-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S5lWuTs5NgEKjJrtL/wnglqGT8CicjR8bOdYT4Cqp1leUCFNPFUNvYsF6s+qqb48 SpIksxrOIIpXraNkuTc+Eg== 0000897101-03-000147.txt : 20030221 0000897101-03-000147.hdr.sgml : 20030221 20030221102745 ACCESSION NUMBER: 0000897101-03-000147 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030221 EFFECTIVENESS DATE: 20030221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT LARGE CAP GROWTH FUND INC CENTRAL INDEX KEY: 0000356786 IRS NUMBER: 411414580 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03343 FILM NUMBER: 03575209 BUSINESS ADDRESS: STREET 1: 4600 NORWEST CENTER 90 S SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 612-332-32 MAIL ADDRESS: STREET 1: 4600 NORWEST CENTER 90 SOUTH ST STREET 2: 4600 NORWEST CENTER 90 SOUTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 FORMER COMPANY: FORMER CONFORMED NAME: NEW BEGINNING GROWTH FUND INC/NEW DATE OF NAME CHANGE: 19870907 FORMER COMPANY: FORMER CONFORMED NAME: SIT GROWTH & INCOME FUND INC DATE OF NAME CHANGE: 19940620 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT MUTUAL FUNDS INC CENTRAL INDEX KEY: 0000877880 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06373 FILM NUMBER: 03575210 BUSINESS ADDRESS: STREET 1: 4600 NORWEST CENTER STREET 2: 90 S SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 612-332-32 MAIL ADDRESS: STREET 1: 4600 NORWEST CTR, 90 SOUTH SEVENTH ST STREET 2: 4600 NORWEST CTR, 90 SOUTH SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4130 FORMER COMPANY: FORMER CONFORMED NAME: SIT NEW BEGINNING MUTUAL FUNDS INC DATE OF NAME CHANGE: 19920929 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT MID CAP GROWTH FUND INC CENTRAL INDEX KEY: 0000356787 IRS NUMBER: 411414580 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03342 FILM NUMBER: 03575211 BUSINESS ADDRESS: STREET 1: 4600 NORWEST CTR 90 S 17TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 612-332-32 MAIL ADDRESS: STREET 1: 4600 NORWEST CTR, 90 S 17TH ST STREET 2: 4600 NORWEST CTR, 90 S 17TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4130 FORMER COMPANY: FORMER CONFORMED NAME: NEW BEGINNING INCOME & GROWTH FUND INC DATE OF NAME CHANGE: 19870907 FORMER COMPANY: FORMER CONFORMED NAME: SIT NEW BEGINNING GROWTH & INCOME FUND INC DATE OF NAME CHANGE: 19930923 FORMER COMPANY: FORMER CONFORMED NAME: SIT GROWTH FUND INC DATE OF NAME CHANGE: 19940620 N-30D 1 sit030817_n30d.txt SIT STOCK FUNDS SEMI-ANNUAL REPORT SIT MUTUAL FUNDS STOCK FUNDS SEMI-ANNUAL REPORT SIX MONTHS ENDED DECEMBER 31, 2002 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 [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 $6.2 billion for some of America's largest corporations, foundations and endowments. Sit Mutual Funds are comprised of twelve NO-LOAD funds. NO-LOAD means that Sit Mutual Funds have no sales charges on purchases, no deferred sales charges, no 12b-1 fees and 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 APPRECIATION AND 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 SIT MUTUAL FUNDS STOCK FUNDS SEMI-ANNUAL REPORT TABLE OF CONTENTS PAGE Chairman's Letter 2 Performance Summary and Stock Funds Market Review 4 Average Annual Total Returns 6 FUND REVIEWS AND PORTFOLIOS OF INVESTMENTS Balanced Fund 8 Large Cap Growth Fund 14 Mid Cap Growth Fund 18 International Growth Fund 22 Small Cap Growth Fund 26 Science and Technology Growth Fund 30 Developing Markets Growth Fund 34 Notes to Portfolios of Investments 38 Statements of Assets and Liabilities 40 Statements of Operations 42 Statements of Changes in Net Assets 44 Notes to Financial Statements 48 Financial Highlights 52 Results of Shareholder Meeting 59 1 SIT MUTUAL FUNDS [PHOTO]------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 2002 CHAIRMAN'S LETTER Dear Fellow Shareholders: Despite solid economic growth in the U.S. economy, equity markets fell in 2002 for the third consecutive year. However, we believe many of the concerns that have pressured stock prices have eased and that prospects are positive in the year ahead. ECONOMIC OVERVIEW Given the number of disruptive events following September 11th, 2001, the U.S. economy performed remarkably well in 2002. While the impact from a series of "shocks" was more clearly witnessed in the performance of stock prices during the past year, we expect a broadening of the economic recovery to be better reflected in the equity market in the near- to intermediate term. We expect U.S. economic growth, as measured by the Gross Domestic Product (GDP), to average about +2.5% in 2002. Since we are now entering the second year of recovery, coupled with significant stimulus that is still working its way through the economy, stronger growth is likely in 2003. We believe there will be several key sectors that contribute to our above consensus growth projection. Consumer spending, which accounts for nearly 70% of the U.S. economy, should grow in the +3 to 4% range this year as disposable income could rise sharply if the tax cuts planned for later years are brought forward in 2003. The housing sector is likely to remain a positive contributor to growth based on our assumption that interest rates are unlikely to increase rapidly over the near term. In addition, the government sector should continue to remain very strong, given the demands of caring for the unemployed, fighting the war on terrorism, providing for homeland security, and adding further stimulus to the economy. And finally, we believe that even the beleaguered capital spending sector has potential to surprise on the upside in the year ahead. Since corporate cash flow has grown solidly over the past year and the rate of business investment has fallen, we believe there could be a "catch up" period in 2003. Indeed, there was some evidence of underlying improvements in technology investment in the government's third quarter GDP report. We expect these key sectors to drive economic growth, leading to our GDP forecast of +3.5% for the full year 2003. Based on our forecast of stronger economic growth in the months ahead, we believe moderate increases in the inflation rate are likely as the year progresses. Already, the year-over-year Consumer Price Index change has doubled from +1.1% last June to +2.2% in November. Although there has been much commentary in the press and among economists on the subject of possible deflation, we believe that this is a low probability event due to improving economic growth combined with the increasing service orientation of the U.S. economy. Throughout most of 2002, fixed-income markets responded favorably to the negative events (i.e., geopolitical, corporate scandals) that impacted the equity market, which led to one final Federal Reserve interest rate reduction in November. In terms of future Federal Reserve activity, despite the prospect for stronger economic growth, we believe that it will be several more months before interest rate increases are announced. The nation's unemployment rate, which moved back up to 6% in November, and ongoing geopolitical concerns are likely to keep the Fed on hold for the foreseeable future. Even without President Bush's latest economic stimulus proposals, the latest federal deficit trends have been ominous. For fiscal 2002, the federal budget deteriorated to a deficit of $159 billion, a negative swing of $285 billion from the prior year's surplus of $127 billion. Lower tax receipts due to economic conditions and the costs associated with responding to the terrorist attacks were the primary contributors to the deterioration. Factoring the $102 billion current year price of the President's stimulus proposal, it is easy to foresee a deficit figure of close to $300 billion in fiscal 2003. The negative deficit trends, combined with stronger economic growth in 2003, support the view that market interest rates will trend moderately higher in the year ahead. 2 - --------------------------------------------------------------------------[LOGO] EQUITY STRATEGY SUMMARY Despite a strong rebound in the final quarter, virtually all U.S. common stock indices showed declines during the last half of the year and for all of 2002, which marks the third consecutive year of a broad equity market decline. This is a statistically rare event that has occurred only twice before. But it is important to note that significant rebounds occurred in the years following these other periods, with S&P 500 gaining +54% in 1933 and +20% in 1942. In addition, a number of increasingly bullish factors are converging to raise the probability that a fourth year of declining equity prices will be avoided. First, stock market valuations, especially for growth companies, have become much more compelling as prices have declined while corporate profits have risen. Second, while corporate earnings did not generally live up to expectations in 2002, we believe a strong case can be made for more positive surprises in 2003. This view is based largely on our belief that an accelerated economic recovery will result in stronger sales growth, accompanied by a sharp improvement in profit margins as a result of intense corporate efforts to reduce costs since the downturn began. Third, with respect to investor sentiment, surveys of individual investor asset allocations have shown dramatically reduced equity holdings and sharply increased cash reserves in recent quarters. This high degree of investor conservatism is a typical characteristic of a market bottom. Based on our strong economic growth projections for 2003, we expect to alter portfolio sector weightings toward sectors most sensitive to economic conditions. This suggests a shift away from some defensive/non-cyclical areas (i.e., health care, consumer non-durables) to more aggressive/ cyclical sectors (i.e., technology, producer manufacturing, communications) that are likely to show improving relative earnings growth as economic growth improves. We are particularly enthused about the prospects for growth stocks in the year ahead. Although growth stocks have trailed their value counterparts since the market correction began in 2000, this trend began to reverse during the second half of 2002. We believe that compelling valuations, strong relative earnings growth, and improving fundamentals in the heavily weighted technology sector are key factors supporting improved performance for the growth style over the intermediate to longer term. While most equity markets outside the U.S. also declined in 2002, we look for an improvement in international market performance going forward. Our basis for optimism is similar to our thesis on the U.S. market. Simply put, valuations for many markets are significantly lower, while the corporate profit outlook is gradually improving. Although the economic performance for most of Europe has been disappointing, we maintain a substantial weighting in the region based on attractive valuations and, to a lesser extent, the continued prospect for structural reforms. We remain substantially overweighted in Asia, excluding Japan, based on our outlook for superior economic growth in that region. With best wishes, /s/ Eugene C. Sit Eugene C. Sit, CFA Chairman and Chief Investment Officer 3 SIT MUTUAL FUNDS SIX MONTHS ENDED DECEMBER 31, 2002 - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY AND STOCK FUNDS MARKET REVIEW Domestic equity markets posted negative returns over the past six months, as a strong rally in the fourth quarter was not enough to overcome the sharp decline that took place in the third quarter of 2002. Although small capitalization stocks have generally outperformed larger issues throughout the market correction, the trend reversed somewhat over the past six months. Specifically, the Russell 2000 Index fell -16.6%, while the Russell 1000 Index fell -10.1%. Medium capitalization indices also underperformed larger cap issues, as evidenced by the -11.7% return for the S&P 400 Mid Cap Index, which compares to the -10.3% return for the S&P 500 Index. Growth stocks outperformed value stocks over the past six months. The Russell 1000 Growth Index fell -9.0%, while the Russell 1000 Value Index fell - -11.3%. This trend was also evident in small capitalization indices, as the Russell 2000 Growth Index fell -15.6%, compared to the -17.4% drop in the Russell 2000 Value Index. In terms of sector performance over the past six months, non-cyclical sectors such as health technology and consumer non-durable sectors outpaced more economically sensitive areas like retail trade, producer manufacturing, and consumer durables. It is interesting to note, however, that two sectors that have dramatically underperfomed throughout the market correction - technology services and communications - meaningfully outperformed the broader indices since mid-year. This largely reflects a very strong fourth quarter for technology stocks, following a significant decline in the third quarter. The dramatic shift in market sentiment between the third and fourth quarters was quite evident in the NASDAQ OTC Composite. While the technology-laden index fell -19.9% during the third quarter, it rose an impressive +14.0% in the final quarter of 2003. International equity market indices moved lower over the past six months. The MSCI World Index, one of the broadest measures of global equity returns, decreased -12.1%. The MSCI Pacific Index fell -14.8% over the period, weighed down by the -17.1% decline for the Japan component. The MSCI Europe Index fell - -14.4% over the past six months. In terms of individual countries, only six posted positive returns in 2002, including Austria, Indonesia, New Zealand, South Africa, South Korea, and Thailand. TOTAL RETURN - CALENDAR YEAR 1990 1991 1992 - -------------------------------------------------------------------------- SIT BALANCED -- -- -- - -------------------------------------------------------------------------- SIT LARGE CAP GROWTH -2.37% 32.72% 4.94% - -------------------------------------------------------------------------- SIT MID CAP GROWTH(1) -2.04 65.50 -2.14 - -------------------------------------------------------------------------- SIT INTERNATIONAL GROWTH(2) -- 4.10(4) 2.69 - -------------------------------------------------------------------------- SIT SMALL CAP GROWTH(1) -- -- -- - -------------------------------------------------------------------------- SIT SCIENCE AND TECHNOLOGY GROWTH(3) -- -- -- - -------------------------------------------------------------------------- SIT DEVELOPING MARKETS GROWTH(2) -- -- -- - -------------------------------------------------------------------------- S&P 500 INDEX -3.05 30.46 7.64 S&P MIDCAP 400 INDEX -5.12 50.11 11.92 MSCI EAFE INDEX -- 0.26 -12.17 RUSSELL 2000 INDEX -- -- -- MSCI EMERGING MARKETS FREE INDEX -- -- -- 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 SDMGX 07/01/94 - --------------------------------------------------------- S&P 500 Index(5) S&P MidCap 400 Index(5) MSCI EAFE Index (6) Russell 2000 Index (7) MSCI Emerging Markets Free Index (8) (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 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 - ----------------------------------------------------------------------------------------------------------------------------- Sit Balanced -- -0.33% 25.43% 15.80% 21.73% 21.30% 20.15% -4.80% -12.99% -18.59% - ----------------------------------------------------------------------------------------------------------------------------- Sit Large Cap Growth 3.15% 2.83 31.66 23.05 31.70 30.56 33.41 -13.84 -27.70 -30.58 - ----------------------------------------------------------------------------------------------------------------------------- Sit Mid Cap Growth(1) 8.55 -0.47 33.64 21.87 17.70 6.84 70.65 -4.35 -33.39 -34.64 - ----------------------------------------------------------------------------------------------------------------------------- Sit International Growth(2) 48.37 -2.99 9.36 10.31 4.81 18.95 50.77 -26.66 -33.26 -29.84 - ----------------------------------------------------------------------------------------------------------------------------- Sit Small Cap Growth(1) -- 11.57(4) 52.16 14.97 7.63 1.97 108.63 6.25 -28.19 -26.22 - ----------------------------------------------------------------------------------------------------------------------------- Sit Science and Technology Growth(3) -- -- -- -- -- 38.40 85.98 -6.55 -47.78 -44.45 - ----------------------------------------------------------------------------------------------------------------------------- Sit Developing Markets Growth(2) -- -2.02(4) -4.29 17.27 -5.20 -24.93 82.50 -30.18 -12.01 -18.37 - ----------------------------------------------------------------------------------------------------------------------------- S&P 500 Index 10.07 1.32 37.58 22.96 33.36 28.58 21.04 -9.11 -11.88 -22.10 S&P MidCap 400 Index 13.95 -3.60 30.94 19.19 32.29 19.11 14.72 17.50 -0.61 -14.52 MSCI EAFE Index 32.56 7.78 11.21 6.05 1.78 20.00 26.96 -14.17 -21.44 -15.94 Russell 2000 Index -- 4.61 28.45 16.49 22.36 -2.54 21.26 -3.02 2.49 -20.48 MSCI Emerging Markets Free Index -- 2.80 -6.94 3.92 -13.40 -27.52 63.70 -31.80 -4.91 -7.97 AVERAGE ANNUAL TOTAL RETURNS FOR THE TOTAL RETURN PERIODS ENDED DECEMBER 31, 2002 QUARTER SIX MONTHS SINCE ENDED 12/31/02 ENDED 12/31/02 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Sit Balanced 3.99% -4.74% -18.59% -12.31% -0.35% -- 6.29% - ---------------------------------------------------------------------------------------------------------------------------- Sit Large Cap Growth 6.83 -9.36 -30.58 -24.38 -5.51 5.48% 10.42 - ---------------------------------------------------------------------------------------------------------------------------- Sit Mid Cap Growth 3.02 -13.65 -34.64 -25.32 -5.36 4.63 12.51 - ---------------------------------------------------------------------------------------------------------------------------- Sit International Growth 6.17 -18.72 -29.84 -29.97 -9.24 1.15 1.63 - ---------------------------------------------------------------------------------------------------------------------------- Sit Small Cap Growth 5.62 -11.68 -26.22 -17.43 3.67 -- 11.46 - ---------------------------------------------------------------------------------------------------------------------------- Sit Science and Technology Growth 11.74 -10.11 -44.45 -35.28 -6.94 -- -6.94 - ---------------------------------------------------------------------------------------------------------------------------- Sit Developing Markets Growth 3.04 -12.22 -18.37 -20.55 -7.23 -- -3.85 - ---------------------------------------------------------------------------------------------------------------------------- S&P 500 Index 8.44 -10.30 -22.10 -14.55 -0.59 9.34 13.42 S&P MidCap 400 Index 5.83 -11.68 -14.52 -0.05 6.41 11.96 15.78 MSCI EAFE Index 6.45 -14.55 -15.94 -17.24 -2.89 4.00 2.40 Russell 2000 Index 6.16 -16.56 -20.48 -7.54 -1.36 -- 7.08 MSCI Emerging Markets Free Index 9.76 -8.65 -7.97 -15.81 -6.67 -- -5.65
(5) Figures assume an inception date of 09/02/82. (6) Figures assume an inception date of 10/31/91. (7) Figures assume an inception date of 07/01/94. (8) Figures assume an inception date of 06/30/94. 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. 5 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002 The tables on this page and the next page show the Funds' average annual total returns (before and after taxes) and the change in value of a broad-based market index over various periods ended December 31, 2002. The index information is intended to permit you to compare each Fund's performance to a broad measure of market performance. The after-tax returns are intended to show the impact of federal income taxes on an investment in a Fund. The highest individual federal marginal income tax rate in effect during the specified period are assumed, and the state and local tax impact is not reflected. A Fund's "Return After Taxes on Distributions" shows the effect of taxable distributions (dividends and capital gain distributions), but assumes that you still hold the fund shares at the end of the period and so do not have any taxable gain or loss on your investment in the Fund. A Fund's "Return After Taxes on Distributions and Sale of Fund Shares" shows the effect of both taxable distributions and any taxable gain or loss that would be realized if the Fund shares were purchased at the beginning and sold at the end of the specified period. The Funds' past performance, before and after taxes, is not an indication of how the Funds will perform in the future. Your actual after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns reflect past tax effects and are not predictive of future tax effects. After-tax returns are not relevant to investors who hold their Fund shares in a tax-deferred account (including a 401(k) or IRA account).
