-----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, QMtbjiZUSx86nJcE29HypCgOVDHm2yLasYQMSw1HErERE9Ud6Hn+BiVS8D9RaGMX Nyq4Gf2IxTO5nuRlDZ4yDw== 0000897101-99-000868.txt : 19990830 0000897101-99-000868.hdr.sgml : 19990830 ACCESSION NUMBER: 0000897101-99-000868 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990827 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT MUTUAL FUNDS INC CENTRAL INDEX KEY: 0000877880 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06373 FILM NUMBER: 99700740 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 LARGE CAP GROWTH FUND INC CENTRAL INDEX KEY: 0000356786 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 411414580 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-03343 FILM NUMBER: 99700741 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: SIT GROWTH & INCOME FUND INC DATE OF NAME CHANGE: 19940620 FORMER COMPANY: FORMER CONFORMED NAME: NEW BEGINNING GROWTH FUND INC/NEW DATE OF NAME CHANGE: 19870907 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT MID CAP GROWTH FUND INC CENTRAL INDEX KEY: 0000356787 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 411414580 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-03342 FILM NUMBER: 99700742 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: SIT GROWTH FUND INC DATE OF NAME CHANGE: 19940620 FORMER COMPANY: FORMER CONFORMED NAME: SIT NEW BEGINNING GROWTH & INCOME FUND INC DATE OF NAME CHANGE: 19930923 FORMER COMPANY: FORMER CONFORMED NAME: NEW BEGINNING INCOME & GROWTH FUND INC DATE OF NAME CHANGE: 19870907 N-30D 1 STOCK FUNDS ANNUAL REPORT YEAR ENDED JUNE 30, 1999 A FAMILY OF 100% NO-LOAD FUNDS ------------------------------ LARGE CAP GROWTH FUND MID CAP GROWTH FUND SMALL CAP GROWTH FUND BALANCED FUND INTERNATIONAL GROWTH FUND DEVELOPING MARKETS GROWTH FUND REGIONAL GROWTH FUND SCIENCE AND TECHNOLOGY GROWTH FUND [LOGO] SIT MUTUAL FUNDS ---------------- THE INVESTMENT IS MUTUAL(SM) 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 $7 billion for some of America's largest corporations, foundations and endowments. Sit Mutual Funds are comprised of thirteen NO-LOAD funds. NO-LOAD means that Sit Mutual Funds have no sales charges on purchases, no deferred sales charges, no 12b-1 fees, no redemption fees and no exchange fees. Every dollar you invest goes to work for you. Sit Mutual Funds offer: * Free telephone exchange * Dollar-cost averaging through an automatic investment plan * Electronic transfer for purchases and redemptions * Free check writing privileges on bond funds * Retirement accounts including IRAs, Keoghs and 401(k) Plans SIT FAMILY OF FUNDS [GRAPH] STABILITY: INCOME: GROWTH: HIGH GROWTH: Safety of principal Increased income Long-term capital Long-term capital and current income appreciation and appreciation income MONEY MARKET U.S. GOVERNMENT BALANCED MID CAP GROWTH SECURITIES LARGE CAP GROWTH INTERNATIONAL GROWTH TAX-FREE INCOME REGIONAL GROWTH SMALL CAP GROWTH MINNESOTA TAX-FREE SCIENCE AND INCOME TECHNOLOGY GROWTH BOND DEVELOPING MARKETS GROWTH PRINCIPAL STABILITY GROWTH & CURRENT INCOME POTENTIAL SIT MUTUAL FUNDS STOCK FUNDS ANNUAL REPORT TABLE OF CONTENTS PAGE ---- Chairman's Letter.................................... 2 Performance Review................................... 4 Fund Reviews and Portfolios of Investments Balanced Fund................................ 6 Large Cap Growth Fund........................ 10 Regional 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................... 39 Statements of Assets and Liabilities................. 40 Statements of Operations............................. 42 Statements of Changes in Net Assets.................. 44 Notes to Financial Statements........................ 48 Financial Highlights................................. 53 Independent Auditors' Report......................... 61 Federal Income Tax Information....................... 62 Results of Shareholder Meeting....................... 63 This document must be preceded or accompanied by a Prospectus. SIT MUTUAL FUNDS CHAIRMAN'S LETTER - YEAR ENDED JUNE 30, 1999 [PHOTO] Dear Fellow Shareholders: Despite considerable volatility in the global economic environment marked by investor concerns first of deflation in late 1998 and then inflation in mid-1999, most major equity market indices moved solidly higher over the last twelve months. Economic Overview June represented the 100th month of the U.S. economic expansion, a long cycle characterized by positive and balanced growth, generally declining interest rates, subdued inflation, and record-setting gains in aggregate employment. The resilience of consumer spending continues to be the primary driver behind the above-trend growth for the U.S. economy. Over the last four quarters, annualized growth in Gross Domestic Product (GDP) has averaged +4.1%, a remarkable achievement given the turmoil in many economies throughout the world. Since Personal Consumption Expenditures (PCE) now account for over two-thirds of GDP, the +5.0% year-over-year gain over the last twelve months was strong enough to overcome weakness in other components, particularly the severe decline in net exports. Several factors suggest that real GDP growth will be somewhat below the pace witnessed over the past year, although above the +2.3% rate for the second quarter. First, consumer spending appears to be decelerating, as second quarter PCE increased by +4.0%, down from the increase of +6.7% in the first quarter. Second, we do not believe that consumer spending will remain as robust if the savings rate continues in negative territory. Third, fixed mortgage rates have increased nearly 100 basis points since the beginning of the year, which has served to impede housing demand; however, given the generally strong level of consumer confidence and continued high levels of housing investment and consumer durables spending, together with capital investment by business, we expect only a modest slowing in GDP growth for the remainder of the year compared to the robust +4.1% average over the past twelve months. Our expectation for calendar 1999 GDP growth is +3.8%. In terms of inflation data, the news remains mixed. May and June Consumer Price Index (CPI) reports showed no change from the previous month, which was considerably better than expectations. The National Association of Purchasing Managers Prices Paid Index, however, has increased for six consecutive months, and although the June Producer Price Index showed a decrease for finished goods, there have been monthly increases in intermediate and crude goods. The government's data releases on July 29th also contained mixed messages. While GDP growth slowed to +2.3% in the second quarter, the stronger-than-expected +3.2% year-over-year increase in the Employment Cost Index was greeted negatively. Inflation news will continue to be watched intensely, but we expect only a moderate pick-up in the CPI data, which should range between +2.0% and +2.5% for 1999. The Federal Reserve continues to be highly sensitive to inflation as evidenced by its modest 25 basis point increase in the federal funds rate. More importantly, the Fed changed its policy stance from a "tightening" to a "neutral" bias, reducing fears of successive near-term rate increases. The Chairman's recent Humphrey-Hawkins testimony indicated that inflation continues to be a concern, despite the recent change in bias. As Mr. Greenspan stated in his address, "If new data suggest it is likely that the pace of cost and price increases is picking up, the Federal Reserve will have to react promptly and forcefully so as to preclude imbalances from arising that would only require a more disruptive adjustment later." Among his key concerns are the tightness in the labor market, the sustainability of productivity gains, and the potential ramifications of a stock market "bubble." In terms of Federal Reserve policy, given our outlook for only a modest acceleration in consumer inflation and a slight deceleration in GDP in the second half of 1999, we believe the Fed may rest after one or two more 25 basis point increases. In terms of fiscal policy, escalating projections of federal budget surpluses have tax-cut proponents calling for aggressive tax reductions-- especially since the non-Social Security operating surplus may be achieved as early as fiscal-year 2000. If one can believe the typically overly optimistic government projections, $2.9 trillion in total surpluses would be generated over the next decade of which $1 trillion would be outside the Social Security buildup. Tax bills are being worked on in both the House and Senate and, under the most optimistic assumptions, a bill might be ready for the President by the fall. If Democrats and Republicans fail to compromise on the myriad of issues within a tax bill, the topic of taxation will be a focal issue in the 2000 election campaign. Another key fiscal event occurred in late June when the President outlined a Medicare reform package. This included a prescription drug program with a tax-cut-for-Medicare-drug-benefit deal also a possibility. The new drug benefit is estimated to cost $118 billion over ten years with 60% financed by what the Clinton administration has termed "savings from competition and efficiency" and 40% from the expected surplus. From an international perspective, the outlook for global 2 economic growth continues to improve. Asian economies appear to be slowly recovering from the "trough" experienced in fall of 1998. The Japanese economy, most notably, is showing some signs of life. GDP growth in the most recent quarter was a surprisingly strong +1.9%. Industrial production increased +3.0% in June, and recent Bank of Japan business sentiment surveys have shown an improvement over the March survey. Since the beginning of the year, various European economies had mixed growth results that have led to an overall slowdown. Weakness in Germany, Euroland's largest economy, has been a major concern. We believe, however, that the German economy will be improving, largely due to recovering Asian markets coupled with euro weakness, which has prompted an improvement in exports. Thus far in 1999, Latin American financial markets responded favorably to stabilization in the currencies; however, the region's economies remain weak because many Latin American countries are large producers of worldwide commodities whose prices, except for oil, remain depressed. We are forecasting +2.0% global GDP growth in 1999, due to accelerating growth in Europe, improving economic growth prospects in non-Japan Asia, bottoming of the recession in Japan, and gradual slowing in the United States. Equity Strategy Summary Domestic stock indices were generally higher over the last twelve months, with virtually all mid and large capitalization indices posting double-digit returns. Two major changes in investment sentiment that may have future investment implications occurred during the second quarter of 1999. First, although larger cap issues have dramatically outperformed smaller stocks over the past year (the Russell 1000 outperfomed the Russell 2000 by over 20 percentage points), small stocks came to life in the second quarter of 1999. Extreme undervaluation of small stocks and renewed confidence in the global economic environment were key elements behind the strong second quarter rally for small cap stocks. In fact, this was the first quarter in seven that the Russell 2000 Index outperformed the Russell 1000 Index. Given the duration and magnitude of small cap underperformance in recent years, and the resulting valuation disparity, we believe the potential exists for an extended small cap rally. The second significant change in equity markets was the rebound in economically sensitive, cyclical issues that had previously been depressed by fears of an economic slowdown. While we believe that the economic backdrop has generally improved the prospects for cyclical companies, it appears that a significant portion of the anticipated improvement in the earnings cycle has already been discounted in stock prices. Although the rise in interest rates has caused volatility in the equity markets, stocks have been able to advance because corporate earnings news has been generally positive. It appears as though second quarter operating earnings for the S&P 500 Index will show solid double-digit growth, and we estimate that over two-thirds of companies were able to exceed analysts' consensus expectations. Although a brightening earnings outlook has prompted a tug-of-war among small cap/large cap and growth/value investment styles in recent months, our expectation for a moderately slowing U.S. economy implies a continued positive environment for growth stock investing. Despite some valuation measures for the stock market being at extended levels, many companies within the S&P 500 Index below the top 20 in capitalization are at reasonable valuations in the context of current interest rates and inflation levels. While the current S&P 500 Index capitalization-weighted price-to-earnings ratio of 28.3x is the highest in 35 years, the median valuation is a much more reasonable 20.3x. These statistics suggest that the very largest stocks in the Index (including such names as Microsoft, GE, and Coca Cola) are disproportionately raising capitalization-weighted valuation measures and obscuring the more reasonable valuation for the broader market. International investment performance has varied widely among markets so far in 1999. There is continued evidence of an improving global economy fueled by particularly strong performance in emerging markets. While sluggish economic growth and investors' reallocation of assets to Asia have caused some weakness in European equity markets, we believe performance will improve as key European economies slowly improve, corporate restructuring continues, and mergers and acquisition activity accelerates. Brightened economic prospects have led us to a much more positive view on Asia, particularly Japan. Concerns over upcoming elections and the region's economic reliance on commodity prices have led us to underweight Latin America versus global benchmarks. We greatly appreciate your support as shareholders in the Sit Mutual Funds. With your investment objectives always in mind, we remain committed to seeking out the best investment opportunities throughout the world. /s/ Eugene C. Sit Eugene C. Sit, CFA Chairman and Chief Investment Officer 3 SIT MUTUAL FUNDS YEAR ENDED JUNE 30, 1999 PERFORMANCE REVIEW - STOCK FUNDS STOCK FUNDS REVIEW Despite a great deal of quarterly volatility, global equity returns were generally positive over the past twelve months. In the United States, large capitalization stocks continued to outperform smaller issues, but there were signs of improvement in small cap stocks in the latest quarter. For the year ended June 30, 1999, the S&P 500 Index total return was +22.8%, over twenty percentage points higher than the +1.5% return for the Russell 2000 Index. While small and mid cap stock cumulative returns over the last twelve months were relatively moderate, investment sentiment may be changing based on the strong performance in the most recent quarter. For the quarter ending June 30, 1999, the Russell 2000 Index returned +15.6%, considerably higher than the +7.1% return for the S&P 500 Index. Largely due to fears of a global slowdown that persisted over the period, particularly in the second half of 1998, growth stocks posted very strong results relative to value issues. The Russell 1000 Growth Index advanced +27.3% over the past twelve months, while the Russell 1000 Value Index increased by +16.4%. The Russell 2000 Growth Index return of +8.3% was fourteen percentage points higher than the - -5.7% return for the Russell 2000 Value Index. Technology stocks, which are typically overweighted in Sit Mutual Funds equity portfolios, performed exceptionally well over the past twelve months. Within the Russell 1000 Growth Index, for example, both the Electronic Technology and Technology Services sectors produced returns of over +60%. Economically sensitive groups, including producer manufacturing, consumer-durables, and process industries, lagged the market averages over the period. International equity market indices also moved higher over the last twelve months, although results varied widely by geographic region. The MSCI EAFE Index gained +7.6%, with strong returns in most Asian markets offsetting somewhat lackluster returns in Europe. Continued evidence of an economic recovery in emerging markets has led to strong returns for the MSCI Emerging Markets Free Index, which advanced +25.2% over the past twelve months, with almost all of the gains occurring during the second quarter of 1999. ----------------------------- 1987 1988 1989 ----------------------------- SIT BALANCED -- -- -- SIT LARGE CAP GROWTH 5.32% 5.33% 32.02% SIT REGIONAL GROWTH -- -- -- SIT MID CAP GROWTH 5.50 9.77 35.15 SIT INTERNATIONAL GROWTH -- -- -- SIT SMALL CAP GROWTH -- -- -- SIT SCIENCE AND TECHNOLOGY GROWTH -- -- -- SIT DEVELOPING MARKETS GROWTH -- -- -- S&P 500 INDEX 5.28 16.55 31.61 S&P MIDCAP 400 INDEX -2.04 20.87 35.55 MSCI EAFE INDEX (2) -- -- -- RUSSELL 2000 INDEX (3) -- -- -- PSE TECH 100 INDEX -- -- -- MSCI EMERGING MARKETS FREE INDEX (4) -- -- -- NASDAQ SYMBOL INCEPTION ------ --------- SIT BALANCED SIBAX 12/31/93 SIT LARGE CAP GROWTH SNIGX 09/02/82 SIT REGIONAL GROWTH n/a 12/31/97 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 (2) RUSSELL 2000 INDEX (3) PSE TECH 100 INDEX MCSI EMERGING MARKETS FREE INDEX (4) (1) PERIOD FROM FUND INCEPTION THROUGH CALENDAR YEAR-END. (2) FIGURES ASSUME AN INCEPTION DATE OF 10/31/91. (3) FIGURES ASSUME AN INCEPTION DATE OF 7/1/94. (4) FIGURES ASSUME AN INCEPTION DATE OF 6/30/94. (5) FIGURES ASSUME AN INCEPTION DATE OF 9/2/82. 4
TOTAL RETURN - CALENDAR YEAR SIX MONTHS - ---------------------------------------------------------------------------------------------- ENDED 1990 1991 1992 1993 1994 1995 1996 1997 1998 6/30/99 - ---------------------------------------------------------------------------------------------- ---------- -- -- -- -- -0.33% 25.43% 15.80% 21.73% 21.30% 5.30% -2.37% 32.72% 4.94% 3.15% 2.83 31.66 23.05 31.70 30.56 8.63 -- -- -- -- -- -- -- -- 23.05 7.25 -2.04 65.50 -2.14 8.55 -0.47 33.64 21.87 17.70 6.84 12.36 -- 4.10(1) 2.69 48.37 -2.99 9.36 10.31 4.81 18.95 1.73 -- -- -- -- 11.57(1) 52.16 14.97 7.63 1.97 13.47 -- -- -- -- -- -- -- -- 38.40 10.04 -- -- -- -- -2.02(1) -4.29 17.27 -5.20 -24.93 28.44 -3.05 30.46 7.64 10.07 1.32 37.58 22.96 33.36 28.58 12.38 -5.12 50.11 11.92 13.95 -3.60 30.94 19.19 32.29 19.11 6.87 -- 0.26 -12.17 32.56 7.78 11.21 6.05 1.78 20.00 3.97 -- -- -- -- 4.61 28.45 16.49 22.36 -2.54 9.28 -- -- -- -- -- -- -- -- 54.60 33.54 -- -- -- -- 2.80 -6.94 3.92 -13.40 -27.52 38.41
