STOCK FUNDS SEMI-ANNUAL REPORT
DECEMBER 31, 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 thirteen 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: HIGH GROWTH:
Safety of principal Increased income Long-term capital Long-term capital
and current income appreciation and income appreciation
MONEY MARKET BOND REGIONAL GROWTH DEVELOPING MARKETS GROWTH
MINNESOTA TAX-FREE INCOME LARGE CAP GROWTH SCIENCE AND TECHNOLOGY GROWTH
TAX-FREE INCOME BALANCED SMALL CAP GROWTH
U.S. GOVERNMENT SECURITIES INTERNATIONAL GROWTH
MID CAP GROWTH
</TABLE>
<PAGE>
SIT MUTUAL FUNDS
STOCK FUNDS SEMI-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......................................... 40
Results of the Shareholder Meeting........................... 46
This document must be preceded or accompanied by a Prospectus.
<PAGE>
SIT MUTUAL FUNDS
CHAIRMAN'S LETTER - DECEMBER 31, 1997
[PHOTO]
Dear Fellow Shareholders:
The year 1997 proved to be another year of strong financial asset returns in the
United States, continuing the trend of the previous two years. Surprisingly,
financial asset returns in the 1990s have come close to matching those of the
1980s, which were considered well above average at the time. Corporate earnings
growth was surprisingly strong and inflation decelerated throughout the year
helping drive interest rates lower. It was an extraordinary year.
Economic Overview
At the beginning of last year, the annual BUSINESS WEEK survey of leading
economists forecasted 1997 U.S. real GDP growth of +2.5%. Our own forecast was
+2.6%. Actual growth in 1997 was much stronger at +3.8% with extremely robust
real GDP growth of +4.9% for the first quarter and +4.3% for the fourth quarter.
For the year as a whole, the two strongest drivers of the better-than-expected
economy were consumer spending and nonresidential investment. The former
benefited from tightening labor conditions and strong personal income gains
while the latter was a function of healthy profit increases and a continuing
corporate desire to replace labor with capital. We believe that U.S. economic
growth is likely to slow in 1998 to +2.6%. The "wild card" continues to be
developments in Asia, including Japan, which are expected to dampen growth,
perhaps materially.
Also surprising was how inflation could remain subdued in the face of such
robust economic growth. We believe a major contributing factor is increased
global competition. Consumer price inflation in the major industrialized
countries is currently running around +2%, except for the U.K. The excess
capacity and severe currency devaluations in the Pacific Basin area will be
likely further sources of downward pricing pressure in 1998 that were not
present last year. Consumer price inflation is expected to remain low, averaging
+2.0% this year versus +2.2% in 1997, and deflation risks are being monitored
carefully. The United States' leading financial and competitive position should
result in sustained relative strength for the dollar.
With regard to monetary and fiscal policy, despite recurring short-term
pressures to tighten policy, the Federal Reserve remained essentially on
autopilot during 1997 after a small increase in rates in March. The onset of the
Asian economic problems in the second half of the year, accompanied by a sharp
stock market correction in October, tilted the balance toward neutrality and
inaction. The Federal Reserve has made very few policy moves during the past two
years but is likely to become more active in 1998 if deflation or inflation
risks gain prominence.
On many counts, 1997 was a watershed year for U.S. fiscal policy. Significant
changes promoting saving and investment were implemented in the Taxpayer Relief
Act, the federal deficit approached zero for the latest fiscal year ended
September 30th, and as many as 31 states, flush with surpluses, actually cut
taxes. A subject of probable focus this year will be meaningful tax reform,
particularly with the objective of simplification.
As we begin 1998, the Asian market volatility appears to be subsiding somewhat
as "maximum pessimism" is now pervasive, even though the worst economic news is
likely to be reported in the upcoming spring and summer months. Asian economic
growth is likely to slow substantially this year as the deleveraging effects and
financial stress brought on by devalued currencies affect bank lending, capital
project spending and corporate cash flows. Structural economic problems such as
overregulation will probably be addressed in order to restore public confidence.
Equity Strategy Summary
In my letter to you a year ago, I expressed a cautionary viewpoint toward the
broad stock market's potential in 1997, but remained enthusiastic about growth
stocks. Our cautious leaning stemmed from a variety of historical technical
studies that suggested the probability of achieving above-average returns in
equities had diminished significantly after two consecutive years of strong
gains.
<PAGE>
Instead, lower interest rates, coupled with satisfactory corporate earnings
gains, provided fundamental support for a further extension of stock prices.
As we examine the same data today, our conclusions about the stock market remain
very much the same as last year. The +31.2% 3-year annualized total return of
the S&P 500 through the end of 1997 was the strongest ever recorded. The
probability of continuing +30% annualized gains for large cap companies seems
extremely low, particularly given the Asian crisis.
With respect to growth stocks, despite the stock market's strong gain in 1997
and the more uncertain outlook for overall corporate profits, Sit Mutual Funds'
three domestic equity products appear favorably positioned. Supporting reasons
include:
1. Projected earnings growth rates for the companies in our portfolios
are being maintained at high levels;
2. Today's portfolios' projected earnings growth rates compare more
favorably than those for "the market"; and
3. Except for the Large Cap Growth Fund, valuations (i.e., Price/Earnings
ratios) on current year earnings are actually lower than they were a
year ago.
We have felt that smaller companies have possessed outstanding potential for
quite some time, and it appeared that they were beginning to catch up starting
in the second and third quarters of 1997. However, in the fourth quarter, large
caps roared ahead again due to Asian crisis fears and a shift in investors
preference back to bigger companies that were perceived as safer havens.
Intuitively, fast growing smaller companies with limited exposure to foreign
developments appear even more attractive in the current environment.
Interestingly, smaller companies' year-over-year earnings growth rates overtook
those of larger companies in the fourth quarter of 1997, a key fundamental
element in their favor. Generally low inflation suggests a very positive
investment environment, but we would be remiss to not remind investors to lower
their expectations in relation to the extraordinary returns earned over the past
three years.
Internationally, we expect Asian equity markets to experience some improvement,
but to remain volatile until currency stability brings about a restoration of
investor confidence and capital inflows, although several of these markets are
now very inexpensive relative to our expected future economic growth prospects.
Europe will continue to benefit from positive capital flows, based on the
perception of regional growth and stability as well as the likelihood that the
European Monetary Union will occur on time. In addition, corporate restructuring
remains a major investment theme. Most Latin American markets had strong
performance for the year. We expect positive performance again in 1998 based on
solid economic growth (except in Brazil) that is tied closely to that of the
U.S., and the continued implementation of sound fiscal and monetary policy from
lessons learned in the currency crisis of 1994. Privatization trends enhance our
positive view toward Latin America and provide additional investment
opportunities.
As always, thank you for your interest in Sit Mutual Funds. Be assured that all
of us at Sit Mutual Funds will work very hard to help you meet your investment
goals.
With best wishes,
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman & Chief Investment Officer
<PAGE>
SIT MUTUAL FUNDS
DECEMBER 31, 1997 PERFORMANCE REVIEW - STOCK FUNDS
STOCK FUNDS REVIEW
Financial asset returns during the fourth quarter and for all of 1997
varied considerably across geographic areas, investment styles, and
capitalization sizes. Domestically, large capitalization stocks outperformed
small cap stocks in 1997, though the two categories delivered very similar
returns over the year's second half. Small caps did better in the third quarter
driven by superior earnings growth, but large caps regained leadership in the
fourth quarter due to their perceived stability and liquidity in light of the
crisis in Asia and the October 27th market downdraft. The large cap S&P 500
returned +33.4% during 1997, +10.6% over the year's second half and +2.9% during
the fourth quarter. The S&P 400 MidCap Index advanced +32.3%, +17.1% and +0.8%
for the year, six months and quarter, respectively. The Russell 2000 Index
gained +22.4% for the year and +11.0% in the second half, but lost -3.4% in the
fourth quarter.
By investment style, value stocks outperformed growth stocks in 1997,
modestly so in the large cap classification, and significantly so in small caps.
The Russell 1000 Growth Index returned +30.5% versus +35.2% for its Value index
counterpart, while the small cap Russell 2000 Growth Index returned only +13.0%
which was 18.8 percentage points behind the Russell 2000 Value Index's +31.8%
return.
Results internationally were not as robust as those achieved domestically
with the Morgan Stanley EAFE Index up +1.8% and the MSCI Emerging Markets Free
Index down -13.4% for the year. The second half of the year was particularly
difficult with the former index down -8.5% and the latter a substantial -25.6%.
The benchmark returns mask extraordinary differences by region and by country.
In local currency terms, European OECD nations did well in 1997, for example,
Germany +37.3% and Italy +58.0%, but turmoil in Asia crushed returns in Thailand
- -64.3%, Indonesia -33.9%, Japan -19.7% and the rest of the region.
Please see the individual fund reports for comparative performance data.
1985 1986 1987
--------------------
SIT LARGE CAP GROWTH 23.48% 21.83% 5.32%
SIT MID CAP GROWTH 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>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------
5.33% 32.02% -2.37% 32.72% 4.94% 3.15% 2.83% 31.66% 23.05% 31.70%
9.77 35.15 -2.04 65.50 -2.14 8.55 -0.47 33.64 21.87 17.70
---- ---- ---- ---- ---- ---- 11.57(1) 52.16 14.97 7.63
---- ---- ---- ---- ---- ---- -0.33 25.43 15.80 21.73
---- ---- ---- 4.10(1) 2.69 48.37 -2.99 9.36 10.31 4.81
---- ---- ---- ---- ---- ---- -2.02(1) -4.29 17.27 -5.20
16.55 31.61 -3.05 30.46 7.64 10.07 1.32 37.58 22.96 33.36
20.87 35.55 -5.12 50.11 11.92 13.95 -3.60 30.94 19.19 32.29
-- -- -- -- -- -- 4.61 28.45 16.49 22.36
-- -- -- 0.26 -12.17 32.56 7.78 11.21 6.05 1.78
-- -- -- -- -- -- 2.80 -6.94 3.92 -13.40
AVERAGE ANNUAL TOTAL RETURNS FOR THE
TOTAL RETURN PERIODS ENDED DECEMBER 31, 1997
QUARTER SIX MONTHS SINCE
ENDED 12/31/97 ENDED 12/31/97 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- ------------------------------ --------------------------------------------
2.68% 9.82% 31.70% 28.74% 17.74% 15.65% 16.17%
-2.80 8.85 17.70 24.22 15.67 17.16 19.04
-9.68 5.00 7.63 23.48 ---- ---- 23.59
2.33 7.96 21.73 20.92 ---- ---- 15.21
-9.06 -7.16 4.81 8.13 12.72 ---- 11.39
-18.60 -20.54 -5.20 2.09 ---- ---- 1.20
2.87 10.58 33.36 31.15 20.27 18.04 18.40
0.83 17.05 32.29 27.34 17.80 19.47 19.01
-3.35 11.03 22.36 22.34 -- -- 20.38
-7.83 -8.48 1.78 6.27 11.39 -- 6.90
-17.84 -25.56 -13.40 -5.75 -- -- -4.19
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS.
<PAGE>
SIT LARGE CAP GROWTH FUND REVIEW
DECEMBER 31, 1997
[PHOTO]
PETER L. MITCHELSON, CFA
SENIOR PORTFOLIO MANAGER
RONALD D. SIT, CFA
PORTFOLIO MANAGER
The Sit Large Cap Growth Fund had strong performance for the last six
months and full calendar year 1997 increasing +9.82% and +31.70%, respectively.
The Fund's performance was also favorable compared with its two growth
benchmarks. (See table of Average Annual Total Returns.) Of the Growth and
Income Funds tracked by Lipper Analytical Services, the Sit Large Cap Growth
Fund ranked in the 17th percentile for the calendar 1997 year and in the 24th
percentile for the last three years out of 624 and 402 funds, respectively.
During 1997, we maintained generally low cash reserve levels allowing us to
actively participate in the robust stock market environment. Until 1997, the Dow
Jones Industrial Average had never achieved three successive years of +20%
returns in its 101-year history. As of December 31, 1997, cash reserve levels
were 4.0%, down from the 6.7% level at June 30. Total dividends paid in 1997
were approximately $4.24 per share, of which $4.16 per share were long-term
capital gains.
Sector weightings changed only modestly in the last six months. Weighting
increases included financial services, retail, and consumer services. In the
financial services area we initiated positions in the Equitable Companies and
St. Paul Companies; in the retail area we initiated a position in Dayton Hudson;
and in consumer services we added Time Warner and CBS. Weighting declines
included consumer non-durables, health care,and utilities where we sold Campbell
Soup, Johnson & Johnson, Oxford Health, and MCI Communications. The traditional
growth areas of technology, health care, and financial services remain our three
most heavily weighted sectors.
With the exception of comparisons with interest rates, most equity
valuation measures are more expensive today than they were a year ago, leading
us to expect more modest returns in the periods ahead. The equity investments in
the Sit Large Cap Growth Fund continue to possess strong relative earnings
growth. As of the end of December, the average 1998 earnings gain projected for
the companies held in the Fund is +19.5%, which is significantly greater than
the expected earnings increase of the broad stock market.