- ----------------------------------------------------------------------------------------------------------- SIT BALANCED FUND 1 YEAR 5 YEARS SINCE INCEPTION* Return Before Taxes -18.6% -0.4% 6.3% Return After Taxes on Distributions -19.5% -1.7% 4.8% Return After Taxes on Distributions and Sale of Fund Shares -15.3% -0.6% 4.7% S&P 500 Index -22.1% -0.6% 9.3% - -----------------------------------------------------------------------------------------------------------
*Inception date 12/31/93.
- ----------------------------------------------------------------------------------------------------------- SIT LARGE CAP GROWTH FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes -30.6% -5.5% 5.5% Return After Taxes on Distributions -30.6% -6.4% 3.9% Return After Taxes on Distributions and Sale of Fund Shares -24.5% -3.7% 4.5% S&P 500 Index -22.1% -0.6% 9.3% - -----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------- SIT MID CAP GROWTH FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes -34.6% -5.4% 4.6% Return After Taxes on Distributions -34.6% -7.1% 2.3% Return After Taxes on Distributions and Sale of Fund Shares -27.7% -3.1% 4.3% S&P MidCap 500 Index -14.5% 6.4% 12.0% - -----------------------------------------------------------------------------------------------------------
6 - --------------------------------------------------------------------------[LOGO]
- ----------------------------------------------------------------------------------------------------------- SIT INTERNATIONAL GROWTH FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes -29.8% -9.2% 1.2% Return After Taxes on Distributions -29.8 -9.8% 0.4% Return After Taxes on Distributions and Sale of Fund Shares -23.9% -6.7% 1.1% MSCI EAFE Index -15.9% -2.9% 4.0% - -----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------- SIT SMALL CAP GROWTH FUND 1 YEAR 5 YEARS SINCE INCEPTION* Return Before Taxes -26.2% 3.7% 11.5% Return After Taxes on Distributions -26.2% 2.9% 10.6% Return After Taxes on Distributions and Sale of Fund Shares -21.0% 2.9% 9.6% Russell 2000 Index 20.5% -1.4% 7.1% - -----------------------------------------------------------------------------------------------------------
*Inception date 7/1/94.
- ----------------------------------------------------------------------------------------------------------- SIT SCIENCE AND TECHNOLOGY GROWTH FUND 1 YEAR 5 YEARS SINCE INCEPTION* Return Before Taxes -44.5% N/A -6.9% Return After Taxes on Distributions -44.5% N/A -7.1% Return After Taxes on Distributions and Sale of Fund Shares -35.6% N/A -5.1% S&P 500 Index -22.1% N/A -0.6% - -----------------------------------------------------------------------------------------------------------
*Inception date 12/31/97.
- ----------------------------------------------------------------------------------------------------------- SIT DEVELOPING MARKETS GROWTH FUND 1 YEAR 5 YEARS SINCE INCEPTION* Return Before Taxes -18.4% -7.2% -3.9% Return After Taxes on Distributions -18.4% -7.2% -3.9% Return After Taxes on Distributions and Sale of Fund Shares -14.7% -5.6% -2.9% MSCI Emerging Markets Free Index -8.0% -6.7% -5.7% - -----------------------------------------------------------------------------------------------------------
*Inception date 7/1/94. NOTES 1) After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. 2) Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. 3) Indices reflect no deduction for fees, expenses, or taxes. 7 SIT BALANCED FUND SIX MONTHS ENDED DECEMBER 31, 2002 [PHOTO]------------------------------------------------------------------------- PETER L. MITCHELSON, CFA, SENIOR PORTFOLIO MANAGER BRYCE A. DOTY, CFA, SENIOR PORTFOLIO MANAGER The Sit Balanced Fund's six-month return was -4.7%, largely reflecting weak equity markets during the third quarter of 2002. The S&P 500 Index return was - -10.3%, while the Lehman Aggregate Bond Index increased +6.2%. Although stock returns were negative over the six-month period and for the full year, the equity market ended on a positive note with a strong rebound in the final quarter of 2002. From our perspective, we continue to view the market's volatility as an opportunity to position the equity portion of the Fund in premier growth companies trading at attractive valuations. It is our view that corporate earnings have bottomed and that the economy will continue to strengthen. In this regard, our strategy has been to position the Fund in companies most likely to produce better-than-expected earnings as economic growth accelerates. This includes a substantial commitment to key technology sectors, based in our belief that business capital spending will gain momentum in 2003. Other heavily weighted sectors include health technology, producer manufacturing, and retail trade. While the tepid pace of recovery in the U.S. economy and geopolitical concerns have provided a positive backdrop for fixed-income markets, we are currently less optimistic for a continuation of above-average fixed-income returns in the near to intermediate term. The Fund's sector positions and fixed-income strategy are based on our assumption that the Federal Reserve is at the end of the current cycle of lowering short-term rates, and that the economy gradually improves throughout 2003. We continue to underweight U.S. Treasury securities, while focusing on high quality agency, mortgages, and corporate bonds. As of December 31, 2002, the asset allocation of the Fund was 58% equities (up from 53% on June 30, 2002), 41% fixed-income (down from 45%), and 1% cash and other net assets (down from 2%). We very much appreciate shareholders' continued interest and participation in 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 and bonds. The Fund may emphasize either equity securities or fixed-income securities, 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: 35-65% in equity securities and 35-65% in fixed-income securities. At all times at least 25% of the fixed-income assets will be invested in fixed-income senior securities. PORTFOLIO SUMMARY Net Asset Value 12/31/02: $11.45 Per Share 6/30/02: $12.29 Per Share Total Net Assets: $ 15.2 Million TOTAL DIVIDEND: $ 0.26 PER SHARE Ordinary Income: $ 0.26 Per Share PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) [BAR GRAPH] Equities 58.1% Bonds 40.9% Cash & Other Net Assets 1.0% 8 - --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT LEHMAN BALANCED S&P AGGREGATE FUND 500 INDEX BOND INDEX --------- --------- --------- 3 Month** 3.99% 8.44% 1.57% 6 Month** -4.74 -10.30 6.23 1 Year -18.59 -22.10 10.25 3 Years -12.31 -14.55 10.10 5 Years -0.35 -0.59 7.55 Inception 6.29 9.26 7.26 (12/31/93) CUMULATIVE TOTAL RETURNS* SIT LEHMAN BALANCED S&P AGGREGATE FUND 500 INDEX BOND INDEX --------- --------- --------- 1 Year -18.59% -22.10% 10.25% 3 Years -32.57 -37.61 33.47 5 Years -1.73 -2.90 43.87 Inception 73.19 121.95 88.04 (12/31/93) *AS OF 12/31/02 **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 INVLUDED 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 GRAPH] The sum of $10,000 invested at inception (12/31/93) and held until 12/31/02 would have grown to $17,319 in the Fund, $18,804 in the Lehman Aggregate Bond Index or $22,195 in the S&P 500 Index assuming reinvestment of all dividends and capital gains. TOP 10 HOLDINGS Stocks * Microsoft Corp. * Xcel Energy, Inc. * Pfizer, Inc. * Amgen, Inc. * Target Corp. Bonds * Conseco Home Equity Loan, 2001-A 1A5, 7.06%, 3/15/32 * Advanta Mtg. Loan Trust, 1999-3 A4, 7.75%, 10/25/26 * Green Tree Home Equity Loan Tr., 1999-D A5, 7.88%, 9/15/30 * Conseco Home Equity Loan, 2000-D A4, 8.17%, 12/15/25 * EQCC Home Equity Loan, 1996-4 A8, 7.41%, 1/15/28 Total Number of Holdings: 136 9 SIT BALANCED FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2002 (UNAUDITED) - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- COMMON STOCKS (58.1%) (2) CONSUMER DURABLES (2.4%) 2,600 SYSCO Corp. 77,454 ---------------- COMMUNICATIONS (1.8%) 15,600 Sprint Corp. (3) 68,328 11,200 Vodafone Group, A.D.R. 202,944 ---------------- 271,272 ---------------- CONSUMER DURABLES (0.6%) 1,800 Harley-Davidson, Inc. 83,160 ---------------- CONSUMER NON-DURABLES (4.1%) 400 Colgate-Palmolive Co. 20,972 3,800 Kraft Foods, Inc. 147,934 4,400 PepsiCo, Inc. 185,768 2,000 The Coca Cola Co. 87,640 2,100 The Procter & Gamble Co. 180,474 ---------------- 622,788 ---------------- CONSUMER SERVICES (3.2%) 5,500 AOL Time Warner, Inc. (3) 72,050 13,760 AT&T Corp. - Liberty Media Group (3) 123,014 1,600 H&R Block, Inc. 64,320 5,500 Viacom, Inc. (3) 224,180 ---------------- 483,564 ---------------- ELECTRONIC TECHNOLOGY (6.2%) 2,000 Analog Devices, Inc. (3) 47,740 5,800 Applied Materials, Inc. (3) 75,574 13,200 Cisco Systems, Inc. (3) 172,920 4,700 Dell Computer Corp. (3) 125,678 6,000 EMC Corp. (3) 36,840 8,300 Intel Corp. 129,231 1,800 International Business Machines Corp. 139,500 3,000 Linear Technology Corp. 77,160 6,600 Nokia Corp., A.D.R. 102,300 1,000 QUALCOMM, Inc. (3) 36,390 ---------------- 943,333 ---------------- ENERGY MINERALS (2.2%) 800 ConocoPhillips Co. 38,712 1,500 Devon Energy Corp. 68,850 3,600 Exxon Mobil Corp. 125,784 1,200 Murphy Oil Corp. 51,420 1,800 Occidental Petroleum Corp. 51,210 ---------------- 335,976 ---------------- FINANCE (8.1%) 4,600 ACE, Ltd. 134,964 4,321 American International Group, Inc. 249,970 4,766 Citigroup, Inc. 167,716 2,000 Fifth Third Bancorp 117,100 - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- 1,800 Goldman Sachs Group, Inc. 122,580 4,200 Marsh & McLennan Cos., Inc. 194,082 2,000 The St. Paul Companies, Inc. 68,100 4,000 Wells Fargo Co. 187,480 ---------------- HEALTH SERVICES (2.1%) 1,300 Cardinal Health, Inc. 76,947 1,600 Quest Diagnostics, Inc. (3) 91,040 1,800 UnitedHealth Group, Inc. 150,300 ---------------- 318,287 ---------------- HEALTH TECHNOLOGY (10.6%) 5,500 Amgen, Inc. (3) 265,870 2,600 Baxter International, Inc. 72,800 2,800 Bristol-Myers Squibb Co. 64,820 7,000 Elan Corp., A.D.R (3) 17,220 2,600 Eli Lilly and Co. 165,100 3,400 Johnson & Johnson 182,614 1,600 MedImmune, Inc. (3) 43,472 3,200 Medtronic, Inc. 145,920 3,000 Merck & Co., Inc. 169,830 9,375 Pfizer, Inc. 286,594 2,200 Pharmacia Corp. 61,776 1,600 Teva Pharmaceutical Industries, A.D.R. 223,938 1,100 Wyeth Co. 41,140 ---------------- 1,621,816 ---------------- INDUSTRIAL SERVICES (0.9%) 1,400 Noble Corp. (3) 49,210 2,200 Schlumberger Ltd. 92,598 ---------------- 141,808 ---------------- PRODUCER MANUFACTURING (4.8%) 9,400 General Electric Co. 228,890 3,700 Lockheed Martin Corp. 213,675 1,000 3M Co. 123,300 1,200 Northrop Grumman Corp. 116,400 3,100 Tyco International, Ltd. 52,948 ---------------- 735,213 ---------------- RETAIL TRADE (5.1%) 4,000 Best Buy Co., Inc. (3) 96,600 5,400 Home Depot, Inc. 129,384 1,600 Kohl's Corp. (3) 89,520 2,800 Lowe's Companies, Inc. 105,000 8,700 Target Corp. 261,000 3,300 Walgreen Co. 96,327 ---------------- 777,831 ---------------- 10 - --------------------------------------------------------------------------[LOGO] - ------------------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- TECHNOLOGY SERVICES (5.8%) 1,800 Adobe Systems, Inc. 44,462 1,200 Affiliated Computer Services, Inc. (3) 63,180 4,000 Ceridian Corp. (3) 57,680 2,850 Check Point Software Technology (3) 36,964 4,400 First Data Corp. 155,804 800 Intuit, Inc. (3) 37,536 7,100 Microsoft Corp. (3) 367,070 5,400 Oracle Corp. (3) 58,320 4,200 VERITAS Software Corp. (3) 65,604 --------------- 886,800 --------------- UTILITIES (2.1%) 29,200 XceL Energy, Inc. 321,200 --------------- Total common stocks (cost: $11,741,916) 8,862,494 --------------- BONDS (38.2%) (2) ASSET-BACKED SECURITIES (13.8%) Advanta Mortgage Loan Trust: 23,115 1995-3 A5, 7.37%, 2/25/27 23,384 300,000 1999-3 A4, 7.75%, 10/25/26 324,029 Conseco Home Equity Loan: 300,000 2000-D A4, 8.17%, 12/15/25 317,297 450,000 2001-A IA5, 7.06%, 3/15/32 476,023 250,000 Conseco Mfg. Housing, 2000-4 A5, 7.97%, 5/1/32 254,557 74,999 ContiMortgage Home Equity Loan Tr., 1996-1 A7, 7.00%, 3/15/27 74,935 250,000 EQCC Home Equity Loan Trust, 1996-4 A8, 7.41%, 1/15/28 260,060 Green Tree Financial Corp.: 19,958 1995-5, 7.25%, 9/15/26 20,722 24,864 1997-4, 7.03%, 2/15/29 25,934 300,000 Green Tree Home Equity Loan Trust, 1999-D A5, 7.88%, 9/15/30 322,899 --------------- 2,099,840 --------------- COLLATERALIZED MORTGAGE OBLIGATIONS (4.8%) 185,333 Merrill Lynch Trust, Series 45Z, 9.10%, 9/20/20 201,419 PNC Mortgage Securities Corp.: 6,019 Series 1998-6 4A, 6.75%, 8/25/13 6,042 105,586 Series 1998-14 1A, 6.25%, 1/25/29 106,869 Vendee Mortgage Trust: 146,465 Series 2000-3 2B, 7.50%, 4/15/08 150,037 32,697 Series 1997-2 E, 7.50%, 5/15/24 33,405 --------------- 497,772 --------------- - ------------------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- CORPORATE BONDS (14.4%) 150,000 American General Capital, 8.50%, 7/1/30 196,031 Continental Airlines: 92,097 Series 2000-2 A1, 7.71%, 4/2/21 80,933 150,000 Series 2001-1B, 7.37%, 12/15/15 106,107 50,000 Delta Air Lines, 6.72%, 1/2/23 52,812 100,000 Dow Capital BV, 8.70%, 5/15/22 103,778 150,000 Everest Reins. Hldgs., 8.75%, 3/15/10 172,314 100,000 First Hawaiian Cap., 8.34%, 7/1/27 111,348 75,000 Ford Motor Credit Co., 9.14%, 12/30/14 79,247 200,000 Great Western Finance, 8.21%, 2/1/27 214,719 218,606 Northwest Airlines Corp., 8.07%, 10/1/19 234,368 150,000 Shaw Communications, Inc., 7.20%, 12/15/11 129,703 Union Carbide Corp: 200,000 6.25%, 6/15/03 201,940 150,000 8.75%, 8/1/22 154,499 200,000 US Airways, Inc., 8.02%, 2/5/19 209,198 125,000 Wells Fargo (First Sec.), 8.41%, 12/15/26 143,323 --------------- 2,189,320 --------------- FEDERAL HOME LOAN MORTGAGE CORPORATION (1.6%) 30,768 9.00%, 7/1/16 34,252 6,518 9.00%, 7/1/16 7,257 171,043 9.50%, 6/1/25 190,535 9,404 10.00%, 10/1/18 10,739 --------------- 242,783 --------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (0.7%) 3,460 9.00%, 11/1/06 3,511 42,326 9.75%, 1/15/13 47,960 6,316 10.00%, 1/1/20 7,227 47,179 10.25%, 6/15/13 53,835 --------------- 112,533 --------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (2.6%) 12,515 9.00%, 6/15/11 13,690 36,550 9.00%, 6/15/09 39,888 93,728 9.00%, 11/15/16 104,233 3,944 9.50%, 1/15/04 4,119 18,722 9.50%, 11/15/04 19,554 10,877 9.50%, 7/20/05 11,581 16,077 9.50%, 12/15/09 17,651 7,210 9.50%, 5/20/16 8,064 61,690 9.50%, 3/15/18 69,394 27,390 9.50%, 9/20/18 30,674 14,256 9.50%, 2/20/19 15,972 19,435 9.75%, 10/15/05 20,802 31,074 10.00%, 3/20/16 35,427 4,885 10.25%, 1/15/04 5,138 7,010 11.25%, 10/15/11 7,911 --------------- 404,098 --------------- See accompanying notes to portfolios of investments on page 38. 11 SIT BALANCED FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2002 (UNAUDITED) - ------------------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- TAXABLE MUNICIPAL SECURITIES (1.8%) 11,000 Bernalillo Multifamily. Series 1998A, 7.50%, 9/20/20 12,174 Tobacco Settlement Series 2001A: 177,150 6.36%, 5/15/25 177,077 84,195 7.67%, 5/15/16 85,981 --------------- 275,232 --------------- Total bonds 5,821,578 --------------- (cost: $5,632,149) CLOSED-END MUTUAL FUNDS (2.7%) (2) 6,009 American Select Portfolio 78,478 403 American Strategic, Inc. Portfolio 4,800 15,470 American Strategic, Inc. Portfolio II 196,624 10,609 American Strategic, Inc. Portfolio III 127,308 --------------- Total closed-end mutual funds 407,210 --------------- (cost: $368,185) SHORT-TERM SECURITIES (0.9%) (2) 142,000 Sit Money Market Fund, 0.83% (4) 142,000 --------------- (cost: $142,000) Total investments in securities (cost: $17,884,250) (5) $15,233,282 =============== See accompanying notes to portfolios of investments on page 38. 