an average of +0.4% as investors
continued to seek the financial stability of larger company stocks. Smaller
company stocks, however, displayed considerable momentum in March, partially as
the dollar rose against the yen and the mark (smaller companies have little
currency risk from earnings during periods of dollar appreciation) and partially
as a result of the relatively attractive valuation of the group as a whole.
Growth stock performance was mixed during the first quarter. Smaller
company growth stocks generally outperformed smaller value stocks by +1.4% as
measured by the Russell 2000 Growth/Value indices, while large company growth
returns trailed by a modest -0.3% as shown by the Russell 1000 Growth/Value
Indices. Growth stocks have, however, outperformed value stocks more often than
not during the final three quarters of the year. Given our assumptions of
moderate economic growth and earnings gains for the stock market as a whole, we
believe the case for continued growth stock outperformance remains intact.
International equity performance, in U.S. dollar terms, was led by the
emerging countries during the first quarter, particularly those in Latin
America. European stocks provided a +3.7% total return as measured by the MSCI
Europe Index, while the MSCI Pacific-Ex Japan Index rose strongly by +9.6%.
<TABLE>
<CAPTION>
TOTAL RETURN - CALENDAR YEAR
YTD
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SIT DEVELOPING MARKETS GROWTH ---- ---- ---- ---- ---- ---- ---- ---- ---- -2.02%(1) -4.29% 9.12%
(NASDAQ Symbol: SDMGX)
SIT SMALL CAP GROWTH ---- ---- ---- ---- ---- ---- ---- ---- ---- 11.57 (1) 52.16 3.58
(NASDAQ Symbol: SSMGX)
SIT INTERNATIONAL GROWTH ---- ---- ---- ---- ---- ---- 4.10%(1) 2.69% 48.37% -2.99 9.36 3.46
(NASDAQ Symbol: SNGRX)
SIT GROWTH 43.65% 10.33% 5.50% 9.77% 35.15% -2.04% 65.50 -2.14 8.55 -0.47 33.64 6.71
(NASDAQ Symbol: NBNGX)
SIT GROWTH & INCOME 23.48 21.83 5.32 5.33 32.02 -2.37 32.72 4.94 3.15 2.83 31.66 4.36
(NASDAQ Symbol: SNIGX)
SIT BALANCED ---- ---- ---- ---- ---- ---- ---- ---- ---- -0.33 25.43 2.11
MSCI Emerging Markets
Free Index(2) ---- ---- ---- ---- ---- ---- ---- ---- ---- 2.80 -6.94 5.77
Russell 2000 Index(2) ---- ---- ---- ---- ---- ---- ---- ---- ---- 4.61 28.45 5.14
MSCI EAFE Index(3) ---- ---- ---- ---- ---- ---- 0.26 -12.17 32.56 7.78 11.21 2.89
NASDAQ OTC Composite Index 31.36 7.36 -5.26 15.41 19.26 -17.80 56.84 15.45 14.75 -3.20 39.92 4.68
S&P 500 Index 31.60 18.64 5.28 16.55 31.61 -3.05 30.46 7.64 10.07 1.32 37.58 5.37
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN AVERAGE ANNUAL TOTAL RETURNS FOR
QUARTER ENDED SIX MONTHS THE PERIODS ENDED MARCH 31, 1996 SINCE
INCEPTION 3/31/96 ENDED 3/31/96 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SIT DEVELOPING MARKETS GROWTH 07/01/94 9.12% 8.10% 19.10% ---- ---- ---- 1.33%
SIT SMALL CAP GROWTH 07/01/94 3.58 7.86 42.71 ---- ---- ---- 38.19
SIT INTERNATIONAL GROWTH 11/01/91 3.46 2.91 17.08 15.97% ---- ---- 13.39
SIT GROWTH 09/02/82 6.71 6.30 35.87 15.67 14.12% 14.16% 19.13
SIT GROWTH & INCOME 09/02/82 4.36 5.41 28.43 12.88 12.92 11.86 14.67
SIT BALANCED 12/31/93 2.11 4.94 20.96 ---- ---- ---- 11.50
MSCI Emerging Markets Free Index (2) 5.77 3.94 12.79 ---- ---- ---- 0.67
Russell 2000 Index (2) 5.14 7.41 29.09 ---- ---- ---- 21.89
MSCI EAFE Index (3) 2.89 7.06 12.33 13.44 ---- ---- 8.60
NASDAQ OTC Composite Index (4) 4.68 5.54 34.78 16.86 17.96 11.38 14.29
S&P 500 Index (4) 5.37 11.71 32.10 15.71 14.66 13.96 17.14
</TABLE>
(1) Period from Fund inception through calendar year-end.
