STOCK FUNDS QUARTERLY REPORT
------------------------------------
MARCH 31, 1998
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 GROWTH FUND
REGIONAL GROWTH FUND
SCIENCE AND TECHNOLOGY GROWTH FUND
[LOGO] SIT(SM) MUTUAL FUNDS
THE INVESTMENT IS MUTUAL.(SM)
<PAGE>
SIT MUTUAL FUNDS
STOCK FUNDS QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
----
Chairman's Letter................................................... 1
Performance Review.................................................. 2
Fund Reviews
Large Cap Growth Fund......................................... 4
Mid Cap Growth Fund........................................... 6
Small Cap Growth Fund......................................... 8
Balanced Fund................................................. 10
International Growth Fund..................................... 12
Developing Markets Growth Fund................................ 14
Regional Growth Fund.......................................... 16
Science And Technology Growth Fund............................ 18
A Look at the Sit Mutual Funds...................................... 20
This document must be preceded or accompanied by a Prospectus.
<PAGE>
SIT MUTUAL FUNDS
CHAIRMAN'S LETTER - MARCH 31, 1998
[PHOTO]
Dear Fellow Shareholders:
We are pleased to include our two new Funds -- Sit Regional Growth and Sit
Science and Technology Growth Funds -- in our Stock Funds Quarterly Report. Both
of the Funds enjoyed launches that exceeded our expectations, in terms of
investor interest and the solid returns garnered during the first quarter of
their existence. Thank you to our initial investors in the Funds.
Economic Overview
The fundamental backdrop for the above-average financial returns being achieved
in the United States continues to be favorable. Economic growth, even though
projected to be slightly lower in 1998 than in 1997, remains solid at a forecast
+3%. Reasons for the strong sustained pace include consistent gains in personal
income and the absence, thus far, of any meaningful negative impacts from the
Asian turmoil. We anticipate weaker trends to develop in Asia later in the year,
particularly as Japan appears stuck in recession. We continue to think, however,
that the domestic consumer sector (which accounts for two-thirds of total gross
domestic product) will remain strong enough to allow our modest economic growth
projection to be achieved. The unemployment rate is currently only at 4.7% and
personal income is growing at approximately +5.7% year-over-year.
Inflation continues to be surprisingly dormant despite wage pressures in many
industries. Year-over-year, the Consumer Price Index reached a new cyclical low
of +1.4% in February. Strong productivity growth has been an important
influence, as has global competition, savvy price-conscious consumers and excess
retailing capacity. Since inflation is the bedrock element impacting attitudes
toward pricing of financial assets, we monitor potential changes in the pricing
outlook extremely closely.
With benign inflation, interest rates changed very little in the quarter with
the 30-year U.S. Treasury yield at 5.94% on March 31st. The Federal Open Market
Committee met on March 31st and left interest rates unchanged. Committee members
continue to debate conflicting issues of a strong domestic economy with tight
labor markets and the negative impact on the trade sector from Asian woes.
Equity Strategy Summary:
Domestic equity markets continued to rise in the first quarter of 1998 in the
face of potentially unsettling news including signs of decelerating U.S.
corporate profit growth, warnings by one of Japan's top business executives that
the Japanese economy may be nearing collapse, and agreement by OPEC to reduce
crude oil output by 1.25 million barrels per day. Shrugging off these
developments, the S&P 500 total return of +14.0% was the strongest first quarter
return since 1991. Growth stocks outperformed value stocks throughout the entire
capitalization spectrum. This is a normal phenomenon in periods of overall
corporate profit deceleration.
Despite the clearly outstanding performance of U.S. equities during the quarter,
it was exceeded by many international exchanges. In fact, the United States'
ranking on year-to-date return through late March was 19th out of 28 countries.
Surging European markets outpaced the U.S. as did select Asian markets
rebounding from the devastating second half of 1997, including Thailand and
Malaysia, rising +65.7% and +36.2%, respectively, in U.S. dollar terms.
Continued foreign investor and mutual fund buying, and positive inflation news
could sustain the current rally. Investors put a record $37.5 billion in net new
cash into mutual funds in March. Latest 12-month domestic equity results ranged
between +35% and +50%, highlighting the extraordinary nature of the current bull
market. Caution should be noted with regard to one equity market driver, that
being near-term corporate profit growth. Projections of year-over-year first
quarter 1998 operating earnings currently show a decrease of -2%. However, this
earnings slowdown supports our case for investing in high quality growth
companies that can grow through more challenging times.
We appreciate the trust you place in us by investing in Sit Mutual Funds. We are
proud to now offer the Sit Regional Growth Fund and Sit Science & Technology
Fund to shareholders.
With best wishes,
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
1
<PAGE>
SIT MUTUAL FUNDS
MARCH 31, 1998 PERFORMANCE REVIEW - STOCK FUNDS
STOCK FUNDS REVIEW
After short-lived weakness in early January, domestic stocks garnered strong
returns over the rest of the first quarter of 1998. Early investor concerns over
the impact of the Asian economic crisis were quickly dismissed, as the
beneficial impact of lower inflation has to date outweighed the negative
consequence on company earnings. The S&P 500 total return of +14.0% was the
strongest first quarter since 1991. Of note was the selectivity of the increase
within the S&P 500, insofar as just five of fifteen sectors outperformed the
benchmark. The advance in equities was especially remarkable because it was not
supported by a decrease in interest rates. The yield on the 30-year U.S.
