STOCK FUNDS ANNUAL REPORT
JUNE 30,1997
A FAMILY OF 100% NO-LOAD FUNDS
LARGE CAP GROWTH FUND
MID CAP GROWTH FUND
SMALL CAP GROWTH FUND
BALANCED FUND
INTERNATIONAL GROWTH FUND
DEVELOPING MARKETS FUND
[LOGO]
SIT MUTUAL FUNDS
<PAGE>
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
[CHART]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
STABILITY: INCOME: GROWTH & INCOME: GROWTH:
Safety of principal Increased income Long-term capital Long-term capital
and current income appreciation and income appreciation
MONEY MARKET BOND LARGE CAP GROWTH DEVELOPING MARKETS GROWTH
MINNESOTA TAX-FREE INCOME BALANCED SMALL CAP GROWTH
TAX-FREE INCOME INTERNATIONAL GROWTH
U.S. GOVERNMENT SECURITIES MID CAP GROWTH
</TABLE>
<PAGE>
SIT MUTUAL FUNDS
STOCK FUNDS ANNUAL REPORT
TABLE OF CONTENTS
PAGE
Chairman's Letter........................................................ 2
Performance Review....................................................... 4
Fund Reviews and Portfolios of Investments
Large Cap Growth Fund.............................................. 6
Mid Cap Growth Fund................................................ 10
Small Cap Growth Fund.............................................. 14
Balanced Fund...................................................... 18
International Growth Fund.......................................... 22
Developing Markets Growth 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............................................. 48
Federal Income Tax Information........................................... 49
This document must be preceded or accompanied by a Prospectus.
<PAGE>
SIT MUTUAL FUNDS
CHAIRMAN'S LETTER - JUNE 30, 1997
[PHOTO]
Dear Fellow Shareholders:
Returns across several global equity markets over the past twelve months
were strong in historical terms. Declining inflation and interest rates, steady
and improving economic growth and healthy liquidity conditions were drivers
worldwide. We are pleased to report that our shareholders benefited from this
environment.
Economic Overview
Domestically, moderating economic growth and benign inflation unfolded
during the second quarter of 1997, which we believe will continue into the
second half of the year. GDP growth of +2.2 percent marked a sharp deceleration
from the very strong +4.9 percent growth experienced during the first calendar
quarter and +3.8 percent growth of last year's fourth quarter. We are
forecasting a moderate +2.5 percent growth for both the third and fourth
quarters of 1997. The key to the slower second quarter and second half is that,
in spite of robust consumer confidence levels, real consumer spending
decelerated materially during the second quarter, and we do not see a sharp
rebound going forward. Factors supporting our moderate growth forecast include:
the high ratio of consumer debt service payments to income, flattening equipment
investment relative to GDP growth and continued high real interest rates.
Internationally, economic growth was strong during the first half of 1997,
especially in Canada, the U.K. and greater China. Japan is showing signs of a
sustained recovery helped by an increase in consumer spending, but Southeast
Asian economies continue to falter, influenced by currency turmoil in Thailand,
Malaysia, Indonesia and the Philippines. While Latin American economies are
fueled by privatization, industry deregulation and fiscal prudence, the
continental European economies are just beginning to emerge from a deep cyclical
trough.
As to inflation in the United States, news has been very favorable, with
the second quarter GDP Price Deflator up a scant +1.4 percent, the slowest
increase in 34 years. Even more impressive, during June the Producer Price Index
dropped for the sixth consecutive month for the first time in the postwar
period. Other favorable inflation gauges include: the Producer Price Index for
Crude Materials, which is currently experiencing negative year-over-year rates
of change; falling new and used car prices; and favorable government reports of
large plantings and good crop conditions. Globally, moderate inflation is due in
part to excess capacity in many countries. Nonetheless, we continue to closely
monitor wage conditions given the low rate of unemployment in the U.S. The June
unemployment rate of 4.8 percent was the lowest in 24 years with particular
tightness in the services sector.
Benign inflation has allowed central banks to remain accommodative with
respect to monetary policy. Federal Reserve Chairman Alan Greenspan at his
recent Humphrey-Hawkins testimony referred to inflation as "close to stable
prices as I've seen since the 1960s," and the importance of computer technology
leading to "a once- or twice-in-a-century phenomenon that will carry
productivity trends nationally and globally to a new higher track." These are
optimistic comments indeed for Mr. Greenspan. Another element lending support to
low interest rates is fiscal discipline. According to the Congressional Budget
Office, the fiscal 1997 federal government budget deficit is likely to be under
$40 billion, de minimus in a $8 trillion economy. The recently enacted balanced
budget legislation aims to dissipate that deficit by 2002. The federal funds
rate was left unchanged at the May 20th and July 1st Federal Open Market
Committee meetings, a status we believe continues going forward. In continental
Europe, currency adjustments and preparation for European Monetary Union are
unlikely to precipitate monetary tightening.
Good economic growth, low inflation and the disappearing budget deficit
bode well for investors, consumers, businesses and governments.
<PAGE>
Equity Strategy Summary:
Second quarter and first half 1997 financial asset returns were strongly
positive, with the second quarter S&P 500 return of +17.5 percent the greatest
in nearly 60 years. S&P 500 returns over the past twelve months measuring +34.7
percent were robust indeed. Many European and Latin American markets have
enjoyed similar strength, for example over the first half of 1997 Switzerland
was up 42.6 percent, Germany 31.1 percent, Peru 50.8 percent and Brazil a
whopping 78.5 percent (all in local currency terms).
As a result of these strong advances, many markets appear fully priced on
many measures, with the notable exception of interest rates. Today's inflation
rates, the lowest in decades, should imply lower interest rates ahead which can
support high price/earnings ratios. History suggests high price/earnings ratios
can be sustained if inflation remains dormant. The 1960s were one such period.
Additionally, somewhat better-than-anticipated profit gains have pleased
investors. Reported S&P 500 earnings growth on a year-over-year basis for the
last four quarters has measured +12.5 percent, +38.6 percent (influenced by
write offs), +16.8 percent and a forecasted +12.0 percent for second quarter
1997. If price/earnings ratios are close to their upper limits for the broad
market, future equity returns should be most directly linked to earnings gains.
If so, growth stocks will be advantaged.
Two growth sectors favored by Sit Investment's domestic equity funds are
health care and technology. Both would benefit from the relative earnings growth
advantage mentioned above, as well as the fact that these sectors are
attractively valued in relation to their historical record. Notwithstanding the
fact they have been two of the best investment sectors since mid-1994, earnings
growth leaves their relative price/earnings ratios below their 20-year averages.
All three Sit domestic funds enjoy 5-year projected earnings growth rates
between two and three times that of the broad market, yet price/earnings ratios
are within 10 percent of market multiples. We believe this high earnings growth
and reasonable valuation combination bodes well for investors.
Internationally, stock markets are in similarly advanced stages, at least
in terms of price/earnings multiple expansion. Our strategy, therefore, is to
view the global market as one of individual stocks, focusing on globally
oriented companies with strong revenue and earnings growth. Corporate
restructuring in Europe remains an attractive investment theme, as is
privitization in Latin America.
Your trust in us as shareholders in the Sit Mutual Funds is greatly valued.
We are proud of both the recent and long- term records of the funds and are
optimistic about the outlook for growth stock investing vis-a-vis the broad
market given current earnings and valuations trends.
With best wishes,
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
August 8, 1997
<PAGE>
SIT MUTUAL FUNDS
JUNE 30, 1997 PERFORMANCE REVIEW - STOCK FUNDS
STOCK FUNDS REVIEW
Equities worldwide provided attractive returns during the twelve month
period ended June 30, 1997. Domestically, large capitalization stocks were the
strongest performers. The large cap S&P 500 Index produced a +34.7% return
versus the S&P MidCap 400 Index return of +23.4% and a +16.3% increase for the
small cap Russell 2000 Index. Strong relative earnings gains for large cap
stocks versus small cap stocks was a primary driver of this divergence. In fact,
the 100 largest stocks in the S&P 500 possessed earnings growth and share price
appreciation in excess of the other 400 companies in that index. Also, stocks of
the biggest companies disproportionately benefited from money flows into passive
index mutual funds. Superior relative performance for the large cap segment
could reverse as a strengthening dollar erodes the competitive position of
multinational firms and penalizes currency translations. In addition, the
material laggard performance of mid-and small-cap stocks in the current bull
market has created compelling valuation cases for those stocks.
The same can be said with regard to growth stocks versus their value stock
counterparts. Over the past year, returns for growth versus value segments of
the large cap Russell 1000 Index were similar at +31.3% and +33.0% respectively,
but diverged widely in the small cap Russell 2000 Index with the value portion
returning +28.0% versus just +4.6% for the growth index. Despite the robust
returns of the broad, large cap market, growth stocks, especially small cap
growth stocks, are not excessively priced.
International results varied markedly depending on geographic region. The
MSCI Europe Index posted a gain of +30.0% over the past year in contrast with a
- -4.5% loss for the MSCI Pacific Index. A very weak Japan during the second half
of 1996 was the primary culprit, although the MSCI Pacific Index ex-Japan
returned +12.0%, still trailing European and North American markets.
1985 1986 1987
---- ---- ----
SIT LARGE CAP GROWTH (6) 23.48% 21.83% 5.32%
SIT MID CAP GROWTH (7) 43.65 10.33 5.50
SIT SMALL CAP GROWTH ---- ---- ----
SIT BALANCED ---- ---- ----
SIT INTERNATIONAL GROWTH ---- ---- ----
SIT DEVELOPING MARKETS GROWTH ---- ---- ----
S&P 500 INDEX 31.60 18.64 5.28
S&P MIDCAP 400 INDEX 35.59 16.21 -2.04
RUSSELL 2000 INDEX (2) -- -- --
EAFE INDEX (3) -- -- --
MSCI EMERGING MARKETS FREE INDEX (4) -- -- --
NASDAQ
SYMBOL INCEPTION
------ ---------
SIT LARGE CAP GROWTH SNIGX 09/02/82
SIT MID CAP GROWTH NBNGX 09/02/82
SIT SMALL CAP GROWTH SSMGX 07/01/94
SIT BALANCED SIBAX 12/31/93
SIT INTERNATIONAL GROWTH SNGRX 11/01/91
SIT DEVELOPING MARKETS GROWTH SDMGX 07/01/94
S&P 500 INDEX (5)
S&P MIDCAP 400 INDEX (5)
RUSSELL 2000 INDEX (2)
EAFE INDEX (3)
MCSI EMERGING MARKETS FREE INDEX (4)
(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 10/31/91.
(4) Figures assume an inception date of 6/30/94.
(5) Figures assume an inception date of 9/2/82.
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN - CALENDAR YEAR
YTD
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.33% 32.02% -2.37% 32.72% 4.94% 3.15% 2.83% 31.66% 23.05% 19.92%
9.77 35.15 -2.04 65.50 -2.14 8.55 -0.47 33.64 21.87 8.13
---- ---- ---- ---- ---- ---- 11.57 (1) 52.16 14.97 2.50
---- ---- ---- ---- ---- ---- -0.33 25.43 15.80 12.76
---- ---- ---- 4.10 (1) 2.69 48.37 -2.99 9.36 10.31 12.89
---- ---- ---- ---- ---- ---- -2.02 (1) -4.29 17.27 19.30
16.55 31.61 -3.05 30.46 7.64 10.07 1.32 37.58 22.96 20.59
20.87 35.55 -5.12 50.11 11.92 13.95 -3.60 30.94 19.19 13.02
-- -- -- -- -- -- 4.61 28.45 16.49 10.20
-- -- -- 0.26 -12.17 32.56 7.78 11.21 6.05 11.21
-- -- -- -- -- -- 2.80 -6.94 3.92 16.34
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
TOTAL RETURN PERIODS ENDED JUNE 30, 1997
QUARTER SIX MONTHS SINCE
ENDED 6/30/97 ENDED 6/30/97 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
------------- ------------- ------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
20.93% 19.92% 32.36% 27.68% 17.78% 13.02% 16.03%
20.27 8.13 17.23 26.05 16.82 13.59 19.06
19.71 2.50 2.37 ---- ---- ---- 26.01
13.61 12.76 22.42 19.59 ---- ---- 15.04
13.37 12.89 17.04 11.64 14.39 ---- 13.95
12.32 19.30 19.09 ---- ---- ---- 9.48
17.46 20.59 34.68 28.85 19.78 14.65 18.27
14.70 13.02 23.36 22.42 17.61 15.25 18.45
16.21 10.20 16.33 -- -- -- 19.93
12.98 11.21 12.84 9.12 12.83 -- 9.23
7.68 16.34 10.59 -- -- -- 4.96
</TABLE>
(6) Formerly Growth & Income Fund
(7) Formerly Growth Fund
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.
<PAGE>
SIT LARGE CAP GROWTH FUND REVIEW
JUNE 30, 1997
[PHOTO]
PETER L. MITCHELSON, CFA
SENIOR PORTFOLIO MANAGER
RONALD D. SIT, CFA
PORTFOLIO MANAGER
The Sit Large Cap Growth Fund posted strong performance during the fiscal
year ended June 30, 1997. The Fund's total return of +32.4% compared favorably
with the +29.0% return of the Lipper Growth & Income Index, and ranked in the
19th percentile of all such funds. For 5 years, the Fund's +17.8% return was in
the 45th percentile, and for 10 years its +13.0 return ranked in the 41st
percentile.
The U.S. stock market rose more than +30% over the past 12 months based on
a continuing strong economy, better-than-expected inflation, and satisfactory
profit gains. The market's unusually strong gain was more than three times the
long-term rate of return of just over 10% annually that has been historically
achieved by large companies.