(2) Figures assume an inception date of 7/1/94.
(3) Figures assume an inception date of 11/1/91.
(4) 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
MARCH 31, 1996
[PHOTO] Andrew B. Kim, CFA
Senior Portfolio
Manager
The SIT Developing Markets Growth Fund's investment return for the three
months ended March 31, 1996 was +9.12%, which compares favorably to the MSCI
Emerging Markets Free Index return of +5.77%. Most of the Asian emerging markets
posted double-digit gains during the quarter. The Fund's larger allocation to
these markets, combined with the Fund's significantly underweight position in
South Africa, contributed to the Fund's outperformance. In Latin America, the
Fund's Brazilian holdings rallied strongly during the quarter and outperformed
the Brazilian market's return of +13%.
GDP growth for Asian emerging markets was approximately +7.5% last year,
and we believe that economic growth will continue in this range throughout the
remainder of the decade. Beginning in late 1995, inflation has been leveling off
in most Asian economies, thereby providing Central Banks an opportunity to
implement more relaxed monetary policies. Our holdings continue to include a
significant portion in East Asia: Taiwan, Korea and Hong Kong, all of which will
be important beneficiaries of China's steady economic expansion with inflation
under control.
Continued pressures from tighter monetary policies and political
uncertainty are likely to restrain corporate earnings growth in Argentina and
Mexico. However, general investor sentiment towards the Latin American markets
should improve and provide a further boost for these markets if governmental
efforts to reduce inflation prove successful.
The most significant change during the past quarter was the addition of 3
new Israel holdings. Two of these holdings, Nice Systems (technology) and
Tadiran (telecommunications), have extensive global operations and are less
impacted by the recent turmoil in the local market. The Fund's third Israel
stock, Home Centers, is the dominant chain of home improvement centers. New
store openings combined with estimated GDP growth of 6% for 1996 should result
in strong earnings growth over the next few years.
We remain optimistic that emerging markets will continue to benefit from
ample global liquidity. Following two years of consolidation in 1994 and 1995,
Asia and select Latin American markets should continue to deliver strong returns
in 1996.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Developing Markets Growth Fund is to maximize
long-term capital appreciation. The Fund pursues this objective by investing in
common stocks 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 3/31/96: $10.17 Per Share
12/31/95: $ 9.32 Per Share
Total Net Assets: $ 7.14 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
SIT Developing MSCI Emerging
Markets Growth Markets Free
Fund Index
Pacific Basin 56.1 46.7
Latin America 27.0 30.1
Middle East/Africa 8.2 17.5
Europe 5.1 5.7
Other Assets & Liabilities 3.6 N/A
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
Morgan Stanley
Developing Capital Int'l Lipper
Markets Emerging Markets Emerging
Growth Fund Free Index Markets Index
----------- ---------- -------------
3 Months 9.12% 5.77% 8.74%
(unannualized)
1 Year 19.10 12.79 12.61
Inception 1.33 0.67 1.15
(12/31/93)
CUMULATIVE TOTAL RETURNS*
-------------------------
Morgan Stanley
Developing Capital Int'l Lipper
Markets Emerging Markets Emerging
Growth Fund Free Index Markets Index
----------- ---------- -------------
3 Months 9.12% 5.77% 8.74%
(unannualized)
1 Year 19.10 12.79 12.61
Inception 2.33 1.17 2.02
(12/31/93)
* As of 3/31/96
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 Emerging Markets Free Index. The Lipper
averages and indices are obtained from Lipper Analytical Services, Inc., a large
independent evaluator of mutual funds.
GROWTH OF $10,000
[LINE CHART]
SIT Developing Markets Growth Fund
MSCI Emerging Markets Free Index
The sum of $10,000 invested at inception (7/1/94) and held until 3/31/96 would
have grown to $10,233 in the Fund or $10,117 in the Morgan Stanley Capital Int'l
Emerging Markets Free Index assuming reinvestment of all dividends and capital
gains.
10 LARGEST HOLDINGS
* Tadiran Telecom, A.D.R.
* Genting Berhad
* Multibras
* Datacraft Asia Ltd.
