AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
(File No. 2-75151)
Post-Effective Amendment No. 22
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 _X_
(File No. 811-03342)
Post-Effective Amendment No. 25
SIT MID CAP GROWTH FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
4600 Norwest Center, Minneapolis, Minnesota 55402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 332-3223
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Kelly K. Orning
Compliance and Administration Associate
Sit Mutual Funds
4600 Norwest Center
Minneapolis, Minnesota 55402
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
Michael J. Radmer, Esq.
Dorsey & Whitney
2200 First Bank Place East
Minneapolis, Minnesota 55402
____ immediately upon filing pursuant to paragraph (b) of rule 485
____ on (specify date) pursuant to paragraph (b) of rule 485
____ 60 days after filing pursuant to paragraph (a)(1) of rule 485
_XX_ on November 1, 1998 pursuant to paragraph (a)(1) of rule 485
____ 75 days after filing pursuant to paragraph (a)(2) of rule 485
____ on (specify date) pursuant to paragraph (a)(2) of rule 485
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's most recent fiscal year
was filed with the Securities and Exchange Commission on or about July 17, 1998.
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
(File No. 2-75152)
Post-Effective Amendment No. 22
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 _X_
(File No. 811-03343)
Post-Effective Amendment No. 25
SIT LARGE CAP GROWTH FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
4600 Norwest Center, Minneapolis, Minnesota 55402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 332-3223
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Kelly K. Orning
Compliance and Administration Associate
Sit Mutual Funds
4600 Norwest Center
Minneapolis, Minnesota 55402
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
Michael J. Radmer, Esq.
Dorsey & Whitney
2200 First Bank Place East
Minneapolis, Minnesota 55402
____ immediately upon filing pursuant to paragraph (b) of rule 485
____ on (specify date) pursuant to paragraph (b) of rule 485
____ 60 days after filing pursuant to paragraph (a)(1) of rule 485
_XX_ on November 1, 1998 pursuant to paragraph (a)(1) of rule 485
____ 75 days after filing pursuant to paragraph (a)(2) of rule 485
____ on (specify date) pursuant to paragraph (a)(2) of rule 485
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's most recent fiscal year
was filed with the Securities and Exchange Commission on or about July 17, 1998.
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
(File No. 33-42101)
Post-Effective Amendment No. 16
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 _X_
(File No. 811-06373)
Post-Effective Amendment No. 17
SIT MUTUAL FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
4600 Norwest Center, Minneapolis, Minnesota 55402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 332-3223
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Kelly K. Orning
Compliance and Administration Associate
Sit Mutual Funds
4600 Norwest Center
Minneapolis, Minnesota 55402
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
Michael J. Radmer, Esq.
Dorsey & Whitney
2200 First Bank Place East
Minneapolis, Minnesota 55402
____ immediately upon filing pursuant to paragraph (b) of rule 485
____ on (specify date) pursuant to paragraph (b) of rule 485
____ 60 days after filing pursuant to paragraph (a)(1) of rule 485
_XX_ on November 1, 1998 pursuant to paragraph (a)(1) of rule 485
____ 75 days after filing pursuant to paragraph (a)(2) of rule 485
____ on (specify date) pursuant to paragraph (a)(2) of rule 485
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's most recent fiscal year
was filed with the Securities and Exchange Commission on or about July 17, 1998.
<PAGE>
FORM N-1A
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM # CAPTION PROSPECTUS CAPTION
- ------ ------- ------------------
<S> <C> <C>
1 Cover Page Inside Cover of Prospectus
2 Synopsis Prospectus Summary
3 Condensed Financial Information Financial Highlights
4 General Description of Registrant Investment Objectives and Policies; Common Policies
and Information; Capitalization and Voting Rights;
Additional Information
5 Management of the Fund Summary of Fund Expenses; Custodian and Transfer
Agent; Management; Additional Information
6 Capital Stock and Other Dividend Reinvestment; Exchanges; Capitalization
Securities and Voting Rights; Taxes; Additional
Information
7 Purchase of Securities Being How to Purchase Fund Shares; Exchanges;
Offered Retirement Accounts; Computation of Net Asset
Value
8 Redemption or Repurchase Redemption of Fund Shares
9 Pending Legal Proceedings Not Applicable
ITEM # CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ------ ------- -------------------------------------------
10 Cover Page Cover Page of Statement of Additional Information
11 Table of Contents Table of Contents
12 General Information and History Not Applicable
13 Investment Objectives and Policies Additional Investment Restrictions; Securities in
which the Funds May Invest
14 Management of the Fund Management; Investment Adviser
15 Control Persons and Principal Control Persons and Principal Holders
Holders of Securities
16 Investment Advisory and Other Investment Adviser
Services
17 Brokerage Allocation Brokerage
<PAGE>
<CAPTION>
ITEM # CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ------ ------- -------------------------------------------
18 Capital Stock and Other Securities Capitalization and Voting Rights (in Prospectus)
19 Purchase, Redemption and Pricing Computation of Net Asset Value
of Securities Being Offered
20 Tax Status Taxes
21 Underwriters Distributor
22 Calculation of Performance Data Calculation of Performance Data
23 Financial Statements Financial Statements
</TABLE>
<PAGE>
STOCK FUNDS PROSPECTUS
NOVEMBER 1, 1998
A FAMILY OF 100% NO-LOAD FUNDS
------------------------------
LARGE CAP GROWTH FUND
MID CAP GROWTH FUND
SMALL CAP GROWTH FUND
REGIONAL GROWTH FUND
SCIENCE AND TECHNOLOGY GROWTH FUND
BALANCED FUND
INTERNATIONAL GROWTH FUND
DEVELOPING MARKETS GROWTH FUND
[LOGO] SIT(SM) MUTUAL FUNDS
THE INVESTMENT IS MUTUAL.(SM)
<PAGE>
SIT MUTUAL FUNDS
4600 Norwest Center - Minneapolis, MN 55402
www.sitfunds.com * e-mail: [email protected]
612-334-5888 or 800-332-5580
[GRAPHIC]
SIT FAMILY OF FUNDS
PRINCIPAL STABILITY & CURRENT INCOME
STABILITY: INCOME: GROWTH: HIGH GROWTH:
Safety of principal Increased income Long-term capital Long-term capital
and current income appreciation appreciation
and income
GROWTH POTENTIAL
MONEY MARKET U.S. GOVERNMENT BALANCED MID CAP GROWTH
SECURITIES LARGE CAP GROWTH INTERNATIONAL GROWTH
TAX-FREE INCOME REGIONAL GROWTH SMALL CAP GROWTH
MINNESOTA TAX-FREE SCIENCE AND
INCOME TECHNOLOGY GROWTH
BOND DEVELOPING MARKETS
GROWTH
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS (AND/OR IN THE
STATEMENT OF ADDITIONAL INFORMATION REFERRED TO ON THE COVER PAGE OF THIS
PROSPECTUS), AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NOT PART OF THE PROSPECTUS
<PAGE>
PROSPECTUS
November 1, 1998
The Funds have the following investment objectives:
LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------
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.
MID CAP GROWTH FUND
- --------------------------------------------------------------------------------
The objective of the 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 $1.5 billion to $5
billion at the time of purchase.
SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
The objective of the Small Cap Growth Fund is to maximize long-term capital
appreciation. The Fund pursues this objective by investing primarily in common
stocks of small growth companies with a capitalization of $1.5 billion or less
at the time of purchase.
REGIONAL GROWTH FUND
- --------------------------------------------------------------------------------
The objective of the Regional Growth 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.
SCIENCE AND TECHNOLOGY GROWTH FUND
- --------------------------------------------------------------------------------
The objective of the Science and Technology Growth Fund is to maximize long-term
capital appreciation. The Fund pursues this objective by investing primarily in
common stocks of companies which the Adviser 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.
BALANCED FUND
- --------------------------------------------------------------------------------
The objective of the Balanced Fund is to seek long-term growth of capital
consistent with the preservation of principal and to provide shareholders with
regular income. The Fund pursues this objective by investing in a diversified
portfolio of stocks, bonds, and short-term instruments.
INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
The objective of the International Growth Fund is to achieve long-term growth.
The Fund pursues this objective by investing primarily in common stocks of
issuers domiciled outside the United States.
DEVELOPING MARKETS GROWTH FUND
- --------------------------------------------------------------------------------
The objective of the Developing Markets Growth Fund is to maximize long-term
capital appreciation. The Fund pursues this objective by investing primarily in
common stocks of companies deemed to be domiciled or otherwise operating in a
developing market.
This prospectus concisely sets forth facts about the Funds that you should know
before investing and it should be retained for future reference. You should read
it to decide if any of the Funds are the right investment for you.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed upon the accuracy or adequacy
of this prospectus. Any representations to the contrary is a criminal offense.
1
<PAGE>
SIT LARGE CAP GROWTH FUND, INC.
SIT MID CAP GROWTH FUND, INC.
SIT SMALL CAP GROWTH FUND
SIT REGIONAL GROWTH FUND
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
SIT BALANCED FUND
SIT INTERNATIONAL GROWTH FUND
SIT DEVELOPING MARKETS GROWTH FUND
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Summary of Fund Expenses ..................... 4 Investment in Sit Money Market Fund ........ 33
Financial Highlights ......................... 5 Portfolio Turnover ......................... 33
Performance ................................ 14 Relationship of Debt Securities &
Investment Objectives and Policies ........... 17 Interest Rates ........................... 33
Large Cap Growth Fund ...................... 17 Temporary Defensive Investments ............ 33
Mid Cap Growth Fund ........................ 17 Ratings of Debt Securities ................. 33
Small Cap Growth Fund ...................... 18 Fund Borrowing ............................. 34
Regional Growth Fund ....................... 18 Other Investment Restrictions .............. 34
Science and Technology Growth Fund ......... 19 Computation of Net Asset Value ............... 34
Balanced Fund .............................. 19 How to Purchase Fund Shares................... 35
International Growth Fund .................. 24 Redemption of Fund Shares .................... 37
Developing Markets Growth Fund ............. 26 Exchanges .................................... 38
Risks Specific to International Investing .... 29 Dividends .................................... 39
Common Policies and Information .............. 31 Retirement and other Tax-Deferred Accounts ... 39
Securities Lending ......................... 31 Custodian and Transfer Agent ................. 40
Puts and Calls ............................. 31 Management ................................... 40
When-Issued and Forward Taxes ........................................ 42
Commitment Securities .................... 31 Capitalization and Voting Rights ............. 43
Repurchase Agreements ...................... 32 Euro Conversion ............................. 43
Illiquid Securities ........................ 32 Year 2000 Computer Issue .................... 44
Additional Information ....................... 44
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
2
<PAGE>
PROSPECTUS SUMMARY
THE FUNDS
- --------------------------------------------------------------------------------
The Funds are each 100% no-load, open-end, diversified, management investment
companies (commonly known as "mutual funds"), as defined in the Investment
Company Act of 1940 (the "1940 Act").
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The investment objectives of the Funds are set forth on page 1 of this
prospectus. The investment objective of each Fund is "fundamental," which means
that it may not be changed unless approved by a vote of the "majority" of the
shareholders of such Fund (as defined in the 1940 Act). There can be no
assurance that the investment objectives of any of the Funds will be achieved.
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Sit Investment Associates, Inc. (the "Adviser") serves as the investment adviser
to each Fund and receives an annual fee based on a percentage of average daily
net assets. The percentage varies from Fund to Fund. The Adviser, together with
its affiliates, manage approximately $6 billion for both public and private
clients, including over $1.5 billion for the 13 Sit Mutual Funds.
SUB-ADVISER
- --------------------------------------------------------------------------------
Sit/Kim International Investment Associates, Inc. (the "Sub-Adviser") serves as
Sub-Adviser for the International Growth Fund and the Developing Markets Growth
Fund. The Sub-Adviser is an international investment management firm with
offices in New York and San Francisco and is an affiliate of the Adviser.
PRICE OF FUND SHARES
- --------------------------------------------------------------------------------
Fund shares are sold at their net asset value ("NAV"). There is no sales charge
or redemption fee. The NAV is based upon the market value of the securities
owned by a Fund and is determined once daily as of the close of the New York
Stock Exchange on each day the Exchange is open for trading.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
You can purchase shares of any Fund with no sales charges at the next determined
NAV by completing the application and mailing it, along with a check to the
Funds at the address as listed on the inside back cover of this prospectus or as
instructed on the application.
================================================================================
100% NO-LOAD
NO SALES COMMISSIONS
NO DEFERRED SALES CHARGES
NO 12b-1 FEES
$2,000 MINIMUM INITIAL INVESTMENT --- $100 SUBSEQUENT INVESTMENT
NO MINIMUM INVESTMENT FOR IRAs, RETIREMENT PLANS, OR
GIFTS/TRANSFERS TO MINORS (UGMA/UTMA) ACCOUNTS
ELECTRONIC TRANSFER OF FUNDS FOR PURCHASES AND REDEMPTIONS
AUTOMATIC MONTHLY INVESTMENT PLAN
NO CHARGE FOR EXCHANGES
================================================================================
3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
The fund expense summary was developed for use by all mutual funds. You should
consider this expense information as well as other important information in this
prospectus:
<TABLE>
<CAPTION>
Science
Large Mid Small and Dev.
Cap Cap Cap Regional Tech. Int'l Mkts
Growth Growth Growth Growth Growth Balanced Growth Growth
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales load on purchases .............. none none none none none none none none
Sales load on reinvested dividends ... none none none none none none none none
Deferred sales load .................. none none none none none none none none
Redemption fees ...................... none none none none none none none none
Exchange fees ........................ none none none none none none none none
ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets)
Management fees (after fee waiver,
if applicable) ..................... 1.00% 1.00%(1) 1.50% 1.00%(1) 1.25%(1) 1.00% 1.50%(1) 2.00%
l2b-1 fees ........................... none none none none none none none none
Other expenses ....................... none none none none none none none none
Total fund operating expenses (after
fee waiver, if applicable) ......... 1.00% 1.00%(1) 1.50% 1.00%(1) 1.25%(1) 1.00% 1.50%(1) 2.00%
----- ----- ----- ----- ----- ----- ----- -----
</TABLE>
- ---------------------------
(1) Net of voluntary fee waiver
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(a) 5% annual rate of return and (b) redemption at the end of each period.
<TABLE>
<CAPTION>
Science
Large Mid Small and Dev.
Cap Cap Cap Regional Tech. Int'l Mkts
Growth Growth Growth Growth Growth Balanced Growth Growth
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year ................................ $ 10 $ 10 $ 15 $ 10 $ 13 $ 10 $ 15 $ 20
3 years ............................... 32 32 47 32 40 32 47 63
5 years ............................... 55 55 82 55 69 55 82 108
10 years .............................. 122 122 179 122 152 122 179 233
</TABLE>
The purpose of the above table is to assist you in understanding the various
costs and expenses that an investor in the Funds will bear directly or
indirectly. No transaction expenses are incurred by you when you buy or sell
shares of the Funds. Management fees and other expenses are reflected in each
Fund's share price and are not charged directly to individual shareholder
accounts.
The examples contained in the above table should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.
4
<PAGE>
Each Fund has engaged the Adviser as its investment adviser pursuant to an
Investment Management Agreement. Absent voluntary fee waivers by the Adviser,
Large Cap Growth Fund, Mid Cap Growth Fund, Small Cap Growth Fund, Balanced
Fund, Regional Growth Fund, Science and Technology Growth Fund, International
Growth Fund and Developing Markets Growth Fund are obligated under the Funds'
Investment Management Agreements to pay the Adviser annual management fees of
1.00%, 1.25%, 1.50%, 1.00%, 1.25%, 1.50%, 1.85% and 2.00% per year,
respectively, of each Fund's average daily net assets; however, the Adviser is
obligated to pay all of each Fund's other expenses (other than extraordinary
expenses, interest, brokerage commissions and other transaction charges). See
"Management - Investment Adviser" for more information.
For the period November 1, 1996 through December 31, 1999, the Adviser has
voluntarily agreed to limit the management fee (and, thereby, all Fund expenses,
except those not payable by the Adviser as set forth above) of the Mid Cap
Growth Fund to 1.00% per year of the Fund's average daily net assets. After
December 31, 1999, this voluntary fee waiver may be discontinued by the Adviser
in its sole discretion.
For the period December 31, 1997 (date of inception) through December 31, 1999,
the Adviser has voluntarily agreed to limit the management fee (and, thereby,
all Fund expenses except those not payable by the Adviser as set forth above) of
the Regional Growth Fund and Science and Technology Growth Fund to 1.00% and
1.25% per year, respectively, of the Fund's average daily net assets. After
December 31, 1999, this voluntary fee waiver may be discontinued by the Adviser
in its sole discretion.
For the period January 1, 1994 through December 31, 1999, the Adviser has
voluntarily agreed to limit the management fee (and, thereby, all Fund expenses,
except those not payable by the Adviser as set forth above) of the International
Growth Fund to 1.50% per year of the Fund's average daily net assets. After
December 31, 1999, this voluntary fee waiver may be discontinued by the Adviser
in its sole discretion.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following tables show certain important financial information for evaluating
each Fund. This information has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of a Fund are contained in the Funds' Annual
Report and Statement of Additional Information, which, if not included with this
prospectus, may be obtained upon request and without charge.
Per share data for a share of capital stock outstanding during the period and
selected information for each period are as follows:
5
<PAGE>
SIT LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of year $40.39 $32.75 $28.38 $23.89 $25.61 $24.22 $21.89 $22.64 $20.62 $18.31
- --------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .02 .07 .04 .11 .23 .33 .38 .58 .59 .54
Net realized and unrealized gains
(losses) on investments 13.17 10.02 6.61 5.88 (.33) 1.94 2.91 (.01) 2.88 2.18
- --------------------------------------------------------------------------------------------------------------------------------
Total from operations 13.19 10.09 6.65 5.99 (.10) 2.27 3.29 .57 3.47 2.73
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income (.07) (.03) (.04) (.09) (.23) (.34) (.43) (.69) (.54) (.42)
From realized gains (4.17) (2.42) (2.24) (1.41) (1.39) (.54) (.53) (.63) (.91) --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (4.24) (2.45) (2.28) (1.50) (1.62) (.88) (.96) (1.32) (1.45) (.42)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
End of year $49.34 $40.39 $32.75 $28.38 $23.89 $25.61 $24.22 $21.89 $22.64 $20.62
- --------------------------------------------------------------------------------------------------------------------------------
Total investment return(1) 35.33% 32.36% 24.48% 26.33% (0.58%) 9.52% 15.22% 3.10% 17.14% 15.30%
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000s omitted) $117,496 $72,226 $53,017 $45,211 $34,612 $37,602 $32,040 $21,112 $17,682 $13,622
RATIOS:
Expenses to average
daily net assets 1.00% 1.00%(2) 1.00%(2) 1.00%(2) 1.10%(2) 1.42% 1.50% 1.50% 1.50% 1.50%
Net investment income to average
daily net assets 0.06% 0.20%(2) 0.14%(2) 0.42%(2) 0.89%(2) 1.31% 1.92% 2.74% 2.86% 2.95%
Average brokerage
commission rate(3) $0.0550 $0.0560 n/a n/a n/a n/a n/a n/a n/a n/a
Portfolio turnover rate
(excluding short-term securities) 43.61% 32.23% 49.99% 67.14% 73.62% 47.82% 73.40% 70.01% 55.00% 82.23%
</TABLE>
- ---------------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Effective November 1, 1996, total Fund expenses are contractually limited
to 1.00% of average daily net assets. Prior to November 1, 1996 total Fund
expenses were contractually limited to 1.50% of average daily net assets
for the first $30 million in Fund net assets and 1.00% of average daily
net assets for Fund net assets exceeding $30 million. During the years
ended June 30, 1997, 1996, 1995 and 1994 the investment adviser
voluntarily absorbed $50,548, $110,099, $132,305 and $112,191,
respectively, in expenses that were otherwise payable by the Fund. Had the
Fund incurred these expenses, the ratio of expenses to average daily net
assets would have been 1.08%, 1.23%, 1.35% and 1.40% for the years ended
June 30, 1997, 1996, 1995 and 1994, respectively, and the ratio of net
investment income (loss) to average daily net assets would have been
0.11%, (0.09%), 0.07% and 0.59%, respectively.
(3) Beginning in fiscal 1997, the Fund is required to disclose an average
brokerage commission rate. This rate is calculated by dividing total
brokerage commissions paid on purchases and sales of portfolio securities
by the total number of related shares purchased and sold.
6
<PAGE>
SIT MID CAP GROWTH FUND
The information in the following table has been restated to reflect a 4 for 1
stock split which took place on December 10, 1993.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of year $15.43 $15.58 $13.00 $11.08 $11.91 $10.52 $9.35 $8.70 $7.58 $6.98
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.07) (.03) (.04) -- (.01) .03 .04 .07 .06 .13
Net realized and unrealized gains
(losses) on investments 3.15 2.50 4.07 2.96 (.51) 1.43 1.22 1.05 1.51 .81
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations 3.08 2.47 4.03 2.96 (.52) 1.46 1.26 1.12 1.57 .94
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income -- -- -- -- (.02) (.05) (.06) (.08) (.09) (.09)
From realized gains (2.02) (2.62) (1.45) (1.04) (.29) (.02) (.03) (.39) (.36) (.25)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.02) (2.62) (1.45) (1.04) (.31) (.07) (.09) (.47) (.45) (.34)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of year $16.49 $15.43 $15.58 $13.00 $11.08 $11.91 $10.52 $9.35 $8.70 $7.58
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return(1) 22.19% 17.23% 33.00% 28.44% (4.62%) 13.88% 13.34% 14.13% 21.13% 14.59%
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(000s omitted) $404,327 $386,543 $356,317 $327,879 $285,175 $341,702 $241,831 $122,677 $73,532 $53,982
RATIOS:
Expenses to average
daily net assets 1.00%(2) 0.92%(2) 0.77% 0.83% 0.82% 0.80% 0.83% 1.03% 1.10% 1.19%
Net investment income (loss) to
average daily net assets (0.41%)(2) (0.20%)(2) (0.23%) 0.02% (0.08%) 0.35% 0.52% 0.96% 0.75% 1.85%
Average brokerage
commission rate(3) $0.0540 $0.0510 n/a n/a n/a n/a n/a n/a n/a n/a
Portfolio turnover rate
(excluding short-term securities) 52.62% 38.66% 50.38% 75.40% 46.71% 45.18% 24.74% 37.01% 55.32% 88.39%
</TABLE>
- ---------------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Effective November 1, 1996, total Fund expenses are contractually limited
to 1.25% of average daily net assets. Prior to November 1, 1996, the Mid
Cap Growth Fund's total expenses were contractually limited to 1.50% of
average daily net assets for the first $30 million in Fund net assets and
1.00% of average daily net assets for Fund net assets exceeding $30
million. During the years ended June 30, 1998 and 1997, the investment
adviser voluntarily absorbed $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% and 1.09% for the years ended June 30, 1998 and 1997,
respectively, and the ratio of net investment income (loss) to average
daily net assets would have been (0.66%) and (0.37%), respectively.
(3) Beginning in fiscal 1997, the Fund is required to disclose an average
brokerage commission rate. This rate is calculated by dividing total
brokerage commissions paid on purchases and sales of portfolio Securities
by the total number of related shares purchased and sold.
7
<PAGE>
SIT SMALL CAP GROWTH FUND
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of year $18.89 $19.27 $13.49 $10.00
- -------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment loss (.17) (.14) (.11) (.02)
Net realized and unrealized gains on investments 2.31 .57 6.03 3.56
- -------------------------------------------------------------------------------------------------
Total from operations 2.14 .43 5.92 3.54
- -------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From realized gains (.68) (.81) (.14) (.05)
- -------------------------------------------------------------------------------------------------
Total distributions (.68) (.81) (.14) (.05)
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of year $20.35 $18.89 $19.27 $13.49
- -------------------------------------------------------------------------------------------------
Total investment return(1) 11.70% 2.37% 44.13% 35.59%
- -------------------------------------------------------------------------------------------------
Net assets at end of year (000s omitted) $57,472 $58,358 $50,846 $12,015
RATIOS:
Expenses to average daily net assets 1.50% 1.50% 1.50% 1.50%
Net income (loss) to average daily net assets (0.72%) (0.81%) (0.91%) (0.30%)
Average brokerage commission rate(2) $0.0490 $0.0480 n/a n/a
Portfolio turnover rate (excluding short-term securities) 79.54% 58.39% 69.92% 49.39%
</TABLE>
- ----------------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Beginning in fiscal 1997, the Fund is required to disclose an average
brokerage commission rate. This rate is calculated by dividing total
brokerage commissions paid on purchases and sales of portfolio securities
by the total number of related shares purchased and sold.
8
<PAGE>
SIT REGIONAL GROWTH FUND
PERIOD
12/31/97 TO
6/30/98(1)
- -----------------------------------------------------------------------------
NET ASSET VALUE:
Beginning of year $10.00
- -----------------------------------------------------------------------------
OPERATIONS:
Net investment income .02
Net realized and unrealized gains (losses) on investments 1.24
- -----------------------------------------------------------------------------
Total from operations 1.26
- -----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --
From realized gains --
- -----------------------------------------------------------------------------
Total distributions --
- -----------------------------------------------------------------------------
NET ASSET VALUE:
End of year $11.26
- -----------------------------------------------------------------------------
Total investment return(2) 12.60%
- -----------------------------------------------------------------------------
Net assets at end of year (000s omitted) $4,982
RATIOS:
Expenses to average daily net assets 1.00%(3)
Net investment income to average daily net assets 0.44%(3)
Average brokerage commission rate(4) $0.0569
Portfolio turnover rate (excluding short-term securities) 19.71%
- ----------------
(1) Period from 12/31/97 (commencement of operations) to June 30, 1998.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(3) Adjusted to an annual rate. Total Fund expenses are contractually limited
to 1.25% of average daily net assets. However, during the period ended
June 30, 1998, the investment adviser voluntarily absorbed $3,611 in
expenses that were otherwise payable by the Fund. Had the fund incurred
these expenses, the ratio of expenses to average daily net assets would
have been 1.25% for the period ended June 30, 1998, and the ratio of net
investment income (loss) to average daily net assets would have been
0.19%.
(4) The Fund is required to disclose an average brokerage commission rate.
This rate is calculated by dividing total brokerage commissions paid on
purchases and sales of portfolio securities by the total number of related
shares purchased and sold.
9
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
PERIOD
12/31/97 TO
6/30/98(1)
- ----------------------------------------------------------------------------
NET ASSET VALUE:
Beginning of period $10.00
- ----------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.01)
Net realized and unrealized gain on investments 1.78
- ----------------------------------------------------------------------------
Total from operations 1.77
- ----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --
From realized gains --
- ----------------------------------------------------------------------------
Total distributions --
- ----------------------------------------------------------------------------
NET ASSET VALUE:
End of period $11.77
- ----------------------------------------------------------------------------
Total investment return(2) 17.70%
- ----------------------------------------------------------------------------
Net assets at end of period (000s omitted) $4,858
RATIOS:
Expenses to average daily net assets 1.25%(3)
Net investment income (loss) to average daily net assets (0.21%)(3)
Average brokerage commission rate(4) $0.0510
Portfolio turnover rate (excluding short-term securities) 19.37%
- --------------
(1) Period from December 31, 1997 (commencement of operations) to June 30,
1998.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(3) Adjusted to an annual rate. Total Fund expenses are contractually limited
to 1.50% of average daily net assets. However, during the period ended
June 30, 1998, the investment adviser voluntarily absorbed $4,655 in
expenses that were otherwise payable by the Fund. Had the Fund incurred
these expenses, the ratio of expenses to average daily net assets would
have been 1.50% for the period ended June 30, 1998, and the ratio of net
investment income (loss) to average daily net assets would have been
(0.46%).
(4) The Fund is required to disclose an average brokerage commission rate.
This rate is calculated by dividing total brokerage commissions paid on
purchases and sales of portfolio securities by the total number of related
shares purchased and sold.
10
<PAGE>
SIT BALANCED FUND
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, PERIOD
------------------------------------- 12/31/93 TO
1998 1997 1996 1995 6/30/94(1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $14.93 $12.57 $10.99 $9.48 $10.00
- --------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .34 .33 .30 .28 .13
Net realized and unrealized gains
(losses) on investments 2.99 2.42 1.57 1.50 (.59)
- --------------------------------------------------------------------------------------------------------------
Total from operations 3.33 2.75 1.87 1.78 (.46)
- --------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.35) (.32) (.29) (.27) (.06)
From realized gains (1.23) (.07) -- -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (1.58) (.39) (.29) (.27) (.06)
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $16.68 $14.93 $12.57 $10.99 $9.48
- --------------------------------------------------------------------------------------------------------------
Total investment return(2) 23.95% 22.42% 17,26% 19.16% (4.56%)
- --------------------------------------------------------------------------------------------------------------
Net assets at end of period (000s omitted) $7,422 $5,103 $4,062 $2,444 $1,296
RATIOS:
Expenses to average daily net assets 1.00% 1.00% 1.00% 1.00% 1.00%(3)
Net investment income to average daily net assets 2.20% 2.48% 2.61% 2.97% 2.87%(3)
Average brokerage commission rate(4) $0.0560 $0.0570 n/a n/a n/a
Portfolio turnover rate (excluding short-term securities) 62.62% 38.16% 101.37% 50.61% 52.53%
</TABLE>
- ----------------
(1) Period from December 31, 1993 (commencement of operations) to June 30,
1994.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(3) Adjusted to an annual rate.
(4) Beginning in fiscal 1997, the Fund is required to disclose an average
brokerage commission rate. This rate is calculated by dividing total
brokerage commissions paid on purchases and sales of portfolio securities
by the total number of related shares purchased and sold.
11
<PAGE>
SIT INTERNATIONAL GROWTH FUND
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, PERIOD
------------------------------------------------------------- 11/1/91 TO
1998 1997 1996 1995 1994 1993 6/30/92(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $18.57 $16.29 $15.71 $14.87 $11.99 $10.70 $10.00
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) .02 .01 .02 .09 (.04) (.03) .03
Net realized and unrealized gain
on investments 1.25 2.70 1.50 1.06 3.08 1.35 .67
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations 1.27 2.71 1.52 1.15 3.04 1.32 .70
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.03) (.01) (.09) (.04) (.10) (.03) --
From realized gains (.67) (.42) (.85) (.27) (.06) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.70) (.43) (.94) (.31) (.16) (.03) --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
End of period $19.14 $18.57 $16.29 $15.71 $14.87 $11.99 $10.70
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) 7.50% 17.04% 10.21% 7.86% 25.26% 12.37% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000s omitted) $99,721 $99,279 $88,712 $68,125 $63,699 $34,549 $24,631
RATIOS:
Expenses to average daily net assets 1.50%(4) 1.50%(4) 1.50%(4) 1.50%(4) 1.65%(4) 1.85% 1.85%(3)
Net investment income (loss) to average daily net assets 0.12%(4) 0.05%(4) 0.13%(4) 0.62%(4) (0.16%)(4) (0.29%) 0.67%(3)
Average brokerage commission rate(5) $0.0180 $0.0060 n/a n/a n/a n/a n/a
Portfolio turnover rate (excluding short-term securities) 43.74% 41.59% 38.55% 40.42% 42.48% 52.50% 18.62%
</TABLE>
- ----------------
(1) Period from November 1, 1991 (commencement of operations) to June 30,
1992.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(3) Adjusted to an annual rate.
(4) Total Fund expenses are contractually limited to 1.85% of average daily
net assets. However, during the years ended June 30, 1998, 1997, 1996,
1995 and 1994 the investment adviser voluntarily absorbed $338,651,
$306,575, $269,556, $228,795 and $111,320, respectively, in expenses that
were otherwise payable by the Fund. Had the Fund incurred these expenses,
the ratio of expenses to average daily net assets would have been 1.85%
for the years ended June 30, 1998, 1997, 1996, 1995 and 1994, and the
ratio of net investment income (loss) to average daily net assets would
have been (0.23%), (0.30%), (0.22%), 0.27% and (0.36%), respectively.
(5) Beginning in fiscal 1997, the Fund is required to disclose an average
brokerage commission rate. This rate is calculated by dividing total
brokerage commissions paid on purchases and sales of portfolio securities
by the total number of related shares purchased and sold.
12
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------
1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of year $13.04 $10.95 $9.41 $10.00
- -------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.06) .03 -- --
Net realized and unrealized gains
(losses) on investments (3.92) 2.06 1.55 (.54)
- -------------------------------------------------------------------------------------------------------
Total from operations (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 year $9.05 $13.04 $10.95 $9.41
- -------------------------------------------------------------------------------------------------------
Total investment return(1) (30.52%) 19.09% 16.51% (5.44%)
- -------------------------------------------------------------------------------------------------------
Net assets at end of year (000s omitted) $11,505 $16,789 $8,646 $4,618
RATIOS:
Expenses to average daily net assets 2.00% 2.00% 2.00% 2.00%
Net investment income to average daily net assets (0.52%) 0.32% 0.06% 0.03%
Average brokerage commission rate(2) $0.0020 $0.0040 n/a n/a
Portfolio turnover rate (excluding short-term securities) 53.36% 65.88% 46.22% 56.35%
</TABLE>
- ----------------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Beginning in fiscal 1997, the Fund is required to disclose an average
brokerage commission rate. This rate is calculated by dividing total
brokerage commissions paid on purchases and sales of portfolio securities
by the total number of related shares purchased and sold.