Treasury bond increased by two basis points during the quarter.
For the quarter, growth stocks outperformed value issues throughout the
capitalization spectrum. Slowing corporate profit growth was a concern for the
market in general, but works to the benefit of growth stocks vis-a-vis their
value counterparts. Traditional growth stock sectors health care and technology
were two of the five outperforming S&P 500 sectors referenced above. Returns
were strong across all capitalization sizes. Large cap stocks led once again,
but small cap indices also achieved double digit returns.
Internationally, results were similarly strong. The Morgan Stanley EAFE Index
return of +14.7% exceeded that of the S&P 500. Many European markets had
excellent quarters, especially those of Southern Europe. Interest rate
convergence in the run up to European Monetary Union is greatly benefiting the
formerly high interest rate countries like Spain and Italy. Returns were far
more varied in Asia where markets that bore the brunt of 1997's devastation
bounced back smartly. Korea and Thailand recorded strong performances, but Japan
continued to struggle.
1986 1987 1988
---- ---- ----
SIT LARGE CAP GROWTH 21.83% 5.32% 5.33%
SIT MID CAP GROWTH 10.33 5.50 9.77
SIT SMALL CAP GROWTH ---- ---- ----
SIT BALANCED ---- ---- ----
SIT INTERNATIONAL GROWTH ---- ---- ----
SIT DEVELOPING MARKETS GROWTH ---- ---- ----
SIT REGIONAL GROWTH ---- ---- ----
SIT SCIENCE & TECHNOLOGY GROWTH ---- ---- ----
S&P 500 INDEX 18.64 5.28 16.55
S&P MIDCAP 400 INDEX 16.21 -2.04 20.87
RUSSELL 2000 INDEX(2) -- -- --
EAFE INDEX(3) -- -- --
MSCI EMERGING MARKETS FREE INDEX(4) -- -- --
PSE TECH 100 INDEX -- -- --
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
SIT REGIONAL GROWTH n/a 12/31/97
SIT SCIENCE & TECHNOLOGY GROWTH n/a 12/31/97
S&P 500 INDEX(5)
S&P MIDCAP 400 INDEX(5)
RUSSELL 2000 INDEX(2)
EAFE INDEX(3)
MCSI EMERGING MARKETS FREE INDEX(4)
PSE TECH 100 INDEX
(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.
<PAGE>
TOTAL RETURN - CALENDAR YEAR
<TABLE>
<CAPTION>
YTD
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
32.02% -2.37% 32.72% 4.94% 3.15% 2.83% 31.66% 23.05% 31.70% 15.48%
35.15 -2.04 65.50 -2.14 8.55 -0.47 33.64 21.87 17.70 13.61
---- ---- ---- ---- ---- 11.57(1) 52.16 14.97 7.63 7.79
---- ---- ---- ---- ---- -0.33 25.43 15.80 21.73 9.73
---- ---- 4.10(1) 2.69 48.37 -2.99 9.36 10.31 4.81 15.37
---- ---- ---- ---- ---- -2.02(1) -4.29 17.27 -5.20 7.83
---- ---- ---- ---- ---- ---- ---- ---- ---- 11.30
---- ---- ---- ---- ---- ---- ---- ---- ---- 11.60
31.61 -3.05 30.46 7.64 10.07 1.32 37.58 22.96 33.36 13.95
35.55 -5.12 50.11 11.92 13.95 -3.60 30.94 19.19 32.29 11.01
-- -- -- -- -- 4.61 28.45 16.49 22.36 10.06
-- -- 0.26 -12.17 32.56 7.78 11.21 6.05 1.78 14.71
-- -- -- -- -- 2.80 -6.94 3.92 -13.40 5.71
-- -- -- -- -- -- -- -- -- 19.07
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED MARCH 31, 1998
TOTAL RETURN
QUARTER SIX MONTHS SINCE
ENDED 3/31/98 ENDED 3/31/98 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- ------------- ------------- ------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
15.48% 18.57% 53.37% 32.06% 20.87% 16.95% 16.97%
13.61 10.43 48.73 27.55 18.77 17.48 19.69
7.79 -2.64 35.49 22.48 ---- ---- 24.35
9.73 12.28 34.58 22.37 ---- ---- 16.79
15.37 4.91 21.43 14.71 14.99 ---- 13.43
7.83 -12.23 -3.77 9.37 ---- ---- 3.17
11.30 ---- ---- ---- ---- ---- 11.30
11.60 ---- ---- ---- ---- ---- 11.60
13.95 17.22 48.01 32.81 22.40 18.93 19.08
11.01 11.94 49.03 28.44 19.51 19.25 19.48
10.06 6.38 42.01 24.42 -- -- 22.00
14.71 5.73 18.61 10.57 11.93 -- 8.93
5.71 -13.15 -15.27 0.48 -- -- -2.48
19.07 -- -- -- -- -- 19.07
</TABLE>
(4) Figures assume an inception date of 6/30/94.
(5) Figures assume an inception date of 9/2/82.
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.