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED JUNE 30, 1999 TOTAL RETURN --------------------------------------------------------- QUARTER ENDED SIX MONTHS SINCE 6/30/99 ENDED 6/30/99 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION - ----------------------------- --------------------------------------------------------- 0.51% 5.30% 11.25% 19.07% 18.72% -- 15.90% 1.36 8.63 15.10 27.27 26.52 17.25% 17.04 6.99 7.25 17.21 -- -- -- 20.38 11.16 12.36 6.94 15.27 21.21 16.11 18.49 3.99 1.73 4.51 9.56 9.35 -- 11.82 18.70 13.47 8.77 7.54 -- -- 19.44 10.36 10.04 29.40 -- -- -- 32.48 29.11 28.44 10.28 -3.01 -- -- 0.11 7.05 12.38 22.76 29.11 27.87 18.78 19.21 14.16 6.87 17.18 22.50 22.28 17.87 18.88 2.54 3.97 7.62 8.81 8.21 -- 8.61 15.55 9.28 1.50 11.22 -- -- 15.32 20.62 33.54 73.40 -- -- -- 62.36 23.62 38.41 25.20 -6.18 -- -- -2.89
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 BALANCED FUND REVIEW YEAR ENDED JUNE 30, 1999 [PHOTO] SENIOR PORTFOLIO MANAGERS PETER L. MITCHELSON, CFA BRYCE A. DOTY, CFA The Sit Balanced Fund posted strong returns for the fiscal year ended June 30, 1999. The Fund's total return was +11.3%. The Lehman Aggregate Bond Index gained +3.2% over the last twelve months while the S&P 500 Index increased +22.8%. For the quarter ended June 30th, the Fund gained +0.5% while the Lehman Aggregate Bond Index declined -0.9% and the S&P 500 gained +7.1%. As of June 30, 1999, the asset allocation of the Fund was 54% equities (down from 56% at the end of March), 37% fixed income securities (down from 38%), and 9% cash reserve instruments (up from 6%). The equity portion of the portfolio produced solid returns over the last twelve months, and investors are now focusing on improving earnings prospects for U.S. companies amid an improved global economy. We believe that the market's focus on strong earnings growth will benefit the equity securities held in the Fund. As of June 30th, the projected growth rate for companies held in the Fund was +21.6%, which is more than twice the projected growth rate for the S&P 500. The Fund's holdings are concentrated in high unit growth companies with unique products and strong management teams able to thrive in an intensely competitive global business environment. This leads to significant positions in technology and health care. We will continue to underweight slow growth, commodity-oriented companies, and generally avoid such industries as chemicals, papers, autos, and heavy equipment and machinery. While the improving global economy fueled the rally in equities over the last quarter, bond prices suffered from fears over excessive economic growth. Since bottoming at a 4.7% yield on October 5, 1998, U.S. Treasury bond yields have risen about 130 basis points, and stood at just under 6% at the end of the quarter. A recent change in fixed income strategy includes a sector shift to increase U.S. Treasuries. In the coming months, we expect weakness in some non-government sectors as investors become cautious due to of the Y2K phenomenon. We are also increasing emphasis on securities with 5- to 10- year average lives, which reflects a very flat yield curve that has reduced the attractiveness of longer-maturity securities. The Fund will continue to focus on high-quality securities that offer attractive total return opportunities. INVESTMENT OBJECTIVE AND STRATEGY The Sit Balanced Fund's dual objectives are to seek long-term growth of capital consistent with the preservation of principal and to provide regular income. It pursues its objectives by investing in a diversified portfolio of stocks, bonds and short-term instruments. The Fund may emphasize either equity securities, fixed-income securities, or short-term instruments or hold equal amounts of each, dependent upon the Adviser's analysis of market, financial and economic conditions. The Fund's permissible investment allocation is: 40-60% in equity securities, 40-60% in fixed-income securities, and up to 20% in short-term fixed-income instruments. At all times at least 25% of the assets will be invested in fixed-income senior securities. PORTFOLIO SUMMARY Net Asset Value 6/30/99: $17.38 Per Share 6/30/98: $16.68 Per Share Total Net Assets: $12.1 Million TOTAL DIVIDEND: $ 1.07 PER SHARE Long Term Capital Gain: $ 0.76 Per Share Ordinary Income: $ 0.31 Per Share PORTFOLIO STRUCTURE (% of total net assets) [PIE CHART] Cash & Other Net Assets 8.5% Bonds 36.9% Stocks 54.6% 6
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ------------------------------------------ ------------------------------------------ Balanced Lehman Aggregate S&P Balanced Lehman Aggregate S&P Fund Bond Index 500 Index Fund Bond Index 500 Index -------- ---------------- --------- -------- ---------------- --------- 3 Months 0.51% -0.88% 7.05% 0.51% -0.88% 7.05% (not annualized) 1 Year 11.25 3.15 22.76 11.25 3.15 22.76 3 Years 19.07 7.23 29.11 68.80 23.31 115.21 5 Years 18.72 7.83 27.87 135.86 45.75 241.87 Inception 15.90 6.33 24.27 125.09 40.11 230.29 (12/31/93)
* As of 6/30/99 PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN AGGREGATE BOND INDEX NOR THE S&P 500 INDEX. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (12/31/93) and held until 6/30/99 would have grown to $22,509 in the Fund, $14,011 in the Lehman Aggregate Bond Index or $33,029 in the S&P 500 Index assuming reinvestment of all dividends and capital gains. TOP HOLDINGS STOCKS: * Cisco Systems, Inc. * General Electric Co. * Microsoft Corp. * Lucent Technologies, Inc. * Tyco International, Ltd. BONDS: * U.S. Treasury Note, 6.125%, 8/15/07 * U.S. Treasury Strip, 5.95%, 11/15/09 * Union Tank Car Co., 6.57%, 1/2/14 * Delphi Auto Sys. Corp., 6.50%, 5/1/09 * U.S. Treasury Strip, 6.00%, 2/15/19 Total number of holdings: 128 7 SIT BALANCED FUND PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------- COMMON STOCKS (54.6%) (2) CONSUMER DURABLES (0.5%) 1,100 Harley-Davidson, Inc. $59,812 --------------- CONSUMER NON-DURABLES (2.3%) 1,100 Coca Cola Co. 68,750 700 Colgate-Palmolive Co. 69,125 1,000 Group Danone, A.D.R. 52,313 1,000 Proctor & Gamble Co. 89,250 --------------- 279,438 --------------- CONSUMER SERVICES (2.6%) 1,500 Clear Channel Comm., Inc. (3) 103,406 2,000 Time Warner, Inc. 147,000 1,500 Viacom, Inc. - Class B (3) 66,000 --------------- 316,406 --------------- ELECTRONIC TECHNOLOGY (16.0%) 1,200 ADC Telecommunications, Inc. (3) 54,675 5,300 Cisco Systems, Inc. (3) 341,850 1,000 Computer Sciences Corp. (3) 69,188 2,200 Dell Computer Corp. (3) 81,400 2,600 EMC Corp. (3) 143,000 1,000 General Dynamics Corp. 68,500 1,800 Intel Corp. 107,100 1,300 Int'l Business Machines Corp. 168,025 2,850 Lucent Technologies, Inc. 192,197 1,000 Raytheon Co. - Class B 70,375 2,500 Sun Microsystems, Inc. (3) 172,188 2,500 Tellabs, Inc. (3) 168,906 1,100 Texas Instruments, Inc. 159,500 1,058 United Technologies Corp. 75,845 1,200 Xerox Corp. 70,875 --------------- 1,943,624 --------------- ENERGY MINERALS (0.5%) 1,500 Unocal Corp. 59,438 --------------- FINANCE (6.2%) 625 American International Group, Inc. 73,164 1,000 Associates First Capital Corp. 44,313 2,000 Chase Manhattan Corp. 173,250 900 Equitable Companies, Inc. 60,300 1,100 Federal Home Loan Mortgage Corp. 63,800 1,000 Marsh & McLennan Cos., Inc. 75,500 2,000 Mercury General Corp. 68,000 1,000 Merrill Lynch & Co., Inc. 79,938 1,500 Wells Fargo Co. 64,125 800 XL Capital, Ltd. 45,200 --------------- 747,590 --------------- HEALTH SERVICES (1.2%) 2,073 McKesson HBOC, Inc. 66,595 1,500 Waste Management, Inc. 80,625 --------------- 147,220 --------------- HEALTH TECHNOLOGY (8.3%) 1,000 American Home Products Corp. 57,500 1,500 Amgen, Inc. (3) 91,312 1,500 Bristol-Myers Squibb Co. 105,656 - ------------------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------- 900 Eli Lilly & Co. 64,462 500 Johnson & Johnson Co. 49,000 1,500 Medtronic, Inc. 116,813 2,500 Merck & Co., Inc. 185,000 1,500 Pfizer, Inc. 164,625 1,500 Schering-Plough Corp. 79,500 1,300 Warner Lambert Corp. 90,188 --------------- 1,004,056 --------------- PROCESS INDUSTRIES (0.5%) 1,500 Monsanto Co. 59,156 --------------- PRODUCER MANUFACTURING (4.4%) 3,000 General Electric Co. 339,000 2,000 Tyco International, Ltd. 189,500 --------------- 528,500 --------------- RETAIL TRADE (4.0%) 2,500 Dayton Hudson Corp. 162,500 675 Gap, Inc. 34,003 2,000 Home Depot, Inc. 128,875 900 Kohl's Corp. (3) 69,469 3,000 Walgreen Co. 88,125 --------------- 482,972 --------------- TECHNOLOGY SERVICES (4.4%) 900 America Online, Inc. (3) 99,450 3,000 Ceridian Corp. (3) 98,062 3,000 Microsoft Corp. (3) 270,562 1,750 Oracle Corp. (3) 64,969 --------------- 533,043 --------------- TRANSPORTATION (0.5%) 2,000 Southwest Airlines Co. 62,250 --------------- UTILITIES (3.2%) 1,700 MCI WorldCom, Inc. (3) 146,306 1,200 Sprint Corp. 63,375 900 Vodafone Airtouch, A.D.R. 177,300 --------------- 386,981 --------------- Total common stocks (cost: $4,468,002) 6,610,486 --------------- BONDS (35.4%) (2) U.S. TREASURY (8.6%) 550,000 U.S. Treasury Note, 6.125%, 8/15/07 555,737 50,000 U.S. Treasury Bond, 6.00%, 2/15/26 48,732 U.S. Treasury Strip: 25,000 6.93% Effective Yield, 11/15/04 18,302 50,000 4.72% Effective Yield, 5/15/06 33,395 450,000 5.95% Effective Yield, 11/15/09 238,630 500,000 6.00% Effective Yield, 2/15/19 146,620 --------------- 1,041,416 --------------- ASSET-BACKED SECURITIES (4.0%) Advanta Mortgage Loan Trust: 25,000 1995-3 A5, 7.37%, 2/25/27 24,790 50,000 1996-1 A7, 7.07%, 3/25/27 49,355 8 - ------------------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------- 50,000 Cityscape Home Equity Loan Trust, 1996-3 A8, 7.65%, 9/25/25 47,767 74,999 ContiMortgage Home Equity Loan Tr., 1996-1 A7, 7.00%, 3/15/27 74,396 25,000 EQCC Home Equity Loan Trust, Series 1996-1, 6.93%, 3/15/27 24,347 75,000 Equivantage, 1996-3 A3, 7.70%, 9/25/27 75,376 Green Tree Financial Corp.: 20,000 1995-5, 7.25%, 9/15/25 19,860 25,000 1997-4, 7.03%, 2/15/29 25,267 100,000 1999-1, 6.37%, 3/1/30 94,603 50,000 Money Store Home Equity Mtg., 7.265%, 7/15/38 50,500 --------------- 486,261 --------------- COLLATERALIZED MORTGAGE OBLIGATIONS (1.4%) 100,000 Norwest Asset Securities Corp., Series 1998-19 2A12, 6.75%, 7/25/28 95,852 75,000 Residential Funding Mtg. Sec. Series 1998-S5 A12, 6.75%, 3/25/28 70,510 --------------- 166,362 --------------- CORPORATE BONDS (8.8%) 50,000 American Gen. Fin., 5.875%, 12/15/05 47,313 Continental Airlines: 25,000 1999-1B, 6.795%, 8/2/18 23,971 150,000 1999-1A, 6.545%, 2/2/19 142,089 50,000 Countrywide Capital, 8.00%, 12/15/26 47,812 175,000 Delphi Auto Sys. Corp., 6.50%, 5/1/09 165,812 50,000 First Industrial LP, 7.15%, 5/15/27 49,125 50,000 Franchise Fin. Corp., 8.25%, 10/30/03 49,812 25,000 GM Acceptance Corp., 5.85%, 1/14/09 22,844 25,000 Omega Healthcare Inv., 6.95%, 6/15/02 23,562 125,000 Ryder System, Inc., 8.75%, 3/15/17 130,312 100,000 Service Corp. Int'l, 7.375%, 4/15/04 100,250 25,000 Summit Prop., Inc., 7.20%, 8/15/07 23,031 6,000 Toys R Us, Inc., 8.25%, 2/1/17 6,203 50,000 Trinet Corp. Realty Tr., 7.70%, 7/15/17 40,062 200,000 Union Tank Car Co., 6.57%, 1/2/14 194,752 --------------- 1,066,950 --------------- MORTGAGE PASS-THROUGH SECURITIES (12.7%) FEDERAL HOME LOAN MORTGAGE CORPORATION (1.3%) 70,693 9.00%, 7/1/16 74,920 21,077 9.00%, 7/1/16 22,329 20,154 9.25%, 6/1/02 20,954 31,055 10.00%, 10/1/18 33,401 --------------- 151,604 --------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (1.9%) 24,607 9.00%, 11/1/06 25,918 77,055 9.75%, 1/1/13 83,798 21,694 10.00%, 1/1/20 23,259 82,741 10.25%, 6/1/13 90,653 --------------- 223,628 --------------- - ------------------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (9.5%) 22,536 9.00%, 6/15/11 23,529 104,787 9.00%, 6/15/09 110,629 41,514 9.00%, 8/15/16 43,847 109,713 9.00%, 12/15/19 116,334 23,080 9.25%, 9/15/01 24,169 24,599 9.50%, 1/15/04 25,918 52,012 9.50%, 11/15/04 54,794 33,700 9.50%, 7/20/05 35,008 37,807 9.50%, 12/15/09 40,701 23,576 9.50%, 5/20/16 24,961 118,148 9.50%, 12/15/17 127,768 67,120 9.50%, 3/15/18 71,817 88,137 9.50%, 9/20/18 93,318 63,236 9.50%, 1/20/19 66,942 82,687 9.50%, 2/20/19 87,544 77,548 9.50%, 3/20/19 82,101 43,730 9.50%, 12/15/19 47,074 40,820 10.25%, 1/15/04 43,126 5,748 11.25%, 10/15/00 5,793 16,797 11.25%, 10/15/11 18,120 Municipal (GNMA collateralized): 13,000 Bernalillo Multifamily. Ser. 1998A, 7.50%, 9/20/20 12,977 --------------- 1,156,470 --------------- Total bonds (cost: $4,367,382) 4,292,691 --------------- CLOSED-END MUTUAL FUNDS (1.4%) (2) 9,000 American Select Portfolio 105,750 500 American Strategic Inc. Portfolio 5,875 2,288 American Strategic Inc. Portfolio II 27,027 2,969 American Strategic Inc. Portfolio III 34,329 --------------- Total closed-end mutual funds 172,981 --------------- (cost: $169,146) SHORT-TERM SECURITIES (12.5%) (2) 1,519,000 Sit Money Market Fund, 4.56% (6) 1,519,000 --------------- (cost: $1,519,000) Total investments in securities (cost: $10,523,530) (7) $12,595,158 =============== See accompanying notes to financial statements. 9 SIT LARGE CAP GROWTH FUND REVIEW YEAR ENDED JUNE 30, 1999 [PHOTO] SENIOR PORTFOLIO MANAGERS PETER L. MITCHELSON, CFA ROGER J. SIT RONALD D. SIT, CFA The Sit Large Cap Growth Fund posted strong performance during the fiscal year ended June 30, 1999. The Fund's total return of +15.1% compared favorably with the +13.6% return for the Lipper Growth and Income Index. Within the Lipper Growth and Income Fund universe, the Fund's 1-year, 5-year and 10-year annualized return was in the 47th, 8th and 17th percentile, respectively. Most U.S. stock market indices posted impressive gains over the last twelve months, driven largely by continued strength in the domestic economy. Despite lingering effects of the Asian crisis in the fall of 1998, and the subsequent rise in interest rates, stock market returns have broadened considerably thus far in 1999, and many indices are reaching or approaching new highs. Although a brightened earnings outlook has prompted a tug of war among small/large cap and growth/value investment styles in recent months, our expectation for a moderately slowing U.S. economy implies a continued positive environment for growth stock investing. Securities in the Fund continue to maintain projected earnings growth rates far in excess of S&P 500 averages. In each of the next two years, projected growth rates for securities held in the Fund exceed +20%, which is more than twice the expected earnings gain for the S&P 500. Furthermore, as inflation fears have subsided, growth stocks have significantly outperformed value issues as the perception of risk surrounding their higher price-to-earnings valuations has diminished. As of June 30th, the Fund was 93% invested in equities. Significant sector weighting changes during the past year include increases in electronic technology and health technology through the additions of Sun Microsystems, International Business Machines, Raytheon, United Technologies, American Home Products, and Amgen. Sector weighting decreases occurred in financial services and consumer non-durables through the reduction or elimination of positions in Citigroup, Franklin Resources, Mercury General, Unilever, and Gillette. Net assets in the Fund totaled $140.3 million at the end of June, up from $117.5 million a year ago. We very much appreciate shareholders' continued interest and participation in the Fund. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Large Cap Growth Fund is to maximize long-term capital appreciation. The Fund pursues this objective by investing primarily in common stocks of growth companies with a capitalization of $5 billion or more at the time of purchase. PORTFOLIO SUMMARY Net Asset Value 6/30/99: $ 52.84 Per Share 6/30/98: $ 49.34 Per Share Total Net Assets: $140.3 Million Weighted Average Market Cap: $127.1 Billion TOTAL DIVIDEND: $ 3.42 PER SHARE Long Term Capital Gain: $ 3.41 Per Share Ordinary Income: $ 0.01 Per Share PORTFOLIO STRUCTURE - BY SECTOR (% of total net assets) [BAR CHART] Electronic Technology 27.6 Health Technology 13.7 Finance 9.5 Technology Services 8.9 Retail Trade 8.6 Producer Manufacturing 6.3 Utilities 5.7 Consumer Services 4.7 Consumer Non-Durables 3.8 Health Services 1.7 Consumer Durables 0.9 Energy Minerals 0.9 Transportation 0.7 Cash & Other Net Assets 7.0 10
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ---------------------------------------- ---------------------------------------- Large Cap Russell 1000 S&P Large Cap Russell 1000 S&P Growth Fund Growth Index 500 Index Growth Fund Growth Index 500 Index ----------- ------------ --------- ----------- ------------ --------- 3 Months 1.36% 3.85% 7.05% 1.36% 3.85% 7.05% (not annualized) 1 Year 15.10 27.28 22.76 15.10 27.28 22.76 5 Years 26.52 29.65 27.87 224.21 266.38 241.87 10 Years 17.25 19.80 18.78 391.22 508.91 459.09 Inception 17.04 18.86 19.21 1314.09 1734.05 1827.27 (9/2/82)