13
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time the Funds may refer to monthly, quarterly, yearly or
cumulative total return and average annual total return in advertisements or
other sales literature. All such figures are based on historical performance
data and are not intended to be indicative of future performance. The investment
return on and principal value of an investment in the Funds will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than their
original cost.
Monthly, quarterly, yearly AND CUMULATIVE TOTAL RETURNS are computed by finding
the rates of return over the indicated periods that would equate the initial
amount invested to the ending redeemable value. AVERAGE ANNUAL TOTAL RETURN is
computed by finding the average annual compounded rates of return over the
indicated periods that would equate the initial amount invested to the ending
redeemable value. In calculating ending redeemable value, all income and capital
gains distributions are assumed to be reinvested in additional Fund shares.
Because average annual returns tend to smooth out variations in a Fund's return,
you should recognize that they are not the same as actual year-by-year results.
To illustrate the components of overall performance, a Fund may separate its
cumulative and average annual returns into income results and capital gain or
loss.
In advertising and sales literature the Funds may compare performance with that
of other mutual funds, indices and other competing investment and deposit
products. The composition of these indices or products differs from that of the
Funds. The comparison of the Funds to an alternative investment should be made
with consideration of differences in features and expected performance. The
Funds may also be mentioned in newspapers, magazines, or other media from time
to time. The Funds assume no responsibility for the accuracy of such data. For
additional information on the types of indices, averages and periodicals that
might be utilized by the Funds in advertising and sales literature, see the
section "Calculation of Performance Data" in the Statement of Additional
Information.
The Standard & Poor's 500 Index, Standard & Poor's Mid Cap 400 Index, Russell
Mid Cap Growth Index, Russell 1000 Growth Index, Russell 2000 Growth Index,
Russell 2000 Index, Russell 3000 Index, and the Lehman Aggregate Bond Index are
unmanaged lists of common stocks frequently used as general measures of market
performance. The Pacific Stock Exchange Technology Index (the "PSE Tech 100") is
a price-weighted, broad-based index of 100 listed and over-the-counter stocks,
populating 15 industries. The annual and cumulative changes for the indices
reflect reinvestment of all distributions and changes of market prices. No
adjustment has been made for a shareholder's income tax liability on dividends
or capital gains and no brokerage commissions or other fees were factored into
these indexes. The Lipper mutual fund indices are equally weighted indices each
composed of the 30 largest mutual funds within their respective investment
objective classification, adjusted for the reinvestment of capital gains
distributions and income dividends. Lipper Analytical Services, Inc. is a large
independent evaluator of mutual funds. The Morgan Stanley Capital International
EAFE Index includes 1,117 companies representing the stock markets of 15
European countries, Australia, New Zealand, Japan, Hong Kong, Singapore and
Malaysia. The Morgan Stanley Capital International Emerging Markets Free Index
includes 1,014 companies representing the stock markets of 26 countries. The
risk-adjusted performance ratings assigned by Morningstar Publications, Inc, may
also be referenced.
The following tables illustrate each Fund's average annual total returns,
cumulative total returns and annual total returns for the periods shown.
14
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Returns and Cumulative Total Returns Annual Total Returns
- -------------------------------------------------------------------------- ----------------------------------
LARGE CAP Russell 1000 S&P 500
GROWTH FUND Growth Index Index LARGE Russell
------------------- ------------------ ------------------ Year CAP 1000 S&P
Period in Average Average Average Ended GROWTH Growth 500
Years Annual Cumulative Annual Cumulative Annual Cumulative June 30, FUND Index Index
--------- ------ ---------- ------ ---------- ------ ---------- -------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15.8 years* + 17.2% + 1128.6% + 18.3% + 1341.0% + 19.0% + 1470.0% 1983 + 50.7% + 68.0% + 45.2%
15 years + 15.0 + 715.5 + 16.1 + 840.6 + 17.2 + 981.3 1984 - 14.5 - 14.7 - 4.7
14 years + 17.5 + 854.0 + 18.7 + 1002.4 + 19.0 + 1034.7 1985 + 28.9 + 27.6 + 30.8
13 years + 16.7 + 640.3 + 18.0 + 763.6 + 18.1 + 767.7 1986 + 35.8 + 41.9 + 35.7
12 years + 15.2 + 445.1 + 16.2 + 508.7 + 16.7 + 539.3 1987 + 18.4 + 18.8 + 25.1
11 years + 14.9 + 360.3 + 16.0 + 412.2 + 16.0 + 411.0 1988 - 6.5 - 11.2 - 6.9
10 years + 17.3 + 392.1 + 19.2 + 476.9 + 18.6 + 448.8 1989 + 15.3 + 20.6 + 20.5
9 years + 17.5 + 326.8 + 19.0 + 378.4 + 18.3 + 355.4 1990 + 17.1 + 22.5 + 16.5
8 years + 17.5 + 264.3 + 18.6 + 290.7 + 18.6 + 291.0 1991 + 3.1 + 9.8 + 7.4
7 years + 19.8 + 253.4 + 19.9 + 255.7 + 20.3 + 263.9 1992 + 15.2 + 13.6 + 13.4
6 years + 20.5 + 206.7 + 21.0 + 213.0 + 21.5 + 220.9 1993 + 9.5 + 9.0 + 13.6
5 years + 22.9 + 180.0 + 23.5 + 187.1 + 23.1 + 182.4 1994 - 0.6 - 0.3 + 1.4
4 years + 29.6 + 181.7 + 30.3 + 187.9 + 29.2 + 178.5 1995 + 26.3 + 30.5 + 26.1
3 years + 30.6 + 123.0 + 30.2 + 120.6 + 30.2 + 120.9 1996 + 24.5 + 27.8 + 26.0
2 years + 33.8 + 79.1 + 31.4 + 72.6 + 32.4 + 75.3 1997 + 32.4 + 31.3 + 34.7
1 year + 35.3 + 35.3 + 31.4 + 31.4 + 30.2 + 30.2 1998 + 35.3 + 31.4 + 30.2
* Since Inception on 9/2/82
<CAPTION>
MID CAP Russell Mid Cap S&P Mid Cap
GROWTH FUND Growth Index 400 Index Russell S&P
------------------- ------------------ ------------------ Year MID CAP Mid Cap Mid Cap
Period in Average Average Average Ended GROWTH Growth 400
Years Annual Cumulative Annual Cumulative Annual Cumulative June 30, FUND Index Index
--------- ------ ---------- ------ ---------- ------ ---------- -------- ------ ------- -------
15.8 years* + 19.3% + 1526.8% n/a% n/a% + 19.0% + 1468.5% 1983 +107.4% n/a% + 70.2%
15 years + 14.7 + 684.4 n/a n/a + 16.5 + 884.0 1984 - 15.5 n/a - 9.7
14 years + 17.3 + 828.5 n/a n/a + 18.6 + 990.2 1985 + 26.9 n/a + 33.7
13 years + 16.5 + 631.7 n/a n/a + 17.5 + 715.5 1986 + 42.6 n/a + 36.9
12 years + 14.6 + 413.1 + 14.3 + 397.7 + 16.0 + 495.5 1987 + 17.4 + 16.0 + 13.3
11 years + 14.4 + 336.9 + 14.2 + 329.1 + 16.3 + 425.8 1988 - 8.4 - 5.3 - 2.6
10 years + 16.9 + 377.2 + 16.3 + 353.0 + 18.4 + 439.6 1989 + 14.6 + 13.0 + 22.1
9 years + 17.2 + 316.5 + 16.7 + 300.8 + 18.0 + 341.8 1990 + 21.1 + 18.0 + 15.4
8 years + 16.7 + 243.8 + 16.5 + 239.8 + 18.3 + 282.7 1991 + 14.1 + 9.7 + 12.8
7 years + 17.1 + 201.3 + 17.5 + 209.6 + 19.1 + 239.2 1992 + 13.3 + 12.2 + 18.6
6 years + 17.7 + 165.8 + 18.4 + 176.0 + 19.2 + 186.1 1993 + 13.9 + 18.7 + 22.7
5 years + 18.5 + 133.4 + 18.4 + 132.6 + 18.5 + 133.1 1994 - 4.6 + 2.1 - 0.1
4 years + 25.1 + 144.7 + 22.9 + 127.9 + 23.6 + 133.3 1995 + 28.4 + 26.4 + 22.3
3 years + 24.0 + 90.5 + 21.7 + 80.2 + 24.0 + 90.7 1996 + 33.0 + 23.6 + 21.6
2 years + 19.7 + 43.2 + 20.8 + 45.8 + 25.2 + 56.9 1997 + 17.2 + 17.6 + 23.4
1 year + 22.2 + 22.2 + 24.0 + 24.0 + 27,2 + 27.2 1998 + 22.2 + 24.0 + 27.2
* Since Inception on 9/2/82
<CAPTION>
SMALL CAP Russell 2000 Russell 2000
GROWTH FUND Index Growth Index SMALL Russell
------------------- ------------------ ------------------ Year CAP Russell 2000
Period in Average Average Average Ended GROWTH 2000 Growth
Years Annual Cumulative Annual Cumulative Annual Cumulative June 30, FUND Index Index
--------- ------ ---------- ------ ---------- ------ ---------- -------- ------ ------- -------
4 years* + 22.3% + 123.5% + 19.1% + 101.0% + 17.2% + 88.5% 1995 + 35.6% + 19.7% + 25.8%
3 years + 18.1 + 64.8 + 18.9 + 67.9 + 14.4 + 49.8 1996 + 44.1 + 23.9 + 26.5
2 years + 6.9 + 14.4 + 16.4 + 35.5 + 8.8 + 18.4 1997 + 2.4 + 16.3 + 4.6
1 year + 11.7 + 11.7 + 16.5 + 16.5 + 13.2 + 13.2 1998 + 11.7 + 16.5 + 13.2
* Since Inception on 7/l/94
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Returns and Cumulative Total Returns Annual Total Returns
- -------------------------------------------------------------------------- -----------------------------------
SCIENCE AND TECHNOLOGY PSE
GROWTH FUND Tech 100
--------------------- -------------------
Period in Average Average
Years Annual Cumulative Annual Cumulative
--------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
.5 years* n/a + 17.7% n/a + 19.1%
* Since inception of 12/31/97
<CAPTION>
REGIONAL GROWTH Russell S&P 500
FUND 3000 Index Index
------------------- ------------------- -------------------
Period in Average Average Average
Years Annual Cumulative Annual Cumulative Annual Cumulative
--------- ------ ---------- ------ ---------- ------ ----------
.5 years* n/a + 12.6% n/a + 15.1% n/a + 17.7%
* Since inception of 12/31/97
<CAPTION>
BALANCED Lehman Aggregate S&P 500
FUND Bond Index Index Lehman
------------------- ------------------- ------------------- Year Aggregate S&P
Period in Average Average Average Ended BALANCED Bond 500
Years Annual Cumulative Annual Cumulative Annual Cumulative June 30, FUND Index Index
--------- ------ ---------- ------ ---------- ------ ---------- -------- -------- ------- -------
4.5 years* + 17.0% + 102.3% + 7.1% + 35.8% + 24.6% + 169.1% 1994 - 4.6% - 3.9% - 3.4%
4 years + 20.7 + 112.0 + 9.0 + 41.3 + 29.2 + 178.5 1995 + 19.2 + 12.5 + 26.1
3 years + 21.2 + 77.9 + 7.9 + 25.6 + 30.2 + 120.9 1996 + 17.3 + 5.0 + 26.0
2 years + 23.2 + 51.7 + 9.3 + 19.6 + 32.4 + 75.3 1997 + 22.4 + 8.2 + 34.7
1 year + 24.0 + 24.0 + 10.5 + 10.5 + 30.2 + 30.2 1998 + 24.0 + 10.5 + 30.2
* Since inception of 12/31/93
<CAPTION>
INTERNATIONAL Lipper International MSCI EAFE
GROWTH FUND Fund Index Index Lipper
------------------- -------------------- ------------------- Year INT'L Int'l MSCI
Period in Average Average Average Ended GROWTH Fund EAFE
Years Annual Cumulative Annual Cumulative Annual Cumulative June 30, FUND Index Index
--------- ------ ---------- ------ ---------- ------ ---------- -------- -------- ------- -------
6.7 years* + 13.0% + 125.3% + 12.0% + 112.3% + 8.8% + 75.1% 1992 + 7.0% + 4.3% - 9.8%
6 years + 13.2 + 110.5 + 12.6 + 103.5 + 11.7 + 94.0 1993 + 12.4 + 7.9 + 20.3
5 years + 13.4 + 87.4 + 13.5 + 88.6 + 10.0 + 61.3 1994 + 25.3 + 21.3 + 17.0
4 years + 10.6 + 49.6 + 11.7 + 55.5 + 8.4 + 37.9 1995 + 7.9 + 1.9 + 1.7
3 years + 11.5 + 38.7 + 15.1 + 52.6 + 10.7 + 35.6 1996 + 10.2 + 16.7 + 13.3
2 years + 12.2 + 25.8 + 14.4 + 30.8 + 9.4 + 19.7 1997 + 17.0 + 20.0 + 12.8
1 year + 7.5 + 7.5 + 9.0 + 9.0 + 6.1 + 6.1 1998 + 7.5 + 9.0 + 6.1
* Since inception of 11/1/91
<CAPTION>
Lipper MSCI
DEVELOPING MARKETS Emerging Market Emerging Markets Lipper MSCI
GROWTH FUND Fund Index Free Index DEVELOPING Emerging Emerging
------------------- ------------------ ------------------- Year MARKETS Market Markets
Period in Average Average Average Ended GROWTH Fund Free
Years Annual Cumulative Annual Cumulative Annual Cumulative June 30, FUND Index Index
--------- ------ ---------- ------ ---------- ------ ---------- -------- -------- ------- -------
4 years* - 2.3% - 8.8% - 5.5% - 20.4% - 8.9% - 31.0% 1995 - 5.4% - 1.7% - 1.6%
3 years - 1.2 - 3.6 - 6.8 - 19.0 - 11.2 - 29.9 1996 + 16.5 + 10.4 + 6.3
2 years - 9.1 - 17.3 - 14.3 - 26.6 - 18.8 - 34.0 1997 + 19.1 + 16.1 + 10.6
1 year - 30.5 - 30.5 - 36.8 - 36.8 - 40.4 - 40.4 1998 - 30.5 - 36.8 - 40.4
* Since inception of 7/l/94
</TABLE>
In addition to the investment performance information discussed above, the
Balanced Fund also may quote a YIELD. A Fund's yield illustrates the rate of
income the Fund earns on its investments as a percentage of the Fund's share
price.
For additional information regarding the calculation of such total return
figures see "Calculation of Performance Data" in the Statement of Additional
Information. Additional performance information regarding each Fund is included
in the Funds' combined annual report, which will be mailed to shareholders
without charge upon request.
16
<PAGE>
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INVESTMENT OBJECTIVES & POLICIES
- --------------------------------------------------------------------------------
The investment objective of each Fund is set forth on page 1 of this Prospectus.
The investment objective of each Fund is "fundamental," which means that it may
not be changed unless approved by a vote of the "majority" of the shareholders
of such Fund (as defined in the 1940 Act). There can be no assurance that the
investment objective of any of the Funds will be achieved.
In seeking their investment objectives, the Funds will be subject to the
following policies and limitations. Except as indicated, these policies are not
fundamental and may be changed by the Boards of Directors without shareholder
approval.
LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------
The Fund invests primarily in common stocks of growth companies with a
capitalization of $5 billion or more at the time of purchase. Under normal
conditions, at least 65% of the Fund's total assets will be invested in such
securities. The Fund may also purchase preferred stocks, warrants and securities
convertible into stocks. As of June 30, 1998, the Fund's weighted average
capitalization size of its equity portfolio securities was $61.8 billion.
Most of the Fund's investments are in common stocks or securities convertible
into common stocks. The Fund invests in "blue chip" common stocks issued by
companies with records of stable profit growth and dividend payments.
The Fund may invest up to 20% of its assets in foreign corporate equity
securities or debt securities of foreign governments. All foreign equity
securities are limited to American Depository Receipts (ADRs), which are traded
in U.S. dollars, or in stocks listed on U.S. exchanges including NASDAQ or on
the Toronto Stock Exchange. Debt securities may include securities of the
governments of Canada, Japan and members of the European Economic Community. All
trades involving foreign debt securities will be transacted through U.S. based
brokerage firms or commercial banks. Canadian investments will be made through
the Toronto Stock Exchange member firms in U.S. dollars. Foreign investments are
subject to certain unique risks, as discussed under "Risks of International
Investing" below.
MID CAP GROWTH FUND
- --------------------------------------------------------------------------------
The Fund invests primarily in common stocks of growth companies with a
capitalization of $1.5 billion to $5 billion at the time of purchase. Under
normal conditions, at least 65% of the Fund's total assets will be invested in
such securities. The Fund may also 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. As of June 30, 1998, the Fund's
weighted average capitalization size of its equity portfolio securities was $5.1
billion.
The Fund invests in a diversified group of growing medium to small companies.
The Fund also invests in medium-size companies which offer improved growth
possibilities because of rejuvenated management, changes in product or some
other development that might stimulate earnings growth. To qualify for
investment by the Fund, a company should be expected to possess the prospect for
outstanding earnings growth over the long-term.
Most of the Fund's investments are in common stocks or securities convertible
into common stocks. Many of these securities may be speculative and may involve
substantial risk. Since the Fund may invest in medium to small growth companies,
investors should realize that the very nature of investing in these companies
involves greater risk than is customarily associated with more established
companies. The securities of medium to small companies may have limited
marketability and may be subject to more abrupt or erratic market movements than
securities of larger companies or the market averages in general.
The Fund may invest up to 20% of its net assets in foreign corporate equity
securities. All foreign eq-
17
<PAGE>
uity securities are limited to American Depository Receipts (ADRs), which are
traded in U.S. dollars, or in stocks listed on U.S. exchanges including NASDAQ
or on the Toronto Stock Exchange. Foreign investments are subject to certain
unique risks, as discussed under "Risks of International Investing" below.
SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
The Fund invests primarily in common stocks of small companies with a
capitalization of $1.5 billion or less at the time of purchase. Under normal
conditions, at least 65% of the Fund's total assets will be invested in such
securities. 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. As of June 30, 1998, the weighted
average capitalization size of its equity portfolio securities was $791 million.
Most of the Fund's investments are in common stocks or securities convertible
into common stocks. Many of these securities may be speculative and may involve
substantial risk. Since the Fund may invest in small, emerging growth companies
before they become well-recognized, investors should realize that the very
nature of investing in smaller companies involves greater risk than is
customarily associated with more established companies. Smaller companies often
have limited product lines, markets or financial resources, and they may be
dependent upon one-person management. The securities of smaller companies may
have limited marketability and may be subject to more abrupt or erratic market
movements than securities of larger companies or the market averages in general.
The Fund may invest up to 20% of its net assets in foreign corporate equity
securities. All foreign equity securities are limited to American Depository
Receipts (ADRs), which are traded in U.S. dollars, or in stocks listed on U.S.
exchanges including NASDAQ or on the Toronto Stock Exchange. Foreign investments
are subject to certain unique risks, as discussed under "Risks of International
Investing" below.
REGIONAL GROWTH FUND
- --------------------------------------------------------------------------------
The Fund invests 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.
The Fund invests primarily in common stocks of growing companies which in the
Adviser's opinion have the following general characteristics: (i) potential for
outstanding long-term earnings growth, (ii) stable demand for a high quality
product or service, (iii) stable product demand, (iv) experienced and able
management, and (v) a sound financial strategy.
The Fund's investments will be concentrated in a geographic region and will be
subject to adverse economic, political or other developments in that region. The
region in which the Fund principally invests has a diverse industrial base,
which includes but is not limited to agriculture, mining, retail,
transportation, utilities, heavy and light manufacturing, financial and other
services, insurance, health care, computer technology and medical technology.
However, this industrial base is not as diverse as that of the country as a
whole. The Fund may be less diversified by industry and company than other funds
with similar investment objectives and no geographic limitation.
The Fund's strategy in seeking to achieve its investment objective may lead to
investments in smaller companies. Securities of smaller companies may be more
volatile due to their limited product lines, markets, or financial resources as
well as their susceptibility to major setbacks or downturns.
The Fund may purchase securities convertible into common stocks, preferred
stocks and warrants. The Fund may invest in securities not listed on a national
18
<PAGE>
securities exchange but generally such securities will have an established
over-the-counter market. Most of the Fund's investments are in common stocks or
securities convertible into common stocks. Current income from dividends and
interest will not be an important consideration in selecting portfolio
securities.
SCIENCE AND TECHNOLOGY GROWTH FUND
- --------------------------------------------------------------------------------
The Fund invests primarily in common stocks of companies which the Adviser
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.
Science and technology companies include those whose processes, products or
services, in the judgment of the Adviser, are or may be expected to
significantly benefit from scientific developments and the application of
technical advances in industry, manufacturing and commerce resulting from
improving technology in such fields as, for example, aerospace, chemistry,
electronic components and systems, environmental services, genetic engineering,
geology, information sciences (including computers, software and peripheral
products), medicine (including pharmacology, biotechnology and biophysics),
hospital supply and medical devices. This investment policy permits the Adviser
to seek stocks of science and technology companies having superior growth
potential in virtually any industry in which they may be found.
Since a relatively high percentage of the assets of the Fund may be invested in
the securities of issuers which will be in the same or related economic sectors,
the Fund's portfolio securities may be more susceptible to any single economic,
technological or regulatory occurrence than the portfolio securities of
investment companies which invest in a greater number of economic sectors. The
Fund may involve significantly greater risks and therefore may experience
greater volatility than such funds. Many products and services of science and
technology companies may become rapidly obsolete due to technological and
scientific advances. In addition, competitive pressures may have a significant
effect on the financial condition of science and technology companies. For
example, if technology continues to advance at an accelerated rate, and the
number of companies and product offerings continue to expand, these companies
could become increasingly sensitive to short product cycles and aggressive
pricing. The Fund's strategies in seeking to achieve its investment objective
may lead to investments in smaller companies. Securities of smaller companies,
especially those whose business involves emerging products or concepts, may be
more volatile due to their limited product lines, markets, or financial
resources as well as their susceptibility to major setbacks or downturns.
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. Most of the Fund's investments are in common stocks or
securities convertible into common stocks. Current income from dividends and
interest will not be an important consideration in selecting portfolio
securities.
The Fund may invest up to 20% of its net assets in foreign corporate equity
securities. All foreign equity securities are limited to American Depository
Receipts (ADRs), which are traded in U.S. dollars, or in stocks listed on U.S.
exchanges including NASDAQ or on the Toronto Stock Exchange. Foreign investments
are subject to certain unique risks, as discussed under "Risks of International
Investing" below.
BALANCED FUND
- --------------------------------------------------------------------------------
The Fund's equity investments consist of securities which the Adviser believes
have an outstanding outlook for long-term growth of principal. The Fund balances
its growth objective by investing in income producing debt securities and/or
common stocks se-
19
<PAGE>
lected primarily for their dividend payment potential. In order to maximize
total return, the Fund's allocation of assets will vary over time.
Under normal conditions, between 40% and 60% of the Fund's assets will be
invested in equity securities and between 40% and 60% in fixed-income
securities. At all times at least 25% of the fixed-income securities will be
invested in fixed-income senior securities.
WITH RESPECT TO THE EQUITY PORTION OF THE FUND'S PORTFOLIO, the Fund may
purchase common stocks, 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. The Fund invests in companies which offer growth
potential. To qualify for investment by the Fund, a company should be expected
to demonstrate long-term reasonable annual earnings growth. No assurance can be
given that expectations will be met.
The Fund may invest up to 20% of its net assets in foreign corporate equity
securities. All foreign equity securities are limited to American Depository
Receipts (ADRs), which are traded in U.S. dollars, or in stocks listed on U.S.
exchanges including NASDAQ or on the Toronto Stock Exchange. Foreign investments
are subject to certain unique risks, as discussed under "Risks of International
Investing" below.
WITH RESPECT TO THE FIXED-INCOME PORTION OF THE FUND'S PORTFOLIO, the Fund may
purchase fixed-income securities which may include obligations of the United
States government, its agencies and instrumentalities; corporate debt
securities; corporate commercial paper; mortgage and other asset-backed
securities; municipal securities; variable and floating rate debt securities;
bank certificates of deposit, fixed time deposits and bankers acceptances;
repurchase agreements; obligations of foreign governments or their subdivisions,
agencies and instrumentalities, or of international agencies or supernational
entities; and foreign currency exchange-related securities, including foreign
currency warrants. The Fund may invest in securities issued by foreign entities
and denominated in U.S. dollars or foreign currencies. See "Ratings of Debt
Securities" section below.
The Fund primarily invests in fixed-income securities with maturities of 2 to 30
years. Maturity is usually an accurate indication of the outstanding term,
however, mortgage pass-through securities which receive regular principal
payments have an average life less than the maturity. The average life of
mortgage pass-through investments will typically vary from 1 to 18 years. The
average maturity of the portfolio will generally vary between 3 and 30 years.
The Fund may invest up to 25% of the fixed-income portion of the Fund's
portfolio in debt securities that are rated below investment grade, i.e., rated
below Baa by Moody's Investors Services ("Moody's) or BBB by Standard & Poor's
Corporation ("S&P"), Fitch Investors Service, Inc. ("Fitch"), or Duff & Phelps
Credit Rating Co. ("Duff & Phelps") or comparable unrated securities. The Fund
will not invest in securities rated below B-3 by Moody's or B- by S&P, Fitch,
and Duff & Phelps, at the time of investment. The Fund will strive to maintain
an overall dollar-weighted quality average for the fixed-income portion of the
Fund's portfolio of at least A as rated by Moody's or S&P. See "Ratings of "Debt
Securities" in the Common Policies and information section below and also the
Appendix A of the Statement of Additional information.
The Fund may purchase short-term debt instruments maturing in 12 months or less
which may include commercial paper, bank obligations, short-term obligations of
the U.S. or Canadian governments, their agencies or instrumentalities,
repurchase agreements and other similar short-term instruments. The Fund will
invest in short-term securities rated at the time of purchase within the highest
rating category by a major rating service or if unrated, are of comparable
quality as determined by the Adviser. See "Ratings of Debt Securities" section
below.
U.S. GOVERNMENT SECURITIES. The Fund may invest in securities issued, guaranteed
or insured by the U.S. government, its agencies or instrumentalities whether or
not backed by the "full faith and credit" pledge of the U.S. government.
Guarantees as to the
20
<PAGE>
timely payment of principal and interest do not extend to the value or yield of
such securities nor do they extend to the value of the Fund's shares. U.S.
Treasury securities are bonds, notes and bills which are issued by the U.S.
government and which differ in their interest rates, maturities and dates of
issuance. The Fund may invest in U.S. Treasury inflation-protection securities.
The value of such inflation-protection securities is adjusted for inflation and
periodic interest payments are in amounts equal to a fixed percentage of the
inflation adjusted value of the principal. See the Statement of Additional
information for further information.
Other instrumentalities of the U.S. government which issue or guarantee
securities which the Fund may purchase include, for example, the Federal Farm
Credit Bank System, the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association, the Federal Home Loan Banks System, and the
Student Loan Marketing Association. The U.S. Treasury is not obligated by law to
provide support to all U.S. government instrumentalities and agencies, and the
Fund will invest in securities which are not backed by the full faith and credit
of the U.S. Treasury issued by such instrumentalities and agencies only when the
Fund's Adviser determines that the credit risk with respect to the
instrumentality or agency issuing such securities does not make its securities
unsuitable investments for the Fund.
MORTGAGE AND OTHER ASSET-BACKED SECURITIES. The Fund may invest in mortgage
pass-through securities which are sold by various private, governmental and
government-related organizations. Pass-through securities are formed when
mortgages are pooled together and undivided interests in the pool are sold to
investors such as the Fund. The cash flow from the underlying mortgages is
"passed through" to the holders of the securities in the form of periodic
(generally monthly) payments of interest, principal and prepayments. Prepayments
occur when the holder of an individual mortgage prepays the remaining principal
and interest before the final scheduled payment month. Therefore, the Fund may
be subject to a higher rate of prepayments during periods of declining interest
rates when mortgages may be more frequently prepaid.
Mortgage pass-through securities include (1) obligations of U.S. government
agencies and instrumentalities which are secured by the full faith and credit of
the U.S. Treasury such as Government National Mortgage Association ("GNMA")
pass-through certificates; (2) obligations which are secured by the right of the
issuer to borrow from the Treasury, such as securities issued by the Federal
Financing Bank, the Federal Home Loan Banks and the United States Postal
Service; and (3) obligations which have the principal and interest payments
guaranteed by the government agency or instrumentality itself (but are not
backed by the full faith and credit of the U.S. government), such as securities
of the Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC"), and (4) obligations of private corporations. See
Statement of Additional Information for further information.
In addition to mortgage-backed securities, the Fund may invest in other types of
asset-backed securities which represent other forms of consumer credit such as
automobile and credit card receivables or home equity loans. Asset-backed
securities are generally privately issued and, similar to mortgage-backed
securities, pass through cash flows to investors.
CORPORATE DEBT SECURITIES. The Fund may invest in corporate debt securities
(corporate bonds, debentures, notes and other similar corporate debt
instruments, including convertible securities) which meet the minimum ratings
criteria set forth by the Fund, or, if unrated, are in the Adviser's opinion of
comparable quality to corporate debt securities in which the Fund may invest.
FOREIGN CORPORATE DEBT SECURITIES. The Fund may invest up to 20% of its assets
in debt securities of foreign governments or foreign corporate debt securities
denominated in foreign currencies which are rated at least A by Moody's, S&P,
Fitch or Duff & Phelps or, if unrated, are in the Adviser's opinion of
comparable quality. All trades involving foreign debt securities will be
transacted through U.S. based brokerage firms or commercial banks. Foreign
investments are subject to certain unique risks, as discussed under Investment
Objectives and Policies - "Risks
21
<PAGE>
of International Investing" below.
FOREIGN CURRENCIES AND CURRENCY EXCHANGE TRANSACTIONS. The Fund may engage in
foreign currency exchange transactions by means of buying or selling foreign
currencies on a spot basis, entering into foreign currency forward contracts,
and buying and selling foreign currency options, foreign currency futures, and
options on foreign currency futures. Foreign currency exchange transactions may
be entered into for the purpose of hedging against foreign currency exchange
risk arising from the Fund's investment or anticipated investment in securities
denominated in foreign securities. Foreign currency exchange transactions will
be limited to the total value of securities denominated in foreign currencies.
CORPORATE COMMERCIAL PAPER. The commercial paper purchased by the Fund will
consist only of direct obligations which, at the time of purchase, are (a) rated
P-1 by Moody's or A-1 or A-1+ by S&P, or (b) if not rated, issued by
companies having an outstanding unsecured debt issue which at the time of
purchase is rated A or higher by Moody's or A or higher by S&P.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS). The Fund may invest in CMOs. CMOs
are hybrid instruments with characteristics of both mortgage-backed bonds and
mortgage pass-through securities. Similar to a bond, interest and principal on a
CMO are paid, in most cases, monthly. CMOs may be collateralized by whole
mortgage loans, but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. Since CMOs derive
their return from underlying mortgages, they are commonly referred to as
derivative securities, but are not subject to the 10% limitation as discussed in
"Futures and Options" below. CMOs are structured into multiple classes, with
each class bearing a different stated maturity. Monthly payments of principal,
including prepayments, are first returned to investors holding the shortest
maturity class; investors holding the longer maturity classes receive principal
only after the earlier classes have been retired. CMOs that are issued or
guaranteed by the U.S. Government or by any of its agencies or instrumentalities
will be considered U.S. Government securities by the Balanced Fund, while other
CMOs, even if collateralized by U.S. Government securities, will have the same
status as other privately issued securities for purposes of applying the Fund's
diversification tests. For a discussion of prepayment risks, see "Mortgage and
Other Asset-Backed Securities" section above.
VARIABLE RATE NOTES. The Fund may purchase floating and variable rate notes. The
interest rate is adjusted either at predesignated periodic intervals (variable
rate) or when there is a change in the index rate on which the interest rate on
the obligation is based (floating rate). These notes normally have a demand
feature which permit the holder to demand payment of principal plus accrued
interest upon a specified number of days' notice. The issuer of floating and
variable rate demand notes normally has a corresponding right, after a given
period, to prepay at its discretion the outstanding principal amount of the note
plus accrued interest upon a specified number of days' notice to the
noteholders.
FUTURES AND OPTIONS. The Fund may invest up to 10% of its assets in certain
derivative instruments, including futures, options, options on futures and enter
into swap agreements for hedging purposes or as part of its investment strategy.
Use of these instruments may involve certain costs and risks, including the risk
that the Fund may not be able to close out a futures or option position when it
might be most advantageous to do so, and the risk of an imperfect correlation
between the value of the security being hedged and the value of the particular
derivative instrument. Since such instruments derive their return from
underlying securities, they are commonly referred to as derivative securities.
FUTURES CONTRACTS. A futures contract is an agreement to purchase or deliver a
debt security in the future for a specified price on a certain date. The Fund
may buy or sell interest rate futures contracts, options on interest rate
futures contracts and options on debt securities for the purpose of hedging
against changes in the value of securities which the Fund owns or anticipates
purchasing due to anticipated changes in interest rates. See the Statement of
Additional Information for further information.
