N-30D 1 0001.txt SIT MUTUAL FUNDS STOCK FUNDS SEMI-ANNUAL REPORT SIX MONTHS ENDED DECEMBER 31, 2000 A FAMILY OF NO-LOAD FUNDS ------------------------- BALANCED FUND LARGE CAP GROWTH FUND MID CAP GROWTH FUND INTERNATIONAL GROWTH FUND SMALL CAP GROWTH FUND SCIENCE AND TECHNOLOGY GROWTH FUND DEVELOPING MARKETS GROWTH FUND [LOGO] SIT INVESTMENT ASSOCIATES -------------------------------- SIT MUTUAL FUNDS SIT MUTUAL FUNDS STOCK FUNDS SEMI-ANNUAL REPORT TABLE OF CONTENTS PAGE ---- Chairman's Letter 2 Performance Summary 4 FUND REVIEWS AND PORTFOLIOS OF INVESTMENTS Balanced Fund 6 Large Cap Growth Fund 12 Mid Cap Growth Fund 16 International Growth Fund 20 Small Cap Growth Fund 24 Science and Technology Growth Fund 28 Developing Markets Growth Fund 32 Notes to Portfolios of Investments 36 Statements of Assets and Liabilities 38 Statements of Operations 40 Statements of Changes in Net Assets 42 Notes to Financial Statements 45 Financial Highlights 50 Results of Shareholder Meeting 57 1 [PHOTO] SIT MUTUAL FUNDS SIX MONTHS ENDED DECEMBER 31, 2000 ----------------------------------------------------------------------- CHAIRMAN'S LETTER Dear Fellow Shareholders: The year 2000 proved to be a very good year for fixed income investors, but a more challenging one for equity market participants. However, there are factors supporting a positive case for U.S. equities at the present time, including improved valuations and the likelihood of further interest rate reductions by the Federal Reserve. ECONOMIC OVERVIEW The U.S economy continues to expand, although a slowdown clearly occurred in the second half of 2000. The signs of slowing in the U.S. economy have become more evident in recent weeks, with most statistics indicating a moderation of activity in both the consumer and manufacturing sectors. However, it is difficult to perceive an outright recession as imminent based on the above-average levels of activity at which the economy has most recently operated. While we acknowledge the potential impact that volatile stock market conditions have on short-term consumer sentiment, the unemployment rate of 4.0% remains near the recent low. The latest data on real consumer expenditures, the largest component of GDP, indicates a healthy level of expansion, although there is a material contraction from levels earlier in the year. In the investment sectors of the economy, growth is also subsiding from the unsustainable level (partially technology/Y2K-related). Taking these two sectors, which account for over 80% of GDP, and the remaining components of GDP into consideration, we believe economic growth will slow materially in 2001, but it seems unlikely that they could lead to recession without some type of external shock. Given the prospect of interest rate reductions by the Federal Reserve and perhaps a retroactive tax cut, we believe that growth will accelerate by the end of 2001. In terms of inflation data, we believe the combination of slower economic growth and the reversal of the negative impact of last year's soaring oil prices should result in lower average consumer prices in 2001 compared to 2000. Consumer price inflation should ease this year, coming in at less than +3.0% versus +3.4% in 2000. The prospect for decelerating inflation was one factor behind the Federal Reserve's decision to reduce interest rates by 50 basis points on January 3rd, an action that took financial markets by surprise. It appears that the principal reasons driving the decision included tepid Christmas retail sales, falling auto sales and production and, on the day before the interest rate cut, a weak December National Association of Purchasing Management (NAPM) report which left the index at its lowest point since April 1991. While the duration of the current slowdown is the subject of great debate among economists, it appears that the probability is quite high for an additional 50 to 100 basis points of rate reductions in the near- to intermediate-term. These significant actions, potentially coupled with tax reductions, will be sufficient to contain the economic contraction to modest proportions, and the economy should reaccelerate in the second half. We believe that the general parameters we foresee -- low inflation, Federal Reserve interest rate reductions, and moderate economic growth -- represent a favorable environment for financial asset investing in the United States, although above-average volatility is likely to continue over the near-term until the amplitude of the economic cycle becomes more clear. Our expectation for calendar 2001 GDP growth is +2.5 %, marking the tenth consecutive year of higher than +2.0% growth. In terms of fiscal policy, short-term budgetary trends have remained positive, as evidenced by the first three months of the fiscal year, which experienced a $17.9 billion improvement (i.e., lower deficit) compared to the prior year. Recent private forecasts of the size of the federal surplus in fiscal 2001 are in the $280 billion range, and we continue to believe it will be higher. Regarding President Bush's likely agenda, we believe it will largely consist of the platform on which he campaigned. Tax cuts will become a key part of his proposals, and the weakening economy will undoubtedly be cited as justification to give consumers more spendable resources. 2 ------------------------------------------------------------------------ [LOGO] We expect global economic growth of +2.5%, down from +3.5% in 2000. Although the slowing U.S. economy is the primary contributor to the deceleration, economic growth in Europe is also slowing. However, tax rate reductions and other major reforms should help to maintain a positive growth outlook for Euroland. We are less optimistic about the prospects for Japan, since the recovery remains tentative and is still dependent on global economic support while the domestic economy remains weak. EQUITY STRATEGY SUMMARY During the year 2000, the inevitable finally occurred, as most major market indices posted negative returns for the year. The decline in the equity markets in 2000, however, must be placed in context. The annualized return for the S&P 500 Index was an extraordinary +28.6% for the five-year period ending in 1999. Concerns over slowing corporate profits weighed on equity markets during the second half of the year as the nation's economy decelerated. This has prompted analysts to reduce earnings forecasts as many prominent companies "pre-announced" disappointing results, particularly in the fourth quarter. As difficult as this period has been, however, there is reason for optimism in the months ahead. Importantly, the Federal Reserve has begun cutting interest rates. Historically, this action has provided a positive backdrop for the equity market. While the newsflow on earnings is likely to continue to be negative in the months ahead, lower interest rates and lower inflation should coincide with a recovery in stock valuations, which have become significantly more attractive over the past year. History suggests that interest rates and the relative valuation of stocks versus bonds are more important drivers for equities than swings in short-term earnings. Over the past 50 years, there have been twelve instances when the Fed has cut rates to stimulate growth in the economy. The average twelve-month gain in the S&P 500 Index following such initial moves has been +22.3%. Historically, growth stocks have performed quite well in this environment, given their superior relative earnings growth potential in a weaker economy. In addition, we expect small company growth stocks to perform particularly well in the projected economic environment, largely due to compelling relative valuations. Much of the market volatility in 2000 was concentrated in the technology sector, as the group's high valuations proved unsustainable as consensus growth expectations were broadly reduced. We remain committed to technology investing, however, and we strongly believe that the secular growth trends in diverse areas such as telecommunications, software, and E-commerce offer significant opportunities for long-term investors. In addition, the earnings growth potential for the technology sector remains significantly higher than that of the overall market. In accordance with these views, we continue to overweight, relative to broad market benchmarks, the electronic technology and technology services sectors. Internationally, we remain most optimistic about Europe where the outlook for government reforms and corporate restructuring has positive implications for the equity markets. We believe the investment outlook for Asia has deteriorated in recent months. The likelihood of a slowdown in exports to the U.S., growing evidence of slowing economic growth, and stalled reform in Japan are among our chief concerns at the present time. With best wishes, /s/ Eugene C. Sit Eugene C. Sit, CFA Chairman and Chief Investment Officer 3 SIT MUTUAL FUNDS -------------------------------------------------------------------------------- PERFORMANCE SUMMARY - STOCK FUNDS While most domestic equity indices posted negative returns in 2000, it must be placed in context. The S&P 500 Index fell -9.1% for the year, following an unprecedented five straight years of over 20% gains. In addition, even when one includes the subpar 2000 return, the 5-year annualized return for the Index was a strong +18.3%. Smaller capitalization issues continued to show improved relative performance in 2000. The Russell 2000 Index (-3.0%) outperformed the Russell 1000 (-7.8%). The mid capitalization indices also performed particularly well over the last twelve months, with the Russell MidCap Index and S&P MidCap 400 Index returning +8.3% and +17.5%, respectively. Value stocks outperformed growth issues across the capitalization spectrum during the year, although, perhaps, this is not surprising given the style's unprecedented relative underperformance in 1999. Across the various capitalization-based Frank Russell Indices, each value index outperformed its growth counterpart by at least 19%. In terms of sectors, technology-related groups underperformed in 2000, following the strong outperformance in the prior year. In fact, if one excludes three sectors -- electronic technology (-34.5%), technology services, (-48.3), and communications (-38.8%) -- we estimate the remainder of the S&P 500 Index increased +12.2% for the year, compared to the overall decline of -9.1%. The technology-laden NASDAQ OTC Composite fell -39.3% during the year. Investors' decreased appetite for risk contributed to strong relative returns for many "defensive" sectors, including health technology, health services, utilities, and finance. International equity market indices also moved lower in 2000, although it should be noted that the strong U.S. dollar had a negative impact on most regional returns. As measured by the Morgan Stanley Capital International (MSCI) indices, each major regional component fell over the course of the year. For the year ended December 31, 2000, the MSCI World Index fell -13.2%. The MSCI Europe Index turned in the strongest relative performance of the regional components, falling -8.4%. Although the MSCI Pacific Index fell -25.5%, the overall return was dragged down by the -28.2% return for the Japan component. 1988 1989 1990 --------------------------- SIT BALANCED -- -- -- ------------------------------------------------------------------- SIT LARGE CAP GROWTH 5.33% 32.02% -2.37% ------------------------------------------------------------------- SIT MID CAP GROWTH(1) 9.77 35.15 -2.04 ------------------------------------------------------------------- SIT INTERNATIONAL GROWTH(2) -- -- -- ------------------------------------------------------------------- SIT SMALL CAP GROWTH(1) -- -- -- ------------------------------------------------------------------- SIT SCIENCE AND TECHNOLOGY GROWTH(3) -- -- -- ------------------------------------------------------------------- SIT DEVELOPING MARKETS GROWTH(2) -- -- -- ------------------------------------------------------------------- S&P 500 INDEX 16.55 31.61 -3.05 S&P MIDCAP 400 INDEX 20.87 35.55 -5.12 MSCI EAFE INDEX(5) -- -- -- RUSSELL 2000 INDEX(6) -- -- -- PSE TECH 100 INDEX -- -- -- MSCI EMERGING MARKETS FREE INDEX(7) -- -- -- NASDAQ SYMBOL INCEPTION ------ --------- SIT BALANCED SIBAX 12/31/93 ------------------------------------------------------------------- SIT LARGE CAP GROWTH SNIGX 09/02/82 ------------------------------------------------------------------- SIT MID CAP GROWTH NBNGX 09/02/82 ------------------------------------------------------------------- SIT INTERNATIONAL GROWTH SNGRX 11/01/91 ------------------------------------------------------------------- SIT SMALL CAP GROWTH SSMGX 07/01/94 ------------------------------------------------------------------- SIT SCIENCE AND TECHNOLOGY GROWTH SISTX 12/31/97 ------------------------------------------------------------------- SIT DEVELOPING MARKETS GROWTH SISTX 07/01/94 ------------------------------------------------------------------- S&P 500 INDEX(8) S&P MIDCAP 400 INDEX(8) MSCI EAFE INDEX(5) RUSSELL 2000 INDEX(6) PSE TECH 100 INDEX MSCI EMERGING MARKETS FREE INDEX(7) -------------------------------------------------------------------------------- (1) STOCKS OF SMALL- AND MID-SIZED COMPANIES MAY BE SUBJECT TO MORE ABRUPT OR ERRATIC MARKET MOVEMENTS THAN STOCKS OF LARGER, MORE ESTABLISHED COMPANIES. (2) INTERNATIONAL INVESTING HAS SPECIAL RISKS, SUCH AS CURRENCY EXCHANGE FLUCTUATIONS, HIGH VOLITILITY, ILLIQUIDITY AND THE POSSIBILITY OF POLITICAL INSTABILITY. (3) SINCE THE FUND FOCUSES ITS INVESTMENT ON COMPANIES INVOLVED IN THE TECHNOLOGY SECTOR, AN INVESTMENT IN THE FUND MAY INVOLVE A GREATER DEGREE OF RISK THAN AN INVESTMENT IN OTHER MUTUAL FUNDS WITH GREATER DIVERSIFICATION. (4) PERIOD FROM FUND INCEPTION THROUGH CALENDAR YEAR-END. 4 ------------------------------------------------------------------------ [LOGO]
TOTAL RETURN -- CALENDAR YEAR YTD 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 -------------------------------------------------------------------------------------------- ------- -- -- -- -0.33% 25.43% 15.80% 21.73% 21.30% 20.15% -4.80% ------------------------------------------------------------------------------------------------------ 32.72% 4.94% 3.15% 2.83 31.66 23.05 31.70 30.56 33.41 -13.84 ------------------------------------------------------------------------------------------------------ 65.50 -2.14 8.55 -0.47 33.64 21.87 17.70 6.84 70.65 -4.35 ------------------------------------------------------------------------------------------------------ 4.10(4) 2.69 48.37 -2.99 9.36 10.31 4.81 18.95 50.77 -26.66 ------------------------------------------------------------------------------------------------------ -- -- -- 11.57(4) 52.16 14.97 7.63 1.97 108.63 6.25 ------------------------------------------------------------------------------------------------------ -- -- -- -- -- -- -- 38.40 85.98 -6.55 ------------------------------------------------------------------------------------------------------ -- -- -- -2.02(4) -4.29 17.27 -5.20 -24.93 82.50 -30.18 ------------------------------------------------------------------------------------------------------ 30.46 7.64 10.07 1.32 37.58 22.96 33.36 28.58 21.04 -9.11 50.11 11.92 13.95 -3.60 30.94 19.19 32.29 19.11 14.72 17.50 0.26 -12.17 32.56 7.78 11.21 6.05 1.78 20.00 26.96 -14.71 -- -- -- 4.61 28.45 16.49 22.36 -2.54 21.26 -3.02 -- -- -- -- -- -- -- 54.60 116.40 -16.22 -- -- -- 2.80 -6.94 3.92 -13.40 -27.52 63.70 -31.80
AVERAGE ANNUAL TOTAL RETURNS FOR THE TOTAL RETURN PERIODS ENDED DECEMBER 31,2000 QUARTER SIX MONTHS SINCE ENDED 12/31/00 ENDED 12/31/00 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION ------------------------------- -------------------------------------------------------------- -7.70% -7.37% -4.80% 11.53% 14.36% -- 13.61% ----------------------------------------------------------------------------------------------------- -15.51 -17.17 -13.84 14.49 19.45 16.81% 15.89 ----------------------------------------------------------------------------------------------------- -23.00 -16.04 -4.35 20.37 20.13 19.32 19.25 ----------------------------------------------------------------------------------------------------- -12.02 -18.51 -26.66 9.57 8.75 -- 10.78 ----------------------------------------------------------------------------------------------------- -19.70 -13.64 6.25 31.24 22.84 -- 27.05 ----------------------------------------------------------------------------------------------------- -30.86 -27.94 -6.55 33.95 -- -- 33.95 ----------------------------------------------------------------------------------------------------- -16.39 -26.28 -30.18 -1.47 1.24 -- -0.04 ----------------------------------------------------------------------------------------------------- -7.83 -8.72 -9.11 12.26 18.33 17.46 17.37 -3.85 7.83 17.50 17.10 20.42 19.86 18.69 -2.68 -10.53 -14.17 9.35 7.13 -- 7.70 -6.91 -5.88 -3.02 4.65 10.31 -- 12.84 -21.60 -26.06 -16.22 40.95 -- -- 40.95 -13.53 -25.08 -31.80 -6.81 -6.15 -- -5.40