3
<PAGE>
SIT LARGE CAP GROWTH FUND REVIEW
MARCH 31, 1998
[PHOTO]
PETER L. MITCHELSON, CFA
SENIOR PORTFOLIO MANAGER
RONALD D. SIT, CFA
PORTFOLIO MANAGER
Performance of the Sit Large Cap Growth Fund was strong in the first
quarter of 1998. The Fund's quarterly total return of +15.48% ranked in the 6th
percentile of 721 Growth and Income Funds tracked by Lipper Analytical Services.
The Fund's +53.37% total return over the past 12 months ranked in 2nd percentile
of 646 Funds. For two years the Large Cap Growth Fund's +33.92% annual return
ranked in the 4th percentile of 513 Funds and for three years its +32.06% return
placed in the 10th percentile of 426 Funds.
U.S. stock market indices moved to new highs during the first quarter on
the heels of three consecutive robust years. Economic growth remains solid,
inflation is still well contained, while the Federal Reserve has maintained
stable monetary policy. Large capitalization companies have generally continued
to outperform smaller firms due to their greater earnings predictability and
ability to more rapidly invest strong cash inflows. Growth stocks have been
performing relatively well, which is a normal phenomenon in periods of overall
corporate profit deceleration. The equity investments in the Sit Large Cap
Growth Fund continue to possess strong absolute and relative earnings growth. At
the end of March, the average 1998 earnings gain projected for the companies
held in the Fund was +18.2% which is considerably higher than the broad market's
+8.1% expected increase.
As of March 31st, the Fund was 93% invested in equities. Sector weightings
changed only modestly in the latest quarter. Weighting increases included:
technology, where we added Compaq Computer, Dell Computer, EMC, ADC
Telecommunications and Lucent Technologies; transportation, where we initiated
positions in AMR and Southwest Airlines; and utilities, where we purchased
Ameritech, Cincinnati Bell and WorldCom. The largest reduction was in financial
services, which lagged in the first quarter. Technology, health care, and
financial services remain the three most heavily weighted industry sectors.
Assets in the Large Cap Growth Fund totaled $100.3 million at the end of
March, up from $59.4 million a year ago. We greatly appreciate shareholders'
continued 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 3/31/98: $46.24 Per Share
12/31/97: $40.04 Per Share
Total Net Assets: $100.26 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Technology 19.5
Health Care 15.4
Financial 15.2
Retail 7.3
Consumer Non-Durables 6.8
Consumer Services 6.2
Capital Goods 5.7
Utilities 4.6
Business Equip. & Services 4.4
Energy 4.2
Transporation 1.8
Raw Materials 1.3
Consumer Durables 0.8
Cash Equivalents 6.8
4
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
---------------------------------- ----------------------------------------
Large Cap Russell S&P Large Cap Russell S&P
Growth 1000 500 Growth 1000 500
Fund Growth Index Index Fund Growth Index Index
---------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 15.48% 15.15% 13.95% 15.48% 15.15% 13.95%
(unannualized)
1 Year 53.37 49.45 48.01 53.37 49.45 48.01
5 Years 20.87 22.01 22.40 157.94 170.34 174.71
10 Years 16.95 19.25 18.93 378.56 481.44 466.31
Inception 16.97 18.32 19.08 1051.37 1278.38 1419.81
(9/2/82)
</TABLE>
* As of 3/31/98
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 INDEX NOR THE
RUSSELL 1000 GROWTH 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 CHART]
The sum of $10,000 invested at inception (9/2/82) and held until 3/31/98 would
have grown to $115,137 in the Fund, or $151,984 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* General Electric Corp.
* Mercury General Corp.
* Pfizer, Inc.
* Cisco Systems, Inc.
* Dayton Hudson Corp.
* Microsoft Corp.
* Merck & Co., Inc.
* Schlumberger, Ltd.
* AirTouch Communications, Inc.
* Coca Cola Co.
Total number of holdings: 76
5
<PAGE>
SIT MID CAP GROWTH FUND REVIEW
MARCH 31, 1998
[PHOTO]
SIT MID CAP GROWTH FUND REVIEW
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
ERIK S. ANDERSON, CFA
PORTFOLIO MANAGER
Medium cap growth stocks performed well during the first quarter of 1998.
The Sit Mid Cap Growth Fund capitalized on the positive environment delivering a
strong return of +13.6%. This compared favorably with the +11.9% and +11.0%
returns of the Russell MidCap Growth Index and S&P MidCap 400 Index,
respectively.
Stock selection was the source of most of the value-added performance
during the quarter. For example, the average return for stocks in the technology
sector of the Russell Mid Cap Growth Index measured +12.7% during the quarter,
but technology stocks in the Fund returned +19.0% on average. Significant
advances were posted by Parametric Technology at +40.6%, and Baan Company at
+47.4%. Stock selection was also strong in the business equipment & services
sector where stocks in your Fund advanced +28.2% on average during the quarter
versus +19.7% for stocks in the Index. By sector, overweighting the
outperforming business equipment & services was advantageous, as was
underweighting the poorly performing consumer non-durables sector. The Fund's
top holding in the first quarter 1997, Mercury General Corp., retains that
position as of the end of the first quarter 1998. The stock contributed
significantly to the Fund's strong performance, advancing +105% during the
quarter.
Cash in the portfolio dropped to 3.0% from 7.0% over the course of the
quarter as investments were made during periods of market weakness in January.