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<PAGE>
OPTIONS - PUTS AND CALLS. The Fund may buy and sell options on debt securities
for the purpose of hedging against changes in the value of securities which the
Fund owns or anticipates purchasing due to changes in interest rates. A put
option gives the purchaser of the option, in return for a premium paid, the
right to sell the underlying security at a specified price during the term of
the option. A call option gives the purchaser of the option, in return for a
premium, the right to buy the security underling the option at a specified
exercise price at any time during the term of the option. While the Fund does
not anticipate utilizing puts and calls on a regular basis, the Fund may from
time to time write exchange-traded call options on debt securities, for which
they will receive a purchase premium from the buyer, and may purchase and sell
exchange-traded call and put options on debt securities written by others or
combinations thereof. The Fund will not write put options. The aggregate cost of
all outstanding options purchased and held by the Fund will at no time exceed 5%
of the Fund's net assets.
SWAP AGREEMENTS. Swap agreements are two party contracts entered into primarily
by institutional investors in which two parties agree to exchange the returns
(or differential rates of return) earned or realized on particular predetermined
investments or instruments. The Fund may enter into swap agreements for purposes
of attempting to obtain a particular investment return at a lower cost to the
Fund than if the Fund had invested directly in an instrument that provided that
desired return. The Fund bears the risk of default by its swap counterpart and
may not be able to terminate its obligations under the agreement when it is most
advantageous to do so. In addition, certain tax aspects of swap agreements are
not entirely clear and their use, therefore, may be limited by the requirements
relating to the qualification of a Fund as a regulated investment company under
the Internal Revenue Code of 1986, as amended (the "Code").
ZERO COUPON SECURITIES. The Fund is permitted to invest in zero coupon
securities. Such securities are debt obligations which do not entitle the holder
to periodic interest payments prior to maturity and are issued and traded at a
discount from their face amounts. The discount varies depending on the time
remaining until maturity, prevailing interest rates, liquidity of the security
and the perceived credit quality of the issuer. The discount, in the absence of
financial difficulties of the issuer, decreases as the final maturity of the
security approaches. Zero coupon securities can be sold prior to their due
date in the secondary market at the then-prevailing market value which depends
primarily on the time remaining to maturity, prevailing levels of interest
rates and the perceived credit quality of the issuer. The market prices of zero
coupon securities are more volatile than the market prices of securities of
comparable quality and similar maturity that pay interest periodically and may
respond to a greater degree to fluctuations in interest rates than do such
non-zero coupon securities.
TRUST PREFERRED SECURITIES. The Fund may purchase trust preferred securities
issued primarily by financial institutions such as banks and insurance
companies. Trust preferred securities purchased by the Fund generally have a
stated par value, a stated maturity typically of 30 years, are callable after a
set time period of typically five or ten years and pay interest quarterly or
semi-annually. The proceeds from the issuance of the securities are placed in a
single asset trust controlled by the issuer holding company, and the trust
in-turn purchases long-term junior subordinated debt of the issuer holding
company. The junior subordinated debt held by the trust is senior to all common
and preferred stock of the issuer. The junior subordinated debt instruments
include deferral provisions whereby the issuer holding company may defer
interest payments for up to five years under certain circumstances, provided
that no dividend payments are made with respect to outstanding common and
preferred stock, and during a period of interest deferral the securities earn
compounded interest which is accrued by the issuer as an interest expense. The
Federal Reserve Bank limits the amount of trust preferred securities that an
issuer may have outstanding such that the total of cumulative preferred stock
and trust preferred securities outstanding may not exceed 25 percent of the
issuer's Tier 1 capital base. The securities provide that they are immediately
callable in the event of a change in the tax law whereby the interest paid by
23
<PAGE>
the issuer is no longer treated as an interest expense deduction by the issuer.
INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
The Fund invests primarily in international equity securities of issuers
domiciled outside the United States. International equity securities in which
the Fund may invest include common and preferred stock, rights and warrants to
purchase equity securities, and debt securities convertible into common stock.
In normal conditions, at least 90% of the Fund's total assets will be invested
in international equity securities.
The Fund may invest up to 5% of its total assets in rights or warrants to
purchase equity securities. In addition to investing directly in equity
securities, the Fund may invest in sponsored and unsponsored American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"), and Global
Depository Receipts ("GDRs"). Generally, ADRs in registered form are U.S. dollar
denominated securities designed for use in the U.S. securities markets, which
represent and may be converted into the underlying foreign security. Unsponsored
ADRs are offered by companies which are not prepared to meet either the
reporting or accounting standards of the U.S. While readily exchangeable with
stock in local markets, unsponsored ADRs may be less liquid than sponsored ADRs.
Additionally, there generally is less publicly available information with
respect to unsponsored ADRs. EDRs are typically issued in bearer form and are
designed for use in the European securities markets.
The Fund may invest up to 50% of its total assets in equity securities of
smaller to medium sized emerging growth companies in both developed and
developing markets. For the developed markets, such investments include equity
securities with market capitalizations of over $100 million but less than $2
billion. However, market capitalizations of smaller to medium sized company
equity securities in developing markets are significantly smaller and currently
range between $25 million and $100 million.
Emerging growth companies are small- and medium-sized companies that the Adviser
or Sub-Adviser believes have a potential for earnings growth over time that is
above the growth rate of more established companies or are early in their life
cycles and have the potential to become major enterprises. With respect to the
International Growth Fund, international developing markets are countries
categorized as developing markets by the International Finance Corporation, the
World Bank's private sector division. Such countries currently include but are
not limited to Malaysia, Thailand, Indonesia, the Philippines, South Korea,
Taiwan and certain Latin American countries. Such markets tend to be in the less
economically developed regions of the world. The general characteristics of
developing market countries are discussed above in "Developing Markets" section.
For liquidity purposes, the Fund may also invest up to 10% of its assets in U.S.
dollar denominated or foreign currency denominated cash or in high quality debt
securities with remaining maturities of one year or less. Such securities
include commercial paper, certificates of deposit, bankers acceptances and
securities issued by the U.S. or a foreign government, their agencies or
instrumentalities. All debt securities in which the Fund invests (other than
securities issued or guaranteed by the U.S. or a foreign government, its
agencies or instrumentalities) must be rated Aa or Prime or better by Moody's or
AA or A-1 or better by S&P, or AAA or F-1+ by Fitch, or AAA or Duff1+ by Duff &
Phelps, or be of comparable quality as determined by the Adviser or Sub-Adviser.
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 positions which over time
will enhance the equity value of the company. The Fund will not concentrate its
investments in companies of a particular asset size or in a particular industry,
but instead will select its investments based on the characteristics of the
particular markets and economies of the countries in which it invests as well as
the fundamentals of the underlying securities.
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In selecting portfolio investments, the Adviser or Sub-Adviser will consider: a
company's growth prospects, including the potential for superior appreciation
due to growth in earnings, relative valuation of its securities, and any risk
associated with such investment; the industry in which the company operates,
with a view to identification of international developments within industries,
international investment trends, and social, economic or political movements
affecting a particular industry; the country in which the company is based, as
well as historical and anticipated foreign currency exchange rate fluctuations;
and the feasibility of gaining access to the securities market in a country and
of implementing the necessary custodial arrangements. The investment program of
the Fund has been developed in the belief that research-based investment in a
portfolio of equity securities of companies in a number of foreign countries
will give shareholders an opportunity to participate on an international basis
in the growing foreign securities markets.
Investment will be made in those countries where the Adviser or Sub-Adviser
believes that economic and political factors, including currency movements, are
likely to produce above average investment returns. There is no limitation on
the percentage of the Fund's assets that may be invested at any one time in
securities of companies in one or more countries, except insofar as the Fund is
limited in its ability to invest in other investment companies. However, except
during times that the Fund is in a temporary defensive posture, the Fund will
invest at least 90% of its total assets in the securities of issuers domiciled
in at least three different non-U.S. countries.
The Fund's management anticipates that, from time to time, the Fund may have
more than 25% of its assets invested in securities of companies and concerns
domiciled in the countries of Japan, the United Kingdom and/or Germany. These
are among the leading industrial economies outside the United States and the
values of their stock markets account for a significant portion of the value of
international markets. A discussion of the economies of such countries is set
forth below.
JAPAN. Japan is organized politically as a democratic, parliamentary republic
and has a Population of approximately 125 million people. The Japanese economy
is heavily industrial and export oriented. Although Japan is dependent upon
foreign economies for raw materials, Japan's balance of payments in recent years
has been strong and positive.
Japan has eight stock exchanges located throughout the country, but over 80% of
all trading is conducted on the Tokyo Stock Exchange. As of June 30, 1998, the
Japanese market had a market capitalization of approximately $1.5 trillion.
Prices of stocks listed on the Japanese stock exchange are quoted continuously
during regular business hours. Trading commissions are at fixed scale rates
which vary by the type and the value of the transaction, but can be negotiable
for large transactions.
Securities in Japan are denominated and quoted in "yen." Yen are fully
convertible and transferable based on floating exchange rates into all
currencies, without administrative or legal restrictions, for both nonresidents
and residents of Japan.
UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND. The United Kingdom of
Great Britain and Northern Ireland ("U.K.") is a constitutional monarchy and
consists of England, Scotland, Wales and Northern Ireland. The population of the
U.K. is approximately 58 million people. Industry in the U.K. is predominantly
owned in the private sector.
The U.K. has a centralized screen-based trading system located in London, with
separate operating facilities located in Belfast, Birmingham, Bristol, Dublin,
Glasgow, Liverpool and Manchester. Stock exchange commission rates are
negotiable and stock exchange membership is available to limited companies and
to non-residents of the U.K. The Financial Services Act (the "FSA") created a
regulatory body known as the Securities and Investments Board (the "SIB"), which
has the power to delegate certain of its functions to various "self regulatory
organizations", of which the London Stock Exchange is one. Under the FSA
structure, the London Stock Exchange is largely self-regulating.
25
<PAGE>
Stock prices are continuously quoted during business hours of the London Stock
Exchange. Trading Commissions in the U.K. are negotiable. As of June 30, 1998,
the market value of the stock market in the U.K. exceeded $1.6 trillion.
Securities in the U.K. are denominated and quoted in "pounds sterling." Pounds
sterling are fully convertible and transferable based on floating exchange rates
into all currencies, without administrative or legal restrictions, for both
nonresidents and residents of the U.K.
THE FEDERAL REPUBLIC OF GERMANY. The Federal Republic of Germany ("Germany") is
a federated republic with a population of approximately 81 million people and a
democratic parliamentary form of government. The German economy is organized
primarily on the basis of private sector ownership, with the state exerting
major influence through ownership only in certain sectors, including
transportation, communication and energy. Unification of the Federal Republic of
Germany with the formerly communist controlled German Democratic Republic took
place in 1990.
Industrial activity makes the largest contribution to the German gross national
product. Although only 5% of German businesses are large scale enterprises, such
large scale businesses account for over half of industrial production and employ
over half the industrial labor force. Trading volume, therefore, tends to
concentrate on relatively few companies with both large capitalizations and
broad stock ownership. Historically the German economy has been strongly export
oriented. Privatization of formerly state owned enterprise in what was once East
Germany is in progress, but will make little difference to the predominance of
large scale businesses in overall industrial activity.
German equity securities trade predominantly on the country's eight independent
local stock exchanges, and the Frankfurt exchange accounts for 70% of turnover.
Subject to the provisions of pertinent securities law, mainly the Stock Exchange
Law of 1896, as amended, the council, management and other executive organs of
the stock exchanges constitute self administering and self regulatory bodies.
The "Working Group of German Stock Exchanges" headquartered in Frankfurt, of
which all eight stock exchanges are members, addresses all policy and
administrative questions of national and international character.
Prices for active stocks, including those for larger companies, are quoted
continuously during stock exchange hours. Less actively traded stocks are quoted
only once a day. Equity shares are normally fully paid and nonassessable. As of
June 30, 1998, the market value of the Frankfurt (German) market was
approximately $805 billion.
Orders for stocks executed for large customers on the stock exchanges are
negotiable. A federal stock exchange turnover tax, ranging up to 0.25%, is
levied on all securities transactions other than those between banks acting as
principal. Nonresidents such as the Fund are charged half these rates.
German equity securities are denominated in "Deutchemarks." Deutchemarks are
fully convertible and transferable into all currencies, without administrative
or legal restrictions, for both nonresidents and residents of Germany. Since
1974, the Deutchemark has traded on a floating exchange rate basis against all
currencies.
DEVELOPING MARKETS GROWTH FUND
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The Fund invests primarily in equity securities of companies deemed to be
domiciled or otherwise operating in a developing market. Equity securities
include common and preferred stock, rights and warrants to purchase equity
securities, and debt securities convertible into common stock. While the Adviser
and the Sub-Adviser intend to invest substantially all of the Fund's assets in
developing market equity securities, to the extent that the Fund's assets are
not invested in developing market equity securities, the remaining assets may be
invested in 1) debt securities of government or corporate issuers in developing
markets; 2) equity and debt securities of issuers in developed countries, or 3)
cash and money market instruments. In normal conditions, at least 65% of the
Fund's total assets will be invested in devel-
26
<PAGE>
oping market equity securities.
The Fund may invest up to 5% of the Fund's assets in rights or warrants to
purchase equity securities. In addition to investing directly in equity
securities, the Fund may invest in sponsored and unsponsored American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs"), and Global Depository
Receipts ("GDRs"). Generally, ADRs in registered form are U.S. dollar
denominated securities designed for use in the U.S. securities markets, which
represent and may be converted into the underlying foreign security. Unsponsored
ADRs are offered by companies which are not prepared to meet either the
reporting or accounting standards of the U.S. While readily exchangeable with
stock in local markets, unsponsored ADRs may be less liquid than sponsored ADRs.
EDRs are typically issued in bearer form and are designed for use in European
securities markets.
The Fund also may invest in certain debt securities issued by the governments of
developing market countries that are or may be eligible for conversion into
investments in developing market companies under debt conversion programs
sponsored by such governments. To the extent such debt securities are
convertible to equity securities, they are considered by the Fund to be equity
derivative securities. Debt securities (defined as bonds, notes, debentures,
commercial paper, certificates of deposit, time deposits and bankers'
acceptances) may offer opportunities for long-term capital appreciation. The
Fund will only invest in debt securities rated at least C by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") at the time
of purchase or, if unrated, of comparable quality as determined by the Adviser
or Sub-Adviser. The Fund will not invest more than 5% of its total assets in
debt securities rated Baa or lower by Moody's or BBB or lower by S&P at the time
of purchase or, if unrated, of comparable quality as determined by the Adviser
or Sub-Adviser. Debt securities rated Baa or BBB may have some speculative
elements. Debt securities rated C are regarded as having predominantly
speculative characteristics. As of June 30, 1998, none of the Fund's assets were
invested in securities rated below Baa. Subject to the above limitations, it is
likely that a portion of the debt securities in which the Fund will invest may
be unrated. Subsequent to their purchase, particular securities or other
investments may cease to be rated or their ratings may be reduced below the
minimum rating required for purchase by the Fund. Neither event will require
the elimination of an investment from the Fund's portfolio, but the Adviser or
Sub-Adviser will consider such an event in its determination of whether the Fund
should continue to hold the security. See Ratings of Bond Securities in the
Statement of Additional Information.
DEVELOPING MARKETS. For purposes of its investment policy, the Fund defines
"developing markets" as those countries determined by the Adviser or Sub-Adviser
to demonstrate developing or emerging markets or economies. Such countries will
generally be defined as "emerging stock markets" by the International Finance
Corporation, demonstrate low- to middle-income economies according to the
International Bank for Reconstruction and Development (the World Bank), or be
listed in World Bank publications as developing. Countries currently not
considered by the World Bank as having "developing markets" presently include:
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden,
Switzerland, the United Kingdom, and the United States. The Fund will not seek
to diversify investments among geographic regions or levels of economic
development in any particular country.
Developing markets tend to be in less economically developed regions of the
world. General characteristics of developing market countries also include lower
degrees of political stability, a high demand for capital investment, a high
dependence on export markets for their major industries, a need to develop basic
economic infrastructures, and rapid economic growth. The Adviser or Sub-Adviser
believes that investments in equity securities of developing growth companies
and in international developing markets offer the opportunity for significant
longterm investment returns. However, these investments involve certain risks.
See section on "Risks of the Developing Markets Growth Fund" below.
27
<PAGE>
The Adviser and Sub-Adviser consider a company domiciled or otherwise operating
in a developing market to be: (i) a company whose securities are principally
traded in the capital market of a developing market country, (ii) a company
which derives at least 50% of its gross revenues from goods produced or services
rendered in a developing market country, regardless of where the principal
trading market for such a company's securities is located, or (iii) a company
organized under the laws of or conducting principal operations in a developing
market country.
SELECTION OF INVESTMENTS. Emphasis is placed on identifying securities of
companies believed to be undervalued in the marketplace in relation to certain
factors such as a company's revenues, earnings, assets and long-term competitive
positions which over time will enhance the equity value of the company. The Fund
will not concentrate its investments in companies of a particular asset size or
in a particular industry, but instead will select its investments based on the
characteristics of the particular developing markets and economies of the
countries in which it invests as well as the fundamentals of the underlying
securities. The Fund also will not necessarily seek to diversify investments
among geographic regions or levels of economic development in any particular
country.
In selecting portfolio investments, the Adviser or Sub-Adviser will consider:
(i) a company's growth prospects, including the potential for superior
appreciation due to growth in earnings, relative valuation of its securities,
and any risk associated with such investment; (ii) the industry in which the
company operates, with a view to identification of international developments
within industries, international investment trends, and social, economic or
political movements affecting a particular industry; (iii) the country in which
the company is based, as well as historical and anticipated foreign currency
exchange rate fluctuations; and (iv) the feasibility of gaining access to the
securities market in a country and of implementing the necessary custodial
arrangements. The investment program of the Fund has been developed in the
belief that research-based investment in a portfolio of equity securities of
companies in a number of foreign countries will give shareholders a chance to
participate on an international basis in the opportunities available in
developing markets and economies.
OPTIONS ON SECURITIES OR INDICES. The Fund may write (i.e. sell) covered put and
call options and purchase put and call options on securities or securities
indices that are traded on United States and foreign exchanges or in the
over-the-counter markets. An option on a security is a contract that permits the
purchaser of the option, in return for the premium paid, the right to buy a
specified security (in the case of a call option) or to sell a specified
security (in the case of a put option) from or to the writer of the option at a
designated price during the term of the option. An option on a securities index
permits the purchaser of the option, in return for the premium paid, the right
to receive from the seller cash equal to the difference between the closing
price of the index and the exercise price of the option . The Fund may write a
call or put option to generate income, and will do so only if the option is
"covered." This means that so long as the Fund is obligated as the writer of a
call option, it will own the underlying securities subject to the call, or hold
a call at the same or lower exercise price, for the same exercise period, and on
the same securities as the written call. A put is covered if the Fund maintains
liquid assets with value at least equal to the exercise price in a segregated
account, or holds a put on the same underlying securities at an equal or greater
exercise price. The value of the underlying securities on which options may be
written at any one time will not exceed 15% of the total assets of the Fund. The
Fund will not purchase put or call options if the aggregate premium paid for
such options would exceed 5% of its total assets at the time of purchase. See
the "Options" section in the Statement of Additional Information.
RISKS OF THE DEVELOPING MARKETS GROWTH FUND. Investors should carefully consider
the substantial risks associated with investments in securities issued by
companies and governments of foreign countries, which are in addition to the
usual risks inherent with domestic investments. These risk factors are increased
for investments in developing countries.
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<PAGE>
There can be no guarantee against loss resulting from an investment in the Fund,
nor can there be any assurance that the Fund's investment objective will be
attained. The Fund should be considered as a vehicle for allocating a portion of
investor assets to foreign securities markets and not as a complete investment
program. See the discussion below on "Risks Specific to International Investing"
and the "International Risk Considerations" section in the Statement of
Additional Information.
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RISKS SPECIFIC TO INTERNATIONAL INVESTING
- --------------------------------------------------------------------------------
CURRENCY CONTRACTS. The Developing Markets Growth Fund and the International
Growth Fund may enter into contracts for the purchase or sale of a specific
currency at a future date and at a price set at the time of the contract (a
"currency contract"). The Funds may enter into forward currency contracts either
with respect to specific transactions or with respect to the Funds' portfolio
positions. For example, when the Adviser or Sub-Adviser anticipates making a
purchase or sale of a security, the Fund may enter into a forward currency
contract in order to set the rate (either relative to the U.S. dollar or another
currency) at which a currency exchange transaction related to the purchase or
sale will be made. Further, when the Adviser or Sub-Adviser believes that a
particular currency may decline compared to the U.S. dollar or another currency,
the Funds may enter into a forward contract to sell the currency the Adviser or
Sub-Adviser expects to decline in the amount approximating the value of some or
all of the Funds' portfolio securities denominated in that currency or related
currencies that the Adviser or Sub-Adviser feels demonstrate a correlation in
exchange rate movements. The practice of using correlated currencies is known as
"cross-hedging". When the Adviser or Sub-Adviser believes that the U.S. dollar
may suffer a substantial decline against a foreign currency or currencies, the
Funds may enter into a forward contract to buy a foreign currency for a fixed
dollar amount. By entering into such transactions, however, the Funds may be
required to forego the benefits of advantageous changes in exchange rates.
Currency contracts are traded over-the-counter, and not on organized commodities
or securities exchanges. As a result, such contracts operate in a manner
distinct from exchange-traded instruments, and their use involves certain risks
beyond those associated with transactions in other futures contracts. The Funds
will establish a segregated account with its custodian containing cash and
liquid high grade debt obligations to cover the Funds' obligations with respect
to forward contracts it has entered into. The value of such assets will be
marked to market on a daily basis.
Although the Funds will enter into currency contracts solely for hedging
purposes, their use does involve certain risks. For example, there can be no
assurance that a liquid secondary market will exist for any currency contract
purchased or sold, and the Funds may be required to maintain a position until
exercise or expiration, which could result in losses.
Currency contracts may be entered into on United States exchanges regulated by
the SEC or the Commodity Futures Trading Commission (the "CFTC"), as well as in
the over-the-counter market and on foreign exchanges. Investors should recognize
that transactions involving foreign securities or foreign currencies, and
transactions entered into in foreign countries, may involve considerations and
risks not typically associated with investing in U.S. markets.
CURRENCY FLUCTUATIONS. The value of the Funds' portfolio securities computed in
U.S. dollars will vary with increases and decreases in the exchange rate between
the currencies in which the Funds have invested and the U.S. dollar. A decline
in the value of any particular currency against the U.S. dollar wi11 cause a
decline in the U.S. dollar value of the Funds' holdings of securities
denominated in such currency and, therefore, will cause an overall decline in
the Funds' net asset value and net investment income and capital gains, if any,
to be distributed in U.S. dollars to shareholders by the Funds.
The rate of exchange between the U.S. dollar and other currencies is determined
by several factors, including the supply and demand for particular currencies,
central bank efforts to support particular currencies, the movement of interest
rates, the price
29
<PAGE>
of oil, the pace of activity in the industrial countries, including the United
States and other economic and financial conditions affecting the world economy.
POLITICAL AND ECONOMIC RISKS. Investing in securities of non-U.S. companies may
entail additional risks due to the potential political and economic instability
of certain countries and the risks of expropriation, nationalization or
confiscatory taxation. In addition, favorable economic developments worldwide
may not continue or may be reversed by unanticipated political events which may
adversely affect the Funds. The Funds may also be adversely affected by exchange
control regulations.
CORPORATE DISCLOSURE STANDARDS AND GOVERNMENT REGULATION. Non-U.S. companies are
not generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory requirements comparable to those applicable to
U.S. companies. Thus, there may be less available information concerning
non-U.S. issuers of securities held by the Funds than is available concerning
U.S. companies.
MARKET CHARACTERISTICS. Securities of many non-U.S. companies may be less liquid
and their prices more volatile than securities of comparable U.S. companies. In
addition, securities of companies traded in many countries outside the U.S.,
particularly those of emerging countries, may be subject to further risks due to
the inexperience of financial intermediaries, the possibility of permanent or
temporary termination of trading and greater spreads between bid and ask prices
for securities in such markets. Non-U.S. stock exchanges and brokers are subject
to less governmental supervision and regulation than in the U.S. and non-U.S.
stock exchange transactions are usually subject to fixed commissions, which are
generally higher than negotiated commissions on U.S. transactions. In addition,
non-U.S. stock exchange transactions may be subject to difficulties associated
with the settlement of such transactions. Such settlement difficulties may
result in delays in reinvestment. The Adviser and/or Sub-Adviser, if applicable,
will consider such difficulties when determining the allocation of the Funds'
assets, although the Funds do not believe that such difficulties will materially
adversely affect their portfolio trading activities.
INVESTMENT AND REPATRIATION RESTRICTIONS. Several of the countries in which the
Funds may invest restrict, to varying degrees, foreign investments in their
securities markets. Governmental and private restrictions take a variety of
forms, including (i) limitations on the amount of funds that may be invested
into or repatriated from the Country (including limitations on repatriation of
investment income and capital gains), (ii) prohibitions or substantial
restrictions on foreign investment in certain industries or market sectors, such
as defense, energy and transportation, (iii) restrictions (whether contained in
the charter of an individual company or mandated by the government) on the
percentage of securities of a single issuer which may be owned by a foreign
investor, (iv) limitations on the types of securities which a foreign investor
may purchase and (v) restrictions on a foreign investor's right to invest in
companies whose securities are not publicly traded. In some circumstances, these
restrictions may limit or preclude investment in certain countries and the Funds
intend to invest only through the purchase of shares of investment funds
organized under the laws of such countries.
The return on the Funds' investments in investment companies will be reduced by
the operating expenses, including investment advisory and administrative fees,
of such companies. The Funds' investment in an investment company may require
the payment of a premium above the net asset value of the investment company's
shares, and the market price of the investment company thereafter may decline
without any change in the value of the investment company's assets. The Funds,
however, will not invest in any investment company or trust unless it is
believed that the potential benefits of such investment are sufficient to
warrant the payment of any such premium.
EMERGING GROWTH COMPANIES. The Developing Markets Growth Fund and the
International Growth Fund may invest in emerging growth companies which involves
certain special risks. Emerging growth companies may have limited product lines,
markets, or financial resources, and their manage-
30
<PAGE>
ments may be dependent on a limited number of key individuals. The securities of
emerging growth companies may have limited market liquidity and may be subject
to more abrupt or erratic market movements than securities of larger, more
established companies or the market averages in general.
The risks of foreign investing are of greater concern in the case of investments
in developing markets which may exhibit greater price volatility and have less
liquidity. Furthermore, the economies of developing market countries generally
are heavily dependent upon international trade and, accordingly, have been and
may continue to be adversely affected by trade barriers, managed adjustments in
relative currency values, and other protectionist measures imposed or negotiated
by the countries with which they trade. These developing market economies also
have been and may continue to be adversely affected by economic conditions in
the countries with which they trade.
FOREIGN TAXATION. The Funds' interest and dividend income from foreign issuers
may be subject to non-U.S. withholding taxes. The Funds also may be subject to
taxes on trading profits in some countries. In addition, many of the countries
in the Pacific Basin have a transfer or stamp duties tax on certain securities
transactions. The imposition of these taxes will increase the cost to the Fund
of investing in any country imposing such taxes. For United States tax purposes,
United States shareholders may be entitled to a credit or deduction to the
extent of any foreign income taxes paid by the Fund. See "Taxes" section below.
- --------------------------------------------------------------------------------
COMMON POLICIES & INFORMATION
- --------------------------------------------------------------------------------
SECURITIES LENDING
From time to time, each of the Funds may lend portfolio securities to brokers,
dealers and other financial institutions needing to borrow securities to
complete certain transactions. Such loans may not exceed 33-1/3% of the value of
a Fund's total net assets. In connection with such loans, the Fund will receive
collateral consisting of cash, U.S. Government securities or irrevocable letters
of credit issued by domestic financial institutions which will be maintained in
an amount equal to at least 100% of the current market value of the loaned
securities.
PUTS AND CALLS
A put option gives the purchaser the option, in return for a premium paid, the
right to sell the underlying security at a specified price during the term of
the option. A call option gives the purchaser of the option, in return for a
premium, the right to buy the security underlying the option at a specified
exercise price at any time during the term of the option. While the Funds do not
anticipate utilizing puts and calls on a regular basis, the Funds may from time
to time write exchange-traded call options on common stocks, for which it will
receive a purchase premium from the buyer, and may purchase and sell
exchange-traded call and put options on common stocks written by others or
combinations thereof. The Funds will not write unsecured put options but may
write fully covered call options. The aggregate cost of all outstanding options
purchased and held by a Fund will at no time exceed 5% of the Fund's total net
assets. Refer to the Statement of Additional Information for further
information.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
The Funds may purchase securities on a "when-issued" basis and may purchase or
sell securities on a "forward commitment" basis. When such transactions are
negotiated, the price is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date, which can be a month
or more after the date of the transaction. The Funds will not accrue income on
securities purchased on a forward commitment basis prior to their stated
delivery date. At the time the Funds make the commitment to purchase securities
on a when-issued or forward commitment basis, they will record the transaction
and thereafter reflect the value of such securities in determining their net
asset value. At the time the Funds enter into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of cash and liquid
securities equal to the value of the when-issued or forward commitment
securities will be established and maintained with the custodian and will be
marked to the
31
<PAGE>
market daily. On the delivery date, the Funds will meet their obligations from
securities that are then maturing or sales of the securities held in the
segregated asset account and/or from then available cash flow. If the Funds
dispose of the right to acquire a when-issued security prior to its acquisition
or disposes of its right to deliver or receive against a forward commitment, it
can incur a gain or loss due to market fluctuation.
There is always a risk that the securities may not be delivered and that the
Fund may incur a loss or will have lost the opportunity to invest the amount set
aside for such transaction in the segregated asset account. Settlements in the
ordinary course of business, which may take substantially more than five
business days for non-U.S. securities, are not treated by the Fund as
when-issued or forward commitment transactions and, accordingly, are not subject
to the foregoing limitations even though some of the risks described above may
be present in such transactions.
REPURCHASE AGREEMENTS
Each Fund is permitted to invest in repurchase agreements. A repurchase
agreement is a contract by which the Fund acquires the security ("collateral")
subject to the obligation of the seller to repurchase the security at a fixed
price and date (within seven days). A repurchase agreement may be construed as a
loan pursuant to the 1940 Act. The Funds may enter into repurchase agreements
with respect to any securities which it may acquire consistent with its
investment policies and restrictions. The Funds' custodian will hold the
securities underlying any repurchase agreement in a segregated account. In
investing in repurchase agreements, the Funds' risk is limited to the ability of
the seller to pay the agreed-upon price at the maturity of the repurchase
agreement. In the opinion of the Adviser, such risk is not material, since in
the event of default, barring extraordinary circumstances, the Funds would be
entitled to sell the underlying securities or otherwise receive adequate
protection under federal bankruptcy laws for its interest in such securities.
However, to the extent that proceeds from any sale upon a default are less than
the repurchase price, the Funds could suffer a loss. In addition, the Funds may
incur certain delays in obtaining direct ownership of the collateral. The
Adviser will continually monitor the value of the underlying securities to
ensure that their value always equals or exceeds the repurchase price. The
Adviser will submit a list of recommended issuers of repurchase agreements and
other short-term securities which it has reviewed for credit worthiness to the
Funds' directors at least quarterly for their approval.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in all forms of "illiquid
securities." An investment is generally deemed to be "illiquid" if it cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which such securities are valued by the Fund.
Restricted securities are securities which were originally sold in private
placements and which have not been registered under the Securities Act of 1933
(the "1933 Act"). Such securities generally have been considered illiquid by the
staff of the Securities and Exchange Commission (the "SEC"), since such
securities may be resold only subject to statutory restrictions and delays or if
registered under the 1933 Act. However, the SEC has recently acknowledged that a
market exists for certain restricted securities (for example, securities
qualifying for resale to certain "qualified institutional buyers" pursuant to
Rule 144A under the 1933 Act). Additionally, a similar market exists for
commercial paper issued pursuant to the private placement exemption of Section
4(2) of the 1933 Act. As a fundamental policy, the Funds may invest without
limitation in these forms of restricted securities if such securities are
determined by the Adviser to be liquid in accordance with standards established
by the Funds' Board of Directors.
Under these standards, the Adviser must consider (a) the frequency of trades and
quotes for the security, (b) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers, (c) dealer
undertakings to make a market in the security, and (d) the nature of the
security and the nature of the marketplace trades (for example, the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
transfer).
At the present time, it is not possible to predict with
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accuracy how the markets for certain restricted securities will develop.
Investing in restricted securities could have the effect of increasing the level
of a Fund's illiquidity to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities.
INVESTMENT IN SIT MONEY MARKET FUND
The Funds may invest up to 25% of their total net assets in shares of money
market funds advised by the Adviser, which includes the Sit Money Market Fund,
subject to the conditions contained in an exemptive order (the "Exemptive
Order") issued to the Funds and the Adviser by the Securities and Exchange
Commission. Such investments may be made in lieu of direct investments in short
term money market instruments if the Adviser believes that they are in the best
interest of the Funds. The Exemptive Order requires the Adviser and its
affiliates, in their capacities as service providers for the Sit Money Market
Fund, to remit to the Funds, or waive, an amount equal to all fees otherwise due
to them under their advisory and other agreements with the Sit Money Market Fund
to the extent such fees are based upon a Fund's assets invested in shares of the
Sit Money Market Fund. This requirement is intended to prevent shareholders of
the Funds from being subjected to double management and other asset-based fees
as a result of a Fund's investments in the Sit Money Market Fund.