Assets in the Fund experienced strong growth in 1997. We appreciated
greatly shareholders' interest and participation in the Fund.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Large Cap Growth Fund is to maximize long-term capital
appreciation. The Fund pursues this objective by investing primarily in common
stocks of growth companies with a capitalization of over $5 billion at the time
of purchase.
PORTFOLIO SUMMARY
Net Asset Value 12/31/97: $ 40.04 Per Share
6/30/97: $ 40.39 Per Share
Total Net Assets: $ 81.31 Million
TOTAL DIVIDEND: $ 4.24 PER SHARE
Long-Term Capital Gain: $ 4.16 Per Share
Short-Term Capital Gain: $ 0.01 Per Share
Ordinary Income: $ 0.07 Per Share
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Technology 19.1
Financial 18.8
Health Care 16.6
Retail 8.4
Consumer Non-Durables 8.0
Capital Goods 6.0
Consumer Services 6.0
Energy 5.5
Business Equip. & Services 5.0
Raw Materials 1.2
Consumer Durables 0.8
Multi-Industry 0.6
Cash Equivalents 4.0
<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 2.68% 1.52% 2.87% 2.68% 1.52% 2.87%
(unannualized)
1 Year 31.70 30.48 33.36 31.70 30.48 33.36
5 Years** 17.74 18.41 20.27 126.30 132.81 151.61
10 Years** 15.65 17.94 18.04 327.87 420.56 425.35
Inception** 16.17 17.56 18.40 896.99 1097.00 1233.77
(9/2/82)
</TABLE>
* As of 12/31/97 ** 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.
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE S&P 500 AND RUSSELL 1000
GROWTH INDICES. LIPPER ANALYTICAL SERVICES, INC. IS A LARGE INDEPENDENT
EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS GRAPH]
The sum of $10,000 invested at inception (9/2/82) and held until 12/31/97 would
have grown to $99,699 in the Fund and $133,377 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains. 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.
10 LARGEST HOLDINGS
* General Electric Co.
* Mercury General Corp.
* Pfizer, Inc.
* Cisco Systems, Inc.
* Warner Lambert Corp.
* Norwest Corp.
* Schlumberger, Ltd.
* Intel Corp.
* Coca Cola Co.
* Airtouch Communications, Inc.
Total number of holdings: 68
<PAGE>
SIT LARGE CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1997 (UNAUDITED)
- -------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------
COMMON STOCKS (96.0%) (2)
BUSINESS EQUIPMENT & SERVICES (5.0%)
30,000 Ceridian Corp. (3) $1,374,375
7,500 Computer Sciences Corp. (3) 619,219
18,000 Danka Business Systems p.l.c,
A.D.R. 286,875
20,250 Paychex, Inc. 1,025,156
10,000 Xerox Corp. 738,125
---------
4,043,750
---------
CAPITAL GOODS (6.0%)
41,000 General Electric Co. 3,008,375
10,000 Owens Corning Corp. 341,250
14,000 Sundstrand Corp. 700,000
19,000 Tyco International Ltd. 856,188
---------
4,905,813
---------
CONSUMER DURABLES (0.8%)
24,000 Harley-Davidson, Inc. 657,000
---------
CONSUMER NON-DURABLES (8.0%)
27,000 Coca Cola Co. 1,798,875
15,000 Gillette Co. (The) 1,506,562
35,000 Philip Morris Cos., Inc. 1,585,937
20,000 Proctor & Gamble Co. 1,596,250
---------
6,487,624
---------
CONSUMER SERVICES (6.0%)
27,000 CBS Co. 794,813
48,000 Cendant Co. (3) 1,650,000
21,000 Marriot International, Inc. 1,454,250
16,000 Time Warner Inc. 992,000
---------
4,891,063
---------
ENERGY (5.5%)
15,464 British Petroleum Co., p.l.c,
A.D.R. 1,232,288
19,500 Dresser Industries, Inc. 817,781
23,000 Schlumberger Ltd. 1,851,500
12,000 Transocean Offshore, Inc. 578,250
---------
4,479,819
---------
FINANCIAL (18.8%)
BANKING (5.0%)
7,000 Chase Manhattan Corp. 766,500
9,500 Citicorp 1,201,156
55,000 Norwest Corp. 2,124,375
---------
4,092,031
---------
FINANCIAL SERVICES (2.6%)
22,000 Federal Home Loan Mortgage
Corp. 922,625
13,500 Franklin Resources, Inc. 1,173,656
---------
2,096,281
---------
INSURANCE (11.2%)
10,000 Allstate Corp. 908,750
15,000 American International Group,
Inc. 1,631,250
14,000 Equitable Companies, Inc. 698,250
18,500 EXEL Ltd. 1,172,437
53,000 Mercury General Corp. 2,928,250
13,000 MGIC Investment Corp. 864,500
10,500 St. Paul Companies, Inc. 861,656
---------
9,065,093
---------
HEALTH CARE (16.6%)
BIOTECHNOLOGY/ PHARMACEUTICALS (10.5%)
15,500 Amgen, Inc. (3) 838,938
5,000 Bristol-Myers Squibb Co. 473,125
22,500 Lilly Eli & Co. 1,566,562
33,500 Pfizer, Inc. 2,497,844
17,500 Smithkline Beecham, A.D.R. 900,156
18,500 Warner Lambert Corp. 2,294,000
---------
8,570,625
---------
MEDICAL EQUIPMENT/ SUPPLIES (2.1%)
19,500 Medtronic, Inc. 1,020,094
17,500 Stryker Corp. 651,875
---------
1,671,969
---------
MEDICAL FACILITIES MANAGEMENT (4.0%)
34,500 HBO & Co. 1,656,000
46,000 HEALTHSOUTH Rehabilitation
Corp. (3) 1,276,500
14,000 Medpartners, Inc. (3) 313,250
---------
3,245,750
---------
MULTI-INDUSTRY (0.6%)
19,000 Whitman Corp. 495,188
---------
RAW MATERIALS (1.2%)
23,000 Monsanto Co. 966,000
---------
RETAIL (8.4%)
19,000 Dayton Hudson Corp. 1,282,500
28,500 Federated Department Stores,
Inc. (3) 1,227,281
28,500 Gap, Inc. 1,009,969
27,750 Home Depot, Inc. (The) 1,625,109
12,500 Kohl's Corp. (3) 851,563
27,500 Walgreen Co. 862,813
---------
6,859,235
---------
TECHNOLOGY (19.1%)
AEROSPACE/ DEFENSE (1.2%)
20,500 Boeing Company 1,003,219
---------
COMPUTER RELATED (3.4%)
20,000 Atmel Corp. (3) 371,250
42,750 Cisco Systems, Inc. (3) 2,383,312
---------
2,754,562
---------
<PAGE>
- -------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------
COMPUTER SOFTWARE/ SERVICES (6.3%)
14,250 Computer Associates
International, Inc. $753,469
12,500 Microsoft Corp. (3) 1,615,625
22,000 Parametric Technology
Co. (3) 1,042,250
28,000 Peoplesoft Inc. (3) 1,092,000
6,000 SAP, A.D.S. (4) 646,125
---------
5,149,469
---------
SEMICONDUCTORS & RELATED (3.3%)
25,700 Intel Corp. 1,805,425
9,500 National Semiconductor Co. (3) 246,406
13,000 Texas Instruments, Inc. 585,000
---------
2,636,831
---------
TELECOMMUNICATIONS & EQUIPMENT (4.9%)
43,000 Airtouch Communications,
Inc. (3) 1,787,187
20,500 Ascend Communications,
Inc. (3) 502,250
7,500 Ciena Corp. (3) 458,438
23,000 Tellabs, Inc. (3) 1,216,125
---------
3,964,000
---------
Total common stocks
(cost: $48,538,076) 78,035,322
----------
SHORT-TERM SECURITIES (3.3%)(2)
1,664,000 General Motors Accept. Corp.,
5.70%, 1/2/98 1,663,737
1,045,000 Chevron Oil USA, Inc.,
6.00%, 1/5/98 1,044,303
---------
Total short-term securities
(cost: $2,708,040) 2,708,040
---------
Total investments in securities
(cost: $51,246,116) (7) $80,743,362
===========
See accompanying notes to portfolios of investments on page 31.
<PAGE>
SIT MID CAP GROWTH FUND REVIEW
DECEMBER 31, 1997
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
ERIK S. ANDERSON, CFA
PORTFOLIO MANAGER
Driven by declining interest rates and industry consolidation, the
financial sector was the most rewarding area for mid cap investors during 1997.
The Sit Mid Cap Growth Fund capitalized on this strength as financial stocks
were the second most heavily weighted sector as we entered the year.
Mid-capitalization financial stocks in general returned +44.2% for the year,
while stocks in the Fund returned in excess of +63.2%. Additionally, an average
weighting in the sector over the year at 22% of assets compared favorably
vis-a-vis the 8% weight in the Russell MidCap Growth Index. Strength was broad
ranging with high returns from banks such as TCF Financial, insurers including
Mercury General, and asset manager T. Rowe Price. Transportation stocks were
another area of strength. After several years of excellent performance,
technology stocks paused during the second half of 1997. The broad sector
returns were mediocre, as the average mid cap technology stock returned only
+4.5% during the year. Winning stocks in the fund included Peoplesoft, Inc. +63%
and Baan Company +90%, but these were more than offset by challenging periods
for Electronics for Imaging and 3COM. Overall, the Sit Mid Cap Growth Fund
delivered a robust absolute return during 1997 measuring +17.7%. Interestingly,
this attractive result masked a volatile year that saw returns of -10.1%,
+20.3%, +12.0% and -2.8% for the year's four quarters. The semi-annual returns
for the period ended December 31, 1997 were +8.9% for the Fund, +17.1% for the
S&P MidCap 400 Index and +10.9% for the Russell MidCap Growth Index.
We are optimistic for 1998. The Fund's expected earnings growth for the
year measures an attractive +29%, well in excess of the overall market's
earnings growth forecast of just +9%. Despite the broad market's significant
advance and increasing valuation parameters, the Fund's valuation is more
attractive than at this time last year at 23.0 times estimated 1998 earnings.
Mid cap growth stocks lagged their value counterparts by significant margins
over the past one- and three-year periods. We expect this trend to reverse in
1998.
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 other
developments that might stimulate earnings growth.
PORTFOLIO SUMMARY
Net Asset Value 12/31/97: $ 14.69 Per Share
6/30/97: $ 15.43 Per Share
Total Net Assets: $ 380.31 Million
TOTAL DIVIDEND: $ 2.02
Long-Term Capital Gain: $ 2.02
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Financial 22.5
Technology 19.2
Health Care 13.3
Business Equipment & Services 12.5
Energy 6.4
Consumer Services 6.3
Capital Goods 4.7
Retail 4.5
Consumer Durables 2.1
Transportation 1.5
Cash Equivalents 7.0
<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 -2.80% -2.75% 0.83% -2.80% -2.75% 0.83%
(unannualized)
1 Year 17.70 22.54 32.29 17.70 22.54 32.29
5 Years 15.67 15.98 17.80 107.09 109.82 126.82
10 Years 17.16 16.80 19.47 387.47 372.40 492.34
Inception 19.04 n/a 19.01 1349.20 n/a 1343.80
(9/2/82)
</TABLE>
* As of 12/31/97
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE 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 12/31/97 would
have grown to $144,920 in the Fund or $144,380 in the S&P MidCap 400 Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* TCF Financial Corp.
* Mercury General Corp.
* Peoplesoft, Inc.
* HBO & Co.
* ADC Telecommunications, Inc.
* T. Rowe Price & Associates
* Paychex, Inc.
* Stewart Enterprises, Inc.
* Elan Corp., p.l.c., A.D.R.
* Parametric Technology, Inc.