We believe the relative attractiveness of companies with strong and
predictable earnings growth rates is likely to continue in a moderate
growth/moderate inflation economy and we have positioned the Sit Large Cap
Growth Fund accordingly. The average 1997 earnings gain projected for the
companies held in the Fund is +26.1%, which is significantly higher than the
expected earnings increase of the broad stock market.
As of June 30th, the Fund was 93% invested in equities, a decrease of one
percentage point compared to the end of the previous fiscal year. Significant
industry weighting changes during the year included increases in health care,
where we added Eli Lilly and Warner Lambert, and financial, where we added Chase
Manhattan and Allstate. Reductions occurred in technology, where the weighting
went from 24.7% of assets to 18.2% through the sale of several companies.
Business equipment & services was also reduced by sales of Electronic Data
Systems, Manpower and Olsten. Our heaviest industry weightings remain in the
traditional growth sectors of health care and technology and in financial.
Slower growth and cyclical companies, such as utilities and raw materials, have
been underweighted.
Net assets in the Fund totaled $72.2 million at the end of June, up from
$53.0 million a year ago. We greatly appreciate shareholders' continued interest
and investment in the Fund.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Large Cap Growth 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, 1997, the Fund was invested exclusively in such
securities.
PORTFOLIO SUMMARY
Net Asset Value 6/30/97: $40.39 Per Share
6/30/96: $32.75 Per Share
Total Net Assets: $72.23 Million
Total Dividend: $ 2.45 Per Share
Long-Term Capital Gain: $ 2.42 Per Share
Ordinary Income: $ 0.03 Per Share
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Health Care 19.3
Technology 18.2
Financial 14.4
Consumer
Non-Durables 11.0
Capital Goods 6.8
Business Equip.
& Services 5.8
Retail 5.2
Energy 4.9
Consumer Services 3.6
Utilities 1.4
Raw Materials 1.4
Consumer
Durables 0.8
Multi-Industry 0.5
Other Assets
& Liabilities 6.7
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
------------------------------------------ --------------------------------------------
Large Cap Russell 1000 S&P Large Cap Russell 1000 S&P
Growth Fund Growth Index 500 Index Growth Fund Growth Index 500 Index
----------- ------------ --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
3 Months 20.93% 18.91% 17.46% 20.93% 18.91% 17.46%
(unannualized)
1 Year 32.36 31.34 34.68 32.36 31.34 34.68
5 Years 17.78 18.96 19.78 126.63 138.22 146.52
10 Years 13.02 14.57 14.65 240.17 289.83 292.56
Inception 16.03 17.51 18.27 807.85 996.71 1106.11
(9/2/82)
</TABLE>
* As of 6/30/97
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 AND RUSSELL 1000 GROWTH INDICES.
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
[PLOT POINTS GRAPH]
The sum of $10,000 invested at inception (9/2/82) and held until 6/30/97 would
have grown to $90,785 in the Fund, $120,613 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* General Electric Co.
* Pfizer, Inc.
* Warner Lambert Corp.
* Gillette Co. (The)
* Philip Morris Cos., Inc.
* Intel Corp.
* Coca Cola Co.
* Microsoft Corp.
* Norwest Corp.
* American International Group, Inc.
Total number of holdings: 67
<PAGE>
SIT LARGE CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1997
QUANTITY NAME OF ISSUER MARKET VALUE(1)
COMMON STOCKS (93.3%) (2)
BUSINESS EQUIPMENT & SERVICES (5.8%)
18,500 Ceridian Corp. (3) $781,625
7,500 Computer Sciences Corp. (3) 540,937
18,000 Danka Business Systems p.l.c,
A.D.R. 735,750
31,500 First Data Corp. 1,384,031
20,250 Paychex, Inc. 769,500
-----------
4,211,843
-----------
CAPITAL GOODS (6.8%)
42,000 General Electric Co. 2,745,750
10,000 Owens Corning Corp. 431,250
16,500 Sundstrand Corp. 920,906
11,000 Tyco International Ltd. 765,188
-----------
4,863,094
-----------
CONSUMER DURABLES (0.8%)
12,000 Harley-Davidson, Inc. 575,250
-----------
CONSUMER NON-DURABLES (11.0%)
11,500 Campbell Soup Co. 575,000
27,000 Coca Cola Co. 1,836,000
22,000 Gillette Co. (The) 2,084,500
46,500 Philip Morris Cos., Inc. 2,063,438
10,000 Proctor & Gamble Co. 1,412,500
-----------
7,971,438
-----------
CONSUMER SERVICES (3.6%)
40,500 CUC International, Inc. (3) 1,035,281
4,000 Loewen Group, Inc. 139,000
21,000 Marriot International, Inc. 1,288,875
3,500 Stewart Enterprises, Inc. 147,000
-----------
2,610,156
-----------
ENERGY (4.9%)
13,500 Baker Hughes, Inc. 522,281
14,242 British Petroleum Co., p.l.c,
A.D.R. 1,066,370
2,500 Dresser Industries, Inc. 93,125
11,500 Schlumberger Ltd. 1,437,500
6,000 Transocean Offshore, Inc. 435,750
-----------
3,555,026
-----------
FINANCIAL (14.4%)
BANKING (4.7%)
5,500 Chase Manhattan Corp. 533,844
10,500 Citicorp 1,265,906
28,000 Norwest Corp. 1,575,000
-----------
3,374,750
-----------
FINANCIAL SERVICES (2.6%)
34,500 Federal Home Loan Mortgage
Corp. 1,185,938
9,500 Franklin Resources, Inc. 689,344
-----------
1,875,282
-----------
INSURANCE (7.1%)
10,000 Allstate Corp. 730,000
10,000 American International Group,
Inc. 1,493,750
16,000 EXEL Ltd. 844,000
17,000 Mercury General Corp. 1,236,750
17,000 MGIC Investment Corp. 814,937
-----------
5,119,437
-----------
HEALTH CARE (19.3%)
BIOTECHNOLOGY/ PHARMACEUTICALS (13.4%)
21,000 Amgen, Inc. (3) 1,220,625
11,000 Lilly Eli & Co. 1,202,437
17,000 Medtronic, Inc. 1,377,000
20,000 Pfizer, Inc. 2,390,000
12,500 Smithkline Beecham, A.D.R. 1,145,313
19,000 Warner Lambert Corp. 2,360,750
-----------
9,696,125
-----------
MEDICAL EQUIPMENT/ SUPPLIES (2.7%)
20,500 Johnson & Johnson 1,319,687
17,500 Stryker Corp. 610,313
-----------
1,930,000
-----------
MEDICAL FACILITIES MANAGEMENT (3.2%)
13,000 HBO & Co. 895,375
29,000 HEALTHSOUTH Rehabilitation
Corp. (3) 723,187
10,000 Oxford Health Plans,
Inc. (3) 717,500
-----------
2,336,062
-----------
MULTI-INDUSTRY (0.5%)
13,500 Whitman Corp. 341,719
-----------
RAW MATERIALS (1.4%)
23,500 Monsanto Co. 1,011,969
-----------
RETAIL (5.2%)
23,500 Federated Department Stores,
Inc. (3) 816,625
19,000 Gap, Inc. 738,625
19,500 Home Depot, Inc. (The) 1,344,281
10,500 Kohl's Corp. (3) 555,844
5,500 Walgreen Co. 294,938
-----------
3,750,313
-----------
TECHNOLOGY (18.2%)
AEROSPACE/ DEFENSE (1.8%)
24,000 Boeing Company 1,273,500
-----------
COMPUTER RELATED (2.6%)
20,000 Atmel Corp. (3) 560,000
20,000 Cisco Systems, Inc. (3) 1,342,500
-----------
1,902,500
-----------
<PAGE>
QUANTITY/PAR ($) NAME OF ISSUER MARKET VALUE(1)
COMPUTER SOFTWARE/ SERVICES (7.1%)
9,500 Computer Associates
International, Inc. $529,031
14,000 Microsoft Corp. (3) 1,769,250
21,500 Oracle Systems Corp. (3) 1,083,063
22,000 Parametric Technology
Corp. (3) 936,375
7,000 Peoplesoft Inc. (3) 369,250
6,000 SAP, A.D.S. (4) 414,900
-----------
5,101,869
-----------
SEMICONDUCTORS & RELATED (3.5%)
14,100 Intel Corp. 1,999,556
11,000 Xilinx, Inc. (3) 539,688
-----------
2,539,244
-----------
TELECOMMUNICATIONS & EQUIPMENT (3.2%)
28,500 Airtouch Communications,
Inc.(3) 780,187
12,000 Ascend Communications,
Inc. (3) 472,500
19,000 Tellabs, Inc. (3) 1,061,625
---------
2,314,312
-----------
UTILITIES (1.4%)
26,500 MCI Communications, Inc. 1,014,453
-----------
Total common stocks
(cost: $39,740,713) 67,368,342
-----------
SHORT-TERM SECURITIES (5.8%)(2)
1,398,000 Ford Motor Credit Corp.,
5.58%, 7/2/97 1,397,783
1,321,000 General Motors Accept. Corp.,
5.56%, 7/1/97 1,321,000
1,452,000 Household Finance Corp.,
5.58%, 7/3/97 1,451,550
Total short-term securities
(cost: $4,170,333) 4,170,333
-----------
Total investments in securities
(cost: $43,911,046) (7) $71,538,675
===========
See accompanying notes to portfolios of investments on page 31.
<PAGE>
SIT MID CAP GROWTH FUND REVIEW
JUNE 30, 1997
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
ERIK S. ANDERSON, CFA
PORTFOLIO MANAGER
The Sit Mid Cap Growth Fund provided a solid return for its investors
during the fiscal year ended June 30, 1997, measuring +17.23%. In comparison,
the Russell MidCap Growth Index returned +17.59% and the S&P MidCap 400 Index
returned +23.36%. After a challenging first nine months in the fiscal year,
which left the Fund with negative returns, the Fund's stocks reversed course in
late April, driven upwards by an improving environment for mid cap growth stock
investing and value added stock selection. The Fund's annualized returns over
the past three years are +26.05% versus +22.42% for the S&P MidCap 400 benchmark
and +22.48% for the Russell MidCap Growth Index.
The financial sector was a significant source of value-added performance.
The Fund's banking, financial services and insurnace company holdings returned
+62% on average versus +51% for the peer group. Attractive returns were also
enjoyed in the capital goods and consumer services sector. In a reversal since
our last annual report, technology stocks underperformed during this fiscal
year. However, technology remains a premier area for growth stock investors, and
retains its position as the most heavily weighted sector in the portfolio.
Computer software and semiconductors are also key areas for investment.
Our long-term investment philosophy is demonstrated by the fact that seven
of the Fund's top ten holdings at this fiscal year end were also top ten
holdings at the end of the 1996 fiscal year. We continue to target investments
in companies with superior long-term earnings growth performance across many
industry sectors. This is evidenced by the fact that the Fund's investment
holdings have a projected earnings growth rate of 31% during 1997 and 29% in
1998 versus 9% and 7%, respectively, for the S&P 500. Despite this much faster
growth, the Fund's valuation of 21.2 times estimated 1998 earnings is only
modestly above the 19.5 times multiple of the market overall. Over time, stock
performance parallels earnings performance, which we believe will drive
attractive absolute returns for the Fund's stocks and investors.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Mid Cap 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 6/30/97: $ 15.43 Per Share
6/30/96: $ 15.58 Per Share
Total Net Assets: $386.54 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Technology 23.1
Financial 21.9
Health Care 16.7
Business Equipment
& Services 12.6
Consumer Services 7.5
Energy 7.4
Capital Goods 2.5
Retail 2.3
Consumer Durables 2.0
Transportation 1.1
Consumer Non-
Durables 0.5
Other Assets
& Liabilities 2.4
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
-------------------------------------------- ------------------------------------------
Mid Cap Russell Mid Cap S&P MidCap Mid Cap Russell Mid Cap S&P MidCap
Growth Fund Growth Index 400 Index Growth Fund Growth Index 400 Index
----------- ------------ --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
3 Months 20.27% 14.72% 14.70% 20.27% 14.72% 14.70%
(unannualized)
1 Year 17.23 17.59 23.36 17.23 17.59 23.36
5 Years 16.82 17.35 17.61 117.53 122.55 124.98
10 Years 13.59 13.22 15.25 257.59 245.98 313.50
Inception 19.06 n/a 18.45 1231.37 n/a 1133.54
(9/2/82)
</TABLE>
* As of 6/30/97
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 MIDCAP 400 AND RUSSELL MID CAP GROWTH INDICES.
GROWTH OF $10,000
[PLOT POINTS GRAPH]
The sum of $10,000 invested at inception (9/2/82) and held until 6/30/97 would
have grown to $133,137 in the Fund or $123,354 in the S&P MidCap 400 Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Mercury General Corp.
* TCF Financial Corp.
* HBO & Co.
* MGIC Investment Corp.
* Parametric Technology, Inc.
* T. Rowe Price & Associates
* Oxford Health Plans, Inc.
* Peoplesoft, Inc.
* Promus Hotel Corp.
* Stewart Enterprises, Inc.