PORTFOLIO TURNOVER
To attain the investment goals of the Funds, the Adviser will usually hold
securities for the long-term. However, if weak or declining market values for
stocks are anticipated, the Adviser may convert any portion of these Fund assets
to cash or short-term securities as a temporary, defensive position.
Generally, none of the Funds will trade in securities for short-term profits,
but if circumstances warrant, securities may be sold without regard to length of
time held. The Funds will make sector spread changes in response to changing
market conditions. Debt securities may be sold in anticipation of a market
decline (a rise in interest rates) or purchased in anticipation of a market rise
(a decline in interest rates) and later sold.
Increased turnover results in increased brokerage costs and may result in higher
transaction costs for the Funds and may affect the taxes shareholders pay. If a
security that has been held for less than the holding period set by law is sold,
any resulting gains will be taxed in the same manner as ordinary income as
opposed to long-term capital gain. Each Fund's turnover rate may vary from year
to year. For additional information, refer to the "Taxes" section below and the
"Taxes" and "Brokerage" sections in the Statement of Additional Information. The
portfolio turnover rates for each of the Funds are contained in the Condensed
Financial Information tables in this prospectus.
RELATIONSHIP OF DEBT SECURITIES AND INTEREST RATES
The value of debt securities purchased by the Funds, if any, may be affected by
changes in interest rates. There is normally an inverse relationship between the
market value of securities sensitive to prevailing interest rates and actual
changes in interest rates. When interest rates decline, the value of debt
securities generally increases and when interest rates rise, the value of debt
securities generally decreases. Therefore, changes in interest rates may affect
the Funds' net asset values. Common stocks and securities convertible into
common stocks may, under certain circumstances, be adversely impacted by rising
interest rates as well, due to the impact of those rates on stock prices in
general.
TEMPORARY DEFENSIVE INVESTMENTS
For temporary defensive purposes in periods of unusual market conditions, the
Funds may invest all or a portion of their assets in cash, short-term debt
securities including certificates of deposit, bankers' acceptances and other
bank obligations, corporate and direct U.S. obligation bonds, notes, bills,
commercial paper and repurchase agreements.
RATINGS OF DEBT SECURITIES
Investment grade debt securities are rated AAA, AA, A or BBB by Standard &
Poor's Corporation ("S&P"), Fitch IBCA ("Fitch"), and Duff & Phelps Credit
Rating Co. ("Duff & Phelps"); or Aaa, Aa, A or Baa by Moody's Investors Services
("Moody's"). Investment grade municipal notes are rated MIG 1, MIG 2, MIG 3 or
MIG 4 (VMIG 1, VMIG 2, VMIG 3 or VMIG
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4 for notes with a demand feature) by Moody's or SP-1 or SP-2 by S&P Securities
rated Baa, MIG 4, VMIG 4 or BBB are medium grade, involve some speculative
elements and are the lowest investment grade available. These securities
generally have less certain protection of principal and interest payments than
higher rated securities. Securities rated Ba or BB (in which Large Cap Fund,
Balanced Fund and Developing Markets Growth Fund may invest) are judged to have
some speculative elements with regard to capacity to pay interest and repay
principal. Debt securities rated C (in which the Developing Markets Growth Fund
may invest) are regarded as having predominantly speculative characteristics.
DEBT SECURITIES RATED BELOW INVESTMENT GRADE ARE COMMONLY KNOWN AS JUNK BONDS.
Presently, other than with respect to the Balanced Fund, the Adviser intends to
invest only in debt securities rated at investment grade at the time of
purchase, or if not rated, deemed by the Adviser to be of comparable quality.
See the section "Investment Objectives and Policies" above for a discussion
regarding the Balanced Fund's debt securities ratings. See the Statement of
Additional Information for further information about ratings.
The commercial paper purchased by the Funds will consist only of direct
obligations which, at the time of purchase, are (a) rated P-1 by Moody's or A-1
by S&P, or (b) if not rated, issued by companies having an outstanding
unsecured debt issue which at the time of purchase is rated Aa or higher by
Moody's or AA or higher by S&P.
FUND BORROWING
In the event of an emergency or extraordinary situation, the Funds may enter
into a temporary borrowing arrangement to meet its cash obligations. Such
temporary borrowing is limited to emergency purposes and not for the purchase of
investments, and then not in excess of 33-1/3% of the Fund's total net assets.
OTHER INVESTMENT RESTRICTIONS
In addition to the investment policies and restrictions referred to above, each
Fund is subject to various other investment restrictions. These restrictions,
which are set forth in more detail in the Statement of Additional Information,
include, but are not limited to, restrictions whereby the Funds may (a) not
invest more than 25% of the value of its assets in any particular industry,
except with regard to the purchase of obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities; and (b) except as part of a
merger, consolidation, acquisition, or reorganization, not invest more than 5%
of the value of its total assets in the securities of any one investment company
or more than 10% of the value of its total assets, in the aggregate, in the
securities of two or more investment companies, or acquire more than 3% of the
total outstanding voting securities of any one investment company, except for
investments in the Sit Money Market Fund as discussed above. Since the Adviser
does not waive its fees if and to the extent a Fund invests in the securities of
one or more other investment companies (except for investments in the Sit Money
Market Fund), the Funds indirectly pay duplicate advisory fees with respect to
such investments. However, the Adviser believes that the return and liquidity
features of investment company securities may, from time to time, be more
beneficial to the Funds than alternative short-term, liquid investments, and
that the duplicate fees and expenses will have a relatively small impact on
overall Fund expenses.
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COMPUTATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value per share (the value of an individual share in a Fund) is
determined as of the close of the New York Stock Exchange (NYSE) on each day
that the exchange is open for business. Normally the NYSE closes at 3:00 p.m.
Central time. The net asset value is calculated by dividing the total value of a
Fund's investments and other assets (including accrued income), less any
liabilities, by the number of shares outstanding. The net asset value per share
of each Fund will fluctuate.
Securities which are traded on an exchange or on the NASDAQ over-the-counter
market are valued at the last quoted sale price of the day. Lacking a last sale
price, a security is generally valued at its last bid price. All other
securities for which over-the-
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counter market quotations are readily available are valued at their last bid
price. When market quotations are not readily available, or when restricted
securities are being valued, such securities are valued at fair value using
methods selected in good faith by the Boards of Directors.
Debt securities may be valued on the basis of prices furnished by a pricing
service when the Adviser believes such prices accurately reflect the fair market
value of such securities. Such a pricing service utilizes electronic data
processing techniques to determine prices for normal institutional-size trading
units of debt securities without regard to sale or bid prices. When prices are
not readily available from a pricing service, or when restricted or illiquid
securities are being valued, securities may be valued at fair value using
methods selected in good faith by the Boards of Directors. Short-term
investments in debt securities with maturities of less than 60 days when
acquired, or which subsequently are within 60 days of maturity, are valued by
using the amortized cost method of valuation. The amortized cost method of
valuation will be used only if the Boards of Directors, in good faith, determine
that the fair value of the securities shall be their amortized cost value,
unless the particular circumstances dictate otherwise.
Any assets or liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the official exchange rate or, alternatively, at
the mean of the current bid and ask prices of such currencies against the U.S.
dollar last quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account
the quotes provided by a number of such major banks. If neither of these
alternatives is available or both are deemed not to provide a suitable
methodology for converting a foreign currency into U.S. dollars, the Boards of
Directors in good faith will establish a conversion rate for such currency.
Foreign securities trading may not take place on all days on which the New York
Stock Exchange is open. Further, trading takes place in various foreign markets
on days on which the Exchange is not open and therefore the Fund's net asset
value is not calculated.
The calculation of the International Growth Fund and Developing Markets Growth
Fund's net asset value therefore may not take place contemporaneously with the
determination of the prices of securities held by these Funds. Events affecting
the values of portfolio securities that occur between the time their prices are
determined and the close of the Exchange will not be reflected in the Developing
Markets Growth Fund or International Growth Fund's net asset value unless
management, under the supervision of the Board of Directors, determines that the
particular event would materially affect the net asset value. As a result, the
Developing Markets Growth Fund or International Growth Fund's net asset value
may be significantly affected by such trading on days when the Fund is not open
for shareholder purchases and redemptions.
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HOW TO PURCHASE FUND SHARES
- --------------------------------------------------------------------------------
Shares of the Funds may be purchased without a sales commission at the net asset
value per share (see "Computation of Net Asset Value") next determined after
receipt of a purchase order in proper form. Currently, there is no charge by the
Funds for purchases. The minimum initial investment is $2,000 for each Fund and
additional investments must be at least $100. Accounts may be established with
a $500 minimum initial purchase if an Automatic Investment Plan for at least
$100 per month is also established. The minimum purchase requirements do not
apply to UGMA/UTMA accounts or retirement accounts (see "Retirement Accounts").
SEE THE INSIDE BACK COVER OF THIS PROSPECTUS FOR THE FUNDS' MAILING ADDRESS,
TELEPHONE NUMBERS, AND WIRE INSTRUCTIONS.
INITIAL INVESTMENT
BY MAIL. To open an account, complete and sign an application and mail it with a
check to the Funds as instructed on the application. Third party checks are not
accepted.
BY WIRE. Shares of the Funds may be purchased by wiring Federal Funds from your
bank, which may
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charge you a fee. Before money is wired for an initial purchase (new account),
you must call the Funds and provide the following information: name or names of
the account registration; address; social security or tax identification number;
the amount being wired; the name of the wiring bank; and the name and telephone
number of the person at your bank. The Funds will provide you with an account
number and your bank must then wire the specified amount (minimum $2,000 if
non-retirement account) to your account.
YOU MUST MAIL A COMPLETED APPLICATION TO THE FUNDS AFTER OPENING AN ACCOUNT BY
WIRE TRANSFER. IF A COMPLETED APPLICATION IS NOT RECEIVED OR YOUR SOCIAL
SECURITY OR TAX IDENTIFICATION NUMBER IS NOT CERTIFIED WITH A FORM W-9, YOUR
ACCOUNT WILL BE SUBJECT TO BACK-UP WITHHOLDING WITHIN 60 DAYS.
Wire orders will be accepted only on a day on which the Funds and the Funds'
Transfer Agent are open for business. A WIRE PURCHASE WILL NOT BE CONSIDERED
MADE UNTIL THE WIRED MONEY IS RECEIVED AND THE PURCHASE IS ACCEPTED BY THE FUND.
Any delays which may occur in wiring money, including delays which may occur in
processing by the banks, are not the responsibility of the Funds or the Funds'
Transfer Agent.
WHEN ORDERS ARE EFFECTIVE
Purchases made by mail will be invested at the net asset value per share next
determined after receipt of the purchase order in proper form.
Purchases transmitted by wire to the Funds and received prior to the close of
the New York Stock Exchange (NYSE), normally 3:00 p.m. Central time, will be
invested at the net asset value per share calculated for that day. If received
after this deadline, the purchase will be made at the net asset value next
calculated. You become a shareholder after declaration of any dividend on the
day on which the order is effective. Dividends begin to accrue after you become
a shareholder.
ADDITIONAL INVESTMENTS
BY MAIL. You may make subsequent purchases (minimum $100) by mailing the
investment slip attached to your account confirmation statement or a letter of
instruction (providing your account number and the name(s) on the account)
together with a check made payable to the Fund. Investment slips are
electronically coded and are not interchangeable among funds.
BY WIRE. You may purchase additional shares by wiring funds. For wire
instructions, see the back page of this prospectus. After you have initiated the
wire purchase through your bank, notify the Funds that a wire purchase is being
made to your account.
BY ACH. YOU may purchase shares for non-IRA accounts via electronic transfer of
funds if you have selected this option in Step 4 of the application. If you call
the Funds prior to the close of the NYSE, normally 3:00 p.m. Central time, your
purchase will be effective at the net asset value on the next business day (on
which the net asset value is calculated) after your telephone call and your bank
account will be debited within 1 to 2 business days.
BY AUTOMATIC INVESTMENT PLAN. After your initial investment you can make
automatic monthly purchases on any day of the month of $100 or more. To use this
option, you must complete the Automatic Investment Plan section of the
application. Or, if adding this option to an existing account, complete the
Change of Account Options form and obtain a signature guarantee. This option
will begin within ten days of receipt of the completed application. You can
change the amount or terminate this option by written notice to the Fund at any
time.
OTHER INVESTMENT INFORMATION
All purchases are subject to acceptance by authorized officers of the Funds and
are not binding until accepted. The Funds reserve the right to reject purchase
orders when, in the judgment of management, such rejection is in the best
interests of the Funds. At their discretion, the Funds may accept telephone
purchases and redemptions from a broker and/or a broker-dealer. Investors who
purchase or redeem shares through a broker and/or a broker-dealer may be charged
transaction fees or other fees by such broker-dealer.
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<PAGE>
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REDEMPTION OF FUND SHARES
- --------------------------------------------------------------------------------
You may redeem (sell) all or a portion of your shares at any time that the net
asset value is calculated. Shares will be redeemed at the net asset value per
share next determined after the request is received in good order. A redemption
may be more or less than your cost depending on the market value of the Fund's
securities. Currently, there is no charge by the Funds for redemptions. IF YOU
REQUEST A REDEMPTION (WHICH INCLUDES WRITING A DRAFT ON YOUR ACCOUNT) SHORTLY
AFTER MAKING AN INVESTMENT WITH NONGUARANTEED FUNDS (e.g. WITH A PERSONAL
CHECK), THE FUND MAY DELAY SENDING YOUR REDEMPTION PROCEEDS (OR MAY RETURN YOUR
DRAFT) UNTIL YOUR CHECK HAS CLEARED (GOOD PAYMENT HAS BEEN COLLECTED) WHICH MAY
TAKE UP TO TEN DAYS. YOU MAY AVOID THIS DELAY BY PURCHASING SHARES WITH A
CERTIFIED CHECK OR BANK WIRE OF FEDERAL FUNDS.
Each Fund may suspend redemption privileges or postpone the date of payment (1)
during any period that the New York Stock Exchange is closed other than
customary weekend or holiday closings, or when trading is restricted, as
determined by the Securities and Exchange Commission, (2) during any period when
an emergency exists, as determined by the Securities and Exchange Commission, as
a result of which it is not reasonably practical for the Fund to dispose of
securities owned by it or to fairly determine the value of its assets, and (3)
for such other periods as the Securities and Exchange Commission may permit.
BY MAIL. You may request a redemption by sending a written request in "good
order" to the Funds. "Good order" means that the request for redemption must
include the following:
1. A letter of instruction specifying the name of the Fund, account number
and number of shares or dollar amount to be redeemed, signed by all
registered owners exactly as their names appear on the account.
2. Other supporting legal documents as required for estates, trusts,
guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations.
Payment will generally be made within 7 days after receipt of a redemption
request in "good order". A request for redemption cannot be canceled or revoked.
A SIGNATURE GUARANTEE IS REQUIRED IF YOU REQUEST A REDEMPTION TO BE MADE PAYABLE
TO SOMEONE OTHER THAN THE REGISTERED OWNERS AND/OR IF YOU REQUEST THE PROCEEDS
TO BE SENT TO AN ADDRESS OTHER THAN THE REGISTERED ADDRESS.
If you are uncertain of the requirements for redemption, write or call the Funds
at 800-332-5580 or 612-334-5888.
BY WIRE. If you desire to receive a redemption by wire of federal funds, a
written request in "good order" must first be received by the Funds. Your
request should contain specific wire instructions including the bank to which
the proceeds are to be wired, its address, your account number and be signature
guaranteed. If the proceeds are wired to your account at a bank which is not a
member of the Federal Reserve System, there could be a delay in crediting the
funds to your bank account. The Fund's bank charges a wire fee (currently $8)
which will be deducted from the balance of your account or from the amount being
wired if your account has been completely redeemed. The recipient bank may also
charge a wire fee.
TELEPHONE REDEMPTION
You may redeem up to $50,000 per day by telephone if you have authorized this
option for your account. This limitation does not apply to omnibus accounts. For
purposes of this limitation, accounts with the same registration in different
Funds will be aggregated.
If you call the Funds prior to the close of the NYSE, normally 3:00 p.m. Central
time your redemption will be effective at the net asset value that same day. You
must complete the Telephone Redemption Authorization section of the application
to establish this option. THE FUND WILL EMPLOY REASONABLE PROCEDURES TO CONFIRM
THAT TELEPHONE INSTRUCTIONS ARE GENUINE, AND INCLUDING REQUIRING THAT PAYMENTS
BE MADE ONLY TO THE SHAREHOLDER'S ADDRESS OF RECORD
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OR THE BANK ACCOUNT DESIGNATED ON THE APPLICATION AND REQUIRING CERTAIN MEANS OF
TELEPHONIC IDENTIFICATION. If the Fund fails to employ such procedures, it may
be liable for any losses suffered by Fund shareholders as a result of
unauthorized or fraudulent instructions. During times of chaotic economic or
market circumstances, a shareholder may have difficulty reaching the Funds by
telephone. Consequently, an exchange or redemption may be difficult to implement
at those times.
BY MAIL. Telephone redemption proceeds can be mailed to your address of record.
If you wish to change your address, complete the Change of Account Information
form, signed by all shareholders.
BY WIRE. Telephone redemption proceeds can be wired to your bank. Proceeds will
be wired to your bank account the next business day after you request a
telephone redemption. If you wish to change your bank information, a signature
guarantee is necessary. The Fund's bank charges a wire fee (currently $8) which
will be deducted from the balance of your account or from the account being
wired if your account has been completely redeemed. The recipient bank may also
charge a wire fee.
BY ACH. Telephone redemption proceeds for non-IRA accounts may be sent via
Automated Clearing House (ACH) to your bank account. Your bank account will be
credited within 1-2 business days after you request a telephone redemption. If
you wish to change your bank information, a signature guarantee is necessary. To
establish this option, complete the telephone services section of the
application.
SYSTEMATIC WITHDRAWAL PLAN
You may establish a Systematic Withdrawal Plan to receive periodic redemptions
of at least $100 on a monthly, quarterly, semi-annual or annual basis.
Systematic withdrawals may eventually exhaust your account. Each withdrawal
constitutes a redemption and any gain or loss realized must be recognized for
federal income tax purposes.
OTHER REDEMPTION INFORMATION
At the discretion of the Board of Directors, each Fund may involuntarily redeem
accounts which have a balance less than $2,000. Such accounts may be redeemed
after giving written notice to the registered owner of the account. If the
shareholder does not increase the amount of the account above $2,000 within 30
days, the Fund may send the shareholder a check for the redemption proceeds as
determined at the next calculated net asset value.
If the Adviser determines that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in securities
or other financial assets, valued for this purpose as they are valued in
computing the NAV for a Fund's shares. Shareholders receiving securities or
other financial assets on redemption may realize a gain or loss for tax purposes
and will incur any costs of sale, as well as the associated inconveniences.
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EXCHANGES
- --------------------------------------------------------------------------------
An exchange is made by redeeming shares of one Fund and using the proceeds to
buy shares of another Sit Fund. There is no charge for exchanges, but the Funds
reserve the right to charge a fee in the future. An exchange results in a sale
of shares for federal income tax purposes and you may realize either a capital
gain or loss on the shares redeemed. Before making an exchange, you should read
the prospectus and consider the investment objective of the Fund to be
purchased.
An exchange may be done by telephone (subject to the same procedures for
telephone identification as telephone redemption above) or by written request to
the Funds. A written request must be signed by all registered owners of the
account. When you establish your account, the exchange privilege will
automatically be established unless you indicate that you do not want it. If
your exchange creates a new account, the new account ownership must be identical
and you must satisfy the minimum initial purchase requirement. You may make an
exchange to a new account or an existing account. There is a limit of four
exchanges out of each Fund per year per account. Exchanges may be made only in
states where allowed by law.
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In addition, each Fund reserves the right to refuse exchanges if, in the
Adviser's judgment, the Fund would be unable to invest effectively in accordance
with its investment objectives and policies, or would otherwise potentially be
adversely affected. Exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of the Fund's
assets. Although the Fund will attempt to give prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time. The
Funds reserve the right to terminate or modify the exchange privilege in the
future.
SYSTEMATIC EXCHANGE PLAN
If you wish to exchange fixed periodic amounts between Funds, you may establish
the Systematic Exchange Plan. You may exchange a predetermined amount from one
Fund to another Fund on the first business day of the month. An exchange may be
done monthly, or you may choose which months you wish to have the exchange made.
Systematic exchanges are subject to the same requirements as other exchanges.
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DIVIDENDS
- --------------------------------------------------------------------------------
The policy of the Large Cap Growth Fund, Mid Cap Growth Fund, Small Cap Growth
Fund, Regional Growth Fund, Science and Technology Growth Fund, International
Growth Fund and Developing Markets Growth Fund is to distribute an annual
dividend from its net investment income. The policy of the Balanced Fund is to
distribute quarterly dividends from its net investment income. Net investment
income includes dividends on stocks and interest earned on bonds or other debt
securities less operating expenses.
When any Fund sells portfolio securities it may realize a gain or loss,
depending on whether it sells them for more or less than its cost. Net realized
capital gain, if any, will be distributed at least once annually by each Fund.
Income dividends and capital gain distributions are automatically reinvested in
additional shares at the net asset value per share on the distribution date.
Dividends may be automatically directed to purchase shares of another Fund. You
may request a cash payment of dividends and/or capital gain distributions on the
application or by separate written notice to the Funds. Shareholders will
receive a quarterly statement reflecting the dividend payment and, if
applicable, the reinvestment of dividends. If cash payment is requested, a check
normally will be mailed within five business days after the payable date. As
soon as practical after the Funds become aware that the postal or other delivery
service is unable to deliver checks to the shareholder's address of record, such
shareholder's distribution option will automatically be converted to having all
dividend and other distributions reinvested in additional shares. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks.
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RETIREMENT AND OTHER TAX-DEFERRED ACCOUNTS
- --------------------------------------------------------------------------------
Taxes on current income can be deferred by investing in Keogh plans, Individual
Retirement Accounts (IRAs), Simplified Employee Pensions (SEPs), 401(k),
pension, profit-sharing, employee benefit, deferred compensation and other
qualified retirement plans. The federal tax law governing these tax-deferred
retirement plans must be complied with to avoid adverse tax consequences.
The Funds are available for your tax-deferred retirement plan with no minimum
investment requirements for initial or additional contributions. Such retirement
plans must have a qualified plan sponsor or trustee. The Adviser sponsors
prototype 401(k), profit sharing, and money purchase plans as well as IRA,
SEP-IRA and Keogh plans. You should contact the Adviser for specific plan
documentation. You should also consult your tax adviser before investing.
The Funds are also available for saving for a minor's post-secondary education
on a tax-deferred basis. Contributions to an Education IRA cannot be made after
the minor turns 18, and are not deductible for tax purposes. The federal tax
laws governing an Education IRA must be complied with to avoid adverse tax
consequences.
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CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Northern Trust Company, 50 South LaSalle Street, Chicago, IL 60675, acts as
Custodian for each Fund pursuant to the terms of a Custodian Contract. The
Custodian holds all securities and cash, receives and pays for securities
purchased, delivers against payment for securities sold, receives and collects
income from investments and performs other administrative duties, all under the
supervision of officers of the Funds or the Adviser or Sub-Adviser. The Northern
Trust Company has engaged sub-custodian institutions in various foreign
countries in which the Developing Markets Growth Fund's and International Growth
Fund's assets are custodied. For a further discussion of foreign countries and
institutions in which Developing Markets Growth Fund's or International Growth
Fund's assets are custodied, see the Statement of Additional Information.
Pursuant to the terms of a Transfer Agency and Services Agreement and the
Accounting Services Agreement with each Fund, First Data Investor Services Group
Inc., 4400 Computer Drive, Westboro, MA 01581 is the transfer agent, dividend
disbursing agent and accounting services agent for each Fund. First Data
Investor Services processes purchase orders, redemption orders and all related
shareholder accounting services.
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MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The Mid Cap Growth Fund, Large Cap Growth Fund, and the corporate issuer of the
International Growth Fund, Balanced Fund, Developing Markets Growth Fund, Small
Cap Growth Fund, Science and Technology Growth Fund, and Regional Growth Fund
have corporate officers and Boards of Directors. Pursuant to Minnesota law, the
Boards of Directors are responsible for the management of the Funds and the
establishment of the Fund policies. The officers of the Funds manage the
day-to-day operation of the Funds.
INVESTMENT ADVISER
Sit Investment Associates, Inc. (the Adviser") was incorporated in Minnesota on
July 14, 1981 and serves as the Funds' Investment Adviser pursuant to Investment
Management Agreements (the "Agreements"). In addition to the Funds, the Adviser
together with its affiliates (including the Sub-Adviser) currently manage public
and private accounts with combined assets of approximately $6 billion. The
address of the Adviser is 4600 Norwest Center, Minneapolis, Minnesota 55402.
Under each of Large Cap Growth Fund's, Mid Cap Growth Fund's, Small Cap Growth
Fund's, Balanced Fund's, Science and Technology Growth Fund's, Regional Growth
Fund's, International Growth Fund's and Developing Markets Growth Fund's
Investment Management Agreement, each Fund is obligated to pay the Adviser a
flat monthly fee based on the average daily net assets ("net assets") on an
annual basis as follows:
Large Cap Growth Fund 1.00%
Mid Cap Growth Fund 1.25
Small Cap Growth Fund 1.50
Science and Technology Growth Fund 1.50
Regional Growth Fund 1.25
Balanced Fund 1.00
International Growth Fund 1.85
Developing Markets Growth Fund 2.00
Under each Funds' Agreements, the Adviser has agreed to bear all of the Funds'
expenses, except for extraordinary expenses (as designated by a majority of the
Funds' disinterested directors), interest, brokerage commissions and other
transaction charges relating to the investing activities of the Fund. Investment
advisory fees in excess of .75% per year of a fund's average daily net assets
are considered to be higher than investment advisory fees paid by most other
investment companies; however, the Adviser has either agreed to pay or reimburse
each Fund for all or certain of their other operating expenses as more fully set
forth above.
For the period November 1, 1996 through December 31, 1999, the Adviser has
voluntarily agreed to limit the management fee (and thereby, all Fund expenses,
except those not payable by the Adviser as
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set forth above) of the Mid Cap Growth Fund to 1.00% of the Fund's average daily
net assets. After December 31, 1999, this voluntary fee waiver may be
discontinued by the Adviser in its sole discretion.
For the period January 1, 1994 through December 31, 1999, the Adviser has
voluntarily agreed to limit the management fee (and, thereby, all Fund expenses,
except those not payable by the Adviser as set forth above) of the International
Growth Fund to 1.50% of the Fund's average daily net assets. After December 31,
1999, this voluntary fee waiver may be discontinued by the Adviser in its sole
discretion.
For the period December 31, 1997 (date of inception) through December 31, 1999,
the Adviser has voluntarily agreed to limit the management fee (and, thereby,
all Fund expenses except those not payable by the Adviser as set forth above) of
the Science and Technology Growth Fund and the Regional Growth Fund to 1.25% and
1.00% per year, respectively, of the Fund's average daily net assets. After
December 31, 1999, this voluntary fee waiver may be discontinued by the Adviser
in its sole discretion.
PORTFOLIO MANAGEMENT
All investment decisions of all Funds are made by committee. Eugene C. Sit is
the Chief Investment Officer of the Adviser and oversees all investment
decisions for the Funds. He is the Senior Portfolio Manager for the Small Cap
Growth, Mid Cap Growth, Science and Technology Growth, Regional Growth,
Developing Markets Growth, and International Growth Funds and has held this
office since the inception of the Funds. Peter L. Mitchelson is the Senior
Portfolio Manager for Balanced and Large Cap Growth Funds and has held this
office since the inception of the Funds.
Sit/Kim International Investment Associates, Inc. (the "Sub-Adviser") is the
sub-adviser for the Developing Markets Growth Fund and International Growth
Fund. Andrew B. Kim is President and Manager of the Sub-Adviser and serves on
its Investment Policy Committee. Eugene C. Sit is the Sub-Adviser's CEO and
serves as Chairman of its Investment Policy Committee.
THE SUB-ADVISER
The Sub-Adviser currently serves as sub-adviser for the Developing Markets
Growth Fund and International Growth Fund under a Sub-Advisory Agreement with
the Adviser. The Sub-Adviser was incorporated in Minnesota on February 9, 1989
and is a majority owned subsidiary of the Adviser. The Sub-Adviser is an
international investment management firm and currently manages approximately
$645 million in separate accounts. The Sub-Adviser has offices in New York and
San Francisco and has consulting relationships in Beijing, Hong Kong and Seoul.
As compensation for its services under the Sub-Advisory Agreement, absent
voluntary fee waiver, the Adviser pays the Sub-Adviser fees for the
International Growth Fund generally equal on an annual basis to .75% on the
first $100 million of the Fund's average daily net assets, .50% on the next $100
million of average daily net assets and .40% of average daily net assets in
excess of $200 million, and for the Developing Markets Growth Fund generally
equal on an annual basis to .75% on the first $100 million of the Fund's average
daily net assets, .60% on the next $100 million of average daily net assets and
.50% of average daily net assets in excess of $200 million as more fully set
forth in the Statement of Additional Information.
DISTRIBUTOR
The Funds have entered into Underwriting and Distribution Agreements with SIA
Securities Corp. ("Securities"), an affiliate of the Adviser, pursuant to which
Securities will act as the Funds' principal underwriter. Securities will market
the Funds' shares only to certain institutional investors and all other sales of
the Funds' shares will be made by each Fund. The Adviser will pay all expenses
of Securities in connection with such services and Securities is otherwise not
entitled to any other compensation under the Underwriting and Distribution
Agreement. The Funds will incur no additional fees or expenses in connection
with the Underwriting and Distribution Agreement.
Securities or the Adviser may enter into agreements with various brokerage or
other firms pursuant to which such firms provide certain administrative services
with respect to customers who are beneficial
41
<PAGE>
owners of shares of the Funds. The Adviser or Securities may compensate such
firms for the services provided, which compensation is based on the aggregate
assets of customers that are invested in the Funds.
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
Each Fund qualified as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), during its last taxable
year and intends to continue to do so during the current taxable year in order
to be relieved of payment of federal income taxes on amounts distributed to
shareholders (both net investment income and net realized capital gains).
Dividends paid from each Fund's net investment taxable income and net short-term
capital gains will be taxable to shareholders as ordinary income, whether or not
the shareholder elects to have such dividends automatically reinvested in
additional shares. Dividends paid by Developing Markets Growth Fund and
International Growth Fund will not be eligible for the 70% deduction for
dividends received by corporations if, as expected, none of those Funds' income
consists of dividends paid by U.S. corporations.
Each Fund distributes annually any net realized capital gains. Dividends paid
from the net capital gains of each Fund and designated as capital gain dividends
will be taxable to shareholders as long-term capital dividends, regardless of
the length of time for which they have held their shares in the Fund.
Gain or loss realized upon the sale of shares in each Fund will be treated as
capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. Such gain or loss will be long-term gain or loss
if the shares were held for more than one year.
After every distribution from each of the Funds, the value of a share drops by
the amount of the distribution. If you purchase shares shortly before the record
date of a dividend or capital gain distribution, you will pay the full price for
the shares ("buying a dividend") and then receive some portion of the price back
as a taxable dividend or capital gain distribution. Each Fund's unrealized
appreciation on investments, undistributed net investment income and
accumulated net realized gains or losses are contained in the annual and
semi-annual reports in the Statement of Changes in Net Assets.
The Developing Markets Growth Fund and International Growth Fund may be required
to pay withholding and other taxes imposed by foreign countries, generally at
rates from 10% to 40%, which would reduce the Funds' investment income. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. If at the end of each Fund's fiscal year more than 50% of
its total assets consist of securities of foreign corporations, the Fund will be
eligible to file an election with the Internal Revenue Service pursuant to which
the Fund may "pass-through" to shareholders the amount of foreign income taxes
paid by the Fund with respect to its direct holdings of stock or securities in
foreign corporations. If this election is made, shareholders of the Fund making
the election will be required to include their respective pro rata portions of
such withholding taxes as gross income, treat such amounts as foreign taxes paid
by them, and deduct such amounts in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their federal income
taxes. The Funds have not made such an election in the past. The Funds will make
such an election only if they deem it to be in the best interests of its
shareholders.
Pursuant to the Code, distributions of net investment income by the Funds to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or lower treaty rate). Withholding will not apply if a
dividend paid by the Funds to a foreign shareholder is "effectively connected"
with a U.S. trade or business of such shareholder, in which case the reporting
and withholding requirements applicable to U.S. citizens or domestic
corporations will apply. Distributions of net long term capital gains are not
subject to tax withholding but, in the case of a for-
42
<PAGE>
eign shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. income tax at a rate of 30% if the individual
is physically present in the U.S. for more than 182 days during the taxable
year. The Funds will report annually to its shareholders the amount of any
withholding.
Each Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to certain accounts whose owners have not complied with IRS regulations. In
connection with this withholding requirement, you will be asked to certify on
your account application that the social security or taxpayer identification
number you provide is correct and that you are not subject to 31% backup
withholding for previous underreporting to the IRS.