Total number of holdings: 59
<PAGE>
SIT MID CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1997 (UNAUDITED)
- -------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------
COMMON & PREFERRED STOCKS (93.0%) (2)
BUSINESS EQUIPMENT & SERVICE (12.5%)
275,500 Accustaff, Inc. (3) $6,336,500
109,700 Ceridian Corp. (3) 5,025,631
55,500 Computer Sciences Corp. (3) 4,582,219
154,800 COREStaff, Inc. (3) 4,102,200
259,600 Dendrite International,
Inc. (3) 5,029,750
180,600 Fiserv, Inc. (3) 8,871,975
99,500 National Data Corp. 3,594,438
199,800 Paychex, Inc. 10,114,875
------------
47,657,588
------------
CAPITAL GOODS (4.7%)
181,000 Crane Co. 7,850,875
121,700 Kennametal, Inc. 6,305,581
120,000 US Filter Corp. (3) 3,592,500
------------
17,748,956
------------
CONSUMER DURABLES (2.1%)
299,000 Harley-Davidson, Inc. 8,185,125
------------
CONSUMER SERVICES (6.3%)
36,900 Chancellor Media Co. (3) 2,753,663
204,888 Promus Hotel Corp. (3) 8,605,275
212,100 Stewart Enterprises, Inc. 9,889,163
66,600 Sylvan Learning Systems,
Inc. (3) 2,597,400
------------
23,845,501
------------
ENERGY (6.4%)
98,000 Camco International, Inc. 6,241,375
112,500 Forcenergy, Inc. (3) 2,946,094
41,500 Newpark Resources, Inc. (3) 726,250
133,000 Noble Affiliates, Inc. 4,688,250
143,900 Transocean Offshore Drilling,
Inc. 6,934,181
108,500 United Meridian Corp. (3) 3,051,563
------------
24,587,713
------------
FINANCIAL (22.5%)
BANKING (4.5%)
503,000 TCF Financial Corp. 17,070,563
------------
FINANCIAL SERVICES (4.4%)
77,000 First American Corp. -
Tennessee 3,830,750
86,800 Green Tree Financial Corp. 2,273,075
170,500 T. Rowe Price & Associates 10,720,188
------------
16,824,013
------------
INSURANCE (13.6%)
81,000 Ace, Ltd. 7,816,500
83,600 CMAC Investment Corp. 5,047,350
290,000 Mercury General Corp. 16,022,500
125,500 MGIC Investment Corp. 8,345,750
187,000 Mutual Risk Mgmt. Ltd. 5,598,313
107,200 Reliastar Financial Corp. 4,415,300
37,500 Republic NY Corp. 4,282,031
------------
51,527,744
------------
HEALTH CARE (13.3%)
BIOTECHNOLOGY/PHARMACEUTICALS (7.4%)
190,000 Biogen, Inc. (3) 6,911,250
173,000 Dura Pharmaceuticals,
Inc. (3) 7,936,375
192,500 Elan Corp., p.l.c., A.D.R.
(3) 9,853,594
101,500 Vertex Pharmaceuticals (3) 3,349,500
------------
28,050,719
------------
MEDICAL FACILITIES MANAGEMENT (5.9%)
181,000 FPA Medical Management,
Inc. (3) 3,371,125
253,300 HBO & Co. 12,158,400
144,500 HEALTHSOUTH Rehabilitation
Corp. (3) 4,009,875
77,500 Oxford Health Plans, Inc.(3) 1,206,094
62,500 Phycor, Inc. (3) 1,687,500
------------
22,432,994
------------
RETAIL (4.5%)
132,500 Kohls Corp. (3) 9,026,563
135,500 Proffitt's, Inc. (3) 3,853,281
151,000 Staples, Inc. (3) 4,190,250
------------
17,070,094
------------
TECHNOLOGY (19.2%)
COMPUTER RELATED (0.8%)
171,600 Electronics For Imaging,
Inc. (3) 2,852,850
------------
COMPUTER SOFTWARE/SERVICES (11.0%)
99,900 ASM Lithography Holdings,
Inc. (3) 6,743,250
107,500 Aspen Technology, Inc. (3) 3,681,875
81,000 Baan Co., N.V. (3) 2,673,000
77,500 Check Point Software
Technologies, Inc. (3) 3,158,125
92,500 Legato Systems, Inc. (3) 4,070,000
200,000 Parametric Technology,
Inc. (3) 9,475,000
313,000 Peoplesoft, Inc. (3) 12,207,000
------------
42,008,250
------------
SEMICONDUCTORS & RELATED (3.7%)
304,000 Analog Devices, Inc. (3) 8,417,000
156,700 Xilinx, Inc. (3) 5,494,294
------------
13,911,294
------------
TELECOMMUNICATIONS & EQUIPMENT (3.7%)
268,000 ADC Telecommunications,
Inc. (3) 11,189,000
157,300 PairGain Technologies,
Inc. (3) 3,047,684
------------
14,236,684
------------
<PAGE>
- -------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------
TRANSPORTATION (1.5%)
63,600 Air Express International
Co. $1,939,800
75,000 Caliber Systems, Inc. 3,651,562
------------
5,591,362
------------
Total common stocks
(cost: $220,845,235) 353,601,450
------------
SHORT-TERM SECURITIES (6.9%) (2)
2,400,000 Chevron USA, Inc.,
5.90%, 1/7/98 4,395,673
Ford Motor Credit Co.:
6,004,000 6.01%, 1/5/98 5,999,991
4,438,000 5.95%, 1/8/98 4,432,865
General Motors Accept. Corp.:
6,249,000 6.20%, 1/2/98 6,247,924
4,995,000 6.05%, 1/6/98 4,990,803
------------
Total short-term securities
(cost: $26,067,256) 26,067,256
------------
Total investments in securities
(cost: $246,912,491) (7) $379,668,706
============
See accompanying notes to portfolios of investments on page 31.
<PAGE>
SIT SMALL CAP GROWTH FUND REVIEW
DECEMBER 31, 1997
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
Financial stocks were an area of considerable strength for the Sit Small
Cap Growth Fund in 1997. While financial stocks in the Russell 2000 Growth Index
returned a solid +21.7%, the financial stocks in the Fund returned +63.6%. Three
bank stocks, Community First Bankshares, Provident Bankshares and Queens County
Bankcorp all nearly doubled in price. The Fund's other key area of focus,
technology, had a difficult 1997 after several years of strong performance. The
average small cap technology stock returned +5.6%, while stocks in the Fund
performed better at +11.8%. Another previously profitable area which struggled
in 1997 was health care. While portfolio weightings are down in technology and
health care over the past six months, significant exposure to the two sectors is
being maintained for their long-term capital appreciation potential.
Quarterly performance statistics of the Fund show an interesting pattern
during the four quarters of 1997. The Fund's 1997 total return of +7.6% was
derived from a challenging first quarter result of -14.4%, followed by a very
strong mid-year period with second quarter and third quarter returns of +19.7%
and +16.3%, respectively, and a decline at year end with a fourth quarter result
of -9.7%. The semi-annual return for the second calendar half calculates to
+5.0%. Volatility was pervasive in 1997, not only in the quarterly returns, but
also month to month, and indeed, day to day. We view this opportunistically, and
with 11.9% of fund assets in cash, we can take advantage of short-term declines
by making further investments. The Russell 2000 Index and Russell 2000 Growth
Index returned +11.0% and +7.3%, respectively, over the most recent semi-annual
period. The Fund's since-inception annualized return of +23.6% exceeds that of
both indices.
Stocks in the Sit Small Cap Growth Fund have strong earnings growth
expectations for 1998 on the order of +32%, over three times that of the overall
market. But, even more encouraging is the fact that stocks in the Fund trade at
a price to earnings multiple below that of the market's 21.8 times 1998
earnings.
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 12/31/97: $19.13 Per Share
6/30/97: $18.89 Per Share
Total Net Assets: $65.93 Million
TOTAL DIVIDEND: $0.68
Long-Term Capital Gain: $0.68
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Financial 24.5
Technology 23.2
Health Care 10.8
Energy 8.0
Capital Goods 7.7
Business Equipment & Services 6.6
Consumer Services 6.0
Consumer
Non-Durables 0.8
Transportation 0.5
Cash Equivalents 11.9
<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 -9.68% -3.35% -8.20% -9.68% -3.35% -8.20%
(unannualized)
1 Year 7.63 22.36 12.94 7.63 22.36 12.94
3 Year 23.48 22.34 18.09 88.29 83.09 64.67
Inception 23.59 20.38 18.00 110.07 91.53 78.70
(7/1/94)
</TABLE>
* As of 12/31/97
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL 2000 INDICES.
GROWTH OF $10,000
[PLOT POINTS GRAPH]
The sum of $10,000 invested at inception (7/1/94) and held until 12/31/97 would
have grown to $21,007 in the Fund or $19,153 in the Russell 2000 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Legato Systems, Inc.
* Community First Bankshares, Inc.
* Tecnomatix Technologies, Ltd.
* Provident Bankshares Corp.
* Charter One Financial, Inc.
* DT Industries, Inc.
* Anadigics, Inc.
* Dendrite International, Inc.
* Aspen Technology, Inc.
* Uniphase Corp.
Total number of holdings: 61
<PAGE>
SIT SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1997 (UNAUDITED)
- -------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------
COMMON STOCKS (88.0%) (2)
BUSINESS EQUIPMENT & SERVICES (6.6%)
91,900 Commodore Applied
Technologies, Inc. (3) $275,700
128,500 Commodore Applied
Technologies, Inc.,
(warrants) (3) 152,594
49,800 JLK Direct Distribution (3) 1,394,400
48,000 On Assignment, Inc. (3) 1,272,000
71,500 Transaction Network Services,
Inc. (3) 1,233,375
-----------
4,328,069
-----------
CAPITAL GOODS (7.7%)
46,500 DT Industries, Inc. 1,581,000
79,000 Dendrite Int'l, Inc. (3) 1,530,625
16,000 BF Goodrich Co. 663,000
40,000 Triumph Group, Inc. (3) 1,330,000
-----------
5,104,625
-----------
CONSUMER NON-DURABLES (0.8%)
33,500 Northland Cranberries, Inc. 519,250
-----------
CONSUMER SERVICES (6.0%)
14,273 Chancellor Broadcasting
Class A (3) 1,065,113
40,000 Equity Corp.
International (3) 925,000
51,000 HA-LO Industries, Inc. (3) 1,326,000
25,500 York Group, Inc. (The) 621,563
-----------
3,937,676
-----------
ENERGY (8.0%)
43,000 Marine Drilling Company,
Inc. (3) 892,250
35,700 Newfield Exploration Co. (3) 832,256
65,200 Newpark Resources, Inc. (3) 1,141,000
57,000 Oceaneering International,
Inc. (3) 1,125,750
60,500 Swift Energy Co. (3) 1,274,281
-----------
5,265,537
-----------
FINANCIAL (24.5%)
BANKING (10.9%)
29,531 Charter One Financial, Inc. 1,864,144
39,500 Community First Bankshares,
Inc. 2,103,375
31,775 Provident Bankshares Corp. 2,029,628
30,150 Queens County Bancorp, Inc. 1,221,075
-----------
7,218,222
-----------
FINANCIAL SERVICES (2.0%)
64,500 Imperial Credit Industries,
Inc.(3) 1,322,250
-----------
INSURANCE (11.6%)
48,750 Allied Group, Inc. 1,395,469
19,100 CMAC Investment Corp. 1,153,163
8,000 Delphi Financial Group,
Inc. (3) 360,000
10,400 Executive Risk, Inc. 726,050
24,500 IPC Holdings Ltd. 788,594
12,000 Life Re. Corp. 782,250
55,500 MMI Companies, Inc. 1,394,437
12,500 Stirling Cooke Brown
Holdings (3) 306,250
27,500 Terra Nova Bermuda Holdings 721,875
-----------
7,628,088
-----------
HEALTH CARE (10.8%)
BIOTECHNOLOGY/ PHARMACEUTICALS (4.5%)
39,600 Alkermes, Inc. (3) 787,050
28,000 Dura Pharmaceuticals,
Inc. (3) 1,284,500
102,500 Regeneron Pharmaceuticals,
Inc. (3) 877,656
-----------
2,949,206
-----------
MEDICAL EQUIPMENT/ SUPPLIES (3.8%)
152,000 CardioThoracic Systems,
Inc. (3) 687,500
84,500 FemRx, Inc. (3) (5) 216,531
29,000 I-Stat Corp. (3) 458,563
220,300 Innerdyne, Inc. (3) 592,056
66,500 Neuromedical Systems, Inc. (3) 187,031
29,000 Warner Chilcott Labs 358,875
-----------
2,500,556
-----------
MEDICAL FACILITIES MANAGEMENT (2.5%)
46,500 HCIA, Inc. (3) 552,188
69,500 Imnet Systems, Inc. (3) 1,129,375
-----------
1,681,563
-----------
TECHNOLOGY (23.1%)
COMPUTER SOFTWARE/ SERVICES (13.2%)
43,000 Alternative Resources Corp.
(3) 991,688
44,000 Aspen Technology, Inc. (3) 1,507,000
35,000 Intelligroup, Inc. (3) 669,375
51,500 Legato Systems, Inc. (3) 2,266,000
31,000 Pervasive Software, Inc. (3) 224,750
79,000 Scopus Technology (3) 948,000
62,000 Tecnomatix Technologies,
Ltd. (3) 2,092,500
-----------
8,699,313
-----------
SEMICONDUCTORS & RELATED (5.0%)
47,500 Integrated Process Equipment
Corp. (3) 748,125
<PAGE>
- -------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------
27,500 PRI Automation, Inc. (3) $794,063
31,500 Tower Semiconductors Ltd. (3) 315,000
34,000 Uniphase Corp. (3) 1,406,750
-----------
3,263,938
-----------
TELECOMMUNICATIONS & EQUIPMENT (4.9%)
52,100 Anadigics, Inc. (3) 1,569,512
88,000 Arch Communications Group,
Inc. (3) 451,000
38,500 Gilat Satellite Networks,
Ltd. (3) 1,102,062
6,000 Nextlink Communications (3) 127,875
-----------
3,250,449
-----------
TRANSPORTATION (0.5%)
16,000 C.H. Robinson Worldwide, Inc. 358,000
-----------
Total common stocks
(cost: $46,286,611) 58,026,742
-----------
CORPORATE BONDS (0.1%) (2)
100,000 Tecnomatix Technologies
Conv. 5.25%, 8/15/04 (4) 98,250
-----------
Total corporate bonds
(cost: $100,000)
SHORT-TERM SECURITIES (11.9%) (2)
1,750,000 Associates Corp., 5.90%,
1/7/98 1,748,279
1,700,000 Chevron Oil USA, Inc., 6.01%,
1/6/98 1,698,583
1,897,000 Ford Motor Credit Corp.,
6.02%, 1/5/98 1,895,733
1,800,000 General Motors Acceptance
Corp., 5.70%, 1/2/98 1,799,715
710,000 Sit Money Market Fund,
5.27% (6) 710,000
-----------
Total short-term securities
(cost: $7,852,310) 7,852,310
-----------
Total investments in securities
(cost: $54,238,921) (7) $65,977,302
===========
See accompanying notes to portfolios of investments on page 31.