* Advanced Info Services
* Cemig, A.D.R.
* Grammy Entertainment
* City Developments
* India Growth Fund
* Fabril Pacifico
Total number of holdings: 59
SIT SMALL CAP GROWTH FUND REVIEW
MARCH 31, 1996
[PHOTO] Eugene C. Sit, CFA
Senior Portfolio
Manager
The SIT Small Cap Growth Fund provided a positive total return during the
first quarter of 1996 of +3.6%, but slightly trailed the Russell 2000 Index of
small company stocks. On a longer-term basis, however, the Fund has generated
substantial incremental returns relative to both of its benchmark indices.
Lipper Analytical Services ranked the Fund among the nation's best on the basis
of trailing 52-week total returns in February.
During the first quarter, signs of economic strength and rising commodity
prices sparked a change in group leadership among small company stocks in favor
of some of the more economically-sensitive groups. While small company growth
stocks generally outperformed small company value stocks during the quarter,
several of our smaller, high growth stocks in the technology sector lagged the
market during this period. Additionally, our overweight in financial issues did
not contribute to positive results in an environment of rising interest rates.
Despite the recent performance of the more cyclical groups, we believe that
both the moderate economic growth scenario and the longer-term cycle in favor of
growth stocks remain intact. As a result, we continue to seek out small cap
growth investments with significantly higher-than-average rates of estimated
earnings growth. The weighted average estimate of the portfolio's earnings
growth currently measures greater than +25% for 1996 and 1997, more than
quadruple the estimated earnings gains of the broad market as measured by the
S&P 500 Index. In light of the Fund's valuation at 26.3 times estimated 1996
earnings and 19.6 times 1997 estimates, the Fund is currently valued at an
average 20% discount to its near-term growth rates.
During the first quarter, changes in the Fund's portfolio include
increasing health care holdings by +1.8% of net assets to capitalize
opportunistically on the biotechnology (Regeneron Pharmaceuticals), medical
device (FemRx) areas and health care information systems. Energy stocks (Newpark
Resources and Newfield Exploration) were also increased by +1.9% of net assets,
reflecting the increasing attractiveness of companies in the energy services
area. The most significant sector reduction was a -3.7% decrease in technology
holdings to 30.8% of net assets aimed at providing broader diversification among
industry groups. The technology and health care sectors continue to receive
primary attention as avenues for obtaining significantly above-average prospects
for earnings growth. We remain optimistic over the Fund's performance prospects
given the strong underlying fundamentals of our holdings.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Small Cap Growth Fund is to maximize long-term capital
appreciation. The Fund pursues this objective by investing primarily in the
common stocks of small companies that have a capitalization of under $500
million at the time of purchase.
In addition, the Fund may purchase securities convertible into common
stocks, preferred stocks and warrants. The Fund may invest in securities not
listed on a national securities exchange but generally such securities will have
an established over-the-counter market.
PORTFOLIO SUMMARY
Net Asset Value 3/31/96: $17.34 Per Share
12/31/95: $16.74 Per Share
Total Net Assets: $39.62 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Technology 30.8
Financial 19.2
Health Care 19.1
Consumer Services 8.1
Business Equipment
& Services 5.9
Retail 3.5
Energy 3.4
Transportation 1.4
Consumer Durables 1.4
Utilities 1.1
Capital Goods 1.1
Other Assets &
Liabilities 5.0
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
Lipper
Small Cap Russell 2000 Small Co.
Growth Fund Index Growth
----------- ------------ ------
3 Months 3.58% 5.14% 5.64%
(unannualized)
1 Year 42.71 29.09 31.46
Inception 38.19 21.89 26.87
(12/31/93)
(table continues)
CUMULATIVE TOTAL RETURNS*
-------------------------
Lipper
Small Cap Russell 2000 Small Co.
Growth Fund Index Growth
----------- ------------ ------
3 Months 3.58% 5.14% 5.64%
(unannualized)
1 Year 42.71 29.09 31.46
Inception 75.85 41.27 51.59
(12/31/93)
* As of 3/31/96
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.
GROWTH OF $10,000
[LINE CHART]
SIT Small Cap Growth Fund
Russell 2000 Index
The sum of $10,000 invested at inception (7/1/94) and held until 3/31/96 would
have grown to $17,585 in the Fund or $14,127 in the Russell 2000 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* American Radio Systems Corp.
* Transaction Network Services, Inc.