This is a general summary of the federal tax law in effect as of the date of
this prospectus. See the Statement of Additional Information for further
details. You may also be subject to state and local taxes, depending on the laws
of your home state and locality. Information about the tax status of each year's
dividends and distributions will be mailed to shareholders annually.
- --------------------------------------------------------------------------------
CAPITALIZATION AND VOTING RIGHTS
- --------------------------------------------------------------------------------
Each of the Funds or the corporate issuer of their shares is organized as a
Minnesota corporation. Each of the Funds or its corporate issuer has only one
class of shares - common shares. The Large Cap Growth Fund and the Mid Cap
Growth Fund, each have one series of common shares consisting of ten billion
shares with a par value of one-tenth of one cent per share. Sit Mutual Funds,
Inc., is the corporate issuer of International Growth Fund, Balanced Fund,
Developing Markets Growth Fund, Small Cap Growth Fund, Science and Technology
Growth Fund, and Regional Growth Fund. Sit Mutual Funds, Inc., has one trillion
shares of common stock authorized with a par value of one-tenth of one cent per
share. Ten billion of these shares have been designated by the Board of
Directors for each of six series: Series A Common Shares represent shares of
International Growth Fund; Series B Common Shares represent shares of Balanced
Fund; Series C Common Shares represent shares of Developing Markets Growth Fund;
Series D Common Shares represent shares of Small Cap Growth Fund; Series E
Common Shares represent shares of Science and Technology Growth Fund; Series F
Common Shares represent shares of Regional Growth Fund. The Board of Directors
of Sit Mutual Funds, Inc., is empowered to issue other series of common stock
without shareholder approval.
The shares of each Fund are nonassessable, can be redeemed or transferred and
have no preemptive or conversion rights. All shares have equal, noncumulative
voting rights which means that the holders of more than 50% of the shares voting
for the election of Directors can elect all of the Directors if they choose to
do so. A shareholder is entitled to one vote for each full share (and a
fractional vote for each fractional share) then registered in his/her name on
the books of each Fund. The shares of each Fund are of equal value and each
share is entitled to a pro rata portion of the income dividends and any capital
gain distributions.
The Funds are not required under Minnesota law to hold annual or periodically
scheduled meetings of shareholders. Minnesota corporation law provides for the
Board of Directors to convene shareholder meetings when it deems appropriate.
However, the Funds intend to hold meetings of shareholders annually. In
addition, certain shareholders under certain circumstances may demand a regular
meeting of shareholders pursuant to Minnesota law and the Investment Company Act
of 1940. See the Statement of Additional Information for further information.
- --------------------------------------------------------------------------------
EURO CONVERSION
- --------------------------------------------------------------------------------
On January 1, 1999, eleven of the fifteen member countries of the European Union
are scheduled to adopt a common legal currency called the "euro." Current legal
currencies are scheduled to remain legal tender in the participating countries
as denominations of the euro between January 1, 1999 and January 1, 2002.
43
<PAGE>
The impact of the euro conversion is not expected to be material to the business
operations of the Funds.
- --------------------------------------------------------------------------------
YEAR 2000 COMPUTER ISSUE
- --------------------------------------------------------------------------------
The Year 2000 issue arises when computer programs represent dates as two digits
instead of four. Such programs may incorrectly assume that the year after 1999
is 1900. The Funds could be adversely affected if the computer systems used by
the Funds, the Adviser or other service providers and entities with computer
systems that are linked to the Funds' records do not properly process and
calculate date-related information and data from and after January 1, 2000.
A comprehensive review of the third party service providers' and the Adviser's
computer systems and business processes has been conducted to identify the major
systems that could be affected by the Year 2000 issue. Steps are being taken to
resolve any potential problems including modification of existing software and
the purchase of new software, the costs of which are borne by the Adviser. In
addition, the Adviser evaluates the anticipated impact of year 2000 issues on
each company and government security in which the Funds invest. However, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Funds.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Under Minnesota law, the Board of Directors of each Fund has overall
responsibility for managing the Fund, in good faith, in a manner reasonably
believed to be in the best interests of each Fund, and with the care an
ordinarily prudent person would exercise in similar circumstances.
This prospectus omits certain of the information contained in the Registration
Statements filed with the Securities and Exchange Commission, Washington, D.C.
20549. Items of information which are omitted may be obtained from the
Securities and Exchange Commission upon payment of the fees prescribed by the
rules and regulations of the Commission.
In the opinion of the staff of the Securities and Exchange Commission, the use
of this combined Prospectus may possibly subject all Funds to a certain amount
of liability for any losses arising out of any statement or omission in this
prospectus regarding a particular Fund. In the opinion of the Funds' management,
however, the risk of such liability is not materially increased by the use of a
combined prospectus.
44
<PAGE>
[LOGO]
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
William E. Frenzel
John E. Hulse
Sidney L. Jones
Donald W. Phillips
Director Emeritus:
Melvin C. Bahle
Officers:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Mary K. Stern, CFA President
Roger J. Sit Senior 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
John K. Butler, 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
45
<PAGE>
[LOGO] SIT MUTUAL FUNDS
4600 Norwest Center - Minneapolis, MN 55402
www.sitfunds.com * e-mail: [email protected]
612-334-5888 or 800-332-5580
Additional facts about each Fund is contained in a Statement of Additional
Information (dated November 1, 1998) which has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. In addition,
further information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. The Statement of Additional
Information and the Funds' annual and semi-annual reports are available, without
charge, upon request from the Funds.
Information about the Funds is available at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C., and information on the
operation of the public reference room may be obtained by calling the Commission
at 1-800-SEC-0330. Reports and other information about the Funds are available
on the Commission's Internet Web site at http:\\www.sec.gov, and copies of this
information may be obtained, for a fee, by writing the Public Reference Section
of the Commission, Washington, D.C. 20549-6009.
ADDRESS AND TELEPHONE REFERENCE
REGULAR MAIL EXPRESS OR CERTIFIED MAIL
Sit Mutual Funds Sit Mutual Funds
P. 0. Box 5166 4400 Computer Drive
Westboro, MA 01581-5166 Westboro, MA 01581
SIT INVESTOR SERVICES
To speak with an Investor Services Representative:
1-800-332-5580 or 612-334-5888
SIT WEB SITE SIT E-MAIL ADDRESS
www.sitfunds.com [email protected]
WIRE INSTRUCTIONS
To wire money for a purchase:
Boston Safe Deposit & Trust, Boston, MA
ABA #011001234
DDA #056146
Sit Mutual Funds
For Further Credit: (Shareholder name)
Account Number: (Shareholder account number)
Investment Company Act of 1940 File Nos. 811-03342; 811-03343; 811-06373
<PAGE>
PROSPECTUS STOCK FUNDS
NOVEMBER 1, 1998
INVESTMENT ADVISER
SIT INVESTMENT ASSOCIATES, INC.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
DISTRIBUTOR
SIA SECURITIES CORP.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
CUSTODIAN
THE NORTHERN TRUST COMPANY
50 SOUTH LASALLE STREET
CHICAGO, IL 60675
TRANSFER AGENT AND DISBURSING AGENT
FIRST DATA INVESTOR SERVICES
P.O. BOX 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
INVESTMENT SUB-ADVISER
(DEVELOPING MARKETS GROWTH FUND AND
INTERNATIONAL GROWTH FUND)
SIT/KIM INTERNATIONAL INVESTMENT ASSOCIATES, INC.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
MEMBER OF
===================
100% NO-LOAD
MUTUAL FUND
COUNCIL
===================
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
SIT LARGE CAP GROWTH FUND, INC.
SIT MID CAP GROWTH FUND, INC.
SIT SMALL CAP GROWTH FUND
SIT REGIONAL GROWTH FUND
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
SIT BALANCED FUND
SIT INTERNATIONAL GROWTH FUND
SIT DEVELOPING MARKETS GROWTH FUND
4600 Norwest Center, 90 S. 7th Street
Minneapolis, Minnesota 55402-4130
www.sitfunds.com; e-mail: [email protected]
612-334-5888 -- 800-332-5580
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Funds' prospectus which may be obtained from the Funds
without charge by contacting the Funds at 4600 Norwest Center, 90 S.7th Street,
Minneapolis, Minnesota 55402-4130. Telephone: (612) 334-5888 or (800) 332-5580.
The date of this Statement of Additional Information is November 1, 1998, and it
is to be used with the Funds' prospectus dated November 1, 1998.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
----
ADDITIONAL INVESTMENT RESTRICTIONS
Large Cap Growth Fund................................................. 2
Mid Cap Growth Fund................................................... 2
Small Cap Growth Fund................................................. 3
Regional Growth Fund.................................................. 4
Science and Technology Growth Fund.................................... 4
Balanced Fund......................................................... 5
International Growth Fund............................................. 6
Developing Markets Growth Fund........................................ 6
DIVERSIFICATION............................................................ 7
SECURITIES IN WHICH THE BALANCED FUND MIGHT INVEST......................... 8
SECURITIES IN WHICH THE INTERNATIONAL GROWTH FUND MIGHT INVEST............. 10
SECURITIES IN WHICH THE DEVELOPING MARKETS GROWTH FUND MIGHT INVEST........ 11
INTERNATIONAL RISK CONSIDERATIONS.......................................... 11
COMMON INVESTMENTS......................................................... 12
REDEMPTION-IN-KIND PAYMENT................................................. 19
COMPUTATION OF NET ASSET VALUE............................................. 19
CALCULATION OF PERFORMANCE DATA............................................ 20
MANAGEMENT................................................................. 20
INVESTMENT ADVISER......................................................... 22
DISTRIBUTOR................................................................ 25
BROKERAGE.................................................................. 26
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES........................ 28
TAXES...................................................................... 29
FINANCIAL STATEMENTS....................................................... 30
OTHER INFORMATION.......................................................... 30
LIMITATION OF DIRECTOR LIABILITY........................................... 32
APPENDIX A - BOND AND COMMERCIAL PAPER RATINGS............................. 34
<PAGE>
ADDITIONAL INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment objectives, policies and restrictions of the Funds are set forth
in the Prospectus. Certain additional investment information is set forth below.
All capitalized terms not defined herein have the same meanings as set forth in
the Prospectus. In addition to the restrictions in the prospectus, each Fund is
subject to other restrictions which are fundamental and may not be changed
without shareholder approval. Shareholder approval, as defined in the Investment
Company Act of 1940, means the lesser of the vote of (a) 67% of the shares of a
Fund at a meeting where more than 50% of the outstanding shares of the Fund are
present in person or by proxy or (b) more than 50% of the outstanding shares of
a Fund. A percentage limitation must be met at the time of investment and a
later deviation resulting from a change in values or net assets will not be a
violation.
LARGE CAP GROWTH FUND AND MID CAP GROWTH FUND
- --------------------------------------------------------------------------------
The Large Cap Growth Fund and Mid Cap Growth Fund are subject to the following
fundamental investment restrictions. The Funds will not:
1. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government or its agencies or instrumentalities), if as a
result, more than 5% of the Fund's net assets would be invested in
securities of that issuer. This restriction is limited to 75% of the Fund's
net assets;
2. Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. All debt securities and all preferred stocks are each
considered as one class. This restriction is limited to 75% of the Fund's
net assets;
3. Invest more than 10% of the Fund's net assets in securities of companies
which have (with their predecessors) a record of less than five years
continuous operation;
4. Make loans except by (a) purchasing publicly distributed debt securities
such as bonds, debentures and similar securities in which the Fund may
invest consistent with its investment policies, and (b) by lending its
portfolio securities to broker-dealers, banks and other institutions in an
amount not to exceed 33-1/3% of its total net assets if such loans are
secured by collateral equal to 100% of the value of the securities lent
5. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33-1/3%
of the Fund's total net assets.
6. Invest more than 5% of the Fund's net assets in warrants (valued at lower
of cost or market) including a maximum of 2% which are not listed on the
New York or American Stock Exchanges. For this purpose, warrants acquired
by the Fund in units or attached to other securities will be deemed to be
without value;
7. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions;
8. Concentrate more than 25% of its net assets in any one industry, provided
that (i) there shall be no limitation on the purchase of obligations issued
or guaranteed by the U.S. government, its agencies or instrumentalities and
(ii) utility companies will be classified according to their services, for
example, water, gas, electric and communications, and each will be
considered a separate industry;
9. Purchase or retain the securities of any issuer if, in total, the holdings
of all officers and directors of the Fund and of its investment adviser,
who individually own beneficially more than 0.5% of such securities,
together own more than 5% of such securities;
10. Invest for the purpose of controlling management of any company;
11. Invest in commodities or commodity futures contracts or in real estate,
although it may invest in securities which are secured by interests in real
estate and in securities of companies which invest or deal in real estate;
12. Invest in exploration or development for oil, gas or other minerals
although it may invest in the securities of issuers which deal in or
sponsor such activities;
13. Underwrite the securities of other issuers;
14. Issue senior securities as defined in the Investment Company Act of 1940,
except for borrowing as permitted in restriction number 5; or
15. Invest more than 15% of its net assets collectively in all types of
illiquid securities.
The following investment restrictions of the Funds are not fundamental and may
be changed by the Board of Directors of the Funds. The Funds will not:
1. Engage in arbitrage transactions or write unsecured put options but may
write fully covered call options;
2
<PAGE>
2. Purchase put and call options provided that the aggregate premiums paid for
all such options exceed 5% of the Fund's net assets;
3. Pledge, mortgage, hypothecate, or otherwise encumber the Fund's assets
except to the extent necessary to secure permitted borrowings; or
4. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission.
SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
The Fund is subject to the following fundamental investment restrictions. The
Fund will not:
1. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government or its agencies or instrumentalities), if as a
result, more than 5% of the Fund's net assets would be invested in
securities of that issuer. This restriction is limited to 75% of the Fund's
net assets;
2. Purchase or sell commodities or commodity futures, provided that this
restriction does not apply to financial futures contracts or options
thereon;
3. Invest in real estate (including real estate limited partnerships),
although it may invest in securities which are secured by or represent
interests in real estate;
4. Make loans except by (a) purchasing publicly distributed debt securities
such as bonds, debentures and similar securities in which the Fund may
invest consistent with its investment policies, and (b) by lending its
portfolio securities to broker-dealers, banks and other institutions in an
amount not to exceed 33-1/3% of its total net assets if such loans are
secured by collateral equal to 100% of the value of the securities lent;
5. Underwrite the securities of other issuers;
6. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33 1/3%
of the Fund's total net assets;
7. Invest in exploration or development for oil, gas or other minerals
(including mineral leases), although it may invest in the securities of
issuers which deal in or sponsor such activities; or
8. Issue senior securities as defined in the Investment Company Act of 1940,
except for borrowing as permitted in restriction number 6.
The following investment restrictions of the Fund are not fundamental. The Fund
will not:
1. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions and it may make margin
deposits in connection with futures contracts;
2. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission.
3. Purchase or retain securities of any issuer if to the knowledge of the
Fund, officers and directors of either the Fund or its investment adviser
beneficially owning more than 0.5% of such securities together own more
than 5% of such securities;
4. Invest more than 10% of its net assets in securities of issuers which, with
their predecessors have a record of less than three years continuous
operation. Securities of such issuers will not be deemed to fall within
this limitation if they are guaranteed by an entity in continuous operation
for more than three years;
5. Invest for the purpose of exercising control or management;
6. Enter into reverse repurchase agreements;
7. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
8. Invest in more than 10% of the outstanding voting securities of any one
issuer;
9. Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. All debt securities and all preferred stocks are each
considered as one class. This restriction is limited to 75% of the Fund's
net assets;
3
<PAGE>
10. Invest more than 5% of the Fund's net assets in warrants (valued at lower
of cost or market) including a maximum of 2% which are not listed on the
New York or American Stock Exchanges. For this purpose, warrants acquired
by the Fund in units or attached to other securities will be deemed to be
without value;
11. Pledge, mortgage, hypothecate or otherwise encumber the Fund's assets
except to the extent necessary to secure permitted borrowings;
12. Engage in arbitrage transactions or write unsecured put options but may
write fully covered call options; or
13. Purchase put and call options provided that the aggregate premiums paid for
all such options exceed 5% of the Fund's net assets.
REGIONAL GROWTH FUND AND SCIENCE AND TECHNOLOGY GROWTH FUND
- --------------------------------------------------------------------------------
The Funds are subject to the following fundamental investment restrictions. The
Funds will not:
1. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government or its agencies or instrumentalities), if as a
result, more than 5% of the Fund's net assets would be invested in
securities of that issuer. This restriction is limited to 75% of the Fund's
net assets;
2. Purchase or sell commodities or commodity futures, provided that this
restriction does not apply to financial futures contracts or options
thereon;
3. Invest in real estate (including real estate limited partnerships),
although it may invest in securities which are secured by or represent
interests in real estate;
4. Make loans except by (a) purchasing publicly distributed debt securities
such as bonds, debentures and similar securities in which the Fund may
invest consistent with its investment policies, and (b) by lending its
portfolio securities to broker-dealers, banks and other institutions in an
amount not to exceed 33-1/3% of its total net assets if such loans are
secured by collateral equal to 100% of the value of the securities lent;
5. Underwrite the securities of other issuers;
6. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments, and not in excess of 33 1/3%
of the Fund's total net assets;
7. Invest in exploration or development for oil, gas or other minerals
(including mineral leases), although it may invest in the securities of
issuers which deal in or sponsor such activities; or
8. Issue senior securities as defined in the Investment Company Act of 1940,
except for borrowing as permitted in restriction number 6.
The following investment restrictions of the Funds are not fundamental. The
Funds will not:
1. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions and it may make margin
deposits in connection with futures contracts;
2. Invest for the purpose of exercising control or management;
3. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
4. Invest in more than 10% of the outstanding voting securities of any one
issuer;
5. Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. All debt securities and all preferred stocks are each
considered as one class. This restriction is limited to 75% of the Fund's
net assets;
6. Pledge, mortgage, hypothecate or otherwise encumber either Fund's assets
except to the extent necessary to secure the permitted borrowings;
7. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission;
8. Engage in arbitrage transactions or write unsecured put options but may
write fully covered call options; or
9. Purchase put and call options provided that the aggregate premiums paid for
all such options exceed 5% of the Fund's net assets.
4
<PAGE>
BALANCED FUND
- --------------------------------------------------------------------------------
The Fund is subject to the following fundamental investment restrictions. The
Fund will not:
1. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government or its agencies or instrumentalities), if as a
result, more than 5% of the Fund's net assets would be invested in
securities of that issuer. This restriction is limited to 75% of the Fund's
net assets;
2. Purchase or sell commodities or commodity futures, provided that this
restrictions does not apply to financial futures contracts or options
thereon;
3. Invest in real estate (including real estate limited partnerships),
although it may invest in securities which are secured by or represent
interests in real estate;
4. Make loans except by (a) purchasing publicly distributed debt securities
such as bonds, debentures and similar securities in which the Fund may
invest consistent with its investment policies, and (b) by lending its
portfolio securities to broker-dealers, banks and other institutions in an
amount not to exceed 33-1/3% of its total net assets if such loans are
secured by collateral equal to 100% of the value of the securities lent;
5. Underwrite the securities of other issuers;
6. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33 1/3%
of the Fund's total net assets;
7. Invest in exploration or development for oil, gas or other minerals
(including mineral leases), although it may invest in the securities of
issuers which deal in or sponsor such activities; or
8. Issue senior securities as defined in the Investment Company Act of 1940,
except for borrowing as permitted in restriction number 6.
The following investment restrictions of the Fund are not fundamental. The Fund
will not:
1. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions and it may make margin
deposits in connection with futures contracts;
2. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission;
3. Purchase or retain securities of any issuer if to the knowledge of the
Fund, officers and directors of either the Fund its investment adviser
beneficially owning more than 0.5% of such securities together own more
than 5% of such securities;
4. Invest more than 10% of its net assets in securities of issuers which, with
their predecessors have a record of less than three years continuous
operation. Securities of such issuers will not be deemed to fall within
this limitation if they are guaranteed by an entity in continuous operation
for more than three years;
5. Invest for the purpose of exercising control or management;
6. Enter into reverse repurchase agreements;
7. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
8. Invest in more than 10% of the outstanding voting securities of any one
issuer;
9. Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. All debt securities and all preferred stocks are each
considered as one class. This restriction is limited to 75% of the Fund's
net assets;
10. Invest more than 5% of the Fund's net assets in warrants (valued at lower
of cost or market) including a maximum of 2% which are not listed on the
New York or American Stock Exchanges. For this purpose, warrants acquired
by the Fund in units or attached to other securities will be deemed to be
without value;
11. Pledge, mortgage, hypothecate or otherwise encumber the Fund's assets
except to the extent necessary to secure permitted borrowings;
12 Engage in arbitrage transactions or write unsecured put options but may
write fully covered call options; or
13. Purchase put and call options provided that the aggregate premiums paid for
all such options exceed 10% of the Fund's total assets.
5
<PAGE>
INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
The Fund is subject to the following fundamental investment restrictions. The
Fund will not:
1. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government or its agencies or instrumentalities), if as a
result, more than 5% of the Fund's net assets would be invested in
securities of that issuer. This restriction is limited to 75% of the Fund's
net assets;
2. Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. All debt securities and all preferred stocks are each
considered as one class. This restriction is limited to 75% of the Fund's
net assets;
3. Invest more than 5% of the Fund's net assets in securities of companies
which have (with their predecessors) a record of less than three years
continuous operation;
4. Make loans except by (a) purchasing publicly distributed debt securities
such as bonds, debentures and similar securities in which the Fund may
invest consistent with its investment policies, and (b) by lending its
portfolio securities to broker-dealers, banks and other institutions in an
amount not to exceed 33-1/3% of its total net assets if such loans are
secured by collateral equal to 100% of the value of the securities lent;
5. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33 1/3%
of the Fund's total net assets;
6. Invest more than 5% of the Fund's net assets in warrants (valued at lower
of cost or market) including a maximum of 2% which are not listed on the
New York Stock Exchange, American Stock Exchange or a recognized foreign
exchange. For this purpose, warrants acquired by the Fund in units or
attached to other securities will be deemed to be without value;
7. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions;
8. Concentrate more than 25% of its net assets in any one industry, provided
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
9. Purchase or retain the securities of any issuer if, to the Fund's
knowledge, those holdings of all officers and directors of the Fund or its
affiliates, who individually own beneficially more than 0.5% of such
securities, together own more than 5% of such securities;
10. Invest for the purpose of controlling management of any company;
11. Invest in commodities or commodity futures contracts provided; however,
that the entering into of a foreign currency contract shall not be
prohibited by this restriction;
12. Invest in real estate or limited partnerships with assets invested in real
estate, although the Fund may invest in securities which are secured by
interests in real estate and in securities of companies which invest or
deal in real estate;
13. Invest in exploration or development for oil, gas or other minerals,
although it may invest in the securities of issuers which deal in or
sponsor such activities;
14. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
15. Underwrite the securities of other issuers;
16. Modify the Fund's investment objective; or
17. Issue senior securities as defined in the Investment Company Act of 1940,
except for borrowing as permitted in restriction number 5.
The following investment restrictions of the Fund are not fundamental. The Fund
will not:
1. Pledge, mortgage, hypothecate or otherwise encumber the Fund's assets in an
amount exceeding the amount of the borrowing secured thereby except to the
extent necessary to secure permitted borrowings; or
2. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission.
DEVELOPING MARKETS GROWTH FUND
- --------------------------------------------------------------------------------
The Fund is subject to the following restrictions which are fundamental. The
Fund will not:
1. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government or its agencies or instrumentalities), if as a
result, more than 5% of the Fund's net assets would be invested in
securities of that issuer. This restriction is limited to 75% of the Fund's
net assets;
6
<PAGE>
2. Purchase or sell commodities or commodity contracts, provided that this
restriction does not apply to financial futures contracts or options
thereon;
3. Invest in real estate (including real estate limited partnerships),
although it may invest in securities which are secured by or represent
interests in real estate;
4. Make loans except by (a) purchasing publicly distributed debt securities
such as bonds, debentures and similar securities in which the Fund may
invest consistent with its investment policies, and (b) by lending its
portfolio securities to broker-dealers, banks and other institutions in an
amount not to exceed 33-1/3% of its total net assets if such loans are
secured by collateral equal to 100% of the value of the securities lent;
5. Underwrite the securities of other issuers;
6. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33 1/3%
of the Fund's total net assets;
7. Invest in exploration or development for oil, gas or other minerals
(including mineral leases), although it may invest in the securities of
issuers which deal in or sponsor such activities; or
8. Issue senior securities as defined in the Investment Company Act of 1940,
except for borrowing as permitted in restriction number 6.
The following investment restrictions of the Fund are not fundamental and may be
changed by the Board of Directors of the Fund. The Fund will not:
1. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions and it may make margin
deposits in connection with futures contracts;
2. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission;
3. Purchase or retain the securities of any issuer if, to the Fund's
knowledge, those holdings of all officers and directors of the Fund or its
affiliates, who individually own beneficially more than 0.5% of such
securities, together own more than 5% of such securities;
4. Invest more than 5% of its net assets in securities of companies which have
(with their predecessors) a record of less than three years' continuous
operation;
5. Invest for the purpose of exercising control or management;
6. Invest more than 5% of the Fund's net assets in warrants (valued at lower
of cost or market) including a maximum of 2% which are not listed on the
New York Stock Exchange, American Stock Exchange or a recognized foreign
exchange. For this purpose, warrants acquired by the Fund in units or
attached to other securities will be deemed to be without value;
7. Enter into reverse repurchase agreements;
8. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
9. Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. All debt securities and all preferred stocks are
considered as one class. This restriction is limited to 75% of the Fund's
net assets; or
10. Pledge, mortgage, hypothecate or otherwise encumber the Fund's assets
except to the extent necessary to secure permitted borrowings.
DIVERSIFICATION
- --------------------------------------------------------------------------------
As a fundamental policy (in addition to the fundamental policies and
restrictions set forth in the Prospectus and this Statement of Additional
Information), each Fund intends to operate as a "diversified" management
investment company, as defined in the Investment Company Act of 1940, as
amended. A "diversified" investment company means a company which meets the
following requirements: At least 75% of the value of the company's total assets
is represented by cash and cash items (including receivables), "Government
Securities", securities of other investment companies, and other securities for
the purposes of this calculation limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the total assets of such
management company and to not more than 10% of the outstanding voting securities
of such issuer. "Government Securities" means securities issued or guaranteed as
to principal or interest by the United States, or by a person
7
<PAGE>
controlled or supervised by and acting as an instrumentality of the Government
of the United States pursuant to authority granted by the Congress of the United
States; or certificates of deposit for any of the foregoing. Additionally, as
set forth above, each of the Funds has adopted certain restrictions that are
more restrictive than the policies set forth in this paragraph.
SECURITIES IN WHICH THE BALANCED FUND MIGHT INVEST
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES
- --------------------------------------------------------------------------------
The mortgage-backed securities in which the Fund invests provide funds for
mortgage loans made to residential home buyers. These include securities which
represent interests in pools of mortgage loans made by lenders such as savings
and loan institutions, mortgage banks, commercial banks and insurance companies.
Pools of mortgage loans are assembled for sale to investors such as the Fund by
various private, governmental and government-related organizations.
Interests in pools of mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates.
Mortgage-backed securities provide monthly payments which consist of both
interest and principal payments to the investor. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer, servicer, or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs which may be incurred. Some
mortgage-backed securities, i.e., GNMA's, are described as "modified
pass-through." These securities entitle the holders to receive all interest and
principal payments owed on the mortgages in the pool, net of certain fees,
regardless of whether or not the mortgagors actually make the payments.
The principal government guarantor of mortgage-backed securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
government corporation within the Department of Housing and Urban Development.
GNMA is authorized to issue mortgage pass-through securities and guarantee, with
the full faith and credit of the U.S. government, the timely payment of
principal and interest on loans originated by approved institutions and backed
by pools of FHA-insured or VA-guaranteed mortgages.
The Federal Home Loan Mortgage Corporation ("FHLMC") also pools mortgage loans
and issues pass-through securities. FHLMC is a corporate instrumentality of the
U.S. government and was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation
Certificates ("PC's") which represent interest in mortgages from FHLMC's
national portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal, however, PC's are not backed by the full faith and
credit of the U.S. government.
The Federal National Mortgage Association ("FNMA") is a government sponsored
corporation owned entirely by private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved seller/services which include
state and federally-chartered savings and loan associations, mutual savings
banks, commercial banks and credit unions and mortgage banks. Pass-through
securities issued by FNMA are guaranteed as to timely payment of principal and
interest by FNMA, but are not backed by the full faith and credit of the U.S.
government.
The Federal Housing Administration ("FHA") was established by Congress in 1934
under the National Housing Act. A major purpose of the Act was to encourage the
flow of private capital into residential financing on a protected basis. FHA is
authorized to insure mortgage loans, primarily those related to residential
housing. FHA does not make loans and does not plan or build housing. FHA Project
Pools are pass-through securities representing undivided interests in pools of
FHA-insured multi-family project mortgage loans.
The Fund may purchase securities which are insured but not issued or guaranteed
by the U.S. government, its agencies or instrumentalities. An example of such a
security is a housing revenue bond (the interest on which is subject to federal
taxation) issued by a state and insured by an FHA mortgage loan. The Fund has
not purchased this type of security and has no current intent to do so. This
type of mortgage is insured by FHA pursuant to the provisions of Section
221(d)(4) of the
8
<PAGE>
National Housing Act of 1934, as amended. After a mortgagee files a claim for
insurance benefits, FHA will pay insurance benefits up to 100% of the unpaid
principal amount of the mortgage (generally 70% of the amount is paid within six
months of the claim and the remainder within the next six months). The risks
associated with this type of security are the same as other mortgage securities
- -- prepayment and/or redemption prior to maturity, loss of premium (if paid) if
the security is redeemed prior to maturity and fluctuation in principal value
due to an increase or decrease in interest rates.
The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, the pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayment is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. Mortgage pass-through
securities which receive regular principal payments have an average life less
than their maturity. The average life of mortgage pass-through investments will
typically vary from 1 to 18 years.
Yields on pass-through mortgage-backed securities are typically quoted based on
the maturity of the underlying instruments and the associated average life
assumption. Actual prepayment experience may cause the yield to differ from the
assumed average life yield. The compounding effect from reinvestments of monthly
payments received by the Fund will increase the yield to shareholders.
U.S. TREASURY INFLATION-PROTECTION SECURITIES
- --------------------------------------------------------------------------------
Inflation-protection securities are a new type of marketable book-entry security
issued by the United States Department of Treasury ("Treasury") with a nominal
return linked to the inflation rate in prices. Inflation-protection securities
will be auctioned and issued on a quarterly basis on the 15th of January, April,
July, and October, beginning on January 15, 1997. Initially, they will be issued
as 10-year notes, with other maturities added thereafter. The index used to
measure inflation will be the non-seasonably adjusted U.S. City Average All
Items Consumer Price Index for All Urban Consumers ("CPI-U").
The value of the principal will be adjusted for inflation, and every six months
the security will pay interest, which will be an amount equal to a fixed
percentage of the inflation-adjusted value of the principal. The final payment
of principal of the security will not be less than the original par amount of
the security at issuance.
The principal of the inflation-protection security will be indexed to the
non-seasonally adjusted CPI-U. To calculate the inflation-adjusted principal
value for a particular valuation date, the value of the principal at issuance is
multiplied by the index ratio applicable to that valuation date. The index ratio
for any date is the ratio of the reference CPI applicable to such date to the
reference CPI applicable to the original issue date. Semiannual coupon interest
is determined by multiplying the inflation-adjusted principal amount by one-half
of the stated rate of interest on each interest payment date.
Inflation-adjusted principal or the original par amount, whichever is larger,
will be paid on the maturity date as specified in the applicable offering
announcement. If at maturity the inflation-adjusted principal is less than the
original principal value of the security, an additional amount will be paid at
maturity so that the additional amount plus the inflation-adjusted principal
equals the original principal amount. Some inflation-protection securities may
be stripped into principal and interest components. In the case of a stripped
security, the holder of the stripped principal would receive this additional
amount. The final interest payment, however, will be based on the final
inflation-adjusted principal value, not the original par amount.
The reference CPI for the first day of any calendar month is the CPI-U for the
third preceding calendar month. (For example, the reference CPI for December 1
is the CPI-U reported for September of the same year, which is released in
October). The reference CPI for any other day of the month is calculated by a
linear interpolation between the reference CPI applicable to the first day of
the month and the reference CPI applicable to the first day of the following
month.
Any revisions the Bureau of Labor Statistics (or successor agency) makes to any
CPI-U number that had been previously released will not be used in calculations
of the value of outstanding inflation-protection securities. In the case that
the CPI-U for a particular month is not reported by the last day of the
following month, the Treasury will announce an index number based on the last
year-over-year CPI-U inflation rate available. Any calculations of the
Treasury's payment obligations on
9
<PAGE>
the inflation-protection security that need that month's CPI-U number will be
based on the index number that the Treasury had announced. If the CPI-U is
rebased to a different year, the Treasury will continue to use the CPI-U series
based on the base reference period in effect when the security was first issued
as long as that series continues to be published. If the CPI-U is discontinued
during the period the inflation-protection security is outstanding, the Treasury
will, in consultation with the Bureau of Labor Statistics (or successor agency),
determine an appropriate substitute index and methodology for linking the
discontinued series with the new price index series. Determinations of the
Secretary of the Treasury in the regard are final.