<PAGE>
SIT BALANCED FUND REVIEW
DECEMBER 31, 1997
[PHOTO]
PETER L. MITCHELSON, CFA
SENIOR PORTFOLIO MANAGER
BRYCE A. DOTY, CFA
PORTFOLIO MANAGER
The Sit Balanced Fund performed favorably in the last six months of 1997 as
well as for the full calendar year. The Fund's semi-annual total return was
+7.96% and for the full year was +21.73%. This compares with the Lipper Balanced
Fund benchmark return of +8.01% for the six months and +20.05% for the year. Of
the Balanced Funds tracked by Lipper Analytical Services, the Fund ranked in the
21st percentile for the December quarter and in the 23rd percentile for calendar
year 1997 out of 391 and 358 funds, respectively. For the past two- and
three-year periods, the Fund ranked in the 17th and 25th percentiles out of 289
and 238 funds, respectively.
As of December 31, 1997, the asset allocation of the Fund was 58% in
equities, 38% in bonds, and 4% in cash reserve instruments versus 59%, 36% and
4%, respectively, a year ago.
Within the equity portion of the portfolio, industry weightings changed
only slightly in the last six months. Weightings increased in the financial
services, retail, and consumer services sectors as we initiated positions in St.
Paul Companies, The Equitable Companies, Dayton Hudson, CBS, Cendent Corp, and
Time Warner. We reduced our weightings in the healthcare, consumer non-durables,
and capital goods sectors. Positions sold were Johnson & Johnson, Oxford Health,
and Campbell Soup. The traditional growth groups of technology, health care and
financial services remain the three most heavily weighted sectors.
Within the bond portion of the portfolio, during the December quarter, we
purchased short maturity U.S. Treasuries and high coupon seasoned pass-through
securities. This resulted in a shortening of the bond portfolio duration.
For 1998, we expect continued moderate economic growth and contained
inflation, two conditions generally favorable for financial asset investing.
But, with the exception of comparisons with interest rates, most equity
valuation measures are quite expensive, leading us to expect more modest returns
ahead. The Fund will continue to focus on companies with above-average growth
prospects. In the bond portion of the portfolio, a duration slightly below that
of the market is being maintained, and the focus remains on high-quality
securities that offer attractive total return opportunities.
The Fund's performance compares favorably against its peers and we thank
shareholders for their support.
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 12/31/97: $ 14.60 Per Share
6/30/97: $ 14.93 Per Share
Total Net Assets: $ 5.67 Million
TOTAL DIVIDEND: $ 1.40 PER SHARE
Long-Term Capital Gain: $ 1.19 Per Share
Short-Term Capital Gain: $ 0.04 Per Share
Ordinary Income: $ 0.17 Per Share
PORTFOLIO STRUCTURE
(% of total net assets)
[PIE CHART]
Stocks 58.1%
Bonds 41.9%
(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 2.33% 2.94% 2.87% 2.33% 2.94% 2.87%
(unannualized)
1 Year 21.73 9.65 33.36 21.73 9.65 33.36
3 Year 20.92 10.42 31.15 76.81 34.63 125.59
Inception 15.21 6.92 22.94 76.23 30.70 128.58
(12/31/93)
</TABLE>
* As of 12/31/97
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN AGGREGATE BOND
INDEX NOR THE S&P 500 INDEX. LIPPER ANALYTICAL SERVICES, INC. IS A LARGE
INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS GRAPH]
The sum of $10,000 invested at inception (12/31/93) and held until 12/31/97
would have grown to $17,623 in the Fund, $13,070 in the Lehman Aggregate Bond
Index or $22,858 in the S&P 500 Index assuming reinvestment of all dividends and
capital gains.
TOP HOLDINGS
STOCKS:
* Mercury General Corp.
* General Electric Co.
* Pfizer, Inc.
* Norwest Corp.
* Coca-Cola Co.
BONDS:
* GNMA, 9.00%, 9/15/19
* Security Capital Indl. Trust, 8.65%, 5/15/16
* Ford Motor Credit Corp., 9.14%, 12/30/14
* EquiVantage 1996-3 A3, 7.70%, 9/25/27
* GNMA, 9.00%, 4/15/18
Total number of holdings: 113
<PAGE>
SIT BALANCED FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1997 (UNAUDITED)
- -------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------
COMMON STOCKS (58.1%) (2)
BUSINESS EQUIPMENT & SERVICES (2.5%)
1,300 Ceridian Corp. (3) $59,556
700 Danka Business Systems p.l.c.,
A.D.R. 11,156
750 Paychex, Inc. 37,969
500 Xerox Corp. 36,906
---------
145,587
---------
CAPITAL GOODS (3.6%)
1,700 General Electric Co. 124,738
500 Owens Corning Corp. (3) 17,063
500 Sundstrand Corp. 25,000
800 Tyco International Ltd. 36,050
---------
202,851
---------
CONSUMER DURABLES (0.5%)
1,000 Harley-Davidson, Inc. 27,375
---------
CONSUMER NON-DURABLES (5.4%)
1,300 Coca Cola Co. 86,613
700 Gillette Co. (The) 70,306
1,500 Philip Morris Cos., Inc. 67,969
1,000 Proctor & Gamble Co. 79,813
---------
304,701
---------
CONSUMER SERVICES (3.9%)
1,000 CBS Corp. 29,438
2,000 Cendant Corp. (3) 68,750
900 Marriot International, Inc. 62,325
1,000 Time Warner, Inc. 62,000
---------
222,513
---------
ENERGY (2.9%)
550 British Petroleum p.l.c.,
A.D.R. 43,828
1,000 Dresser Industries, Inc. 41,938
1,000 Schlumberger Ltd. 80,500
---------
166,266
---------
FINANCIAL (12.6%)
BANKING (3.3%)
300 Chase Manhattan Corp. 32,850
500 Citicorp 63,219
2,400 Norwest Corp. 92,700
---------
188,769
---------
FINANCIAL SERVICES (1.4%)
1,000 Federal Home Loan Mortgage
Corp. 41,937
400 Franklin Resources, Inc. 34,775
---------
76,712
---------
INSURANCE (7.9%)
500 Allstate Corp. 45,437
750 American International Group,
Inc. 81,562
600 Equitable Companies, Inc. 29,925
1,000 EXEL Ltd. 63,375
2,400 Mercury General Corp. 132,600
800 MGIC Investment Corp. 53,200
500 St. Paul Companies, Inc. 41,031
---------
447,130
---------
HEALTH CARE (9.9%)
BIOTECHNOLOGY/ PHARMACEUTICALS (6.6%)
500 Amgen, Inc. (3) 27,063
500 Bristol-Myers Squibb Co. 47,313
1,000 Lilly Eli & Co. 69,625
1,600 Pfizer, Inc. 119,300
900 Smithkline Beecham, A.D.R. 46,294
500 Warner Lambert Co. 62,000
---------
371,595
---------
MEDICAL EQUIPMENT/ SUPPLIES (1.2%)
600 Medtronic, Inc. 31,387
1,000 Stryker Corp. 37,250
---------
68,637
---------
MEDICAL FACILITIES MANAGEMENT (2.1%)
1,200 HBO & Co. 57,600
1,900 HEALTHSOUTH Rehabilitation
Corp. (3) 52,725
500 Medpartners, Inc. (3) 11,188
---------
121,513
---------
MULTI-INDUSTRY (0.2%)
500 Whitman Corp. 13,031
---------
RAW MATERIALS (0.7%)
1,000 Monsanto Co. 42,000
---------
RETAIL (5.3%)
1,000 Dayton Hudson Corp. 67,500
1,300 Federated Department Stores,
Inc. (3) 55,981
1,200 Gap, Inc. 42,525
1,050 Home Depot, Inc. (The) 61,491
500 Kohl's Corp. (3) 34,062
1,200 Walgreen Co. 37,650
---------
299,209
---------
TECHNOLOGY (10.6%)
AEROSPACE/ DEFENSE (0.3%)
400 Boeing Company 19,575
---------
COMPUTER RELATED (1.8%)
1,000 Atmel Corp. (3) 18,562
1,500 Cisco Systems, Inc. (3) 83,625
---------
102,187
---------
COMPUTER SOFTWARE/ SERVICES (3.6%)
450 Computer Associates
International, Inc. 23,794
600 Microsoft Corp. (3) 77,550
800 Parametric Technology Corp. (3) 37,900
1,600 PeopleSoft, Inc. (3) 62,400
---------
201,644
---------
SEMICONDUCTORS & RELATED (1.9%)
1,100 Intel Corp. 77,275
500 National Semiconductor Corp.
(3) 12,969
<PAGE>
- -------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------
400 Texas Instruments, Inc. $18,000
---------
108,244
---------
TELECOMMUNICATIONS EQUIPMENT (3.0%)
1,000 Ascend Communications, Inc. (3) 24,500
1,900 Airtouch Communications, Inc.(3)78,969
200 Ciena Corp. (3) 12,225
1,000 Tellabs, Inc. (3) 52,875
---------
168,569
---------
Total common stocks (cost: $2,037,449) 3,298,108
---------
BONDS (38.2%) (2)
U.S. TREASURY (1.2%)
50,000 U.S. Treasury Note,
6.375%, 3/31/01 50,922
25,000 U.S. Treasury Coupon Strip,
6.93% Effective Yield on
Purchase Date, 11/15/04 16,902
---------
67,824
---------
ASSET-BACKED SECURITIES (8.5%)
Advanta Mortgage Loan Trust:
25,000 1995-3 A5, 7.37%, 2/25/27 25,985
50,000 1996-1 A7, 7.07%, 3/25/27 51,218
50,000 1997-4 A5, 6.72%, 3/25/24 50,377
50,000 Cityscape Home Equity Loan Tr.,
1996-3 A8, 7.65%, 9/25/25 51,275
74,999 ContiMortgage Home Equity Loan
Tr., 1996-1 A7, 7.00%,
3/15/27 76,614
25,000 EQCC Home Equity Loan Tr.,
Series 1996-1, 6.93%, 3/15/27 25,432
75,000 EquiVantage, 1996-3 A3,
7.70%, 9/25/27 76,867
Green Tree Corp.
20,000 1995-5, 7.25%, 9/15/25 20,764
50,000 1997-E, 6.80%, 1/15/29 50,133
50,000 Money Store Home Equity
Mortgage, 7.265%, 7/15/38 50,562
---------
479,227
---------
CLOSED-END FUNDS (1.2%)
500 American Strategic Income I 5,875
2,288 American Strategic Income II 26,884
2,969 American Strategic Income III 33,401
---------
66,160
---------
CORPORATE BONDS (7.9%)
70,000 Ford Motor Credit Corp.,
9.14%, 12/30/14 79,275
50,000 Martin Marietta/Lockheed,
7.00%, 3/15/11 49,500
50,000 Price, Inc., 7.50%, 11/05/06 51,618
75,000 Security Capital Indl. Trust,
8.65%, 5/15/16 85,031
50,000 Trinet Corp. Realty Trust,
7.70%, 7/15/17 52,125
25,000 Summit Properties, Inc.,
7.20%, 8/15/07 25,563
50,000 Toys R Us, Inc., 8.25%, 2/1/17 51,625
50,000 Washington Mutual Capital,
8.375%, 6/1/27 54,875
---------
449,612
---------
MORTGAGE PASS-THROUGH SECURITIES (15.4%)
FEDERAL NAT'L MORTGAGE ASSOC. (2.7%)
52,966 9.00%, 11/1/06 55,960
48,962 9.00%, 1/1/17 51,736
42,006 10.00%, 1/1/20 45,243
---------
152,939
---------
GOVERNMENT NAT'L MORTGAGE ASSOC. (12.7%)
36,862 9.00%, 6/15/11 38,638
72,007 9.00%, 4/15/18 76,639
34,206 9.00%, 12/15/18 36,380
185,207 9.00%, 9/15/19 201,122
35,885 9.00%, 10/15/19 38,168
35,860 9.25%, 9/15/01 37,641
37,120 9.50%, 1/15/04 39,529
63,451 9.50%, 11/15/04 67,540
57,495 9.50%, 12/15/09 61,672
60,678 9.50%, 2/15/21 65,759
4,723 9.75%, 2/20/01 4,957
9,705 10.00%, 9/15/99 10,008
16,043 11.25%, 10/15/00 16,839
19,312 11.25%, 10/15/11 20,938
5,829 11.75%, 3/15/00 6,118
---------
721,948
---------
COLLATERALIZED MORTGAGE OBLIGATIONS (3.1%)
50,000 FHLMC (REMIC) Ser. 1173,
6.50%, 11/15/21 49,224
50,000 FNMA 1994-38 Pac,
6.65%, 12/25/23 49,800
Vendee Mortgage Trust:
2,097 1992-1 2B, 7.75%, 9/15/10 2,093
25,000 1996-2 1D, 6.75%, 11/15/15 25,240
50,000 1996-2 1E, 6.75%, 5/15/20 50,137
---------
176,494
---------
TRUST PREFERRED SECURITIES (0.9%)
Allstate Financing:
1,000 7.95%, 12/1/26 25,938
25,000 7.83%, 12/1/45 25,667
---------
51,605
---------
Total bonds (cost: $2,110,259) 2,165,809
---------
Total investments in securities
(cost: $4,147,708) (7) $5,463,917
==========
See accompanying notes to portfolios of investments on page 31.