12 - --------------------------------------------------------------------------[LOGO] This page has been left blank intentionally. 13 SIT LARGE CAP GROWTH FUND SIX MONTHS ENDED DECEMBER 31, 2002 [PHOTO]------------------------------------------------------------------------- SENIOR PORTFOLIO MANAGERS PETER L. MITCHELSON, CFA * ROGER J. SIT * RONALD D. SIT, CFA The Sit Large Cap Growth Fund's six-month return was -9.4%, compared to the - -10.3% return for the S&P 500 Index. The Russell 1000 Growth Index return for the period was -9.0%. Although returns were positive for the final quarter of the year, the negative return for the full six-month period reflects a trying third quarter for the equity market. Although 2002 proved to be another challenging year for the equity markets, we believe that the positive equity returns for the fourth quarter portend a better environment in the year ahead. While recent improvements in investor psychology can partially be tied to attractive equity valuations, the positive underlying economic backdrop is also a key factor. Interest rates remain low, as inflation is subdued, corporate earnings appear to have turned the corner, and we believe that there is sufficient stimulus in place for a sustainable recovery in the economy. While corporate earnings did not generally live up to expectations in 2002, we believe a strong case can be made for positive surprises in 2003. This view is largely based on our belief that a broader based economic recovery will take hold in the coming year, resulting in stronger top line growth, along with a sharp improvement in profit margins as a result of corporations' intense efforts to reduce costs since the downturn began. We believe that the Fund is well positioned to benefit from improving economic and market fundamentals, with large sector weightings in health technology, finance, electronic technology, and technology services. In terms of sector weightings, the most significant increases over the past six months occurred in health technology, consumer services, and communications. New positions established in these sectors included Merck, Teva Pharmaceutical, H&R Block, and AT&T Wireless. Sectors with the largest decreases over the period included health services, retail trade and producer manufacturing, as the positions in Tenet Healthcare and United Technologies were sold along with reductions of holdings in Target and Walgreens. As of December 31st, the Fund was 96% invested in equities. We appreciate shareholders' patience throughout this difficult time in the equity market. Given the improving earnings outlook and attractive valuations for companies held in the Fund, however, 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 80% of its net 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 12/31/02: $23.93 Per Share 6/30/02: $26.40 Per Share Total Net Assets: $54.5 Million Weighted Average Market Cap: $77.4 Billion PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) Health Technology 19.1 Finance 14.2 Electronic Technology 10.4 Technology Services 10.0 Producer Manufacturing 8.2 Retail Trade 8.1 Consumer Non-Durables 7.0 Sectors less than 6.0% 19.0 Cash & Other Net Assets 4.0 14 - --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT RUSSELL LARGE CAP S&P 1000 GROWTH FUND 500 INDEX GROWTH INDEX ----------- ----------- ---------- 3 Month** 6.83% 8.44% 7.14% 6 Month** -9.36 -10.30 -8.98 1 Year -30.58 -22.10 -27.89 5 Years -5.51 -0.59 -3.84 10 Year*** 5.48 9.34 6.71 Inception*** 10.42 13.42 11.89 (9/2/82) CUMULATIVE TOTAL RETURNS* SIT RUSSELL LARGE CAP S&P 1000 GROWTH FUND 500 INDEX GROWTH INDEX ----------- ----------- ---------- 1 Year -30.58% -22.10% -27.89% 5 Year -24.67 -2.90 -17.77 10 Year*** 70.46 144.31 91.44 Inception*** 651.00 1195.09 883.58 (9/2/82) *AS OF 12/31/02 **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 GRAPH] The sum of $10,000 invested at inception (9/2/82) and held until 12/31/02 would have grown to $75,100 in the Fund or $129,509 in the S&P 500 Index assuming reinvestment of all dividends and capital gains. TOP TEN HOLDINGS * Microsoft Corp. * Amgen, Inc. * American International Group, Inc. * Pfizer, Inc. * Target Corp. * Viacom, Inc. * General Electric Co. * Lockheed Martin Corp. * Wells Fargo Co. * Marsch & McLennan Cos., Inc. Total Number of Holdings: 75 15 SIT LARGE CAP GROWTH FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2002 (UNAUDITED) - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- COMMON STOCKS (96.0%) (2) COMMERCIAL SERVICES (0.9%) 17,100 SYSCO Corp. 509,409 ----------------- COMMUNICATIONS (3.0%) 95,000 Sprint Corp. (3) 416,100 66,200 Vodafone Group, A.D.R. 1,199,544 ----------------- 1,615,644 ----------------- CONSUMER DURABLES (0.9%) 10,900 Harley-Davidson, Inc. 503,580 ----------------- CONSUMER NON-DURABLES (7.0%) 3,000 Colgate-Palmolive Co. 157,290 24,550 Kraft Foods, Inc. 955,732 26,000 PepsiCo., Inc. 1,097,720 12,250 Procter & Gamble Co. 1,052,765 12,500 The Coca-Cola Co. 547,750 ----------------- 3,811,257 ----------------- CONSUMER SERVICES (5.5%) 37,400 AOL Time Warner, Inc. (3) 489,940 10,000 H&R Block, Inc. 402,000 82,804 Liberty Media Corp. (3) 740,268 33,477 Viacom, Inc. (3) 1,364,523 ----------------- 2,996,731 ----------------- ELECTRONIC TECHNOLOGY (10.4%) 13,000 Analog Devices, Inc. (3) 310,310 36,000 Applied Materials, Inc. (3) 469,080 500 Brocade Comm. Systems, Inc. (3) 2,070 81,800 Cisco Systems, Inc. (3) 1,071,580 30,000 Dell Computer Corp. (3) 802,200 54,300 Intel Corp. 845,451 10,500 International Business Machines, Inc. 813,750 20,350 Linear Technology Corp. 523,402 39,900 Nokia Corp., A.D.R. 618,450 6,000 QUALCOMM, Inc. (3) 218,340 ----------------- 5,674,633 ----------------- ENERGY MINERALS (3.7%) 4,500 ConocoPhillips Co. 217,755 10,000 Devon Energy Corp. 459,000 21,000 Exxon Mobil Corp. 733,740 7,000 Murphy Oil. Corp 299,950 10,500 Occidental Petroleum Corp. 298,725 ----------------- 2,009,170 ----------------- - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- FINANCE (14.2%) 28,462 American International Group, Inc. 1,646,527 28,500 Citigroup, Inc. 1,002,915 12,500 Fifth Third Bancorp 731,875 27,700 Marsh & McLennan Cos., Inc. 1,280,017 12,000 The St. Paul Companies, Inc. 408,600 11,000 The Goldman Sachs Group, Inc. 749,100 27,400 Wells Fargo Co. 1,284,238 8,000 XL Capital, Ltd. 618,000 ----------------- 7,721,272 ----------------- HEALTH SERVICES (3.5%) 8,350 Cardinal Health, Inc. 494,236 9,000 Quest Diagnostics, Inc. (3) 512,100 11,000 UnitedHealth Group, Inc. 918,500 ----------------- 1,924,836 ----------------- HEALTH TECHNOLOGY (19.1%) 35,200 Amgen, Inc. (3) 1,701,568 17,600 Baxter International, Inc. 492,800 16,500 Bristol-Myers Squibb Co. 381,975 45,550 Elan Corp., A.D.R. (3) 112,053 18,300 Eli Lilly and Co. 1,162,050 23,650 Johnson & Johnson 1,270,242 10,700 MedImmune, Inc. (3) 290,719 20,650 Medtronic, Inc. 941,640 18,000 Merck & Co., Inc. 1,018,980 53,625 Pfizer, Inc. 1,639,316 15,500 Pharmacia Corp. 647,900 9,200 Teva Pharmaceutical, Ltd., A.D.R. 355,212 10,000 Wyeth Co. 374,000 ----------------- 10,388,455 ----------------- INDUSTRIAL SERVICES (1.5%) 8,000 Baker Hughes, Inc. 281,200 13,300 Schlumberger, Ltd. 559,797 ----------------- 840,997 ----------------- PRODUCER MANUFACTURING (8.2%) 55,700 General Electric Co. 1,356,295 23,000 Lockheed Martin Corp. 1,328,250 6,300 3M Co. 776,790 7,000 Northrop Grumman Corp. 679,000 20,000 Tyco International, Ltd. 341,600 ----------------- 4,481,935 ----------------- 16 - --------------------------------------------------------------------------[LOGO] - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- RETAIL TRADE (8.1%) 24,050 Best Buy Co. (3) 58,807 29,950 Home Depot, Inc. 717,602 9,600 Kohl's Corp. (3) 537,120 14,300 Lowe's Companies, Inc. 536,250 49,000 Target Corp. 1,470,000 20,300 Walgreen Co. 592,557 ----------------- 4,434,336 ----------------- TECHNOLOGY SERVICES (10.0%) 9,500 Adobe Systems, Inc. 235,609 8,000 Affiliated Computer Services, Inc. (3) 421,797 23,500 Ceridian Corp. (3) 338,870 16,700 Check Point Software Tech., Ltd. (3) 216,599 28,000 First Data Corp. 991,480 5,000 Intuit, Inc. (3) 234,600 43,000 Microsoft Corp. (3) 2,223,100 36,000 Oracle Corp. (3) 388,800 24,900 VERITAS Software Corp. (3) 338,938 ----------------- 5,439,196 ----------------- Total common stocks 52,351,451 (cost: $63,286,957) ----------------- SHORT-TERM SECURITIES (4.1%) (2) 2,222,000 Sit Money Market Fund, 0.83% (4) 2,222,000 (cost: $2,222,000) ----------------- Total investments in securities (cost $65,508,957) (5) $ 54,573,451 ================= See accompanying notes to portfolios of investments on page 38. 17 SIT MID CAP GROWTH FUND SIX MONTHS ENDED DECEMBER 31, 2002 [PHOTO]------------------------------------------------------------------------- EUGENE C. SIT, CFA, SENIOR PORTOLIO MANAGER ERIK S. ANDERSON, CFA, SENION PORTFOLIO MANAGER The Sit Mid Cap Growth Fund's six-month return was -13.7%, compared to - -9.6% for the Russell MidCap Growth Index. The S&P MidCap Index Fund fell -11.7% during the period. Although equity returns were quite negative during the second half of 2002, we witnessed several positive developments that provide a basis for optimism in the year ahead. First, although several prominent sectors remain in the doldrums, we believe the U.S. economy is gaining momentum and that a broader based recovery will occur in 2003. Second, valuations for the market and for companies held in the Fund, in particular, are highly attractive. For example, the median price-to-earnings (P/E) ratio for companies held in the Fund is 19x, based on the next twelve months projected earnings. This compares favorably to the P/E ratio of 26x of one year ago. Third, after a challenging third quarter, market sentiment improved dramatically from the low point reached in early October, and has continued to be quite positive in early 2003. The Fund's negative performance over the past six months is largely attributable to the market downturn that occurred in the third quarter. Some of our heavily weighted sectors were hit hard in this period, including retail trade, technology services, electronic technology and producer manufacturing. In addition, a large position in the Fund, Tenet Healthcare, fell sharply since midyear as an investigation began into its billing practices. We have recently sold our position in Tenet, which resulted in a significant decrease in the health service sector weight compared to six months ago. Other sector weighting decreases occurred in finance, consumer durables and commercial services, while the weights increased in consumer services and consumer non-durables. We realize that both the depth and duration of this market correction has been a frustrating experience for investors. However, we would also like to assure you that our research effort is highly focused on companies with experienced and ethical management teams, sound balance sheets, and strong prospects for sustainable earnings growth. We believe that firms exhibiting these characteristics will reward our shareholders over time. 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 80% of its net 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 12/31/02: $ 6.83 Per Share 6/30/02: $ 7.91 Per Share Total Net Assets: $146.8 Million Weighted Average Market Cap: $ 6.3 Billion PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) Electronic Technology 13.1 Health Technology 13.0 Technology Services 12.2 Retail Trade 10.3 Finance 9.3 Health Services 8.6 Producer Manufacturing 7.6 Consumer Services 4.2 Industrial Services 4.0 Sectors less than 4.0% 13.3 Cash and Other Net Assets 4.4 18 - --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT S&P RUSSELL MID CAP MIDCAP MID CAP GROWTH FUND 400 INDEX GROWTH INDEX ----------- ----------- ----------- 3 Month** 3.02% 5.83% 9.16% 6 Month** -13.65 -11.68 -9.59 1 Year -34.64 -14.52 -27.41 5 Year -5.36 6.41 -1.82 10 Year 4.63 11.96 6.71 Inception 12.51 15.78 -- (9/2/82) CUMULATIVE TOTAL RETURNS* SIT S&P RUSSELL MID CAP MIDCAP MID CAP GROWTH FUND 400 INDEX GROWTH INDEX ----------- ----------- ----------- 1 Year -34.64% -14.52% -27.41% 5 Year -24.08 36.43 -8.78 10 Year 57.23 209.44 91.40 Inception 1000.28 1869.75 -- (9/2/82) - -------------------------------------------------------------------------------- PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. 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 GRAPH] The sum of $10,000 invested at inception (9/2/82) and held until 12/31/02 would have grown to $110,028 in the Fund, or $196,975 in the S&P MidCap 400 Index assuming reinvestment of all dividends and capital gains. TOP TEN HOLDINGS * TCF Financial Corp. * TJX Companies, Inc. * Wellpoint Health Networks, Inc. * Devon Energy Corp. * Biomet, Inc. * Lamar Advertising Co. * Fiserv, Inc. * IDEC Pharmaceuticals Corp. * KLA-Tencor Corp. * Danaher Corp. Total Number of Holdings: 90 19 SIT MID CAP GROWTH FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2002 - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- COMMON STOCKS (95.6%) (2) COMMERCIAL SERVICES (1.9%) 83,650 Lamar Advertising Co. (3) 2,814,822 --------------- COMMUNICATIONS (0.9%) 114,500 Nextel Communications, Inc. (3) 1,322,475 --------------- CONSUMER DURABLES (3.7%) 45,400 Electronic Arts, Inc. (3) 2,259,558 37,850 Harley-Davidson, Inc. 1,748,670 48,200 Newell Rubbermaid, Inc. 1,461,906 --------------- 5,470,134 --------------- CONSUMER NON-DURABLES (1.8%) 45,500 Coach, Inc. (3) 1,497,860 42,600 Pepsi Bottling Group, Inc. 1,094,820 --------------- 2,592,680 --------------- CONSUMER SERVICES (4.2%) 34,500 Career Education Corp. (3) 1,380,000 32,500 Darden Restaurants, Inc. 664,625 65,100 EchoStar Communications Corp. (3) 1,449,126 50,350 H&R Block, Inc. 2,024,070 7,900 International Game Technology (3) 599,768 --------------- 6,117,589 --------------- ELECTRONIC TECHNOLOGY (13.1%) 484,200 ADC Telecommunications, Inc. (3) 1,011,978 101,550 Analog Devices, Inc. (3) 2,423,999 71,850 Broadcom Corp. (3) 1,082,061 96,400 Brocade Communications Sys., Inc. (3) 399,096 46,200 Emulex Corp. (3) 857,010 140,850 Jabil Circuit, Inc. (3) 2,524,032 258,900 JDS Uniphase Corp. (3) 639,483 73,000 KLA-Tencor Corp. (3) 2,582,010 30,000 Lexmark International, Inc. (3) 1,815,000 33,000 Microchip Technology, Inc. 806,850 85,550 NVIDIA Corp. (3) 984,681 24,000 QLogic Corp. (3) 828,240 716,650 Sonus Networks, Inc. (3) 716,650 17,500 Synopsys, Inc. (3) 807,625 85,700 Xilinx, Inc. (3) 1,765,420 --------------- 19,244,135 --------------- ENERGY MINERALS (3.3%) 29,000 Apache Corp. 1,652,710 68,600 Devon Energy Corp. 3,148,740 --------------- 4,801,450 --------------- - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- FINANCE (9.3%) 71,350 Ace, Ltd. 2,093,409 31,550 Commerce Bancorp, Inc. 1,362,644 49,000 Legg Mason, Inc. 2,378,460 28,300 Lehman Brothers Holdings, Inc. 1,508,107 128,400 TCF Financial Corp. 5,609,796 26,200 Willis Group Holdings, Ltd. (3) 751,154 --------------- 13,703,570 --------------- HEALTH SERVICES (8.6%) 30,200 AmerisourceBergen Corp. 1,640,162 12,500 Anthem, Inc. (3) 786,250 49,850 Caremark Rx, Inc. (3) 810,062 29,700 Express Scripts, Inc. (3) 1,426,788 123,800 Health Management Assoc., Inc. 2,216,020 59,300 Laboratory Corp. (3) 1,378,132 33,300 Stericycle, Inc. (3) 1,078,221 47,200 Wellpoint Health Networks, Inc. (3) 3,358,752 --------------- 12,694,387 --------------- HEALTH TECHNOLOGY (13.0%) 56,800 Alcon, Inc. (3) 2,240,760 54,200 Biogen, Inc. (3) 2,171,252 107,850 Biomet, Inc. 3,090,981 49,000 Boston Scientific Corp. (3) 2,083,480 199,500 Elan Corp., A.D.R. (3) 490,770 43,150 Gilead Sciences, Inc. (3) 1,467,100 79,700 IDEC Pharmaceuticals Corp. (3) 2,643,649 44,500 MedImmune, Inc. (3) 1,209,065 10,250 Stryker Corp. 687,980 50,000 Teva Pharmaceutical Industries, A.D.R. 1,930,500 22,500 Varian Medical Systems, Inc. 1,116,000 --------------- 19,131,537 --------------- INDUSTRIAL SERVICES (4.0%) 63,150 BJ Services Co. (3) 2,040,376 55,000 Noble Corp. (3) 1,933,250 47,100 Weatherford International, Inc. (3) 1,880,703 --------------- 5,854,329 --------------- PROCESS INDUSTRIES (1.2%) 35,500 Sigma-Aldrich Corp. 1,728,850 ----------------- 20 - --------------------------------------------------------------------------[LOGO] - ------------------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- PRODUCER MANUFACTURING (7.6%) 39,000 Danaher Corp. 2,562,300 37,400 Harris Corp. 983,620 24,600 ITT Industries, Inc. 1,492,974 40,200 L-3 Communications Holdings, Inc. (3) 1,805,382 83,450 Rockwell Collins, Inc. 1,941,047 50,100 SPX Corp. (3) 1,876,245 25,600 Thermo Electron Corp. (3) 515,072 --------------- 11,176,640 --------------- RETAIL TRADE (10.3%) 18,700 AutoZone, Inc. (3) 1,321,155 26,000 Bed Bath & Beyond, Inc. (3) 897,780 90,150 Best Buy Co., Inc. (3) 2,171,122 44,900 Chico's FAS, Inc. (3) 849,059 56,700 Family Dollar Stores, Inc. 1,769,607 33,900 Kohl's Corp. (3) 1,896,705 64,000 Michaels Stores, Inc. (3) 2,003,200 191,300 TJX Companies, Inc. 3,734,176 15,850 Williams-Sonoma, Inc. (3) 430,328 --------------- 15,079,132 --------------- TECHNOLOGY SERVICES (12.2%) 27,590 Adobe Systems, Inc. 684,260 20,700 Affiliated Computer Services, Inc. (3) 1,089,855 71,750 BEA Systems, Inc. (3) 822,972 120,800 Ceridian Corp. (3) 1,741,936 91,050 Check Point Software Tech., Ltd. (3) 1,180,918 91,700 Concord EFS, Inc. (3) 1,443,358 79,062 Fiserv, Inc. (3) 2,684,155 34,000 Intuit, Inc. (3) 1,595,280 61,100 PeopleSoft, Inc. (3) 1,118,130 75,400 SunGard Data Systems, Inc. (3) 1,176,424 48,000 Symantec Corp. (3) 1,944,480 95,150 VERITAS Software Corp. (3) 1,486,243 21,650 Yahoo!, Inc. (3) 353,978 --------------- 17,921,989 --------------- TRANSPORTATION (0.5%) 22,500 Expeditors Intl. of Washington, Inc. 734,625 --------------- Total common stocks 140,388,344 (cost: $173,663,883) --------------- - ------------------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- SHORT-TERM SECURITIES (4.8%) (2) 2,273,000 American Express Co., 1.22%, 1/6/03 2,272,615 4,738,000 Sit Money Market Fund, 0.83% (4) 4,738,000 -------------- Total short-term securites (cost $7,010,615) 7,010,615 -------------- Total investments in securities (cost $180,674,498) (5) $147,398,959 ================= See accompanying notes to portfolios of investments on page 38. 21 SIT INTERNATIONAL GROWTH FUND SIX MONTHS ENDED DECEMBER 31, 2002 [PHOTO]------------------------------------------------------------------------- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER ROGER J. SIT, SENIOR PORTFOLIO MANAGER The Sit International Growth Fund returned -18.7% for the six months ended December 31, 2002, compared with -14.6% for the MSCI EAFE Index and -14.3% for the Lipper International Fund Index. The Fund's holdings in the food & beverage and household & personal products industries were primary contributions to this outperformance. The Fund had a weighting of 64.1% in Europe on December 31st, versus 71.4% for the EAFE Index. Due to negative factors such as sluggish economic growth, a strengthening euro, and weak business confidence in Germany, we are maintaining an underweight position in this region. Given the current uncertain investment environment, stock-picking is more important than ever, and we are emphasizing criteria such as positive cash flow from operations, balance sheet strength, management skill, and product competitiveness when evaluating portfolio holdings. Additionally, we continue to run a balanced portfolio of high growth and conservative growth sectors. During the quarter, we increased our weighting in Burberry, the UK-based retailer. Our weighting in Japan was 15.0% on December 31st, compared with 21.3% for the Index. The Fund's avoidance of the ailing financial sector has been a key to our performance this past quarter. We continue to hold as core positions domestic and defensively-oriented businesses that are surviving the deflationary environment better than most. These include Kao, the consumer products maker, East Japan Railway, a commuter train operator, and Ajinomoto, a food products company that is one of the best known brands in Asia. The Fund's weighting in Asia ex-Japan was 16.7% on December 31st, versus 7.3% for the Index. We are maintaining an overweight position in this region, which we believe will benefit from the ongoing economic boom in China and the outsourcing of production to Asian manufacturers. During the quarter, we added a position in Singapore Press Holdings, which enjoys the unique position of being the dominant newspaper in a market where the government prohibits open competition. 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 net 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 12/31/02: $ 8.77 Per Share 6/30/02: $10.79 Per Share Total Net Assets: $49.3 Million Weighted Average Market Cap: $43.7 Billion PORTFOLIO STRUCTURE - BY REGION (% OF TOTAL NET ASSETS) [BAR CHART] SIT MORGAN STANLEY INT'L EAFE GROWTH FUND INDEX -------------- -------------- France, Germany, UK 41.9 42.9 Europe Other 22.2 28.5 Pacific Basin 16.7 7.3 Japan 15.0 21.3 Latin America 2.0 0.0 Africa / Middle East 1.8 0.0 North America 0.9 0.0 Cash and Other Net Assets -0.5 0.0 22 - --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT MORGAN STANLEY LIPPER INTERNATIONAL CAPITAL INT'L INT'L GROWTH FUND EAFE INDEX INDEX ----------- ----------- ----------- 3 Month** 6.17% 6.45% 6.64% 6 Month** -18.72 -14.55 -14.27 1 Year -29.84 -15.94 -13.83 5 Year -9.24 -2.89 -1.64 10 Year 1.15 4.00 5.56 Inception 1.63 2.40 4.79 (11/1/91) CUMULATIVE TOTAL RETURNS* SIT MORGAN STANLEY LIPPER INTERNATIONAL CAPITAL INT'L INT'L GROWTH FUND EAFE INDEX INDEX 1 Year -29.84% -15.94% -13.83% 5 Year -38.41 -13.65 -7.95 10 Year 12.09 48.08 71.73 Inception 19.82 30.39 68.77 (11/1/91) *AS OF 12/31/02 *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 GRAPH] The sum of $10,000 invested at inception (11/1/91) and held until 12/31/02 would have grown to $11,982 in the Fund, or $13,039 in the Morgan Stanley EAFE Index assuming reinvestment of all dividends and capital gains. PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) [BAR CHART] Finance 20.1 Consumer Non-Durables 16.2 Health Technology 14.7 Energy Minerals 9.1 Electronic Technology 8.4 Communications 7.3 Retail Trade 5.1 Sectors Less Than 5.0% 19.6 Cash and Other Net Assets (0.5) 23 SIT INTERNATIONAL GROWTH FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2002 (UNAUDITED) TOP 10 HOLDINGS * L'Oreal * Novartis, A.G. * Royal Dutch Petroleum, A.D.R. * Nestle, S.A. * Takeda Chemical Industries * BP p.l.c., A.D.R. * AFLAC, Inc., A.D.R. * HSBC Holdings p.l.c. * Vodafone Group, p.l.c. * Groupe Danone Total Number of Holdings: 91 - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- COMMON STOCKS (100.5%) (2) AFRICA/MIDDLE EAST (1.8%) ISRAEL (1.8%) 21,600 Check Point Software Technologies, A.D.R. (Technology Services) (3) 280,152 15,600 Teva Pharmaceutical, A.D.R. (Health Technology) 602,316 --------------- ASIA (31.7%) AUSTRALIA (2.4%) 26,533 Australia and New Zealand Banking Group (Finance) 259,222 32,890 BHP Billiton, Ltd. (Non-Energy Minerals) 187,982 27,100 News Corp., Ltd. A.D.R. (Consumer Svcs.) 613,815 19,700 Woolworths, Ltd. (Retail Trade) 126,461 --------------- 1,187,480 --------------- HONG KONG (7.4%) 192,500 CLP Holdings, Ltd. (Utilities) 775,098 74,000 Cheung Kong Hldgs. (Industrial Svcs.) 481,575 52,000 China Mobile, Ltd. (Communications) (3) 123,693 340,000 Citic Pacific, Ltd. (Industrial Svcs.) 627,823 207,500 Cnooc, Ltd. (Energy Minerals) 270,072 114,800 HSBC Holdings, p.l.c. (Finance) 1,254,967 698,000 Petrochina Co., Ltd. (Energy Minerals) 138,734 --------------- 3,671,962 --------------- JAPAN (15.0%) 41,800 AFLAC, Inc., A.D.R. (Finance) 1,259,016 59,000 Ajinomoto Co. (Cons. Non-durables) 616,002 10,000 Canon, Inc. (Electronic Technology) 376,675 74 East Japan Railway (Transportation) 367,287 9,000 Honda Motor Co., Ltd. (Producer Mfg.) 332,940 19,000 Ito Yokado Co., Ltd. (Retail Trade) 560,377 - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- 28,000 Kao Corp. (Consumer Non-Durables) 614,645 23,000 Nomura Holdings, Inc. (Finance) 258,549 328 NIT DoCoMo, Inc.(Communications) 605,309 22,300 Sony Corp. (Consumer Durables) 932,063 31,000 Takeda Chemical (Health Technology) 1,295,693 4,100 Tokyo Electron, Ltd. (Electronic Tech.) 185,531 --------------- 7,404,087 --------------- SINGAPORE (3.6%) 104,846 DBS Group Holdings, Ltd. (Finance) 664,917 18,600 Flextronics Intl. (Electronic Tech.) (3) 152,334 128,000 People's Food Holdings, Ltd. (Consumer Non-Durables) 54,609 13,000 Singapore Press Hldgs. (Consumer Services) 136,407 93,000 Venture Corp. (Electronic Technology) 745,283 --------------- 1,753,550 --------------- SOUTH KOREA (1.1%) 3,500 Kookmin Bank (Finance) 123,941 26,000 Korea Electric Power Corp. (Utilities) 400,067 --------------- 524,008 --------------- TAIWAN (1.7%) 196,226 Hon Hai Precision Industry (Electronic Technology) 667,224 25,080 Taiwan Semiconductor, A.D.R. (Electronic Technology) (3) 176,814 --------------- 854,038 --------------- THAILAND (0.5%) 317,000 Advanced Info Services (Communications) 262,941 --------------- EUROPE (64.1%) BELGUIM (0.8%) 16,500 Interbrew (Consumer Non-Durables) 389,572 --------------- FINLAND (2.2%) 70,100 Nokia Corp., A.D.R. (Electronic Tech.) 1,086,550 --------------- FRANCE (18.0%) 34,751 AXA (Finance) 466,400 11,390 Aventis, S.A. (Health Technology) 619,119 11,500 Business Objects, A.D.R. (Tech. Svcs.) (3) 172,500 20,400 Business Objects (Tech Services (3) 300,337 13,060 Carrefour, S.A. (Retail Trade) 581,483 9,100 Groupe Danone (Cons. Non-Durables) 1,224,194 20,050 L'Oreal Co. (Consumer Non-Durables) 1,526,415 17,600 STMicroelectronics, A.D.R. (Elec. Tech.) 343,376 12,840 Sanofi-Synthelabo, S.A. (Health Tech.) 784,841 23,800 Schlumberger, Ltd. (Industrial Svcs.) 1,001,742 24,097 Suez, S.A. (Utilities) 432,292 7,300 Total Fina, S.A. (Energy Minerals) 1,042,562 14,921 Vivendi Environment (Utilities) 347,907 -------------- 8,843,168 -------------- 24 - --------------------------------------------------------------------------[LOGO] - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- GERMANY (1.6%) 4,110 Muenchener Rueckver (Finance) 491,232 4,025 SAP AG (Technology Services) 315,506 --------------- 806,738 --------------- IRELAND (0.9%) 21,500 Allied Irish Banks p.l.c. (Finance) 295,098 58,200 Elan Corp., p.l.c. A.D.R. (Health Technology) (3) 143,172 --------------- 438,270 --------------- ITALY (0.7%) 21,310 Telecom Italia (Saving) (Communications) 102,512 32,100 Telecom Italia (Ord.) (Communications) (3) 243,537 --------------- 346,049 --------------- NETHERLANDS (4.6%) 14,900 ASML Holding N.V., A.D.R. (Electronic Technology) (3) 124,564 48,235 ING Groep N.V. (Finance) 816,933 30,700 Royal Dutch Petroleum, A.D.R. (Energy Minerals) 1,351,414 --------------- 2,292,911 --------------- SPAIN (2.1%) 33,212 Banca Bilbao Vizcaya (Finance) 317,842 79,541 Telefonics, S.A. (Communications) 711,969 --------------- 1,029,811 SWEDEN (0.8%) 32,300 Securitas 'B' (Commercial Svcs.) 385,524 --------------- SWITZERLAND (10.1%) 12,860 Adecco, S.A. (Commercial Svcs.) 504,099 18,034 Credit Suisse Group (Finance) 391,281 6,215 Nestle, S.A. (Consumer Non-durables) 1,316,994 41,065 Novartis, A.G. (Health Technology) 1,498,332 5,115 Roche Holdings, A.G. (Health Tech.) 356,429 18,461 UBS, A.G. (Finance) 897,221 --------------- 4,964,356 UNITED KINGDOM (22.3%) 87,975 Acambis, p.l.c. (Health Technology) (3) 392,322 15,344 AstraZeneca, p.l.c. (Health Technology) 538,860 31,400 BP, p.l.c. A.D.R. (Energy Minerals) 1,276,410 166,280 Barclays, p.l.c. (Finance) 1,030,633 50,955 Burberry Group, p.l.c. (Retail Trade) (3) 184,165 142,680 Compass Group, p.l.c. (Consumer Services) 758,020 60,844 Diageo, p.l.c. (Consumer Non-Durables) 661,188 27,184 GlaxoSmithkline, A.D.R. (Health Tech.) 1,018,313 30,544 Pearson, p.l.c. (Consumer Services) 282,501 13,754 Reckitt Benckiser, p.l.c. (Cons. Non-Durables) 266,821 48,190 Royal Bank of Scotland (Finance) 1,154,419 - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- 41,427 Shell Transport & Trading (Energy Minerals) 272,779 157,584 Tesco, p.l.c. (Retail Trade) 492,172 123,130 Unilever, p.l.c. (Consumer Non-Durables) 1,171,534 683,717 Vodafone Group, p.l.c. (Communications) 1,246,574 8,600 Willis Group Holdings, Ltd. (Finance) (3) 246,562 --------------- 10,993,273 LATIN AMERICA (2.0%) MEXICO (2.0%) 6,700 Coca-Cola Femsa, A.D.R. (Consumer Non-Durables) 119,930 8,900 Telefonos de Mexico, A.D.R. (Communications) 284,622 275,530 Wal-Mart de Mexico (Retail Trade) 585,743 --------------- 990,295 --------------- NORTH AMERICA (0.9%) CANADA (0.9%) 7,900 Celestica, Inc. (Electronic Tech.) (3) 111,390 70,400 JDS Uniphase Corp. (Electronic Tech.) (3) 173,888 4,200 Talisman Energy, Inc. (Energy Minerals) 151,914 --------------- 437,192 --------------- Total common stocks 49,544,243 (cost: $67,993,876) SHORT TERM SECURITIES (0.0%) (2) 1,000 Sit Money Market Fund, 0.83% (4) 1,000 (cost: $1,000) Total investments in securities (cost: $67,994,876) (5) $ 49,545,243 =============== See accompanying notes to portfolios of investments on page 38. 25 SIT SMALL CAP GROWTH FUND SIX MONTHS ENDED DECEMBER 31, 2002 [PHOTO]------------------------------------------------------------------------- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER The Sit Small Cap Growth Fund returned -11.7% over the past six months. This compares to the six-month return of -15.6% for the Russell 2000 Growth Index, while the Russell 2000 Index fell -16.6% over the period. While the second half of 2002 proved to be another difficult and volatile period for the equity markets, the negative environment prevailing in the third quarter changed quite dramatically in the fourth quarter. The third quarter was marked by a host of concerns regarding corporate governance and a ratcheting down of corporate earnings estimates in several key sectors where the improvements in the economy had not translated into improved business conditions. These concerns began to diminish in recent months. For example, we believe that the intensity of investor scrutiny, along with regulatory actions, have led to more confidence in corporate financial reporting. In addition, investors appear to have greater confidence that current consensus earnings estimates are now largely achievable for the fourth quarter of 2002 and full year 2003. While geopolitical tensions will likely cause more volatility in the months ahead, we believe that this will create opportunities to build positions in companies that are most likely to benefit from the improving economic conditions we foresee in 2003. It is our view that the "defensive" orientation of the market, which has strongly favored value-oriented issues, has largely run its course. Indeed, as measured by the Russell Small Cap indices, growth stocks outperformed value issues by over 250 basis points during the fourth quarter. Based on the attractive valuation metrics and the prospect for improving fundamentals in the several key high growth sectors (particularly technology), we believe a better environment for growth investing lies ahead. In absolute terms, the Fund's performance over the past six months was negatively impacted by sectors that are closely tied to economic growth, including electronic technology, technology services, consumer durables, and producer manufacturing. Many of these sectors, however, have rebounded strongly since market lows reached in October. Aside from a shift in the weighting from health services toward a greater emphasis on the health technology, sector weighting changes were relatively modest over the past six months. As of December 31st, the Fund was 92% invested in equities. We strongly believe that the Fund is well positioned to capitalize on a better investing environment in the year ahead, and we greatly appreciate shareholders' continued interest. 