Inflation-protection securities will be held and transferred in either of two
book-entry systems: the commercial book-entry system (TRADES) and TREASURY
DIRECT. The securities will be maintained and transferred at their original par
amount, i.e., not at their inflation-adjusted value. STRIPS components will be
maintained and transferred in TRADES at their value based on the original par
amount of the fully constituted security.
OTHER ASSET-BACKED SECURITIES
- --------------------------------------------------------------------------------
The Fund may invest in asset-backed securities that are backed by consumer
credit such as automobile receivables, consumer credit card receivables, and
home equity loans.
MUNICIPAL SECURITIES
- --------------------------------------------------------------------------------
Municipal securities in which the Fund may invest include securities that are
issued by states, territories and possessions of the United States and the
District of Columbia and their agencies, instrumentalities and political
subdivisions. Tax-exempt municipal securities include municipal bonds, municipal
notes and municipal commercial paper. MUNICIPAL BONDS generally have maturities
at the time of issuance ranging from one to thirty years, or more. MUNICIPAL
NOTES are short-term and generally mature in three months to three years.
MUNICIPAL COMMERCIAL PAPER matures in one year or less.
The yields on municipal securities are dependent on a variety of factors,
including the general level of interest rates, the financial condition of the
issuer, general conditions of the tax-exempt securities market, the size of the
issue, the maturity of the obligation and the rating of the issue. Ratings are
general, and not absolute, standards of quality. Consequently, securities of the
same maturity, interest rate and rating may have different yields, while
securities of the same maturity and interest rate with different ratings may
have the same yield.
SECURITIES IN WHICH THE INTERNATIONAL GROWTH FUND MIGHT INVEST
- --------------------------------------------------------------------------------
The countries in which the Fund will seek investments include those listed
below. The Fund is not obligated and may not invest in all the countries listed;
moreover the Fund may invest in countries other than those listed below, when
such investments are consistent with the Fund's investment objective and
policies.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Pacific Basin: Australia Hong Kong Indonesia Japan Malaysia New Zealand
Philippines Singapore South Korea Taiwan Thailand
Europe: Austria Belgium Czech Republic Denmark Finland France
Germany Greece Hungary + Ireland Italy Luxembourg
Netherlands Norway Poland Portugal Spain Sweden
Switzerland United Kingdom
Other: Argentina Brazil Canada Chile India Mexico
Peru Turkey Venezuela Israel
</TABLE>
+ Indicates countries in which the Fund effectively may invest primarily
through investment funds. Such investments are subject to the provisions of
the Investment Company Act of 1940 relating to the purchase of securities
of investment companies. See "Investment Restrictions".
Under exceptional economic or market conditions abroad, the Fund may temporarily
invest all or a major portion of its assets in United States government
obligations or high grade debt obligations of companies incorporated in or
having their principal activities in the United States.
In certain countries, governmental restrictions and other limitations on
investment may affect the maximum percentage of equity ownership in any one
company. In addition, in some instances only special classes of securities may
be purchased by foreigners, and the market prices, liquidity, and rights with
respect to those securities may vary from shares owned by
10
<PAGE>
nationals. The Adviser and Sub-Adviser are not aware at this time of the
existence of any investment or exchange control regulations which might
substantially impair the operations of the Fund as described in the Prospectus
and this Statement of Additional Information. Although restrictions may in the
future make it undesirable to invest in certain countries, the Adviser and
Sub-Adviser do not believe that any current repatriation restrictions would
affect its decisions to invest in the countries eligible for investment by the
Fund. It should be noted, however, that this situation could change at any time.
The Fund has no intention of making any significant investment in any country or
stock market where the political or economic situation might be considered by
the Sub-Adviser to be at risk of substantial or total loss because of such
political or economic situation.
SECURITIES IN WHICH THE DEVELOPING MARKETS GROWTH FUND MIGHT INVEST
- --------------------------------------------------------------------------------
The Fund defines "developing markets" as those countries determined by the
Sub-Adviser (see "Investment Adviser") to have developing or emerging markets or
economies. Such countries will generally be defined as "emerging stock markets"
by the International Finance Corporation, demonstrate low- to middle-income
economies according to the International Bank for Reconstruction and Development
(the World Bank), or be listed in World Bank publications as developing.
Countries currently not considered as having "developing markets" presently
include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden,
Switzerland, the United Kingdom, and the United States.
The countries in which the Fund may seek to invest include those listed below
and, unless otherwise prohibited herein, the countries listed as potential
investments for the International Growth Fund as well. The Fund is not obligated
and may not invest in all the countries listed; moreover the Fund may invest in
countries other than those listed below, when such investments are consistent
with the Fund's investment objectives and policies. The Fund will also not seek
to diversify investments among geographic regions or levels of economic
development in any particular country.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Pacific Basin: Bangladesh China Hong Kong India Indonesia Malaysia
Pakistan Philippines Singapore South Korea Sri Lanka Taiwan
Thailand Vietnam +
Europe: Czech Rep. Greece Hungary + Poland Portugal
Latin America: Argentina Barbados Belize Bolivia Brazil Chile
Colombia Costa Rica Ecuador Jamaica Mexico Panama
Paraguay Peru Trinidad & Tobago Uruguay Venezuela
Africa: Botswana Egypt Ghana + Ivory Coast + Kenya + Mauritius +
Morocco Namibia + Nigeria South Africa Swaziland + Tunisia
Zimbabwe
Other: Bermuda Cyprus + Israel Jordan Kuwait + Russia
Turkey
</TABLE>
+ Indicates countries in which the Fund effectively may invest primarily
through investment funds. Such investments are subject to the provisions of
the Investment Company Act of 1940 relating to the purchase of securities
of investment companies. See "Additional Investment Restrictions".
Investments in companies domiciled in developing market countries may be subject
to potentially higher risks than investments in developed countries. See
discussion of International Risks Considerations below.
INTERNATIONAL RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
Investors should consider carefully the substantial risks involved in securities
of companies and governments of foreign nations, which are in addition to the
usual risks inherent in domestic investments. There may be less publicly
available information about foreign companies comparable to the reports and
ratings published regarding companies in the United States. Foreign companies
are not generally subject to uniform accounting, auditing and financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to United States companies. Many foreign
11
<PAGE>
markets have substantially less volume than either the established domestic
securities exchanges or the OTC markets. Securities of some foreign companies
are less liquid and more volatile than securities of comparable United States
companies. Commission rates in foreign countries, which may be fixed rather than
subject to negotiation as in the United States, are likely to be higher. In many
foreign countries there is less government supervision and regulation of
securities exchanges, brokers and listed companies than in the United States and
capital requirements for brokerage firms are generally lower. Settlement of
transactions in foreign securities may, in some instances, be subject to delays
and related administrative uncertainties.
Investments in companies domiciled in developing market countries may be subject
to potentially higher risks than investments in developed countries. These risks
include (i) volatile social, political and economic conditions; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) the existence of national policies which may
restrict the Funds' investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interests; (iv)
foreign taxation; (v) the absence of developed structures governing private or
foreign investment or allowing for judicial redress for injury to private
property; (vi) the absence, until recently in certain developing market
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in certain
developing market countries may be slowed or reversed by unanticipated political
or social events in such countries.
The Funds endeavor to buy and sell foreign currencies on favorable terms. Some
price spread on currency exchange (to cover service charges) may be incurred,
particularly when the Funds change investments from one country to another or
when proceeds for the sale of shares in U.S. dollars are used for the purchase
of securities in foreign countries. Also, some countries may adopt policies
which would prevent the Funds from repatriating invested capital and dividends,
withhold portions of interest and dividends at the source, or impose other
taxes, with respect to the Funds' investments in securities of issuers of that
country. There also is the possibility of expropriation, nationalization,
confiscatory or other taxation, foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country), default in
foreign government securities, political or social instability, or diplomatic
developments that could adversely affect investments in securities of issuers in
those nations.
The Funds may be affected either favorably or unfavorably by fluctuations in the
relative rates of exchange between the currencies of different nations, exchange
control regulations and indigenous economic and political developments.
While transactions in forward currency contracts, options, futures contracts and
options on futures contracts (i.e., "hedging positions") may reduce certain
risks, such transactions themselves entail certain other risks. Thus, while the
Funds may benefit from the use of hedging positions, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance for the Funds than if they had not entered into any
hedging positions. In the event of an imperfect correlation between a hedging
position and portfolio position which is intended to be protected, the desired
protection may not be obtained and the Funds may be exposed to risk of financial
loss.
Perfect correlation between the Funds' hedging positions and portfolio positions
may be difficult to achieve because hedging instruments in most developing
market countries are not yet available. In addition, it is not possible to hedge
fully or perfectly against currency fluctuations affecting the value of
securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
COMMON INVESTMENTS
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SECURITIES LENDING
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The lending of portfolio securities to broker-dealers, banks, and other
institutions may increase the average annual return to shareholders. Lending of
portfolio securities also involves certain risks to a Fund. As with other
extensions of credit, there are risks of delay in recovery of loaned securities,
or even loss of rights in collateral pledged by the borrower, should the
borrower fail financially. However, the Funds will only enter into loan
agreements with broker-dealers, banks, and other institutions which the Adviser
has determined are creditworthy. The Funds may also experience a loss if, upon
the failure of a borrower to return loaned securities, the collateral is not
sufficient in value or liquidity to cover the value of such loaned securities
(including accrued interest thereon). However, the borrower will be required to
pledge collateral which the custodian for a Fund's portfolio securities will
take into possession before any securities are loaned. Additionally, the
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borrower may pledge only cash, securities issued or guaranteed by the U.S.
Government or its agencies and instrumentalities, certificate of deposit or
other high-grade, short-term obligations or interest-bearing cash equivalents as
collateral. There will be a daily procedure to ensure that the pledged
collateral is equal in value to at least 100% of the value of the securities
loaned. Under such procedure, the value of the collateral pledged by the
borrower as of any particular business day will be determined on the next
succeeding business day. If such value is less than 100% of the value of the
securities loaned, the borrower will be required to pledge additional
collateral. The risks of borrower default (and the resultant risk of loss to a
Fund) also are reduced by lending only securities for which a ready market
exists. This will reduce the risk that the borrower will not be able to return
such securities due to its inability to cover its obligation by purchasing such
securities on the open market.
To the extent that collateral is comprised of cash, a Fund will be able to
invest such collateral only in securities issued or guaranteed by the U.S.
Government or its agencies and instrumentalities and in certificates of deposit
or other high-grade, short-term obligations or interest-bearing cash
equivalents. If a Fund invests cash collateral in such securities, the Fund
could experience a loss if the value of such securities declines below the value
of the cash collateral pledged to secure the loaned securities. The amount of
such loss would be the difference between the value of the collateral pledged by
the borrower and the value of the securities in which the pledged collateral was
invested.
Although there can be no assurance that the risks described above will not
adversely affect a Fund, the Adviser believes that the potential benefits that
may accrue to a Fund as a consequence of securities lending will outweigh any
such increase in risk.
OBLIGATIONS OF, OR GUARANTEED BY, THE UNITED STATES GOVERNMENT, ITS AGENCIES
OR INSTRUMENTALITIES
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Securities issued or guaranteed by the United States include a variety of
Treasury securities, which differ only in their interest rates, maturities and
dates of issuance. Treasury bills have a maturity of one year or less. Treasury
notes have maturities of one to ten years and Treasury bonds generally have
maturities of greater than ten years at the date of issuance.
Securities issued and or guaranteed by agencies of the U.S. government and
various instrumentalities which have been established or sponsored by the U.S.
government may or may not be backed by the "full faith and credit" of the United
States. In the case of securities not backed by the full faith and credit of the
United States, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitment.
Some of the government agencies which issue or guarantee securities are the
Department of Housing and Urban Development, the Department of Health and Human
Services, the Government National Mortgage Association, the Farmers Home
Administration, the Department of Transportation, the Department of Defense and
the Department of Commerce. Instrumentalities which issue or guarantee
securities include the Export-Import Bank, the Federal Farm Credit System,
Federal Land Banks, the Federal Intermediate Credit Bank, the Bank for
Cooperatives, Federal Home Loan Banks, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation.
OBLIGATIONS OF BANKS
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Bank money instruments in which the Funds may invest include certificates of
deposit, including variable rate certificates of deposit, bankers' acceptances
and time deposits. "Bank" includes commercial banks, savings banks and savings
and loan associations. Certificates of deposit are generally short-term,
interest-bearing negotiable certificates issued by commercial banks or savings
and loan associations against funds deposited in the issuing institution.
Variable rate certificates of deposit are certificates of deposit on which the
interest rate is periodically adjusted prior to their stated maturity, usually
at 30, 90 or 180 day intervals ("coupon dates"), based upon a specified market
rate, which is tied to the then prevailing certificate of deposit rate, with
some premium paid because of the longer final maturity date of the variable rate
certificate of deposit. As a result of these adjustments, the interest rate on
these obligations may be increased or decreased periodically. Variable rate
certificates of deposit normally carry a higher interest rate than fixed rate
certificates of deposit with shorter maturities, because the bank issuing the
variable rate certificate of deposit pays the investor a premium as the bank has
the use of the investor's money for a longer period of time. Variable rate
certificates of deposit can be sold in the secondary market. In addition,
frequently banks or dealers sell variable rate certificates of deposit and
simultaneously agree, either formally or informally, to repurchase such
certificates, at the option of the purchaser of the certificate, at par on the
coupon dates. In
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connection with the Fund's purchase of variable rate certifies of deposit, it
may enter into formal or informal agreements with banks or dealers allowing the
Fund to resell the certificates to the bank or dealer, at the Fund's option. If
the agreement to repurchase is informal, there can be no assurance that the Fund
would always be able to resell such certificates. Before entering into any such
transactions governed by formal agreements, however, the Fund will comply with
the provisions of SEC Release 10666 which generally provides that the repurchase
agreement must be fully collateralized. With respect to variable rate
certificates of deposit maturing in 180 days or less from the time of purchase
with interest rates adjusted on a monthly cycle, the Fund uses the period
remaining until the next rate adjustment date for purposes of determining the
average weighted maturity of its portfolio. With respect to all variable rate
instruments not meeting the foregoing criteria, the Fund uses the remaining
period to maturity for purposes of determining the average weighted maturity of
its portfolio until such time as the Securities and Exchange Commission has
determined otherwise.
A banker's acceptance is a time draft drawn on a commercial bank by a borrower
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). The borrower is liable for
payment as well as the bank, which unconditionally guarantees to pay the draft
at its face amount on the maturity date. Most acceptances have maturities of six
months or less and are traded in secondary markets prior to maturity.
Both domestic banks and foreign branches of domestic banks are subject to
extensive, but different, governmental regulations which may limit both the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of financing
lending operations under prevailing short-term debt conditions. General economic
conditions, as well as exposure to credit losses arising from possible financial
difficulties of borrowers, also play an important part in the operations of the
banking industry.
As a result of federal and state laws and regulations, domestic banks are, among
other things, generally required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and are subject
to other regulations designed to promote financial soundness. Since the
portfolio may contain securities of foreign banks and foreign branches of
domestic banks, the Fund may be subject to additional investment risks that are
different in some respects from those incurred by a fund that invests only in
debt obligations of domestic banks.
The Fund only purchases certificates of deposit from savings and loan
institutions which are members of the Federal Home Loan Bank and are insured by
the Federal Savings and Loan Insurance Corporation. Such savings and loan
associations are subject to regulation and examination. Unlike most savings
accounts, certificates of deposit held by the Fund do not benefit materially
from insurance either from the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation. Certificates of deposit of
foreign branches of domestic banks are not covered by such insurance and
certificates of deposit of domestic banks purchased by the Fund are generally in
denominations far in excess of the dollar limitations on insurance coverage.
INTERNATIONAL BANK OBLIGATIONS
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For the purposes of the Developing Markets Growth Fund's and International
Growth Fund's investment policies with respect to bank obligations, obligations
of foreign branches of U.S. banks and of foreign banks may be obligations of the
parent bank in addition to the issuing bank, or may be limited by the terms of a
specific obligation and by government regulation. As with investment in non-U.S.
securities in general, investments in the obligations of foreign branches of
U.S. banks and of foreign banks may subject the Funds to investment risks that
are different in some respects from those of investments in obligations of
domestic issuers. Although the Funds will typically acquire obligations issued
and supported by the credit of U.S. or foreign banks having total assets at the
time of purchase in excess of $1 billion, this $1 billion figure is not a
fundamental investment policy or restriction of the Fund. For the purposes of
calculation with respect to the $1 billion figure, the assets of a bank will be
deemed to include the assets of its U.S. and non-U.S. branches.
DEPOSITORY RECEIPTS
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The Funds may hold securities of foreign issuers in the form of American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Government
Depository Receipts ("GDRs") and other similar global instruments available in
developing markets, or other securities convertible into securities of eligible
issuers. These securities may not necessarily be
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denominated in the same currency as the securities for which they may be
exchanged. Generally, ADRs in registered form are designed for use in United
States securities markets, and EDRs and other similar global instruments in
bearer form are designed for use in European securities markets. For purposes of
the Fund's investment policies, the Fund's investment in ADRs, EDRs, and similar
instruments will be deemed to be investments in the equity securities
representing securities of foreign issuers into which they may be converted.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
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The Developing Markets Growth Fund and International Growth Fund may enter into
forward currency contracts to attempt to minimize the risk to the Funds from
adverse changes in the relationship between the U.S. dollar and foreign
currencies. A forward currency contract is an obligation to purchase or sell a
specific currency for an agreed upon price at a future date which is
individually negotiated and privately traded by currency traders and their
customers. The Funds may enter into a forward currency contract, for example,
when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency or is expecting a dividend or interest payment
in order to "lock in" the U.S. dollar price of the security or dividend or
interest payment. In addition, when the Funds believe that a foreign currency or
currencies may suffer a substantial decline against the U.S. dollar, it may
enter into a forward currency contract to sell an amount of a foreign currency
approximating the value of some or all of the Funds' portfolio securities
denominated in such foreign currency or related currencies that the Adviser
feels demonstrate correlation in exchange rate movements (such a practice is
called "crosshedging"), or when the Funds believe that the U.S. dollar may
suffer a substantial decline against a foreign currency or currencies, it may
enter into a forward contract to buy a foreign currency for a fixed dollar
amount. In connection with the Funds' forward contract transactions, an amount
of the Funds' assets equal to the amount of the Fund's commitment will be held
aside or segregated to be used to pay for the commitment. Accordingly, the Funds
will always have cash, cash equivalents or high quality debt securities
denominated in the appropriate currency available in an amount sufficient to
cover any commitments under these contracts. Segregated assets used to cover
forward currency contracts will be marked to market on a daily basis. While
these contracts are not presently regulated by the Commodity Futures Trading
Commission ("CFTC"), the CFTC may in the future regulate forward currency
contracts. In such event, the Funds' ability to utilize forward currency
contracts in the manner set forth above may be restricted. Forward currency
contracts may limit potential gain from a positive change in the relationship
between the U.S. dollar and foreign currencies. Unanticipated changes in
currency prices may result in poorer overall performance by the Funds than if it
had not engaged in such contracts. The Funds will generally not enter into a
forward foreign currency exchange contract with a term greater than one year.
COMMERCIAL PAPER
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Short-term debt instruments purchased by the Funds consist of commercial paper
(including variable amount master demand notes), which refers to short-term,
unsecured promissory notes issued by corporations to finance short-term credit
needs. Commercial paper is usually sold on a discount basis and has a maturity
at the time of issuance not exceeding nine months. Variable amount master demand
notes are demand obligations that permit the investment of fluctuating amounts
at varying market rates of interest pursuant to arrangements between the issuer
and a commercial bank acting as agent for the payees of such notes, whereby both
parties have the right to vary the amount of the outstanding indebtedness of the
notes.
The Balanced Fund may invest in commercial paper obligations issued by domestic
and foreign entities which, at the time of their purchase, are rated in the
highest rating category assigned by Moody's, S&P, Duff and Phelps, Inc. or Fitch
Investors Service, Inc. or, if not rated, are issued or guaranteed by companies
with an unsecured debt issue currently outstanding rated A or better by Moody's
or S&P. The Fund may also invest in participation interests in loans extended by
banks or other financial institutions to such companies, and other domestic
corporate obligations such as publicly traded bonds, debentures and notes
(including variable amount master demand notes) rated in the highest category by
the aforementioned rating services.
FUTURES CONTRACTS, OPTIONS AND OPTIONS ON FUTURES CONTRACTS
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The Balanced Fund, Developing Markets Growth Fund and International Growth Fund
may invest in interest rate futures contracts, index futures contracts and may
buy options on such contracts for the purpose of hedging its portfolio of fixed
income securities (and not for speculative purposes) against the adverse effects
of anticipated movements in interest rates. As a result of entering into futures
contracts, no more than 5% of a Fund's net assets may be committed to margin.
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The Funds may also purchase exchange traded put and call options on debt
securities up to 5% of its net assets for the purpose of hedging. A put option
(sometimes called a standby commitment) gives the purchaser of the option, in
return for a premium paid, the right to sell the underlying security at a
specified price during the term of the option. The writer of the put option
receives the premium and has the obligation to buy the underlying securities
upon exercise at the exercise price during the option period. A call option
(sometimes called a reverse standby commitment) gives the purchaser of the
option, in return for a premium, the right to buy the security underlying the
option at a specified exercise price at any time during the term of the option.
The writer of the call option receives the premium and has the obligation at the
exercise of the option, to deliver the underlying security against payment of
the exercise price during the option period. A principal risk of standby
commitments is that the writer of a commitment may default on its obligation to
repurchase or deliver the securities.
A futures contract is an agreement to purchase or deliver a debt security in the
future for a stated price on a certain date. The Funds may use interest rate
futures solely as a defense or hedge against anticipated interest rate changes
and not for speculation. The Funds presently could accomplish a similar result
to that which it hopes to achieve through the use of futures contracts by
selling debt securities with long maturities and investing in debt securities
with short maturities when interest rates are expected to increase, or
conversely, selling short-term debt securities and investing in long-term debt
securities when interest rates are expected to decline. However, because of the
liquidity that is often available in the futures market, such protection is more
likely to be achieved, perhaps at a lower cost and without changing the rate of
interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF FUTURES CONTRACTS. A futures contract sale creates an obligation
by a Fund, as seller, to deliver the type of financial instrument called for in
the contract at a specified future time for a stated price. A futures contract
purchase creates an obligation by the Fund, as purchaser, to take delivery of
the underlying financial instrument at a specified future time for a stated
price. The specific securities delivered or taken, respectively, at settlement
date, are not determined until at or near that date. The determination is made
in accordance with the rules of the exchange on which the futures contract sale
or purchase was made.
Although futures contracts by their terms call for actual delivery or acceptance
of securities, in most cases the contracts are closed out before the settlement
date without the making or taking of delivery. Closing out a futures contract
sale is effected by purchasing a futures contract for the same aggregate amount
of the specific type of financial instrument and the same delivery date. If the
price of the initial sale of the futures contract exceeds the price of the
offsetting purchase, the Fund is paid the difference and realizes a gain. If the
price of the offsetting purchase exceeds the price of the initial sale, the Fund
pays the difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the Fund entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the Fund realizes a
gain, and if the purchase price exceeds the offsetting sale price, the Fund
realizes a loss.
The Fund is required to maintain margin deposits with brokerage firms through
which it enters into futures contracts. Margin balances will be adjusted at
least weekly to reflect unrealized gains and losses on open contracts. In
addition, the Fund will pay a commission on each contract, including offsetting
transactions.
Futures contracts are traded only on commodity exchanges--known as "contract
markets"--approved for such trading by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market. The CFTC
regulates trading activity on the exchanges pursuant to the Commodity Exchange
Act. The principal exchanges are the Chicago Board of Trade, the Chicago
Mercantile Exchange and the New York Futures Exchange. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership. The staff of the CFTC
has indicated that an entity such as the Fund would not be a "pool" if it traded
commodity futures contracts solely for hedging purposes and not for speculation.
Furthermore, the Fund is restricted to no more than 5% of its net assets being
committed to margin on futures contracts and premiums for options on futures
contracts, and therefore will not operate as a "pool" as that term is defined by
the CFTC.
RISKS IN FUTURES CONTRACTS. One risk in employing futures contracts to protect
against cash market price volatility is the prospect that futures prices will
correlate imperfectly with the behavior of cash prices. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which could
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distort the normal relationship between the cash and futures markets. Second,
the liquidity of the futures market depends on participants entering into
offsetting transactions rather than making or taking delivery. To the extent
participants decide to make or take delivery, liquidity in the futures market
could be reduced, thus producing distortion. Third, from the point of view of
speculators the deposit requirements in the futures market are less onerous than
margin requirements in the securities market. Therefore, increased participation
by speculators in the futures market may cause temporary price distortions. Due
to the possibility of distortion, a correct forecast of general interest trends
by the Adviser may still not result in a successful transaction.
Another risk is that the Adviser would be incorrect in its expectation as to the
extent of various interest rate movements (anticipated securities prices and
foreign currency exchange rates for the Developing Markets Growth Fund and
International Growth Fund) or the time span within which the movements take
place and other economic factors. Closing out an interest rate futures contract
purchase at a loss because of higher interest rates will generally have one or
two consequences depending on whether, at the time of closing out, the "yield
curve" is normal (long-term rates exceeding short-term). If the yield curve is
normal, it is possible that the Fund will still be engaged in a program of
buying long-term securities. Thus, closing out the futures contract purchase at
a loss will reduce the benefit of the reduced price of the securities purchased.
If the yield curve is inverted, it is possible that the Fund will retain its
investments in short-term securities earmarked for purchase of longer term
securities. Thus, closing out of a loss will reduce the benefit of the
incremental income that the Fund will experience by virtue of the high
short-term rates. Although futures contracts are traded only on commodity
exchanges, there can be no assurance that a liquid secondary market will exist
for any particular future, and theoretically losses from investing in futures
transactions are potentially unlimited.
RISKS OF OPTIONS. The use of options and options on interest rate futures
contracts also involves additional risk. Compared to the purchase or sale of
futures contracts, the purchase of call or put options and options on futures
contracts involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs).
The effective use of options strategies is dependent, among other things, upon
the Fund's ability to terminate options positions at a time when the Adviser
deems it desirable to do so. Although the Fund will enter into an option
position only if the Adviser believes that a liquid secondary market exists for
such option, there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Fund's
transactions involving options on futures contracts will be conducted only on
recognized exchanges.
Although the Funds will generally purchase only those options for which there
appears to be an active secondary market, there can be no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time. For some options no secondary market on an exchange may
exist. In such event, it might not be possible to effect closing transactions in
particular options, with the result that the Funds would have to exercise its
options in order to realize any profit and would incur transaction costs upon
the purchase or sale of underlying securities.
Secondary markets on an exchange may not exist or may not be liquid for a
variety of reasons including: (i) insufficient trading interest in certain
options; (ii) restrictions on opening transactions or closing transactions
imposed by an exchange; (iii) trading halts, suspension or other restrictions
may be imposed with respect to particular classes or series of options; (iv)
unusual or unforeseen circumstances which interrupt normal operations on an
exchange; (v) inadequate facilities of an exchange or the Options Clearing
Corporation to handle current trading volume at all times; or (vi)
discontinuance in the future by one or more exchanges for economic or other
reasons, of trading of options (or of a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options on that exchange
that had been issued by the Options Clearing Corporation as a result of trades
on that exchange would continue to be exercisable in accordance with their
terms.
PURCHASE OF PUT OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The Funds may
purchase put options on interest rate futures contracts if the Adviser
anticipates a rise in interest rates. Because the value of an interest rate or
municipal bond index futures contract moves inversely in relation to changes in
interest rates, a put option on such a contract becomes more valuable as
interest rates rise. By purchasing put options on futures contracts at a time
when the Adviser expects interest rates to rise, the Fund will seek to realize a
profit to offset the loss in value of its portfolio securities.
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PURCHASE OF CALL OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The Funds may
purchase call options on interest rate futures contracts if the Adviser
anticipates a decline in interest rates. The purchase of a call option on an
interest rate of municipal bond index futures contract represents a means of
obtaining temporary exposure to market appreciation at limited risk. Because the
value of an interest rate or municipal bond index futures contract moves
inversely in relation to changes to interest rates, a call option on such a
contract becomes more valuable as interest rates decline. The Fund will purchase
a call option on a futures contract to hedge against a decline in interest rates
in a market advance when the Fund is holding cash. The Fund can take advantage
of the anticipated rise in the value of long-term securities without actually
buying them until the market is stabilized. At that time, the options can be
liquidated and the Fund's cash can be used to buy long-term securities.
The Funds expect that new types of securities, futures contracts, options
thereon, and put and call options on securities and indices may be developed in
the future. As new types of instruments are developed and offered to investors,
the Adviser will be permitted to invest in them provided that the Adviser
believes their quality is equivalent to the Fund's quality standards.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Funds may purchase securities
on a "when-issued" basis and may purchase or sell securities on a "forward
commitment" basis. When such transactions are negotiated, the price is fixed at
the time the commitment is made, but delivery and payment for the securities
take place at a later date, which can be a month or more after the date of the
transaction. The Funds will not accrue income on securities purchased on a
forward commitment basis prior to their stated delivery date. At the time a Fund
makes the commitment to purchase securities on a when-issued or forward
commitment basis, it will record the transaction and thereafter reflect the
value of such securities in determining its net asset value. At the time a Fund
enters into a transaction on a when-issued or forward commitment basis, a
segregated account consisting of cash and liquid securities equal to the value
of the when-issued or forward commitment securities will be established and
maintained with the custodian and will be marked to the market daily. On the
delivery date, the Funds will meet its obligations from securities that are then
maturing or sales of the securities held in the segregated asset account and/or
from then available cash flow. If a Fund disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it can incur a gain or loss due
to market fluctuation.
There is always a risk that the securities may not be delivered and that a Fund
may incur a loss or will have lost the opportunity to invest the amount set
aside for such transaction in the segregated asset account. Settlements in the
ordinary course of business are not treated by the Funds as when-issued or
forward commitment transactions and, accordingly, are not subject to the
foregoing limitations even though some of the risks described above may be
present in such transactions.
REPURCHASE AGREEMENTS. The Funds are permitted to invest in repurchase
agreements. A repurchase agreement is a contract by which a Fund acquires the
security ("collateral") subject to the obligation of the seller to repurchase
the security at a fixed price and date (within seven days). A repurchase
agreement may be construed as a loan pursuant to the 1940 Act. The Funds may
enter into repurchase agreements with respect to any securities which it may
acquire consistent with its investment policies and restrictions. The Funds'
custodian will hold the securities underlying any repurchase agreement in a
segregated account. In investing in repurchase agreements, a Fund's risk is
limited to the ability of the seller to pay the agreed-upon price at the
maturity of the repurchase agreement. In the opinion of the Adviser, such risk
is not material, since in the event of default, barring extraordinary
circumstances, a Fund would be entitled to sell the underlying securities or
otherwise receive adequate protection under federal bankruptcy laws for its
interest in such securities. However, to the extent that proceeds from any sale
upon a default are less than the repurchase price, the Fund could suffer a loss.
In addition, a Fund may incur certain delays in obtaining direct ownership of
the collateral. The Adviser will continually monitor the value of the underlying
securities to ensure that their value always equals or exceeds the repurchase
price. The Adviser will submit a list of recommended issuers of repurchase
agreements and other short-term securities which it has reviewed for credit
worthiness to the Funds' directors at least quarterly for their approval.
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REDEMPTION-IN-KIND PAYMENT
- --------------------------------------------------------------------------------
Each Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates each Fund to redeem shares in cash, with respect to any one
shareholder during any 90-day period, up to the lesser of $250,000 or 1% of the
assets of the Fund. If the Adviser determines that existing conditions make cash
payments undesirable, redemption payments may be made in whole or in part in
securities or other financial assets, valued for this purpose as they are valued
in computing the NAV for the Fund's shares (a "redemption-in-kind").
Shareholders receiving securities or other financial assets in a
redemption-in-kind may realize a gain or loss for tax purposes, and will incur
any costs of sale, as well as the associated inconveniences.
COMPUTATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value is determined as of the close of the New York Stock Exchange on
each day that the exchange is open for business and on any other day on which
there is sufficient trading in a Fund's securities to materially affect the
Fund's net asset value per share. The customary national business holidays
observed by the New York Stock Exchange and on which the Funds are closed are:
New Year's Day, Martin Luther King Jr. Day, President's Day, Good Friday,
Memorial Day, July Fourth, Labor Day, Thanksgiving Day and Christmas Day. The
net asset value per share will not be determined on these national holidays.
On June 30, 1998, the net asset value and public offering price per share for
each Fund was calculated as follows:
<TABLE>
<S> <C>
Large Cap Growth Fund:
net assets $117,496,152
------------------------------------
shares outstanding 2,381,356 = net asset value (NAV) per share = public offering price per share
$49.34
Mid Cap Growth Fund:
net assets $404,327,470
------------------------------------
shares outstanding 24,526,659 = NAV per share = public offering price per share $16.49
Small Cap Growth Fund:
net assets $57,472,371
------------------------------------
shares outstanding 2,824,154 = NAV per share = public offering price per share $20.35
Regional Growth Fund:
net assets $4,981,773
------------------------------------
shares outstanding 442,298 = NAV per share = public offering price per share $11.26
Science and Technology Growth Fund:
net assets $4,858,339
------------------------------------
shares outstanding 412,928 = NAV per share = public offering price per share $11.77
Balanced Fund:
net assets $7,421,538
------------------------------------
shares outstanding 445,012 = NAV per share = public offering price per share $16.68
International Growth Fund:
net assets $99,720,848
------------------------------------
shares outstanding 5,210,623 = NAV per share = public offering price per share $19.14
Developing Markets Growth Fund:
net assets $11,504,888
------------------------------------
shares outstanding 1,271,787 = NAV per share = public offering price per share $9.05
</TABLE>
19
<PAGE>
CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
Advertisements and other sales literature for the Funds may refer to cumulative
total return, average annual total return and yield.