<PAGE>
SIT INTERNATIONAL GROWTH FUND REVIEW
DECEMBER 31, 1997
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
ANDREW B. KIM, CFA
SENIOR PORTFOLIO MANAGER
The Sit International Growth Fund had a challenging six months and year due
to the financial and economic crisis in Asia. For the six months ended December,
the Sit International Growth Fund declined -7.16%, but returned +4.81% for the
year. This compares with the MSCI EAFE Index benchmark which declined -8.48% for
the six months and returned +1.78% for the year. A major reason for the Fund's
outperformance was our increased European portfolio weighting to 57.7% (from
46.4% one year ago), and decreased weightings in Japan to 18.6% (from 21.3%) and
the emerging markets to 9.3% (from 11.8%).
The problems facing the Asian equity markets could be positive for European
markets in early 1998 with interest rates staying low, thereby supporting stock
markets. Our focus in Europe remains on the beneficiaries of corporate
restructuring that is designed to enhance shareholder value. Additionally, we
continue to emphasize those companies that have expanded their U.S.-dollar based
earnings on a sector-specific basis such as pharmaceuticals, insurance, banking
and asset management.
In Japan, we expect the current environment of low interest rates and weak
domestic economy to continue. With the technology sector's exports continuing to
recover due to a weak yen, other domestic-oriented stocks should participate in
a potential economic recovery toward late 1998 as today's widespread investor
skepticism begins to recede. The combination of this year's fiscal stimulus and
a move by Japan to ease the credit squeeze should benefit investor sentiment.
Our goal is to add selectively to the Asia/Pacific holdings given the sharp
declines in equity valuations and currencies. There appear to be indications
that East Asian governments are attempting to effectively implement tough
economic policy measures to restore international investor confidence through a
grinding restructuring and deleveraging in the private sector. We believe the
stock markets should gradually rebound in anticipation of a recovery in the
economy in 1999. We are increasing slightly the Fund's weighting in Latin
America.
Despite a difficult international environment, we believe international
markets offer long-term, risk-tolerant investors opportunities for growth.
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 12/31/97: $ 16.53 Per Share
6/30/97: $ 18.57 Per Share
Total Net Assets: $ 89.92 Million
TOTAL DIVIDEND: $ 0.70
Long-Term Capital Gain: $ 0.51
Ordinary Income: $ 0.19
PORTFOLIO STRUCTURE - BY REGION
( % of total net assets)
[BAR CHART]
SIT INT'L MORGAN STANLEY
GROWTH FUND EAFE INDEX
Europe Other 31.9 27.8
France, Germany & UK 25.8 39.4
Japan 18.6 25.2
Pacific Basin 11.5 7.6
Latin America 4.7 0.0
Africa/Middle East 0.5 0.0
Cash Equivalents 7.0 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 -9.06% -7.83% -7.65% -9.06% -7.83% -7.65%
(unannualized)
1 Year 4.81 1.78 7.26 4.81 1.78 7.26
3 Years 8.13 6.27 10.53 26.44 20.03 35.04
5 Years 12.72 11.39 13.28 81.99 71.49 86.56
Inception 11.39 6.90 10.32 94.55 51.00 83.35
(11/1/91)
</TABLE>
* As of 12/31/97
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MORGAN STANLEY CAPITAL
INTERNATIONAL EAFE (EUROPE, AUSTRALIA, FAR EAST) INDEX. THE LIPPER AVERAGES AND
INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT
EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS GRAPH]
The sum of $10,000 invested at inception (11/1/91) and held until 12/31/97 would
have grown to $19,455 in the Fund or $15,100 in the Morgan Stanley EAFE Index
assuming reinvestment of all dividends and capital gains.
PORTFOLIO STRUCTURE - BY SECTOR
( % of total net assets)
[BAR CHART]
Financial 22.1
Health Care 17.0
Utilities 16.5
Technology 14.7
Consumer Services 7.4
Consumer Non-Durables 6.6
Business Equip. & Services 5.4
Multi-Industry 2.1
Retail 0.8
Consumer Durables 0.4
Other Assets & Liabilities 7.0
<PAGE>
SIT INTERNATIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1997 (UNAUDITED)
10 LARGEST HOLDINGS
* HSBC Holdings
* Aegon N.V., A.D.R.
* Zurich Insurance
* SmithKline Beecham, p.l.c., A.D.R.
* SAP Preferred
* Telecom Italia Mobile Spa
* NTT Data Communications Systems Co.
* Rentokil Group, p.l.c.
* Misys Ord.
* Nutricia
Total number of holdings: 76
- -------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------
COMMON & PREFERRED STOCKS (93.0%) (2)
AFRICA/MIDDLE EAST (0.5%)
SOUTH AFRICA (0.5%)
113,635 Dimension Data
(Technology) (3) (4) $490,358
-----------
ASIA (30.1%)
AUSTRALIA (1.1%)
183,600 Colonial, Ltd.
(Financial) (3) (4) 524,116
183,600 Colonial, Ltd. Options
(Financial) 8,616
50,000 Smith, Howard (Consumer
Durables) 415,165
-----------
947,897
-----------
HONG KONG (6.2%)
15,800 Concordia Paper, A.D.R.
(Raw Materials) (3)(5) 13,825
150,000 Citic Pacific Ltd.
(Multi-Industry) 596,206
543,600 Hong Kong & China Gas
(Utilities) 1,052,265
108,718 HSBC Holdings (Financial) 2,679,716
201,000 Hutchison Whampoa
(Multi-Industry) 1,260,627
-----------
5,602,639
-----------
INDONESIA (0.2%)
375,000 PT Telekom (Utilities) 199,432
-----------
JAPAN (18.6%)
19,000 AFLAC, Inc., A.D.R.
(Financial) 971,375
109,000 Banyu Pharmaceuticals
(Health Care) 1,202,298
8,400 Canon, Inc., A.D.R.
(Business Equipment &
Service) 980,700
36,000 Matsushita Kotobuki
(Technology) 904,481
38 NTT Data Communications
Systems Co. (Utilities) 2,046,266
87 Nippon Telephone (Utilities) 746,381
22,400 Orix Corp. (Financial) 1,561,394
72,000 Ricoh Co. (Business
Equipment) 893,451
43,000 Sankyo Co. (Health Care) 971,658
10,000 Seven Eleven Japan (Retail) 707,775
1,600 Shohkoh Fund (Financial) 487,782
18,000 Sony Corp. (Consumer
Non-Durables) 1,599,387
50,000 Takeda Chemical Industries
(Health Care) 1,424,741
18,000 TDK Corp. (Technology) 1,356,722
28,000 Tokyo Electron Ltd.
(Technology) 896,515
-----------
16,750,926
-----------
KOREA (0.3%)
26,000 Korea Electric Power Corp.
(Utilities) 240,826
-----------
MALAYSIA (0.2%)
132,000 Malaysia Assurance
(Financial) 151,361
-----------
PHILIPPINES (0.4%)
17,300 Philippine Long Distance,
A.D.R. (Utilties) 389,250
-----------
SINGAPORE (1.0%)
154,500 United Overseas Bank
(Financial) 857,060
-----------
TAIWAN (1.8%)
73,308 President Enterprises, G.D.R.
(Consumer Non-Durables)
(3)(4) 879,696
67,920 Yageo, G.D.R. (Technology)(3) 764,100
-----------
1,643,796
-----------
THAILAND (0.3%)
55,000 Advanced Info Services
(Utilities) 271,023
-----------
EUROPE (57.7%)
BELGIUM (0.6%)
176 UCB, S.A. (Health Care) 580,951
-----------
FINLAND (0.8%)
6,140 Tieto (Technology) 690,711
-----------
FRANCE (2.3%)
11,800 Cetelem (Financial) 1,607,309
1,290 L'Oreal Co. Ord. (Consumer
Non-Durables) 504,643
-----------
2,111,952
-----------
GERMANY (8.7%)
2,000 Allianz, A.G. (Financial) 518,066
<PAGE>
- -------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------
37,200 Bayer, A.G. (Health Care) $1,389,572
5,366 Fresenius, A.G. (Health
Care) 987,296
17,050 Gehe, A.G. (Health Care) 852,974
10,200 Pro Sieben, A.G. (Consumer
Services) 476,265
6,445 SAP Preferred (Technology) 2,108,328
22,300 Veba, A.G. (Utilities) 1,518,482
-----------
7,850,983
-----------
IRELAND (2.4%)
99,300 Bank of Ireland (Financial) 1,521,585
12,700 Elan, p.l.c., A.D.R.
(Hlth. Care) (3) 650,081
-----------
2,171,666
-----------
ITALY (3.7%)
272,200 Banca Fideuram (Financial) 1,191,741
454,700 Telecom Italia Mobile Spa
(Utilities) (3) 2,098,714
-----------
3,290,455
-----------
NETHERLANDS (8.3%)
27,870 Aegon, N.V., A.D.R.
(Financial) 2,497,811
30,180 CMG (Technology) 753,123
60,930 Nutricia (Consumer
Non-Durables) 1,848,003
15,575 Randstad Holdings, N.V.
(Consumer Services) 586,069
13,666 Wolters Kluwer
(Consumer Services) 1,765,116
-----------
7,450,122
-----------
PORTUGAL (1.1%)
20,500 Portugal Telecom, A.D.R.
(Utilities) 963,500
-----------
SPAIN (2.4%)
35,900 Banco de Santander
(Financial) 1,199,416
51,200 Endesa, A.D.R. (Utilities) 931,200
-----------
2,130,616
-----------
SWEDEN (4.1%)
85,333 Astra "B" Free (Health Care) 1,434,768
48,400 L.M. Ericsson Telephone Co.
(Technology) 1,805,925
15,200 Securitas 'B'
(Consumer Svcs.) 459,452
-----------
3,700,145
-----------
SWITZERLAND (8.5%)
1,065 Nestle S.A. (Consumer
Non-Durables) 1,594,968
1,135 Novartis, A.G.
(Health Care)(3) 1,840,352
186 Roche Holdings, A.G.
(Health Care) 1,845,811
4,920 Zurich Insurance
(Financial) 2,342,777
-----------
7,623,908
-----------
UNITED KINGDOM (14.8%)
181,286 Electrocomponents, p.l.c.
(Consumer Services) 1,345,762
131,802 Lloyds TSB Group, p.l.c.
(Financial) 1,703,579
62,193 Misys Ord. (Technology) 1,869,210
96,729 Powergen, p.l.c. (Utilities) 1,258,193
460,000 Rentokil Group, p.l.c.
(Consumer Services) 2,002,023
144,000 Reed International (Business
Equipment & Services) 1,442,639
23,700 Reuters Holdings, p.l.c.,
A.D.S. (Business Equip.
& Svcs.) 1,570,125
41,200 SmithKline Beecham, p.l.c.,
A.D.R., (Health Care) 2,119,225
-----------
13,310,756
-----------
LATIN AMERICA (4.7%)
BRAZIL (1.7%)
9,600 Cemig, A.D.R. (Utilities) 412,800
1,000,000 Light (ON) S.A. (Utilities) 416,630
6,934,000 Telecom Brasileiras, S.A.
(Utilities) 705,174
-----------
1,534,604
-----------
CHILE (1.8%)
28,900 Compania Telecom Chile,
A.D.R. (Utilities) 863,387
25,500 Enersis, A.D.R. (Utilities) 739,500
-----------
1,602,887
-----------
MEXICO (1.2%)
33,100 Panamerican Beverage, Inc.
(Consumer Non-Durables) 1,079,887
-----------
Total common and preferred stocks
(cost: $60,796,490) 83,637,711
-----------
SHORT TERM SECURITIES (7.7%) (2)
4,123,000 Chevron USA, Inc.,
6.00%, 1/5/98 4,120,251
2,581,000 General Motors Acceptance
Corp., 5.70%, 1/2/98 2,580,591
210,000 Sit Money Market Fund,
5.27% (6) 210,000
-----------
Total short-term securities
(cost: $6,910,842) 6,910,842
-----------
Total investments in securities
(cost: $67,707,332) (7) $90,548,553
===========
See accompanying notes to portfolios of investments on page 31.