Total number of holdings: 57
<PAGE>
SIT MID CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1997
QUANTITY NAME OF ISSUER MARKET VALUE(1)
COMMON & PREFERRED STOCKS (97.6%) (2)
BUSINESS EQUIPMENT & SERVICE (12.6%)
176,500 Accustaff, Inc. (3) $ 4,180,844
204,200 Ceridian Corp. (3) 8,627,450
80,000 Computer Sciences Corp. (3) 5,770,000
154,800 COREStaff, Inc. (3) 4,179,600
268,000 Dendrite International,
Inc. (3) 4,422,000
205,600 Fiserv, Inc. (3) 9,174,900
82,000 National Data Corp. 3,551,625
235,800 Paychex, Inc. 8,960,400
------------
48,866,819
------------
CAPITAL GOODS (2.5%)
229,500 Crane Co. 9,595,969
------------
CONSUMER DURABLES (2.0%)
162,500 Harley-Davidson, Inc. 7,789,844
------------
CONSUMER NON-DURABLES (0.5%)
53,000 BMC Industries, Inc. 1,815,250
------------
CONSUMER SERVICES (7.5%)
226,000 Loewen Group, Inc. 7,853,500
280,000 Promus Hotel Corp. (3) 10,850,000
247,500 Stewart Enterprises, Inc. 10,395,000
------------
29,098,500
------------
ENERGY (7.4%)
111,500 Camco International, Inc. 6,104,625
174,000 Noble Affiliates, Inc. 6,731,625
119,200 Transocean Offshore Drilling,
Inc. 8,656,900
80,500 Triton Energy Corp. (3) 3,687,906
108,500 United Meridian Corp. (3) 3,255,000
------------
28,436,056
------------
FINANCIAL (21.9%)
BANKING (3.7%)
293,000 TCF Financial Corp. 14,466,875
------------
FINANCIAL SERVICES (5.2%)
87,500 First American Corp. -
Tennessee 3,357,813
116,300 Green Tree Financial Corp. 4,143,188
242,500 T. Rowe Price & Associates 12,519,063
------------
20,020,064
------------
INSURANCE (13.0%)
105,000 Ace, Ltd. 7,756,875
119,600 CMAC Investment Corp. 5,710,900
203,500 Mercury General Corp. 14,804,625
282,000 MGIC Investment Corp. $13,518,375
93,500 Mutual Risk Mgmt. Ltd. 4,289,313
37,500 Republic NY Corp. 4,031,250
------------
50,111,338
------------
HEALTH CARE (16.7%)
BIOTECHNOLOGY/PHARMACEUTICALS (6.0%)
214,000 Biogen, Inc. (3) 7,249,250
178,500 Cephalon, Inc. (3) 2,052,750
1,000 Dura Pharmaceuticals,
Inc. (3) 39,875
210,500 Elan Corp., p.l.c.,
A.D.R. (3) 9,525,125
106,500 Vertex Pharmaceuticals (3) 4,073,625
------------
22,940,625
------------
MEDICAL FACILITIES MANAGEMENT (10.7%)
1,000 FPA Medical Management,
Inc. (3) 23,688
205,000 HBO & Co. 14,119,375
69,000 HCIA, Inc. (3) 2,311,500
337,000 HEALTHSOUTH Rehabilitation
Corp. (3) 8,403,938
208,000 Medic Computer Systems,
Inc. (3) 4,628,000
166,500 Oxford Health Plans,
Inc. (3) 11,946,375
------------
41,432,876
------------
RETAIL (2.3%)
140,000 Kohls Corp. (3) 7,411,250
145,000 PETsMART, Inc. (3) 1,667,500
------------
9,078,750
------------
TECHNOLOGY (23.1%)
COMPUTER RELATED (3.4%)
101,000 3Com Corp. (3) 4,545,000
178,600 Electronics For Imaging,
Inc. (3) 8,438,850
------------
12,983,850
------------
COMPUTER SOFTWARE/SERVICES (11.4%)
113,900 ASM Lithography Holdings,
Inc. (3) 6,663,150
101,000 Aspen Technology, Inc. (3) 3,800,125
92,500 Baan Co., N.V. (3) 6,370,937
127,000 Business Objects, S.A.,
A.D.R. (3) 1,238,250
92,500 Legato Systems, Inc. (3) 1,711,250
297,500 Parametric Technology,
Inc. (3) 12,662,344
217,500 Peoplesoft, Inc. (3) 11,473,125
------------
43,919,181
------------
SEMICONDUCTORS & RELATED (5.1%)
376,500 Analog Devices, Inc. (3) 10,000,781
197,800 Xilinx, Inc. (3) 9,704,563
------------
19,705,344
------------
<PAGE>
QUANTITY/PAR ($) NAME OF ISSUER MARKET VALUE(1)
TELECOMMUNICATIONS & EQUIPMENT (3.2%)
272,000 ADC Telecommunications,
Inc.(3) $9,078,000
286,500 Paging Network, Inc. (3) 2,515,828
59,000 PairGain Technologies,
Inc. (3) 914,496
------------
12,508,324
------------
TRANSPORTATION (1.1%)
115,500 Caliber Systems, Inc. 4,302,375
------------
Total common stocks
(cost: $235,189,667) 377,072,040
------------
SHORT-TERM SECURITIES (3.0%) (2)
2,860,000 Ford Motor Credit Corp.,
5.58%, 7/1/97 2,860,000
2,000,000 Household Finance Corp.,
6.08%, 7/1/97 2,000,000
880,000 Sit Money Market Fund,
5.18% (6) 880,000
5,768,000 Sears Roebuck Accept. Corp.,
5.62%, 7/2/97 5,767,100
------------
Total short-term securities
(cost: $11,507,100) 11,507,100
------------
Total investments in securities
(cost: $246,696,767) (7) $388,579,140
============
See accompanying notes to portfolios of investments on page 31.
<PAGE>
SIT SMALL CAP GROWTH FUND REVIEW
JUNE 30, 1997
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
As was the case for small capitalization investing in general, returns for
the Sit Small Cap Growth Fund during the fiscal year ended June 30, 1997 were
positive but did not keep pace with the returns of large capitalization stocks.
For the year, the Fund returned +2.37% compared to a +16.33% return for the
Russell 2000 Index and +4.61% return for the Russell 2000 Growth Index. The
Russell 2000 Growth Index return lagged the +28.0% return of the Russell 2000
Value Index. This significant performance differential is rare and likely closes
as a slowing economy makes earnings growth more difficult, thus favoring growth
stocks that can deliver consistent and robust earnings gains.
July 1st marks the three year anniversary of the Fund, over which the
Fund's net asset value has approximately doubled. Through June 30th, the Fund
achieved a +26.01% annualized return which compares favorably with the +19.93%
return of the Russell 2000 Index and the +18.50% return of the Russell 2000
Growth Index.
During the year, strong positive returns were garnered from stocks in the
financial sector. The Fund's holdings in this group returned +37% on average,
well in excess of the +9% return of the average small cap financial industry
growth stock. Similarly, good stock and sector selection in both technology and
energy enhanced returns. A difficult environment for health care information
services providers hindered returns in the health care sector. We believe the
issues surrounding these companies are transitory in nature, and we remain
committed to the sector which comprised 17.8% of the holdings at fiscal year
end. In terms of sector adjustments during the year, financials increased by 5
percentage points and energy by 4 percentage points. Health care and business
equipment & services had declining weights.
The Fund's holdings possess an appealing combination of high earnings
growth and attractive relative valuation, with earnings forecast to grow by +33%
in 1997 and +40% in 1998, yet the stocks are valued at just 18.0 times 1998
estimated earnings. It is uncommon for small cap stocks to carry price/earnings
ratios below that of the broader market, as is the case today with the S&P 500
price/earnings ratio at 19.5 times 1998 estimated earnings. We believe this
creates significant potential for the 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 6/30/97: $18.89 Per Share
6/30/96: $19.27 Per Share
Total Net Assets: $58.36 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Technology 28.5
Health Care 17.8
Financial 17.1
Consumer Services 9.8
Energy 8.3
Capital Goods 6.0
Business Equipment
& Services 3.7
Consumer
Non-Durables 0.9
Retail 0.4
Other Assets
& Liabilities 7.5
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
-------------------------------------------- --------------------------------------------
Small Cap Russell 2000 Russell 2000 Small Cap Russell 2000 Russell 2000
Growth Fund Index Growth Index Growth Fund Index Growth Index
--------- ------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 19.71% 16.21% 17.56% 19.71% 16.21% 17.56%
(unannualized)
1 Year 2.37 16.33 4.61 2.37 16.33 4.61
Inception 26.01 19.93 18.50 100.06 72.50 66.49
(7/1/94)
</TABLE>
* As of 6/30/97
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 INDICES.
GROWTH OF $10,000
[PLOT POINTS GRAPH]
The sum of $10,000 invested at inception (7/1/94) and held until 6/30/97 would
have grown to $20,006 in the Fund or $17,250 in the Russell 2000 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Imnet Systems, Inc.
* Anadigics, Inc.
* Tecnomatix Technologies, Ltd.
* Integrated Process Equipment Corp.
* Aspen Technology, Inc.
* Imperial Credit Industries, Inc.
* RSCB Financial, Inc.
* Provident Bankshares Corp.
* Community First Bankshares, Inc.
* Cardio Thoracic Systems, Inc.
Total number of holdings: 55
<PAGE>
SIT SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1997
QUANTITY NAME OF ISSUER MARKET VALUE(1)
COMMON STOCKS (92.5%) (2)
BUSINESS EQUIPMENT & SERVICES (3.7%)
91,900 Commodore Applied
Technologies, Inc. (3) $545,656
128,500 Commodore Applied
Technologies, Inc.,
(warrants) (3) 176,687
17,000 On Assignment, Inc. (3) 663,000
52,500 Transaction Network Services,
Inc. (3) 741,563
-----------
2,126,906
-----------
CAPITAL GOODS (6.0%)
17,500 DT Industries, Inc. 625,625
43,000 Dendrite Intl, Inc. (3) 709,500
27,500 Triumph Group, Inc. (3) 852,500
60,500 Rohr Industries, Inc. (3) 1,327,219
-----------
3,514,844
-----------
CONSUMER NON-DURABLES (0.9%)
33,500 Northland Cranberries, Inc. 540,187
-----------
CONSUMER SERVICES (9.8%)
22,000 American Radio Systems
Corp. (3) 877,250
27,500 Carriage Services, Inc. (3) 598,125
37,000 Central European Media
Enterprises, Ltd. (3) 962,000
15,700 Chancellor Broadcasting
Class A (3) 628,000
40,000 Equity Corp. International
(3) 967,500
51,000 HA-LO Industries, Inc. (3) 1,204,875
25,500 York Group, Inc. (The) 478,125
-----------
5,715,875
-----------
ENERGY (8.3%)
43,000 Marine Drilling Company,
Inc. (3) 843,875
29,000 Newfield Exploration Co. (3) 580,000
37,000 Newpark Resources, Inc. (3) 1,248,750
65,500 Oceaneering International,
Inc. (3) 1,211,750
41,000 Swift Energy Co. (3) 978,875
-----------
4,863,250
-----------
FINANCIAL (17.1%)
FINANCIAL SERVICES (12.3%)
39,500 Community First Bankshares,
Inc. 1,515,812
78,500 Imperial Credit Industries,
Inc.(3) 1,614,156
37,275 Provident Bankshares Corp. 1,551,572
20,100 Queens County Bankcorp, Inc. 914,550
33,000 RCSB Financial, Inc. 1,579,875
-----------
7,175,965
-----------
INSURANCE (4.8%)
26,500 Allied Group, Inc. 1,007,000
16,600 CMAC Investment Corp. 792,650
16,400 Executive Risk, Inc. 852,800
4,000 Life Re. Corp. 186,500
-----------
2,838,950
-----------
HEALTH CARE (17.8%)
BIOTECHNOLOGY/ PHARMACEUTICALS (3.7%)
28,000 Dura Pharmaceuticals,
Inc. (3) 1,116,500
102,500 Regeneron Pharmaceuticals,
Inc. (3) 1,037,813
-----------
2,154,313
-----------
MEDICAL EQUIPMENT/ SUPPLIES (6.2%)
22,600 Alkermes, Inc. (3) 327,700
108,000 Cardio Thoracic Systems,
Inc. (3) 1,512,000
53,500 FemRx, Inc. (3) 200,625
29,000 I-Stat Corp. (3) 496,625
220,300 Innerdyne, Inc. (3) 684,995
66,500 Neuromedical Systems,
Inc. (3) 367,828
-----------
3,589,773
-----------
MEDICAL FACILITIES MANAGEMENT (7.9%)
19,461 HBO & Co. 1,340,359
25,000 HCIA, Inc. (3) 837,500
79,000 Imnet Systems, Inc. (3) 2,453,938
-----------
4,631,797
-----------
RETAIL (0.4%)
45,000 Quality Dining, Inc. (3) 210,938
-----------
TECHNOLOGY (28.5%)
COMPUTER SOFTWARE/ SERVICES (13.5%)
22,500 Alternative Resources
Corp. (3) 458,438
44,000 Aspen Technology, Inc. (3) 1,655,500
61,000 BDM International, Inc. (3) 1,403,000
51,500 Legato Systems, Inc. (3) 952,750
52,000 Scopus Technology (3) 1,163,500
68,000 Technomatix Technologies,
Ltd. (3) 2,210,000
-----------
7,843,188
-----------
SEMICONDUCTORS & RELATED (8.4%)
82,000 Integrated Process Equipment
Corp. (3) 2,075,625
38,000 PRI Automation, Inc. (3) 1,441,625
30,500 Tower Semiconductors
Ltd. (3) 366,000
17,000 Uniphase Corp. (3) 990,250
-----------
4,873,500
-----------
<PAGE>
QUANTITY/PAR ($) NAME OF ISSUER MARKET VALUE(1)
TELECOMMUNICATIONS & EQUIPMENT (6.6%)
71,500 Anadigics, Inc. (3) $2,216,500
50,000 Arch Communications Group,
Inc. (3) 381,250
38,500 Gilat Satellite Networks,
Ltd. (3) 1,280,125
-----------
3,877,875
-----------
Total common stocks
(cost: $40,802,033) 53,957,361
-----------
SHORT-TERM SECURITIES (7.3%) (2)
637,000 Ford Motor Credit Corp.,
5.58%, 7/1/97 637,000
1,418,000 Household Finance Corp.,
5.58%, 7/3/97 1,417,560
1,500,000 Sears Roebuck Acceptance
Corp., 5.62%, 7/2/97 1,499,766
710,000 Sit Money Market Fund,
5.18% (6) 710,000
-----------
Total short-term securities
(cost: $4,264,326) 4,264,326
-----------
Total investments in securities
(cost: $45,066,359) (7) $58,221,687
===========
See accompanying notes to portfolios of investments on page 31.