* Business Objects, S.A., A.D.R.
* BDM International, Inc.
* HCIA, Inc.
* Sierra Health Services, Inc.
* Alternative Resources Corp.
* Datalogix International, Inc.
* Technomatic Technologies, Ltd.
* GMIS, Inc.
Total number of holdings: 59
SIT INTERNATIONAL GROWTH FUND REVIEW
MARCH 31, 1996
[PHOTO] Andrew B. Kim, CFA
Senior Portfolio
Manager
The SIT International Growth Fund's investment return for the three months
ended March 31, 1996 was +3.46% exceeding the EAFE index return of +2.89%. The
portfolio's return was enhanced by strong gains achieved by its European
holdings.
Although major European economies have been deflating, the stock markets
have rallied strongly in anticipation of lower rates and a recovery later this
year. The recent acceleration of corporate restructuring in Europe through
strategic mergers and acquisitions is expected to continue due to pressures to
reduce costs and enhance shareholder value. Our European holdings are well
positioned in the key sectors benefiting from this trend: pharmaceutical,
telecommunication, and financial services.
The Japanese market rallied +7.7% (in yen terms) for the quarter, however
these gains were partially offset by the strengthening of the dollar. Based on a
stronger than expected pace of economic recovery in Japan, we expect a more
stable yen/dollar exchange rate in the next six to twelve months. During the
quarter we sold several Japanese technology holdings, and added companies which
have long-term growth characteristics such as NTT Data Communications (largest
domestic system integrator) and Sony Music Entertainment (audio/visual
software).
The end of deflation in Japan and stable economic growth in China are
likely to sustain the Asia Pacific region's upward momentum in domestic
investment as well as intra-regional trade. Strong earnings gains are likely to
continue into 1997 and beyond. Perhaps the most important investment trend for
the remainder of the year will be the potential impact of higher U.S. interest
rates. Although investment flows into Asia could be disrupted in the event of
rate uncertainty, Asian equity valuations are likely to rise further as they
continue to be driven by strong corporate earnings growth. During the quarter we
increased the portfolio's allocation to non-Japan Asia by 4%, and reduced the
Fund's Japanese exposure by 6%.
The underperformance of international markets in 1994-1995 has resulted in
attractive valuations in many industry sectors. We remain optimistic with
respect to the outlook for international markets in 1996.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the International Growth Fund is to achieve long-term
growth of capital by investing in equity securities of issuers domiciled outside
the United States. The Fund's investment objective reflects the belief that
long-term investment planning should include the investment opportunities that
exist outside the U.S.
The Fund selects its investments based on the characteristics of the
particular markets and economies of the countries in which it invests. Emphasis
is placed on identifying securities of companies believed to be undervalued in
the marketplace in relation to factors such as the company's revenues, earnings,
assets and long-term competitive position which over time will enhance the
equity value of the company.
PORTFOLIO SUMMARY
Net Asset Value 3/31/96: $15.84 Per Share
12/31/95: $15.30 Per Share
Total Net Assets: $84.13 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
SIT Int'l Morgan Stanley
Growth Fund EAFE Index
Pacific Basin 29.0 10.0
Japan 25.3 40.0
Other Europe 18.8 20.1
France, Germany, & UK 14.2 29.9
Latin America 6.4 0.0
Other Assets & Liabilities 6.3 N/A
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
Morgan Stanley
International Capital Int'l Lipper
Growth Fund EAFE Index Int'l Fund
----------- ---------- ----------
3 Months 3.46% 2.89% 4.40%
(unannualized)
1 Year 17.08 12.33 16.97
3 Years 15.97 13.44 13.17
Inception 13.39 8.60 9.96
(11/1/91)
(table continues)
CUMULATIVE TOTAL RETURNS*
-------------------------
Morgan Stanley
International Capital Int'l Lipper
Growth Fund EAFE Index Int'l Fund
----------- ---------- ----------
3 Months 3.46% 2.89% 4.40%
(unannualized)
1 Year 17.08 12.33 16.97
3 Years 55.98 45.98 44.94
Inception 74.09 43.94 52.06
(11/1/91)
* As of 3/31/96
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.
GROWTH OF $10,000
[LINE CHART]
SIT International Growth Fund
Morgan Stanley EAFE Index
The sum of $10,000 invested at inception (11/1/91) and held until 3/31/96 would
have grown to $17,409 in the Fund or $14,394 in the Morgan Stanley EAFE Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Aegon N.V., A.D.R.