(5) FIGURES ASSUME AN INCEPTION DATE OF 10/31/91. (6) FIGURES ASSUME AN INCEPTION DATE OF 07/01/94. (7) FIGURES ASSUME AN INCEPTION DATE OF 06/30/94. (8) FIGURES ASSUME AN INCEPTION DATE OF 09/02/82. 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. HIGH DOUBLE AND TRIPLE DIGIT PERFORMANCE FIGURES ARE ATTRIBUTABLE TO UNUSUALLY FAVORABLE MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE FUTURE. 5 [PHOTO] SIT BALANCED FUND SIX MONTHS ENDED DECEMBER 31, 2000 ----------------------------------------------------------------------- PETER L. MITCHELSON, CFA, SENIOR PORTFOLIO MANAGER BRYCE A. DOTY, CFA, SENIOR PORTFOLIO MANAGER For the period ending December 31, 2000, the Sit Balanced Fund's six-month return was -7.4%. For comparison, the S&P 500 Index return was -8.7% for the period and the Lehman Aggregate Bond Index increased +7.4%. In a reversal of 1999 conditions, stocks underperformed bonds in 2000. This was largely due to the sudden economic deceleration that took place in the United States during the second half of the year. The decline in the equity markets in 2000, however, must be placed in context. The annualized return for the S&P 500 Index was an extraordinary +28.6% for the five-year period ending in 1999. Rising interest rates and higher energy prices took their toll on the U.S. economy, but this has now given way to a recent reduction in interest rates by the Federal Reserve. History suggests that interest rates and the relative valuation of stocks versus bonds are more important drivers of equity performance than swings in short-term earnings. Now that valuations are more attractive and interest rates may decline further in the months ahead, we are optimistic on the outlook for the equity markets. Importantly, a rebound in the relative performance of value stocks has led to increasingly attractive valuations for growth stocks. This leaves growth stocks in a position to outperform again, particularly given their superior earnings growth potential in a weaker economy. The largest sector weights within the Fund are in two of the fastest growing sectors within the economy, electronic technology and health technology. The slowing U.S. economy provided a very positive environment for fixed income returns, particularly U.S. Treasuries, as yields on the 30-year Treasury bond fell over 100 basis points during 2000. In terms of fixed income strategy, we continue to overweight the corporate and asset-backed sectors while underweighting U.S. Treasuries. The historically wide spreads in our overweighted sectors provide a cushion against potential price underperformance as well as substantial potential for outperformance. This positioning is consistent with our belief that a "soft landing" is in store for our nation's economy. As of December 31, 2000, the asset allocation of the Fund was 56% equities, 39% fixed income, and 5% cash and other net assets. We very much appreciate shareholders' continued interest and participation within the Fund. INVESTMENT OBJECTIVE AND STRATEGY The Sit Balanced Fund's dual objectives are to seek long-term growth of capital consistent with the preservation of principal and to provide regular income. It pursues its objectives by investing in a diversified portfolio of stocks, bonds and short-term instruments. The Fund may emphasize either equity securities, fixed-income securities, or short-term instruments or hold equal amounts of each, dependent upon the Adviser's analysis of market, financial and economic conditions. The Fund's permissible investment allocation is: 40-60% in equity securities, 40-60% in fixed-income securities, and up to 20% in short-term fixed-income instruments. At all times at least 25% of the fixed-income assets will be invested in fixed-income senior securities. PORTFOLIO SUMMARY Net Asset Value 12/31/00: $17.11 Per Share 6/30/00: $19.18 Per Share Total Net Assets: $25.94 Million TOTAL DIVIDEND: $0.69 PER SHARE Long-Term Capital Gain: $0.32 Per Share Ordinary Income: $0.37 Per Share PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) [PIE CHART] Cash & Other Net Assets 5.0% Bonds 39.0% Equities 56.0% 6 ------------------------------------------------------------------------ [LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT LEHMAN BALANCED S&P AGGREGATE FUND 500 INDEX BOND INDEX -------- --------- ---------- 3 Months** -7.70% -7.83% 4.21% 1 Year -4.80 -9.11 11.63 3 Years 11.53 12.26 6.36 5 Years 14.36 18.33 6.46 Inception 13.61 18.24 6.68 (12/31/93) CUMULATIVE TOTAL RETURNS* SIT LEHMAN BALANCED S&P AGGREGATE FUND 500 INDEX BOND INDEX -------- --------- ---------- 1 Year -4.80% -9.11% 11.63% 3 Years 38.75 41.46 20.33 5 Years 95.58 131.96 36.73 Inception 144.51 223.35 57.27 (12/31/93) *AS OF 12/31/00 **NOT ANNUALIZED. -------------------------------------------------------------------------------- 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 AND THE S&P 500 INDEX. 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 12/31/00 would have grown to $24,451 in the Fund, $15,727 in the Lehman Aggregate Bond Index or $32,335 in the S&P 500 Index assuming reinvestment of all dividends and capital gains. TOP HOLDINGS Stocks: * General Electric Co. * Cisco Systems, Inc. * Pfizer, Inc. * Amgen, Inc. * Merck & Co., Inc. Bonds: * Vendee Mtg Trust, Series 1997-1 2E, 7.50%, 3/15/24 * PNC Mtg Sec. Corp., Series 1998-14 1A, 6.25%, 1/25/29 * Conseco Finance, 7.97%, 5/1/32 * GNMA, 9.50%, 3/20/19 * Pitney Bowes, Inc., 8.625%, 2/15/08 Total Number of Holdings: 162 7 SIT BALANCED FUND --------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2000 (UNAUDITED) --------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) --------------------------------------------------------------------- COMMON STOCKS (56.0%) (2) COMMUNICATIONS (1.9%) 7,800 Global Crossing, Ltd. (3) $111,638 3,500 Nextel Communications, Inc. (3) 86,625 8,200 Vodafone Group, A.D.R. 293,662 -------------- 491,925 -------------- CONSUMER DURABLES (0.6%) 3,600 Harley-Davidson, Inc. 143,100 -------------- CONSUMER NON-DURABLES (1.3%) 500 Coca Cola Co. 30,469 2,400 Colgate-Palmolive Co. 154,920 2,800 PepsiCo, Inc. 138,775 -------------- 324,164 -------------- CONSUMER SERVICES (1.5%) 6,300 AT&T Corp. - Liberty Media Group (3) 85,444 900 Clear Channel Communications, Inc. (3) 43,594 4,000 General Motors Corp. - Class H 92,000 3,500 Viacom, Inc. (3) 163,625 -------------- 384,663 -------------- ELECTRONIC TECHNOLOGY (13.7%) 7,500 ADC Telecommunications, Inc. (3) 135,937 2,000 Brocade Comm. Systems, Inc. (3) 183,625 800 Ciena Corp. (3) 65,000 15,600 Cisco Systems, Inc. (3) 596,700 3,500 Corning, Inc. 184,844 6,000 EMC Corp. (3) 399,000 3,500 Flextronics International, Ltd. (3) 99,750 8,600 Intel Corp. 258,537 4,500 JDS Uniphase Corp. (3) 187,594 800 Juniper Networks, Inc. (3) 100,850 1,000 Linear Technology Corp. 46,250 1,200 Network Appliance, Inc. (3) 77,025 7,200 Nokia Corp., A.D.R. 313,200 4,500 Nortel Networks Corp. 144,281 1,000 PMC-Sierra, Inc. (3) 78,625 1,400 SDL, Inc. (3) 207,462 8,500 Sun Microsystems, Inc. (3) 236,937 2,200 Tellabs, Inc. (3) 124,300 400 Texas Instruments, Inc. 18,950 2,000 Xilinx, Inc. (3) 92,250 -------------- 3,551,117 -------------- ENERGY MINERALS (1.6%) 3,500 Anadarko Petroleum Corp. 248,780 3,100 EOG Resources, Inc. 169,531 -------------- 418,311 -------------- --------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) --------------------------------------------------------------------- FINANCE (7.0%) 3,700 Allstate Corp. 161,181 3,521 American International Group, Inc. 347,039 2,500 Charles Schwab Corp. 70,938 2,500 Chase Manhattan Corp. 113,594 4,466 Citigroup, Inc. 228,045 2,600 Marsh & McLennan Cos., Inc. 304,200 1,700 Morgan Stanley Dean Witter & Co. 134,725 2,700 Wells Fargo Co. 150,356 3,600 XL Capital, Ltd. 314,550 -------------- 1,824,628 -------------- HEALTH SERVICES (1.4%) 6,000 UnitedHealth Group, Inc. 368,250 -------------- HEALTH TECHNOLOGY (10.1%) 1,100 American Home Products Corp. 69,905 7,200 Amgen, Inc. (3) 460,350 500 Applera Corp. (Applied Biosystems) 47,031 1,700 Baxter International, Inc. 150,131 1,500 Eli Lilly and Co. 139,594 2,000 Genentech, Inc. (3) 163,000 500 Human Genome Sciences, Inc. 34,656 3,700 MedImmune, Inc. (3) 176,444 4,800 Medtronic, Inc. 289,800 4,500 Merck & Co., Inc. 421,313 10,575 Pfizer, Inc. 486,450 2,900 Pharmacia Corp. 176,900 -------------- 2,615,574 -------------- INDUSTRIAL SERVICES (1.9%) 2,200 Enron Corp. 182,875 3,200 Halliburton Co. 116,000 4,300 Transocean Sedco Forex, Inc. 197,800 -------------- 496,675 -------------- PRODUCER MANUFACTURING (4.7%) 2,000 Boeing Co. 132,000 600 Emerson Electric Co. 47,288 15,000 General Electric Co. 719,062 6,000 Tyco International, Ltd. 333,000 -------------- 1,231,350 -------------- RETAIL TRADE (4.6%) 6,500 Home Depot, Inc. 296,969 3,500 Kohl's Corp. (3) 213,500 5,500 Kroger Co. 148,844 10,400 Target Corp. 335,400 4,500 Walgreen Co. 188,156 -------------- 1,182,869 -------------- 8 ------------------------------------------------------------------------ [LOGO] --------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE($)(1) --------------------------------------------------------------------- TECHNOLOGY SERVICES (5.7%) 500 Adobe Systems, Inc. 29,094 4,600 America Online, Inc. (3) 160,080 1,300 BEA Systems, Inc. (3) 87,506 7,300 Ceridian Corp. (3) 145,544 2,000 Computer Sciences Corp. (3) 120,250 1,000 Inktomi Corp. (3) 17,875 8,300 Microsoft Corp. (3) 360,012 9,300 Oracle Corp. (3) 270,281 1,300 Sapient Corp. (3) 15,519 1,300 Siebel Systems, Inc. (3) 87,913 1,000 VeriSign, Inc. (3) 74,188 1,300 VERITAS Software Corp. (3) 113,750 -------------- 1,482,012 -------------- Total common stocks (cost: $13,544,244) 14,514,638 -------------- BONDS (37.5%) (2) U.S. TREASURY (1.9%) U.S. Treasury Strip, zero coupon: 500,000 6.10% effective yield, 11/15/09 310,649 500,000 6.12% effective yield, 2/15/19 179,954 -------------- 490,603 -------------- ASSET-BACKED SECURITIES (8.8%) Advanta Mortgage Loan Trust: 25,000 1995-3 A5, 7.37%, 2/25/27 24,951 50,000 1996-1 A7, 7.07%, 3/25/27 50,565 300,000 1999-3 A4, 7.75%, 10/25/26 312,495 Conseco Home Equity Loan: 150,000 1999-F A3, 6.97%, 10/15/30 151,938 300,000 2000-D A4, 8.17%, 12/15/25 316,320 Conseco Mfg. Housing, 150,000 2000-1 A5, 8.06%, 5/1/31 158,908 400,000 2000-4 A5, 7.97%, 5/1/32 424,577 74,999 ContiMortgage Home Equity Loan Tr., 1996-1 A7, 7.00%, 3/15/27 75,501 EQCC Home Equity Loan Trust: 25,000 1996-1 A5, 6.93%, 3/15/27 25,072 250,000 1996-4 A8, 7.41%, 1/15/28 256,817 100,000 1998-2 A5F, 6.64%, 7/15/29 95,941 Green Tree Financial Corp.: 20,000 1995-5, 7.25%, 9/15/26 20,578 24,997 1997-4, 7.03%, 2/15/29 25,498 Money Store Home Equity Mtg.: 300,000 6.725%, 6/15/24 291,636 50,000 7.265%, 7/15/38 51,120 -------------- 2,281,917 -------------- --------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE($)(1) --------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS (6.5%) 187,003 GE Capital Mortgage Services Corp. Series 1997-6 A8, 7.50%, 7/25/27 187,774 PNC Mortgage Securities Corp.: 54,480 Series 1998-6 4A, 6.75%, 8/25/13 54,652 453,089 Series 1998-14 1A, 6.25%, 1/25/29 448,250 100,000 Norwest Asset Securities Corp. Series 1998-19 2A12, 6.75%, 7/25/28 97,420 Vendee Mortgage Trust: 200,000 Series 2000-3 2B, 7.75%, 4/15/08 205,293 625,000 Series 1997-1 2E, 7.50%, 3/15/24 641,298 50,000 Series 1997-2 E, 7.50%, 5/15/24 51,282 -------------- 1,685,969 -------------- CORPORATE BONDS (14.6%) 125,000 Allstate Finance, 7.83%, 12/1/45 114,401 American Airlines: 25,000 1999-1 A2, 7.024%, 10/15/09 25,579 25,000 1999-1 B, 7.324%, 10/15/09 25,306 288,862 Atlas Air, 1999-1 A1, 7.20%, 1/2/19 282,380 150,000 Banc One Capital, 8.75%, 9/1/30 147,586 Burlington North Santa Fe: 47,380 7.57%, 1/2/21 48,513 200,000 7.91%, 1/15/20 209,335 Comdisco, Inc.: 100,000 5.95%, 4/30/02 82,000 150,000 9.50%, 8/15/03 117,000 100,000 Conagra, Inc., 6.70%, 8/1/27 99,601 Continental Airlines: 46,037 1997-1A, 7.461%, 4/1/15 46,759 74,474 1999-1B, 6.795%, 8/2/18 71,635 48,597 1999-1A, 6.545%, 2/2/19 47,146 200,000 First Empire Capital, 8.234%, 2/1/27 184,987 100,000 First Hawaiian Cap., 8.343%, 7/1/27 91,699 First Industrial LP: 50,000 7.15%, 5/15/27 50,054 200,000 Louisiana Pacific Corp., 8.875%, 8/15/10 188,028 50,000 May Department Stores, 9.875%, 6/15/21 52,914 400,000 Pentair, Inc., 7.85%, 10/15/09 381,279 350,000 Pitney Bowes, Inc., 8.625%, 2/15/08 383,396 150,000 Security Capital Group, 7.75%, 11/15/03 150,692 50,000 Union Carbide Corp., 8.75%, 8/1/22 53,321 194,510 Union Tank Car Co., 6.57%, 1/2/14 194,337 250,000 U.S. Airways Series 2000-2G, 8.02%, 2/15/19 260,945 100,000 United Health Care, Inc., 7.50%, 11/15/05 103,455 350,000 Whirlpool Corp., 9.00%, 3/1/03 365,204 -------------- 3,777,552 -------------- SEE ACCOMPANYING NOTES TO PORTFOLIOS OF INVESTMENTS ON PAGE 36. 9 SIT BALANCED FUND --------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2000 (UNAUDITED) --------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE($)(1) --------------------------------------------------------------------- FEDERAL AGENCY (0.2%) 200,000 Resolution Funding Corp., zero coupon, 6.75% Effective Yield, 10/15/19 64,852 -------------- FEDERAL HOME LOAN MORTGAGE CORPORATION (0.4%) 34,854 9.00%, 7/1/16 36,090 20,285 9.00%, 7/1/16 21,005 6,208 9.25%, 6/1/02 6,234 30,197 10.00%, 10/1/18 32,285 -------------- 95,614 -------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (0.8%) 9,814 9.00%, 11/1/06 10,025 52,390 9.25%, 1/1/17 54,638 55,457 9.75%, 1/1/13 57,884 12,777 10.00%, 1/1/20 14,014 59,814 10.25%, 6/1/13 63,328 -------------- 199,889 -------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (4.3%) 16,582 9.00%, 6/15/11 17,438 70,005 9.00%, 6/15/09 73,556 157,636 9.00%, 11/15/16 165,296 4,107 9.25%, 9/15/01 4,114 14,805 9.50%, 1/15/04 15,389 36,818 9.50%, 11/15/04 38,271 21,516 9.50%, 7/20/05 22,527 25,710 9.50%, 12/15/09 27,477 16,007 9.50%, 5/20/16 17,108 65,022 9.50%, 3/15/18 69,715 52,144 9.50%, 9/20/18 55,646 15,181 9.50%, 2/20/19 16,194 75,533 9.50%, 3/20/19 80,573 395,155 9.50%, 3/20/19 411,702 30,992 9.75%, 10/15/05 32,988 33,170 10.00%, 3/20/16 35,526 15,905 10.25%, 1/15/04 16,887 9,176 11.25%, 10/15/11 10,008 Municipal (GNMA collateralized): 12,000 Bernalillo Multifamily. Ser. 1998A, 7.50%, 9/20/20 12,323 -------------- 1,122,738 -------------- Total bonds (cost: $9,550,888) 9,719,134 -------------- --------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) --------------------------------------------------------------------- CLOSED-END MUTUAL FUNDS (1.5%) (2) 6,009 American Select Portfolio 70,606 403 American Strategic, Inc. Portfolio 4,719 15,470 American Strategic, Inc. Portfolio II 182,739 10,609 American Strategic, Inc. Portfolio III 122,667 -------------- Total closed-end mutual funds 380,731 -------------- (cost: $368,185) SHORT-TERM SECURITIES (12.8%) (2) 3,311,000 Sit Money Market Fund, 6.34% (4) 3,311,000 -------------- (cost: $3,311,000) Total investments in securities (cost: $26,774,317) (5) $27,925,503 ============== SEE ACCOMPANYING NOTES TO PORTFOLIOS OF INVESTMENTS ON PAGE 36. 10 ------------------------------------------------------------------------ [LOGO] This page has been left blank intentionally. 11 [PHOTO] SIT LARGE CAP GROWTH FUND SIX MONTHS ENDED DECEMBER 31, 2000 ----------------------------------------------------------------------- SENIOR PORTFOLIO MANAGERS PETER L. MITCHELSON, CFA * ROGER J. SIT * RONALD D. SIT, CFA Performance of the Sit Large Cap Growth Fund reflected the stock market decline during the second half of 2000. The Fund's six month return was -17.2%, comparing favorably to the -25.6% return for its style benchmark, the Russell 1000 Growth Index. The S&P 500 Index return for the period was -8.7%. Concerns over decelerating corporate profits weighed on equity markets during the second half of the year as the nation's economy slowed from the remarkable pace witnessed in 1999 and early 2000. This has prompted analysts to reduce earnings forecasts as many prominent companies "pre-announced" disappointing results, particularly in the fourth quarter. As difficult as this period has been, however, there is reason for optimism in the months ahead. Importantly, the Federal Reserve has begun cutting interest rates. Historically, this action has provided a positive backdrop for the equity market and particularly for growth stocks. In addition, the correction in the market has resulted in significantly more attractive valuations, most notably in the technology sector, which has materially underperformed the market in recent months. Given the long-term investment opportunities in technology, the Fund continues to hold significant weightings in electronic technology and technology services. The most significant sector weighting increases over the past six months included producer manufacturing, health technology, retail trade and finance through purchases of Boeing, Emerson Electric, 3M, Baxter International, Eli Lilly, Kroger, Allstate, and Charles Schwab. Sector weighting decreases occurred in electronic technology, communications (former utilities) and consumer services through reduction or elimination of positions in Agilent Technologies, Applied Materials, Lexmark International, QUALCOMM, Sprint, WorldCom, Time Warner and Walt Disney. As of December 31st, the Fund was 97% invested in equities. Given the strong earnings outlook and attractive valuations for companies held in the Fund, we remain enthusiastic about the Fund's prospects in the year ahead. 