<PAGE>
SIT BALANCED FUND REVIEW
JUNE 30, 1997
[PHOTO]
PETER L. MITCHELSON, CFA
SENIOR PORTFOLIO MANAGER
BRYCE A. DOTY, CFA
PORTFOLIO MANAGER
The Sit Balanced Fund posted strong performance during the fiscal year
ended June 30, 1997. The Fund's total return of +22.42% matched the +20.47%
return of the Lipper Balanced Fund Index, and ranked in the 20th percentile out
of 303 such funds. For 3 years, the Fund's +19.59% return was in the 6th
percentile out of 184 funds.
As of June 30, 1997, the asset allocation of the Fund in equities was 59%,
down slightly from 60% at the end of the previous fiscal year. Fixed income
securities increased slightly to 38% from 37%, while cash reserve instruments
were unchanged at a relatively small 3% of assets.
The U.S. stock market rose more than +30% over the past 12 months based on
a continuing strong economy, better-than-expected inflation, stable Federal
Reserve Board policy and satisfactory profit gains. We expect a continuation of
moderate economic growth and contained inflation, two conditions generally
favorable for financial asset investing, in general, and for growth stocks, in
particular.
Within the equity portion of the portfolio, we believe the relative
attractiveness of companies with strong and predictable earnings growth rates is
likely to continue in a moderate growth/moderate inflation economy and have
positioned the Sit Balanced Fund accordingly. Significant industry weighting
changes during the year included increases in health care and financial and
reductions in technology and business equipment & services. Our heaviest
industry weightings remain in the traditional growth sectors of health care and
technology and in financial.
Within the fixed income portion of the portfolio, the most significant
sector shift involved reducing the Fund's mortgage pass-through and U.S.
Treasury holdings and purchasing additional corporate bonds. As of June 30,
1997, the Fund's fixed income holdings as a whole were more sensitive to price
movements than the Lehman Aggregate Bond Index.
The Sit Balanced Fund has performed well over time in its segment of the
mutual fund marketplace, and we thank shareholders for their interest and
participation.
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 6/30/97: $14.93 Per Share
6/30/96: $12.57 Per Share
Total Net Assets: $ 5.10 Million
Total Dividend: $ 0.39 Per Share
Long Term Capital Gain: $ 0.07 Per Share
Ordinary Income: $ 0.32 Per Share
PORTFOLIO STRUCTURE
(% of total net assets)
[PIE CHART]
Stocks: 58.8%
Bonds: 42.2% (Bonds & Cash)
<PAGE>
<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 13.61% 3.67% 17.46% 13.61% 3.67% 17.46%
(unannualized)
1 Year 22.42 8.15 34.68 22.42 8.15 34.68
3 Year 19.59 8.53 28.85 71.05 27.83 113.94
Inception 15.04 6.07 23.06 63.24 22.88 106.70
(12/31/93)
</TABLE>
* As of 6/30/97
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
[PLOT POINTS GRAPH]
The sum of $10,000 invested at inception (12/31/93) and held until 6/30/97 would
have grown to $16,324 in the Fund, $12,288 in the Lehman Aggregate Bond Index or
$20,670 in the S&P 500 Index assuming reinvestment of all dividends and capital
gains.
TOP HOLDINGS
STOCKS
* General Electric Co.
* Pfizer, Inc.
* Philip Morris Cos., Inc.
* Gillette Co.
* Coca-Cola Co.
BONDS
* U.S. Treasury Note, 7.25%, 05/15/04
* U.S. Treasury Note, 5.875%, 11/15/05
* Ford Motor Credit Corp., 9.14%, 12/30/14
* EquiVantage 1996-3 A3, 7.70%, 9/25/27
* ContiMortgage Home Equity Loan Trust
1996-1 A7, 7.00%, 3/15/27
Total number of holdings: 106
<PAGE>
SIT BALANCED FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1997
QUANTITY NAME OF ISSUER MARKET VALUE(1)
COMMON STOCKS (58.8%) (2)
BUSINESS EQUIPMENT & SERVICES (3.2%)
1,000 Ceridian Corp. (3) $ 42,250
700 Danka Business Systems p.l.c,
A.D.R. 28,613
1,500 First Data Corp. 65,906
750 Paychex, Inc. 28,500
----------
165,269
----------
CAPITAL GOODS (5.0%)
2,000 General Electric Co. 130,750
500 Owens Corning Corp. (3) 21,563
800 Sundstrand Corp. 44,650
800 Tyco International Ltd. 55,650
----------
252,613
----------
CONSUMER DURABLES (0.5%)
500 Harley-Davidson, Inc. 23,969
----------
CONSUMER NON-DURABLES (7.5%)
500 Campbell Soup Co. 25,000
1,300 Coca Cola Co. 88,400
1,000 Gillette Co. (The) 94,750
2,400 Philip Morris Cos., Inc. 106,500
500 Proctor & Gamble Co. 70,625
----------
385,275
----------
CONSUMER SERVICES (2.1%)
2,000 CUC International, Inc. (3) 51,125
900 Marriot International, Inc. 55,238
----------
106,363
----------
ENERGY (3.1%)
500 Baker Hughes, Inc. 19,344
1,038 British Petroleum p.l.c.,
A.D.R. 77,720
500 Schlumberger Ltd. 62,500
----------
159,564
----------
FINANCIAL (9.5%)
BANKING (3.1%)
300 Chase Manhattan Corp. 29,119
500 Citicorp 60,281
1,200 Norwest Corp. 67,500
----------
156,900
----------
FINANCIAL SERVICES (1.5%)
1,500 Federal Home Loan Mortgage
Corp. 51,563
400 Franklin Resources, Inc. 29,025
----------
80,588
----------
INSURANCE (4.9%)
500 Allstate Corp. 36,500
500 American International Group,
Inc. 74,688
1,000 EXEL Ltd. 52,750
700 Mercury General Corp. 50,925
800 MGIC Investment Corp. 38,350
----------
253,213
----------
HEALTH CARE (12.0%)
BIOTECHNOLOGY/ PHARMACEUTICALS (7.9%)
1,000 Amgen, Inc. (3) 58,125
500 Lilly Eli & Co. 54,656
800 Medtronic, Inc. 64,800
900 Pfizer, Inc. 107,550
600 Smithkline Beecham, A.D.R. 54,975
500 Warner Lambert Co. 62,125
----------
402,231
----------
MEDICAL EQUIPMENT/ SUPPLIES (1.9%)
1,000 Johnson & Johnson 64,375
1,000 Stryker Corp. 34,875
----------
99,250
----------
MEDICAL FACILITIES MANAGEMENT (2.2%)
600 HBO & Co. 41,325
1,400 HEALTHSOUTH Rehabilitation
Corp. (3) 34,913
500 Oxford Health Plans, Inc. (3) 35,875
----------
112,113
----------
MULTI-INDUSTRY (0.2%)
500 Whitman Corp. 12,656
----------
RAW MATERIALS (0.9%)
1,000 Monsanto Co. 43,062
----------
RETAIL (3.1%)
1,300 Federated Department Stores,
Inc. (3) 45,175
800 Gap, Inc. 31,100
700 Home Depot, Inc. (The) 48,256
500 Kohl's Corp. (3) 26,469
100 Walgreen Co. 5,363
----------
156,363
----------
TECHNOLOGY (10.9%)
AEROSPACE/ DEFENSE (0.9%)
900 Boeing Company 47,756
----------
COMPUTER RELATED (2.4%)
1,000 Atmel Corp. (3) 28,000
1,000 Cisco Systems, Inc. (3) 67,125
500 Hewlett Packard Co. 28,000
----------
123,125
----------
COMPUTER SOFTWARE/ SERVICES (3.9%)
300 Computer Associates
International, Inc. 16,706
600 Microsoft Corp. (3) 75,825
1,100 Oracle Systems Corp. (3) 55,413
800 Parametric Technology Corp. (3) 34,050
300 PeopleSoft, Inc. (3) 15,825
----------
197,819
----------
SEMICONDUCTORS & RELATED (2.0%)
600 Intel Corp. 85,087
----------
<PAGE>
QUANTITY/PAR ($) NAME OF ISSUER MARKET VALUE(1)
291 Xilinx, Inc. (3) $14,277
----------
99,364
----------
TELECOMMUNICATIONS EQUIPMENT (1.7%)
500 Ascend Communications,
Inc. (3) 19,688
1,400 Airtouch Communications,
Inc. (3) 38,325
500 Tellabs, Inc. (3) 27,938
----------
85,951
----------
UTILITIES (0.8%)
1,000 MCI Communications, Inc. 38,281
----------
Total common stocks (cost: $1,773,928) 3,001,725
----------
BONDS (38.3%) (2)
U.S. TREASURY (9.6%)
U.S. Treasury Note:
25,000 8.25%, 7/15/98 25,595
225,000 7.25%, 5/15/04 234,567
200,000 5.875%, 11/15/05 191,264
25,000 U.S. Treasury Coupon Strip,
6.93% Effective Yield on
Purchase Date, 11/15/04 15,556
25,000 U.S. Treasury Coupon Strip,
6.865% Effective Yield on
Purchase Date, 05/15/09 11,302
50,000 U.S. Treasury Coupon Strip,
7.14% Effective Yield on
Purchase Date, 02/15/19 11,271
----------
489,555
----------
ASSET-BACKED SECURITIES (6.2%)
Advanta Mortgage Loan Trust:
25,000 1995-3 A5, 7.37%, 2/25/27 24,684
50,000 1996-1 A7, 7.07%, 3/25/27 48,516
50,000 Cityscape Home Equity Loan Tr.,
1996-3 A8, 7.65%, 9/25/25 50,180
74,999 ContiMortgage Home Equity Loan
Tr., 1996-1 A7, 7.00%,
3/15/27 72,355
25,000 EQCC Home Equity Loan Tr.,
Series 1996-1, 6.93%,
3/15/27 24,215
75,000 EquiVantage, 1996-3 A3, 7.70%,
9/25/27 76,450
20,000 Green Tree Corp., Series
1995-5, 7.25%, 9/15/25 20,013
----------
316,413
----------
CLOSED-END FUNDS (1.5%)
600 American Strategic Income I 6,900
2,700 American Strategic Income II 31,050
3,600 American Strategic Income III 40,050
----------
78,000
----------
CORPORATE BONDS (8.4%)
70,000 Ford Motor Credit Corp.,
9.14%, 12/30/14 76,650
50,000 Martin Marietta/Lockheed,
7.000%, 3/15/11 48,188
Nationwide Health Properties:
50,000 Series B, 7.23%, 11/08/06 49,000
25,000 8.67%, 3/1/05 26,625
50,000 Price Reit Inc., 7.50%,
11/05/06 50,375
50,441 Salomon CPI Index Bond,
3.650%, 2/14/02 48,937
50,000 Security Capital Indl. Trust,
8.650%, 5/15/16 53,625
25,000 Security Capital Pacific Trust,
7.55%, 8/1/08 25,531
50,000 Washington Mutual Capital,
8.375%, 6/01/27 50,812
----------
429,743
----------
MORTGAGE PASS-THROUGH SECURITIES (11.6%)
FEDERAL NAT'L MORTGAGE ASSOC. (1.0%)
49,400 9.00%, 1/1/17 51,835
----------
GOVERNMENT NAT'L MORTGAGE ASSOC. (7.2%)
44,476 9.00%, 6/15/11 46,481
34,463 9.00%, 12/15/18 36,258
41,702 9.00%, 10/15/19 43,884
46,401 9.25%, 9/15/01 49,082
42,723 9.50%, 1/15/04 45,480
66,805 9.50%, 11/15/04 71,076
5,545 9.75%, 2/20/01 5,863
17,559 10.00%, 9/15/99 18,143
19,641 11.25%, 10/15/00 20,927
19,649 11.25%, 10/15/11 21,276
7,035 11.75%, 3/15/00 7,495
----------
365,965
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (3.4%)
50,000 FHLMC (REMIC) Ser. 1173,
6.50%, 11/15/21 46,421
50,000 FNMA 1994-38 Pac, 6.65%,
12/25/23 48,200
Vendee Mortgage Trust:
8,269 1992-1 2B, 7.75%, 9/15/10 8,301
25,000 1996-2 1D, 6.75%, 11/15/15 24,587
50,000 1996-2 1E, 6.75%, 5/15/20 48,255
----------
175,764
----------
TRUST PREFERRED SECURITIES (1.0%)
Allstate Financing:
1,000 7.95%, 12/1/26 25,000
25,000 7.83%, 12/1/45 24,281
----------
49,281
----------
Total bonds (cost: $1,942,865) 1,956,556
----------
Total investments in securities
(cost: $3,716,793) (7) $4,958,281
==========
See accompanying notes to portfolios of investments on page 31.