* Astra "B" Free
* Canon, Inc., A.D.R.
* Hutchison Whampoa
* Carrefour
* Reuters Holdings, p.l.c., A.D.S.
* Wolters Kluwer
* First Pacific Co.
* Secom Co.
* Nomura Securities
Total number of holdings: 72
SIT GROWTH FUND REVIEW
MARCH 31, 1996
[PHOTO] Eugene C. Sit, CFA
Senior Portfolio
Manager
Erik S. Anderson, CFA
Portfolio Manager
The SIT Growth Fund generated a +6.7% total return during the first
quarter, surpassing the +4.7% gain of the NASDAQ Composite and the +5.4%
increase in the S&P 500 Index. The Fund also performed favorably relative to
midcap stocks as measured by the +6.2% gain provided by the S&P 400 Midcap
Index.
Midcap growth stocks outperformed midcap value stocks by approximately
+2.7% as measured by the S&P 400 Midcap Growth/Value Indices during the first
quarter. The best performing midcap sectors were the economically-sensitive
consumer durables, retail and consumer services areas. Traditional growth
sectors such as technology, health care and consumer non-durables did not fare
as well as the market began to anticipate a broadly expanding economy.
Even though the Fund's sector emphasis in the health care and technology
areas slightly hindered its performance, stock selection within these groups was
key to the Fund's first quarter return. In the health care sector, managed care
and health care information systems companies provided above-average returns,
while technology issues with high software content performed well, on average.
Moreover, the Fund's holdings of stocks for which consensus earnings estimates
were revised upward performed exceptionally well during the quarter, implying
that, on average, Wall Street analysts underestimated the earnings growth
potential of these companies.
The Growth Fund continues to focus on medium-sized companies with prospects
for superior long-term earnings growth. We estimate that the securities in the
Fund's portfolio will demonstrate weighted average earnings growth of +30% in
1996 and +29% in 1997, rates considerably higher than those of the overall
market as measured by the S&P 500 Index. Given the Fund's valuation at 27.7
times estimated 1996 earnings and 21.5 times 1997 estimates, it is currently
priced at an average 17% discount to its near-term growth rates.
We continue to believe that the fundamental case for moderate economic
growth will create a favorable climate for growth stock investing, particularly
for smaller- to medium-sized issues which have lagged larger cap stocks, on
average, over the past three years. We look forward to continuing to assist
investors with their long-term investment goals, and we are delighted that the
Growth Fund is garnering national recognition for its performance.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Growth Fund is to maximize long-term capital
appreciation. The Fund pursues this objective by investing primarily in the
common stocks of small and medium-size emerging growth companies before they
become well recognized.
The Fund may invest in larger companies which offer improved growth
possibilities because of rejuvenated management, changes in product or some
other development that might stimulate earnings growth.
PORTFOLIO SUMMARY
Net Asset Value 3/31/96: $ 14.79 Per Share
12/31/95: $ 13.86 Per Share
Total Net Assets: $ 350.86 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Technology 30.5
Health Care 19.9
Financial 15.6
Business Equipment
& Services 13.0
Energy 6.4
Capital Goods 2.8
Consumer Durables 2.3
Retail 2.3
Consumer Services 2.0
Raw Materials 1.6
Other Assets &
Liabilities 3.6
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
Growth NASDAQ OTC S&P
Fund Composite Index 500 Index
---- --------------- ---------
3 Months 6.71% 4.68% 5.37%
(unannualized)
1 Year 35.87 34.78 32.10
5 Years 14.12 17.96 14.66
10 Years 14.16 11.38 13.96
Inception 19.13 14.29 17.14
(9/2/82)
(table continues)
CUMULATIVE TOTAL RETURNS*
-------------------------
Growth NASDAQ OTC S&P
Fund Composite Index 500 Index
---- --------------- ---------
3 Months 6.71% 4.68% 5.37%
(unannualized)
1 Year 35.87 34.78 32.10
5 Years 93.60 128.36 98.21
10 Years 275.98 193.93 269.53
Inception 978.14 513.59 757.05
(9/2/82)
* As of 3/31/96
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
[LINE CHART]
SIT Growth Fund
NASDAQ OTC Composite Index
The sum of $10,000 invested at inception (9/2/82) and held until 3/31/96 would
have grown to $107,814 in the Fund or $61,359 in the NASDAQ OTC Composite Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Oxford Health Plans, Inc.