* As of 6/30/99 ON 6/6/93, THE FUND'S INVESTMENT OBJECTIVE CHANGED TO ALLOW FOR A PORTFOLIO OF 100% STOCKS. PRIOR TO THAT TIME, THE PORTFOLIO WAS REQUIRED TO CONTAIN NO MORE THAN 80% STOCKS. PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE S&P 500 INDEX NOR THE RUSSELL 1000 GROWTH INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (9/2/82) and held until 6/30/99 would have grown to $141,409 in the Fund, or $192,727 in the S&P 500 Index assuming reinvestment of all dividends and capital gains. 10 LARGEST HOLDINGS * Cisco Systems, Inc. * Microsoft Corp. * General Electric Co. * Lucent Technologies, Inc. * Merck & Co., Inc. * Tyco International, Ltd. * Vodafone Airtouch, A.D.R. * Int'l Business Machines Corp. * Pfizer, Inc. * MCI WorldCom, Inc. Total number of holdings: 65 11 SIT LARGE CAP GROWTH FUND PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------- COMMON STOCKS (93.0%) (2) CONSUMER DURABLES (0.9%) 22,600 Harley-Davidson, Inc. $1,228,875 --------------- CONSUMER NON-DURABLES (3.8%) 25,500 Coca Cola Co. 1,593,750 15,100 Colgate-Palmolive Co. 1,491,125 14,800 Group Danone, A.D.R. 774,225 15,800 Procter & Gamble Co. 1,410,150 --------------- 5,269,250 --------------- CONSUMER SERVICES (4.7%) 44,500 CBS Corp. (3) 1,932,969 21,900 Clear Channel Comm., Inc. (3) 1,509,731 23,800 Time Warner, Inc. 1,749,300 31,400 Viacom, Inc. - Class B (3) 1,381,600 --------------- 6,573,600 --------------- ELECTRONIC TECHNOLOGY (27.6%) 29,500 ADC Telecommunications, Inc. (3) 1,344,094 119,150 Cisco Systems, Inc. (3) 7,685,175 24,800 Computer Sciences Corp. (3) 1,715,850 48,600 Dell Computer Corp. (3) 1,798,200 56,800 EMC Corp. (3) 3,124,000 21,000 General Dynamics Corp. 1,438,500 44,400 Intel Corp. 2,641,800 25,000 Int'l Business Machines Corp. 3,231,250 57,210 Lucent Technologies, Inc. 3,858,099 17,400 Raytheon Co. - Class B 1,224,525 46,000 Sun Microsystems, Inc. (3) 3,168,250 42,200 Tellabs, Inc. (3) 2,851,137 12,300 Texas Instruments, Inc. 1,783,500 17,323 United Technologies Corp. 1,241,843 26,000 Xerox Corp. 1,535,625 --------------- 38,641,848 --------------- ENERGY MINERALS (0.9%) 32,000 Unocal Corp. 1,268,000 --------------- FINANCE (9.5%) 12,300 American International Group, Inc. 1,439,869 16,000 Associates First Capital Corp. 709,000 31,100 Chase Manhattan Corp. 2,694,038 24,000 Equitable Companies, Inc. 1,608,000 20,700 Federal Home Loan Mortgage Corp. 1,200,600 19,000 Marsh & McLennan Cos., Inc. 1,434,500 - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------- 37,900 Mercury General Corp. 1,288,600 15,000 Merrill Lynch & Co., Inc. 1,199,063 31,300 Wells Fargo Co. 1,338,075 7,100 XL Capital, Ltd. 401,150 --------------- 13,312,895 --------------- HEALTH SERVICES (1.7%) 36,996 McKesson HBOC, Inc. 1,188,497 22,500 Waste Management, Inc. 1,209,375 --------------- 2,397,872 --------------- HEALTH TECHNOLOGY (13.7%) 20,400 American Home Products Corp. 1,173,000 21,000 Amgen, Inc. (3) 1,278,375 32,100 Bristol-Myers Squibb Co. 2,261,044 18,800 Eli Lilly & Co. 1,346,550 13,500 Johnson & Johnson Co. 1,323,000 27,100 Medtronic, Inc. 2,110,412 49,400 Merck & Co., Inc. 3,655,600 29,100 Pfizer, Inc. 3,193,725 28,400 Schering-Plough Corp. 1,505,200 20,700 Warner Lambert Corp. 1,436,062 --------------- 19,282,968 --------------- PRODUCER MANUFACTURING (6.3%) 46,800 General Electric Co. 5,288,400 37,600 Tyco International, Ltd. 3,562,600 --------------- 8,851,000 --------------- RETAIL TRADE (8.6%) 45,200 Dayton Hudson Corp. 2,938,000 32,025 Gap, Inc. 1,613,259 44,700 Home Depot, Inc. 2,880,356 18,500 Kohl's Corp. (3) 1,427,969 25,400 Lowe's Companies, Inc. 1,439,862 60,600 Walgreen Co. 1,780,125 --------------- 12,079,571 --------------- TECHNOLOGY SERVICES (8.9%) 17,500 America Online, Inc. (3) 1,933,750 58,400 Ceridian Corp. (3) 1,908,950 64,000 Microsoft Corp. (3) 5,772,000 35,250 Oracle Corp. (3) 1,308,656 27,037 Paychex, Inc. 861,804 18,700 SAP, A.D.R. 647,487 --------------- 12,432,647 --------------- TRANSPORTATION (0.7%) 33,500 Southwest Airlines Co. 1,042,688 --------------- 12 - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------- UTILITIES (5.7%) 37,100 MCI WorldCom, Inc. (3) 3,192,919 24,000 Sprint Corp. 1,267,500 18,000 Vodafone Airtouch, A.D.R. 3,546,000 --------------- 8,006,419 --------------- Total common stocks 130,387,633 --------------- (cost: $85,608,041) SHORT-TERM SECURITIES (6.3%) (2) 8,807,000 Sit Money Market Fund, 4.56% (6) 8,807,000 --------------- (cost: $8,807,000) Total investments in securities (cost: $94,415,041) (7) $139,194,633 =============== See accompanying notes to portfolios of investments. 13 SIT REGIONAL GROWTH FUND REVIEW YEAR ENDED JUNE 30, 1999 [PHOTO] SENIOR PORTFOLIO MANAGER EUGENE C. SIT, CFA The Sit Regional Growth Fund rose +17.2% during the past year, while the S&P 500's return was +22.8%. For the last quarter, the Fund's return was +7.0% compared to the +7.1% return for the S&P 500. The Fund's performance differential to the Index was essentially due to underweightings in the very large companies outside of the Fund's regional focus. The Fund's cumulative +32.0% return since inception, although lagging behind the capitalization-weighted S&P 500 return, actually exceeds the estimated equal-weighted capitalization return of +30.8% for the S&P Index. Because the Fund's capitalization remains well below the popular large cap indices, the widening breadth of the market during the second quarter bodes well for improved relative performance going forward. Strong earnings growth continues to be the primary focus of the portfolio. We project earnings growth rates of more than +21% for the next two years--approximately three times the projected growth estimates for the S&P 500--for securities held in the Fund. Our enthusiasm for the Fund is based on the attractive valuation relative to the market. Despite significantly higher projected earnings growth rates, the Fund's weighted price-to-earnings valuation is 26 (based on 1999 estimates), which is equivalent to the current earnings multiple of the S&P 500. As of June 30th, the Fund was 95% invested in equity securities. Significant sector weighting changes during the past year included increases in electronic technology and technology services through the additions of Motorola, National Computer Systems, Compuware, and First Data. Sector weighting decreases occurred in financial services and health technology through the reduction or elimination of positions in Charter One Financial, Household International, Progressive, Hillenbrand, Stryker, and RP Scherer. Given the Fund's emphasis on growth companies with unique product attributes, overweighted positions remain in electronic technology and technology services. Given the Fund's strong earnings growth prospects, attractive valuations, and existing opportunities within our geographic region, we remain enthusiastic about the Fund's potential. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Fund is to maximize long-term capital appreciation. The Fund pursues this objective by investing primarily in common stocks of companies with their headquarters in Minnesota, Iowa, Missouri, North Dakota, South Dakota, Nebraska, Kansas, Wisconsin, Illinois, Michigan, Indiana, and Ohio. During normal market conditions, at least 80% of the Fund's total assets will be invested in such securities. The Fund emphasizes securities of companies that the Adviser believes have potential for long-term capital growth. PORTFOLIO SUMMARY Net Asset Value 6/30/99: $13.17 Per Share 6/30/98: $11.26 Per Share Total Net Assets: $ 7.5 Million Weighted Average Market Cap: $22.0 Billion TOTAL DIVIDEND: $ 0.02 PER SHARE Ordinary Income: $ 0.02 Per Share PORTFOLIO STRUCTURE - BY SECTOR (% of total net assets) [BAR CHART] Technology Services 15.6 Retail Trade 15.0 Electronic Technology 14.9 Finance 12.5 Health Technology 10.0 Commercial Services 5.2 Utilities 4.4 Process Industries 3.7 Producer Manufacturing 3.3 Health Services 3.1 Consumer Services 2.6 Consumer Durables 1.8 Consumer Non-Durables 1.6 Transportation 1.4 Cash & Other Net Assets 4.9 14
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* --------------------------------- -------------------------------- Regional Russell S&P Regional Russell S&P Growth 3000 500 Growth 3000 500 Fund Index Index Fund Index Index -------- ------- ----- -------- ------- ----- 3 Months 6.99% 7.70% 7.05% 6.99% 7.70% 7.05% (not annualized) 1 Year 17.21 20.11 22.76 17.21 20.11 22.76 Inception 20.38 24.18 27.90 31.97 38.25 44.50 (12/31/97)
* As of 6/30/99 PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE S&P 500 INDEX NOR THE RUSSELL 3000 INDEX. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (12/31/97) and held until 6/30/99 would have grown to $13,197 in the Fund, or $14,450 in the S&P 500 Index assuming reinvestment of all dividends and capital gains. 10 LARGEST HOLDINGS * Best Buy, Inc. * Tellabs, Inc. * Wells Fargo Co. * Motorola, Inc. * Dayton Hudson Corp. * Ceridian Corp. * Northern Trust Corp. * Great Plains Software, Inc. * Cardinal Health, Inc. * ADC Telecommunications, Inc. Total number of holdings: 39 15 SIT REGIONAL GROWTH FUND PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------- COMMON STOCKS (95.1%) (2) COMMERCIAL SERVICES (5.2%) 3,000 Deluxe Corp. $116,813 4,500 Ecolab, Inc. 196,313 8,000 Ha-Lo Industries, Inc. (3) 79,000 --------------- 392,126 --------------- CONSUMER DURABLES (1.8%) 2,500 Harley-Davidson, Inc. 135,937 --------------- CONSUMER SERVICES (2.6%) 4,000 Emmis Communications Corp. (3) 197,500 --------------- CONSUMER NON-DURABLES (1.6%) 1,500 General Mills, Inc. 120,562 --------------- ELECTRONIC TECHNOLOGY (14.9%) 5,000 ADC Telecommunications, Inc. (3) 227,813 2,000 Gateway 2000, Inc. (3) 118,000 3,000 Motorola, Inc. 284,250 4,500 National Computer Systems, Inc. 151,875 5,000 Tellabs, Inc. (3) 337,812 --------------- 1,119,750 --------------- FINANCE (12.5%) 3,000 Aon Corp. 123,750 2,500 Northern Trust Corp. 242,500 2,500 Reliastar Financial Corp. 109,375 6,000 TCF Financial Corp. 167,250 7,000 Wells Fargo Co. 299,250 --------------- 942,125 --------------- HEALTH SERVICES (3.1%) 3,637 Cardinal Health, Inc. 233,223 --------------- HEALTH TECHNOLOGY (10.0%) 2,500 Abbott Laboratories 113,750 1,500 Baxter International, Inc. 90,938 3,000 Eli Lilly & Co. 214,875 2,500 Medtronic, Inc. 194,688 5,000 Sybron Int'l Corp. (3) 137,812 --------------- 752,063 --------------- - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------- PROCESS INDUSTRIES (3.7%) 2,000 H.B. Fuller Co. 136,750 3,500 Monsanto Co. 138,031 --------------- 274,781 --------------- PRODUCER MANUFACTURING (3.3%) 2,000 Emerson Electric Co. 125,750 1,500 Illinois Tool Works, Inc. 123,000 --------------- 248,750 --------------- RETAIL TRADE (15.0%) 7,000 Best Buy, Inc. (3) 472,500 4,000 Dayton Hudson Corp. 260,000 2,500 Kohl's Corp. (3) 192,969 7,000 Walgreen Co. 205,625 --------------- 1,131,094 --------------- TECHNOLOGY SERVICES (15.6%) 7,500 Ceridian Corp. (3) 245,156 4,500 Compuware Corp. (3) 143,156 4,500 First Data Corp. 220,219 5,425 Fiserv, Inc. (3) 169,870 5,000 Great Plains Software, Inc. (3) 235,937 5,000 Whittman-Hart, Inc. (3) 158,750 --------------- 1,173,088 --------------- TRANSPORTATION (1.4%) 2,800 C.H. Robinson Worldwide, Inc. 102,900 --------------- UTILITIES (4.4%) 2,000 Ameritech Corp. 147,000 3,500 Sprint Corp. 184,844 --------------- 331,844 --------------- Total common stocks 7,155,743 --------------- (cost: $5,555,358) SHORT-TERM SECURITIES (4.9%) (2) 365,000 Sit Money Market Fund, 4.56% (6) 365,000 --------------- (cost: $365,000) Total investments in securities (cost: $5,920,358) (7) $7,520,743 =============== See accompanying notes to portfolios of investments. 16 (THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.) 17 SIT MID CAP GROWTH FUND REVIEW YEAR ENDED JUNE 30, 1999 [PHOTO] SENIOR PORTFOLIO MANAGERS EUGENE C. SIT, CFA ERIK S. ANDERSON, CFA During the June quarter of 1999, mid cap growth stocks rebounded strongly and outperformed large cap growth stocks, as measured by the Frank Russell Indices, for the first time in seven quarters. The Fund's quarterly return of +11.2% compared favorably with the +10.4% return for the Russell Mid Cap Growth Index. For the year ended June 30, 1999, the Sit Mid Cap Growth Fund return was +6.9% versus the +20.3% for the Russell Mid Cap Growth Index. Although the Fund's performance has lagged behind the Index, our capitalization restrictions and valuation disciplines resulted in limited exposure to areas which drove the Index higher, namely large stocks with capitalizations greater than $10 billion and Internet stocks. For example, we estimate that just two stocks, Yahoo! and Charles Schwab, contributed approximately +4.5% to the +20.3% return for the Index over the last year. These companies have current market capitalizations of over $35 billion and are well in excess of our Fund parameters. The recent outperformance of smaller cap issues can be attributed to attractive valuations and renewed confidence in the global economy. Given the dramatic differences in performance between mid and large cap issues over the last two years, the potential for small and medium cap issues to catch up still exists. Although the much publicized rally in cyclical stocks lifted value stocks higher during the second quarter, growth issues in the mid cap sector have significantly outperformed value issues on a year-to-date and twelve-month basis. We believe that the Fund is very well positioned to capitalize on the renewed market enthusiasm for smaller cap issues. The portfolio's average projected earnings growth rate of +25% vastly exceeds the S&P 500's projected growth rate of +10%. Significant sector weighting changes during the past year include increases in electronic technology and health technology through the additions of Uniphase, Vitesse Semiconductor, Jabil Circuit, Applied Micro Devices, and Lexmark International. Sector weighting decreases occurred in financial services and health services through the reduction or elimination of positions in First American of Tennessee, Nac Re, Mercury General, McKesson HBOC, and Healthsouth Corporation. As of June 30th, the Fund was 94% invested in equities. Given mid cap stocks' renewed momentum and strong growth prospects for the companies in the portfolio, we remain optimistic about the Fund's outlook. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Sit Mid Cap Growth Fund is to maximize long-term capital appreciation. The Fund pursues this objective by investing primarily in the common stocks of growth companies with a capitalization of $2 billion to $15 billion at the time of purchase. PORTFOLIO SUMMARY Net Asset Value 6/30/99: $ 14.54 Per Share 6/30/98: $ 16.49 Per Share Total Net Assets: $375.3 Million Weighted Average Market Cap: $ 10.3 Billion TOTAL DIVIDEND: $ 2.54 PER SHARE Long Term Capital Gain: $ 2.54 Per Share PORTFOLIO STRUCTURE - BY SECTOR (% of total net assets) [BAR CHART] Electronic Technology 30.8 Technology Services 18.5 Health Technology 11.5 Finance 8.9 Retail Trade 8.3 Utilities 3.7 Commercial Services 3.2 Health Services 2.7 Consumer Non-Durables 2.0 Consumer Durables 1.3 Energy Minerals 1.0 Industrial Services 0.9 Commercial Services 0.7 Transportation 0.4 Cash & Other Net Assets 6.1 18
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ------------------------------------------ ------------------------------------------- Mid Cap Russell Mid Cap S&P MidCap Mid Cap Russell Mid Cap S&P MidCap Growth Fund Growth Index 400 Index Growth Fund Growth Index 400 Index ----------- --------------- ---------- ----------- --------------- ---------- 3 Months 11.16% 10.42% 14.16% 11.16% 10.42% 14.16% (not annualized) 1 Year 6.94 20.32 17.18 6.94 20.32 17.18 5 Years 21.21 22.35 22.28 161.68 174.16 173.37 10 Years 16.11 17.04 17.87 345.36 382.26 417.69 Inception 18.49 n/a 18.88 1639.71 n/a 1737.95 (9/2/82)
* As of 6/30/99 PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL MID CAP GROWTH INDEX NOR THE S&P MIDCAP 400 INDEX. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (9/2/82) and held until 6/30/99 would have grown to $173,971 in the Fund or $183,795 in the S&P MidCap 400 Index assuming reinvestment of all dividends and capital gains. 10 LARGEST HOLDINGS * Biogen, Inc. * Legato Systems, Inc. * Xilinx, Inc. * Uniphase Corp. * Kohl's Corp. * Dendrite International, Inc. * Staples, Inc. * Vitesse Semiconductor Corp. * ADC Telecommunications, Inc. * Elan Corp., A.D.R. Total number of holdings: 63 19 MID CAP GROWTH FUND PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------- COMMON STOCKS (93.9%) (2) COMMERCIAL SERVICES (0.7%) 100,400 Sylvan Learning Systems, Inc. (3) $2,729,625 ---------------- CONSUMER DURABLES (1.3%) 89,000 Harley-Davidson, Inc. 4,839,375 ---------------- CONSUMER NON-DURABLES (2.0%) 106,100 Dial Corp. 3,945,594 72,000 Estee Lauder Companies, Inc. 3,609,000 ---------------- 7,554,594 ---------------- CONSUMER SERVICES (3.2%) 55,500 Adelphia Communications Corp. (3) 3,531,188 152,800 Chancellor Media Corp. (3) 8,423,100 ---------------- 11,954,288 ---------------- ELECTRONIC TECHNOLOGY (30.8%) 26,000 AAR Corp. 589,875 212,200 ADC Telecommunications, Inc. (3) 9,668,363 37,500 ASM Lithography Hldg., A.D.R. (3) 2,226,563 90,500 Analog Devices, Inc. (3) 4,541,969 88,500 Applied Micro Circuits Corp. (3) 7,279,125 234,500 Asyst Technologies, Inc. (3) 7,020,344 94,500 Computer Sciences Corp. (3) 6,538,219 52,500 Comverse Technology, Inc. (3) 3,963,750 55,000 General Dynamics Corp. 3,767,500 71,300 Jabil Circuit, Inc. (3) 3,217,412 83,000 Lexmark International Group, Inc. (3) 5,483,187 81,000 Linear Technology Corp. 5,447,250 84,150 Lucent Technologies, Inc. 5,674,866 61,000 Maxim Integrated Products, Inc. (3) 4,056,500 145,050 Symbol Technologies, Inc. 5,348,719 95,000 Teradyne, Inc. (3) 6,816,250 69,500 Uniphase Corp. (3) 11,537,000 149,900 Vitesse Semiconductor Corp. (3) 10,108,881 217,400 Xilinx, Inc. (3) 12,446,150 ---------------- 115,731,923 ---------------- ENERGY MINERALS (1.0%) 177,000 Enron Oil & Gas Co. 3,584,250 ---------------- FINANCE (8.9%) 248,300 Ace, Ltd. 7,014,475 111,500 Firstar Corp. 3,122,000 19,500 Goldman Sachs Group, Inc. 1,408,875 100,000 Mercury General Corp. 3,400,000 - ------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------- 132,000 Mutual Risk Mgmt., Ltd. 4,405,500 68,200 ReliaStar Financial Corp. 2,983,750 108,000 T. Rowe Price & Associates 4,144,500 244,800 TCF Financial Corp. 6,823,800 ---------------- 33,302,900 ---------------- HEALTH SERVICES (2.7%) 69,250 Cardinal Health, Inc. 4,440,656 178,000 IMS Health, Inc. 5,562,500 ---------------- 10,003,156 ---------------- HEALTH TECHNOLOGY (11.5%) 259,000 Biogen, Inc. (3) 16,656,938 134,000 Boston Scientific Corp. (3) 5,887,625 344,000 Elan Corp., A.D.R. (3) 9,546,000 39,000 Immunex Corp. (3) 4,970,062 64,000 MedImmune, Inc. (3) 4,336,000 21,000 VISX, Inc. (3) 1,662,937 ---------------- 43,059,562 ---------------- INDUSTRIAL SERVICES (0.9%) 134,400 Transocean Offshore Drilling, Inc. 3,528,000 ---------------- RETAIL TRADE (8.3%) 52,000 Bed Bath & Beyond, Inc. (3) 2,002,000 76,000 Best Buy Co., Inc. (3) 5,130,000 90,000 Dollar General Corp. 2,610,000 144,000 Kohl's Corp. (3) 11,115,000 337,475 Staples, Inc. (3) 10,440,633 ---------------- 31,297,633 ---------------- TECHNOLOGY SERVICES (18.5%) 220,000 Aspen Technology, Inc. (3) 2,585,000 100,500 BMC Software, Inc. (3) 5,427,000 202,800 Ceridian Corp. (3) 6,629,025 146,000 Check Point Software Tech., Ltd. (3) 7,829,250 301,200 Dendrite International, Inc. (3) 10,880,850 18,000 DoubleClick, Inc. (3) 1,651,500 173,675 Fiserv, Inc. (3) 5,438,198 52,000 InfoSpace.com, Inc. (3) 2,444,000 55,000 Inktomi Corp. (3) 7,180,937 241,500 Legato Systems, Inc. (3) 13,946,625 81,300 Paychex, Inc. 2,591,437 73,500 Sterling Commerce, Inc. (3) 2,682,750 ---------------- 69,286,572 ---------------- TRANSPORTATION (0.4%) 42,500 CNF Transportation, Inc. 1,630,937 ---------------- 20 - ------------------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1) - ------------------------------------------------------------------------------- UTILITIES (3.7%) 92,000 Frontier Corp. 5,428,000 168,000 Nextel Communications, Inc. (3) 8,431,500 ---------------- 13,859,500 ---------------- Total common stocks 352,362,315 ---------------- (cost: $213,924,626) SHORT-TERM SECURITIES (5.1%) (2) 3,975,000 American Express Credit Corp., 5.50%, 7/1/99 3,974,393 15,042,000 Sit Money Market Fund, 4.56% (6) 15,042,000 ---------------- (cost: $19,017,000) 19,016,393 ---------------- Total investments in securities (cost: $232,941,626) (7) $371,378,708 ================ See accompanying notes to portfolios of investments. 