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 80% of its net assets in common stocks of small growth companies with capitalizations of $2.5 billion or less at the time of purchase. The Adviser invests in a diversified group of growing small companies it believes exhibit the potential for superior growth. The Adviser 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 12/31/02: $ 18.60 Per Share 6/30/02: $ 21.06 Per Share Total Net Assets: $152.7 Million Weighted Average Market Cap: $ 1.7 Billion PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) Health Technology 12.6 Finance 12.1 Electronic Technology 9.7 Health Services 7.2 Retail Trade 7.1 Technology Services 7.1 Consumer Services 6.2 Producer Manufacturing 6.2 Sectors less than 5.0% 23.7 Cash & Other Net Assets 8.1 26 - --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT RUSSELL SMALL CAP RUSSELL 2000 2000 GROWTH FUND INDEX GROWTH INDEX ----------- ----------- ----------- 3 Month** 5.62% 6.16% 7.50% 6 Month** -11.68 -16.56 -15.63 1 Year -26.22 -20.48 -30.27 3 Year -17.43 -7.54 -21.11 5 Year 3.67 -1.36 -6.59 Inception 11.46 7.08 2.86 (7/1/94) CUMULATIVE TOTAL RETURNS* SIT RUSSELL SMALL CAP RUSSELL 2000 2000 GROWTH FUND INDEX GROWTH INDEX ----------- ----------- ----------- 1 Year -26.22% -20.48% -30.27% 3 Year -43.71 -20.97 -50.91 5 Year 19.76 -6.60 -28.88 Inception 151.59 78.88 27.08 (7/1/94) *AS OF 12/31/02 **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 200 GROWTH INDEX. GROWTH OF $10,000 [PLOT POINTS GRAPH] The sum of $10,000 invested at inception (7/1/94) and held until 12/31/02 would have grown to $25,159 in the Fund, or $17,888 in the Russell 2000 Index assuming reinvestment of all dividends and capital gains. TOP 10 HOLDINGS * Biosite, Inc. * New York Community Bancorp, Inc. * Coach, Inc. * Chico's FAS, Inc. * Arthur J. Gallagher & Co. * CUNO, Inc. * Partnerre, Ltd. * Liz Claiborne, Inc. * Performance Food Group Co. * Jacobs Engineering Group, Inc. Total Number of Holdings: 93 27 SIT SMALL CAP GROWTH FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2002 (UNAUDITED) - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- COMMON STOCKS (91.9%) (2) COMMERCIAL SERVICES (4.0%) 83,050 Equifax, Inc. 1,921,777 20,000 FTI Consulting, Inc. (3) 803,000 79,500 Performance Food Group Co. (3) 2,699,741 262,200 SkillSoft, A.D.R. (3) 721,050 --------------- 6,145,568 --------------- CONSUMER DURABLES (2.2%) 20,400 Polaris Industries, Inc. 1,195,440 159,750 THQ, Inc. (3) 2,116,688 --------------- 3,312,128 --------------- CONSUMER NON-DURABLES (4.5%) 124,400 Coach, Inc. (3) 4,095,248 92,500 Liz Claiborne, Inc. 2,742,625 --------------- 6,837,873 --------------- CONSUMER SERVICES (6.2%) 38,650 Career Education Corp. (3) 1,546,000 79,250 Cumulus Media, Inc. (3) 1,178,447 28,800 Education Management Corp. (3) 1,082,880 117,800 Emmis Communications Corp. (3) 2,453,774 51,400 Lee Enterprises, Inc. 1,722,928 92,000 Sylvan Learning Systems, Inc. (3) 1,508,800 --------------- 9,492,829 --------------- ELECTRONIC TECHNOLOGY (9.7%) 195,650 Applied Micro Circuits Corp. (3) 721,948 22,000 Catapult Communications Corp. (3) 262,900 175,400 ChipPAC, Inc. (3) 622,670 47,500 Cymer, Inc. (3) 1,531,875 222,450 Extreme Networks, Inc. (3) 727,412 178,460 Intersil Corp. (3) 2,487,732 40,500 InVision Technologies, Inc. (3) 1,067,580 52,750 Kronos, Inc. (3) 1,951,223 111,846 Mykrolis Corp. (3) 816,476 109,950 NetScreen Technologies, Inc. (3) 1,851,558 49,000 NVIDIA Corp. (3) 563,990 161,050 Oak Technology, Inc. (3) 426,783 30,900 Silicon Laboratories, Inc. (3) 589,572 53,300 Varian Semiconductor Equip. Associates, Inc. (3) 1,266,461 --------------- 14,888,180 --------------- ENERGY MINERALS (2.7%) 43,500 Newfield Exploration Co. (3) 1,568,175 33,500 Pogo Producing Co. 1,247,875 50,200 XTO Energy, Inc. 1,239,940 --------------- 4,055,990 --------------- - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- FINANCE (12.1%) 30,000 Affiliated Managers Group, Inc. (3) 1,509,000 110,900 Arthur J. Gallagher & Co. 3,258,242 37,000 Legg Mason, Inc. 1,795,980 47,550 Mercury General Corp. 1,786,929 151,005 New York Community Bancorp, Inc. 4,361,024 53,650 Parnerre, Ltd. 2,780,143 64,200 Platinum Underwriters Holdings, Ltd. (3) 1,691,670 30,810 UCBH Holdings, Inc. 1,307,885 --------------- 18,490.873 --------------- HEALTH SERVICES (7.2%) 55,500 Accredo Health, Inc. (3) 1,956,375 64,700 AdvancePCS (3) 1,436,987 26,395 Anthem, Inc. (3) 1,660,245 59,950 Stericycle, Inc. (3) 1,941,121 53,500 Triad Hospitals, Inc. (3) 1,595,905 53,900 Universal Health Services, Inc. (3) 2,430,890 --------------- 11,021,523 --------------- HEALTH TECHNOLOGY (12.6%) 23,000 Bio-Rad Laboratories, Inc. (3) 890,100 139,150 Biosite, Inc. (3) 4,427,703 146,800 Cell Therapeutics, Inc. (3) 1,067,236 241,550 CryoLife, Inc. (3) 1,649,786 32,000 CTI Molecular Imaging, Inc. (3) 789,120 43,500 IDEC Pharmaceuticals Corp. (3) 1,442,895 28,500 Invitrogen Corp. (3) 891,765 26,450 Neurocrine Biosciences, Inc. (3) 1,207,707 57,750 NPS Pharmaceuticals, Inc. (3) 1,453,568 162,700 Sangamo BioSciences, Inc. (3) 489,727 35,850 SurModics, Inc. (3) 1,028,178 55,500 Techne Corp. (3) 1,585,524 5,150 Telik, Inc. (3) 60,049 23,450 Varian Medical Systems, Inc. 1,163,120 59,800 Wright Medical Group, Inc. (3) 1,044,048 --------------- 19,190,526 --------------- INDUSTRIAL SERVICES (1.7%) 48,950 Oceaneering International, Inc. (3) 1,211,023 44,500 Smith International, Inc. (3) 1,451,590 --------------- 2,662,613 --------------- PROCESS INDUSTRIES (4.7%) 55,500 Airgas, Inc. (3) 957,375 84,700 CUNO, Inc. (3) 2,805,264 63,400 Millipore Corp. 2,155,600 79,500 Pall Corp. 1,326,060 --------------- 7,244,299 --------------- 28 - --------------------------------------------------------------------------[LOGO] - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- PRODUCER MANUFACTURING (6.2%) 69,100 DRS Technologies, Inc. (3) 2,164,903 38,000 EDO Corp. 789,640 10,300 FLIR Systems, Inc. (3) 502,640 71,550 Herley Industries, Inc. (3) 1,245,542 75,000 Jacobs Engineering Group, Inc. (3) 2,670,000 56,150 Roper Industries, Inc. 2,055,090 --------------- 9,427,815 --------------- RETAIL TRADE (7.1%) 48,500 Advance Auto Parts, Inc. (3) 2,371,650 199,850 Chico's FAS, Inc. (3) 3,779,163 49,450 Cost Plus, Inc. (3) 1,417,731 66,850 Electronics Boutique Holdings Corp. (3) 1,056,898 50,450 Linens 'n Things, Inc. (3) 1,140,170 42,550 Too, Inc. (3) 1,000,776 --------------- 10,766,388 --------------- TECHNOLOGY SERVICES (7.1%) 16,900 Arbitron, Inc. (3) 566,150 39,400 BISYS Group, Inc. (3) 626,460 95,550 Business Objects S.A., A.D.R. (3) 1,433,250 15,450 Citrix Systems, Inc. (3) 190,344 27,500 Cognizant Technology Solutions Corp. (3) 1,986,325 43,550 Internet Security Systems, Inc. (3) 798,272 82,700 Mercury Interactive Corp. (3) 2,452,055 196,750 Quest Software, Inc. (3) 2,028,493 36,300 Veridian Corp. (3) 774,642 --------------- 10,855,991 --------------- TRANSPORTATION (2.0%) 58,700 C.H. Robinson Worldwide, Inc. 1,831,440 57,300 Swift Transportation Co., Inc. (3) 1,147,031 --------------- 2,978,471 --------------- UTILITIES (1.9%) 44,500 Equitable Resources, Inc. 1,561,032 49,500 Questar Corp. 1,377,090 --------------- 2,938,122 --------------- Total common stocks (cost: $168,876,610) 140,309,189 --------------- - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- SHORT-TERM SECURITIES (7.3%) (2) 1,431,000 American Express Co., 1.22%, 1/6/03 1,430,758 9,780,000 Sit Money Market Fund, 0.83% (4) 9,780,000 --------------- Total short-term securities (cost: $11,210,758) 11,210,758 --------------- Total investments in securities (cost: $180,087,368) (5) $151,519,947 =============== See accompanying notes to portfolios of investments on page 38. 29 SIT SCIENCE AND TECHNOLOGY GROWTH FUND SIX MONTHS ENDED DECEMBER 31, 2002 [PHOTO]------------------------------------------------------------------------- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER The Sit Science and Technology Growth Fund returned -10.1%for the six-month period ended December 31, 2002, compared to the -10.3% return for the S&P 500 Index and the -10.8% return for the Pacific Stock Exchange (PSE) Technology 100 Index. Although 2002 was another difficult year for many industries related to science and technology, we are optimistic that the rebound that occurred in share prices during the final quarter of the year bodes well for improved prospects in 2003. First and foremost, fundamentals appear to be gradually improving. Sequential results for many technology companies improved during the second half of 2002, albeit at a moderate pace, and several prominent technology companies have recently expressed comfort with analyst consensus estimates for the fourth quarter of 2002. Furthermore, based on the latest U.S. Gross Domestic Product Report, equipment and software expenditures have begun to rise on a year-over-year basis. We believe this trend has the potential to strengthen rapidly based on improving corporate cash flows and our forecasts for accelerating economic growth. Third, we believe that both valuations and earnings expectations already reflect the current depressed business conditions in the technology sector. Therefore, valuation multiples should begin to expand as fundamentals improve. We continue to believe that the long-term investment thesis underlying companies in the science and technology sector remains intact. Although business conditions have been difficult, rapid innovation is still occurring in many sectors within our economy. We believe investors with long-term time horizons will be rewarded as earnings growth returns to the technology sector. The Fund remains well diversified across a range of high growth industries, including software, semiconductors, biotechnology, medical devices, and defense electronics. Over the past six months, the most significant sector weighting increases occurred in health technology and producer manufacturing, with modest decreases in the electronic technology and technology service sectors. At year end, the Fund was 90% invested in equity securities. We believe that the Fund is positioned to perform well as economic conditions and market sentiment improves. 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 net 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 12/31/02: $ 6.76 Per Share 6/30/02: $ 7.52 Per Share Total Net Assets: $12.0 Million Weighted Average Market Cap: $42.9 Billion PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) [BAR CHART] Electronic Technology 34.2 Technology Services 23.7 Health Technology 22.3 Producer Manufacturing 6.6 Sectors Less Than 2.0% 3.7 Cash and Other Net Assets 9.5 30 - --------------------------------------------------------------------------[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT SCIENCE AND TECHNOLOGY S&P GROWTH FUND 500 INDEX ----------- ----------- 3 Month** 11.74% 8.44% 6 Month** -10.11 -10.30 1 Year -44.45 -22.10 3 Years -35.28 -14.55 5 Years -6.94 -0.59 Inception -6.94 -0.59 (12/31/97) CUMULATIVE TOTAL RETURNS* SIT SCIENCE AND TECHNOLOGY S&P GROWTH FUND 500 INDEX ----------- ----------- 1 Year -44.45% -22.10% 3 Years -72.89 -37.61 5 Years -30.23 -2.90 Inception -30.23 -2.90 (12/31/97) *AS OF 12/31/02 **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 S&P 500 INDEX. GROWTH OF $10,000 TOP 10 HOLDINGS [PLOT POINTS GRAPH] The sum of $10,000 invested at inception (12/31/97) and held until 12/31/02 would have declined to $6,977 in the Fund or $9,710 in the S&P 500 Index. TOP 10 HOLDINGS * Cisco Systems, Inc. * Microsoft Corp. * Amgen, Inc. * Dell Computer Corp. * Symantec Corp. * International Business Machines Corp. * Medtronic, Inc. * Lockheed Martin Corp. * Analog Devices, Inc. * Intuit, Inc. Total Number of Holdings: 55 31 SIT SCIENCE AND TECHNOLOGY GROWTH FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2002 (UNAUDITED) - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- COMMON STOCKS (90.5%) (2) CONSUMER DURABLES (1.6%) 3,800 Electronic Arts, Inc. (3) 189,126 ---------------- CONSUMER SERVICES (1.1%) 9,600 AOL Time Warner, Inc. (3) 125,760 ---------------- ELECTRONIC TECHNOLOGY (36.2%) 12,400 Analog Devices, Inc. (3) 295,988 8,000 Applied Materials, Inc. (3) 104,240 11,000 Broadcom Corp. (3) 165,660 9,200 Brocade Comm. Systems, Inc. (3) 38,088 37,500 Cisco Systems, Inc. (3) 491,250 14,100 Dell Computer Corp. (3) 377,034 19,100 EMC Corp. (3) 117,274 15,000 Intel Corp. 233,550 4,500 International Business Machines Corp. 348,750 13,600 Jabil Circuit, Inc. (3) 243,712 38,300 JDS Uniphase Corp. (3) 94,601 6,200 KLA-Tencor Corp. (3) 219,294 4,200 Linear Technology Corp. 108,024 7,200 Maxim Integrated Products, Inc. 237,888 8,000 Netscreen Technologies, Inc. (3) 134,720 14,900 Nokia Corp., A.D.R. 230,950 5,600 Novellus Systems, Inc. (3) 157,248 6,000 QUALCOMM, Inc. (3) 218,340 4,000 STMicroelectronics, A.D.R. 78,040 4,600 Synopsys, Inc. (3) 212,290 ---------------- 4,106,941 ---------------- HEALTH TECHNOLOGY (22.3%) 5,000 Alcon, Inc. (3) 197,250 8,000 Amgen, Inc. (3) 386,720 4,500 Biogen, Inc. (3) 180,270 8,200 Biomet, Inc. 235,012 6,600 Boston Scientific Corp. (3) 280,632 32,400 Elan Corp., A.D.R (3) 79,704 2,600 Eli Lilly and Co. 165,100 7,400 IDEC Pharmaceuticals Corp. (3) 245,458 6,800 Medtronic, Inc. 310,080 9,450 Pfizer, Inc. 288,887 28,200 Sangamo BioSciences, Inc. (3) 84,882 5,800 Teva Pharmaceutical Industries, A.D.R. 223,938 ---------------- 2,677,933 ---------------- - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------- PRODUCER MANUFACTURING (6.6%) 5,800 DRS Technologies, Inc. (3) 181,714 3,800 Harris Corp. 99,940 5,200 Lockheed Martin Corp. 300,300 2,200 Northrop Grumman Corp. 213,400 ---------------- 795,354 ---------------- RETAIL TRADE (1.0%) 1,800 eBay, Inc. (3) 122,076 ---------------- TECHNOLOGY SERVICES (23.7%) 7,000 Adobe Systems, Inc. 173,607 1,800 Affiliated Computer Services, Inc. (3) 94,770 7,800 Check Point Software Technology (3) 101,166 8,000 Concord EFS, Inc. (3) 125,920 7,600 First Data Corp. 269,116 6,800 Fiserv, Inc. (3) 230,860 6,200 Intuit, Inc. (3) 290,904 6,900 Mercury Interactive Corp. (3) 204,585 8,000 Microsoft Corp. (3) 413,600 8,400 Oracle Corp. (3) 90,720 6,800 PeopleSoft, Inc. (3) 124,440 8,400 SunGard Data Systems, Inc. (3) 197,904 9,000 Symantec Corp. (3) 364,590 6,600 VERITAS Software Corp. (3) 103,092 3,600 Yahoo!, Inc. (3) 58,860 ---------------- 2,844,134 ---------------- Total common stocks 10,861,324 ---------------- (cost: $18,305,716) SHORT-TERM SECURITIES (9.8%) (2) 1,700,000 Sit Money Market Fund, 0.83% (4) 1,170,000 (cost: $1,170,000) ---------------- Total investments in securities 12,031,324 (cost: $19,475,716) (5) ================ See accompanying notes to portfolios of investments on page 38. 