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 at least 65% of its total assets in the common stocks of domestic growth companies with capitalizations of $5 billion or more at the time of purchase. PORTFOLIO SUMMARY Net Asset Value 12/31/00: $48.14 Per Share 6/30/00: $63.66 Per Share Total Net Assets: $149.31 Million Weighted Average Market Cap: $116.7 Billion TOTAL DIVIDEND: $5.03 PER SHARE Long-Term Capital Gain: $5.03 Per Share PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) [BAR CHART] Electronic Technology 22.9 Health Technology 18.0 Finance 11.4 Technology Services 9.2 Producer Manufacturing 9.2 Retail Trade 7.6 Industrial Services 3.5 Energy Minerals 3.1 Sectors 3.0% and Under 11.9 Cash & Other Net Assets 3.2 12 ------------------------------------------------------------------------ [LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT RUSSELL LARGE CAP S&P 1000 GROWTH FUND 500 INDEX GROWTH INDEX ----------- --------- ------------ 3 Month** -15.51% -7.83% -21.34% 1 Year -13.84 -9.11 -22.43 5 Years 19.45 18.33 18.15 10 Year*** 16.81 17.46 17.33 Inception*** 15.89 17.37 16.76 (9/2/82) CUMULATIVE TOTAL RETURNS* SIT RUSSELL LARGE CAP S&P 1000 GROWTH FUND 500 INDEX GROWTH INDEX ----------- --------- ------------ 1 Year -13.84% -9.11% -22.43% 5 Year 143.20 131.96 130.21 10 Year*** 372.98 399.74 394.50 Inception*** 1396.22 1786.77 1613.95 (9/2/82) *AS OF 12/31/00 **NOT ANNUALIZED. -------------------------------------------------------------------------------- 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 1000 GROWTH INDEX AND THE S&P 500 INDEX. ***ON 6/6/93, THE FUND'S INVESTMENT OBJECTIVE CHANGED TO ALLOW FOR A PORTFOLIO OF 100% STOCKS. PRIOR TO THAT TIME, THE PORTFOLIO WAS REQUIRED TO CONTAIN NO MORE THAN 80% STOCKS. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (9/2/82) and held until 12/31/00 would have grown to $149,622 in the Fund or $188,677 in the S&P 500 Index assuming reinvestment of all dividends and capital gains. TOP 10 HOLDINGS * General Electric Co. * Cisco Systems, Inc. * Pfizer, Inc. * Amgen, Inc. * EMC Corp. * Merck & Co., Inc. * UnitedHealth Group, Inc. * Medtronic, Inc. * Microsoft Corp. * American International Group, Inc. Total Number of Holdings: 80 13 SIT LARGE CAP GROWTH FUND -------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2000 (UNAUDITED) -------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) -------------------------------------------------------------------------- COMMON STOCKS (96.8%) (2) COMMUNICATIONS (3.0%) 91,500 Global Crossing, Ltd. (3) $1,309,594 29,000 Nextel Communications, Inc. (3) 717,750 69,500 Vodafone Group, A.D.R. 2,488,969 --------------- 4,516,313 --------------- CONSUMER DURABLES (0.8%) 31,200 Harley-Davidson, Inc. 1,240,200 --------------- CONSUMER NON-DURABLES (2.9%) 9,000 Coca Cola Co. 548,438 31,200 Colgate-Palmolive Co. 2,013,960 34,500 PepsiCo, Inc. 1,709,906 --------------- 4,272,304 --------------- CONSUMER SERVICES (2.8%) 53,000 AT&T Corp. - Liberty Media Group (3) 718,813 8,400 Clear Channel Communications, Inc. (3) 406,875 60,000 General Motors Corp. - Class H 1,380,000 34,177 Viacom, Inc. (3) 1,597,775 --------------- 4,103,463 --------------- ELECTRONIC TECHNOLOGY (22.9%) 78,000 ADC Telecommunications, Inc. (3) 1,413,750 13,000 Brocade Comm. Systems, Inc. (3) 1,193,562 8,000 Ciena Corp. (3) 650,000 159,300 Cisco Systems, Inc. (3) 6,093,225 19,500 Corning, Inc. 1,029,844 66,600 EMC Corp. (3) 4,428,900 31,600 Flextronics Intern., Ltd. (3) 900,600 101,800 Intel Corp. 3,060,362 34,500 JDS Uniphase Corp. (3) 1,438,219 7,000 Juniper Networks, Inc. (3) 882,438 22,000 Linear Technology Corp. 1,017,500 9,500 Network Appliance, Inc. (3) 609,781 65,500 Nokia Corp., A.D.R. 2,849,250 46,100 Nortel Networks Corp. 1,478,081 6,500 PMC-Sierra, Inc. (3) 511,062 14,500 SDL, Inc. (3) 2,148,719 73,000 Sun Microsystems, Inc. (3) 2,034,875 13,400 Tellabs, Inc. (3) 757,100 4,700 Texas Instruments, Inc. 222,663 33,000 Xilinx, Inc. (3) 1,522,125 --------------- 34,242,056 --------------- -------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) -------------------------------------------------------------------------- ENERGY MINERALS (3.1%) 32,500 Anadarko Petroleum Corp. 2,310,100 42,500 EOG Resources, Inc. 2,324,219 --------------- 4,634,319 --------------- FINANCE (11.4%) 30,900 Allstate Corp. 1,346,081 33,062 American International Group, Inc. 3,258,673 18,650 Chase Manhattan Corp. 847,409 34,000 Citigroup, Inc. 1,736,125 19,500 Marsh & McLennan Cos., Inc. 2,281,500 21,000 Morgan Stanley Dean Witter & Co. 1,664,250 4,500 Northern Trust Corp. 367,031 23,500 Charles Schwab Corp. 666,813 37,300 Wells Fargo Co. 2,077,144 30,800 XL Capital, Ltd. 2,691,150 --------------- 16,936,176 --------------- HEALTH SERVICES (2.4%) 59,000 UnitedHealth Group, Inc. 3,621,125 --------------- HEALTH TECHNOLOGY (18.0%) 20,500 American Home Products Corp. 1,302,775 71,000 Amgen, Inc. (3) 4,539,562 3,500 Applera Corp. (Applied Biosystems) 329,219 15,000 Baxter International, Inc. 1,324,687 16,000 Eli Lilly and Co. 1,489,000 12,000 Genentech, Inc. (3) 978,000 4,500 Human Genome Sciences, Inc. 311,906 28,500 MedImmune, Inc. (3) 1,359,094 59,200 Medtronic, Inc. 3,574,200 39,900 Merck & Co., Inc. 3,735,637 128,925 Pfizer, Inc. 5,930,550 33,000 Pharmacia Corp. 2,013,000 --------------- 26,887,630 --------------- INDUSTRIAL SERVICES (3.5%) 22,000 Enron Corp. 1,828,750 38,500 Halliburton Co. 1,395,625 42,000 Transocean Sedco Forex, Inc. 1,932,000 --------------- 5,156,375 --------------- PRODUCER MANUFACTURING (9.2%) 18,000 Boeing Co. 1,188,000 6,500 Emerson Electric Co. 512,281 186,300 General Electric Co. 8,930,756 4,000 MN Mining and Manufacturing Co. 482,000 48,200 Tyco International, Ltd. 2,675,100 --------------- 13,788,137 --------------- 14 ------------------------------------------------------------------------ [LOGO] -------------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE($)(1) -------------------------------------------------------------------------- RETAIL TRADE (7.6%) 56,550 Home Depot, Inc. 2,583,628 36,500 Kohl's Corp. (3) 2,226,500 31,000 Kroger Co. 838,938 90,400 Target Corp. 2,915,400 67,600 Walgreen Co. 2,826,525 --------------- 11,390,991 --------------- TECHNOLOGY SERVICES (9.2%) 5,000 Adobe Systems, Inc. 290,938 43,000 America Online, Inc. (3) 1,496,400 12,000 Bea Systems, Inc. (3) 807,750 69,900 Ceridian Corp. (3) 1,393,631 23,300 Computer Sciences Corp. (3) 1,400,912 10,000 Inktomi Corp. (3) 178,750 76,000 Microsoft Corp. (3) 3,296,500 90,000 Oracle Corp. (3) 2,615,625 8,500 Siebel Systems, Inc. (3) 574,813 8,100 VeriSign, Inc. (3) 600,919 12,400 VERITAS Software Corp. (3) 1,085,000 --------------- 13,741,238 --------------- Total common stocks 144,530,327 --------------- (cost: $110,902,502) SHORT-TERM SECURITIES (2.3%) (2) 1,501,000 BP Amoco Capital, 6.50%, 1/2/01 1,500,187 1,909,000 Sit Money Market Fund, 6.34% (4) 1,909,000 --------------- (cost: $3,409,187) 3,409,187 --------------- Total investments in securities (cost: $114,311,689) (5) $147,939,514 =============== SEE ACCOMPANYING NOTES TO PORTFOLIOS OF INVESTMENTS ON PAGE 36. 15 [PHOTO] SIT MID CAP GROWTH FUND SIX MONTHS ENDED DECEMBER 31, 2000 ----------------------------------------------------------------------- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER ERIK S. ANDERSON, CFA, SENIOR PORTFOLIO MANAGER The Sit Mid Cap Growth Fund's six-month return was -16.0%, compared to +7.8% for the S&P 400 Mid Cap Index. The Fund turned in strong performance on a relative basis compared to growth indices, as the Russell Mid Cap Growth Index fell -21.3% for the period. The second half of 2000 proved quite challenging for equity investors, with corporate earnings worries proliferating as the nation's economy began to slow. The technology sector has been hit particularly hard in recent months as both unprecedented valuation levels and high earnings expectations proved to be unsustainable. The correction in stocks, however, has led to much more compelling valuations in the sector and, for many companies, consensus expectations for future earnings have been reduced to more realistically reflect moderating economic activity. We remain committed to technology investing, and we strongly believe that the secular growth trends in diverse areas such as telecommunications, software, and E-commerce offer significant opportunities for long-term investors. We believe the improving outlook for interest rates will be a key element supporting higher stock prices in the months ahead, although the "tug of war" with lower corporate profits is likely to persist. Given our forecast for only modest overall profit growth in 2001, we foresee an improving outlook for growth stocks in the year ahead. We believe companies in the Fund are well positioned to grow earnings in the context of our "soft landing" economic forecast in 2001. The electronic technology sector showed, by far, the largest weighting decrease over the past six months. Although much of the reduction was due to stock price declines, there were some sales within the sector including Comverse Technology, Lexmark International, QUALCOMM and Teradyne. Sector weighting increases occurred in health technology, finance, energy minerals, and health services through the purchases of ALZA, Genzyme, Human Genome Sciences, Capital One Financial, Hartford Financial Services, Lehman Brothers, Calpine and Wellpoint Health Networks. As of December 31st, the Fund was 97% invested in equities. Given the ongoing innovation and rapid change occurring within our economy, we believe there are many investment opportunities for dynamic companies within the small and medium capitalization universe. We continue to remain enthusiastic about the growth prospects for companies held in the Fund. 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 at least 65% of its total assets in the common stocks of growth companies with capitalizations of $2 billion to $15 billion at the time of purchase. PORTFOLIO SUMMARY Net Asset Value 12/31/00: $16.03 Per Share 6/30/00: $23.57 Per Share Total Net Assets: $473.57 Million Weighted Average Market Cap: $13.7 Billion TOTAL DIVIDEND: $4.07 PER SHARE Long-Term Capital Gain: $4.07 Per Share PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) [BAR CHART] Electronic Technology 23.3 Technology Services 17.6 Health Technology 17.6 Finance 12.0 Industrial Services 5.3 Energy Minerals 5.3 Health Services 4.7 Retail Trade 4.6 Sectors 2.5% and under 6.6 Cash and Other Net Assets 3.0 16 ------------------------------------------------------------------------ [LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT S&P RUSSELL MID CAP MIDCAP MID CAP GROWTH FUND 400 INDEX GROWTH INDEX ----------- --------- ------------ 3 Month** -23.00% -3.85% -23.25% 1 Year -4.35 17.50 -11.75 5 Year 20.13 20.42 17.77 10 Year 19.32 19.86 18.10 Inception 19.25 18.69 -- (9/2/82) CUMULATIVE TOTAL RETURNS* SIT S&P RUSSELL MID CAP MIDCAP MID CAP GROWTH FUND 400 INDEX GROWTH INDEX ----------- --------- ------------ 1 Year -4.35% 17.50% -11.75% 5 Year 150.13 153.19 126.55 10 Year 484.89 511.86 427.76 Inception 2427.19 2218.30 -- (9/2/82) *AS OF 12/31/00 **NOT ANNUALIZED. -------------------------------------------------------------------------------- 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 AND 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 12/31/00 would have grown to $252,719 in the Fund, or $231,830 in the S&P MidCap 400 Index assuming reinvestment of all dividends and capital gains. TOP 10 HOLDINGS * Applied Micro Circuits Corp. * Ace, Ltd. * JDS Uniphase Corp. * Check Point Software Tech., Ltd. * ALZA Corp. * Kohl's Corp. * Oxford Health Plans, Inc. * Elan Corp., A.D.R. * Fiserv, Inc. * Biogen, Inc. Total Number of Holdings: 72 17 SIT MID CAP GROWTH FUND -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2000 (UNAUDITED) ------------------------------------------------------------------ QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) ------------------------------------------------------------------ COMMON STOCKS (96.3%) (2) CONSUMER DURABLES (2.3%) 141,000 Electronic Arts, Inc. (3) $6,010,125 122,500 Harley-Davidson, Inc. 4,869,375 ------------ 10,879,500 ------------ COMMERCIAL SERVICES (0.6%) 62,000 International Game Technology (3) 2,976,000 ------------ COMMUNICATIONS (2.0%) 225,500 TyCom, Ltd. (3) 5,045,563 253,700 XO Communications, Inc. (3) 4,519,031 ------------ 9,564,594 ------------ CONSUMER SERVICES (1.7%) 107,872 Clear Channel Communications (3) 5,225,050 116,700 EchoStar Communications Corp. (3) 2,654,925 ------------ 7,879,975 ------------ ELECTRONIC TECHNOLOGY (22.6%) 366,000 ADC Telecommunications, Inc. (3) 6,633,750 228,200 ASM Lithography Hldg., A.D.R. (3) 5,148,763 129,000 American Tower Corp. (3) 4,885,875 158,500 Analog Devices, Inc. (3) 8,113,219 297,600 Applied Micro Circuits Corp. (3) 22,333,950 97,200 Brocade Communications Sys., Inc. (3) 8,924,175 432,800 JDS Uniphase Corp. (3) 18,042,350 270,600 Jabil Circuit, Inc. (3) 6,866,475 80,000 McDATA Corp. (3) 4,380,000 69,700 Network Appliance, Inc. (3) 4,473,869 17,600 PMC-Sierra, Inc. (3) 1,383,800 79,125 Symbol Technologies, Inc. 2,848,500 102,800 Vitesse Semiconductor Corp. (3) 5,686,125 155,100 Xilinx, Inc. (3) 7,153,988 ------------ 106,874,839 ------------ ENERGY MINERALS (5.3%) 189,500 Calpine Corp. (3) 8,539,344 132,000 Devon Energy Corp. 8,048,040 154,000 EOG Resources, Inc. 8,421,875 ------------ 25,009,259 ------------ FINANCE (12.0%) 461,900 Ace, Ltd. 19,601,881 82,000 American General Corp. 6,683,000 69,000 Capital One Financial Corp. 4,541,062 71,500 Hartford Financial Services Group, Inc.5,049,687 105,400 Legg Mason, Inc. 5,744,300 65,500 Lehman Brothers Holdings, Inc. 4,429,438 95,200 Stilwell Financial, Inc. 3,754,450 156,100 TCF Financial Corp. 6,956,206 ------------ 56,760,024 ------------ ------------------------------------------------------------------ QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) ------------------------------------------------------------------ HEALTH SERVICES (4.7%) 278,500 Oxford Health Plans, Inc. (3) 11,000,750 128,000 Tenet Healthcare Corp. (3) 5,688,000 47,500 Wellpoint Health Networks, Inc. (3) 5,474,375 ------------ 22,163,125 ------------ HEALTH TECHNOLOGY (17.6%) 70,600 Applera Corp. (Applied Biosystems) 6,640,812 34,500 Allergan, Inc. 3,340,031 293,000 ALZA Corp. (3) 12,452,500 150,900 Biogen, Inc. (3) 9,063,431 225,800 Elan Corp., A.D.R. (3) 10,570,262 47,400 Genzyme Corp. (3) 4,263,037 57,400 Human Genome Sciences, Inc. (3) 3,978,538 33,400 IDEC Pharmaceuticals Corp. (3) 6,331,388 192,400 Immunex Corp. (3) 7,816,250 167,700 MedImmune, Inc. (3) 7,997,194 52,000 Millennium Pharmaceuticals, Inc. (3) 3,217,500 32,300 Stryker Corp. 1,634,057 73,400 Waters Corp. (3) 6,128,900 ------------ 83,433,900 ------------ INDUSTRIAL SERVICES (5.3%) 140,000 Dynegy, Inc. 7,848,750 130,100 Noble Drilling Corp. (3) 5,651,219 100,800 Transocean Sedco Forex, Inc. 4,636,800 151,800 Weatherford International, Inc. (3) 7,172,550 ------------ 25,309,319 ------------ RETAIL TRADE (4.6%) 162,200 Bed Bath & Beyond, Inc. (3) 3,629,225 47,000 CVS Corp. 2,817,062 190,000 Kohl's Corp. (3) 11,590,000 83,500 RadioShack Corp. 3,574,844 ------------ 21,611,131 ------------ TECHNOLOGY SERVICES (17.6%) 21,500 Ariba, Inc. (3) 1,152,937 83,200 BEA Systems, Inc. (3) 5,600,400 307,100 Ceridian Corp. (3) 6,122,806 99,200 Check Point Software Tech., Ltd. (3) 13,249,400 65,900 Computer Sciences Corp. (3) 3,962,237 362,700 Dendrite International, Inc. (3) 8,115,412 211,075 Fiserv, Inc. (3) 10,012,870 85,500 I2 Technologies, Inc. (3) 4,649,063 119,900 Inktomi Corp. (3) 2,143,213 18 ------------------------------------------------------------------------ [LOGO] ------------------------------------------------------------------ QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE($)(1) ------------------------------------------------------------------ 43,700 Mercury Interactive Corp. (3) 3,943,925 55,000 Micromuse, Inc. (3) 3,319,766 103,000 Sapient Corp. (3) 1,229,563 113,200 Siebel Systems, Inc. (3) 7,655,150 53,100 VeriSign, Inc. (3) 3,939,356 96,100 VERITAS Software Corp. (3) 8,408,750 ------------ 83,504,848 ------------ Total common stocks 455,966,514 ------------ (cost: $313,518,821) CONVERTIBLE BOND (0.7%) (2) 3,250,000 Juniper Networks, 4.75%, 3/15/07 3,375,938 ------------ (cost: $3,250,594) SHORT-TERM SECURITIES (3.6%) (2) 16,863,000 Sit Money Market Fund, 6.34% (4) 16,863,000 4,313,000 BP Amoco Capital, 6.50%, 1/2/01 4,310,664 583,000 Household Finance, 6.50%, 1/3/01 582,579 358,000 Walt Disney Co., 6.50%, 1/3/01 357,741 ------------ 22,113,984 ------------ (cost: $22,113,984) Total investments in securities (cost: $338,883,399) (5) $481,456,436 ============ SEE ACCOMPANYING NOTES TO PORTFOLIOS OF INVESTMENTS ON PAGE 36. 