Our expectation that growth stocks would outperform value stocks in 1998 has to
date transpired. Should this trend continue, the Fund will benefit as we stay
disciplined with the Fund's investment objective of investing in true, emerging
growth companies. Despite slowing earnings growth for the broad market, earnings
growth for stocks in the Fund remains high at a forecasted rate of +26.7% and
+25.5% for 1998 and 1999, respectively. We are optimistic with regard to the
Fund's prospects because of this robust earnings growth, though the robust
returns of the first quarter are unlikely to be repeated over each of the year's
remaining quarters.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Mid Cap Growth Fund is to maximize long-term
capital appreciation. The Fund pursues this objective by investing primarily in
the common stocks of small and medium-size emerging growth companies before they
become well recognized.
The Fund may invest in larger companies which offer improved growth
possibilities because of rejuvenated management, changes in product or some
other development that might stimulate earnings growth.
PORTFOLIO SUMMARY
Net Asset Value 3/31/98: $16.69 Per Share
12/31/97: $14.69 Per Share
Total Net Assets: $425.36 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Technology 21.4
Financial 19.6
Business Equipment & Services 14.3
Health Care 10.9
Retail 8.5
Consumer Services 7.3
Energy 5.9
Capital Goods 4.9
Utilities 2.1
Consumer Durables 1.9
Transportation 0.2
Cash Equivalents 3.0
6
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
-------------------------------------- --------------------------------------
Mid Cap Russell S&P Mid Cap Russell S&P
Growth Mid Cap Midcap Growth Mid Cap Midcap
Fund Growth Index 400 Index Fund Growth Index 400 Index
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 13.61% 11.93% 11.01% 13.61% 11.93% 11.01%
(unannualized)
1 Year 48.73 42.35 49.03 48.73 42.35 49.03
5 Years 18.77 18.41 19.51 136.37 132.75 143.79
10 Years 17.48 17.02 19.25 400.76 381.61 481.79
Inception 19.69 n/a 19.48 1546.50 n/a 1502.81
(9/2/82)
</TABLE>
* As of 3/31/98
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 MID CAP GROWTH
INDEX NOR THE S&P MIDCAP 400 INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (9/2/82) and held until 3/31/98 would
have grown to $164,650 in the Fund, or $160,281 in the S&P Midcap 400 Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Mercury General Corp.
* TCF Financial Corp.
* Peoplesoft, Inc.
* HBO & Co.
* Elan Corp., p.l.c., A.D.R.
* T Rowe Price & Associates
* Fiserv, Inc.
* Kohl's Corp.
* Parametric Technology, Inc.
* Stewart Enterprises, Inc.
Total number of holdings: 62
7
<PAGE>
SIT SMALL CAP GROWTH FUND REVIEW
MARCH 31, 1998
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
After the strong market performance of the past three years, many market
prognosticators thought a high single-digit return was all one could expect for
the whole of 1998. We are pleased to report that the Sit Small Cap Growth Fund
returned +7.8% during the first quarter alone.
Small capitalization stocks continued to underperform mid and large cap
stocks, as has been the case for the past two years. Favorable relative
performance by small caps typically occurs when investors are confident that
economic growth will continue. That confidence was challenged as the magnitude
of the Asian economic crisis has been assessed over the past nine months. The
liquidity of large cap stocks also appeared desirable by investors. Today,
renewed confidence in the domestic economic outlook may lead to increased
investor willingness to return to small caps. Relative valuation and earnings
growth rates for small caps are attractive.
The business equipment and services sector was an important performer for
the Fund during the first quarter, both in terms of having a heavy weighting of
13.1% of assets, and due to superior stock selection within the category.
Business equipment and services stocks advanced +30.3% for the quarter versus
+13.5% for the average stock in the Russell 2000 Growth benchmark. Dendrite
International led with a +48.4% return, which made it the largest position in
the Fund at the end of the quarter.
Attractive growth stocks can be found across the small cap universe. The
Fund's top ten holdings have representatives from six different sectors. The
current cash position of 9.2% will be used to take advantage of additional
opportunities. In aggregate, the growth outlook is robust with expected 1998
operating earnings for the Fund's holdings estimated at +26% compared with just
+6% for the market at large. Yet despite this vastly superior earnings growth
position, the average price-to-earnings ratio for stocks in the Fund is just
slightly above that of the market's 23.1 times. This, we believe, represents
relative value in small cap stocks.
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 3/31/98: $20.62 Per Share
12/31/97: $19.13 Per Share
Total Net Assets: $66.34 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Technology 21.8
Financial 21.0
Health Care 13.4
Business Equipment & Services 13.1
Capital Goods 8.4
Energy 6.5
Consumer Services 4.2
Transportation 1.1
Consumer Non-Durables 0.8
Utilities 0.4
Retail 0.1
Cash Equivalents 9.2
8
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
------------------------------------- --------------------------------------
Small Cap Russell Russell Small Cap Russell Russell
Growth 2000 2000 Growth 2000 2000
Fund Index Growth Index Fund Index Growth Index
------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 7.79% 10.06% 11.89% 7.79% 10.06% 11.89%
(unannualized)
1 Year 35.49 42.01 41.17 35.49 42.01 41.17
3 Year 22.48 24.42 20.43 83.75 92.63 74.66
Inception 24.35 22.00 20.27 126.44 110.81 99.93
(7/1/94)
</TABLE>
* As of 3/31/98
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 INDEX NOR
THE RUSSELL 2000 GROWTH INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (7/1/94) and held until 3/31/98 would
have grown to $22,644 in the Fund, or $21,080 in the Russell 2000 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Dendrite International, Inc.