21 SIT INTERNATIONAL GROWTH FUND REVIEW YEAR ENDED JUNE 30, 1999 [PHOTO] SENIOR PORTFOLIO MANAGERS EUGENE C. SIT, CFA ANDREW B. KIM, CFA ROGER J. SIT The Sit International Growth Fund's 1-year return of +4.5% compares with the MSCI EAFE Index gain of +7.6% and the Lipper International Fund Index rise of +4.0%. A major reason for the Fund's underperformance relative to the EAFE Index was a sector rotation from growth to cyclical stocks in the first half of 1999. Market participants anticipated a faster pace of global economic growth accompanied by an upturn in basic commodity prices. The Russian default in August 1998 was one of the most traumatic experiences for the international markets last year. The EAFE Index declined - -14.2% in the three months ended September 30, 1998, in part due to the potential crisis associated with Long- Term Capital Management in the U.S. Fortunately, the international equity markets were able to recover substantially, enabling the Index to record a +20.7% gain in the December quarter. Moreover, the first half of 1999 witnessed a lessening of market volatility despite Brazil's currency devaluation. For the first six months of 1999, the Index increased by a modest +4.0%. Notably, the first half of 1999 was marked by an unexpectedly steep depreciation of the euro (down -13%). As a result, the Fund's European portfolio holdings declined in the Netherlands, Belgium, Ireland and the U.K. Subsequently, the euro began to rebound against the dollar in July in response to indications of improved economic growth in Germany and the U.K. We expect the euro's upward trend to continue in the remainder of 1999, and we are targeting a European portfolio weighting of 62%, up from 58.3% at the end of June. The Fund's Pacific Basin holdings increased to 12.9% of total assets vs. the Index weighting of 6.6% due to the accelerating speed of recovery in the crisis economies of Asia and ample liquidity. Recording substantial gains in dollar terms were the Fund's holdings in Korea, Thailand and Hong Kong. From a long-term perspective, the upward momentum in the Japanese market is even more significant now that a relapse in the economy appears unlikely; therefore, the Fund's Japanese weighting climbed to 25.0% at mid-1999 (from 12.8% a year ago), compared with 24.0% for the Index. The Fund partially hedged its Japanese holdings in early July to protect local currency gains in the future. We expect renewed yen weakness based on a resumption of Japanese capital outflow and a decreasing current account surplus. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Sit International Growth Fund is to achieve long-term growth of capital by investing in equity securities of issuers domiciled outside the United States. The Fund's investment objective reflects the belief that long-term investment planning should include the investment opportunities that exist outside the U.S. The Fund selects its investments based on the characteristics of the particular markets and economies of the countries in which it invests. Emphasis is placed on identifying securities of companies believed to be undervalued in the marketplace in relation to factors such as the company's revenues, earnings, assets and long-term competitive position which over time will enhance the equity value of the company. PORTFOLIO SUMMARY Net Asset Value 6/30/99: $18.77 Per Share 6/30/98: $19.14 Per Share Total Net Assets: $95.0 Million Weighted Average Market Cap: $36.7 Billion TOTAL DIVIDEND: $ 1.14 PER SHARE Long Term Capital Gain: $ 1.08 Per Share Ordinary Income: $ 0.06 Per Share PORTFOLIO STRUCTURE - BY REGION (% of total net assets) [BAR CHART] SIT INT'L Morgan Stanley GROWTH FUND EAFE Index Europe Other 34.9 27.8 Japan 25.0 24.0 France, Germany, UK 23.4 41.6 Pacific Basin 12.9 6.6 Latin America 0.5 0.0 Cash & Other Net Assets 3.3 0.0 22
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ---------------------------------------- ----------------------------------------- Morgan Stanley Lipper Morgan Stanley Lipper International Capital Int'l Int'l Fund International Capital Int'l Int'l Fund Growth Fund EAFE Index Index Growth Fund EAFE Index Index ------------- ------------- ---------- ------------- ------------- ---------- 3 Months 3.99% 2.54% 5.55% 3.99% 2.54% 5.55% (not annualized) 1 Year 4.51 7.62 4.00 4.51 7.62 4.00 3 Years 9.56 8.81 10.79 31.50 28.83 35.99 5 Years 9.35 8.21 10.10 56.32 48.36 61.75 Inception 11.82 8.61 10.88 135.43 88.38 120.80 (11/1/91)
* As of 6/30/99 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. PORTFOLIO STRUCTURE - BY SECTOR (% of total net assets) [BAR CHART] Finance 22.4 Utilities 19.3 Electronic Technology 15.1 Health Technology 10.5 Technology Services 10.0 Retail Trade 5.2 Commercial Services 4.4 Producer Manufacturing 3.9 Consumer Non-Durables 2.9 Consumer Services 2.4 Industrial Services 0.6 Cash & Other Net Assets 3.3 GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (11/1/91) and held until 6/30/99 would have grown to $23,543 in the Fund or $18,838 in the Morgan Stanley EAFE Index assuming reinvestment of all dividends and capital gains. 23 SIT INTERNATIONAL GROWTH FUND PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 10 LARGEST HOLDINGS * Nokia Corp., A.D.R. * AFLAC, Inc. * Ryohin Keikaku Co. * Mannesman, A.G. * Misys, p.l.c. * Takeda Chemical Industries * Samsung Electronics * Orix Corp. * Telefonica, S.A. * Wolters Kluwer Total number of holdings: 77 - -------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - -------------------------------------------------------------------------------- COMMON STOCKS (95.9%)(2) ASIA (37.1%) AUSTRALIA (1.4%) 240,497 Colonial, Ltd. (Finance) (3) $850,546 88,900 Telstra Corp., Ltd. (Utilities) (3) 508,749 -------------- 1,359,295 -------------- HONG KONG (3.0%) 63,000 Cheung Kong Hldgs., Ltd. (Industrial Services) 560,281 304,000 China Telecom, Ltd. (Utilities) 844,379 226,000 Citic Pacific, Ltd. (Utilities) 720,942 19,200 HSBC Holdings, p.l.c. (Finance) 700,333 -------------- 2,825,935 -------------- JAPAN (24.2%) 54,400 AFLAC, Inc. (Finance) 2,604,400 71,000 Banyu Pharmaceuticals (Health Tech.) 1,174,039 240 NTT Data Corp. (Tech. Services) 1,908,888 36 NTT Mobile Communications Network, Inc. (Ord.) (Utilities) 488,136 144 NTT Mobile Communications Network, Inc. (Utilities) 1,928,731 29,000 Nihon Unisys, Ltd. (Tech. Services) 629,392 85 Nippon Telephone (Utilities) 990,905 22,400 Orix Corp. (Finance) 2,000,165 10,300 Ryohin Keikaku Co., Ltd. (Retail Trade) 2,593,096 - -------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - -------------------------------------------------------------------------------- 18,000 Seven Eleven Japan (Retail Trade) 1,765,027 1,600 Shohkoh Fund Co. (Finance) 1,148,243 50,000 Takeda Chemical Industries (Health Technology) 2,319,140 16,000 TDK Corp. (Electronic Technology) 1,464,407 31,000 Terumo Corp. (Health Technology) 690,740 88,000 The Fuji Bank, Ltd. (Finance) 614,072 101,000 The Nikko Securities Co., Ltd. (Finance) 652,179 -------------- 22,971,560 -------------- PHILIPPINES (0.5%) 141,500 Manila Electric Co. (Utilities) 509,474 -------------- TAIWAN (1.5%) 123,000 Hon Hai Precision Industry (Electronic Technology) (3) 1,111,950 10,000 Taiwan Semiconductor Mfg. Co. Ltd., A.D.R. (Electronic Technology) (3) 340,000 -------------- 1,451,950 -------------- SINGAPORE (2.2%) 42,000 Development Bank of Singapore, Ltd. (Finance) 513,279 167,000 Natsteel Electronics, Ltd. (Electronic Technology) 730,993 109,000 Venture Mfg., Ltd. (Electronic Tech.) 838,954 -------------- 2,083,226 -------------- SOUTH KOREA (2.3%) 19,512 Samsung Electronics (Electronic Tech.) 2,140,841 THAILAND (2.0%) 101,000 Advanced Info Services (Utilities) 1,369,492 135,000 Bangkok Bank Public Co., Ltd. (Finance) (3) 505,220 -------------- 1,874,712 -------------- EUROPE (58.3%) BELGIUM (0.8%) 17,600 UCB, S.A. (Health Technology) 752,568 -------------- FINLAND (7.1%) 52,800 Nokia Corp., A.D.R. (Electronic Tech.) 4,834,500 46,360 Tieto Corp. (Technology Services) 1,929,788 -------------- 6,764,288 -------------- FRANCE (7.4%) 14,520 AXA-UAP (Finance) 1,769,849 38,200 Alstom, A.D.R. (Producer Mfg.) 1,200,461 24 - -------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - -------------------------------------------------------------------------------- 3,894 Carrefour, S.A. (Retail Trade) 571,736 9,430 France Telecom, S.A. (Utilities) 711,712 6,560 Groupe Danone (Cons. Non-Durables) 1,689,774 1,615 L'oreal Co. (Consumer Non-Durables) 1,090,762 -------------- 7,034,294 -------------- GERMANY (5.2%) 3,397 Allianz, A.G. (Finance) 941,527 21,930 Deutsche Telekom, A.G. (Utilities) 919,640 17,100 Mannesmann, A.G. (Producer Mfg.) 2,549,467 1,250 SAP Preferred (Technology Services) 499,076 -------------- 4,909,710 -------------- IRELAND (3.6%) 98,800 Bank of Ireland (Finance) 1,660,119 64,400 Elan Corp., p.l.c., A.D.R. (Health Technology) (3) 1,787,100 -------------- 3,447,219 -------------- ITALY (4.5%) 272,200 Banca Fideuram (Finance) 1,584,606 123,000 Telecom Italia (Utilities) 1,277,469 242,100 Telecom Italia Mobile Spa (Utilities) 1,444,302 -------------- 4,306,377 -------------- NETHERLANDS (7.3%) 8,200 ASM Lithography Holding N.V. (Electronic Technology) (3) 486,875 20,740 Aegon N.V., A.D.R. (Finance) 1,534,729 60,360 CMG, p.l.c. (Technology Services) 1,585,894 5,100 Equant, A.D.R. (Technology Services) 480,038 22,640 Libertel N.V. (Electronic Technology) (3) 443,215 8,040 United Pan-Europe Communications N.V. (Consumer Services) (3) 435,739 49,064 Wolters Kluwer (Commercial Svcs.) 1,951,349 -------------- 6,917,839 -------------- PORTUGAL (0.9%) 20,500 Portugal Telecom, A.D.R. (Utilities) 844,344 -------------- SPAIN (5.2%) 68,220 Argentaria (Finance) 1,552,717 67,500 Endesa, A.D.R. (Utilities) 1,434,375 41,286 Telefonica, S.A. (Utilities) 1,986,998 -------------- 4,974,090 -------------- - -------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - -------------------------------------------------------------------------------- SWEDEN (2.2%) 36,300 L.M. Ericsson Telephone Co., A.D.R. (Electronic Technology) 1,195,631 60,800 Securitas AB (Commercial Svcs.) 909,681 -------------- 2,105,312 -------------- SWITZERLAND (3.3%) 675 Novartis, A.G. (Health Technology) 985,053 50 Roche Holdings, A.G. (Health Tech.) 513,661 2,870 Zurich Allied, AG (Finance) 1,631,038 -------------- 3,129,752 -------------- UNITED KINGDOM (10.8%) 28,924 AstraZeneca Group, p.l.c. (Health Technology) 1,127,893 52,800 British Telecom, p.l.c. (Utilities) 884,693 55,550 Carlton Communications, p.l.c. (Consumer Services) 461,007 46,190 Granada Group, p.l.c. (Consumer Services) 856,938 72,126 Lloyds TSB Group, p.l.c. (Finance) 977,722 292,585 Misys, p.l.c. (Technology Services) 2,504,247 23,305 Pearson, p.l.c. (Consumer Services) 473,508 334,670 Rentokil Group, p.l.c. (Commercial Svcs.) 1,305,621 9,600 SmithKline Beecham, p.l.c., A.D.R. (Health Technology) 634,201 5,100 Vodafone Airtouch, A.D.R. (Utilities) 1,004,700 -------------- 10,230,530 -------------- LATIN AMERICA (0.5%) MEXICO (0.5%) 5,700 Telefonos de Mexico S.A., A.D.R. (Utilities) 460,631 -------------- Total common stocks 91,093,947 -------------- (cost: $57,285,461) STRUCTURED NOTE (0.8%) (2) 371 Sony Corp. (Currency Protected, Equity-Linked), 7.50%, 5/8/00 (8) 779,205 -------------- (cost: $717,236) SHORT TERM SECURITIES (3.3%) (2) 3,156,000 Sit Money Market Fund, 4.56% (6) 3,156,000 -------------- (cost: $3,156,000) Total investments in securities (cost: $61,158,697) (7) $95,029,152 ============== See accompanying notes to portfolios of investments. 25 SIT SMALL CAP GROWTH FUND REVIEW YEAR ENDED JUNE 30, 1999 [PHOTO] EUGENE C. SIT, CFA SENIOR PORTFOLIO MANAGER The Sit Small Cap Growth Fund's one-year return was +8.8% and compared favorably to the +1.5% return for the Russell 2000 Index. Small cap stocks regained significant momentum during the second quarter of 1999. The Fund's quarterly return was +18.7% versus the +15.6% return for the Russell 2000 Index. The Fund's average annual total return since inception was +19.4%, which compared favorably to the +15.3% return for the Russell 2000 Index. Extreme undervaluation of small stocks and renewed confidence in the global economic environment were key elements behind the strong second quarter rally for small cap stocks. In fact, this was the first quarter in seven that the Russell 2000 Index outperformed the Russell 1000 Index. Given the duration and magnitude of small cap underperformance in recent years and the resulting valuation disparity, we believe the potential exists for an extended small cap stock rally. Our enthusiasm for smaller stocks can be illustrated by a simple analysis of price-to-earnings ratios relative to estimated long-term growth rates. The P/E ratio for the Fund currently stands at 32 times estimated year 2000 earnings--which is BELOW the estimated earnings growth rate of 35%. In contrast, the P/E ratio for the S&P 500 is 26 times estimated 2000 earnings and well ABOVE the long-term earnings growth rate of 10%. As of June 30th, the Fund was 96% invested in equities. The most significant sector increases over the past year occurred in electronic technology through purchases of Applied Micro Circuits, PMC Sierra, Galileo Technology, and Flextronics. The financial services sector had the greatest reduction in weighting, accomplished through sales of Imperial Credit Industries, Life Re, Nac Re, Delphi Financial, and Community First Bank. Electronic technology and technology services remain the heaviest weighted sectors within the portfolio due to the robust earnings outlook for the technology sectors. Although the strong returns experienced during the second quarter are unlikely to be repeated over each of the year's remaining quarters, we believe the Fund is in position to benefit from the improving outlook for small capitalization investing. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Sit Small Cap Growth Fund is to maximize long-term capital appreciation. The Fund pursues this objective by investing primarily in the common stocks of small growth companies that have a capitalization of $2.5 billion or less at the time of purchase. In addition, the Fund may purchase securities convertible into common stocks, preferred stocks and warrants. The Fund may invest in securities not listed on a national securities exchange but generally such securities will have an established over-the-counter market. PORTFOLIO SUMMARY Net Asset Value 6/30/99: $18.28 Per Share 6/30/98: $20.35 Per Share Total Net Assets: $50.3 Million Weighted Average Market Cap: $ 2.0 Billion TOTAL DIVIDEND: $ 3.09 PER SHARE Long Term Capital Gain: $ 3.09 Per Share PORTFOLIO STRUCTURE - BY SECTOR (% of total net assets) [BAR CHART] Electronic Technology 30.1 Technology Services 23.9 Finance 8.9 Utilities 8.0 Health Technology 6.3 Consumer Services 4.7 Retail Trade 4.2 Transportation 3.8 Health Services 2.3 Energy Minerals 1.9 Industrial Services 1.1 Commercial Services 0.7 Cash & Other Net Assets 4.1 26
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ------------------------------------------- ------------------------------------------ Small Cap Russell 2000 Russell 2000 Small Cap Russell 2000 Russell 2000 Growth Fund Index Growth Index Growth Fund Index Growth Index ----------- ------------ ------------ ----------- ------------ ------------ 3 Months 18.70% 15.55% 14.75% 18.70% 15.55% 14.75% (not annualized) 1 Year 8.77 1.50 8.30 8.77 1.50 8.30 3 Years 7.54 11.22 8.64 24.38 37.56 28.24 Inception 19.44 15.32 15.33 143.07 103.99 104.09 (7/1/94)