19 [PHOTO] SIT INTERNATIONAL GROWTH FUND REVIEW SIX MONTHS ENDED DECEMBER 31, 2000 ----------------------------------------------------------------------- SENIOR PORTFOLIO MANAGERS EUGENE C. SIT, CFA AND ROGER J. SIT The Sit International Growth Fund declined -18.5% for the six months ended December 31, 2000 compared with the MSCI EAFE Index return of -10.5% and the Lipper International Fund Index return of -11.1%. The Fund's underperformance can be attributed to the continued sell-off in the technology hardware and communication equipment sectors, as well as diversified financials in Japan. The underperformance was also affected by the non-index weight in Canada. The insurance sector provided positive returns, as the pricing environment for rates improved. The December quarter performance was particularly hard hit with increasing anxieties of a global slowing. The high cost of oil throughout much of the year played into inflation concerns and an increasing risk of an economic slowdown in the U.S. that could jeopardize fragile recoveries in Europe and Asia. The continued strength of the U.S. dollar added to inflation worries in Europe and Asia. These concerns renewed selling pressure in the technology and telecommunication areas as growth expectations were revised lower and debt levels were questioned. The debate over the "old economy verses the new economy" also contributed to the market correction. We believe the recent move by the Federal Reserve Bank to lower interest rates is a major turning point in heading off a global recession. We expect the U.S. will continue to implement an easing monetary policy, and interest rate cuts in Europe and Asia will follow. We are particularly pleased to see a rebound in the euro, which had been decimated for much of 2000. The euro has appreciated over 16% against the dollar since late November. We believe European equities will outperform U.S. markets as tax and pension reforms and corporate restructuring initiatives take hold, and Euroland increases capital spending to close the technology gap with the U.S. We believe the overall market valuations are attractive and that a number of high quality stocks, which have been unfairly beaten down, create good buying opportunities. However, whether in Europe or Asia, we believe it's a "stock pickers" market with opportunities across several sectors. We expect to maintain the Fund's European weight in the low 60% area and continue to underweight Japan. We intend to retain our preferences in those companies that have long-term growth opportunities. We prefer companies in the technology, telecommunications equipment, wireless service, healthcare, and financial services sectors. INVESTMENT OBJECTIVE AND STRATEGY The objective of the International Growth Fund is long-term growth. The Fund seeks to achieve its objective by investing at least 90% of its total assets in common stocks of growth companies domiciled outside the United States. In selecting investments for the Fund, the Sub-Adviser begins by selecting countries or regions in which to invest by considering several factors affecting the economy and equity market of foreign countries and regions. After the country and regional allocations are determined, the Sub-Adviser seeks industries and sectors that it believes have earnings growth prospects that are greater than the average. Within the selected industries and sectors, the Sub-Adviser invests in foreign growth-oriented companies it believes exhibit the potential for superior growth. PORTFOLIO SUMMARY Net Asset Value 12/31/00: $18.73 Per Share 6/30/00: $23.58 Per Share Total Net Assets: $145.59 Million Weighted Average Market Cap: $58.5 Billion TOTAL DIVIDEND: $0.52 PER SHARE Long-Term Capital Gain: $0.52 Per Share PORTFOLIO STRUCTURE - BY REGION (% OF TOTAL NET ASSETS) [BAR CHART] SIT INT'L Morgan Stanley GROWTH FUND EAFE Index Europe Other 31.3 29.6 France, Germany, UK 28.2 41.8 Japan 15.2 22.7 Pacific Basin 7.1 5.9 North America 3.8 0.0 Africa/Middle East 3.3 0.0 Latin America 0.8 0.0 Cash and Other Net Assets 10.3 0.0 20 ------------------------------------------------------------------------ [LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT MORGAN STANLEY LIPPER INTERNATIONAL CAPITAL INT'L INT'L GROWTH FUND EAFE INDEX INDEX ----------- ---------- ----- 3 Month** -12.02% -2.68% -4.02% 1 Year -26.66 -14.17 -14.72 3 Year 9.57 9.35 9.81 5 Year 8.75 7.13 10.20 Inception 10.78 7.70 10.15 (11/1/91) CUMULATIVE TOTAL RETURNS* SIT MORGAN STANLEY LIPPER INTERNATIONAL CAPITAL INT'L INT'L GROWTH FUND EAFE INDEX INDEX ----------- ---------- ----- 1 Year -26.66% -14.17% -14.72% 3 Year 31.54 30.77 32.41 5 Year 52.08 41.14 62.52 Inception 155.90 97.46 142.78 (11/1/91) *AS OF 12/31/00 **NOT ANNUALIZED. -------------------------------------------------------------------------------- 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 12/31/00 would have grown to $25,590 in the Fund, or $19,746 in the Morgan Stanley EAFE Index assuming reinvestment of all dividends and capital gains. PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) [BAR CHART] Finance 20.3 Electronic Technology 16.4 Communications 14.9 Health Technology 12.1 Technology Services 9.1 Sectors less than 4% 16.9 Cash and Other Net Assets 10.3 21 SIT INTERNATIONAL GROWTH FUND -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2000 (UNAUDITED) TOP 10 HOLDINGS * Nokia Corp., A.D.R. * Vodafone Group, p.l.c. * AXA * Takeda Chemical Industries * NTT DoCoMo, Inc. * Banca Fideuram * Elan Corp., p.l.c., A.D.R. * Misys, p.l.c. * Seven Eleven Japan * UBS AG Total Number of Holdings: 80 --------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) --------------------------------------------------------------------- COMMON STOCKS (89.7%)(2) AFRICA/ MIDDLE EAST (3.3%) ISRAEL (3.3%) 22,000 Amdocs, Ltd. (Tech. Services) (3) $1,457,500 11,600 Check Point Software Technologies, Ltd., A.D.R. (Technology Services) (3) 1,549,325 16,800 Comverse Technology, Inc. (Electronic Technology) (3) 1,824,900 ------------ 4,831,725 ------------ ASIA (22.3%) HONG KONG (3.4%) 98,000 Cheung Kong Hldgs., Ltd. (Industrial Services) 1,253,284 188,000 China Mobile (Hong Kong) (Communications) (3) 1,026,781 259,000 Citic Pacific, Ltd. (Industrial Services) 918,132 118,000 HSBC Holdings, p.l.c. (Finance) 1,747,328 ------------ 4,945,525 ------------ JAPAN (15.2%) 28,900 AFLAC, Inc., A.D.R. (Finance) 2,086,219 26,000 Kao Corp. (Consumber Non-Durables) 755,867 263 NTT Data Corp. (Tech. Services) 1,750,262 223 NTT DoCoMo, Inc. (Communications) 3,846,847 123 Nippon Telephone (Communications) 886,418 53,000 Seven Eleven Japan (Retail Trade) 3,016,637 25,800 Sony Corp. (Consumer Durables) 2,213,660 65,000 Takeda Chemical Industries (Health Technology) 3,847,635 206,000 The Nikko Securities Co., Ltd. (Finance) 1,596,409 74,000 The Nomura Securities Co., Ltd. (Finance) 1,331,611 17,000 Yamanouchi Pharmaceutical Co., Ltd. (Health Technology) 735,376 ------------ 22,066,941 ------------ --------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) --------------------------------------------------------------------- SINGAPORE (2.3%) 73,846 DBS Group Holdings, Ltd. (Finance) 834,692 393,000 Natsteel Electronics, Ltd. (Electronic Technology) 1,779,122 109,000 Venture Mfg., Ltd. (Electronic Tech.) 729,169 ------------ 3,342,983 ------------ TAIWAN (1.0%) 223,860 Hon Hai Precision Industry (Electronic Technology) (3) 1,136,826 16,532 Taiwan Semiconductor Mfg. Co., A.D.R. (Electronic Technology) (3) 285,177 ------------ 1,422,003 ------------ THAILAND (0.4%) 63,400 Advanced Info Services (Communications) 613,831 ------------ EUROPE (59.5%) BELGIUM (0.8%) 16,500 Interbrew (Consumer Non-Durables) (3) 575,023 17,600 UCB, S.A. (Health Technology) 652,354 ------------ 1,227,377 ------------ FINLAND (4.0%) 133,300 Nokia Corp., A.D.R. (Electronic Tech.) 5,798,550 ------------ FRANCE (11.6%) 27,770 AXA (Finance) 4,015,040 13,850 Alcatel (Communications) 786,681 11,390 Aventis S.A. (Health Technology) 999,836 13,600 Business Objects (Tech. Services) (3) 801,848 18,628 Carrefour, S.A. (Retail Trade) 1,169,999 14,430 France Telecom, S.A. (Communications) 1,245,694 13,120 Groupe Danone (Cons. Non-Durables) 1,978,211 20,050 L'oreal Co. (Consumer Non-Durables) 1,718,614 43,800 STMicroelectronics, A.D.R. (Electronic Technology) 1,875,188 12,840 Sanofi-Synthelabo S.A. (Health Tech.) 855,888 21,500 Vivendi Universal (Consumer Services) 1,414,978 ------------ 16,861,977 ------------ GERMANY (3.8%) 3,397 Allianz, A.G. (Finance) 1,277,933 12,950 Epcos, A.G. (Electronic Technology) (3) 1,130,696 3,900 Muenchener Rueckver (Finance) 1,391,366 3,750 SAP Preferred (Technology Services) 530,916 9,600 Siemens AG (Technology Services) 1,273,072 ------------ 5,603,983 ------------ IRELAND (2.3%) 71,900 Elan Corp., p.l.c., A.D.R. (Health Technology) (3) 3,365,819 ------------ 22 ------------------------------------------------------------------------ [LOGO] --------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) --------------------------------------------------------------------- ITALY (5.6%) 20,500 Assicurazioni Generali (Finance) 814,118 271,150 Banca Fideuram (Finance) 3,742,142 159,200 Telecom Italia (Communications) 1,760,685 234,000 Telecom Italia Mobile Spa (Communications) 1,867,360 ------------ 8,184,305 ------------ NETHERLANDS (7.8%) 81,900 ASM Lithography Holding, A.D.R. (Electronic Technology) (3) 1,847,869 32,379 Aegon N.V., A.D.R. (Finance) 1,341,711 177,840 CMG, p.l.c. (Technology Services) 2,479,415 30,120 ING Groep N.V. (Finance) 2,405,890 25,200 Royal Dutch Petroleum, A.D.R. (Energy Minerals) 1,526,175 21,500 Schlumberger, Ltd. (Industrial Services) 1,718,656 ------------ 11,319,716 ------------ SPAIN (2.6%) 66,553 Banca Bilbao Vizcaya Argentaria, S.A. (Finance) (3) 990,353 167,110 Telefonica, S.A. (Communications) 2,761,267 ------------ 3,751,620 ------------ SWEDEN (1.8%) 137,300 L.M. Ericsson Telephone Co., A.D.R. (Electronic Technology) 1,536,044 60,800 Securitas 'B ' (Commercial Svcs.) 1,127,653 ------------ 2,663,697 ------------ SWITZERLAND (6.4%) 1,362 Novartis, A.G. (Health Technology) 2,407,979 166 Roche Holdings, A.G. (Health Tech.) 1,691,243 340 Syngenta, A.G. (CHF) (Process Industries) (3) 18,254 649 Syngenta, A.G. (SEK) (Process Industries) (3) 34,804 17,400 UBS, A.G. (Finance) 2,840,049 3,910 Zurich Financial Services, A.G. (Finance) 2,357,340 ------------ 9,349,669 ------------ --------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE ($)(1) --------------------------------------------------------------------- UNITED KINGDOM (12.8%) 29,534 AstraZeneca Group, p.l.c. (Health Technology) 1,471,139 46,100 BP Amoco, A.D.R. (Energy Minerals) 2,207,038 30,800 Bookham Technology, p.l.c. (Electronic Technology) (3) 404,250 50,375 Dimension Data Holdings, p.l.c. (Technology Services) (3) 340,131 27,084 GlaxoSmithkline, p.l.c., A.D.R. (Health Technology) (3) 1,516,726 72,126 Lloyds TSB Group, p.l.c. (Finance) 762,812 316,535 Misys, p.l.c. (Technology Services) 3,120,744 59,825 Pearson, p.l.c. (Consumer Services) 1,420,918 82,670 Reuters Group (Consumer Services) 1,399,169 1,278,175 Vodafone Group, p.l.c. (Communications) 4,687,424 38,000 Vodafone Group, A.D.R. (Communications) 1,360,875 ------------ 18,691,226 ------------ LATIN AMERICA (0.8%) MEXICO (0.8%) 17,900 Telefonos de Mexico S.A., A.D.R. (Communications) 807,738 151,000 Wal-Mart de Mexico (Retail Trade) 300,475 ------------ 1,108,213 ------------ NORTH AMERICA (3.8%) CANADA (3.8%) 27,500 JDS Uniphase Corp. (Electronic Technology) 1,146,406 59,300 Nortel Networks Corp. (Electronic Technology) 1,901,306 31,300 PMC-Sierra, Inc., A.D.R. (Electronic Technology) (3) 2,460,963 ------------ 5,508,675 ------------ Total common stocks 130,657,835 ------------ (cost: $106,114,422) SHORT TERM SECURITIES (10.1%) (2) 1,956,000 BP Amoco Capital, 6.50%, 1/2/01 1,954,941 12,734,000 Sit Money Market Fund, 6.32% (4) 12,734,000 ------------ 14,688,941 ------------ (cost: $14,688,941) Total investments in securities (cost: $120,803,363) (5) $145,346,776 ============= SEE ACCOMPANYING NOTES TO PORTFOLIOS OF INVESTMENTS ON PAGE 36. 23 [PHOTO] SIT SMALL CAP GROWTH FUND SIX MONTHS ENDED DECEMBER 31, 2000 ----------------------------------------------------------------------- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER The Sit Small Cap Growth Fund returned -13.6% over the last six months and +6.3% for the calendar year. This compares to a six-month return of -5.9% and an annual return of -3.0% for the Russell 2000 Index. The Fund fared particularly well relative to the Russell 2000 Growth Index, which fell -23.4% and -22.4%, respectively. Small stocks turned in their second consecutive year of outperforming larger issues, although absolute returns were negative for the year. Growth stocks underperformed value issues, perhaps not surprising given their unprecedented outperformance in 1999. The Fund's strong relative performance compared to the benchmark Russell 2000 Growth Index was largely attributable to stock selection in the electronic technology, technology services, and finance sectors. Despite the market correction taking place during the second half of 2000, we are quite optimistic about market outlook in the months ahead. Clearly, the year 2000 was both very interesting and challenging for investors. The "irrational exuberance" in the technology sector largely came to an end as the decelerating U.S. economy prompted earnings warnings from some prominent companies in recent months. Although there will certainly be more "earnings worries" in the short term, we remain positive on the outlook for the overall market, including the technology sector. Valuations have become much more attractive-- particularly for technology stocks -- and lower interest rates appear to be on the horizon. The Federal Reserve has begun reducing interest rates, cutting the federal funds rate target by 50 basis points on January 3rd. Over the past 50 years, there have been twelve instances when the Fed has cut rates to stimulate growth in the economy. The average twelve-month gain in the S&P 500 Index following such initial moves has been +22.3%. We expect small company growth stocks to perform particularly well in the projected economic environment, due to compelling relative valuations and earnings growth potential. In terms of portfolio structure, the most significant sector weighting increases occurred in finance, health technology, and health services, while the weightings decreased in the electronic technology and communications sectors. As of December 31, 2000, the Fund was 90% invested in equity securities. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Sit Small Cap Growth Fund is to maximize long-term capital appreciation. The Fund seeks to achieve its objective by investing at least 65% of its total assets in common stocks of small growth companies with capitalizations of $2.5 billion or less at the time of purchase. The Advisor invests in a diversified group of growing small companies it believes exhibit the potential for superior growth. The Advisor believes that a company's earnings growth is the primary determinant of its potential long-term return and evaluates a company's potential for above average long-term earnings and revenue growth. PORTFOLIO SUMMARY Net Asset Value 12/31/00: $35.16 Per Share 6/30/00: $41.35 Per Share Total Net Assets: $264.33 Million Weighted Average Market Cap: $4.7 Billion TOTAL DIVIDEND: $0.58 Long-Term Capital Gain: $0.58 PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) [BAR CHART] Finance 19.7 Electronic Technology 19.2 Health Technology 17.0 Technology Services 11.5 Health Services 6.0 Industrial Services 4.6 Process Industries 4.1 Sectors 2.3% and Under 8.1 Cash & Other Net Assets 9.8 24 ------------------------------------------------------------------------ [LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT RUSSELL SMALL CAP RUSSELL 2000 2000 GROWTH FUND INDEX GROWTH INDEX ----------- ----- ------------ 3 Month** -19.70% -6.91% -20.20% 1 Year 6.25 -3.02 -22.44 3 Year 31.24 4.65 3.96 5 Year 22.84 10.31 7.14 Inception 27.05 12.84 11.30 (7/1/94) CUMULATIVE TOTAL RETURNS* SIT RUSSELL SMALL CAP RUSSELL 2000 2000 GROWTH FUND INDEX GROWTH INDEX ----------- ----- ------------ 1 Year 6.25% -3.02% -22.44% 3 Year 126.04 14.61 12.37 5 Year 179.70 63.36 41.20 Inception 374.85 119.50 100.79 (7/1/94) *AS OF 12/31/00 **NOT ANNUALIZED. -------------------------------------------------------------------------------- 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 AND 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 12/31/00 would have grown to $47,485 in the Fund, or $21,950 in the Russell 2000 Index assuming reinvestment of all dividends and capital gains. TOP 10 HOLDINGS * Millipore Corp. * Biosite Dianostics, Inc. * Arthur J. Gallagher & Co. * Applied Micro Circuits Corp. * Partnerre, Ltd. * Ambac Financial Group, Inc. * BISYS Group, Inc. * Federated Investors, Inc. * Legg Mason, Inc. * RSA Security, Inc. Total Number of Holdings: 68 25 SIT SMALL CAP GROWTH FUND -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2000 (UNAUDITED) -------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) -------------------------------------------------------------------------- COMMON STOCKS (90.2%) (2) COMMUNICATIONS (1.0%) 146,600 Pinnacle Holdings, Inc. (3) $1,328,563 45,000 Rural Cellular Corp. (3) 1,333,125 -------------- 2,661,688 -------------- CONSUMER SERVICES (2.3%) 115,100 DeVry, Inc. (3) 4,345,025 61,300 Emmis Communications Corp. (3) 1,758,544 -------------- 6,103,569 -------------- ELECTRONIC TECHNOLOGY (19.2%) 100,000 Applied Micro Circuits Corp. (3) 7,504,687 101,500 Artesyn Technologies, Inc. (3) 1,611,312 75,900 Asyst Technologies, Inc. (3) 1,019,906 70,200 Corvis Corp. (3) 1,671,637 165,500 Elantec