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND REVIEW
DECEMBER 31, 1997
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
ANDREW B. KIM, CFA
SENIOR PORTFOLIO MANAGER
The Sit Developing Markets Growth Fund had a tough six months and calendar
year 1997 due to the financial and economic crisis in Asia, and concerns that
these problems could spread to Latin America. For the six months ended December,
the Fund declined -20.54% and for the year declined -5.20%. This compares with
the MSCI Emerging Markets Free (EMF) Index benchmark which declined -25.56% for
the six months and declined -13.40% for the year. The MSCI-EMF Asia index was
down -33.24% in the December quarter, following a -25.25% decrease in the
September quarter. The contagion effect which began in Thailand in July spread
to Latin America, causing the MSCI-EMF Latin American index to drop -11.14%
after a +4.08% increase in the preceding three months.
Fortunately, the Hong Kong dollar peg to the U.S. dollar and China's RNB
currency remained unchanged, improving investor expectations for currency
stability in Asia. However, the cost of preserving currency stability proved to
be large as countries like Brazil and Argentina had to increase interest rates
steeply. In addition to hurting the operating results of interest rate-sensitive
industry sectors, high interest rates will have a negative impact on equity
valuations even in financially strong countries like Singapore and Taiwan.
Although the widespread currency weakness increased risk premiums, the Fund's
performance results continued to benefit from holdings in Israel, Hungary, and
Portugal.
Given the emergence of the attractive risk/reward ratio, we have recently
purchased SM Prime Holding (department store and shopping mall developer) and
Digitel (2nd largest fixed line telephone company) in the Philippines. We expect
the Asian emerging markets' rally that began in January to continue during 1998,
but it is likely to be characterized by volatility in share prices and
currencies. We are maintaining our Asia weighting at 30% and Latin America at
40%. The remainder will be about evenly divided among Europe, Africa/Middle East
and cash.
Despite a difficult international environment, we believe international
markets offer long-term, risk-tolerant investors opportunities for growth.
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 12/31/97: $10.35 Per Share
6/30/97: $13.04 Per Share
Total Net Assets: $12.93 Million
TOTAL DIVIDEND: $0.01
Ordinary Income: $0.01
PORTFOLIO STRUCTURE - BY REGION
(% of total net assets)
[BAR CHART]
SIT DEVELOPING MARKETS MSCI EMERGING
GROWTH FUND MARKETS FREE INDEX
Latin America 39.7 42.2
Asia 29.1 28.5
Africa/Middle East 10.2 14.6
Europe 8.2 14.7
Cash Equivalents 12.8 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 -18.60% -17.84% -19.75% -18.60% -17.84% -19.75%
(unannualized)
1 Year -5.20 -13.40 -10.21 -5.20 -13.40 -10.21
3 Year 2.09 -5.75 -2.09 6.41 -16.26 -6.13
Inception 1.20 -4.19 -1.17 4.26 -13.92 -4.06
(7/1/94)
</TABLE>
* As of 12/31/97
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE 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.
GROWTH OF $10,000
[PLOT POINTS GRAPH]
The sum of $10,000 invested at inception (7/1/94) and held until 12/31/97 would
have grown to $10,426 in the Fund or $8,608 in the Morgan Stanley Capital Int'l
Emerging Markets Free Index assuming reinvestment of all dividends and capital
gains.
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Utilities 39.9
Technology 11.4
Consumer Non-Durables 10.4
Retail 9.5
Financial 7.0
Consumer Services 4.8
Health Care 2.3
Multi-Industry 1.6
Capital Goods 0.3
Other Assets & Liabilities 12.8
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1997 (UNAUDITED)
10 LARGEST HOLDINGS
* Nice Systems, A.D.R.
* Datacraft Asia Ltd.
* Panamerican Beverage, Inc.
* Grupo Elektra S.A., G.D.R.
* Grupo Casa Autrey, A.D.R.
* Telebras, A.D.R.
* TV Azteca, S.A., A.D.R.
* Hong Kong & China Gas
* Enersis, A.D.R.
* Portugal Telecom, A.D.R.
Total number of holdings: 48
- -------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------
COMMON & PREFERRED STOCKS (87.2%)(2)
AFRICA/ MIDDLE EAST (10.2%)
ISRAEL (7.7%)
14,700 Home Centers, A.D.R.
(Retail) (3)(5) $161,700
15,100 Nice Systems Ltd., A.D.R.
(Utilities) (3) 634,200
14,000 Tadiran Telecom, A.D.R.
(Utilities) (3) 194,250
-----------
990,150
-----------
SOUTH AFRICA (2.5%)
75,651 Dimension Data (Technology)
(3) (4) 326,451
-----------
ASIA (29.1%)
HONG KONG (7.9%)
23,000 Citic Pacific Ltd.
(Utilities) 91,418
184,000 Founder (Technology) 113,976
184,000 Hong Kong & China Gas
(Utilities) 356,175
10,498 HSBC Holdings (Financial) 258,768
32,500 Hutchison Whampoa (Multi-
Industry) 203,833
-----------
1,024,170
-----------
INDONESIA (2.1%)
625,600 PT Dynaplast (Consumer
Non-Durables) (5) 51,185
129,000 PT Ramayana Lestari
(Retail)(3) 121,377
182,000 PT Telekomunikasi Local
(Utilities) 96,791
-----------
269,353
-----------
KOREA (2.1%)
5,900 Korea Electric Power, A.D.R.
(Utilities) (3) 59,000
10,500 Korea Electric Power
(Utilities) (3) 97,257
390 Korea Mobile Telecom
(Telecommunications) 112,628
-----------
268,885
-----------
MALAYSIA (0.9%)
104,600 Malaysian Assurance Alliance
(Financial) 119,944
-----------
PHILIPPINES (2.2%)
7,800 Philippine Long Distance,
A.D.R. (Utilities) 175,500
711,000 SM Prime Holdings, Inc.
(Retail) 105,333
-----------
280,833
-----------
SINGAPORE (8.2%)
32,000 Clipsal Industries
(Capital Goods)(4) 40,960
234,000 Datacraft Asia Ltd.
(Technology) 603,720
93,000 Electronic Resources
(Technology) 94,352
544,000 Informatics Holdings
(Consumer Services) (3) 242,065
14,000 United Overseas Bank
(Financial) 77,662
-----------
1,058,759
-----------
TAIWAN (4.5%)
20,825 President Enterprises, G.D.S.
(Consumer Non-Durables)
(3)(4) 249,902
6,500 Synnex, G.D.R. (Technology)
(3)(4) 118,625
19,092 Yageo, G.D.R. (Technology)(3) 214,785
-----------
583,312
-----------
THAILAND (1.2%)
32,400 Advanced Info Services
(Technology) 159,657
-----------
EUROPE (8.2%)
HUNGARY (1.4%)
6,700 Matav, A.D.R. (Utilities) (3) 174,200
-----------
PORTUGAL (6.8%)
13,800 Espirito Santo, A.D.R.
(Financial) 280,313
7,100 Portugal Telecom, A.D.R.
(Utilities) 333,700
<PAGE>
- -------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------
1,500 Telecel Comunicasoes Pessoais,
S.A. (Utilities) (3) $159,821
1,000 Telecel, A.D.S. (Utilities)
(3)(4) 106,600
-----------
880,434
-----------
LATIN AMERICA (39.7%)
ARGENTINA (4.8%)
6,800 Disco S.A., A.D.R.
(Retail) (3) 302,600
8,500 Telefonica De Argentina,
A.D.R. (Telecommunications) 316,625
-----------
619,225
-----------
BRAZIL (8.5%)
4,580 Cemig, A.D.R. (Utilities) 196,940
630,000 Light (ON) (Utilities) 262,477
3,600 Telebras, A.D.R. (Utilities) 419,175
2,250,000 Telecom Brasileiras, S.A.
(Utilities) 228,820
-----------
1,107,412
-----------
CHILE (7.0%)
8,500 Compania Telecom Chile,
A.D.R. (Utilities) 253,938
12,200 Enersis, A.D.R.(Utilities) 353,800
13,400 Laboratorio Chile, A.D.R.
(Health Care) 298,150
-----------
905,888
-----------
MEXICO (15.2%)
24,200 Grupo Casa Autrey, A.D.R.
(Consumer Non-Durables) 494,588
15,300 Grupo Elektra S.A., A.D.R.
(Retail) 538,369
17,000 Panamerican Beverage, Inc.
(Consumer Non-Durables) 554,625
16,500 TV Azteca, S.A., A.D.R.
(Consumer Services) (3) 372,281
-----------
1,959,863
-----------
PERU (4.2%)
9,440 Credicorp, A.D.R. (Financial) 169,920
166,665 Luz Del Sur (Utilities) (3) 192,659
7,600 Telefonica Del Peru, A.D.R.
(Utilities) (3) 176,700
-----------
539,279
-----------
Total common and preferred stocks
(cost: $10,733,152) 11,267,815
-----------
SHORT-TERM SECURITIES (10.0%) (2)
300,000 Associates Corp., 5.90%,
1/7/98 299,705
500,000 Chevron USA, Inc., 6.00%,
1/5/98 499,667
500,000 General Motors Acceptance,
6.20%, 1/2/98 499,914
-----------
Total short-term securities
(cost $1,299,286) 1,299,286
-----------
Total investments in securities
(cost $12,032,438) (7) $12,567,101
===========
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 December 31, 1997,
is $212,885, $13,825, and $216,531 in Developing Markets Growth,
International Growth, and Small Cap Growth Funds respectively, which
represents 1.6%, 0.0%, and 0.3% 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 PT Dynaplast 1/17/96 - 1/19/97 625,600 184,582
International Growth Fund Concordia Paper, A.D.R. 3/30/95 - 10/10/95 15,800 187,141
Small Cap Growth Fund FemRx, Inc. 3/27/96 - 8/7/97 84,500 542,625
</TABLE>
(6) This security represents an investment in an affiliated party and comprises
1.1% and 0.2% of the Small Cap Growth and International Growth Fund's net
assets, respectively. See note 3 to the accompanying financial statements.
(7) At December 31, 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 $51,246,116 $246,912,491 $54,238,921
=========== ============ ===========
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $30,890,759 $142,466,445 $17,564,848
Gross unrealized depreciation (1,393,513) (9,710,230) (5,826,466)
----------- ------------ -----------
Net unrealized appreciation $29,497,246 $132,756,215 $11,738,382
=========== ============ ===========
DEVELOPING
INTERNATIONAL MARKETS
BALANCED GROWTH GROWTH
FUND FUND FUND
----------- ------------ -----------
Cost for federal income tax purposes $4,147,708 $67,707,332 $12,032,438
=========== ============ ===========
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $1,382,175 $25,324,965 $2,445,440
Gross unrealized depreciation (65,968) (2,483,745) (1,910,778)
----------- ------------ -----------
Net unrealized appreciation $1,316,207 $22,841,220 $534,662
=========== ============ ===========
</TABLE>
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF ASSETS & LIABILITIES - DECEMBER 31, 1997 (UNAUDITED)
<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...................... $51,246,116 $246,912,491 $54,238,921 $ 4,147,708 $67,707,332 $12,032,438
=========== ============ =========== =========== =========== ===========
Investments in securities, at
market value - see
accompanying schedule for
detail............................... $80,743,362 $379,668,706 $65,977,302 $ 5,463,917 $90,548,553 $12,567,101
Cash in bank on demand
deposit.............................. ------ ------ ------ 245,201 ------ 28,227
Receivables:
Dividends and accrued interest...... 70,118 95,511 10,410 22,472 64,995 23,412
Fund shares sold..................... 126,143 190,925 143,298 48,340 447,924 414,675
Investment securities sold........... 840,922 3,620,145 412,717 ------ 1,562 ------
Foreign withholding taxes
receivable.......................... ------ ------ ------ ------ 31,258 495
Other Receivables.................... 39,094 ------ 688 87 37,132 18,938
----------- ------------ ----------- ----------- ----------- -----------
Total assets..................... 81,819,639 383,575,287 66,544,415 5,780,017 91,131,424 13,052,848
----------- ------------ ----------- ----------- ----------- -----------
LIABILITIES
Disbursements in excess
of cash balances..................... 5,768 16,994 360 ------ 24,018 ------
Payables:
Investment securities purchased...... 94,684 662,260 259,946 31,561 482,951 59,841
Fund shares redeemed................. 340,929 2,204,867 273,787 70,789 584,568 36,417
Accrued investment management
and advisory services fee.......... 68,861 315,002 79,882 4,762 113,823 21,229
Foreign withholding taxes payable.... ------ ------ ------ ------ 4,040 4,424
Other payables....................... 232 80,655 65 ------ 1,121 2,299
----------- ------------ ----------- ----------- ----------- -----------
Total liabilities................ 510,474 3,279,778 614,040 107,112 1,210,521 124,210
----------- ------------ ----------- ----------- ----------- -----------
Net assets applicable to
outstanding capital stock............ $81,309,165 $380,295,509 $65,930,375 $ 5,672,905 $89,920,903 $12,928,638
=========== ============ =========== =========== =========== ===========
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.................... 2,030,855 25,895,844 3,446,438 388,593 5,440,755 1,249,473
=========== ============ =========== =========== =========== ===========
Net asset value per share of
outstanding capital stock............ $40.04 $14.69 $19.13 $14.60 $16.53 $10.35
=========== ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements on pages 36-46.