* As of 6/30/99 PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL 2000 INDEX NOR THE RUSSELL 2000 GROWTH INDEX. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (7/1/94) and held until 6/30/99 would have grown to $24,307 in the Fund or $20,399 in the Russell 2000 Index assuming reinvestment of all dividends and capital gains. 10 LARGEST HOLDINGS * Applied Micro Circuits Corp. * Uniphase Corp. * Dendrite International, Inc. * PMC-Sierra, Inc. * Legato Systems, Inc. * Galileo Technology, Ltd. * Transaction Network Services, Inc. * Allegiance Telecom, Inc. * Siebel Systems, Inc. * Inktomi Corp. Total number of holdings: 58 27 SIT SMALL CAP GROWTH FUND PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 - -------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - -------------------------------------------------------------------------------- COMMON STOCKS (95.9%) (2) COMMERCIAL SERVICES (0.7%) 35,000 HA-LO Industries, Inc. (3) $345,625 ---------------- CONSUMER SERVICES (4.7%) 22,000 Emmis Broadcasting Corp. (3) 1,086,250 9,000 Jones Intercable, Inc. (3) 441,000 35,000 Rent-Way, Inc. (3) 861,875 ---------------- 2,389,125 ---------------- ELECTRONIC TECHNOLOGY (30.1%) 28,000 AAR Corp. 635,250 25,000 Applied Micro Circuits Corp. (3) 2,056,250 33,500 Asyst Technologies, Inc. (3) 1,002,906 29,000 Burr-Brown Corp. (3) 1,062,125 3,000 Extreme Networks, Inc. (3) 174,187 22,500 Flextronics International, Ltd. (3) 1,248,750 33,500 Galileo Technology, Ltd. (3) 1,517,969 20,000 Gilat Satellite Networks, Ltd. (3) 1,050,000 1,500 Juniper Networks, Inc. (3) 223,500 30,000 PMC-Sierra, Inc. (3) 1,768,125 12,700 RF Micro Devices, Inc. (3) 947,738 18,000 SDL, Inc. (3) 919,125 25,000 Security Dynamics Tech., Inc. (3) 531,250 12,000 Uniphase Corp. (3) 1,992,000 ---------------- 15,129,175 ---------------- ENERGY MINERALS (1.9%) 33,500 Newfield Exploration Co. (3) 952,656 ---------------- FINANCE (8.9%) 18,500 Arthur J. Gallagher & Co. 915,750 38,500 Federated Investors, Inc. 690,594 17,500 Mutual Risk Management, Ltd. 584,063 39,325 Queens County Bancorp, Inc. 1,273,147 90,500 Scottish Annuity & Life Hldgs., Ltd. 972,875 7,300 Stirling Cooke Brown Holdings 30,112 ---------------- 4,466,541 ---------------- HEALTH SERVICES (2.3%) 35,500 Stericycle, Inc. (3) 481,469 20,000 Sunrise Assisted Living, Inc. (3) 697,500 ---------------- 1,178,969 ---------------- HEALTH TECHNOLOGY (6.3%) 44,000 Biosite Diagnostics, Inc. (3) 445,500 50,000 I-Stat Corp. (3) 456,250 9,000 IDEC Pharmaceuticals Corp. (3) 693,562 9,500 Novoste Corp. (3) 199,500 10,000 Sepracor, Inc. (3) 812,500 30,000 Ventana Medical Systems, Inc. (3) 573,750 ---------------- 3,181,062 ---------------- - -------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - -------------------------------------------------------------------------------- INDUSTRIAL SERVICES (1.1%) 61,000 Newpark Resources, Inc. (3) 541,375 ---------------- RETAIL TRADE (4.2%) 10,000 AnnTaylor Stores Corp. (3) 450,000 28,000 Cost Plus, Inc. (3) 1,274,000 15,500 Men's Wearhouse, Inc. (3) 395,250 ---------------- 2,119,250 ---------------- TECHNOLOGY SERVICES (23.9%) 17,500 BISYS Group, Inc. (3) 1,023,750 11,500 Cais Internet, Inc. (3) 211,313 51,500 Dendrite International, Inc. (3) 1,860,438 20,000 Great Plains Software, Inc. (3) 943,750 10,000 Inktomi Corp. (3) 1,305,625 30,000 Legato Systems, Inc. (3) 1,732,500 34,300 Pervasive Software, Inc. (3) 853,212 2,500 Priceline.com, Inc. (3) 288,906 6,500 Razorfish, Inc. (3) 240,906 15,000 Sapient Corp. (3) 849,375 20,229 Siebel Systems, Inc. (3) 1,342,700 3,000 VerticalNet, Inc. (3) 315,000 26,000 Whittman-Hart, Inc. (3) 825,500 8,500 Ziff-Davis, Inc. (3) 221,000 ---------------- 12,013,975 ---------------- TRANSPORTATION (3.8%) 25,000 C.H. Robinson Worldwide, Inc. 918,750 8,000 Eagle USA Airfreight, Inc. (3) 339,500 24,000 Expeditors International, Inc. 654,000 ---------------- 1,912,250 ---------------- UTILITIES (8.0%) 26,000 Allegiance Telecom, Inc. (3) 1,426,750 12,000 Nextlink Communications (3) 892,500 5,000 Rhythms NetConnections, Inc. (3) 291,875 49,000 Transaction Network Svcs., Inc. (3) 1,433,250 ---------------- 4,044,375 ---------------- Total common stocks 48,274,378 ---------------- (cost: $31,802,635) SHORT-TERM SECURITIES (3.0%) (2) 1,491,000 Sit Money Market Fund, 4.56% (6) 1,491,000 ---------------- (cost: $1,491,000) Total investments in securities (cost: $33,293,635) (7) $49,765,378 ================ See accompanying notes to portfolios of investments. 28 (THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.) 29 SIT SCIENCE AND TECHNOLOGY GROWTH FUND REVIEW YEAR ENDED JUNE 30, 1999 [PHOTO] EUGENE C. SIT, CFA SENIOR PORTFOLIO MANAGER The Sit Science and Technology Fund posted a positive return of +29.4% for the year ended June 30, 1999. The +32.5% annualized return since inception is in excess of broad market averages. For example, the comparable S&P 500 return for the same eighteen-month period was +27.8% The Fund lagged behind the Pacific Stock Exchange Technology 100 Index (PSE) due to the Index's disproportionate contribution from Internet securities and the Fund's commitment to the health care sector. At the end of June, health care stocks represented 24% of the portfolio compared to an estimated 15% health care weight for the Index. During the past twelve months, health care holdings have averaged approximately 33% of the portfolio. While we believe there are many promising long-term investments within the health care sector, these stocks have lagged behind the technology sector performance within the Fund over the last twelve months. This relative underperformance has led to compelling valuations for health care issues, and the Fund will continue to pursue opportunities in this sector. As of June 30th, the Fund was 99% invested in equity securities, up from 96% last year. The most significant sector change was related to a shift from the technology services sector to the electronic technology sector. Since lingering fears of a Year 2000-related slowdown may weigh down the performance of technology service companies, total or partial sales were made in shares of Computer Associates, Cadence Design, Intelligroup, Peoplesoft, and Security Dynamics. Improving fundamentals in the telecommunications and semiconductor industries led to increased weightings within the electronic technology and utilities sectors through the purchase of Applied Micro Circuits, Jabil Circuit, Motorola, Nokia, PMC-Sierra, Teradyne, Vitesse Semiconduictor, and MCI Worldcom. Earnings for the stocks in the Fund are expected to grow +26% in 1999 and +32% over the next five years. Despite growth rates of more than two and one-half times the market, valuations do not appear excessive. The price-to-earnings ratio for the Fund currently stands at 39 times 2000 earnings, and the comparable ratio for the S&P 500 is 26 times earnings. Based on the strong earnings growth and attractive relative valuations, we continue to be optimistic about the outlook for companies in the Fund. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Fund is to maximize long-term capital appreciation. The Fund pursues this objective by investing primarily in common stocks of companies which Sit Investment Associates, Inc. expects to benefit from the development, improvement, advancement and use of science and technology. During normal market conditions, at least 80% of the Fund's total assets will be invested in such securities. The Fund emphasizes securities of companies that the adviser believes have potential for long-term capital growth. PORTFOLIO SUMMARY Net Asset Value 6/30/99: $15.23 Per Share 6/30/98: $11.77 Per Share Total Net Assets: $14.2 Million Weighted Average Market Cap: $70.9 Billion PORTFOLIO STRUCTURE - BY SECTOR (% of total net assets) [BAR CHART] Electronic Technology 49.7 Health Technology 23.5 Technology Services 22.7 Utilities 3.5 Cash & Other Net Assets 0.6 30
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ---------------------------------- ---------------------------------- Pacific Stock Pacific Stock Science and Exchange Science and Exchange Technology Technology Technology Technology Growth Fund 100 Index Growth Fund 100 Index ---------------------------------- ---------------------------------- 3 Months 10.36% 20.62% 10.36% 20.62% (not annualized) 1 Year 29.40 73.40 29.40 73.40 Inception 32.48 62.36 52.30 106.46 (12/31/97)
*As of 6/30/99 PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE PACIFIC STOCK EXCHANGE TECHNOLOGY 100 INDEX. GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (12/31/97) and held until 6/30/99 would have grown to $15,230 in the Fund, or $20,646 in the PSE Tech 100 Index assuming reinvestment of all dividends and capital gains. 10 LARGEST HOLDINGS * Microsoft Corp. * International Business Machines Corp. * Cisco Systems, Inc. * Biogen, Inc. * Tellabs, Inc. * Vitesse Semiconductor Corp. * Inktomi Corp. * Unisys Corp. * Intel Corp. * Applied Micro Circuits Corp. Total number of holdings: 55 31 SIT SCIENCE AND TECHNOLOGY GROWTH FUND PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 - -------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - -------------------------------------------------------------------------------- COMMON STOCKS (99.2%) (2) ELECTRONIC TECHNOLOGY (49.7%) 5,500 ADC Telecommunications, Inc. (3) $250,594 5,500 Analog Devices, Inc. (3) 276,031 4,000 Applied Micro Circuits Corp. (3) 329,000 8,000 Cisco Systems, Inc. (3) 516,000 3,750 Comverse Technology, Inc. (3) 283,125 6,000 Dell Computer Corp. (3) 222,000 5,600 EMC Corp. (3) 308,000 6,000 Intel Corp. 357,000 4,000 International Business Machines Corp. 517,000 5,000 Jabil Circuit, Inc. (3) 225,625 2,000 Lexmark International Group, Inc. (3) 132,125 4,000 Lucent Technologies, Inc. 269,750 3,000 Motorola, Inc. 284,250 3,000 Nokia Corp., A.D.R. 274,688 5,000 PMC-Sierra, Inc. (3) 294,687 4,000 RF Micro Devices, Inc. (3) 298,500 5,000 SDL, Inc. (3) 255,312 3,000 Synopsys, Inc. (3) 165,562 6,500 Tellabs, Inc. (3) 439,156 4,000 Teradyne, Inc. (3) 287,000 10,000 Unisys Corp. (3) 389,375 6,500 Vitesse Semiconductor Corp. (3) 438,344 4,000 Xerox Corp. 236,250 ----------------- 7,049,374 ----------------- HEALTH TECHNOLOGY (23.5%) 8,000 Biogen, Inc. (3) 514,500 4,000 Bristol Myers Squibb Co. 281,750 8,000 Elan Corp., A.D.R. (3) 222,000 7,000 Guilford Pharmaceuticals, Inc. (3) 89,250 2,000 IDEC Pharmaceuticals Corp. (3) 154,125 2,000 Immunex Corp. (3) 254,875 2,000 Johnson & Johnson Co. 196,000 2,000 MedImmune, Inc. (3) 135,500 3,000 Medtronic, Inc. 233,625 4,000 Merck & Co., Inc. 296,000 3,000 Novoste Corp. (3) 63,000 5,000 Protein Design Labs (3) 110,937 2,300 Pfizer, Inc. 252,425 3,000 Schering-Plough Corp. 159,000 2,000 Sepracor, Inc. (3) 162,500 3,000 Warner Lambert Co. 208,125 ----------------- 3,333,612 ----------------- - -------------------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1) - -------------------------------------------------------------------------------- TECHNOLOGY SERVICES (22.5%) 2,200 America Online, Inc. (3) 243,100 2,600 At Home Corp. (3) 140,238 5,000 BMC Software, Inc. (3) 270,000 4,500 Check Point Software Technology (3) 241,312 4,500 Compuware Corp. (3) 143,156 7,500 Dendrite International, Inc. (3) 270,938 4,000 I2 Technologies, Inc. (3) 172,000 3,000 Inktomi Corp. (3) 391,688 5,500 Legato Systems, Inc. (3) 317,625 6,000 Microsoft Corp. (3) 541,125 3,000 New Era of Networks, Inc. (3) 131,813 4,000 Sterling Commerce, Inc. (3) 146,000 6,000 Whittman-Hart, Inc. (3) 190,500 ----------------- 3,199,495 ----------------- UTILITIES (3.5%) 3,500 MCI WorldCom, Inc. (3) 301,219 6,000 Qwest Communications Int'l, Inc. (3) 198,375 ----------------- 499,594 ----------------- Total common stocks 14,082,075 ----------------- (cost: $10,462,140) CONVERTIBLE BONDS (0.2%) (2) 50,000 Tecnomatix Technologies Conv., 5.25%, 8/15/04 (4) (5) 34,875 ----------------- (cost: $48,477) SHORT-TERM SECURITIES (0.8%) (2) 120,000 Sit Money Market Fund, 4.56% (6) 120,000 ----------------- (cost: $120,000) Total investments in securities (cost: $10,630,617) (7) $14,236,950 ================= See accompanying notes to portfolios of investments. 32 (THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.) 33 SIT DEVELOPING MARKETS GROWTH FUND REVIEW YEAR ENDED JUNE 30, 1999 [PHOTO] SENIOR PORTFOLIO MANAGERS EUGENE C. SIT, CFA ANDREW B. KIM, CFA During the June quarter, the Sit Developing Markets Growth Fund (up +29.1%) outperformed both the MSCI Emerging Markets Free Index (up +23.6%) and the Lipper Emerging Markets Index (up +25.2%), reflecting the sizable positive returns of the holdings in the Asian markets. At the end of June, equity holdings in Asia increased to 58.1% of the net assets vs. 41.3% for the Index. Weightings increased sharply from a year ago in Taiwan (13.2% vs. 8.4%), South Korea (11.9% vs. 3.7%), and Singapore (10.9% vs. 6.3%) because of a continued focus on the electronics sector's contract manufacturers. The Fund's 1-year return, however, was less favorable increasing +10.3% compared with the MSCI Emerging Markets Free Index benchmark gain of +25.2% and the Lipper Emerging Market Index return of +19.0%. The underperformance relative to the indices was in large part the result of our underweight in Mexico, South Korea, and Greece as well as our lack of interest rate sensitive financial and property sector exposures in Asia early in the year. Our exposure in some non-index countries and our high cash position also hurt performance. The overall Latin American weighting as of June 30th stood at 15.5% vs. 30.4% for the Index. In Latin America, the Fund's holdings continue to be concentrated in Mexico (11.3% vs. 11.9%) based on its promising corporate earnings outlook. The removal of near-term uncertainties over immediate U.S. interest rate increases and higher oil prices should benefit emerging markets in general. Specifically, Mexico should more fully benefit from strong NAFTA economies. Brazil, however, is substantially underweight (3.0% vs. the Index's 8.7%) due to structural weakness stemming from its domestic fiscal problems. Emerging-Europe, Middle East and Africa holdings were underweighted at 18.4% vs. 28.3%. The Fund continued to overweight Israel (4.4% vs. 2.9%) and underweight South Africa (2.5% vs. 11.0%). Greece was the largest weighting (7.1% vs. 6.1%). Among new additions in the Fund's holdings were Korea Telecom, Development Bank of Singapore, Hana Microelectronics in Thailand, Comverse Technology in Israel, Philippine Long Distance Telephone in addition to Delta Dairy in Greece. We believe the favorable liquidity conditions in Asia should continue in the second half, aided by the increased current account surplus, foreign direct investment, lower interest rates and stable currencies. In addition, we look for Japan's improving business conditions and strong currency to contribute to Asia's economic recovery. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Sit Developing Markets Growth Fund is to maximize long-term capital appreciation. The Fund pursues this objective by investing in equity securities of companies located or otherwise operating in a developing market. Developing markets tend to be less economically developed regions of the world. General characteristics also include a high demand for capital investment, a high dependence on export markets for their major industries, a need to develop basic economic infrastructures, rapid economic growth and lower degrees of political stability. Investors should carefully consider the risks associated with developing markets such as currency flucuations, high volatility, illiquidity and the possibility of political instability. PORTFOLIO SUMMARY Net Asset Value 6/30/99: $ 9.98 Per Share 6/30/98: $ 9.05 Per Share Total Net Assets: $11.3 Million Weighted Average Market Cap: $32.1 Billion PORTFOLIO STRUCTURE - BY REGION (% of total net assets) [BAR CHART] SIT DEVELOPING MSCI Emerging MARKETS GROWTH FUND Markets Free Index Asia 58.1 41.3 Latin America 15.5 30.4 Europe 11.5 13.4 Africa/Middle East 6.9 14.9 North America 0.9 0.0 Cash & Other Net Assets 7.1 0.0 34
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* -------------------------------------------- -------------------------------------------- Developing MSCI Lipper Developing MSCI Lipper Markets Emerging Markets Emerging Markets Emerging Markets Emerging Growth Fund Free Index Markets Index Growth Fund Free Index Markets Index ----------- ---------------- ------------- ----------- ---------------- ------------- 3 Months 29.11% 23.62% 25.17% 29.11% 23.62% 25.17% (not annualized) 1 Year 10.28 25.20 19.04 10.28 25.20 19.04 3 Year -3.01 -6.18 -4.39 -8.76 -17.41 -12.59 Inception 0.11 -2.89 -1.06 0.53 -13.64 -5.18 (7/1/94)
* As of 6/30/99 PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MORGAN STANLEY INTERNATIONAL EMERGING MARKETS FREE INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. PORTFOLIO STRUCTURE - BY SECTOR (% of total net assets) [BAR CHART] Utilities 38.4 Electronic Technology 29.9 Retail Trade 9.4 Finance 7.4 Industrial Services 3.1 Technology Services 2.5 Consumer Non-Durables 1.4 Consumer Services 0.8 Cash & Other Net Assets 7.1 GROWTH OF $10,000 [PLOT POINTS CHART] The sum of $10,000 invested at inception (7/1/94) and held until 6/30/99 would have grown to $10,053 in the Fund or $8,636 in the Morgan Stanley Capital Int'l Emerging Markets Free Index assuming reinvestment of all dividends and capital gains. 35 SIT DEVELOPING MARKETS GROWTH FUND PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 10 LARGEST HOLDINGS * Hon Hai Precision Industry * Advanced Info Services * Telefonos de Mexico, A.D.R. * Samsung Electronics * Cifra, S.A. * Datacraft Asia, Ltd. * Korea Electric Power, A.D.R. * Dimension Data Holdings, Ltd. * Philippine Long Distance Telephone Co., A.D.R. * Venture Manufacturing, Ltd. Total number of holdings: 46 - -------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - -------------------------------------------------------------------------------- COMMON STOCKS (92.9%)(2) AFRICA/ MIDDLE EAST (6.9%) ISRAEL (4.4%) 2,500 Gilat Satellite Networks, Ltd., A.D.R. (Electronic Technology) (3) $131,250 8,600 Nice Systems, Ltd., A.D.R. (Electronic Technology ) (3) 237,038 1,700 Comverse Technology, Inc. (Electronic Technology) (3) 128,350 ------------- 496,638 ------------- SOUTH AFRICA (2.5%) 64,800 Dimension Data Holdings, Ltd. (Technology Services) 286,735 ------------- ASIA (58.1%) HONG KONG (6.5%) 13,000 Cheung Kong Hldgs., Ltd. (Indus. Svcs.) 115,614 640,000 China Hong Kong Photo Products Hldgs., Ltd. (Retail Trade) 102,287 74,000 China Telecom (Utilities) 205,540 48,000 Citic Pacific, Ltd. (Utilities) 153,120 4,400 HSBC Holdings, p.l.c. (Finance) 160,493 ------------- 737,054 ------------- INDONESIA (1.6%) 258,000 PT Ramayana Lestari (Retail Trade) 182,556 ------------- - -------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - -------------------------------------------------------------------------------- PHILIPPINES (5.3%) 2,343,000 Digital Telecom Philippines (Utilities) (3) 144,090 173,000 Jollibee Foods Co. (Warrants) (Consumer Services) (3)(4)(5) 88,660 9,200 Philippine Long Distance Telephone Co., A.D.R. (Utilities) 277,150 424,000 SM Prime Holdings, Inc. (Retail Trade) 95,832 ------------- 605,732 ------------- SINGAPORE (10.9%) 60,000 Avimo Group, Ltd. (Electronic Tech.) 97,650 95,000 Datacraft Asia, Ltd. (Electronic Tech.) 414,200 19,000 Development Bank of Singapore, Ltd. (Finance) 232,197 51,000 Natsteel Electronics, Ltd. (Electronic Technology) 223,237 35,000 Venture Mfg., Ltd. (Electronic Tech.) 269,389 ------------- 1,236,673 ------------- SOUTH KOREA (11.9%) 20,000 Korea Electric Power, A.D.R. (Utilities) 410,000 3,000 Korea Telecom Corporation (Utilities) 199,050 6,000 Korea Telecom Corp., A.D.R. (Utilities) (3) 240,000 4,564 Samsung Electronics (Electronic Technology) 500,758 ------------- 1,349,808 ------------- TAIWAN (13.2%) 75,698 Chroma Ate, Inc. (Electronic Technology) (3) 221,469 74,200 Hon Hai Precision Industry (Electronic Technology) (3) 670,786 69,000 President Chain Store Corp. (Retail Trade) 233,916 64,000 Phoenixtec Power Co. (Elec. Tech.) (3) 127,802 62,730 Taiwan Semiconductor Co. (Electronic Technology) (3) 239,850 ------------- 1,493,823 ------------- THAILAND (8.7%) 48,800 Advanced Info Services (Utilities) 661,695 54,000 Bangkok Bank (Finance) 202,088 42,000 Hana Microelectronics Public Co., Ltd. (Electronic Technology) 126,427 ------------- 990,210 ------------- EUROPE (11.5%) GREECE (7.1%) 3,937 Alpha Credit Bank (Finance) 253,476 3,000 Delta Dairy S.A. (Consumer Non-Durables) 58,468 11,700 Hellenic Telecommunications Organization (Utilities) 250,476 10,250 Panafon Telecom (Utilities) (3) 246,904 ------------- 809,324 ------------- 36 - -------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE(1) - -------------------------------------------------------------------------------- PORTUGAL (2.0%) 5,500 Portugal Telecom, A.D.R. (Utilities) 226,531 ------------- SPAIN (2.4%) 1,815 Telefonica, A.D.R. (Utilities) 266,970 ------------- LATIN AMERICA (15.5%) ARGENTINA (1.2%) 4,200 Telefonica de Argentina, A.D.R. (Utilities) 131,775 ------------- BRAZIL (3.0%) 6,500 Cemig, A.D.R. (Utilities) 137,995 1,800 Tele Centro Sul Participacoes S.A., A.D.R. (Utilities) 99,900 4,400 Telesp Participacoes S.A., A.D.R. (Utilities) (3) 100,650 ------------- 338,545 ------------- MEXICO (11.3%) 223,700 Cifra S.A. (Retail Trade) 445,740 5,000 Coca Cola Femsa S.A., A.D.R. (Consumer Non-Durables) 96,875 55,700 Corporacion GEO - B (Industrial Services) (3) 236,142 6,200 Telefonos de Mexico, A.D.R. (Utilities) 501,038 ------------- 1,279,795 ------------- NORTH AMERICA (0.9%) CANADA (0.9%) 5,800 Telesystems Int'l. Wireless, Inc. (Utilities) (3) 104,309 ------------- Total common stocks 10,536,478 ------------- (cost: $7,751,078) SHORT-TERM SECURITIES (9.6%) (2) 1,088,000 Sit Money Market Fund, 4.56% (6) 1,088,000 ------------- (cost: $1,088,000) Total investments in securities (cost: $8,839,078) (7) $11,624,478 ============= See accompanying notes to portfolios of investments. 