* Legato Systems Inc.
* HA-LO Industries, Inc.
* JLK Direct Distribution
* Aspen Technology, Inc.
* DT Industries, Inc.
* Triumph Group, Inc.
* Provident Bankshares Corp.
* Marine Drilling Company, Inc.
* Uniphase Corp.
Total number of holdings: 64
9
<PAGE>
SIT BALANCED FUND REVIEW
MARCH 31, 1998
[PHOTO]
PETER L. MITCHELSON, CFA
SENIOR PORTFOLIO MANAGER
BRYCE A. DOTY, CFA
PORTFOLIO MANAGER
Performance of the Sit Balanced Fund was strong in the first quarter of
1998. The Fund's quarterly total return of +9.73% ranked in the 8th percentile
of 396 Balanced Funds tracked by Lipper Analytical Services. The Fund's +34.58%
total return over the past 12 months also ranked in the 8th percentile of 367
funds. For 2 years the Balanced Fund's +23.08% annual return ranked in the 10th
percentile of 302 funds and for 3 years its +22.37% return placed in the 14th
percentile of 249 funds.
As of March 31, 1998, the asset allocation of the Fund was 58% in equities
(unchanged from the end of December), 37% in fixed income securities (38%) and
5% in cash reserve instruments (4%).
Within the equity portion of the portfolio, sector weightings changed only
modestly in the latest quarter. Weighting increases include: technology, where
we added ADC Telecommunications and Lucent Technologies; transportation, where
we purchased AMR; and utilities, where we acquired positions in Ameritech,
Cincinnati Bell and WorldCom. The largest reduction was in financial services,
which lagged in the first quarter. A key characteristic of the equity holdings
is above-average earnings growth. As of the end of March, the average 1998
earnings gain projected for the companies held in the Fund was +17.3%, which is
significantly greater than the +8.1% increase expected for the broad stock
market. Financial services and the traditional growth groups of technology and
health care remain the three most heavily weighted sectors.
Fixed income investment activity during the quarter involved increasing
the sector weighting in mortgages to nearly 50% from roughly 35%. This shift was
made to take advantage of the widening yield spreads in mortgages due to
increased prepayment concerns. We expect interest rates to remain in a
relatively narrow trading range over the near term, thereby causing income to be
the key component of total return. A duration slightly shorter than the market
is being maintained.
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 3/31/98: $16.02 Per Share
12/31/97: $14.60 Per Share
Total Net Assets: $6.73 Million
Quarterly Dividend: $0.08 Per Share
PORTFOLIO STRUCTURE
(% of total net assets)
[PIE CHART]
Bonds 42.1% (Bonds & Cash)
Stocks 57.9%
10
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
----------------------------------- -----------------------------------
Lehman S&P Lehman S&P
Balanced Aggregate 500 Balanced Aggregate 500
Fund Bond Index Index Fund Bond Index Index
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 9.73% 1.56% 13.95% 9.73% 1.56% 13.95%
(unannualized)
1 Year 34.58 11.99 48.01 34.58 11.99 48.01
3 Year 22.37 9.18 32.81 83.23 30.16 134.25
Inception 16.79 6.89 25.27 93.37 32.74 160.46
(12/31/93)
</TABLE>
* As of 3/31/98
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. 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 CHART]
The sum of $10,000 invested at inception (12/31/93) and held until 3/31/98 would
have grown to $19,337 in the Fund, $13,274 in the Lehman Aggregate Bond Index,
or $26,046 in the S&P 500 Index assuming reinvestment of all dividends and
capital gains.
TOP HOLDINGS
STOCKS
* Mercury General Corp.
* General Electric Co.
* Microsoft Corp.
* Merck & Co., Inc.
* Cisco Systems, Inc.
BONDS
* GNMA, 9.00%, 9/15/19
* U.S. Treasury Strip, 5.95%, 2/15/09
* FHLMC, 9.00%, 7/1/16
* U.S. Treasury Note, 7.875%, 11/15/04
* GNMA, 9.50%, 9/15/17
Total number of holdings: 122
11
<PAGE>
SIT INTERNATIONAL GROWTH FUND REVIEW
MARCH 31, 1998
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
ANDREW B. KIM, CFA
SENIOR PORTFOLIO MANAGER
For the three months ended March 31, the Sit International Growth Fund
rose +15.4%. This compares with the MSCI EAFE Index benchmark's gain of +14.7%.
The major reason for the Fund's outperformance was our increased European
portfolio weighting of 64.5%, up from 50.1% one year ago. The non-Japan Asian
markets began to recover, rising +7.0% in the March quarter, benefiting from
foreign capital inflow and substantial currency gains.
The problems in the Asian equity markets continue to be positive for
European markets, given low interest rates and the on-going shift of pension
fund cash flow from bonds to equities. The political and economic environment
improved as all European Union members made rapid progress towards macroeconomic
stability. Our focus in Europe remains on the beneficiaries of corporate
restructuring designed to enhance shareholder value. We also increased the
holdings in companies that have expanded their U.S. dollar-based earnings such
as pharmaceuticals, insurance, banking, and asset management.