<PAGE>
SIT INTERNATIONAL GROWTH FUND REVIEW
JUNE 30, 1997
[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, 1997, was +17.0%, compared to the EAFE index return of +12.8%. The
Fund's outperformance was attributable to substantial return contributions made
by holdings in Europe. The partial currency hedging against the D-Mark also had
a positive impact. Non-EAFE markets, especially Taiwan and Brazil, made positive
contributions to the outperformance.
During the quarter the European weighting continued to account for
approximately 48% of total portfolio assets, up sharply from approximately 35% a
year ago with the UK holdings rising to 12% from less than 6%. Our strategy
continues to focus on companies restructuring and undertaking investment-driven
expansion into the fast growing economies. Major structural trends, ranging from
pension reforms, shift to equities from fixed income investments, privatization
programs and management focus on shareholder value enhancement, are moving
forward in continental Europe.
In Japan the Portfolio's new additions of high-quality blue-chip companies
provided significant returns in the quarter. The Japan weighting increased to
23.1% at mid-year (71.4% relative to the Index average) from 16.7% at the end of
the March quarter. Our Japanese portfolio should add value to the overall return
through stock selection, even though the market index may still be vulnerable to
a fragile economy and weak banking system.
The duration and magnitude of currency-related problems in Southeast Asia
should be limited given such positive factors as: (I) governments maintain
conservative fiscal policies, (II) the trade account should improve in response
to a rebound in G7 economies, and (III) currency devaluation should provide a
boost for exports. We are looking towards selecting attractively valued
long-term holdings in Asia.
Latin America continued to provide substantial returns as the region's
fundamentals benefited from the favorable market trends in the U.S. Our higher
asset allocation in Latin America has been based on the improvement in liquidity
as a result of improving trade balance, stable currencies and firm fiscal
discipline. Our weighting was increased to approximately 6% from 3% at December
31, 1996.
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 6/30/97: $18.57 Per Share
6/30/96: $16.29 Per Share
Total Net Assets: $99.28 Million
PORTFOLIO STRUCTURE - BY REGION
( % of total net assets)
SIT INT'L MORGAN STANLEY
GROWTH FUND EAFE INDEX
----------- ----------
Europe Other 24.6 23.4
France, Germany
& UK 23.8 33.3
Pacific Basin 16.5 10.2
Japan 23.1 33.1
Latin America 6.3 0.0
Other Assets
& Liabilities 5.7 0.0
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
-------------------------------------------- ---------------------------------------------
Morgan Stanley Morgan Stanley
International Capital Int'l Lipper International Capital Int'l Lipper
Growth Fund EAFE Index Int'l Fund Growth Fund EAFE Index Int'l Fund
----------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
3 Months 13.37% 12.98% 11.21% 13.37% 12.98% 11.21%
(unannualized)
1 Year 17.04 12.84 20.01 17.04 12.84 20.01
3 Years 11.64 9.12 12.59 39.13 29.94 42.74
5 Years 14.39 12.83 13.31 95.83 82.86 86.75
Inception 13.95 9.23 12.49 109.54 64.99 94.85
(11/1/91)
</TABLE>
* As of 6/30/97
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)
Health Care 17.4
Utilities 14.5
Technology 14.4
Financial 13.9
Consumer
Services 7.7
Consumer
Non-Durables 6.2
Retail 6.0
Business Equip.
& Services 5.7
Multi-Industry 4.5
Shelter 1.8
Capital Goods 1.6
Consumer
Durables 0.5
Raw Materials 0.1
Other Assets
& Liabilities 5.7
GROWTH OF $10,000
[PLOT POINTS GRAPH]
The sum of $10,000 invested at inception (11/1/91) and held until 6/30/97 would
have grown to $20,954 in the Fund or $16,499 in the Morgan Stanley EAFE Index
assuming reinvestment of all dividends and capital gains.
<PAGE>
SIT INTERNATIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1997
10 LARGEST HOLDINGS
* Canon, Inc., A.D.R.
* Lloyds TSB Group
* Matsushita Kotobuki
* Citic Pacific, Ltd.
* Zurich Insurance
* Aegon N.V., A.D.R.
* Empresa Nacional De Electricidad, A.D.R.
* Nutricia
* Banyu Pharmaceuticals
* Secom Co.
Total number of holdings: 77
QUANTITY NAME OF ISSUER MARKET VALUE(1)
COMMON & PREFERRED STOCKS (94.3%) (2)
ASIA (39.6%)
AUSTRALIA (0.9%)
183,600 Colonial, Ltd. (Financial)
(3)(4) $469,180
50,000 Smith, Howard (Consumer
Durables) 476,311
-----------
945,491
-----------
HONG KONG (5.4%)
30,200 Concordia Paper, A.D.R.
(Raw Materials) (3)(5) 101,925
318,000 Citic Pacific Ltd.
(Multi-Industry) 1,986,653
285,600 Hong Kong & China Gas
(Utilities) 571,399
33,600 HSBC Holdings (Financial) 1,010,520
201,000 Hutchison Whampoa
(Multi-Industry) 1,738,283
-----------
5,408,780
-----------
JAPAN (23.1%)
109,000 Banyu Pharmaceuticals
(Health Care) 1,911,530
20,100 Canon, Inc., A.D.R. (Business
Equipment & Service) 2,743,650
161 DDI Corp. (Utilities) 1,188,378
65,000 Matsushita Kotobuki
(Technology) 2,155,041
27,000 Murata Manufacturing Co.,
Ltd. (Capital Goods) 1,074,205
38 NTT Data Communications
Systems Co. (Utilities) 1,468,743
22,400 Orix Corp. (Financial) 1,659,259
43,000 Sankyo Co. (Health Care) 1,444,401
26,000 Secom Co. (Consumer
Services) 1,907,778
23,000 Seven Eleven Japan (Retail) 1,737,818
18,000 Sony Corp. (Consumer
Non-Durables) 1,568,905
50,000 Takeda Chemical Industries
(Health Care) 1,404,703
18,000 TDK Corp. (Electronic
Equipment) 1,320,770
28,600 Tokyo Electron Ltd.
(Technology) 1,367,430
-----------
22,952,611
-----------
KOREA (0.8%)
26,000 Korea Electric Power Corp.
(Utilities) 775,901
-----------
MALAYSIA (1.7%)
142,000 RHB Capital Berhad
(Financial) 438,827
232,000 IJM Berhad Corp. (Capital
Goods) 487,163
215,000 Sime Darby (Multi-Industry) 715,531
-----------
1,641,521
-----------
SINGAPORE (3.3%)
185,000 City Developments (Shelter) 1,811,569
110,000 Overseas Union Bank
(Financial) 684,759
72,500 United Overseas Bank
(Financial) 745,436
-----------
3,241,764
-----------
TAIWAN (3.9%)
61,090 President Enterprises, G.D.R.
(Consumer Non-Durables)
(3)(4) 1,237,073
36,000 Synnex Technology, G.D.R.
(Technology) (3)(4) 810,000
90,800 Yageo, G.D.R. (Technology)
(3) 1,781,496
-----------
3,828,569
-----------
THAILAND (0.5%)
55,000 Advanced Info Services
(Utilities) 499,197
-----------
EUROPE (48.4%)
BELGIUM (0.6%)
176 UCB, S.A. (Health Care) 557,488
-----------
FINLAND (0.4%)
5,140 Tieto (Technology) 445,429
-----------
FRANCE (5.3%)
2,145 Carrefour (Retail) 1,557,823
11,800 Cetelem (Financial) 1,483,860
10,200 Christian Dior (Retail) 1,683,598
1,290 L'Oreal Co. Ord. (Consumer
Non-Durables) 543,509
-----------
5,268,790
-----------
GERMANY (7.0%)
570 Altana, A.G. (Health Care) 607,930
37,200 Bayer, A.G. (Health Care) 1,429,596
<PAGE>
QUANTITY NAME OF ISSUER MARKET VALUE(1)
5,366 Fresenius, A.G. (Health
Care) $1,218,462
17,050 Gehe, A.G. (Health Care) 1,163,422
6,445 SAP Preferred (Technology) 1,337,819
22,300 Veba, A.G. (Utilities) 1,253,132
-----------
7,010,361
-----------
IRELAND (0.6%)
12,700 Elan, plc., A.D.R. (Hlth.
Care) (3) 574,675
-----------
ITALY (2.4%)
272,200 Banca Fideuram (Financial) 889,506
454,700 Telecom Italia Mobile Spa
(Utilities) (3) 1,471,159
-----------
2,360,665
-----------
NETHERLANDS (6.9%)
27,627 Aegon, N.V., A.D.R.
(Financial) 1,935,610
30,180 CMG (Technology) 670,359
12,142 Nutricia (Consumer
Non-Durables) 1,917,625
6,230 Randstad Holdings, N.V.
(Consumer Services) 656,992
13,666 Wolters Kluwer
(Consumer Services) 1,663,958
-----------
6,844,544
-----------
SPAIN (1.9%)
22,700 Empresa Nacional De
Electricidad, A.D.R.
(Utilities) 1,930,919
-----------
SWEDEN (3.9%)
85,333 Astra "B" Free (Health Care) 1,505,773
48,400 L.M. Ericsson Telephone Co.
(Technology) 1,905,750
15,200 Securitas 'B' (Consumer
Svcs.) 428,363
-----------
3,839,886
-----------
SWITZERLAND (7.9%)
1,135 Ciba Specialty Chemicals
(Health Care) (3) 104,898
38,660 Misys Ord. (Business
Equipment) 877,185
1,065 Nestle S.A. (Consumer
Non-Durables) 1,404,251
1,135 Novartis, A.G. (Health
Care) (3) 1,813,576
186 Roche Holdings, A.G.
(Health Care) 1,681,475
4,920 Zurich Insurance (Financial) 1,956,952
-----------
7,838,337
-----------
UNITED KINGDOM (11.5%)
179,179 Electrocomponents, p.l.c.
(Consumer Services) 1,338,266
210,310 Lloyds TSB Group, p.l.c.
(Financial) 2,157,414
75,000 Norwich Union (Financial)
(3)(4) 399,048
95,628 Powergen, p.l.c.
(Utilities) 1,138,633
QUANTITY/PAR ($) NAME OF ISSUER MARKET VALUE(1)
460,000 Rentokil Group, p.l.c.
(Consumer Services) $1,616,341
144,000 Reed International (Business
Equipment & Services) 1,395,656
23,700 Reuters Holdings, p.l.c.,
A.D.S. (Business Equip.
& Service) 1,493,100
20,600 SmithKline Beecham, p.l.c.,
A.D.R., (Health Care) 1,887,475
-----------
11,425,933
-----------
LATIN AMERICA (6.3%)
BRAZIL (2.3%)
9,600 Cemig, A.D.R. (Utilities) 492,000
1,000,000 Light (ON) S.A. (Utilities) 497,645
9,500,000 Telecom Brasileiras, S.A.
(Utilities) 1,288,375
-----------
2,278,020
-----------
CHILE (2.9%)
28,900 Compania Telecom Chile,
A.D.R. (Utilities) 953,700
25,500 Enersis, A.D.R. (Utilities) 906,844
31,000 Santa Isabel, A.D.R.
(Retail)(3) 999,750
-----------
2,860,294
-----------
MEXICO (1.1%)
33,100 Panamerican Beverage, Inc.
(Consumer Non-Durables) 1,088,163
-----------
Total common and preferred stocks
(cost: $63,089,076) 93,617,338
-----------
SHORT TERM SECURITIES (4.9%) (2)
2,000,000 Household Finance Corp.,
6.08%, 7/1/97 2,000,000
2,699,000 Sears Roebuck Accept. Corp.,
5.62%, 7/2/97 2,698,579
210,000 Sit Money Market Fund,
5.18% (6) 210,000
-----------
Total short-term securities
(cost: $4,908,579) 4,908,579
-----------
Total investments in securities
(cost: $67,997,640) (7) $98,525,916
===========
See accompanying notes to portfolios of investments on page 31.
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND REVIEW
JUNE 30, 1997
[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, 1997, was +19.1%, which compares favorably to the MSCI Emerging
Markets Free Index return of +10.6%. The Fund's outperformance is attributable
mainly to the large gains achieved by the Latin American holdings which
accounted for 39% of the total portfolio assets, up from 28% a year ago. The
absence of South Africa, flat for the 12 month period, continued to benefit the
relative performance results. Although the Asian region's index declined -7%,
the Portfolio's heavy weightings in Hong Kong (7.2%) and Taiwan (5.9%) made
substantial positive contributions, as these markets rose +37% in the last 12
months.
During the quarter, the Fund's allocation to Asia Pacific decreased further
from 44.5% to 41.0%. The currency-related selling pressures began in Southeast
Asia in late June and spread very briefly into Latin America in the current
quarter. The governments' corrective policy measures, such as fiscal
contraction, high interest rates and tighter monetary policies, suggest a
slowdown in the economic growth rate and corporate profits in 1998 in most
Southeast Asian countries. The current portfolio holdings in Asia are in
companies with relatively strong financial conditions and should be able to
weather the ongoing currency volatility.
Despite the volatile international currency environment, the risk of a
significant devaluation in any of the major Latin American economies is limited
due to such improved fundamentals as: (I) lower current account deficits, (II)
more comfortable levels of international reserves, (III) the benefits from
active liability management, (IV) strong non-inflationary growth (V) significant
inflows of foreign direct investment, and (VI) rising flows to private pension
funds. In Latin America our weighting will remain at the current level (with
selective profit taking in fully valued shares). Our holdings continue to be
broadly diversified among major countries.