37 (THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.) 38 SIT MUTUAL FUNDS NOTES TO PORTFOLIOS OF INVESTMENTS (1) Securities are valued by procedures described in note 1 to the financial statements. (2) Percentage figures indicate percentage of total net assets. (3) Presently non-income producing securities. (4) Securities sold within terms of a private placement memorandum, exempt from registration under section 144A of the Securities Act of 1933, as amended, and sold only to dealers in that program or other "accredited investors". (5) These securities have been identified by the investment adviser as illiquid securities. The aggregate value of these these securities at June 30, 1999, is $88,660 and $34,875 in Developing Markets Growth and Science and Technology Growth Funds, respectively, which represents 0.8% and 0.2% of the Funds' net assets, respectively. The following table summarizes the purchase date(s) and cost basis of these securities:
Purchase Fund Security Date(s) Shares/Par Cost Basis - ---------------------------------- ------------------ ---------------- -------------- -------------- Developing Markets Growth Jollibee Foods 3/98 - 12/98 173,000 77,228 Science and Technology Growth Tecnomatix Tech. 1/98 50,000 48,477
(6) This security represents an investment in an affiliated party. See note 3 to the accompanying financial statements. (7) At June 30, 1999, 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 REGIONAL MID CAP BALANCED GROWTH GROWTH GROWTH FUND FUND FUND FUND ------------- ------------- ------------- ------------- Cost for federal income tax purposes $ 10,534,649 $ 94,434,800 $ 5,937,382 $ 234,957,758 ============= ============= ============= ============= Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $ 2,204,615 $ 46,000,133 $ 1,681,551 $ 138,205,691 Gross unrealized depreciation (144,106) (1,240,300) (98,190) (1,784,741) ------------- ------------- ------------- ------------- Net unrealized appreciation $ 2,060,509 $ 44,759,833 $ 1,583,361 $ 136,420,950 ============= ============= ============= ============= SCIENCE AND DEVELOPING INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH GROWTH FUND FUND FUND FUND ------------- ------------- ------------- ------------- Cost for federal income tax purposes $ 62,212,159 $ 33,293,635 $ 10,658,918 $ 8,839,078 ============= ============= ============= ============= Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $ 33,093,304 $ 17,539,502 $ 3,879,914 $ 2,978,423 Gross unrealized depreciation (276,311) (1,067,759) (301,882) (193,023) ------------- ------------- ------------- ------------- Net unrealized appreciation $ 32,816,993 $ 16,471,743 $ 3,578,032 $ 2,785,400 ============= ============= ============= =============
(8) Medium-term debt security whose return is linked to the performance of the common stock of Sony Corporation. The security is subject to price fluctuations of the Sony Corporation common stock, up to a limit of 130% of its level at issue date (May 8, 1999), without being affected by changes in the yen/U.S. dollar exchange rate. The quarterly interest payment for each unit is based on the U.S. dollar equivalent market value of 20 shares of Sony Corp. common stock on issue date. 39 SIT MUTUAL FUNDS STATEMENTS OF ASSETS & LIABILITIES - JUNE 30, 1999
LARGE CAP REGIONAL MID CAP BALANCED GROWTH GROWTH GROWTH ASSETS FUND FUND FUND FUND --------------- --------------- --------------- --------------- Investments in securities, at identified cost $ 10,523,530 $ 94,415,041 $ 5,920,358 $ 232,941,626 =============== =============== =============== =============== Investments in securities, at market value - see accompanying schedule for detail $ 12,595,158 $ 139,194,633 $ 7,520,743 $ 371,378,708 Cash in bank on demand deposit 3,982 837 2,769 1,321 Receivables: Dividends and accrued interest 57,528 75,303 4,506 129,871 Fund shares sold 8,917 43,023 138 2,410,671 Investment securities sold 156,774 3,370,949 -- 6,094,118 Unrealized appreciation on foreign currency contracts held (Note 1) -- -- -- -- Other receivables -- 30,301 1,374 13,006 --------------- --------------- --------------- --------------- Total assets 12,822,359 142,715,046 7,529,530 380,027,695 --------------- --------------- --------------- --------------- LIABILITIES Payables: Investment securities purchased 697,956 2,267,673 -- 4,217,033 Fund shares redeemed 2,584 79,537 33 179,627 Accrued investment management and advisory services fee 9,420 110,140 5,889 288,457 Other payables 36 -- -- -- --------------- --------------- --------------- --------------- Total liabilities 709,996 2,457,350 5,922 4,685,117 --------------- --------------- --------------- --------------- Net assets applicable to outstanding capital stock 12,112,363 140,257,696 7,523,608 375,342,578 =============== =============== =============== =============== 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 697,061 2,654,228 571,098 25,812,041 =============== =============== =============== =============== Net asset value per share of outstanding capital stock $ 17.38 $ 52.84 $ 13.17 $ 14.54 =============== =============== =============== ===============
40
SCIENCE AND DEVELOPING INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH GROWTH FUND FUND FUND FUND --------------- --------------- --------------- --------------- Investments in securities, at identified cost $ 61,158,697 $ 33,293,635 $ 10,630,617 $ 8,839,078 =============== =============== =============== =============== Investments in securities, at market value - see accompanying schedule for detail $ 95,029,152 $ 49,765,378 $ 14,236,950 $ 11,624,478 Cash in bank on demand deposit 634 366,851 307 4,807 Receivables: Dividends and accrued interest 158,662 10,784 5,133 9,736 Fund shares sold 21,626 121,789 874 47,287 Investment securities sold -- 185,615 36,138 275,051 Unrealized appreciation on foreign currency contracts held (Note 1) -- -- -- 301 Other receivables 22,865 -- -- 5,119 --------------- --------------- --------------- --------------- Total assets 95,232,939 50,450,417 14,279,402 11,966,779 --------------- --------------- --------------- --------------- LIABILITIES Payables: Investment securities purchased 78,435 56,500 68,711 490,538 Fund shares redeemed 57,474 -- -- 121,635 Accrued investment management and advisory services fee 114,810 56,172 13,852 16,860 Other payables -- 3,148 3,174 -- --------------- --------------- --------------- --------------- Total liabilities 250,719 115,820 85,737 629,033 --------------- --------------- --------------- --------------- Net assets applicable to outstanding capital stock 94,982,220 50,334,597 14,193,665 11,337,746 =============== =============== =============== =============== 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 5,060,826 2,753,954 932,227 1,135,889 =============== =============== =============== =============== Net asset value per share of outstanding capital stock $ 18.77 $ 18.28 $ 15.23 $ 9.98 =============== =============== =============== ===============
See accompanying notes to financial statements. 41 SIT MUTUAL FUNDS STATEMENTS OF OPERATIONS - YEAR ENDED JUNE 30, 1999
LARGE CAP REGIONAL MID CAP BALANCED GROWTH GROWTH GROWTH FUND FUND FUND FUND ------------ ------------ ------------ ------------ INVESTMENT INCOME: INCOME: Dividends $ 49,858 $ 744,174 $ 39,449 $ 1,013,159 Interest 212,293 389,174 17,599 863,486 ------------ ------------ ------------ ------------ Total income 262,151 1,133,348 57,048 1,876,645 ------------ ------------ ------------ ------------ EXPENSES (NOTE 3): Investment management and advisory services fee 86,957 1,250,402 74,226 4,328,283 Less fees and expenses absorbed by investment adviser -- -- (14,845) (865,657) ------------ ------------ ------------ ------------ Total net expenses 86,957 1,250,402 59,381 3,462,626 ------------ ------------ ------------ ------------ Net investment income (loss) 175,194 (117,054) (2,333) (1,585,981) ------------ ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) (note 2) 591,404 17,648,687 (111,164) 25,382,637 Net change in unrealized appreciation (depreciation) on investments 205,945 2,230,110 1,187,711 (2,614,204) Realized gain (loss) on foreign currency transactions -- -- -- -- Net change in unrealized appreciation (depreciation) on foreign currency transactions (note 3) -- -- -- -- ------------ ------------ ------------ ------------ Net gain (loss) on investments 797,349 19,878,797 1,076,547 22,768,433 ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations $ 972,543 $ 19,761,743 $ 1,074,214 $ 21,182,452 ============ ============ ============ ============
- ----------------- 42
SCIENCE AND DEVELOPING INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH GROWTH FUND FUND FUND FUND ------------ ------------ ------------ ------------ INVESTMENT INCOME: INCOME: Dividends * $ 824,377 $ 92,922 $ 22,201 $ 110,293 Interest 229,612 97,071 24,172 92,885 ------------ ------------ ------------ ------------ Total income 1,053,989 189,993 46,373 203,178 ------------ ------------ ------------ ------------ EXPENSES (NOTE 3): Investment management and advisory services fee 1,718,057 683,493 132,050 208,718 Less fees and expenses absorbed by investment adviser (325,038) -- (22,008) -- ------------ ------------ ------------ ------------ Total net expenses 1,393,019 683,493 110,042 208,718 ------------ ------------ ------------ ------------ Net investment income (loss) (339,030) (493,500) (63,669) (5,540) ------------ ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) (note 2) 2,669,179 (3,899,846) (316,306) (2,762,417) Net change in unrealized appreciation (depreciation) on investments 2,467,482 6,980,637 2,941,239 3,644,737 Realized gain (loss) on foreign currency transactions 75,709 -- -- (33,292) Net change in unrealized appreciation (depreciation) on foreign currency transactions (note 3) 1,383 -- -- (726) ------------ ------------ ------------ ------------ Net gain (loss) on investments 5,213,753 3,080,791 2,624,933 848,302 ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations $ 4,874,723 $ 2,587,291 $ 2,561,264 $ 842,762 ============ ============ ============ ============
- ----------------- * Dividends are net of foreign withholding tax of $2,261 and $90,652 in the Developing Markets Growth Fund and International Growth Fund, respectively. 43 SIT MUTUAL FUNDS STATEMENTS OF CHANGES IN NET ASSETS
BALANCED LARGE CAP FUND GROWTH FUND ------------------------------- ------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1999 1998 1999 1998 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss) $ 175,194 $ 131,419 $ (117,054) $ 50,303 Net realized gain (loss) on investments 591,404 548,219 17,648,687 12,220,496 Net change in unrealized appreciation (depreciation) on investments 205,945 624,195 2,230,110 14,921,853 Net realized gain (loss) on foreign currency transactions -- 5 -- (46) Net change in unrealized appreciation (depreciation) on foreign currency transactions -- -- -- 83 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations 972,543 1,303,838 19,761,743 27,192,689 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (147,000) (127,000) (17,000) (132,500) Net realized gains on investments (350,000) (443,000) (9,200,000) (7,922,500) ------------- ------------- ------------- ------------- Total distributions (497,000) (570,000) (9,217,000) (8,055,000) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 6,001,022 2,008,168 55,525,759 35,549,440 Reinvested distributions 491,654 567,624 9,042,427 7,865,696 Payments for shares redeemed (2,277,394) (991,255) (52,351,385) (17,283,050) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions 4,215,282 1,584,537 12,216,801 26,132,086 ------------- ------------- ------------- ------------- Total increase in net assets 4,690,825 2,318,375 22,761,544 45,269,775 NET ASSETS Beginning of period 7,421,538 5,103,163 117,496,152 72,226,377 ------------- ------------- ------------- ------------- End of period $ 12,112,363 $ 7,421,538 $ 140,257,696 $ 117,496,152 ============= ============= ============= ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $ 9,446,131 $ 5,230,849 $ 88,440,137 $ 66,308,638 Undistributed (distributions in excess of) net investment income 63,689 35,495 -- 17,320 Accumulated net realized gain (loss) from security transactions and foreign currency transactions 530,915 289,511 7,037,967 8,620,712 Unrealized appreciation (depreciation) on investments 2,071,628 1,865,683 44,779,592 42,549,482 Unrealized appreciation (depreciation) on foreign currency transactions -- -- -- -- ------------- ------------- ------------- ------------- $ 12,112,363 $ 7,421,538 $ 140,257,696 $ 117,496,152 ============= ============= ============= ============= CAPITAL TRANSACTIONS IN SHARES: Sold 359,829 129,469 1,156,108 796,463 Reinvested distributions 30,798 38,770 198,041 199,890 Redeemed (138,578) (65,109) (1,081,277) (403,112) ------------- ------------- ------------- ------------- Net increase (decrease) 252,049 103,130 272,872 593,241 ============= ============= ============= =============
* Period since commencement of operations (12/31/97) 44
REGIONAL MID CAP INTERNATIONAL SMALL CAP GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND - ------------------------------ ------------------------------ ------------------------------ ----------------------------- SIX MONTHS YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1999 1998 * 1999 1998 1999 1998 1999 1998 - ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ (2,333) $ 8,500 $ (1,585,981) $ (1,634,045) $ (339,030) $ 120,344 $ (493,500) $ (466,768) (111,164) 26,658 25,382,637 82,862,743 2,669,179 6,485,017 (3,899,846) 10,959,585 1,187,711 412,674 (2,614,204) (831,087) 2,467,482 874,697 6,980,637 (3,664,222) -- -- -- -- 75,709 831,317 -- -- -- -- -- -- 1,383 (805,596) -- -- - ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 1,074,214 447,832 21,182,452 80,397,611 4,874,723 7,505,779 2,587,291 6,828,595 - ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (12,000) -- -- -- (284,000) (159,683) -- -- -- -- (59,500,000) (46,136,334) (5,500,000) (3,469,317) (7,700,000) (2,211,000) - ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (12,000) 0 (59,500,000) (46,136,334) (5,784,000) (3,629,000) (7,700,000) (2,211,000) - ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 3,331,498 4,764,788 430,451,763 327,420,150 74,962,278 97,772,151 27,461,865 86,265,023 11,188 -- 56,956,588 43,699,380 5,530,038 3,462,126 7,467,439 2,167,174 (1,863,065) (230,847) (478,075,695) (387,596,125) (84,321,667) (104,669,312) (36,954,369) (93,935,313) - ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 1,479,621 4,533,941 9,332,656 (16,476,595) (3,829,351) (3,435,035) (2,025,065) (5,503,116) - ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 2,541,835 4,981,773 (28,984,892) 17,784,682 (4,738,628) 441,744 (7,137,774) (885,521) 4,981,773 0 404,327,470 386,542,788 99,720,848 99,279,104 57,472,371 58,357,892 - ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 7,523,608 $ 4,981,773 $ 375,342,578 $ 404,327,470 $ 94,982,220 $ 99,720,848 $ 50,334,597 $ 57,472,371 ============= ============= ============= ============= ============= ============= ============= ============= $ 6,007,729 $ 4,533,941 $ 212,221,226 $ 204,046,842 $ 59,465,815 $ 63,131,461 $ 37,762,700 $ 40,267,154 -- 8,500 -- -- 552,506 284,937 -- -- (84,506) 26,658 24,684,270 59,229,342 1,100,069 4,909,485 (3,899,846) 7,714,111 1,600,385 412,674 138,437,082 141,051,286 33,870,455 31,402,973 16,471,743 9,491,106 -- -- -- -- (6,625) (8,008) -- -- - ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 7,523,608 $ 4,981,773 $ 375,342,578 $ 404,327,470 $ 94,982,220 $ 99,720,848 $ 50,334,597 $ 57,472,371 ============= ============= ============= ============= ============= ============= ============= ============= 289,865 463,573 31,884,953 20,467,307 4,137,747 5,340,368 1,551,586 4,344,293 979 -- 4,770,255 3,101,446 317,635 213,976 509,720 118,231 (162,044) (21,275) (35,369,826) (24,097,062) (4,605,179) (5,690,151) (2,131,506) (4,726,969) - ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 128,800 442,298 1,285,382 (528,309) (149,797) (135,807) (70,200) (264,445) ============= ============= ============= ============= ============= ============= ============= =============