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF OPERATIONS - SIX MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
<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*............................ $ 322,193 $ 711,861 $ 144,293 $ 18,766 $ 334,840 $ 67,436
Interest.............................. 117,405 476,178 134,455 75,836 118,052 42,810
---------- ----------- ---------- -------- ---------- -----------
Total income....................... 439,598 1,188,039 278,748 94,602 452,892 110,246
---------- ----------- ---------- -------- ---------- -----------
EXPENSES (NOTE 3):
Investment management and
advisory services fee.............. 398,977 2,534,572 495,353 27,575 897,991 154,689
Less fees and expenses absorbed
by investment advisor........... ---- (506,914) ---- ---- (169,890) ----
---------- ----------- ---------- -------- ---------- -----------
Total net expenses................. 398,977 2,027,658 495,353 27,575 728,101 154,689
---------- ----------- ---------- -------- ---------- -----------
Net investment income (loss)....... 40,621 (839,619) (216,605) 67,027 (275,209) (44,443)
---------- ----------- ---------- -------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS :
Net realized gain (loss) (note 2)..... 5,156,632 43,762,191 4,709,829 269,128 1,095,965 (344,334)
Net change in unrealized appreciation
(depreciation) on investments...... 1,869,617 (9,126,158) (1,416,946) 74,720 (7,687,055) (3,023,827)
Realized gain (loss) on foreign
currency transactions.............. (46) ---- ---- 6 991,290 (4,368)
Net change in unrealized appreciation
(depreciation) on foreign currency
transactions(note 3)............... 68 ---- ---- ---- (805,399) (824)
---------- ----------- ---------- -------- ---------- -----------
Net gain (loss) on investments..... 7,026,271 34,636,033 3,292,883 343,854 (6,405,199) (3,373,353)
---------- ----------- ---------- -------- ---------- -----------
Net increase in net assets
resulting from operations............... $7,066,892 $33,796,414 $3,076,278 $410,881 ($6,680,408) ($3,417,796)
========== =========== ========== ======== =========== ===========
</TABLE>
* Dividends are net of foreign withholding tax of $2,429 and $27,923 in the
Developing Markets Growth Fund and International Growth Fund, respectively.
See accompanying notes to financial statements on pages 36-46.
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LARGE CAP MID CAP
GROWTH FUND GROWTH FUND
------------------------ ---------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED
1997 JUNE 30, 1997 JUNE 30,
(UNAUDITED) 1997 (UNAUDITED) 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).............................. $40,621 $116,342 ($839,619) ($735,402)
Net realized gain (loss) on investments................... 5,156,632 5,023,320 43,762,191 28,436,683
Net change in unrealized appreciation
(depreciation) on investments............................ 1,869,617 12,065,384 (9,126,158) 31,494,086
Net realized gain (loss) on foreign currency transactions. (46) 27 ---- ----
Net change in unrealized appreciation (depreciation) on
foreign currency transactions............................ 68 (79) ---- ----
----------- ----------- ------------ ------------
Net increase (decrease) in net assets resulting from
operations............................................. 7,066,892 17,204,994 33,796,414 59,195,567
----------- ----------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (132,500) (47,000) ---- ----
Net realized gains on investments......................... (7,922,500) (3,850,001) (46,136,334) (59,500,008)
----------- ----------- ------------ ------------
Total distributions...................................... (8,055,000) (3,897,001) (46,136,334) (59,500,008)
----------- ----------- ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold................................. 11,982,632 16,419,829 141,788,420 242,840,720
Reinvested distributions.................................. 7,865,695 3,811,428 43,699,732 56,948,223
Payments for shares redeemed.............................. (9,777,431) (14,329,400) (179,395,511) (269,258,711)
----------- ----------- ------------ ------------
Increase (decrease) in net assets from
capital share transactions............................. 10,070,896 5,901,857 6,092,641 30,530,232
----------- ----------- ------------ ------------
Total increase in net assets........................... 9,082,788 19,209,850 (6,247,279) 30,225,791
NET ASSETS
Beginning of period....................................... 72,226,377 53,016,527 386,542,788 356,316,997
----------- ----------- ------------ ------------
End of period............................................. $81,309,165 $72,226,377 $380,295,509 $386,542,788
=========== =========== ============ ============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)................... $50,247,448 $40,176,552 $228,250,123 $222,157,482
Undistributed (distributions in excess of) net
investment income........................................ 7,638 99,517 (839,619) ----
Accumulated net realized gain (loss) from
security transactions and foreign
currency transactions.................................... 1,556,848 4,322,762 20,128,790 22,502,933
Unrealized appreciation (depreciation) on investments 29,497,246 27,627,629 132,756,215 141,882,373
Unrealized appreciation (depreciation) on foreign
currency transactions.................................... (15) (83) ---- ----
----------- ----------- ------------ ------------
$81,309,165 $72,226,377 $380,295,509 $386,542,788
=========== =========== ============ ============
CAPITAL TRANSACTIONS IN SHARES:
Sold...................................................... 277,747 464,406 8,638,495 16,372,618
Reinvested distributions.................................. 199,890 114,020 3,101,472 3,987,971
Redeemed.................................................. (234,897) (408,921) (10,899,091) (18,171,415)
----------- ----------- ------------ ------------
Net increase (decrease)...................................... 242,740 169,505 840,876 2,189,174
=========== =========== ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP BALANCED INTERNATIONAL DEVELOPING MARKETS
GROWTH FUND FUND GROWTH FUND GROWTH FUND
- -------------------------- ----------------------- ------------------------- ------------------------
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED
1997 JUNE 30, 1997 JUNE 30, 1997 JUNE 30, 1997 JUNE 30,
(UNAUDITED) 1997 (UNAUDITED) 1997 (UNAUDITED) 1997 (UNAUDITED) 1997
- ----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
($216,605) ($434,682) $67,027 $109,799 ($275,209) $42,419 ($44,443) $36,639
4,709,829 (912,902) 269,128 200,106 1,095,965 1,640,159 (344,334) 76,993
(1,416,946) 3,290,336 74,720 608,673 7,687,055 11,953,639 (3,023,827) 2,344,576
---- ---- 6 (1) 991,290 (160,526) (4,368) (22,737)
---- ---- ---- ---- (805,399) 806,608 (824) (1,147)
- ----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
3,076,278 1,942,752 410,881 918,577 (6,680,408) 14,282,299 (3,417,796) 2,434,324
- ----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
---- ---- (94,000) (105,900) (991,000) (72,156) (13,900) ----
(2,211,000) (2,420,001) (443,000) (23,900) (2,638,000) (2,161,979) ---- ----
- ----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
(2,211,000) (2,420,001) (537,000) (129,800) (3,629,000) (2,234,135) (13,900) 0
- ----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
43,657,404 73,008,089 719,544 735,329 41,880,297 61,912,441 5,038,183 11,729,661
2,166,834 2,389,614 535,015 129,753 3,462,126 2,104,203 13,512 ----
(39,117,033) (67,408,659) (558,698) (612,558) (44,391,216) (65,498,487) (5,480,417) (6,020,654)
- ----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
6,707,205 7,989,044 695,861 252,524 951,207 (1,481,843) (428,722) 5,709,007
- ----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
7,572,483 7,511,795 569,742 1,041,301 (9,358,201) 10,566,321 (3,860,418) 8,143,331
58,357,892 50,846,097 5,103,163 4,061,862 99,279,104 88,712,783 16,789,056 8,645,725
- ----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
$65,930,375 $58,357,892 $5,672,905 $5,103,163 $89,920,903 $99,279,104 $12,928,638 $16,789,056
=========== =========== ========== ========== =========== =========== =========== ===========
$52,944,243 $46,237,038 $4,342,173 $3,646,312 $67,517,703 $66,566,496 $13,192,667 $13,621,389
(216,605) ---- 4,103 31,076 (1,072,947) 193,262 (44,441) 13,902
1,464,355 (1,034,474) 10,422 184,287 642,738 1,193,482 (752,013) (403,311)
11,738,382 13,155,328 1,316,207 1,241,488 22,841,220 30,528,276 534,662 3,558,489
---- ---- ---- ---- (7,811) 797,588 (2,237) (1,413)
- ----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
$65,930,375 $58,357,892 $5,672,905 $5,103,163 $89,920,903 $99,279,104 $12,928,638 $16,789,056
=========== =========== ========== ========== =========== =========== =========== ===========
2,176,140 4,089,297 47,161 54,438 2,329,926 3,718,121 424,147 1,020,359
118,212 130,938 36,730 9,958 213,976 130,858 1,354 ----
(1,936,513) (3,769,890) (37,180) (45,668) (2,449,577) (3,947,014) (463,862) (521,868)
- ----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
357,839 450,345 46,711 18,728 94,325 (98,035) (38,361) 498,491
=========== =========== ========== ========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements on pages 36-46.
<PAGE>
SIT MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. 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.
This report covers the equity funds of Sit Mutual Funds. The investment
objective for each Fund is as follows:
Fund Investment Objective
---- --------------------
Large Cap Growth Maximize long-term capital appreciation.
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 Achieve long-term growth.
Developing Markets Growth Maximize long-term capital appreciation.
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 December 31, 1997, the Developing Markets Growth,
International Growth, and Small Cap Growth Funds held investments in
securities deemed illiquid by the investment adviser. The aggregate
value of such securities at December 31, 1997, was $212,885, $13,825,
and $216,531 representing 1.6%, 0.0%, and 0.3% of the Fund's net
assets, respectively. Pursuant to the guidelines adopted by the Board
<PAGE>
of Directors, certain unregistered securities are determined to be
liquid and are not included within the limitation specified above.
FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS
The market value of securities and other assets and liabilities
denominated in foreign currencies for Developing Markets Growth Fund
and International Growth Fund are translated daily into U.S. dollars at
the closing rate of exchange. Purchases and sales of securities, income
and expenses are translated at the exchange rate on the transaction
date. Dividend and interest income includes currency exchange gains
(losses) realized between the accrual and payment dates on such income.
Exchange gains (losses) may also be realized between the trade and
settlement dates on security and forward contract transactions. For
securities denominated in foreign currencies, the effect of changes in
foreign exchange rates on realized and unrealized gains or losses is
reflected as a component of such gains or losses.
The Developing Markets Growth and International Growth Funds may enter
into forward foreign currency exchange contracts for operational
purposes and to protect against adverse exchange rate fluctuation. The
net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Funds and the resulting unrealized appreciation
or depreciation are determined using foreign currency exchange rates
from an independent pricing service. The Funds are subject to the
credit risk that the other party will not complete the obligations of
the contract.
At December 31, 1997, the International Growth Fund had entered into a
foreign currency exchange contract that obligates the Fund to deliver
currencies at specified future dates. The unrealized appreciation
and/or depreciation on this contract is included in the accompanying
financial statements. The terms of the open contract are as follows:
International Growth Fund:
<TABLE>
<CAPTION>
Exchange date Currency to be delivered Currency to be received Unrealized appreciation (depreciation)
------------- ------------------------ ----------------------- --------------------------------------
<S> <C> <C> <C>
January 5, 1998 483,388 3,742,389 ($ 31)
U.S. Dollar Hong Kong Dollar
</TABLE>
FEDERAL TAXES
The Funds' policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders. Therefore, no
income tax provision is required. Also, in order to avoid the payment
of any federal excise taxes, the Funds 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.
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.
<PAGE>
CONCENTRATION OF INVESTMENTS
Developing Markets Growth Fund may concentrate investments in countries
with limited or developing capital markets which may involve greater
risks than investments in more developed markets and the prices of such
investments may be volatile. The consequences of political, social or
economic changes in these markets may have disruptive effects on the
market prices of the Fund's investments and the income it generates, as
well as the Fund's ability to repatriate such amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported results. Actual
results could differ from those estimates.
(2) INVESTMENT SECURITY TRANSACTIONS
Purchases of and proceeds from sales and maturities of investment
securities, other than short-term securities, for the period ended
December 31, 1997, were as follow:
Purchases Proceeds
--------- --------
Large Cap Growth Fund $16,441,616 $12,800,884
Mid Cap Growth Fund 67,608,835 125,715,499
Small Cap Growth Fund 15,150,116 14,275,364
Balanced Fund 1,835,489 1,669,159
International Growth Fund 15,349,443 18,737,996
Developing Markets Growth Fund 2,396,699 3,010,690
(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%
<PAGE>
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 December 31, 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 December 31, 1998, this voluntary fee waiver may be
discontinued by the Adviser in its sole discretion.
For the period January 1, 1994 through December 31, 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 International Growth Fund to 1.50% of the Fund's average daily net
assets. After December 31, 1998, this voluntary fee waiver may be
discontinued by the Adviser in its sole discretion.