Semiconductor, Inc. (3) 4,592,625 107,300 Exfo Electro-Optical Engineering, Inc. (3) 2,803,212 37,900 Extreme Networks, Inc. (3) 1,482,837 173,400 Flextronics International, Ltd. (3) 4,941,900 78,000 JDS Uniphase Corp. (3) 3,251,625 21,000 Juniper Networks, Inc. (3) 2,647,313 46,000 Litton Industries, Inc. (3) 3,619,625 202,300 Merix Corp. (3) 2,705,763 44,200 Newport Corp. 3,474,534 55,000 PMC-Sierra, Inc. (3) 4,324,375 34,500 SDL, Inc. (3) 5,112,469 -------------- 50,763,820 -------------- ENERGY MINERALS (2.2%) 119,500 Newfield Exploration Co. (3) 5,668,781 -------------- FINANCE (19.7%) 112,650 Ambac Financial Group, Inc. 6,568,903 134,500 Arthur J. Gallagher & Co. 8,557,562 67,600 Everest Re Group, Ltd. 4,841,850 208,750 Federated Investors, Inc. 6,079,844 109,500 Legg Mason, Inc. 5,967,750 64,500 Mercury General Corp. 2,829,938 101,625 New York Community Bancorp, Inc. 3,734,719 114,700 Partnerre, Ltd. 6,996,700 130,250 Waddell & Reed Financial, Inc. - Class A 4,900,656 45,000 Waddell & Reed Financial, Inc. - Class B 1,687,500 -------------- 52,165,422 -------------- HEALTH SERVICES (6.0%) 143,900 Oxford Health Plans, Inc. (3) 5,684,050 109,200 Stericycle, Inc. (3) 4,163,250 59,400 Trigon Healthcare, Inc. (3) 4,622,063 11,700 Universal Health Services, Inc. 1,307,475 -------------- 15,776,838 -------------- -------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) -------------------------------------------------------------------------- HEALTH TECHNOLOGY (17.0%) 33,500 Alexion Pharmaceuticals, Inc. (3) 2,175,406 236,650 Biosite Diagnostics, Inc. (3) 9,569,534 66,700 Caliper Technologies Corp. (3) 3,134,900 20,500 Corixa Corp. (3) 571,437 71,600 Cell Therapeutics, Inc. (3) 3,226,475 20,000 IDEC Pharmaceuticals Corp. (3) 3,791,250 38,200 ImClone Systems, Inc. (3) 1,680,800 166,100 Large Scale Biology Corp. (3) 1,577,950 29,500 Maxygen, Inc. (3) 722,750 49,000 PerkinElmer, Inc. 5,145,000 44,800 Protein Design Labs, Inc. (3) 3,892,000 54,000 QLT, Inc. (3) 1,512,000 16,500 Sepracor, Inc. (3) 1,322,063 141,200 Sangamo BioSciences, Inc. (3) 2,753,400 77,800 Techne Corp. (3) 2,805,663 57,400 Ventana Medical Systems, Inc. (3) 1,061,900 -------------- 44,942,528 -------------- INDUSTRIAL SERVICES (4.6%) 118,500 Helmerich & Payne, Inc. 5,199,187 111,700 National - Oilwell, Inc. (3) 4,321,394 110,100 Pride International, Inc. (3) 2,711,213 -------------- 12,231,794 -------------- PROCESS INDUSTRIES (4.1%) 171,900 Millipore Corp. 10,829,700 -------------- PRODUCER MANUFACTURING (1.2%) 113,500 Capstone Turbine Corp. (3) 3,178,000 -------------- RETAIL TRADE (0.6%) 54,700 Cost Plus, Inc. (3) 1,606,812 -------------- TECHNOLOGY SERVICES (11.5%) 117,900 BISYS Group, Inc. (3) 6,145,537 54,400 Business Objects S.A., A.D.R. (3) 3,080,400 215,550 Dendrite International, Inc. (3) 4,822,931 66,300 Digital Island, Inc. (3) 269,344 25,900 Great Plains Software, Inc. (3) 1,218,919 81,600 Inktomi Corp. (3) 1,458,600 37,000 Mercury Interactive Corp. (3) 3,339,250 64,000 Portal Software, Inc. (3) 502,000 107,500 RSA Security, Inc. (3) 5,684,063 133,500 Sapient Corp. (3) 1,593,656 59,000 SmartForce Public Ltd., A.D.R. (3) 2,216,188 -------------- 30,330,888 -------------- TRANSPORTATION (0.8%) 66,200 C.H. Robinson Worldwide, Inc. 2,081,162 -------------- Total common stocks (cost: $206,528,394) 238,341,002 -------------- 26 ------------------------------------------------------------------------ [LOGO] -------------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE ($)(1) -------------------------------------------------------------------------- SHORT-TERM SECURITIES (12.3%) (2) 30,536,000 Sit Money Market Fund, 6.34% (4) 30,536,000 728,000 BP Amoco Capital, 6.50%, 1/2/01 727,606 1,370,000 Household Finance Corp., 6.50%, 1/3/01 1,369,011 -------------- (cost: $32,362,617) 32,632,617 -------------- Total investments in securities (cost: $239,161,011) (5) $270,973,619 ============== SEE ACCOMPANYING NOTES TO PORTFOLIOS OF INVESTMENTS ON PAGE 36. 27 [PHOTO] SIT SCIENCE AND TECHNOLOGY GROWTH FUND SIX MONTHS ENDED DECEMBER 31, 2000 ----------------------------------------------------------------------- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER The Sit Science and Technology Growth Fund returned -27.9% over the last six months and -6.6% for the 2000 calendar year. The S&P 500 Index return was -8.7% and -9.1% over the past six month and twelve month periods, respectively. The six-month return for the style benchmark Pacific Stock Exchange (PSE) Technology 100 Index was -26.1%, while the 2000 calendar year return was -16.2%. The Fund recently turned three years old and, based on its long-term performance, the Sit Science and Technology Growth Fund received an initial Morningstar(1) top rating of five stars among the 4,164 funds in the domestic equity fund category for the three-year period ended 12/31/00. After an unusually strong period of investment returns for the technology sectors, the second half of 2000 represented a more challenging period for investors. Although the correction in the sector was significant for many individual stocks, it must be put in context with the well-above-average returns generated prior to 2000. Importantly, we believe that many of the speculative excesses that peaked in March have now been largely corrected, setting up a more favorable environment in the year ahead. As investors have been more cautious on the technology sector in recent months, quite the opposite set of circumstances exists today in comparison to this time last year. First, valuations have become much more attractive given the pullback in the sector, and earnings growth continues to outpace the broader market. Second, broad earnings forecasts have been reduced to more realistically reflect the moderation in the U.S. economy. Importantly, our thesis on the long-term potential of investing in the science and technology sectors has not changed, despite the change in investor psychology that has occurred. Innovations in such diverse areas as communications, software, biotechnology, and E-commerce continue. Global competition and the opportunities in E-commerce provide long-term support for continued investment by corporations in information technology as an essential tool to increase productivity. Changes in sector weightings over the past six months included increases in the health technology and technology services and reductions in electronic technology and communications. As of December 31, 2000, the Fund was 96% invested in equity securities. We continue to believe that numerous positive secular trends support the fundamentals for companies involved in science and technology, and we remain optimistic about the Fund's outlook. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Fund is to maximize long-term capital appreciation. The Fund seeks to achieve its objective by investing at least 80% of its total assets in common stocks of companies principally engaged in science and technology business activities. Such companies include those whose assets, gross income, or net profits are significantly committed to, or derived from, science and technology. The Adviser seeks stocks of science and technology companies having superior growth potential in virtually any industry in which they may be found. PORTFOLIO SUMMARY Net Asset Value 12/31/00: $23.33 Per Share 6/30/00: $33.38 Per Share Total Net Assets: $40.95 Million Weighted Average Market Cap: $56.7 Billion TOTAL DIVIDEND: $0.86 Long-Term Capital Gain: $0.86 PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) [BAR CHART] Electronic Technology 40.0 Health Technology 26.5 Technology Services 25.3 Producer Manufacturing 1.9 Sectors 1.0% and Under 1.8 Cash & Other Net Assets 4.5 28 ------------------------------------------------------------------------ [LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT PACIFIC STOCK SCIENCE AND EXCHANGE TECHNOLOGY TECHNOLOGY S&P GROWTH FUND 100 INDEX 500 INDEX* ----------- --------- ---------- 3 Month** -30.86% -21.60% -7.83% 1 Year -6.55 -16.22 -9.11 3 Years 33.95 40.95 12.24 Inception 33.95 40.95 12.24 (12/31/97) CUMULATIVE TOTAL RETURNS* SIT PACIFIC STOCK SCIENCE AND EXCHANGE TECHNOLOGY TECHNOLOGY S&P GROWTH FUND 100 INDEX 500 INDEX* ----------- --------- ---------- 1 Year -6.55% -16.22% -9.11% 3 Years 140.53 180.30 41.46 Inception 140.53 180.30 41.46 (12/31/97) *AS OF 12/31/00 **NOT ANNUALIZED. -------------------------------------------------------------------------------- (1) Morningstar proprietary ratings reflect historical risk-adjusted performance through 12/31/00. These ratings are subject to change monthly and are calculated from the funds' 3-, 5-, and 10-year average annual returns in excess of 90-day Treasury bill returns with appropriate fee adjustments and a risk factor that reflects fund performance below 90-day Treasury bill returns. Ten percent of the funds in an investment category receive 5 stars, 22.5% receive 4, 35% receive 3, and 22.5% receive 2. In the domestic equity category, Sit Science and Technology Growth Fund received a 5-star rating for the 3-year period out of 4,164 funds. 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 AND THE S&P 500 INDEX. *THE FUND HAS DETERMINED THAT THE S&P 500 INDEX IS MORE REPRESENTATIVE OF THE PORTFOLIO AND IS NOW USING THIS INDEX AS ITS PRIMARY INDEX. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (12/31/97) and held until 12/31/00 would have grown to $24,053 in the Fund, $14,146 in the S&P 500 Index, or $28,030 in the PSETech 100 Index assuming reinvestment of all dividends and capital gains. TOP 10 HOLDINGS * Applied Micro Circuits Corp. * Check Point Software Technology * IDEC Pharmaceuticals Corp. * Protein Design Labs * Cisco Systems, Inc. * SDL, Inc. * Nokia Corp., A.D.R. * EMC Corp. * Amgen, Inc. * Corning, Inc. Total Number of Holdings: 58 29 SIT SCIENCE AND TECHNOLOGY GROWTH FUND -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2000 (UNAUDITED) --------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) --------------------------------------------------------------- COMMON STOCKS (95.5%) (2) COMMUNICATIONS (0.9%) 15,000 Nextel Communications, Inc. (3) $371,250 -------------- ELECTRONIC TECHNOLOGY (40.0%) 43,500 ADC Telecommunications, Inc. (3) 788,437 11,000 Analog Devices, Inc. (3) 563,062 28,000 Applied Micro Circuits Corp. (3) 2,101,312 3,200 Avici Systems, Inc. (3) 78,800 5,500 Brocade Communications Systems, Inc. (3) 504,969 9,500 Ciena Corp. (3) 771,875 37,500 Cisco Systems, Inc. (3) 1,434,375 5,000 Comverse Technology, Inc. (3) 543,125 18,600 Corning, Inc. 982,312 15,700 EMC Corp. (3) 1,044,050 30,000 Intel Corp. 901,875 17,000 JDS Uniphase Corp. (3) 708,688 30,000 Jabil Circuit, Inc. (3) 761,250 3,000 Juniper Networks, Inc. (3) 378,188 5,000 Network Appliance, Inc. (3) 320,938 25,500 Nokia Corp., A.D.R. 1,109,250 16,500 Nortel Networks Corp. 529,031 7,500 ONI Systems Corp. (3) 296,719 10,500 PMC-Sierra, Inc. (3) 825,563 8,000 SDL, Inc. (3) 1,185,500 10,000 Vitesse Semiconductor Corp. (3) 553,125 -------------- 16,382,444 -------------- HEALTH SERVICES (0.9%) 13,000 IMS Health, Inc. 351,000 -------------- HEALTH TECHNOLOGY (26.5%) 15,500 Amgen, Inc. (3) 991,031 5,000 Applera Corp. (Applied Biosystems) 470,312 12,000 Biogen, Inc. (3) 720,750 7,000 Eli Lilly and Co. 651,438 5,000 Genzyme Corp. (3) 449,687 5,000 Human Genome Sciences, Inc. (3) 346,562 8,000 IDEC Pharmaceuticals Corp. (3) 1,516,500 9,000 ImClone Systems, Inc. (3) 396,000 12,000 Immunex Corp. (3) 487,500 14,000 Large Scale Biology Corp. (3) 133,000 6,000 MedImmune, Inc. (3) 286,125 9,000 Medtronic, Inc. 543,375 10,000 Millennium Pharmaceuticals, Inc. (3) 618,750 17,000 Protein Design Labs (3) 1,476,875 20,150 Pfizer, Inc. 926,900 22,500 Sangamo BioSciences, Inc. (3) 438,750 11,500 Techne Corp. (3) 414,719 -------------- 10,868,274 -------------- --------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) --------------------------------------------------------------- PRODUCER MANUFACTURING (1.9%) 28,000 Capstone Turbine Corp. (3) 784,000 -------------- TECHNOLOGY SERVICES (25.3%) 7,000 Amdocs, Ltd. (3) 463,750 12,500 America Online, Inc. (3) 435,000 14,000 BEA Systems, Inc. (3) 942,375 12,000 Check Point Software Technology (3) 1,602,750 35,000 Dendrite International, Inc. (3) 783,125 17,000 Exodus Communications, Inc. (3) 340,000 16,000 I2 Technologies, Inc. (3) 870,000 13,500 Inktomi Corp. (3) 241,312 5,000 Mercury Interactive Corp. (3) 451,250 8,000 Micromuse, Inc. (3) 482,875 20,000 Microsoft Corp. (3) 867,500 21,000 Oracle Corp. (3) 610,313 9,000 RSA Security, Inc. (3) 475,875 16,000 Sapient Corp. (3) 191,000 6,000 Siebel Systems, Inc. (3) 405,750 11,000 TIBCO Software, Inc. (3) 527,313 7,500 VERITAS Software Corp. (3) 656,250 -------------- 10,346,438 -------------- Total common stocks 39,103,406 -------------- (cost: $33,656,904) SHORT-TERM SECURITIES (7.0%) (2) 2,873,400 Sit Money Market Fund, 6.34% (4) 2,873,400 -------------- (cost: $2,873,400) Total investments in securities (cost: $36,530,304) (5) $41,976,806 ============== See accompanying notes to portfolios of investments on page 36. 30 ------------------------------------------------------------------------ [LOGO] This page has been left blank intentionally. 31 [PHOTO] SIT DEVELOPING MARKETS GROWTH FUND SIX MONTHS ENDED DECEMBER 31, 2000 ----------------------------------------------------------------------- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER The Sit Developing Markets Growth Fund declined -26.3% for the half-year ended December 31, 2000, versus a -25.1% fall in the MSCI Emerging Markets Free Index and a -23.6% drop in the Lipper Emerging Markets Index. During the past six months, the Fund's performance was hurt by its exposure to technology stocks and its underweight position in the commodities sector. This was partially offset by the Fund's holdings in the telecom and consumer goods sectors. In the quarter ended December 31, 2000, the Fund lost -16.4%, compared to -13.5% for the MSCI Emerging Markets Free Index and -12.8% for the Lipper Emerging Markets Index. The Fund had a 43.0% weighting in Asia as of December 31 verses 43.0% for the MSCI Emerging Markets Free Index. During the quarter, we added to our holdings in Taiwan, where we believe the sharp sell-off of the past few months has more than discounted the risks in that market. In addition, we sold out of under-performing names in Southeast Asia and added a new position in BEC World, a leading television broadcaster in Thailand. We have also reduced our weighting in South Korea in response to the worsening economic fundamentals there. Overall, we are more optimistic towards the earnings prospects in North Asia, particularly among companies well positioned to benefit from China's entry into the WTO later this year. Our weighting in Latin America was 20.7% as of December 31 verses 27.3% for the Index. Although the increased evidence of a slowdown in the US economy and the threat of weaker commodity prices have led us to maintain an underweight position in this region, we continue to seek attractive investment opportunities here and recently added Global Cabo, a Brazilian cable television operator. The Fund's weighting in Emerging Europe, Middle East, and Africa is currently 19.7%, compared with 29.7% for the Index. Mirroring trends elsewhere, the Israeli technology sector has recently under-performed in the wake of earnings disappointments. We believe the often indiscriminate selling in this sector during the past several months has created a number of buying opportunities for world-class companies with excellent long-term business models. INVESTMENT OBJECTIVE AND STRATEGY The Fund seeks to maximize long-term capital appreciation. The Fund seeks to achieve its objective by investing at least 65% of its total assets in common stocks of companies domiciled or operating in a developing market. In selecting investments for the Fund, the Sub-Advisor begins by selecting countries or regions in which to invest by considering several factors affecting the economy and equity market of foreign countries and regions. After the country and regional allocations are determined, the Sub-Adviser seeks industries and sectors that appear to have strong earnings growth prospects. Within the selected industries and sectors, the Sub-Adviser invests in foreign growth-oriented companies it believes exhibit the potential for superior growth. PORTFOLIO SUMMARY Net Asset Value 12/31/00: $ 9.90 Per Share 6/30/00: $13.43 Per Share Total Net Assets: $12.04 Million Weighted Average Market Cap: $47.0 Billion PORTFOLIO STRUCTURE - BY REGION (% OF TOTAL NET ASSETS) [BAR CHART] Sit Developing MSCI Emerging Markets Growth Fund Markets Free Index Asia 43.0 43.0 Latin America 20.7 27.3 Africa/Middle East 10.2 16.2 Europe 9.5 13.5 Cash and Other Net Assets 16.6 0.0 32 ------------------------------------------------------------------------ [LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT MSCI LIPPER DEVELOPING EMERGING EMERGING MARKETS MARKETS MARKETS GROWTH FUND FREE INDEX INDEX ----------- ---------- -------- 3 Month** -16.39% -13.53% -12.80% 1 Year -30.18 -31.80 -30.90 3 Year -1.47 -6.81 -5.13 5 Year 1.24 -6.15 -2.97 Inception -0.04 -5.40 -3.01 (7/1/94) CUMULATIVE TOTAL RETURNS* SIT MSCI LIPPER DEVELOPING EMERGING EMERGING MARKETS