CUMULATIVE TOTAL RETURN. Total return means cumulative total return and is
calculated by finding the cumulative compounded rate of return over the period
indicated that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
CTR = (ERV - P) x 100
-------
P
CTR = cumulative total return
ERV = ending redeemable value at the end of the period of a hypothetical
$1,000 payment made at the beginning of such period
P = initial payment of $1,000
This calculation assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates and includes
all recurring fees, such as investment advisory and management fees, charged to
all shareholder accounts.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is computed by finding
the average annual compounded rates of return over the periods indicated that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)^n = ERV
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.
This calculation assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates and includes
all recurring fees, such as investment advisory and management fees, charged to
all shareholder accounts.
YIELD. Yield is computed by dividing the net investment income per share (as
defined under Securities and Exchange Commission rules and regulations) earned
during the computation period by the maximum offering price per share on the
last day of the period, according to the following formula:
Yield = 2 [(a - b + 1)^6 - 1]
-----
cd
a = dividends and interest earned during the periods;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the
period.
MANAGEMENT
- --------------------------------------------------------------------------------
Each director, who is not also an officer, is paid by the Sit Mutual Funds (the
"Funds") as a group, an annual fee of $12,000, $3,000 for each meeting attended,
and receives reimbursement for travel and other expenses. The Funds are a family
of thirteen no-load, open-end, diversified, management investment companies, as
defined by the 1940 Act. Sit Investment Associates, Inc. serves as the Adviser
for each of the Funds. The names, addresses, principal occupations and other
affiliations of directors and officers of the Funds are given below. Except as
noted below, the business address of each officer and director is the same as
that of the Adviser - 4600 Norwest Center, Minneapolis, Minnesota.
20
<PAGE>
<TABLE>
<CAPTION>
NAME & ADDRESS POSITION WITH THE FUNDS PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- -------------- ----------------------- ----------------------------------------
<S> <C> <C>
Eugene C. Sit, CFA* Director - All Funds Chairman, CEO and CIO of Sit Investment Associates, Inc.
Chairman - All Funds (the "Adviser"); Chairman, CEO and CIO of Sit/Kim
International Investment Associates, Inc. (the "Sub-Adviser");
Chairman of the Funds and Director of SIA Securities Corp.
(the "Distributor")
Peter L. Mitchelson, CFA* Director - All Funds President and Director of the Adviser; Executive Vice
Vice Chairman - All Funds President and Director of the Sub-Adviser; Director and
Sr. Portfolio Manager - Vice Chairman of the Funds; Director of the Distributor
Large Cap Growth
and Balanced Funds
William E. Frenzel * Director - All Funds Director of the Funds; Advisory Director of the Adviser;
1775 Massachusetts Director of the Sub-Adviser; Guest Scholar at The Brookings
Avenue NW Institution; Former senior member of Congress and a
Washington DC 20036 ranking member on the House Ways and Means Committee
and Vice Chairman of the House Budget Committee
John E. Hulse Director - All Funds Director of the Funds; Director, Vice Chairman and Chief
4303 Quail Run Lane Financial Officer at Pacific Telesis Group until June 1992;
Danville, CA 94506 Trustee, Benilde Religious & Charitable Trust; Trustee, Pacific
Gas & Electric Nuclear Decommissioning Trust
Sidney L. Jones Director - All Funds Director of the Funds; Adjunct Faculty, Center for Public
8505 Parliament Drive Policy Education, The Brookings Institution; Visiting
Potomac, MD 20854 Research Associate in Economics at Carleton College; Former
Assistant Secretary for Economic Policy, United States
Department of the Treasury
Donald W. Phillips Director - All Funds Director of the Funds; President of Forstmann-Leff
111 West Jackson International Inc.; Executive Vice President of Equity
Chicago, IL 60604 Financial and Management Company until 1997;
Chairman of Equity Institutional Investors, Inc. until 1997.
Melvin C. Bahle Director Emeritus - Director of the Funds; Financial consultant; Director and/or
#1 Muirfield Lane All Funds Officer of several companies, foundations and religious
St. Louis, MO 63141 organizations
Mary K. Stern, CFA President - All Funds President of the Funds; Former President of Mutual Fund
Group and Executive Vice President of Society Bank,
Cleveland, Ohio until 1994
Roger J. Sit Senior Vice President - Senior Vice President for the Adviser and Sub-Adviser; Vice
Equity Funds President and Senior Equity Research Analyst for Goldman
Sachs & Company until January, 1998
Paul E. Rasmussen Vice President & Treasurer - Vice President, Secretary and Controller for the Adviser and
All Funds Sub-Adviser; Vice President and Treasurer of the Funds;
President and Treasurer of the Distributor
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NAME & ADDRESS POSITION WITH THE FUNDS PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- -------------- ----------------------- ----------------------------------------
<S> <C> <C>
Erik S. Anderson, CFA Vice President - Investments Vice President - Equity Research and Portfolio Management
All Funds of the Adviser
Ronald D. Sit, CFA Vice President - Investments Vice President - Equity Research and Portfolio Management
All Funds of the Adviser
Michael C. Brilley Senior Vice President - Senior Vice President and Senior Fixed Income Officer
Balanced Fund of the Adviser; Senior Vice President of the Sit Bond Funds
Bryce A. Doty, CFA Vice President - Investments Vice President - Fixed Income Research and Portfolio
Balanced Fund Management of the Balanced Fund
John T. Groton, Jr., CFA Vice President - Investments Vice President - Equity Research Analyst of the Adviser;
Regional Growth Fund Senior Financial Analyst with Andersen Consulting until 1993
John K. Butler, CFA Vice President - Investments Vice President - Equity Research Analyst of the Adviser;
Regional Growth Fund Senior Financial Analyst with Norwest Capital Advisors until
1993
Robert W. Sit Vice President - Investments Vice President - Equity Research Analyst of the Adviser
Science and Technology Growth
Fund
Michael P. Eckert Vice President - All Funds Vice President - Mutual fund sales of the Adviser
Michael J. Radmer Secretary - All Funds Secretary of the Funds; Partner of the Funds' general counsel,
220 South Sixth Street Dorsey & Whitney LLP
Minneapolis, MN
</TABLE>
- -----------------
* Directors who are deemed to be "interested persons" of the Funds as that
term is defined by the Investment Company Act of 1940. Messrs. Sit and
Mitchelson are interested persons because they are officers of the Adviser.
Mr. Frenzel is an interested person of the International Growth Fund and
Developing Markets Growth Fund because he is a director of the Sub-Adviser,
and may be deemed to be an interested person of all Funds because he is an
advisory director of the Adviser.
Mr. Roger Sit, Mr. Ron Sit, and Mr. Robert Sit are sons of Eugene C. Sit.
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
The Adviser (or an affiliate) has served as the investment adviser for each Fund
since the inception of each Fund.
TERMS COMMON TO ALL FUNDS' INVESTMENT MANAGEMENT AGREEMENTS
- --------------------------------------------------------------------------------
Each Fund's Investment Management Agreement provides that the Adviser will
manage the investment of the Fund's assets, subject to the applicable provisions
of the Fund's articles of incorporation, bylaws and current registration
statement (including, but not limited to, the investment objective, policies and
restrictions delineated in the Fund's current prospectus and Statement of
Additional Information), as interpreted from time to time by the Fund's Board of
Directors. Under each Agreement, the Adviser has the sole and exclusive
responsibility for the management of the Fund's investment portfolio and for
making and executing all investment decisions for the Fund. The Adviser is
obligated under each Agreement to report to the Fund's Board of Directors
regularly at such times and in such detail as the Board may from time to time
determine appropriate, in order to permit the Board to determine the adherence
of the Adviser to the Fund's investment policies. Each Agreement also provides
that the Adviser shall not be liable for any loss suffered by the Fund in
connection with the matters to which the Agreement relates, except losses
resulting from willful misfeasance, bad faith or gross negligence on the part of
22
<PAGE>
the Adviser in the performance of its obligations and duties or by reason of its
reckless disregard of its obligations and duties under the Agreement.
Each Agreement provides that the Adviser shall, at its own expense, furnish all
office facilities, equipment and personnel necessary to discharge its
responsibilities and duties under the Agreement and that the Adviser will
arrange, if requested by the Fund, for officers or employees of the Adviser to
serve without compensation from the Fund as directors, officers or employees of
the Fund if duly elected to such positions by the shareholders or directors of
the Fund.
Each Investment Management Agreement provides that it will continue in effect
from year to year only as long as such continuance is specifically approved at
least annually by the applicable Fund's Board of Directors or shareholders and
by a majority of the Board of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Adviser or the Fund. The Agreement is terminable
upon 60 days' written notice by the Adviser or the Fund and will terminate
automatically in the event of its "assignment" (as defined in the 1940 Act).
COMPENSATION AND ALLOCATION OF EXPENSES
- --------------------------------------------------------------------------------
Under each of the Fund's Investment Management Agreement, the Fund is obligated
to pay the Adviser a flat monthly fee, which is equal on an annual basis to the
following percentages of the average daily net assets of the Funds:
Sit Large Cap Growth Fund, Inc. 1.00%
Sit Mid Cap Growth Fund, Inc. 1.25
Sit Small Cap Growth Fund 1.50
Sit Regional Growth Fund 1.25
Sit Science and Technology Growth Fund 1.50
Sit Balanced Fund 1.00
Sit International Growth Fund 1.85
Sit Developing Markets Growth Fund 2.00
However, under each such Fund's Agreement, the Adviser has agreed to bear all of
the Fund's expenses, except for extraordinary expenses (as designated by a
majority of the Fund's disinterested directors), interest, brokerage commissions
and other transaction charges relating to the investing activities of the Fund.
For the period November 1, 1996 through December 31, 1999 the Adviser has
voluntarily agreed to limit the management fee (and thereby, all Fund expenses,
except those not payable by the Adviser as set forth above) of the Mid Cap
Growth Fund to 1.00% of the Fund's average daily net assets. After December 31,
1999, this voluntary fee waiver may be discontinued by the Adviser in its sole
discretion.
For the period December 31, 1997 (date of inception) through December 31, 1999
the Adviser has voluntarily agreed to limit management fee (and thereby, all
Fund expenses, except those not payable by the Adviser as set forth above) to
1.00% of the Regional Growth Fund's average daily net assets and 1.25% of the
Science and Technology Growth Fund's average daily net assets. After December
31, 1999, these voluntary fee waivers may be discontinued by the Adviser in its
sole discretion.
For the period January 1, 1994 through December 31, 1999, the Adviser has
voluntary agreed to limit the management fee (and thereby, all Fund expenses,
except those not payable by the Adviser as set forth above) of the International
Growth Fund to 1.50% per year of the Fund's average daily net assets. After
December 31, 1999, this voluntary fee waiver may be discontinued by the Adviser
at its sole discretion.
Prior to November 1, 1996 the Investment Management Agreement between the
Adviser and each of Large Cap Growth Fund and Mid Cap Growth Fund provided that
the Fund was obligated to pay the Adviser a monthly fee based on average daily
net assets ("net assets") on an annual basis equal to 1.00% for the first $30
million of net assets, .75% for the next $70 million of net assets and .50% for
the excess of $100 million of net assets. The Adviser was obligated to reimburse
each of Large Cap Growth Fund and Mid Cap Growth Fund for all of the Fund's
expenses except for extraordinary expenses (as designated by a majority of each
Fund's disinterested directors), interest, brokerage commissions and other
transaction charges relating to each Fund's investing activities (which expenses
were the sole responsibility of the Fund, irrespective of amount), which exceed,
on an annual basis, an amount equal to 1.50% of the first $30 million of the
Fund's average daily net
23
<PAGE>
assets and 1.00% of average daily net assets in excess of $30 million. Subject
to this expense limitation, each of Large Cap Growth Fund and Mid Cap Growth
Fund was responsible for all of its expenses to the extent not specifically
assumed by the Adviser under the Agreement. For the period October 1, 1993
through October 31, 1996, the Adviser voluntarily agreed to absorb expenses that
were otherwise payable by the Large Cap Growth Fund which exceeded 1.00% of the
Fund's average daily net assets.
Set forth below are the investment management fees and other expenses paid by
each of the Large Cap Growth Fund, Mid Cap Growth Fund, Small Cap Growth Fund,
Balanced Fund, International Growth Fund, and Developing Markets Growth Fund
during the fiscal years ended June 30, 1998, 1997, and 1996; the Regional Growth
Fund and Science and Technology Growth Fund during the fiscal year ended June
30, 1998. Fees and expenses of the Funds waived or paid by the Adviser during
such fiscal years are also set forth below.
<TABLE>
<CAPTION>
LARGE CAP MID CAP SMALL CAP REGIONAL
GROWTH GROWTH GROWTH GROWTH
1998 FUND FUND FUND FUND
- ---- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE NET ASSETS $88,152,918 $401,679,671 $64,558,158 $3,944,416
Investment Advisory Fees 880,285 5,020,370 968,377 23,035
Other Expenses 00 00 00 00
Expenses Waived 00 (1,004,074) 00 (3,611)
----------- ------------ ----------- ----------
Net Fund Expenses 880,285 4,016,296 968,377 19,424
Ratio of expenses to average
daily net assets 1.00% 1.00% 1.50% .49%*
SCIENCE AND DEVELOPING
TECHNOLOGY INT'L MARKETS
GROWTH BALANCED GROWTH GROWTH
1998 (CONTINUED) FUND FUND FUND FUND
- ---- ----------- ------------ ----------- ----------
AVERAGE NET ASSETS $3,760,994 $5,969,736 $96,761,406 $13,914,844
Investment Advisory Fees 27,931 59,634 1,790,014 278,595
Other Expenses 00 00 00 00
Expenses Waived (3,611) 00 (338,651) 00
----------- ------------ ----------- ----------
Net Fund Expenses 23,276 59,634 1,451,363 278,595
Ratio of expenses to average
daily net assets .62%* 1.00% 1.50% 2.00%
*December 31, 1997 (date of inception) through June 31, 1998
<CAPTION>
LARGE CAP MID CAP SMALL CAP INT'L MARKETS
GROWTH GROWTH GROWTH BALANCED GROWTH GROWTH
1997 FUND FUND FUND FUND FUND FUND
- ---- ----------- ------------ ----------- ---------- ----------- -----------
AVERAGE NET ASSETS $59,728,101 $364,106,590 $53,823,220 $4,436,834 $87,622,427 $11,513,549
Investment Advisory Fees 595,823 3,757,126 807,030 44,340 1,620,463 229,821
Other Expenses 51,486 218,000 00 00 00 00
Expenses Waived (50,548) (609,840) 00 00 (306,575) 00
----------- ------------ ----------- ---------- ----------- -----------
Net Fund Expenses 596,761 3,365,286 807,030 44,340 1,313,888 229,821
Ratio of expenses to average
daily net assets 1.00% .92% 1.50% 1.00% 1.50% 2.00%
1996
- ----
AVERAGE NET ASSETS $47,832,651 $365,970,895 $31,974,176 $3,495,052 $77,186,188 $5,968,028
Investment Advisory Fees 433,174 2,152,618 477,179 34,853 1,424,797 118,946
Other Expenses 154,353 682,900 00 00 00 00
Expenses Waived (110,099) 00 00 00 (269,556) 00
----------- ------------ ----------- ---------- ----------- -----------
Net Fund Expenses 477,428 2,835,518 477,179 34,853 1,155,241 118,946
Ratio of expenses to average
daily net assets 1.00% 0.77% 1.50% 1.00% 1.50% 2.00%
</TABLE>
24
<PAGE>
THE SUB-ADVISER - INTERNATIONAL GROWTH FUND AND DEVELOPING MARKETS GROWTH FUND
- --------------------------------------------------------------------------------
The International Growth Fund's and Developing Markets Growth Fund's Investment
Management Agreements authorize the Adviser, at its option and at its sole
expense, to appoint a sub-adviser, which may assume all or such responsibilities
and obligations of the Adviser pursuant to the Investment Management Agreement
as shall be delegated to the sub-adviser; provided, however, that any
discretionary investment decisions made by the sub-adviser shall be subject to
approval or ratification by the Adviser, and any appointment of a sub-adviser
and assumption of responsibilities and obligations of the Adviser by such
sub-adviser shall be subject to approval by the Board of Directors, and as
required by law the shareholders, of the Company; and provided, further, that
the appointment of any sub-adviser shall in no way limit or diminish the
Adviser's obligations and responsibilities under the Investment Management
Agreement. Pursuant to this authority, the Sub-Adviser serves as International
Growth Fund's and Developing Markets Growth Fund's Sub-Adviser.
The current Sub-Advisory Agreement provides that the Sub-Adviser agrees to
manage the investment of International Growth Fund's and Developing Markets
Growth Fund's assets, subject to the applicable provisions of the Funds'
articles of incorporation, bylaws and current registration statement (including,
but not limited to, the investment objective, policies and restrictions
delineated in the Fund's current prospectus and Statement of Additional
Information), as interpreted from time to time by the Fund's Board of Directors.
The Agreement also provides that any discretionary investment decisions made by
the Sub-Adviser are subject to the Adviser's review, approval or ratification at
the Adviser's discretion.
For its services under the Sub-Advisory Agreement, absent any voluntary fee
waivers, the Adviser has agreed to pay the Sub-Adviser a monthly fee equal to
the percentages set forth below of the value of the International Growth Fund's
and Developing Markets Growth Fund's average daily net assets:
International Developing
Growth Markets
Fund Growth Fund
------------- -----------
First $100 million of average daily net assets .75% .75%
Next $100 million of average daily net assets .50% .60%
Assets in excess of $200 million .40% .50%
However, until such month that the cumulative fees received by the Adviser
pursuant to the Investment Management Agreement equaled or exceeded the
cumulative out-of-pocket expenses of the Funds borne by the Adviser pursuant to
the Investment Management Agreement ("Positive Cash Flow"), the Sub-Adviser
agreed to waive any fees otherwise receivable by it from the Adviser pursuant to
the Sub-Advisory Agreement. After the Adviser achieved Positive Cash Flow, the
Adviser agreed to pay the Sub-Adviser the lesser of (i) 75% of the Adviser's
Positive Cash Flow during each applicable month, or (ii) the fee provided for
above. Pursuant to the Investment Management Agreement the Adviser paid the
Sub-Adviser fees of $448,876, $425,433, $501,023, $569,650 and $627,994 for the
fiscal years ended June 30, 1994, 1995, 1996, 1997 and 1998 respectively with
respect to services provided on behalf of the International Growth Fund; and
fees of $0, $27,000, $86,493 and $104,245 for the fiscal years ended June 30,
1995, 1996, 1997 and 1998 with respect to services provided on behalf of the
Developing Markets Growth Fund.
The Sub-Advisory Agreement continues in effect from year to year only as long as
such continuance is specifically approved at least annually by (i) the Board of
Directors of the Fund or by the vote of a majority of the outstanding voting
shares of the Fund, and (ii) by the vote of a majority of the directors of the
Company who are not parties to the Agreement or interested persons of the
Adviser, the Sub-Adviser, the International Growth Fund or the Developing
Markets Growth Fund. The Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Directors of Sit Mutual Funds, Inc., the
issuer of the International Growth Fund and Developing Markets Growth Fund or by
the vote of a majority of the outstanding voting shares of the Fund, or by the
Sub-Adviser or the Adviser, upon 30 days' written notice to the other party.
Additionally, the Agreement automatically terminates in the event of its
assignment.
DISTRIBUTOR
- --------------------------------------------------------------------------------
Each of the Funds have entered into Underwriting and Distribution Agreements
with SIA Securities Corp. ("Securities"), an affiliate of the Adviser, pursuant
to which Securities will act as each Fund's principal underwriter. Securities
will market
25
<PAGE>
each Fund's shares only to certain institutional investors and all other sales
of each Fund's shares will be made by each Fund. The Adviser will pay all
expenses of Securities in connection with such services and Securities is
otherwise not entitled to any other compensation under the Underwriting and
Distribution Agreement. Each Fund will incur no additional fees in connection
with the Underwriting and Distribution Agreement.
Pursuant to the Underwriting and Distribution Agreement, Securities has agreed
to act as the principal underwriter for each Fund in the sale and distribution
to the public of shares of each Fund, either through dealers or otherwise.
Securities has agreed to offer such shares for sale at all times when such
shares are available for sale and may lawfully be offered for sale and sold. The
Underwriting and Distribution Agreement is renewable from year to year if the
Fund's directors approve such agreement. The Fund or Securities can terminate
the Underwriting and Distribution Agreement at any time without penalty on 60
days' notice written notice to the other party. The Underwriting and
Distribution Agreement terminates automatically upon its assignment. In the
Underwriting and Distribution Agreement, Securities agrees to indemnify each
Fund against all costs of litigation and other legal proceedings and against any
liability incurred by or imposed on the Fund in any way arising out of or in
connection with the sale or distribution of each Fund's shares, except to the
extent that such liability is the result of information which was obtainable by
Securities only from persons affiliated with the Fund but not Securities.
Securities or the Adviser may enter into agreements with various brokerage or
other firms pursuant to which such firms provide certain administrative services
with respect to customers who are beneficial owners of shares of the Funds. The
Adviser or Securities may compensate such firms for the services provided, which
compensation is based on the aggregate assets of customers that are invested in
the Funds.
BROKERAGE
- --------------------------------------------------------------------------------
Transactions on a stock exchange in equity securities will be executed primarily
through brokers that will receive a commission paid by the applicable Fund.
Fixed income securities, as well as equity securities traded in the
over-the-counter market, are generally traded on a "net" basis with dealers
acting as principals for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten fixed income and equity offerings, securities are purchased at a
fixed price that includes an amount of compensation to the underwriter,
generally referred to as the underwriter's selling concession or discount.
Certain of these securities may also be purchased directly from the issuer, in
which case neither commissions nor discounts are paid.
The Adviser (or Sub-Adviser, as applicable) selects and, where applicable,
negotiates commissions with the broker-dealers who execute the transactions for
one or more of the Funds. The primary criterion for the selection of a
broker-dealer is the ability of the broker-dealer, in the opinion of the Adviser
(or Sub-Adviser, as applicable) to secure prompt execution of the transactions
on favorable terms, including the best price of the security, the reasonableness
of the commission and considering the state of the market at the time. When
consistent with these objectives, business may be placed with broker-dealers who
furnish investment research or services to the Adviser or Sub-Adviser. Such
research or services include advice, both directly and in writing, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities, or purchasers or sellers of
securities. Such services also may include analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts. This allows the Adviser (or Sub-Adviser, as
applicable) to supplement its own investment research activities and enables the
Adviser (or Sub-Adviser, as applicable) to obtain the views and information of
individuals and research staffs of many different securities firms prior to
making investment decisions for the Funds. To the extent portfolio transactions
are effected with broker-dealers who furnish research services to the Adviser or
Sub-Adviser, the Adviser or Sub-Adviser receives a benefit, not capable of
valuation in dollar amounts, without providing any direct monetary benefit to
the applicable Funds from these transactions. The Adviser and the Sub-Adviser
believe that most research services they receive generally benefit several or
all of the investment companies and private accounts which they manage, as
opposed to solely benefiting one specific managed fund or account. Normally,
research services obtained through managed funds or accounts investing in common
stocks would primarily benefit the managed funds or accounts which invest in
common stock; similarly, services obtained from transactions in fixed income
securities would normally be of greater benefit to the managed funds or accounts
which invest in debt securities.
26
<PAGE>
Both the Adviser and the Sub-Adviser maintain an informal list of
broker-dealers, which is used from time to time as a general guide in the
placement of Fund business, in order to encourage certain broker-dealers to
provide the Adviser and the Sub-Adviser with research services which the Adviser
and the Sub-Adviser anticipate will be useful to them in managing the Funds.
Because the list is merely a general guide, which is to be used only after the
primary criterion for the selection of broker-dealers (discussed above) has been
met, substantial deviations from the list are permissible and may be expected to
occur. Each of the Adviser and the Sub-Adviser will authorize a Fund to pay an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker-dealer would have charged only if the
Adviser (or Sub-Adviser, as applicable) determines in good faith that such
amount of commission is reasonable in relation to the value of the brokerage and
research services provided by such broker-dealer, viewed in terms of either that
particular transaction or the Adviser's or Sub-Adviser's overall
responsibilities with respect to the accounts as to which it exercises
investment discretion. Generally, the Fund pays commissions higher than the
lowest commission rates available. Some investment companies enter into
arrangements under which a broker-dealer agrees to pay the cost of certain
products or services (not including research services) in exchange for fund
brokerage ("brokerage/services arrangements"). Under a typical brokerage/service
arrangement, a broker agrees to pay a fund's custodian fees or transfer agent
fees and, in exchange, the fund agrees to direct a minimum amount of brokerage
to the broker. The Adviser does not intend to enter into such brokerage/service
arrangements on behalf of the Funds. Some investment companies enter into
arrangements that provide for specified or reasonably ascertainable fee
reductions in exchange for the use of fund assets ("expense offset
arrangements"). Under such expense offset agreements, expenses are reduced by
foregoing income rather than by re-characterizing them as capital items. For
example, a fund may have a "compensating balance" agreement with its custodian
under which the custodian reduces its fee if the fund maintains cash or deposits
with the custodian in non-interest bearing accounts. The Adviser does not intend
to enter into expense offset agreements involving assets of the Funds.
Most all domestic (U.S.) securities trades will be executed through U.S.
brokerage firms and commercial banks. Most foreign equity securities will be
obtained in over-the-counter markets or stock exchanges located in the countries
in which the respective principal offices of the issuers of the various
securities are located, if that is the best available market. The fixed
commissions paid in connection with most such foreign stock transactions
generally are higher than negotiated commissions on United States transactions.
There generally is less government supervision and regulation of foreign stock
exchanges and brokers than in the United States. Foreign security settlements
may in some instances be subject to delays and related administrative
uncertainties.
Foreign equity securities may be held in the form of American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs"), or securities
convertible into foreign equity securities. ADRs or EDRs may be listed on stock
exchanges, or traded in the over-the-counter markets in the United States or
Europe, as the case may be. ADRs, like other securities traded in the United
States, will be subject to negotiated commission rates. The foreign and domestic
debt securities and money market instruments in which International Growth Fund
may invest are generally traded in the over-the-counter markets.
Fund management does not currently anticipate that the Fund will effect
brokerage transactions in its portfolio securities with any broker-dealer
affiliated directly or indirectly with the Funds, the Adviser or the
Sub-Adviser.
The Adviser has entered into agreements with Capital Institutional Services,
Inc. ("CIS"), and Lipper Analytical Securities Corporation ("LAS"), unaffiliated
registered broker-dealers located in Dallas and New York respectively. All
transactions placed with CIS and LAS are subject to the above criteria. CIS and
LAS provide the Adviser with a wide variety of economic, performance, and
investment research information.
Investment decisions for each Fund are made independently of those for other
clients of the Adviser, including the other Funds. When the Funds or clients
simultaneously engage in the purchase or sale of the same securities, the price
of the transactions is averaged and the amount allocated in accordance with a
formula deemed equitable to each Fund and client. In some cases, this system may
adversely affect the price paid or received by the Fund or the size of the
position obtainable. Total brokerage commissions paid by the Funds for the three
most recent fiscal years include commissions as set forth below which were paid
to firms that supplied the Funds and Adviser with statistical and research
services.
27
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
AMT PAID TO AMT PAID TO AMT PAID TO
FIRMS FOR FIRMS FOR FIRMS FOR
STATISTICS & STATISTICS & STATISTICS &
FUND TOTAL RESEARCH TOTAL RESEARCH TOTAL RESEARCH
- ---- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth $82,201 $40,346 $38,746 $11,214 $61,284 $19,625
Mid Cap Growth 459,643 237,865 304,909 63,380 476,952 90,946
Small Cap Growth 147,191 23,910 77,528 25,084 68,257 12,060
Regional Growth 5,367 480 n/a n/a n/a n/a
Science and Technology Growth 4,102 480 n/a n/a n/a n/a
Balanced 3,578 1,608 1,736 638 2,389 1,317
International Growth 247,731 196,276 260,243 11,840 242,798 12,762
Developing Markets Growth 50,695 44,935 85,207 1,224 52,905 1,020
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
The following persons owned of record or beneficially 5% or more of the
respective Fund's outstanding shares as of August 18, 1998:
<TABLE>
<CAPTION>
Record Beneficially Of Record &
Person Only Only Beneficially
- ------ ---- ---- ------------
<S> <C> <C> <C>
LARGE CAP GROWTH FUND
Norwest Bank MN NA, cust Hazelden Foundation, 733 Marquette
Avenue, Minneapolis, MN 11.17%
Charles Schwab & Co., Inc., Special Custody Acct FBO Cust., 101
Montgomery Street, San Francisco, CA 5.95%
The Danforth Foundation, c/o Melvin C. Bahle, 211 N. Broadway
Ste. 2390, St. Louis, MO 5.51%
MID CAP GROWTH FUND
Fishnet & Co., Master Trust Division, c/o State Street Bank & Trust Co., 5.47%
P.O. Box 1992, Boston, MA
Charles Schwab & Co., Inc., Special Custody Acct FBO Cust., 101
Montgomery Street, San Francisco, CA 5.44%
SMALL CAP GROWTH FUND
Sit Investment Associates (various accounts) 4600 Norwest Center
Minneapolis, MN 8.14%
Eugene C. Sit and Gail V. Sit, P.O. Box 2132,
Minneapolis, MN 5.98%
SCIENCE AND TECHNOLOGY GROWTH FUND
Sit Investment Associates (various accounts) 4600 Norwest Center
Minneapolis, MN 11.63%
Jefferson L Miller and Dorothy D Miller JT Ten, 9051 Ladue Road,
St. Louis, MO 5.84%
REGIONAL GROWTH FUND
Sit Investment Associates (various accounts) 4600 Norwest Center
Minneapolis, MN 10.97%
Clifford F L Mohr and Grace L Mohr Wendell C Mo and Karen M Chavez
JT WROS, 3726 S. Forest Way, Denver, CO 5.01%
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Record Beneficially Of Record &
Person Only Only Beneficially
- ------ ---- ---- ------------
<S> <C> <C> <C>
BALANCED FUND
Sit Investment Associates (various accounts) 4600 Norwest Center
Minneapolis, MN 26.56%
Richard & Marlys Lynch, Trustees, El-Tronic Precision, Inc., Profit
Sharing Plan & 401K Plan, 441 93rd Avenue NW, Coon Rapids, MN 8.56%
Dennis W. Gartner, Trustee, Electric Component Sales Inc., Profit Sharing
Plan & Trust, 6474 City West Parkway, Eden Prairie, MN 8.31%
Robert Vokes & Kraig Lungstrom, Trustees, Northstar Matrix Service
401k Plan, 7101 31st Ave N., Minneapolis, MN 6.28%
INTERNATIONAL GROWTH FUND
Charles Schwab & Co., Special Custody Acct FBO Cust., 101
Montgomery St., San Francisco, CA 10.53%
DEVELOPING MARKETS GROWTH FUND
Charles Schwab & Co., Special Custody Acct FBO Cust., 101
Montgomery St., San Francisco, CA 19.95%
National Financial Services Corp., FBO Cust., Church Street
Station, P.O. Box 3908, New York, NY 15.36%
Sit Investment Associates (various accounts) 4600 Norwest Center
Minneapolis, MN 7.50%
</TABLE>
TAXES
- --------------------------------------------------------------------------------
The tax status of the Funds and the distributions which they may make are
summarized in the prospectus in the section entitled "Taxes." Each Fund intends
to fulfill the requirements of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), as a regulated investment company. If so
qualified, each Fund will not be liable for federal income taxes to the extent
it distributes its taxable income to its shareholders.
To qualify under Subchapter M for tax treatment as a regulated investment
company, each Fund must, among other things: (1) distribute to its shareholders
at least 90% of its investment company taxable income (as that term is defined
in the Code determined without regard to the deduction for dividends paid) and
90% of its net tax-exempt income; (2) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock or securities, or other income derived
with respect to its business of investing in such stocks, securities, or
currency; and (3) diversify its holdings so that, at the end of each fiscal
quarter of the Fund, (a) at least 50% of the market value of the Fund's assets
is represented by cash, cash items, United States Government securities and
securities of other regulated investment companies, and other securities, with
these other securities limited, with respect to any one issuer, to an amount no
greater than 5% of the Fund's total assets and no greater than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
market value of the Fund's total assets is invested in the securities of any one
issuer (other than United States Government securities or securities of other
regulated investment companies).
Each Fund is subject to a non-deductible excise tax equal to 4% of the excess,
if any, of the amount required to be distributed for each calendar year over the
amount actually distributed. In order to avoid the imposition of this excise
tax, each Fund must declare and pay dividends representing 98% of its net
investment income for that calendar year and 98% of its capital gains (both
long-term and short-term) for the twelve-month period ending October 31 of the
calendar year.