During the period ended December 31, 1997, for the International Growth
and Mid Cap Growth Funds, SIA voluntarily absorbed an additional
$169,890 and $506,914, respectively, in expenses that were otherwise
payable by the Funds.
As of December 31, 1997, the Small Cap Growth Fund and International
Growth Fund, and had invested $710,000 and $210,000, 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 $369,607 were paid or payable to SKI for the period ended December
31, 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
December 31, 1997:
% Shares
Shares Outstanding
------ -----------
Large Cap Growth Fund 400,625 19.73
Mid Cap Growth Fund 3,184,533 12.30
Small Cap Growth Fund 931,848 27.04
Balanced Fund 125,059 32.18
International Growth Fund 993,359 18.26
Developing Markets Growth Fund 338,450 27.09
(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>
Six Months
Ended
December 31, Years Ended June 30,
1997 -------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $40.39 $32.75 $28.38 $23.89 $25.61 $24.22
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .02 .07 .04 .11 .23 .33
Net realized and unrealized gains
(losses) on investments 3.87 10.02 6.61 5.88 (.33) 1.94
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations 3.89 10.09 6.65 (.10) 5.9 2.27
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.07) (.03) (.04) (.09) (.23) (.34)
From realized gains (4.17) (2.42) (2.24) (1.41) (1.39) (.54)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (4.24) (2.45) (2.28) (1.50) (1.62) (.88)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $40.04 $40.39 $32.75 $28.38 $23.89 $25.61
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 9.82% 32.36% 24.48% 26.33% (0.58%) 9.52%
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $81,309 $72,226 $53,017 $45,211 $34,612 $37,602
RATIOS:
Expenses to average daily net assets 1.00%(3) 1.00%(2) 1.00%(2) 1.00%(2) 1.10%(2) 1.42%
Net investment income to average daily net assets 0.10%(3) 0.20%(2) 0.14%(2) 0.42%(2) 0.89%(2) 1.31%
Average brokerage commission rate(4) $0.0550 $0.0560 n/a n/a n/a n/a
Portfolio turnover rate (excluding short-term securities) 17.22% 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) Percentages are adjusted to an annual rate.
(4) 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>
Six Months
Ended
December 31, Years Ended June 30,
1997 -------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $15.43 $15.58 $13.00 $11.08 $11.91 $10.52
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.03) (.03) (.04) ---- (.01) .03
Net realized and unrealized gains
(losses) on investments 1.31 2.50 4.07 2.96 (.51) 1.43
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations 1.28 2.47 4.03 2.96 (.52) 1.46
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ---- ---- ---- ---- (.02) (.05)
From realized gains (2.02) (2.62) (1.45) (1.04) (.29) (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.02) (2.62) (1.45) (1.04) (.31) (.07)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $14.69 $15.43 $15.58 $13.00 $11.08 $11.91
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 8.85% 17.23% 33.00% 28.44% (4.62%) 13.88%
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $380,296 $386,543 $356,317 $327,879 $285,175 $341,702
RATIOS:
Expenses to average daily net assets 1.00%(2) 0.92%(2) 0.77% 0.83% 0.82% 0.80%
Net investment income (loss) to average daily net assets (0.41%)(2) (0.20%)(2) (0.23%) 0.02% (0.08%) 0.35%
Average brokerage commission rate (3) 0.0540 $0.0510 n/a n/a n/a n/a
Portfolio turnover rate (excluding short-term securities 18.58% 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) Percentages for the period ended December 31, 1997 are adjusted to an
annual rate. Effective November 1, 1996, total Fund expenses are
contractually limited to 1.25% of average daily net assets. However, during
the period ended December 31, 1997, and the year ended June 30, 1997, the
investment adviser voluntarily absorbed $506,914, and $609,840, respec-
tively, 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 1.25% for the period ended December 31, 1997 and 1.09% for
the year ended June 30, 1997 and the ratio of net investment income (loss)
to average daily net assets would have been (0.66%) and (0.37%),
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 SMALL CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Years Ended June 30,
1997 ------------------------------
(Unaudited) 1997 1996 1995
========================================================================================================
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $18.89 $19.27 $13.49 $10.00
- --------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment loss (.06) (.14) (.11) (.02)
Net realized and unrealized gains
on investments .98 .57 6.03 3.56
- --------------------------------------------------------------------------------------------------------
Total from operations .92 .43 5.92 3.54
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From realized gains (.68) (.81) (.14) (.05)
- --------------------------------------------------------------------------------------------------------
Total distributions (.68) (.81) (.14) (.05)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $19.13 $18.89 $19.27 $13.49
- --------------------------------------------------------------------------------------------------------
Total investment return (1) 5.00% 2.37% 44.13% 35.59%
- --------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $65,930 $58,358 $50,846 $12,015
RATIOS:
Expenses to average daily net assets 1.50%(3) 1.50% 1.50% 1.50%
Net investment income (loss) to average daily net assets (0.66%)(3) (0.81%) (0.91%) (0.30%)
Average brokerage commission rate (2) $0.0490 $0.0480 n/a n/a
Portfolio turnover rate (excluding short-term securities) 23.63% 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 reinvest ment 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.
(3) Percentages are adjusted to an annual rate.
<PAGE>
SIT BALANCED FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Years Ended June 30, Period Ended
1997 ----------------------------- June 30,
(Unaudited) 1997 1996 1995 1994(1)
========================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $14.93 $12.57 $10.99 $9.48 $10.00
- ------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .26 .33 .30 .28 .13
Net realized and unrealized gains
(losses) on investments .91 2.42 1.57 1.50 (.59)
- ------------------------------------------------------------------------------------------------------------------------
Total from operations 1.17 2.75 1.87 1.78 (.46)
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.27) (.32) (.29) (.27) (.06)
From realized gains (1.23) (.07) ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (1.50) (.39) (.29) (.27) (.06)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $14.60 $14.93 $12.57 $10.99 $9.48
- ------------------------------------------------------------------------------------------------------------------------
Total investment return (2) 7.96% 22.42% 17.26% 19.16% (4.56%)
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $5,673 $5,103 $4,062 $2,444 $1,296
RATIOS:
Expenses to average daily net assets 1.00%(4) 1.00% 1.00% 1.00% 1.00%(3)
Net investment income to average daily net assets 2.43%(4) 2.48% 2.61% 2.97% 2.87%(3)
Average brokerage commission rate (3) $0.0560 $0.0570 n/a n/a n/a
Portfolio turnover rate (excluding short-term securities) 32.08% 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.
(4) Percentages are adjusted to an annual rate.
<PAGE>
SIT INTERNATIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Years Ended June 30,
1997 -------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $18.57 $16.29 $15.71 $14.87 $11.99 $10.70
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.04) .01 .02 .09 (.04) (.03)
Net realized and unrealized gains on investments (1.30) 2.70 1.50 1.06 3.08 1.35
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations (1.34) 2.71 1.52 1.15 3.04 1.32
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.19) (.01) (.09) (.04) (.10) (.03)
From realized gains (.51) (.42) (.85) (.27) (.06) ----
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.70) (.43) (.94) (.31) (.16) (.03)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $16.53 $18.57 $16.29 $15.71 $14.87 $11.99
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) (7.16%) 17.04% 10.21% 7.86% 25.26% 12.37%
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $89,921 $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) 1.50%(2) 1.65%(2) 1.85%
Net investment income (loss) to average daily net assets (0.57%)(2) 0.05%(2) 0.13%(2) 0.62%(2) (0.16%)(2) (0.29%)
Average brokerage commission rate (3) $0.0180 $0.0060 n/a n/a n/a n/a
Portfolio turnover rate (excluding short-term securities) 16.76% 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) Percentages for the period ended December 31, 1997 are adjusted to an
annual rate. Total Fund expenses are contractually limited to 1.85% of
average daily net assets. However, during the period ended December 31,
1997 and years ended June 30, 1997, 1996, 1995, and 1994, the investment
adviser voluntarily absorbed $169,890, $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 period ended
December 31, 1997, and 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 (0.92%), (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. The comparability
of this information may be affected by the fact that commission rates per
share vary significantly among foreign countries.
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Years Ended June 30,
1997 ------------------------------
(Unaudited) 1997 1996 1995
========================================================================================================
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $13.04 $10.95 $9.41 $10.00
- --------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.03) .03 ---- ----
Net realized and unrealized gains
(losses) on investments (2.65) 2.06 1.55 (.54)
- --------------------------------------------------------------------------------------------------------
Total from operations (2.68) 2.09 1.55 (.54)
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.01) ---- ---- ----
From realized gains ---- ---- (.01) (.05)
- --------------------------------------------------------------------------------------------------------
Total distributions (.01) ---- (.01) (.05)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $10.35 $13.04 $10.95 $9.41
- --------------------------------------------------------------------------------------------------------
Total investment return (1) (20.54%) 19.09% 16.51% (5.44%)
- --------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $12,929 16,789 $8,646 $4,618
RATIOS:
Expenses to average daily net assets 2.00%(3) 2.00% 2.00% 2.00%
Net investment income (loss) to average daily net assets (0.58%)(3) 0.32% 0.06% 0.03%
Average brokerage commission rate (2) $0.0020 $0.0040 n/a n/a
Portfolio turnover rate (excluding short-term securities) 17.32% 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 reinvest ment 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. The comparability
of this information may be affected by the fact that commission rates per
share vary significantly among foreign countries.
(3) Percentages are adjusted to an annual rate.
<PAGE>
SIT MUTUAL FUNDS
RESULTS OF THE SHAREHOLDER MEETING
The annual meetings of the shareholders of the Funds were held on October 21,
1997. Directors elected by the shareholders at the meeting were as follows:
Eugene C. Sit, Peter L. Mitchelson, William E. Frenzel, John E. Hulse, Sidney L.
Jones, and Donald W. Phillips for all Funds.
The matters voted on by the shareholders of record as of August 25, 1997 and the
results of the shareholders' vote at the October 21, 1997 meeting were as
follows:
1. Election of Directors:
For Withheld
--- --------
Eugene C. Sit
Large Cap Growth 1,228,756 1,689
Mid Cap Growth 12,585,625 65,223
Small Cap Growth 2,227,362 13,880
Balanced 243,643 394
International Growth 3,097,945 5,276
Developing Markets Growth 861,031 4,430
William E. Frenzel
Large Cap Growth 1,227,579 2,865
Mid Cap Growth 12,577,589 73,260
Small Cap Growth 2,226,656 14,586
Balanced 243,643 394
International Growth 3,092,172 11,050
Developing Markets Growth 860,495 4,966
John E. Hulse
Large Cap Growth 1,228,122 2,322
Mid Cap Growth 12,554,098 96,751
Small Cap Growth 2,227,362 13,880
Balanced 243,643 394
International Growth 3,098,278 4,944
Developing Markets Growth 861,031 4,430
Sidney L. Jones
Large Cap Growth 1,228,392 2,052
Mid Cap Growth 12,585,719 65,129
Small Cap Growth 2,227,362 13,880
Balanced 243,643 394
International Growth 3,098,278 4,944
Developing Markets Growth 861,031 4,430
Peter L. Mitchelson
Large Cap Growth 1,228,756 1,689
Mid Cap Growth 12,588,697 62,151
Small Cap Growth 2,227,362 13,880
Balanced 243,643 394
International Growth 3,098,724 4,498
Developing Markets Growth 861,031 4,430
Donald W. Phillips
Large Cap Growth 1,228,277 2,167
Mid Cap Growth 12,587,713 63,135
Small Cap Growth 2,227,362 13,880
Balanced 243,643 394
International Growth 3,098,301 4,921
Developing Markets Growth 861,031 4,430
<PAGE>
For Withheld
--- --------
Michael C. Brilley
U.S. Government Securities 4,405,645 18,508
Money Market 17,579,022 97,609
Tax-Free Income 22,290,768 60,860
MN Tax-Free Income 6,647,332 25,079
Bond 603,932 467
2. Ratification of KPMG Peat Marwick as independent auditors for the
Funds:
For Against Abstain
--- ------- -------
Large Cap Growth 1,219,272 9,028 2,144
Mid Cap Growth 12,546,640 57,900 46,308
Small Cap Growth 2,215,297 19,839 6,105
Balanced 243,643 394 000
International Growth 3,044,018 13,712 45,491
Developing Markets Growth 860,973 2,283 2,205
3. Amendment of each Fund's fundamental investment policy to eliminate
restrictions on each Fund's ability to pledge Fund assets and allow
each Fund to temporarily borrow money for emergency or extraordinary
purposes:
For Against Abstain
--- ------- -------
Large Cap Growth 1,069,595 100,755 9,418
Mid Cap Growth 10,229,887 1,158,157 177,148
Small Cap Growth 2,070,240 132,757 16,251
Balanced 228,337 8,436 3,663
International Growth 2,616,075 287,869 69,553
Developing Markets Growth 744,199 51,953 7,599
4. Amendment of the Large Cap Growth Fund's fundamental investment
objective from "achieve long-term capital appreciation, and
secondarily, current income" to "maximize long-term capital
appreciation."
For Against Abstain
--- ------- -------
Large Cap Growth 1,168,012 7,596 4,160
<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, CFA 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