Although there are concerns with regard to the risk of higher bond yields
in the U.S., emerging markets should be less prone to severe market swings
because of the generally tighter fiscal policies and ample liquidity. Inflation
is ebbing while economic growth is stabilizing at a more manageable level. Given
the recent wide variance in emerging markets' performance, we envision the
remainder of 1997 will see a recovery in the depressed 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 6/30/97: $13.04 Per Share
6/30/96: $10.95 Per Share
Total Net Assets: $16.79 Million
PORTFOLIO STRUCTURE - BY REGION
(% of total net assets)
[BAR CHART]
SIT DEVELOPING MARKETS MSCI EMERGING
GROWTH FUND MARKETS FREE INDEX
Asia 41.0 45.1
Latin America 38.7 35.1
Africa/Middle East 6.3 12.8
Europe 4.8 7.0
Other Assets
& Liabilities 9.2 N/A
<PAGE>
<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 12.32% 7.68% 8.56% 12.32% 7.68% 8.56%
(unannualized)
1 Year 19.09 10.59 16.12 19.09 10.59 16.12
Inception 9.48 4.96 7.99 31.21 15.64 25.96
(7/1/94)
</TABLE>
* As of 6/30/97
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.
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
Utilities 36.0
Consumer
Non-Durables 12.5
Financial 10.8
Retail 10.0
Technology 8.2
Health Care 3.6
Consumer
Services 2.8
Capital Goods 2.7
Multi-Industry 2.2
Shelter 2.0
Other Assets
& Liabilities 9.2
GROWTH OF $10,000
[PLOT POINTS GRAPH]
The sum of $10,000 invested at inception (7/1/94) and held until 6/30/97 would
have grown to $13,121 in the Fund or $11,564 in the Morgan Stanley Capital Int'l
Emerging Markets Free Index assuming reinvestment of all dividends and capital
gains.
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1997
10 LARGEST HOLDINGS
* Datacraft Asia Ltd.
* Panamerican Beverage, Inc.
* Telebras, A.D.R.
* Grupo Casa Autrey, A.D.R.
* Nice Systems, A.D.R.
* Enersis, A.D.R.
* Disco S.A., A.D.R.
* Laboratorio Chile, A.D.R.
* PT Ramayana Lestari
* President Enterprises, G.D.S.
Total number of holdings: 56
QUANTITY NAME OF ISSUER MARKET VALUE(1)
COMMON & PREFERRED STOCKS (90.8%)(2)
AFRICA/ MIDDLE EAST (6.3%)
ISRAEL (6.3%)
14,700 Home Centers, A.D.R.
(Retail) (3)(5) $ 84,525
15,100 Nice Systems Ltd., A.D.R.
(Utilities) (3) 453,000
14,000 Tadiran Telecom, A.D.R.
(Utilities) (3) 301,875
3,400 Teva Pharmaceutical, A.D.R.
(Health Care) 220,150
-----------
1,059,550
-----------
ASIA (41.0%)
HONG KONG (7.2%)
42,000 Citic Pacific Ltd.
(Utilities) 262,388
15,000 Henderson Land Dev. (Shelter) 133,111
108,000 Hong Kong & China Gas
(Utilities) 216,075
10,400 HSBC Holdings (Financial) 312,780
32,500 Hutchison Whampoa (Multi-
Industry) 281,066
-----------
1,205,420
-----------
INDONESIA (5.4%)
272,000 PT Dynaplast (Consumer
Non-Durables) (5) $246,053
129,000 PT Ramayana Lestari\
(Retail)(3) 371,299
182,000 PT Telekomunikasi Local
(Utilities) 297,471
-----------
914,823
-----------
KOREA (3.6%)
10,500 Korea Electric Power
(Utilities) (3) 313,345
390 Korea Mobile Telecom
(Telecommunications) 297,050
-----------
610,395
-----------
MALAYSIA (4.7%)
22,000 Amway Malaysia (Consumer
Non-Durables) 130,745
57,000 RHB Capital Berhad (Financial
Services) 176,149
44,000 IJM Berhad Corp. (Capital
Goods) 92,393
50,600 Malaysian Assurance Alliance
(Financial) 294,699
27,000 Sime Darby Berhad
(Multi-Industry) 89,857
-----------
783,843
-----------
PHILIPPINES (2.1%)
44,306 Ayala Land 'B' (Shelter) 40,735
20,300 Benpres Holdings Corp.,
G.D.R. (Consumer Services) 142,100
6,494 Manila Electric Company
(Utilities) 32,005
2,100 Philippine Long Distance,
A.D.R. (Utilities) 134,925
-----------
349,765
-----------
SINGAPORE (10.3%)
17,200 City Developments (Shelter) 168,427
99,000 Clipsal Industries
(Capital Goods) (4) 350,460
234,000 Datacraft Asia Ltd.
(Technology) 744,120
544,000 Informatics Holdings
(Consumer Services) (3) 325,327
14,000 United Overseas Bank
(Financial) 143,946
-----------
1,732,280
-----------
TAIWAN (5.9%)
17,354 President Enterprises, G.D.S.
(Consumer Non-Durables)
(3)(4) 351,427
14,700 Synnex, G.D.R. (Technology)
(3)(4) 330,750
15,780 Yageo, G.D.R. (Technology)(3) 309,604
-----------
991,781
-----------
THAILAND (1.8%)
32,400 Advanced Info Services
(Technology) 294,072
-----------
<PAGE>
QUANTITY NAME OF ISSUER MARKET VALUE(1)
EUROPE (4.8%)
POLAND (0.2%)
141,000 Pan Smak Pizza (Consumer
Non-Durables) (3)(5) $32,673
PORTUGAL (4.6%)
13,800 Espirito Santo, A.D.R.
(Financial) 274,275
7,100 Portugal Telecom, A.D.R.
(Utilities) 284,887
1,500 Telecel Comunicasoes Pessoais,
S.A. (Utilities) (3) 124,439
1,000 Telecel, A.D.S. (Utilities)
(3)(4) 82,900
-----------
766,501
-----------
LATIN AMERICA (38.7%)
ARGENTINA (4.1%)
10,200 Disco S.A., A.D.R. (Retail) (3)404,175
8,500 Telefonica De Argentina,
A.D.R.
(Telecommunications) 294,312
-----------
698,487
-----------
BRAZIL (11.2%)
383,000 Brahma (Preferred) (Consumer
Non-Durables) 291,728
8,700,000 Pao De Acucar (Retail) 197,994
4,580 Cemig, A.D.R. (Utilities) (4) 234,725
630,000 Light (ON) (Utilities) 313,517
3,600 Telebras, A.D.R. (Utilities) 546,300
2,250,000 Telecom Brasileiras, S.A.
(Utilities) 305,141
-----------
1,889,405
-----------
CHILE (8.2%)
8,500 Compania Telecom Chile, A.D.R.
(Utilities) 280,500
12,200 Enersis, A.D.R.(Utilities) 433,862
13,400 Laboratorio Chile, A.D.R.
(Health Care) 380,225
8,700 Santa Isabel, A.D.S. (Retail) 280,575
-----------
1,375,162
-----------
MEXICO (8.3%)
24,200 Grupo Casa Autrey, A.D.R.
(Consumer Non-Durables) 491,562
15,300 Grupo Elektra S.A., A.D.R.
(Retail) 336,600
17,000 Panamerican Beverage, Inc.
(Consumer Non-Durables) 558,875
-----------
1,387,037
-----------
PANAMA (1.8%)
7,100 Banco Latinoamericano
(Financial) 306,188
-----------
QUANTITY/PAR ($) NAME OF ISSUER MARKET VALUE(1)
PERU (5.1%)
14,040 Credicorp, A.D.R. (Financial) $308,880
166,665 Luz Del Sur (Utilities) (3) 195,411
13,300 Telefonica Del Peru, A.D.R.
(Utilities) (3) 348,294
-----------
852,585
-----------
Total common and preferred stocks
(cost: $11,691,478) 15,249,967
-----------
SHORT-TERM SECURITIES (10.5%) (2)
658,000 Ford Motor Credit,
5.38%, 7/2/97 657,898
517,000 General Motors Accept. Corp.,
5.25%, 7/1/97 517,000
587,000 Household Finance Corp.,
5.58%, 7/3/97 586,818
-----------
Total short-term securities
(cost $1,761,716) 1,761,716
-----------
Total investments in securities
(cost $13,453,194) (7) $17,011,683
===========
See accompanying notes to portfolios of investments on page 31.
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
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, 1997, is
$363,251 and $101,925 in Developing Markets Growth Fund and International
Growth Fund, respectively, which represents 2.2% and 0.1% of the Fund's net
assets, respectively. The following table summarizes the purchase date(s)
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 Home Centers, A.D.R. 2/28/96 - 3/29/96 14,700 $101,763
Developing Markets Growth Fund Pan Smak Pizza 12/22/95 - 8/19/96 141,000 87,065
Developing Markets Growth Fund PT Dynaplast 1/17/96 - 1/19/97 272,000 184,582
International Growth Fund Concordia Paper, A.D.R. 3/30/95 - 10/10/95 30,200 358,287
</TABLE>
(6) This security represents an investment in an affiliated party and comprises
1.2%, .2%, and .2% of the Small Cap Growth, International Growth, and Mid
Cap Growth Fund's net assets, respectively. See note 3 to the accompanying
financial statements.
(7) At June 30, 1997, 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>
LARGE CAP MID CAP SMALL CAP
GROWTH GROWTH GROWTH
FUND FUND FUND
----------- ------------ -----------
<S> <C> <C> <C>
Cost for federal income tax purposes $43,924,631 $247,290,768 $45,333,192
=========== ============ ===========
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $27,727,780 $151,443,775 $15,909,221
Gross unrealized depreciation (113,736) (10,155,403) (3,020,726)
----------- ------------ -----------
Net unrealized appreciation $27,614,044 $141,288,372 $12,888,495
=========== ============ ===========
DEVELOPING
INTERNATIONAL MARKETS
BALANCED GROWTH GROWTH
FUND FUND FUND
----------- ------------ -----------
Cost for federal income tax purposes $3,717,542 $69,107,112 $13,453,194
========== =========== ===========
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $1,256,124 $30,121,348 $3,796,068
Gross unrealized depreciation (15,385) (702,544) (237,579)
---------- ----------- ----------
Net unrealized appreciation $1,240,739 $29,418,804 $3,558,489
========== =========== ==========
</TABLE>
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF ASSETS & LIABILITIES - JUNE 30, 1997
<TABLE>
<CAPTION>
DEVELOPING
LARGE CAP MID CAP SMALL CAP INTERNATIONAL MARKETS
GROWTH GROWTH GROWTH BALANCED GROWTH GROWTH
FUND FUND FUND FUND FUND FUND
----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at
identified cost .................. $43,911,046 $246,696,767 $45,066,359 $ 3,716,793 $ 67,997,640 $13,453,194
=========== ============ =========== =========== ============ ===========
Investments in securities, at
market value - see
accompanying schedule for
detail ........................... $71,538,675 $388,579,140 $58,221,687 $ 4,958,281 $ 98,525,916 $17,011,683
Cash in bank on demand
deposit .......................... -- -- 621 174,560 -- --
Other Receivables:
Dividends and accrued interest ... 56,714 170,963 3,438 22,524 179,921 61,000
Fund shares sold ................. 257,155 712,876 720,100 1,373 640,994 74,600
Investment securities sold ....... 440,541 -- 224,518 23,091 952,928 104,619
Forward currency contracts,
net (note 1) ................... -- -- -- -- 798,103 --
Foreign withholding taxes
receivable ..................... -- -- -- -- 67,646 16,918
----------- ------------ ----------- ----------- ------------ -----------
Total assets ................. 72,293,085 389,462,979 59,170,364 5,179,829 101,165,508 17,268,820
----------- ------------ ----------- ----------- ------------ -----------
LIABILITIES
Disbursements in excess
of cash balances ................. 8,474 67,704 -- -- 63,741 4,884
Payables:
Investment securities purchased .. -- -- 187,240 72,520 800,280 326,781
Fund shares redeemed ............. -- 2,539,278 555,614 -- 878,362 111,545
Accrued investment management
and advisory services fee ...... 58,002 312,687 69,552 4,146 118,817 26,466
Foreign withholding taxes payable . -- -- -- -- 23,073 10,088
Other payables .................... 232 522 66 -- 2,131 --
----------- ------------ ----------- ----------- ------------ -----------
Total liabilities ............ 66,708 2,920,191 812,472 76,666 1,886,404 479,764
=========== ============ =========== =========== ============ ===========
Net assets applicable to
outstanding capital stock ........ $72,226,377 $386,542,788 $58,357,892 $ 5,103,163 $ 99,279,104 $16,789,056
=========== ============ =========== =========== ============ ===========
Capital stock
Par .............................. $ 0.001 $ 0.001 $ 0.001 $ 0.001 $ 0.001 $ 0.001
Authorized shares (000's) .......... 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
Outstanding shares ................. 1,788,115 25,054,968 3,088,599 341,882 5,346,430 1,287,834
=========== ============ =========== =========== ============ ===========
Net asset value per share of
outstanding capital stock ........ $ 40.39 $ 15.43 $ 18.89 $ 14.93 $ 18.57 $ 13.04
=========== ============ =========== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements on pages 36-47.