* HBO & Co.
* TCF Financial Corp.
* Parametric Technology, Inc.
* Peoplesoft, Inc.
* Healthsouth Rehabilitation Corp.
* Ceridian Corp.
* MGIC Investment Corp.
* 3Com Corp.
* Xilinx, Inc.
Total number of holdings: 53
SIT GROWTH & INCOME FUND REVIEW
MARCH 31, 1996
[PHOTO] Peter L. Mitchelson, CFA
Senior Portfolio
Manager
Ronald D. Sit, CFA
Portfolio Manager
During the first three months of calendar 1996, the SIT Growth & Income
Fund's total return was +4.4%. On a latest 12-month basis, the total return was
+28.4%, essentially matching the return of the Lipper Growth & Income Fund Index
as shown in the accompanying chart.
Since early March, there has been an increasing divergence of opinion among
economists about the near-term course of the economy. The triggering event was a
stronger-than-expected early-March employment report that appeared to be at odds
with perceptions of lower economic activity caused by extreme winter weather,
temporary government shutdowns and the General Motors strike. As a result, more
cyclically oriented stocks outperformed during March. It is worth noting that
even using the most optimistic economic forecasts for 1996, the annual growth
for real Gross Domestic Product remains in a range of +2 1/2 to +3%, which is
sufficiently moderate to remain reasonably confident that inflation will remain
under control.
Under the above-noted growth and inflation assumptions, corporate profit
trends for the broad economy should continue to exhibit a pattern of
deceleration and increase less than 10 percent in 1996. In contrast, the average
1996 earnings gain projected for the companies held in the Growth & Income Fund
is +21.3 percent, which is considerably higher than the broad market's expected
increase and should augur well for longer-term performance.
The three most heavily weighted industry sectors in the Fund remain
technology, health care and financial services, the first two of which are
characterized by well-above-average earnings growth rates. Industry weighting
changes were very modest during the quarter and generally reflect our unchanged
views about the course of the economy and the investment outlook.
Over the past 12 months, the total net assets of the Growth & Income Fund
have increased from $39.5 million to $49.9 million, and we are grateful for
shareholders' ongoing interest and participation in the Fund.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Growth & Income Fund is to achieve long-term capital
appreciation and, secondarily, current income. The Fund may invest in common
stocks, preferred stocks, convertible stocks and bonds, corporate bonds,
debentures and government securities.
Currently, the fund invests exclusively in common and preferred stocks and
securities convertible into common stock. In making common stock investments,
effort is directed toward the selection of "blue-chip" common stocks that pay
dividends, particularly those with which have provided stable and growing
dividend rates on an historical basis.
PORTFOLIO SUMMARY
Net Asset Value 3/31/96: $30.67 Per Share
12/31/95: $29.39 Per Share
Total Net Assets: $49.88 Million
Quarterly Dividend: $ 0.02 Per Share
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Technology 22.9
Health Care 17.7
Financial 12.2
Consumer Non-Durables 9.4
Business Equipment
& Services 7.2
Energy 5.0
Consumer Services 4.4
Retail 3.3
Raw Materials 2.8
Multi-Industry 2.1
Utilities 1.6
Capital Goods 1.3
Other Assets &
Liabilities 10.1
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
Growth & Lipper Growth S&P
Income Fund & Income Index 500 Index
----------- -------------- ---------
3 Months 4.36% 5.74% 5.37%
(unannualized)
1 Year 28.43 28.45 32.10
5 Years 12.92 14.06 14.66
10 Years 11.86 12.34 13.96
Inception 14.67 15.63 17.14
(9/2/82)
(table continues)
CUMULATIVE TOTAL RETURNS*
-------------------------
Growth & Lipper Growth S&P
Income Fund & Income Index 500 Index
----------- -------------- ---------
3 Months 4.36% 5.74% 5.37%
(unannualized)
1 Year 28.43 28.45 32.10
5 Years 83.63 93.08 98.21
10 Years 206.86 220.16 269.53
Inception 542.00 618.80 757.05
(9/2/82)
* As of 3/31/96
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
SIT GROWTH & INCOME FUND
LIPPER GROWTH & INCOME FUND INDEX
S&P 500 Index
The sum of $10,000 invested at inception (9/2/82) and held until 3/31/96 would
have grown to $64,200 in the Fund, $71,880 in the Lipper Growth & Income Fund
Index or $85,705 in the S&P 500 Index assuming reinvestment of all dividends and
capital gains.