See accompanying notes to financial statements. 45 SIT MUTUAL FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
SCIENCE AND TECHNOLOGY DEVELOPING MARKETS GROWTH FUND GROWTH FUND ----------------------------- ----------------------------- SIX MONTHS YEAR ENDED ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1999 1998 * 1999 1998 ------------ ------------ ------------ ------------ OPERATIONS: Net investment income (loss) $ (63,669) $ (3,908) $ (5,540) $ (72,297) Net realized gain (loss) on investments (316,306) (44,932) (2,762,417) (532,256) Net change in unrealized appreciation (depreciation) on investments 2,941,239 665,094 3,644,737 (4,417,826) Net realized gain (loss) on foreign currency transactions -- -- (33,292) (20,693) Net change in unrealized appreciation (depreciation) on foreign currency transactions -- -- (726) 550 ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations 2,561,264 616,254 842,762 (5,042,522) ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- -- -- (13,900) Net realized gains on investments -- -- -- -- ------------ ------------ ------------ ------------ Total distributions 0 0 0 (13,900) ------------ ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 9,619,464 4,529,940 11,372,665 10,606,901 Reinvested distributions -- -- -- 13,512 Payments for shares redeemed (2,845,402) (287,855) (12,382,569) (10,848,159) ------------ ------------ ------------ ------------ Increase (decrease) in net assets from capital share transactions 6,774,062 4,242,085 (1,009,904) (227,746) ------------ ------------ ------------ ------------ Total increase in net assets 9,335,326 4,858,339 (167,142) (5,284,168) NET ASSETS Beginning of period 4,858,339 0 11,504,888 16,789,056 ------------ ------------ ------------ ------------ End of period $ 14,193,665 $ 4,858,339 $ 11,337,746 $ 11,504,888 ============ ============ ============ ============ NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $ 10,948,570 $ 4,238,177 $ 12,251,919 $ 13,300,655 Undistributed (distributions in excess of) net investment income -- -- -- -- Accumulated net realized gain (loss) from security transactions and foreign currency transactions (361,238) (44,932) (3,697,984) (935,567) Unrealized appreciation (depreciation) on investments 3,606,333 665,094 2,785,400 (859,337) Unrealized appreciation (depreciation) on foreign currency transactions -- -- (1,589) (863) ------------ ------------ ------------ ------------ $ 14,193,665 $ 4,858,339 $ 11,337,746 $ 11,504,888 ============ ============ ============ ============ CAPITAL TRANSACTIONS IN SHARES: Sold 733,282 439,554 1,343,413 960,282 Reinvested distributions -- -- -- 1,354 Redeemed (213,983) (26,626) (1,479,311) (977,683) ------------ ------------ ------------ ------------ Net increase (decrease) 519,299 412,928 (135,898) (16,047) ============ ============ ============ ============
* Period since commencement of operations 912/31/97) See accompanying notes to financial statements. 46 (THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.) 47 SIT MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Sit Mutual Funds are no-load funds, and are registered under the Investment Company Act of 1940 (as amended) as diversified, open-end management investment companies, or series thereof. The Sit Developing Markets Growth, Sit Small Cap Growth, Sit International Growth, Sit Balanced, Sit Regional, and Sit Science and Technology Growth Funds are series funds of Sit Mutual Funds, Inc. This report covers the equity funds of the Sit Mutual Funds (the Funds). The investment objective for each Fund is as follows: - -------------------------------------------------------------------------------- FUND INVESTMENT OBJECTIVE - -------------------------------------------------------------------------------- Large Cap Growth Fund, Inc. Maximize long-term capital appreciation and, secondarily current income. - -------------------------------------------------------------------------------- Mid Cap Growth Fund, Inc. Maximize long-term capital appreciation. - -------------------------------------------------------------------------------- Small Cap Growth Maximize long-term capital appreciation. - -------------------------------------------------------------------------------- Balanced Long-term capital appreciation consistent with the preservation of principal and to provide regular income. - -------------------------------------------------------------------------------- International Growth Maximize long-term capital appreciation. - -------------------------------------------------------------------------------- Developing Markets Growth Maximize long-term capital appreciation. - -------------------------------------------------------------------------------- Regional Growth Fund Maximize long-term capital appreciation. - -------------------------------------------------------------------------------- Science and Technology Growth Fund Maximize long-term capital appreciation. - -------------------------------------------------------------------------------- Significant accounting policies followed by the Funds are summarized below: INVESTMENTS IN SECURITIES Investments in securities traded on national or international securities exchanges or on the NASDAQ National Market System are valued at the last quoted sales price prior to the time when assets are valued; securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the last bid price; foreign securities that are purchased in the form of American Depository Receipts (ADRs) are valued in United States dollars at the latest quoted price on the national securities exchange on which the ADR is traded. When market quotations are not readily available, securities are valued at fair value based on procedures determined in good faith by the Board of Directors. Such fair values are determined using prices quoted by independent brokers or pricing services. Securities maturing more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those securities with maturities of less than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued at amortized cost, which approximates market value. Security transactions are accounted for on the date the securities are purchased or sold. Securities gains and losses are calculated on the identified-cost basis. Dividend income is recorded on the ex-dividend date or upon the receipt of ex-dividend notification in the case of certain foreign securities. Interest, including level-yield amortization of long-term bond premium and discount, is recorded on the accrual basis. ILLIQUID SECURITIES Each Fund currently limits investments in illiquid securities to 15% of net assets. At June 30, 1999, the Developing Markets Growth Fund and Science and Technology Growth Fund held investments in securities deemed illiquid by the investment adviser. The aggregate value of such securities at June 30, 1999, was $88,660 and $34,875, representing 0.8% and 0.2% of the Fund's net assets, respectively. Pursuant to the guidelines adopted by the Board of Directors, certain unregistered securities are determined to be liquid and are not included within the limitation specified above. 48 FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS The market value of securities and other assets and liabilities denominated in foreign currencies for Developing Markets Growth Fund and International Growth Fund are translated daily into U.S. dollars at the closing rate of exchange. Purchases and sales of securities, income and expenses are translated at the exchange rate on the transaction date. Dividend and interest income includes currency exchange gains (losses) realized between the accrual and payment dates on such income. Exchange gains (losses) may also be realized between the trade and settlement dates on security and forward contract transactions. For securities denominated in foreign currencies, the effect of changes in foreign exchange rates on realized and unrealized gains or losses is reflected as a component of such gains or losses. The Developing Markets Growth and International Growth Funds may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Funds and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Funds are subject to the credit risk that the other party will not complete the obligations of the contract. At June 30, 1999, the Developing Markets Growth Fund had entered into a foreign currency exchange contract that obligated the Fund to deliver currencies at specified future dates. The unrealized appreciation and/or depreciation on these contracts is included in the accompanying financial statements. The terms of the open contracts are as follows: DEVELOPING MARKETS GROWTH FUND: Unrealized Exchange date Currency to be Currency to be appreciation delivered received (depreciation) ------------------------------------------------------------------- July 2, 1999 151,720 102,687 $301 Canadian Dollar U.S. Dollar FEDERAL TAXES The Funds' policy is to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no income tax provision is required. Also, in order to avoid the payment of any federal excise taxes, the Funds will distribute substantially all of their net investment income and net realized gains on a calendar year basis. Net investment income and net realized gains may differ for financial statement and tax purposes. The character of distributions made during the year for net investment income or net realized gains may also differ from its ultimate characterization for tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gain (losses) were recorded by the Fund. 49 SIT MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) Undistributed net investment income and accumulated net realized gains (losses) from the Statement of Changes in Net Assets have been increased (decreased) by current permanent book-to-tax differences resulting in reclassification of additional paid-in capital as follows: Undistributed Accumulated net invest. net realized Additional income gains (losses) paid-in capital ------------- -------------- --------------- Developing Markets Growth 5,540 33,292 (38,832) Small Cap Growth 493,500 (14,111) (479,389) International Growth 890,599 (1,054,304) 163,705 Mid Cap Growth 1,585,981 (427,709) (1,158,272) Regional Growth 5,833 -- (5,833) Large Cap Growth 116,734 (10,031,432) 9,914,698 Science and Technology Growth 63,669 -- (63,669) The International Growth, Mid Cap Growth, and Small Cap Growth Funds elected to utilize equalization debits by which a portion of the costs of redemptions, which occurred during the year ended June 30, 1998, reduced accumulated net realized gains for tax purposes by $163,703, $427,709, and $14,112, respectively. In addition, included in the Large Cap Growth Fund adjustment is $10,031,752 related to an in-kind distribution. For federal income tax purposes the Developing Markets Growth Fund has a capital loss carryover of $3,697,984 at June 30, 1999 which, if not offset by subsequent capital gains, will begin to expire in 2004. Also at June 30, 1999, the Small Cap Growth, Science and Technology Growth, and Regional Growth Funds have capital loss carryovers of $3,899,846, $332,937, and $67,482, respectively which, if not offset by subsequent capital gains, will begin to expire in 2007. It is unlikely that the Board of Directors will authorize a distribution of net realized gains until the available capital loss carryovers are offset or expire. DISTRIBUTIONS Distributions to shareholders are recorded as of the close of business on the record date. Such distributions are payable in cash or reinvested in additional shares of the Funds' capital stock. Distributions from net investment income, if any, are declared and paid quarterly for the Balanced Fund and declared and paid annually for Regional Growth, Science and Technology Growth, Developing Markets Growth, Small Cap Growth, International Growth, Mid Cap Growth, and Large Cap Growth Funds. Distributions from net realized gains, if any, will be made annually for each of the Funds. CONCENTRATION OF INVESTMENTS The Developing Markets Growth Fund may concentrate investments in countries with limited or developing capital markets which may involve greater risks than investments in more developed markets and the prices of such investments may be volatile. The consequences of political, social or economic changes in these markets may have disruptive effects on the market prices of the Fund's investments and the income it generates, as well as the Fund's ability to repatriate such amounts. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported results. Actual results could differ from those estimates. 50 NOTE 2 - INVESTMENT SECURITY TRANSACTIONS Purchases of and proceeds from sales and maturities of investment securities, other than short-term securities, for the period ended June 30, 1999, were as follows: Purchases($) Proceeds($) ------------ ----------- Large Cap Growth Fund 82,563,058 84,877,677 Mid Cap Growth Fund 227,651,096 292,541,983 Small Cap Growth Fund 32,060,406 42,966,052 Balanced Fund 10,557,501 7,364,947 International Growth Fund 40,491,233 51,964,476 Developing Markets Growth Fund 8,575,203 9,190,590 Regional Growth Fund 5,044,562 3,851,083 Science and Technology Growth Fund 11,728,666 4,946,138 NOTE 3 - EXPENSES INVESTMENT ADVISER The Funds each have entered into an investment management agreement with Sit Investment Associates, Inc. (SIA), under which SIA manages the Funds' assets and provides research, statistical and advisory services, and pays related office rental, executive expenses and executive salaries. The fee for investment management and advisory services is based on the average daily net assets of the Funds at the annual rate of: Contractual Net of Adviser's Management Voluntary Fee Fee Waiver ----------- ---------------- Large Cap Growth Fund 1.00% 1.00% Mid Cap Growth Fund 1.25% 1.00% Small Cap Growth Fund 1.50% 1.50% Balanced Fund 1.00% 1.00% International Growth Fund 1.85% 1.50% Developing Markets Growth Fund 2.00% 2.00% Regional Growth Fund 1.25% 1.00% Science and Technology Growth Fund 1.50% 1.25% SIA is obligated to pay all of the Funds' expenses (excluding extraordinary expenses, stock transfer taxes, interest, brokerage commissions and other transaction charges relating to investing activities). For the period November 1, 1996 through December 31, 2000 the Adviser has agreed to limit the management fee (and, thereby, all Fund expenses, except those not payable by the Fund as set forth above) of the Mid Cap Growth Fund to 1.00% of the Fund's average daily net assets. For the period January 1, 1994 through December 31, 2000, the Adviser has agreed to limit the management fee (and, thereby, all Fund expenses, except those not payable by the Fund as set forth above) of the International Growth Fund to 1.50% of the Fund's average daily net assets. For the period January 1, 1998 through December 31, 2000 the Adviser has agreed to limit the management fee (and, thereby, all fund expenses, except those not payable by the Fund as set forth above) of the Regional Growth and Science and Technology Growth Fund to 1.00% and 1.25%, 51 SIT MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) respectively, of the Fund's average daily net assets. After December 31, 2000, these voluntary fee waivers may be discontinued by the Adviser in its sole discretion. During the period ended December 31, 1999, for the Mid Cap Growth, International Growth, Regional Growth, and Science and Technology Growth Funds, SIA voluntarily absorbed $865,657, $325,038, $14,845 and $22,008, respectively, in expenses that were otherwise payable by the Funds. As of June 30, 1999, the Large Cap Growth Fund, International Growth Fund, Mid Cap Growth Fund, Small Cap Growth Fund, Regional Growth Fund, Science and Technology Growth Fund, Developing Markets Growth Fund, and Balanced Fund had invested $8,807,000, $3,156,000, $15,042,000, $1,491,000, $365,000, $120,000, 1,088,000, and $1,519,000, respectively, in the Sit Money Market Fund. The terms of such transactions were identical to those of non-related entities except that, to avoid duplicate investment advisory fees, SIA remits to each Fund an amount equal to all fees otherwise due to them under their investment management agreement for the assets invested in the Sit Money Market Fund. INVESTMENT SUB-ADVISER SIA has entered into a sub-advisory arrangement with an affiliated international investment adviser, Sit/Kim International Investment Associates, Inc. ("SKI"). SKI provides investment research information and portfolio management service for the Developing Markets Growth Fund and International Growth Fund. Generally, as compensation for its services under the sub-advisory agreement, SIA pays SKI a monthly fee of 1/12 of .75% on the first $100 million of each Fund's average daily net assets, 1/12 of .50% on the next $100 million of average daily net assets and 1/12 of .40% of average daily net assets in excess of $200 million. SKI has agreed to waive any fees under the agreement to the extent that cumulative out of pocket expenses of each Fund borne by SIA exceed the cumulative fees received by SIA pursuant to each Fund's investment management agreement. In accordance with the Agreement, fees of $681,189 were paid or payable to SKI for the year ended June 30, 1999. TRANSACTIONS WITH AFFILIATES The investment adviser, affiliates of the investment adviser, directors and officers of the Funds as a whole owned the following shares as of June 30, 1999: % Shares Shares Outstanding --------- ----------- Large Cap Growth Fund 476,320 17.95 Mid Cap Growth Fund 3,574,953 13.85 Small Cap Growth Fund 1,080,271 39.23 Balanced Fund 136,323 19.56 International Growth Fund 1,099,222 21.72 Developing Markets Growth Fund 229,846 20.23 Regional Growth Fund 118,798 20.80 Science and Technology Growth Fund 229,850 24.66 52 SIT BALANCED FUND FINANCIAL HIGHLIGHTS NOTE 4 - FINANCIAL HIGHLIGHTS Per share data for a share of capital stock outstanding during the period and selected supplemental and ratio information for each period(s), are indicated in the following financial highlights for each Fund.