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF OPERATIONS - YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
DEVELOPING
LARGE CAP MID CAP SMALL CAP INTERNATIONAL MARKETS
GROWTH GROWTH GROWTH BALANCED GROWTH GROWTH
FUND FUND FUND FUND FUND FUND
------------ ------------ ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends* .......................... $ 520,871 $ 1,295,767 $ 97,445 $ 33,984 $ 1,166,269 $ 207,665
Interest ............................ 192,232 1,334,117 274,903 120,155 190,038 58,795
------------ ------------ ----------- --------- ------------ -----------
Total income ..................... 713,103 2,629,884 372,348 154,139 1,356,307 266,460
------------ ------------ ----------- --------- ------------ -----------
EXPENSES (NOTE 3):
Investment management and
advisory services fee ............ 595,823 3,757,126 807,030 44,340 1,620,463 229,821
Custodian, transfer agent
and accounting services fees ..... 7,216 150,574 -- -- -- --
Auditing and legal fees ............. 22,992 10,153 -- -- -- --
Printing costs ...................... 2,213 15,124 -- -- -- --
Postage ............................. 974 5,275 -- -- -- --
Registration fees ................... 11,422 25,827 -- -- -- --
Directors' fees and expenses ........ 3,151 3,151 -- -- -- --
Other ............................... 3,518 7,896 -- -- -- --
------------ ------------ ----------- --------- ------------ -----------
Total expenses ................... 647,309 3,975,126 807,030 44,340 1,620,463 229,821
Less fees and expenses absorbed
by investment adviser ......... (50,548) (609,840) -- -- (306,575) --
------------ ------------ ----------- --------- ------------ -----------
Total net expenses ............... 596,761 3,365,286 807,030 44,340 1,313,888 229,821
------------ ------------ ----------- --------- ------------ -----------
Net investment income (loss) ..... 116,342 (735,402) (434,682) 109,799 42,419 36,639
------------ ------------ ----------- --------- ------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS :
Net realized gain (loss) (note 2) ... 5,023,320 28,436,883 (912,902) 200,106 1,640,159 76,993
Net change in unrealized appreciation
(depreciation) on investments .... 12,065,384 31,494,086 3,290,336 608,673 11,953,639 2,344,576
Realized loss on foreign
currency transactions ............ 27 -- -- (1) (160,526) (22,737)
Net change in unrealized appreciation
(depreciation) on foreign currency
transactions ..................... (79) -- -- -- 806,608 (1,147)
------------ ------------ ----------- --------- ------------ -----------
Net gain on investments .......... 17,088,652 59,930,969 2,377,434 808,778 14,239,880 2,397,685
------------ ------------ ----------- --------- ------------ -----------
Net increase in net assets
resulting from operations ............. $ 17,204,994 $ 59,195,567 $ 1,942,752 $ 918,577 $ 14,282,299 $ 2,434,324
============ ============ =========== ========= ============ ===========
</TABLE>
* Dividends are net of foreign withholding tax of $17,120 and $129,669 in the
Developing Markets Growth Fund and International Growth Fund, respectively.
See accompanying notes to financial statements on pages 36-47.
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LARGE CAP MID CAP
GROWTH FUND GROWTH FUND
------------------------------ -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........................ $ 116,342 $ 68,160 $ (735,402) $ (831,547)
Net realized gain (loss) on investments ............. 5,023,320 5,081,899 28,436,883 68,471,876
Net change in unrealized appreciation
(depreciation) on investments ..................... 12,065,384 5,103,022 31,494,086 34,843,137
Net realized gain (loss) on foreign currency
transactions ...................................... 27 (1) -- --
Net change in unrealized appreciation (depreciation)
on foreign currency transactions .................. (79) (4) -- --
------------ ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations .................................. 17,204,994 10,253,076 59,195,567 102,483,466
------------ ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................... (47,000) (68,302) -- (50,975)
Net realized gains on investments ................... (3,850,001) (3,279,734) (59,500,008) (35,900,021)
------------ ------------- ------------- -------------
Total distributions ............................... (3,897,001) (3,348,036) (59,500,008) (35,950,996)
------------ ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ........................... 16,419,829 8,919,140 242,840,720 94,477,676
Reinvested distributions ............................ 3,811,428 3,266,526 56,948,223 34,550,208
Payments for shares redeemed ........................ (14,329,400) (11,285,026) (269,258,711) (167,122,012)
------------ ------------- ------------- -------------
Increase (decrease) in net assets from
capital share transactions ....................... 5,901,857 900,640 30,530,232 38,094,128
------------ ------------- ------------- -------------
Total increase in net assets ..................... 19,209,850 7,805,680 30,225,791 28,438,342
NET ASSETS
Beginning of period ................................. 53,016,527 45,210,847 356,316,997 327,878,655
------------ ------------- ------------- -------------
End of period ....................................... $ 72,226,377 $ 53,016,527 $ 386,542,788 $ 356,316,997
============ ============= ============= =============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ............. $ 40,176,552 $ 34,274,698 $ 222,157,482 $ 192,362,652
Undistributed (distributions in excess of) net
investment income .................................. 99,517 30,175 -- --
Accumulated net realized gain (loss) from
security transactions and foreign
currency transactions .............................. 4,322,762 3,149,416 22,502,933 53,566,058
Unrealized appreciation (depreciation) on investments 27,627,629 15,562,242 141,882,373 110,388,287
Unrealized appreciation (depreciation) on foreign
currency transactions .............................. (83) (4) -- --
------------ ------------- ------------- -------------
$ 72,226,377 $ 53,016,527 $ 386,542,788 $ 356,316,997
============ ============= ============= =============
CAPITAL TRANSACTIONS IN SHARES:
Sold ................................................ 464,406 290,926 16,372,618 6,311,934
Reinvested distributions ............................ 114,020 112,216 3,987,971 2,607,555
Redeemed ............................................ (408,921) (377,404) (18,171,415) (11,272,708)
------------ ------------- ------------- -------------
Net increase (decrease) ................................ 169,505 25,738 2,189,174 2,353,219
------------ ------------- ------------- -------------
</TABLE>
<PAGE>
[WIDE TABLE CONTINUED FROM PREVIOUS PAGE]
<TABLE>
<CAPTION>
SMALL CAP BALANCED INTERNATIONAL DEVELOPING MARKETS
GROWTH FUND FUND GROWTH FUND GROWTH 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,
1997 1996 1997 1996 1997 1996 1997 1996
- ------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (434,682) $ 289,348 $ 109,799 $ 91,159 $ 42,419 $ 101,450 $ 36,639 $ 3,567
(912,902) 2,792,536 200,106 76,955 1,640,159 5,630,000 76,993 (111,020)
3,290,336 7,785,867 608,673 358,571 11,953,639 1,920,031 2,344,576 1,161,148
-- -- (1) -- (160,526) (24,337) (22,737) (3,915)
-- -- -- -- 806,608 (13,980) (1,147) (253)
- ------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
1,942,752 10,289,055 918,577 526,685 14,282,299 7,613,164 2,434,324 1,049,527
- ------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
-- -- (105,900) (80,680) (72,156) (390,572) -- (413)
(2,420,001) (250,045) (23,900) -- (2,161,979) (3,758,362) -- (5,518)
- ------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
(2,420,001) (250,045) (129,800) (80,680) (2,234,135) (4,148,934) -- (5,931)
- ------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
73,008,089 35,164,082 735,329 1,430,436 61,912,441 29,862,086 11,729,661 4,847,931
2,389,614 246,163 129,753 78,415 2,104,203 3,946,122 -- 5,758
(67,408,659) (6,618,421) (612,558) (337,378) (65,498,487) (16,684,601) (6,020,654) (1,869,993)
- ------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
7,989,044 28,791,824 252,524 (1,171,473) 1,481,843 17,123,607 5,709,007 2,983,696
- ------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
7,511,795 38,830,834 1,041,301 1,617,478 10,566,321 20,587,837 8,143,331 4,027,292
50,846,097 12,015,263 4,061,862 2,444,384 88,712,783 68,124,946 8,645,725 4,618,433
- ------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
$ 58,357,892 $ 50,846,097 $ 5,103,163 $ 4,061,862 $ 99,279,104 $ 88,712,783 $ 16,789,056 $ 8,645,725
============ ============ =========== =========== ============ ============ ============ ===========
$ 46,237,038 $ 38,682,676 $ 3,646,312 $ 3,393,788 $ 66,566,496 $ 68,048,339 $ 13,621,389 $ 7,912,382
-- -- 31,076 27,177 193,262 73,804 13,902 --
(1,034,474) 2,298,429 184,287 8,081 1,193,482 2,025,022 (403,311) (480,304)
13,155,328 9,864,992 1,241,488 632,816 30,528,276 18,574,638 3,558,489 1,213,913
-- -- -- -- 797,588 (9,020) (1,413) (266)
- ------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
$ 58,357,892 $ 50,846,097 $ 5,103,163 $ 4,061,862 $ 99,279,104 $ 88,712,783 $ 16,789,056 $ 8,645,725
============ ============ =========== =========== ============ ============ ============ ===========
4,089,297 2,120,150 54,438 122,024 3,718,121 1,891,318 1,020,359 486,886
130,938 15,578 9,958 6,742 130,858 265,196 -- 630
(3,769,890) (387,897) (45,668) (27,962) (3,947,014) (1,047,893) (521,868) (189,064)
- ------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
450,345 1,747,831 18,728 100,804 (98,035) 1,108,621 498,491 298,452
============ ============ =========== =========== ============ ============ ============ ===========
</TABLE>
See accompanying notes to financial statements on pages 36-47.
<PAGE>
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.
On November 1, 1996 the Sit Growth Fund and Sit Growth & Income Fund
changed their names to Sit Mid Cap Growth Fund and Sit Large Cap Growth
Fund, respectively.
This report covers the equity funds of the Sit Mutual Funds. The investment
objective for each Fund is as follows:
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
---- --------------------
<S> <C>
Large Cap Growth Maximize long-term capital appreciation and, secondarily current income.
Mid Cap Growth Maximize long-term capital appreciation.
Small Cap Growth Maximize long-term capital appreciation.
Balanced Long-term capital appreciation consistent with the preservation of principal
and to provide regular income.
International Growth Maximize long-term capital appreciation.
Developing Markets Growth Maximize long-term capital appreciation.
</TABLE>
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, 1997, 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,
1997, was $363,251 and $101,925, representing 2.2% and 0.1% 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.
<PAGE>
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, 1997, the Developing Markets Growth Fund and International
Growth Fund had entered into foreign currency exchange contracts 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:
Developing Markets Growth Fund:
Exchange date Currency to be Currency to be Unrealized
delivered received appreciation
(depreciation)
July 1, 1997 91,226 52,747 $ 437
---------------------------------------------------------------------------
German Mark U.S. Dollar
July 2, 1997 91,226 52,838 528
German Mark U.S. Dollar
$ 965
--------
International Growth Fund:
Exchange date Currency to be Currency to be Unrealized
delivered received appreciation
(depreciation)
July 4, 1997 238,442 396,171 $ (918)
---------------------------------------------------------------------------
British Pound U.S.Dollar
July 7, 1997 141,892 235,754 (546)
British Pound U.S. Dollar
$(1,464)
-------
<PAGE>
As of June 30, 1997, the International Growth Fund had entered into an open
forward currency exchange contract with an exchange date of July 28, 1997.
The net unrealized appreciation of $798,103 for this contract is included
in the accompanying financial statements.
U.S. Dollar Value as of
June 30, 1997
-------------
Currency to be Delivered 18,625,400 German Marks $11,500,000
Currency to be Received 10,701,897 U.S. Dollars 10,701,897
-----------
Net Unrealized Appreciation $798,103
-----------
FEDERAL TAXES
The Funds' policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its taxable income to shareholders. Therefore, no income tax
provision is required. Also, in order to avoid the payment of any federal
excise taxes, the Funds will distribute substantially all of their net
investment income and net realized gains on a calendar year basis.
Net investment income and net realized gains may differ for financial
statement and tax purposes. The character of distributions made during the
year for net investment income or net realized gains may also differ from
its ultimate characterization for tax purposes. 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 Mid Cap
Growth Fund Growth Fund Growth Fund Growth Fund
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Undistributed net invest income (22,737) 434,682 149,195 735,402
Accumulated net realized gains (losses) 22,737 -- (149,195) --
Additional paid-in capital -- (434,682) -- (735,402)
</TABLE>
For federal income tax purposes the Developing Markets Growth Fund has a
capital loss carryover of $403,311 at June 30, 1997 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 the Balanced
Fund and declared and paid annually for Developing Markets Growth, Small
Cap Growth, International Growth, Mid Cap Growth, and Large Cap 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.
<PAGE>
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,
1997, were as follow:
Purchases Proceeds
--------- --------
Large Cap Growth Fund $18,610,953 $18,062,555
Mid Cap Growth Fund 123,170,430 141,462,600
Small Cap Growth Fund 32,596,895 28,510,031
Balanced Fund 2,657,028 2,448,872
International Growth Fund 35,006,468 37,562,370
Developing Markets Growth Fund 11,816,381 6,888,900
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:
Contractual Net of Adviser's
Management Voluntary Fee
Fee Waiver
----------- ----------------
Large Cap Growth Fund 1.00% 1.00%
Mid Cap Growth Fund 1.25% 1.00%
Small Cap Growth Fund 1.50% 1.50%
Balanced Fund 1.00% 1.00%
International Growth Fund 1.85% 1.50%
Developing Markets Growth Fund 2.00% 2.00%
SIA is obligated to pay all of the Funds' expenses (excluding extraordinary
expenses, stock transfer taxes, interest, brokerage commissions and other
transaction charges relating to investing activities).
For the period November 1, 1996, through June 30, 1998 the Adviser has
agreed to limit the management fee (and, thereby, all fund expenses, except
those not payable by the fund as set forth above) of the Mid Cap Growth
Fund to 1.00% of the Fund's average daily net assets. After June 30, 1998,
this voluntary fee waiver may be discontinued by the Adviser in its sole
discretion.