In Japan, despite the weak domestic economy, the export sector's recovery
continues due to a weak yen. International investor skepticism could recede once
the government demonstrates its ability to stimulate the economy. Because the
sectors that outperformed were economically cyclical stocks (including banks),
we lagged the broader market throughout most of the quarter. Our holdings in
Japan continue to stress the same thematic structure, including electronics
exporters, defensive pharmaceuticals and beneficiaries of deregulation.
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 3/31/98: $19.07 Per Share
12/31/97: $16.53 Per Share
Total Net Assets: $101.90 Million
PORTFOLIO STRUCTURE - BY REGION
( % of total net assets)
[BAR CHART]
Sit Int'l Morgan Stanley
Growth Fund EAFE Index
Europe Other 37.6 30.3
France, Germany & UK 26.9 40.4
Japan 15.7 22.3
Pacific Basin 10.3 7.0
Latin America 4.5 0.0
Africa/Middle East 0.7 0.0
Cash Equivalents 4.3 0.0
12
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
------------------------------------------ ------------------------------------------
International Morgan Stanley Lipper International Morgan Stanley Lipper
Growth Capital Int'l Int'l Growth Capital Int'l Int'l
Fund EAFE Index Index Fund EAFE Index Index
------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 15.37% 14.71% 14.90% 15.37% 14.71% 14.90%
(unannualized)
1 Year 21.43 18.61 20.23 21.43 18.61 20.23
3 Years 14.71 10.57 16.74 50.94 35.17 59.11
5 Years 14.99 11.93 14.57 101.09 75.66 97.43
Inception 13.43 8.93 12.31 124.44 73.21 110.67
(11/1/91)
</TABLE>
* As of 3/31/98
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 CHART]
The sum of $10,000 invested at inception (11/1/91) and held until 3/31/98 would
have grown to $22,444 in the Fund, or $17,321 in the Morgan Stanley EAFE Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Aegon N.V., A.D.R.
* Misys Ord.
* Zurich Insurance
* Rentokil Group, p.l.c.
* Bank of Ireland
* L.M. Ericsson Telephone Co., A.D.R.
* SAP Preferred
* Lloyds TSB Group, p.l.c.
* Nestle S.A.
* Roche Holdings, A.G.
Total number of holdings: 78
13
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND REVIEW
MARCH 31, 1998
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
ANDREW B. KIM, CFA
SENIOR PORTFOLIO MANAGER
The Sit Developing Markets Growth Fund returned +7.8% during the quarter,
despite the financial and economic crisis in Asia and concerns that these
problems could spread to Latin America. This compares with the MSCI Emerging
Markets Free (EMF) Index benchmark's gain of +5.7%. Much of the Fund's
outperformance was attributable to recovery in Asian markets.
Principal among the reasons for the recovery in Asia were: (i) strong U.S.
intervention; (ii) improved prospects for sovereign bond offering; (iii) the
reduced pressure to sell local currencies by major exporters; (iv) Beijing's
assurances of not undertaking competitive RMB devaluation and the Japanese yen's
relative stability against the dollar; and, (v) Asian currencies in general
rebounded from an initial overshoot and excessive under-valuation.
Those Asian countries that experienced a currency collapse in 1997 are now
recovering from severe credit crunches. However, in Latin America, the cost of
achieving currency stability proved to be large as countries like Brazil and
Argentina had to steeply increase interest rates. Also, this had a negative
impact on equity valuations even in financially stable countries such as Mexico.
Major portfolio additions included Digital Telecom and Jollibee Foods in
the Philippines, Singapore Press Holdings, and Chrome Ate and Taiwan Secom in
Taiwan. All these stocks fall into our identified growth sectors of technology,
telecom, consumer non-durables, and publishing and broadcasting. Three of our
larger sells were all in Latin America. They included Compania Telecom Chile,
Laboratorio Chile, and Grupo Casa Autrey (Mexico). We expect the Asian emerging
markets rally to continue during 1998, but this is likely to be characterized by
volatility in share prices and currencies. Current valuation discrepancies in
Latin America resulting from the illiquid nature of the markets should be
gradually corrected.
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 3/31/98: $11.16 Per Share
12/31/97: $10.35 Per Share
Total Net Assets: $13.46 Million
PORTFOLIO STRUCTURE - BY REGION
( % of total net assets)
[BAR CHART]
Sit Developing Markets MSCI Emerging
Growth Fund Markets Free Index
Asia 37.7 31.4
Latin America 33.2 39.3
Europe 11.6 13.5
Africa/Middle East 11.1 15.8
Cash Equivalents 6.4 N/A
14
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
------------------------------------------- -------------------------------------------
Developing Morgan Stanley Lipper Developing Morgan Stanley Lipper
Markets International Emerging Markets International Emerging
Growth Emerging Markets Markets Growth Emerging Markets Markets
Fund Free Index Index Fund Free Index Index
------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 7.83% 5.71% 4.56% 7.83% 5.71% 4.56%
(unannualized)
1 Year -3.77 -15.27 -13.57 -3.77 -15.27 -13.57
3 Year 9.37 0.48 3.43 30.84 1.45 10.65
Inception 3.17 -2.48 0.07 12.42 -9.01 0.28
(7/1/94)
</TABLE>
* As of 3/31/98
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
INTERNATIONAL EMERGING MARKETS FREE INDEX. THE LIPPER AVERAGES AND INDICES ARE
OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF
MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (7/1/94) and held until 3/31/98 would
have grown to $11,242 in the Fund, or $9,099 in the Morgan Stanley Capital Int'l
Emerging Markets Free Index assuming reinvestment of all dividends and capital
gains.