MARKETS MARKETS GROWTH FUND FREE INDEX INDEX ----------- ---------- -------- 1 Year -30.18% -31.80% -30.90% 3 Year -4.35 -19.07 -14.62 5 Year 6.34 -27.18 -14.00 Inception -0.27 -30.34 -18.06 (7/1/94) *AS OF 12/31/00 **NOT ANNUALIZED. -------------------------------------------------------------------------------- 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 MSCI 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 12/31/00 would have grown to $9,973 in the Fund, or $6,966 in the Morgan Stanley Capital Int'l Emerging Markets Free Index assuming reinvestment of all dividends and capital gains. PORTFOLIO STRUCTURE - BY SECTOR [BAR CHART] Communications 21.4 Electronic Technology 19.6 Retail Trade 11.6 Technology Services 8.8 Finance 8.1 Consumer Services 7.0 Sectors less than 4.0% 6.9 Cash & Other Net Assets 16.6 33 SIT DEVELOPING MARKETS GROWTH FUND -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2000 (UNAUDITED) 10 LARGEST HOLDINGS * Telefonos de Mexico, A.D.R. * Hon Hai Precision Industry * Wal-Mart de Mexico * Dimension Data Holdings, Ltd. * India Fund * Telefonica, A.D.R. * Comverse Technology, Inc. * Datacraft Asia, Ltd. * Advanced Info Services * China Mobile (Hong Kong) Limited Total Number of Holdings: 56 -------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) -------------------------------------------------------------------------- COMMON STOCKS (80.2%)(2) AFRICA/ MIDDLE EAST (10.2%) ISRAEL (9.2%) 3,200 Amdocs, Ltd. (Technology Services) (3) $212,000 1,800 Check Point Software Technologies, Ltd. (Technology Services) (3) 240,413 3,400 Comverse Technology, Inc. (Electronic Technology) (3) 369,325 6,800 Nice Systems, Ltd., A.D.R. (Electronic Technology ) (3) 136,425 6,800 RADVision, Ltd. (Technology Services) (3) 83,725 4,200 RADWARE, Ltd. (Electronic Technology) (3) 70,875 ------------ 1,112,763 ------------ SOUTH AFRICA (1.0%) 51,455 Old Mutual p.l.c. (Finance) (3) 127,593 ------------ ASIA (39.8%) CHINA (0.4%) 2,900 PetroChina Co., Ltd., A.D.R. (Energy Minerals) (3) 48,031 ------------ HONG KONG (9.9%) 13,000 Cheung Kong Hldgs., Ltd. (Indus. Svcs.) 166,252 1,280,000 China Hong Kong Photo Products Hldgs., Ltd. (Retail Trade) 124,719 56,000 China Mobile (Hong Kong), Ltd. (Communications) (3) 305,850 58,000 Citic Pacific, Ltd. (Industrial Services) 205,605 642,500 Henderson China Holdings, Ltd. (Finance) 271,830 68,000 Li & Fung, Ltd. (Retail Trade) (3) 123,796 ------------ 1,198,052 ------------ INDIA (0.6%) 7,000 Silverline Technologies, Ltd., A.D.R. (Technology Services) (3) 70,438 ------------ -------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) -------------------------------------------------------------------------- INDONESIA (0.9%) 189,000 PT Ramayana Lestari (Retail Trade) 102,558 ------------ MALAYSIA (0.9%) 24,000 Commerce Asset-Holding Berhad (Finance) 51,473 15,000 Malayan Banking Berhad (Finance) 53,289 ------------ 104,762 ------------ PHILIPPINES (0.6%) 2,343,000 Digital Telecom Philippines (Communications) (3) 21,556 424,000 SM Prime Holdings, Inc. (Retail Trade) 49,184 ------------ 70,740 ------------ SINGAPORE (7.1%) 72,800 Datacraft Asia, Ltd. (Electronic Tech.) 343,616 11,097 DBS Group Holdings, Ltd. (Finance) 125,431 51,000 Natsteel Electronics, Ltd. (Electronic Technology) 230,878 23,000 Venture Mfg., Ltd. (Electronic Tech.) 153,861 ------------ 853,786 ------------ SOUTH KOREA (5.6%) 12,900 Korea Electric Power, A.D.R. (Utilities) 132,225 3,000 Korea Telecom Corp. (Communications) 158,893 3,000 Korea Telecom Corp., A.D.R. (Communications) 93,000 7,600 SK Telecom Co., A.D.R. (Communications) 179,075 859 Samsung Electronics (Electronic Technology) 107,290 ------------ 670,483 ------------ TAIWAN (10.4%) 41,784 Accton Technology Corp., G.D.R (Electronic Technology) (3) 81,479 84,000 Accton Technology Corp. (Electronic Technology) (3) 80,999 208,906 Chroma Ate, Inc. (Electronic Technology) (3) 148,398 88,244 Hon Hai Precision Industry (Electronic Technology) (3) 448,129 112,618 President Chain Store Corp. (Retail Trade) 296,166 80,294 Taiwan Semiconductor Co. (Electronic Technology) (3) 192,957 ------------ 1,248,128 ------------ THAILAND (3.4%) 32,800 Advanced Info Services (Communications) 317,565 19,000 BEC World Public Co. (Consumer Services) 94,606 ------------ 412,171 ------------ EUROPE (9.5%) GREECE (2.6%) 5,906 Alpha Bank (Finance) 200,525 5,000 Hellenic Telecommunications Org. S.A. (OTE) (Communications) 36,250 10,500 Panafon Telecom (Communications) 77,439 ------------ 314,214 ------------ 34 ------------------------------------------------------------------------ [LOGO] -------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) -------------------------------------------------------------------------- SPAIN (3.2%) 7,452 Telefonica, A.D.R. (Communications) 372,600 1,200 Terra Networks, S.A., A.D.R. (Technology Services) (3) 12,675 ------------ 385,275 ------------ UNITED KINGDOM (3.7%) 65,506 Dimension Data Holdings, Ltd. (Technology Services) 442,295 ------------ LATIN AMERICA (20.7%) BRAZIL (10.2%) 19,200,000 Banco Bradesco S.A. (Finance) 137,847 736,532 Banco Bradesco S.A. Rights (Finance) 2,455 3,000 Brasil Telecom, A.D.R. (Communications) 177,000 9,100 Embratel Participacoes, A.D.R. (Communications) 142,756 9,500 Globo Cabo, A.D.R. (Consumer Services) (3) 106,875 6,900 Pao de Acucar, A.D.R. (Retail Trade) 251,850 5,860 Petrobras (Energy Minerals) 137,575 5,300 Petrobras, A.D.R. (Energy Minerals) 133,825 6,100 Tele Norte Leste Participacoes S.A. (Communications) 139,156 ------------ 1,229,339 ------------ MEXICO (10.5%) 5,800 Grupo Televisa S.A., A.D.R. (Consumer Services) 260,637 12,400 Telefonos de Mexico, A.D.R. (Communications) 559,550 223,700 Wal-Mart de Mexico (Retail Trade) (3) 445,141 ------------ 1,265,328 ------------ Total common stocks 9,655,956 ------------ (cost: $8,829,670) CLOSED-END MUTUAL FUND (3.2%) (2) 31,600 India Fund (Consumer Services) 383,150 ------------ (cost: $564,571) SHORT-TERM SECURITIES (16.4%) (2) 1,981,000 Sit Money Market Fund, 6.32% (4) 1,981,000 ------------ (cost: $1,981,000) Total investments in securities (cost: $11,375,241) (5) $12,020,106 ============ See accompanying notes to portfolios of investments on page 36. 35 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) This security represents an investment in an affiliated party. See note 3 to the accompanying financial statements. (5) At December 31, 2000, the cost of securities for federal income tax purposes and the aggregate gross unrealized appreciation and depreciation based on that cost were as follows:
LARGE CAP MID CAP INTERNATIONAL BALANCED GROWTH GROWTH GROWTH FUND FUND FUND FUND ------------- ------------- ------------- ------------- Cost for federal income tax purposes $ 26,774,317 $ 114,311,689 $ 338,883,399 $ 120,803,363 ============= ============= ============= ============= Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $ 2,747,333 $ 46,297,339 $ 167,413,610 $ 35,624,478 Gross unrealized depreciation (1,596,147) (12,669,514) (24,840,573) (11,081,065) ------------- ------------- ------------- ------------- Net unrealized appreciation $ 1,151,186 $ 33,627,825 $ 142,573,037 $ 24,543,413 ============= ============= ============= ============= SCIENCE AND DEVELOPING SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH FUND FUND FUND ------------- ------------- ------------- Cost for federal income tax purposes $ 239,161,011 $ 36,530,304 $ 11,375,241 ============= ============= ============= Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $ 69,545,526 $ 12,967,027 $ 2,064,961 Gross unrealized depreciation (37,732,918) (7,520,525) (1,420,096) ------------- ------------- ------------- Net unrealized appreciation $ 31,812,608 $ 5,446,502 $ 644,865 ============= ============= =============
36 ------------------------------------------------------------------------ [LOGO] This page has been left blank intentionally. 37 SIT MUTUAL FUNDS DECEMBER 31, 2000 (UNAUDITED) -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES
LARGE CAP MID CAP INTERNATIONAL BALANCED GROWTH GROWTH GROWTH ASSETS FUND FUND FUND FUND --------------- --------------- --------------- --------------- Investments in securities, at identified cost $ 26,774,317 $ 114,311,689 $ 338,883,399 $ 120,803,363 =============== =============== =============== =============== Investments in securities, at market value - see accompanying schedule for detail $ 27,925,503 $ 147,939,514 $ 481,456,436 $ 145,346,776 Cash in bank on demand deposit 53,095 279,849 -- 608,418 Receivables: Dividends and accrued interest 154,628 77,620 267,449 134,947 Fund shares sold 5,700 577 18,019 -- Investment securities sold 261,208 2,642,288 14,325,911 -- Other receivables 984 7,395 -- 5,654 --------------- --------------- --------------- --------------- Total assets 28,401,118 150,947,243 496,067,815 146,095,795 --------------- --------------- --------------- --------------- LIABILITIES Payables: Disbursements in excess of cash balances -- -- 2,409,387 -- Investment securities purchased 2,398,552 1,513,593 19,580,152 281,423 Fund shares redeemed 38,765 -- 11,972 46,931 Accrued investment management and advisory services fee 20,895 121,374 372,234 178,269 Other payables 6,813 306 125,286 1,610 --------------- --------------- --------------- --------------- Total liabilities 2,465,025 1,635,273 22,499,031 508,233 --------------- --------------- --------------- --------------- Net assets applicable to outstanding capital stock 25,936,093 149,311,970 473,568,784 145,587,562 =============== =============== =============== =============== Capital stock Par $ 0.001 $ 0.001 $ 0.001 $ 0.001 Authorized shares 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000 Outstanding shares 1,515,688 3,101,436 29,539,573 7,771,929 =============== =============== =============== =============== Net asset value per share of outstanding capital stock $ 17.11 $ 48.14 $ 16.03 $ 18.73 =============== =============== =============== ===============
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SCIENCE AND DEVELOPING SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH ASSETS FUND FUND FUND --------------- --------------- --------------- Investments in securities, at identified cost $ 239,161,011 $ 36,530,304 $ 11,375,241 =============== =============== =============== Investments in securities, at market value - see accompanying schedule for detail $ 270,973,619 $ 41,976,806 $ 12,020,106 Cash in bank on demand deposit -- -- -- Receivables: Dividends and accrued interest 233,537 9,917 41,019 Fund shares sold 243,990 3,304 9,257 Investment securities sold 1,333,532 780,767 68,750 Other receivables 21,599 -- 5,840 --------------- --------------- --------------- Total assets 272,806,277 42,770,794 12,144,972 --------------- --------------- --------------- LIABILITIES Payables: Disbursements in excess of cash balances 1,999,714 247,509 78,483 Investment securities purchased 6,054,489 1,421,366 -- Fund shares redeemed 109,959 98,122 -- Accrued investment management and advisory services fee 311,631 41,638 20,282 Other payables -- 14,033 1,740 --------------- --------------- --------------- Total liabilities 8,475,793 1,822,668 100,505 --------------- --------------- --------------- Net assets applicable to outstanding capital stock 264,330,484 40,948,126 12,044,467 =============== =============== =============== Capital stock Par $ 0.001 $ 0.001 $ 0.001 Authorized shares 10,000,000,000 10,000,000,000 10,000,000,000 Outstanding shares 7,517,134 1,754,886 1,216,650 =============== =============== =============== Net asset value per share of outstanding capital stock $ 35.16 $ 23.33 $ 9.90 =============== =============== ===============
See accompanying notes to financial statements on page 45. 39 SIT MUTUAL FUNDS SIX MONTHS ENDED DECEMBER 31, 2000 (UNAUDITED) -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS
LARGE CAP MID CAP INTERNATIONAL BALANCED GROWTH GROWTH GROWTH FUND FUND FUND FUND ------------- ------------- ------------- ------------- INVESTMENT INCOME: INCOME: Dividends * $ 45,667 $ 426,901 $ 464,381 $ 335,939 Interest 425,183 160,971 1,162,917 481,807 ------------- ------------- ------------- ------------- Total income 470,850 587,872 1,627,298 817,746 ------------- ------------- ------------- ------------- EXPENSES (NOTE 3): Investment management and advisory services fee 118,391 862,200 3,513,017 1,482,500 Less fees and expenses absorbed by investment adviser -- -- (702,603) (280,473) ------------- ------------- ------------- ------------- Total net expenses 118,391 862,200 2,810,414 1,202,027 ------------- ------------- ------------- ------------- Net investment income (loss) 352,459 (274,328) (1,183,116) (384,281) ------------- ------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) (note 2) 24,501 5,542,360 28,550,816 (2,302,479) Net change in unrealized appreciation (depreciation) on investments (2,416,121) (34,855,018) (120,151,604) (29,604,151) Realized gain (loss) on foreign currency transactions -- -- -- (9,912) Net change in unrealized appreciation (depreciation) on foreign currency transactions -- -- -- (1,235) ------------- ------------- ------------- ------------- Net gain (loss) on investments (2,391,620) (29,312,658) (91,600,788) (31,917,777) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (2,039,161) (29,586,986) (92,783,904) (32,302,058) ============= ============= ============= =============
----------------- * Dividends are net of foreign withholding tax of $48,941 and $3,175 in the International Growth Fund and Developing Markets Growth Fund, respectively. 40 ------------------------------------------------------------------------ [LOGO]
SCIENCE AND DEVELOPING SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH FUND FUND FUND ------------ ------------ ------------ INVESTMENT INCOME: INCOME: Dividends * $ 273,524 $ 14,582 $ 76,154 Interest 1,484,416 72,158 55,069 ------------ ------------ ------------ Total income 1,757,940 86,740 131,223 ------------ ------------ ------------ EXPENSES (NOTE 3): Investment management and advisory services fee 1,935,314 369,692 137,537 Less fees and expenses absorbed by investment adviser -- (61,616) -- ------------ ------------ ------------ Total net expenses 1,935,314 308,076 137,537 ------------ ------------ ------------ Net investment income (loss) (177,374) (221,336) (6,314) ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) (note 2) 545,273 782,195 208,717 Net change in unrealized appreciation (depreciation) on investments (48,594,200) (16,349,525) (4,298,197) Realized gain (loss) on foreign currency transactions -- -- (336) Net change in unrealized appreciation (depreciation) on foreign currency transactions -- -- (361) ------------ ------------ ------------ Net gain (loss) on investments (48,048,927) (15,567,330) (4,090,177) ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations (48,226,301) (15,788,666) (4,096,491) ============ ============ ============
----------------- See accompanying notes to financial statements on page 45. 41 SIT MUTUAL FUNDS -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
BALANCED LARGE CAP FUND GROWTH FUND ------------------------------ ------------------------------ SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED 2000 JUNE 30, 2000 JUNE 30, (UNAUDITED) 2000 (UNAUDITED) 2000 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss) $ 352,459 $ 345,950 ($ 274,328) ($ 473,600) Net realized gain (loss) on investments 24,501 386,585 5,542,360 14,050,650 Net change in unrealized appreciation (depreciation) on investments (2,416,121) 1,495,679 (34,855,018) 23,703,251 Net realized gain (loss) on foreign currency transactions -- -- -- -- Net change in unrealized appreciation (depreciation) on foreign currency transactions -- -- -- -- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (2,039,161) 2,228,214 (29,586,986) 37,280,301 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (485,000) (283,000) -- -- Net realized gains on investments (475,000) (542,000) (14,000,000) (8,800,000) ------------- ------------- ------------- ------------- Total distributions (960,000) (825,000) (14,000,000) (8,800,000) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 11,324,349 8,343,376 24,044,606 39,161,983 Reinvested distributions 949,828 818,430 13,196,131 8,606,014 Payments for shares redeemed (2,642,438) (3,373,868) (16,742,053) (44,105,722) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions 9,631,739 5,787,938 20,498,684 3,662,275 ------------- ------------- ------------- ------------- Total increase in net assets 6,632,578 7,191,152 (23,088,302) 32,142,576 NET ASSETS Beginning of period 19,303,515 12,112,363 172,400,272 140,257,696 ------------- ------------- ------------- ------------- End of period $ 25,936,093 $ 19,303,515 $ 149,311,970 $ 172,400,272 ============= ============= ============= ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $ 24,865,808 $ 15,234,069 $ 112,127,496 $ 91,628,812 Undistributed (distributions in excess of) net investment income (5,814) 126,727 (274,328) -- Accumulated net realized gain (loss) from security transactions and foreign currency transactions (75,087) 375,412 3,830,977 12,288,617 Unrealized appreciation (depreciation) on investments 1,151,186 3,567,307 33,627,825 68,482,843 Unrealized appreciation (depreciation) on foreign currency transactions -- -- -- -- ------------- ------------- ------------- ------------- $ 25,936,093 $ 19,303,515 $ 149,311,970 $ 172,400,272 ============= ============= ============= ============= CAPITAL TRANSACTIONS IN SHARES: Sold 597,051 448,452 427,969 661,412 Reinvested distributions 52,197 45,564 250,163 152,481 Redeemed (139,812) (184,825) (284,710) (760,107) ------------- ------------- ------------- ------------- Net increase (decrease) 509,436 309,191 393,422 53,786 ============= ============= ============= =============