When shares of a Fund are sold or otherwise disposed of, the Fund shareholder
will realize a capital gain or loss equal to the difference between the purchase
price and the sale price of the shares disposed of, if, as is usually the case,
the Fund shares are a capital asset in the hands of the Fund shareholder. In
addition, pursuant to a special provision in the Code, if Fund shares with
respect to which a long-term capital gain distribution has been made are held
for six months or less, any loss on the sale or other disposition of such shares
will be a long-term capital loss to the extent of such long-term capital gain
29
<PAGE>
distribution. Any loss on the sale or exchange of shares of a Fund generally
will be disallowed to the extent that a shareholder acquires or contracts to
acquire shares of the same Fund within 30 days before or after such sale or
exchange.
Some of the investment practices that may be employed by the Funds will be
subject to special provisions that, among other things, may defer the use of
certain losses of such Funds, affect the holding period of the securities held
by the Funds and, particularly in the case of transactions in or with respect to
foreign currencies, affect the character of the gains or losses realized. These
provisions may also require the Funds to mark-to market some of the positions in
their respective portfolios (i.e., treat them as closed out) or to accrue
original discount, both of which may cause such Funds to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the distribution requirements for qualification as a regulated
investment company and for avoiding income and excise taxes. Accordingly, in
order to make the required distributions, a Fund may be required to borrow or
liquidate securities. Each Fund will monitor its transactions and may make
certain elections in order to mitigate the effect of these rules and prevent
disqualification of the Funds as regulated investment companies.
It is expected that any net gain realized from the closing out of forward
currency contracts will be considered gain from the sale of securities or
currencies and therefore be qualifying income for purposes of the 90% of gross
income from qualified sources requirement, as discussed above.
The Developing Markets Growth Fund and International Growth Fund may purchase
the securities of certain foreign investment funds or trusts called passive
foreign investment companies. Currently, such funds are the only or primary
means by which the Funds may invest in Hungary and India. In addition to bearing
their proportionate share of the Developing Markets Growth Fund's and
International Growth Fund's expenses (management fees and operating expenses),
shareholders will also bear indirectly similar expenses of such funds. Capital
gains on the sale of such holdings will be deemed to be ordinary income
regardless of how long the Fund holds its investment. In addition, the
Developing Markets Growth Fund and International Growth Fund may be subject to
corporate income tax and an interest charge on certain dividends and capital
gains earned from these investments, regardless of whether such income and gains
are distributed to shareholders.
The foregoing relates only to federal income taxation and is a general summary
of the federal tax law in effect as of the date of this Statement of Additional
Information.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The information contained in the financial statements and annual reports to
shareholders of the Funds is incorporated by reference in this Statement of
Additional Information.
OTHER INFORMATION
- --------------------------------------------------------------------------------
CUSTODIAN; SUB-CUSTODIAN; COUNSEL; ACCOUNTANTS
- --------------------------------------------------------------------------------
The Northern Trust Company, 50 South LaSalle Street, Chicago, IL 60675 acts as
custodian of the Funds' assets and portfolio securities; Dorsey & Whitney LLP,
220 South Sixth Street, Minneapolis, Minnesota 55402, is the independent General
Counsel for the Funds; and KPMG Peat Marwick LLP, 4200 Norwest Center,
Minneapolis, Minnesota 55402, acts as the Funds' independent accountants.
Set forth below is a list of the countries and banks / depositories in which the
assets of the Developing Markets Growth Fund and International Growth Fund may
be held.
COUNTRY BANK/DEPOSITORY
- ------- ---------------
Argentina First National Bank Of Boston
Caja de Valores
Australia Westpac Banking Corporation
Austria Creditanstalt Bankverein
Oesterreichische Kontrollbank AG
30
<PAGE>
COUNTRY BANK/DEPOSITORY
- ------- ---------------
Belgium Banque Bruxelles Lambert
Caisse Interprofessionelle de Depots et de Virement
de Titres - CIK
Brazil First National Bank Of Boston
Bolsa de Valores de Sao Paulo - BOVESPA
Canada Toronto - Dominion Bank
Canadian Depository for Securities - CDS
Chile Citibank
Colombia Cititrust Colombia
Czech Republic Ceskoslovenska Obchodni Banka
Stredisko Cennych Papiru
Denmark Den Danske Bank
Vaerdipapercentralen - VP Center
Finland Merita Bank
France Credit Commercial de France
Societe Interprofessionelle pour la Compensation
des Valeurs Mobilieres - SICOVAM
Banque de France
Germany Dresdner Bank
Greece Barclays Bank
Central Securities Depository
Hong Kong HongKong & Shanghai Bank
Hong Kong Securities Clearing Co. Ltd.
Hungary Citibank Budapest
The Central Depository and Clearing House
India Citibank
Indonesia Standard Chartered Bank
Ireland Allied Irish Bank
The Gilt Settlement Office
Israel Bank Leumi
Italy Banque Paribas
Monte Titoli
Bank of Italy
Japan Mitsubishi Bank
Japan Securities Depository Center
Bank of Japan
Korea Seoul Bank
Korea Securities Depository Corp - KSD
Malaysia Citibank Berhad
Malaysian Central Depository System
Mexico Banco Nacional de Mexico
Instituto para el Deposito de Valores - INDEVAL
Netherlands MeesPierson
Nederlands Centraal Insituut voor Girall
Effectenverkeer B.V. - NECIGEF
New Zealand ANZ Banking Group (New Zealand)
Austraclear New Zealand System
Norway Christiania Bank og Kreditkasse
Verdipapirsentralen - The Norwegian Registry of Securities
Pakistan Citibank
Peru Citibank
Caja do Valores y Liquidaciones - CAVAL
31
<PAGE>
COUNTRY BANK/DEPOSITORY
- ------- ---------------
Philippines HongKong & Shanghai Bank
Poland Bank Handlowy W Warszawie
National Depository for Securities
Portugal Banco Espirito Santo e Commercial
Central do Valores Mobiliarios
Singapore Development Bank of Singapore
The Central Depository Pte Ltd.
South Africa Standard Bank of South Africa
Spain Banco Santender
Servicio de Compensation y Liquidacion de Valores, S.A.
Sri Lanka Standard Chartered Bank
Central Depository System
Sweden Skandinaviska Enskilda Banken
Vardepapperscentralen
Switzerland Bank Leu
Schweizerische Effeckten Giro - SEGA
Taiwan Central Trust of China
Taiwan Securities Central Depository
Thailand Citibank
Share Depository Center - SDC
Turkey Citibank
Settlement & Custody Company
Central Bank of Turkey
United Kingdom The Northern Trust Company
First Chicago Clearing Centre (CDs only)
Central Gilts Office
Venezuela Citibank
LIMITATION OF DIRECTOR LIABILITY
- --------------------------------------------------------------------------------
Under Minnesota law, each director of the Funds owes certain fiduciary duties to
the Funds and to their shareholders. Minnesota law provides that a director
"shall discharge the duties of the position of director in good faith, in a
manner the director reasonably believes to be in the best interest of the
corporation, and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances." Fiduciary duties of a director of a
Minnesota corporation include, therefore, both a duty of "loyalty" (to act in
good faith and act in a manner reasonably believed to be in the best interests
of the corporation) and a duty of "care" (to act with the care an ordinarily
prudent person in a like position would exercise under similar circumstances).
Minnesota law authorizes corporations to eliminate or limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of the fiduciary duty of "care". Minnesota law does not,
however, permit a corporation to eliminate or limit the liability of a director
(i) for any breach of the directors' duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation of
Minnesota law or for violation of certain provisions of Minnesota securities
laws or (iv) for any transaction from which the director derived an improper
personal benefit. The Articles of Incorporation of the Company limit the
liability of directors to the fullest extent permitted by Minnesota statutes,
except to the extent that such liability cannot be limited as provided in the
Investment Company Act of 1940 (which Act prohibits any provisions which purport
to limit the liability of directors arising from such directors' willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon a director. It
only authorizes a corporation to eliminate monetary liability for violations of
that duty. Minnesota law, further, does not permit elimination or limitation of
liability of "officers" to the corporation for breach of their duties as
officers (including the liability of directors who serve as officers for breach
of their duties as officers). Minnesota law does not permit elimination or
limitation of the availability of equitable
32
<PAGE>
relief, such as injunctive or rescissionary relief. Further, Minnesota law does
not permit elimination or limitation of a director's liability under the
Securities Act of 1933 or the Securities Exchange Act of 1934, and it is
uncertain whether and to what extent the elimination of monetary liability would
extend to violations of duties imposed on directors by the Investment Company
Act of 1940 and the rules and regulations adopted under such Act.
The Funds are not required under Minnesota law to hold annual or periodically
scheduled meetings of shareholders. Minnesota corporation law provides for the
Board of Directors to convene shareholder meetings when it deems appropriate.
However, the Funds intend to hold meetings of shareholders annually. In
addition, if a regular meeting of shareholders has not been held during the
immediately preceding fifteen months, a shareholder or shareholders holding
three percent or more of the voting shares of the Funds may demand a regular
meeting of shareholders by written notice of demand given to the chief executive
officer or the chief financial officer of the Funds. Within ninety days after
receipt of the demand, a regular meeting of shareholders must be held at the
expense of the Funds. Irrespective of whether a regular meeting of shareholders
has been held during the immediately preceding fifteen months, in accordance
with Section 16(c) under the 1940 Act, the Board of Directors of the Funds shall
promptly call a meeting of shareholders for the purpose of voting upon the
question of removal of any director when requested in writing so to do by the
record holders of not less than 10 percent of the outstanding shares.
Additionally, the 1940 Act requires shareholder votes for all amendments to
fundamental investment policies and restrictions and for all investment advisory
contracts and amendments thereto. The Funds will assist in communications with
other shareholders as required by Section 16(c) of the 1940 Act.
33
<PAGE>
APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
-------------------------------
Aaa Judged to be the best quality, carry the smallest degree of investment
risk
Aa Judged to be of high quality by all standards
A Possess many favorable investment attributes and are to be considered
as higher medium grade obligations
Baa Medium grade obligations. Lack outstanding investment characteristics.
Ba Judged to have speculative elements. Protection of interest and
principal payments may be very moderate.
B Generally lack characteristics of a desirable investment. Assurance of
interest and principal payments over any long period of time may be
small.
Caa May be present elements of danger with respect to principal or interest
or may be in default
Ca Represent obligations which are speculative in a high degree. Often in
default.
C Lowest class of bonds and issued regarded as having extremely poor
prospects of attaining any real investment standing.
Moody's also applies numerical indicators, 1, 2, and 3, to rating categories
Aa through Ba. The modifier 1 indicates that the security is in the higher
end of the rating category; the modifier 2 indicates a mid-range ranking;
and 3 indicates a ranking toward the lower end of the category.
STANDARD & POOR'S CORPORATION
-----------------------------
AAA Highest grade obligations and possess the ultimate degree of protection
as to principal and interest.
AA Also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in small degree.
A Regarded as upper medium grade, have considerable investment strength
but are not entirely free from adverse effects of changes in economic
and trade conditions, interest and principal are regarded as safe.
BBB Considered investment grade with adequate capacity to pay interest and
repay principal.
BB Judged to be speculative with some inadequacy to meet timely interest
and principal payments.
B Has greater vulnerability to default than other speculative grade
securities. Adverse economic conditions will likely impair capacity or
willingness to pay interest and principal.
CCC Has a vulnerability to default and is dependent upon favorable
business, financial and economic conditions to meet timely payment of
interest and repayment of principal.
CC Applied to debt subordinated to senior debt.
C Applied to debt subordinated to senior debt that is assigned an actual
or implied CCC debt rating.
Standard & Poor's applies indicators "+", no character, and "-" to the above
rating categories AA through BB. The indicators show relative standing
within the major rating categories.
FITCH IBCA
----------
AAA Highest credit quality with exceptional ability to pay interest and
repay principal
AA Investment grade and very high credit quality ability to pay interest
and repay principal is very strong, although not quite as strong as AAA
A Investment grade with high credit quality. Ability to pay interest and
repay principal is strong.
BBB Investment grade and has satisfactory credit quality. Adequate ability
to pay interest and repay principal.
BB Considered speculative. Ability to pay interest and repay principal may
be affected over time by adverse economic changes.
B Considered highly speculative. Currently meeting interest and principal
obligations, but probability of continued payment reflects limited
margin of safety.
CCC Identifiable characteristics which if not remedied may lead to default.
Ability to meet obligations requires an advantageous business and
economic environment.
CC Minimally protected bonds. Default in payment of interest and/or
principal seems probable over time.
C Imminent default in payment of interest or principal
+ and - indicators indicate the relative position within the rating
category, but are not used in AAA category.
34
<PAGE>
DUFF & PHELPS CREDIT RATING CO.
-------------------------------
AAA Highest credit quality, risk factors are negligible
AA+, AA, AA- High credit quality with moderate risk
A+, A, A- Protection factors are average but adequate, however, risk
factors are more variable and greater in periods of economic
stress
BBB+,BBB,BBB- Below average protection factors, but still considered
sufficient for prudent investment
BB+,BB,BB- Below investment grade but likely to meet obligations when
due.
B+,B,B- Below investment grade and possessing risk that obligations
will not be met when due.
CCC Well below investment grade. May be in default or considerable
uncertainty as to timely payment of interest and/or principal.
COMMERCIAL PAPER RATINGS
MOODY'S
-------
Commercial paper rated "Prime" carries the smallest degree of investment
risk. The modifiers 1, 2, and 3 are used to denote relative strength within
this highest classification.
STANDARD & POOR'S
-----------------
The rating A-1 is the highest commercial paper rating assigned by Standard &
Poor's Corporation. The modifier "+" indicates that the security is in the
higher end of this rating category.
FITCH'S
-------
F-1+ Exceptionally strong credit quality
DUFF & PHELPS'
--------------
Category 1 (top grade):
Duff1+ Highest certainty of timely payment
Duff1 Very high certainty of timely payment
Duff1- High certainty of timely payment
35
<PAGE>
PART C
OTHER INFORMATIO
Item 24. Financial Statements and Exhibits
(a) Financial Statements (incorporated by reference in Part B of this
Registration Statement).
(b) Exhibits (Explanatory Note: This Registration Statement contains the
combined Part C for Sit Large Cap Growth Fund, Inc., Sit Mid Cap
Growth Fund, Inc., and Sit Mutual Funds, Inc.).
1. Articles of Incorporation
(a) Sit Large Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
(b) Sit Mid Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
(c) Sit Mutual Funds, Inc.
(Incorporated by reference to Post-Effective Amendment No. 3 to
the Fund's Registration Statement.)
2. Bylaws
(a) Sit Large Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
(b) Sit Mid Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
(c) Sit Mutual Funds, Inc. (Incorporated by reference to
Post-Effective Amendment No. 10 to the Fund's Registration
Statement.)
4. Specimen Copy of Share Certificate
(a) Sit Large Cap Growth Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 3 to
the Fund's Registration Statement.)
(b) Sit Mid Cap Growth Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 3 to
the Fund's Registration Statement.)
(c) Sit Mutual Funds, Inc.
(Incorporated by reference to the Fund's original Registration
Statement.)
5.1 Form of Investment Management Agreement
(a) Sit Large Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
(b) Sit Mid Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
(c) Sit Mutual Funds, Inc.
(Incorporated by reference to Post-Effective Amendment No. 2 to
the Fund's Registration Statement.)
5.2 Sub-Advisory Agreement - Sit Mutual Funds, Inc.
(Incorporated by reference to Post-Effective Amendment No. 2 to
the Fund's Registration Statement.)
6. Underwriting and Distribution Agreement
(a) Sit Large Cap Growth Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 17 to
the Fund's Registration Statement.)
(b) Sit Mid Cap Growth Fund, Inc.
<PAGE>
(Incorporated by reference to Post-Effective Amendment No. 17 to
the Fund's Registration Statement.)
(c) Sit Mutual Funds, Inc.
(Incorporated by reference to Post-Effective Amendment No. 6 to
the Fund's Registration Statement.)
8.1 Form of Custodian Agreement
(a) Sit Large Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
(b) Sit Mid Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
(c) Sit Mutual Funds, Inc. (Incorporated by reference to
Post-Effective Amendment No. 10 to the Fund's Registration
Statement.)
8.2 Transfer Agency and Services Agreement
(a) Sit Large Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
(b) Sit Mid Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
(c) Sit Mutual Funds, Inc. (Incorporated by reference to
Post-Effective Amendment No. 10 to the Fund's Registration
Statement.)
8.3 Accounting Services Agreement
(a) Sit Large Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
(b) Sit Mid Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
(c) Sit Mutual Funds, Inc. (Incorporated by reference to
Post-Effective Amendment No. 10 to the Fund's Registration
Statement.)
10. Opinions and Consents of Dorsey & Whitney
(a) Sit Large Cap Growth Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 13 to
the Fund's Registration Statement.)
(b) Sit Mid Cap Growth Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 13 to
the Fund's Registration Statement.)
(c) Sit Mutual Funds, Inc.
(Incorporated by reference to Pre-Effective Amendment No. 1 to
the Fund's original Registration Statement.)
11. Consent of KPMG Peat Marwick
(a) Sit Large Cap Growth Fund, Inc. (Filed herewith.)
(b) Sit Mid Cap Growth Fund, Inc. (Filed herewith.)
(c) Sit Mutual Funds, Inc. (Filed herewith.)
13. Letter of Investment Intent
(a) Sit Large Cap Growth Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 14 to
the Fund's Registration Statement.)
(b) Sit Mid Cap Growth Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 14 to
the Fund's Registration Statement.)
C-2
<PAGE>
(c) Sit Mutual Funds, Inc.
(Incorporated by reference to Post-Effective Amendment No. 2 to
the Fund's original Registration Statement.)
16. Calculations of Performance Data
(a) Sit Large Cap Growth Fund, Inc. (Filed herewith.)
(b) Sit Mid Cap Growth Fund, Inc. (Filed herewith.)
(c) Sit Mutual Funds, Inc. (Filed herewith.)
17. Powers of Attorney
(a) Sit Large Cap Growth Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 19 to
the Fund's Registration Statement.)
(b) Sit Mid Cap Growth Fund, Inc.
(Incorporated by reference to Post-Effective Amendment No. 19 to
the Fund's Registration Statement.)
(c) Sit Mutual Funds, Inc.
(Incorporated by reference to Post-Effective Amendment No. 9 to
the Fund's Registration Statement.)
Item 25. Persons Controlled by or Under Common Control with Registrant
See the section of the Prospectus entitled "Management" and the section of
the Statement of Additional Information entitled "Investment Adviser."
Item 26. Number of Holders of Securities
The number of holders of shares of each Registrant as of June 30, 1998 are:
Fund Title of Class Record Holders
---- -------------- --------------
Large Cap Growth Fund Common Stock 1,563
Mid Cap Growth Fund Common Stock 6,630
International Growth Fund Common Stock, Series A 1,917
Balanced Fund Common Stock, Series B 189
Developing Markets Growth Fund Common Stock, Series C 520
Small Cap Growth Fund Common Stock, Series D 1,577
Science and Technology Growth Fund Common Stock, Series E 345
Regional Growth Fund Common Stock, Series F 360
Item 27. Indemnification
Each Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify such persons, for such expenses and liabilities, in
such manner, under such circumstances, and to such extent as permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended;
provided, however, that no such indemnification may be made if it would be in
violation of Section 17(h) of the Investment Company Act of 1940, as now enacted
or hereinafter amended, and any rules, regulations or releases promulgated
thereunder.
Each Registrant may indemnify its officers and directors and other
"persons" acting in an "official capacity" (as such terms are defined in Section
302A.521) pursuant to a determination by the board of directors or shareholders
of the Registrant as set forth in Section 302A.521, by special legal counsel
selected by the board or a committee thereof for the purpose of making such a
determination, or by a Minnesota court upon application of the person seeking
indemnification. If a director is seeking indemnification for conduct in the
capacity of director or officer of a
C-3
<PAGE>
Registrant, then such director generally may not be counted for the purpose of
determining either the presence of a quorum or such director's eligibility to be
indemnified.
In any case, indemnification is proper only if the eligibility determining
body decides that the person seeking indemnification:
(a) has not received indemnification for the same conduct from any other
party or organization;
(b) acted in good faith;
(c) received no improper personal benefit;
(d) in the case of criminal proceedings, had no reasonable cause to
believe the conduct was unlawful;
(e) reasonably believed that the conduct was in the best interest of a
Registrant, or in certain contexts, was not opposed to the best
interest of a Registrant; and
(f) had not otherwise engaged in conduct which precludes indemnification
under either Minnesota or Federal law (including, but not limited to,
conduct constituting willful misfeasance, bad faith, gross negligence,
or reckless disregard of duties as set forth in Section 17(h) and (i)
of the Investment Company Act of 1940).
If a person is made or threatened to be made a party to a proceeding, the
person is entitled, upon written request to a Registrant, to payment or
reimbursement by a Registrant of reasonable expenses, including attorneys' fees
and disbursements, incurred by the person in advance of the final disposition of
the proceeding, (a) upon receipt by a Registrant of a written affirmation by the
person of a good faith belief that the criteria for indemnification set forth in
Section 302A.521 have been satisfied and a written undertaking by the person to
repay all amounts so paid or reimbursed by the Registrant, if it is ultimately
determined that the criteria for indemnification have not been satisfied, and
(b) after a determination that the facts then known to those making the
determination would not preclude indemnification under Section 302A.521. The
written undertaking required by clause (a) is an unlimited general obligation of
the person making it, but need not be secured and shall be accepted without
reference to financial ability to make the repayment.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of a
Registrant pursuant to the foregoing provisions, or otherwise, each Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by a Registrant of expenses incurred or
paid by a director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Each Registrant undertakes to comply with the indemnification requirements
of Investment Company Release 7221 (June 9, 1972) and Investment Company Release
11330 (September 2, 1980).
Item 28. Business and other Connections of Investment Adviser
Sit Investment Associates, Inc. (the "Adviser"), serves as the investment
adviser. Sit/Kim International Investment Associates, Inc. (the "Sub-Adviser")
serves as the Sub-Adviser of the Series A and Series C of Sit Mutual Funds, Inc.
Below is a list of the officers and directors of the Adviser and the Sub-Adviser
and their business/employment during the past two years.
Business and Employment During Past Two Years;
Name Principal Business Address
- ---- ----------------------------------------------------
Eugene C. Sit Chairman, CEO, CIO and Treasurer of the Adviser;
Chairman and CEO of the Sub-Adviser; Director of SIA
Securities Corp. (the "Distributor"); Chairman &
Director all Sit Mutual Funds.
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<PAGE>
Business and Employment During Past Two Years;
Name Principal Business Address
- ---- ----------------------------------------------------
Peter L. Mitchelson President and Director of the Adviser; Director and
Executive Vice President of the Sub-Adviser; Senior
Portfolio Manager of the Sit Large Cap Growth Fund;
Vice Chairman & Director of all Sit Mutual Funds.
Michael C. Brilley Senior Vice President and Senior Fixed Income
Officer of the Adviser; Director and Senior Vice
President of Sit U.S. Government Securities Fund,
Inc., Sit Money Market Fund, Inc., and Sit Mutual
Funds II, Inc.
Frederick Adler Director of the Adviser; Venture Capitalist,
Managing Partner,
Venad Management, Inc.
1520 S. Ocean Boulevard
Palm Beach, FL 33480
Norman Bud Grossman Director of the Adviser; President, Cogel
Management;
4670 Norwest Center
Minneapolis MN 55402
William E. Frenzel Advisory Director of the Adviser; Director of
Sub-Adviser; Director of all Sit Mutual Funds, Guest
Scholar at the Brookings Institution
1775 Massachusetts Avenue N.W.
Washington, D.C. 20036
Roger J. Sit Senior Vice President of the Adviser and
Sub-Adviser; Vice President and Senior
Equity Research Analyst for Goldman Sachs & Company
until January, 1998
Erik S. Anderson Vice President - Equity Research and Portfolio
Management of the Adviser
John K. Butler Vice President - Equity Research of the Adviser
Michael P. Eckert Vice President - Mutual Fund Sales of the Adviser
John T. Groton, Jr. Vice President - Equity Research of the Adviser
Paul E. Rasmussen Vice President, Secretary and Controller of the
Adviser and the Sub-Adviser; President and Treasurer
of the Distributor; Vice President and Treasurer of
all Sit Mutual Funds.
Debra A. Sit Vice President - Fixed Income Research and Portfolio
Management of the Adviser; Officer of all Sit Mutual
Funds; Assistant Treasurer and Assistant Secretary
of the Sub-Adviser
Ronald D. Sit Vice President - Equity Research and Portfolio
Management of the Adviser
Mary K. Stern Vice President of the Adviser; President of all Sit
Mutual Funds
Andrew B. Kim Director & President of the Sub-Adviser
375 Park Avenue, Suite 1909
New York, NY 10152
C-5
<PAGE>
Business and Employment During Past Two Years;
Name Principal Business Address
- ---- ----------------------------------------------------
Charles W. Battey Director of the Sub-Adviser
7500 West 110th Street
Overland Park, KS 66210
David L. Redo Director of the Sub-Adviser; Managing Director of
Fremont Investment Advisors, Inc.
333 Market Street, Suite 2600
San Francisco, CA 94105
Item 29.Principal Underwriters
The Distributor for each Registrant is SIA Securities Corp., 4600 Norwest
Center, Minneapolis, MN 55402, an affiliate of the Adviser. The Distributor
distributes only shares of each Registrant.
Below is a list of the officers and directors of the Distributor and their
business/employment during the past two years:
Business and Employment During Past Two Years;
Name Principal Business Address
- ---- ----------------------------------------------------
Eugene C. Sit Chairman, CEO, CIO and Treasurer of the Adviser;
Director Chairman, CEO and CIO of the Sub-Adviser; Director
of the Distributor; Chairman & Director all Sit
Mutual Funds.
Peter L. Mitchelson President and Director of the Adviser; Director and
Director Executive Vice President of the Sub-Adviser; Senior
Portfolio Manager of the Sit Large Cap Growth Fund;
Director of the Distributor; Vice Chairman &
Director of all Sit Mutual Funds.
Paul E. Rasmussen Vice President, Secretary and Controller for the
President & Treasurer Adviser and Sub-Adviser; President and Treasurer of
the Distributor; Vice President & Treasurer of all
Sit Mutual Funds
Item 30. Location of Accounts and Records
The Custodian for each Registrant is The Northern Trust Company, 50 South
LaSalle Street, Chicago, IL 60675. The Transfer Agent for each Registrant is
First Data Investor Services, 4400 Computer Drive, Westboro, MA 01581. Other
books and records are maintained by the Adviser, which is located at 4600
Norwest Center, Minneapolis, MN 55402 and the Sub-Adviser, which is located at
the same address.
Item 31. Management Services
Not applicable
Item 32. Undertakings
(a) Not applicable
(b) Not applicable
(c) Each Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a director if
requested to do so by the holders of at least 10% of such Registrant's
outstanding shares and to assist in communications with other
shareholders as required by Section 16(c) of the Investment Company
Act of 1940.
(d) Each Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunder
duly authorized, in the City of Minneapolis, State of Minnesota, on the 28th day
of August, 1998.
SIT LARGE CAP GROWTH FUND, INC.
(Registrant)
By /s/ Eugene C. Sit
-----------------------------
Eugene C. Sit, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature and Title
-------------------
/s/ Eugene C. Sit Dated: August 28, 1998
- ---------------------------------------------
Eugene C. Sit Chairman
(Principal Executive Officer and Director)
/s/ Paul E. Rasmussen Dated: August 28, 1998
- ---------------------------------------------
Paul E. Rasmussen, Treasurer
(Principal Financial Officer and Accounting Officer)
William E. Frenzel, Director*
John E. Hulse, Director*
Sidney L. Jones, Director*
Peter L. Mitchelson, Director*
Donald W. Phillips, Director*
*By /s/ Eugene C. Sit Dated: August 28, 1998
------------------------------------------
Eugene C. Sit, Attorney-in-fact
(Pursuant to Powers of Attorney filed
previously with the Commission.)
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunder
duly authorized, in the City of Minneapolis, State of Minnesota, on the 28th day
of August, 1998.
SIT MID CAP GROWTH FUND, INC.
(Registrant)
By /s/ Eugene C. Sit
-----------------------------
Eugene C. Sit, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature and Title
-------------------
/s/ Eugene C. Sit Dated: August 28, 1998
- ---------------------------------------------
Eugene C. Sit Chairman
(Principal Executive Officer and Director)
/s/ Paul E. Rasmussen Dated: August 28, 1998
- ---------------------------------------------
Paul E. Rasmussen, Treasurer
(Principal Financial Officer and Accounting Officer)
William E. Frenzel, Director*
John E. Hulse, Director*
Sidney L. Jones, Director*
Peter L. Mitchelson, Director*
Donald W. Phillips, Director*
*By /s/ Eugene C. Sit Dated: August 28, 1998
------------------------------------------
Eugene C. Sit, Attorney-in-fact
(Pursuant to Powers of Attorney filed
previously with the Commission.)
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunder
duly authorized, in the City of Minneapolis, State of Minnesota, on the 28th day
of August, 1998.
SIT MUTUAL FUNDS, INC.
(Registrant)
By /s/ Eugene C. Sit
-----------------------------
Eugene C. Sit, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature and Title
-------------------
/s/ Eugene C. Sit Dated: August 28, 1998
- ---------------------------------------------
Eugene C. Sit Chairman
(Principal Executive Officer and Director)
/s/ Paul E. Rasmussen Dated: August 28, 1998
- ---------------------------------------------
Paul E. Rasmussen, Treasurer
(Principal Financial Officer and Accounting Officer)
William E. Frenzel, Director*
John E. Hulse, Director*
Sidney L. Jones, Director*
Peter L. Mitchelson, Director*
Donald W. Phillips, Director*
*By /s/ Eugene C. Sit Dated: August 28, 1998
------------------------------------------
Eugene C. Sit, Attorney-in-fact
(Pursuant to Powers of Attorney filed
previously with the Commission.)
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<PAGE>
REGISTRATION STATEMENT ON FORM N-1A
EXHIBIT INDEX
EXHIBIT NO. NAME OF EXHIBIT PAGE NO.
- ----------- --------------- --------
11 Independent Auditors' Consent C-11
16 Calculations of Performance Data C-12
C-10
EXHIBIT 11
Independent Auditors' Consent
To Board of Directors
Sit Mutual Funds, Inc.
Sit Large Cap Growth Fund, Inc.
Sit Mid Cap Growth Fund, Inc.
We consent to the use of our report dated August 21, 1998 incorporated herein by
reference and to the references to our Firm under the headings "Financial
Highlights" in Part A and "Custodian; Sub-custodian; Counsel; Accountants" in
Part B of the Registration Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 28, 1998
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EXHIBIT 16
Calculations of Performance Data
Average Annual Total Return for the period ended June 30, 1998
P(1+T)^n = ERV
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Year:
Mid Cap Large Cap Int'l Small Cap Developing Mkts Regional Science and
Growth Growth Growth Balanced Growth Growth Growth Tech. Growth
Fund Fund Fund Fund Fund Fund Fund Fund
P = 1,000 1,000 1,000 1,000 1,000 1,000 n/a n/a
n = 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 n/a n/a
ERV = 1,221.876 1,353.269 1,075.045 1,239.465 1,117.011 694.805 n/a n/a
T = 22.187555% 35.326860% 7.504487% 23.946545% 11.701090% -30.519483% n/a n/a
(n/a = not in operation during period)
Five Years:
Mid Cap Large Cap Int'l Small Cap Developing Mkts Regional Science and
Growth Growth Growth Balanced Growth Growth Growth Tech. Growth
Fund Fund Fund Fund Fund Fund Fund Fund
P = 1,000 1,000 1,000 n/a n/a n/a n/a n/a
n = 5.00000 5.00000 5.00000 n/a n/a n/a n/a n/a
ERV = 2,333.896 2,800.417 1873.512734 n/a n/a n/a n/a n/a
T = 18.472157% 22.869629% 13.378663% n/a n/a n/a n/a n/a
(n/a = not in operation during period)
Ten Years:
Mid Cap Large Cap Int'l Small Cap Developing Mkts Regional Science and
Growth Growth Growth Balanced Growth Growth Growth Tech. Growth
Fund Fund Fund Fund Fund Fund Fund Fund
P = 1,000 1,000 n/a n/a n/a n/a n/a n/a
n = 10.00000 10.00000 n/a n/a n/a n/a n/a n/a
ERV = 4,772.075 4,920.553 n/a n/a n/a n/a n/a n/a
T = 16.915133% 17.273906% n/a n/a n/a n/a n/a n/a
(n/a = not in operation during period)
Since Inception:
Mid Cap Large Cap Int'l Small Cap Developing Mkts Regional Science and
Growth Growth Growth Balanced Growth Growth Growth Tech. Growth
Fund Fund Fund Fund Fund Fund Fund Fund
P = 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
n = 15.83562 15.83562 6.66575 4.49863 4.00000 4.00000 0.49589 0.49589
ERV = 16,267.721 12,285.631 2,252.663 2,023.322 2,234.711 911.649 1,126.000 1,177.000
T = 19.259723% 17.163980% 12.956625% 16.959407% 22.265898% -2.285972% n/a n/a
Incept.
Date: 9/2/82 9/2/82 11/1/91 12/31/93 7/1/94 7/1/94 12/31/97 12/31/97
</TABLE>
C-12