10 LARGEST HOLDINGS
* Cisco Systems, Inc.
* Pfizer, Inc.
* Amgen, Inc.
* First Data Corp.
* Johnson & Johnson
* American International Group, Inc.
* Medtronic Inc.
* Microsoft Corp.
* Oracle Systems Corp.
* Philip Morris Cos., Inc.
Total number of holdings: 57
SIT BALANCED FUND REVIEW
MARCH 31, 1996
[PHOTO] Peter L. Mitchelson, CFA
Senior Portfolio
Manager
Bryce A. Doty, CFA
Portfolio Manager
During the first three months of calendar 1996, the SIT Balanced Fund's
total return was +2.1% and on a latest 12-month basis the total return was
+21.0%, which exceeded the +20.3% return of the Lipper Balanced Fund Index.
As of March 31, 1996, the asset allocation of the Fund was 51% in equities
(down slightly from 53% at the end of December), 38% in bonds and 11% in cash
reserve instruments. These latter figures are up one percentage point from
December 1995.
Within the equity section of the portfolio, industry weighting changes were
relatively minor during the quarter. Technology stocks, the largest segment of
total equities, remained virtually unchanged at 25% of total equities. Financial
services was reduced by approximately two percentage points and energy was
increased by a similar amount. The common characteristic of the equity holdings
of the Fund is above-average earning growth, which is being maintained at strong
rates even in the face of a moderate growth economy. Average earnings gains of
the companies held in the portfolio in calendar 1996 are projected to exceed
+20%, which is in contrast to increases of less than +10% for the broad American
economy. We are achieving these high earnings growth rates by emphasizing
companies in the technology, health care and financial services industries. At
the same time, it is quite normal for us to de-emphasize slower growing or
highly cyclical groups such as utilities or shelter (housing).
Regarding the fixed income portion of the portfolio, interest rates rose
quite sharply during the first quarter, which is reflected by the negative
return of the Lehman Aggregate Bond Index of -1.8% in the adjoining chart. The
Balanced Fund's fixed income holdings outperformed the market benchmark as a
result of the price stability of its mortgage-backed holdings. Late in the
quarter we reallocated a portion of the mortgage-backed holdings into the
corporate and asset-backed sectors which have the opportunity to provide
superior performance if interest rates move lower in coming weeks.
We appreciate very much shareholders' interest and participation in the SIT
Balanced Fund.
INVESTMENT OBJECTIVE AND STRATEGY
The Balanced Fund's dual objectives are to seek long-term growth of capital
consistent with the preservation of principal and to provide regular income. It
pursues its objectives by investing in a diversified portfolio of stocks, bonds
and short-term instruments. The Fund may emphasize either equity securities,
fixed-income securities, or short-term instruments or hold equal amounts of
each, dependent upon the Adviser's analysis of market, financial and economic
conditions.
The Fund's permissible investment allocation is: 40-60% in equity
securities, 40-60% in fixed-income securities, and up to 20% in short-term
fixed-income instruments. At all times at least 25% of the assets will be
invested in fixed-income senior securities.
PORTFOLIO SUMMARY
Net Asset Value 3/31/96: $12.11 Per Share
12/31/95: $11.86 Per Share
Total Net Assets: $ 3.88 Million
Quarterly Dividend: $ 0.08 Per Share
PORTFOLIO STRUCTURE
(% of total net assets)
[PIE CHART]
Stocks 50.5%
Fixed Income 49.5% (Bonds & Cash)
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
Balanced Lehman Aggregate S&P
Fund Bond Index 500 Index
---- ---------- ---------
3 Months 2.11% -1.77% 5.37%
(unannualized)
1 Year 20.96 10.78 32.10
Inception 11.50 5.59 18.69
(12/31/93)
(table continues)
CUMULATIVE TOTAL RETURNS*
-------------------------
Balanced Lehman Aggregate S&P
Fund Bond Index 500 Index
---- ---------- ---------
3 Months 2.11% -1.77% 5.37%
(unannualized)
1 Year 20.96 10.78 32.10
Inception 27.66 12.98 46.88
(12/31/93)
* As of 3/31/96
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 CHART]
SIT BALANCED FUND
LEHMAN AGGREGATE BOND INDEX
S&P 500 Index
The sum of $10,000 invested at inception (12/31/93) and held until 3/31/96 would
have grown to $12,766 in the Fund, $11,298 in the Lehman Aggregate Bond Index or
$14,688 in the S&P 500 Index assuming reinvestment of all dividends and capital
gains.