32 - ------------------------------------------------------------------------- [LOGO] This page has been left blank intentionally. 33 SIT DEVELOPING MARKETS GROWTH FUND SIX MONTHS ENDED DECEMBER 31, 2002 [PHOTO]------------------------------------------------------------------------- SENIOR PORTFOLIO MANAGERS EUGENE C. SIT, CFA AND ROGER J. SIT The Sit Developing Markets Growth Fund returned -12.2% for the six-months ended December 31, 2002, underperforming both the MSCI Emerging Markets Free Index, which returned -8.7%, and the Lipper Emerging Markets Index, which returned -8.5%. The Fund's underweight position in the materials industry and exposure to the utilities and retailing industries were the main contributors to underperformance. The Fund had a 65.7% weighting in Asia on December 31st, versus 55.4% for the MSCI Emerging Markets Free Index. Strong economic growth in China, GDP increased 8.1% over last year in the third quarter, and the trend toward outsourcing of production to Asian manufacturers is providing a favorable investment environment for our holdings, and we are maintaining an overweight position in this region. The superior competitiveness and management quality in companies in North Asia leads us to favor it over the companies of Southeast Asia. During the quarter, we added a position in CNOOC, a mainland Chinese oil and natural gas company. In Latin America, the Fund had a weighting of 19.8% on December 31st, versus 17.6% for the MSCI Emerging Markets Free Index. The reflation-oriented monetary policy of the U.S. Federal Reserve will benefit Mexico, and we continue to view this market as a safe haven in the region. The recent high interest rates in Argentina and month-long strike in Venezuela highlight the risks elsewhere in Latin America, and we remain uninvested in those markets. Instead, we prefer stocks such as Coca-Cola Femsa in Mexico, which recently announced the acquisition of Panamco-a purchase that would make it the second-largest Coca-Cola bottler. Emerging Europe, the Middle East, and Africa had a weighting of 11.6% on December 31st, compared with 27.0% for the MSCI Emerging Markets Free Index. INVESTMENT OBJECTIVE AND STRATEGY The Fund seeks to maximize long-term capital appreciation. The Fund seeks to achieve its objective by investing at least 80% of its net assets in common stocks of companies domiciled or operating in a developing market. 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 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 12/31/02: $7.11 Per Share 6/30/02: $8.10 Per Share Total Net Assets: $8.6 Million Weighted Average Market Cap: $24.2 Billion PORTFOLIO STRUCTURE - BY REGION (% OF TOTAL NET ASSETS) [BAR CHART] SIT MSCI DEVELOPING EMERGING MARKETS MARKETS GROWTH FUND FREE INDEX ----------- ----------- Asia 65.7 55.4 Latin American 19.8 17.6 Africa / Middle East 9.5 18.1 Europe 2.1 8.9 Cash and Other Net Assets 2.9 0.0 34 - ------------------------------------------------------------------------- [LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT MSCI LIPPER DEVELOPING EMERGING EMERGING MARKETS MARKETS MARKETS GROWTH FUND FREE INDEX INDEX ------------ ---------- --------- 3 Month** 3.04% 9.76% 9.05% 6 Month** -12.22 -8.65 -8.47 1 Year -18.37 -7.97 -4.62 3 Year -20.55 -15.81 -14.00 5 Year -7.23 -6.67 -4.71 Inception -3.85 -5.65 -3.26 (7/1/94) CUMULATIVE TOTAL RETURNS* SIT MSCI LIPPER DEVELOPING EMERGING EMERGING MARKETS MARKETS MARKETS GROWTH FUND FREE INDEX INDEX ------------ ---------- --------- 1 Year -18.37% -7.97% -4.62% 3 Year -49.85 -40.32 -36.40 5 Year -31.29 -29.18 -21.41 Inception -28.37 -39.04 -24.58 (7/1/94) *AS OF 12/31/02 **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 GRAPH] The sum of $10,000 invested at inception (7/1/94) and held until 12/31/02 would have declined to $7,163 in the Fund, or $6,096 in the Morgan Stanley Capital Int'l Emerging Markets Free Index assuming reinvestment of all dividends and capital gains. PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) [BAR CHART] Electronic Technology 19.0 Communications 17.7 Finance 11.4 Retail Trade 7.6 Energy Minnerals 7.4 Consumer Non-Durables 6.5 Consumer Services 5.9 Health Technology 5.1 Utilities 5.0 Sectors Less than 5.0% 11.5 Cash and Other Net Assets 2.9 35 SIT DEVELOPING MARKETS GROWTH FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2002 (UNAUDITED) 10 LARGEST HOLDINGS * Samsung Electronics * Teva Pharmaceutical, A.D.R. * Hon Hai Precision Industry * Telefonos de Mexico, A.D.R. * Wal-Mart de Mexico * Advance Info Service Public Co., Ltd. * Korea Electric Power, A.D.R. * HSBC Holdings p.l.c. * BHP Billiton Limited, A.D.R. * Advantech Co., Ltd. - -------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- COMMON STOCKS (94.7%) (2) AFRICA/ MIDDLE EAST (9.5%) ISRAEL (5.9%) 5,500 Check Point Software Technologies, Ltd. (Technology Services) (3) 71,335 2,600 Taro Pharmaceutical Industries, Ltd. (Health Technology) (3) 97,760 8,800 Teva Pharmaceutical, A.D.R. (Health Technology) 339,768 ---------- 508,863 ---------- SOUTH AFRICA (3.6%) 12,100 Anglo American p.l.c. (Non-Energy Minerals) 179,703 18,000 SABMiller, p.l.c. (Consumer Non-Durables) 127,940 ---------- 307,643 ---------- ASIA (63.3%) AUSTRALIA (2.9%) 21,410 BHP Billiton, Ltd., A.D.R. (Non-Energy Minerals) 246,215 ---------- HONG KONG (13.5%) 13,000 Cheung Kong Hldgs., Ltd. (Indus. Svcs.) 84,601 56,000 China Mobile (Hong Kong), Ltd. (Communications) (3) 133,207 87,000 Citic Pacific, Ltd. (Industrial Services) 160,649 29,500 CLP Holdings (Utilities) 118,781 38,000 CNOOC, Ltd. (Energy Minerals) 49,459 76,000 Denway Motors, Ltd. (Producer Manufacturing) 25,582 22,800 HSBC Holdings p.l.c. (Finance) 249,244 68,000 Li & Fung, Ltd. (Retail Trade) 64,526 1,074,000 PetroChina Co. (Energy Minerals) 213,468 2,900 PetroChina Co., A.D.R. (Energy Minerals) 58,203 ---------- 1,157,720 ---------- - -------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- INDIA (1.9%) 2,400 Infosys Technologies, A.D.R. (Technology Services) 166,920 ---------- INDONESIA (0.6%) 193,000 PT Ramayana Lestari (Retail Trade) 54,450 ---------- MALAYSIA (3.2%) 47,000 Maxis Berhad (Communications) (3) 66,790 40,000 Nestle Berhad (Consumer Non-Durables) 210,527 ---------- 277,317 ---------- PHILIPPINES (0.7%) 2,083,000 Digital Telecom Philippines (Communications) (3) 15,607 494,000 SM Prime Holdings, Inc. (Retail Trade) 43,954 ---------- 59,561 ---------- RUSSIA (1.8%) 700 LUKOIL, A.D.R. (Energy Minerals) 43,009 800 YUKOS, A.D.R. (Energy Minerals) 112,744 ---------- 155,753 ---------- SINGAPORE (4.4%) 24,097 DBS Group Holdings, Ltd. (Finance) 152,820 202,000 People's Food Holdings, Ltd. (Consumer Non-Durables) 86,180 18,000 Venture Corp., Ltd. (Electronic Tech.) 144,248 ---------- 383,248 ---------- SOUTH KOREA (16.5%) 2,200 Kookmin Bank (Finance) 77,906 600 Kookmin Bank, A.D.R. (Finance) 21,210 30,600 Korea Electric Power, A.D.R. (Utilities) 260,100 3,000 KT Corp. (Communications) 128,241 3,000 KT Corp., A.D.R. (Communications) 64,650 1,769 Samsung Electronics (Electronic Technology) 468,333 15,600 Shinhan Financial Group (Finance) 163,096 570 Shinsegae Co., Ltd. (Retail Trade) 71,848 7,600 SK Telecom Co., A.D.R. (Communications) 162,260 ---------- 1,417,644 ---------- TAIWAN (11.8%) 62,230 Accton Technology Corp. (Electronic Technology) (3) 63,536 130,560 Advantech Co., Ltd. (Electronic Technology) 234,685 257,056 Chroma Ate, Inc. (Electronic Technology) 154,514 97,625 Hon Hai Precision Industry (Electronic Technology) 336,928 186,391 Taiwan Semiconductor Co. (Electronic Technology) 228,365 ---------- 1,018,028 ---------- 36 - ------------------------------------------------------------------------- [LOGO] - -------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------------------- THAILAND (6.0%) 328,000 Advanced Info Service Public Co., Ltd. 272,065 (Communications) 111,000 Bangkok Bank Public Co., Ltd. (Finance) (3) 154,524 19,000 BEC World Public Co. (Consumer Services) 89,930 ---------- 516,519 ---------- EUROPE (2.1%) SPAIN (2.1%) 6,817 Telefonica, A.D.R. (Communications) 181,128 ---------- LATIN AMERICA (19.8%) BRAZIL (6.4%) 19,936,532 Banco Bradesco S.A. (Finance) 62,231 2,000 Brasil Telecom, A.D.R. (Communications) 50,500 3,883 Embraer de Aeronautica, A.D.R. (Transportation) 61,740 7,900 Pao de Acucar, A.D.R. (Retail Trade) 120,870 18,900 Paranaense de Energia, A.D.R. (Utilities) 53,109 5,860 Petrobras (Energy Minerals) 76,808 5,300 Petrobras, A.D.R. (Energy Minerals) 78,811 6,100 Tele Norte Leste Participacoes S.A. (Communications) 44,835 ---------- 548,904 ---------- MEXICO (13.4%) 6,200 America Movil, A.D.R. (Communications) 89,032 7,500 Coca-Cola Femsa S.A., A.D.R. (Consumer Non-Durables) 134,250 132,000 Grupo Financiero BBVA Bancomer, S.A. (Finance) (3) 99,782 7,400 Grupo Televisa S.A., A.D.R. (Consumer Services) 206,682 9,900 Telefonos de Mexico, A.D.R. (Communications) 316,602 129,770 Wal-Mart de Mexico (Retail Trade) 295,157 ---------- 1,141,505 ---------- Total common stocks 8,141,418 ---------- (cost: $9,838,556) CLOSED-END MUTUAL FUND (2.4%) (2) 19,640 India Fund (Consumer Services) 207,988 ---------- (cost: $336,404) SHORT-TERM SECURITIES (3.0%) (2) 254,000 Sit Money Market Fund, 0.83% (4) 254,000 ---------- (cost: $254,000) Total investments in securities (cost: $10,428,960) (5) $8,603,406 ========== See accompanying notes to portfolios of investments on page 38. 37 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- NOTES TO PORTFOLIOS OF INVESTMENTS (UNAUDITED) (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, 2002, 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 $ 17,884,250 $ 65,508,957 $ 180,674,498 $ 67,994,876 ============= ============= ============= ============= Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $ 530,124 $ 4,785,712 $ 12,573,227 $ 3,213,449 Gross unrealized depreciation (3,181,092) (15,721,218) (45,848,766) (21,663 081) ------------- ------------- ------------- ------------- Net unrealized appreciation (depreciation) ($ 2,650,968) ($ 10,935,506) ($ 33,275,539) ($ 18,449,632) ============= ============= ============= ============= SCIENCE AND DEVELOPING SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH FUND FUND FUND ------------- ------------- ------------- Cost for federal income tax purposes $ 180,087,368 $ 19,475,716 $ 10,428,960 ============= ============= ============= Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $ 12,346,137 $ 394,621 $ 736,885 Gross unrealized depreciation (40,913,558) (7,839,013) (2,562,439) ------------- ------------- ------------- Net unrealized appreciation (depreciation) ($ 28,567,421) ($ 7,444,392) ($ 1,825,554) ============= ============= =============
38 - ------------------------------------------------------------------------- [LOGO] This page has been left blank intentionally. 39 SIT MUTUAL FUNDS DECEMBER 31, 2002 (UNAUDITED) - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS & LIABILITIES
LARGE CAP MID CAP BALANCED GROWTH GROWTH ASSETS FUND FUND FUND --------------- --------------- --------------- Investments in securities, at identified cost $ 17,884,250 $ 65,508,957 $ 180,674,498 =============== =============== =============== Investments in securities, at market value - see accompanying schedule for detail $ 15,233,282 $ 54,573,451 $ 147,398,959 Cash in bank on demand deposit -- 75 1,216 Receivables: Dividends and accrued interest 86,598 68,591 45,934 Fund shares sold -- 2,943 2,946 Investment securities sold 19,762 158,140 358,418 Other receivables -- 13,761 -- --------------- --------------- --------------- Total assets 15,339,642 54,816,961 147,807,473 --------------- --------------- --------------- LIABILITIES Payables: Disbursements in excess of cash balances 3,989 -- -- Investment securities purchased 32,002 149,046 559,141 Fund shares redeemed 35,227 111,266 102,534 Accrued investment management and advisory services fee 13,490 48,794 149,177 Other payables 6,383 928 147,511 --------------- --------------- --------------- Total liabilities 91,091 310,034 958,363 --------------- --------------- --------------- Net assets applicable to outstanding capital stock 15,248,551 54,506,927 146,849,110 =============== =============== =============== 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 1,331,315 2,278,207 21,503,279 =============== =============== =============== Net asset value per share of outstanding capital stock $ 11.45 $ 23.93 $ 6.83 =============== =============== ===============
40 - --------------------------------------------------------------------------[LOGO]
SCIENCE AND DEVELOPING INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH GROWTH ASSETS FUND FUND FUND FUND --------------- --------------- --------------- --------------- Investments in securities, at identified cost $ 67,994,876 $ 180,087,368 $ 19,475,716 $ 10,428,960 =============== =============== =============== =============== Investments in securities, at market value - see accompanying schedule for detail $ 49,545,243 $ 151,519,947 $ 12,031,324 $ 8,603,406 Cash in bank on demand deposit -- 954 8,785 917 Receivables: Dividends and accrued interest 59,813 45,652 1,290 18,890 Fund shares sold 1,636 90,063 -- 340 Investment securities sold -- 1,756,076 -- -- Other receivables 5,185 54,461 -- 6,282 --------------- --------------- --------------- --------------- Total assets 49,611,877 153,467,153 12,041,399 8,629,835 --------------- --------------- --------------- --------------- LIABILITIES Payables: Disbursements in excess of cash balances 167,804 -- -- -- Investment securities purchased -- 403,463 2,202 -- Fund shares redeemed 28,865 212,681 8,498 17,599 Accrued investment management and advisory services fee 70,036 198,649 14,358 15,722 Other payables 54,347 -- 19,765 2,272 --------------- --------------- --------------- --------------- Total liabilities 321,052 814,793 44,823 35,593 --------------- --------------- --------------- --------------- Net assets applicable to outstanding capital stock 49,290,825 152,652,360 11,996,576 8,594,242 =============== =============== =============== =============== 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 5,621,061 8,207,611 1,774,227 1,208,165 =============== =============== =============== =============== Net asset value per share of outstanding capital stock $ 8.77 $ 18.60 $ 6.76 $ 7.11 =============== =============== =============== ===============
See accompanying notes to financial statements on page 47. 41 SIT MUTUAL FUNDS SIX MONTHS ENDED DECEMBER 31, 2002 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS (UNAUDITED)