<PAGE>
For the period January 1, 1994 through December 31, 1997, the Adviser has
agreed to limit the management fee (and, thereby, all fund expenses, except
those not payable by the fund as set forth above) of the International
Growth Fund to 1.50% of the Fund's average daily net assets. After December
31, 1997, this voluntary fee waiver may be discontinued by the Adviser in
its sole discretion.
Prior to November 1, 1996, the Mid Cap Growth and Large Cap Growth Funds
bore 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 was obligated to pay all expenses (excluding stock transfer
taxes, interest, and brokerage commissions) in any fiscal year which
exceeded the following limitations:
First Over
$30 Million $30 Million
----------- -----------
Mid Cap Growth Fund 1.50% 1.00%
Large Cap Growth Fund 1.50% 1.00%
Under the agreements, SIA directly incurred and paid the above expenses
relating to the Mid Cap Growth and Large Cap Growth 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, 1997, for the International Growth, Mid
Cap Growth and Large Cap Growth Funds, SIA voluntarily absorbed an
additional $306,575, $609,840, and $50,548, respectively, in expenses that
were otherwise payable by the Funds.
As of June 30, 1997, the Small Cap Growth Fund, International Growth Fund,
and Mid Cap Growth Fund had invested $710,000, $210,000, and $880,000,
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 $656,142, were paid or payable to
SKI for the year ended June 30, 1997.
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,
1997:
% Shares
Shares Outstanding
------ -----------
Large Cap Growth Fund 373,136 20.87%
Mid Cap Growth Fund 2,880,856 11.50
Small Cap Growth Fund 933,946 30.24
Balanced Fund 121,679 35.59
International Growth Fund 984,375 18.41
Developing Markets Growth Fund 356,385 27.67
<PAGE>
Legal fees are paid by Mid Cap Growth and Large Cap Growth Funds to a law
firm of which the Funds' secretary is a partner. The total legal fees paid
by these Funds for the period ended June 30, 1997 were $3,419.
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:
<PAGE>
SIT LARGE CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $32.75 $28.38 $23.89 $25.61 $24.22
- -----------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .07 .04 .11 .23 .33
Net realized and unrealized gains
(losses) on investments 10.02 6.61 5.88 (.33) 1.94
- -----------------------------------------------------------------------------------------------------------------------
Total from operations 10.09 6.65 5.99 (.10) 2.27
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.03) (.04) (.09) (.23) (.34)
From realized gains (2.42) (2.24) (1.41) (1.39) (.54)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (2.45) (2.28) (1.50) (1.62) (.88)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $40.39 $32.75 $28.38 $23.89 $25.61
- -----------------------------------------------------------------------------------------------------------------------
Total investment return (1) 32.36% 24.48% 26.33% (0.58%) 9.52%
- -----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $72,226 $53,017 $45,211 $34,612 $37,602
RATIOS:
Expenses to average daily net assets 1.00%(2) 1.00%(2) 1.00%(2) 1.10%(2) 1.42%
Net investment income to average daily net assets 0.20%(2) 0.14%(2) 0.42%(2) 0.89%(2) 1.31%
Average brokerage commission rate (3) $0.0560 n/a n/a n/a n/a
Portfolio turnover rate (excluding short-term securities) 32.23% 49.99% 67.14% 73.62% 47.82%
</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, 1997, 1996, 1995 and 1994, the investment
adviser voluntarily absorbed $50,548, $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 1.08%, 1.23%, 1.35% and 1.40% for the years ended
June 30, 1997, 1996, 1995, and 1994 respectively, and the ratio of net
investment income(loss) to average daily net assets would have been 0.11%,
(.09%), 0.07%, and 0.59% respectively.
(3) Beginning in fiscal 1997, the fund is required to disclose an average
brokerage commission rate. This rate is calculated by dividing total
brokerage commissions paid on purchases and sales of portfolio securities
by the total number of related shares purchased and sold.
<PAGE>
SIT MID CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
Per share amounts prior to December 10, 1993 have been restated to reflect the 4
to 1 stock split.
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------------------------------
1997 1996 1995 1994 1993
============================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 15.58 $ 13.00 $ 11.08 $ 11.91 $ 10.52
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.03) (.04) -- (.01) .03
Net realized and unrealized gains
(losses) on investments 2.50 4.07 2.96 (.51) 1.43
- ----------------------------------------------------------------------------------------------------------------------------
Total from operations 2.47 4.03 2.96 (.52) 1.46
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- -- (.02) (.05)
From realized gains (2.62) (1.45) (1.04) (.29) (.02)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (2.62) (1.45) (1.04) (.31) (.07)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 15.43 $ 15.58 $ 13.00 $ 11.08 $ 11.91
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 17.23% 33.00% 28.44% (4.62%) 13.88%
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at end of year (000's omitted) $386,543 $356,317 $327,879 $285,175 $341,702
RATIOS:
Expenses to average daily net assets 0.92%(2) 0.77% 0.83% 0.82% 0.80%
Net investment income (loss) to average daily net assets (0.20%)(2) (0.23%) 0.02% (0.08%) 0.35%
Average brokerage commission rate (3) $0.0510 n/a n/a n/a n/a
Portfolio turnover rate (excluding short-term securities) 38.66% 50.38% 75.40% 46.71% 45.18%
</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) Effective November 1, 1996, total Fund expenses are contractually limited
to 1.25% of average daily net assets. However, during the year ended June
30, 1997, the investment adviser voluntarily absorbed $609,840 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
1.09% and the ratio of net investment income (loss) to average daily net
assets would have been (0.37%).
(3) Beginning in fiscal 1997, the fund is required to disclose an average
brokerage commission rate. This rate is calculated by dividing total
brokerage commissions paid on purchases and sales of portfolio securities
by the total number of related shares purchased and sold
<PAGE>
SIT SMALL CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------
1997 1996 1995
====================================================================================================
<S> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $19.27 $13.49 $10.00
- ----------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment loss (.14) (.11) (.02)
Net realized and unrealized gains
on investments .57 6.03 3.56
- ----------------------------------------------------------------------------------------------------
Total from operations .43 5.92 3.54
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From realized gains (.81) (.14) (.05)
- ----------------------------------------------------------------------------------------------------
Total distributions (.81) (.14) (.05)
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $18.89 $19.27 $13.49
- ----------------------------------------------------------------------------------------------------
Total investment return (1) 2.37% 44.13% 35.59%
- ----------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $58,358 $50,846 $12,015
RATIOS:
Expenses to average daily net assets 1.50% 1.50% 1.50%
Net investment income (loss) to average daily net assets (0.81%) (0.91%) (0.30%)
Average brokerage commission rate (2) $0.0480 n/a n/a
Portfolio turnover rate (excluding short-term securities) 58.39% 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.
(2) Beginning in fiscal 1997, the fund is required to disclose an average
brokerage commission rate. This rate is calculated by dividing total
brokerage commissions paid on purchases and sales of portfolio securities
by the total number of related shares purchased and sold.
<PAGE>
SIT BALANCED FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30, Period Ended
------------------------------------ June 30,
1997 1996 1995 1994 (1)
==================================================================================================================
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $12.57 $10.99 $ 9.48 $10.00
- ------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .33 .30 .28 .13
Net realized and unrealized gains
(losses) on investments 2.42 1.57 1.50 (.59)
- ------------------------------------------------------------------------------------------------------------------
Total from operations 2.75 1.87 1.78 (.46)
- ------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.32) (.29) (.27) (.06)
From realized gains (.07) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.39) (.29) (.27) (.06)
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $14.93 $12.57 $10.99 $ 9.48
- ------------------------------------------------------------------------------------------------------------------
Total investment return (2) 22.42% 17.26% 19.16% (4.56%)
- ------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $5,103 $4,062 $2,444 $1,296
RATIOS:
Expenses to average daily net assets 1.00% 1.00% 1.00% 1.00%(3)
Net investment income to average daily net assets 2.48% 2.61% 2.97% 2.87%(3)
Average brokerage commission rate (3) $0.0570 n/a n/a n/a
Portfolio turnover rate (excluding short-term securities) 38.16% 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) Beginning in fiscal 1997, the fund is required to disclose an average
brokerage commission rate. This rate is calculated by dividing total
brokerage commissions paid on purchases and sales of portfolio securities
by the total number of related shares purchased and sold.
<PAGE>
SIT INTERNATIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------------------
1997 1996 1995 1994 1993
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 16.29 $ 15.71 $ 14.87 $ 11.99 $ 10.70
- ------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) .01 .02 .09 (.04) (.03)
Net realized and unrealized gains
on investments 2.70 1.50 1.06 3.08 1.35
- ------------------------------------------------------------------------------------------------------------------------------
Total from operations 2.71 1.52 1.15 3.04 1.32
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.01) (.09) (.04) (.10) (.03)
From realized gains (.42) (.85) (.27) (.06) --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.43) (.94) (.31) (.16) (.03)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 18.57 $ 16.29 $ 15.71 $ 14.87 $ 11.99
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 17.04% 10.21% 7.86% 25.26% 12.37%
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $99,279 $88,712 $68,125 $63,699 $34,549
RATIOS:
Expenses to average daily net assets 1.50%(2) 1.50%(2) 1.50%(2) 1.65%(2) 1.85%
Net investment income (loss) to average daily net assets 0.05%(2) 0.13%(2) 0.62%(2) (0.16%)(2) (0.29%)
Average brokerage commission rate (3) $0.0060 n/a n/a n/a n/a
Portfolio turnover rate (excluding short-term securities) 41.59% 38.55% 40.42% 42.48% 52.50%
</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) Total Fund expenses are contractually limited to 1.85% of average daily net
assets. However, during the years ended June 30, 1997, 1996, 1995 and 1994,
the investment adviser voluntarily absorbed $306,575, $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,
1997, 1996, 1995 and 1994, and the ratio of net investment income (loss) to
average daily net assets would have been (0.30%), (0.22%), 0.27% and
(0.36%) respectively.
(3) Beginning in fiscal 1997, the fund is required to disclose an average
brokerage commission rate. This rate is calculated by dividing total
brokerage commissions paid on purchases and sales of portfolio securities
by the total number of related shares purchased and sold.
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------
1997 1996 1995
===================================================================================================
<S> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 10.95 $ 9.41 $ 10.00
- ---------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) .03 -- --
Net realized and unrealized gains
(losses) on investments 2.06 1.55 (.54)
- ---------------------------------------------------------------------------------------------------
Total from operations 2.09 1.55 (.54)
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From realized gains -- (.01) (.05)
- ---------------------------------------------------------------------------------------------------
Total distributions -- (.01) (.05)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 13.04 $ 10.95 $ 9.41
- ---------------------------------------------------------------------------------------------------
Total investment return (1) 19.09% 16.51% (5.44%)
- ---------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $16,789 $ 8,646 $ 4,618
RATIOS:
Expenses to average daily net assets 2.00% 2.00% 2.00%
Net investment income (loss) to average daily net assets 0.32% 0.06% 0.03%
Average brokerage commission rate (2) $0.0040 n/a n/a
Portfolio turnover rate (excluding short-term securities) 65.88% 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.
(2) Beginning in fiscal 1997, the fund is required to disclose an average
brokerage commission rate. This rate is calculated by dividing total
brokerage commissions paid on purchases and sales of portfolio securities
by the total number of related shares purchased and sold.
<PAGE>
SIT MUTUAL FUNDS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Sit Large Cap Growth Fund, Inc.
Sit Mid Cap Growth Fund, Inc.
Sit Mutual Funds, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of portfolios of investments in securities of Sit Large
Cap Growth Fund, Inc., Sit Mid Cap Growth Fund, Inc., Sit Small Cap Growth Fund
(a series of Sit Mutual Funds, Inc.), Sit Balanced Fund (a series of Sit Mutual
Funds, Inc.), Sit International Growth Fund (a series of Sit Mutual Funds,
Inc.), and Sit Developing Markets Growth Fund (a series of Sit Mutual Funds,
Inc.) as of June 30, 1997; the related statements of operations for the year
ended June 30, 1997; the statements of changes in net assets for each of the
years in the two-year period ended June 30, 1997; 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 Large Cap Growth Fund, Sit Mid Cap Growth Fund, Sit Small Cap
Growth Fund, Sit Balanced Fund, Sit International Growth Fund, and Sit
Developing Markets Growth Fund as of June 30, 1997 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 15, 1997
<PAGE>
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)
- --------------------- --------- -------
Large Cap Growth Fund
October 8, 1996 $0.01059 $0.00000
December 12, 1996 -- 2.41692
-------- --------
$0.01059 (c) $2.41692
======== ========
Mid Cap Growth Fund
December 12, 1996 $0.21333 (d) $2.40934
======== ========
Small Cap Growth Fund
December 12, 1996 $0.19863 (d) $0.60993
======== ========
Balanced Fund
October 8, 1996 $0.07073 $ --
December 12, 1996 0.07951 0.07309
April 8, 1997 0.09023 --
July 8, 1997 0.08925 --
-------- --------
$0.32972 (e) $0.07309
======== ========
International Growth Fund
December 12, 1996 $0.09514 (d) $0.33397
======== ========
(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, 100% qualifying for dividends-received
deduction by corporations.
(d) Taxable as dividend income and does not qualify for dividends-received
deduction by corporations.
(e) Taxable as dividend income, 26.69% qualifying for dividends-received
deduction by corporations.
<PAGE>
[LOGO]
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
Carla J. Rose Assistant Secretary
Debra A. Sit, CFA Assistant Treasurer