TOP HOLDINGS
STOCKS:
* Cisco Systems, Inc.
* Pfizer, Inc.
* Microsoft Corp.
* Federal Home Loan Mortgage Corp.
* Amgen, Inc.
BONDS:
* U.S. Treasury Coupon Strip,
6.77% Effective Yield, 5/15/09
* FNMA 9.00%, 1/1/17
* U.S. Treasury Notes, 5.125%, 11/30/98
* Franchise Finance MTN, 7.02%, 2/20/03
* GNMA 9.25%, 9/15/01
Total number of holdings: 83
A LOOK AT THE SIT MUTUAL FUNDS
The SIT Mutual Fund Group is managed by Sit Investment Associates, Inc. Sit
Investment was founded by Eugene C. Sit in July 1981 and is dedicated to a
single purpose, to be one of the premier investment management firms in the
United States. Sit Investment currently manages more than $4.0 billion for some
of America's largest corporations, foundations and endowments.
The SIT Mutual Fund Group is comprised of eleven 100% no-load funds. 100%
no-load means that the funds have no sales charges on purchases, no deferred
sales charges, no 12b-1 fees, no redemption fees and no exchange fees. Every
dollar you invest goes to work for you.
Some of the other features include:
* Free telephone exchange
* Dollar-cost averaging through automatic investment plan
* Electronic transfer of funds for purchases and redemptions
* Free check-writing privileges on bond funds
* Retirement accounts including IRAs, Keoghs and 401(k) Plans
<TABLE>
<CAPTION>
SIT FAMILY OF FUNDS
<S> <C> <C> <C>
STABILITY: INCOME: GROWTH & INCOME: GROWTH:
Safety of principal Increased Long-term capital Long-term capital
and current income Income appreciation and income appreciation
MONEY MARKET U.S. GOVERNMENT SECURITIES BALANCED DEVELOPING MARKETS GROWTH
TAX-FREE INCOME GROWTH & INCOME SMALL CAP GROWTH
MINNESOTA TAX-FREE INCOME INTERNATIONAL GROWTH
BOND GROWTH
PRINCIPAL STABILITY GROWTH
& CURRENT INCOME POTENTIAL
</TABLE>
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
John E. Hulse
Sidney L. Jones
Donald W. Phillips
William E. Frenzel
Director Emeritus:
Melvin C. Bahle
Officers:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Mary K. Stern President
Erik S. Anderson, CFA (1) Vice President - Investments
Ronald D. Sit, CFA (2) Vice President - Investments
Paul E. Rasmussen Vice President & Treasurer
Michael P. Eckert Vice President
Michael J. Radmer Secretary
Parnell M. Kingsley Assistant Secretary
Carla J. Rose Assistant Secretary
Debra A. Sit, CFA Assistant Treasurer
(1) Growth Fund only.
(2) Growth & Income Fund only.
QUARTERLY REPORT
STOCK FUNDS
MARCH 31, 1996
INVESTMENT ADVISER
Sit Investment Associates, Inc.
4600 Norwest Center
Minneapolis, MN 55402
612-334-5888 (Metro Area)
800-332-5580
DISTRIBUTOR
SIA Securities Corp.
4600 Norwest Center
Minneapolis, MN 55402
612-334-5888 (Metro Area)
800-332-5580
CUSTODIAN
Norwest Bank Minnesota, N.A.
733 Marquette Avenue
Minneapolis, MN 55479
TRANSFER AGENT AND
DISBURSING AGENT
First Data Investor Services
P.O. Box 9763
Providence, RI 02940-9763
AUDITORS
KPMG Peat Marwick LLP
4200 Norwest Center
Minneapolis, MN 55402
LEGAL COUNSEL
Dorsey & Whitney P.L.L.P.
220 South Sixth Street
Minneapolis, MN 55402
INVESTMENT SUB-ADVISER
(Developing Markets Growth Fund and International
Growth Fund)
Sit/Kim International Investment Associates, Inc.
4600 Norwest Center
Minneapolis, MN 55402
612-334-5888 (Metro Area)
800-332-5580
MEMBER OF
100% NO-LOAD MUTUAL FUND COUNCIL