10 LARGEST HOLDINGS
* Panamerican Beverage, Inc.
* Nice Systems, A.D.R.
* Datacraft Asia Ltd.
* Dimension Data
* Grupo Elektra S.A., G.D.R.
* Telebras, A.D.R.
* Enersis, A.D.R.
* Advanced Info Services
* Korea Mobile Telecom
* Portugal Telecom, A.D.R.
Total number of holdings: 69
15
<PAGE>
SIT REGIONAL GROWTH FUND REVIEW
MARCH 31, 1998
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
We are pleased to be writing our first quarterly report for the Sit
Regional Growth Fund. The Fund's launch exceeded our expectations, both in terms
of investor interest and the strong returns achieved in the Fund's first
quarter. The +11.3% return slightly lagged that of the Russell 3000 and S&P 500
indices because of the impact of our initial cash balance as we started the
Fund. By quarter end, cash had been worked down to our targeted 6.6% level.
The Fund is broadly diversified with its top ten holdings in six different
sectors. The most heavily weighted sector is financial services. This large
weighting reflects our positive assessment of the financial services companies
that are domiciled in the region and our outlook for the sector. High consumer
confidence, low inflation and interest rates, and an expanding economy are all
positives for these companies. Consolidation is also a major influence,
strikingly exhibited by the announced merger of Travelers Group and Citicorp
(the largest proposed merger in history). The Fund holds Household
International, which is scheduled to merge with Beneficial Corp. in a $8.6
billion transaction to form a consumer finance powerhouse. The Midwest is well
known for its many leading health care companies as well. United Healthcare,
Medtronic and Eli Lilly are three key Fund holdings in the services, medical
equipment and pharmaceuticals segments, respectively.
The Fund's valuation is essentially at the same price-to-earnings multiple
as that of the S&P 500. Based on 1998 earnings estimates, the Fund has a
multiple of 23.8 times versus 23.1 times for the Index. Stocks in the Fund
however, possess a superior earnings growth outlook of +16.9% expected in 1998
versus +6.3% for the S&P 500. Estimated earnings growth rates during 1999 are
expected to accelerate for stocks held in the Fund to +18.3%. This robust growth
gives the Fund a price-to-earnings multiple of 20.0 times on 1999 estimates,
which is below that of the market. We believe the strong fundamentals and
attractive valuations of the companies in the portfolio make the Sit Regional
Growth Fund appropriate for long-term investment.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to maximize long-term capital appreciation.
The Fund pursues this objective by investing primarily in common stocks of
companies with their headquarters in Minnesota, Iowa, Missouri, North Dakota,
South Dakota, Nebraska, Kansas, Wisconsin, Illinois, Michigan, Indiana, and
Ohio. During normal market conditions, at least 80% of the Fund's total assets
will be invested in such securities. The Fund emphasizes securities of companies
that the Adviser believes have potential for long-term capital growth.
PORTFOLIO SUMMARY
Net Asset Value 3/31/98: $11.13 Per Share
12/31/97: $10.00 Per Share
Total Net Assets: $3.95 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Financial 21.7
Health Care 16.2
Retail 7.6
Technology 6.7
Business Equip. & Services 6.2
Utilities 6.1
Capital Goods 6.0
Energy 5.0
Transporation 4.6
Raw Materials 4.4
Consumer Non-Durables 3.7
Consumer Durables 3.0
Consumer Services 2.2
Cash Equivalents 6.6
16
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
-------------------------------- --------------------------------
Regional Russell S&P Regional Russell S&P
Growth 3000 500 Growth 3000 500
Fund Index Index Fund Index Index
-------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 11.30% 13.05% 13.95% 11.30% 13.05% 13.95%
(unannualized)
Inception 11.30 13.05 13.95 11.30 13.05 13.95
(9/2/82)
</TABLE>
* As of 3/31/98
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 INDEX NOR THE
RUSSELL 3000 GROWTH INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/97) and held until 3/31/98 would
have grown to $11,130 in the Fund, or $11,395 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* United Healthcare Corp.
* Ceridian Corp.
* Cincinnati Bell, Inc.
* Progressive Corp. Ohio
* Aon Corp.
* Northern Trust Corp.
* Ual Corp.
* Comerica, Inc.
* Dayton Hudson Corp.
* R.P. Scherer Corp.
Total number of holdings: 43
17
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND REVIEW
MARCH 31, 1998
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
We are pleased to report a positive first quarterly report to you for the
Sit Science & Technology Growth Fund. The +11.6% return in the quarter is strong
vis-a-vis historic market averages. The Fund's return, however, lagged that of
the Pacific Stock Exchange (PSE) Technology 100 Index for two key reasons.
First, cash levels in the Fund were initially high when we started the Fund at
the beginning of the quarter. We are now fully invested with cash comprising
3.9% of assets. Second, the PSE Technology 100 Index is heavily biased towards
large capitalization technology companies. Large cap technology was notably the
strongest segment in the quarter due to reduced fear over the impact of the
Asian economic crisis. Consequently, our 36.4% exposure to health care related
issues, as well as our mid- and small-cap investments had limited relative
contribution.