42 ------------------------------------------------------------------------ [LOGO]
MID CAP INTERNATIONAL SMALL CAP GROWTH FUND GROWTH FUND GROWTH FUND ------------------------------ ------------------------------ ------------------------------ SIX MONTHS SIX MONTHS SIX MONTHS ENDED ENDED ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED 2000 JUNE 30, 2000 JUNE 30, 2000 JUNE 30, (UNAUDITED) 2000 (UNAUDITED) 2000 (UNAUDITED) 2000 ------------- ------------- ------------- ------------- ------------- ------------- ($ 1,183,116) ($ 2,814,744) ($ 384,281) ($ 540,086) ($ 177,374) ($ 852,295) 28,550,816 130,733,235 (2,302,479) 8,621,857 545,273 8,186,994 (120,151,604) 124,287,559 (29,604,151) 20,277,109 (48,594,200) 63,935,065 -- -- (9,912) (1,786,833) -- -- -- -- (1,235) 9,112 -- -- ------------- ------------- ------------- ------------- ------------- ------------- (92,783,904) 252,206,050 (32,302,058) 26,581,159 (48,226,301) 71,269,764 ------------- ------------- ------------- ------------- ------------- ------------- -- -- -- (1,100,000) -- -- (99,000,000) (30,425,000) (3,821,000) (6,300,000) (4,325,000) -- ------------- ------------- ------------- ------------- ------------- ------------- (99,000,000) (30,425,000) (3,821,000) (7,400,000) (4,325,000) 0 ------------- ------------- ------------- ------------- ------------- ------------- 44,188,897 161,654,024 78,321,486 125,192,358 180,845,672 109,971,768 93,702,648 29,067,295 3,602,513 7,152,503 4,251,578 -- (39,177,994) (221,205,810) (68,122,484) (78,599,135) (58,845,071) (40,946,523) ------------- ------------- ------------- ------------- ------------- ------------- 98,713,551 (30,484,491) 13,801,515 53,745,726 126,252,179 69,025,245 ------------- ------------- ------------- ------------- ------------- ------------- (93,070,353) 191,296,559 (22,321,543) 72,926,885 73,700,878 140,295,009 566,639,137 375,342,578 167,909,105 94,982,220 190,629,606 50,334,597 ------------- ------------- ------------- ------------- ------------- ------------- $ 473,568,784 $ 566,639,137 $ 145,587,562 $ 167,909,105 $ 264,330,484 $ 190,629,606 ============= ============= ============= ============= ============= ============= $ 313,499,179 $ 214,785,628 $ 126,419,573 $ 112,618,058 $ 232,669,192 $ 106,417,013 (1,183,116) -- (384,281) -- (177,374) -- 18,679,684 89,128,868 (4,992,395) 1,140,996 26,058 3,805,785 142,573,037 262,724,641 24,543,413 54,147,564 31,812,608 80,406,808 -- -- 1,252 2,487 -- -- ------------- ------------- ------------- ------------- ------------- ------------- $ 473,568,784 $ 566,639,137 $ 145,587,562 $ 167,909,105 $ 264,330,484 $ 190,629,606 ============= ============= ============= ============= ============= ============= 1,920,115 9,240,241 3,650,850 5,092,809 4,299,369 3,173,013 5,403,823 1,590,961 180,674 292,775 113,953 -- (1,825,051) (12,602,557) (3,180,567) (3,325,438) (1,506,019) (1,317,136) ------------- ------------- ------------- ------------- ------------- ------------- 5,498,887 (1,771,355) 650,957 2,060,146 2,907,303 1,855,877 ============= ============= ============= ============= ============= =============
See accompanying notes to financial statements on page 45. 43 SIT MUTUAL FUNDS -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
SCIENCE AND TECHNOLOGY DEVELOPING MARKETS GROWTH FUND GROWTH FUND ---------------------------- ---------------------------- SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED 2000 JUNE 30, 2000 JUNE 30, (UNAUDITED) 2000 (UNAUDITED) 2000 ------------ ------------ ------------ ------------ OPERATIONS: Net investment income (loss) ($ 221,336) ($ 235,083) ($ 6,314) ($ 70,752) Net realized gain (loss) on investments 782,195 971,751 208,717 1,521,891 Net change in unrealized appreciation (depreciation) on investments (16,349,525) 18,189,694 (4,298,197) 2,157,662 Net realized gain (loss) on foreign currency transactions -- -- (336) (8,215) Net change in unrealized appreciation (depreciation) on foreign currency transactions -- -- (361) 1,592 ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations (15,788,666) 18,926,362 (4,096,491) 3,602,178 ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- -- -- -- Net realized gains on investments (1,400,000) -- -- -- ------------ ------------ ------------ ------------ Total distributions (1,400,000) 0 0 0 ------------ ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 18,757,620 19,713,760 6,344,789 7,997,732 Reinvested distributions 1,372,536 -- -- -- Payments for shares redeemed (8,166,088) (6,661,063) (4,879,621) (8,261,866) ------------ ------------ ------------ ------------ Increase (decrease) in net assets from capital share transactions 11,964,068 13,052,697 1,465,168 (264,134) ------------ ------------ ------------ ------------ Total increase in net assets (5,224,598) 31,979,059 (2,631,323) 3,338,044 NET ASSETS Beginning of period 46,172,724 14,193,665 14,675,790 11,337,746 ------------ ------------ ------------ ------------ End of period $ 40,948,126 $ 46,172,724 $ 12,044,467 $ 14,675,790 ============ ============ ============ ============ NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $ 35,876,589 $ 23,912,521 $ 13,373,986 $ 11,908,818 Undistributed (distributions in excess of) net investment income (221,336) -- (6,314) -- Accumulated net realized gain (loss) from security transactions and foreign currency transactions (153,629) 464,176 (1,967,712) (2,176,093) Unrealized appreciation (depreciation) on investments 5,446,502 21,796,027 644,865 4,943,062 Unrealized appreciation (depreciation) on foreign currency transactions -- -- (358) 3 ------------ ------------ ------------ ------------ $ 40,948,126 $ 46,172,724 $ 12,044,467 $ 14,675,790 ============ ============ ============ ============ CAPITAL TRANSACTIONS IN SHARES: Sold 592,264 693,056 534,269 651,096 Reinvested distributions 49,301 -- -- -- Redeemed (270,049) (241,913) (410,256) (694,347) ------------ ------------ ------------ ------------ Net increase (decrease) 371,516 451,143 124,013 (43,251) ============ ============ ============ ============
See accompanying notes to financial statements on page 45. 44 SIT MUTUAL FUNDS ------------------------------------------------------------------------ [LOGO] NOTES TO FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Sit Mutual Funds are no-load funds, and are registered under the Investment Company Act of 1940 (as amended) as diversified, open-end management investment companies, or series thereof. The Sit Developing Markets Growth, Sit Small Cap Growth, Sit International Growth, Sit Balanced, and Sit Science and Technology Growth Funds are series funds of Sit Mutual Funds, Inc. This report covers the equity funds of the Sit Mutual Funds (the Funds). The investment objective for each Fund is as follows: -------------------------------- ---------------------------------------------- FUND INVESTMENT OBJECTIVE -------------------------------- ---------------------------------------------- Large Cap Growth Fund, Inc. Maximize long-term capital appreciation and, secondarily, current income. -------------------------------- ---------------------------------------------- Mid Cap Growth Fund, Inc. Maximize long-term capital appreciation. -------------------------------- ---------------------------------------------- Small Cap Growth Fund Maximize long-term capital appreciation. -------------------------------- ---------------------------------------------- Balanced Fund Long-term capital appreciation consistent with the preservation of principal and to provide regular income. -------------------------------- ---------------------------------------------- International Growth Fund Maximize long-term capital appreciation. -------------------------------- ---------------------------------------------- Developing Markets Growth Fund Maximize long-term capital appreciation. -------------------------------- ---------------------------------------------- Science and Technology Maximize long-term capital appreciation Growth Fund -------------------------------- ---------------------------------------------- Pursuant to a Plan of Reorganization, on July 14, 2000, the Large Cap Growth Fund acquired all of the assets of the Regional Growth Fund in exchange for shares of common stock of the Large Cap Growth Fund. Significant accounting policies followed by the Funds are summarized below: INVESTMENTS IN SECURITIES Investments in securities traded on national or international securities exchanges are valued at the last reported sales price prior to the time when assets are valued. Securities traded on the over-the-counter market are valued at the last reported 45 SIT MUTUAL FUNDS -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) sales price or if the last sales price is not available at the last reported bid price. The sale and bid prices are obtained from independent pricing services. Debt securities maturing more than 60 days are priced by an independent pricing service. When market quotations are not readily available, or securities can not be valued by the pricing service, securities are valued at fair value as determined in good faith using procedures established by the Board of Directors, which may include dealer supplied valuations. Debt securities maturing in less than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued at amortized cost. 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, 2000, there were no securities held by the Funds deemed illiquid by the investment adviser. Pursuant to the guidelines adopted by the Board of Directors, certain unregistered securities are determined to be liquid and are not included within the limitation specified above. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS The market value of securities and other assets and liabilities denominated in foreign currencies for Developing Markets Growth Fund and International Growth Fund are translated daily into U.S. dollars at the closing rate of exchange. Purchases and sales of securities, income and expenses are translated at the exchange rate on the transaction date. Dividend and interest income includes currency exchange gains (losses) realized between the accrual and payment dates on such income. Exchange gains (losses) may also be realized between the trade and settlement dates on security and forward contract transactions. For securities denominated in foreign currencies, the effect of changes in foreign exchange rates on realized and unrealized gains or losses is reflected as a component of such gains or losses. The Developing Markets Growth and International Growth Funds may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Funds and the resulting unrealized appreciation or depreciation is 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. 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. 46 ------------------------------------------------------------------------ [LOGO] 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 $2,176,093 at June 30, 2000 which, if not offset by subsequent capital gains, will begin to expire in 2007. 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 Science and Technology Growth, Developing Markets Growth, Small Cap Growth, International Growth, Mid Cap Growth, and Large Cap Growth Funds. Distributions from net realized gains, if any, will be made annually for each of the Funds. CONCENTRATION OF INVESTMENTS The Developing Markets Growth Fund may concentrate investments in countries with limited or developing capital markets which may involve greater risks than investments in more developed markets and the prices of such investments may be volatile. The consequences of political, social or economic changes in these markets may have disruptive effects on the market prices of the Fund's investments and the income it generates, as well as the Fund's ability to repatriate such amounts. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported results. Actual results could differ from those estimates. NOTE 2 -- INVESTMENT SECURITY TRANSACTIONS Purchases of and proceeds from sales and maturities of investment securities, other than short-term securities, for the period ended December 31, 2000, were as follow: 47 SIT MUTUAL FUNDS -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) Purchases ($) Proceeds ($) ------------- ------------ Large Cap Growth Fund 42,532,766 37,012,263 Mid Cap Growth Fund 173,781,922 154,610,359 Small Cap Growth Fund 165,293,943 38,713,384 Balanced Fund 17,472,938 7,785,188 International Growth Fund 37,285,571 25,635,922 Developing Markets Growth Fund 1,587,008 997,825 Science and Technology Growth Fund 20,143,679 9,466,379 NOTE 3 -- EXPENSES INVESTMENT ADVISER The Funds each have entered into an investment management agreement with Sit Investment Associates, Inc. (SIA), under which SIA manages the Funds' 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% 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% Science and Technology Growth Fund 1.50% 1.25% 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, 2000 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. For the period January 1, 1994 through December 31, 2000, 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. For the period January 1, 1998 through December 31, 2000 the Adviser has agreed to limit the management fee (and, thereby, all fund expenses, except 48 ------------------------------------------------------------------------ [LOGO] those not payable by the Fund as set forth above) of the Science and Technology Growth Fund to 1.25% of the Fund's average daily net assets. After December 31, 2000, these voluntary fee waivers may be discontinued by the Adviser in its sole discretion. During the period ended December 31, 2000, for the Mid Cap Growth, International Growth, and Science and Technology Growth Funds, SIA voluntarily absorbed an additional $702,603, $280,473, and $61,616, respectively, in expenses that were otherwise payable by the Funds. As of December 31, 2000, the Large Cap Growth Fund, International Growth Fund, Mid Cap Growth Fund, Small Cap Growth Fund, Science and Technology Growth Fund, Developing Markets Growth Fund, and Balanced Fund had invested $1,909,000, $12,734,000, $16,863,000, $30,536,000, $2,873,000, $1,981,000, and $3,311,000, 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% (.65% net of waiver for the International Growth Fund) on the first $100 million of each Fund's average daily net assets, 1/12 of .50% on the next $100 million of average daily net assets and 1/12 of .40% of average daily net assets in excess of $200 million. SKI has agreed to waive any fees under the agreement to the extent that cumulative out of pocket expenses of each Fund borne by SIA exceed the cumulative fees received by SIA pursuant to each Fund's investment management agreement. In accordance with the Agreement, fees of $527,656 were paid or payable to SKI for the period ended December 31, 2000. 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, 2000: % Shares Shares Outstanding ------ ----------- Large Cap Growth Fund 554,075 17.87 Mid Cap Growth Fund 5,266,916 17.83 Cap Growth Fund 1,052,827 14.00 Balanced Fund 181,110 11.95 International Growth Fund 1,501,812 19.32 Developing Markets Growth Fund 166,478 13.68 and Technology Growth Fund 342,303 19.56 49 SIT BALANCED FUND FINANCIAL HIGHLIGHTS
Six Months Ended December 31, Years Ended June 30, 2000 -------------------------------------------- (Unaudited) 2000 1999 1998 1997 ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 19.18 $ 17.38 $ 16.68 $ 14.93 $ 12.57 ----------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .24 .40 .32 .34 .33 Net realized and unrealized gains (losses) on investments (1.62) 2.51 1.45 2.99 2.42 ----------------------------------------------------------------------------------------------------------------------- Total from operations (1.38) 2.91 1.77 3.33 2.75 ----------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.37) (.37) (.31) (.35) (.32) From realized gains (.32) (.74) (.76) (1.23) (.07) ----------------------------------------------------------------------------------------------------------------------- Total distributions (.69) (1.11) (1.07) (1.58) (.39) ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 17.11 $ 19.18 $ 17.38 $ 16.68 $ 14.93 ----------------------------------------------------------------------------------------------------------------------- Total investment return (1) (7.37%) 17.28% 11.25% 23.95% 22.42% ----------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $25,936 $19,304 $12,112 $ 7,422 $ 5,103 RATIOS: Expenses to average daily net assets 1.00%(2) 1.00% 1.00% 1.00% 1.00% Net investment income to average daily net assets 2.97%(2) 2.34% 2.01% 2.20% 2.48% Portfolio turnover rate (excluding short-term securities) 32.90% 68.22% 89.37% 62.62% 38.16%