LARGE CAP MID CAP INTERNATIONAL BALANCED GROWTH GROWTH GROWTH FUND FUND FUND FUND ------------ ------------ ------------ ------------ INVESTMENT INCOME: INCOME: Dividends * $ 87,393 $ 306,924 $ 313,474 $ 416,082 Interest 225,815 14,065 39,882 40,317 ------------ ------------ ------------ ------------ Total income 313,208 320,989 353,356 456,399 ------------ ------------ ------------ ------------ EXPENSES (NOTE 3): Investment management and advisory services fee 81,829 292,644 997,399 521,330 Less fees and expenses absorbed by investment adviser -- -- (78,878) (97,544) ------------ ------------ ------------ ------------ Total net expenses 81,829 292,644 918,521 423,786 ------------ ------------ ------------ ------------ Net investment income (loss) 231,379 28,345 (565,165) 32,613 ------------ ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS : Net realized gain (loss) (1,365,528) (4,556,445) (15,698,440) (6,125,963) Net change in unrealized appreciation (depreciation) on investments 282,436 (1,488,893) (8,359,680) (4,263,727) Realized gain (loss) on foreign currency transactions -- -- -- (337) Net change in unrealized appreciation (depreciation) on foreign currency transactions -- -- -- 1,507 ------------ ------------ ------------ ------------ Net gain (loss) on investments (1,083,092) (6,045,338) (24,058,120) (10,388,520) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations ($ 851,713) ($ 6,016,993) ($24,623,285) ($10,355,907) ============ ============ ============ ============
- ------------------------------- *Dividends are net of foreign withholding tax of $33,622 and $11,746 in the International Growth Fund and Developing Markets Growth Fund, respectively. 42 - --------------------------------------------------------------------------[LOGO]
SCIENCE AND DEVELOPING SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH FUND FUND FUND ------------ ------------ ------------ INVESTMENT INCOME: INCOME: Dividends * $ 291,970 $ 14,129 $ 82,893 Interest 107,553 3,026 4,623 ------------ ------------ ------------ Total income 399,523 17,155 87,516 ------------ ------------ ------------ EXPENSES (NOTE 3): Investment management and advisory services fee 1,207,845 95,053 97,846 Less fees and expenses absorbed by investment adviser -- (9,402) -- ------------ ------------ ------------ Total net expenses 1,207,845 85,651 97,846 ------------ ------------ ------------ Net investment income (loss) (808,322) (68,496) (10,330) ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS : Net realized gain (loss) (13,225,683) (3,276,890) (113,277) Net change in unrealized appreciation (depreciation) on investments (7,060,891) 1,933,071 (1,011,791) Realized gain (loss) on foreign currency transactions -- -- (589) Net change in unrealized appreciation (depreciation) on foreign currency transactions -- -- 55 ------------ ------------ ------------ Net gain (loss) on investments (20,286,574) (1,343,819) (1,125,602) ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations ($21,094,896) ($ 1,412,315) ($ 1,135,932) ============ ============ ============
See accompanying notes to financial statements on page 47. 43 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 2002 JUNE 30, 2002 JUNE 30, (UNAUDITED) 2002 (UNAUDITED) 2002 ------------- ------------- ------------- ------------- Operations: Net investment income (loss) $ 231,379 $ 546,453 $ 28,345 ($ 226,597) Net realized gain (loss) on investments (1,365,528) (3,053,017) (4,556,445) (16,004,850) Net change in unrealized appreciation (depreciation) on investments 282,436 (1,596,602) (1,488,893) (17,827,153) 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 (851,713) (4,103,166) (6,016,993) (34,058,600) ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (355,000) (596,000) -- -- Net realized gains on investments -- (9,747) -- (931,511) ------------- ------------- ------------- ------------- Total distributions (355,000) (605,747) -- (931,511) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 1,509,434 5,679,337 6,482,702 11,394,068 Reinvested distributions 351,786 598,409 -- 880,335 Payments for shares redeemed (3,231,109) (8,690,437) (9,798,135) (36,274,376) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions (1,369,889) (2,412,691) (3,315,433) (23,999,973) ------------- ------------- ------------- ------------- Total increase (decrease) in net assets (2,576,602) (7,121,604) (9,332,426) (58,990,084) NET ASSETS Beginning of period 17,825,153 24,946,757 63,839,353 122,829,437 ------------- ------------- ------------- ------------- End of period $ 15,248,551 $ 17,825,153 $ 54,506,927 $ 63,839,353 ============= ============= ============= ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $ 22,997,446 $ 24,367,335 $ 87,039,521 $ 90,354,954 Undistributed (distributions in excess of) net investment income 9,379 133,000 28,345 -- Accumulated net realized gain (loss) from security transactions and foreign currency transactions (5,107,306) (3,741,778) (21,625,433) (17,068,988) Unrealized appreciation (depreciation) on investments (2,650,968) (2,933,404) (10,935,506) (9,446,613) Unrealized appreciation (depreciation) on foreign currency transactions -- -- -- -- ------------- ------------- ------------- ------------- $ 15,248,551 $ 17,825,153 $ 54,506,927 $ 63,839,353 ============= ============= ============= ============= CAPITAL TRANSACTIONS IN SHARES: Sold 128,873 407,429 264,320 343,513 Reinvested distributions 30,586 42,385 -- 25,565 Redeemed (277,976) (626,912) (404,364) (1,101,363) ------------- ------------- ------------- ------------- Net increase (decrease) (118,517) (177,098) (140,044) (732,285) ============= ============= ============= =============
44 - --------------------------------------------------------------------------[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 2002 JUNE 30, 2002 JUNE 30, 2002 JUNE 30, (UNAUDITED) 2002 (UNAUDITED) 2002 (UNAUDITED) 2002 ------------- ------------- ------------- ------------- ------------- ------------- ($ 565,165) ($ 1,948,664) $ 32,613 ($ 193,630) ($ 808,322) ($ 1,954,876) (15,698,440) (30,225,225) (6,125,963) (15,739,196) (13,225,683) (49,917,873) (8,359,680) (76,620,570) (4,263,727) (10,198,066) (7,060,891) (12,837,016) -- -- (337) (5,938) -- -- -- -- 1,507 5,562 -- -- ------------- ------------- ------------- ------------- ------------- ------------- (24,623,285) (108,794,459) (10,355,907) (26,131,268) (21,094,896) (64,709,765) ------------- ------------- ------------- ------------- ------------- ------------- -- -- -- -- -- -- -- (5,755,281) -- -- -- (319,828) ------------- ------------- ------------- ------------- ------------- ------------- -- (5,755,281) -- -- -- (319,828) ------------- ------------- ------------- ------------- ------------- ------------- 21,217,429 77,479,794 136,963,431 376,817,380 31,120,411 133,648,941 -- 5,495,225 -- -- -- 311,390 (31,091,694) (147,115,266) (147,137,037) (403,950,480) (38,056,723) (116,134,977) ------------- ------------- ------------- ------------- ------------- ------------- (9,874,265) (64,140,247) (10,173,606) (27,133,100) (6,936,312) 17,825,354 ------------- ------------- ------------- ------------- ------------- ------------- (34,497,550) (178,689,987) (20,529,513) (53,264,368) (28,031,208) (47,204,239) 181,346,660 360,036,647 69,820,338 123,084,706 180,683,568 227,887,807 ------------- ------------- ------------- ------------- ------------- ------------- $ 146,849,110 $ 181,346,660 $ 49,290,825 $ 69,820,338 $ 152,652,360 $ 180,683,568 ============= ============= ============= ============= ============= ============= $ 232,527,069 $ 242,401,334 $ 96,613,467 $ 106,787,073 $ 251,126,416 $ 258,062,728 (565,165) -- 32,613 -- (808,322) -- (51,837,255) (36,138,815) (28,910,808) (22,784,508) (69,098,314) (55,872,631) (33,275,539) (24,915,859) (18,449,632) (14,185,905) (28,567,420) (21,506,529) -- -- 5,185 3,678 -- -- ------------- ------------- ------------- ------------- ------------- ------------- $ 146,849,110 $ 181,346,660 $ 49,290,825 $ 69,820,338 $ 152,652,360 $ 180,683,568 ============= ============= ============= ============= ============= ============= 2,998,253 7,870,846 15,194,500 31,516,144 1,660,357 5,501,805 -- 524,854 -- -- -- 12,317 (4,419,571) (14,579,237) (16,047,140) (33,468,771) (2,031,552) (4,797,505) ------------- ------------- ------------- ------------- ------------- ------------- (1,421,318) (6,183,537) (852,640) (1,952,627) (371,195) 716,617 ============= ============= ============= ============= ============= =============
See accompanying notes to financial statements on page 47. 45 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
SCIENCE AND TECHNOLOGY LARGE CAP GROWTH FUND GROWTH FUND ------------------------------ ------------------------------- SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED 2002 JUNE 30, 2002 JUNE 30, (UNAUDITED) 2002 (UNAUDITED) 2002 ------------- ------------- ------------- ------------- Operations: Net investment income (loss) ($ 68,496) ($ 233,417) ($ 10,330) ($ 23,766) Net realized gain (loss) on investments (3,276,890) (11,594,790) (113,277) (372,873) Net change in unrealized appreciation (depreciation) on investments 1,933,071 (3,413,606) (1,011,791) (965,437) Net realized gain (loss) on foreign currency transactions -- -- (589) (837) Net change in unrealized appreciation (depreciation) on foreign currency transactions -- -- 55 (7) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (1,412,315) (15,241,813) (1,135,932) (1,362,920) ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- -- -- (1,738) Net realized gains on investments -- (28,438) -- -- ------------- ------------- ------------- ------------- Total distributions -- (28,438) -- (1,738) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 2,615,338 6,106,003 26,901,703 52,082,112 Reinvested distributions -- 27,921 -- 1,602 Payments for shares redeemed (3,223,977) (7,299,453) (28,421,817) (53,345,284) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions (608,639) (1,165,529) (1,520,114) (1,261,570) ------------- ------------- ------------- ------------- Total increase (decrease) in net assets (2,020,954) (16,435,780) (2,656,046) (2,626,228) NET ASSETS Beginning of period 14,017,530 30,453,310 11,250,288 13,876,516 ------------- ------------- ------------- ------------- End of period $ 11,996,576 $ 14,017,530 $ 8,594,242 $ 11,250,288 ============= ============= ============= ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $ 37,485,305 $ 38,093,944 $ 13,417,863 $ 14,937,977 Undistributed (distributions in excess of) net investment income (68,496) -- (10,330) -- Accumulated net realized gain (loss) from security transactions and foreign currency transactions (17,975,841) (14,698,951) (2,987,785) (2,873,919) Unrealized appreciation (depreciation) on investments (7,444,392) (9,377,463) (1,825,554) (813,763) Unrealized appreciation (depreciation) on foreign currency transactions -- -- 48 (7) ------------- ------------- ------------- ------------- $ 11,996,576 $ 14,017,530 $ 8,594,242 $ 11,250,288 ============= ============= ============= ============= CAPITAL TRANSACTIONS IN SHARES: Sold 381,092 552,797 3,656,495 6,020,956 Reinvested distributions -- 2,200 -- 187 Redeemed (471,583) (690,196) (3,837,299) (6,145,987) ------------- ------------- ------------- ------------- Net increase (decrease) (90,491) (135,199) (180,804) (124,844) ============= ============= ============= =============
See accompanying notes to financial statements on page 47. 46 SIT MUTUAL FUNDS - ------------------------------------------------------------------------- [LOGO] NOTES TO FINANCIAL STATEMENTS (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. ------------------------------------ ------------------------------------- Mid Cap Growth Fund, Inc. Maximize long-term capital appreciation. ------------------------------------ ------------------------------------- Small Cap Growth Maximize long-term capital appreciation. ------------------------------------ ------------------------------------- Balanced Long-term capital appreciation consistent with the preservation of principal and to provide regular income. ------------------------------------ ------------------------------------- International Growth Maximize long-term growth. ------------------------------------ ------------------------------------- Developing Markets Growth Maximize long-term capital appreciation. ------------------------------------ ------------------------------------- Science and Technology Maximize long-term capital Growth Fund appreciation. ------------------------------------ ------------------------------------- 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 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 cannot 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. 47 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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, 2002, 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. 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. 48 - ------------------------------------------------------------------------- [LOGO] As of June 30, 2002, for federal income tax purposes, some Funds have capital loss carryovers which, if not offset by subsequent capital gains, will begin to expire as follows: Loss Carryover Expiration Year -------------- --------------- Balanced $ 3,577,809 2010 Large Cap Growth 16,593,064 2010 Mid Cap Growth 33,856,824 2010 International Growth 22,784,508 2009 Small Cap Growth 54,845,550 2010 Science & Technology Growth 14,483,209 2010 Developing Markets Growth 2,873,918 2007 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 accounting principles generally accepted in the United States of America 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. 49 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) (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, 2002, were as follow: Purchases ($) Proceeds ($) ------------- ------------ Balanced Fund 2,728,749 4,030,972 Large Cap Growth Fund 8,166,093 13,386,654 Mid Cap Growth Fund 39,207,228 54,117,039 International Growth Fund 5,005,340 8,614,187 Small Cap Growth Fund 40,258,007 45,261,935 Science and Technology Growth Fund 1,473,345 2,835,160 Developing Markets Growth Fund 510,740 1,281,751 (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 current 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 ----------- ---------------- Balanced Fund 1.00% 1.00% Large Cap Growth Fund 1.00% 1.00% Mid Cap Growth Fund 1.25% 1.15% International Growth Fund 1.85% 1.50% Small Cap Growth Fund 1.50% 1.50% Science and Technology Growth Fund 1.50% 1.35% Developing Markets Growth Fund 2.00% 2.00% SIA is obligated to pay all of the Funds' expenses (excluding extraordinary expenses, stock transfer taxes, interest, brokerage commissions and other transaction charges relating to investing activities). For the periods through December 31, 2003 the Adviser has agreed to limit the management fee of the Mid Cap Growth Fund, Science and Technology Growth Fund, and International Growth Fund to 1.15%, 1.35%, and 1.50% of the Fund's average daily net assets respectively. 50 - ------------------------------------------------------------------------- [LOGO] As of December 31, 2002, 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 $2,222,000, $1,000, $4,738,000, $9,780,000, $1,170,000, $254,000 and $142,000, 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 $215,220 were paid or payable to SKI for the period ended December 31, 2002. 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, 2002: % Shares Shares Outstanding ------ ----------- Balanced Fund 360,821 27.10 Large Cap Growth Fund 393,114 17.26 Mid Cap Growth Fund 2,895,872 13.47 International Growth Fund 722,841 12.86 Small Cap Growth Fund 1,005,416 12.25 Science and Technology Growth Fund 370,443 20.88 Developing Markets Growth Fund 128,652 10.65 51 SIT BALANCED FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Six Months Ended December 31, Years Ended June 30, 2002 ---------------------------------------------------------- (Unaudited) 2002 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $12.29 $15.33 $19.18 $17.38 $16.68 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .17 .36 .46 .40 .32 Net realized and unrealized gains (losses) on investments (.75) (3.01) (3.51) 2.51 1.45 - ----------------------------------------------------------------------------------------------------------------------------------- Total from operations (.58) (2.65) (3.05) 2.91 1.77 - ----------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.26) (.38) (.48) (.37) (.31) From realized gains -- (.01) (.32) (.74) (.76) - ----------------------------------------------------------------------------------------------------------------------------------- Total distributions (.26) (.39) (.80) (1.11) (1.07) - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $11.45 $12.29 $15.33 $19.18 $17.38 - ----------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) (4.74%) (17.62%) (16.39%) 17.28% 11.25% - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $15,249 $17,825 $24,947 $19,304 $12,112 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 2.83% (2) 2.52% 2.89% 2.34% 2.01% Portfolio turnover rate (excluding short-term securities) 16.18% 53.53% 63.32% 68.22% 89.37%