We will continue to actively seek to invest in the high-growth health care
sector as the "Science" portion of the Fund's name implies. This provides
diversification, but more importantly, long-term investment opportunities are
plentiful in this sector. In fact, the Fund's largest industry weighting is in
biotechnology and pharmaceuticals. Strong stocks in these industries for the
quarter included: Warner Lambert, up +37.6% and Pfizer, up +34.0%. Their
performance was somewhat offset by the negative returns of Medpartners and Dura
Pharmaceuticals. Similarly, within the technology realm, returns also varied
widely. Lucent Technologies gained +47.1% and Xerox gained +44.7%, but Anadigics
and ADC Telecommunications declined by -50.2% and -34.0%, respectively. Reasons
for these two stock's underperformance were each unique. Specifically, we
believe Anadigics issues were fundamental, thus the stock was sold.
Alternatively, ADC's challenges were temporary in nature, and the stock is being
retained by the Fund.
We are excited about the future prospects for the Fund. We continue to
believe the technology and science sectors offer secular growth opportunities
and should therefore outperform the overall market.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to maximize long-term capital appreciation.
The Fund pursues this objective by investing primarily in common stocks of
companies which Sit Investment Associates, Inc. expects to benefit from the
development, improvement, advancement and use of science and technology. During
normal market conditions, at least 80% of the Fund's total assets will be
invested in such securities. The Fund emphasizes securities of companies that
the adviser believes have potential for long-term capital growth.
PORTFOLIO SUMMARY
Net Asset Value 3/31/98: $11.16 Per Share
12/31/97: $10.00 Per Share
Total Net Assets: $3.79 Million
PORTFOLIO STRUCTURE
(% of total net assets)
[BAR CHART]
Biotech./Pharmaceutical 25.1
Computer Software/Services 21.0
Business Equipment & Services 13.4
Telecom. & Equipment 13.4
Computer Related 8.5
Medical Equipment/Supplies 7.4
Medical Facilities Mgmt. 3.9
Semiconductors & Related 3.4
Cash Equivalents 3.9
18
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
----------------------------- -----------------------------
Pacific Stock Pacific Stock
Science and Exchange Science and Exchange
Technology Technology Technology Technology
Growth Fund 100 Index Growth Fund 100 Index
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
3 Months 11.60% 19.07% 11.60% 19.07%
(unannualized)
Inception 11.60 19.07 11.60 19.07
(9/2/82)
</TABLE>
* As of 3/31/98
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 PACIFIC STOCK EXCHANGE
TECHNOLOGY 100 INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/97) and held until 3/31/98 would
have grown to $11,160 in the Fund, or $11,907 in the PSE Tech 100 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Elan, p.l.c., A.D.R.
* BMC Software, Inc.
* Schering Plough Corp.
* Computer Assoc. Intl., Inc.
* Paychex, Inc.
* Bristol Myers Squibb Co.
* Cisco Systems, Inc.
* Dell Computer Corp.
* Stryker Corp.
* Merck & Co., Inc.
Total number of holdings: 50
19
<PAGE>
A LOOK AT THE SIT MUTUAL FUNDS
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 approximately $5.9 billion as of
March 31, 1998, for some of America's largest corporations, foundations and
endowments.
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
[LINE GRAPH]
PRINCIPAL STABILITY
& CURRENT INCOME
STABILITY: INCOME: GROWTH: HIGH GROWTH:
Safety of principal Increased income Long-term capital Long-term capital
and current income appreciation appreciation
and income
GROWTH POTENTIAL
MONEY MARKET U.S. GOVERNMENT BALANCED MID CAP GROWTH
SECURITIES LARGE CAP GROWTH INTERNATIONAL GROWTH
TAX-FREE INCOME REGIONAL GROWTH SMALL CAP GROWTH
MINNESOTA TAX-FREE SCIENCE AND
INCOME TECHNOLOGY GROWTH
BOND DEVELOPING MARKETS
GROWTH
20
<PAGE>
[LOGO] SIT(SM) MUTUAL FUNDS
THE INVESTMENT IS MUTUAL.(SM)
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
<PAGE>
QUARTERLY REPORT
STOCK FUNDS
MARCH 31, 1998
INVESTMENT ADVISER
SIT INVESTMENT ASSOCIATES, INC.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
DISTRIBUTOR
SIA SECURITIES CORP.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
CUSTODIAN
THE NORTHERN TRUST COMPANY
50 SOUTH LaSALLE STREET
CHICAGO, IL 60675
TRANSFER AGENT AND
DISBURSING AGENT
FIRST DATA INVESTOR SERVICES
P.O. BOX 9763
PROVIDENCE, RI 02940-9763
AUDITORS
KPMG PEAT MARWICK LLP
4200 NORWEST CENTER
MINNEAPOLIS, MN 55402
LEGAL COUNSEL
DORSEY & WHITNEY LLP
220 SOUTH SIXTH STREET
MINNEAPOLIS, MN 55402
INVESTMENT SUB-ADVISER
(DEVELOPING MARKETS GROWTH FUND AND
INTERNATIONAL GROWTH FUND)
SIT/KIM INTERNATIONAL INVESTMENT ASSOCIATES, INC.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
MEMBER OF
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