---------- (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 are adjusted to an annual rate. 50 SIT LARGE CAP GROWTH FUND FINANCIAL HIGHLIGHTS
Six Months Ended December 31, Years Ended June 30, 2000 --------------------------------------------------- (Unaudited) 2000 1999 1998 1997 --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 63.66 $ 52.84 $ 49.34 $ 40.39 $ 32.75 --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) (.09) (.18) (.04) .02 .07 Net realized and unrealized gains (losses) on investments (10.40) 14.41 6.96 13.17 10.02 --------------------------------------------------------------------------------------------------------------------------------- Total from operations (10.49) 14.23 6.92 13.19 10.09 --------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- (.01) (.07) (.03) From realized gains (5.03) (3.41) (3.41) (4.17) (2.42) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (5.03) (3.41) (3.42) (4.24) (2.45) --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 48.14 $ 63.66 $ 52.84 $ 49.34 $ 40.39 --------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) (17.17%) 27.75% 15.10% 35.33% 32.36% --------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $149,312 $172,400 $140,258 $117,496 $ 72,226 RATIOS: Expenses to average daily net assets 1.00% (3) 1.00% 1.00% 1.00% 1.00%(2) Net investment income (loss) to average daily net assets (0.32%)(3) (0.31%) (0.09%) 0.06% 0.20%(2) Portfolio turnover rate (excluding short-term securities) 21.76% 48.95% 70.51% 43.61% 32.23%
--------- (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 year ended June 30, 1997 the investment adviser voluntarily absorbed $50,548 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% for the year ended June 30, 1997 and the ratio of net investment income(loss) to average daily net assets would have been 0.11%. (3) Percentages are adjusted to an annual rate. 51 SIT MID CAP GROWTH FUND FINANCIAL HIGHLIGHTS
Six Months Ended December 31, Years Ended June 30, 2000 ------------------------------------------------------- (Unaudited) 2000 1999 1998 1997 ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 23.57 $ 14.54 $ 16.49 $ 15.43 $ 15.58 ----------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) (.04) (.12) (.06) (.07) (.03) Net realized and unrealized gains (losses) on investments (3.43) 10.38 .65 3.15 2.50 ----------------------------------------------------------------------------------------------------------------------------------- Total from operations (3.47) 10.26 .59 3.08 2.47 ----------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- -- -- -- From realized gains (4.07) (1.23) (2.54) (2.02) (2.62) ----------------------------------------------------------------------------------------------------------------------------------- Total distributions (4.07) (1.23) (2.54) (2.02) (2.62) ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 16.03 $ 23.57 $ 14.54 $ 16.49 $ 15.43 ----------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) (16.04%) 73.01% 6.94% 22.19% 17.23% ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $473,569 $566,639 $375,343 $404,327 $386,543 RATIOS: Expenses to average daily net assets 1.00% (2) 1.00% (2) 1.00% (2) 1.00% (2) 0.92% (2) Net investment income (loss) to average daily net assets (0.42%)(2) (0.58%)(2) (0.46%)(2) (0.41%)(2) (0.20%)(2) Portfolio turnover rate (excluding short-term securities) 28.09% 62.21% 68.62% 52.62% 38.66%
--------- (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, 2000 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, 2000, and the years ended June 30, 2000, 1999, 1998 and 1997, the investment adviser voluntarily absorbed $702,603, $1,209,620, $865,657, $1,004,074, and $609,840, 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 1.25%, 1.25%, 1.25%, 1.25%, and 1.09% for the the period ended December 31, 2000, and the years ended June 30, 2000, 1999, 1998, and 1997, respectively, and the ratio of net investment income (loss) to average daily net assets would have been (0.67%), (0.83%), (0.71%), (0.66%), and (0.37%), respectively. 52 SIT INTERNATIONAL GROWTH FUND FINANCIAL HIGHLIGHTS
Six Months Ended December 31, Years Ended June 30, 2000 --------------------------------------------------------- (Unaudited) 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE: Beginning of period $ 23.58 $ 18.77 $ 19.14 $ 18.57 $ 16.29 ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) (.05) (.04) (.07) .02 .01 Net realized and unrealized gains on investments (4.28) 6.36 .84 1.25 2.70 ------------------------------------------------------------------------------------------------------------------------------------ Total from operations (4.33) 6.32 .77 1.27 2.71 ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- (.23) (.06) (.03) (.01) From realized gains (.52) (1.28) (1.08) (.67) (.42) ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.52) (1.51) (1.14) (.70) (.43) ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE: End of period $ 18.73 $ 23.58 $ 18.77 $ 19.14 $ 18.57 ------------------------------------------------------------------------------------------------------------------------------------ Total investment return (1) (18.51%) 33.38% 4.51% 7.50% 17.04% ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of period (000's omitted) $145,588 $167,909 $ 94,982 $ 99,721 $ 99,279 RATIOS: Expenses to average daily net assets 1.50% (2) 1.50% (2) 1.50% (2) 1.50%(2) 1.50%(2) Net investment income (loss) to average daily net assets (0.48%)(2) (0.40%)(2) (0.37%)(2) 0.12%(2) 0.05%(2) Portfolio turnover rate (excluding short-term securities) 16.53% 30.61% 45.91% 43.74% 41.59%
--------- (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, 2000 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, 2000, and the years ended June 30, 2000, 1999, 1998, and 1997, the investment adviser voluntarily absorbed $280,473, $467,953, $325,038, $338,651, and $306,575, 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, 2000, and the years ended June 30, 2000, 1999, 1998, and 1997, and the ratio of net investment income (loss) to average daily net assets would have been (0.83%), (0.75%), (0.72%), (0.23%),and (0.30%), respectively. 53 SIT SMALL CAP GROWTH FUND FINANCIAL HIGHLIGHTS
Six Months Ended December 31, Years Ended June 30, 2000 ------------------------------------------------- (Unaudited) 2000 1999 1998 1997 -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 41.35 $ 18.28 $ 20.35 $ 18.89 $ 19.27 -------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment loss (.18) (.18) (.18) (.17) (.14) Net realized and unrealized gains (losses) on investments (5.43) 23.25 1.20 2.31 .57 -------------------------------------------------------------------------------------------------------------------------------- Total from operations (5.61) 23.07 1.02 2.14 .43 -------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From realized gains (.58) -- (3.09) (.68) (.81) -------------------------------------------------------------------------------------------------------------------------------- Total distributions (.58) -- (3.09) (.68) (.81) -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 35.16 $ 41.35 $ 18.28 $ 20.35 $ 18.89 -------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) (13.64%) 126.20% 8.77% 11.70% 2.37% -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $264,330 $190,630 $ 50,335 $ 57,472 $ 58,358 RATIOS: Expenses to average daily net assets 1.50% (2) 1.50% 1.50% 1.50% 1.50% Net investment income (loss) to average daily net assets (0.14%)(2) (0.83%) (1.08%) (0.72%) (0.81%) Portfolio turnover rate (excluding short-term securities) 15.68% 39.31% 71.84% 79.54% 58.39%
---------- (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 are adjusted to an annual rate. 54 SIT SCIENCE AND TECHNOLOGY GROWTH FUND FINANCIAL HIGHLIGHTS
Six Months Ended Six Months December 31, Years Ended June 30, Ended 2000 ----------------------- June 30, (Unaudited) 2000 1999 1998 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 33.38 $ 15.23 $ 11.77 $ 10.00 --------------------------------------------------------------------------------------------------------------------- Operations: Net investment income (loss) (.13) (.17) (.07) (.01) Net realized and unrealized gains (losses) on investments (9.06) 18.32 3.53 1.78 --------------------------------------------------------------------------------------------------------------------- Total from operations (9.19) 18.15 3.46 1.77 --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- -- -- From realized gains (.86) -- -- -- --------------------------------------------------------------------------------------------------------------------- Total distributions (.86) .00 .00 .00 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 23.33 $ 33.38 $ 15.23 $ 11.77 --------------------------------------------------------------------------------------------------------------------- Total investment return (1) (27.94%) 119.17% 29.40% 17.70% --------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $40,948 $46,173 $14,194 $ 4,858 RATIOS: Expenses to average daily net assets 1.25% (2) 1.25% (2) 1.25% (2) 1.25% (2) Net investment income (loss) to average net assets (0.90%)(2) (0.86%)(2) (0.72%)(2) (0.21%)(2) Portfolio turnover rate (excluding short-term securities) 19.88% 29.60% 58.29% 19.37%
---------- (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 period ended December 31, 2000 and June 30, 1998 are adjusted to an annual rate. Total Fund expenses are contractually limited to 1.50% of average daily net assets. However, during the periods ended December 31, 2000, June 30, 2000, 1999 and 1998, the investment adviser voluntarily absorbed $61,616, $68,292, $22,008 and $4,655, 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 1.50% for the periods ended December 31, 2000, June 30, 2000, 1999 and 1998, and the ratio of net investment income (loss) to average daily net assets would have been (1.15%), (1.11%), (0.97%) and (0.46%), respectively. 55 SIT DEVELOPING MARKETS GROWTH FUND FINANCIAL HIGHLIGHTS
Six Months Ended December 31, Years Ended June 30, 2000 -------------------------------------------- (Unaudited) 2000 1999 1998 1997 -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 13.43 $ 9.98 $ 9.05 $ 13.04 $ 10.95 -------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) (.01) (.06) -- (.06) .03 Net realized and unrealized gains (losses) on investments (3.52) 3.51 .93 (3.92) 2.06 -------------------------------------------------------------------------------------------------------------------------- Total from operations (3.53) 3.45 .93 (3.98) 2.09 -------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- -- (.01) -- From realized gains -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Total distributions -- -- -- (.01) -- -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 9.90 $ 13.43 $ 9.98 $ 9.05 $ 13.04 -------------------------------------------------------------------------------------------------------------------------- Total investment return (1) (26.28%) 34.57% 10.28% (30.52%) 19.09% -------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $12,044 $14,676 $11,338 $11,505 $16,789 RATIOS: Expenses to average daily net assets 2.00% (2) 2.00% 2.00% 2.00% 2.00% Net investment income (loss) to average daily net assets (0.09%)(2) (0.55%) (0.05%) (0.52%) 0.32% Portfolio turnover rate (excluding short-term securities) 7.63% 48.39% 98.24% 53.36% 65.88%
---------- (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 are adjusted to an annual rate. 56 RESULTS OF SHAREHOLDER MEETING ------------------------------------------------------------------------ [LOGO] The annual meeting of the shareholders of the Funds was held on October 24, 2000. 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. The matters voted on by the shareholders of record as of August 25, 2000 and the results of the shareholders' vote at the October 24, 2000 meeting were as follows: 1. Election of Directors: For Withheld --- -------- Eugene C. Sit Large Cap Growth 1,963,522 3,026 Mid Cap Growth 14,780,722 46,840 Small Cap Growth 4,011,390 16,057 Balanced 877,222 3,092 Science and Technology Growth 1,031,030 1,928 International Growth 3,382,040 10,911 Developing Markets Growth 901,328 8,605 William E. Frenzel Large Cap Growth 1,946,541 20,006 Mid Cap Growth 14,685,914 141,648 Small Cap Growth 4,006,352 21,095 Balanced 874,751 5,563 Science and Technology Growth 1,029,885 3,073 International Growth 3,380,201 12,749 Developing Markets Growth 900,381 9,552 John E. Hulse Large Cap Growth 1,963,547 3,000 Mid Cap Growth 14,780,103 47,459 Small Cap Growth 4,011,571 15,876 Balanced 877,365 2,949 Science and Technology Growth 1,030,895 2,064 International Growth 3,376,917 16,034 Developing Markets Growth 900,381 9,552 57 RESULTS OF SHAREHOLDER MEETING (CONTINUED) -------------------------------------------------------------------------------- Sidney L. Jones Large Cap Growth 1,963,070 3,477 Mid Cap Growth 14,777,401 50,161 Small Cap Growth 4,011,370 16,077 Balanced 874,751 5,563 Science and Technology Growth 1,031,030 1,928 International Growth 3,381,381 11,570 Developing Markets Growth 901,163 8,771 Peter L. Mitchelson Large Cap Growth 1,963,703 2,844 Mid Cap Growth 14,781,444 46,117 Small Cap Growth 4,011,388 15,759 Balanced 875,684 4,630 Science and Technology Growth 1,030,895 2,064 International Growth 3,382,040 10,911 Developing Markets Growth 901,163 8,771 Donald W. Phillips Large Cap Growth 1,962,210 4,337 Mid Cap Growth 14,780,356 47,206 Small Cap Growth 4,011,666 15,781 Balanced 875,684 4,630 Science and Technology Growth 1,030,895 2,064 International Growth 3,382,040 10,911 Developing Markets Growth 901,163 8,771 2. Ratification of KPMG LLP as independent auditors for the Funds: For Against Abstain --- ------- ------- Large Cap Growth 1,952,470 6,305 7,771 Mid Cap Growth 4,729,930 35,074 62,557 Small Cap Growth 3,966,756 17,339 43,351 Balanced 871,208 2,495 6,610 Science and Technology Growth 1,020,670 1,329 10,959 International Growth 3,313,669 10,721 68,560 Developing Markets Growth 875,936 28,249 5,748 58 ------------------------------------------------------------------------ [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 Stock Funds Officers: Eugene C. Sit, CFA Chairman Peter L. Mitchelson, CFA Vice Chairman Roger J. Sit Executive Vice President Erik S. Anderson, CFA(1) Vice President - Investments Ronald D. Sit, CFA(1) Vice President - Investments John T. Groton, Jr., CFA(1) Vice President - Investments Robert W. Sit, CFA(1) Vice President - Investments Bryce A. Doty, CFA(2) Vice President - Investments Paul E. Rasmussen Vice President & Treasurer Michael P. Eckert Vice President - Institutional Client Group Shelley H. Shutes Vice President - Shareholder Services Michael J. Radmer Secretary Carla J. Rose Vice President - Assistant Secretary & Assistant Treasurer Kelly K. Orning Assistant Secretary & Assistant Treasurer (1) Sit Mid Cap Growth Fund, Inc., Sit Large Cap Growth Fund, Inc., and Sit Mutual Funds, Inc. only. (2) Sit Balanced Fund only. 59 [LOGO] ------------------------------------------------------------------------ A LOOK AT THE SIT MUTUAL FUNDS Sit Mutual funds are managed by Sit Investment Associates, Inc. Sit Investment Associates 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 Associates currently manages approximately $9.6 billion for some of America's largest corporations, foundations and endowments. Sit Mutual Funds are NO-LOAD funds. NO-LOAD means that Sit Mutual 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. Sit Mutual Funds offer: * Free telephone exchange * Dollar-cost averaging through an automatic investment plan * Electronic transfer for purchases and redemptions * Free checkwriting privileges on bond funds * Retirement accounts including IRAs and 401(k) plans SIT FAMILY OF FUNDS [GRAPH] STABILITY: INCOME: GROWTH: HIGH GROWTH: SAFETY OF PRINCIPAL INCREASED INCOME LONG-TERM CAPITAL LONG-TERM CAPITAL AND CURRENT INCOME APPRECIATION AND APPRECIATION INCOME MONEY MARKET U.S. GOVERNMENT BALANCED MID CAP GROWTH SECURITIES LARGE CAP GROWTH INTERNATIONAL GROWTH TAX-FREE INCOME SMALL CAP GROWTH MINNESOTA TAX-FREE SCIENCE AND INCOME TECHNOLOGY GROWTH BOND DEVELOPING MARKETS GROWTH 60 SEMI-ANNUAL REPORT STOCK FUNDS Six Months Ended December 31, 2000 INVESTMENT ADVISER AUDITORS Sit Investment Associates, Inc. KPMG LLP 90 South Seventh Street, Suite 4600 90 South Seventh Street, Suite 4200 Minneapolis, MN 55402 Minneapolis, MN 55402 612-334-5888 (Metro Area) 800-332-5580 LEGAL COUNSEL DISTRIBUTOR Dorsey & Whitney LLP 220 South Sixth Street SIA Securities Corp. Minneapolis, MN 55402 90 South Seventh Street, Suite 4600 Minneapolis, MN 55402 612-334-5888 (Metro Area) INVESTMENT SUB-ADVISER 800-332-5580 (Developing Markets Growth Fund and International Growth Fund) CUSTODIAN Sit/Kim International Investment Associates, Inc. The Northern Trust Company 90 South Seventh Street, Suite 4600 50 South LaSalle Street Minneapolis, MN 55402 Chicago, IL 60675 612-334-5888 (Metro Area) 800-332-5580 TRANSFER AGENT AND DISBURSING AGENT PFPC Inc. P.O. BOX 5166 Westboro, MA 01581-5166 [LOGO] SIT INVESTMENT ASSOCIATES -------------------------------- SIT MUTUAL FUNDS