- ---------- (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 the period ended December 31, 2002 are adjusted to an annual rate. 52 SIT LARGE CAP GROWTH FUND - --------------------------------------------------------------------------[LOGO] FINANCIAL HIGHLIGHTS
Six Months Ended December 31, Years Ended June 30, 2002 ---------------------------------------------------------- (Unaudited) 2002 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $26.40 $38.99 $63.66 $52.84 $49.34 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) .01 (.08) (.16) (.18) (.04) Net realized and unrealized gains (losses) on investments (2.48) (12.17) (19.48) 14.41 6.96 - ----------------------------------------------------------------------------------------------------------------------------------- Total from operations (2.47) (12.25) (19.64) 14.23 6.92 - ----------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income ---- ---- ---- ---- (.01) From realized gains ---- (.34) (5.03) (3.41) (3.41) - ----------------------------------------------------------------------------------------------------------------------------------- Total distributions ---- (.34) (5.03) (3.41) (3.42) - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $23.93 $26.40 $38.99 $63.66 $52.84 - ----------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) (9.36%) (31.63%) (32.92%) 27.75% 15.10% - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $54,507 $63,839 $122,829 $172,400 $140,258 RATIOS: Expenses to average daily net assets 1.00% (2) 1.00% 1.00% 1.00% 1.00% Net investment income (loss) to average daily net assets 0.10% (2) (0.25%) (0.33%) (0.31%) (0.09%) Portfolio turnover rate (excluding short-term securities) 14.50% 34.74% 45.26% 48.95% 70.51%
- --------- (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, 2002 are adjusted to an annual rate. See accompanying notes to financial statements on page 47. 53 SIT MID CAP GROWTH FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Six Months Ended December 31, Years Ended June 30, 2002 ---------------------------------------------------------- (Unaudited) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE: Beginning of period $7.91 $12.37 $23.57 $14.54 $16.49 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) (.03) (.07) (.08) (.12) (.06) Net realized and unrealized gains (losses) on investments (1.05) (4.16) (7.05) 10.38 .65 - ------------------------------------------------------------------------------------------------------------------------------------ Total from operations (1.08) (4.23) (7.13) 10.26 .59 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income ---- ---- ---- ---- ---- From realized gains ---- (.23) (4.07) (1.23) (2.54) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions ---- (.23) (4.07) (1.23) (2.54) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE: End of period $6.83 $7.91 $12.37 $23.57 $14.54 - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return (1) (13.65%) (34.66%) (35.21%) 73.01% 6.94% - ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of period (000's omitted) $146,849 $181,347 $360,037 $566,639 $375,343 RATIOS: Expenses to average daily net assets 1.15% (2) 1.15% (2) 1.06% (2) 1.00% (2) 1.00% (2) Net investment income (loss) to average daily net assets (0.71%)(2) (0.79%)(2) (0.49%)(2) (0.58%)(2) (0.46%)(2) Portfolio turnover rate (excluding short-term securities) 25.21% 60.88% 56.21% 62.21% 68.62%
- --------- (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, 2002 are adjusted to an annual rate. Total Fund expenses are contractually limited to 1.25% of average daily net assets. However, during the period ended December 31, 2002, and the years ended June 30, 2002, 2001, 2000, and 1999, the investment adviser voluntarily absorbed expenses that were otherwise payable by the Fund. Had the Fund incurred these expenses, the ratio of expenses to average daily net assets would have been 1.25% for each of these periods and the ratio of net investment income (loss) to average daily net assets would have been (0.81%), (0.89%), (0.68%), (0.83%), and (0.71%), respectively. 54 SIT INTERNATIONAL GROWTH FUND - --------------------------------------------------------------------------[LOGO] FINANCIAL HIGHLIGHTS
Six Months Ended December 31, Years Ended June 30, 2002 ---------------------------------------------------------- (Unaudited) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE: Beginning of period $10.79 $14.61 $23.58 $18.77 $19.14 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) .01 (.03) (.03) (.04) (.07) Net realized and unrealized gains (losses) on investments (2.03) (3.79) (8.42) 6.36 .84 - ----------------------------------------------------------------------------------------------------------------------------------- Total from operations (2.02) (3.82) (8.45) 6.32 .77 - ----------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income ---- ---- ---- (.23) (.06) From realized gains ---- ---- (.52) (1.28) (1.08) - ----------------------------------------------------------------------------------------------------------------------------------- Total distributions ---- ---- (.52) (1.51) (1.14) - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $8.77 $10.79 $14.61 $23.58 $18.77 - ----------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) (18.72%) (26.15%) (36.43%) 33.38% 4.51% - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $49,291 $69,820 $123,085 $167,909 $94,982 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 0.12% (2) (0.22%)(2) (0.20%)(2) (0.40%)(2) (0.37%)(2) Portfolio turnover rate (excluding short-term securities) 9.50% 25.78% 25.22% 30.61% 45.91%
- --------- (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, 2002 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, 2002 and the years ended June 30 2002, 2001, 2000, and 1999, the investment adviser voluntarily absorbed 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 each of these periods and the ratio of net investment income (loss) to average daily net assets would have been (0.23%), (0.57%), (0.55%), (0.75%), and (0.72%), respectively. See accompanying notes to financial statements on page 47. 55 SIT SMALL CAP GROWTH FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Six Months Ended December 31, Years Ended June 30, 2002 ---------------------------------------------------------- (Unaudited) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE: Beginning of period $21.06 $28.99 $41.35 $18.28 $20.35 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment loss (.10) (.24) (.13) (.18) (.18) Net realized and unrealized gains (losses) on investments (2.36) (7.65) (11.65) 23.25 1.20 - ----------------------------------------------------------------------------------------------------------------------------------- Total from operations (2.46) (7.89) (11.78) 23.07 1.02 - ----------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From realized gains ---- (.04) (.58) ---- (3.09) - ----------------------------------------------------------------------------------------------------------------------------------- Total distributions ---- (.04) (.58) ---- (3.09) - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $18.60 $21.06 $28.99 $41.35 $18.28 - ----------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) (11.68%) (27.24%) (28.79%) 126.20% 8.77% - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $152,652 $180,684 $227,888 $190,630 $50,335 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 (1.01%)(2) (0.99%) (0.41%) (0.83%) (1.08%) Portfolio turnover rate (excluding short-term securities) 27.25% 65.25% 39.91% 39.31% 71.84%
- ---------- (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, 2002 are adjusted to an annual rate. 56 SIT SCIENCE AND TECHNOLOGY GROWTH FUND - --------------------------------------------------------------------------[LOGO] FINANCIAL HIGHLIGHTS
Six Months Ended December 31, Years Ended June 30, 2002 ---------------------------------------------------------- (Unaudited) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE: Beginning of period $7.52 $15.23 $33.38 $15.23 $11.77 - -------------------------------------------------------------------------------------------------------------------------------- Operations: Net investment income (loss) (.04) (.12) (.19) (.17) (.07) Net realized and unrealized gains (losses) on investments (.72) (7.58) (17.10) 18.32 3.53 - -------------------------------------------------------------------------------------------------------------------------------- Total from operations (.76) (7.70) (17.29) 18.15 3.46 - -------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income ----- ----- ----- ----- ----- From realized gains ----- (.01) (.86) ----- ----- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions ---- (.01) (.86) ---- ---- - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $6.76 $7.52 $15.23 $33.38 $15.23 - -------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) (10.11%) (50.57%) (52.96%) 119.17% 29.40% - -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $11,997 $14,018 $30,453 $46,173 $14,194 RATIOS: Expenses to average daily net assets 1.35% (2) 1.35% (2) 1.29% (2) 1.25% (2) 1.25% (2) Net investment income (loss) to average net assets (1.08%)(2) (1.06%)(2) (0.94%)(2) (0.86%)(2) (0.72%)(2) Portfolio turnover rate (excluding short-term securities) 12.05% 76.78% 34.59% 29.60% 58.29%
- ---------- (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, 2002 are adjusted to an annual rate. Total Fund expenses are contractually limited to 1.50% of average daily net assets. However, during the period ended December 31, 2002 and the years ended June 30 2002, 2001, 2000, and 1999, the investment adviser voluntarily absorbed 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 each of these periods and the ratio of net investment income (loss) to average daily net assets would have been (1.23%), (1.21%), (1.15%), (1.11%), and (0.97%), respectively. See accompanying notes to financial statements on page 47. 57 SIT DEVELOPING MARKETS GROWTH FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Six Months Ended December 31, Years Ended June 30, 2002 ---------------------------------------------------------- (Unaudited) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE: Beginning of period $8.10 $9.17 $13.43 $9.98 $9.05 - -------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) (.01) (.02) ---- (.06) ---- Net realized and unrealized gains (losses) on investments (.98) (1.05) (4.26) 3.51 .93 - -------------------------------------------------------------------------------------------------------------------------------- Total from operations (.99) (1.07) (4.26) 3.45 .93 - -------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income ---- ---- ---- ---- ---- From realized gains ---- ---- ---- ---- ---- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions ---- ---- ---- ---- ---- - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $7.11 $8.10 $9.17 $13.43 $9.98 - -------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) (12.22%) (11.66%) (31.72%) 34.57% 10.28% - -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $8,594 $11,250 $13,877 $14,676 $11,338 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 (0.21%)(2) (0.20%) 0.02% (0.55%) (0.05%) Portfolio turnover rate (excluding short-term securities) 5.63% 25.40% 21.87% 48.39% 98.24%
- ---------- (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, 2002 are adjusted to an annual rate. See accompanying notes to financial statements on page 47. 58 RESULTS OF SHAREHOLDER MEETING - ------------------------------------------------------------------------- [LOGO] The annual meeting of the shareholders of the Funds was held on October 23, 2002. Directors elected by the shareholders at the meeting were as follows: Eugene C. Sit, 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 16, 2002 and the results of the shareholders' vote at the October 23, 2002 meeting were as follows: 1. Election of Directors: For Withheld --- -------- Eugene C. Sit Large Cap Growth 1,484,472 51,568 Mid Cap Growth 11,909,515 179,591 Small Cap Growth 4,646,299 50,262 Balanced 795,585 1,306 Science and Technology Growth 1,075,405 9,041 International Growth 2,889,745 39,321 Developing Markets Growth 1,120,951 12,412 William E. Frenzel Large Cap Growth 1,480,016 56,024 Mid Cap Growth 11,821,484 267,621 Small Cap Growth 4,616,955 79,605 Balanced 791,980 4,909 Science and Technology Growth 1,071,564 12,882 International Growth 2,883,468 45,599 Developing Markets Growth 1,114,021 19,343 John E. Hulse Large Cap Growth 1,523,666 12,375 Mid Cap Growth 11,878,201 210,905 Small Cap Growth 4,621,558 75,003 Balanced 792,135 4,755 Science and Technology Growth 1,071,583 12,863 International Growth 2,883,783 45,284 Developing Markets Growth 1,114,922 18,442 Sidney L. Jones Large Cap Growth 1,526,936 9,105 Mid Cap Growth 11,933,067 156,038 Small Cap Growth 4,648,172 48,388 Balanced 795,215 1,675 Science and Technology Growth 1,075,083 9,363 International Growth 2,895,706 33,362 Developing Markets Growth 1,121,567 11,797 59 RESULTS OF SHAREHOLDER MEETING (CONTINUED) - -------------------------------------------------------------------------------- For Withheld --- -------- Donald W. Phillips Large Cap Growth 1,526,797 9,244 Mid Cap Growth 11,948,626 140,479 Small Cap Growth 4,648,172 48,388 Balanced 795,215 1,675 Science and Technology Growth 1,075,341 9,104 International Growth 2,896,639 32,429 Developing Markets Growth 1,122,238 11,126 2. Ratification of KPMG LLP as independent auditors for the Funds: For Against Abstain --- ------- ------- Large Cap Growth 1,525,016 6,988 4,037 Mid Cap Growth 11,879,528 29,745 179,832 Small Cap Growth 4,616,066 33,360 37,134 Balanced 792,957 1,747 2,186 Science and Technology Growth 1,075,301 4,341 4,803 International Growth 2,822,973 7,571 98,524 Developing Markets Growth 1,118,050 9,648 5,665 60 SEMI-ANNUAL REPORT STOCK FUNDS Six Months Ended December 31, 2002 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, Suite 1500 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 CUSTODIAN International Growth Fund) Sit/Kim International 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 -----END PRIVACY-ENHANCED MESSAGE-----