Years Ended June 30, --------------------------------------------------------------------- 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 16.68 $ 14.93 $ 12.57 $ 10.99 $ 9.48 - ----------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income .32 .34 .33 .30 .28 Net realized and unrealized gains (losses) on investments 1.45 2.99 2.42 1.57 1.50 - ----------------------------------------------------------------------------------------------------------------------------- Total from operations 1.77 3.33 2.75 1.87 1.78 - ----------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.31) (.35) (.32) (.29) (.27) From realized gains (.76) (1.23) (.07) -- -- - ----------------------------------------------------------------------------------------------------------------------------- Total distributions (1.07) (1.58) (.39) (.29) (.27) - ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 17.38 $ 16.68 $ 14.93 $ 12.57 $ 10.99 - ----------------------------------------------------------------------------------------------------------------------------- Total investment return (1) 11.25% 23.95% 22.42% 17.26% 19.16% - ----------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $12,112 $ 7,422 $ 5,103 $ 4,062 $ 2,444 RATIOS: Expenses to average daily net assets 1.00% 1.00% 1.00% 1.00% 1.00% Net investment income to average daily net assets 2.01% 2.20% 2.48% 2.61% 2.97% Portfolio turnover rate (excluding short-term securities) 89.37% 62.62% 38.16% 101.37% 50.61%
- ----------- (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. 53 SIT LARGE CAP GROWTH FUND FINANCIAL HIGHLIGHTS
Years Ended June 30, ---------------------------------------------------------------- 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 49.34 $ 40.39 $ 32.75 $ 28.38 $ 23.89 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (.04) .02 .07 .04 .11 Net realized and unrealized gains (losses) on investments 6.96 13.17 10.02 6.61 5.88 - ----------------------------------------------------------------------------------------------------------------------------------- Total from operations 6.92 13.19 10.09 6.65 5.99 - ----------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.01) (.07) (.03) (.04) (.09) From realized gains (3.41) (4.17) (2.42) (2.24) (1.41) - ----------------------------------------------------------------------------------------------------------------------------------- Total distributions (3.42) (4.24) (2.45) (2.28) (1.50) - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 52.84 $ 49.34 $ 40.39 $ 32.75 $ 28.38 - ----------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) 15.10% 35.33% 32.36% 24.48% 26.33% - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $140,258 $117,496 $ 72,226 $ 53,017 $ 45,211 RATIOS: Expenses to average daily net assets 1.00% 1.00% 1.00%(2) 1.00%(2) 1.00%(2) Net investment income (loss) to average daily net assets (0.09)% 0.06% 0.20%(2) 0.14%(2) 0.42%(2) Portfolio turnover rate (excluding short-term securities) 70.51% 43.61% 32.23% 49.99% 67.14%
- ----------- (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of distributions at net asset value. (2) During the years ended June 30, 1997, 1996, and 1995, the investment adviser voluntarily absorbed $50,548, $110,099, and $132,305, respectively, in expenses that were otherwise payable by the Fund. Had the Fund incurred these expenses, the ratio of expenses to average daily net assets would have been 1.08%, 1.23%, and 1.35% for the years ended June 30, 1997, 1996, and 1995, respectively, and the ratio of net investment income(loss) to average daily net assets would have been 0.11%, (.09%), and 0.07%, respectively. 54 SIT REGIONAL GROWTH FUND FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED ENDED JUNE 30, JUNE 30, 1999 1998 - ----------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 11.26 $ 10.00 - ----------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (.01) .02 Net realized and unrealized gains on investments 1.94 1.24 - ----------------------------------------------------------------------------------------------------- Total from operations 1.93 1.26 - ----------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.02) -- From realized gains -- -- - ----------------------------------------------------------------------------------------------------- Total distributions (.02) .00 - ----------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 13.17 $ 11.26 - ----------------------------------------------------------------------------------------------------- Total investment return (1) 17.21% 12.60% - ----------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 7,524 $ 4,982 RATIOS: Expenses to average daily net assets 1.00% (2) 1.00%(2) Net investment income to average net assets (0.04)%(2) 0.44%(2) Portfolio turnover rate (excluding short-term securities) 68.71% 19.71%
- ----------- (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of distributions at net asset value. (2) Percentages for period ended June 30, 1998 are adjusted to an annual rate. Total Fund expenses are contractually limited to 1.25% of average daily net assets. However, during the periods ended June 30, 1999 and 1998, the investment adviser voluntarily absorbed $14,845 and $3,611, respectively, in expenses that were otherwise payable by the Fund. Had the fund incurred these expenses, the ratio of expenses to average daily net assets would have been 1.25% for the periods ended June 30, 1999 and 1998, and the ratio of net investment income (loss) to average daily net assets would have been (0.29%) and 0.19%, respectively. 55 SIT MID CAP GROWTH FUND FINANCIAL HIGHLIGHTS
Years Ended June 30, ------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 16.49 $ 15.43 $ 15.58 $ 13.00 $ 11.08 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) (.06) (.07) (.03) (.04) -- Net realized and unrealized gains (losses) on investments .65 3.15 2.50 4.07 2.96 - ----------------------------------------------------------------------------------------------------------------------------------- Total from operations .59 3.08 2.47 4.03 2.96 - ----------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- -- -- -- From realized gains (2.54) (2.02) (2.62) (1.45) (1.04) - ----------------------------------------------------------------------------------------------------------------------------------- Total distributions (2.54) (2.02) (2.62) (1.45) (1.04) - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 14.54 $ 16.49 $ 15.43 $ 15.58 $ 13.00 - ----------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) 6.94% 22.19% 17.23% 33.00% 28.44% - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $375,343 $404,327 $386,543 $356,317 $327,879 RATIOS: Expenses to average daily net assets 1.00% (2) 1.00% (2) 0.92% (2) 0.77% 0.83% Net investment income (loss) to average daily net assets (0.46)%(2) (0.41)%(2) (0.20)%(2) (0.23)% 0.02% Portfolio turnover rate (excluding short-term securities) 68.62% 52.62% 38.66% 50.38% 75.40%
- ---------- (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of distributions at net asset value. (2) Effective November 1, 1996, total Fund expenses are contractually limited to 1.25% of average daily net assets. However, during the years ended June 30, 1999, 1998 and 1997, the investment adviser voluntarily absorbed $865,657, $1,004,074, and $609,840, respectively, in expenses that were otherwise payable by the Fund. Had the Fund incurred these expenses, the ratio of expenses to average daily net assets would have been 1.25%, 1.25%, and 1.09% for the years ended June 30, 1999, 1998 and 1997, respectively, and the ratio of net investment income (loss) to average daily net assets would have been (0.71%), (0.66%) and (0.37%), respectively. 56 SIT INTERNATIONAL GROWTH FUND FINANCIAL HIGHLIGHTS
Years Ended June 30, ------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 19.14 $ 18.57 $ 16.29 $ 15.71 $ 14.87 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) (.07) .02 .01 .02 .09 Net realized and unrealized gains on investments .84 1.25 2.70 1.50 1.06 - ---------------------------------------------------------------------------------------------------------------------------------- Total from operations .77 1.27 2.71 1.52 1.15 - ---------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.06) (.03) (.01) (.09) (.04) From realized gains (1.08) (.67) (.42) (.85) (.27) - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (1.14) (.70) (.43) (.94) (.31) - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 18.77 $ 19.14 $ 18.57 $ 16.29 $ 15.71 - ---------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) 4.51% 7.50% 17.04% 10.21% 7.86% - ---------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 94,982 $ 99,721 $ 99,279 $ 88,712 $ 68,125 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 (0.37)%(2) 0.12%(2) 0.05%(2) 0.13%(2) 0.62%(2) Portfolio turnover rate (excluding short-term securities) 45.91% 43.74% 41.59% 38.55% 40.42%
- ---------- (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of distributions at net asset value. (2) Total Fund expenses are contractually limited to 1.85% of average daily net assets. However, during the years ended June 30, 1999, 1998, 1997, 1996, and 1995, the investment adviser voluntarily absorbed $325,038, $338,651, $306,575, $269,556, and $228,795, respectively, in expenses that were otherwise payable by the fund. Had the Fund incurred these expenses, the ratio of expenses to average daily net assets would have been 1.85% for the years ended June 30, 1999, 1998, 1997, 1996, and 1995, and the ratio of net investment income (loss) to average daily net assets would have been (0.72%), (0.23%), (0.30%), (0.22%), and 0.27%, respectively. 57 SIT SMALL CAP GROWTH FUND FINANCIAL HIGHLIGHTS
Years Ended June 30, --------------------------------------------------------------- 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 20.35 $ 18.89 $ 19.27 $ 13.49 $ 10.00 - ----------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment loss (.18) (.17) (.14) (.11) (.02) Net realized and unrealized gains on investments 1.20 2.31 .57 6.03 3.56 - ----------------------------------------------------------------------------------------------------------------------- Total from operations 1.02 2.14 .43 5.92 3.54 - ----------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From realized gains (3.09) (.68) (.81) (.14) (.05) - ----------------------------------------------------------------------------------------------------------------------- Total distributions (3.09) (.68) (.81) (.14) (.05) - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 18.28 $ 20.35 $ 18.89 $ 19.27 $ 13.49 - ----------------------------------------------------------------------------------------------------------------------- Total investment return (1) 8.77% 11.70% 2.37% 44.13% 35.59% - ----------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $50,335 $57,472 $58,358 $50,846 $12,015 RATIOS: Expenses to average daily net assets 1.50% 1.50% 1.50% 1.50% 1.50% Net investment income (loss) to average daily net assets (1.08)% (0.72)% (0.81)% (0.91)% (0.30)% Portfolio turnover rate (excluding short-term securities) 71.84% 79.54% 58.39% 69.92% 49.39%
- ---------- (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of distributions at net asset value. 58 SIT SCIENCE AND TECHNOLOGY GROWTH FUND FINANCIAL HIGHLIGHTS
Six Months Year Ended Ended June 30, June 30, 1999 1998 - -------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 11.77 $ 10.00 - -------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (.07) (.01) Net realized and unrealized gains on investments 3.53 1.78 - -------------------------------------------------------------------------------------------------- Total from operations 3.46 1.77 - -------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- From realized gains -- -- - -------------------------------------------------------------------------------------------------- Total distributions .00 .00 - -------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 15.23 $ 11.77 - -------------------------------------------------------------------------------------------------- Total investment return (1) 29.40% 17.70% - -------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $14,194 $ 4,858 RATIOS: Expenses to average daily net assets 1.25% (2) 1.25% (2) Net investment income to average net assets (0.72)%(2) (0.21)%(2) Portfolio turnover rate (excluding short-term securities) 58.29% 19.37%
- ---------- (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of distributions at net asset value. (2) Percentages for period ended June 30, 1998 are adjusted to an annual rate. Total Fund expenses are contractually limited to 1.50% of average daily net assets. However, during the periods ended June 30, 1999 and 1998, the investment adviser voluntarily absorbed $22,008 and $4,655, respectively, in expenses that were otherwise payable by the Fund. Had the fund incurred these expenses, the ratio of expenses to average daily net assets would have been 1.25% for the periods ended June 30, 1999 and 1998, and the ratio of net investment income (loss) to average daily net assets would have been (0.97%) and (0.46%), respectively. 59 SIT DEVELOPING MARKETS GROWTH FUND FINANCIAL HIGHLIGHTS
Years Ended June 30, ----------------------------------------------------------- 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 9.05 $ 13.04 $ 10.95 $ 9.41 $ 10.00 - ----------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) -- (.06) .03 -- -- Net realized and unrealized gains (losses) on investments .93 (3.92) 2.06 1.55 (.54) - ----------------------------------------------------------------------------------------------------------------------- Total from operations .93 (3.98) 2.09 1.55 (.54) - ----------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- (.01) -- -- -- From realized gains -- -- -- (.01) (.05) - ----------------------------------------------------------------------------------------------------------------------- Total distributions -- (.01) -- (.01) (.05) - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 9.98 $ 9.05 $ 13.04 $ 10.95 $ 9.41 - ----------------------------------------------------------------------------------------------------------------------- Total investment return (1) 10.28% (30.52)% 19.09% 16.51% (5.44)% - ----------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $11,338 $11,505 $16,789 $ 8,646 $ 4,618 RATIOS: Expenses to average daily net assets 2.00% 2.00% 2.00% 2.00% 2.00% Net investment income (loss) to average daily net assets (0.05)% (0.52)% 0.32% 0.06% 0.03% Portfolio turnover rate (excluding short-term securities) 98.24% 53.36% 65.88% 46.22% 56.35%
- ---------- (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. 60 SIT MUTUAL FUNDS INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Sit Large Cap Growth Fund, Inc. Sit Mid Cap Growth Fund, Inc. Sit Mutual Funds, Inc.: We have audited the accompanying statements of assets and liabilities, including the schedules of portfolios of investments in securities of Sit Balanced Fund (a series of Sit Mutual Funds, Inc.), Sit Large Cap Growth Fund, Inc., Sit Regional Growth Fund (a series of Sit Mutual Funds, Inc.), Sit Mid Cap Growth Fund, Inc., Sit International Growth Fund (a series of Sit Mutual Funds, Inc.), Sit Small Cap Growth Fund (a series of Sit Mutual Funds, Inc.), Sit Science and Technology Growth Fund (a series of Sit Mutual Funds, Inc.), and Sit Developing Markets Growth Fund (a series of Sit Mutual Funds, Inc.), as of June 30, 1999; the related statements of operations for the period ended June 30, 1999; the statements of changes in net assets for each of the periods in the two-year period ended June 30, 1999; and the financial highlights as presented in note 4 to the financial statements. These financial statements and the financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Investment securities held in custody are confirmed to us by the custodian. As to securities purchased and sold but not received or delivered, we request confirmations from brokers and where replies are not received, we carry out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and the financial highlights referred to above present fairly, in all material respects, the financial position of Sit Balanced Fund, Sit Large Cap Growth Fund, Sit Regional Growth Fund, Sit Mid Cap Growth Fund, Sit International Growth Fund, Sit Small Cap Growth Fund, Sit Science and Technology Growth Fund, and Sit Developing Markets Growth Fund as of June 30, 1999 and the results of their operations, the changes in their net assets, and the financial highlights for the periods stated in the first paragraph above, in conformity with generally accepted accounting principles. KPMG LLP Minneapolis, Minnesota August 6, 1999 61 SIT MUTUAL FUNDS FEDERAL INCOME TAX INFORMATION We are required by Federal tax regulations to provide shareholders with certain information regarding dividend distributions on an annual fiscal year basis. The figures are for informational purposes only and should not be used for reporting to federal or state revenue agencies. All necessary tax information will be mailed in January each year. LONG-TERM ORDINARY CAPITAL FUND AND PAYABLE DATE INCOME(a) GAIN(b) - ---------------------------- --------- --------- Large Cap Growth Fund December 8, 1998 $0.00630(c) $3.40771 ======== ======== Mid Cap Growth Fund December 8, 1998 $0.00000 $2.54141 ======== ======== Small Cap Growth Fund December 8, 1998 $0.00000 $3.08936 ======== ======== Balanced Fund October 8, 1998 $0.07832 -- December 8, 1998 0.08245 $0.75940 April 9, 1999 0.06932 -- July 9, 1999 0.08984 -- -------- -------- $0.31993(d) $0.75940 ======== ======== International Growth Fund December 8, 1998 $0.05618(c) $1.08797 ======== ======== Regional Growth Fund December 8, 1998 $0.02366(c) $0.00000 ======== ======== (a) Includes distributions of short-term gains, if any, which are taxable as ordinary income. (b) Taxable as long-term gain. (c) Taxable as dividend income and does not qualify for dividends-received deduction by corporations. (d) Taxable as dividend income, 26.18% qualifying for dividends-received deduction by corporations. 62 SIT MUTUAL FUNDS RESULTS OF SHAREHOLDERS MEETING The annual meeting of the shareholders of the Funds was held on October 27, 1998. Directors elected by the shareholders at the meeting were as follows: Eugene C. Sit, Peter L. Mitchelson, William E. Frenzel, John E. Hulse, Sidney L. Jones, and Donald W. Phillips for all Funds and Michael C. Brilley for the Sit Bond Funds only. The matters voted on by the shareholders of record as of August 28, 1998 and the results of the shareholders' vote at the October 27, 1998 meeting were as follows: 1. Election of Directors: For Withheld --- -------- Eugene C. Sit U.S. Government Securities 6,873,708 24,090 Money Market 26,128,992 4,702 Tax-Free Income 36,143,999 189,587 MN Tax-Free Income 9,603,984 16,735 Bond 860,136 20,877 William E. Frenzel U.S. Government Securities 6,720,559 177,239 Money Market 26,128,992 4,702 Tax-Free Income 36,120,991 212,595 MN Tax-Free Income 9,597,075 23,644 Bond 860,136 20,877 John E. Hulse U.S. Government Securities 6,855,034 42,764 Money Market 26,082,443 51,251 Tax-Free Income 36,066,969 266,617 MN Tax-Free Income 9,600,293 20,426 Bond 860,136 20,877 Sidney L. Jones U.S. Government Securities 6,721,961 175,837 Money Market 26,128,992 4,702 Tax-Free Income 36,110,885 222,701 MN Tax-Free Income 6,622,814 49,597 Bond 860,136 20,877 Peter L. Mitchelson U.S. Government Securities 6,864,314 33,484 Money Market 26,128,992 4,702 Tax-Free Income 36,136,087 197,499 MN Tax-Free Income 6,647,332 25,079 Bond 860,136 20,877 63 SIT MUTUAL FUNDS RESULTS OF SHAREHOLDERS MEETING For Withheld --- -------- Donald W. Phillips U.S. Government Securities 6,721,720 176,078 Money Market 26,128,992 4,702 Tax-Free Income 36,084,897 248,689 MN Tax-Free Income 9,594,545 26,174 Bond 860,136 20,877 Michael C. Brilley U.S. Government Securities 6,858,482 39,316 Money Market 26,128,992 4,702 Tax-Free Income 36,088,966 244,620 MN Tax-Free Income 9,603,984 16,735 Bond 860,136 20,877 2. Ratification of KPMG Peat Marwick LLP as independent auditors for the Funds: For Against Abstain --- ------- ------- U.S. Government Securities 6,826,342 29,658 41,796 Money Market 25,996,350 113,330 24,013 Tax-Free Income 35,903,113 128,585 301,886 MN Tax-Free Income 9,556,517 17,679 46,521 Bond 879,527 1,485 000 3. Amendment of the Sit Large Cap Growth Fund, Sit Mid Cap Growth Fund, Sit U.S. Government Securities Fund, and the Sit International Growth Fund's fundamental investment restrictions to eliminate the restrictions on investing in securities of investment companies. For Against Abstain --- ------- ------- Large Cap Growth 1,227,595 23,778 17,516 Mid Cap Growth 11,877,175 323,696 200,456 U.S. Government Securities 5,248,572 347,985 201,296 International Growth 2,424,429 45,534 50,026 64 [LOGO] Directors: Eugene C. Sit, CFA Peter L. Mitchelson, CFA William E. Frenzel John E. Hulse Sidney L. Jones Donald W. Phillips Director Emeritus: Melvin C. Bahle Officers: Eugene C. Sit, CFA Chairman Peter L. Mitchelson, CFA Vice Chairman Mary K. Stern, CFA President Roger J. Sit Executive Vice President Erik S. Anderson, CFA Vice President - Investments Ronald D. Sit, CFA Vice President - Investments Bryce A. Doty, CFA (1) Vice President - Investments Robert W. Sit (2) Vice President - Investments John T. Groton, Jr., CFA (3) Vice President - Investments Paul E. Rasmussen Vice President & Treasurer Michael P. Eckert Vice President Michael J. Radmer Secretary Debra A. Sit, CFA Assistant Treasurer Carla J. Rose Assistant Secretary (1) Sit Balanced Fund only. (2) Sit Science and Technology Growth Fund only. (3) Sit Regional Growth Fund only. ANNUAL REPORT STOCK FUNDS YEAR ENDED JUNE 30, 1999 INVESTMENT ADVISER INVESTMENT SUB-ADVISER SIT INVESTMENT ASSOCIATES, INC. (DEVELOPING MARKETS GROWTH FUND AND 4600 NORWEST CENTER INTERNATIONAL GROWTH FUND) MINNEAPOLIS, MN 55402 SIT/KIM INTERNATIONAL INVESTMENT 612-334-5888 (METRO AREA) ASSOCIATES, INC. 800-332-5580 4600 NORWEST CENTER MINNEAPOLIS, MN 55402 DISTRIBUTOR 612-334-5888 (METRO AREA) 800-332-5580 SIA SECURITIES CORP. 4600 NORWEST CENTER MINNEAPOLIS, MN 55402 612-334-5888 (METRO AREA) 800-332-5580 CUSTODIAN THE NORTHERN TRUST COMPANY 50 SOUTH LASALLE STREET CHICAGO, IL 60675 TRANSFER AGENT AND DISBURSING AGENT FIRST DATA INVESTOR SERVICES P.O. BOX 5166 WESTBORO, MA 01581-5166 AUDITORS KPMG PEAT MARWICK LLP 4200 NORWEST CENTER MINNEAPOLIS, MN 55402 LEGAL COUNSEL DORSEY & WHITNEY LLP 220 SOUTH SIXTH STREET MINNEAPOLIS, MN 55402 MEMBER OF ==================== 100% NO-LOAD MUTUAL FUND COUNCIL ==================== -----END PRIVACY-ENHANCED MESSAGE-----